Dnow Inc. Q1 FY2026 earnings call

Today, our priority is to reinforce the fundamental strengths of the business by reclaiming, safeguarding, and expanding revenue streams that optimize earnings, support growth, and durable pre-cash flow. We are pursuing opportunities where customers clearly perceive differentiated value, avoiding commoditization to drive higher gross margins through an efficient operating model and achieve stronger flow-through to profitability. We are actively addressing the defined set of customer relationships where revenue attrition has been the most acute, implementing targeted account-level initiatives aimed at arresting leakage while ensuring the economics of those relationships are aligned. We have an ample supply of inventory and are aligning inventory with demand to drive cash generation in 2026. We have targeted efforts to speed collections currently aggravated by ERP challenges to produce cash. We are aligning our cost structure with revenue on a phased basis to maximize revenue recovery, maintain organization agility in response to market dynamics. Alongside this focus on the fundamentals, we are executing a set of offensive initiatives designed to grow revenues and expand market share. An important opportunity lies in the growth of midstream feed gas infrastructure driven by rising power generation needs, particularly from expanding data centers, while we simultaneously increase our broader exposure to midstream markets in line with continued investment in natural gas infrastructure supported by power demand and growing LNG exports. This growth highlights the need for midstream PBF infrastructure to support additional demand. Our products and service offerings match both current and future investments, putting us in a strong position to benefit from this multi-year demand trend. At the data center level, we are successfully targeting opportunities to supply industrial PVF and pumps that are critical to cooling systems and associated infrastructure. We are also ramping revenue opportunities tied to gas meters through our in-tech solution to grow, share, and gas utilities, a sector we expect to continue expanding. We are focused on unlocking revenue synergies across the portfolio by extending process solutions pump products into downstream markets, expanding fabrication capabilities into gas utilities, and increasing ecovapor product penetration in Europe

U.S. revenue for Q1 2026 was $985 million, an increase of 220 million or 29% from Q4 2025 and up $511 million year over year. Upstream contributed approximately 37% to total U.S. revenue in Q1, followed by gas utility at 27%, midstream at 20%, and downstream and industrial at 16%. Canada revenue in Q1 totaled $51 million, flat sequentially. International revenue was $147 million in Q1, up $4 million, or 3% sequentially. Adjusted gross profit for Q1 was $256 million, or 21.6% compared to $217 million, or 22.6% in Q4 2025. SG&A expense for Q1 was $243 million compared to $226 million in Q4. The U.S. reported a $54 million operating loss, international delivered $3 million operating profit, and the Canadian segment reported $1 million of operating profit. Adjusted EBITDA for the first quarter was $39 million, or 3.3% of revenue, down $22 million sequentially. Interest expense in Q1 was $8 million compared to $4 million in Q4. Net loss attributable to D-NOW for the first quarter was a loss of $44 million, while adjusted non-GAAP net income attributable to D-NOW was $3 million

2026 is a transition year, focused on execution of both D-NOW's home field and emerging markets alongside merger benefit realization. We expect sequential second quarter growth in the U.S. as we continue on our path to stabilize and optimize ERP issues for our U.S. businesses. We also expect sequential growth in the international segment. In Canada, seasonal factors are expected to result in a sequential revenue decline. Historically, second quarter breakup conditions have driven an approximate 20% decrease from first quarter levels. However, we expect the decrease to be less pronounced this year. Taken together, we expect D-NOW's second quarter revenues to be up sequentially in the mid to high single-digit percentage range from the first quarter, with EBITDA flow-throughs to revenue approaching 25% at this revenue growth rate, well above our normal expected flow-throughs of 10% to 15%. On a full year basis, we expect 2026 revenues to approach $5 billion, with EBITDA as a percentage of revenue to approach 4.5%. In closing, I am confident that the overall D-NOW business has bottomed in 1Q26, and we expect EBITDA dollars to improve as we progress throughout the year when compared to the first quarter. Finally, we anticipate 2026 full-year cash-from-operating activities could range from 100 to 200 million

ERP challenges impacting collections and incurring costs. Temporary costs to stabilize ERP system, including ongoing stabilization costs and additional overtime, temp, and warehouse costs. Revenue attrition in certain customer relationships

Q: First on the ERP optimization, could you quantify the impact of the temporary cost to stabilize the ERP system in 2026? What additional resources are required to optimize the system? And how long in duration do you expect these temporary costs to persist?

A: Stabilization costs are around $4.5 million a quarter, stable for much of the year. Additional costs include ~$4 million a quarter for overtime, temps, and warehouse people (now down to ~115 from 200). Expect $4.5 million a quarter to be stable, $2 million for overtime, etc., to come down. Characterize Oracle platform as stabilized, expect progress by year-end but exact end date unknown, with 2027 seeing real change.

Q: If we look ahead into the near medium term future, say the temporary ERP issue costs are resolved, how should we think about the normalized earning potential of the business?

A: Strength in midstream (growth there, combining MRC and D-NOW talents), gas utilities (expect growth in 2026 as service improves), upstream and midstream to gain market share. 2027 expected to see meaningful system improvements, revenue growth in 7% range, adjusted gross margins improve by 30 basis points, SG&A more efficient, aiming for $350 million EBITDA.

Q: Do you want to find the potential improvement in working capital by year end? Any chance you could bracket the revenue opportunity in the data center sector? Any potential uplift from project opportunities in next six, nine months?

A: Potential to generate $100 million by reducing inventory by year end, $50 million from AR collections. Data center revenue opportunity in 2026 is ~$30 million range. No large international projects like 200 million one in next six/nine months, but seeing increased bidding in U.S. projects.

Q: Touched on expenses, EBITDA impact from lost revenues. Cash flow from operations range $100 to $200 million. Thoughts on what needs to happen for bottom/top end of range. Upstream market inquiries picking up?

A: Bottom end likely from faster collections and inventory declines, top end dependent on inventory reduction. Upstream opportunity to recoup lost activity during ERP disruption, biggest in Permian where combined organizations can recoup revenue, expecting some benefits as oil prices and smaller firms/independents start spending