DNOW Q1 Earnings Call Highlights

Key Points

• DNOW’s first full quarter after combining with MRC Global was weighed down by ERP integration costs and merger-related charges, leading to a net loss of $44 million and lower adjusted EBITDA sequentially. Management said the system is now stabilized and business execution is improving.
• Revenue jumped to $1.2 billion, up 23% sequentially, largely from the MRC Global contribution, but on a comparable basis combined revenue still fell year over year, with the biggest weakness in MRC Global’s U.S. business. DNOW said it has already migrated Permian operations to SAP and plans more location moves this quarter.
• Management raised its 2026 synergy target to about $30 million from the original first-year run-rate estimate of $17 million, while keeping the three-year target at $70 million. DNOW also expects second-quarter revenue growth and full-year 2026 revenue near $5 billion, with EBITDA margin approaching 4.5%.

DNOW NYSE: DNOW said its first full quarter as a combined company with MRC Global was marked by integration work, temporary costs tied to enterprise resource planning systems and a sequential decline in adjusted earnings, even as management pointed to improving operations and stronger revenue prospects later in 2026.

President and Chief Executive Officer David Cherechinsky told investors that the company’s teams have been focused on merger integration and two parallel ERP initiatives: stabilizing MRC Global’s U.S. ERP platform and accelerating the migration of selected MRC Global locations to DNOW’s SAP platform.

“At this point, the system is stabilized to a level that allows us to conduct business, though it is not yet optimized,” Cherechinsky said. He added that DNOW has removed “much of the ERP-related friction” and is seeing improvements in system responsiveness, service levels and operating cadence.

First-quarter revenue rises with MRC Global contribution

Senior Vice President and Chief Financial Officer Mark Johnson said total first-quarter 2026 revenue was $1.2 billion, up 23%, or $224 million, from the fourth quarter of 2025 and up $584 million from the year-earlier quarter. The increase was primarily driven by a full-quarter contribution from MRC Global.

On a comparable basis using the two companies’ separately reported first-quarter 2025 figures, Johnson said combined first-quarter revenue declined by $128 million year over year. About three-quarters of that decline was attributable to MRC Global’s U.S. business, where upstream and downstream end markets experienced the largest drops.

U.S. revenue was $985 million, up $220 million, or 29%, from the prior quarter. Johnson said the U.S. revenue mix in the first quarter was approximately 37% upstream, 27% gas utility, 20% midstream and 16% downstream and industrial. Canada revenue was flat sequentially at $51 million, while international revenue rose 3% sequentially to $147 million.

Adjusted gross profit was $256 million, or 21.6% of revenue, compared with $217 million, or 22.6%, in the fourth quarter. Johnson attributed the margin decline to MRC Global’s historically lower gross margin profile, reduced higher-margin international project sales and U.S. margin compression as MRC Global works to better recover costs related to tariffs, freight and pricing.

Adjusted EBITDA was $39 million, or 3.3% of revenue, down $22 million sequentially. Johnson said the decline reflected MRC Global U.S. operating at a loss, lower international profit contribution after a prior project revenue cycle ended and higher bad debt expense.

DNOW reported a net loss attributable to the company of $44 million, or $0.24 per diluted share. Johnson said the loss was affected by $41 million in inventory step-up amortization charges related to the merger, reduced margins and higher SG&A expenses. On an adjusted non-GAAP basis, DNOW reported adjusted net income of $3 million, or $0.01 per diluted share.

ERP work remains central to 2026 transition

Cherechinsky said MRC Global’s U.S. business represented approximately half of DNOW’s U.S. revenue and 42% of consolidated global revenue in the first quarter, making the ERP stabilization effort a critical priority.

DNOW has migrated all MRC Global Permian operations to its optimized SAP platform as of late April, Cherechinsky said. He said the move has made approximately $40 million of additional MRC Global inventory visible and deployable, supporting faster fulfillment and improved service levels.

The company plans to migrate 14 additional upstream and midstream locations, with about half targeted for completion in the second quarter. Cherechinsky said many of those moves also involve facility consolidations, contributing to cost synergies earlier than initially expected.

In response to an analyst question, Cherechinsky said costs for teams working to stabilize and enhance the MRC Global platform are about $4.5 million per quarter and are expected to remain fairly stable for much of the year. Additional overtime, temporary labor and warehouse staffing costs are about $4 million per quarter, though he said those costs should decline as operations improve.

Synergy outlook raised, three-year target unchanged

DNOW raised its annualized synergy expectation for 2026 to approximately $30 million, above its original estimate of $17 million in run-rate savings by the end of the first year. Cherechinsky said the increase reflects a pull-forward of timing, not a change in scope. The company’s three-year annualized synergy target remains $70 million.

Management said revenue declines at MRC Global U.S. were concentrated across roughly two dozen customers, providing what Cherechinsky described as “clear line of sight” for targeted recovery efforts. He said upstream, midstream and gas utilities are areas where DNOW is more optimistic about recovering revenue, while downstream industrial is expected to be more difficult.

Cherechinsky also highlighted midstream demand tied to natural gas infrastructure, LNG-related export activity, power generation and data center load growth. In the data center market, he said DNOW has generated orders in the $30 million range, most of which are expected to ship this year.

Cash flow, buybacks and debt in focus

DNOW used $95 million in operating cash during the first quarter, primarily due to working capital changes and payments of merger-related costs, including change-of-control severance payments. Johnson said the company typically consumes cash in the first quarter and expects improved cash generation in the second half of the year.

The company ended the quarter with $571 million in total debt and $455 million in net debt. Total liquidity was $379 million, including $263 million of availability under its revolving credit facility and $116 million in cash.

DNOW repurchased $50 million of stock during the quarter, retiring 4.2 million shares. Cherechinsky said the company used debt for the first time in its history to fund share repurchases, citing management’s view that the stock traded at a meaningful discount to intrinsic value following market concerns over ERP conversion challenges. DNOW has repurchased $87 million under its current $160 million authorization and $167 million across its current and prior programs since late 2022.

Management expects sequential improvement

For the second quarter, DNOW expects revenue to rise sequentially in the mid- to high-single-digit percentage range. Cherechinsky said the company expects growth in the U.S. and international segments, partially offset by a seasonal decline in Canada. EBITDA flow-through on that revenue growth is expected to approach 25%, above the company’s normal 10% to 15% range.

For full-year 2026, DNOW expects revenue to approach $5 billion and adjusted EBITDA margin to approach 4.5% of revenue. The company also expects full-year cash from operating activities to range from $100 million to $200 million.

“I am confident that the overall DNOW business has bottomed in 1Q 2026,” Cherechinsky said, adding that EBITDA dollars are expected to improve as the year progresses.

About DNOW NYSE: DNOW

DistributionNOW NYSE: DNOW is a global distributor of energy and industrial products, serving a broad range of end-markets including oil and gas, petrochemical, power generation, and industrial manufacturing. Headquartered in Houston, Texas, the company provides solutions across the life cycle of energy and industrial assets, with an emphasis on safety, reliability and operational efficiency.

The company’s core product portfolio includes piping systems and related components (such as valves, fittings, flanges and gaskets), instrumentation, electrical and automation equipment, fasteners, industrial safety supplies, chemicals and composite products.

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