DNOW Q1 2026 Earnings Call Summary

1. Key Financial Results and Metrics

Total Revenue: $1.2 billion, up 23% sequentially and up 96% year-over-year, primarily due to the full quarter contribution from MRC Global.
U.S. Revenue: $985 million, a 29% increase from Q4 2025 and a $511 million increase year-over-year.
Adjusted EBITDA: $39 million, representing 3.3% of revenue, down from the previous quarter due to MRC Global's operational losses and increased costs.
Net Loss: $44 million, or $0.24 per diluted share, impacted by $41 million in inventory step-up charges and increased SG&A expenses.
Cash Flow: Net cash used in operating activities was $95 million, with expectations of generating $100 million to $200 million in cash from operations for the full year.

2. Strategic Updates and Business Highlights

Merger Integration: Focus on stabilizing and optimizing the ERP systems post-MRC Global merger, with significant progress reported in U.S. operations.
Inventory Management: Approximately $40 million of additional MRC Global inventory is now accessible, enhancing service levels and fulfillment capabilities.
Acquisition: Acquired Edge Controls, enhancing capabilities in automation and control, which is expected to benefit various end markets.
Cost Synergies: Annualized synergy expectations raised to about $30 million, up from an initial estimate of $17 million.

3. Forward Guidance and Outlook

Q2 2026 Expectations: Anticipate mid- to high single-digit revenue growth sequentially, with EBITDA flow-throughs expected to be around 25% of revenue growth.
Full Year 2026 Outlook: Projecting revenues to approach $5 billion with EBITDA as a percentage of revenue nearing 4.5%. Cash from operations is expected to range from $100 million to $200 million.
Long-term View: Confidence in returning to growth in 2027, with potential revenue growth of around 7% as ERP issues are resolved and market conditions stabilize.

4. Bad News, Challenges, or Points of Concern

ERP Challenges: Ongoing issues with the ERP system have led to increased operational costs and inefficiencies, impacting revenue and profitability.
MRC Global Revenue Decline: Standalone MRC Global U.S. revenues decreased by 16% year-over-year, primarily due to upstream and downstream market pressures and ERP disruptions.
Cash Flow Pressures: The first quarter typically sees cash consumption due to working capital timing, exacerbated by ERP-related challenges.
Market Conditions: Downstream sector recovery is expected to be more challenging, with general market declines affecting performance.

5. Notable Q&A Insights

ERP Optimization Costs: Stabilization costs are approximately $4.5 million per quarter, with additional temporary costs related to overtime and staffing. Expected to stabilize by year-end 2026.
Working Capital Improvement: Potential to generate $100 million by reducing excess inventory and $50 million from improved accounts receivable collections.
Midstream Growth Potential: Strong growth anticipated in midstream markets, supported by increased customer investments in natural gas infrastructure.
Future Revenue Opportunities: Data center demand is expected to generate at least $30 million in revenue this year, with growth anticipated as relationships and inventory positions improve.

Overall, while DNOW faces challenges related to ERP integration and market conditions, management expresses confidence in recovery and growth opportunities, particularly in midstream and gas utility sectors.

DNOW — Dnow Inc.