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01/11 18:38
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Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
The earnings call reveals strong financial performance with record EBITDA, solid free cash flow, and a debt-free balance sheet. Despite some regional revenue declines, overall growth is evident. The Q&A session highlights strategic growth areas like electrification and AI, and the company remains focused on integration and diversification. While management's guidance remains cautious, the strong current metrics and shareholder returns suggest a positive stock price movement, especially for a small-cap company.
Revenue $628 million for Q2 2025, up 5% from Q1 2025 and up 3% year-over-year. The increase was driven by strong U.S. activity, particularly in midstream and water management solutions.
Gross Margins 22.9% for Q2 2025, slightly down sequentially but up 110 basis points compared to Q2 2024. Margins remained resilient despite a price-sensitive environment.
EBITDA $51 million for Q2 2025, up 11% sequentially and a record for the company. EBITDA as a percentage of revenue was 8.1%, demonstrating earnings strength.
Free Cash Flow $41 million for Q2 2025, driven by strong balance sheet and income statement management.
Cash Balance $232 million at the end of Q2 2025, an increase of $13 million from Q1 2025. The company remains debt-free.
U.S. Revenue $528 million for Q2 2025, up 11% sequentially and up 3% year-over-year. Growth was driven by midstream project investments and steady demand for water management solutions.
Canada Revenue $48 million for Q2 2025, down 23% sequentially due to seasonal breakup and macroeconomic factors like tariff uncertainty and reduced customer activity.
International Revenue $52 million for Q2 2025, down 17% sequentially due to non-repeating project activity from Q1 2025.
Operating Profit $32 million for Q2 2025, with $30 million from the U.S., breakeven in Canada, and $2 million from international operations.
Net Income $25 million for Q2 2025, or $0.23 per diluted share. On a non-GAAP basis, net income was $29 million or $0.27 per diluted share.
Midstream Business Growth: Midstream business grew to approximately 27% of total DNOW revenue, doubling its contribution over the last 6 quarters.
Water Management Solutions: Steady demand for water management solutions contributed to U.S. revenue growth.
Energy Evolution: Sequential growth in carbon capture, direct air capture, and RNG-related projects.
Data Center Market: Provided valves for a newly constructed data center project, with expectations for additional revenues in Q3.
MRC Global Transaction: Combination with MRC Global to enhance opportunities in alternative energy, AI infrastructure, LNG, mining, and other industrial markets. Expected $70 million in annual cost synergies within 3 years.
International Expansion: Acquisition of Natron International expands electrical product opportunities in Singapore and Asia Pacific.
EBITDA Performance: Achieved record second quarter EBITDA of $51 million, up 11% sequentially, representing 8.1% of revenue.
Free Cash Flow: Generated $41 million in free cash flow during the quarter, with a cash balance of $232 million and no debt.
Inventory Management: Improved inventory turn rate to 5.1x, up from 4.8x in Q1.
Strategic Shift to Larger Projects: Focus on larger centralized tank batteries due to customer demand for efficiencies.
Capital Allocation: Suspended share repurchase program to focus on MRC Global transaction and potential bolt-on acquisitions in Process Solutions.
Macroeconomic headwinds: The company is facing a softer market compared to previous growth years, requiring greater focus and effort to achieve growth. This includes challenges from market uncertainties and price-sensitive environments.
Upstream production discipline: U.S. upstream operators are maintaining limited project backlogs and cautious spending due to market uncertainties, focusing on balance sheet management and profitability rather than production growth.
Seasonal and regional challenges: Canada's revenue was impacted by the seasonal breakup period, tariff uncertainty, political posturing, and consolidating customer activity, leading to reduced activity and revenue.
International project delays: International revenue declined due to non-repeating project activity and slow capital project investments, particularly in the North Sea, due to uncertainty regarding lease renewals and approvals.
Integration risks with MRC Global: The planned merger with MRC Global involves integration challenges, including retaining key talent, aligning corporate and IT systems, and achieving $70 million in cost synergies within three years.
Supply chain and tariff challenges: The company is navigating challenges posed by tariffs and supply chain uncertainties, which require strategic inventory investments to support customers.
Sector-specific headwinds: Midstream project timing and upstream sector headwinds are impacting revenue growth, with customers focusing on efficiency and cost management rather than expansion.
Political and regulatory uncertainties: Political posturing, trade negotiations, and regulatory uncertainties in Canada and internationally are affecting customer investments and market activity.
Revenue Projections: DNOW expects third quarter sequential revenues to increase in the low single-digits percentage range from the second quarter. Full year 2025 revenues are projected to be flat to up in the high single-digit percentage range from 2024 levels.
EBITDA Projections: Third quarter EBITDA is expected to approach 8% of revenues. Full year 2025 EBITDA could also approach 8% of revenue.
Free Cash Flow: DNOW reaffirms its target of free cash flow in 2025 of $150 million.
Market Trends and Growth Opportunities: DNOW anticipates growth opportunities in energy evolution markets, including carbon capture, direct air capture, and RNG-related projects. Produced water recycling volumes are projected to grow by 13% in 2025, presenting opportunities for DNOW's Water Management solutions. The company also sees increased quoting activity in LNG-related markets and expects growth in industrial adjacent markets such as geothermal, water, wastewater, and mining investments.
MRC Global Transaction: The combination with MRC Global is expected to generate $70 million of annual cost synergies within 3 years following the closing. The transaction will enhance opportunities in alternative energy, AI infrastructure, electrification, LNG, mining, and other industrial markets.
Regional Outlook: In the U.S., third quarter revenue is expected to be relatively flat compared to the second quarter due to midstream project timing. Canada is expected to see a seasonal increase in revenue sequentially but will face continued softness due to trade negotiations and tariff uncertainty. Internationally, sequential top-line growth is expected due to increases in project activity.
Share Repurchase Program: During the quarter, DNOW repurchased $19 million in shares, bringing the cumulative repurchases under the new program to $27 million year-to-date through June 30, 2025. The share repurchase program was authorized earlier this year. However, the program has been suspended temporarily due to the pending merger with MRC Global.
The earnings call reflects a positive outlook with strong financial performance, including improved EBITDA and free cash flow. The MRC Global merger presents synergy opportunities, and there's optimism in market expansion, especially in energy evolution markets. While there are challenges in integration and uncertain midstream growth projections, management maintains confidence in achieving cost synergies. The positive aspects outweigh the uncertainties, leading to a positive sentiment, likely resulting in a stock price increase of 2% to 8% over the next two weeks.
The earnings call reveals strong financial performance with record EBITDA, solid free cash flow, and a debt-free balance sheet. Despite some regional revenue declines, overall growth is evident. The Q&A session highlights strategic growth areas like electrification and AI, and the company remains focused on integration and diversification. While management's guidance remains cautious, the strong current metrics and shareholder returns suggest a positive stock price movement, especially for a small-cap company.
The earnings call summary highlights a strong cash position, zero debt, and a positive free cash flow conversion, which are solid indicators of financial health. International revenue growth and a strategic inventory build-up support customer growth. Despite inflationary pressures, management expects favorable gross margin increases. The Q&A section reveals steady growth in adjacent markets and an advantageous position over competitors. The acquisition of Natron International and share repurchase program further boost sentiment. Given the company's small market cap, these factors suggest a positive stock price movement of 2% to 8% over the next two weeks.
Despite a slight sequential revenue decline, DNOW demonstrates strong financial health with increased EPS, robust free cash flow, and a significant share repurchase program. The optimistic guidance, especially in the energy evolution market and midstream interest, suggests positive future prospects. The Q&A reveals constructive tariff impacts and expansion opportunities, which further bolster sentiment. With a market cap of $1.44 billion, the stock is likely to react positively, anticipating a 2% to 8% increase over the next two weeks.
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