DNOW Inc. (DNOW) Q1 2026 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
Despite challenges such as ERP issues and a net loss, DNOW's strategic focus on growth sectors, cost synergies, and shareholder returns offer a balanced outlook. The Q&A reveals management's awareness of issues and plans for improvement, but uncertainties persist. With a market cap of approximately $1.4 billion, the mixed signals suggest a neutral stock price movement over the next two weeks.
Key Financial Performance
Total Revenue $1.2 billion for Q1 2026, an increase of 23% or $224 million from Q4 2025 and up $584 million from Q1 2025. The increase was primarily driven by a full quarter contribution from MRC Global.
MRC Global U.S. Revenues Down $94 million or 16% year-over-year. About 3/4 of the decline was in upstream and downstream sectors, while gas utilities and midstream were more resilient with declines of 5% and 9%, respectively. Declines were driven by ERP disruptions and rig count decline in upstream, and market declines in chemicals for downstream.
Adjusted Gross Profit $256 million or 21.6% of revenue for Q1 2026, compared to $217 million or 22.6% in Q4 2025. The decline in margin percentage was due to the inclusion of MRC Global's historically lower gross profit margin profile and reduced higher-margin international project sales.
SG&A Expense $243 million for Q1 2026, compared to $226 million in Q4 2025. The increase reflects a full quarter of MRC Global expenses and increased bad debt expense of $5 million, partially offset by reduced transaction-related costs.
Adjusted EBITDA $39 million or 3.3% of revenue for Q1 2026, down $22 million sequentially. The decline was driven by MRC Global U.S. operating at a loss, reduced international project revenue, and increased bad debt expense.
Net Loss $44 million or $0.24 per diluted share for Q1 2026, impacted by $41 million in inventory step-up to fair value amortization charges, reduced margins, and increased SG&A expenses.
Net Debt $455 million at March 31, 2026, with a trailing 12-month net debt leverage ratio of 2.3x. The increase was due to ERP challenges and share repurchases.
Inventory $1.2 billion at the end of Q1 2026, relatively flat from year-end, with an annualized churn rate of 3.3x.
Cash Used in Operating Activities $95 million for Q1 2026, due to changes in working capital balances, including merger-related costs and severance payments.
Share Repurchases $50 million in Q1 2026, retiring 4.2 million shares. Total repurchases under the current program reached $87 million.
You have reached the limit. Sign up to access full content
Get started
Operating Highlights
Edge Controls Acquisition: DNOW acquired Edge Controls, a leading U.S. regional automation and control business. This acquisition enhances DNOW's Process Solutions Business, enabling deployment of automation and control solutions across various markets, including energy, industrial, and infrastructure.
Midstream Market Growth: DNOW is capitalizing on rising power generation needs and LNG exports, driving demand for midstream PVF infrastructure. The company is targeting opportunities in data centers and natural gas infrastructure.
Gas Utilities Expansion: DNOW is expanding its presence in the gas utilities sector, leveraging MRC Global's expertise and targeting growth through gas meter solutions and INTECH offerings.
ERP Stabilization and Migration: DNOW has stabilized the MRC Global U.S. ERP platform and is migrating 20 U.S. MRC Global locations to the DNOW SAP platform. This has unlocked $40 million in inventory and improved operational efficiencies.
Cost Synergies: DNOW increased its annualized synergy expectation to $30 million for 2026, driven by facility consolidations and operational optimizations.
Capital Allocation Strategy: DNOW is prioritizing share repurchases, having spent $50 million in Q1 2026, and plans to use free cash flow and debt strategically to enhance shareholder value.
Revenue Recovery Initiatives: Targeted actions are being implemented to recover revenue losses, particularly in upstream and downstream sectors, while maintaining margin discipline.
You have reached the limit. Sign up to access full content
Get started
Risk or Challenges
ERP Stabilization and Migration: The ERP system for MRC Global U.S. has stabilized but is not yet optimized, causing operational inefficiencies, temporary costs, and disruptions in customer service and cash collections. These challenges are expected to persist until full remediation is achieved.
Revenue Declines in Key Sectors: MRC Global U.S. revenues declined by 16% year-over-year, with upstream and downstream sectors experiencing the steepest declines due to ERP disruptions and market conditions. This has significantly impacted overall financial performance.
Customer Revenue Attrition: Revenue attrition is concentrated across two dozen customers, creating a clear risk to financial recovery. Targeted actions are required to recover these revenues.
Inventory and Cash Flow Challenges: Inventory rationalization and cash collections are being hindered by ERP challenges, leading to suppressed free cash flow and increased reliance on debt for share repurchases.
Debt and Leverage: Net debt has increased to $455 million, with a leverage ratio of 2.3x. While expected to improve, this poses a risk to financial flexibility and resilience.
Market-Specific Risks: Downstream recovery is challenged by market declines in the chemicals sector, while upstream recovery is dependent on resolving ERP issues and market conditions. Midstream and gas utilities show more resilience but require careful execution to capitalize on growth opportunities.
Integration and Synergy Realization: The integration of DNOW and MRC Global is ongoing, with cost synergies being realized faster than expected. However, the process involves facility consolidations and digital integrations, which carry risks of operational disruptions.
International Revenue Volatility: International revenue is impacted by the completion of large project cycles, leading to variability and reduced contributions to overall financial performance.
You have reached the limit. Sign up to access full content
Get started
Guidance & Outlook
Revenue Growth: Sequential second quarter growth in the U.S. is expected as ERP issues stabilize and optimize. International segment is also expected to grow sequentially, while Canada may see a seasonal revenue decline. Overall, second quarter revenues are projected to increase in the mid- to high single-digit percentage range from the first quarter.
EBITDA Projections: EBITDA flow-throughs to revenue are expected to approach 25% of the revenue growth rate in the second quarter, above the normal expected flow-throughs of 10% to 15%. Full-year EBITDA as a percentage of revenue is projected to approach 4.5%.
Full-Year Revenue: 2026 full-year revenues are expected to approach $5 billion.
Cash Flow: 2026 full-year cash from operating activities is projected to range from $100 million to $200 million.
Market Trends and Growth Areas: Midstream demand is expected to grow due to investments in natural gas infrastructure driven by LNG-related export activity, power generation demand, and data center-driven load growth. Gas utilities are also expected to see demand growth, supported by customers' longer-term spending plans.
Operational Improvements: ERP stabilization and optimization are expected to improve system performance, operational throughput, and customer service levels, contributing to revenue and margin recovery.
Synergy Realization: Annualized synergy expectations have been raised to approximately $30 million for 2026, with a 3-year annualized synergy target of $70 million remaining unchanged.
You have reached the limit. Sign up to access full content
Get started
Shareholder Return Plan
Share Repurchase Program: The company has a $160 million share repurchase authorization program. As of March 31, 2026, $87 million or 54% of this program has been utilized. Since late 2022, the company has repurchased $167 million in stock. During the first quarter of 2026, $50 million was spent on stock repurchases, retiring 4.2 million shares. The company used debt for the first time in its history to fund these repurchases, citing the stock's current valuation as a compelling opportunity.
You have reached the limit. Sign up to access full content
Get started
Key Q&A
Q:Can you quantify the impact of the temporary pause to stabilize the ERP system in 2026? What additional resources are required to optimize the system? How long in duration do you expect these temporary costs to persist?
A:The stabilization and enhancement of the MRC Global platform costs around $4.5 million per quarter, which is expected to remain stable throughout the year. Additional costs, including overtime, temporary workers, and added warehouse personnel, amount to $4 million per quarter. The number of additional personnel has decreased from 200 to 115. These costs are expected to decline over time, with substantial progress anticipated by year-end. However, the ERP issues are expected to fully stabilize by 2027.
Q:How should we think about the normalized earning potential of the DNOW business in the medium-term future?
A:The company expects growth in midstream and upstream sectors, with gas utilities also showing potential for growth in 2026. Revenue growth is projected at 7% for 2027, with adjusted gross margins improving by 30 basis points. EBITDA could reach $350 million in 2027, driven by revenue recovery, improved gross margins, and operational efficiencies.
Q:Do you quantify the potential improvement in working capital by year-end?
A:The company expects to generate $100 million by reducing inventory, primarily in the second half of the year. Additionally, $50 million in cash is anticipated from improved accounts receivable collections. Overall, cash generation for the year is projected to be in the range of $100 million to $200 million.
Q:Can you bracket the revenue opportunity in the data center sector?
A:The company has generated orders worth $30 million in the data center sector, with most of the revenue expected to be realized this year. This is an emerging market, and the company anticipates growth in this sector, leveraging its inventory position and relationships.
Q:Do you see any potential uplift from project opportunities in the international markets in the next 6-9 months?
A:No large international projects are expected in the near term. However, there is increased bidding activity in the U.S., with data centers being the most attractive near-term revenue opportunity.
Q:What was the EBITDA impact from lost revenues related to ERP issues?
A:The company identified $4 million in excess SG&A costs related to ERP issues, including overtime, temporary workers, and additional personnel. The overall EBITDA impact is higher when considering the relative increase in SG&A expenses as a percentage of revenue due to the drop in revenues.
Q:What needs to happen to hit the bottom or top end of the $100 million to $200 million cash flow from operations range for the year?
A:The bottom end of the range is achievable through faster bill collections and inventory reductions. The top end depends on the success in reducing excess inventory, which is seen as a key driver for cash generation.
Q:What are the prospects for the upstream business in the U.S.?
A:The company sees opportunities to recover lost upstream revenues caused by ERP disruptions. Growth is expected to be organic, particularly in the Permian Basin, where combined operations and synergies are expected to drive recovery. While market expansion is not forecasted for 2026, some upstream momentum is anticipated for 2027, supported by oil prices around $90 per barrel.
Q:Review of Unclear Management Responses
A:Management avoided providing exact timelines for resolving ERP issues, stating that substantial progress is expected by year-end but full stabilization may not occur until 2027. Additionally, they did not provide specific details on the EBITDA impact from lost revenues due to ERP issues, only offering general estimates of excess costs.
You have reached the limit. Sign up to access full content
Get started
Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
Carrie
Cash
Controls
ERP conversion
ERP platform
Edge
MRC Global
SAP platform
action
customer relationship
debt leverage
decline
demand
end market
flexibility
gas utility
information
integration
inventory
location
loss
margin
merger
midstream
migration
priority
profile
repurchase program
return
revenue
rig count
segment
service level
share repurchase
stock
valuation
view
DNOW Transcript
DNOW Inc. (DNOW) Q1 2026 Earnings Call Transcript
Unknown5-9
Despite challenges such as ERP issues and a net loss, DNOW's strategic focus on growth sectors, cost synergies, and shareholder returns offer a balanced outlook. The Q&A reveals management's awareness of issues and plans for improvement, but uncertainties persist. With a market cap of approximately $1.4 billion, the mixed signals suggest a neutral stock price movement over the next two weeks.
Eldorado Gold Corporation (ELD:CA) Q4 2025 Earnings Call Transcript
Positive2-20
The earnings call indicates strong financial performance with increased revenue, operating cash flow, and net earnings. Despite higher production costs, the company is actively returning capital to shareholders through share repurchases, which is generally viewed positively. The Q&A section reveals positive reception to acquisitions and strategic delays that allow for better preparation. However, there are some concerns about increased production costs and sustainability of pre-strip levels. Overall, the positive elements outweigh the negatives, suggesting a positive stock price movement.
DNOW Inc. (DNOW) Q4 2025 Earnings Call Transcript
Unknown2-20
The earnings call reveals several negative factors: a net loss for Q4 2025, unresolved ERP issues impacting revenue, and vague management responses on growth expectations. Although there are opportunities for cost synergies and potential growth in certain sectors, the uncertainty around ERP resolution and lack of specific guidance weigh heavily. With a small market cap, the stock is likely to react negatively, falling between -2% and -8%.
DNOW Inc. (DNOW) Q3 2025 Earnings Call Transcript
Positive11-5
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.
DNOW Slides
DNOW Report
Frequently Asked Questions
Where does this earnings call transcript come from?
All transcripts are sourced directly from the official live webcast or the company’s official investor relations website. We use the exact words spoken during the call with no paraphrasing of the core discussion.
How soon is the transcript available after the earnings call ends?
Full verbatim transcripts are typically published within 4–12 hours after the call ends. Same-day availability is guaranteed for all S&P 500 and most mid-cap companies.
Is the transcript edited or altered in any way?
No material content is ever changed or summarized in the “Full Transcript” section. We only correct obvious spoken typos (e.g., “um”, “ah”, repeated 10 times”, or clear misspoken ticker symbols) and add speaker names/titles for readability. Every substantive sentence remains 100% as spoken.
Why do some answers appear as “Unclear” or “Inaudible”?
When audio quality is poor or multiple speakers talk over each other, we mark the section instead of guessing. This ensures complete accuracy rather than introducing potential errors.
Who creates the AI Summary and Key Q&A highlights shown above the transcript?
They are generated by a specialized financial-language model trained exclusively on 15+ years of earnings transcripts. The model extracts financial figures, guidance, and tone with 97%+ accuracy and is regularly validated against human analysts. The full raw transcript always remains available for verification.
