DNOW reaffirms 2025 revenue and EBITDA targets while advancing MRC Global merger

Earnings Call Insights: DNOW Inc. (DNOW) Q2 2025

Management View

• David A. Cherechinsky, President and CEO, highlighted, "The second quarter of 2025 represents the best second quarter EBITDA results in our public company history at $51 million." He reported revenue for the quarter at $628 million, up 5% from the previous quarter, and pointed to resilient gross margins at 22.9%. Cherechinsky emphasized that sequential revenue growth was "twice the midpoint of the sequential guidance we gave in May." He noted that the midstream business grew to 27% of total revenue over the last six quarters, more than doubling its contribution since the end of 2023.
• The company announced progress on its merger with MRC Global, with integration planning underway and a focus on realizing $70 million in annual cost synergies within three years post-closing.
• DNOW continued share repurchases, totaling $27 million year-to-date, and reported cash balances increased to $232 million with no debt. The share repurchase program is now suspended pending the MRC Global transaction's completion.
• On regional performance, U.S. revenue grew 11% sequentially to $528 million, supported by midstream project investments and steady demand in water management. International revenue was $52 million, down 17% sequentially due to nonrepeating first-quarter activity. Canada saw seasonal revenue decline to $48 million, affected by restricted access during the breakup period and additional macro impacts.
• CFO Mark B. Johnson stated, "Total revenue for the second quarter of 2025 was $628 million, up 5% or $29 million from the first quarter of 2025 at the top end of our guide from our May call." He reported EBITDA at $51 million or 8.1% of revenue, marking the 13th consecutive quarter with EBITDA at or above 6.9%. Johnson confirmed, "At the end of the second quarter, we had 0 debt and a cash position of $232 million, an increase of $13 million from the first quarter."

Outlook

• Management reaffirmed guidance for full-year 2025, stating, "We expect DNOW's third quarter sequential revenues to increase in the low single-digits percentage range from the second quarter. We expect third quarter EBITDA to approach 8% of revenues."
• Cherechinsky said, "We reaffirm our view that full year 2025 revenues will be flat to up in the high single-digit percentage range from 2024 levels and full year 2025 EBITDA could approach 8% of revenue. We are also reaffirming our target of free cash flow in 2025 of $150 million."
• No comparison to analysts' estimates was made due to insufficient data.

Financial Results

• Revenue for Q2 2025 stood at $628 million, up $29 million from the first quarter. EBITDA was $51 million, representing 8.1% of revenue. Gross margin was 22.9%, and net income attributable to DNOW Inc. was $25 million, or $0.23 per diluted share. Non-GAAP net income, excluding other costs, was $29 million, or $0.27 per diluted share.
• U.S. revenue increased by $54 million to $528 million. Canada revenue dropped by $14 million to $48 million, and international revenue decreased by $11 million to $52 million.
• Cash from operating activities was $45 million, with $4 million invested in capital expenditures. Inventory turnover improved to 5.1x from 4.8x in the previous quarter.

Q&A

• Adam Michael Farley, Stifel: Asked about integration difficulties and employee focus during the MRC merger. Cherechinsky responded, "Our orientation, Adam, is around bringing the notion to our employees that this flat out is going to make DNOW and MRC Global combined a better company... The focus must be an external one and it must be focused on the supply chain and our customers."
• Farley inquired about guidance and customer budget exhaustion. Cherechinsky advised, "I wouldn't bias the guide towards the top end. I think it's safer to be in the middle of that range... We'll see some of our customers with budget exhaustion, most notably in the fourth quarter, and that's factored in there."
• Jeffrey Woolf Robertson, Water Tower Research: Queried about synergy realization and end market diversification. Cherechinsky stated, "We spent a good deal of time on estimating those synergies. I'm not going to raise the number. It's going to take a lot of work to get there... The focus remains on growth and the promise of the combination." On diversification, he explained, "It certainly will make the combined company less focused on upstream in particular. But we still see that as an important part of our business."
• Questions also addressed electrification and tariffs. Brad Wise commented, "AI data centers is a very exciting space. I think the combination of our companies going forward would just bring more capabilities around that area."
• An unidentified analyst asked about tariffs' impact. Cherechinsky replied, "We've seen some positive impact from tariffs from a product cost perspective... We're seeing most of our sales growth coming through volume, not price."

Sentiment Analysis

• Analysts maintained a neutral to slightly positive tone, focusing on integration, guidance, and end market opportunities.
• Management displayed confidence during prepared remarks, highlighting record results and strategic progress, but adopted a measured tone around guidance and integration challenges, with statements such as, "I'm not going to raise the number. It's going to take a lot of work to get there."
• Compared to the previous quarter, management's sentiment remains confident but more focused on integration and market headwinds, while analysts shifted from competitive and tariff concerns to merger execution and growth prospects.

Quarter-over-Quarter Comparison

• Q2 revenue rose to $628 million from $599 million in Q1. EBITDA increased to $51 million from $46 million. Gross margin was slightly lower at 22.9% versus 23.2% previously. U.S. revenue mix increased, with midstream contributions growing to 27% from the end of 2023. Cash position improved by $13 million. Inventory turnover rose, and DSO improved by 3 days. Share repurchases accelerated, reaching $27 million year-to-date. Management maintained full-year guidance. The tone shifted from operational execution and tariff navigation to strategic integration and growth diversification, with increased focus on merger synergies.

Risks and Concerns

• Management highlighted macroeconomic headwinds, market uncertainty, and price-sensitive environments as ongoing challenges.
• Integration risks associated with the MRC Global merger were noted, with a focus on retaining key talent and realizing $70 million in cost synergies.
• Tariff impacts and political uncertainty in Canada and internationally were identified as additional risks.
• Analysts raised concerns about integration complexity, budget exhaustion among customers, and the ability to realize forecasted synergies.

Final Takeaway

DNOW reported its strongest second quarter EBITDA in company history, driven by midstream growth and operational execution, while reaffirming full-year 2025 revenue, EBITDA, and free cash flow targets. The company emphasized the transformative potential of the MRC Global merger, with integration planning underway and a focus on capturing synergies, expanding end markets, and sustaining robust cash generation. Management remains confident in its strategic direction, disciplined capital allocation, and ability to navigate ongoing market uncertainties.

Read the full Earnings Call Transcript

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