DNOW Inc.

Good morning, my name is Janine and I will be your conference operator for today. At this time, I would like to welcome everyone to the D-NOW first quarter 2025 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, kindly press star followed by the number one on your telephone keypad. If you would like to reply to a question, press star one again. Mr. Brad Weiss, Vice President of Digital Strategy and Investor Relations, you may begin your conference.

Well, thank you, Janine, and good morning. Welcome to D-NOW's first quarter 2025 earnings conference call. We appreciate you joining us, and thank you for your interest in D-NOW. With me today is David Cherochinsky, President and Chief Executive Officer of and Mark Johnson, Senior Vice President and Chief Financial Officer. We operate under the D-NOW brand, which is also our New York Stock Exchange ticker symbol. Please note that some of the statements we make during this call, including responses to your questions, may contain forecasts, projections, and estimates, including but not limited to comments about the outlook of the company's business. These are forward-looking statements within the meanings of the U.S. federal securities laws based on limited information. information as of today, May 7, 2025, which is subject to change. They are subject to risks and uncertainties, and actual results may differ materially. No one should assume these forward-looking statements remain valid later in the quarter or later in the year. We do not undertake any obligation to publicly update or revise any forward-looking statements for any reason. In addition, this conference call contains time-sensitive information That reflects management's best judgment at the time of the live call. I refer you to the latest forms 10-K and 10-Q that D-NOW has on file with the U.S. Securities and Exchange Commission for a more detailed discussion of the major risk factors affecting our business. Further information, as well as supplemental financial and operating information, may be found within our earnings release or on our website at ir.dnow.com or in our filings with the SEC. In an effort to provide investors with additional information regarding our results, as determined by U.S. GAAP, you'll note we disclose various non-GAAP financial measures in our earnings press release and other public disclosures. Those non-GAAP financial measures include earnings before interest, taxes, depreciation, amortization, or EBITDA excluding other costs. EBITDA excluding other costs as a percentage of revenue and income attributable to D-NOW, Inc., excluding other costs, diluted earnings per share attributable to D-NOW, Inc., stockholders, excluding other costs, and free cash flow. Please refer to reconciliation of each of these non-GAAP financial measures to its most comparable GAAP financial measures in the supplemental information available at the end of our earnings release. As of this morning, the investor relations section of our website contains a presentation covering our results and key takeaways for the first quarter of 2025. A replay of today's call will also be available on the site for the next 30 days. Al, let me turn it over to Dave.

Thank you, Brad, and good morning, everyone. I'd like to start by acknowledging the solid execution by our team in the first quarter of the year. Their grit for perseverance and passion, not just for today, but for playing the long game and doing the things today that ensure the enduring success of D-NOW inspires me. Thank you for everything you do to support our suppliers and delight our customers. The first quarter of 2025 represents the second best first quarter EBITDA results in our public company history at $46 million, up 2% sequentially and up 18% year over year. For reference, the actual record quarter for first quarter EBITDA was 2023 at 47 million in a period then where we had 29% more active rigs and 18% more new wells completed. I make that reference to illustrate the resilience of the continued earnings power produced by our team. Again, this is notable given the misunderstood perception that the upstream sector alone drives opportunities for D-NOW. In the quarter, we delivered top-line growth both sequentially and on a year-over-year basis, beating our February guidance despite headwinds from a slow start to the year, coupled with flat U.S. rigs and lower U.S. completions. Revenue for the first quarter was $599 million, up 4.9% from the fourth quarter and up 6.4% year-over-year. Gross margins remained resilient at 23.2%. better than expected in the first quarter. EBITDA as a percentage of revenue was 7.7%, beating our first quarter target and demonstrating continued earning strength. We are focused on opportunities that drive accreted margins while diversifying our market mix. We continue to execute our strategy to invest in and grow our core market, capture additional revenues from energy evolution opportunities, and diversify our customer base by targeting and realizing revenue from adjacent industrial markets while driving efficiencies across our business. With our current liquidity and capital allocation framework, we have the ability to strike deals at the right time and repurchase shares opportunistically, thus balancing the growth of our business with the return of capital to produce sustainable long-term value for our shareholders. In April, we closed a small but important international acquisition, which provides industrial lighting and electrical bulk materials to the energy and industrial end markets in Singapore and in the Asia Pacific region. The acquisition is complementary to and further strengthens and expands our McLean International brand, where we have the same electrical manufacturer distribution agreement in the UK and Australia. allowing for increased revenue synergies with this key manufacturer and further positions McLean to capture more market share. Moving to share repurchases, under the new upsized $160 million program authorized earlier this year, we have purchased 16 million in shares to date. Before I move to our results on a regional basis, I'd like to take a moment to comment on tariffs, some macro uncertainty, and the impact on D-NOW. As you are aware, the tariff situation is dynamic. As a point of reference, following the first round of tariffs in 2018 and supply chain disruptions faced in 2021 and 2022 in the wake of the COVID-19 pandemic, our supply chain and sourcing teams had repositioned our supply and increased sourcing for domestic producers, reducing our dependence on international sources. Today, in our U.S. operations, Our rough estimates are that around 70% of the products we sell are sourced domestically, leaving the remaining products sourced internationally. South Korean, Indian, and European supply make up the majority of the directly imported product. Dina directly imports a negligible amount for products from China, less than 1 million per year. Approximately 20% of our U.S. operations supply for inventory has some exposure to China, mostly raw materials. Neither Dinao nor our key suppliers have dependency on Chinese imports for pipe, fittings, and flanges, inclusive of raw materials and semi-finished materials. Dinao valve and pump manufacturers range from 100% U.S. made to varying percentages of critical components to 100% Chinese made. Manufacturers exposed to Chinese-specific tariffs have begun altering supply chains and diversifying outside of China. In response to this, we are taking the following actions to mitigate the impact and protect our margins. We are passing supplier cost increases through as quickly as we can. We are updating our pricing structures to reflect increases as they occur. We are working with our key suppliers to ensure adherence to advance notification clauses in our agreements. We are using our purchasing power to continue to multi-source key commodity product lines to help our customers. We are working closely with our customers on project materials to solidify commitments ahead of procurement. And we are analyzing alternate manufacturers for qualification to our approved manufacturers list. D-NOW has the scale, systems, processes, and talent with experience to execute our inflation period playbook. Our suppliers are actively managing this evolving situation alongside us. In conclusion, DENOW is better positioned to navigate these challenges and seize opportunities related to tariff impact. Now some comments on a regional basis. In the U.S., revenue was $474 million, up $23 million, or 5% sequentially. Growth was driven by a full quarter contribution of our fourth quarter Trojan acquisition and increased midstream demand most notably from our WITCO business. In midstream, we are seeing demand to support continued de-bottlenecking of midstream takeaway capacity, combined with operators' investments in gathering assets. As a result of softening in some areas, we continue to exercise our self-help initiatives by optimizing our branch footprint, leading to some location closures. As we look into the second quarter, we will continue to drive incremental expense savings as we adjust our model to the market, investing in areas of growth and pruning underperforming areas. In U.S. process solutions, revenue increased sequentially from a full quarter of the Trojan business and due to higher demand for our suite of products and services. Growth was driven by demand for Odessa pumps packages, aftermarket service, and Trojan rental equipment. Activity remains strong for our power service and FlexFlow business, while EcoVapor experienced a decrease due to project timing variations as expected. Our FlexFlow and Trojan rental fleets saw increased demand due to some operators favoring leasing over purchasing to support their maintenance production. Given the rental nature of this business, these are higher margin product lines, and revenue should increase to the extent customers cut CapEx. Another example supporting our resilient business model. We delivered our first power distribution center, or PDC, for a midstream company. This newly engineered unit is a turnkey 16 by 50 foot packaged unit, an insulated building, including variable frequency drives, panel boards, transformers, and HVAC units. We expanded our pump product lines by signing new distribution agreements with a lobe-style and vertical slack-style pump manufacturer, which expands our addressable market and the produced water transfer and industrial end markets. During the quarter, we commissioned our first horizontal H-pump rental for a liquid CO2 recycle transfer application in an enhanced oil recovery operation for a Permian operator. The performance exceeded customer expectations and expanded our application capabilities for the rental fleet. As part of our Sable automation solution, we successfully commissioned a water recycling facility for a leading national egg producer. This system ensures consistent delivery of high quality water and nutrition in poultry feed, ultimately enhancing egg production. We launched our new Tank Commander EcoVapor product, which addresses the needs expressed by several of our customers. This unit is a vapor management system designed to capture 100% of tank vapor and eliminate venting emissions, thereby enhancing the value of oil and gas assets. This innovation combines our Zero-Two technology with an automated system to control storage tank pressures, allowing operators to sell valuable high BTU tank vapor gas and reduce Scope 1 emissions. In Canada, revenue was $62 million for the quarter, down $4 million sequentially as a $4 million project from 4Q did not repeat. And in international, revenue was 63 million, sequentially higher by 9 million, or 17%, primarily due to increased project activity, with a $15 million project in 1Q not expected to repeat in the second quarter. For D-NOW, the energy evolution includes activity primarily associated with carbon capture, utilization and storage, direct air capture, hydrogen, and renewable natural gas or RNG-related projects. Throughout the quarter, we successfully delivered a range of PVF Plus and EcoVapor products for various projects encompassing CCUS, hydrogen, and RNG end markets. Regarding capital investments and expansion in data centers to support AI growth, DENOW is positioned to participate in several areas. First, For data centers powered from natural gas, we see growth opportunities in construction of midstream transmission lines to supply natural gas for our PBS Plus products, with many of the operators already being customers of Deno. In the United States, our pumping solutions are being used in cooling systems alongside pipe valves and fittings from engineering, procurement, and construction firms who design and build the data centers. And internationally, Our McLean operations in the UK, Norway, Netherlands, and now Asia Pacific are experienced in increasing bidding activity for our electrical cable, supports, basket tray system supplies, and lighting for data center projects as well. Moving to our Digital Now initiatives, our digital revenue as a percent of total SAP revenue improved to 53% during the quarter, driving improved efficiencies through integrated systems. We are not only looking to grow revenues by selling our products in the construction of data centers, we are also deploying AI solutions to drive efficiencies in a number of internal processes across Deno. One project we recently completed uses AI to index and upload manufacturer test certificates, which are provided along with the products we sell to customers. This project has taken a highly manual process which is now powered by the use of AI and machine learning, processing up to 85% of requests without any action or manual intervention required. With that, let me hand it over to Mark.