DNOW Inc.

Good morning. My name is Jeannie, and I will be your conference operator today. At this time, I would like to welcome everyone to the D Now second 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, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, again, press star one. Thank you. Mr. Brad Wise, Vice President of Digital Strategy Investor Relations, you may begin your conference.

Thank you, Jeannie. Good morning, and welcome to D Now second quarter 2025 earnings conference call. We appreciate you joining us, and thank you for your interest in D Now. With me today is David Cheruchinsky, President and Chief Executive Officer, 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 comments about our outlook for the company's business. These are forward-looking statements within the meetings of the US Federal Securities Based on limited information as of today, August 6, 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 for the US Securities 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 on our website, .Dnow.com, or in our filings with the SEC. In an effort to provide investors with additional information regarding our results, as determined by US GAAP, you'll note we disclose various non-GAAP financial measures in our earnings, press releases, and other public disclosures. These are non-GAAP financial measures. Earnings before interest, taxes, depreciation, and amortization, or EBITDA, excluding other costs. EBITDA, excluding other costs as a percentage of revenue. Net income, attributable to D Now, Inc., excluding other costs. Deluded earnings per share, attributable to D Now, Inc. Stockholders, excluding other costs. And free cash flow. Please refer to a reconciliation of each of these non-GAAP financial measures to its most comparable GAAP financial measure and 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 key results and takeaways for the second quarter, 2025. A replay of today's call will be available on the site for the next 30 days. Now, let me turn the call over to Dave.

Thank you, Brad, and good morning, everyone. We have quite a bit to cover, from our second quarter results and achievements, to the outlook for our business, and some updates on the MRC global transaction. I'd like to start by acknowledging the continued solid execution by our team, driving an exceptional first half of the year despite macroeconomic headwinds. In recent growth years, such as 2021 and 2022, U.S. rigs and completions grew on a -over-year basis, which created more opportunities for targeted growth. However, in this current softer market, achieving growth necessitates greater focus and a concerted effort to identify and execute on the prospects that meet our strategic and financial goals. Our relentless commitment to serving our customers and supplying them with the best solutions and -for-purpose products from the top manufacturers are instrumental to our success. I am proud of our team's performance, and I'm thankful for their efforts and their desire to win the market. The second quarter of 2025 represents the best second quarter EBITDA results in our public company history at $51 million. This achievement is a result of the steadfast execution by our team, where market activity has actually declined sequentially in -over-year. And as I stated in our first quarter call, this is important to emphasize, given the misunderstood perception that upstream sector activity alone drives opportunities for DNO. Revenue for the second quarter was $628 million, up 5% from the first quarter, and twice the midpoint of the sequential guidance we gave in May. Gross margins remained resilient at 22.9%, in line with our expectations, and better than the full year 2024 average, despite being challenged in a more price-sensitive environment. EBITDA for the quarter was $51 million, again, a second quarter company best, up 11% sequentially. EBITDA as a percentage revenue was 8.1%, beating our second quarter target, and demonstrating continued earning strength. US activity drove strong sequential revenue gains, up 11%, driven by midstream strength, with additional contribution from steady demand for our water management solutions. Our midstream business in the second quarter grew to approximately 27% of total DNO revenue. And over the prior six quarters, we have more than doubled our midstream revenue percentage contribution from the end of 2023, demonstrating our ability to diversify into and expand within this key strategic and growing sector. On the upstream production side, US operators remain disciplined, focused on balance sheet management and profitability, rather than prioritizing production growth targets. This has resulted in customers maintaining a limited project backlog, driven partially by market uncertainties, and adopting a cautious approach to additional spending, while seeking inventory preservation and asset expansion, primarily through M&A. Most of our large public upstream customers have scheduled activity for this year at or close to maintenance production levels, which provides DNO with a steady base of revenue and cashflow. During the quarter, our strength in managing the balance sheet and income statement yielded free cashflow of 41 million, and afforded us the opportunity to continue repurchasing shares. Through the end of the second quarter and year to date, we have purchased 27 million in shares under our new program authorized earlier this year. Even still, we expanded our cash balance to 232 million, and continue to carry no debt, enhancing our already solid financial position. Before I move to our results on a regional basis, I wanted to share a brief update about our recently announced combination with MRC Global. Since the announcement, we've spoken with many employees, suppliers, customers, and shareholders, who have expressed excitement for what this opportunity means. We discussed our confidence in becoming even better able to serve a broader mix of customers in the construction and maintenance of essential energy process, production, transmission infrastructure, downstream processing, and gas utilities activities. This combination will allow for enhanced opportunities in alternative energy, artificial intelligence infrastructure, electrification, LNG, mining, and other industrial markets. These are areas with significant runways and bring additional opportunities to drive value creation. At the same time, integration planning is underway, with joint MRC Global DINOW teams meeting with the initial work to set us on the path for what the combined company will ultimately become. As the team embarks on this collective effort, they will focus on several areas that will be critical once the transaction is completed, including bringing together our organizations and retaining key talent, offering products and services to one another's customers, and working to realize the $70 million annual cost synergies the company is expected to generate within three years following closing. As a reminder, these cost synergies are expected to be derived from public company costs, corporate and IT systems, and operational and supply chain deficiencies. The bedrock to the success of DINOW and MRC Global joining together is our expected substantial cash flow generation capabilities and robust balance sheet, providing a strong foundation for continued investment in organic and inorganic growth and driving shareholder value. Our supplier relationships have always been incredibly important to our success. Through this transaction, we expect to build upon those valued partnerships, serve our customers more holistically, and grow the combined business. This opportunity to bring our two organizations together is thanks to the tremendous efforts of my DINOW colleagues and the MRC Global team. As the customary regulatory and shareholder approval processes proceed, I want to highlight that the final S4 Defendant Proxy Statement was filed yesterday, and DINOW and MRC Global each filed a pre-merger notification and report form under the HSR Act on August 1st. We look forward to welcoming MRC Global and their valued team members in due course and bringing our organizations together to drive growth and value for our customers, partners, and shareholders alike. We cannot wait to see all we will accomplish together. Now I'll turn to some comments on our results by region. In the US, revenue was 528 million, up 54 million, or 11% sequentially. Sequential growth was driven by WICCOSupply and Energy Center's locations. We experienced strong sequential growth geared towards customer midstream project investments in the quarter, including a $5 million project pulled forward into QQ that was previously scheduled for the third quarter. We also saw sequential growth in US upstream as customers continue to pursue efficiencies driven by longer laterals, resulting in fewer drilling days, fewer drilling rigs, and completions crews. However, production volumes are resilient and in some areas, growing. We continue to adjust our model to the market environment, investing in areas of growing demand while pruning costs in areas of reduced activity, in combination with increasing efficiencies to maximize profitability. An emerging trend as operators focus on efficiencies is their need for larger centralized tank batteries and more specialized material. This type of shift from smaller tank batteries to larger centralized tank batteries tends to favor DNO due to our fabrication infrastructure and our inventory and service capabilities to service larger size projects like these centralized tank batteries. And as a reminder, DNO is focused on providing products and supply chain solutions to customers to extract, produce, separate, and move large volumes of fluids through pipe valves, fittings, infrastructure, as our customers deliver production volumes to the market. In US process solutions, revenue was relatively flat sequentially. We continue to see strength in flex flow water management solutions across a number of basins. As produced water disposal services, demand remains high for our least water disposal and transfer assets. According to an industry US Water Solutions report, produced water volumes are projected to be up about 2% in 2025 and produced water recycling volumes handled by midstream infrastructure companies are projected to be up 13% for the year, presenting growth opportunities for DNO water management solutions, which we are capturing. In Canada, revenue was 48 million for the quarter, down 14 million, primarily due to the seasonal breakup period each year where road access to oil and gas assets is restricted, reducing activity in the second quarter. When comparing the second quarter to prior years, this year's breakup impact on revenue was higher than average, impacted by additional macro impacts such as tariff uncertainty, the recent Canadian federal election, consolidating customer activity, and non-repeating project and turnaround work sequentially. We continue to look for organic opportunities for growth in Canada, focused on end market diversification and energy evolution opportunities. For international revenue was 52 million, sequentially lower by 11 million or 17%, in line with our May guided $10 million sequential decline due to non-repeating first quarter project activity. Brownfield activity in the UK remained steady, while capital project investments are slow due to uncertainty regarding the renewal and approval of North Sea oil and gas leases. In Norway, activity was led by increasing oil production and demand for gas, coupled with opportunities for additional sales from customer investments in carbon capture, hydrogen, and offshore wind. The acquisition of Natron International closed in the second quarter, and expands DNO's electrical products opportunities to participate more broadly in Singapore and in the Asia Pacific region. And now I'd like to make a few comments about several additional growth markets we continue to pursue. In the energy evolution arena, which includes activity primarily associated with carbon capture and storage, direct air capture, and RNG related projects, we experienced sequential growth, driven from CCUS project activity and from direct air capture construction. In the rapidly expanding data center market, we provided valves to a general contractor for a newly constructed data center project where we expect to gain additional revenues in the third quarter. Quoting activity increased in the quarter, in the LNG related markets, indicating increased interest in pipe valves and fittings as construction firms work to win and execute projects tied to the continuing buildup of the LNG export market. Looking ahead, we see interest in DNO's products and services growing with several industrial adjacent markets, an activity tied to geothermal, water, wastewater, and mining investments. All are areas of interest for DNO to provide our products and solutions while expanding and diversifying our business. Turning to capital allocation, our core long-term priorities remain the same. We will balance accretive organic and inorganic growth with opportunistic share repurchases. Our decision to combine with MRC Global is directly in line with this approach and will enable us to capture compelling and diverse growth opportunities with our expanded and complementary portfolio of services and product offerings. As is typical with transactions of this nature, we have suspended our share repurchase program until the close of the MRC Global transaction. Our near-term focus is on successfully completing the transaction with MRC Global and planning for the seamless integration of our two companies. In the meantime, we are pursuing potential both on acquisitions and process solutions to better serve the needs of our customers. With that, let me hand it over to Mark.