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 fourth quarter and full year 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, press star one again. Thank you. Mr. Brad Weiss, Vice President of Digital Strategy and Investor Relations, you may begin your conference.

Well, thank you, Jeanne. Good morning, and welcome to D-NOW's fourth quarter and full year 2025 earnings conference call. We appreciate you joining us, and thank you for your interest in D-NOW. With me today is David Cherchensky, 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 to comments about our outlook for the company's business. These are forward-looking statements within the meaning of the U.S. federal securities laws based on limited information as of today, February 20th, 2026, which is subject to change. They are subject to risks and uncertainties and actual results may differ materially. No one should assume that 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 on our website at ir.dnow.com or in our filings with the SEC. To supplement The information provided to investors under GAAP, we present certain non-GAAP financial measures in our quarterly earnings releases and other public communications. We encourage you to review our earnings release and securities filings for further details on our use of these non-GAAP metrics and for reconciliations to the most directly comparable GAAP measures. These documents are also available on our website. Unless we specifically state otherwise, references in this call to EBITDA refer to adjusted EBITDA, earnings per share or EPS refer to adjusted diluted EPS, and net income refer to adjusted net income. Please be advised that we have enhanced our reporting across all three geographic reporting segments by disclosing revenues for each of the four reporting sectors. upstream, midstream, gas utilities, and downstream and industrial. Also note that the references for legacy D-NOW pertaining to the business excluding contributions from MRC Global, while consolidated D-NOW figures include contributions from MRC Global during the stub period. As of this morning, the investor relations section of our website contains a presentation covering our results and key takeaways for the fourth quarter and full year of 2025. We expect to file our Form 10-K in the coming week, and it will also be available on our website. A replay of today's call will be available on our site for the next 30 days. Now, let me turn the call over to Dave. Thank you, Brad, and good morning, everyone.

I want to begin this morning with what matters to me most, our people, and the strength of the team we're building. On November 6th, we completed the merger with MRC Global, Today, we are operating as one company, united by shared values, complementary strengths, and a common ambition to win in the market. I want to extend a warm and enthusiastic welcome to our new fellow team members as we begin this next chapter. Both MRC Global and D-NOW have built strong, respected, well-established franchises shaped by years of hard work, resilience, and winning in our respective markets. In some areas, we've spent decades competing, pushing each other to be better. But in 2026, that changes. We are now together, building our strengths, talent, and collective ambitions under one roof. And what we will achieve together will be far greater than anything we've accomplished apart. Without a doubt, we are better together. One thing I noticed right away as I visit with our new team members is the relentless passion our people share for serving our customers and winning in the market. I am impressed with the deep technical expertise and integrated solutions MRC Global brings to the market, especially in gas utility, downstream industrial sectors, and the valve powerhouse of its international business. It is clear we start off with a strong cultural alignment immediately around the importance of the people who differentiate us in the market how we care for, advance, and promote our top talent, and how we singularly organize to delight our customers and win their business. Our new team excels by fanatically focusing on our customers. I'm honored to work with the leadership and team members from MRC Global. Their style is growth-oriented with a strong forward-leaning sales posture. Our new family members are a great addition to and clearly in the same league as our Heritage D-NOW team, who have just delivered D-NOW's standalone best four years ever, from 2022 through 2025, since we became a public company nearly 12 years ago. Mark will be discussing the financial performance of the business, but I'd like to close out 2025 with some pointed comments acknowledging our Heritage D-NOW business. As a preview, in 2025, Legacy Deno achieved a record full-year EBITDA of $199 million, establishing a new annual record for EBITDA results. Our teams around the world performed well, but most notably at WIPCO, Flexlo, and Trojan, brands and businesses who produced in record-level territory, making for Legacy Deno's best year yet. This is a tremendous achievement by our team, given that U.S. upstream market activity has contracted. I want to take a moment to express my appreciation and celebrate this achievement in the face of challenging market dynamics. For the full year, legacy Dinao EBITDA as a percentage of revenue reached 8.2%, eclipsing our guided target, approaching 8%. The outstanding performance by our teams was driven by the execution of our strategy and centered on our strong commitment to service, dependability, and customer relationships, coupled with our reliable and differentiated service models that our customers have come to value. Equally significant, this achievement boosts our confidence for long-term success as we move forward with the next stage of our strategy. Beyond these record-breaking results, 2025 was headlined by the completion of the merger with MRC Global in November. The merger significantly increases our scale, diversifying our sector reach, expanding our addressable market, while solidifying our position as the premier distributor of energy, industrial products, and solutions. The merger strengthens D-NOW competitive position across upstream, midstream, gas utilities, downstream, and industrial markets, while also expanding our geographic footprint and product offerings. I'm excited about the long-term value the combination with MRC Global will provide. Just as importantly, the combined company is well positioned to generate stronger and more consistent cash flow over the long term. Our increased scale, improved purchasing power, future operational efficiencies, and a more balanced mix of end markets enhance our value creation through the cycle. On our merger announcement conference call on June 26, 2025, we established a goal to generate value through cost synergies between the two companies. We said we could achieve $70 million in cost savings within three years of closing. We are on track to achieve year one cost synergies faster than planned and now expect to reach $23 million in cost savings by the end of the first year compared to the $17 million we said we would achieve for 2026. And now shifting to comments about the MRC Global US ERP project, which is fair to characterize as an obstacle. Prior to the merger, previous MRC global management had disclosed that they had encountered challenges that adversely impacted the third quarter revenues, profitability, and cash flows. They had guided fourth quarter sequential revenue growth in the mid to high single digit percentage range in their third quarter earnings release. However, the fourth quarter actuals declined due to persistent ERP challenges. For context, USMRC Global represents about 40% of DENOW's business. Conversely, 60% of our business is not affected by ERP challenges, including the legacy MRC Global international business, nor any of the legacy DENOW businesses. While we have been making progress bringing together DENOW and MRC Global, including with our people, customers, and suppliers, we have identified the ERP challenges to be a much heavier lift than previously known. Design architecture is resulting in inefficiencies for certain core processes, continuing negative operating and financial impacts. Observed limitations across the system are that it is slow, impedes customer service, requires more resources, increases safety stock and difficulty in processing orders. I am encouraged by the teamwork occurring around the clock as we collaborate on resolving the issues. We have targeted actions to address the impact of ERP implementation. The Heritage DENOW IT and operational excellence teams are mobilized to execute a comprehensive remediation plan to capture and resolve the most critical obstacles. These teams have extensive operations knowledge and experience implementing ERP systems. as D-NOW has concluded more than two dozen acquisitions since then, with a solid understanding of end-to-end business processes and solutioning customer requirements. In collaboration with the Heritage MRC Global implementation team and our external service providers, our immediate focus is the normalization of all remaining critical processes. By focusing our efforts on hypercare and stabilization now, We are working to remove these obstacles to better support our customers. We sincerely appreciate our customers' patience and our team's relentless dedication. We have seized this opportunity to accelerate integration efforts as we pursue operational improvements towards our sector strategy, including branch footprint optimization, investments in inventory, systems, and how we better service our customers to enhance service levels. Where appropriate, we are now actively servicing select legacy MRC global customers through D-NOW systems. And we are managing larger projects where possible through legacy D-NOW operating systems to maximize transaction flows from order to payment. One of the most compelling advantages of this merger is the meaningful expansion and diversification of our business across four core sectors, strengthening our resilience through the cycle and positioning us for sustained growth. In upstream markets, customer spending is increasingly focused on the preservation of existing production and reduced lifting costs rather than growth-oriented expansion. Activities centered on maintenance, workovers, and reliability initiatives designed to offset natural production declines consistent with industry expectations for a largely flattish production environment. Capital discipline remains firmly intact, with operators prioritizing efficiency, uptime, and cash flow durability over the incremental volume growth. While upstream activity is expected to remain flat to down, this dynamic is balanced by growth opportunities across other parts of Dena's portfolio. The midstream sector continues to benefit from structural growth drivers, including natural gas infrastructure expansion, LNG, and power generation-related developments. These markets are supported by longer cycle projects, providing improved visibility and a more durable demand profile. Gas utilities' sister modernization is set to continue, and we expect the gas utilities market to grow in 2026. Our M-TECH gas meter solution, which began pilot testing last year, aims to increase customer wallet share and accelerate adoption with our gas utility clients. Furthermore, we are pursuing revenue synergy opportunities with MRC Global's gas products portfolio, leveraging our footprint and existing gas utility customers, where D-NOW itself has historically only provided steel pipe products. Data centers continue to represent an attractive growth opportunity. We entered this market in January 2025 with no prior data center experience and have made meaningful progress in a short period of time. We are now supplying our core product offerings, pumps, pipe, valves, fittings, and flanges to 11 new customers across four key data center markets. And we are also proactively entering additional markets. Importantly, our success in data centers has also led to incremental opportunities within the broader industrial market. Since completing the merger, we have begun realizing revenue synergies across multiple channels. These early benefits include incremental orders driven by improved access to core product inventory, as well as better product margins resulting from expanded in-house capabilities and access to a broader customer base and contract portfolio. Near-term revenue synergy initiatives include cross-selling newly available offerings, including the process solutions portfolio into downstream and gas utility sectors, leveraging the company's expanded geographic footprint to support new customer wins in these markets and using combined purchasing scale to improve win rates and margin performance. Further, we are leveraging DENAL regional super centers and legacy MRC global regional distribution centers to support larger, faster project requirements. We are seeing areas of improved win rates driven by enhanced inventory access In several cases, opportunities would not have been viable without the combined inventory position. D-NOW having access to MRC Global in-house valve automation capabilities is enabling faster turnaround times and can improve margins. Reduced lead times contributed directly to successful customer awards. Process solutions businesses, including Odessa Pumps and Power Service, are actively engaged and have identified target opportunities across refining, chemical, and mining markets. Initial engagement with downstream customers is underway to establish key points of contact and to coordinate execution with process solutions teams. Early stage assessment of opportunities within the gas utility market is in progress, leveraging combined footprint to support gas utility and downstream growth. Midstream growth opportunities are enhanced in the areas of large bore valves, larger outside diameter pipe, measurement and instrumentation, valve actuation, and automation. We are also pursuing cross-selling opportunities across the combined customer base. Many customers expect activity to improve as 2026 progresses with momentum building into the back half of the year. In the chemical sector, market conditions have softened as customers postpone project expenditures. Conversely, downstream refining is preparing for an active turnaround in maintenance season in 2026, which is expected to drive demand for valves, fittings, flow control equipment, and other reliability-oriented MRO products. We continue to see upside from data center-related infrastructure investment particularly where it intersects with power generation and gas infrastructure. Investments in this growing sector represent an incremental tailwind alongside our core focus on midstream gas feed infrastructure demand and industrial PVF and pumps demand within the four walls of the data centers. Turning to capital allocation, we will continue to pursue our long-term priorities, enabled by our focused and disciplined approach to cash flow generation. First, we will continue to invest in our business as we integrate with MRC Global while supporting organic investment in areas of growing sectors like water management solutions, midstream, gas utilities, and data centers. Second, we will focus on deleveraging and reducing the debt incurred in connection with the MRC Global merger working towards a net cash position. Third, we will continue to pursue strategic M&A by continuing fortification of our pumps, production, and process solutions business, in addition to foraging opportunities in gas utilities, downstream sectors, and international. Lastly, with a commitment to delivering value to our shareholders, we will opportunistically repurchase shares under our reactivated $160 million share repurchase program. With that, let me hand it over to Mark. Thank you, Dave, and good morning, everyone.