DNOW Inc.

Good morning. My name is Carrie, and I will be your conference operator today. At this time, I would like to welcome everyone to the ZNOW first quarter 2026 earnings conference call. All lines have been placed on mute to prevent 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 or by the number one on your telephone keypad. If you would like to withdraw your question, press star 1 again. Thank you. Mr. Brad Wise, Vice President of Digital Strategy and Investor Relations, you may begin your conference.

Well, thank you, Carrie, and good morning, and welcome to D-NOW's first quarter 2026 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 Vice President and Chief Financial Officer. We operate under the D-NOW and MRC global brands, and D-NOW is our New York Stock Exchange ticker symbol. Please note that some of the statements we make during this call, including the 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, May 7, 2026, 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 Form 10-K and 10-Q that D-NOW has on file with the U.S. Securities and Exchange Commissions for 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 for the most comparable GAAP measures. These documents are available on our website. Unless we specifically state otherwise, references in this call to EBITDA refer to adjusted EBITDA. As of this morning, the investor relations section of our website contains a presentation covering our earnings presentation for the first quarter of 2026. We expect to file our Form 10Q later today, and it will also be available on our website. 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. It's been almost 11 weeks since our last earnings call, with 1Q26 representing DNow's first full quarter as a combined entity with MRC Global. Our teams have been focused on merger integration and two key parallel ERP initiatives, stabilizing the MRC Global U.S. ERP platform and accelerating a migration of locations and activities to the D-NOW SAP platform. As such, I want to recognize the exceptional performance of our ERP conversion teams and the collaboration across numerous functions, including IT, operational excellence, finance, and supply chain. Most notably, our on-the-ground, customer-facing sales and operations teams have played a crucial role. Together, these groups have worked in true choreography, driven by a strong sense of urgency made possible by their deep understanding of our systems, workflows, and customer requirements, all with a singular focus on serving our customers. I'll begin with an update on the MRC Global U.S. ERP Stabilization Initiative. At this point, the system is stabilized to a level that allows us to conduct business, though it is not yet optimized. Importantly, we have removed much of the ERP-related friction with meaningful improvements in system responsiveness, customer service levels, and operating cadence. We're making good progress under a sequenced remediation plan that continues to improve system performance and operational throughput across the MRC Global U.S. locations. This is a critical area of focus as the MRC Global U.S. business represented approximately half of our U.S. revenues and 42% of our consolidated global revenue in the first quarter. We are pleased that the ERP system is now supporting consistent daily operations, and our focus is shifting from recovery to business enablement, improving efficiencies across the quote-to-cash cycle. We're seeing progress across quoting, pricing, fulfillment, and invoicing, which is translating into better service levels, reduced rework, and improved cash collections. Though there is still work ahead, and we continue to absorb considerable temporary costs to stabilize and enhance the ERP. We expect these temporary stabilization costs will continue to moderate as remediation progresses through the year. In terms of accelerating a migration of activities to the D-NOW SAP platform, as discussed on our February call, we are migrating 20 U.S. MRC global locations. These locations are almost entirely focused on upstream and midstream markets, where there is significant overlap in both customer and inventory profiles across the legacy businesses. This move is driving improved customer service and better visibility, while unlocking access to a substantial upstream and midstream inventory investment. I'm excited that, as of late April, all MRC Global Permian operations are now transacting on an optimized SAP platform. This conversion is already producing tangible commercial benefits. For example, we now have easy access to approximately $40 million of additional MRC global inventory that is now visible and deployable, supporting faster fulfillment and improved service levels. Our teams view this unlocked inventory in the Permian as a powerful commercial lever, giving us a speed-to-customer advantage, supporting revenue and margin recovery, and positioning the business to return to growth. Looking ahead, we have 14 additional upstream and midstream locations scheduled for migration with approximately half targeted for completion in the second quarter. Most of these also involve service facility consolidations, which sharpens regional focus and contributes to cost synergies earlier than initially expected, which I'll touch on later. A key consideration in this process is the one-to-one digital integration with our customers' ERP and procurement systems. These integrations take time to replicate and validate, and we are managing them carefully to minimize disruptions. From a commercial standpoint, we are taking targeted actions to recover leakage and reinforce margin discipline as system performance improves. Cash generation remains a priority, supported by inventory rationalization, improved collections, and tighter working capital discipline. Now moving to business results. In the U.S., legacy D-NOW first quarter revenues were up sequentially and year-over-year, despite grid counts being down 7% and completions showing no growth year-over-year. MRC global U.S. revenues on a standalone basis were down 94 million, or 16% year-over-year. About three-quarters of the decline was in upstream and downstream, while gas utilities and midstream were more resilient, with declines of 5% and 9% respectively. MRC global U.S. revenue sector declines were most pronounced in upstream, driven primarily by ERP disruptions and rigged out decline-driven volumes in U.S. upstream space. Legacy D now is well-positioned to recover upstream revenues, specifically those which carry the margin profile we desire. We have held a very strong position in this sector for decades, and that now is only improved as we integrate talent, systems, locations, and inventory. More than 40% of our U.S. upstream revenues occur in the Permian, and now, as of last week, all of the Permian locations are on optimized ERP platforms. For downstream industrial, about two-thirds of the decline was attributable to ERP frustrations, the balance due to general market declines in the chemicals market. A downstream recovery is more challenged, but our view on upstream, midstream, and gas utilities is much more optimistic with the revenues being easier to recover. In midstream, D-NOW, MRC Global, and WITCO Supply each enjoy strong customer relationships, and we're combining their capabilities into a more focused, competitive force as we optimize the tools and talent we've added. In midstream, demand continues to be a bright spot, supported by customer investments in natural gas infrastructure, driven by LNG-related export activity, power generation demand, and data center driven load growth. Gas utilities distribution is the sector that MRC Global pioneered and expertly cultivated in the market very well. We are expecting demand growth from several of our gas utility customers, some of whom have issued positive updates to their longer-term spending plans. As we improve the systems that support our business, we expect to capitalize on that growth. For some additional insight, nearly all the year-over-year MRC global U.S. revenue decline is concentrated across two dozen customers. This gives us clear line of sight in targeted action plans to recover those sales over time. We continue to make steady progress on cost synergy realization and have increased the pace of delivery for this year. As we head into the second quarter, with additional actions implemented and better visibility into the run rate, we are raising our annualized synergy expectation again to approximately $30 million, significantly higher than our original estimate to realize run rate savings in $17 million by the end of the first year. This reflects a full forward of timing rather than a change in scope. Our three-year annualized synergy target of $70 million remains unchanged at this time. In the first quarter, we acquired Edge Controls, our 26th acquisition, a leading U.S. regional automation and control business. Edge Controls is a key differentiator within our process solutions business, an offering which is inherently fungible across many of the end markets we serve today. They design and install technology that controls and monitors operations, including PLCs, touchscreens, and a range of measurement devices, while enabling customers to securely monitor visualize, and manage their systems through SCADA platforms. These capabilities are not asset class specific. Rather, they are application driven, allowing us to deploy similar automation, controls, and integration solutions across energy, industrial, and infrastructure-oriented markets with minimal modification. This flexibility is particularly valuable in fast-growing, infrastructure-intensive end markets such as data centers, where customers have complex requirements around power management, fluid handling, redundancy, uptime, and system reliability. Edge is highly complementary to both our process solutions platform and our broader PVF Plus business, enabling us to better leverage our existing customer relationships while expanding our addressable market. We welcome and am excited to work with the leadership and team from Edge as we chart this next chapter. As Process Solutions expands, it creates more opportunities to pull through our pipe valve and fittings products. The merger with MRC Global further enables our teams to introduce Process Solutions products and services into downstream industrial and gas utility markets. Turning to capital allocation. Let me start by saying that I think this is one of the most important topics we discuss with our shareholders. As we continuously and critically evaluate our capital allocation priorities, against the opportunities in front of us. Our capital allocation strategy is driven by a disciplined and pragmatic framework focused on driving long-term value for our shareholders. We invest organically in the business to support growth, maintain a strong and flexible balance sheet, and allocate excess capital toward opportunities that generate the most attractive returns for shareholders. Because free cash flow and capital allocation go hand in hand, let me give you some context about our cash flow generation. As a reminder, we historically consumed cash during the first quarter due to working capital timing, and as expected, our first quarter use of cash increased further due to the U.S. ERP conversion challenges. I want to be clear that the U.S. ERP challenges are transitory, and our confidence in D-NOW's medium and long-term cash generation profile remains high. The combination with MRC Global has created a more diversified and less cyclical business. We are now more aligned with attractive structural growth markets, which gives me confidence in the durability and visibility of future free cash flow. Against this backdrop, our board of directors and management believe our current equity valuation prevents a compelling opportunity to return capital to shareholders. We see this opportunity with a record $50 million in stock repurchases made during the first quarter. At March 31, we now have purchased $87 million, or 54%, of our $160 million share authorization program. Since late 2022, we have repurchased $167 million in stock so far. At the lower share price levels, like we experienced in the quarter, we expect share repurchases to play an increasingly important role in our near-term capital allocation priorities. I want to place high emphasis on this next part. We are currently in a unique situation in which our free cash flow is temporarily suppressed, and our stock is trading at what we believe is a meaningful discount to intrinsic value. We are taking advantage of this deep valuation gap caused by the stock market's reaction to our ERP conversion challenges. In the first quarter, we used our balance sheet, specifically debt, for the first time in our history to fund share repurchases at prices that will likely look highly attractive in hindsight. Moving now to managing our debt leverage. Deno's net debt position grew to $455 million at March 31. We expect our EBITDA results to improve meaningfully in the coming quarters, and consequently, we expect our net debt leverage to be in the one to two times range as early as year-end, depending on share buyback volume. We believe this range appropriately balances Deno's financial resilience with efficient capital deployment while preserving our strategic flexibility. We have meaningfully reduced our exposure to hyper-cyclical end markets and have grown our presence in sectors which exhibit durable secular demand characteristics, areas where customer relationships are stickier and growth is not as dependent on a favorable rig count-driven backdrop. Let me turn now to another key element in our capital allocation strategy. Executing M&A is an important long-term growth level. While we continue to evaluate potentially accretive acquisitions, we recognize that M&A may not always represent the highest return of capital versus resolving U.S. ERP challenges and pursuing share repurchases. The board and management regularly review our strategy, capital structure, portfolio optimization, and deployment priorities in the context of market conditions, shareholder feedback, and long-term value creation objectives. We maintain an active dialogue with our shareholders and continuously evaluate opportunities to enhance returns, improve capital efficiency, and ensure alignment between business performance and shareholder returns. Our intent is straightforward. Allocate capital pragmatically, act opportunistically during valuation disconnects, and compound shareholder value over time, while preserving financial flexibility to pursue attractive growth opportunities. With that, Let me hand it over to Mark.