DNOW Inc. Exceeds Q1 Estimates with Strategic Growth and Strong Liquidity

DNOW Inc. (DNOW) delivered a robust first-quarter 2025 performance, reporting adjusted earnings per share (EPS) of $0.22, surpassing the FactSet consensus estimate of $0.17. Total revenue reached $599 million, a 5% sequential increase from Q4 2024 and a 6% year-over-year rise, driven by strategic investments and geographic diversification. The results highlight the company’s resilience in a challenging energy market, while its debt-free balance sheet and $219 million cash position underscore its capacity to capitalize on growth opportunities.

Key Drivers of Q1 Success

1. Revenue Growth Amid Market Headwinds:
   DNOW achieved its second-highest first-quarter EBITDA ($46 million, or 7.7% of revenue) despite a 2% sequential decline in U.S. well completions and flat rig counts. The growth was fueled by:
2. A $33 million inventory investment to support organic expansion.
3. The acquisition of Natron International Pte. Ltd., bolstering its electrical supply capabilities in the Asia Pacific region.

4. Strong U.S. revenue of $474 million (up 9% year-over-year), offsetting a slight dip in Canadian revenue ($62 million) due to currency fluctuations.

5. Geographic Diversification:
   International revenue rose to $63 million, up from $54 million in Q1 2023, with operating profit doubling to $4 million. The Natron acquisition and focus on renewable energy projects in Singapore are key to this momentum.

6. Capital Allocation Discipline:

7. $16 million in share repurchases year-to-date under a $160 million authorized program.
8. Zero long-term debt and total liquidity of $567 million, enabling selective acquisitions and inventory management.

Analyst and Market Outlook

While DNOW’s shares dipped 5% premarket on concerns about future growth, analyst consensus remains optimistic:
- Q2 2025 Revenue Estimate: $630.3 million (up 5.9% sequentially).
- Full-Year 2025 Revenue: Projected at $2.48 billion, reflecting confidence in strategic initiatives like its DigitalNOW® platform and decarbonization efforts.

Risks and Challenges

• Economic Uncertainty: Declining oil prices (WTI averaged $72/barrel in Q1) and trade disruptions pose risks to drilling activity.
• Free Cash Flow Volatility: Negative $22 million in Q1 due to seasonal working capital needs, though management expects improvement later in 2025.

CEO Perspective and Strategic Priorities

CEO David Cherechinsky emphasized DNOW’s “uniquely well-capitalized” position, with plans to:
- Expand its U.S. Process Solutions business and energy transition offerings.
- Pursue “adjacent and inorganic growth opportunities” through acquisitions like Natron.
- Maintain focus on free cash flow targets of $150 million for 2025, supported by a consistent gross margin of 23.2%.

Conclusion: A Resilient Play in Energy Transition

DNOW’s Q1 results demonstrate its ability to outperform expectations in a challenging environment, with strategic moves positioning it for long-term growth. Key takeaways include:
- Strong Financial Health: $219 million in cash, no debt, and a balance sheet capable of withstanding macroeconomic shocks.
- Execution Excellence: Revenue growth despite flat rig counts and a 6% YoY increase highlight operational efficiency.
- Growth Catalysts: The Natron acquisition and inventory investments are already yielding results, with international revenue up 16% year-over-year.

While short-term stock volatility may persist due to sector-wide energy headwinds, DNOW’s diversified revenue streams, geographic expansion, and disciplined capital allocation make it a compelling investment for those betting on energy transition and industrial resilience. With consensus estimates pointing to continued growth and a Zacks Rank #3 (Hold), the stock offers upside potential for investors willing to ride out near-term uncertainty.

DNOW’s combination of execution, liquidity, and strategic foresight positions it as a standout player in an evolving energy landscape—a company not just surviving but thriving through disciplined growth.