DNOW’s Merger Boosts Revenue, ERP Woes Weigh on Guidance

Date of Call: Feb 20, 2026

Financials Results

• Revenue: $959 million in Q4, up 51% sequentially; $2.8 billion for full year 2025, up 19% from 2024
• EPS: $0.15 per fully diluted share (adjusted) in Q4, compared to $0.26 per fully diluted share in Q3 2025
• Gross Margin: 22.6% adjusted gross profit margin in Q4, compared to 23.2% in Q3 2025
• Operating Margin: EBITDA margin of 6.4% in Q4; full year 2025 EBITDA margin of 7.4%

Business Commentary:

Revenue Growth and Consolidation:

• DNOW Inc. reported revenue of $959 million for Q4 2025, up 51% sequentially, driven by $388 million contribution from MRC Global during the stub period post-merger.
• For the full year 2025, total revenue was $2.8 billion, up 19% from 2024, marking five consecutive years of growth.
• The revenue increase was primarily due to the merger with MRC Global and its contributions, despite a contraction in core U.S. upstream markets.

Cost Synergies and ERP Challenges:

• DNOW achieved record full-year EBITDA of $199 million, establishing a new annual record with an EBITDA margin of 8.2%.
• The company expects to achieve $23 million in cost savings by the end of the first year post-merger, exceeding initial expectations.
• However, persistent ERP challenges in MRC Global's U.S. operations have caused revenue declines, impacting operational efficiency and customer service.

Segment Performance and Market Dynamics:

• The legacy DNOW business achieved record EBITDA, with strong performances in brands like Whitco, Flex Flow, and Trojan.
• The upstream market is expected to remain flat to down, while midstream and gas utilities are anticipated to grow due to structural drivers like natural gas infrastructure expansion.
• Revenue synergies are being realized through cross-selling opportunities and improved access to inventory, particularly in downstream and gas utility sectors.

International and Data Center Growth:

• MRC Global's international business delivered its fourth consecutive year of growth, averaging 10% annual growth over four years.
• DNOW's entry into the data center market in January 2025 has led to supplying products to 11 new customers, representing an incremental growth opportunity.
• The company's strategic focus includes leveraging its expanded geographic footprint and enhanced inventory access to support new customer wins and market expansion.

Financial Health and Strategic Priorities:

• DNOW maintains a healthy balance sheet with $588 million in liquidity and a leverage ratio of 1.2x.
• The company's priorities include deleveraging, pursuing strategic M&A, and opportunistically repurchasing shares under its reactivated program.
• The combination of MRC Global has strengthened DNOW's global footprint and technical capabilities, positioning it for sustained growth and improved cash flow generation.

Sentiment Analysis:

Overall Tone: Neutral

• Management expresses strong confidence in the merger's long-term value and team synergy but acknowledges significant near-term challenges with the MRC Global U.S. ERP system, stating: 'We have identified the ERP challenges to be a much heavier lift than previously known... We are on track to achieve year 1 cost synergies faster than planned' and 'we have decided to delay sequential and full year guidance... given persistent challenges related to our ERP implementation.'

Q&A:

• Question from Adam Farley (Stifel): Maybe starting first on a little bit more color on MRC's ERP transition. What was the impact in 4Q from the transition? Any color on when we should expect these headwinds to resolve going into '26? Were these issues broad-based across MRC's business in the U.S.? Or was it specific to certain sectors?
  Response: ERP issues are limited to U.S. MRC Global; they caused revenue declines in Q3 and Q4 despite a forecast for growth. Mitigation efforts include shifting projects to DNOW systems and fast-tracking SAP migrations. Resolution timing is unclear, but actions are underway to bypass obstacles.

• Question from Adam Farley (Stifel): Turning to 2026 growth expectations. I understand the delay in issuing guidance, but can you maybe just help frame how you're thinking about maybe organic growth for the year, either by sector or for legacy DNOW?
  Response: Upstream expected flat to down, midstream and gas utilities expected growth, downstream industrial expected strength from turnarounds. Overall business seen as flattish organically, with revenue synergies and M&A to support bottom line.

• Question from Adam Farley (Stifel): All right. And then if we look at the cost synergy target, and some expected acceleration in year 1? And what are the main drivers driving that improved cost synergy target in '26? And if we look further out, I mean, do you expect the total cost synergy target to move up over time?
  Response: Accelerated year 1 savings driven by urgency to resolve ERP issues, fast-tracking SAP migrations, and integration efforts. Long-term $70M synergy target over 3 years may be surpassed as system management decisions are finalized earlier.

• Question from Alexander Rygiel (Texas Capital Securities): David, I appreciate your decision regarding guidance, but maybe I could ask it a different way. Can you maybe talk about strategically your longer-term vision for sort of revenue growth for the consolidated company and profit margins? And maybe if you're not yet ready for that, maybe if you could kind of give us some directional guidance on maybe just the DNOW business for 2026 and how you're thinking about revenue growth and margins in just that core business?
  Response: Long-term vision focuses on becoming a top distributor for key manufacturers, enhancing competitiveness through scale, cost synergies, and better product availability. EBITDA margin target around 8% similar to recent DNOW performance.

• Question from Alexander Rygiel (Texas Capital Securities): That is helpful. And then in the past, you've discussed the importance of the people at DNOW and the people at MRC and how important it is to give them a lot of attention. So can you speak with regard -- speak on your activities to retain and incentivize these key employees during this time of kind of ERP headwinds?
  Response: Focusing on retaining top talent through financial incentives, long-term opportunities, and involving employees in decision-making to leverage the combined company's strengths and drive future success.

• Question from Charles Minervino (Susquehanna Financial Group): If you could touch on the ERP issues a little bit more. Can you tell us, do you feel like you've kind of hit worst of it and are working your way past that? Or is the worst of it still in front of you? Just trying to gauge how long this lingers through 2026, at least kind of what you know right now?
  Response: ERP challenges are being actively managed with mitigation strategies like shifting transactions to SAP and standing up a help desk. Some lingering issues remain, but progress is being made; more clarity expected in about 80 days.

• Question from Charles Minervino (Susquehanna Financial Group): And then just my other question is on free cash flow. Can you talk a little bit about free cash flow in 2026? Maybe if you're not quite ready talk about numbers there, just some of the puts and takes as well?
  Response: Expect free cash flow in the $100M to $200M range, a good year, as pent-up inventory and receivables are stabilized and collected.

Contradiction Point 1

ERP Transition Impact and Outlook

The description of ERP issues and their resolution timeline has shifted from a past challenge to an ongoing critical issue.

Adam Farley (Stifel) - What's the outlook for Q3 revenue? - Adam Farley (Stifel, Nicolaus & Company, Incorporated)

2025Q4: The ERP issues are limited to U.S. MRC Global... Resolution timing is uncertain... - David Cherechinsky(CEO)

What was the impact of MRC's ERP transition in Q4, and when will the headwinds resolve by 2026? - David Cherechinsky (CEO, President & Director)

2025Q3: MRC Global faced significant challenges with its ERP implementation, but performance improved dramatically by the end of Q3 and normalized in October. - David Cherechinsky(CEO)

Contradiction Point 2

2026 Organic Growth Expectations

Expectations for organic growth in 2026 have shifted from a focus on growth through merger synergies to a forecast of flattish revenue.

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2025Q4: For 2026, the combined company expects flattish organic revenue... - David Cherechinsky(CEO)

What is your long-term strategic vision for the company's revenue growth and profit margins? - Jeffrey Robertson (Water Tower Research LLC)

2025Q3: When the companies come together, they can grow share more effectively... especially in upstream... - David Cherechinsky(CEO)

Contradiction Point 3

Timeline for Realizing Cost Synergies

Contradiction on the expected timing for achieving the $70M synergy target.

Can you discuss the company's earnings performance? - Adam Farley (Stifel, Nicolaus & Company, Incorporated, Research Division)

2025Q4: The increased expected cost synergies in year 1 are driven by the urgency to resolve ERP issues, leading to a faster migration of locations to SAP and realization of savings previously planned for year 3. - David Cherechinsky(CEO)

What is the expected acceleration in year 1 for the cost synergy target, what are the main drivers for the improved 2026 target, and do you anticipate the total cost synergy target increasing over time? - Jeffrey Woolf Robertson (Water Tower Research LLC)

2025Q2: The estimated $70 million in synergies will require significant work and come from public company costs, corporate and IT systems, and operational/supply chain efficiencies. - David A. Cherechinsky(CEO)

Contradiction Point 4

Status and Impact of ERP Implementation

Contradiction on the severity and business impact of the ERP issues.

What are your key financial highlights for the quarter? - Adam Farley (Stifel, Nicolaus & Company, Incorporated, Research Division)

2025Q4: The system, implemented August 6, 2025, caused pronounced revenue loss in Q3 and Q4. Revenue declined sequentially from Q3 to Q4 despite MRC’s guidance for mid-to-high single-digit growth. - David Cherechinsky(CEO)

What was the impact of MRC's ERP transition on 4Q results, when are these headwinds expected to resolve by 2026, and were the issues across all U.S. sectors or specific to certain ones? - Adam Michael Farley (Stifel, Nicolaus & Company, Incorporated, Research Division)

2025Q2: The focus is on making the combined company better for customers... Integration planning is underway with joint teams, focusing on people, talent, and growth opportunities. - David A. Cherechinsky(CEO)

Contradiction Point 5

2026 Organic Revenue Growth Outlook

Contradiction on the expected direction of organic revenue growth for the upcoming year.

What are your key insights from the research division at Texas Capital Securities? - Alexander Rygiel (Texas Capital Securities, Research Division)

2025Q4: For 2026, the combined company expects flattish organic revenue, with growth from cost and revenue synergies, acquisitions, and market opportunities. - David Cherechinsky(CEO)

Can you share your long-term strategic vision for the consolidated company's revenue growth and profit margins, or provide directional guidance for the DNOW business in 2026 if not yet ready? - Adam Michael Farley (Stifel, Nicolaus & Company, Incorporated, Research Division)

2025Q2: The guidance is not biased toward the top end; the middle of the range is a safer assumption. The second half has exciting plans... - David A. Cherechinsky(CEO)