Navigating Contradictions: Insights from NOW's Q1 2025 Earnings Call on Tariffs, Digital Revenue, and M&A Opportunities

Tariff impact on gross margin and revenue, digital solutions revenue share, M&A activity and opportunities, midstream revenue growth, and inventory turns are the key contradictions discussed in NOW's latest 2025Q1 earnings call.



Strong Financial Performance Despite Challenges:
- DNOW Inc. reported second-best first quarter EBITDA of $46 million, up 2% sequentially and 18% year-over-year.
- This resilience was attributed to solid execution by the team and the ability to achieve earnings despite fewer operating rigs and completions.

Revenue and Gross Margin Growth:
- Revenue for the first quarter was $599 million, up 4.9% from the fourth quarter and up 6.4% year-over-year.
- Gross margins remained resilient at 23.2%, better than expected, driven by increased midstream demand and a full quarter contribution from the Trojan acquisition.

Impact of Tariffs and Pricing Strategy:
- DNOW is sourcing 70% of its products domestically, with 30% internationally, to mitigate tariff impacts.
- The company plans to pass through supplier cost increases, update pricing structures, and multi-source key commodity product lines to protect margins.

Diversification and Strategic Acquisitions:
- In April, DNOW closed a strategic acquisition in Singapore and the Asia Pacific region, expanding the MacLean International brand.
- This acquisition is expected to provide further growth opportunities and revenue synergies by strengthening the brand's presence in the region.

Outlook and Market Uncertainty:
- DNOW expects second quarter revenues to be flat to up in the mid-single-digit percentage range from the first quarter, driven by increased midstream activity but offset by international projects.
- The company remains optimistic about future growth opportunities, given its strong financial position and diversified market mix, despite uncertain market conditions.