Core Insights - The performance of DNOW's international operations is critical for understanding its financial resilience and growth potential [1][2][3] Revenue Performance - DNOW's total revenue for the quarter was $634 million, reflecting a 4.6% increase from the previous year [4] - Canada generated $53 million in revenue, accounting for 8.4% of total revenue, which was a decrease of 4.93% from the expected $55.75 million [5] - International revenue contributed $54 million, representing 8.5% of total revenue, also falling short of the expected $56.25 million by 4% [6] Future Projections - Analysts project DNOW's revenue for the ongoing fiscal quarter to be $603.35 million, a 5.7% increase year-over-year, with Canada and International expected to contribute $55.9 million (9.3%) and $57.5 million (9.5%) respectively [7] - For the full year, total revenue is projected at $2.47 billion, a 4% increase from last year, with Canada and International expected to contribute $220.2 million (8.9%) and $228.45 million (9.3%) respectively [8] Market Dynamics - The reliance on global markets presents both opportunities and challenges for DNOW, making the analysis of international revenue trends essential for forecasting future performance [9][10] - The intricacies of global interdependence and geopolitical factors are closely monitored by analysts to adjust earnings forecasts [10]

Core Insights - Companies generating cash are not necessarily good investments if they fail to reinvest wisely, which can limit their growth potential [1] Group 1: Nike (NKE) - Nike has a trailing 12-month free cash flow margin of 6.5% and is a major player in athletic footwear and apparel [2] - The stock is currently trading at $61.93 per share, with a forward P/E ratio of 32.9 [4] Group 2: DistributionNOW (DNOW) - DistributionNOW has a trailing 12-month free cash flow margin of 7.3% and provides supply chain solutions for energy and industrial markets [5] - The stock price is $13.57, reflecting a valuation ratio of 32.7x forward EV-to-EBITDA [7] Group 3: General Motors (GM) - General Motors has a trailing 12-month free cash flow margin of 7.9% and offers a variety of vehicle brands [8] - The stock trades at $69.03 per share, with a forward P/E ratio of 6.3 [13] - Recent performance indicators show muted revenue growth of 2.5% annually over the last two years, suggesting demand issues [10] - Future growth is projected to be soft, with Wall Street estimates indicating only 3.7% growth [11] - The company faces challenges with a projected sales decline of 1.4% over the next year and high production costs reflected in a gross margin of 12% [12]

Core Insights - DistributionNOW's shares fell 8.1% following the release of its third-quarter 2025 financial results, which indicated a significant drop in profitability, raising investor concerns [1][2] - Although the earnings per share of $0.26 exceeded analyst expectations, revenue of $634 million fell short of the anticipated $635.13 million, and the net profit margin decreased sharply to 3.4% from 9.5% year-over-year [2] - The company's free cash flow margin also declined to 6.2% from 11.9% in the same quarter of the previous year, indicating contracting profitability [2] Market Reaction - The stock market's reaction to DistributionNOW's news reflects its volatility, with 16 moves greater than 5% over the past year, suggesting that while the news is significant, it may not fundamentally alter the market's perception of the company [4] - The previous notable stock movement occurred 27 days ago when the stock dropped 4.4% due to tariff threats from the U.S. against China, which raised concerns about global supply chain disruptions and increased material costs for manufacturers [5] Stock Performance - Year-to-date, DistributionNOW's shares are up 4.4%, but they are still trading 23.2% below their 52-week high of $17.59 from February 2025, currently priced at $13.52 per share [6] - An investment of $1,000 in DistributionNOW's shares five years ago would now be worth $2,932, indicating a significant long-term growth despite recent volatility [6]

Core Viewpoint - DNOW Inc. has successfully completed its acquisition of MRC Global Inc., creating a leading solutions provider in the energy and industrial markets [1][11]. Company Overview - DNOW is a premier energy and industrial solutions provider with over 160 years of experience, specializing in the distribution of pipe, valves, fittings, pumps, and fabricated equipment [5]. - The company is headquartered in Houston, Texas, employing approximately 5,000 individuals and operating a global network of distribution and engineering locations [5]. Merger Details - Under the merger agreement, each share of MRC Global's common stock was converted into the right to receive 0.9489 shares of DNOW's common stock [2]. - The total value of the all-stock transaction is approximately $1.5 billion, which includes MRC Global's net debt [13]. Strategic Benefits - The merger is expected to enhance DNOW's earnings durability, cash flow, and financial position, allowing the company to capitalize on growth opportunities across various sectors [3]. - DNOW anticipates generating $70 million in annual cost synergies within three years post-merger through operational efficiencies and streamlined corporate structures [6]. Market Position and Growth Opportunities - The combined entity will serve a broader mix of customers in essential energy infrastructure, including sectors such as chemical processing, municipal water, utilities, mining, and power generation [6]. - The merger expands DNOW's geographic footprint and distribution presence across the U.S., Canada, and other international markets, with over 350 service and distribution locations in more than 20 countries [6].

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Merger and Acquisition - The company entered into a definitive merger agreement to acquire MRC Global for approximately $1.5 billion, expected to close in Q4 2025[80]. - The company is facing challenges in successfully integrating its business with MRC Global, which may hinder the realization of anticipated revenue opportunities and cost savings from the merger[151]. - There are complexities in managing the combined businesses, including operational differences and integration of complex systems, which could negatively impact customers and other stakeholders[151]. - The company may incur significant costs related to the merger, including up to $8.5 million in expenses to MRC Global or a termination fee of $45.5 million if the merger agreement is terminated[152]. - The company has temporarily suspended its share repurchase program, which was authorized for up to $160 million, until the merger with MRC Global is completed[154]. Financial Performance - For the three months ended September 30, 2025, the Company generated net income of $25 million on revenue of $634 million, representing a 4.6% increase in revenue compared to the same period in 2024[97]. - The operating profit for the three months ended September 30, 2025, was $33 million, an increase of $10 million or 43.5% compared to $23 million in the same period of 2024[98]. - Revenue from the United States for the three months ended September 30, 2025, was $527 million, a 9.3% increase from $482 million in the same period of 2024[102]. - Canada experienced a revenue decrease of 18.5% to $53 million for the three months ended September 30, 2025, compared to $65 million in the same period of 2024[104]. - The International segment reported a revenue decrease of 8.5% to $54 million for the three months ended September 30, 2025, compared to $59 million in the same period of 2024[106]. - The effective tax rate for the three months ended September 30, 2025, was 21.9%, significantly lower than 40.9% for the same period in 2024[112]. - EBITDA excluding other costs for the three months ended September 30, 2025, was $51 million, representing 8.0% of revenue, compared to $42 million or 6.9% of revenue in the same period of 2024[114]. Cash Flow and Financing - The Company had cash and cash equivalents of $266 million as of September 30, 2025, an increase from $256 million as of December 31, 2024[119]. - Net cash provided by operating activities for the nine months ended September 30, 2025, was $72 million, a decrease of $104 million compared to $176 million in the same period of 2024[124]. - Net cash used in investing activities was $19 million for the nine months ended September 30, 2025, significantly lower than $190 million in the corresponding period of 2024[125]. - Net cash used in financing activities increased to $45 million for the nine months ended September 30, 2025, compared to $25 million in the same period of 2024[126]. - The company has received committed debt financing of up to an incremental $250 million, increasing total potential borrowing capacity to $750 million[121]. - The company maintains a $500 million five-year senior secured revolving credit facility with 99% excess availability as of September 30, 2025[120]. Market and Operational Insights - Active U.S. rigs decreased by 7.8% year-over-year to 540 in Q3 2025, while Canadian rigs fell by 15.3% to 177[89]. - The average price of West Texas Intermediate crude oil was $65.74 per barrel in Q3 2025, down 13.8% from $76.24 in Q3 2024[89]. - Natural gas prices increased by 43.6% year-over-year to $3.03 per MMBtu in Q3 2025[89]. - U.S. wells completed decreased by 7.9% year-over-year to 2,807 in Q3 2025[89]. - The average price of hot-rolled coil steel increased by 24.8% year-over-year to $842.60 per short ton in Q3 2025[89]. - The company operates approximately 155 locations globally, employing around 2,500 people[73]. - The company provides a range of products including pipe, valves, and automation equipment, supporting various sectors including oil and gas and renewable energy[75]. - The company has a supplier network of thousands of vendors across approximately 30 countries, serving customers in about 70 countries[78]. Strategic Plans - The Company plans to continue supporting customers and optimizing operations amid economic uncertainties and commodity price volatility[99]. - The Company aims to expand revenues by targeting new customers in non-oil and gas markets while supporting existing customers in energy evolution projects[100]. Foreign Currency and Risks - The company is exposed to foreign currency exchange rate risks, with approximately one-fifth of net sales for the nine months ended September 30, 2025, generated outside the U.S.[134]. - The average foreign exchange rate for the first nine months of 2025 decreased by approximately 2% compared to the same period in 2024[138]. - The company reported a net foreign currency translation gain of $8 million for the nine months ended September 30, 2025[135]. Shareholder Actions - A new share repurchase program was authorized to purchase up to $160 million of outstanding common stock, with $133 million remaining under the program as of September 30, 2025[129]. - No insider trading arrangements were adopted or terminated by directors or officers during the three months ended September 30, 2025[155].

Core Insights - DNOW reported $634 million in revenue for Q3 2025, a year-over-year increase of 4.6% and an EPS of $0.26, up from $0.21 a year ago [1] - The revenue fell short of the Zacks Consensus Estimate of $639.2 million by 0.81%, while the EPS exceeded the consensus estimate of $0.24 by 8.33% [1] Revenue Performance - Geographic Revenue in the United States was $527 million, slightly below the average estimate of $527.25 million, reflecting a year-over-year increase of 9.3% [4] - Geographic Revenue from Other International markets was $54 million, below the estimated $56.25 million, representing a year-over-year decline of 8.5% [4] - Geographic Revenue from Canada was reported at $53 million, compared to the average estimate of $55.75 million, indicating a significant year-over-year decrease of 18.5% [4] Stock Performance - DNOW shares have returned -5.9% over the past month, contrasting with a +1% change in the Zacks S&P 500 composite [3] - The stock currently holds a Zacks Rank 4 (Sell), suggesting potential underperformance relative to the broader market in the near term [3]

Financial Data and Key Metrics Changes - Total revenue for Q3 2025 was $634 million, up 1% or $6 million from Q2 2025, marking the highest revenue quarter in almost six years [17][19] - EBITDA for Q3 was $51 million, or 8% of revenue, marking the 14th consecutive quarter of approximately 7% EBITDA or better [17][19] - Net income attributable to DNOW for Q3 was $25 million or $0.23 per fully diluted share, with a Non-GAAP net income of $28 million or $0.26 per fully diluted share [20][19] - Free cash flow for Q3 was $39 million, elevating year-to-date free cash flow to $58 million, with expectations to approach $150 million for the full year 2025 [8][19] Business Line Data and Key Metrics Changes - U.S. revenue totaled $527 million, effectively flat sequentially but up $45 million or 9% year-over-year, with U.S. Energy Centers contributing approximately 73% of total U.S. revenue [18][19] - Canada revenue was $53 million, up $5 million or 10% sequentially, while international revenue was $54 million, up $2 million or 4% sequentially [18][19] - The midstream sector accounted for 24% of overall DNOW revenue, with strong demand for pipe, valves, and fittings supporting several capital projects [10][19] Market Data and Key Metrics Changes - In the U.S., rig count decreased by 5% sequentially, and completions declined by 6% in Q3, indicating a cautious market environment [8][9] - Demand for products improved in the Haynesville region, primarily tied to new construction linked to increased demand for power generation and LNG exports [9][10] - Internationally, growth was observed in the Middle East and Singapore, driven by high demand for FPSO conversions and LNG module fabrication [15] Company Strategy and Development Direction - The company aims to invest in organic growth and pursue acquisitions, particularly in process solutions, to enhance service and product offerings [16][23] - The announced merger with MRC Global is expected to generate $70 million in annual cost synergies within three years, enhancing DNOW's earnings durability and cash flow [24][25] - The focus remains on retaining top talent and leveraging combined resources to grow business with existing and prospective customers [34][44] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving the fifth consecutive year of revenue growth, despite macro challenges such as customer consolidations and geopolitical uncertainties [27][29] - The outlook for Q4 anticipates typical seasonal decreases in revenue, with expectations for mid-single-digit percentage growth compared to Q4 2024 [26][27] - Full year 2025 EBITDA is projected to approach 8% of revenues, with free cash flow expected to reach approximately $150 million [27] Other Important Information - The company ended Q3 with zero debt and a cash position of $266 million, an increase of $34 million sequentially [20][21] - Accounts receivable was $429 million with days sales outstanding improving to 62 days, while inventory was $377 million, down $6 million from Q2 2025 [21][22] - The company has completed acquisitions totaling $122 million over the last 12 months and returned $32 million to shareholders through share repurchases [23] Q&A Session Summary Question: Insights on MRC Global merger and cost synergies - Management confirmed focus on achieving the $70 million synergy target and emphasized the importance of retaining top talent to maximize performance [34][35] Question: Challenges in integration and risk management - The biggest challenge is to engage employees and promote the future of the combined company to avoid revenue leakage during integration [38][39] Question: Growth opportunities in U.S. revenue and market share - Management believes the merger will enhance growth opportunities and market share in upstream sectors [44] Question: Visibility on FlexFlow and EcoVapor growth opportunities - Management indicated plans to continue evaluating and investing in these areas for growth, particularly in midstream and adjacent markets [49][70] Question: Update on gross margins and pricing environment - Management highlighted a focus on maximizing gross margins and navigating inflationary pressures while remaining competitive [63][64] Question: Opportunities in data centers and industrial markets - Management discussed growth prospects in midstream and data center markets, emphasizing the importance of providing necessary infrastructure [71][75]

Financial Performance - Revenue for the third quarter of 2025 reached $634 million, a 1% sequential increase and a 5% year-over-year increase[14, 15] - GAAP net income attributable to DNOW Inc was $25 million, with a GAAP diluted EPS of $0.23[16, 17] - Non-GAAP net income attributable to DNOW Inc, excluding other costs, was $28 million, with a non-GAAP diluted EPS of $0.26[18, 19] - EBITDA was $51 million, representing 80% of revenue, consistent sequentially[20, 21] - Gross margins were 229%, up year-over-year and compared to full-year 2024[22, 23] - Free cash flow generation of $39 million in the third quarter of 2025[58] Capital Allocation and Liquidity - The company has $629 million in total liquidity[25, 51] - Working capital, excluding cash, represented 156% of revenue[23] - A new $160 million share repurchase program was authorized in January 2025, with $27 million repurchased YTD as of September 30, 2025, currently paused due to the MRC Global merger[30] Strategic Initiatives - Announced MRC Global merger agreement to increase scale and scope across diverse industries and global markets[31, 56] - Closed Natron International acquisition in April 2025[31] Segment Results (Year-over-Year) - United States revenue increased to $527 million, a 9% increase[40] - Canada revenue decreased to $53 million, an 18% decrease[40] - International revenue decreased to $54 million, an 8% decrease[40] Outlook - Expect full-year 2025 EBITDA approaching 8% of revenue[62] - Reaffirm full-year 2025 free cash flow expected to approach $150 million[62]