Columbus McKinnon Conference Call Summary Company Overview - **Company**: Columbus McKinnon (NasdaqGS:CMCO) - **Industry**: Industrial Equipment and Automation - **Market Presence**: Operates in over 70 countries with a total addressable market of $35 billion - **Employee Count**: Over 7,000 employees - **Business Focus**: Leading global lifting and automation solutions for material handling requirements Key Points and Arguments Investment Thesis - Columbus McKinnon aims to deliver outsized revenue growth through a diverse portfolio including precision conveyance, automation, and linear motion products, alongside a core lifting business expected to grow at GDP plus rates [2][4] - The company anticipates $70 million in net cost synergies from operational efficiencies and improved fixed cost absorption [3][12] - Cash generation is strong, with historical cash conversion exceeding net income, expected to improve through synergy attainment [3][4] Debt Management - The company plans to accelerate debt repayment, targeting a debt-to-EBITDA ratio below 4 times by fiscal 2028, with a long-term goal of 2 times [4][10] Market Dynamics - Demand remains strong despite geopolitical tensions, with a robust pipeline of opportunities in both short and long cycle projects [18][19] - Columbus McKinnon has approximately $50 million in annual sales to the Middle East, with some potential impacts from geopolitical disruptions [19] Pricing and Tariffs - A 7% price increase implemented in July fully covered tariff costs, with expectations for tariffs to become less of a headwind moving forward [28][30] - The company is exploring potential tariff refunds, which could positively impact financials [29][30] Acquisition of Kito Crosby - The acquisition is expected to enhance Columbus McKinnon's competitive position in the lifting solutions market, with significant opportunities for revenue and cost synergies [10][50] - The integration management office is fully staffed, focusing on synergy realization and value creation [42][61] - Early wins in commercial and revenue synergies have been noted, with ongoing efforts to streamline costs and improve operational efficiencies [45][46] Customer Engagement and Cross-Selling - There are significant cross-selling opportunities between the legacy Columbus McKinnon and Kito Crosby customer bases, with efforts to enhance customer experience through digitization and improved service delivery [56][58][78] - The company aims to position itself as a one-stop shop for lifting solutions, leveraging its expanded product portfolio [73][78] Financial Projections - Free cash flow is projected to be around $170 million, factoring in the impact of the Kito Crosby acquisition and divestitures [94][95] - The company expects to achieve margin expansion and revenue growth through strategic initiatives and operational improvements [14][70] Competitive Positioning - Columbus McKinnon maintains a strong margin profile compared to peers, with a focus on safety, reliability, and total cost of ownership as key differentiators [88][90] - The company is positioned to outperform traditional lifting peers, with a focus on delivering value through comprehensive solutions [102][106] Additional Important Insights - The company has a well-defined commercial strategy to ensure effective integration and realization of synergies from the acquisition [61][62] - Ongoing investments in digital capabilities are aimed at enhancing customer interactions and operational efficiencies [58][60] - The leadership team is confident in the company's ability to navigate current market challenges and capitalize on growth opportunities [43][70]

Financial Data and Key Metrics Changes - In 2025, the company achieved a revenue growth of approximately 4% to $2.1 billion, marking the highest combined full-year revenue [9] - Adjusted EBITDA for the full year was approximately $312 million, with an adjusted EBITDA margin of 14.8% [9][24] - For Q4 2025, total revenue was $508 million, reflecting a flat year-over-year performance, with adjusted gross profit increasing by 8% to $197 million [22][24] Business Line Data and Key Metrics Changes - In the Inspection and Mitigation (I&M) segment, revenue was approximately $1.1 billion for 2025, remaining roughly flat year-over-year, with an adjusted gross margin of 27.8% [19][20] - The Consulting Engineering (CE) segment saw revenue of $714 million, up roughly 8% against 2024, with an adjusted gross margin of 47.0% [20][21] - Geospatial (Geo) revenue was $298 million, up roughly 6% against 2024, with an adjusted gross margin of 51.5% [21] Market Data and Key Metrics Changes - The backlog within CE and Geo was $1.07 billion, up about 10% from approximately $970 million last year [15] - Data center revenue increased significantly, reaching nearly $70 million in 2025, more than doubling from the prior year [12] - The federal funding lapse affected timing of work in Geo but did not lead to material cancellations [14] Company Strategy and Development Direction - The company plans to accelerate organic growth with a focus on cross-selling and deeper client engagement across segments [10] - There is a strong emphasis on strengthening organizational alignment and cultural cohesion while driving margin expansion through cost management [10][16] - The company aims to leverage its combined capabilities to expand share of wallet with key clients in infrastructure, industrial, utilities, and government sectors [10] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the leadership transition and the strategic direction of the company, highlighting the importance of maintaining operational stability during the transition [7][31] - The company anticipates continued growth driven by infrastructure reinvestment and regulatory compliance, with a focus on execution and delivering on targets [34] - For 2026, the company expects revenue in the range of $2.15 billion to $2.25 billion, with adjusted EBITDA between $330 million and $355 million [27] Other Important Information - The company completed a $250 million private placement to strengthen its balance sheet and provide flexibility for growth opportunities [25] - An integration program is underway, with a commitment to deliver $25 million in cost synergies, with half expected to be realized in 2026 [26] - A $200 million share repurchase program has been authorized to provide flexibility based on market conditions [32] Q&A Session Summary Question: Can you talk more about the integration process and specific milestones for 2026? - Management expressed confidence in the integration process, focusing on communication, culture, and achieving cost savings [39] Question: What are the biggest potential synergies and go-to-market strategies? - Management highlighted exciting developments in cross-selling opportunities, particularly in the data center space [40][41] Question: What are the expectations for the energy and oil end markets? - Management indicated good visibility on planned outages and run-and-maintain contracts, suggesting stability in the energy sector [51] Question: Can you elaborate on the EBITDA margins in the latest 2026 guidance? - Management acknowledged adjustments due to stock compensation changes but emphasized growth and margin expansion from improved execution [59] Question: How does the current situation in the Middle East impact the business? - Management noted that the Middle East represents a small portion of the business, with minimal current impact from rising oil prices [65] Question: What is the outlook for capital allocation? - Management confirmed a robust tuck-in acquisition pipeline while maintaining flexibility for share buybacks based on market conditions [78][79]

Core Viewpoint - The merger between Devon Energy and Coterra Energy, creating a $58 billion entity, reflects a trend of consolidation among smaller public companies in the U.S. shale industry, aiming for multi-basin and multi-year drilling opportunities [1]. Company Overview - The merged entity will retain the name Devon Energy and will be headquartered in Houston, with a significant presence in Oklahoma City [3]. Production Capacity - The combined company is projected to produce over 1.6 million barrels of oil equivalent per day (boepd) by the third quarter of 2025, which includes more than 550,000 barrels of oil per day and 4.3 billion cubic feet of gas per day [2]. Synergies and Cost Efficiency - Devon and Coterra anticipate realizing $1 billion in annual pre-tax synergies from the merger, which is expected to enhance free cash flows significantly [4]. - The combined company will have the largest inventory in the Delaware Basin, with a breakeven cost below $40 per barrel, indicating strong capital efficiency across various basins [5]. Market Context - The transaction, which has been unanimously approved by both companies' boards, is expected to close in the second quarter of 2026, pending regulatory approvals and shareholder consent [6]. - This merger is part of a broader trend in the U.S. upstream sector, which is moving into a multi-year consolidation phase as opportunities to strategically enhance core play exposure become limited [7].

Financial Data and Key Metrics Changes - Contract sales grew by 10% in 2025, marking the highest growth since 2022, with Adjusted EBITDA of $1.15 billion, a 4% increase year-over-year [16][18] - Total revenue before cost reimbursements for the quarter increased by 1% to $1.3 billion, while Adjusted EBITDA to shareholders grew by 12% to $324 million, with margins of 26%, up 250 basis points from the prior year [18][19] - Adjusted free cash flow for the year was $756 million, or over $8.25 per share, with $600 million returned to shareholders through share repurchases [17][26] Business Line Data and Key Metrics Changes - In the real estate business, contract sales for the quarter increased by 2% to $852 million, with tours up 9% year-over-year to 225,000 [18][19] - The financing business reported revenues of $134 million and profit of $81 million, with margins of 60% [20] - The resort and club business saw revenue growth of 6% to $219 million for the quarter, with segment profit of $160 million and margins of 73% [24] Market Data and Key Metrics Changes - The company surpassed pro forma consolidated 2019 tour flow levels for the first time, indicating strong recovery and growth in market demand [18][11] - The annualized default rate for consolidated portfolios improved to 9.86%, reflecting a 24 basis points improvement from the previous quarter [21] Company Strategy and Development Direction - The company is focused on four strategic priorities: attracting new customers cost-effectively, enhancing member lifetime value, product evolution and innovation, and driving operational excellence [10][12] - The introduction of HGV Max has driven a 35% increase in memberships, with a greater than 20% increase in lifetime value for Max members compared to non-Max members [8][12] - The company aims to maintain a robust pace of share repurchases while avoiding increased leverage, targeting $150 million per quarter [27][56] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in a stable consumer environment where travel remains a priority, carrying significant momentum into 2026 [9] - The guidance for 2026 anticipates Adjusted EBITDA between $1.185 billion and $1.225 billion, with low single-digit contract sales growth expected [28][29] - Management highlighted the importance of operational excellence and cost management as key focuses for future growth [14][15] Other Important Information - The company achieved $100 million in cost synergies from the Bluegreen acquisition ahead of schedule [16][14] - The weighted average interest rate for originated loans was reported at 14.6% [20] Q&A Session Summary Question: Can you provide expectations for quarterly cadence, specifically for tour growth and VPG? - Management indicated high single-digit growth for tour flow in Q1, with a high single-digit decline in VPG due to tough comparisons from the previous year [34][39] Question: Can you clarify the uptick in loan loss provision related to upgrades to legacy Bluegreen owners? - Management explained that the increase was due to changes in underwriting processes, requiring more capital from consumers during upgrades, which has improved loan performance [42][43] Question: Is there a plan to streamline assets and locations due to excess inventory? - Management confirmed ongoing analysis of the portfolio to optimize for both members and shareholders, with potential updates to be provided in the future [50][51] Question: What is the philosophy around share buybacks and the decision to maintain a $150 million quarterly repurchase? - Management emphasized the importance of maintaining current leverage levels while executing a robust share repurchase program, viewing the stock as a compelling value [55][56]

Financial Data and Key Metrics Changes - Gildan reported record revenues from continuing operations of approximately $3.6 billion for 2025, with adjusted operating margins of 21.5% and adjusted diluted EPS growth of 17%, reaching $3.51 [7][21] - For Q4 2025, sales from continuing operations were $1.078 billion, a 31.3% increase year-over-year, with organic growth of 4.9% excluding Hanes' contribution [15][16] - Adjusted diluted EPS for Q4 was $0.96, up 16% from $0.83 in the prior year, while GAAP diluted EPS from continuing operations was $0.32 compared to $0.86 the previous year [21] Business Line Data and Key Metrics Changes - Activewear sales grew 10.3% to $788 million, driven by the Hanes acquisition and favorable pricing [16] - Innerwear sales, which now include hosiery, underwear, and intimates, surged approximately 171% year-over-year, primarily due to HanesBrands' contribution [16] - International market sales reached $68 million, up 5.1% year-over-year, reflecting the acquisition's impact despite demand softness in certain regions [17] Market Data and Key Metrics Changes - The company anticipates approximately $250 million in run-rate cost synergies over the next three years, an increase from the original target of $200 million [10] - The integration of HanesBrands is progressing ahead of plan, with manufacturing footprint optimization already underway [8][10] - Gildan expects revenue for 2026 to be between $6 billion and $6.2 billion, with adjusted diluted EPS projected in the range of $4.20 to $4.40 [25][29] Company Strategy and Development Direction - The acquisition of HanesBrands is seen as a pivotal moment, doubling Gildan's scale and enhancing its competitive position across product lines and geographies [8][12] - The company is focusing on capturing synergies and optimizing its operational footprint, with a clear emphasis on margin-accretive growth [43] - Gildan plans to expand its Bangladesh facility to reinforce its cost leadership and support long-term demand [11] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving targeted synergies and maintaining a strong competitive position despite a dynamic macroeconomic environment [12][28] - The company is optimistic about growth in key product categories, driven by innovation and market share gains [25][29] - Management highlighted the importance of investing in product innovation to enhance the quality of offerings and drive sales growth [56][62] Other Important Information - The HanesBrands Australian business has been classified as held for sale and reported as discontinued operations [5] - Gildan's net debt at the end of 2025 was $4.417 billion, with a leverage ratio of 3 times net debt to trailing 12 months pro forma adjusted EBITDA [23] - The company plans to use proceeds from the potential divestment of the HanesBrands Australia business to reduce outstanding debt [24] Q&A Session Summary Question: Can you elaborate on the destocking plans for the year? - Management indicated that the destocking is driven by capacity changes due to the closure of two Hanes facilities, and they are working closely with customers to manage inventory levels [36][38] Question: What sales capacity can be achieved after closing the Hanes facilities? - Management confirmed that current manufacturing capacity is sufficient to support the projected sales growth, with additional capacity expected from the second phase of the Bangladesh facility [45][46] Question: How will the integration of HanesBrands be managed? - Management stated that all integration will be internalized within Gildan's facilities, leveraging existing capacity and optimizing operations [80]

Financial Data and Key Metrics Changes - Gildan reported record revenues from continuing operations of approximately $3.6 billion for 2025, with adjusted operating margins of 21.5% and adjusted diluted EPS growth of 17%, reaching $3.51 [5][20] - For Q4 2025, sales from continuing operations were $1.078 billion, a 31.3% increase year-over-year, with organic growth of 4.9% excluding Hanes' contribution [13][14] - Adjusted diluted EPS for Q4 was $0.96, up 16% from $0.83 in the prior year, while GAAP diluted EPS from continuing operations was $0.32 compared to $0.86 the previous year [20] Business Line Data and Key Metrics Changes - Activewear sales grew 10.3% to $788 million, driven by the Hanes acquisition and higher net selling prices [14] - Innerwear sales, which now include hosiery, underwear, and intimates, surged 171% year-over-year, primarily due to HanesBrands' contribution [14] - International market sales reached $68 million, up 5.1% year-over-year, reflecting the acquisition but offset by demand softness in certain regions [15] Market Data and Key Metrics Changes - The company anticipates approximately $250 million in run rate cost synergies over the next three years, an increase from the original target of $200 million [9] - The outlook for 2026 includes expected revenue of $6 billion to $6.2 billion, with adjusted diluted EPS projected between $4.20 and $4.40 [23][24] Company Strategy and Development Direction - The acquisition of HanesBrands is expected to double Gildan's scale and enhance its competitive position through a low-cost, vertically integrated platform [6][12] - The company is focusing on optimizing its manufacturing footprint and has initiated a formal process for the sale of the HanesBrands Australia business [10][11] - Gildan plans to expand its Bangladesh operations with a second textile facility, expected to support growth plans for 2028 [10] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in capturing synergies and achieving targeted sales growth despite a dynamic macroeconomic environment [22][28] - The company is proactively managing inventory levels to address short-term capacity tightness while preparing for future growth [37][42] - Management highlighted the importance of innovation and investment in product quality to drive future sales growth [55][61] Other Important Information - Operating cash flow for 2025 totaled $606 million, with free cash flow of approximately $493 million after accounting for capital expenditures [21] - The company ended the year with net debt of $4.417 billion and a leverage ratio of 3 times net debt to trailing 12 months pro forma adjusted EBITDA [21] Q&A Session Summary Question: Can you elaborate on the destocking plans for the year? - Management indicated that the destocking is driven by capacity changes due to the closure of two Hanes facilities, and they are working closely with customers to manage inventory levels [35][36] Question: What sales capacity can be achieved after closing the Hanes facilities? - Management confirmed that current manufacturing capacity is sufficient to support the projected sales growth, with additional capacity expected from the second phase of the Bangladesh facility [44][45] Question: How will the integration of HanesBrands be managed? - The integration will be internalized within Gildan's facilities, leveraging existing capacity and optimizing production processes [79][80] Question: Why is there no change to the 2028 EPS CAGR guidance despite increased synergies? - Management maintained the three-year guidance while acknowledging the increased synergies, indicating a cautious approach to ensure performance targets are met [65][66] Question: What is the status of the sale process for HanesBrands Australia? - The sale process is underway, with management engaging bankers and proceeding only if terms are attractive and in the best interest of stakeholders [69]

Financial Data and Key Metrics Changes - Full year revenue decreased by 7% year-over-year, with adjusted EBITDA margin increasing by 140 basis points to 37.5% [12][14] - Net income for Q4 was $99 million, down from $175 million in the same period in 2024, primarily due to a $29 million impairment and $26 million in acquisition-related expenses [21][22] - Adjusted net income for Q4 was $141 million, with diluted earnings per share of $1.68 [21] Business Line Data and Key Metrics Changes - North American on-highway end market saw a sequential improvement of 10% from Q3 to Q4, despite year-over-year declines [20] - Defense end market revenue increased by 26% to $267 million for the full year, achieving the $100 million incremental annual revenue objective [13] - Record revenue of $507 million was achieved in the outside North American on-highway end market for the full year [20] Market Data and Key Metrics Changes - The defense end market showed strong growth, while the North American on-highway market remained soft, particularly in medium-duty trucks [20][72] - The company noted sluggish economic growth and uncertainties in global trade policies affecting performance [12] Company Strategy and Development Direction - The acquisition of Dana's Off-Highway Drive & Motion Systems business is expected to create a global leader with expanded market reach and product portfolio [6][7] - The company aims to leverage synergies from the acquisition, focusing on cost reduction and operational efficiencies [8][9] - Strategic investments in India are being made to support local production and partnerships, aligning with the Make in India framework [16][17] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in navigating ongoing uncertainties and highlighted early signs of demand improvements in North America [13] - The company is focused on maintaining disciplined execution and seamless integration of the acquired business [10][60] - Management acknowledged the challenges posed by macroeconomic factors but remains optimistic about long-term growth opportunities [12][14] Other Important Information - The company repurchased $328 million of common stock, representing 4% of outstanding shares, and increased its quarterly dividend to $0.27 per share [14] - For 2026, the company provided guidance of consolidated net sales between $5.575 billion and $5.925 billion, with net income expected to range from $600 million to $750 million [25][26] Q&A Session Summary Question: Pricing expectations for 2026 and inflation impact - Management expects meaningful year-over-year pricing increases between 250 and 400 basis points, despite inflationary pressures [32][33] Question: EBITDA margin expectations for the acquired Off-Highway business - Management indicated that the Off-Highway business is expected to have an EBITDA margin of 11%-12% on $2.6 billion in revenues, with no one-time items assumed in guidance [38][39] Question: Synergies from the acquisition - Management confirmed that no synergies are embedded in the 2026 guidance, but they are confident in achieving the $120 million annual run rate of synergies over the next few years [48][88] Question: Margin profile for the legacy Allison business - Management believes that returning to peak EBITDA margins of 40% is feasible, depending on top-line growth and cost management [57][59] Question: End market guidance and recovery assumptions - Management remains cautious about recovery in Class 8 trucks and expects continued softness in the North American on-highway market [70][72]

Financial Data and Key Metrics Changes - Full year revenue decreased by 7% year-over-year, with adjusted EBITDA margin increasing by 140 basis points to 37.5% [11][12] - Fourth quarter net sales were $737 million, down 7% from the same period in 2024, with net income for the quarter at $99 million, a decrease of $76 million from $175 million for the same period in 2024 [18][19] - Adjusted EBITDA margin for the fourth quarter increased over 200 basis points to 36% despite a net sales decrease [19] Business Line Data and Key Metrics Changes - The defense end market saw a revenue increase of 26% to $267 million for the year, achieving the $100 million incremental annual revenue objective [12] - In the outside North American on-highway end market, record fourth quarter revenue was achieved, leading to record full-year revenue of $507 million [18] - Fourth quarter net sales in the defense end market were $73 million, up 7% year-over-year [18] Market Data and Key Metrics Changes - North America on-highway end market showed early signs of demand improvements, with a sequential improvement of 10% from the trough in the third quarter of 2025 [12][18] - The company reported strong performance in defense and international markets, with record revenue outside North America in 2025 [12][71] Company Strategy and Development Direction - The acquisition of Dana's off-highway business is expected to create a global leader in the end markets served, with a focus on sustainable growth and long-term value creation [5][10] - The combined company will leverage an expanded global footprint for local production and increased proximity to customers, enhancing product innovation and engineering capabilities [6][8] - The company aims to capture approximately $120 million of annual run rate synergies over the next few years [25][50] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in navigating ongoing uncertainty and highlighted the importance of cost control and execution amid macroeconomic challenges [11][12] - The company anticipates continued softness in the North America on-highway end market, particularly for medium-duty trucks, with no meaningful recovery expected for Class 8 vocational trucks [25][66] - Management remains focused on meeting customer commitments and seamless integration of the acquired business [60] Other Important Information - The company repurchased $328 million of common stock, representing 4% of outstanding shares, and increased its quarterly dividend to $0.27 per share [13][14] - The company plans to provide segment reporting starting with Q1 2026, reflecting the historical Allison Transmission business and the newly acquired Off-Highway Drive & Motion Systems business [22][23] Q&A Session Summary Question: Pricing expectations for 2026 and inflation impact - Management expects meaningful year-over-year pricing between 250 and 400 basis points, while facing substantial inflationary pressures [32][33] Question: EBITDA margin implications for the Off-Highway business - Management indicated that the Off-Highway business is expected to have a different mix than in 2025, impacting margin outlook [39][40] Question: Synergies from the acquisition - Management confirmed that the $120 million annual run rate of synergies is still targeted, with no synergies assumed in the 2026 guidance [50][87] Question: Margin profile for the legacy Allison business - Management believes that returning to peak margins of 40% is achievable, depending on top-line growth and cost management [56][58] Question: Off-Highway Drive & Motion segment guidance - Management indicated a mid-plus single-digit growth rate year-over-year for the Off-Highway segment [63] Question: End market guidance and recovery expectations - Management expressed cautiousness regarding recovery in Class 8 trucks and noted soft conditions in the vocational market [70][71]

Financial Data and Key Metrics Changes - In Q4 2025, the company reported an Adjusted EBITDA of $385 million and free cash flow of $321 million, with a year-on-year increase in Adjusted EBITDA of nearly 20% to $1.37 billion and free cash flow rising to $626 million [4][5] - The company retired approximately $1.3 billion in debt during the year, reducing annual interest expenses by nearly $90 million and enhancing financial flexibility [5][6] - Total liquidity at the end of Q4 was approximately $1.5 billion, including $620 million in unrestricted cash and cash equivalents [16] Business Line Data and Key Metrics Changes - The company achieved record uptime performance just shy of 98% across its fleet, with zero operational integrity events and zero lost time incidents [6] - The company executed five major planned out-of-service projects on time and on budget, while also recycling six rigs in 2025 [6] Market Data and Key Metrics Changes - Tendering activity is increasing, with expectations for deepwater utilization to exceed 90% through 2027, indicating a strengthening market environment [10] - In the U.S. Gulf, long-term demand remains robust, driven by new lease awards and improved fiscal terms, while Brazil's rig activity is expected to remain stable [10][11] - Africa is projected to see an increase in rig count from approximately 15 to at least 20 over the next couple of years, with significant multi-year program awards anticipated [11] Company Strategy and Development Direction - The company aims to optimize the value of its differentiated assets and generate industry-leading free cash flow, with a backlog of roughly $6 billion expected to convert efficiently into cash [7][8] - The recent acquisition of Valaris is seen as a transformational move that will enhance the company's capabilities and market position, with identified cost synergies exceeding $200 million [8][9] - The company is focused on establishing a stronger capital structure to weather business cycles and improve operational efficiencies [8] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the upcoming inflection point for offshore drilling, supported by customer conversations and increasing tender activity [33][34] - The company anticipates that the market will transition towards development of previously discovered assets, with a marked increase in exploration budgets [35] - Management highlighted the importance of continuity in operations with customers like Petrobras, aiming for cost reductions and extended contracts [56][58] Other Important Information - The company has made significant strides in cost reduction, with plans to decrease costs by an additional $150 million in 2026 [5][6] - The company is positioned to capitalize on improving demand and has a strong operational performance record, which is expected to enhance shareholder returns [9] Q&A Session Summary Question: Impact of Valaris acquisition on chartering strategy - Management indicated that the acquisition allows for cost efficiencies and improved service provision, enhancing reliability and predictability for customers [22][23] Question: Confidence in offshore drilling inflection timing - Management cited customer conversations and data from tender releases as indicators of a strengthening market, with expectations for over 90% utilization by late 2026 [33][34] Question: Guidance related to Petrobras negotiations - Management stated that the guidance reflects their best estimates and does not include significant upside from the Petrobras negotiations [38] Question: Fleet placement and regional opportunities - Management noted that the company can move rigs globally to meet demand, with high-spec rigs being preferred by customers [42][44] Question: Customer feedback on Valaris acquisition - Management reported overwhelmingly positive feedback from customers regarding the acquisition and its potential benefits [52][55] Question: Recent trends in producer M&A activity - Management observed a pivot back towards traditional hydrocarbon sources among producers, indicating a potential for increased offshore activity [74][76]

Financial Data and Key Metrics Changes - Revenue for Q4 2025 was $959 million, up 51% or $325 million from Q3 2025, driven by $388 million from MRC Global contributions during the stub period [22] - Full year 2025 revenue totaled $2.8 billion, an increase of $447 million or 19% from 2024, marking the fifth consecutive year of growth for DNOW [22] - Adjusted EBITDA for Q4 was $61 million, or 6.4% of revenue, while full year EBITDA was $209 million, or 7.4% of revenue [22][23] - Legacy DNOW achieved a record full-year EBITDA of $199 million in 2025, with EBITDA as a percentage of revenue reaching 8.2% [8][9] Business Line Data and Key Metrics Changes - U.S. revenue for Q4 2025 was $765 million, with MRC Global contributing $298 million; legacy DNOW's revenue was $467 million, down approximately 10% sequentially [23] - Canadian revenue for Q4 was $51 million, down 4% sequentially, while full year Canadian revenue was $214 million [23] - International revenue for Q4 was $143 million, with legacy DNOW International revenue at $53 million, down 7.5% year-over-year [24] Market Data and Key Metrics Changes - Upstream market activity is expected to remain flat to down, focusing on maintenance and efficiency rather than growth [16] - Midstream sector benefits from structural growth drivers, including natural gas infrastructure expansion and LNG development [16] - Gas utility market is expected to grow in 2026, supported by modernization efforts [16] Company Strategy and Development Direction - The merger with MRC Global enhances scale, diversifies sector reach, and expands the addressable market, solidifying DNOW's competitive position [10] - The company aims to achieve $70 million in cost synergies within three years, with $23 million expected by the end of the first year [11] - Focus on integrating operations, optimizing supply chains, and capturing identified cost synergies while maintaining customer service [38] Management's Comments on Operating Environment and Future Outlook - Management acknowledges ERP challenges impacting U.S. MRC Global operations but is optimistic about resolving these issues [12][14] - The company plans to reinstate guidance once operational stability is achieved, emphasizing the importance of integration and customer service [40][41] - Long-term growth is expected through improved competitiveness, better product availability, and enhanced relationships with suppliers [70] Other Important Information - The company changed its inventory valuation method to LIFO, which better reflects current costs due to commodity price fluctuations [26] - Transaction-related costs and foreign currency translation adjustments negatively impacted net loss in Q4, totaling $147 million [31] - The balance sheet remains healthy with $588 million in liquidity and a leverage ratio of 1.2x [32][33] Q&A Session Summary Question: Impact of MRC's ERP transition on Q4 and resolution timeline - Management indicated that ERP issues are limited to U.S. MRC only and have caused notable revenue declines in Q3 and Q4; efforts are underway to resolve these issues [47][48] Question: Growth expectations for 2026 - Management expects upstream markets to remain flat to down, while midstream and gas utilities are anticipated to grow; overall revenue is expected to be flattish [52][54] Question: Cost synergy targets and drivers - Improved cost synergy targets are driven by urgency to resolve ERP issues, with potential for exceeding initial savings projections [55][59] Question: Long-term vision for revenue growth and profit margins - Management envisions long-term growth through better competitiveness and improved supplier relationships, aiming for EBITDA margins in the 8% range [66][70] Question: Retaining key employees during ERP challenges - The company is focused on rewarding top talent and ensuring they are involved in decision-making to retain key employees during the transition [71][73]