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]

Financial Data and Key Metrics Changes - Adjusted EBITDA reached a record high, with net revenue of $1.86 billion, up 2% year over year, including a 1% favorable impact from currency [26][28] - Gross margin increased to 29.8%, up 110 basis points year over year, driven by margin-accretive activities at ADI and operational efficiencies at Products and Solutions [27][28] - Adjusted earnings per share was $0.89, up from $0.59 in the prior period, primarily due to higher net income and a one-time tax benefit from terminating the Honeywell Indemnification Agreement [28] Business Line Data and Key Metrics Changes - Products and Solutions (P and S) net revenue grew 2% year over year, with a tenth consecutive quarter of gross margin expansion [10][16] - ADI reported 2% net revenue growth and average daily sales growth of 3% year over year, with most product categories growing low single digits [17][22] - P and S experienced strong demand for new products, particularly the First Alert SC5 connected smoke and CO detector, and the new Elite Pro smart thermostats [6][10] Market Data and Key Metrics Changes - The residential HVAC market remains soft, with a low double-digit percentage decline in HVAC channel revenue year over year due to market disruptions from regulatory changes [12][13] - The OEM channel posted low double-digit percentage revenue growth year over year, driven by higher-priced units in The Americas and EMEA [11] - E-commerce revenue grew 3% year over year, highlighting the optionality for customers with an omni-channel experience [19] Company Strategy and Development Direction - The company is focused on introducing differentiated new products across its connected home product portfolio to drive future growth [16] - Ongoing separation activities are on track to be completed by 2026, with leadership for separate companies already in place [9] - The integration of SnapOne is progressing well, with expectations to exceed $75 million in run-rate synergies [23][24] Management's Comments on Operating Environment and Future Outlook - Management remains optimistic about the company's ability to navigate macroeconomic challenges, including inflation and tariff volatility, with no significant impacts from the recent U.S. government shutdown [7][8] - The company anticipates a rebound in cash provided from operations in the fourth quarter following the completion of the ERP implementation [29][30] - The outlook for 2026 is positive, with expectations for year-over-year growth in organic revenue and adjusted EBITDA above current analyst estimates [31][65] Other Important Information - Total reported cash used by operating activities was $1.57 billion, primarily due to the termination payment made to Honeywell [29] - The company is experiencing a healthy pipeline of projects, with increased customer engagement and order rates approaching pre-implementation levels [73][80] Q&A Session Summary Question: Can you quantify the impact of the HVAC regulatory change and ERP on guidance? - Management indicated that both headwinds are expected to be transitory, with the HVAC market changes impacting slightly into next year, while ERP implementation costs are mostly behind them [36][38] Question: What growth would P and S have seen without HVAC headwinds? - Management refrained from providing specific growth figures but emphasized excitement about their positioning in the HVAC market and strong performance in other areas like retail and OEM [40][42] Question: Why are HVAC headwinds considered transitory? - Management explained that every home will eventually need an HVAC system, and the current inventory issues are temporary, with expectations for normalization in the market [50][51] Question: What is the expected impact of ERP on fourth-quarter results? - Management noted that the impact of ERP costs would be roughly split between Q3 and Q4, with a significant portion of revenue impact expected in Q3 [70][74] Question: What are the long-term operating margin expectations for each business? - Management targets double-digit operating margins for ADI and anticipates 300 to 500 basis points of operating margin expansion for P and S over the next three to five years [61][62]