Chuck Minervino

Chuck Minervino with Susquehanna asked about DNOW's expectations for free cash flow in 2026, including any qualitative insights or key factors influencing it, given the current operational environment.

Answer

President and CEO David Cherechinsky projected DNOW would generate cash in the $100 million to $200 million range in 2026, with potential for improvement. He identified pent-up inventory and uncollected receivables as near-term challenges that also present opportunities for cash generation as system stability improves and collections are optimized. Cherechinsky concluded by expressing confidence that 2026 would be a 'good year' for cash flow.

Chuck Minervino asked for an update on the ERP issues, specifically whether the worst impact has passed or is still anticipated, and how long these challenges are expected to persist through 2026. He also sought insights into DNOW's free cash flow expectations for 2026, including key puts and takes.

Answer

David Cherechinsky, President and CEO, DNOW, stated that the organization is 'very good at coping' with the ERP issues through intensive efforts, though challenges like slow invoice processing persist. He noted that while there's no firm resolution timeline, they are bypassing obstacles by using SAP for more transactions and deploying a help desk, expecting more clarity in about 80 days. For 2026 free cash flow, Mr. Cherechinsky projected generating cash in the '$100-$200 million range,' viewing pent-up inventory and uncollected receivables as near-term problems that also present opportunities for cash generation, anticipating a 'good year' for cash flow.

Chuck Minervino asked for clarification on the 2026 capital expenditure guidance, considering deferred 2025 spend and the reclassification of wireline cables, and whether there's flexibility to reduce CapEx for increased free cash flow. He also inquired about the sharp sequential decline in rental tool revenue within support services in Q4 2025, asking if it was more acute than historical seasonality and for reasons behind the drop.

Answer

Ben Palmer (President and CEO) described the 2026 CapEx range as 'conservative,' noting it's subject to scrutiny and can be reduced if conditions warrant, as unapproved or undelivered equipment is not committed, emphasizing the focus on free cash flow. Regarding rental tool revenue, Mr. Palmer confirmed the decline was 'more acute,' attributing it to one or two customer-specific slowdowns and impacts in the Rockies, clarifying these were delays, not lost opportunities. Mike Schmidt (CFO) added that the business had a strong Q3, making the Q4 comparison tougher.