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DNOW Inc. (DNOW)·Q1 2025 Earnings Summary

Executive Summary

  • DNOW delivered Q1 2025 revenue of $599M, up 5% sequentially and 6% year-over-year; non-GAAP EPS of $0.22 and EBITDA of $46M (7.7% margin) beat internal expectations amid fewer rigs/completions .
  • Consensus for Q1 2025 was $587.2M revenue and $0.173 EPS; DNOW posted above-consensus results with revenue at $599M and non-GAAP EPS $0.22, while GAAP diluted EPS was $0.20 .
  • Gross margin remained resilient at 23.2% and WSA was $109M, slightly better than forecast; management reaffirmed FY 2025 guidance: revenue flat to up high-single digits, EBITDA “could approach 8%,” and FCF target $150M .
  • Capital allocation/catalysts: inventory build ahead of tariffs, $8M Q1 buybacks ($16M YTD), and a small strategic acquisition in Singapore (Natron) expanding MacLean International’s APAC footprint .

What Went Well and What Went Wrong

What Went Well

  • Beat expectations with sequential revenue growth to $599M and second-best first-quarter EBITDA ($46M); CEO highlighted execution and resilience despite lower rigs/completions (“we beat first-quarter expectations…”) .
  • Gross margins held at 23.2% and WSA costs were slightly better than forecast ($109M vs. ~$110M), evidencing operating discipline; Q2 WSA expected at similar levels .
  • Strategic actions: closed Natron acquisition to expand electrical supply in APAC under MacLean brand; continued buybacks ($16M YTD under new $160M program) .

What Went Wrong

  • International revenue included ~$15M of projects not expected to repeat in Q2, implying a ~$10M sequential top-line decline for the segment .
  • Canada expected to decline 15–20% sequentially in Q2 due to breakup seasonality, constraining consolidated growth .
  • Cash from operations was $(16)M and FCF $(22)M in Q1 driven by a $33M inventory build for tariff mitigation and organic growth positioning .

Financial Results

MetricQ1 2024Q4 2024Q1 2025Consensus (Q1 2025)
Revenue ($USD Millions)$563 $571 $599 $587.17*
GAAP Diluted EPS ($)$0.19 $0.21 $0.20 $0.173*
Non-GAAP Diluted EPS ($)$0.21 $0.25 $0.22 —
Gross Margin (%)—23.3% 23.2% —
EBITDA ($USD Millions)$39 $45 $46 —
EBITDA Margin (%)6.9% 7.9% 7.7% —
Operating Profit ($USD Millions)$28 $29 $30 —
Net Income ($USD Millions)$21 $23 $22 —

*Values retrieved from S&P Global.

Segment revenue breakdown

Segment Revenue ($USD Millions)Q1 2024Q4 2024Q1 2025
United States$435 $451 $474
Canada$62 $66 $62
International$62 $54 $63
Total$563 $571 $599

Key KPIs

KPIQ1 2024Q4 2024Q1 2025
Cash and Equivalents ($USD Millions)—$256 $219
Long-term Debt ($USD Millions)—$0 $0
Total Liquidity ($USD Millions)—$556 ~$567
DSO (Days)—62 67
Inventory ($USD Millions)—$352 $385
Inventory Turns (x)—5.0x 4.8x
Cash from Operations ($USD Millions)$81 $122 $(16)
Free Cash Flow ($USD Millions)$80 $119 $(22)
Share Repurchases ($USD Millions)—$5 $8 (Q1) / $16 YTD

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
RevenueQ2 2025—Flat to up mid-single digit % vs Q1 2025 New
RevenueFY 2025Flat to up high-single digit % vs 2024 Reaffirmed flat to up high-single digit % Maintained
EBITDA MarginFY 2025Could approach 8% Could approach 8% Maintained
Free Cash FlowFY 2025$150M target $150M target Maintained
WSA (OpEx)Q2 2025—~Similar to Q1 ($109–$110M) New
Effective Tax RateFY 2025~27%–29% ~26%–29% Slightly Lower Bottom
Canada RevenueQ2 2025—Down ~15%–20% sequentially (seasonality) New
International RevenueQ2 2025—Down ~$10M sequentially (non-repeat projects) New

Earnings Call Themes & Trends

TopicQ-2 (Q3 2024)Q-1 (Q4 2024)Current (Q1 2025)Trend
Tariffs/MacroPlanning for tariff/inflation pass-through; diversified sourcing Tariffs expected constructive to margins/revenue Pricing updates, limited China exposure; margin impact likely favorable but timing uncertain Intensifying focus
Midstream DemandLNG/utility pipeline wins Midstream ~20% of sales; stronger outlook into 2025 Q1 strength; Whitco contribution; expecting Q2 US growth Improving
Energy Evolution (CCUS/RNG)Multiple project wins; 60% YoY CCUS project growth EcoVapor record quarter; continued growth plans New EcoVapor Tank Commander; ongoing CCUS/RNG deliveries Steady to improving
Digital TransformationSAP digital revenue 52% 47% (seasonal dip) 53% (new high watermark) and internal AI use-cases Upward
Inventory StrategyWorking capital velocity improvements Expect inventory build in 2025 Intentional $33M build ahead of tariffs; turns 4.8x Proactive build
M&A PipelineInorganic focus in Process Solutions Largest acquisition year since 2015; new $160M buyback Natron acquisition; active U.S.-focused pipeline (Process Solutions) Active

Management Commentary

  • “We beat first-quarter expectations with revenue growth of 5% sequentially to $599 million, and delivered our second-best first-quarter EBITDA of $46 million” — David Cherechinsky, CEO .
  • “Overall, DNOW gross margins for the first quarter were 23.2%, similar to the fourth quarter of 2024 and better than expected” — Mark Johnson, CFO .
  • “We are uniquely well-capitalized, with a significant cash balance and no debt… while benefiting from our fortuitous inventory planning” — CEO .
  • “Taken all together, we expect DNOW’s second quarter revenues to be flat to up in the mid-single digit percentage range from the first quarter” — CEO .

Q&A Highlights

  • Tariffs: Pricing impacts mostly normal inflation so far; tariffs expected to show in Q2 with product increases ranging from 3–5% to 25–35% depending on valves/manufacturer; net impact expected favorable to margins but competitive forces apply .
  • Competitive dynamics: Market remains intensely competitive; inventory strategy viewed as an advantage against smaller competitors .
  • Geography: FY 2025 outlook “flat” internationally (focus on U.K./Australia/Middle East) and seasonal Q2 decline in Canada; strongest action expected in U.S. (midstream, tariffs, Trojan) .
  • Upstream exposure and rig assumptions: U.S. business ~70% upstream; rig count could decline, partially offset by tariffs and midstream; high uncertainty tied to oil prices .
  • Adjacent markets and data centers: Opportunities in water/wastewater/mining/chemical; data center builds drive midstream gas and cooling systems demand; MacLean bidding on electrical supplies .

Estimates Context

  • Q1 2025 results vs. consensus: Revenue $599M vs. $587.17M*; Primary EPS $0.22 actual vs. $0.173* consensus, a clear beat on both headline metrics .
  • Number of estimates: 3 for revenue and EPS*; Expect upward revisions to FY 2025 EBITDA and revenue given resilient gross margins and reaffirmed guidance .
  • Note: Primary EPS in consensus aligns with reported non-GAAP diluted EPS in this period; GAAP diluted EPS was $0.20 .

*Values retrieved from S&P Global.

MetricQ1 2025 ConsensusQ1 2025 Actual
Revenue ($USD Millions)587.17*$599
Primary EPS ($)0.173*0.22

*Values retrieved from S&P Global.

Key Takeaways for Investors

  • Strong execution: Above-consensus revenue and EPS with resilient margins despite lower rigs/completions; non-GAAP EPS beat provides near-term support for the stock narrative .
  • Mix tailwinds: Midstream, Process Solutions (Trojan/Whitco), and digital integration underpin earnings durability beyond upstream cycles .
  • Pricing power: Tariff/inflation pass-through likely constructive to revenue and margins beginning Q2; inventory built ahead of tariffs positions DNOW competitively .
  • Guidance intact: Reaffirmed FY 2025 revenue growth (flat to high-single-digit) and EBITDA “approaching 8%,” with Q2 guide flat to mid-single-digit sequentially — limited downside risk to near-term estimates .
  • Capital deployment: Active buybacks ($16M YTD) and tuck-in M&A (Natron) with ample liquidity ($567M) and zero debt; optionality for further Process Solutions expansion .
  • Watch items: International project lumpiness (non-repeat $15M) and Canada breakup seasonality to weigh on Q2; monitor rig/commodity trajectory vs. tariff tailwinds .
  • Actionable: Bias to raise near-term EPS/revenue estimates modestly; focus on midstream/data-center exposure and tariff-driven margin dynamics as key stock catalysts into Q2/Q3 .