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DNOW Inc. (DNOW)·Q3 2025 Earnings Summary

Executive Summary

  • Q3 delivered the highest revenue since Q4 2019 at $634M, with EBITDA of $51M (8.0% margin) and GAAP diluted EPS of $0.23; normalized EPS was $0.26 .
  • Versus S&P Global consensus, DNOW posted a slight revenue miss (−0.5%) but a clear normalized EPS beat (+$0.03); GAAP EPS was roughly in line with consensus normalization conventions* *.
  • Management reiterated full‑year targets: FY25 EBITDA margin could approach 8% and free cash flow could approach $150M; Q4 revenue is expected to be down sequentially but up mid‑single‑digits YoY .
  • Merger with MRC Global remains expected to close imminently; management reaffirmed $70M cost synergy target within three years and highlighted ERP issues at MRC as a recoverable “moment in time,” with October trending normal .
  • Midstream remained a key growth driver (~24% of revenue), while balance sheet strength persisted (cash $266M, zero debt, liquidity ~$629M) supporting organic/inorganic growth into 2026 .

What Went Well and What Went Wrong

  • What Went Well

    • Revenue reached $634M, the highest since Q4 2019; EBITDA was $51M (8.0% of revenue), marking the 14th straight quarter of ~7%+ EBITDA margin .
    • Gross margin was 22.9%, flat sequentially and up 60 bps YoY; free cash flow was $39M with disciplined working capital (DSO 62 days; turns 5.2x) .
    • CEO on strategic execution: “We believe 2025 will represent our fifth consecutive year of growth and are forecasting our best full‑year earnings ever… in terms of total EBITDA results.” .

  • What Went Wrong

    • Slight revenue shortfall vs S&P Global consensus (actual $634M vs $637.1M estimate); GAAP EPS ($0.23) did not reflect the normalized EPS beat framework used by consensus *.
    • Canada remained soft YoY (rig count −15% YoY) despite sequential uptick; pricing remained “hyper competitive,” constraining price/mix leverage .
    • Transaction and restructuring “Other” costs (~$4M pre‑tax in Q3) persisted due to M&A activity and international restructuring, requiring non‑GAAP adjustments .

Financial Results

MetricQ3 2024Q2 2025Q3 2025
Revenue ($M)$606 $628 $634
GAAP Diluted EPS$0.12 $0.23 $0.23
Diluted EPS ex “Other” (Non‑GAAP)$0.21 $0.27 $0.26
EBITDA ex “Other” ($M)$42 $51 $51
EBITDA Margin %6.9% 8.1% 8.0%
Gross Margin %n/a22.9% 22.9%
Cash From Operations ($M)$74 (Q4’24 context) $45 $43
Free Cash Flow ($M)$72 (Q4’24 context) $41 $39

Estimates vs Actuals (S&P Global):

MetricQ3 2025 ConsensusQ3 2025 Actual
Revenue ($M)$637.13*$634.00*
Primary/Normalized EPS$0.2333*$0.26*
  • Values retrieved from S&P Global.*

Segment revenue mix:

Region ($M)Q3 2024Q2 2025Q3 2025
United States$528 $528 $527
Canada$48 $48 $53
International$52 $52 $54
Total$628 $628 $634

Key KPIs and balance sheet:

KPIQ1 2025Q2 2025Q3 2025
DSO (days)n/a64 62
Inventory Turns (annualized)4.8x 5.1x 5.2x
Working Capital (ex‑cash) / Annualized Revn/a15.6% 15.6%
Cash ($M)$219 $232 $266
Liquidity ($M)~$567 ~$582 ~$629
Debt$0 $0 $0
Capex ($M)$6 $4 $4
CFO ($M)$(16) $45 $43
FCF ($M)$(22) $41 $39
YTD Share Repurchases ($M)$16 $27 $27

Non‑GAAP adjustments:

  • “Other” costs of ~$4M in Q3 (transaction‑related and minor international restructuring) with ~$1M tax benefit; GAAP EPS $0.23 → non‑GAAP $0.26 (add $0.03) .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
RevenueQ3 2025 sequential“Increase low‑single‑digits” vs Q2’25 Actual +1% seq., in line Delivered as guided
EBITDA marginQ3 2025“Approach 8%” 8.0% Delivered as guided
RevenueQ4 2025n/aDown sequentially; up mid‑single‑digits YoY vs Q4’24 New Q4 seasonal outlook
EBITDA marginFY 2025Could approach 8% Could approach 8% Maintained
Free Cash FlowFY 2025Target ~$150M Could approach $150M Maintained
Effective Tax RateFY 2025~26–28% ~26–27% Slightly refined

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 & Q2 2025)Current Period (Q3 2025)Trend
Midstream growthQ2: Midstream at ~27% of revenue; pull‑forwards aided Q2; strong pipeline of LNG/power gen opportunities Midstream ~24% of revenue; strong project demand including a 400‑mile 42” pipeline; continued data center power gen link Sustained strength; diversified drivers
Digital/AI supply chain toolsQ1: Inventory investment and DigitalNOW posture DigitalNOW analytics tool enabling real‑time pipe demand vs inventory visibility Execution at customers expanding
Tariffs/macroQ2: Tariff and election uncertainty; price impacts limited; “hyper competitive” environment Continued geopolitical, tariff, OPEC policy uncertainties; price competition persists Persistent headwind; managed via mix/efficiency
Product development (EcoVapor)Q2: Energy evolution and RNG momentum New O2E 2000, Dry OXO, Oxygen Sentinel deployments; landfill/RNG/CO2 use‑cases Broadening adjacencies
Regional trendsQ2: U.S. up 11% seq.; Canada seasonally weak; International down on non‑repeat projects U.S. flat seq.; Canada +10% seq.; International +4% seq. Sequential normalization
Merger with MRCQ2: $70M synergies in 3 yrs; diversification; integration planning Regulatory clearance; imminent close; retain MRC brand in key sectors; $70M synergy reaffirmed Near‑term catalyst; synergy plan intact

Management Commentary

  • Strategy and performance: “We extended our strong performance… achieving our highest level of revenue since the fourth quarter of 2019… EBITDA of $51 million, or 8.0% of revenue.”
  • Outlook and guidance discipline: “We expect DNOW’s Fourth Quarter revenue… up in the mid‑single‑digit percentage range but down sequentially… full‑year 2025 EBITDA could approach 8%… free cash flow could approach $150 million.”
  • Merger progress and synergies: “We expect the transaction to generate $70 million of annual cost synergies within three years following the closing.”
  • ERP issues at MRC: “A moment in time and recoverable… performance improved dramatically by the end of the third quarter and more normalized performance continued through October.”

Q&A Highlights

  • Synergies and integration risk: Management reaffirmed $70M cost synergies and emphasized talent retention and customer focus to mitigate revenue leakage and drive cross‑selling post‑close .
  • Margin dynamics: Gross margin supported by service mix and targeted higher‑margin lines; competitive pricing environment remains intense; LNG/midstream growth expected to support margin strategy into 2026 .
  • Data centers and industrial adjacencies: Opportunities across feed‑gas PVF, pumps/cooling, electrical/cabling (McLean); combined company expected to benefit from AI‑driven power investments .
  • Tax rate: FY25 ETR guided to ~26–27%; Q3 ETR was 21.9% due to discrete items .
  • MRC ERP: Management framed the ERP disruption as transitory, with October normalization and long‑term benefits from a modern platform .

Estimates Context

  • Q3 revenue: $634.0M vs S&P Global consensus $637.1M (−0.5% miss); Primary/normalized EPS: $0.26 vs $0.233 (+$0.03 beat).
  • Takeaway: Quality beat on normalized EPS with in‑line operating execution and slight top‑line shortfall; GAAP EPS of $0.23 aligns with the notion that consensus Primary EPS reflects normalized earnings rather than GAAP *.
  • Implications for estimates: Management’s Q4 seasonality and FY25 “approach 8%” EBITDA and ~$150M FCF likely keep FY25/26 margin and FCF estimates stable to slightly higher, while MRC synergy cadence (post‑close) is a 2026‑weighted lever .
  • Values retrieved from S&P Global.*

Key Takeaways for Investors

  • Execution remains robust: 14 consecutive quarters at ~7%+ EBITDA, with Q3 at 8.0% and sustained 22.9% gross margin despite a hyper‑competitive backdrop .
  • Midstream is a durable growth engine (24% of revenue) tied to LNG and power/data center demand; narrative supports continued mix diversification .
  • Balance sheet strength (cash $266M, no debt, ~$629M liquidity) provides dry powder to accelerate organic/inorganic growth post‑merger .
  • Merger with MRC is nearing close; $70M cost synergies within three years plus cross‑sell upside and diversification should support multiple expansion if integration executes smoothly .
  • FY25 outlook intact (EBITDA ~8% of revenue; FCF ~$150M) with expected Q4 seasonal step‑down; watch for integration milestones and early synergy capture .
  • Normalized EPS beat vs consensus with slight revenue miss suggests resilient earnings power even with modest top‑line variance*.
  • Monitor tariff policy, competitive pricing, and Canada/international pacing as swing factors for 2026 margin trajectory .

Sources

  • Q3 2025 8‑K (press release and exhibits): revenue, EPS, EBITDA, non‑GAAP reconciliations, balance sheet, segment data, cash flow .
  • Q3 2025 earnings call transcript: gross margin, liquidity/working capital, regional color, midstream share, guidance/outlook, merger/ERP commentary .
  • Q2 2025 press release and call: prior‑quarter comps, mix, guidance setup .
  • Q1 2025 press release: prior‑period comps and liquidity .
  • Estimates: S&P Global consensus and actuals for Q3 2025 (Primary EPS, Revenue)*.