DNOW Inc. (DNOW)·Q4 2024 Earnings Summary

Executive Summary

• Q4 2024 delivered resilient execution: revenue $571M and EBITDA $45M (7.9% margin), with non‑GAAP EPS $0.25; sequential revenue fell 6% but EBITDA margin expanded 100 bps to 23.3% gross margin, aided by vendor consideration and mix .
• Management exceeded prior Q4 guide (guided sequential revenue down high‑single digits and ~7% EBITDA margin; delivered -6% and 7.9%) and generated $119M FCF in Q4 ($289M full‑year) on disciplined working capital .
• Strategic moves: acquired Trojan Rentals ($114M) to expand water management/pump rentals/automation and doubled share repurchase authorization to $160M, signaling capital return and M&A capacity with $256M cash and no debt .
• FY25 outlook: revenue flat to up high single digits; EBITDA margin could approach 8%; Q1 2025 revenue up low‑to‑mid single digits sequentially with EBITDA margin approaching ~7%; FCF target $150M; mix pivot toward midstream/industrial adjacencies supports growth despite expected upstream moderation .
• Key catalysts: $160M buyback, Process Solutions growth (EcoVapor record quarter), tariff backdrop potentially constructive for gross margins, and midstream project activity; watch headwinds from international project timing and a $40M 2025 fabrication step‑down at a large customer .

What Went Well and What Went Wrong

What Went Well

• EBITDA and margins beat internal expectations: “fourth quarter EBITDA was markedly higher than expectations, at $45 million, or 7.9% of revenue,” with gross margin up to 23.3% on mix and vendor consideration .
• Strong cash generation: Q4 free cash flow $119M; FY24 free cash flow $289M (165% conversion), driven by working capital discipline (inventory turns ~5.0x; DSO 62 days) .
• Strategic expansion: Trojan Rentals acquisition broadens water solutions and automation; management sees revenue synergies and geographic expansion; EcoVapor posted its largest revenue quarter, supporting energy‑evolution growth (>60% yoy to >$50M in 2024) .

What Went Wrong

• Top‑line pressure: Q4 revenue down 6% sequentially and below Q4 2023 levels ($571M vs $606M), reflecting softer activity and project delays (international shifts into 1H25) .
• 2025 headwinds identified: ~$40M decline expected in fabrication from a large customer normalizing inventories, and ~$30M revenue reduction from consciously exiting low‑margin work .
• Macro/industry drag: lower rigs/completions and 2024 steel price deflation weighed on revenue and gross margin run‑rate vs 2023; Canada/international outlooks are “flat,” with tariff uncertainty in Canada .

Financial Results

Consolidated Performance (oldest → newest)

Notes: Management stated Q4 revenue was down 6% sequentially; Q4 gross margin increased 100 bps sequentially to 23.3% .

Geographic Revenue Breakdown ($M)

Operating KPIs

Guidance Changes

Additional headwinds for 2025: ~$40M fabrication decline at a large U.S. customer; ~$30M revenue reduction from exited low‑margin work .

Earnings Call Themes & Trends

Management Commentary

• “Fourth quarter EBITDA was markedly higher than expectations, at $45 million, or 7.9% of revenue, thanks to expanded gross margins and implemented cost control initiatives.”
• “We generated $119 million in free cash flow during the fourth quarter, an exceptional $289 million for the full year, delivering a 165% free cash flow conversion in 2024.”
• On Trojan: “Trojan…provides solutions in the water treatment, water sourcing and water transfer markets…Sable Automation…ties together equipment…into a turnkey water automation…solution.”
• On tariffs: “Tariffs generally should be constructive to gross margins and revenues…at least 60% of the steel products we sell are sourced from the United States.”
• 2025 mix: “We expect our U.S. business to grow…Canada…flat…International…flat…Full year 2025 revenues [flat to up high single digits] and…EBITDA could approach 8%.”

Q&A Highlights

• Tariffs/steel: Management expects tariffs to support gross margins and revenue; U.S. sourcing (~60%) provides cost hedge; guidance range reflects tariff and end‑market scenarios .
• Midstream priority: Greater interest and investment in midstream expected in 2025, leveraging Whitco; midstream share targeted to grow from ~20% .
• Trojan synergy: Minimal overlap with Flex Flow/Odessa; revenue synergies expected; SCADA/SaaS (Sable) plus DNOW digital platforms to expand offerings and geographies .
• Regional outlook: Canada and International guided flat; international project delays push into 1H25; portfolio ‘high‑grading’ underway to improve profitability .
• Capital allocation: Ability to pursue M&A and repurchases concurrently; $160M new buyback after completing $80M; cash $256M and no debt preserves flexibility .

Estimates Context

• Wall Street consensus (S&P Global) for Q4 2024 EPS/Revenue was not retrievable due to a temporary data access limit; as a result, we cannot quantify beat/miss vs consensus at this time. Attempts to fetch “Primary EPS Consensus Mean,” “Revenue Consensus Mean,” and “EBITDA Consensus Mean” for Q4 2024 failed due to request limits (Values retrieved from S&P Global were unavailable at query time).
• Relative to prior company guidance, Q4 sequential revenue decline (-6%) was better than guided (down high‑single digits) and EBITDA margin (7.9%) exceeded the ~7% guide, suggesting potential upward bias to near‑term margin assumptions pending Street updates .

Key Takeaways for Investors

• Mix and execution drove margin resilience: sequential gross margin expanded to 23.3% and EBITDA margin to 7.9% despite a 6% revenue decline, supported by vendor consideration, mix, and cost control .
• Cash generation is a differentiator: Q4 FCF of $119M and FY24 FCF of $289M provide ample dry powder for both M&A and buybacks; net cash $256M; new $160M authorization adds support .
• Process Solutions platform scaling: Trojan and EcoVapor strengthen water transfer and emissions‑reduction solutions, diversifying away from upstream cyclicality and expanding adjacencies (RNG, industrials) .
• 2025 setup: Company guides revenue flat to up high single digits and EBITDA margin approaching 8%; Q1 revenue growth low‑ to mid‑single digits; watch $40M fabrication headwind and $30M low‑margin exit .
• Tariff dynamic and midstream projects are potential upside levers; management sees tariffs as gross‑margin accretive and increased midstream activity from data center reshoring/LNG demand .
• International recovery timing is a watch item; project delays pushed into 1H25; Canada also “flat”; execution on high‑grading and digital/working capital discipline underpin profitability .
• For trading: Near‑term catalysts include midstream order flow, execution on $160M buyback, and incremental Process Solutions awards; risk is softer upstream volumes and international project timing .