DNOW Inc. Q1 2026 Filing Summary
Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended March 31, 2026. DNOW Inc. is a leading distributor of pipe, valves, fittings, pumps, and fabricated process equipment serving energy and industrial markets. The reporting period reflects the full impact of the November 2025 acquisition of MRC Global, which was accounted for as a business combination. The company operates through three reportable segments: United States, Canada, and International.
Key Financial Metrics
| Metric | Q1 2026 | Q1 2025 |
|---|---|---|
| Revenue | $1,183 million | $599 million |
| Gross Profit | $193 million (16.3% margin) | $138 million (23.0% margin) |
| Operating Profit (Loss) | ($50 million) | $29 million |
| Net Loss Attributable to DNOW | ($44 million) | $21 million |
| Adjusted EBITDA | $39 million (3.3% margin) | $46 million (7.7% margin) |
| Cash and Equivalents | $116 million | $219 million |
| Long-Term Debt | $571 million | $411 million |
| Free Cash Flow (Operating) | ($95 million used) | ($16 million used) |
Material Changes vs. Prior Period
- Revenue Surge: Revenue increased 97.5% year-over-year, driven primarily by the inclusion of MRC Global results. The U.S. segment grew 107.8%, while the International segment grew 133.3%.
- Profitability Decline: The company reported an operating loss of $50 million compared to a profit of $29 million in Q1 2025. This reversal was caused by $41 million in inventory-related transaction charges (fair value step-up), a $16 million increase in cost of products due to the LIFO inventory method, and higher SG&A expenses from the acquisition.
- Debt and Liquidity: Long-term debt increased by $160 million to $571 million due to borrowings under the revolving credit facility to fund operations and acquisitions. Cash and equivalents decreased by $48 million.
- Share Repurchases: The company repurchased 4.2 million shares for $50 million in Q1 2026, compared to $8 million in Q1 2025.
Outlook, Risks, and Management Commentary
- Acquisition Integration: Management notes that the MRC Global acquisition has expanded capabilities in large-bore valves and automation. A smaller acquisition of Edge Controls ($46 million) was completed in Q1 2026.
- Market Drivers: The Upstream sector remains cyclical but saw a 12% revenue increase. The Midstream sector grew 70% due to LNG export infrastructure demand. Gas Utilities revenue is expected to remain stable due to aging infrastructure replacement needs.
- Tariffs and Supply Chain: The company faces volatility from U.S. tariffs on steel and imported components. While some costs have been passed through to customers, tariffs have delayed or cancelled certain downstream projects.
- Legal Contingencies: The company is a defendant in approximately 446 asbestos lawsuits. Management believes current accruals and insurance coverage are adequate, though outcomes remain uncertain.
- Capital Allocation: Approximately $73 million remains available under the $160 million share repurchase program authorized in January 2025.
Investor Verification Checklist
- Inventory Charges: Verify the sustainability of the $41 million inventory step-up charge and its impact on future margins.
- LIFO Impact: Monitor the $16 million LIFO reserve increase and its effect on reported earnings during inflationary periods.
- Debt Covenants: Confirm compliance with the springing financial covenant (fixed charge coverage ratio) given the increased debt load and operating loss.
- Working Capital: Review the $115 million decrease in working capital, specifically the reduction in accrued liabilities related to MRC Global acquisition fees.
- Asbestos Reserves: Assess the adequacy of reserves for asbestos litigation given the volume of pending claims (approx. 500).