DNOW Inc. 2025 Annual Report (10-K) Summary
Business Context and Reporting Period
This Form 10-K covers the fiscal year ended December 31, 2025. DNOW Inc. is a global provider of energy and industrial solutions, specializing in the distribution of pipe, valves, fittings (PVF), pumps, and fabricated equipment. The reporting period is defined by a transformative event: the completion of the acquisition of MRC Global Inc. on November 6, 2025, in an all-stock transaction. This merger significantly expanded DNOW's footprint, product breadth, and customer base. The company operates through three reportable segments: United States, Canada, and International.
Key Financial Metrics
| Metric | 2025 | 2024 (Revised) | Change |
|---|---|---|---|
| Total Revenue | $2,820 million | $2,373 million | +18.8% |
| Gross Profit | $478 million (17.0%) | $531 million (22.4%) | -$53 million |
| Adjusted Gross Profit | $651 million (23.1%) | $549 million (23.1%) | +$102 million |
| Operating Profit (Loss) | ($93 million) | $109 million | ($202 million) |
| Net Loss Attributable to DNOW | ($89 million) | $78 million | ($167 million) |
| Adjusted EBITDA | $209 million (7.4%) | $176 million (7.4%) | +$33 million |
| Cash from Operations | $155 million | $298 million | -$143 million |
| Total Debt Outstanding | $411 million | $0 million | N/A |
| Cash and Equivalents | $164 million | $256 million | -$92 million |
Material Changes vs. Prior Period
- Revenue Growth: Revenue increased 18.8% year-over-year, driven primarily by the MRC Global acquisition (contributing approx. $388 million in revenue post-closing) and the prior-year acquisition of Trojan Rentals. The U.S. segment grew 22.0%, while the International segment grew 30.0%.
- Profitability Decline: GAAP operating profit swung from a $109 million profit in 2024 to a $93 million loss in 2025. This was primarily due to $135 million in inventory-related transaction charges (including inventory step-up from acquisitions) and a $27 million increase in the LIFO reserve following a change in inventory accounting methodology.
- Accounting Change: In Q4 2025, DNOW changed its U.S. inventory valuation method from moving average cost to Last-In, First-Out (LIFO). This change increased the cost of products by $27 million in 2025 compared to $4 million in 2024.
- Segment Performance: The U.S. segment reported an operating loss of $106 million, a significant decline from a $91 million profit in 2024, largely due to the aforementioned inventory charges and increased legal/professional fees related to the MRC merger.
Guidance, Outlook, and Risks
- Merger Integration: Management is focused on integrating MRC Global to capture synergies. However, the company faces challenges stabilizing the U.S. ERP system inherited from MRC Global, which has impacted financial reporting and operational processes.
- Market Outlook:
- Upstream: Expected to remain flat to lower in 2026 due to disciplined capital spending by customers and global oil supply surpluses.
- Midstream: Expected growth driven by LNG export demand and natural gas infrastructure needs for data centers.
- Gas Utilities: Steady growth anticipated due to aging infrastructure replacement programs.
- Key Risks:
- ERP Stabilization: Risks of data migration errors, operational disruptions, and control deficiencies during the integration of MRC Global's systems.
- Commodity Prices: Volatility in oil, gas, and steel prices directly impacts customer demand and inventory valuation.
- Trade Policy: Potential changes in tariffs (e.g., Section 232) could affect product costs and inventory values.
- Asbestos Litigation: The company is a defendant in approximately 713 asbestos-related claims, though management believes reserves and insurance are adequate.
Investor Verification Checklist
- Inventory Valuation: Verify the impact of the LIFO accounting change on future cost of goods sold and gross margins, particularly in a deflationary or inflationary steel market.
- Merger Synergies: Monitor the timeline and success of the MRC Global integration, specifically regarding the stabilization of the U.S. ERP system and the realization of cost synergies.
- Debt Covenants: Review the $850 million revolving credit facility terms, noting the springing financial covenant (Fixed Charge Coverage Ratio) that triggers if availability falls below specified thresholds.
- Asbestos Reserves: Assess the adequacy of the liability reserve for asbestos claims and the solvency of insurance carriers covering these claims.
- Working Capital: Analyze the significant increase in receivables ($874M vs $388M) and inventory ($1.19B vs $352M) to ensure collection and turnover rates remain healthy post-acquisition.