Now Inc. Earnings Call Signals Cautious Turnaround

Now Inc ((DNOW)) has held its Q1 earnings call. Read on for the main highlights of the call.

Now Inc.’s latest earnings call struck a cautiously constructive tone, as management balanced clear short-term pain with evidence of operational progress. ERP disruptions, margin compression and a GAAP loss weighed on Q1 results, but stabilization milestones, synergy upgrades, inventory unlocks and disciplined capital returns offered investors a pathway toward improved profitability over the next several years.

Revenue Growth Powered by MRC Global Contribution

Now Inc. reported Q1 2026 revenue of $1.2 billion, a 23% sequential jump driven primarily by the first full-quarter contribution from the acquired MRC Global operations. The sharp top-line increase underscored the scale added by the merger, even as integration challenges and market softness prevented the growth from fully translating into earnings.

ERP Stabilization and Permian SAP Migration Unlock Inventory

Management emphasized that the U.S. ERP platform inherited from MRC Global has now stabilized sufficiently to support consistent daily operations. All Permian locations have migrated onto DNOW’s SAP system as of late April, unlocking approximately $40 million of additional inventory to meet customer demand and improve service levels in a key growth basin.

Synergy Run-Rate Raised as Integration Gains Traction

The company increased its expected near-term annualized synergy run-rate to roughly $30 million, up from a prior expectation near $17 million as integration actions accelerate. Longer term, management reaffirmed its three-year annualized synergy target of $70 million, signaling confidence that merger benefits will expand margins once the current transition noise subsides.

Opportunistic Share Repurchases Signal Capital Discipline

Now Inc. continued to return cash to shareholders, repurchasing $50 million of stock in Q1 and retiring 4.2 million shares. Cumulatively, the company has bought back $87 million under its current $160 million authorization and $167 million since late 2022, highlighting management’s willingness to take advantage of lower share prices despite integration-related headwinds.

Edge Controls Acquisition Broadens Automation Portfolio

The acquisition of Edge Controls, Now Inc.’s 26th deal, extends the firm’s automation and control capabilities within its Process Solutions business. This move broadens the company’s addressable market into data centers, industrial facilities and infrastructure projects, positioning the platform to capture higher-value, technology-driven opportunities beyond traditional oilfield supply.

Data Center Opportunities Offer New Growth Vector

Early traction in the data center market is starting to show up in orders, with expected shipments this year in the neighborhood of $30 million. Management highlighted additional upside as the program matures, framing data centers as a promising near-term revenue stream and a strategic diversification away from purely cyclical energy exposure.

EBITDA Outlook Improves with Higher Flow-Through

Management signaled a strengthening earnings trajectory, expecting Q2 revenue to grow mid- to high-single digits sequentially with EBITDA flow-through on that growth near 25%. For the year, Now Inc. targets revenue approaching $5 billion and an EBITDA margin around 4.5%, implying better incremental profitability versus historical flow-through levels of 10–15%.

Working Capital Release Targeted to Boost Cash Flow

The company sees significant room to free up cash from the balance sheet, targeting roughly $100 million of inventory reduction by year-end. Management also estimates at least $50 million of potential cash improvement from better accounts receivable management, supporting an operating cash flow outlook of $100–$200 million for 2026 despite a weak start to the year.

MRC Global U.S. Revenue Decline Highlights Market Weakness

Despite the consolidated revenue growth, MRC Global’s U.S. stand-alone revenues fell $94 million year over year, a 16% decline. About three-quarters of the drop came from upstream and downstream businesses, underscoring the combined company’s exposure to cyclical end markets and the pressure that weaker demand is exerting on the legacy MRC operations.

Adjusted EBITDA Falls and U.S. Segment Swings to Loss

Adjusted EBITDA for Q1 came in at $39 million, or 3.3% of revenue, down $22 million from the previous quarter as integration costs and lower margins weighed on profitability. The U.S. segment posted a $54 million operating loss, reflecting both ERP-related disruption and the drag from lower volume and pricing in key markets.

Gross Margin Compression from Mix and MRC Profile

Adjusted gross profit was $256 million, representing a 21.6% margin versus 22.6% in Q4 2025, as the inclusion of MRC Global’s lower-margin profile diluted overall profitability. Reduced contributions from higher-margin international project sales further compressed gross margin, highlighting the importance of mix and project timing on the company’s earnings power.

ERP Costs and Disruptions Weigh on Performance

ERP stabilization and temporary operating expenses remain material, with management quantifying approximately $4.5 million per quarter for stabilization teams and about $4 million per quarter for overtime, temporary staff and added personnel. These issues have contributed to lost sales and customer friction, concentrated among roughly two dozen customers, though the company expects such costs to moderate as systems normalize.

GAAP Loss Impacted by Inventory Step-Up and Margins

Now Inc. reported a GAAP net loss attributable to shareholders of $44 million, or a loss of $0.24 per diluted share in Q1. Results were unfavorably impacted by $41 million of inventory step-up amortization tied to the MRC merger and by reduced margins, partly offset by modestly positive adjusted earnings per share of $0.01.

Working Capital Build Drives Q1 Cash Usage

Net cash used in operating activities totaled $95 million in Q1 due to working capital timing and ERP-related disturbances, leaving inventory at $1.2 billion with annualized churn of 3.3 times. Days sales outstanding stood at 69 days, days payables outstanding at 61 days and working capital excluding cash at 25.5% of annualized Q1 revenue, supporting a trailing net debt leverage ratio of 2.3 times.

International Project Volatility Adds Earnings Noise

International revenue increased modestly by 3% sequentially, but a sizable prior-period project contribution of about $35 million in Q4 did not repeat in Q1. This highlighted the inherent volatility of project-cycle revenues in international markets, which can magnify quarter-to-quarter swings in both sales and margins despite stable underlying demand.

Downstream Markets Face Persistent Headwinds

Downstream and industrial activity remained under pressure, with about two-thirds of the decline tied to customer frustration stemming from ERP issues and the rest linked to weakness in the chemicals sector. Management acknowledged that recovery in downstream markets may prove more challenging than in upstream or midstream, suggesting a slower rebound in these segments.

Guidance Points to Recovery as Integration Normalizes

Looking ahead, Now Inc. guided to mid- to high-single-digit sequential revenue growth in Q2, with unusually strong EBITDA flow-through of about 25% on that incremental revenue. For full-year 2026, management expects revenue to approach $5 billion, EBITDA margin near 4.5% and operating cash flow of $100–$200 million, while targeting net leverage between 1 and 2 times by year-end as synergy benefits build and ERP costs subside.

Now Inc.’s earnings call laid out a story of transition, with the benefits of scale, synergy and portfolio diversification increasingly visible but still masked by ERP friction, lower margins and working capital strain. Investors will focus on execution against the cash generation and margin improvement targets, as successful delivery could turn today’s cautious optimism into a more durable rerating of the stock.