Now Inc. Navigates ERP Pains Toward Growth Path

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

Now Inc.’s latest earnings call painted a cautiously constructive picture, as management acknowledged a tough first quarter while underscoring visible progress on integration and systems fixes. Near‑term headwinds from ERP disruptions, weaker U.S. MRC Global revenue and compressed margins weighed on results, yet stabilization milestones, synergy acceleration and emerging growth avenues suggested a transitional phase rather than a structural setback.

Combined Company Revenue Rebounds on MRC Contribution

Now Inc. reported Q1 2026 revenue of $1.2 billion, a 23% sequential increase driven largely by a full‑quarter contribution from the acquired MRC Global operations. The stronger top line underscores the scale benefits of the combined platform but also highlights the challenge of converting that higher revenue into consistent profitability.

ERP Stabilization and Permian Migration Unlock Inventory

Management said MRC Global’s U.S. ERP platform has stabilized enough to support day‑to‑day operations and reduce disruptions. In late April, all Permian locations migrated to Now’s SAP system, a key milestone expected to unlock about $40 million of additional inventory for customer fulfillment and improved service levels.

Synergy Run Rate Accelerates Toward Long‑Term Target

The company raised its expected near‑term annualized synergy run rate to roughly $30 million, up from a prior timing expectation of about $17 million. Longer term, Now reiterated its three‑year synergy target of $70 million, suggesting further integration benefits ahead as systems, processes and procurement are optimized.

Opportunistic Share Repurchases Signal Confidence

Capital returns remained an important theme, with Now repurchasing $50 million of stock in Q1 and retiring 4.2 million shares. Cumulatively, the company has bought back $87 million under its current authorization and $167 million since late 2022, signaling management’s view that recent share prices offer attractive value.

Edge Controls Deal Expands Automation and Process Reach

Now completed its 26th acquisition with the purchase of Edge Controls, bolstering its automation and controls capabilities within the Process Solutions segment. The deal broadens the company’s addressable market into data centers, industrial facilities and infrastructure projects, reinforcing a strategic tilt toward higher‑value, solution‑oriented offerings.

Data Center Orders Provide New Near‑Term Revenue Stream

The company reported early traction in data centers, where orders are largely secured and expected to translate into around $30 million of shipments this year. Management emphasized that this figure could grow as the program matures, positioning Now to participate in longer‑term infrastructure tied to digital and cloud demand.

Full‑Year Revenue and EBITDA Outlook Showing Improvement

For Q2, Now expects revenue to rise by mid‑ to high‑single digits from Q1’s $1.2 billion, with EBITDA flow‑through on that growth near 25%, well ahead of its historical 10% to 15% range. Full‑year 2026 revenue is projected to approach $5 billion with an EBITDA margin near 4.5%, signaling meaningful profitability improvement as integration issues ease.

Working Capital Discipline Aims at Stronger Cash Generation

Management outlined a plan to reduce inventory by about $100 million by year‑end and unlock at least $50 million of cash from improvements in accounts receivable. Together, those actions underpin a 2026 operating cash flow outlook of $100 million to $200 million, a sharp swing from the current working capital drag.

MRC U.S. Revenue Under Pressure, Especially Upstream and Downstream

Despite overall growth, MRC Global’s U.S. stand‑alone revenues fell $94 million year over year, a 16% decline, with roughly three‑quarters of the drop tied to upstream and downstream businesses. The softness reflects both broader market pressures and lingering execution issues, contributing to the perception that the integration remains a work in progress.

Adjusted EBITDA Declines and U.S. Segment Losses Persist

Adjusted EBITDA came in at $39 million, or 3.3% of revenue, down $22 million sequentially as integration costs and weaker margins weighed on profitability. The U.S. segment reported a $54 million operating loss, underscoring how the domestic platform is still absorbing integration friction and ERP inefficiencies.

Gross Margin Compression from Mix and MRC Profile

Adjusted gross profit was $256 million, equating to a 21.6% margin versus 22.6% in Q4 2025. Management cited the inclusion of MRC’s structurally lower margin profile and a reduction in higher‑margin international project sales as primary drivers of the compression, signaling that mix will remain a key watch point for investors.

ERP Disruption Costs and Customer Friction Weigh on Results

ERP‑related stabilization costs are currently running about $4.5 million per quarter, plus roughly $4 million for overtime, temporary labor and additional personnel. These disruptions also led to lost sales and customer friction concentrated among roughly two dozen accounts, though management expects these issues to moderate as systems and processes settle.

GAAP Loss Inflated by Inventory Step‑Up Charges

Now posted a GAAP net loss of $44 million, or a loss of $0.24 per diluted share, with results heavily impacted by a $41 million inventory step‑up to fair value tied to the merger. This non‑cash amortization, combined with reduced margins, masked a modest adjusted earnings performance, including adjusted EPS of $0.01.

Q1 Working Capital Drain and Leverage Metrics

Net cash used in operating activities was $95 million in the quarter, driven by working capital timing and ERP‑related issues that slowed collections and raised inventory. At quarter end, inventory stood at $1.2 billion with 3.3x annualized churn, days sales outstanding were 69 days, and trailing net debt leverage was 2.3x on net debt of $455 million.

International Project Volatility Highlights Cyclical Exposure

International revenue rose a modest 3% sequentially, but a roughly $35 million project contribution recorded in Q4 did not repeat in Q1. Management noted that this underscores the inherent volatility in its international project business, where timing can cause quarter‑to‑quarter swings despite underlying customer demand remaining intact.

Downstream Markets Face ERP and End‑Market Challenges

Downstream and industrial markets remained weak, with about two‑thirds of the decline attributed to ERP‑driven frustrations and the balance to a softer chemicals environment. Management indicated that downstream recovery may prove more difficult than in upstream or midstream, reflecting both operational and macro challenges in those segments.

Guidance Points to Sequential Recovery and Deleveraging

Looking ahead, Now expects Q2 revenue growth in the mid‑ to high‑single digits with elevated EBITDA flow‑through and full‑year 2026 revenue near $5 billion. The company guided to operating cash flow of $100 million to $200 million and anticipates net debt leverage of roughly 1x to 2x by year‑end, contingent in part on further share repurchases.

Now Inc.’s earnings call underscored a company navigating short‑term integration and systems turbulence while laying groundwork for a stronger medium‑term profile. Investors will watch how quickly ERP issues fade, margins expand and cash generation improves, but the combination of synergy momentum, data center wins and disciplined capital allocation suggests a cautiously optimistic path forward.