10-K: DNOW Reports 2025 Net Loss Amid MRC Global Integration

DNOW Inc. reported a net loss of $89 million in 2025, primarily driven by acquisition-related costs and a change to the LIFO inventory method, despite an 18.8% revenue increase.

Summary

• DNOW Inc. completed the acquisition of MRC Global Inc. on November 6, 2025, in an all-stock transaction valued at $1,763 million, net of cash acquired, significantly expanding its energy and industrial solutions portfolio.
• The company reported a net loss attributable to DNOW Inc. of $89 million for 2025, a decrease of $167 million from a net income of $78 million in 2024.
• Total revenue increased by 18.8% to $2,820 million in 2025 from $2,373 million in 2024, primarily due to incremental revenue from the MRC Global acquisition and the Trojan Rentals, LLC acquisition in Q4 2024.
• Operating loss for 2025 was $93 million, a decrease of $202 million from an operating profit of $109 million in 2024.
• Gross profit decreased to $478 million (17.0% of revenue) in 2025 from $531 million (22.4% of revenue) in 2024, mainly due to inventory-related transaction charges and the LIFO inventory costing methodology.
• Adjusted Gross Profit increased to $651 million (23.1% of revenue) in 2025 from $549 million (23.1% of revenue) in 2024.
• Selling, general and administrative (SG&A) expenses rose by $143 million to $559 million in 2025, largely due to legal and professional fees associated with the MRC Global acquisition.
• The company changed its inventory valuation method for U.S. inventories from moving average cost to Last-In, First-Out (LIFO) in Q4 2025, applied retrospectively to 2023, which increased cost of products by $27 million in 2025.
• Goodwill increased to $617 million as of December 31, 2025, from $230 million in 2024, with $383 million recognized from the MRC Global acquisition.
• The U.S. segment revenue increased by 22.0% to $2,294 million in 2025, while Canada segment revenue decreased by 15.4% to $214 million, and International segment revenue increased by 30.0% to $312 million.
• The Upstream sector represented 62% of total revenue in 2025, increasing 5% from 2024, while the Midstream sector increased 31% and the Downstream and Industrial sector increased 41%.
• The company repurchased 2,465,089 shares of common stock for $37 million in 2025, with $123 million remaining under the $160 million authorization.
• DNOW is a defendant in approximately 435 asbestos-related lawsuits involving 713 claims, with insurance expected to cover a substantial majority of these claims.

Sentiment

Score: 4

Explanation: StockSavvy.ai views this filing with mixed sentiment. While strategic acquisitions drove revenue growth and position the company for future opportunities in energy transition and midstream, the significant net loss and operational challenges from integration and accounting changes indicate substantial short-term headwinds and execution risks.

Positives

• Total revenue increased by 18.8% to $2,820 million in 2025, driven by strategic acquisitions.
• Adjusted Gross Profit increased by $102 million to $651 million in 2025, indicating underlying operational strength when excluding certain acquisition-related and LIFO impacts.
• The acquisition of MRC Global Inc. creates a premier energy and industrial solutions provider with a balanced portfolio and diversified customer base, fortifying long-term profitability and cash flow generation.
• The Midstream sector revenue increased 31% in 2025, with strong growth expected in 2026 driven by natural gas infrastructure demand for LNG exports and data centers.
• The Downstream and Industrial sector revenue increased 41% in 2025, with strong growth anticipated from MRO activities, refinery turnarounds, and new energy transition projects.
• Expansion into new markets like mining and data centers, with encouraging momentum in negotiating master service agreements for data center cooling systems.
• The Gas Utilities sector is expected to have steady growth due to demand for natural gas, distribution integrity upgrade programs, and new home construction, being less volatile than other sectors.
• The company's supply chain expertise and strong supplier relationships allow it to navigate inflationary and deflationary market conditions and meet customer expectations.
• Contracts with customers typically include provisions allowing for quick pass-through of price increases, mitigating cost pressures.
• The company maintains an $850 million senior secured revolving credit facility, with $424 million in aggregate availability as of December 31, 2025, providing strong liquidity.
• The 2020 Annual Meeting approved a declassification amendment, resulting in all directors now being elected annually, enhancing corporate governance.

Negatives

• DNOW Inc. reported a net loss of $89 million in 2025, a significant decline from a net income of $78 million in 2024.
• Operating profit decreased by $202 million, resulting in an operating loss of $93 million in 2025.
• Gross profit margin decreased from 22.4% in 2024 to 17.0% in 2025, primarily due to inventory-related transaction charges ($135 million) and the LIFO inventory costing methodology ($27 million increase in cost of products).
• Selling, general and administrative (SG&A) expenses increased by $143 million to $559 million in 2025, largely due to legal and professional fees associated with the MRC Global acquisition.
• The Canada segment experienced a 15.4% revenue decrease in 2025 due to lower project-related activity, rig count, and commodity price declines, and was unfavorably impacted by $5 million due to foreign currency exchange rates.
• The U.S. segment operating loss was $106 million in 2025, a $197 million decrease from operating profit in 2024, primarily due to acquisition-related charges and LIFO impact.
• The company recognized $12 million in foreign currency translation losses in 2025 due to the liquidation of certain foreign subsidiaries.
• U.S. rig count declined 6.3% in 2025 compared to 2024, and worldwide average rig count declined 6.7%, indicating a challenging upstream market.
• West Texas Intermediate (WTI) oil prices averaged $65.46 per barrel in 2025, down 14.5% from 2024, negatively impacting upstream operations.
• The company continues to experience challenges with the stabilization of the U.S. ERP system inherited from MRC Global, which could lead to operational disruptions, increased costs, and delays in synergy realization.
• The integration of MRC Global's systems and processes may initially operate outside DNOW's existing control environment, exposing the company to control deficiencies and financial reporting risks.

Risks

• Decreased capital and other expenditures in the energy industry, driven by lower oil and natural gas prices, can adversely impact customer demand and revenue.
• Demand for gas utilities products and services depends on customer capital investment programs, which may be reduced or delayed due to regulatory approvals, adverse rate case outcomes, or economic conditions.
• Volatile oil and gas prices directly affect demand for products, with sustained decreases in capital expenditures having a material adverse effect.
• General economic and geopolitical conditions (e.g., public health crises, interest rates, recession, inflation, war, political instability) may adversely affect business, including demand and supply pricing.
• Significant future inflationary pressures on product costs may not be fully offset by price increases, impacting margins.
• Holding excess inventory that cannot be sold in a commercial timeframe may lead to lower prices, scrap, or write-downs, adversely impacting the business.
• Inability to compete successfully with other large or smaller regional companies, potentially leading to lower prices, reduced margins, and profitability.
• Manufacturers selling directly to customers could decrease demand for DNOW's distributed products, harming competitive position and reducing sales/earnings.
• Need for additional capital in the future may not be available on acceptable terms or at all, potentially limiting operations or expansion opportunities.
• Lack of long-term contracts or minimum purchase volume commitments with many customers means relationships can be terminated or volumes reduced at any time, leading to adverse effects from loss of significant customers.
• Changes in customer and product mix, and the cyclical nature of project-based work, could cause margins and operating results to fluctuate.
• Customer credit risks, especially with concentration in the energy industry, could result in losses from uncollectible receivables.
• Difficulties in successfully executing or effectively integrating acquisitions, including competition for targets, increased leverage, dilution, undisclosed liabilities, and integration complexities.
• Challenges with the stabilization of the U.S. ERP system inherited from MRC Global, potentially causing operational disruptions, increased errors, delays, and financial reporting risks.
• As a holding company, DNOW depends on subsidiaries for cash flow, which is subject to their earnings, debt terms, tax considerations, and legal/contractual restrictions.
• Loss of key personnel could impair effective business management or growth continuation.
• Interruptions in information systems, including cyber incidents, could compromise data, disrupt operations, impair financial reporting, and expose the company to liability and regulatory scrutiny.
• Loss of third-party transportation providers or negative conditions in the transportation industry could increase costs or disrupt operations.
• Adverse weather events or natural disasters could negatively affect local economies and disrupt operations, potentially exceeding insurance coverage.
• Privacy concerns related to data breaches could damage reputation and deter customers.
• Goodwill impairment could require recognition of charges, reducing income without impacting cash flow.
• Indebtedness may affect the ability to operate the business, limiting additional financing, dedicating cash flow to debt service, and increasing vulnerability to economic downturns.
• Failure to successfully integrate MRC Global's business or realize anticipated benefits, including cost savings and revenue opportunities.
• MRC Global initially operating outside DNOW's existing control environment could expose the company to control deficiencies and financial reporting risks during integration.
• Failure to effectively manage expanded operations post-merger could negatively impact future results.
• Financial forecasts related to the merger are based on assumptions that may not be realized, leading to material variations in actual future results.
• Ability to use existing U.S. federal capital loss carryforwards, net operating loss carryforwards, and other tax attributes could be limited by ownership changes under Sections 382 and 383 of the Code.
• Unexpected supply shortages from manufacturers or disruptions in freight networks could delay deliveries, increase costs, and impair ability to meet customer demand.
• Inability to pass on supplier cost increases to customers could have a material adverse effect.
• Loss of a significant supplier could require reliance on other suppliers or developing new relationships, potentially leading to higher product prices.
• Changes in credit profile may affect relationships with suppliers, leading to shorter payment terms and impacting liquidity.
• Price reductions by suppliers could cause inventory value to decline and customers to demand lower sales prices, reducing margins and profitability.
• A substantial decrease in steel prices could significantly lower product margin or cash flow.
• Inability to pass along steel cost increases to customers if prices rise.
• Lifting of existing tariffs and duties on imports could increase supply of less expensive products, adversely affecting business and results of operations.
• Changes in trade policies, including imposition or elimination of tariffs and duties, and governmental instability, could negatively impact business.
• Strict environmental, health, and safety laws and regulations may lead to significant liabilities and material adverse effects.
• Existing or future laws/initiatives to limit greenhouse gas emissions or relating to climate change may reduce demand for products and services, and physical effects of climate change could damage assets.
• Inadequate insurance for potential liabilities, including those from litigation, could result in significant losses.
• Exposure to personal injury, product liability, and environmental claims involving allegedly defective products, even as a distributor.
• Risks associated with conducting business in markets outside the U.S. and Canada, including economic, legal, political, and regulatory developments.
• Failure to comply with U.S. and other anti-corruption laws, trade controls, and economic sanctions could subject the company to penalties and harm its reputation.
• Compliance with and changes in laws and regulations in operating countries could have a significant financial impact.
• Ongoing asbestos-related lawsuits, with potential for material adverse effects if assumptions about settlements, disease mix, dismissal rates, insurance recoveries, or legal standards change.
• Market price of shares may fluctuate widely due to various factors beyond control.
• Percentage ownership in the company may be diluted in the future due to equity issuances.
• No assurance of future dividend payments on common stock.
• Certain provisions in corporate documents and Delaware law may prevent or delay an acquisition, even if beneficial to some stockholders.

Future Outlook

DNOW anticipates future growth from energy transition projects, with traditional energy customers shifting capital to areas like carbon capture, biofuels, offshore wind, and hydrogen processing. The company expects to continue supporting these customers and expanding its product and solution offerings. The Midstream sector is projected to grow, driven by increased demand for natural gas infrastructure due to rising LNG exports and gas-fired power generation for data centers. The Gas Utilities sector is expected to see steady growth from aging infrastructure replacement and new home construction. The Downstream and Industrial sector is forecast for strong growth from MRO activities, refinery turnarounds, and new energy transition projects. The company expects to fund future cash acquisitions primarily with cash on hand, cash flow from operations, and its revolving credit facility, with capital expenditures for 2026 estimated at $55 million, mainly for ERP implementation and equipment.

Management Comments

• "We expect opportunities for revenue synergies from cross-selling products related to our acquisitions will support growth in this sector [Upstream]."
• "We also expect incremental growth in water management and disposal solutions, supported by our Flex Flow and Trojan offerings, as customers seek to optimize operating costs and manage produced water volumes more effectively."
• "The outlook in 2026 is expected to have growth primarily driven by demand for natural gas infrastructure as LNG exports continue to rise and gas fired power generation increases for data centers."
• "Following the merger with MRC Global, we have enhanced our capabilities in large-bore valves, larger outside diameter pipe, measurement and instrumentation and valve actuation and automation. We believe the combined company is well positioned to capture midstream growth opportunities both domestically and internationally, supported by an expanded footprint and integrated solutions offering."
• "Based on market fundamentals, the need for natural gas to fuel new electric generation facilities and new market share opportunities, we expect the Gas Utilities sector to continue to have steady growth in the coming years."
• "We are also negotiating master service agreements with targeted owners and subcontractors for PVF work in new data center cooling systems. While still early, we are seeing encouraging momentum in both areas."
• "Our supply chain expertise, strong relationships with key suppliers, and effective inventory management allow us to navigate both inflationary and deflationary market conditions."
• "We see the evolution in energy transition investments to reduce atmospheric carbon, source carbon capture, storage and new energy streams as an opportunity for DNOW to supply many of the current products and services we provide, as well as an opportunity to partner and source from new suppliers to expand our offering and to meet our customers needs for their energy evolution investments."

Industry Context

StockSavvy.ai notes that DNOW's strategic focus on energy transition projects aligns with broader industry trends as major energy players diversify their portfolios. The projected growth in natural gas infrastructure, driven by LNG exports and data center demand, positions DNOW favorably in the midstream sector, contrasting with the general decline in U.S. rig counts. The company's emphasis on supply chain efficiency and digital platforms reflects a competitive response to evolving customer demands and market volatility in the distribution industry.

Comparison to Industry Standards

• DNOW's acquisition of MRC Global creates a 'premier energy and industrial solutions provider,' suggesting a move to consolidate market leadership against fragmented competition.
• The company's 23.1% Adjusted Gross Profit as a percentage of revenue in 2025 is a key metric for evaluating its operational efficiency in the distribution sector, which can be compared to peers like Ferguson plc or W.W. Grainger, Inc., though direct comparisons require detailed segment-level data.
• The decline in U.S. rig count (6.3% in 2025) and WTI crude prices (14.5% in 2025) indicates a challenging upstream market, which DNOW's diversified strategy aims to mitigate, similar to how other diversified energy service providers manage cyclicality.
• The growth in natural gas prices (61.2% in 2025) and demand for LNG infrastructure positions DNOW to benefit from trends seen in companies focused on gas processing and transportation, such as Kinder Morgan or Energy Transfer.
• DNOW's investment in digital platforms like DigitalNOW and MRCGO mirrors broader industry efforts by distributors to enhance customer experience and operational efficiency through e-commerce, a trend observed across various industrial distribution sectors.

Management Changes

Corporate Governance

Legal Proceedings

• DNOW is a defendant in approximately 435 lawsuits involving 713 claims related to alleged asbestos exposure from products purportedly distributed by its subsidiary, MRC Global (US) Inc.
• No asbestos lawsuit has resulted in a judgment against DNOW to date, with the majority being settled, dismissed, or otherwise resolved.
• Applicable third-party insurance has substantially covered these asbestos claims and is expected to cover a substantial majority of existing and anticipated future claims.
• The company has recorded a liability for its estimate of the most likely settlement of asserted asbestos claims and a related receivable from insurers for estimated recovery.
• The company is currently undergoing a multi-state unclaimed property audit, the timing and outcome of which cannot be predicted, and an adverse decision could have an adverse impact.
• From time to time, customers may claim distributed products are defective or require repair/replacement under warranties; these are considered ordinary and routine matters, with manufacturers generally indemnifying DNOW against product liability claims.

Stakeholder Impact

• **Shareholders:** Experience dilution from the MRC Global all-stock acquisition (82 million shares issued). The net loss in 2025 and decreased EPS negatively impact shareholder value in the short term. The share repurchase program aims to return capital, but future dividends are not assured. Anti-takeover provisions may limit opportunities for premium acquisition offers.
• **Employees:** The company had approximately 5,300 employees as of December 31, 2025, including 355 temporary employees. The MRC Global acquisition involved retention payments for key employees. The company emphasizes employee growth, development, and workforce inclusion. Safety programs are paramount for employee well-being.
• **Customers:** Benefit from an expanded product portfolio and supply chain solutions following the MRC Global merger. Digital platforms (DigitalNOW, MRCGO) aim to enhance customer experience and streamline purchasing. However, ERP system integration challenges could lead to service interruptions or delays. Customers in energy transition markets will see expanded offerings.
• **Suppliers:** Benefit from access to a larger, diversified customer base and consolidated orders. DNOW's vendor assessment process and Approved Manufacturers Listing (AML) are critical for supplier relationships. Changes in credit profile could affect payment terms.
• **Creditors:** The company's indebtedness of $411 million and compliance with credit facility covenants are important. The Amended Credit Facility extends maturity to 2030 and expands the borrowing base, providing financial flexibility.

Next Steps

• Execute the integration, create value, and capture synergies from the MRC Global merger.
• Create value through successful acquisition integrations, recognizing both revenue and cost synergies.
• Create scale through targeted mergers and acquisitions, primarily in higher margin and higher growth markets.
• Generate robust cash flow and opportunistically return capital to shareholders.
• Diversify across resilient end-markets.
• Supply critical products to develop midstream infrastructure to support power demand driven by data centers.
• Invest in technology systems and distribution center infrastructure to achieve improved operational excellence.
• Safely and sustainably increase efficiency and lower operating costs to enhance margins.
• Optimize working capital.
• Continue reach and expansion of digital interaction with new and existing customers through digital connections and e-commerce.
• Maintain superior customer service.
• Provide products and services to companies engaged in energy transition.
• Monitor customers' plans for, and the pace of development of, energy transition projects, especially with waning U.S. government support.
• Finalize the preliminary valuation and purchase price allocation for the MRC Global acquisition no later than one year from the acquisition date.
• Complete the acquisition of Edge Controls, subject to customary closing conditions including regulatory approval.
• Continue to monitor the need for a valuation allowance against deferred tax assets and record adjustments as appropriate in future periods.
• Continue to monitor compliance with debt covenants under the Amended Credit Facility.
• Potentially pursue additional acquisition candidates.
• Fund expected capital expenditures of approximately $55 million for fiscal year 2026, primarily for MRC Global ERP implementation and property, plant, and equipment purchases.
• Continue share repurchases under the authorized program, taking into account market conditions.

Key Dates

Recommendation

DNOW's 2025 results show a significant net loss and operational challenges, primarily due to the MRC Global acquisition's integration costs and the LIFO accounting change. While the acquisition strategically expands market reach and product offerings, particularly in energy transition and midstream, the immediate financial impact is negative. The company faces ongoing risks related to ERP system stabilization, volatile commodity prices, and legal proceedings. However, the long-term strategic rationale of the MRC Global merger, coupled with growth opportunities in resilient sectors like gas utilities and data centers, suggests potential for future recovery. A 'hold' recommendation is appropriate as investors should monitor the successful integration of MRC Global, the realization of anticipated synergies, and the stabilization of financial performance before considering further investment or divestment.

Keywords

Energy Solutions, Industrial Solutions, Pipe Valves Fittings, PVF, Pumps, Fabricated Equipment, Oil and Gas, Upstream, Midstream, Gas Utilities, Downstream, Industrial Markets, MRC Global Acquisition, Supply Chain Solutions, DigitalNOW, MRCGO, LIFO Inventory, Share Repurchase, SEC 10-K, Energy Transition, Cybersecurity, Asbestos Litigation