DNOW Inc. (DNOW) is a leading distributor of energy and industrial products and solutions, with a rich history spanning over 160 years. The company, which was spun off from National Oilwell Varco in 2014, has carved out a significant niche in the market, serving a diverse customer base across the energy, industrial, and emerging energy transition sectors.

Business Overview

DNOW Inc., headquartered in Houston, Texas, was incorporated in Delaware on November 22, 2013. The company operates primarily under the DNOW brand along with several affiliated brands that are tied to prior acquisitions. DNOW's operations are primarily divided into three reportable segments: the United States, Canada, and International. The company's extensive network of approximately 165 locations and 2,580 employees worldwide enables it to serve customers in over 80 countries globally.

DNOW's product and service offerings are consumed throughout the energy industry, from upstream drilling and completion to midstream transportation and downstream refining. The company's global product portfolio includes a wide range of products, such as pipe, valves, fittings, flanges, gaskets, fasteners, electrical equipment, instrumentation, artificial lift, and modular process and production equipment. Additionally, DNOW provides supply chain and materials management solutions to its customers, leveraging its expertise and infrastructure to streamline their procurement and logistics processes.

The company's key product and service offerings are utilized across various sectors, including upstream drilling and completion, exploration and production, midstream transmission, gas and crude oil processing infrastructure development, downstream petroleum refining and petrochemicals, as well as in other industries such as chemical processing, mining, water/wastewater, food and beverage, gas utilities, and the evolving energy transition markets.

Over the years, DNOW has faced challenges such as volatility in oil and gas prices, which can impact demand for its products and services. The company has navigated these industry cycles by focusing on improving inventory management, implementing self-help initiatives to enhance efficiency, and diversifying into adjacent markets beyond just oil and gas. DNOW has also had to adapt to changes in trade policies, including the imposition and removal of tariffs on certain products it distributes.

Financial Performance

Financials

In 2024, DNOW reported total revenue of $2.37 billion, a 2.2% increase from the previous year. This performance was achieved despite a challenging market environment, as the company's U.S. segment grew 7.5% year-over-year, partially offset by declines in the Canadian and International segments. The company's EBITDA excluding other costs stood at $176 million, or 7.4% of revenue, showcasing its ability to generate strong profitability even in a volatile market.

For the most recent fiscal year, DNOW reported an annual net income of $81 million and annual operating cash flow of $298 million. The company's annual free cash flow reached an impressive $289 million, representing one of its best free cash flow years since 2015.

In the most recent quarter, DNOW generated revenue of $571 million and net income of $23 million. The 2.2% year-over-year revenue increase was driven by incremental revenue from acquisitions completed in 2024, partially offset by a decline in U.S. rigs and completions.

Performance by Geographic Markets: The United States segment accounted for approximately 79% of total revenue in 2024, contributing $1.88 billion. The Canada segment accounted for 11% of total revenue, generating $253 million, while the International segment contributed 10%, or $240 million. The company's operating profit for the year was $113 million, with the United States segment generating $95 million, the Canada segment generating $13 million, and the International segment generating $5 million.

Liquidity

DNOW's balance sheet remains robust, with zero debt and a cash position of $256 million as of the end of 2024. The company's working capital efficiency, as measured by its inventory turn rate of 5.0 times, has been a key driver of its financial performance, allowing it to effectively manage its assets and generate substantial free cash flow. In 2024, DNOW delivered $289 million in free cash flow, representing a remarkable 165% free cash flow conversion rate.

The company's strong liquidity position is further evidenced by its debt-to-equity ratio of 0.025, current ratio of 2.33, and quick ratio of 1.53. DNOW also maintains a $500 million revolving credit facility, of which approximately $433 million was available as of December 31, 2024, resulting in excess availability of 99%.

Growth Strategies

DNOW's growth strategies are multifaceted, focusing on both organic and inorganic initiatives. The company has a proven track record of successful acquisitions, having completed 23 transactions since its public listing in 2014. These acquisitions have strengthened DNOW's capabilities, particularly in the high-growth process solutions business, which now accounts for 27% of the U.S. segment's revenue.

The company's recent acquisition of Trojan Rentals, LLC for $114 million further bolsters its water management solutions offerings, expanding its pump rental, automation, and water transfer capabilities. This strategic move aligns with DNOW's focus on diversifying its revenue streams and capitalizing on the growing demand for water infrastructure solutions across the energy and industrial sectors.

In addition to M&A, DNOW is also actively investing in its digital capabilities through its DigitalNOW platform. By leveraging technology to streamline customer procurement and logistics processes, DNOW is able to enhance efficiency and improve its value proposition to clients.

Outlook and Risks

Looking ahead, DNOW expects its full-year 2025 revenue to be flat to up in the high single-digit percentage range from 2024 levels. The company anticipates its EBITDA margin could approach 8% of revenue in 2025, driven by continued operational improvements and cost control initiatives. DNOW is targeting free cash flow of $150 million in 2025 to support growth at the forecasted activity levels.

For the first quarter of 2025, DNOW expects sequential revenue to increase in the low to mid-single-digit percent range compared to Q4 2024. The company expects EBITDA as a percent of revenue to approach 7% in Q1 2025, incorporating a reset of payroll taxes, reduced vendor consideration, and favorable Q4 2024 bad debt benefit not expected in Q1 2025.

However, DNOW is not immune to the cyclical nature of the energy and industrial markets it serves. Factors such as volatile oil and gas prices, changes in drilling and completion activity, and shifts in customer spending patterns could impact the company's financial performance. Additionally, supply chain disruptions, inflationary pressures, and geopolitical uncertainties pose potential risks to DNOW's operations.

The distribution industry serving the energy and industrial end markets is highly fragmented and competitive. Demand for DNOW's products and services is primarily driven by the level of oil and gas drilling, completions, servicing, production, transmission, refining and petrochemical activities. The industry has experienced volatility in oil and natural gas prices in recent years, which has impacted customer spending and activity levels. However, the company has focused on diversifying its business into midstream, downstream and energy transition markets to mitigate its exposure to upstream volatility.

Conclusion

DNOW's diversified business model, strong financial position, and strategic growth initiatives position the company well to navigate the evolving energy and industrial landscape. While market volatility and cyclical risks remain, DNOW's demonstrated operational excellence, focus on high-growth segments, and ongoing digital transformation efforts suggest that it is well-equipped to capitalize on emerging opportunities and continue its trajectory of value creation for shareholders. The company's ability to adapt to changing market conditions, as evidenced by its successful diversification strategies and consistent financial performance, reinforces its position as a leading distributor in the energy and industrial sectors.