DNOW Inc.: Form 10-Q for the period ended Jun 30, 2025

Forward-Looking Statements

Some of the statements in this document including information referenced or incorporated by reference from our other filings with the SEC, constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995. Statements that are not historical facts, including statements about our beliefs and expectations, are forward-looking statements. Forward-looking statements typically are identified by use of terms such as “anticipates,” “assumes,” “believes,” “estimates,” “expects,” “plans,” “may,” “will,” “might,” “would,” “should,” “seeks,” “project,” “predict,” “potential,” “currently,” “continue,” “intends,” “outlook,” “forecasts,” “targets,” “reflects,” “could,” or other similar words and phrases, although some forward-looking statements could be expressed differently. Forward-looking statements are current only as of the date they are made. You should be aware that our actual results could differ materially from results anticipated in the forward-looking statements due to a number of factors and risks many of which are outside of our control, including, but not limited to, changes in oil and gas prices, changes in the energy markets, customer demand for our products, changes in trade policies including the imposition or elimination of additional tariffs and duties, significant changes in the size of our customers, difficulties encountered in integrating mergers and acquisitions (including certain risks relating to the mergers, such as: the risk associated with each of DNOW’s and MRC Global’s ability to obtain the approval of its stockholders required to consummate the mergers; the timing of the closing of the mergers; the risk that the conditions to the transaction are not satisfied on a timely basis or at all or the failure of the transaction to close for any other reason or to close on the anticipated terms; the possibility that regulatory approvals for any dispositions or acquisitions will not be received on a timely basis, if at all, or that such approvals may require modification to the terms of the mergers or DNOW’s or MRC Global’s remaining businesses; the risk that the expected benefits and synergies of the mergers may not be fully achieved in a timely manner, or at all), general volatility in the capital markets, ability to complete the share repurchase program, changes in applicable government regulations, increased borrowing costs, geopolitical conditions and tensions (including the Ukraine and Middle East conflicts and their regional and global impacts) or any litigation arising out of or related thereto, impairments in long-lived assets, the occurrence of cyber incidents, or failure by us or our third-party service providers to maintain cybersecurity and the integrity of confidential data, and worldwide economic conditions and activity. You should also consider carefully the statements under “Risk Factors,” as disclosed in our Form 10-K, which address additional factors that could cause our actual results to differ from those set forth in the forward-looking statements and that are otherwise described from time to time in our SEC reports as filed. Given these uncertainties, current or prospective investors are cautioned not to place undue reliance on any such forward-looking statements. We undertake no obligation to update any such factors or forward-looking statements to reflect new information, future events or developments, or otherwise, except to the extent required by applicable law.

The following discussion should be read in conjunction with the unaudited consolidated financial statements and notes thereto contained in this Quarterly Report on Form 10-Q and the audited consolidated financial statements and notes thereto included in the most recent Annual Report on Form 10-K.

Company Overview

We are a distributor to the oil and gas, energy transition and industrial markets with a legacy of over 160 years. We operate primarily under the DNOW brand along with several affiliated brands operating in local, regional or international markets that are tied to prior acquisitions. Through a network of approximately 160 locations and approximately 2,575 employees worldwide, our operating locations utilize a complementary suite of technology, systems, order and fulfillment processes and sourcing and procurement channels to provide products and services to a variety of customers operating in the energy and industrial markets. Additionally, through our DigitalNOW® platform, customers can leverage technology across applications to solve a wide array of complex operational and product sourcing challenges to assist in maximizing their return on assets.

Our product and service offerings are consumed throughout the energy industry – from upstream drilling and completion, exploration and production (“E&P”), midstream transmission, gas and crude oil processing infrastructure development to 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 evolution of energy transition markets inclusive of greenhouse gas reduction and emissions capture and storage, renewable fuels such as biofuels and renewable natural gas (“RNG”), wind, solar, production of hydrogen as a fuel to power equipment and select industrial markets. The energy and industrial distribution end markets we serve are inclusive of engineering and construction firms that perform capital and maintenance projects for their clients. We also provide supply chain and materials management solutions to the same markets where we sell products.

Our global product offering includes pipe, manual and automated valves, fittings, flanges, gaskets, fasteners, electrical, instrumentation, artificial lift, pumping solutions and modular process, production, measurement, automation, control equipment, and consumable maintenance, repair and operating (“MRO”) supplies. We also offer sourcing, procurement, warehouse and inventory management solutions as part of our supply chain and materials management offering. We have developed expertise in providing application systems, work processes, parts integration, optimization solutions and after-sales support that provide more efficient and productive solutions for our customers.

Our solutions include outsourcing portions or entire functions of our customers’ procurement, warehouse and inventory management, logistics, point of issue technology, project management, business process and performance metrics reporting. These solutions allow us to leverage the infrastructure of our SAP™ Enterprise Resource Planning (“ERP”) system and other technologies to streamline our customers’ purchasing process, from requisition to procurement to payment, by digitally managing workflow, improving approval routing and providing robust reporting functionality.

We support land and offshore operations for the major oil and gas producing regions through our network of locations. Our key markets include the U.S., Canada, the United Kingdom ("UK"), Norway, Australia, the Netherlands, Singapore and the Middle East area with the ability to provide products through an export model to operators with operations in Southeast Asia and West Africa. Products sold through our locations support brownfield and greenfield expansion upstream capital projects, midstream infrastructure and transmission and MRO consumables used in day-to-day production. We provide downstream energy and industrial products for petroleum refining, chemical processing, liquefied natural gas (“LNG”) terminals, power generation, gas utilities serviced by a combination of customer on-site locations and off-site service locations in combination with our digital offerings.

Our supplier network consists of thousands of vendors in approximately 30 countries. From our operations, we sell to customers operating in approximately 70 countries. The supplies and equipment stocked by each of our locations are customized to meet varied and changing local customer demands. We believe the breadth, scale and availability of our product offering enhances our value proposition to our customers, suppliers and shareholders.

We employ advanced information technologies, including a common ERP platform across most of our business, to provide complete procurement, warehouse and inventory management and logistics coordination to our customers around the globe. Having a common ERP platform allows immediate visibility into our inventory assets, operations and financials worldwide, enhancing decision making and efficiency.

Merger Agreement

On June 26, 2025, the Company entered into a definitive merger agreement to acquire MRC Global, a global distributor of pipe, valves, fittings (PVF) and other infrastructure products and services to diversified end-markets including the gas utilities, downstream, industrial and energy transition, and production and transmission infrastructure sectors, in an all-stock transaction valued at approximately $1.5 billion, inclusive of MRC Global’s net debt, with MRC Global shareholders receiving 0.9489 shares of DNOW common stock for each share of MRC Global common stock. The transaction has received unanimous approval by both the DNOW and MRC Global Boards of Directors. The transaction is currently anticipated to close in the fourth quarter of 2025, subject to obtaining DNOW and MRC Global shareholder approval and regulatory clearances and satisfaction of other customary closing conditions. For additional information regarding the Merger, please see our Current Report on Form 8-K filed on June 26, 2025 and see Part II, Item 1A. Risk Factors contained herein for a discussion of risks related to this Merger.

U.S., Canada and International Operations

Demand for our products is driven primarily by the level of oil and gas drilling, completions, servicing, production, transmission, refining and petrochemical activities. It is also influenced by the global supply and demand for energy, the economy in general and geopolitics. Several factors drive spending, such as investment in energy infrastructure, the North American conventional and shale plays, Organization of Petroleum Exporting Countries (“OPEC”) and non-OPEC supply and investments, market expectations of future developments in the oil, natural gas, liquids, refined products, petrochemical, plant maintenance and other industrial, manufacturing and energy sectors.

We primarily have operations in the U.S. and Canada, complemented with a number of strategic international operations, through acquisitions and organic investments, in Australia, England, Kuwait, the Netherlands, Norway, Scotland, Singapore, and the United Arab Emirates (“UAE”).

Summary of Reportable Segments

We operate through three reportable segments: United States, Canada and International. The segment data included in our Management’s Discussion and Analysis are presented on a basis consistent with our internal management reporting. Segment information appearing in Note 9 “Business Segments” of the notes to the unaudited consolidated financial statements (Part I, Item 1 of this Form 10-Q) is also presented on this basis.

United States

We have approximately 105 locations in the U.S., which are geographically positioned to best serve the upstream, midstream, downstream, renewable energy and industrial markets.

We offer higher value solutions in key product lines in the U.S. which broaden and deepen our customer relationships and related product line value. Examples of these include pumps, valves and valve actuation, process and production equipment, fluid transfer products, measurement, automation and controls, spoolable and coated steel-pipe and composite pipe, along with many other products required by our customers, which enable them to focus on their core business while we manage varying degrees of their supply chain. We also provide additional value to our customers through the engineering, design, construction, assembly, fabrication and optimization of products and equipment essential to the safe and efficient production, transportation and processing of oil and gas and produced water.

Canada

We have a network of approximately 40 locations in the Canadian oilfield, predominantly in the oil rich provinces of Alberta, Saskatchewan, and Manitoba. Our Canada segment primarily serves energy exploration, production, mining and drilling businesses, offering customers many of the same products and value-added solutions that we perform in the U.S. In Canada, we also provide training for, and supervise the installation of, jointed and spoolable composite pipe. This product line is supported by inventory, as well as product and installation expertise to serve our customers.

International

We serve the needs of our international customers from approximately 15 locations outside the U.S. and Canada, which are strategically located in major oil and gas development areas. Our approach in these markets and the products we offer is similar to our strategy in the U.S. and Canada, with the addition of the distribution of electrical products in the UK, Australia and international export markets. Our long legacy of operating in select international regions provides a competitive advantage as few of our competitors have a presence in most of the global energy producing areas.

The Company has committed to close certain foreign subsidiaries in the International segment. Impairment of assets were not material for the three and six months ended June 30, 2025; however, accumulated translation gains and losses attributable to the foreign subsidiaries which are components of other comprehensive income (loss) are reclassified to earnings and may result in additional charges when liquidations are substantially complete.

Operating Environment Overview

Our results are dependent on, among other factors, the level of worldwide oil and gas drilling and completions, well remediation activity, crude oil and natural gas prices, capital spending by oilfield service companies and drilling contractors, and the worldwide oil and gas inventory levels. Key industry indicators for the second quarter of 2025 and 2024 and the first quarter of 2025 include the following:

* Averages for the quarters indicated, except for U.S. Wells Completed. See sources on following page.

The following table details the U.S., Canadian and international rig activity and West Texas Intermediate oil prices for the past nine quarters ended June 30, 2025:

Sources: Rig count: Baker Hughes, Inc. (www.bakerhughes.com (http://www.bakerhughes.com)); West Texas Intermediate Crude and Natural Gas Prices: Department of Energy, Energy Information Administration (www.eia.gov (http://www.eia.gov)); Hot-Rolled Coil Prices: SteelBenchmarker™ Hot Roll Coil USA (www.steelbenchmarker.com (http://www.steelbenchmarker.com)); U.S. Wells Completed: Department of Energy, Energy Information Administration (www.eia.gov (http://www.eia.gov)) (As revised).

The worldwide quarterly average rig count declined 6.4% (from 1,707 rigs to 1,597 rigs) and the U.S. declined 2.9% (from 588 rigs to 571 rigs) in the second quarter of 2025 compared to the first quarter of 2025. The average price per barrel of West Texas Intermediate Crude declined 10.0% (from $71.84 per barrel to $64.63 per barrel), and average natural gas prices declined 23.1% (from $4.15 per MMBtu to $3.19 per MMBtu) in the second quarter of 2025 compared to the first quarter of 2025. The average price per short ton of Hot-Rolled Coil increased 19.7% (from $753.21 per short ton to $901.50 per short ton) in the second quarter of 2025 compared to the first quarter of 2025. U.S. Wells Completed declined 6.7% (from 3,005 completion count to 2,803 completion count) in the second quarter of 2025 compared to the first quarter of 2025.

U.S. rig count at July 25, 2025 was 542 rigs, down 29 rigs from the second quarter 2025 average. The price for West Texas Intermediate Crude was $66.38 per barrel at July 25, 2025, up 2.7% from the second quarter 2025 average. The price for natural gas was $3.10 per MMBtu at July 25, 2025, down 2.8% from the second quarter 2025 average. The price for Hot-Rolled Coil was $873.00 per short ton at July 28, 2025, down 3.2% from the second quarter 2025 average.

Executive Summary

For the three and six months ended June 30, 2025, the Company generated net income attributable to DNOW Inc. of $25 million and $47 million on $628 million and $1,227 million in revenue, respectively. For the three and six months ended June 30, 2025, revenue decreased $5 million or 0.8% and increased $31 million or 2.6%, respectively, and net income attributable to DNOW Inc. increased $1 million and $2 million, respectively, when compared to the corresponding periods of 2024.

For the three and six months ended June 30, 2025, the Company generated an operating profit of $32 million and $62 million, respectively, compared to $33 million and $61 million, respectively, for the corresponding periods of 2024.

Outlook

Our outlook for the Company remains tied to crude oil and natural gas commodity prices, global oil and gas drilling and completions activity, oil and gas spending, and global demand for oil, its refined petroleum products, crude oil, natural gas liquids and natural gas production and decline rates. Crude oil and natural gas prices as well as crude oil and natural gas storage levels are primary catalysts for determining customer activity. In recent years, oil prices have remained volatile, and ongoing economic and geopolitical uncertainty continues to drive commodity price volatility globally. Additionally, the U.S. government has announced the imposition of tariffs on several foreign jurisdictions, which has increased economic uncertainty. Current uncertainties about tariffs and their effects on trading relationships may affect costs for and availability of products or contribute to inflation in the markets in which we operate. Although we are continuing to monitor the economic effects of such announcements, as well as opportunities to mitigate their related impacts, costs and other effects associated with the tariffs remain uncertain. Amid these dynamics, we will continue to support our customers, maintain close communication with our strategic vendors, optimize our operations, advance our strategic goals and manage the Company based on 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. A number of our larger customers are leading the investments in energy evolution projects where we expect to continue to support them while expanding our product and solution offerings to meet their changing requirements. Part of our growth strategy is to expand our revenues by targeting new customers in non-oil and gas end markets, in addition to servicing those customers that will play a part in the future of the evolving mix of traditional and new sources of energy.

Results of Operations

The results of operations are presented before consideration of the noncontrolling interest. Operating results by reportable segment are as follows (in millions):

United States

For the three and six months ended June 30, 2025, revenue was $528 million and $1,002 million, an increase of $16 million or 3.1% and $55 million or 5.8%, respectively, when compared to the corresponding periods of 2024. For the three and six months ended June 30, 2025, the increases were primarily driven by incremental revenue from acquisitions completed in 2024, partially offset by the weakening in U.S. drilling and completions activity.

For the three and six months ended June 30, 2025, the U.S. generated an operating profit of $30 million and $52 million, an increase of $2 million and $1 million, respectively, when compared to the corresponding periods of 2024. For the three and six months ended June 30, 2025, operating profit increased primarily due to the increase in revenue discussed above.

Canada

For the three and six months ended June 30, 2025, revenue was $48 million and $110 million, a decrease of $8 million or 14.3% and $12 million or 9.8%, respectively, when compared to the corresponding periods of 2024. For the three and six months ended June 30, 2025, the decreases were primarily driven by weaker project activity, coupled with unfavorable foreign exchange rate impacts.

For the three and six months ended June 30, 2025, Canada generated an operating profit of nil and $4 million, a decrease of $2 million and $1 million, respectively, when compared to the corresponding periods of 2024. For the three and six months ended June 30, 2025, operating profit decreased primarily due to the decline in revenue discussed above.

International

For the three and six months ended June 30, 2025, revenue was $52 million and $115 million, a decrease of $13 million or 20.0% and $12 million or 9.4%, respectively, when compared to the corresponding periods of 2024. For the three and six months ended June 30, 2025, the decreases were primarily driven by weaker project activity.

For the three and six months ended June 30, 2025, the International segment generated an operating profit of $2 million and $6 million, a decrease of $1 million and an increase of $1 million, respectively, when compared to the corresponding periods of 2024. For the three months ended June 30, 2025, operating profit decreased primarily due to the decline in revenue discussed above. For the six months ended June 30, 2025, operating profit increased primarily due to a decrease in operating expenses.

Cost of products

For the three and six months ended June 30, 2025, cost of products was $484 million and $944 million, respectively, compared to $495 million and $929 million, respectively, for the corresponding periods of 2024. For the three and six months ended June 30, 2025, the changes were primarily due to the changes in revenue in the periods. Cost of products includes the cost of inventory sold and items, such as vendor consideration, inventory allowances, amortization of intangibles and inbound and outbound freight.

Warehousing, selling and administrative expenses

For the three and six months ended June 30, 2025, warehousing, selling and administrative expenses were $112 million and $221 million, respectively, compared to $105 million and $206 million, respectively, for the corresponding periods of 2024. For the three and six months ended June 30, 2025, the increases were primarily driven by an increase in expenses related to acquisitions completed in 2024. Warehousing, selling and administrative expenses include branch location, distribution center and regional expenses (including costs such as compensation, benefits and rent) as well as corporate general selling and administrative expenses.

Other income (expense)

For the three and six months ended June 30, 2025, other income (expense) was nil in both periods compared to nil and $1 million, respectively, for the corresponding periods of 2024. For the six months ended June 30, 2025, the change was primarily attributable to a decrease in interest income compared to the prior year.

Income tax provision

The effective tax rates for the three and six months ended June 30, 2025, were 21.9% and 22.6%, respectively, compared to 24.2% and 25.8%, respectively, for the corresponding periods of 2024. In general, the Company's effective tax rate differs from the U.S. statutory rate due to recurring items, such as differing tax rates on income earned in foreign jurisdictions, nondeductible expenses, and state income taxes. The effective tax rates for the three and six months ended June 30, 2025, were lower than the effective tax rates for the three and six months ended June 30, 2024, primarily due to an increase in tax benefits related to stock-based compensation and utilization of U.S. foreign tax credits.

Non-GAAP Financial Measure and Reconciliation

In an effort to provide investors with additional information regarding our results of operations as determined by GAAP, we disclose non-GAAP financial measures. The primary non-GAAP financial measure we disclose is earnings before interest, taxes, depreciation and amortization, excluding other costs (“EBITDA excluding other costs”) and EBITDA excluding other costs as of percentage of revenue. This financial measure excludes the impact of certain amounts and is not calculated in accordance with GAAP. A reconciliation of this non-GAAP financial measure, to its most comparable GAAP financial measure, is included below.

We use EBITDA excluding other costs internally to evaluate and manage the Company’s operations because we believe it provides useful supplemental information regarding the Company’s ongoing operating performance. We have chosen to provide this information to investors to enable them to perform more meaningful comparisons of operating results.

The following table sets forth the reconciliations of EBITDA excluding other costs to the most comparable GAAP financial measures (in millions):

(1) We believe that net income attributable to DNOW Inc. is the financial measure calculated and presented in accordance with GAAP that is most directly comparable to EBITDA excluding other costs. EBITDA excluding other costs measures the Company’s operating performance without regard to certain expenses. EBITDA excluding other costs is not a presentation made in accordance with GAAP and the Company’s computation of EBITDA excluding other costs may vary from others in the industry. EBITDA excluding other costs has important limitations as an analytical tool and should not be considered in isolation or as a substitute for analysis of the Company’s results as reported under GAAP.

(2) For the three and six months ended June 30, 2025, Stock-based compensation excludes less than $1 million and $1 million, respectively, as such amounts were reported in Other.

(3) For the three and six months ended June 30, 2025, Other primarily included approximately $6 million and $8 million, respectively, of transaction-related charges and less than $1 million and $1 million, respectively, of International restructuring charges, both of which were included in warehousing, selling, and administrative.

For the three and six months ended June 30, 2024, Other was primarily related to transaction-related charges, of which approximately $1 million and $3 million, respectively, were included in warehousing, selling and administrative, and approximately $4 million and $5 million, respectively, were included in cost of products.

Transaction-related charges include transaction costs, inventory fair value step-up, retention bonus accruals and integration expenses associated with acquisitions.

Liquidity and Capital Resources

We assess liquidity in terms of our ability to generate cash to fund operating, investing and financing activities. We expect resources to be available to reinvest in existing businesses, strategic acquisitions and capital expenditures to meet short and long-term objectives. We believe that cash on hand, cash generated from expected results of operations and amounts available under our revolving credit facility will be sufficient to fund operations, anticipated working capital needs and other cash requirements, including capital expenditures and our share repurchase program.

As of June 30, 2025 and December 31, 2024, we had cash and cash equivalents of $232 million and $256 million, respectively. As of June 30, 2025, $102 million of our cash and cash equivalents were maintained in the accounts of our various foreign subsidiaries. During the first six months of 2025, we repatriated $2 million from our foreign subsidiaries. The Company makes a determination each period concerning its intent and ability to indefinitely reinvest the cash held by its foreign subsidiaries. The Company has not recorded deferred income taxes on undistributed foreign earnings that it considers to be indefinitely reinvested. Future changes to our indefinite reinvestment assertion could result in additional taxes (withholding and/or state taxes), offset by any available foreign tax credits.

We maintain a $500 million five-year senior secured revolving credit facility that will mature on December 14, 2026. Availability under the revolving credit facility is determined by a borrowing base comprised of eligible receivables, eligible inventory and certain cash deposits in the U.S. and Canada. As of June 30, 2025, we had no borrowings against our revolving credit facility, and had approximately $445 million in availability (as defined in the Credit Agreement) resulting in the excess availability (as defined in the Credit Agreement) of 99%, subject to certain restrictions. Availability excluding certain cash deposits was approximately $350 million. Borrowings that result in the excess availability dropping below the greater of 10% of the borrowing base or $40 million are conditioned upon compliance with or waiver of a minimum fixed charge ratio (as defined in the Credit Agreement). The credit facility contains usual and customary affirmative and negative covenants for credit facilities of this type including financial covenants. As of June 30, 2025, we were in compliance with all covenants. We continuously monitor compliance with our debt covenants. A default, if not waived or amended, would prevent us from taking certain actions, such as incurring additional debt.

Additionally, we have received committed debt financing of up to an incremental $250 million for our existing asset-based lending facility, which will increase the total potential borrowing capacity to $750 million. Such debt financing will be provided on the terms set forth in a debt commitment letter and is subject to a number of customary conditions, including closing of the Merger.

We are often party to certain transactions that require off-balance sheet arrangements such as standby letters of credit and performance bonds and guarantees that are not reflected in our consolidated balance sheets. These arrangements are made in our normal course of business and they are not reasonably likely to have a current or future material adverse effect on our financial condition, results of operations, liquidity or cash flows.

In connection with acquisitions in 2024, the Company is committed to total future retention payments of up to $13 million payable in 2026 and 2027. Payments are due to various employees if non-financial post combination service conditions are met pursuant to the terms and conditions of the retention agreements.

The following table summarizes our net cash flows provided by (used in) operating activities, investing activities and financing activities for the periods presented (in millions):

Operating Activities

For the six months ended June 30, 2025, net cash provided by operating activities was $29 million compared to $102 million provided by operating activities in the corresponding period of 2024. For the six months ended June 30, 2025, the decrease in net cash provided by operating activities when compared to the same period in prior year was primarily related to a net increase of $70 million in working capital in 2025. The increase reflected a proactive investment of $28 million in inventory to support customer demand, coupled with $45 million growth in accounts receivable due to revenue growth.

Investing Activities

For the six months ended June 30, 2025, net cash used in investing activities was $16 million compared to $188 million used in investing activities in the corresponding period of 2024. For the six months ended June 30, 2025, net cash used in investing activities was primarily related to purchases of property, plant and equipment of $10 million and business acquisition of $8 million, while net cash used in investing activities in the corresponding period of 2024 was primarily related to business acquisitions of $185 million, net of cash acquired.

Financing Activities

For the six months ended June 30, 2025, net cash used in financing activities was $40 million compared to $15 million used in financing activities in the corresponding period of 2024. For the six months ended June 30, 2025, net cash used in financing activities primarily related to share repurchases of $27 million and withholding tax payments for employee awards of $8 million.

Other

For the six months ended June 30, 2025, the effect of the change in exchange rates on cash and cash equivalents was $3 million favorable compared to $1 million unfavorable for the corresponding period of 2024.

Capital Spending

We intend to pursue additional acquisition candidates, but the timing, size or success of any acquisition effort and the related potential capital commitments cannot be predicted. We continue to expect to fund future cash acquisitions primarily with cash on hand, cash flow from operations and the usage of the available portion of the revolving credit facility. There can be no assurance that additional financing will be available at terms acceptable to us.

Share Repurchase Program

On January 24, 2025, the Company’s Board of Directors authorized a new share repurchase program to purchase up to $160 million of its outstanding common stock. We expect to fund share repurchases primarily with cash on hand, cash flow from operations and the usage of the available portion of the revolving credit facility. The timing and amount of any repurchases will be made at our discretion, taking into account a number of factors, including market conditions. The share repurchase program does not obligate the Company to repurchase shares and may be suspended or discontinued at any time at our discretion. All shares repurchased shall be retired pursuant to the terms of the share repurchase program. For the six months ended June 30, 2025, we repurchased 1,711,235 shares of our common stock for a total of approximately $27 million. As of June 30, 2025, we had approximately $133 million remaining under the program’s authorization. In connection with the Merger, we have temporarily suspended share repurchase activity and expect share repurchases to remain paused until the merger is completed.

Critical Accounting Estimates

For a discussion of the critical accounting estimates that we use in the preparation of our consolidated financial statements, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K for the year ended December 31, 2024. Since the filing of our Form 10-K, there have been no material changes in our critical accounting estimates from those disclosed therein. In preparing the financial statements, the Company makes assumptions, estimates and judgments that affect the amounts reported. The Company periodically evaluates its estimates and judgments that are most critical in nature, which are related to allowance for credit losses, inventory reserves, goodwill, purchase price allocation of acquisitions and income taxes. Its estimates are based on historical experience and on its future expectations that the Company believes are reasonable. The combination of these factors forms the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results are likely to differ from our current estimates and those differences may be material.

We are exposed to certain market risks that are inherent in our financial instruments and arise from changes in interest rates and foreign currency exchange rates. We may enter into derivative financial instrument transactions to manage or reduce market risk but do not enter into derivative financial instrument transactions for speculative purposes. We do not currently have any material outstanding derivative instruments.

A discussion of our primary market risk exposure in financial instruments is presented below.

Foreign Currency Exchange Rate Risk

We have operations in foreign countries and transact business globally in multiple currencies. Our net assets as well as our revenues and costs and expenses denominated in foreign currencies, expose us to the risk of fluctuations in foreign currency exchange rates against the U.S. dollar. Because we operate globally and approximately one-fifth of our net sales for the six months ended June 30, 2025, were outside the U.S., foreign currency exchange rates can impact our financial position, results of operations and competitive position. We are a net receiver of foreign currencies and, therefore, benefit from a weakening of the U.S. dollar and are adversely affected by a strengthening of the U.S. dollar relative to the foreign currency. As of June 30, 2025, our most significant foreign currency exposure was to the Canadian dollar, followed by the British pound.

The financial statements of foreign subsidiaries are translated into their U.S. dollar equivalents at end-of-period exchange rates for assets and liabilities, while revenue, costs and expenses are translated at average monthly exchange rates. Translation gains and losses are components of other comprehensive income (loss) as reported in the consolidated statements of comprehensive income (loss). Upon complete or substantially complete liquidation of a foreign subsidiary, the accumulated translation gains and losses relating to the foreign subsidiary are reclassified into earnings, reflected in impairment and other charges in the consolidated statements of operations. For the six months ended June 30, 2025, we reported a net foreign currency translation gain of $11 million.

Foreign currency exchange rate fluctuations generally do not materially affect our earnings since the functional currency is typically the local currency; however, our operations also have net assets not denominated in their functional currency, which exposes us to changes in foreign currency exchange rates that impact our net income as foreign currency transaction gains and losses. Foreign currency transaction gains and losses arising from fluctuations in currency exchange rates on transactions denominated in currencies other than the functional currency are recognized in the consolidated statements of operations as a component of other income (expense). For the six months ended June 30, 2025 and 2024, we reported foreign currency transaction losses of nil in both periods. Gains and losses are primarily due to exchange rate fluctuations related to monetary asset balances denominated in currencies other than the functional currency and fair value adjustments to economically hedged positions as a result of changes in foreign currency exchange rates.

Some of the revenues for our foreign operations are denominated in U.S. dollars and, therefore, changes in foreign currency exchange rates impact earnings to the extent that costs associated with those U.S. dollar revenues are denominated in the local currency. Similarly, some of our revenues for our foreign operations are denominated in foreign currencies, but have associated U.S. dollar costs, which also give rise to foreign currency exchange rate exposure. In order to mitigate those risks, we may utilize foreign currency forward contracts to better match the currency of the revenues and the associated costs. Although we may utilize foreign currency forward contracts to economically hedge certain foreign currency denominated balances or transactions, we do not currently hedge the net investments in our foreign operations. The counterparties to our forward contracts are major financial institutions. The credit ratings and concentration of risk of these financial institutions are monitored by us on a continuing basis. In the event that the counterparties fail to meet the terms of a foreign currency contract, our exposure is limited to the foreign currency rate differential.

The average foreign exchange rate for the first six months of 2025 compared to the average for the corresponding period of 2024 decreased by approximately 3% compared to the U.S. dollar based on the aggregated weighted average revenue of our foreign-currency denominated foreign operations. The Canadian dollar decreased in relation to the U.S. dollar by approximately 4% while British pound increased in relation to the U.S. dollar by approximately 3%.

We utilized a sensitivity analysis to measure the potential impact on earnings based on a hypothetical 10% change in foreign currency rates. A 10% change from the levels experienced during the first six months of 2025 of the U.S. dollar relative to foreign currencies that affected the Company would have resulted in approximately $1 million change in net income for the same period.

Commodity Steel Pricing

Our business is sensitive to steel prices, which can impact our product pricing, with steel tubular prices generally having the highest degree of sensitivity. While we cannot predict steel prices, we mitigate this risk by managing our inventory levels, including maintaining sufficient quantity on hand to meet demand, while limiting the risk of overstocking.

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. The Company’s disclosure controls and procedures are designed to provide reasonable assurance that the information required to be disclosed by the Company in the reports it files under the Exchange Act is accumulated and communicated to the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures, and is recorded, processed, summarized and reported within the time period specified in the rules and forms of the Securities and Exchange Commission. Based upon that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective as of the end of the period covered by this report at a reasonable assurance level.

Changes in Internal Control Over Financial Reporting

There has been no change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that occurred during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

As of the date of this filing, the Company and its operations continue to be subject to the risk factors previously disclosed in Part 1, Item 1A “Risk Factors” in our 2024 Annual Report on Form 10-K and the following additional risk factors.

Risks Relating to the Merger

We may not be able to successfully integrate the business of MRC Global into our business or realize the anticipated benefits of the mergers.

The mergers involve the combination of two companies that currently operate as independent public companies. The combination of two independent businesses is complex, costly and time consuming, and we will be required to continue to devote significant management attention and resources to integrating the business practices and operations of MRC Global into us. Potential difficulties that we may encounter as part of the integration process include the following:

• the inability to successfully combine our business and MRC Global in a manner that permits the combined company to achieve, on a timely basis, or at all, the enhanced revenue opportunities and cost savings and other benefits anticipated to result from the mergers;
• complexities associated with managing the combined businesses, including difficulty addressing possible differences in operational philosophies and the challenge of integrating complex systems, technology, networks and other assets of each of the companies in a seamless manner that minimizes any adverse impact on customers, suppliers, employees and other constituencies;
• the assumption of contractual obligations with less favorable or more restrictive terms; and
• potential unknown liabilities and unforeseen increased expenses associated with the mergers.

Any of these issues could adversely affect our ability to maintain relationships with customers, suppliers, employees and other constituencies, our ability to achieve the anticipated benefits of the mergers, our earnings or our business and financial results following the mergers.

The financial forecasts disclosed in connection with the announcement of the mergers are based on various assumptions that may not be realized.

The financial estimates disclosed in connection with the announcement of the mergers were based on assumptions of, and information available to, our management when prepared, and these estimates and assumptions are subject to uncertainties, many of which are beyond our control and may not be realized. Many factors will be important in determining the our future results following the mergers. As a result of these contingencies, actual future results may vary materially from our estimates. In view of these uncertainties, these financial estimates should not be viewed as a representation that the forecasted results will necessarily reflect actual future results.

Our financial estimates were not prepared with a view toward public disclosure, and such financial estimates were not prepared with a view toward compliance with published guidelines of any regulatory or professional body. Further, any forward-looking statement speaks only as of the date on which it is made, and we do not undertake any obligation, other than as required by applicable law, to update the financial estimates to reflect events or circumstances after the date those financial estimates were prepared or to reflect the occurrence of anticipated or unanticipated events or circumstances.

The failure to successfully combine the businesses of DNOW and MRC Global may adversely affect our business.

The success of the mergers will depend, in part, on our ability to realize the anticipated benefits from combining our business with MRC Global. To realize these anticipated benefits, our and MRC Global’s businesses must be successfully combined. If the combined company is not able to achieve these objectives, the anticipated benefits of the mergers may not be realized fully or at all or may take longer to realize than expected. In addition, the actual integration may result in additional and unforeseen expenses, which could reduce the anticipated benefits of the mergers, and such integration may not be successful or may take longer than anticipated. It is possible that the integration process could result in the loss of key employees, as well as the disruption of our ongoing businesses or inconsistencies in our standards, controls, procedures and policies. Any or all of those occurrences could affect adversely the combined company’s ability to maintain relationships with customers and employees after the mergers or to achieve the anticipated benefits of the mergers. Integration efforts between the two companies will also divert management attention and resources. These integration matters could have an adverse effect on us.

Our entry into the merger agreement may adversely affect our business.

Our entry into the merger agreement represents several risks. Among other obligations, the merger agreement subjects us to restrictions on our business activities prior to the closing of the mergers. These restrictions could prevent us from pursuing certain business opportunities that arise prior to the closing and are outside the ordinary course of business.

The mergers are subject to the satisfaction of a number of other conditions beyond the parties’ control that may prevent, delay or otherwise materially adversely affect the completion of the mergers. These conditions include, among other things, MRC Global stockholder approval of the merger agreement and the mergers and DNOW stockholder approval of the issuance of DNOW common stock in connection with the mergers. We cannot predict with certainty whether and when any of these conditions will be satisfied. Any delay in completing the mergers could cause the combined company not to realize, or delay the realization, of some or all of the benefits that we expect to achieve from the mergers. Additionally, if the mergers are not completed, our ongoing business may be adversely affected and, without realizing any of the benefits of having completed the mergers, we may experience certain negative effects, including that we may experience negative reaction from the financial markets and business partners and that we may still be required to pay significant costs relating to the mergers, such as accounting, legal and other advisory and printing costs.

Securities class action lawsuits and derivative lawsuits are often brought against public companies that have entered into acquisition, merger or other business combination agreements. Even if such a lawsuit is without merit, defending against these claims can result in substantial costs and divert management time and resources. An adverse judgment could result in monetary damages, which could have a negative impact on our liquidity and financial condition. Lawsuits that may be brought against us or our directors could also seek, among other things, injunctive relief or other equitable relief, including a request to rescind parts of the merger agreement already implemented and to otherwise enjoin the parties from consummating the mergers. Additionally, the defense or settlement of any lawsuits or claim against us or MRC Global that remains unresolved at the time the mergers are completed may be assumed by us and could affect adversely the combined company’s business, results of operations, financial condition or cash flows.

Upon termination of the merger agreement under certain circumstances, we may be required to reimburse MRC Global’s expenses up to $8.5 million or pay MRC Global a termination fee equal to $45.5 million.