DNOW Inc. 31st Annual EnerCom Energy Investment Conference

Thank you, and good morning, everybody. Before I begin, please note today's presentation may contain some forward-looking statements. I encourage you to review our safe harbor statement and other filings with the SEC and our earnings release. I wanted to open the slide to talk about DNOW from an investment standpoint. What is the investment thesis for our company? We became a public company in 2014, spun off from National Oilwell Varco, and really have gone through a transformation since that time period. Along the way, we've increasingly diversified to more what I call industrial markets. Still, the majority of our exposure from a revenue perspective is in the upstream market. We'll talk a little bit about that.

Coming off of our merger with MRC Global of November of last year, we're now seeing some strength in some other sectors that I'd like to talk about today as well. Gas utilities being one, but also upstream, midstream, and downstream industrial. So more of a balanced portfolio of opportunities and sector exposure for DNOW. As my predecessor just commented here, the U.S. oil and production has been increasing even though rig count's been, over the last several years, declining, completion's declining. When volumes increase, that's a benefit for DNOW. I think it's cool to talk about volume growth because it directly benefits DNOW. We provide pipe valves and fittings, so the infrastructure to the oil field. We provide pumps and fabricated equipment.

I'll also talk a little bit about data center build-out and what that's doing to secular demand for DNOW, both in the midstream and the downstream and industrial side. We believe we're a scaled platform of higher value. Not only does DNOW distribute products, but we provide solutions. We provide services that are sticky with our customers, that are more than just selling commodities to our customers. I mentioned there's expanding midstream opportunities here, as well as the other sectors I've talked about. From a balance sheet perspective, very strong balance sheet position, free cash flow profile. We'll talk about that. The theme here is earnings durability for DNOW and our working capital management. The increased efficiency there is allowing us to invest in the business, both organically and inorganically. I'll talk about that, supported by that strong balance sheet.

Last but not least, on the bottom right, really kind of continued our integration with MRC Global that we closed in November of 2025. Significant. Some opportunity to grow our margins. We're focused on that integration. If you listen to our prior earnings calls, we had some ERP disruption associated with MRC Global's U.S. business. We characterized that when we closed the deal as not stabilized. We've made tremendous progress there. We believe the system is stabilized. We're in kind of an optimization phase as we go forward. So we have some temporary elevated costs there we expect to mitigate as we go forward in the year. We're focused on revenue recovery with our customers as associated with that disruption as well as market share growth. While we're doing that, we're going to high grade the business.

We're looking at growing product margins, looking at growing operating profit as well as EBITDA margins. Part of that improved profitability is we told the public we think we'll save about $70 million in cost synergies over a 3-year period. In year 1, we talked about initially $17 million savings at the end of year 1. We've recently upgraded that to $30 million in year 1. We're kind of ahead of the game here when it comes to the cost synergies. We haven't upgraded the full 3-year. That maintains it at $70 million. DNOW is a premier energy and industrial solutions provider. We have a balanced portfolio of products. We have access to a lot of opportunities for long-term growth. We've been operating actually for 160 years and our legacy headquartered in Houston, Texas.

We have a comprehensive network of branches, super centers, where we hold a lot of more kind of speculative inventory. We do large project execution super centers. We have RDC, regional distribution centers, that support inventory replenishment across our network. Then we have a number of customer on-site locations where we do integrated supply. I'll talk a little bit about that. That's also complemented by a highly efficient digital infrastructure that we're continuing to invest in. We integrate with our customers from a B2B standpoint. We have online e-commerce platforms both on the legacy DNOW side and the MRC Global side. Today, we've got 300 locations, 5,100 employees. The first half run rate of revenue are about $2.5 billion. We forecasted full year revenue kind of in the $5, just over the $5 billion level. We're kind of on track there.

Our key markets where we play, U.S., Canada, U.K., Europe, Middle East, and Southeast Asia. Just a quick highlight on our second quarter results. Revenue, $1.3 billion. We saw really nice growth coming off the first quarter, a 10% sequential increase in growth that was led by the U.S. that grew 13% sequentially. Our EBITDA was kind of at a low point in 1Q of $39 million. We grew that 54% to $60 million. Part of that recovery coming out of that ERP disruption we saw on that U.S. MRC Global business. We're making nice progress there. You can see that start to materialize in our bottom line number there. What's also exciting is a second quarter record of cash flow from ops of $133 million. That's an all-time record for DNOW.

We normally generate more cash in the second half of the year than we do the first half of the year. It was nice to see being able to start to improve our AR balance and really start to solve some of the riddles we had with that ERP disruption we have talked about. Important metric to us not only is growing EBITDA, but is also working capital as a percent of revenue. Last quarter, it was 25.5%. We've improved that to 19%, so we're getting more efficient with our inventory. We're getting more efficient with our DSOs and lowering our DSOs. We expect improvement there. Capital allocation, we like to really have a flexible capital allocation model that's opportunistic. In the quarter, we repurchased $25 million worth of shares. That's coming off a first quarter high of $50 million in share repurchases.

That gets us $75 million for the first half of 2026. In the second quarter, we assumed some debt from MRC Global, so we reduced that debt by $95 million. That is resulting in a net debt of $360 million coming out of the second quarter. Just to look at our consolidated revenue composition for the first half of 2026. We report by geographical segment, so U.S., International, Canada. You can see we are largely United States levered, 84% there, 12% International, 4% Canada. If you looked at the legacy MRC business, they had a pretty large international business, primarily a valve distributor that was complementary to DNOW's international business, which is primarily electrical distribution. If you look at in the middle by end market, you could see the diversification, right? Upstream are roughly 39% of our revenue, gas utilities 23%, midstream 20%, and downstream industrial 18%.

By product group, this gives you an idea of the products we provide our customers. Roughly 29% valves, automation, measurement, and instrumentation. Pipe gas products would be the gas utilities products we provide. The pumps production and process equipment is the process solutions products that we provide to the market. By end market and sector, just a snapshot of the diversification by reporting segment. You see the U.S., International, Canada. If you look at Canada to the right, it is 79% upstream. That is what DNOW used to look like prior to acquiring Whitco in 2024, which doubled our midstream exposure. With the combination with MRC Global November last year, you are looking at a much more diversified energy and industrial distributor here. So how we go to market is we provide products coupled with services, coupled with solutions across three channels.

On the left would be our branch operations. This is your brick and mortar. This is your branches that are maintaining customer intimacy close to the customer. We want to forward deploy inventory as close to the customer because a lot of the upstream business is about being able to service that customer in a short lead times, be able to supply their needs out of inventory. So it is super important there. That is backed up by a super center model that Legacy DNOW really transformed coming out of 2020 and 2021 into a super center model that lowered our fixed costs, went to a much more variable cost model to allow us to scale up and scale down to the market. The RDC approach, we talked about a little bit earlier to replenish those forward deployed inventory and branches, and then complemented by an online channel as well.

This meets the demand for our customers. As my predecessor was presenting in front of us, this meets the demand to provide operators with pipe valves and fittings, with gas products, with pumps and fabricated equipment. We handle both day-to-day maintenance as well as capital projects on the business. In the middle is our integrated onsite model. That is a very sticky relationship with the customer. We are on-site. We are sharing operating goals and sharing a vision where the customer outsources a portion of their supply chain to DNOW. We in many cases have different models with different operators. We could be managing warehouses. We are managing inventory management. We are doing goods receipts and replenishment and shipping and packing and kitting and shipping out the warehouse. We are doing procurement services for them. We are doing project surplus management.

A lot of different à la carte options we put together. A lot of our large upstream customers as well as gas utilities customers really like this model because it helps them really lower their operating expenses and reduces their deployed capital that they could put elsewhere. On the far right are process solutions. This really meets the demand for pumps, process, and production equipment. I have a graph that shows you the kind of upstream where a lot of these play, but this is the distribution of pumps, air compressors, fabricated equipment out of our Houston Tomball location, as well as our Casper, Wyoming location in the U.S. We also have rental and automation equipment and gas upgrading and gas management. I alluded to this a little bit earlier when I started. Thematically, we're increasing our diversification.

If you look at 2017 to 2023, prior to the Whitco acquisition we did, DNOW was greater than 70% upstream. We were susceptible to the cycles in the upstream. When rig counts declined, completions declined. We felt that as far as top line, and so we're adjusting costs. It's helped that customers have come out of, I believe, 2019, 2020, more capital discipline. That helps us plan our inventory better. That's been a benefit. The increased diversification, now we're less than 40%. We see that as a strength as well as the capital discipline by our customers. Just real quick, the four sectors, what's driving that for us on upstream E&P capital spending. Upstream's production's expanding. We used to talk about rig count. We used to talk about completions and oil price.