Quarterly Report for Quarter Ending September 30, 2026 (Form 10-Q)

Management's Discussion and Analysis of Financial Condition and Results of Operations

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", "budget", "estimates", "expects", "goal", "guidance", "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, inherent uncertainty in third-party projections due to assumptions made and risks involved, difficulties encountered in integrating mergers and acquisitions (including but not limited to certain risks relating to any mergers or acquisitions, such as: the timing of the closing of the merger or acquisition; 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 remaining businesses; the risk that the expected benefits, synergies and cost reduction efforts of the mergers or acquisitions may not be fully achieved in a timely manner, or at all), successful integration of the business of MRC Global into our business, 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 Iran, 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 and national economic conditions and activity. You should also consider carefully the statements under "Risk Factors," as disclosed in our Form 10-K and any of our subsequent SEC filings, 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

DNOW is a holding company headquartered in Houston, Texas that was incorporated in Delaware on November 22, 2013. We operate primarily under the DNOW and MRC Global brands along with several affiliated and acquired brands operating in local, regional, national and international markets.

On June 26, 2025, DNOW entered into the Merger Agreement with MRC Global in an all-stock transaction, inclusive of MRC Global's debt. On November 6, 2025, DNOW completed its acquisition of MRC Global.

We are a premier provider of energy and industrial solutions with a legacy of over 160 years as a leading distributor of PVF, gas products, pumps and fabricated process and production equipment and a wide range of MRO consumables and related products. We operate across diversified sectors of the energy value chain and industrial end-markets, including:

Our comprehensive products and solutions offerings includes an extensive array of PVF, gas products, pumps, fabricated equipment, valve automation, valve modification, gaskets, fasteners, electrical components, measurement, instrumentation, artificial lift, pumping systems, process and production equipment, production measurement technology, MRO consumables and other general and specialty products. Our team of approximately 5,050 employees support our customers through approximately 295 strategic locations including regional distribution centers, super centers, branches and corporate offices.

Key Drivers of Our Business

We derive our revenue predominantly from the sale of PVF, pumps and fabricated equipment to upstream, gas utilities, downstream and industrial and midstream markets customers globally. Our business is dependent upon both the current conditions and future prospects in these industries and, in particular, our customers' maintenance and expansionary operating and capital expenditures. The outlook for customer spending is influenced by numerous factors, including the following:

Recent Trends and Outlook

Recent geopolitical developments, including military conflict involving Iran, have contributed to increased volatility in global energy markets, financial markets and international supply chains. While the full impact of these conditions continues to evolve, management is actively monitoring potential effects on customer demand, costs, logistics and overall macroeconomic conditions. The majority of our publicly traded oil and gas producer customers have generally remained disciplined in their capital expenditures and have generally not increased production beyond their ability to fund their expenditures from prudent borrowings and cash flow from operations. We expect this trend to continue.

The U.S. government has imposed tariffs on steel, copper, aluminum and other products, which were expanded throughout 2025 and 2026. A significant portion of the products that we sell are made from steel. In addition, a portion of the products that we sell are sourced from China and India, including certain valve sub-assemblies and pump sub-components that are finished in the U.S. The tariffs on products from Canada and Mexico have a lesser direct impact on our business as they do not represent a significant portion of the products that we purchase from those countries for resale to our customers. In many instances, we have successfully collaborated with our customers to implement tariff pass-throughs throughout 2025 and 2026. However, in some instances, tariffs raised infrastructure costs for our customers, making projects less viable and resulting in delays or cancellations among certain downstream clients.

The U.S. Supreme Court has invalidated the use of the International Emergency Economic Powers Act ("IEEPA") to impose tariffs. The overall impact on IEEPA tariffs had been limited, as the administration quickly invoked or announced other statutory authorities to maintain or adjust tariffs. Besides the Section 232 tariffs on steel, copper and aluminum, Section 122 and 301 tariffs, along with pointed anti-dumping and countervailing duties, have been imposed to varying degrees.

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.

Upstream

The Upstream sector of our business encompasses the surface infrastructure, equipment and processing systems used to gather production from existing and newly completed oil and natural gas wells; separate crude oil, natural gas and produced water; and perform the initial treating and conditioning necessary to prepare hydrocarbons for delivery to midstream transportation and processing systems. This includes wellhead and flowline systems, gathering lines, production separators, water-handling equipment, gas dehydration, crude oil treating and related production facilities. In the nine months ended September 30, 2026, this sector represented 38% of total Company revenue. The Upstream sector revenue increased 16% in the nine months ended September 30, 2026 compared to the corresponding period of 2025 primarily as a result of the acquisition of MRC Global in the fourth quarter of 2025. During the nine months ended September 30, 2026, West Texas Intermediate ("WTI") oil prices averaged $84.98 per barrel, up 26.1% from the corresponding period of 2025. Natural gas prices also drive customer activity and have experienced volatility driven by climate and seasonal weather patterns, increased LNG exports and lower storage levels.

Recent industry reports have projected flat to lower upstream customer spending levels through the remainder of 2026, due to current supply and demand projections. We also expect the majority of our publicly traded oil and gas producer customers will remain disciplined and consistent with their commitments to their budgets, maintaining returns to their shareholders and operating within their cash flow requirements. Despite this, we expect opportunities for revenue synergies from cross-selling products and incremental growth in water management and disposal solutions, supported by our Flex Flow, Trojan and Edge Controls offerings, as customers seek to optimize operating costs and manage produced water volumes more effectively. The majority of the revenue in this sector comes from large independents and major production companies, which are expected to strongly influence the increase in capital spending in the coming years for this sector.

Gas Utilities

The Gas Utilities sector contributed 24% of our total Company revenue in the nine months ended September 30, 2026. Market growth fundamentals of this sector are positive due to the demand for natural gas, distribution integrity upgrade programs as well as new home construction in certain U.S. states. The majority of the work we perform with our gas utility customers are multi-year programs where they continually evaluate, monitor and implement measures to improve their pipeline distribution networks, ensuring the safety and the integrity of their systems. We supply products including valves, line pipe, smart meters, risers and other gas products to infrastructure modernization and replacement programs. A large percentage of our line pipe sales are attributable to gas utilities customers for line replacement and new sections of their distribution network. As our gas utility customers connect new homes and businesses to their gas distribution network, the growth in the housing market creates new revenue opportunities for our business to supply the related infrastructure products. Some of our customers in this sector support both gas and electric distribution, and certain customers have announced allocating a higher proportion of their multi-year capital budget to electric distribution versus gas distribution infrastructure. However, 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. Additionally, due to its reduced dependency on energy demand and commodity prices, this sector is less volatile than the others.

Downstream and Industrial

Downstream and Industrial sector generated 18% of our total Company revenue in the nine months ended September 30, 2026. We expect this sector to deliver strong growth in the coming years driven by increased customer activity levels related to maintenance, repair and operations ("MRO") activities, project turnaround activity in refineries and chemical plants and new energy transition-related projects. Additionally, we have expanded into new markets, including mining and data centers. 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. This sector has a significant amount of project activity, which can create substantial variability between quarters.

The outlook for energy transition projects within the Downstream and Industrial sector is supported by government incentives and policies. Many of our customers have made commitments to net zero emissions to address climate change. Our customer base represents many of the primary leaders in the energy transition movement, and they are positioned to lead the effort to decarbonize through nearer-term efforts such as renewable or biodiesel refineries and offshore wind power generation as well as longer-term efforts

such as carbon capture, sequestration and storage and hydrogen. However, as U.S. government support continues to decline for these types of projects, European government support continues.

Midstream

DNOW's Midstream sector is primarily U.S. based and driven by the increased demand for transmission pipelines and gathering systems. In the nine months ended September 30, 2026, this sector represented 20% of our total Company revenue. The Midstream sector revenue increased 81% in the nine months ended September 30, 2026 compared to the corresponding period of 2025 primarily as a result of the acquisition of MRC Global in the fourth quarter of 2025. The outlook 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. The revenue profile for this sector tends to be volatile between quarters, as it can often be tied to large projects.

Furthermore, as new LNG capacity comes online, this drives the need for associated pipeline infrastructure. U.S. natural gas production is expected to rise, leading to the need for additional pipeline infrastructure and gathering systems. Rising electricity consumption from AI-driven data centers creates the need for additional natural gas transportation, which is also expected to drive growth in this sector. Both LNG and power generation capacity expansion projects tend to be multi-year projects and therefore produce cyclicality of natural gas demand and periods of oversupply. Natural gas is also used for heating during winter months, and winter weather patterns have a short term impact on natural gas price, storage and demand.

In some cases, the market drivers for the Midstream sector are also tied to the same drivers as the Upstream sector, but on a one to two quarter lag. To the extent completion activity and related production increase, this could also have the impact of improving our revenue opportunities in the Midstream sector. New well completions and higher production levels drive the need for additional surface equipment and gathering and processing infrastructure, benefiting this sector's revenue. Following the acquisition of MRC Global, we have enhanced our capabilities in large-bore valves, larger outside diameter pipe, measurement and instrumentation and valve actuation and automation that are in demand when the Midstream sector expands. 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.

Supply Chain

Our supply chain expertise, strong relationships with key suppliers, and effective inventory management allow us to navigate both inflationary and deflationary market conditions. This strategic approach ensures that we can maintain stability in our operations despite external economic pressures. Furthermore, our contracts with customers typically include provisions that allow us to respond quickly to price increases. These contractual mechanisms enable us to pass along cost increases to our customers.

It is important to note that these challenges are dynamic and continue to evolve. If additional pricing fluctuations arise due to tariffs or quotas, the ultimate effect on our revenue and cost of products remains uncertain and subject to volatility.

Operating Environment Overview

Our results are dependent on, among other factors, crude oil and natural gas prices, the level of worldwide oil and gas drilling and completions, well remediation activity, capital spending by oilfield service companies and drilling contractors and the worldwide oil and gas inventory levels. Key industry indicators for the third quarter of 2026 and 2025 and the second quarter of 2026 include the following:

* Monthly averages for the quarters indicated, except for U.S. Wells Completed.

Sources: WTI and Natural Gas Prices: Department of Energy, Energy Information Administration ("EIA") (www.eia.gov); Hot-Rolled Coil Prices: SteelBenchmarker™ Hot Roll Coil USA (www.steelbenchmarker.com); U.S. Wells Completed: Department of Energy, Energy Information Administration (www.eia.gov) (As revised); Active Rigs: Baker Hughes, Inc. (www.bakerhughes.com).

Longer Term Outlook

We play a vital role in supporting customers' supply chains, providing essential products for energy and industrial markets, including infrastructure across upstream, gas utilities, midstream, downstream and industrial sectors. Our business depends on both capital and maintenance spending by our customers. Global oil and gas consumption is rising due to population growth and expanding energy

needs in emerging markets. The EIA projects world energy consumption to increase 34% between 2022 and 2050, with significant growth in renewables (118%), natural gas (29%) and hydrocarbon-based liquids (23%). U.S. oil production is expected to peak at 14 million barrels per day in 2030 and gradually decline, while natural gas production will grow, largely driven by LNG expansion and power generation. The gas utilities industry is expected to grow as aging distribution networks prompt replacement and modernization. Pipeline and Hazardous Materials Safety Administration estimates that roughly 33% of gas distribution lines are over 40 years old or of unknown origin, driving ongoing maintenance. Housing market growth further increases demand for related infrastructure products. According to the EIA, the U.S. will remain a net exporter of petroleum products due to expanded terminal capacity, with strong markets for our goods and services. This projected increase in oil and gas to meet the rise in international energy demand continues to provide a robust market for our existing goods and services. We anticipate future growth from energy transition projects, as traditional energy customers shift capital to these areas. Our established relationships and experience position us well for this evolving market. The U.S. midstream sector is expanding, particularly in natural gas infrastructure to meet LNG export and power demands. Federal policies have accelerated project reviews and simplified processes for pipeline development. According to a 2025 Interstate Natural Gas Association of America Foundation report, to meet energy demand through 2052, it is estimated that North America could require more than $1 trillion in capital investment across natural gas, oil, natural gas liquids, hydrogen and CO2 infrastructure, averaging $40 billion to $48 billion annually, varying by investment. Globally, refining capacity-especially in Asia and the Middle East-is projected to outpace demand growth later in the decade. The U.S. market remains stable but faces planned capacity reductions. As refineries age or convert to renewable fuels, we supply critical infrastructure for continued operations and conversions. The U.S. chemicals market is expected to grow steadily, while short term cycles will exist and remain globally competitive through 2040, due to feedstock cost advantage from shale gas and NGLs. The European market is transitioning toward specialty and sustainable chemicals with commodity chemicals declining. Demand for our products is shaped by operational budgets, capacity expansions and compliance needs.

Results of Operations

Our results of operations are as follows (in millions):

Revenue. Our revenue was $1,337 million and $3,827 million for the three and nine months ended September 30, 2026, respectively, as compared to $634 million and $1,861 million for the corresponding periods of 2025, an increase of $703 million, or 110.9%, and $1,966 million, or 105.6%, respectively.

U.S. Segment. Revenue was $1,125 million and $3,219 million for the three and nine months ended September 30, 2026, respectively, an increase of $598 million and $1,690 million compared to the corresponding periods of 2025. The increase for the three and nine months ended September 30, 2026 was primarily driven by incremental revenue from the MRC Global acquisition completed in the fourth quarter of 2025.

Canada Segment. Revenue was $56 million and $154 million for the three and nine months ended September 30, 2026, respectively, an increase of $3 million, or 5.7% and a decrease of $9 million, or 5.5%, compared to the corresponding periods of 2025. While revenue increased during the three months ended September 30, 2026 due to higher customer-related activity compared to the same period in 2025, the increase did not fully offset the year-to-date decline, which was primarily attributable to lower project-related activity in the first half of 2026.

Our Canadian revenue was approximately 4% of total revenue for both the three and nine months ended September 30, 2026, compared to 8% and 9% for the three and nine months ended September 30, 2025, respectively. The decrease in Canadian revenue as a percentage of total revenue was primarily attributable to the acquisition of MRC Global in the fourth quarter of 2025, which increased revenue in other geographic markets. We are subject to fluctuations in foreign currency exchange rates relative to the U.S. dollar. Our Canadian revenue is favorably impacted as the U.S. dollar weakens relative to the Canadian dollar, and unfavorably impacted as the U.S. dollar strengthens relative to the Canadian dollar. For the three and nine months ended September 30, 2026, our Canadian segment revenue was unfavorably impacted by less than $1 million and favorably impacted by approximately $2 million, respectively, due to changes in foreign currency exchange rates.

International Segment. Revenue was $156 million and $454 million for the three and nine months ended September 30, 2026, an increase of $102 million and $285 million, respectively, compared to the corresponding periods of 2025. The increase was primarily due to the incremental revenue from the acquisition of MRC Global in the fourth quarter of 2025.

Our international revenue was approximately 12% of total revenue for both the three and nine months ended September 30, 2026, compared to 9% for both the three and nine months ended September 30, 2025, respectively. We are subject to fluctuations in foreign currency exchange rates relative to the U.S. dollar. Our international revenue is favorably impacted as the U.S. dollar weakens relative to other foreign currencies, and unfavorably impacted as the U.S. dollar strengthens relative to other foreign currencies. For the three and nine months ended September 30, 2026, our international segment revenue was favorably impacted by less than $1 million and $4 million, respectively, due to changes in foreign currency exchange rates.

Gross Profit. Gross profit was $265 million (19.8% of revenue) and $701 million (18.3% of revenue) for the three and nine months ended September 30, 2026, respectively, as compared to $143 million (22.6% of revenue) and $410 million (22.0% of revenue) for the three and nine months ended September 30, 2025, respectively. The increase in gross profit dollars was primarily attributable to incremental revenue due to the acquisition of MRC Global in the fourth quarter of 2025. The reduced gross margin percentage is primarily due to the dilutive contribution of the MRC Global acquisition. Compared to average cost, our U.S. LIFO inventory costing methodology increased cost of products by $11 million and $46 million for the three and nine months ended September 30, 2026, respectively, as compared to a $2 million and $18 million increase in cost of products for the three and nine months ended September 30, 2025, respectively.

Adjusted Gross Profit. Adjusted Gross Profit increased to $283 million (21.2% of revenue) and $811 million (21.2% of revenue) for the three and nine months ended September 30, 2026, respectively, as compared to $147 million (23.2% of revenue) and $434 million (23.3% of revenue) for the three and nine months ended September 30, 2025, respectively. For the three and nine months ended September 30, 2026, the increase was primarily driven by the U.S. and International segments, partially offset by the Canada segment. The reduced margin percentage is primarily due to to the dilutive contribution of the MRC Global acquisition.

Adjusted Gross Profit is a non-GAAP financial measure. We define Adjusted Gross Profit as revenues, less cost of products, plus amortization of intangibles, plus inventory-related charges incremental to normal operations, plus transaction costs associated with acquisitions, such as inventory fair value step-up or write-downs, and plus or minus the impact of our U.S. LIFO inventory costing methodology. We present Adjusted Gross Profit because we believe it is a useful indicator of our operating performance without regard to items, such as amortization of intangibles that can vary substantially from company to company depending upon the nature and extent of acquisitions. Similarly, the impact of the LIFO inventory costing method can cause results to vary substantially from company to company depending upon whether they elect to utilize LIFO and depending upon which method they may elect. We use Adjusted Gross Profit as a key performance indicator in managing our business. We believe that gross profit is the financial measure calculated and presented in accordance with GAAP that is most directly comparable to Adjusted Gross Profit.

The following table reconciles gross profit, as reported in our consolidated financial statements, with Adjusted Gross Profit, a non-GAAP financial measure (in millions):

Selling, general and administrative ("SG&A") expenses. SG&A expenses were $232 million and $713 million for the three and nine months ended September 30, 2026, respectively, compared to $112 million and $333 million for the corresponding periods of 2025, an increase of $120 million and $380 million, respectively. The increase was primarily driven by incremental expenses from the MRC Global acquisition completed in the fourth quarter of 2025. SG&A expenses include branch location, distribution center and regional expenses (including costs such as compensation, benefits and rent) as well as depreciation and corporate selling, general and administrative expenses.

Impairment and other charges. Impairment and other charges were nil and $4 million for the three and nine months ended September 30, 2026, respectively, compared to nil for the corresponding periods of 2025. During the second quarter of 2026, the Company decided to permanently vacate the leased corporate office in Houston, Texas, and recognized an impairment of the related operating right-of-use asset.

Operating profit (loss). Our operating profit (loss) was $33 million and ($16) million for the three and nine months ended September 30, 2026, respectively, compared to an operating profit of $31 million and $77 million for the corresponding periods of 2025, an increase of $2 million and a decrease of $93 million, respectively, primarily due to inventory-related transaction charges, our LIFO inventory costing methodology, reduced margins and increases in incremental SG&A expenses associated with the MRC Global acquisition.

U.S. Segment. Operating profit (loss) was $19 million and ($43) million for the three and nine months ended September 30, 2026, respectively, a decrease of $7 million and $105 million compared to the corresponding periods of 2025. Operating profit decreased primarily due to inventory-related transaction charges, our U.S. LIFO inventory costing methodology and increases in incremental expenses associated with the MRC Global acquisition.

Canada Segment. Operating profit was $3 million and $5 million for the three and nine months ended September 30, 2026, respectively, an increase of $1 million and a decrease of $1 million compared to the corresponding periods of 2025. Operating profit increased primarily due to a reduction in SG&A expenses for three months ended September 30, 2026. For the nine months ended September 30, 2026 the decline in operating profit was driven by the decline in revenue discussed above.

International Segment. Operating profit was $11 million and $22 million for the three and nine months ended September 30, 2026, respectively, an increase of $8 million and $13 million compared to the corresponding periods of 2025. The increase was primarily due to the acquisition of MRC Global in the fourth quarter of 2025.

Other expense, net. Other expense, net was $10 million and $30 million for the three and nine months ended September 30, 2026, respectively, and was primarily attributable to interest expense on borrowings associated with the acquisition of MRC Global completed in the fourth quarter of 2025. Other expense, net was $1 million for the corresponding periods of 2025.

Income tax (benefit) provision. The effective tax rate for the three and nine months ended September 30, 2026 was (13.0%) and 15.2%, respectively, compared to 23.3% and 22.4%, respectively, for the corresponding periods of 2025. In general, the Company's effective tax rates differ 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 nine months ended September 30, 2026 were impacted by changes in forecasted annual earnings and the geographic mix of those earnings, which resulted in a change in the estimated annual effective tax rate from the estimate used during the second quarter of 2026. The revised estimated annual effective tax rate contributed to income tax benefit during the three months ended September 30, 2026 despite pretax income for the quarter, resulting in a negative effective tax rate for that period.

Net income (loss) attributable to DNOW Inc. Our net income attributable to DNOW Inc. was $26 million and net loss attributable to DNOW Inc. of $39 million for the three and nine months ended September 30, 2026, compared to net income attributable to DNOW Inc. of $23 million and $58 million for the three and nine months ended September 30, 2025, respectively. For the nine months ended September 30, 2026, the decrease of $97 million is due to inventory-related transaction charges, our U.S. LIFO inventory costing methodology, reduced margins and increases in SG&A expenses associated with the MRC Global acquisition.

Adjusted EBITDA. Adjusted EBITDA, a non-GAAP financial measure, was $76 million (5.7% of revenue) and $175 million (4.6% of revenue) for the three and nine months ended September 30, 2026, compared to $51 million (8.0% of revenue) and $148 million (8.0% of revenue) for the three and nine months ended September 30, 2025. Our Adjusted EBITDA increased $25 million and $27 million, respectively, over the periods primarily due to increased revenue associated with the MRC Global acquisition partially offset by reduced margins and increased SG&A costs associated with the MRC Global acquisition.

We define Adjusted EBITDA as net income (loss) plus interest, taxes, depreciation and amortization and excluding other costs, such as stock-based compensation, restructuring and exit costs, transaction-related adjustments, net, inventory-related charges incremental to normal operations, long-lived asset impairments (including goodwill and intangible assets) and plus or minus the impact of our LIFO inventory costing methodology. Transaction-related adjustments, net include transaction costs and recoveries, inventory fair value step-up and write-down, retention bonus accruals and integration expenses associated with acquisitions. 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 believe Adjusted EBITDA provides investors with a helpful measure for comparing our operating performance with the performance of other companies that may have different financing and capital structures or tax rates. We believe it is a useful indicator

of our operating performance without regard to items, such as amortization of intangibles, which can vary substantially from company to company depending upon the nature and extent of acquisitions. Similarly, the impact of the LIFO inventory costing method can cause results to vary substantially from company to company depending upon whether they elect to utilize LIFO and depending upon which method they may elect. We use Adjusted EBITDA internally to evaluate and manage the Company's operations because we believe it provides useful supplemental information regarding the Company's ongoing operating performance. Adjusted EBITDA 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. We believe that net income (loss) attributable to DNOW Inc. is the financial measure calculated and presented in accordance with GAAP that is most directly comparable to Adjusted EBITDA.

The following table reconciles net income (loss) attributable to DNOW Inc., as reported in our consolidated financial statements, with Adjusted EBITDA, a non-GAAP financial measure (in millions):

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 repurchases under our share repurchase program.

As of September 30, 2026 and December 31, 2025, we had cash and cash equivalents of $112 million and $164 million, respectively. As of September 30, 2026, $105 million of our cash and cash equivalents were maintained in the accounts of our various foreign subsidiaries. During the first nine months of 2026, we repatriated $52 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, such as withholding and/or state taxes, offset by any available foreign tax credits.

We maintain an $850 million five-year senior secured revolving credit facility that will mature on November 6, 2030. Availability under the revolving credit facility is limited to the lesser of the commitments and a borrowing base comprised of eligible account receivables, eligible inventory and eligible rental equipment assets of the Borrowers and subsidiary guarantors. As of September 30, 2026, we had $377 million borrowings against our revolving credit facility and had approximately $456 million in availability (as defined in the Amended Credit Facility). The credit facility includes a springing financial covenant that requires us to maintain, during any period when availability falls below specified thresholds, a minimum fixed charge coverage ratio (as defined in the Amended Credit Facility). The credit facility contains usual and customary affirmative and negative covenants for credit facilities of this type including financial covenants. As of September 30, 2026, 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.

In connection with acquisitions in 2024, 2025 and 2026, the Company is committed to total future retention payments of up to $11 million payable in 2027, 2028 and 2029. 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.

Cash Flows

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):

For the nine months ended September 30, 2026, net cash provided by operating activities was $158 million, compared to $72 million provided in the corresponding period of 2025. The increase in net cash provided by operating activities was primarily attributable to a net reduction in working capital of $77 million, driven primarily by lower inventory levels, higher accounts payable balances and improved collections of accounts receivable compared to the corresponding period of 2025, partially offset by reductions in accrued liabilities related to severance costs and legal and professional fees associated with the acquisition of MRC Global. For the nine months ended September 30, 2025, net cash provided by operating activities was primarily driven by net income adjusted for non-cash items, including depreciation and amortization, changes in LIFO reserve, deferred income taxes and stock-based compensation, partially offset by a net decrease in working capital, primarily attributable to a proactive investment of $24 million in inventory to support customer demand, coupled with $35 million increase in accounts receivable due to revenue growth.

For the nine months ended September 30, 2026, net cash used in investing activities was $71 million, compared to $19 million used in the corresponding period of 2025. For the nine months ended September 30, 2026, the increase in net cash used in investing activities compared to the corresponding period of 2025 was primarily related to an increase in cash paid for business acquisitions of $38 million and higher purchases of property, plant and equipment of $17 million. Net cash used in investing activities in the corresponding period of 2025 was primarily related to purchases of property, plant and equipment of $14 million and business acquisitions of $8 million.

For the nine months ended September 30, 2026, net cash used in financing activities was $137 million, compared to $45 million used in the corresponding period of 2025. The increase in net cash used in financing activities was primarily attributable to a $65 million increase in share repurchases and $34 million of net payments under the revolving credit facility compared to the corresponding period of 2025. Net cash used in financing activities for the corresponding period of 2025 was primarily attributable to share repurchases of $27 million and shares withheld for taxes for employee awards of $8 million.

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 the Company's 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 nine months ended September 30, 2026, we repurchased 7,132,302 shares of our common stock for a total of approximately $92 million. As of September 30, 2026, we had approximately $31 million remaining under the program's authorization.

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, 2025. 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 inventories, 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.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

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. For the nine months ended September 30, 2026, approximately 16% of our net sales were outside the U.S., and subject to foreign currency exchange rates that 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 September 30, 2026, our most significant foreign currency exposure was to the Canadian dollar, followed by the Euro, the British pound and the Norwegian kroner.

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 nine months ended September 30, 2026 and 2025, we reported a net foreign currency translation loss of $1 million and a net gain of $8 million, respectively.

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 (loss) 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 expense, net. For the nine months ended September 30, 2026 and 2025, we reported foreign currency transaction losses of $5 million and $1 million, respectively. 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 nine months of 2026 compared to the average for the corresponding period of 2025 increased by approximately 4% compared to the U.S. dollar based on the aggregated weighted average revenue of our foreign-currency denominated foreign operations. The Canadian dollar, Euro, British pound and Norwegian kroner each increased in relation to the U.S. dollar by approximately 1%, 4%, 2% and 10%, respectively.

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 nine months of 2026 of the U.S. dollar relative to foreign currencies that affected the Company would have resulted in approximately $3 million change in net income (loss) for the same period.

Interest Rate Risk

As of September 30, 2026, all borrowings outstanding under our senior secured revolving credit facility bore interest at floating rates. Borrowings under this facility may be made as either base rate loans or non-base rate loans, each of which accrues interest based on a benchmark rate plus an applicable margin. The applicable margin varies based on our Fixed Charge Coverage Ratio, ranging from 0.25% to 0.75% for base rate loans and 1.25% to 1.75% for non-base rate loans.

The revolving credit facility includes rate structures tied to prevailing market indices such as U.S. base rates and non-base rate (e.g., SOFR-based) reference rates. Because interest rates applicable to our borrowings fluctuate with changes in these benchmark rates, our interest expense is sensitive to short-term rate movements.

Based on the amounts outstanding under our revolving credit facility as of September 30, 2026, a 1% increase in the underlying benchmark rate would result in an increase in our interest expense for the first nine months of 2026 of approximately $3 million, assuming borrowing levels remained constant for an entire 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.

Item 4. Controls and Procedures

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.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

From time to time, the Company has been subject to various claims and involved in legal proceedings incidental to the nature of its businesses. The Company maintains insurance coverage to reduce financial risk associated with certain of these claims and proceedings. It is not possible to predict the outcome of these claims and proceedings. However, in the Company's opinion, there are no pending legal proceedings that are likely to have a material effect on the Company's business, financial condition, results of operations or cash flows, although it is possible that the resolution of certain actual, threatened or anticipated claims or proceedings could have a material adverse effect on the Company's results of operations in the period of resolution.

Also, from time to time, in the ordinary course of the Company's business, its customers may claim that the products that the Company distributes are either defective or require repair or replacement under warranties that either the Company or the manufacturer may provide to the customer. These proceedings are, in the opinion of management, ordinary and routine matters incidental to the Company's normal business. The Company's purchase orders with its suppliers generally require the manufacturer to indemnify the Company against any product liability claims, leaving the manufacturer ultimately responsible for these claims. In many cases, state, provincial or foreign law provides protection to distributors for these sorts of claims, shifting the responsibility to the manufacturer. In some cases, the Company could be required to repair or replace the products for the benefit of its customer and seek recovery from the manufacturer for the Company's expense. In the opinion of management, the ultimate disposition of these claims and proceedings is not expected to have a material adverse effect on the Company's financial condition, results of operations or cash flows.

For information regarding asbestos cases in which the Company is a defendant and other claims and proceedings, see Note 12 "Commitments and Contingencies" to the Company's unaudited consolidated financial statements for additional information.

Item 1A. Risk Factors

The Company and its operations are affected by risks specific to the Company as well as factors that affect all businesses operating in a global market. The significant factors known to the Company that could materially adversely affect its business, financial condition or operating results are contained in Part 1, Item 1A "Risk Factors" in our 2025 Annual Report on Form 10-K for the year ended December 31, 2025.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The following table presents a summary of share repurchases made during the three months ended September 30, 2026:

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mining Safety Disclosures

None.