DNOW Inc.

The results of operations are presented before consideration of the noncontrolling interests. Our results of operations are as follows (in millions):

(1)

Adjusted Gross Profit and Adjusted EBITDA are non-GAAP financial measures. For a reconciliation of these measures to an equivalent GAAP measure, see pages 26-28 herein.

Revenue. Our revenue was $1,307 million and $2,490 million for the three and six months ended June 30, 2026 as compared to $628 million and $1,227 million for the corresponding periods of 2025, an increase of $679 million, or 108.1%, and an increase of $1,263 million, or 102.9%, respectively.

U.S. Segment—Revenue was $1,109 million and $2,094 million for the three and six months ended June 30, 2026, an increase of $581 million and an increase of $1,092 million compared to the corresponding periods of 2025. Theincrease for the three and six months ended June 30, 2026 was primarily driven by incremental revenue from the MRC Global acquisition completed in the fourth quarter of 2025.

Canada Segment—Revenue was $47 million and $98 million for the three and six months ended June 30, 2026, a decrease of $1 million, or 2.1% and a decrease of $12 million, or 10.9%, compared to the corresponding periods of 2025. For the six months ended June 30, 2026, the decrease was primarily due to lower project-related activity.

Our Canadian revenue was approxim ately 4% of total revenue for both the three and six months ended June 30, 2026, compared to 8% and 9% for the three and six months ended June 30, 2025, respectively. 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 six months ended June 30, 2026, our Canadian segment revenuewas 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 $151 million and $298 million for the three and six months ended June 30, 2026, an increase of $99 million and an increase of $183 million compared to the corresponding periods of 2025. Theincrease was primarily due to the acquisition of MRC Global in the fourth quarter of 2025.

Our international revenue was approx imately 11% and 12% of total revenue for the three and six months ended June 30, 2026, compared to 8% and 9% for the three and six months ended June 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 six months ended June 30, 2026, our international segment revenue was favorably impacted by approximately $1 million and $4 million, respectively, due to changes in foreign currency exchange rates.

Gross Profit. Our gross profit was $243 million (18.6% of revenue) and $436 million (17.5% of revenue) for the three and six months ended June 30, 2026, respectively, as compared to $129 million (20.5% of revenue) and $267 million (21.8% of revenue) for the three and six months ended June 30, 2025, respectively. The increase was primarily attributable to incremental revenue due to the acquisition of MRC Global in November 2025. Compared to average cost, our LIFO inventory costing methodology increased cost of products by $19 million and $35 million for the three and six months ended June 30, 2026, respectively, as compared to a $15 million and $16 million increase in cost of products for the three and six months ended June 30, 2025, respectively.

Adjusted Gross Profit. Adjusted Gross Profit increased to $272 million (20.8% of revenue) and $528 million (21.2% of revenue) for the three and six months ended June 30, 2026 from $146 million (23.2% of revenue) and $287 million (23.4% of revenue) for the three and six months ended June 30, 2025, an increase of $126 million and $241 million, respectively. For the three and six months ended June 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 primarilydue to changes in product and customer mix resulting from the integration of MRC Global's product portfolio into the Company's expanded offering.

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 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 derived from 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 $238 million and $481 million forthe three and six months ended June 30, 2026, compared to$112 million and $221 millionfor the corresponding periods of 2025, an increase of $126 million and $260 million, respectively. The increasewas primarily drivenby 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 $4 million for boththe three and six months ended June 30, 2026, compared to nil for the corresponding periods of 2025. These impairment charges were related to the operating right-of-use asset associated with a corporate office lease in Houston, Texas. The impairment resulted from the Company's decision to permanently vacate the leased premises.

Operating profit (loss). Our operating profit (loss) was $1 million and ($49) millionfor the three and six months ended June 30, 2026, compared to an operating profitof $17 million and $46 million for the corresponding periods of 2025, a decrease of $16 million and $95 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 loss was $8 million and $62 million for the three and six months ended June 30, 2026, a decrease of $23 million and a decrease of $98 million compared to the corresponding periods of 2025. Operating profit decreased primarily due to inventory-related transaction charges, our LIFO inventory costing methodology and increases in incremental expenses associated with the MRC Global acquisition.

Canada Segment—Operating profit was $1 million and $2 million for the three and six months ended June 30, 2026, an increase of $1 million and a decrease of $2 million compared to the corresponding periods of 2025. Operating profit increased primarily due to a reduction in SG&A expenses for three months ended June 30, 2026. For the six months ended June 30, 2026 the decline in operating profit was driven by the decline in revenue discussed above.

International Segment—Operating profit was$8 million and $11 million for the three and six months ended June 30, 2026, an increase of $6 million and an increase of $5 million compared to the corresponding periods of 2025.

Other (expense) income, net. Other expense was $10 million and $20 million for the three and six months ended June 30, 2026 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) income was nil for the corresponding periods of 2025.

Income tax provision (benefit). The effective tax rate for the three and six months ended June 30, 2026, was (133.3%) and 5.8%, respectively, compared to 17.6% and 21.7%, respectively, for the corresponding periods of 2025. 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 rate for the three and six months ended June 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 first quarter of 2026. The revised estimated annual effective tax rate contributed to income tax expense during the second quarter of 2026 despite a pretax loss for the quarter, resulting in a negative effective tax rate for the three months ended June 30, 2026.

Net (loss) income attributable to DNOW Inc. Our net loss attributable to DNOW Inc. was $21 million and $65 million for the three and six months ended June 30, 2026, compared to net income attributable to DNOW Inc. of $14 million and $35 million for the three and six months ended June 30, 2025, a decrease of $35 million and $100 million, respectively, 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.

Adjusted EBITDA. Adjusted EBITDA, a non-GAAP financial measure, was$60 million (4.6% of revenue) and $99 million (4.0% of revenue) for the three and six months ended June 30, 2026, compared to $51 million (8.1% of revenue) and $97 million (7.9% of revenue) for the three and six months ended June 30, 2025. Our Adjusted EBITDA increased $9 million and $2 million, respectively, over the periods primarily due to increased revenue associated with the MRC Global acquisition partially offset by reduced margins and increased incremental SG&A costs associated with the MRC Global acquisition.

We define Adjusted EBITDA as net (loss) income plus interest, taxes, depreciation and amortization and excluding other costs, such as stock-based compensation, restructuring and exit costs, transaction-related charges, 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 charges include transaction costs, 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 (loss) income 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 (loss) income attributable to DNOW Inc., as derived from our consolidated financial statements, with Adjusted EBITDA, a non-GAAP financial measure (in millions):

(1)

For the three and six months ended June 30, 2026, stock-based compensation excludes $1 million and $2 million, respectively, and for the corresponding periods of 2025, stock-based compensation excludes less than $1 million and $1 million, respectively, as such amounts were reported in transaction-related charges.

(2)

Transaction-related charges and restructuring and exit costs are included in selling, general and administrative expenses.

(3)

Inventory-related transaction charges are included in cost of products. For the three and six months ended June 30, 2026, inventory-related transaction charges includes $3 million and $44 million, respectively, of charges related to inventory step-up and inventory write-downs.

(4)

For the three and six months ended June 30, 2026, impairment and other charges includes $4 million of impairment charges related to the operating right-of-use asset associated with a corporate office lease in Houston, Texas.

(5)

For the three and six months ended June 30, 2026, other costs includes $1 million and $3 million, respectively, related to foreign currency losses.