DNOW Inc.

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 25-27 herein.

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 approxim ately 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 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 $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. Theincrease was primarily due to the incremental revenue from the acquisition of MRC Global in the fourth quarter of 2025.

Our international revenue was approx imately 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 toto 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 forthe three and nine months ended September 30, 2026, respectively, compared to$112 million and $333 millionfor the corresponding periods of 2025, an increase of $120 million and $380 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 nil and $4 million forthe 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) millionfor the three and nine months ended September 30, 2026, respectively, compared to an operating profitof $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 thethree 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):

(1)

For the three and nine months ended September 30, 2026, stock-based compensation excludes less than $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 adjustments, net.

(2)

Transaction-related adjustments, net 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 nine months ended September 30, 2026, inventory-related transaction charges includes less than $1 million and $44 million, respectively, of charges related to inventory step-up and inventory write-downs.

(4)

For the nine months ended September 30, 2026, impairment and other charges includes $4 million of impairment charges related to the Company’s decision to permanently vacate the leased corporate office in Houston, Texas during the second quarter of 2026, and recognized an impairment of the related operating right-of-use asset.

(5)

For the three and nine months ended September 30, 2026, other includes $2 million and $5 million, respectively, related to foreign currency losses. Foreign currency losses are included in other expense, net.