DNOW Q2 Earnings Call Highlights

Key Points

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• Second-quarter performance improved sharply: Revenue rose 10% sequentially to $1.3 billion, adjusted EBITDA increased 54% to $60 million, and operating cash flow reached a record $133 million. U.S. midstream, gas utilities and upstream businesses led growth.

• Integration and cash management advanced: DNOW continued migrating MRC Global locations to SAP and expects first-year synergies of about $30 million, above its original estimate. Inventory and net debt declined, while the company repurchased $25 million of shares during the quarter.

• 2026 outlook was raised: DNOW now expects full-year revenue to approach $5.0 billion-$5.1 billion and EBITDA margins to approach 4.5%; third-quarter revenue is projected to grow at a low- to mid-single-digit sequential rate.

DNOW (NYSE:DNOW) reported second-quarter 2026 revenue of $1.3 billion, up $124 million, or 10%, sequentially, as growth in its U.S. upstream, midstream and gas utility businesses exceeded management’s expectations. Adjusted EBITDA rose 54% from the first quarter to $60 million, while operating cash flow reached a second-quarter company record of $133 million.

President and Chief Executive Officer David Cherechinsky said the quarter marked a “meaningful improvement” from the first quarter, which was the company’s first full quarter as a combined organization following its MRC Global combination. He attributed the results to revenue recovery efforts, integration actions, working-capital management and continued progress on system optimization.

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“Our ability to execute our strategic plans across multiple fronts resulted in stellar results for the second quarter,” Cherechinsky said.

U.S. Growth Led by Midstream, Gas Utilities and Upstream

U.S. revenue totaled $1.1 billion, increasing $124 million, or 13%, from the prior quarter. Chief Financial Officer Mark Johnson said upstream represented about 36% of second-quarter U.S. revenue, followed by gas utilities at 28%, midstream at 23%, and downstream and industrial markets at 13%.

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Cherechinsky said midstream reached its highest revenue level ever for the company, surpassing a $1 billion annualized revenue rate in the U.S. He cited investment in natural-gas infrastructure, LNG-related activity, power generation and feed-gas infrastructure for data centers as demand drivers. The company reported activity in pipeline-related work, compressor-station packages, fabricated solutions and valve automation.

Gas utility revenue increased 15% sequentially to an 11-quarter high. Management said results reflected seasonal construction demand, rising capital expenditures among key customers, improved execution and share gains with new customers. DNOW also opened a distribution center to support 15 locations for one of its largest gas utility customers.

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Upstream activity improved as the company recovered customer business and gained market share, according to Cherechinsky. He said DNOW’s broader product availability, field relationships and geographic footprint have strengthened its ability to serve customers in the sector.

Downstream revenue declined $12 million sequentially. However, management said revenue was flat excluding the effect of a large, non-recurring first-quarter project and market-share recovery initiatives. The company expects downstream activity to improve in coming quarters as customers prepare for seasonal refinery turnarounds, with pre-buying activity typically beginning late in the third quarter ahead of first-quarter execution.

ERP Conversion and Integration Progress

DNOW continued to integrate MRC Global’s operations and systems during the quarter. In July, the company transitioned its 17th MRC Global location to SAP as part of its U.S. ERP conversion and optimization effort.

Cherechinsky said the converted locations are helping standardize operations, improve inventory visibility, support customer service and enable synergies. He added that the company is tracking customer revenue handoffs from MRC’s legacy system to SAP and has seen gains from those conversions, particularly in U.S. upstream operations.

Management acknowledged that ERP implementation and integration work continued to create temporary elevated costs. Cherechinsky said costs related to consultants, contract labor, overtime and temporary workers were about $8.5 million in the second quarter and are expected to decline by roughly $1 million in the third quarter and another $1 million in the fourth quarter.

Johnson said DNOW expects first-year cost synergies to reach approximately $30 million on a 2026 exit-rate basis, exceeding its original $17 million first-year estimate. The company maintained its target of $70 million in annualized synergies by the end of the third year of integration.

Cash Flow, Working Capital and Capital Allocation

The company generated $133 million in operating cash flow during the second quarter, producing a positive $38 million year-to-date cash inflow. Accounts receivable remained flat despite the 10% revenue increase, and days sales outstanding fell seven days sequentially to 62 days.

Inventory declined $131 million sequentially to $1.1 billion. Johnson said the reduction reflected $53 million in opening-balance-sheet inventory reserve adjustments related to the MRC Global acquisition, a $19 million increase in LIFO reserves and inventory optimization actions.

DNOW ended the quarter with $114 million in cash, $358 million of availability under its revolving credit facility and total liquidity of $472 million. Total debt was $474 million, while net debt was $360 million, resulting in a trailing 12-month net-debt-to-EBITDA ratio of 1.7 times.

During the quarter, the company spent $25 million repurchasing shares and reduced net debt by $95 million. Through the first half, it repurchased $75 million of shares. Johnson said DNOW has repurchased $112 million under its current authorization and $192 million across its current and previous repurchase programs.

Second-quarter net loss attributable to DNOW was $21 million, or $0.11 per diluted share. On an adjusted basis, net income was $21 million, or $0.12 per diluted share. Adjusted gross profit was $272 million, representing a 20.8% margin, compared with 21.6% in the first quarter, primarily due to inventory-related charges and lower vendor consideration in the international segment.

Outlook Raised for 2026

For the third quarter, DNOW expects sequential revenue growth in the low- to mid-single-digit percentage range, with EBITDA margins targeted at 5% to 5.5%. Management expects sequential growth in the U.S., Canada and international operations.

The company raised its full-year outlook and now expects revenue to approach $5 billion to $5.1 billion, with EBITDA as a percentage of revenue approaching 4.5%.

Cherechinsky said the company expects a seasonal revenue decline in the fourth quarter, consistent with historical patterns at both DNOW and MRC Global. Still, he said management has gained confidence in its ability to improve revenue recovery, capture market share and advance toward its previously discussed, non-guidance view of approximately $350 million in EBITDA for 2027.

International revenue rose 3% sequentially to $151 million, driven largely by increased U.K. activity. Canada revenue fell 8% to $47 million because of seasonal spring-breakup conditions, though management said activity proved more resilient than expected. The company noted that geopolitical instability in the Middle East has delayed customer activity and project decisions, though its exposure to the region is relatively small.

About DNOW (NYSE:DNOW)

DistributionNOW (NYSE: DNOW) is a global distributor of energy and industrial products, serving a broad range of end-markets including oil and gas, petrochemical, power generation, and industrial manufacturing. Headquartered in Houston, Texas, the company provides solutions across the life cycle of energy and industrial assets, with an emphasis on safety, reliability and operational efficiency.

The company’s core product portfolio includes piping systems and related components (such as valves, fittings, flanges and gaskets), instrumentation, electrical and automation equipment, fasteners, industrial safety supplies, chemicals and composite products.

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The article “DNOW Q2 Earnings Call Highlights” was originally published by MarketBeat.

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