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DNOW (DNOW) Q2 FY26 earnings call: guidance and Q&A

Earnings call· Jun 2026 (Q2 FY26)· Industrials· Aug 6, 2026

Source: earnings call transcript

Executive summary

DNOW Inc. Q2 FY26 — Strong Revenue Growth, Record Cash Flow, and ERP Progress

DNOW delivered strong Q2 FY26 results, marked by significant sequential revenue growth and record cash flow generation, driven by successful integration efforts and working capital management. The company made substantial progress on its U.S. ERP conversion, with 17 locations now transitioned to SAP, enhancing operational efficiency and market share recapture. Management expressed increased confidence in its long-term profitability targets, despite anticipating seasonal revenue declines in Q4 and ongoing geopolitical uncertainties in some international markets.

Highlights

5

  • Revenue of $1.3 billion, a 10% sequential improvement, exceeding expectations.

  • EBITDA rose to $60 million, a 54% sequential improvement, beating expectations.

  • Generated $133 million of cash flow from operations, a record for Q2, resulting in a positive $38 million year-to-date cash inflow.

  • U.S. revenue grew 13% sequentially to $1.1 billion, driven by midstream, gas utilities, and upstream sectors.

  • Net debt reduced by $95 million during the quarter, with a trailing 12-month EBITDA net debt leverage ratio of 1.7x.

Concerns

4

  • Downstream business saw a $12 million sequential revenue decline, excluding a large non-repeating project from Q1.

  • Geopolitical instability in the Middle East continues to impact customer activity and project timing, leading to delays in bidding and capital spending decisions.

  • Continued weakness in the chemical processing industry affecting downstream activity.

  • Temporary elevated costs related to the MRC Global U.S. ERP implementation and integration activities are expected to remain a near-term headwind.

Guidance & targets

CategoryTargetConfidence
Q3 Revenue Growth
low to mid-single-digit percentage range
high materiality
High
Q3 EBITDA Margin
5% to 5.5%
high materiality
High
Full-Year 2026 Revenue
approach approximately $5 billion to $5.1 billion
high materiality
High
Full-Year 2026 EBITDA Margin
approach 4.5%
high materiality
High
Full-Year 2026 GAAP Effective Tax Rate
mid- to high single digits
medium materiality
Medium
Q3 Depreciation and Amortization Expense
approximately $24 million
low materiality
High
Q3 Interest Expense
decline slightly
low materiality
Medium
Inventory Reduction
another $25 million, $50 million
medium materiality
High
Receivables Reduction
another $25 million to $50 million
medium materiality
Medium
ERP Mitigation Costs
down about $1 million
medium materiality
High
ERP Mitigation Costs
another $1 million
medium materiality
High
2027 EBITDA
$350 million
high materiality
High

Segment performance

SegmentRevenueYoYQoQMargin
United States
Strong sequential revenue improvement, driven by midstream, gas utilities, and upstream sectors. Upstream saw definitive progress in recovering customer activity and recapturing share. Midstream surpassed $1 billion annualized revenue rate for the first time. Gas Utilities grew 15% sequentially, an 11-quarter revenue high. Downstream saw a $12 million sequential decline, excluding a large non-repeating Q1 project.
Upstream: 36% of total U.S. revenueGas Utilities: 28% of total U.S. revenueMidstream: 23% of total U.S. revenueDownstream and Industrial: 13% of total U.S. revenue
$1.1 billion—13%—
Canada
Revenue declined sequentially due to seasonality and the spring breakup period, but performance was better than expected with resilient customer and project activity.
$47 million—-8%—
International
Increased profitability due to project mix, primarily from increased activity in the U.K. and Australia. Geopolitical instability in the Middle East impacted customer activity and project timing.
$151 million—3%—

Risks & headwinds

Geopolitical instability in the Middle East ongoing

impacts customer activity and project timing

Mitigation:Well positioned with key customers internationally, encouraged by long-term opportunity set.

Weakness in chemical processing industry ongoing

contributed to $12 million sequential revenue decline in Downstream

Mitigation:Targeted downstream customer relationships are improving, expecting future revenue opportunities from upcoming turnaround activity.

Temporary elevated costs from ERP implementation near-term

estimated $8.5 million per quarter in Q2

Mitigation:Costs expected to decline by $1 million in Q3 and another $1 million in Q4 as integration milestones are completed and systems deployed.

Seasonal revenue decline in Q4 Q4 FY26

historically 6-8% for DNOW, 10-13% for MRC

Mitigation:Expect to be more efficient, modestly increase gross margin percentage, and benefit from market share gains and recovered revenues to partially offset seasonal gravity.

What to watch in Q3 FY26

Inventory Reduction

rest of FY26
Current $1.1 billion
Target down by $25 million to $50 million

Why it matters

Further inventory streamlining is a big focus for cash generation and working capital efficiency.

We're going to bring that down by another $25 million, $50 million during the rest of the year.

Find out whether DNOW delivers this. Inve re-checks your case every morning.

Q&A highlights

What additional working capital gains can be achieved in coming quarters, specifically from inventory and accounts receivable?

Management expects to reduce inventory by another $25M-$50M during the rest of the year and accounts receivable by another $25M-$50M, primarily in Q4, driven by continued streamlining and improved DSOs. These reductions, combined with earnings, will drive significant cash from operating activities.

“So inventory, streamlining is a big focus for us. In terms of accounts receivable, we made really nice gains in our DSOs in the quarter. They improved by 7 days which I don't know if we've ever been able to do that before.”

asked by Alexander Rygiel · answered by David Cherechinsky

2 min read 6 chapters

Detailed narrative

ERP Conversion and Integration Progress

DNOW successfully transitioned its 17th MRC Global location to SAP in July, marking a significant milestone in its U.S. ERP conversion and optimization journey. This standardization across upstream and midstream operations enhances efficiency, inventory visibility, and synergy realization. The company is seeing widespread performance improvements, including faster material picking, timely paperwork processing, and better data analysis, contributing to market share recapture and strong upstream growth.

U.S. Sector Performance and Market Share Gains

The U.S. business delivered $1.1 billion in revenue, up 13% sequentially, driven by midstream, gas utilities, and upstream sectors. The combined DNOW and MRC Global platform is enabling the company to recapture customer activity and gain share, particularly in the Permian where optimized ERP platforms support larger project activity. Upstream saw definitive progress in customer activity recovery and market share recapture, while midstream surpassed a $1 billion annualized revenue rate for the first time in the U.S.

Gas Utilities and Downstream Outlook

Gas Utilities revenue grew 15% sequentially, reaching an 11-quarter high, supported by modernization, infrastructure integrity, and CapEx from top customers. DNOW invested in a new distribution center to support a top gas utility customer. Downstream revenue declined sequentially due to a non-repeating Q1 project and chemical processing weakness, but management expects improvement in coming quarters with pre-buy activity for seasonal turnarounds towards Q3 end, anticipating strong Q1 FY27 execution.

Data Centers and Process Solutions Growth

Data centers represent an attractive opportunity, with DNOW forecasting $40 million to $50 million in revenue for 2026. The company is building momentum through its infrastructure products and automation/controls capabilities, focusing on EPC firms and contractors. The Process Solutions business achieved its highest-ever quarterly revenue, led by Water Solutions, highlighting the strength of its diversified portfolio and providing premium earnings growth.

International and Canadian Performance

International revenue increased 3% sequentially to $151 million, driven by improved activity in the U.K. and Australia, despite geopolitical instability impacting Middle East operations. Canadian revenue was $47 million, down 8% sequentially, better than expected due to seasonal spring breakup pressures, with more resilient customer and project activity in midstream and LNG opportunities.

Capital Allocation and Synergy Realization

DNOW generated a record $133 million in cash flow from operations, deploying it to repurchase $25 million in shares and reduce net debt by $95 million. The company has repurchased $112 million under the current share repurchase program. Cost synergy realization is ahead of schedule, with a first-year expectation of approximately $30 million on a 2026 exit rate basis, significantly exceeding the original $17 million estimate, with an annualized target of $70 million by the end of year 3.

Summary of the company's earnings call; see how call summaries are prepared. Not investment advice.