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    DNOW
    Earnings call· Jun 2026(Q2 FY26)

    DNOW Q2 FY26 earnings call DNOW

    Aug 6, 2026 Source

    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

    12
    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

    3
    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%—

    Operational metrics

    34
    Adjusted Gross Profit
    $272 million
    Q2 FY26

    Compared to $256 million in Q1 FY26.

    Adjusted Gross Margin Percentage
    20.8%down from 21.6%
    Q2 FY26

    Sequential decline primarily due to inventory charges and lower vendor consideration.

    Selling, General and Administrative (SG&A) Expenses
    $238 milliondown from $243 million
    Q2 FY26

    Decrease primarily driven by lower bad debt expense and synergy realization.

    Adjusted EBITDA
    $60 millionup $21 million (54%) sequentially
    Q2 FY26

    Increase driven by higher revenues and lower SG&A expenses.

    Adjusted EBITDA Margin
    4.6%up 130 basis points sequentially
    Q2 FY26

    Improvement over Q1.

    Depreciation and Amortization Expense
    $23 million
    Q2 FY26

    Consistent with expectations.

    Interest Expense
    $9 millionup $1 million sequentially
    Q2 FY26

    Consistent with expectations, slight increase due to higher average debt.

    Income Tax Expense
    $12 million
    Q2 FY26

    Generated from applying revised annual effective tax rate to year-to-date results.

    Effective Tax Rate
    -133%
    Q2 FY26

    Year-to-date effective tax rate was 5.8%.

    Net Cash Taxes
    $9 million
    Q2 FY26

    Cash taxes paid in the quarter.

    Net Loss Attributable to DNOW
    $21 million
    Q2 FY26

    GAAP net loss.

    Adjusted Net Income Attributable to DNOW
    $21 million
    Q2 FY26

    Non-GAAP adjusted net income.

    Adjusted Diluted EPS
    $0.12
    Q2 FY26

    Non-GAAP adjusted diluted earnings per share.

    Accounts Receivable
    $889 millionflat sequentially
    Q2 FY26

    Flat despite 10% revenue increase.

    Day Sales Outstanding (DSO)
    62 daysdown 7 days sequentially
    Q2 FY26

    Improvement was accelerated and ahead of prior expectations.

    Inventory
    $1.1 billiondown $131 million from Q1
    Q2 FY26

    Reduction reflects various adjustments and optimization efforts.

    Inventory Turn Rate
    4.0x
    Q2 FY26

    Annualized turn rate.

    Accounts Payable
    $711 million
    Q2 FY26

    Balance at quarter end.

    Days Payable Outstanding (DPO)
    61 days
    Q2 FY26

    Calculated from accounts payable.

    Working Capital (excluding cash) as % of Annualized Revenue
    19.4%improved 19%
    Q2 FY26

    Improvement in working capital efficiency.

    Capital Expenditures
    $9 million
    Q2 FY26

    Invested in the quarter.

    Share Repurchases (Q2)
    $25 million
    Q2 FY26

    Amount repurchased in the second quarter.

    Share Repurchases (Current Program)
    $112 million
    YTD FY26

    Total repurchased under the current share repurchase program.

    Share Repurchases (Cumulative)
    $192 million
    Cumulative

    Total repurchased across current and previous share repurchase programs.

    Total Liquidity
    $472 million
    Q2 FY26

    Total liquidity at quarter end.

    Total Debt Balance
    $474 million
    Q2 FY26

    Total debt at quarter end.

    Net Debt
    $360 millionreduced by $95 million
    Q2 FY26

    Net debt at quarter end, after reduction.

    Net Debt Leverage Ratio
    1.7x
    Trailing 12-month

    Net debt to trailing 12-month EBITDA leverage ratio.

    Cost Synergy Realization (2026 Exit Rate)
    $30 millionexceeding original $17 million estimate
    FY26

    First year expectation for cost synergy realization.

    Cost Synergy Target (Year 3)
    $70 million
    Year 3

    Annualized synergy target by the end of year 3.

    MRC Global Locations Converted to SAP
    17
    Q2 FY26

    Number of locations transitioned to SAP, standardizing upstream and midstream operations.

    Data Centers Revenue
    $40 million to $50 million
    FY26

    Forecasted revenue for the full year 2026.

    Water Solutions Business Size
    $250 million
    Annualized

    Implied annual revenue for the Water Solutions business, part of Process Solutions.

    ERP Stabilization Costs
    $8.5 million
    Q2 FY26

    Estimated cost per quarter for ERP stabilization efforts.

    Risks & headwinds

    4
    Geopolitical instability in the Middle Eastongoing

    impacts customer activity and project timing

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

    Weakness in chemical processing industryongoing

    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 implementationnear-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 Q4Q4 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

    5

    Inventory Reduction

    rest of FY26
    Current$1.1 billion
    Targetdown 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.

    Q&A highlights

    6

    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 read6 chapters

    Detailed Narrative

    01

    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.

    02

    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.

    03

    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.

    04

    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.

    05

    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.

    06

    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.

    AI-generated summary of the company’s earnings call. Not investment advice.