DNOW Inc. 2026 Q2 Earnings Call

Thank you, Greg. Good morning, and welcome to DNOW's second quarter 2026 earnings conference call. We appreciate you joining us and thank you for your interest in DNOW. With me today is David Cherechinsky, President and Chief Executive Officer, and Mark Johnson, Senior Vice President and Chief Financial Officer. We operate under the DNOW and MRC brands. DNOW is our New York Stock Exchange ticker symbol. Please note that some of the statements we make during this call, including the responses to your questions, may contain forecasts, projections, and estimates, including but not limited to comments about our outlook for the company's business. These are forward-looking statements within the meaning of the U.S. federal securities laws based on limited information as of today, August 6, 2026, which is subject to change. They are subject to risks and uncertainties. Actual results may differ materially.

No one should assume these forward-looking statements remain valid later in the quarter or later in the year. We do not undertake any obligation to publicly update or revise any forward-looking statements for any reason. In addition, this conference call contains time-sensitive information that reflects management's best judgment at the time of the live call. I refer you to the latest Forms 10-K and 10-Q that DNOW has on file with the U.S. Securities and Exchange Commission for a more detailed discussion of the major risk factors affecting our business. Further information as well as supplemental financial and operating information may be found within our earnings release on our website at ir.dnow.com or in our filings with the SEC. To supplement the information provided to investors under GAAP, we present certain non-GAAP financial measures in our quarterly earnings releases and other public communications.

We encourage you to review our earnings release and securities filings to further details on our use of these non-GAAP metrics for reconciliations to the most comparable GAAP measures. These documents are also available on our website. Unless we specifically state otherwise, references in this call to EBITDA refer to adjusted EBITDA. Our second quarter 2026 earnings presentation is available on the investor relations section of our website. We expect to file our Form 10-Q later today, after which will also be available on our website. A replay of today's call will be available for the next 30 days. Now, let me turn the call over to Dave.

Thank you, Brad, and good morning, everyone. I want to start by recognizing and thanking our 5,000 DNOW employees who delivered strong second quarter results, which reflect a meaningful improvement from the first quarter of 2026, our first full quarter as a combined organization. The revenue, earnings, and significant cash gains generated in the quarter were the direct result of teamwork and collaboration across the company. Our employees came together with a shared purpose, adding value to our customers and working towards realizing the full potential of DNOW. Our customer-first mindset remains our greatest differentiator and continues to drive growth as we move into the second half of the year. I'm deeply grateful for the commitment, resilience, and hard work of every team member. Thank you for all you do to support our customers and to make DNOW run stronger.

Our ability to execute our strategic plans across multiple fronts resulted in stellar results for the second quarter, with revenue of $1.3 billion, a sequential improvement of $124 million or 10%, with 13% growth in the U.S. exceeding our expectations. Our teams continue to work tirelessly towards executing our U.S. ERP conversion and optimization plans. Our strong top-line performance helped lift EBITDA to $60 million in the second quarter, a $21 million or 54% sequential improvement, beating our expectations and a key step towards our targeted profitability improvement. EBITDA as a percentage of revenue for the quarter rose to 4.6%, a 130 basis points improvement over the first quarter. We delivered $133 million of cash flow from operations in the second quarter, resulting in a positive $38 million year-to-date cash inflow. This cash haul was driven by continued progress on the system optimization and working capital management fronts.

The quarter benefited from higher revenue, improved execution, and accelerated synergy actions, while acknowledging that we continue to incur temporary elevated cost related to the MRC Global U.S. ERP implementation and integration activities. These costs are expected to remain a near-term headwind, but should decline as integration milestones are completed and systems are deployed. During the second quarter, we made progress on the most important objective we laid out earlier this year, retrieving the revenue we want while improving profitability and cash generation. In July, we successfully transitioned our 17th MRC Global location to SAP, marking another important milestone in our U.S. ERP conversion and optimization journey. With 17 locations now converted, we continue to standardize upstream and midstream operations across the network while enhancing operational efficiency, inventory visibility, and synergy realization.

Each conversion advances our ability to grow revenues, standardize processes, optimize the footprint, improve service levels, and capture the merger synergies identified as part of our three-year integration plan. This achievement reflects outstanding cross-functional execution, with teams delivering high-quality results across data preparation, testing, training, system readiness, and cutover activities with accelerated timelines. Now moving to business results. The U.S. business delivered $1.1 billion in revenue, up 13% from the first quarter, representing strong sequential revenue improvement in areas where the combined DNOW and MRC Global platform gives us the best opportunity to recapture customer activity, gain share, and improve operating leverage. Revenue growth was driven by midstream strength, gas utility gains, with notable sequential upstream market share improvement, supported by strong execution and deeper customer engagement. The combined product range and geographic coverage help expand our commercial reach and operational capabilities for our customers.

In the Permian, for example, where we now operate on optimized ERP platforms, we are supporting larger project activity while strengthening local branch execution, inventory deployment, and customer service. As a result, we are seeing increased project activity, stronger bid conversion, and growing momentum with both existing and new customers. We are seeing clear evidence that the combined organization is winning in the market by bringing together customer relationships, broader product availability, best practices, and stronger execution discipline. This was especially evident where inventory depth, local coverage, and targeted customer recovery actions enabled us to respond more effectively. U.S. performance improved across our operating regions, supported by healthy demand in maintenance, production, infrastructure, and project-related activity. In upstream, we made definitive progress recovering customer activity and recapturing share. This is a sector where our combined organization benefits from strong field relationships, deeper product availability, and a broader footprint.

Midstream was one of the most attractive areas of our diversified sector portfolio, piercing $1 billion quarter annualized revenue rate for the first time in the U.S., our highest midstream revenue level ever. Investment in natural gas infrastructure, LNG-related activity, power generation, and feed gas infrastructure build-outs for data centers continue to support demand for the infrastructure-type products and services we provide. We are seeing strong activity across midstream infrastructure, pipeline-related work, compressor station packages, fabricated solutions, valve automation, and other project-driven demand lanes. Our second quarter performance is a solid example of the type 2 momentum we want to see across the combined DNOW platform. The business continues to benefit from strong customer engagement, recurring project activity, and forward-looking planning and quoting activity with customers. Our midstream momentum reflects customer trust earned through consistent execution and the ability to convert relationships and project visibility into repeat opportunities.

Gas utilities delivered another point of validation. Our gas utilities business grew 15% sequentially, nearly twice the three-year second quarter sequential growth average. This represents an 11-quarter revenue high in what we see as a sector with a strong macro outlook. Gas utilities is a durable, infrastructure-led market supported by modernization, infrastructure integrity, and meter replacement programs, and utility investment. Sequential revenue growth was driven by improved operational execution, seasonal construction demand, increasing CapEx from top customers, and market share growth from new customers. To meet the growing needs of one of our top gas utility customers, we invested in a new distribution center designed to support 15 customer locations, resulting in improved proximity and enhanced customer service as activity levels expand. Activity across downstream industrial sectors was mixed.

The downstream business saw a $12 million sequential revenue decline in 2Q, although activity and revenue was flat sequentially when removing the impact of a first-quarter large, non-repeating project paired with market share takeback initiatives, despite continued weakness in the chemical processing industry. Our targeted downstream customer relationships are improving, and we are encouraged by the future revenue opportunities associated with upcoming turnaround activity. We typically begin to see pre-buy activity for seasonal turnarounds toward the end of the third quarter in advance of the first quarter execution, which is traditionally the strongest quarter for downstream turnaround activity. As a result, we expect downstream performance to improve as we move into the coming quarters. On the industrial side, we continue to participate in opportunities tied to data centers, U.S. LNG expansion, mining, and selected industrial markets.

Near seasonal high refinery utilization and declining crude inventories point to a constructive future demand environment, supporting ongoing energy and industrial activity and improving demand for maintenance-related products and services. Simultaneously, across all sectors, we are focused on a number of operational and financial improvement initiatives, including inventory optimization, pricing actions, facility rationalization, and technology upgrades that will deliver stronger working capital performance and process efficiency. Data centers continue to represent an attractive opportunity for us, and we are encouraged by the momentum we are building across both our infrastructure products business and our automation and controls capabilities. Our strategy is focused on developing relationships with the EPC firms, mechanical and general contractors supporting major data center developments, allowing us to establish a meaningful presence in this rapidly expanding market.

Through responsive service, supply chain expertise, material management capabilities, and consistent execution, we have earned repeat business and expanded our participation across multiple projects and geographies. I also want to shine a spotlight on our Process Solutions business, delivering its highest-ever quarterly revenue, with growth led by our Water Solutions team, with solid contributions from Trojan, FlexFlow, and Edge Controls. What is particularly encouraging is that this performance was not concentrated on a single product line or end market, highlighting the strength of the business' growing portfolio. This breadth is important because Process Solutions provides DNOW with premium earnings growth while providing our customers a more diversified set of advanced fluid, gas, and automation solutions across a diverse set of industrial applications. Strategically, Process Solutions strengthens DNOW's diversification and infrastructure-led growth profile.