DNOW

Overall Financial and Cash Flow Performance

• Second quarter adjusted EBITDA rose 54% sequentially to $60 million, driven by higher volumes, successful integration execution, and cost management initiatives.
• GAAP net loss attributable to D-NOW was $21 million (11 cents per fully diluted share), while non-GAAP adjusted net income was $21 million (12 cents per fully diluted share).
• Operating cash flow reached a record $133 million in Q2, driven by dramatic working capital improvements.

Working Capital and Balance Sheet

• Accounts receivable remained flat sequentially at $889 million despite 10% higher revenue, cutting day sales outstanding (DSO) by 7 days to 62 days, an improvement ahead of prior expectations.
• Inventory fell $131 million sequentially to $1.1 billion, with an annualized turn rate of 4.0x; the reduction reflects acquisition-related measurement adjustments, increased LIFO reserves, and ongoing inventory optimization.
• Working capital excluding cash as a percentage of annualized Q2 revenue improved to 19.4%.
• The company ended the quarter with $472 million in total liquidity, a net debt balance of $360 million, and a trailing 12-month EBITDA net leverage ratio of 1.7x, indicating a strong balance sheet with long-term financial flexibility.

MRC Global Integration and Synergies

• The company has realized faster cost synergies than originally projected, with a 2026 exit rate expected to reach approximately $30 million, significantly exceeding the original year-one target of $17 million. The full three-year annualized synergy target remains $70 million by the end of 2028.
• Widespread performance improvements have been achieved for the MRC ERP platform, with faster warehouse material picking, timelier paperwork processing, and improved back-office data analysis. 17 upstream and midstream locations have been converted to D-NOW's SAP system, with per-customer revenue gains observed during the transition, contributing to the strong U.S. upstream sequential growth.

Capital Allocation

• The company repurchased $25 million in shares during Q2 2026, bringing year-to-date repurchases to $112 million under the current program and $192 million cumulatively across all programs; total first half 2026 repurchases reached $75 million, more than the prior 10 quarters combined, reflecting management confidence in the company's strategy and long-term growth.
• Q2 capital expenditures totaled $9 million, with quarterly CapEx expected to remain stable in coming quarters.

• Third quarter 2026: Total revenues are expected to grow sequentially in the low-to-mid single-digit percentage range, with sequential growth projected for the U.S., international, and Canadian segments. Q3 2026 EBITDA is targeted 5% to 5.5% above the prior guidance, with higher EBITDA-to-revenue flow-through than typical historical levels.
• Full year 2026: Management has raised prior guidance, and now expects full-year revenues to approach $5 to $5.1 billion, with full-year EBITDA as a percentage of revenue approaching 4.5%. The full-year 2026 GAAP effective tax rate is expected to land in the mid-to-high single digits.
• Fourth quarter 2026: A seasonal revenue decline in line with historical combined trends for D-NOW and MRC Global is the baseline forecast, with D-NOW historically seeing 6% to 8% sequential Q3 to Q4 declines and MRC seeing roughly 10% declines. Management notes there is some variability to this forecast, but it is the current base expectation.
• 2027: Management has gained additional confidence in the preliminary non-guidance target of $350 million in EBITDA, driven by expected 6.5% to 7% revenue growth across upstream, midstream, and gas utilities, continued market share gains, and stable cost efficiencies exiting 2026. ERP-related mitigation costs are expected to decline by ~$1 million in Q3 2026 and another ~$1 million in Q4 2026, supporting margin expansion into 2027.

Total Q2 2026 revenue reached $1.3 billion, representing a 10% sequential increase overall and a 13% sequential increase for the U.S. segment. For the first time, U.S. midstream annualized revenues surpassed $1 billion. Both the U.S. gas utility and upstream sectors delivered their strongest sequential quarterly percentage revenue growth since 2022. Downstream and industrial revenues remain timing-sensitive relative to other segments. International and Canadian segments delivered positive sequential performance, with management projecting continued sequential growth for both in Q3. Water solutions is an approximately $150 million annual revenue segment with premium margins, and data center revenues are projected to reach $40-$50 million for full-year 2026, up from a prior May 2026 forecast of $30 million. U.S. upstream accounts for just under 40% of total company revenue.

• The actual full-year 2026 effective tax rate may vary from the current mid-to-high single digits forecast depending on final earnings levels and second half 2026 LIFO adjustments.
• Turnaround project timing for downstream refining customers may be pushed out if customers are unwilling to take systems offline amid high utilization, creating uncertainty around downstream revenue recovery timing.
• Additional working capital gains and cash generation are dependent on successful continued inventory and receivables reduction execution, with revenue growth requiring maintenance of appropriate inventory levels to support new demand.
• Revenue recapture in downstream may require lower teaser margins initially to re-enter customer accounts, creating near-term margin pressure even as volume grows.
• ERP stabilization and conversion still requires additional temporary mitigation costs (consulting, contract labor, overtime) that suppress near-term earnings, though these costs are expected to decline through the end of 2026.

Q: What additional working capital improvements can D-NOW achieve over the rest of 2026? / A: The company’s primary working capital levers are inventory and accounts receivable. Management expects to reduce excess inventory by an additional $25 to $50 million over the remainder of the year, while targeting another $25 to $50 million in accounts receivable reductions, primarily in Q4 2026 during the seasonal revenue decline. These reductions will support continued strong operating cash flow, while the company maintains sufficient inventory to support growth in high-demand end markets like data centers and LNG.

Q: What is the outlook for the upcoming fall downstream refining turnaround season, and how much visibility does D-NOW have into project activity? / A: Management expects 2026 turnaround activity to be similar to 2025, when MRC Global was unable to fully participate due to prior ERP issues. Pre-buy activity and booking backlog is expected to build in late Q3 2026, with execution primarily occurring in Q4 2026 and Q1 2027. High ongoing refinery utilization increases the need for maintenance, creating a constructive backdrop for D-NOW to recapture lost market share as it repairs customer relationships and stabilizes its ERP system.

Q: What is the update on MRC ERP performance and the upstream/midstream SAP conversion process? / A: Widespread performance improvements have been achieved over the past 90 days, including faster warehouse picking, timelier administrative processing, and improved back-office data analysis. 17 upstream/midstream locations have now been converted to SAP, with careful tracking of customer and revenue handoff showing consistent revenue gains post-conversion. This conversion has contributed to the strongest sequential U.S. upstream growth seen in four years, as converted locations can deliver faster, more responsive customer service.

Q: Does the 2026 full-year revenue guidance imply a Q4 2026 revenue decline, and what is the variability around that expectation? / A: A seasonal Q4 decline is the baseline expectation, in line with the historical trend for both D-NOW and MRC Global (D-NOW typically sees 6-8% sequential decline, MRC closer to 10%). Management has modeled a slightly better outcome than the historical average seasonal decline, but acknowledges there is some variability to the forecast, as day-to-day business is harder to predict than larger planned projects. Q4 2026 is still expected to see a decline even with ongoing market share gains.

Q: What is the size and growth outlook for D-NOW's data center and water solutions segments? / A: Data center revenues are now expected to reach $40 to $50 million in 2026, up from a prior $30 million forecast, with sales teams actively focused on growing this opportunity. Water solutions is a ~$150 million annual revenue business with premium margins, and is a core part of D-NOW's diversified process solutions strategy, with management targeting additional acquisitions to grow the segment further.