A 10% sequential revenue jump, record midstream, and a $133M cash haul signal the MRC merger is finally delivering — but the real proof lies in the 2027 EBITDA trajectory.
DNOW · Earnings Call · 2026-08-06
The Quarter the Merger Started Working
It would be easy to dismiss DNOW's second quarter as another step in a long integration slog. But the numbers — and the language — tell a different story. Revenue hit $1.3 billion, up 10% sequentially with U.S. growth of 13%, crushing the guide. Adjusted EBITDA jumped 54% to $60 million, and cash flow from operations delivered a record $133 million. This is not just stabilization; it's a company starting to execute on the thesis that brought MRC Global and DNOW together.
For the first time, U.S. midstream revenue crossed the $1 billion annualized mark. Gas utilities grew 15% sequentially — nearly double the 3-year seasonal average. And upstream, the segment most hurt by the ERP mishaps, posted its strongest sequential growth in four years. As CEO Dave Cherechinsky put it:
We're seeing really widespread performance improvements as it relates to picking materials in the warehouse to processing paperwork more timely to data analysis for back-office review of what's working, what's not working. ... Basically, speed has been the gains we've made over the last 90 days.
The turnaround season is the next big proof point. Management teed it up explicitly — noting pre-buy activity typically ramps late in Q3, and the strength of the refinery utilization environment sets up a constructive maintenance cycle. But the deeper insight is that revenue recapture is still in early innings.
The ERP Liberation Story
A critical, company-specific development is the pace and precision of the Global U.S. ERP conversion. The company has now moved 17 locations to SAP, and the focus is on upstream and midstream — exactly the overlap zones where the combination is supposed to create the most value.
“We internally call it these are locations that have been liberated. They're in a system that is optimized, that's been in place for several years that makes it very easy to be responsive and fast in terms of customer request, requirements, fulfillments, et cetera.” — David Cherechinsky, President and Chief Executive Officer · 2026-08-06
The language of "liberation" is telling. It signals that the legacy ERP headwinds are not just being fixed but actively weaponized. The company is measuring every handoff to ensure revenue isn't lost in the transition, and the early evidence — strong upstream growth — suggests the strategy is working. This is a company-specific theme, not sector boilerplate.
Cash Machine, Repurchase Engine
Perhaps the most notable change from this quarter is the acceleration of capital returns. In H1 2026, DNOW repurchased $75 million of shares — more than in the prior 10 quarters combined. That's a decisive signal of confidence, especially as the company also cut net debt by $95 million during the quarter. The balance sheet is rapidly becoming a source of strength rather than a concern.
This ties directly to the working capital story. Inventory dropped $131 million sequentially, while DSO improved by 7 days — an extraordinary feat given revenue grew 10%. Management has committed to another $50–100 million of cash generation from inventory and receivables over the rest of the year. The question is whether that cash generation can be sustained without starving the revenue engine.
The 2027 Target: Why This Quarter Matters
Cherechinsky reaffirmed a $350 million EBITDA target for 2027, now with visibly more conviction:
“We gained confidence over the last 90 days in our ability for that glimpse into 2027... we see the possibility of growth in sector expansion in upstream, midstream and gas utilities next year.” — David Cherechinsky, President and Chief Executive Officer · 2026-08-06
That target implies a substantial step-up from the implied 2026 run rate. To get there, the company needs revenue growth of roughly 6.5%–7% next year, modest gross margin expansion, and continued cost discipline. The foundation is being laid now. The stock's recent 90-day return of +28.4% (with momentum still strong) suggests the market is beginning to price that in.
Of course, risks remain: the project activity environment in downstream is still choppy, and seasonality in Q4 could dilute the headline growth. But the story has shifted from "fixing the merger" to "leveraging the merger." The company is no longer just talking about synergies; it's showing them in the numbers.
The negative $108M free cash flow in Q2 2026 (per the latest fundamentals period) is a lagging artifact of the ERP transition; the company's own Q2 numbers and commentary point to a rapid recovery. The ability to fund repurchases while reducing debt is a testament to the underlying cash-generating power of the combined franchise.
Operating cash flow is now the clear differentiator. DNOW has moved from a period of disruption to a period of proven execution. If the fourth quarter's seasonal decline is as mild as management hints, and the 2027 trajectory holds, this could be the beginning of a re-rating.