DNOW Inc. Q2 2026 10-Q Summary
Business Context and Reporting Period
This report covers the quarterly period ended June 30, 2026. DNOW Inc. is a leading distributor of pipe, valves, fittings, gas products, pumps, and fabricated process equipment serving energy and industrial markets. The reporting period reflects the full integration of the MRC Global acquisition, which closed on November 6, 2025. The company operates through three segments: United States, Canada, and International.
Key Financial Metrics
| Metric | Q2 2026 (3 Months) | YTD 2026 (6 Months) | Q2 2025 (3 Months) | YTD 2025 (6 Months) |
|---|---|---|---|---|
| Revenue | $1,307 million | $2,490 million | $628 million | $1,227 million |
| Gross Profit | $243 million (18.6%) | $436 million (17.5%) | $129 million (20.5%) | $267 million (21.8%) |
| Operating Profit (Loss) | $1 million | ($49) million | $17 million | $46 million |
| Net Loss Attributable to DNOW | ($21) million | ($65) million | $14 million | $35 million |
| Adjusted EBITDA | $60 million | $99 million | $51 million | $97 million |
| Cash and Equivalents | $114 million (as of June 30, 2026) | |||
| Long-Term Debt | $474 million (as of June 30, 2026) | |||
| Share Repurchases (YTD) | $75 million |
Material Changes vs. Prior Period
- Revenue Growth: Revenue increased 108% year-over-year for Q2 and 103% for the six-month period, primarily driven by the inclusion of MRC Global results.
- Margin Compression: GAAP gross margin declined from 20.5% to 18.6% in Q2. This was largely due to a $19 million LIFO charge (vs. $15 million prior year) and inventory-related transaction charges of $3 million.
- Operating Loss: The company reported an operating loss of $49 million for the six months ended June 30, 2026, compared to a profit of $46 million in the prior year. This shift is attributed to increased SG&A expenses from the MRC integration, LIFO impacts, and inventory step-up charges.
- Segment Performance: The U.S. segment reported an operating loss of $62 million YTD due to integration costs and LIFO impacts, while the International segment saw operating profit rise to $11 million.
- Acquisitions: Completed the acquisition of Edge Controls for approximately $46 million in Q2 2026.
Outlook, Risks, and Management Commentary
- Outlook: Management expects steady growth in the Gas Utilities sector due to infrastructure modernization. The Midstream sector is projected to grow driven by LNG exports and data center power demands. Upstream spending is expected to remain disciplined by customers.
- Tariffs and Supply Chain: The company is navigating U.S. tariffs on steel and products from China/India. While some costs have been passed through to customers, tariffs have delayed or cancelled certain downstream projects.
- Liquidity: The company maintains an $850 million revolving credit facility with approximately $358 million in availability as of June 30, 2026. It remains in compliance with all covenants.
- Risks: Key risks include volatility in oil and gas prices, geopolitical tensions (Iran, Ukraine, Middle East), steel price fluctuations, and the successful integration of MRC Global. The company also faces ongoing asbestos litigation, though reserves are deemed adequate.
- Unusual Items: A $4 million impairment charge was recorded for a corporate office lease in Houston. Significant inventory-related transaction charges ($44 million YTD) impacted results.
Investor Verification Checklist
- Verify the sustainability of revenue growth post-MRC Global integration and the timeline for achieving projected synergies.
- Monitor the impact of LIFO inventory valuation on future earnings, particularly in an inflationary environment.
- Assess the effectiveness of tariff pass-throughs to customers and the potential for project delays in the Downstream sector.
- Review the company's ability to maintain liquidity and covenant compliance given the increased debt load from the MRC acquisition.
- Track the resolution of the multi-state unclaimed property audit and ongoing asbestos litigation claims.