DNOW 2026년 3분기 실적 콘퍼런스 콜: EBITDA 및 현금흐름 개선

핵심 요약

• 2026년 3분기 매출은 미국, 캐나다 및 해외 부문 전반의 성장에 힘입어 전분기 대비 2.3% 증가한 13억 4,000만 달러를 기록했습니다.
• 운임 및 물류비 상승에도 불구하고 우호적인 사업 믹스와 마진 개선 노력에 힘입어 조정 매출총이익률은 2분기 대비 40bp 개선된 21.2%를 기록했습니다.
• 조정 EBITDA는 전분기 대비 1,600만 달러 증가한 7,600만 달러로 매출의 5.7%를 차지했습니다. 조정 순이익은 3,400만 달러(희석 주당 0.18달러)를 기록했습니다.
• 재고 최적화, 수익성 개선, 매출채권 회수 강화에 힘입어 영업현금흐름은 1억 2,000만 달러에 달했습니다. DNOW는 이제 연간 영업현금흐름이 2억 달러에 근접할 것으로 예상하고 있습니다.
• 순차입금은 2억 6,500만 달러로 감소해 최근 12개월 기준 순레버리지 비율이 1.1배로 낮아졌습니다. 회사는 또한 해당 분기 동안 1,700만 달러 규모의 자사주를 매입했습니다.
• 경영진은 계절적 요인으로 인해 4분기 매출이 전분기 대비 한 자릿수 후반대의 감소율을 보일 것으로 예상하며, 조정 EBITDA 마진 목표치는 4.5%로 제시했습니다.

주요 재무 데이터

사업 및 운영 실적

미국 매출은 전분기 대비 1,600만 달러 증가한 11억 달러를 기록하며 전체 매출의 84%를 차지했습니다. 캐나다 매출은 계절적 해빙기(breakup period) 이후 조업 활동이 회복되면서 19% 증가한 5,600만 달러를 기록했습니다. 해외 매출은 3% 증가한 1억 5,600만 달러를 기록했으나, 약 1,500만 달러 규모의 프로젝트 지연으로 인해 성장이 제한되었습니다.

최종 시장별로는 업스트림이 전체 매출의 36%를 차지했고, 가스 유틸리티가 24%, 미드스트림이 22%, 다운스트림 및 산업 부문이 18%로 그 뒤를 이었습니다.

가스 유틸리티 매출은 전분기 대비 4% 증가해 3년 만에 분기 기준 최고치를 기록했습니다. 이러한 성장은 계절적 건설 활동, 고객사의 자본 지출 및 매출 회수(revenue-recapture) 노력을 반영한 것입니다. 다운스트림 및 산업 부문 매출은 고객사들이 정기보수 작업을 준비함에 따라 10% 증가하며 2026년 중 가장 강력한 분기 실적을 기록했습니다.

프로세스 솔루션(Process Solutions) 부문은 역대 최고 분기 매출을 기록했습니다. 생산수(produced water) 관리, 수자원 인프라, 제작 장비, 자동화 및 제어, 펌프, 임대 및 서비스 전반에서 수요가 견조하게 유지되었습니다.

미드스트림 수요는 수집, 처리 및 수송 인프라에 대한 투자에 힘입어 지지되었습니다. 업스트림의 경우, 경영진은 미국 육상 활동 개선을 강조하면서도 2분기에 약 2,400만 달러를 기여했던 6개 프로젝트가 3분기에 대체되지 않았다고 밝혔습니다. 아울러 DNOW는 수익률이 낮은 물량보다 마진이 높은 거래를 우선시하는 전략을 지속했습니다.

운전자본 효율성은 크게 개선되었습니다. 매출채권회전일수(DSO)는 2일 감소한 60일을 기록했고, 재고자산회전율은 4.3회로 증가했으며, 현금을 제외한 운전자본은 연환산 분기 매출 대비 17.6%로 감소했습니다.

경영진 가이던스

경영진은 영업일수 감소, 연휴 일정 및 통상적인 연말 고객 지출 패턴으로 인해 2026년 4분기 매출이 3분기 대비 한 자릿수 후반대의 감소율을 기록할 것으로 예상하고 있습니다. 다운스트림 및 산업 부문의 회복 노력이 이러한 계절적 감소세를 일부 상쇄할 것으로 보이며, 해외 매출은 지연된 프로젝트가 인도됨에 따라 완만하게 성장할 것으로 예상됩니다.

DNOW는 4분기 조정 EBITDA 마진 목표치를 4.5%로 설정했습니다. 2026년 연간 영업현금흐름은 이전 가이던스 범위의 상단인 2억 달러에 근접할 것으로 예상됩니다. 4분기 감가상각비는 약 2,500만 달러로 예상되며, 자본적 지출은 3분기 수준을 유지할 것으로 예상됩니다.

2027년과 관련해 경영진은 공식 가이던스 대신 3억 달러에서 3억 5,000만 달러의 조정 EBITDA 시나리오 범위를 제시했습니다. 하단 기준점은 3분기 실적을 연환산한 수치이며, 상단에 도달하려면 업스트림 확장, 가스 유틸리티 및 미드스트림의 성장, 지속적인 매출 회복, 마진 개선 및 운영 효율성이 필요합니다. 경영진은 고객사들이 아직 2027년 예산을 확정하지 않았다고 강조했습니다.

리스크 및 주시 요인

입고 운임, 출고 배송비, 트럭 운송비 및 유가 상승이 마진을 압박하고 있습니다. DNOW는 고객 판매가 반영, 계약상 운임 회수, 공급업체 지원 및 물류 효율화를 통해 이러한 비용을 상쇄하고자 하지만, 경영진은 회수에 시차가 발생할 수 있다고 언급했습니다.

해외 프로젝트 일정은 여전히 유동적입니다. 3분기에서 지연된 약 1,500만 달러 중 경영진은 최대 절반이 4분기에 인식되고, 나머지는 2027년 1분기 이후로 이연될 것으로 예상하고 있습니다. 당초 3분기로 예상되었던 풍력 발전 프로젝트는 2027년으로 연기되었습니다.

특히 가스 유틸리티 부문에서 4분기 계절적 영향이 두드러질 것으로 예상됩니다. 2027년을 내다보면, DNOW가 영업 활동을 지원하기 위해 재고자산과 매출채권을 확충함에 따라 매출 성장이 가속화되더라도 잉여현금흐름이 감소할 수 있습니다.

애널리스트 Q&A 주요 내용

• ERP 전환: DNOW는 업스트림 및 미드스트림 사업장을 MRC 플랫폼에서 SAP로 이전하여 고객 응대 시간, 재고 관리 및 매출을 개선했습니다. 가스 유틸리티와 다운스트림은 여전히 오라클 시스템을 유지하고 있으며, 회사는 기능과 속도 개선을 위해 투자하고 있습니다. 2027년에는 SAP로의 추가 이전이 계획되어 있습니다.
• 마진 전략: 경영진은 더 높은 마진과 더 낮은 서비스 비용을 제공하는 제품군, 고객 및 거래를 의도적으로 중점 추진하고 있다고 밝혔습니다. 이러한 접근 방식은 물량 극대화보다는 수익의 질을 개선하기 위한 것입니다.
• 비용 시너지: DNOW는 이제 첫해 비용 시너지가 당초 예상치인 1,700만 달러를 크게 웃도는 약 3,200만 달러에 달할 것으로 예상하고 있습니다. 3분기에는 일시적인 시스템 관련 비용도 감소하여 전분기 대비 판관비(SG&A) 감소에 기여했습니다.
• 매출 회복: 경영진은 손실되었던 미드스트림 매출이 완전히 회복되었으며, 가스 유틸리티 매출도 완전 회복되었거나 완전 회복에 근접했다고 판단하고 있습니다. 다운스트림은 2026년 중 가장 강력한 분기 실적으로 개선된 반면, 업스트림은 수익성 있는 사업에 집중함에 따라 여전히 보다 선별적인 기조를 유지하고 있습니다.
• 재무제표 추이: 경영진은 추가적인 M&A를 제외할 경우 레버리지 비율이 1.0배 미만으로 떨어지고 2027년 말까지 순현금 상태로 전환될 가능성이 있다고 밝혔습니다. 최종 결과는 성장 관련 운전자본, 자사주 매입 및 인수 활동에 따라 달라질 것입니다.
• 다운스트림 전망: 일부 고객사의 사전 구매가 이미 시작되면서 2027년 정유 및 화학 부문의 정기보수 활동에 대한 가시성이 개선되고 있습니다. 경영진은 또한 LNG와 데이터 센터 부문에서도 지속적인 기회가 있다고 언급했습니다.

실적 발표 콘퍼런스콜 전문

전체 실적 발표 컨퍼런스 콜 녹취록

경영진 발표

Operator

Good morning. My name is Rebecca, and I will be your conference operator today. At this time, I would like to welcome everyone to the DNOW Third Quarter 2026 Earnings Conference Call. [Operator Instructions]

Mr. Brad Wise, Vice President of Digital Strategy and Investor Relations, you may begin your conference.

Brad Wise

Well, thank you, Rebecca, and good morning, and welcome to DNOW's third 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 Global Brands and DNOW is our New York Stock Exchange ticker symbol.

Please note that some of the statements we make during this call include responses to your questions, may contain forecasts, projections and estimates, including, but not limited to comments about the outlook of 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, November 5, 2026, which is subject to change. They are subject to risks and uncertainties, and actual results may differ materially.

Now it should assume these forward-looking statements remain valid 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 release and other public communications. We encourage you to review our earnings release and securities filings for further details on our use of these non-GAAP metrics and for reconciliations to the most comparable GAAP measures. And these documents are also available on our website. Unless we specifically state otherwise, references in this call to EBITDA refer to adjusted EBITDA. And our third 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 on the site for the next 30 days.

With that, now let me turn the call over to Dave.

David Cherechinsky

Thank you, Brad, and good morning, everyone. I want to start by thanking our 5,000 DNOW employees for their dedication and continued commitment to each other and our customers. Your efforts helped us deliver another solid quarter as we took meaningful steps forward driving higher revenue, profitability and strong cash flows enabled by our increasingly diversified portfolio and focused execution. We continue to make progress on growth, margin improvement, working capital efficiency and cost actions while remaining focused on improving the quality of our earnings instead of pursuing volume at the expense of profits.

Revenue for the third quarter was $1.34 billion, an increase of $30 million or 2.3% from the second quarter within our guided range. Customer project deferrals in the International segment with a principal governor of revenue growth in the quarter, followed by the intentional high-grading of revenue tied to our improved profitability initiatives. Driving improved profitability was a 40 basis point sequential increase in adjusted gross margins to 21.2% as high-grading efforts more than offset increased headwinds of rising logistics costs. Higher inbound freight costs are creating pressure on gross margins as price increases work their way through our inventory and customer price update cycles.

Additionally, higher outbound delivery, trucking and fuel costs are also creating margin pressures. We are working to mitigate these impacts through customer pricing actions and contractual freight recovery mechanisms while also leveraging vendor support and logistics efficiencies. Our focus remains on disciplined pricing, cost management and operational execution to help offset these inflationary pressures while maintaining our competitive position and customer service levels. We continue to execute on our operating and financial priorities, delivering bottom line results that exceeded our expectations.

EBITDA for the third quarter grew to $76 million or 5.7% of revenue, reflecting a $16 million sequential improvement, marching towards our profitability goals. This progress reflects the collective efforts of our teams to focus on the fundamentals, make better day-to-day decisions and consistently execute priorities within their control. We are seeing execution reflected in better customer service, improved collections and inventory turns, yielding greater working capital efficiency. These improvements, along with stronger earnings helped drive solid cash from operations of $120 million in the third quarter. In addition, cash from operations through the first three quarters of 2026 reached $158 million, well above our expectations.

While there is still work to do, we are building greater consistency and accountability across the organization and translating those improvements into tangible financial results. I'm encouraged by our momentum as we remain focused on sustaining these improvements, continue to strengthen our operating model and create a more efficient, disciplined and profitable business over the long term. Our improved third quarter results demonstrated the value of our diversified portfolio and disciplined execution across multiple end markets.

Growth was driven primarily by midstream infrastructure, gas utilities, downstream industrial customers, where demand remained healthy across infrastructure projects, maintenance programs, facility upgrades, water infrastructure investments and various capital projects. This broad-based multi-sector performance enabled the company to generate solid earnings flow-throughs. Midstream operators continue to invest in gathering, processing, transmission and related infrastructure.

Gas utility customers continued spending on modernization, integrity and expansion programs while downstream customers drove activity through reliability work, MRO and capital projects. Industrial demand was supported by LNG infrastructure investment and data center-related opportunities. Together, these markets created multiple avenues for growth and reinforce the resilience of our diversified business model.

In our upstream sector, underlying field activity and customer engagement trends are constructive as U.S. land activity levels begin to improve. Customers are realizing efficiency gains, creating demand for flow lines, line pipe, pumps, valves, fittings, fabricated process and production equipment, controls and related infrastructure products, all core DNOW offerings.

Upstream revenues benefited in the second quarter from 6 projects approximating $24 million that were not replaced in the third quarter, paired with high grading or sidestepping revenue that doesn't bring the value we seek. Process Solutions delivered the strongest quarterly revenue performance in its history, consistent growth across revenue and earnings metrics highlights the strength of the business and the success of our strategic investments. Demand for produced water management, water infrastructure development, fabricated equipment, automation and controls, pumps, rentals and services remained strong throughout the quarter.

Water Solutions, primarily led by Flex Flow and Trojan Reynolds brands continues to expand as water-related infrastructure projects create attractive opportunities across multiple product lines, increasing customer demand for our process solutions integrated suite of solutions, which deliver advanced fluid gas and automation products and services enable us to offer more comprehensive offerings to the critical industries we serve. This integrated approach is becoming a meaningful competitive differentiator and is helpful -- helping the company capture larger scopes and higher-value customer relationships.

Our Gas Utilities business had another solid quarter, driven by improving revenue trends, stronger operational performance and continued progress on the initiatives we put in place to enhance profitability and cash generation. Gas utilities demand was healthy, supported by infrastructure modernization and ongoing customer investment. Revenue grew 4% sequentially on top of an exceptionally strong prior quarter, showing solid execution of our revenue recapture initiatives, delivering the highest quarterly gas utility revenue in three years.

Growth was driven by increased seasonal construction activity and higher capital spending by several key gas utility customers. Additionally, in the quarter, we saw increased momentum and interest in our INTECH gas meter product offering that addresses meter, OEM and supply chain management challenges. Our downstream and industrial revenue improved 10% sequentially, highlighting success in our recapture initiatives and marking the highest revenue quarter of 2026. Activity levels increased as customers prepared for upcoming turnaround work reinforcing our confidence in the progress we are making in this key sector.

In addition, we also see improving momentum in LNG and other energy infrastructure opportunities providing an additional source of growth. Canada revenue for the third quarter was $56 million, up 19% from the second quarter. Operating conditions supported increased activity across Western Canada. We are encouraged by the continued strength we are seeing in thermal and oil sands activity, where customers are advancing multiyear development programs, creating a healthy pipeline of opportunities across valves, actuation, pipe, fittings and flanges.

Separately, we are seeing opportunities develop around LNG, power infrastructure and other adjacent industrial projects. further broadening the opportunity set for our Canadian business. International revenue was $156 million, up $5 million sequentially. Large projects forecasted for the third quarter were shifted to future quarters, muting the expected growth from this segment. While customer decision timing remains variable, the underlying demand environment is constructive, supported by continued investment across energy, infrastructure and industrial markets. We are also driving efficiencies in facilities, logistics and inventory management.

Looking ahead, we believe our international business is well positioned for growth and improved profitability. While project timing and regional market conditions may create some variability quarter-to-quarter, we are encouraged by the multiyear opportunity pipeline and our increasing exposure to attractive growth markets and operational improvements underway. Our focus remains on disciplined execution, profitable growth and building a more diversified and resilient international business.

Turning to capital allocation. Our strong cash generation is improving the balance sheet and providing greater flexibility across our capital allocation priorities. During the quarter, we generated $120 million in cash flow from operations, our best third quarter since 2015. We reduced net debt by $95 million for the second quarter in a row and ended the third quarter with net debt of $265 million and a leverage ratio of 1.1x trailing 12-month EBITDA. And finally, we repurchased $17 million of shares in the third quarter, bringing our total share repurchases over the past three quarters to $92 million or 24% higher than the prior quarter -- 11 quarters combined. As we continue to generate cash and reduce leverage, we are enhancing our capacity to invest in the business, return capital to shareholders and pursue strategic opportunities when they meet our return criteria.

With that, I'll hand it over to Mark.

Mark Johnson

Thank you, Dave, and good morning, everyone. Total revenue for the third quarter of 2026 was $1.34 billion, up $30 million or 2.3% sequentially with growth across all geographic segments. On a sector basis, upstream represented 36% of total revenue, followed by gas utilities at 24%, midstream at 22% and Downstream and Industrial at 18%.

Turning to the U.S., which represents 84% of third quarter revenue. Revenue was $1.1 billion, up $16 million from the second quarter of 2026. Upstream represented approximately 1/3 of total U.S. revenue in the third quarter, followed by gas utilities at 28%, midstream, 25% and downstream and industrial 14%. In Canada, revenue for the third quarter was $56 million, up $9 million or 19% sequentially as activity recovered following the seasonal breakup period.

International revenue was $156 million in the third quarter, up $5 million or 3% sequentially, and the growth rate was muted by approximately $15 million of project delays pushed into future periods. Adjusted gross profit for the third quarter was $283 million or 21.2% compared to $272 million or 20.8% in the second quarter of 2026. The 40 basis point sequential improvement in adjusted gross margin reflected a more favorable geographic and sector mix along with continued traction on our margin enhancement initiatives, which helped partially offset higher logistic costs in the quarter.

Selling, general and administrative, or SG&A expense was $232 million in the third quarter, down $6 million sequentially and benefiting from continued synergy realization. Adjusted EBITDA for the third quarter was $76 million or 5.7% of revenue, up $16 million sequentially. Depreciation and amortization expense was $24 million in the third quarter and is expected to be approximately $25 million in the fourth quarter of 2026.

Moving to operating profit by geographic segment. In the third quarter, the U.S. reported a $19 million operating profit, while International delivered $11 million, and the Canadian segment reported $3 million of operating profit. Interest expense in the period was $7 million. The $2 million sequential decline was primarily due to lower average debt balance during the third quarter.

Moving to income taxes. Changes in geographic mix of projected earnings, including year-to-date 2026 LIFO charges led to a revision of our forecasted annual effective tax rate Applying this revised rate to our year-to-date results generated a third quarter income tax benefit of $3 million on $23 million of pretax income, producing an effective tax rate of negative 13% for the quarter and a year-to-date tax benefit with an effective tax rate of 15%. For modeling purposes, we currently expect the full year 2026 GAAP effective tax rate in the mid- to high teens range. However, the actual rate may vary based on the level and geographic mix of fourth quarter earnings, discrete items and any additional LIFO adjustments.

Net income attributable to DNOW for the third quarter was $26 million or $0.14 per fully diluted share. On a non-GAAP basis, third quarter 2026 adjusted net income attributable to DNOW was $34 million or $0.18 per fully diluted share.

Moving to the balance sheet. At the end of the third quarter, accounts receivable was $878 million, a decrease of $11 million from the second quarter as days sales outstanding, or DSO, improved to 60 days, an improvement of 2 days. Inventory reduced $74 million sequentially to $988 million, reflecting continued progress on our inventory optimization initiatives. Annualized inventory turns improved to 4.3x. Accounts payable was $708 million at the end of the third quarter or 60 days payables outstanding.

Working capital, excluding cash as a percentage of annualized third quarter revenue improved to 17.6% in the third quarter. And in the third quarter of 2026, we generated $120 million of cash from operating activities, driven by inventory optimization, improved profitability and strong receivable collections. With our year-to-date cash flow from operating activities of $158 million and continued progress on working capital, we now expect full year 2026 cash flow from operating -- cash flow from operations to approach $200 million.

During the quarter, we invested $14 million in capital expenditures, resulting in free cash flow of $106 million. We reduced total debt by $97 million during the quarter, ending with $377 million of total debt and $265 million of net debt. As a result, our trailing 12-month net leverage ratio declined to 1.1x. We repurchased $17 million in shares during the third quarter. And to date, we have repurchased $129 million under the current share repurchase program and a total of $209 million cumulatively across the current and previous share repurchase programs. We ended the quarter with total liquidity of $568 million, including $112 million of cash and $456 million in availability under our revolving credit facility. Our $850 million credit facility matures in November 2030, providing us with long-term financial flexibility.

In the third quarter, we continued to deliver on cost synergy realization with our first year expectation to approximate $32 million, significantly exceeding our original year 1 exit rate estimate of $17 million. Overall, the third quarter demonstrated meaningful improvement across the financial priorities we established for the combined company, improving margins, realizing synergies, reducing working capital and converting earnings into cash. Our strong cash generation allowed us to materially reduce debt while continuing to return capital to shareholders, and we remain focused on carrying that momentum into the fourth quarter.

And with that, let me turn the call back to Dave.

David Cherechinsky

Thank you, Mark. Now shifting to the future. We expect revenue to decline seasonally in the fourth quarter driven by fewer business days, holiday timing and the normal seasonal spending patterns as some customers approach year-end budget exhaustion. Historically, in the fourth quarter, legacy DNOW revenues tended to decline around 6% and and legacy MRC Global revenues would drop seasonally by around 10%, driven notably by the 13% to 20% gas utility revenue declines experienced in the prior three years going into the fourth quarter. We do expect our recapture initiatives in downstream and industrial to bear fruit, partially offsetting some of the seasonal decline. And for international, we expect modest growth based on project delivery timing. Taken together, we expect DNOW's fourth quarter revenues to be down sequentially in the high single-digit percentage range with EBITDA targeted at 4.5%. We anticipate full year 2026 cash flow from operations could now approach $200 million at the top end of our prior guide. And now switching to some comments about the trajectory beyond year-end. While I'm careful not to get ahead of our customers as our 2027 budgets are critical in forecasting the upcoming year, our ability to stack back-to-back quarters of significantly improved performance demonstrates we are on the right track and expect to continue our forward momentum into 2027.

When last talking about 2027 possibilities, our outlook was premised on revenues growing, supported by expected improving macro factors across the upstream, midstream and gas utility sectors paired with opportunities to expand market share, continue revenue recovery, compounded with improvements in gross margins and operating efficiencies. One useful way to think about how we are beginning to contemplate 2027 scenarios ahead of our customers publishing their budgets is looking at our third quarter EBITDA of $76 million annualized, which approximates $300 million in EBITDA. Now keep in mind, the third quarter EBITDA occurred in what is typically the best quarter of the year, but this still could serve as a theoretical starting point for our 2027 scenario planning.

Now as we contemplated in May, if we see the upstream market expand, where it has been flat to down over the last 4 years, combined with sector expansion and gas utilities and midstream, and we continue to recover revenues as we have been plus we are able to realize the kind of margin appreciation. Our team is excellent at delivering. We can be on a path towards $350 million in EBITDA. While it is premature to lay out our forecast our 2027 forecast, as we traditionally provided in February, we can see scenarios that range from $300 million to $350 million in EBITDA in 2027. This provides reference points as we evaluate the resources, infrastructure, operating capacity, inventory requirements and cost structure needed to support the opportunities ahead. I remain confident in the earnings trajectory of the business and believe we are entering the year from a strong operating position.

In closing, our team delivered another strong quarter of outstanding execution, generating third quarter EBITDA of $76 million, nearly double our first quarter results, reflecting broad-based strength across the company. Sales increased sequentially in all three geographic segments, with solid growth in the downstream, industrial and midstream businesses with the Gas Utilities business achieving its highest quarterly revenue in 3 years. Cash flow from operating activities was incredibly strong at $120 million, fueled by substantial improvements in working capital velocity. As a result, we further strengthened our balance sheet, reduced our net debt leverage ratio to 1.1x and enhanced our financial flexibility to capitalize on future opportunities.

We also remain disciplined in our approach to capital allocation, repurchasing $17 million of DNOW shares during the quarter. Year-to-date, repurchases totaled $92 million through September, exceeding the combined amount returned through share repurchases over the prior 11 quarters by 24%. This demonstrates our confidence in the business and our commitment to delivering value to shareholders. Most importantly, these results reflect the foundational dedication, expertise and customer focus of our teams across the organization. Their unwavering commitment to supporting our customers, deepening supplier partnerships, and executing with excellence every day continues to be a key driver of our success.

With an even stronger balance sheet, improving end market fundamentals and positive outlook across our business, we believe we are well positioned to continue gaining share, expanding profitability and creating long-term value for our customers, employees and shareholders. I'm excited about the opportunities ahead and confident in our ability to build on this momentum as we move forward.

With that, let's open the call for questions.

Operator

[Operator Instructions] Your first question comes from the line of Chris Dankert with D.A. Davidson.

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Christopher Dankert

Again, great to see the sales performance in the quarter, nice profitability. So again, it seems like the mitigation actions are kind of proceeding at pace. Maybe can you just update us on where we're at in the ERP recovery, the transition, anything kind of additional detail you can provide on that program?

David Cherechinsky

Yes. So so far, we've consolidated or transitioned all the upstream and midstream locations from the newly adopted MRC ERP platform to SAP. With that, we've seen significantly improved customer response time, improved inventory management, increased sales, and we're excited about that transition. It's relieved pressure on the Oracle system that the MRC -- the gas utilities and downstream businesses use. We've invested additionally in the Oracle system for improved system functionality, speed, customer responsiveness, and we're making progress on that front. And now we're planning in the planning phase of moving more chunks of revenues and activities on to SAP in the new year. So we're going through a planning phase process now as we continue to make modest improvements to the Oracle platform and plan for bigger movements to the SAP platform in the new year.

Christopher Dankert

That's really helpful and good to hear. I guess I just want to circle back. You mentioned the benefit of some improved customer mix in gross margin. Is that more an outgrowth of just where we focus energy kind of coming out of the ERP disruption? Is that part of a more strategic review? Can you flesh out a little bit?

David Cherechinsky

Yes. So if you look back over time, one of [indiscernible] key focuses has been especially after the COVID period, we resized our business, the market had declined. And we began a process where we focus on higher-margin product lines. We focus on our strengths where the customers see value, and we try to decommoditize what our great people are focused on. And that's the process we're going through now. We're going through a process of moving activities from one system to another, and we're trying to seize upon more profitable transactions and really seed some of those revenues intentionally to competition, revenues at lower margins with higher cost to service those revenues. We like that model. We'll take the things that we're good at, that the customers see value in that we can make good margins on and favor our activities to those customers and product lines. So that's a big focus. We call it sidestepping. We want to grow all of our customer relationships, but some of the product lines we focus on aren't as lucrative to others. So we try to focus on what we're strong in, what we have great pricing from suppliers, great vendor consideration, great return privileges where we have a good inventory position where we can maximize margins. That's where we want our people focus, and that's how we, over time, work to grow gross margins.

Christopher Dankert

Yes. I mean just to pull that thread a little bit, if you'll allow me. I guess it sounds like a kind of continuous improvement item. This is kind of structural to the company approach. But as this kind of turned up more in the third quarter just given the level of integration? So should we expect kind of another more material benefit on a year-over-year basis for the next kind of 3 quarters here?

David Cherechinsky

Well, I did allude a little bit to some cost input pressures on freight, which necessitates us getting really good at growing gross margins as much as we can. But to your question, this is really an iterative cultural kind of structural focus of ours. We're always looking for introducing new products that give us an edge to grow market share, that enable us to push price and grow margins. That's a structural iterative focus of ours. But in the recent quarters, especially as we've seen freight costs balloon, we've been intentional about ramping up our focus. We've acknowledged one of the systems we operate on is a little slower. So we want to focus on the activities that drive the best margins and not have that slower system, which we're improving, be brought down by lower margin kind of commodity-focused products.

Operator

Your next question comes from the line of Adam Farley with Stifel.

Adam Farley

Maybe putting a finer point on the trajectory in 2027 or 2027 framework, however you want to position it. I appreciate the commentary on annualizing third quarter EBITDA. But look, I mean you guys have a lot of momentum here. You're high grading the business, improving margins. As the business is today, it looks like the end markets are also trending in the right direction. So maybe just a finer point on that potential EBITDA range for 2027 and maybe confidence in where you'll land within that range.

David Cherechinsky

Yes, fair question. So we've talked about 2027 for a few quarters now. We set some things in motion to draw a bridge to a much better future than when we started the year. So we said we're going to focus on improving the functionality of the system, which reduced the revenues we experienced in the business. We're going to focus on higher-margin activities. We're going to be intentional about matching our expense level to the revenue levels. And we're doing all those things. We're focused on getting to a level of earnings that enables significant improvements going into the new year. Now in those prior couple of quarters where I talked about '27, I tried to present it as a glimpse into the new year and what we're targeting our efforts towards going into 2027. But in this period now, we're in the eve -- we're in a period where our customers haven't yet given their budgets. So we don't have a good definition for what's going to happen in upstream or gas utilities or midstream, all three of which we think will be macro growth sectors for us. We don't have that intel. Our sense has been, during the year, those will be three sectors that will grow. And for upstream, in particular, which has been flat to down for the last four years or so, we see that as some real fuel going into the new year if our customers say we're going to increase their budgets like we expect they might, but they haven't produced their budgets. So what I'm saying is I want to give an update on 2027. I want to put it in a framework, recognizing our customers haven't spoken. We don't want to get ahead of our customers, but we are resourcing the business right now. So right now, even though we've made substantial reductions in inventory, we are adding inventory at some of our locations, and we want to be smart about when we're growing, we want to add inventory, sales people, operations talent, et cetera. We want to resource the business. And that's kind of how we're thinking of framing it up next year. So we expect that we can quadruple our third quarter performance, and we're organizing along those lines. As we learn more from our customers, we'll continue to refine how we position ourselves for growth and improve profitability next year, but we don't have knowledge about what the market is going to do next year. So that's kind of how we're framing it up.

Adam Farley

Okay. That's helpful. Maybe looking at MRC the optimization journey, maybe can you just provide an update on where we stand today on the temporary cost in the business? And then also on the cost synergy side, just going to see the realization step up a bit here in the third quarter. I think I probably ask this every quarter, but do you think that total cost synergy target could potentially move up over time as well?

David Cherechinsky

Well, we did say that our cost synergies exiting 2026 would grow modestly. Our original estimates we'd see first year cost synergies of around $17 million. We believe that number will be closer to $32 million as we exit 2026. In terms of the costs associated with improving the functionality of the system with MRC and the additional costs we put out in the organization to kind of cope with the system enhancements we're making, we said that number was around $8.5 million in the second quarter, and we expected it to come down a little bit by $1 million in the third quarter, we saw that. And if you look at our SG&A line, SG&A was down about $6 million sequentially. A portion of that, of course, is we're getting more efficient. We have less overtime, less additional people because we're making the systems faster. We don't need the extra help in the field. And we're positioning for lower costs from the consultants who are helping us improve the functionality of the system. So we're on track from an overall total company synergies perspective. In fact, we're on schedule. And in terms of the discrete costs for Oracle and its associated costs surrounding that system, we made improvements as we expected.

Operator

Your next question comes from the line of Alex Rygiel with Texas Capital.

Alexander Rygiel

Nice quarter, gentlemen. David, when do you think we're going to sort of close the book on speaking to recapturing lost revenue and ERP transitions and kind of excess costs in the system?

David Cherechinsky

Well, I characterized this in February as a transition year. And we went into explicit detail of where we lost revenues, when we implemented the new system or when MRC before we closed the merger implemented the new system. And I simply want to give an update through the rest of this year, probably through February as to where we stand. And if you look at the four key sectors where we're focused, if you look at midstream, anything that was lost in midstream, I'm confident we fully retrieved anything lost in the midstream space. Our midstream business grew yet again in the third quarter by about $20 million. We pierced the $1 billion annualized revenue run rate last quarter, and we grew again by $20 million. DNOW and the various businesses within DNOW that pursue growth in the midstream business is in a very good position. In gas utilities, I believe we're either at or on the verge of retrieving all lost revenues there. But since the beginning of the year, the two key areas we were focused on were upstream and downstream, and downstream had its best revenue quarter in the third quarter. So we're making progress on that front. And in the upstream space, where we're doing most of our sidestepping, making sure we pursue contracts, projects and orders that drive the kind of flow-throughs and EBITDA levels we expect, we're being selective in that front. So I'll probably talk through the February call. And then it's going to be a normalized business, focused on business as usual going forward.

Alexander Rygiel

That's excellent. And then as it relates to cash flow, obviously, very notable year-to-date. Taking into consideration your directional views on EBITDA for 2027, can you maybe offer us some directional views on cash flow in 2027 and/or year-end 2027 debt position or leverage rate goals?

David Cherechinsky

Yes. So if we see the kind of growth we had talked about in the last couple of quarters going into 2027, revenue growth in the 6% to 7% range. If we saw that kind of growth, we'd probably see lower cash flows going into 2027. I mentioned earlier that we're kind of -- we're right now in an inventory prepositioning phase where we're planning how much more inventory do we need to seize growth in the first and second quarters next year. So we would -- if we see the kind of growth we've been contemplating, we would add receivables and inventory and see less free cash flow going into the new year. In terms of our net debt position, which dropped to a 1.1x trailing 4-quarter EBITDA, by the end of next year, it's going to be dependent on the the what kind of levels of share repurchase are we going to be at? Are there any M&A opportunities that meet our return criteria, and what kind of cash flow we generate in the business. But we're in a good position now to be below a 1x net debt as it relates to four quarters of EBITDA. So by next year, of course, except for additional M&A, we'd be in a very good position to get close to net cash. But again, it's going to be dependent on the rate of growth we see at the top line, share buyback cadence and any M&A that might become available.

Operator

Your next question comes from the line of Jeff Robertson with Water Tower Research.

Jeffrey Robertson

Dave, a lot of upstream operators talk about increasing the service intensity of their drilling and completion activity. I'm wondering if that has an impact on the margin profile of the upstream revenue stack for DNOW?

David Cherechinsky

Well, if we see upstream operators significantly increase their budgets, I think that has the potential to pull gross margins favorably for DNOW. Now I talked earlier on the call about freight costs and our ability to push those freight costs on to customers. And I think you're probably hearing from a lot of companies out there where at least for the short term, that's been a struggle. We experienced that in the third quarter. But to the extent activity increases and a company like DNOW, a major stocking distributor in the upstream space, that should bode well for revenue growth and gross margin growth going into 2027.

Jeffrey Robertson

With your comment on annualizing third quarter '26 EBITDA as a baseline starting point for 2027, then is that basically predicated on activity staying pretty constant with where it has been in the second half of 2026?

David Cherechinsky

Probably, probably so.

Jeffrey Robertson

And then if I can, lastly, you talked earlier this year about downstream and some of the issues with the MRC system. As you approach the 2027 turnarounds, are you seeing improvements there to -- on the downstream opportunity that you have?

Brad Wise

Yes, Jeff, good morning. This is Brad. I'll chime in on that one. Yes, we're -- if you recall some of Dave's prior remarks talking about the revenue recovery opportunity, we always thought downstream would be the longest just because of there's a lot of customers kind of a long tail, but we are actively pursuing turnaround activity, both in the refining sector as well as chemical sector. Our visibility into the turnaround season into '27 continues to improve. And that's supported by several large refinery customers and chemical turnarounds that we are preparing for, already starting to receive some prebuys. And so we're seeing kind of a backlog start to improve there. And really just kind of the core customer booking activity overall is improving within that sector. And in addition, we continue to see some strength in data centers this year as well as LNG into the fourth quarter. So overall, the downstream and industrial sector in the U.S. is positive, kind of trending positive for us at the moment.

Operator

Your final question comes from the line of Josh Jayne with Daniel Energy Partners.

Joshua Jayne

First one is just on U.S. upstream. I wanted to ask it a little bit differently. So we're in a bit of a different environment as you sit here today, exiting last year, we were sort of low- to mid-60s from an oil perspective. Today, we're in the 80s, low 90s. I'm just curious, how are your customer conversations different moving into next year today than they were maybe a year ago on the U.S. upstream side? And in answering that, maybe you could just break out a little bit how the smaller privates have driven activity up over the course of this year and thinking about things versus the publics.

David Cherechinsky

Yes. In terms of what our customers are telling us or really their behavior suggests that when oil prices go to $90, $100, $104 or drop to $83, they tended to stick to their budgets and be pretty disciplined around what they commit to in the early parts of the year. We've seen real stability in customer budget discipline over the last several years, really the whole post-COVID era. In terms of the privates or the smaller companies where we're seeing more rigs added, more completions work being done, we see that as a revenue opportunity for us, and we're going after those. We've tended to focus both us and MRC Global, respectively. We tended to focus on the bigger customers, the super majors, but we're both -- we're, as an organization, very focused on growing our position with the companies that are growing and that are less susceptible to sticking to a budget like we've seen with the big companies. So that becomes a target opportunity for us, and we're trying to grow our business with those customers. But we've seen budget discipline with our customers, and we've benefited from that over the years. Our ability to have limited stockouts, write-offs on inventory, big swings in more volatile behaviors and purchase levels by our customers, which we saw on a pre-COVID basis, that's not been the case. So we've seen a lot of discipline. Our customers tend not to panic when they see oil prices drop into the high $80s like that right now. They're steady as she goes, and we like that cadence, and we've benefited from that.

Joshua Jayne

And then as a follow-up, I think it was in the prepared remarks, you mentioned the tightness in the trucking and freight market sort of driving prices up. Can you give a bit more insight into what you're seeing and also what you're doing to mitigate them, and how long it will ultimately take them for them to take place and see improvement in results? And is that one of the sort of tailwinds that you're thinking about into next year?

Mark Johnson

Yes. This is Mark. Yes. So related to kind of the logistics headwinds that we're facing, really the cost drivers there are twofold. One is you're seeing increased input costs for the transportation providers to diesel up and in the high range and those -- that volatility is getting passed on to us as a distributor. And so to the extent we're able to pass that on to our customers, we do. Sometimes there's some delay until you can reach some neutrality there to get that recovered. And so we're definitely seeing input costs on fuel and energy going up. And then you're also seeing the capacity constraints where drivers are really getting siphoned off of the roads, literally less drivers around and other kind of mega infrastructure projects underway that are diverting some of the drivers. So these freight carriers that we utilize are kind of getting pinched and that volatility is a headwind, and I think you'll hear that across the markets. And so we've been successful at mitigating that with other actions. But depending on the spike and the duration of it, there's certainly some timing until you get back to neutrality there.

Joshua Jayne

Understood. And then since I think we're close to the end of the queue, maybe just one more, if you wouldn't mind. Internationally, the same drivers as we talked about, different commodity price environment. There's a lot of volatility internationally, but also it seems like a lot of opportunity. How are you thinking about different regions of growth for 2027 and beyond? And just how do you see the markets? And then I'll turn it back.

David Cherechinsky

Well, one dynamic that's different in our international business, I think nearly half the revenues are downstream. So we see some positivity in that, and that's probably going to be primarily in the North Sea. And then Norway is probably our biggest area, an area where we look for long-term projects. And we see -- we're optimistic about that going into the future. But we see international being a strong growth segment for us. It's more downstream dependent. It's an area of the world where we sell a lot of valves and MRC Global has been very strong in that space. So we see opportunities there, and we see the current macro backdrop being supportive, especially on the downstream front.

Operator

Your next question comes from the line of Chuck Minervino with Susquehanna.

Charles Minervino

Can you hear me okay?

David Cherechinsky

Yes, we can hear you, Chuck.

Charles Minervino

Sorry, just a follow-up again on the international. I think you mentioned in the prepared remarks, there was about $15 million of project delays slipped from 3Q. I don't know if it's all coming in 4Q or if it's kind of spread over 2027. But we're just wondering if you could touch on that a little. And then I just have another follow-up as well.

David Cherechinsky

Okay. No, we won't see all those projects happen in the fourth quarter. We do expect growth internationally a little higher than normal because some of those 3Q projects will happen in the fourth quarter. We talked about wind power project from -- that we expected to ship in 3Q that won't happen now until sometime in 2027. So some of it up to half might happen in the fourth quarter and the rest in a 1Q plus kind of time frame. And then you had another question?

Charles Minervino

Yes. The CapEx in the third quarter was $14 million. That's up decently from kind of the earlier two quarters. I think it was ERP related and things like that. I was just wondering if that's kind of a new norm or if that was an abnormal increase, and it's going to kind of revert back down to earlier levels. Can you touch on that a little bit.

Mark Johnson

Yes. So this is Mark. Yes, I think the third quarter level likely will continue into the fourth quarter. So some of it is the IT investments, but it's also some rental asset investments that as we prepare for growth and other items that came in into the third quarter within our Process Solutions group. So as we look to -- into 2027, we'll be able to give a little better guide there, but expect 4Q to look similar to 3Q.

Operator

That concludes the question-and-answer session of today's call. Mr. Brad Wise, I turn the call back over to you for final remarks.

Brad Wise

Well, thank you, everyone, for joining us today and your interest in DNOW. We look forward to discussing our fourth quarter and full year 2026 results on our next earnings conference call in February of 2027. I hope everyone has a wonderful day, and I'll turn the call back to the operator. Thank you.

Operator

Thank you for joining today's conference call. You may now disconnect.