UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark one) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2021 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 001-36325 NOW INC. (Exact name of registrant as specified in its charter) Delaware 46-4191184 (State or other jurisdiction of (I.R.S. Employer incorporation or organiz ...

NOW Inc. (NYSE:DNOW) Q1 2021 Earnings Conference Call May 5, 2021 9:00 AM ET Company Participants Brad Wise - Vice President, Marketing & Investor Relations David Cherechinsky - President & Chief Executive Officer Mark Johnson - Senior Vice President & Chief Financial Officer Conference Call Participants Jon Hunter - Cowen Doug Becker - Northland Capital Operator Good morning, and welcome to the First Quarter Earnings Conference Call. My name is Brandon, and I will be your operator for today. At this time, ...

[PART I - FINANCIAL INFORMATION](index=3&type=section&id=PART%20I%20-%20FINANCIAL%20INFORMATION) This section presents the company's unaudited consolidated financial statements, management's discussion and analysis, market risk disclosures, and controls and procedures for the quarter [Item 1. Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited consolidated financial statements of NOW Inc. for the quarter ended March 31, 2021, including balance sheets, statements of operations, comprehensive income (loss), cash flows, and stockholders' equity, along with detailed notes explaining accounting policies, revenue recognition, segment information, and other financial disclosures [Consolidated Balance Sheets](index=3&type=section&id=Consolidated%20Balance%20Sheets) This statement provides a snapshot of the company's assets, liabilities, and equity at specific points in time **Consolidated Balance Sheet Highlights (in millions):** | Metric | March 31, 2021 | December 31, 2020 | | :---------------------- | :------------- | :---------------- | | Cash and cash equivalents | $374 | $387 | | Receivables, net | $245 | $198 | | Inventories, net | $247 | $262 | | Total current assets | $882 | $861 | | Property, plant and equipment, net | $89 | $98 | | Goodwill | $7 | — | | Total assets | $1,026 | $1,008 | | Accounts payable | $200 | $172 | | Accrued liabilities | $92 | $95 | | Total current liabilities | $298 | $272 | | Total liabilities | $334 | $309 | | Total stockholders' equity | $692 | $699 | - Total assets increased by **$18 million**, primarily driven by an increase in receivables, net, partially offset by decreases in cash and inventories. Goodwill increased by **$7 million** due to an acquisition[7](index=7&type=chunk) - Total liabilities increased by **$25 million**, mainly due to an increase in accounts payable. Total stockholders' equity decreased by **$7 million**[7](index=7&type=chunk) [Consolidated Statements of Operations](index=4&type=section&id=Consolidated%20Statements%20of%20Operations) This statement details the company's revenues, expenses, and net loss over a specific reporting period **Consolidated Statements of Operations Highlights (Three Months Ended March 31, in millions, except per share data):** | Metric | 2021 | 2020 | | :-------------------------- | :------ | :------ | | Revenue | $361 | $604 | | Cost of products | $286 | $487 | | Warehousing, selling and administrative | $79 | $130 | | Impairment charges | $4 | $320 | | Operating loss | $(8) | $(333) | | Loss before income taxes | $(9) | $(333) | | Income tax provision (benefit) | $1 | $(2) | | Net loss | $(10) | $(331) | | Basic loss per common share | $(0.09) | $(3.03) | | Diluted loss per common share | $(0.09) | $(3.03) | - Revenue decreased by **$243 million (40.2%)** year-over-year. Net loss significantly improved by **$321 million**, from **$(331) million** in Q1 2020 to **$(10) million** in Q1 2021[10](index=10&type=chunk) - Operating loss improved from **$(333) million** in Q1 2020 to **$(8) million** in Q1 2021, primarily due to a substantial reduction in impairment charges from **$320 million** to **$4 million**[10](index=10&type=chunk) [Consolidated Statements of Comprehensive Income (Loss)](index=5&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income%20(Loss)) This statement presents the net loss and other comprehensive income (loss) components for the period **Consolidated Statements of Comprehensive Income (Loss) Highlights (Three Months Ended March 31, in millions):** | Metric | 2021 | 2020 | | :--------------------------------- | :---- | :----- | | Net loss | $(10) | $(331) | | Foreign currency translation adjustments | $1 | $(39) | | Comprehensive loss | $(9) | $(370) | - Comprehensive loss improved significantly from **$(370) million** in Q1 2020 to **$(9) million** in Q1 2021, driven by the improved net loss and a positive shift in foreign currency translation adjustments[14](index=14&type=chunk) [Consolidated Statements of Cash Flows](index=6&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) This statement summarizes the cash inflows and outflows from operating, investing, and financing activities **Consolidated Statements of Cash Flows Highlights (Three Months Ended March 31, in millions):** | Metric | 2021 | 2020 | | :-------------------------------------- | :---- | :--- | | Net cash provided by (used in) operating activities | $(4) | $6 | | Net cash provided by (used in) investing activities | $(7) | $22 | | Net cash provided by (used in) financing activities | $(2) | $(2) | | Net change in cash and cash equivalents | $(13) | $19 | | Cash and cash equivalents, end of period | $374 | $202 | - Net cash from operating activities shifted from **$6 million** provided in Q1 2020 to **$4 million** used in Q1 2021, primarily due to an increase in working capital[17](index=17&type=chunk) - Net cash used in investing activities was **$7 million** in Q1 2021, compared to **$22 million** provided in Q1 2020, mainly due to a **$6 million** business acquisition[17](index=17&type=chunk) [Consolidated Statements of Stockholders' Equity](index=7&type=section&id=Consolidated%20Statements%20of%20Stockholders'%20Equity) This statement outlines changes in the company's equity accounts over the reporting period **Changes in Stockholders' Equity (Three Months Ended March 31, 2021, in millions):** | Item | Amount | | :--------------------------- | :----- | | Balance at December 31, 2020 | $699 | | Net loss | $(10) | | Stock-based compensation | $2 | | Exercise of stock options | $1 | | Shares withheld for taxes | $(1) | | Other comprehensive income | $1 | | Balance at March 31, 2021 | $692 | - Total stockholders' equity decreased by **$7 million** from December 31, 2020, to March 31, 2021, primarily due to the net loss, partially offset by stock-based compensation and other comprehensive income[21](index=21&type=chunk) [Notes to Unaudited Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20Unaudited%20Consolidated%20Financial%20Statements) This section provides detailed explanations of the accounting policies, significant estimates, and other disclosures supporting the financial statements - NOW Inc. is a global distributor of energy and industrial products, operating under the DistributionNOW and DNOW brands, serving approximately 80 countries. The company also offers a DigitalNOW® platform for e-commerce, data management, and supply chain optimization[24](index=24&type=chunk) - The unaudited consolidated financial information is prepared in accordance with GAAP for interim financial information and Article 10 of SEC Regulation S-X, and should be read with the latest Form 10-K[25](index=25&type=chunk) - Revenue is primarily from product sales, recognized at a point in time when the customer obtains control. The allowance for doubtful accounts totaled **$26 million** as of March 31, 2021, down from **$28 million** at December 31, 2020[31](index=31&type=chunk)[35](index=35&type=chunk) - Contract liabilities, primarily deferred revenues, totaled **$17 million** as of March 31, 2021, a decrease from **$19 million** at December 31, 2020, with approximately **$7 million** of deferred revenue recognized in Q1 2021[37](index=37&type=chunk) - Property, plant and equipment, net, decreased to **$89 million**. The company reclassified **$3 million** of assets as held-for-sale and recognized a **$4 million** impairment charge in Q1 2021[39](index=39&type=chunk) - Accrued liabilities totaled **$92 million** as of March 31, 2021, down from **$95 million** at December 31, 2020[40](index=40&type=chunk) - The company had no borrowings against its **$750 million** revolving credit facility as of March 31, 2021, with approximately **$224 million** in availability and **97% excess availability**. All debt covenants were in compliance[42](index=42&type=chunk) - Accumulated other comprehensive loss improved from **$(145) million** at December 31, 2020, to **$(144) million** at March 31, 2021, due to **$1 million** in other comprehensive income[45](index=45&type=chunk) **Segment Revenue and Operating Profit (Three Months Ended March 31, in millions):** | Segment | 2021 Revenue | 2020 Revenue | 2021 Operating Profit (Loss) | 2020 Operating Profit (Loss) | | :------------ | :----------- | :----------- | :--------------------------- | :--------------------------- | | United States | $252 | $441 | $(13) | $(204) | | Canada | $58 | $78 | $4 | $(58) | | International | $51 | $85 | $1 | $(71) | | Total | $361 | $604 | $(8) | $(333) | - The effective tax rate for Q1 2021 was **(5.5%)**, compared to **0.6%** for Q1 2020, influenced by foreign tax rates, non-deductible expenses, state income taxes, and changes in valuation allowance[48](index=48&type=chunk) - Basic and diluted loss per share was **$(0.09)** for Q1 2021, a significant improvement from **$(3.03)** for Q1 2020[52](index=52&type=chunk) - Stock-based compensation expense was **$2 million** in Q1 2021, up from less than **$1 million** in Q1 2020. The company granted **750,296 stock options** and **332,326 RSAs/RSUs** in Q1 2021[54](index=54&type=chunk)[56](index=56&type=chunk) - The company completed an acquisition in Q1 2021 for an estimated net purchase price of **$10 million**, recognizing **$7 million goodwill** and **$2 million intangible assets**, expanding engineering and construction services[67](index=67&type=chunk) - Subsequent to March 31, 2021, the company acquired the Flex Flow business from GR Energy Services for an initial cash consideration of **$90 million** plus contingent consideration[71](index=71&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=15&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the company's financial condition and results of operations for the quarter ended March 31, 2021, discussing industry trends, segment performance, liquidity, and capital resources, alongside an executive summary and outlook [Forward-Looking Statements](index=15&type=section&id=Forward-Looking%20Statements) This section cautions investors about risks and uncertainties that could cause actual results to differ from projections - Actual results may differ materially from forward-looking statements due to various factors, including changes in oil and gas prices, energy markets, customer demand, M&A integration, capital market volatility, COVID-19 disruptions, regulatory changes, and competition[73](index=73&type=chunk) - Investors are cautioned to review 'Risk Factors' in the company's Form 10-K for additional factors that could cause actual results to differ[73](index=73&type=chunk) [Company Overview](index=15&type=section&id=Company%20Overview) This section describes NOW Inc.'s global distribution business, operational scope, and digital platform offerings - NOW Inc. is a global distributor to the oil and gas and industrial markets, operating under the DistributionNOW and DNOW brands with a legacy of over 150 years[74](index=74&type=chunk) - The company operates through approximately 195 locations and 2,400 employees worldwide, offering digital procurement channels and a broad product range including MRO supplies, pipe, valves, and various equipment[74](index=74&type=chunk)[77](index=77&type=chunk) - The DigitalNOW® platform provides e-commerce, data management, and supply chain optimization, supporting operations in major oil and gas regions globally and serving customers in approximately 80 countries[75](index=75&type=chunk)[79](index=79&type=chunk)[80](index=80&type=chunk) [Summary of Reportable Segments](index=16&type=section&id=Summary%20of%20Reportable%20Segments) This section outlines the company's operational structure across its U.S., Canada, and International business segments - The company operates through three reportable segments: U.S., Canada, and International[85](index=85&type=chunk) - The U.S. segment has approximately 130 locations, offering high-value solutions and engineering/design services to upstream, midstream, downstream energy, and industrial markets[86](index=86&type=chunk)[87](index=87&type=chunk) - The Canada segment has about 40 locations, primarily serving energy exploration, production, mining, and drilling, including composite pipe installation expertise. The International segment operates in approximately 20 countries with 25 locations, providing products and supply chain solutions in major oil and gas development areas[88](index=88&type=chunk)[89](index=89&type=chunk) [Operating Environment Overview](index=17&type=section&id=Operating%20Environment%20Overview) This section discusses the key external factors influencing the company's performance, including oil and gas market indicators - Company results are dependent on worldwide oil and gas drilling and completions, well remediation activity, crude oil and natural gas prices, capital spending by oilfield service companies, and global oil and gas inventory levels[92](index=92&type=chunk) **Key Industry Indicators (Averages for the Quarters Indicated):** | Indicator | 1Q21 | 1Q20 | % 1Q21 v 1Q20 | 4Q20 | % 1Q21 v 4Q20 | | :-------------------------------------- | :------ | :------ | :------------ | :------ | :------------ | | Active Drilling Rigs: | | | | | | | U.S. | 392 | 785 | (50.1%) | 310 | 26.5% | | Canada | 139 | 195 | (28.7%) | 92 | 51.1% | | International | 698 | 1,074 | (35.0%) | 663 | 5.3% | | Worldwide | 1,229 | 2,054 | (40.2%) | 1,065 | 15.4% | | West Texas Intermediate Crude Prices (per barrel) | $57.79 | $45.76 | 26.3% | $42.45 | 36.1% | | Natural Gas Prices ($/MMBtu) | $3.56 | $1.91 | 86.4% | $2.53 | 40.7% | | Hot-Rolled Coil Prices ($/short ton) | $1,113.52 | $580.32 | 91.9% | $701.34 | 58.8% | [Industry Trends](index=18&type=section&id=Industry%20Trends) This section analyzes recent movements in key industry indicators such as rig counts and commodity prices - Worldwide quarterly average rig count increased **15.4%** in Q1 2021 compared to Q4 2020, with U.S. rigs up **26.5%** and Canada up **51.1%**[103](index=103&type=chunk) - Average West Texas Intermediate Crude prices increased **36.1%** to **$57.79** per barrel, natural gas prices increased **40.7%** to **$3.56** per MMBtu, and Hot-Rolled Coil prices increased **58.8%** to **$1,113.52** per short ton in Q1 2021 compared to Q4 2020[103](index=103&type=chunk) - As of April 2021, U.S. rig count continued to rise to **439 rigs**, WTI Crude to **$63.16** per barrel, and Hot-Rolled Coil to **$1,320.00** per short ton, indicating continued market recovery[104](index=104&type=chunk) [Executive Summary](index=19&type=section&id=Executive%20Summary) This section provides a high-level overview of the company's financial performance for the quarter - For the three months ended March 31, 2021, NOW Inc. generated a net loss of **$10 million** on **$361 million** in revenue[106](index=106&type=chunk) - Compared to Q1 2020, revenue decreased by **$243 million (40.2%)**, but net loss improved significantly by **$321 million**, and operating loss improved from **$333 million** to **$8 million**[106](index=106&type=chunk) [Outlook](index=19&type=section&id=Outlook) This section discusses the company's future expectations, strategic initiatives, and market dependencies - The company's outlook remains tied to crude oil and natural gas commodity prices, global drilling and completions activity, and overall oil and gas spending[107](index=107&type=chunk) - Significant uncertainty persists regarding the impact and duration of the COVID-19 pandemic on the economy and global oil and gas demand, with recovery dependent on vaccine administration[108](index=108&type=chunk) - The company plans to continue optimizing operations, advancing strategic goals, and managing costs through structural changes and technology to increase productivity and grow revenue, including expanding into energy transition investments[109](index=109&type=chunk)[110](index=110&type=chunk) [Results of Operations](index=19&type=section&id=Results%20of%20Operations) This section analyzes the company's revenue, expenses, and profitability across its segments for the reporting period **Segment Revenue and Operating Profit (Three Months Ended March 31, in millions):** | Segment | 2021 Revenue | 2020 Revenue | 2021 Operating Profit (Loss) | 2020 Operating Profit (Loss) | | :------------ | :----------- | :----------- | :--------------------------- | :--------------------------- | | United States | $252 | $441 | $(13) | $(204) | | Canada | $58 | $78 | $4 | $(58) | | International | $51 | $85 | $1 | $(71) | | Total | $361 | $604 | $(8) | $(333) | - U.S. segment revenue declined **42.9%** to **$252 million** due to decreased drilling and completions activity, but operating loss improved by **$191 million** to **$(13) million**, largely due to a **$184 million** reduction in impairment charges[111](index=111&type=chunk)[112](index=112&type=chunk) - Canada segment revenue declined **25.6%** to **$58 million**. Operating profit improved by **$62 million** to **$4 million**, primarily due to **$60 million** fewer impairment charges in Q1 2021[115](index=115&type=chunk)[116](index=116&type=chunk) - International segment revenue declined **40.0%** to **$51 million**. Operating profit improved by **$72 million** to **$1 million**, mainly due to **$72 million** fewer impairment charges in Q1 2021[117](index=117&type=chunk)[118](index=118&type=chunk) - Cost of products decreased to **$286 million** in Q1 2021 from **$487 million** in Q1 2020, primarily reflecting lower revenue. Warehousing, selling and administrative expenses decreased to **$79 million** from **$130 million** due to improved operating efficiencies[119](index=119&type=chunk)[120](index=120&type=chunk) - Impairment charges were significantly reduced to **$4 million** in Q1 2021 from **$320 million** in Q1 2020. Other expense increased to **$1 million** due to unfavorable foreign exchange rate impacts[121](index=121&type=chunk)[122](index=122&type=chunk) - The effective tax rate was **(5.5%)** for Q1 2021, compared to **0.6%** for Q1 2020, influenced by various tax-related items[123](index=123&type=chunk) [Non-GAAP Financial Measure and Reconciliation](index=22&type=section&id=Non-GAAP%20Financial%20Measure%20and%20Reconciliation) This section presents and reconciles non-GAAP financial measures used to assess the company's performance - The company discloses EBITDA excluding other costs as a non-GAAP financial measure to provide supplemental information regarding ongoing economic performance and facilitate comparisons[125](index=125&type=chunk)[126](index=126&type=chunk) **EBITDA Excluding Other Costs Reconciliation (Three Months Ended March 31, in millions):** | Metric | 2021 | 2020 | | :--------------------------------- | :---- | :--- | | GAAP net loss | $(10) | $(331) | | Interest, net | — | — | | Income tax provision (benefit) | $1 | $(2) | | Depreciation and amortization | $6 | $10 | | Other costs (primarily impairment) | $4 | $325 | | **EBITDA excluding other costs** | **$1**| **$2** | | EBITDA % excluding other costs | 0.3% | 0.3% | [Liquidity and Capital Resources](index=23&type=section&id=Liquidity%20and%20Capital%20Resources) This section details the company's financial flexibility, cash position, and funding sources for its operations and investments - The company expects cash on hand, cash from operations, and its revolving credit facility to be sufficient to fund operating, investing, and financing activities[128](index=128&type=chunk) - Cash and cash equivalents were **$374 million** as of March 31, 2021, with **$94 million** held by foreign subsidiaries, which are generally indefinitely reinvested[129](index=129&type=chunk) - No borrowings were outstanding against the revolving credit facility, with approximately **$224 million** in availability and **97% excess availability**. All debt covenants were in compliance[130](index=130&type=chunk) **Net Cash Flows (Three Months Ended March 31, in millions):** | Activity | 2021 | 2020 | | :---------------------------------------- | :---- | :--- | | Net cash provided by (used in) operating activities | $(4) | $6 | | Net cash provided by (used in) investing activities | $(7) | $22 | | Net cash provided by (used in) financing activities | $(2) | $(2) | - Net cash used in operating activities was **$4 million** in Q1 2021, driven by increased working capital. Net cash used in investing activities was **$7 million**, primarily due to a **$6 million** acquisition[131](index=131&type=chunk)[132](index=132&type=chunk) [Capital Spending](index=24&type=section&id=Capital%20Spending) This section outlines the company's investment activities, including acquisitions and future capital expenditure plans - Subsequent to March 31, 2021, the company completed the Flex Flow business acquisition for an initial cash consideration of **$90 million**, expanding its offering in surface-mounted horizontal pumping systems[137](index=137&type=chunk) - The company intends to pursue additional acquisitions, primarily funded by cash flow from operations and the revolving credit facility[138](index=138&type=chunk) [Off-Balance Sheet Arrangements](index=24&type=section&id=Off-Balance%20Sheet%20Arrangements) This section describes the company's contractual obligations and commitments not recorded on the balance sheet - The company is party to off-balance sheet arrangements such as standby letters of credit and performance bonds, which are not expected to have a material adverse effect on its financial condition or results[139](index=139&type=chunk) [Critical Accounting Policies and Estimates](index=24&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) This section highlights the significant accounting judgments and assumptions that impact the financial statements - Key accounting estimates include allowance for doubtful accounts, inventory reserves, goodwill, purchase price allocation of acquisitions, vendor consideration, stock-based compensation, and income taxes[140](index=140&type=chunk) - Actual results may differ materially from these estimates, which are based on historical experience and future expectations[140](index=140&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=25&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section details the company's exposure to market risks, primarily from changes in interest rates and foreign currency exchange rates, and its strategies for managing these risks, including the use of derivative instruments [Foreign Currency Exchange Rate Risk](index=25&type=section&id=Foreign%20Currency%20Exchange%20Rate%20Risk) This section assesses the company's exposure to fluctuations in foreign currency exchange rates and its mitigation strategies - The company is exposed to foreign currency exchange rate fluctuations due to global operations, with approximately **30%** of net sales outside the U.S. and significant exposure to the Canadian dollar, British pound, and Australian dollar[144](index=144&type=chunk) - A weakening U.S. dollar benefits the company, while a strengthening U.S. dollar adversely affects it. Foreign currency translation adjustments resulted in a **$1 million** gain in Q1 2021[144](index=144&type=chunk)[145](index=145&type=chunk) - Foreign currency transaction losses of less than **$1 million** were reported in Q1 2021. The company may use foreign currency forward contracts to economically hedge risk but does not hedge net investments in foreign operations[146](index=146&type=chunk)[147](index=147&type=chunk) - A hypothetical **10%** change in foreign currency rates would result in a less than **$1 million** change in net loss for Q1 2021[149](index=149&type=chunk) [Commodity Steel Pricing](index=25&type=section&id=Commodity%20Steel%20Pricing) This section addresses the company's sensitivity to steel price volatility and its inventory management approach - The business is sensitive to steel prices, particularly steel tubular prices, which impact product pricing[150](index=150&type=chunk) - This risk is mitigated by actively managing inventory levels to meet demand while limiting overstocking[150](index=150&type=chunk) [Item 4. Controls and Procedures](index=27&type=section&id=Item%204.%20Controls%20and%20Procedures) This section confirms the effectiveness of the company's disclosure controls and procedures and reports no material changes in internal control over financial reporting during the quarter [Evaluation of Disclosure Controls and Procedures](index=27&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) This section confirms the effectiveness of the company's controls designed to ensure timely and accurate financial reporting - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective at a reasonable assurance level as of March 31, 2021[153](index=153&type=chunk) [Changes in Internal Control Over Financial Reporting](index=27&type=section&id=Changes%20in%20Internal%20Control%20Over%20Financial%20Reporting) This section reports on any material modifications to the company's internal controls during the quarter - There were no changes in internal control over financial reporting during the last fiscal quarter that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[154](index=154&type=chunk) [PART II - OTHER INFORMATION](index=28&type=section&id=PART%20II%20-%20OTHER%20INFORMATION) This section includes additional information such as exhibits filed with the quarterly report [Item 6. Exhibits](index=28&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed as part of the Form 10-Q, including various agreements, corporate documents, incentive plans, and certifications - Exhibits include the Separation and Distribution Agreement, Amended and Restated Certificate of Incorporation and Bylaws, Tax Matters Agreement, Employee Matters Agreement, Master Distributor and Service Agreements, Employment Agreements for Executive Officers, Incentive Compensation Plan documents, Credit Agreement, and various certifications (e.g., Rule 13a-14a, Section 906 Sarbanes-Oxley Act, XBRL documents)[156](index=156&type=chunk)

NOW Inc. (NYSE:DNOW) Q4 2020 Results Conference Call February 17, 2021 9:00 AM ET Company Participants Brad Wise - Vice President, Marketing and Investor Relations David Cherechinsky - President and Chief Executive Officer Mark Johnson - Senior Vice President and Chief Financial Officer Conference Call Participants Jon Hunter - Cowen Sean Meakim - JPMorgan Nathan Jones - Stifel Operator Hello, and welcome to the Fourth Quarter and Full Year 2020 Earnings Conference Call. My name is Cheryl, and I will be you ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark one) ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE YEAR ENDED DECEMBER 31, 2020 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number 001-36325 NOW INC. (Exact name of registrant as specified in its charter) Delaware 46-4191184 (State of Incorporation) (IRS Identification No.) 7402 North Eldridge Parkway, Houst ...

NOW Inc. (NYSE:DNOW) Q3 2020 Earnings Conference Call November 4, 2020 9:00 AM ET Company Participants Brad Wise – Vice President, Marketing and Investor Relations Dave Cherechinsky – President and Chief Executive Officer Mark Johnson – Senior Vice President and Chief Financial Officer Conference Call Participants Sean Meakim – J.P. Morgan Jon Hunter – Cowen Doug Becker – Northland Capital Walter Liptak – Seaport Operator Welcome to third quarter 2020 earnings conference call. My name is Sylvia, and I’ll be ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark one) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2020 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 001-36325 NOW INC. (Exact name of registrant as specified in its charter) Delaware 46-4191184 (State or other jurisdiction of (I.R.S. Employer incorporation or or ...

Financial Data and Key Metrics Changes - Revenue for Q2 2020 was $370 million, down $406 million or 52% compared to the same period in 2019, and sequentially declined $234 million or 39% [23][15] - Free cash flow for Q2 was $66 million, with a cash position expanded to $269 million, remaining debt-free [15][31] - EBITDA decrementals were low at 7%, indicating solid execution despite steep revenue declines [15][31] Business Line Data and Key Metrics Changes - U.S. segment revenue was $260 million, down 41% sequentially, outperforming a rig count decline of 50% [23][24] - U.S. energy center revenue declined 40% sequentially due to reduced customer spending [24] - U.S. Process Solutions business revenue was down 30% sequentially, impacted by lower upstream completions [26] Market Data and Key Metrics Changes - Canadian segment revenue was $41 million, down 45% year-over-year, with rig count declining 70% [27] - International segment revenue was $69 million, down 29% year-over-year, reflecting reduced activity in the UK [28] - Gross margins were 18.4%, a decline of 100 basis points sequentially, driven by elevated inventory charges [28] Company Strategy and Development Direction - The company is committed to transforming its operations by uniting geographic footprints and enhancing digital innovation [8][10] - Focus on diversifying end markets beyond upstream to include midstream, downstream, and alternative energy markets [10][36] - Structural transformation includes eliminating non-essential costs and pursuing a zero-based mindset [12][36] Management's Comments on Operating Environment and Future Outlook - Management acknowledges the challenges posed by the current market environment but remains confident in the company's ability to weather the storm [7][36] - Future revenue is expected to decline in the low to mid-teen percentages for Q3 2020 due to lower rig counts [35] - The company aims to maintain a leaner cost structure while preparing for potential market recovery [44][36] Other Important Information - The company has successfully implemented a vendor-managed inventory program with a renewable bio-fuels energy customer [27] - DigitalNOW platform is expected to enhance customer engagement and streamline operations [19][21] - The company is actively pursuing M&A opportunities while being cautious with its balance sheet [34] Q&A Session Summary Question: What is the right WSA amount for the future? - Management is cautious about predicting future WSA levels due to market uncertainties but aims for a leaner cost structure moving forward [38] Question: How much revenue is generated from DigitalNOW? - Currently, about one-third of revenues go through some electronic interface, with expectations for growth as technology evolves [39] Question: How will the company expand into midstream and downstream markets? - Most growth is expected to be organic, with some potential acquisitions in the Process Solutions space [40] Question: Will the leaner cost structure require adding more costs in a recovery? - Management believes that while some costs will be added, the goal is to maintain a low-cost base to improve margins during recovery [43] Question: Are competitors folding or trying to differentiate? - The company is observing both scenarios, with some competitors closing locations while others are aggressively liquidating inventory [55] Question: Will there be more inventory impairments going forward? - Elevated inventory charges are expected to persist for a few more quarters as the company assesses profitability on various product lines [57]

[Part I - Financial Information](index=3&type=section&id=Part%20I%20-%20Financial%20Information) This part presents the company's financial statements, management's analysis of operations, market risks, and internal controls for the reporting period [Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) NOW Inc. reported a significant net loss in Q2 and H1 2020, driven by revenue decline and a $320 million impairment, yet maintained positive operating cash flow and a debt-free balance sheet Consolidated Balance Sheet Highlights (in millions) | Account | June 30, 2020 | Dec 31, 2019 | Change | | :--- | :--- | :--- | :--- | | Cash and cash equivalents | $269 | $183 | +$86 | | Receivables, net | $242 | $370 | -$128 | | Inventories, net | $370 | $465 | -$95 | | Goodwill | $0 | $245 | -$245 | | Intangibles, net | $0 | $90 | -$90 | | **Total Assets** | **$1,069** | **$1,591** | **-$522** | | Total liabilities | $322 | $447 | -$125 | | **Total stockholders' equity** | **$747** | **$1,144** | **-$397** | Consolidated Statement of Operations Highlights (in millions, except EPS) | Metric | Q2 2020 | Q2 2019 | Six Months 2020 | Six Months 2019 | | :--- | :--- | :--- | :--- | :--- | | Revenue | $370 | $776 | $974 | $1,561 | | Operating profit (loss) | $(29) | $17 | $(362) | $40 | | Net income (loss) | $(30) | $14 | $(361) | $32 | | Diluted EPS | $(0.27) | $0.12 | $(3.30) | $0.29 | Consolidated Statement of Cash Flows Highlights (in millions) | Cash Flow Activity | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :--- | :--- | :--- | | Net cash from operating activities | $74 | $49 | | Net cash from investing activities | $20 | $(13) | | Net cash from financing activities | $(4) | $(73) | | **Net change in cash** | **$86** | **$(36)** | [Notes to Unaudited Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20Unaudited%20Consolidated%20Financial%20Statements) Key notes detail the adoption of new accounting standards, a $320 million asset impairment, segment performance, and a non-core business sale in the first half of 2020 - In Q1 2020, the company performed an interim impairment test due to a significant decline in its market capitalization, the collapse of oil prices, and decreased demand caused by the COVID-19 pandemic[44](index=44&type=chunk) Asset Impairment Charges - Q1 2020 (in millions) | Asset Category | Impairment Amount | | :--- | :--- | | Goodwill | $230 | | Intangibles, net | $84 | | Property, plant and equipment, net | $4 | | Operating right-of-use assets | $2 | | **Total Impairment** | **$320** | - The company had no borrowings against its **$750 million** revolving credit facility as of June 30, 2020, with approximately **$256 million** in availability[54](index=54&type=chunk)[55](index=55&type=chunk) - On January 31, 2020, the company completed the sale of its business that sold cutting tools to the aerospace and automotive markets, resulting in a loss of less than **$1 million**[81](index=81&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=16&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management attributes the severe downturn to oil price collapse and COVID-19, leading to cost-cutting, strengthened liquidity, and an uncertain outlook tied to economic recovery Key Industry Indicators (Q2 2020 vs. Prior Periods) | Indicator | Q2 2020 | % Change vs. Q2 2019 | % Change vs. Q1 2020 | | :--- | :--- | :--- | :--- | | U.S. Active Drilling Rigs | 396 | (60.0%) | (49.6%) | | Worldwide Active Drilling Rigs | 1,255 | (42.5%) | (38.9%) | | WTI Crude Price (per barrel) | $27.79 | (53.5%) | (39.3%) | - The company's outlook is tied to oil and gas commodity prices, global drilling activity, and global oil demand, all of which face significant uncertainty due to the COVID-19 pandemic[112](index=112&type=chunk)[113](index=113&type=chunk) - To navigate the challenging environment, management has prioritized cost transformation, accelerated structural changes, and deployed technology to optimize processes. The company had **zero debt** at June 30, 2020[114](index=114&type=chunk) [Results of Operations](index=20&type=section&id=Results%20of%20Operations) All segments experienced sharp revenue declines in Q2 and H1 2020, with the U.S. segment hit hardest, leading to significant operating losses due to lower revenues and $320 million in impairment charges Segment Revenue (in millions) | Segment | Q2 2020 | Q2 2019 | % Change | | :--- | :--- | :--- | :--- | | United States | $260 | $605 | (57.0%) | | Canada | $41 | $74 | (44.6%) | | International | $69 | $97 | (28.9%) | Segment Operating Profit (Loss) (in millions) | Segment | Six Months 2020 | Six Months 2019 | | :--- | :--- | :--- | | United States | $(228) | $35 | | Canada | $(63) | $3 | | International | $(71) | $2 | - Impairment charges for the six months ended June 30, 2020, totaled **$320 million**, consisting of **$230 million** for goodwill and **$90 million** for intangible and other long-lived assets[125](index=125&type=chunk) [Liquidity and Capital Resources](index=23&type=section&id=Liquidity%20and%20Capital%20Resources) The company's liquidity improved in H1 2020, with cash increasing by **$86 million** to **$269 million** due to positive operating cash flow and a business divestiture, ending with no debt - As of June 30, 2020, the company had cash and cash equivalents of **$269 million**, up from **$183 million** at December 31, 2019[133](index=133&type=chunk) - The company had **no borrowings** against its revolving credit facility and **$256 million** in availability as of June 30, 2020[134](index=134&type=chunk) Net Cash Flow Summary (in millions) | Activity | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :--- | :--- | :--- | | Operating Activities | $74 | $49 | | Investing Activities | $20 | $(13) | | Financing Activities | $(4) | $(73) | [Quantitative and Qualitative Disclosures About Market Risk](index=25&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risks are foreign currency exchange rates, particularly the Canadian dollar and British pound, and commodity steel pricing, with hedging used for some currency exposure - The company's main market risks are foreign currency exchange rate risk and commodity steel pricing[145](index=145&type=chunk)[153](index=153&type=chunk) - Approximately **one-fourth** of net sales for the first six months of 2020 were outside the United States, creating exposure to currency fluctuations[147](index=147&type=chunk) - For the six months ended June 30, 2020, the company realized a net foreign currency translation loss of **$31 million**, which was included in other comprehensive income (loss)[148](index=148&type=chunk) [Controls and Procedures](index=26&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of June 30, 2020, with no material changes to internal control over financial reporting - The Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures are effective as of the end of the period covered by this report[155](index=155&type=chunk) - No changes in internal control over financial reporting occurred during the last fiscal quarter that materially affected, or are reasonably likely to materially affect, internal controls[156](index=156&type=chunk) [Part II - Other Information](index=27&type=section&id=Part%20II%20-%20Other%20Information) This section details additional risk factors related to the COVID-19 pandemic and crude oil price declines, along with a list of exhibits filed with the report [Risk Factors](index=27&type=section&id=Item%201A.%20Risk%20Factors) The company identifies significant risks from the COVID-19 pandemic, which reduced global oil demand and disrupted supply chains, and the sharp, sustained decline in crude oil prices - The COVID-19 pandemic has adversely affected the global economy, reduced demand for crude oil, and created significant uncertainty regarding the future impact on the company's business and financial condition[159](index=159&type=chunk)[160](index=160&type=chunk) - Crude oil prices fell sharply in 2020 due to decreased demand from COVID-19 and OPEC+ disagreements. If prices remain at low levels for a prolonged period, the company's operations and financial condition may be materially and adversely affected[161](index=161&type=chunk)[162](index=162&type=chunk) [Exhibits](index=28&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed with the Form 10-Q, including corporate documents, material agreements, and CEO/CFO certifications required by Sarbanes-Oxley - The report lists numerous exhibits, including the Credit Agreement, various employment agreements, and certifications pursuant to Rules 13a-14a and 15d-14(a) and Section 906 of the Sarbanes-Oxley Act of 2002[164](index=164&type=chunk)

Financial Data and Key Metrics Changes - Revenue for Q1 2020 was $604 million, a sequential decline of $35 million or 5%, and down $181 million or 23% compared to Q1 2019 [17][41] - Gross margins were 19.4%, a decline of 20 basis points sequentially and 70 basis points year-over-year, primarily due to $9 million in inventory charges [45] - Net loss for Q1 was $331 million or $3.03 per diluted share, with other costs totaling $325 million pretax [50][52] - Cash totaled $202 million at the end of Q1, the highest cash position since Q2 2014, with no outstanding borrowings [53][55] Business Segment Data and Key Metrics Changes - U.S. revenue was $441 million, a sequential decline of $27 million or 6%, with rig count down 4% and average completions down 12% [17][43] - Canadian revenue was $78 million, a sequential increase of $2 million or 3%, while International revenue was $85 million, a sequential decline of $10 million or 11% [17][44] - U.S. Supply Chain Services revenue declined 15% sequentially, primarily due to lower activity with major partners [20] - U.S. Process Solutions revenue was down 3%, partially offset by midstream and downstream activity [21] Market Data and Key Metrics Changes - Market conditions deteriorated significantly in March, with revenues down 33% in April compared to the Q1 monthly average [42] - U.S. rig counts averaged 791 in the first 11 weeks of Q1 but dropped by 384 rigs in the last seven weeks [42] - International revenue declines were attributed to closures in the U.K. and reduced activity in the Middle East and Asia [24] Company Strategy and Development Direction - The company is focused on a structural transformation to reduce costs and improve efficiency, including significant personnel reductions and technology investments [30][63] - The DigitalNOW initiative aims to enhance customer engagement and operational efficiency through digital tools [35][96] - The company plans to maintain a strong balance sheet with zero debt and ample liquidity to navigate the downturn and position for future growth [16][73] Management's Comments on Operating Environment and Future Outlook - Management noted that the oil and gas industry is facing unprecedented challenges due to COVID-19 and falling oil prices, but emphasized the company's resilience and commitment to ESG goals [13][11] - The outlook for Q2 and the full year remains uncertain, with no specific revenue guidance provided due to market volatility [40][67] - Management expressed confidence in the company's ability to capture market share during the downturn and emphasized the importance of cash preservation [68][72] Other Important Information - The company has implemented a series of cost reduction initiatives and expects to achieve $100 million in savings for 2020 compared to 2019 [64] - The CEO search process has been temporarily slowed due to COVID-19, with expectations to select a new CEO by Q3 2020 [75][76] Q&A Session Summary Question: Outlook for Q2 revenues and activity declines - Management acknowledged the significant declines in activity and indicated that a 10% to 15% decline in International revenues seems reasonable, while U.S. upstream revenues may also see substantial declines [80][81] Question: Expectations for free cash flow and working capital - Management projected free cash flow for the year could range from $75 million to $125 million, depending on revenue declines and asset liquidity [88][90] Question: Differentiation of DigitalNOW offering - Management highlighted that DigitalNOW is aimed at improving internal efficiencies and enhancing customer engagement, positioning the company ahead of smaller competitors [93][96] Question: G&A reductions and target exit rate for WSA - Management expects WSA to be in the low $110 million range for Q2, with a long-term goal of reducing WSA to 15% or better of revenue [102][104]