NOW(DNOW) - 2024 Q2 - Quarterly Report

Part I Financial Statements DNOW Inc.'s H1 2024 unaudited financials show total assets at $1.56 billion, revenue at $1.20 billion, and net income at $46 million, with cash flow impacted by acquisitions Consolidated Balance Sheets The balance sheet shows total assets increased to $1.56 billion, primarily due to goodwill and intangibles from the Whitco Supply acquisition Consolidated Balance Sheet Highlights (in millions) | Account | June 30, 2024 (Unaudited) | December 31, 2023 | | :--- | :--- | :--- | | Cash and cash equivalents | $197 | $299 | | Inventories, net | $399 | $366 | | Goodwill | $192 | $139 | | Total assets | $1,563 | $1,529 | | Total liabilities | $464 | $466 | | Total stockholders' equity | $1,099 | $1,063 | - The increase in Goodwill from $139 million to $192 million and Intangibles from $28 million to $57 million is primarily due to the acquisition of Whitco Supply, LLC during the first half of 2024[3][35] Consolidated Statements of Operations The statements of operations show revenue growth for Q2 and H1 2024, but net income declined significantly compared to the prior year Statement of Operations Summary (in millions) | Metric | Q2 2024 | Q2 2023 | H1 2024 | H1 2023 | | :--- | :--- | :--- | :--- | :--- | | Revenue | $633 | $594 | $1,196 | $1,178 | | Operating Profit | $33 | $36 | $61 | $71 | | Net Income Attributable to DNOW Inc. | $24 | $34 | $45 | $65 | - Revenue increased by 6.6% YoY for Q2 2024 and 1.5% for H1 2024, however, net income declined by 29.4% for Q2 2024 and 30.8% for H1 2024 compared to the same periods in 2023[4][50] Consolidated Statements of Cash Flows Cash flow from operations increased, but significant cash was used in investing activities for acquisitions, leading to a net decrease in cash Cash Flow Summary for Six Months Ended June 30 (in millions) | Cash Flow Activity | 2024 | 2023 | | :--- | :--- | :--- | | Net cash provided by operating activities | $102 | $79 | | Net cash used in investing activities | ($188) | ($43) | | Net cash used in financing activities | ($15) | ($47) | | Net change in cash and cash equivalents | ($102) | ($9) | - The significant use of cash in investing activities in H1 2024 was driven by a $185 million payment for a business acquisition, a substantial increase from the $33 million used for acquisitions in H1 2023[6] - Cash used in financing activities decreased primarily due to lower share repurchases, which amounted to $11 million in H1 2024 compared to $44 million in H1 2023[6] Notes to Unaudited Consolidated Financial Statements Notes detail business segments, the $185 million Whitco Supply acquisition boosting U.S. revenue, and $11 million in share repurchases Revenue by Business Segment (in millions) | Segment | Q2 2024 | Q2 2023 | H1 2024 | H1 2023 | | :--- | :--- | :--- | :--- | :--- | | United States | $512 | $456 | $947 | $883 | | Canada | $56 | $66 | $122 | $149 | | International | $65 | $72 | $127 | $146 | | Total | $633 | $594 | $1,196 | $1,178 | Operating Profit by Business Segment (in millions) | Segment | Q2 2024 | Q2 2023 | H1 2024 | H1 2023 | | :--- | :--- | :--- | :--- | :--- | | United States | $28 | $29 | $51 | $52 | | Canada | $2 | $3 | $5 | $11 | | International | $3 | $4 | $5 | $8 | | Total | $33 | $36 | $61 | $71 | - In H1 2024, the company acquired Whitco Supply, LLC for $185 million, resulting in the recognition of $53 million in goodwill and $30 million in intangible assets in the U.S. segment[35][36] - Under its share repurchase program, the company bought back 837,518 shares for $11 million in H1 2024, compared to 4,026,550 shares for $44 million in H1 2023[23][24] Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) MD&A attributes Q2 2024 revenue growth to the Whitco Supply acquisition, offsetting declines elsewhere, with operating profit falling; liquidity remains strong Operating Environment Overview The operating environment shows a mixed trend with declining U.S. rig counts but increasing WTI crude oil prices Key Industry Indicators (Q2 2024 vs. Q2 2023) | Indicator | Q2 2024 | Q2 2023 | % Change | | :--- | :--- | :--- | :--- | | U.S. Active Drilling Rigs | 603 | 722 | (16.5%) | | Canada Active Drilling Rigs | 137 | 115 | 19.1% | | International Active Drilling Rigs | 963 | 960 | 0.3% | | WTI Crude Price ($/barrel) | $81.71 | $73.76 | 10.8% | | U.S. Wells Completed | 2,756 | 3,185 | (13.5%) | - Despite a 16.5% YoY decline in the U.S. rig count, the average price of WTI crude oil increased by 10.8% in Q2 2024 compared to Q2 2023, indicating a mixed operating environment[44] Results of Operations U.S. segment revenue grew due to acquisition, offsetting declines in Canada and International segments, while the effective tax rate significantly increased - U.S. segment revenue increased 12.3% in Q2 2024 and 7.2% in H1 2024, primarily driven by the Whitco Supply acquisition, which offset weakening drilling and completion activity[53] - Canada segment revenue declined 15.2% in Q2 2024 and 18.1% in H1 2024 due to weaker project activity and unfavorable foreign exchange rates[55] - International segment revenue decreased 9.7% in Q2 2024 and 13.0% in H1 2024, also driven by weaker project activity[56] - The effective tax rate for H1 2024 was 25.8%, significantly higher than 5.7% in H1 2023, with the prior year's rate lower due to a non-recurring release of a valuation allowance on deferred tax assets[59][28] Reconciliation to EBITDA excluding other costs (in millions) | Metric | Q2 2024 | Q2 2023 | H1 2024 | H1 2023 | | :--- | :--- | :--- | :--- | :--- | | Net income attributable to DNOW Inc. | $24 | $34 | $45 | $65 | | Adjustments (Taxes, D&A, etc.) | $21 | $11 | $36 | $22 | | Other costs | $9 | $6 | $14 | $13 | | EBITDA excluding other costs | $50 | $47 | $89 | $94 | Liquidity and Capital Resources The company maintains strong liquidity with $197 million in cash and $485 million available under its credit facility, alongside $11 million in share repurchases - As of June 30, 2024, the company had $197 million in cash and cash equivalents and no borrowings against its $500 million revolving credit facility[64] - Total availability under the credit facility was approximately $485 million as of June 30, 2024[64][22] - The company repurchased $11 million of its common stock in H1 2024 and had approximately $13 million remaining under its share repurchase authorization as of June 30, 2024[70] Quantitative and Qualitative Disclosures About Market Risk The company's primary market risks are foreign currency and commodity steel prices, with a hypothetical 10% currency change having an immaterial impact on net income - The company's primary market risks are foreign currency exchange rate fluctuations and changes in commodity steel prices[73][75] - Approximately one-fifth of revenue for H1 2024 was generated outside the U.S., with primary currency exposures to the Canadian dollar and British pound[74] - A sensitivity analysis indicates that a hypothetical 10% adverse change in foreign currency exchange rates would have resulted in less than a $1 million change in net income for the first six months of 2024[74] Controls and Procedures Management concluded the company's disclosure controls and procedures were effective as of June 30, 2024, with no material changes to internal controls - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by the report[76] - 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, these controls[77] Part II Unregistered Sales of Equity Securities and Use of Proceeds In Q2 2024, the company repurchased 669,463 shares for $10 million, with $13 million remaining under the authorization expiring December 31, 2024 Share Repurchases for Q2 2024 | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | April 2024 | — | $— | | May 2024 | 141,256 | $14.18 | | June 2024 | 528,207 | $13.50 | | Total | 669,463 | $13.64 | - The share repurchase program, authorizing up to $80 million in purchases, is set to expire on December 31, 2024[78] Other Information No director or officer adopted or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during Q2 2024 - During the three months ended June 30, 2024, no director or officer adopted or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement[79] Exhibits This section lists exhibits filed with the Form 10-Q, including corporate governance documents, credit agreements, and SOX certifications - The report includes various exhibits such as the Amended and Restated Certificate of Incorporation, credit agreements, the 2024 Omnibus Incentive Plan, and Sarbanes-Oxley certifications[79]