Part I - Financial Information This part presents the company's financial statements, management's analysis of operations, market risks, and internal controls for the reporting period Financial Statements 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 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 pandemic44 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 availability5455 - 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 million81 Management's Discussion and Analysis of Financial Condition and Results of Operations 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 pandemic112113 - 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, 2020114 Results of Operations 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 assets125 Liquidity and Capital Resources 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, 2019133 - The company had no borrowings against its revolving credit facility and $256 million in availability as of June 30, 2020134 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 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 pricing145153 - Approximately one-fourth of net sales for the first six months of 2020 were outside the United States, creating exposure to currency fluctuations147 - 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 Controls and Procedures 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 report155 - 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 controls156 Part II - Other Information 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 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 condition159160 - 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 affected161162 Exhibits 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 2002164
NOW(DNOW) - 2020 Q2 - Quarterly Report