NOW(DNOW) - 2025 Q2 - Quarterly Report

Part I - Financial Information Item 1. Financial Statements The company's financial statements for the period ended June 30, 2025, show stable performance with increased six-month revenue and net income, and total assets growing to $1,661 million, while cash flow from operations decreased due to working capital investments, alongside a definitive merger agreement to acquire MRC Global Consolidated Balance Sheets As of June 30, 2025, total assets increased to $1,661 million from $1,621 million at year-end 2024, primarily due to higher receivables and inventories, with total liabilities seeing a minor increase to $500 million and total stockholders' equity rising to $1,161 million Consolidated Balance Sheet Highlights (in millions) | Account | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Total Current Assets | $1,080 | $1,028 | | Cash and cash equivalents | $232 | $256 | | Receivables, net | $440 | $388 | | Inventories, net | $383 | $352 | | Total Assets | $1,661 | $1,621 | | Total Current Liabilities | $455 | $442 | | Total Liabilities | $500 | $493 | | Total Stockholders' Equity | $1,161 | $1,128 | Consolidated Statements of Operations For the second quarter of 2025, revenue was $628 million, a slight decrease from $633 million in Q2 2024, with net income remaining flat at $25 million, while six-month revenue increased to $1,227 million from $1,196 million year-over-year, and net income attributable to DNOW Inc. rose to $47 million from $45 million Quarterly Financial Performance (in millions, except EPS) | Metric | Q2 2025 | Q2 2024 | | :--- | :--- | :--- | | Revenue | $628 | $633 | | Operating Profit | $32 | $33 | | Net Income (to DNOW Inc.) | $25 | $24 | | Diluted EPS | $0.23 | $0.21 | Six-Month Financial Performance (in millions, except EPS) | Metric | H1 2025 | H1 2024 | | :--- | :--- | :--- | | Revenue | $1,227 | $1,196 | | Operating Profit | $62 | $61 | | Net Income (to DNOW Inc.) | $47 | $45 | | Diluted EPS | $0.43 | $0.41 | Consolidated Statements of Cash Flows For the six months ended June 30, 2025, net cash from operating activities was $29 million, a significant decrease from $102 million in the prior-year period, driven by increased investment in receivables and inventories, with investing activities using $16 million and financing activities using $40 million Six-Month Cash Flow Summary (in millions) | Cash Flow Activity | H1 2025 | H1 2024 | | :--- | :--- | :--- | | Net cash from operating activities | $29 | $102 | | Net cash used in investing activities | $(16) | $(188) | | Net cash used in financing activities | $(40) | $(15) | | Net change in cash | $(24) | $(102) | | Cash at end of period | $232 | $197 | Notes to Unaudited Consolidated Financial Statements Key notes highlight the company's operations as a distributor to energy and industrial markets, segment performance, and significant corporate actions, with the U.S. segment remaining the largest contributor to revenue and profit, and a new $160 million share repurchase program temporarily suspended due to the pending $1.5 billion merger with MRC Global expected to close in Q4 2025 - The company operates as a distributor of energy and industrial products through 160 locations in the U.S., Canada, and internationally, serving upstream, midstream, and downstream energy sectors as well as other industrial markets[19][20] Segment Revenue and Operating Profit (Six Months Ended June 30, 2025, in millions) | Segment | Revenue | Operating Profit | | :--- | :--- | :--- | | United States | $1,002 | $52 | | Canada | $110 | $4 | | International | $115 | $6 | | Total | $1,227 | $62 | - On June 26, 2025, DNOW entered into a definitive merger agreement to acquire MRC Global in an all-stock transaction valued at approximately $1.5 billion. The deal is expected to close in Q4 2025, subject to shareholder and regulatory approvals[68] - A new share repurchase program of up to $160 million was authorized in January 2025. For the six months ended June 30, 2025, the company repurchased $27 million worth of stock. The program is currently suspended pending the MRC Global merger[43][47] Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes 2.6% year-over-year revenue growth to U.S. acquisitions, offsetting weaker international project activity, amidst declining rig counts and oil prices, while maintaining strong liquidity with a strategic focus on energy transition markets Operating Environment Overview The second quarter of 2025 saw a challenging operating environment compared to the prior year and quarter, with worldwide active drilling rigs declining and West Texas Intermediate (WTI) crude prices falling significantly, though natural gas prices showed a strong year-over-year increase Key Industry Indicators - Q2 2025 vs. Q2 2024 | Indicator | Q2 2025 | Q2 2024 | % Change | | :--- | :--- | :--- | :--- | | Worldwide Active Rigs | 1,597 | 1,703 | (6.2%) | | U.S. Active Rigs | 571 | 603 | (5.3%) | | WTI Crude Price ($/barrel) | $64.63 | $81.71 | (20.9%) | | Natural Gas Price ($/MMBtu) | $3.19 | $2.08 | 53.4% | - Sequentially, from Q1 2025 to Q2 2025, the worldwide rig count declined by 6.4%, WTI crude prices fell by 10.0%, and natural gas prices dropped by 23.1%[91] Results of Operations For the first six months of 2025, the U.S. segment's revenue grew 5.8% to $1,002 million, driven by acquisitions, which offset declines in Canada (down 9.8%) and International (down 9.4%) segments caused by weaker project activity, with overall operating profit for the six-month period increasing slightly to $62 million from $61 million in the prior year - United States: Revenue for H1 2025 increased by $55 million (5.8%) YoY, primarily due to incremental revenue from acquisitions completed in 2024[98] - Canada: Revenue for H1 2025 decreased by $12 million (9.8%) YoY, driven by weaker project activity and unfavorable foreign exchange rates[100] - International: Revenue for H1 2025 decreased by $12 million (9.4%) YoY, also due to weaker project activity[102] - Warehousing, selling, and administrative expenses for H1 2025 increased to $221 million from $206 million in H1 2024, mainly due to expenses related to 2024 acquisitions[105] Liquidity and Capital Resources The company maintains a strong liquidity position with $232 million in cash and cash equivalents as of June 30, 2025, a $500 million revolving credit facility with no borrowings and approximately $445 million in availability, though cash from operations decreased to $29 million for H1 2025 from $102 million in H1 2024 due to a $70 million increase in working capital investment - As of June 30, 2025, the company had $232 million in cash and cash equivalents and no borrowings against its $500 million revolving credit facility[114][115] - Availability under the credit facility was approximately $445 million. In connection with the MRC Global merger, the company has secured committed debt financing to increase the facility's potential capacity to $750 million[115][116] - Net cash from operating activities decreased by $73 million YoY for the first six months, primarily due to a $45 million growth in accounts receivable and a $28 million investment in inventory[119] - During H1 2025, the company repurchased $27 million of its common stock under its new $160 million authorization. The program is now paused pending the merger completion[121][124] Quantitative and Qualitative Disclosures About Market Risk The company faces market risks from foreign currency fluctuations, with one-fifth of H1 2025 sales outside the U.S., and commodity steel pricing, which it mitigates through active inventory management and hedging strategies - The company is exposed to foreign currency risk as about one-fifth of its H1 2025 revenue was generated outside the U.S. The most significant exposures are to the Canadian dollar and British pound[128] - A sensitivity analysis indicates that a hypothetical 10% change in foreign currency rates would have resulted in an approximate $1 million change in net income for the first six months of 2025[133] - The business is sensitive to steel prices, particularly for tubular products. This risk is mitigated through active inventory management to balance supply with demand and limit overstocking[134] Controls and Procedures Management, including the CEO and CFO, concluded the company's disclosure controls and procedures were effective as of June 30, 2025, with no material changes to internal control over financial reporting during the second quarter - Based on an evaluation as of the end of the reporting period, the CEO and CFO concluded that the company's disclosure controls and procedures are effective at a reasonable assurance level[135] - 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[136] Part II - Other Information Risk Factors New risk factors primarily relate to the pending MRC Global merger, including integration challenges, failure to realize anticipated synergies, and the uncertainty of achieving financial forecasts, alongside the dependency on shareholder and regulatory approvals - A primary risk is the potential inability to successfully integrate MRC Global's business, which could prevent the achievement of enhanced revenue, cost savings, and other anticipated benefits from the merger[138][145] - The success of the merger depends on combining the businesses effectively; failure to do so could lead to the loss of key employees, disruption of ongoing business, and unforeseen expenses[143] - Completion of the merger is subject to conditions beyond the company's control, including shareholder approvals from both DNOW and MRC Global. Failure to complete the merger could adversely affect the company's business and financial standing[146] Unregistered Sales of Equity Securities and Use of Proceeds During Q2 2025, the company repurchased 1,349,930 shares at an average price of $15.11, with $133 million remaining available under the suspended program as of June 30, 2025 Share Repurchases (Q2 2025) | Period | Total Shares Purchased | Average Price Paid | Value Remaining in Program (end of period) | | :--- | :--- | :--- | :--- | | April 2025 | 466,841 | $15.51 | $145 million | | May 2025 | 560,874 | $14.91 | $138 million | | June 2025 | 322,215 | $14.86 | $133 million | | Q2 Total | 1,349,930 | $15.11 | $133 million | Other Information No director or officer adopted or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement during the second quarter of 2025 - During the three months ended June 30, 2025, no director or officer adopted or terminated a pre-arranged stock trading plan as defined under Regulation S-K[150] Exhibits This section lists exhibits filed with the Form 10-Q, including the MRC Global merger agreement, corporate governance documents, and officer certifications - Key exhibits filed include the merger agreement with MRC Global Inc. and certifications from the CEO and CFO pursuant to the Sarbanes-Oxley Act[152]