Part I Financial Statements This section presents the unaudited consolidated financial statements for the quarter ended March 31, 2022, detailing the company's financial position, performance, and cash flows, alongside explanatory notes Consolidated Balance Sheets As of March 31, 2022, the balance sheet reflects total assets of $1,162 million, driven by increased receivables and inventories, with total stockholders' equity growing to $746 million Consolidated Balance Sheet Highlights (in millions) | Account | March 31, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Total current assets | $946 | $883 | | Inventories, net | $296 | $250 | | Total assets | $1,162 | $1,104 | | Total current liabilities | $395 | $369 | | Total liabilities | $416 | $392 | | Total stockholders' equity | $746 | $712 | Consolidated Statements of Operations For Q1 2022, the company reported a significant turnaround to $30 million net income from a $10 million net loss in Q1 2021, driven by a 31% revenue increase to $473 million Q1 2022 vs Q1 2021 Statement of Operations (in millions, except per share data) | Metric | Q1 2022 | Q1 2021 | | :--- | :--- | :--- | | Revenue | $473 | $361 | | Cost of products | $366 | $286 | | Operating profit (loss) | $23 | $(8) | | Net income (loss) | $30 | $(10) | | Diluted earnings (loss) per share | $0.27 | $(0.09) | Consolidated Statements of Cash Flows Net cash used in operating activities for Q1 2022 increased to $22 million, primarily due to investments in working capital to support revenue growth Q1 2022 vs Q1 2021 Cash Flow Summary (in millions) | Cash Flow Activity | Q1 2022 | Q1 2021 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $(22) | $(4) | | Net cash provided by (used in) investing activities | $2 | $(7) | | Net cash provided by (used in) financing activities | $(1) | $(2) | | Net change in cash and cash equivalents | $(20) | $(13) | | Cash and cash equivalents, end of period | $293 | $374 | Notes to Unaudited Consolidated Financial Statements These notes provide critical context to the financial statements, detailing the company's business, accounting policies, segment performance, debt structure, and significant non-recurring income items - The company operates as a global distributor of energy and industrial products under the DistributionNOW and DNOW brands, serving upstream, midstream, and downstream sectors in approximately 80 countries15 - The company has a $500 million senior secured revolving credit facility maturing in December 2026, with no borrowings and approximately $436 million availability as of March 31, 202228 - A contingent consideration liability of approximately $13 million from a 2021 acquisition was removed in Q1 2022 as the performance target was not met, resulting in a benefit recognized in other income40 Revenue and Operating Profit by Segment (in millions) | Segment | Revenue Q1 2022 | Revenue Q1 2021 | Operating Profit (Loss) Q1 2022 | Operating Profit (Loss) Q1 2021 | | :--- | :--- | :--- | :--- | :--- | | United States | $334 | $252 | $14 | $(13) | | Canada | $82 | $58 | $7 | $4 | | International | $57 | $51 | $2 | $1 | | Total | $473 | $361 | $23 | $(8) | Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes the strong Q1 2022 performance, including a 31% revenue increase and return to profitability, to improved market conditions, while highlighting strong liquidity and discussing market uncertainties and energy transition opportunities - For Q1 2022, the company generated net income of $30 million on $473 million in revenue, a $40 million improvement in net income compared to the same period in 202159 - The company's outlook remains tied to commodity prices and drilling activity, with noted uncertainty from the COVID-19 pandemic and the Russia-Ukraine conflict, and the company is winding down its operations in Russia4860 - The company views the energy transition as an opportunity to supply existing and new products to both traditional and new customers involved in these projects60 Key Industry Indicators (Q1 2022 vs. Q1 2021) | Indicator | 1Q22 | 1Q21 | % Change | | :--- | :--- | :--- | :--- | | U.S. Active Drilling Rigs | 633 | 392 | 61.5% | | Canada Active Drilling Rigs | 198 | 139 | 42.4% | | WTI Crude Price (per barrel) | $94.45 | $57.79 | 63.4% | Results of Operations by Segment All operating segments reported significant year-over-year revenue growth in Q1 2022, with the U.S. segment's revenue increasing by 32.5% and operating profit improving by $27 million, while Canada and International segments also saw strong growth - U.S. revenue increased by $82 million (32.5%) YoY, with operating profit improving by $27 million, driven by drilling activity and improved product margins61 - Canada revenue increased by $24 million (41.4%) YoY, driven by a higher rig count64 - International revenue increased by $6 million (11.8%) YoY, driven by increased rig count and project activity65 Non-GAAP Financial Measure and Reconciliation The company reconciles GAAP Net Income to non-GAAP EBITDA excluding other costs, which significantly increased to $28 million in Q1 2022 from $3 million in Q1 2021, reflecting improved economic performance Reconciliation to EBITDA excluding other costs (in millions) | Line Item | Q1 2022 | Q1 2021 | | :--- | :--- | :--- | | GAAP net income (loss) | $30 | $(10) | | Interest, net | — | — | | Income tax provision (benefit) | 3 | 1 | | Depreciation and amortization | 4 | 6 | | Stock-based compensation | 2 | 2 | | Other | (11) | 4 | | EBITDA excluding other costs | $28 | $3 | Liquidity and Capital Resources The company maintains a strong liquidity position with $293 million in cash and $436 million available on its $500 million credit facility, despite $22 million in cash used for operating activities to fund working capital growth - As of March 31, 2022, the company had cash and cash equivalents of $293 million77 - The company had no borrowings against its $500 million revolving credit facility and approximately $436 million in availability77 - Net cash used in operating activities was $22 million, primarily due to an increase in working capital resulting from growing market activity78 Quantitative and Qualitative Disclosures About Market Risk The company's primary market risks include foreign currency exchange rate fluctuations, particularly for its 30% international sales, and commodity steel pricing, which it manages through inventory control - The company is exposed to foreign currency risk as approximately 30% of its net sales for Q1 2022 were outside the U.S86 - A hypothetical 10% change in foreign currency rates would have resulted in a $1 million change in net income for the first three months of 202286 - The business is sensitive to steel prices, particularly for tubular products, and mitigates this risk by managing inventory levels87 Controls and Procedures The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of March 31, 2022, with no material changes in internal control over financial reporting during the quarter - The CEO and CFO concluded that the company's disclosure controls and procedures are effective at a reasonable assurance level as of the end of the reporting period89 - No change in internal control over financial reporting occurred during the last fiscal quarter that has materially affected, or is reasonably likely to materially affect, internal controls90 Part II Exhibits This section lists all exhibits filed with the Form 10-Q report, including key corporate documents, credit agreements, executive compensation forms, and Sarbanes-Oxley Act certifications - The report includes exhibits such as the Amended and Restated Certificate of Incorporation, Bylaws, Credit Agreement, and various executive compensation and award agreements929399 - Certifications from the CEO and CFO pursuant to Rule 13a-14(a) and Section 906 of the Sarbanes-Oxley Act of 2002 are filed as exhibits100101
NOW(DNOW) - 2022 Q1 - Quarterly Report