NOW(US:DNOW)2024-05-10 17:25Part I - Financial Information Financial Statements DNOW Inc. reported Q1 2024 revenue of $563 million and net income of $21 million, with total assets increasing to $1,594 million and operating cash flow improving to $81 million Consolidated Statements of Operations Highlights (Unaudited) | Metric | Q1 2024 (in millions) | Q1 2023 (in millions) | Change | | :--- | :--- | :--- | :--- | | Revenue | $563 | $584 | -3.6% | | Operating Profit | $28 | $35 | -20.0% | | Net Income attributable to DNOW Inc. | $21 | $31 | -32.3% | | Diluted EPS | $0.19 | $0.28 | -32.1% | Consolidated Balance Sheet Highlights (Unaudited) | Metric | March 31, 2024 (in millions) | Dec 31, 2023 (in millions) | Change | | :--- | :--- | :--- | :--- | | Cash and cash equivalents | $188 | $299 | -$111 | | Inventories, net | $428 | $366 | +$62 | | Goodwill | $192 | $139 | +$53 | | Total Assets | $1,594 | $1,529 | +$65 | | Total Liabilities | $515 | $466 | +$49 | | Total Stockholders' Equity | $1,079 | $1,063 | +$16 | Consolidated Statements of Cash Flows Highlights (Unaudited) | Metric | Q1 2024 (in millions) | Q1 2023 (in millions) | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $81 | $(6) | | Net cash provided by (used in) investing activities | $(188) | $(5) | | Net cash provided by (used in) financing activities | $(4) | $(34) | | Net change in cash and cash equivalents | $(111) | $(44) | - In Q1 2024, the company acquired Whitco Supply, LLC for $185 million, net of cash, resulting in $53 million in goodwill and $30 million in intangible assets in the U.S. segment6465 Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes the 3.6% revenue decline to weaker project activity in Canada and International markets, partially offset by U.S. growth, while maintaining a constructive outlook and strong liquidity Company Overview DNOW is a global distributor of energy and industrial products, serving all energy sectors and industrial markets, with a focus on supply chain solutions and digital platforms - DNOW operates globally, serving energy and industrial markets in approximately 80 countries through a network of 170 locations176975 - The company provides products and supply chain solutions to all sectors of the energy industry, as well as to industrial markets like chemical processing, mining, and water/wastewater71 - DNOW is expanding into energy transition markets, including greenhouse gas reduction, renewable fuels, wind, solar, and hydrogen1771 - The DigitalNOW® platform offers customers technology for e-commerce, data visualization, and supply chain optimization70 Operating Environment Overview The Q1 2024 operating environment showed mixed signals with declining U.S. and Canadian rig counts and natural gas prices, offset by slight increases in international rig count and WTI crude prices Key Industry Indicators: Q1 2024 vs. Q1 2023 | Indicator | Q1 2024 | Q1 2023 | % Change | | :--- | :--- | :--- | :--- | | U.S. Active Drilling Rigs | 623 | 761 | (18.1%) | | Canada Active Drilling Rigs | 209 | 223 | (6.3%) | | International Active Drilling Rigs | 965 | 915 | 5.5% | | WTI Crude Prices ($/barrel) | $77.56 | $76.08 | 1.9% | | Natural Gas Prices ($/MMBtu) | $2.13 | $2.65 | (19.6%) | | U.S. Wells Completed | 2,597 | 3,053 | (14.9%) | Key Industry Indicators: Q1 2024 vs. Q4 2023 | Indicator | Q1 2024 | Q4 2023 | % Change | | :--- | :--- | :--- | :--- | | Worldwide Active Drilling Rigs | 1,797 | 1,770 | 1.5% | | Natural Gas Prices ($/MMBtu) | $2.13 | $2.74 | (22.3%) | | Hot-Rolled Coil Prices ($/short ton) | $961.95 | $825.45 | 16.5% | | U.S. Wells Completed | 2,597 | 2,903 | (10.5%) | Results of Operations Q1 2024 total revenue decreased 3.6% to $563 million, with operating profit down 20% to $28 million, driven by declines in Canada and International segments despite U.S. growth Revenue and Operating Profit by Segment (in millions) | Segment | Revenue Q1 2024 | Revenue Q1 2023 | Operating Profit Q1 2024 | Operating Profit Q1 2023 | | :--- | :--- | :--- | :--- | :--- | | United States | $435 | $427 | $23 | $23 | | Canada | $66 | $83 | $3 | $8 | | International | $62 | $74 | $2 | $4 | | Total | $563 | $584 | $28 | $35 | - U.S. revenue increased by 1.9% due to an acquisition, but operating profit was flat due to associated expenses9495 - Canada revenue declined 20.5% and International revenue declined 16.2%, both primarily due to weaker project activity, leading to lower operating profits969798 - The effective tax rate for Q1 2024 was 27.6%, significantly higher than 8.6% in Q1 2023, as a prior-year benefit from the release of a valuation allowance did not recur10348 Non-GAAP Financial Measure and Reconciliation The company's Q1 2024 EBITDA excluding other costs was $39 million (6.9% of revenue), a non-GAAP measure used to evaluate operating performance Reconciliation of Net Income to EBITDA excluding other costs (in millions) | Line Item | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | GAAP net income attributable to DNOW Inc. | $21 | $31 | | Adjustments (Interest, Tax, D&A, etc.) | $18 | $16 | | EBITDA excluding other costs | $39 | $47 | | EBITDA % excluding other costs | 6.9% | 8.0% | - Other costs excluded from EBITDA in Q1 2024 totaled $3 million, related to transaction charges from the recent acquisition106 Liquidity and Capital Resources DNOW maintains a strong liquidity position with $188 million in cash and $465 million available credit, generating $81 million in operating cash flow despite a $185 million acquisition - The company had $188 million in cash and cash equivalents as of March 31, 2024108 - The company has a $500 million revolving credit facility with no borrowings and $465 million in availability as of March 31, 202410941 - Cash from operating activities was $81 million in Q1 2024, an $87 million improvement from Q1 2023, driven by better working capital management111112 - During Q1 2024, the company used $185 million for a business acquisition and repurchased over $1 million of its common stock, with $22 million remaining under the repurchase program113117 Quantitative and Qualitative Disclosures About Market Risk The company faces market risks from foreign currency fluctuations, particularly the Canadian dollar and British pound, and commodity steel pricing, which are managed through hedging and inventory control - The company is exposed to foreign currency risk as approximately 25% of its Q1 2024 net sales were outside the U.S122 - The most significant foreign currency exposures are to the Canadian dollar, followed by the British pound122 - A hypothetical 10% change in foreign currency rates would have resulted in less than a $1 million change in net income for Q1 2024127 - The company is sensitive to steel prices, particularly for tubular products, and mitigates this risk by managing inventory levels128 Controls and Procedures Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded they were effective as of March 31, 2024, with no material changes to 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 period129 - No changes occurred during the last fiscal quarter that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting130 Part II - Other Information Unregistered Sales of Equity Securities and Use of Proceeds In Q1 2024, the company repurchased 168,055 shares for $1.7 million and acquired 319,429 shares from employees for tax obligations, with $22 million remaining in the repurchase program Share Repurchase Summary Q1 2024 | Month | Shares Purchased (Public Program) | Average Price Paid | | :--- | :--- | :--- | | January 2024 | 96,984 | $10.05 | | February 2024 | 71,071 | $12.66 | | March 2024 | 0 | N/A | | Total | 168,055 | N/A | - The company is authorized to purchase up to $80 million of its common stock through December 31, 2024, with approximately $22 million remaining available under this program as of March 31, 2024131132 - An additional 319,429 shares were acquired from employees to settle tax obligations related to vested restricted stock, separate from the public repurchase program131 Other Information The company reported that during the first quarter of 2024, no director or officer adopted or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement - No director or officer of the Company adopted or terminated a 'Rule 10b5-1 trading arrangement' or 'non-Rule 10b5-1 trading arrangement' during Q1 2024132 Exhibits This section provides a list of all exhibits filed with the Form 10-Q, including the company's bylaws, credit agreements, executive employment agreements, and various required certifications - This section lists exhibits filed with the report, such as corporate governance documents, material contracts, and certifications required by the Sarbanes-Oxley Act133