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NOW(DNOW) - 2020 Q2 - Earnings Call Transcript
NOWNOW(US:DNOW)2020-08-06 07:08

Financial Data and Key Metrics Changes - Revenue for Q2 2020 was $370 million, down $406 million or 52% compared to the same period in 2019, and sequentially declined $234 million or 39% [23][15] - Free cash flow for Q2 was $66 million, with a cash position expanded to $269 million, remaining debt-free [15][31] - EBITDA decrementals were low at 7%, indicating solid execution despite steep revenue declines [15][31] Business Line Data and Key Metrics Changes - U.S. segment revenue was $260 million, down 41% sequentially, outperforming a rig count decline of 50% [23][24] - U.S. energy center revenue declined 40% sequentially due to reduced customer spending [24] - U.S. Process Solutions business revenue was down 30% sequentially, impacted by lower upstream completions [26] Market Data and Key Metrics Changes - Canadian segment revenue was $41 million, down 45% year-over-year, with rig count declining 70% [27] - International segment revenue was $69 million, down 29% year-over-year, reflecting reduced activity in the UK [28] - Gross margins were 18.4%, a decline of 100 basis points sequentially, driven by elevated inventory charges [28] Company Strategy and Development Direction - The company is committed to transforming its operations by uniting geographic footprints and enhancing digital innovation [8][10] - Focus on diversifying end markets beyond upstream to include midstream, downstream, and alternative energy markets [10][36] - Structural transformation includes eliminating non-essential costs and pursuing a zero-based mindset [12][36] Management's Comments on Operating Environment and Future Outlook - Management acknowledges the challenges posed by the current market environment but remains confident in the company's ability to weather the storm [7][36] - Future revenue is expected to decline in the low to mid-teen percentages for Q3 2020 due to lower rig counts [35] - The company aims to maintain a leaner cost structure while preparing for potential market recovery [44][36] Other Important Information - The company has successfully implemented a vendor-managed inventory program with a renewable bio-fuels energy customer [27] - DigitalNOW platform is expected to enhance customer engagement and streamline operations [19][21] - The company is actively pursuing M&A opportunities while being cautious with its balance sheet [34] Q&A Session Summary Question: What is the right WSA amount for the future? - Management is cautious about predicting future WSA levels due to market uncertainties but aims for a leaner cost structure moving forward [38] Question: How much revenue is generated from DigitalNOW? - Currently, about one-third of revenues go through some electronic interface, with expectations for growth as technology evolves [39] Question: How will the company expand into midstream and downstream markets? - Most growth is expected to be organic, with some potential acquisitions in the Process Solutions space [40] Question: Will the leaner cost structure require adding more costs in a recovery? - Management believes that while some costs will be added, the goal is to maintain a low-cost base to improve margins during recovery [43] Question: Are competitors folding or trying to differentiate? - The company is observing both scenarios, with some competitors closing locations while others are aggressively liquidating inventory [55] Question: Will there be more inventory impairments going forward? - Elevated inventory charges are expected to persist for a few more quarters as the company assesses profitability on various product lines [57]