10-Q 1 dnow-20240630.htm 10-Q 10-Q
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark one)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED June 30, 2024

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 001-36325

 

DNOW INC.

(Exact name of registrant as specified in its charter)

 

Delaware

 

46-4191184

(State or other jurisdiction of

 

(I.R.S. Employer

incorporation or organization)

 

Identification No.)

7402 North Eldridge Parkway,

Houston, Texas 77041

(Address of principal executive offices)

(281) 823-4700

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading Symbol(s)

 

Name of each exchange on which registered

Common Stock, par value $0.01

 

DNOW

 

New York Stock Exchange

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

Accelerated filer

 

 

 

 

Non-accelerated filer

Smaller reporting company

 

 

 

 

 

 

 

 

 

 

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No

As of August 2, 2024, the registrant had 106,469,995 shares of common stock (excluding 2,083,762 unvested restricted shares), par value $0.01 per share, outstanding.

 

1

 


 

DNOW INC.

TABLE OF CONTENTS

 

Part I - Financial Information

 

 

 

 

 

Item 1.

 

Financial Statements

 

3

 

 

 

 

 

 

 

Consolidated Balance Sheets as of June 30, 2024 (Unaudited) and December 31, 2023

 

3

 

 

 

 

 

 

 

Consolidated Statements of Operations (Unaudited) for the three and six months ended June 30, 2024 and 2023

 

4

 

 

 

 

 

 

 

Consolidated Statements of Comprehensive Income (Unaudited) for the three and six months ended June 30, 2024 and 2023

 

5

 

 

 

 

 

 

 

Consolidated Statements of Cash Flows (Unaudited) for the six months ended June 30, 2024 and 2023

 

6

 

 

 

 

 

 

 

Consolidated Statements of Stockholders' Equity (Unaudited) for the three and six months ended June 30, 2024 and 2023

 

7

 

 

 

 

 

 

 

Notes to Unaudited Consolidated Financial Statements

 

8

 

 

 

 

 

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

15

 

 

 

 

 

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

24

 

 

 

 

 

Item 4.

 

Controls and Procedures

 

25

 

 

 

 

 

Part II - Other Information

 

 

 

 

 

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

26

 

 

 

 

 

Item 5.

 

Other Information

 

26

 

 

 

 

 

Item 6.

 

Exhibits

 

27

 

2

 


 

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

DNOW INC.

CONSOLIDATED BALANCE SHEETS

(In millions, except share data)

 

 

June 30, 2024

 

 

December 31, 2023

 

 

 

(Unaudited)

 

 

 

 

ASSETS

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

197

 

 

$

299

 

Receivables, net

 

 

403

 

 

 

384

 

Inventories, net

 

 

399

 

 

 

366

 

Prepaid and other current assets

 

 

24

 

 

 

19

 

Total current assets

 

 

1,023

 

 

 

1,068

 

Property, plant and equipment, net

 

 

139

 

 

 

131

 

Deferred income taxes

 

 

105

 

 

 

118

 

Goodwill

 

 

192

 

 

 

139

 

Intangibles, net

 

 

57

 

 

 

28

 

Other assets

 

 

47

 

 

 

45

 

Total assets

 

$

1,563

 

 

$

1,529

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

278

 

 

$

288

 

Accrued liabilities

 

 

123

 

 

 

120

 

Other current liabilities

 

 

11

 

 

 

10

 

Total current liabilities

 

 

412

 

 

 

418

 

Long-term operating lease liabilities

 

 

32

 

 

 

30

 

Other long-term liabilities

 

 

20

 

 

 

18

 

Total liabilities

 

 

464

 

 

 

466

 

Commitments and contingencies

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

Preferred stock - par value $0.01; 20 million shares authorized;
   
no shares issued and outstanding

 

 

 

 

 

 

Common stock - par value $0.01; 330 million shares authorized; 106,549,496 and 106,257,565 shares issued and outstanding at June 30, 2024 and December 31, 2023, respectively

 

 

1

 

 

 

1

 

Additional paid-in capital

 

 

2,028

 

 

 

2,032

 

Accumulated deficit

 

 

(783

)

 

 

(828

)

Accumulated other comprehensive loss

 

 

(151

)

 

 

(145

)

DNOW Inc. stockholders' equity

 

 

1,095

 

 

 

1,060

 

Noncontrolling interest

 

 

4

 

 

 

3

 

Total stockholders' equity

 

 

1,099

 

 

 

1,063

 

Total liabilities and stockholders' equity

 

$

1,563

 

 

$

1,529

 

 

See notes to unaudited consolidated financial statements.

3

 


 

DNOW INC.

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(In millions, except per share data)

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

2024

 

 

2023

 

2024

 

 

2023

 

Revenue

 

$

633

 

 

$

594

 

 

$

1,196

 

 

$

1,178

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Cost of products

 

$

495

 

 

 

460

 

 

 

929

 

 

 

907

 

Warehousing, selling and administrative

 

 

105

 

 

 

98

 

 

 

206

 

 

 

200

 

Operating profit

 

 

33

 

 

 

36

 

 

 

61

 

 

 

71

 

Other income (expense)

 

 

 

 

 

(1

)

 

 

1

 

 

 

(1

)

Income before income taxes

 

 

33

 

 

 

35

 

 

 

62

 

 

 

70

 

Income tax provision

 

 

8

 

 

 

1

 

 

 

16

 

 

 

4

 

Net income

 

 

25

 

 

 

34

 

 

 

46

 

 

 

66

 

Net income attributable to noncontrolling interest

 

 

1

 

 

 

 

 

 

1

 

 

 

1

 

Net income attributable to DNOW Inc.

 

$

24

 

 

$

34

 

 

$

45

 

 

$

65

 

Earnings per share attributable to DNOW Inc. stockholders:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.21

 

 

$

0.31

 

 

$

0.41

 

 

$

0.59

 

Diluted

 

$

0.21

 

 

$

0.31

 

 

$

0.41

 

 

$

0.59

 

Weighted-average common shares outstanding, basic

 

 

107

 

 

 

107

 

 

 

107

 

 

 

108

 

Weighted-average common shares outstanding, diluted

 

 

108

 

 

 

108

 

 

 

107

 

 

 

109

 

 

See notes to unaudited consolidated financial statements.

4

 


 

DNOW INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

(In millions)

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

2024

 

 

2023

 

 

2024

 

 

2023

 

Net income

$

25

 

 

$

34

 

 

$

46

 

 

$

66

 

Other comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

(2

)

 

 

3

 

 

 

(6

)

 

 

4

 

Comprehensive income

 

23

 

 

 

37

 

 

 

40

 

 

 

70

 

Comprehensive income attributable to noncontrolling interest

 

1

 

 

 

 

 

 

1

 

 

 

1

 

Comprehensive income attributable to DNOW Inc.

$

22

 

 

$

37

 

 

$

39

 

 

$

69

 

 

See notes to unaudited consolidated financial statements.

5

 


 

DNOW INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(In millions)

 

Six Months Ended June 30,

 

 

2024

 

 

2023

 

Cash flows from operating activities:

 

 

 

 

 

Net income

$

46

 

 

$

66

 

Adjustments to reconcile net income to net cash provided by (used in) operating activities:

 

 

 

 

 

Depreciation and amortization

 

16

 

 

 

12

 

Provision for inventory

 

4

 

 

 

3

 

Stock-based compensation

 

6

 

 

 

7

 

Deferred income taxes

 

13

 

 

 

 

Other, net

 

6

 

 

 

10

 

Change in operating assets and liabilities, net of effects of acquisitions:

 

 

 

 

 

Receivables

 

28

 

 

 

(17

)

Inventories

 

31

 

 

 

(43

)

Prepaid and other current assets

 

(3

)

 

 

(3

)

Accounts payable, accrued liabilities and other, net

 

(45

)

 

 

44

 

Net cash provided by (used in) operating activities

 

102

 

 

 

79

 

Cash flows from investing activities:

 

 

 

 

 

Business acquisitions, net of cash acquired

 

(185

)

 

 

(33

)

Purchases of property, plant and equipment

 

(4

)

 

 

(11

)

Other, net

 

1

 

 

 

1

 

Net cash provided by (used in) investing activities

 

(188

)

 

 

(43

)

Cash flows from financing activities:

 

 

 

 

 

Repurchases of common stock

 

(11

)

 

 

(44

)

Other, net

 

(4

)

 

 

(3

)

Net cash provided by (used in) financing activities

 

(15

)

 

 

(47

)

Effect of exchange rates on cash and cash equivalents

 

(1

)

 

 

2

 

Net change in cash and cash equivalents

 

(102

)

 

 

(9

)

Cash and cash equivalents, beginning of period

 

299

 

 

 

212

 

Cash and cash equivalents, end of period

$

197

 

 

$

203

 

 

See notes to unaudited consolidated financial statements.

6

 


 

DNOW INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)

(In millions)

 

 

Attributable to DNOW Inc. Stockholders

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

Retained

 

 

Accum. Other

 

 

 

 

 

 

 

 

Total

 

 

Common

 

 

Paid-In

 

 

Earnings

 

 

Comprehensive

 

 

Treasury

 

 

Noncontrolling

 

 

Stockholders’

 

 

Stock

 

 

Capital

 

 

(Deficit)

 

 

Income (Loss)

 

 

Stock

 

 

Interest

 

 

Equity

 

December 31, 2022

$

1

 

 

$

2,066

 

 

$

(1,075

)

 

$

(150

)

 

$

 

 

$

2

 

 

$

844

 

Net income

 

 

 

 

 

 

 

31

 

 

 

 

 

 

 

 

 

1

 

 

 

32

 

Common stock repurchased

 

 

 

 

 

 

 

 

 

 

 

 

 

(36

)

 

 

 

 

 

(36

)

Common stock retired

 

 

 

 

(33

)

 

 

 

 

 

 

 

 

33

 

 

 

 

 

 

 

Stock-based compensation

 

 

 

 

3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3

 

Exercise of stock options

 

 

 

 

1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1

 

Shares withheld for taxes

 

 

 

 

(1

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1

)

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

1

 

 

 

 

 

 

 

 

 

1

 

March 31, 2023

$

1

 

 

$

2,036

 

 

$

(1,044

)

 

$

(149

)

 

$

(3

)

 

$

3

 

 

$

844

 

Net income

 

 

 

 

 

 

 

34

 

 

 

 

 

 

 

 

 

 

 

 

34

 

Common stock repurchased

 

 

 

 

 

 

 

 

 

 

 

 

 

(8

)

 

 

 

 

 

(8

)

Common stock retired

 

 

 

 

(11

)

 

 

 

 

 

 

 

 

11

 

 

 

 

 

 

 

Stock-based compensation

 

 

 

 

4

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

3

 

 

 

 

 

 

 

 

 

3

 

June 30, 2023

$

1

 

 

$

2,029

 

 

$

(1,010

)

 

$

(146

)

 

$

 

 

$

3

 

 

$

877

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2023

$

1

 

 

$

2,032

 

 

$

(828

)

 

$

(145

)

 

$

 

 

$

3

 

 

$

1,063

 

Net income

 

 

 

 

 

 

 

21

 

 

 

 

 

 

 

 

 

 

 

 

21

 

Common stock repurchased

 

 

 

 

 

 

 

 

 

 

 

 

 

(1

)

 

 

 

 

 

(1

)

Common stock retired

 

 

 

 

(1

)

 

 

 

 

 

 

 

 

1

 

 

 

 

 

 

 

Stock-based compensation

 

 

 

 

2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2

 

Exercise of stock options

 

 

 

 

2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2

 

Shares withheld for taxes

 

 

 

 

(4

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(4

)

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

(4

)

 

 

 

 

 

 

 

 

(4

)

March 31, 2024

$

1

 

 

$

2,031

 

 

$

(807

)

 

$

(149

)

 

$

 

 

$

3

 

 

$

1,079

 

Net income

 

 

 

 

 

 

 

24

 

 

 

 

 

 

 

 

 

1

 

 

 

25

 

Common stock repurchased

 

 

 

 

 

 

 

 

 

 

 

 

 

(10

)

 

 

 

 

 

(10

)

Common stock retired

 

 

 

 

(10

)

 

 

 

 

 

 

 

 

10

 

 

 

 

 

 

 

Stock-based compensation

 

 

 

 

4

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4

 

Exercise of stock options

 

 

 

 

3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

(2

)

 

 

 

 

 

 

 

 

(2

)

June 30, 2024

$

1

 

 

$

2,028

 

 

$

(783

)

 

$

(151

)

 

$

 

 

$

4

 

 

$

1,099

 

 

See notes to unaudited consolidated financial statements.

7

 


 

DNOW INC.

Notes to Unaudited Consolidated Financial Statements

1. Organization and Basis of Presentation

Nature of Operations

DNOW Inc. (“DNOW” or the “Company”) is a holding company headquartered in Houston, Texas that was incorporated in Delaware on November 22, 2013. We operate primarily under the DNOW brand along with several affiliated brands operating in local or regional markets that are tied to prior acquisitions. DNOW is a global distributor of energy products as well as products for industrial applications through its locations in the United States (“U.S.”), Canada and internationally which are geographically positioned to serve the energy and industrial markets in approximately 80 countries. Additionally, through the Company’s growing DigitalNOW® platform, customers can leverage world-class technology across ecommerce, data visualization, data management and supply chain optimization applications to solve a wide array of complex operational and product sourcing challenges to assist in maximizing their return on assets. The Company’s product and service offerings are consumed throughout all sectors of the energy industry – from upstream drilling and completion, exploration and production, midstream transmission, gas and crude oil processing infrastructure development to downstream petroleum refining and petrochemicals – as well as in other industries, such as chemical processing, mining, water/wastewater, food and beverage, gas utilities and the evolution of energy transition markets inclusive of greenhouse gas reduction and emissions capture and storage, renewable fuels such as biofuels and renewable natural gas, wind, solar, production of hydrogen as a fuel to power equipment and select industrial markets. The industrial distribution end markets include engineering and construction firms that perform capital and maintenance projects for their end-user clients. DNOW also provides supply chain and materials management solutions to the same markets where the Company sells products. DNOW’s supplier network consists of thousands of vendors in approximately 40 countries.

Basis of Presentation

The unaudited consolidated financial information included in this report has been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and Article 10 of SEC Regulation S-X. All significant intercompany transactions and accounts have been eliminated. Variable interest entities for which the Company is the primary beneficiary are fully consolidated with the equity held by the outside stockholders and their portion of net income (loss) reflected as noncontrolling interest in the accompanying consolidated financial statements. The principles for interim financial information do not require the inclusion of all the information and footnotes required by GAAP for complete financial statements. Therefore, these financial statements should be read in conjunction with the financial statements included in the Company’s most recent Annual Report on Form 10-K. In the opinion of the Company’s management, the consolidated financial statements include all adjustments, which are of a normal recurring nature unless disclosed otherwise, necessary for a fair presentation of the results for the interim periods. The results of operations for the three and six months ended June 30, 2024, are not necessarily indicative of the results to be expected for the full year.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect reported and contingent amounts of assets and liabilities as of the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Fair Value of Financial Instruments

The carrying amounts of cash and cash equivalents, receivables and payables approximated fair value because of the relatively short maturity of these instruments. Cash equivalents include only those investments having a maturity date of three months or less at the time of purchase. See Note 14 “Derivative Financial Instruments” for the fair value of derivative financial instruments.

Purchase Price Allocation of Acquisitions

The Company allocates the fair value of the purchase price consideration of an acquired business to its identifiable assets and liabilities based on estimated fair values. The excess of the purchase price over the fair value of the acquired assets and liabilities, if any, is recorded as goodwill. The Company uses all available information to estimate fair values including quoted market prices, the carrying value of acquired assets, and widely accepted valuation techniques such as discounted cash flows. The Company engages third-party valuation advisors to assist in fair value determination of inventories, identifiable intangible assets and any other significant assets or liabilities when appropriate. The judgments made in determining the estimated fair value assigned to each class of assets acquired and liabilities assumed, as well as asset lives, could materially impact the Company’s results of operations. See Note 15 “Acquisitions” for additional information.

Recently Issued Accounting Standards

In November 2023, the Financial Accounting Standards Board issued Accounting Standards Update ("ASU") 2023-07, Segment Reporting (Topic 280), which requires enhanced segment disclosures primarily focusing on significant segment expense disclosures for both interim and annual periods. ASU 2023-07 is effective for annual periods beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted and requires modified retrospective transition

8

 


 

method. The Company will not early adopt, and is currently assessing the impact of ASU 2023-07 in its consolidated financial statements and its disclosures. The Company does not expect the adoption of this standard to have material impact in its consolidated statements.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740), which requires public companies to expand the income tax disclosures. The ASU requires entities to disclose more detailed information in their effective tax rate reconciliation and their cash taxes paid both in the U.S., state and foreign jurisdictions. ASU 2023-09 is effective for annual periods beginning after December 15, 2024, with early adoption permitted for annual financial statements that have not yet been issued. The Company will not early adopt, and is currently assessing the impact of ASU 2023-09 in its consolidated financial statements and in its disclosures.

2. Revenue

The Company’s primary source of revenue is the sale of energy products and an extensive selection of products for industrial applications based upon purchase orders or contracts with customers. Substantially all of the Company's revenue is recognized at a point in time once the Company has determined that the customer has obtained control over the product. Control is typically deemed to have been transferred to the customer when the product is shipped, delivered or picked up by the customer. The Company does not grant extended payment terms. Revenue is recognized net of any taxes collected from customers, which are subsequently remitted to proper government authorities. Shipping and handling costs for product shipments occur prior to the customer obtaining control of the goods and are recorded in cost of products.

The amount of revenue recognized reflects the consideration to which the Company expects to be entitled to receive in exchange for products sold. Revenue is recorded at the transaction price net of estimates of variable consideration, which may include product returns, trade discounts and allowances. The Company accrues for variable consideration using the expected value method. Estimates of variable consideration are included in revenue to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur.

See Note 9 “Business Segments” for disaggregation of revenue by reporting segments. The Company believes this disaggregation best depicts how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors.

Remaining Performance Obligations

Remaining performance obligations represent the transaction price of firm orders for which work has not been performed on contracts with an original expected duration of more than one year. The Company’s contracts are predominantly short-term in nature with a contract term of one year or less. For those contracts, the Company has utilized the practical expedient in Accounting Standards Codification (“ASC”) Topic 606 exempting the Company from disclosure of the transaction price allocated to remaining performance obligations when the performance obligation is part of a contract that has an original expected duration of one year or less.

Allowance for Credit Losses

Allowance for credit losses is estimated based on an evaluation of accounts receivable aging, and the related historical loss experience, as adjusted for current and expected future market conditions that are reasonably available. Judgments in the estimate of allowance for credit losses include global economic and business conditions, oil and gas industry and market conditions, customer’s financial conditions and accounts receivable past due. As of June 30, 2024 and December 31, 2023, the allowance for credit losses totaled $24 million and $26 million, respectively.

Contract Assets and Liabilities

Contract assets primarily consist of retainage amounts held as a form of security by customers until the Company satisfies its remaining performance obligations. As of June 30, 2024 and December 31, 2023, contract assets were approximately $1 million and less than $1 million, respectively, and were included in receivables, net in the consolidated balance sheets. The Company generally accounts for the incremental costs of obtaining a contract as an expense when incurred if the amortization period of the asset that the entity otherwise would have recognized is one year or less; however, these expenses are not material.

Contract liabilities primarily consist of deferred revenues recorded when customer payments are received or due in advance of satisfying performance obligations, including amounts which are refundable, and other accrued customer liabilities. Revenue recognition is deferred to a future period until the Company completes its obligations contractually agreed with customers. As of June 30, 2024 and December 31, 2023, contract liabilities were $34 million and $28 million, respectively, and were included in accrued liabilities in the consolidated balance sheets. For the six months ended June 30, 2024, the increase in contract liabilities was primarily related to net current year customer deposits of approximately $23 million, partially offset by recognizing revenue of approximately $17 million that was deferred as of December 31, 2023.

9

 


 

3. Inventories, net

Inventories consist primarily of oilfield and industrial finished goods and work in process. Work in process primarily consists of inventory and labor related to customer specific engineered equipment. Finished goods are stated at the lower of cost or net realizable value and using average cost methods. Allowances for excess and obsolete inventories are determined based on the Company’s historical usage of inventory on hand as well as its future expectations.

Inventories consist primarily of (in millions):

 

 

June 30, 2024

 

 

December 31, 2023

 

Work in process

 

$

27

 

 

$

33

 

Finished goods and other

 

 

394

 

 

 

354

 

Total inventory

 

 

421

 

 

 

387

 

Less: Inventory reserves

 

 

(22

)

 

 

(21

)

Inventories, net

 

$

399

 

 

$

366

 

4. Property, Plant and Equipment, net

Property, plant and equipment consist of (in millions):

 

Estimated
Useful Lives

June 30, 2024

 

 

December 31, 2023

 

Information technology assets

 

1-7 Years

 

$

46

 

 

$

46

 

Operating equipment (1)

 

2-15 Years

 

 

174

 

 

 

164

 

Buildings and land (2)

 

5-35 Years

 

 

102

 

 

 

97

 

Construction in progress

 

 

 

 

3

 

 

 

2

 

Total property, plant and equipment

 

 

 

 

325

 

 

 

309

 

Less: accumulated depreciation

 

 

 

 

(186

)

 

 

(178

)

Property, plant and equipment, net

 

 

 

$

139

 

 

$

131

 

 

(1)
Includes finance lease right-of-use assets.
(2)
Land has an indefinite life.

5. Accrued Liabilities

Accrued liabilities consist of (in millions):

 

 

June 30, 2024

 

 

December 31, 2023

 

Compensation and other related expenses

 

$

31

 

 

$

38

 

Contract liabilities

 

 

34

 

 

 

28

 

Taxes (non-income)

 

 

16

 

 

 

15

 

Current portion of operating lease liabilities

 

 

12

 

 

 

11

 

Other

 

 

30

 

 

 

28

 

Total

 

$

123

 

 

$

120

 

6. Debt

On December 29, 2022, the Company entered into a second amendment to its existing senior secured revolving credit facility with a syndicate of lenders with Wells Fargo Bank, National Association, serving as the administrative agent (as amended, the “Credit Facility”). The second amendment amends certain terms, provisions and covenants of the Credit Facility, including, among other things: (i) replaces London Interbank Offered Rate ("LIBOR") with Secured Overnight Financing Rate ("SOFR") as the interest rate benchmark with the existing applicable margin plus a credit spread adjustment of 0.10% per annum; (ii) modifies certain reporting obligations with respect to the Company’s share repurchase program; and (iii) increases the sublimit for U.S. letters of credit to $20 million.

The Credit Facility provides for a $500 million global revolving credit facility, of which up to $50 million is available for the Company’s Canadian subsidiaries. The Company has the right, subject to certain conditions, to increase the aggregate principal amount of commitments under the credit facility by $250 million. The Credit Facility also provides a letter of credit sub-facility of $25 million. The obligations under the Credit Facility are secured by substantially all the assets of the Company and its subsidiaries. The Credit Facility matures on December 14, 2026 and contains customary covenants, representations and warranties and events of default. The Company will be required to maintain a fixed charge coverage ratio (as defined in the Credit Facility) of at least 1.00:1.00 as of the end of each fiscal quarter if excess availability under the Credit Facility falls below the greater of 10% of the borrowing base or $40 million.

10

 


 

Borrowings under the Credit Facility will bear an interest rate at the Company’s option, (i) for borrowings denominated in U.S. dollars, at (a) the base rate plus the applicable margin or (b) adjusted term SOFR for the applicable interest period, plus the applicable margin and (ii) for borrowings denominated in Canadian dollars, the Canadian Dollar Offered Rate plus the applicable margin. In each case, with such applicable margin being based on the Company’s fixed charge coverage ratio. The Credit Facility includes a commitment fee on the unused portion of commitments that ranges from 25 to 37.5 basis points. Commitment fees incurred during the period were included in other income (expense) in the consolidated statements of operations.

Availability under the Credit Facility is determined by a borrowing base comprised of eligible receivables, eligible inventory and certain cash deposits in the U.S. and Canada. As of June 30, 2024, the Company had no borrowings against the Credit Facility and approximately $485 million in availability (as defined in the Credit Facility) resulting in the excess availability (as defined in the Credit Facility) of 99%, subject to certain limitations. The Company is not obligated to pay back borrowings against the current Credit Facility until the maturity date of the Credit Facility.

The Company issued $5 million in letters of credit under the Credit Facility primarily for casualty insurance expiring in June 2025.

7. Stockholders’ Equity

Share Repurchase Program

On August 3, 2022, the Company’s Board of Directors approved a share repurchase program, under which the Company is authorized to purchase up to $80 million of its outstanding common stock through December 31, 2024. Under this program, the Company may from time to time repurchase common stock in open market transactions or enter into Rule 10b5-1, under the Securities Exchange Act of 1934, as amended, (the “Exchange Act”), trading plans to facilitate the repurchase of its common stock pursuant to its share repurchase program. The amount and timing of any repurchase will depend on several factors, including share price, general business and market conditions, and alternative capital allocation opportunities. All shares repurchased shall be retired pursuant to the terms of the share repurchase program. Depending on the timing of the retirement and cash settlement of the repurchased shares, the Company could have shares held in treasury stock until settled. Share repurchases made after December 31, 2022, are subject to a 1% excise tax, as enacted under the Inflation Reduction Act of 2022. The impact of this 1% excise tax was less than $1 million during the six months ended June 30, 2024.

Information regarding the shares repurchased was as follows:

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2024

 

 

2023

 

 

2024

 

 

2023

 

Total cost of shares repurchased (in millions)

 

$

10

 

 

$

8

 

 

$

11

 

 

$

44

 

Average price per share (1)

 

$

13.64

 

 

$

10.31

 

 

$

12.90

 

 

$

10.80

 

Number of shares repurchased

 

 

669,463

 

 

 

764,859

 

 

 

837,518

 

 

 

4,026,550

 

(1)
Excludes 1% excise tax on share repurchases

Consolidated Variable Interest Entities ("VIE")

The Company holds a 49% interest in one VIE located in the Middle East. The Company is the primary beneficiary and consolidates the VIE as it has the power to direct the activities that most significantly affect the VIE’s economic performance and has the obligation to absorb the VIE’s losses or the right to receive benefits. For the three and six months ended June 30, 2024, net income attributable to noncontrolling interest was approximately $1 million for both periods, compared to less than $1 million and $1 million, respectively, for the corresponding periods of 2023.

The assets of the VIE can only be used to settle its own obligations and its creditors have no recourse to the Company’s assets. As of June 30, 2024 and December 31, 2023, the VIE’s assets were primarily current assets of $15 million and $19 million, respectively, and the liabilities were primarily current liabilities of $5 million and $8 million, respectively.

8. Accumulated Other Comprehensive Income (Loss) ("AOCI")

The components of AOCI are as follows (in millions):

 

 

Foreign Currency Translation Adjustments

 

 

 

Six Months Ended June 30,

 

 

 

2024

 

 

2023

 

Beginning balance

 

$

(145

)

 

$

(150

)

Net current-period other comprehensive income (loss)

 

 

(6

)

 

 

4

 

Ending balance

 

$

(151

)

 

$

(146

)

 

11

 


 

The Company’s reporting currency is the U.S. dollar. A majority of the Company’s international entities in which there is a substantial investment have the local currency as their functional currency. As a result, foreign currency translation adjustments resulting from the process of translating the entities’ financial statements into the reporting currency are reported in other comprehensive income or loss in accordance with ASC Topic 830, “Foreign Currency Matters.”

9. Business Segments

Operating results by reportable segment are as follows (in millions):

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

2024

 

 

2023

 

2024

 

 

2023

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

United States

$

512

 

 

$

456

 

 

$

947

 

 

$

883

 

Canada

 

56

 

 

 

66

 

 

 

122

 

 

 

149

 

International

 

65

 

 

 

72

 

 

 

127

 

 

 

146

 

Total revenue

$

633

 

 

$

594

 

 

$

1,196

 

 

$

1,178

 

Operating profit:

 

 

 

 

 

 

 

 

 

 

 

United States

$

28

 

 

$

29

 

 

$

51

 

 

$

52

 

Canada

 

2

 

 

 

3

 

 

 

5

 

 

 

11

 

International

 

3

 

 

 

4

 

 

 

5

 

 

 

8

 

Total operating profit

$

33

 

 

$

36

 

 

$

61

 

 

$

71

 

 

10. Income Taxes

The effective tax rates for the three and six months ended June 30, 2024, were 24.2% and 25.8%, respectively, compared to 2.9% and 5.7%, respectively, for the corresponding periods of 2023. In general, the Company's effective tax rate differs from the U.S. statutory rate due to recurring items, such as differing tax rates on income earned in foreign jurisdictions, nondeductible expenses, and state income taxes. The effective tax rates for the three and six months ended June 30, 2024, were higher than the effective tax rates for the three and six months ended June 30, 2023, due to realization of deferred tax assets that had a corresponding release of valuation allowance in the three and six months ended June 30, 2023, that did not recur in the corresponding periods in 2024. For the three and six months ended June 30, 2024, the Company has returned to recording income tax expense for interim periods based on the estimated annual effective tax rate method.

The Company is subject to taxation in the U.S., various states, and foreign jurisdictions. The Company has significant operations in the U.S. and Canada and to a lesser extent in various other international jurisdictions. Tax years that remain subject to examination vary by legal entity but are generally open in the U.S. for the tax years ending after 2019 and outside the U.S. for the tax years ending after 2017.

11. Earnings Per Share

For the three and six months ended June 30, 2024, less than 1 million and approximately 1 million, respectively, of potentially dilutive shares were excluded from the computation of diluted earnings per share due to their antidilutive effect, compared to approximately 2 million in both periods for the corresponding periods of 2023.

Basic and diluted earnings per share are as follows (in millions, except share data):

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

2024

 

 

2023

 

2024

 

 

2023

 

Numerator:

 

 

 

 

 

 

 

 

 

 

 

Net income attributable to DNOW Inc.

$

24

 

 

$

34

 

 

$

45

 

 

$

65

 

Less: net income attributable to participating securities

 

(1

)

 

 

(1

)

 

 

(1

)

 

 

(1

)

Net income attributable to DNOW Inc. stockholders

$

23

 

 

$

33

 

 

$

44

 

 

$

64

 

Denominator:

 

 

 

 

 

 

 

 

 

 

 

Weighted average basic common shares outstanding

 

106,865,008

 

 

 

107,249,498

 

 

 

106,655,156

 

 

 

108,428,199

 

Effect of dilutive securities

 

757,796

 

 

 

878,013

 

 

 

830,097

 

 

 

1,044,006

 

Weighted average diluted common shares outstanding

 

107,622,804

 

 

 

108,127,511

 

 

 

107,485,253

 

 

 

109,472,205

 

Earnings per share attributable to DNOW Inc. stockholders:

 

 

 

 

 

 

 

 

 

 

 

Basic

$

0.21

 

 

$

0.31

 

 

$

0.41

 

 

$

0.59

 

Diluted

$

0.21

 

 

$

0.31

 

 

$

0.41