UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark one)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE QUARTERLY PERIOD ENDED
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number
(Exact name of registrant as specified in its charter)
|
||
(State or other jurisdiction of incorporation or organization) |
|
(IRS Employer Identification No.) |
|
( |
|
(Address of principal executive offices) |
|
(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 |
|
|
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.
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).
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.
|
☒ |
|
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 April 30, 2025, the registrant had
1
DNOW INC.
TABLE OF CONTENTS
2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
DNOW INC.
CONSOLIDATED BALANCE SHEETS
(In millions, except share data)
|
|
March 31, 2025 |
|
|
December 31, 2024 |
|
||
|
|
(Unaudited) |
|
|
|
|
||
ASSETS |
|
|
|
|
|
|
||
Current assets: |
|
|
|
|
|
|
||
Cash and cash equivalents |
|
$ |
|
|
$ |
|
||
Receivables, net |
|
|
|
|
|
|
||
Inventories, net |
|
|
|
|
|
|
||
Prepaid and other current assets |
|
|
|
|
|
|
||
Total current assets |
|
|
|
|
|
|
||
Property, plant and equipment, net |
|
|
|
|
|
|
||
Deferred income taxes |
|
|
|
|
|
|
||
Goodwill |
|
|
|
|
|
|
||
Intangibles, net |
|
|
|
|
|
|
||
Other assets |
|
|
|
|
|
|
||
Total assets |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
LIABILITIES AND STOCKHOLDERS' EQUITY |
|
|
|
|
|
|
||
Current liabilities: |
|
|
|
|
|
|
||
Accounts payable |
|
$ |
|
|
$ |
|
||
Accrued liabilities |
|
|
|
|
|
|
||
Other current liabilities |
|
|
|
|
|
|
||
Total current liabilities |
|
|
|
|
|
|
||
Long-term operating lease liabilities |
|
|
|
|
|
|
||
Other long-term liabilities |
|
|
|
|
|
|
||
Total liabilities |
|
|
|
|
|
|
||
|
|
|
|
|
|
|||
Stockholders' equity: |
|
|
|
|
|
|
||
Preferred stock - par value $ |
|
|
|
|
|
|
||
Common stock - par value $ |
|
|
|
|
|
|
||
Treasury stock - at cost; |
|
|
( |
) |
|
|
|
|
Additional paid-in capital |
|
|
|
|
|
|
||
Accumulated deficit |
|
|
( |
) |
|
|
( |
) |
Accumulated other comprehensive loss |
|
|
( |
) |
|
|
( |
) |
DNOW Inc. stockholders' equity |
|
|
|
|
|
|
||
Noncontrolling interest |
|
|
|
|
|
|
||
Total stockholders' equity |
|
|
|
|
|
|
||
Total liabilities and stockholders' equity |
|
$ |
|
|
$ |
|
||
See notes to unaudited consolidated financial statements.
3
DNOW INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(In millions, except per share data)
|
|
Three months ended March 31, |
|
|||||
|
|
2025 |
|
|
2024 |
|
||
Revenue |
|
$ |
|
|
$ |
|
||
Operating expenses: |
|
|
|
|
|
|
||
Cost of products |
|
|
|
|
|
|
||
Warehousing, selling and administrative |
|
|
|
|
|
|
||
Operating profit |
|
|
|
|
|
|
||
Other income (expense) |
|
|
|
|
|
|
||
Income before income taxes |
|
|
|
|
|
|
||
Income tax provision |
|
|
|
|
|
|
||
Net income |
|
|
|
|
|
|
||
Net income attributable to noncontrolling interest |
|
|
|
|
|
|
||
Net income attributable to DNOW Inc. |
|
$ |
|
|
$ |
|
||
Earnings per share attributable to DNOW Inc. stockholders: |
|
|
|
|
|
|
||
Basic |
|
$ |
|
|
$ |
|
||
Diluted |
|
$ |
|
|
$ |
|
||
Weighted-average common shares outstanding, basic |
|
|
|
|
|
|
||
Weighted-average common shares outstanding, diluted |
|
|
|
|
|
|
||
See notes to unaudited consolidated financial statements.
4
DNOW INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
(In millions)
|
Three months ended March 31, |
|
|||||
|
2025 |
|
|
2024 |
|
||
Net income |
$ |
|
|
$ |
|
||
Other comprehensive income: |
|
|
|
|
|
||
Foreign currency translation adjustments |
|
|
|
|
( |
) |
|
Comprehensive income |
|
|
|
|
|
||
Comprehensive income attributable to noncontrolling interest |
|
|
|
|
|
||
Comprehensive income attributable to DNOW Inc. |
$ |
|
|
$ |
|
||
See notes to unaudited consolidated financial statements.
5
DNOW INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In millions)
|
Three months ended March 31, |
|
|||||
|
2025 |
|
|
2024 |
|
||
Cash flows from operating activities: |
|
|
|
|
|
||
Net income |
$ |
|
|
$ |
|
||
Adjustments to reconcile net income to net cash provided by (used in) operating activities: |
|
|
|
|
|
||
Depreciation and amortization |
|
|
|
|
|
||
Provision for inventory |
|
|
|
|
|
||
Stock-based compensation |
|
|
|
|
|
||
Deferred income taxes |
|
|
|
|
|
||
Other, net |
|
|
|
|
|
||
Change in operating assets and liabilities, net of effects of acquisitions: |
|
|
|
|
|
||
Receivables |
|
( |
) |
|
|
|
|
Inventories |
|
( |
) |
|
|
|
|
Prepaid and other current assets |
|
|
|
|
|
||
Accounts payable, accrued liabilities and other, net |
|
|
|
|
|
||
Net cash provided by (used in) operating activities |
|
( |
) |
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
||
Business acquisitions, net of cash acquired |
|
|
|
|
( |
) |
|
Purchases of property, plant and equipment |
|
( |
) |
|
|
( |
) |
Other, net |
|
|
|
|
( |
) |
|
Net cash provided by (used in) investing activities |
|
( |
) |
|
|
( |
) |
Cash flows from financing activities: |
|
|
|
|
|
||
Repurchases of common stock |
|
( |
) |
|
|
( |
) |
Other, net |
|
( |
) |
|
|
( |
) |
Net cash provided by (used in) financing activities |
|
( |
) |
|
|
( |
) |
Effect of exchange rates on cash and cash equivalents |
|
|
|
|
|
||
Net change in cash and cash equivalents |
|
( |
) |
|
|
( |
) |
Cash and cash equivalents, beginning of period |
|
|
|
|
|
||
Cash and cash equivalents, end of period |
$ |
|
|
$ |
|
||
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, 2023 |
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
|
|||||
Net income |
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Common stock repurchased |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Common stock retired |
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
Stock-based compensation |
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Exercise of stock options |
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Shares withheld for taxes |
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
Other comprehensive loss |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
March 31, 2024 |
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
December 31, 2024 |
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
— |
|
|
$ |
|
|
$ |
|
||||
Net income |
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|||
Common stock repurchased |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Common stock retired |
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
Stock-based compensation |
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Exercise of stock options |
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Shares withheld for taxes |
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
Other comprehensive income |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
March 31, 2025 |
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
|
||||
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, regional or international markets that are tied to prior acquisitions. DNOW is a distributor of energy and industrial products through its
The Company’s product and service offerings are consumed throughout 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 energy and industrial distribution end markets we serve are inclusive of engineering and construction firms that perform capital and maintenance projects for their 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
Basis of Presentation
The unaudited consolidated financial information included in this report has been prepared in accordance with accounting principles generally accepted in the U.S. (“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 audited consolidated 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 months ended March 31, 2025, 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.
Recently Issued Accounting Standards
In November 2024, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2024-03, Income Statement-Reporting Comprehensive Income-Expense Disaggregation Disclosures (Subtopic 220-40), which requires more detailed information related to types of expenses in commonly presented captions in income statements. ASU 2024-03 is effective for annual periods beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027, with early adoption permitted. The Company is currently assessing the impact of ASU 2024-03 on its consolidated financial statements and its disclosures.
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740), which requires public companies to expand 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 is currently assessing the impact of ASU 2023-09 on its consolidated financial statements and its disclosures.
Recently Adopted Accounting Standards
In November 2023, the FASB issued 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. For the fiscal year ended December 31, 2024, the Company adopted this standard using modified retrospective transition method. See Note 9 “Business Segments” for additional information.
8
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
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 March 31, 2025 and December 31, 2024, contract assets were $
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 March 31, 2025 and December 31, 2024, contract liabilities were $
3. Inventories, net
Inventories consist primarily of oilfield and industrial finished goods. 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. As of March 31, 2025 and December 31, 2024, the Company reported inventory of $
9
4. Property, Plant and Equipment, net
Property, plant and equipment consist of (in millions):
|
|
Estimated |
|
March 31, 2025 |
|
|
December 31, 2024 |
|
||
Information technology assets |
|
|
$ |
|
|
$ |
|
|||
Operating equipment (1) |
|
|
|
|
|
|
|
|||
Buildings and land (2) |
|
|
|
|
|
|
|
|||
Finance lease right-of-use assets |
|
|
|
|
|
|
|
|||
Construction in progress |
|
|
|
|
|
|
|
|
||
Total property, plant and equipment |
|
|
|
|
|
|
|
|
||
Less: accumulated depreciation |
|
|
|
|
( |
) |
|
|
( |
) |
Property, plant and equipment, net |
|
|
|
$ |
|
|
$ |
|
||
5. Accrued Liabilities
Accrued liabilities consist of (in millions):
|
|
March 31, 2025 |
|
|
December 31, 2024 |
|
||
Compensation and other related expenses |
|
$ |
|
|
$ |
|
||
Contract liabilities |
|
|
|
|
|
|
||
Taxes (non-income) |
|
|
|
|
|
|
||
Current portion of operating lease liabilities |
|
|
|
|
|
|
||
Other |
|
|
|
|
|
|
||
Total |
|
$ |
|
|
$ |
|
||
6. Debt
On
The Credit Facility provides for a $
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
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 March 31, 2025, the Company had
The Company issued $
10
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 was authorized to purchase up to $
Information regarding the shares repurchased is as follows:
|
|
Three months ended March 31, |
|
|||||
|
|
2025 |
|
|
2024 |
|
||
Total cost of shares repurchased (1) (in millions) |
|
$ |
|
|
$ |
|
||
Average price per share (1) |
|
$ |
|
|
$ |
|
||
Number of shares repurchased |
|
|
|
|
|
|
||
Consolidated Variable Interest Entities ("VIE")
The Company holds a
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 March 31, 2025 and December 31, 2024, the VIE’s assets were primarily current assets of $
8. Accumulated Other Comprehensive Income (Loss) ("AOCI")
The components of AOCI are as follows (in millions):
|
|
Foreign Currency Translation Adjustments |
|
|||||
|
|
Three months ended March 31, |
|
|||||
|
|
2025 |
|
|
2024 |
|
||
Beginning balance |
|
$ |
( |
) |
|
$ |
( |
) |
Net current-period other comprehensive income (loss) |
|
|
|
|
|
( |
) |
|
Ending balance |
|
$ |
( |
) |
|
$ |
( |
) |
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
The Company has
11
The following table presents results of operations of the Company’s reportable segments (in millions):
|
|
United States |
|
|
Canada |
|
|
International |
|
|
Total |
|
||||
Three months ended March 31, 2025 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Revenue |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Less: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cost of products |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Warehousing, selling and administrative expenses |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Operating profit |
|
$ |
|
|
$ |
|
|
$ |
|
|
|
|
||||
Other income (expense) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Income before income taxes |
|
|
|
|
|
|
|
|
|
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Three months ended March 31, 2024 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Revenue |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Less: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cost of products |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Warehousing, selling and administrative expenses |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Operating profit |
|
$ |
|
|
$ |
|
|
$ |
|
|
|
|
||||
Other income (expense) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Income before income taxes |
|
|
|
|
|
|
|
|
|
|
$ |
|
||||
The following table presents depreciation and amortization of the Company’s reportable segments (in millions):
|
Three months ended March 31, |
|
|||||
|
2025 |
|
|
2024 |
|
||
Depreciation and amortization |
|
|
|
|
|
||
United States |
$ |
|
|
$ |
|
||
Canada |
|
|
|
|
|
||
International |
|
|
|
|
|
||
Total |
$ |
|
|
$ |
|
||
The following table presents property, plant and equipment, net and total assets of the Company’s reportable segments (in millions):
|
|
March 31, 2025 |
|
|
December 31, 2024 |
|
||
Property, plant and equipment, net |
|
|
|
|
|
|
||
United States |
|
$ |
|
|
$ |
|
||
Canada |
|
|
|
|
|
|
||
International |
|
|
|
|
|
|
||
Total |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
Total assets |
|
|
|
|
|
|
||
United States |
|
$ |
|
|
$ |
|
||
Canada |
|
|
|
|
|
|
||
International |
|
|
|
|
|
|
||
Total |
|
$ |
|
|
$ |
|
||
10. Income Taxes
The effective tax rate for the three months ended March 31, 2025, was
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 2020 and outside the U.S. for the tax years ending after 2018.
12
11. Earnings Per Share
For the three months ended March 31, 2025 and 2024,
Basic and diluted earnings per share are as follows (in millions, except share and per share data):
|
Three months ended March 31, |
|
|||||
|
2025 |
|
|
2024 |
|
||
Numerator: |
|
|
|
|
|
||
Net income attributable to DNOW Inc. |
$ |
|
|
$ |
|
||
Less: net income attributable to participating securities |
|
( |
) |
|
|
|
|
Net income attributable to DNOW Inc. stockholders |
$ |
|
|
$ |
|
||
Denominator: |
|
|
|
|
|
||
Weighted average basic common shares outstanding |
|
|
|
|
|
||
Effect of dilutive securities |
|
|
|
|
|
||
Weighted average diluted common shares outstanding |
|
|
|
|
|
||
Earnings per share attributable to DNOW Inc. stockholders: |
|
|
|
|
|
||
Basic |
$ |
|
|
$ |
|
||
Diluted |
$ |
|
|
$ |
|
||
Under ASC Topic 260, “Earnings Per Share”, the two-class method requires a portion of net income attributable to DNOW Inc. to be allocated to participating securities, which are unvested awards of share-based payments with non-forfeitable rights to receive dividends or dividend equivalents, if declared. Net income attributable to these participating securities was excluded from net income attributable to DNOW Inc. stockholders in the numerator of the earnings per share computation.
12. Stock-based Compensation and Outstanding Awards
In 2024, the Company’s shareholders approved the DNOW Inc. 2024 Omnibus Incentive Plan, which allows awards to be granted until 2034, for the granting of restricted stock awards (“RSAs”), restricted stock units and phantom shares (“RSUs”), performance stock awards (“PSAs”), stock options, and stock appreciation rights.
For the three months ended March 31, 2025, the Company granted
Stock-based compensation expense for the three months ended March 31, 2025, totaled $
13. Commitments and Contingencies
The Company is involved in various claims, regulatory agency audits and pending or threatened legal actions involving a variety of matters with entities such as suppliers, customers, parties to acquisitions and divestitures, government authorities and other external parties. The Company regularly reviews and records the estimated probable liability in an amount believed to be sufficient and continues to periodically reexamine the estimates of probable liabilities and any associated expenses to make appropriate adjustments to such estimates as necessary. These estimated liabilities are based on the Company’s assessment of the nature of these matters, their progress toward resolution, the advice of legal counsel and outside experts as well as management’s intention and past experience regarding the valuation of these claims. The Company has also assessed the potential for additional losses above the amounts accrued as well as potential losses for matters that are not probable but are reasonably possible. The total potential loss on these matters cannot be determined. While the Company has established estimates it believes to be reasonable under the facts known, the outcomes of litigation and similar disputes are often difficult to reliably predict and may result in decisions or settlements that are contrary to, or in excess of, the Company's expectations.
The Company’s business is affected both directly and indirectly by governmental laws and regulations relating to the oilfield service industry in general, as well as by environmental and safety regulations that specifically apply to the Company’s business. Although the Company has not incurred material costs in connection with its compliance with such laws, there can be no assurance that other developments, such as new environmental laws, regulations and enforcement policies hereunder may not result in additional, presently unquantifiable costs or liabilities to the Company. The Company does not accrue for contingent losses that, in its judgment, are considered to be reasonably possible, but not probable. Estimating reasonably possible losses also requires the analysis of multiple possible outcomes that often depend on judgments about potential actions by third parties.
The Company maintains credit arrangements with several banks providing standby letters of credit, including bid and performance bonds, and other bonding requirements. As of March 31, 2025, the Company was contingently liable for approximately $
13
outstanding standby letters of credit and surety bonds. The Company does not believe, based on historical experience and information currently available, that it is probable that any amounts will be required to be paid on those letters of credit and surety bonds.
14. Subsequent events
Subsequent to March 31, 2025, the Company completed an acquisition in Singapore to expand its electrical supply capabilities in the Asia Pacific region, serving traditional and renewable energy, infrastructure and other commercial and industrial end-markets. The financial impact of this acquisition is not material to the Company’s consolidated financial statements.
14
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
Some of the statements in this document including information referenced or incorporated by reference from our other filings with the SEC, constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995. Statements that are not historical facts, including statements about our beliefs and expectations, are forward-looking statements. Forward-looking statements typically are identified by use of terms such as “anticipates,” “assumes,” “believes,” “estimates,” “expects,” “plans,” “may,” “will,” “might,” “would,” “should,” “seeks,” “project,” “predict,” “potential,” “currently,” “continue,” “intends,” “outlook,” “forecasts,” “targets,” “reflects,” “could,” or other similar words and phrases, although some forward-looking statements could be expressed differently. Forward-looking statements are current only as of the date they are made. You should be aware that our actual results could differ materially from results anticipated in the forward-looking statements due to a number of factors and risks many of which are outside of our control, including, but not limited to, changes in oil and gas prices, changes in the energy markets, customer demand for our products, changes in trade policies including the imposition or elimination of additional tariffs and duties, significant changes in the size of our customers, difficulties encountered in integrating mergers and acquisitions, general volatility in the capital markets, ability to complete the share repurchase program, changes in applicable government regulations, increased borrowing costs, geopolitical conditions and tensions (including the Ukraine and Middle East conflicts and their regional and global impacts) or any litigation arising out of or related thereto, impairments in long-lived assets, the occurrence of cyber incidents, or failure by us or our third-party service providers to maintain cybersecurity and the integrity of confidential data, and worldwide economic conditions and activity. You should also consider carefully the statements under “Risk Factors,” as disclosed in our Form 10-K, which address additional factors that could cause our actual results to differ from those set forth in the forward-looking statements and that are otherwise described from time to time in our SEC reports as filed. Given these uncertainties, current or prospective investors are cautioned not to place undue reliance on any such forward-looking statements. We undertake no obligation to update any such factors or forward-looking statements to reflect new information, future events or developments, or otherwise, except to the extent required by applicable law.
The following discussion should be read in conjunction with the unaudited consolidated financial statements and notes thereto contained in this Quarterly Report on Form 10-Q and the audited consolidated financial statements and notes thereto included in the most recent Annual Report on Form 10-K.
Company Overview
We are a distributor to the oil and gas, energy transition and industrial markets with a legacy of over 160 years. We operate primarily under the DNOW brand along with several affiliated brands operating in local, regional or international markets that are tied to prior acquisitions. Through a network of approximately 165 locations and approximately 2,575 employees worldwide, our operating locations utilize a complementary suite of technology, systems, order and fulfillment processes and sourcing and procurement channels to provide products and services to a variety of customers operating in the energy and industrial markets. Additionally, through our DigitalNOW® platform, customers can leverage technology across applications to solve a wide array of complex operational and product sourcing challenges to assist in maximizing their return on assets.
Our product and service offerings are consumed throughout the energy industry – from upstream drilling and completion, exploration and production (“E&P”), 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 (“RNG”), wind, solar, production of hydrogen as a fuel to power equipment and select industrial markets. The energy and industrial distribution end markets we serve are inclusive of engineering and construction firms that perform capital and maintenance projects for their clients. We also provide supply chain and materials management solutions to the same markets where we sell products.
Our global product offering includes pipe, manual and automated valves, fittings, flanges, gaskets, fasteners, electrical, instrumentation, artificial lift, pumping solutions and modular process, production, measurement, automation, control equipment, and consumable maintenance, repair and operating (“MRO”) supplies. We also offer sourcing, procurement, warehouse and inventory management solutions as part of our supply chain and materials management offering. We have developed expertise in providing application systems, work processes, parts integration, optimization solutions and after-sales support that provide more efficient and productive solutions for our customers.
Our solutions include outsourcing portions or entire functions of our customers’ procurement, warehouse and inventory management, logistics, point of issue technology, project management, business process and performance metrics reporting. These solutions allow us to leverage the infrastructure of our SAP™ Enterprise Resource Planning (“ERP”) system and other technologies to streamline our customers’ purchasing process, from requisition to procurement to payment, by digitally managing workflow, improving approval routing and providing robust reporting functionality.
We support land and offshore operations for the major oil and gas producing regions through our network of locations. Our key markets include the U.S., Canada, the United Kingdom ("UK"), Norway, Australia, the Netherlands, Singapore and the Middle East area with the ability to provide products through an export model to operators with operations in Southeast Asia and West Africa. Products sold
15
through our locations support brownfield and greenfield expansion upstream capital projects, midstream infrastructure and transmission and MRO consumables used in day-to-day production. We provide downstream energy and industrial products for petroleum refining, chemical processing, liquefied natural gas (“LNG”) terminals, power generation, gas utilities serviced by a combination of customer on-site locations and off-site service locations in combination with our digital offerings.
Our supplier network consists of thousands of vendors in approximately 30 countries. From our operations, we sell to customers operating in approximately 75 countries. The supplies and equipment stocked by each of our locations are customized to meet varied and changing local customer demands. We believe the breadth, scale and availability of our product offering enhances our value proposition to our customers, suppliers and shareholders.
We employ advanced information technologies, including a common ERP platform across most of our business, to provide complete procurement, warehouse and inventory management and logistics coordination to our customers around the globe. Having a common ERP platform allows immediate visibility into our inventory assets, operations and financials worldwide, enhancing decision making and efficiency.
U.S., Canada and International Operations
Demand for our products is driven primarily by the level of oil and gas drilling, completions, servicing, production, transmission, refining and petrochemical activities. It is also influenced by the global supply and demand for energy, the economy in general and geopolitics. Several factors drive spending, such as investment in energy infrastructure, the North American conventional and shale plays, Organization of Petroleum Exporting Countries (“OPEC”) and non-OPEC supply and investments, market expectations of future developments in the oil, natural gas, liquids, refined products, petrochemical, plant maintenance and other industrial, manufacturing and energy sectors.
We primarily have operations in the U.S. and Canada, complemented with a number of strategic international operations, through acquisitions and organic investments, in Australia, England, Kuwait, the Netherlands, Norway, Scotland, Singapore, and the United Arab Emirates (“UAE”).
Summary of Reportable Segments
We operate through three reportable segments: United States, Canada and International. The segment data included in our Management’s Discussion and Analysis are presented on a basis consistent with our internal management reporting. Segment information appearing in Note 9 “Business Segments” of the notes to the unaudited consolidated financial statements (Part I, Item 1 of this Form 10-Q) is also presented on this basis.
United States
We have approximately 110 locations in the U.S., which are geographically positioned to best serve the upstream, midstream, downstream, renewable energy and industrial markets.
We offer higher value solutions in key product lines in the U.S. which broaden and deepen our customer relationships and related product line value. Examples of these include pumps, valves and valve actuation, process and production equipment, fluid transfer products, measurement, automation and controls, spoolable and coated steel-pipe and composite pipe, along with many other products required by our customers, which enable them to focus on their core business while we manage varying degrees of their supply chain. We also provide additional value to our customers through the engineering, design, construction, assembly, fabrication and optimization of products and equipment essential to the safe and efficient production, transportation and processing of oil and gas and produced water.
Canada
We have a network of approximately 40 locations in the Canadian oilfield, predominantly in the oil rich provinces of Alberta, Saskatchewan, and Manitoba. Our Canada segment primarily serves energy exploration, production, mining and drilling businesses, offering customers many of the same products and value-added solutions that we perform in the U.S. In Canada, we also provide training for, and supervise the installation of, jointed and spoolable composite pipe. This product line is supported by inventory, as well as product and installation expertise to serve our customers.
International
We serve the needs of our international customers from approximately 15 locations outside the U.S. and Canada, which are strategically located in major oil and gas development areas. Our approach in these markets and the products we offer is similar to our strategy in the U.S. and Canada, with the addition of the distribution of electrical products in the UK, Australia and international export markets. Our long legacy of operating in select international regions provides a competitive advantage as few of our competitors have a presence in most of the global energy producing areas.
The Company has committed to close certain foreign subsidiaries in the International segment. Impairment of assets were not material for the three months ended March 31, 2025; however, accumulated translation gains and losses attributable to the foreign subsidiaries which are components of other comprehensive income (loss) are reclassified to earnings and may result in additional charges when liquidations are substantially complete.
16
Operating Environment Overview
Our results are dependent on, among other factors, the level of worldwide oil and gas drilling and completions, well remediation activity, crude oil and natural gas prices, capital spending by oilfield service companies and drilling contractors, and the worldwide oil and gas inventory levels. Key industry indicators for the first quarter of 2025 and 2024 and the fourth quarter of 2024 include the following:
|
|
|
|
|
|
|
|
% |
|
|
|
|
|
% |
|
|||||
|
|
|
|
|
|
|
|
1Q25 v |
|
|
|
|
|
1Q25 v |
|
|||||
|
|
1Q25* |
|
|
1Q24* |
|
|
1Q24 |
|
|
4Q24* |
|
|
4Q24 |
|
|||||
Active Drilling Rigs: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
U.S. |
|
|
588 |
|
|
|
623 |
|
|
|
(5.6 |
%) |
|
|
586 |
|
|
|
0.3 |
% |
Canada |
|
|
216 |
|
|
|
209 |
|
|
|
3.3 |
% |
|
|
195 |
|
|
|
10.8 |
% |
International |
|
|
903 |
|
|
|
965 |
|
|
|
(6.4 |
%) |
|
|
926 |
|
|
|
(2.5 |
%) |
Worldwide |
|
|
1,707 |
|
|
|
1,797 |
|
|
|
(5.0 |
%) |
|
|
1,707 |
|
|
|
0.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
West Texas Intermediate Crude Prices (per barrel) |
|
$ |
71.84 |
|
|
$ |
77.56 |
|
|
|
(7.4 |
%) |
|
$ |
70.69 |
|
|
|
1.6 |
% |
Natural Gas Prices ($/MMBtu) |
|
$ |
4.15 |
|
|
$ |
2.13 |
|
|
|
94.8 |
% |
|
$ |
2.44 |
|
|
|
70.1 |
% |
Hot-Rolled Coil Prices (steel) ($/short ton) |
|
$ |
753.21 |
|
|
$ |
961.95 |
|
|
|
(21.7 |
%) |
|
$ |
691.05 |
|
|
|
9.0 |
% |
U.S. Wells Completed |
|
|
2,801 |
|
|
|
2,856 |
|
|
|
(1.9 |
%) |
|
|
2,850 |
|
|
|
(1.7 |
%) |
* Averages for the quarters indicated, except for U.S. Wells Completed. See sources on following page.
17
The following table details the U.S., Canadian and international rig activity and West Texas Intermediate oil prices for the past nine quarters ended March 31, 2025:
Sources: Rig count: Baker Hughes, Inc. (www.bakerhughes.com); West Texas Intermediate Crude and Natural Gas Prices: Department of Energy, Energy Information Administration (www.eia.gov); Hot-Rolled Coil Prices: SteelBenchmarker™ Hot Roll Coil USA (www.steelbenchmarker.com); U.S. Wells Completed: Department of Energy, Energy Information Administration (www.eia.gov) (As revised).
The worldwide quarterly average rig count remained flat at 1,707 and the U.S. increased 0.3% (from 586 rigs to 588 rigs) in the first quarter of 2025 compared to the fourth quarter of 2024. The average price per barrel of West Texas Intermediate Crude increased 1.6% (from $70.69 per barrel to $71.84 per barrel), and average natural gas prices increased 70.1% (from $2.44 per MMBtu to $4.15 per MMBtu) in the first quarter of 2025 compared to the fourth quarter of 2024. The average price per short ton of Hot-Rolled Coil increased 9.0% (from $691.05 per short ton to $753.21 per short ton) in the first quarter of 2025 compared to the fourth quarter of 2024. U.S. Wells Completed declined 1.7% (from 2,850 completion count to 2,801 completion count) in the first quarter of 2025 compared to the fourth quarter of 2024.
U.S. rig count at April 25, 2025 was 587 rigs, flat from the first quarter 2025 average. The price for West Texas Intermediate Crude was $63.85 per barrel at April 25, 2025, down 11.1% from the first quarter 2025 average. The price for natural gas was $2.71 per MMBtu at April 25, 2025, down 34.7% from the first quarter 2025 average. The price for Hot-Rolled Coil was $925.00 per short ton at April 28, 2025, up 22.8% from the first quarter 2025 average.
18
Executive Summary
For the three months ended March 31, 2025, the Company generated net income attributable to DNOW Inc. of $22 million on $599 million in revenue. For the three months ended March 31, 2025, revenue increased $36 million or 6.4% and net income attributable to DNOW Inc. increased $1 million when compared to the corresponding period of 2024.
For the three months ended March 31, 2025, the Company generated an operating profit of $30 million compared to $28 million for the corresponding period of 2024.
Outlook
Our outlook for the Company remains tied to crude oil and natural gas commodity prices, global oil and gas drilling and completions activity, oil and gas spending, and global demand for oil, its refined petroleum products, crude oil, natural gas liquids and natural gas production and decline rates. Crude oil and natural gas prices as well as crude oil and natural gas storage levels are primary catalysts for determining customer activity. In recent years, oil prices have remained volatile, and ongoing economic and geopolitical uncertainty continues to drive commodity price volatility globally, including impacts from the recently announced OPEC+ plans for increased production. Additionally, the U.S. government has announced the imposition of tariffs on several foreign jurisdictions, which has increased economic uncertainty. Current uncertainties about tariffs and their effects on trading relationships may affect costs for and availability of products or contribute to inflation in the markets in which we operate. Although we are continuing to monitor the economic effects of such announcements, as well as opportunities to mitigate their related impacts, costs and other effects associated with the tariffs remain uncertain. Amid these dynamics, we will continue to support our customers, maintain close communication with our strategic vendors, optimize our operations, advance our strategic goals and manage the Company based on market conditions.
We see the evolution in energy transition investments to reduce atmospheric carbon, source carbon capture, storage and new energy streams as an opportunity for DNOW to supply many of the current products and services we provide, as well as an opportunity to partner and source from new suppliers to expand our offering and to meet our customers’ needs for their energy evolution investments. A number of our larger customers are leading the investments in energy evolution projects where we expect to continue to support them while expanding our product and solution offerings to meet their changing requirements. Part of our growth strategy is to expand our revenues by targeting new customers in non-oil and gas end markets, in addition to servicing those customers that will play a part in the future of the evolving mix of traditional and new sources of energy.
Results of Operations
The results of operations are presented before consideration of the noncontrolling interest. Operating results by reportable segment are as follows (in millions):
|
Three months ended March 31, |
|
|||||
|
2025 |
|
|
2024 |
|
||
Revenue: |
|
|
|
|
|
||
United States |
$ |
474 |
|
|
$ |
435 |
|
Canada |
|
62 |
|
|
|
66 |
|
International |
|
63 |
|
|
|
62 |
|
Total revenue |
$ |
599 |
|
|
$ |
563 |
|
|
|
|
|
|
|
||
Operating profit: |
|
|
|
|
|
||
United States |
$ |
22 |
|
|
$ |
23 |
|
Canada |
|
4 |
|
|
|
3 |
|
International |
|
4 |
|
|
|
2 |
|
Total operating profit |
$ |
30 |
|
|
$ |
28 |
|
United States
For the three months ended March 31, 2025, revenue was $474 million, an increase of $39 million or 9.0% when compared to the corresponding period of 2024. For the three months ended March 31, 2025, the increase was primarily driven by incremental revenue from acquisitions completed in 2024, partially offset by the weakening in U.S. drilling and completions activity.
For the three months ended March 31, 2025, the U.S. generated an operating profit of $22 million, a decrease of $1 million when compared to the corresponding period of 2024. For the three months ended March 31, 2025, operating profit decreased primarily due to an increase in expenses related to acquisitions completed in 2024, partially offset by the increase in revenue discussed above.
Canada
For the three months ended March 31, 2025, revenue was $62 million, a decline of $4 million or 6.1% when compared to the corresponding period of 2024. For the three months ended March 31, 2025, the decrease was primarily driven by unfavorable foreign exchange rate impacts.
19
For the three months ended March 31, 2025, Canada generated an operating profit of $4 million, an increase of $1 million when compared to the corresponding period of 2024. For the three months ended March 31, 2025, operating profit increased primarily due to a decrease in operating expenses.
International
For the three months ended March 31, 2025, revenue was $63 million, an increase of $1 million or 1.6% when compared to the corresponding period of 2024. For the three months ended March 31, 2025, the increase was primarily driven by stronger project activity.
For the three months ended March 31, 2025, the International segment generated an operating profit of $4 million, an increase of $2 million when compared to the corresponding period of 2024. For the three months ended March 31, 2025, operating profit increased primarily due to a decrease in operating expenses.
Cost of products
For the three months ended March 31, 2025, cost of products was $460 million compared to $434 million for the corresponding period of 2024. For the three months ended March 31, 2025, the increase was primarily due to the increase in revenue in the period. Cost of products includes the cost of inventory sold and items, such as vendor consideration, inventory allowances, amortization of intangibles and inbound and outbound freight.
Warehousing, selling and administrative expenses
For the three months ended March 31, 2025, warehousing, selling and administrative expenses were $109 million compared to $101 million for the corresponding period of 2024. For the three months ended March 31, 2025, the increase was primarily driven by an increase in expenses related to acquisitions completed in 2024. Warehousing, selling and administrative expenses include branch location, distribution center and regional expenses (including costs such as compensation, benefits and rent) as well as corporate general selling and administrative expenses.
Other income (expense)
For the three months ended March 31, 2025, other income (expense) was nil compared to $1 million for the corresponding period of 2024. For the three months ended March 31, 2025, the change was primarily attributable to a decrease in interest income compared to the prior year.
Income tax provision
The effective tax rate for the three months ended March 31, 2025, was 23.3% compared to 27.6% for the corresponding period of 2024. 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 rate for the three months ended March 31, 2025, was lower than the effective tax rate for the three months ended March 31, 2024, primarily due to an increase in tax benefits related to stock-based compensation.
20
Non-GAAP Financial Measure and Reconciliation
In an effort to provide investors with additional information regarding our results of operations as determined by GAAP, we disclose non-GAAP financial measures. The primary non-GAAP financial measure we disclose is earnings before interest, taxes, depreciation and amortization, excluding other costs (“EBITDA excluding other costs”) and EBITDA excluding other costs as of percentage of revenue. This financial measure excludes the impact of certain amounts and is not calculated in accordance with GAAP. A reconciliation of this non-GAAP financial measure, to its most comparable GAAP financial measure, is included below.
We use EBITDA excluding other costs internally to evaluate and manage the Company’s operations because we believe it provides useful supplemental information regarding the Company’s ongoing operating performance. We have chosen to provide this information to investors to enable them to perform more meaningful comparisons of operating results.
The following table sets forth the reconciliations of EBITDA excluding other costs to the most comparable GAAP financial measures (in millions):
|
|
Three months ended March 31, |
|
|||||||||||
|
|
2025 |
|
As a % of revenue |
|
|
2024 |
|
As a % of revenue |
|
||||
GAAP net income attributable to DNOW Inc. (1) |
|
$ |
22 |
|
|
3.7 |
% |
|
$ |
21 |
|
|
3.7 |
% |
Net income attributable to noncontrolling interest |
|
|
1 |
|
|
|
|
|
— |
|
|
|
||
Interest expense (income), net |
|
|
(1 |
) |
|
|
|
|
(2 |
) |
|
|
||
Income tax provision |
|
|
7 |
|
|
|
|
|
8 |
|
|
|
||
Depreciation and amortization |
|
|
11 |
|
|
|
|
|
7 |
|
|
|
||
Other costs: |
|
|
|
|
|
|
|
|
|
|
||||
Stock-based compensation (2) |
|
|
3 |
|
|
|
|
|
2 |
|
|
|
||
Other (3) |
|
|
3 |
|
|
|
|
|
3 |
|
|
|
||
EBITDA excluding other costs |
|
$ |
46 |
|
|
7.7 |
% |
|
$ |
39 |
|
|
6.9 |
% |
For the three months ended March 31, 2024, Other was related to transaction-related charges, including approximately $2 million in warehousing, selling and administrative, and approximately $1 million in cost of products for cost of inventory that was stepped up to fair value during purchase accounting related to an acquisition.
Transaction-related charges include transaction costs, inventory fair value step-up, retention bonus accruals and integration expenses associated with acquisitions.
21
Liquidity and Capital Resources
We assess liquidity in terms of our ability to generate cash to fund operating, investing and financing activities. We expect resources to be available to reinvest in existing businesses, strategic acquisitions and capital expenditures to meet short and long-term objectives. We believe that cash on hand, cash generated from expected results of operations and amounts available under our revolving credit facility will be sufficient to fund operations, anticipated working capital needs and other cash requirements, including capital expenditures and our share repurchase program.
As of March 31, 2025 and December 31, 2024, we had cash and cash equivalents of $219 million and $256 million, respectively. As of March 31, 2025, $112 million of our cash and cash equivalents were maintained in the accounts of our various foreign subsidiaries. During the first three months of 2025, we repatriated $2 million from our foreign subsidiaries. The Company makes a determination each period concerning its intent and ability to indefinitely reinvest the cash held by its foreign subsidiaries. The Company has not recorded deferred income taxes on undistributed foreign earnings that it considers to be indefinitely reinvested. Future changes to our indefinite reinvestment assertion could result in additional taxes (withholding and/or state taxes), offset by any available foreign tax credits.
We maintain a $500 million five-year senior secured revolving credit facility that will mature on December 14, 2026. Availability under the revolving 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 March 31, 2025, we had no borrowings against our revolving credit facility, and had approximately $434 million in availability (as defined in the Credit Agreement) resulting in the excess availability (as defined in the Credit Agreement) of 99%, subject to certain restrictions. Availability excluding certain cash deposits was approximately $348 million. Borrowings that result in the excess availability dropping below the greater of 10% of the borrowing base or $40 million are conditioned upon compliance with or waiver of a minimum fixed charge ratio (as defined in the Credit Agreement). The credit facility contains usual and customary affirmative and negative covenants for credit facilities of this type including financial covenants. As of March 31, 2025, we were in compliance with all covenants. We continuously monitor compliance with our debt covenants. A default, if not waived or amended, would prevent us from taking certain actions, such as incurring additional debt.
We are often party to certain transactions that require off-balance sheet arrangements such as standby letters of credit and performance bonds and guarantees that are not reflected in our consolidated balance sheets. These arrangements are made in our normal course of business and they are not reasonably likely to have a current or future material adverse effect on our financial condition, results of operations, liquidity or cash flows.
In connection with acquisitions in 2024, the Company is committed to total future retention payments of up to $13 million payable in 2026 and 2027. Payments are due to various employees if non-financial post combination service conditions are met pursuant to the terms and conditions of the retention agreements.
The following table summarizes our net cash flows provided by (used in) operating activities, investing activities and financing activities for the periods presented (in millions):
|
|
Three months ended March 31, |
|
|||||
|
|
2025 |
|
|
2024 |
|
||
Net cash provided by (used in) operating activities |
|
$ |
(16 |
) |
|
$ |
81 |
|
Net cash provided by (used in) investing activities |
|
$ |
(5 |
) |
|
$ |
(188 |
) |
Net cash provided by (used in) financing activities |
|
$ |
(17 |
) |
|
$ |
(4 |
) |
Operating Activities
For the three months ended March 31, 2025, net cash used in operating activities was $16 million compared to $81 million provided by operating activities in the corresponding period of 2024. For the three months ended March 31, 2025, net cash used in operating activities was primarily related to a net increase of $65 million in working capital. The increase reflected a proactive investment of $32 million in inventory to support customer demand, coupled with $52 million growth in accounts receivable due to revenue growth and timing of collections.
Investing Activities
For the three months ended March 31, 2025, net cash used in investing activities was $5 million compared to $188 million used in investing activities in the corresponding period of 2024. For the three months ended March 31, 2025, net cash used in investing activities was primarily related to purchases of property, plant and equipment of $6 million while net cash used in investing activities in the corresponding period of 2024 was primarily related to business acquisitions of $185 million, net of cash acquired.
Financing Activities
For the three months ended March 31, 2025, net cash used in financing activities was $17 million compared to $4 million used in financing activities in the corresponding period of 2024. For the three months ended March 31, 2025, net cash used in financing activities was primarily related to share repurchases of $8 million and withholding tax payments for employee awards of $7 million.
22
Other
For the three months ended March 31, 2025, the effect of the change in exchange rates on cash and cash equivalents was $1 million favorable compared to nil for the corresponding period of 2024.
Capital Spending
We intend to pursue additional acquisition candidates, but the timing, size or success of any acquisition effort and the related potential capital commitments cannot be predicted. We continue to expect to fund future cash acquisitions primarily with cash on hand, cash flow from operations and the usage of the available portion of the revolving credit facility. There can be no assurance that additional financing will be available at terms acceptable to us.
Share Repurchase Program
On January 24, 2025, the Company’s Board of Directors authorized a new share repurchase program to purchase up to $160 million of its outstanding common stock. We expect to fund share repurchases primarily with cash on hand, cash flow from operations and the usage of the available portion of the revolving credit facility. The timing and amount of any repurchases will be made at our discretion, taking into account a number of factors, including market conditions. The share repurchase program does not obligate the Company to repurchase shares and may be suspended or discontinued at any time at our discretion. All shares repurchased shall be retired pursuant to the terms of the share repurchase program. For the three months ended March 31, 2025, we repurchased 443,806 shares of our common stock for a total of approximately $8 million, of which 155,313 shares, or $3 million, were held in treasury stock and subsequently retired in April 2025. As of March 31, 2025, we had approximately $152 million remaining under the program’s authorization.
Critical Accounting Estimates
For a discussion of the critical accounting estimates that we use in the preparation of our consolidated financial statements, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K for the year ended December 31, 2024. Since the filing of our Form 10-K, there have been no material changes in our critical accounting estimates from those disclosed therein. In preparing the financial statements, the Company makes assumptions, estimates and judgments that affect the amounts reported. The Company periodically evaluates its estimates and judgments that are most critical in nature, which are related to allowance for credit losses, inventory reserves, goodwill, purchase price allocation of acquisitions and income taxes. Its estimates are based on historical experience and on its future expectations that the Company believes are reasonable. The combination of these factors forms the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results are likely to differ from our current estimates and those differences may be material.
23
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to certain market risks that are inherent in our financial instruments and arise from changes in interest rates and foreign currency exchange rates. We may enter into derivative financial instrument transactions to manage or reduce market risk but do not enter into derivative financial instrument transactions for speculative purposes. We do not currently have any material outstanding derivative instruments.
A discussion of our primary market risk exposure in financial instruments is presented below.
Foreign Currency Exchange Rate Risk
We have operations in foreign countries and transact business globally in multiple currencies. Our net assets as well as our revenues and costs and expenses denominated in foreign currencies, expose us to the risk of fluctuations in foreign currency exchange rates against the U.S. dollar. Because we operate globally and approximately one-fifth of our net sales for the three months ended March 31, 2025, were outside the U.S., foreign currency exchange rates can impact our financial position, results of operations and competitive position. We are a net receiver of foreign currencies and, therefore, benefit from a weakening of the U.S. dollar and are adversely affected by a strengthening of the U.S. dollar relative to the foreign currency. As of March 31, 2025, our most significant foreign currency exposure was to the Canadian dollar, followed by the British pound, with less significant foreign currency exposure to the Kazakhstani Tenge.
The financial statements of foreign subsidiaries are translated into their U.S. dollar equivalents at end-of-period exchange rates for assets and liabilities, while revenue, costs and expenses are translated at average monthly exchange rates. Translation gains and losses are components of other comprehensive income (loss) as reported in the consolidated statements of comprehensive income (loss). Upon complete or substantially complete liquidation of a foreign subsidiary, the accumulated translation gains and losses relating to the foreign subsidiary are reclassified into earnings, reflected in impairment and other charges in the consolidated statements of operations. For the three months ended March 31, 2025, we reported a net foreign currency translation gain of $3 million.
Foreign currency exchange rate fluctuations generally do not materially affect our earnings since the functional currency is typically the local currency; however, our operations also have net assets not denominated in their functional currency, which exposes us to changes in foreign currency exchange rates that impact our net income as foreign currency transaction gains and losses. Foreign currency transaction gains and losses arising from fluctuations in currency exchange rates on transactions denominated in currencies other than the functional currency are recognized in the consolidated statements of operations as a component of other income (expense). For the three months ended March 31, 2025 and 2024, we reported foreign currency transaction losses of nil in both periods. Gains and losses are primarily due to exchange rate fluctuations related to monetary asset balances denominated in currencies other than the functional currency and fair value adjustments to economically hedged positions as a result of changes in foreign currency exchange rates.
Some of the revenues for our foreign operations are denominated in U.S. dollars and, therefore, changes in foreign currency exchange rates impact earnings to the extent that costs associated with those U.S. dollar revenues are denominated in the local currency. Similarly, some of our revenues for our foreign operations are denominated in foreign currencies, but have associated U.S. dollar costs, which also give rise to foreign currency exchange rate exposure. In order to mitigate those risks, we may utilize foreign currency forward contracts to better match the currency of the revenues and the associated costs. Although we may utilize foreign currency forward contracts to economically hedge certain foreign currency denominated balances or transactions, we do not currently hedge the net investments in our foreign operations. The counterparties to our forward contracts are major financial institutions. The credit ratings and concentration of risk of these financial institutions are monitored by us on a continuing basis. In the event that the counterparties fail to meet the terms of a foreign currency contract, our exposure is limited to the foreign currency rate differential.
The average foreign exchange rate for the first three months of 2025 compared to the average for the corresponding period of 2024 decreased by approximately 6% compared to the U.S. dollar based on the aggregated weighted average revenue of our foreign-currency denominated foreign operations. The Canadian dollar, British pound and Kazakhstani Tenge each decreased in relation to the U.S. dollar by approximately 6%, 1%, and 12%, respectively.
We utilized a sensitivity analysis to measure the potential impact on earnings based on a hypothetical 10% change in foreign currency rates. A 10% change from the levels experienced during the first three months of 2025 of the U.S. dollar relative to foreign currencies that affected the Company would have resulted in approximately $1 million change in net income for the same period.
Commodity Steel Pricing
Our business is sensitive to steel prices, which can impact our product pricing, with steel tubular prices generally having the highest degree of sensitivity. While we cannot predict steel prices, we mitigate this risk by managing our inventory levels, including maintaining sufficient quantity on hand to meet demand, while limiting the risk of overstocking.
24
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. The Company’s disclosure controls and procedures are designed to provide reasonable assurance that the information required to be disclosed by the Company in the reports it files under the Exchange Act is accumulated and communicated to the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures, and is recorded, processed, summarized and reported within the time period specified in the rules and forms of the Securities and Exchange Commission. Based upon that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective as of the end of the period covered by this report at a reasonable assurance level.
Changes in Internal Control Over Financial Reporting
There has been no change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that occurred during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
25
PART II – OTHER INFORMATION
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The following table presents a summary of share repurchases made during the three months ended March 31, 2025:
Period |
|
Total number of shares purchased (1) |
|
|
Average price paid per share (2) |
|
|
Total number of shares purchased as part of publicly announced program (3) |
|
|
Approximate dollar value of shares that may yet be purchased under the program (2)(3) |
|
||||
January 1 - 31, 2025 |
|
|
— |
|
|
$ |
— |
|
|
|
— |
|
|
$ |
160 |
|
February 1 - 28, 2025 |
|
|
393,483 |
|
|
$ |
17.41 |
|
|
|
— |
|
|
$ |
160 |
|
March 1 - 31, 2025 |
|
|
443,806 |
|
|
$ |
17.14 |
|
|
|
443,806 |
|
|
$ |
152 |
|
Total |
|
|
837,289 |
|
|
$ |
17.27 |
|
|
|
443,806 |
|
|
|
|
|
Item 5. Other Information
Insider Trading Arrangements and Policies
During the three months ended March 31, 2025, no director or officer of the Company
26
Item 6. Exhibits
(a) Exhibits
Exhibit No. |
|
Exhibit Description |
|
|
|
3.1 |
|
|
3.2 |
|
|
10.1 |
|
|
10.2 |
|
|
10.3 |
|
|
10.4 |
|
|
10.5 |
|
|
10.6 |
|
|
10.7 |
|
|
10.8 |
|
|
10.9 |
|
|
10.10 |
|
|
10.11 |
|
|
10.12 |
|
|
31.1* |
|
|
31.2* |
|
|
32.1** |
|
Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
32.2** |
|
Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
101.INS* |
|
Inline XBRL Instance Document – The instance document does not appear in the interactive data file because its XBRL tags are embedded within the Inline XBRL document |
101.SCH* |
|
Inline XBRL Taxonomy Extension Schema Document |
101.CAL* |
|
Inline XBRL Taxonomy Extension Calculation Linkbase Document |
101.DEF* |
|
Inline XBRL Taxonomy Extension Definition Linkbase Document |
101.LAB* |
|
Inline XBRL Taxonomy Extension Label Linkbase Document |
101.PRE* |
|
Inline XBRL Taxonomy Extension Presentation Linkbase Document |
104* |
|
Cover Page Interactive Data File (embedded within the Inline XBRL document) |
* Filed herewith.
** Furnished herewith.
27
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
Date: May 7, 2025 |
|
|
|
|
|
DNOW INC. |
|
|
|
|
By: |
/s/ Mark B. Johnson |
|
Mark B. Johnson |
|
|
Senior Vice President and Chief Financial Officer |
|
28