Investor Relations
Third Quarter 2020
© 2020 COPYRIGHT DISTRIBUTIONNOW
Disclosure Statement
- Statements made in the course of this presentation that state the Company's or management's intentions, hopes, beliefs, expectations or predictions of the future are forward-looking statements. It is important to note that the Company's actual results could differ materially from those projected in such forward-looking statements. Additional information concerning factors that could cause actual results to differ materially from those in the forward-looking statements is contained from time-to-time in the Company's filings with the U.S. Securities and Exchange Commission (SEC). Any decision regarding the Company or its securities should be made upon careful consideration of not only the information here presented, but also other available information, including the information filed by the Company with the SEC. Copies of these filings may be obtained by contacting the Company or the SEC.
- In an effort to provide investors with additional information regarding our results as determined by U.S. Generally Accepted Accounting Principles (GAAP), we disclose various non-GAAP financial measures in our quarterly earnings press releases and other public disclosures. We use these non-GAAP financial measures internally to evaluate and manage the
Company's operations because we believe it provides useful supplemental information regarding the Company's ongoing economic performance. The non-GAAP financial measures include: (i) earnings before interest, taxes, depreciation and amortization (EBITDA) excluding other costs (sometimes referred to as "EBITDA"), (ii) net income (loss) excluding other costs and (iii) diluted earnings (loss) per share excluding other costs. Each of these financial measures excludes the impact of certain other costs and therefore has not been calculated in accordance with GAAP. A reconciliation of each non-GAAP financial measure to its most comparable GAAP financial measure can be found in our quarterly earnings press release.
2 | Third Quarter 2020 | © 2020 COPYRIGHT DISTRIBUTIONNOW |
Vision
DistributionNOW will be recognized as the market Leader in Supply Chain Management through superior customer service by leveraging the strengths of our employees, processes, suppliers, technology and information.
3 | Third Quarter 2020 | © 2020 COPYRIGHT DISTRIBUTIONNOW |
Third Quarter Investment Highlights
- Management focused on preserving cash position and enviable balance sheet with aggressive structural transformation
- Focused on profitable market share gains and end market diversification that align with our strategy
- Investing in DigitalNOW® initiative to position DNOW as a leading digital solution provider for operators and service companies
- Zero debt, $325 million in cash, total liquidity approximating $534 million, active M&A pipeline in a period where we expect opportunities to increase
- Proven management team with significant industry experience
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DNOW Strategy to Unlock Value
- Gross margins improved sequentially due to increased pricing and product mix with favorable impact from lower, but elevated, inventory write downs
- Completed rollout of order management system in U.S. and Canada. Yielding more efficient quote-to-order process resulting in higher employee productivity
- Executed MRO agreements for several offshore and onshore drilling contractors and a water infrastructure management operator
- Ecommerce customer implementation growth and users continue adding to digital commerce channel
- Proactively evaluating M&A opportunities
- Continue to evaluate M&A pipeline for growth
- Highly selective in this environment
- Approximately $534 million in total liquidity
- Divested of non-core, regional lighting business in the UK
Deliver
Margin
Drive Growth
Through
Acquisitions
- Structural change towards a more centralized fulfillment model with smaller branches and reduced personnel and vehicles, square footage and inventory
- Completed move of La Porte distribution center to existing warehouse, contributing to cost reduction
- Reduced discretionary and infrastructure costs and headcount from 4,400 to 2,550 since the beginning of the year
Optimize | ▪ Focused on cost transformation to align to market |
demand and preserve balance sheet | |
Operations | |
- Leveraging technology to enhance employee
productivity and increase operational efficiencies
Maximize | ▪ | Working capital, excluding cash, was 22% of revenue in | |
Working Capital | |||
3Q20 | |||
Velocity | ▪ | Inventory turns at 3.3x | |
- Cash on hand at September 30, 2020 of $325M
- Zero debt
5 | Third Quarter 2020 |
© 2020 COPYRIGHT DISTRIBUTIONNOW
3Q20 Key Market Indicators
WTI/Rig Counts
- WTI avg $41 per barrel for 3Q20
- U.S. avg rig count of 254, down 36% sequentially, down 72% YOY
- Canada avg rig count 48, up 92% sequentially, down 64% YOY
- International avg rig count 731, down 12% sequentially, down 36% YOY
U.S. DUCs
- September ended with a DUC count of 7,592 wells in EIA DPR regions
- 7,670 3Q20 avg
- Down 1% sequentially and down 8% YOY on avg
U.S. Completions
- September ended with 372
- 342 avg for 3Q20
- Down 29% sequentially on avg
- Down 74% YOY on avg
DNOW annualized revenue per rig at | DUCs are future revenue | Presents an immediate opportunity |
$1.3M for 3Q20 | opportunities for DNOW | for DNOW U.S. sales as tank |
batteries and gathering systems are | ||
constructed after completions |
6 | Third Quarter 2020 |
© 2020 COPYRIGHT DISTRIBUTIONNOW
3Q20 Highlights - U.S. Channels
Energy
3Q Highlights
- Revenue of $180M, sequential decrease of $13M or 7%
- Combined operational and management structure of legacy U.S. Energy and U.S. Supply Chain Services units
- Several well head hook ups and tank batteries orders tied to DUC completions
- Executed MSAs for regional E&Ps, midstream and water management companies
- Capturing midstream revenue through MRO spend from projects and eCommerce channel
- Expanding electrical products to some of our MRO contract customers
Process Solutions
3Q Highlights
- Revenue $48M, sequential decrease of $19M or 28% providing LACTs, SWDs and production equipment to upstream and midstream customers
- Provided crude pumps, meter skids, mixers and rental pumps for large midstream project
- Growth in municipal water market for Odessa Pumps
- Growing aftermarket preventative maintenance program on installed pumps
- Diversified sales into mining industry with mechanical seals, pumps, slurry pumps, underflow mines and soda ash
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© 2020 COPYRIGHT DISTRIBUTIONNOW
3Q20 Highlights - Canada & International
Canada
3Q Highlights
- Revenue of $42M, up sequentially by $1M or 2%
- Rightsizing of operations and supply chain across the business to match market and cost transformation goals
- Renewed sizable PVF contract and expanded Fiberglass pipe solutions extending our product market opportunities
- Slight uptick in market activity
- Completed several turnarounds and compressor station upgrades in midstream
- Secured several valve and actuation projects for midstream and oil sands sector
International
3Q Highlights
- Revenue $56M, down 19% sequentially, due to impacts of COVID-19 resulting in lower economic activity and lower offshore activity
- Secured MRO contract with several offshore drillers as well as land drilling contracts in Middle East
- Renewed IOC MRO contract for West Africa
- Secured valve orders for FPSOs in Brazil
- Secured Total Valve Solutions MRO contract for IOC in Egypt
- eCommerce implementations underway for new and renewal MRO agreements
- Rightsizing of operations and supply chain across the business
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© 2020 COPYRIGHT DISTRIBUTIONNOW
Technology Investments for Reduced IT Service Costs and to Boost Productivity
Order Management System (OMS) user interface enhancement to our current ERP. Project completed in U.S. and Canada. International complete by end of fourth quarter.
Delivering order management and process efficiencies with new interface
Benefits include:
- Increased response time to customer inquiries
- Faster order to cash processing
- Improved customer service
- Lower transactional error rates
- Result in increased productivity per employee
Targeted Improvements
4x+ | $$$ |
Performance increase | Cost Savings |
ERPs, App, Infra | 24x7x365 |
Cloud Migration | Peace of Mind Support |
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© 2020 COPYRIGHT DISTRIBUTIONNOW
Driving Supply Chain Innovation through Speed, Efficiency and Technology
- Legacy 150+ years operating
- Support major land and offshore operations for all the key energy producing regions around the world
- Comprehensive network of energy centers, supply chain services and process solutions locations complemented with an online commerce channel
- Key markets: Europe, Former Soviet Union, Latin America, Middle East, North America, Southeast Asia
NYSE Ticker | DNOW |
Countries | 20+ |
Locations | ~200 |
Employees | ~2,550 |
ERP System | SAP™ |
2019 Revenue by Segment
13% 11%
Canada
United States
International
76%
2019 United States Revenue by Channel
19%
US. Energy
U.S. Process | 81% |
Solutions |
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Comprehensive Product Offering and Balanced Revenue Mix
Pipe 16%
Drilling and Production 24%
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Valves
21%
Fittings and Flanges
18%
Mill Tool, MRO, Safety
and Other
21%
© 2020 COPYRIGHT DISTRIBUTIONNOW
DNOW carries a
broad range of products and services
to meet
RAPID and CRITICAL
deliveries
to customers in local and remote areas
- Honing our last-mile focus
- Retaining proximity to customers
- Using technology and centralized distribution to drive productivity
Global Presence and Reach (blue)
Company Locations
Locations and Reach
Distribution Centers
Distribution
Centers:
United States
Houston, TX
Beulah, ND
Casper, WY
Canada
Edmonton, Alberta Estevan, Saskatchewan
Europe
Aberdeen, Scotland
MENA
Jebel Ali, U.A.E.
Asia
Jurong, Singapore
CANADA
Edmonton Estevan
Beulah
Casper
USAHouston
MEXICO
COLOMBIA
BRAZIL
NORWAY
UK
Aberdeen
NETHERLANDS
EGYPT
RUSSIA
KAZAKHSTAN
AZERBAIJAN
KUWAITCHINA
SAUDI UAEJebelAli
ARABIAINDIA
OMAN
Jurong
SINGAPORE
INDONESIA
AUSTRALIA
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Blue-Chip Suppliers and Customers Across the Globe
Thousands of Suppliers in ~40 countries | Supporting Customer Operations in ~80 countries | |
Drilling Contractors
Exploration & Production
Midstream
Downstream & Industrial
13 | Second Quarter 2020 | © 2020 COPYRIGHT DISTRIBUTIONNOW |
DNOW is a Critical Link from Drilling to Distribution
Upstream | Midstream | Downstream/ Industrial |
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Providing Value-Add Solutions Across All Channels
ENERGY CENTERS | U.S. SUPPLY CHAIN | U.S. PROCESS SOLUTIONS |
Global branch network model | On-site model offering customizable | Rotating and process equipment |
supplying products locally to upstream | products to upstream and | solutions in the form of engineering, |
& midstream energy customers | downstream energy, industrial and | design, installation, fabrication and |
manufacturing markets | service |
Provides wide array of | Reduces customers' total costs | Meets demand for turnkey |
products & value locally in | including operational and | tank battery production |
major oil and gas regions | invested capital | (facilities) solution |
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Driving Growth through Acquisitions
Clearly Defined | - Seek high value-add solutions that bring sustainable competitive advantages | ||||||
Acquisition | - Leverage product lines acquired through acquisitions to gain organic share | ||||||
- Utilize strong customer relationships that present new opportunities | |||||||
Strategy | - Increase barriers to entry | ||||||
- Promote cross-selling into Energy Centers and Supply Chain Services | |||||||
Track Record of Success | |||||||
Trading | Progressive | OAASIS | North Sea | • | Inline Valves | Challenger | Accelerated |
on NYSE | Supply | Group | Cables | • | Odessa Pumps | Industries | Process Systems |
June 2014 | Nov 2014 | Feb 2015 | May 2015 | July 2015 | Nov 2015 | June 2019 |
2014 | 2019 | |||||||||||
May 30, 2014 | Oct 2014 | Jan 2015 | March 2015 | Dec 2015 | June 2016 | May 2019 | ||||||
Spinoff • | Caprock Supply Company | Machine | MacLean | Updike | Power Service | Piping Specialties | ||||||
from NOV | • Colorado Valve | Tools Supply | Electrical | Supply | Company | |||||||
& Controls |
16 | Third Quarter 2020 | © 2020 COPYRIGHT DISTRIBUTIONNOW |
Industry Dynamics
© 2020 COPYRIGHT DISTRIBUTIONNOW
Key Market Indicators
OIL PRICES & RIGS TRENDING
Average Oil Prices
Average Rig Count |
(per barrel)
$109
Quarterly
(number of rigs) |
Quarterly |
3578 |
3412 |
$98 $99
$93
$71 | |||||
$65 | $64 | ||||
$54 | $57 | ||||
$52 | |||||
$51 | $50 | ||||
$49 | |||||
$46 | |||||
$44 | $43 | $43 | |||
$41 | |||||
$30 | $28 |
2013 | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 1Q20 | 2Q20 | 3Q20 |
Brent WTI
Source: EIA, Europe Brent and Cushing, OK WTI Spot Price FOB
1336 | |||||||||||||
1296 | |||||||||||||
2337 | 2211 | ||||||||||||
2177 | |||||||||||||
2054 | |||||||||||||
2030 | |||||||||||||
355 | 380 | ||||||||||||
1167 | 1593 | 988 | 1098 | ||||||||||
948 | 1074 | ||||||||||||
1255 | |||||||||||||
955 | 191 | 1033 | |||||||||||
193 | 135 | ||||||||||||
207 | |||||||||||||
1862 | |||||||||||||
1761 | 195 | ||||||||||||
834 | |||||||||||||
128 | 731 | ||||||||||||
977 | 1032 | 944 | |||||||||||
875 | 785 | 25 | |||||||||||
48 | |||||||||||||
510 | 396 | ||||||||||||
254 | |||||||||||||
2013 | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 1Q20 | 2Q20 | 3Q20 | ||||
United States | Canada | International | Total | ||||||||||
Source: Baker Hughes, Inc.
DNOW is positioned to benefit from industry growth
18 | Third Quarter 2020 | © 2020 COPYRIGHT DISTRIBUTIONNOW |
Pipe Price Trends, U.S. dollar per ton
ERW | Seamless | ||||||||||
2,000 | 3,000 | ||||||||||
1,800 | 2,500 | ||||||||||
1,600 | |||||||||||
1,400 | 2,000 | ||||||||||
1,200 | |||||||||||
1,000 | 1,500 | ||||||||||
800 | 1,000 | ||||||||||
600 | |||||||||||
400 | 500 | ||||||||||
200 | |||||||||||
- | - | ||||||||||
ERW Domestic | ERW Foreign | Smls Domestic | Smls Foreign | ||||||||
Source: Pipe Logix
19 | Third Quarter 2020 |
© 2020 COPYRIGHT DISTRIBUTIONNOW
Financial Update
© 2020 COPYRIGHT DISTRIBUTIONNOW
CFO Highlights: Selected Quarterly Results (Unaudited)
Revenue
($ in millions)
$751
$370$326
3Q19 | 2Q20 | 3Q20 |
Gross Profit and Margin %
($ in millions)
20.0% | ||
$150 | 18.4% | 19.0% |
$68 | $62 | |
3Q19 | 2Q20 | 3Q20 |
EBITDA Excl. Other Costs (Non-GAAP) and Margin % | Net Income (Loss) Excl. Other Costs (Non-GAAP) | |
($ in millions) | ($ in millions) |
$24
3.2%
$9
$(18) | $(17) | |||||||||
2Q20 | 3Q20 | |||||||||
-4.1% | -4.6% | |||||||||
3Q19 | 2Q20 | 3Q20 | ||||||||
($15) | ($15) |
21 | Third Quarter 2020 |
© 2020 COPYRIGHT DISTRIBUTIONNOW
Cash Generation & Working Capital Management
Free Cash Flow
($ in millions)
$97
$66
$57
3Q19 | 2Q20 | 3Q20 |
Free Cash Flow ("FCF") is defined as net cash provided by (used in) operating activities, less purchases of property, plant and equipment
Working Capital Excluding Cash
($ in millions)
56523.7%
22.2%
18.8%
351
289
3Q19 | 2Q20 | 3Q20 | |
Working Capital Excluding Cash | % of Qtr Annual Sales | ||
22 | Third Quarter 2020 |
© 2020 COPYRIGHT DISTRIBUTIONNOW
Structural Transformation
Warehousing, selling &
administrative (WSA) expense trends
▪ Headcount reductions approximately 1,850, or 42%, to |
date since year end |
$700
($ in millions)
▪ Implementing consolidation measures combined with |
$650 | $638 | $619 | Revenue grew $1B | ||||
from '16 to '18 | |||||||
$600 | |||||||
$567 | $557 | ||||||
$550 | $542 | $541 | |||||
$500
$450
$400 | ~$395 |
$350
$300
2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 (F) |
The 2020 (F) is a targeted WSA value for FY 2020. Other items, including bad debt, severance and acquisition expenses, as well as WSA for potential acquisitions will influence actual results.
facility closures |
▪ Internal benchmarking: compare under-performing |
locations with top performers, and correct |
structure/delivery model to drive productivity |
▪ External benchmarking: compare to peer top-quartile |
performance, including delayering, structural changes |
▪ Efficiency and productivity |
▪ Deploy technology to augment labor content |
▪ Find the right hub and spoke balance, with a bias towards |
centralized structure |
▪ Eliminate waste and least valuable activity |
▪ Offshore lower-level back office labor |
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© 2020 COPYRIGHT DISTRIBUTIONNOW
Liquidity and Capital Resources
- Entered into a five-year $750 million secured asset based lending facility (ABL) in April 2018.
- No financial maintenance covenants
- Fixed Charge covenant triggers when availability falls below the greater of 12.5% of the borrowing base or $60 million
- No outstanding borrowings and no draws on the credit facility during the quarter
- Total liquidity was $534 million, which includes $209 million in availability under the ABL and $325 million in cash
Total Liquidity at September 30, 2020
($ in millions)
$534
$209
$325
Cash On Hand | Availability | |
24 | Third Quarter 2020 |
© 2020 COPYRIGHT DISTRIBUTIONNOW
Select Balance Sheet Metrics
3Q20 ($ in millions)
($ in millions)
Comments
Cash and cash equivalents | $ | 325 | ||
Receivables, net | 213 | 60 | DSOs | |
Inventories, net | 318 | 3.3 | Turn rates | |
Accounts payable | 163 | 56 | DPOs | |
Long-term debt | − | No outstanding debt |
25 | Third Quarter 2020 | © 2020 COPYRIGHT DISTRIBUTIONNOW |
Environmental, Social & Governance
© 2020 COPYRIGHT DISTRIBUTIONNOW
ESG Response to COVID-19
- Remained connected to our customers communicating impacts on product availability and accessibility, as DNOW designated as an "essential" business
- Corporate COVID-19 response team coordinating policies and guidelines
- Continuous communication through our HSE onsite champions on COVID updates and CDC / WHO information
- Implemented monthly survey to ensure employees have access to necessary PPE and cleaning supplies
- Provided masks, signage and disinfecting cleaners at locations
- Employees working remotely are able to leverage technology to connect with co-workers, customers and vendors
- Decreased third party access to business locations and increased reliance on video and teleconferencing
27 | Third Quarter 2020 |
© 2020 COPYRIGHT DISTRIBUTIONNOW
Released Inaugural Sustainability Report
- Increase ESG reporting transparency to shareholders
- Followed SASB (Sustainability Accounting Standards Board) and TCFD (Task Force on Climate Related Financial Disclosures) standards and guidance
- Aligned with business strategy
- Established ESG management committee
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Appendix
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Example Tank Battery Installation
Does not include utilities
Water Transfer Skid
Water Disposal Skid
Vapor Recovery Unit (VRU)
LACT
Gas Meter
ASME Bulk Separator
ASME Separators
ASME Heater Treaters
Pipe, Valves, & Fittings (PVF)
30 | Third Quarter 2020 | © 2020 COPYRIGHT DISTRIBUTIONNOW |
Timing and Materiality from Drilling to Tank Battery Install
Drilling | Frac | Tank Battery | ||||
Revenue* | $4,000-$5,000 per week | Minimal | $250,000-$2 million | |||
Time* | 60-90 days | 45-60 days | 45-60 days | |||
Customer | Drilling Contractors | Service Companies | E&P Operators | |||
*Estimates based on a 6 well pad | ||||||
31 | Third Quarter 2020 | © 2020 COPYRIGHT DISTRIBUTIONNOW | ||||
Investor Relations
Brad Wise, Vice President, Marketing & Investor Relations
ir.distributionnow.com, contact us at: ir@dnow.com
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NOW Inc. published this content on 06 November 2020 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 09 November 2020 18:37:01 UTC