NOW : DNOW Investor Presentation Third Quarter 2020

November 09, 2020 at 01:38 pm EST

Investor Relations

Third Quarter 2020

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

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

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

7	Third Quarter 2020

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

8	Third Quarter 2020

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

9	Third Quarter 2020

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%

11	Third Quarter 2020

Valves

21%

Fittings and Flanges

18%

Mill Tool, MRO, Safety

and Other

21%

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

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


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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

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

Financial Update

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%

					$(18)	$(17)
2Q20		3Q20

	-4.1%		-4.6%

			3Q19	2Q20	3Q20

($15)	($15)

21	Third Quarter 2020

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

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

23	Third Quarter 2020

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

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

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

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


28	Third Quarter 2020	© 2020 COPYRIGHT DISTRIBUTIONNOW

Appendix

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

Market Closed - Nyse Other stock markets 04:00:02 2024-04-24 pm EDT			5-day change	1st Jan Change
14.77 ^USD	-2.51%		+1.03%	+30.48%

Apr. 08	Susquehanna Raises Price Target on NOW to $16 From $13, Maintains Neutral Rating	MT
Mar. 28	Stifel Nicolaus Adjusts NOW Price Target to $18 From $16, Maintains Buy Rating	MT

Susquehanna Raises Price Target on NOW to $16 From $13, Maintains Neutral Rating	Apr. 08	MT
Stifel Nicolaus Adjusts NOW Price Target to $18 From $16, Maintains Buy Rating	Mar. 28	MT
DNOW Completes Whitco Supply Acquisition	Mar. 12	MT
DNOW Inc. completed the acquisition of Whitco Supply, LLC.	Mar. 11	CI
Stifel Adjusts Price Target on DNOW to $16 From $14, Maintains Buy Rating	Feb. 16	MT
Susquehanna Adjusts Price Target on DNOW to $13 From $11, Maintains Neutral Rating	Feb. 16	MT
Tranche Update on DNOW Inc.'s Equity Buyback Plan announced on August 3, 2022.	Feb. 15	CI
DNOW's Q4 Non-GAAP Earnings Decline While Revenue Advances -- Shares Rise	Feb. 15	MT
Transcript : DNOW Inc., Q4 2023 Earnings Call, Feb 15, 2024	Feb. 15
DNOW Inc. Reports Earnings Results for the Full Year Ended December 31, 2023	Feb. 15	CI
Earnings Flash (DNOW) DNOW Reports Q4 Revenue $555M	Feb. 15	MT
Earnings Flash (DNOW) DNOW Posts Q4 EPS $0.22	Feb. 15	MT
DNOW Inc. Reports Earnings Results for the Fourth Quarter Ended December 31, 2023	Feb. 15	CI
DNOW to Acquire Whitco Supply in All-Cash Deal	Feb. 06	MT
DNOW Inc. entered into an agreement to acquire Whitco Supply, LLC.	Feb. 05	CI
NOW Inc. will Change its Name to DNOW Inc	Jan. 19	CI
Transcript : NOW Inc., Q3 2023 Earnings Call, Nov 02, 2023	Nov. 02
Tranche Update on NOW Inc.'s Equity Buyback Plan announced on August 3, 2022.	Nov. 02	CI
Earnings Flash (DNOW) NOW Reports Q3 Revenue $588M, vs. Street Est of $603.1M	Nov. 02	MT
Earnings Flash (DNOW) NOW Reports Q3 EPS $0.25	Nov. 02	MT
NOW Inc. Reports Earnings Results for the Third Quarter and Nine Months Ended September 30, 2023	Nov. 02	CI
North American Morning Briefing : Mood Lifted on -2-	Nov. 02	DJ
Susquehanna Adjusts Price Target on NOW to $11 From $10.50, Maintains Neutral Rating	23-10-04	MT
Stifel Adjusts Price Target on NOW to $14 From $13, Maintains Buy Rating	23-09-28	MT
Weak Demand Puts South Korean Telemedicine Industry in Tight Spot	23-08-27	MT

	1st Jan change	Capi.
DNOW INC.	+30.48%	1.65B
W.W. GRAINGER, INC.	+15.64%	47B
FASTENAL COMPANY	+4.59%	38.65B
APPLIED INDUSTRIAL TECHNOLOGIES, INC.	+7.76%	7.2B
MSC INDUSTRIAL DIRECT CO., INC.	-7.74%	5.25B
DISTRIBUTION SOLUTIONS GROUP, INC.	+6.81%	1.6B
BUFAB AB	-0.26%	1.35B
TRUSCO NAKAYAMA CORPORATION	+2.21%	1.04B
MRC GLOBAL INC.	+5.99%	1.03B
BEIJING ORIENTAL JICHENG CO., LTD.	-5.90%	970M

DNOW Inc.

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Industrial Machinery & Equipment

NOW : DNOW Investor Presentation Third Quarter 2020

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