We Distribute Products That Deliver Energy to the World. NOW Inc., Third Quarter 2017 Review & Key Takeaways

Transcription

1 We Distribute Products That Deliver Energy to the World NOW Inc., Third Quarter 2017 Review & Key Takeaways

2 Forward Looking Statements 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. 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. 2

3 CEO Perspective: Strong Third Quarter Results Revenue improved 7% sequentially to $697; 34% growth YOY Net loss for 3Q 2017 improved to $9M, or a loss of $3M excluding other costs (non-gaap measure*) EBITDA excluding other costs (non-gaap measure*) improved by $7M sequentially to a positive $5M, improving $45M YOY First positive EBITDA quarter since the downturn Diluted loss per share improved to $0.08, or $0.03 excluding other costs (non-gaap measure*) EBITDA excluding other costs flow through of 15% on sequential revenues Driving Strong Margin Flow-Through on Revenue Improvement 3 (* See footnotes on last page)

4 CEO Perspective: Focused on Continued Efficiencies Annualized revenue per global operating rig continues at $1.3M WS&A grew, slightly, to $141M, to support SCS implementations and Process Solutions growth Gross margins expanded for the third consecutive quarter Reduced branch count by six Maintained working capital excluding cash target at 23% as a percent of revenue Cash on hand at September 30, 2017 increased to $99M Demonstrating Success of Strategy to Drive Improved Performance 4

5 CEO Perspective: Going Forward Potential for DUCs to drive increased completions and revenue opportunities in future quarters Focus on solid incrementals and cost discipline across all segments Actively evaluate bolt-on acquisitions in U.S. to support Process Solutions Continue to integrate Process Solutions business and drive further supply chain efficiencies Committed to Running a Profitable Business for the Long Term 5

6 Statement of Operations and Non-GAAP Reconciliations ($ Millions, Except Per Share Amounts and Percentages) Unaudited 3Q Q 2017 Unaudited 3Q Q 2017 Revenue $697 $651 Operating Expenses Cost of Products WS&A Operating Loss (6) (14) Other Expense (3) (3) Loss Before Income Taxes (9) (17) Income Tax Provision (Benefit) - - GAAP Net Loss $(9) $(17) GAAP Net Loss $(9) $(17) Interest, Net 2 1 Income Tax Provision (Benefit) - - Depreciation & Amortization Other Costs* - 1 EBITDA Excluding Other Costs (Non-GAAP*) $5 $(2) EBITDA % Excluding Other Costs (Non-GAAP*) 0.7% (0.3%) GAAP Reported Diluted Loss Per Share $(0.08) $(0.16) Other Costs* Five Sequential Quarters of Revenue Growth Diluted Loss Per Share Excl. Other Costs (Non-GAAP*) $(0.03) $(0.10) 6 (* See footnotes on last page)

7 Statement of Operations and Non-GAAP Reconciliations ($ Millions, Except Per Share Amounts and Percentages) Unaudited 3Q Q 2016 Unaudited 3Q Q 2016 Revenue $697 $520 Operating Expenses Cost of Products WS&A Operating Loss (6) (53) Other Expense (3) _(3) Loss Before Income Taxes (9) (56) Income Tax Provision (Benefit) _ - -_ GAAP Net Loss $(9) $(56) GAAP Net Loss $(9) $(56) Interest, Net 2 1 Income Tax Provision (Benefit) - - Depreciation & Amortization Other Costs* - 1 EBITDA Excluding Other Costs (Non-GAAP*) $5 $(40) EBITDA % Excluding Other Costs (Non-GAAP*) 0.7% (7.7%) GAAP Reported Diluted Loss Per Share $(0.08) $(0.53) Other Costs* Diluted Loss Per Share Excl. Other Costs (Non-GAAP*) $(0.03) $(0.34) EBITDA Excluding Other Costs (Non-GAAP measure*) Improved by $45M 7 (* See footnotes on last page)

8 Revenue Per Global Operating Rig in Line with Prior Quarters ($ Millions - QTR - Annualized) $ % $1.40 $ % $ % $0.80 $ % $ % $0.20 $- 3Q14 4Q 1Q15 2Q 3Q 4Q 1Q16 2Q 3Q 4Q 1Q17 2Q 3Q 0.0% Rig Count Source: Baker Hughes, Inc. Annualized Revenue Per Rig GM% Gross Margin % Continued Upward Climb in 3Q 8

9 Pipe Prices Strengthen Average of Selected ERW Items - Price ($/ton) Average of Selected Seamless Items - Price ($/ton) ERW Seamless 1,600 3,000 1,400 1,200 1, ,378 1,349 1,343 1,327 1,264 1,239 1,172 1,103 1,055 1,061 1, ,011 1,023 1, ,500 2,000 1,500 1,000 2,636 2,600 2,530 2,458 2,340 2,335 2,173 2,203 2,079 2,011 1,854 1,779 1,774 1,613 1,589 1,514 1,397 1,404 1,425 1,328 1,308 1,220 1,175 1,134 1,115 1, Q14 4Q 1Q15 2Q 3Q 4Q 1Q16 2Q 3Q 4Q 1Q17 2Q 3Q 0 3Q14 4Q 1Q15 2Q 3Q 4Q 1Q16 2Q 3Q 4Q 1Q17 2Q 3Q ERW Domestic ERW Foreign Smls Domestic Smls Foreign Source: Pipe Logix Strong Activity for Domestic Material Due to Sentiment and Availability 9

10 Selected Quarterly Results (Unaudited) Revenue Gross Profit and Margin ($ in millions) ($ in millions) $697 $651 $520 $87 $124 $ % 19.4% 16.7% EBITDA Excl. Other Costs (Non-GAAP*) and Margin ($ in millions) 3Q16 2Q17 3Q17 0.7% (7.7%) (0.3%) $5 ($2) Net Loss ($ in millions) 3Q16 2Q17 3Q17 Gross Profit % Margin 3Q16 2Q17 3Q17 ($17) ($9) ($40) 3Q16 2Q17 3Q17 ($56) Net Loss EBITDA Excluding Other Costs* % Margin Revenue & EBITDA Excluding Other Costs (Non-GAAP*) Continued Positive Trajectory 10 (* See footnotes on last page)

11 Top-Line Improvement Across All Segments ($ Millions) Revenue Unaudited 3Q Q Q 2016 United States $506 $481 $372 Canada International Total Revenue Operating Profit (Loss) United States (10) (16) (46) Canada 4 2 (2) International - - (5) Total Operating Loss $(6) $(14) $(53) United States U.S. Revenue was up 5% sequentially predominantly from increased rig count and growth related to the integration of Power Service acquisition into the Process Solutions business. Reduced activity from industrial manufacturers and downstream customers, as well as delayed line pipe projects, muted revenue expansion. Operating losses in the U.S. were curtailed by volume gains and improved product margins. Canada Canadian revenue improved 22% sequentially, related primarily to rig count improvement. Operating profit increased in the quarter due to volume increases, lower inventory charges, increased activity in the Montney and Viking plays and a new oil sands MRO agreement. International International revenue grew 4% in the quarter driven by electrical project sales in Europe and increased customer penetration throughout the Middle East and Europe. Even though sequential revenues grew Internationally, operating margins were flat as project sales at better-thanaverage product margins declined in 3Q. Strength in U.S. Onshore Activity Continues to Drive Top-Line Growth 11

12 Marginal Improvements in Key Industry Metrics Average Oil Prices (per barrel) Average Annual Rig Count (number of rigs) $100 $97 $111 $112 $95 $94 $109 $98 $99 $93 3,116 3,336 2,985 3,465 3,518 3,412 3,578 $72 $72 $80 $79 1,005 1,079 2,304 1,094 1,167 1,234 1,296 1,336 2,337 $61 $62 $52 $49 $44 $43 $52 $ ,167 1,593 2, ,768 1, ,541 1,875 1,919 1,761 1, , YTD Sep '17 Brent WTI Source: EIA, Europe Brent and Cushing, OK WTI Spot Price FOB YTD Sep '17 United States Canada International Total Source: Baker Hughes, Inc. Oil Prices May Be Range Bound, But Trending Upward in 4Q 12

13 U.S. and Canadian Rigs Up Sequentially U.S. Rig Count Trends Canada Rig Count Trends U.S. Rig Counts Canada Rig Counts Q16 3Q 4Q 1Q17 2Q 3Q BREAK-UP BREAK-UP 2Q16 3Q 4Q 1Q17 2Q 3Q Source: Baker Hughes, Inc. DNOW Generated 15% Flow-Through on Increased Rig Count in 3Q 13

14 Tight DUCs to Completions Ratio Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Completions 2,250 2,000 EIA Drilling Productivity Report Wells drilled, completed, and drilled but uncompleted (DUC) inventory DUCs 8,000 7,500 7,000 1,750 1,500 1,250 6,500 6,000 5,500 5,000 4,500 4,000 1,000 3, Average DUCs to Completions Ratio Average D2C Ratio Average D2C Ratio Average D2C Ratio (Sep) 7.3 3,000 2,500 2,000 1,500 1, Completions Strengthening as DUC Backlog Grows 14 DUCs Drilled Completed

15 U.S. Revenue and Completions Trends 1,500 8,000 1,250 1,000 5,882 5,766 5,676 5,584 5,535 5,603 5,834 5,901 6,107 6,312 6,562 6,660 6,893 7,091 7,270 7,500 7,000 6,500 6,000 5,500 5,000 4, ,000 3,500 3, ,500 2, DNOW U.S. estimated revenues impacted by completions (quarters) Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Source for wells drilled, completed and DUCs data: eia.gov DUCs Drilled Completed 1,500 1, DUCS Backlog Provides Growth Driver for DNOW 15

16 Maintaining Working Capital as a % of Revenue Target ($ Millions) Free Cash Flow - Quarters Working Capital Excluding Cash - Quarters $30 $628 $601 3Q16 2Q17 3Q17 29% $582 23% 22% ($35) ($53) 3Q16 2Q17 3Q17 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 % of Qtr Annual. Revenue Higher Capital in Anticipation of Future Growth 16

17 Ongoing Focus on Working Capital Reductions ($ Millions) Unaudited 3Q Q 2017 Current Assets Cash & Cash Equivalents $99 $97 Receivables, Net Inventories, Net Prepaid & Other Current Assets Total Current Assets 1,149 1,065 Current Liabilities Accounts Payable Accrued and Other Liabilities Total Current Liabilities Working Capital, Excl. Cash $628 $582 DSO s Inv. Turns 4.0x 4.0x Working capital (WC) excluding cash, was $628M at September 30, 2017, or 23% of revenue Sequentially: AR increased by $48M in the quarter Increased net inventory by $33M 91 Days of Inventory on hand Continued inventory replacement orders for long-lead time products like pipe and valves Debt at $163M, with net debt at $64M Low CapEx of $2M during 3Q17, $3M YTD Flat Inventory Turns for the Quarter Inventory Increase in Line with Expansion 17

18 EBITDA, Net Income and Diluted EPS Excl. Other Costs Footnotes (1) In an effort to provide investors with additional information regarding our results as determined by GAAP, we disclose various non-gaap financial measures in our quarterly earnings press releases and other public disclosures. The non-gaap financial measures include: (i) earnings before interest, taxes, depreciation and amortization (EBITDA) excluding other costs, (ii) net loss excluding other costs and (iii) diluted 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 of these non-gaap financial measures to its most comparable GAAP financial measure is included in the schedules herein. (2) Other costs primarily includes the transaction costs associated with acquisition activity, including the cost of inventory that was stepped up to fair value during purchase accounting and severance expenses which are included in operating loss. (3) EBITDA % excluding other costs is defined as EBITDA excluding other costs divided by Revenue. (4) Other costs, net of tax, for the three and nine months ended September 30, 2017 includes an expense of $5M and $18M, respectively, after tax, for a valuation allowance recorded against the Company s deferred tax assets; as well as, less than $1M and $1M, respectively, after tax, in severance expenses that are included in operating loss. (5) Totals may not foot due to rounding. * See referenced schedules on slides 3, 6, 7 & 10 18