OREANDA-NEWS. NOW Inc. (NYSE: DNOW) reported for its second quarter ended June 30, 2016 a net loss of $44 million, or $(0.40) per fully diluted share, compared to net loss of $19 million, or $(0.18) per fully diluted share in the same period of 2015. Other costs had a net zero impact on net loss and diluted earnings per share for the three months ended June 30, 2016. Other costs in the second quarter of 2016 included $3 million in acquisition-related and severance charges and a net $3 million after-tax benefit related to a deferred tax asset valuation allowance release.

The Company’s revenues for the second quarter of 2016 were $501 million, a decrease of nine percent from the first quarter of 2016.

Cash flows from operating activities were $66 million for the second quarter of 2016 compared to $94 million for the same period of 2015.

On June 1, 2016 the Company completed its acquisition of Power Service, a distributor of original equipment manufacturer parts including pumps, generator sets, air compressors and blowers and a fabricator of custom lease automatic custody transfer (LACT) units, vapor recovery units, ASME code vessels, water production skids and turnkey tank battery solutions serving the upstream, midstream and downstream oil and gas markets.

Robert Workman, President and CEO of NOW Inc., remarked “Oil prices surged in the second quarter compared to the first, generating an uptick in rig activity during the back half of the quarter. However, the market remains uncertain as oil prices have since retreated back into the $40 range. Despite these mixed signals, we remain focused on removing costs from our customers’ supply chain, tightly managing our healthy balance sheet and diligently integrating recent acquisitions.”

United States

Second quarter revenues for the United States were $337 million, down six percent from the first quarter of 2016, or down 8 percent when ignoring the favorable impact of acquisitions, amid 24 percent fewer rigs being active. Revenues decreased 32 percent from the second quarter of 2015, or 41 percent when excluding acquisitions, significantly outpacing the United States rig count decline of 54 percent in the same period.

Canada

Canada revenues were $55 million, down 13 percent compared to the first quarter of 2016 and down 38 percent from the second quarter of 2015. These declines were driven by historically low levels of operating activity, where Canada rig counts dropped 70 percent sequentially and 51 percent from the second quarter of 2015.

 
NOW INC.
CONSOLIDATED BALANCE SHEETS
(In millions, except share data)
             
      June 30,     December 31,
      2016     2015
      (Unaudited)      
ASSETS
Current assets:            
Cash and cash equivalents     $ 136       $ 90  
Receivables, net       354         485  
Inventories, net       589         693  
Prepaid and other current assets       29         24  
Total current assets       1,108         1,292  
Property, plant and equipment, net       161         165  
Deferred income taxes       4         4  
Goodwill       334         205  
Intangibles, net       201         161  
Other assets       6         5  
Total assets       1,814         1,832  
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:            
Accounts payable     $ 205       $ 211  
Accrued liabilities       96         94  
Other current liabilities       3         2  
Total current liabilities       304         307  
Long-term debt     $ 180       $ 108  
Deferred income taxes       6         11  
Other long-term liabilities       2         3  
Total liabilities       492         429  
Commitments and contingencies            
Stockholders' equity:            
Preferred stock - par value $0.01; 20 million shares authorized;            
no shares issued and outstanding      

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Common stock - par value $0.01; 330 million shares authorized; 107,473,952 and            
107,219,138 shares issued and outstanding at June 30, 2016 and December 31, 2015, respectively       1         1  
Additional paid-in capital       1,991         1,980  
Accumulated deficit       (551 )       (444 )
Accumulated other comprehensive loss       (119 )       (134 )
Total stockholders' equity       1,322         1,403  
Total liabilities and stockholders' equity     $ 1,814       $ 1,832  
                               
NOW INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(In millions, except per share data)
                               
      Three Months Ended     Six Months Ended
      June 30,     March 31,     June 30,
      2016     2015     2016     2016     2015
Revenue     $ 501       $ 750       $ 548       $ 1,049       $ 1,613  
Operating expenses:                              
Cost of products       418         626         461         879         1,334  
Warehousing, selling and administrative       140         151         152         292         314  
Operating loss       (57 )       (27 )       (65 )       (122 )       (35 )
Other expense       (2 )       (2 )       (2 )       (4 )       (6 )
Loss before income taxes       (59 )       (29 )       (67 )       (126 )       (41 )
Income tax benefit       (15 )       (10 )       (4 )       (19 )       (12 )
Net loss     $ (44 )     $ (19 )     $ (63 )     $ (107 )     $ (29 )
Loss per share:                              
Basic loss per common share     $ (0.40 )     $ (0.18 )     $ (0.59 )     $ (0.99 )     $ (0.27 )
Diluted loss per common share     $ (0.40 )     $ (0.18 )     $ (0.59 )     $ (0.99 )     $ (0.27 )
Weighted-average common shares outstanding, basic       107         107         107         107         107  
Weighted-average common shares outstanding, diluted       107         107         107         107         107  
                               
 

NOW INC.

SUPPLEMENTAL INFORMATION

 

BUSINESS SEGMENTS (UNAUDITED)

(In millions)
                               
      Three Months Ended     Six Months Ended
      June 30,     March 31,     June 30,
      2016     2015     2016     2016     2015
Revenue:                              
United States     $ 337       $ 496       $ 357       $ 694       $ 1,097  
Canada       55         89         63         118         205  
International       109         165         128         237         311  
Total revenue     $ 501       $ 750       $ 548       $ 1,049       $ 1,613  
                       
NOW INC.
SUPPLEMENTAL INFORMATION (CONTINUED)
                       
U.S. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP) TO NON-GAAP RECONCILIATIONS
                       
NET LOSS TO NON-GAAP EBITDA EXCLUDING OTHER COSTS RECONCILIATION (UNAUDITED)
(In millions)
                       
      Three Months Ended   Six Months Ended
      June 30,   March 31,   June 30,
      2016   2015   2016   2016   2015
                       
GAAP net loss (1)     $ (44 )   $ (19 )   $ (63 )   $ (107 )   $ (29 )
Interest, net       1      

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       1      

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Income tax benefit       (15 )     (10 )     (4 )     (19 )     (12 )
Depreciation and amortization       13       9       12       25       16  
Other costs (2)       3       3       4       7       12  
EBITDA excluding other costs     $ (42 )   $ (17 )   $ (51 )   $ (93 )   $ (13 )
EBITDA % excluding other costs (3)       (8.4 %)     (2.3 %)     (9.3 %)     (8.9 %)     (0.8 %)
                       
NET LOSS TO NON-GAAP NET LOSS EXCLUDING OTHER COSTS RECONCILIATION (UNAUDITED)
(In millions)
                       
      Three Months Ended   Six Months Ended
      June 30,   March 31,   June 30,
      2016   2015   2016   2016   2015
                       
GAAP net loss (1)     $ (44 )   $ (19 )   $ (63 )   $ (107 )   $ (29 )
Other costs, net of tax (4)      

-

       2       25       25       9  
Net loss excluding other costs     $ (44 )   $ (17 )   $ (38 )   $ (82 )   $ (20 )
                       
DILUTED LOSS PER SHARE TO NON-GAAP DILUTED LOSS PER SHARE EXCLUDING OTHER COSTS RECONCILIATION (UNAUDITED)
                       
      Three Months Ended   Six Months Ended
      June 30,   March 31,   June 30,
      2016   2015   2016   2016   2015
                       
GAAP diluted loss per share (1)     $ (0.40 )   $ (0.18 )   $ (0.59 )   $ (0.99 )   $ (0.27 )
Other costs, net of tax (4)      

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       0.02       0.24       0.23       0.09  
Diluted loss per share excluding other costs (5)     $ (0.40 )   $ (0.16 )   $ (0.35 )   $ (0.76 )   $ (0.18 )
                                           

(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 acquisitions, including the cost of inventory that was stepped up to fair value during purchase accounting related to acquisitions, 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 six months ended June 30, 2016 and 2015 included $3 million benefit, $20 million expense, nil and nil, respectively, for deferred tax asset valuation allowance; as well as, $3 million, $5 million, $2 million and $9 million, after tax, respectively, in transaction costs associated with acquisitions, including the cost of inventory that was stepped up to fair value during purchase accounting related to acquisitions, and severance expenses which are included in operating loss. Other costs, net of tax, was less than $1 million for the three months ended June 30, 2016.

(5) Per share amounts may not foot due to rounding.