DNOW Inc. — 2023 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2023. Although the request references 2023 Q4, the filing is an annual report and the supplied text does not provide a clear standalone fourth-quarter income statement or cash-flow summary. Amounts below are annual unless noted. Dollar figures are in millions except per-share data.
Business context
DNOW is a global distributor of energy and industrial products and supply-chain services, operating through U.S., Canada and International reportable segments. It had approximately 165 locations and 2,475 employees at year-end. Demand is linked to energy-sector activity, commodity prices, and customer capital and operating expenditures.
Financial performance and liquidity
| Metric | 2023 | 2022 |
|---|---|---|
| Revenue | $2,321 | $2,136 |
| Operating profit | $140 | $131 |
| Net income attributable to DNOW | $247 | $128 |
| Diluted EPS | $2.24 | $1.13 |
| Operating cash flow | $188 | $0 |
| EBITDA excluding other costs, non-GAAP | $184 | $175 |
| EBITDA margin excluding other costs, non-GAAP | 7.9% | 8.2% |
- Revenue rose 8.7%; operating profit increased $9 million. Operating margin was approximately 6.0%, versus 6.1% in 2022. Cost of products increased to $1,786 million from $1,630 million; warehousing, selling and administrative expenses increased to $395 million from $365 million.
- Net income included a substantial non-cash deferred tax benefit: the company released most of its valuation allowance, recognizing a $126 million benefit in Q4 and a $110 million total income tax benefit for the year. The effective tax rate was negative 79.7%, compared with 7.2% in 2022. This tax item materially boosted reported earnings.
- Operating cash flow improved from zero to $188 million, principally reflecting about $170 million of working-capital improvement, including better receivable collections and lower inventory. Investing cash outflow was $48 million, including $32 million for acquisitions and $17 million for capital expenditures. Financing cash outflow was $55 million, mainly $50 million of share repurchases.
- Cash and cash equivalents were $299 million, up from $212 million. Current assets were $1,068 million and current liabilities $418 million. The company reported no revolver borrowings and approximately $493 million of facility availability ($327 million excluding certain cash deposits); it was in covenant compliance.
- Segment revenue and operating profit: U.S. $1,749 million and $104 million; Canada $282 million and $21 million; International $290 million and $15 million. The U.S. had one customer representing approximately 10% of total revenue.
- Long-term operating lease liabilities were $30 million; total lease liabilities, including finance leases, were $63 million. The company also reported $11 million of outstanding letters of credit and surety bonds.
Material changes versus 2022
- U.S. revenue increased 9.9%, supported by project activity and acquisitions; operating profit was nearly flat at $104 million versus $103 million.
- Canada revenue declined 10.5% to $282 million, including an approximately $11 million adverse currency impact; operating profit fell by $9 million to $21 million.
- International revenue increased 26.1% to $290 million and operating profit improved to $15 million from a $2 million loss. The comparison benefited from the absence of $10 million of impairment and other charges recognized in 2022.
- Worldwide average rig count increased 3.8%, but U.S. average rig count declined 4.4%. Average WTI crude, natural gas and hot-rolled coil prices fell 18.1%, 60.4% and 19.1%, respectively.
- Cash increased, while inventory declined to $366 million from $381 million and net receivables declined to $384 million from $398 million. The company repurchased 4.55 million shares for $50 million in 2023, compared with $7 million in 2022.
Outlook, risks and unusual items
- Management described its market outlook as constructive and expects global oil and gas demand to grow over the next several years, while emphasizing uncertainty and volatility in commodity prices and customer spending. It highlighted energy-transition projects as a potential source of business.
- 2024 capital expenditures are expected to be approximately $20 million. Management expects liquidity from cash, operating cash flow and the revolving facility to fund operations, working capital, capital expenditures and the repurchase program.
- The $80 million share-repurchase authorization runs through December 31, 2024; approximately $23 million remained at year-end. DNOW reported no dividends declared in 2021–2023 and no current intention to declare them.
- Two 2023 acquisitions had approximately $33 million of net cash purchase consideration and added $22 million of goodwill and $9 million of intangible assets. After year-end, DNOW signed an agreement to acquire Whitco Supply, subject to regulatory approval and customary closing conditions.
- Key risks include energy-price and activity volatility, customer and supplier concentration or loss, competitive pricing and margin pressure, steel-price and inventory exposure, foreign exchange, supply-chain disruption, cybersecurity, international and geopolitical risks, and environmental and product-liability claims. A 10% currency-rate change would have affected 2023 net income by an estimated $3 million, according to the filing.
- Management said pending or threatened ordinary-course legal matters are not expected to have a material adverse effect, but the total potential loss on certain matters cannot be determined. The filing reports no known pending environmental matter expected by management to have a material effect.
- Goodwill was $139 million at year-end; annual impairment reviews in 2023 and 2022 resulted in no impairment. The auditor issued unqualified opinions on the financial statements and internal controls. Management and the auditor reported effective internal control over financial reporting with no identified material weaknesses.
Important facts for investors to verify
- How much of 2023 earnings growth reflects recurring operating performance versus the non-cash deferred-tax valuation-allowance release, and whether deferred tax assets are ultimately realized.
- Whether working-capital-driven cash generation is sustainable, including receivables collection, inventory levels and supplier-payment trends.
- Current segment demand and margins, particularly the Canadian decline and the International segment’s improved profitability; also monitor U.S. rig activity and commodity prices.
- Final terms, timing, financing and expected contribution of the Whitco Supply acquisition, and integration outcomes from recent acquisitions.
- Use of the remaining repurchase authorization, post-year-end liquidity and borrowing-base availability, and any changes to lease or other obligations.
- Potential exposure from litigation, environmental matters, customer concentration, inventory reserves and cybersecurity incidents.