Release Date: August 07, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Dnow Inc (DNOW, Financial) achieved strong earnings with a 12% sequential revenue growth in the second quarter of 2024, driven by the Whitco acquisition and growth in International and legacy US businesses.
- The company generated $50 million in EBITDA for the quarter, showcasing strong bottom-line performance.
- Dnow Inc (DNOW) produced $18 million of free cash flow during the quarter, bringing the year-to-date amount to $98 million.
- The company remains debt-free with $197 million in cash and $579 million in total liquidity, providing flexibility for organic and inorganic growth.
- Dnow Inc (DNOW) is making progress in expanding its industrial adjacent markets, including mining, municipal water, and chemicals, aligning well with its service areas and product lines.
Negative Points
- The US onshore oil and gas activity is challenging due to E&P consolidation, low natural gas prices, and infrastructure constraints, impacting growth.
- Gross margins declined by 110 basis points from the first quarter of 2024, affected by declining steel pipe prices and acquisition purchase accounting impacts.
- The company expects third-quarter sequential revenues to be flat to down 5% from Q2 2024 due to muted US activity and project timing internationally.
- Dnow Inc (DNOW) faces headwinds from lower gas prices, lower US rigs and completions, and the seasonal breakup in Canada.
- Customer consolidations have impacted project timing, resulting in funding and approval delays or project timeline shifts.
Q & A Highlights
Q: What has changed for DNOW over the last six months, and how has this affected your order rates and market view?
A: David Cherechinsky, President and CEO, explained that rig counts have been declining, impacting revenue opportunities. Completions have also been down, and expectations for a bottom in these metrics have not materialized. This has led to a cautious approach in investment and resource management. However, they see potential growth opportunities in the future, indicating that current challenges are temporary.
Q: Why do you believe the current challenges are temporary, and what are the green shoots you see?
A: David Cherechinsky highlighted several factors: growing oil demand, increasing LNG export opportunities, potential easing of tentativeness post-US elections, expected gas futures improvements, and interest rate cuts. Additionally, DNOW's energy evolution strategy is gaining traction, with expectations to double sales in this area.
Q: Can you provide more details on the energy evolution revenue expectations for 2024 and beyond?
A: David Cherechinsky confirmed a potential $60 million in revenue for 2024 from energy evolution projects. While there is a significant increase in quotes and orders, translating this into 2025 projections is still uncertain.
Q: Are you seeing market share gains in the US, and how does customer consolidation affect your business?
A: David Cherechinsky noted that DNOW is gaining market share as smaller competitors face challenges. Customer consolidations can delay projects initially, but DNOW is well-positioned to benefit from these consolidations in the long term.
Q: How is the Whitco acquisition impacting your midstream footprint, and what are the expectations for future activity?
A: Brad Wise, Vice President of Digital Strategy and Investor Relations, stated that the acquisition enhances DNOW's ability to address midstream challenges, such as gas takeaway capacity. While short-term congestion exists, long-term demand for gas export positions DNOW well in the midstream sector.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
