NOW(DNOW) - 2024 Q4 - Annual Report

Company Overview - DNOW operates approximately 165 locations globally with around 2,575 employees, providing products and services to the energy and industrial markets[11]. - The company has a supplier network consisting of thousands of vendors across approximately 30 countries, selling to customers in around 80 countries[17]. - The company serves key markets including the U.S., Canada, UK, Norway, Australia, and the Middle East, with a focus on energy transition markets[15]. - As of December 31, 2024, the company had approximately 2,575 employees, with about 180 being temporary employees[44]. - The company operates approximately 110 locations in the United States, 40 in Canada, and 15 internationally, with 85% of properties leased[132]. Financial Performance - For the year ended December 31, 2024, the company generated net income of $81 million, or$0.74 per fully diluted share, on revenue of $2,373 million, representing a revenue increase of$52 million or 2.2% compared to 2023[161]. - Operating profit for 2024 was $113 million, a decline of$27 million compared to $140 million in 2023[164]. - Revenue from the U.S. segment was$1,880 million, an increase of $131 million or 7.5$253 million, a decline of $29 million or 10.3$240 million, a decline of $50 million or 17.2$76.55 per barrel in 2024 compared to 2023[159]. - Natural gas prices fell by 13.8% to $2.19 per MMBtu in 2024 compared to 2023[159]. Strategic Initiatives - The company began a restructuring plan in the International segment to optimize efficiencies and improve operating margins, indicating a strategic focus on cost management[27]. - DNOW's DigitalNOW® platform allows customers to leverage technology for operational challenges, enhancing their return on assets[11]. - The company plans to expand revenues by targeting new customers in non-oil and gas markets while supporting existing customers in energy transition projects[163]. Market Conditions - The distribution industry in which DNOW operates is highly fragmented, with a mix of large global companies and numerous small regional competitors[28]. - DNOW's operations are influenced by global supply and demand for energy, as well as geopolitical factors affecting the oil and gas industry[19]. - The company may face significant adverse effects from geopolitical tensions and military conflicts impacting the global economy and capital markets[65]. - Future inflationary pressures could lead to increased operating and capital costs, which may not be fully offset by price increases[66]. Risks and Challenges - Cyber incidents pose risks to the company's operations, potentially leading to operational disruptions and financial losses[87]. - A shift in purchasing behavior by customers towards direct purchases from manufacturers could significantly decrease the company's profitability[68]. - The company lacks long-term contracts with many customers, making it vulnerable to significant customer loss or reduced purchasing volumes[71]. - Changes in customer and product mix could lead to fluctuations in product margins, adversely affecting the company's financial condition[74]. - Supply chain disruptions may lead to unexpected product shortages, adversely affecting the company's ability to meet customer demand[92]. - The absence of contracts with most suppliers increases reliance on existing suppliers and may lead to higher prices if significant suppliers are lost[94]. - Changes in trade policies could increase material input costs and limit availability of raw materials, negatively impacting competitive position[100]. - The company is subject to strict environmental regulations that may lead to significant liabilities and affect financial results[101]. Employee and Corporate Governance - Approximately 25$500 million revolving credit facility with approximately $433 million available as of December 31, 2024, with no borrowings against it[187]. - The company expects capital expenditures for fiscal year 2025 to approximate$20 million, primarily for property, plant, and equipment purchases[195]. - The share repurchase program authorized up to $80 million was fully utilized by December 31, 2024, with 1,823,249 shares repurchased for$23 million[196]. - As of December 31, 2024, the allowance for credit losses totaled $15 million, representing 3.7$26 million or 6.3% in 2023[199]. - Inventory reserves amounted to $17 million as of December 31, 2024, which is 4.6$21 million or 5.4% in 2023[200]. - The company recorded $230 million of goodwill as of December 31, 2024, with no impairment testing required as fair values were determined to be greater than carrying amounts[202]. Tax and Compliance - The effective tax rate for 2024 was 28.1$148 million deferred tax benefit[178]. - A valuation allowance of $21 million was recognized on certain deferred tax assets, with a reduction of$3 million in the U.S. and $1 million in other foreign jurisdictions during the year[209]. - The company utilizes a two-step process to record unrecognized tax benefits, ensuring that tax positions are more-likely-than-not to be sustained based on technical merits[210].