NOW(DNOW) - 2022 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Revenues in Q2 2022 were $539 million, a 14% increase or$ 66 million growth over Q1 2022, and a 35% increase or $139 million year-over-year [40][41] - Gross margins reached 23.7%, up 110 basis points from Q1 2022, exceeding previous full-year guidance of 22% to 22.5% [45][40] - EBITDA for Q2 was$ 47 million, representing 8.7% of revenue, the highest level since being public [11][40] - GAAP net income for Q2 was $26 million or$ 0.23 per share, while non-GAAP net income excluding other costs was $29 million or$ 0.26 per share [50] Business Line Data and Key Metrics Changes - U.S. revenue was $408 million, up 22% sequentially and 38% year-over-year, driven by increased E&P customer activity [41][17] - Canadian revenue was$ 72 million, down 12% sequentially but up 41% year-over-year, marking the smallest second-quarter pullback on record [42][25] - International revenue was $59 million, up 4% sequentially and 11% year-over-year, with a 19% increase when excluding foreign currency impacts [43][44] Market Data and Key Metrics Changes - U.S. rig count growth was 13%, contributing to revenue growth in the U.S. segment [41][17] - International market conditions are improving, with increased offshore investments and activity in the Middle East and Southeast Asia [28][29] Company Strategy and Development Direction - The company is focused on maximizing efficiencies through regionalized fulfillment and enhancing customer proximity [14][17] - Recent acquisitions aim to fortify the company's position in non-commoditized customer solutions with better gross margins [35][37] - The company plans to invest in technology and training to improve operational efficiencies and customer service [96][98] Management's Comments on Operating Environment and Future Outlook - Management expects Q3 revenues to increase in the mid-single-digit percent range, with gross margins remaining at record high levels [64] - Full-year revenue is now expected to grow up to 30% compared to 2021, with EBITDA approximating 7% of full-year revenue [66] - The company anticipates generating positive free cash flow in 2022 despite potential seasonal revenue declines in Q4 [89][90] Other Important Information - The company has authorized an$ 80 million share repurchase program, reflecting confidence in its financial performance and balance sheet [38][62] - The company has ceased operations in Russia and reduced its footprint in certain international markets, impacting quarterly revenue by approximately $4 million [31][47] Q&A Session Summary Question: Can you comment on the upside drivers for gross margins in Q2? - Management noted that proactive inventory building and a large project contributed to higher gross margins, but expects margins to narrow slightly in Q3 [70][72] Question: What are the expectations for operating margins moving forward? - Management aims for a full-year EBITDA of 7%, with goals to grow further in future years [75][76] Question: What was the catalyst for the share repurchase announcement? - The catalyst was the belief that shares were undervalued, combined with a strong earnings profile and balance sheet [79] Question: How will free cash flow be impacted in the back half of the year? - Management expects a slight dip in free cash flow in Q4 due to seasonal revenue declines but remains optimistic about generating positive cash flow overall [88][90] Question: What is the outlook for international growth next year? - Management expressed optimism for double-digit growth in the international segment, supported by increasing activity and project opportunities [90]