Resilient Model Withstands Industry Headwinds
DNOW’s business has been resilient in the face of a declining US rig count through the first three quarters of 2023. 3Q23 US revenue was $448 million, 3% higher than 3Q22 despite an 11% fall in the average rig count. On a per rig basis, US 3Q23 revenue averaged ~$689,000, a 20% Y/Y gain. The gain reflects increased market share driven by DNOW’s Supercenter fulfillment model in major producing regions. Management expects FY23 revenue to increase ~8% Y/Y at the low end of prior guidance and adjusted EBITDA to come in level with FY22 at roughly $175 million. FY23 guidance implies ~7% lower revenue in 4Q23 compared with 3Q23, attributable to seasonal slowdowns and customer budget exhaustion in the US and Canada. Market share gains with major customers could be sustainable and leave DNOW well positioned for FY24. The November 2023 EIA Short Term Energy Outlook (STEO) forecasts continued growth in US oil and natural gas production in FY24. Production growth would require construction of new production, gathering, and midstream facilities supported by DNOW’s product lines. Increasing investment in carbon capture and sequestration (CCS) and renewable natural gas (RNG) projects expose DNOW to incremental revenue streams. Many of the companies at the forefront of major CCS and RNG projects are existing DNOW customers, and the company is already racking up new opportunities. DNOW’s exposure to decarbonization projects and other industrial applications for the products and fabricated equipment packages it supplies could help diversify the company’s revenue streams over time. Investment in projects currently under consideration could begin to ramp up as project owners eye in-service dates in 2025 and beyond. At the end of 3Q23, DNOW’s balance sheet had $194 million of cash and $547 million of total liquidity. Management continues to evaluate accretive acquisition opportunities that would allow the company to gain share with customers. The company has $28 million remaining on its $80-millon share repurchase authorization, equating to ~2.5% of outstanding shares.NOW, through its subsidiaries, is a distributor to the oil and gas and industrial markets. The company's global product offering includes consumable maintenance, repair and operating supplies, pipe, valves, fittings, flanges, gaskets, fasteners, electrical, instrumentation, artificial lift, pumping solutions, valve actuation and modular process, measurement and control equipment. The company also provides warehouse and inventory management solutions as part of its supply chain and materials management offering. The company's solutions include outsourcing the functions of procurement, inventory and warehouse management, logistics, point of issue technology, project management, as well as business process.
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