10-Q
false--12-310001599617Q100015996172022-08-0300015996172022-01-012022-12-310001599617us-gaap:TechnologyEquipmentMember2022-12-310001599617us-gaap:FairValueInputsLevel2Memberus-gaap:OtherExpenseMembersrt:MaximumMemberus-gaap:NondesignatedMember2023-01-012023-03-310001599617us-gaap:NoncontrollingInterestMember2023-03-310001599617us-gaap:SecuredOvernightFinancingRateSofrOvernightIndexSwapRateMember2022-12-290001599617us-gaap:AccumulatedOtherComprehensiveIncomeMember2022-01-012022-03-310001599617us-gaap:LandAndBuildingMember2022-12-310001599617us-gaap:TreasuryStockMember2022-12-310001599617us-gaap:VariableInterestEntityPrimaryBeneficiaryMembersrt:MaximumMember2022-01-012022-03-3100015996172023-04-270001599617us-gaap:RevolvingCreditFacilityMember2023-03-310001599617srt:MaximumMemberus-gaap:LandAndBuildingMember2023-01-012023-03-310001599617us-gaap:FairValueInputsLevel2Memberus-gaap:NondesignatedMember2023-03-310001599617us-gaap:RetainedEarningsMember2022-12-3100015996172021-12-310001599617us-gaap:ConstructionInProgressMember2022-12-310001599617us-gaap:RetainedEarningsMember2023-03-310001599617stpr:CA2022-12-292022-12-290001599617us-gaap:FairValueInputsLevel2Memberus-gaap:OtherExpenseMembersrt:MaximumMemberus-gaap:NondesignatedMember2022-01-012022-03-310001599617srt:MinimumMemberdnow:PerformanceBaseRestrictedStockMemberdnow:SeniorManagementEmployeesMember2023-01-012023-03-310001599617us-gaap:CommonStockMember2022-12-310001599617us-gaap:TreasuryStockCommonMember2023-01-012023-03-310001599617country:CA2023-01-012023-03-310001599617us-gaap:CommonStockMember2021-12-310001599617us-gaap:VariableInterestEntityPrimaryBeneficiaryMember2022-12-310001599617us-gaap:FairValueInputsLevel2Membersrt:MaximumMemberus-gaap:NondesignatedMemberus-gaap:OtherCurrentLiabilitiesMember2023-03-310001599617dnow:ReceivablesNetMembersrt:MaximumMember2022-12-310001599617us-gaap:TreasuryStockCommonMember2022-01-012022-03-3100015996172022-01-012022-03-310001599617us-gaap:AdditionalPaidInCapitalMember2021-12-310001599617dnow:CumulativeShareholderReturnPerformanceStockAwardsMember2023-01-012023-03-310001599617us-gaap:TreasuryStockMember2023-01-012023-03-310001599617srt:MaximumMemberus-gaap:TechnologyEquipmentMember2023-01-012023-03-310001599617us-gaap:FairValueInputsLevel2Memberus-gaap:PrepaidExpensesAndOtherCurrentAssetsMembersrt:MaximumMemberus-gaap:NondesignatedMember2022-12-310001599617us-gaap:RetainedEarningsMember2022-03-310001599617us-gaap:NoncontrollingInterestMember2022-03-310001599617srt:MaximumMemberdnow:SeniorManagementEmployeesMemberdnow:PerformanceBaseRestrictedStockMember2023-01-012023-03-310001599617us-gaap:VariableInterestEntityPrimaryBeneficiaryMember2023-01-012023-03-310001599617us-gaap:AccumulatedOtherComprehensiveIncomeMember2021-12-310001599617us-gaap:TreasuryStockCommonMember2023-03-310001599617srt:MaximumMemberus-gaap:EquipmentMember2023-01-012023-03-310001599617us-gaap:RetainedEarningsMember2021-12-310001599617us-gaap:AdditionalPaidInCapitalMember2022-03-310001599617us-gaap:SecuredOvernightFinancingRateSofrOvernightIndexSwapRateMember2022-12-292022-12-290001599617us-gaap:EquipmentMember2023-03-310001599617us-gaap:LandAndBuildingMembersrt:MinimumMember2023-01-012023-03-3100015996172022-12-290001599617us-gaap:FairValueInputsLevel2Membersrt:MaximumMemberus-gaap:NondesignatedMemberus-gaap:OtherCurrentLiabilitiesMember2022-12-3100015996172022-12-292022-12-290001599617us-gaap:CommonStockMember2023-03-310001599617country:US2022-01-012022-03-3100015996172023-01-012023-03-310001599617srt:MaximumMember2022-12-292022-12-290001599617us-gaap:AccumulatedOtherComprehensiveIncomeMember2023-01-012023-03-310001599617us-gaap:AdditionalPaidInCapitalMember2023-03-310001599617dnow:InternationalMember2023-01-012023-03-310001599617srt:MinimumMember2022-12-292022-12-290001599617us-gaap:TechnologyEquipmentMember2023-03-310001599617us-gaap:SubsequentEventMember2023-05-012023-05-010001599617us-gaap:RevolvingCreditFacilityMember2023-01-012023-03-310001599617us-gaap:FairValueInputsLevel2Memberus-gaap:PrepaidExpensesAndOtherCurrentAssetsMembersrt:MaximumMemberus-gaap:NondesignatedMember2023-03-310001599617us-gaap:ConstructionInProgressMember2023-03-310001599617us-gaap:AccumulatedOtherComprehensiveIncomeMember2022-03-310001599617us-gaap:LandMember2023-01-012023-03-310001599617us-gaap:NoncontrollingInterestMember2021-12-310001599617dnow:RestrictedStockAndRestrictedStockUnitsMember2023-01-012023-03-310001599617us-gaap:TreasuryStockMember2023-03-3100015996172022-12-310001599617us-gaap:EquipmentMember2022-12-310001599617dnow:InternationalMember2022-01-012022-03-310001599617us-gaap:AdditionalPaidInCapitalMember2022-01-012022-03-310001599617us-gaap:MiddleEastMember2023-01-012023-03-310001599617srt:MaximumMember2023-01-012023-03-3100015996172022-03-310001599617us-gaap:VariableInterestEntityPrimaryBeneficiaryMember2023-03-310001599617us-gaap:AdditionalPaidInCapitalMember2023-01-012023-03-310001599617us-gaap:RetainedEarningsMember2023-01-012023-03-310001599617dnow:ReceivablesNetMembersrt:MaximumMember2023-03-310001599617srt:MinimumMemberus-gaap:EquipmentMember2023-01-012023-03-310001599617us-gaap:TreasuryStockMember2022-03-310001599617us-gaap:AccumulatedOtherComprehensiveIncomeMember2023-03-310001599617us-gaap:NoncontrollingInterestMember2023-01-012023-03-310001599617srt:MinimumMemberus-gaap:TechnologyEquipmentMember2023-01-012023-03-310001599617us-gaap:AccumulatedOtherComprehensiveIncomeMember2022-12-3100015996172023-03-310001599617country:CA2022-01-012022-03-310001599617us-gaap:LandAndBuildingMember2023-03-310001599617us-gaap:FairValueInputsLevel2Memberus-gaap:NondesignatedMember2022-12-310001599617us-gaap:NoncontrollingInterestMember2022-12-310001599617us-gaap:CommonStockMember2022-03-310001599617us-gaap:TreasuryStockMember2021-12-310001599617country:US2023-01-012023-03-310001599617us-gaap:RetainedEarningsMember2022-01-012022-03-310001599617us-gaap:AdditionalPaidInCapitalMember2022-12-31xbrli:purednow:Countrydnow:GeographicMarketiso4217:USDxbrli:sharesxbrli:sharesdnow:Acquisitioniso4217:USD

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark one)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED March 31, 2023

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 001-36325

 

NOW INC.

(Exact name of registrant as specified in its charter)

 

Delaware

 

46-4191184

(State or other jurisdiction of

 

(I.R.S. Employer

incorporation or organization)

 

Identification No.)

7402 North Eldridge Parkway,

Houston, Texas 77041

(Address of principal executive offices)

(281) 823-4700

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading Symbol(s)

 

Name of each exchange on which registered

Common Stock, par value $0.01

 

DNOW

 

New York Stock Exchange

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

Accelerated filer

 

 

 

 

Non-accelerated filer

Smaller reporting company

 

 

 

 

 

 

 

 

 

 

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No

As of April 27, 2023, the registrant had 106,972,917 shares of common stock (excluding 1,841,586 unvested restricted shares), par value $0.01 per share, outstanding.

 

1

 


 

NOW INC.

TABLE OF CONTENTS

 

Part I - Financial Information

 

 

 

 

 

Item 1.

 

Financial Statements

 

3

 

 

 

 

 

 

 

Consolidated Balance Sheets as of March 31, 2023 (Unaudited) and December 31, 2022

 

3

 

 

 

 

 

 

 

Consolidated Statements of Operations (Unaudited) for the three months ended March 31, 2023 and 2022

 

4

 

 

 

 

 

 

 

Consolidated Statements of Comprehensive Income (Loss) (Unaudited) for the three months ended March 31, 2023 and 2022

 

5

 

 

 

 

 

 

 

Consolidated Statements of Cash Flows (Unaudited) for the three months ended March 31, 2023 and 2022

 

6

 

 

 

 

 

 

 

Consolidated Statements of Stockholders' Equity (Unaudited) for the three months ended March 31, 2023 and 2022

 

7

 

 

 

 

 

 

 

Notes to Unaudited Consolidated Financial Statements

 

8

 

 

 

 

 

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

15

 

 

 

 

 

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

24

 

 

 

 

 

Item 4.

 

Controls and Procedures

 

25

 

 

 

 

 

Part II - Other Information

 

 

 

 

 

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

26

 

 

 

 

 

Item 6.

 

Exhibits

 

27

 

2

 


 

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

NOW INC.

CONSOLIDATED BALANCE SHEETS

(In millions, except share data)

 

 

March 31, 2023

 

 

December 31, 2022

 

 

 

(Unaudited)

 

 

 

 

ASSETS

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

168

 

 

$

212

 

Receivables, net

 

 

422

 

 

 

398

 

Inventories, net

 

 

406

 

 

 

381

 

Prepaid and other current assets

 

 

29

 

 

 

26

 

Total current assets

 

 

1,025

 

 

 

1,017

 

Property, plant and equipment, net

 

 

121

 

 

 

119

 

Goodwill

 

 

119

 

 

 

116

 

Intangibles, net

 

 

23

 

 

 

25

 

Other assets

 

 

41

 

 

 

43

 

Total assets

 

$

1,329

 

 

$

1,320

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

323

 

 

$

304

 

Accrued liabilities

 

 

118

 

 

 

126

 

Other current liabilities

 

 

6

 

 

 

9

 

Total current liabilities

 

 

447

 

 

 

439

 

Long-term operating lease liabilities

 

 

25

 

 

 

25

 

Deferred income taxes

 

 

1

 

 

 

1

 

Other long-term liabilities

 

 

12

 

 

 

11

 

Total liabilities

 

 

485

 

 

 

476

 

Commitments and contingencies

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

Preferred stock - par value $0.01; 20 million shares authorized;
   
no shares issued and outstanding

 

 

 

 

 

 

Common stock - par value $0.01; 330 million shares authorized;
107,394,917 and 110,369,266 shares issued and outstanding at March 31, 2023
   and December 31, 2022, respectively

 

 

1

 

 

 

1

 

Treasury Stock - at cost; 244,604 shares at March 31, 2023

 

 

(3

)

 

 

 

Additional paid-in capital

 

 

2,036

 

 

 

2,066

 

Accumulated deficit

 

 

(1,044

)

 

 

(1,075

)

Accumulated other comprehensive loss

 

 

(149

)

 

 

(150

)

NOW Inc. stockholders' equity

 

 

841

 

 

 

842

 

Noncontrolling interest

 

 

3

 

 

 

2

 

Total stockholders' equity

 

 

844

 

 

 

844

 

Total liabilities and stockholders' equity

 

$

1,329

 

 

$

1,320

 

 

See notes to unaudited consolidated financial statements.

3

 


 

NOW INC.

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(In millions, except per share data)

 

 

Three Months Ended March 31,

 

 

2023

 

 

2022

 

Revenue

 

$

584

 

 

$

473

 

Operating expenses:

 

 

 

 

 

 

Cost of products

 

 

447

 

 

 

366

 

Warehousing, selling and administrative

 

 

102

 

 

 

84

 

Operating profit

 

 

35

 

 

 

23

 

Other income (expense)

 

 

 

 

 

10

 

Income before income taxes

 

 

35

 

 

 

33

 

Income tax provision

 

 

3

 

 

 

3

 

Net income

 

 

32

 

 

 

30

 

Net income attributable to noncontrolling interest

 

 

1

 

 

 

 

Net income attributable to NOW Inc.

 

$

31

 

 

$

30

 

Earnings per share attributable to NOW Inc. stockholders:

 

 

 

 

 

 

Basic

 

$

0.28

 

 

$

0.27

 

Diluted

 

$

0.28

 

 

$

0.27

 

Weighted-average common shares outstanding, basic

 

 

110

 

 

 

111

 

Weighted-average common shares outstanding, diluted

 

 

111

 

 

 

111

 

 

See notes to unaudited consolidated financial statements.

4

 


 

NOW INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

(In millions)

 

Three Months Ended March 31,

 

 

2023

 

 

2022

 

Net income

$

32

 

 

$

30

 

Other comprehensive income:

 

 

 

 

 

Foreign currency translation adjustments

 

1

 

 

 

2

 

Comprehensive income

 

33

 

 

 

32

 

Comprehensive income attributable to noncontrolling interest

 

1

 

 

 

 

Comprehensive income attributable to NOW Inc.

$

32

 

 

$

32

 

 

See notes to unaudited consolidated financial statements.

5

 


 

NOW INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(In millions)

 

Three Months Ended March 31,

 

 

2023

 

 

2022

 

Cash flows from operating activities:

 

 

 

 

 

Net income

$

32

 

 

$

30

 

Adjustments to reconcile net income to net cash provided by (used in) operating activities:

 

 

 

 

 

Depreciation and amortization

 

6

 

 

 

4

 

Provision for inventory

 

1

 

 

 

2

 

Stock-based compensation

 

3

 

 

 

2

 

Other, net

 

6

 

 

 

(9

)

Change in operating assets and liabilities, net of effects of acquisitions and divestitures:

 

 

 

 

 

Receivables

 

(25

)

 

 

(36

)

Inventories

 

(26

)

 

 

(47

)

Prepaid and other current assets

 

(3

)

 

 

1

 

Accounts payable, accrued liabilities and other, net

 

 

 

 

31

 

Net cash provided by (used in) operating activities

 

(6

)

 

 

(22

)

Cash flows from investing activities:

 

 

 

 

 

Purchases of property, plant and equipment

 

(5

)

 

 

 

Other, net

 

 

 

 

2

 

Net cash provided by (used in) investing activities

 

(5

)

 

 

2

 

Cash flows from financing activities:

 

 

 

 

 

Repurchases of common stock

 

(33

)

 

 

 

Payments relating to finance leases and other, net

 

(1

)

 

 

(1

)

Net cash provided by (used in) financing activities

 

(34

)

 

 

(1

)

Effect of exchange rates on cash and cash equivalents

 

1

 

 

 

1

 

Net change in cash and cash equivalents

 

(44

)

 

 

(20

)

Cash and cash equivalents, beginning of period

 

212

 

 

 

313

 

Cash and cash equivalents, end of period

$

168

 

 

$

293

 

 

See notes to unaudited consolidated financial statements.

6

 


 

NOW INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)

(In millions)

 

 

Attributable to NOW Inc. Stockholders

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

Retained

 

 

Accum. Other

 

 

 

 

 

 

 

 

Total

 

 

Common

 

 

Paid-In

 

 

Earnings

 

 

Comprehensive

 

 

Treasury

 

 

Noncontrolling

 

 

Stockholders’

 

 

Stock

 

 

Capital

 

 

(Deficit)

 

 

Income (Loss)

 

 

Stock

 

 

Interest

 

 

Equity

 

December 31, 2021

$

1

 

 

$

2,060

 

 

$

(1,203

)

 

$

(147

)

 

$

 

 

$

1

 

 

$

712

 

Net income

 

 

 

 

 

 

 

30

 

 

 

 

 

 

 

 

 

 

 

 

30

 

Stock-based compensation

 

 

 

 

2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

2

 

 

 

 

 

 

 

 

 

2

 

March 31, 2022

$

1

 

 

$

2,062

 

 

$

(1,173

)

 

$

(145

)

 

$

 

 

$

1

 

 

$

746

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2022

$

1

 

 

$

2,066

 

 

$

(1,075

)

 

$

(150

)

 

$

 

 

$

2

 

 

$

844

 

Net income

 

 

 

 

 

 

 

31

 

 

 

 

 

 

 

 

 

1

 

 

 

32

 

Common stock repurchased

 

 

 

 

 

 

 

 

 

 

 

 

 

(36

)

 

 

 

 

 

(36

)

Common stock retired

 

 

 

 

(33

)

 

 

 

 

 

 

 

 

33

 

 

 

 

 

 

 

Stock-based compensation

 

 

 

 

3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3

 

Exercise of stock options

 

 

 

 

1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1

 

Shares withheld for taxes

 

 

 

 

(1

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1

)

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

1

 

 

 

 

 

 

 

 

 

1

 

March 31, 2023

$

1

 

 

$

2,036

 

 

$

(1,044

)

 

$

(149

)

 

$

(3

)

 

$

3

 

 

$

844

 

 

See notes to unaudited consolidated financial statements.

7

 


 

NOW INC.

Notes to Unaudited Consolidated Financial Statements

1. Organization and Basis of Presentation

Nature of Operations

NOW Inc. (“NOW” or the “Company”) is a holding company headquartered in Houston, Texas that was incorporated in Delaware on November 22, 2013. NOW operates primarily under the DistributionNOW and DNOW brands. NOW is a global distributor of energy products as well as products for industrial applications through its locations in the United States (“U.S.”), Canada and internationally which are geographically positioned to serve the energy and industrial markets in approximately 80 countries. Additionally, through the Company’s growing DigitalNOW® platform, customers can leverage world-class technology across ecommerce, data management and supply chain optimization applications to solve a wide array of complex operational and product sourcing challenges to assist in maximizing their return on assets. The Company’s energy product offering is consumed throughout all sectors of the energy industry – from upstream drilling and completion, exploration and production, midstream infrastructure development to downstream petroleum refining and petrochemicals – as well as in other industries, such as chemical processing, mining, utilities and renewables. The industrial distribution end markets include engineering and construction firms that perform capital and maintenance projects for their end user clients. NOW also provides supply chain and materials management solutions to the same markets where the Company sells products. NOW’s supplier network consists of thousands of vendors in approximately 40 countries.

Basis of Presentation

The unaudited consolidated financial information included in this report has been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and Article 10 of SEC Regulation S-X. All significant intercompany transactions and accounts have been eliminated. Variable interest entities for which the Company is the primary beneficiary are fully consolidated with the equity held by the outside stockholders and their portion of net income (loss) reflected as noncontrolling interest in the accompanying consolidated financial statements. The principles for interim financial information do not require the inclusion of all the information and footnotes required by generally accepted accounting principles for complete financial statements. Therefore, these financial statements should be read in conjunction with the financial statements included in the Company’s most recent Annual Report on Form 10-K. In the opinion of the Company’s management, the consolidated financial statements include all adjustments, all of which are of a normal recurring nature, necessary for a fair presentation of the results for the interim periods. The results of operations for the three months ended March 31, 2023, are not necessarily indicative of the results to be expected for the full year.

Certain amounts in the prior periods presented have been reclassified to conform to the current period financial statement presentation. These reclassifications have no effect on previously reported results of operations. See Note 7 “Stockholders' Equity” for additional information.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect reported and contingent amounts of assets and liabilities as of the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Fair Value of Financial Instruments

The carrying amounts of cash and cash equivalents, receivables and payables approximated fair value because of the relatively short maturity of these instruments. Cash equivalents include only those investments having a maturity date of three months or less at the time of purchase. See Note 14 “Derivative Financial Instruments” for the fair value of derivative financial instruments.

2. Revenue

The Company’s primary source of revenue is the sale of energy products and an extensive selection of products for industrial applications based upon purchase orders or contracts with customers. The majority of revenue is recognized at a point in time once the Company has determined that the customer has obtained control over the product. Control is typically deemed to have been transferred to the customer when the product is shipped, delivered or picked up by the customer. The Company does not grant extended payment terms. Revenue is recognized net of any taxes collected from customers, which are subsequently remitted to proper government authorities. Shipping and handling costs for product shipments occur prior to the customer obtaining control of the goods and are recorded in cost of products.

The amount of revenue recognized reflects the consideration to which the Company expects to be entitled to receive in exchange for products sold. Revenue is recorded at the transaction price net of estimates of variable consideration, which may include product returns, trade discounts and allowances. The Company accrues for variable consideration using the expected value method. Estimates

8

 


 

of variable consideration are included in revenue to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur.

See Note 9 “Business Segments” for disaggregation of revenue by reporting segments. The Company believes this disaggregation best depicts how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors.

Remaining Performance Obligations

Remaining performance obligations represent the transaction price of firm orders for which work has not been performed on contracts with an original expected duration of more than one year. The Company’s contracts are predominantly short-term in nature with a contract term of one year or less. For those contracts, the Company has utilized the practical expedient in Accounting Standards Codification (“ASC”) Topic 606 exempting the Company from disclosure of the transaction price allocated to remaining performance obligations when the performance obligation is part of a contract that has an original expected duration of one year or less.

Receivables

Receivables are recorded when the Company has an unconditional right to consideration. Receivables are recorded and carried at the original invoiced amount less the allowance for doubtful accounts (“AFDA”). The estimated AFDA reflects the Company’s immediate recognition of current expected credit losses by incorporating the historical loss experience, as well as current and future market conditions that are reasonably available. Judgments in the estimate of AFDA include global economic and business conditions, oil and gas industry and market conditions, customer’s financial conditions and accounts receivable past due. As of March 31, 2023 and December 31, 2022, AFDA totaled $26 million and $25 million, respectively.

Contract Assets and Liabilities

Contract assets primarily consist of retainage amounts held as a form of security by customers until the Company satisfies its remaining performance obligations. As of March 31, 2023 and December 31, 2022, contract assets were less than $1 million for both periods and were included in receivables, net in the consolidated balance sheets. The Company generally accounts for the incremental costs of obtaining a contract as an expense when incurred if the amortization period of the asset that the entity otherwise would have recognized is one year or less; however, these expenses are not material.

Contract liabilities primarily consist of deferred revenues recorded when customer payments are received or due in advance of satisfying performance obligations, including amounts which are refundable, and other accrued customer liabilities. Revenue recognition is deferred to a future period until the Company completes its obligations contractually agreed with customers. As of March 31, 2023 and December 31, 2022, contract liabilities were $34 million and $33 million, respectively, and were included in accrued liabilities in the consolidated balance sheets. For the three months ended March 31, 2023, the increase in contract liabilities was primarily related to net customer deposits of approximately $15 million, partially offset by recognizing revenue of approximately $14 million that was deferred as of December 31, 2022.

3. Inventory, net

Inventories consist primarily of oilfield and industrial finished goods and work in process. Work in process primarily consists of inventory and labor related to customer specific engineered equipment. Finished goods are stated at the lower of cost or net realizable value and using average cost methods. Allowances for excess and obsolete inventories are determined based on the Company’s historical usage of inventory on hand as well as its future expectations.

Inventories consist primarily of (in millions):

 

 

March 31, 2023

 

 

December 31, 2022

 

Work in process

 

$

39

 

 

$

29

 

Finished goods and other

 

 

387

 

 

 

372

 

Total inventory

 

 

426

 

 

 

401

 

Less: Inventory reserves

 

 

(20

)

 

 

(20

)

Inventories, net

 

$

406

 

 

$

381

 

 

9

 


 

4. Property, Plant and Equipment, net

Property, plant and equipment consist of (in millions):

 

Estimated
Useful Lives

March 31, 2023

 

 

December 31, 2022

 

Information technology assets

 

1-7 Years

 

$

48

 

 

$

47

 

Operating equipment (1)

 

2-15 Years

 

 

145

 

 

 

141

 

Buildings and land (2)

 

5-35 Years

 

 

94

 

 

 

94

 

Construction in progress

 

 

 

 

4

 

 

 

4

 

Total property, plant and equipment

 

 

 

 

291

 

 

 

286

 

Less: accumulated depreciation

 

 

 

 

(170

)

 

 

(167

)

Property, plant and equipment, net

 

 

 

$

121

 

 

$

119

 

 

(1)
Includes finance lease right-of-use assets.
(2)
Land has an indefinite life.

5. Accrued Liabilities

Accrued liabilities consist of (in millions):

 

 

March 31, 2023

 

 

December 31, 2022

 

Compensation and other related expenses

 

$

28

 

 

$

36

 

Contract liabilities

 

 

34

 

 

 

33

 

Taxes (non-income)

 

 

12

 

 

 

13

 

Current portion of operating lease liabilities

 

 

12

 

 

 

13

 

Other

 

 

32

 

 

 

31

 

Total

 

$

118

 

 

$

126

 

6. Debt

On December 29, 2022, the Company entered into a second amendment to its existing senior secured revolving credit facility with a syndicate of lenders with Wells Fargo Bank, National Association, serving as the administrative agent (as amended, the “Credit Facility”). The second amendment amends certain terms, provisions and covenants of the Credit Facility, including, among other things: (i) replaces London Interbank Offered Rate ("LIBOR") with Secured Overnight Financing Rate ("SOFR") as the interest rate benchmark with the existing applicable margin plus a credit spread adjustment of 0.10% per annum; (ii) modifies certain reporting obligations with respect to the Company’s share repurchase program; and (iii) increases the sublimit for U.S. letters of credit to $20 million.

The Credit Facility provides for a $500 million global revolving credit facility, of which up to $50 million is available for the Company’s Canadian subsidiaries. The Company has the right, subject to certain conditions, to increase the aggregate principal amount of commitments under the credit facility by $250 million. The Credit Facility also provides a letter of credit sub-facility of $25 million. The obligations under the Credit Facility are secured by substantially all the assets of the Company and its subsidiaries. The Credit Facility matures on December 14, 2026 and contains customary covenants, representations and warranties and events of default. The Company will be required to maintain a fixed charge coverage ratio (as defined in the Credit Facility) of at least 1.00:1.00 as of the end of each fiscal quarter if excess availability under the Credit Facility falls below the greater of 10% of the borrowing base or $40 million.

Borrowings under the Credit Facility will bear an interest rate at the Company’s option, (i) for borrowings denominated in U.S. dollars, at (a) the base rate plus the applicable margin or (b) adjusted term SOFR for the applicable interest period, plus the applicable margin and (ii) for borrowings denominated in Canadian dollars, the Canadian Dollar Offered Rate plus the applicable margin. In each case, with such applicable margin being based on the Company’s fixed charge coverage ratio. The Credit Facility includes a commitment fee on the unused portion of commitments that ranges from 25 to 37.5 basis points. Commitment fees incurred during the period were included in other income (expense) in the consolidated statements of operations.

Availability under the Credit Facility is determined by a borrowing base comprised of eligible receivables, eligible inventory and certain pledged deposits in the U.S. and Canada. As of March 31, 2023, the Company had no borrowings against the Credit Facility and approximately $461 million in availability (as defined in the Credit Facility) resulting in the excess availability (as defined in the Credit Facility) of 99%, subject to certain limitations. The Company is not obligated to pay back borrowings against the current Credit Facility until the maturity date of the Credit Facility.

The Company issued $6 million in letters of credit under the Credit Facility primarily for casualty insurance expiring in June 2024.

10

 


 

7. Stockholders’ Equity

Share Repurchase Program

On August 3, 2022, the Company’s Board of Directors approved a share repurchase program, under which the Company is authorized to purchase up to $80 million of its outstanding common stock through December 31, 2024. Under this program, the Company may from time to time repurchase common stock in open market transactions or enter into Rule 10b5-1 trading plans to facilitate the repurchase of its common stock pursuant to its share repurchase program. The amount and timing of any repurchases will depend on several factors, including share price, general business and market conditions, and alternative capital allocation opportunities. All shares repurchased shall be retired pursuant to the terms of the share repurchase program. Depending on the timing of the retirement and cash settlement of the repurchased shares, the Company could have shares held in treasury stock until settled. For the three months ended March 31, 2023, total shares repurchased included 244,604 shares, or $3 million, held in treasury stock and subsequently retired in April 2023.

Information regarding the shares repurchased was as follows:

 

 

Three Months Ended March 31,

 

 

 

2023

 

 

2022

 

Total cost of shares repurchased (in millions)

 

$

36

 

 

$

 

Average price per share

 

$

10.91

 

 

$

 

Number of shares repurchased

 

 

3,261,691

 

 

 

 

Consolidated Variable Interest Entities ("VIE")

The Company holds a 49% interest in one VIE located in the Middle East. The Company is the primary beneficiary and consolidates the VIE as it has the power to direct the activities that most significantly affect the VIE’s economic performance and has the obligation to absorb the VIE’s losses or the right to receive benefits. The initial investment was completed in 2017 with the noncontrolling interest ("NCI") of approximately $1 million which was previously included in additional paid-in capital in the consolidated balance sheets as it was not material, and has been reclassified to NCI to conform to the current period financial statement presentation. For the three months ended March 31, 2023 and 2022, net income attributable to NCI was approximately $1 million and less than $1 million, respectively.

The assets of the VIE can only be used to settle its own obligations and its creditors have no recourse to the Company’s assets. As of March 31, 2023 and December 31, 2022, the VIE’s assets were primarily current assets of $24 million and $11 million, respectively, and the liabilities were primarily current liabilities of $8 million and $3 million, respectively.

8. Accumulated Other Comprehensive Income (Loss) ("AOCI")

The components of AOCI are as follows (in millions):

 

 

Foreign Currency Translation Adjustments

 

 

 

Three Months Ended March 31,

 

 

 

2023

 

 

2022

 

Beginning balance

 

$

(150

)

 

$

(147

)

Net current-period other comprehensive income

 

 

1

 

 

 

2

 

Ending balance

 

$

(149

)

 

$

(145

)

The Company’s reporting currency is the U.S. dollar. A majority of the Company’s international entities in which there is a substantial investment have the local currency as their functional currency. As a result, foreign currency translation adjustments resulting from the process of translating the entities’ financial statements into the reporting currency are reported in other comprehensive income or loss in accordance with ASC Topic 830, “Foreign Currency Matters.”

11

 


 

9. Business Segments

Operating results by reportable segment are as follows (in millions):

 

Three Months Ended March 31,

 

 

2023

 

 

2022

 

Revenue:

 

 

 

 

 

United States