2014 COPYRIGHT DISTRIBUTIONNOW
Investor Presentation
November 2014
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2014 COPYRIGHT DISTRIBUTIONNOW 2014 COPYRIGHT DISTRIBUTIONNOW
Disclosure Statement
Statements made in the course of this presentation that state the Company's or management'sintentions, hopes, beliefs, expectations or predictions of the future are forward-looking statements.It is important to note that the Company's actual results could differ materially from thoseprojected in such forward-looking statements. Additional information concerning factors that couldcause actual results to differ materially from those in the forward-looking statements is containedfrom time-to-time in the Company's filings with the U.S. Securities and Exchange Commission. Anydecision regarding the Company or its securities should be made upon careful consideration of notonly the information here presented, but also other available information, including theinformation filed by the Company with the SEC. Copies of these filings may be obtained bycontacting the Company or the SEC.
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Transaction Overview
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Form 10 registration statement for NOW Inc. declared effective by SEC
DNOWTicker
NYSEExchange
1 share of DNOW stock for every 4 shares of NOV stock Exchange ratio
107 millionExpected number of shares
May 20, 2014When-issued trading begins
May 22, 2014Record date
May 30, 2014 Distribution of NOW shares
June 2, 2014First day of regular-way trading
2014 COPYRIGHT DISTRIBUTIONNOW 2014 COPYRIGHT DISTRIBUTIONNOW
Vision
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DistributionNOW will be recognized as the market Leader in Supply Chain Management through superior customer service by leveraging the strengths of our employees, processes, suppliers and information.
2014 COPYRIGHT DISTRIBUTIONNOW
Countries 20+Locations 330+Employees 5,300+ERP System SAP
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Company Snapshot
One of the largest distributors to the energy industry
Legacy of over 150 years operating
Support major land and offshore operations for all the key energy producing regions around the world
Comprehensive network of more than 270 Energy Branches and more than 60 Supply Chain locations
2013 revenue of $4.3 billion and EBITDA of $239 million
Operates under the DistributionNOW and Wilson Export brands
More than 300,000 stock keeping units (SKUs)
Thousands of vendors in approximately 40 countries
Presence in over 20 countries supporting customer operations in more than 90 countries
Key markets include North America, Latin America, the North Sea, the Middle East, the Commonwealth of Independent States and Southeast Asia
International15%
United States67%
Canada18%
2013 Revenue by Segment
Energy Branches
83%
Supply Chain17%
>270 Energy Branches
>60 Supply Chain locations
2013 Revenue by Channel
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USA
CANADA
COLUMBIA
BRAZIL
CHINA
INDIA
AUSTRALIA
RUSSIA
KAZAKHSTAN
AZERBAIJAN
NORWAY
UK
NETHERLANDS
MEXICO
Global Customer Reach
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CanadaEdmonton, AlbertaEstevan, Saskatchewan
Estevan
Edmonton
EuropeAberdeen, Scotland
Aberdeen
AsiaJurong, Singapore
United StatesHouston, TXLos Angeles, CASouth Plainfield, NJ
South Plainfield
Houston
Los Angeles
MENAJebel Ali, U.A.E.
OMAN
EGYPTSAUDI
ARABIA
KUWAIT
Company Locations
Energy Branches
Distribution Centers
Distribution Centers:
PERU
POLAND
SOUTH AFRICA
Sales Offices
UAEJebelAli
SINGAPORE
INDONESIA
Jurong
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Global Customer Reach
Aberdeen
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Dubai
Export Country Crossover
Export by Country
Houston
U.S. Wilson Export
UK Export
Dubai Export
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Comprehensive Product Offering and Balanced Revenue Mix
Drilling and Production
38%
Pipe9%
Valves12%
Fittings and Flanges
12%
Mill Tool, MRO, Safety and Other
29%
2011 2013
Drilling and Production
23%
Pipe20%
Valves20%
Fittings and Flanges
15%
Mill Tool, MRO, Safety and Other
22%
DNOW carries a broad range of products to meet rapid and critical deliveries to customers in remote areas of service
Limited exposure to commodities
Oil country tubular goods (OCTG) comprise a small portion of sales and inventory (
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Value Proposition
Product Offering Market SegmentsA Critical Link Through Leading Supply Chain Technology
Knowledgeable people Customer
Product
Application
Materials management
Proven processes Quality management
Supply chain expertise
Extensive infrastructure United States
Canada
International
Procurement advantage Broad supplier base
Single source provider
Global sourcing
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Blue-Chip Customers and Suppliers
Customers
/
Drilling Contractors
Exploration & Production
Midstream
Downstream & Industrial
Suppliers
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Flexible Operational Model
Branch network model supported by Distribution
Centers to ensure inventory is maintained locally.
Right inventory in right place at the right time
BRANCHES
Broad sourcing capability to consolidate customer
requirements on multiple lower value or non-core items
EXPORT SUPPLY CHAIN SERVICES
Vast offering of supply chain services to increase efficiency
and lower cost within the supply chain
CAPITAL PROJECTS & VALVE ACTUATION
Global sourcing and expediting capability to ensure correct
product is delivered to the job site in accordance with project requirements
Distribution centers ensure replenishment of branches
and direct shipment to customer facility
REGIONAL DISTRIBUTION CENTER
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Quality-Triple Impact Supplier Program
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SUPPLIER AUDITS
Assessment and qualification of new suppliers
Reassessment of existing suppliers
Follow up on supplier quality issue
Rotational on-site physical audits
Foundry evaluation on key valve manufacturers
QUALITY CHECKPOINTS
Supplier performance reporting (KPIs)
Trial order lab testing
Quarterly enhanced lab testing
Manufacturer pre-ship inspection
Overstock return inspections
Verification of supplier corrective action
SAMPLING STANDARD
Monitoring and measuring
Daily audit of incoming products
QA/QC inspection (MTR review, PMI on SS and alloys, threading, dim. and visual)
Full traceability (marking check)
Acceptable Quality Limit (AQL) 1.5
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Key Investment Highlights
1 Leading distributor in a large, growing and highly fragmented market
Operational initiatives and scalability drive margin improvement4
Macro industry trends favor players with extensive scale5
3 Unmatched IT capabilities underpin efficient operations and differentiated value proposition
6 Key end markets still strong
7 Demonstrated successful acquisition and integration track record
8 Attractive cash generation and returns through the cycle
9 Experienced management team
2 Focused growth strategy as an independent company
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Leading Distributor in a Large, Growing and Highly Fragmented Market
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$20bn+ addressable market in North America
Global market estimated to exceed $50bn
Highly fragmented market
DistributionNOW differentiated by scale and global reach
Majority of competitors are small, local/regional players
DistributionNOW is one of the largest distributors to the energy industry worldwide
Over $850 million in inventory to support customers
More than 300,000 SKUs
Thousands of vendors in approximately 40 countries
Quality offering ensured through AML
Network of over 330 locations worldwide
Presence in 20+ countries
230+ locations in the U.S.
70+ locations in Canada
30+ international locations
Supported by 8 distribution centers
MRC24%
DNOW19%
Other57%
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Growth Strategy through Capital Allocation2
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Energy Branches: Organic Growth
Supply Chain Services: Growth through Capital Allocation
Future Opportunities
Increase presence in non-conventional energy plays
Continued market share gains in the U.S. and Canada
Further expansion to and within new markets outside of the U.S. and Canada
Further penetrate downstream and industrial channel
Expand product lines such as valves / actuation, safety services and electrical
Rapidly grow market share with manufacturing customers
Broaden scope and reach of industrial offering
Industrial MRO
OEM supply
New product lines
New end markets
Logistics
Equipment rentals
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Unmatched IT Capabilities Underpin Efficient Operations and Differentiated Value Proposition
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DNOW has implemented a single integrated ERP system linking global branches, customers and suppliers
Greatly enhances operational efficiency
Enables immediacy of decision-making
Reduces total procurement costs for DNOW and customers
Supports planning and optimization of supply chain processes
Sample ApplicationsSystem Highlights
Integrated with customer ERP
Approximately 3 billion electronic transactions processed in 2013
In-house support allows DNOW to tailor its system to better meet customers needs and increase operational efficiency
Demand management, statistical forecasting and lifecycle planning expedite decision making and allow flexible assortment planning
An integrated warehouse management system; voice and wireless bar code scanners increase warehouse efficiencies
MetalTrace (MT) allows for the storage and retrieval of manufacturer documentation such as Safety Data Sheets (SDS) and Mill Test Reports (MTRs) in a consolidated, indexed environment. MT is integrated with DNOWs ERP system for enhanced traceabilityof material and faster order processing
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Operational Initiatives and Scalability Drive Margin Improvement
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Target:Return to previously
achieved 8%+ EBITDA margin
Highly flexible model
One global ERP system
Centralized pricing discipline
Leveraged international sourcing
Distribution center supported inventory replenishment
Operational Excellence
Low fixed costs
Incremental margins well in excess of total margins
Limited capital needs to support expansion
Integration of acquisitions
Incentives tied to profitability
Highly Scalable Business Model
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Macro Industry Trends Favor Players With Extensive Scale
DNOW has sophistication, scale and geographic reach to serve an increasingly consolidated and global customer base
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TrendCustomer centralizing procurement functions and consolidating suppliers to enhance operational efficiency
DNOW Capability
Integrated supply model and comprehensive supply services to manage customer procurement and inventory
Industry consolidation of customer base through acquisitions and international expansion
Trend
DNOW Capability
Size and geographic reach to serve global customer need in existing and new geographies
Case StudyCase StudyPrivately owned independent, vertically integrated oil and gas company
Operations in South Texas and Northern Mexico (Eagle Ford) and Colombia
Customer consolidating spending for core products previously sourced from several supply companies
Customer engaged DNOW in materials management program to support Eagle Ford and Colombian assets
Warehouse and inventory management, material identification and product consolidation to reduce operations cost
Large public independent oil and gas company
DNOW is preferred material management partner within Customers Regional Distribution Concept (RDC)
Provide full cycle material management solutions across Customers assets in U.S. and Canada
Customer recently made acquisition in South Texas (Eagle Ford)
DNOW implementing of the RDC model at new Eagle Ford assets
Displaces current suppliers
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Key End Markets Still Strong6
GDP GrowthUpstream Development Capex Spending
Industrial Capacity Utilization and Production
(4%)
(2%)
0%
2%
4%
6%
2003 2005 2007 2009 2011 2013 2015 2017
United States Canada World
$132 $136 $137 $144 $154
$54 $50 $45 $44 $47
$222 $253 $249 $242 $223
$408 $439 $431 $430 $424
2012A 2013A 2014E 2015E 2016E
United States Canada Top 10 Countries (ex-U.S. and Canada)
80
85
90
95
100
105
110
66%
69%
72%
75%
78%
81%
84%
2003 2005 2007 2009 2011 2013
Capacity Utilization Production
Source: Wood MackenzieNote: Top 10 Countries include Australia, Brazil, Canada, China, Iraq, Mexico, Norway, Russia, U.K. and U.S.
Source: U.S. Federal Reserve
Source: IHS Economics
($ in billions)
Average Annual Rig Count
1,190 1,380 1,648 1,768 1,878
1,086 1,541 1,875
1,919 1,761 1,845
369 458
470 343 379
221
351 423 365 355 371 836
908 925 1,005
1,079
997
1,094 1,167 1,234 1,296 1,344
Canada International
Source: Baker Hughes, Inc. Note: YTD2014 includes rig count through September 2014
(number of rigs)
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Demonstrated Successful Acquisition and Integration Track Record
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Wilson and CE Franklin HighlightsSelected Historical Acquisitions
M&A Strategy
Expanded DNOWs end market offering with immediate entry into midstream, downstream and industrial markets
New customer base provided increasedselling opportunity
Strengthened brand and existing customer relationships
Expanded DNOWs capabilities in vending and tool crib supply chain solutions
Utilize strong balance sheet to allocate capital towards strengthening market positions
Enhance product offering and geographic reach in Energy Branches
Accelerate expansion in downstream & industrial segments
Expand eCommerce and supply chainsolutions technologies
Date Acquisition Country
December 1998 Dominion Oilfield Supply (DOSCO/TS&M) Canada
June 1999 Continental Emsco Company (via Wilson) United States / Canada
July 1999 Dupre Supply United States
January 2000 Texas Mill Supply (via Wilson) United States
January 2000 Republic Supply Company United States
November 2000 Hart Sales Company United States
January 2001 Van Leeuwen Pipe & Tube (via Wilson) United States
March 2001 DEMIJ-Rotterdam The Netherlands
June 2001 Rye Supply United States
August 2001 Texas Oil Works Supply United States
August 2001 AMTEX Pump & Supply United States
June 2002 STS Supply United States
January 2003 LSI Specialty Electrical Products United States
August 2003 WTM Sales United States
August 2003 Neven Handelsonderneming The Netherlands
October 2004 Roma General Welding Services Australia
December 2008 Sakhalin Outfitters Russia
March 2010 PLT United States
August 2010 Group KZ Kazakhstan
February 2011 Capital Valves United Kingdom
May 2012 Wilson Distribution U.S., Canada, International
June 2012 Engco Canada
July 2012 CE Franklin Canada
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Attractive Cash Generation and Returns Through the Cycle8
Free Cash Flow and EBITDA
Robust free cash flow despite headwinds in 2013 from a down year in the broader energy sector
Continued to reinvest in the business to improve operations and support future growth
Flexible cost structure and disciplined working capital management underpin cash flow generation through the cycle
$224 $246
$184
$235
$264 $239
2011 2012 2013
Free Cash Flow EBITDA
(1) ROCE excludes goodwill, which is primarily associated with the acquisitions of Wilson and CE Franklin(2) Estimated, Pro Forma(3) Free Cash Flow is defined as EBITDA less capital expenditures(4) EBITDA is defined as earnings before Interest, Taxes, Depreciation and Amortization
(2)
(3)
(2)
($ in millions)
2013 Financial Snapshot
Revenue: $4.3 billion Gross margin: ~19% EBITDA: $239 million
5.6% margin Free cash flow: $184 million ROCE(1): 15%
(4)
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Experienced Management Team
21-year average tenure of Operations team, including NOV and its predecessor entities
Extensive industry experience
Focus on results, process and relationships
Note: Tenure at DNOW / NOV includes predecessor entities
David A. CherechinskyChief Accounting Officer
25 years at DNOW / NOV
Daniel L. MolinaroChief Financial Officer
46 years at DNOW / NOV
Raymond W. ChangGeneral Counsel
13 years at DNOW / NOV
Robert R. WorkmanPresident and Chief Executive Officer
23 years at DNOW / NOV
Burk L. EllisonPresident, Energy Branches
34 years at DNOW / NOV
Merrill A. Pete Miller, Jr.Executive Chairman
18 years at DNOW / NOV
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Financial Overview
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Financial Highlights
Solid organic revenue growth underpinned by strong end market
Robust cash flow generation through the cycle
Substantial operating leverage drives margin improvement
Low capital intensity business model requires limited investment
Cost savings to be realized from integration of Wilson and CE Franklin
Capital structure provides significant financial flexibility
Debt free; $750 million undrawn revolver
~$200 million of cash on hand
Conservative financial profile and highly disciplined management team
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Historical Financial Summary (Pro Forma)
Gross Profit and MarginRevenue
Net Income and MarginEBITDA and Margin
$4,260 $4,613
$4,296
2011 2012 2013
$769 $843
$797
18.1% 18.3% 18.6%
2011 2012 2013
Gross profit % Margin
$235 $264
$239
5.5% 5.7% 5.6%
2011 2012 2013
EBITDA % Margin
$141 $164
$147
3.3% 3.6%
3.4%
2011 2012 2013
Net Income % Margin
(1) Estimated, Pro Forma
(1) (1)
(1) (1)(1) (1)
($ in millions) ($ in millions)
($ in millions) ($ in millions)
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Low Capital Intensity Business Model Requires Limited Investment
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$11 $8 $10 $10
$45
0.3% 0.4%
1.3%
2011 2012 2013
Spin / Integration Related Investments
Maintenance Capex
Total Capex as a % of Sales
Working CapitalCapital Expenditures
Spin / Integration Related Investments
Global SAP ERP system implementation
New corporate headquarters and warehouse
Distribution Centers in Edmonton, Estevan and Dubai
Expansion of integrated warehouse management system
Global rebranding to DistributionNOW from NOV Wilson
Spin-related systems and software
Disciplined and focused approach to manage working capital
Improving receivables collection and customer contracts
Elevated inventory levels post acquisition will normalize post-integration and benefit from ERP system implementation
Strong liquidity profile
Debt free; $750 million undrawn revolver
~$200 million of cash on hand
(1) (1)
$1,188
$1,491
$1,299
27.9% 32.3%
30.2%
2011 2012 2013
Working Capital % of Sales
(1)(1)
($ in millions) ($ in millions)
(1) Estimated, Pro Forma
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Attractive Cash Generation and Returns Through the Cycle
Strong cash flow generation to support growth
Disciplined working capital management across all business units
Substantial non-recurring investments in 2013 and 2014
$224 $246
$184 95% 93%
77%
2011 2012 2013
FCF FCF Conversion
(1) Estimated, Pro Forma(2) Free Cash Flow (FCF) is defined as EBITDA less capital expenditures(3) FCF Conversion is defined as FCF as a percentage of EBITDA(4) Pretax ROCE is defined as EBIT as a percentage of Capital Employed(5) Average goodwill of $338 million in 2013
(2) (3)
(1) (1)
Free Cash Flow and FCF Conversion($ in millions)
Capital Employed and Pretax ROCE
2013 ROCE of 15%, excluding goodwill(5)
High returns on investments driven by strategic capital allocations, continuous investments in growth opportunities and opportunistic acquisitions
$1,420
$1,982 $1,820
15.7%
12.8% 12.3%
2011 2012 2013
Capital Employed Pretax ROCE
(1)
(4)
(1)
($ in millions)
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YTD September 2014 Summary Results (Unaudited)
Gross Profit and MarginRevenue
Net Income and MarginEBITDA and Margin
$3,255 $3,099
9M13 9M14
$600 $614
18.4% 19.8%
9M13 9M14
Gross profit % Margin
$186 $168
5.7% 5.4%
9M13 9M14
EBITDA % Margin
$113 $100
3.5% 3.2%
9M13 9M14
Net Income % Margin
($ in millions) ($ in millions)
($ in millions) ($ in millions)
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Short-term Outlook
Stabilization: Completion of spin and ERP rollout
Q214 Perfect storm of disruptions
Q314 Beginning of top line recovery and the completion of public expense buildout
Q414 Continued recovery from spin and ERP implementation, but P&L still noisy as we complete projects
Q115Should mark end of integration distractions
Capital: Anomalous trends ending
Completion of majority of one-time, large cap-ex projects
Resumption of capital allocated to M&A
Exhibit significant progress of reducing DSOs by 15+ days
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Outlook
Growth target: organic market share gains of 3 5% each year
Energy Branch segment revenues will track well completions and rig count
Supply Chain solutions intended to be the largest beneficiary of capital allocations
Margin target: return to previously achieved 8%+ EBITDA as Wilson and CE Franklin are fully integrated
Incremental EBITDA margins exceed current profitability
Run-rate maintenance Capex of approximately $10 $20 million annually
Generally, capital allocated to M&A will be consistent with cash flow
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