Q2 2020 NOW Inc Earnings Call

August 5, 2020

[music].

Good morning, good look into the second quarter 2020 earnings Conference call My name is bread.

Three to four today at this time all participants are in listen only mode. Later, we will conduct a question answer session during which you can now star one is the other question.

Please note this conference is being recorded.

I will now turn it over to Vice President marketing at Investor Relations, Brad Wise, It's wise you may begin.

Good morning.

The distribution now second quarter 2020 earnings Conference call. We appreciate you joining us. Thank you for your interest analogy.

We today Turgeon, President and Chief Executive Officer, Mark Johnson, Senior Vice President and Chief Financial Officer.

We operate primarily under the distribution now and you know brands.

Hear us reverted distribution now as our New York stock exchange ticker symbol during our conversation this morning.

Please note that some of the statements we make during this call, including the answers to your questions may is a forecasts projections and estimates.

Including but not limited to comments about the outlook of the company's business. These are forward looking statements within the meaning of US Federal Securities law based on information as of today, which is subject to change.

They are subject to risks uncertainties.

Actual results may differ materially.

I would assume that these forward looking statements remain valid later in the quarter or later in the year.

Do not undertake any obligation to publicly update or revise any forward looking statements for any reason.

In addition, this conference call contains time sensitive information that reflects management's best judgment at the time of the live call.

Refer you to the latest 10 forms 10-K, and 10-Q that now he has on file with the Securities and Exchange Commission for more detailed discussion of the major risk factors affecting our business further information as well as a supplemental financial and operating information may be found within our earnings release on our website that IR.

Distribution now dot com or in our filings with the SEC.

In an effort to provide investors with additional information relative to our results as determined by US gap. You'll note that we also disclose various non-GAAP financial measures, including the EBITDA, excluding other costs, sometimes referred to as EBITDA net income excluding other costs and diluted earnings per share excluding other costs.

Yes.

Which excludes the impact of certain other costs and therefore have not been calculated in accordance with gap.

A reconciliation on each of these non-GAAP measures financial measures to its most compare comparable GAAP financial measure is included in our earnings release as of this morning, the Investor Relations section of our website contains a presentation covering our results in key takeaways for the quarter a replay of todays call will.

Be available on the site for the next 30 days, we plan to file our second quarter 2020 form 10-Q today and it will be also available on the website.

Now, let me turn call over today.

Thanks, Brad Good morning, everyone and welcome while this is my 32nd year with the company in 25th earnings call. It's my first as CEO I am grateful and humbled by the board of directors confidence in me to be the de now CEO.

This is a considerable responsibility in an extraordinarily challenging environment, but I'm comforted to know that we have the outstanding women and men needed to collectively overcome the adversity our industry faces I.

I'd like to think decal Aereo executive Vice Chairman for his leadership in four is significant personal investment investment in my development as a leader I'd also like to congratulate Mark Johnson in his new role I hired Mark 12 years ago and no. He will be an excellent CFO focused on compliance in protecting our shareholders.

Preserving a strong balance sheet and selectively seeking differentiating inorganic opportunities. He has a big four audit firm pedigree is a proud Tulane University graduate and is highly respected as an established finance business leader.

Now I'll get into the business in this great shutdown period, where the first for the first time in history oil prices turn negative drilling rigs and workover rigs laid down to the lowest levels capital and maintenance spending were Swat slashed projects were canceled or delayed producing wells were shut in and contractors.

Were sent home, making for an unparallel wide paralleled moment in history.

And one way or de now stand strong in his position to weather the storm.

We continue to execute on our Cobot 19 response plan to keep our employees customers and suppliers say, we have remained open operating under the World Health organization and CDC guidelines by providing essential cobot 19 related products to our employees and customers.

I want to thank our front line employees for taking care of our customers communities in each other during this difficult time. In addition, I'm going to thank our HR HFC and high T. groups, who have partnered with our locations on our pandemic response true professionals, who are also empathy.

Empathetic and compassionate as we transform our business I appreciate all the effort and actions by these grew to make sure our employees are safe and that we remain open everywhere.

We are committed to transform de now we are uniting our geographic footprint highly skilled people strategic inventory positioning relationships with key domestic and endpoint import manufacturers and product export expertise with disruptive digital innovation. This is a powerful combination.

Otherwise hollow, because without our branch network people and our distributor underpinnings enhancing the technology the technology alone false flat.

As we connect manufacturers to end users by building a more nimble delivery model our supply chain will serve as a catalyst to introduce more products from fewer suppliers to a wider array of customers and industries, while providing a vehicle for growth offsetting potential volatility in the market.

As a former U.S. marine I see discipline as the single most important factor in successfully implementing our strategy discipline to me means less is more disciplined is carving out a niche building on a limited set of strengths, becoming the best in the world at what you do and not being tempted by those marginal distractions that upstream.

Those strengths.

In my view, while I believe in the long term buoyancy of the market and that a recovery will come we're sizing the business in a fashion not lower for longer the lower forever in the past the recovery itself was the antidote to inefficiencies in the business growth concealed those inefficiencies scalability.

Was a half a meaningful term.

Which meant we could add resources and sees opportunity when the market grew but the half scalable model made extracting cost in a downturn revenue destructive costly took time to complete and served as the distraction from the market share Gillies afforded an environment like this.

The bridge to reliably higher through cycle earnings has three spans.

One end market expansion to digital disruption and three structural transformation.

Regarding end market expansion, our revenues have been highly concentrated in the upstream market and while we are a market leader in upstream there's still opportunity for market share gains in this environment, especially as many competitors are struggling to service their debt.

So market share accumulation is our focus in the upstream.

A key piece of our strategy is to further diversify end markets through targeting midstream downstream and industrial as well as alternative energy markets, which are traditionally less volatile.

To address this opportunity we are investing in sales and business development transitioning our energy centers to be multi purpose or servicing all of energy incentive branches being just single end market focused as they had been.

We are also partnering with strategic suppliers, and bundling and kidding key sets of products and services, which enhance efficiencies and convenience for our customers.

Finally success demands improved efficiencies in our business before which were well down the path to lower cost structure, and the resulting improved competitiveness itself enables topline growth and market diversification increased leverage with suppliers and better margins.

Next in terms of digital disruption in a business where transactions are measured in the millions business simplification being deployed right now across de now enables greater production responsiveness to customers and lower transaction costs.

A much leaner delivery model helps spawn growth as our competitiveness allows our allows growth where our cost structure itself historically inhibited.

Our market disruptive digital tools platform digital now will help transform energy distribution, we are investing in digital product development to solve our customers' operating and supply chain challenges by leveraging our relationships with manufacturers and suppliers and transitioning products through a digitally evolving and significantly.

In infrastructure I will elaborate more on this in a moment.

Now I will touch on structural transformation, we are positioning at dramatically nimbler structurally more efficient business enabled by accentuating, our strengths selling underperforming businesses, eliminating all but essential cost pursuing a zero based mindset combining similar purpose divisions strengthening our.

Distribution center support structure streamlining corporate evolving the branch network and growing the importance of a centralized fulfillment model to lower supply chain costs, all of which is aided in enhanced by can pin continued investment in technology.

Our structural changes our ambitious broad and permanent in nature in our foundational to the strategy and necessary to drive improved performance accountability and financial success.

We are redesigning our supply chain finding the optimized hub in pulp hub and spoke architecture with a bias towards decentralized structure that will support smaller locations less inventory risk and lower operating costs.

With regards to our regional distribution centers are our Dcs, we're further rationalize and rationalizing our RDC network by eliminating our laporte DC in east Houston and relocating its function inventory in personnel to our main Houston campus, thus lowering structural expense in terms of reaching customers with reduced.

Headcount, we are deploying technology to augment labor content by eliminating repetitive tasks keystrokes in automating key segments of the quote to order process.

Part of our strategy is to identify high burden high cost low margin product lines that result in non value added activity and exit those lines.

As we stated on our last call in the first quarter, we sold a business that fit within this category and in Twoq you, we shutdown several locations and product lines that will allow us to focus on more accretive higher margin products.

We have consolidated our sales organization and our adding sales and business development personnel to win market share. We are also leveraging our digital now technology to funnel more product spend through our platform, enabling speed and efficiency.

Now I'll cover a few financial highlights highlights from the quarter.

Revenues from the second quarter of 2020, with 370 million free cash flow from the second quarter was 66 million and we improved our already stellars balance sheet by expanding expanding our cash position to 269 million, while we remain debt free with ample runway on our Undrawn credit facility and.

While Mark will elaborate I want to highlight two key items.

Despite a 39% decline in revenue sequentially as result of this great shutdown EBITDA Decrementals were a low 7%, which represents solid execution because steep abrupt revenue declines usually drive much higher unfavorable decrementals as the cost curve is more difficult.

Two teams so quickly.

And most notably when excluding the elevated levels of noncash inventory charges, our EBITDA, excluding other costs would have near breakeven in the quarter.

Now I'd like to take a moment to share a few successes our team has achieved in the midstream space.

We were successful in winning sizeable sizeable PBF orders for several propane fractionator projects launcher receivers for propane pipeline in engineered pump stations for crude and propane pipeline for midstream, operator, who markets and supplies infrastructure to both this Permian Eagle Ford basins.

In July we executed in evergreen contract agreement for PBF products with one of the largest integrated midstream companies. This will open the door for us to care capture for their market share.

During the second quarter, we executed a new five year agreement with another large integrated midstream company that opens additional market share potential.

We continued project work for a global integrated midstream customer as we supplied material for the completion of the recent decoder crude takeaway projection project expansion.

Lastly for large mid continent based midstream company, we supplied material for a 70 mile 16 inch Bakken lateral project and a 28 mile 16 inch West, Texas lateral project.

Material supply for both projects includes pipe valves fittings and fabricating equipment.

Using materials engineering coding testing in fabrication through a single source provided de now the differentiating value for the customer.

In terms of digital disruption, we've been working with an independent oil and gas company standardizing their tank battery hookups, our product experts along with our digital now implementation team worked alongside their engineers and procurement department personnel to formulate a program to standardize their tank battery design and material procurement method.

At algae, leveraging Unitas global AML, while mitigating product risks using our quality program a resolution the resulting solutions a seamless highly effective process. Our customer uses to complete in engineered procurement initiative executed through our digital now platform for a four well complex bill of material.

Required by the construction crews to complete a tank battery installation.

In addition, we have designed to configured within our digital now platform additional material list for two and three well tank batteries and two punctuate the value this customer leverages, our digital now interchange solution to virtually eliminate paper invoices and transaction costs exabyte the approval process with an additional benefit of low.

During our DSO. This example highlights our ability to leverage a disruptive technology by marrying technology customer relationships with our understanding and application and products.

Our message is resonating with our customers as adoption of our ecommerce platform continues to grow as of today, our new customer implementations in 2020 have surpassed last years total and almost half of those new implementations are with midstream customers.

For example, we recently completed and implementation for a new GMP customer and registered dozens of users who are expected to use our platform.

We're also onboarding two major integrated midstream customers tied to the contract wins I mentioned earlier.

We continue to push forward on the technology front with a number of digital tools in development that will be released to our customers. Some of the enhancements have been to make our systems easier to use in our employees more efficient.

For example, we have automated over 60 de now processes using AI that are performing hundreds of automatic functions.

We're also gaining momentum on our rollout of a user friendly interface to our order management system to be fully completed by end of year.

We are focused on providing increased visibility of data for our customers to analyze and make more informed decisions regarding their product usage by doing in spend as an example, we're providing due to stock availability well data tubing usage purchase order consumption in mobile ordering usage. This allows the customer.

The ability to digest to consume large amounts of data using a highly interactive interface win win meeting with the customer access to this data allows for more productive dialogue driving continuous improvement using advanced analytics.

Another digital tool real we're rolling out with onsite customers, especially during the cold 19 pandemic is customer self checkout.

This solution offers the customer and Noncontact seamless checkout process and an easier buying experience.

We believe that to be successful at digital innovation in the energy space you need great ideas to save the customer time provide information that helps them decide on the products best suited to their applications.

And then analysis of purchase history to promote standardization you have to know your customer how the product will be used and the technical.

Impacts you need.

Positioned strategically with the customers to the customers you Trust.

So we're excited about the technology, we're investing in to reduce our cost of doing business and make it easier and compelling for the customer.

With that let me turn it over to Mark for further commentary thank.

Thank you David for the second quarter of 2020, we generated $370 million in revenue down 406 million or 52% compared to the same period in 2019 sequentially revenue declined 234 million or 39% inline with the global rig count change in the U.S segment second quarter 2020 revenue.

Was $260 million down 181 million or 41% from the first quarter of 2020, outperforming a rig count decline of 50%.

Excluding the revenue impact from our January 2020 divestiture second quarter revenues were down 55% from last year compared to rig count declines of 60%.

US Energy Center revenue was down 40% sequentially as many of our customers reduce spending by laying down rigs suspending drilling and completion programs and deferring projects and non a central maintenance during the quarter.

In the U.S upstream space, we had several project wellhead hookups and tank battery wins contract renewals with drilling contractors and MP companies that will secure future revenue.

In the U.S midstream space, our ability to provide a customizable solution unique to that customer resulted in winning business at six operating locations by bundling our materials and warehouse management services with our digital now platform.

For our U.S supply chain services channel revenue declined 52% sequentially, resulting from reduced drilling and completion expenditures from our top SCS NRG MP customers one of our top revenue customers reduced spend nearly 80% sequentially and a sprint to conserve cash.

Infrastructure midstream projects for our SCS customers were minimal or postponed as plant turnaround projects that were scheduled for Twoq 2020 pushed out to 2021.

Our us process solutions business revenue was down 30% sequentially on lower upstream completions and project activity due to the impacts of cobot 19, and demand loss for oil and gas.

Customers suspended all non essential activities worked through existing funded projects and froze or canceled others.

Our power service fabrication business experienced fewer fabrication and multi unit orders, but aftermarket services in the downstream sector remained stable on part orders and critical field service work.

Our Odessa pumps business saw steady orders from the municipal water sector, but routine field work was delayed as access to customer sites were hindered.

In the Canadian segment second quarter, 2020 revenue was 41 million down $33 million or 45% from a year ago with rig count declining 70%.

Sequentially, Canada revenue dropped 47% on rig count decline of 87% due to the due to the deteriorating market conditions on top of the seasonal erosion due to breakup.

Rig count bottomed at 13 active rigs in June marking an all time low.

While well spuds dropped to an astounding 93% sequentially.

Effects of Govan 19 on the energy business resulted in customer project cancellations and delays in lower activity across the MP unconventional and oil sands end markets.

During the quarter, we set up a new vendor managed inventory program with a renewable biofuels energy customer, who converts waste into energy and delivered a 5 million nonrecurring project order for an upstream polymer injected skid.

Moving to the international segment.

Second quarter 2020 revenue was 69 million down 28 million or 29% from a year ago, which reflects reduced activity in the UK due to fourth quarter 2019 location closures project declines in the sale of a business in January 2020.

International revenues declined sequentially, 19% on a rig count declined 22%.

In the second quarter gross margins were 18.4% a decline of 100 basis points sequentially and decline of 130 basis points compared to the second quarter of last year overall product margins held during the quarter, primarily due to product mix at pipe sales as a percentage of revenue are lower in the current.

Okay.

Gross margin to clients were driven by 12 million an elevated inventory charges in the period related to exiting product lines and locations that no longer aligned with our strategy.

As we discussed last quarter, we have historically experienced inventory charges to be higher than normal and depressed market conditions.

Amortization expense declined 4 million sequentially following the intangible impairments last quarter.

That said when removing inventory charges and amortization in the comparable periods gross margins improved sequentially and year over year.

In the first quarter of 2020, warehousing, selling and administrative expenses or WSA was 130 million and on our last call. We guided for Twoq WSA to be around below one tens and through our more aggressive cost transformation activities to Q WSA was 97 million or down 33.

Million dollars sequentially.

This is proof that we have taken decisive measures in response to the market movements.

Based on current initiatives underway, we forecast a year over year, 2021st 2019, WSA reduction of approximately 140 million compared to the 100 million reduction we discussed on the last earnings call and compared to a $40 million reduction we discussed in February.

Moving on to operating margins the us generated operating losses of 24 million a decline of $40 million when compared to the corresponding period of 2019, primarily due to the decline in revenue and partially offset by reduced operating expenses.

Canada operating loss was $5 million are down 6 million when compared to the corresponding period of 2019.

Our international operating profit was breakeven in both this quarter and the comparable period in 2019.

Net loss for the second quarter was 30 million or 27 cents per share other costs into Q totaled 9 million pre tax related to the separation and transaction expenses.

Net loss, excluding other costs was 18 million or a loss of 16 cents per fully diluted share.

Non-GAAP EBITDA, excluding other costs for the second quarter of 2020 was a loss of 15 million, which includes the unfavorable $12 million inventory charges.

With the current market challenges many face we stand from a position of strength, we took proactive and decisive steps during the quarter to focus on what we control and solidify the net cash position of 269 million, our highest cash position since being public.

Accounts receivable in the period were 242 million.

Down 124 million sequentially Dsos for Twoq 2020 were 60 days with inventory levels at $370 million resulted in inventory turn rates of 3.3 times.

Accounts payable of 166 million with days payable at 50 days in the second quarter.

We again exited the quarter with no outstanding borrowings or draws against our revolving credit facility.

As of June 32020, our total liquidity from our credit facility availability plus cash on hand totaled 525 million.

Working capital excluding cash as a percent of revenue from the second quarter of 2020 was approximately 24% in periods of dramatic activity fall off like we have experienced it leaves working capital velocity lower than at peak activity levels, especially in periods, where customers are intentionally conserving cash and delaying deliveries.

Net cash provided by operating activities was 68 million in the second quarter with capital expenditures of 2 million.

Resulting in 66 million in free cash flow into Q2 thousand 20.

A year to date free cash flow plus cash received from the divestiture in one Q totaled 94 million and is notable.

Looking back on a trailing two years, we have generated approximately $370 million and free cash flow through our initiatives to optimize working capital and strengthen our debt free financial position.

With that I'll turn the call back to Dave.

Thanks, Mark now with regards to M&A the role of acquisitions and our long long term growth strategy remains intact.

The global pandemic impacted the dynamics evaluating inorganic opportunities, but our pipeline is active we're in discussions with targets and see Twoq and Threeq you as critical periods for financial performance in terms of earnings durability, how targets manage their business in this period provides a critical stage.

Yes test in determining the value of their company, while being cautious with the valuable currency for the balance sheet, we seek targets that fit well with denounced know how generate higher returns and our instantly accretive.

Looking towards the third quarter. This summer months in the U.S and Canada emerges from emerging from breakup, usually set up the third quarter to be our most active quarter of the year. This year will be different because the July levels of a briggs and completions are dramatically lower for example July us rigs are 36.

Percent lower than the two to average and June us completions were 41% lower than the Twoq you average our view is that revenue in the third quarter will decline in the low to mid teen percentages.

Regarding warehousing selling and administrative expenses.

At while WSA was $130 million in first quarter, and we guided to second quarter to be in the low 110 millions with actual is being 97 million, we expect the third quarter WSA to be in the high Eightys.

To low $90 million range.

We are executing on the new new denounced strategy, our structural changes our cost trends transformation initiatives and our end market diversification crack cash preservation is paramount as we continued to defend our balance sheet and to provide a stable foundation, we continue to invest developed and deployed digital technology solutions at four.

Apart our position in the market increased customer value intimacy and market key part of our strategy. Our sites are set on being the digital disruption in our space in terms of technology product application knowledge access to world class products and a growing aftermarket business.

In closing, we improved in already stellar balance sheet by expanding our cash position to 269 million and we remain debt free we are taken decisive measures to achieve structural efficiencies by combining businesses.

Centralizing support functions de layering management consolidating distribution centers.

And evolving the branch model, while also making significant cost reductions, we're deploying technology to eliminate repetitive tasks and condensed the order to cash process as well as investing in digital tools to enrich the customer experience.

I am confident in our talented people to continued streamlining of our business and the technological advancements we are making to our digital tools platform digital now.

And we are building a resilient model to drive long term growth fortify our upstream position, while diversifying and investing in the midstream downstream and industrial end markets.

Now, let me hand, the call back to brand and we will start taking your questions.

Thank you will not begin the question and answer session. If you have a question. Please press star one does your telephone keypad, if you'd like to be removed from the Q. Please press the pilot side or the Heskey if you're on the speakerphone. Please pick up your headset first before exactly.

Once again, if you have a question. Please press star one of your telephone keypad.

And from Scotia Bank, we have Vebs Vaishnav. Please go ahead.

Hey, good morning, guys and thanks for taking my questions.

Good morning Vebs.

Plus about kudos to you and WSA reduction that you guys have done and look at times.

Pretty good.

Our Q.

You mentioned no longer for ever.

Can you can you talk about make what do you think is that right WSA amount of Florida at scenario.

As we think about next year and our next couple of yes.

Well I don't think we're ready to talk about where we'll be next year, there's just too many unknowns in the market.

But but but what I want to say about WSA is we've gone through more than just a transformation. We are re sizing this business on a permanent basis to be able to to grow without adding a lot of cost.

And once the next downturn comes to do not have to be in position like we're in today tap to pull out a lot of cost and miss out on some opportunities. So we settled on last call. Our WSA use would be in the low one tends our management team.

I had been working very hard to find where we can get leaner.

And where every kid, while we do everything we can to retain revenues in the process and we got to 97 million in the quarter and that includes a lot of lot of severance in that in that number as well. So we've made a lot of strides. We know we have more to go but we're being more being circumspect.

About you know.

Forward, what we're doing what's what the commercial implications are how it impacts our customers and we're kind of will kind of proceeding Ana rapid.

But thoughtful basis, so we talked in the third quarter of the WSA being in the high Eightys low Ninetys and that's where we're at right now Babs.

Acknowledging that the.

The gross margin dollars in the in the second quarter, we're a little lower than WSA.

And that's probably going to be the case in third quarter as well, we need to get to breakeven we want to point out and Mark said, it and I may have seven to that if you take out the inventory charges, which is simply the result of going from a strong market.

Relatively to the worst market in my 32 years.

We have it did drop in revenues and Consequentially in gross margin dollars. So.

But we we almost narrowed that difference except for the inventory charges. So there was a major achievement. So I think we we acknowledge we have more more cuts to make.

And we had at first phase and second phase and we will do more but bergener, we're going to be a lot more plotting about the next steps.

And we gave guidance of third quarter and that's that's as far as I think we'll go right now.

Okay. That's helpful.

You talked about digital now can you talk about like Victor.

The decline finally, I would like how much of that means to you on.

Today and over next few years, how do you think about what that business can bring it.

Well, we've set on recent caused about a third of our revenues go through some version of.

Electronic interface with the customer now that's evolving as we're introducing new technology, but today, it's about a third.

And I elaborated on some of things will be implementing but in the future you know.

Part of our long term strategy in terms of pulling up cost is going to be enabled by how we connect with our customers easy it easier. It is for them to buy from us the more they'll buy from us. So the more we invest in the technology that simplifies that process. The more cost we can take out of a transaction.

But today, it's a third and we think theres plenty of upside, but a lot of this is happening with existing customers. So we're simply transitioning.

From a more traditional model phone calls walk in orders et cetera to to newer models that don't change the revenues that much but enable us to pull up costs.

Okay, and lastly by May as you talked about how yet crime to expand into his midstream downstream.

I will utilize changing your how yet can you give us sales force.

Can you talk about that you can be done organically.

That'd be a big you also talked about M&A somebody Blake, how you think about M&A and then.

Moving blood and Endeavours other segment.

Yes, I think in the us anyway most of that.

The great preponderance of that will be organic.

Especially in the midstream space. However, if you look at the last few years I think last four acquisitions. We made we are in process solutions and lot of that business has midstream focused.

So I think I think the opportunity is where an established distributor in the midstream space.

And like I would like we said on the call Weve been primarily upstream focus, but we have a big push in midstream I think most of it will be derived organically, but the acquisitions on the table right now.

You know really all of them are in process solutions space, and we think will pick up some midstream there but.

Downstream might be more likely to be a target for for acquisitions. We've made some attempts there haven't been able to conclude that the deals but.

In North America, Cmos that organic to answer your question Fabs.

That's very helpful. Thanks.

Thank you.

From Stifel, We have Nathan Jones. Please go ahead.

Good morning, everyone.

Morning.

Hi, congratulations everybody on the new roles.

Thank you.

I guess I'll start with a follow up question. The WSA structure, if we get to quite a bit 90, a run rate that you're talking about here. If we go back a couple of years in a loss recovery.

You added a significant amount of revenue without adding significant amount back to WSA without really adding any back really.

This is leaner cost structure suggest that you would need to add more cost back in the recovery. This time venue that you'd gain in the previous time or do you think that you could see you could add a significant amount of revenue back into that business without needing to increase that WSA Sir.

Capture along with it.

But thats a great question because in the last downturn.

We didnt, we didnt make the kind of cuts in 2016, which I follow kind of is the double the second year, but have a downturn in double downturn that like we've made today. So we're starting at a real low cost base at this deferred troughing year native our cost base is real low when we when revenue comes back we will.

Absolutely add people beat the challenges and the way restructuring. The company is we want to we still want an established distributed model we want to be in.

Hundred 5200 locations around the world wanted to be close to our customer, but but the the the design of the branch will evolve. So today, we might have 10 people in six trucks and half million dollars an inventory in a town tomorrow that will change.

But when it when an area grows when you have or when you are getting really getting to a kind of a much more efficient model will add back, but we should have in our traditional flow throughs have been in the 10% to 15% and to your point in those recovery years 17, 18, 19, we didnt add any cost as we grew the business.

Here and will be a little different we will be adding cost, but but hopefully the incrementals as revenues would climb would be north of 10 to 15, and and maybe maybe in that 50% 20 range.

Okay. Thanks for that.

With the oil price is getting back to the low fortys and pushing up towards the mid Fortys here.

If I look back at the oil price recovery in.

In the last cycle in 15 16.

It's about the same price now as the as that was getting back to in 2016 into 2017 was a growth year.

If oil prices stay in this low to mid Fortys range would you expect investment premier customers to increase next year.

If oil gotten to one range.

That where it is now.

Low to mid boys.

Well.

I would expect.

Things to be.

It's in low to mid Fortys.

Yes, good there'd be some upside, but not much I mean, one of the big things I look at his oil storage at that begins to deplete then you'd see a period of low to mid Fortys oil, but then I think you'd see it grow and you'd see more completion is done et cetera. So I don't know along that window of low of that low oil price arrangement with last but if oil stays in the low low to mid.

Fortys I don't see a lot of growth opportunities, except taking market share and through acquisitions.

Okay Fair enough I'll pass it on thank you.

Thank you.

From Keybanc capital markets, we have Steve Barger. Please go ahead.

Hi, Good morning, Dave and congratulations on the new Raul good to hear your comments on bridge to higher margins.

You reiterated the message around exiting high burden high cost product lines, but can you talk about how you educate customers that they'll have to change where they'll pro procure some of those products and how do you mitigate moves from competitors, who may be willing to sell those loss leaders to take share.

Well so net net net the answer that question kind of changes depending on where you are in the cycle. So I've talked for a few years about how we've been intentionally walking away from business.

To to improve our gross margins and we we had lot of success in that regard in a market like this.

We and our competitors are actively trying to liquidate inventory so everything's a little.

A little Messier in that regard so we're trying to to burn off inventory and then position ourselves for a recovery by buying new hopefully lower cost inventory, but.

I see.

The the.

The margins on that being being a matter of.

Mark Mark what movement, but we do have not wanting to say something no I think it's really with what you saw in this and this period its mix and so I think some of that uplift that we've seen here you know kind of kind of masks. Some of those challenges where people are trying to find the bottom on on price to two to really make in some cases. The other next next payroll cycle. So so I think.

You know, we're being very intentional and what we stock and having the right.

The mix if thats in four of our domestic as I think Thats you know thats, how we work to educate our customers moving forward, including substitution opportunities.

Space, Yeah, I agree that's helpful.

So in the next upcycle, you'll be able to maintain this better mix of margins and stay away from from the things that you've sold in the past that may have been dilutive to gross margin.

I mean I think.

We should be able to bolster gross margins as we when all the less.

Optimal line and you know part of part of what we wanted to do as we move forward is be a lot more selective about the suppliers, we support as a distributor as a large distributor.

In the more you have more power with your manufacturers to the extent to could standardized and new part of a big part of our push as a recovery comes is to help our cost help us have our customers help us standardize and get the best deals food and and better margins as we as we narrow our.

Supply base.

Okay and on your comments on being able to diversify revenue streams organically given you're already in some of those mid and downstream markets does this come down to increasing marketing effort to let customers know you're more focused there now and realistically. When do you think you can start to see some some share wins.

Well I think we're making a lot of gains in midstream and I talk pretty exhaustively about it in my opening comments.

Yes, it it does require more more marketing more salespeople on the ground there parts of the country. So so let me elaborate in this way Steve at traditionally our branches were were largely geared towards a and end market. So we would have branches that were surely drilling contract.

We are focused purely downstream focused.

And and that made sense, usually because there is enough revenue to support that today, we're taking what what used to be single purpose branches, making them multi purpose and doing fulfillment locally, but putting a lot more focused on our sales efforts. So their parts of the country, where perhaps weve underserved the.

Downstream Bob.

End market, so, we're adding salespeople and I will get into which parts, but we're adding salespeople there to kind of fill those holes and midstream. It's a very big focus for US we meet weekly on our midterm mid term midstream strategy, our targets, whose accountable what does it take two to.

Build those relationships and.

Take share in that arena.

Yes.

And for the digital now customers that have been signed up for more than a year, what kind of year over year volume growth are you seeing and I'm just trying to gauge how productive older customers are becoming versus newer conversions because that seems like a really important part of your go forward strategy, Yes, Thats, a great question, and one which I asked routinely and what.

We do is so I look at the stats I look in the list of customers and I look at the quarterly trends of revenues.

And you try to find inflections well in a market like this.

It's hard to see that what I do look for is what was the method of transactions in the past and in what way we converted those customers. So.

Right now you really don't see much revenue build you do on some discrete customers and I mentioned, one on the call where we're now getting the lions share of their business because of our integrated with them, but because of kind of current engine marketplace. It's not visible at a customer level, but it will be when the market begins to to build.

But you can definitely see the progress in terms of engagement.

Absolutely.

And then last one for me with the revenue looking down mid teens sequentially are you seeing signs the some of the smaller private guys are folding or are they hanging in there and trying to cut price and just.

Maybe.

Differentiated by service level or something regardless of efficiency.

We're seeing both were seeing.

That is closed locations.

Layoff people might like we are an end to end going out of business, but but.

In these in the throws of the of the trough Youre seeing really heavy bedding right now where people are doing all they can to to liquidate inventory. So we're absolutely see in that and it's becoming.

Most intense right now so that could put some pressure on product margins I mean, mark talked about stability in our product margins, but that could provide some some headwind as we.

In these elas throws for some of our competitors.

Got it. Thanks appreciate the time, thank Steve exited.

From Jpmorgan, we have showed veeco. Please go ahead.

Thanks, Good morning.

Hi, Sean form.

So Dave you noted the inventory impairment with tied to exiting certain product lines are no longer accretive.

Im just looking back historically your lowest margin business with a lot of in effect pass through what off.

Bespoke items to the both an export business I'm just curious if it's those types of sales that you're eliminating.

And if not what areas are you exiting and should we expect more inventory impairments going forward or have as the review then comprehensive already.

Well.

A portion of the inventory charges, which I believe were 12 million in the quarter was due to location closures.

The fact that we had eight a much more vibrant stream of revenues in the fourth and first quarter than now things are really slowed to a trickle some of that's just.

Losses non usage.

A portion of it is we're making low margins on product lines the infrastructure to support those product lines exceeds the expected gross margin. So we simply make personnel reductions closed facilities and discontinued stocking those items to answer your question more broadly.

We spoke last quarter by elevated inventory charges, we think that will persist for a few more quarters.

The third quarter hopefully as the bottom no July was worse in almost all regards than the second quarter. So third the second quarter was not the bottom third quarter hopefully is once that stabilizes.

Once we see the demand pattern from products once we see profitability on the customer basis location basis product basis. Then we assess you know are beginning to keep in that and that strand of electrical products or not that kind of thing thats kind of the does decision points, but inventory charges opened.

The next few quarters will remain elevated.

Okay got it Thats really helpful. And then I was hoping to maybe just dig into some of the other nuances within the segments.

Energy branches were relatively more resilient and then what we would have thought.

Supply chain hit a bit harder.

Within supply Jim would you characterize as some of your larger customers have been some of the most aggressive in reducing their capital budgets and perhaps that explains the delta there and then.

Midstream and downstream getting more attention.

From your perspective is that what's helping sustain energy branches to a degree I'm just curious where if you are taking market share in those mid and downstream areas that are also seeing some significant reductions in spending.

Where whose share you're taking with do you think.

Well.

To your last point I really don't want to say from whose oxys getting gord, but in terms of supply chain.

It's a matter of.

One big customer, who says you know who is really like Mark said is sprinting to generate cash.

That alone brought down supply chain revenue significantly that was a big drop in purchases, we think that they'd bottom for that particular customer when things will start to spend a little bit more but not a lot more so that's what's driving that.

Bigger falling revenues in supply chain services versus energy.

And.

Part of its just a matter of time and we've talked about this before Sean normally rig count declined we'll see a lesser revenue declined 9% I expected it closer linkage.

And given the pandemics that we'd see a closer linked to in revenues to rigs that's not happening, but I think one we're picking it up is in midstream we are very focused on the midstream.

We've got strengths there, but our focus has generally been there has been a gravity about the upstream upstream business, which you know by by necessity is changing given the lack of activity. There. So we have a keen sales focus.

We're making picking up a lot of ground in South, Texas, and we've seen has seen some of our competitors exit South, Texas, and we're taking advantage of that.

Got it that's very helpful. Thanks, Dave Thank you Sean.

From Northland capital, we have Doug Becker. Please go ahead.

Thanks.

Congratulations on the new role well deserved. Thank you. Thank you welcome Doug.

I appreciate it.

Just given all the structural improvements you're making we're seeing clear evidence of it.

Do you think you'll be able to remain free cash flow positive. If we're going through a gradual recovery I can see would be difficult in a sharp recovery, but at a gradual recovery maintaining free cash flow positive given some of these changes.

Yes, I think thats I can answer that ones. So.

Eight a recovery.

As we grow we tend to consume cash.

Now this where 2017 and the market was strengthening like it was an 18, we didnt we were pretty good in terms of concern we consumed a lot less cash because we had.

Hi, Dsos and.

Low inventory term rigs today things are very different except for the second quarter. We had been in the first quarter, we turned our working capital better than ever. So we went into the second quarter with relatively low accounts receivable relatively low inventory and so we're kind of in liquidating mode now.

The majority of sense, but in just.

Managing the assets so in a recovery if it were slight you know.

In inventory, we probably have grew our inventory turns and we'd be probably be able to its just slow the purchase a replenishment of inventory, but I think even in a slight recover we'd see some.

Consumption of cash given how lean our balance sheet is right now.

The mix makes sense any target in terms of.

That noncash working capital, obviously spiked in the second quarter, but function of the revenue.

There, but just going forward.

Maybe first quarter reasonable target as we think structurally going forward.

Mark do you want to take them, yes, the conversation around working capital as percent of revenue.

Yes, sure, Yes, I think they had target of we have at least for the rest of this year for 2020 to be 70 525 million free cash flow I think the guidance, we're giving further for Threeq you were comfortable holding to that right now.

I think really its inventory is going to be one of the main drivers as David already touched on is.

Thats a main source of liquidity for us and seeing our customers really pull back spending this drastically.

Create a little bit of inefficiency off off of that one Q of peak and so I think you're going to find us or not not in the.

In the highs that that we came off of during the last downturn, but.

Probably in the Midpoints of.

Where we are now and where we executed on historically, yes, I think we've said for many years. We said we wanted to turn our working capital four times a year.

But for most of last year, we are under were better than five we got 18% working capital as a percent of revenue so 20% our target we want to get we don't want to get our our assets that liquid even especially in the best at times. So.

And like you say as a function of a decrease in sales you'll see our turns.

Sure.

Slow you'll see our customers trying to pass more slowly like to have been.

That's in kind of palpable reality in our business.

But we'll get the working capital numbers backup, especially when we start see smart revenue traction.

Great. Thanks very much.

Doug.

Yeah from Cowen we have John Hunter. Please go ahead.

Hey, good morning, and thanks for taking my question.

Welcome John Thank you Enron.

So I had a question on just your your revenue expectations for the third quarter to be down.

Low to mid teens.

Curious how the second quarter progressed from a revenue progression and how that flows into your expectation for third quarter revenues.

You know kind of a second part and then related parts of that question of is your outlook based on customer specific spending plans or is it more related to kind of what you're saying overall completion activity.

Well I think its completion is primarily and.

So July rig count Recompletions are really low so comparing that to the Twoq you average.

And then you asked about kind of revenues through the quarter July our June was a better month in may we kind of expected that because in terms of business days, it was 10% longer and but junette shaped up.

Relatively strong compared to.

Relatively weak June.

July was was was we lost ground in July primarily due to the drop in completions.

In terms of specific customers some of our bigger ones, we see stabilizing but are kind of our power service business Big fabrication part of our company, they're seeing orders diminish as completions have.

You know dried up so so that's going to slow things down so thats a known to area of decline were seen but on specific customer basis, we think we're gaining market share.

We're seeing.

Zero sum transit transitions of winning new business, we steel from our competitors and we're very excited about that but the the leading indicators of rig activity and completions.

Just starts solo in the quarter, that's the main thing driving our guidance in the third quarter.

Thank you and then kind of following on to that I know, it's it's early but you know.

What kind of visibility do you have in into the fourth quarter typically finish.

In terms of revenue fall off a little bit sequentially. So.

Curious how you're seeing.

The sequential move from Threeq to Fourq you today.

Yeah, I mean, he's the best I can do I mean for Q is usually a is slower quarter.

Given the many factors we talk about budget exhaustion, just a seasonality alone.

For Q could be different if things work to percolate, we don't see anything it's going to say activity is going to pickup in the fourth quarter. So I expect the fourth quarter to be a little skin years in the third quarter. We just don't have a good view yet.

Got it and then just last one for me is.

In terms of gross margins I mean, your margin performance was was particularly strong excluding the inventory charges. So.

Curious, how you think of of the sustainability.

Of that margin level as we head into the third quarter.

Yeah I think.

We guided to revenues drop in a bit I talked a little bit about the aggressiveness.

Of our competitors, particularly in the Permian interesting interestingly much to me, it's always been the most competitive arena even in the best at times, but there's a real lot of real aggressive price in the happen there so that'll that'll affect our our product margins, which could have at some some downward pull on our gross margins as well so.

We've been real happy we're end to end of deflationary environment.

We're seeing pipe prices going down month after month after month or steel prices more broadly which effects almost everything we sell so so I think we'll see some some gross margin pressure.

Again, we've been able to buttress fat somewhat by the focus of which products were going to buy stock in salaries, but you know, it's it's hard to do that and environment like this.

Great. Thanks, Dave I appreciate the responses okay. Thank you.

Thank you ladies and gentlemen, we've reached the end of our time for the question answer session. I will now turn the call over to Dave Cure Kinski, CEO and president for closing statements.

I'd like to thank everyone for calling in today and will catch up with you next quarter.

Thank you ladies and gentlemen. This concludes today's conference. Thank you for joining you may now disconnect.

[music].

Good morning, welcome to the second quarter 2020 earnings Conference call. My name is spread that nobody your operator for today at this time, all participatory to listen only mode. Later, we will conduct a question answer session during which you can delstar one if you have to question.

Please note this conference is being recorded.

I will not turn it over Q, Vice President marketing at Investor Relations spread wise. So why did you may begin.

Good morning.

Welcome to distribution now second quarter 2020, <unk> earnings Conference call.

We appreciate you joining us thank you for your interest and now.

With me today, as Dave Cherkasky, President and Chief Executive Officer, Mark Johnson, Senior Vice President and Chief Financial Officer.

We operate primarily under the distribution now and do you know brands and you'll hear us reverted distribution now and you know as our New York stock exchange ticker symbol during our conversation this morning.

Please note that some of the statements we make during this call.

During the answers to your questions makers, they forecasts projections estimates.

Quoting but not limited to comments about the outlook of the company's business. These are forward looking statements within the meaning of the U.S. portal Securities law based on information as of today, which are subject to change.

They are subject to risks uncertainties.

Actual results may differ materially no one should assume that these forward looking statements remain valid later in the quarter or later in the year.

You're not undertake any obligation to publicly update or revise any forward looking statements for one reason.

In addition, this conference call contains time sensitive information that reflects management's best judgment at the time of the live call.

Refer you to the latest 10 forms 10-K, and 10-Q that now accounts on file what do you have securities and Exchange Commission for more detailed discussion on the major risk factors affecting our business.

Further information as well as a supplemental financial and operating information maybe Tom within our earnings release on our website <unk> IR distribution now dot com or in our filings with the FCC.

In an effort to provide investors with additional information relative to our results as determined by U.S. GAAP. You'll note that we also disclose various non-GAAP financial measures, including even though excluding other costs, sometimes referred to as EBITDA net income excluding other calls and diluted earnings per share excluding other calls.

Which excludes the impact of certain other costs and therefore have not been calculated in accordance with gap.

Reconciliation on each of these non-GAAP measures financial advisor to its most comparable comparable GAAP financial measure is included in our earnings release.

This morning, the Investor Relations section of our website contains a presentation covering our results in key takeaways for the quarter a replay of todays call will be available on the site for the next 30 days, we plan to fall our second quarter 2020, <unk> form 10-Q today and it will be also available on the web site.

Now, let me turn the call over today.

Thanks, Brad Good morning, everyone and welcome. While this is my 30 seconds here with the company in 25th on each call. It's my first as CEO I am grateful and hobbled by the board of directors confidence in me to be the de now CEO. This is a considerable responsibility in an extraordinarily challenging environment, but I'm comfortable.

To know that we have the outstanding women and men needed to collectively overcome the adversity our industry faces.

I'd like to think decal aerial executive Vice chairman for his leadership in part as significant personal in best investment you might development as a leader I'd also like to congratulate Mark Johnson and his new role I hired Mark 12 years ago and no. He will be excellent CFO focused on compliance in protecting our shareholders.

Preserving a strong balance sheet and selectively seeking differentiating inorganic opportunities.

As a big four audit firm pedigree is a proud Tulane University graduate in its highly respected as an established finance business leader.

Now I will get into the business.

And this great shutdown period, where the first for the first time in history oil prices turned negative drilling rigs and workover rigs laid down to the lowest levels capital and maintenance spending were swap slashed projects were canceled or delayed producing wells were shut in and contractors were sent home make important.

Allied paralleled moment in history.

And one where de now scan strong and its position to weather the storm.

I want to thank our front line employees for taking care of our customers communities and each other during this difficult time. In addition, I'm going to think our HR HSC and high T. groups, who partnered with our locations on our pandemic response true professionals, who are also.

Empathetic and compassion as we transform our business I.

I appreciate all the effort and actions by these groups, who make sure our employees are safe and that we remain open everywhere.

We are committed to transform de now we are uniting our geographic footprint highly skilled people strategic inventory positioning relationships with key domestic and midpoint import manufacturers and product exports expertise with disruptive digital innovation. This is a powerful combination.

Our wise hollow, because without our branch network people in our distributor underpinnings enhancing the technology the technology alone false flat.

As a form of U.S. marine I see discipline as the single most important factor in successfully implementing our strategy discipline to me means less is more disciplined as carving out a niche building on a limited set of strengths, becoming the best in the world of what you do and not being tempted by those marginal distractions that obstruct.

Those strengths.

In my view, while I believe in the long term buoyancy in the market and that a recovery will calm we're sizing the business in a fashion not lower for longer but lower forever in the past the recovery itself was the antidote to inefficiencies in the business growth concealed those inefficiencies scalability.

As a half a meaningful term.

The bridge to reliably higher through cycle earnings has free spans.

One end market expansion to digital disruption in three structural transformation.

So market share accumulation is our focus in the upstream.

A key piece of our strategy is to further diversify end markets through targeting midstream downstream industrial as well as alternative energy markets, which are traditionally less volatile.

To address this opportunity we are investing in sales and business development transitioning our energy centers to be multi purpose or servicing all of energy instead of branches being just single end market focus as they had been.

We're also partnering with strategic suppliers, and bundling and kidding key sets of products and services, which enhance deficiencies in convenience for our customers.

Finally success demands improved efficiencies in our business for which were well down the path a lower cost structure and the resulting improve competitiveness itself enables topline growth and market diversification increased leverage was suppliers and better margins.

Next in terms of digital disruption in a business where transactions are measured in the millions business simplification being deployed right now across the now enables greater production responsiveness to customers and lower transaction costs.

A much leaner delivery model helps spawn grill as our competitiveness allows our allows growth where our cost structure itself historically inhibited.

<unk> infrastructure I will elaborate more on this in a moment.

Now I'll touch on structural transformation, we are positioning dramatically nimble or structurally more efficient business enabled by accentuating, our strengths selling underperforming businesses, eliminating all but essential costs pursuing to zero based mindset, combining similar purpose divisions strengthening.

Distribution center support structure streamlining corporate evolving the branch network in growing the importance of a centralized fulfillment model to lower supply chain costs, all of which is aided in enhanced by can pin continued investment in technology.

Our structural changes our ambitious broad and permanent nature in our foundational to the strategy and necessary to drive improved performance accountability and financial success.

We are redesigning our supply chain finding the optimized hub in Pope hub and spoke architecture with a bias towards decentralized structure that will support smaller locations less inventory risk and lower operating costs.

With regards to our regional distribution centers are our Dcs, we are further rationalized.

Rationalizing our RDC network by eliminating our what part D C and east Houston and relocating its function inventory in personnel to our main Houston campus, thus lowering structural expense in terms of reaching customers with reduced headcount, we are deploying technology to augment labor content by eliminating repetitive.

Tasks keystrokes in automating key segments of the quote to order process.

Part of our strategy is to identify high burden high cost low margin product lines that result in non value added activity in exit those lines as we stated on our last call in the first quarter, we sold a business that fit within this category and in Twoq you, we shutdown several locations and product lines that will allow us to focus on more accretive.

Higher margin products.

We've consolidated our sales organization, and our adding sales and business development personnel to win market share. We are also leveraging our digital now technology to funnel more product spend through our platform, enabling speed and efficiency.

Now I'll cover a few financial highlights highlights from the quarter.

Revenue from the second quarter of 2020 was 370 million free cash flow from the second quarter was 66 million and we improved our already stellar balance sheet by expanding expanding our cash position to 269 million, while we remain debt free with ample runway on our Undrawn credit facility and.

While Mark will elaborate I want to highlight two key items.

Despite a 39% decline in revenue sequentially as result of this great shutdown EBITDA decrementals were below 7%, which represents solid execution because steep abrupt revenue declines usually drive much higher unfavorable decrementals as the cost curve is more difficult.

Two teams so quickly.

And most notably when excluding the elevated levels of noncash inventory charges, our EBITDA, excluding other costs would have near breakeven in the quarter.

Now I'd like to take a moment to share a few successes our team has achieved in the midstream space.

We were successful in winning sizeable sizeable PBF orders for several propane fractionator projects launch a receivers for propane pipeline and engineered pump stations for crude and propane pipeline for midstream, operator, who markets and supplies infrastructure to both is Permian Eagle Ford basins.

In July we executed an evergreen contract agreement for PBF products with one of the largest integrated midstream companies. This will open the door pressed to care capture for their market share.

During the second quarter, we executed a new five year agreement with another large integrated midstream company that opens additional market share potential.

We continued project work for a global integrated midstream customer as we supplied material for the completion of the recent Dakota crude takeaway projection.

Expansion.

Lastly for large mid continent based midstream company, we supplied material for a 70 mile 16 inch Bakken lateral project into 28 mile 16 inch West, Texas lateral project.

Material supply for both projects includes pipe valves fittings and fabricated equipment.

Using materials engineering coding testing in fabrication through a single source provided de now the differentiating value for the customer.

The algae, leveraging unitas global ammo, while mitigating product risk using our quality program resolution, the resulting solutions a seamless highly effective process. Our customer uses to complete in engineered procurement initiative executed through our digital now platform for a four well complex building material.

Required by the construction crews to complete a tank battery installation.

In addition, we've designed to configured within our digital platform additional material list for two and three well tank batteries and to punctuate devalue. This customer leverages, our digital now interchange solution to virtually eliminate paper invoices and transaction costs exabyte the approval process with an additional benefit of low.

During our DSO. This example highlights our ability to leverage a disruptive technology by marrying technology customer relationships with our understanding and application of products.

For example, we recently completed implementation for a new MP customer and registered dozens of users who are expected to use our platform.

We're also onboarding two major integrated midstream customers tied to the contract wins I mentioned earlier.

We continue to push forward on the technology front with a number of digital tools in development that will be released to our customers. Some of the enhancements had been to make our systems easier to use and our employees more efficient.

For example, we have automated over 60 Dino processes using AI that are performing hundreds of automatic functions.

We're also gaining momentum on our rollout of a user friendly interface to our order management system to be fully completed by end of year.

We are focused on providing increased visibility of data for our customers to analyze and make more informed decisions regarding their product usage budgeting and spend as an example, we're providing a view to stock availability well data to be usage purchase order consumption in mobile ordering usage. This allows the customer.

The ability to digest to consume large amounts of data using a highly interactive interface.

We're meeting with the customer access to this day that allows for more productive dialogue driving continuous improvement using advanced analytics.

Other digital tool real we're rolling out with onsite customers, especially during the cold in 19 pandemic is customer self checkout.

This solution offers the customer and Noncontact seamless checkout process and an easier buying experience.

We believe that to be successful at digital innovation in the energy space you need great ideas to save the customer time, providing information that helps them decide on the products best suited to their applications.

And then analysis of purchase history to promote standardization you have to know your customer how the product will be used and the technical.

Impacts you need.

Positioned strategically with the customers the customers you Trust.

So we're excited about the technology, we're investing into reduce our cost of doing business and make it easier and compelling for the customer.

With that let me turn it over to Mark for further commentary thank.

Was 260 million down 181 million or 41% from the first quarter of 2020, outperforming a rig count decline of 50%.

Excluding the revenue impact from our January 2020 divestiture second quarter revenues were down 55% from last year compared to recount declines of 60%.

You asked energy center revenue was down 40% sequentially as many of our customers reduce spending by laying down rigs suspending drilling and completion programs and deferring projects and not a central maintenance during the quarter.

In the U.S. upstream space, we had several project wellhead hookups and tank battery wins contract renewals with drilling contractors and MP companies that will secure future revenue.

In the U.S. midstream space, our ability to provide a customizable solution unique to that customer resulted in winning business at six operating locations by bundling our materials and warehouse management services with our digital now platform.

For our U.S. supply chain services channel revenue declined 52% sequentially, resulting from reduced drilling and completion expenditures from our top SCS energy MP customers one of our top revenue customers reduced spend nearly 80% sequentially in a sprint to conserve cash.

Infrastructure midstream projects for our SCS customers were minimal or postponed as plant turnaround projects that were scheduled for Twoq 2020 pushed out to 2021.

Our U.S. process solutions business revenue was down 30% sequentially on lower upstream completions and project activity due to the impacts of cobot 19, and demand loss for oil and gas.

Customer suspended all non essential activities worked through existing funded projects in froze or canceled others.

Our power service fabrication business experienced viewer fabrication and multi unit orders, but aftermarket services in the downstream sector remained stable on park orders and critical field service work.

Our Odessa pumps business saw steady orders from the municipal water sector, but routine field work was delayed as access to customer sites were hindered.

In the Canadian segment second quarter, 2020 revenue was 41 million down $33 million or 45% from a year ago with rig count declining 70%.

Well actually Canada revenue dropped 47% on rig count decline of 87% due to the.

Due to this deteriorating market conditions on top of the seasonal erosion due to break up.

Recount bottomed at 13 active rigs in June marking an all time low.

Well, well spuds dropped to an astounding 93% sequentially.

Effects of Govan 19 on the energy business resulted in customer project cancellations delays and lower activity across the MP unconventional and oil sands in markets.

Moving to the international segment.

International revenues declined sequentially, 19% on a rig count declined 22%.

In the second quarter gross margins were 18.4% a decline of 100 basis points sequentially and decline of 130 basis points compared to the second quarter of last year overall product margins held during the quarter, primarily due to product mix as pipe sales as a percentage of revenue are lower in the.

<unk>.

Gross margin to clients were driven by 12 million an elevated inventory charges in the period related to exiting product lines and locations that no longer align with our strategy.

As we discussed last quarter, we have historically experienced inventory charges to be higher than normal and depressed market conditions.

Amortization expense declined 4 million sequentially following the intangible impairments last quarter.

That said when removing inventory charges and amortization in the comparable periods gross margins improved sequentially and year over year.

A million sequentially.

This is proof that we have taken decisive measures in response to the market movements.

Moving on to operating margins the U.S. generated operating losses of 24 million a decline of $40 million when compared to the corresponding period of 2019, primarily due to the decline in revenue and partially offset by reduced operating expenses.

Canada operating loss was 5 million or down 6 million when compared to the corresponding period of 2019.

Our international operating profit was breakeven in both this quarter and the comparable period in 2019.

Net loss for the second quarter was 30 million or 27 cents per share other costs in twoq totaled 9 million pre tax related to the separation and transaction expenses.

Net loss, excluding other cost was 18 million or a loss of 16 cents per fully diluted share.

Non-GAAP EBITDA, excluding other costs for the second quarter of 2020 was a loss of $15 million, which includes the unfavorable $12 million inventory charges.

Accounts receivable in the period were 242 million.

Down 124 million sequentially Dsos for Twoq 2020 were 60 days with inventory levels at 370 million resulted in inventory turn rates of 3.3 times.

Accounts payable hundred 66 million with days payable at 50 days in the second quarter.

We again exited the quarter with no outstanding borrowings or draws against our revolving credit facility.

As of June 32020, our total liquidity from our credit facility availability plus cash on hand totaled 525 million.

Net cash provided by operating activities was 68 million in the second quarter with capital expenditures of 2 million.

Resulting in 66 million and free cash flow into Q2 thousand 20.

The year to date free cash flow plus cash received for the divestiture and one Q totaled 94 million and is notable.

Looking back on a trailing two years, we have generated approximately 370 million in free cash flow through our initiatives to optimize working capital and strengthen our debt free financial position.

With that I'll turn the call back to Dave.

Thanks, Mark now with regards to M&A the role of acquisitions and our long long term growth strategy remains intact.

Yes test in determining the value of their company, while being cautious with the valuable currency for the balance sheet, we seek targets that fit well denounced know how generate higher returns in our instantly accretive.

Looking towards the third quarter.

Summer months in the U.S. and Canada emerges from emerging from breakup, usually set up the third quarter to be our most active quarter of the year. This year will be different because the july levels of rigs and completions are dramatically lower for example July us rigs are 36% lower than the Twoq you average.

And June us completions were 41% lower than the Twoq you average our view is that revenue in the third quarter will decline in the low to mid teen percentages.

Regarding warehousing selling and administrative expenses.

And while WSA was 130 million in first quarter, and we guided to second quarter to be in the low 110 billions with actual is being 97 million, we expect the third quarter WSA to be in the high Eightys.

To low $90 million range.

We are executing on the new new Dino strategy, our structural changes our cost trends transformation initiatives and our end market diversification crack cash preservation is paramount as we continue to defend our balance sheet to provide a stable foundation, we continue to invest developed and deployed digital technology solutions at four.

Despite our position in the market increased customer value intimacy and Mark a key part of our strategy. Our sites are set on being the digital disruption in our space in terms of technology product application knowledge accessed world class products and a growing aftermarket business.

Centralizing support functions de layering management consolidating distribution centers.

Andy evolving the branch model, while also making significant cost reductions, we're deploying technology to eliminate repetitive tasks and condensing ordered a cash process as well as investing in digital tools to enrich the customer experience.

I am confident in our talented people to continued streamlining of our business and the technological advancements we are making to our digital tools platform digital now.

And we're building a resilient model to drive long term growth fortify our upstream position, while diversifying and investing in the midstream downstream and industrial end markets.

Now, let me hand, the call back to brand and we will start taking your questions.

Thank you, we'll now begin the question answer session.

A question. Please press star one your telephone keypad, if you'd like to be removed from the Q. Please press the pilot side or the Heskey if you're on the speakerphone. Please pick up your headset first before tightly.

Once again, if you have a question. Please press star one on your telephone keypad.

And from Scotia Bank, we had nice job. Please go ahead.

Okay.

Hey, good morning, guys and thank you for taking my questions.

What about.

Plus about kudos to you and WSE reduction that you guys have done and look at Titan.

Pretty good.

Oh.

You mentioned no longer ever.

Can you can you talk about like what are you seeing is that right.

Hey amount flight that scenario.

As we think about next year and our next couple of years.

Well I don't think we're ready to talk about where we'll be next year, there's too many unknowns in the market.

But but but won't want to say about WSA is we've gone through more than just a transformation. We are re sizing this business on a permanent basis to be able to to grow without adding a lot of cost.

And once the next downturn comes to do not have to be in position like we're in today to have to pull out a lot of cost and miss out on some opportunities. So we said over the last call R.W. savings would be in the low one tends our management team.

It has been working very hard to find where we can get leaner.

And where because while we do everything we can to retain revenues in the process and we got to 97 million in the quarter and that includes a lot of lot of severance in that in that number as well. So we've made a lot of strides. We know we have more to go, but we're being where being circumspect about.

Out you know.

What we're doing what's what the commercial implications are how it impacts our customers and we're kind of what kind of proceeding on a rapid.

But thoughtful basis.

So you know we talked in the third quarter of the WSA being in the high Eightys low Ninetys and that's where we're at right now Babs.

Technology that the.

The gross margin dollars in the second quarter were lower than WSA.

And that's probably going to be the case in third quarter as well, we need to get to breakeven we want to point out and Mark said, it and I may have said the too that if you take out the inventory charges, which is simply the result of going from a strong market.

Relatively to the worst market in my 32 years.

We have it did drop in revenues and Consequentially in gross margin dollars. So.

But we almost narrowed that difference except for the inventory charges. So that was a major achievement. So I think we we acknowledge we have more more cuts to make.

And we had a first phase and second phase and we'll do more but we're going to.

Going to be a lot more plotting about the next steps.

We gave guidance of third party and that's that's as far as I think we'll go right now.

Okay. That's helpful.

You talked about the doesn't now can you talk about like.

The decline in Signlive like how much of that means to you on.

Today and over next few years, how do you think about what that business can bring it.

Well, we've set on leasing caused by a third of our revenues go through.

Some version of.

Electronic interface with the customer now that's evolving as we're introducing new technology, but today, it's about a third.

And I elaborated on some of things will be implementing but in the future.

But say, it's a third and we think theres plenty of upside, but a lot of this is happening with existing customers. So we're simply transitioning.

From a more traditional model phone calls walk in orders et cetera to to newer models that don't change the revenues that much but enable us to pull up costs.

And maybe lastly, Titan.

Talked about how yet crime bricks bad debt is.

Downstream.

How you are changing your how that's changing your sales force.

Can you talk about that can be done are definitely art that'd be a bigger.

About M&A some labor day, how you think about M&A and then.

Morning, guys Didnt give sort of this segment.

Yes, I think in the us anyway most of that.

Great preponderance of that will be organic you know.

Especially in the midstream space. However, if you look at the last few years I think last four acquisitions. We made we are in process solutions and a lot of that business has midstream focused.

So I think I think the opportunity is where an established distributor in the midstream space.

And like you know like we said on the call Weve been primarily ups you focus, but we have a big push in midstream I think most of it will be derived organically, but the acquisitions on the table right now.

You know really all of them are in process solutions space, and we think will pick up some midstream there but.

Downstream might be more likely to be a target for for acquisitions. We've made some attempts there haven't been able to to conclude that the deals but.

In North America actually most of that organic to answer your question Vebs.

That's very helpful. Thanks.

Thank you.

From Stifel, We at least the Jones. Please go ahead.

Good morning, everyone.

Right.

Congratulations everybody on the new roles.

Thank you.

[laughter].

I guess I'll start with a a follow up question. The WSA structure, if we get to quite a bit 19, a run rate that you're talking about here. If we go back a couple of years in a loss recovery.

You added a significant amount of revenue without adding significant amount back to WSA without really adding any back really.

Yes.

Leaner cost structure suggest that you would need to add more cost back in the recovery. This time venue that you're getting the previous time, but do you think that you could you could add a significant amount of revenue back into that business without needing to increase that WSA structure along with it.

Well I think Thats a great question because in the last downturn.

We didnt, we didnt make the kind of cuts in 2016, which I call. It kind of the double the second year of of the downturn double downturn that like we've made today. So we're starting at a real low cost base at this important troughing year Nate.

Cost bases real low when we when revenue comes back we will absolutely add people beat the challenges and the way restructuring. The company is we want to we still want an established distributed model we want to be in.

Hundred 5200 locations around the world want to be close to our customer, but but the the the design of the branch will evolve. So today, we might have 10 people and six trucks and half million dollars in inventory in a town tomorrow that will change.

But when it when an area grows when you have or when you're getting really getting to it kind of a much more efficient model will add back, but we should have traditional flow throughs have been in the 10% to 15% and to your point in those recovery years 17, 18, 19, we didnt at any cost as we grew the business.

Here and will be a little different we will be adding costs, but but hopefully the incrementals as revenues would climb would be north of 10 to 15, and and maybe maybe in that 15% 20 range.

Okay. Thanks for that.

With a little probably getting back to the low fortys and pushing up towards the mid Fortys here.

If I look back at the oil price recovery in.

In the last cycle they seek thing.

About the same price now the as it was getting back to in 2016 is that 2017 was a growth year.

If oil prices stayed in this low to mid Fortys range would you expect investment from your customers to increase next year.

If oil gotten to one range.

We are already it now.

So to make boys.

Well.

I would expect.

Things to be.

It's in low to mid Fortys.

Yes, there would be some upside, but not much I mean, one of the big things I look at his oil storage at that begins to deplete then you'd see a period of low to mid Fortys oil, but then I think you'd see it grow and you'd see more completion is done et cetera. So I don't know how long that window of low of that low oil price arrangement with last but if oil stays in the low low.

The mid Fortys I don't see a lot of.

Growth opportunities, except I'm, taking market share and through acquisitions.

Okay Fair enough I'll pass it on thank you.

Thank you.

From Keybanc capital markets, we have Steve Barger. Please go ahead.

Hey, good morning, Dave and congratulations on the new Raul good to hear your comments on bridge to higher margins.

Well so that the answer that question kind of changes depending on where you are in the cycle. So I've talked for a few years about how we've been intentionally walking away from business.

To to improve our gross margins I mean, we had lot of success in that regard in a market like this.

We and our competitors are actively trying to liquidate inventory so everything's a little.

Little Messier in that regard so we're trying to to burn off inventory and then position ourselves for recovery by buying new hopefully lower cost inventory, but I see.

The the.

The margins on that being being a matter of.

Marc Michael.

Not wanted to say something no I think it's really what what you saw in this and this period its mix and so I think some of that uplift that we've seen here you know kind of masks. Some of those challenges where people are trying to find the bottom on on price to two to really make in some cases you know the next next payroll cycle. So so I think we're being very.

Intentional and what we stock and having the right.

The mix of that then for domestic and so I think that's that's how we work to educate our customers moving forward, including substitution opportunities.

Space, Yeah, I agree that's helpful.

So in the next upcycle, you'll be able to maintain this better mix of margins and stay away from from the things that you've sold in the past that may have been dilutive to gross margin.

I mean I think.

We should be able to bolster gross margins as we know the less.

Optimal line and you know part of part of what we wanted to do as we move forward is be a lot more selective about the suppliers. We support no adds a distributor as a large distributor.

The more you have more power with your manufacturers to the extent you could standardized and you're part of a big part of our push as a recovery comes is to help our cost help us have our customers help us standardize and get the best deals food and better margins as we as we narrow our.

Supply base.

Okay.

And on your comments on being able to diversify revenue streams organically given you're already in some of those mid and downstream markets does this come down to increasing marketing effort to let customers know you're more focused there now and realistically. When do you think you can start to see some some share wins.

Well I think we're making a lot of gains in midstream and I talked pretty exhaustively about at my opening comments.

Yes. It it does require more more marketing more salespeople on the ground there are parts of the country. So so let me elaborate in this way Steve traditionally our branches were were largely geared towards a and end market. So we would have branches that were surely drilling contract.

They are focused purely downstream focused.

And and that makes sense, usually because there was enough revenue to support that today, we're taking what used to be single purpose branches, making them multi purpose and doing fulfillment.

Locally, but putting a lot more focused on our sales efforts so their parts of the country, where perhaps weve underserved or the downstream Bob.

End market, so, we're adding salespeople and I will get into which parts, but we're adding salespeople there to kind of fill those holes and midstream. It's a very big focus for US we meet weekly on our midstream midterms midstream strategy, our targets, whose accountable what does it take two to.

Build those relationships and.

Take share in that arena.

Yeah, and and for the digital now customers that have been signed up for more than a year, what kind of year over year volume growth are you seeing and I'm just trying to gauge how productive older customers are becoming versus newer conversions because that seems like a really important part of your go forward strategy, Yes, that's a great question and one which I asked routinely.

And.

What we do is so I look at the stats I look in the list of customers and I look at the quarterly trends of revenues and you try to find inflections well in a market like this.

It's hard to see that what I do look for as you know what was the method of transactions in the past and in what way we converted those customers. So right now you really don't see much revenue bills you do on some discrete customers and I mentioned, one on the call where we're now getting the lions share of their business because of how we're in.

And with them, but because of contact carnage in the marketplace, it's not visible at a customer level, but it will be when the market begins to to build.

But you can definitely see the progress in terms of engagement.

Absolutely.

Maybe.

Differentiated by service level or something regardless of efficiency.

We're seeing both we're seeing a competitor has closed locations.

They are people like like we are and going out of business, but but.

In the in these in the throws of the of the trough Youre seeing really heavy bidding right now where people are doing all they can to to liquidate inventory. So we're absolutely see in that and it's becoming most intense right now so so that could put some pressure on product margins I mean, mark talked about stability.

Our product margins, but that could provide some some headwind as we in these elas throws for some of our competitors.

Got it thanks appreciate the time.

Thanks, Steve equity.

From JP Morgan, we have Sean Meakim. Please go ahead.

Thanks, Good morning, Hi, Sean.

So Dave you noted the inventory impairment with tied to exiting certain product lines are no longer accretive.

I'm just looking back historically your lowest margin business with a lot of in effect pass through one off.

Spoke items to the Wilson export business Im just curious if it's those types of sales that you're eliminating.

And that's not what areas are are you exiting and should we expect more inventory impairments going forward or have as the review Ben comprehensive already.

Well.

A portion of the inventory charges, which I believe were 12 million in the quarter was due to location closures.

The fact that we had a much more vibrant stream of revenues in the fourth and first quarter than now things are really slowed to a trickle some of that shifts.

Losses non usage.

A portion of it is we're making low margins on product lines the infrastructure to support both product lines exceeds the expected gross margin. So we simply make personnel reductions closed facilities and discontinued stopping those items to answer your question more broadly.

We spoke last quarter about elevated inventory charges, we think that will persist for a few more quarters.

The third quarter hopefully as the bottom you know July was worse in almost all regards than the second quarter. So third the second quarter was not the bottom third quarter hopefully is once that stabilizes.

Once we see the demand pattern products once we see profitability on the customer basis location basis product basis. Then we assess you know are beginning to keep in that and that strand of electrical products or not that kind of thing that's kind of the this decision points, but inventory charges for.

The next few quarters will remain elevated.

Okay got it Thats really helpful. And then I was hoping to maybe just dig into some of the other nuances within the segments.

Energy branches were relatively more resilient to maybe what we would have thought.

Supply chain hit a bit harder.

Within supply chain would you characterize as some of your larger customers have been some of the most aggressive in reducing their capital budgets and perhaps that explains the delta there and then.

Midstream and downstream getting more attention.

From your perspective is that what's helping sustain energy branches to a degree I'm just curious if you're taking market share in this mid and downstream areas that are also seeing some significant reductions in spending.

Where whose share you're taking what do you think.

Well.

To your last point I really don't want to say from who who's Aucs is getting gord, but in terms of a supply chain.

It's a matter of.

One big customer, who says you know who is really like Mark said is sprinting to generate cash.

That alone brought Dom supply chain, rather significantly that was a big drop in purchases, we think that bank bottom for that particular customer and we think will start to spend little bit more but not a lot more so that's what's driving that.

Bigger fallen revenues and supply chain services versus energy.

And.

Part of its just a matter of time and we've talked about this before Sean normally rig count declines will see a lesser revenue decline now expected to see a closer link.

And given the pandemics that we'd see a closer linked to in revenues to rigs, but that's not happening, but I think when we're picking it up is in midstream we are very focused on the midstream.

We've got strengths there, but our focus has generally been there has been a gravity about the upstream upstream business, which you know by by necessity is changing given the lack of.

Activity there. So we have a keen sales focus we're making pick up a lot of ground in south, Texas and we've seen is seeing some of our competitors exit South, Texas, and we're taking advantage of that.

Got it that's very helpful. Thanks, Dave.

Thank you Sean.

From Northland capital, we have Doug Becker. Please go ahead.

Thanks.

Dave Congratulations on the new role well deserved. Thank you. Thank you welcome Doug.

Appreciate it.

Just given all the structural improvements, you're making and we're seeing clear evidence of it.

Yes, I think thats, a I can answer that once so in a recovery.

As we grow we tend to consume cash.

Now this where 2017 and the markup is strengthening like it was an 18, we didnt we were pretty good in terms of conns consumed a lot less cash because we had.

Hi, Dsos and.

In the majority of sense, but in just in managing the assets. So in a recovery if it were slight.

Okay.

In inventory, we probably have to our inventory turns and we'd be probably be able to its just.

Slow the purchase a replenishment of inventory, but I think even in a slight recover we'd see some.

Consumption of cash given how lean our balance sheet is right now.

The mix makes sense.

Any target in terms of.

That noncash working capital, obviously spiked in the second quarter, but function of the revenue.

There, but just going forward.

Maybe first quarter reasonable target as we think structurally going forward.

Mark do you want to take them.

The conversation around working capital as percent of revenue.

Yeah sure Yeah, I think they had target of at least for the rest of this year for 2020 to be 70 525 million free cash flow I think you know the guidance, we're giving for for Threeq you were comfortable holding to that right now.

I think really its inventory you know is going to be one of the main drivers as David already touched on is you know that's the main source of liquidity for us and seeing our customers really pull back spending this drastically.

Create a little bit of inefficiency off off of that one Q peak.

So I think you know, you're you're going to find us or not not in a in.

In the highs that that we came off of during the last downturn, but.

Probably in the midpoint of.

Where we are now.

Where we executed on historically, yeah, I think we've said for many years. We said we wanted to turn our working capital four times a year.

But for most of last year were under were better than five we've got 18% working capital as a percent of revenue so 20% our target we want to get we don't want to get our our assets that liquid even especially in the best at times. So.

I'd like you say as a function of a decrease in sales you'll see our turns.

Sure.

Slow you'll see our customers trying to pass more slowly like to have been.

That's kind of palpable reality in our business, but we'll get the working capital numbers backup, especially when we start see smart revenue traction.

Great. Thanks, very much thank you Doug.

And from Cowen we have John Hunter. Please go ahead.

Hey, good morning, and thanks for taking my question.

Welcome John Thank you.

So I had a question on just your your revenue expectations for the third quarter to be down low to mid teens.

I'm curious how you know the second quarter progress from a revenue progression.

How about.

Flows into your expectation for third quarter revenues.

You know kind of a second part and related parts of our question of is your outlook based on customer specific spending plans or is it more related to kind of what you're saying overall completion activity.

Well I think its completion is primarily and.

So July rig count with completions are really low so comparing that to the too few average.

And then you asked about kind of revenues through the quarter July our June was a better month in may we kind of expected that because in terms of business days. It was 10% longer in June and shaped up.

Relatively strong compared to.

Relatively weak June.

July was was was we lost ground in July primarily due to the drop in completions.

In terms of specific customers some of our bigger ones, we see stabilizing but you know are kind of our power service business Big fabrication part of our company, they're seeing orders diminish as completions had.

Dried up so so that's going to slow things down so thats, a known to area of decline were seeing but on specific customer bases. We think we're gaining market share we're seeing.

Zero sum transit transitions of winning new business, we steel from our competitors and we're very excited about that but the the leading indicators of rig activity and completions.

Just starts so low in the quarter. That's the main thing driving our guide in the third quarter.

Thank you and then kind of following on to that I know, it's it's early but you know what kind of visibility do you have in into the fourth quarter typically finish.

In terms of revenue fall off a little bit sequentially. So.

Curious how you're seeing.

The sequential move from Threeq to Fourq you today.

Yeah, I mean, he was the best I can do I mean for Q is usually a slower quarter.

Given the many factors we talk about budget exhaustion, just a seasonality alone.

For Q could be different things work to percolate, we don't see anything that's going to say activity is going to pickup in the fourth quarter. So I expect fourth quarter to be a little skin years in the third quarter. We just don't have a good view yet.

Got it and then just last one for me is.

In terms of gross margins I'm in your margin performance was was particularly strong excluding the inventory charges. So.

Curious how you think of of the sustainability of that margin level as we head into the third quarter.

Yeah I think.

We guided to revenues dropping a bit I talked a little bit about the aggressiveness.

Of our competitors, particularly in the Permian interesting interestingly much to me, it's always been the most competitive arena even in the best at times, but there's a real lot of real aggressive pricing you happen there so that'll that'll affect our our product margins, which could have it some some downward pull on our gross margins as well so.

We've been real happy we're end to end of deflationary environment.

We're seeing pipe prices going down month after month after month.

Or steel prices more broadly, which affects almost everything we sell so so I think we'll see some some gross margin pressure.

Again, we've been able to buttress fat somewhat.

By the focus of which products were going to buy stock in salaries, but you know, it's it's hard to do that and environment like this.

Great. Thanks, Dave I appreciate the responses okay. Thank you.

Thank you, ladies and gentlemen, Weve reached the end of our time for the question answer session.

I'll turn the call over to Dave Cherechinsky CEO, Chris is it for closing statements.

I'd like to thank everyone for calling in today and will catch up with you next quarter.

Thank you ladies and gentlemen. This concludes today's conference. Thank you for joining you may now disconnect.

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