Q1 2021 NOW Inc Earnings Call
Okay.
Good morning, and welcome to the first quarter earnings Conference call. My name is Brandon and I'll be your operator for today at this time all participants are in a listen only mode. Later, we will conduct a question and answer session during which you be Dallas Star. One if you have a question I will now turn the call over to Vice President of marketing and Investor Relations spread wise Mr. Walsh.
Again.
Good morning, and welcome to the now Inc. First quarter 2021 earnings Conference call.
We appreciate you joining us and thank you for your interest in now Inc.
With me today is David <unk>, President and Chief Executive Officer, and Mark Johnson, Senior Vice President and Chief Financial Officer.
We operate primarily under the distribution now and do now brands and you'll hear us refer to distribution now and do you now which is 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 responses to your questions may contain forecasts projections and estimates.
But not limited to comments about our outlook for the company's business.
These are forward looking statements within the meaning of the U S. Federal Securities laws based on limited.
Information as of today, which is subject to change they are subject to risks and uncertainties and actual results may differ materially.
Now one should assume that these forward looking statements remain valid.
In the quarter or later in the year we.
We 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.
I refer you to the latest forms 10-K 10-Q that now Inc. Has on file with the U S Securities and Exchange Commission for a more detailed discussion of the major risk factors affecting our business.
Further information as well as supplemental financial and operating information may be found within our earnings release on our website at IR Dot D now dot com or in our filings with the SEC.
In an effort to provide investors with additional information relative to our results as defined by U S. GAAP.
You'll note that we also disclose various non-GAAP financial measures, including EBITDA, excluding other costs, sometimes referred to as EBITDA.
Net income excluding other costs and diluted earnings per share excluding other costs.
Each excludes the impact of certain other costs and therefore have not been calculated in accordance with GAAP.
A reconciliation of each of these non-GAAP financial measures to its most 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 and key takeaways for the quarter.
A replay of today's call will be available on the site for the next 30 days, we plan to file our first quarter 2021 form 10-Q today and it will be also available on our website.
And now let me turn the call over to day.
Thanks, Brad.
Everyone and thank you for joining us as we post earnings for the first quarter of 2021 and tell you our story and talk about what we're building for the future much has changed during.
During the last 12 months, we had seen rigs laid down budget slashed projects canceled well shut in contract or sent home and for the first time negative oil prices, making from perhaps the most bleak energy predicament since the great depression.
From what was a great shutdown, just one year ago to now a period of relative stability with strong oil prices the economy strengthening hiring ramping up and anxious consumers clamoring for a reversion to the norm.
The underpinnings around the things that drive our business are encouraging.
Well do you now entered the downturn on firm financial footing with no debt and ample excess cash we committed to transform our business, we committed to get to breakeven EBITDA in the first half of 2021 with those who cover our stock earmarking us for our full year 2021 EBITDA loss.
Yeah, we're happy to say, we achieved our goal of returning to positive territory, one quarter earlier than committed after just three short quarters of EBITDA losses in the worst market ever.
But survival and breaking even.
Our ambitions ranking at the lowest levels of mass Lowe's hierarchy of needs survival has never been an issue for us its share.
For US then in the opportunity now is for gienow to pursue self actualization as an organization to fully achieve our potential as a team and as a partner to our suppliers and customers.
We've talked exhaustively about a customer order fulfillment migration and modern or is it modernization, where we adapt our geographic footprint to be customer approximate while reducing our cost structure to be more competitive by implying employing highly skilled people leveraging relationships with key manufacturers.
And employing disruptive digital innovation to simplify the customer experience.
As Mark will cover the numbers I'd like to focus on the business customers and our strategy and tell you where we are on our journey.
First I'm excited to share a little bit about flex flow our second acquisition this year.
<unk> is the leading provider of horizontal pump solutions for fluid movement applications flex.
Flex flow has earned a strong reputation in each pump expertise. So its suite of rental permanent installation service and support offerings, primarily in the United States.
As we joined together to best in class highly trained technical service organizations from Odessa pumps and flex flow. This combination creates greater value for our customers and elevates distribution now into a pump supplier of choice.
Flex flow systems integrates a large fleet of trailer mounted horizontal pumping systems with a variable speed drive surface couldn't controls and automated reporting capabilities for a wide range of application flow rates and pressures.
The systems are used in a variety of end market applications, such as reservoir production enhancements crude and natural gas liquids transfer saltwater disposal, salt cavern leaching and brine water transfer.
Other applications, maybe found in downstream petrochemical plants and mining applications.
The acquisition meets the criteria, we have set for inorganic investment.
It bolsters and further differentiates distribution now in non Commoditized customer solutions strengthens and broadens process solutions in the fluid handling space and provides enhanced gross margins and EBITDA flow through dynamics.
And as I mentioned on our last call. We also added talented employees from Master Corporation, expanding our midstream engineering and construction services expertise within our process solutions group.
Our strategy is to continue to be selective and to further differentiate D. Now by acquiring value added companies with higher barriers to entry that generate significantly better margins than our base business has delivered historically.
Now to our operating segments and end markets.
In the first quarter U S revenue was up $28 million sequentially from 13%, although we experienced an increase in February freeze related product orders. This did not offset the loss of product sales. We typically would have seen without the severe weather event due to the days of idling of so many of our locations.
Several of our supply chain service customers showed strong growth as drilling activity picked up in the Permian while in other areas Workover rigs operated to minimize production declines in the Bakken.
Our Houston and Freeport, Texas locations experienced increased sales related to ice storm repairs supplying MRO material as plant workers, we pared broken pipes and <unk>.
Limitation.
In South, Texas, we saw increased drilling rig activity from smaller independents as new wells were drilled and completed resulting in the demand for PBF related wellhead connects and well site production facilities.
And we supplied 30000 feet of fiberglass pipe for produced water flow lines to a water management company operating in the Williston Basin.
Now I'd like to share our process solutions customer success story.
Back in December of 2019, we were successful in securing a quantity of eight three phase bulk separated vessels from an independent E&P for their Permian operations.
This customer was one of our first to tour and approve our new Tom Ball, Texas facility.
In 2020, this customer was acquired by a much larger independent and in February of 'twenty 'twenty. One the acquired customer requested 19 more vessels, prompting the new combined companies Engineering Department to Recertify, our Tom ball facility.
Upon completion of the expression inspection and 90 vessels 19 vessels were ordered as well as 40 additional units based on a new design for the acquiring company.
This customer consolidation opened up the opportunity for D. Now to capture additional revenue across their entire production of the now larger customer.
These were clear market share gains.
We continue to focus on end market diversification, including legacy mid and downstream as well as emerging sustainable energy and carbon capture markets by actively marketing our products and services and expanding our customer base.
In downstream, we grew sequential revenue from independent refining company in the northwest by providing PBF and MRO related material for a scheduled turnaround.
And several Midwest and Gulf Coast refineries, we provided MRO consumables to first quarter turnarounds and we were awarded pumps seals and consumables for a couple of refinery expansions in the northwest.
Additionally, we were awarded a large valve package consisting of control positive shut off and isolation valves from our soda Ash mine operator for a certain surface chemical plant expansion project tied to their bicarbonate production process.
The revenue was part of our continuing focus on key customer targets in the mining and chemical processing areas outside our upstream stronghold.
Additional key wins include multiple fabricated pipe rack orders water and oil pump skids and saltwater disposal packages for our new Tankless battery design from the oil and gas operator, as well as pipeline lack units from midstream customers.
With a midstream customer he provided meter skids and rental transfer pumps for water transfer and fill applications used in their firewater systems.
With another large midstream customer we provided several large positive displacement pumps for crude oil transfer pipeline applications.
The increase focused on our pump aftermarket and service program has resulted in greater access to customer sites, allowing us to capture higher margin aftermarket opportunities.
In the industrial end market, we provided saltwater disposal units to waste management company in South East, Texas and provided diesel pumps to our maritime contractor, which were used on barge dredging applications.
And in the biotechnology space, we were successful leveraging strategic pump product line to provide a large pump order to a blood and self technology manufacturer in their processing of blood plasma in fluid handling.
Now to Canada.
Increased market activity led to revenue of 58 million, a sequential increase of $10 million or 21% from.
From a product line perspective, we shipped the number of valves and actuation orders for our midstream rail bulk product terminal.
Business in one of our largest Canadian locations experienced growth in our artificial lift product line with a record number of pumps worked a number not seen since 2014.
On the E Commerce side in Canada, we completed the implementation implementations from a new <unk> midstream customer and a mining company recovery in potash from underground deposits for use in the fertilizer market.
Both implementation implementations further helped diversify our Canadian customer business in the midstream and industrial mining sectors coalescing, our online digital technology with customers.
For international in the first quarter International revenue was up 4 million sequentially or 9%. We saw improved activity in countries with fewer COVID-19 restrictions in the middle East We had a large project order from a major IOC operator that fully delivered in the first quarter.
Australia, we captured a new three year term contract with a major IOC LNG player for electrical products toward Mclean electrical business.
In Latin America, we continue to provide valve and valve actuation products to an offshore production platform operator.
Our mcclain UK business known for servicing electrical customers.
Continues to expand their product lines to include valves safety and industrial products.
During the quarter they received a sizable valve order through an EPC for a European chemical producer in the downstream market.
During the quarter, we went live with an Ioc's, Australia business unit by providing a b to B E catalog for the procurement of PPE related material.
And in Indonesia, we completed an ecommerce implementation to a new MRO contract with a major IOC inclusive of electrical valves, PPD PPE and MRO products.
Now I'll give a little more color on our digital now investments.
We've committed to becoming a leader in our space by investing in digital technology, not only to make our internal systems more efficient, but also to speed the journey and customer appeal of our digital now ecosystem.
We continue to add more customers to our e-commerce platform with the percentage of our digital transactions growing accounting for 37% of our revenue and 43% of transactions.
I'd like to take a minute to highlight several more customer success stories and how our digital non platform is delivering to customers.
A leading independent producers field crew uses our e-commerce mobile app on their smart device to manage the day to day material needs for their warehouse.
Our apps workflow allows instant visibility to inventory quick and easy touch screen order replenishment and consolidated billing.
They're superintendents and engineers use our E Commerce site shop Dot D. Now dot com to easily find and procure a wide range of products from their D. Now manage b to B catalog, while leveraging our new order builder enhancement.
Which allows the user to select a pipe fittings and flanges using a table format that populates the cart in real time.
Our order build a workflow feature enables user to select and procure large bill of material items in a fast more efficient simplified manner.
Additional value was generated from using our dashboard reporting providing customers with full visibility to real time procurement trends and budget management tools, which drive improvements in their cost and enhances cash flow.
In addition, this customer sees the value inefficiency of east back our digital tool that allows for a user driven easy to configure efficient ordering of power services fabricated process and production equipment.
In March we completed a digital integration for a large oilfield manufacturing company by integrating into their Oracle ERP system.
The customer's goals to drive vendor consolidation and standardization standardization, while enabling spend visibility and control through the reduction of the number of vendors used by their numerous operating facilities down.
Down two leading technology E Com e-commerce suppliers that have the scale product range and technology platform to meet their needs.
<unk> was selected because we have all of these competencies and could accommodate the customer's requirements.
One of the more exciting products, we're working on as he tracks our asset lifecycle management tool.
Access through an app or web browser attract users asset attributes to make it easy for customers to display a wealth of information in a matter of seconds from nested relationships like a pump as a part of the lack unit two location identification using a latitude longitude G O locator E check provides access to a vast data.
A positive.
Operating manuals pump curves dimensional drawings certifications and digital images.
At the moment, we are working with a select group of customers for beta testing before a broader release.
Once released all package units from process solutions will be equipped with the <unk> solution.
I'm excited about the future of E track is it provides a meaningful step towards realizing our vision.
Of integrating and leveraging technology with our products and services to provide actionable information for our customers. Thus further differentiating D. Now in the market and offering a revenue opportunity for equipment replacement and aftermarket expansion.
With that let me hand, it over to Mark.
Thank you, Dave and good morning, everyone total first quarter 2021 revenue was 361 million a 13% increase over the fourth quarter of 2020 outperforming our guided sequential mid to high single digit percentage range or.
Our first quarter results showed sequential growth across all segments.
The U S first quarter 2021 revenue was $252 million up $28 million or 13% from the fourth quarter on increased drilling and completions activity. Despite the disruptive impact from the free he's brought by winter storm theory.
Our U S energy centers revenue was up 12% from the fourth quarter and U S profit solutions revenue was up 14%.
Driven primarily by increased drilling and completions activity and seasonal recovery.
U S energy revenue accounted for 81% of the U S segment in the first quarter unchanged from the fourth quarter.
Moving to the International segment started moving to the Canadian segment first quarter 2021, our revenue was $58 million up $10 million or 21% from the fourth quarter.
Driven by seasonal increases in the market and customer share gains driven by greater attraction to D. Now his unique combination of application based solutions and products.
Stronger Canadian dollar relative to the U S dollar favorably impacted sales by approximately $2 million sequentially.
Outside of North America project deliveries in the Middle East coupled with partial easing of COVID-19 Lockdowns and travel restrictions in certain areas drove international revenue to $51 million, an increase of $4 million or 9% from the fourth quarter.
Stronger foreign currencies relative to the U S dollar favorably impacted sales by approximately $1 million sequentially.
In addition to D now growing revenue 13%.
In the quarter, our product margins remained resilient and gross margins improved to 28%. This increase was primarily a result of reduced inventory charges sequentially from $24 million in the fourth quarter to $5 million this quarter.
In the second quarter, we are continuing the evaluation of additional product rationalization measures to adapt to the changing market conditions customer preferences and structural changes in the business and this could impact the level of inventory charges going forward.
In the first quarter of 2021, warehousing, selling and administrative expenses or WSI was $79 million or down $2 million sequentially, primarily driven by successfully collecting almost $2 million in aged receivables in the period.
That is not expected to repeat.
Our cost reduction initiatives continued into the first quarter and offset the anticipated seasonal increases in WSI expenses, driven by resetting of limit based payroll taxes and health care cost inflation.
As we model the second quarter and layer in the acquisition contribution we expect the second quarter 2021 W. At WSI to be in the low to mid $80 million range.
In the quarter. We also initiated exits from leased and company owned facilities that resulted in impairment loss of 4 million primarily related to properties held for sale at $3 31.
The net loss for the fourth quarter from for the fourth.
The net loss for the first quarter was 10 million or a loss of nine cents per share on a non-GAAP basis net loss, excluding other costs was $5 million or <unk> <unk> per share.
Non-GAAP EBITDA, excluding other costs was a positive $1 million for the first quarter of 2021.
This has been a pivotal year at the onset of the pandemic, we swiftly identified and implemented initiatives focused on maximizing customer service and transforming our operating model. These actions are recognizable today in our financial performance as D. Now delivered EBITDA similar to that from the first quarter of 2020 on 40% lower revenues.
A testament to the determination ingenuity and collective effort of our team to respond to the market challenges and execute strategic shifts that continuously transform D. Now.
Moving to the balance sheet at the end of the first quarter, we had zero debt and a cash position of $374 million total liquidity equal to availability from our Undrawn credit facility plus cash on hand increased to 598 million as of March 31 2021.
Accounts receivable at the end of the quarter was 245 million an increase of 47 million from year end.
Inventory at the end of the first quarter was $247 million down 6% from year end with inventory turns of four six times our quarterly best.
As we strategically invest in inventory for our customers and face sequential activity headwinds from Canadian breakup, we anticipate inventory turns to lower into the second quarter.
Our accounts payable ended at 200 million with days payable of 64 days in the first quarter.
And as of March 31, 2021, working capital excluding cash as a percentage of first quarter annualized revenue was 14, 5%.
Solid performance, but we expect this ratio to expand some as we intentionally add working capital to fund growth in the business.
Our focus on working capital efficiency gains is also reflected with a new quarterly best cash conversion cycle of 77 days that helped minimize the cash required to fund our quarterly revenue growth of 13%.
Net cash used in operating activities was 4 million for the first quarter of 2021, and we had capital expenditures of $1 million.
When looking back over the last two years, we've generated a $408 million in free cash flow.
We'll continue our commitment to balance sheet management make investments in good inventory pursue strategic acquisitions in order to maximize asset health to secure liquidity to fuel the future.
And as previously discussed in the first quarter, we completed the acquisition of Master Corporation and in April we closed the acquisition of flex flow and I want to welcome those employees to the now family who are listening today.
Our team is focused on profitable market share gains targeting high margin product lines, and we are rigorously pursuing fitness at the expense line, we're actively deploying technology to augment labor content, automating and digitizing processes, and reducing discretionary and infrastructure costs.
We are intent on continuously developing a more agile business with increasing productivity.
We continue into 2021 with optimism for the future and we possess the talent resources and 42 grow our bottom line and create sustained value for our customers and shareholders.
With that I'll turn the call back to Dave.
Thank you Mark and now our view on the second quarter like we mentioned first quarter 2020 revenues were up 13% over the fourth quarter of 2020, outperforming our guide and generally posting much higher sequential growth than most companies in our space, we attribute that solid sequential revenue incline.
And to the timing of projects in the first quarter and strength with our upstream customers.
We do not expect first quarter international projects to recur and as such anticipate international to be relatively flat sequentially in the second quarter.
While Canada grew 21% sequentially from the fourth quarter to the first.
Might see the reverse occur as Canada moves into breakup in the second quarter.
Finally, we expect solid U S sequential growth going into the second quarter to be similar to U S growth from the fourth to first quarters.
As such with fewer international projects.
<unk> seasonal Canada, we climb.
And strong U S revenue gains, we expect second quarter sequential revenue growth in the mid to high single digit percentage range.
And now some closing thoughts we've expanded our ability to deliver solutions across the full lifecycle of a project from early feed stage work to engineering design construction management commissioning aftermarket support and lifecycle asset management.
As an example, if you take a six well pad project that includes wellhead hookups tank battery facility fluid handling gas recovering compression produced water transfer and disposal gathering lines and midstream tie ins D. Now offers a unified solutions approach towards the project from them.
Inception to start up aftermarket and materials manage incident to support.
From our scope of supply perspective D. Now delivers the engineered fabricated quality control process and production equipment PBF from flow lines, and instrumentation and controls while performing the field construction asset tie ins and commissioning before handing the keys to the operator.
Key benefits to the customer include project management oversight, providing singular accountability, capturing efficiencies through design and equipment standardization and leveraged procurement, while offering the ability to derisk the project by minimizing the number of service providers.
Process solutions will provide project management oversight, enabling pull through sourcing of materials from our energy locations, while benefiting our digital now benefiting from our digital now platform.
Digital solutions like our E spec product will be used to assist with budgeting configuration specification and standardization of fabricated and packaged equipment.
While <unk> will be used to manage asset performance analytics and scheduled maintenance from an app or a web based browser.
For MRO items, denounce energy locations, well choreographed staging inventory and our customers customers will be able to leverage our e-commerce marketplace for product sourcing net offers online accessibility to a customer specific catalog of products.
Furthermore, customers have access to powerful real time dashboards of consumption data to better manage their maintenance capex through analysis of spend reporting equal.
Equally as powerful we can design to provide innovative solutions to help our customers reduce their carbon footprint and greenhouse gas emissions.
We offer a wider range of products and services, which help our customers reduce emissions like vapor recovery units pump and compressor energy efficient audits CLS charge pumps on transfer or measurement units containment systems and solar powered pumps to name a few.
Our goal is to assist our customers in developing and processing cleaner Energy Inc.
Serendipitous for D. Now that a great many of the products, we already sell to existing customers will be consumed by the very same customers as they migrate capital to emerging sustainable energy products projects.
Thus, our primary tactic and our end market strategies to join hands with existing customers as they deploy their own strategies in that direction.
Finally, we are focused on being a differentiated supplier to our new and existing customers offering a unique combination of solutions for today's energy needs and then energy transition and tomorrows challenges ahead.
We've made significant progress to ensure maneuverability and the evolving energy space, we have a significant cash balance total liquidity nearing $600 million zero debt zero interest expense.
Pound shift towards efficiencies and most importantly, a passion for simplifying the customer experience through.
The investment in differentiating technology.
All of which provide a great deal of flexibility for whatever the market brings us.
With that let's open the call for questions.
Thank you we will now begin the question and answer session. If you have a question. Please press star one on your phone keypad, if you'd like to be removed from the queue. Please press the pound side or the hash key.
If you're on a speakerphone. Please pick up your handset first before it tightly once again if you have a question. Please press star one on your phone keypad.
And from Cowen we have John Hunter on the line. Please go ahead.
Hey, good morning, Dave Mark and Brad.
Good morning, John.
And so I appreciate are the second quarter guidance for revenue to be up mid to high single digits.
And the kind of geographic breakout that you gave us I was wondering if you could help give us an idea of of how revenues trended kind of throughout April.
And what's kind of assumed for the monthly progression of revenues to get up the mid to high single digits in the second quarter.
Okay. So let me start a little bit with first quarter. So January started off slow I think we mentioned that in our February call and during our February call. We were in this room without heat and.
We were contemplating giving guidance and we moderated that with you know based on 60 locations haven't been closed at that time. So February was slow due to that.
Slowdown in our business March However, you know really took off so there was a little bit of a snap back in March ended up being the best month of the quarter and and make for a real nice.
Revenue increased sequentially now April you now.
<unk> was down versus March in part because it's a shorter month, it's fewer business days for D now and its customers and.
And partly because March was so strong so we're starting off kind of slow, but we do expect things to get a little better.
<unk>, Canada.
As in breakup in April is probably the worst month of the quarter for Canada. So we experienced that as well so now we.
We feel we feel pretty good about you now except for Canada, we climb as we called it in terms of moving into breakup.
We expect the U S to continue to grow and we expect some flatness internationally, but that's kind of a cadence of how things happened during the first months of the year.
Understood. Thanks, Thanks for that and then.
You know obviously you had really strong performance on the gross margin from in the quarter.
Curious if you now just on the sustainability of that level of margins in <unk> and then later in 2021 obviously you're out of inventory charges that you need to consider.
But then also you know what were the moving pieces between pricing and mix it seems like pricing will be.
Net of a tailwind as we move through this year. So curious if you can.
Help us out with is the <unk> margin level, a good starting point for the second quarter.
Thanks.
Okay. So in terms of the the change in.
Margins of course, the the lack of inventory charges had a big deal to do with that.
Question implied.
Inventory charges during the quarter were 5 million more of a normalized level not so much as a percentage of revenue, but where we are in the cycle.
Those will be in that in.
In line with that during the year can be a little higher COVID-19, a little lower depends on now.
We weren't going through some level of restructuring as we stand up Super centers in our business and change the role of what will become express centers to maximize inventory utility and de risk of the inventory component of our business.
But I think I think gross margin. This is this is a good level for us and there will be some puts and takes so in the second quarter, Canada is a higher operating margin business for us they're our most profitable segment right now.
They tend to have higher gross margins as well so they're going to shrink in the second quarter, we're going to see some continued strength in the U S. But we do expect to see some projects, which will be a little bit of a drag.
Which could mean, a little bit lower gross margins in the second quarter I mean, I like to think I think Mark said it that our first quarter gross margins were the highest since we've spun seven years ago.
And I, you know I think theres, a gravity component there, whether there's likely going to be a little bit of a reduction in the second quarter based on the things I said with Canada. Some project work from the U S et cetera, but the underlying product pricing and product margins for us are strong.
And to your point I think this is a good level for us in terms of gross margins those numbers could get a little better as we start to see inflation lead times grow.
Demand increase kind of the all the things that would that would pull pricing in our favor.
That's helpful. There. Thanks, I'll turn it back thank you John.
And once again, if you do have a question. Please tell star one on your phone keypad and from Northland Capital, We have Doug Becker. Please go ahead.
Thanks.
Really good quarter on the cash conversion cycle, our working capital ex cash as a percentage of sales.
Louis.
Seen in Australia at least for quite a while.
I understand that is going to increase a little bit in the second quarter.
Have there been any revised targets regarding working capital cash conversion cycle as we go through the year.
Just it seems like a really important aspect of the story as activity increases in working capital requirements normally increase.
Sure Doug Yeah. This is Marc I appreciate that and in your ride this quarter on on strong sequential revenue growth inventory came down and so you're right I think we expect as we model N to two Q now.
There'll be some easing of that where we'll see some consumption of cash and so so I think as we you now.
As we model the top line growth you now you can see $30 million to $40 million range of working capital and put on the balance sheet as we.
Gross receivables and inventory.
To ensure we support these customers, but again, we're continuing to take actions to.
Create an efficient balance sheet too to minimize that impact on our cash consumption. So so again, you know that now that the range, but but again were well below the 20% that we've you know we've talked about in the past and where we're taking measures to remain lean yeah. Let me, let me add a little bit there. So if you go back a couple of years.
Routinely our working capital excluding cash as a percentage of revenue was 25%.
Before that it was even higher than that so that's been a major focus for us and it served us well as we entered the downturn because we had a much.
More responsive balance sheet, and we had kind of a very kind of conservative approach to managing the balance sheet.
We had a fee.
Focus on that and we've got a working capital turns to be very high in this quarter. So there'll be a little bit of an increase but they're going to be in that 15 to 20 range now we're going to try to keep them closer to 15, but.
You know what.
We are moving into.
A modest recovery, so we're going to be buying more strategic inventory.
Not not like we might have in the past, where we would be buying a lot more spec stuff that we ultimately have to deal with in a downturn, but we're gonna be thoughtful about what we put on the shelf, but we want to take advantage of the recovery, we want to have products when our customers need them, especially the high demand predictable less risky stuff, so I'm going to see a little bit.
<unk>.
Reduction there primarily because we were going to see a revenue decline in Canada, which is going to be just a numerator impact I think I think it's sooner than later.
Now that that's a major focus for us focus.
Focus for us and it will be going forward.
Now that all makes sense, the $30 million to $40 million that you mentioned mark that's for the for the full year.
Now I was just looking at a sequential build now if you if you hold hold the efficiencies, let's say, where we are now maybe with a little bit of easing there just what that revenue growth alone and we're gonna add add some to the balance sheet.
Just looking at working capital as a percentage of revenue staying similar you now we're going to.
We're going to put on some level, but again I mean, you now.
600 million in liquidity managing our balance sheet is is.
Something that we're interested in doing by ensuring we're taking care of our customers, especially in this period of time, where we're seeing growth here in the U S.
You know its something that youre right that theres, not a not a pegged for us to need to generate liquidity in the moment to make any kind of payments or anything like that so yeah. I mean, I think thats a good range, maybe more 2000 and $40 million that we would consume in the second quarter. If we see the kind of revenue progression we expect.
Now Mark talked about in his opening comments and we generated $400 million in the last eight quarters.
You understand that the counter cyclicality of our business now we're in the cash consumption phase.
But we're going to go into a little more wide open eyes in terms of the risk components of the inventory we put on the shelf, but we also want to see that growth.
Understood.
Obviously, a pristine balance sheet.
Just wanted to get a little color on the M&A Emma.
M&A pipeline.
In the near term over the next couple of quarters.
Okay. So we just closed two acquisitions and we're excited about them and that's a major focus for US is the successful integration and returns on those acquisitions. However, our deal team as it.
<unk> is off.
Those in.
Integrations, we have a separate group working on that now we're still looking for deals to fold into the company.
Now, we're moving into now on organic growth phase.
So like we've already talked about on this call will be consuming cash on that front and we are always selective about the acquisitions, we find and we work on and the ones. We just closed.
Those were those were good deals for us and we're going to remain highly selective. So we're looking we're talking to companies.
I think it's as vibrant a.
A pool of possibilities with with the acquisition, Kansas as it wasn't before we close these two deals.
Thank you.
Thank you ladies and gentlemen, we've reached the end of our time for the question and answer session. I will now turn the call over to David churches, Key's CEO and president for closing statements.
Okay. So thank you very much everyone from calling in we appreciate you listening to the call and we will see you next quarter.
Thank you ladies and gentlemen. This concludes today's conference. Thank you for joining you may now disconnect.