NOW Inc. Q1 2023 Earnings Call
1023 earnings conference call.
All lines have been placed on mute to prevent any background noise.
After the Speakers' remarks, there will be a question answer session.
If you'd like to ask a question. During this time simply press the star followed by the number one on your telephone keypad.
If you would like to withdraw your question. Please press the star followed by the one again.
Thank you Mr. Brad <unk>, Vice President of digital strategy and Investor Relations May begin your conference.
Thank you Barbara and good morning, and welcome to <unk> first quarter 2023 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 <unk> brands and you'll hear us refer to distribution now in D. 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 the call including responses to your questions may contain forecasts projections and estimates, including but not limited to comments during 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.
May four 2023, which is subject to change they are subject to risks and uncertainties and actual results may differ materially no. One should assume these forward looking statements remain valid later in the quarter or later in the year, we do not undertake any obligation to publicly update or.
Or revise any forward looking statements for any reason and.
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 our latest forms 10-K, and 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 <unk> 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 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 attributable to now Inc. Excluding other call.
Loss and diluted earnings per share attributable to now Inc. Excluding other costs each excludes the impact of certain other costs and therefore, therefore have not been calculated in accordance with GAAP.
Please refer to our reconciliation of each of these non-GAAP financial measures to its most comparable GAAP financial measure in the supplemental information available at the end of 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 first quarter of 2023.
Replay of today's call will be available on the site for the next 30 days, we plan to file our 2023 Form 10-Q for the first quarter today and it will also be available on our website.
Now, let me turn the call over to Dave.
Thanks, Brad and good morning, everyone.
I am proud to see the results of our talented team.
Produced again this quarter as we kick off the year outperforming the sequential revenue guide provided on our last earnings call. Despite weather related activity declines reduced U S rig counts and completions and lower oil and gas prices.
A discipline we've maintained as we execute our strategy continues to be constructive to earnings. Most recently propelled by our international segment that delivered strong growth in the first quarter with its best quarterly revenue growth percentage sequentially and year over year and more than a decade.
We had good growth across all three segments, marking the best first quarter EBITDA results since spinning off in May of 2014.
Our achievements across the globe are a result of the smart planning communication focus and discipline by our employees.
Testament to the hard work and dedication of our team and I'm grateful for their efforts to deliver success.
Regarding capital allocation, we continued to make strategic inorganic investments to fuel growth through acquisitions, while opportunistically repurchasing shares by.
By balancing these two approaches are even better pursuing both we aimed to drive sustainable long term value for our shareholders.
In an effort to further boost boost to bolster our U S process solutions business earlier. This week, we acquired two U S businesses for $33 million, which expand manufacturer <unk>.
Territorial exclusivity for key products and provide enhanced revenue opportunities with our existing <unk> customers in those areas.
These new territories are adjacent to <unk> other existing agreements widened our geographic reach and deepening our product and solution offerings into the downstream refining and industrial markets.
I'm excited to welcome the employees, joining the <unk> family and look forward to the growth we can cultivate together.
We also continued to return value to shareholders through our $80 million share repurchase program.
During the quarter, we were active in the market as we purchased three 3 million shares amounting to $36 million.
Through the end of the first quarter, we have consumed 53% of the authorized $80 million repurchase program.
Now I'll hit some of the financial highlights first.
First quarter revenue was $584 million sequentially higher by 7% and better than expected international growth of 28%, Canada was up 11% in the U S grew 3% primarily attributable to the December acquisitions.
On a year over year basis revenue is up $111 million or 23% outpacing the 15% year over year increase in global rig count.
<unk> 23 gross margins were 23, 5% lower sequentially as expected primarily due to dilutive project margins. For example project margins in <unk> 'twenty, two we're better than a <unk> 23, given the product mix and reduced vendor consideration was lower in the first quarter.
<unk> following a strong Q2 close.
For the first quarter, EBITDA was $47 million or 8% of revenue solid performance yielding excellent results.
On a year over year basis, EBITDA is up $19 million or 68%, resulting from a robust 17% year over year EBITDA to revenue flow throughs.
Free cash flow consumption was $11 million in the first quarter as we invested in working capital to support growth and deployed $5 million in capital investments to round out infrastructure and.
And rental asset enhancements.
That said, we expect to produce positive free cash flow in 2023.
Now some regional comments in the U S revenue was $427 million, an increase of $13 million or 3% sequentially driven by growth from newly acquired businesses and demand for our U S process solutions offerings for process production and pump packaged equipment.
U S energy revenues were relatively flat sequentially as U S rig count softened by 2% and was negatively impacted by poor weather in the northwest.
Many job sites were inaccessible due to record snowfall in the winter.
Rig counts in dry gas areas, we see it in the first quarter as operator sought to balance supply with demand for natural gas as Henry hub spot gas prices hovered around $2 65 per million Btu.
Across the oily basins drilling and completion activity drove demand for our seamless and <unk> steel pipe as well as our spool amounted coiled line pipe.
Our Williston Mega Center is now fully operational and we're excited about the growth opportunities and revenue synergies the new center enables.
Key successes in the quarter include agreement renewals for <unk> and.
And gas utility and refinery customers to provide PBF and MRO products for the maintenance Capex spend.
During the quarter, we grew market share as we implemented a new PBF commitment with an IOC in the Permian and we expect the increase in market share to contribute to future revenue growth.
Activity improved sequentially with our integrated supply chain services customers as we work to lower their lease operating expenses by managing the demand for products and improving availability of inventory to meet construction and project Timeframes.
In the downstream market spending by refining and chemical processing customers remained strong as they ordered project product for projects for turnarounds.
We are providing PBF products for biodiesel conversion projects at refineries as customers increased their throughput of renewable diesel products.
Our U S process solutions business grew to 26% of our U S segment due to revenue additions from the December acquired companies, while demand increased for our lack units and pump booster packages as the midstream activity was up for us in the quarter.
Our vessel fabrication business also remained strong as operators seek to increase their separation capacity for newly completed wells.
We are seeing growth in pump packages air compressors, and aftermarket service capabilities in non oil and gas markets, where we are targeting industrial manufacturing and food and beverage producers.
We are providing vertical turbine pumps for mining projects and industrial air compressor dryer package to a serial manufacturer in the food and beverage market.
Last quarter, we announced our acquisition of stealth pumping supply looking collectively at the service organizations of Odessa pumps and stealth in the Permian The combined service offering positions <unk> as one of the largest pump service organizations in new oil and gas plays.
This strength has led successfully securing a win for our preventative maintenance contract with a large IOC to service over 800 installed pump package units.
And outside of oil and gas we won an additional service contract for our preventative maintenance program for pumps and municipal water districts further unlocking revenue opportunities in the water and wastewater markets.
Our flexible business saw increases in demand for water transfer applications as operators start to expand their use of water recycling as opposed to water disposal to offsite permitted disposal sites.
During the quarter, we deployed several of our mobile horizontal pumping units to Canada to support pipeline pressure testing for a new LNG pipeline under construction.
We saw demand increase for products that mitigate emissions is onshore production operators find solutions to mute the overall environmental footprint.
Increased regulation and industry standards around flaring and emissions drive greater demand for many of the natural gas emission reduction products Dina provides to our customers.
Furthermore, we see demand improving for our recently acquired eco vapor auctions to removal systems apply to oil and gas tank batteries during.
During the quarter, our eco vapor business expanded their zero two lease fleet is contracted units grew despite a challenged sub $3 per million Btu gas environment.
The growth during the period speaks to the value proposition of <unk> ability to reduce customers' routine gas flaring at tank battery in solution installations by removing oxygen from the collected gas 19, and the oil and produced water storage tanks.
While <unk> has traditionally supplied oxygen removal equipment to oil and gas operators. We are seeing an increase in demand for our products in the renewable gas industry.
Renewable natural gas industry.
Similar to oil and gas RMG operators must address oxygen contamination within the collected waste gas from landfills and bio waste gas sources in order to sell the gas to the midstream market.
This challenge is solved using our <unk> zero two units and opens up a growing market as we see RMG demand increasing.
We achieved a notable success in winning large projects for eco vapor <unk> two units with water separation equipment to swine farm operators, who collect and process the biogas to sell to the midstream gas market.
And since March 31, we were successful in securing the largest eco vapor RMG order from a large landfill gas customer.
You ordered units will ensure the project meets the customer's stringent pipeline specifications for their R&D streams.
In Canada revenue was $83 million for the quarter, an increase of 11% sequentially. Our Canadian team continues to perform well as we supply and service a diverse mix of oil and gas operators midstream companies projects through a number of EPC customers and land based drilling contractors.
Highlights include strong demand for our valve actuation solutions for a number of capital projects as well as daily MRO demand.
Outside of oil and gas we saw revenue improve from an agribusiness customer with demand for pipe fittings and flanges for a processing plant project.
For international revenue was $74 million, a sequential increase of $16 million or 28%.
For the past few quarters volume has increased in our international segment as long cycle projects were being budgeted.
We are now seeing dinar, when most competitive inquiries converting those boats to orders and driving higher revenue in the first quarter.
In the U K MRO activity increase with electrical distribution products, industrial and safety equipment and valve products to our Mcclain business. We are seeing growing activity tied to increased customer investment in the north sea as reinvestment in existing fields, and new investment in Greenfields and <unk> expand.
Revenue expanded with the major IOC as we provided a variety of products to them in the U K Middle East West Africa, and Asia Pacific.
During the quarter, we renewed a five year framework agreement for electrical products with the customer based out of the middle East and in an additional agreement for PPE products with a major IOC with downstream refining and petrochemical assets.
In Norway activity increased as customers seek to expand their natural gas exports to Europe to replace a portion of the previously imported Russian gas.
On several projects that we supplied low voltage electrical cable and instrumentation to an EPC to support a subsea tieback project for an offshore production platform.
And Australia, inquires or improving for both MRO and Greenfield activity as we secured a sizable project for electrical cable and the carbon capture space and secured orders for pumps for an <unk> development a major IOC.
Moving to our digital now initiatives, our digital revenue as a percent of total revenue for the quarter was 43% lower sequentially due to customer and project billing mix on the top line growth.
During the quarter in Canada, we began receiving purchase orders digitally with a new round trip punch up customer, enabling procurement simplicity and driving efficiencies for both parties.
This preferred order method delivers incremental incremental revenue efficiently alleviating costs linked to non digital ordering.
Within our U S process solutions organization, we began rolling out our new field service App that allows our pump mechanics to document and performed service work to an all digital interface.
We will continue to expand the training and the use of this technology to help drive efficiencies and improve customer service.
Last quarter, we talked about our flex flow <unk> solution as the digital real time asset monitoring tool used to measure the performance and health of our horizontal pump working asset we are happy to see that our <unk> software solution is gaining popularity with customers as we actively monitor over 100.
Customer owned horizontal pump units in the field.
This provides additional revenue opportunities for field service maintenance and asset replacement.
With that let me hand, it over to Mark.
You, Dave and good morning, everyone total first quarter 2023 revenue was $584 million.
$37 million or 7% from the fourth quarter of 2022, and reaching the highest revenue quarter since the pandemic.
On a year over year basis, first quarter revenue was up $111 million or 23%.
EBITDA, excluding other costs, our EBITDA for the first quarter was $47 million or 8% of revenue.
The U S revenue for the first quarter 2023 totaled $427 million, a $13 million increase or 3% higher than the fourth quarter of 2022.
Year over year U S revenue increased $93 million or 28% from the first quarter of 2022.
Our U S energy centers contributed approximately 74% of total U S revenue in the first quarter and our U S process solutions contributed 26%.
In Canada for the first quarter revenue totaled $83 million, an increase of $8 million or 11% from the fourth quarter of 2022.
And year over year, Canada first quarter revenue was relatively flat, increasing $1 million or 1% limited by a 7% negative foreign currency revenue impact of approximately $6 million.
International revenue for the first quarter of 2023 was $74 million up $16 million or 28% sequentially.
And year over year International first quarter revenue was up $17 million or 30%. Despite a 9% negative foreign currency revenue impact of approximately $5 million.
As anticipated our first quarter gross margins were down from their recent highs to 23, 5%, but remain above that 2021 and 2022 combined gross margin of 22, 9%.
Warehousing, selling and administrative or WSI for the quarter was $109 million.
Up $5 million sequentially, primarily from a full quarter of operating expenses from our fourth quarter acquisitions, and the resetting of limit based payroll tax expense and the new year.
We continue to make progress on reducing WSI as a percent of revenue with our first quarter wsh as a percent of revenue improving sequentially and when compared to the first quarter of 2022.
In the second quarter, we expect WSI to approximate to approximate the first quarter level.
Moving to operating profit by our geographic segments in the first quarter. The U S delivered $23 million in operating profit or five 4% of revenue.
Canada delivered $8 million in operating profit or nine 6% of revenue.
In the international segment reported $4 million in operating profit or five 4% of revenue in the first quarter of 2023.
Moving to income taxes on a GAAP basis, the effective tax rate for the three months ended March 31, 2023 was eight 6%.
I'll remind you. This is the effective tax rate is calculated from the face of the income statement and is below that typically expected tax rate at these earnings levels.
As our income tax expense provision on the income statement includes a favorable tax benefit from the changes in the tax valuation allowance on our deferred tax assets.
As such this is why when imputing, our non-GAAP tax rate, we exclude such income tax benefits.
For modeling purposes, the non-GAAP effective tax rate was approximately 26% from <unk> 2023 and.
And for estimating an effective tax rate for the go forward quarter and year for modeling net income excluding other costs.
At 26% to 28% tax rate as a good estimate and excludes the favorable impact from changes in the valuation allowance.
Net income attributable to <unk> for the first quarter was $31 million or 28 per fully diluted share.
And on a non-GAAP basis, Q1, 2023 net income attributable to now Inc. Excluding other costs was $28 million or 25 per fully diluted share.
Moving to the balance sheet at the end of the quarter, we had zero debt and a cash position of $168 million.
Cash decreased by $44 million in the first quarter as we invested in growth of our business with strategic inventory purchases and capital investments and we repurchased common stock in the quarter to return value to shareholders.
In the first quarter, we reported $6 million of depreciation and amortization expense in line with our expectations following our fourth quarter 2022 acquisitions.
In the second quarter of 2023, we expect quarterly depreciation and amortization expense to be between $6 million to $7 million.
We ended the quarter with total liquidity of $555 million, which comprises our net cash position and $387 million, an additional credit facility availability.
Our existing half of $1 billion revolving credit facility extends into December 2026, providing D. Now with ample access to capital for more than the next three and a half years.
Accounts receivable was $422 million, an increase of $24 million or 6% from the fourth quarter.
I remind you. This is the effective tax rate is calculated from the face of the income statement and is below the typically expected tax rate at these earnings levels.
And inventory was $406 million at the end of the first quarter as we invested 25 million in additional inventory, while turn right turn rates remained flat sequentially at four four times.
As our income tax expense provision on the income statement includes a favorable tax benefit from the changes in the tax valuation allowance on our deferred tax assets.
A portion of this inventory investment was specifically procured to support several of our process solutions customers with forecasted project growth.
As such this is why when <unk> are non-GAAP tax rate, we exclude such income tax benefits.
For modeling purposes, the non-GAAP effective tax rate was approximately 26% for one <unk> 2023 and.
Accounts payable was $323 million at the end of the first quarter, an increase of $19 million from the fourth quarter.
[noise] for estimating an effective tax rate for the go forward quarter and year.
And for the first quarter of 2023, working capital excluding cash as a percentage of our first quarter annualized revenue was approximately 17, 6%.
For modeling net income excluding other costs.
26% to 28% tax rate is a good estimate and excludes the favorable impact from changes in the valuation allowance.
In the first quarter net cash used in operating activities was $6 million as we invested more than $50 million in working capital to support growth in the first quarter free cash flow consumption was $11 million with capital expenditures for the first quarter of $5 million as we invested in operating equipment and facilities.
Net income attributable to know wing for the first quarter was $31 million or 28 cents per fully diluted share.
And on a non-GAAP basis, Q1, 2000 twenty-three net income attributable to know Inc. Excluding other costs was $28 million or 25 per fully diluted share.
To enhance efficiencies and increase service levels to our customers.
Moving to the balance sheet at the end of the quarter, we had zero debt and a cash position of $168 million <unk>.
In 2023, we are actively investing in upgrading the utility of key facilities, expanding our rental fleet for the flex flow and <unk> businesses and with these commitments we estimate our capital expenditures for full year 2023 could be in the $20 million range.
Cash decreased by $44 million in the first quarter as we invested in growth of our business with strategic inventory purchases and capital investments and we repurchased common stock in the quarter to return value to shareholders.
We are looking to generate $100 million in cash from operations in 2023.
And the first quarter, we reported $6 million of depreciation and amortization expense in line with our expectations. Following our fourth quarter of 2022 acquisitions.
And when looking back at the trailing 12 months through <unk>, 2023, where free cash flow positive.
And the second quarter of 2023, we expect quarterly depreciation and amortization expense to be between $6 million to $7 million.
We generated $16 million in cash from operations and invested $14 million in the business.
We ended the quarter with total liquidity at $555 million, which comprises our net cash position and $387 million, an additional credit facility availability.
This free cash flow generation was achieved on approximately $500 million in annual revenue growth when comparing the trailing 12 months ended <unk> 2023 to the corresponding period ended <unk> 2022.
Our existing half a billion dollars revolving credit facility extends into December 2026, providing D. Now with ample access to capital for more than the next three and a half years.
This shows how our focus on the fundamentals and disciplined managing the business has positioned <unk> to generate cash through the cycles.
Which bodes well for future growth and capital allocation plans.
Accounts receivable was $422 million, an increase of $24 million or 6% from the fourth quarter.
We continued to execute on our share repurchase program that is authorized through December 31, 2024, with additional repurchases of $36 million in the quarter or $3 3 million shares of common stock.
An inventory was $406 million at the end of the first quarter as we invested $25 million in additional inventory, while turn right turn rates remained flat sequentially at $4 four times.
As of March 31, 2023, we have repurchased $43 million under our $80 million authorized share repurchase program.
A portion of this inventory investment was specifically procured to support several of our process solutions customers with forecasted project growth.
Our commitment to growing the company through organic growth and acquisitions remains a key priority. While also having the ability to repurchase shares opportunistically as we use the tools and our broadened capital allocation framework to generate attractive shareholder returns without deviating from our disciplined approach to balance sheet management.
Accounts payable was $323 million at the end of the first quarter, an increase of $19 million from the fourth quarter.
And for the first quarter of 2023, working capital excluding cash as a percentage of our first quarter annualized revenue was approximately 17.6%.
We continue to be debt free have no interest payments on debt.
And the first quarter net cash used an operating activities was $6 million as we invested more than $50 million in working capital to support growth.
While we keep cash flow generation of priority.
And with that let me turn the call back to Dave.
Thank you Mark now.
First quarter free cash flow consumption was $11 million with capital expenditures for the first quarter of $5 million as we invested in operating equipment and facilities to enhance efficiencies and increased service levels to our customers.
Now switching to our outlook for the second quarter of 2023 in the U S. We expect market share gains revenue revenue from acquisitions in the beginning of revenue synergies derived from those acquisitions to drive mid single digit sequential quarter growth in the second quarter in the U S.
And 2000 twenty-three we are actively investing in upgrading the utility of key facilities, expanding our rental fleet for the Flexflow, an eco vapor businesses and with these commitments we estimate our capital expenditures for full year 2023 could be in the $20 million range.
Internationally, we expect approximately $4 million in projects not to recur in the second quarter driving a sequential decline in that segment.
And in Canada, the expected seasonality will drive sequential revenue lower Canada's revenue historically declines approximately 20% sequentially from the first quarter to the second quarter due to the second quarter freeze thaw, muddy breakup period, where heavy equipment and access to production areas is restricted.
We are looking to generate $100 million in cash from operations in 2023.
When looking back at the trailing 12 months through one Q2 thousand 23, we are free cash flow positive having generated $16 million in cash from operations and invested $14 million in the business.
Taken altogether, we expect <unk> second corner sequential revenues to increase in the low single digit percentage range from <unk> 23 in spite of the expected Canadian seasonal decline approximating year over year second quarter growth to 10% for Dana.
This free cash flow generation was achieved on approximately $500 million in annual revenue growth when comparing the trailing 12 months ended one Q2 thousand 23 to the corresponding period ended one Q2 thousand 22.
This shows how our focus on the fundamentals and disciplined managing the business has positioned D now to generate cash through the cycles, which.
We expect second quarter EBITDA to approximate <unk> 23, EBITDA dollar level.
Which bodes well for future growth and capital allocation plans.
For the full year 2023, we reaffirm our view that revenue will increase 8% to 12% compared to the full year 2022 revenue and our 2023 full year EBITDA is targeted at 8% of revenue.
We continued to execute on our share repurchase program that is authorized through December 31, 2024, with additional repurchases of $36 million in the quarter or 3.3 million shares of common stock.
We anticipate free cash flow will gather momentum as the year progresses, and we expect to deliver cash flow from operations of approximately $100 million for the full year of 2023.
As of March 31, 2023, we have repurchased $43 million under our 80 million dollar authorized share repurchase program.
Our commitment to growing the company through organic growth and acquisitions remains a key priority. While also having the ability to repurchase shares opportunistically as we use the tools and are brought into capital application framework to generate attractive shareholder returns without deviating from our disciplined approach to balance sheet management.
Before we open it up to questions for questions I'm going to close with some comments about the business.
Our year is off to a nice start including strong top and bottom line performance in the first quarter with revenue growing 7% sequentially driving 8% first quarter EBITDA as a percent of revenue.
Again solid results, we achieved these better than expected results despite headwinds related to inclement weather lower U S rig counts and completions and weaker oil and gas prices in the first quarter. We are excited about our international segment posting strong sequential revenue growth of 28% at operating profit levels not seen since 2004.
We continue to be debt free have no interest payments on that.
While we keep cash flow generation of priority.
And with that let me turn the call back to Dave.
Thank you Mark now.
Switching to our outlook for the second quarter of 2023, and the U S. We expect market share gains revenue revenue from acquisitions in the beginning of revenue synergies derived from those acquisitions to drive mid single digits sequential quarter growth in the second quarter in the U S.
114.
In the first quarter, we returned cash to shareholders by repurchasing $36 million of shares with the cumulative purchase levels exceeding $43 million through March 31.
Internationally, we expect approximately $4 million in projects not to recur in the second quarter drive in a sequential decline in that segment.
And earlier this week, we completed two additional acquisitions further strengthening our U S process solutions business.
And in Canada, the expected seasonality will drive sequential revenue lower Canada's revenue historically declines approximately 20% sequentially from the first quarter to the second quarter due to the second quarter freeze thaw muddy break up period, where heavy equipment and access to production areas is restricted.
We are in a great place as a company on solid financial footing with incredible talent singularly focused on our customers, we remain debt free with ample liquidity and possess an advantageous variety of tools to further advance <unk> position in the market.
With that let's open the call for questions.
Taken altogether, we expect denounce second corner sequential revenues to increase in the low single digit percentage range from one Q twenty-three in spite of the expected Canadian seasonal decline approximating year over year second quarter growth to 10% for Dino.
Okay.
Okay.
At this time I would like to remind everyone in order to ask a question press. The Star then the number one on your telephone keypad.
Your first question comes from the line of Tommy Moll from Stephens, Inc. Your line is open.
We expect second quarter EBITDA to approximate or one Q twenty-three EBITDA dollar level.
Good morning, and thank you for taking my questions. Good morning.
And for the full year 2023, we reaffirm our view that revenue will increase 8% to 12% compared to the full year 2022 revenue in our 2023 full year EBITDA is targeted at 8% of revenue.
Dave I wanted to start on the second quarter outlook, you provided if if I heard and read it correctly.
Sequential basis revenue.
Ws in a flattish EBITDA dollars flattish.
We anticipate free cash flow will gathered momentum as the year progresses, and we expect to deliver cash flow from operations of approximately $100 million for the full year of 2023.
So I presume that means youre, giving back a little bit on the gross margin rate if I'm correct on that.
The drivers there you could point us to would be helpful. Thank you.
Yes, good question Tommy.
Before we open it up to questions for questions I'm going to close with some comments about the business.
Yes.
A good read.
Kind of how we're modeling the second quarter, we're going to see a full quarter of of now for recent acquisitions in the last four months.
Our year is off to a nice start including strong top and bottom line performance in the first quarter with revenue growing 7% sequentially driving 8% first quarter EBITDA as a percent of revenue.
We're starting to see.
Some of the gross margin erosion.
Erosion I have been speaking about the last several quarters, which finally hit in the first quarter. So I have been talking about gross margins.
Ken solid results.
We achieved these better than expected results despite headwinds related to inclement weather lower U S rig counts completions and weaker oil and gas prices in the first quarter. We're excited about our international segment posting strong sequential revenue growth of 28% in operating profit levels not seen since 2014.
And really pricing as a priority.
Because we're always working on high grading our businesses and focusing on the higher margin products et cetera, but there was a layer of premium pipe margins, which we enjoyed for a number of quarters, because we had product availability, where our competition didn't we.
In the first quarter, we returned cash to shareholders by repurchasing $36 million of shares with the cumulative purchase levels exceeding $43 million through March 31.
We were able to command higher margins, we've been guiding to that layer of.
Premium margins.
And earlier this week, we completed two additional acquisitions further strengthening R. U S process solutions business.
<unk> and its begun to do so so we do expect a little margin compression in the second quarter.
Primarily due to Canada candidates.
We are in a great place as a company on solid financial footing with incredible talent singularly focused on our customers, we remain that free with ample liquidity and possess an advantageous variety of tools to further advance denounce position in the market.
Moving to our breakup period, Canada tends to be our highest gross margin segment and as we see that kind of geographic mix kick in in the second quarter, we will see a little slippage there.
<unk>.
We still expect very strong margins. This year, we talked last quarter about a 30 basis points full year decline.
With that let's open call for questions.
2022 to 2023, we saw about 20 basis points decline from our full year 2000, <unk> first quarter 2023, So we do expect a little more.
At this time I would like to remind everyone in order to ask a question press the star and the number one on your telephone keypad.
Your first question comes from the line of Tummy Mall I'm Steven zinc your line is open.
Timing of the overall margins, but we're doing everything we can to two high grade like we talked about so in terms of the second quarter. That's how we get there like you said the three big inputs.
Good morning, and thank you for taking my questions. Good morning.
They have I wanted to start on the second quarter outlook, you provided if if I heard and read correctly.
<unk> largely being flat and.
In a sequential basis revenue up.
Gross margins eroding a little bit as as expected and really seasonally impacted from Canada.
W S and $8 flattish EBITDA.
Laddish.
So I presume that major giving back a little bit on the gross margin right if I'm correct on that.
Thank you that's helpful.
As a follow up I wanted to ask about the two acquisitions you closed in may it sounded like there in the pump and seal distribution space.
Many drivers there you could point is two would be helpful. Thank you.
Yeah. Good good question Tommy Yes, that's that's a good read that's that's kind of how we're modeling in the second quarter, we're going to see a full quarter of of now for recent acquisitions and the last four months.
If you could just talk generally about your appetite for additional deals in that space why you like it what the pipeline looks like are there any sizeable deals are chasing anything along those lines would be helpful. Yes, I will I'll start it off and then I'm going to hand, it to Brad.
We're starting to see some of the gross margin.
So I think the two deals we closed.
Erosion I had been speaking about the last several quarters, which finally hit in the first quarter. So.
Tuesday This week I think it was Tuesday.
I've been talking about gross margins.
<unk> represents the 10th consecutive process solution acquisition, we've made.
And really pricing as a priority.
Because we're always working on high grading our businesses and focusing on the higher margin products et cetera, but there was a layer of premium pipe margins, which we enjoyed for a number of quarters, because we had product availability, where a competition didn't we.
So we're really focused on growing that business growing our primarily our pump business.
In the <unk> business as well that came from these two acquisitions.
That's a big part of our focus we will do more.
We were able to command higher margins, we've been guide into that layer of premium margins.
<unk> like that this year in terms in terms of larger deals.
We are talking to companies to.
Dissipating and it's begun to do so so we do expect a little margin compression in the second quarter.
Try to affect larger ones.
And we think we think that the multiples on these deals could get a little better as.
Primarily due to Canada.
Candidates is going to move into a breakup period, Canada tends to be our highest gross margin segment and as we see that kind of geographic mixed kick in in the second quarter, we'll see a little slippage there.
Interest rates rise.
And some of the uncertainty.
Kind of happens in the market. So so we are looking at and.
We you know we we still expect very strong margins. This year, we talked last quarter about a 30 basis points full year decline from 2022 to 2023, we saw about 20 basis points declined from a full year 2000 to the first quarter of 2023. So we do expect a little more.
It's a big part of our focus in and like I said.
Opening comments.
<unk> been in a position to re.
Really pull all the levers levers we are focused primarily on growing organically the market itself isn't growing at the rate as it was last year secondarily, we're focused on M&A.
You know.
And we've done four deals in four months and.
Taming of the overall margins, what we're doing everything we can to to high grade you know like we talk about so.
Thirdly, we're focused on share repurchase.
We our balance sheet the way, we manage our balance sheet that can do all three but in terms of details on the acquisitions, Brad you want to give some color.
Terms of the second quarter that that's how we get there like you said the three big inputs.
W S a largely being flat and.
Yes, Dave Tommy good morning.
And just some additional color back in 2019, Dino acquired company called Tsi out of out of Wyoming.
Gross margins.
<unk>, a little bit as as expected and really seasonally impacted from Canada.
Thank you that's helpful.
And it really was.
Follow up I wanted to ask about the two acquisitions your clothes and may and it sounds like they're in the pump and seal distribution space.
Kind of a really good relationship with a top tier pump manufacturer that we sell a lot of pumps in the market as far as new pump packages.
If you could just talk generally about your appetite for additional deals in that space why you like it with the pipeline looks like are there any sizeable deals for chasing anything along those lines will be helpful. Yeah, I'll I'll start it off and then I'm in hand, it to Brad.
That acquisition in 2019 took us into the mechanical seal area and really expanded our service capability with that manufacturer. In addition to some other benefits.
Benefits that that acquisition provided the <unk>.
So I think the the two deals we closed.
Two acquisitions, we closed really earlier this week kind of build upon that strategy.
Tuesday This week I think it was Tuesday.
Securing.
<unk> the 10th consecutive process solution acquisition, we've made.
Broadening our geographic footprint.
In Wyoming, and Montana and Colorado.
So we're we're really focused on growing that business growing are primarily our pump business and and and the seal business as well the came from these two acquisitions.
With that same.
Very large pump manufacturer broadens our capability on the mechanical seal on <unk>.
Significantly expands our aftermarket service capability, they're really kind of.
So that's that's a big part of our focus we will do more deals like that this year in terms in terms of larger deals. We we are talking to companies to try to try to effect larger ones and we think.
The leader in the in the pump service and repair business, a very high gross margins high.
EBITDA margin accretive to.
We think that the the multiples on these deals could get a little better as interest rates rise and you know some of the uncertainty update.
Our current kind of core base business and that's been part of our acquisition strategy going forward. So we're really excited about.
These two businesses they are bolt ons that Dave mentioned in his prepared remarks.
You know kind of happens in the market. So so we are looking and.
And that's a big part of our focus and and like I said in my opening comments.
We're going to extract synergies out of that as the year progresses and.
In a position to really.
And really excited about expanding our footprint there in that area.
Pull all the level levers, we are focused primarily on growing organically the market itself isn't growing at the rate as it was last year secondarily, we focused on M&A.
Just to just one comment on these synergies to be we're going to focus on revenue synergy.
We want to grow that business, we are not looking at that.
It really cost savings from those deals we're looking at leveraging the sales talent competencies of some of the services. They provide their customers we want to grow that business for the rest of process solutions and <unk>.
And we've done for deals at four months and.
Thirdly, we're focused on share repurchase.
We our balance sheet, we manage our balance sheet that could do all three but in terms of details on the acquisitions brand you wanted to have some color.
From a revenue synergy perspective.
Yes, Dave Tommy Good morning, just some additional color.
Anyway. Thanks.
Yes. Thank you for the insight I'll turn it back.
Back in 2019, <unk> acquired company called Tsi out of out of Wyoming.
Thanks Tommy.
Okay.
Yes.
Our next question comes from the line of Doug Becker from capital One your line is open.
And it really was.
Kind of a really good relationship with a top tier of pump manufacturer that we sell a lot of pumps and the market as far as new pop packages, but that acquisition of 2019.
Good morning, Doug.
Good morning, So following along the same lines of questioning Dave you highlighted that market share gains the acquisition some synergies to drive revenue growth and <unk>, even as the North America rig count is going to be down.
Took us into the mechanical seal area and really expanded our service capability.
With that manufacturer in addition to some other benefits.
Just wanted to get your thoughts on organic growth for the quarter and the full year, just given where very soon.
Benefits that that acquisition provided the two.
<unk>, we we closed really earlier this week kind of build upon that strategy of securing.
Fluid nature.
What's happening in the U S.
Yes, I think I think most of the organic growth we're going to see.
Broadening our geographic footprint.
In the second quarter is going to happen in the U S of course, we're going to see like I said.
In Wyoming, and Montana, and Colorado with that same very.
In Canada seasonal decline in international we had a really strong quarter, we do expect.
Very large pump manufacturer.
<unk> our capability on the mechanical C a line.
A number of projects totaling about $4 million not to repeat in the second quarter. So that will kind of moderate the level of activity there in the U S. Wherever we're going to see most of our organic growth is with really new customers or.
Significantly expands our aftermarket service capability.
They're really kind of the leader in the in the.
Service and repair business very high gross margins high.
Having penetrated customers in different regions of the.
EBITDA margin. So so accretive to you know our current core base business and that that's been part of our acquisition strategy going forward. So we're real excited about.
North American footprint, so we're going to see continued growth in south Texas in the Permian.
These two businesses. They they are Bulldogs they've mentioned in his prepared remarks, and we're going to extract synergies out of that as as the as the year progresses and.
And in the Bakken, where we just stood up our Mega center, there really to leverage multiple <unk> businesses from our flex flow business to eco vapor to a fiberglass.
Enterprise et cetera, So we see those as the three main areas of growth and it's mostly market share derived.
And really excited about expanding our footprint there in that area.
Just to just one comment on these synergies to B B, we're going to focus on revenue synergy Brooke.
We've seen kind of rig counts.
We want to grow that business, we're not looking at.
Decline same thing with completions, we've seen some of the market.
Really cost savings from those deals were looking at leveraging the sales talent competencies of some of the services. They provide their customers who want to grow that business for the rest of the process solutions and Dino.
Fundamentals.
Kind of a kind of slow down a little bit.
And as it turns out we we have seen.
A better mousetrap with how we service our customers and then our sales team that conveys the value with our customers. So we believe market share gains are going to be the primary.
From a revenue synergy perspective.
Anyway. Thanks.
Yep. Thank you for the inside I'll turn it back.
Thanks Tommy.
Fuel for us in the second quarter.
The next question comes from the line does the cough from Captain <unk>. Your line is iPhone.
Well, that's that's really encouraging.
How would you characterize demos current exposure to end markets outside North America upstream.
Good morning, Doug.
Good morning, So following along the same lines of questioning Dave you highlighted that market share 'gainst acquisition, some synergies to drive revenue growth and two Q, even ask in North America rig count is gonna be down just wanted to get your thoughts on organic growth for the quarter and the full year.
Just given some of the recent acquisitions and initiatives and just your commentary it sounds like the end market exposure really has broadened.
And I.
I guess at the same time international and offshore activity seems to be increasing as well so really just exposure outside North America upstream.
<unk> <unk> <unk>.
Fluid nature.
What's happening in the U S.
Yes, Doug this is Brad I'll take a shot at that and maybe Dave or Mark might layer on top of it.
Yeah, I think I think most of the organic growth we're going to see.
Going back.
In the second corner is going to happen in the U S. So of course, we're going to see like I said.
Since we spun off from <unk> in 2014, our international business was highly levered to the upstream really drilling segment, having the VA.
In Canada seasonal decline in international we had a really strong quarter, we do expect.
All of our core distributor for <unk> OEM equipment.
A number of projects totally about $4 million not to repeat in the second quarter. So that'll kind of moderate the level of activity there in the U S. Wherever we're going to see most of our organic growth is with really new customers or.
Since the.
The downturn in international offshore.
We've done a good job diversifying our international business. So we're more land based and key areas in the middle East and the U K and Asia and Australia.
Having penetrated customers in different regions of the.
North American footprint, so we're going to see continued growth in south, Texas, and the Permian and in in the in the Bakken, where we just stood up our Mega Center there.
We're more project centric executing projects through <unk>, but also large capital projects associated with <unk>.
And <unk> in different areas.
To leverage multiple gienow businesses from our Flexflow business to eco vapor two or fiberglass.
Of course, our Mclean electrical group, which is a previous acquisition we did.
As a very good top top management team and it is driving the business as we expand our electrical distribution.
Enterprise et cetera, So we see those as a three main areas of growth and it's mostly market share drive.
Distribution capabilities not only in the ink and the UK and Australia, but also exporting that too.
We've seen kind of drink counts.
Decline same thing with completions, we've seen some of the market.
C relationship global relationships, we have in West Africa.
Fundamentals.
Kind of slow down a little bit.
So we're seeing that export side of the business pick up so from a diversification, it's a lot healthier business or the off or starting to see.
And and as it turns out we we have.
Simply a better mouse trap with how we service our customers and then a sales team that conveys the value with our customers. So we believe market shares gains are going to be the primary.
The offshore business day rates increase.
That's a small part of our business now I would say probably 5% of our international revenue were at one time it was much higher than that so it's a healthier more.
Fuel for us in the second quarter.
No that's that's really encouraging.
How would you characterize details current exposure to and markets outside North America upstream just given some of the recent acquisitions and initiatives and just a commentary it sounds like the end market exposure really has broadened.
And market diverse geographically diverse business in and like we pointed out this quarter really excited about the growth.
We've been waiting for this.
In our segment to grow I think.
And I guess at the same time international and offshore activities seems to be increasing as well so really just exposure outside North America upstream.
We're seeing that the backlogs picking up the activity is picking up so.
<unk>.
Finally, hitting on all cylinders and excited about the future as.
[noise], Yeah, Doug <unk> I'll I'll take a shot at that and maybe Dave Mark might layer on top but.
As we think we're seeing more investment and Capex.
In the Middle East certainly with.
You know going back.
Saudi Arabia, and Kuwait and <unk>.
You know as soon as we spun off from <unk> in 2014 or international business was highly levered to the upstream really drilling segment, having to be a you know a kind of a core distributor for and it'll be any equipment.
And Abu Dhabi in UAE as well as Norway.
All around energy security.
That really kind of driving investments in those areas.
Equipment, you know since the.
We have a pretty good foothold or obviously looking to expand.
You know the the downturn in international offshore we've we've done a good job diversifying our international business. So we're more land based in key areas in the middle East in the UK in Asia and Australia.
Certainly would be open to M&A activity internationally as well so.
That kind of sums it up.
And just any commentary on say downstream.
<unk> or <unk>.
You know or more projects centric executing projects through Epc's, but also you know a large capital projects associated with an O C's Ah and Ioc's in different areas of course are mcclain electrical room, which is a previous acquisition, we did as a very good top top.
Energy exposure really hit all of the international operator.
Maybe some of the other.
Sure, Yes, so downstream internationally if that was the question specifically.
Not just not just internationally just just broadly.
Sure Yeah, I think really.
Really across all geographies, we're seeing expansion in the downstream sector, which has been great Brad kind of alluded to kind of the offshore.
Management team and it is driving the business as we expand our electrical cable distribution capabilities not only in the ink in the U K and Australia, but also exporting that too I O C relationship global relationships, we have in West Africa.
Overreliance in prior cycles of our business and now for the International segment, we're seeing the downstream sector play predominantly larger.
So we're seeing that export side of the business pick up so you know from a diversification, it's a lot healthier business.
A larger part of that market where before.
You look back nine years ago.
We're starting to see you know you know the offshore business day rates increase.
Single digit percentages, probably and so being able to grow that into two double digit 20% plus of international.
As a bright spot for us and I do think some of the large projects Dave talked about on the call.
That's a small part of our business now I would say probably five per cent of our international revenue where at one time it was much higher than that so it's a healthier more.
Give us a lot of optimism for this space for energy evolution.
And to be able to provide those products that our customers are needing in that arena.
And market diverse geographically diverse business and and like we pointed out this quarter really excited about the growth.
Thank you.
We've been waiting for this you know a segment to grow I think.
Thanks, Doug.
Yeah.
We're seeing that the backlogs picking up the activities picking up so it's.
Thank you. Our next question comes from the line of Nathan Jones from Stifel. Your line is open.
You know finally, hitting on all cylinders and excited about the future as.
Good morning, This is Adam Farley on for Nathan.
As we think you know we're seeing more investment in Capex you know in the Middle East certainly with you know Saudi.
I wanted to follow up on the gross margin one questioning.
We're still seeing inflation in any of your product categories.
Saudi Arabia, and Kuwait, and and Abu Dhabi, and you AE as well as Norway, all around to energy security, they're really kind of driving investments in those areas that well you know.
I understand that line pipe prices are coming down but have you seen moderation in line pipe given some of the recent moves in other steel prices.
On the first part about inflation.
I think.
We have a pretty good foothold, we're obviously looking to expand.
I think we're seeing.
Certainly would be open to M&A activity internationally as well so.
Can you kind of a return to the norm on general inflation, we're not seeing the kind of.
That kind of sums it up.
We're seeing long lead times for certain types of valves in certain product lines, we're seeing.
And just any commentary on say downstream.
<unk> <unk> <unk>.
<unk>.
New energy exposure really hit the international upgrade, though but maybe some of the other.
But but a normalization otherwise, we're starting to see kind of normal pricing.
With our manufacturers and manufacturers are trying to push some price increases through some of them stick.
Some of them don't which is which is kind of a normal tenor four four.
Sure Yeah, I think you know really across all geographies, we're seeing expansion in the downstream sector, which has been great. You know, Brian kind of alluded to you know kind of the offshore you know overreliance. Prior cycles, you know of our business and and now you know for the International segment, we're seeing.
Less.
Stretch supply chain. So I think we're starting to see more balanced in terms of product availability for most products, especially MRO products and fittings and flanges and.
Routine type of valve sales et cetera, so kind of a reversion to the norm there.
The downstream sector play predominantly larger.
So I would say that inflation is kind of normalized now and it's back to a normal behavior from most product lines. We are seeing some some product availability issues internationally and that is slowing some projects down we're seeing less of that North America in terms of pipe pricing.
Larger part of that market, where before you look back nine years ago. You know it was you know single digit percentages, probably and so you know being able to grow that into two double digit 20% plus of international is a bright spot for us and and I do think some of the large projects they've talked about on the call.
What we're seeing primarily in pipe is kind of margin compression as.
You know give us a lot of optimism for this space for energy evolution.
Pipe pricing has stabilized some pipe prices.
Might have come down, but that margin squeezing a little bit and thats due to simply improved profitability for our products that.
Thank you.
Thanks done.
The only the biggest suppliers could acquire a year ago today, it's much.
Thank you next question comes from the line of Nathan Jones from stifle.
Much more liquid supply chain there so.
We're seeing higher cost of inventory.
Your line is that.
Creating that margin squeeze, but inflation is more norm back to kind of a normal range I would say.
Good morning, This is Adam Farley on for Nathan.
Wanted to follow up on the gross margin. One question name are you still seem inflation in any of your product categories.
Despite some product lines that are having long lead times, but that's that's something we experienced on a kind of a regional basis.
I understand that Wifi prices are coming down but have you seen moderation in line pipe given some of the recent moves in other steel prices.
Okay.
Okay. Thank you for that.
Did want to call out you called out weather and the press release impacting the quarter.
Was it meaningful enough to quantify the impact from weather as it was but do you expect.
I think we're seeing.
To make up any of that revenue in the near term.
Kind of a return to the norm on general inflation, we're not seeing the kind of we're.
Okay.
I think we estimate about $7 million in.
Revenues lost or deferred how much of that gets deferred into the second quarter I don't know probably some of it would but it's probably it's probably a number along those lines, which would amount to.
We're seeing long lead times for certain types of valves in certain product lines were seeing.
[noise].
But a normalization otherwise and we're starting to see kind of normal pricing.
One, 5% or so but that was one of the drags in the first quarter some of that.
With our manufacturers manufacturers are trying to push some price increases through some of them stick.
Could slip into the second quarter slipped into April already.
Some of them don't which is which is kind of a normal tenor for four or less.
So that would that wasn't the primary but that was kind of a third reason for.
You know stretch supply chain. So I think we're we're starting to see more balanced in terms of product availability for most products.
Are the third kind of a headwind in addition to oil and gas prices completions et cetera.
Okay. Thank you for taking my questions. Thanks, Adam.
Routine type of a valve sales et cetera, so kind of a reversion to the norm there.
Thank you our last question comes from Geoffrey Robinson from Water Tower Research. Please go ahead with your question.
So I would say that inflation is kind of normalized now it's back to a normal behavior for amongst product lines. We are seeing some some product availability issues internationally and that is slowing some projects down we're seeing less of that North America in terms of pipe pricing.
Thank you good morning.
Dave you mentioned the good.
Good morning, you mentioned process solutions represents a represented 26% I think it was of U S revenue in the first quarter can.
Can you talk about where you see that segment revenue going over the next several quarters.
I believe if I'm correct.
Generally tends to be a higher margin mix of business for you.
Yes.
So.
Might've come down, but that margin squeeze in a little bit and that's due to simply improved product the ability.
I get that question from time to time and it's it's hard for me to pinpoint that kind of a target number but I think when we first put together process solutions.
So our products that.
The only the biggest suppliers could acquire a year ago today it's.
It accounted for about 18% of our U S revenues now it's up to 26.
Much more liquid supply chain there so.
And that was several years back, but like I said earlier.
We're seeing higher cost of inventory.
Last 10 businesses, we purchased had been in that space, we think.
Creating that margin squeeze, but inflation is more norm, but back to kind of the normal range I would say this.
There are revenue synergies for each deal we're doing.
Despite some product lines, having long lead times, but that's that's something we experience on a kind of a regional basis.
Every deal we're doing has better gross and operating margins, but so and overall that.
<unk>.
<unk> knew that I guess or that business line has better net margins. So that's a big focus for us what that percentage can get to.
Okay. Thank you for that and I did want to call out you called about weather and the press release impacting mcwhorter.
We joke about that around here because.
What is it meaningful enough to to quantify the impact from weather.
It was would you expect to make up any of that revenue in the near term.
Yes.
We have to.
Pretty strong.
Leaders of those businesses, who want to both grow their business, but I would like to see that business get to get to be a third of the U S business.
I think we estimate about $7 million in.
Revenues lost or deferred how much of that get deferred into the second quarter I don't know probably some of it would but it's probably it's probably a number along those lines, which you know what amount to 1.5% or so but that was one of the drags in the first quarter Ah some of that.
Beyond that but I also want to grow our energy business as well, but.
That's a big target for us.
It's an area, where we're moving more into really high margin kind of rental.
Assets.
<unk> lines, which we really like.
Could slip into the second quarter slipped into April already.
So the Bottomline really becomes.
Really more attractive to me than the top line, but we want to grow that business for sure.
But that would that wasn't the primary but that was kind of the third reason for are the third kind of a headwind in addition to oil and gas prices completions et cetera.
So in terms of the rental businesses. So those are stickier businesses than maybe stickier, but a longer duration revenue stream than what you might see on the energy centers.
Okay. Thank you for taking my questions. Thanks, Adam.
Thank you last question comes from Jeffrey Robertson from <unk>. Please go ahead with your question.
Well, it's just <unk>.
Primarily better gross margins and then allow us for pull through sales of our other businesses, it's complimentary to the product lines we.
Thank you good morning.
You mentioned that.
Good morning, you mentioned process solutions represents represented 26% I think it was a U S revenue in the first quarter can.
Already service those customers for so it just simply gives us a bigger share of the wallet makes us more important to the customer.
Can you talk about where did you see that segment revenue going over the next several quarters.
And it provides better margins.
As well, so I think thats the primary motivation for growing that rental business.
And I believe if I'm correct that's.
Seems to be a higher margin mix of business for Ya.
And there is a repair business that we focus on as well that.
Yeah.
Simply provides better margins and complementary suite of solutions for the customer.
So.
I get that question from time to time. It. It's it's hard for me to pinpoint that kind of a target number but I think when we first put together process solutions.
In your comments you mentioned some.
<unk> project, and some landfill gas projects and I think even.
Counted for about 18% of our U S revenues now it's up to 26 and that was several years back, but like I said earlier.
The project on a <unk>.
Swine farm can you just talk about the opportunity in.
The last 10 businesses, we purchase had been in that space, We think they're a revenue synergies for each deal. We're doing every deal we're doing has better gross and operating margins, but so and overall that.
Renewable natural gas and landfill gas and biodiesel.
Is that something that could be become increasingly material for dino.
I'm going to let Brad Brad has his hands up so you want to grab this one Brad good morning, Jeff.
We're.
Reporting news it I guess or that business line has better net margins. So that's a big focus for us what that percentage can get too.
So obviously were.
Fairly levered to upstream oil and gas, but we're looking to diversify.
We joke about that around here because.
And we really like the <unk> market for a number of reasons, we've sold historically, some pipe valves and fittings into.
We have to you know pretty strong.
Leaders of these businesses, who want to bulk grow their business, but you know I would like to see that business get to get to be a third of the U S business and and grow beyond that but I also want to grow our energy business as well, but you know.
The RMG market, but.
With.
And also into the biodiesel as some of these refineries in certain states take advantage of opportunities to come.
That's a big target for us.
<unk> their refining capacity to process biodiesel, where we have.
It's an area, where we're moving more into a really high margin kind of rental.
Agreements and relationships, we're able to provide products for those biodiesel projects at refineries on the R&D side.
Assets.
Business lines, which were really like.
So the bottom line really becomes.
Really more attractive to me than the top line, but we want to grow that business for sure.
<unk> acquisition, we did in the fourth quarter.
Really kind of cements are really good.
So in terms of the rental businesses. So those are sticking your businesses, then or maybe not stickier, but a longer duration revenue screamed and what you might see on <unk> Energy Center.
Product solution that fits a lot of the demand that we see on the horizon.
As we see the RMG end market.
Well, it's just <unk>.
Primarily better gross margins and it allows for pull through sales of our other businesses, it's complimentary to the product lines. We all.
A growing it at a higher rate than.
Certainly than oil and gas in the immediate future. So we're excited about what eco vapor can bring to that whether it's dairy farms swine farms is there.
Already service those customers for so it just simply gives us a bigger share of the wallet makes us more important to the customer.
Capturing RMG and having to meet the same stringent requirements that oil and gas operators have to to put.
And it provides better margins.
As well so I think that's the primary motivation for growing that rental business.
Put gas free of oxygen into the midstream takeaway section as well as landfill gas.
And there there's a repair business. So we focus on as well that Ah simply provides better margins and complementary suite of solutions for the customer.
Traditionally we haven't done a whole lot in the landfill gas applications, but we see again.
And your comments you mentioned some biodiesel project in some landfill gas project and I think even.
That opportunity kind of unlocked for D. Now.
With what eco vapor can provide from a leading project and we think that might open up additional products across process solutions for us with other fabricated pieces of equipment are pump packages as well as.
The project on Ah Ah Swine farm can you just talk about the opportunity in.
<unk> fiberglass pipe.
Is that something that could be becomes increasingly materials for dino.
As well as just a regular pvs business. So we're pretty bullish on <unk>, we're not ready to name a number yet on that but we're we're excited about the growth and the growth potential that <unk> has in that end market.
I'm going to let Brad Brad has his hands up so he wants to grab this one good morning, Jeff Yeah. We're.
Thank you very much.
And we really liked the RMG market for a number of reasons. We've sold historically you know some pipe fittings into the RMG market, but you know with and and also into the biodiesel as some of these refineries in certain states take advantage of opportunities to.
No further questions at this time, Mr. Brad Wise I'll turn the call back over to you.
Okay.
Okay. Thank you Bob and thank you everyone for joining for your questions today and your interest in now Inc. We look forward to talking with everyone on our second quarter 2023 earnings Conference call in August have a nice day and I'll turn it back to the operator to conclude our call.
To convert the refining capacity to to process biodiesel.
We have agreements and relationships, we're able to provide products for those biodiesel projects that refineries on the <unk> side.
Thank you. This concludes today's conference call you may now disconnect.
Eco vapor acquisition, we did Ah in the fourth quarter, you know really kind of cements are really good.
Product.
Fits a lot of the demand that we see on the horizon.
We we see the RMG and market a growing it at a at a higher rate than.
Certainly than oil and gas in the immediate future. So we're excited about what eco vapor can bring to that whether it's a dairy farms swine farms is there <unk>.
Capturing RMG and having to meet the same stringent requirements that oil and gas operators have to to to put put gas free of oxygen into the midstream takeaway section as well as landfill gas you know traditionally we haven't done a whole lot in the landfill gas applications, but we see again.
Yeah that that opportunity kind of unlocked for D. Now with what eco vapor can provide from a leading project and we think that might open up additional products across process solutions for us with other fabricated pieces of equipment or pump packages as well as fiberglass pipe.
As well as just a regular PBF business so.
We're pretty bullish on Orange G. We're not ready the name or number yet on that but we're we're excited about the growth and the growth potential but do you know has on that and market.
Thank you very much.
No no further questions at this time Mister patois technical back over to you.
Okay. Thank you abolish and thank you everyone for joining for your questions today and your interest in now Inc. We look forward to talking with everyone on the second quarter 2023, <unk> Conference call in August have a nice day and I'll turn it back to the operator to conclude our call.
Thank you. This concludes today's conference call you may now disconnect.
[music].
Yeah.