Full Year 2023 NOW Inc Earnings Call
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Ian: Good morning, My name is Ian and I'll be your conference operator today at.
All lines have a break on mute to prevent any background noise.
After the Speakers' remarks, there'll be a question and answer session. If you would like to ask a question. During this time simply press star followed by the number one on your telephone keypad.
If you would like to withdraw your question press the pound key.
Mr. Brad Wise, Vice President of digital strategy and Investor Relations you May begin your conference.
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Brad Wise: Thank you Ian good morning.
Everyone and welcome to <unk> fourth quarter and full year 2023 earnings conference call.
Brad Wise: We appreciate you joining us and thank you for your interest and Dino.
Speaker Change: With me today is David Church, Henske, President and Chief Executive Officer, and Mark Johnson, Senior Vice President and Chief Financial Officer.
We operate under the <unk> brand, which is also our New York stock exchange ticker symbol.
Please note that some of the statements we make during this call including responses to your questions may contain forecasts projections and estimates, including but not limited to comments about the 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 February 15, 2023, which is subject 2024, excuse me, which is subject to change.
Speaker Change: They are subject to risks and uncertainties and actual results may differ materially.
Speaker Change: No one should assume that 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 revise any forward looking statements for any reason.
Speaker Change: In addition, this conference call contains time sensitive information that reflects management's best judgment at the time of the live call a.
Speaker Change: I refer you to the latest forms 10-K, and 10-Q that death that he now 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 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 D. Now, Inc. Excluding other costs and diluted earnings per share attributable to <unk>, Inc. Excluding other costs each excludes the impact of certain other costs and therefore have not been calculated in accordance with GAAP.
Speaker Change: Please refer to a 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 fourth quarter and full year of 2023.
Speaker Change: A replay of today's call will be available on the site for the next 30 days.
We plan to file our 'twenty to 'twenty three Form 10-K later today and it will also be available on our website.
Speaker Change: Now, let me turn the call over to David.
Thank you Brad and good morning, everyone I'd like to start off with the results. Our team produced in 2023 and talk about how we've laid the groundwork for a great 2024, and a bright future beyond that.
A year ago, when we gave guidance for the full year of 2023, when our customer is projected their budgets and analyst forecast levels of growth.
Outlook, then was rosier and brighter and how the year actually unfolded.
But despite less momentum from the market. It was a great year in fact, it was our best year yet.
Speaker Change: Our team produced the kind of one two punch that will fuel an accumulation growth strategy by driving significant free cash flow, while producing solid revenue growth and then historically working capital intensive business.
To demonstrate how strong 2023 was rodino, let's talk about what we committed to and what we delivered.
12 months ago, we forecast full year 2023 revenue to increase 8% to 12% compared to the full year 2022.
Speaker Change: EBITDA was targeted at 8% of revenue.
Cash flow from operations was to approximate $100 million or <unk> 85 million in free cash flow.
First we said revenues in 2023 would expand between eight and 12%.
Speaker Change: That was an ambitious even with Rosie prospects, we said revenues would expand 8% to 12% percent and they expanded 9% at the lower end of our guide, but in a softer than expected climate.
Speaker Change: Solid revenue growth, we said, we would see gross margin contraction of about 30 basis points and it was actually closer to 60 basis points steel prices were the main drag on gross margins and thus weren't as strong as planned but given the market product margins were really solid in comparison to our supply chain.
Speaker Change: Strange 2022.
Speaker Change: 2023 gross margins were 23, 1% really strong the second best year in our history after 2022.
Next we said EBITDA was targeted at 8% of revenues that's about how we ended the year at seven 9%.
Finally, we said cash flow from operations was to approximate $100 million in the full year 2023 or $85 million in free cash flow after deducting forecast capital expenditures.
Speaker Change: We said, we'd generate $85 million of free cash flow and actually doubled it to produce $171 million in free cash flow in 2023.
Speaker Change: This beefed up our cash balance to $299 $299 million at year end 2023, allowing for plenty of dry powder to grow.
Speaker Change: For these results I want to thank our employees, who worked tirelessly by strategizing with our suppliers managing product flows being source flexible when there are snags training, our people planning and collaborating to provide the level of service and dependable source of products.
And solutions, our customers have come to expect.
Like to thank our World class World class sales team.
Sales leaders and our meticulous conscientious operations pros, who are admired for their responsiveness and speed and accuracy and sought after for the care they provide to our customers.
Speaker Change: An organization underpinned by our lean smart back office of employee caretakers or cheerleaders to promote and defend the brand and protect outfit and equip our team to win in the market.
Speaker Change: For all that was accomplished in 2023. Thank you.
Despite various unanticipated market headwinds in 2023, we show demonstrable revenue strength.
Most notably our U S process solutions business delivered significant full year double digit revenue growth in every business unit to include power service Odessa pumps flex flow and eco vapor brands.
Speaker Change: I'll talk more about U S process solutions, and our global energy centers business later.
But first we have discussed the correlation of our revenue to drilling rigs and completions.
Speaker Change: As more efficient rigs are deployed in the market today fewer rigs are needed to produce a similar result, compared to just five years ago.
Speaker Change: However, when our highly efficient operating rig goes to work in our customers drill wells they still require the plumbing and mechanical infrastructure to collect transport separate process end market oil and gas.
And that drives the demand for our pipe valves fittings pumps, electrical and fabricated process and production equipment.
And we're happy about those market dynamics as they are reflected in our performance and long term outlook for D. Now as energy demand is forecast to grow.
I'd like to speak with an eye to the future and a longer term strategy.
We are focused on growth continuing to drive improved earnings and high levels of free cash flow by developing our existing businesses and unlocking new revenue streams by capturing customer investment in midstream energy evolution and adjacent industrial markets like water wastewater mining and chemical.
Assessing.
In the energy evolution landscape, we are helping our customers decarbonize by reducing or eliminating routine flaring as well as the elimination of methane used to power gas pneumatic devices by replacing them with industrial grade compressed air systems.
Over the past year sales are growing for our eco paper zero two solutions in the renewable fuels market, specifically by by targeting landfill gas and biofuel LNG facilities.
Eco vapor products at <unk> with an opportunity to provide pull through product sales in the form of other fabricated products pump packages PBF and consumables.
Speaker Change: We are growing our emphasis on carbon capture and storage markets, where significant capital investment has been directed primarily by our current customers.
Speaker Change: Over the past few quarters I've highlighted some carbon capture wins as this market begins to gain traction.
Looking ahead, we expect 2024 and beyond to provide on a more a more meaningful revenue contribution helping to amplify growth.
Leveraging our partner relationships, we have the ability to capture organic growth from several industrial markets like water mining and chemical processing.
We see organic growth opportunities in water infrastructure investments, resulting from U S population growth and migration towards warmer areas.
But the mining market, we see continued investment in bringing rare earth minerals minerals to market driven by the demand for EV batteries as well as other rare minerals used in technology and AI applications.
We also see promising opportunities to capture revenue from the chemical processing markets leveraging our mechanical seal manufacturing partnership that allows us to service an existing installed base of products and deploy our pumps pump field service technicians.
Finally to support our growth strategy, we are highly acquisitive looking for quality companies that meet our financial requirements grow earnings and either further expand our U S process solutions business or extend our reach into more diversified markets.
I was pleased to announce last week that we entered into an agreement to acquire Witco supply in an all cash transaction.
Speaker Change: The acquisition would bring together two highly complementary businesses and expand D now into the midstream space.
We are excited about the opportunities the acquisition will bring and look forward to sharing more detail after the deal closes.
But we expect this transaction when completed will enhance our earnings and free cash flow profile and strengthen our ability to increase shareholder value.
Speaker Change: Now I'll hit some financial highlights.
Speaker Change: Fourth quarter revenue was $555 million better than expected given market dynamics in <unk> 'twenty three overall gross margin improved to 23, 4% sequentially aided by improved.
Type margins and we also benefited from product mix and additional vendor consideration in the fourth quarter.
Speaker Change: For the full year 2023 revenues were $2 32 billion up 9% year over year above our previous previous quarter guide of an 8% year over year increase.
For the full year, 2023, EBITDA was $184 million or seven 9% of revenue.
Speaker Change: Generating $188 million in cash from operating activities or $171 million in free cash flow and a strong revenue growth period, where our business expanded nearly 9% are added $185 million is quite an accomplishment.
We generally produce stronger cash from the business in years, when the market contracts and produce less cash when our business expands in 2023, we generated generated one of our best free cash flow years and produced our greatest earnings since going public.
Speaker Change: While also buying back $50 million in shares in 2023.
Now some comments on a regional basis in the U S revenue was $418 million down, 7% or $30 million sequentially due to expected seasonal impacts.
U S rig count decreased 4%, while U S completions decreased 8% sequentially with the implication being a strong revenue response, given the market and seasonal dynamics.
Our model supplying products for Workover rig activity remained steady in quarter, helping to buttress revenue declines associated with fewer drilling rigs.
Speaker Change: Mark will talk about our working capital in the quarter, but I wanted to highlight the significant improvement we saw in working capital efficiencies coming from our Williston Mega Center in North Dakota, as a result of our regional fulfillment initiative in the northwest service area contributing contributing to cash flow in the period.
Across our Super centers, and we continue to see improved efficiencies, where we centralized inventory at the regional level and limit redundancies in our supply network.
And U S process solutions demand improved for our pump products fabrication packages and rental units on.
Speaker Change: On a year over year basis U S process solutions.
Speaker Change: <unk> grew 46%, we're adding $150 million in revenue with about a third of U S process solutions 2023 growth coming from acquisitions.
Speaker Change: For the fourth quarter U S process solutions represented one third of U S revenue a new high since we created the division.
Demand for <unk> lack units separator vessels and pump skids remained steady from a variety of operators building out tank battery facilities.
Speaker Change: For our pump distribution businesses.
We saw demand increase not only in our core oil and gas markets, but in industrial markets, such as municipal water districts and uranium in lithium mining operations.
Aiding our day to day business growth during the quarter, we expanded our pump preventative maintenance programs in more areas expanding market reach adding incremental incremental revenues at higher margins.
Speaker Change: We're also seeing increased demand for our horizontal horizontal trailer mounted pumping solutions provided by flex flow.
Speaker Change: When looking at the full year 2023 flex flow rental activity steadily increased with additional opportunities from produced water disposal and transfer.
Speaker Change: In Canada revenue was $65 million for the quarter, a decrease of 4% sequentially, primarily due to seasonal headwinds paired with softer project spend.
For International revenue was $72 million sequentially flat with strong project activity, including about $10 million in international projects and <unk> 23 that we do not expect to repeat in the first quarter of 2024.
Speaker Change: On a full year basis International revenue grew 26% as customer investment in energy security reliability and affordability continues to grow in oil and gas areas, coupled with continued investment in new and alternative energy technologies.
Speaker Change: Project activity was strong in Australia in Kuwait offset by declines in maintenance spend elsewhere.
We saw increased activity from several epc's procuring products for a downstream ethane cracker project.
Speaker Change: Activity for West Africa remained steady as we targeted added target accounts serviced by our export model in the U K.
Speaker Change: And for Norway, we supplied electrical cable for offshore platforms, subsea and related service projects and finally, a large project shipped in Australia, providing electrical cable for an LNG compression project.
Speaker Change: And now I'd like to make a few further comments related to the energy evolution.
We continue to track, an increasing number of projects and investment into the carbon capture and renewable fuels markets in.
Speaker Change: In the fourth quarter, we were successful and provide providing a variety of products for our natural gas gathering project designed to export LNG in combination with the carbon capture storage project.
Speaker Change: This will permanently.
Permanently sequester up to 2 million tonnes per annum of Cotwo.
Speaker Change: In addition, we continue to win follow up orders on products for previously announced carbon capture indirect air capture projects as the scope of work adjust and day to day items are required during the construction phase that were not originally contemplated in the project phase.
Turning to our eco vapor business, we saw growth in the quarter from the sale of numerous E. <unk> 200 zero two units to a landfill gas operator.
Used to treat landfill gas end market as RMG.
Speaker Change: Moving to our digital.
Speaker Change: Now initiatives, our digital revenue as a percent of total sales for the quarter increased to 47% as we continue to leverage technology automate processes and work with customers to integrate our systems by leveraging digital technologies to streamline the procure to pay process.
Speaker Change: Our b to B E Commerce revenue increased in the quarter as we experienced higher usage from our mobile app users as we rolled out several consignment programs where customer users.
Customers use our mobile app to acquire material.
Growth in ecommerce was also driven by having a full quarter of activity from a customer recently on boarded during the prior quarter.
Speaker Change: With that let me hand, it over to Mark.
Thank you, Dave and good morning, everyone total fourth quarter, 2023 revenue was $555 million down, 6% or $33 million from the third quarter on a year over year basis. The 2023 fourth quarter revenue was up $8 million or 1%.
Mark Johnson: On a full year basis total 2023 revenue was $2 three 2 billion up $185 million from 2022 or an increase of 9%.
EBITDA, excluding other costs or EBITDA for the fourth quarter was $44 million or seven 9% of revenue.
On a full year basis totaled 2023, EBITDA was $184 million or.
Or seven 9% of revenue up $9 million or 5% from 2022.
U S revenue for the fourth quarter 2023 totaled $418 million, a decrease of $30 million or 7% from the third quarter of 2023.
Mark Johnson: On a full year basis, 2023 U S revenue totaled $1 $75 billion up 10% or nearly $160 million from 2022.
Mark Johnson: In Canada for the fourth quarter revenue totaled $65 million, a decrease of $3 million or 4% from the third quarter of 2023.
Mark Johnson: On a full year basis, 2023, Canada revenue totaled $282 million down 10.
Percent or $33 million from 2022 impacted unfavorably by $11 million or three 5% from foreign currency exchanges.
International revenue for the fourth quarter, 2023 was $72 million flat sequentially and up $14 million or 24% when compared to the fourth quarter of 2022.
On a full year basis, 2023 international revenue totaled $290 million up 26% or $60 million from 2022.
Mark Johnson: Gross margins for the fourth quarter were 23, 4% or up 60 basis points sequentially.
Mark Johnson: On a full year basis gross margins for 2023 were solid at 23, 1%.
Warehousing, selling and administrative or Ws say for the quarter was $98 million or up $1 million sequentially and year over year.
WSI as a percent of revenue improved in 2023 compared to 2022.
Mark Johnson: In the fourth quarter, we reported $7 million of depreciation and amortization expense.
Mark Johnson: Yes.
Moving to operating profit by geographic segments in the fourth quarter. The U S delivered $23 million in operating profit in the Canadian and international segments delivered operating profit of $4 million and $5 million respectively.
Moving to income taxes in the fourth quarter of 2023, <unk> GAAP effective tax rate was favorably impacted by the noncash release of $126 million in valuation allowances, resulting from the Companys assessment of the carrying value of its deferred tax assets and future projections of taxable income.
Mark Johnson: Starting in 2024, we expect that our go forward GAAP effective tax rate will be more closely aligned with our non-GAAP effective tax rate and we estimate our 2024 tax rate will be approximately 27% to 28%.
I remind you the effective tax rate that is calculated on a GAAP basis from the face of the income statement.
At the moment differs from the expected tax rate at these earnings levels due to the income tax expense provision on the income statement, which 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 the favorable impact resulting from the changes in the valuation allowance and for modeling purposes. The non-GAAP effective tax rate was approximately 27, 5% for the fourth quarter of 2023 and 27% for the full year of 2023.
Mark Johnson: From a cash perspective, we don't expect to pay U S. Federal income taxes for 2024 due to available net operating loss carryforwards.
Net income attributable to <unk>, Inc. For the fourth quarter was $147 million or $1 35 per fully diluted share.
And on a non-GAAP basis, Q4, 2023, net income attributable to <unk>, Inc. Excluding other costs was $24 million or <unk> 22 per fully diluted share.
As discussed earlier, our Q4 2023 GAAP net income was favorably impacted by the recognition of a noncash benefit of $126 million from the release of the valuation allowances on certain deferred tax assets.
Mark Johnson: Moving to the balance sheet at the end of the quarter, we had zero debt and a cash position of $299 million.
Cash increased by $105 million in the fourth quarter, primarily from lower inventory levels.
Mark Johnson: With earnings.
We ended the quarter with total liquidity of $626 million, comprising our net cash position of $299 million and $327 million, an additional credit facility availability.
Our existing 500 million dollar revolving credit facility extends into December 2026, providing D. Now with immediate access to capital under the facility for the next three years.
Accounts receivable was $384 million in the period, a decrease of $12 million from the third quarter days sales outstanding or DSO was 63 days at the end of the fourth quarter.
Inventory was $366 million at the end of the fourth quarter, a decrease of $49 million sequentially with an annualized turn rate of four six times.
Timing of large project deliveries in the fourth quarter impacted the ending inventory balance this quarter compared to normal levels, and we expect a slight build of inventory into the first quarter.
Mark Johnson: Accounts payable was $288 million at the end of the fourth quarter, a decrease of $13 million from the third quarter.
Mark Johnson: And for the fourth quarter 2023, working capital excluding cash as a percentage of annualized fourth quarter revenue was 15, 8%.
Mark Johnson: In the fourth quarter of 2023, we generated $105 million of cash from operating activities attributable to strong earnings contribution and a reduction in networking capital.
On a full year basis, we beat our 2023 expectations and cash flows from operating activities and delivered $188 million in 2023.
Mark Johnson: We also surpassed our free cash flow target in 2023 generating $171 million in free cash flow.
Mark Johnson: In the fourth quarter, we generated $103 million of free cash flow, including capital expenditures of $2 million.
We continue to execute on our share repurchase program that is authorized through December 31, 2024 as of December 31, 2023, our cumulative repurchases under our $80 million authorized share repurchase program equaled $57 million.
Our commitment to growing the company through accretive 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.
Mark Johnson: We continue to be debt free and keep cash flow generation a top priority.
Mark Johnson: And with that let me turn the call back to Dave.
Dave: Thank you Marc switching to our outlook for 2024 in the U S as customer budgets reset based on what we're reading, we expect customer spending to be allocated primarily to maintain current production levels, noting some large cap public companies are announcing modest production growth from the Permian.
Dave: We believe U S rig counts may be bottoming and poised to grow in the second half of 2024 and that completions activity will grow from the low January levels.
As a result, we expect our U S business to grow in the first quarter sequentially.
And on a year over year basis from 2023 levels as we look to capture market share and continued to extricate execute.
On growing in industrial and adjacent markets in Canada, we expect customers to maintain production and we see a flat scenario playing out for the year.
Dave: Internationally, we expect to see sequential activity declining considering we had several projects that will not repeat that occurred in the fourth quarter.
Taking it altogether for the first quarter of 2024, we expect sequential revenue to increase in the zero to 5% range compared to the fourth quarter of 2023.
First quarter 2024, EBITDA dollars could remain flat with fourth quarter of 2023 levels due to higher first quarter 2024 expenses, resulting from a reset in payroll taxes combined with reduced vendor consideration.
Dave: We expect full year 2020 for revenues to increase zero to 5% from 2023 levels.
Dave: And full year 2024, EBITDA could approach 8% of revenue.
Dave: We expect to consume cash in the first quarter of 2024, as we replenished inventory to support growth at these forecasted levels of activity.
Dave: And we expect to generate up to $150 million in free cash flow in 2024, depending on the movement and pace and revenues.
In closing I am excited by our by our strong fourth quarter finish capping off another stellar year in 2023 revenues grew $185 million or 9%, while generating $184 million in EBITDA, excluding other costs a record performance.
Dave: Becoming a public company.
Dave: U S process solutions, notably delivered significant full year double digit revenue growth in every division.
Adding to our topline increase impressive topline increase we produced 107 $71 million in free cash flow twice, our original guidance provided last February.
Dave: I'm thrilled about the agreement we reached to acquire Witco supply and believe this partnership will enhance our earnings free cash flow profile and increase shareholder value.
I hope to say more about this on our May call.
Finally, I want to thank the highly talented women and men of D. Now who have delivered these results and positioned our company to meet the critical link in supplying the world's evolving energy needs.
With that let's open the call for questions.
Okay.
At this time I would like to remind everyone that in order to ask a question. Please press Star then the number one on your telephone keypad to enter the question queue. Once again that is star followed by the number one on your telephone keypad.
Pause for just a moment to compile the Q&A roster.
Dave: Our first question comes from the line of Nathan Jones with Stifel. Your line is opened.
Nathan Hardie Jones: Good morning, everyone.
Good morning, Nathan good morning.
I'm going to start off with some questions on cash flow given how.
Super strongly is in a great outlook for free cash flow in 2024.
Nathan Hardie Jones: Maybe you can give us some color on what youre expecting from contribution from working capital to free cash flow in 2024, and any commentary on kind of where you feel like that sustainable free cash flow number would be yes.
Yes, with normalized working capital at this level of revenue.
I'll leave it there okay.
Nathan Hardie Jones: So.
Nathan Hardie Jones: Our guidance was revenue growth of zero to 5%. So it's a slow growth kind of.
Year going into the new year, So I expect our working capital will largely.
To be similar on an average basis during the year. So we're going to we're going to throw off most of the cash directly from the P&L.
Yes, there are some improvements to make on that on the balance sheet.
But there is a bit of inflation that'll that'll show up in our in our inventory in the in the coming periods. So that'll that'll be a little bit of a drag on cash but generally.
Nathan Hardie Jones: The P&L in a year like this is going to be where the.
Free cash flows generated especially after a really strong.
Nathan Hardie Jones: <unk> fourth quarter, where we are.
We reduced our inventory and we're going to replenish it notably in the first quarter, but still a really strong free cash flow in 2020 for like you suggested.
Nathan Hardie Jones: So it's your view that.
I mean, basically done destocking inventory theres, not theres not a lot of excess inventory in the system.
Yes, we are seeing across a lot of industrial companies excess inventory in the system from over ordering in 2022 during supply chain issues. What you are saying is that is not a not a big contribution here from liquidating some of that excess inventory that might have built up during COVID-19.
Is this $150 million target is something like.
I normalized level of free cash flow for the business, assuming this level of revenue.
Right.
Nathan Hardie Jones: If anything.
The answer is yes to your question if anything we we did some destocking in the fourth quarter that was yes.
I think it was around a $50 million reduction in inventory that might have included some overhang from the.
Nathan Hardie Jones: The the shortages that were experienced in 2022, so that really cleaned up some some some products that.
Nathan Hardie Jones: Some of which we won't bring back in but that's right in the new year, it's largely going to come from the P&L.
Nathan Hardie Jones: We don't have a lot of excess inventory in the system, especially after the <unk> drawdown.
Speaker Change: Great that's awesome.
Speaker Change: On using that cash I guess I mean, there was a big slowdown in the share repurchase you can do much in the second half so any commentary on the plans for that and then the action ability of the pipeline you guys have consummated a few fairly small acquisitions here over the last few quarters.
Just anything on the outlook for that in terms of the share repurchase in the <unk>.
It is a notable difference in the first three quarters, we bought back I believe $49 million in shares and in the fourth quarter, we bought back $1 million in shares.
We announced a few weeks ago that we that we have.
Speaker Change: Okay.
Agreed to buy a company one of the this would be one of the larger acquisitions.
Speaker Change: In our history. So of course, we were saving up for that purchase and we've said all along that our priority in terms of deploying capital. It was first to invest organically. That's the most profitable way to two two are the most mature way to produce a return.
Speaker Change: Secondarily buy good companies that are accretive to earnings accretive to free cash flow debt.
That separate us in the market and finally exploit our share repurchase program, which we intend to do so it's a timing thing more than anything.
Nate, but we're going to we're going to exploit that and complete that share repurchase program our plan too.
Awesome, Thanks, guys I'll pass it on.
Speaker Change: Thanks Nathan.
Once again as a reminder, if you'd like to ask a question. Please press star followed by the number one on your telephone keypad. Our next question comes from the line of Jeff Robertson with water Count Research. Your line is open.
Good morning.
Jeffrey Woolf Robertson: Dave a question on the guidance does that include the contributions from Witco.
Dave: It does not.
Our position is until its closed until it's aged a surety.
We're not going to include that in any of the guidance. We laid out today, if it does come to fruition and of course, we expect it would.
We're gonna be really bragging about it in may but right now it doesn't include those.
Dave: The impact.
A question then on the energy transition in process solutions can.
Dave: Can you talk about how much of.
Your current business you would attribute to.
Energy evolution type.
Projects.
Yes, I think.
Dave: I think this the scale of activity in 2023 was around $30 million of revenues. So not a big piece of the pie in 2023, we think the opportunity in 2024 is to double that number.
And that's a big organizational focus for US we think it's a.
It's a path that's going to distinguish us in the market, but we estimate that a little over $30 million in 2023 and more than doubled that in 2024.
Is that potential doubling or is that from projects that are currently underway or do you anticipate that's from projects. Some contribution of that would be from projects that are yet to be started that you.
Just have line of sight on yes, probably half of that.
That doubling or half of that approximately $60 million in the new year.
In the bag projects booked and the others.
Expectations for winning new business.
Last question you spoke about water in some adjacent markets to the traditional energy.
Does the Witco product line would that expose you to some other markets that you that are outside of traditional energy or is it mainly just midstream.
Yes.
Speaker Change: I think for now.
Speaker Change: In terms of questions about when cobalt reached strip.
Strict about it but I think it's primarily midstream is the opportunity for <unk> now and that would be.
The sweet spot that we're going after.
Thank you Youre welcome.
Speaker Change: Okay.
Speaker Change: There are.
Speaker Change: One moment here, we do have.
Harry are okay. Yes. Our next question comes from the line of coal cousins with Stephens. Your line is open.
Hey, guys. Thanks for taking my questions. Good morning, Cole morning call.
Cole Cousins: Sorry, I joined the call little bit late and you might have hit on this already but.
U S land rig counts have seem to bottom here in the 600 range, but we really haven't seen an inflection yet so.
It would be helpful. If you guys could parse through kind of the assumptions that are baked into the guidance for flat to up 5% and maybe how customer conversations are shaping up.
Cole Cousins: In that context as well okay in terms of rig counts I think we see.
Real stability in the low six hundreds for U S rigs.
There are some some customers. Some joint contrast, tractor is talking about adding rigs and then there is general sentiment that we expect some lift we're not sure when that's going to come we think it's more likely to see some.
Some uptick in the second half.
Cole Cousins: Completions were low in January after having declined for a period of time I believe that completions will ultimately follow the path of rigs. So we expect some growth there as well.
Okay. That's helpful and then kind of higher level on <unk>.
Cole Cousins: Process solutions versus energy it.
It seems like we continue to see that process solutions mix go higher.
Is there any way you guys can kind of frame up the rough gross or EBIT margin profiles of the two businesses.
Yeah.
I'll say is this is in our process solutions business.
We tend to see higher.
It depends on where we are in the cycle when process solutions business is strong we could see better.
Bottom line margins when things are leaner it tends to even out over the cycle, but right now process solutions is.
Hi.
Has had its best year ever in 2023 grew 46%.
From 2022.
And so this is one of those periods, where the earnings might be a little stronger.
Cole Cousins: Generally versus.
Cole Cousins: Versus.
The energy centers, but that evens out over time.
Okay perfect. Thank you guys I'll turn it back.
Speaker Change: Thanks, Paul.
Okay, and we have a follow up with Jeff Robertson of Watertown Research. Your line is open.
Thank you Dave a question on industry consolidation you all talked in 2023 about aligning D. Now as the supply chain provider of choice in some strategic type relationships.
Jeffrey Woolf Robertson: With some of your customers do you think some of the consolidation among the big independent producers furthers your.
Ability to maybe gain market share by being that provider that they turn to.
Yes, I think.
Think to me the rule of thumb or my expectation is.
When when these big consolidations happen.
Only a few.
Jeffrey Woolf Robertson: A few distributors in North America can handle much larger businesses as they come together, so I think the benefit accrues to to accompany like Dana we have a.
Jeffrey Woolf Robertson: Hi.
It's a good footprint in North America. When these companies come together, we're really better equipped.
Then most companies tend to take that on.
And of course, we're always pursuing the more integrated models with these companies as they come together.
And that could go either way.
Jeffrey Woolf Robertson: If the if the acquiring company is one of our.
Our supply chain services customers very important customers to us we might have a shot at picking up the rest of the business in the company. They acquired so we see that is.
Jeffrey Woolf Robertson: Our net positive generally and it could be a <unk>.
Very good.
Situation if.
Our incumbent supply chain services customer as the acquirer.
Thank you.
Jeffrey Woolf Robertson: Okay.
Jeffrey Woolf Robertson: Okay. There are no further questions at this time I'd like to hand things back over to Mr. Brad Wise.
Well. Thank you everyone for your questions today and your interest in D. Now, we look forward to speaking with everyone on our first quarter 2024 earnings Conference call. Later this year in May and with that I'll turn it back to the operator to conclude our call. Thank you.
Okay.
Thank you. This concludes today's conference call you may now disconnect have a good day.
Okay.
Okay.
Jeffrey Woolf Robertson: Yeah.
Jeffrey Woolf Robertson: [music].
Yes.
Yeah.
Jeffrey Woolf Robertson: [music].
Jeffrey Woolf Robertson: Yeah.
Jeffrey Woolf Robertson: Yes.
[music].
Sure.
Okay.