Q1 2024 DNOW Inc Earnings Call
Okay.
Ian: Good morning, my name is Ian, and I will be your conference operator today. At this time, I would like to welcome everyone to the DNOW First Quarter 2024 Earnings Conference Call. All lines have been placed on mute to prevent any background noise.
Ian: Good morning, My name is Ian and I will be your conference operator today.
Ian: After the speaker's remarks, there will 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. Thank you. I would like to hand things over to Mr. Brad Wise, Vice President of Digital Strategy and Investor Relations. You may begin your comments.
Ian: At this time I would like to welcome everyone to the D. Now first quarter 2024 earnings conference call.
Ian: All lines have been placed on mute to prevent any background noise.
The speaker's remarks, there will 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.
Ian: He would like to withdraw your question press the pound key.
Ian: I would like to hand things over to Mr. Brad Wise, Vice President of digital strategy and Investor Relations you May begin your conference.
Brad Wise: Well, thank you, Ian. And good morning, and welcome to DNOW's first quarter 2024 earnings conference call. We appreciate you joining us.
Brad Wise: Well, thank you Ian and good morning, and welcome to <unk> first quarter 'twenty 'twenty four earnings conference call.
Brad Wise: We appreciate you joining us and thank you for your interest in D. Now with me today is David Church, Jetski, President and Chief Executive Officer, and Mark Johnson, Senior Vice President and Chief Financial Officer.
Brad Wise: And thank you for your interest in DNOW. With me today is David Cherechinsky, President and Chief Executive Officer, and Mark Johnson, Senior Vice President and Chief Financial Officer. We operate under the D-NOW 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.
Brad Wise: We operate under the <unk> brand, which is also our New York stock exchange ticker symbol <unk>.
Brad Wise: 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.
Brad Wise: These are forward-looking statements within the meaning of the U.S. Federal Securities Laws based on limited information as of today, May 10, 2024, which is subject to change. They are subject to risks and uncertainties, and actual results may differ materially. Now, it should be assumed 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.
Brad Wise: Good information as of today May 10, 2024, which is subject to change.
They are subject to risks and uncertainties and actual results may differ materially.
Brad Wise: No one should assume these forward looking statements remain valid later in the quarter or later in the year we.
Brad Wise: We do not undertake any obligation to publicly update or revise any forward looking statements for any reason.
Brad Wise: In addition, this conference call contains time-sensitive information that reflects management's best judgment at the time of the live call. I refer you to the latest Forms 10-K and 10-Q that D-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 in our earnings release on our website at ir.dnow.com or in our filings with the SEC.
Brad Wise: In addition, this conference call contains time sensitive information that reflects management's best judgment at the time of the live call.
Brad Wise: I refer you to the latest forms 10-K, and 10-Q that Dino has on file with the U S Securities and Exchange Commission for a more detailed discussion of the major risk factors affecting our business.
Brad Wise: Other information as well as supplemental financial and operating information may be found within our earnings release on our website at IR dot dot com or in our filings with the SEC.
Brad Wise: 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 disclosed various non-GAAP financial measures, such as EBITDA excluding other costs, sometimes referred to as EBITDA, or net income attributable to D-NOW Inc., excluding other costs. And diluted earnings per share attributable to D-NOW Inc, excluding other costs. Each excludes the impact of certain other costs and therefore has not been calculated in accordance with GAAP.
Brad Wise: 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.
Brad Wise: Net income attributable to D. Now, Inc. Excluding other costs and diluted earnings per share attributable to <unk>, Inc. Excluding other costs.
Brad Wise: Each excludes the impact of certain other costs and therefore have not been calculated in accordance with GAAP.
Brad Wise: Please refer to a reconciliation of each of these non-GAAP financial measures to its most comparable GAAP financial measure.
Brad Wise: In the supplemental information available at the end of the earnings release.
Brad Wise: Please refer to the reconciliation of each of these non-GAAP financial measures to its most comparable GAAP financial measure and the supplemental information available at the end of this 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 2024. The replay of today's call will also be available on the site for the next 30 days. We plan to file our 2024 Form 10-Q for the first quarter later today, and it will also be available on our website. Now, let me turn the call over to Dave.
Brad Wise: 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 2024.
Brad Wise: A replay of today's call will also be available on the site for the next 30 days, we plan to file our 2020 for Form 10-Q for the first quarter later today and it will also be available on our website.
Brad Wise: Now, let me turn the call over to Dave.
David A. Cherechinsky: Thank you, Brad, and good morning, everyone. I'm incredibly pleased with the progress we made in the first quarter, generating strong free cash flow of $80 million towards our $150 million full-year target, which we expect could now approach $200 million in 2024. Free cash flow is represented by cash flows from operating activities reduced by capital expenditures made during the period.
Dave: Thank you Brad and good morning, everyone.
Dave: I'm incredibly pleased with the progress we made in the first quarter generating strong free cash flow of $80 million towards our 150 million full year target, which we expect could now approach $200 million in 2024.
Dave: Free cash flow as represented by cash flows from operating activities reduced by capital expenditures made during the period.
David A. Cherechinsky: Our enhanced free cash flow dynamics are the result of D-NOW's pedigree of sound balance sheet management, supported by a strong, transformed business on a path that could make 2024 our best year yet, assuming an increase in market activity as modeled. And that is on top of a record EBITDA margin year in 2022, surpassed again in 2023. We believe 2024 could top that yet again.
Dave: Our enhanced free cash flow dynamics are the result of D. Now his pedigree of sound balance sheet management supported by a strong transformed business on a path that could make 2020 for our best year yet.
Dave: Assuming an increase in market activity as modeled.
Dave: And that is on top of a record EBITDA margin years in 2022 surpassed again in 2023.
Dave: We believe 2024 could top that yet again.
David A. Cherechinsky: Our quarterly cash haul was much better than expected, as we guided to negative free cash flow in the first quarter but instead generated $80 million in free cash flow in 1Q24 and $262 million in free cash flow over the last four quarters, the best trailing four-quarter period of cash generation since 2016. In the first quarter, we were privileged to welcome an on-board WITCO supply to the DNOW family, one of our largest acquisitions yet. And we still ended the quarter debt-free and with $188 million in cash.
Dave: Our quarterly cash hoard was much better than expected as we guided to negative free cash flow in the first quarter, but instead generated $80 million in free cash flow in <unk> 24, and $262 million in free cash flow over the last four quarters, the best trailing four quarter period of cash generation.
Dave: Since 2016.
Dave: In the first quarter, we were privileged to welcome and onboard witco supply to the <unk> family one of our largest acquisitions, yet and we still ended the quarter debt free with $188 million in cash.
David A. Cherechinsky: The addition of WITCO's talented team, rich culture, and technical expertise enhances our service levels and capabilities, enabling us to better support our customers' midstream and energy evolution investments. With our first U.S. Energy Center acquisition since 2015, WITCO supply expands our U.S. footprint and customer base across the midstream energy sector. WITCO operates 8 locations where they've carved out a devout customer following and effectively deploy a super center-like strategy where the main active centers of commerce support and embed efficiencies in their fulfillment model.
Dave: The addition of Witco talented team rich culture, and technical expertise enhances our service levels and capabilities, enabling us to better support our customers midstream and energy evolution investments.
Dave: With our first U S energy centers acquisitions since 2015 with good supply expands our U S footprint and customer base across the midstream energy sector.
<unk> co operates eight locations, where they've carved out a day about customer following and effectively deploy a supercenter like strategy, where the main active centers of commerce support and embed efficiencies in their fulfillment model.
David A. Cherechinsky: While I have already had the privilege of sharing the best employee-caught and home-fried South Louisiana catfish, shrimp, and rice with over 100 of our WITCO employees, I'm honored to welcome everyone from WITCO Supply to the DNOW family. The NOW Larger DENOW enjoys a solid balance sheet, an expanding diversified customer base, a proactive approach to seizing value-enhancing acquisition opportunities, and the best people in the business. I'm excited about our future together.
Dave: While I have already had the privilege of sharing the best employee caught and home Pride, South, Louisiana, catfish, shrimp and rice with over 100 of our Witco employees I'm honored to welcome everyone for Mako supply to the Dana family.
Dave: The now larger Dino enjoys a solid balance sheet and expanding and diversified customer base.
Dave: So active approach to seizing value enhancing acquisition opportunities and the best people in the business.
Dave: Excited about our future together.
David A. Cherechinsky: We are focused on opportunities that drive accretive growth and operating margins while diversifying our market mix. Our strategy is to defend, invest in, and grow our core market, capture additional revenues from the growing energy evolution market, and diversify our customer base by targeting and realizing revenue opportunities from adjacent industrial markets while driving efficiencies across our business. With our current liquidity and capital allocation framework, we have the ability to strike deals at the right time and repurchase shares opportunistically, thus balancing the return of capital with the growth of our business to produce sustainable long-term value for our shareholders.
Dave: We are focused on opportunities that drive accretive gross gross and operating margins, while diversifying our market mix our strategy is to defend and best and grow our core market capture additional revenues from the growing energy evolution market and diversify our customer base by targeting and Ria.
Dave: <unk> revenue opportunities from adjacent industrial markets, while driving efficiencies across our business.
Dave: With our current liquidity and capital allocation framework, we have the ability to strike deals at the right time and repurchase shares opportunistically. Thus balancing the return of capital with the growth of our business to produce sustainable long term value for our shareholders.
David A. Cherechinsky: We run our business like a successful gardener might, and I'm often reminded how much the two are alike. We plant seeds to sow innovative ideas for our customers and provide the necessary resources for growth. We nourish the soil to foster a collaborative environment that continuously enriches our culture.
Dave: We run our business like a successful Gardner might and I'm often reminded how much. The two are alike. We plant the seeds to so innovative ideas for our customers and provide the necessary necessary resources for growth, we nourish the soil to foster a collaborative environment that continuously.
Dave: Enriches, our culture, we water abundantly and fertilize by making prudent investments in inventory new products capital expenditures and process improvements while rewarding our people for the results they produce two fuel progress and expansion.
David A. Cherechinsky: We water abundantly and fertilize by making prudent investments in inventory, new products, local expenditures, and process improvements while rewarding our people for the results they produce to fuel progress and expansion. We try to make sure we sell aging inventory before it goes bad and while it's still in season, and offer new products as we liquidate or remove less desirable ones to produce the greatest yield and adapt to changing customer tastes. We seek and promote self-starter leaders who don't wait to act, those who cut to drive efficiencies and trim unnecessary processes, promoting healthy growth and optimized performance, seeking a nexus between where we shine and where the customer sees value.
Dave: Try to make sure we are salad, we sell aging inventory before it goes bad.
Dave: While it's still in season and offer new products, as we liquidate or remove less desirable ones to produce the greatest yield and adapt to changing customer tastes.
Dave: We seek and promote shelf starter leaders, who don't wait to act those who proved to drive efficiencies and trim unnecessary processes promoting healthy growth and optimize performance.
Dave: Seeking a nexus between where we shine and where the customer sees value.
David A. Cherechinsky: We care about and protect each other, focus on safety, act with integrity, guard our processes and competitive information, and identify and weed out potential threats to protect our business from harm. We're mindful of the seasons and how they affect our garden so we can adapt, embrace change, and adjust our tactics as our business evolves and grows. We harvest the fruits of hard work, celebrate accomplishments, and learn from challenges so we can reinvest in our business, make smart acquisitions, and return cash to shareholders. You can have an impressive garden or a great business simply by being more disciplined than your competitors. Tending, in a year like this, more stringently to the fundamentals.
We care about and pre check protect each other focus on safety.
Dave: With integrity guard, our processes and competitive information and identify and weed out potential threats protecting our business from iron.
Dave: We're mindful of the seasons and how theyre changing effects our garden. So we can adapt embrace change adjust our tactics.
Dave: Our business evolves and grows.
Dave: We harvest the fruits of hard work celebrate accomplishments and learned from challenges. So we can reinvest in our business make smart acquisitions and return cash to shareholders and repeat.
Dave: You can have an impressive garden are a great business simply by being more disciplined than your competitors.
Dave: <unk> in a year like this more stringently to the fundamentals.
David A. Cherechinsky: Now some comments on a regional basis. In the U.S., revenue is $435 million, up $17 million, or 4% sequentially, resulting from the added acquisition activity from Whitco Supply. The U.S. rig count was essentially flat quarter-over-quarter, while U.S. completions declined 11 percent sequentially and 15 percent year-over-year. During the quarter, we renewed a master service agreement with one of our major supply chain services customers that will continue to drive future revenue while presenting opportunities for increased wallet share on their newly acquired assets.
Dave: Now some comments on a regional basis in the U S revenue was $435 million up $17 million or 4% sequentially, resulting from the added acquisition activity from Witco supply.
Dave: U S rig count was essentially flat quarter over quarter, while U S completions declined 11% sequentially and 15% year over year.
Dave: During the quarter, we renewed a master service agreement and put an arm with one of our major supply chain services customers that will continue to drive future revenue, while presenting opportunities for increased wallet share on their newly acquired assets.
David A. Cherechinsky: With a large IOC activity in the Permian, it was robust with an assortment of capital projects and day-to-day maintenance operations. Activity remains strong with another integrated supply customer with assets in the Eagle Ford and Bakken. Citing the strength of our supply chain service partnerships, one of our customers recognized the D-NOW team's performance in helping them achieve an important operational performance target, demonstrating the impact our partnership has on delivering their operational objectives. The effect our employees have on our customers' operations is a source of pride, as our customers trust us to help them deliver on their production goals.
Dave: With a large IOC activity in the Permian.
Dave: Was robust with an assortment of capital projects and day to day maintenance operations activity remains strong with another integrated supply customer with assets in the Eagle Ford and baked in Bakken.
Dave: Fluctuating the strength of our supply chain service partnerships, one of our customers recognize the dean our team's performance and helping them achieve an important operational performance target demonstrating the impact our partnership has on delivering their operational objectives.
Dave: The effect our employees have on our customers operations is a source of pride as our customers Trust us to help them deliver on their production goals.
David A. Cherechinsky: In U.S. process solutions, demand for our products was mixed across our brands. As our MRO business continued to grow, we experienced some lumpiness in projects, with a number of those projects pushed to later in the year. Demand for our fabricated process and production equipment remains steady, serving a variety of operators in the upstream, midstream, and downstream sectors. Demand for our industrial air compressor package offerings remains strong as operators work to eliminate the venting of methane as they replace it with a compressed air system.
Dave: And U S process solutions demand for our products was mixed across our brands as MRO business continue to grow as we experienced some lumpiness in projects with a number of those projects pushed to later in the year.
Dave: Demand for our fabricated process and production equipment remained steady servicing a variety of operators for the upstream midstream and downstream sectors.
Dave: <unk> for our industrial Air compressor package offerings remained strong as operators work to eliminate the venting of methane as they replace it with compressed air systems.
David A. Cherechinsky: Outside of oil and gas, in the municipal water market, we delivered a large shipment of pumps for a sizable project in North Texas, in addition to providing pumps for a pulp and paper customer, a food and beverage protein company, and chilled water pumps for a bitcoin data mining facility. During the quarter, we expanded a pumped territorial distribution agreement across several U.S. western states targeting the mining industry. The agreement will create opportunities and complement our current efforts within this growing and marketing.
Dave: Outside of oil and gas and the municipal water market, we delivered a large shipment of pumps for a sizable project in North Texas. In addition to providing pumps for our pulp and paper customer, our food and beverage protein company and chilled water pumps for a bitcoin data mining facility.
Dave: During the quarter, we expanded a pump territorial distribution agreement across several U S Western states targeting the mining industry.
Dave: Agreement will create opportunities and complements our current efforts within this growing end market.
David A. Cherechinsky: Demand for our FlexFlow horizontal pump products remains steady as operators seek rental pump assets for produced water disposal and transfer applications. For our EcoVapor line, demand for our sulfur sentinel product increased in the quarter as operators sought solutions to remove H2S from low-pressure gas, thus eliminating emissions that would have occurred from flaring the gas. Our EcoVapor rental fleet has been steady despite low natural gas prices. And finally, we have tapped into new market share by receiving orders from several new R&G customers as we continue to grow our EcoVapor 02 product line in the renewable natural gas space.
Dave: Demand for our flex flow horizontal pump products remained steady as operators soft rental rental pump assets for produced water disposal and transfer applications.
Through our eco paper line demand for our sulfur Sentinel product increased in the quarter as operators shot solutions to remove <unk> from low pressure gas, thus eliminating emissions that would have occurred from flaring the gas.
Dave: Our eco vapor rental fleet has been steady despite low natural gas prices.
Dave: And finally, we tapped into new market share by receiving orders from several new RMG customers as we continue to grow our eco vapor zero two product line in the renewable natural gas space.
David A. Cherechinsky: In Canada, revenue was $66 million for the quarter. From an activity perspective, the year started off sluggish, where our Canadian operations were adversely impacted by two weather events. In January, there was a nine-day time frame where extreme subzero temperatures halted activity and delayed the start of the joint season.
Dave: In Canada revenue was $66 million for the quarter from an activity perspective, the year started off sluggish where our Canadian operations were adversely impacted by two weather events.
Dave: In January there was a 90 day timeframe, where the extreme subzero temperatures halted activity and delayed the start of the joined season.
David A. Cherechinsky: In March, we experienced an early spring breakup that limited what has historically been a very active month. From conversations with customers, we are hearing drilling plans that were impacted in 1Q24 that, at this time, remain intact for the full year. So we're optimistic that the delayed activity will come later in 2024. We were successful in being selected by a top Canadian producer to provide pipe fittings, flanges, and MRO products. The producer recently acquired a DNOW customer we already service, so we should benefit from that as well.
Dave: In March we experienced an early spring breakup that limited what has historically been a very active month.
Dave: From conversations with customers. We are hearing drilling plans that were impacted in <unk> 24.
At this time remain intact for the full year. So we're optimistic that the delayed activity will come later in 2024.
Dave: We were successful in being selected by a top Canadian producer to provide pipe fittings, and flanges and MRO products that producer had recently acquired Indiana customer we already service. So we should benefit from that as well.
David A. Cherechinsky: Finally, with the Trans Mountain Expansion Pipeline expected to come online this month, we expect the increased takeaway capacity could narrow the WTI Western Canadian Select Differential and lead to increased future activity for our Canadian business. For our international segment, revenue was $62 million, sequentially lower as expected and guided last quarter by $10 million, primarily due to non-repeating projects in the fourth quarter in the Middle East and Australia.
Dave: Finally, with the Trans mountain.
Dave: Expansion pipeline expected to come online. This month, we expect the increased takeaway capacity could narrow the WTO western Canadian select differential and lead to increased future activity for our current our Canadian business.
Dave: For our international segment revenue was $62 million sequentially, lower as expected and guided last quarter by $10 million, primarily due to non repeating projects in the fourth quarter in the middle East and Australia.
David A. Cherechinsky: In Europe and the UK, we are seeing steady activity and demand for our electrical and safety products tied to brownfield and modernization investment projects. But we are also observing headwinds in customer investment and traditional energy greenfield investments due to instability caused in part by the windfall test. In Norway, we saw an increase in investment on the Norwegian continental shelf as we supplied electrical cable for offshore drilling contractors and drilling rig recertification.
Dave: In Europe, and the U K, we are seeing steady activity and demand for our legacy electrical and safety products tied to brownfield and modernization investment projects.
Dave: But we are also absorbing headwinds in customer investment and traditional energy Greenfield investments due to instability caused in part by the windfall tests.
Dave: In Norway, we saw an increase in investment in the Norwegian Continental shelf as we supplied electrical cable for offshore drilling contractors and drilling rig recertification.
David A. Cherechinsky: We are seeing an increasing number of FID projects across a number of EPCs as investment in hydrogen, CCS, and floating wind continue to gain steam. These types of projects require many of the PBF and electrical products we provide. In Australia, we are seeing project activity growing from several ILCs related to CO2 injection, LNG, and biofuel projects. Finally, during the quarter, we provided electrical products tied to a carbon capture project and a lighting modernization project through an EPC for a large energy producer. And now, a few additional comments related to energy evolution.
Dave: We are seeing an increasing level of projects across a number of epc's as investment and hydrogen Ccs and floating wind continue to gain steam.
Dave: These types of projects require many of the PBF in electrical products, we provide.
Dave: In Australia, we're seeing project activity growing through several ilc's related to <unk> injection LNG and biofuel projects.
Dave: Finally during the quarter, we provided intellectual products tied to a carbon capture project and a lighting modernization projects to an EPC.
Dave: For a large energy producer.
Dave: And now a few additional comments related to energy evolution for D. Now the energy transition includes activity, primarily associated associated with carbon capture utilization and storage hydrogen and R&D related projects.
David A. Cherechinsky: For D-NOW, the energy transition includes activity primarily associated with carbon capture, utilization, and storage, hydrogen, and R&G-related projects. We are tracking a number of projects in this target market which fit nicely into NINAU's core product line offering, the core product offering. And, as we have mentioned on previous calls, many of the projects are being funded by D-NOW customers who are familiar with our quality products, services, and solutions combined with our differentiated level of service.
Dave: We are tracking a number of projects in this target market, which fit nicely into <unk> core product line operating core product offerings.
Dave: And as we have mentioned on prior calls many of the projects are being funded by <unk> customers, who are familiar with our quality products services and solutions combined with our differentiated level of service.
David A. Cherechinsky: In 2023, we submitted quotes and proposals for a number of energy evolution projects. Comparing last year's quote activity to this year's first quarter quote activity, the value of this quarter has grown and surpassed last year's total quote value. We delivered PVF products for several CCUS projects, one for a gas storage project in support of a low-carbon power plant that uses the gas when other intermittent power generation sources are interrupted. Another energy evolution project in the quarter was for a natural gas gathering project combined with a carbon capture and sequestration component that will remove 100% of the CO2 and permanently store it underground.
Dave: In 2023, we submitted quotes and proposals for a number of energy evolution projects comparing last year's code activity to this year's first quarter code activity the value of this quarter has grown and surpassed last year's total quote value.
Dave: We delivered PBF products for several Ccs projects, one for our gas storage project in support of a low carbon power plant that uses the gas when other intermittent power generation sources are interrupted.
Dave: Another energy evolution project in the quarter was for our natural gas gathering projects combined with the carbon capture and sequestration component that will remove 100% of the <unk> and permanently start underground.
David A. Cherechinsky: For our digital initiatives, our digital revenue as a percent of total SAP revenue increased to 49% during the quarter, driving improved efficiencies through integrated systems. With a major IOC, we completed a system integration project that eliminated redundancies across multiple systems, allowing for efficiency gains using D-NOW systems. Technology and People in Order of Fulfillment, Procurement, and Inventory Management Functionality. For another major IOC, we successfully expanded our customer consignment program, capturing real-time order processing and inventory visibility through the use of our D-NOW mobile app.
Dave: Through our digital initiatives, our digital revenue as a percent of total revenue increased to 49% during the quarter driving improved efficiencies through integrated systems.
Dave: With a major IOC, we completed the system integration project that eliminates redundancies across multiple systems, allowing for efficiency gains using <unk> systems <unk>.
Dave: Technology and people in order in order fulfillment procurement and inventory management functionality.
Dave: For another major IOC, we successfully expanded our customer consignment program, capturing a real time order processing and inventory visibility to the use of our <unk> mobile app.
David A. Cherechinsky: We launched FlexFlow's OptiWatch 2.0, our second-generation digital real-time monitoring and optimization software for horizontal pumping systems that includes enhanced data sampling combined with an upgraded dashboard visualization that has been well-received by OptiWatch customers. Operators are realizing financial benefits for reduced expenditures in power consumption, maintenance, and downtime, and other efficiency gains from using OptiWatch 2.0. And finally, our Process Solutions field service technicians have been equipped with new digital tablets that are connected to our ERP service app, thus eliminating manual paperwork while streamlining work orders to deliver efficiencies through digital transformation on aftermarket service orders. With that, I will hand it over to Mark.
Dave: We launched flex flows <unk> two <unk>, our second generation digital real time monitoring monitoring and optimization software for horizontal pumping system that.
Dave: That includes enhanced data sampling combined with an upgraded dashboard visualization that has been well received by <unk> customers.
Dave: Operators are realizing financial benefits of reduced expenditures in power consumption maintenance and downtime and other efficiency gains from using <unk> to point out.
Dave: And finally, our process solutions field service technicians have been equipped with new digital tablets that are connected to our ERP service app, thus eliminating manual paperwork, while streamlining streamlining work orders to deliver efficiencies through digital transformation on aftermarket service orders.
Dave: With that let me hand, it over to Mark.
Mark B. Johnson: Thank you, Dave, and good morning, everyone. Total first quarter 2024 revenue was $563 million, up 1%, or $8 million from the fourth quarter of 2023. EBITDA excluding other costs, or EBITDA, for the first quarter was $39 million, or 6.9% of revenue. U.S. revenue for the first quarter of 2024 totaled $435 million, a $17 million increase, or 4% higher than the fourth quarter of 2023. Year over year, U.S. revenue increased $8 million, or 2 percent, from the first quarter of 2023. The U.S. energy centers contributed approximately 70% of total U.S. revenue in the first quarter, and U.S. process solutions contributed approximately 30%.
Mark B. Johnson: You, Dave and good morning, everyone. Total first quarter 2024 revenue was $563 million up 1% or $8 million from the fourth quarter of 2023.
Mark B. Johnson: EBITDA, excluding other costs or EBITDA for the first quarter was $39 million or six 9% of revenue.
Speaker Change: U S revenue for the first quarter 2024 totaled $435 million or.
Speaker Change: $17 million increase or 4% higher than the fourth quarter of 2023.
Year over year U S revenue increased $8 million or 2% from the first quarter of 2023.
Speaker Change: The U S energy centers contributed approximately 70% of total U S revenue in the first quarter and U S process solutions contributed approximately 30%.
Mark B. Johnson: In Canada, for the first quarter, revenue totaled $66 million, an increase of 1 million, or 2% from the fourth quarter of 2023. International revenue for the first quarter of 2024 was $62 million, down $10 million, or 14% sequentially. Gross margins for the first quarter were 22.9%, down 20 basis points from the 2023 average, driven primarily by $1 million in inventory step-up amortization charges related to the acquisition. The Bulletproof Executive, 2013 All rights reserved.
Speaker Change: In Canada for the fourth for the first quarter revenue totaled $66 million, an increase of $1 million or 2% from the fourth quarter of 2023.
Speaker Change: International revenue for the first quarter of 2024 was $62 million down $10 million or 14% sequentially.
Speaker Change: Gross margins for the first quarter were 22, 9% down 20 basis points from the 2023 average driven primarily by $1 million and inventory step up amortization charges related to the acquisition.
Speaker Change: Attributing to the decline.
Mark B. Johnson: We estimate the remaining $4 million in inventory step-up charges will be recorded in the second quarter, temporarily impacting gross margins and 2Q. And I want to highlight that we exclude these acquisition-related charges when computing our non-GAAP measures, like EBITDA, net income, and EPS, excluding other costs. Gross margins declined 50 basis points from the fourth quarter level, considering the 1Q acquisition purchase accounting impact mentioned earlier, 20 basis points, and the expected margin decline from non-recurring fourth quarter projects and year-end vendor consideration impact.
We estimate the remaining $4 million and inventory step up charges will be recorded in the second quarter temporarily impacting gross margins and <unk>.
Speaker Change: And I want to highlight we exclude these acquisition related charges when computing, our non-GAAP measures like EBITDA and net income and EPS, excluding other costs.
Speaker Change: Gross margins declined 50 basis points from the fourth quarter levels, considering the <unk> acquisition purchase accounting impact mentioned earlier 20 basis points and the expected margin decline from nonrecurring fourth quarter projects and year end vendor consideration impacts.
Mark B. Johnson: Warehousing, Selling, and Administrative, or WSA, for the quarter was $101 million, up $3 million sequentially, primarily related to the acquisition that closed late in the quarter. We forecast the second quarter WSA level should be in the $110 million range, with the full quarter contribution of the recent acquisition. In the first quarter, we reported $7 million of depreciation and amortization expense. And for the second quarter of 2024, we forecast depreciation and amortization to be approximately $9 million due to the full quarter contribution of the acquisition.
Speaker Change: Warehousing, selling and administrative or WSI for the quarter was $101 million up $3 million sequentially, primarily related to the acquisition that closed late in the quarter.
Speaker Change: We forecast the second quarter WSI level should be in the $110 million range with a full quarter contribution of the recent acquisition.
Speaker Change: In the first quarter, we reported $7 million of depreciation and amortization expense and for the second quarter of 2024, we forecast depreciation and amortization to be approximately $9 million due.
Speaker Change: Due to the full quarter contribution of the acquisition.
Mark B. Johnson: Now moving to operating profit, in the first quarter of 2024, total company operating profit was $28 million. Respectively, the U.S. generated $23 million, Canada delivered $3 million, and International contributed the remaining $2 million in the first quarter of 2024.
Speaker Change: Now moving to operating profit in the first quarter total company operating profit was $28 million, respectively. The U S generated $23 million, Canada delivered $3 million and international.
Speaker Change: <unk> contributing the remaining $2 million in the first quarter of 2024.
Mark B. Johnson: Interest income in the period was $2 million, and we forecast that to decrease slightly in the second quarter. Moving to income taxes, in the first quarter of 2024, D-NOW's income tax expense was $8 million, and our effective tax rate was 27.6%. We continue to estimate our 2024 full-year effective tax rate will be approximately 27-28%.
Speaker Change: Interest income in the period was $2 million and we forecast that to reduce slightly in the second quarter.
Speaker Change: Moving to income taxes in the first quarter of 2024 D. Now the income tax expense was $8 million and our effective tax rate was 27, 6%.
Speaker Change: We continue to estimate our 2020 for full year effective tax rate will be approximately 27% to 28%.
Mark B. Johnson: In prior periods, our tax expense, as reported for GAAP, included the benefits from changes in valuation allowances recorded against our deferred tax assets. We excluded the impacts of changes in our valuation allowances for calculations of net income and EPS, excluding other costs. At year-end 2023, as a result of releasing the majority of our valuation allowances, and as discussed on our last call, 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 from a cash income tax perspective, we do not expect to pay U.S. federal cash income taxes in 2024 due to available net operating loss carried forward
Speaker Change: In prior periods, our tax expense as reported for GAAP included the benefits from changes in valuation allowances recorded against our deferred tax assets.
Speaker Change: We excluded the impacts from the changes in our valuation allowances for calculations of net income and EPS, excluding other costs.
Speaker Change: At year end 2023, as a result of releasing the majority of our valuation allowances and as discussed on our last call. 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 from a cash income tax perspective, we do not expect to pay U S. Federal cash income taxes in 2024 due to available net operating loss carryforwards.
Mark B. Johnson: Net income attributable to DNOW Inc. for the first quarter was $21 million, or $0.19 per fully diluted share. And on a non-GAAP basis, Q1 2024 net income attributable to DNOW Inc., excluding other costs, was $23 million, or 21 cents per fully diluted share. Now I'm moving to the balance sheet.
Speaker Change: Net income attributable to <unk>, Inc. For the first quarter was $21 million or <unk> 19 per fully diluted share.
Speaker Change: And on a non-GAAP basis, Q1, 2024 net income attributable to D. Now Inc. Excluding other costs was $23 million or 21 per fully diluted share.
Mark B. Johnson: At the end of the quarter, we had a cash position of $188 million and zero debt. Cash decreased by $111 million in the first quarter, driven by the $185 million acquisition of White Coast Supply that was partially offset by cash generation from operating activities. Also worth noting, we acquired $93 million in networking capital, excluding cash, as part of the acquisition. We ended the quarter with total liquidity of $564 million, comprising our net cash position of $188 million plus $376 million in additional credit facility availability. Our existing $500 million revolving credit facility extends into December 2026, providing DNOW with immediate access to capital under the facility.
Speaker Change: Now moving to the balance sheet at the end of the quarter, we had a cash position of $188 million and zero debt cash.
Mark B. Johnson: Ending accounts receivable was $410 million, an increase of $26 million from the fourth quarter driven by the acquired receivables. Today's Sales Outstanding, or DSO, was 66 days at the end of the first quarter, impacted by the incongruent contribution between the full balance sheet of the acquired accounts receivable and only a partial quarter of sales contribution. Excluding the acquisition contribution, DSO improved from the fourth quarter. Inventory was $428 million at the end of the first quarter, an increase of $62 million from the fourth quarter, with an annualized turn rate of 4.1 times.
Speaker Change: Cash decreased by $111 million in the first quarter driven by the $185 million acquisition of West Coast supply that was partially offset by cash generation from operating activities.
Speaker Change: Also worth, noting we acquired $93 million and net working capital excluding cash as part of the acquisition.
Speaker Change: We ended the quarter with total liquidity of $564 million, comprising our net cash position of $188 million.
Speaker Change: <unk> $376 million, an additional credit facility availability.
Speaker Change: Our existing $500 million revolving credit facility extends into December 2026, providing D now with immediate access to capital under the facility.
Speaker Change: Ending accounts receivable was $410 million, an increase of $26 million from the fourth quarter driven by the acquired receivables.
Speaker Change: And days sales outstanding or DSO was 66 days at the end of the first quarter impacted by the incongruent contribution between the full balance sheet of the acquired accounts receivable and only a partial quarter of sales contribution excluding.
Speaker Change: The acquisition contribution DSO improved from the fourth quarter.
Speaker Change: Inventory was $428 million at the end of the first quarter, an increase of $62 million from the fourth quarter with an annualized turn rate of four one times also impacted by the acquired inventory on a partial quarter of sales contribution.
Mark B. Johnson: Also impacted by the acquired inventory on a partial quarter of sales contribution. However, when excluding the acquisition contribution, turn rates would have been similar to their fourth quarter levels. We expect a slight inventory build in the second quarter based on increased activity and the timing of project deliveries. And accounts payable were $339 million at the end of the first quarter, an increase of $51 million from the fourth quarter, impacted by the acquired payables and the timing of inventory purchases late in the first quarter.
Speaker Change: When excluding the acquisition contribution turn rates would have been similar to their fourth quarter levels.
Speaker Change: We expect a slight inventory build in the second quarter based on increased activity and the timing of project deliveries.
Speaker Change: And accounts payable was $339 million at the end of the first quarter, an increase of $51 million from the fourth quarter impacted by the acquired payables and the timing of inventory purchases late in the first quarter.
Mark B. Johnson: We expect the second quarter ending accounts payable balance to decrease slightly from the first quarter level. And for the first quarter of 2024, working capital excluding cash as a percentage of annualized first quarter revenue was 17.5 percent. In addition to excluding the ending first quarter working capital balances from the acquisition and the related partial quarter of sales contribution, working capital excluding cash as a percentage of annualized first quarter revenue was 14.4 percent. In the first quarter, we generated $80 million of free cash flow, net of capital expenditures of $1 million in the quarter. Attributable to the Resilient Earnings Contribution and a Reduction in Year-End Networking Capital
Speaker Change: We expect the second quarter, ending accounts payable balance decreased slightly from the first quarter levels.
Speaker Change: And for the first quarter of 2024, working capital excluding cash as a percentage of annualized first quarter revenue was 17, 5%.
Speaker Change: Excluding the ending first quarter working capital balances from the acquisition and the related partial quarter of sales contribution.
Speaker Change: Capital, excluding cash as a percentage of annualized first quarter revenue was 14, 4%.
Speaker Change: In the first quarter, we generated $80 million of free cash flow net of capital expenditures of $1 million in the quarter.
Speaker Change: Attributable to resilient earnings contribution and a reduction in year end net working capital.
Mark B. Johnson: We continue to execute our share repurchase program that is authorized through December 31, 2024, and as of March 31, our cumulative repurchases under our $80 million authorized share repurchase program total $58 million. Our commitment to growing the company through creative, organic, and inorganic growth remains a key priority. While also having the ability to repurchase shares opportunistically as we use the tools in our capital allocation framework to generate attractive shareholder returns without deviating from our disciplined approach to balance sheet management. We continue to be debt-free and keep cash flow generation a top priority. And with that, let me turn the call back to Dave.
Speaker Change: We continue to execute our share repurchase program that is authorized through December 31, 2024 and.
And as of March 31, our cumulative repurchases under our $80 million authorized share repurchase program totaled $58 million.
Speaker Change: Our commitment to growing the company through accretive organic and inorganic growth remains a key priority.
Speaker Change: While also having the ability to repurchase shares opportunistically as we use the tools in our capital allocation framework to generate attractive shareholder returns without deviating from our disciplined approach to balance sheet management.
Speaker Change: We continue to be debt free and keep cash flow generation a top priority.
Speaker Change: And with that let me turn the call back to Dave.
David A. Cherechinsky: Thank you, Mark. Now, I'm switching to our outlook for the second quarter and full year 2024. We are encouraged by our prospects for the remainder of the year and are upgrading our 2024 full-year outlook, assuming increased market activity. We expect sequential second quarter growth in the U.S. and international. And in Canada, the expected seasonality will drive sequential revenue lower. Canada's revenue historically declines approximately 20% sequentially from the first quarter due to the second quarter breakup.
Dave: Thank you Mark now switching to our outlook for the second quarter and full year 2024.
Dave: We are encouraged by our prospects for the remainder of the year and are upgrading our 2000 22020 for full year outlook, assuming increased market activity.
Dave: We expect sequential second quarter growth in the U S and international and in Canada. The expected seasonality will drive sequential revenue lower Canada's revenue historically declined approximately 20% sequentially from the first quarter due.
Dave: Due to the second quarter breakup, however, due to the weather implications I mentioned earlier that impacted our <unk> 'twenty for revenue, we lead the sequential decline could be less <unk>.
David A. Cherechinsky: However, due to the weather implications I mentioned earlier that impacted our 1Q24 revenue, we believe the sequential decline could be less. Taken all together, we expect D-NOW's second quarter sequential revenues to increase in the 10-15% range from 1Q24. And for the full year 2024, our view is to increase revenue in the mid to high single-digit range compared to the full year 2023 revenue. And our 2024 full-year EBITDA percent of revenue would be similar to full-year 2023 EBITDA as a percent of revenue. As mentioned earlier, we are upgrading our prior $150 million full-year free cash flow target, which we expect could now approach $200 million in 2024.
Dave: Taken altogether, we expect <unk> second quarter sequential revenues to increase in the 10% to 15% range from <unk> 24.
Dave: And for the full year 2024, our view is to increase revenue in the mid to high single digit range compared to the full year 2023 revenue and.
Dave: And our 2020 for full year EBITDA percentage of revenue would be similar to full year 2023, EBITDA as a percent of revenue.
Dave: As mentioned earlier, we are upgrading our prior $150 million full year free cash flow target, which we expect could now approach $200 million in 2024.
David A. Cherechinsky: So, to close, this month marks an important milestone in our company history. May 30th will be our 10th anniversary as a publicly traded company. And today I'm excited to unveil DNOW's new brand and logo. Together, we embrace the new symbol, knowing that it represents seeds planted in 1862 when we were founded, but more so to where we are heading. Our journey began with a vision to redefine D-NOW, not just financially but culturally, as we align around our ethos, inspire one another, delight the customer, and fuel the future.
Dave: So to close this month marks an important milestone in our company history.
Dave: <unk> <unk> will be our 10 year anniversary as a publicly traded company.
And today I'm excited to unveil <unk>, new brand and logo.
Dave: Together, we embraced the new symbol knowing that it represents seeds planted in $18 62, when we were founded but more so to where we are heading.
Dave: Our journey began with a vision to redefine Dino not just financially, but culturally as we align around our ethos inspire one another delight the customer and fuel the future.
David A. Cherechinsky: Beyond its visual appeal, our new logo tells a new D-NOW story, a story of growth, transformation, and an exciting future. As we execute on our strategy to leverage our solid position in upstream and midstream markets, achieve leadership and energy evolution, expand our presence in adjacent industrial markets, and leverage M&A as a fuel for growth through an accumulation strategy, our new logo serves as a beacon for who we are and what we stand for. With that, let's open the call for questions.
Dave: Beyond its visual appeal, our new logo tells that new <unk> story, a story of growth transformation and an exciting future.
Dave: As we execute on our strategy to leverage our solid position in upstream and midstream markets achieved leadership in energy evolution expand our presence in adjacent industrial markets and leverage M&A as a fuel for growth through an accumulation strategy. Our new logo serves as a beacon to who we are and what we see.
Dave: <unk>.
Speaker Change: With that let's open the call for questions.
Ian: At this time, I would like to remind everyone that in order to ask a question, press star and the number one on your telephone keypad. We'll pause for just a moment to compile the Q&A route. Our first question comes from the line of Nathan Jones with Stifle. Your line is open.
Speaker Change: At this time I would like to remind everyone that in order to ask a question Press Star then the number one on your telephone keypad, we'll pause for just a moment to compile the Q&A roster.
Speaker Change: Yeah.
Speaker Change: Our first question comes from the line of Nathan Jones with Stifel. Your line is open.
Nathan Hardie Jones: Good morning, everyone.
Nathan Hardie Jones: Good morning, everyone.
David A. Cherechinsky: Good morning, Nathan. Good morning.
Nathan Hardie Jones: Good morning, Nathan morning, I guess, I'll I guess I'll start with some of the obvious questions around the <unk> acquisition now that it's closed.
Nathan Hardie Jones: I guess I'll start with some of the obvious questions around the WITCO acquisition now that it's closed. $ 185 million purchase price. Can you give us some details on what the annual revenue is, what the margin profile is? And I guess what the plans are for improving that business, leveraging your supply chain, leveraging the business model, etc.
Nathan Jones: Yeah.
Nathan Hardie Jones: $195 million purchase price can you give us some details on what the annual revenue is what the margin profile is.
Nathan Jones:
Nathan Jones: And I guess, what the plan Jaafar.
Nathan Jones: Improving that business leveraging your supply chain, leveraging the debt business model et cetera.
David A. Cherechinsky: Okay. I'll attack those questions this way, Nathan.
Nathan Jones: Okay.
Jaafar: Ill attack those questions this way.
Jaafar: So the purchase price was one was around 185.
Jaafar: The the multiples are probably in the five six range given where the market is right now.
Jaafar: They're there.
David A. Cherechinsky: So the purchase price was around 185. The multiples are probably in the 5-6 range, given where the market is right now. The EBITDA performance as a percent of revenue is similar to ours, maybe a little bit stronger. And their working capital, Um, https://www.youtube.com or the link in the video description, with Co, it was kind of a stub period the last couple weeks of the quarter. They generated, they added about 17 plus million in revenue.
Jaafar: EBITDA performance as a percent of revenue is similar to ours may be may be a little bit stronger.
Jaafar: And there they are working capital.
Jaafar: Turns are a little bit slower.
Jaafar: Based on their accounts payable profile, but from a P&L perspective accretive.
Good good strong multiples.
On the business. They contributed we said in our opening comments that the U S business grew by $17 million.
Jaafar: And we bought.
Jaafar: Witco gives kind of a stub period last couple of weeks of the quarter may generate they added about 17 plus million dollars in revenues.
David A. Cherechinsky: So they have parallel performance metrics with us, maybe a little better on the P&L. And in terms of what we're going to focus on as we onboard the business, our primary, and almost solitary focus is going to be around revenue synergies. So they have a heavy midstream component, which is in the 60 to 80% range of their business. They do business with a lot of customers that aren't in our top 25
Jaafar: So they they have parallel performance metrics with us maybe a little better on the P&L.
Jaafar: And.
Jaafar: In terms of what we're going to focus on as we onboard the business.
Jaafar: Our primary.
Jaafar: And almost solitary focus is going to be around revenue synergies. So.
Jaafar: They have a heavy midstream component, which is in the 60% to 80% range of their business. They.
Jaafar: They do business with a lot of customers, but I don't know.
Jaafar: Of our top 25, so that's a real opportunity for us. So we have limited overlap in our customer lists.
David A. Cherechinsky: So that's a real opportunity for us, because we have limited overlap on our customer list. So we're going to, in the case of WITCO, be able to introduce our wide-ranging and ever-growing process solution brands and our fabrication competencies to WITCO. That's going to be a big thing for us. We'll be a little more important to the suppliers, and that will work to our advantage, their ability to penetrate customers and our ability to do the same with other customers and how do we synergize that. In terms of the balance sheet, I think I mentioned that, but anything else I missed there, Nathan?
Jaafar: So we are going to.
Jaafar: In the case of Witco be able to introduce.
Jaafar: Our wide ranging and ever growing process solution brands.
Jaafar: And our fabrication competencies to Witco, that's going to be a big thing for us will be a little more important to the suppliers and we will.
Jaafar: That will that will work to our advantage.
Jaafar: But the main thing is.
Jaafar: Is there ability to penetrate customers and our ability to do the same with other customers and how do we synergize that.
Speaker Change: In terms of the balance sheet I think I mentioned, I think I've mentioned that but what else anything else I missed there Nathan.
Nathan Hardie Jones: I think that answers the questions. I would be interested in, maybe it's a little too early to tell given you've only owned it for less than two months here, but I think the information around the revenue synergy potential going forward, maybe when you have a better handle on it will be good. I guess my follow-up question then has to be on free cash flow generation, which was extremely strong in the first quarter. Can you maybe talk a little bit more about the main contributors to that? to the cash flow number given that 1Q is usually a seasonally weak quarter, it usually consumes cash, not produces cash.
Nathan Hardie Jones: No I think that answers the questions.
Nathan Hardie Jones: I would be interested in maybe it's a little too early to tell given you've only owned it for.
Nathan Hardie Jones: Less than two months here.
Nathan Hardie Jones: But I think infant.
Nathan Hardie Jones: Information around the revenue synergy potential going forward, maybe where you have a better handle on it will be good.
Speaker Change: My follow up question then.
Speaker Change: It has to be on the free cash flow generation, which was.
Speaker Change: Extremely strongly in the first quarter.
Speaker Change: Can you maybe talk a little bit more about the main contributors to it.
Speaker Change: To the cash flow number given that.
Speaker Change: <unk> is usually a seasonally weak quarter seasonally usually consume cash not produces cash.
David A. Cherechinsky: Yeah, about half of that, and just for context, of course, we guided [inaudible] accounts receivable. So I think our organic U.S. DSOs went down by three days, so a real nice improvement in collections, and that really helped.
Speaker Change: Yes, so about half of that.
Speaker Change: Just for context of course, we guided to.
Speaker Change: To your point that we would consume cash in the first quarter, we generally kind of tightened our belts at year end and generate as much cash as we can and clean up old receivables and those kinds of things.
Speaker Change: Half of that contribution was from earnings.
Speaker Change: And the other half was from improved organic accounts.
Accounts receivable, so I think our organic U S.
Speaker Change: Dsos went down by three days, so real nice improvement in collections and that really helped in terms of the prospects for the full year being increased.
David A. Cherechinsky: In terms of the prospects for the full year being increased, well, we've now since closed WITCO. They'll generate, you know, potentially in that $30 to $50 million range or $20 to $50 million range. All of this is going to get murkier as we go through the year, and, you know, we – our year got off to a slow start, so we didn't generate the kind of revenue growth on our legacy business as we expected, so we certainly generated some cash there in the first quarter. But we're very excited about We are achieving some momentum here with, hopefully, some increases in rigs going into the second half and completions, which were down 11% sequentially, bottoming and growing as the year goes on.
Speaker Change: We've now since closed witco, they'll generate potentially in that 30% to $50 million range, our 2000 and $50 million range.
Speaker Change: All of this is going to get murkier as we go through the year.
Speaker Change: And we our legacy business.
Speaker Change: And the year was off to a slow start so we didn't generate the kind of revenue growth on our.
Speaker Change: Legacy business as we expected so we.
Certainly generated some cash there in the first quarter, but we're very excited about.
Speaker Change: Achieving some momentum here with <unk>.
Speaker Change: Hopefully.
Speaker Change: Some increases in rigs going into the second half.
Speaker Change: And completions, which were down 11% sequential sequentially bottoming and growing as the year as year goes on.
Nathan Hardie Jones: Fantastic. Thanks for taking my questions. I'll pass them on. Thank you.
Speaker Change: Fantastic. Thanks for taking my questions I'll pass it on thank.
Speaker Change: Thank you.
Ian: Our next question comes from the line of Max Kane with Stevens. Your line is open.
Speaker Change: Our next question comes from the line of Max Kane with Stephens. Your line is opened.
Max Kane: Hey guys, thanks for taking my questions. You're welcome. Hi Matt.
Max Kane: Hey, guys. Thanks for taking my questions Youre Welcome Hi, Matt.
Max Kane: So my first question is on the 2Q and 4-year revenue guidance. I appreciate the color you gave on the embedded assumptions for 2Q revenue, but how should we be looking at the rest of the year? Should we be assuming a typical sequential slowdown in 4Q? And just, yeah, once again, could you maybe just reiterate what the drivers were for a 2Q revenue step-up? I'd appreciate that.
Max Kane: So first question is on <unk> and full year revenue guide.
Max Kane: I appreciate the color you gave on the embedded assumptions for our two key revenue, but how should we be looking at the rest of the year.
Max Kane: Should we be assuming a typical sequential slowdown in <unk> and <unk>.
Max Kane: Just once again could you maybe just.
Max Kane: To reiterate what the drivers were for <unk>.
Max Kane: Revenue step up I appreciate that yes.
David A. Cherechinsky: Yeah, I think if you look at what we're expecting going into 2Q, of course, the bulk of that growth is going to be the addition of a full year quarter for WITCO. So the great majority of those revenue gains will come from WITCO alone. We're going to see some growth internationally, and we're going to see a seasonal decline in Canada, as I talked about in my opening comments. Those will largely be offset, primarily in our process solutions business. If you recall, last year, our process solutions business grew 46 percent. They're at a very high run rate; they're maintaining that level.
Speaker Change: Yes, I think if you look at what were expecting going into <unk> of course, the bulk of that growth is going to be the addition of <unk>.
Full year quarter for Witco. So the great majority of that those revenue gains will come from Witco discretely, we're going to see some growth internationally.
Speaker Change: We're going to see.
Speaker Change: Seasonal decline in Canada, as we as I talked about in my opening comments those are largely offset we will see some growth in our energy business in the U S.
Speaker Change: And flatness.
Speaker Change: Primarily in our process solutions business. If you recall last year, our process solutions business grew 46% they are at a very high.
Speaker Change: Run rate, they're maintaining that level. So we expect that.
Speaker Change: Amiga gain there, but most of the contribution in the second quarter Witco, we expect summer growth.
David A. Cherechinsky: So we expect that, you know, kind of a meager gain there. But most of the contribution in the second quarter will be WITCO. We expect summer growth and emergence from breakup in Canada in the third quarter, so that'll be our best quarter of the year. And then we do expect a seasonal decline. WITCO experiences a seasonal decline as well. So those will be the contours. We often see Q2 being a little very similar to 1Q, but that won't be the case, of course, because we'll have a full quarter of WITCO contributions.
Speaker Change: Emergence from breakup in Canada in the third quarter.
Speaker Change: So that'll be our best quarter of the year.
Speaker Change: And then we do expect a seasonal decline witco experiences a seasonal decline as well.
Those will be the contours.
Speaker Change: We often see.
Q2 being a little.
Speaker Change: Very similar to <unk>, but that won't be the case of course, because we'll have a full quarter of witco contribution.
Max Kane: Okay, great. Thanks for the color on that.
Speaker Change: Okay, great. Thanks for the color on that and what is given your confidence on margins improving throughout the year.
Max Kane: And what has given you confidence on margins improving?
Speaker Change: Well the margins, we posted Mark do you want to talk to that because some of that includes accounting for the from the acquisition, but you wanted to say that we're on that's correct. Yes. The first quarter included about 20 basis points for inventory step up just part of the purchase accounting negative impact negative impact in.
Mark B. Johnson: Well, the margins we posted, Mark, you want to talk about that? Because some of that includes accounting for the acquisition. But you want to get on that? Correct. Yeah. The first quarter included about 20 basis points for inventory step up. Just part of the purchase accounting. Negative.
Mark B. Johnson: Due to the partial quarter that will flush out fully in the second quarter. So so we do expect the face.
Mark B. Johnson: to return to kind of where they were full year average last year in the 23 percent. Probably the third quarter, right? The third quarter.
Mark B. Johnson: Return to kind of where they were full year average last year in the 23% in probably the third quarter third quarter, yes, Sir.
Speaker Change: Okay got it.
Max Kane: Yeah, thanks for the color on that. I'll turn it back.
Speaker Change: Yeah. Thanks for the color on that I will turn it back.
Ian: Our next question comes from the line of Jeff Robertson with Watertower Research. Your line is open. Thank you. Good morning.
Speaker Change: Our next question comes from the line of Jeff Robertson with water Tower Research. Your line is open thank.
Jeffrey Woolf Robertson: Dave or Mark, can you talk about any cost synergies with WITCO as well since you mentioned they follow a super center model similar to D-NOW? Are there overlaps or basins that you can bring them into or go into where they're strong and create some cost synergies?
Jeffrey Woolf Robertson: Thank you. Good morning.
Jeffrey Woolf Robertson: Thank you good morning, Hi, Dave or Mark can you can you talk about.
Jeffrey Woolf Robertson: Any cost synergies with Witco as you since you mentioned they follow a supercenter model similar to two D. Now are there.
Jeffrey Woolf Robertson: Over lap source or basins that you can bring them into our go in where they are where they are strong and create some cost synergies.
Jeffrey Woolf Robertson: Yes.
David A. Cherechinsky: Our focus for WITCO is on revenue synergies. Like I said earlier, the customer lists are different, the focus is different. We want to grow market share where we're really strong and upstream, and where they're really strong in midstream. So there might be some.
Jeffrey Woolf Robertson: Our focus for Witco is on revenue synergies revenue synergies.
Jeffrey Woolf Robertson: Like I said earlier the customer lists are different to focus is different we want to grow market share.
Jeffrey Woolf Robertson: Where we're really strong in upstream.
Jeffrey Woolf Robertson: And where they're really strong in midstream so while there might be some.
David A. Cherechinsky: Some cost savings opportunities for us to leverage each other's facilities. Service Models, and Sales Talent, that's not our objective at the WIC. With WITCO, we want to drive a pure revenue synergy place. Where we might see some, quote unquote, cost savings is on the product side. We expect to see some of that, especially for pipe and some valve brands where we're a big buyer and we overlap with them on the supplier side. But our objective is to grow, take market share, in this kind of sideways market, and invest in the infrastructure to do so, and we did so with WITCA.
Jeffrey Woolf Robertson: Some cost savings opportunities for us to leverage each other's facilities.
Jeffrey Woolf Robertson: Service models.
Jeffrey Woolf Robertson: Sales talent, that's not our objective with Wipro.
Jeffrey Woolf Robertson: With <unk>, we want to drive a pure revenue synergy play.
Jeffrey Woolf Robertson: When we might see some quote unquote cost savings is in the on the product side, we expect to see some of that especially for pipe and some some valve brands, where we're a big buyer and we overlap with them on the supplier side, but our objective is to grow and take market share.
Jeffrey Woolf Robertson: In this kind of sideways market.
Jeffrey Woolf Robertson: And invest in the infrastructure to do so and we did so with the with <unk>.
Jeffrey Woolf Robertson: Is the revenue opportunity to expand D-NOW's business with WITCO's customers? Is that margin-enhancing in terms of the product mix that those types of customers would need D-NOW to supply?
Jeffrey Woolf Robertson: Is the is the revenue opportunity with to expand <unk> business with West Coast custom.
Jeffrey Woolf Robertson: Customers.
Jeffrey Woolf Robertson: Does that margin enhancing in terms of the product mix that those types of customers would would need to supply.
David A. Cherechinsky: It could be. I mean, if we... We're having a lot of fun and interest, certainly on the White Coast side, in introducing some of the process solutions opportunities to their customers. We're starting that. We're pretty new to the process, in the onboarding process, but we see opportunities there. Process solutions, at this point in the cycle, tends to have a little bit better margins, so that could be margin-accretive to the extent we can introduce our process solutions branch to WITCO customers.
Jeffrey Woolf Robertson: It could be I mean, if we.
Jeffrey Woolf Robertson: Thanks, and then lastly, does the addition of WITCO alter the types of acquisition or types of product lines that make sense for D-NOW in terms of industrial logic or the type of things you might be looking for?
Jeffrey Woolf Robertson: We're having a lot of fun and interest certainly from the Witco side and introducing some of the process solutions.
Jeffrey Woolf Robertson: Opportunities to their customers, where we're starting that we're pretty new in the in the.
Jeffrey Woolf Robertson: And the on boarding process, but we see opportunities that process solutions at this point in the cycle. It tends to have a little bit better margins, so that could be margin accretive to the extent we can.
Jeffrey Woolf Robertson: Introduce our process solution solutions brands to the West coast customers.
Jeffrey Woolf Robertson: Thanks, and then lastly does the addition of Witco.
Jeffrey Woolf Robertson: Alternative types of acquisition or types of product lines that make sense for <unk> now in terms of industrial logic of the types of things you might be looking for.
David A. Cherechinsky: A very good question. WITCO is our first energy center acquisition since 2015. We've been careful to really focus on process solutions. We made 10 process solutions acquisitions in a row. I think that's where you'll see most of our investments being made going forward. WITCO is different. This is a company that grew over a 20-year period to be a powerhouse in midstream, so they're very specialized. They have a devout customer base, like I said in my opening remarks, and they have a special quality to them that you don't really see with all distribution pipe, valves, and pipe fittings distributors. So this was a kind of timing the right opportunity. It was a great opportunity, and I think you'll see most of our acquisitions in the near term anyway being pump and process solutions oriented.
Very good question so.
Speaker Change: With coal is our first energy centers acquisition since 2015, we've been careful to.
Speaker Change: To really focus on process solutions, we made 10 process solutions acquisitions in a row, I think thats, where youll see most of our investments being made going forward.
Speaker Change: <unk> is different.
Speaker Change: This is a.
Speaker Change: A company that grew over a 20 year period to be a powerhouse in.
Speaker Change: In midstream there. So they are very specialized they they have a customer base like I said in my opening remarks.
Speaker Change: And they have a special quality to them that you don't really see with all distribution.
Speaker Change: Pipe valves fittings distributors. So this was a kind of a.
Speaker Change: The timing was right. It was a great opportunity and I think youll see most of our acquisitions in the near term in any way, a bean pump and process solutions oriented.
Thank you.
Speaker Change: Jeff.
Speaker Change: Okay.
Brad Wise: There are no further questions at this time. I would like to call, turn the call back over to Mr. Brad Wise.
Speaker Change: There are no further questions at this time I would like to call turn the call back over to Mr. Brad Wise.
Brad Wise: Thank you for your questions today and your interest in DNOW. We look forward to talking with everyone on our second quarter 2024 earnings conference call in August later this year. Have a nice day, and we'll turn the call back over to the operator. This concludes today's conference call. You may now disconnect.
Brad Wise: Well. Thank you for your questions today, and your interest and you know we look forward to talking with everyone on our second quarter of 2024 earnings Conference call. In August later this year.
Operator: This concludes today's conference call. You may now disconnect.
Speaker Change: Have a nice day, and we'll turn the call back over to the operator.
Speaker Change: Yes.
Speaker Change: This concludes today's conference call you may now disconnect.
Speaker Change: Have a good day.
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