Q4 2024 DNOW Inc Earnings Call
John: Good morning, my name is John and I will be your conference operator today. At this time, I would like to welcome everyone to the D-NOW fourth quarter and full year 2024 earnings call.
John: All eyes will be placed on mute to prevent any background noise.
Speaker Change: 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 star one again. Thank you. Mr. Brad Wise, Vice President of Digital Strategy and Investor Relations, you may begin your conference.
Speaker Change: Well, good morning, John. Good morning, everyone, and welcome to D-NOW's fourth quarter and full year 2024 earnings conference call.
Speaker Change: We appreciate you joining us 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.
Speaker Change: We operate under the Denal brand, which is also our New York Stock Exchange ticker symbol.
Speaker Change: 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 our outlook for the company's business.
Speaker Change: These are forward-looking statements within the meaning of the U.S. federal securities laws based on limited information as of today, February 13th, 2024, 2025, excuse me, which is subject to change.
Speaker Change: They are subject to risks and uncertainties, and actual results may differ materially. No one should assume these forward-looking statements remain valid later in the quarter or later in the year.
Speaker Change: 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.
Speaker Change: I refer you to the latest Forms 10-K and 10-Q that Deep Dow has on file with the U.S. Securities and Exchange Commission for a more detailed discussion of the major risk factors affecting our business.
Speaker Change: Further information, as well as supplemental financial and operating information, may be found within our earnings release on our website at ir.dnow.com or in our filings with the SEC.
Speaker Change: In an effort to provide investors with additional information regarding our results as determined by US GAAP, you'll note that we disclose various non-GAAP financial measures in our earnings releases and other public disclosures.
Speaker Change: Net income attributable to Denow, Inc., excluding other costs, and diluted earnings per share attributable to Denow, Inc., stockholders excluding other costs, and finally free cash flow.
Speaker Change: Please refer to a reconciliation on each of these non-GAAP financial measures to its most comparable GAAP financial measure and the supplemental information available at the end of our earnings release.
Speaker Change: 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 2024. A replay of today's call will also be available on our site for the next 30 days. Now let me turn the call over to Dave.
Dave: Thanks, Brad, and good morning, everyone. I want to start where I'll end my prepared remarks, with a glimpse into the full year 2025.
Dave: We are forecasting growth in 2025 despite expectations that the activities that drive our revenues will decline for the third year in a row.
Dave: We expect we could post our fifth consecutive year of growth despite the potential of three consecutive years of market activity declines expected to the end of 2025.
Dave: This is notable given the perception that upstream sector headwinds limit growth opportunities for DNOW. I'm confident in our ability to overcome these headwinds because of my fellow employees.
Dave: As we close the books on 2024 and look ahead optimistically, I want to extend my deepest gratitude to our employees for their skills, aptitude, energy, and most importantly, their attitude.
from their unwavering support for our suppliers.
Dave: to the relentless urgency they show in taking care of our customers and help them succeed, to the way they help and encourage each other, acting as cheerleaders for their teammates.
Dave: These are the qualities that set us apart. This is why we win. We inspire one another.
Dave: I know this from personal experience. The notes of encouragement and support I receive from employees, these small acts of kindness, mean as much to me as if they were coming from a member of my family. Thank you.
Dave: Our people are the secret sauce. The elements of our strategy are how we succeed.
Dave: There are four signature elements to our strategy that afford us maximum flexibility in the market, give us an effective edge on the competition, and provide a winning platform that keep our fellow employees excited about the future.
Dave: First, the strength in our balance sheet is a signature element.
Dave: Where, in the early years of being a public company, say from 2014 through 2020, we turned our working capital, excluding cash, on average about four times a year.
Dave: Today, we enjoy working capital velocity of approximately seven times a year.
Dave: This result, primarily driven by substantially improved inventory choreography enhanced by our Supercenter network, means improved product availability for our customers to help them maximize market penetration, reduce logistics costs as we position inventory at the right place in the supply chain,
Dave: Lower inventory expense related to obsolescence and slow movement and not to mention the resulting boost to gross margins simply from faster turning and less risky inventory.
Dave: In 2024, for example, it marked the lowest level of inventory provisions that we've experienced as a public company.
Second, M&A is Denal DNA and is a signature element.
Dave: DNOW has completed 23 acquisitions since going public in 2014 with a solid balance sheet, no debt, and a strong cash position. Inorganic growth remains a key growth lever and certainly was in 2024. Our strategy prioritizes margin accreted businesses aiming to strengthen and diversify our capabilities in serving our customers.
Dave: We apply rigorous standards, investing in opportunities where we are the natural operator, poised to create value, increase the contributions of the acquired companies, and drive long-term shareholder value.
Dave: We are putting substantial M&A muscle into process solutions, a business we built from scratch, growing the business around pumping and moving fluids, which provides the right kind of long-term diversification strategy.
I'll talk more about our Trojan acquisition in a bit.
Third, self-help and high grading as signature elements.
Dave: avoiding the higher operating costs to service those activities, which also happen to be less lucrative for D-NOW. This approach drives significantly improved earnings and sheds the low operating margin distractions for our competitors to scoop up.
Dave: In terms of self-help initiatives deployed in 2024, in addition to seeking other efficiencies, we are actively rationalizing IT costs, third-party expenses, vehicle facility and footprint rationalization, in addition to managing T&E expenses.
and we aligned our workforce down 12% during the year-end.
Dave: This self-help responsiveness improved the earnings and cash generation of our core legacy businesses and afforded plenty of free cash flow to fund both our largest acquisition since 2015 and a supersized share repurchase program.
Dave: which leads into our fourth signature element and the output of the above durable free cash flow generation through the cycle that fuels our capital allocation options.
Dave: In the fourth quarter, we delivered impressive results, surpassing expectations in earnings and free cash flow in a challenging environment, resulting from a combination of industry headwinds, such as lower U.S. operating rigs, U.S. wells completed, and oil and gas prices.
Dave: Historically, we discussed how U.S. rigs and completions represent a good barometer to forecast DNR revenue.
Dave: However, in a period of increased operator efficiencies, we believe surface production volumes are becoming another important and useful way to gauge demand for our U.S. process solutions pump packages and fabricated equipment.
Dave: which represent 27% of our U.S. revenue for the full year 2024. That's one reason why 11 out of the last 12 acquisitions we've made have been to bolster the process solutions business.
Dave: So I'll give some color on our most recent purchase Trojan that supports this strategy
Dave: Trojan has built a fantastic business with outstanding talent who are unified by a customer first mindset and solutions oriented approach to the market and I'd like to welcome the 90 women and men of Trojan to the Dino family.
Dave: Trojan further strengthens and expands DNOW's existing water management solution business, augmenting an already solid DNOW offering through the combination of Odessa pumps, power service, and FlexFlow, all prior acquisitions in our U.S. process solutions business.
Dave: In addition, that assisted D-NOW to double our midstream business to 20% of sales, we resumed accelerated growth in our U.S. process solutions business with our addition of the Trojan family.
Dave: Trojan is comprised of three primary businesses that provide solutions in the water treatment, water sourcing, and water transfer markets.
Dave: The pump rental offering is comprised of diesel and electric-driven, trailer-mounted centripetal pumps sought after by customers to solve short-term water movement challenges.
Dave: Next, Trojan sells lathe flat, hose, and other products for the water management space, which include pipe, valves, fittings, flow meters, diesel, and electric pump packages, and other items.
The third is disabled automation business.
It is a rental-based service and software solution.
Dave: that ties together equipment supplied by Trojan into a turnkey water automation, analyzing, and monitoring solution which enables customers to increase efficiency, improve accuracy, enhance productivity, realize cost savings, and achieve scalability by outsourcing their water transfer and management needs.
Dave: Trojan's capabilities complemented by D-NOW's broad footprint and access to capital provided excellent synergistic foundations.
Dave: We believe there are revenue synergies to be gained by introducing Trojan's offering as customers recognize DNOW as a leader in water solutions provider.
And now moving to our results.
Dave: Fourth quarter revenue was $571 million, lower sequentially by 6%, beating the guidance we provided during the last quarter's earnings call. In 4Q24, overall gross margin improved to 23.3%, up 100 points sequentially, aided by improvement in product mix and additional vendor consideration in the fourth quarter.
Dave: For the full year 2024, revenues were $2.4 billion, up 2% year-over-year, our highest revenue year since 2019, a period then that averaged 944 U.S. rigs compared to 2024's market of 599 U.S. rigs.
Dave: Our full year 2024 gross margins were lower than 2023, but sturdy at 22.5%, given the pricing deflation in steel products experienced in 2024.
Dave: For the fourth quarter, EBITDA was $45 million, or 7.9% of revenue, well above expectations.
Dave: In a year where activity that drives our U.S. revenues declined by more than 9%, our full-year actual revenues grew 2%, achieving more than 99% of the revenue target forecast a year ago.
Dave: We generated $119 million in pre-cash flow during the fourth quarter, an exceptional $289 million for the full year, delivering a 165% pre-cash flow conversion in 2024.
Dave: 2024 Street Cash Flow Hall was amassed from both a solid earnings year as well as efficient use of working capital from the balance sheet.
Dave: This solid execution with a smaller market speaks to the success of our strategy.
Now, some select highlights on the business.
Dave: On a year-over-year basis, we grew revenues in the energy evolution space by more than 60%, from around $30 million in 2023 to more than $50 million in 2024, and we expect future growth in 2025.
Dave: The outlook for decarbonization and non-oil and gas energy sources continues to drive investments, with more project FIDs advancing.
Dave: We continue to participate in quoting activity indicating future market growth while we acknowledge operators are closely assessing and evaluating any new policy decisions from the administration and its impact on larger scale CCUS and R&G projects related to government subsidies.
Dave: For our eco-vapor business, the fourth quarter represented the largest revenue quarter in the company's history, fueled by packaged unit sales to operators in oil and gas, as well as renewable natural gas customers.
Dave: On the rental and service side, we continue to expand our eco-vapor product offerings in the U.S., where demand is improving, aided by an increase in natural gas prices, as well as operators' desire to reduce Scope 1 emissions.
Dave: In an effort to expand R&G sales, our engineering team has been working closely with customers to design and supply larger capacity units that can process higher volumes of gas.
Dave: This ability to service a broader range of gas processing volumes expands our addressable market in R&G and opens more adjacent markets like agricultural processing and hydrogen production.
Dave: As D-NOW expands into new adjacent markets, we add new customers, which unlocks an opportunity to provide additional products like PVF, pump packages, and fabricated equipment.
Dave: Moving to our Digital Now initiatives, our digital revenue as a percent of total SAP revenue was 47% during the quarter as we continue to leverage technology, automate processes, and work with customers to integrate our systems by leveraging digital technologies to implement highly efficient procurement models.
Dave: We completed a number of new digital customer integrations during the quarter ranging from invoice and purchase order integration to centralized procurement via punch-out solutions.
Dave: These B2B digital integrations increase efficiencies for D-NOW and our customers.
Dave: As we automate manual processes, it reduces data entry errors and processing time and leads to faster transaction cycles and reduced administrative costs.
Dave: Furthermore, it improves data accuracy and visibility for both parties through real-time access to information. This integration reduces the cost per transaction and drives cost savings over the long term.
Dave: And, as Mark will discuss, our B2B initiatives also aid in the improvement of working capital.
With that, let me hand it over to Mark.
Mark Johnson: Thank you, Dave, and good morning, everyone. Total fourth quarter 2024 revenue was $571 million, down 6%, or $35 million from the third quarter.
Mark Johnson: On a full-year basis, total 2024 revenue was $2.373 billion, up $52 million from 2023, or an increase of 2%.
Mark Johnson: EBITDA excluding other costs, or EBITDA, for the fourth quarter was $45 million, or 7.9% of revenue.
Mark Johnson: On a full year basis, total 2024 EBITDA was $176 million, or 7.4% of revenue.
Mark Johnson: U.S. revenue for the fourth quarter 2024 totaled $451 million, a decrease of $31 million, or 6% from the third quarter of 2024.
Mark Johnson: U.S. energy centers contributed approximately 73 percent of total U.S. revenue in the fourth quarter and U.S. process solutions contributed the remainder.
Mark Johnson: In Canada, for the fourth quarter, revenue totaled $66 million, an increase of $1 million or 2% from the third quarter of 2024, despite an unfavorable impact of $2 million from foreign currency changes.
Mark Johnson: On a full year basis, 2024 Canada revenue totaled $253 million, down 10% or $29 million from 2023, impacted unfavorably by $4 million from foreign currency changes.
Mark Johnson: We experienced some project delays in the international segment in the fourth quarter that shifted into the first half of 2025.
Mark Johnson: On a full year basis, 2024 international revenue totaled $240 million, down 17% or $50 million from 2023, a year with heavy project activity.
Mark Johnson: When looking back before 2023, the 2024 revenue delivered surpassed both revenue in 2021 and 2022. But this year, we not only expanded revenue over those years, but with meaningfully higher operating profits.
Mark Johnson: Now moving back to the income statement, gross margins for the fourth quarter were 23.3 percent or up 100 basis points sequentially.
Mark Johnson: On a full year basis, gross margins for 2024 were 22.5%.
Mark Johnson: Warehousing Selling and Administrative, or WSA, for the quarter was $103 million, or lower by $4 million sequentially.
Mark Johnson: Now moving to operating profit in the fourth quarter total company operating profit was $29 million.
Mark Johnson: In the quarter the U S generated $19 million in operating profit in the Canadian and international segments. Each delivered strong operating profit of $5 million.
Mark Johnson: The operating profit percent for the fourth quarter in Canada of seven 6% and operating profit in international of nine 3%.
Mark Johnson: Lucid above the $2 million favorable impact from the aged accounts receivable collections.
Mark Johnson: Interest income in the quarter was $2 million and moving to income taxes in the fourth quarter of 2024 D. Now as income tax expense was $7 million.
Mark Johnson: $32 million on a full year basis.
Mark Johnson: Our effective tax rate is computed on the face of the income statement was 28, 1% for the full year 2024.
Mark Johnson: We estimate our 2025 full year effective tax rate to be approximately 27% to 29%.
Mark Johnson: From a cash income tax perspective, we are not expecting to pay material U S. Federal cash income taxes in 2025 due to available net operating loss carryforwards.
Mark Johnson: Net income attributable to D. Now, Inc. For the fourth quarter was $23 million or 21 cents per fully diluted share.
Mark Johnson: And on a non-GAAP basis, Q4, 2024, net income attributable to <unk>, Inc. Excluding other costs was $27 million or 25 cents per fully diluted share.
Mark Johnson: On a full year basis 2024, net income attributable to D. Now excluding other costs was $100 million or <unk> 91 per fully diluted share.
Mark Johnson: Our profitability performance and bottom line contribution in 2024 is notable.
Mark Johnson: Marks the third consecutive year of delivering net income of at least $100 million excluding other costs.
Mark Johnson: Now moving to the balance sheet at the end of the fourth quarter, we had zero debt and a cash position of $256 million.
Mark Johnson: Even after investing $114 million in an acquisition to expand our water management and pumping automation offering.
Mark Johnson: Organically investing $3 million in capital expenditures and returning $5 million of capital to shareholders as we completed our $80 million share buyback program in the fourth quarter.
Mark Johnson: Do you know cash decreased from the third quarter by only $5 million. Thanks to an impressive fourth quarter cash flow from operations of $122 million.
Mark Johnson: The outsized cash flow generation is in large part from the disciplined and dedicated teammates here at D. Now, we're focused on efficiencies and cash flow generation.
Mark Johnson: We ended the quarter with total liquidity of $556 million, comprising our net cash position of $256 million plus $300 million in additional credit facility availability.
Mark Johnson: Our existing $500 million revolving credit facility extends into December 2026, providing D now with immediate access to capital under the facility.
Mark Johnson: Ending accounts receivable was $388 million, a decrease of $17 million from the third quarter.
Mark Johnson: Days sales outstanding or DSO was 62 days at the end of the fourth quarter, but that includes acquired accounts receivable from our fourth quarter acquisition.
Mark Johnson: When excluding the incongruent partial quarter revenue impact on the fourth quarter DSO calculation dsos would've improved sequentially by four days on.
Mark Johnson: Strong year end collections, partially aided by expanding our use of technology for customer B to B integrations to drive higher efficiencies and in large part to the to.
Mark Johnson: So the tremendous team of sales and operations with our incredible credit and collections team.
Mark Johnson: Inventory was $352 million at the end of the fourth quarter, a decrease of $12 million from the third quarter with an annualized run rate of five point over time.
Mark Johnson: Inventory optimization was a source of cash for D. Now in 2024 for example inventory contributed approximately $80 million to our cash flow generation in the year. However.
Mark Johnson: However, we do expect inventory to grow into 2025 consuming cash based on our forecasting model.
Mark Johnson: Our operating model incredible talent in the field partnered with our inventory planning and operational teams have done an outstanding job to ensure the right products are on hand that the market demands and are located in proximity to our customers all while managing the perishable risk that comes with inventory and being outstanding Steward.
Mark Johnson: <unk> of one of our largest assets.
Mark Johnson: Accounts payable was $300 million at the end of the fourth quarter, an increase of $22 million from the third quarter.
Mark Johnson: And for the fourth quarter 2024, working capital excluding cash as a percentage of annualized fourth quarter revenue was 14, 4% a notable improvement from the pre COVID-19 levels of 20% plus before we transformed the business.
Mark Johnson: In the fourth quarter of 2024, we generated $122 million of cash from operating activities attributable to strong earnings contribution and about $80 million reduction in net working capital driven by strong collections of receivables in the period.
On a full year basis, we beat our 2024 expectations on cash flows from operating activities and delivered $298 million during the year.
Mark Johnson: The ones considering the full year capital expenditures of $9 million free cash flow generated in the full year 2024 was $289 million.
Mark Johnson: As Dave highlighted this is our largest free cash flow generation since 2015.
Mark Johnson: As previously announced we successfully completed our $80 million share repurchase program.
Mark Johnson: Flowing through on our commitment to our shareholders. This program resulted in the repurchase of approximately $7 million of our outstanding shares at an average price of $11.39 a share.
Mark Johnson: We also announced that our board of directors has authorized a new $160 million share repurchase program that is double in size of the inaugural program.
Mark Johnson: This enhances our ability to opportunistically return capital to shareholders as market and business conditions warrant.
Mark Johnson: All while maintaining our focus on investing in accretive organic growth and strategic acquisitions, while adhering to our disciplined approach to balance sheet management.
Mark Johnson: We continue to be debt free have no interest payments, while keeping cash flow generation, a top priority and with that let me turn the call back to Dave.
Dave: Thank you Marco.
Dave: Switching to our outlook for 2025.
Dave: In the U S as customer budgets reset, we expect upstream customer spending to be lower year over year due to efficiency gains in drilling and completions get budgets are allocated primarily to maintain current production levels, noting some have announced modest production growth in the Permian.
Dave: We expect continued investment in midstream infrastructure and new projects based on increased demand for natural gas from a combination of increased electrical demand due to growth in data centers reassuring.
Dave: Of manufacturing and expected increased increases in LNG export capacity.
Dave: 2023, and 2024, where heavy buildup years for one of our largest customers with orders being placed to meet demand as well as forecasted activity was 12 to 18 months line of sight in 2025 that customer plans to exhaust existing inventory and only place fabrication orders for project specific needs.
Dave: First of all large scale production planning.
Dave: This will.
Dave: Post Dino sales declines at fabrication by about $40 million in 2025.
Dave: Also we expect about a $30 million reduction $30 million reduction in revenues from 2020 for business that was bid out at margins lower than the cost to service those revenues. So we sidestepped low margin dilutive activities that were picked up by competitors.
Dave: As a result, we expect our U S business to grow from 2024 levels as we look to capture market share and continue to execute on growing in the midstream and industrial adjacent markets combined with the expected revenue contributions from the Trojan acquisition.
Dave: In Canada, we expect customers to look to maintain production, but given the fluidity and impact of tariffs on the sector and impacts to our business. Our outlook is more opaque than normal however for modeling purposes that we see a flat scenario play out in Canada for the year.
Dave: Internationally, we see a flat scenario playing out as well as we continue to high grade the business, resulting in improvements in operating profit.
Dave: Taking it altogether for the first quarter of 2025, we expect sequential revenue to increase in the low to mid single digit percent range compared to the fourth quarter of 2024.
Dave: First quarter 2025, EBITDA as a percent of revenue could approach, 7%, incorporating a reset of payroll taxes reduced vendor consideration and favorable fourth quarter bad debt benefit not expected.
Dave: In the first quarter of 2025, we expect full year 2025 revenues to be flat to up in the high single digit percent range from 2024 levels.
Dave: And full year of 2025, EBITDA could approach 8% of revenue.
Dave: We are targeting free cash flow in 2025 of a $150 million to support growth at these forecasted levels of activity.
Dave: I am proud of the strong results, we achieved in 2024 accentuated by $289 million in free cash flow nearly twice our projections from last February.
Dave: I'm also pleased that the fourth quarter EBITDA was markedly higher than expectations at $45 million or seven 9% of revenue. Thanks to expanded gross margins and implemented cost control initiatives, our second best fourth quarter EBITDA level in our history.
Dave: The recently announced $160 million share repurchase authorization, which is double in size from a previous program demonstrates confidence in the strength of our business.
Dave: This substantial increase single signals are strong conviction and denounce cash generation capabilities and future earnings potential.
Dave: Our commitment to maintain an acquisition focus alongside share buybacks provides multiple avenues for shareholder value creation.
Speaker Change: I'm honored to represent the talented women and men of Dino who worked creatively and enthusiastically to win in the market.
Speaker Change: Your determination and dedication give me great confidence in our bright future as we laid the groundwork for a successful 2025, a year that could mark the fifth consecutive year of growth for Dino.
Speaker Change: With that let's open the call for questions.
Speaker Change: Okay.
Speaker Change: Thank you at this time I would like to remind everyone in order to ask a question. Please press Star then the number one on your telephone keypad, both pause for just a moment to compile the Q&A roster.
Speaker Change: Okay.
Speaker Change: Yeah.
Speaker Change: Your first question comes from the line of Nathan Jones with Stifel. Please go ahead.
Speaker Change: Good morning, everyone. Good morning, Nathan good morning.
Speaker Change: Looks like it looks like you've hit it on the share repurchase yesterday.
Speaker Change: For sure.
Speaker Change: [laughter].
Speaker Change: Yes, I'll start with the topic du jour around around tariffs.
Speaker Change: Do you guys as one of the few industrial net beneficiaries from cards.
Speaker Change: It's typically not only accretive to your revenue, but also accretive to gross margins.
Speaker Change: We are seeing steel prices spike up over the last few weeks Unsurprisingly can you talk about what's baked into the guidance that you gave them through 2025.
Speaker Change: And maybe just remind us of how those inflationary pressures on steel prices.
Speaker Change: Pass through your business.
Speaker Change: Okay in terms of how we've kind of metered is the impact of tariffs on our on our first.
Speaker Change: Quarter and full year guidance.
Speaker Change: We expect that there'll be varying degrees of implementation of tariffs.
Speaker Change: Maybe not the full amount, but it could be and that's baked into our forecast we gave a wider range of revenue possibilities in our forecast than we normally do but to your point Nathan.
Speaker Change: Tariffs generally.
Speaker Change: It should be constructive to <unk>.
Speaker Change: Most margins and revenues.
Speaker Change: Now if the tariffs were to widespread and they could become revenue disrupted we don't see that and the reason we don't see that as you know.
Speaker Change: It's probably at least 16% of the steel products we sell.
Speaker Change: Are sourced from the United States, So that we have a little bit of a hedge there.
Speaker Change: And and we think we'll have a mix of products that will work with our various supply sources around the world to mitigate.
Speaker Change: The average cost of the products, we sell to our customers. So I think we have the ability I think we'll see higher cost or the arrest the rest of the arresting of deflation we've experienced that'll be a positive and I think we'll see the recurrence of inflation at least at a moderate level, which should help <unk>.
Speaker Change: Gross margins and the bottom line performance of the business.
Speaker Change: Terms of sourcing.
Speaker Change: The tariffs.
Speaker Change: Tariffs are being applied Mexico, and Canada are a very low sources of products for us the primary one to be China.
Speaker Change: But that's going to be a smaller portion of the overall total of goods we sell.
Speaker Change: Okay.
Is that the primary driver of that wide range remain flat to up high single digit is a pretty wide range.
Speaker Change: Is the primary input there.
Speaker Change: The potential for tariffs at the top and bottom of that range and what are the other inputs that that split the top and the bottom.
Speaker Change: I would say that the tariffs are probably at the lower end of that range I think that the things that excite us about 2025 is we're seeing more interest in midstream.
Speaker Change: A very important target end market for us we've doubled our position in midstream, we expect to exploit that in the new year, if we see the kind of.
Speaker Change: If we see activity higher than what we would expect that would move us up at the midpoint of that range.
Speaker Change: Contrary, if we see some of the government subsidies for our big push in energy evolution in adjacent markets and infrastructure related spend that could bring us down.
Speaker Change: Within that spectrum on that in that range of guidance.
Speaker Change: Those are probably the main things we do expect some.
Speaker Change: Some shrinkage in upstream like I said in my prepared remarks, but we expect.
Speaker Change: Some real strength in midstream and that's that's a big organization will push not just from our our Witco team.
Speaker Change: But our legacy folks as well so we expect growth there.
Speaker Change: I guess my last question was just going to be around upstream. There's obviously a focus from the new administration on an increasing domestic production.
Speaker Change: And it doesn't sound like you think that's going to happen certainly not in times of higher rig count.
Speaker Change: So just any insight you can give us on what youre hearing from your customers.
Speaker Change: Their intentions to drill and produce more or not based on.
Speaker Change: U S policy.
Speaker Change: Well I think our assessment of whats <unk>.
Speaker Change: Probable.
Speaker Change: In upstream, but just based on what we're hearing from our customers and from the people that are really cover the industry well.
Speaker Change: Now it doesn't mean, we do have customers that feel liberated by.
Speaker Change: By a less.
Speaker Change: A less controlling administration and they're going to they're going to simply invest more and take more risk and spend more because they because the sentiment has changed so we do have customers that are going to change their budgets favorably in that regard, but you know the heavyweight we're using in our assessment of.
Speaker Change: Of upstream is just what our customers are saying.
Speaker Change: But I do think there's a wildcard I mean could things be better in upstream then we think we're not counting on that right now Nathan.
Speaker Change: Awesome, Thanks, very much for taking my questions. Thank you.
Jeff Robertson: Your next question comes from the line of Jeff Robertson with water Tower Research. Please go ahead.
Jeff Robertson: Thank you good morning, Dave joined US on the Trojan acquisition can you talk about how much exposure D now had.
Jeff Robertson: Higher to this to walk to the water transfer business, especially in a place like the Permian Basin and then secondly does the addition of Trojan allow D now to pull through more of your other products to essentially sell bigger tickets to the customers.
Brad Wise: Brad do you want to take that.
Brad Wise: Let's start with Odessa pumps and flexible in how this leverages that.
Jeff Robertson: Yeah. Good morning, Jeff. Thank you for your question.
Speaker Change: Yeah, we're really excited about the Trojan acquisition and the opportunity.
Speaker Change: It's nicely into our water.
Speaker Change: Solutions business with them our process solutions group.
Speaker Change: If you look at where flex flow plays.
Speaker Change: Predominantly.
Speaker Change: Areas that have saltwater disposal.
Speaker Change: <unk> injection sites.
Speaker Change: Subsurface permits injection sites and then also in production, where you have a higher water to oil ratio fluctuating as it has.
Speaker Change: Carved out a real nice market niche there and we're growing that business. They tend to be you know higher volumes higher capacity.
Speaker Change: You know over the few years, we've owned flex flow they've actually declined the number of water transfer opportunities just because it's just not the right technology fit for the fleet we have that's operating.
Speaker Change: In the U S and in Canada.
Speaker Change: When we came into contact with the Trojan opportunity. It really expanded you know a gap in our water solutions market, where we really werent playing.
Speaker Change: Do have some a small fleet of water transfer pumping rental options within our industrial pumps fleet. So there is a small overlap there, but but really Trojan has done a nice job of carving out a niche and not only are renting.
Speaker Change: <unk> assets for.
Speaker Change: What I call temporary water transfer market also selling product.
Speaker Change: Distributor supplier and then <unk>.
Speaker Change: Lee.
Speaker Change: Really coming out with the Sable automation business, which is really kind of a nice glue.
Speaker Change: Glue that kind of brings it all together and offers a really nice package solution offering to an operator of water operator, or a production operator allowed in a turnkey and outsource moving that water to a number of locations. So.
Speaker Change: Kind of minimal overlap with what we have with flex flow in Odessa pump, there's some complementary areas, but we think theres going to be opportunity for revenue synergies.
Speaker Change: With Trojan and with our process solutions group.
Brad Wise: Brad just disable system allow you to integrate some of the automation platform you have I think with flex flow into a.
Brad Wise: I guess, a broader package that that you can supply to customers.
Jeff Robertson: Yes, it does Jeff.
Brad Wise: Uh huh.
Jeff Robertson: Trojan has scaled.
Jeff Robertson: Scalar platform, that's that's really kind of like a.
Jeff Robertson: Our rental software as a service model that's been very popular with customers. They are growing that we see a large area of growth opportunity with that platform really not only in the oil and gas market, but also some adjacent markets like agricultural processing and other areas.
Jeff Robertson: You know we've mentioned.
Jeff Robertson: Prior earnings call Flex flow, we have our op you watch platform that.
Jeff Robertson: As a real time monitoring solution for not only rental stuff.
Jeff Robertson: W. D units, but also permanent SWT units so our teams.
Jeff Robertson:
Jeff Robertson: Our working together.
Jeff Robertson: With Trojan M flex flow.
Jeff Robertson: Defying opportunities on the technology and looking to potentially merge that in the future. Although we haven't done anything from that since it's pretty early at the moment.
Thanks, and then lastly on Trojan can you bring their business to some of the other basins that you operate in.
Jeff Robertson: Yes for sure.
Jeff Robertson: They are predominantly and again the higher water to oil ratio upstream markets, so kind of Permian southwestern area with Ddos footprint as Dave mentioned in his prepared remarks, not only do we think we can expand to.
Jeff Robertson: Our current customers that they're not servicing in the markets that they're currently at but we could also expand geographically much like we did with fluctuate when we acquired flex flow, we expanded geographically into the Williston basin in Canada and other areas. So we're excited about the opportunity to.
Jeff Robertson: Expand Trojans.
Jeff Robertson: Customer base, but also geographical reach.
Speaker Change: And then just a question Dave on revenue and your comments I think you mentioned that essentially production volumes and obviously whats Trojan water handling volumes are becoming a better proxy for.
Speaker Change: He knows the business as opposed to capital spending on things like the rig count. So if we were to assume that U S production.
Speaker Change: Grows slightly than that essentially is where you're getting the expectation that U S revenues.
Speaker Change: Also grow with it does that is that the right way to think about your business at this point well, what I said, Jeff was.
Jeff Robertson: Rigs and completion still are good barometers for Dino is revenue opportunities in fact, they're probably the preeminent two however.
Speaker Change: <unk> solutions.
Speaker Change: Which is 27% of our U S business and growing of course, we've been investing heavily there will continue to do so.
Speaker Change: They're seeing much more water.
Speaker Change: Water oriented revenue opportunities, which are disconnected for rigs and partly.
Speaker Change: Partly disconnected from Brexit completions, we've seen that as a bit of a hedge so it's not all of our reps it's not.
Speaker Change: The prime driver of revenue Thats still rigs that completions, but that's an avenue for us to diversify our our target end markets and we're doing that with the acquisitions, we've made including Trojan.
Speaker Change: Okay.
Speaker Change: Thank you I'll get back in the queue. Okay. Thanks.
Speaker Change: Your next question comes from the line of Josh Jayne with Daniel Energy Partners. Please go ahead.
Josh Jayne: Thanks. Good morning first one for me we've talked a lot about the U S. Could you talk about your outlook for not only Canada, but then also.
Josh Jayne: International markets in 2025, where there are opportunities in some areas that might be challenged over the course of this year.
Josh Jayne: Yes, we I did touch on it.
Josh Jayne: Canada and international but just briefly in my prepared remarks, we expect relatively flat activity in Canada.
Josh Jayne: And we expect the same for international.
Josh Jayne: 2023 was a very big project here for Us in international we talked in our prepared remarks, our how we saw revenues decline due to the reduction of projects in 2024.
Josh Jayne: And we've been kind of recasting our position in international with a focus on improving profitability and you've got some were really strong in the north sea.
Josh Jayne: International electrical business.
Josh Jayne: The U K and Australia and Middle East.
Josh Jayne: We're less strong elsewhere, we're making adjustments there.
Josh Jayne: That's got to impact revenues generally at least in the first half negatively silver forecasting international to be to be flat.
Josh Jayne: But that's it that could springboard into.
Josh Jayne: Really focusing on the places in international where we're strong and as we remove those distractions, where we werent seeing a platform for growth there.
Josh Jayne: And then on the M&A side.
Josh Jayne: Just given that you weren't able to do a couple of deals, especially the larger one earlier in the year could you speak to the M&A just general environment today.
Josh Jayne: If you are seeing more opportunities come through your pipeline, then maybe six to nine months ago.
Josh Jayne: And how we should be thinking that against your.
Josh Jayne: Returning to shareholder framework, which has been among <unk>.
Josh Jayne: Actually with your most recent announcement one of the most aggressive across the entire.
Josh Jayne: The universe, just talk about how you're balancing those and.
Josh Jayne: Opportunities for M&A that youre seeing today.
Josh Jayne: Yes, we are seeing a similar stream of opportunities now.
Josh Jayne: Not a big increase not a big decrease.
Josh Jayne: At this point.
Josh Jayne: Point in the cycle of course, we like I said earlier, we had our biggest acquisition year since 2015 and 2024 those are harder to come by and things just worked out with us being the natural operator.
Josh Jayne: And those being time.
Josh Jayne: Synergistic revenue synergy Scott opportunities for us. So we're we're cultivating that list of options of opportunities and it's going to come down to timing and price like it always does.
Josh Jayne: Now in terms of how do we manage.
Josh Jayne: Both inorganic.
Josh Jayne: Expenditures and in <unk>.
Josh Jayne: Share repurchases, we think we can do both we think we can like market talked about we're gonna be we generated about $80 million in cash last year from.
Josh Jayne: Inventory from our core business inventory declined from our core business next year, we're going to be adding inventory to our core business and to our acquisition. So it will consume cash there, but we can fund organic growth.
Josh Jayne: And do M&A.
Josh Jayne: And also you know.
Josh Jayne: Execute on our share repurchase program. So we think we could do all three things we will do so opportunistically.
Josh Jayne: If the right deal comes along.
Josh Jayne: And right now we're really more in M&A play because theres not a lot of organic growth up there.
Josh Jayne: But we're going to we're going to favor M&A. If the right deal comes along if it doesn't we're going to favor share repurchases.
Josh Jayne: But we think we ended the year, we ended last year I think at $291 million in cash.
Josh Jayne: We spend over $300 million in acquisitions in 2024, we ended the year with $256 million in cash.
Josh Jayne: And we completed our share repurchase program. So we did all of it in 2024, and we think we can do the same in 2025.
Josh Jayne: Yes.
Josh Jayne: Understood. Thank you I'll turn it back thanks for the questions. Thank you John.
Josh Jayne: Yes.
Josh Jayne: As there are no further questions at this time, Mr. Brett White, it turn the call back over to you.
Josh Jayne: Thank you everyone for joining us today and your interest in D. Now, we look forward to discussing our first quarter of 2025 results on our next earnings conference call in May I Hope, everyone has a wonderful Thursday and with that I will turn it back to the operator to conclude the call.
Josh Jayne: Ladies and gentlemen. This concludes today's conference call you may now disconnect.
Josh Jayne: [music].
Josh Jayne: Yeah.
Josh Jayne: Yes.
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Josh Jayne: Yeah.
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Josh Jayne: Okay.