Q1 2025 DNOW Inc Earnings Call
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Janine: Good morning, my name is Janine and I will be your conference operator for today. At this time I would like to welcome everyone to the D now first quarter 2025 earnings conference call. All lines have been placed on mute to prevent any background noise.
Janine: After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, kindly press star followed by the number one on your telephone keypad.
Speaker Change: If you would like to read our question, press star one again. Mr. Red Wise, Vice President of Digital Strategy and Investor Relations, you may begin your conference.
Speaker Change: Well, thank you, Janine, and good morning. Welcome to denials 1st quarter, 2020-25, earnings conference call.
Speaker Change: We appreciate you joining us, and thank you for your interest in D-now [inaudible]
Speaker Change: 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 denail 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.
Speaker Change: including but now limited comments about the outlook of the company's business.
Speaker Change: These are four looking statements within the meanings of the US federal securities laws based on limited information as of today, May 7, 2025, which is subject to change.
They are subjects who risk and uncertainties.
and actual results made differ materially. [inaudible]
Speaker Change: Now, what should assume these forward-looking statements remain valid later in the order 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: Further information, as well as supplemental and operating information, maybe found within our earnings release, or on our website at ir.denial.com, or on our filings with the SEC.
Speaker Change: and an effort to provide investors with additional information regarding our results as determined by USGAP. You'll know we disclose various non-GAAP financial measures in our earnings press release and other public discourse.
Speaker Change: Those non-GAAP financial measures include earnings before interest taxes, depreciation, immunization, or ebidocs, including other costs.
Speaker Change: Eva Dock, excluding other costs as a percentage of revenue, then income attributable to denailing excluding other costs, diluted earnings per share, attributable to denailing stockholders excluding other costs, and free cash flow.
Speaker Change: Please refer to reconciliation of each of these non-GAAP financial measures to its most comparable GAAP financial measures and the supplemental information available at the end of our earnings
Speaker Change: 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 2025. A replay of today's call will also be available on the site for the next 30 days. Now, let me turn it over today.
Thank you, Brad, and good morning, everyone.
Dave: I'd like to start by acknowledging the solid execution by our team in the first quarter of the year. They're grit or perseverance and passion, not just for today, but for playing the long game and doing the things today that ensure the enduring success of Dina inspires me.
Speaker Change: Thank you for everything you do to support our suppliers and delight our customers.
Speaker Change: The first quarter of 2025 represents the second-best first-quarter EBITDA results in our public company history at $46 million, up 2% sequentially and up 18% year over year.
Speaker Change: For reference, the actual record quarter for first-core EBITDA was 2023 at 47 million in a period then where we had 29% more active rigs and 18% more new wells completed.
Speaker Change: I make that reference to illustrate the resilience of the continued earnings power produced by RT.
Speaker Change: Again, this is notable given the misunderstood perception that the upstream sector alone drives opportunities for Dean out.
Speaker Change: In the quarter, we delivered top line growth, quote sequentially, and on a year of your basis beating our February guidance despite headwinds from a slow start to the year, couples with flat US rigs and lower US completions.
Speaker Change: Revenue to the first quarter was 599 million, up 4.9% from the fourth quarter, and up 6.4% year over year.
Speaker Change: Gross margins remained resilient at 23.2% better than expected in the first quarter.
Speaker Change: EBITDA as a percentage of revenue was 7.7% beating our first quarter target and demonstrating continued earning strength.
We are focused on opportunities that drive accreted margins.
Speaker Change: while diversifying our market mix. We continue to execute our strategy to invest in and grow our core market, capture additional revenues from energy, evolution opportunities, and diversify our customer base by targeting and realizing revenue from adjacent industrial markets while driving efficiencies across our business.
Speaker Change: With our current liquidity and capital allocation framework, we have the ability to strike deals at the right time, and we purchase shares opportunistically.
Speaker Change: Thus balancing the growth of our business with a return of capital to produce sustainable long-term value for our shareholders.
Speaker Change: In April , we call it closed a small but important international acquisition which provides industrial lighting and electrical bulk materials to the energy and industrial end markets in Singapore and in the Asia Pacific region.
Speaker Change: The acquisition is complimentary to and further strengthens and expands our McLean International brand where we have the same electrical manufacturer distribution agreement in the UK and Australia.
Speaker Change: allowing for increased revenue synergies with this key manufacturer and further positions acclaimed to capture more market share.
Speaker Change: Moving to share we purchases under the new upsize $160 million program authorized earlier this year, we have purchased $16 million in shares to date.
Speaker Change: Before I move to our results on a regional basis, I'd like to take a moment to comment on tariffs, some macro uncertainty, and the impact on Dino.
Speaker Change: As you are aware, the tariff situation is dynamic. As a point of reference, following the first round of tariffs in 2018 and supply chain disruptions faced in 2021 and 2022.
Speaker Change: Today, in our U.S. operations, our rough estimates are that around 70 percent of the products we sell are sourced domestically, leaving the remaining product sourced internationally.
Speaker Change: South Korean, Indian, and European supply make up the majority of the directly imported product.
Speaker Change: Dinaw directly imports a negligible amount for products from China less than 1 million per year.
Speaker Change: Neither DeNow nor R.K. suppliers have dependency on Chinese imports for pipe, settings and flanges, inclusive of raw materials and semi-finished materials.
Speaker Change: Dinau, Valve, and Putt manufacturers range from 100% U.S. made to varying percentages of critical components to 100% Chinese made.
Speaker Change: Manufacturers exposed to Chinese specific tariffs have begun all-terrain supply chains and diversifying outside of China.
Speaker Change: In response to this, we are taking the following actions to mitigate the impact and protect our margins.
Speaker Change: We are passing supplier cost increases through as quickly as we can. We are updating our pricing structures to reflect increases as they occur.
Speaker Change: We are using our purchasing power to continue to multi-source key commodity product lines to help our customers.
Speaker Change: We are working closely with our customers on project materials to solidify commitments ahead of procurement.
Speaker Change: and we are analyzing alternate manufacturing factors for qualification to our approved manufacturer's list.
Speaker Change: Dino had the scale, systems, processes, and talent experience to execute our inflation period playbooks
Our suppliers are actively managing this evolving situation alongside us.
Speaker Change: In conclusion, Dino is better positioned to navigate these challenges and seize opportunities related to tariff impacts.
Speaker Change: Growth was driven by a full quarter contribution of our fourth quarter Trojan acquisition and increased midstream demand most notably from our Whitco business.
Speaker Change: In midstream, we are seeing demand to support continued de-bottle-necking of midstream take-away capacity combined with operators investments in gathering assets.
Speaker Change: As a result of softening in some areas, we continue to exercise our self-help initiatives by optimizing our branch footprint leading to some location closures.
Speaker Change: As we look into the second quarter, we'll continue to drive incremental expense savings as we adjust our model to the market, investing in the areas of growth and pruning underperforming areas.
Speaker Change: In U.S. process solutions, revenue increased sequentially from a fall quarter of the Trojan business and due to higher demand for our suite of products and services.
Speaker Change: Groves was driven by demand for Odessa Pumps packages, aftermarket service, a Trojan rental equipment.
Speaker Change: Activity remains strong for a power service and flexible business, while eco-baper experienced a decrease due to project timing variations as expected.
Speaker Change: Our Flexflow and Troja Reynolds Leads saw increased demand due to some operators favoring leasing over purchasing to support their maintenance production.
Speaker Change: Given the rental nature of this business, these are higher margin product lines and revenue should increase to the extent customers cut CAPEX.
Another example supporting our resilient business model.
Speaker Change: We delivered our first power distribution center or PDC for a midstream company. This newly engineered unit is a turn key 16 by 50 foot package unit and insulated building, including variable frequency drives, panel boards, transformers, and HBAC units.
Speaker Change: We expanded our pump product lines by signing new distribution agreements with a load style and vertical slack style pump manufacturer which expands our addressable market and the produced water transfer and industrial end markets.
Speaker Change: During the quarter we commissioned our first horizontal H pump rental for a liquid CO2 recycle transfer application in an enhanced oil recovery operation for a Permian operator.
Speaker Change: The performance exceeded customer expectations and expanded our application capabilities for the rental fleet.
Speaker Change: As part of our Sable Automation Solution, we successfully commissioned a water recycling facility for a leading national aid producer. The system ensures consistent delivery of high quality water and nutrition in poultry feed, ultimately enhancing egg production.
Speaker Change: We launched our new tank commander EcoBaper product, which addresses the needs expressed by several of our customers.
Speaker Change: This unit is a vapor management system designed to capture 100% of tank vapor and eliminate ventini emissions, thereby enhancing the value of oil and gas assets.
Speaker Change: This innovation combines our 0-2 technology with an automated system to control storage tank pressures, allowing operators to sell valuable, high BTU tank vapor gas, and reduce
Speaker Change: In Canada, revenue was 62 million for the quarter, down 4 million sequentially as a 4 million dollar project from 4Q did not repeat.
Speaker Change: and in international, revenue was $63 million, sequentially higher by $9 million or 17% primarily due to increased project activity with a $15 million project in one queue not expected to repeat in the second quarter.
Speaker Change: For D now, the energy evolution includes activity primarily associated with carbon capture, utilization and storage, direct air capture, hydrogen, and renewable natural gas, or RNG related projects.
Speaker Change: Throughout the quarter, we successfully delivered a range of PVF plus and eco-baper products for various projects, encompassing CCUS, Hydrogen, and R&G and markets.
Speaker Change: Regarding Capital Investments and Expansion in data centers to support AI growth, DINO its position to participate in several areas. First, for data centers powered from natural gas, we see growth opportunities in construction of midstream transmission lines to supply natural gas for our PBS Plus products, with many of the operators already being customers of DINO.
Speaker Change: In the United States, our pumping solutions are being used in cooling systems alongside pipe valves and fittings from engineering, procurement and construction firms who designed it build the Davis Center.
Speaker Change: and Internationally, our McLean Operations in the UK, Norway, Netherlands, and now Asia-Pacific are experiencing increasing bidding activity for our electrical cable supports.
Speaker Change: Basketball, a basket-training system supplies and lighting for data center projects as well.
Speaker Change: We are not only looking to grow revenues by selling our products in the construction of data centers, we are also deploying AI solutions to drive efficiencies in a number of internal processes across DNO.
Speaker Change: One project recently completed uses AI to index and upload manufacturer test certificates.
Speaker Change: This project has taken a highly manual process which is now powered by the use of AI and machine learning processing up to 85% of requests without any action or manual intervention required.
With that, let me hand it over to Mark.
Thank you, Dave. Good morning, everyone.
Mark Johnson: Total revenue for the first quarter of 2025 was $599 million, up 5% or $28 million from the fourth quarter of 2024, and up 6% or $36 million from the first quarter of 2024, exceeding our guide from our February call.
Mark Johnson: EBITDA excluding other costs or EBITDA for the first quarter was $46 million or 7.7% of revenue up 1 million sequentially.
Mark Johnson: The first quarter marks the 12th consecutive quarter, where D now is delivered EBITDA at or above the 6.9% level and is the second highest EBITDA in our company history for first quarter performance.
Mark Johnson: U.S. revenue for the first quarter of 2025 totaled $474 million, an increase of $23 million or up 5% from the fourth quarter of 2024.
Eurorear, U.S. revenue increased $39 million or up 9%
Mark Johnson: U.S. Energy Centers contributed approximately 69 percent of total U.S. revenue in the first quarter and U.S. process solutions contributed approximately 31 percent.
Mark Johnson: This quarter marked the highest revenue dollar contribution yet for U.S. process solutions, a new quarterly record.
Mark Johnson: In Canada for the first quarter, revenue total $62 million, decreased a 4 million or 6% in the fourth quarter of 2024 in the fourth quarter of 2024 in the fourth quarter of 2024 in the fourth quarter of 2024 in
Mark Johnson: Up $9 million will 17% sequentially driven by higher project activity as expected.
Overall, Dean Algross margins for the first quarter were 23.2%
Fillmore to the fourth quarter of 2024 and better than expected.
Mark Johnson: This decrease was due to a focus on operational efficiencies and resource alignment activities.
Mark Johnson: We estimate a similar level of WSA for the second quarter of 2025.
Mark Johnson: Now moving to operating profit in the first quarter, total company operating profit was $30 million. The US generated $22 million of operating profit in Canada and international each delivered $4 million in the first quarter of 2025.
Interest income in the first quarter was $1 million.
Mark Johnson: Now moving to income tax in the first quarter of 2025 denows income tax expense with $7 million and our effective tax rate has computed on the face of the income statement was 23.3%.
Mark Johnson: We estimate our 2025 full-year effective tax rate to be approximately 26 to 29 percent.
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 NOL carry forwards.
Mark Johnson: Net income attributable to denailing for the first quarter was $22 million or 20 cents
Mark Johnson: And on a non-GAAP basis, Q1 2025 net income attributable to denailing excluding other costs with $24 million or $22 cents per fully diluted share.
Mark Johnson: Moving to the balance sheet, at the end of the first quarter, we had zero death and a cash position of $219 million for $219 million.
Mark Johnson: We ended the quarter with total quantity of $567 million, comprising our net cash position of $219 million plus $348 million in additional credit facility availability.
Mark Johnson: are existing $500 million revolving credit facility, extends into December of 2026, providing D now with immediate access to capital under the facility.
Mark Johnson: Accounts Receivable was $439 million at the end of the first quarter, an increase of $51 million from year-end.
Mark Johnson: Dave's sales outstanding, or DSO, was 67 days at the end of the first quarter, up from the fourth quarter, partially due to the cadence of project deliveries in the quarter, and the conversions at quarter end.
We expect improvements in the DSL picture next quarter.
Mark Johnson: Inventory was $385 million at the end of the first quarter, an increase of $33 million from your end, with an annualized turn rate of 4.8 times.
Mark Johnson: In our most recent earnings call, we outlined our strategic approach to intentionally build our inventory levels as we start the new year. This decision was made to support our customers' growth while effectively navigating the challenges posed by tariffs.
Mark Johnson: Our focus was particularly on the midstream and fluid management businesses where we're seeing increased demand.
Mark Johnson: Accounts payable with $329 million at the end of the first quarter, an increase of $29 million from the port
Mark Johnson: and for the first quarter of 2025 working capital excluding cash as a percentage of annualized first quarter revenue was 16.2 percent.
Mark Johnson: In the first quarter of 2025, Netcash used in operating activities with $16 million, rather than expected as we build inventory to organically invest in the business.
Mark Johnson: We generally consume cash in the first quarter and in the first quarter we invested $6 million in capital expenditures to support growth primarily in process solutions.
Over the last four quarters we've completed.
Mark Johnson: and converted over 100% of our EBITDA to free cash flow while returning over the past four quarters, $30 million to our shareholders through Sherry Purchases, and increased our cash balance by $31 million.
Mark Johnson: In January , we announced a new $160 million share repurchase program that is double our inaugural program that we completed in the fourth quarter of 2024.
Mark Johnson: This new program 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 a creative, organic growth and strategic acquisitions while adhering to our disciplined approach to balance sheet management.
Mark Johnson: In the first quarter, we repurchased $8 million of common stock and so far in the second quarter we have repurchased an additional $8 million of common stock or $16 million in the year to date or approximately $950,000 shares.
under the $160 million share repurchase program.
Mark Johnson: Maintaining a disciplined approach to capital allocation remains a core priority. We continue to balance the creative, organic and inorganic growth with opportunistic sharing purchases.
Mark Johnson: All while sustaining a strong and flexible balance sheet to drive long-term shareholder value.
Mark Johnson: We continue to be debt-free, have no interest payments while keeping cash flow generation at top priority. And with that, let me turn the call back today.
Dave: Thank you, Mark. Before switching to our outlook for the second quarter in full year 2025, I would like to revisit and make a few additional comments on the market.
Speaker Change: As I mentioned earlier, recent U.F. US tariffs, together with retaliatory measures, has significantly contributed to market uncertainty.
Speaker Change: Furthermore, OPEC Plus has targeted increased production levels, exerting downward pressure on global oil prices.
Speaker Change: In the U.S., we expect sequential second quarter growth driven by increased midstream activity and from key supply chain solution customers spend. We have seen an increase in gas rig related activity in the area poised for some recovery.
Speaker Change: In Canada, expected seasonality will drive sequential revenue lower. Canada's revenue historically declines approximately 15 to 20% from the first quarter to the second quarter due to the second quarter breakup period where heavy equipment access to production areas is restricted.
Speaker Change: The client of about 10 million due to 15 million in projects delivered in the first quarter that will not repeat.
Speaker Change: Taken all together, we expect Dino's second quarter revenues to be flat to up in the mid-single digit percentage range from the first quarter.
Speaker Change: On a full-year basis, we are reaffirming our full-year guidance for 2025 revenues to be flattened to up in the high single-digit percentage range from 2024 levels. And a full-year 2025 EBITDA could approach 8% of revenue.
Speaker Change: In closing, following our second best fourth quarter in history, we built on that and beat first quarter expectations with revenue growth of 5% sequentially to 599 million and delivered our second best first quarter EBITDA, a 46 million in a market with fewer operating rigs and
Speaker Change: We executed a jointly on our capital allocation initiatives, closing on a small strategic acquisition in Singapore to expand our McLean International Offering.
Speaker Change: We were purchased 16 million of common stock on a year-to-date basis under our new $160 million share repurchase program while strategically adding inventory for organic growth ahead of the April tariffs.
which should set us up favorably in this environment.
Speaker Change: We are uniquely well-capitalized with a significant cash balance and no debt or interest payments and can be selective and patient at the acquisition bargaining table while benefiting from our fortuitous inventory planning.
Speaker Change: Well, future market conditions are difficult to predict, given uncertainty stemming from the decline in oil prices and tariff-induced trade disruptions. We believe we are well positioned to seize organic, adjacent, and inorganic growth, pursuing more efficient and cost-effective ways to execute operationally.
Speaker Change: I want to extend my sincerest gratitude to the women and men of D now who distinguish us in the market and how we promote our team manufacturers and work tirelessly to delight our customers.
Speaker Change: as we build upon a great start to the year. With that, let's open the call for questions.
Speaker Change: Thank you. At this time, I would like to remind everyone 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: Our first question comes from the line of Nathan Jones from Stateville. Please go ahead.
Speaker Change: Yeah, good morning guys. This is Adam Farley on for Nathan
Speaker Change: We're going to start on a good morning guys. I wanted to start on Terrace. How is inflation in tracking in the business?
Speaker Change: What product area is it seeing the most careful way to price increases from suppliers and then how should we think about how that impacts gross margin as we move through the year?
arguably under-costed to what's coming down the pipeline.
in terms of incoming product with we're seeing
Speaker Change: In a resumption of normal inflationary pressures resulting from longer lead time starting to emerge from some of our manufacturers we're starting to see normal price increases being passed through and then we're seeing a layering.
on top of that of Tarris.
So, we really haven't begun to experience the tariff impacts
Speaker Change: that much. It's mostly the impacts from the normal inflation, but we see that in some of the some of the projects we're quoting, we're starting to see some of the impacts there. Now for much of the products we buy stock and sell.
Speaker Change: Pike fittings in flanges, for example, which is in the 40% range of our revenues.
Speaker Change: We're not seeing much tariff impacts there, there's a lot of domestic production supporting those revenues. In Valve, it's a little different story. We have heavy U.S. production for some of our key suppliers, and then we have the import production otherwise where we're starting to see some tariff.
Speaker Change: in packs there. It, depending on the manufacturer, depending on the product line or the size of the material, we're seeing product line increases from 3% to 5%, so we've been 25 to 35%.
How That Impacts Gross Margin
We think-
Speaker Change: Net Net, it'll be favorable as we said on prior calls but there are also competitive forces that play that will impact that as well. So I can't tell you...
Speaker Change: You know, to what extent we'll see favorable growth margins increases. I expect them to be favorable or I expect to see the revenue benefit of higher cost literature.
Speaker Change: But in terms of the timing and the degree, you know, we don't have a real good read on that just yet.
Speaker Change: Thank you, Dave. That's really helpful color. You know, it's following up on that.
Speaker Change: As a sense of day, are our smaller competitors staying rational in the market, or is it more you expect? Maybe heightened competitive pressure is going forward?
I think-
You night.
Speaker Change: in terms of commenting on how other people are behaving in terms of practicing I don't want to say too much about that but you know I think
People are being careful about their inventory.
Speaker Change: and they see that recently see it, and I think most of our competitors see our inventory as a competitive.
Speaker Change: or really a weapon depending on how much you have. More you have right now, head of a terrorist is better. I think people are being careful, but they're still excessive intensified bidding on projects.
Speaker Change: So I think that's kind of a normal effect that we're seeing and nothing special really happening there, but it's an intensely competitive business always has been.
Speaker Change: But I think that behavior hasn't changed much during the cycle so far.
Speaker Change: Okay. And then, you know, just given the moves you've done with your supply chain following 2018 terrorists.
Speaker Change: the inventory bill in the quarter and maybe just a little more color on on some of the
Speaker Change: offered two babies to maybe drive market sharegames going forward and then also any color on adjacent market growth. And I'll leave it there. Thank you.
Speaker Change: in terms of market share gains, but only a few, you know, national or...
Global companies have the global buying power we do.
So I think against the-
Speaker Change: The smaller competitors, the regional PE back competitors, we do have an advantage.
and we intend to take advantage of that. That's...
Speaker Change: Primarily due to volume, we buy a lot more from a lot more suppliers and you know we have a bigger say at the table in terms of Product availability which of course be in the most important thing.
in terms of-
Speaker Change: How that, you know, plays out during the rest of the year, I'm not sure but what was your second question that I'm going to make sure I got it.
Speaker Change: Yeah, just any additional color on adjacent market growth, maybe an update on the energy evolution space industrial center. Okay, gotcha, Brad, do you want to hit that? Yeah, on the adjacent market.
Brad Wise: The mining industry, chemical process, those really set up well with our US process solutions business.
on the fluid movement side.
Brad Wise: Opportunistic and optimistic about that one. We talk a little bit about data centers. There's been an awful lot of
Brad Wise: Investment and data centers, you see it almost daily I think in the news and so we gave a little color on
you know, where you now can participate in that.
industrial market, both on lead.
Brad Wise: natural gas power generation side that are feeding high reliability data centers so that feed gas and natural gas who's up really well for de-nau.
Brad Wise: and then with the data center themselves, depending on where we are.
Brad Wise: Arma Claim Groups got some electrical and lighting capabilities on top of our new acquisition in Singapore.
Brad Wise: so we think we'll be able to chase additional opportunities there.
Brad Wise: and Missions. So we see that continuing, the carbon capture business are certainly kind of lumpy, and we expect projects in the future, but they're still kind of slower and smaller in size here in the early part.
Brad Wise: of 2025. And then RNG tends to be a little bit kind of lumpy with our eco-vapor product.
Brad Wise: You know, in the last really a couple of years we've had probably more eco vapor sales in our G side, probably in the second half of the year than the first half of the year, but there's some additional color on the adjacent markets, it's certainly a area we're looking to grow, we expect to grow and excited about the future there.
All right. Thank you for taking my questions.
Speaker Change: Thank you. Again, if you would like to ask a question, press star then the number one on your telephone keypad.
Speaker Change: Thank you. Our next question comes from the line of Chuck Venervina from Pilskenhanna. Please go ahead.
Hi, good morning.
Jack, you're born in Charlton.
Speaker Change: Hey, so I was just wondering maybe you can give us your updated thoughts on the geographic kind of growth for the year, you reaffirmed the full year revenue growth, I guess flat up high single digits, but just kind of your updated thoughts here on US versus Canada versus international, how they they should shape up for the year.
Speaker Change: Okay, so international, I think we talked last year about, you know, you're pretty flat. We made some restructuring moves in international last year and the idea there was to take out some risk. [inaudible]
Speaker Change: At some focus for our management team to focus on where we're strong, which is in the UK and Australia and parts of the Middle East.
Speaker Change: and Asia Pacific area and to unfocused on the things where we get paid late and we have too much inventory and we're not making the returns of expect so want international focused on profits and cash flow versus volume.
Speaker Change: So we expect you know, you're a general flatness with international. Canada is a highly competitive business.
Speaker Change: We expect a second-quarter decline, of course, going into breakup, a strengthened 3Q and then some seasonal, you know, moderation, maybe a decline going into the fourth quarter, but you know, I think where we're really going to see the most action is in the US.
Speaker Change: We talked on our last call about where we're going to see growth in midstream and midstreams and actually tracking better than we expected.
Speaker Change: So we're excited about the growth there. We're going to see a benefit from tariffs in the United States. We won't see that benefit elsewhere. And that should boost revenues.
Speaker Change: and we think we have an advantage against most of our competition there because of our size and the volumes we produce. Trojan, a new acquisition is tracking better than expected, and that's going to be a boost to the US business. Our April bookings were really strong.
Speaker Change: and April tends to be the shortest revenue month of the quarter, so we're optimistic about making our plan in the second quarter and that parling into later in the year. And, you know, we are poised to do more M&A. It's a matter of fun.
Speaker Change: the parties coming to the right price and terms, etc. But and we think most of that emanates going to happen in the US and most likely in the process solutions group, which is, you know, becoming a bigger and more important part of our US business. So a lot of optimism.
in the U.S., but general flatness elsewhere around the world.
Speaker Change: Gotcha and I just thought maybe you can give us a little bit more detail on this new acquisition you're doing this natron international I don't know if you can help us with kind of the revenues that it brings in it sounds like it's a small one but just kind of how you're thinking about that and how it's going to contribute.
Speaker Change: Yeah, it's small. The revenues are going to be in the 12 to 15 range. The multiple are in our standard 4 to 6 range, probably closer to the 4. But in terms of particulars about the business, Brad, do you want to give some
You know, they're highly aligned with our McLean.
Speaker Change: Electrical Distribution Business, we call it McLean International now based out of the UK.
but also Australia too, so having that.
Expansion to Singapore and then the Southeast Asian Asia-Pac markets.
is something that we were really excited about.
Speaker Change: You know, they distribute lighting, cable lines, electrical bolt materials, and service, because they serve as kind of a broad, different market space from offshore to marine.
Speaker Change: and really just excited to bring them on board and look at revenue synergies with our McLean leadership team.
Speaker Change: and just one last one for me. I think he mentioned a $15 million kind of one-time revenue in the quarter or something that's going to not continue. That sounded big to me. I don't know. Are your projects normally that large? I was just wondering if you could give us a little bit more color on or if there's other opportunities like that one out there in the future.
that particular-
was multiple projects in the Kazakhstan area.
Speaker Change: which happens to be one of the countries you're pulling out of. Those were pent-up projects, but overall the business wasn't strong. These projects ended up being at the tail end of our residents there, but
Speaker Change: We do have the occasional $10, $15 million project. We used to have more of them internationally. We see a lot less of that today internationally, but they do occur from time to time. And international, as you probably recall, Chuck is...
Speaker Change: Ben Lumpy, in terms of quarterly revenues, they're part due to the timing of projects.
Speaker Change: But that won't recur, we'll see some growth outside of that, outside of Kazakhstan and our core McLean business offsetting some of that $15 million decline. But that's kind of the read on that project and how they occur, size, etc.
Got it. Thank you. You're welcome. Thank you.
Speaker Change: Thank you. Our next question comes from the line of Jeff Robertson from Water Tower Research. Please go ahead
Thank you. Good morning.
Speaker Change: A lot of the EMP companies are talking about possibly curtailing drilling and completion activity given the macro environment. Can you talk about?
Speaker Change: How denials recent efforts to diversify the revenue stack away from just DNC insulates?
You partially from a potential slowdown in that area.
Speaker Change: to grow with the EMC customers and take market share. And we think our position enables us to do that, and we've seen gains in more recent quarters. Our focus otherwise has been on growing our...
Energy Transition Business. You call it Energy Evolution.
It's a five-year strategy focused on...
for suing growth in those newer energy sources.
Speaker Change: and we've made nice gains there and we expect that to continue. In terms of adjacencies, most of the deals we're looking at today afford some adjacency benefits. That would help us grow our, our pump business generally, our water and wastewater business.
specifically in other minis, in other...
Speaker Change: and Markets that were focused on an outside of strict oil and gas. But where we're seeing the most benefit to offset some of the upstream declines, which we talked about last quarter and we're still experiencing today, we're seeing nice gains in midstream.
and we will line our inventory, our sales focus.
Speaker Change: Our largest acquisition in our history, the purchase of Winco, to focus on growing our position there.
Speaker Change: So we're becoming a real powerhouse in that area and we expect that to pick up some of the slap we lose in the upstream focused areas. Brad, anything you want to add there?
No, I think you captured it, no. Okay.
Speaker Change: David, you've talked about a couple of produced water projects. I think this quarter and maybe last is that an opportunity for D now to expand its activity with producers or some of the water businesses just on the production side of the of the equation. Thank you.
Brad Wise: Jeff I'll take that one this Brad. Yeah, I think we've
Brad Wise: You know, we've been very interested in the produce water side.
Brad Wise: either transfer recycled or re-injected in the subsurface with an SWD. Traditionally with our fabricated business we sold permanent units, permanent SWD units, we've supplied.
Brad Wise: Those companies have become a big piece of our customer base in addition to the operators, but we see that business as long as completions are active.
Brad Wise: We've rented a few units in the downstream refining applications for a flexible business. We talked about Trojan getting into the agricultural processing business, so that we really like the portability of the solution into these industrial adjacent markets. And it's really just a matter of...
Brad Wise: You know, getting our sales team focused on those industrial opportunities in addition to the kind of the upstream opportunities as well.
Speaker Change: and I think you said digital solutions represented about 53% of SAP revenue, is that and I think you said that's a high watermark, is that correct?
eight to twelve quarters. We're seeing that number increase. You know our digital
Speaker Change: and so we're seeing both sides really, our customer and us are seeing kind of the benefits of that and really increased efficiencies and higher levels of productivity.
Speaker Change: Is that what underlies, Dave, you're coming about in some ways growing with your customer by being able to offer them more efficient procurement solutions, which lowers the cost of the transaction to them and generates more business opportunity for d now? I think so and I think it's, you know, you
Speaker Change: Most important in the time it's great for what's happening generally with price indexing across all imported products.
Thank you.
Thank you, Jeff.
Speaker Change: Thank you. Our last question comes from the line of Josh, Jayne from Daniel Energy Carthner, please go ahead, sir.
Speaker Change: Thanks. Good morning. First question, just when we think about what's going on in the U.S. and it was helpful for you guys to lay out guidance for not only YouTube but for the full year. Could you remind us first?
Speaker Change: How much of your US business today is upstream levered and then
Speaker Change: Second, embedded in your guidance. What are you expecting from the rig count or completions count in the second half of this year as we've heard some operators come out and start to cut catbacks. Thanks.
Speaker Change: Far U.S. business is probably in the 70% range in terms of upstream
What was the second half of the question?
Speaker Change: The second half was just given that you have some positives going on in your business. So when we think about midstream and then also terrorist positively, in fact, impact in the business, but I'm just curious what your assumption was and how you're thinking about activity in the back-after-earth on the Rick Count and completion count in the US.
Speaker Change: Yeah, yeah, thanks for reminding me. So in terms of rig counts, you know, there are various estimates of what could happen to rigs over the coming quarters from, you know, one report we read the other day and I think it came from from your firm, Josh's, you know, rig counts could drop 1675 by your end.
You know, if you factor...
Speaker Change: that in, that could mean a breakout decline of 10%, which could mean, you know...
Speaker Change: There's not a perfect correlation with our revenues, but that could drive some revenue
Speaker Change: Although we've seen support outside of rigs for completions, in total production, so it's probably even a lesser correlation, but we could see some revenue clients there.
Speaker Change: In the meantime, we have tariffs coming to play that could offset completely the impacts of any kind of recount declines which haven't yet begun.
Speaker Change: So, I think it's speculative for me to guess at what Riggs could do.
Speaker Change: But, you know, guessing what that decline, if it occurs, could be is, you know, we don't have a feel for that yet.
Speaker Change: You know, a lot of customers saying they're going to maintain production. Some customers are saying they're going to they're going to reduce the rig and reduce their budget, you know, by a small percentage. So
Speaker Change: It's early. I think the thing driving that is, of course, oil prices.
Josh Jane: Metric, which can change one of the things about uncertainties is it cuts both ways and that we could see, well prices go back up in the next 30 days for other reasons. So don't have a good read on what that impact could be Josh.
Speaker Change: and then maybe just won't follow up. You obviously closed the acquisition and then I believe you highlighted that the M&A market could potentially be active in the US over the course of this year. I'm just curious, maybe you could comment on
Josh Jane: You know, when we do see some volatility like this and the energy markets, does that make things more difficult to get across the finish line? Have you seen an increase in opportunities maybe to speak to them and a landscape in a little more detail would be great. Thanks. Well, in terms of the landscape, where we're at right now, we have, you know, several active conversations.
Um, um,
Berry and Degrees of Interest and Seriousness
Sometimes we're a natural operator.
Josh Jane: and we can come to terms on price and we can get a deal done in, you know, a number of months and sometimes we're not necessarily the natural operator, but we have similar customers and overlaps with [inaudible]
Josh Jane: You know, we could make you could make a deal work at the right price. So those are various levels of conversation that's happening with nothing I do think people are going to be a little cautious about the timing of completing a sale.
Josh Jane: We're not necessarily seeing that, but I think this would be a time where there would be a little bit of caution.
in terms of timing. Primarily from the oil price.
Josh Jane: News, which is really fairly fresh. Otherwise, I think the conversations we're having are active and kind of a normal level of activity there. No real, tangible evidence of
Josh Jane: Sellers sitting on the sidelines, but I think naturally there would be a little caution.
Speaker Change: Appreciate you. It takes my questions. Thanks. I'll turn it back. Okay. Thanks, Josh. Thank you, Josh.
Speaker Change: Thank you. There are no further questions at this time. Mr. Brad Wise, I'll turn the call over back to you.
Brad Wise: Well, thank you everyone for joining us today and your interest in D now. We look forward to discussing our second quarter 2025 results on our next earnings conference call in August . Hope everyone has a wonderful Wednesday and with that we'll turn it back to the operator and conclude the call. Thank you.
Please conclude today's conference call, you may now disconnect.