DNOW - Earnings call transcript Q3 2021

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Operator

Good morning and welcome to the Third Quarter 2021 DistributionNOW Earnings Conference. My name is Brandon and I will be your operator for today. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. [Operator Instructions] I will now turn the call over to Vice President of Digital Strategy and Investor Relations, Brad Wise. sir. begin, may you And

Brad Wise

in Well, DNOW, and brands good forward-looking your the may limited U.S. outlook are of including, which of the projections but about and which today, primarily information morning. Inc.’s appreciate and the We meaning limited welcome NOW and and of your forecasts, forward-looking company’s our change. estimates, Brandon. subject contain joining is our Financial me David in Cherechinsky, our based to, Johnson, is on subject Thank business. securities quarter These XXXX Senior operate you, under President interest laws for to during the make remain DistributionNOW comments within for responses not to as and during for refer Officer. third you call, statements the to the We Executive statements Stock not uncertainties federal reason. and and will questions, you to And risks Inc. Please York earnings including these DNOW is results the later any With us hear statements New to some today Officer revise symbol, to actual Chief Exchange us Chief DistributionNOW differ thank valid we undertake morning. No the publicly the later year. NOW are note Mark ticker obligation that one conference you President this We assume quarter forward-looking any call. that conversation and or Vice materially. in should or any They may and statements do update

XX-K the our information the Further judgment time provide Commission XX-Q with our our with and time-sensitive for that website conference Inc. ir.dnow.com to investors supplemental Forms by have as management’s major the reflects our with accordance as included has the Each is call. you costs. per other discussion now note costs found additional U.S. earnings financial to NOW information at financial latest risk financial to will at including this earnings costs Exchange disclosed share, of results EBITDA, Securities with to excluding in call live other GAAP, income, or information business. we excludes GAAP file more net an comparable that not you of sometimes as release. factors excluding operating of addition, refer our the I each various detailed on in in information costs, release effort determined therefore In well or impact its relative GAAP. certain of A diluted measures and measure the also been other a calculated our measures, the of U.S. that within reconciliation contains EBITDA, non-GAAP best referred and affecting In and maybe financial non-GAAP as SEC. earnings filings and other excluding most to these

key and Relations XX-Q days. the will presentation on plan be be results replay We available and to website. today’s our will As quarter. of section of the call contains of on website covering for file for takeaways morning, quarter a also Investor it our our our XXXX XX next site the Form third the this A available today

to over Now, Dave. let me turn the call

David Cherechinsky

connect we the to this like with very many to call elevated manufacturers fronts, well. these things. labor among the we and on are factors, other Brad and you big sustainable good who us Despite to and Things customers a who shortages, successfully the men surge, everyone. thank material wins DNOW thousands of changing morning, power the to rely future. Thanks, support world around costs, world begin a and performed the I’d the women on transportation for political COVID challenging

We have North in especially this demand quarter, America. strong seen

service exceptional. been customers to has Our

footprint, as scale, agility our every leveraging our modernizing are of geographic we we and at keep We dollar invest. demonstrating the the center customer

to help is solve an our in be their always goals and position achieve to advantage customers goal their Our problems.

chain we face to our labor minimize While providing environment superior are shortages, service the is and our material helping and disruptions. supply in dynamics. evolving stressed, In the confident are respond the customers skills of we

further. in investing market growth expands to are We the seize as inventory

initiatives address availability of The capital, To labor branch these revenues alternative impacted supply to recovery initiatives and in and than in fulfillment. is in endure upon productivity tight customer third ESG to COVID more sources U.S. products While technology, process order we impacts, quarter These chain for products budget short-term. supply in the and the bottlenecks. are labor of area previous we degree well, of these shortages contingent supply steel the the pace improve quarter, trends navigate discipline, quite lingering chains a on and and amid pipe of leaning in in solutions. and the disruptions XXXX bit likely especially seem

percent in guide. on $XXX Later, how expenses. revenue with a quarterly strategy. million X.X% EBITDA gross We will achieved I drove taken We E&P a that future warehousing, have emboldened million DNOW our good a abstinence mid quarter, we revenue XXXX. our delivered margins or where spending and forecasted flat a for record single-digit We and one relatively on has margin rig count really growth administrative sequential customers. in E&Ps XQ pricing to and of revenue. ‘XX private gross our action XX% close where than U.S. nearly market, driving operations, see beating Domestically, $XX bright greater driving the spur we are transforming in was selling growth, XX% the public flow-throughs in achieved

at during just generated $X year, another $X.X recovery the full context, but looking back billion DNOW in XXXX, full For than year in year. EBITDA that million revenues, for more

model This one-sixth as adroitly. we to a not in hard our achievement current significant ‘XX compared engines, strategic focus major chain downturn and employees’ of a inventory testament of and on full cylinders. XXXX. results in twice a comparison, for by future in these our achievements risk DNOW our dollars history, to is incrementals, greater As management than when pivot on XQ byproduct and a $XXX and revenues EBITDA quickly a we and modernization. work determination generated of In leaner resizing supply and These our markets. point for execution team’s of the all and more acted worst our in are despite firing million allowing some achieved the revenues of fulfillment year reduced and We strategies revenue reshaping a the

carbon at which transition relatively revenue pandemic projects of stages, early in the growth for engineered supply offer keeping midstream pace, continues gas, management where U.S. off the opportunities. as example, thus the And market. remained some and a For slow planning muted. projects are DNOW International possesses in have impacts demand plus and market OPEC oil a future the PBF a solutions, energy just number number of

I bottom what be cylinders this and DNOW’s be XXXX. believe this much accretive one materializes, begin they more line which nicely we fire sets to confident am or will will, results. revenues stronger a for expect As these up to to activity and We us of an tailwind

implemented yielding and mobile engineered activity, into customers the quarter open margin million revenue future will a on operations recent completions builds or with $XX inflation. comments sequentially. contributions, Now, dominated Delaware mobility-based from oil and the inventory during DUC lines gains from sequentially in phones and pipe at have orders the meaning programs Mexico, in energy the Also drilling targeting expanded customers process a was We due with solutions the New up tank with drilling the producer gas We where downstream U.S. which portion on pickup sector, of gathering historically The increased app revenue oil can operator join efficiencies, lower several utility and for per private PBF land but companies had with valve material. for pipe how sales regional for primarily basis. additional place our a chemical assets. U.S., increase was play. notable a their to builds opportunities on product the to well processing remained focus and as completions, contract are capacity, drilling an for plant completion demand to quarter, broad producers to onsite some builds. also revenue Shifting mobile DNOW private highlighting producing turnarounds inland is to the fabricated making Customers In a sequentially across sold site through from a processing private of line our drive DNOW to of refinery. whose MSAs, their for our the company. in inroads. battery steel provide In rigs with solution, by during customers in several substantially using increased sales major Market actively at delivery. for we growth Permian Permian, U.S. branch well favorable central sales access project tie-ins our our PBF battery least several quarter, in connect portion where that and activity to higher tank And the now. positive sequentially, upgrade a PBF expanded including to producer the targeting experienced customer gas major procure growth solutions, revenue and app for are gas equipment were sales U.S. in EPCs for line flat technology are they executed market than several rigs local facility we share increased regions. point locations operators, increased draw-downs share proximity We facilities from the customers we and packages. spending A CapEx joint

delivered we water heater during lacked Wyoming. to addition Permian, of plays. in is in and Powder Rockies, Bakken fluid refinery mine soda markets downstream engineered vessels, pump handling, and and located separators and and for Activity units were oil a the skids delivered units, include midstream the quarter. units project skids. variety demand packages punk blending a valves in ASME pressurized Northern Eagle large to transfer Products ash number pipeline order as the applications a the water In treaters increasing Rockies tied increased packaged River and of the to of sector, transfer provided for management in including packages Ford, In a

we for to market On are gain waterfront, activity in this the pump increased levels traction. of projects seeing packages as municipal end begin quote

service the compressors. On for demand are offerings pickup side, field and air seeing pumps on we our aftermarket

base Our continued field bullish revenue gains million In to labor margins which our service share work or drives of business. distribution increase Canada, $XX sales, parts deliver million, third amid $XX sequential a was and quarter strong fostering XX% emerging Canadian a is $XX for budgets breakup. the market activity sentiment the barrel sands increased averaged from CapEx seasonal for for project oil blend Western key in producers. quarter the and heavy select and

In conventional the projects improved well more drive natural growth. sets prices, gas midstream and macro addition, with up for to

hookups Our preassembled quarter tie-ins of packages to with in wellhead kit and notable our for led the customers. many gains

with Finally, business and with have we and continue actuation product major our multiple operators. with number winning success EPCs line of E&P we see midstream valve to a targeted

For activity well international, drilling is increased number International the in to for $X frame take in activity drilling XX% areas OPEC positioned revenue who million. of as million up our advantage was DNOW sequentially of drilling to agreements. demand quarter, spare increases. to narrow contractor pickup third have is capacity or as begins beginning plus key to energy $XX

cable products include wins to were at with in Iraq. international PFF gas valves MRO CIS a international an for provide petrochemical project and EPC international project for for panels project operator we Australian-based in orders customer order balance an and electrical producer. awards to while receiving on upstream we wins Some onshore notable delivering addition EPC an Australia. firm wins oil an and in Kazakhstan, major and engineering company, successful expansion cable for project major for downstream Indonesia, facility. In In gas major electrical a in and a a region, various for for shutdown MacLean control gas in for to valves PPE gas construction and include electrical to PPE In for obtaining oil solar project Australia, an delivered a Russia. the spares notable orders in International

Africa agreement producing agreements an agreements order key and We major electric global have producer future FPSO oil with for operating number for securing from and agreement as we provide EPC. a West a electrical EPC future company. MRO been secure gas products executing valve large to by X-year opportunities These accelerates. business delivered major our in a a oil In includes an that frame projects busy of a meaningful project on Brazil, and revenue X-year national business a for business a in

offering, valve leveraged addition drilling valve digital total valve solution, our wins solutions an also asset We with orders several capturing Brazilian offshore our in notable including from producer contractors. offshore management to

impact would disruptions. supply proactively business. our I to lines, of which us on the we preferred chain strategy, having manufacturers, inventory global global demand PBF Now, like delays several product allows are option domestic that we in maintain address meet to a the With inflation and import from to availability sourcing source chain and our times our supply manage where customer

and procurement product have teams logistical an challenges. availability during ensuring excellent done job Our high these sourcing

to offerings, orders our are and million we and ‘XX assembled process, pump the pipe experiencing approximately $XX year. delays packages, $X some components packaged million product of new steel part into production some XQ that are For engineered as our pushing in of in

Moving commerce to our during channels, across revenue industrial numerous customer SAP eclipsing digital our increase terms this continued channels service quarter. and to quarter. we our third adoption, DigitalNow XX% digital e-commerce midstream connected customers of We companies now initiatives, onboard BXB of the in to

our digitally their product to via e-commerce through integrated catalogs and developing further shop.dnow.com with our We workflow enhance work to their continue customized optimizing platform. customers experience solutions

capture Our our leveraging U.S. team on eSpec is solutions tool process revenue. product technical to configurator sales business our

allows units reality to During active we like our point. package our from and augmented of the saw by enhanced a visualize three-dimensional environment. an look ability by user the customers quarter, the experience an incorporating This completed what we XX%. users recently, vantage the XXX-degree better to packaged imaging view would And in increase

to reduced labor eTrack, reconciliations. traceability, associated lifecycle using are We tool, of enhance the our to asset required counts, owned accuracy monthly management costs improve and equipment with customer yard

driving materials both engagements, and within We are more productivity parties. enabling customer value using for management higher eTrack our

comments to Now, transition. to energy I’d like few a touch related on

of seen energy gas requires is for and As during a quarter, increasing elevated the we have that expand. on supply to third investment result the oil of price demand continued

we cost customers’ combined products our For highly chain to part and efficient safely when energy ability DNOW, transport transporting oil of helps we and services enabling The our are to distribute a with solutions, supply efficiently customers and lower produce gas. production critical our market. and producing achieve

methane around systems. targets. a pneumatic gas our ESG emission gas air drive and who systems. we of gas In the capture, more with emissions to helping air customers’ specific meet dry reduction expanding investing our compressors as is producers storage, to value devices reduce greenhouse solutions This one customers and them venting to to is software reducing are tied example, provided with committed solutions, well profile are packages In We how as compressed air we replacing our great which their to offer from improve solutions gas by meaningful eSpec transmission example emissions help them DNOW equipment able our our management. reduce direct customers greenhouse conversations replacement quarter, to greenhouse used carbon system noting compress third to gas emissions, of

Additional emission and on our battery minimize focused upgrading we and pump to gas leaks solutions customers and seals designs. reduction pumps emissions tank greenhouse offer

We air with are well COX capture projects direct projects. transmission on collaborating as capture producers carbon-dioxide, as and dedicated

to the excited let future. of equally to into expand end line excited markets So, emergence With which over new markets, we our and Mark. top about it about me are our enabled hand DNOW core the that,

Mark Johnson

quarter guided percentage U.S. Thank XX% you, $XXX quarter third Dave and revenue XXXX mid our revenue good increased the activity before customer highest the morning Total and $XXX product million, for improved over XXXX quarter second and $XX level our growth. margin contribution. million, the to on single-digit The was million third increase everyone. of outperforming the pandemic was from significantly second a since up quarter XXXX

respectively, energy revenue centers third and channels X% U.S. in U.S. XX% contributing process up U.S. centers solutions of were Our and quarter. energy total X% with approximately revenues the

and an was increased product million $XX was the fittings also to depending growth, quarter, support basis that third to lesser quarter. migrate primarily International product the activity, our albeit midstream gains from XX% as was of relatively increase charges and pipe we the XX across or changes as and million changes steel from our we successfully $XX including a the captured the revenue vary but $X of the Moving value quarter other increase actions to quarter products $XX for provide quarter preference, to the $X line XX% revenue second current the This Gross Year-over-year, improved on points second at in lines those and million Canada greatest market, and both million business Inventory Canadian XXXX extent the in were future up impacting revenue decline inflationary $XX XX% margin our margins both million, project in up market solutions specification as to XXXX. content million, selectively available towards the sequentially was third flanges, higher in by from space. adjust DNOW. currents or from Gross fueled activity. from high margin steel the or upstream of taken incline segment, XX.X%. primarily volume revenue the margins in inventory remained to on model charges expanded and customer the products. or demand we and modest

offsetting changing locations selling the of in to the of In the sequentially, and continue WSA, align reduction going million with flat, waning or $X and market to customer relatively We was fully conditions, forward. up impact strategy, could the expenses, products our warehousing, subsidies level the initiatives quarter period. and administrative preferences third to evaluate government our which not charges XXXX, cost

operating and $X.XX and flow-throughs WSA share. are cost, decreases second a as continue incremental quarter for Non-GAAP on share. to benefits almost we $X down other X.X% the subsidies from EBITDA, XXXX. profit, government are the to international a quarter these million and margins operating this was of to as we Sequentially, actions totaled more revenue non-GAAP a in the into traction for our remain expect WSA. quarter reduced the Canada operating of in excluding we $X we cost operating our for third $XX third flat segment across expecting a from income revenue and million approximately In flow-throughs in XXXX, it to relatively $X operating profit other X from was deliver XX% than third how in a or base. to we continue cost, revenue, cost underway, million with favorable higher, million a the segment U.S. of profit were Considering lower million three X% reported $X quarter GAAP for quarter segments our we base. XX% in we in began generated the operating quarter segments And ago, was in on per U.S. improved through longer and income third XX% This the million profit well and profit net excluding the per margins quarter bear WSA achieved which other quarter, $X million emerged third quarter. by Canada delivered all basis, of initiatives fourth net million in or phase-out gross leveraging or modest XXXX was three the margins expect all do our to third $X.XX margin delivered as the to fourth was year-over-year $X $XX quarter. revenue breakup. last duration quarter indicator or is of fruit. strong when driven the Operating the Third $X see less reflecting seasonal delivered we X% additional first the flow-throughs operating In improvement notable years across incremental million

our point performance financial continuously and maximizing operating XQ improved EBITDA our we to been work customers service. identifying XX% approximately The cost can high product today out our that combination included implementing and expense basis. and with profit flow-throughs I As the and low network. quarter, value a of initiatives million XX% noted year-over-year to to transform hard results, estimated expense continuing margins, our and team increase on in XX% The in higher in have enable our model, delivered a operating the focused significantly seen our other increasing fair create our of customer in commitment of revenue are from the We flow-through efficiencies consideration our across as expanded contingent greater be employees on sequentially the improving for related a will value to year-over-year. business revenue paired also $X liability.

from September a some of percentage million, excluding $XX the second contingent capital value quarter our debt With of which payable consideration, and of $XXX the as of million, working credit returns our at XXXX. zero from have end the expect million reduction reaching quarter, increase the was as were the which is growth working we in capital subject end we to estimated down capital by fair Accounts availability inventory of remained draws plus some $XXX to million XXX intentionally position as of the liquidity, working undrawn as XX.X%. annualized quarter. adding receivable net a of increase second million, this was XX% change zero X.Xx, second the we June. cash $XXX an million this from fuel third to is business. hand in third do and cash facility total the quarter, million, XX% now the attributable with Accounts $XX increase quarter, $X As the to equaled quarter, calculated ratio XX, grow million of year XX, up of were and revenue, September from inventory working of included of Total $XXX $XXX of capital, with And million, best. as cash from quarterly a on an total XXXX,

cash cycle gains five in to primary the capital growth. the $XXX precisely our working sequential cash quarter in working $XX back of A marking $X.X for million we quarters to conversion minimize efficiency a which billion of And days, flow. efficiency consecutive quarterly looking generated new best XX increased was these flow helped has more commitment driver cash reflected improvement. capital been when turns, inventory million. revenue is have fund to free X approximately Our in years, or needed Free cash

are possess for We the talent, resources future. and making we and sheet and inventory, fortitude committed to successful balance celebrate to value to the management, good optimism acquisitions, With asset maximizing grow our to sustained strategic the pursuing future shareholders. bottom quarter turn create investments call health line, that, fuel with We I develop a Dave. in for will more agile the business, and and customers back our the

David Cherechinsky

in for you, inorganic we opportunities And solutions M&A DNOW. accretive margin a and focused remain capital non-commoditized on strategy. the quarter, on to targeting Through Thank businesses capture now we fourth that deploying provide Mark. view within fit M&A, organic are our that

solutions strategic of areas our for by DNOW. area on lines, is entry in adding our with differentiation which to competitive opportunities we our One targets continue create process focus. advantage, and build barriers engagement of as active evaluate focus potential product strengthening We companies

diversify is area markets on end provide focus Another greater that market to of businesses differentiation. help our

record-breaking company consecutive a expected can of sequential cost EBITDA excited am than expectations. that As third margins, excluding achieved once of of quarter again growth with results, and XX%, $XX solid other million, well I tell, the better you above gross revenue

and flow results historically $XX cash. a would million these accelerated have we in where in consumed generated cash period, strategic free Our execution

holidays the the shipping a we customer see quarter, due and to headwinds lack be customer fourth fourth growth. EBITDA the this December. year XXXX repeat $XX down and XQ a we the a at full November the don’t XXXX exhaustion and slowed This on products again Furthermore, million, XXXX. the to reduced representing seasonal as to typically we sequential product that of ‘XX. of near-term to anticipate the the earnings account, budget to company revenues. combination creates expect strong in Taking mid sequentially typically single-digits in full to delay nearly Looking fundamental that improvement is availability year for activity of into quarter due to revenue in the laying expenditures will We over its shift into our down experienced has be flat line potential, top view seasonal imported capabilities headwinds groundwork delays potential and

and and ahead, among to our expect continue oil global improve supply gas of improving for with growth fundamentals the we your poised years from for Looking in energy investment. energy demand after to business

We are of growth. excited a are growth double-digit XXXX, especially to sustained about supercycle industry of termed number XXXX as in multiyear have to leading beginning a some energy forecasting what the analysts

margins want to this I Finally, and pricing gross close hit on hard. and really point

for We are very margin higher customers perpetual have deliberate markets manufacturers, resources. track that we end on I improving a mean too lines, margins. by activities, focusing about high-grading organization, and our business. product to And businesses, limited locations, product Like every

time and choose allocate talent must and we our treasures. where So, we

human the and per XX% a partnership levels, year-to-date picking Product XX%, we XXXX last the see not XX% XXXX now disfavoring reciprocity, opportunities, them, and allocating where are promoting precious resources, no lower value, value, There on their value commitments, inventory capital opportunities. margin in investment, expecting our honoring the deliberately higher focusing promoting brands for nexus sees customer spend our customer is suppliers, precious our are un-focusing and human committee our to We Conversely, focusing to the margin where pay is provide. as and below want XXXX, is accidental. earnings market basis. on row, X This were activity declined where derived. years in X on we inventory XX% talent willing capital, in years margins XXXX, is XXXX, does means what over this XX%, This the focus highlight a not value. basis not to year from I forward to customer a market focusing

product where place its of created DNOW, in where In of finds the gains of opportunities. on valuable were the deflation. a the wholly achieved margins our intentional, fact, right see men organization This these customers was in an many of outcome our heart and women by period resources focusing they value,

than the greater questions. and more we Now, open able much to a top in what of is achieve couple result call on let’s streamlined that leaner, With that, power business, earnings the past. for the been strategy have durable

Operator

Thank you, sir.

[Operator We go ahead. begin session. question-and-answer will now Becker. Benchmark have Research, the from we Instructions] Doug And Please

Doug Becker

being on would Thanks. commentary, But you the target. continue moving the to for were Dave, what about talking parts. multiple see even given the just still I you longer then margin quarter little more fourth like maybe term, XX% last insight quarter, a into a

Given certainly this a results, readily and your margins looks term? thoughts just achievable maybe quarter’s target latest longer that on it like and

David Cherechinsky

question. the expect for a Thanks I Yes, to the we appreciations quarter. like did didn’t XX% Doug. as morning, Good Yes. did see I target, – in margin XXXX third say

In some guided to fact, we compression.

to management tried our any opening – towards organization, resources, we like the all any to point have of my any choices. comments, family, We have make have end make the we team limited I business,

how As the do. we in tasks fulfill we task, – our them, margin our everything at customer requirements, resources pointed we migrate, we higher activity

are get new price. deals to negotiating the suppliers, best long-term with trying We manufacturers, are long-term we customers, possible

things. are that then margin. past, changing right at so a can We price that, how that company That’s, to on products so of the maximize our we lot trying understand them the people are And reciprocation. they our we to In our of give all customers pricing we doing of had across a board. authority, we we are the the good are changing business, delivery

to disfavoring, spectrum. it those we are we have buying I are, companies better with the the end – of We gross said, companies margins, better the year at relates And anyway, other like this expense revenue. with as bought

this, as we is XX% is see I allocating products it, large while floor a down terms have a availability acquire better scarce, pipe In where comes first – distributor, did oil position record period don’t can higher having to as to enjoy in of we the product this for we a a we us, the and a of have if and pricing. the And benefits the yet, and it because gas product like we price So, customers. products acquisition, for place. in command

We is on we DNOW. I pursue an we So, them value remains our believe our see organizational effort in customers. that, the XX% can It the target, value build for we meet they where that can.

then to and they not our those resources to don’t allocate where the We efforts those see have value. to

So, a however, could little is future. pie about I more that quarter we well. about did and the the In for in a as greater margins – we think from the third bit benefit talk see opportunity

Doug Becker

Maybe quarter. be Well, lots numbers. the talking quarter, piping a a it showing fourth slightly more to as in given little are just bit in of relates down? just the flat expect fourth the to that margin might up compression gross revenues that certainly about little things you just Would

David Cherechinsky

Yes.

– the things we slipping our very customer a think little in good while areas. make I guide, are key we to have been – fill of implicit working because in few at are are and important sure we But so, domestic Again, pipe, around those a bit fulfilling in steel to requirements, slippage that’s in to availability. are all gaps we we can product availability. our resources terms customer pipe. are maximize pipe the we sources world, areas product of And of tapping seeing service acquire some

revenues. lower better mean margins, but could that So,

see pipe would sales total margins. in go we our mix, of negative on could the a a terms would sales, mix which where down have issue impact So, there

compression we see margin why gross might quarter. fourth reason one some the in that’s So,

sourcing Secondarily, see seeking revenue, gross And we from sources. are a alternatives we in distributors, little the – a master might competitors buy bit bit terms a but we the where we We get do for seek where we product. little fungible and less margins. alternate more or are available, goods, pay we of strategy for

I slipping we So, little said how my a surprised. a a pleasantly have color to few on about be we question, gave due seeing, I those And for quarters, compression. $XX in to comments waiting tend New basically on that answer products have of that yes, opening expect to the bit Year, $X to been product our I or into arrive. your million are margin little are orders But million projects, to lines. higher

question, will guess reasons. I Year. compression the feel back your due that original can we is range margin answer and compression a I So, short-term get New the and we some into into likely think see XX% to I to those yes, as

Doug Becker

context can’t help might – big you traction current be acquisitions, in just size notice are any how targeting you might within area globally, that it’s ultimately just Final getting business are the and about where one some the become? an valves

David Cherechinsky

discreetly about Well, I today, our our in think represent XX% valves total sales business. terms of of

right a that those we high carry they the not kind Now, as there we preference it’s of one where and that part the may is for more there products we are considered a kitting, of the lines one of few project to of me, kind and profitability is carry. values do of it’s be right brand we a there. also for. – where matter But But of that see valves and the the

preference, and flanges. brand pipe, little there valves, very brand there. for a for is But preference have preference and We fittings

continue get grow So, service grow. as can suppliers. agreements right see we our we about with business, to And actuation that we the our

We opportunity a customers valves manage that various see of that fleet size, actuation to for services our there that of to business. haven’t us and of in valve the to important But it a a and more size part and big the become set process. out we competing do – a more to as

Doug Becker

Got it. Thank you.

David Cherechinsky

you, Doug. Thank

Operator

we Please Cowen, ahead. go Jon have From Hunter.

Jon Hunter

you. Good morning. Thank

David Cherechinsky

morning. Good

Jon Hunter

So, I the at seems mean, out year you discussion gross on guess XXXX. XX% margins. the to start round the it like will type I

the I alluded top in commentary type You double-digit increases, for the in believe. earlier line,

targeting the if if Some in potential that opportunity. talking OFS of are that an you companies private, you area a I to increase market larger upside in know of be so curious see actively North spending that there of year XX% with the kind am opportunities, is or I outlook, agrees E&P are America. share about next could DNOW

speak just helpful. that So you to would yes, could be that if

David Cherechinsky

Yes.

on growth is – terms guidance are were XX% But or into XXXX. course, people well I of about saying to talking there most we optimism. prepared numbers into in the think XXXX, some of teens. what are lot a the And not give we of of greater, get

there not is there But things so are there. two We yet.

earnings That be that of highest pretty line. on we headwind but away move was at in to and the product opening line cherry picking And really a some I focus New outspoken on terms to the opportunities the in bottom resources the this product limited – comments focus. notion are a about of boom mean, We could revenues a Year, margin, could highest lines. margin EBITDA

XX% is we for probably So, be New growth think many a things again, the while that there could XXXX. of course. Year. it we on should believe I for see point in materially sure. fashioned And in good haven’t But starting stronger bullish budget, And are are range a impact we that I than And that, that.

Jon Hunter

helpful. quarter up Is the is That’s to And some there first kind can WSA run or by whittle thinking million the for that, Dave. quarter, in and Thanks, think WSA following on in an of down type WSA of on fourth are we XXXX. end of the opportunities about you what to do of rate be that the year, flat XXXX? the of you context kind target Thanks. in the your kind on line then that $XX – reduce should

David Cherechinsky

some able goes, answer me on of we the are way, if growth how the the right let where have Well, land much will line table to now. we impact because acquisitions this WSA that question

place Dakota. Three of in investments U.S. and plans that’s course, all centers standup to in major North the we to, continue cost the in Odessa, should going Wyoming, But structure. improvements Casper, we super have that. Texas, as to our Of see spine impact Williston, our we oilfield, across of in

expense to at right flat $XX of of level pull we of stands now, out the a it business revenues. expect As million

million being So, $X potentially quarter. WSA – that can would down by a that

if to and Now, X% that higher much number. WSA will growth change is XX% than that our

we WSA in measures have achieve number So, unfavorably, And might will now. growth, will be stronger we are efficiency in little right we you a do will $XX if they or the than that we XXXX. million range growth to was right. million the That impact the that greater WSA project number higher $XX the But forecast.

Jon Hunter

Great. Thank in me little was you that. one little quarter flow the for the bit. a is capital a working you actually expecting And then of I a released bit for build, cash was last free impressive.

you and capital about curious, should fourth quarter, inventory XXXX in consumption about So thinking your working XXXX? as perhaps needs, be we think or in how early the

David Cherechinsky

flow produce or receipt thing whether we biggest of quarter the fourth impacting free cash in goods. consume timing the of the so Well, is

this So, often we of to we like generate have dollars some to cash flow will but I probably. are were on the zero tens to the fourth shows our offsets in order, product have faster. get of of do, of we as lines be millions current in clamoring a dollars, quarter. million we said, inventory free will in quarter. would modeling we few cash fourth Those But that be here It

the said million we It of Now, half in the million think could turns as we I the produce it the second of to last up second in $XX million consume that $XX quarter, year. half be $XX we would out. year, to

generate to turned company. capital our our So, sell basis, in invest the of have and inventory goods is we an terms to working for receivable Xx to third turned on We customers the an generate. lot quarter, working our which inventory on intensive annualized capital a kind intensive We accounts sales we we unheard Xx. of of

to bet. it’s and it. to possible, get little that’s that a a working But so capital likely probably great. good turns But be our maintain, less So, something we maintain hard it’s going that’s won’t will

more cash generating cash be be but be could level fourth the quarter. we will consuming had in instead We on. It be to zero, like earlier of could expected a than bit some could little

Jon Hunter

Great. Thank it back. will turn you. I

David Cherechinsky

Thanks, Jon.

Operator

Stifel, Jones. [Operator we from ahead. go Instructions] And Nathan have Please

Nathan Jones

everyone. morning, Good

David Cherechinsky

Nathan. morning, Good

Nathan Jones

be of Following you on growth little could a depend back the us give more increase. you revenue that going is, color would per WSA to looking you up maybe of WSA WSA what a what is little to you bit add bit commentary, that number dollar on said obviously, kind obviously on

So, $X.XX can you $X, color of do kind by if that? us WSA, of $X.XX you any WSA, revenue you need increase to on add of give

David Cherechinsky

there. margins as growing And hotly primarily again, for To in should also WSA. market in have were we growing on too expense on And stab on dollar of more $X.XX taking things. many a competitive than that every that we a – gross bought said a the – me, share, quarters, make highly are environment. percent or have will I bottomed, once I contested that revenue Okay. WSA the those said high. doing business, once include market focused we our of remains I revenue no

market revenue in XXXX, So, the our Expense the percent I as am won’t in additional growing could And most about down. of that a business. and urgently position entail go some concerned expense.

$X.XX need each to to revenue acceptable, But We your expense about out expense are I to adding would the but million targets business in $XX $X.XX dollar ago our careful expense. get pull with million at more of our long-term. to question, to line also current discreetly, of not be per about going plan a $XX levels. moment we be answer to I probably have talked

Nathan Jones

Okay.

dollar we out the super on centers add million of $XX are WSA. So, then million $XX to the there, up. from to each take the should stood $X.XX – once And $X.XX

we an super center should of, doing be to settings? dollar you kind grows, If revenue, margins adding of to million are as of back that $XX $X.XX the of for EBITDA you initial incremental looking say a let’s gross $X.XX $XX per and are of maybe XX%, volume million margin does WSA adjusted upper-teens at

David Cherechinsky

Yes.

boost XX% real we in incremental when high-teens, a the high-teens. answer be XX% incrementals But short-term. those to to in should the incrementals potentially They is we have But teens especially should XX% is in which grow. the generated to plus the question, a be be the period to those historically, should and your and closer range. So we margins where in in product gross scarcity, have

Nathan Jones

helpful. when talked of being guys? expectation think I public increase the the cycles. guys moment, private very in I the lot forced by religion what’s more, drilling at a but your really the it mean, upon the One you them guys the historically, investors, previous comes that’s guys, have public capital spending first the relative followed by private had about to force to public getting around Great, driving behind guys

on as comment there expectations could you your maybe we go So, forward?

David Cherechinsky

privates the I because it do probably have bit is still that like know see would guys, in the it we risk don’t the privates quarters, like the will see the a won’t, more and like little We joint to will, that driving drilling. change XXXX. of the We be Well, bigger we profile Okay. last I for anyway. the seen different. investments first in do few think will

historically is our the level Shell’s and because different. We Oxy’s risk big and companies, and the Chevron’s the on have focused the

have smaller nice we be there, to making profile companies, the careful there. but And On inroads are private the is risk very we different.

before. but in have we past. think sloppiness more year. range, won’t as seen we cycle, at are I the in in time And the this we especially the disciplined it $XX customers think us short-term, more companies It’s degree in that money gauge everyone lot because spend we never in have help long-term very oil a our to would though, seen of hard because to the a the prices the going as that to will the normally due next is public to the us all hurts spend are – see volatility kind

So, But we what are customers our budgets I we shape it in be private. will their to our think to focus and more going waiting are put see will accordingly.

Nathan Jones

Great. my Thanks taking for questions.

David Cherechinsky

Nathan. Thanks,

Operator

over gentlemen, call the for closing of to statement. we ladies And turn Thank session. and you. now the Cherechinsky, CEO will for question-and-answer I reached David a time and the our end President

David Cherechinsky

good XXXX. in Well, talking Have everyone like for today. to early in to day. I DNOW. your calling time. taking to interest would thank And Thanks I everyone Thanks for for the look in forward a

Operator

joining. Ladies Thank and you you. Thank conference. this concludes for today’s gentlemen,

You may now disconnect.

NOW (DNOW) 3 Nov 212021 Q3 Earnings call transcript