DNOW Inc.

Welcome to the Now, Inc. Fourth Quarter 2022 Earnings Conference Call. My name is Adam, and I'll be the operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session. I will now turn the call over to Vice President of Digital Strategy and Investor Relations, Brad Wise. Mr. Wise, you may begin.

Well, thank you, Adam, and good morning, and welcome to Now, Inc.' 's Fourth Quarter and Full Year 2022 Earnings Conference Call. We appreciate you joining us and thank you for your interest in NOW, Inc. With me today is David Cherchinsky, President and Chief Executive Officer, and Mark Johnson, Senior Vice President and Chief Financial Officer. We operate primarily under the Distribution Now and D-NOW brands, and you'll hear us refer to Distribution Now and D-NOW, which is our New York Stock Exchange ticker symbol, during our conversation this morning. Please note that some of the statements we make during this call, including the responses to your questions, may contain forecasts, projections, and estimates, including but not limited to comments about our outlook for the company's business. These are forward-looking statements within the meaning of the U.S. federal securities laws based on limited information as of February 16, 2023, which is subject to change. They are subject to risks and uncertainties, and actual results may differ materially. No one should assume that these forward-looking statements remain valid later in the quarter or later in the year. We do not undertake any obligation to publicly update or revise any forward-looking statements for any reason. In addition, this conference call contains time-sensitive information that reflects management's best judgment at the time of the live call. I refer you to our latest Forms 10-K and 10-Q that NOW, Inc. has on file with the U.S. Securities and Exchange Commission for a more detailed discussion of the major risk factors affecting our business. Further information as well as supplemental financial and operating information may be found within our earnings release on our website at ir.dnow.com or in our filings with the SEC. In an effort to provide investors with additional information relative to our results as determined by U.S. GAAP, You'll note that we also disclose various non-GAAP financial measures, including EBITDA excluding other costs, sometimes referred to as EBITDA, net income attributable to Now, Inc. excluding other costs, and diluted earnings per share attributable to Now, Inc. excluding other costs. Each excludes the impact of certain other costs and therefore have not been calculated in accordance with GAAP. Please refer to a reconciliation of each of these non-GAAP financial measures to its most comparable GAAP financial measure and the supplemental information available at the end of our earnings release. As of this morning, the investor relations section of our website contains a presentation covering our results and key takeaways for the fourth quarter and full year 2022. A replay of today's call will be available on our site for the next 30 days. We plan to file our 2022 Form 10-K today, and it will also be available on our website. Now, let me turn the call over to Dave.

Thanks, Brad, and good morning, everyone. Two years ago this week, Mark, Brad, and I were shivering in this office on our earnings call running on limited backup power during the Great Texas Freeze winter storm URIE. That storm brought the coldest temperatures in over seven decades to Texas in a cold snap that impacted millions of people from Texas to the Canadian border. We had no power and more chilling had no earnings in the year just ended 2020. The roads were impassable, the path to the future uncertain. Misery pervaded the whole economy. But there were some things at that time I was certain about. about how a new D-NOW could transform itself and thrive. One, we knew that the single most important factor in successfully implementing a strategy path, be fully committed, be disciplined, and to purposefully reject the temptation by those marginal distractions which would dilute our strengths. Simply put, build on and get better at what we're good at, equip our people, allocate talent and time where our customers see value, and let the other guys deal in distractions. Two, we messaged exhaustively about deliberately high-grading our business. By that, we mean focusing on higher-margin manufacturers, businesses, product lines, locations, and activities to deliver strong gross margins irrespective of inevitable commodity price gravity. Be selective, manage mid- and maximize margins. We pick partners as suppliers, expect partnership reciprocity, commit purchase volumes to them, honor our commitments, promote their brands, and deliberately promote value. Three, our primary operational objective was to increase customer intimacy, improve product availability, manage projects, and deploy ample inventory stocks regionally. ultimately redesigning our PBF distribution business by deploying a more efficient fulfillment model, moving from a highly autonomous branch model to a more cohesive regional super center posture. This transformation was a predicate to improving product availability and value for our customers, providing better support to our suppliers, enabling higher levels of productivity while better managing downside risk. Our operations strategy places a premium on order accuracy, adherence to customer specifications, and on-time delivery, and our customers are rewarding us for doing so. And lastly, number four, we said we'd win the market through the careful cultivation of a world-class sales team. We would provide unmatched customer attention with a bias towards solutions and value without relying on price as a lure. Our sales teams place a premium on returning value to our customers by truly understanding their challenges in articulating D-NOW's proprietary solutions. The competitive spirit of our sales professionals has helped create a true culture of winning within D-NOW, and the technical acumen and supply chain expertise they provide to customers has proven to be of vital importance in an era of supply chain disruption and capital disciplines. Although every one of our employees brought about this D-NOW renaissance, I want to directly thank and cheer our top sales leadership for enduring the corporate pivot, for promoting changes internally into the market, for leading with confidence and attitude, and delivering a much more profitable enterprise, which without them would otherwise be impossible. Now I'll hit some of the financial highlights. Fourth quarter revenue was $547 million, lower sequentially by 5% at the better end of our guide provided on the last call. For the full year 2022, revenues were $2.136 billion. In 4Q22, overall gross margin was unchanged at 24.1%. Our full year 2022 gross margin was 23.7%, up 180 basis points from the full year 2021 levels where 2021 was itself a record gross margin year in its own right. For the fourth quarter EBITDA was 47 million or 8.6% of revenue, strong performance, especially in a period with seasonal and holiday headwinds. For the full year 2022 EBITDA was 175 million or 8.2% of revenue, a consequential turning point for the company. setting the stage for significantly improved earnings power and cash flows into the future. During the second half of 2022, we generated $48 million in pre-cash flow, and on a full year basis, in a year where we increased revenue over $500 million, added over $130 million in inventory for our customers, and $9 million in infrastructure and rental equipment, we had zero consumption of cash from operations, and only consumed $9 million in free cash flow in 2022. Additionally, to fortify our U.S. process solutions business, we completed two acquisitions in December of 2022, building on DENOW's pump and engineered process equipment capabilities. These acquisitions strengthen DENOW's value to customers and open up additional opportunities in energy evolution. One of the patented solutions we acquired provides customers with dual value proposition of improved gas recovery, as well as emissions reductions within traditional oil and gas, and the elimination of flaring. It also expands our reach into the renewable natural gas or RNG market. Our second December acquisition grows our market-leading pump position in the Permian area by expanding our customer relationships, customer base, and our capabilities on aftermarket service and pump repair. Now some comments on a regional basis. In the U.S., revenue was $414 million, $21 million lower sequentially, down 5% due to predicted seasonal impacts. Product margins declined slightly as non-pipe product lines partially offset some margin compression on steel line pipe, which we expected to happen and mentioned on the last few calls. Gross margins were flat as vendor consideration in the fourth quarter grew due to achieving higher purchase volumes. During the quarter, we began operations for our newest super center or mega center, as I mentioned on the previous call, located in Wilson, North Dakota, strategically positioned right in the heart of the Bakken play. This new facility afforded us the opportunity to optimize our regional footprint by consolidating several of our standalone businesses. Not only does our Williston Mega Center house our U.S. energy pipe valves and fittings regional operations, but it also includes other D-NOW product lines such as TSNM Fiberglass and FlexFlow. We experienced a number of market share wins in the fourth quarter as customers realized the benefits in our ability to lower their operating costs by partnering with D-NOW in customized supply chain solutions. We also delivered several large pipe orders during the fourth quarter for a utilities company in the southeast and an operator in the Gulf of Mexico, totaling more than $12 million, which drove our strong 4Q revenue beat. And those $12 million in orders are not expected to recur in the first quarter of 2023. In the midstream sector, we continue to supply steel and fiberglass pipe, actuated valves, and fittings for our natural gas transmission customers. Notable projects include new compressor stations, compressor upgrades to existing stations, and pipeline expansion products across the U.S. In the downstream sector, customer spending during the quarter remains strong as several of our refining and chemical customers hold in PBF and consumable deliveries before year-end to prepare for 1Q23 turnarounds. In our U.S. process solutions business, we saw demand for our fabricated equipment packages increase as orders continue to be placed heading into 2023. We experienced demand for vessels for tank battery construction, as well as lacked units, meter skids, launcher receivers, and water transfer units as midstream activity picked up in response to the steady increase in drilling and completion activity over the past few quarters. Outside of oil and gas, we provided air compressor packages and vertical turbine pump for mine operations for rare earth minerals extraction. For our pump distribution businesses, we experienced steady demand for pump packages for oil and gas tank battery construction, SWD construction, and midstream projects. We look to continue to diversify our end markets and drive incremental revenue gains from projects that are upgrading or expanding municipal water districts. In our FlexFlo product line, demand for our trailer-mounted horizontal rental pumps is picking up steam as drilling and completion activity and SWD permitting drives demand to transfer and dispose of increased quantities of produced water. We are currently making investments by upgrading some of our mobile fleet in response to increased market demand as extended delivery times for permanent SWD units persist. In Canada, revenue was $75 million for the quarter, a 13% decrease sequentially, primarily due to seasonal impacts as expected, and revenue was up 4% year-over-year. Overall, we delivered impressive results, yielding a full-year Canadian operating profit of 9.5%, a record for our Canadian segment. During the quarter, we invested in our Canadian operations as we begin initial work in upgrading to a new supercenter location in Alberta, with the work scheduled to be completed in the first half of 2023. It will house multiple business units under the same roofline, maximizing the synergies and value we can deliver for our customers, while fostering more collaboration and promote a higher level of teamwork. The workspace will be more modern and will reduce our environmental impact as we adopt the use of a solar integration system and other lighting energy efficiencies. Furthermore, the new facility will help offset rising facility and tax operating expenses when compared to our older facilities. For international, revenue is $58 million, increasing sequentially by $2 million. Market conditions are steadily improving in most of the areas we serve as numerous countries seek to balance their investments in energy security, affordability, and sustainability. In the UK, we have seen a return to growth as market activity is increasing both offshore and onshore, where we see higher order inquiries for cable, valves, safety, and bulk electrical products from our McLean distribution brand. Activity for West Africa increased as we supply major IOCs with gas detection sensors, power cable, and electrical bulks to our export model based in the UK. In Norway, we are seeing activity increase as joint contractor and service company OEMs ramp up development of subsea and related surface projects. In the Middle East, we are seeing opportunities pick up as rig activations increase, drilling and well servicing ramps up, and EPC projects materialize from NOCs across the GCC countries. During the fourth quarter, we supplied a variety of pipe to an NOC in the Middle East, and towards the end of the fourth quarter, invested in future revenue as we increase our local pipe inventory investments by over $5 million. We also experienced an increase in orders for drilling products to support rig count growth and activations in the regions. We remain upbeat about our international segment, where we see activity increasing and market conditions becoming more favorable. And now I'd like to make a few comments related to energy security and the energy evolution. In the fourth quarter, With an IOC operator in the Permian, we worked directly with their greenhouse gas capture project team to provide PBF, instrument air packages, and flare retrofit products that reduced their greenhouse gas emissions, and we expect more projects like this to continue into 2023. We provided PBF products in support of a turnaround for a renewable diesel project and an oil refinery. In the midstream space, we supplied PBF to an operator for a transmission line used to transmit CO2 for enhanced oil recovery. And finally, we provide products for an expansion project in the Gulf Coast for a carbon capture facility. Moving on to our digital initiatives, our digital revenue as a percent of total SAP revenue for the quarter increased to 46% as we continue to leverage technology, automate processes, and work with customers to integrate our systems and leverage digital technologies to streamline the procure-to-pay process. A big focus of ours has been on integrating punch-out catalogs for customers who want to leverage our digital catalogs to transact electronically by populating requisitions and purchase orders digitally, providing a fast and efficient means to order processing. We continue to provide meaningful data to our supply chain program customers, which helps them better understand and analyze how their day-to-day processes impact their supply chain, and thus provides a framework for collaboration by optimizing and improving workflow processes. We are leveraging our AccessNow technology to provide 24-7 secured access and inventory control to products that are on-site location at a major refinery in the Gulf Coast. And finally, I'm excited about OptiWatch, a digital monitoring service offering from our FlexFlow business targeting customers who own and operate permanent horizontal pumping units operating on a permitted saltwater disposal site. Our service monitors the health and operating performance of horizontal pumps by using the data collected to predict future maintenance events that could lead to unplanned maintenance, significantly improving the runtime or reducing the downtime on operating units. Furthermore, our service identifies inefficiencies that may cause excessive power draw. Using our performance-based algorithms, we can adjust the pump operating performance, resulting in improved operating efficiencies, yielding a net benefit in lowering the customer's operating expenses. As an added benefit, it also helps to lower customers' CO2 equivalent consumption values, thus potentially improving their respective ESG scores. With that, let me hand it over to Mark.

Thank you, Dave. Good morning, everyone. Total fourth quarter 2022 revenue was $547 million, down 5%, or $30 million from the third quarter. On a year-over-year basis, the 2022 fourth quarter revenue was up $115 million, or 27%. On a full year basis, total 2022 revenue was $2.1 billion, up more than $500 million from 2021, or an increase of 31%. EBITDA excluding other costs or EBITDA for the fourth quarter was $47 million or 8.6% of revenue, nearly tripling the EBITDA dollars delivered one year ago. On a full year basis, total 2022, EBITDA reached 8.2% of revenue or $175 million, nearly four times the EBITDA dollars delivered in 2021. This marks the third quarter in a row that our quarterly EBITDA dollars surpassed that EBITDA produced for the full year of 2021. EBITDA to revenue flow-throughs were 20% sequentially and 26% year-over-year as a result of our team's execution and strategic focus. The U.S. revenue for the fourth quarter was $414 million, down 21 million or 5% sequentially, driven by seasonal impacts of the holidays and fewer working days. 2022 U.S. revenue totaled $1.591 billion for the full year, up 37%, or $428 million from 2021. Our U.S. energy centers contributed approximately 76% of total U.S. revenues for the fourth quarter, with our U.S. process solutions group contributing the other 24%. On a full year basis, U.S. energy centers contributed approximately 78% of total U.S. revenues in 2022, with U.S. process solutions contributing 22%. Turning to Canada for the fourth quarter, revenue was $75 million, down 11 million or 13% from the third quarter of 2022. On fewer rigs and the primary result of customer projects delivered in the third quarter, as we discussed on our last call, and a 4% negative impact of foreign currency due to a stronger U.S. dollar. On a full year basis, Canada revenue totaled $315 million, an increase of $66 million, or 27% when compared to 2021, despite a negative foreign currency impact of 4%, or approximately $12 million year over year. International revenue for the fourth quarter of 2022 was $58 million, up $2 million sequentially. On a full-year basis, international revenue totaled $230 million, an increase of $10 million, or 5% when compared to 2021. Largely impacted by 7% negative foreign currency impact, approximately $16 million. Our fourth quarter gross margins remained flat from the third quarter at 24.1%. buoyed by increased vendor consideration levels, which we do not expect to repeat and will be lower in the first quarter of 2023 as purchase volume thresholds reset and helped offset a modest decline in product margins due to product and project mix. On a full year basis, gross margin for 2022 was 23.7% compared to 21.9% in 2021. The 180 basis point improvement was driven by a combination of factors, including the intentional action of selectively prioritizing resources to a creative business, and our product margins benefited from product inflation in the period, which has started to moderate, especially on line pipe. Warehousing, selling, and administrative expense, or WSA, for the quarter was $97 million, up $2 million sequentially, and up $6 million year over year. The majority of the increase in WSA in 2022 compared to last year was driven by higher variable compensation expense from the increase in revenue and performance. Looking back one year ago to fourth quarter of 2021, we expanded quarterly revenue by $115 million, yet only added $6 million in quarterly WSA, or about 5% of the increase in revenue, demonstrating improved efficiencies in our ability to leverage our cost base. Moving to operating profit by our geographic segments, in the fourth quarter, the U.S. delivered $26 million in operating profit, or 6.3% of revenue, and Canada delivered $7 million in operating profit, or 9.3% of revenue. The international segment reported $2 million in operating profit, or 3.4% of revenue in the fourth quarter, 2022. Moving to income taxes on a GAAP basis, The effective tax rates for the three and 12 months ended December 31, 2022 were 5.9% and 7.2% respectively. I remind you, this is the effective tax rate as calculated from the face of the income statement and is below the typically expected tax rate at these earnings levels, as our tax provision includes a favorable tax benefit impact from changes in the tax valuation allowance on our deferred tax assets. As such, this is why when imputing our non-GAAP tax rate, we exclude such tax benefit. For modeling purposes, the non-GAAP effective tax rate was approximately 26% for 2022, and 26% to 28% is a reasonable proxy for the effective tax rate for the go-forward quarter and year, when excluding other costs. Net income attributable to Now, Inc. for the fourth quarter was $32 million, or 28 cents per fully diluted share. And on a non-GAAP basis, Q4 2022 net income attributable to Now, Inc., excluding other costs, was $29 million, or 25 cents per fully diluted share. Moving to the balance sheet, at the end of the year, we had zero debt and a cash position of $212 million. Cash decreased $55 million in the fourth quarter, primarily related to the successful completion of two acquisitions, totaling $59 million in the quarter. In the fourth quarter, we reported $5 million of depreciation and amortization and $19 million for the full year 2022. In the first quarter of 2023, we expect quarterly depreciation and amortization expense to increase to $6 million as a result of our 4Q acquisitions. We ended the year with total liquidity of $564 million, which comprises our net cash position and $352 million in additional credit facility availability. Accounts receivable was $398 million, a decrease of 2%, or $8 million from the third quarter. Inventory was $381 million at year end, and we invested $20 million in additional inventory in the fourth quarter that caused a slight drag to quarterly inventory turn rates that equaled 4.4 times. I will highlight a portion of our fourth quarter inventory investment was specifically procured to support several customers in our international segment with growth forecasted in 2023. Accounts payable was $304 million, a decrease of $35 million from the third quarter. And for the fourth quarter of 2022, working capital excluding cash as a percentage of our fourth quarter annualized revenue was approximately 16.7%. Cash flow provided by operations was $6 million in the quarter, which drove positive free cash flow of $4 million in the fourth quarter after considering the $2 million in capital expenditures. Capital expenditures for full year 2022 was $9 million as we invested in operating equipment and facilities to enhance efficiencies and increase service levels to our customers. Looking back at 2022, it was a story of two halves. as working capital investments in the first half of 2022 contributed to a net consumption of $51 million in cash from operations, compared to the last two quarters of 2022 when we generated $51 million in cash from operations in the second half of the year on a lower build in working capital and improved earnings, thus bringing full-year 2022 cash from operations to zero. And when taking into account our $9 million of capital expenditures in 2022, the full year 2022 free cash flow is a use of $9 million. This year marks a significant milestone for our business and one with important implications about our cash flow generation potential. In 2022, we demonstrated our ability to expand our business 31% without consuming cash from operations. a remarkable feat for a distribution business that traditionally generates counter-cyclical cash flows. This shows how our actions over the past few years have positioned D-NOW to generate cash through the cycles, which bodes well for our future aspirations and capital allocation plans. In the fourth quarter, we continued to execute on our share repurchase program with additional repurchases of $3 million at an average share price of $11.50. As of December 31, 2022, we repurchased $7 million of our $80 million authorized share repurchase program at an average share price of $10.82. Our commitment to growing the company through acquisitions and organic growth remains a top priority, while also having the ability to repurchase shares opportunistically as we use the tools in our broadened capital allocation framework to generate attractive shareholder returns. without deviating from our disciplined approach to balance sheet management. We continue to be debt-free, have no interest payments, and remain meticulous with our disciplined capital allocation strategy. Delivery on cash flow generation is a priority, effective working capital management, and maintaining our strong liquidity and financial position. And with that, let me turn the call back to Dave.

Thank you, Mark. It's our intention to play a bigger, more active role in the energy evolution. We see a growing number of opportunities where D-NOW can collaborate with our customers to reduce their scope one, two, and three emissions with the products we provide, combined with our supply chain services and digital offerings. We are helping our customers work towards meeting their greenhouse gas emission reduction goals, working closely with their corporate-focused ESG teams to identify and eliminate greenhouse gas emissions by upgrading their aging oil and gas PVF infrastructure, replacing gas pneumatic systems with compressed air systems, and partnering with our supply chain management teams in areas that lead to emission reductions tied to improved supply chain efficiencies related to materials management and logistics to support their production. I'm proud of the positive impact our DENAL employees are having on our industry, not only reflecting on our own ESG journey, but positioning D-NOW as a more important contributor to our customers. In fact, we have seen many of our customers set goals to reduce or eliminate flaring. In one example, I point out ExxonMobil's recent announcement to end flaring in Permian and earmarking some $17 billion on reducing its emissions by 2027, according to a January Reuters report. In an effort to tap into this demand and expand on the contribution we are making in lowering our customers' emissions, I'm happy to announce that in December 2022, D-NOW further expanded our set of energy evolution and ESG solutions by completing the acquisition of Ecovapor recovery systems. Ecovapor has a unique position in the oil and gas sector. Its patented process technology addresses the venting and flaring of gas from oil and water tank batteries, allowing operators to reduce emissions while generating revenue from the sale of the additional gas. Oxygen contamination in storage tanks is common due to low tank operating pressure resulting in a captured gas product that exceeds the allowable percentage of volume and therefore cannot be sold to local gas gatherers and midstream facilities. Operators have had little recourse other than flaring this gas, a waste of energy, and a source of carbon and nitrous oxide emissions. EcoVapor's patented Zero-Two product, short for Zero Oxygen, addresses this common problem and is highly effective in reducing oxygen content to meet pipeline specifications. The value is simple. Zero-Two treats what was a source of emissions and allows the captured gas to be sold for additional revenue. There is abundant evidence that tank batteries are one of the principal sources of emissions in the upstream production inventory. Industry. Ecovapor is a leading environmental solution and now operates in most major oil-producing basins in the lower 48. Ecovapor's technology and service platform is poised for growth given the increasing focus on emissions and energy security as our products focus on the elimination of the waste of natural gas from production operations. I'm optimistic about Ecovapor's growth opportunities in the RNG or renewable gas sector. Biogas and RNG capacity have grown rapidly over the last few years, and expectations of production growth could be in the neighborhood of 50% by 2024. Sales of Ecovapor's Zero-Two product line and associated equipment from the RNG sector are a growing contributor to Ecovapor's revenue and earnings. Ecovapor's position in this industry is somewhat unique, and enjoys some key competitive differentiators. These advantages are particularly evident in the livestock and agricultural-based biogas projects, which represent three-quarters of all biogas projects under construction. The Zero-Two product line is well-suited for the ag-based projects with multiple sizes, which allows the project owners to optimize capacity and cost. EcoVapor resides as part of our expanding U.S. Process Solutions business alongside our market-leading power service, Odessa pumps, and FlexFlow brands, further differentiating D-NOW and the value we provide our customers. Now switching to our outlook for 2023. In the U.S., we expect customer spending to increase year-over-year with capital discipline regulating production growth according to industry forecasts. It is worth noting rig day rates and completion rates Expense continues to rise. In fact, they are forecasted to rise more as a percentage than the product we provide. In Canada, we expect customers to look to maintain production, and we see a basically flat scenario playing out there. Internationally, we expect to see growth as activity and sales inquiries have increased as IOCs and NOCs post larger percentage year-over-year growth. Specific to the first quarter of 2023, we expect sequential revenue to increase in the low to mid single-digit percentage range compared to 4Q22. 1Q23 EBITDA dollars could reach as much as 50% above 1Q22 EBITDA dollars, which was $28 million. And we upgrade our forecasted full-year 2023 revenue to now increase 8% to 12% compared to the full-year 2022 revenue. Full year 2023 EBITDA is targeted at 8% of revenue. Cash flow from operations to approximately $100 million in the full year 2023 at these forecasted levels of activity. I'm thrilled about our strong fourth quarter results, which capped off a stellar record year for DENOW. For the year, we achieved revenue growth of $504 million, or 31% growth compared to 2021, without consuming cash from operations. as we turned working capital seven times, delivered impressive gross margins of 23.7%, and generated $175 million in EBITDA, excluding other costs, or 8.2% of revenue. Our investments and four supercenters equip us to grow in those regional markets and calibrate product availability to resolve customer supply chain challenges. Additionally, the three acquisitions we completed during the year further enhance our competitive position and importance to suppliers while deepening our appeal to customers. Entering 2023, we are in a great place as a company. We remain debt-free with ample liquidity and are well positioned for continued growth and success. To my D-NOW family, our success is a direct result of your singular focus on our customers each and every day. And for that, And for everything you do now, I thank you. With that, let's open the call for questions.

Thank you. We will now begin the question and answer session. If you have a question, please press star 1 on your touchtone phone. If you wish to be removed from the queue, please press star 2. If you were using a speakerphone, you may need to pick up the handset first before pressing the numbers. Once again, if you have a question, please press star 1 on your touchtone phone. And our first question today comes from Carl Cousins from Stevens. Cole, please go ahead. Your line is open. Hey, guys. Thanks for taking my questions.

Good morning, Cole. How are you?

Doing well. 2023 looks like it's going to be a strong year for cash generation with $100 million of expected operating cash flow. Can you guys talk a little bit more about how you plan to allocate that between M&A and repurchases?

Well, I think we would continue along the same path. We said when we launched the share repurchase program that our priorities were fund organic growth, and we've done that, and we're focused on that. In 2022, the market expanded and our revenues grew 31%. We think that rate of growth will decline but be strong in 2023, thus allowing for more cash thrown off from the business. So that allows the opportunity for more M&A. We closed two deals in December, three in the full year 2022, and that's a priority for us. As the rate of growth in the organic space is a little slower, we're going to focus even more on M&A. And, of course, the third alternative is to bolster our participation in our share repurchase program, which began in earnest in the second half of last year.

That's helpful. And on WS&A, you guys saw pretty significant improvement in 2023. Can you talk through any additional levers you have to continue to drive improvement and productivity there?

Sure. Yeah, this is Mark. I agree. I think us transforming the business over the last several years has really generated record flow-throughs on this revenue growth. So I think our focus for 2023 is a lot of intent on gross margins. Looking at the levers there, as we all recognize, steel prices and line pipe prices have stabilized some and are starting to come down a bit. So that's a focus of ours, finding ways to maximize revenue margin mix, as well as operational efficiencies. We're still marching through our super center model and finding ways to enhance that closeness to customers and solutions there. So 2023 was an incredible year for us in that productivity. Our guidance next year would have lighter flow-throughs on a year-over-year basis. because we will have some gross margin compression slightly forecast, and then WSA, we're going to continue to invest in the business.

Great. And if I could squeeze one last question in, you talked about gross margin kind of being down in 23. How are you guys thinking about gross margin seasonality throughout 2023?

Well, I'll take that, Mark. I think we're going to start off the year – One Q tends to be our lowest gross margin period. That's just how it tends to be. So I think we'll see a little bit of a dip there for the seasonal impacts. And in 2022, like 2021, our purchase volumes, especially towards the end of the year, ramped up enough where our vendor consideration, we kind of topped it off in the fourth quarter. and it favorably impacted gross margins. So I think we'll see a first quarter contraction, but I think the first half gross margins will be stronger perhaps in the second half. We haven't talked about overall gross margin changes going into the new year, but it could be a 30 basis points decline, but still well above our 2021-2022 average. You know, if you recall, we had pipe prices mid-22 at very high levels. We enjoyed the benefit. Our competitors enjoyed the benefit of that kind of hyperinflation pipe. Like Mark mentioned earlier, that's diminished. So we still expect really strong gross margins, but a little bit of an easing going into the new year.

Perfect. Thanks, guys. I'll turn it back.

The next question is from Nathan Jones from Stifel. Nathan, please go ahead. Your line is open.

Good morning, everyone. Good morning, Nathan. Good morning. Dave, I'm going to pick up a comment you made in your opening remarks that said build on and get better at what you're good at and avoid distractions. Can you maybe talk about where you think you are in that process? What are the primary things you need to build on and get better at? You know, if there's still things in there within the business that you need to maybe get out of the business to avoid some of those distractions.

Yeah, I think we're – you know, really I was referencing the sentiment and the main thing I wanted to focus on two years ago. And we've done a lot along those lines. We're a much more efficient organization. We've changed our fulfillment model where – Historically, most projects were managed from all of our locations. It was inefficient. It left excess inventory across the whole network. We've tried to regionalize that where we can manage projects regionally with a lot better flow through, more efficiency, and... I think we're very well down that path. We talked about a super center that we're going to expand in Canada in the first half of this year. We'll probably do another one, which we haven't named the location yet publicly, but we'll probably do another one in the first half of the year as well. With that, standing up a newer super center, we'll be well down that kind of journey towards

optimizing the network now it's a matter of seizing growth organically and inorganically um okay thanks for that i guess second question i wanted to ask on this eco vapor business is this i was just thinking about it as it relates to power service and the turnkey tank battery solutions that you're doing is this basically just a piece of equipment you can bolt on to um to the turnkey tank battery that'll capture you know some of the emissions that come out of that um i would think that's a pretty easy way for you to kind of expand their sales um and just what what you believe the main opportunities for you to to grow their sales are

Hey, Nathan, this is Brad. I'll start, and maybe Dave or Mark will have additional comments. But, yeah, you're right. I mean, this is – you know, we highlighted two applications, first of all, in the prepared remarks, the first one being oil and gas tank batteries, the other opportunity being the R&G market, which is positioned to grow greatly. In the oil and gas market, the opportunities in existing tank batteries, what we call brownfield applications – attractive they tend to be lower flow rates where you know new greenfield opportunities are larger tank batteries that have higher production so we we have a scalability of our product based on the flow of gas and the applications really on the low pressure gas side where you know the oil storage and produce water tanks will you know, emit a vapor. It's actually a rich vapor that's saturated with liquid. So the recovered gas, once we remove the oxygen out of that, out of that captured gas, um, is a rich gas and, uh, is really a nice premium for the oil and gas companies to recover that and be able to sell that for additional benefit. And then, obviously, this would be kind of the routine flaring. If a midstream operator, which is sampling the gas stream, detects a high parts per million oxygen level, they'll shut down. you know, the supply line of gas and therefore, you know, results in the flaring, kind of, you know, non-routine flaring of the oil and gas company. So kind of that, Dave talked about that dual value proposition. We're excited about that opportunity. You know, it naturally fits within our U.S. process solutions business. We have, you know, a full portfolio or suite of products for that tank battery, and we can leverage not only the EcoVapor technology, existing sales, technical sales team, but we have a highly technical sales force that we employ with our power service and Odessa pumps and also FlexFlow organization. So we plan to scale the business development and sales opportunities there to get more exposure to D-NOW's customer base where prior EcoVapor's exposure was limited or less just because it was a smaller company. Dave or Mark, any thoughts? Go on, Nathan.

I was going to say, it seems like a business that you should be able to grow pretty rapidly with your customer relationships. Is there any information you can give us on kind of what level of revenue they're at now and what level of revenue you think you can grow that to over three to five years?

Yeah, I'll give you kind of some summary information. So they're probably in the $12 to $15 million revenue range at good margins. And I think the opportunity is to put more units in the fleet, to favor sales over rental for some of the products, but to grow really, I think the sweet spot would be to grow outside of oil and gas as we embrace the energy evolution. But it starts off small. but it really, to your, you know, implied in your question, I think there's real benefit as we anneal it with our power service business in particular.

Okay, thanks for taking my questions. You're welcome.

The next question comes from Doug Baker from Capital One. Doug, your line is open. Please go ahead.

Thanks. Dave, I was hoping you'd expand on what you're hearing from the U.S. upstream customers about activity this year, and particularly given the decline in natural gas prices.

Brad, do you want to take that? Yeah, Doug, thanks for the question.

We're obviously in the middle of earnings season here, so we're seeing, much like many of you, customer budgets come out. We're seeing increases year-over-year of customer budgets, and a lot of kind of built into our, you know, 8% to 12% year-over-year revenue guide was really thinking about the drilling contractor, you know, the field is somewhat tight as far as inventory. We're seeing day rate pricing pressure increase. We're seeing, you know, tightness there, and that's driving inflation. That's going to consume part of our customers' budgets. We're seeing completions and frack spread rate also limited and tight supply there. So we're thinking more of the capex that customers are spending going to be consumed there. You know, kind of conversely, you know, the pipe mills over the past couple of quarters have kind of caught up the supply to the demand. So, you know, we're seeing some kind of deflationary pricing pressure associated with our lime pipe, which we, you know, benefited from, you know, last year. So You know, we still think, you know, obviously growth is poised for the U.S. market poised for growth. You know, maybe an immediate concern is, you know, how the market's going to respond to lower gas prices that we've seen here recently. Still trying to digest that. But, you know, taken all together, you know, I think, again, a larger percent of the customer budgets on a year-over-year basis are being consumed by, um, you know, the products and the labor that we don't sell right now. So, you know, kind of our percent of that pie is a little bit smaller. So we kind of bake that into our guide as, as Dave denoted earlier.

No, and that makes sense, but it sounds like as we sit here today, you haven't noticed any response to the natural gas prices. Is that fair to say?

Yeah, I think, I actually think that's fair. I mean, we, um, We've seen rig counts decline, and I think that's going to impact us, especially in the first quarter. But, no, we still, you know, we gauge our near-term outlook on customers' projects that they place with us versus the projects that are in the pipeline. We look at our kind of order book versus and how that's trending. So we feel like, you know, our guide is not a conservative one. It's conservative. It's not going to be an easy one to deliver in 2023, but we'll learn more as the customers put out their budgets. But I think what Brad was trying to say is the bulk of the customer CapEx budget is going to be consumed by day rates and frack crew costs and things that really aren't product cost related. You know, the impacts of oil prices, kind of at a five-quarter low in gas prices, as we discussed. I don't think we've seen the impacts yet, but except in the big count, which really is, to me, the best barometer for our revenue opportunity, and that's starting off pretty slow this year.

Great. Maybe, Mark, what are the assumptions around working capital and the cash flow from operation guidance for the year?

Yeah, so that's a great question, and I think we're going to work to – to optimize some of our working capital metrics to try to get some of that balance sheet into that free cash flow number into next year. But again, still a growth year, still an expectation for us to add inventory to the balance sheet in the coming year. And so I think that we finished the year, inventory turns were a little lower than we would have expected. historically wanted as a metric goes, but there was some intentional forward deployment there for some inventory. So I think, you know, as the quarters ebb and flow, especially, you know, maybe heavy in the year, we're going to see a little bit of a build there in working capital on the balance sheet.

Yeah, let me add to that, Mark. We have really strong working capital turns. In 2021, we had a kind of an era of inventory depletion, which made our working capital turns, you know, in the 80s. and almost nine times in some of the quarters. That's changed, of course, because we're still in build mode. The market's still going to expand. But we will now be able to see the rate of growth on absolute inventory values and absolute receivables values taper off, and then we'll be able to burn off cash in that scenario. So I think we'll see our working capital turns ease a little bit or be a little less – you know, strong, but I think that's just a natural result of, you know, we're in a kind of fully stocked mode in terms of customer order fulfillment, and that's showing in our numbers, but still really good balance sheet management, but there's room for improvement for sure.

Got it. And then just the last one, the pace of share repurchases slowed modestly during the fourth quarter. I wanted to get a sense of what the thought process was behind it. Is it just a byproduct of the buyback program being opportunistic? Was it the acquisitions or was it some other factor?

Yeah, I think, I think you hit it. So, um, we, um, primarily, um, it was, we, we did two acquisitions in the fourth quarter, you know, we spent $59 million. And when we spoke about opportunistic, obviously you want to buy, buy a good price. And, um, and by at the right time, and like I've said from the beginning, we want to execute that program, but the timing favored the acquisitions we made in the quarter. I think we'll see some increased participation in 2023, but it really was an opportunity to seize two acquisition opportunities, and we jumped on those.

Thank you very much.

Thank you, Doug.

Our final question today comes from Jeff Robertson from Water Tower Research. Jeff, your line is open. Please go ahead.

Thank you.

Dave, can you talk a little bit about the strategy for acquisitions and with respect to process solutions? Is there a goal in terms of what you would like that to become as a share of U.S. revenue?

Well, I think where we're at today is three-quarters of the U.S. is energy and approximately 25% is Process Solutions. Naturally, we want them both to grow, and I'd be happy if they both grew 50% and the ratios were the same three years from now. But Process Solutions, to me, it's primarily a pump business, but a lot more than that. It has a level of stickiness with our customers. It puts us in a really sweet spot with core manufacturers, Um, that that's, I think where we've done our last eight or so acquisitions, because it's a business we simply want to build organically and inorganically. Um, so anyway, I, um, I think the focus is on bolstering that business. Um, because it's, you know, it's something that's a bit of a departure from standard, uh, upstream oil and gas. and process solutions does afford us some opportunities to grow in the industrial space as well. Now I've said for my tenure as CEO that we've been less interested in energy businesses because our energy business wasn't as strong as it is today, so we'll be looking to grow acquisitions across the board by segment or by by business unit, but there's more after market service opportunities and some of these acquisitions were focused on and that tends to be more on the process solution side. So, you know, that's where we're putting our acquisition dollars so far, but that could change. Thanks for the question, Jeff.

Ladies and gentlemen, we've reached the end of our time for the question and answer session. I will now turn the call over to Brad Wise for closing remarks.

Well, thank you, everyone, for your questions today and your interest in NOW, Inc. We look forward to talking with everyone on the first quarter 2023 earnings conference call in May. Have a nice day, and we'll turn the call back over to the operator. Thank you.

Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect your lines. Thank you. Hello. Bye.

Thank you. Thank you.

Welcome to the Now, Inc. Fourth Quarter 2022 Earnings Conference Call. My name is Adam, and I will be the operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. I will now turn the call over to Vice President of Digital Strategy and Investor Relations, Brad Wise. Mr. Wise, you may begin.

Well, thank you, Adam, and good morning, and welcome to Now, Inc.' 's Fourth Quarter and Full Year 2022 Earnings Conference Call. We appreciate you joining us and thank you for your interest in NOW, Inc. With me today is David Cherchensky, President and Chief Executive Officer, and Mark Johnson, Senior Vice President and Chief Financial Officer. We operate primarily under the Distribution Now and D-NOW brands, and you'll hear us refer to Distribution Now and D-NOW, which is our New York Stock Exchange ticker symbol, during our conversation this morning. Please note that some of the statements we make during this call, including the responses to your questions, may contain forecasts, projections, and estimates, including but not limited to comments about our outlook for the company's business. These are forward-looking statements within the meaning of the U.S. federal securities laws based on limited information as of February 16, 2023, which is subject to change. They are subject to risks and uncertainties, and actual results may differ materially. No one should assume that these forward-looking statements remain valid later in the quarter or later in the year. We do not undertake any obligation to publicly update or revise any forward-looking statements for any reason. In addition, this conference call contains time-sensitive information that reflects management's best judgment at the time of the live call. I refer you to our latest Forms 10-K and 10-Q that NOW, Inc. has on file with the U.S. Securities and Exchange Commission for a more detailed discussion of the major risk factors affecting our business. Further information as well as supplemental financial and operating information may be found within our earnings release on our website at ir.dnow.com or in our filings with the SEC. In an effort to provide investors with additional information relative to our results as determined by U.S. GAAP, You'll note that we also disclose various non-GAAP financial measures, including EBITDA excluding other costs, sometimes referred to as EBITDA, net income attributable to Now, Inc., excluding other costs, and diluted earnings per share attributable to Now, Inc., excluding other costs. Each excludes the impact of certain other costs and, therefore, have not been calculated in accordance with GAAP. Please refer to a reconciliation of each of these non-GAAP financial measures to its most comparable GAAP financial measure and the supplemental information available at the end of our earnings release. As of this morning, the investor relations section of our website contains a presentation covering our results and key takeaways for the fourth quarter and full year 2022. A replay of today's call will be available on our site for the next 30 days. We plan to file our 2022 Form 10-K today, and it will also be available on our website. Now, let me turn the call over to Dave.

Thanks, Brad, and good morning, everyone. Two years ago this week, Mark, Brad, and I were shivering in this office on our earnings call running on limited backup power during the Great Texas Freeze winter storm URIE. That storm brought the coldest temperatures in over seven decades to Texas in a cold snap that impacted millions of people from Texas to the Canadian border. We had no power and more chilling had no earnings in the year just ended 2020. The roads were impassable, the path to the future uncertain. Misery pervaded the whole economy. But there were some things at that time I was certain about. about how a new D-NOW could transform itself and thrive. One, we knew that the single most important factor in successfully implementing a strategy path, be fully committed, be disciplined, and to purposefully reject the temptation by those marginal distractions which would dilute our strengths. Simply put, build on and get better at what we're good at, equip our people, allocate talent and time where our customers see value, and let the other guys deal in distractions. Two, we messaged exhaustively about deliberately high-grading our business. By that, we mean focusing on higher-margin manufacturers, businesses, product lines, locations, and activities to deliver strong gross margins irrespective of inevitable commodity price gravity. Be selective, manage mid- and maximize margins. We pick partners as suppliers, expect partnership reciprocity, commit purchase volumes to them, honor our commitments, promote their brands, and deliberately promote value. Three, our primary operational objective was to increase customer intimacy, improve product availability, manage projects, and deploy ample inventory stocks regionally. ultimately redesigning our PBF distribution business by deploying a more efficient fulfillment model, moving from a highly autonomous branch model to a more cohesive regional super center posture. This transformation was a predicate to improving product availability and value for our customers, providing better support to our suppliers, enabling higher levels of productivity while better managing downside risk. Our operation strategy places a premium on order accuracy, adherence to customer specifications, and on-time delivery, and our customers are rewarding us for doing so. And lastly, number four, we said we'd win the market through the careful cultivation of a world-class sales team. We would provide unmatched customer attention with a bias towards solutions and value without relying on price as a lure. Our sales teams place a premium on returning value to our customers by truly understanding their challenges in articulating D-NOW's proprietary solutions. The competitive spirit of our sales professionals has helped create a true culture of winning within D-NOW, and the technical acumen and supply chain expertise they provide to customers has proven to be of vital importance in an era of supply chain disruption and capital disciplines. Although every one of our employees brought about this D-NOW renaissance, I want to directly thank and cheer our top sales leadership for enduring the corporate pivot, for promoting changes internally into the market, for leading with competence and attitude, and delivering a much more profitable enterprise, which without them would otherwise be impossible. Now I'll hit some of the financial highlights. Fourth quarter revenue was $547 million, lower sequentially by 5% at the better end of our guide provided on the last call. For the full year 2022, revenues were $2.136 billion. In 4Q22, overall gross margin was unchanged at 24.1%. Our full year 2022 gross margin was 23.7%, up 180 basis points from the full year 2021 levels where 2021 was itself a record gross margin year in its own right. For the fourth quarter, EBITDA was 47 million or 8.6% of revenue, strong performance, especially in a period with seasonal and holiday headwinds. For the full year 2022, EBITDA was 175 million or 8.2% of revenue, a consequential turning point for the company. setting the stage for significantly improved earnings power and cash flows into the future. During the second half of 2022, we generated $48 million in pre-cash flow, and on a full year basis, in a year where we increased revenue over $500 million, added over $130 million in inventory for our customers, and $9 million in infrastructure and rental equipment, we had zero consumption of cash from operations, and only consumed $9 million in free cash flow in 2022. Additionally, to fortify our U.S. process solutions business, we completed two acquisitions in December of 2022, building on DENOW's pump and engineered process equipment capabilities. These acquisitions strengthen DENOW's value to customers and open up additional opportunities in energy evolution. One of the patented solutions we acquired provides customers with dual value proposition of improved gas recovery, as well as emissions reductions within traditional oil and gas, and the elimination of flaring, but also expands our reach into the renewable natural gas or RNG market. Our second December acquisition grows our market leading pump position in the Permian area by expanding our customer relationships, customer base, and our capabilities on aftermarket service and pump repair. Now some comments on a regional basis. In the U.S., revenue was $414 million, $21 million lower sequentially, down 5% due to predicted seasonal impacts. Product margins declined slightly as non-pipe product lines partially offset some margin compression on steel line pipe, which we expected to happen and mentioned on the last few calls. Gross margins were flat as vendor consideration in the fourth quarter grew due to achieving higher purchase volumes. During the quarter, we began operations for our newest super center or mega center, as I mentioned on the previous call, located in Wilson, North Dakota, strategically positioned right in the heart of the Bakken play. This new facility afforded us the opportunity to optimize our regional footprint by consolidating several of our standalone businesses. Not only does our Williston Mega Center house our U.S. energy pipe valves and fittings regional operations, but it also includes other DENOW product lines such as TSNM Fiberglass and FlexFlow. We experienced a number of market share wins in the fourth quarter as customers realized the benefits in our ability to lower their operating costs by partnering with DENOW in customized supply chain solutions. We also delivered several large pipe orders during the fourth quarter for a utilities company in the southeast and an operator in the Gulf of Mexico, totaling more than $12 million, which drove our strong 4Q revenue beat. And those $12 million in orders are not expected to recur in the first quarter of 2023. In the midstream sector, we continue to supply steel and fiberglass pipe, actuated valves, and fittings for our natural gas transmission customers. Notable projects include new compressor stations, compressor upgrades to existing stations, and pipeline expansion products across the U.S. In the downstream sector, customer spending during the quarter remains strong as several of our refining and chemical customers hold in PBF and consumable deliveries before year-end to prepare for 1Q23 turnarounds. In our U.S. process solutions business, we saw demand for our fabricated equipment packages increase as orders continue to be placed heading into 2023. We experienced demand for vessels for tank battery construction, as well as lacked units, meter skids, launcher receivers, and water transfer units as midstream activity picked up in response to the steady increase in drilling and completion activity over the past few quarters. Outside of oil and gas, we provided air compressor packages and vertical turbine pump for mine operations for rare earth minerals extraction. For our pump distribution businesses, we experienced steady demand for pump packages for oil and gas tank battery construction, SWD construction, and midstream projects. We look to continue to diversify our end markets and drive incremental revenue gains from projects that are upgrading or expanding municipal water districts. In our FlexFlo product line, demand for our trailer-mounted horizontal rental pumps is picking up steam as drilling and completion activity and SWD permitting drives demand to transfer and dispose of increased quantities of produced water. We are currently making investments by upgrading some of our mobile fleet in response to increased market demand as extended delivery times for permanent SWD units persist. In Canada, revenue was $75 million for the quarter, a 13% decrease sequentially, primarily due to seasonal impacts as expected, and revenue was up 4% year-over-year. Overall, we delivered impressive results, yielding a full-year Canadian operating profit of 9.5%, a record for our Canadian segment. During the quarter, we invested in our Canadian operations as we begin initial work in upgrading to a new supercenter location in Alberta, with the work scheduled to be completed in the first half of 2023. It will house multiple business units under the same roofline, maximizing the synergies and value we can deliver for our customers, while fostering more collaboration and promote a higher level of teamwork. The workspace will be more modern and will reduce our environmental impact as we adopt the use of a solar integration system and other lighting energy efficiencies. Furthermore, the new facility will help offset rising facility and tax operating expenses when compared to our older facilities. For international, revenue is $58 million, increasing sequentially by $2 million. Market conditions are steadily improving in most of the areas we serve as numerous countries seek to balance their investments in energy security, affordability, and sustainability. In the UK, we have seen a return to growth as market activity is increasing both offshore and onshore, where we see higher order inquiries for cable, valves, safety, and bulk electrical products from our McLean distribution brand. Activity for West Africa increased as we supply major IOCs with gas detection sensors, power cable, and electrical bulks to our export model based in the UK. In Norway, we are seeing activity increase as joint contractor and service company OEMs ramp up development of subsea and related surface projects. In the Middle East, we are seeing opportunities pick up as rig activations increase, drilling and well servicing ramps up, and EPC projects materialize from NOCs across the GCC countries. During the fourth quarter, we supplied a variety of pipe to an NOC in the Middle East, and towards the end of the fourth quarter, invested in future revenue as we increase our local pipe inventory investments by over $5 million. We also experienced an increase in orders for drilling products to support rig count growth and activations in the regions. We remain upbeat about our international segment, where we see activity increasing and market conditions becoming more favorable. And now I'd like to make a few comments related to energy security and the energy evolution. In the fourth quarter, With an IOC operator in the Permian, we worked directly with their greenhouse gas capture project team to provide PBF, instrument air packages, and flare retrofit products that reduced their greenhouse gas emissions, and we expect more projects like this to continue into 2023. We provided PBF products in support of a turnaround for a renewable diesel project and an oil refinery. In the midstream space, we supplied PBF to an operator for a transmission line used to transmit CO2 for enhanced oil recovery. And finally, we provide products for an expansion project in the Gulf Coast for a carbon capture facility. Moving on to our digital initiatives, our digital revenue as a percent of total SAP revenue for the quarter increased to 46% as we continue to leverage technology, automate processes, and work with customers to integrate our systems and leverage digital technologies to streamline the procure-to-pay process. A big focus of ours has been on integrating punch-out catalogs for customers who want to leverage our digital catalogs to transact electronically by populating requisitions and purchase orders digitally, providing a fast and efficient means to order processing. We continue to provide meaningful data to our supply chain program customers, which helps them better understand and analyze how their day-to-day processes impact their supply chain, and thus provides a framework for collaboration by optimizing and improving workflow processes. We are leveraging our AccessNow technology to provide 24-7 secured access and inventory control to products that are on-site location at a major refinery in the Gulf Coast. And finally, I'm excited about OptiWatch, a digital monitoring service offering from our FlexFlow business targeting customers who own and operate permanent horizontal pumping units operating on a permitted saltwater disposal site. Our service monitors the health and operating performance of horizontal pumps by using the data collected to predict future maintenance events that could lead to unplanned maintenance, significantly improving the runtime or reducing the downtime on operating units. Furthermore, our service identifies inefficiencies that may cause excessive power draw. Using our performance-based algorithms, we can adjust the pump operating performance, resulting in improved operating efficiencies, yielding a net benefit in lowering the customer's operating expenses. As an added benefit, it also helps to lower customers' CO2 equivalent consumption values, thus potentially improving their respective ESG scores. With that, let me hand it over to Mark.

Thank you, Dave. Good morning, everyone. Total fourth quarter 2022 revenue was $547 million, down 5%, or $30 million from the third quarter. On a year-over-year basis, the 2022 fourth quarter revenue was up $115 million, or 27%. On a full year basis, total 2022 revenue was $2.1 billion, up more than $500 million from 2021, or an increase of 31%. EBITDA excluding other costs or EBITDA for the fourth quarter was $47 million or 8.6% of revenue, nearly tripling the EBITDA dollars delivered one year ago. On a full year basis, total 2022, EBITDA reached 8.2% of revenue or $175 million, nearly four times the EBITDA dollars delivered in 2021. This marks the third quarter in a row that our quarterly EBITDA dollars surpassed that EBITDA produced for the full year of 2021. EBITDA to revenue flow-throughs were 20% sequentially and 26% year-over-year as a result of our team's execution and strategic focus. The U.S. revenue for the fourth quarter was $414 million, down 21 million or 5% sequentially, driven by seasonal impacts of the holidays and fewer working days. 2022 U.S. revenue totaled $1.591 billion for the full year, up 37%, or $428 million from 2021. Our U.S. energy centers contributed approximately 76% of total U.S. revenues for the fourth quarter, with our U.S. process solutions group contributing the other 24%. On a full year basis, U.S. energy centers contributed approximately 78% of total U.S. revenues in 2022, with U.S. process solutions contributing 22%. Turning to Canada for the fourth quarter, revenue was $75 million, down 11 million or 13% from the third quarter of 2022. On fewer rigs and the primary result of customer projects delivered in the third quarter, as we discussed on our last call, and a 4% negative impact of foreign currency due to a stronger U.S. dollar. On a full year basis, Canada revenue totaled $315 million, an increase of $66 million, or 27% when compared to 2021, despite a negative foreign currency impact of 4%, or approximately $12 million year over year. International revenue for the fourth quarter of 2022 was $58 million, up $2 million sequentially. On a full-year basis, international revenue totaled $230 million, an increase of $10 million, or 5% when compared to 2021. Largely impacted by 7% negative foreign currency impact, approximately $16 million. Our fourth quarter gross margins remained flat from the third quarter at 24.1%. buoyed by increased vendor consideration levels, which we do not expect to repeat and will be lower in the first quarter of 2023 as purchase volume thresholds reset and helped offset a modest decline in product margins due to product and project mix. On a full year basis, gross margin for 2022 was 23.7% compared to 21.9% in 2021. The 180 basis point improvement was driven by a combination of factors, including the intentional action of selectively prioritizing resources to a creative business, and our product margins benefited from product inflation in the period, which has started to moderate, especially on line pipe. Warehousing, selling, and administrative expense, or WSA, for the quarter was $97 million, up $2 million sequentially, and up $6 million year over year. The majority of the increase in WSA in 2022 compared to last year was driven by higher variable compensation expense from the increase in revenue and performance. Looking back one year ago to fourth quarter of 2021, we expanded quarterly revenue by $115 million, yet only added $6 million in quarterly WSA, or about 5% of the increase in revenue, demonstrating improved efficiencies in our ability to leverage our cost base. Moving to operating profit by our geographic segments, in the fourth quarter, the U.S. delivered $26 million in operating profit, or 6.3% of revenue, and Canada delivered $7 million in operating profit, or 9.3% of revenue. The international segment reported $2 million in operating profit, or 3.4% of revenue in the fourth quarter, 2022. Moving to income taxes on a GAAP basis, The effective tax rates for the three and 12 months ended December 31, 2022 were 5.9% and 7.2% respectively. I remind you, this is the effective tax rate as calculated from the face of the income statement and is below the typically expected tax rate at these earnings levels, as our tax provision includes a favorable tax benefit impact from changes in the tax valuation allowance on our deferred tax assets. As such, this is why when imputing our non-GAAP tax rate, we exclude such tax benefit. For modeling purposes, the non-GAAP effective tax rate was approximately 26% for 2022, and 26% to 28% is a reasonable proxy for the effective tax rate for the go-forward quarter and year, when excluding other costs. Net income attributable to Now, Inc. for the fourth quarter was $32 million, or 28 cents per fully diluted share. And on a non-GAAP basis, Q4 2022 net income attributable to Now, Inc., excluding other costs, was $29 million, or 25 cents per fully diluted share. Moving to the balance sheet, at the end of the year, we had zero debt and a cash position of $212 million. Cash decreased $55 million in the fourth quarter, primarily related to the successful completion of two acquisitions, totaling $59 million in the quarter. In the fourth quarter, we reported $5 million of depreciation and amortization and $19 million for the full year 2022. In the first quarter of 2023, we expect quarterly depreciation and amortization expense to increase to $6 million as a result of our 4Q acquisitions. We ended the year with total liquidity of $564 million, which comprises our net cash position and $352 million in additional credit facility availability. Accounts receivable was $398 million, a decrease of 2%, or $8 million from the third quarter. Inventory was $381 million at year end, and we invested $20 million in additional inventory in the fourth quarter. That caused a slight drag to quarterly inventory turn rates that equaled 4.4 times. I will highlight a portion of our fourth quarter inventory investment was specifically procured to support several customers in our international segment with growth forecasted in 2023. Accounts payable was $304 million, a decrease of $35 million from the third quarter. And for the fourth quarter of 2022, working capital excluding cash as a percentage of our fourth quarter annualized revenue was approximately 16.7%. Cash flow provided by operations was $6 million in the quarter, which drove positive free cash flow of $4 million in the fourth quarter after considering the $2 million in capital expenditures. Capital expenditures for full year 2022 was $9 million as we invested in operating equipment and facilities to enhance efficiencies and increase service levels to our customers. Looking back at 2022, it was a story of two halves. as working capital investments in the first half of 2022 contributed to a net consumption of $51 million in cash from operations, compared to the last two quarters of 2022 when we generated $51 million in cash from operations in the second half of the year on a lower build in working capital and improved earnings, thus bringing full-year 2022 cash from operations to zero. And when taking into account our $9 million of capital expenditures in 2022, the full year 2022 free cash flow was a use of $9 million. This year marks a significant milestone for our business and one with important implications about our cash flow generation potential. In 2022, we demonstrated our ability to expand our business 31% without consuming cash from operations. a remarkable feat for a distribution business that traditionally generates counter-cyclical cash flows. This shows how our actions over the past few years have positioned D-NOW to generate cash through the cycles, which bodes well for our future aspirations and capital allocation plans. In the fourth quarter, we continued to execute on our share repurchase program with additional repurchases of $3 million at an average share price of $11.50. As of December 31, 2022, we repurchased $7 million of our $80 million authorized share repurchase program at an average share price of $10.82. Our commitment to growing the company through acquisitions and organic growth remains a top priority, while also having the ability to repurchase shares opportunistically as we use the tools in our broadened capital allocation framework to generate attractive shareholder returns. without deviating from our disciplined approach to balance sheet management. We continue to be debt-free, have no interest payments, and remain meticulous with our disciplined capital allocation strategy. Delivery on cash flow generation is a priority, effective working capital management, and maintaining our strong liquidity and financial position. And with that, let me turn the call back to Dave.

Thank you, Mark. It's our intention to play a bigger, more active role in the energy evolution. We see a growing number of opportunities where D-NOW can collaborate with our customers to reduce their scope one, two, and three emissions with the products we provide, combined with our supply chain services and digital offerings. We are helping our customers work towards meeting their greenhouse gas emission reduction goals, working closely with their corporate-focused ESG teams to identify and eliminate greenhouse gas emissions by upgrading their aging oil and gas PVF infrastructure, replacing gas pneumatic systems with compressed air systems, and partnering with our supply chain management teams in areas that lead to emission reductions tied to improved supply chain efficiencies related to materials management and logistics to support their production. I'm proud of the positive impact our D-NOW employees are having on our industry, not only Reflecting on our own ESG journey, the positioning denial is a more important contributor to our customers. In fact, we have seen many of our customers set goals to reduce or eliminate flaring. In one example, I point out ExxonMobil's recent announcement to end flaring in Permian and earmarking some $17 billion on reducing its emissions by 2027, according to a January Reuters report. In an effort to tap into this demand and expand on the contribution we are making in lowering our customers' emissions, I'm happy to announce that in December 2022, D-NOW further expanded our set of energy evolution and ESG solutions by completing the acquisition of Ecovapor recovery systems. Ecovapor has a unique position in the oil and gas sector. Its patented process technology addresses the venting and flaring of gas from oil and water tank batteries, allowing operators to reduce emissions while generating revenue from the sale of the additional gas. Oxygen contamination in storage tanks is common due to low tank operating pressure resulting in a captured gas product that exceeds the allowable percentage of volume and therefore cannot be sold to local gas gatherers and midstream facilities. Operators have had little recourse other than flaring this gas, a waste of energy, and a source of carbon and nitrous oxide emissions. EcoVapor's patented Zero-Two product, short for Zero Oxygen, addresses this common problem and is highly effective in reducing oxygen content to meet pipeline specifications. The value is simple. Zero-Two treats what was a source of emissions and allows the captured gas to be sold for additional revenue. There is abundant evidence that tank batteries are one of the principal sources of emissions in the upstream production inventory. Industry. Ecovapor is a leading environmental solution and now operates in most major oil producing basins in the lower 48. Ecovapor's technology and service platform is poised for growth given the increasing focus on emissions and energy security as our products focus on the elimination of the waste of natural gas from production operations. I'm optimistic about Ecovapor's growth opportunities in the RNG or renewable gas sector. Biogas and RNG capacity have grown rapidly over the last few years, and expectations of production growth could be in the neighborhood of 50% by 2024. Sales of Ecovapor's Zero-Two product line and associated equipment from the RNG sector are a growing contributor to Ecovapor's revenue and earnings. Ecovapor's position in this industry is somewhat unique, and enjoys some key competitive differentiators. These advantages are particularly evident in the livestock and agricultural-based biogas projects, which represent three-quarters of all biogas projects under construction. The Zero-Two product line is well-suited for the ag-based projects with multiple sizes, which allows the project owners to optimize capacity and cost. EcoVapor resides as part of our expanding U.S. Process Solutions business, alongside our market-leading power service, Odessa pumps, and FlexFlow brands, further differentiating D-NOW and the value we provide our customers. Now switching to our outlook for 2023. In the U.S., we expect customer spending to increase year-over-year with capital discipline regulating production growth according to industry forecasts. It is worth noting rig day rates and completion rates Expense continues to rise. In fact, they are forecasted to rise more as a percentage than the product we provide. In Canada, we expect customers to look to maintain production, and we see a basically flat scenario playing out there. Internationally, we expect to see growth as activity and sales inquiries have increased as IOCs and NOCs post larger percentage year-over-year growth. Specific to the first quarter of 2023, we expect sequential revenue to increase in the low to mid single-digit percentage range compared to 4Q22. 1Q23 EBITDA dollars could reach as much as 50% above 1Q22 EBITDA dollars, which was $28 million. And we upgrade our forecasted full-year 2023 revenue to now increase 8% to 12% compared to the full-year 2022 revenue. Full year 2023 EBITDA is targeted at 8% of revenue. Cash flow from operations to approximately $100 million in the full year 2023 at these forecasted levels of activity. I'm thrilled about our strong fourth quarter results, which capped off a stellar record year for DENOW. For the year, we achieved revenue growth of $504 million, or 31% growth compared to 2021, without consuming cash from operations. as we turned working capital seven times, delivered impressive gross margins of 23.7 percent, and generated $175 million in EBITDA, excluding other costs, or 8.2 percent of revenue. Our investments and four super centers equip us to grow in those regional markets and calibrate product availability to resolve customer supply chain challenges. Additionally, the three acquisitions we completed during the year further enhance our competitive position and importance to suppliers while deepening our appeal to customers. Entering 2023, we are in a great place as a company. We remain debt-free with ample liquidity and are well positioned for continued growth and success. To my D-NOW family, our success is a direct result of your singular focus on our customers each and every day. And for that, And for everything you do now, I thank you. With that, let's open the call for questions.

Thank you. We will now begin the question and answer session. If you have a question, please press star 1 on your touch-tone phone. If you wish to be removed from the queue, please press star 2. If you are using a speakerphone, you may need to pick up the handset first before pressing the numbers. Once again, if you have a question, please press star 1 on your touch-tone phone. And our first question today comes from Cole Cousins from Stevens. Cole, please go ahead. Your line is open. Hey, guys. Thanks for taking my questions.

Good morning, Cole. How are you?

Doing well. 2023 looks like it's going to be a strong year for cash generation with $100 million of expected operating cash flow. Can you guys talk a little bit more about how you plan to allocate that between M&A and repurchases?

Well, I think we would continue along the same path. We said when we launched the share repurchase program that our priorities were fund organic growth, and we've done that, and we're focused on that. In 2022, the market expanded and our revenues grew 31%. We think that rate of growth will decline but be strong in 2023, thus allowing for more cash thrown off from the business. So that allows the opportunity for more M&A. We closed two deals in December, three in the full year 2022, and that's a priority for us. As the rate of growth in the organic space is a little slower, we're going to focus even more on M&A. And, of course, the third alternative is to bolster our participation in our share repurchase program, which began in earnest in the second half of last year.

That's helpful. And on WSNA, you guys saw pretty significant improvement in 2023. Can you talk through any additional levers you have to continue to drive improvement and productivity there?

Sure. Yeah, this is Mark. I agree. I think us transforming the business over the last several years has really generated record flow-throughs on this revenue growth. So I think our focus for 2023 is a lot of intent on gross margins. Looking at the levers there, as we all recognize, steel prices and line pipe prices have stabilized some and are starting to come down a bit. So that's a focus of ours, finding ways to maximize margin mix, as well as operational efficiencies. We're still marching through our super center model and finding ways to enhance that closeness to customers and solutions there. So 2023 was an incredible year for us in that productivity. Our guide into next year would have lighter flow-throughs on a year-over-year basis. because we will have some gross margin compression slightly forecast. And then WSA, we're going to continue to invest in the business.

Great. And if I could squeeze one last question in, you talked about gross margin kind of being down in 23. How are you guys thinking about gross margin seasonality throughout 2023?

Well, I'll take that, Mark. I think we're going to start off the year – One Q tends to be our lowest gross margin period. That's just how it tends to be. So I think we'll see a little bit of a dip there for the seasonal impacts. And in 2022, like 2021, our purchase volumes, especially towards the end of the year, ramped up enough where our vendor consideration, we kind of topped it off in the fourth quarter. and it favorably impacted gross margins. So I think we'll see a first quarter contraction, but I think the first half gross margins will be stronger perhaps in the second half. We hadn't talked about overall gross margin changes going into the new year, but it could be a 30 basis points decline, but still well above our 2021-2022 average. You know, if you recall, we had pipe prices mid-22 at very high levels. We enjoyed the benefit. Our competitors enjoyed the benefit of that kind of hyperinflation pipe. Like Mark mentioned earlier, that's diminished. So we still expect really strong gross margins, but a little bit of an easing going into the new year.

Perfect. Thanks, guys. I'll turn it back.

The next question is from Nathan Jones from Stifel. Nathan, please go ahead. Your line is open.

Morning, everyone. Morning, Nathan. Morning. Dave, I'm going to pick up a comment you made in your opening remarks that said, build on and get better at what you're good at and avoid distractions. Can you maybe talk about where you think you are in that process? What are the primary things you need to build on and get better at and You know, if there's still things in there within the business that you need to maybe get out of the business to avoid some of those distractions.

Yeah, I think we're – you know, really I was referencing the sentiment and the main thing I wanted to focus on two years ago. And we've done a lot along those lines. We're a much more efficient organization. We've changed our fulfillment model where – Historically, most projects were managed from all of our locations. It was inefficient. It left excess inventory across the whole network. We've tried to regionalize that where we can manage projects regionally with a lot better flow through, more efficiency, and more I think we're very well down that path. We talked about a super center that we're going to expand in Canada in the first half of this year. We'll probably do another one, which we haven't named the location yet publicly, but we'll probably do another one in the first half of the year as well. With that, standing up a newer super center, we'll be well down that kind of journey towards

optimizing the network now it's a matter of seizing growth organically and inorganically um okay thanks for that i guess second question i wanted to ask on this eco vapor business is this i was just thinking about it as it relates to power service and the turnkey tank battery solutions that you're doing is this Basically, just a piece of equipment you can bolt onto to the turnkey tank battery that will capture some of the emissions that come out of that. I would think that's a pretty easy way for you to kind of expand their sales. And just what you believe the main opportunities for you to grow their sales are.

Hey, Nathan, this is Brad. I'll start, and maybe Dave or Mark will have additional comments. But, yeah, you're right. I mean, this is, you know, we highlighted two applications, first of all, in the prepared remarks, the first one being oil and gas tank batteries, the other opportunity being the R&G market, which is positioned to grow greatly. In the oil and gas market, the opportunities in existing tank batteries, what we call brownfield applications, are attractive. They tend to be lower flow rates where, you know, new greenfield opportunities or larger tank batteries that have higher production. So we have a scalability of our product based on the flow of gas and the applications really on the low pressure gas side where, you know, the oil storage and produce water tanks will you know, emit a vapor. It's actually a rich vapor that's saturated with liquid. So the recovered gas, once we remove the oxygen out of that, out of that captured gas, uh, is a rich gas and, uh, is really a nice premium for the oil and gas companies to recover that and be able to sell that for additional benefit. And then, obviously, this would be kind of the routine flaring. If a midstream operator, which is sampling the gas stream, detects a high parts per million oxygen level, they'll shut down. you know, the supply line of gas and therefore, you know, results in the flaring, kind of, you know, non-routine flaring of the oil and gas company. So kind of that, Dave talked about that dual value proposition. We're excited about that opportunity. You know, it naturally fits within our U.S. process solutions business. We have, you know, a full portfolio or suite of products for that tank battery, and we can leverage not only the EcoVapor technology, existing sales, technical sales team, but we have a highly technical sales force that we employ with our power service and Odessa pumps and also FlexFlow organization. So we plan to scale the business development and sales opportunities there to get more exposure to D-NOW's customer base where prior EcoVapor's exposure was limited or less just because it was a smaller company. Dave or Mark, any thoughts? Go on, Nathan.

I was going to say it seems like a business that you should be able to grow pretty rapidly with your customer relationships. Is there any information you can give us on kind of what level of revenue they're at now and what level of revenue you think you can grow that to over three to five years?

Yeah, I'll give you kind of some summary information. So they're probably in the $12 to $15 million revenue range at good margins. And I think the opportunity is to put more units in the fleet, to favor sales over rental for some of the products, but to grow really, I think the sweet spot would be to grow outside of oil and gas as we embrace the energy evolution. But it starts off small. but it really, to your, you know, implied in your question, I think there's real benefit as we anneal it with our power service business in particular.

Okay, thanks for taking my questions. You're welcome.

The next question comes from Doug Baker from Capital One. Doug, your line is open. Please go ahead.

Thanks. Dave, I was hoping you'd expand on what you're hearing from the U.S. upstream customers about activity this year, and particularly given the decline in natural gas prices.

Brad, do you want to take that? Yeah, Doug, thanks for the question.

We're obviously in the middle of earning season here, so we're seeing, much like many of you, customer budgets come out. We're seeing increases year-over-year of customer budgets, and a lot of kind of built into our, you know, 8% to 12% year-over-year revenue guide was really thinking about the drilling contractor, you know, the field is somewhat tight as far as inventory. We're seeing day rate pricing pressure increase. We're seeing, you know, tightness there, and that's driving inflation. That's going to consume part of our customers' budgets. We're seeing completions and frack spread rate also limited and tight supply there. So we're thinking more of the capex that customers are spending going to be consumed there. You know, kind of conversely, you know, the pipe mills over the past couple of quarters have kind of caught up the supply to the demand. So, you know, we're seeing some kind of deflationary pricing pressure associated with our lime pipe, which we, you know, benefited from, you know, last year. So You know, we still think, you know, obviously growth is poised for the U.S. market, poised for growth. You know, maybe an immediate concern is, you know, how the market's going to respond to lower gas prices that we've seen here recently. Still trying to digest that. But, you know, taken all together, you know, I think, again, a larger percent of the customer budgets on a year-over-year basis are being consumed by, um, you know, the products and the labor that we don't sell right now. So, you know, kind of our percent of that pie is a little bit smaller. So we kind of bake that into our, our guide as, as Dave denoted earlier.

No, and that makes sense, but it sounds like as we sit here today, you haven't noticed any response to the natural gas prices. Is that fair to say?

Yeah, I think, I actually think that's fair. I mean, we, um, We've seen rig counts decline, and I think that's going to impact us, especially in the first quarter. But, no, we still, you know, we gauge our near-term outlook on customers' projects that they place with us versus the projects that are in the pipeline. We look at our kind of order book versus and how that's trending. So we feel like, you know, our guide is not a conservative one. It's conservative. It's not going to be an easy one to deliver in 2023, but we'll learn more as the customers put out their budgets. But I think what Brad was trying to say is the bulk of the customer CapEx budget is going to be consumed by day rates and frat crew costs and things that really aren't product cost related. You know, the impacts of oil prices, kind of at a five-quarter low in gas prices, as we discussed. I don't think we've seen the impacts yet, but except in the big count, which really is, to me, the best barometer for our revenue opportunity. And that's starting off pretty slow this year.

Right. Maybe, Mark, what are the assumptions around working capital and the cash flow from operation guidance for the year?

Yeah, so that's a great question. And I think we're going to work to to optimize some of our working capital metrics to try to get some of that balance sheet into that free cash flow number into next year. But again, still a growth year, still an expectation for us to add inventory to the balance sheet in the coming year. And so I think we finished the year, inventory turns were a little lower than we would have historically wanted as a metric goes, but there was some intentional forward deployment there for some inventory. So I think, you know, as the quarters ebb and flow, especially, you know, maybe heavy in the year, we're going to see a little bit of a build there in working capital on the balance sheet.

Yeah, let me add to that, Mark. We have really strong working capital turns. In 2021, we had a kind of a era of inventory depletion, which made our working capital turns eight and almost nine times in some of the quarters. That's changed, of course, because we're still in build mode. The market's still going to expand. But we will now be able to see the rate of growth on absolute inventory values and absolute receivables values taper off. And then we'll be able to burn off cash in that scenario. I think we'll see our working capital turns ease a little bit or be a little less, you know, strong. But I think that's just a natural result of, you know, we're in a kind of fully stocked mode in terms of customer order fulfillment, and that's showing in our numbers. But still, really good balance sheet management. But there's room for improvement for sure.

Got it. And then just a last one. the pace of share repurchases slowed modestly during the fourth quarter. I wanted to get a sense of what the thought process was behind it. Is it just a byproduct of the buyback program being opportunistic? Was it the acquisitions or was it some other factor?

Yeah, I think, I think you hit it. So we primarily it was, we, we did two acquisitions in the fourth quarter. You know, we spent $59 million and, And when we spoke about opportunistic, obviously you want to buy at a good price and buy at the right time. And like I've said from the beginning, we want to execute that program. But the timing favored the acquisitions we made in the quarter. I think we'll see some increased participation in 2023. But it really was an opportunity to seize two acquisition opportunities, and we jumped on those.

Thank you very much.

Thank you, Don.

Our final question today comes from Jeff Robertson from Water Tower Research. Jeff, your line is open. Please go ahead.

Thank you.

Dave, can you talk a little bit about the strategy for acquisitions and with respect to process solutions? Is there a goal in terms of what you would like that to become as a share of U.S. revenues?

Well, I think where we're at today is three-quarters of the U.S. is energy and approximately 25% is process solutions. Naturally, we want them both to grow, and I'd be happy if they both grew 50% and the ratios were the same three years from now. But process solutions, to me, it's primarily a pump business, but a lot more than that. It has a level of stickiness with our customers, It puts us in a really sweet spot with core manufacturers. That's, I think, where we've done our last eight or so acquisitions because it's a business we simply want to build organically and inorganically. So anyway, I think the focus is on bolstering that business. because it's something that's a bit of a departure from standard upstream oil and gas, and Process Solutions does afford us some opportunities to grow in the industrial space as well. Now, I've said for my tenure as CEO that we've been less interested in energy businesses because our energy business wasn't as strong as it is today, so we'll be looking to grow acquisitions across the board by segment or by business unit. But there's more aftermarket service opportunities, and some of these acquisitions we're focused on, and that tends to be more on the process solution side. So that's where we're putting our acquisition dollars so far, but that could change. Thanks for the question, Jeff.

Ladies and gentlemen, we've reached the end of our time for the question and answer session. I will now turn the call over to Brad Wise for closing remarks.

Well, thank you, everyone, for your questions today and your interest in NOW, Inc. We look forward to talking with everyone on the first quarter 2023 earnings conference call in May. Have a nice day, and we'll turn the call back over to the operator. Thank you.

Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect your lines.