DNOW Inc.

Hello, good morning. My name is Jeremy, and I will be your conference operator today. At this time, I would like to welcome everyone to the D-NOW third quarter 2023 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star, followed by the number one on your telephone keypad. If you would like to withdraw your question, press the pound key. Thank you. Mr. Brad Weiss, Vice President of Digital Strategy and Investor Relations, you may begin your conference.

Thank you, Jeremy. Good morning, and welcome to D-NOW's third quarter 2023 earnings conference call. We appreciate you joining us, and thank you for your interest in D-NOW. With me today is David Cherchensky, President and Chief Executive Officer, and Mark Johnson, Senior Vice President and Chief Financial Officer. We operate under the D-NOW brand, which is also our New York Stock Exchange ticker symbol. Please note that some of the statements we make during this call, including responses to your questions, may contain forecasts, projections, and estimates, including but not limited to comments about 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 today, November 2, 2023, which is subject to change. They are subject to risks and uncertainties, and actual results may differ materially. No one should assume these forward-looking statements remain valid later in the quarter or later in the year. 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 the latest Forms 10-K and 10-Q that D-NOW has on file with the U.S. Securities and Exchange Commission for 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 or 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 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 the earnings release. As of this morning, the investor relations section of our website contains a presentation covering our results and key takeaways for the third quarter of 2023. A replay of today's call will be available on the site for the next 30 days. We plan to file our 2023 Form 10-Q for the third quarter 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. The nine months ended September 30, 2023 represent our best earnings performance for the first three quarters in a year since being a public company. In a strong but arguably smaller market this year versus last year, In a period without the pricing propulsion due to product scarcity we enjoyed in 2022, our employees defied gravity again. Our teams produced a notable revenue resilience, giving me great comfort that the singular focus on our customers continues to pay off and accrue to the long-term benefit of our company and its shareholders. Despite North America rig counts being up just around 1%, When compared to the first three quarters of 2022, our year-to-date revenues for the first three quarters of 2023 are up 11% in that comparative period. In a business where the most important defining feature is its people, these results exemplify, in fact, leave me no doubt, that D-NOW enjoys having the best professional women and men in our industry. And our customers and shareholders benefit from that distinction. While there are headwinds, we've adjusted our sales to harness the wind efficiently and productively as we navigate the fourth quarter, where we expect a seasonal slowdown as some customers have overspent their annual budget in the first half of the year, with the impact showing up in the third and fourth quarters. For the third quarter 2023, we generated $588 million in revenue, up 2% compared to the same period in 2022. Sequentially, revenue declined 6 million, or 1%. The U.S. represents 75% of our revenue. For the third quarter, sequential U.S. revenues were resilient, down 2%, despite the U.S. rig count decline of 10% during the quarter. Many believe we are approaching the bottom, both in terms of market activity, as reported by the level of operating drilling rigs, and in terms of deflationary pricing on line pipes. For example, pricing on line pipe has declined for 17 consecutive months, as reported in the November PipeLogix report, but the rate of decline slowed significantly compared to September and its slowest rate since prices began to fall in May of 2022. Even with these dynamics, our sourcing team, in combination with sales and operations, has done an outstanding job proactively managing the appropriate inflow and disposition of pipe inventory. Third quarter gross margins were up 20 basis points to 22.8% as we proactively managed our pipe product lines and optimized product mix from growth in our U.S. process solutions business. And for the third quarter, EBITDA remained strong at 46 million or 7.8% of revenue. In the U.S., revenue was 448 million, a decrease of 8 million or 2% sequentially, due to drilling and completions activity impacting pipe and valve project sales in the period. U.S. Energy Center's revenues decreased 3% sequentially, better than the 10% decline in U.S. operating rigs. Our increasing traction in the energy evolution space provided further gains for DENOW as customers trust DENOW solutions and products to support their projects in growing both renewables natural gas or RNG and carbon capture and storage markets. To name a few examples, we provided pipe valves and fittings or PVF for a plant expansion that increases the CO2 capture per year by an additional 1.5 million metric tons. The CO2 is transported by the customer through a pipeline and is injected into an underground sandstone storage site one mile beneath the surface. We provided PVF to a long-term oil and gas customer for their carbon capture plant expansion that will capture an additional 1.2 metric tons of CO2 per year upon completion. We continue to grow our carbon capture revenues with both new and legacy customers. As a third example, we continue to see incremental PVF revenues tied to a carbon capture project from a gas utility customer who we highlighted last quarter. We are seeing more investment in CCUS-type projects in the U.S., and we've seen increased opportunities with our current customers who trust D-NOW's model of integrity and supply chain expertise to achieve their respective decarbonization goals. The burgeoning CCUS market is currently at the early stage of a multi-year growth cycle, and our strategy is focused and positioned D-NOW as a leader in this space. We added revenue from the implementation of a new material management program with an IOC's midstream operating gas plant. We expect revenue with this customer to grow as more sites are onboarded. Also, we expanded revenue and market share by securing a new three-year MRO contract with an operator in the Rockies. Revenue from our work over rig programs remain steady in the quarter. Our customers tell us that our work over rig program not only provides them with efficiencies to get products to market, but it also helps lower scope to emissions that would have otherwise been emitted using a more traditional logistics model to support well-maintenance programs. And our Supercenter model provides us the ability to onboard new customers without increasing roofline expense. In the Northwest, our Williston, North Dakota, and Casper, Wyoming Supercenters are growing and enable D-NOW to expand regional project revenues. We experienced revenue growth with several large operators on project winds tied to gathering projects, centralized tank battery builds, and midstream compressor stations. We provided actuated valves to several EMPs and midstream companies, as well as centralized tank battery projects to operators in the Powder River and Uinta basins. We continue our project and day-to-day success in the midstream sector providing a variety of PVF, pumps, and fabricated equipment to a number of operators. And we extended a two-year line pipe agreement with the gas utility customer. Our U.S. process solutions business grew to a record 30% of our U.S. segment in the third quarter. Demand for delivery of LAC units, pressurized vessels, instrument air systems, and pump packages remained high as operators completed gathering systems well site, onshore facilities, and midstream takeaway projects. Midstream inquiries and activity remained high as customers tie in upstream production and evaluate projects. In non-oil and gas markets, we were successful in capturing revenue by providing several large pumps to a Rockies brewing company. We also provided several vertical turbine pumps to a wastewater treatment facility. In the mining industry, we provided pumps, compressors, and specialty valves in mines where rare earth minerals like lithium, trona, copper, and gold are extracted. Our industrial air compressors saw demand improve in the food and beverage market as we provided units to customers in several states. In our flex flow business, we are seeing increased activity for our trailer mounted H-pumps for produced water disposal and for jet pump rentals, which provide primary artificial list solutions for initially completed wells. Demand increased for our EcoVapor 02 oxygen elimination equipment as we sold a number of units used in the purification of biogas from sources such as swine and dairy farms, as well as gas collected from landfills to be sold as renewable natural gas. We also sold a number of sulfur sentinels, EcoVapor's H2S removal units to major producers at well-site onshore tank battery facilities. Our EcoVapor solutions are becoming a key component towards advancing our customers' ability to reduce their emissions footprint from upstream oil and gas sites. Furthermore, our EcoVapor product line continues to expand into the renewable natural gas space using their natural gas upgrading technologies to help landfills as well as dairy and swine farm operators convert their bio-waste emissions into sellable RNG. In Canada, we further enhanced our fulfillment model thanks to the incredible hard work and planning from our teams as we hosted a successful grand opening event for our new Edmonton NISQ facility in September. It was well attended by our customers, suppliers, internal teams, and dignitaries such as a local member of the Legislative Assembly. The Supercenter infrastructure is designed to regionally grow revenues efficiently. Canada revenues were $68 million for the quarter, a 3% sequential increase. The third quarter revenue was lower than expected due to disrupted market activity as crude production fell to the lowest level in several years amid maintenance at oil sands mines and continued takeaway capacity constraints. And as a result of wildfire outbreaks, several of our top Canadian oil sands customers were forced to shut in production during the second quarter, resulting in lower production and the delayed startup of drilling completion activities post-spring breakup, impacting Dena's revenue during the third quarter. Despite that, our Central Canada fiberglass business strengthened as we added new customers, and saw shipments increase the way we would expect exiting the freeze-thaw period. For international, revenue was $72 million, sequentially flat, and up $16 million, or 29%, on a year-over-year basis. Our most active regions continued to be the UK, Middle East, and Australia, and all three remained essentially flat, sequentially. Grid counts internationally declined three months in a row, but offsetting that reversal were specific project deliveries in the third quarter. Activity in the CIS area saw demand for specialty alloy valves that will be delivered over the next several quarters. On the notable WINS front, D. Nowell-McLean secured a multi-year contract with an IOC to provide LED lighting upgrades in many of their existing operating facilities. In Australia, we provided electrical cable to an operator for a renewable project. In the Middle East, we provided coated steel for flow line projects tying in their newly drilled wells in the Joint Operations Wafra Zone and coiled line pipe for a gathering project in Abu Dhabi. Moving on to our digital initiatives, our digital now revenue as a percent of total SAP revenue for the quarter was 46% versus 48% in 2Q23, a result of customer and project billing mix. We went live on an e-commerce implementation with a US-based EMP during the quarter with over 100 users, complete with customized B2B approvals that use our shop.dnow.com channel to procure PVF and MRO products. During the quarter, we invested in our day-to-day operations by modernizing the technology used at our super center and branches to improve the productivity of our people. By deploying a new warehouse mobility device, our employees are able to reduce the time and effort required to create sales orders, perform picking, packing, shipping, and receiving activities. In addition, the mobility device is used to improve inventory accuracy. The new devices are significantly faster, smaller, are more efficient, and easier to use than the prior units. The new technology enables D-NOW to enhance fulfillment processes by providing improved levels of digital security while enabling higher levels of efficiency and combining state-of-the-art digital technology with mobility. In terms of capital allocation, we continue to actively pursue M&A opportunities with focus on larger deals that will allow us to enter new markets and diversify our product offerings. We are steadfast in our commitment to seek margin accretive opportunities in diverse end markets and emerging technologies to enable us to capitalize on market trends and to enhance durability in our performance in a dynamic and evolving energy landscape. During the third quarter, we repurchased $5 million worth of shares at an average price of 1065. Through the end of the third quarter, we purchased $56 million worth of shares out of the $80 million authorized through December 2024. With that, let me hand it over to Mark.

Thank you, Dave, and good morning, everyone. Total third quarter 2023 revenue was $588 million, down $6 million, or 1% from the second quarter of 2023. On a year-over-year basis, third quarter 2023 revenue was up $11 million, or 2%. EBITDA, excluding other costs, or EBITDA, for the third quarter was $46 million, or 7.8% of revenue. And year-to-date, 2023 EBITDA was $140 million, or 7.9% of revenue. The U.S. revenue for the third quarter of 2023 totaled $448 million, a decrease of $8 million, or 2% from the second quarter of 2023. In Canada, for the third quarter, revenue totaled $68 million, an increase of $2 million, or 3% from the second quarter of 2023. International revenue for the third quarter of 2023 was $72 million, flat sequentially, and up $16 million, or 29%, when compared to the third quarter of 2022. Gross margins for the third quarter were 22.8%, or up 20 basis points sequentially. Warehousing, selling, and administrative, or WSA, for the quarter was $97 million, or $1 million lower sequentially. In the third quarter, we reported $7 million of depreciation and amortization expense. Moving to operating profit by geographic segments, in the third quarter, the U.S. delivered $29 million in operating profit, while the Canadian and international segments delivered operating profit of $6 million and $2 million, respectively. Moving to income taxes, the effective tax rate for the three months ended September 30, 2023, was 5.4% on a gap basis. I remind you, this is the effective tax rate that is calculated on a GAAP basis from the face of the income statement and is below the typically expected tax rate at these earnings levels due to the income tax expense provision on the income statement, which includes a favorable tax benefit from the 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 income tax benefits. For modeling purposes, the non-GAAP effective tax rate was approximately 26% for 3Q2023. And for estimating an effective tax rate for the go-forward quarter and year, for modeling net income excluding other costs, could approximate 28% tax rate and excludes the favorable impact from changes in the valuation allowance. Given DENOW's level of profitability in the U.S. and abroad, it is possible in a future period we could release portions of our valuation allowance as reported for GAAP. At that point, we expect that our go-forward GAAP-effective tax rate will be more closely aligned with our non-GAAP-effective tax rate. From a cash perspective, we don't expect to pay U.S. federal cash income taxes for 2023 or 2024 due to available net operating loss carry-forwards. Net income attributable to Now, Inc. for the third quarter was $35 million, or 32 cents per fully diluted share. And on a non-GAAP basis, Q3 2023, net income attributable to Now, Inc., excluding other costs, was $28 million, or 25 cents per fully diluted share. Moving to the balance sheet, at the end of the quarter, we had zero debt and a cash position of $194 million. Cash decreased by $9 million in the third quarter as we invested in the growth of our business and continued to repurchase common stock in the quarter to return value to shareholders. We ended the quarter with total liquidity of $547 million, which comprises of our net cash position of $194 million and $353 million in additional credit facility availability. Our existing $500 million revolving credit facility extends into December of 2026, providing D-NOW with uninterrupted access to capital under the facility for the next three years. Accounts receivable was $396 million, a decrease of $21 million from the second quarter. Days sales outstanding, DSO, was 61 days at the end of the third quarter, an improvement of three days sequentially. Inventory was $415 million at the end of the third quarter, a decrease of $9 million from the second quarter, with an improved annual turn rate of 4.4 times. Accounts payable was $301 million at the end of the third quarter, a decrease of $63 million from the second quarter. The timing of inventory receipts impacted the ending payable balance this quarter compared to the elevated levels in June. And for the third quarter of 2023, working capital, excluding cash as a percentage of our third quarter annualized revenue, was 17.7%. In the third quarter, we generated $4 million of cash from operating activities consisting of the third quarter earnings, contribution, and changes in net working capital. We achieved better-than-expected free cash flow, with a break-even free cash flow quarter, including capital expenditures, in the third quarter of $4 million, as we invested in revenue-generating rental assets for EcoVapor and FlexFlow. For the nine months ended September 30, 2023, free cash flow accumulated to $68 million. Last quarter, we raised our 2023 expectations to $120 million in cash flows from operating activities and will work to deliver $100 million in free cash flow in 2023. This demonstrates how our focus on the fundamentals and discipline managing the business has positioned D-NOW to generate cash through the cycles, which bodes well for future growth and capital allocation plans. We continue to execute our share repurchase program that is authorized through December 31, 2024, with additional repurchases of $5 million in the quarter. As of September 30, 2023, our cumulative repurchases under our $80 million authorized share repurchase program equaled $56 million. Our commitment to growing the company through accretive organic growth and acquisitions remains a key 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 on debt, and keep cash flow generation a priority. And with that, let me turn the call back to Dave.

Thank you, Mark. Now switching to our outlook for the fourth quarter of 2023. In the U.S. and Canada, we expect revenue to be sequentially lower due to fewer business days, more holidays, and customer budget exhaustion. In international, we expect activity to be relatively flat sequentially. Rounding out a full year 2023 versus 2022, we expect full year revenue growth of approximately 8% at the low end of our 8% to 12% guidance that we set on our February call. despite U.S. rig counts declining every month this year, driving the removal of more than 150 U.S. rigs since year-end 2022. We expect full-year EBITDA to approximate 2022 absolute EBITDA dollar levels. But unlike 2022, where D-NOW had break-even cash flow from operations and free cash flow consumption of $9 million, In 2023, we could generate approximately $120 million in cash from operations or $100 million in full year 2023 free cash flow. I want to close with an important update regarding our brand. We will be transitioning away from the use of Distribution Now, the Distribution Now naming convention, and we will be known as D-Now going forward. D-Now is already the most consistently referred to name for our company, and the name we will align around going forward. The decision to amplify the D-NOW brand is rooted in our commitment to distinguish our company as a valued, solutions-based product and service provider centered around our ethos, inspire one another, delight the customer, and fuel the future. A refreshed brand will help us communicate our vision more effectively, fostering a sense of unity and purpose. We will continue to support our valuable affiliated brands For example, TSNM, Odessa Pumps, Ecovapor, McLean, Power Service, FlexFlow, and Dura. I am confident that this branding change will support us for even greater success in the future. Finally, we are excited that our third quarter earnings proved resilient and produced our best year-to-date earnings since becoming a public company. Our gross margins remain strong as we optimize product mix, and proactively manage our pipe product lines. We are realizing the benefits of our energy evolution and market adjacent strategies as U.S. process solutions expanded, aided by demand for fluid handling equipment, and increased ecovapor product sales used in renewable natural gas decarbonization projects. Maximizing shareholder value is our top priority. Our focus is on leveraging our debt-free balance sheet with $547 million of total liquidity, generating higher levels of free cash flow, pursuing margin accretive acquisitions and market share, and executing our share repurchase program. Looking forward, we believe that D-NOW will continue on a growth path next year as customers add rigs from a fourth quarter 2023 rig bottoming, from customers resetting their budgets, from additional energy evolution projects, from gains in adjacencies and the midstream, from acquisition activity, which we expect to continue, in an environment of strong oil prices, which are averaging near $80 over the last 12 months, coupled with our demonstrated ability to defy gravity so far in 2023. We did this through selective share expansion and M&A, through our super-centered footprint efficiencies and a laser focus on cost management and delighting our customers. As such, we see support for growth in 2024, which we'll provide an update for on our February call. With that, let's open the call for questions.

Perfect. Thank you. At this time, I would like to remind everyone, in order to ask a question, press star, then the number one on your telephone keypad. We'll pause for one moment to compile the Q&A. All right, our first question comes from the line of Nathan Jones from Stifle. Nathan, please go ahead.

Good morning, everyone. Good morning, Nathan. Good morning. I jumped on late, so I apologize if I asked a question that you've already answered. I just want to start with the expectation for regrowth in 2024. Can you talk about you know, what intelligence you have for that outlook, what customers are saying to you in terms of their capital spending plans in 2024. I know we should get some of those budgets here over the next month or two, but just any information you have on early looks into that kind of thing that gives you confidence that you're going to see growth in rig counts in 2024.

Well, I think my premise is we'll see growth from where we're at today. So, Joint contractors, some of them are saying they're going to add rigs. There's a lot of speculation that we're at a low point in rig count and that rigs will be added back at some level. So there's that. So I expect some growth from where we're at. And then I'm comforted by the fact that we've been able to retain revenues even though we've seen a pretty strident decline in U.S. rigs during the year, which is where we experience about 75% of our revenue. So I believe we have a strong market position, that we've gained some share in this meantime, that the market is, quote-unquote, bottoming, expected to grow from here. And then we're real focused on what we call our energy evolution strategy, where we're focused on carbon capture and and renewable natural gas and adjacencies in our space where we could sell pumps into other markets like some of which I talked about on the call. And then M&A. So growth from where we're at, strength in retaining revenues even in a declining or shrinking market effectively in the United States, our breadbasket. pursuing adjacencies and carbon capture and new businesses, which is a big focus for us for the last couple of years. And then M&A, which to me is kind of a swing vote in achieving some meaningful growth and going into the new year.

I guess my follow-ups on M&A, I mean, the stock price is trading at a pretty low multiple, pretty low multiple of EBITDA, pretty low multiple of free cash flow. How do you look at the balance between, I know strategically you guys are looking to do M&A, but with the stock trading at these multiples, it's pretty hard to find accreted deals that are accreted to the share price immediately versus repurchasing your own stock, which doesn't have the same strategic value, but you're getting a company you know very well at a pretty low price.

Yeah, I think that's a great point. So three to five years ago, we had a much... heftier multiple and we had more currency in that multiple to do deals at better prices. The fact is the sellers recognize the kind of market we're in in the energy space and we recognize that. We're going to try to do deals within that current trading multiple. We may, of course, consider the revenue synergies that would come from the deal, any cost synergies that might come and that will be factored in as well. But we do have a narrower trading range that does limit the M&A opportunities, but we've done some smaller but really good deals in the last couple of years. Now we're looking at bigger deals, and we're having some mutual interest. So I agree with your sentiment. I think we understand that, and I think sellers do as well, and we're going to try to take advantage of that appreciation for where we're at in the markets.

Okay. It's good to know that you're considering that as we go forward. Thanks for taking my questions.

Thank you, Nathan.

All right. Our next question comes from the line of Cole Cousins from Stevens. Cole, please go ahead.

Hey, guys. Thanks for taking my questions.

You're welcome. Morning, Cole. Morning, Cole.

Can you guys talk through the gross margin or OPEX dynamics as we enter into Q4 and I think on my math, the implied 4Q is down pretty meaningfully sequentially. And then how are you guys thinking about margins as we approach 2024 and maybe some initiatives that D-NOW is driving to support structurally higher gross margins longer term?

Okay, I'll speak to the gross margin and maybe Mark will chime in about OPEX or WSA. So we said on our last call that we expect a little improvement in gross margins, suggesting that we're we're kind of at maybe a normalized run rate in the second and third quarters of 2023. And we said we'd get about a 20 basis points increase in gross margins in the third quarter, and we achieved that. So we feel like this is kind of a good normalized level for us right now and maybe a good starting point for 2024. Of course, we're always focused on high grading our businesses, focused on the higher margin product lines, businesses, locations, M&A opportunities, et cetera, with the idea of growing those gross margins over time, which we've been very successful in doing over the last several years. But that's kind of a starting point for gross margins. In terms of SG&A, Mark, I don't know if you want to add any color, but we consider it to be pretty flat, but you want to give some comments on that?

Yeah, absolutely. I think our ability in the third quarter to hold WSA relatively flat, the expectation is that should probably be a good number for the fourth quarter in that 2Q, 3Q range. nothing else to add on the margin side outside, you know, kind of defying that margin decline that we were having over the past few quarters, being able to arrest that and show growth and gross margin this quarter gives us confidence into that plateauing and being able to continue to optimize that margin going forward long-term.

Awesome. Thanks.

And then higher level kind of on the energy evolution topic, Can you guys talk through what customer conversations look like? And kind of going forward, are these wins going to be more so with existing customers or potentially with new customers? And at this point in time, what percent of revenue mix comes from those energy evolution projects? Thanks.

I'll start on that, Brad. So I think... For more of our oil and gas opportunities, those are going to come from our existing customers, our biggest customers who are investing heavily in the energy transition or the new energy or energy evolution, as we call it. So I think the oil and gas-oriented projects, opportunities will be with existing customers. And with the new, you know, some of our big growth in the second half of this year is happening in the R&G space, primarily through our EcoVapor acquisition. those are new customers, or at least new customers to D-NOW, and some of that is new customers to EcoVapor as well. So outside of oil and gas, we'll see some of that activity happening, or most of that activity happening with new customers. Brad, is there anything you want to add to that to answer Cole's question?

Yeah, I'll just add that the projects that we've called out on our prepared remarks, both the last N2Q and this quarter, have been with existing customers and really existing product lines that we carry predominantly in our inventory. So it's a nice extension of a growing end market that we're able to service with our existing infrastructure and the current investment and working capital that we have today. And, you know, we're tracking a number of projects, Cole, and they, you know, every month, every quarter, that tracking matrix we have grows. So we're seeing, you know, market expansion here as our current customers invest more in the energy evolution, looking at decarbonization and whether it's through carbon capture or whether it's through just reduction of current emissions that they have. We've been experiencing that for a number of quarters here where kind of the low hanging fruit is to remove the methane emissions and go to to more, you know, air pneumatic systems in the oil and gas operating field. But now we're starting to see much bigger projects that we're tracking, you know, specifically around more infrastructure tied to carbon capture, CO2 pipelines, sequestration. So we're excited about the future, certainly about, you know, the next few years of where that market's going and the growth opportunity, not only in the U.S., but also internationally as well.

Awesome, thanks, that's great, Culler. I'll turn it back.

All right, thank you. Again, if you'd like to ask a question, press star then the number one on your telephone keypad. Our next question comes from the line of Jeff Robertson from Water Tower Research. Jeff, please go ahead.

Thank you, good morning. Good morning, Jeff. Dave, can you talk, you all have talked before about the line of sight you have on well pad construction type projects. When you look at RNG and CCS, do you have a longer line of sight from customers over what kind of business you might be able to generate in those areas in 2024 and even 2025 as construction starts to pick up and people take a long-term view of those opportunities?

Brad? Yeah, Jeff, good morning. You know, we talked a lot about the well site. That's certainly been D-NOW's kind of bread and butter. We provide all the pipe valves and fittings for the gathering systems and also the fabricated equipment and pump packages to separate oil, gas, and produce water and move those to the midstream sector. As part of looking at carbon capture, we've been involved with a number of our customers on – as they use carbon dioxide, CO2, for enhanced oil recovery. We've been involved in some of those projects. Now we're starting to see other technologies come to market like direct air capture, and we've partaked in some of those projects. I think we're kind of early here in the cycles, really kind of looking at a standardized footprint going forward. I think our customers are still doing a lot of engineering and FID work, in this area, so I think that remains to be seen. But what we like about it is it's our current customers that we currently have agreements with, terms with. We have the technical aptitude to support our customers as they go through this process. So we really like that aspect about the CCUS-type market. And then the R&G market, you know, we – Previously, we have provided pipe valves and fittings as players move into that space to connect to different farm systems, whether it's dairy or swine farms, to a gas processing facility to process that gas to be able to sell that product to the midstream. And then with our EcoVapor acquisition December 22, It gave us a technical solution to sell into that and market. And so we feel like that's unlocking more opportunities for us, not only in the vast number of RNG sites that are currently being explored and developed, but also additional products that we might be able to sell into the RNG as we get more experience selling with that gas processing side, as well as the standard pipe valves and fittings that go along with it. So we like those two sectors. It's a great growth environment for us looking into the future, and we're looking to expand where we can in both of those end markets.

Are there acquisition opportunities that would support the process solutions business that would give you more penetration into those types of opportunities?

Jeff, yeah, I would say there are. We've looked at a few deals. You know, they range from technology to equipment packages that could append or you know, be sold in connection with, you know, the current technical and engineering capability that we have. And then we also look for, you know, certainly one of our acquisition strategies is to look for, you know, more exclusivity of territory or manufacture of products in a certain geography like we do on our pump package and our pump lines. So, you know, we're always looking for, you accretive margins on M&A. We're looking for some exclusivity where we have dedicated opportunity to sell products into certain geographies or certain end markets. The answer is yes.

Last question, Mark. You talked about WSA, which has been running just shy of $100 million for the last couple of quarters. As you look at the 2024 business, is that Do you think that's a good number as you look out into next year for quarter?

Yeah, I think a lot of it, Jeff, will be dependent on the trajectory of growth into 2024. I can tell you we're committed to ensuring that we maximize the productivity of that WSA line. And so being able to hold it, you know, 97 this quarter down from 98. You know, the 97-98 looks good into the fourth quarter and really look at what it could be going forward depending on the trajectory of growth next year. You know, certainly willing to invest in people and facilities and things that grow that middle line if we're going to achieve, you know, the top line accretion that we want. So a little early, but in February I should have a better view with you there. Thanks, Jeff.

Thank you. All right. There are no further questions at this time. Mr. Brad Wise, I turn the call back over to you.

Okay. Thank you, everyone, for your questions today and your interest in D-NOW. We look forward to talking to everyone on the fourth quarter and full year 2023 earnings conference call in February of next year. Have a great day, and I'll turn it back to the operator to conclude the call.

Perfect. This concludes today's conference call. You may disconnect.