DNOW Inc.

Good morning. My name is John, and I will be your conference operator today. At this time, I would like to welcome everyone to the D-NOW fourth quarter and full year 2024 earnings call. 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 enjoy your question, press star one again. Thank you. Mr. Brad Weiss, Vice President of Digital Strategy and Investor Relations, you may begin your conference.

Well, good morning, John. Good morning, everyone, and welcome to D-NOW's fourth quarter and full year 2024 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, February 13, 2024, 2025, excuse me, 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 DENOW 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.denow.com or in our filings with the SEC. In an effort to provide investors with additional information, regarding our results as determined by U.S. GAAP, you'll note that we disclose various non-GAAP financial measures in our earnings releases and other public disclosures. These are non-GAAP financial measures, include earnings before interest taxes, depreciation and amortization, or EBITDA, excluding other costs, EBITDA excluding other costs as a percentage of revenue, net income attributable to DENOW, Inc., excluding other costs, and diluted earnings per share attributed to D-NOW, Inc., stockholders excluding other costs, and finally, free cash flow. Please refer to a reconciliation on each of these non-GAAP financial measures to its most comparable GAAP financial measure and the supplemental information available at the end of our earnings release. As of this morning, the investor relations section of our website contains a presentation covering our results and key takeaways for the fourth quarter and full year of 2024. A replay of today's call will also be available on our site for the next 30 days. Now, let me turn the call over to Dave.

Thanks, Brad, and good morning, everyone. I want to start where I'll end my prepared remarks, with a glimpse into the full year 2025. We are forecasting growth in 2025, despite expectations that the activities that drive our revenues will decline for the third year in a row. We expect we could post our fifth consecutive year of growth despite the potential of three consecutive years of market activity declines expected to the end of 2025. This is notable given the perception that upstream sector headwinds limit growth opportunities for DENOW. I'm confident in our ability to overcome these headwinds because of my fellow employees. As we close the books on 2024 and look ahead optimistically, I want to extend my deepest gratitude to our employees for their skills, aptitude, energy, and most importantly, their attitude. The character of our people shines through in the attitude they project, from their unwavering support for our suppliers to the relentless urgency they show in taking care of our customers and help them succeed, to the way they help and encourage each other. acting as cheerleaders for their teammates. These are the qualities that set us apart. This is why we win. We inspire one another. I know this from personal experience. The notes of encouragement and support I receive from employees, these small acts of kindness, mean as much to me as if they were coming from a member of my family. Thank you. Our people are the secret sauce. The elements of our strategy are how we succeed. There are four signature elements to our strategy that afford us maximum flexibility in the market, give us an effective edge on the competition, and provide a winning platform that keep our fellow employees excited about the future. First, the strength in our balance sheet is the signature element, where in the early years of being a public company, say from 2014 through 2020, we turned our working capital excluding cash on average about four times a year. Today, we enjoy working capital velocity of approximately seven times a year. This result, primarily driven by substantially improved inventory choreography enhanced by our Supercenter network, means improved product availability for our customers to help maximize market penetration, reduced logistics costs as we position inventory at the right place in the supply chain, lower inventory expense related to obsolescence and slow movement, And not to mention the resulting boost to gross margins simply from faster turning and less risky inventory. In 2024, for example, it marked the lowest level of inventory provisions that we've experienced as a public company. Second, M&A is D-NOW DNA and is a signature element. D-NOW has completed 23 acquisitions since going public in 2014. With a solid balance sheet, no debt, and a strong cash position, inorganic growth remains a key growth lever, and certainly was in 2024. Our strategy prioritizes margin-accretive businesses, aiming to strengthen and diversify our capabilities in serving our customers. We apply rigorous standards, investing in opportunities where we are the natural operator, poised to create value, increase the contributions of the acquired companies, and drive long-term shareholder value. We are putting substantial M&A muscle into process solutions, a business we built from scratch, growing the business around pumping and moving fluids, which provides the right kind of long-term diversification strategy. I'll talk more about our Trojan acquisition in a bit. Third, self-help and high grading as signature elements. We transformed our business several years ago through a self-help strategy that continues to drive a philosophy of focusing on the things our customers place high importance on and discontinuing the things our customers view as highly commoditized, avoiding the higher operating costs to service those activities, which also happen to be less lucrative for D-NOW. This approach drives significantly improved earnings. and sheds the low operating margin distractions for our competitors to scoop up. In terms of self-help initiatives deployed in 2024, in addition to seeking other efficiencies, we are actively rationalizing IT costs, third-party expenses, vehicle facility and footprint rationalization, in addition to managing T&E expenses. And we aligned our workforce down 12% during the year-end since the year end of 2023, as revenue, when excluding the benefits from the two acquisitions closed during the year, declined about 10% per D now and down 9% in the U.S., in a period where U.S. completions declined 9% and U.S. rigs declined 13%. This self-help responsiveness improved the earnings and cash generation of our core legacy businesses and afforded plenty of free cash flow to fund both our largest acquisition since 2015, and a supersized share repurchase program, which leads into our fourth signature element and the output of the above, durable free cash flow generation through the cycle that fuels our capital allocation options. In the fourth quarter, we delivered impressive results, surpassing expectations in earnings and free cash flow in a challenging environment resulting from a combination of industry headwinds, such as lower U.S. operating rigs, U.S. wells completed, and oil and gas prices. Historically, we discussed how U.S. rigs and completions represent a good barometer to forecast DENAL revenue. However, in a period of increased operator efficiencies, We believe surface production volumes are becoming another important and useful way to gauge demand for our U.S. process solutions pump packages and fabricated equipment, which represent 27% of our U.S. revenue for the full year 2024. That's one reason why 11 out of the last 12 acquisitions we've made have been to bolster the process solutions business. So I'll give some color on our most recent purchase, Trojan, that supports this strategy. Trojan has built a fantastic business with outstanding talent who are unified by a customer-first mindset and solutions-oriented approach to the market. And I'd like to welcome the 90 women and men of Trojan to the DENOW family. Trojan further strengthens and expands DENOW's existing water management solution business, augmenting an already solid DENOW offering through the combination of Odessa pumps, power service, and FlexFlow. all prior acquisitions in our U.S. Process Solutions business. D-NOW is focused on intensifying the growth of process solutions, and after a highly opportunistic and successful WITCO onboarding in early 2024 within energy centers, in addition that assisted D-NOW to double our midstream business to 20% of sales, we resumed accelerated growth in our U.S. Process Solutions business with our addition of the Trojan family. Trojan is comprised of three primary businesses that provide solutions in the water treatment, water sourcing, and water transfer markets. The pump rental offering is comprised of diesel and electric-driven, trailer-mounted centrifugal pumps sought after by customers to solve short-term water movement challenges. Next, Trojan sells lathe, hose, and other products for the water management space, which include pipe, valves, fittings, flow meters, diesel, and electric pump packages, and other items. The third is the Sable automation business. It is a rental-based service and software solution that ties together equipment supplied by Trojan into a turnkey water automation, analyzing, and monitoring solution, which enables customers to increase efficiency, improve accuracy, enhance productivity, realize cost savings, and achieve scalability by outsourcing their water transfer and management needs. Trojan's capabilities, complemented by DENOW's broad footprint and access to capital, provide an excellent synergistic foundation. We believe there are revenue synergies to be gained by introducing Trojan's offering as customers recognize DENOW as a leader in water solutions provider. And now moving to our results. Fourth quarter revenue was $571 million, lower sequentially by 6%, beating the guidance we provided during the last quarter's earnings call. In 4Q24, overall gross margin improved to 23.3%, up 100 points sequentially, aided by improvement in product mix and additional vendor consideration in the fourth quarter. For the full year of 2024, revenues were $2.4 billion, up 2% year over year, our highest revenue year since 2019. a period then that averaged 944 U.S. rigs compared to 2024's market of 599 U.S. rigs. Our full-year 2024 gross margins were lower than 2023, but sturdy at 22.5%, given the pricing deflation in steel products experienced in 2024. For the fourth quarter, EBITDA was $45 million, or 7.9% of revenue, well above expectations. In a year where activity that drives our U.S. revenues declined by more than 9%, our full-year actual revenues grew 2%, achieving more than 99% of the revenue target forecast a year ago. 2024 represents the third year in a row we have delivered at or greater than 7.4% EBITDA as percent of revenues. We generated $119 million in free cash flow during the fourth quarter, an exceptional $289 million for the full year, delivering a 165% free cash flow conversion in 2024. In 2024, one of our best free cash flow years since 2015, but unlike 2015, a year that generated 100% of free cash flow from the balance sheet, 2024's free cash flow haul was amassed from both a solid earnings year as well as efficient use of working capital from the balance sheet. This solid execution, with a smaller market speaks to the success of our strategy. Now some select highlights on the business. Demand for our horizontal trailer mounted pumping solutions provided by FlexFlow remains strong, with leased assets operating in the U.S. and Canada. Our FlexFlow solutions target water disposal applications, hydraulic jet pump oil recovery operations, and recently expanded new markets like downstream refinery applications. On a year-over-year basis, we grew revenues in the energy evolution space by more than 60%, from around $30 million in 2023 to more than $50 million in 2024, and we expect future growth in 2025. The outlook for decarbonization and non-oil and gas energy sources continues to drive investments, with more project FIDs advancing. We continue to participate in quoting activity indicating future market growth, While we acknowledge operators are closely assessing and evaluating any new policy decisions from the administration and its impact on larger scale CCUS and RNG projects related to government subsidies. For our Ecovapor business, the fourth quarter represented the largest revenue quarter in the company's history, fueled by packaged unit sales to operators in oil and gas, as well as renewable natural gas customers. On the rental and service side, we continue to expand our Ecovapor product offerings in the U.S., where demand is improving, aided by an increase in natural gas prices, as well as operators' desire to reduce Scope 1 emissions. In an effort to expand R&G sales, our engineering team has been working closely with customers to design and supply larger capacity units that can process higher volumes of gas. This ability to service a broader range of gas processing volume expands our addressable market in RNG and opens more adjacent markets like agricultural processing and hydrogen production. As D-NOW expands into new adjacent markets, we add new customers, which unlocks an opportunity to provide additional products like PVF, pump packages, and fabricated equipment. Moving to our Digital Now initiatives, Our digital revenue as a percent of total SAP revenue was 47% during the quarter as we continue to leverage technology, automate processes, and work with customers to integrate our systems by leveraging digital technologies to implement highly efficient procurement models. We completed a number of new digital customer integrations during the quarter, ranging from invoice and purchase order integration to centralized procurement via punch-out solutions. These B2B digital integrations increase efficiencies for D-NOW and our customers. As we automate manual processes, it reduces data entry errors and processing time and leads to faster transaction cycles and reduced administrative costs. Furthermore, it improves data accuracy and visibility for both parties through real-time access to information. This integration reduces the cost per transaction and drives cost savings over the long term. And as Mark will discuss, our B2B initiatives also aid in the improvement of working capital. With that, let me hand it over to Mark.

Thank you, Dave, and good morning, everyone. Total fourth quarter 2024 revenue was $571 million, down 6% or $35 million from the third quarter. On a full year basis, total 2024 revenue was $2.373 billion, up $52 million from 2023, or an increase of 2%. EBITDA excluding other costs or EBITDA for the fourth quarter was $45 million or 7.9% of revenue. On a full year basis total 2024 EBITDA was $176 million or 7.4% of revenue. US revenue for the fourth quarter 2024 totaled $451 million, a decrease of $31 million or 6% from the third quarter of 2024. On a full year basis, 2024, U.S. revenue totaled $1.88 billion, up 7%, or $131 million from 2023. U.S. energy centers contributed approximately 73% of total U.S. revenue in the fourth quarter, and U.S. process solutions contributed the remainder. In Canada, for the fourth quarter, revenue totaled $66 million, an increase of $1 million, or 2% from the third quarter of 2024. despite an unfavorable impact of $2 million from foreign currency changes. On a full year basis, 2024 Canada revenue totaled $253 million, down 10% or $29 million from 2023, impacted unfavorably by $4 million from foreign currency changes. International revenue for the fourth quarter of 2024 was $54 million, a decrease of $5 million or 8% sequentially. We experienced some project delays in the international segment in the fourth quarter that shifted into the first half of 2025. On a full year basis, 2024 international revenue totaled $240 million, down 17% or $50 million from 2023, a year with heavy project activity. When looking back before 2023, the 2024 revenue delivered surpassed both revenue in 2021 and 2022. But this year, we not only expanded revenue over those years, but with meaningfully higher operating profits. Now moving back to the income statement, gross margins for the fourth quarter were 23.3%, or up 100 basis points sequentially, aided by additional vendor consideration in the fourth quarter, and we benefited from favorable product mix. On a full year basis, gross margins for 2024 were 22.5%. Warehousing, selling, and administrative, or WSA, for the quarter was $103 million, or lower by $4 million sequentially, resulting from stringent focus on operational efficiencies combined with resource alignment activities in response to migratory and shifting customer activity. For the first quarter of 2025, we expect WSA to increase approximately $7 million to $101 million, as we move from the fourth quarter with additional WSA dollars related to the impact from our fourth quarter acquisition and the resetting of limit-based payroll taxes paired with a favorable fourth quarter collection on accounts receivable for approximately $2 million that is not expected to repeat in the first quarter of 2025. In the fourth quarter, we reported $10 million of depreciation and amortization expense and forecast quarterly 2025 depreciation and amortization will be approximately $11 million. Now moving to operating profit. In the fourth quarter, total company operating profit was $29 million. In the quarter, the U.S. generated $19 million in operating profit, and the Canadian and international segments each delivered strong operating profit of $5 million. With operating profit percent for the fourth quarter in Canada of 7.6%, an operating profit in international of 9.3%, inclusive of the $2 million favorable impact from the aged accounts receivable collections. Interest income in the quarter was $2 million, and moving to income taxes in the fourth quarter of 2024, D-NOW's income tax expense was $7 million, and $32 million on a full-year basis. And our effective tax rate, as computed on the face of the income statement, 28.1% for the full year 2024. We estimate our 2025 full-year effective tax rate to be approximately 27 to 29%. From a cash income tax perspective, we are not expecting to pay material U.S. federal cash income taxes in 2025 due to available net operating loss carry-forwards. Net income attributable to D-NOW, Inc. for the fourth quarter was $23 million. or 21 cents per fully diluted share. And on a non-GAAP basis, Q4 2024 net income attributable to D-NOW, Inc., excluding other costs, was $27 million, or 25 cents per fully diluted share. On a full year basis, 2024 net income attributable to D-NOW, Inc., excluding other costs, was $100 million, or 91 cents per fully diluted share. Our profitability performance and bottom line contribution in 2024 is notable. It marks the third consecutive year of delivering net income of at least $100 million, excluding other costs. Now moving to the balance sheet, at the end of the fourth quarter, we had zero debt and a cash position of $256 million. Even after investing $114 million in an acquisition to expand our water management and pump and automation offerings, plus organically investing $3 million in capital expenditures and returning $5 million of capital to shareholders as we completed our $80 million share buyback program in the fourth quarter. D-NOW cash decreased from the third quarter by only $5 million thanks to an impressive fourth quarter cash flow from operations of $122 million. The outsized cash flow generation is in large part from the disciplined and dedicated teammates here at D-NOW, who are focused on efficiencies and cash flow generation. We ended the quarter with total liquidity of $556 million, comprising our net cash position of $256 million plus $300 million in additional credit facility availability. Our existing $500 million revolving credit facility extends into December 2026, providing D-NOW with immediate access to capital under the facility. Ending accounts receivable was $388 million, a decrease of $17 million from the third quarter. Gage Sales Outstanding, or DSO, was 62 days at the end of the fourth quarter, but that includes acquired accounts receivable from our fourth quarter acquisition. When excluding the incongruent partial quarter revenue impact on the fourth quarter DSO calculation, DSOs would have improved sequentially by four days. On strong year-end collections, partially aided by expanding our use of technology for customer B2B integrations to drive higher efficiencies, and in large part to the tremendous teaming of sales and operations with our incredible credit and collections team. Inventory was $352 million at the end of the fourth quarter, a decrease of $12 million from the third quarter, with an annualized turn rate of 5.0 times. Inventory optimization was a source of cash for D-NOW in 2024. For example, inventory contributed approximately $80 million to our cash flow generation in the year. However, we do expect inventory to grow into 2025, consuming cash based on our forecasted model. Our operating model, incredible talent in the field, partnered with our inventory planning and operational teams have done an outstanding job to ensure the right products are on hand that the market demands and are located in proximity to our customers, all while managing the perishable risk that comes with inventory and being outstanding stewards of one of our largest assets. Accounts payable was $300 million at the end of the fourth quarter, an increase of $22 million from the third quarter. And for the fourth quarter 2024, working capital, excluding cash as a percentage of annualized fourth quarter revenue, was 14.4%. a notable improvement from the pre-COVID levels of 20% plus before we transformed the business. In the fourth quarter of 2024, we generated $122 million of cash from operating activities attributable to strong earnings contribution and about $80 million reduction in net working capital driven by strong collections of receivables in the period. On a full year basis, we beat our 2024 expectations on cash flows from operating activities and delivered $298 million during the year. And once considering the full year capital expenditures of $9 million, free cash flow generated in the full year 2024 was $289 million. As Dave highlighted, this is our largest free cash flow generation since 2015. As previously announced, we successfully completed our $80 million share repurchase program following through on our commitment to our shareholders. This program resulted in the repurchase of approximately 7 million of our outstanding shares at an average price of $11.39 a share. We also announced that our Board of Directors has authorized a new $160 million share repurchase program that is double in size of the inaugural program. This enhances our ability to opportunistically return capital to shareholders as market and business conditions warrant. all while maintaining our focus on investing in accretive organic growth and strategic acquisitions while adhering to our disciplined approach to balance sheet management. We continue to be debt-free, have no interest payments, while keeping cash flow generation a top priority. And with that, let me turn the call back to Dave.

Thank you, Mark. Switching to our outlook for 2025. In the U.S., as customer budgets reset, we expect upstream customer spending to be lower than year-over-year due to efficiency gains in drilling and completions, yet budgets are allocated primarily to maintain current production levels, noting some have announced modest production growth in the Permian. We expect continued investment in midstream infrastructure and new projects based on increased demand for natural gas from a combination of increased electrical demand due to growth in data centers, reshoring of manufacturing, and expected increased increases in LNG export capacity. 2023 and 2024 were heavy build-up years for one of our largest customers with orders being placed to meet demand as well as forecasted activity with 12 to 18 months line of sight. In 2025, that customer plans to exhaust existing inventory and only place fabrication orders for project-specific needs versus large-scale production planning. This will post D now sales declines in fabrication by about 40 million dollars in 2025 also we expect about a 30 million dollar reduction 30 million dollar reduction of revenues from 2024 business that was bid out at margins lower than the cost to service those revenues so we sidestepped low-margin dilutive activities that were picked up by competitors as a result we expect our US business to grow from 2024 levels as we look to capture market share and and continue to execute on growing in the midstream and industrial adjacent markets, combined with the expected revenue contributions from the Trojan acquisition. In Canada, we expect customers to look to maintain production, but given the fluidity and impact of tariffs on the sector and impacts to our business, our outlook is more opaque than normal. However, for modeling purposes, we see a flat scenario playing out in Canada for the year. Internationally, we see a flat scenario playing out as well as we continue to high grade the business, resulting in improvements in operating profit. Taking it all together, for the first quarter of 2025, we expect sequential revenue to increase in the low to mid single digit percent range compared to the fourth quarter of 2024. First quarter 2025 EBITDA as a percent of revenue could approach 7%, incorporating a reset of payroll taxes reduced vendor consideration, and favorable fourth quarter bad debt benefit not expected in the first quarter of 2025. We expect full year 2025 revenues to be flat to up in the high single digit percent range from 2024 levels. And full year 2025 EBITDA could approach 8% of revenue. We are targeting free cash flow in 2025 of $150 million to support growth at these forecasted levels of activity. I am proud of the strong results we achieved in 2024, accentuated by $289 million in free cash flow, nearly twice our projections from last February. I'm also pleased that the fourth quarter EBITDA was markedly higher than expectations at $45 million, or 7.9% of revenue, thanks to expanded gross margins and implemented cost control initiatives. our second-best fourth-quarter EBITDA level in our history. The recently announced $160 million share repurchase authorization, which is double in size from our previous program, demonstrates confidence in the strength of our business. This substantial increase signals our strong conviction in DENOW's cash generation capabilities and future earnings potential. Our commitment to maintain an acquisition focus alongside share buybacks provides multiple avenues for shareholder value creation. I'm honored to represent the talented women and men of D-NOW who work creatively and enthusiastically to win in the market. Your determination and dedication give me great confidence in our bright future as we lay the groundwork for a successful 2025, a year that could mark the fifth consecutive year of growth for D-NOW. With that, let's open the call for questions.

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

Good morning, everyone.

Good morning, Nathan. Good morning. Looks like you should have done the share repurchase yesterday. For sure. I guess I'll start with the topic du jour around tariffs. I've viewed you guys as one of the few industrial net beneficiaries from tariffs as it's typically not only accretive to your revenue, but also accretive to gross margins. We have seen steel prices spike up over the last few weeks, unsurprisingly. Can you talk about what's baked into the guidance that you've given for 2025? And maybe just remind us of how those inflationary pressures on steel prices pass through your business.

Okay. In terms of how we've kind of metered in the impact of tariffs on our first quarter and full year guidance, you know, we expect that there will be varying degrees of implementation of tariffs, maybe not the full amount, but it could be. And that's baked into our forecast. We gave a wider range of revenue possibilities in our forecast than we normally do. But to your point, Nathan, tariffs generally should be constructive to gross margins and revenues. Now, if the tariffs were too widespread and they could become revenue destructive, we don't see that. And the reason we don't see that is probably at least 60% of the steel products we sell are sourced from the United States. So we have a little bit of a hedge there. And we think we'll have a mix of products that will work with our various supply sources around the world to mitigate the average cost of the products we sell to our customers. So I think we have the ability, I think we'll see higher costs or the arresting of deflation we've experienced, that'll be a positive. And I think we'll see the recurrence of inflation, at least at a moderate level, which should help gross margins and the bottom line performance of the business. In terms of the sourcing and where the tariffs are being applied, Mexico and Canada are very low sources of products for us. The primary one would be China, but that's going to be a smaller portion of the overall total of goods we sell.

Is that the primary driver of that wide range? I mean, flat to up high single digits is a pretty wide range. Is the primary input there the potential for tariffs at the top and bottom of that range? And what are the other inputs that split the top and the bottom?

Well, I would say that the tariffs are probably at the lower end of that range. I think that the things that excite us about 2025 is we're seeing more interest in midstream markets. you know, a very important target and market for us. We've doubled our position in midstream. We expect to exploit that in the new year. If we see the kind of, if we see activity higher than what we'd expect, that would move us up that, the midpoint of that range. Contrarily, if we see some of the government subsidies for, you know, our big push in energy evolution and adjacent markets and infrastructure-related spend, that could bring us down within that spectrum on that range of guidance. Those are probably the main things. We do expect some shrinkage in upstream, like I said in my prepared remarks, but we expect some real strength in midstream, and that's a big organizational push, not just from our WITCO team, but our legacy folks as well, so we expect growth there.

I guess my last question was just going to be around upstream. There's obviously a focus from the new administration on increasing domestic production. It doesn't sound like you think that's going to happen, certainly not in terms of higher rig count. So just any insights you can give us on what you're hearing from your customers about their intentions to drill and produce more or not based on current US policy?

Well, I think our assessment of what's probable in upstream is just based on what we're hearing from our customers and from the people that really cover the industry well. Now, it doesn't mean, and we do have customers that feel liberated by a less controlling administration, and they're going to simply invest more and take more risk and spend more because they because the sentiments change. So we do have customers that are going to change their budgets favorably in that regard. But, you know, the heavy weight we're using in our assessment of upstream is just what our customers are saying. But I do think, you know, there's a wild card on, you know, could things be better in upstream than we think? We're not counting on that right now, Nathan.

Awesome. Thanks very much for taking my questions. Thank you.

Your next question comes from the line of Jeff Robertson with Water Tower Research. Please go ahead.

Thank you. Good morning.

Dave, on the Trojan acquisition, can you talk about how much exposure D-NOW had prior to this to the water transfer business, especially in a place like the Permian Basin? And then secondly, does the addition of Trojan water allow D now to pull through more of your other products to essentially sell bigger tickets to the customers?

Brad, you want to take that and start with Odessa Pumps and FlexPo and how this leverages that?

Yeah, good morning, Jeff. Thank you for your question. Yeah, we're really excited about the Trojan acquisition and the opportunity that fits nicely into our water supply solutions business within our process solutions group. You know, if you look at where FlexFlow plays predominantly in areas that have saltwater disposal, injection sites, subservice permits and injection sites, and then also in production where you have a higher water to oil ratio FlexFlow has carved out a real nice market niche there, and we're growing that business. They tend to be higher volumes, higher capacity. Over the few years we've owned FlexFlow, they've actually declined the number of water transfer opportunities just because it's just not the right technology fit for the fleet we have that's operating in the U.S. and in Canada. When we came into contact with the Trojan opportunity, it really expanded a gap in the water solutions market where we really weren't playing. We do have some small fleet of water transfer pumping rental options within our Adessa pumps fleet, so there's a small overlap there. But really, Trojan's done a nice job of carving out a niche not only a renting, you know, pumping assets for what I call, you know, temporary water transfer market, also selling product as a distributor supplier. And then recently really coming out with the Sable automation business, which is really kind of a nice – glue that kind of brings that all together and offers a really nice package solution offering to an operator, a water operator, or a production operator to allow them to turnkey and outsource moving that water to a number of locations. So kind of minimal overlap with what we have with FlexFlow and Odessa Pub. There's some complementary areas, but we think there's going to be opportunity for revenue synergies with Trojan and with our process solutions group.

Brad, does the Sable system allow you to integrate some of the automation platform you have, I think, with FlexFlow into a, I guess, a broader package that you can supply to customers?

It does, Jeff. You know, Trojan has a SCADA platform that's really kind of like a rental software as a service model. It's been very popular with With customers, they're growing that. We see a large area of growth opportunity with that platform, really not only in the oil and gas market, but also some adjacent markets like agricultural processing and other areas. We've mentioned in prior earnings call, FlexFlow, we have our OptiWatch platform that is a real-time monitoring solution for not only rental SWD units, but also permanent SWD units. So our teams are working together with Trojan and FlexFlow, identifying opportunities on the technology and looking to potentially merge that in the future, although we haven't done anything from that since it's pretty early at the moment.

Thanks. And then lastly on Trojan, can you bring their business to some of the other basins that you operate in?

Yeah, for sure. You know, they're predominantly in, again, the higher water-to-oil ratio upstream markets, so kind of, you know, Permian, southwest area. You know, with D-NOW's footprint, as Dave mentioned in his preparer remarks, you know, not only do we think we can, you know, expand D-NOW, to our current customers that they're not servicing in the markets that they're currently at, but we could also expand geographically, much like we did with FlexFlow. When we acquired FlexFlow, we expanded geographically into the Williston Basin, into Canada, and other areas. So we're excited about the opportunity to expand Trojan's customer base, but also geographical reach.

And just a question, Dave, on revenue. In your comments, I think you mentioned that essentially production volumes and obviously with Trojan water handling volumes are becoming a better proxy for D-NOW's business as opposed to capital spending on things like the rig count. So if we are to assume that U.S. production grows slightly, then that essentially is where you're getting the expectation that U.S. revenues – also grow with it. Is that the right way to think about your business at this point?

Well, what I said, Jeff, was, you know, rigs and completions still are good barometers for DNOs, revenue opportunities. In fact, they're probably the preeminent two. However, process solutions, which is 27% of our U.S. business and growing, of course, we've been investing heavily there and will continue to do so, they're seeing, you know, much more water-oriented revenue opportunities, which are, you know, disconnected from rigs and, or partly disconnected from rigs and completions. We see that as a bit of a hedge.

So it's not all of our, it's not the prime driver of revenues.

It's still rigs and completions, but it's an avenue for us to diversify our, you know, target and markets. And we're doing that with the acquisitions we've made, including Trojan.

Thank you. I'll get back in the queue.

Okay, thanks. Your next question comes from the line of Josh Jane with Daniel Energy Partners. Please go ahead.

Thanks. Good morning. First one for me, we've talked a lot about the U.S. Could you talk about your outlook for not only Canada but then also international markets in 2025 where there are opportunities and some areas that might be challenged over the course of this year?

Yeah, we I did touch on Canada in international, but but just briefly in my prepared remarks we expect relatively flat activity in Canada. And we expect the same for international 2023 was a very big project here for us in international. We talked in our prepared remarks of how we saw revenues decline due to the reduction in projects in 2024 and. You know, we've been kind of recasting our position in international with a focus on improving profitability. We're really strong in the North Sea, in the international electrical business, in the U.K., in Australia, in the Middle East. We're less strong elsewhere, and we're making adjustments there. that's going to impact revenues generally, at least in the first half, negatively. So we're forecasting international to be flat. But that could springboard into really focusing on the places in international where we're strong, and as we remove those distractions where we weren't, we'll see a platform for growth there.

And then on the M&A side, just given that you were able to do a couple of deals, especially the larger one earlier in the year, could you speak to the M&A just general environment today? If you're seeing more opportunities come through your pipeline than maybe six to nine months ago, and how we should be thinking that against your return to shareholder framework, which has been among, especially with your most recent announcement, one of the most aggressive across the entire Just talk about how you're balancing those and opportunities for M&A that you're seeing today.

Yeah, we are seeing a similar stream of opportunities. Not a big increase, not a big decrease at this point in the cycle. Of course, like I said earlier, we had our biggest acquisition year since 2015 and 2024. Those are harder to come by, and things just worked out with us being the natural operator. and those being prime revenue synergistic opportunities for us. So we're cultivating that list of options, of opportunities, and it's going to come down to timing and price like it always does. Now, in terms of how do we manage both inorganic expenditures and... share repurchases, we think we could do both. We think we can, like Mark had talked about, we're going to be, we generated about $80 million in cash last year from inventory from our core business, inventory decline from our core business. Next year, we're going to be adding inventory to our core business and to our acquisitions, so we'll consume cash there. But we can fund organic growth and do M&A and also, you know, execute on our share of a purchase program. So we think we could do all three things. We will do so opportunistically. If the right deal comes along, and right now we're really more in an M&A play because there's not a lot of organic growth up there, but we're going to favor M&A if the right deal comes along. If it doesn't, we're going to favor share of purchases. But we think, you know, we ended the year. We ended last year, I think, at $291 million in cash. We spent over $300 million in acquisitions in 2024. We ended the year with $256 million in cash. And we completed our share repurchase program.

So we did all of it in 2024, and we think we can do the same in 2025. Understood. Thank you. I'll turn it back. Thanks for the question. Thank you, Josh.

As there are no further questions at this time, Mr. Brad Weiss, I turn the call back over to you.

Thank you, everyone, for joining us today and your interest in D-NOW. We look forward to discussing our first quarter 2025 results on our next earnings conference call in May. Hope everyone has a wonderful Thursday. And with that, we'll turn it back to the operator to conclude the call.

Ladies and gentlemen, this concludes today's conference call. You may now disconnect.