Earnings Call: Q1 2021

May 5, 2021

Good morning, and welcome to the First Quarter Earnings Conference Call. My name is Brandon, and I'll be your operator for today. I will now turn the call to Vice President, Marketing and Investor Relations, Brad Wise. Mr. Wise, you may begin. Good morning, and welcome to NOW Inc. Q1 2021 earnings conference call. We appreciate you joining us and thank you for your interest in NOW Inc. With me today is David Cherechinsky, President and Chief Executive Officer and Mark Johnson, Senior Vice President and Chief Financial Officer. We operate primarily under the DistributionNOW and DNOW brands, and you'll hear us refer to DistributionNOW and DNOW, call, 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 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, 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 the latest Forms 10 ks and 10 Q that NOW Inc. Has on file with the U. S. Securities and Exchange Commission mode for a more detailed discussion of the major risk factors affecting our business. Further information as well as supplemental financial and operating information and 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 relative to our results as defined 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 excluding other costs and diluted earnings per share excluding other costs. Each excludes the impact of certain other costs and therefore have not been calculated in accordance with GAAP. A reconciliation of each of these non GAAP financial measures to its most comparable GAAP financial measure is included in 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 quarter. A replay of today's call will be available on the site for the next 30 days. We plan to file our Q1 2021 Form 10 Q today and it will be also available on our website. And now, let me turn the call over to Dave. Thanks, Brad. Good morning, everyone, and thank you for joining us. As we post earnings for the Q1 of 2021 and tell you our story and talk about what we're building for the future, much has changed. During the last 12 months, we had seen rigs laid down, budgets slashed, projects canceled, wells shut in, contractors sent home, and for the first time, negative oil prices, making for perhaps the most bleak energy predicament since the Great Depression. From what was a great shutdown just 1 year ago to now a period of relative stability with strong oil prices, the economy strengthening, hiring ramping up only and anxious consumers clamoring for a reversion to the norm, the underpinnings around the things that drive our business are encouraging. While DNOW entered the downturn on firm financial footing with no debt and ample excess cash, we committed to transform our business. We committed to get to breakeven EBITDA in the first half of twenty twenty one with those who cover our stock earmarking us for a full year 2021 EBITDA loss. Yet, we're happy to say we achieved our goal of returning to positive territory 1 quarter earlier than committed after just 3 short quarters of EBITDA losses in the worst market ever. But survival and breakeven, Our ambitions ranking at the lowest levels of Maslow's hierarchy of needs, survival has never been an issue for us. The challenge for us then and the opportunity now is for DNOW to pursue self actualization as an organization, to fully achieve our potential as a team and as a partner to our suppliers and customers. We have talked exhaustively about a customer order fulfillment, migration and modernization, where we adapt our geographic footprint to be customer proximate, while reducing our cost structure to be more competitive by employing highly skilled people, leveraging relationships with key manufacturers and employing disruptive digital innovation to simplify the customer experience. As Mark will cover the numbers, I'd like to focus on the business, customers and our strategy and tell you where we are on our journey. First, I'm excited to share a little bit about FlexFlow, our 2nd acquisition this year. FlexFlow is the leading provider of horizontal pump solutions for fluid equipment applications. FlexFlow has earned a strong reputation in H pump expertise through its suite of rental, permanent installation, only service and support offerings, primarily in the United States. As we join together 2 best in class, highly trained technical service organizations mode. From Odessa Pumps and FlexFlow, this combination creates greater value for our customers and elevates distribution now into a pump supplier of choice. FlexFlow Systems integrates a large fleet of trailer mounted horizontal pumping systems with a variable speed drive, Surface controls and automated reporting capabilities for a wide range of application flow rates and pressures. The systems are used in a variety of end market applications, such as reservoir production enhancements, crude and natural gas liquids transfer, saltwater disposal, salt cavern leaching and brine water transfer. Other applications may be found in downstream petrochemical plants and mining applications. The acquisition meets criteria we have set for inorganic investment. It bolsters and further differentiates DistributionNOW in non commoditized customer solutions, strengthens and broadens process solutions in the fluid handling space and provides enhanced gross margins and EBITDA flow through dynamics. And as I mentioned on our last call, we also added the talented employees from Master Corporation, expanding our midstream engineering and construction services expertise within our Process Solutions Group. Our strategy is to continue to be selective and to further differentiate DNOW by acquiring value added companies with higher barriers to entry that generate significantly better margins than our base business has delivered historically. Now to our operating segments and end markets. In the Q1, U. S. Revenue was up $28,000,000 sequentially or 13%. Although we experienced an increase in February freeze related product orders, this did not offset the loss of product sales we typically would have seen without the severe weather event due to the days of idling of so many of our locations. Several of our supply chain service customers showed strong growth as drilling activity picked up in the Permian, while in other areas workover rigs operated to minimize production declines in the Bakken. Our Houston and Freeport, Texas locations experienced increased sales related to ice storm repairs drilling rig activity from smaller independents as new wells were drilled and completed resulting in the demand for PVF related wellhead connects only and well site production facilities. And we supplied 30,000 feet of fiberglass pipe for produced water flow lines listen only mode to a water management company operating in the Williston Basin. Now I'd like to share our Process Solutions customer success story. Back in December of 2019, we were successful in securing a quantity of 8 3 phase bulk separator vessels from independent E and P for their Permian operations. This customer was one of our first to tour and approve our new Tomball, Texas facility. In 2020, this customer was acquired by a much larger independent, and in February of 2021, the acquired customer requested 19 more vessels, and will be conducting the new combined company's engineering department to recertify our Tomball facility. Upon completion of the inspection, the 19 vessels were ordered as well as 40 additional units based on a new design for the acquiring company. This customer consolidation opened up the opportunity for DNOW to capture additional revenue across their entire production of the now larger customer. These were clear market share gains. We continue to focus on end market diversification, including legacy mid and downstream as well as emerging sustainable energy and carbon capture markets by actively marketing our products and services and expanding our customer base. In downstream, we grew sequential revenue from independent refining company in the Northwest by providing PDF and MRO related material for a scheduled turnaround. And several Midwest and Gulf Coast refineries, we provided MRO consumables to 1st quarter turnarounds and we were awarded pumps, seals and consumables for for a couple of refinery expansions in the Northwest. Additionally, we were awarded a large valve package consisting of control, positive shutoff and isolation valves from a soda ash mine operator for a surface chemical plant expansion project listen only mode of communication with the company's ability to deliver the company's ability to deliver the company's ability to deliver the company's ability to deliver the company's ability to deliver the company's ability to deliver the company's ability to deliver the company's ability to deliver the company's ability to deliver the company's ability to deliver the company's ability to deliver the company's only mode of processing areas outside our upstream stronghold. Additional key wins include multiple fabricated pipe rack orders, only water and oil pump skids and saltwater disposal packages for a new tankless battery design for an oil and gas operator as well as pipeline locked units for midstream customers. With a midstream customer, we provided meter skids and rental transfer pumps for water transfer and fill applications used in their fire water systems. With another large midstream customer, we provided several large positive displacement pumps for crude oil transfer pipeline applications. The increased focus on our pump aftermarket and service program has resulted in greater access to customer sites, mode allowing us to capture higher margin aftermarket opportunities. In the industrial end market, we provided saltwater disposal units to a waste management company in Southeast Texas and provided diesel pumps to a maritime contractor, which were used on barge dredging applications. And in the biotechnology space, we were successful leveraging the strategic pump product line to provide a large pump order listen only mode to a blood and cell technology manufacturer in their processing of blood plasma and fluid handling. Now to Canada. Increased market activity led to revenue of $58,000,000 a sequential increase of $10,000,000 or 21%. From a product line perspective, we shipped a number of valve and actuation orders for a midstream rail bulk product terminal. Business in one of our largest Canadian locations experienced growth in our artificial lift product line with a record number of pumps worked, a number not seen since 2014. On the e commerce side, in Canada, we completed the implementations of a new B2B midstream customer and a mining company recovering potash from underground deposits for use in the fertilizer market. Both implementations further to help diversify our Canadian customer business in the midstream and industrial mining sectors, coalescing our online digital technology with customers. For international, in the Q1, international revenue was up $4,000,000 sequentially or 9%. We saw improved activity in countries with fewer COVID restrictions. In the Middle East, we had a large project order from a major IOC operator that fully delivered in the Q1. In Australia, we captured a new 3 year term contract with a major IOC LNG player for electrical products to our MacLean Electrical business. In Latin America, we continue to provide valve and valve actuation products to an offshore production platform operator. Our MacLean UK business, known for servicing electrical customers, continues to expand their product lines to include valves, safety and industrial products. During the quarter, they received a sizable valve order through an EPC for a European chemical producer in the downstream market. During the quarter, we went live with IOC's Australian business unit by providing a B2B e catalog for the procurement of PPE related material. And in Indonesia, we completed an e commerce implementation to a new MRO contract with a major IOC, inclusive of electrical, valves, PPE and MRO products. Now I'll give a little more color on our Digital Now investments. We've committed to becoming a leader in our space by investing in digital technology, not only to make our internal systems more efficient, but also to speed the journey and customer appeal of our Digital Now ecosystem. We continue to add more customers to our e commerce platform with the percentage of our digital transactions growing, accounting for 37% of our SAP revenue and 43% of transactions. I'd like to take a minute to highlight several more customer success stories on how our digital nom platform is delivering to customers. And a leading independent producer's field crew uses our e commerce mobile app on their smart device to manage the day to day material needs for their warehouse. Our apps workflow allows instant visibility to inventory, quick and easy touchscreen order replenishment and consolidated billing. Their superintendents and engineers use our e commerce site, shop. Denow.com, to easily find and procure a wide range of products from their DNOW managed B2B catalog, while leveraging our new order builder enhancement, which allows the user to select pipe, and plan is using a table view format that populates the cart in real time. Our order builder work flow feature enables users to select and procure large bill of material items in a fast, more efficient, simplified manner. Additional value is generated from using our dashboard reporting, providing customers with full visibility to real time procurement trends and budget management tools, which drive improvements in their costs and enhance his cash flow. In addition, this customer sees the value and efficiency of eSpeck, our digital tool that allows for a user driven, easy to configure, efficient ordering of power services, fabricated process and production equipment. In March, we completed a digital integration for a large oilfield manufacturing company by integrating into their Oracle ERP system. The customer's goal was to drive vendor consolidation and standardization while enabling spend visibility and control listen only mode through the reduction of the number of vendors used by their numerous operating facilities, down to leading technology e commerce suppliers that have the scale, only product range and technology platform to meet their needs. DNOW was selected because we have all these competencies and could accommodate the customers' requirements. One of the more exciting products we're working on is eTrack, our asset lifecycle management tool. Access through an app or web browser, eTrak uses asset attributes to make it easy for customers to display a wealth of information in a matter of seconds, listen only. From nested relationships like a pump as a part of the LAC unit to location identification using a latitude longitude geo locator, E Track provides access to a vast data repository of operating manuals, pump curves, dimensional drawings, certifications and digital images. At the moment, we are working with a select group of customers for beta testing before a broader release. Once released, all packaged units from Process Solutions will be equipped with the eTrak solution. I'm excited about the future of eTrak as it provides a meaningful step towards realizing our vision only mode of integrating and leveraging technology with our products and services to provide actionable information for our customers, thus further differentiating DNOW in the market and offering revenue opportunity for equipment replacement and aftermarket expansion. With that, let me hand it over to Mark. Thank you, Dave, and good morning, everyone. Total Q1 2021 revenue was 361,000,000 13% increase over the Q4 of 2020, outperforming our guided sequential mid to high single digit percentage range. Our first quarter results showed sequential growth across all segments. The U. S. Q1 2021 revenue was $252,000,000 and a listen only, up $28,000,000 or 13% from the 4th quarter on increased drilling and completions activity despite the disruptive impacts from the freeze call by Winter Storm Theory. Our U. S. Energy Centers revenue was up 12% from the 4th quarter and U. S. Process Solutions revenue was up 14%, driven primarily by increased drilling and completions activity and seasonal recovery. U. S. Energy revenue accounted for 81% of the U. S. Segment in the Q1, unchanged from the Q4. Moving to the Canadian segment, Q1 2021 revenue was $58,000,000 and a listen only mode, up 10,000,000 or 21 percent from the 4th quarter, driven by seasonal increases in the market and customer share gains, driven by greater attraction to DNOW's unique combination of application based solutions and products. The stronger Canadian dollar relative to the U. S. Dollar favorably impacted sales by approximately $2,000,000 sequentially. Outside of North America, project deliveries in the Middle East, Coupled with partial easing of COVID lockdowns and travel restrictions in certain areas drove international revenue to $51,000,000 an increase of $4,000,000 or 9% from the 4th quarter. Stronger foreign currencies relative to the U. S. Dollar favorably impacted sales by approximately $1,000,000 sequentially. In addition to DNOW growing revenue 13% In the quarter, our product margins remained resilient and gross margins improved to 20.8%. This increase was primarily a result of reduced inventory charges sequentially from $24,000,000 in the 4th quarter to $5,000,000 this quarter. In the second quarter, we are continuing the evaluation of additional product rationalization measures to adapt to the changing market conditions, customer preferences and structural changes in the business. And this could impact the level of inventory charges going forward. In the Q1 of 2021, warehousing, selling and administrative expenses or WSA was $79,000,000 or down $2,000,000 sequentially, primarily driven by successfully collecting almost $2,000,000 in aged receivables in the period. Our cost reduction initiatives continued into the Q1 and offset the anticipated seasonal increases and WSA expenses driven by resetting of limit based payroll taxes and healthcare cost inflation. As we model the 2nd quarter and layer in the acquisition contribution. We expect the Q2 2021 WSA to be in the low to mid $80,000,000 range. In the quarter, we also initiated exits from leased and company owned facilities that resulted in impairment loss of $4,000,000 primarily related to properties held for sale at threethirty 1. The net loss for the Q1 was $10,000,000 or a loss of $0.09 per share. On a non GAAP basis, net loss excluding other costs was $5,000,000 or $0.04 per share. Non GAAP EBITDA excluding other costs was a positive $1,000,000 for the Q1 of 2021. This has been a pivotal year. At the onset of the pandemic, we swiftly identified and implemented initiatives focused on maximizing customer service and transforming our operating model. These actions are recognizable today in our financial performance as DNOW delivered EBITDA similar to that from the Q1 of 2020 on 40% lower revenues, a testament to the determination, ingenuity and collective effort of our team to respond to the market challenges and execute strategic shifts that continuously transform DNOW. Moving to the balance sheet. At the end of the Q1, we had 0 debt and a cash position of 374,000,000 total liquidity equal to availability from our undrawn credit facility plus cash on hand increased to $598,000,000 as of March 31, 2021. Accounts receivable at the end of the quarter was $245,000,000 an increase of $47,000,000 from year end. Inventory at the end of the first quarter was $247,000,000 down 6% from year end, With inventory turns of 4.6x, a quarterly best. As we strategically invest in inventory for our customers and face sequential ended at $200,000,000 with days payable of 64 days in the Q1. And as of March 31, 2021, working capital, excluding cash, As a percentage of Q1 annualized revenue was 14.5%, a solid performance, but we expect this ratio to expand some as we intentionally add working only capital to fund growth in the business. Our focus on working capital efficiency gains is also reflected with a new quarterly best cash conversion cycle of 77 days That helped minimize the cash required to fund our quarterly revenue growth of 13%. Net cash used in operating activities was $4,000,000 for the Q1 of 2021, and we have capital expenditures of $1,000,000 When looking back over the last 2 years, we've generated $408,000,000 in free cash flow. We will continue our commitment to balance sheet management, make investments in good inventory, pursue strategic acquisitions in order to maximize asset health, to secure liquidity to fuel the future. And as previously discussed in the Q1, we completed the acquisition of Master Corporation. And in April, We closed the acquisition of FlexFlow, and I want to welcome those employees to the DNOW family who are listening today. Our team is focused on profitable market share gains targeting high margin product lines, and we are rigorously pursuing fitness at the expense line. We're actively deploying technology to augment labor content, automating and digitizing processes and reducing discretionary and infrastructure costs. We are intent on continuously developing a more agile business with increasing productivity. We continue into 2021 with optimism for the future, and we possess the talent, resources and fortitude to grow our bottom line and create sustained value for our customers and shareholders. With that, I'll turn the call back to Dave. Thank you, Mark. And now our view on the second quarter. Like we mentioned, Q1 2020 revenues were up 13% over the Q4 of 2020, outperforming our guide and generally posting much higher sequential growth listen only mode in most companies in our space. We attribute that solid sequential revenue incline to the timing of projects in the Q1 and strength with our upstream customers. We do not expect 1st quarter international projects to recur and as such, anticipate international to be relatively flat sequentially in the and we'll be flat sequentially in the second quarter. While Canada grew 21% sequentially from the 4th quarter to the first, We might see the reverse occur as Canada moves into breakup in the second quarter. Finally, we expect solid U. S. Sequential growth going into the second quarter to be similar to U. S. Growth from the 4th to 1st quarters. As such, with fewer international projects, only. We expect 2nd quarter sequential revenue growth in the mid to high single digit percentage range. And now some closing thoughts. We've expanded our ability to deliver solutions across the full lifecycle of a project, from early feed stage work listen only mode. As an example, if you take a 6 well pad project that includes wellhead hookups, a tank battery facility, DNOW offers a unified solutions approach towards a project, from inception to start up to aftermarket and materials management support. From a scope of supply perspective, DNOW delivers the engineered, fabricated, quality controlled process and production equipment, only PDF for flow lines and instrumentation controls while performing the field construction, asset tie ins and commissioning before handing the keys to the operator. Key benefits to the customer include project management oversight, providing singular accountability, capturing efficiencies through design and equipment standardization and leverage procurement, while offering the ability to de risk the project by minimizing the number of service providers. Process Solutions will provide project management oversight, enabling pull through sourcing listen only mode of materials from our energy locations, while benefiting from our Digital Now platform. Digital solutions like our Espec product will be used to assist with budgeting configuration, specification and standardization of fabricating and packaged equipment. While e track will be used to manage asset performance, analytics and schedule maintenance from an app or a web based browser. Mode. For MRO items, DNOW's energy locations will choreograph staging inventory and our customers will be able to leverage our e commerce marketplace for product sourcing that offers online accessibility to a customer specific catalog of products. Furthermore, customers have access to powerful real time dashboards of consumption data to better manage their maintenance CapEx through analysis of spend reporting. Equally as powerful, we can design and provide innovative solutions to help our customers reduce their carbon footprint and greenhouse gas emissions. We offer a wide array of products and services which help our customers reduce emissions like vapor recovery units, pump and compressor energy efficient audits, seamless charge pumps on transfer or measurement units, containment systems and solar powered pumps to name a few. Our goal is to assist our customers in developing and processing cleaner energy. It's serendipitous for DNOW and a great many of the products we already sell to existing customers will be consumed by the very same customers as they migrate capital to emerging sustainable energy projects. Thus, a primary tactic in our end market strategy is to join hands with existing customers as they deploy their own strategies in that direction. Finally, we are focused on being a differentiated supplier to our new and existing customers, offering a unique combination of solutions for today's energy needs, the energy transition and tomorrow's challenges ahead. We've made significant progress to ensure maneuverability in the evolving energy space. We have a significant cash balance, and we will now begin the call to questions. Thank you, operator. Thank you, operator. Thank you, and most importantly, a passion for simplifying the customer experience through investment in differentiating technology, call, all of which provide a great deal of flexibility for whatever the market brings us. With that, let's open the call for questions. Thank you. We will now begin the question and answer session. And from Cowen, we have John Hunter on the line. Please go ahead. Hey, good morning, Dave, Mark and Brad. Good morning, John. So, I appreciate The second quarter guidance for revenue to be up mid to high single digits and the kind of geographic breakout that you gave us. I was wondering if you could help give us an idea of how revenues trended kind of throughout April And what's kind of assumed for the monthly progression of revenues to get up the mid to high single digits in the second quarter? Okay. So let me start a little bit with the Q1. So January started off slow. I think we mentioned that in our February call. And during our February call, we were in this room without heat and We were contemplating giving guidance and we moderated it based on 60 locations having been closed at that time. So February was slow due to that only slowdown in our business. March, however, really took off. So there was a little bit of a snapback, and March ended up being the best month of the quarter and make for a real nice revenue increase sequentially. Now April was down versus March, in part because it's a shorter month. It's fewer business days for DNOW and its customers, and partly because March was so strong. So we're starting off kind of slow, but we do expect things to get a little better. Of course, Canada only in breakup in April. It's probably the worst month of the quarter for Canada, so we experienced that as well. So we feel pretty good about except for Our Canada recline, as we called it, in terms of moving into breakup, we expect the U. S. To continue to grow, and we expect some flatness internationally. But that's kind of the cadence of how things happened during the 1st months of the year. Understood. Thanks for that. And then, obviously, you had really strong performance on the gross margin front in the quarter. Curious if just on the sustainability of that level of margins in 2Q and then later in 2021. Obviously, you have inventory charges that you need to consider. But then also, what were the moving pieces between pricing and mix. It seems like pricing will be a bit of a tailwind as we move through this year. So Curious if you can help us out with, is the 1Q margin level a good starting point for the Q2 and beyond? Thanks. Okay. So in terms of the change in margins, of course, the lack of inventory charges had a big deal to do with that, as your question implied. Inventory charges during the quarter were $5,000,000 more of a normalized level, not so much as a percent of revenue, but where we are in the cycle. Those will be in line with that during the year. It could be Higher, could be a little lower. It depends on we're going through some level of restructuring as we stand up supercenters in our business and change the role of what will become Express Centers to maximize inventory utility and de risk the inventory component of our business. But I think gross margin this is a good level for us and there will be some puts and takes. So in the second quarter, Canada is a higher operating margin business for us. They're our most profitable segment right now. They tend to of higher gross margins as well. So they're going to shrink in the 2nd quarter. We're going to see some continued strength in the U. S, but we do expect to see some projects which will be a little bit of a drag, which could mean a little bit lower gross margins in the Q2. I think Mark said it, Our first quarter gross margins were the highest since we've spun 7 years ago, and I think there's a gravity component there. There's likely There will be a little bit of a reduction in the Q2 based on the things I said with Canada, some project works in the U. S, etcetera. But the underlying product pricing and product margins for us are strong. And to your point, I think this is a good level for us in terms of gross margins. Those numbers could get a little better as we start to see inflation, lead times grow, demand increase, Kind of all the things that would pull pricing in our favor. That's helpful, Dave. Thanks. I'll turn it back. Thank you, John. And from Northland Capital, we have Doug Becker. Please go ahead. Thanks. Listen, really good quarter on the cash conversion cycle. Working capital ex cash is percent of sales, lowest seen in fairly at least quite a while. Understand that's going to increase a little bit in the second quarter. Have there been any revised targets regarding working capital, cash conversion cycle as we go through the year. Just seems like a really important aspect of the story as activity increases and working capital Sure, Doug. Yes, this is Mark. I appreciate that. And you're right this quarter only. On strong sequential revenue growth, inventory came down. And so you're right, I think we expect as we model in only. There'll be some easing of that where we'll see some consumption of cash. And so I think As we model the top line growth, you could see $30,000,000 to $40,000,000 range of working capital put on the balance sheet as we only. You'll grow receivables and inventory to ensure we support these customers. But again, we're continuing to take actions to only. Create an efficient balance sheet to minimize that impact on our cash consumption. So again, that's a range, But again, we're well below the 20% that we've talked about in the past and we're taking measures and remain lean. Yes, let me add a little bit there. If you go back a couple of years, routinely our working capital, excluding cash as a percent of revenue, is 25%. Before that, it was even higher than that. So that's been a major focus for us and it served us well as we entered the downturn because we had a much more responsive balance sheet, and we had a very conservative approach to managing the balance sheet. We had only. We've got our working capital turns to be very high in this quarter. So there will be a little bit of an increase. They're going to be in that 15 to 20 range and we're going to try to keep them closer to 15. But we are moving into class where we would be buying a lot more spec stuff that we'd ultimately have to deal with in a downturn. But we're going to be real thoughtful about what we put on the shelf, but We want to take advantage of the recovery. We want to have products when our customers need them, especially the high demand, predictable, less risky stuff. So we're going to see a little bit of a reduction there, primarily because we're going to see a revenue decline in Canada, which is going to be just a numerator impact, I think. I think it's a numerator. That's a major focus for us and it will be going forward. That all makes sense. The $30,000,000 to $40,000,000 that you mentioned, Mark, that's for the full year? No, I was just looking at a sequential build. If you hold the efficiencies, let's say, where we are now, maybe with a little bit of easing, With that revenue growth alone, we're going to add some to the balance sheet. Just looking at working capital as a percent of revenue staying similar, We're going to put on some level. But again, I mean, dollars 600,000,000 in liquidity, managing our balance sheet is only. Something that we're interested in doing by ensuring we're taking care of our customers, especially in this period of time where we're seeing growth here in the It's something that you're right that there's not a peg for us to need to generate liquidity in the moment to make any kind of payments or anything like that. Yes. I mean, I think that's a good range. It may be more $20,000,000 $40,000,000 that we would consume in the Q2 if we see the kind of revenue progression we expect. Mark talked about in his opening comments that we generated $400,000,000 in the last 8 quarters. That's only. You understand the countercyclicality of our business. Now we're in the cash consumption phase, but We're going to go into a little more wide open eyes in terms of the risk components of the inventory we put on the shelf, but we also want to seize that growth. Understood. Obviously, a pristine balance sheet. Just want to get a little color on the M and A pipeline Okay. So we just closed 2 acquisitions and we're excited about them. And That's a major focus for us is the successful integration and returns on those acquisitions. However, our deal team only is off those integrations. We have a separate group working on that, and we're still looking for deals to fold into the company. Now we're moving into an organic growth phase, so like we've already talked about on this call, we'll be consuming cash on that front, and we are always selective about the acquisitions we find and we worked on. And the ones we just closed, only. Those are good deals for us and we're going to remain highly selective. So we're looking, we're talking to companies. I think it's only and a pool of possibilities with the acquisition candidates as it was before we closed these two deals. Thank you. Thank you. Ladies and gentlemen, we've reached the end of our time for the question and answer session. I I will now turn the call over to David Chiricinski, CEO and President, for closing statements. Okay. So Thank you very much everyone for calling in. We appreciate you listening to the call and we'll see you next quarter. Thank you. Ladies and gentlemen, this concludes today's conference. Thank you for joining. You may now disconnect.