NOW Inc. (DNOW) Q4 2022 Earnings Call Transcript

NOW Inc. (NYSE:DNOW) Q4 2022 Earnings Conference Call February 16, 2023 9:00 AM ET

Company Participants

Brad Wise - VP of Digital Strategy and IR

David Cherechinsky - President and CEO

Mark Johnson - SVP and CFO

Conference Call Participants

Cole Couzens - Stephens

Nathan Jones - Stifel

Jeff Robertson - Water Tower Research

Operator

Welcome to NOW Inc. Fourth Quarter 2022 Earnings Conference Call. My sanction is Adam, and I'll beryllium nan usability for today's call. At this time, each participants are successful a listen-only mode. Later we will behaviour a question-and-answer session.

I will now move nan telephone complete to Vice President of Digital Strategy and Investor Relations, Brad Wise. Mr. Wise, you whitethorn begin.

Brad Wise

Well, convey you, Adam. And bully greeting and invited to NOW Inc's 4th fourth and afloat twelvemonth 2022 net convention call. We admit you joining us, and convey you for your liking successful NOW Inc.

With maine coming is David Cherechinsky, President and Chief Executive Officer; and Mark Johnson, Senior Vice President and Chief Financial Officer. We run chiefly nether nan DistributionNOW and DNOW brands and you'll perceive america mention to DistributionNOW and DNOW which is our New York Stock Exchange, ticker awesome during our conversation, this morning.

Please statement that immoderate of nan statements we make during this call, including nan responses to your questions whitethorn incorporate forecasts projections and estimates, including, but not constricted to comments astir our outlook for nan company's business. These are forward-looking statements wrong nan meaning of nan U.S. national securities laws. Based connected constricted accusation arsenic of February 16, 2023, which is taxable to change.

They are taxable to risks and uncertainties and existent results whitethorn disagree materially nary 1 should presume that these forward-looking statements stay valid later successful nan 4th aliases later successful nan year. We do not undertake immoderate responsibility to publically update aliases revise immoderate forward-looking statements for immoderate reason. In addition, this convention telephone contains clip delicate accusation that reflects management's champion judgement astatine nan clip of nan unrecorded call.

I mention you to our latest forms 10-K and 10-Q that NOW Inc. has connected record pinch nan U.S. Securities and Exchange Commission for a much elaborate chat of nan awesome consequence factors affecting our business. Further accusation arsenic good arsenic supplemental financial and operating accusation whitethorn beryllium recovered wrong our net merchandise connected our website astatine ir.dnow.com aliases successful our filings pinch nan SEC.

In an effort to supply investors pinch further accusation comparative to our results arsenic wished by U.S. GAAP, you'll statement that we besides disclose various non-GAAP financial measures including EBITDA, excluding different costs sometimes referred to arsenic EBITDA nett income attributable to NOW Inc., excluding different costs, and diluted net per share, attributable to NOW Inc., excluding different costs.

Each excludes nan effect of definite different costs, and truthful person not been calculated successful accordance pinch GAAP, please mention to a reconciliation of each of these non-GAAP financial measures to its astir comparable GAAP financial measurement successful nan supplemental accusation disposable astatine nan extremity of our net release.

As of this morning, nan Investor Relations conception of our website contains a position covering our results and cardinal takeaways for nan 4th fourth and afloat twelvemonth 2022. A replay of today's telephone will beryllium disposable connected our tract for nan adjacent 30 days. We scheme to record our 2022 Form 10-K coming and it will besides beryllium disposable connected our website.

Now fto maine move nan telephone complete to Dave.

David Cherechinsky

Thanks, Brad and bully greeting everyone.

Two years ago, this week, Mark. Brad and I were shivering successful this agency connected our net telephone moving unlimited backup powerfulness during nan awesome Texas frost wintertime storm, Uri. That large wind brought nan coldest temperatures successful complete 7 decades to Texas successful a acold threat that impacted millions of group from Texas to nan Canadian border. We had nary powerfulness and much chilling had nary net successful nan twelvemonth conscionable ended 2020.

The roads were impassable nan way to nan early uncertain, misery pervaded nan full economy, but location were immoderate things astatine that clip I was definite about, astir really a caller DNOW could toggle shape itself and thrive.

One, we knew that nan azygous astir important facet and successfully implemented a strategy path, beryllium afloat committed beryllium disciplined and purposefully cull to nan enticement by those marginal distractions which would dilute our strengths. Simply put, build connected and get amended astatine what we're bully astatine equip our group allocate talent and clip wherever our customers spot worth and fto nan different guys woody and distractions.

Two, we messaged exhaustively astir deliberately precocious grading our business by that we mean focusing connected higher separator manufacturers, businesses, merchandise lines, locations and activities to present beardown gross margins irrespective of inevitable commodity value gravity. Be selective negociate operation and maximize margins. We picked Partners arsenic suppliers expect business reciprocity perpetrate - acquisition volumes to them grant our commitments beforehand their brands and deliberately beforehand value.

Three, our superior operational nonsubjective was to summation customer intimacy, improved merchandise availability, negociate projects and deploy ample inventory stocks regionally yet redesigning our PBF distribution business by deploying a much businesslike fulfillment exemplary moving from a highly autonomous branch exemplary to a much cohesive location supercenter posture.

This translator was a predicate to improving merchandise readiness and worth for our customers providing amended support to our suppliers, enabling higher levels of productivity while amended managing downside risk. Our cognition strategy places a premium connected bid accuracy adherence to customer specifications and connected clip transportation and our customers are rewarding america for doing so.

And lastly, number four, we said we triumph nan marketplace to nan observant cultivation level nan world-class income team, we would supply unmatched customer attraction pinch a bias towards solutions and worth without relying connected value arsenic a lower. Our income teams spot a premium connected returning worth to our customers by genuinely knowing their challenges successful articulating DNOW proprietary solutions.

The competitory tone of our income professionals has helped to create a existent civilization of winning wrong DNOW and nan method acumen and proviso concatenation expertise, they supply nan customers has proven to beryllium a captious value successful an era of proviso concatenation disruption, and superior discipline, though each 1 of our labor brought astir this DNOW Renaissance. I want to straight [fake] and cheer our apical income activity for enduring nan firm pivot, for promoting changes internally into nan marketplace for starring pinch assurance and cognition and delivering a overmuch much profitable endeavor which without them would different beryllium impossible.

Now I'll deed immoderate of nan financial highlights. Fourth 4th gross was $547 cardinal little sequentially by 5% astatine nan amended extremity of our guideline provided connected nan past call. For nan afloat twelvemonth 2022, revenues were $2.136 cardinal successful 4Q '22 wide gross separator was unchanged astatine 24.1%. Our afloat twelvemonth 2022 gross separator was 23.7%, up 180 ground points from nan afloat twelvemonth 2021 levels we're 2021 was itself a grounds gross separator twelvemonth successful its ain right.

For nan 4th quarter, EBITDA was $47 cardinal aliases 8.6% of gross beardown performance, particularly successful a play pinch seasonal and vacation headwinds. For nan afloat twelvemonth 2022 EBITDA was $175 cardinal aliases 8.2% of gross a consequential - turning constituent for nan company, mounting nan shape for a importantly improved net powerfulness and rate flows into nan future.

During nan 2nd half of 2022, we generated $48 cardinal successful free rate travel successful connected a afloat twelvemonth ground successful a twelvemonth wherever we accrued gross complete $500 cardinal added complete $130 cardinal successful inventory for our customers and $9 cardinal successful infrastructure and rental equipment. We had zero depletion of rate from operations and only consumed $9 cardinal successful free rate travel successful 2022. Additionally to fortify our U.S. Process Solutions business, we completed 2 acquisitions successful December of 2022 building successful connected DNOW pump and engineered process instrumentality capabilities.

These acquisitions fortify DNOW's worth to customers and unfastened up further opportunities successful power evolution. One of nan patented solutions we acquired provides customers pinch dual worth proposition of improved state betterment arsenic good arsenic emissions reductions wrong accepted lipid and state and nan elimination of flaring, but besides expands our scope into nan renewable earthy state aliases RNG market.

Our 2nd December acquisition grows our market-leading pump position successful nan Permian area by expanding our customer relationships, customer guidelines successful our capabilities connected aftermarket work and pump repair.

Now immoderate comments connected a location basis. In nan U.S. gross was $414 million, $21 cardinal little sequentially down 5% owed to predicted seasonal impacts. Product margins declined somewhat arsenic non-pipe merchandise lines partially offset immoderate separator compression connected alloy statement pipe, which we expected to hap and mentioned connected nan past fewer calls.

Gross margins were level arsenic vendor information successful nan 4th fourth grew owed to achieving higher acquisition volumes during nan 4th we began operations for our newest supercenter aliases mega-center. As I mentioned connected nan erstwhile telephone located successful Williston, North Dakota strategically positioned correct successful nan bosom of nan Bakken Play. This caller installation spend little nan opportunity to optimize our location footprint by consolidating respective of our guidelines unsocial businesses.

Not only does our Williston mega-center, really is our U.S. power tube valves and fittings and location operations, but it besides includes different DNOW merchandise lines specified arsenic TS&M Fiberglass and Flex Flow. We knowledgeable a number of marketplace stock wins successful nan 4th fourth arsenic customers recognize nan benefits successful our expertise to little their operating costs by partnering pinch DNOW and customized proviso concatenation solutions.

We besides delivered respective ample tube orders during nan 4th fourth for utilities, institution successful nan Southeast and an usability successful nan Gulf of Mexico totaling much than $12 million, which drove our beardown 4Q gross hit and those $12 cardinal successful orders are not expected to recur successful nan first 4th of 2023.

In nan midstream sector, we proceed to proviso alloy and fiberglass pipe, actuated valves and fittings for our earthy state transmission customers. Notable projects see caller compressor stations, compressor upgrades to existing stations and pipeline description products crossed nan U.S.

In nan downstream assemblage customer spending during nan 4th remained beardown arsenic respective of our refining and chemic customers pulled successful PBF and consumable deliveries earlier twelvemonth extremity to hole for 1Q, 2Q, 3Q turnarounds. In our U.S. Process Solutions business, we saw request for fabricated instrumentality packages accrued arsenic orders proceed to beryllium placed heading into 2023.

We knowledgeable request for vessels for vessel artillery building arsenic good arsenic deficiency units, metre skids, launcher receivers and h2o transportation units arsenic midstream activity picked up successful consequence to nan dependable summation and drilling nan completion activity complete nan past fewer quarters. Outside of lipid and gas, we provided aerial compressor packages and vertical turbine pump from mining operations for uncommon world minerals extraction.

For our pump distribution businesses, we knowledgeable dependable request for pump packages for lipid and state vessel artillery building SWDs building and midstream projects. We look to proceed to diversify our extremity markets and thrust incremental gross gains from projects that are upgrading aliases expanding municipal h2o districts.

In our Flex Flow merchandise statement request for our trailer-mounted horizontal rental pumps is picking up steam arsenic drilling and completion activity and SWD permitting drives request to transportation and dispose of accrued quantities person produced water. We are presently making investments by upgrading immoderate of our mobile fleet successful consequence to accrued marketplace request arsenic extended transportation times for imperishable SWD units persist.

In Canada, gross was $75 cardinal for nan quarter, a 13% alteration sequentially chiefly owed to a seasonal impacts arsenic expected and gross was up 4% year-over-year. Overall we delivered awesome results yielding successful a afloat twelvemonth Canadian operating profit of 9.5%, a grounds for our Canadian segment.

During nan 4th we invested successful our Canadian operations, arsenic we statesman first activity successful upgrading to a caller supercenter locations successful Alberta pinch nan activity scheduled to beryllium completed successful nan first half of 2023. It will location aggregate business units nether nan aforesaid tile statement maximizing nan synergies and worth we tin present for our customers, while fostering much collaboration and beforehand a higher level of teamwork.

The workspace will beryllium much modern and will trim our biology effect arsenic we adopt to usage of a star integration strategy and different lighting power efficiencies. Furthermore, nan caller installation will thief offset rising installation and taxation operating expenses erstwhile compared to our older facilities.

For International gross was $58 million, expanding sequentially by $2 cardinal marketplace conditions are steadily improving and astir of nan areas we service arsenic galore countries activity to equilibrium our investments successful power information affordability and sustainability.

In nan U.K., we person seen a return to maturation arsenic marketplace activity is increasing, some offshore and onshore wherever we spot higher bid inquiries for cable, valves, safety, and bulk electrical products from our McLean distribution brand.

Activity for West Africa accrued arsenic we proviso awesome IOCs pinch state discovery sensors, powerfulness cablegram and electrical bulks to our export exemplary based successful nan U.K.

In Norway, we are seeing activity summation arsenic drilling contractor and service, institution OEMs ramp up improvement of subsea and related aboveground projects.

In nan Middle East, we are seeing opportunities pickup arsenic rig activations summation drilling and good servicing ramps up an EPC projects materialize from NOCs crossed nan GCC countries. During nan 4th quarter, we supplied a assortment of tube to an NOC successful nan Middle East and towards nan extremity of nan 4th fourth invested successful early gross arsenic we summation our section tube inventory investments by complete $5 million.

We besides knowledgeable an summation successful orders for subordinate products to support rig count maturation successful activations successful nan regions. We stay upbeat astir our world conception wherever we spot activity expanding and marketplace conditions, becoming much favorable.

And now I'd for illustration to make a fewer comments related to power information and nan power evolution. In nan 4th quarter, pinch an IOC usability successful nan Permian we activity straight pinch our greenhouse state seizure task squad to supply PBF instrumentality aerial packages and flare retrofit products that trim their greenhouse state emissions, and we expect much projects for illustration this to proceed into 2023.

We provided PBF products successful support of a turnaround from renewable diesel task and lipid refinery. In nan midstream space, we supplied PBF to an usability for a transmission statement utilized to transmit CO2 for enhanced lipid recovery. And finally, we supply products for an description projects successful nan Gulf Coast for c seizure facility.

Moving onto our integer initiatives, our integer gross arsenic a percent of full SAP gross for nan 4th accrued to 46% arsenic we proceed to leverage technology, automate processes and activity pinch customers to merge our systems and leverage integer technologies to streamline nan procure to salary process.

A large attraction of ours has been connected integrating punch retired catalogs for customers who want to leverage our integer catalogs to transact electronically by populating requisitions and acquisition orders digitally providing a accelerated and businesslike intends to bid processing. We proceed to supply meaningful information to our proviso concatenation programme customers which helps them amended understand and analyse really their day-to-day processes effect their proviso chain, and frankincense provides a model for collaboration by optimizing and improving workflow processes.

We are leveraging our AccessNOW exertion to supply 24/7 secured entree and inventory power to products astatine our on-site location astatine a awesome refinery successful nan Gulf Coast. And finally, I'm excited astir OptiWatch a integer monitoring work offering from our Flex Flow business, targeting customers who ain and run imperishable horizontal pumping units operating connected a permitted saltwater disposal site.

Our work monitors nan wellness and operating capacity of horizontal pumps by utilizing nan information collected to foretell early attraction events that could lead to unplanned attraction importantly improving nan runtime aliases reducing nan downtime and operating units. Furthermore, our serviced identifies inefficiencies that whitethorn origin excessive powerfulness draw.

Using our capacity based algorithms we tin set nan pump operating capacity resulting successful improved operating efficiencies, yielding successful a nett use successful lowering nan customers operating expenses. As an added use it besides helps to little customers CO2 balanced depletion values frankincense perchance improving their respective ESG scores.

With that, fto maine manus it complete to Mark.

Mark Johnson

Thank you, Dave, and bully greeting everyone.

Total 4th fourth 2022 gross was $547 million, down 5% aliases $30 cardinal from nan 3rd quarter. On a year-over-year basis, nan 2022 4th fourth gross was up $115 cardinal aliases 27%. On a afloat twelvemonth ground totaled 2022 gross was $2.1 cardinal up much than $500 cardinal from 2021 aliases an summation of 31%.

EBITDA excluding different costs aliases EBITDA for nan 4th fourth was $47 cardinal aliases 8.6% of revenue. Nearly tripling nan EBITDA dollars delivered 1 twelvemonth ago. On a afloat twelvemonth ground totaled 2022, EBITDA reached 8.2% of gross aliases $175 cardinal astir 4 times nan EBITDA dollars delivered successful 2021. This marks nan 3rd 4th successful a statement that our quarterly EBITDA dollars surpassed nan EBITDA produced for nan afloat twelvemonth of 2021.

EBITDA to gross travel throughs were 20% sequentially and 26% year-over-year arsenic a consequence of our team's execution and strategical focus. The U.S. gross for nan 4th fourth was $414 cardinal down $21 cardinal aliases 5% sequentially driven by seasonal impacts of nan holidays and less moving days.

2022 U.S. gross totaled $1.591 cardinal for nan afloat year, up 37% aliases $428 cardinal from 2021. Our U.S. power centers contributed astir 76% of full U.S. revenues for nan 4th fourth pinch our U.S. Process Solutions Group contributing nan different 24%. On a afloat twelvemonth basis, U.S. power centers contributed astir 78% of full U.S. revenues successful 2022 pinch U.S. process solutions contributing 22%.

Turning to Canada for nan 4th fourth gross was $75 million, down $11 cardinal aliases 13% from nan 3rd 4th of 2022 connected less rigs and nan superior consequence of customer projects, delivered successful nan 3rd quarter. As we discussed connected our past telephone and a 4% antagonistic effect of overseas currency, owed to a stronger U.S. dollar.

On a afloat twelvemonth basis, Canada gross totaled $315 million, an summation of $66 cardinal aliases 27% erstwhile compared to 2021. Despite a antagonistic overseas rate effect of 4% aliases astir $12 cardinal year-over-year.

International gross for nan 4th fourth of 2022 was $58 million, up $2 cardinal sequentially. On a afloat twelvemonth basis, world gross totaled $230 million, an summation of $10 cardinal aliases 5% erstwhile compared to 2021 mostly impacted by 7% antagonistic overseas rate impact, astir $16 cardinal our 4th fourth gross margins remained level from nan 3rd 4th astatine 24.1%.

Buoyed by accrued vendor information levels, which we do not expect to repetition and will beryllium little successful nan first 4th of 2023 arsenic acquisition measurement thresholds reset and helped to offset a humble diminution successful merchandise margins owed to merchandise and task mix. On a afloat twelvemonth basis, gross separator for 2022 was 23.7% compared to 21.9% successful 2021.

The 180 ground constituent betterment was driven by a operation of factors, including nan intentional action of selectively prioritizing resources to accretive business and our merchandise margins benefited from merchandise ostentation successful nan period, which has started to moderate, particularly online pipe.

Warehousing, trading and administrative disbursal aliases WSA for nan 4th was $97 cardinal up $2 cardinal sequentially and up $6 cardinal year-over-year. The mostly of nan summation successful WSA successful 2022 compared to past twelvemonth was driven by higher adaptable compensation disbursal from nan summation successful a gross and performance.

Looking backmost 1 twelvemonth agone to 4th fourth of 2021, we expanded quarterly gross by $115 cardinal yet only added $6 cardinal successful quarterly WSA aliases astir 5% of nan summation successful gross demonstrating improved efficiencies successful our expertise to leverage our costs base.

Moving to operating profit by our geographic segments successful nan 4th fourth nan U.S. delivered $26 cardinal successful operating profit aliases 6.3% of gross and Canada delivered $7 cardinal successful operating profit aliases 9.3% of revenue. The International conception reported $2 cardinal successful operating profit aliases 3.4% of gross successful nan 4th fourth 2022.

Moving to income taxes connected a GAAP basis, nan effective taxation rates for nan 3 and 12 months ended December 31, 2022 were 5.9% and 7% respectively. I punctual you this is nan effective taxation complaint arsenic calculated from nan shape of nan income connection and is beneath nan typically expected taxation complaint astatine these net levels arsenic our taxation proviso includes a favorable taxation use effect from changes successful nan taxation valuation allowance connected our deferred taxation assets.

As such, this is why erstwhile imputing our non-GAAP taxation complaint we exclude specified taxation benefit. For modeling purposes nan non-GAAP effective taxation complaint was astir 26% for 2022 and 26% to 28% is simply a reasonable proxy for nan effective taxation complaint for nan spell guardant 4th and year. When excluding different costs.

Net income attributable to NOW Inc. for nan 4th fourth was $32 cardinal aliases $0.28 per afloat diluted share. And connected a non-GAAP basis, Q4, 2022 nett income attributable to NOW Inc. excluding different costs was $29 cardinal aliases $0.25 per afloat diluted share.

Moving to nan equilibrium expanse astatine nan extremity of nan year, we had zero indebtedness and a rate position of $212 cardinal rate decreased $55 cardinal successful nan 4th quarter, chiefly related to nan successful completion of 2 acquisitions totaling $59 cardinal successful nan quarter. In nan 4th quarter, we reported $5 cardinal of depreciation and amortization and $19 cardinal for nan afloat twelvemonth 2022.

In nan first 4th of 2023, we expect quarterly depreciation and amortization disbursal to summation to $6 cardinal arsenic a consequence of our 4Q acquisitions. We ended nan twelvemonth pinch full liquidity of $564 million, which comprises our nett rate position and $352 cardinal successful further in installments installation availability.

Accounts receivable was $398 million, a alteration of 2% aliases $8 cardinal from nan 3rd quarter. Inventory was $381 cardinal astatine twelvemonth extremity and we invested $20 cardinal successful further inventory successful nan 4th fourth that caused a flimsy resistance to quarterly inventory move rates that equaled 4.4 times.

I will item a information of our 4th fourth inventory finance was specifically procured to support respective customers successful our International conception pinch maturation forecasted successful 2023. Accounts payable was $304 million, a alteration of $35 cardinal from nan 3rd 4th and for nan 4th fourth of 2022 moving capital, excluding rate arsenic a percent of our 4th fourth annualized gross was astir 16.7%.

Cash travel provided by operations was $6 cardinal successful nan quarter, which drove affirmative free rate travel of $4 cardinal successful nan 4th fourth aft considering nan $2 cardinal successful superior expenditures. Capital expenditures for afloat twelvemonth 2022 was $9 cardinal arsenic we invested successful operating instrumentality and accommodation to heighten efficiencies and summation work levels to our customers.

Looking backmost astatine 2022, it was a communicative of 2 halves arsenic moving superior investments successful nan first half of 2022 contributed to a nett depletion of $51 cardinal successful rate from operations. Compared to nan past 2 quarters of 2022, erstwhile we generated $51 cardinal successful rate from operations successful nan 2nd half of nan twelvemonth connected a little build successful moving superior and improved earnings.

Thus bringing afloat twelvemonth 2022 rate from operations to zero and erstwhile taking into relationship our $9 cardinal of superior expenditures successful 2022 nan afloat twelvemonth 2022 free rate travel was a usage of $9 million. This twelvemonth marks a important milestone for our business and 1 pinch important implications astir our rate travel procreation potential.

In 2022, we demonstrated our expertise to grow our business 31% without consuming rate from operations a, singular feet for a distribution business that traditionally generates antagonistic cyclical rate flows. This shows really our actions complete nan past fewer years person positioned DNOW to make rate done nan cycles which bodes good for our early aspirations and superior allocation plans.

In nan 4th quarter, we continued to execute connected our stock repurchase programme pinch further repurchases of $3 cardinal astatine an mean stock value of $11.50. As of December nan 31, 2022, we repurchased $7 cardinal of our $80 cardinal authorized stock repurchase programme astatine an mean stock value of $10.82. Our committedness to increasing nan institution done acquisitions and integrated maturation remains a apical priority.

While besides having nan expertise to repurchase shares opportunistically arsenic we usage nan devices successful our broadened superior allocation model to make charismatic shareholder returns without deviating from our disciplined attack to equilibrium expanse management. We proceed to beryllium indebtedness free person nary liking payments and stay meticulous pinch our disciplined superior allocation strategy, transportation connected rate travel procreation is priority, effective moving superior guidance and maintaining our beardown liquidity and financial position.

And pinch that fto maine move nan telephone backmost to Dave.

David Cherechinsky

Thank you, Mark.

It's our volition to play a bigger, much progressive domiciled successful nan power evolution. We spot a increasing number of opportunities wherever DNOW tin collaborate pinch our customers to trim our Scope 1, 2 and 3 emissions pinch nan products we supply mixed pinch our proviso concatenation services and integer offerings.

We are helping our customers activity towards gathering their greenhouse state emanation simplification goals moving intimately pinch our firm attraction ESG teams to place and destruct greenhouse state emissions by upgrading their aging lipid and state PBF infrastructure, replacing state pneumatic systems pinch compressed aerial systems and partnering pinch our proviso concatenation guidance teams successful areas that lead to emanation reductions tied to amended proviso concatenation efficiencies related to materials managements and logistics to support their production.

I'm proud of nan affirmative effect our DNOW labor are having connected our industry, not only reflecting connected our ain ESG journey, but positioning DNOW is simply a much important contributor to our customers. In fact, we person seen galore of our customer group goals to trim aliases destruct flaring successful 1 illustration I constituent retired ExxonMobil's caller announcement to extremity flaring successful nan Permian and earmarking immoderate $17 cardinal connected reducing its emissions by 2027, according to a January Reuters report.

In an effort to pat into this request and grow connected nan contribution, we are making successful lowering our customers emissions. I'm happy to denote that successful December 2022 DNOW further expanded our group of power improvement and ESG solutions by completing nan acquisition of EcoVapor Recovery Systems.

EcoVapor has a unsocial position successful nan lipid and state sector. Its patented process exertion addresses nan venting and flaring of state from lipid and h2o vessel batteries allowing operators to trim emissions while generating gross from nan waste of nan further gas. Oxygen contamination successful retention tanks is communal owed to debased vessel operating pressure, resulting successful a captured state merchandise that exceeds nan allowable percent of measurement and truthful cannot beryllium sold to section state gatherers successful midstream facilities.

Operators person had small recourse different than flaring this state a discarded of power successful a root of c and nitrous oxide emissions. EcoVapor's patented ZerO2 short for zero oxygen addresses this communal problem and is highly effective successful reducing oxygen contented to meet pipeline specifications. The worth is elemental nan ZerO2 treats what was nan root of emissions and allows nan captured state to beryllium sold for further revenue.

There is abundant grounds that vessel batteries are 1 of nan main sources of emissions successful nan upstream accumulation inventory. Industry, EcoVapor is simply a starring biology solution and now operates successful astir awesome lipid producing basins successful nan Lower 48. EcoVapor's exertion and work level is poised for maturation fixed nan expanding attraction connected emissions and power information arsenic our products focused connected nan elimination of nan discarded of earthy state from accumulation operations.

I'm optimistic astir EcoVapor's maturation opportunities successful nan RNG aliases renewable state sector, bio-gas and RNG capacity person grown quickly complete nan past fewer years and expectations of accumulation maturation could beryllium successful nan vicinity of 50% by 2024. Sales of EcoVapor ZerO2 merchandise statement and associated instrumentality from nan RNG assemblage are increasing contributor to EcoVapor's gross and earnings.

EcoVapor's position successful this manufacture is somewhat unsocial and, enjoys immoderate cardinal competitory differentiators. These advantages are peculiarly evident successful nan livestock and agricultural-based biogas projects, which correspond 3 quarters of each biogas projects nether construction. The ZerO2 2 merchandise statement is good suited for nan ag-based projects pinch aggregate sizes, which allows nan task owners to optimize capacity and cost.

EcoVapor resides arsenic portion of our expanding U.S. Process Solutions business alongside our marketplace starring powerfulness work Odessa Pumps and Flex Flow brands further differentiating DNOW and nan worth we supply our customers.

Now switching to our outlook for 2023, successful nan U.S. we expect customer spending to summation year-over-year pinch superior subject regulating accumulation maturation according to manufacture forecasts. It is worthy noting rig time rates and completion disbursal continues to rise. In truth location are forecasted to emergence much arsenic a percent and nan merchandise we provide.

In Canada, we expect customers to look to support accumulation and we spot a fundamentally level script playing retired there. Internationally, we expect to spot maturation arsenic activity and income inquiries person accrued arsenic IOCs and NOCs station larger percent year-over-year growth. Specific to nan first 4th of 2023, we expect sequential gross to summation successful nan debased to mid-single-digit percent scope compared to 4Q, 2022.

1Q, '23 EBITDA dollars could scope arsenic overmuch arsenic 50% supra 1Q, '22 EBITDA dollars, which was $28 cardinal and we upgrade our forecasted afloat twelvemonth 2023 gross to now summation 8% to 12% compared to nan afloat twelvemonth 2022 revenue. Full twelvemonth 2023, EBITDA is targeted astatine 8% of revenue. Cash travel from operations to approximate $100 cardinal successful nan afloat twelvemonth 2023 astatine these forecasted levels of activity.

I americium thrilled astir our beardown 4th fourth results which capped disconnected a stellar grounds twelvemonth for DNOW. For nan year, we achieved gross maturation of $504 cardinal aliases 31% maturation compared to 2021 without consuming rate from operations arsenic we turned moving superior 7 times delivered awesome gross margins of 23.7% and generated $175 cardinal successful EBITDA excluding different costs aliases 8.2% of revenue.

Our investments successful 4 supercenters equip america to turn successful those location markets and calibrate merchandise readiness to resoluteness customer proviso concatenation challenges. Additionally, nan 3 acquisitions we completed during nan year. Further heighten our competitory position and value to suppliers while deepening our entreaty to customers.

Entering 2023, we are successful a awesome spot arsenic a institution we stay indebtedness free pinch ample liquidity and are good positioned for continued maturation and success. To my DNOW family, our occurrence is simply a nonstop consequence of your singular attraction connected our customers each and each day. And for that and for everything you do for DNOW I convey you.

With that, let's unfastened nan telephone for questions.

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] And our first mobility coming comes from Cole Couzens from Stephens. Cole, please spell ahead. Your statement is open.

Cole Couzens

Hi guys, acknowledgment for taking my questions.

David Cherechinsky

Good morning, Cole. How are you?

Cole Couzens

Doing good 2023 looks for illustration it's going to beryllium a beardown twelvemonth for rate procreation pinch $100 cardinal of expected operating rate flow, tin you guys talk a small spot much astir really you scheme to allocate that betwixt M&A and repurchase?

David Cherechinsky

Well, I deliberation we would proceed on nan aforesaid path. So we said erstwhile we launched nan stock repurchase programme that our priorities were money integrated maturation and we've done that and we're focused connected that. In 2022, nan marketplace expanded our revenues grew 31%. We deliberation that complaint of maturation will decline, but nan beardown successful 2023, frankincense allowing for much rate thrown disconnected from nan business.

So that allows nan opportunity for much M&A we closed 2 deals successful December 3 and nan afloat twelvemonth 2022 and that's a privilege for america arsenic nan complaint of maturation successful nan integrated abstraction is simply a small lower. We're going to attraction moreover much connected M&A, and of people nan 3rd replacement is to bolster our information successful our stock repurchase program, which began successful earnest successful nan 2nd half of past year.

Cole Couzens

That's helpful. And connected WSA you guys saw beautiful important betterment successful 2023. Can you talk done immoderate further levers you person to proceed to thrust betterment successful productivity there?

Mark Johnson

Sure, this is, this is Mark. I agree, I deliberation america transforming nan business complete nan past respective years has really generated grounds travel throughs connected this gross growth. So, I deliberation our attraction for 2023 is simply a batch of intent connected gross margins. Looking astatine nan levers location arsenic we each admit alloy tube aliases alloy prices successful statement tube prices person stabilized, immoderate successful and are starting to travel down a bit. So that's a attraction of ours, uncovering ways to maximize separator operation arsenic good arsenic operational efficiencies.

We're still marching done our supercenter exemplary and uncovering ways to heighten that closeness to customers and solutions there. So successful 2023, it was an unthinkable twelvemonth for america successful that productivity our guidance successful adjacent twelvemonth would person lighter travel throughs connected a year-over-year basis, because we will person immoderate gross separator compression somewhat forecast and past WSA. We're going to proceed to put successful nan business.

Cole Couzens

Great. And if I could compression 1 past mobility and talked astir gross separator benignant of being down successful '23. How are you guys reasoning astir gross separator seasonality passim 2023?

David Cherechinsky

Well, I'll return that, Mark. I deliberation we're going to commencement disconnected nan twelvemonth 1Q tends to beryllium our lowest gross separator play that's conscionable really it tends to be. So I deliberation we'll spot a small spot of a dip location for nan seasonal impacts. And successful 2022 for illustration 2021 our acquisition volumes particularly towards nan extremity of nan twelvemonth ramped up capable wherever our vendor consideration, we benignant of topped it disconnected successful nan 4th fourth and it favorably impacted gross margins.

So, I deliberation we'll spot first 4th contraction. But I deliberation nan first half gross margins will beryllium stronger, possibly successful nan 2nd half. We haven't talked astir wide gross separator changes going into nan caller year, but it could beryllium a 30 ground points decline, but still good supra our 2021, 2022 average.

If you recall, we had tube prices mid '22 astatine very precocious levels. We enjoyed nan use our competitors enjoyed nan use of that benignant of hyperinflation successful pipe. Like Mark mentioned earlier that's diminish. So, we still expect really beardown gross margins, but a small spot of an easing going into nan New Year.

Cole Couzens

Perfect. Thanks guys. I'll move it back.

Operator

The adjacent mobility is from Nathan Jones from Stifel. Nathan, please spell ahead. Your statement is open.

Nathan Jones

Good morning, everyone.

David Cherechinsky

Good morning, Nathan.

Mark Johnson

Good morning.

Nathan Jones

Dave, I'm going to prime up a remark you made successful your opening remarks that said build connected and get amended astatine what you're bully astatine and debar distractions. Can you possibly talk astir wherever you deliberation you are successful that process? What are nan superior things you request to build connected and get amended at? And you don't person still reasoning location wrong nan business that you request to possibly get retired of nan business to debar immoderate of those restrictions?

David Cherechinsky

Yes, I deliberation we're, really I was referencing nan sentiment and nan main point I wanted to attraction connected 2 years ago. We've done a batch on those lines. We're a overmuch much efficient, organization. We've changed our fulfillment model, wherever historically astir projects were managed from each of our locations. It was inefficient, it near excess inventory crossed nan full network.

We've tried to regionalize that wherever we tin negociate projects regionally pinch a batch amended travel done much ratio and I deliberation we're very good down that path. And we're going to, we person - we talked astir a supercenter that we're going to grow successful Canada successful nan first half of this year.

We'll astir apt do different one, which we haven't named nan location yet publicly, but we'll astir apt do different one, nan first half of nan twelvemonth arsenic well. With that opinionated up a spot that newer supercenter will beryllium good down that benignant of travel towards optimizing nan network. Now it's a matter of seizing maturation organically and inorganically.

Nathan Jones

Okay, acknowledgment for that. I conjecture 2nd mobility I wanted to inquire connected this EcoVapor business is this I was conscionable reasoning astir it arsenic it relates to powerfulness work and 10K vessel artillery solutions that you're doing is this fundamentally conscionable a portion of equipment. You tin bolt connected to nan 10K vessel artillery that will seizure immoderate of nan emissions that travel retired of that, I would deliberation that's a beautiful easy measurement for you to benignant of grow their sales. And conscionable what you judge nan main opportunities for you to turn their sales?

Brad Wise

Hey Nathan this Brad, I'll commencement and possibly Dave aliases Mark will person further comments. But, yes, you're right, I mean this is - we highlighted 2 applications. First of each successful nan prepared remarks, nan first 1 being lipid and state vessel batteries nan different opportunity to beryllium successful nan RNG marketplace which is positioned to turn greatly. In nan lipid and state market, nan opportunities successful existing vessel batteries, what we telephone it brownfield applications are attractive.

They thin to beryllium little travel rates wherever caller greenfield opportunities are larger vessel batteries that person higher production. So we person a scalability of our merchandise based connected nan travel of state and nan exertion trust connected nan debased unit state broadside wherever nan lipid retention and nutrient h2o tanks will emit vapor, it's really a rich | vapor that's saturated pinch liquids. So nan recovered state erstwhile we region nan oxygen retired of that captured state it is rich | state and it's really a bully premium for nan lipid and state companies to retrieve that and beryllium capable to waste that for further benefit.

And past evidently this would beryllium nan benignant of nan regular flaring if midstream usability which is sampling nan state watercourse to Texas a precocious parts per cardinal oxygen level they'll unopen down nan proviso statement of state and truthful results successful nan flaring benignant of non-routine flaring of lipid and state companies. So benignant of that Dave talked astir nan dual worth proposition, we're excited astir that opportunity, it people fits wrong our U.S. Process Solutions business.

We person a afloat portfolio aliases suite of products for that vessel artillery and we tin leverage not only nan EcoVapor existing income method income team, but we person a highly method income unit that we employment pinch our powerfulness work and Odessa Pumps and besides Flex Flow organization. So, we scheme to standard nan business improvement and income opportunities location to get much vulnerability to denounce customer guidelines wherever anterior EcoVapor's vulnerability was constricted aliases little conscionable because of it is simply a smaller company. They were marketing.

David Cherechinsky

Go connected Nathan.

Nathan Jones

I was going to say, yes, it seems for illustration a business that you should beryllium capable to turn beautiful quickly pinch your customer relationships, is location immoderate accusation you tin springiness america connected benignant of what level of gross they are astatine now and what level of revenue, you deliberation you tin turn that to astir 3 to 5 years?

Mark Johnson

Yes, I'll springiness you benignant of immoderate summary information. So they're astir apt successful nan $12 cardinal to $15 cardinal gross scope astatine bully margins. And I deliberation nan opportunity is to put much units successful nan fleet to favour income complete rental for immoderate of nan products, but to turn really I deliberation nan saccharine spot, would beryllium to turn extracurricular of lipid and gas, arsenic we clasp nan power evolution. But it starts disconnected small, but it really, to your implied successful your question, I deliberation there's existent use arsenic we kneel it pinch our powerfulness work business successful particular.

Nathan Jones

Okay. Thanks for taking my questions.

Mark Johnson

You're welcome.

Operator

The adjacent mobility comes from [Doug Becker from Capital One]. Doug, your statement is open. Please spell ahead.

Unidentified Analyst

Thanks. Dave, I was hoping, you'd grow connected what you're proceeding from nan U.S. upstream customers astir activity this year, and peculiarly fixed nan diminution successful earthy state prices?

David Cherechinsky

Brad, do you want to return that I think.

Brad Wise

Yes, Doug. Thanks for nan question. We're evidently successful nan mediate of earning play here, truthful we're seeing overmuch for illustration galore of you customer budgets travel out. We're seeing increases year-over-year customer budgets and a batch of benignant of built into our 8% to 12% year-over-year gross guideline was really reasoning astir nan drilling contractor. The section is somewhat tight arsenic acold arsenic inventory.

We're seeing time complaint pricing unit increase, we're seeing tightness location and that's driving ostentation that's going to devour portion of our customers' budgets. We're seeing completions successful frac spreads, complaint besides constricted and tight proviso there. So we're reasoning much of nan CapEx that customers are spending going to beryllium consumed there. Kind of conversely, nan tube mills complete nan past mates of quarters person benignant of caught up nan proviso to nan demand.

So we are seeing immoderate benignant of deflationary pricing unit associated pinch our statement tube which we benefited from past year. So we still deliberation evidently maturation is poised for nan U.S. marketplace poised for growth. Maybe an contiguous interest is really nan marketplace is going to respond to little state prices that we've seen present recently, still trying to digest that.

But taken each together, I deliberation again a larger percent of nan customer budgets connected a year-over-year ground are being consumed by nan products and nan labour that we don't waste correct now. So benignant of our percent of that's pastry is simply a small spot smaller. So we benignant of cook that into our guideline arsenic Dave noted earlier.

Unidentified Analyst

That makes sense, but it sounds for illustration arsenic we beryllium present today, you haven't noticed immoderate consequence to nan earthy state prices is that make sense?

David Cherechinsky

Yes, I deliberation really deliberation that's fair. I mean we've seen rig counts diminution and I deliberation that's going to effect us, particularly successful nan first quarter. But no, we still, we gauge our near-term outlook connected customers' projects that they placed pinch america versus nan projects that are successful nan pipeline. We look astatine our benignant of bid book versus and really that's trending. So we consciousness for illustration our guideline is not a blimpish 1 it's not going to beryllium easy 1 to present successful 2023.

But, we'll study much arsenic nan customer is put retired their budgets. But I deliberation what Brad is trying to opportunity is nan bulk of nan customer CapEx fund is going to beryllium consumed by time rates and frac unit costs and things that really aren't merchandise costs related, nan impacts of lipid prices benignant of astatine a 5 4th debased and state prices arsenic we discussed. I don't deliberation we've seen nan effect yet, but isolated from nan rig count, which really is to maine nan champion barometer for our gross opportunity and that starting disconnected beautiful slow this year.

Unidentified Analyst

Right. Maybe Mark, what are nan assumptions astir moving superior and nan rate travel from cognition guidance for nan year?

Mark Johnson

Yes. So that's a awesome mobility and I deliberation we're going to activity to optimize immoderate of our moving superior metrics to effort to get immoderate of that equilibrium expanse into that free rate travel number into adjacent year, but again still a maturation year. Still, it's still an anticipation for america to adhd inventory to nan equilibrium expanse successful nan coming year. And so, I deliberation arsenic we vanished nan year.

Inventory turns were a small little than we would person historically wanted arsenic a metric goes, but location were immoderate intentional guardant deployment location for immoderate inventory. So I think, arsenic nan quarters ebb and flow, particularly possibly dense successful nan year, we're going to spot a small spot of a build location successful moving superior connected nan equilibrium sheet.

David Cherechinsky

Yes, fto maine adhd to that, Mark. We person really beardown moving superior turns. In 2021, we had a benignant of an era of inventory depletion, which made our moving superior turns - 8 and almost 9 times successful immoderate of nan quarters. That's changed, of course, because we're still successful build mode. The mark-to-market is still going to expand, but we will now beryllium capable to spot nan complaint of maturation connected absolute inventory values and absolute values taper disconnected and past we'll beryllium capable to pain disconnected rate successful that scenario.

So, I deliberation we'll spot our moving superior turns easiness a small spot aliases beryllium a small little strong, but I deliberation that's conscionable a earthy consequence of a, afloat we are going to benignant of afloat banal mode successful position of customer bid fulfillment and that's showing successful our numbers, but still really bully equilibrium expanse management. But location is room for betterment for sure.

Unidentified Analyst

Got it. And past conscionable a past one, nan gait of stock repurchase has slowed modestly during nan 4th quarter. Wanted to get a consciousness for what nan thought process was behind? Is it conscionable a byproduct of nan buyback programme being opportunistic, was it nan acquisitions aliases was it immoderate different factor?

David Cherechinsky

I deliberation you deed it. So we primarily, it, we did 2 acquisitions successful nan 4th quarter, we spent $59 cardinal and erstwhile we said batch opportunistic. Obviously, you want to bargain astatine a bully value and bargain astatine nan correct clip and for illustration I've said from nan beginning, we want to, we want to execute that program, but nan timing was favored nan acquisitions we made successful nan quarter. I deliberation we'll spot immoderate accrued information successful 2023, but it was really was an opportunity to prehend to acquisition opportunities and we jumped connected those.

Unidentified Analyst

Thank you very much.

David Cherechinsky

Thank you, Doug.

Operator

Our last mobility coming comes from Jeff Robertson from Water Tower Research. Jeff, your statement is open. Please spell ahead.

Jeff Robertson

Thank you. Dave, tin you talk a small spot astir nan strategies for acquisitions and pinch respect to Process Solutions. Is location a extremity successful position of what you would for illustration that to go - arsenic a stock of U.S. revenue?

David Cherechinsky

Well, I think, wherever we're astatine coming is - 3 quarters successful nan U.S. power and astir 25% is simply a Process Solutions people we want them some to turn and I'd beryllium happy

The maturation some grew 50% neighbour and nan ratios were nan aforesaid 3 years from now, but Process Solutions to me, it's chiefly a pump business, but a batch much than that it has a level of stickiness pinch our customers.

It puts america successful a really saccharine spot pinch halfway manufacturers - that's I deliberation wherever we've done our past 8 aliases truthful acquisitions, because it's a business we simply want to build organically and inorganically. So anyhow I deliberation nan attraction is connected bolstering that business because it's, thing that's a spot of a departure from modular upstream lipid and state and Process Solutions does spend america immoderate opportunities to turn successful nan business abstraction arsenic well.

Now, I've said for my tenure arsenic CEO that we've been little past willing successful power businesses because our power business wasn't arsenic beardown arsenic it is today. So, we'll beryllium looking to turn acquisitions crossed nan committee by conception aliases by business unit, but there's much aftermarket work opportunities successful immoderate of these acquisitions were focused connected and that tends to beryllium much connected nan Process Solutions side. So that's why we are putting our acquisition dollars, truthful far, but that could change. Thanks for nan question, Jeff.

Operator

Ladies and gentlemen, we person reached nan extremity of our clip for nan question-and-answer session. I will now move nan telephone complete to Brad Wise for closing remarks.

Brad Wise

Well, convey you everyone for your questions coming and your liking successful NOW Inc. We look guardant to talking pinch everyone connected nan first 4th 2023 net convention telephone successful May. Have a bully day. And I'll move nan telephone backmost complete to nan operator. Thank you.

Operator

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