Good morning. My name is Ian, and I will be your conference operator today. At this time, I would like to welcome everyone to the DNOW Fourth Quarter and Full Year 2023 Earnings Conference Call. [Operator Instructions]. Mr. Brad Wise, Vice President of Digital Strategy and Investor Relations, you may begin your conference..

Thank you, Ian. Good morning, everyone, and welcome to DNOW's Fourth Quarter and Full Year 2023 Earnings Conference Call. We appreciate you joining us, and thank you for your interest in DNOW. With me today is David Cherechinsky, President and Chief Executive Officer; and Mark Johnson, Senior Vice President and Chief Financial Officer.

We operate under the DNOW brand, which is also our New York Stock Exchange ticker symbol. Please note that some of the statements we make during this call, including responses to your questions, may contain forecasts, projections and estimates, including, but not limited to comments about the outlook for the company's business.

These are forward-looking statements within the meaning of the U.S. federal securities laws based on limited information as of today, February 15, 2023, which is subject -- 2024, excuse me, 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-K and 10-Q that DNOW has on file with the U.S. Securities and Exchange Commission for a more detailed discussion of the major risk factors affecting our business.

Further information as well as supplemental financial and operating information may be found within our earnings release on our website at ir.dnow.com or in our filings with the SEC. In an effort to provide investors with additional information relative to our results as determined by U.S.

GAAP, you'll note that we also disclose various non-GAAP financial measures, including EBITDA, excluding other costs, sometimes referred to as EBITDA; net income attributable to DNOW Inc., excluding other costs; and diluted earnings per share attributable to DNOW Inc., excluding other costs.

Each excludes the impact of certain other costs, and therefore, have not been calculated in accordance with GAAP. Please refer to a reconciliation of each of these non-GAAP financial measures to its most comparable GAAP financial measure in the supplemental information available at the end of our earnings release.

As of this morning, the Investor Relations section of our website contains a presentation covering our results and key takeaways for the fourth quarter and full year 2023. A replay of today's call will be available on the site for the next 30 days. We plan to file our 2023 Form 10-K later today, and it will also be available on our website.

Now let me turn the call over to Dave..

Thank you, Brad, and good morning, everyone. I'd like to start off with the results our team produced in 2023 and talk about how we've laid the groundwork for a great 2024 and a bright future beyond that.

A year ago, when we gave guidance for the full year 2023, when our customers projected their budgets and analysts forecast levels of growth, the outlook then was rosier and brighter than how the year actually unfolded. But despite less momentum from the market, it was a great year. In fact, it was our best year yet.

Our team produced a kind of 1-2 punch that will fuel an accumulation growth strategy by driving significant free cash flow while producing solid revenue growth and then historically working capital-intensive business. To demonstrate how strong 2023 was for DNOW, let's talk about what we committed to and what we delivered.

12 months ago, we forecast full year 2023 revenue to increase 8% to 12% compared to the full year 2022. EBITDA was targeted at 8% of revenue. Cash flow from operations was to approximate $100 million or $85 million in free cash flow. First, we said revenues in 2023 would expand between 8% and 12%. That was ambitious, even with rosy prospects.

We said revenues would expand 8% to 12% and they expanded 9% at the lower end of our guide, but in a softer-than-expected climate. Solid revenue growth. We said we would see gross margin contraction of about 30 basis points, and it was actually closer to 60 basis points.

Steel prices were the main drag on gross margins and thus weren't as strong as planned, but given the market, product margins were really solid in comparison to a supply chain strained 2022. 2023 gross margins were 23.1%, really strong, the second best year in our history after 2022. Next, we said EBITDA was targeted at 8% of revenues.

That's about how we ended the year at 7.9%. Finally, we said cash flow from operations was to approximate $100 million in the full year 2023 or $85 million in free cash flow after deducting forecast capital expenditures. We said we'd generate $85 million of free cash flow and actually doubled it to produce $171 million in free cash flow in 2023.

This beefed up our cash balance to $299 million at year-end 2023, allowing for plenty of dry powder to grow.

For these results, I want to thank our employees who worked tirelessly by strategizing with our suppliers, managing product flows, being source flexible when there are snags, training our people, planning and collaborating to provide the level of service and dependable source of products and solutions our customers have come to expect.

I'd like to thank our world-class sales team, sales leaders and our meticulous conscientious operations pros who are admired for their responsiveness, speed and accuracy and sought after for the care they provide to our customers.

An organization underpinned by a lean smart back office of employee caretakers or cheerleaders who promote and defend the brand and protect outfit and equip our team to win in the market. For all that was accomplished in 2023, thank you. Despite various unanticipated market headwinds in 2023, we showed demonstrable revenue strength.

Most notably, our U.S. Process Solutions business delivered significant full year double-digit revenue growth in every business unit to include Power Service, Odessa Pumps, FlexFlow and EcoVapor brands. I'll talk more about U.S. Process Solutions and our Global Energy Centers business later.

But first, we have discussed the correlation of our revenue to drilling rigs and completions. As more efficient rigs are deployed in the market today, fewer rigs are needed to produce a similar result compared to just 5 years ago.

However, when a highly efficient operating rig goes to work and our customers drill wells, they still require the plumbing and mechanical infrastructure to collect, transport separate, process and market oil and gas. And that drives the demand for our pipe, valves, fittings, pumps, electrical and fabricated process and production equipment.

And we're happy about those market dynamics as they are reflected in our performance and long-term outlook for DNOW as energy demand is forecast to grow. I'd like to speak with an eye to the future and a longer-term DNOW strategy.

We are focused on growth continuing to drive improved earnings and high levels of free cash flow by developing our existing businesses and unlocking new revenue streams by capturing customer investment in midstream, energy evolution and adjacent industrial markets like water, wastewater, mining and chemical processing.

In the energy evolution landscape, we are helping our customers decarbonize by reducing or eliminating routine flaring as well as the elimination of methane used to power gas pneumatic devices by replacing them with industrial-grade compressed air systems.

Over the past year, sales are growing for our EcoVapor Zero 2 solutions in the renewable fuels market, specifically by targeting landfill gas and biofuel RNG facilities. EcoVapor products afford DNOW with an opportunity to provide pull-through product sales in the form of other fabricated products, pump packages, PBF and consumables.

We are growing our emphasis on carbon capture and storage markets where significant capital investment is being directed primarily by our current customers. Over the past few quarters, I've highlighted some carbon capture wins as this market begins to gain traction.

Looking ahead, we expect 2024 and beyond to provide a more meaningful revenue contribution, helping to amplify growth. Leveraging our partner relationships, we have the ability to capture organic growth from several industrial markets like water, mining and chemical processing.

We see organic growth opportunities in water infrastructure investments resulting from U.S. population growth and migration towards warmer areas. For the mining market, we see continued investment in bringing rare earth minerals to market, driven by the demand for EV batteries as well as other rare minerals used in technology and AI applications.

We also see promising opportunities to capture revenue from the chemical processing markets, leveraging our mechanical seal manufacturing partnership that allows us to service an existing installed base of products and deploy our pump field service technicians.

Finally, to support our growth strategy, we are highly acquisitive, looking for quality companies that meet our financial requirements, grow earnings and either further expand our U.S. Process Solutions business or extend our reach in the more diversified markets.

I was pleased to announce last week that we entered into an agreement to acquire Whitco Supply in an all-cash transaction. The acquisition would bring together 2 highly complementary businesses and expand DNOW into the midstream space.

We are excited about the opportunities the acquisition will bring and look forward to sharing more detail after the deal closes. But we expect this transaction, when completed, will enhance our earnings and free cash flow profile and strengthen our ability to increase shareholder value. Now I'll hit some financial highlights.

Fourth quarter revenue was $555 million, better than expected given market dynamics. In 4Q '23, overall gross margin improved to 23.4% sequentially, aided by improved pipe margins, and we also benefited from product mix and additional vendor consideration in the fourth quarter.

For the full year 2023, revenues were $2.32 billion, up 9% year-over-year, above our previous quarter guide of an 8% year-over-year increase. For the full year 2023, EBITDA was $184 million or 7.9% of revenue.

Generating $188 million in cash from operating activities or $171 million in free cash flow in a strong revenue growth period where our business expanded nearly 9% or added $185 million is quite an accomplishment. We generally produce stronger cash from the business in years when the market contracts and produce less cash when our business expands.

In 2023, we generated one of our best free cash flow years and produced our greatest earnings since going public, while also buying back $50 million in shares in 2023. Now some comments on a regional basis. In the U.S., revenue was $418 million, down 7% or $30 million sequentially due to expected seasonal impacts. U.S. rig count decreased 4%, while U.S.

completions decreased 8% sequentially, with the implication being a strong revenue response given the market and seasonal dynamics. Our model supplying products for workover rig activity remained steady in the quarter, helping to buttress revenue declines associated with fewer drilling rigs.

Mark will talk about our working capital in the quarter, but I wanted to highlight the significant improvement we saw in working capital efficiencies coming from our Williston mega center in North Dakota, as a result of our regional fulfillment initiative in the Northwest service area contributing to cash flow in the period.

Across our supercenters, we continue to see improved efficiencies where we centralize inventory at the regional level and limit redundancies in our supply network. In U.S. Process Solutions, demand improved for our pump products, fabrication packages and rental units. On a year-over-year basis, U.S.

Process Solutions business grew 46% or added $150 million of revenue with about 1/3 of U.S. Process Solutions 2023 growth coming from acquisitions. For the fourth quarter, U.S. Process Solutions represented 1/3 of U.S. revenue, a new high since we created the division.

Demand for DNOW's LACT units, separator vessels and pump skids remained steady from a variety of operators building out tank battery facilities. For our pump distribution businesses, we saw demand increase not only in our core oil and gas markets but in industrial markets such as municipal water districts and uranium and lithium mining operations.

Aiding our day-to-day business growth during the quarter, we expanded our pump preventative maintenance programs in more areas, expanding market reach, adding incremental revenues at higher margins. We're also seeing increased demand for our horizontal trailer-mounted pumping solutions provided by Flex Flow.

When looking at the full year 2023, Flex Flow rental activity steadily increased with additional opportunities from produced water disposal and transfer. In Canada, revenue was $65 million for the quarter, a decrease of 4% sequentially, primarily due to seasonal headwinds paired with softer project spend.

For international, revenue was $72 million, sequentially flat with strong project activity, including about $10 million in international projects in 4Q '23 that we do not expect to repeat in the first quarter of 2024.

On a full year basis, international revenue grew 26% as customer investment in energy security, reliability and affordability continues to grow in oil and gas areas, coupled with continued investment in new and alternative energy technologies. Project activity was strong in Australia and Kuwait, offset by declines in maintenance spend elsewhere.

We saw increased activity from several EPCs, procuring products for a downstream ethane cracker project. Activity for West Africa remained steady as we targeted added target accounts serviced by our export model in the U.K. And for Norway, we supplied electrical cable for offshore platforms, subsea and related surface projects.

And finally, a large project shipped in Australia, providing electrical cable for an LNG compression project. And now I'd like to make a few further comments related to the energy evolution. We continue to track an increasing number of projects and investment into the carbon capture and renewable fuels markets.

In the fourth quarter, we were successful in providing a variety of products for a natural gas gathering project designed to export LNG in combination with the carbon capture storage project. This will permanently sequester up to 2 million tons per annum of CO2.

In addition, we continue to win follow-up orders on products for previously announced carbon capture and direct air capture projects as the scope of work adjusts and day-to-day items are required during the construction phase that were not originally contemplated in the project phase. Turning to our EcoVapor business.

We saw growth in the quarter from the sale of numerous E120002 units to a landfill gas operator used to treat landfill gas and market as RNG. Moving to our Digital NOW initiatives.

Our digital revenue as a percent of total SAP sales for the quarter increased to 47% as we continue to leverage technology automate processes and work with customers to integrate our systems by leveraging digital technologies to streamline the procure-to-pay process.

Our B2B e-commerce revenue increased in the quarter as we experienced higher usage from our mobile app users as we rolled out several consignment programs where customer users -- customers use our mobile app to acquire material.

Growth in e-commerce was also driven by having a full quarter of activity from a customer recently onboarded during the prior quarter. With that, let me hand it over to Mark..

Thank you, Dave, and good morning, everyone. Total fourth quarter 2023 revenue was $555 million, down 6% or $33 million from the third quarter. On a year-over-year basis, the 2023 fourth quarter revenue was up $8 million or 1%. On a full year basis, total 2023 revenue was $2.32 billion, up $185 million from 2022 or an increase of 9%.

EBITDA excluding other costs or EBITDA for the fourth quarter was $44 million or 7.9% of revenue. On a full year basis, total 2023 EBITDA was $184 million or 7.9% of revenue, up $9 million or 5% from 2022. U.S. revenue for the fourth quarter of 2023 totaled $418 million, a decrease of $30 million or 7% from the third quarter of 2023.

On a full year basis, 2023 U.S. revenue totaled $1.75 billion, up 10% or nearly $160 million from 2022. In Canada, for the fourth quarter, revenue totaled $65 million, a decrease of $3 million or 4% from the third quarter of 2023.

On a full year basis, 2023 Canada revenue totaled $282 million, down 10% or $33 million from 2022, impacted unfavorably by $11 million or 3.5% from foreign currency exchanges. International revenue for the fourth quarter 2023 was $72 million, flat sequentially and up $14 million or 24% when compared to the fourth quarter of 2022.

On a full year basis 2023, international revenue totaled $290 million, up 26% or $60 million from 2022. Gross margins for the fourth quarter were 23.4% or up 60 basis points sequentially. On a full year basis, gross margins for 2023 were solid at 23.1%.

Warehousing, selling and administrative, or WSA, for the quarter was $98 million, or up $1 million sequentially and year-over-year. WSA as a percent of revenue improved in 2023 compared to 2022. In the fourth quarter, we reported $7 million of depreciation and amortization expense. Moving to operating profit by geographic segments.

In the fourth quarter, the U.S. delivered $23 million in operating profit in the Canadian and international segments delivered operating profit of $4 million and $5 million, respectively. Moving to income taxes.

In the fourth quarter of 2023 DNOW's GAAP effective tax rate was favorably impacted by the noncash release of $126 million in valuation allowances resulting from the company's assessment of the carrying value of its deferred tax assets and future projections of taxable income.

Starting in 2024, we expect that our go-forward GAAP effective tax rate will be more closely aligned with our non-GAAP effective tax rate, and we estimate our 2024 tax rate will be approximately 27% to 28%.

I remind you the effective tax rate that is calculated on a GAAP basis from the face of the income statement at the moment, differs from the expected tax rate at these earnings levels due to the income tax expense provision on the income statement, which includes a favorable tax benefit from the changes in the tax valuation allowance on our deferred tax assets.

As such, this is why when imputing our non-GAAP tax rate, we exclude the favorable impact resulting from the changes in the valuation allowance and for modeling purposes, the non-GAAP effective tax rate was approximately 27.5% for the fourth quarter of 2023 and 27% for the full year of 2023. From a cash perspective, we don't expect to pay U.S.

federal income taxes for 2024 due to available net operating loss carryforwards. Net income attributable to DNOW Inc. for the fourth quarter was $147 million or $1.35 per fully diluted share. And on a non-GAAP basis, Q4 2023 net income attributable to DNOW Inc., excluding other costs, was $24 million or $0.22 per fully diluted share.

As discussed earlier, our Q4 2023 GAAP net income was favorably impacted by the recognition of a noncash benefit of $126 million from the release of the valuation allowances on certain deferred tax assets. Moving to the balance sheet. At the end of the quarter, we had 0 debt and a cash position of $299 million.

Cash increased by $105 million in the fourth quarter, primarily from lower inventory levels paired with earnings. We ended the quarter with total liquidity of $626 million, comprising our net cash position of $299 million and $327 million in additional credit facility availability.

Our existing $500 million revolving credit facility extends into December 2026, providing DNOW with immediate access to capital under the facility for the next 3 years. Accounts receivable was $384 million in the period, a decrease of $12 million from the third quarter. Days sales outstanding, or DSO, was 63 days at the end of the fourth quarter.

Inventory was $366 million at the end of the fourth quarter, a decrease of $49 million sequentially with an annualized churn rate of 4.6x. The timing of large project deliveries in the fourth quarter impacted the ending inventory balance this quarter compared to normal levels, and we expect a slight build of inventory into the first quarter.

Accounts payable was $288 million at the end of the fourth quarter, a decrease of $13 million from the third quarter. And for the fourth quarter 2023, working capital, excluding cash as a percentage of annualized fourth quarter revenue was 15.8%.

In the fourth quarter of 2023, we generated $105 million of cash from operating activities attributable to strong earnings contribution and a reduction in net working capital. On a full year basis, we beat our 2023 expectations in cash flows from operating activities and delivered $188 million in 2023.

We also surpassed our free cash flow target in 2023, generating $171 million in free cash flow. In the fourth quarter, we generated $103 million of free cash flow, including capital expenditures of $2 million. We continue to execute on our share repurchase program that is authorized through December 31, 2024.

As of December 31, 2023, our cumulative repurchases under our $80 million authorized share repurchase program equaled $57 million.

Our commitment to growing the company through accretive organic growth and acquisitions remains a key priority, while also having the ability to repurchase shares opportunistically as we use the tools and our broadened capital allocation framework to generate attractive shareholder returns without deviating from our disciplined approach to balance sheet management.

We continue to be debt-free and keep cash flow generation a top priority. And with that, let me turn the call back to Dave..

Thank you, Mark. Switching to our outlook for 2024. In the U.S., as customer budgets reset, based on what we're reading, we expect customer spending to be allocated primarily to maintain current production levels, noting some large CAC public companies are announcing modest production growth in the Permian. We believe U.S.

rig counts may be bottoming and poised to grow in the second half of 2024 and that completions activity will grow from the low January levels. As a result, we expect our U.S.

business to grow in the first quarter sequentially and on a year-over-year basis from 2023 levels as we look to capture market share and continue to execute on growing in industrial and adjacent markets. In Canada, we expect customers to maintain production, and we see a flat scenario playing out for the year.

Internationally, we expect to see sequential activity declining considering we had several projects that will not repeat that occurred in the fourth quarter. Taking it all together, for the first quarter of 2024, we expect sequential revenue to increase in the 0% to 5% range compared to the fourth quarter of 2023.

First quarter 2024 EBITDA dollars could remain flat with fourth quarter 2023 levels due to higher first quarter 2024 expenses resulting from a reset in payroll taxes, combined with reduced vendor consideration. We expect full year 2024 revenues to increase 0% to 5% from 2023 levels and full year 2024 EBITDA could approach 8% of revenue.

We expect to consume cash in the first quarter of 2024 as we replenish inventory to support growth at these forecasted levels of activity. And we expect to generate up to $150 million in free cash flow in 2024 depending on the movement and pace in revenues. In closing, I'm excited by our strong fourth quarter finish, capping off another stellar year.

In 2023, revenues grew $185 million or 9%, while generating $184 million in EBITDA, excluding other costs, a record performance since becoming a public company. U.S. Process Solutions, notably delivered significant full year double-digit revenue growth in every division.

Adding to our top line increase -- impressive top line increase, we produced $171 million in free cash flow, twice our original guidance provided last February. I'm thrilled about the agreement we reached to acquire Whitco Supply and believe this partnership will enhance our earnings, free cash flow profile and increase shareholder value.

I hope to say more about this on our May call. Finally, I want to thank the highly talented women and men of DNOW who have delivered these results and positioned our company to be the critical link in supplying the world's evolving energy needs. With that, let's open the call for questions..

[Operator Instructions] Our first question comes from the line of Nathan Jones with Stifel..

I'm going to start off with some questions on cash flow, given how super strong it is and the great outlook for free cash flow in 2024. Maybe you can give us some color on what you're expecting from contribution from working capital to free cash flow in 2024.

And any commentary on kind of where you feel like the sustainable free cash flow number would be with normalized working capital at this level of revenue. I'll leave it there..

Okay. So our guidance was -- revenue growth of 0% to 5%. So it's a slow growth kind of year going into the new year. So I expect our working capital will largely be similar on an average basis during the year. So we're going to throw off most of the cash directly from the P&L.

Yes, there are some improvements to make on the balance sheet, but there is a bit of inflation that will show up in our inventory in the coming period. So that will be a little bit of a drag on cash.

But generally, the P&L in a year like this is going to be where the free cash flow is generated, especially after a really strong fourth quarter where we reduced our inventory and we're going to replenish it notably in the first quarter, but still a really strong free cash flow in 2024, like you suggested..

So it's your view that you're -- I mean basically done destocking inventory. There's not a lot of excess inventory in the system. We're seeing across a lot of industrial companies excess inventory in the system from overordering in 2022 during supply chain issues.

What you're saying is there's not a big contribution here from liquidating some of that excess inventory that might have built up during COVID, that this is -- this $150 million target is something like a normalized level of free cash flow for the business assuming this level of revenue..

That's right. If anything -- the answer is yes to your question. If anything, we we did some destocking in the fourth quarter. That was -- I think it was around a $50 million reduction in inventory. That might have included some overhang from the shortages that were experienced in 2022.

So that really cleaned up some products that -- some of which we won't bring back in. But that's right, in the new year, it's largely going to come from the P&L and we don't have a lot of excess inventory in the system, especially after the 4Q drawdown..

Great. That's awesome. Then on using that cash, I guess, I mean, there was a big slowdown in the share repurchase. You didn't do much in the second half. So any commentary on the plans for that. And then the actionability of the pipeline. You guys have consummated a few fairly small acquisitions here over the last few quarters.

Just anything on the outlook for that..

Yes. In terms of the share repurchase in the -- it's a notable difference. In the first 3 quarters, we bought back, I believe, 49 million in shares. And in the fourth quarter, we bought back 1 million in shares. We announced a few weeks ago that we've agreed to buy a company, one of the -- this would be one of the larger acquisitions in our history.

So of course, we were saving up for that purchase. And we've said all along that our priority in terms of deploying capital was first invest organically, that's the most profitable way to -- or the most sure way to produce a return.

Secondarily by good companies that are accretive to earnings, accretive to free cash flow, that separate us in the market. And finally, exploit our share repurchase program, which we intend to do. So it's a timing thing more than anything Nate, but we're going to exploit that and complete that share repurchase program or plan to. ..

[Operator Instructions] Out next question comes from the line of Jeff Robertson with Watertown Research..

A question on the guidance.

Does that include a contribution from Whitco?.

It does not. Our position is, until it's closed until it's a surety, we're not going to include that in any of the guidance we laid out today. If it does come to fruition, and of course, we expect it would, we're going to be really bragging about it in May. But right now, it doesn't include those -- the impact..

And a question then on the energy transition in Process Solutions.

Can you talk about how much of your current business you would attribute to energy evolution type projects?.

Yes. I think the scale of activity in 2023 was around $30 million in revenues. So not a big piece of the pie in 2023. We think the opportunity in 2024 is to double that number. That's a big organizational focus for us. We think it's a path that's going to distinguish us in the market.

But we estimate that a little over $30 million in 2023 and more than double that in 2024..

Is that potential doubling, is that from projects that are currently underway? Or do you anticipate that's from projects -- some contribution of that would be from projects that are yet to be started that you just have line of sight on?.

Yes. Probably half of that doubling or half of that approximately $60 million in the new year is in the bag, projects booked and the others is expectations for winning new business..

And then last question. You spoke about water and some adjacent markets to the traditional energy.

Does the Whitco product line, would that expose you to some other markets that you -- that are outside of traditional energy? Or is it mainly just midstream?.

I think for now -- in terms of questions about Whitco, we'll kind of be strict about it. But I think it's primarily midstream is the opportunity for DNOW and that would be the sweet spot that we're going after..

Our next question comes from the line of Cole Couzens with Stephens..

Sorry, I joined the call a little bit late and you might have hit on this already, but U.S. land rig count have seemed to bottom here in the 600 range, but we really haven't seen an inflection yet.

So maybe it would be helpful if you guys could parse through kind of the assumptions that are baked into the guidance for flat to up 5% and maybe how customer conversations are shaping up in that context as well?.

Okay. In terms of rig counts, I think we see real stability in the low 600s for U.S. rigs. There are some customers, some joint contractors talking about adding rigs. And then there is a general sentiment that we expect some lift. We're not sure when that's going to come.

We think it's more likely to see some uptick in the second half, but stability, which is a good thing in the meantime. Completions were low in January after having declined for a period of time. I believe the completions will ultimately follow the path of rigs. So we expect some growth there as well..

Okay. That's helpful. And then kind of higher level on process solutions versus energy. It seems like we continue to see that process solutions mix go higher.

Is there any way you guys can kind of frame up the rough gross or EBIT margin profiles of the 2 businesses?.

Yes. What I'll say is this is in our Process Solutions business, we tend to see higher -- depends on where we are in the cycle. When Process Solutions business is strong, we could see better bottom line margins. When things are leaner, it tends to even out over the cycle.

But right now, Process Solutions is -- has had its best year ever in 2023, grew 46% from 2022. And so this is one of those periods where the earnings might be a little stronger on -- generally versus the energy centers, but that evens out over time..

And we have a follow-up with Jeff Robertson of Watertown Research..

Dave, a question on industry consolidation. You all talked in 2023 about aligning DNOW as the supply chain provider of choice and some strategic type relationships with some of your customers.

Do you think some of the consolidation among the big independent producers furthers your ability to maybe gain market share by being the provider that they turn to?.

Yes, I think when -- I think to me, the rule of thumb or my expectation is when these big consolidations happen, only a few distributors in North America can handle the much larger businesses as they come together. So I think the benefit accrues to a company like DNOW. We have a good footprint in North America.

When these companies come together, we're really better equipped than most companies to take that on. And of course, we're always pursuing the more integrated models with these companies as they come together. And that could go either way.

If the acquiring company is one of our supply chain services customers, very important customers to us, we might have a shot at picking up the rest of the business in the company they acquire. So we see that as a net positive generally, and it could be a very good situation if our incumbent supply chain services customer is the acquirer..

Okay. There are no further questions at this time. I'd like to hand things back over to Mr. Brad Wise..

Well, thank you, everyone, for your questions today and your interest in DNOW. We look forward to speaking with everyone on our first quarter 2024 earnings conference call later this year in May. And with that, I'll turn it back to the operator to conclude our call. Thank you. ..

Thank you. This concludes today's conference call. You may now disconnect. Have a good day..