DNOW Inc (DNOW) 2021 Q1 法說會逐字稿

Good morning and welcome to the first quarter earnings conference call. My name is Brandon, and I'll be your operator for today. (Operator Instructions) I will now turn the call over to Vice President of Marketing and Investor Relations, Brad Wise. Mr. Wise, you may begin.

Good morning and welcome to the NOW Inc. First Quarter 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, 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 US 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-K and 10-Q that NOW Inc. has on file with the US 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 defined by US 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 first quarter 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 first quarter 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 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 break even EBITDA in the first half of 2021, 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 breaking even are 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 Flex Flow, our second acquisition this year. Flex Flow is the leading provider of horizontal pump solutions for fluid movement applications. Flex Flow has earned a strong reputation in H-pump expertise through its suite of rental, permanent installation, service and support offerings primarily in the United States. As we join together 2 best-in-class, highly trained technical service organizations from Odessa Pumps and Flex Flow, this combination creates greater value for our customers and elevates DistributionNOW into a pump supplier of choice.

Flex Flow 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 the criteria we have set for inorganic investment. It bolsters and further differentiates DistributionNOW in noncommoditized 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 first quarter, US revenue was up $28 million 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've 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, supplying MRO material as plant workers repaired broken pipes and instrumentation. In South Texas, we saw increased drilling rig activity from smaller independents as new wells were drilled and completed resulting in the demand for PVF-related wellhead connects and well site production facilities. And we supplied 30,000 feet of fiberglass pipe for produced water flow lines to a water management company operating in Williston Basin.

Now I'd like to share a 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 an independent E&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 prompting the new combined companies engineering department to recertify our Tomball facility. Upon completion of the inspection, 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 like actively marketing our products and services and expanding our customer base. In downstream, we grew sequential revenue with an independent refining company in the Northwest by providing PVF and MRO related material for a scheduled turnaround.

In several Midwest and Gulf coast refineries, we provided MRO consumables to first quarter turnarounds, and we were awarded pumps, seals, and consumables for a couple of refinery expanses 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 tied to their bicarbonate production process. The revenue was part of our continuing focus on key customer targets in the mining and chemical processing areas outside our upstream stronghold.

Additional key wins include multiple fabricated pipe rack orders, 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 LACT units for midstream customers. With a midstream customer, we provided meter skids and rental transfer pumps for water transfer and fill applications using 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 in our pump aftermarket and service program has resulted in greater access to customer sites, 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 a strategic pump product line to provide a large pump order 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 million, a sequential increase of $10 million 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 worth, 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 helped diversify our Canadian customer business in the midstream and industrial mining sectors coalescing our online digital technology with customers.

For international. In the first quarter, international revenue was up $4 million 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 first quarter. 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 an 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 DigitalNOW 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 DigitalNOW 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 and how our DigitalNOW platform is delivering to customers.

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 app's 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.dnow.com, to easily find and procure a wide range of products from their DNOW-managed B2B catalog while leveraging our new OrderBuilder enhancement, which allows the user to select pipe, fittings and flanges, using a table-view format that populates the cart in real time.

Our OrderBuilder workflow feature enables users to select and procure large bill and 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 enhances cash flow. In addition, this customer sees the value in efficiency of eSpec, 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 oil field 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 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, product range and technology platform to meet their needs. DNOW was selected because we have all these competencies and could accommodate the customer's requirements.

One of the more exciting products we're working on is eTrack, our asset life cycle management tool. Accessed through an app or a web browser, eTrack uses asset attributes to make it easy for customers to display a wealth of information in a matter of seconds, from nested relationships, like a pump as a part of the LACT unit, to location identification using a latitude-longitude geo-locator. Each app 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 eTrack solution. I'm excited about the future of eTrack as that provides a meaningful step towards realizing our vision 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 a 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 first quarter 2021 revenue was $361 million, a 13% increase over the fourth quarter of 2020, outperforming our guided sequential mid to high-single-digit percentage range. Our first quarter results showed sequential growth across all segments. The US first quarter 2021 revenue was $252 million, up $28 million, or 13%, from the fourth quarter on increased drilling and completions activity despite the disruptive impacts from the freeze brought by winter storm Uri. Our US Energy Centers' revenue was up 12% from the fourth quarter and US Process Solutions revenue was up 14%, driven primarily by increased drilling and completions activity and seasonal recovery. US Energy revenue accounted for 81% of the US segment in the first quarter, unchanged from the fourth quarter.

Moving to the international segment. Sorry, moving to the Canadian segment. First quarter 2021 revenue was $58 million, up $10 million or 21% from the fourth 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 US dollar favorably impacted sales by approximately $2 million 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 million, an increase of $4 million or 9% from the fourth quarter. Stronger foreign currencies relative to the US dollar favorably impacted sales by approximately $1 million 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 million in the fourth quarter to $5 million 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 first quarter of 2021, warehousing, selling and administrative expenses, or WSA, was $79 million or down $2 million sequentially, primarily driven by successfully collecting almost $2 million in aged receivables in the period. That is not expected to repeat.

Our cost reduction initiatives continued into the first quarter and offset the anticipated seasonal increases in WSA expenses, driven by resetting of limit-based payroll taxes and health care cost inflation. As we model the second quarter and layer in the acquisition contribution, we expect the second quarter 2021 WSA to be in the low to mid $80 million range. In the quarter we also initiated exits from leased and company-owned facilities that resulted in impairment loss of $4 million, primarily related to properties held for sale at 3/31.

The net loss for the first quarter was $10 million or a loss of $0.09 per share. On a non-GAAP basis, net loss, excluding other costs, was $5 million or $0.04 per share. Non-GAAP EBITDA, excluding other costs, was a positive $1 million for the first quarter 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 first quarter 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 first quarter, we have zero debt and a cash position of $374 million. Total liquidity equal to availability from our undrawn credit facility, plus cash on hand increased to $598 million as of March 31, 2021. Accounts receivable at the end of the quarter was $245 million, an increase of $47 million from year end. Inventory at the end of the first quarter was $247 million, down 6% from year end, with inventory turns of 4.6x, our quarterly best. As we strategically invest in inventory for our customers and face sequential activity headwinds from Canadian breakup, we anticipate inventory turns to lower into the second quarter.

Our accounts payable ended at $200 million with days payable of 64 days in the first quarter. And as of March 31, 2021, working capital, excluding cash, as a percentage of first quarter annualized revenue was 14.5%, a solid performance, but we expect this ratio to expand some, as we intentionally add working 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 million for the first quarter of 2021, and we had capital expenditures of $1 million.

When looking back over the last 2 years, we've generated $408 million 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 first quarter, we completed the acquisition of Master Corporation, and in April, we closed the acquisition of Flex Flow. 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, first quarter 2020 revenues were up 13% over the fourth quarter of 2020, outperforming our guide and generally posting much higher sequential growth than most companies in our space. We attribute that solid sequential revenue incline to the timing of projects in the first quarter and strength with our upstream customers.

We do not expect first quarter international projects to recur, and as such, anticipate international to be relatively flat sequentially in the second quarter. While Canada grew 21% sequentially from the fourth quarter to the first, you might see the reverse occur as Canada moves into breakup in the second quarter.

Finally, we expect solid US sequential growth going into the second quarter to be similar to US growth from the fourth to first quarters. As such, with fewer international projects, the expected seasonal Canada recline, and strong US revenue gains, we expect second 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 life cycle of a project, from early feed stage work, to engineering design, construction management, commissioning, aftermarket support and life cycle asset management. As an example, if you take a 6-well pad project that includes wellhead hookups, a tank battery facility, fluid handling, gas recovery and compression, produce water transfer and disposal, gathering lines, and midstream tie-ins, DNOW offers a unified solutions approach towards the project, from inception to start up, to aftermarket and materials management and support.

From a scope of supply perspective, DNOW delivers the engineered, fabricated, quality controlled process and production equipment, PVF for flow lines, and instrumentation and 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 derisk the project by minimizing the number of service providers.

Process Solutions will provide project management oversight, enabling pull-through sourcing of materials from our energy locations, while benefiting from our DigitalNOW platform. Digital solutions like our eSpec product will be used to assist with budgeting configuration, specification, and standardization of fabricated and packaged equipment, while eTrack will be used to manage asset performance, analytics and schedule maintenance from an app or a web-based browser.

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 and 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 wider array of products and services, which help our customers reduce emissions, like vapor recovery units, pump and compressor energy-efficient audits, seal-less 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 that 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, for 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, total liquidity nearing $600 million, zero debt, zero interest expense, a profound shift towards efficiencies, and most importantly, a passion for simplifying the customer experience, through investment in differentiating technology, all of which provide a great deal of flexibility for whatever the market brings us.

With that, let's open the call for questions.

(Operator Instructions) And from Cowen, we have Jon Hunter on the line.

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 first quarter. 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 getting guidance and we moderated it with -- based on 60 locations having been closed at that time. So February was slow due to that slowdown in our business. March, however, it really took off. So there was a little bit of a snapback and March ended up being the best month of the quarter and made 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 is 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 US to continue to grow and we expect some flatness internationally. But that's kind of the cadence of how things happened during the first months of the year.

Understood. And then obviously, you had really strong performance on the gross margin front in the quarter. I'm 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 second quarter and beyond?.

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 million, 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. Could be a little higher, could be a little lower. 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 derisk 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 have higher gross margins as well. So they're going to shrink in the second quarter. We're going to see some continued strength in the US, 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 second quarter.

I mean I like to think -- I think Mark said it, that our first quarter gross margins were the highest since we've spun 7 years ago. And I think there's a gravity component there where there's likely going to be a little bit of a reduction in the second quarter, based on the things I said with Canada, some project works in the US, et cetera. 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 prices in our favor.

(Operator Instructions) And from Northland Capital, we have Doug Becker.

Listen, really good quarter on the cash conversion cycle. Working capital ex cash percent of sales is the lowest seen in a 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 requirements normally increase.

Sure, Doug. Yes, this is Mark. Appreciate that, and you're right. This quarter on strong, sequential revenue growth, inventory came down. And so you're right. I think we expect as we model in 2Q, there'll be some easing of that where we'll see some consumption of cash. And so I think as we modeled the top line growth, you could see $30 million to $40 million range of working capital put on the balance sheet as we grow receivables and inventory to ensure we support these customers.

But again, we're continuing to take actions to 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 to remain lean.

Yes, let me add a little bit there. So if you go back a couple of years, routinely our working capital excluding cash as a percent of revenue was 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 kind of a very kind of conservative approach to managing the balance sheet.

We had a focus on that and we got our working capital turns to be very high in this quarter. So there'll be a little bit of an increase, but 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 a modest recovery. So we're going to be buying more strategic inventory. Not like we might have in the past 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 the numerator. That's a major focus for us and it will be going forward.

Now that all makes sense. The $30 million to $40 million that you mentioned, Mark, that's for the full year?

No, I was just looking at the sequential build. If you hold the efficiencies, let's say where we are now, maybe with a little bit of easing, just 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 $600 million in liquidity, managing our balance sheet is 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 US. It's something that, you're right there's not a peg for us to need to generate liquidity in the moment to making kind of payments or anything like that.

Yes, I mean, I think that's a good range. It may be more $20 million, $40 million that we've consumed in the second quarter if we see the kind of revenue progression we expect. Now Mark talked about, in his opening comments, that we generated $400 million in the last 8 quarters, that's you understand the counter-cyclicality of our business. Now we're in the cash consumption phase, but we're going to go into it 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&A pipeline in the near term over the next couple of quarters.

Okay, so we just closed 2 acquisitions and we're excited about them. And that's a major focus for us, is successful integration and returns on those acquisitions. However, our deal team 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 work on. And the ones we just closed, those were 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 as vibrant a pool of possibilities with the acquisition candidates as it was before we closed these 2 deals.

Ladies and gentlemen, we've reached the end of our time for the question-and-answer session. I will now turn the call over to David Cherechinsky, 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.