Welcome to the First Quarter Earnings Conference Call. My name is Sylvia, and I will be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. I will now turn the call over to Senior Vice President and Chief Financial Officer, Dave Cherechinsky. Mr. Cherechinsky, you may begin.

Thank you, Sylvia, and welcome, everyone, to the NOW Inc. first quarter 2018 earnings conference call. We appreciate you joining us this morning and thank you for your interest in NOW Inc. With me today are Robert Workman, President and Chief Executive Officer of NOW Inc., and Dan Molinaro, Executive Vice President. NOW Inc. operates primarily under the DistributionNOW and Wilson Export brands. And you'll hear us refer to DistributionNOW and DNOW, which is our New York Stock Exchange ticker symbol during our conversations this morning. Before we begin this discussion on NOW Inc.'s financial results for the first quarter of 2018, please note that some of the statements we make during this call may contain forecast, projections and estimates, including but not limited to, comments about our outlook for the company's business. These are forward-looking statements within the meaning of the U.S. federal securities laws based on limited information as of today, which is subject to change. They are subject to risks and uncertainties and actual results may differ materially. No one should assume that these forward-looking statements remain valid later in the quarter or later in the year. I refer you to the latest Forms 10-K and 10-Q that NOW Inc. 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 Investor Relations website at ir.distributionnow.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, net income or loss excluding other costs and diluted earnings or loss per share excluding other costs. Each excludes the impact of certain other costs and, therefore, has 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 2018 Form 10-Q today, and it will also be available on our website. But first, let me turn the call over to Robert.

Thank you, Dave, and good morning, everyone. I want to thank each of you for taking the time to join us today. This morning, I will review our key financial metrics and go over our strategic progression and business segment highlights. Then, I'll turn over the call back to our CFO, Dave Cherechinsky, for a more detailed review of the financial results before he returns it to me for closing comments. In speaking with customers, suppliers, other oil and gas market participants and experts, most note the worst of the cycle is behind us finally. We generally agree, as we saw increased revenues across all reporting segments with notable growth in our U.S. operations both sequentially and year-over-year. We finished the first quarter of 2018 with revenue of $764 million, up $133 million or 21% from the first quarter of 2017, exceeding expectations. Our revenue growth outpaced global average rig count growth, which was up 12% year-over-year. Geographically, year-over-year, the U.S. topline increased 28% followed by a Canadian increase of 6% and then International at 4%. In the U.S., Energy Centers made up 53% of U.S. revenue, followed by Supply Chain Services at 33% and Process Solutions at 14%. Gross margin percent was up 30 basis points as margin gains in the U.S. were offset by product margin declines in Canada, coming off therefore Q highs. Warehouse, selling and administrative expense was $141 million for the quarter as expected and up $3 million sequentially, excluding the $10 million gain in 4Q 2017 related to the sale of a property in California that we mentioned on the 4Q call. Expense control during the period, in light of elevated revenue growth, reflects our focus on cost rationalization and value optimization, including the closure of eight locations this quarter and 30 in the…

Thanks, Robert. For the first quarter of 2018, the company generated $764 million in revenue, an increase of $95 million or 14% sequentially and growth of $133 million or 21% from the same period in 2017. This marks the strongest sequential quarter revenue gain on an absolute dollar basis since 3Q 2014. Gross margins grew to 19.4% in the first quarter up from 18.1% in the same period of 2017, the highest level for gross margin since the fourth quarter of 2014. Warehousing, selling and administrative expenses or WSA was $141 million in line with our $140 million range guidance. This was just $1 million more WSA than the second quarter of 2016, which since then on a run rate basis, we added $1 billion in revenue to our business; in other words, the same level of expense for a business now $1 billion larger. In 1Q 2018, WSA was up $3 million sequentially after excluding a $10 million gain on the sale of property from 4Q 2017. We expect WSA to be in the low to mid-140s million range per quarter for the remainder of the year. Operating profit was $7 million or 0.9% of revenue compared to an operating loss of $21 million or negative 3.3% of revenue in 1Q 2017. Net income for the first quarter was $2 million or $0.02 per diluted share, an improvement of $25 million when compared to the corresponding period of 2017. Our effective tax rate for the three months ended March 31 as calculated for U.S. GAAP purposes was 24.1%. And our profitability increases and when we are no longer subject to a valuation allowance in the U.S., we expect our effective tax rate to be in the mid to upper 20% range. On a non-GAAP basis, EBITDA excluding other costs…

Thanks, Dave. Let's wrap up the outlook for the remainder of 2018. Our outlook is tied to global rig count and drilling and completion expenditures, particularly in North America. Oil prices and U.S. oil storage levels will continue to be primary catalysts for determining U.S. rig activity. Our approach continues to be to advance our strategic goals and manage DNOW based on market conditions. Before I move on to recognize one of our dedicated employees, I'd like to summarize the progress we made in the execution of our four pillar strategy. We maximized our operations by adjusting our footprint in line with customer demand and by optimizing our human capital and supplier relationships. We executed on margin enhancement initiatives by improving our quotation and pricing processes, expanded our breadth of inventory and driving intercompany collaboration. We leveraged acquisitions to enhance cross-selling and collaborations. And we approached the capital allocation with discipline improving inventory turns. With the further successful execution of our strategy, we fully expect continued improvements toward generating shareholder value. With that, let me recognize one of the employees whose daily hard work and dedication enable us to deliver on our promises. Dave Dubala's (25:55) extensive 44-year career with DNOW started as a warehouse driver for Wilson Supply in Houston, when the Oilers started playing in the Astrodome and Dan Pastorini was still the quarterback. David spent nearly his entire career in South Texas mainly at our Victoria, Texas branch. He and his wife Cathy (26:14) and two children enjoy spending time together as a family on the ranch outside of Goliad, Texas. One of the many feathers in David's cap was his leadership over one of our largest branch projects in 2009, that involved a South Texas customer's critical ramp-up on to Eagle Ford infrastructure and generated nearly $100 million in revenue. It was a challenge, but David made it happen. David has been involved in all of the different markets that we serve, and has developed many people throughout the organization. His attention to detail and process compliance, extensive product knowledge, market's experience, and understanding of the industry make him an ideal mentor for anyone in our company, new or experienced. And when it comes to picking up a tab, many believe they can get a watermelon out of their pocket quicker than David can get a nickel out of his. That conservatism along with his leadership and years of dedication make it not only an honor for all of us to call David a very loyal employee but more importantly a friend. Thank you and your family for all that you do for DNOW, David. And with that, let me turn it over to Sylvia to start taking your questions.

Thank you. We will now begin the question-and-answer session. And our first question comes from Steve Barger from KeyBanc Capital Markets.

Hey, Steve.

Hi. Good morning, guys.

Good morning.

Hey. A nice quarter. The primary question I'm getting right now is about the sustainability of sequential trends in revenue and EBITDA. It sounds like you're feeling a lot better about conditions in the U.S. But with the normal Canadian seasonality you talked about, do you think the consolidated results see those sequential increases in the 2Q and 3Q?

Well, 2Q is going to be different than 3Q. 2Q is feeling pretty flattish right now. If you remember last year, we grew 17% from 4Q 2016 to 1Q 2017 and then we followed that with 3% sequential growth in 2Q 2017. And differences between last year and now is Canada is going through a more severe breakup than it did last year. International is not going to grow any more than it has in the past until offshore comes back which we see to be far in the future. 1Q this year had completions delays from the rails and the weather and all that other stuff, which will translate likely into a little bit of softness and tank battery construction in 2Q because we lag the completion process of building tank batteries, and our Supply Chain Services group had some very nice projects with almost all four of our large energy customers that likely won't repeat into 2Q. And so considering all that, it's feeling pretty flattish at this point into 2Q.

Got it. Well, I guess can you talk about – slide 9 for Process Solutions, can you talk about how quoting and booking activity progressed through the quarter and through April and just how are you set for capacity as you go into 2Q in some of those higher growth areas?

Yeah. We feel really good about the amount of orders we received in the Process Solutions group which includes our service, but Odessa Pumps as well is doing very well. So most of these orders are longer lead time items that we received in 1Q, so going from 3Q and beyond, they've got quite a bit of work to ship.

And you mentioned that big order from the Permian operator, is it your sense that if you can deliver to spec, so there is a lot more business behind it with that operator and do you think a successful program with a big player gives you the credibility with other operators that can translate into orders?

Yes. Yes. Yes.

That's great. And I guess just any count how the offering for modular tank batteries or anything else is progressing in other basins right now?

Yeah. So I was just up there about two weeks ago, and recently, we bought Power Service and Casper, everything we saw up there that you might remember – you've obviously been through yet or not, but everything enclosed back then. So you knew it was all going to the Bakken because they'd be putting closures over everything due to the weather. I was amazed to see how many unclosed skids were scattered all over those facilities, that means they're all headed to the Eagle Ford or the Delaware or the Midland or somewhere like that. So they're definitely making traction. In the beginning of us trying to penetrate those markets with that solution offering, someone would order like 20 lakh units or somebody would order 12 vessels or somebody would order nine water injection pump packages. But no one has really given us the whole suite. They were trying to test our ability to deliver, the quality, so forth and so on. And as of late, now, they're ordering two and three different types of module solutions at a time. So it's definitely starting to get traction.

Perfect. I'll get back in the line. Thanks.

Thank you.

Our following question comes from Matt Duncan from Stephens.

Good morning.

Hey, Matt.

And that was nice quarter.

Hi, Matt.

Thank you.

So look I want to start with the energy branch business. U.S. rig count was up about 5% sequentially and your business grew more mid-teens. Obviously completions growth kicking in is helping you. But is that something you think you could continue to outpace rig count in the U.S., and if so, what's driving it?

Well, there's several things that drove it, but one is, remember, our 4Q was a lot softer than we expected. So some of that was just carryover work from people actually taking vacations and all that need stuff. So some of that helped out the quarter, but generally across the board in the U.S. Energy Centers, we're seeing not upticks in orders from current and new customers. So I think we could continue to grow at a faster pace excluding – as long as we're excluding the U.S. Supply Chain Services, which I mentioned earlier, had those large projects with Oxy, Devon, Hess and Marathon.

Robert, how much do those add up to in total in the supply chain business, how much revenue did you get out of that stuff that maybe doesn't carry forward?

I would have assessed – it's hard for me tell, but because some of it happens in the field and so there's no way to tell, it's not all shipped out of our project group, but I would have expected U.S. Supply Chain Services to grow at a similar percentage as did the U.S. Energy Centers. And so the delta is probably the change between those two ratios.

All right, that helps. In terms of pricing and how we should be thinking about gross margins going forward, obviously, pipe prices are up tariffs are coming, talk about how you're passing all that through. Should we see an increasing gross margin percentage? Is it more likely to just be gross profit dollars? How should we think about that?

Well, I agree with the sentiment in your question, Matt. I wanted a sweet spot for price expansion right now, but many of the market participants don't appreciate that yet. We're seeing a lot of kind of racing to the bottom on price. In one situation, we have supply shortages, the strong U.S. demand and customers are willing to pay a little more, and we're not seeing the kind of pop, we expected to see yet. Doesn't mean that it's not going to happen. I mean the conditions are right. This is my point. Likely said on the last call, I still think we could see gross margin progression during the year, but it could ratchet up and down, but the sentiment is right for an increase.

Okay. And then last thing for me just on the cost front, and Dave, you gave us a number here on the total and kind of the low to mid 140s on a go-forward basis. Does that change at all based on where you are in the revenue growth range? And then on the revenue growth range, low double digits seems pretty low based on where we started the year. It sounds like maybe Robert, you're pointing us to more mid-teens based on the comment you made in your prepared remarks. So just want to make sure we heard that correctly. So just revenue growth and then how we might translate that to the cost line if it ends up being a little better.

Yeah. What I think we did is I think we expanded that possibility on the top side. We remain very encouraged by 2018, but if you think about it, Canada – I see in Canada somewhat of a contraction period right now, and then there is governmental issues, and there is kind of a pause there. That's a big part of our business. International still kind of hibernating. But we talked about WSA in the $140 million range or in the low to mid-140s, that will vary based on revenues, but we still are in March to manage costs very aggressively. So we want that number to stay low, but that – we expect it to stay with that range. But if revenues really take off, that number would grow a little bit more than we expect.

Okay. That helps. Thank you, Dave. Appreciate it guys.

Thanks, Matt.

Our following question comes from David Manthey for Baird.

Hey, Dave. David J. Manthey - Robert W. Baird & Co., Inc.: Hey. Good morning, guys.

Good morning, Dave. David J. Manthey - Robert W. Baird & Co., Inc.: First off, to follow on the last question. In the past, you've noted 15% to 20% contribution margins in a rapidly growing market and more like 10% to 15% in a normal environment. Would you consider low double digits to high teens, is that rapid growth or normal growth for you?

It's great question.

You just got a smile on Dave's face, Dave.

I think it's somewhere between. I mean I think this is – frankly, I think this is strong growth. And I think like I said earlier, I think this is – the situation is ripe for forward price progression, that's just not happening yet. And that's the variable that keeps us either within the 10% to 15% range or piercing above that into the 15% to 20% range. But if we're able to push price and in the market – and that kind of happens in the market, then we'll go beyond that 10% to 15% range. But right now, we're comfortable in that 10% to 15% guidance range. David J. Manthey - Robert W. Baird & Co., Inc.: Okay. And then second on the M&A front, I understand the pause while the market was in disarray lately, but should we expect to see an uptick in acquisitions in the near future as the market stabilizes for you?

Yeah. Our pipeline of deals that we're looking at has not shrunk any. Really what we're paying the closest attention to was where the market was headed, so that we had ample liquidity to fund working capital, because I would hate to have gone out and bought a $300 million, $400 million company and found myself not being able to fund free organic growth. So we're getting more and more comfortable with where we kind of think the market is headed, which gives us our cushion of cash availability within the leverage ratio we've always said we're comfortable being within. So, yeah, we're getting a little more comfortable with it. David J. Manthey - Robert W. Baird & Co., Inc.: Okay. Sounds good. Thank you.

Thank you.

Our following question comes from Walter Liptak from Seaport Global.

Hey, Walt.

Hi. Thanks. Hey. Good morning.

Good morning.

Wanted to ask about – morning – the comment that you made about how the second quarter is trending. You said sequentially flat. And I just want to clarify, when you say that, you're saying, we had a run rate of $764 million this quarter, so you're saying second quarter should be sequentially flat, not year-over-year.

Yeah. That would be sequentially flat, just simply because last year – there's a lot of headwinds we have right now in this 2Q that are unique this year versus last. And last year's growth after we produced 17% incrementals in 1Q 2017 was only 3%. So I think it's just going to be harder to even get growth with all the things that are going on in Canada and international and the completions lag coming from the issues that came from hiccups with railcars and weather in 1Q for the frac companies. So I think all those things combined make the quarter feel flattish sequentially.

Okay. How much of a drag were some of those issues on the first quarter, like weather and railcars?

None, because our biggest part of our business isn't the actual frac process, with Halliburton or Baker or somebody is out there fracking a well. I mean we sell a little bit of kit, but I mean it's hard hats here and safety glasses and tools or something. What happens for us is the real revenue comes when they leave location, and it's time to build the tank battery. And so we were building tank batteries in 1Q related to 3Q and 4Q frac jobs. Well, the slowdown in frac jobs in 1Q would have turned into tank batteries in 2Q and 3Q, so we're likely going to see a little bit of a lull there that is related to the weather issues in the frac job.

Okay. Got it. Okay, good. And, Dave, I wonder if we could go back to your comments on price and maybe drill into it a little bit more. I'd say, I think in the past you've said that on line pipe, you were able to get price, because that's kind of a normal pass-through. I wonder if we could think about the product categories, valves and other components, and where price is the most difficult and where you're getting price.

Well, I think the opportunity is for us to grow price across the board. Almost all of our products contain some element of steel, but we're also in an inflationary environment. We're in a market that's growing kind of the soup is – supports growth in price. It just on a lot of large orders, companies are very aggressive trying to win at all possible costs, and they're racing to the bottom. It's kind of the sense I get from seeing some of the big orders that we win or lose come to the table. So naturally, prices should expand. I think it's taking a little bit of time for that to happen. And we're not seeing it yet. And we're a little nervous about what's the delay, but the environment is rich for improvements.

Okay. Okay, good. And I can follow up offline, but I wondered about the market and you had the DUCs analysis in the U.S. And I wonder are you seeing any broadening yet in some of the branches that maybe are less productive and what are you doing on costs with less productive branches?

Well, I mean whenever the downturn began in late 2014, early 2015, we've remained steadfast about not sacrificing our future and staying in our core markets to support growth and the recovery of share. This has been an odd recovery. I've been in this business since the early 1980s, and I've never seen one like this where it's very spotty, it's in the shale plays, right. Generally, it affects across the board the energy spaces, and this time, it's not. It's coming back in the Bakken, and the DJ and the Eagle Ford, and the Midland, and the Delaware, and the Utica and the rest. And so lots of other areas that generally enjoy the recovery aren't enjoying a recovery. And so we're really focused too – and our goal is to cut expenses in those areas that aren't recovering enough to match all expenses we're adding in the busy shale plays.

Okay. All right. Sounds great. Thank you.

Our next question comes from Chuck Minervino from Susquehanna.

Hey, Chuck.

Hey, good morning.

Good morning, Chuck.

You've kind of just addressed one of my questions there, and it was along the lines of – I know there's a heavy concentration of activity and work in the Permian. I was curious if you guys are starting to see any pickup in activity outside of that region that would kind of suggest maybe more activity coming throughout the course of the year and some of those other basins.

Yeah. There is no doubt. I mean it just happens to be the Permian is drilling so fast, it makes everything else look like it's not growing fast, but in reality, other areas are growing nicely. I mean the Niobrara, DJ Basin is busy, the SCOOP/STACK area is busy. The Eagle Ford, we're starting to get a lot of orders both in Process Solutions and from our branches for the Eagle Ford area. So we're filling it everywhere. It's just when you have something growing as fast as the Permian, it makes everything look small.

And if I recall correctly in the U.S. Process Solutions business, part of the rationale for the Power Services acquisition and Odessa Pumps and correct me if I'm wrong, was that those businesses would also bring like a higher margin element to the company once the revenues kind of picked back up again? And it sounds like the bookings are there on both sides. Maybe can you speak a little bit to that Process Solutions segment, some context where we are on the backlog there or something because it sounds like there is some real growth coming in the second half of the year? And then also maybe speak to kind of how that business stacks up from a margin perspective versus the other U.S. businesses?

Yeah. So they're probably – this is just from the top of my head, they're probably halfway back to their combined 2014 levels and growing nicely and their EBITDA margins usually run high single digit, low double digit, so that will definitely help to pull through better margins in the business as a whole.

Got it. And do they need to get – are those also scale beneficiaries or do the incremental revenues in that business kind of see higher than that 10% to 15% overall kind of company incremental revenues?

Yeah. They definitely have higher incremental flow-through to EBITDA than the rest of our business and that's simply because their infrastructure is sized appropriately to take on these new orders without a whole lot of added expense. And then the negative is when the market goes down, it's kind of hard to get rid of that expense. So, yeah, we should see nice incremental flow-throughs from that business for the foreseeable future.

Got it. And then just one more for me, it was a few quarters ago where you guys had some issues with welders and labor kind of to try to capture that early phase of the cycle. It sounds like that stuff is largely behind you. Even with this growth kind of coming, do you have any of those kind of labor issues that are still kind of overhang now?

Well, we really have labor challenges anywhere we're busy. The specific thing about the Process Solutions group around the quarter conversation you're talking about was really highly skilled individuals that were difficult to find, mainly project managers who can manage very complex projects across many facilities and ASME code welders. So as there's a difference between a welder and an ASME code welder, you have to have a special certificate and all the other stuff that we had hard time finding. We've largely solved those two problems, but we are having labor challenges just like everybody else in the industry is around just getting other staff to help us push product out the door.

Got it. Thanks so much.

Thank you.

Thanks, Chuck.

Our next question comes from Adam Farley from Stifel. Adam Michael Farley - Stifel, Nicolaus & Co., Inc.: Hey, good morning. Thank you for taking my questions.

Good morning.

Good morning. Adam Michael Farley - Stifel, Nicolaus & Co., Inc.: You've talked a little bit about the tariffs and potential tariffs on both the business and customer demand. I'm focusing more on the demand side. How are you thinking about potential demand destruction created by these tariffs?

Well, it's certainly going to create inflation because now, the preponderance or – not the preponderance, but a much larger share of our purchases will shift to U.S. manufacturers. So where in the past, it might have been 50-50, that ratio is going to change. And so that's going to create inflation which could affect customer's reaction. But at the current oil prices – and we're well above breakevens and I don't think a tariff on pipe is going to make an operator change their mind about their drilling activity. Adam Michael Farley - Stifel, Nicolaus & Co., Inc.: Okay. That's helpful. And then, just shifting gears here, you talked about International still kind of hibernating and upstream offshore still pretty weak. What do you think would be needed to kind of get that moving and kind of what you're seeing there? A little more color would be helpful.

Well, up until this call, I hadn't seen any indicator of an offshore recovery. So I was in the world – this is 2020 or beyond, but as of late, if you listen to any of the drillers that reported – offshore drilling reported last week, they're starting to see a nice uptick in tenders, there's been some FIDs announced. So all this is the precursor to an offshore recovery for us. But we are definitely a laggard because it takes a long time for an operator to improve an FID and then do their survey and then build their infrastructure and then hire drillship and start drilling a well and then the drillship orders material from us. So I don't expect any kind of benefit to us this year in the offshore space. I think we'll still grow because we're doing some really cool stuff on land in many, many areas that are going to help us grow incrementally internationally. But I wouldn't expect any offshore uptick for us this year. Adam Michael Farley - Stifel, Nicolaus & Co., Inc.: All right. That's helpful. Thank you.

You're welcome.

Ladies and gentlemen, we have reached the end of our time for the question-and-answer session. I will now turn the call over to Robert Workman, CEO and President, for closing statements.

Thanks, everyone, for participating in our call and we look forward to talking to you about the 2Q results in about the next 90 days. Thanks.

Thank you.

Thank you. Ladies and gentlemen, this concludes today's conference. Thank you for participating. You may now disconnect.