Welcome to the fourth quarter and full year 2018 earnings conference call. My name is Sylvia, and I'd be operator for today's call. [Operator Instructions]. I would now turn the call over to Senior Vice President and Chief Financial Officer, Dave Cherechinsky. Mr. Cherechinsky, you may begin.

Welcome to the NOW Inc. Fourth Quarter and Full Year 2018 Earnings Conference Call. We appreciate you joining us this morning, and thank you for your interest in NOW Inc. With me today is Robert Workman, President and Chief Executive Officer of NOW Inc. We operate 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 conversation this morning. Before we begin this discussion on NOW Inc.'s financial results for the fourth quarter and full year 2018, please note that some of the statements we make during this call may contain forecasts, projections and estimates, including, but not limited to, comments about our outlook for the company's business. These are forward-looking statements within the meaning of the U.S. Federal Securities Laws based on limited information as of today, which is subject to change. They are subject to risks and uncertainties, and actual results may differ materially. No one should assume that these forward-looking statements remain valid later in the quarter or later in the year. 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, excluding other costs; and diluted earnings 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 2018 Form 10-K today, and it will also be available on our website. Now let me turn the call over to Robert.

Thanks, Dave, and good morning. I want to thank each of you for taking the time to join us today. As we mark the fiscal year-end of 2018, we're encouraged that our energy and industrial distributor value is delivering strong top line, bottom line and free cash flow results in a market that has seen for the most part an uneven recovery. While there has been robust U.S. activity in the Permian, Rockies, Bakken and Mid-Continent areas, the U.S. midstream market is struggling to keep up with record U.S. oil production levels from the U.S. shale producers as well as Canadian midstream takeaway issues that persist and with a still muted offshore deepwater recovery. DNOW's full scope of products and services, kitted industry applications and supply chain solutions provide our customers the ability to focus on extracting and delivering oil and gas to the market as well as processing and distributing refined products in a reliable, safe and cost-effective manner. We are uniquely positioned to help our customers reduce their total supply chain cost by offering a combination of models suited to each customer's requirement, where we provide application know-how, material availability and quality products through our multichannel engagement model. Our energy centers are strategically located with inventory to meet our customers demanding drilling and production schedules as well as gathering and transmission midstream projects by leveraging our global sourcing and replenishment infrastructure that provides high product availability and choice. Our supply chain services solution delivers value through a one-to-one integrated relationship, partnering with the customer to drive efficiency, eliminate waste and minimize capital. We manage key portions of our customer supply chain, we often work alongside their personnel on their premises to source goods and solutions from suppliers, manage their warehouses and logistics, minimize product supply chain costs and…

Thanks, Robert. For the fourth quarter of 2018, we generated $764 million in revenue, up $95 million or 14% from the same period in 2017. Full year 2018 revenue exceeded 2017 by $479 million or 18% year-over-year. Sequentially, revenue declined $58 million or 7%. Last quarter, we guided that seasonal third to fourth quarter revenue declines would be more pronounced than usual due to our strong performance in 3Q, softening oil prices and takeaway capacity issues occurring in Canada and the Permian. However, oil prices fell further than expected where WTI peaked in the early in the quarter, but plunged by year-end spoiling the mood in the second half of the quarter. In the fourth quarter, gross margins reached 20.5%, our highest level post spin. We've experienced gross margin expansion for 4 quarters in a row with gross margins up 140 basis points from the fourth quarter of 2017 and up sequentially 10 basis points. This slight uptick in gross margin percentage in the period can be attributed to lower inventory obsolescence charges and increased vendor consideration contribution in the period, slightly more favorable than the unfavorable effects of price pressure in the fourth quarter. As anticipated, product margins declined sequentially in 4Q '18 in key product categories as the spread narrowed on replacement costs as replenished inventory arrived at costs closer to market price. Competitive pressure contributed to these declines as distributors were clean, sailed in the slow holiday months in a period with sharp declines in oil prices. As we've discussed, we believe that there's room for gross margin gains over time, expanding generally in inflationary conditions when oil and steel pipe inflation occurs and our market expands further. We expect gross margin turbulence in the near term as the market reacts to reduced activity levels and commodity…

Thanks, Dave. Let's wrap up with the outlook for 2019. Looking for the U.S., as customers take a more cautious approach to CapEx budgets and spending levels in response to continued volatility in crude oil prices, drilling activity levels are expected to decline. However, if budget shift from drilling wells towards completing DUCs, the investments we made in Power Service and Odessa Pumps for modular rotating production and process equipment may continue to bear fruit and be able to offset declines in other areas of our U.S. business. In Canada, for political turmoil and takeaway issues for which there aren't any solutions in site, 2019 will be challenging and we expect declines there. Outside of these segments, we have some bright spots with an offshore drilling contractor in Asia, the LNG market and other projects in the Middle East that should enable our international business to grow year-over-year when compared to 2018. In these scenarios, this could result in flat year-over-year revenues to a decline in the low single digits. We expect 1Q '19 revenue to increase sequentially in the low to mid-single-digit range with gross margins being flat to down modestly and WSA returning to the low 140s. The challenges will be to combat gross margin pressure as this will be difficult due to the competitive pressures that come with a flat market environment. Before I move on to recognize one of our dedicated employees, I'd like to summarize the progress we've made in the execution of our strategy. We continue to focus on margin discipline, identify opportunities for enhancement in areas related to our quotation process as well as pricing, improving our operating efficiencies, optimizing our inventory and our sourcing strategy in response to Sections 232, 301 and import tariffs on steel products, and leveraging our previous acquisitions…

[Operator Instructions]. And our first question comes from Steve Barger from KeyBanc.

I'll start with the outlook commentary on the flat to slightly down revenue. Can you give some more detail around any macro factors that will drive results higher or lower? What's in your forecast for price versus volume? And where you see your biggest commercial opportunities to outgrow?

We're just basically planning our business around what's been announced already by customers and drilling contractors and the rest. So we're not planning any pricing to drive revenue improvement. It's all about outperforming in markets where there's opportunity to offset areas where we're going to have some softness, but -- simply because of activity level. So Canada is going to be down. International is going to up. And we hope the U.S. is up slightly, which if that all happens that way, we'll have a flattish year -- year-over-year. Now it won't be flat quarter-over-quarter or year-over-year, we're going to have some change -- some differences there, but on a year-over-year basis, that's what we're expecting based on customer budget announcements, what the current rig counts are doing, what customers are saying they're going to do in 2Q and beyond, so we're just planning around their announcements.

And in terms of change in the sentiment, in terms of what might happen, is it strictly just oil prices in the U.S.? Or what would cause your forecast end up looking conservative?

It's really the whole process. I mean, customers set their budgets based on their own oil price forecast. They're all trying to live within their cash flow right now. So they estimate their cash flow based on the barrels they're going to produce and the price of oil they're assuming and if possible changes, then obviously they can be more active and produce more volume and still live within their cash flow. So really it's -- they would know more than we do what their plans would be if it's not consistent with what they stated publicly already.

Okay. And really impressive free cash flow for the year in a growth environment. If revenue is down low single digit next year, what happens to working cap and free cash flow? Can that improve from 2018 with what you expect for mix?

Yes. I think if we saw a flattish year or a little bit of decline as we said was possible, then I think we'd see free cash flow similar to 2018, maybe better. Our focus is going to be on strengthening our position in markets where we're very strong like the Permian, gaining market share, defying gravity on price in a market where things kind of slowdown, it's hard to grow product margins and thus gross margin. So we're really going to be focused on the highest possible price, the highest margin customers, highest margin product lines, while getting more efficient in the business, which we've done a fabulous job doing. So that free cash flow number could be similar to 2018, maybe better depending on gross margins and inventory churn rates and receivables, which we're getting better at. So I feel pretty good about that.

Yes. And obviously the balance sheet is in terrific shape. So tons of flexibility there. Thinking about that, can either of you expand on the statement that was in the prepared comments or the press release about allocating capital to differentiate from competitors? What are you thinking about there? What should we look for?

Well, we made several acquisitions in the depth of this downturn, '15 and '16-ish time frame that are bearing fruit right now and the reason we made those acquisitions during that period of the market was because that selling place where we can actually make sense out of the bid-ask spread. So the reason you haven't seen them as of late is everybody got a lot of optimism around where the market was heading and kind of wanted to wait it out to see if their businesses wouldn't be worth a lot more. But companies like Odessa Pumps and Power Service and MacLean, I mean, if we can find more of those that would fit geographies where we currently don't have those solutions and valuations that made sense to our shareholders, we would do those. Just so far they haven't because we've been in kind of in a positive environment, which is typically not our sweet spot in getting valuations that generate good returns.

Our next question comes from David Manthey from Baird.

First off, on WS&A, came in lower than your expectations. Could you talk about the components of that out performance? You mentioned bad debt recoveries, but were there other components that made up that better-than-expected outcome?

Yes. Bad debt was one of those things. We've resolved some long outstanding state and provincial products and those ended up being favorable to us in the period because revenues dropped, our commissions were down considerably, and then we had some nonrecurring lease exit costs from closures in prior quarters which kind of drove that difference. So very, very nice decline sequentially. And in the first quarter, we'll see payroll taxes in the early part of the year increase and we won't see the recurrence of some of those favorable events I talked about.

Right. Okay. And second, with all the talk of the takeaway capacity in the Permian and this Kinder Morgan Gulf Coast express expected to come online in October. Is your expectation that you will see an uptick in completion after that happens? Or is there some lead time there? Any indication that you're getting from your customers in terms of when the completions might start to happen in the Permian relative to that increased capacity?

Yes. So several of our largest customers are having takeaway issues, specifically the ones that are in our supply chain services group because they did a really good job of hedging. It's the other customers mainly in our energy center business, where they were more hesitant to hedge that are now having trouble getting their product to market. And there's no doubt that their plans currently at mid-$50 oil is what they're saying. Now mind you, they say the same thing to me that they say to the rest of the world, but if they follow through with what they are saying publicly, that even though their budgets are going to be down, '19 versus '18, they plan to shift a heavier portion of their total budget towards starting working through their DUCs. If they do that, that's good, that's good for DNOW. So that's what they're saying at this point. We'll see where it goes from here. That typically I'm surprised every quarter. I don't know why, but when a customer says they're going to do one thing and do something different, but that's currently what they're out there saying to the market.

Our following question comes from Ryan Cieslak from Northcoast Research.

Just I wanted to go back and start -- maybe ask a question about gross margins. If there is a way maybe to quantify or directionally provide some color on how much of a benefit stronger pricing was to gross margins for you guys in 2018? And then, it sounds like certainly there's some emerging pressure there or competition. And so if we assume maybe a flat to down year for pricing in 2019, what's the potential headwind we should be thinking about with regards to product margins in 2019 for you guys?

In terms of the 2018 benefit from product margins, easily was 100 basis points, maybe even higher than that. I think we ended last year, 4Q '18 for example, we had 19.4% gross margin -- that's 2017, I'm sorry. So maybe it was in the 100% -- 100 basis points or maybe even a little lower because we had some other favorable lower inventory charges for the full year and that kind of thing. So in terms of 2019, in a flat to slightly down environment, keeping that number where it's at today, 20.5% is going to be hard to do -- harder to do because in the quarter of 4Q '18, we had a few favorable events, lower inventory charges, higher supplier rebates, so that won't recur. So it's a matter again of focus by our teams for favoring higher margin transactions and keeping on that track. But I expect gross margins to be flat to down in line with revenues. How much that will be, we don't know.

And Ryan, we've been saying that now I think 3 quarters in a row and it's never happened yet. And the main reason is because we -- generally, when we give expectations for gross margins, we generally hobble around for we think base margins, products margins are going to do. And so if we think the product margins are going to come down in a really competitive environment, then we generally say we expect gross margin to come down with it. We've had product margin declines several quarters in a row now, it's just that the -- all the other items in our gross margin bucket more than made up for it.

Okay. That's fair. And so, I guess, just sort of coming off that question. And so if sales are potentially down year-over-year in 2019, slight -- low single digits, I guess, what are the other opportunities you might have outside of product margins with gross margins and any cost levers that you have that can support EBITDA levels or is -- it may be the right starting point to be thinking about EBITDA is actually declining something similar to the guide you gave the top line or, I guess, maybe how do we think about year-over-year EBITDA this year considering the top line guidance?

Yes. Based on softening market in the U.S. and a definitely softening market in Canada, our internal goal that we're trying to hold ourselves to is to not have it negatively effect our income statement next year. And so we're internally holding ourselves to the challenge of revenue and EBITDA not declining in a declining market, in a market when Canada is going to really not go the right direction unless somebody pulls off a miracle up there. So if that means that gross margins get pulled back some and we have to get more efficient to get the same EBITDA value, then that's what we're going to do. I mean, so that's generally where we're headed, but again, competitors get pretty scrappy struggling for market share when there's no more market growth going on. So we'll win our fair share of those battles. And I feel confident that our team will produce results, they don't miss people's expectations, but it will be a more difficult year in 2019 than 2018 to maintain the gross margin percent and expense levels we have simply because in that kind of environment, the competitors get pretty heightened around going after things they didn't before.

Okay. Appreciate it.

If we see revenues stabilize or decline slightly. We're going to focus on free cash flow and turning our balance sheet appropriately and be more efficient in the business. So given the guidance we've given today, we see the contours of '19 being similar to '18. Things could change. We can see oil prices are up 20% from where they landed at the end of the year. We can see oil prices come back and sentiment improve. And we haven't built that in our numbers. But we're focused on free cash flow to the extent growth becomes flat.

Okay. And then my last question and I'll get back in the queue. What are you assuming for orders for the full turnkey package and process solutions in '19 versus '18. It seems like you had some incremental momentum there the last couple of quarters, which is great to see. Any metrics you can provide that highlight maybe the order momentum going into '19. Is it just how we should be thinking about the traction with that business over the next couple of quarters?

Yes. So in a scenario where we provide the whole kit to attain battery, I suppose it is different individual components, we clearly have a bigger revenue stream on that particular tank battery. It's nice to see that we're able to get one -- to secure one in the Permian recently and that particular customer once they went through the experience with us on that full turnkey package has already placed orders for more. So we expect certain areas of our business to decline. And I would imagine just general activity declines will affect our energy center businesses the most because they are out there fighting day-in and day-out to win every order. There is really no differentiator between them and the competition other than our service levels and our relationship. So that's where we're going to feel the pinch in a declining market. And our expectation is that the midstream market and the process solutions kitted packages will be the revenue growth that would help offset those declines and let us grow in a down market.

Our following question comes from Sean Meakim from JPMorgan.

So you noted that you expect or you hope the U.S. will be flattish more or less in '19. Can you talk a little bit about your customer mix in the U.S. across the majors public independence and maybe smaller private ones? And how you expect those budgets to look year-on-year, how that kind of builds up to a maybe a flattish result overall?

Yes. So I don't think customer budgets will deliver the flattish results. I think it's growth in our production group -- in our process solutions group and in our midstream group is going to help offset declines across all those customers you just mentioned. However, we have several majors that are -- in our top 5 accounts and some of those majors have announced CapEx improvements or increases for this year. But then we have a whole bunch of independence, say smaller than -- the Anadarkos are down. They're announcing CapEx budgets that are way lower. So net-net of that, we expect will translate into rig count and completion activity and current forecast across the industry for rig count and completion activity is to be down year-over-year. Now we hear a lot of people talking about second half improvements in those areas, but net-net on a year-over-year basis, it's going to be down according to everybody's forecasting. So here we have some big accounts. I think you know OXY is one of our biggest accounts. They're going to be busy, but we've a bunch of other great accounts that are not going to be as busy. They have already started laying down rigs. They've already announced it. So I think net-net on the whole, our daily revenue with those operators is going to be down slightly and the hope is, offset by increased midstream work that we've already got underway and more success in our process solutions group in penetrating those markets where we were selling this kit into the Rockies almost 90-something-percent of all the kit went to the Rockies up a bit, that went to 10% outside the Rockies year before last. It probably went up to little over 20% outside of the Rockies in 2018. I'm expecting the same kind of trend for 2019 as we're more successful in penetrating these accounts with a solution that our competitors don't provide.

Right. That's helpful. One piece of that if you don't mind. Looking across process solutions, energy branches, the U.S. business, what would you say your customer mix looks like across those three buckets of customers?

Well, we report that out as upstream, midstream and then our supply chain services has got our downstream business in it and our upstream. So it's -- I don't know the exact number because the issue is like I was just walking through our warehouse a few minutes ago -- not few minutes ago, but earlier this morning, and we had some huge valve and valve actuation packages that are sitting -- that are being build to an operator. Well, they are clearly not going to go to the operator's upstream business, they're going to go to the operator's downstream business. So you if run that query in a SAP to figure out what revenue's going upstream versus midstream, that's going to show up in the upstream bucket even though it's going to downstream project because that particular customer code is designated as upstream. So that's why we report upstream, midstream as a collective unit. And then if you think about other people consider down -- midstream to be like the gas utilities and things of that nature, we don't pull that up in our upstream, midstream bucket, that's in our downstream business. So I can't give you an exact number of what's exactly upstream, and what's exactly a midstream. I can tell you if I only measure revenue. We're the only people like Williams and EnLink and Energy Transfer and Howard Energy and all those pure mainstream players, it's mid-teens percent of our entire U.S. business. But when you add in all the midstream work that goes into OXY or Devon or heads a similar path, it's up well over 20, but I don't have an exact number.

Fair enough. So on WS&A, we talked about it a good bit, but the $135 million number has some seasonality, some one-time benefits, low-140s for 1Q has some transitory seasonal impacts there. And it seems like top line is going to be down quarter-over-quarter. What's the normalized level, just think about for 2019 if revenue ends up let's say, flattish to slightly down like you expect? And then what are the flex points around that normalize, so like if sales underwhelm, can you flex at low 30s just on lower commissions. How do we think about what's normalized and how can you flex around that?

Okay. So I'll speak to the first quarter. We expect WSA to be in the low-140s. Now if things were to slow down, then we would work towards bringing that number towards the high-130s. We would make adjustments to get there. Now if it's down low single digits, it could still end up being 140 quarter -- low 140s, because we want to seize the recovery or the resumption in growth when it happens. So yes, we could bring it below 140 if we have to if we see a decline worse than what we're guiding to.

And Sean, the folks that make the biggest impact on gross margin percent and expenses are clearly the people out on operations that are running the branches and all of our operations. They're heavily incented based on the where of the revenue goes to maximize gross margin percent and reduce expense as a percent of revenue because that improves their bonus. So this is a pretty slow self adjusting model where if they don't focus on those things, they're hurting their own pocket.

Got it. And just one more thing on working capital. 22% of sales again this quarter, obviously very good targeting the same in '19. If you're -- so if you have maybe 22% in '19, revenues down slightly, that -- just to verify, that means you'd expect it on net working capital would be a source of cash this year. And then can you get that number below 20%? Is there anything else that you guys, Dave, you're going to have up your sleeve in terms of how you can drive further capital efficiency with that part of your balance sheet?

Well, your point's a good one, Sean. If we did see revenues decline, we would generate more cash from working capital. I do think there's room for improvement there. So we had a build-in inventory at the end of the year and things kind of softening at the early part of 2019. So I think we can trim some inventory there and the same with receivables. So we were striving to get to a 5 turn on working capital. We want to get to 20%. Whether we'll do that or not, it remains to be seen. But I think, if things were to go below flat growth, then we would see improved cash -- free cash flow in 2019.

Our next question comes from Nathan Jones from Stifel.

Maybe back to the WS&A line here a little bit. I know you've talked before, Robert, and you said that, that number should be on under 15% of revenue. I know revenue is tough to predict for full year. So let's just say it's flat for '19. You're going to still be sitting fairly significantly above that. If revenue kind of stayed around this level, you'd need to be down around 120. It doesn't sound like you've got any intentions of cutting that kind of cost out of the business at the moment, which makes me think you're a bit more confident in the long-term and maybe 2019 is a bit more of a pause. If it became evident, let's say that, revenue wasn't going to pick back up in 2020, what kind of actions could you take to drive that WS&A number down to get that kind of 15% of sales on this kind of revenue level? Or do you need volume in order to get that down further?

Yes. So if you look at businesses, we have -- how many profit centers and facilities we have. But if you look at those businesses in areas where activity is, I would call mid-cycle, not peak, not bottom -- not valley, just mid-cycle, we're managing expense to revenue in that range. It's the areas where that haven't recovered yet. So for example, 22 countries that aren't in the Canada or the U.S., they're still waiting for the offshore to come back. We all know that's coming back because if I get the FID started, there's already been awards going to drillships and semisubmersibles and jack-ups. So it's not a question in that -- of that market come back, it's question of when, not if. So I think it would be insane for us to say we got to get revenue to 14% of revenue -- expenses 14% of revenue and then go shut down 21 countries. So I'm going to wait that out. They are not losing money. They're prepared to take share when the market comes back. We'll be the only ones there because our competitors couldn't survive it because they don't have the balance sheet to support it. So our expense to revenue ratio should be in that number we -- you just described, but that's when all of our businesses are performing in a mid-cycle market. A bunch of them have recovered from the depths of the downturn to almost mid-cycle kind of areas and we're still waiting on another couple of customer segment to recover, and it's not a big roll of the dice, it's clear that it's coming back.

Nate, this is Dave. I would add that if '19 could be seen as a pause in your example. And if you look at 2017, we grew our revenues by $541 million, didn't add any expenses to the business. If you look at 2018, we grew our business by almost another $0.5 billion, didn't add any expenses. So things slow down or stabilize like this, we would do some more retooling. We don't expect that on a long-term basis. Our current guide is as of today. And things could change. But I see this more of a pause than new normal.

Okay. That's helpful. And the comments on offshore are helpful too. I know you have been carrying costs there, that will leverage extremely well when that market comes back. I know when we were talking about this last year, Robert, your idea was that maybe it was late 2019, but more likely it was going to be sometime early in 2020 when you started to really see that recovery kick back in. Brent's dropped $20 a barrel here from a peak of $85, how does that change your outlook for a recovery in offshore? Does it push it to the right a little bit? Do you still think that, that recovery occurs with the same veracity at $65 that it would have at $85, any color you can give us there?

Yes. The offshore market for DNOW is the longest cycle business we have. So if you remember back in '12, '13 and '14, when offshore was really busy and then the market went down hell in a handbasket in a heartbeat, you didn't see that same kind of reaction immediately in the offshore market because what -- you don't just pull a drillship out to offshore Nigeria and then the oil prices go to $45 and then you just stop drilling the well. You can do that in the Bakken, you can lay the rig down, but you're not going to do that when you have a contract on the drillship. So it was really slow for customers to cut back in that area. That's why production took so long to start declining offshore because they had to finish the projects they were already on. Once you start a project, you finish that project. The good news is, people are starting projects right now. And they are awarding contracts to drillships and semis and jack-ups right now. And so I don't think volatility in oil price is going to affect what we know is coming at least from the contracts that have been let already. We have some pretty cool stuff going on in Singapore right now. With relationship we have with the drilling contractor, we're loading out all of their onboard stores which will take quarters and quarters to get completed. So we've got some good positive news coming from offshore finally. And I think it will only get better from our international segment.

Our following question comes from Marc Bianchi from Cowen.

Just one left for me. On the guide here for first quarter in terms of the revenue progression, just curious what you've seen on the ground thus far in the first quarter? And how that kind of shapes up relative to the guide you're providing for the whole quarter?

Well, I think so far what we're guiding to the first quarter relates to what we hear from customers. I mean, I don't really want to speak to what's transpired so far, but we went into the fourth quarter or came out of the fourth quarter with kind of a depressed mood in terms of opportunity. But oil prices are coming back, sentiment could change, but really what we're hearing is what customers are announcing in their budgets and their actual results and that's how we're kind of shaping 2019 and the first quarter, in particular. It's a matter of what's going to happen out in the marketplace, but that I really don't want to stretch more than that.

Just to be [indiscernible] Marc, clearly we're looking at the numbers. We wouldn't guide to something in 1Q if the numbers didn't suggest that's where we're headed.

No, certainly not. I think the question is really coming from there was a big falloff in completion activity towards year-end, we've heard that from a number of the pressure pumpers and there is kind of a variety of what people are seeing thus far in the quarter, some have said things have bounced back pretty hard, some have said it stayed pretty flat with the exit rate. So I'm just kind of wondering what -- from your vantage point what you've seen on that end and kind of how that's expected to progress throughout the rest of the quarter?

Yes. So we're seeing what you discern. We're seeing completion activities softer right now, not dramatically softer, but definitely softer than it was 60, 90 days ago. But our business is -- although completions are extremely important, rig counts are extremely important to this business as evidenced by plotting our revenue against either one of those 2 indices. We have a lot of other stuff going on in the business outside of those 2 items that give us confidence -- or give us confidence in the guide we just gave on the call regarding what we expect sequentially to happen on the top line 4Q to 1Q.

I will now turn the call over to Mr. Robert Workman, CEO and President, for closing statements.

Thanks, Sylvia. Thanks to everyone on the call, employees and shareholders and our analysts for taking the time to listen to us today. And we look forward to the call in 90 days from now.

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