Welcome to the First Quarter 2019 Earnings Conference Call. My name is Richard, 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. first quarter 2019 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. 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 conversation this morning. Before we begin this discussion on NOW Inc.'s financial results for the first quarter of 2019, 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 first quarter 2019 Form 10-Q today, and it will also be available on our website. Now let me turn the call over to Robert.

Thanks, Dave and thanks everyone for joining us. Transitioning from the fourth quarter of 2018 to the first quarter of 2019 carried a degree of uncertainty due to an environment where our customers were prudently revising CapEx plans for 2019 resulting from pressure from shareholders to hold CapEx spending within operating cash flow. Year-over-year CapEx projections by many of our E&P operating operator customers sets up an environment where most analysts are projecting activity declines in the high single to low double digit percentage range in the US land market. On our last earnings call we guided that 1Q '19 revenue would have a sequential increase in the low to mid single digit range, making on modest rebound in Canada and some market share gains in the Permian. Our full year 2019 guide was her flat year-over-year to low single digit decline in revenue for 2019. Our 1Q '19 revenue came in at 785 million, up 21 million or 3% sequentially within our guided range for the first quarter 2019. We delivered EBITDA excluding other costs of 31 million in the quarter, and our gross margins improved 70 basis points year-over-year. Sequentially, gross margins declined 40 basis points as the competitive environment we expected materialized. One of the main contributors to sequential margin reduction is related to slowing US land activity. In such an environment, profit margins are more contested. In addition to the macro US land backdrop, commodity process and supply and demand affecting commodities have changed from the previous inflationary environment we had over the last several quarters. Margins have been under pressure as we got it, due to better product availability in the market during this industry pause. As we've noted, Hot Rolled Coil pricing continues to decline affecting welded pipe and the LCTG market is weakening,…

Thanks, Robert. For the first quarter of 2019, we generated 785 million in revenue, up 21 million or 3% from the same period in 2018. Sequentially, revenue also improved 21 million [ph] or 3%. First quarter 2019 revenues landed in the range we guided to in our fourth quarter and full year 2018 earnings call, whereas oil prices then were declining in the fourth quarter beginning October at $75 and ending the year at $45, they now have improved into the low $60 range. In the first quarter gross margins were 20.1%, down from the 20.5% level we experienced in the fourth quarter, but up 70 basis points from 19.4% a year ago. The sequential decline was primarily driven by product margin pressure, product mix and resumption of inventory charges, which were lower than usual in the fourth quarter of 2018. Conversely, the uptick in gross margin percent compared to the first quarter of 2018 can be attributed to an improved pricing position this year, and more selective pricing on project quotes compared to this period last year. We have set gross margins to be choppy in the near term as the market reacts to reduced activity levels and commodity price volatility. As we have discussed, we believe there's room for gross margin gains over time, expanding generally in inflationary conditions when oil and steel pipe inflation occurs and our market resumes in a growth trajectory. Warehousing, selling and administrative expenses or WSA was 135 million, unchanged from the fourth quarter of 2018. In the first quarter, we made progress resolving a long standing receivables issue with a third party, resulting in a $3 million net favorable effect on WSA and operating profit paired with continued cost savings from various initiatives throughout the organization. We expect WSA to approximate 140…

Thanks, Dave. Let's wrap up with the outlook for the second quarter and the rest of 2019. Looking forward in the US, WTI is trending above its 4Q '18 average as US rig count has declined of its December peak. US completions have risen from December while the average DUC inventory continues to build. The most recent report from the EIA showed a modest net DUC reduction in March. Even if rig counts decline modestly or remain flattish and if customer budgets shift more towards completions to draw down more on DUC inventory, this could benefit our US process solutions business for modular rotating production, measurement and process equipment. This would also benefit our US supply chain services and US energy centers demand for pipe, valves and fittings, especially as it applies to midstream projects that would be required to get oil, gas and water to their final destinations. Our outlook for the US energy centers remains positive, with high activity areas such as the Permian, Eagle Ford, Rockies and Bakken, leading to softer areas such as the midcontinent and Northeast. Two of our larger US supply chain services operator customers announced they plan to reduce CapEx spend approximately 10% this year, one stated by the midpoint of 2019 and the other on a year-over-year basis. This will put downward pressure on our US supply chain services revenue for the remainder of the year. In Canada where political turmoil and takeaway issues persist for which there aren't any solutions inside, the rest of 2019 will be challenging and we expect declines there. Canada will experience break up as the freestyle cycle has historically reduced our Canadian revenues by approximately 25% sequentially. Alberta's recent election results and investment in transportation by rail provide some optimism for the rest of the year.…

Thank you. We will now begin the question-and-answer session. [Operator Instructions] And our first question comes from David Manthey from Baird. Please go ahead.

Hey, good morning, Robert and Dave.

Hi, Dave.

Hey, Dave, quick question for you, last quarter, you had some bad debt recoveries that offset WSA and you said that it would have been 140 plus, if not for those and this quarter, you have these lower bad debt charges, which I assume are lower accruals to a reserve account. The question is, is that a onetime adjustment or should we expect a sustainably lower accrual there and I guess bottom line is, is 135 more representative going forward or the 140 level?

So and answering your first question, we had a $3 million net gain with a third party, which is something we've been working on for probably six years, so that benefit you won't see that in future quarter. So while we posted WSA at 135 it's easily 138. We are seeing more efficiencies, lower medical costs this year in the business, so we're hoping to bring that number down. I talked about in my comments, we expect WSA to be 140 or lower. Right now it's looking like it's going to be in that 138, 140 range. And we like to leave a little cushion there in case things percolate and things - the market gets stronger, but that's kind of where we're at.

Okay, so the 4 million bucks is more a representation of something that you recaptured as opposed to a sustainably lower accrual based on better criteria's?

Yeah, exactly, Dave.

Okay. All right. Thank you.

You're welcome.

Thank you. Our next question on line comes from Jim West from ISI. Please go ahead.

Good morning guys.

Good morning.

So Robert, I think the - part of your business, the offshore partner business has been - well, it's bluntly decimated during the downturn here. I believe it went from a - and these are rough ballpark numbers I don't know roughly $250 million of your business to maybe 75 at the bottom, but also rigs going back to work now, I would think that they need to restock that they probably are under stocked on equipment, spares, et cetera. But I think that would be a pretty big opportunity for you guys. How do you see that unfold? I know you just did a big whirlwind tour and met with many of the offshore operators during that tour. So what are they saying and how do you see that opportunity going forward?

Yeah, so the number you suggested as far as our peak was a full year number, and it's dropped off quite considerably through all this rig stalking has been going. So the reason I don't expect much recovery in that market for us until 2020 ish is because as you know, there's about 30 or 40 more at least offshore rigs to be scrapped and they will scrap them as you're putting other rigs to work. You know how that works. And so they'll put that inventory to shore base and they'll start feeding the rigs that are either getting constructed or out there working. So for us it's such a huge lag before it affects us especially when we just went through an offshore decline like the one that's never happened before, like the one we just went through, where there's so much spare inventory out there. They'll be burning through their own capital for quite some time. So while it will be - while it will grow I think our offshore revenue with both oil and gas companies and drillers bottomed in Q2 of last year. It's improving modestly and sometimes its double digit growth, but don't forget it's coming off a really low base.

Okay, okay. Fair enough. And then as you think about the US land market this year, the E&P independents are going to be - you'll hold in line within budget, which is down a little bit year-over-year, privates likely to respond to the oil price move that we've had and then you have all these two major oil companies announced very ambitious plans and so how does your customer mix stack up against that that planning cycle and that budget cycle and do you have - could you be conservative, I guess and you're kind of forecasting for US land as in fact the major oil companies do what they said they're going to do?

Well, the difference between the major oil companies and what I say the medium to small independents is the major oil companies typically partner pretty strongly with a supply chain provider. And some of those majors are some of our largest customers, so it could benefit us if the right major is the one that goes to work. The part that gives me some concern is our biggest customers are supply chain oil and gas companies. And most of those, if you've listened to their earnings call so far this season, are toeing the line on their budgets. I mean, one of them reported earlier this week, and he must have said 10 times on the call. We are living with our cash flow. We're live with our cash flow, our CapEx budget won't go up. I don't care where oil goes, we're not going to increase our CapEx budget. So many dynamics involved in that, that I it's really hard at this point to figure out because even some of our big customers that have reported so far have announced they overspent budgets in 1Q and then said, but we won't overspend this year, which leads me to believe that their spend for the next several quarters will be lower than 1Q. So if you've got the answer to what our customers are going to spend the second half of this year, I've got a plane ticket really come entertain us.

Great thought, great, thanks guys.

Thank you.

Thank you. Our next question on line comes from Marc Bianchi from Cowen. Please go ahead.

Hey, Mark.

Hey, good morning. Thank you. I guess I'm curious to talk a little bit more about the gross margin commentary that you have here. You guys have been saying for a few quarters choppy and it has this quarter. I'm just curious. What do you think is the range when you say choppy as we look out over the next couple of quarters and how do you see this OCTG weakness that you alluded to kind of impacting that as we roll through the next couple.

Okay, so we've talked about gross margins declining for about three quarters now. And they held strong to the end of the fourth quarter and we had record gross margins of 20.5%. So this was the decline we've had anticipated for some time, but somehow we were able to maintain growth in gross margin several quarters in a row, I think we had four quarters in a row over 20%. What that range is, I don't think we're really sure. I mean, I think - we did 20.1% in this quarter. It could - it's going to vary in these coming quarters, but we don't expect major drops in gross margin. I think it feels like pricing may have stabilized that's going to depend on what happens in the market. We see things slowing down, there will be downward pressure on gross margins, if things start to percolate in the second half will see similar there, that's generally kind of how it's going to behave. But getting specific about the number, it's really hard to tell.

And regarding the question you asked about OCTG, we don't really distribute OCTG, but when the mills are rolling still, they prefer to make OCTG over everything else because that's where they make most of their profits. So whenever they're really busy making tubing and casing, it's really hard to get a slot in the plant for us to get line pipe replenishment orders and they charge a premium for that pipe because we're convincing them to stop rolling where they make most of their profit. When it slows down and the OCTG is not filling up the mill, then they're more open to rolling line pipe and they're also more open to cutting better pricing arrangements with their suppliers because they need the volume. So that's really how the OCTG affects all of our line pipe.

So Robert, to clarify that your point is if OCTG prices are down there becomes more capacity for line pipe, which could perhaps help your gross margin. Is that really the point you guys are trying to make here?

No, it's what it is, it creates a deflationary period for line pipe, because our moving average costs in our system for land pipe would be higher than what replacement cost is.

Yeah. Okay and then just - and really a follow up. You guys have been focused on the working capital wind down here and really executing on that as best you can. We notice in the proxy, you guys increased the weighting of that metric in the annual comp with which I think investors will applaud, but could you kind of talk about what the targets are there and how you see that unfolding over the balance of the year.

Okay, so working capital right now is 22%, we've had that a bit lower than that. We want to go lower operationally, we've talked about this. We'd like to get down to 20%. Now, we're in a period where customers are trying to live within budget, everyone's trying to maximize cash retention. So our DSL suffered a little bit in the quarter, customers are holding on to cash. The real opportunity, in addition to working closer with our customers get paid faster is to is to turn our inventory better. We're a little encouraged by although we had a use of cash in the first quarter of 20 million, it's better than the use of cash last year, which was 31 million in the first quarter. So we want the kind of quarters to behave similarly in 2019 like they did in '18 and we believe we can turn your working capital faster and get two more free cash flow in 2019 than 2018. But that's kind of our target and that's what we're shooting for. We were in a kind of a sideways environment and it's hard to get there in this space.

Got it. Thank you very much.

Thanks, Mark.

Thank you. Our next question on line comes from Steve Barger from KeyBanc Capital Markets. Please go ahead.

Hey, good morning, guys.

Good morning, Steve.

So I hear you on customers wanting to stay within budget or cash flow. But don't you view that as an opportunity to some degree as a lot of your offerings are focused on lowering costs or just making operations more efficient. And how have you push the company to respond to the environment?

Well, the long answer to your first question is, yes. The answer your second question is that you're seeing some of that materialize in our business right now. So the two groups that would mainly be able to impact that for customers would be either the process group or the supply chain group. And supply chain group, you'd basically - we do have to win a customer and that would be a big event, it wouldn't be just incremental. The process group is growing for that reason. So that's one of the big drivers because we can start pre-modularizing the entire tank battery while the drilling is going on. And so while the drilling is going on and then the frack job is going on, we actually could have finished the entire tank battery, and then it's all modular. And so when the frack crew leaves the well site, we can show up with our stuff or kit, drop it down it takes a minimal time to plug all this stuff together, so where a normal tank battery might take 45, 60 or longer days depends on how many wells are on the pad. We can have all of our modules on site plumbed in and producing and cleaning gas oil and water and measuring it and put it in pipe lines in three days, five days, seven days, so it's cheaper for the customer because believe it or not the modules that are made in our ASME shops and all of our ISO shops are higher quality. The net-net cost is lower, just straight up, what would it cost to fabricate it because you don't have a bunch of crews on site, with torches and welders and grinders and customers get cash flow quicker because instead of waiting 60 to 90 days to get cash flow, they get cash flow in short order. So that is one of the reasons why we're selling this kit right now to customers who have typically not been our customers because they see the value.

Yeah, I mean, and we've talked about this before, it seems like that solution just should sell itself. So what is the pushback, if any, that you get when you're out offering that to new customers?

It's something that most customers haven't experienced before. In fact, most customers say to us, they're like, I wouldn't even know you could do this stuff. So we have to sell them on that. Then you got to get them into the shops. And then have to send their quality people into to go through our shops and make sure to meet their quality standards. But literally most customers didn't know it existed. And that's that was usually the pushback that we got, but right now we're seeing kind of an acceleration of that. Our biggest issue right now is if you think about these solutions, you might have one shop that's fabricating all these kits. And then those feed other shops, like this kit shop will feed the lack unit shop, it'll feed the oil, gas, water separator shop, it'll feed the multiplex water injection pump package shop, so everybody's waiting on their skids to go their shops, so they can finish the work. Another one of our shops that feeds all the other shops is our vessel shop. And that's where we make the ASME vessels that are used for all sorts of stuff, all across there on the lacks units are on the water injector pump packages or on the gas valve. There's a part of the gas, oil, water separator, there are the heater treaters, all that stuff is waiting on a vessel to come to their shop so they can complete their package. That's my choke point right now. So that's what I mentioned on the call we're trying to find inorganic or organic ways to solve that choke point quickly.

And are you making progress on that front? Have you found a way to open up some capacity there?

I think so. Yeah. I believe we have a solution that it will happen in short order.

And just holding the product pricing conversation constant, if you're successful in selling these value added solutions, isn't that positive for gross margin over time and itself?

It is there's no, there's no question about that it would be positive for gross margin over time. The one thing that works against us is the huge behemoth that's called energy centers, it takes a lot of positive to move that move that ship upward.

Right, great. And I think I missed this, but you've made some comments about one specific downstream team that was really outperforming on inventory turns or margin. Any more detail on that? And is that something, whatever they're doing that you can spread across the platform?

Well, yeah, I do think we're doing that across the platform. But the leadership there has been particularly focused on improving their business in a meaningful way. And we've seen real positive results there. That stuff's happening across the organization, but when we looked at the year-over-year, most improved that was one of the areas where that happened.

Okay. And just one last one for me, Alberta announced that real car deal in late February, I think they expect to start shipments in July. Do the customers up there believe that's happening at that pace? And what's the real benefit to you when those trains start transporting oil?

Well, the issue with Canada from an operator perspective or oil and gas company perspective is they just need to know that something is going to solve the problem. So even if somebody announced it, okay, if BC the agreed with Alberta, yes, you can build that pipeline to go to our coast, even if that pipeline would take a year and a half to two years to build, just knowing it's going to get done with spar activity. So if there's evidence that shows up that the rail solution is actually going to solve some of the problem, I think you would see increased activity, but don't forget, shipping oil by rail is a lot more expensive than shipping it by pipeline. So the differential between what the oil and gas operator earns after paying to get that product all the way to the Gulf Coast is still not inspiring. It's just a lot better than where we are today.

Right, so better than being stranded.

Exactly.

Got it. Thanks for the time.

Welcome.

Thank you. Our next question on line comes from Matt Weston from [indiscernible]. Please go ahead.

Hi, Matt.

Hey, good morning. How you doing?

Good.

I guess, I just want to make sure I heard correctly. The response to I think Mark's question about gross margins. Did Dave mean gross margins are going to be down sequentially or I just didn't want to put words in your mouth, I want to make sure I got it correctly, though.

No, I don't know that to be the case. What I said is we had said for some time we expected - we saw our gross margins grow quarter after quarter, we saw records in the fourth quarter. We expected declines few quarters ago and they occurred in the first quarter. What happens from here? We're not sure.

And that's the reason why it's hard to forecast that is we're not dealing with some simple way to forecast margins. We did millions and millions and millions of transactions, like a left and right. And so all of that has to settle out so we can see where the margins are headed. So it's a really difficult thing to predict.

Yeah, I don't think the variability is going to be wide. But it's going to vary. And we might - so I'll just leave it at there. I think it's going to be a little choppy as we've been forecasting.

I mean, if it was down a little bit in this quarter or flat or up a little bit, none of those would surprise me.

Got it. Okay. Just year-over-year, if I think about like international piece of the business, everybody has been talking about mid to high single digit international growth. Is that a good ballpark to think about overall 2019?

No, not for us, so if you think about the process you go through when international activity picks up. So once an oil and gas company agrees that they're going to hire drill ship and they're going to go out and drill some exploratory wells. And then to determine later if we're going to go to development, the people that get that revenue first or the drillers and the people that build the subsea equipment and things of that nature, it doesn't materialize in my P&L until that development works done. Yeah, I'll say the rig and stuff, but what I really need is to go and development when the oil and gas company and there's more than one rig out there, start buying a product from us, MRO products and things of that nature, pipe valves and fittings. And so that's why I've said I think I've been saying three years in a row. I didn't expect a material improvement in our international segment until 2020 or beyond.

Okay, and just thinking about Canada, obviously, down 16% year-over-year, but there was some FX related issues. Is 10% to 15% down year-over-year Canada a good ballpark?

Yeah, probably is, I mean, we were done 11% in the first quarter if you take out the FX effect. So in US dollars it could be in that range.

Okay. And just last question for me on tank battery I think like you guys had announced like a one kit full kit ordered last quarter, just any uptake any more artists for the full tank.

Yeah. So that that particular customer was the first one that gave us a shot at delivering what I just reviewed earlier with James West in his question or not James with others, Barger on his question. So we delivered that complete turnkey battery, they wanted to test us, they really liked it and they've ordered several more since then. So I'm hoping as other customers find out that this is working for this particular customer that it'll begin to become a more and more accepted solution as opposed to what we've done it for last 50 years.

That's very helpful. Thank you for taking my questions.

Thanks Matt.

Our next question on line comes from Nathan Jones from Stifel. Please go ahead.

Hey, Nathan.

Good morning, this is Adam Farley on for Nathan.

Hey, is he down in Australia vacationing.

It's a busy morning for us. Hey, just turning back to US process solutions, you guys called out pretty strong deliveries of produced water packages and some of the future drivers in this like midstream water space. So I was wondering maybe you could like size that opportunity or at least put some color on a high level. Is that mid-stream water gaining more importance from an E&P capital spend?

Well, it is and it's not just the E&P folks, there are some midstream companies that are in and some pure water companies now. The cost of pump packages we sell into that market are generally some of the lower revenue packages because they're just [indiscernible] pumps, generally. One of the exciting pieces and we've already got some orders lately from some large midstream companies is once you get all that water to one spot, which uses the small lower cost packages, once you've treated this water, you either have to recycle it, which still uses more of these low cost pump packages, or you got re-inject it back down in the formation. And that's where the big pump packages come in. So we were successful last quarter and getting a nice order and for a large midstream company that will take, I don't know, five, six quarters to deliver the whole thing, so pretty positive stuff happening in that space. In fact, the supplier of this big high pressure expensive pumps is one of our partners and they actually mentioned of the order on their earnings call.

That's good to here and then just turn to M&A. Maybe just do an update on the space, valuations where you guys are at, asset pipeline, what geographies, any color there would be great.

Yeah. So it's now moved from a seller's market to a buyer's market. Obviously, it's that's why almost all of our deals are usually done in a questionable period of market activity and the inbounds are definitely higher than they were the last 18 months. And we've always got deals that we're looking at that we're constantly negotiating, but we just haven't closed any because we're not willing to - we're trying to be conservative with how we value these businesses. So we're just - we never could get up with a bid at spread, things look a little bit better right now. So we hope something will translate into success in that arena. And the good news is we have a super clean balance sheet. So we won't have any concerns around leverage or anything like that.

And are there certain geographies that you're looking at or maybe add something to like a bolt on onto US process solutions or any ideas there.

Yeah, so our stated strategy around the M&A is for anything that we need to do in Canada or the US, for our energy center business or our US supply chain services business is going to be organic generally, unless some deal comes along that we just can't turn down. So they can have access to the balance sheet, as they come up with great ways to grow their business organically. And we will fund that for them. If we do anything else in the US it more than likely be US process solutions. And then outside of the US and Canada, we're kind of open to anything that we do this core, whether it's process equipment, supply chain investment, or in the energy center brands because we're now in some 20 some odd countries that have all their own corporate offices because you have to have them in all these countries. So you have all this overhead. And so if you can acquire companies that are part of our core service and product offering and tuck them up under that corporate office, you can get some pretty nice floaters on this stuff. So, generally that's kind of our planned approach to capital allocation with as it applies to acquisitions.

All right, great. Thank you.

Thank you.

Our next question comes from Sean Meakim from JPMorgan.

Hey, Sean.

Good morning. So I was hoping we could get some more detail around the midstream, it seems like it's becoming a little more prominent in your messaging to the market. To what extent did that - did some of your working capital build relate to what's going to be probably a pretty busy construction season in 2Q and 3Q. And then long-term, how do you think about and I recognize that and we've talked about in the past, and to some degree, you may not as explicitly distinguish up versus midstream, but how do we think about the long-term potential of that and market in terms of projects the next couple of years versus long-term maintenance and more steady work?

Yeah, so we've always been in the market, obviously. But what we've experienced as of late, which was part of the original plan is we now have access to things that we didn't before that are part of the entire project. So for example, the control of our process solutions group, we never had lacked units before. That's what measure oil when it goes into pipeline, we never had the gas measurement systems, we never had the vapor recovery units, all this stuff that a midstream customer, we used to go to us or our competitors to get all the pipe valves and fittings, then they would go to another supplier to get all the equipment that goes in, like pig launch of receivers and things like that. Now if we can get up front with the actual equipment that they're going to use on these pipelines, we can typically cross-sell all of the material is needed to construct or put this material into the pipeline. So we're seeing a lot of success on cross-selling between US supply chain services and US energy centers by them to coordinate with our US process group to bring in a bigger package and an offering the cut the end user, better economic opportunity to bundle the whole thing. So that's why we're seeing some success in our mystery markets greater than normal. And that also includes the fact that when we got process solutions, before, we didn't have the ability to do valve modification and things like that, we had outsource that work. Now we're doing all that in house. So we're getting off valve evacuation orders, because we have the ability to turn down a ring joint to erase space or whatever, as opposed to waiting on valve deliveries of 38 and 40 and 45 weeks, so all that stuff coupled together and the teams working together is what's kind of spurred this nice growth for our midstream customers and literally we have all sorts of businesses. We got all sorts of markets, whether that's downstream or midstream or upstream or artificial lift or electrical or whatever. I really expected 1Q to be down where you guys forecasted because we had a decline in completions in 4Q. And there's a lag and so I expected the completion decline in 4Q to translate into revenue declines in 1Q, fully expected it. What happened is that actually happened, revenue tied to completions went down, our midstream growth offset it.

Very interesting, yeah, makes a lot of sense. And I guess, it'd be good to get an update in terms of where we are on your inventory. You've had tariffs coming in last year, we had some inflation running through the system at various points that was a net benefit for the distributors. So where do we stand today in terms of where your inventory stands versus where spot is across pipe is another kind of key sensitive product lines, it'd be great to get a sense of where we stand on that and the look forward.

Well, what I would say in terms of inventory, Sean is, obviously, the period of strong inflation as - we went through a period of deflation for a couple of years and then finally we got a nice pipe for several quarters mostly driven by steel punctuated by pipe that periods over. We're starting to see some pullback in pricing on welded pipe in particular and seamless pipe otherwise, where replacement cost is getting close to our inventory costs and in some cases lower, so that's kind of leading the downward movement in margins for us in the first quarter. So we're trying to manage our inventory to mitigate the effects of that change in pipe costs. But I think that'll stabilize once we burn off that inventory.

Got it. Okay. Thank you for that. Appreciate it.

Thanks Sean.

Thank you.

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

I appreciate everyone's interest in our earnings call and discussion about the business and look forward to talking to you in about three months regarding our 2Q performance. Thanks.

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