Hello, and welcome to the Fourth Quarter and Full Year 2020 Earnings Conference Call. My name is Cheryl 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. If you have a question, please press star then one on your touch-tone phone. Please note that due to the recent severe weather conditions, if the speakers on the call get disconnected, please stand by and we will work to reestablish their connection. I will now turn the call over to Vice President, Marketing and Investor Relations, Brad Wise. Sir, you may begin. Good morning, and welcome to NOW Inc's Fourth Quarter and Full Year 2020 Earnings Conference Call. We appreciate you joining us and thank you for your interest in NOW Inc. Please note, should there be connectivity issues during the current severe weather conditions in the Houston area, I wanted to remind everyone listening today that a replay will be available through our website later today. Now with me today is David Cherechinsky, President and Chief Executive Officer, and Mark Johnson, Senior Vice President and Chief Financial Officer. We operate primarily under the DistributionNOW and DNOW brands, and you'll hear us refer to DistributionNOW and DNOW, which is our New York Stock Exchange ticker symbol, during our conversation this morning. Please note that some of the statements we make during the call, including responses to your questions, may contain forecasts, projections, and estimates, including but not limited to comments about the outlook for the company's business. These are forward-looking statements within the meaning of the U.S. federal securities laws based on limited information as of today, 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 in the quarter or later in the year. We do not undertake any obligation to publicly update or revise any forward-looking statements for any reason. In addition, this conference call contains time-sensitive information that reflects management's best judgment at the time of the live call. I refer you to the latest Forms 10-K and 10-Q that NOW Inc has on file with the 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 or our website at ir.dnow.com or in our filings with the SEC. In an effort to provide investors with additional information relative to our results as determined by U.S. GAAP, you'll note that we also disclose various non-GAAP financial measures, including EBITDA excluding other costs, sometimes referred to as EBITDA, net income excluding other costs, and diluted earnings per share excluding other costs. Each excludes the impact of certain other costs and therefore have not been calculated in accordance with GAAP. A reconciliation on each of these non-GAAP financial measures to its most comparable GAAP financial measure is included within 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 and full year. As I mentioned at the top of the call, a replay of today's call will be available on the site for the next 30 days. We plan to file our fourth quarter and full year 2020 Form 10-K today, and it will also be available on our website. Let me turn the call over to Dave. Thanks, Brad. Good morning, everyone, and thank you for joining us. Before I get into strategy and talk a bit about the quarter, I want to take a moment to thank our employees and acknowledge their hard work, their dedication to serving our customers and supporting our key suppliers, for making safety a priority, and for their perseverance overcoming a year that few will remember fondly. It goes without saying, 2020 was a year of change. As we round the corner, my view is one of expanding opportunities and optimism, moving from a period of duress to a period of stabilization and growth. DNOW stands in a cherished financial position and is on firm footing. This is no longer a moment of extreme uncertainty and concern, but a period of promise, prosperity, and possibility. Our focus is on providing the market with the innovative solutions and products to power the world for a sustainable future. What this means is we will be a trusted partner to help our customers unlock the power of energy and pursue sustainability by expanding our innovative solutions in support of our customers' ESG goals. Last year, we laid out a strategy to recompose our brick-and-mortar infrastructure. As we transition away from a distribution model tuned to a 2,000 U.S. rig environment to a model suited for 400 rigs, cognizant that our customers are consolidating and driving procurement centrally, and that consumers' and companies' buying habits have changed abruptly. These changes necessitate that our fulfillment design will continue to transform. Our branches will be smaller, leaner, and utility-oriented. Which means stocking the staples our local customers expect, but not stocking locally speculative items or quantities for projects or large dollar orders. We are laying the groundwork for long-term profitable growth by standardizing the branch design. One that lowers operating costs, is nimble and flexible, and has the ability to expand and contract more responsibly to market volatility. We hold a formidable upstream position and expect to accumulate market share by capturing upstream spend in the form of maintenance CapEx from those customers seeking to maintain production. In addition, expanding our presence outside of upstream is a key part of our end market diversification. Last year, we made inroads with key midstream and downstream customers in renewing MRO agreements, implementing digital solutions, and repositioning our sales and operations teams to compete on larger capital projects. Technology will play a key role in how we use information, process customer requests, and fulfill orders. In prior calls, I've talked about the benefits of our new order management system, where we see notable productivity increases and customer response times. Our e-commerce platform and digital tools like eSpec, which I'll expand on later, provide our customers a platform to access, acquire information, price, procure, and manage spend in our ecosystem with greater speed and efficiency. Expanding user adoption, shifting work processes to these digital channels, and leveraging our centralized fulfillment model will drive top-line growth and lower transaction costs. On our goal of aiding in customer sustainability, as noted in our 2019 sustainability report, DNOW provides a broad range of products and services which help our customers minimize their environmental impact by targeting opportunities to reduce or eliminate emissions and providing responsible water management solutions for water reuse and disposal. Some examples include efficiency audits for pumps and compressors, capturing and properly disposing of methane or VOC emissions with our vapor recovery units, or providing fluid handling equipment with leak detection and sealing technologies that environmentally help transfer and dispose of produced water in a sustainable way. More to come on customers and technology, but first to the fourth quarter. All of our locations continue to remain open during this pandemic, but current deep cold winter weather in the U.S. has customer sites idled and nearly 60 DNOW locations closed for what could be days, complicating the seasonal recovery we expect sequentially. COVID conditions are still debilitating the global economy. There remain government restrictions impacting our customers and employees. Yet we continue to follow WHO and CDC guidelines to help keep our employees safe in supporting our customers. For the fourth quarter of 2020, revenues were $319 million, a sequential decline of $7 million or 2%, beating our revenue guide from the last quarter, which suggested a sequential decline in the high single digits. In the U.S. and Canadian markets, rig activity improved sequentially, helping offset a lower international market and buttressing revenues against seasonal and COVID gravitational forces. Having zero debt and ample cash allows flexibility around organic capital deployment and inorganic growth. We continue to invest in our expanding DigitalNOW offering designed to improve the customer experience, drive increased revenue, and reduce transaction and fulfillment costs. On Friday, we successfully tucked our first acquisition of 2021 into U.S. Process Solutions. The acquired business is a small but strategic engineering and construction company based in Odessa, Texas. We are excited to leverage and expand on their 20 years of experience providing EPC services to handle gathering systems for new field, upgrading or debottlenecking of existing transportation lines and facilities, as well as other services in the upper midstream. Current and previous clients include independent and major energy companies for design build projects and EPC work for independents. This addition of non-commoditized capabilities expands DNOW's engineering and construction capabilities by adding an additional channel to proactively market and sell our pipe, valves, and fittings, or PVF, as well as pumps, process, production, and measurement equipment earlier in the project development cycle. This acquisition should enhance DNOW's early look at gathering and related midstream projects, bolstering project wins. To the talented employees joining our company and listening today, welcome to the DNOW family. In our further pursuit of M&A, managed like an investment portfolio, we are seeking to add companies which expand customer appeal, create competitive advantage, differentiation, and build barriers to entry for DNOW, while, as evidenced last year, exiting low-margin commodity product lines, locations, and divesting two businesses in 2020 that didn't support our strategy or were margin dilutive. Now to our operating segments and end markets. U.S. energy revenue increased sequentially due to increases in drilling activity in the Permian, while we experienced increased operator activity in the Eagle Ford, taking advantage of higher natural gas prices. The DJ Basin started to improve towards the back end of the quarter, while customers in the Bakken and Northern Rockies operated in maintenance CapEx mode. Workover rigs increased in the Bakken, resulting in revenue gains from our MRO well maintenance products. Revenue declines occurred in the Western U.S. as midstream-related activity was lower sequentially. Among E&P customers, we were awarded a PVF and MRO contract from an IOC operator for operating assets in the Northeast. We were also awarded a PVF MRO contract from a large U.S.-based independent for Permian and South Texas assets, and we gained in Alaska as well with a PVF contract from a customer operating assets with two fields on the North Slope. For our large committed supply chain services customers, we observed muted CapEx spend during the quarter, with increased maintenance as more workover rigs were deployed to maintain well production, resulting in consumption of MRO products and tubing services. We also received orders for a scheduled gas plant turnaround set for the second quarter of 2021. We've been focusing on further end market diversification by actively marketing our products and services and expanding our customer base. During the fourth quarter, we were awarded a three-year well connect program in the Rockies from a midstream natural gas gathering and storage asset company. Our platform of digital solutions, plus our preferred valve product offering, was a contributing differentiator to winning the business. We recently completed our DigitalNOW e-commerce integration with the company, establishing them as part of our digital ecosystem. During the quarter, we had some meaningful project wins for PVF pumps and fabricated equipment with another midstream customer with assets in the Rockies and Permian in gathering natural gas and disposal of produced water. We signed an agreement with the Midwest Midcontinent Gathering and Transmission midstream company that should provide additional revenue in 2020 as well. During the quarter, we were successful in providing PVF and a fiberglass flow line project to a water management company with operations in the Bakken, Permian, and South Texas. In the midstream and industrial arena, refinery activity was sequentially lower as major projects and turnarounds were pushed out to 2021. Finally, during the quarter, we renewed a two-year MRO and safety services contract for a major refinery company and extended an existing PVF agreement for an additional three years with another major IOC refiner. U.S. Process Solutions revenue for the fourth quarter was down sequentially. During the quarter, we experienced increased quoting activity, especially from municipalities, a good reversal from what had been significantly reduced in 2Q and 3Q 2020. Odessa Pumps experienced reduced activity in the fourth quarter due to oil and gas seasonality, partially offset by new orders related to municipal water projects and a sizable hydro pump rental contract for a terminals operator moving water from tanks, pipelines, and fire water bypass systems. The first quarter has started off better, booking a large municipal water order from a municipality in North Texas as we continue to target water opportunities. With a large independent E&P, we expanded our aftermarket pump program to an additional producing field that will result in servicing up to 170 pumps with ample runway to grow. Some notable market share gains from our Casper Power Service facility include a 20-vessel package for an E&P operator in the Powder River Basin, sizable orders to the Bakken and Eagle Ford for production equipment and LACT units, as well as several water transfer units sold to a large independent E&P. At our Tomball, Texas facility, our orders are recovering from the 2Q and 3Q low points as we diversify products with wins for LACT units and pump packages for E&P and midstream operators. In Canada, market activity increased for the quarter, allowing for sequential revenue growth despite 4Q headwinds mentioned earlier. We secured wins in the quarter in our valve and actuation product lines with several midstream terminal customers, IOCs, and oil sands customers. In the unconventional areas, we were successful providing an EPC, an IOC customer, valves, and variable frequency drive solutions as part of our well site automation and control offering. On the conventional side, we increased market share with a new natural gas E&P customer operating in the Altares region, providing PVF products. In the Regina, Saskatchewan region, we expanded our market share with a midstream pipeline operator by performing aftermarket work, replacing existing actuators with our preferred actuation product line. The valve actuation aftermarket has been a key target market for us, resulting in a first win for this application with additional opportunities for growth. Finally, in Canada, for our composite piping systems, we completed work with an oil and gas operator in the Manitoba region from the previous third quarter contract award. The project deployed our spoolable fiberglass pipe for 19 oil flow and water injection line applications. For international, in the fourth quarter, international rig count hit a more than 20-year low. International sales languished on lower rig activity, reduced spending, project holds, et cetera. In much of the region, COVID restrictions interfered with logistics, and operations put limitations on travel. On a positive note, our Total Valve solution initiative expanded to a major IOC in the Middle East as we implemented our valve life cycle asset managed solution combined with an MRO agreement leveraging our digital e-catalog. A little more on technology. In 2020, we committed to becoming a leader in our space by investing in digital technology. Not only to make our internal systems more productive, but also to speed the journey and customer appeal of our DigitalNOW ecosystem. Connected to our technology environment, forming the outer layer of our customer ecosystem are a number of our digital platforms where we offer access to customer-specific content, web-based and mobile applications, analytics, data sets, and other digital tools. The goal is to provide our customers with a seamless, connected end-to-end experience for a wide range of products and services through a single access gateway without leaving the ecosystem. For our suppliers and partners, it allows a framework for digital collaboration that will accelerate solutions to the marketplace. One example, which I talked about last quarter, where we're beginning to get traction is on a strategic third-party drop ship partner, which provides customers a broader range of products, not normally stocked at our branches, but readily visible and available to our customers. It is similar to the marketplace experience on Amazon. By growing our partner ecosystem, DNOW benefits by expanding our catalog and convenience to customers while realizing working capital benefits through the optimization of our inventory investment while lowering future inventory risk. We previously announced the rollout of our new DigitalNOW eSpec product. The eSpec tool is a digital product configurator that enables customers the ability to select, configure, and price out a number of our process solutions products. At our initial launch in November, we had three fabricated products available for customers to configure. Today, we have expanded the available products to nine. The products available on eSpec range from ASME production vessels used to separate the crude oil mixture to several transfer and measurement units for separated oil and gas. Since the launch, eSpec has been a valuable customer collaboration tool, allowing our technical sales professionals the opportunity to have meaningful discussions involving processing, facility design, and budgeting for our eSpec products. Customer registrations and use has grown since our initial launch, more than doubling since the 1st of January to over 120. Over the next six months, we will be releasing additional digital tools that further enhance our technology, including an upgraded e-commerce platform. With that, let me hand it over to Mark. Thank you, Dave. Good morning, everyone. As Dave mentioned, we entered 2021 with relief and optimism. Relieved that one of the most difficult years in the company's 159-year history is behind us, optimistic for our future, given the significant actions taken and underway. We are encouraged by the recent worldwide deployment of COVID-19 vaccines, improved crude oil prices, the progress we are making on our strategy. For the fourth quarter of 2020, our revenue outperformed our guided revenue percentage decline of high single digits with revenue of $319 million or down 2% sequentially. The U.S. segment fourth quarter 2020 revenue was $224 million, down $4 million or 2% from the third quarter of 2020. As our traditional 4Q headwinds of fewer business days, extended vacations, customer budget exhaustion, plus COVID impacts were partially offset by increased rig count and completions activity. Our U.S. energy branch revenue was up 1% from the third quarter as we captured increased drilling and completion activity during the end of the fourth quarter, partially offset by the expected seasonal declines due to less billing days and customer activity around the holidays. U.S. energy revenue accounted for 81% of the U.S. segment revenue in the fourth quarter, compared to 79% in the third quarter of 2020. Our U.S. Process Solutions revenue was down 13% from the third quarter, mainly a result of seasonality and customers' continued order deferrals as they draw down their surplus pumps, vessels, and fabricated inventory. With the increase in rig and completions noted at the end of the fourth quarter through today, we began to see some life from customers in terms of future activity increases and project work. Both should create opportunities for pump and vessel orders in the first half of 2021. In our Canadian segment, fourth quarter 2020 revenue was $48 million, up 14% from the third quarter as we supported increased customer activity levels and expanded our value for many clients through DNOW's unique combination of bundled solutions and products. Outside of North America, momentum slowed through the fourth quarter with additional COVID lockdowns and travel restrictions, continued customer project approval delays, and the slowing activity in places like Russia, Middle East, and offshore. International revenues were $47 million for the quarter, down $9 million as working rigs fell and drilling activity slowed. In addition to generating stronger than guided revenue in the fourth quarter, pricing on product margins held steady when compared to the third quarter of 2020. In the fourth quarter, gross margins were 14.1%, including a fourth quarter non-cash inventory charge of $24 million, or 7.5% of revenue in the quarter. We've historically experienced inventory charges to be higher than normal during depressed market conditions. These elevated inventory charges were the result of additional product rationalization initiatives in connection with market dynamics, customer preference changes, and adjustments to our product lines and locations that no longer align with our strategy and activity levels. In the fourth quarter of 2020, warehousing, selling, and administrative expenses, or WSA, was $81 million, or down $2 million sequentially, and $4 million below our fourth quarter WSA implied guidance of $85 million as a result of accelerated cost transformation initiatives that more than offset the sequential $4 million reduction in government subsidies. At the onset of the pandemic, we swiftly identified and implemented initiatives focused on maximizing customer service and transforming our operating model. These bold actions bring our annualized fourth quarter 2020 WSA exit run rate to $324 million, or a $270 million reduction, a reduction of 40% in WSA compared to 2019, the most consequential effort taken in recent history. The collective effort of our team to respond to the market challenges is notable and worth acknowledging as a strategic shift in our discipline to activity and actively transform DNOW. While we are not yet at the finish line, this is a major milestone and would not have been possible without the customer focus and dedication of our talented managers and employees. We together are working every line on the financials with a focus on profitable market share gains, pushing for reduced costs for manufacturers, targeting high-margin product lines, and rigorously pursuing fitness at the expense line. We're deploying technology to augment labor content, automating and digitizing processes and activities, reducing discretionary and infrastructure costs, and syncing resources to match the current market activity levels. Including the cost reductions completed, we expect WSA to remain relatively flat in the first quarter of 2021 compared to the fourth quarter of 2020, as the new year brings a seasonal increase in expenses driven primarily by the resetting of limit-based payroll taxes and healthcare cost inflation. Moving to net loss. Net loss for the fourth quarter was $44 million, or a loss of $0.40 per share. Net loss excluding other costs was $28 million, or a loss of $0.25 per share. Non-GAAP EBITDA excluding other costs for the fourth quarter of 2020 was a loss of $29 million, which includes $24 million in unfavorable inventory charges. With liquidity challenges faced by many worldwide, we continue to stand in a position of strength. We took decisive and proactive steps during the year to focus on what we control, that shows by our record cash level of $387 million, more than doubling our net cash position in the year. As of 12/31/2020, total liquidity from our undrawn credit facility availability plus cash on hand totaled $584 million. Accounts receivable in the period were $198 million, with DSOs of 57 days. Inventory ended the year at $262 million, with inventory turns of 4.2. Our accounts payable ended at $172 million, with days payable of 57 days for the fourth quarter. Net cash provided by operating activities in 2020 was $189 million, with $56 million in the fourth quarter. After considering $1 million in CapEx, free cash flow was $55 million. Our total 2020 free cash flow was $181 million, beating our previous full-year guide. Additionally, as I mentioned on our last call, in the fourth quarter, we completed the divestiture of a small regional lighting business in the U.K., bringing our full-year 2020 proceeds from divestitures to $26 million. When looking back on our successes in optimizing working capital and strengthening our financial position, over the last two years, we've generated $419 million in cash when considering free cash flow and cash generated from our divestitures, further improving what was already an enviable balance sheet. Our focus on fortifying the balance sheet can also be seen in working capital efficiency improvements in the year, with a record low cash conversion cycle in the quarter. As of 12/31/2020, working capital excluding cash as a percentage of fourth-quarter annualized revenue was a record low 15.8%. When using the trailing 12 months revenue, working capital as a percent of revenue was approximately 12.5%. We enter 2021 with optimism for the future. Our revamping of the business model, transformative cost reduction initiatives, technological enhancements, and shedding of non-core businesses have primed DNOW to be in its best position for sustained value creation for our customers and shareholders in our 159-year history. With that, I will turn the call back to Dave. Thank you, Mark. Now I'd like to shift the focus to the first quarter. Looking ahead, there's cause for optimism with oil trading in the high $50 range and North American activity continuing to improve, playing off fourth quarter momentum. In the U.S., companies continue to add rigs and frack spreads, but some customers seem restrained as they meter rapid production growth in favor of returns to shareholders. We expect midstream gathering systems to follow suit, favoring modernization projects over capacity expansion. Domestic refinery runs are currently at their highest since the start of the pandemic. We expect the U.S. to improve sequentially in the first quarter as customers complete recently drilled wells, convert DUCs, then build out tank batteries and gathering systems. The Canadian market continues to be structurally challenged, with the Keystone XL pipeline paused again and the heavy oil coming in by rail. The current market, we do expect sequential improvement in revenue as we build on our market presence and capture increased activity with our customers. Internationally, the visibility is uncertain into the first quarter as we await an inflection point to start a recovery, and therefore guide international revenue lower sequentially. The global uncertainty related to COVID-19 and the possibility of future industry and economic volatility certainly temper our ability to forecast deep into the year. As more vaccines are administered, we expect greater energy demand, yet the pace of vaccines remains slow, thus the impact on a full-year outlook remains cloudy. Except for unknown weather impacts related to the current deep freeze in the U.S., 1Q21 DNOW sequential revenue could expand into the mid to high single-digit percentage range. In closing, I'm encouraged by the DNOW transformation underway and its success to date. Although the global COVID pandemic has had a material impact, it has provided a great opportunity for us to carry out our strategy. A downturn this severe provides the motivation for transformative change. Necessity itself is fuel. This kind of transformation is really most successfully delivered in a market muddle like this. 2020 was a year of rapid change in our industry and at DNOW, and we view 2021 optimistically. We expect it will be more fun and exciting as we build back, then grow. The execution of our strategy in what has been a tough year for our industry, our employees, and our customers enables us to create a more resilient, stronger company, one able to better manage risk in future energy cycles. In closing, I'm very pleased about the stronger than expected fourth quarter top line, and thrilled about emerging from the lowest points in the market downturn with a great deal of flexibility in how we shape our company and expand on our success in the future. The women and men of DistributionNOW are the reason for our enviable position today. The faith and confidence I have in our employees because of their perseverance through all the trials and tribulations of 2020, their continued patience, their innovation, and their constant focus on our customers reaffirms my confidence we are absolutely on the right path to ensure maneuverability in the evolving energy space. A record cash balance of $387 million and zero debt provide a firm financial footing. Couple that with the profound cost transformation, buoyed by favorable oil price trends, the completion of our first acquisition of the year, the promise of vaccines, and a hunger for getting back to life as we once enjoyed it, all give us plenty to be excited about as we enter 2021. With that, let's open the call for questions. Thank you. We will now begin the question and answer session. If you have a question, please press star, then one on your touchtone phone. If you wish to be removed from the queue, please press the pound sign or the hash key. If you are using a speakerphone, please pick up your handset first before pressing any numbers. Once again, if you have a question, please press star then one on your touchtone phone. Our first question comes from John Hunter from Cowen. Your line is now open. Hey, good morning, gentlemen. Good morning, John. Morning. Morning. My first question is just as it relates to your guidance for the first quarter of up mid-single to high single digits sequentially. It seems like that doesn't include any impact for the weather that we've seen just recently here. Curious if you've attempted to kind of quantify what kind of impact that may have on your outlook. That's the first question. The second one is, just as it relates to the guidance you put out there for the first quarter, how are we tracking so far, either through the end of January or currently through mid-February here? Thanks. You're welcome. In terms of the weather impact, right now we have about 60 locations closed, which will probably be three or four days closed due to lack of power, lack of water, either in the business location itself or for the people that work at those locations. Same for our customers. We came into this earnings call expecting, like we said in our guidance, that we'd see sequential revenue growth in the mid to high single digits. I qualified it in the language as it relates to this weather snap. It's a pretty destructive one. We will lose revenues for several days. They'll be diminished significantly for several days. We don't know to what extent we'll see some sort of snapback, the necessity for more valves and more repair commodity products that we sell that could help us on the positive side. We don't know if that would be enough to fill the gap for the revenue shortfall in the meantime. We stuck with our guidance, low to mid sequential improvements, because we think things will improve in March, for example. Now, in terms of how are things going, January actually was a little lighter than December. December ended up being a pretty good month in the fourth quarter. I never expect December to be a strong month. December, interestingly, was a little bit better than October, November. January was a little down. February's tracking along the lines of January, but March is a good long month. We'll be out of the weather doldrums. We'll start to see matriculation with vaccines and forward progress there. I think we can get to the guidance we talk about, but the weather impact, we don't measure that. By the way, someone's telling me that I said low to mid, we gave guidance low to mid. The guidance was mid to high single digits with the qualification that weather impacts could impact that number. Did I answer? Right. Yeah, that's helpful. Next one is as it relates to gross margins. Obviously, you had the elevated inventory charges here. How should we think about the level of inventory charges going forward in 2021 and your ability to get to 20%+ gross profit margins and whether you think you can get there in the first quarter, second quarter, or is that later on in the year? Okay. That's a great question. Just want to give some color, which we didn't include in our opening remarks. Our EBITDA loss for the year, I think, was around $56 million, which includes the negative impact of inventory charges of about $54 million. Are those good numbers, Mark? Yeah, $57 million for the year. This was the worst year in history, perhaps since the Great Depression, in terms of impacts to the energy industry. If you take out those inventory charges, we broke even. We don't take out inventory charges when we compute EBITDA because it's a valid expense as it relates to this business. We went from an environment where we had 800 rigs in the U.S., 2,000 rigs globally, and since then, we've seen 50%-70% rig declines around the world. I first want to say we did an awesome job in converting inventory to cash and dealing with the blowback of going from an environment like that, where for the market, the bottom falls out. In terms of answering your question specifically, we won't see $54 million in inventory charges in 2021, but they could remain elevated. In my prepared remarks, I talked about we're still in a transformation mode for this company. We want to have a field network of locations being situated close to our customers, but the utility of those locations will change. I do expect inventory charges to be elevated, but nothing like what we saw in the fourth quarter. I expect them to revert to the mean at some point later in the year. Generally, we see inventory charges approximating 1% of revenue. They'll be higher than that this year. Later in the year, I think we'll get to a point where we've gotten to rationalize which countries we exit, if we exit any, which locations we're going to downsize and move, how we stand up our super centers and situate close to our customers, but with a different inventory backdrop. That'll all impact gross margin. That's a long-winded answer, John, but our inventory charges will diminish, but they could still be elevated as we transform the company. Thanks, Dave. I appreciate it. I'll turn it back. You're welcome. Thank you. Our next question comes from Sean Meakim from JPMorgan. Your line is now open. Thank you. Good morning. Hi, Sean. Morning. Morning, Sean. Dave, I'd like to touch on margin progression. Gross margin looks pretty good if we back out the impact of those inventory charges. A lot of progress on cost out last year, of course. G&A's guide is flat in 1Q. Think about expectations of margin progression, excluding inventory charges, as we've covered that. Then are we expecting kind of a steady state for G&A and you'll adjust further based on what the market gives you? Thinking about just those two levers as it pertains to margin progression in 2021. That's a good question, Sean. Except for acquisitions, so we did a small one, and that'll have limited impact on SG&A, so I'm not even going to speak to it. Our WSA should be coming down each quarter except for acquisitions. That line needs to continue to go down, and that's going to come from the evolutionary nature of transforming the business. We've done a lot of the heavy lifting or a lot of the harder things early in the process, but I expect that number to come down even despite growth in revenues. That's a challenge for us. Now, speaking to what that number is as the quarters progress, we're really only speaking to the first quarter right now. I think Mark said that that's basically going to be flat with the fourth quarter, which was lower than we expected. I think it was $3 million lower than we expected. I think we'll be flat in that regard. To answer your question generally, the WSA number should come down each quarter outside of acquisitions. And there are some things like pipe prices that'll impact product margins. Like we've said for several quarters now, our pricing and our product margins have been really resilient. I think there could be some lift there. Now, to the extent we do large projects, you know that projects would drag down margins a little bit, but I'm pretty comfortable that product margins will remain resilient. It's just a matter of what kind of inventory charges we'll endure in the coming quarters. That's kind of the cadence. Increased revenues. We'll give a little more flavor to that in the next 90 days. Hopefully, we'll be in a much better position to guide the rest of the year. That should be the trajectory. Continued reduction in operating costs in WSA. Flat to improved gross margins and elevation in revenues as well. Understood. That's helpful. Then thinking about working capital, you generated a lot of cash last year, I think that's expected given the countercyclical cash flow profile of the business. Your working capital metrics at the moment are also helped somewhat by those inventory write-downs, right? About a quarter of the reduction in inventory over the past year, but we've talked about that issue. If we're generating, let's say, nominal EBITDA, and we're growing volumes, there's likely some reinvestment required in working capital. Well, it's just receivables, but also getting in the right inventory. What's your confidence level about generating free cash in 2021? Okay. If you look at our inventory balance, and you're right. I think Mark cited our working capital, excluding cash as a percent of revenue, about 15%, 16%, which is a very low number. You add back the $24 million in inventory charges, of course, it gets closer to 18% or 19%. That's turning working capital five times. That's solid. To the extent we see revenue growth, and we're forecasting that in the first quarter, we're going to start rebuilding our inventory. We're in a pivot mode, where although we're not speaking to revenue inflection beyond the first quarter, we're going to see some revenue build, and our stocks, our shelves are pretty, not barren, but we're ready to replenish. We're going to consume cash as it relates to inventory, as it relates to receivables, and we could consume cash, not generate free cash flow as early as the first quarter. That's how I see things going. If the revenues are flat, we could generate cash quarter to quarter. We're not forecasting that, and we're hoping against it. We're hoping we see revenue growth, and we're hoping we have the right plan in place to get ahead of demand to make sure we have the products our customers need at the right cost for us so we can maximize gross margins. Mark, do you have anything to add on that? No, I think that, as you pointed out, the metrics at the end of the year were record efficiencies on working capital. Even adding back the inventory charges, and to Sean's point, which is a good one. Exactly. I think you're right. The easing there on some of those metrics, and we naturally have the cash to fund that growth that Dave mentioned to make sure we do have that inventory deployed. I think that free cash flow generation for us is really just the stellar job in the past 12 months by our team. Just to put a button on it, would you be able to give us a sense, a target of working capital to sales exiting 2021? We don't quite know the sales number. There's some uncertainty in terms of what volumes look like. Yeah. How about a target for working capital to sales exiting 2021? Yeah, I think it'll be around 20%. Let me give a little color on that. We'll be pre-positioning inventory. You could see that working capital to revenue ratio be higher than 20%, it should kind of gravitate towards that number. We'll stock up, we'll see receivables grow, those ratios can extend a little bit. We'll curb that in several quarters into the future, it'll be around 20%, Sean, maybe a little higher. Very good. Thanks for all that. Thank you. Thank you. Our next question comes from Nathan Jones from Stifel. Your line is now open. Good morning, everyone. Hope everybody's warm. Hi, Nathan. Good morning. Nathan. Good morning. Morning. Morning, Nathan. I'm going to follow up on the WSA side of this. Dave, as we've gone along through this recession here, have targeted being at least break even and maybe profitable at the bottom of cycles. If we're looking at the second half of 2020, run rate of revenue's about $1.3 billion in the second half of 2020. Let's say 20% product margins would mean that you'd need to get down into probably the mid to upper 60s on WSA, and you've talked today about continuing to drive that number down. Is kind of getting that down under $70 million a reasonable target as we go through 2021? Yeah. Let me speak to what we've guided. We've talked about the first quarter, and we won't get to $70 million in the first quarter. Mark's given some color there. It depends on the revenues. My gut response is no, we won't get to $70 million this year. In part, because we're going to be layering. I hope to come to you 90 days from now and say we did another deal, and I hope it's a bigger deal. Except for that, getting to $70 million this year, I don't know is possible. If we did, if we got to a level that low, you'd see more inventory charges because we would more quickly push that transformation envelope. I'm going to give a little color there, Nathan, because we've done a lot of things in the last 12 months, and I said three or six months ago that I want to take this journey with our customers. I want to retain those relationships with our customers as we do some pretty tough stuff to the business. Getting down to $70 million in EBITDA, I don't see that happening in 2021. It's possible, but right now we don't have a forecasted number that low. Thanks. That helps. I guess my follow-up question is, you've made a real transformation to the business model here with less inventory at local locations, more centrally held, more online, which means that we're probably not going to see costs return to the business in the same way that they have done in past cycles. Right. Maybe you could give us some help on how you envision WSA coming back into the business. How much revenue could you layer on to where you're at today, where you're going to get to in 2021, before you really have to add some costs back? Then maybe if you've got any idea of incremental dollars of WSA per dollar of revenue growth as we get out further, because my assumption here is that that's going to be lower than what it's been historically. I agree completely. We've experienced in late 2016, 2017, and 2018, kind of an uneven recovery. We added locations, we added people. We'll see that similar phenomenon going forward. On an incremental basis. For example, we just opened a branch in Canada because we believe we're taking market share there. We're on the offense, and we're going to add costs where we need to. There are other parts of Canada where we're still pulling out costs, and we'll continue to do that. Generally, as we add revenue dollars, almost all of those gross margin dollars should go to the bottom line. We generally, historically, have flow-throughs, EBITDA to revenue in the 10%-15% range. The WSA increase with each revenue dollar should be $0.02-$0.05 or less, because we should see flow-throughs in the 15%-20% range. I said earlier that I expect WSA, it's not on a perfect every quarter basis, but to come down quarter after quarter, even as revenues grow. I expect really strong flow-throughs nearing that 20% level. That's helpful. Thank you very much. I'll pass it on. Thanks, Nate. Ladies and gentlemen, we have reached the end of our time for the question and answer session, and we'll now turn the call over to David Cherechinsky, CEO and President, for closing statements. Okay. Well, thank you everyone for joining us. Thanks everyone listening to the call who prepped us without having power and water, and all the hard work done getting us here. Thank you, everyone. We'll see you next quarter. Thank you. Thank you, ladies and gentlemen. This concludes today's conference. Thank you for your participation. You may now disconnect.