NOW Inc. (NYSE: DNOW) Third Quarter 2022 Results Conference Call November 2, 2022 9:00 a. m. m. ET
Participating companies
Brad Wise – Vice President of Digital Strategy and Investor Relations
David Cherechinsky – President and Chief Executive Officer
Mark Johnson, Senior Vice President and Chief Financial Officer
Conference Call Participants
Nathan Jones – Stifel
Jeff Robertson – Water Tower Research
Sean Mitchell – Daniel Energy Partners
Operator
Bonjour. Me name Sam and I will be your convention operator today. At this time, I would like to welcome everyone to the call of DistributionNOW’s third quarter 2022 earnings convention. All lines have been muted to any background noise. Comments, there will be a question and answer session. [Operator Instructions] Thank you.
Mr. Brad Wise, Vice President of Digital Strategy and Investor Relations, can begin his conference.
Wise Brad
Well, tomorrow. Thank you, Sam, and good morning everyone, and welcome to NOW Inc. ‘s Third Quarter 2022 Earnings Call Convention. Thank you for joining us and thank you for your interest in NOW Inc.
With me today are David Cherechinsky, President and CEO; and Mark Johnson, senior vice president and chief financial officer. We operate primarily under the brands DistributionNOW and DNOW, and hear us talk about DistributionNOW and DNOW, which is our New York ticker symbol, in our verbal exchange this morning.
Please note that some of the statements we make on this call, adding answers to your questions, would possibly imply forecasts, projections and estimates, adding, among others, comments on the company’s business prospects. These are forward-looking statements within the meaning of U. S. federal securities law. Based on limited data to date, which are subject to change. They are subject to dangers and uncertainties, and the actual effects may differ materially. No one deserves to assume that those forward-looking statements speak later in the quarter or later in the year. We assume no legal responsibility to publicly update or revise any forward-looking statements for any reason.
In addition, this convention requests urgent data that reflects management’s maximum productive judgment at the time of the live call. I refer you to the most recent Forms 10-K and 10-Q than NOW Inc. has filed with the U. S. Securities and Exchange Commission. For a more detailed discussion of the curtain threat points affecting our business. More data and more monetary and operational data can be discovered on our earnings release or on our online page in ir. dnow. com or in our SEC filings.
In order to provide investors with more data on our effects as decided through U. S. GAAP, we are able to provide investors with more information about our effects as decided through U. S. GAAP. In the U. S. , you will notice that we also disclose various non-GAAP monetary measures, adding EBITDA, excluding other prices, referred to as EBITDA, net source of revenue attributable to NOW Inc. , excluding other prices and diluted earnings consistent with the percentage attributable to NOW Inc. , excluding other prices.
Each excludes the effect of certain other prices and therefore has not been calculated in accordance with GAAP. See a reconciliation of each such non-GAAP monetary measure to your comparable maximum GAAP monetary measure in the supplemental data. Available at the end of our earnings report. Starting this morning, the investor relations segment of our online page comprises a presentation covering our effects and key points for the third quarter. A replay of today’s call will be available on site for the next 30 days. We expect to file our third quarter 2022 Form 10-Q today and it will also be available on our online page.
Now let me pass the message on to Dave.
David Cherechinski
Thank you Brad. Hello everyone and thank you for joining us. The third quarter of 2022 represents the culmination of 3 years of making plans and preparation, patience and functionality through the other people at DNOW, the other people who motivate others to win the market. with a disciplined focus on visitor enjoyment. Today’s DNOW is not about being everything to everyone. It’s expensive, blurry, and you minimize and dilute everything you do. Our purpose is to locate where the answers and strengths we tame intersect where the visitor discovers the value.
I’m in awe of the accomplishments we produced in the third quarter and what we’re going to deliver throughout 2022, but I’m not surprised, as we now place a strong emphasis on the field and hold others accountable for producing effects that may not be achieved otherwise. Thank you to the men and women of DNOW for their intelligence and experience, loyalty, innovation and attitude around fun, winning and definitely impacting our consumers and communities.
This quarter, we provided solid functionality across all of our key metrics, adding loose money generation, earnings growth, EBITDA margin expansion, and return capital to shareholders. I am pleased with this ongoing execution as we have higher gross margins and additional EBITDA margins. to new levels.
Third quarter 2022 revenue advanced 7% sequentially, exceeding our target and up 31% from the same quarter last year. Our gross margins were 24. 1%, a sequential improvement of 40 basis points, supported by declining stock expenses and healthy product margin allocation, helped by continued inflationary tailwinds, along with our high-level strategy that focuses on applying our resources where consumers see value.
Warehousing, sales and administration expenses, or WSA, increased as expected in the quarter, ensuring our consumers interact with the industry’s most productive professionals while expanding headcount to maintain excellence in visitor service, which remains a key differentiator in the marketplace.
Third quarter EBITDA reached $53 million, an increase of $6 million sequentially, exceeding our target as we achieved better-than-expected earnings expansion in upper gross margins while maintaining WSA as a percentage of earnings.
EBITDA margins were 9. 2% of revenue for the 3rd quarter, more than 500 foundation issues year-over-year. In the 3 quarters of this year, we generated EBITDA of $128 million or 8. 1% of revenue, $100 million more than in the same in 2021.
This quarter, we also delivered $44 million in positive loose cash flow, our highest point in this sequential quarterly earnings expansion rate as we increase profits, increase gross margins, invest in inventory, build a new supercenter in Bakken and add workers to fuel the future. This functionality goes against past trends of expansion cycles of inflow money to fund current capital and is a wonderful achievement for our team. be quite an achievement given the old countercyclical forces.
Turning to our segments, in the U. S. , revenue was $435 million, up 7% sequentially. Product margins remained resilient as non-tubular product lines offset some margin compression on metal pipes, which we expected and discussed on recent calls, and inventories expenses decreased in the period, delivering better overall gross margin results.
During the quarter, we extended an MSA agreement with one of our major consumers for another five years, a strong vote of confidence in the price DNOW brings to its operations. And our built-in on-site procurement style develops sequentially as our sourcing team incorporates procurement, purchasing, and controlling similar materials into product sales for our consumers. We saw a sequential expansion of earnings as traders took advantage of major commodity costs to invest in production.
Halfway, we continue to supply pipes, fittings, flanges and actuated valve products to the grass-based fuel, processing and fuel-harvesting end markets. Ease. We develop the application of our supercenters through obtaining more resources in spaces that generate superior returns through a more effective model.
And in the fourth quarter, we’ll be opening our new PBF plus supercenter logo in Williston, North Dakota, right in the center of Bakken Play. This facility investment reinforces DNOW’s commitment to serving our consumers at Williston Basin through the centralization of PBF plus stock by offering our consumers techniques for the sale and application of products through the functions of our box maintenance and allocation control teams.
From our corporate Flex Flow, we will locally contract and service a fleet of our trailer-mounted horizontal surface pump assemblies from this location. Profit synergies not only to leverage the scale of the facility, but also to take advantage of the additional benefits of data sharing and collaboration, which is helping to generate revenue through cross-selling products and across the enterprise.
U. S. Process Solutions reported its quarter profit since 2019. Customer demand for fabricated tension vessels, measuring assemblies, pipe supports, manifolds, saltwater removal and water movement assemblies has remained in the top spot as we ship modular assemblies to oil and fuel generating regions and congregate in the intermediate interconnection. Locations.
The demand for pump assemblies is highest for crude oil transfer, water transfer and chemical injection applications. Customer requests for longer delivery packages increased as operators worked to outline timelines for intermediate projects, taking into account supply chain and schedule constraints similar to the availability of semiconductor parts and manufactured appliances such as BFDs, programmable logic controllers and transmitters.
We are seeing an increase in the demand for pumping products in the aspect of produced water and water control as water moves and the reserve capacity of legal water injection decreases. We are expanding our after-sales service to meet the developing demand. Service in fluid handling equipment. This includes initial commissioning, box repair and after-sales service and the sale of spare parts at our sites. We align our efforts by partnering with our favorite brands for education while leveraging our virtual e-Track tool to create and expand the knowledge base on installed visitor equipment.
We have noticed an improvement in demand for our horizontal rental pumps, basically similar to the activities of saltwater removal, water movement and fracking coverage. We are seeing increased adoption of our jet pump solution for new production wells where it is used for sand and debris. and disposition before the well moves to the synthetic lift of the rod pump.
In Canada, revenue was $86 million in the quarter, up 19% sequentially and 26% year-over-year, driven by improved visitor and drilling operations. and upstream synthetic survey projects. However, we don’t expect this peak of projects in the fourth quarter. We have noticed the expansion of a co-adventurer, who uses our virtual e-commerce platform to source and procure drilling products and consumables. to your daily drilling operations.
With a primary E operator
Market demand for many of our products remains high. And in response, our supply chain team was able to source imported products and streamline shipping boxes that helped locate urgent projects for our customers.
For International, profit was $56 million, a sequential decrease of $3 million. The decline in the quarter was driven by the negative effect of foreign currencies, due to a stronger US dollar. High-end visitor offerings to increase operating margins, while adjusting our in-country presence as we optimize our operating model. Execute growth.
In the UK, we are seeing operators and EPCs move forward with more classic oil and fuel projects, adding major improvements to existing onshore fields and services in the North Sea. In Europe, revenues have increased thanks to the rebound in the oil and fuel market and the accumulation of activity of some of our co-contractors. We are seeing a recovery in EPC activity with several projects for further development.
In the Middle East, we are starting to see the creation of update mapping activity in some fields that have been interrupted for several years and are now starting to reactivate and expand. With activations on the platform, we are seeing more and more requests for devices. and consumables before platforms head to their final destinations to begin their contracts in the Middle East. We are also seeing an increase in tenders for modular production services in the UAE and Oman.
In Southeast Asia, we are seeing more projects with the structure of oil pipelines and fuel transmission pipelines and with IOC and EPC, which are running on several new projects, FPSO.
In Latin America, business increased due to the overhaul of NOC drilling rigs, which are driving sales of drilling spare parts and consumables. We continue to be positive for our overseas segment, where we see that the environment and market situations are more favorable.
On the energy sustainability front, we work with many clients to provide answers to their greenhouse fuel relief initiatives, adding compressed air upgrade, retrofit and gas flaring projects. Our customers have active systems to identify methane leakage resources and seek to reduce them to meet their publicly reported Scope 1 emissions relief goals. As those greenhouse fuel emissions resources are identified, we are finding that this is driving demand for our PBF products.
In the renewable herbal fuel or RNG market, we provide spiral pipes for a giant allocation of RNG in the United States connecting more than 8,000 dairy farms provided with anaerobic digesters to one pipeline. Once fully incompatible with the overall environmental impact of this allocation of NGR, it is expected to reduce greenhouse gas emissions by 33,000 tonnes per year. We are excited to help more such assignments.
In the CCUS space, we provide PBFs in a CO2 pipeline allocation that collects and transfers CO2, which is used for enhanced oil recovery tertiary operations in the northern United States, and in the hydrogen market, we have multistage pumps that are used in purified water. transfer. in the production of green hydrogen.
As these examples show, our PVF products and pumps are perfectly suited to the CCUS, RNG and hydrogen emission capture markets. And one of our goals is to be a leading distributor for our new or existing customers learning how DNOW can meet their product, service commitments, and ESG.
Digital earnings advanced to 42% of our SAP earnings and increased sequentially. Process and Production Equipment Configurator is helping Process Solutions expand its profits by making it less difficult for consumers to work with our technical sales team to explore, configure and budget for a wide diversity of products across our production product line.
E-track, our asset lifecycle and control tool, which gives consumers the ability to track, schedule maintenance and order spare portions for cash equipment, saw a 49% expansion in the number of corporations tracking assets through the last quarter.
Finally, we use statistical modeling equipment to facilitate call planning and scheduling assignments to our garage methods to ensure hardware availability for planned assignments and unplanned visitor maintenance activities, while reducing stock-outs and buybacks for DNOW.
Going forward, in terms of capital allocation, we will continue with a strong balance sheet and flexible technique to move forward with a bias toward strategic and cumulative acquisitions, while opportunistically executing our approved $80 million percentage repurchase program announced in August.
Our operational functionality has been strong this year, allowing us to drive growth, generate money in a quarter as we increase our revenue, offering more flexibility and liquidity for capital allocation. We continue to forge and build a portfolio of inorganic opportunities that supports us and meets our monetary thresholds for acquisitions, and we have clients that we expect to cross the finish line soon.
With that, let me pass Mark.
Marc Johnson
Thank you, Dave, and good morning everyone. I should begin by noting that the format of some of our monetary statements has expanded this quarter, as we recognize activity as a component of our inaugural percentage repo program we announced in August, and recognize non-controlling interest in a joint venture in our overseas segment. which we consolidated in our monetary statements because we are the number one beneficiary and controlling member, recording $1 million in non-controlling interest in the quarter.
Total profit for the third quarter of 2022 $577 million, up 7% or expanding at $38 million compared to the current quarter of 2022, despite a headwind of $4 million in foreign currency. Year-over-year, we delivered strong functionality in the third quarter of 2022, driven by a profit expansion of $138 million or 31%.
EBITDA profitability greater than 9. 2% or $53 million for the quarter, more than 3 times what it was a year ago thanks to strong operating execution and higher gross margins. Usa. U. S. earnings for the third quarter of 2022 $435 million, an increase of 7% or $27 million sequentially and an increase of $123 million or 39% year-over-year due to continued reinforcement of platform counts, continued depletion of UCR inventories, and increased finishing activity. Energy hubs contributed about 77% of overall U. S. profits. U. S. processing responses in the U. S. in the third quarter, and our U. S. processing responses. U. S. citizens contributed the remaining 23%.
For Canada, for the third quarter, revenue was $86 million, an increase of $14 million or 19% from the current quarter of 2022, with an increase in allocation activity and several consumers postponing deliveries planned for the fourth quarter to the third quarter. Compared to the third quarter of 2021, Canada’s revenue increased to $18 million or 26% year-over-year.
International revenue in the third quarter of 2022 was $56 million, $3 million less than in the current quarter, mainly due to a $2 million currency hurdle due to the strengthening of the U. S. U. S. versus foreign currencies. Year-over-year, in the third quarter of 2022, foreign revenue declined 5% or $3 million. However, this includes a headwind of $6 million in foreign currency.
As Dave noted earlier, our third-quarter gross margins increased 40 core issues from the current quarter to 24. 1%. Storage, Sales and Management or WSA for the quarter $95 million, an increase of $6 million sequentially and solid with WSA’s expense percentage compared to current quarter revenue and in line with our consultant for Q3.
A year ago, in the third quarter of 2021, we increased our quarterly profit to $138 million, but only added $9 million in quarterly WSA pricing, or about 7% of the earnings accrual, as we work to improve efficiencies. Most of the WSA’s sequential buildup is consistent with the significant improvement in monetary functionality and the related buildup in variable reimbursement spending, adding an additional $1 million in non-cash reimbursement based on functionality actions, along with an accrual in quarterly health care costs.
Let’s move on to the operational source of cash inflow from our geographic segments. In the third quarter, the U. S. The U. S. contributed $31 million to the operational source of cash inflow, or 7% of cash inflows. Canada recorded an operating source of cash inflows of $10 million or 11. 6% of cash inflows in Q3. And the international segment posted an operating profit of $3 million or 5% of cash inflows in the 3rd quarter.
Falling into the source of operating income. Other sources of income and expenses for the third quarter included an interest income source of approximately $1 million, partially offset through unfavorable losses on foreign exchange transactions. were 6. 8% and 7. 6%, respectively.
As I explained on our last call, this is the effective tax rate calculated from the source of revenue and is lower than the tax rate sometimes expected at those levels of revenue sources, because our tax provision includes favorable tax advantages that result from adjustments. in the tax system. Provision for price loss on our tax-deferred assets. Therefore, when we collect our non-GAAP tax rate, we exclude this tax for advantage.
In the non-GAAP effective tax rate, it’s closer to 28% so far this year, and 28% is a smart indicator of the effective tax rate for the next quarter and year, excluding other costs.
The net source of revenue for the third quarter of 2022 was $41 million and included $1 million net source of income attributable to minority interests. Net income attributable to NOW Inc. for the third quarter was $40 million or $0. 35 consistent with participation. on a non-GAAP basis, the net source of revenue attributable to NOW Inc. , other costs, was $34 million or $0. 30 consistent with participation.
Now let’s move on to EBITDA, other costs or EBITDA. For the third quarter, EBITDA was $53 million or 9. 2% of earnings. EBITDA, compared to earnings streams of 16% sequential and 26% year-over-year, is the result of our team’s execution and strategic focus on a new DNOW structure. It streamlines our operations and makes greater use of generation to process visitor orders, which translates into higher degrees of service for our visitors.
Let us now turn to the balance sheet. We ended the third quarter with a net monetary position of $267 million, with no debt or withdrawals added in the quarter, expanding our overall liquidity to $635 million, which includes $267 million of available liquidity, plus $368 million of additional credit facility availability.
Accounts receivable were $406 million, an increase of 4% or $17 million over the current quarter. Inventories were $361 million, an increase of $30 million, maintaining a 4. 9-fold higher quarterly stock turnover rate compared to last quarter.
Accounts payable were $339 million, a cumulative of $49 million during the current quarter, and we recorded a positive loose cash flow of $44 million in the quarter. Capital expenditures in the third quarter were $1 million as we invested in infrastructure to develop power and degrees of service to our customers. And as of September 30, 2022, non-cash current capital as a percentage of annualized third-quarter profit was about 14. 3%.
Let us now turn to capital allocation. On our last earnings call in August, we announced the Company’s consistent buyback program authorization of up to $80 million, effective December 31, 2024. During the first partial quarter of the program, we are pleased to take credit for market opportunities as we initially move through our buyback program, already repurchasing $4 million or approximately 5% of our legal buyback program at an average value consistent with a consistent percentage of $10. 33.
As of September 30, 2022, we had $76 million in the buyback program and continue to focus on acquisitions and biogrowth, while also having the opportunity to opportunistically repurchase shares when we use equipment from our broader capital allocation framework to generate profits. Shareholder returns without deviating from our disciplined balance sheet management technique.
And with that, let me call Dave back.
David Cherechinski
Thank you, Marc. Et now, let’s move on to our perspectives. For the fourth quarter, we expect visitor spending to decline, mainly due to the November and December holidays and, secondly, visitor budget depletion.
As such, fourth-quarter 2022 earnings are expected to decline sequentially in the mid- to high-single-digit percentage range, especially given the strength of third-quarter purchases in preparation for the year-end and amid the seasonal effects described above. We expect 2022 to be our year of profit expansion percentage expansion by approximately 30%, with our highest EBITDA percentage ever.
2020 EBITDA is expected to accumulate by approximately $120 million through 2021 EBITDA, driven by earnings growth, stronger gross margins and a more effective execution model. And we expect the whole year 2022 to generate positive loose cash flow, even with much higher than expected profits.
I’m excited about 2023, where we’re seeing a field of continued capital from our clients, resulting in a measured improvement in the number of platforms in the U. S. I am also positive about our activities abroad, where I see more rational energy security. that will lead to greater investment in domestic oil and fuel resources combined with renewables and imported LNG.
We expect our overseas segment to grow next year under more favorable market conditions. The good fortune of the last 3 years can be attributed to the philosophy of DNOW, an encouraging organization committed to delighting the visitor and conquering the market. We pride ourselves on being the go-to connector for our consumers, providing must-have products, inventions and differentiated solutions, a culture where workers show up not only for our consumers one day as both, but also for each other and our communities.
I would like to thank the many DistributionNOW workers who listened to me this morning. Everything they do to delight our consumers and everything they do to differentiate DNOW from the festival is represented in the news we present to our shareholders today. You, through engaging your consumer and offering answers to your operational challenges, focusing on price and price, transactions are delivering those impressive results.
With that, let’s open the question forum.
Q&A session
Operator
Thank you. [Operator Instructions] Our first consultation comes from Nathan Jones’ lineage with Stifel. Nathan, your line is open.
Nathan Jones
Hello everyone.
David Cherechinski
Hello, Nathan.
Nathan Jones
I will ask you the question, I don’t know if you will answer it or not. Do you have an executive perspective for 2023 that you can think about and that you can percentage with us what your clients are saying about their investment plans for 2023?Or just the color you can give us about how you think it will look?
David Cherechinski
Well, of course, we have some kind of situation making plans for 2023. We don’t have a construction budget and we’re not guiding yet. But what we’re seeing in terms of existing degrees of platform counts, completions, the kind of anecdotal customer feedback, is that the markets, in our opinion, are going to grow by 7-10% right now. At least that’s the type of our placeholder range, as we plan action levels, skill acquisition, etc. Therefore, next year’s expansion rate will not be like that of 2022, but we expect the market to improve, albeit at a decreasing point of increase, compared to 2022.
Nathan Jones
It’s useful. Dave, I think for the last one, I don’t know how many quarters in a row now, he’s telling us that gross margins are probably going to pass sequentially over the next quarter and each quarter happens to happen maybe I can communicate a little bit more about the inputs to that, which keep the gross margins at unit grades. You start to see some compression of pipe prices, I guess, so there has to be other trade-offs in that. Just communicate about the dynamics that keep margins at grades one and what you think is some kind of sustainable gross margin level.
David Cherechinski
It is ok. That’s a smart query, Nate, so let me start here. We have increased our business by 30% this year, or are making plans to do so throughout the year. We have about 35 fewer workers than a year ago. Part of the explanation for why this is that it’s hard to find other people in a market under pressure like this. But part of the explanation of why this is that we are developing the business and applying our limited resources where the price is perceived to the maximum through our customers.
And even though the pipeline charges have stagnated and the pipe replacement charge in our inventory is increasing, and we expect the metal pipe to contract and we saw that in the third quarter, all the efforts that we’re making to improve our business, the recent acquisitions that I’ve made, that had higher gross margins, For example, the businesses we’ve sold over the past few years, all of this works to really focus on the activities that the visitor considers more valuable than the opportunities. And opportunities are a component of competition, which favors transactions and seeks the source of income at the expense of the balance sheet and at the expense of the backside line.
But I think the most important point has been our most productive friend there. Yes, I was forecasting an increase in gross margins, I’m glad I received it. However, as the numbers solidify, especially in the pipe business, I think it will be more accurate in terms of a slight contraction in gross margins.
But I’ll tell you, our other people work a lot with consumers on a relational, non-transactional basis, our other people have focused on improving the product line, so there are market costs and there are margins across the product line. , and then we focus on the right products and converting your combine to maximize gross margins. It has become an art in which we become smart as a company. So that’s been kind of a coverage opposite to the expected contraction of the pipeline, which I think is going down now and will continue for the next few quarters.
Nathan Jones
Perhaps just a comment on the prestige of this process?Because I’m sure there’s still a wonderful variety and a wide diversity of product margins that you sell and there are probably products you sell that consumers don’t see as much price or possibly would see. Don’t pay for the price you’re offering from that. Is there that kind of 80-20 portfolio technique that you can continue to apply and that you can continue to generate gross margins?
David Cherechinski
I think there are opportunities. I think we are actually smart in managing pipes, valves, fittings, pumps, some of our core products, because we have a finishing capability to be in the upstream space, of course, the largest distributor in that end market, we get preferential costs, and we have a finishing ability to favor our main suppliers, And we’re seeing the composition in our favor in that regard. I think in terms of room for ment, I think so. But I think it’s going to be hidden a little bit through the convergence of pipes that we’ve been talking about.
And through that, I mean metal pipe charges for consumers have stabilized, maybe even peaked in some areas, and then the cost of replacement stock is rising. But I think combined control will be very useful, and I think there’s merit there. But the truth is that we’ve spent the last 4 or five quarters of tension around the limited availability of products in the chain of origin, DNOW’s privileged position with the brands we’ve been to take advantage of the limitations of the chain of origin. For our competitors, it will stabilize somewhat, and we will see a general return to more normal margins.
But then it’s about managing the combination, and it’s about focusing on the top-margin product lines that I communicate about all the time, and that was inherent in your question, however, I think there are benefits, I think there are headwinds, though, in the pipeline area.
Nathan Jones
It all makes sense. Thank you very much for answering my question.
David Cherechinski
Thank you, Nate.
Operator
Thank you, Mr. Jones. La next query is from Jeff Robertson’s line with Water Tower Research.
Jeff Robertson
Hi. Dave, can you provide a percentage of any color out of 23 in regards to the prices and RFQs you get in terms of margin combination next year?
David Cherechinski
Well, so far, I mean, I would say probably 75% of our business or a higher percentage of our business is roughly the activity of the same month. We now have a portion of our business in the U. S. % of our profits in the U. S. U. S. quarter. There are more plans related to the production component of this business. Most of the offers and the maximum of the activity are in a quarter of the type of business.
So when it comes to the composition of the business for 2023, there’s a limited vision there. So, I can’t get too much color there, however, we target margins, at least in the fourth quarter: gross margins consistent with what we’ve achieved in the year-to-date component. And again, as I mentioned earlier, we’re going to see some contraction in some areas. But the projects we are bidding for now that take position in 2023 have margins similar to what we have delivered in the first nine months of the year.
Jeff Robertson
He discussed in his comments the ecommerce responses presented through DNOW, adding that it looks like increased visitor adoption on some of those platforms, does that adoption maintain some rigidity in some of the gross margins you see?
Wise Brad
Yes, Jeff, that’s Brad. Je I’ll take that one. Yes, our ecommerce platform has evolved over many years, and we provide a circular for giant consumers where they go from their ERP formula to our formula and essentially fill out an application, and then we have B2B integration with them, so a lot of those transactions are completely digital, so a lot of the business is subject to contract prices that would be similar to what they would get to branch level, but the charge for processing orders would be lower. So, you might think the business is in line with gross margin, but it can be beneficial for the switch to EBITDA.
We also have B2B consumers who write to a catalog and a similar technique where they have a number of users logging in and buying, transacting, and sourcing into the formula every day. And then those orders are sent to the respective branch that our supercenter in this case fulfills the order to meet the required delivery date through the customer, so —
Jeff Robertson
So basically, it reduces your costs, so you improve your margins on the products you sell in a different way through those channels, right?
Wise Brad
We like to think of it as one of the most effective models we have among the many models in which we interact with our consumers, it is one of the highest models that can represent flows higher than EBITDA.
Jeff Robertson
It is ok. Thank you very much for answering the questions.
David Cherechinski
Welcome.
Operator
Thank you, Mr. Robertson. [Operator Instructions] Next is from Sean Mitchell with Daniel Energy Partners. Sean, your line is now open.
Sean Mitchell
Thank you for answering my questions. First of all, just as you think about the earnings season so far, several oilfield service companies, which I would say are your peers, have talked very definitely about overseas opportunities in the future, in particular, some other people have discussed that we are in the first circular of, in a way, This overseas expansion, so to speak, in terms of business and growth. When you think about your overseas business, where do you see it?
I’m not asking you what 23 looks will be like or what the next quarter will be like, but I just think about the next 3 to 5 years, if the foreigner is in the most sensible rounds, what is the composition of this company?as worldwide in terms of percentage of your total number one revenue?
Then, number two, do you think it’s achievable in terms of biological growth?Or do you think it’s something you would have to look at if there are M&A opportunities?
David Cherechinski
I’ll take a look at it and then I’ll probably pass it on to Brad, but in terms of overseas expansion, where we’ll probably see the most powerful expansion for 2023 is on the overseas stage. little really strong expansion that we’ve noticed in the U. S. We expect overseas to be brighter in terms of expansion rates than what we will see next year.
In terms of where we’ll see it, we’ll look at it first with some of the biggest projects we’ve recently won in Kazakhstan in the North Sea and the Middle East, we’ll start to see this look more like in the projects. We’ll see as drilling contractors load rigs and rigs, we’ll see an increase in drilling and pumping of spare parts and things like that. We will see this begin to unfold. These will be the main areas.
And then it’s going to be a matter of, you know, he talked about some of the corporations that have been on hiatus for several years and are now starting to reboot, and Mark talked a little bit about that, our VIE in the Middle East. , that’s also going to be useful for continued growth. But I don’t know, Brad, do you have a color to climb to that or?
Wise Brad
When we parted ways with NOV in 2014, our overseas business was heavily focused on the offshore market. And over the past six to eight years, we’ve diversified that business as this offshore market has struggled to recover. Much more diversified, and we serve the market on land, also the offshore market, but projects, a lot of day-to-day business. We acquired McLean Electrical in the UK, so we have an electrical distribution business. We export from Houston from the UK to West Africa, we still do some upstream business there, but we are much more diversified.
And we’re seeing, and I’m thinking about your point of view, that a lot of the investment is now going offshore, the increased prospective use of deepwater platforms is increasing, rates are going up. positive mechanism for the further expansion of our abroad, because the general external recovery is coming out of COVID and all those elements together, we have an upward trend towards our external expansion as a segment.
Sean Mitchell
It’s useful. Thanks guys.
David Cherechinski
Thank you, Sean.
Operator
Merci. Il are out now mismo. Sr. David Cherechinsky, CEO and President. I call you back.
David Cherechinski
It is ok. Well, thank you for your interest in DNOW, and we look forward to talking to everyone on our next call in February. Have a term.
Operator
That concludes the convening of today’s convention. You can now log out.