Max Kane: Okay. Great. Thanks for the color on that. And what has given you all confidence on margins improving throughout the year?
David Cherechinsky: Well, the margins we posted, Mark, do you want to talk to that, because some of that includes accounting for the acquisition. But you want to give some color on that?
Mark Johnson: Yes, that’s correct. Yes, the first quarter included about 20 basis points for inventory step-up, which is part of the purchase accounting.
David Cherechinsky: Negative impact.
Mark Johnson: Negative impact, due to the partial quarter, that will flush out fully in the second quarter. So, we do expect the face to return to kind of where they were full year average last year in 23%.
David Cherechinsky: Probably the third quarter, right.
Mark Johnson: The third quarter, yes, sir.
Max Kane: Okay. Got it. Yes. Thanks for the color on that. I will turn it back.
Operator: Our next question comes from the line of Jeff Robertson with Water Tower Research. Your line is open.
Jeff Robertson: Thank you. Good morning. Dave or Mark, can you talk about any cost synergies with Whitco as you, since you mentioned they follow a super center model similar to DNOW. Are there overlaps or basins that you can bring them into or go in where they are strong and create some cost synergies?
David Cherechinsky: Yes. Our focus for Whitco is on revenue synergies. Like I said earlier, the customer lists are different. The focus is different. We want to grow market share where we are really strong in upstream and where they are really strong in midstream. So, while there might be some cost savings opportunities for us to leverage each other’s facilities, service models, sales talent, that’s not our objective with Whitco. With Whitco, we want to drive a pure revenue synergy play. Where we might see some “cost savings” is on the product side. We expect to see some of that, especially for pipe and some valve brands where we are a big buyer and we overlap with them on the supplier side. But our objective is to grow and take market share in this kind of sideways market and invest in the infrastructure to do so, and we did so with Whitco.
Jeff Robertson: Is the revenue opportunity to expand DNOW’s business with Whitco’s customers, is that margin enhancing in terms of the product mix that those types of customers would need DNOW to supply?
David Cherechinsky: It could be. I mean if we – we are having a lot of fun and interest certainly from the Whitco side in introducing some of the process solutions opportunities to their customers. We are starting that. We are pretty new in the onboarding process, but we see opportunities there. Process solutions, at this point in the cycle tends to have a little bit better margins, so that could be margin accretive to the extent we can introduce our process solutions brands to the Whitco customers.
Jeff Robertson: Thanks. And then lastly, does the addition of Whitco alter the types of acquisition or types of product lines that make sense for DNOW in terms of industrial logic or the type of things you might be looking for?
David Cherechinsky: Very good question. So, Whitco is our first energy centers’ acquisition since 2015. We have been careful to really focus on process solutions. We made 10 process solutions acquisitions in a row. I think that’s where you will see most of our investments being made going forward. Whitco is different. This is a company that grew over a 20-year period to be a powerhouse in midstream. So, they are very specialized. They have a devout customer base, like I said in my opening remarks. And they have a special quality to them that. But you don’t really see with all distribution pipe valves, fittings, distributors. So, this was kind of a – the timing was right. It was a great opportunity. And I think you will see most of our acquisitions in the near-term, anyway, being pump and process solutions oriented.
Jeff Robertson: Thank you.
David Cherechinsky: Thank you, Jeff.
Operator: There are no further questions at this time. I would like to turn the call back over to Mr. Brad Wise.
Brad Wise: Well, thank you for your questions today and your interest in DNOW. We look forward to talking with everyone on our second quarter 2024 earnings conference call in August later this year. Have a nice day and we will turn the call back over to the operator.
Operator: This concludes today’s conference call. You may now disconnect. Have a good day.
