Q4 2019 Earnings Call
Good morning, and welcome to the captive Q4 and full year 2019 earnings call. My name is me and I will be facilitating the audio portion of todays interactive broadcast all lines have been placed on mute to prevent any background noise for those of you on the stream. Please take note of the on the option available anywhere.
Consoles at this time I would like to transition over to Mr., John Fitzgerald director of corporate development and IR. Sir. Please go ahead.
Thank you and good morning, everyone.
We appreciate your participation in today's call.
Occurs on today's call will be stopped under our Chief Executive Officer, Steve Tab on our Chief Financial Officer.
Also joining us today, our goal Bender senior Vice President and Chief operating Officer.
Even vendor Vice President of Operation, David Isaac Our General Counsel in Vice President of administration.
Yesterday afternoon.
We issued our earnings release, which is available on our website.
Please note the any comments, we make on todays call regarding projections or expectations for future events are forward looking statement covered by the private Securities Litigation Reform Act.
Forward looking statements are subject to a number of risks and uncertainties many of which are beyond our control.
These risks and uncertainties can cause.
Actual results to differ materially from our current expectation.
We advise listeners to review our earnings release and the risk factors discussed in our filings with the FCC.
Any forward looking statements today.
We're only as of today they.
Her take no obligation to publicly update or do you any forward looking statements.
In addition, during today's call, we will reference certain non-GAAP financial measures.
Reconciliations of these non-GAAP measures.
Most directly comparable GAAP measures are included in our earnings release.
With that I'll turn the call over.
Thanks, John Good morning to everyone 2019 was a challenging year for the U.S. oilfield industry, although the U.S. rig count was down 11% year on year and ERP spending was down around 7% cactus achieved impressive results. Our 2019 revenue was a record 620 a silly.
Up 15% over the previous year.
We also reported record EBITDA up 229 million up 8% year over year record free cash flow over 148 million up nearly 60% year over year, the fourth quarter, while challenging from a general activity standpoint showcase the sustainability of our margin profile and free cash flow.
In summary, fourth quarter revenues were 140 million adjusted EBITDA was 48 million adjusted EBITDA margins were approximately 35% our cash balance increased by 35 million to 202 million and we paid our first quarterly dividend of nine cents per share.
I'll turn the call over to Steve Tabarrok, our CFO.
Who will review our fourth quarter financial results. Following his remarks I'll provide some thoughts on our outlook for the near term before opening the lines for Q1 day. So Steve. Thanks, Scott Q4 revenues of 140 million declined nearly 13% sequentially. However, revenues were up slightly year over year, Despite a rig count drop of 24.
<unk> percent from Q4, it into Q4 19 product revenues that 83 million were 10% lower sequentially due in large part to the 11% decline in the U.S. onshore rig count, but were 6% higher than in Q4 2018.
Our relative outperformance was achieved due to greater marketshare product gross margins were relatively stable on a sequential basis at approximately 37% of revenues as the follow through impact the section three a one tariffs with less than expected.
Rental revenues were $28 million down 21% from the third quarter. The decline was attributable to reduced industry completion activity at DNP customers curtailed spending in order to stay within for your budget.
Rental gross profit margins decreased 620 basis points sequentially due primarily to increase depreciation expense on lower revenue.
Field service and other revenues in Q4 were $29 million down 12% from the third quarter. This represented just under 26% of combined product and rental related revenues during the quarter slightly ahead of expectations.
Gross margin declined 640 basis points sequentially, which was less than the typical seasonal drop due to management of nonproductive time during the holiday season. In Q1 2020, we would expect this field service ratio of revenues to be 24% to 25%.
That's DNA was down 1 million sequentially at 12.4 million for the quarter, We would expect US you need to be approximately 14 million in Q1 2020 with stock based compensation expense running at slightly above 2 million during the quarter depreciation and amortization expense during the quarter totaled 10.6 million a point 6 million sequentially.
We currently expect first quarter 2020, depreciation expense to be approximately $11 million.
Fourth quarter, adjusted EBITDA was $48 million down from nearly 59 million during the third quarter adjusted EBITDA for the quarter represented 35% of revenues.
Our public or classy ownership was relatively stable in Fourq, you and was 63% at the ended the quarter. This should result in an effective tax rate of approximately 16% in Q1 2020, assuming no changes in our public ownership percentage.
Our actual effective tax rate during the quarter was higher due to an update in the blended state tax rate as we finalized our 2018 tax return and had some slight revisions to prior estimates that rolled through this quarter.
GAAP net income was $31 million in Q4, 2019, which included 4.8 million in other income related to the revaluation of the liability associated with the tax receivable agreement as well as approximately 3 million in additional tax charges associated with various non routine items.
Internally, we prefer to look at adjusted net income and earnings per share as it assumes the public entity held all units with fully diluted shares outstanding of approximately 75 million and an effective tax rate of 24%. Our adjusted earnings per share. This quarter was 37 cents compared to 48 cents per share in Q3 2019, we estimate.
That adjusted EPS in 2020 will continue to reflect an effective tax rate 24%.
During the fourth quarter, we paid out $6.8 million, resulting from our first quarterly dividend of nine cents per share in January the board also declared a dividend nine cents per share to be paid in March.
Net of the dividend and associated distribution payments, our cash position still increased by over $35 million during the fourth quarter to over $202 million at December 30, Onest, highlighting the strong free cash flow generation of the company for the quarter operating cash flow was $62 million and our net capex spend was 18 million.
Net working capital represented a source of cash during the quarter accounts receivable decreased by $12 million sequentially and DSL remained at 57 days as expected we witnessed an increase in inventory days during the quarter net working capital at the end of the fourth quarter expressed as a percentage of Q4 annualized revenues was 27% up slightly.
From the third quarter.
We would expect working capital as a percentage of revenues to remain in this range for the first quarter of 2020.
In light of reduced customer budgets and the low capital requirements of our business, we are setting or 2020 capital expenditure budget range at $30 million to $40 million down from the 56 million of net Capex in 2019, the majority of our Capex will still be directed toward growth capital on our rental business, but with a focus on international expansion innovation.
And higher pressure completions equipment in response to customer demand and the build out of an expanded R&D facility that covers the financial review and I'll now turn you back Scott Thanks, Steve arm, our margins held up well despite the challenging fourth quarter further validating the strength of our business model during the fourth quarter, our product market share reached a record.
30.9%, moving 230 basis points higher versus the third quarter.
While our product market share figure for the period still did not reflect any changes in adoption from the majors. We continue to work on gaining share with a wide spectrum of new potential customers, assuming we can be appropriately compensated for the value provided.
Down markets tend to provide us with opportunities as customers look to become more efficient.
Based on results today, we expect Cactuses regs, followed to be up slightly on a sequential basis in Q1, despite the U.S. land rig count being down 4% on average quarter to date product revenues are likely to be up mid to high single digits percentage wise.
Despite the increase in section 301 tariffs at 25% that occurred in 2019 and overall market pressure during the latter part of the year our product margins have continued to hold up well as previously mentioned Joel and his team of intensely focused on managing our costs, we expect product EBITDA margins during the quarter.
To be approximately 37%.
On the rental side of the business completion activity witnessed a noticeable decline, particularly in the scoop stack overall during the fourth quarter customers work to stay within their full year budgets as noted in our previous call. We made a conscious decision not to chase business, that's definitely at significantly lower prices nor to compromise.
The value proposition, our innovations provide the benefit of the strategy and our attention to controlling indirect expenses can be seen in our ability to sustain attractive EBITDA margins in fourq you despite reduced activity levels.
Much like last year, our customers have quickly returned to work as budgets reset in January.
Based on early results during the quarter, we anticipate rental revenue to increase 20 plus percent sequentially historically that apart. The redeployment of assets is temporarily white on EBITDA margins, which we expect to be in the high 60% range for the first quarter.
As noted by our 2020 Capex guidance were paring back growth capital directed toward the rental business in light of the general market environment that said most of the Capex reduction will come from reduced spending on legacy rental offerings. Our recent innovations continue to be ROE well received in the field and represented approximately 10%.
Of rental revenue during the fourth quarter.
On our last call. We noted we were hopeful customer adoption of our innovations would increase was the reset a budget and the willingness to spend additional dollars on efficiency and safety and this has materialized to start to first quarter.
And innovation revenue as represented over 15% of rental revenue thus far.
Moving on to feel services segment continues to be driven by both product and rental activity. We anticipate revenue from field service to be approximately 24% to 25% of our combined product and rental revenue during the quarter increased non billable hours tied to holidays weighed on margins during the fourth quarter, but we better man.
Its utilization compared to prior years margin should recover to historic levels. During the first quarter of this year.
Once again our.
Generation was strong during the quarter as we added 35 million to catch the balance sheet net of $7 billion and dividend payments and associated distributions.
I'd like to close by highlighting a few items.
Before opening the line to questions.
Regarding our Chinese supply chain like others, we continue that closely monitored the potential impact associated with the crown of ours.
The majority of our associates are back at work and we resumed shipments of equipment to both the U.S. and to Australia. Most of our suppliers have returned to work as well and trucking and shipping have resumed in the region, albeit at a lower at lower than previous levels.
Fortunately a met a majority of our key suppliers are located within close proximity to our plant, which is hundreds of miles away from the center of the disruption and will on.
Based on current information, we expect production to return to manageable levels by the end of March should further delays occur. We do have the advantage of operating the largest dedicated us manufacturing facility in the industry, which we expanded in 2018 at 2019.
While a prolonged shutdown would likely impact the industry supply chain. It would also likely lead to higher costs for MPS worldwide. The more favorable recent developments in China may be shifting the focus to global oil demand rather than supply chain interruptions based on our current inventory levels and existing capacity in the us.
We don't expect the disruption to material impact first quarter financial results and have been encouraged by the recent improvements we witnessed on the ground in China.
Switching to 2020, U.S. oilfield activity no secret that customer spending levels are anticipated to be down year over year. However, drilling activity should outperform reduce spending levels due to cost deflation for operators in other segments of local services.
Thus, while the macro back backdrop and uncertainty surrounding all global demand provide ample reason for caution we remain optimistic regarding our ability to outperform the market. This year as we have in previous slow downturns internationally, we believe our strategy to expand in the targeted markets will bear fruit and 20.
21, as we continue to apply resources and identifying and developing viable business opportunities outside the U.S.
Regarding capital allocation, we remain committed to creating long term stockholder value through a balanced strategy of investing cash flow at high rates of return and returning cash to shareholders as appropriate we've seen more opportunities emerge on the M&A front in recent months.
And remain one of a few all full service firms with the capital structure to react Opportunistically. However, we're careful to evaluate M&A through the same lends review other forms of capital deployment with a focus on margins and Aro see our management team is closely aligned with our shareholders and we'll continue to make decisions regarding the business in this.
Right.
Finally, I want to thank our dedicated associates for their continued commitment and focus that drove another record year for cactus.
This is a unique team immensely proud of their achievements in our company and confident and their ability to succeed with that I'll turn it back over to the operator, and we may begin our Q and a session operator.
Thank you Sir.
Shane via telephone. Please press star one if you would like to withdraw your question. Please press the pound please limit yourself to ask one question and one follow up.
Your first question is from the line of George O'leary.
Your line is now open.
Good morning, Good morning, guys are George.
At.
Super impressive market share on on the product side of the business and you guys seem to to guide for in increased market share in the first quarter Wonder if there's more to go there as the year progresses or do you guys are kind of reaching a point at which you may be topped out on market share in the in the product side.
Hi, Michelle very impressive numbers, so curious kind of what the trajectory looks like in your mind.
George historically downturns have been beneficial to cactus.
And.
I think the team field.
While we're not happy about the downturn, we are happy about the opportunities that that we see opening up.
Okay, and then the rental guidance for Q1 is super and encouraging as well I think you said, 20% quarter on quarter correct me if I'm wrong.
So clearly taken some some market share there is that more legacy products grabbing incremental share or the newer products that you guys commercialized last year.
He is that more the driver as.
George its really both.
And it's.
It's a reflection of of.
Of our customer base getting back to work.
And that customer base.
Particularly the high end of the customer base, they tend to utilize a higher percentage of our innovations.
That makes a lot of sense and then you mentioned the international expansion I Wonder if you guys could just provide us an update there I think you were deploying some capex into Australia in particular, if you kind of broadened the scope, which you guys are are looking out there in the middle East of the target for you guys as well so just curious for an update on international.
George as I said in the last call Im not really got to talk about the countries that that.
We are focusing upon but yes, we're our focus as well beyond Australia right now.
Thanks, very much guys.
Thanks George.
Your next question is from the line.
Kim.
Okay.
Good morning, Sean.
Thank you morning.
So Scott in a situation in which the Corona virus leaves you with less Chinese capacity for an extended period.
Could we maybe just elaborate on some of the alternatives that you could pursue in around those your city to sustain product volumes and try to mitigate the margin impact My brother third party flex capacity options. This is clearly the number one question on the mines and investors so helping to frame out.
More negative outcome I think we'll be very much appreciated.
Well I'm going to really let Joe will get a more detailed.
Chain, but shops mind that.
Thank you can do on this a long time and Joel is long recognized that that.
Chinese new year.
Always.
Caused disruptions in our supply chain. So we heavied up on our inventory during the fourth quarter and so we have ample stocks in the U.S., but I'll, let Joel address.
Bowsher cities capabilities and and.
The alternative sourcing.
Available outside of China.
Okay. So we.
We have significant amount of capacity in the boaters city facility right now.
Mainly in the machining area I think we're probably at about.
60% or so the the the increase in the inventory that we brought in from China has really provided us with additional capacity in terms of the machining part of the business. The assembly part of the business continues to be strong and we certainly have plenty of assets, there and certainly lot of potential for adding additional people to the to us.
Second shift and adding a third shift in addition, we've been expanding our supply chain outside of the U.S. and outside of China. So we have some developments going on.
In these other places at this point, which I don't want to speak about particularly in specific but we have been ever since the tariffs came into play we have been looking at alternative sources and we do have products coming from their sources right. Now. In addition, we have additional supply base in the U.S. again help us if we need to GAAP, it, but like Scott said I'm pretty calm.
Notable with our inventory levels right now in the U.S. and I'd like to just follow up on China. We've had some really encouraging news from there. Our guys are majority of our guys are back to work majority of our critical suppliers are back to work and we've seen deliveries since I guess about the middle of February come into that facility. Since then.
We've made shipments to Australia and shipments into the to the U.S.
Trucking has been an issue as Scott mentioned, but we've been fortunate that our freight forwarding was able to secure drivers and trucks alluding to goods. The board has not been a problem and loading the vessels and getting vessel departures has not been a problem. So I'm really kind of encouraged at what I've seen so far from China and I feel like we can manage the disruptions.
In the U.S., if we need to.
Thank you for that feedback is really helpful.
And then B. So if we take all that together, we say in a.
A more dire situation in terms of the impact of the buyers for extended period.
How should investors think about.
Margin and mix.
Are these other source deals alternative sources.
Sufficient from a margin perspective that.
You can mitigate the impact or should we be expecting in such a scenario that there'd be more pressure on margins as that mix of sourcing changes Sean look there's.
We do business in China for a reason.
And.
They're very few areas and the world that can compete with China. So to the extent China represents long term a smaller percentage.
We will naturally struggled to maintain margins.
I think that concern has to be more worldwide and as much as China is the source of so much of the consumable products in this business and that's not just for us as for everyone and it's not just for the US it's throughout the world. So I'd be thinking more about the.
About the supply disruption frankly than the margin impact.
My feeling.
Based upon the years I've been in this business of material. It gets gets dear and scarce that margins will take care of themselves. If you understand what I'm, saying.
It will be more an issue of of the world's ability to produce enough consumable products.
Right that points very well taken thanks Scott.
Sean.
Your next question is from the line of Scott Gruber. Your line is now okay.
Yes, good morning.
Good morning, Scott.
Just started to stand to trim line of questioning I.
I heard 60% mentioned during the the China commentary was that the rough percentage of.
Well had volume produced.
In China in Fourq you.
That 60% whats capacity it bodes you're right now in terms of where we are so we're just trying to indicate that we have additional room exposure for GAAP or near term requirements things of that nature.
In roughly how much of your Fourq, you well had volume was.
Produced in China.
About half of it.
And it sounds like you know given that the terror situation that you were already looking to diversify your supply chain just from a high level as you look out call. It three four years.
How big of a bit an exposure you do want to retain in China. So obviously the lowest cost but.
Just from a diversification perspective.
How would you want to the balance things out 345 years down the road.
Yes, Sean.
I'm, sorry, Scott I don't I don't really think we're prepared to answer that question, except to say that that four or five years from now China will be up hopefully less important to this business than it is today.
We have our next question from Tommy Mall. Your line is now open.
Good morning, and thanks for taking my question.
Hey, Tony.
I wanted to shift the conversation to your capital.
Your capex budget for the upcoming here could you.
Break down for us the the different pieces of gross capital Steve I know you you mentioned that there were several initiatives, but I didn't catch all of them. So any additional detail you could offer there would be helpful. Thanks.
Sure. So I think if you look at the budget for 2020, we're expecting the spend about five to 10 million on on general maintenance items.
Five roughly five on infrastructure, whether that's branch.
Improvements or the R&D facility expansion that we talked about and then the remainder which would be 20 to 25 would really address the rental and that that goes for Australia and international rental.
Some of the higher pressure equipment that we talked about and the innovations and that's significantly down from last year. When we were about 45 million on rental.
[laughter].
And then following that up a on the international side specifically.
As we anticipate some.
Revenue Tailwinds, maybe in the 2021 timeframe like you mentioned earlier.
Should we be thinking about any kind of incremental roofline requirements that.
Maybe.
May not be baked into your budget for this year or just any kind of incremental SGN, a or any anything on the capital spending or the cost side that we should anticipate in front of maybe when the revenue starts.
Yeah, So we've already.
We've already begun begun to incur additional SGN today.
And our budget contemplates additional less DNA to take care of our international business, but I think probably mentioned before told me it doesn't require.
In extraordinarily high level of SGN today.
Particularly at this stage at 2021.
May be slightly different.
And hopefully it will be roofline wise.
I wouldn't anticipate a great deal of Capex thatll be devoted to roofline expansion.
Your next question is from the line of Martin Malloy Your line is okay.
Hey, Marty.
Good morning nice quarter.
Thank you Marty.
On the international.
You should just could you maybe not speaking about specific countries, but talking about talk just about the process.
And timing.
Maybe in terms of getting products certified and when we might see revenue.
Yes, So I think I mentioned in the last call. The process is of course.
Getting ought to prove vendor list.
First step in and being able to compete on a tender most of the tenders come out at the end of the year. So there'll be the end of 2020 for deliveries in 2021.
Now we might see some drop in.
AD hoc orders come in before that but in terms of any large.
Or larger.
Revenue impact.
You ought to think about 2021.
And in terms of how we look at the international market and think about the strength of this business, we're not very good.
It's just simply because we don't focus on the commodity side of the business. So there are a lot of in overseas throughout the world, who who still by commodity conventional type wellheads that would not be a market in which we would invest any time or money and I don't want it again I'm not going to talk about countries.
You can imagine the ano sees that that take that approach in their buying.
Okay, and then on the rental side, you had multiple new product introductions last year.
Can you maybe talk about if we should look for any new product introductions. This year I'm, sorry, if I Miss setting.
Marks.
Yeah, we've got.
We've got quite a few that we're working on right now I think it's probably little premature for me to to try to estimate will commercialize those but.
We're moving about into field tests.
So yes, we have we have several new.
Products.
At the wellhead side into the Frac and the completion side.
Next question is from the line like Dan.
Hello.
Hey, good morning, Thanks for taking my question.
I hate to keep harping on it but I'm going ask Sean's question.
In a different way or the opposite way, it's it's easy to obviously think about the constraints in China, given the given the market take now but.
You know, we understand the government could potentially put more liquidity into that market and if the trucking issue a beats would they are actually be be a blue sky opportunity in which you could actually shift up further to Chinese manufacturing just given some of the cost and currency tailwinds.
Maybe later on in the year. Thanks.
So, let's say if I understand your question here, you're you're asking if China loosens up.
We all read the paper I'm sure. This morning, and the government is fighting the battle between health issues and try and this further economy, So China loosens up more.
I see more emphasis on China.
You know that would be the lazy man's approach is to say that this problem is passed and we don't face. This risk. So think in terms of how you think about our company.
Our view still is to become less dependent upon China in future years.
That may not be the case by the end of this year, but certainly in future years.
Okay that makes sense and then secondly, just on.
Customer issues in the U.S. as you know oil continues to pull back your from one of your capital equipment Tears. It seems like they had some some modest issues in the fourth quarter with bankruptcy and bad debt expense. Just wondering if you can give us an idea of your customer exposure with respect to larger versus smaller an independent customers that and maybe how you approach.
Commercially aligning yourself with respect to credit worthy credit worthiness insolvency, that's sort of thing.
Well I'll, let Steve Baby address the specifics of your question, but.
Just at a high level, we are extremely aggressive when it comes to receivable collection were extremely aggressive in terms of.
Scrutinizing our customers both the time, we add them.
Now to our to our list and we monitor their credit limits very closely.
And.
As a result, we've had minimal impact from some of the bankruptcies that have occurred in the industry.
I think we publish.
Yeah.
Generally in our investor decks, we publish.
Yes, based our overall activity based on large NPS smitti, MPS privates majors et cetera, and on the large NP side were.
Above 50% mid.
15%. These are Q3 numbers I'm, giving you, but shouldn't change much majors about 10%, which as you know frac work, mostly and then on the private side, a little under 20%, but like Scott said, we're very.
Vigilant and particularly in this environment and we're kind of all over if we're not getting paid and monitoring credit limits.
We will we will demand cash upfront or just not ship and.
Just kind of the way it is and that's.
Kind of how they expect to deal with us if they expect us to jump through hoops to deliver on time, we expect to get paid for it.
Your next question comes online Kurt Hallead. Your line is now open.
Good morning.
Good morning to you.
Hey, Scott is what kind of curious as you look at year your baseline view for 2020.
You mentioned that the new technologies are going to represent well have represented so far in the first quarter about 15% of total revenue for the rental business as you look out for the rest of the year you know what did what do you think a new technology revenue contribution could be.
For 2020 in total.
[noise] [noise] you know I thought it was going to be frankly, better in the fourth quarter than it was but we faced this.
The significant reluctance from our customers. Despite I think the value proposition to spend another dollar on our frac location.
So barring that.
I think we'll continue to March that percentage up.
About 20% as the year progresses.
Okay, Great. That's great color then just one quick follow up you did discussion here about the incremental Oh gosh DNA related to the international expansion and that's not really being meaningful but you did indicate that as DNA into first quarter be about 14 million. That's you know higher than the run rate was throughout the course of <unk>.
As a 19, so the fair to say that that incremental SGN, a a pretty much will hold through the rest of the year and that incremental esh DNA is all and.
Related to the international expansion is that fair.
No.
It's a fair.
So there there's a component of it that is related to international the other is.
Is stock base compensation.
So I can let Steve explained to you what we went public in February of 2018, and because of the way we best.
I will defer civil peak, yes, we should be peaking this year in terms of SVC and then coming down next year as some of the IPO grants come off.
So that's that's driving and we adjust set out in our adjusted EBITDA.
And then in just in terms of SGN and fourth quarter, we were just.
You know extra vigilant and also reduced activity, we can pull some levers when we have reduced activity. So.
Naturally as we're kind of growing again, we would expect a little more question.
Your next question is from the line of Praveen Narra. Your line is now open.
Hi, Good morning, guys I get more I wanted to I guess I wanted to clarify some of the I'm trying to common here because I guess I think of it is.
Almost everybody being.
Equally as competitively disadvantaged in the space. So I guess could you could you give us a sense as to how much you think of industry wellhead product supply comes out of China, and then I know, you're not going to be able to pass 100% of anything, but but how you think it affects the the margin per.
[noise] unit.
So that's a very good question and I'm going to winning this is that because I'm trying to think through my mind about all of our competitors.
You know Joelle would you say 90% of it as is.
The percent comes I mean, I think it's definitely 80% and maybe north of that the waste certain people bring products out sometimes they bring finished products out I know, we have a competitor that tends to bring forgings out into other countries to produce from there. So I would say, it's at least 80% and probably greater than that so and then you're the more important question.
Is there is about the margin impact and in this environment youre not going to see any.
Any significant upward pricing until supply becomes tight.
So right now.
Right now there appears to be ample inventory, both with us and.
Yeah, probably say showing signs maybe to a lesser degree with some of our larger competitors.
Right that makes sense and then when we think about the product side you mentioned some of the new innovations.
The that you're working on can you talk about the potential.
It was getting ahead of everything but the potential addressable market of those compared to your current addressable market and then also how cross selling.
<unk> has trended over the past few quarters numbers renovation of the wells. So the new products that we'll be introducing auto well and the wellhead side will really be upgrades to our existing product line. But this is this is consistent with the company's philosophy of building a boat or.
On our wide business the way, we protect retain customers as the way we protect margins it's bye.
Always having to better mouse trap are continuing to at least try to have a better mouse trap so think about it.
It's not going to open up any new revenue streams, it's rather going to protect it and perhaps allow us to print to continue to.
Ensured that we have.
Good margins.
Your next what was your other question.
Oh cross selling opportunities.
[noise] between Frac, I assume and wellhead.
They really I guess, it's fair to say.
That we've seen more opportunities that in down markets customers tend to high grade their suppliers.
And.
Not only high grade, but reduce the number of suppliers on location. So I think.
And then you've seen it before in our business downturns seem to be very constructive in that regard.
Your next question is from the line of Snap dish Cantor. Your line is now open.
Hey, guys just circling back on the M&A doors opening up.
Can you guys talk to maybe which segment you may be targeting or maybe where you may look to credit portfolios doing acquisitions.
Gosh, Matt I really don't want to talk about this.
I think there that that.
To be Frank we we.
We don't act, we're not actively out there looking but the deals you know the kind of deals that are coming our way because they are well advertised.
So they range anywhere from downhole to artificial lift.
Consumable products and.
You know, we probably it's fair to say prefer to stay away from downhole, because we don't understand very well and it seems that everybody always says index greatest.
Mouse trap until they don't.
And I think there's been some very disappointing M&A.
Transactions in that particular area.
I like artificial lift.
I've never made a secret of that I don't really loved the margins and artificial lift, but I do like the sector. So I'd, probably say of of those too I would prefer something in the artificial lift area.
I mean, we like the product business, but we want to be able to make the product and engineer the product. So the short answer is we haven't really seen anything that makes sense does so far and.
But there's a lot more that's coming into this office than.
Since we went public.
Yes, I wish I could be more helpful, but I just.
The fab.
That's actually extremely helpful. In August actually follow up on that with last I mean, do you see some type of cross selling opportunities with your businesses.
Can I get some color on why you like it too much.
Yeah I'm in the same customers who.
By our products.
By downhole products and they buy artificial lift products it may be different departments, but at the same relationship its end user business.
Okay, that's not the earn on that in turn it back.
All right. Thanks, everyone for joining todays call. We appreciate your participation and look forward to speaking with you over the next quarter. Thanks, everybody.
Thank you presented ladies and gentlemen. This concludes today's conference call. Thank you for participating.
[music].