Q4 2019 Earnings Call
Two rednecks fourth quarter 2019 earnings conference call.
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Thank you Victor and good morning, and welcome to Rignets fourth quarter and for your 2019 earnings call a copy of earnings press release with supporting schedules, including schedules with reconciled the non-GAAP metrics will discuss today to be appropriate GAAP metrics is posted to our website www dot rig dot.
Under our Investor Relations page for those of you would like to releasing PDF format, we have posted that as well.
We get started I'd like to make you aware that we will be making forward looking statements today any statements that are not historical facts, including statements related but not limited to market expectations future plans and aspirations or feel we're looking statements involve certain risks uncertainties assumptions.
These include but are not limited to risk associated with the general nature of dorland gas industry customer another third party interactions our strategy and other factors detailed in the risk factor section of Rignets. Most recent annual report on form 10-K aired in or other filings with the Securities and Exchange Commission should one or more.
These risks or uncertainties materialize for sure underlying assumptions prove incorrect actual results may vary materially from those indicators.
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Now I'd like to turn the call over to Steve pickup Rignets, Chief Executive Officer in President Steve.
Thank you Lisa good morning, everyone and thank you for joining us on today's call. We're quite pleased to be reporting our fourth quarter in full year 2019 results.
With me today of course is Lee our CFO and a new addition to our team Errol alleviate.
I've known Errol for a number of years and I was excited to bring him onto the team as our Chief operating officer. He started with us at the beginning of the year.
Harold brings a wealth of experience from his career in remote communications as well as some tremendous customer in industry relationships.
He is responsible for sales marketing, our global network operation centers service delivery management, and our bids and proposals teams.
This role, which combines or customer facing functions under one umbrella well not only improve our consistency in delivering the highest quality of reliable quality and reliability of service to our customers.
But also allows other members of the senior management team to refocus their efforts on their areas of expertise.
Welcome it's great to have the on the team.
Thanks, Steve I really appreciate your warm welcome and flat flattering introduction, it's great to be here.
For the past few years outside engaged in a number of strategic advisory assignments, which gave me the opportunity to better understand what's going on it and the industry from an outsider you.
Rignet was the only company that seem to have a sustainable vision in a strategy to truly bring value to their customers.
Building on the stack [noise].
In offering customer solutions increased safety and improved operational performance is a real differentiator in this industry and this time.
And one that bills brandloyalty.
This is the right time in place to be bringing such valuable solutions to the market and then and I'm excited to be here to execute on this strategy.
Thank you arrow.
[noise] girls appointed coincides with the departure Ajay Hilbert, our senior Vice President of sales and I want to take this opportunity to think Jay again for his many contributions to written that success and to wish him well in this next endeavor.
Yesterday after the market is closed Rignet reported a net loss for the fourth quarter of $523000 worth three cents per share based on revenues of $64.1 million.
Revenue increased by 5.1% versus prior quarter.
Adjusted EBITDA, a non-GAAP measure we defined in our press release and one of our key performance metrics was $11.9 million for the fourth quarter.
Compared to last quarter, adjusted EBITDA was up 8.3% in compared to the year ago period, adjusted EBITDA was up 13.1%.
Adjusted EBITDA grew each quarter in 2019 from $8.4 billion in Q1.
To 9.8 million in Q2 to 11 million Q3, and now to 11.9 million in Q4, demonstrating very strong and improving financial performance.
I want to touch on a few of our accomplishments accomplishments during the fourth quarter.
We continued to advance the business and despite what's happening in the energy and equity markets in Twentytwenty as a result at the current the virus and to our own stock price, we've been pleased with our momentum.
In managed communication services after winning a public bid Rignet signed a multiyear agreement with Petrobras to provide fully managed communication services with both three D. V sat technology on six other S. P. S O installations, which is in addition to the sport Fpsos Petrobras.
Wanted to Rignet in 2018.
S.P.S. Whos are becoming an increasingly important part of our business strategy, because they're long lived with steady in Austin, increasing bandwidth requirements.
We report Espressos as offshore production in our site count in that category grew 11% in 2019 for 347 at the end of 2018 to 385 at the end to 2019.
We expect the remaining Petrobras awarded us Dsos to come online over the course of the next year.
Please remember that we win these vessels before they're actually finished commissioned in producing so there's a lag between award and actual revenue generation.
Furthermore, we announced on February 10 that we've signed a long term agreement with northern offshore to provide a variety of services to their fleet, including visa.
Group Flicks video on demand crew hotspot Internet and enhanced cyber security services that we refer to is easy yes.
Competition within Mcs for new opportunities as well as renewals remain strong.
Well, we're not seeing irrational behavior from our competitors. There is of course ongoing price pressure in the market.
Nonetheless, we continue to win deals on spot on the spot market and if not lost any significant renewal opportunities.
Our belief is that pricing is only one component what the customers seeking ended the kind of service quality and reliability that rignet provides along with superior execution in support.
Coupled with a robust bundle up over the top solutions.
Our the keys to delivering the highest value the highest possible value proposition for customers.
In absent Aiotv, where we achieved a 10 million dollar revenue quarter for the first time.
One of our biggest news items, the signing of a multiyear agreement with BP to provide intelli lives machine learning based analytics at bps remote collaboration centers located in both Houston and in Sunbury in the UK.
Our work related to this award which includes a small team it's actually co located in the ours. He sees is focused on helping BP improving operational efficiency and productivity of not only their offshore drilling operations.
Onshore drilling operations as well.
We launched phase one with BP and expect to launch phase two shortly.
We also commenced Peel these proof of values.
With a number of national oil companies in both and its hemispheres and we signed another small fracking company during the quarter.
Beyond Intelli Avi Art, Avi Hi, our adaptive video intelligence solution that helps customers analyze digital video to improve safety and operations added six new customers an over 70 sites and our enhanced cyber security services added three new customers.
Finally, as we announced last week safer has achieved this 142 certification through the National Institute of standards and technology.
This certification involves rigorous testing in one is one of the most difficult to achieve.
It's something that is almost a requirement for anyone serving in U.S. government, who is buying security solutions and it's also recognized worldwide for a variety regular take regulated industries.
Speaking of government. We were also accepted into the U.S. General services administration or G.S.A. schedule. The GE assays responsible for procurement for the U.S. government in receiving approval to be listed qualifies us to bid for federal contracts. This is a key step as we seek to expand our.
Business into verticals beyond oil and gas.
Since our last call. We've also increased our disclosure of our E.S.G. program.
I'm happy to report that as a result of a fresh look at our Iasci profile I S. S is upgraded our scores in this area.
Our environmental score improved from eight to four were smaller numbers are better our social score improved from nine to five again, a lower scores better and our governance score remained a strong three.
He is he is an important topic to investors, our global team and to our customers.
A number of the services, we deliver can create meaningful impact on E.S.G. goals for our customers from real time machine learning that can drive environmental and safety improvement across multiple industries to our cyber security solutions that can help guard against attacks from even state level actors that can impact safety and.
Our global environment.
Two are highly reliable communication services to keep our customers operating and living in sometimes hazardous locations.
Before I turn it over to Lee, let me comment on what we're seeing as the impact it as it relates to the impact of grown the virus.
So far we've not seen a slowdown in activity in any of our segments.
That said some customer decisions are taking a bit longer in many of our customers as well as written at itself have band non essential travel.
Fortunately as remote communications technology company, we're well positioned to continue pursuing our business.
There is clearly going to be some impact to go global oil demand in its too early to really tell how that will affect us but for now we believe that the impact to energy is more likely to be onshore the international for offshore.
And as oil prices have dropped is providing even more opportunities for us to help our customers recognize the benefits of our apps in I O T solutions to drive their own operational and economic performance.
With that let me hand, it back to Lee.
Thanks, Steve.
Let's begin by reviewing some of the numbers and giving a bit of color consolidated quarterly revenue for the fourth quarter was $64.1 million up 5.1% compared to $61 million in the prior quarter.
The increase compare to the prior quarter was primarily due to ESI, coupled with absent aiotv and partially offset by Mcs.
Revenue increased by $6.4 million from 60.2 million.
Sorry by 6.4% from 60.2 billion in the fourth quarter of 2018.
The increase compared fourth quarter of 2018 was primarily due to Athenaios T with increased contributions from entirely coupled with that side and again, partially offset by a decrease in mcs.
Revenue for full year, 2019 increased $4.1 million or 1.7% for Twod 42.9 billion compared to full year 2018 revenue up to 38.9.
Net loss attributable to compensate quarters in the fourth quarter of 2019 was approximately half a million dollars or three cents per fully diluted share, including the gain on certain noncore assets or a loss of 4.8 billion were 24 point 24 cents per share excluding this gain.
This compares to a net loss for half a million dollars or two cents per share in the third quarter of 29 team and a net loss of $49.7 million for $2 to 62 cents per share in the fourth quarter of a team, including the gx charge or a quarterly net income a point $9 billion.
We're five cents per share excluding that Gx chart.
For the year ended December 30, Onest 2019, our net loss was $19.2 million or 97 cents per share, including the gain of certain on the sale of certain non core assets.
Or $23.4 million.
Were $1.18 per share excluding the gain.
Compared to 2018 net loss attributable to common stockholders was $62.5 million or $3, a 34 cents per share, including the gx charge or net loss of $11.8 million worth 63 cents per share excluding the gx charge.
Adjusted EBITDA grew nicely quarter on quarter to $11.9 million. This was an 8.3% increase compared to the $11 million in the third quarter and 13.1 increase per se increase compared to 10.5 million the fourth quarter 2080.
Let's talk a little bit about the segments.
[noise] managed communication services revenues were 39.3 million for the quarter compared to 42.1 million in the prior quarter at 42.9 million in the prior year quarter.
Segment gross margin in the fourth quarter, 19 was 38.3% versus 42.6% in the third quarter 19, and 39.1% in the fourth quarter of 18.
Revenue compared to the prior quarter was impacted by lower be sad and equipment sale revenue gross margin was lower in the fourth quarter based on lower be sat revenue combined with the ability to or the inability to reduce corresponding bandwidth costs.
I'm pleased to say whoever that in January both be set and equipment sale revenue has bounced back.
Our Mcs site count at year end was 13 40 up by 17 compared to the fourth quarter 2018, and compared to 13 86 in the prior quarter.
Compared to 12 31, 18, we gained one that offshore drilling rig and 38 offshore production side as we continue to focus on the F. DSL market.
This was partially offset by a net decline of 10 maritime sites, mostly in the Gulf of Mexico, and a net 12 other sites, which are primarily in North America land.
In Q4, we sequentially gain one offshore drilling rig and a net one offshore production side, but this was partially offset by a decline of 13 Barentine sites, which are primarily support vessels in the goal.
35, other sites, which again are mostly North America land drilling sites as activity fell off in the month of December during the holiday season.
As a reminder, U.S. lag in maritime support vessel tend to be higher beta and lower revenue per site compared to our offshore drilling rig production sites.
And once again I'd say the site count bounced back up in January.
That's an eye or fee revenue was 10.1 million to for the quarter up 8.8% compared to 9.3 million sequentially and up 59.1 per se compared to 6.3 million in the prior year quarter. We're delighted that we have achieved our revenue milestone of $10 million an app.
And I see the first time in a quarter.
The increase was largely the result of Intelli ramping up with BP in the quarter and compared to our prior quarter. In addition to BP. We also ramped up transition and our large west, Texas fracking customer, who we side early last year.
So our transformation to delivering more revenue via apps is well underway.
And again to give some color in Fourq you 18 are split between Io TNF revenue within the segment with about 80 20.
Third quarter 19, the split was about 50 545 and the split is.
In Q4 was about 50 50 and.
We project that the segment will be increasingly leveraged toward apps due to our continued high growth rate there.
Back to revenue from Intelli, one of our strongest performance solutions grew 245% in 2019 to about $7.7 million and we expect a very strong growth rate in 2020.
Systems integration revenue for the quarter was 14.7 million up 52.5% from 9.7 million in the prior quarter and up 33.6% from 11 million in the prior year quarter.
This quarter had some strong progress on certain of our large projects.
Backlog in the business declined to 26.2 million as of December 31st 29 team from 35.9 million than the prior quarter.
Meaning that we added about three and a half million dollars of new projects in backlog during the quarter, but recognize more revenue and some projects de scoping and we add.
Gross margin for anti decreased to 14.4% from 23.3% in the prior quarter and 42.3% to the prior year quarter.
The GM in the fourth quarter 2019 was adversely impacted by some change orders on one of our large product projects, where a customer made some decisions to reduce work scope based on their larger overall project budget.
Conversely, GM in the third quarter 2019 in fourth quarter 2018 benefited largely from savings being recognized on several projects nearing completion, where we were able to reduce cost versus our projections.
We continue to view the outlook for the ESI business is positive and the number of Rs piece, we're responding to is fairly steady with over 20 in Q4 and already more than that in January and February.
Some of these are pretty significant in size and I would observe for you that the decision making progress process with respect to customers is stretching.
Other words, we remain confident the business, but it's taking a little bit longer to replenish the backlog.
That's true in a expenses totaled about $13 million in Fourq, you 19, compared to 15.2 in Threeq, you 19, and 15.1 in four key waiting.
The decrease compared to prior quarters is primarily due to reduced bad debt expense and we're also very proud of our a our teams diligent collection efforts in a tough environment.
Addition to lower bad debt expense DNA had lower labor and travel expenses in the fourth quarter 19.
Also SGN aid for Threeq you 19 included credits of about $400000 of Gx dispute phase two legal cooks.
No I don't normally talk a great deal about taxes. During these calls as our tax rates are highly variable due to recognize the valuation allowances in many jurisdictions, but the adverse effective tax rate was pretty significant during the quarter. It does merit a comment.
We regularly evaluate our tax positions in jurisdictions, where we operate.
In doing that review during the quarter, we identified and reported a new significant uncertain tax position, where you TP of about 1.3 million. We also took down an asset that was shielding of existing you'd CP about $1 million due to the uncertainty that that asset had value or with collectible.
Both of these had a negative book tax impact, though again, not a current cash tax impact.
Capital expenditures for the three months and year ending December 31, 19 totaled 8 million and 25.5 billion, respectively, compared to 10.8 million and 30.5 million for the three months and year ending December 31 2080.
Capital expenditures were 5.9 billion for the quarter in 29 for the third quarter in 2019.
As of December 31st 29 team, we had accrued capital expenditures of 2.5 million compared to 2.1 million as of December 31, 2018, or a difference of $400000.
Additionally in the three months ended December 31, 2019, the company vendor finance $2.8 billion of equipment to manage communication services segment, which is included in the short and long term liabilities on the balance sheet at 12, 31, but we'll be reclassified as debt on our 331 balance.
[music].
After accounting for the accrued capital expenditures and vendor financed equipment capital expenditures on a cash basis were 5.6 million and 22.4 million respectively for the quarter and year ended December 31 29.
Fourth quarter 2019, Capex was substantially composed of success based commitments.
And full year 2019, Capex included $2.4 million for our new Lafayette, Louisiana location that consolidated what was three former facilities into one as well as another $2.8 million for our T. Mobile LP buildout. So both of those are nonrecurring.
We are already seeing the benefits from during the teams in our three separate facilities together into one and that's enabling collaboration across a wide range of opportunities for us.
During the quarter, we generated about $1.3 million of free cash flow after making our principal and interest payments. This is up from about half a million in the third quarter.
We calculate this by starting with adjusted EBITDA and subtracting cash Capex. So that would exclude the 2.8 million of vendor financed equipment, and then taking out cash taxes interest and principal payments and in 2019, we made nine and a half million dollars a principal payments on our term loan.
With respect to the balance sheet at December 31, our cash was 12.9 million our outstanding debt was 107.7 million both long term and current.
And at year end, our consolidated leverage ratio as defined in the credit facility was 2.72 versus our cap of three in a quarter and as a reminder, that's on a gross debt basis.
Speaking of the credit facility, we recently amended and extended our credit agreement with our existing banker.
We outlined some of the specifics in the press release announcing the amendment and extension and provided assuming summary in the earnings release yesterday, but it's worth going over these again at a high level.
So we increased the size of our revolver and extended the maturity out to August 30, Onest 2022, We also established a new 16 million dollar term facility, which replaced the existing term notes with and this new facility has a maturity of March 31 2022.
We will amortize that loan at $2 million per quarter, beginning of the second quarter. This year and that has a few important implications for.
First it will be paid off by the time it matures second we've got a payment holiday here in the first quarter, which saves us $2.75 million, which was our scheduled payment.
Third the principal payment of $2 million per quarter, starting in Q2 is $750000 less per quarter over the life versus our previous principal payments.
And that means that in 2020 alone, we're going to conserve about $5 million, a cash which we're very pleased with.
The banks also extended the leverage ratio cap of three in a quarter out to the end of the third quarter of 2019, after which it drops to three times for three quarters, and then finally 2.75 times.
Our pricing grid currently at L. Plus three is unchanged and we also have established a $30 million accordion feature so kudos to our treasury and finance teams and getting that done in a very difficult environment.
Lastly, you are aware that we don't provide forward looking guidance, we're not going to start today, particularly given the uncertainties in the energy markets related to the Croda virus, but we do have some goals for the year, which include increasing both revenue and adjusted EBITDA over 2019 levels being cash flow positive after principal payments.
For the year and continuing to grow absent aiotv.
Now, we if we expect the shape of the revenue and adjusted EBITDA growth to generally mirror, what we saw in 2019, which means lower in the first half of the year and growing in the second half.
Of course, the timing of ESI project revenue recognition over the course of the year can add some variability to that.
And as a reminder, as has been the case for the last couple of years first quarter. Adjusted EBITDA is generally lower than the previous quarter, because first quarter DNA expense ends up being higher.
As a result of paying or bonuses.
So lots of numbers, there lots of percentages, but with that I will turn it back to Steve Great think think Uli before we open up to before we open it up for questions I want to thank the Rignet team for their hard work and specifically Grad congratulate our operations team for their great safety record.
I knew I know each of them is focused on driving the business to improve our results increased value for our shareholders.
Alright, Victor why don't we go ahead and open the lines for questions.
Thank you.
Asked a question you wanted to press Star one on your telephone to withdraw your question press the pound key.
Please stand by only composite can a roster.
And our first question will come from the line of Allen Klee from National Securities You May begin.
Yes, good morning.
So if I could sort of goes to our segments starting with Mcs.
I'm trying to think about.
Where we stand now is the best to think about that this segment. This is kind of the new run rate.
Level of run rate or or maybe how much exposure there is still to land.
In terms of.
Should we potentially thinks that the segments.
It's likely to decline.
Given some of the macro in 2020 and then maybe.
On the margin front gross margins were around 39% for the segment in 19 can you discuss the factors that could move.
In your mind to up or down for 2020. Thank you.
All right well, let Steve starts and then and then I'll provide the color commentary Alan Great first of all that good morning, Alan Thanks for thanks for joining yes, let me let me first address the question about onshore and indeed, we are seeing reduce activities onshore, particularly in the U.S., but frankly that doesn't represent a.
Very significant part of our overall revenue stream within Mcs. The majority of our revenue stream. The large majority of or revenue stream still comes from offshore and those offshore agreements are typically longer term agreements and at this point, we're not seeing reduction activity offshore.
So hopefully that gives you a little color around where we are those revenues come from yes, we do have a number of of opportunities and some large opportunities this year to win rig fleets.
Going forward here in the Mcs segment and.
Again, as Steve said, we're not seeing those activity levels around RFP zohr projected timing.
Really slow down or change so.
You asked about margin and.
And guidance around that.
Our Mcs revenue or sorry, gross margin has generally been in a 36 to 40 ish percent range.
Over the last eight to 12 quarters. So it's been fairly steady within that range now what can impact that up or down obviously, we do do equipment sales within that segment and so those equipment sales, which are generally a resale of equipment that we buy for a customer.
Then markup.
Comes at a much lower revenue margin. So typically that's a 15% to 20% kind of activity for us. So when you have more of that in the quarter that tends to drive down. The overall segment margin and that's that's actually kind of hard for us to predict we never know exactly when a customer will say why would you to go up by a bunch osisko boxes.
As for us because you've got to a better relationship on the purchasing side that we do.
But I don't see.
I don't see the revenue or sorry, the gross margin getting outside of that range.
Going forward.
Okay, and then you spoke about.
That.
During the quarter, you saw lower you said and equipment revenue and an inability to lower bandwidth costs, but then in January it picked back up what would you attribute should kind of why it was lower in Fourq you and then why it improved in January.
So sometimes when you have a number of sites to just roll off.
As they did in in December.
They go back to work in January and that picks back up and again remember when I say that we weren't able to lower bandwidth costs as is often the case in what we do we buy bandwidth in advance right. So the way the industry works is we will buy bandwidth upfront and then we have that Alex.
Got it out to particular customers with an expectation of how much they're going to use over what period of time. So up a site goes off unexpectedly that may leave us with a little bit of an overhang. There now in general are overhang with respect to unused bandwidth is is very very low.
A couple percent I would say most based on the last day that that I saw from engineering. So we do a really good job of matching back, but sometimes it gets off a little bit if I could add some color to that in most of our agreements to acquire bandwidth.
We have the ability to turn off bandwidth if our customers were to stack. The rig is an example.
If they just stop operations for a couple of weeks.
And that isn't technically a stacking so we don't necessarily have the ability to turn it off but it was something more prolonged we would have much more flexibility around turning off that cost.
Yes.
Add and also this is our role.
When you run bandwidth really lean in an operations. It allows you to buy bandwidth on the spot market as you needed at a reduced rate.
Where is if you buy an abundance of capacity and prices are dropping over time and you have that in your inventory and you look at it has sunk costs. It's still the cost of their original purchase value. So because we run so lean and that we run lean purposely that allows us to go by bandwidth or new opportunities as we need them and.
We will continue to help drop our overall.
Cost and increase our margins.
That's very helpful. Thank you.
Moving on to apps and I O cheated the segment outperform my expectation can you talk a little about how you think about the pipeline of a new opportunities there and and what gives you confidence in.
Your goal to continue to grow the segment in 2020.
Yes, I'll start the pipeline is robust we're very pleased with the performance of that business and we're getting very positive feedback from customers, who who are finding that we're able to turn on machine learning to generate value for them much faster than any any one of our competitors. So we're very very pleased with the pipeline.
And as I mentioned earlier in my comments, we actually had five mpsvs start here since our since the last time, we we had a call so.
It's not only lots of opportunities in the pipeline, but those opportunities are nicely maturing.
Conversations about what we can deliver the value we can do deliver two proof of values and in almost every case those are pulled the values that are paid for and that we were very pleased with the conversion rate from the paid the into a multi year deployment contract. So we're encouraged by what can.
Tends to happen in that area.
Yes, I might also add to that earlier, what I've said was that.
That.
When I was on the outside looking in.
So all the competition in the market place.
Everybody selling value added services, but value added services to customers that you know crew Wi Fi or.
TV type services, certainly as a value, but when you look at Rignet and the kind of value added products. They are adding theyre actually real solutions that bring operational efficiency to our customers reduce their costs increased their safety. So I think our customer the start but recognize that these aren't the same old time type of.
Applications that you know, we've been selling and everybody else has been selling in the marketplace that these are actually.
You know additional apps and.
Applications that actually drive efficiencies for them. So we're seeing.
As word gets out and as we penetrate some of these accounts in our account teams are up seeing customers, we've seen a bit.
Quite a bit more interest in these other kind of services that they've never seen before.
Alan.
If you if you think about exactly follow at all what Errol said, what we're doing.
And.
Not just on the revenue side, but also on the SG side as well. They think about an example, like an ocean down in Brazil, where they put out yeah. There's reports in the media out there where intelli in the real time operating center for them has helped improve their downtime.
By 250 basis points, so, let's say you're running at all short deepwater rig.
And your you're getting $350000 a day and your downtime on 100 day, well just to make the math easy was about seven and a half days.
Now it's down to five days, Okay. So you got two and a half days back we add that up over the course of.
Say, three and a half wells per year in five vessels and suddenly we're adding $5 million. There so directly to the bottom line of that customer through that next consider that you're burning 15010 to 15000 gallons of fuel per day right. So you.
And actually eliminate.
That said two and a half days.
You will burn, which not only reduces emissions, which saves the operator, who is the one who pays for the fuel generally.
The cost of that fuel so the impact that we're able to deliver three mentality and some of our other solution is not just pretty charts in pictures in Cape size and monetary it's directly impacting their financial and operational performance.
Thank you can you provide an update on safer.
Yes sites, where we did secure.
Fips 140 Dash do certification.
Actually earlier earlier this year, we think thats, a real enabling certification for safer and the interest level is is high I would say not just within our customer base, but with.
Elements around the world as well.
Okay. Thanks, you and your conversation you talked about shifting within the segment apps versus.
Hey.
Does that have an impact on margins relatively.
So it should right the more and remember the whole model around to the apps part of the segment is a SaaS model.
Particularly in Intelli, where you're going to pay as a customer you're going to pay for a license fee upfront and then you're going to pay per app and and per.
Deployment site Paratte right. So.
40 rigs would be 40 uses.
A particular at.
And of course, because we develop that after one customer and now it's applicable really across the industry anybody who then chooses that app other than some minimal customization that has to be done revenue is almost 100% margin so apps should drive margin.
It's in that segment increasingly.
Yes, and as that App portfolio gets bigger and bigger.
Value that we can delivered to our customers very quickly goes up.
As well and it's not uncommon for the Sheen, earning initiative to take 18 to 24 months to get implemented and debt and we're now implementing them in a matter of months.
If we don't already provide the solution and could be in the matter of weeks. If we already have the apps available. So it's just very click on add value creation for those end users. Steve we we talked about signing up and turning on that smaller pressure pumping company out in West, Texas, We actually did that Alan over.
The course of a weekend.
Because we took the app that was effectively right off the shelf.
And and hooked up to the sensors on their trucks in fact, we probably could have done it sooner, but it took us the weekend to actually get the server out to them physically in West Texas.
Thank you.
Moving on.
The ESI segment.
If I look at your average margin in 2019 is that kind of reasonable to think about as a run rate for 20 years or any reason to think of a differently and then.
I understand how so you're you had a very good you had a very good corridor.
This quarter on lot of finishing up I guess a lot of projects, but then your backlog decline so.
Im just trying to think it seems like it might be a challenge for this for.
2000, twenties revenue to kind of via 2009 teens.
Level is is that fair or is there something should think about.
Yes, yes, a couple of things one at there's there's no doubt that the gross margin in fourth quarter was an anomaly in my view and did should be more typically should be more in line with what we saw in terms of full year 2019.
In terms of the backlog elite Lee mentioned this in his in his comments, we have a very robust pipeline. Some decisions are coming to a little more slowly than we expected largely because of travel bans that are that are delaying decisions.
With many of our customers.
But.
Yes, we feel good about how that business is performing and feel good about the ability to lead to rebuild that backlog. We generally Allen talk about bidding projects around the 20 ish percent gross margin basis.
So.
We in the first two quarters, we were able to get that up.
In terms of total results too I think 30 and 36%.
You know the third quarter was back down closer to 23 administering said the fourth quarter was the anomaly of 14 again, largely driven by the fact that we had.
One project where.
Overall budget not our not not what we're responsible but the overall project budget.
Has exceeded what the customer was planning on it. So they are sort of trying to get that back in line across the entire project and so they do you spoke a little bit of work for us.
Hey, we may actually see some of that work to creep back in here in the first quarter.
And and recognized.
Nice benefit from that so.
I would tell you that we're just consistent around the Twentyish percent, what we did and then we rely on at trout, Matt and his team to deliver voice.
Okay.
For Capex.
You pointed out a.
A little over 5 million of one time items in 2019 is it reasonable to think that 2000 Twentys capex.
Good.
Do you in the range of 19 minus.
5.2 million or.
Or.
Or should we think of it is different from that.
No you're going to need to think of it if we'll probably end up starting with a two.
And.
Again.
We whitney's Fps shows and these episodes for example will come on throughout the year. It. So we will be spending capex. This year on awards that we received in 29 team.
The same thing with some of the rig awards that we get to then of course, it will obviously depend on what other.
Spot market or potential fleet wins were able to achieve but.
I think.
It's important to take out the one time impacts of laugh, yet and T mobile from last year, but I think we've always talked about capex for this business success based run rate of.
A four to 6 million dollar a year, sorry, 46 million dollar per quarter kind of run rate.
Okay. Thank you my last question is and this is just a little thing going on the income statement you have other expenses.
I think it was around 1.2 million, but it was around half of where it had been running and I wasn't exactly sure what's in that number or why the drop in that thank you.
We had some changes in the earn out the routing Elliott cipher.
And so that run there.
So you do Joe and I mean I'd be.
We've got the agreements on file out there about the earn outs on both of those so the intelli Earnout actually went up a little bit.
Because where they're performing so well be.
Overall likelihood of achieve of them achieving their earn out.
Has increased which then you but about the Monte Carlo simulation and determine what do you think the value of the Earnout is which you then change in run through the income statement.
And be a the earn out on cipher actually declined slightly.
Okay, great. Thanks, Congratulations for all your execution, but.
On.
Thank you appreciate it thank you.
Thank you once again that start one further question star one.
One moment for questions.
Okay.
And I'm not showing any further questions at this time I kind of call back over to the ultra for any closing remarks.
All right well, thank you Victor and thanks to everybody who joined US today for our call.
Steve and I will certainly be available for any follow up questions that weren't addressed on the call today, So feel free to give us color dropless and email and we invite you to join US again in May when we expect to report our first quarter 2020, or thank you all and have a good day.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
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Yeah.
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