Q1 2020 Earnings Call
Thank you for holding your comps will begin in just about a minute. Thank you for your patience.
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Welcome to the oil States International one Q 2020 earnings Conference call. My name is Johnny and I'll be your operator for today's call. At this time all participants are any listen only mode. Later, we'll conduct a question answer session. During the question answer session. If you have a question. Please press Star then one on your touched on but I'll now turn the call over to Ellen Huntington Ellen.
Maybe again.
Good morning, and welcome to all States first quarter 2020 earnings conference call. Our call today will be led by Cindy Taylor, All States, President and Chief Executive Officer, and Lloyd Hajdik, All States Executive Vice President and Chief Financial Officer were also joined by Chris crack well eighth Executive Vice President.
Operation and Ben Natter, President and CEO dynamics are downhole technologies second that before we began we would like caution listeners record regarding forward looking statements to the extent that our remarks today contain information other than historical information. Please not that we're relying on the safe Harbor protection.
Courted by Federal law.
Any such remarks should be weight in the context that then many factors that affect our business, including those risks disclosed in our form 10-K, along with other FCC filings.
This call is being webcast and can be accessed that oil states website, a replay of the conference call will be available one and a half hours. After the completion of this call and will be available for one month I'll now turn the call every lisenbee.
Thank you Alan Good morning to Egypt, you and thank you for joining us today to participate in our first quarter 2020 earnings conference call. As you can imagine the market dislocations caused by the club will respond to the carpet 19 pandemic have been unprecedented EM.
Talked on the energy industry, it's even more extreme due to the rapid demand destruction for crude oil and the resulting massive inventory built across the globe that happens helping.
Partially cushioning, that's very negative industry backdrop is the agreement reached at the Opex for some that earlier this month, whereby both short term and long term supply cuts were agreed to be announced duration, but the short term car totaling 10 million barrels per guy.
Extend for two months during my and Jan.
The single largest coordinated output caught in history, but nonetheless, it falls or short I'd be estimated 25 to 30 million barrels per day of demand destruction importantly, the longer comcast's extend to April 2022 with supply read.
The actions compressing over the extended term.
Given the duration of the cat the industry should be able to better manage through the unprecedented crude oil demand destruction. Once we get beyond the immediate impact of inadequate storage globally with well shut ins that supply constraints that follow.
We have important matters to discuss with GITR died beyond just our results for the first quarter in conjunction with our discussion of the quarter, we plan to highlight our initiatives undertaken to shore up liquidity.
Give you our thoughts on their car market conditions and summarize our efforts to mitigate car both capital and operating as we navigate this difficult market.
First I'd like to provide a brief update regarding Cabot 19, and its impact on our global operations, we have implemented stringent protocols in an effort to protect our employees customers.
Flyers and the broader communities within which we work measured apply measures applied in Kuwait working remotely we're able to do so adhering to social distancing guideline limiting visitors to our work site to a central personnel adjusting share and work schedules.
To minimize close contact mandatory stay at home principles when employees show symptoms of illness, performing enhance lending protocol along with other safety measures to date, we have only been notified of two confirmed cases, the covet 19, and our global work.
Force with one of the tail now testing negative and returning to work at various states began to reopen nonessential businesses. We have stressed how critical it is that we maintain our diligence to help prevent a second why the cases developing in our communities.
Demand for oil and gas and therefore, our products and services depends on a fully functional economy and we intend to send an example for others and working safely. During this pandemic based upon what we have learned.
Moving on to the quarter, we reported a large headline loss during the quarter, resulting from various impairments taken due to impacts on our business from the global response to the Cobot 19 crisis. However, our first quarter results, excluding the impairment taken exceeded our guidance.
Issued in February.
During the first quarter, our completion services revenues were modestly up sequentially with margins improving 370 basis points.
And our downhole technologies segment revenues improved 7% sequentially and margins increased 420 basis points.
Revenues in our offshore manufactured product segment decreased sequentially due to delays and our project driven sales arising from global disruptions in our own operations and in various parts of our supply chain.
Segment backlog at March 30, Fiveth 2020 totaled $267 million, a decrease of 4% sequentially. Our segment book to Bill ratio for the quarter approximated one time.
Right exceeding our first quarter guidance, we are acutely aware of the challenging market conditions that we will face during the my remainder of 2020 and into 2021 during stress periods in our business, we know that the immediate focus needs to be on the preservation of.
Liquidity and the management of variable and fixed costs through such a downtime like will review with you our efforts taken with our lenders to amend our current cash flow based revolving credit facility and convert it into an asset based lending arrangement. We have also.
So taken significant actions on the cost side of our business to adjust to significantly declining revenues, particularly those ties to shell completions in the United States, which are currently in free fall.
We will closely manage our debt working capital and cash flow generation in the quarters to calm like will now review our consolidated results of operations and financial position in more detail before I go into a discussion of each of our segment.
Thanks, and good morning, everyone.
During the first quarter, we generated revenues of 220 million.
While reporting a loss of 405 million or $6.79 per share.
Our first quarter results were reduced by significant non cash impairment charges, including the following.
At 406 million dollar or $6.48 per share goodwill written mall.
25 million dollar or 34 cents per share inventory impairment.
And a $5 million or seven cents per share fixed asset impairment.
Driven by the expected duration of this unprecedented market downturn.
Our first quarter EBITDA totaled 22 million.
EBITDA margin of 10%.
The goodwill impairment charges were taken in all segments, but related primarily to our downhole technologies and completion services businesses.
Arising from among other factors.
This is Nick significant decline in our stock price and that of our industry peers.
Along with reduced growth expectations in the next couple of years.
Given weak energy market conditions, resulting from demand destruction caused by the global response, the cobot 19 pandemic.
In addition, given the negative market outlook.
Our estimated weighted average cost of capital increased approximately 500 basis points compared to year end 2019.
We remained essentially cash flow neutral during the quarter with $5 million and cash flow from operations.
Offset by $6 million and capital expenditures.
In the first quarter, we collected $4 million and proceeds from the sale of equipment.
And repurchased $6 million and principal amount of our convertible senior notes.
At a 17% discount to par value.
For the first quarter 2020, our net interest expense totaled 4 million.
Of which 2 million was non cash amortization of debt discount and issuance costs.
At March 31, our net debt to book capitalization ratio was 23%.
Which increased from year end 2019.
Due to the but due to the noncash asset impairments report recorded during the first quarter.
At March 31, our liquidity total $132 million.
And we were in compliance with our debt covenants.
It is important to fully understand a leverage position, which at March 31.
Consisted of 72 million of senior secured revolving credit facility borrowings and 217 million of other debt consisting primarily of our 1.5% convertible senior notes due in February 2023.
Our credit agreement underlying our revolving credit facility is the only debt agreement that is subject to the leverage covenants.
Accordingly, we're working with our bank group to amend our existing cash flow based revolving credit facility.
To converted into an asset based lending arrangement.
Giving a negative market outlook and the uncertainty regarding the level of EBITDA to be generated as we progress through to 2020.
Coupled with the leverage covenants governing both total net debt and senior secured debt to EBITDA.
The amended facility is expected to be subject to a borrowing base.
Based on our accounts receivable and inventory with differing advance rates, depending on the age and geographic location of the various assets.
While the amount of the borrowing base has not yet been finalized.
We expect the amended facility size to range from 175 to 200 million and it will not contain similar leverage covenants.
At March 31, 2020, our net working capital.
Excluding cash and the current portion of debt and lease obligations.
Totaled $348 million.
Compare to borrowings outstanding under our revolver totaling $72 million, which yielded a 4.8 times coverage level.
In terms of our second quarter 2020 consolidated guidance.
We expect depreciation and amortization expense to total approximately $25 million.
Net interest expense to total approximately $4 million of which 2 million this non cash.
And our corporate expenses are projected to totaled 8.5 million.
Corporate expenses in the first quarter 2020 and forecast for the second quarter.
Reflect reductions both short term and long term incentive compensation expense.
We are reducing our capex spending during 2022 or range of $15 million to $20 million.
Which at the midpoint is roughly 70% less than our 2019 capital expenditures.
And at this time I'd like to turn the call back over to Cindy who will take you through the operating results for each of our business segments.
Thank you Lloyd.
In our offshore manufactured products segment, we generated revenues of $91 million and segment EBITDA of 13 million during the first quarter revenues decreased 16% sequentially due primarily to delays and our project driven revenues due to global disruptions in our operations and in our supply.
Hi chain segment EBITDA margin was 14% in the first quarter of 2020 compared to 15% in the prior quarter orders booked in the first quarter totaled $87 million, resulting in a quarterly book to Bill ratio of approximately one time at March 31st our back.
Blog totaled $267 million of 4% sequential decrease, but nonetheless reflected a 14% increase from the 234 million of backlog that existed at March 31 2019.
For 75 years, our offshore manufactured products segment has endeavor to develop leading edge technologies, while cultivating that specific expertise required for working and highly technical deep water and offshore environment.
Recent product development should help us leverage our capabilities and support a more diverse base of energy customers.
In 2020, we are betting on potential award opportunities to support our sub sea floating and fixed platform systems drilling military and wind energy clients globally.
However, with reduced market visibility given much lower crude oil prices and reduced customer spending. We now believe 2020 bookings will be lower and the levels achieved in 2019.
And our well site services segment, we generated $88 million that revenue $12 million. This segment, EBITDA and I said, but EBITDA margin of 14% compared to 10% reported in the preceding quarter. The sequential improvement in our results was driven by found cost controls.
During the quarter. However, we know the sequential improvement cannot be sustained given expected materially lower us land completion activity and the reduced number of frac spreads and operation International and Gulf of Mexico market activity comprise 20% of our.
First quarter completion services revenues.
As announced last year, we have discontinued our drilling operations and the Permian, reducing our marketed fleet from 34 rigs to nine rigs with the remaining assets serving customers in the Rocky Mountain region, we recorded and an additional $5 million noncash fixed asset.
Paramount charge in the first quarter, given the negative outlook by the vertical rig market for the remainder of 2020 as of early April none of our marketed rigs were working.
We are highly focused on streamlining our operations and pursuing profitable activity in support of our global customer base.
Focusing on value added services and 2019, we closed or consolidated eight north American operating districts or 19% up our locations and reduced headcount in our completion services business by 20%.
Sadly beats head count reductions in facility closure must continue and 2020 in order to sustain the company through this extreme market downturn, we will continue to focus on core areas of expertise and actively develop new proprietary products to differentiate.
Oil states completions offering.
And our downhole technologies segment, we generated revenues of $41 million and segment EBITDA of 5 million in the first quarter by quarter revenues and EBITDA or sequentially higher due to improved sales of our perforating products and frac plugs, coupled with sound cost control.
All segment EBITDA margin averaged 13% and the first quarter compared to 9% in the preceding quarter.
We continue to develop field trial, and commercialize new products and our downhole technologies segment sales trends for our Viper gon integrated perforating system and addressable switches were gaining customer acceptance following their respective commercializations light in the fourth quarter.
In addition, our premium integrated Gan system nine strata AG was formally launched in the first quarter as noted on our last earnings conference call in February we announced the commercialization of and celery perforating products, including a new wireline relates to.
Cool and today families of Shipe charge technology, our product development efforts are designed with our wireline and S&P customers in mind, where we strive to provide them with flexibility improved functionality and increased performance, while ensuring the highest level of site.
The and reliability given the current market weakness, we recognize that revenue uptake of these new technologies will be delayed.
Given rapidly declining spending on us land operations by our customers who are facing daunting challenges, we are not comfortable providing specific revenue our EBITDA guidance by the second quarter 2020 for either of our well site services are down.
I will technologies segment. However, we will attempt to do so directionally. The first quarter 2020 US rig count average was 785 rigs, which was down not was down 4% sequentially.
The U.S. rig count totaled 465 rigs on April 24th 2020 down 41% from the first quarter 2020 average rig count.
Current analyst estimates are calling for a 40% to 70% sequential decline and completions activity, which will negatively impact all of our segments with short cycle U.S. shell driven exposure.
As a result, we expect our us onshore businesses and product lines to field that dramatic effects of lower well completions consistent with that of our us peers.
Accordingly, we are aggressively reducing our cost in order to stabilize our financial results as we manage through this unprecedented downturn.
In our offshore manufacture product segment, we are more confident and our ability to forecast revenues, given our backlog position and the relatively low level of short cycle product sales in the first quarter. We project our second quarter revenues in this segment to range between 90.
Six and $104 million with segment EBITDA margins expected to averaged 10% to 12% depending on product and service mix along with absorption levels.
Our margins are expected to be compressed in the near term did that closures of our India and Singapore facilities until at least May 4th and June 1st respectively as mandated by their government.
Along with reduced cost absorption globally, as we deal with supply chain issues and other and efficiencies.
Management teams have to Mike difficult decisions during market downturns, such as death to protect the health of their company.
We wanted to provide a summary of actions that we are taking to mitigate the expected material decline in revenues during 2020.
As Lloyd mentioned Capex will be reduced by approximately 70% year over year direct operating costs will be reduced in line with activity declines.
Head count has already been reduced approximately 30% and are well site services and downhole technologies segments since the beginning of this year.
SGN I head count has been reduced by approximately 15% since the beginning of the year as well.
Short term incentive has essentially been eliminated for 2020 are for a one k. and deferred compensation plan matches have been suspended for the immediate future.
Sorry salary personnel, including executive management have tightened salary reductions. In addition to other reductions in short term and long term compensation discretionary spending has been substantially reduced or eliminated.
When we summarize the impact of our actions taken we estimate that we will reduce 2020 cost back $225 million when compared to 2019.
Total, 87% is estimated at cost of goods sold and 13% relates to SGN.
We believe that 20% to 25% of the cost reductions are fixed in nature.
Now I'd like to offer some concluding comments, we believe that we are making substantial progress in terms of shoring up our liquidity with the planned amendment and conversion of our cash flow based revolving credit facility to an asset based lending arrangement with our strong working capital position.
We believe that we can manage through this extreme downturn with the site balance sheet position, we recognize that cost management has to be a primary focus in this lower activity environment to that end cash flow generation remains a top priority with near term plans to manage working capital.
And secure balance sheets stability.
Oil states will continue to conduct safe operations, and we'll remain focused on providing value added products and services to meet customer demand globally.
That completes our prepared comments Johnny would you open up the call for questions and answers at this time please.
Thank you we will now begin the question answer session. If you have your question. Please press Star then one on your Touchtone phone if you wish to be removed from could you. Please press Powell.
Our hashi if you are using speaker phone you may need to pick up the handset first before pressing the numbers. Once again if your question. Please press Star then one on your touched on Paul.
And our first question is from George.
Dairy George maybe again.
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Good morning Sunday morning Lloyd.
Good morning, George or.
Just.
Curious theres.
Clearly right now we're seeing the impacts of what summer, calling a frac holiday and you're seeing completions activity just fall off a cliff at the moment, but there is some chatter assuming NPS, who mentioned adding activity back late in the year sometime in the fourth quarter.
But it seems like there's a little bit of hope embedded in those expectations I higher crude oil prices demand starts to normalize this is cobot abates.
Seen any evidence anyone has any tangible plans to add that activity back or or does it seem a little bit more hopeful and kind of crude oil price dependent at this point.
Well I think we all have to assume that any discussion right now is just that on Maine.
Obviously, I think the S&P customers and service providers alike realized.
It's almost impossible to fully shut down an industry for an extended period of time and so I do believe that things are evolving and clearly I would say the United States as a whole not just the energy industry is beginning to fill a little more positive simple.
Because of the stated gradual reopening.
Several of the non essential businesses as hourly as this Friday.
And I think we all are hopeful that will begin to come out of this.
Unprecedented downturn, but to your specific question.
You know different basins have come down faster and harder than others and different operators are doing more draconian actions and others. So it's very hard to pinpoint any type of trend at this point other than to OSI gas basins are dealing just a little.
More resilient than some of the oil plays the Permian has not come down quite as hard as areas like the Bakken and again trends George I know that you're very familiar with.
We too are hearing indications as maybe some activity returning.
As early as Q3 that I think it's very dependent on the facts and circumstances that exists.
At that point in time, and so we havent.
We can't rely on hope and so we have to take actions today as if we are going to live through in a fairly extended downtime at least through the balance of 2020.
Very helpful color and then bid the.
The Capex spend is obviously thats, an impressive cut capex and probably a prudent thing to do and in in this type of market. So did you could frame what you guys view as maintenance Capex today, and if that does contemplate some things like.
No longer running rigs is that a business you guys might exit or there's some other.
Businesses were doesn't make sense to continue deploying capital going forward. So just maintenance capex in the what maybe that implies about some of the the underperforming businesses. If you will.
I think it's a fantastic question, but.
These are very low levels of Capex for Us Ali Sighing keep in mind, the big picture, though where.
Our offshore manufactured products is global and scale.
Huge manufacturing footprint that we've done a really good job of upgrading and putting new facilities in place over the last 10 plus years as well as high end machinery, so the needs.
Last call ongoing maintenance needs are just not that has the same is actually very true for our downhole technologies segment, which post acquisition of Geo, we did make investments that we thought needed and appropriate, particularly our charge shop manufacturing expansion and again I'd that is fair.
Early site capital invested today, because we outsource previously so much of that capacity that you are basically bringing it in house. So I still feel very good about the capex that we spent there, but again, having done that and getting it behind us the maintenance needs for again.
A low capital intensity hi in manufacturing operation Theyre, just not as great as they are for our completion services you mentioned drilling that we've only got nine rigs laugh that a currently are not working so theres virtually no capex dedicated the drilling the balance other than the maintenance capex and many fan.
Offering is really completion services and to your point at today, we have not exited any individual product line, but when completions fall off a cliff and none of US no is it going to be 50% is that going to be 70% and what is the timeframe at exactly that occurring.
It would be an obvious con that I, certainly don't need as much maintenance capex in that fairly draconian activity environment and so when you talk about what is maintenance capex, what we have to get through is.
This massive downturn and figure out what the resilience of us shale activity as for the long term and.
I will just be honest with you we cannot commit a lot of capital to that business until we get clarity on what the market.
Allocation between international deep water and use shell looks like as we come out of this thing.
That's very helpful color to the I'll turn it back over.
Thank you George good talking to you.
Johnny is there another question.
Our next question is from.
Steven.
You can you maybe.
Hi, Stephen Gengaro.
Hi, how are you hope everybody as well.
All right. So as you all healthy thank you good good.
I.
I heard issues.
Probably harder to give specifics, but can you talk or maybe your belt us a little bit.
When we think about.
No clearly one of the sharp is probably a sharper sequential drop off we more diversity in the second quarter and.
You are.
Taking aggressive actions on the cost front.
Could you give us any guidance on kind of where decrementals.
Could be a range.
For the for the downhole and for the wells segments.
With that automobile yet.
Maybe are up about how how do you think the normalized maybe beyond the second quarter.
Well again those are the best questions, but I'll also tell you. They are absolutely the hardest wants to answer and why that's why we tried to get it best we could what we'll call directional guidance. When we are losing 60 plus rigs every week as we have done for the last four.
Figuring out exactly what your revenues is gonna be is.
Elusive at best bet, what I can tell you as we.
First of all let me be clear to everybody because I've heard on other calls people are trying to understand the trajectory of the cost savings and the impact and I will just simply say that the hardest thing management team to do is adjust head count environments like this which we had done but it goes without.
Saying number one we've only been in this turmoil since mid March and so these reductions have come largely early in the second quarter. Clearly we are not so insensitive to pay no severance to the people that are being let go trying to bridge them into unemployment benefits that are offered.
At this point in time, so just know that these cost savings are weighted to head count and therefore, you don't feel the full benefit of those savings until you get out of Q2, So Q2 as we projected because the right if revenue decline.
Line and the points that I, just mentioned will be the weakest in terms of EBITDA generation once we get through that period because of the cost actions and initiatives Weve taken we think our decrementals kind of trend back to what I call more normalize decrementals that we've seen.
In the business is more in the range I would say, 30% to 40% but.
No that they're going to be higher than that in Q2 for the reasons that I. Just told you and I think that could be in a range of 40% to 50% and then I'll leave it up to you guys to try to predict the topline I pointed out the rig count, but it's not an average yet but if you just.
Look at.
April 24th compared to the average a Q1, we've lost 41% already.
There are many analysts that had not updated their model for our company since early March so.
That has to be adjusted in factored in but that is that I would I would absolutely give you guidance if I thought I could give you more meaningful information then I've already provided in our prepared notes.
Now the stress very helpful. You always give good color.
When we look at just quickly on the on the downhole slider are you seeing any shift that I know you have these two new products.
During the market.
And now you have some commentary OMA carga remarks, with any shifts to customers worked in the sleeve money and maybe go back to buying just components in the short term have you seen any of that in the mix as we speak about the next quarter.
I would just as side not as much as you would think and again.
We really think that the integrated systems are the preferred systems long term I do think there are certain suppliers that are going to be fairly aggressive on cutting costs, particularly on the more commoditized component offering.
However, we still think that longer term.
The integrated systems do provide.
Safer more efficient more reliable operations long term, which at the end of the day will prove to be cost effective as well. So we really don't believe that market share shifts and strategies necessarily.
Just backwards.
The cause of this downturn.
Great. Thanks for the color.
Thanks Steven.
Our next call comes from Sean Meakim.
Jonathan Sean.
Andy.
I appreciate all the feedback around your cost out initiative do you have an estimate for.
The cash costs associated with the reductions severance et cetera, how much of a cash impact is that in 2020.
Okay, Yeah, I'm, sorry, we kind of gave you.
That we I think it with 225 million right below 25 sales and I'm looking at Lloyds.
If you literally just add up cost of sales in 2019, plus SGN I, we expected to beat the total of the two to be down 225 million. So I guess to your point the annual impact of that if it were to continue would be greater.
We did the best we could just split out what we think are the variable versus fixed components of that so again, if you want the fixed component, which is I know predominantly what people are focused on take the percentage time the to 25 for this year.
I appreciate it does it to clarify I guess, while trying to get to get it was.
The one time.
Payouts and maybe associated with could be facility closures oftentimes severance is the biggest piece there just your I guess, that's kind of onetime.
Cash out it's not that material relative to the total and it's probably in the range of $5 million.
Got it okay with that I didn't understand your question fully.
No I appreciate that thank you for that so that detail.
Yeah.
And then I guess.
Anything else, we should be thinking about with respect to balance sheet management. It was great to get the updated obviously you guys are for along with respect to the revolver.
In the us that can be done with respect to.
Asset sales or anything else.
Working capital, which we thinking about as it pertains to cash generation in the next say two to six quarters.
Well, Jeff you know right now I think if I tie together my earlier comments that I think maybe in response to George's question at this point in time the business lines that we have exited our the Permian rigs the cash proceeds for the sale of those rigs came in during the.
First quarter that was one of the highlighted points that Lloyd focused on we only have nine small rigs remaining and so the plan is to operate those prospectively, but even if we sold it would be an immaterial amount of cash received for the equipment sales.
At this point in time prior to cope with 19, we did not have any completion services product lines that were not making cash on cash returns and that we will continue to evaluate that over the longer term.
As we see how the north American market shift so without that we're not planning to exit.
Other business lines at this point in time, so nothing really in the way of asset sales you did mention and I tried to have Lloyd highlight.
If you really step back I realize if you just screen a headline on total debt you really really do need to break it down our revolver as Lloyd said was.
And then the 2 million our cash is 24 million and then if you look at the working capital amount, which is 408 times that we are going to get a healthy working capital release this year.
Again, we work for some of the best companies in my view in overseas as the some of the largest independent we certainly have provided for customers that we believe.
Our at risk on aged receivables will we get some surprises are probably but we just don't think they're going to be of any significant magnitude that we wouldn't collect that working capital.
In addition to that.
Alloy site.
I am very involved obviously with a lot of the programs that have been put in place to provide relief to businesses about the only one that really applies to companies of our type and size is the carriers act and the ability to carry back previously incurred and allow us to prior years, whereas before.
We were forced to carry those forward, but I will tell you now that $41 million is looking pretty nice right now and we've assumed that comes in in the second half of this year and so that will be helpful and of course, it is not something that needs to be repaid.
Those are more the puts and takes on kind of the working capital really maybe some unusual cash inflows in terms of the tax refunds coming out of the carriers Act, but we're not counting on any.
Equipment sales within a consequence.
Got it very helpful recap, thank you sandy.
Thank you.
Our next question is from Kurt Hallead.
Kurt you may begin.
Hi, good morning, everybody.
Hi cart.
Glad glad to hear that everybody with respect to families are doing well.
Thank you you too.
Thank you.
Couple of follow up questions kind of coming back around to the negotiations that you're doing for the NPL.
Some of the some of the ratios related related to that.
So the first the first dynamic I'm just kind of curious about is on the interest coverage ratio.
That is that the cash only portion Lloyd or is that based on the total interest expense number.
Interest coverage zones, the cash interest expense, but thats, an existing facility that will not be and the amended ABL facility.
And on it on the that's net we'd never even being close to that because again cash interest.
On the revolver of course, but then the cash interest right on the convert it now less than $3 million the year, because we bought back some of those convertible bonds at a discount right.
The minimum is three times and work we've been double digits since inception.
Alright, great. That's that's helpful and does that tax refund does that does that.
Come into play with the leverage ratios at all or in that in the coverage ratios just curious.
But just reduces net debt.
Okay.
And then I mean.
As I told you our net debt at the end of March was 48 million and we expect to get 41 million in tax credits. So again that gives us a good amount of comfort.
Net net debt with respect to the revolver borrowings correct.
Got it great lakes. Thank you for that and then just lastly Sunday. Thanks, so much for.
At least providing us some some context around how to think about the decremental margins as we go through this downturn.
So.
If I if I take my own assumptions on activity levels that revenue and take those EBITDA margins.
Here's.
30 basis, you could be EBITDA negative in the second and third quarter I always want to make sure that I.
I don't.
Overestimate or underestimate on those dynamics so directionally is.
Is that all things will probably play out based on that you were looking at where though.
We are doing everything we can to not have that happened, but when you factor in severance and.
The second quarter I do think its cost of possible that we go modestly negative, but not have any greater.
Nipigon.
Great and then just one last follow up when you indicated that after the second quarter.
The decrementals could potentially cortical normalize to the 30% to 40% range.
Is that 30% to 40% exclusive of the cost savings benefits.
Yes that would be more product line decrementals.
Okay Awesome alright, thank you for that cover.
Thank you.
Again, if your question. Please press Star then one on your Touchtone phone.
Yes. This time, we do not have any further questions.
All right everybody that joined our call I just want to extend my thanks to all of you. We appreciate your commitment to the energy industry through this very difficult time and.
Specifically your support for oil states.
The lot of work, it's a busy week and.
We need you guys and to continue to follow the industry and the healthy high integrity way that you always have.
We do believe that this it while top we're going to be one of the company's that makes it through these unprecedented challenges and all I can say as collectively for all of US. We all look forward to better days ahead, I hope you have a great weak and a successful and.
To the earning season take care.
Thank you ladies Jamel may now disconnect. This concludes todays conference call. Thank you participating.
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