Q2 2020 RigNet Inc Earnings Call
Ladies and gentlemen, today's conference is scheduled to begin shortly please continue to stand by and thank you for your patience.
[music].
Ladies and gentlemen, welcome to Rignet second quarter 2020 earnings Conference call.
My name is Towanda and I will be you coordinator for today.
At this time all participants on in listen only mode.
We will be facilitating a question and answer session. After their prepared remarks by management.
To ask the question during his section you will need to press Star then one on your telephone.
I would now like to turn the presentation over to leave all the strong reconnect senior Vice President and Chief Financial Officer.
Oh strong please we'll see.
Thank you Towanda and good morning, and welcome to Rignet second quarter Twentytwenty earnings call a copy of our earnings press release, what's supporting schedules, including schedules, which reconciled the non-GAAP metrics will discuss today to GAAP metrics, you're supposed to do our website www dot rig dot net under our Investor Relations page.
There's a view who would likely releasing PDF format, we posted that as well.
Before 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 in future plans that aspirations are forward looking statements involve certain risks uncertainties and assumption.
These include but are not limited to the risks associated with the general nature of the oil and gas industry customer and other third party interactions our strategy.
The impact of Cooper 19 in our business P.P.P. loan forgiveness and other factors detailed at the risk factor section of <unk>. Most recent annual report on form 10-K and in our other filings with the Securities and Exchange Commission.
Should one or more of these risks or uncertainties materialize or should underlying assumptions prove incorrect actual results may vary materially from those indicated.
Net disclaims any duty to update the information presented on this call and now I'd like to turn the call over to fees pickup Rignets, Chief Executive Officer, and President Steve.
Thank you Lee.
Good morning, everyone and thank you for joining our call today.
The phone with me is Lee our CFO as well as Arrow, our chief operating officer.
There's no doubt we're living in extraordinary times and I'm pleased to report that the Rignet team is responding in an extraordinary way.
Around the World Police have continued to work from home where possible driving the business forward.
Our field technicians in workshop personnel have enabled us to meet our customers critical communications needs and continued progress on her coincide projects.
Yeah and are specialized apps in I O. T. Teams has helped her customers continue to drive operational safety savings and safety improvements.
It hasn't been easy.
A number of our employees in various locations has been diagnosed with Covance 19 into our great sorrow lead lost an employee and our Mexico operation to this pandemic.
Yeah, we persevere.
Nothing is more important since opening her earnings call today, my thinking each and every employee for his or her contributions to the strong results leasing bigger for stakeholders in the second quarter.
On behalf of the management team and board of Directors. We appreciate your commitment to Rignet and thank you for everything you're doing to make written that a success.
Yesterday after the close.
Rignet recorded a net loss for the second quarter $4.3 million were 21 cents per share based on revenues of 53 week $4 million.
Impacted coated in directly associated with oil price decline, we do smoke revenue on a quarter on quarter basis down 9.1 person and a year on year basis down 11.5%.
Nonetheless, we reported adjusted EBITDA non-GAAP measure, we defined in our press release and one of our key performance indicators for the $9.7 million up 16.2% compared to last quarter.
Down less than 1% relative to second quarter 2019.
This was due to work strong cost discipline. It was how are the diversification of our revenue stream across the energy value cheap.
Combined with the increasing contributions from the products services and software within our grown apps and I will keep business.
We will provide some more color on the financials.
Well, we're pleased with our results during the second quarter like you were thinking about the outlook into third quarter and beyond.
Our last update I characterize the business environment, it's a mixed bag in terms of opportunities.
It's fair to describe it that way today as well.
Certainly we've seen a slowdown is rigs stacked and fixed production platforms, particularly in the Gulf of Mexico have shut down with oil prices in the second quarter falling below the economic limits required to keep them operating and with storage capacity, reaching peak levels, yes.
Although we've seen some reversals and stacking to last week.
We remain focused on cost controls and new business opportunities in the coming quarters to help us offset any further declines in the upstream market.
Some of the second quarter platform shut ins required us to relocate nodes associated with our own infrastructure in the Gulf of Mexico, driving up cost many of which we captured in our could add back to adjusted EBITDA.
I like the magnitude of the changes we saw more tower moves in the Gulf of Mexico due to production towards temporarily shutting down in the second quarter than we've seen in the previous three years combined.
We we also continue to see some of our contracted revenue opportunities like some of the Dsos in Brazil push out hurt them in time.
Likewise is drilling in project plans are delayed new opportunities to drive growth than Mcs absent aiotv aside projects are being pushed out although not necessarily been canceled.
The good news is that there's still significant amount of activity related to new business.
For example, our bids and proposals team completed more than 140 different Mcs and absent aiotv quotes and proposals during the second quarter, including a couple of significant Mcs related deals.
In the system integration business. We've responded to 34 tenders in request with verification during the second quarter on a variety of projects, including LNG plants.
Offshore platforms and it sounds.
Yes, I team has also done a great job working with customers get developed protocols to manage virtual factory acceptance test ensuring that we can continue to deliver to work site in support of projects.
Well this is bidding activity not awards, we're pleased that opportunities appear to be available in our kids customers continue to plan do projects.
Intelli continues to gain traction, particularly the Super majors, we've added one new European Super Major this quarter related to regional deployment AI back machine learning platform has been invited to participate in their tender for you said this platform in the global real time operations Center.
Second Super Nature is expressed positive feedback related to our performance during their paid PMP and we are in the contract negotiation phase within today.
Another well deployment.
Ian.
Another driller contracted to use intelli platform and specialized applications to support their drilling operations offshore.
Finally, we're expecting to ramp up on telly support for BP late in the third quarter to further supports a complex in diverse global operating environment, which will increase recurring revenue.
Outside of oil and gas, we've expanded our intelli applications of manufacturing.
Currently using the Telly real time platform to monitor utility consumption to drive operational cost savings, while also reporting on environmental KP eyes in support of sustainability programs.
Our first multi reaching customer is a global household thing we have several other top tier non oil and gas companies in different stages as the pipeline.
Which highlights our ongoing work to grow and diversify and other industry verticals leveraging our best in class technologies.
During the quarter, we recorded Telly is now post held read through the Microsoft partner program.
This means not only is intelli available cookie issuer marketplace.
We are engaged with various smart Microsoft teams working together to show potential customers the benefit of Intel These real time machine learning running in Microsoft Seashore cloud.
We've also been invited by Microsoft to showcase Intelli Houston Innovation Center.
To do that as soon as koby restrictions are lifted.
In fact, our developing channel programs until we've seen some tremendous strides this quarter and we've opened up multiple prospects through these channels, including opportunities with Microsoft in North America, and with a major operator in the middle East.
And in conjunction with a top consulting group, who we are working with joint opportunities in Southeast Asia and North America.
And with our previously announced channel partner in Latin America.
We are providing services to both the Nash the major National oil company and international operator with that Latin American channel partner.
In cyber security Arena, we announced the launch of our new sites for capabilities, which deliver approximately 400% performance king over the previous offerings.
We've also worked to ruggedized for applications to ensure that we can more effectively address harsh conditions in remote industrial settings and mobile platforms.
Expanded our other security services as well.
Adding AI back Soc for security operations Center services for one of our drilling customers to help them guard against increasing danger from cyber attacks.
Despite the challenges and this new environment, we've actually seen a number of new logo wins this year, adding approximately 8 million new customers across our segments in the first half of the year.
And we've expanded our reach within approximately 12 of our existing customers serving new areas within the organizations.
The actions, we look across the business at our largest customers.
Our top 10 customers generated about 40% of our six month revenues.
Eight are generating revenue across multiple business segments.
Expanding this to a top 20 customers, who told you about 55% to their six month rather.
15 customers are generating revenue across multiple segments.
[laughter] solid confirmation that our strategy of diversifying our business in moving up the value chain by building a vertically integrated technology company is being well received by our customer base.
And is how big is helping us gained market share and share of wallet.
Speaking of diversifying our business in government.
He also becoming GNC listed in March or other big news during the quarter. This design EBIT contracted CAC internationally.
Collaborate under you box secure a voice and text.
The government users.
See I see I feel box provides a secure way for government users to interact with each other without using third party public applications. They could present a security risk.
Rignets contribution is the breakout feature which allows users to collect on that's not running the steel box app, while keeping the communications secure.
CAC eyes marketing steel box to a wide variety of government agencies Rignet will receive a monthly per user fee for each subscription that includes the breakout feature.
Considering that the federal government issued more than 4 million cell phones that are subject to controlled on classified information requirements. The target market is significant.
Well, it's very early days the systems up and running the number of users already online and we're hopeful that this will represent big nets.
But certainly not less successful foray into the government sector.
Therefore, further diversifying our revenue stream.
Before I turn it over Lee, let me talk a little bit about the customer competitive landscape going forward.
Could 19 in the related commodity price dynamics is continuing to be Catholic across many industry sectors.
Oil and gas more companies as filed restructuring plans this year than filed in all the 2019 looking to probably see this number pass the high watermark filings in 2016 before the years out.
I want to remind our investors like a critical nature of the services, we provide not only on the communications front, but also in terms of some of the software applications were providing good enable customers to food safety in both operational and financial performance often result, rignet being critical.
Vendor when our customers filed the organization proceedings.
So far.
In cases, where a customer has filed a restructuring plan, we continue to be paid including pre petition that.
And as I've said before it in some cases, we've been paid on a more timely basis after the filings.
I point is we provide a central services to support our customers ongoing operations in we generally have not seen major debt.
Bad debt exposure when a company goes into chapter 11 restructuring.
Of course, the to also seen some competitors for restructuring.
They too are continuing to serve their customers and participate in commercial activities in the normal course.
Competition remains fierce, but so far we haven't seen anything crazy in terms of the commercial environment.
Finally, with respect to our own balance sheet, our leverage ratio remains just over three well below a 3.25 minutes that include having $6.3 billion PPP funds as part of our debt, which we expect to be fully forgiven.
And based on published timelines for that forgiveness process that amount is expected to come out of our debt calculation before the end Q1 Twentytwenty one.
So to sum it up.
We're in a challenging environment right now, but we do see.
Opportunities looking ahead.
We're going to continue to focus on our cost both our operations and our back office I think the team is doing a great job there.
We're also going to continue to be in cash continue to pay down debt. We continue to pursue new revenue opportunities across the energy value chain and the new verticals like government.
All right like tightly managing our capex spend.
With that let me hand, it back to lead.
Thanks, Steve and I hope our listeners are all think fake healthy during these difficult times.
Let me start with a recap of second quarter results at a high level I'll provide some additional detail at the segment level and I'll conclude with some comments on the balance sheet and liquidity.
Consolidated quarterly revenue for the second quarter was $53.4 billion, a decrease of 9.1% from 58.8 billion into first quarter of 2020.
Compared to second quarter, 2019 revenues declined 11% from $60.3 billion.
The revenue declined between the first and second quarters of 2020 was largely due to Mcs as a result of a reduction in site count in this challenging environment as well as lower equipment resale of the second quarter.
The reduction was partially offset by a small increase it both ESI and our value added applications and absent aiotv.
Decreased compared to Twoq 19 was primarily due to mcf, coupled with that side and again, partially offset by the continued growth in apps and I I see.
Net loss attributable to common stockholders on the second quarter of 2020 with approximately $4.3 billion or 21 cents per share.
This compares to net loss of 26.8 billion or $1.34 per share the first quarter of 2020.
Recall that the first quarter 2020 included a 23.1 billion dollar noncash impairment of goodwill excluding the impairment charge resulted the first quarter 2020 were a loss of 3.7 million or 18 cents per share.
If the second quarter 2019, Rignet printed a loss of 6.2 billion or 32 cents per share.
Absolute terms the net loss in Twoq, you 20 was about 17% board that one Q 20, and all those 30% better than Twoq 20 Nike.
Note that the two Q 20 loss included a 3.9 billion dollar noncash charge related to an increase of the fair value of Intelli and the earn out contingent consideration.
This increase reflects our expectation that intelli is more likely to meet its full payout under the earn out agreement as recently amended.
As Steve mentioned the team delivered strong adjusted EBITDA performance for the second quarter 2000, $29.7 million, a 16.2% increase compared to 8.4 billion into first quarter of Twentytwenty at a less than 1% decrease compared to 9.8 million in the second quarter of 2019.
Let's move onto the segment.
And it's communication services or Mcs revenue was 34.1 billion for the quarter compared to 39.9 billion. The prior quarter at 41.2 billion in Twoq 19.
Revenue compared to the prior quarter was down about 14.4% driven by a decrease in site count at lower equipment sales.
So I count and equipment sales were also higher in the second quarter of 20 Nike.
Significant gross margin in that segment gross margin in Twoq 20 was down it was 32.7% down from 36.1% in the first quarter of 20.
Add from 39.3% into second quarter of Nike.
One of the key reasons for the decline in margin from first quarter 2020, with our inability to reduce our bandwidth commitments with suppliers as quickly as our customers stacked rigs or shutdown sites.
No we don't secure bandwidth.
On a per site basis that we generally try to commit to our suppliers for longer terms to help ensure we get the most favorable pricing.
It could lead to a mismatch in our supply versus customer demand when the industry goes through the kind of up people. We've seen the last few months.
Although some of our more recent contract that contract amendments give us more flexibility to reduce bandwidth commitments to our suppliers during a period of stacking that existed in the past.
Our engineering and procurement teams are actively working to identify and negotiate further potential network related savings and we expect to see some of these benefits beginning in the third quarter.
It shouldn't be a surprise or Mcf site count for the second quarter 2020 was down compared to both the previous quarter at last year comparable quarter.
At 12 29 on June Thirtyth were lower by 122 sites compared to one Q 20 at down by 155 compared to be 13 84 in Twoq 19.
Offshore actually held up comparatively well quarter over quarter.
Stacking reduced net rigs by three.
We're also lower by 49 production sites offshore 36 of them in the U.S. call what customers are shutting it platforms or did shredded platforms, some of which we believe will be temporary.
As a result of lower oil prices and limited storage capacity.
Finally maritime sites were down by 16, and other sites, which were largely U.S. lad decreased by 54.
Absolutely Ti revenue was 8.8 billion for the quarter up 0.7% compared to 8.7 billion to the prior quarter add up about point $8 billion or 10% compared to the 8 million in the prior year quarter.
There are a number of moving parts here. So let me give a little detail in Aiotv revenue on bandwidth usage was up slightly compared to one Q 20 down slightly compared to Twoq Nike we.
We also saw lower equipment sales in twoq compared to both quarters.
Yes apps, our SaaS revenue increased both quarters on both quarter on quarter and year on year.
The increase was largely the result of been Kelly ramping up across a number of customers specifically intelli QQ revenue was up an impressive 50% relative to Q2 19 at 14% higher at that one Q 20.
The split in Q2 20 between absent IP was about 50% Aiotv, 50% apps.
We continue to projected this segment will be increasingly lover toward apps in the future.
Systems integration revenue for the quarter was $10.5 million up 3.2% from $10.1 billion did one Q 20, and down 6% from 11.1 million in the prior year quarter.
As you know revenues are tied to our progress on progress that's a revenue with sometimes I need it.
In Q2 as in Q2 Q1.
We made good progress on these projects I.
I think our team has done a very good job working around some of the physical restriction that had been in place during the co bid locked down.
Backlog of business declined to 15 declined to 15.9 billion as of June Thirtyth Twentytwenty from 22.4 million in the prior quarter.
Gross margin for ESI increased to 28.4% from 22.1% in the prior quarter analysts down from 36% in the prior year quarter.
The GM and the second quarter of 2020 was impacted by timing of productivity on certain projects compared to the prior quarter.
SGN expenses totaled 11.7 million in Twoq 20, compared to 16.6 billion, one Q 20 add to 17.4 million in Twoq 19.
The decrease compared to prior quarter is largely due to stock based compensation as we pay our short term bonuses in equity in the first quarter of the year.
Next gionee and the prior year included legal costs of $2.2 billion associated with the Gx settlement.
There to the prior year and prior year quarter.
We have cut costs and travel professional fees and marketing and other expenses as a response to the co good Nike pandemic.
And of course, I mentioned, the 3.9 billion dollar noncash charge related to an increase in the fair value of the Intelli earn out consideration earlier and robot did my remarks.
Capital expenditures for the three Bucks ended June 32020 totaled 3.1 billion compared to $3.7 billion and one Q 20 at 4.6 million in Twoq 19.
As of June 30, Twentytwenty accrued capital expenditures were point $7 billion compared to point 9 billion as of March 31st 2020.
And 1.9 billion as of June Thirtyth 2019.
After accounting for the accrued capital expenditures capital expenditures on a cash basis were 3.3 billion for the quarter ended June 30 2020.
Second quarter Capex with substantially composed of success based commitments and other capitalized labor.
During the quarter, we generated about $2.1 billion or free cash flow after making our principal and interest paid this is up from about this is up by about $400000. Sorry, excuse me. This is up from about $400000 in first quarter.
We calculate this free cash flow by starting with adjusted EBITDA, and subtracting capex cash taxes, and other cash add backs as well as PXI.
Looking at our Unlevered free cash flows.
We start with adjusted EBITDA and subtract Capex, we increased to $6.6 million in the second quarter up from $4.7 billion into first quarter of 2020.
With respect to the balance sheet as of June 32020, cash was $15.6 million up $2 billion from March 31 2020.
Our outstanding debt was $115 million, including both current and long term.
At quarter end, our consolidated leverage ratio as defined in the credit facility was 3.03 versus our cap of 3.25.
And as a reminder, that's on a gross debt basis with the terms defined in our credit agreement.
We are continuing to manage our liquidity, but as we said last quarter it remains tight.
I will note that a our is up about $6 million from March 31, but that is entirely due to some significant yes, I invoices that we've set out at quarter end.
And we expect to collect those amounts during the third quarter.
Also remember that our long term debt now includes $6.3 billion, a paycheck protection plan loan proceeds, which we have used for payroll costs as defined under the program.
We anticipate filing our forgiveness applications in near future and what we cannot offer guarantees we anticipate obtaining full forgiveness for the maximum about removing this amount from our long term debt by the end of one Q 21.
Driving on the forgiveness is governed by a public process and includes 60 days for our bank to review the forgiveness applications one could file.
And then up to an additional 90 days for the small business administration to review the application.
These fund to provided us much greater flexibility to continue to support over 290, U.S. jobs and enabled us to delay that any workforce reduction.
That concludes my remarks, Steve and I think with that to wander we're ready to open it up for any questions.
Thank you.
Ladies and gentlemen, as a reminder to ask the question you would need to press Star then one on your telephone.
To withdraw your question press the pound cake.
Again, that's not wanting to ask the question.
Please standby, while we compile the Kunai Boston.
Our first question comes from the line of Allen Klee with National Security. Your line is open.
Yes, hi, congratulations on a relative a very good performance during tough times, starting with the Mcs segment.
[music].
We all oil oil has now stabilized a little over $40.
Can you talk a little more about maybe what you're hearing from customers in terms of.
Does it feel like we might be approaching stability or the.
It's still I'm kind of a concern.
Yes.
Thanks for the for the comments indeed, the team delivered a great quarter in terms of feedback from customers, who we are on here recently getting some information from the market.
Some of the stacking that that was announced.
In the second quarter is beginning to be rescinded and we're also beginning to see platforms that were temporarily shut down to the Gulf of Mexico turned back on as well.
But I think we're still live in an uncertain period.
So we're going to remain cautious and remain focused on.
Managing costs to ensure that.
Yes, but if there is further stacking or further shutdowns.
The Gulf of Mexico related to production platforms that a.
Properly prepared for that.
With that may be a lead to just anything you want it to supplement that with.
Ill.
I'll, let air we'll go first if you see a he's our customer facing expert.
Yes, so Alan.
Said, many times to our staff.
[music] weeks is not a trend, but we are seeing you know these stacked rigs going back to work is very encouraging.
We've seen a number of opportunities coming back into the Q.
We're quoting so we're in the proposal stages for a number of opportunities.
So yes, it would be good to see that all things look good going forward, but.
It's too early to tell but we are seeing some encouraging signs.
Yes, I would just agree with with Errol there just in the sense that.
As you look at some of the drilling contractors and their publishing their fleet status report.
They are announcing some new contracts and as we try to keep track of whats tenders might be out there. There are some reports of operator, it's continuing to have rig needs and moving ahead with tenders in the market. So I think that's a.
Cautiously optimistic side.
That's great and I would think with with some as you guys outperforming some of your competitors.
I have been challenged can you talk a little of.
Maybe if you feel that.
Given that you have an appeal, but you've had an ability to maybe gainshare and and what you're seeing if people are being somewhat.
Rational pricing or there's been a change on pricing.
Yes, we said, we're not seeing anything crazy as it relates to the market dynamics.
Dan Yes, one of the reasons why we wanted to highlight the the number of new new logos that we've secured during these last six months is to emphasize the point, you're making which has indeed.
We continue to gain share in that and I think thats. It's all about the very strong performance that our team is delivering for our customers.
We believe with Premier provider.
In the market and I think customers are increasingly.
And that based on their experiences with us.
Yes, I might add to that when you look at.
Our business.
Most important thing for US right now is to secure the core.
Holding on to our customers.
The work that we've seen this going away is actually campaigns ending or rig stacking, but we haven't been losing customers.
Pretty proud of that team has done a good job to make sure. There are customers are being serviced even in challenging.
Challenging times so.
That's the key thing so.
When you can hold on to all of the customers you have.
And then pick up some market share from opportunities are coming about that.
It's a good position to be yet.
But that's great are going to move on to apps and the Io to.
I thought the performance well the performance outperform my expectations.
[music].
And on one thing goes up margins were much better than I thought it.
And so maybe if you could comment on that and then the idea of apps versus.
So to me, maybe just remind us on what's driving the growth in apps and and how you think about the margins there.
Yes, So let me start I'm sure you should leave will want to add to add on.
In in terms of apps, whats, which really growing the what's really driving the growth there is intelli.
You mentioned pretty substantial year over year growth and in that particular line of business and frankly, we're still in early innings as it relates to that many of the contracts that we've signed are related to substantial regional or global deployments and really really at the very beginning.
So so we certainly have.
As an expectation that to that that will that will continue.
In terms of the gross margin expansion, yet and who delta is.
Helped by the increase revenue on Intelli.
Gross margins.
Software based real time machine learning platform.
Are considerably higher.
Gross margins that we see in other parts of the business.
Yes, Hi, Alan remember you know one of the key elements of the whole apps.
Business and the strategy around that and particularly with Intel is you spend the effort to develop the apt one.
And then you resell it right and when you resell it the cost that we experienced is pretty low there maybe a little bit of customization work on a particular app that that we're selling to one customer that we then sell the same have two different customer and we have to do something a little bit different but the framework.
GVE that app effectively doesn't change right and so that should by definition push margins higher.
And I think what's driving it is no matter, where you look at the oil and gas industry. You continue to see customers talk about moving towards a digital strategy.
And this is an industry, which frankly in many ways has lagged many other industries and moving towards digital and getting the benefit of the digital Revolution.
So what we're seeing is.
Again customers, who who don't have the internal resources, who actually can't do this in house.
<unk> cost effective manner, turning to companies like Rignet to where we could bring very cost effective incredibly innovative and impactful application into their business that helped drive their financial performance their safety their environmental and their operational effectiveness and until I think that's why.
You are seeing and Kelly in particular have the kind of success, we have not only inside oil and gas, but now moving outside oil and gas into some other manufacturing arenas.
Thank you.
The khaki partnership sounds.
The positive on multiple fronts.
Could you give us a sense of kind of when this starts up and.
How are the.
Hi, how the sales process works.
Like I assume it's being sold by cocky, but if you could just go through that.
I'm sure it has started us.
So so we're quite pleased by that it's again very very early days, but there were a number of users on the platform are ready and no doubt we're committed to supporting khaki as a is they sell into the into the is it the government sector, but they will absolutely be the leading the sales sales effort as it relates to that.
And just so I understand it's just since happen. This happens for someone who already has a phone or is your opportunity with a new government phone sale.
And yeah that alternative way of communicating is much more secure than some of the yeah off the shelf consumer grade solutions that are out there. So it's really well suited for the government for the government market.
And an island you know as as you can no doubt, let's see from just the headlines right even even the recent headlines with all of the concern around various apps and the security.
Issues that they may possess alright security and communicating is top of mine for the U S. Government. So it's a it's a very good opportunity for us with things.
Yes, it it seems that way.
Then the systems integration.
I I'm trying to think about your results were good the pipeline.
Has been declining is given the environment. We're in but then you also talked about.
A lot of opportunities to bid on so so I'm trying to figure out how how to think about how this is gonna play out as the pipeline has been shake is shrinking <unk> can you maybe give us a sense of the existing the length of the existing contracts and.
And.
Like if you do when somebody's new potential projects like how long it would take for them to maybe get to actually <unk> for you to start working on them and to get revenue from them.
Yeah sure well so.
Go ahead and go ahead.
I I was Gonna say first let me let me just.
Offer a slight correction.
The the backlog has been decrease in your correct about that the pipeline, which which I would say is the list of opportunities that we have that were bidding on that are coming in and the door that the team is is responding to I would say the pipeline is as robust ever.
And so the question really becomes okay. When are the customers who are reviewing the bids.
Going to start making decisions to launch off on these projects.
And I think is Steve mentioned, maybe earlier in his remarks. The good news is we're not seeing these private canceled.
Just being pushed out a little bit to the right. So typically we have work that is on a contract basis anywhere from six months to up to for a large project maybe three years.
And so we have a number of each of those types of opportunities in what I'll call. The opportunity pipeline that we've responded to know so Steve.
To add anything.
No that was very thorough thanks.
Yeah, and I might add to that to the.
I Gotta Echo with lead you said, it's the pipeline that's building up because of the whole cobin situation. These these projects aren't getting kicked off but they're still in the planning stages.
Expect that when things start opening up that these awards they'll start happening we've got not only.
A large number of opportunities already that has been quoted but a large number of opportunities in Q2, new quotas over the next couple of months.
Oh, Great and then just one or two financial questions.
In terms of I'm, sorry, I lost where it was [laughter].
Yeah, so with free cash flow and you're you've been doing a good job and managing that.
I would say that the two things are.
Your ability to manage working capital and capital X.
How do you think about those and I think you did talk about the working capital at least on the jumping the E R and what.
Some of that it'll get collected next quarter, but just in general what you're doing and how you're thinking about those two things that you can sometimes control.
So I'm a capex side it's.
<unk> you know.
Most of our Capex right in a normal year, probably 80% plus of our Capex is success space.
Alright to the to the extent that were.
Putting equipment on a new F BSO or a new set of riggs or something like that we're spending money what we're not watching.
Put on a new customer you're doing a bunch of installations, we're able to pull that back very naturally. So it's a it's a fairly natural kind of decline in capex spend if you're not.
Stalling on a new set of basis now that could change pretty quickly right. If we [noise].
With a a clique deal for example, you're gonna see Capex go up but then that's obviously going to drive future revenue for it. We've also got a really good job I think in our procurement and operations group.
[noise] reusing equipment that we have available that maybe you could come off stacked Riggs.
And.
I had been very very effective in reducing our actual cash capex costs by using inventory that we have on hand.
With respect to a R N E.
P and other elements of working capital we continue to manage that I I would say really every company out there in terms of our suppliers and our customers.
Everyone. It's focused on the same things.
So I think we all recognize that there is a bit of a strain on the supply chain it'd be difficult times.
And and companies are working together I think pretty effectively to ensure that there's no service interruptions for customers.
And take care of the issues as they arrive.
That's great. My last question I thought it was interesting when you were talking about your cost of bandwidth and the ability to.
To react.
When there's a downturn and you've.
Said, you you might get some savings and three Q could could you maybe maybe just elaborate a little bit on that of.
Like.
All of the bandwidth commitments you have of how.
How much your ability you have over time if this is.
M. A S a longer downturn of that you can address that.
Do you do you Wanna start or do you want me to sure I'll start them. So so allen.
The date, indeed, and many of our contracts with our suppliers give us the flexibility to turn off bandwidth when our customers are stacking Riggs.
Can be some delay and getting that implemented.
And that so we do expect to see further benefits associated with that contract flexibility hit us in the third quarter, we leave we hit us in a positive way.
And the third quarter.
But we haven't quantified what that has been at least not publicly.
Okay great.
[noise] canoeing team is laser focused on that.
Great. Thank you and congratulations on them.
Very good performance.
Yeah. Thank God.
Thank you.
Is it reminded ladies and gentlemen that star one to ask the question.
Our next question comes from Milan, and Bryant Ludo Emerson Your line is open.
Hi, guys, thanks, great quarter.
A couple quick question says digital oilfield seems to be a buzz among many of the <unk>.
Integrated's and some of your customers.
Excellent or was called out by bakery shoes for North Sea digital oilfield <unk>.
[noise] SAS opportunity is that is that part of your partnership with Baker Hughes.
In Ecuador, since they're both <unk> customers with Ya.
They are so first of all Tonight. Thank you in that yeah.
Both both of our customers of ours, but not specifically related to that to our real time machine learning initiatives did not let me say specifically <unk> is that is not one of those customers.
Okay, and then you talk about just.
Business absent Iot in particular, what do you see the Cam over the next three to five years.
Very substantial and with it with a great grilled trajectory.
We haven't publicly disclosed what we what we view that is being that I think there's a fair amount of.
Data out there in the public domain.
About that and that date of the suggest it's billions of dollars just in the oil and gas market and of course set you know the until he platform although it.
Clearly deployed it quite rapidly in oil and gas what makes it so competitive into oil and gas makes it quite applicable in other industries articles as well so for us to T. M isn't just oil and gas T M.
Tam across a lot of different industrial sectors, particularly those industrial sectors, who really need a real time solution. Indeed, a solution that's really optimize the handle very significant amounts of data.
Yeah sure.
One of the last studies I think I saw in that we had put in a fly a couple of versions of our bester deck ago.
Suggested that the the Tam in.
It'll oilfield overall, what's up over $30 billion.
And so that's that's obviously lots of parts and pieces in there and I don't think that were saying that.
We can address all $30 billion of that but if a bigger number in oil and gas and it's a big number in other verticals that we're targeting.
So I think there's a huge runway here for and Kelly.
What do you think that the what <unk> are we in in terms of penetration.
As a as in industry not so much as.
For you guys individually.
My email is E as in industry would read kind of second or third.
And I think as it relates to <unk>.
Really are than that.
We just been yep, it's thrilled with them how quickly it's been embraced by the by the energy sector.
And how innovative it is and but we're earlier on as in as a matter of fact, some of our Windsor related to displacing some early movers in that market, which would you know hopefully highlight to your chest how differentiated.
Platform isn't.
I think that's and that's a great point.
In <unk> and similar to S. I I would imagine what is your was it for S. I your pipeline is or your your opportunity set the street silver bus to your request for.
For proposals. This was that also carry into out Tonight on T and SaaS [noise].
It does Bryan is a matter of fact in in the S. I part of the business. Yeah. We responded to in the range of about 40 <unk>.
<unk> opportunities or clarifications.
You'd previously provided but in the combination of absent I O T and Mcs the communication services business that number was 140, so it's really quite brisk.
And then in that excited to see if not just growth within existing customers, but.
Landing do logos, even during yeah. This this tumultuous time that we're going through.
What did I wasn't really interesting is.
It wouldn't be just make one one quick comment what's really interesting is particularly within Kelly, we're actually seeing some of the inquiries.
Because they found US alright, and this is this is both I think inside oil and gas, but certainly from outside oil and gas.
People I've heard about it and Kelly I'm Gonna say, Hey can you guys do this.
Will say well, yes, we can and here's here's how we can help so that's I think a positive thing even without.
Marketing directly into some of these other verticals.
The business is coming up.
With with the 140 request, what kind of Delta is that year over year.
And also would you say that's E N C as well as energy and particularly interested in your exposure to E N C given potential for infrastructure spending wood.
I've seen a lot of awards outage customers like floor, you have relationship with floor and some of the maybe Jacobs as well.
Activity levels seem to be promising future awards, so would that translate into future business with you guys.
<unk>, yes, and indeed those are those are all.
Customers that we've had historically.
And I would say, particularly in the absence I O T area. The spun would indicate very good opportunities for growth.
The last question in terms of.
Joint venture network golf assets with T mobile I believe they announced that.
They will be able to expand to five G capability.
What's your utilization currently in the network and get him the Tampa net.
Been an acquired a similar assets.
It looks like it might value you guys. Some network at 100, and 250 million what what I'm getting at is is there the potential too.
So a portion or all of the network and then just leaseback it seems like it would be [noise].
Similar to offset a interest expense if you <unk> bye.
Selling the alpha too investor leasing back a critical would be your capacity utilization.
As well yeah.
We still have a a material amount of capacity available on that wound infrastructure.
No doubt deep.
The opportunity you just described in terms of C. L leaseback out absolutely exist and yeah, just just gets back based.
And I agree with you I think the value of that owned infrastructure as it is very much under appreciated in the in the public Marcus as it relates to us in competition with that with <unk>. A couple of things that are really striking about the difference between the two networks.
One is as a result of our partnership with that T. Mobile we're actually access we're using frequencies that are much lower.
Emotional much lower spectrum and so we're operating at 600 megahertz of a T mobile and 700 megahertz that penetrates.
Into these big off shore facilities much more effectively number one number two the network is upgradeable to buy G. Sorts of four G and five G enabled Ah network and then finally, our our network tends to be much more resilient in terms of.
Battery backup sooner storm comes through and there's a need to turn downtown locally.
Network is going to stay up and running for much longer period of time supporting evacuations of the of the platforms and in some cases still operating to support returned to the platforms when that time when that time comes so there's there's some substantial differences, but <unk> I think there's a lack of that.
Appreciation for the underlying value of that that asset.
Definitely.
T mobile do they market on the golf.
All set to the market on the network and do you share revenue if they do successfully track customers that maybe outside of your verticals and I guess what is the opportunity to.
Given its HM.
Utilization is low which is a good thing in this case the opportunity to get into other verticals through even any <unk> third party reseller, maybe beyond T Mobile's.
So so indeed seem like a <unk> similar to attempt at model almost having an embedded tap net model within your.
Your own your own model.
That makes sense.
So as it relates to to T mobile indeed, their marketing yeah. Their services that run on this owned infrastructure on top of disarmed infrastructure that that Reagan it has.
In terms of the commercial model, where paid a recurring fee for maintaining that network annually.
And we also have an arrangement.
Sure roaming revenue.
Outside of T mobile of course with them after they recovered the cost of up there network.
Gotcha great.
I think I have one more I'll jump into Q for let's see.
[noise] apologies.
Oh, well, our government side with khaki with a khaki award can you kind of walk me through was this admiral the animal rear Admiral that it was hired a.
Year ago.
Is endeavor into government through tacky or was this.
A different sales process.
And.
Was there are there other opportunities within khaki besides.
The.
Emergency response, so I guess the government encrypted offering and can you give us an idea of which government sectors or utilizing at first whether it's you know homeland security or.
Or whatnot.
We don't have clarity and who's using at first but first of all yes.
Jamie is is responsible for our entry into the government sector and is engaged with.
Khaki by the wait year olds very helpful to that to that process as well.
And we would you would love to support khaki in other areas as well.
In that in terms of government there is engagement with the other companies.
Who support the government as well.
But nothing to leave announced publicly just yet, but yeah thrilled with what Jamie is done with the support of the hold organization of course.
To to secure this first win and let's just say, we're quite active looking for other opportunities because our portfolio fits well in the government sector, particularly given archly position in this cyber security.
In the importance of secure networking in the in the government sector and not just the U S government sector by the way, but the government around the world.
Yeah that would be my next question and also at any given the.
Problems, we're having with security, especially from China, I know you've mentioned before rigs being hacked on on almost a bi weekly basis.
You have courses type of security protecting that was instances what is kind of the the <unk>.
What is what is it.
What's the government utilizing now and is there concern.
Yes, there is obviously some concern for security and do.
Using.
Partners, such as T mobile and yourself for the backbone until the App, who I guess, who are we displacing or is this.
Is it is it a large opportunity because of that risk from maybe some other.
I didn't drive.
Yeah, I believe it's a large opportunity because of that risk.
And there's <unk> as far as I know, there's not another secure apt like this available so I think it's it's.
Fresh new frontier for khaki and again real thrilled to be supporting them.
S as they pursue that very big market.
Jamie seem to be quite involved when you said the FCC in terms of I think it was the 911 <unk>.
Respond.
<unk> response efforts in communication efforts in the past is this kind of replacing those legacy type of.
Secure secure comps opportunities.
Just one is not in.
Particularly replacing anything anything related to to 911.
But that that note that T V has deep experience in government.
Obviously, just great leader.
And you know not only not only has great communications experience given his time with the with the S. P C. But it's really well regarded name in the world Cyber security as well. So we're thrilled to that to have them on the team and yeah. He's thrilled to have this first first wind security.
In terms of SaaS, a product and I know you have one test for food food food segment.
Processing.
Pepsi.
That's correct is it is that expanding or is it pretty much operable and are you, adding more features I guess.
<unk>.
Yeah. It is a problem and it's expanding it's expanding both geographically across Latin America, and it's expanding in terms of the number of applications that are being used on the platform and that we think somebody the reasons why it's been.
Adopted there and it's being rolled out there are some at the same reasons why it fits well in other dusk real applications.
So we're actively pursuing some of those other industrial applications as well.
Is this with Pepsi is this directly with Pepsi or more one of their bottlers or partners and I guess since it is expanding in South America.
Are you have you know jumped into other.
Other partners in South America.
With Pepsi national or.
Or <unk>.
Regional <unk> at probably I, probably shouldn't get into the specifics as it relates to a.
It relates to a specific customer, but but it's more broadly Latin America, rather than just South America.
And and we do have E a.
Partner not necessarily for the industrial sector, but in the oil and gas sector that we publicly announced.
In Mexico, and Dunmore brought the in Latin America called <unk>. That's you have been a very good partnership four alright.
Great.
That's great great quarter, I Gotta keep it the asking them, 5000% on EBITDA [laughter] would you like.
[laughter]. Thank you Brian appreciate it.
Thank you I'm showing no further questions N. A Q I will now I'd like to turn the call back over to leave for closing remark.
Hello.
Well, we may have had a connection problem with him. So we did just have a connection problem I apologize for some reason it just it just dropped me there for checking.
I'm showing no for the link rude and thank you I'll turn it back over to leave for closing remark.
Alright, very good well look thank you all very much for joining today, we very much appreciate it.
We'll be back in November to talk about our third quarter results and of course, if you have any further questions. Please feel free to give me a call in the office happy to follow up with you individually safe.
Thank you everyone everyone for joining Danny.
And two.
It was around the world for all you're doing to support.
<unk> M E N D customer.
Bye for now thanks again.
Thanks and have a good day.
Thank you ladies and gentlemen. This concludes today's conference. Thank you for your participation you may know disconnect.
[music].