Q3 2020 Cactus Inc Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the cost to skew tweets blended rents that are in school.
This time, all participants are listen only mode. After the speakers presentation. There will be a question about your session to ask a question during the session you'll need to press star one on your telephone.
I agree the conference you need to reach an operator, Please press star Zero I would now like to run from one of your speakers for today Mr. John Fitzgerald. Please go ahead Sir.
Thank you and good morning, everyone.
We appreciate your participation in today's call.
The speakers on today's call [laughter] jot vendor.
Keith Executive Officer, and Steve Tadlock, our Chief Financial Officer.
Also joining us today are Joel Bender, senior Vice President and Chief operating Officer.
Even vendor vice president of operations, and David Isaac Our General Counsel and Vice President of administration.
Yesterday, we issued our earnings release, which is available on our website.
Please note that any comments, we make on today's call regarding projections or expectations for future events are forward looking statements covered by the private Securities Litigation Reform Act.
Forward looking statements are subject to a number of risks and uncertainties many of which are beyond our control.
These risks and uncertainties can cause actual results to differ materially from our current expectations.
We advise listeners to review our earnings release and the risk factors discussed in our filings with the FCC.
Any forward looking statements. We make today are only as of today's date and we undertake no obligation to publicly update or review any forward looking statements.
In addition, during today's call, we will reference certain non-GAAP financial measures.
Reconciliation of these non-GAAP measures to the most directly comparable GAAP measures are included in our earnings release.
With that I will turn the call over to Scott.
Thanks, John Good morning to everyone.
I'm again pleased with our performance during the quarter. Despite the macro environment. Our results were reflective of the differentiated nature of our products and services are dedicated associates, who showed a tremendous commitment to safety and execution. During these difficult times and our industry leading supply chain model.
Reducing the overall cost of production has never been more important for our industry and cactus is products and services are truly enabling our customers to increase efficiencies and savings.
While our overall revenues were down during the third quarter as expected, we achieved strong margins across our business lines and increased market share in our product business to a record 38% in summary third quarter revenues were approximately 60 million.
Adjusted EBITDA approach 25 million adjusted EBITDA margins were 41% our cash balance increased to nearly 274 million and we paid a quarterly dividend of nine cents per share.
I'll turn the call over to Steve Padlock, Our CFO, who will review our financial results. Following his remarks I'll provide some thoughts on our outlook for the near term before opening the lines for queuing day, Steve. Thanks, Scott in Q3 revenues of 60 million were 10% lower than the prior quarter, but ahead of expectations product revenues.
At 36 million were 12% lower sequentially, while the U.S. onshore rig count fell by 37% quarter over quarter product gross margins increased to 45% of revenues up 810 basis points on a sequential basis due in part to 5.4 million in tariff related benefits to product cost of goods sold during the quarter up from there.
242020, assuming no changes in our public ownership percentage.
GAAP net income was $10.9 million in Q3 2020. This was inclusive of a 1.9 million non-cash expense related to the revaluation of the tax receivable agreement liability book income tax expense was negligible during the third quarter as the company recorded a 2.2 million benefit associated with the revaluation of our deferred tax.
Asset as a result of changes to our forecasted blended state tax rate.
Internally, we prefer to look at adjusted net income and earnings per share, which were $95 million.13, respectively compared to $7.4 million.10 per share in Q2 2020, we estimate that the tax rate for adjusted EPS will be 25, 5%.
During the third quarter, we paid out six 8 million, resulting from our quarterly dividend of nine cents per share. The board is also approved a dividend of nine cents per share to be paid in December of this year early in the third quarter. We also made our annual TRA payment and associated distribution of approximately $23 million. The recent payment was especially large due to a strong 2000.
19 results and the associated tax savings arising from our corporate structure.
We expect the next payment and the associated distribution to be substantially lower in 2021, as such disbursements very directly with imputed tax liability.
Net of the aforementioned TRA and dividend related outflows, our cash position increased by $3 million during the quarter to almost 274 million at September 30th highlighting the continued free cash flow generation of the company for the quarter operating cash flow was $19 million and our net capex was negligible.
Our share gains remained strong.
Based on our customers' most recently disclosed plans, we believe that the us rig count bottomed out in August and expect further rig additions through the year end for this reason, we expect cactuses rigs followed to increase by approximately 20% during the fourth quarter product revenues are expected to witness a similar.
Increase.
Our general expectation is for a general increase in rig activity through the fourth quarter, but recent oil price weakness now provide some reason for caution for the remainder of the year.
Our product EBITDA margins were expected to be in the low 30% during the fourth quarter flat or slightly higher than our product EBITDA margins during the third quarter, excluding the impact of the $5.4 million arising from tariff refunds.
On the rental side of the business revenue was in line with our prior guidance for a low double digit percentage decline.
While our third quarter activity was improved from levels seen in Bay in June our second quarter benefited from a relatively strong April thus hindering our ability to record sequential growth that said, we believe that a further focus on duck reductions early next year should provide opportunities for expansion of our rental business. Although we have the same.
Concerns mentioned earlier regarding the impact of oil price weakness.
We continue to maintain discipline in evaluating business opportunities for our rental equipment, recognizing the value of our goods and serve recognizing the value our goods and services bring to customers. This disciplined was key to our ability to maintain EBITDA margins above 70% during the third quarter.
Looking to Q4, we expect flattish revenue on a sequential basis, assuming there is not such a significant slowdown tied to recent oil price weakness or the holidays. We will continue to exercise pricing discipline and currently expect EBITDA margins in the mid 60 60 percentage for the fourth quarter revenue.
New from our innovations was meaningfully depressed during the early part of the third quarter, but improved sequentially each month.
As an update on R&D in our rental business. We've made substantial progress during this year on the developed on the development of additional products, which will further eliminate iron from location and allow users greater remote capabilities. These remote capabilities provide our technicians other contractors and our clients with safer.
Real time digital monitoring and automation of Frac activities.
Importantly, these additional offerings require minimal capital expenditures Nonetheless pardon.
Pardon me.
We expect to be paid for such enhancements and we anticipate a more constructive environment next year.
Regarding fuel service revenues in this segment continued to be driven by both our product and rental activity there.
This segment typically witness has lower margins during the fourth quarter.
Excuse me.
Due to seasonal elements and accordingly, we expect to see EBITDA margins slightly below 30% for the fourth quarter still higher than Weve achieved in recent years we.
We attribute most of this improvement to cost efficiencies and a focus on labor and fleet utilization I'd.
I would like to close by highlighting a few items before opening the line to questions.
Internationally by travel restrictions have impeded our momentum.
In most markets. We are currently prepping equipment for our first shipment into the middle East. This should begin to benefit revenue in 2021, and we expect to provide additional details next quarter regarding M&A. We continue to believe that consolidation within our industry makes the most sense, where there is scope for significant tangible synergies as our.
Remind you regularly management are long term investors in this business and highly aligned with our shareholders as activity rebounds, our team will continue to evaluate capital capital deployment with returns and free cash flow as our main priorities.
In summary, we're optimistic about the opportunities that the upcoming activity recovery will present structurally cactus is now better position that it was only a year ago as activity in revenue began to recover we expect cactuses results to benefit disproportionately with that I will turn it back over to the operator and.
We can begin Q on a operator.
Thank you very much ongoing reminder, to ask a question you may need to press star one on returns. So that's fine then the number one on your Dennis whom keypad.
Your first question comes from the line.
Thanks, Louise from to be bigger in Hong Kong.
The lines.
Most enough good morning, guys.
Hi, George how are you.
Im doing well I am doing well hanging in there.
Yes, we are doing great. Thanks.
Well good quarter and just.
On the on the rental side, adding run between the lines a little bit it seemed like in.
And maybe pricing isn't exactly where you guys wanted to be as it does seem like underlying completions activity ramps through Q3 and has continued to increase at least in October of this quarter. So is the flattish revenue commentary there more just you're not going to give away high quality products.
Priced it's an acceptable to you guys or is that just some conservatism around seasonality in the fourth quarter, just trying to understand the guidance not process. There, yes, George its its primarily price related.
Price pricing if when you say is not exactly where we want it to be it's not even close to where we want it to be.
Okay fair enough.
And that the market share you guys have put together on on that well and sign in terms of rigs knowledge continues to be impressive and outpace our expectations for share and.
The 38%.
Kind of the commentary that you guys did you grab the incremental market share.
Is that more of a longer term prospect are you seeing continued market share gains as we progress through the fourth quarter, and then where do you where do you see those opportunities and is that driven by some of the deconsolidation or is it.
Selling more products to the same depot, where are you guys seeing it Joe.
George you seem to have cram for questions into one.
Try.
[laughter].
Okay, I mean, obviously.
Market share is always an.
And an interesting topic for our group of investors. So let me say first that if we look at our market share gains to date they've been done.
Disproportionately.
Leverage towards majors and privates, so our core customer base, which is a large publicly traded NPS, while we've experienced increases.
It's fair to say they've lagged so.
So as we look forward to this quarter and the first quarter of next year, we now have a little bit better much better visibility into that group and I would look to that group to account for the additional market share gains. So the large MPS at least in our custom.
Our base have lagged behind those other two groups and they provide us with.
With optimism that we have not reached the ceiling.
Thanks, very much bigger Scott.
Okay. Thanks George.
Your next question comes from the line of pretty small moves from Bank of America. Your line is open.
Hey, good morning, everybody.
Good morning, how are you.
Good so Scott you kind of mentioned.
Capital allocation.
You know in M&A. So you kinda open Pandora's box here, so I'm going to try to see if I could dig a little deeper.
On the capital allocation side, obviously, you've got about 280 million of cash on the balance sheet.
You've got a dividend so how do you think about allocation between raising the dividend buying back shares or kind of saving.
Some cash for M&A.
Hum.
What a surprise in question [laughter].
So.
Let me first tell you that if we've just come off the trough in terms of activity. So having cash is not a bad thing thats.
Thats point number one.
The second point is.
We clearly have enough money.
And we continue to generate free cash flow that sustainability of the dividend or even an increase would not be problematic.
Share buybacks I've never been a fan of.
I think maybe I was for one quarter since we went public but.
That may have been when the price was eight bucks, but I'm just not a fan of that I think that I think the timing rarely works out.
[music].
When it comes to M&A opportunities, which you know I really cant comment very much.
Except to say that.
There are an increasing number of opportunities out there.
And.
We haven't moved on any as you know and I know that and I'm hesitant to give you any further color except to say that.
I'd be very surprised over the next years, if better opportunities don't present themselves that's not to say, we'll take advantage of them because.
We do believe that that there have to be tangible synergies not just an expansion of product offerings and you know we only want to do we only want to engage in.
An expansion that that is end user oriented and takes advantage of our supply chain. So I guess, the playing field is rather limited.
But having said that I'm in this industry is under stress.
And.
And I would stress I think comes opportunities so.
We want to keep the money for for the.
For the near term and see what develops its nothing develops.
As we come out of this downturn than we're going to have to address return.
Return of some of this capital to our shareholders remember were the biggest shareholders. So having the 275 or $280 million on our balance sheet is.
The prospect of harvesting that is pretty attractive to the main shareholders in this business.
Yes that makes sense and so dig deeper into M&A I'll kind of leave it there, but if I could come in come back to you know tariffs, obviously, you talked about it a little bit.
We'll see kind of what shakes out with the president here.
And you know what it means for tariffs, but the source fourth quarter guidance of products margin side I actually missed it.
I will listen to the replay for it but.
But on the guide that you gave for for Q product margins, how much tariffs headwind do you have in there that could potentially unwind at some point next year.
So the guidance was low thirtys for Q4 and as far as tariff.
Tariff headwinds I mean last quarter, we said on an absolute worst case scenario if it didn't get.
Hi extended it would be 3% impact and we noted 1% to 2% is more likely on an absolute basis.
I think we still believe that 1% to 2%.
The more likely scenario and preferably probably more close to the one with Joel working the supply chain a lot and his team in China. So I think that's that's kind of what we're anticipating but a.
A lot of moving parts there.
Okay, all right perfect ill turn it back over.
Your next question comes from the line the Ami Mall from Stephens, Inc. Your line is open.
Good morning, and thanks for taking my questions Marty.
Mortality or are you.
Just fine thank you.
Scott I wanted to start on the market share topic.
You indicated that a lot of the gains come from larger NPS and privates versus your more traditional customer base.
Most of the gains have come from.
From majors and privates from majors and privates okay.
Would you say that a lot of the gains.
Result from interactions in conversations that predate.
The downturn in March and that it's just coincidental that the gains have occurred during this downturn or where do you think that something else in the industry and the customer set.
She has shifted so.
Since the the price of oil collapsed and it's allowed you to take advantage of that shift.
The latter.
And any color you could offer there.
[laughter].
Tommy its the same every time, we see a downturn people.
People that previously were reluctant to speak to you because they were okay with their suppliers are now forced to look wherever they can look and I think that.
Most.
Most customers realize there's not much blood left in the turnip so pricing concessions from service companies are have have clearly peak and so where do you look next you look though thats the easiest place to look right. So they look there first and now they're having to look much more deeply pat productivity.
Efficiencies and then.
It's my feeling that is as our customers look at their peers and they see.
They see their peers using cactus theres, they're obviously Q.
Curious as to.
Why and so I think that market share sort it gets market share and.
And then as is as those engineers as well move to other companies. They take they tend to take us with them.
So.
I would have to say most of this is is.
The impetus for most of this has been a renewed focus on efficiency and productivity.
Got it. Thanks. Thank you that's very helpful.
Shifting now to consolidation among.
Peace.
There's been a lot of it lately potential for more certainly in the coming months from a big picture strategic standpoint about your market opportunity and in North America shale.
How do you see that.
Shifting as we speak here as the wallet consolidates on the customer side.
Well, let me speak about.
[music].
Specifically, what consolidation we've seen to date and then I'll speak to how I see the future in terms of consolidation so to date.
With the exception of Chevron, we've been on both sides. So.
So weve had exposure to both sides of the transaction.
We found historically that it's not going to surprise you that if we do business with the acquirer. We continue to do business, but we've also seen that when we do business with the target.
It opens the door for a trial.
So whether or not they entertain to trial before they sort of have to entertain a trial now and we've been our our success rate with trolls is quite high as you know.
The downside to consolidation.
I think both today and going forward is that we expect there to be some rationalization of the combined capex of the two entities. So.
While I would hope for the best if you have a customer that had 10 rigs buying a customer with five rigs at least in the near term you have to expect that it's not going to equal 15, they're going to step back they're going to try to.
Evaluate the best prospects they are going to pause a bit on the other hand long term I think it bodes well for the industry because.
As I hope you'll agree it means that those that survive are going to be financially stronger, which means that maybe a year or or a year and a half post merger Act.
Activity will pick up and those customers are have typically been attracted to our value proposition.
So my long winded way of saying so far so good but.
We have to be a little bit cautious about capital about capex.
Understood and appreciated and I'll turn it back.
And we have a question.
Troms Fusen good darn Stifel. Your line is open.
Thanks, and good morning, gentlemen.
Hi, Good morning, Q2, two phase two from me you've covered a lot. The the first the first being you mentioned potentials are likely shipments that middle East next year as you think about.
Earnings expectations in the model and et cetera. When do you think you start to see a material contribution from some of the international side, yes.
Yeah, we're going to talk about that the next call.
Okay trying to give free view I guess not.
The other.
It's early.
No I understand I understand that the the other part is on the rental side.
Any any impact you see from consolidation.
At that level and how does it impact it on the rental side versus the product side.
We're talking about NPV consolidation right.
Yes, I guess that plus what you're seeing on the service side as well.
I haven't seen any consolidation yet.
On the service side of the business although.
I think it's it's it's fair to say that the weaker players are getting weaker.
They just.
They are probably at the low end.
Very early stages of meeting working capital continue to continue and I think they are going to struggle to come up with working capital both to finance receivables and then money to to affect repairs, but.
To be fair to date I haven't seen much we haven't seen much in terms of NPS in general the larger the company the more attractive our rental offerings.
Okay.
So consolidation among NPS is is I think will be a long term benefit to our our our rental proposition value proposition.
Very good thank you gentlemen.
Thank you.
[music].
And your next question comes from the last factor <unk>. Your line is open.
Yes, good morning.
Hi, good morning, with the Gruber how are you.
Doing well circling back on a couple of previous questions.
First on the tariff impact when we see the full impact.
The.
Of the tariffs given the inventory cycle, assuming no changes in policy obviously.
Yeah, I mean, typically it would be about six months or so so you'd be looking at Q1 into Q2.
So full impact probably in Q2.
Gotcha Gotcha.
And then also coming back to the cash.
Capital return question.
Obviously your free cash generation prospects are very strong in India recovery, but this industry is still inherently volatile.
So with regard to the base dividend Scott is there a a payout ratio whether you look at on an earnings or cash flow.
We just start to get less.
Less comfortable like how high would you take it just.
Just given the volatility of the business.
[laughter], Oh, you're saying that.
We clearly said at a level, where we felt comfortable that we would be able to increase it.
Steadily over time.
Yeah, I don't think we want to get into on the call specific payout ratios or that would that went into the analysis of kind of how we set the set the level.
But certainly we'd like to be in a position, where we can pay the dividend and continued to grow the cash balance.
Got you.
Appreciate the insight thank you.
Your next question comes from the line of synergy equal London from Credit Suisse. Please ask your question.
Hey, good morning, guys. Thanks for taking the question.
I guess to start just wanted to dig it good morning.
To start I, just wanted to dig in to to product margins, a little bit so maybe a little bit of pressure still coming over the next couple of quarters from.
The terrorists kind of rolling back end, but maybe a bit of color on some of the levers you have there to drive those margins back towards kind of 2019 or or even the first half of 2020.
2020 levels is it just volume or is there anything else you can do that to get their little faster. If the market is looking flattish and maybe any thoughts around kind of time time to achieve that.
While the easiest way to achieve it is to raise our prices.
Right.
And I don't see opportunity.
I don't see an opportunity to raise prices until.
You know I don't want to we never talk about prices on purpose, but you know there is no appetite for a price for price increases right now.
You know in terms of.
You know.
I mean, I'm looking to Joel that's the greatest.
Determining fact, that's the gating issue is I don't think anyone in this industry.
I'm confident having had.
I've been involved with two.
To current competitors previously Joel and I no one has a lower product cost basis than cactus Nolan.
And I think that it's fair to say that weve each year, we've reduced our costs.
For like items.
Where the big player.
So we get the best pricing, we have the most leverage with suppliers, we probably have the deepest relationships were also very loyal to our suppliers and I think they reward us but.
So there is a lot of cost reductions that have that are flowing through our system right now and that's the reason that Steve says the tariff headwind, although worst case scenario looks like 3%. It's more like 1%. The reason for that is not because we are raising our prices to our customers. It's because we've been successful lowering our our product costs.
I wish I could give you a better answer but obviously.
Obviously volume is key right. This.
We include our indirect expenses in our in our margins that we report so the more of the topline grows the more leverage we get on that on that figure.
All right that makes sense, that's all from me I appreciate the color guys. Thanks.
[noise] and you have a question from current home from RBC capital. Your line is open.
Hey, good morning.
Good morning, good how are you doing.
Are doing great.
To hear from you guys good uptake to appreciate that.
So so Scott.
My angle I guess is on the on the rental side of the business and I know you've made a very concerted effort to.
Develop new technology and kind of referenced on the call again today.
Just was wondering if you can give us an update as to what percent of your rent rental business came from new technology deployments in the quarter and and then you talked about how you know you pretty much.
Impeded squeeze the.
Flemming as much as they can on pricing and now the focus is on efficiency, which I would think.
Would bode really well for us.
Technology.
Since as you get into into next year. So just wondering if you can comment on that as well.
I'll take the first part the innovations were high single digits as a percent of rental but.
But I think Scott noted in the script that that started from a very low base at the beginning of the quarter. So trending up the right direction by the end of the quarter.
So your question about efficiencies.
The problem, we have right now occurrences is this the rental business.
Has been.
[music].
[laughter] has been hit.
In a similar fashion as the pressure pumping business in terms of expectations for lower prices and.
To be quite Frank we have competitors, who are willing to provide.
And not just small competitors large competitors, who have seriously compromise pricing during this downturn and.
Including some of their higher tech offerings, which makes it very problematic now while I continue to believe in this whole group believes that what we have.
What we have working right now and we hope to deploy next year is is the next generation from whats available in the industry I can't promise you that these customers are going to pay for it they just seem.
To be less willing to pay for those.
On the Frac side than they are on the drilling side in our experience and.
And because frac related.
Innovations historically have consumed.
A disproportionately high share of capital.
We're just not going to invest until we feel very comfortable that customers are going to pay for that.
As I mentioned in the <unk> and the scrip. The good news is a high percentage of our new enhancements require very little capital.
At least in comparison to Frac valves.
But nonetheless.
We expect to be paid for it and.
What I've learned in 43 years in this business. Once you begin to give that away, it's very hard to get it back.
Yeah, that's for sure and that's really good color I appreciate that that's going on and you know I guess, you know getting better and then I'm sorry, I didn't get counted on much. That's you've got I mean, I think you've got a lot of you have the most the most years of experience in this industry and cactus and and it's more of an art than a.
Science and.
And so were not driven just by volumes, where we've never traded.
Pardon me market.
We've never traded market share for margins and we're not going to start.
Okay, Great that's great. Thanks, Scott appreciate it.
And you have a question from Shawn <unk> from JP Morgan Your line is open.
Thanks, Hey, good morning, Tom.
Hi, John how are you.
Great. Thank you so to come back to the market share topic in products.
No you all really scale this business in the last downturn.
So it's not surprised you're doing it again, but I think the magnitude is whats maybe surprising people today so.
So can we just unpack a little more of the progress with the majors specifically in that business. It seems like that's always been a pretty big prize that we've been.
Looking to see how that develops so if we just dial into maybe how much of a factor those customers have been in the recent share gains and maybe what inning. We are in terms of penetration with with the majors.
I think on a percentage I'm only going to talk to you on a percentage basis.
Sean on a percentage basis, I think the majors accounted for the up the highest per.
Percentages I say of growth.
But they were closely followed by privates.
And so.
Yeah.
It was a large percentage so it's progressing very well, but I'm not going to I'm not going to postulate as to where that's going to end up I just want to emphasize to you that if I look at our market share gains I've been very surprised that they have not resulted from the law.
Large publicly traded MPS and said that.
That group, which is the core of our business has indicated to us that.
They have plans to increase the rig count during late fourth quarter and into the first quarter. So that's why I'm optimistic about market share gains.
We just.
We have a very aggressive sales staff and.
And they've done very well in penetrating really all segments of the customer base right now.
[noise] well I appreciate that Scott and that's actually that's the other topic I wanted to maybe.
Dig into a little more so you got some shifting competitive landscape for products and rentals as you noticed your salesforce is really trying to dial in and get each.
Each side.
Customers are focused on efficiency that one more time on their hands, maybe at the moment.
Is there any more.
Commentary you can give us on.
The efficacy of cross pollination between those two.
Again, we've always talked about the rentals being kind of your first we didnt just say the majors as one type of customer.
Can we maybe a little more commentary, how those who have been able to cross pollinate in the last quarter or two yeah, I I don't see any any cross pollinization.
It really of two independent.
Pardon me.
By and large to it's like dealing with two independent customers. The completion group completely separate from the drilling group.
Now like there are enough thanks a lot.
Thank you.
[noise] can you. Your next question comes from the line of me generally from research. Your line is open.
Yeah, Thanks, I'm going to follow ons line of question there just some procurement and some of the shifting dynamics that you've seen.
And really the question boils down to market share you know lumpiness, one way or the other I would imagine with the large customers, it's fairly bureaucratic and you're selling.
Maybe into a handful of rigs, whereas with the privates you might have a company man, who only use as cactus and won't going the other way. So I guess my question are you seeing with consolidation maybe.
Maybe market share, becoming a <unk> a bit more lumpy, where your wins will be bigger chunks are sharing your losses. Similarly or is procurement is still very much at the rig level and you expect to see kind of smooth.
Undulations as you ultimately try to try to increase your share moving forward, yes procurement for for.
For our product businesses not at the field level.
So it's it's at the headquarter level.
And it depending upon the customer the very large independence. Its led by procurement I would say the medium size NPS publicly traded in the smaller ones, it's driven by mostly by engineering folks but.
It's very hard procurement loves to get involved.
It's very hard for procurement to push back on efficiency gains and so it's.
It's not like an international tender, where they take six beds and then.
And then a bye.
Our our efficiency and productivity contributions play a large part in terms of of the consolidation in the industry.
Yes, I think the truth of the matter is for.
For all but the one I mentioned, we've been on both sides.
So when I look at market share gains as I said I think the risk is that they rationalize their capex as they try to to high grade their prospects. So short term I think we'll probably see a reduction in their combined rig counts long term I think we'll see an increase in their combined rig count.
Yes.
I would also just add that I think the trend continues.
That if you have one customer you get all of the rigs that's been our experience.
So, but it's not you don't flip a switch and then all of a sudden have older rigs that's the intent when they when you win that customer, but it takes you know a period of time for to get on to all those rigs as the other company moves off.
So you you asking is do.
Do you see more lumpy ad.
Yes, they're lumpy. If you look you know started one quarter to end of another quarter, but it's more gradual rise because we're seeing ads through the month as we work up to 100% of the rigs.
Got it that makes sense and then one more if I could just on the new innovations could you help us maybe frame what the contribution there is it seemed like last quarter. It was all about price and optimizing costs for for the operator wondering if you expect a reacceleration of the new product innovations and then you know pretty interesting.
Metairie around the around the remote capabilities, we've heard a lot about it you know from the diversified service providers not necessarily on the product side. So.
So on that any sort of cost implication for you guys, where you can maybe move structural margins higher because you're doing things more remotely.
Yeah, well I think that that when.
When we first engaged in in in some of the more innovative products for for our our our Frac rental program. It was to build a moat around and protect our legacy.
Frac products I think that's still the case.
So it remains to be seen what the industry is willing to pay.
There is a lot of of remote activity going on right now as you know it's accelerating.
We honestly believe and I've never misled this group that we have a much better mouse trap.
It's just it will just have to see how much of the industry. Our customers are willing to pay for that I still feel like it.
It's pretty much expected.
We're going to move forward in that regard.
When I look at it as.
Probably the greatest contribution is going to come from increased utilization of our current assets.
In other words, I'm not seeing a customers pay a whole lot more for the innovations that have been commercialized over the last six or nine months.
Got it understood. So you see it more as a revenue implication building the moat, maybe getting some more market share on the rental side as opposed to you.
You know we can streamline our cost we can maybe rationalize the folks that are monitoring operations remotely that sort of thing. It's it's more revenue as opposed to a a cost driver for you guys.
Thats exactly right, yes, but obviously, we have very healthy EBITDA margins on the rental side, so any revenue implications.
Good results on the bottom line.
Very very fair I appreciate the time guys. Thanks.
[noise] [noise] again like you said funds from that to ask question. Chris Star then the number one on your telephone keypad, that's power and the number 100 telephone keypad.
There are no further questions at this time presenters. Please continue.
All right thanks to everybody.
Stay safe and I appreciate your support of the company.
Ladies and gentlemen, this concludes today's conference call. Thank you for joining you may now disconnect.
[music].
[music].
[music].