Q3 2020 Dril-Quip Inc Earnings Call

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Good morning, ladies and gentlemen, and welcome to the drill quit fireside chat webcast. At this time all participants have been placed on listen only mode.

It is now my pleasure to turn the floor over to your host George O'leary until researcher.

The floor is yours gentlemen.

Good morning, and thank you for joining us today for our Fireside web chat and it comes on the heels of girlfriend reporting their Q3 20 earnings results I'll purposely keep this interbreed. So he can press on and the more interesting portion of today's discussion.

On the tutor Pickering, Holt and company side of the table, we have tailored nurture a director of oilfield services research and myself, George O'leary and managing director of all phone services research.

With us today and kind of the main events were incredibly grateful and happy to have drilled quips, Chief Executive Officer, Blake to Barry and the company's Chief Financial Officer Raj Kumar on the phone.

Blake and Raj. Thank you both very much for joining us.

Oh, Thank you George for having us.

Thanks, Josh.

Happy to do it with that brief intro I'll toss the Mike over to my colleague tailored to kick off the question and answer session.

All right, Thanks, George and Thanks, Blake and Rod for for joining US This morning.

Hoping to cover a lot of ground today, but maybe a good place to start is on the Q3 results themselves. It looks like both EBIT on in top line came in a bit better than than what we and.

The rest of the street was expecting and.

As further evidence that you're making really good progress and the cost out program initiated earlier this year.

Maybe give you a minute to share any other high level takeaways.

As it relates to the Q3 numbers themselves and then.

Any any sort of initial outlook you could provide for for Q4 2020 would be helpful as well.

Sure Tyler just first off I'd say you know.

This market Oh, it was challenging pretty early on in the year and continues to be challenging we had some customer delays and a lot of push out request is as our customers move their operation programs out, but I'm extremely pleased with the results we were able to to print today and.

I couldn't be more proud of the team quite honestly with respect to specific color really Rogers is much more in the details the CFO and so I'm going to hand, it over to him to let him share those details with you. Thanks.

Thanks Blake.

So guys I mean, you know it was a good quarter, we saw the impact of the cost out taking shape nicely in Q3.

And you know the the.

In this market you know to Blake's point right. If you look at you know bookings right.

Bookings number was 50 million last quarter was 40 million.

But in this market right now one one booking that could mean, a 10 million dollar move up or down right. So you know, we could land anywhere between $40 million to $60 million.

So if you look at that that has a bearing when all revenue. So this quarter very similar and revenue from last quarter.

The upside that we saw was a you know as I mentioned the cost take out. We also had some favorable mix that helped us this quarter.

Hi, you mentioned I'm talking about next quarter I would say that you know what kind of the meetings were going to be flat next quarter or given where we are right now and having said that I I want to signal that you know with with bookings moving up or down it could be anywhere right it could be anywhere.

The 10 10 million dollar range up or down so.

We need to we need to address we just need to be in a position, where we understand that it's quite a binary environment I've ever had.

But we do know that the cost take outs, taking shape, we will see leverage going into Q4, that's cost leverage that's going to sort of help us.

You know given you've given it revenue slack and should see you know about a better performance and EBITDA all things being equal.

Okay, and you noted a bit better mix and on the product side.

Q3, it looks like you booked and turns them some subsea trees in Asia Pac in the last quarter are we reading that right and are you seeing any other signs.

Of incremental book in turn short cycle work that that might come back to the market here in the near term.

So you're right. We did we did book some subsea trees, both in Europe, and Asia Pacific It was a bit of a bright spot we booked five trees actually in the quarter. So that was a that was a good win for our sales group and one of interesting things that we've seen is those trees were booked.

Because we had inventory or we had trees, partially in inventories or through the through the manufacturing so sitting and whip or we you know we had bits that we could put together and make a quick delivery and and that's really kind of what we're seeing in the market with the some of the smaller players that we deal with particularly in.

In Asia Pacific the speed is very important to them and.

And that's part of the strategy. We have you know just looking at our inventories and what you know what minimum level inventory can the ghibli hold a product that to give the signs of improved chancer bookings in that short cycle market.

Got it and that's a good segue into my next question, which is on inventories in the release.

You talked about.

Operators, there are customers continuing to delay and defer current projects into into 2021 or at least pushing to the right for some period of time and you quantified a $10 million to $15 million number and.

That represents a negative cash flow impact on a quarterly basis can you give us any more color as to as to how you get to that number and it was with the uncertainty in the market might be persisting here for at least the near term future is that negative cash flow in fact likely to materialize in Q4 and early part of Q1 as well.

2021.

So Raj you want to you want to take that question Yeah Blake.

Nick I'll take that question so Taylor.

These are related to specific customers delay.

Delaying shipments right. So it's not that the demand is not there. The demand is there. It's just that you know they pushed out they are drilling campaign and when that happens to come back to us and say hey, we don't need it at a certain date. We now do you do that at a different day and that that just drives everything to scheduling and everything.

So that that has you know to Blake's point, we have we'll increase our wip and you pass all that those headwinds but.

I want to point out the good news here. The good news here is to Blake's point, we do have stocking.

Inventory that we opportunistically can take advantage off in the market right I'll give you. Another example, he talked about the trees on the downhole tool side, we have a thoughtful stocking program <unk> downhole tools that is going to turn very quickly because the demand is there.

And you know all of this you know I deem it as a timing issue in terms of the inventory build this quarter.

Looking out into let's say Q4 again it depends on how our customers start scheduling yeah, yeah, they'll work and it all it all depends on that we were going to do our best to be as close to our customers as possible to them to manage their inventory as we can do but we're also going to be you know, we also gonna be commercially astute and.

Next I'll bet. So you know stocking programs, which have which have given us the results that we have been looking for.

That makes a lot of sense than it does the final question. We had around the Q3 numbers was on free cash flow you generated roughly 12 million of free cash for last quarter, you're still guiding to positive free cash flow for the full year 2020, which would imply.

Somewhere in the neighborhood of or at least a minimum 15 million of free cash flow next quarter.

The only.

On the area, where it looks like you're tempering expectations, a tiny bit would be on the previous cash flow neutrality target for 2020 relative to where we sit today. It feels like you might not get all the way back there, but maybe pretty close can you can you are we reading that that comment correctly and in the press release and.

Is there any timeline you could give us of when you do expect to get back to that 400 million number maybe in the first half the 21, perhaps.

Yeah, I think I'll take that Uh huh. So yeah cash neutrality you know, we we entered the year to your point that 400 million I think its reasonable you know the expectations that you have right now.

We're gonna be close they're not going to be there, but we're going to be close. What's happened is that you know if you recall back in 2019, we we went through a company wide transformation and that allowed us to reduce our who flying by about 37%.

And we set of Pos to go out and monetize this excess roofline.

And Oh, you're part of the year, we were quite encouraged by them and cold it hit.

All things started to delay and we've been.

We've not made as much progress in terms of monetizing the who find now that's the headwind that we're seeing in terms of the cash neutrality, but I'm very confident that as we as we enter 2021.

We're going to see significant progress being made in terms of monetizing. This ER. These access roofline real estate sales et cetera, that's going to help buffer us in terms of getting back to cash neutrality, so a slight delay here.

Hi, guys in this environment.

The 85 to 400.

You know if we if we get to three to five years. This 400, that's it that's a good outcome for us.

Yeah, no doubt I mean, it's a it's a bulletproof balance sheet to begin with but continuing to shore up that cash war chest as something that investors I'm, just I'm sure I would like to see and would be an impressive feat given that the current macro backdrop. So maybe shifting gears just a little bit.

You know COVID-19 remains an issue and seems to be flaring back a bit on a global basis today, we're seeing issues burst in the U.S. and abroad, but.

You guys have had time to put plans in place to try to mitigate those impacts.

Now that we're seeing kind of a flaring back up is that impacting business manufacturing any of that good stuff and in any way have you had to put certain measures back in place that you were able to take off once upon a time just has covered impacting the business.

This today.

Well from my from an operating standpoint to you know weve really been able to manage pretty well since about the middle of the second quarter. If there are definitely were some challenges as we started up and those challenges were buried and a different all over the world every place was a little bit different having is challenged.

But now you know we put some protocols in place to better manage or Uh huh.

How we how we deal with the reality of this virus in our lives and and in actual fact were in Houston, We're actually beginning to bring people back on campus. Starting next month in November a couple of days a week just getting back into the rhythm.

You know, but quite honestly the biggest impact from co that at this point is really the impact on demand and the resulting a commodity price declines that are just leading to a lower you know lower bookings in a more challenging environment for our customers and then then pushing out their deliberations.

We talked earlier about some of the subsidiaries.

In the bookings for Q3, the one area. We don't we don't get a good insight into at least relative to.

The way you report the numbers is the mix of bookings and specifically as it relates to the connectors, which is a product here you're obviously.

Rich history and.

Are you seeing.

An uptick in bookings for connectors and the reason I ask is in the past you frame that as being a a somewhat of a leading indicator as it relates to offshore order and reorder cycle for you guys and so just curious is that to increase.

Increasing component of the bookings that you've had over the past couple of quarters.

So you know we are we're now seeing orders bookings kind of come in in that $40 million to $50 million range as what we said pretty much been forecasting or projecting.

All year so we.

We believe we are near the near the trough, but as Roger said earlier, you know one single order moving from booking you know.

The end.

End of September and moves to the first of October can make an impact on the quarterly bookings so.

With respect to pipe in connectors honestly, the it's just remain fairly steady no material uptick so that would just simply suggest where we're just operating at the trough and we're not seeing that recovery as we said before you know we've got we've got we've got three really kind of positive highlights in the book.

Bookings quarter.

First being the trees you know we did book five trees in the quarter, which was which was a pretty big win for us the second and probably a little less obvious is really our downhole tools business, which has been much more resilient.

In in a bit of a shorter cycle nature, we often deliver a liner hangers you know in about 12, 12 week time period, and it's probably a part that's a little under appreciated and less thought about a piece of our business and to be honest with you know looking forward in 2021, its an area.

But we think we can actually expand.

And then the last is we just don't think we're going to have much customer property overhang or customer inventories, we did coming out of 2014 and into into 15.

So.

I think that just.

It's going to give us a little bit better recovery profile when things do start to cover I think we're going to ramp up pretty quickly.

Two because there's going to be some pressure on supply chain and Ah that inventories going to burn pretty quick.

Okay very helpful. Like thank you for that and then you know by forming new customer relationships and broadening broadening existing customer share of wallet. If you will.

Seem to be Keith said drove quips growth story as you guys look to reload that backlog copper win.

Kinda times get better and people activity kind of picks up a little bit what have been the keys to success. It's clear from your investor presentations that you guys have picked up new customers in various markets expanded share worthwhile that started selling guys things you didn't sell them before.

How do you convince a new customer to start using drove quit or an existing wide customer to start buying trees from U.S. that process like and then how does it differ between getting a new customer versus expanding that share of wallet with pre existing customers.

Well you know.

First and foremost we are our philosophy of which we've we've stated multiple time as you know the technology always wins at the end of the day, a better mouse trap to performs better is more cost effective is is going to win.

In the marketplace and.

With the recent products. We've released you know we've been able to gain an audience with a lot of customers and probably even more so in this environment because the cost savings are much more meaningful to them.

And given that the technology, just really adds value and reduces cost and time you know just as an example, if you if a customer work to the drill develop well using our entire E series of products, we've estimated that sage about $5 million or cost per well and reduces five days.

Time, and eliminates about 40 tons of steel. So for those that are you know sensitive to the SG side that that's a meaningful amount of C. O. Two that is removed from the from the Atms are just not having to manufacture the steel which is it's kind of a two for one to get a ton.

Steel you put two tons of carbon dioxide and into the environment. So.

So that's a positive on that side and probably a bit of an unexpected positive but a good one.

Because that is a that is a sensitive.

Sensitive points in the current environment.

It really our approach has been with these new products is to just develop wells it structurally change the way our customers.

Drill wells to give them permanent cost savings.

When the downturn happened in 2015, you know that the the <unk> traditional response and it's totally understandable is that hey supply chain is going to jump in here and we're going to we're going to get some cost out and reduce pricing, but really there has been no uplift in pricing since that time period. So.

There's really not more much more that can be squeezed out from a supply chain <unk> perspective.

And given that you know people are really starting to focus on technology and and how that can benefit their programs and you know we're seeing our R&D efforts really pay off in a meaningful way in interest from our customers and we think that's going to translate into some significant bookings in the years to come.

And one of the things that you're probably not aware of this work. We're also a bit of a value added resellers or some are non traditional customers that are you know not necessarily end users of the products, but but they they do use our products in conjunction with their own in certain areas of the world.

Well one of the more recent and certainly value added technology that youve been or you're in the process of introducing to the market would be the VX see subsea trees system. So I was hoping you could just rehash for US you know what the the primary differentiators for for that piece of.

Technology, our relative to what's out there in the market today and then secondarily.

As we think about the potential pass forward for for monetization of the <unk> that products what are those past what do they look like today and what sort of commercial models. Do you think you might look to pursue as you look to commercialize that product moving forward.

Sure look VX T E no and in my view is probably for me personally one of the most disruptive technologies I've seen in our sector of the industry in my career.

We've been getting an incredible amount of interest on this technology.

You know from current and prospective customers and and what it what it really does it the short the short answer is in the traditional development well scenario.

You would you would drill the wells and then stop at some point and install a horizontal tree or installed tubing school and then come back rerun, the B O P stack and the drill out or or run the completion.

And what we've done with the XT, we allow the operator to drill the well to.

The completion.

And land the tubing hangar in the wellhead without regard for orientation.

And then land the tree, which can be done from a wire for my work both at any orientation. They want and the technology is all the self orientation that it comes up in there and it gives them all the same functionality that they've had in the past, but again eliminates a lot of operations in the field eliminates a lot.

Bottom of hardware.

And so like I said that that has garnered a lot of interest from from from customers and and some some non traditional customers that maybe we haven't been calling on before and from some customers that were buying wellheads, but now they want to talk to us about trees. So we're pretty excited about that.

Just to be totally transparent you've probably seen that a competitor has brought an action against us with respect to the VX T V. S. T. We began developing this technology several years ago and.

We obviously plan to defend our position vigorously as we prepare for trial, which is scheduled in early February but it is important to note that we are not prevented from continuing to market.

Sell or or manufacturing this technology.

With respect to the monetization.

It includes everything from going direct to the end users. But also you know could include collaborating with a value added reseller.

With one of our EPS without items, so if one of our peers.

We could license the technology, that's probably a less favorable option for us simply because.

What what is required with you license the technology, if somebody's got to do all the engineering work to all the design qualification testing and you're really a couple of years down the road before before.

That product gets gets to market.

And our view is if we do a more business to business supplier model. It's a win win win it's a win for US we are manufacturing the the technology components would be X T. It's a win for the for the the supplier to the end user because they get that technology without having to spend a bunch of money in capital and R&D and.

The end user gets the benefit of the of the savings. So you know.

We believe we can sell the complete kit or portions of the kitten and also it gives us an operator to pull through some of our other products in that E series, such as Wellheads and expandable liner hangers and and conductor connector. So you know we view that is probably the being the best option to get this product.

Market quickly.

Quickly.

Yeah that was a very helpful overview of a very intriguing technology you nice to hear it from someone who actually comes from the engineering side as well that was a good explanation that even a a dumb finance guy can understand shifting gears to the competitive landscape you know clearly the market.

Turmoil Weve seen what you were talking about before this call Blake since 2014, alongside that I won't call. It a recent head fake in offshore activity. Those two items have coalesced to kind of change the competitive landscape a bit.

Do you view the subsea equipment market is taking on more of an integrated approach overtime or do customers still kinda want that all a cart option that they've historically wanted.

So you know our experience in talking with customers or their sons like there's some customers that like that model in their exclusively going down the path of that model. There are some that say it applies here, but it doesn't apply here and I use that sometimes and then there's some lets say I don't like the model that model and I'm going to continue in my existing or.

Existing structure that that I've been doing it. So it is a mixed bag, but again you know I just repeat that our view is that the technology. The technology always win wins and so you know if you just look at the broader market. There's you know, we're selling liner hangers to one of our peers.

And in South America, and you know in there, they're putting it as part of an integrated package for them. So this is not uncommon for something that we've we've done. So you know our view is we're willing to.

ER work and open up an expanded relationship with these customers and and you know there's just.

That's really how we view that we can be a bit agnostic to whether a customer likes the integration model or or or not we think if they they don't like the integrated model and we'll sell direct if they do like the integrated model that we can partner up with somebody that can offer that particular structure for them.

Okay and ship.

Shifting gears a bit to 2021 as a whole we've had one of your peers.

Them out and frame the market in 2021 in terms of subsea inbound is likely being flattish on a year over year basis, and I know this isn't a market that lends itself well to to predicting things accurately over the next two.

12 months, but as we sit here today could you at least give us some some qualitative color on how you see orders progressing over the course of 2021 relative to 2020.

Sure for for 2021, I think we're not really expecting a big increase in orders you know the the best case scenario, we we see some commodity price stabilization at a at a higher level that that.

Peaks the interest of our customer base that we might get some order pick up to.

In the second half of 21.

We would expect Europe to be one of the brighter spots.

And Brazil.

ER will be better positioned U.S. market, I think Gulf of Mexico, still going to be a little bit tough but.

But we're we're still optimistic that we will have some first half 21 tree orders and then get some new installations are done there as well [noise] specifically in Europe in Europe.

Norway remains a bright spot. They there are some regulatory incentives that got put in place in Norway to help stimulate that market and things are are are quite active there west Africa could see some increased activity in 21 Asia.

Asia Pacific has slowed so.

Significantly, but you know sees you know ours are still remaining active there and so but that's really where we focus a lot.

In the Asia Pacific market, and finally really middle East.

That jackup market is beginning to trend up and and we recently.

I have had qualified some of our bodyline suspension products are out there and and.

We're already have a pretty good downhole tools presence there. So we're feeling pretty good about getting a little bit of an uptick in the middle east from that market.

So good to hear with respect to the middle East into this last quarter was a relatively painful quarter on the activity front, but they definitely want to keep their productive capacity up so it's it's good to hear.

And sticking with the orders you know should order levels remain depressed and then kind of rolling costs into the equation is rise Youre Blake is there more that you all can do on the cost side you've done so much heavy lifting already certainly you know if so could you peel back the onion, there a little better frame what buckets.

Incremental costs could come from to the extent, there's more to do on that front.

So Raj has been instrumental in in these efforts on our cost out programs I think it's best to let him answer this one for you. Thanks.

Thanks, Mike So guys. I mean are you know of course I want to thank you all forgiving, giving me the opportunity to address this you know commitment to managing costs right, especially in this environment, but before I get into this this cost management topic. You know it's important to recognize that are these cost reductions has had you know have had some difficult you know it's been a difficult situation.

For some of our employees, who are you know being impacted true redundancies and position eliminations.

These decisions were not taken lightly, but unfortunately, but I wouldnt necessarily given where the market was.

You know we have we have demonstrated our ability to manage costs and I'll commit <unk> commitment to run the business efficiently.

And I'll say that we rely heavily on you know I I talked about the 2019 transformation and that basically gave us the playbook on how to execute on cost rationalization and.

We we view it not simply it's just straight cost takeout, but you know kind of a development of a platform.

We've implemented lean management techniques you know this helps us leverage every dollar of cost I'll give you examples right. We've we've done consolidation of manufacturing into centers of excellence. This enables us to scale and reduce manufacturing complexity.

We created that you've created a supply chain capability as well as you know we scaled SG M&A through centralization of our business processes. So all of this actually if you look at it it's not just going in and.

You know doing a head count reduction, it's a very thoughtful exercise that we go through.

Yeah.

Turning to specifics right now or you know I think you understand the sensitivity around this but I want you know, it's it's you dimmock Nissan to send a we are confident and we have to to get in place that we can you know we are able to manage our costs. You'll note that in 19, we took out $50 million this year.

We are on track to tick up slightly over $20 million. We're way ahead of our plan and that's part of the reason why we saw you know in Q3 I alluded to the fact that margins will help because we had a cost takeout, though slightly those accelerated into Q3 timeframe.

Well, we certainly agree there and the numbers reflect.

Great Great and working on the cost out program shifting gears a bit there's been a.

A number of headlines.

Made in recent months, if not quarters as energy transition starts to take hold.

From the eyes season, most of them if not all of them are starting to.

Certainly increase their exposure and their go forward investments a lot of these new energy and non traditional oil and gas type endeavors, moving forward and clearly that oil and gas piece of their business is going to have to finance the push into renewables moving forward, but.

I Wonder if you could share your thoughts as you talk with your IC customers as it relates to their commitment to the ultra deepwater maybe over a three to five year time horizon, and that's we think cycle to cycle.

I was hoping you could share your thoughts on where ultra deepwater in particular sits in the supply stack moving forward.

So it's a it's an interesting question you know we we've seen a lot of announcements that you noted most recently a kind of mid October I've I had the pleasure to sit on a.

Hey, [laughter] much delayed Otcs ER panel on sustainable deepwater economics that had a fair number of our customers on their effect I think they were all customers and.

And this question came up and and both Chevron and BP Representatives Dibrom.

Then provide some color on that which I thought was quite interesting and list. The summary of that color was that while they are all in different ways investing in that renewables area. Neither one of them noted any any material reduction in capital going into that deepwater environment.

You know those plans were still ongoing but their focus had shifted more to reducing their carbon footprint, which quite honestly.

You know that's that's one of the byproducts of our E series product. So so were pretty.

Pretty lockstep with them and doing that you know the.

The reality is you know.

Cheap affordable.

Or affordable energy is required to bring you know people out of poverty I'm proud to be part of this industry that that's done that and and I think this the oil and gas industry still has a lot of legs left in it and I think we'll be we'll be drilling in deepwater for for you.

Years to come so.

I think this will continue on.

Thanks for that Blake and then you know.

Real quick you guys always do such a good job of rolling out new equipment products technology offerings, and that kind of engineering and design really isn't your DNA, but more recently M&A has also become a part of the discussion really across the space, but given your balance sheet for drug clip in particular, we certainly have discussions.

With clients about the potential for M&A involving drug equipped how do you envision drove quit playing offense in growing both the topline and bottom line going forward and how do you balance those organic and inorganic opportunities.

So you're right. We're you know we were in a pretty good spot from a balance sheet perspective.

Uh Huh Raj has has been heavily involved in ER and really the Corp. Dev side of the business and I think it's best that we hear from him in this regard.

Hi, I think guys I think we can all agree this industry needs consolidation.

But you know you see the levels levels of debt out there with a lot of these companies and that's you know that's making it difficult for consolidation to happen.

We were very clear it's been Eslick mentioned again, we're going to maintain a very strong balance sheet that is a that is a key priority for us.

Also you know we've looked at things and we see bid ask spreads that need to make sense.

If I could describe it I'll just say that meets their needs to be a bit of self actualization is market.

I think it's taking some time to smoking.

So you know we we have we are very clear we've got a framework in place and you know we when we look at acquisitions, we we.

We need it to be transformational in nature as I mentioned and he sent the size consolidation that needs to be scale.

So we will be you'll be reticence to assume any any debt you know just to make the transaction happening, especially in this market.

Any any opportunity will will need to be you know as I mentioned and I have some has have something meaningful market share.

And it also has to deliver.

Oh, I see return on invested capital, which which meet just means that it has to be cash flow accretive across the cycle.

We you know that's not to say that we are not looking at smaller tuck in type acquisitions that are you know bill will kind of advances on our technology Road map as as Blake mentioned technologies, a key priority. It's a focus area for us. It's a it's for lack of a better what else secret sauce.

And we will look at these opportunities as they arise.

Oh, we are confident you know a week.

That will be able to execute on a a acquisition. We've we've developed the competency and the framework you know when we when we did the recent transformation. It was basically us having to reintegrate drill quit and a true that we developed a tool kit that's put us in a very good position for us to look at.

You know taking in another company and optimizing the operation within this industry.

But I went up but I want to leave the key message is scale is the key to improving the business.

You know we.

We're also looking at as Blake mentioned, you know, how how do we expanded to set and product lines, but it's critical how we go about doing it.

I'm very excited about deploying the VX de technology thing is going to be critical for us in terms of capturing more market share.

And you know we are collaborating with a lot of customers as well as other players.

And do you see them using this technology and as they deploy their subsea production systems. So that's that's the view that we have right now on M&A.

Well, thanks for that Raj and you guys have certainly been.

Very clear, but with respect to the framework and the approach to M&A moving forward when it one kind of follow up question as it relates to M&A.

When you think about potential target companies out there just M&A activity in general are we talking mainly offshore oriented companies that you'd be most interested in or are just adding some exposure to the onshore side of things.

Make some sense for you guys moving forward.

[noise]. So we continue to believe that a the that offshore is the best place for US that's that's where our DNA is that's where we're focused that said you know we would not exclude.

An acquisition that had some land component if it helped us along with our technology Road map and that offshore space. You can you kind of look at T.I.W. is that we've taken the expandable hangar from T W and and developed it into the X. pack Bihi, which is really an offshore related related product.

But to be honest, we're just really more focused on differentiated technology with high barriers to entry that is that then is what you typically find you know with an onshore business.

They basically are looking to leapfrog the technology value chain like.

Yeah, Yeah, good good good way to say it.

That's helpful color and then that.

Yeah, that'd be a balance sheet that that is a good blueprint that that's definitely definitely helpful.

You mentioned the balance sheet, a few times and it is a a bullet proof balance sheet given the net net cash position that you guys have.

[noise], what level and you've spoken to this before but just curious if there's any change what level of net cash you believe you need to maintain on the balance sheet given the current macro backdrop, given kind of that 2021, maybe even 2022 outlook as I know you guys are more long term focused and then given the free cash flow.

You guys are are generating now married up with that the current stock price you know has that thought process around share buybacks changed at all.

Oh, yeah, yeah jump in here Raj Yeah, Thanks, Mike So cash cash on the balance sheet.

There are a couple of things that I, you know I like to just go.

Go through here.

You know one thing we do use our cash for us to do it sort of signals to our customers and it gives our customers confidence in our ability to be there.

And we are not <unk>, we have a shorter is that you know, we're not going anywhere and we're going to be around to support them through their projects.

As you know we have larger competitors in our space as I, it's important for our customers to know that we can weather the storm and be well positioned to do so because we have got a what I call a fortress balance sheet.

Ah I mentioned that we keep cash on hand for working capital needs, especially that often happens you know we have a we have a project projects component on a business, which you know initially will consume some working capital that they know S.S. Eagle as we go through the project starts to return cash and and if you.

Look I'm, you know I mentioned that.

We're not looking to have debt on our balance sheet. So we do want to have some dry powder on hand.

You know thats to support some of the comments I made on the tuck in type technology.

Acquisitions.

And you know.

And how that helps to the R&D roadmap so.

These are you know these are the key areas and then if you look on a on a yearly basis. I mean, we have maintenance level capex that we need to meet right anywhere from $10 million to $15 million. So.

If you look at all of that you're talking about the UPT and you talk about having some dry powder I think the levels that we add right now quite fair.

In terms of our cash balance.

Got out and what not to do to address your point on the stock buyback you know I was thinking.

Thinking has only will change and so far that we want to maintain you know cat. He would want to maintain some level of dry powder and also maintain cash to provide a customer confidence also addressing onea.

Okay, and how it can very helpful overview, Roger but that we've really tick through our list of questions. I just wanted to open the floor up to either or both of you for any concluding remarks that they you might have or anything that you want to make sure that message to investors that we didn't touch upon to the extent there is anything.

Look just to just to close out a tailor and George I.

Number one I appreciate you guys, taking the time to to put us on first of all I have to think globally. The employees of drill CWIP for their resilience. During this downturn. It has been an incredibly vol.

Volatile year, a lot of challenges, particularly you know our what we call our central workers you know.

You know a large portion of our workforce has been coming in and working everyday those and you know in our that work in our manufacturing organization, whether its machining welding material handling inspecting all our aftermarket assembly people and then our offshore service personnel that have been going offshore rigs throughout the downturn. So.

They've done a fantastic job that so just continuing on I'm really proud of the efforts we've done in restructuring the company and.

And repositioning the company to have to be much more flexible I think we're in a position that.

We can we can respond to the market whichever way it moves obviously I hope it moves up and I'm confident in the longer term. It it is going to move up.

But but to put in short I, just really like our position I like where we are I like the balance sheet. We have I like the structure. We have I think we've got a strong management team that are that is prepared to run this business and I think brighter days are ahead for us.

Thank you Raj and thank you Blake both very much for your time with that I will I will turn the call back over to Paul.

Thanks, George Taylor, good talking to you all yeah. Thank you guys.

Thank you ladies and gentlemen, this does conclude today's conference call. You may disconnect. Your phone lines at this time and have a wonderful day. Thank you for your participation.