Q1 2021 CES Energy Solutions Corp Earnings Call
[music].
Thank you for standing by this is the conference operator, welcome to the CES Energy Solutions Corporation first quarter 2021 conference call.
As a reminder, all participants are in a listen only mode and the conference is being recorded.
After the presentation, there will be an opportunity to ask questions to join the question queue. You May Press Star then one on your telephone keypad should you need assistance during the conference call you may signal, an operator by pressing star and zero.
I would now like to turn the conference over to Tony Allott Chino Chief Financial Officer. Please go ahead.
Thank you operator.
Good morning, everyone and thank you for attending today's call I'd like to note that in our commentary today, there will be forward looking financial information and that our actual results may differ materially from the expected results due to various risk factors and assumptions. These risk factors and assumptions are summarized in our first quarter MD&A.
And press release dated May 12, 2021, and in our annual information form dated March 11, two.
2021.
In addition, certain financial measures that we will refer to today are not recognized under current general accepted accounting policies and for a description and definition of these please see our fourth quarter MD&A.
At this time I would like to turn it over to Tom Simons, our president and CEO. Thanks, Tony Good morning, everyone.
It's a real pleasure to hold today's call.
For the first time since the pandemic began industry finds itself feeling guarded optimism.
From my seat as a Canadian running in North American wide company. It appears the survivors and upstream across North America have all quickly learned to operate within cash flow.
Thanks to bad public policy from Ottawa Canadian E&ps learn this long ago now our us Brethren have also adapted.
<unk> is thriving in this new oilfield.
Revenue margins EBITDA were all up quarter over quarter.
On today's call I'll provide the customary operations update on.
I'll remind listeners of our overarching strategy as a company that supplies chemistry to industry.
Tony and I will both discuss capital allocation.
At this time I'll try not to interrupt them.
I'll talk about organic growth objectives on how we believe we can create permanent value for long term investors Tony.
Tony will give a very detailed financial update we will take questions together and then I'll provide a summary, and then wrap up todays call I.
I'll start with Canada.
Our mud or drilling fluid business continues its dominance of the Canadian market, we enjoyed great market share in the quarter, 35% to 40%.
Which is really a 10 year plus story now unlike a lot of less fortunate Oss companies, our focus of solving customers' problems through applications of chemistry has allowed us to be nimble and to adapt to change far better than equipment providers.
We help oil sense say day customers drill and rig release on ASC or budget and leave a cased well that production can count on so.
So we don't wash out the whole, allowing wellbore communication.
We run appropriate fluids on the build section to reduce risks of surface leaks are issues and we do so with recycled waters.
For deep plays like the Montney and Duvernay, we provide AI assisted research to properly plan fluids for each interval of the well.
The shared objective of CFC us and the customer are always to drill and case on <unk> our budget will.
While giving completions of wells that can be reliably produce or Fracked and then produced now or much later, so a duck.
Again, we do this with changing applications of chemistry, and often recycled water and fluids, our scale and vertical integration of our products allow us our internal supply chain to meet our customers' needs.
Other than our competitors.
Just upon margins and working capital comparisons.
It helps to have 15 years of continuous leadership in Canada by Ken Zinger, and his team are technical sales and ops team supply chain safety and backend work hand in glove to the benefit of our customers and shareholders alike.
I'd like to personally thank that group for continuing to deliver us. It's my personal beginning in background I'm really proud of you guys I understand how tough this businesses.
Pierre <unk>, our Canadian production chemical business continues its steady performance, we continue to expand in all the right places oil sands and deeper horizontals that get Fracked.
Each of us technical and the customer can't risk hiring vendors or suppliers on these types of wells or production that ever let them down or.
Our people get and keep the work.
While our Grand Prairie facility is helping drive our margins as do our manufacturing and supply chain.
As our volumes increase in the oil sands, we may look to expand our throughput in our NICU facility to support growth.
Sort of refresh memories, we produce H two S scavengers and a plan to next SKU, we already manufacture. These products. This would allow us to increase throughput or production to meet growing demand always a great thing.
Our frac team in pure Kim is getting some good wins, which create nice contribution margin over our fixed costs.
This work is very cyclical as most people know, but it's in our wheelhouse and can happen off of our already existing footprint that supplies drilling fluids and production chemicals. So the same warehouses in yards same labs and scientists same supply chain with.
Another sales outlet that adds operating leverage we have.
Beefed up that team, which should bode well for this pending activity run by our customers.
Pure <unk> has a great future and is on track for our final 2021.
Our niche businesses in Canada stem works sale Cowen clear all continue to deliver in their own way.
Stem works has continued good performance in Canada has made great strides entering the U S markets to remind people, we reenter tired old wells and after careful analysis treat them with specialized asset blends, including nanotechnology, which turns those tire.
Wells that are becoming liabilities back into cash flow generators for our customers low.
Low Capex high touch engineering evaluation to treat the correct wells with the right products at the right dosages, we like this niche business a lot.
Sales co is our reaction chemistry business in Vancouver It continues.
To support internal supply chain on technology development, while offering us some diversification with revenue into non energy markets.
Clear environmental continues to keep its nose above water in a very competitive market in Canada increased activity and the absence of terrible pricing from competitors would be nice, but we aren't betting on those things happening GAAP.
Moving grimsson on his team continue to look for innovation that we can capitalize on as a company with scale on science Knowhow.
To conclude on Canada.
US Canada gets closer to increased Tidewater takeaway for oil through Trans mountain expansion and LNG on the West coast with today's commodity prices 2021 looks to be a solid year for CES in Canada.
I'll now move on to the us.
Aes is shooting the lights.
It moved from 13% market share of <unk> 18 months ago to 20% plus.
And not by using our balance sheet, which has been the customary trick deployed by the very large integrated oil companies in all crashes.
We've done it by focusing on our people and equipping them to solve our customers' problems better than our competitors.
We've made previous investments in the right place us.
In the Permian with the Corpus Christi Barite mill with the Kansas play play plat.
Those things have enabled us to build a lot of positive momentum.
Our customer mix mix is expanding on our upside is high.
And we like our chances in the new era for U S producers, where they work within cash flow, while lowering their environmental footprint.
Operators reward relationships of trust.
We deliver better results than our competitors and we do.
That's why we've become the leading drilling fluids company in the us.
I had the privilege to participate with our bright young engineers and scientists just last week at a technology summit in Texas led by Richard Baxter, Our Aes President us.
25 year, plus drilling guy I can assure listeners and customers.
Yes, we will continue to help producers drill wells on budget.
Ideally, while lowering their carbon footprint.
That's the goal.
And how we will hold or increase our position within the market. So stay tuned for 2021 and beyond it looks good for Aes with these commodity prices and the team we have in place.
J Cam catalyst is our production chemical business in the US led by Vern Disney.
We've now fully integrated the two businesses to the benefit of our customers employees and shareholders.
This allows best in class problem solving using case studies from across all basins in the us or even in Canada as appropriate.
Our blending lab office and staging facility in Midland has grown from seven acres only five years ago to 30 acres today is.
As the US market has stabilized at approximately 11 million barrels of oil a day, we've enjoyed solid results from J Cam catalyst.
As new production to offset declines come from horizontal wells on.
Lower volumes and complexity of application of chemistry goes it up well.
While the use of Capex heavy treater trucks goes down.
These wells are continuous injection of production chemicals.
We've also made modest geographic expansion into the Gulf of Mexico with no outlay of Capex.
J Cam catalyst really help carry the ball for CES through 2020.
In 2021 looks to be shaping up to be another fine year.
I'll now refresh listeners on our overarching strategy and talk capital allocation before turning it over to Tony.
Our business strategy is to utilize specialized sales lines led by working managers in a decentralized capacity.
We manufacture supply and apply chemistries and minerals, so minerals being primarily barite and calcium carbonate.
To energy producers and midstream companies.
We can create significant operating leverage by selling drilling fluids and production chemicals fracturing chemistry stimulation chemistry pipeline take 10 tank chemistry off a common platform of manufacturing yards in warehouses labs since.
Scientists are common back end for the business.
Future Capex is maintaining or expanding our fleet of rolling stock or trucks and.
And increasing throughput as appropriate in already existing facilities such as miscue.
We can support double our current run rate with our existing platform before significant capex would be required in our main manufacturing facility. Our 80 acre reaction chemistry plant in Sterling Kansas.
Class facility supported by rail and truck.
On capital allocation.
Our objectives remains steadfast.
Which are all underpinned by our ability to generate true free cash flow.
Our goal is to reduce the share count, which we did in a meaningful way in Q1.
We look to substantially reduce the bond when we refinance it.
Don't be paying overpowered for it in the market, though I can assure people of that.
As we're looking to pick it up in the open market.
That will free up a nice amount of cash for equity holders.
We moved through those two objectives and field. The pandemic is settled and energy markets are stable.
Look to resume returning money to shareholders that has been our hallmark since IPO of our private business in 2006.
Make money share what the equity holders.
By staying focused on our leading north American land position in drilling fluids.
Growing our number three position in production chemicals, and getting valuable contributions from our niche businesses.
By being obsessed with working capital ratios.
Getting paid on our AUR by working for strong customers.
By focusing on our people, we can keep creating permanent value for listeners on this call.
We continue to pursue new technologies and geographic expansion.
Those unfold and deliver financial results, we will update people Accordingly, I will now turn it over to Tony.
Thanks Thomas.
<unk> first quarter results continued our streak of strong sequential improvements in revenue EBITDA margins and cash flow generation.
During the quarter. We also stayed focused on working capital optimization and preservation of strong balance sheet and liquidity metrics.
<unk> generated revenue of $261 million and EBITDA of $34 4 million, representing a 13, 2% margin.
And a significant improvement from the 11, 6% last quarter, while generating very strong funds from operations of $27 4 million for the quarter.
Throughout Q1, we have benefited from further strengthening in demand for oil and gas improving customer economics, and stabilizing industry sentiment bolstered by COVID-19 vaccine deployment.
<unk> has been able to leverage its established infrastructure and strong industry positioning to capitalize on these positive developments as demonstrated by significant sequential improvements in financial results. Despite temporary lost revenues and supply chain disruptions related to winter storm Yuri.
As activity levels continue to improve in the quarter see us investing in working capital and remain disciplined on capital expenditures, while retaining substantial liquidity and balance sheet strength, we exited the quarter with a net draw on AR.
Senior facility of $4 million compared to a net cash balance of $18 million at the end of 2020.
The increase was driven primarily by investments in working capital on higher activity levels across business lines and by the repurchase of $6 3 million shares for $9 5 million at an average price of $1 50 per share.
Since March 31 industry activity has continued to improve from both production chemical in drilling fluids and markets, prompting modest investments in working capital offset by strong collections and as of today. The net draw on our senior facility is $5 million.
<unk> Q1 revenue of $261 million represented a sequential increase of $48 million or 22% from Q4 2020 revenue generated in the us was $168 million or 64% of total revenue for the company.
U S revenues were impacted temporarily by lower activity levels and lost revenues, resulting from winter storm Yuri.
During February and while activity levels were down from comparative Q1, 2020 period, we participated in an improved drilling environment on a sequential basis and were able to increase U S drilling fluids market share to another new record of 22% in the quarter.
Likewise in Canada with revenue of $93 million in the quarter both of production chemicals in drilling fluids businesses participated in improving drilling activity levels and the reversal of temporary shut ins on a sequential basis, while experiencing year over year declines in activity levels from pre pandemic.
Levels.
<unk> achieved adjusted EBITDA of $34 4 million in Q1 compared to $24 7 million in Q4, and $51 1 million a year ago. In Q1 2020 included in these results for the quarter is a $1 $7 million benefit recognized by CES.
Cash from the federal government's Canada emergency wage subsidy program, which has been instrumental in allowing us to mitigate further Canadian personnel reductions throughout the downturn.
Adjusted EBITDA as a percentage of revenue in the quarter was 13, 2% representing a significant improvement from the 11, 6% reported in Q4 2020 as the company benefited from improved competitive positioning the reversal of certain production shut ins in both the us and Canada improved.
Drilling activity increased market share and modest improvements in pricing.
CES has continued to maintain a prudent approach to capital spending through the quarter with net spending of $3 million we will.
To adjust plans as required to support growth throughout divisions as industry conditions continue to unfold for 2021, we continue to expect capital expenditures to be up to $30 million of which $10 million is pegged for expansion and $20 million approximately for maintenance capex.
<unk>.
Our balance sheet continues to benefit from prudent structuring and maturity schedules of our credit facility and notes. We ended Q1 with $320 million in total debt comprised primarily of $288 million in senior notes, which don't mature until October 21, 2024 at March 30.
First we had a net draw $4 $1 million on our senior credit facility with a maximum available drive approximately $235 million cash equivalent providing us with ample liquidity.
Throughout the pandemic, we benefited greatly from the high quality of our customers and diligent internal credit monitoring processes. We have continued to maintain a strong collection record minimizing accounts receivable losses and did not record any credit loss provisions in Q1 2021, we continue to.
Remain diligent and focused on strong AUR collections minimal bad debt expense inventory management and strong credit metrics.
These merits of our balance sheet liquidity and Capex light cash flow generating business model.
Also recently recognized by S&P, and <unk> credit rating agencies through upgrades to be stable and be high stable respectively.
We remain responsibly cautious on our outlook for the remainder of 2021 and beyond see US continues to believe that coming out of the downturn. It can continue to grow its share of the oilfield consumable chemicals markets in which it competes our underlying business model as Capex light and asset.
Right, enabling generation of significant surplus free cash flow, we will continue to assess share buybacks and bond repurchases in the context of our assessment of market conditions market prices and certainty around our surplus free cash flow levels as our customers increasingly regulate their business models.
To maintain spending within cash flows we believe that CES, we will be able to leverage its established infrastructure business model and nimble customer oriented culture to deliver strong financial performance.
Operator at this point I'd like to turn it back over to you to allow us to take questions from the audience.
Thank you.
We will now begin the question and answer session.
And the question queue. You May Press Star then one on your telephone keypad, you will hear a tone acknowledging your request. If you are using a speakerphone. Please pick up your handset before pressing any keys to withdraw your question. Please press Star then two.
We will pause for a moment of callers join the queue.
Our first question comes from Karen Macneil from TD Securities. Please go ahead.
Hey, guys.
You've obviously had some nice success.
On the rig count in the us through market share gains but.
Assuming absent future market share capture how have the discussions here.
Customers at all since the last conference call.
So obviously another quarter ending on another round pledges from public companies that theyre going to remain disciplined but is that consistent with what they're telling you.
Sorry would you repeat the last part of that is it are you asking if they're signaling the same thing to us as investors did I hear that right. Yes, you got it.
Yes, we track the transcripts and disclosure of our biggest customers and then our account managers walk their own customers, where maybe Tony and I are Gary aren't catching all of that stuff.
I think it's more than the pledge I think thats what.
Call it the.
Analyst community has dubbed it.
But my observation is these companies are adjusting quickly to create equity value further shareholders. So that we arent left with the seven sisters from standard oil in 10 years.
So they've pivoted to spending 65% to 70% of cash flow and then putting the balance back into share buybacks and dividends.
Our biggest customer adjust their tone on their call.
Just last week and I think that went over well. So I think it's more that it self preservation Erin we do have a good amount of work in the us with privates.
<unk> are bound by the same call it cash flow restraints, they've got cash stop with investors.
Outside of kind of the constraints of the capital market and those guys are running their businesses to build and be purchased like what happened with double Eagle three.
And it worked so.
My view is that shale oil in the us is not going to flood the market and drive oil prices down and the unintended consequence of the COVID-19 induced oil collapse is that natural gas has become economic.
Sure.
The double Eagle guys were paying their overhead with their gas a year ago. They probably wanted to flare. It. So we see all sorts of positives and we don't see our customers needing to outspend cash flow and they know not to because they can't access capa.
And the equity market so.
My long answer is I think that human nature is going to rule. The day and these companies are going to run to survive.
That's what investors want from them and if they want to call. It a pledge great, but I don't think the monies there to flood the market because they can't outs they can't tap out.
Excess cash flow for 20 years up until what 2015.
Upstream outspend cash flow by 30% for 20 years, if we understand it by 30%.
That seems pretty bullish for commodities to this guy.
Okay.
Fair enough. Tom you also touched on this a bit in your prepared remarks, but can you maybe walk us through the composition of treatment points in more detail. So I'm.
I'm, just making up the numbers here, but let's say half year treatment points from verticals. This time last year.
What would that number be.
With Q1, and then maybe on.
To think about it differently on a same store sales kind of basis average revenue per well on changed over the last 12 months.
I'm not playing possum earn I really don't know the answer to exactly verticals horizontals.
On.
If we can break that out and share it we would do it with everyone.
I can tell you is that new production as everyone. On this call knows only comes from Horizontals. Those wells are not treated with treater trucks, which is basically a milk truck for oilfield chemicals accepted costs for quarter $1 million.
And its squirts out small volumes in batches. These big Horizontals are continuous treatment.
<unk> net coal each well can be different from each other never mind formations being different so.
So their engineering heavy it's not us commoditized as vertical wells.
As the 11 million shifts more to shale and less from old verticals.
US and champion X and Baker will all benefit I would say, we're big enough that whatever the ratio is in both countries.
I would hazard a guess that we're within a margin of error of that we're big enough now in the market that I think we would track that metric.
Understood.
And then Tony I got one for you as well margins were also pretty strong on the quarter, obviously, a function of the weighted wage subsidy to a certain extent, but do you have a sense of what EBITDA would have been in this quarter. If you hadn't made any changes to the cost structure over the last year.
And how much of that reduction is permanent versus something you might have to give back on a recovery.
Well we are.
We run on a decentralized model as everybody knows and each of the divisional presidents made decisions on what to do on when to do it on the way down and to be clear and I think we mentioned this during the last call.
Each divisional president has the autonomy to have the autonomy to move wages back when we felt that was appropriate.
That's what happened so by the time, we hit the end of last year.
Much of the salary rollbacks.
Except for the executives.
Was rover was reinstated and as of January one of 2021.
All of those salary reductions and were.
Were reinstated so that cost structure that you saw for Q1, that's representative of what we'll see going forward.
We did unfortunately have to make some head count reductions over the year.
And we're not back to pre COVID-19 levels.
By any stretch right now, but we invested in the people we reinstated those salaries and you saw the results. So in terms of answering your question on how that EBITDA would have been different there wouldn't be a big difference because that that comp level as is.
Here to stay as we reinstated it and we may have to make some head count additions as the guys continue to grow and improve their businesses.
Perfect. That's all for me and I'll turn it over thanks.
Our next question comes from Matthew Weekes from <unk> capital markets.
Go ahead.
Good morning, Thanks for taking my questions. The first one is just a clarification did you say earlier in the call that where you are in the U S.
Drilling fluids market right now.
With the recent gains you've made that you are the leader in that market now.
Yes, we believe we're equal with Halliburton drilling fluid business in terms of size in the market on.
You'll note that we have zero activity in the Haynesville.
That isn't to market that we can see a way to make money in.
And when you combine Canada in the us.
We're comfortable saying that we're number one on land in North America.
Okay. Thanks for that color.
And I'm just wondering I think.
On the expectation that.
That you had said was that you kind of continue to either maintain or gain more market share going forward.
Possible as activity recovers then you see maybe some on the more marginal.
Coming back to the market that you see a little bit of pressure on the share going forward.
I can't predict what the customers will do but we didn't get the work in the crash.
By giving away too much inventory that we got caught holding which has happened to the bigger less nimble companies and somehow even some smaller companies. So through M&A there might be some choppiness in rig count, but I don't believe.
We're going to lose work based on performance, which the customers all measure in different ways and one of the ways. They are starting to measure us on ESG. So we believe our science first approach that we don't re sell other people's products.
And run lean safety and have no science people, which helps gross mom and Pops make money and I know how that is because that's how we started this in 2001, Ken and I started this out of a couple of Red Ford F 150 <unk>.
Those guys are always going to be in the market. They are in the production chemical market all across the us.
As the customers get Baker.
To remain competitive for cost of capital as they focus on ESG and reducing their carbon footprint.
It gets harder for the mom and Pops to get what we call body work because you can't hide their deficiencies for management as a drilling person and there is a lot of eyes on this stuff now.
On.
It kind of the focus shifts depending on where all the money is getting spent.
But we feel comfortable that we can hold our position with our competitors come after it of course, but we didn't get it by putting our products on sale. So while we are pushing price increases through our inputs are going up theyre going up for everyone. We're seeing commentary.
For me <unk> executives that they know that completion and chemical costs need to go up because the inputs are going up there are supply chain validates that claim by the supplier before they allow increases to the vendors or suppliers. So I think our chances there.
Pretty good.
But there will be a bit of choppiness through M&A, but I don't I don't think were getting run off for performance and.
If people wanted to hire people because they were cheap they always had a chance to do that through COVID-19 and we went up not down.
Right. So what are you, saying, it's really more of the debt.
Technical side of things, where youre waiting for new work and you haven't made any concessions on price debt.
Well, everyone made concessions a year ago anybody in my chair that says they didnt I don't know how their results are today, because they don't have a book of business to try to manage back up but.
We think we'll hold it we don't have a history of spinning the bit and giving back what we win so absent M&A.
We're pretty confident and even with M&A, we work for all of the Supermajors in North America now for ISO certified.
We're viewed as a major by the engineers in supply chain and all the sales lines that we offer our customers because we're a basic manufacturer, which in some of our business lines, even the integrated service companies like Hal on Schlumberger non integrated in so.
So that's why champion X for example, beats, how and Shlomo and production chemicals and Thats why we beat them in production chemical chemicals, So and we've taken that advantage and put it into our mud business, which is why we've passed both of those guys.
Okay. Thank you that's helpful color I'll turn the call back.
Our next question comes from.
From Stifel. Please go ahead.
Hi, good morning, everyone.
Tom coming back to your comment on us drilling fluid market share on E&P, I mean kind of seems like it's fair to say that a lot of this market share capture is and maybe will continue to be driven by some of the private.
Are you just able to share. This is a function of some of your existing private customers, maybe becoming more active or if theres, some new customer wins on that side.
There is a good healthy chunk of privates working.
But I'll reiterate.
One of your peers.
In town pointed out to me at coffee a couple of years ago that we were perceived to mainly be eog's mud vendor and that we've built our company around that so we quickly ran the traps in here.
Inside of our public disclosure as information about the market cap and the percentage of our revenue we are working for the Super majors in the different verticals. We have so the answer is that the growth has come from privates, but also the biggest public comp.
<unk> in the world.
Okay, Great that's helpful.
Obviously revenue was very strong.
Some of the drilling fluids market share played a role there but can you maybe just add some color just on sequential pricing dynamics across all your service lines.
Yes, all the customers want to pay less and.
Our inputs are going up.
All of our competitors have the identical dynamic bake.
<unk> current champion X are out life with price increases that they tell their customers about through letters and press releases.
Our salespeople are there with their hat on their hand.
Truthfully, explaining our inputs.
And where we can give a break on something because of manufacturing you horse trade. Some of that so these relationships of trust are built on transparency.
And obviously, the COVID-19 discount needs to go away for all service companies.
We didn't make 13% because everything's on sale, so we're not going to specify who's paying what ever.
But we're going to work through the lumpiness of supply chain better than our competitors I'll remind people what our business really does is we procure commodity chemicals or basic minerals and then we finished them. So we cross from minerals make them into powder and then.
Neither pneumatic we put them into a drilling operation or put them in for Sox and Super sacks. So basically it helped with chemistry, we buy commodity chemicals, we rail or trucking into Kansas or we bring it in and off the coast into Vancouver sale co and we react or.
Those commodity chemicals into specialty chemicals.
Then are super smart people in white coats.
And our field savvy technical people formulate them into finished products.
All of that allows us to trap all the margin control on our own fate.
And bring innovation to customers faster than people that resell other people's ideas, everyone that follows this space knows that first to market with the new product can be a bit of a honey hole for the service providers and then what happens the competitors knock it off and because they don't.
A track record on the customer doesn't trust them day off to induce them with low prices. So we're always going to be reinventing ourselves and being basic for.
We're making the molecules that allows us to have an advantage. It's why we're neck and neck with Baker and champion X in this north American market and it's why our mud business has got to be the number one in North America and it makes money. Unlike a lot of our competitors.
<unk>.
Okay got it that's helpful. Thanks.
Some comments earlier, just about focusing on returning capital to shareholders I mean as things continue to improve.
How do you think about something like re instituting the dividend and if so how should we think about that.
Okay.
You should not expect it anytime.
Anytime soon but we are committed to doing that.
We did that for the better part of 15 years, we returned what $330 million plus to people Tony since IPO. We took this business public without even having an operating line.
Because it generates cash.
We've built up $360 million I think of property plant and equipment, while growing this business some through M&A, but a lot of it organically, we don't need very much more infrastructure may be the odd expansion for throughput like net SKU, which is an indicator that work.
Predicting will outsell, our internal supply chain in the future we need to get in front of that.
But.
Cap the sequence will be.
Keep hacking away at the share count with cash that we have we're not going to borrow money from the bank to buy shares.
When we refined the bond.
<unk> a smaller number we're going to do that by building a war chest over the next period of time.
And once those two things are complete.
And we feel confident about the state of the industry. Then listeners can expect us to consider returning some money to them and just to add to that briefly from.
From a financial perspective.
Ironically, the current environment that Tom laid out and that everybody appreciates.
Sure.
For the industry is living within their cash flows and North American producers.
Are are very responsible on production and growth levels, which means stable production or very modest growth.
Those attributes are hugely complementary to the cash flow generating nature of our business. Because we are built to do over $1 $3 billion of revenue per year like we did in 18 and 19, we are built to optimize working capital.
Use.
As a as a use of capital as we demonstrated.
And we've gotten better at that number one and number two if the growth levels have been tempered and I believe they have in North America for sure on perhaps globally.
That actually all means that we are going to be generating even higher levels of free cash flow and as we continue to pick away at the share count like we did we bought back.
About two 7% of outstanding share since the beginning of the year.
The math gets you to a higher free cash flow per share, which is paramount for us and that gives Tom and me our partners on the board leavers talk about things like a dividend sooner than we.
We thought we would have been able to talk about it at least.
And I'll add something because there is a lot of very.
Smart people.
Follow the company that are sort of poking need a quick being so conservative.
While I've been in this share of taking our private business public we've had the crash of <unk> <unk>.
The crash of <unk> 16, and the crash of 2020.
In all three cases are working capital harvest has allowed us to zero out our bank debt.
We can run this business.
<unk>.
That largely stay out of our bank line.
What do we get to do in the next crash.
A lot.
So if there is another one while I'm still in this chair.
We want to have been.
Somewhat conservative as we deploy capital over say the next 12 to 24 months.
Nine fold that weighed on nine had nothing to do necessarily with demand of energy, even though high oil prices.
Probably werent, great for the economy and in 2020.
For 14 months ago things looked like rose for the industry. So I'm mindful that things that are outside everyones control in the industry and outside the control of OPEC can bring this industry to its knees if.
If we can harvest.
A couple hundred million dollars of working capital and not all the bank any money.
We're going to be able to create a lot of permanent value for people on this call. So we're not going to go crazy and try and make everyone happy at once now because we can make for long term investors in this business.
A lot of money if we play this properly.
Okay, Great I appreciate the answers that's all from me I'll turn it back.
Our next question comes from Keith Mckey from RBC. Please go ahead.
Hi, Thanks, and good morning.
My first question is just maybe the pace for the rebound in the production chemicals Division. Just wondering if you can give any kind of color on on the breakdown of the us.
The sales recovery.
Chemicals for production applications versus Frac fracturing application.
Yeah.
In the U S. Keith.
A very modest amount of frac revenue happening.
In the Permian for us.
I don't know if we've sold a dollar of that far in the us in the quarter. So what's all specialized products for frac or drilling frac plugs.
In Canada we.
We are getting some traction supplying fr and other chemistries to end users.
So there is some EBITDA contribution there.
And our costs are really a small team of experts because we've always had the ability to make or procure and then value add the chemistry and deploy it. So if I understand your question right pretty minimal contribution inside the chemical businesses from Frac.
But there is upside we think in Canada and out of our Carlisle facility, we can reach down into the U S. So there is some chance there, but the farm market is very competitive those products the liquids have a shelf life.
Not interested in investing in working capital that we get left hanging with us so having spoiled inventory. It's one of the challenges for the pump versus you've got to have lead time on this stuff and what's happened in my opinion is the drillings become more reliable than the completion.
If the well is left with on liner with the right fluid in the hole that prevent stress corrosion cracking from acid gases that exist in a lot of these formations, so cotwo and H to us which everyone in the industry has learned the hard way.
Those wells can be drilled and left for a better day when they can get a proper return for the commodity. So frac, we think will be volatile and choppy, but in certain markets, we're going to participate and make some money, but in Q1, it's not a big factor on how much money we made.
Got it okay. Thanks for that and lastly, apologies if I've missed this can you maybe just run through your current job count in the U S by by Basin, if you've got that.
We have 30% of the Permian market.
I'm afraid I don't have the breakdown off the top on my head, but it would be roughly.
Say 50 of the 86 or 88 jobs running out there I think off the top of my head I don't want to guess at Keith but its concentrated in the Permian.
It's a decent amount of business in the northeast U S.
And then there is.
A little bit of work in the Rockies and a little bit of work in Oklahoma and then we're starting to see some action in South Texas and of course, we've always had a nice book of business in the Eagle Ford.
Got it okay. Thanks, very much that's it for me.
Our next question comes from Ken Monticello from APB capital markets. Please go ahead.
Hey, good morning, guys.
Good morning.
Assets here.
Over the last three quarters, he is more expense, but $2 million on moving capex guidance for the years 'twenty now.
The rolling stock.
Curious if that's just us.
Served us number.
We expect to get there.
For that any.
Maintenance that's been deferred.
What's up on us.
Sure.
There hasnt been any maintenance whatsoever, that's been deferred.
<unk>.
First and foremost.
And our Capex considerations and that will always be the case.
For ISO for safety for being able to beat our customers with our manufacturing and technology.
Our rolling stock.
Amount.
And the number of vehicles has come down and will continue to come down a little bit.
Just because of.
The nature of the business and some of the contraction in parts of the business. So that maintenance Capex estimate that we have a $20 million that could be a little bit high but again, we have to watch it through the year.
And Tim I'll, let I'll, maybe try and explain one of the nuances.
To give people comfort around the fact that we didnt neglect maintenance, Unlike say a rig company or a pumper that set us something in a yard.
And doesn't maintain it because it's not working our trucks are driving around every day. So the maintenance has to be current on them.
For reliability and safety because our people are in them. So our maintenance hasn't missed a beat.
And then the 10 that we've.
Put out for growth.
That could go towards miscue throughput expansion or other odds since thoughts.
Okay great.
It's a good segue for next question for months.
From what you've got double the capacity on.
Okay catalysts for growth.
Paul.
So for the last few years.
So we're based on the market.
Share today.
Businesses, where do you see.
I'll, let Rick current glad you asked the question I'll start.
Spending more on materials growth Capex.
The capex.
For drilling.
I don't think we're talking about that unless people are tapping the equity market.
We ran I'll remind people 200 drilling fluid jobs in the us at times in the past and.
And we ran that same job count in Canada before J P got into office in Ottawa, and all of our customers Couldnt access equity.
Our bond capital so the machine.
For drilling can handle way more volume.
That's why I specified debt I think we can go.
Something's scaring double our revenue before real money gets spent in Kansas or in Midland or Grand Prairie to add manufacturing capacity.
Or throughput capacity in these so manufacturing being reactions or throughput I'm, calling blending in places like new skewer Grand Prairie or Midland.
So unless people are tapping the equity market or are willing to go spend bond debt on drilling.
I don't think were spending money on our drilling fluid business.
It's just a business that needs to stay nimble and US Baxter says make money for the mother ship warrants there to get and to keep your team in place when industry quiet. So you can live to fight another day, the Capex would come as revenue gets much higher which would happen.
Through more production chemical treating expansion of our frac business expansion of pipeline treating or possible geographic expansion.
Okay. That's helpful.
And then lastly on your hurdle, there's been a lot of talk over the last couple of years.
Sure.
Gaining traction around.
Utilization of our global energy services space.
We've got a lot of companies willing us digital platforms that are on.
Enable customers.
Chairman on lines directly.
Providers on.
Interact with on the doors and then provide data.
I'm wondering.
CES is digitalization.
Rajiv.
That makes us.
The markets that you operate.
It's one of the ways that we've reduced working capital so effectively we've drop working capital by what over five.
For a dollar of revenue since you've been in the chair Tony seven.
That's one of the benefits Tim It allows us to better do offset research.
Allowing us to more reliably convince the customer not to overstock drilling locations with contingent products.
Rather than letting the company man remember a well we drilled 20 years ago.
Took loss circulation, but not remembering the surface casing now get set 200 meters deeper.
So AI has always been part of our strategy to get work <unk>.
Improve our financial metrics I think.
I'll, just say at GE blewitt, when they bought Baker thinking that sensors could replace all the people in the field.
That to me was almost insulting to industry I believe energy and health care use technology more than any other industries in the world we're drilling holes in the ground.
Two to five miles deep and then turning them sideways for a couple of miles knowing exactly where the pipe and bid are and then poking holes in the pipe shattering rock with water and sand and keeping it open and extracting oil and gas that it looks to me.
People in the Eastern U S and Central Canada, just realize they can't live without.
And so to me.
The industry has always had digitization, it's become a bit of a buzzword.
We're not looking to displace our field workers with sensors.
There are point of contact with our customer.
They are expected to know the business as well as the customer and in most cases better for what we specifically do in it's one of our competitive advantages, but it certainly has allowed us to actually create financial value for shareholders by lowering working capital and it's part of why were up in market share.
On all our segments because we are using it effectively we're just not out pounding our chest because our experience and why don't talk about specific products anymore is a competitor steel the idea and then do it for less.
Once again if you.
I have a question. Please press Star then one.
This concludes the question and answer session I.
I would like to turn the conference back over to Tom Simons for any closing remarks.
Thank you in summary, our focus remains to hold.
And build upon the successes, we created through 2020 and into Q1 'twenty one.
We will watch working capital closely.
We'll be prudent with capex.
We will solve our customers' problems better than our competition.
We will maintain our decentralized approach.
We will navigate supply chain issues facing the entire industry better than most because we self supply.
We will continue our march towards a lower share count us.
Smaller bond upon refi and in time, a renewed return of cash to equity holders.
I want to thank our employees and customers.
Cited for 2021 debt.
That ends today's call.
This concludes today's conference call you may disconnect. Your lines. Thank you for participating and have a pleasant day.
[music].