Q2 2021 Dril-Quip Inc Earnings Call
Good day, and thank you for standing by and welcome to drill clean second quarter 2021, Fireside chat at this.
This time all participants line are open and help reduce the background noise. Please press star 6 stimulates more on mute. Your line. If you require any further assistance. Please press star and here I would now like to hand, the call over to your speaker today, Mr. Daniel Brook. Please go ahead.
Yeah good morning.
And welcome everyone, joining our drill quit discussion via the phone or webcast.
And I'm happy to introduce real quick management, CEO, Blake Deberry, and CFO Raj Kumar welcome guys and thanks for the opportunity to host this conversation I.
I'm wondering if that's right and yeah. Good morning, Thanks, Blake laughing upsetting yeah.
Likewise, I'd want to plunge right.
And and and start with some questions on the second quarter results you guys, just released yesterday evening, but before I jump right in.
Let me hand, the floor over to you Blake and ask you to highlight any any key themes you you want to make sure we emphasize here before delving into the specifics.
Sure Daniel.
The main.
As we.
Laid out several pillars and strategy that we believe will help the company to be successful and the future and we're getting we're getting success on all of those strategic initiatives, we've outlined our peer to peer strategy, which is really a consolidation by collaboration.
And.
And we did during the quarter signed our first a peer to peer agreement or actually our second if you include the pro Serv agreement.
And our downhole tool business, which we have been focused on pretty intently to our get fit.
Proven and that business.
Is that gaining significantly more traction and that business.
And things.
And is doing very well so we're very pleased with that.
And thirdly, you know we spend a lot of time energy and effort on new products and we are starting to see now new product adoptions, and we've had several of those and the quarter.
Run a lot of serial number ones, which is the most difficult thing to do and just get somebody to try it first.
<unk>.
And that generally lands lends itself to adoption of that product and so we've had success there.
And lastly, <unk>.
And to find a $10 million productivity gain for 2021, and we're well on our way to meeting that productivity gains and so you know on balance.
And strategically the things that we're trying to do we're.
Time success within the quarter.
Okay I appreciate that Blake thanks.
Let me let me go ahead, then and start with a couple of questions really really catalyzed by the Q2 release and start with 1 that's a bit high level. You included a handful of updates on your 2021 targets are.
A little bit of and update on year over year revenue trend order outlook and our free cash flow target margin, maybe maybe I thought it'd be worthwhile. If you guys could take a second and I'll highlight highlight those updates.
Sure you know and.
On the revenue side.
And we forecast a 2021 to be similar to 2020.
We're having I think we guided that down just slightly.
And so our revenue was down a little bit on the quarter, but you know that that really is just a result of the lower bookings that we had and the back half of 2020, starting to manifest themselves and the top line and that's just that's just really it.
And.
And as our bookings level increase which we're hopeful for.
And the back half of the year here.
We should see improvement and the revenue and things turning around on the booking side.
And we had a pretty good bookings quarter right right down the fairway of our range of $40 million to $60 million.
If you just compare Q1 day or.
2 on on base bookings. So in Q1, we book and you don't like 57, and $58 million, but we had a $20 million booking and there for 2 subsea trees and control systems. So the net you know the net bookings really kind of a 37, just rope soap and dope.
Baseline bookings and Q1 and and Q2 there was no large 1 time, so we booked a 50 million and Q2 and.
And so that's a significant improvement quarter on quarter and bookings so pleased about that and and are happy to take more questions on bookings and how we see them going forward.
And on free cash flow, we had a pretty good free cash flow a quarter, we're trending significantly better than expected and I think we will exceed our exceed our target by year end for sure and that area.
Got it.
Thanks, that's a that's a helpful rundown and Blake.
So let's stay with as you mentioned.
And orders.
You mentioned and.
And expectation that that Q4 'twenty 1 orders in particular will be strong can you talk about the visibility you have into into what's giving you that conviction and is there any any timing element to watch out for where we could see a dip and orders in Q3 before a correspondingly strong rebound in Q4.
Mentioned.
Yeah sure. So first of all and the visibility you know we have some of it's qualitative and some of its quantitative I mean, some things we can put our hands on heart and say, yeah that that's something new and in the order book and.
And then some of it is just a more qualitative what youre seeing and the environment, but specifically you know when we look and our C. R. M. We see more opportunities.
And he is coming up, particularly Q4 into 2020.2.
And we're starting to see some what I call availability plays with some of our independent customers that are you know hey, I'm going to go drill a well do you have something and inventory that we could do we could take now so those opportunities are starting to appear.
And and be quite candidly.
If I look at our markets just on a segmented regional basis.
And theres more areas, where there's upside and increased activity then there are down or neutral and that's different and what we've seen in the past.
Looking forward.
Our bookings from.
You know 3 I think we're going to see a Q3 similar to the to Q2.
And the mid of that 40 to 60 range.
And and then Q4 is where we hope to see some momentum and our bookings and then that continue on into 2020.2.
Okay helpful and then.
Keith.
And again just to lean on 2022 for a moment.
Any reason I mean, or do you think you'll crack out of that $40 million to $60 million per quarter type of range you've been at really since the onset of the Covid times.
Yes, we are we.
And then Q4 to kind of and at the.
Right now, we're just saying we think we're going to be at the top end of that 40 to 60 million range on bookings on quarter right.
Right now 22, and is looking optimistic I'm not ready to call a number but I.
I think you know our Q4 number would be a consistent start off jump off point.
And you know.
We're just seeing a lot of improvement and the and the market I think youre seeing some.
Even the rig contractors are making commentary that the they're getting more activity.
And the rigs and I think Transocean recently came out and said that you know all the rigs and the golf are going to be mostly.
Mostly subscribed.
<unk> and under contract by the end of the year, so that bodes well for us.
Got it.
Also wanted to talk about our margins.
Q2 products margins did dip about looks like about 400 basis points sequentially and you mentioned mixes of reason, but harkening back.
Last quarter, you'd mentioned, our margins and the back half of the year likely to firm up on improving mix and your cost out programs and I guess I wanted to affirm that that's still the case and do you expect to claw back some some ground on the margin line, Yes, Mark Raj you on a U M D.
I don't think so Blake thanks, So Daniel.
Margins in Q2, I know, we talked about the AF global impact to margin so.
About about a year and a half ago, we leased our forge operations through <unk> global.
And as part of that we accounted for in leasing revenue that we have to accrue for some of these leasing.
Back to lessor forward and nature that we accrued for.
And that impact had had.
And the fact that he terminated the lease had an impact on our margins because it impacted our cost of goods sold.
And I'll consider that to be around 300 basis points of impact in Q2.
We also had some mix.
Revenue.
No issues in Q2, but.
And I say mix issues actually it's a good story here, we saw pipe and connector mix go up and that's always a leading indicator for us what it means is you know.
Our our customers are going back to work they are getting the pipe and the.
And the connectors ordered.
But it will run down the wellhead inventory and soon we are going to see those wellhead and inventories have to be replenished and.
And that's going to help us with that mix going forward.
So.
If you if you think about that.
And if I were to look out second half of this year I should see mixed up and improve in Q.
3 and fill them up and Q4.
There is a.
We've had some very good results and our downhole tools outsourcing and we're seeing very positive results that I expect that to continue I expect.
Project.
There may be some headwinds with our project mix in terms of we're doing a lot of controls work.
Work with process and.
And evidently we have.
Margin sharing situation, there that could be a headwind to our mix, but overall as I look into Q3, and Q4, I see stabilization and Q3 firming up and Q4 and you saw what does.
But what if I would guide you in terms of EBITDA I would say that on a normalized.
Normalized basis, our EBITDA should be and the high teens going forward.
Okay. That's helpful.
So a recurring theme this earning season has been input.
Input cost pressures and how well companies can manage them and 1 of the more interesting elements of your release.
Closure that you will impose a 10% surcharge on orders and and essentially and effort to be proactive here with with the potential for rising costs can you just talk about you know how and how that has been received by customers and and how easy you think that's going to be too implement.
Was it just yes, so Daniel you know what I think our customers are understanding of this cost increase we're not we're not pushing because it's demand based you know theyre seeing the same cost pressures themselves.
And while nobody likes likes of a price increase.
It's just the reality.
Reality that transportation and and materials are going up and.
And that's putting a you know putting pressure on our margin and cost base.
I, just I recall back in 2003, and 4 and again and.
I think it's 2006 and 7.
We saw the same same kind of price increase on raw materials and.
And our customers.
Well well may not like it you know they accept that that's the reality of what's going on and the market. So.
I don't I don't expect too much pushback in that regards.
Okay, and then maybe maybe a more basic element and the other question and what do you see and in terms of steel price.
Pricing and raw material pricing and freight.
What exposure if any do you have now against your existing backlog.
Yeah, So right now.
As we look at our backlog and and the transportation and and the material elements are in there there's really about a.
On a blended 10% increase and that's really kind of where we're where we're pushing why we're pushing that number out there.
And the fortunate thing for US is that our business has longer cycle and nature. So we have the ability to play and the head our our supply chain organization that we stood up in 2019.
Team has done a really great job of securing long term contracts. So you know right now, even though transportation rates container freight rates are are up.
And as high as 9 and $10000 a container.
We still have contracts, where we were paying $3 to $4000 of container coming.
From Asia for example.
But those contracts have and and and so that's why we're pushing this surcharge through because we.
We have to cover cover those additional expenses as they come through.
Got it okay.
And then Raj you mentioned earlier the impact of.
2 are free.
The cancellation of the forge lease with.
And with Amp global on the Q2 results.
But.
Thinking about that strategically now that they cancelled the lease what are your options and for sourcing and and what are your plans for the <unk> itself.
So.
Now.
And the immediate step is to warm stack defaults right. We we are you know Blake.
Blake talked about our supply chain organization and they have been very successful and ensuring that we have fought supplies and.
<unk> got Ford supply from multiple suppliers, so we've kind of mitigated that risk completely.
Global Wars.
Prior to this day, we're supporting us from a domestic only from a domestic perspective, and we were very very quickly been able to pivot and get other sources of water supply. So we're not too concerned about that from a warm stacking perspective, you know the cost.
And being that it's negligible, it's not going to be anywhere close to the 11 to 13 million and we saw when we were operating the forge back and the day this will be maybe $100000 a month.
We're actually having.
And having conversations.
With a number of forge operators right now.
Some.
Police someone looking to buy and.
And those conversations are.
And proceeding and I'm confident that we should get to some closure on this issue with the <unk> by the end of the year.
Okay, that's helpful and and Raj just to stay with the stay with you for 1 moment I wanted to read.
We're looking comment you made just a few moments ago, we were talking about margins you talked about a normalized high teens EBITDA margins going forward and I just wanted to get a little incremental clarity. There are you talking about adjusted companywide EBITDA margins in the high teens and once once things normalize which yeah.
Kind of get out of the.
Visit the G&A burden and you've had related to litigation and and against some of the day if global stuff. Yeah. So yeah, that's absolutely right down here, what I'm talking about normalized I mean.
Once we get back to steady state and we're nowhere near steady state right now and also Blake earlier comments the low order separate is coming to roost right now.
For us when we start talking normalizes back when we were back to activity levels that we saw.
And maybe 3 or 4 years ago.
Once we get the debt level I should expect us to be in the mid teens.
I'm, sorry mid to high teens and.
And on the litigation side, Yes, that's been a headwind this year for us, but we're putting that behind.
Does that.
We could have some additional costs, but nowhere near where we've been what.
What we've experienced over the past year right.
So in that sort of that sort of perspective, I would expect very easily once we get to normalize we should be.
Training up to the mid.
Behind up to the high teens in terms of EBITDA.
Okay. That's that's helpful context, and so to be clear, it's kind of cleaning up some of the specials as well as getting back up to maybe a more robust top line and you're experiencing this year okay. Let's.
Let's see and again and element to that that margin progression is also.
Net going out of the cost savings that you guys have implemented includes $10 million this year and.
And frankly looking at the Q2 update your well and your way to that $10 million or there are there any scenarios you could envision debt that would result in and further changes to the cost structure for the company.
So you know Daniel it's and our DNA.
And constantly evaluate our cost structure.
You know past the past 3 years, I think you've seen and what you're calling structural costs, what we call transformational cost we call. It transformational because what we're looking to do is leverage every dollar and cost that we have right.
Being more efficient and the way, we we look at a dollar spent and.
So if you look at where we are right now and the outlook that we have in terms of bookings I think.
We're in a good very strong position a very good position to get a lot of operating leverage in this recovery.
We always had the view that when the recovery comes back that we need to be ready to do it and be able to flex zone.
And our manufacturing and we are in debt position right now obviously we.
We will have to pull on overtime to get the first 20% to 30% of output and once we get some stability in terms of activity levels will probably have to look at adding some variable costs due to maintain the level of activity that we anticipate and going into next year.
Our web where where we sit.
It's we are focused on the productivity improvements Blake talked about the fact that they are well and well underway, we had a $10 million.
Target out there we have exceeded the run rate, we are close to $8 million right now in terms of our productivity savings.
And any additional structural.
<unk> changes that are transformational changes will have to be evaluated against the market context, but as of now and what we're seeing is I think we are we are poised and well positioned to take advantage of it and recovery.
Got it let me let me pivot then and just ask a couple.
Couple of questions on the really the commercial side of the business and we start with something you mentioned previously Blake in your opening comments your.
Your consolidation via collaboration strategy, you mentioned agreement you signed with an integrated well services peer from Wellheads and and related.
And it equipment and and know that sounds like it could be significant is there is there any way you can kind of frame up or provide some incremental color on the the size of the opportunity and maybe maybe timeline to first sales under the agreement.
Certainly yeah.
I'm really pleased with the with our team and and reaching an agreement.
And the agreement we signed is with 1 subsea and it is for the provision of Wellheads and liner hangers, and and tubular goods, so price and connectors.
And so you know it's pretty significant.
Significant the teams are just now starting to work together and comparing opportunities and.
And I guess the way to.
Frame. It Daniel is is to the extent that 1 subsea is successful and then drove quip is gonna be successful, they're going to give us access to markets that we previously didn't play and particularly the integrated developments.
And and I.
I think we're likely to have some success by the end of this year or.
Early next year I mean, I think there is 1 opportunity that comes up and of this year.
And then there are several out of it and the future, but I think it's going to be meaningful to our to our wellhead business that's for sure.
Okay. That's helpful and then on.
On the E series technologies, you've had some bookings.
Success V S T E big bore to Ian and I think he mentioned the Dfc connector and in the press release yesterday afternoon, and just generally.
And I like to highlight some of the successes you've seen initially and maybe.
Maybe highlight as well more specifically to the.
And the VX T E.
Or youre thinking on timeline there for it was mentioned in the press release sort of first first block project or product deployment and opportunities.
Opportunities beyond that point.
Sure.
It's been a it's been a good quarter for new products.
And on things and I'm extremely pleased about.
So ex Pac day, our liner hanger.
Just signed a multiyear contract with a major Brazilian NOC and I think that's pretty clear what that is and this is a it's for the X Pac day liner hanger system. So this and the arrangement.
And even turnkey.
And key suppliers like Schlumberger, and Halliburton will be coming to us to get the X Pac day for use by this operator, so that's a big big win.
On the ex Tac the big bore to a you know I think we announced last quarter. We ran our first big bore me and ran the second 1.
This quarter.
And.
But we are now seeing that that same and I'll see and in Brazil is is looking very closely at big bore to me and the current tender that's out and.
We are optimistic, but we don't we don't have or don't have a contract yet but you know.
They're starting to realize the time savings has real value and.
It's meaningful to their cost our cost structure and same thing with big bore to me. We've got 2 <unk> that are looking to standardize on it and we're consolidating our wellheads from 15 different skus to 4 and and big bore to ease or part of a big part of that and so I think that's a that's a great.
To start and and then.
And the other 1 the DXP wellhead connector.
This 1 is a little more subtle.
Understand but.
The top of the wellhead has a profile on there and does traditional de facto standard profile has been and H for profile for.
Over 20 years longer than that probably.
And and.
The <unk> connector.
It's a different profile and the wellhead and.
Very high fatigue resistance and when you have large rigs and shallow water like they have in Norway and.
And the.
The length of time that the rig could stay on the well was very very short because of the fatigue and.
And the <unk> connector, including the profile and the wellhead.
And is.
His extended by an order of magnitude.
Mount a timing thing and well so.
It's a significant adoption because it's not just somebody bought a product, but they decided to change a de facto standard of the interface of the wellhead to the BOP.
And so that's a big deal.
Specifically to VX G E M.
And we do have another opportunity to run the <unk> with Walter oil and gas they are spending and wells on April 1.
Walter buys these trees and puts them and inventory and when they drill a prospect if it.
And is suitable for a subsea development and requires a treat and and they just go right ahead, and and run and the completion and run the tree. So every time, they drill well, we've got and opportunity around that and <unk>. So I'm hopeful that that they are successful and as well and and we will get that true run.
At the end of this year early next year and have that serial number 1 behind.
Yes.
That said.
We had a lot of pressure.
During the the lawsuit we had several majors stepped back from <unk> until the lawsuit which resolved.
We are re engaging with many of them hotels come back they are fully onboard and so I think we're getting back on track.
With with our <unk> marketing strategy. So it is a meaningful product.
From a time cost and carbon footprint standpoint.
And.
Got it.
Again, staying on sort of the commercial side Blake, Let me, let me pivot over to downhole tools.
Obviously, the business had a really strong.
Strong Q1, and it had a pretty good Q2 as well so your comp and revenue up about 30% year over year year to date.
And then you've touched on this before but help me better understand the drivers is any portion of this catch up related to a disruptive 2020, what portion is structural and I know you've made some changes to the business but.
But help me understand that and help me understand as well whether you can kind of sustain this higher revenue run rate looking into the second half of the year.
Yeah, So there's a little bit of catch up from 2020, but that's a very small part of it it's really more about the changes we've made to the operating model. This business we did we.
We did it.
It bring and new leadership for the downhole tools group, but not only that over and over and over his.
Time with drill quip, we've also changed the leadership in several regions, where we operate.
We have.
And increase and our geographic focus and we also have.
Have some new technology. The other thing we did is we.
We looked at what are the areas where were underperforming and.
And we closed some businesses and left some areas to because it was a distraction and we said we're going to focus on these key areas, which is really middle East Latin America, and our offshore business.
And that that we've done and we've improved our supply chain.
And with better stocking programs and and quite honestly.
Lower costs will improve margins there so we're much more competitive now.
And.
And and downhole tools specifically.
Hangers.
It's a it's a business that you sell from inventories you don't have the inventory you don't get the business and so we built that inventory up and we're.
We're being much more competitive and it.
And.
We are continuously.
Maniacally focused right now on.
And upon our service quality we've got.
Initiatives in place to improve our service quality and.
So that's that's helped helped grow that business and.
And we're also seeing more peer to peer activity and we've always provided and liner hangers to peer but that seems to be increasing.
Over the course of the year and.
And things are just structural right and that most things and just continue on.
Got it.
And then also again on sort of the commercial front you guys have fielded a number of energy transition questions.
Over the last few calls, but but it does remain a germane topics. So just let me add 1 and.
And.
What are the straightforward 1 right. When you look at your Green by design campaign, and the message you're trying to convey to customers, what's what's the reception been like there.
Yes, so so green by design. This is a campaign and we put together that really are high.
Ties together, our R&D focus.
Focus.
For all of the new products, we developed and so I think I've talked about this before I challenged our engineers with the concept of I want you to.
Develop equipment that structurally changes, how our customers drill wells to provide new permanent cost savings.
And so the way you can do that is.
I can eliminate things that I have to install I can I can reduce the time, so I reduced steel and a reduced time and.
As the focus.
And shifted more to a carbon footprint environment and what we realized was <unk>.
Saving saving time and and offshore.
Sure spread has a significant impact on carbon footprint and.
And so that really kind of changed the way we think about R&D that time is really important because it's important.
Both from an IRR perspective, and return on the investment, but also from a carbon perspective, because the number of vessels.
Working offshore significant so it really just represents a significant a change and how we think about that.
Designing and Orange and R&D products, and and just to kind of put a finer point on it.
We've started to do and what's the carbon footprint savings of the of installing a bx tea tree and.
And these are preliminary numbers, because we havent added everything and so.
And I'm going to give you a number here, that's probably conservative to the low side.
But <unk> is about 1000 metric tons of carbon and saved per well and.
That's in addition to the 5 days and $5 million of costs.
No.
And it's pretty meaningful for our customers.
Okay.
Got it.
Alright so.
And then and then yeah.
You've also mentioned Blake that the true quip has some ability to kind of step out into the marketplace around carbon capture and geothermal.
And and and you've described some of those opportunities or or or adjacencies, but any any actual commercial opportunities emerge that are you know.
On the horizon.
Yes, so our plan is to be an active player and the and the energy trends and transition.
And carbon capture and to you.
Thermal are certainly things that are adjacent to what we already do we have bid a couple of carbon capture.
Projects, we have not been successful we've got a big 1 coming up next year that we're really focused on.
And every time you bid these things you understand more what the requirements are and and and I think we're going to be successful here.
And.
We're spending a little bit R&D money to do some.
Some development work that debt.
And tunes, our tree systems to meet the requirements of carbon capture.
But this is an area, where we're going to become more strategic whereas the past, which is kind of AD hoc opportunities is an area where we.
Now focus on and our sales guys really go out and look for for people for customers that are that are planned and these are geothermal RCC U S projects.
Okay and I wanted to then.
And if it back too.
So our free cash margin targets.
<unk>.
And Raj you might have given me a bit of a hint with your comment on normalized EBITDA margins for the company being mid high teens and right.
And ambition, we won't see this year, but but but but a relevant sort of data points. So but building from that could you share some thoughts on where free cash flow margin could be or could.
Over the intermediate term absolutely so Danielle we guided at.
And at the beginning of the year, we said that we would expect of a free cash flow margin to be 5% and when I. When I use the word free cash flow margin and I'm using the margin on revenue just to be clear on that.
You.
Good trend if you look at how we've been with the progress we've made year to date.
We will exceed that target in 2021 and in fact.
And I am confident that we will get very close to double a debt target so closer to 10% by 2021 by the end of 2020.1 and.
My only caution is S west B.
Approach.
Next year and.
Back half of this year going into next year.
Got it and see orders come in the market starting to recover backlog starting to build and I expect that we could see some headwinds and.
And these to me a good headwinds to working capital right, but I expect this to be.
No dictionary.
And maybe a slight dip next year and then we should get back to that 10% yield very very quickly.
If you go back to my line.
Comment on the EBITDA. It's very you know you can very quickly see you you have a capex impact you've got some cash taxes and there and you very well.
Very easily land at that 10, 10, plus yield on a normalized basis.
Got it and and Raj you referred to some of the elements of our working capital influencing free cash and so maybe maybe to follow up there. It looks like you guys have made pretty good progress this year on the AUR side and the AP side, but.
But inventory levels still seems a bit elevated what can you do and and is there the ability to see improvement there are in the face of ore in the face of anticipating you know a rising order trend.
So that's a good point and Daniel let me talk about our working capital right.
So on the HR side, plus let me talk about the progress we've made on the E R and D.
A P side on the air side.
A lot of process improvements are initially rolled out domestically and the U S. And then we went into the regions and did a lot of process improvements in terms of invoicing turnaround collections efforts.
Coordination with a customer meeting payment terms et cetera, and that's.
Come and go back fruit for US I mean this is something we worked on last year and we're seeing the results of that come into play now on the AP side, you know we've done a lot with our supply chain group that we recently stood up and we've.
Done a lot of vendor management, and etcetera and in terms of payment terms and that's helped us deeper relationships with fewer vendor.
And that's what's going to allow us to have better terms basically.
Now shifting to inventory, yes. It is a problem we've highlighted the maniacally focused on it and we've done a lot of substitution efforts this year.
And we've looked at consignment with some of our vendors to help us on that inventories site.
But these are all you know you can only do so.
Much right at the end of the day, we need the booking to come in the bookings need to come in for us and done the inventory. So if I. If I look out you know second half going into next year as bookings start to improve we should start turning inventory at a faster clip right and that too is going to help us in terms of adding to the.
Working capital wind down.
Vendors.
Okay got it and then like that kind of lead this as well to a another popular question on the balance sheet, which will equip and.
And a little bit of a recurring question here, but you are up to $370 million and cash after a couple of quarters of free cash flow.
What are the latest thoughts on capital allocation and our our M&A.
And so they they were seeding or or do they grow as your marketplace transitions to a recovery scenario.
So.
First the way we look at cash.
And the way we run our business is very very return on invested capital focus it's very ROI focused I think.
You can see that the examples like and I can sure I can talk about are you know 1 defaults right we.
It was basically a capital allocation discussion way when you think about the forge us leasing it to have global understand that's been a termination but were looking to now find a pathway that's.
To help.
Help us in terms of from an ROIC perspective. Another example, and can talk to is like the controls piece collaborating with with process and these are these are areas, where you know it leverages, our IC and increases.
Our leverage on the business.
So.
Coming to your.
Question on the M&A opportunities.
There are M&A opportunities no doubt about it there are consolidation opportunities. The problem. We had was still having as you know.
And the bid ask spread continues to be wide.
We also find.
Some of the targets balance sheets to be constrained.
And.
<unk>, making a deal not possible for us we've always said that we're not going to do a deal just for the sake of doing a deal it's got to make sense for and just don't make sense for us strategically.
And strategically operationally and financially and.
Right now I think.
I expect.
And over the course of the year.
M sentiments may change and people may get a bit more reasonable in terms of what valuations should be.
And and we continue to you know.
Monitor what's going on and the marketplace, 1 aspect that we've sort of shifted our focus to as we started to look.
And that energy transition opportunities looking at areas, where we can leapfrog our participation in this area, especially as it relates to carbon capture and geothermal because we see.
We see ourselves very well positioned with our product suite.
To target debt market and be very successful.
And then debt era.
Yes.
Okay got it and then.
And maybe as close to them and final question come back up to a high level.
The challenges for you and peers are that the end markets are growing we're poised for growth, but with peak industry activity levels are far.
A far way off maybe maybe unlikely to recur you've done a lot to take costs out of drill quip.
Could you could you sum up maybe for me Blake the initiatives that are that are most important to you guys. As you look at ways to grow top line and admittedly we've touched on a number of these throughout the course of the conversation, but I think it would be it'd be helpful to kind of go back through and recite them.
Success certainly.
First of all.
Let's set the stage I think.
And our expectation is that our customers are going to be a little more conservative with large orders and we're not we're not going to see the.
Yeah, I recall back $680 million booking from Petrobras, right, which which will try it.
And before downturn, which they ultimately didn't didn't follow through on.
And I just don't think those are going to happen anymore, I think it's going to be a.
Much more called wall pipe.
The environment, where you have a contract and we're going to order 10, or 11, Wellheads and call them off over this time period.
So so the market has changed a bit, but we believe and I believe.
Our strategic growth pillar and help us outpace that market.
Peer to peer gives us access to market.
And opportunities that previously we just.
And when and we just didn't have access to and.
And to.
And it's put a little bit finer.
A final point on that.
A little bit of work we've done so far.
And almost doubles, our at bats, and they probably if you want to use that terminology.
Opportunities right and so our downhole tools business is on track and get back towards it.
And in some previous peak levels, you know and really when we acquired <unk>.
D IW and.
2017.
There are peak revenue was about 140.40 million and and we could at least see a path to grow that business, where it's heading up and that way over the next few years.
And.
All the new products that and we've worked on are starting to get installed and adopted we're getting a lot more traction and the more that we can run the more activity, we get from different customers.
Wanting to wanting to take advantage of the savings as well as the carbon footprint reduction and.
And we got the company position now where we can deliver on the backlog and we got a track record of keeping our cost loans. So I think we're going to see our margin profile and improve.
And you put all that together.
And 1 of the few people that can say, hey, and the market can remain flat, but we're.
And we're going to gain share through all of these are peers and the top line has been and growth.
Got it.
Look I think that was a that was a good summation Blake and that does conclude my questions again, I think I think that was a good finishing off point, but Blake are there any last messages or thoughts you'd like to share.
And I'd just say that.
We're really optimistic about 2.
2020.
And probably how we were optimistic and 19 going into 'twenty, but I think the pandemic is.
I think there can be some bumps in the roads coming up I think on balance things are returning back to normal.
So and and I think that's going to be good for our business, we've got everything lined up to be.
Very successful going forward.
And and I'm I'm encouraged what a 2022 have spring for drill quip for its employees and its shareholders.
That's great.
Thank you.
Thank you Blake Thank you Raj.
I think that will conclude our discussion and then and I hope everybody does have a nice weekend. Thank you. Thank you. Thank you Dan.
And this concludes today's conference call. Thank you for participating you may now disconnect.
[music].
Okay.
[music].
Sure.
[music].
And.
[music].
And.
[music].