Q3 2021 Dril-Quip Inc Earnings Call

October 29, 2021

Today's conference is scheduled to begin shortly please continue to standby.

For your patience.

[music].

Okay.

Good day, Thank you for standing by and welcome to that real quick here three 2021 a fireside chats conference call.

Now like to hand, the conference over to your Speaker today, Mr. James West with Evercore ISI.

It's yours.

Thanks, and good morning, everyone. Welcome to this morning's fireside chat with drew groups management team.

<unk> mentioned on James West from Evercore ISI.

I'm joined today with Blake Deberry, the company's president and CEO and Blake's soon to be successor, Jeff Burt who will take over as president and CEO at the turn of the year.

Perhaps before we get started I'd like to say, a few words about Blake or Jeff.

And covering drill clipped in the early two thousands when the company has three founders shared the titles of co chairman and co Ceos, and while Larry Gary and Mike did an excellent job building drove that up into the highly successful company. It is today. It was during Blake's tenure as CEO with a successful transition from a founder led startup to.

Modernized global leader really unfolded Blake's tender has been impressive and was further augmented when Jeff joined the company in 2017 and together. These two gentlemen have further strengthened the company and successfully navigated one of the most challenging periods in the modern oilfield. So im very confident Blake is leaving the company in good hands with Jeff as.

Its leader.

Perhaps to start off here, though I do want to Blake to say a few words, maybe give a brief recap of the third quarter and some opening comments.

Sure. Thank you James and thanks for covering drill quit for throughout.

Throughout my tenure and from the 2000, and so 2020 years or so will cover and I agree with you I think the company has been in good hands is going to be in good hands with Jeff as I depart.

And look forward to seeing how the company progresses as we go forward.

With respect to the third quarter you know the bookings came in at the lower end of our 40 to 60 range.

Which is.

It's still within the range that we expected, but on the lower side.

Revenue was pretty much in line, but our EBITDA EBITDA was impacted by some onetime items and in some margin pressure.

On the positive side, our downhole tools group again had a really strong quarter.

<unk> set another high for that business since its acquisition in 2016. So that's a that's a positive that business continues to grow and accelerate we had another good quarter with respect to free cash flow, which has been a big focus for the for the management team of drill quicker this year.

Kind of looking forward, we saw improvement quarter over quarter in our aftermarket and our leasing revenues and this is always a good indicator.

Of a pickup in activity and pending pickup in activity as our customers are getting back to work and consuming their inventory.

Additionally, we've had good conversations with customers that are trending more positively.

About activity levels. So we're seeing that that happened and just looking at the market, particularly offshore rig market. We are hearing more and more positive signs about quotation activity for rigs.

The number of quotes for rigs offshore rigs as well as the duration of the request for the contracts. So those are all positive indicators of a.

Of an improving market.

So maybe to turn it over to Jeff for a second here.

As I think all of us know with any transition.

And as you announce that even though black may not be maybe still in the room everybody starts hanging out by Jeff's office more than Blake's office. So.

<unk>, leading the charge here.

Commodity prices have seen a good strength this year such as the past several quarters.

But all reasonable not experienced the same conditions and recovering economically.

<unk> already seen are maintaining growth activity.

Particularly when do you think we'll see growth improvements improvements in the Gulf of Mexico, Yes. So thanks, James just walking around the world. If we think about Gulf of Mexico, We are starting to see signs of recovery. There specifically the independents that are more susceptible or more responsive to higher commodity prices are starting to come back to the market and we are optimistic.

About that if we go around the rest of the World just talk subsea, Brazil is definitely back we've talked a little bit about the 11.

Although the wellhead exploration tender that we received last quarter.

<unk> 26 liner hangers that we received last quarter as well so.

That's definitely coming back there's also a tender that's out there right now on the development Wellheads. We expect we're optimistic about that we expect that to be awarded sometime in the fourth quarter as well, so definitely Brazil is back and forth.

Offshore U K its a return it's not at <unk>.

19 levels, yet, but it's definitely returned Norway is very strong right now a lot of government incentives. There. So we're optimistic about that China also is hot and we're looking at a tender either late this year early next year.

As well on the areas that are slower, Malaysia, Indonesia, India, Australia also and those are mainly COVID-19 related to be honest, we've just seen the activity really.

Curtail their and then probably further in the distance we are starting to see some of the large greenfield developments in Africa, starting to have conversations again, okay. Okay. It makes sense in.

Do you think that.

Capital discipline, and working capital management is going to play a role and kind of how customers think about ordering activity. Yes. So if we think about that obviously in the lower 48.

Okay. So we've got almost no exposure in the lower 48, so that's not really impacting us as we have conversations with customers, though we do see a lot of customers really reloading their balance sheet in the fourth quarter and probably the first half of next year, where theyre going to take advantage of those higher commodity prices to reload our balance sheets before they start.

And again in the back half of the year. So as a result, we.

We believe that the <unk> are more backend loaded than some of our customers are more back end loaded next year, primarily because of capital discipline and kind of reloading their balance sheets. Okay and are you seeing any change in behavior as we think about kind of energy transition.

Or is there a hesitant.

Two.

Sanction larger projects at this point.

Yes, I think there's certainly a little bit more caution around the larger projects than there might have been in the past so it's going to be more brownfield tieback type projects we.

We are starting to see some of the large greenfield projects that I mentioned and you mentioned it but it's going to be more brownfield tieback, we're starting to see as it relates to energy transition.

More robust comments in the tenders and more request in the tenders specifically around carbon footprint, specifically around what we can do to help customers reduce their carbon footprint. In fact, I think we got a tender last quarter that was probably the most robust as it relates to that we'll be curious to see how that.

<unk> factors into the tendering process is not exactly clear right now other than a very robust list of list of questions and requests sure sure. Okay, well I do want to come back to the debt tender and the carbon but maybe to touch on at least kind of where we are and has we're doing today.

Orders seem to be kind of hanging out in this $40 million to $60 million range.

What do you think you need to see to have orders break outside of that range and do you think this happens essentially Q4 in 2022, yes. So if we think about it we believe we've been quoting $4 60, we believe we'll be at the high end of that range.

In Q4.

That Q4 range is largely dependent on how the independence.

Come in and right now we've got a lot of nice projects around those independents coming in and that would dictate whether we're at the high end of the range or actually even exceed the high end of that range in the fourth quarter.

If we look out to next year and 2022 right now it's early days and we see a lot of our customers in the middle of our planning project right. Now. So we we met with the customer I think earlier this week actually when we met with that customer earlier. This week they were actually even surprised at the amount of activity within their own company.

Around their budgeting process. So I think those customers are still in a state of flux, but early days right now, we see 22 up 20% to 25%.

On 'twenty, one from a bookings standpoint, and this year, we expect to book.

Trees next year, we would expect double the number of trees that we booked this year. So we're definitely optimistic about next year I do think it is going to be choppy as we as we come out sure. Okay. Okay. It makes sense and are there any large projects or tracking or have an update on yes, theres really two there is there is the Petrobras development tender that were.

Talking about where we believe we are well positioned for that and we're pretty optimistic about that.

We think that will be awarded in the fourth quarter.

And then the other one is actually with C&I and that one is actually a collaboration agreement and that would be our first large collaboration.

Tender and that we expect that either fourth quarter this year first quarter.

A collaboration with <unk>, that's the one subsea collaboration so.

In the case, there were actually going in with one subsea we provide the wellhead they provide a lot of the other kit. Okay. Okay. Great makes sense. So you have a lot of your focus firstly just got involved in the business has been taken out of the cost out and running the operations more efficiently.

Are there any actions.

Or are the actions you took last year playing out the way you expected now.

What scenarios could arise that would cause you to consider further changes to the cost structure. Yes. So I think everything is playing out as we expected we've gotten the cost out of the business.

Or actually a little ahead this year on what our productivity projects are if you remember back to the transformation when we position that we set at $400 million of revenue, we do 40% to $50 million of EBITDA.

At the time, we thought that would be the trough revenue obviously, we didn't expect the pandemic.

The trough revenue is a little lower than we thought so I think it's unquestionable right now that we're holding more cost that we need to hold in anticipation of a recovery spot, we don't want to be and to be honest has cut a bunch of costs this quarter and find out next quarter or two quarters from now that a recovery is underway and we just add a bunch of that cost structure. So.

We estimate that we're probably holding $20 million to $30 million of excess cost right now.

As a result of where we are right now in the cycle.

Okay, we'll continue to monitor that by the way and to your specific question on what triggers.

Looking at a $40 to $60 million range I think if we start to see orders at the low end of that range or even the mid into that mid part of that range. We will have to react accordingly from a cost standpoint, we know what the triggers are we need to pull.

We're just trying to be thoughtful about it right, okay, Okay, and theres been a lot of.

Conversation in the media certainly in amongst investors about.

Ryzen materials and rising freight prices what are you seeing.

On that side in terms of impacts to your business and how are you trying to mitigate some of those impacts. So let me divide the business between downhole tools and subsea on the downhole tool side that is a short cycle business right. So those are 12 week lead times so in those cases.

We see the impact much quicker and we have to pass on the price much quicker around that so we've immediately gone out with price increases around the downhole tool business and we've been largely successful around that on the subsea side, because those lead times can be anywhere from 26% to 52% to 18 months.

Got a lot longer runway around that so largely what we see there is.

We will see the increases we are passing along a 10% price increase on the subsea side.

And largely we believe will be successful.

That subsea side as well so we don't really see that inflation impact that you did that you would expect to see in a short in a short time horizon freights.

<unk> is a little different story, and freights and odd story and that we're seeing two problems with freight one is obviously just the escalation in freight prices alone, but it's also availability of routes.

And modes, if you will so we find ourselves in some situations, where we might normally go ocean somewhere we can't get the ocean and we end up air Freighting something out because we cant we are customer needs at the ocean modes, not available and we end up air Freighting and so we do have inflation as it relates to freight and some cases that inflation is just the result of having.

Use a more expensive mode than it might normally use as well right. Okay. Okay I want to go back to the collaboration.

Part that you mentioned the project with one subsea that youre working on with <unk>.

Historically, I would say probably before.

Your arrival just the <unk>.

Elaboration wasn't a big part of what drove group's business I still remember.

<unk> spending.

Spending time with Gary and Larry have those guys and they always figure that can do it better.

Yes.

Their credit.

But you've put in some collaboration efforts.

What's the impact that's had on the business, thus far what's your future expectations.

So we've really got two major collaboration agreements that we've announced one is proserv and Thats, where proserv is providing the controls for us when we did that largely because candidly, we're holding excess cost and found ourselves in a position we're going to have to invest a considerable amount of money to get our controls up to the right level the benefit there really if you.

You look back at the BHP <unk> award that happened earlier in the year that was a direct result of that proserv collaboration agreement and if you look out over the next 18 months, we know theres going to be at least a few more trees that will come out of that BHP Award.

And thats going to be a direct result of the proserv collaborations. So we believe that's working and that's just one example of how Thats working.

The downside of that is is that.

Is that there is some pass through impact of that obviously to those controls pass through at a lower margin than you might normally expect.

Keep that in mind, it depends largely by the way on how the customer wants the contract BHP is a good example, where they said we will one contract.

But to kick starting to speak so we ended up passing through BHP other customers don't care contracts separately and that will make the margins look a little bit better but understand that one subsea collaboration.

We signed recently as well that's around Wellheads.

And essentially we sit down every month and go through what are the joint opportunities out there and we bid jointly with one subsea in many cases.

So the CN CN LLC is a good example, we've bid with them there are opportunities, where we've been with them and bid separately.

As well and that's part of the collaboration rate, it's taken a little while to take off just because of the bid cycle right, 26% to 52 week lead times on Wellheads doesn't happen immediately. So this one in the fourth quarter will likely be.

The first opportunity that we could see a win in the fourth quarter of this year first quarter next year.

Thinking about imagining exploring other product line in collaboration partners. Yes. So I think there is there is really two or three other opportunities. There. One is on the downhole tool side, specifically around liner hangers liner hangers is part of that.

One subsea collaboration agreement, that's a little bit behind.

Where the Wellheads are right now, but we're starting to gain traction and we already sell through.

<unk>, but we are starting to gain more traction there as well if.

If you think about it in terms of the <unk>, which is another opportunity we would expect to work with other tree manufacturers to provide <unk> through those other tree manufacturers and then the last opportunity is really around the energy transition.

And we've got a nice offering on shallow water trees and in many cases, there is a lot of large much larger enterprises going after large carbon capture and storage projects that don't have good shallow water trees. So we're in conversations.

With those partners as well.

Those are the next two opportunities probably BSD and <unk>.

Something around <unk>, specifically shallow water trees, okay, great great to hear.

I did speak to the gentleman, who runs so youre down on the tool business.

<unk> another record quarter in the third quarter. So what are you.

What's happening what's driving these improvements of the business. How are you, making progress to drive growth in key markets and what are the longer term goals and targets for this.

Business could achieve yes, so we brought Steve in the last 18 months 24 months.

And when we brought him in and candidly he looked at where we were playing everywhere in the world around downhole tools and Theres a couple of reasons that we just decided we can't compete in those regions will never make money in those regions. We exited those on the regions. We're in specifically around middle East specifically around Latin America, specifically around deepwater work.

Focus on those who have brought new general managers in and each of those regions and then in addition to that we put stocking programs in place in each of those regions. So we've got specific skus that we've got in those regions that allows us to respond quickly to our customers.

Made some inventories inventory investments I think around $6 million in.

Inventory investment this year, but it's going to allow us to be up 30% year on year.

And revenue on downhole tools, we expect to be up another 30%.

Again next year year on year, and downhole tools, and we would see ourselves getting to a $100 million to $120 million in downhole tools.

Not 'twenty, two necessarily but think about that as 'twenty three and beyond right. I mean, I think that 100 millions with insight just in the geographies, where adjusted Skus. We've got I think that next piece after that is going to take getting into some different geographies and thinking about some different skus. Okay. Okay. It makes it makes a lot of sense.

Maybe let's talk a little about the E series family of technologies, because they are beginning to see some success in bookings.

Installations.

Can you maybe talk about which products.

We're seeing success in.

Also maybe an update too on the DXP post trial verdict in how the conversation has changed.

I'll start with.

I'll start with being more TUI.

And on <unk>, which is our wellhead.

We've seen wild success in that to be honest in fact, we would expect by the end of next year for 60% to 70% of all the incoming orders that we're getting to be big bore TUI. So theres been a wide acceptance of that product and that's great for a number of reasons. Obviously the technology is great, but when you get that many of your wellheads going.

Through one product just makes inventories easier makes manufacturing easier as well on the <unk> connector.

<unk> seen two three installs in Norway.

And we're starting to gain pretty good acceptance in that Norway market around the <unk>.

Connector and then on X Pac we've done two two installs on X back.

In deepwater and we're starting to see traction on that as well. So if you think about a big bore to ease.

Ahead, but following that is probably <unk> and <unk>, if you think about VX CE.

DXP, we would expect that we hope to have an install fourth quarter of this year, maybe first quarter of next year largely dependent on the well that's being drilled right now I think we've talked about a variety that it's Walter oil and gas that would do that.

And it largely depends on how that well looks if that works out well then candidly I think we will see that move forward very quickly we're already in conversations with <unk> and other customers around the XD, but as you can appreciate in our industry. There is a lot of I want to be the first to second.

So I think everyone's anxiously looking at.

That install for the opportunity. So if you think about how we triangulate that it's really get the install in the fourth quarter.

Got the poll from the large ioc's and major customers and then we're working with one subsea they've looked at it from a technology standpoint, so it's really the trifecta of those three things happening that would prove success in the <unk>. Okay. Okay makes sense now how do you think about.

The R&D spend and your business going forward since you've launched the series products what type of projects are kind of next in the queue that you guys are working on so one of the things that I am working on you joked a little about being in seat right.

As a new person in seat really its really looking between now and our February earnings call and what I'd Hope is that in our February earnings call were coming out specifically talking about R&D allocation. We will continue to spend money in innovation will continue to spend money on R&D.

We're keenly focused right now in energy transition, we believe we've got a real opportunity in carbon capture we believe we've got a real opportunity in geothermal it's not that we won't continue to invest in our normal core products, but those are two growth areas that we think are real opportunities and we'd like to talk about R&D in that February meeting as to what percentage of our <unk>.

Are we spending on energy transition specifically around those two.

Those two areas perfect that leads to my next.

Question, because obviously alternative energy sources are a big topic today.

Today Cop 26 is starting.

Next week.

How are you approaching our house drove group as a firm approaching energy transition and that was the green button design campaign been resonating with customers and what are the key benefits and advantages of your technology.

And your technology district remains of them, Yeah, I'll start with Green by design, that's been very well received.

By our by our customers and in fact, it plays nicely into the tender that I mentioned earlier, where we are specifically.

We've got specific targets around carbon footprint reduction is and we've talked a great deal about that and that E series.

Of products, so that resonates very well with our customers.

And just about across the board to be honest <unk> <unk> and even some of the larger independents are very are very interested in that we did spend the summer really going through every opportunity from an energy transition standpoint. So we went through each of the major.

Verticals, if you will around energy transition, what we really landed on is the no regret that's for us mark carbon capture and geothermal it's not to say that we won't pay attention to anything else is just to say those are kind of a no regrets easy easy bets, where we think we can gain traction in the short term.

We are we did hire someone and to lead energy transition that person works directly for me. We continue to look at every other vertical on energy transition and interestingly, where we are finding some opportunities there's a lot of.

I would characterize them as early early phase companies that don't have manufacturing capability and so the inbound calls we often get are those type of companies that say, hey, I've got this opportunity I'm about to win a tender I have no idea.

I'm kind of scaled as sorry, 10 manufacturing right and so we are literally meeting we've got our VP of manufacturing and our engineers and our ops people meeting with companies like that where Theyre just looking for a partner and we're not looking to be a contract manufacturer for those companies were really looking to.

A stake in the company when that happens so if we're going to invest our time and energy and resources in setting up manufacturing for those companies what we'd look to do is get a small piece of that company and if it's successful that's great for us we we leverage our manufacturing capability here, if it's not successful it's a very low bet malaria.

It's very low no risk that if you will so that's really how we're thinking about energy transition right now okay. Okay that makes that makes perfect sense.

So, perhaps maybe some of the balance sheet items.

Minutes here fortress balance sheet, it's always been that way substantial cash no debt.

Yes, we're going to an upturn should probably be carrying some extra cash at this point that you could potentially return to shareholders or M&A.

The other opportunity for cash so how are you thinking about capital allocation.

Over the next several quarters, yes, I mean look not unlike our R&D strategy capital allocation strategy is the same we'll be working on that over the next over the next few months.

We estimate without any debt, we estimate we need $100 million to $150 million of cash to maintain the business and even in an upturn right. So that leaves us a fair amount of excess cash you saw we did some stock buyback a little bit in the third quarter more in the in the fourth quarter as well, we'll always be thoughtful.

Around how we're thinking about that buyback will always be looking at at opportunities there.

But if I go out beyond that we want to be more thoughtful around M&A and where our opportunities might be there I think it's unquestionable that in the industry. We're in right now we need some level of consolidation.

It's not a secret that at the size and revenue we're at today.

It's a scale issue for US right now and we're not alone in that right. There is we could bolt named <unk> hundred 78. Other companies that are in that same spot. So we're constantly looking at those opportunities and to be honest in early days one of the early things I am doing is meeting with the Ceos of all these other Oss companies just to get a gauge for their view.

The industry, and where things are right now and where there might be thoughtful partnerships and those might not always be M&A that might be a collaboration agreement.

As an example, but what we'd look to do in February is be more clear about articulating our capital allocation strategy around one piece is exactly how much we need in the recovery.

How much are we going to think about an energy transition where I talked about these collaboration opportunities, where we might invest small amounts from an energy transition standpoint, but then also being very clear and intentional about what an M&A strategy.

Is going to look like.

And probably a little more aggressive around that as well okay. Okay. Good good good to hear.

And then.

You guys have a lot of targets for this year, particularly cash flow working capital improvements.

And free cash flow excuse me turning higher than the 5% revenue target do you expect that to continue here in.

Working capital trends have been moving in positive direction as well. So maybe you can touch on both of those yes.

Yes, we are training hiring qualified trained close to closer to a 10%.

Number instead of a 5% number this year.

This has really been a year, where we've seen a lot of great improvement in accounts receivables, specifically getting past dues down specifically shrinking our time to invoice and things like that.

That's got legs through the fourth quarter. It gets tougher to continue to do that especially as we head into a recovery next year the days of getting huge progress payments and things like that on large projects are not back yet question, whether they ever get back there, but they certainly will it be back down at the beginning we did see a nice reduction inventory this quarter and were start.

Two I've commented several times around inventory and that that's just a much tougher lift you've got to get the incoming orders.

And literally we have a team of three to five people that sit in a room and every time an order comes in they scour to see how can we use existing material on those incoming orders, it's starting to get traction.

Believe that will continue in the fourth quarter. We believe that will continue into next year. So next year, we'll CAGR start to level off from an opportunity standpoint in fact, if things start rebounding, we might even see even CAGR growth right and we would hope that inventory we continue to be an opportunity for us next year, we're probably tapped out on on accounts payable I think.

Got a nice nice GPO number right now that would be challenging to expand beyond really where we are right now, but cash flow continue to be a focus next year.

But if we start to see multiple quarters of orders you know $100 million you can expect.

We're going to have a little bit of a burn on working capital as we reload.

Okay that makes perfect sense in an upturn.

How do you expect capex to trend.

What are your current run rate looks like it's below that $15 million to $17 million expectation, but do you think that moves up or I think we're in a good range. How are you thinking about the yes, it'll it'll probably we will probably come in below that $15 million to $17 million, although that is kind of a normal.

I think we've typically characterize that as kind of our sustaining capex. If you will that we will spend that much.

We are looking at investments that we might need to make over the next.

12 to 18 24 months to make sure that our manufacturing footprint position correctly, but but we don't see anything right now thats material, but we'd probably talk about that more in February okay.

If we have anything there sure sure and then inventories you mentioned good inventory quarter. This third.

Third quarter.

There is still more improvements.

Around there and how do you think about inventory as a competitive advantage as well because theres going to be some guys that are going to be caught off guard. When this recovery happens and yet they don't have the inventory, yes. So I'll talk about it in two fronts. One is we do think there's opportunity, but I talked about the incoming order. So it can be choppy over the next six.

Quarters are sort of.

Where there'll be quarters like this quarter, we got the 10 out theres going to be quarters, where we don't get anything I'm really just because the right orders didn't come in in the right timing.

It's interesting around the competitive advantage I talked about downhole tools and the investment we've made there.

We now have in each of those key regions key regions specific.

Inventory targets specific amount that we've invested in each of those so we've pushed that out we're starting to see that revenue increase I think the next opportunity right now is starting to improve the turns on the inventory that's been put out there. So right now we're sitting on a one and a half or two turn on that downhole tool inventory.

I'd like to get that to a four turn but im not going to do it at the expense of revenue right now so I'm willing to go a little slower on that or just to get that 30% revenue increase if I think about it from a subsea standpoint, we've gone from 15 Wellheads to four Wellheads, we talk about Big Board TUI.

Being 60% to 70% of our orders by the end of next year, we're really focused on how do we stock for those four wellheads that are left right and what we're telling customers when we talk to in big and small is.

If you order one of these four youre going to get it faster lead time is going to be better youre going to get it faster.

You can order something it's not of those four it's going to take longer that's going to be more expensive and we almost exclusively see every customer, saying, how do I get myself in one of those four wellheads because all of our customers candidly are looking to push the <unk>.

Inventory hold back in the supply chain as much as they can this just helps them be more competitive to be honest. So that's just one example of what we're doing from a stocking program on a monthly basis, we have what we call sales inventory operations planning and we decided where we might just strategically stock in other places so we might do that with the <unk> block.

We might do that with a connector or something like that but downhole tools is a very intentional area that we're going to keep doing wellheads. The very intentional area that will keep doing okay. Okay. How should we think about the fourth quarter.

In terms of revenue and margins and then maybe thinking a little further out what do you think more normalized margin profile.

They look like.

So if we think about fourth quarter, it's going to look very much like the third quarter to be honest, it might be plus or minus a little bit, but let's be honest when you get down into the revenue numbers that we're at a $1 million change looks like a big number, but it's not really that.

That big a number in the Grand scheme of things So fourth quarter will look much like third quarter and we.

We become more dependent on orders now as we get deeper into 'twenty. Two so right now we're really experiencing those order trends that we saw in 2000 and the middle of the pandemic, we are starting to experience that and thats starting to flow through in our in our revenue and EBITDA.

I think about.

Next year, and what that revenue trend looks like I talk about orders being up 20%, 25% year on year that likely won't manifest in revenue until the back half of next year or early 'twenty three.

To be honest I mean, we do get some incoming orders that we immediately get percentage of completion, but largely that will start to manifest back half of next year and 23. So from a revenue uptick okay, and then margin normalized normalized margins I think we expect to get back into the low twenty's, Okay, if youre talking product margin.

Okay, Okay. It makes sense.

Blake.

Sure Les.

Fireside chat last call withdraw quip.

Parting thoughts I do have another follow up question to that.

We are parting thoughts for you.

Shareholders investors fans.

Sure.

So its directors.

Like.

I've said before this is me.

40 years in the oilfield services 33 of those which it drop within the last 10 as CEO, it's been an incredible ride.

We were talking earlier today as I start to clean up my office.

Momentum and things that I would say to have more to do with the people that I've worked with and so I certainly appreciate.

Working with all the employees and shareholders and our board and our customers has been it's been an incredible ride.

Living all over the world and traveling all over the world and I'll pull up my stack of passports and say Oh, My God I've been.

I've been on every continent sedan articles so so.

I'm really optimistic about the future.

That's one of the reasons I feel comfortable stepping away now and I feel comfortable with Jeff.

Taking this onboard and we've got a good team here.

I believe <unk> quip is positioned to actually outgrow the market.

Good I'm optimistic of the go forward, but we're optimistic as well so maybe to finish off our chat today Blake.

Yes.

Good Fortune of meeting your wife recently in.

So I know she was named CEO of her business.

Im not sure you got the same.

Job description.

What are your plans for the future, yes, so my wife and I to.

Bill.

Vineyard and winery in Central Texas, We live she lives out there it's been been operational for a little over six years now and she runs assets for business to run so when I was talking about stepping down iPad and negotiate a position at the winery and she is a tough negotiator and she's told me several.

But I don't think youre going to like your new boss very much.

But she did she did finally agreed to.

Let me retain the title of CEO and I was pretty excited about that and then she said so let me let me define for you in your job duties that means that you're responsible for cleaning electrical and other.

So other sounds here the other part is pretty scary, particularly when it just has to do with something in the bathroom.

But.

But yes, just looking forward to.

It's been a little more time together and today Im going up to launch my Grandkids play soccer for the first time so.

Just.

We have more family life and make line.

That's a good point Blake Blake you had a great run and drove good run as CEO congratulations to you.

On Stewarding the company as well as you have Jeff.

Best of luck as we move forward here because as you may know moisture.

So.

We will give it a go and I look forward to absolutely well thanks, everybody for listening in today and I think with that we'll go ahead and Nicole. Thank you James Thanks James.

Yes.

That concludes today's conference call. Thank you for participating you may now disconnect.

[music].

Good day, Thank you for standing by and welcome to the real quick Q3, 'twenty or 'twenty, one a fireside chats conference call.

I would now like to hand, the conference over to your Speaker today, Mr. James West with Evercore ISI the floor is yours.

Thanks, and good morning, everyone. Welcome to this morning's fireside chat with drove groups management team.

Mr. James West from Evercore, ISI I am joined today with Blake Deberry, the company's president and CEO and Blake's soon to be successor, Jeff Burt who will take over as president and CEO at the turn of the year.

Perhaps before we get started I'd like to say a few words about Blake or Jeff I began covering drove growth in the early two thousands when the company has three founders shared the titles of co chairman and co Ceos, and while Larry Gary and Mike did an excellent job building drove group into the highly successful company. It is today. It was during Blake's tenure is.

CEO with a successful transition from a founder led startup to a modernized global leader really unfolded. Blake's tenure has been impressive and was further augmented when Jeff joined the company in 2017 and together. These two gentlemen have further strengthened the company and successfully navigated one of the most challenging periods in the modern oilfield.

So very confident up Blake is leaving the company in good hands with Jeff as its leader.

Perhaps to start off here, though I do want to Blake to say a few words, maybe get a brief recap of our third quarter and some opening comments.

Sure. Thank you James and thanks for covering real quick.

Throughout my tenure and from the 2000, and so 2020 years to cover and I agree with you I think the company has been in good hands is going to be in good hands with Jeff as I depart.

And look forward to seeing how the company progresses as we go forward.

With respect to the third quarter bookings came in at the lower end of our 40 to 60 range.

Which is.

It's still within the range that we expected, but on the lower side.

Revenue was pretty much in line, but our EBITDA EBITDA was impacted by some onetime items in and some margin pressure.

On the positive side, our downhole tools group again had a really strong quarter.

<unk> set another high for that business since its acquisition in 2016, so thats a positive that business continues to grow and accelerate we had another good quarter with respect to free cash flow, which has been a big focus for the for the management team of draw quick this year.

Kind of looking forward, we saw improvement quarter over quarter in our aftermarket and our leasing revenues and this is always a good indicator.

Of a pickup in activity and pending pickup in activity as our customers are getting back to work and consuming their inventory.

Additionally, we've had good conversations with customers that are trending more positively.

The number of quotes for rigs offshore rigs as well as the duration of the request for the contracts. So those are all positive indicators of an.

An improving market.

So maybe just turn it over to Jeff for a second here.

As I think all of us know with any transition as soon as you announce that even though it may not be maybe still in the room everybody starts hanging out by Jeff's office more than Blake's office. So.

<unk>, leading the charge here.

Commodity prices have seal a good strike this year so for the past several quarters.

But all reasons, they're all not experienced the same conditions and recovering economically.

What areas are you seeing are maintaining growth activity and particularly when do you think we'll see growth improvements improvements in the Gulf of Mexico, Yes. So.

James just walking around the world. If we think about Gulf of Mexico, we are starting to see signs of recovery. There specifically the independents that are more susceptible or more responsive to higher commodity prices are starting to come back to the market we are optimistic.

About that if we go around the rest of the World just talk subsea, Brazil is definitely back we've talked a little bit about the 11.

Well by the wellhead exploration tender that we received last quarter 26 liner hangers that we received last quarter as well so.

That's definitely coming back there is also a tender that's out there right now on the development Wellheads we.

We expect we're optimistic about that and we expect that to be awarded sometime in the fourth quarter as well so definitely Brazil back if we look at offshore U K. Its a return it's not it.

As well on the areas that are slower, Malaysia, Indonesia, India, Australia also and those are mainly COVID-19 related to be honest, we've just seen the activity really.

Curtail their and then probably further in the distance we are starting to see some of the large greenfield developments in Africa, starting to have conversations again, okay. Okay. It makes sense.

Do you think that you have.

Capital discipline, and working capital management is going to play a role and kind of how customers think about ordering activity. Yes. So if we think about that obviously in the lower 48.

So we've got almost no exposure in the lower 48 focus that's not really impacting us as we have conversations with customers, though we do see a lot of customers really reloading their balance sheet in the fourth quarter and probably the first half of next year, where theyre going to take advantage of those higher commodity prices to reload balance sheets before they start already.

Again in the back half of the year, so as a result.

We believe that the ioc's are more backend loaded than some of our customers are more back end loaded next year, primarily because of capital discipline and kind of reloading their balance sheets. Okay and are you seeing any change in behavior as we think about kind of energy transition.

Or is there a hesitancy.

Two to sanction larger projects at this point.

Yes, I think there is certainly a little bit more caution around the larger projects than there might have been in the past so it's going to be more brownfield tieback type projects we.

More robust comments in the tenders and more requests in the tenders specifically around carbon footprint, specifically around what we can do to help customers reduce their carbon footprint. In fact, I think we got a tender last quarter that was probably the most robust as it relates to that we'll be curious to see how that.

<unk> factors into the tendering process is not exactly clear right now other than a very robust list of questions and requests sure sure. Okay, well I do want to come back to the debt tender and the carbon but maybe to touch on at least kind of where we are and as we're doing today.

Orders seem to be kind of hanging out in this $40 million to $60 million range.

What do you think you need to see to have orders break outside of that range and do you think this happens since late Q4 definitely.

Yes, so if we think about it we believe we've been quoting for $2 60, we believe we'll be at the high end of that range.

In Q4.

That Q4 range is largely dependent on how the independents.

If we look out to next year and 2022 right now it's early days and we see a lot of our customers in the middle of our planning project right. Now so we met with a customer I think earlier this week action when we met with that customer earlier. This week they were actually even surprised at the amount of activity within their own company.

Around their budgeting process. So I think those customers are still in a state of flux, but early days right now, we see 22 up $20 to 25%.

On 'twenty, one from a bookings standpoint, and this year, we expect to book a trip.

<unk> next year, we would expect double the number of trees that we booked this year. So we're definitely optimistic about next year I do think it is going to be choppy as we as we come out sure. Okay. Okay makes sense and are there any large projects or tracking or have an update on yes. There is really two there is there is the Petrobras development tender that were.

Talking about where we are.

We believe we are well positioned for that and we're pretty optimistic about that.

We think that will be awarded in the fourth quarter.

And then the other one is actually with C&I and that one is actually a collaboration agreement and that would be our first large collaboration.

Tender and that we expect that either fourth quarter of this year first quarter.

A collaboration with <unk>, that's the one subsea collaboration so.

In the case, there were actually going in with one subsea we provide the wellhead they provide a lot of the other kit. Okay. Okay. Great makes sense. So a lot of your focus firstly just since you've got involved in the business has been taken out of costs out and running the operations more efficiently.

Are there any actions.

Or are the actions you took last year playing out the way you expected now.

What scenarios could arise that would cause you to because there are further changes to the cost structure. Yes. So I think everything is playing out as we expected we've gotten the cost out of the business. We're actually a little ahead. This year on what our productivity projects are if you remember back to the transformation when we position that we set at $400 million of revenue we do.

40% to $50 million of EBITDA.

Who knew at the time, we thought that would be the trough revenue obviously, we didn't expect.

Thank you Brian.

We estimate that we're probably holding 20% to $30 million of excess cost right now as.

As a result of where we are right now in the cycle.

We'll continue to monitor that by the way and to your specific question on what triggers we're looking at a $40 to $60 million range I think if we start to see orders at the low end of that range or even admitted into that mid part of that range. We will have to react accordingly from a cost standpoint, we know what the triggers are we need to pull.

We're just trying to be thoughtful about it right, okay, Okay, and theres been a lot of.

Conversation in the media certainly in amongst investors about.

Ryzen materials and rising freight prices what are you seeing.

On that side in terms of impacts to your business and how are you trying to mitigate some of those index. So let me divide the business between downhole tools and subsea on the downhole tool side that is a short cycle business right. So those are 12 week lead times so in those cases.

We see the impact much quicker and we have to pass on the price much quicker around that so we've immediately gone out with price increases around the downhole tool business and we've moved largely successful around that on the subsea side because those lead times can be anywhere from 26% to 52% to 18 months, we've got a lot of long.

<unk> runway around that so largely what we see there is.

We will see the increases we are passing along a 10% price increase on the subsea side.

And largely we believe will be successful on.

That subsea side as well so we don't really see that inflation impact that you would expect to see in a short in a short time horizon.

Use a more expensive mode than it might normally use as well right. Okay. Okay I want to go back to the collaboration.

Part that you mentioned the project with one subsea that youre working on with <unk>.

Historically, I would say probably before.

Your arrival just the <unk>.

Collaboration was a big part of our <unk> business I still remember.

Spending time with Gary and Larry have those guys and they always figure that can do it better.

To their credit.

But you've put in some collaboration efforts.

What's the impact of that said on the business, thus far and what's your future expectations.

So we've really got two major collaboration agreements that we have announced one is proserv and Thats, where proserv is providing the controls for us when we did that largely because candidly, we're holding excess cost and found ourselves in a position we're going to have to invest a considerable amount of money to get our controls up to the right level the benefit there really.

And that's going to be a direct result of the proserv collaborations. So we believe that's working and that's just one example of how that's working.

The downside of that is is that.

Is that there is some pass through impact of that obviously into those controls pass through at a lower margin than you might normally expect.

Keep that in mind, it depends largely by the way on how the customer wants the contract BHP is a good example, where they said we will one contract.

One about the Kickstarting to speak so we ended up passing through BHP other customers don't care contracts separately and that will make the margins look a little bit better but understand that one subsea collaboration we signed recently as well that's around Wellheads.

And essentially we sit down every month and go through what are the joint opportunities out there and we bid jointly with one subsea in many cases.

So the CN CN OFC is a good example, we've bid with them there are opportunities, where we've been with them and bid separately as.

Thinking about imagining exploring and other product line in collaboration partners. Yes. So I think there is there is really two or three other opportunities. There. One is on the downhole tool side, specifically around liner hangers liner hangers is part of that one subsea collaboration agreement, that's a little bit behind.

Find where.

Where the Wellheads are right now, but we're starting to gain traction there we already sell through.

<unk>, but we're starting to gain more traction there as well.

With those partners as well.

Those are the next two opportunities probably BSD and <unk>.

Something around <unk>, specifically shallow water trees, okay, great great to hear.

I did speak to the gentleman, who runs so youre downhole tool business.

<unk> another record quarter in the third quarter. So what are you.

What's happening what's driving these improvements of the business. How are you, making progress to drive growth in key markets and what are the longer term goals and targets.

This business can achieve yes, so we brought Steve in the last 18 months 24 months.

On the regions, where and specifically around middle East specifically around Latin America, specifically around deepwater and we're very focused on those who brought new general managers in and each of those regions and then in addition to that we put stocking programs in place in each of those regions. So we've got specific skus that we've gotten.

Those regions it allows us to respond quickly to our customers.

We've made some inventories inventory investments I think around $6 million in.

Inventory investment this year, but it's going to allow us to be up 30% year on year.

And revenue on downhole tools, we expect to be up another 30%.

Again next year year on year, and downhole tools, and we would see ourselves getting to a $100 million to $120 million in downhole tools.

Not 'twenty, two necessarily but think about that as 'twenty three and beyond right. I mean, I think that $100 million with insight just in the geographies, where adjusted Skus. We've got I think that next piece after that is going to take getting into some different geographies and thinking about some different skus. Okay. Okay. It makes it makes a lot of sense.

Maybe let's talk a little about the E series family of technologies, because they are beginning to see some success in bookings in.

Installations.

Can you maybe talk about which products.

We're seeing success in.

Also maybe an update too on the DXP post trial verdict in how the conversations change yes.

I'll start with.

I'll start with <unk>.

And on <unk>, which is our wellhead.

We've seen wild success in that to be honest in fact, we would expect by the end of next year for 60% to 70% of all the incoming orders that we're getting to be big bore TUI. So theres been a wide acceptance of that product that's great for a number of reasons. Obviously the technology is great, but when you get that many of your Wellheads goes.

Through one product it just makes inventories easier makes manufacturing easier as well on the <unk> connector.

<unk> seen two three installs in Norway.

And we're starting to gain pretty good acceptance in that Norway market around the Dfc.

Connector and then on X Pac we've done two two installs on X back.

And deepwater and we're starting to see traction on that as well. So if you think about a big <unk>.

Ahead, but following that is probably <unk> and <unk>, if you think about VX CE.

And then candidly I think we will see that move forward very quickly we're already in conversations with large IOC and other customers around the XD, but as you can appreciate in our industry. There is a lot of I want to be the first to second.

So I think everyone's anxiously looking at.

That install for the opportunity. So if you think about how we triangulate that it's really to get the install in the fourth quarter.

Got the pull from the large ioc's and major customers and then we're working with one subsea they've looked at it from a technology standpoint, so it's really the trifecta of those three things happening that would prove success and the XD. Okay. Okay. It makes sense now how do you think about.

The R&D spend and your business going forward.

Since you've launched the series products what type of projects are kind of next in the queue that you guys are working on so one of the things that I am working on you joked a little about being in seat.

As a new person in seat really its really looking between now and our February earnings call.

What I'd hope is that in our February earnings call. We are coming out specifically talking about our R&D allocation. We will continue to spend money on innovation will continue to spend money on R&D.

We're keenly focused right now on energy transition, we believe we've got a real opportunity in carbon capture we believe we've got a real opportunity in geothermal it's not that we won't continue to invest in our normal core products, but those are two growth areas that we think are real opportunities and we'd like to talk about R&D in that February meeting at what percentage of our <unk>.

R&D are we spending on energy transition specifically around those two.

Two areas perfect that leads to my next.

Question, because obviously alternative energy sources are a big topic today.

Today Cop 26 is starting.

Next week.

How are you approaching our house drove growth of the firm approaching energy transition and that was the green button design campaign been resonating with customers and what are the key benefits and advantages of your technology.

And your technology district remains of them, Yeah, I'll start with Green by design, that's been very well received.

By our by our customers and in fact, it plays nicely into the tender that I mentioned earlier, where we are specifically.

We've got specific targets around carbon footprint reduction is and we've talked a great deal about that and that E series.

Of products, so that resonates very well with our customers.

And just about across the board to be honest <unk> <unk> and even some of the larger independents are very are very interested in that we did spend this summer really going through every opportunity from an energy transition standpoint. So we went through each of the major.

Verticals, if you will around energy transition, what we really landed on is the no regret that's for us Mark carbon capture and geothermal is not to say that we won't pay attention to anything else is just to say those are kind of a no regrets easy easy batch, where we think we can gain traction in the short term.

The scale of this are manufacturing right and so we are literally meeting we've got our VP of manufacturing and our engineers and our ops people meeting with companies like that where Theyre just looking for a partner and we're not looking to be a contract manufacturer for those companies were really looking to.

Get a stake in the company when that happens so if we're going to invest our time and energy and resources in setting up manufacturing for those companies what we'd look to do is get a small piece of that company and if it's successful that's great for us we we leverage our manufacturing capability here, if it's not successful it's a very low bet malaria.

Very low no risk that if you will so that's really how we're thinking about energy transition right now okay. Okay that makes that makes no sense.

So perhaps some of the balance sheet items.

For a couple of minutes here fortress balance sheet, it's always been that way substantial cash no debt.

Yes, we're going to an upturn so you're probably carrying some extra cash at this point that you could potentially return to shareholders or M&A.

The other opportunity for cash so how are you thinking about capital allocation.

The next several quarters, yes.

Look not unlike our R&D strategy capital allocation.

Strategy is the same we'll be working on that over the next over the next few months.

Around how we're thinking about that buyback will always be looking at at opportunities there.

If I go out beyond that we want to be more thoughtful around M&A and where our opportunities might be there I think it's unquestionable that in the industry. We're in right now we need some level of consolidation.

It's not a secret that at the size and revenue we're at today.

<unk>.

It's a scale issue for US right now and we're not alone in that right. There is we could bolt named <unk> dollars seven to eight other companies that are in that same spot. So we're constantly looking at those opportunities and to be honest in early days one of the early things I am doing is meeting with the Ceos of all these other Oss companies just to get a gauge for our their view of the industry and where.

Things are right now and where there might be thoughtful partnerships and those might not always be M&A that might be a collaboration agreement.

As an example, but what we'd look to do in February is be more clear about articulating our capital allocation strategy around one piece is exactly how much we need to recovery.

How much are we going to think about energy transition, where I talked about these collaboration opportunities, where we might invest small amounts from an energy transition standpoint, but then also being very clear and intentional about what an M&A strategy.

Going to look like.

And probably a little more aggressive around that as well okay. Okay. Good good good to hear and then.

You guys have a lot of targets for this year, particularly cash flow working capital improvements.

And free cash flow or excuse me turning higher than the 5% revenue target do you expect that to continue here.

<unk>.

The working capital trends have been moving in positive direction as well, so maybe sort of both of those yes.

Yes, we are training hiring qualified trained close to closer to a 10%.

Number instead of a 5% number this year.

This has really been a year, where we've seen a lot of great improvement in accounts receivables, specifically getting past dues down specifically shrinking our time to invoice and things like that.

That has got legs through the fourth quarter. It gets tougher to continue to do that especially as we head into a recovery next year the days of getting huge progress payments and things like that on large projects are not back yet question, whether they ever get back there, but they certainly be back there in the beginning we did see a nice reduction inventory this quarter and were start.

Two I've commented several times around inventory and that that's just a much tougher lift you've got to get the incoming orders.

And literally we have a team of 3% to five people that sit in a room and every time an order comes in they scour to see how can we use existing material on those incoming orders, it's starting to get traction.

Believe that will continue in the fourth quarter. We believe that will continue into next year. So next year, we'll CAGR start to level off from an opportunity standpoint in fact, if things start rebounding, we might even see even CAGR growth right and we would hope that inventory would continue to be an opportunity for us next year, we're probably tapped out on on accounts payable I think.

Got a nice nice GPO number right now that would be challenging to expand beyond really where we are right now.

Cash flow continued to be a focus next year.

But if we start to see multiple quarters of orders you know $100 million you can expect.

We're going to have a little bit of a burn on working capital as we reload.

Okay that makes perfect sense in an upturn.

How do you expect capex to trend.

Your current run rate looks like it's below that $15 million to $17 million expectation, but do you think that moves up or I think we're in a good range. How are you thinking about the yes, it'll it'll probably we will probably come in below that $15 million to $17 million, although that is kind of a normal.

Typically characterize that as kind of our sustaining capex. If you will that we will spend that much.

Looking at investments that we might need to make over the next.

12 months to 18 24 months to make sure that our manufacturing footprints positioned correctly, but but we don't see anything right now thats material, but we'd probably talk about that more in February.

If we have anything there sure sure and then inventories you mentioned good inventory quarter. This third.

Third quarter.

There is still more improvements.

Around there and how do you think about inventory as a competitive advantage as well because theres going to be some guys that are going to be caught off guard with its recovery happens and yet they don't have the inventory, yes. So I'll talk about in two fronts. One is we do think there's opportunity, but I talked about the incoming order. So it can be choppy over the next six.

<unk> share of where there'll be quarters like this quarter, we got the 10 out theres going to be quarters, where we don't get anything I'm really just because the right orders didn't come in in the right timing.

It's interesting around the competitive advantage I talked about downhole tools and the investment we've made there.

We now have in each of those key regions key regions specific.

Inventory targets specific amount that we invest in each of those so we've pushed that out we're starting to see the revenue increase I think the next opportunity right now is starting to improve the turns on the inventory that's been put out there. So right now we're sitting on a one and a half or two turn on that downhole tool inventory.

Being 60% to 70% of our orders by the end of next year, we're really focused on how do we stock for those four wellheads that are left right.

We're telling customers when we talk to them big and small is.

If you order one of these four youre going to get it faster lead time is going to be better youre going to get it faster.

You can order something it's not of those four it's going to take longer it's going to be more expensive and we almost exclusively see every customer, saying, how do I get myself in one of those four wellheads because all of our customers candidly are looking to push the <unk>.

Inventory hold back.

Hi chain as much as they can this just helps them be more competitive to be honest. So that's just one example of what we're doing from a stocking program on a monthly basis, we have what we call sales inventory operations planning and we decide where we might just strategically stock in other places. So we might do that with the <unk> block, we might do that but looking after something like that.

Downhole tools are very intentional area that we're going to keep doing wellheads. The very intentional area that will keep doing okay. Okay. How should we think about the fourth quarter.

In terms of revenue and margins and then maybe thinking a little further out.

What do you think more normalized margin profile.

Since it looks like.

Third quarter and.

We become more dependent on orders now as we get deeper into 'twenty. Two so right now we're really experiencing those order trends that we saw in 2000 and in the middle of the pandemic, we are starting to experience that and thats starting to flow through in our in our revenue and EBITDA.

If I think about.

Next year, and what that revenue trend looks like I talk about orders being up 20%, 25% year on year that likely won't manifest in revenue until the back half of next year or early 'twenty three.

Okay, Okay. It makes sense.

Blake.

Sure Les.

Fireside chat last call drove growth.

Parting thoughts I do have another follow up question to that.

Okay parting thoughts for you.

Shareholders investors fans.

Yes.

Like.

I've said before this is my 40 years in the oilfield services 33 of those which drove within the last 10 as CEO, it's been an incredible ride.

We were talking earlier today as I start to clean up my office and the momentum and things that I've saved to have more to do with the people that I've worked with and so I certainly appreciate.

Working with all of the employees.

<unk>.

Shareholders and our board and our customers has been it's been an incredible ride.

Moving all over the world and traveling all over the world and pull.

Pull up my stack of passports and say Oh, My God I've been.

I've been on every continent sub NAND articles so so.

I'm really optimistic about the future.

That's one of the reasons I feel comfortable stepping away now and I feel comfortable with Jeff take.

<unk> taken this onboard and we've got a good team here.

I believe <unk> quip is positioned to actually outgrow the market.

Good I'm optimistic of the go forward, but we're optimistic as well so maybe to finish off our chat today Blake.

I didn't have the good fortune of meeting your wife recently in.

So I know she has named <unk> CEO of her business.

I'm not sure you've got the same.

Job description.

Yes, Sir.

What are your plans in the future, yes, so my wife and I.

Bill.

Vineyard and winery in Central Texas, We live she lives out there thats been <unk> been operational for a little over six years now and she runs assets for business to run. So when I was talking about stepping down I had to negotiate a position at the winery essentially is a tough negotiator and she's told me several.

But I don't think youre going to like your new boss very much.

But she did she did finally agreed to.

Let me retain the title of CEO and I was pretty excited about that and then she said so let me let me define for you your job duties that means that you're responsible for cleaning electrical and other.

So other sounds here the other parts pretty scary effectively when it just has to do with something in the bathroom.

But.

But yes, just looking forward to.

Spending a little more time together.

<unk>.

Today Im going up to watch my Grandkids play soccer for the first time so.

Just.

Have more family life and make line.

Thats a good point Blake Blake you had a great run at <unk> re run as CEO congratulations to you.

On Stewarding the company as well as you'd have Jeff.

Best of luck as we move forward here because as you may know moisture.

Thanks, a lot.

We will give it a go and I look forward to absolutely well thanks, everybody for listening in today and I think with that we'll go ahead and Nicole. Thank you James Thanks, James They just.

That does conclude today's conference call. Thank you for participating you may now all disconnect.

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