Q3 2022 KLX Energy Services Holdings Inc Earnings Call
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Greetings and welcome to the KL ex energy services third quarter earnings Conference call. At this time all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad as a reminder.
This conference is being recorded it is now my pleasure to introduce your host Mr. Ken Dennard. Thank you. Sir. Please go ahead. Thank you operator and good morning, everyone. We appreciate you joining us for the <unk> Energy services conference call and webcast to review third quarter 2022 results.
With me today are Chris Baker, <unk>, President and Chief Executive Officer, and Keefer, Lehner, Executive Vice President and Chief Financial Officer.
Following my remarks management will provide a high level commentary on the financial details of the third quarter and outlook before opening the call for your questions.
There will be a replay of today's call it'll be available by webcast on the company's website at <unk> Dot com.
And they'll also be a telephonic recorded replay available until November 24 2022.
More information on how to access these replay features.
As included in yesterday's earnings release.
Please note that information reported on this call speaks only as of today November 10, 2022, and therefore, you are advised that time sensitive information may no longer be accurate as of the time of any replay listening or transcript reading also comments on this call may contain forward looking statements within the meaning of the.
As state Federal Securities laws.
These forward looking statements reflect the current views of <unk> management.
However, various risks and uncertainties and contingencies could cause actual results performance or achievements to differ materially from those expressed in the statements made by management.
The listeners or reader is encouraged to read the annual report on Form 10-K.
The reports on Form 10-Q, and current reports on form 8-K to understand certain of those risks uncertainties and contingencies.
The comments today May also include certain non-GAAP financial measures additional details and reconciliation to the most directly comparable GAAP financial measures are included in the quarterly press release, which can be found on the <unk> energy website and now with that behind me I'd like to turn the call over to Calix Energy services, President and CEO , Mr. Chris Baker.
Chris Thank.
Thank you Ken and good morning, everyone. Our third quarter results represent a record quarter for the company and the best quarter on a pro forma basis since early 2019.
Despite commodity price volatility there is strong demand for <unk> services and continually improve pricing.
Average U S rig count was up approximately 6% during the quarter and Frac spread count was up 2% sequentially.
Crude prices averaged over $93, a barrel and natural gas prices averaged 803 per M. M Btu.
<unk> continues to capitalize on this constructive industry backdrop, and our operating leverage driven by the 2020 combination with QE us.
For the third quarter <unk> generated $222 million in revenue up 20% sequentially from Q2, which was above our increased guidance range of 16% to 18% and well ahead of overall market growth in rig count and Frac spreads.
We generated Q3, adjusted EBITDA of $37 million, increasing 112% sequentially.
Adjusted EBITDA margin increased to 16, 7% from 9% sequentially, which was also slightly above our September guidance of 14% to 16%.
Based on Q3 annualized results. We have returned the business to 2019 pro forma EBITDA levels, while running fewer assets and operating in a market that is running 19% fewer rigs than in 2019.
Overall, the industry's equipment and labor market tightness contributed to both improved pricing and higher utilization.
The increase in utilization followed strong demand in drilling completion production and intervention services and additional demand for equipment and services in general.
During the quarter directional drilling charge days were up 5%.
<unk> activity was up approximately 8% accommodations rental days were up approximately 5% wireline unconventional stages were up approximately 13%.
Pressure pumping revenue, including Frac, cementing and <unk> was up approximately 27%.
<unk> rental days were up 9% and tubular rental days were up 20% and last but not least coiled tubing job days were up 19% quarter over quarter.
Our comprehensive service and product offerings enable our ability to cross sell to a vast majority of our active customers.
Our regional diversification once again proved to be an asset.
We experienced outsized activity in pricing gains in some of our smaller markets and gas oriented plays as E&P investment growth spreads to additional basins.
Pricing rose approximately 5% to 10% sequentially across the majority of our product service lines operating leverage enabled us to grow our margins above 2019 levels in certain product lines and we expect additional margin improvement across our portfolio as we look out to 2023.
These price increases plus incremental demand for our services drove the improved utilization across key product lines, which resulted in significant incremental margins.
Likewise, we are able to deliver incremental efficiencies to our clients providing them with safe execution, while maintaining the overall quality they have come to expect from calix.
With that I'll now turn the call over to Keefer, who will review our financial results and I'll return later in the call to discuss our outlook in greater detail keeper.
Thanks, Chris Good morning, everyone.
For our third quarter 2022 consolidated results. We are proud to have generated broad based improvement in revenue and margins across all geographic segments and product service lines.
Third quarter revenues were $221 $6 million.
An increase of $37 $2 million or 22% as compared to the second quarter.
Topline growth was driven by higher utilization across our drilling completion production and intervention activities reduced white space and pricing improvement across the majority of our core product service offerings.
On a product line basis drilling completion production and intervention products and services contributed approximately 26%, 52%, 12% and 10% to revenue respectively for the third quarter of 2022.
Adjusted operating income for the third quarter was $22 $1 million adjusted EBITDA and adjusted EBITDA margin was $37 1 million and 16, 7% respectively.
Adjusted operating income and adjusted EBITDA improved sequentially by $19, 5 million and $19 $7 million or 750% and 113% respectively.
We generated a robust 53% incremental margin from Q2 to Q3, which is leading edge when compared to the results of the broader onshore services sector.
In the third quarter, we returned <unk> to positive free cash flow and generate $11 $1 million of net income and EPS of <unk> 96 cents per share.
We continue to be burdened by $2 $1 million of quarterly lease expense related to coiled tubing packages at least in the fourth quarter 2019.
As a reminder, we do not add this cost back, but it does impact our comparability to peer results.
<unk> now has one of the most efficient fixed cost structures in the oil industry and we believe we can continue to scale from current levels with minimal fixed cost G&A additions.
Total SG&A expense for Q3 was approximately $18 million, which equates to roughly eight 1% of Q3 revenue.
If you back out nonrecurring G&A expense, we were really at seven 7% of revenue in the third quarter.
For our segment results, let me begin with the Rockies.
Rocky Mountains segment third quarter revenue of $66 5 million increased by $13 $4 million or 25% as compared with the second quarter.
The sequential increase in revenue was primarily driven by an increase in activity and pricing throughout the D. J basin, Wyoming and Bakken across all of our product lines led by coiled tubing wireline rental and fishing adjust.
Adjusted operating income for the third quarter was $12 million as compared to $4 1 million for the second quarter.
EBITDA was $17 3 million as compared to second quarter adjusted EBITDA of $9 3 million. The increase in profitability was driven by the previously mentioned increase in activity and pricing across the bulk of the aforementioned product service lines.
For our southwest segment revenue increased by 14% sequentially generating revenue of $68 $5 million in Q3.
The increase in revenue was primarily driven by increased activity in pricing across the majority of our product service lines with coiled tubing wireline and rental experiencing the largest increases.
Q3, adjusted operating income for this segment was $5 6 million compared to $1 8 million in the second quarter and adjusted EBITDA was $10 2 million for the third quarter compared to second quarter, adjusted EBITDA of $6 $4 million.
The increase in profitability was driven by the previously mentioned increases in activity and pricing across the same product service lines.
Now to wrap up the segment discussion with the northeast and mid Con Q3 revenue was up $15 $3 million sequentially to $86 $6 million increase in revenue was primarily driven by sequential improvement again in both activity and pricing across directional drilling pressure pumping coil tubing fishing.
And rental services across the region.
Adjusted operating income for the third quarter was $17 2 million as compared with $7 $4 million in the second quarter.
Adjusted EBITDA was $21 $3 million in the third quarter as compared to second quarter, adjusted EBITDA of $11 $1 million.
Again, the increase in profitability was driven by the previously mentioned increases in both activity and pricing led by meaningful margin expansion across those same product service lines.
I'll now turn to our balance sheet and cash flow.
Our Q3 cash balance increased sequentially by $9 9 million or 31% to $41 $4 million. Despite the impact of an extra payroll cycle process in the third quarter.
The increase in cash was largely driven by $18 $5 million of positive operating cash flow as well as $1 $6 million and share sales under our ATM program and.
And continued monetization of $5 $3 million and obsolete assets and non core real property.
We continue to proactively manage working capital and convert.
Cash flow as quickly as possible net working capital of $62 $9 million in Q3 up approximately 23% compared to Q2 the.
The increase was largely driven by the 20% increase in revenue and a reduction in days payable, but we were able to offset some of the investments by reducing DSO by 2% to approximately 59 days as of Q3.
Capital expenditures for the third quarter were approximately $12 $5 million and were primarily focused on maintenance spending across our various segments.
Going forward, we increased our full year 2022, Capex guide to be in the range of $30 million to $35 million.
As of September 30, we had $4 $9 million of assets held for sale related primarily to real property and equipment and the Rockies and southwest segment.
Based on the current status, we expect to close approximately $2 $4 million of sales in the fourth quarter.
In September we announced the amendment and extension of our ABL facility under improved terms.
The new terms included a new September 2020 for maturity date.
The resetting of the springing fixed charge coverage ratio covenant, which resulted in the removal of the fixed charge coverage ratio hold back.
A 50 bps margin increase.
And the replacement of LIBOR with sofa among other augmented terms.
The amendment improves our liquidity and positions <unk> to continue to generate free cash flow and ultimately delever the balance sheet.
During the quarter liquidity improved approximately $30 million or 53%, bringing liquidity to $86 4 million at quarter end.
This consists of $41 $4 million of cash and $45 million of available borrowing capacity on the September 32022, ABL facility borrowing base certificate.
Total debt outstanding as of September 30 was $295 $6 million, which was largely flat to Q2.
The senior secured notes bear interest at an annual rate of 11, 5% payable semi annually in arrears on May one and November one.
Accrued interest as of September 30 was $12 $7 million with.
<unk>, 95% of that related to the senior secured notes.
Based on annualized Q3 results, we have reduced our net leverage ratio to approximately one seven times.
We made our interest payment on November one and as a member November 4th had a cash balance of approximately $42 million. Additionally, the amended ABL agreement affords <unk> the opportunity to execute debt exchange transaction and post closing the third quarter, we redeemed $4 million of our 2025 senior secured.
Our notes in exchange for 235000 shares of Calix.
While market conditions continue to remain constructive our primary focus remains on our balanced approach of free cash flow generation prudent capital allocation accretive M&A and a continued expansion of cash and liquidity, while deleveraging through a combination of improved EBITDA generation and a reduction in net debt.
Based on strong activity demand and pricing trends, we remain very excited about what the future holds in 2023 and for the longer term outlook for our business.
I'll now turn the call back to Chris who will provide some additional color on our outlook.
Thanks Keefer.
Before we wrap up I'd like to share some more detail on our outlook and expectations for Q4 and 2023.
We are proud of our performance in the third quarter as well as our success in completing the turnaround to 2019 are better levels across most of our product service lines on a run rate basis.
<unk> performance in driving these efficiencies and bringing market, leading technological advancements to bear along with ESG friendly solutions will continue to position <unk> exceptionally well.
We still have incremental deployable assets across several of our service lines and we will focus on deploying incremental assets as returns warrant.
Looking to the fourth quarter, we expect revenue to be flat to slightly up relative to the third quarter. Despite slight holiday slowdowns typical winter weather impacts and a natural shift in activity as operators transition from 2022 programs to 2023.
We expect fourth quarter adjusted EBITDA margins to be in the range of 15% to 17%. We are also increasing our full year revenue guidance to a range of $780 million to $790 million.
Finally, we reaffirm our September free cash flow guidance and will generate positive free cash flow for the second half of 2022.
Trend, which we expect to continue into 2023.
We will continue to use market conditions to our advantage by selectively allocating assets and resources to regions and customers with consistent programs generating optimal returns, while exercising strong cost controls and strict capital discipline.
Based on early 2023 customer conversations larger operators are looking to creatively lockup crews in order to grandfather year end 2022 pricing into 2023.
We believe our execution excellence exceptional crews and latest generation equipment and technology will continue to facilitate demand for <unk> services with top operators.
This is illustrated by our success in cross selling numerous product lines to our key customers on a year to date basis, all of our top 10 customers utilize more than one <unk> product line and 83% of our top 100 customers use more than one product line.
Looking ahead, we are extremely optimistic about 2023, given our 2022 performance year to date and fourth quarter expectations.
A favorable macro backdrop is driving continued improvement in utilization and net pricing, which should allow us to drive further margin expansion throughout 2023.
Additionally, we have some quick payback organic growth opportunities, we plan to execute on strategic M&A opportunities are heating up within the industry.
We believe industry consolidation will play a key part of <unk> future and we are now better positioned to pursue additional M&A opportunities going forward.
We have seen sell side M&A pick up significantly in the past few months and interestingly, we've seen some of our pure play competitors begin to add complementary service lines and diversify their platforms.
With a focus on strategic growth. We believe we have the strongest track record in the industry for executing and integrating complicated consolidating transactions.
In closing I'd like to acknowledge and thank our employees for their hard work every member of the <unk> team has played a key part in our tremendous success over the last nine months and our ongoing and future success will be driven by the skillful execution and unwavering focus of our dedicated teams in each of our.
Businesses.
With that we will now take your questions operator.
Thank you the floor is now open for questions. If you would like to ask a question. Please press star one on your telephone keypad at this time.
Formation tone will indicate your line is in the question queue. You May press star two if he would like to move your questions from the queue for participants using speaker equipment. It may be necessary to pick up the handset before pressing the star key when.
Once again that is star one to register questions. At this time. The first question today is coming from Luke Montgomery.
Piper Sandler. Please go ahead.
Yeah.
Hey, good morning, Chris Keefer.
Chris can you remind us where you are on your active Frac fleet Count I believe you should be too.
And where these fleets fairly fully utilized in through Q.
Hey, Luke good morning, I appreciate the question.
So yes, we're currently staffed and running two in one basin and then we've got a smaller crude that is running in the Rockies doing re frac work et cetera.
Okay.
We view yeah.
I'm sorry go ahead go ahead sorry.
Yes, I guess I would kind of leave you with one you put reactivate and.
Just kind of what's your appetite to bring that out and what would the reactivation cost be.
Yes, so look what I would say is within the company as a whole we've got about 235000 horsepower. We got about 70000 horsepower thats still stacked at this point in time and so while we've got those two spreads was the smaller spread active we've done a great job of redeploying horsepower through a number of different product lines.
So we've got horsepower deployed into coiled tubing support into our rentals and tech services business for kill pulse, we've got horsepower deployed.
We're making very strong returns in the pump down market as well so as you well know the market for horsepower is incredibly tight.
And so we felt niche market opportunities to deploy horsepower single double pump basis very attractive revenue levels.
With regards to redeploying that third spread or the incremental horsepower, whether its a spread or through other product lines.
What I would say is we are having a real time discussions and have had a number of operators reach out to us.
Both dedicated opportunities prepayment opportunities et cetera, and we're evaluating those real time as we speak.
Okay, alright, thanks, a bunch.
No I appreciate it.
Once again Thats Star one to register a question at this time. The next question is coming from Bill Austin of Daniel Energy Partners. Please go ahead.
Hey, guys.
Just wanted to ask a couple of quick questions for you.
Yeah, Good morning, Fernando good morning.
Hey, So you mentioned a little bit on the you know next year in your guidance, a little bit, but which geographic region.
The most promise for you guys.
You know its interesting bill as you look at I'm sure you have reviewed our results the Rocky Mountains and the mid Con northeast.
Expanded materially over the last couple of quarters, and as you and Don John Sorry has articulated we see.
A lot of kind of niche market opportunities in some of the smaller base and clearly gas rig count has expanded that doesn't discount the Permian is still the 800 pound gorilla for the overall rig count perspective, but if you look at year to date rig count growth Frac spread growth, it's really the midcon Haynesville and <unk>.
Other areas and we've got great customer relationships and all of those areas and so.
That's been a big part of the leg up if you look at the Rockies, the midcon and the northeast over the last two quarters and it feels like those markets has sort of stabilized at a level, where youre going to see that demand kind of carryforward into 2023 and I think.
Across the U S. You start to see a more normalized and even leg up and we don't want to talk about 2023, just yet because all of our operators in a customers haven't fully guided or what they expect from an activity increase standpoint, but we do think theres another leg up.
And we think that that leg up is kind of uniform and pro rata across the basins, where we operate.
Great. Thanks, and I know you talked a little bit about this at.
At the end as well on the acquisition side.
It sounds like Youre starting to see.
A lot more activity there how how actively you guys be.
How are you thinking about that.
Yeah sure so I'll, let keefer jump in in a second as well, but we've seen a few recent deals that our asset purchases, especially in the <unk> space as you well know.
<unk> just had an interesting deal with silvertip ultimately, we think consolidation helps the services space as a whole as long as the executing party as a prudent steward of capital.
And so we'd like to see consolidation that we've definitely seen deal flow activity pick up recently and we're evaluating a number of different strategic alternatives.
Keith do you want to add anything.
Yeah sure I think if you just take a step back from a macro strategic perspective.
We believe that our diversification from a product service line standpoint, as well as a geographic coverage standpoint.
A core differentiator for <unk> and allows us to execute on our strategy, Chris articulated on the prepared remarks.
Cross selling.
As well as taking a kind of portfolio management approach to allocating assets across our various regions.
If you just think about the breadth of services that exist within our portfolio today we're.
We're focused more on augmenting the position that we have within those existing service lines in order to execute on what we think of as kind of true consolidated for transactions I think we've got a market leading position in many of the product lines and service lines that we operate in today and we look to expand those positions or augment our.
<unk> position in other maybe smaller service lines, where we are only active in say one or two basins.
Like Chris said, there is a lot more sell side supply today than we've seen in some time.
I think we're we're probably better positioned today to execute on additional M&A than we've been since we did the <unk> merger back in the summer of 2020.
Okay.
Great. Thanks, that's all for me.
Thanks, Bill appreciate it.
Thank you once again that is star one to register a question at this time next question is coming from Ignacio <unk>.
Cylinders of yes. Please go ahead.
Hey, good morning, and thank you for this time and congratulations on the strong quarter.
I know you mentioned guidance and how you're looking at Capex.
I guess any more color on the cadence of that Capex in 2023, I know a lot of it is.
On maintenance related but how should we be looking at it by service line.
Yes. Thank you.
Yes, good morning, Ignacio Great question.
As you well know I think everybody in the industry knows simply procuring capital items has been difficult at certain times as this year due to supply constraint.
<unk>.
You know look we've experienced numerous delays in deploying capital specifically in our rentals product line for tubular to a lesser extent mud motors and our DTC business.
So we've made some bulk orders tips to manage the supply chain et cetera, there's some prepayments associated with that but really the increase is primarily driven by a higher level of activity and revenue than we had forecasted at the beginning of the year.
And so I guess, if you step back I'd point out two key points.
First.
The high end of our range at $35 million of Capex guidance is still only four 4% based on the midpoint of our full year revenue guidance and second the same supply chain challenges that created issues for everybody in the services space is really afforded us a great opportunity as we continue to integrate the asset.
And so we've actually monetized about almost $12 million of assets, but real property and obsolete assets throughout this year. So if you think about it on a net capex basis.
Still well below our original Capex guidance.
The other thing I would say you asked about 2023 capex.
Look a number of our peers have given guidance there.
They're kind of capital framework is 6% to 9% of revenue on a go forward basis I would say if you look at our asset base and product service offerings. We've got numerous service lines, such as our tech services fishing wireline downhole tool business, which is materially less asset intensive.
Whereas the rentals business pumping coiled tubing et cetera are more capital intensive businesses. So I think if you think about 2023 on a blended basis and we haven't finalized our budget yet, but if you think about 'twenty three on a blended basis I think 5% to 7% of revenue is a reasonable assumption and of course were bare.
Very focused on moving price and as we move price that capex as a percentage of revenue goes down marginally.
Yeah.
That's perfect. Thank you guys.
Yes, Sir I appreciate it.
Thank you. The next question is coming from David Marsh of singular research. Please go ahead.
Thank you.
Hey, guys. Thanks for taking the questions.
Just quickly on the congrats on the quarter and congrats on the extension of the credit agreement just quickly on the credit agreement any reason any particular reason why you didnt extend more than one year.
Okay.
No we don't have.
First of all thanks I appreciate the question.
Regarding the amendment, we're thrilled to have gotten that done.
Tom.
And we think that we were able to improve terms. So we pushed maturity out a year through the fall of 'twenty. Four. Additionally, we reset the fixed charge coverage ratio.
And in doing so we've eliminated the fixed charge coverage ratio hold back.
That was a net two liquidity in prior quarters as well as modifying some other terms. So we were thrilled to have gotten that extension data and we think it's a great modification for the business.
Yes, absolutely.
Would agree with that I, just I guess my my question as.
Thanks.
With bank group willing to go longer or not so much I mean was it or is it was a decision by you guys because perhaps you're going to look at a more comprehensive reset you know a year from now or so.
Yes, we looked at a range of opportunities and ultimately believe we landed on what was the best opportunity for the business today.
But we're not going to get into specifics of negotiations with our bank group or other potential capital providers sure sure not a problem.
With regard to the.
The other debt public debt congrats on retiring some of it with the equity exchange.
Does your facility enable you guys to.
Consider.
Open market repurchases.
Yes, good question.
This was another piece that we did amend and the ABL document to permit exactly what you're asking about.
So we are permitted now to execute on open market repurchases.
Provided that we are using proceeds.
From an equity offering or the ATM.
So there is a caveat there in terms of the <unk>.
Source of the proceeds to execute on an open market repurchase.
Got it got it and then just lastly.
Obviously.
It's a little early for you guys to put out any kind of guidance for 'twenty three but.
It sounded Chris from your comments like you guys feel like at least Directionally 23 feels like it's going to be an up year set a fair comment.
Yes, all indications right now from a macro demand perspective suggests that it's going to be an up year.
We don't have full guidance from our customers as I stated to bill earlier at the end of the day, we're going through our Q season, as we speak and I think look we've got and I mentioned it in the prepared remarks, but we've got a significant volume of incremental assets available to deploy and so as we stated in the past I think we've been.
Conservative if not prudent as it comes to redeploying assets.
Our primary focus has been to maximize crew utilization and move price first and foremost and then second focus on redeploying assets in the face of increasing demand at incrementally higher prices.
So we balance standup golf with demand capacity and capital deployment and so I think if you look at our Incrementals of 39% in Q2 and 53% in Q3 I think the strategy has worked pretty well.
The reality of the situation is we have a number of asset classes like our accommodations fleet certain size of <unk> and tubular.
Our active pressure pumping fleet basically running at near capacity that being said, we were down two coiled tubing units large diameter coiled tubing units for the entire third quarter undergoing manufacturing upgrading process.
Now one of those units back in the fleet and then you kind of go through every single product line. We've got tubular is coming into the fleet now in the fourth quarter that we have immediate demand for we've got five to 10 kits of incremental capacity and D. D that we think will deploy going into the first part of next year, we've got additional wireline trucks undergoing electric <unk>.
<unk> today that will come into the market next year.
As well as numerous other product lines and all of that excludes assumptions on additional net price increases so assuming that the market is up another 50 plus rigs in 2023. If you just look at our run rate. It would imply 2023 should be a very positive year and another leg up.
Full year 2022.
Sure.
Well, thanks, guys I appreciate you taking the questions and again congrats on the quarter and congrats on the amendment.
Yes, absolutely I appreciate it thank you.
Thank you very much Hey, Chris This is Ken again, we got a couple of email questions in tech questions. During the call or one of them was elaborated on the labor and staff incremental assets, how do you staff those in.
Intermodal Linda incremental assets.
Yeah look that's a great question similar to the incremental assets available to deploy.
The entire market right equity research operators have lamented labor constraints in the labor market tightness. That's a very fair question. There is no doubt the industry space a number of challenges this year staffing up incremental services demand.
<unk> is not immune to the issues. However, I am proud to say I think we have performed better than average from nutrition standpoint. In fact, if you look at our attrition levels compared to prior levels coming out of rebounds of cycles, we're kind of right on top of those and so we spent considerable time around employee engagement developing our culture.
And we think our culture is a strong selling point for <unk>.
Earlier this year, we worked through a standard merit raise cycle et cetera. So we've we've done a number of things. The other thing. We did was last year in 2021 December 'twenty, one we partially reinstated our 401K match and as of this quarter, we fully reinstated our 401K match. So I think all of these help with retention overall.
The last point I'd make is employees want to work for a company that provides high quality highly efficient asset. So they can maximize their opportunity set and compensation calix does this exceptionally well, we're able to attract and retain employees that buy into our strategy of operating excellence.
Thanks.
Good.
I've got another one for Keith versus congrats on your return to positive free cash flow. How do you feel about the uses of free cash flow going forward.
Yes, Thanks, Ken.
Yeah.
So good question I mean, just.
From a macro perspective.
I think Chris and I and the rest of the team just couldn't be prouder of the hard work that's gone into returning the business to positive free cash flow.
We're frankly happy to just be having that discussion today, it's not something that we've spent a lot of time talking about over the last few years, we did reaffirm our guidance for positive free cash flow in the second half of the year.
We believe that trend continues into 'twenty three so as we look forward. We plan to continue to be good stewards of capital, we're going to evaluate any and all growth opportunities, whether they're organic growth or inorganic growth.
Through the lens of the risk adjusted return on invested capital.
With that said I think theres a couple of different ways, we're going to look at opportunities to redeploy free cash flow generation.
First being deployed organic growth Capex, Chris mentioned this earlier a bit.
But there is opportunity to deploy capex on some relatively quick payback growth projects, we'd expect to start to execute on some of those and early in 'twenty. Three. Additionally, we look to potentially use cash.
As a portion of M&A consideration, although I think that really is going to depend on a couple of things one valuation and to just structure as we believe.
Equity consideration drive significantly better alignment.
To really integrate a combination in this industry and then last but certainly not least is continuing to explore opportunities to further delever and chip away at the interest bearing debt.
As we work to continue to improve our.
Our net leverage ratio.
We've spent a lot of time focused on returning the business to.
Historical operating margin level.
Proud to have gotten back to that point at this point.
We mentioned in the prepared remarks that we're at a one seven times leverage ratio as of our Q3 run rate.
So we've done a lot of work to build back up the denominator piece there in terms of our EBITDA run rate.
And we'll continue to look at opportunities to chip away at the numerator of the net leverage ratio.
Thanks, Thanks, Keefer, so Chris that that ends the question and answer session I'll hand, it to you right to make some final remarks. Thank you Ken once again, thank you for joining us on this call and your interest in <unk> Energy services, we look forward to speaking with you again next quarter.
Ladies and gentlemen. This concludes today's event you may disconnect. Your lines at this time and enjoy the rest of your day.
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Thanks.
Yes.
Yes.
Yes.
[music].
Great.
Yes.
Okay.
Yes.
[music].
Yes.
Okay.
[music].
Sure.
Okay.
Yes.
Okay.
Okay.
Okay.
Yes.
Yes.
<unk>.
Okay.
Okay.
[music].
Okay.
Yes.
Okay.
Yes.
Okay.
Okay.
Okay.
Okay.
Yes.
Okay.
[music].
Yes.
Okay.
[music].
Yes.
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Yes.
Yes.
[music].
Okay.
Okay.
Yes.
Yes.
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Sure.
Yes.
Yes.
Okay.
Okay.
Okay.
Yes.
Thank you.
Yes.
Sure.
Yes.
Yes.
Okay.
Yes.
Sure.
Sure.
[music].
Thanks.
Thank you.
Yes.
Thank you.
Okay.
Yes.
<unk>.
Thank you.
Yes.
[music].
Yes.
Yes.
Okay.
Thank you.
Thank you.
Thanks.
Okay.
Okay.
Okay.
Yes.
Yes.
Thank you.
Okay.
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Yes.
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Yes.
Yes.
Yes.
Sure.
Yes.
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Yes.
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Yes.
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Yes.
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Yes.
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Yes.
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Yeah.
Thanks.
Yes.
[music].
Yes.
Yes.
Yes.
Okay.
Yes.
Yes.
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Okay.
Okay.
Sure.
Okay.
Sure.
Yes.
Okay.
Okay.
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Yes.
Yes.
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Yes.
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Okay.
Okay.
Yes.
Yes.
Yes.
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Thank you.
Okay.
Sure.
Okay.
Okay.
Yes.
Yes.
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Okay.
[music].
Okay.
Yes.
Okay.
Yes.
Okay.
Yes.
Yes.
Yes.
Okay.
Thank you.
Okay.
Yes.
Okay.
Okay.
Yes.
Yes.
Yes.
Yes.
[music].
Yes.
Okay.
Yes.
Sure.
Yes.
Yes.
Yes.
Yes.
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[music].
Yes.
Okay.
Yes.
Yes.
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Yes.
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Sure.
Yes.
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Yes.
Yes.
Yes.
Yes.
Yes.
[music].
Yes.
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Yes.
Yes.
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Yes.
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Yes.
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Yes.
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Yes.
Yes.
Yes.
[music].
Yes.
Okay.
[music].
Yes.
[music].
Sure.
Yes.
Yeah.