Q1 2024 Nine Energy Service Inc Earnings Call

Operator: Greetings and welcome to Nine Energy Service's first quarter 2024 earnings conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation, and instructions will be given at that time. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. I would now like to turn the conference over to your host, Heather Schmidt, Vice President of Strategic Development and Investor Relations.

Greetings and welcome to nine Energy service first quarter 2024 earnings conference call at.

Operator: At this time all participants are on a listen only mode. A question and answer session will follow the formal presentation instructions will be given at that time, if anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad I would now like to turn the conference over to your host Heather Schmidt Vice Pres.

Heather Schmidt: Our strategic development and Investor Relations.

Heather Schmidt: Thank you. Good morning, everyone, and welcome to the Nine Energy Service Earnings Conference Call to discuss our results for the first quarter of 2024. With me today are Ann Fox, President and Chief Executive Officer, and Guy Sirkes, Chief Financial Officer. We appreciate your participation.

Heather Schmidt: Thank you good morning, everyone and welcome to the nine Energy Service earnings Conference call to discuss our results for the first quarter of 'twenty 'twenty four with me today are Ann Fox, President and Chief Executive Officer, and <unk> Chief Financial Officer, We appreciate your participation.

Heather Schmidt: Some of our comments today may include forward-looking statements reflecting nine views about future events. Forward-looking statements are subject to a number of risks and uncertainties, many of which are beyond our control. These risks and uncertainties can cause actual results to differ materially from our current expectations. We advise listeners to review our earnings release and the risk factors discussed in our filings with the SEC. We undertake no obligation to revise or update publicly any forward-looking statements for any reason.

Heather Schmidt: Some of our comments today may include forward looking statements, reflecting nine views about future events forward looking statements are subject to a number of risks and uncertainties many of which are beyond our control.

Heather Schmidt: These risks and uncertainties can cause actual results to differ materially from our current expectations. We advise listeners to review our earnings release and the risk factors discussed in our filings with the SEC. We undertake no obligation to revise or update publicly any forward looking statements for any reason.

Heather Schmidt: Our comments today also include non-GAAP financial measures. Additional details and a reconciliation to the most directly comparable GAAP financial measures are also included in our first quarter press release and can be found in the investor relations section of our website. I will now turn the call over to Ann. Thank you, Heather. Good morning, everyone.

Heather Schmidt: Our call. Today also include non-GAAP financial measures additional details and a reconciliation to the most directly comparable GAAP financial measures are also included in our first quarter press release press release and can be found in the Investor Relations section of our website I will now turn the call over to Ann. Thank you Heather Good morning, everyone. Thank you for joining us today to discuss our.

Ann G. Fox: Thank you for joining us today to discuss our first quarter results for 2024. Revenue for the quarter was $142.1 million, which was within the upper range of our original guidance of $135 to $145 million. We generated adjusted EBITDA of $15 million, reflecting an adjusted EBITDA margin of 11%. Diluted earnings per share was negative 24 cents.

Ann: Our first quarter results for 2020 for revenue for the quarter was $142 1 million, which was within the upper range of our original guidance of 135 to 145 million, we generated adjusted EBITDA of $15 million, reflecting an adjusted EBITDA margin of 11.

Ann G. Fox: [noise] percent diluted earnings per share was negative <unk> 24 cents here.

Ann G. Fox: During Q1, the markets were relatively stable, with the average U.S. rig count remaining flat quarter over quarter. This was reflected in our revenue, which also remained relatively flat quarter over quarter, coming in where we anticipated. Despite a flat rig count, our adjusted EBITDA increased quarter over quarter, due mostly to better utilization within coiled tubing. Coiled tubing days of work increased by over 40%, driving revenue growth of approximately 11% quarter over quarter. Demand for coiled tubing work was strong in the Permian, and we were able to supplement this work by sending equipment and personnel to the region from Haynesville.

Ann G. Fox: During Q1, the markets were relatively stable with the average U S rig count remaining flat quarter over quarter. This was reflected in our revenue, which also remained relatively flat quarter over quarter coming in where we anticipated.

Ann G. Fox: Despite a flat rig count our adjusted EBITDA increased quarter over quarter, due mostly to better utilization within coiled tubing coiled tubing days worked increased by over 40% driving revenue growth of approximately 11% quarter over quarter demand for coiled tubing work was strong in the Permian and we were able to.

Ann G. Fox: This work by sending equipment and personnel to the region from the Haynesville completion tool revenue was relatively flat quarter over quarter. We reached a major milestone in Q1, surpassing 60000 Dissolvable Stinger units sold since we introduced the technology in Q1 of 2020.

Ann G. Fox: Completion tool revenue was relatively flat quarter over quarter. However, we reached a major milestone in Q1, surpassing 60,000 dissolvable stinger units sold since we introduced the technology in Q1 of 2020. I am extremely proud of the team and the way they scaled this product without compromising quality and reliability. We remain bullish on not only the capability of our dissolvable technology but on the continued adoption of dissolvable plugs in the U.S. market and abroad.

Ann G. Fox: I am extremely proud of the team and the way they scaled this product without compromising quality and reliability. We remained bullish on not only the capability of our Dissolvable technology, but on the continued adoption of Dissolvable plugs in the U S market and abroad.

Ann G. Fox: In Q1, we began to see the impact of pricing pressure within our cementing business as we balanced market share and profitability within this rig count environment. In Wireline, we maintained excellent market share in the Northeast and continue to focus on gaining additional market share in the Permian while increasing exposure to remedial and conventional wireline. I would now like to turn the call over to Guy to walk through the detailed financial information.

Ann G. Fox: In Q1, we began to see the impact of pricing pressure within our cementing business as we balanced market share and profitability within this rig count environment.

Guy: In wireline, we maintained excellent market share in the northeast and continue to focus on gaining additional market share in the Permian, while increasing exposure to remedial and conventional wireline.

Ann G. Fox: I would now like to turn the call over to Guy to walk through detailed financial information.

Guy Sirkes: Thank you, Ann. As of March 31st, 2024, Nine's cash and cash equivalents were $10.2 million, with $27.3 million of availability under the revolving ABL credit facility, resulting in a total liquidity position of $37.5 million on March 31st, 2024. At March 31st, we had $52 million of borrowings under the ABL credit facility. As a reminder, during Q1, we had a $19.5 million interest payment on our notes and paid down $5 million on the ABL.

Guy: Thank you Ann as of March 31, 2024, Nine's cash and cash equivalents were $10 2 million with $27 3 million of availability under the revolving ABL credit facility, resulting in a total liquidity position of $37 5 million.

Guy Sirkes: As of March 31, 2024 at March 31, we had $52 million of borrowings under the ABL credit facility. As a reminder, during Q1, we had a $19 5 million interest payment for our notes and paid down $5 million on the ABL. Additionally, we had $5 $6 million of Capex for the quarter as there is.

Guy Sirkes: Additionally, we had $5.6 million of CapEx for the quarter. As a result, our cash balance as of March 31st was at a trough, and we have already begun to build back our cash balance. All of these cash outflows were anticipated, and our cash balance will continue to ebb and flow in conjunction with our interest payments that are made in January and August. At the end of last year, we put a $30 million ATM program in place to provide flexibility for the company.

Guy Sirkes: Our cash balance as of March 31 was at a trough and we have already begun to build back our cash balance.

Guy Sirkes: All of these cash outflows were anticipated in our cash balance will continue to ebb and flow in conjunction with our interest payments that are made in January and August.

Guy Sirkes: At the end of last year, we put a $30 million ATM program in place to provide flexibility for the company.

Guy Sirkes: During Q1, we did not sell any shares under the ATM program and have not sold any to date. However, as per the terms of the indenture governing our senior secured notes, we are required to periodically offer to repurchase such notes with a portion of any excess cash flow. We did not generate any excess cash flow as defined in the indenture in the most recently ended two fiscal quarters. As a result, no excess cash flow offer will be made to note holders this month.

Guy Sirkes: During Q1, we did not sell any shares under the ATM program and have not sold any to date.

Guy Sirkes: As per the terms of the indenture governing our senior secured notes we are required to periodically offered a repurchase such nodes with a portion of any excess cash flow, we did not generate any excess cash flow as defined in the indenture and the most recently ended two fiscal quarters as a result, no excess cash flow offer will be made to note holders. This month.

Guy Sirkes: A reconciliation of this calculation is available in our Q1 earnings release. During the first quarter, revenue totaled $142.1 million with adjusted gross profit of $26.1 million. In the first quarter, we completed 943 cementing jobs, a decrease of approximately 3%.

Guy Sirkes: A reconciliation of this calculation is available in our Q1 earnings release.

Guy Sirkes: The average blended revenue per job decreased by approximately 5%. Cementing revenue for the quarter was $48.3 million, a decrease of approximately 8%. During the first quarter, we completed 6,486 wireline stages, an increase of approximately 14%. However, the average blended revenue per stage decreased by approximately 13%. Wireline revenue for the quarter was $27.9 million, which was flat compared to Q4. For completion tools, we completed 28,074 stages, an increase of approximately 4%. Completion tool revenue was $35.3 million, a decrease of approximately 2%.

Guy Sirkes: During the first quarter revenue totaled $142 1 million with adjusted gross profit of $26 1 million.

Guy Sirkes: During the first quarter, we completed 943, cementing jobs, a decrease of approximately 3%.

Guy Sirkes: The average blended revenue per job decreased by approximately 5%.

Guy Sirkes: Cementing revenue for the quarter was $48 3 million a decrease of approximately 8%.

Guy Sirkes: During the first quarter, we completed 6486 wireline stages, an increase of approximately 14%.

Guy Sirkes: The average blended revenue per stage decreased by approximately 13%.

Guy Sirkes: Wireline revenue for the quarter was $27 9 million, which was flat compared to Q4.

Guy Sirkes: For completion tools, we completed 28074 stages, an increase of approximately 4% completion.

Guy Sirkes: Completion tool revenue was $35 3 million a decrease of approximately 2%.

Guy Sirkes: During the first quarter, our coil tubing days worked increased by approximately 41 percent, with the average blended day rate decreasing by approximately 21 percent. Oil tubing utilization was 63%, with revenue of $30.7 million, an increase of approximately 11%.

Guy Sirkes: During the first quarter, our coiled tubing days worked increased by approximately 41% with the average blended day rate decreasing by approximately 21%.

Guy Sirkes: Oil tubing utilization was 63% with revenue of $30 7 million an increase of approximately 11%.

Guy Sirkes: During the first quarter, the company reported general and administrative expense of $12.3 million, and depreciation and amortization expense of $9.5 million. The company's tax provision was approximately $0.2 million for the quarter. The provision for 2024 is the result of our tax position and state and non-U.S. tax jurisdictions.

Guy Sirkes: During the first quarter, the company reported general and administrative expense of $12 3 million.

Guy Sirkes: Depreciation and amortization expense was $9 5 million.

Guy Sirkes: The Companys tax provision was approximately 0.2 million for the quarter. The provision for 2024 as a result of our tax position and state and non U S tax jurisdictions.

Guy Sirkes: The company reported net cash used in operating activities of $8.8 million. The average DSO for Q1 was 57.5 days. CapEx spend for Q1 was $5.6 million. Our 2024 CapEx guide is unchanged at $15 to $25 million but is flexible if market conditions dictate a reduction. I will now turn it back to Ann.

Guy Sirkes: The company reported net cash used in operating activities of $8 8 million. The average DSO for Q1 was 57 five days.

Guy Sirkes: Capex spend for Q1 was $5 6 million or 2020 for Capex guide is unchanged at $15 million to $25 million, but as flexible if market conditions dictate a reduction I will now turn it back to Ann.

Ann G. Fox: Thank you, Guy. Q1 activity levels were stable, driven mostly by a supportive oil price. However, we saw further declines in natural gas prices below $2 starting in February and continuing into Q2. Because of this decline, we are anticipating activity slowdowns in the natural gas levered basins, including delayed completions, rigged declines, and overall more white space in the calendar, specifically in the Northeast, Haynesville, and with some impact in the Eagleford. As a reminder, in 2023, approximately 34% of Nine's revenue was generated in the Northeast and Haynesville.

Ann: Thank you guide Q1 activity levels were stable driven mostly by a supportive oil price. However, we saw further declines in natural gas prices below $2 starting in February and continuing into Q2 because of this decline we are anticipating activity slowdowns in our natural gas levered basins, including delayed completions.

Ann G. Fox: Rig declines and overall more white space in the calendar specifically in the northeast Haynesville and with some impact in the Eagle Ford as a reminder, in 2023, approximately 34% of <unk> revenue is generated out of the northeast and Haynesville well.

Ann G. Fox: We view this decline in natural gas-related activity as a temporary slowdown or pause, and we remain positive on the medium and long-term outlook for the gas market. It is imperative to maintain our footprint and people within these basins to ensure we are able to capitalize when gas prices recover. However, this will have short-term negative impacts on our margins. We are watching the markets very closely and will adjust course as dictated by the markets and outlook.

Ann G. Fox: We view this decline in natural gas related activity as a temporary slowdown or pause and we remain positive on the medium and long term outlook for the gas markets. It is imperative to maintain our footprint and people within these basins to ensure we are able to capitalize when gas prices recover. However, this will have short term negative impact.

Ann G. Fox: On our margins we are watching the markets very closely and will adjust course as dictated by the markets and outlook.

Ann G. Fox: The oil markets have remained mostly stable, with the majority of public companies keeping capital and activity programs flat in 2024 versus 2023 in the oil-levered basins. There could be potential for additional rigs coming into areas like the Permian if commodity prices remain supportive in the second half of this year. We have supplemented our Permian operations with units and personnel from our Haynesville and Northeast locations, specifically within coil tubing and wire

Ann G. Fox: The oil markets have remained mostly stable with the majority of public companies keeping capital and activity programs flat in 2024 versus 2023, and the oil levered basins, there could be potential for additional rigs coming into areas like the Permian if commodity prices remain supportive in the second half of this year, we have supplemented our.

Ann G. Fox: Permian operations with units and personnel from our Haynesville and northeast locations, specifically within coiled tubing and wireline for Q2, we anticipate activity declines in white space within the gas levered basins as well as full quarter realizations of pricing pressure within our cementing business because of this we expect Q2 to be down <unk>.

Ann G. Fox: For Q2, we anticipate activity declines in white space within the gas-levered basins, as well as full-quarter realizations of pricing pressure within our cementing business. Because of this, we expect Q2 to be down compared with Q1, with projected revenue between $130 million and $140 million. We also anticipate that adjusted EBITDA and our adjusted EBITDA margin will decrease from Q1 levels.

Ann G. Fox: Paired with Q1 with projected revenue between 130, and 140 million. We also anticipate that adjusted EBITDA and our adjusted EBITDA margin will decrease from Q1 levels.

Ann G. Fox: We have shown our ability to capitalize quickly on market shifts, and our business is nimble. Our service and geographic diversity provides us with a good balance, and we are focused on diversifying more of our top-line revenue streams to completion tools in the international markets. Our strategy of providing an asset-light business with forward-leaning technology coupled with excellent service is unchanged. We will now open up the call for Q&A.

Ann G. Fox: We have shown our ability to capitalize quickly on market chefs and our business is nimble our service and geographic diversity provides us good balance and we are focused on diversifying more of our topline revenue streams to completion tools in the international markets, our strategy of providing an asset light business with forward leaning technology, coupled with excellent service.

Ann G. Fox: Is unchanged.

Speaker Change: We will now open up the call for Q&A.

Operator: Thank you. At this time, we'll be conducting a question and answer session. If you'd like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.

Speaker Change: Thank you at this time, we'll be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad.

Operator: Confirmation tone will indicate your line is in the question queue. You May press star two if you'd like to remove your question from the queue.

Operator: Yes.

Operator: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys, one moment, please while we poll for questions.

Operator: One moment, please, while we poll for questions. My first question comes from Waqar Syed with ATB Capital Markets. Please proceed with your question.

Operator: Our first question comes from Waqar Syed with <unk> capital markets. Please proceed with your question.

Ann G. Fox: Good morning. Good morning, Waqar. So the international business, are you assuming any sales from that in your revenue outlook or anything substantial there?

Waqar Mustafa Syed: Good morning.

Waqar Mustafa Syed: Good morning.

Waqar Mustafa Syed: Good morning.

Ann G. Fox: So the international business are you assuming any sales from that in your.

Waqar Mustafa Syed: Revenue outlook or anything substantial there.

Ann G. Fox: We always have a projection of that revenue; just as a reminder, international revenue on an annual basis is roughly between 4 to 5 percent, and it's very lumpy, as we've told the market before, so we would continue to anticipate having international sales in Q2.

Waqar Mustafa Syed: We always have a projection of that revenue just as a reminder, international revenue on an annual basis is roughly between 4% to 5% and its very lumpy as we've told the market before so we would continue to anticipate having international sales in Q2.

Ann G. Fox: Okay.

Ann G. Fox: And then, Ann, the recent consolidation that we've seen in the E&P industry, has that impacted your business positively or negatively, or do you foresee that to impact it going forward?

Speaker Change: And then.

Speaker Change: And the recent consolidation that we've seen in the E&P industry has that impact impacted your business positively or negatively or do you foresee that to impact going forward.

Ann G. Fox: It's a great question, Waqar. We definitely see continued consolidation. For us so far, this has not had a negative impact. And when we analyze business with both Exxon and Pioneer, we're very pleased with that, for example.

Ann: Oh, it's a great question Waqar, we definitely see continued consolidation for us. So far this has not been a negative impact.

Ann G. Fox: And when we analyze business with both Exxon and pioneer were very pleased with that for example, so right now we've not seen in a negative impact and I think if anything you could start to see some consistency as we know with large publics.

Ann G. Fox: So right now, we've not seen a negative impact. And I think, if anything, you could start to see some consistency, as we know, with large publics. They tend to put out their DNC programs and budgets. And so that streamlines the process and, frankly, can help us. So to answer your question specifically, no, we haven't seen any negatives.

Ann G. Fox: They tend to put out there D&C programs and budgets and so that that streamlines the process and frankly it can help us so to answer your question specifically no we've not seen any negatives.

Ann G. Fox: Okay, and the issue on the pricing side in cementing, is it kind of broad in all basins, or is it very basin specific right now?

Ann G. Fox: Okay.

Ann G. Fox: And.

Ann G. Fox: The issue on the pricing side and cementing is it kind of broad in all basins or is it very basin specific right now.

Ann G. Fox: Yeah, no, it's, well, clearly, you know, coming into the Haynesville has not been wonderful just given where gas prices are, but I would say it's wider relative to the overall rig count environment in the United States right now, meaning that pricing pressure is felt across basins.

Ann G. Fox: Yeah, no it's a we'll clearly.

Ann G. Fox: Coming into the Haynesville has not been a wonderful just given where gas prices are but I would say, it's more broad relative to the overall rig count environment in the United States right now.

Ann G. Fox: That pricing pressure is is felt across basins.

Ann G. Fox: Are you seeing stability in the spot prices, or do you see more pressure in that particular market as maybe some more rigs come off in the gas basins?

Ann G. Fox: Okay, but are you seeing.

Ann G. Fox: Stability in the spot pricing or do you see more.

Ann G. Fox: Pressure in that particular market as maybe some more rigs come off in the gas basins.

Ann G. Fox: The gas basins could, Waqar. I think, though, we've taken that pricing impact. It's just that you'll get a full quarter of that realization in Q2. So we're not seeing a downward slope on that right now that is stabilized, but we did experience that.

Ann G. Fox: The gas stations could Waqar I think though we've taken that pricing impact, it's just that you'll get a full quarter of that realization in Q2.

Ann G. Fox: So we're not seeing a downward slope on that right now that has stabilized.

Ann G. Fox: But we did experience that.

Ann G. Fox: Yeah.

Ann G. Fox: And then in terms of your visibility into the second half on the, let's say, you know, oil side first, are you seeing any... Discussions with ENPs, privates, or publics about picking up activity later this year or into next year?

Ann G. Fox: And then in terms of your visibility into the second half.

Ann G. Fox: And let's say.

Ann G. Fox: Oil side.

Ann G. Fox: Are you seeing any.

Ann G. Fox: Discussions with E&ps privates or publics about thinking up activity later this year or.

Ann G. Fox: Into next year.

Ann G. Fox: I think most of our publics have been pretty firm that they're going to maintain, you know, flat programs this year. We do have some oily customers in the northeast that I would be surprised if they don't put a rig or two up later in the year. But by and large, our publics, at the moment, are steadfast in their programs.

Ann G. Fox: I think most of our publics have been pretty firm that theyre going to maintain flat.

Ann G. Fox: Flat programs. This year, we do have some oily customers actually in the northeast that I would be surprised if they they don't put a rig or two up.

Ann G. Fox: Later in the year, but by and large our publix at the moment our steadfast in their programs. So as we know that could always change. We're seeing you know obviously folks are going to start to build ducks here. So it could be a very nice 2025 are really nice DUC builds and the haynesville.

Ann G. Fox: So, as we know, that could always change. We're seeing, you know, obviously folks are going to start to build ducts here. So it could be a very nice 2025, really nice duct builds in Haynesville as well. And, as you know, if the operators all start at once, that creates tremendous velocity for pricing. So it could be an exciting time for us coming into 2025.

Ann G. Fox: As well so as.

Ann G. Fox: As you know if the operators I'll start it ones that creates tremendous velocity for pricing.

Ann G. Fox:

Ann G. Fox: So it could be an exciting time for us coming into 'twenty five.

Ann G. Fox: Okay, and from the private side, are you seeing any hints of them picking up activity or new privates being formed as more personnel become available from the consolidation in the E&P industry?

Ann G. Fox: Okay and from the private side any are you seeing any hints of them thinking up activity, new privates being farmed.

Ann G. Fox: You know as more pushed out or become available from the consolidation of the E&P industry.

Ann G. Fox: No, no we aren't, Waqar. I would say consolidation is more the theme of the day.

Speaker Change: No no we arent Waqar I would say consolidation is more of a theme of the day.

Ann G. Fox: Okay, well, thank you very much and I appreciate it.

Speaker Change: Okay, well, thank you very much and I appreciate the color.

Speaker Change: Alright, thank you.

Operator: Our next question is from Tim Moore with EF Hutton. Please proceed with your question.

Ann G. Fox: Our next question is from Tim Moore with <unk> Partners. Please proceed with your question.

Timothy M. Moore: Thanks. Ann and Guy, two of my questions about public and private operator sentiment were just asked, and thanks for answering that.

Timothy M. Moore: Thanks Anna.

Timothy M. Moore: So my question is about public and private operators sentiment was just asked and thanks for answering that.

Timothy M. Moore: You know, you mentioned cementing softness to continue in the June quarter. I was trying to think out, I know we talked about lead times on that, you know, they seem to bounce back fast later on when there's an upswing. I mean, would I be unreasonable to think that, you know, maybe the cementing jobs count, not necessarily the prices, the volumes can maybe start increasing in September or late summer, or is that too quick based on visibility?

Timothy M. Moore: You mentioned.

Timothy M. Moore: Cementing softness to continue in the June quarter.

Timothy M. Moore: I'm just trying to think out I know, we talked about lead times on that and it seems to bounce back faster later on when there's an upswing I mean would I be unreasonable thinking that maybe the cementing jobs count necessarily pricing.

Timothy M. Moore: Volumes can maybe start increasing September or late summer or is that too quick based on visibility.

Ann G. Fox: No, I think that's reasonable, Tim.

Timothy M. Moore: No.

Speaker Change: I think that's reasonable Tim.

Timothy M. Moore: Good, good. Eventually, they always bounce back. I mean, you just laugh at downturns, and the red count's been quite stable since mid-September, especially on the oil side. So it seems like, I'm not going to put words in your mouth, but it seems like it would be inevitable that you're not that far away from the bottom on the volume side.

Speaker Change: Hey, guys I mean, you're the person they always bounce back I mean, you just lap.

Timothy M. Moore: Downturns in the rig count has been quite stable since mid September.

Timothy M. Moore: Especially on the oil side so it.

Timothy M. Moore: It seems like.

Timothy M. Moore: If I could put words in your mouth, but it seems like it'd be an inevitable that youre not that far away from the bottom on the volume side on some of them.

Ann G. Fox: Yes, that's how it feels.

Speaker Change: Yes, that's how it feels.

Timothy M. Moore: Good. Maybe just switching gears, how's the Pinser hybrid frac plug doing, and what are some of the customer responses?

Speaker Change: And then maybe just switching gears how is the pincer hybrid frac plug doing and what are some of the customer responses to it.

Ann G. Fox: Well, we're having a great response. We are in the middle of field testing right now with some customers, and we have also commercialized other customers. So, as you know, that plug is a hybrid. It has a little bit of dissolvable material and some composite material, and it offers our customers much better drill-out times. And so, it's really for the customer that loves reliability and dependability as they perceive it with a composite, and that's how we're trying to answer that market and innovate really on the composite side.

Speaker Change: Well, we're having a great response, we are in the middle of field testing right now with some customers and then also have commercialized other customers. So as you know that plug is a hybrid it has a little bit of dissolvable materials, some composite material and it offers our customers much better drill out times.

Ann G. Fox: And so it's you know, it's really for the customer that loves our reliability and dependability as they perceive it with a composite.

Ann G. Fox: And that's how we're trying to answer that market and innovate really on the composite side. So it's not an answer to replace the Dissolvable plug. It's really an answer to you would go after that very large composite market, which is still the preponderance of plugs run today in the U S and so we're still very pleased with that thank you for asking.

Ann G. Fox: So, it's not an answer to replace the dissolvable plug. It's really an answer to go after that very large composite market, which is still the preponderance of plugs run today in the U.S. And so, we're still very pleased with that. Thank you for asking.

Timothy M. Moore: No, that's great. I mean, I really think it's going to be very good. You know, I can't wait to hear a couple of years from now how many thousands of those you've sold because, you know, like you said, it's not going to cannibalize, it's incremental. So that's a really good design there. And maybe just following up on international expansion, I know you get asked this a lot. I think I asked last quarter.

Speaker Change: No that's great I mean, I really think that's going to be very good and I can't wait to hear a couple of years Anatomies thousands of those you saw because you have like you said, it's not going to cannibalize, it's incremental so that's a really good design there.

Timothy M. Moore: So maybe just following up on international expansion I know you get asked this a lot I think I asked last quarter and I know, it's only maybe 4% to 5% of sales.

Ann G. Fox: You know, I know it's only maybe 4 to 5 percent of sales, but such a good untapped opportunity for you. Can you give any color maybe on some of the countries where you've done some demos and pilots in the last couple of quarters and where you think might be the focus countries, you know, the rest of this year? Sure.

Ann G. Fox: It's such a good untapped opportunity for you to give any color maybe on some of the countries, where you've done some demos and pilots. The last couple of quarters, and where do you think might be the focus countries. The rest of this year.

Ann G. Fox: Sure. So, as you know, we sell into about 22 countries, but the majority of our sales will be in the Middle East region, as well as Argentina. And so, when you think about the Middle East, you're mostly talking about the UAE, as well as Saudi Arabia.

Speaker Change: Sure. So as you know we sell into about 22 countries, but the majority of our sales will be in the middle East region, as well as Argentina, and so when you think about.

Ann G. Fox: It'll east you're talking mostly about.

Ann G. Fox: The UAE as well as Saudi.

Ann G. Fox: Great. And how do you like to handle capacity for those countries? You know, I mean, it seems like it'd be full up on demand there. Are you... I mean, I guess you're probably working hard to add extra capacity as orders come in, and you're able to satisfy them?

Speaker Change: Great and how do you like to handle capacity for those countries.

Ann G. Fox: So let me follow up on demand there.

Ann G. Fox: Are you.

Ann G. Fox: I mean, I guess, you're probably working hard to add extra capacity as orders come in and be able to satisfy them.

Ann G. Fox: Yes, we have not had a problem with that thus far, so I think we do a really good job of managing that supply chain. So, so far, that's not been a bottleneck.

Speaker Change: Yes, we have not had a problem with that thus far so I think we do a really good job of managing that supply chain.

Ann G. Fox: So so far that has not been a bottleneck.

Timothy M. Moore: Great, great. Just two other quick questions.

Speaker Change: Great Great just two other quick questions from me.

Timothy M. Moore: I know you reiterated the capital expenditure guidance this year of 15% to $20 million you spent almost 6 million in the first quarter.

Timothy M. Moore: I know you reiterated the capital expenditure guidance this year, $15 to $20 million. You spent almost $6 million in the first quarter. At what point this year would you decide if you might be more towards the lower end or the high end of that range? You probably will wait to see how things shake out this summer and then, you know, maybe finish your CapEx budget in September or October.

Timothy M. Moore: Well what point this year I mean would you decide if you might be more towards the lower end or the high end of that range, you're probably well wait to see how things shake out this summer and then.

Timothy M. Moore: Maybe you finish your Capex budget September October.

Ann G. Fox: Right, so it's a great question. So we've guided the market 15 to 25 with a back-end loaded range, and if for some reason this summer we don't see any turn in anticipated gas prices coming into the winter season, then obviously, we'd make adjustments. So we've purposely planned flexibility to do just that. So I think we're all waiting to see, you know, what the weather shape is like. Where is gas production falling? And what do those gas prices look like? So we're ready to make those changes. And, you know, as you know, we're always very flexible here with CapEx. Great job, Ann.

Speaker Change: Right. So it's it's a great question. So we've guided the market 15 to 25 with a back end loaded range and.

Ann G. Fox: If for some reason this summer we don't see any turn in anticipated gas pricing coming into the winter season, then obviously, we'd make adjustments. So we've purposely planned flexibility to do just that so I think we're all waiting to see you know what is the weather shape out.

Ann G. Fox: Like whereas gas production fall and what are those gas prices look like so we're.

Ann G. Fox: We're ready to make those changes and you know as you know, we're always very flexible share with capex.

Timothy M. Moore: Great, Ann. Thanks a lot, and that's it for my questions, Anna and Guy. I appreciate it.

Ann: Great. Thanks, a lot and that's it for my questions Ana Guy I appreciate it.

Speaker Change: Thank you.

Operator: Our next question is from John Daniel with Daniel Energy Partners. Please proceed with your

Timothy M. Moore: Our next question is from John Daniel with Daniel Energy Partners. Please proceed with your question.

John Daniel: Hey, Ann, Heather, team. Just one for me, and we've had several of the E&P companies this quarter talk up, you know, opportunities in the refract market. And I'm just curious how you see that opportunity set over the next few years. Good morning, John.

John Daniel: And other teams.

John Daniel: Just one for me and it was a several of the E&P companies this quarter.

John Daniel: Talk up opportunities on the re frac market.

John Daniel: And I'm just curious how you see that opportunity set over the next few years.

Ann G. Fox: Thank you. That's a great question. I think you've started to see some of our public companies actually make this part of their program and talk about it routinely. So the technology has changed here a lot. We actually forecast Refrac into our business now. We're one of very few companies in the U.S. that offers this solution.

John Daniel: Is it Oh well good.

Ann: Good morning, John. Thank you. That's a great question I think you've started to see some of our public companies actually make this part of their program and.

Ann G. Fox: And talk about it routinely say the technology has changed here a lot we actually forecast re frac into our business now we're one of very few companies in the U S. That offers this solution. So this is a wonderful niche market for us and we're really excited to continue to see it grow a we've.

John Daniel: So this is a wonderful niche market for us, and we're really excited to continue to see it grow. We certainly experienced a lot of growth last year. We're looking forward to more growth this year. It is a very promising market. They certainly are looking at it from a production capacity. We're also aware that these are obviously cleaner barrels. So all the way around, these Refracs are making a ton of sense, and we're seeing wonderful results thus far with our Refrac technology. Okay, that's all I had. Thank you for including me.

John Daniel: Variance certainly a lot of growth last year, we're looking forward to more growth. This year, so very promising market.

John Daniel: They certainly are looking at it from a production.

John Daniel: Capacity. We're also aware that these are obviously cleaner barrels.

John Daniel: So all the way around these refracts are making a ton of sense and we're seeing wonderful results, thus far with our re frac technology.

John Daniel: Okay.

Speaker Change: All I had thank.

Ann G. Fox: Okay, great, thank you so much. You bet. Okay, great.

Speaker Change: Thank you for including me Okay.

Speaker Change: Great. Thank you so much you bet.

Ann G. Fox: Thank you for your... Go ahead, Ann. I was just saying we wanted to thank our employees and our EMP partners and investors. Thank you all so much. This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.

Ann G. Fox: Okay, great. Thank you for your.

Operator: Today's conference has ended; please disconnect your lines at this time. Thank you.

Ann: Go ahead Dan.

Ann: I was just I was just saying we wanted to thank our employees and in our E&P partners and investors. Thank you all so much.

Operator: This concludes today's conference you may disconnect your lines at this time and we thank you for your participation.

Operator: Today's conference has ended please disconnect your lines at this time. Thank you.