Q3 2024 NOV Inc Earnings Call
Okay.
Speaker Change: Thank you for standing by walk up to the N O V. Inc's third quarter 2024 earnings conference call. At this time all participants are in listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During this session you'll need to press star one on your telephone. If your question has been answered and you'd like to remove yourself.
Speaker Change: From the queue simply press Star one again as a reminder, today's program is being recorded.
Speaker Change: Now I'd like to introduce your host for today's program, Amy Brasil Director of Investor Relations. Please go ahead.
Amy Brasil: Welcome everyone to <unk> third quarter 2024 earnings conference call with me today are clay Williams, our chairman, President and CEO and Jose Bayardo, Our senior Vice President and CFO.
Amy Brasil: Before we begin I would like to remind you that some of today's comments are forward looking statements within the meaning of the federal securities laws. They involve risks and uncertainty and actual results may differ materially.
Amy Brasil: No one should assume these forward looking statements remain valid later in the quarter or later in the year.
Amy Brasil: For a more detailed discussion of the major risk factors affecting our business. Please refer to our latest forms 10-K, and 10-Q filed with the Securities and Exchange Commission.
Amy Brasil: Our comments also include non-GAAP measures reconciliations to the nearest corresponding GAAP measures are in our earnings release available on our website.
Amy Brasil: On a U S GAAP basis for the third quarter of 2024, and nobody reported revenues of 2.19 billion and a net income of $130 million or <unk> 33 per fully diluted share our use of the term EBITDA throughout this morning's call corresponds with the term adjusted EBITDA as defined in our earnings release.
Amy Brasil: Later in the call we will host a question and answer session. Please limit yourself to one question and one follow up to permit more participation.
Now, let me turn the call over to clay. Thank you Amy strong execution in the third quarter of 2024 enabled <unk> to deliver higher EBITDA and margins, both sequentially and year over year and cash flow improved significantly compared to the third quarter of 2023 as a result.
Amy Brasil: Rising long cycle capital equipment revenues helped to offset declines in drill pipe and certain shorter cycle products and services tied to activity, resulting in consolidated revenues of $2 2 billion.
Amy Brasil: Consolidated revenues improved modestly compared to the third quarter of 2023, but we're down about 1% compared to the second quarter of 2024.
Amy Brasil: EBITDA improved to $286 million up 2% sequentially and up 7% year over year and margins moved up to 13, 1% helped by higher margin backlog lower costs and improved operational efficiency. The company posted fully diluted GAAP earnings of 33 per share up four cents per share year over year.
Amy Brasil: The third quarter, so our customers growing increasingly concerned about the global macro environment.
Amy Brasil: Lighting Chinese oil demand excess OPEC capacity and potential non OPEC oversupply are pressuring commodity prices as a result of oil and gas operators and service companies are becoming incrementally more cautious in their near term spending decisions. Despite.
Amy Brasil: Despite these emerging headwinds we remain bullish on the long term demand for oil and in particular natural gas over the next decade, given AI driven electricity demand is forecast to rise sharply in the United States and stronger global economic growth will inevitably drive demand for more oil and gas. We believe this long term view is shared by our E&P customers as evidenced.
Amy Brasil: Hi, there continued development of profitable projects in deepwater and in emerging unconventional shale basins around the world.
Amy Brasil: Final investment decisions or <unk>.
Amy Brasil: <unk> are continuing to move forward recent announcements include the Greenfield development of a Cascade is high pressure reservoir in the Gulf of Mexico, a feat made possible by Nov's development of leading 20000 Psi or 20 K equipment. Other announcements include development projects in offshore Suriname and additional gas facilities in the middle East are cut.
Amy Brasil: <unk> commitments for the substantial capital investments gives us confidence in the continued recovery of the offshore space and the development of unconventional shale and international basins over the long term and both will require nov's unique equipment and technology next month will Mark the 10 year anniversary of Opec's 2014 decision to take back.
Amy Brasil: Market share for North American shale producers at that time OPEC declined to impose additional quota restrictions, which would have seeded further market share to the rising supply of shale oil from the United States has prompted a significant sustained decline in global oil prices North American shale oil supply built on the application of novel and expensive drilling and stimulation technique.
Amy Brasil: With regard it as a high marginal cost source certainly much higher cost per barrel source middle Eastern oil North American shale was expected to be crippled by low oil price.
Amy Brasil: It didn't exactly play out like that shale entrepreneurs, employing horizontal drilling and hydraulic fracture stimulation and marginal rocks double down on efficiency to survive and our relentless pursuit of lower marginal costs led to more than just survival. The U S shale oil patch thrived and rocketed U S production from 6 million barrels per day to over 13 million.
Amy Brasil: In barrels of oil per day, instead of losing market share U S. Unconventional shale gained share since <unk> 2014 meeting and notably investments in offshore and many international onshore fields collapsed. These became collateral damage victims of the market share war with shale.
Amy Brasil: She'll innovation, it's been astounding rates of penetration and footage drilled per day and the complex horizontal wells required to make shale work had doubled in 10 years, while lateral lengths at nearly doubled increasing from 6000 feet to 10000 feet with many now targeting 15000 feet and even 20000 foot laterals hydraulic fracture treatment has posted similarly astonishing productivity gains.
Amy Brasil: I note. This because it has important implications for <unk> and the rest of the industry for the next several years unconventional basins in North America are maturing.
Amy Brasil: We can debate the remaining inventory of tier one drilling locations, but theres no question that there are fewer today than there were this time last year as pressures decline basin wide gas oil ratios NGL cuts in API gravity of rising cost of capital to shale producers is far higher than it was a decade ago investors are more demanding that capital will be returned to them leading to widespread capital.
Disciplined magnified by recent widespread consolidation amongst shale producers. Many forecasts are calling for decelerating U S production growth next year as a result.
Amy Brasil: I'm certainly not ready to call the peak of U S production growth I do think it must be close to at least plateauing and I think many of our international and offshore customers view unrestrained U S. Production growth is much less of a threat and it was in the early days of the shale Revolution to put in perspective U S. Shale was responsible for more than 80% of global oil supply growth over the last decade.
Amy Brasil: In a crowded out investments in many where most other sources of oil along the way places like the deepwater offshore.
Amy Brasil: But that is changing and the resumption of <unk> and the sanctioning of the projects I noted earlier. Good examples deepwater exploration and development has recovered post Covid in South America, and West Africa, and eastern Mediterranean and the Gulf of Mexico, Wilcox 2023, Global exploration investments were up 40% from the 2015 to 2022 average.
Amy Brasil: Reengineering and standardization have lowered breakeven to $40, a barrel or less and offshore producers have increased their <unk> to around $100 billion a year since COVID-19.
Amy Brasil: This is prompting rising orders for <unk> production kit as shipyards have filled in our supply chain for these has tightened quoted delivery dates for <unk> have pushed out. This is delayed first oil and diminished the urgency of e&ps to contract offshore drilling rigs cooling demand in flattening day rate growth through the past several months phenomenon our drilling contractor cut.
Amy Brasil: <unk> referred to as White space run contracted time in their calendars. We now believe the white space effect is starting to slow some of the spending plans of our drilling contractor customers into 2025. For example, we were informed of couple of weeks ago of a decision by one of our customers to delay not cancel but delay the planned upgrade of two offshore rigs.
While we expect some to continue to invest in their offshore rigs to these periods of white space like another customer that book to hook load upgrades to convert sixth Gen. Drillships to seventh generation. We know others are probably thinking about slowing their near term expenditures I think most foresee higher drilling activity in 2026 and beyond as demand accelerates on the back.
Amy Brasil: Side of the DSO supply chain catch up.
So our early expectations for demand for offshore drilling equipment as well as aftermarket spares and support for offshore drilling rigs to decline modestly in early 2025, and then see demand grow again in the second half of 2025 and.
In contrast to the market for drilling equipment, we see demand for the offshore production equipment that we make continuing to grow over the past decade, we have added turret mooring systems and swivel stacks flexible pipe gas in seawater processing systems Offloading systems pumping composite piping products in a myriad of other key technologies to enable profitable deepwater production.
Amy Brasil: Narrowly we believe rising demand for production kit will be able to fully offset slightly demand for drilling rig equipment offshore in the coming year.
Amy Brasil: Our third quarter numbers provide good evidence solid demand for offshore production related equipment continued to drive strong orders for the energy equipment segment total bookings of $627 million led to a book to bill of 111% for the third quarter, bringing book to Bill to 123% year to date backlog for flexible pipe for deepwater.
Amy Brasil: And its eclipsed $1 billion for the first time ever <unk> energy equipment segment posted a 2% increase in offshore revenues compared to the third quarter of last year. The third quarter saw higher revenues from offshore stimulation equipment in deepwater rig rates to 20, K, partially offset by lower revenues related to wind turbine installation vessels the <unk>.
Amy Brasil: <unk> improved its EBITDA margin 260 basis points year over year on improved execution around its flexible pipe pumps mixtures and production processing capital equipment orders.
Amy Brasil: However, despite the growth within the energy equipment segment <unk> overall consolidated revenues for the offshore declined 2% year over year as energy products and services segment's offshore revenue fell due to sharply lower drill pipe shipments and conductor pipe connection sales.
Amy Brasil: Both of which tend to be volatile quarter to quarter.
Amy Brasil: However, the good news is that we saw a significant increase in orders for offshore drill pipe up 64% sequentially and a strong backlog for offshore conductor pipe connections are expected to lead to improved offshore results in the fourth quarter for the segment.
So to summarize while we foresee modestly weaker demand for drilling equipment for the next few quarters, we believe demand for offshore production systems will continue to grow.
Amy Brasil: Turning to international land markets National oil companies in certain areas are embracing technologies pioneered by North American shale producers and applying these to unconditional rocks, Argentina, Saudi Arabia, the United Arab Emirates are all pursuing unconventional development opportunities at scale.
Amy Brasil: As an important opportunity for <unk> across multiple product lines versus will require better rigs the north American shale Revolution was preceded by a buildup of modern drilling technology as the drilling rig fleet was first converted to fit for purpose AC rigs with high setbacks and high pressure mud systems.
Amy Brasil: Specialized tools for hydraulic fracturing and coiled tubing for plug drill outs were required at scale.
Amy Brasil: <unk> innovations and plugs toe valves sliding sleeves burst port subs and other completion tools were required and now fourth better downhole drilling motors friction reduction tools intuitional vibration mitigation tools, along with higher torque capacity drill pipe are being required to push laterals out three miles or more.
Amy Brasil: <unk> leads in almost every category I mentioned and a growing unconventional shale activity in places like the Vaca <unk> formation or the GFR or field point to greater growth in the future for <unk>.
Amy Brasil: For example, this past quarter, our series 55 drilling motor that has dazzled customers in West, Texas completed its first international run in the Middle East.
Amy Brasil: Energy equipment again saw solid year over year mid single digit growth into international land markets led by chokes and gas processing equipment, and new AC rig technology for the Middle East <unk>.
Energy products and services posted more modest year over year growth with strong demand for PDC bits completion tools and composite pipe systems to support unconventional developments offset by declines in drill pipe sales in the middle East.
Amy Brasil: Turning to North America land activity continues to be subdued as consolidation efficiency gains capital discipline oil price uncertainty and very low gas prices are taking a toll on overall short cycle activity and frankly at this time, we don't see much that points to activity improvement through the end of the year.
The good news for <unk> is that we continue to outperform activity declines owing to technically better products. We've introduced over the past few years and are these new technologies have led to material market share gains and everything from PDC bits, where we've recaptured the number one position in North America, the drilling motors friction reduction tools torsional vibration mitigation tools all.
Amy Brasil: These technologies continue to set performance records for our customers as they drill ever longer horizontal wells.
Amy Brasil: Our energy products and services segment posted a modest increase in north American revenues year over year during the third quarter helped by our acquisition of the extra electrical submersible pump business along with these market share gains composite pipe revenues for this market declined as E&P consolidation push projects out.
Amy Brasil: But we are seeing many of these projects restart now energy equipment posted a 6% increase in north American sales during the third quarter.
Amy Brasil: Despite its sale of pull products since the third quarter of last year strong shipments of ideal E frac pumps and high demand for drilling robotics tools and mud plant upgrades contributed to the strong performance the key to <unk> steady improvements and the absence of a major capital equipment Buildout cycles, our capacity to innovate to improve results for our customers, including new digital.
Amy Brasil: <unk> technologies.
Amy Brasil: For example, our drilling instrumentation and digital data acquisition services secured a 20 plus rig fleet of a major Texas based exploration and production company during the quarter chosen for our differentiated service and technology, our edge to cloud digital capabilities enabled by our proprietary Max platform are driving better efficiency for this operation we are a trusted supplier.
Amy Brasil: <unk> to the industry's leading operators our profitability improved in the quarter, we acknowledged at achieving our 2024 exit margin target will be challenging. Nevertheless, we remain focused on the things we can control driving operational efficiency and optimizing our cost structure. We are confident we can navigate the current market dynamics and grow profitably even of the path to reaching our margin.
Amy Brasil: And return goals elongate a bit.
In sum <unk> is well positioned to capitalize on the evolving multiyear upcycle I'm grateful to our extraordinary employees, who deliver our portfolio of innovative technology and are committed to improving business sufficiency.
Amy Brasil: They will continue to drive strong financial performance to all those listening. Thank you.
Speaker Change: Jose Thank.
Thank you clay.
Speaker Change: Overall, despite a few emerging headwinds Q3 was a solid quarter for <unk>.
Jose Bayardo: As clay mentioned profitability backlog and cash flow improved on a modest increase in revenue compared to the third quarter of 2023.
<unk> consolidated EBITDA improved 7% year over year to $286 million with margins, increasing 90 basis points to 13, 1% of sales.
Jose Bayardo: Deadly improving quality of our capital equipment project backlog, along with efforts to improve our operational efficiencies more than offset the typical effect declining north American drilling activity has on our higher incremental margin shorter cycle businesses.
Cash flow from operations totaled a healthy $359 million.
Jose Bayardo: Due to higher levels of profitability and improving working capital efficiencies capital expenditures totaled $82 million, resulting in $277 million of free cash flow year to date, <unk> generated $480 million of free cash flow and we expect our fourth quarter results will put us comfortably beyond our target of converting at least 50.
Jose Bayardo: <unk> of our EBITDA to free cash flow for the year.
Jose Bayardo: We repurchased $80 million of our shares and pay to $29 million dividend, returning $109 million to our shareholders in the third quarter.
Jose Bayardo: To recap our return of capital framework, our top priorities are to maintain a strong balance sheet make investments that are in the best long term interest of our shareholders and return excess capital to our shareholders.
Jose Bayardo: Our balance sheet is in optimal condition with a net debt leverage ratio below one our gross debt leverage ratio well below two and we have more than ample free cash flow to maintain our asset base invest in organic growth opportunities and pursue opportunistic M&A.
Jose Bayardo: Our acquisition strategy is focused on smaller technology focused rifle shot opportunities that accelerate existing strategic objectives and that can be completed at compelling valuations consistent with the strategy in early October we completed the acquisition of fortress downhole tools fortress developed a patented setting tool technology.
Jose Bayardo: Unique recycling program that offers proven reliability reduce downtime and significantly less waste compared to conventional fields redress and disposable setting tools.
Jose Bayardo: The business complements our existing completion tools portfolio and is run by a great team, which we were excited to welcome to the <unk> family.
Jose Bayardo: Our return of capital framework calls for us to return at least 50% of excess free cash flow defined as cash flow from operations less capital expenditures and other investments including acquisitions annually.
Jose Bayardo: Through September 32024, we returned $196 million to our shareholders, meaning that we have returned 49% of our excess free cash flow, which accounts for a net $76 million invested in acquisitions, leaving us well positioned to return at least 50% of our excess free cash flow for the year.
Jose Bayardo: If we do not achieve this threshold through our base dividends and share repurchases during the year, we will pay a supplemental dividend in early 2025 to meet this objective moves.
Jose Bayardo: Moving on to segment results, our energy products and services segment generated revenues of $1 billion in the third quarter, a 3% decrease compared to the third quarter of 2023.
Jose Bayardo: EBITDA decreased $25 million to $172 million year over year or 17, 1% of sales due primarily to a decline in drill pipe sales and the effect of lower U S drilling activity, partially offset by contributions from our recent artificial lift acquisition.
Jose Bayardo: As a reminder, our energy products and services segment generates income from three revenue streams services and rentals consumable products and sales of shorter lived capital equipment.
Jose Bayardo: The segment sales mix for the quarter was 51% service and rentals, 29% capital equipment sales and 20% product sales.
Jose Bayardo: Revenue from service and rentals, including tubular coating and inspection services solids control services drilling data acquisition analytics and optimization services and rentals of our downhole drilling tools drill bits and artificial lift equipment.
Jose Bayardo: During the third quarter revenue from <unk> service and rental businesses increased in the low single digits year over year with market share gains from new technology introductions and the contribution from our new artificial lift business more than offsetting the effect that a 10% decline in U S drilling activity would typically have on this more north American weighted revenue stream.
Jose Bayardo: Excluding the contribution from our artificial lift business revenues from service and rentals were flat year over year.
Jose Bayardo: Capital equipment sales within the energy products and services segment include drill pipe conductor pipe connections composite pipe and tanks shale shakers and managed pressure drilling equipment.
Speaker Change: Sales in the segment's capital equipment fell in the upper teens year over year, primarily due to the sharp decline in drill pipe shipments and conductor pipe connections as clay mentioned orders for drill pipe increased significantly in the third quarter, allowing the operation to improve its backlog for the first time in over a year and we expect a pickup in conductor pipe.
Speaker Change: Deliveries in the fourth quarter.
Speaker Change: In the segments other capital equipment businesses sales from our fiberglass operation decreased in the mid single digit percent range compared to the third quarter of 2023 with lower shipments in composite and equipment for industrial markets, partially offset by an increase in sales of composite pipe and tanks and the oil and gas and fuel handling markets.
The segment realized a strong increase in solids control equipment deliveries into the eastern hemisphere, but shipments of managed pressure drilling equipment declined year over year due to strong deliveries in 2023 that did not repeat.
Speaker Change: Revenue from product sales, which include shorter lived and consumable products used in drilling and completion operations improved in the upper teens year over year.
Speaker Change: Excluding the acquisition of our artificial lift business revenue was down low single digits with fewer sales of glass reinforced epoxy tubular liners and drilling tool packages only partially offset by a significant increase in drill bits sales into Africa and Asia.
Speaker Change: For the fourth quarter, we expect revenues for energy products and services segment to be down between one and 3% when compared to the fourth quarter of 2023, but up mid single digits sequentially with EBIT between 170 and $185 million.
Speaker Change: Moving to our energy equipment segment revenue for the third quarter of 2024 was one to $1 9 billion, a $24 million or 2% increase year over year compared to the third quarter of 2023, EBITDA improved $35 million year over year to $159 million or 13% of sales representing.
Speaker Change: Incremental flow through of over 100%.
Speaker Change: The robust incremental margins and margin progression over the last several quarters as a result of the improving quality of the segment's backlog as well as efforts to improve operational efficiencies all of which helped the segment achieved nine straight quarters of year over year margin improvement.
Speaker Change: During the third quarter sales of capital equipment accounted for approximately 54% of the segment's revenues.
Speaker Change: <unk> from the second quarter of 2024, and mostly unchanged from the approximately 55% in the third quarter of 2023.
Speaker Change: Aftermarket sales and service accounted for the remaining 46% of revenue in the third quarter of 2024.
Speaker Change: Drilling equipment aftermarket sales, which account for the majority of the segments aftermarket revenue improved mid single digits year over year led by higher spare part shipments as well as higher service revenue for many upgrade reactivation and recertification projects.
Speaker Change: Due in large part to the production related constraints that clay described the amount of white space is weighing more heavily on our offshore drilling contractor customers, which will affect some of their spending.
Speaker Change: We expect many customers to take advantage of this potential downtime to complete upgrades that will increase their capabilities for higher end work improve efficiencies and enhanced safety. However, as clay discussed with fewer anticipated offshore drilling days, we expect a modest decline in aftermarket spares and support in early 2025 before recovery in contracting for our.
Speaker Change: <unk> drives our demand higher in the second half of the year.
Speaker Change: Aftermarket revenues for intervention and stimulation equipment improved mid single digits year over year led by strong shipments of spares into the eastern hemisphere for wireline and coiled tubing equipment and increased deliveries of our advance thermally processed coiled tubing strings in North America.
Speaker Change: Switching to the capital equipment portion of the energy equipment segment revenues were essentially flat compared to the third quarter of 2023% normalizing for the divestiture of our pulp products business revenues improved in the low single digit range with solid growth in the intervention and stimulation drilling gas processing and subsea equipment sales more than offsetting a decline.
Speaker Change: And revenue from offshore wind installation vessel projects.
Speaker Change: Sales of intervention and stimulation equipment improved in the mid teens compared to the third quarter of 2023 and large part due to the delivery of 40000 horsepower of E. Frac pumps, along with two power pod systems that will allow our customers to operate the pumps in tandem with conventional pumps. We also delivered a few dual fuel frac pumps as our pressure.
Speaker Change: Jumping customers continued to replace worn out assets with higher spec equipment that can operate more efficiently and have a lower total cost of ownership in an environment, where frac intensity continues to increase the strain on equipment.
Sales of drilling equipment improved north of 20% year over year from greater progress on projects, including the 20000 Psi subsea equipment upgrade for an ultra deepwater drillship, we booked earlier this year and the high spec land rigs we are building in Saudi Arabia.
Speaker Change: Our marine construction operation realized a sizeable decline in revenue due to several wind turbine installation vessel projects nearing completion, while more recently booked orders for cable lay in crane projects slowly ramp up.
Speaker Change: Orders totaled 627 million translating into a book to bill of 111% ending backlog was $4 5 billion the highest level in over five years.
Speaker Change: Our drilling equipment business booked orders for two additional robotics systems from a repeat customer and as clay mentioned booked orders to convert sixth generation drillships into seventh generation technology rigs. The upgrades include larger load path equipment associated structural enhancements and the latest rig controls and monitoring technology and our <unk>.
Speaker Change: Prime examples of how we expect our customers to take advantage of white space between projects in 2025 demand for wireline and coiled tubing equipment in eastern Hemisphere remains solid while the market remains soft for intervention and stimulation equipment in North America.
However, pressure pumping customers continue to kick tires and expressed the desire to replace worn out assets.
Speaker Change: As clay mentioned, our subsea flexible pipe operation had a high order intake during the third quarter achieving record high backlog and the unit has already received another large order that will ensure it delivers another quarter with a book to bill greater than one in the fourth quarter.
Speaker Change: Strength in demand for offshore production equipment also drove very strong bookings for our marine construction business. The operation booked 14 cranes, reflecting strong demands needed for offshore production related activities and also illustrates <unk> leadership in providing leading edge active heat compensation and all electric Crane technologies, while we did not book a winter.
Speaker Change: <unk> installation vessel order in the third quarter, nor do we expect one near term due to delayed project <unk> and uncertainty regarding the size of turbines that will be used in future developments.
Speaker Change: We do expect additional opportunities to emerge in 2025 and see potential for meaningfully higher demand in 2026% in 2027 based on current expectations on the timing of offshore wind development.
Speaker Change: The operation continues to see solid demand for inter array cable lay vessels and expect to book an order with the next one to two quarters overall order and quoting activity remained resilient for this segment, giving us confidence that we will realize a book to bill greater than one again in the fourth quarter, we expect the energy equipment segment to realize a slightly.
Speaker Change: More muted than usual seasonal improvement in revenues in the fourth quarter due to strong deliveries of stimulation equipment in the third quarter that will not repeat and lower progress on gas processing projects, resulting in revenues that will be flat to up slightly sequentially with EBITDA between 155 and $165 million.
Speaker Change: With that we'll now open the call to questions.
Speaker Change: Certainly and as a reminder, ladies and gentlemen, if you do have a question. Please press star one on your telephone. Our first question comes from the line of Jim Rollyson from Raymond James Your question. Please.
Jim Rollyson: Hey, good morning, everyone.
Speaker Change: Good morning, Jeff.
Jim Rollyson: You guys just mentioned.
Jim Rollyson: The subsea flexible orders, obviously added backlog this quarter or another.
Jim Rollyson: Backlog addition, and going into the fourth quarter and obviously, we've heard from your peers like everyone across the board seems like they've had very good order flow from that perspective, maybe just a little color on how you see that going into next year since that seems to.
Jim Rollyson: Obviously, an important part of the business.
Speaker Change: You bet Jim.
Speaker Change: In my prepared remarks, I spoke to sort of emerging.
Speaker Change: Supply chain elongation and constraints around <unk>. This is sort of a subset of that flexible pipes are used and deepwater too to connect wellheads to Fps.
So vessels and they compete with rigid pipe, which takes a lot more construction vessel time to weld rigid flex or install a lot more quickly.
Speaker Change: And what we've seen is really strong demand I know our competitors have seen that as well.
Speaker Change: That are again, another piece of evidence that point too.
Speaker Change: Good.
Speaker Change: <unk> ability and growth in deepwater offshore.
Speaker Change: Field developments.
Speaker Change: So that's what's what's fueling all of this and so but it's starting to get really interesting because I think.
Speaker Change: Yes.
Speaker Change: I think I can't speak for our competitors, but I know we are.
Speaker Change: Deliveries are starting to push out into 2026 and beyond but this is part of that sort of supply chain constraint emerging around the kit required for deepwater developments.
Speaker Change: That's helpful and maybe if I take a step back and kind of think bigger picture. When you look at all the different moving parts that have kind of evolved here in the last four to six months.
Speaker Change: Short cycle stuff that you mentioned in some of the underlying kind of longer term deepwater.
Speaker Change: Deepwater and other other projects that you guys still sounded like you're pretty bullish on.
How are you thinking about today and I realize in 'twenty five guidance time, yet, but just high level. How are you thinking about kind of revenue growth rates next year versus where you might have been 345 months ago.
Speaker Change: And maybe as you stretch it out just because youre kind of looking at things.
Speaker Change: Ramping back up as you get into the back half of next year, maybe just kind of how you see the trajectory going over the next couple of two or three years given the changes that have happened since last quarter. Yes. It's a really good question. It's one that we're engaged in here internally as we put together our 2025 plans with each of our business units and what I would tell you is look it's.
Speaker Change: Clearly more incrementally challenged as we as we noted in our press release and in our and in our <unk>.
Speaker Change: Prepared remarks, and some concerns emerging around commodity price and economic growth globally.
Speaker Change: But nevertheless, we've got a lot of good momentum I think coming into 2025, I think 2024 marked the fourth year in a row that our backlog has increased and increased materially and selling a lot more of that production kit like flexible pipe and to all of the projects that are being developed in the deepwater we think those will continue.
Speaker Change: Headwinds emerging amongst our contract offshore contract drillers.
<unk> serves.
Speaker Change: We think those are going to be limited and I believe they share our view that in 2026 and beyond.
Speaker Change: Offshore drilling activity is going to get back to growth as the rest of the supply chain catches up and so that's a pretty good backdrop to.
Speaker Change: For <unk> I think to generate some revenue growth in 2025, one of the Wildcards that we talked about I think last call was what's going on in North America.
Speaker Change: And that's certainly been slowing throughout 2020 for more than we expected frankly, when we entered the year.
Speaker Change: There is cause for optimism here to us.
Speaker Change: The gas LNG takeaway capacity expands.
Speaker Change: If gas can catch a bid I think.
Speaker Change: That's more likely in 2025, and I think that'll be helpful for us here as.
Speaker Change: As well so on the whole very bullish on continued.
Development in deepwater around profitable oil developments around profitable gas developments now in deepwater.
Selling into LNG very bullish on continued development of unconventional resources internationally, which is really kind of a first I think for the industry and then I think some some cause for optimism in 2025 with natural gas in North America, but on the whole economic growth and commodity prices still remain at work.
Speaker Change: And so that's kind of where we are right now okay. That's helpful.
Speaker Change: Yes, I appreciate your thoughts thanks.
Speaker Change: Thank you.
Speaker Change: And our next question comes from the line of Marc Bianchi from TV Cowen Your question. Please.
Marc Bianchi: Thank you.
Marc Bianchi: I was hopeful that you could talk a little bit more about the margin progression here.
Marc Bianchi: The guidance for fourth quarter, because revenue is up a little bit.
Marc Bianchi: Yes, the margins are sort of flat to down. So can you just unpack that because I would've thought there was some maybe some cost cost savings benefit better price backlog that should be a tailwind here.
Speaker Change: Yeah. Good question, Mark what I would tell you specifically on Q4 is that we've got a couple of business specific mix shifts that are underway that.
Speaker Change: We are not in the right direction. Both segments I think we are guiding up Jose just guided up modestly.
Speaker Change: Q4 versus Q3, but the leverage I think in both is going to be limited.
Speaker Change: <unk> first energy products and services.
We had really strong bit shipments in the eastern Hemisphere, we are a national oil company customers over there that buy bits in bulk and maybe buy once.
Speaker Change: Once a year.
Speaker Change: And those shipments went out in Q3, they are not going to recur in Q4.
Speaker Change: Really good margin work and Additionally, we think demand for ESP is going to be down also of a very strong margin.
Speaker Change: Those revenues will be more than replace so by higher drill pipe shipments and higher composite pipe shipments.
Speaker Change: And I think a little bit lower margin. So the mix there is working against us in Q4 and energy equipment similar sort of picture I think wind turbine installation vessel is going to continue to move down.
Again in Q4 as it did in Q3 and be replaced by by wind tower shipments that will more than offset that and so that.
Speaker Change: That results in a little bit of an adverse mix shifts so that's what's underway.
Speaker Change: In Q4 around our guidance with respect to 2025, what I would tell you is we continue to focus on our plans which include cost savings.
Speaker Change: Targeting specific business units and product lines that are underperforming our return criteria.
Speaker Change: So that will contribute but I think one of the big movers is the continued improvement of our backlog the margins in our backlog.
Speaker Change: I think better contracts better payment terms with those contracts will contribute more in 2025 and that will help on the on the on the margin front.
Speaker Change: It goes without saying we are disappointed that we're going to fall short of kind of our mid teens guidance for exit margins in Q4.
Speaker Change: Which we entered the year with what I would tell you is when when I reflect back to where we started in the year.
Speaker Change: It's really been.
Speaker Change: Market in North America, that's been less co-operative I think we came into the year consensus across the industry was sort of flattish activity.
It's continued to be a tougher market and Aps in particular with 51% of its mix coming from North America has been more affected by by those market trends.
Speaker Change: And so again, if natural gas turns around in North America in 2025 that will certainly be helpful with respect to getting back on track too.
Achieving that but I'd tell you, we're very very laser focused on better margins better returns and continuing to execute the business in that direction.
Speaker Change: Okay, that's great answer clay thanks.
Speaker Change: I also wanted to understand a little bit more about sorry the.
Severity of some of these headwinds that you guys are calling out that just sort of broader activity a bit weaker and then you kind of talked about this this aftermarket issue for the offshore market. So as we look into the beginning of 'twenty five you usually have some.
Speaker Change: The decline from <unk> to <unk>.
Speaker Change: I'm just kind of wondering if.
Do you feel confident that like EBITDA levels in the first half can still be up year over year or is it too tough to call right now.
Speaker Change: Well I'm going to.
Say again, we're overall optimistic about 2025 and a recovery in the offshore.
Speaker Change: What changed in the third quarter, it's embedded in our comments here really is that we are hearing from a few more drilling contractors around hey, wait a minute we're not.
Speaker Change: White spaces sort of taking a toll one two we saw.
Speaker Change: Lower orders on aftermarket spares in the third quarter, then thats been running for the past couple of years.
Speaker Change: And we.
Speaker Change: We dial all that and I want to be careful not to overstate that.
Speaker Change: I mentioned in.
Speaker Change: In my prepared remarks, we had a customer push back the upgrade of two offshore rigs, but we've had other orders place too.
Speaker Change: Increased.
Capabilities of offshore rigs in just the past 60 days I think we've had a total of five mobile offshore rigs in one platform rig approach us about <unk>.
Speaker Change: New projects that they are now planning for 2025, so we've got some other customers.
Kind of entering into our planning process.
Speaker Change: Around offshore rig projects for 2025.
Speaker Change: Wanting to take advantage of that white space to get some work done on their rigs and so it's kind of it's a little bit in flux now is the way, it's the way I would describe it but but overall I just wanted to communicate we're more cautious on in the drilling space around.
Speaker Change: Drilling capital equipment demand.
Speaker Change: And.
Speaker Change: And the trends.
Speaker Change: Recent trends that we're seeing in loan.
Speaker Change: Our parts orders and the impact that that could have on our 2025 result.
Speaker Change: Okay, great. Thanks, Clay I appreciate the comments thanks Mark.
Speaker Change: You bet. Thank you.
Speaker Change: Thank you and our next question comes from the line of Arun <unk>.
Speaker Change: From Jpmorgan your question please.
Speaker Change: Yes, good morning.
I was wondering if you could oh, yes, good morning.
Speaker Change: I was wondering if you can elaborate on your commentary that you expect call it rising demand for production equipment.
Speaker Change: Maybe offset some of the softer.
Speaker Change: Demand trends for Reg capital, but I was wondering if you could maybe elaborate on that and help us think about some of the margin.
Speaker Change: <unk> as well as maybe discussed.
The chunkier opportunities in production equipment, and then thinking about <unk>.
Speaker Change: Yeah that comment Arun is based on the fact that we've seen stronger book to bills broadly across our portfolio of production related equipment and energy equipment equipment segment, and we have seen in the past few quarters around drilling equipment drilling equipment has been good but.
What's really sort of.
Speaker Change: Growing more strongly our orders for that production equipment and as I mentioned in my prepared remarks.
Speaker Change: <unk> turret mooring systems and gas processing technologies and flexible pipe.
Speaker Change: <unk> done a lot in the last 10 years to build out a more robust portfolio.
Speaker Change: In that space and.
Speaker Change: And so as the deepwater recovers.
Speaker Change: Translating to higher orders in that space and we're certainly.
Speaker Change: Delighted to see that and so it's just a comment that I think thats it.
Speaker Change: We're going to continue to grow more rapidly than demand for drilling equipment I would add to that we also sell a lot into.
Speaker Change: Bob.
Speaker Change: To all those technologies are also sold into the unconventional field developments onshore that I mentioned as well and so that's another growth driver I think for orders that we've seen around composite piping systems, and chokes and separators and that sort of thing.
Speaker Change: Hey.
Speaker Change: Want to tag onto that so when we're when we're talking about kind of our expectations for rig aftermarket brake capital equipment.
Speaker Change: We are talking about a modest very modest trend down there right. So just to kind of put things in perspective quite talked a quite a bit about the puts and takes that we always see with our contractor customers in terms of which projects move forward and which ones are dealt but we have a really good track record.
Related to kind of understanding what that project backlog looks like coming into the year and how that generally holds up as we progressed through the year. So to put things in perspective last year. At this time, we had about 111 projects that we were working on with our customers and.
Speaker Change: Today that number is 109, so again no guarantee as to how that will hold up but we feel pretty good about that so I just want to be clear that.
We're really looking at the rig aftermarket.
Speaker Change: Trend down some.
Speaker Change: Something that's maybe a mid to.
Speaker Change: Mid upper single digit type type decline year over year.
Speaker Change: And as it relates to capital equipment, we actually feel pretty good about that.
With the backlog that we have as of today four rig capital equipment, which.
Speaker Change: For our plan, which is really flat to down very low single digits going into it into 2025, we've already got 70% of that in backlog today and as we look into the middle part of next year.
Speaker Change: And I think the view of our contractor customers and their customers.
Speaker Change: Going to a lot more activity in 2006, and beyond which should result in a lot more contracting by mid year and assuming that does take place.
We will see a good pickup in terms of people wanting to get back to work get the rigs ready to go and be prepared for drilling campaigns. In early 2026, so hopefully that additional commentary helps but now that it will be down a little bit more confident that.
Speaker Change: What we're seeing from our production offshore production equipment standpoint.
Speaker Change: <unk> will more than offset at least offset that if not more than offset that based on how our backlog has been building in those areas.
Speaker Change: Sure.
Great Thats Super.
Speaker Change: Helpful Jose.
Speaker Change: Just a follow up would be.
Understanding there is a little bit of uncertainty in the market. Today can you help us think about some of the puts and takes on just margin expansion opportunities or margin trends in 'twenty five versus 24.
Speaker Change: Do recall that you had a couple of.
Speaker Change: Projects, which we're moving through the system play that maybe and then the early part of next year, which maybe gives us some tailwind.
Speaker Change: And how the margins in backlog probably are.
Speaker Change: Or better.
Speaker Change: On a year over year basis that maybe you can run through some of the puts and takes on margin, yes <unk>, yes.
Speaker Change: And Arun thanks for pointing that out we did have some we have had some projects those are rapidly slipping out of our backlog and.
Delighted to see it because they haven't been helpful. For the margins. We also have a couple of frame agreements that were quite large signed at sort of the depths of the COVID-19 era that were susceptible to the inflationary pressures that we've seen since then and those are also.
Speaker Change: Moving out of the backlog. So this sort of steady high grading of the backlog and the work that we're executing it's been a good tailwind for energy equipment margins and I think you'll see that in the numbers and that should continue as we move into 2025 that'll be a big driver and the other big tailwind with again.
Speaker Change: Sort of targeted cost savings.
Speaker Change: We have coming up.
Speaker Change: And one other element.
Speaker Change: Not quite as significant as those two but still impactful.
Speaker Change: Going forward is.
Speaker Change: The commercialization of some of the new products and technologies that drive more value for our customers and ultimately command.
Speaker Change: Better pricing in the marketplace. We've had really good success with those products at least partially offsetting the declines that have been taking place within North America, that's allowed us to garner market share and here. This last quarter, we saw our <unk>.
Speaker Change: Several of our businesses.
Speaker Change: Introduce those technologies into some of the key middle Eastern.
Speaker Change: In international markets and have really good initial reception. So we're optimistic that we'll continue to.
Speaker Change: To gain share not just in North America, but also in some of the international markets as well so feel really good about.
Speaker Change: The ability to continue to drive margins incrementally higher in 2025%. Despite an outlook that has been tempered just a little bit from an activity standpoint.
Speaker Change: Thanks, Vince I'll turn it back.
Okay.
Speaker Change: And our next question comes from the line of Neil Mehta from Goldman Sachs. Your question. Please.
Neil Mehta: Good morning, Clay and team.
Thanks for taking the time my first question is just around geographies.
Neil Mehta: Just maybe you can walk us through the different parts of the world that you're operating in and where are you seeing accelerating momentum and where youre seeing more challenges you have unique perspective on the global oil and gas landscape in so would love your insight.
Speaker Change: You bet Neal so as I mentioned earlier I think.
Neil Mehta: The offshore deepwater in.
Neil Mehta: In particular is very exciting.
Neil Mehta: The success that operators have achieved in.
Neil Mehta: New exploration basins in maybe in the Orange base and some really good discoveries there.
Neil Mehta: Yes.
Neil Mehta: <unk> has got some activity West Africa is picking back up.
Neil Mehta: To the West you've got Brazil, very active deepwater you have got a lot of success in Guyana.
Sure.
Neil Mehta: The 20 K opportunities in the Paleogene and the Gulf of Mexico, all good so the Golden triangle as it is called a very active with good exploration successes and I think the industry has done a good job, reducing the marginal cost of development and production of those barrels and they also are low.
Neil Mehta: Carbon barrels and so a lot of attraction there.
Neil Mehta: North Sea is kind of a mixed picture.
Neil Mehta: Thanks to tax policies, Norway has been very busy and active the UK far less so.
Neil Mehta: Eastern Mediterranean.
Neil Mehta: The Black Sea, we've got activity in the Caspian. So all around the world. The offshore is kind of coming back to life and that's really good to see because it's been conspicuously absent.
Neil Mehta: For a decade plus.
Neil Mehta: The other area is really exciting for us is again the pursuit of unconventional.
Neil Mehta: Developments at scale.
Neil Mehta: In the Middle East, where Jose and our recently.
Neil Mehta: And <unk> is selling a lot of kit into that I know.
Neil Mehta: Mostly thought of as kind of a drilling rig drilling technology company, but theres a lot of production in composite piping systems that are going into that chokes and processing and all of that and so it's a much bigger level of participation and some investors may realize.
Neil Mehta: That along with all the drilling and completion technologies that we provide and then likewise.
Neil Mehta: Argentina was down there and.
Neil Mehta: During the third quarter.
The Bakken America development is heating up.
Neil Mehta: And again at scale, another great opportunity for <unk> with significant.
Neil Mehta: Changes to what the new administration around capital repatriation rules and the like and so I think it's going to become a much more interesting market.
Neil Mehta: So I would highlight those areas as being particularly strong and places where <unk> can add a lot of value.
Speaker Change: Thanks, Clay and then just talk a little bit about the free cash flow progression.
Speaker Change: The cash flow quarter and as.
Speaker Change: Go into 'twenty five 'twenty six.
Speaker Change: How do you see that shaping up and then translate that into return of capital and your framework between buybacks and dividends there.
Speaker Change: Yes, Neil I'll go ahead and.
Speaker Change: Take that one so yeah, I mean, I think it really.
Speaker Change: The year is playing out kind of the way that we anticipated it would and I would say our outlook for the next several years continues to be the same which is one in which we should continue to generate very healthy levels of free cash flow. So coming into this year I think in Q3 of last year, we had kind of called that.
Speaker Change: We were making the turn in terms of.
Speaker Change: The buildup in terms of the really strong top line growth that was consuming a bit of working capital and saw that shifting as we sort of moved into.
Speaker Change: More moderate but still growing environment.
Speaker Change: We stated early on in the year that we were expecting that we would convert at least 50% of our EBITDA to free cash flow, which we're well on track to do that this year.
Speaker Change: Specifically related to the remainder of 2024.
Speaker Change: So we had exceptional free cash flow in Q2, another really strong quarter of free cash flow in Q3.
As you know sometimes our payments.
Moving really chunky amounts. So there is always some puts and takes at quarter end.
Speaker Change: We had some things go our way so Q3 was a little bit better than anticipated that we'll have a little bit of a drag on Q4, but we still anticipate.
Speaker Change: Strong Q4 from a free cash flow standpoint.
Speaker Change: And then the touched on 425% and 26 and beyond we don't see any reason why we shouldnt still have similar <unk>.
Speaker Change: Versions of EBITDA to free cash flow so feel.
Speaker Change: Really good about things going forward.
Speaker Change: Thanks Clay.
Neil Mehta: Thanks Neil.
Speaker Change: Thank you and our next question comes from the line of Kurt <unk> from benchmark. Your question. Please.
Speaker Change: Hey, good morning, everybody.
Hi, Kurt Kurt.
Kurt: I always appreciate the.
Kurt: The insight that color just want to make sure I understand one of the things that you guys are trying to message here is that if I heard you correct me if I didn't please correct. Please correct me then.
In a.
Kurt: Overall flattish environment for 2025 with respect to your business right with some some things weakening some things improving.
Kurt: Felix.
Kurt: Meaningful margin improvement in that margin improvement then would mostly come from.
Kurt: Better margin backlog and some cost savings.
Speaker Change: In the context of if I understood that correctly up to this point what kind of cost savings are you looking to drive in 2025.
Speaker Change: Yes, it's a good question, where as I said earlier, we're very focused on better results and using cost savings continue to use cost savings as a way to get there I'm going to stop short of quantifying that for you partly because we are in the middle of our 2025 planning process and working through that we have a kind of an ongoing list of initiatives across our.
Speaker Change: Business.
Speaker Change: But.
Speaker Change: I think at this point, we want to wait until we kind of get through that business reviews, with our product line managers and business heads.
Speaker Change: But I will tell you we're continuing to focus on getting better through cost savings and then again focused on making sure that we win the right or the right contracts appropriate margins and returns and appropriate risk.
Speaker Change: <unk> between us and our customers and continue to high grade the backlog and those are.
Speaker Change: Two of the three things that we think can drive better margin and as Jose mentioned.
Speaker Change: Good new better products, we've been investing in technology through this downturn and we're seeing results in the marketplace. So I think continued growth of <unk>.
Speaker Change: <unk> that carry higher margins with them because they add more value to our customers' operations will be kind of the third.
Initiatives that will help the 2025.
Speaker Change: That's great.
Speaker Change: And my follow up would be.
Speaker Change: I'm kind of curious.
Speaker Change: Sure.
Speaker Change: Views on how the digital applications that you are deploying.
Speaker Change: How they're being adopted in the marketplace and we've had conversations with a number of different companies where.
Speaker Change: Some see it more as an internal.
Speaker Change: Margin improvement generator, and others are saying they've got significant external revenue opportunity. So maybe you can help us put that into context too.
Speaker Change: Yes for <unk> I think.
Speaker Change: I think it's both so we have our machine tools, we talked about this a quarter or two ago machine tool.
Speaker Change: Monitoring capabilities that we're applying AI to help improve scheduling and efficiency of our own internal operations, we're applying AI to supply.
Speaker Change: Supply chain management, and forecasting and things like that and I think that's going to drive internal improvements, but equally well.
Speaker Change: We're seeing really good traction amongst our customers around some of the digital initiatives that <unk> has brought to the marketplace. So talked in calls past about our edge compute.
Speaker Change: Our.
Speaker Change: Digital services that we offer to.
Speaker Change: Capture data in the field process data put it into the cloud.
Speaker Change: This past quarter, the third quarter.
The number of users of our Max edge portal increased about 25% sequentially to over 5000 users I think we increased the number of assets that we have attached sensors to their feeding into that.
Speaker Change: Data gathering efforts that spans by the way drilling and production as well as other industrial applications.
We increased the number of assets of about 9% sequentially.
Speaker Change: And Thats all as part of this.
Speaker Change: Much larger digital ecosystem and I think the point I would make about our initiative here is it's really all connected and so we talk about wired drill pipe and high speed data.
Speaker Change: <unk> from the bottom of the hole that's important because it feeds into our operating systems for drilling rigs are novo system.
Speaker Change: It's important because it enables us to apply AI through our kaizen application or through our drilling beliefs and analytics application and capture that data to translate it or transmitted back to our customers home offices in real time.
Speaker Change: To let their subject matter experts monitor what's going on at build sort of a digital foundation for higher levels of automation.
Speaker Change: This is required for our customers to adopt multi machine control and drilling rigs for instances, enabling our.
Speaker Change: Adam <unk> drilling automation product, which is generating a lot of interest.
Amongst.
Speaker Change: Major oil companies around the world, both offshore and land and we are seeing repeat orders for that and so very very excited about.
Speaker Change: Not just the.
Speaker Change: Specific digital products or edge to cloud.
Speaker Change: Services that we can provide our customers, but also the fact that it sort of is the entry way for new hardware and.
Speaker Change: New new more sophisticated fit for purpose tools that can enable our customers to achieve higher levels of efficiency and safety and I think they are very excited about that too.
Speaker Change: That's great I appreciate that thank you.
Speaker Change: You bet. Thanks Bill.
Speaker Change: Thank you and our final question for today comes from the line of.
Speaker Change: Steven Giancarlo from Stifel. Your question. Please.
Steven Giancarlo: Thanks, Good morning, everybody.
Steven Giancarlo: Good morning, David.
Steven Giancarlo: Two for me, one probably for Jose and that is without getting into obviously 2025 guidance. When we think about the working capital parameters currently versus how we should be thinking about 2025 are there areas. We should continue to see improvement.
Yes, really good question Steven so.
Steven Giancarlo: And as I say earlier, we were confident that we sort of made the turn late last year as it relates to free cash flow.
Steven Giancarlo: Part of that was as I mentioned the <unk>.
Steven Giancarlo: Iterating growth.
Steven Giancarlo: But also tied to that is the sort of overall management of working capital. So we've made some good progress through the course of the year got our working capital down to 31, 1% of.
Steven Giancarlo: Our revenue run rate.
Steven Giancarlo: And we've talked for a while about our expectations that are more normalized rates should be more in the realm of 27.5%.
Steven Giancarlo: So that's our ambition to achieve by the end of.
Steven Giancarlo: Next year.
The way you answered or asked your question was what was interesting because.
You asked about the different components that you should be thinking about as it relates to working capital and I think thats something that maybe isn't fully appreciated.
Steven Giancarlo: But by most people because we're a little bit different in that we have two line items in our working capital that are they are large and sort of unique to <unk>.
Steven Giancarlo: Large project type manufacturer, which is our contract assets and contract liabilities, which effectively represent downpayments and effectively unbilled progress that we've made on major projects.
Steven Giancarlo: So one of the reasons I want to point that out just to make sure people understand that but also as we shift into two.
Steven Giancarlo: 2025, resulting from not only the higher embedded margins that are within the projects that are in backlog today versus a year or two ago.
Steven Giancarlo: Other improvement in terms of the structure of those contracts as they come with better.
Steven Giancarlo: Financial terms as it relates to down payments timing of milestones all of those sorts of things, which will further help us improve management of working capital in 2025, and ultimately free cash flow.
Speaker Change: Great. Thanks, Thats good color Jose and then the follow up.
Just quickly I know you mentioned the artificial lift business business earlier.
Speaker Change: What's the what's sort of the update there how is it going.
Speaker Change: What markets et cetera, and how do you feel like that's progressing.
Speaker Change: Good so the business that we acquired were delighted with the team they had a really strong position in west, Texas, We're moving into North Dakota.
Speaker Change: It's going well, we're also having good conversations in international markets. One of the headwinds we ran into in North Dakota that were hearing from our customers that flow backs have taken longer and so that's I think delayed some applications of ESP.
Speaker Change: And then additionally, some of the consolidation E&P space broadly in the United States has led to higher inventory of ESP and so some again some near term headwinds tied to activity in the U S. But on the whole great technology very focus on really good service.
Speaker Change: Fantastic customer relationships and so we are we're very happy.
Speaker Change: And in that space and I would add I.
Speaker Change: I just talked about our digital technologies, we think there is application of edge.
Speaker Change: Technologies spanning.
Speaker Change: These ESP plus the production chokes and separators and production equipment that we have and so we're kind of assembling a really interesting digital opportunity therefore for adobe.
Speaker Change: Excellent. Thank you.
Speaker Change: You bet. Thanks Steven.
Speaker Change: Thank you. This does conclude the question and answer session of today's program I'd like to hand, the program back to Clay Williams for any further remarks.
Clay Williams: Thanks to all of you for joining us. This morning, we look forward to discussing our fourth quarter and full year results in February and Jonathan you may close out the call.
Speaker Change: Certainly thank you and thank you ladies and gentlemen for your participation in today's conference. This does conclude the program you may now disconnect good day.
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