Q3 2024 Expro Group Holdings NV Earnings Call
Okay.
Speaker Change: Hello, and welcome to the extra Q3 2020 full earnings presentation.
Speaker Change: Name is Elliott and I'll be coordinating called state.
Speaker Change: If you would like to register no question John stage events. Please press star followed by one on your telephone keypad.
Speaker Change: I would now like to hand over to John Stevenson Director of Investor Relations. Please go ahead.
John Stevenson: Welcome to X Bros. Third quarter 2024 conference call I'm joined today by Express CEO, Mike Jarden and extra CFO Quinn Fanning first Mike when we will have some prepared remarks, then we will open it up for questions. We haven't an accompanying presentation on our third quarter results that is.
John Stevenson: On express website extra dot com under the investors section. In addition, supplemental financial information for the third quarter results as downloadable on the extra website likewise under the investors section I'd like to remind everyone that some of today's comments may refer to or contain forward looking statements such a <unk>.
John Stevenson: They are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements.
John Stevenson: Such statements speak only as of today's date and the company assumes no responsibility to update forward looking statements as of any future date. The company has included in its SEC filings cautionary language identifying important factors that could cause actual results to be materially different from those set forth in any form.
John Stevenson: Looking statements.
John Stevenson: More complete discussion of these risks is.
John Stevenson: It is included in the company's SEC filings, which may be accessed on the secs website, SEC Gov or on our website again at <unk> Dot com.
John Stevenson: Please note that any non-GAAP financial measures discussed during this call are defined and reconciled in the most directly comparable GAAP financial measure in our third quarter 2024 earnings release, which can also be found on our website with that I'd like to turn the call over to Mike.
Mike Jarden: Thank you Chad good morning, good afternoon, everyone.
Mike Jarden: Like to start off by reviewing the third quarter financial results summarized in today's earnings press release, I will then discuss their macro environment, which notwithstanding near term headwinds. We believe supports a solid multiyear outlook for energy services companies with exposure to international and offshore markets presenting a compelling opportunity for EXPAREL.
Speaker Change: Finally, Quinn will provide some additional commentary on the just completed quarter and share some additional financial information.
Speaker Change: For a recap of consolidated results and quarterly results by region I'll direct you to slides three through seven of the presentation that we posted on <unk> Dot com.
Speaker Change: Turning to slide three I am pleased to report a solid quarter for <unk> with Q3 2020 for revenue of $423 million and adjusted EBITDA of $85 million.
Speaker Change: Both within our quarterly guidance ranges Q3 revenue was essentially at the midpoint of our guidance and adjusted EBITDA was at the low end of guidance largely reflecting the recognition of $7 million negative impact on our cargo production solutions project.
Speaker Change: Pending resolution of several variation orders exclude.
Speaker Change: Excluding such losses, we would have been above the midpoint of adjusted EBITDA guidance for the September quarter.
Speaker Change: As anticipated the sequential revenue decline of $47 million or 10% largely reflected the wrap up of the construction and delivery phase of the Congo project as well as strong Q2 results for our subsea well access business, which was driven by PRT activity, an MLA and legacy extra activity and Isa.
Speaker Change: Our press release also highlighted sequentially, lower well construction and well test activity and MLA compared to Q3, 2023 revenue was up $53 million or 14% largely reflecting the results of PRT offshore and core tracks, partially offset by lower revenue from the Congo production.
Speaker Change: <unk> solutions project.
Speaker Change: Q3, 2024, adjusted EBITDA decreased $10 million or 10% sequentially and increased $35 million or 69% compared to Q3 2023.
Speaker Change: In addition to losses recognized on the Congo project in Q2, and Q3 of 2024 note that Q3 2023, adjusted EBITDA included $15 million of <unk> related Unrecoverable costs, which were not repeated in Q3 2024.
Speaker Change: The business continues to generally move in the right direction and we remain confident that we are in the early innings of a multiyear up cycle for international and offshore Levered energy services companies that will continue to create growth opportunities for <unk>.
Speaker Change: Having said that over the past few months commodity prices have been under pressure and customers are being more cautious with discretionary spending increasing their focus on service cost and selectively delaying the startup of new projects. As a result, we are seeing moderated growth in certain regions, including North and Latin America.
Speaker Change: As a result, we are refining our full year guidance range to reflect expectations for revenue of between $1 72, and $1 75 billion and expectations for adjusted EBITDA of between $335 and $350 million.
Speaker Change: It is important to note we have an active dialogue with our customers related to project timing and scope across all markets as customers 2025 budgets as expected reflect a more cautious approach the greatest impact will likely be on short cycle activity and within the North America onshore market with long cycle activity in the international and <unk>.
Speaker Change: Offshore markets likely remaining the most resilient, we believe that select projects may be delayed a quarter or two resulting in a slow start to 2025, but are leveraged to long cycle development, including deepwater gives us confidence that extra business momentum will be sustained moving forward.
Speaker Change: Assuming OPEC plus navigates near term supply challenges commodity prices should recover with demand and activity should gain momentum as we progress through 2025, the energy services industry has essentially no spare capacity and continued capital discipline should support pricing for the technology enabled services and solutions.
Speaker Change: <unk> that <unk> provides.
Speaker Change: While I am confident that net pricing gains will provide scope for margin expansion as sentiment improves we have recently kicked off several initiatives to further rationalize our support costs to improve operating leverage with expected growth.
I don't plan to announce cost targets today, but we will incorporate such targets into our 2025 guidance, which will be provided when we report Q4 results in February.
Speaker Change: Before turning to the regions I want to highlight that extra has been recognized in two industry Awards. Our Centrify consolidated control solution has been selected by heart E&ps panel of independent judges as winner of the 2024 Special Meritorious Award for Engineering innovation and the digital oilfield category.
Speaker Change: This month <unk> was also recognized as finalists across three categories in the Gulf Energy Excellence Awards.
Speaker Change: These recognitions reflect our commitment to innovation and leadership within the industry's ongoing sustainability journey.
Speaker Change: Now moving on to the regions for Northern Latin America third quarter revenue was $139 million, a decrease of $18 million or 11% quarter over quarter, reflecting decreased activity in well construction well flow management and subsea well access activity in the lower 48, the Gulf of Mexico and in Mexico.
Speaker Change: No.
Speaker Change: In South America, the wealth management team had a strong quarter in Argentina, and the well construction team continued strong performance in Guyana.
Speaker Change: <unk> segment EBITDA margin at 24% was down from 28% in Q2, 2024, reflecting decreased activity and less favorable activity mix in the region, including what we expect will be a short term DST hiatus by our primary customer in Mexico.
Speaker Change: Additionally, we continue to expand ex pros remote boxing device in deepwater Brazil. Following our successful trial that demonstrates the safety and reliability of our solution. The solutions consistent performance delivers value on every connection with a cumulative potential to reduce over 28 hours of Red zone exposure per well.
Speaker Change: For Europe, and sub Saharan Africa third quarter revenue was 131 million, a sequential decrease of $37 million or 22% driven by the delivery of a large subsea project in Q2 and lower revenue recognized on the Congo production solutions project <unk>.
Segment EBITDA margin at 24% was up three percentage points sequentially and down four percentage points relative to Q3, 2023, again, reflecting Q2 and Q3 2020 for losses on our cargo project pending resolution of variation orders.
Speaker Change: To expand on our Congo project. The site is 99% complete with only equipment retrofits for items founder and commissioning remaining.
Speaker Change: As mentioned last quarter, the first gas export to the clients floating liquefied natural gas facility was within 22 months of the contract. The plant has successfully operated at 10% overcapacity to demonstrate the plant design flexibility.
Speaker Change: And while our percentage of completion accounting for higher than expected costs. During phase one of the project have negatively impacted group results I'm comfortable that we will reach an acceptable resolution of pending variation orders in the coming months.
Speaker Change: More broadly our ECM business has good momentum as we continue to capitalize on the increased activity in the region.
Speaker Change: Subsea well access business had a strong second and third quarter, respectively, delivering projects in Angola, and the Ivory coast.
Speaker Change: Subsea team has another large project in Angola that are scheduled for delivery in Q4.
Speaker Change: Similarly in Q3, the wealth management team was awarded well cleanup package to bring eight new wells into production in Norway, which is valued at over $10 million.
Speaker Change: While not a lot of new development is happening in the U K due to an unfavorable tax regime, we expect the PMA market to gain momentum in the new year, and we offer several differentiated services that should lead to incremental opportunities in that market.
Speaker Change: Finally in Kazakhstan, we progressed, an important project, where we delivered three well test packages, allowing the client to achieve early production from their field, where we are processing, a significant gas and condensate volumes.
Speaker Change: The middle East and North Africa team delivered another excellent quarter with revenue of $87 million up 7% driven by a full three months of revenue from contracts mean, a segment EBITDA margin at 35% was flat quarter over quarter and up about six percentage points year over year.
Speaker Change: Within the region. This quarter, we surpassed 1 million hours of data transmission from our data at the desk or <unk> solution and established capability used for transmitting and presenting data from the well site in real time.
Speaker Change: Access their data from the well site to any web enabled device in any location across the globe and in insurers decisions on well performance are based on the latest available data.
Speaker Change: Finally in Asia Pacific third quarter revenue was $65 million up 4% relative to the June quarter, primarily reflecting increased activity in Thailand, Australia, and an increase in <unk> revenue.
Speaker Change: Asia Pacific segment, EBITDA margin at 25% was up one percentage point from the prior quarter, which reflects the impact of the <unk> acquisition.
Speaker Change: In Brunei, the well intervention and integrity team successfully executed the clients first distributed fiber optic sensing our DFAST job and two wells delivering unique insights that traditional methods couldnt match.
Speaker Change: <unk> data help pinpoint the ideal injection pressure in rates prevented fracture extension and minimized integrity risks.
Speaker Change: It also enabled our clients to isolate unproductive zones optimize the injection profile and refined future well completions literally transforming their approach to well performance monitoring.
Speaker Change: In terms of commercial activity, we have continued to build on our momentum capturing roughly $354 million of new contract awards, including well construction contracts worth approximately $80 million and $31 million in the Gulf of Mexico, and Angola, respectively.
Speaker Change: Our backlog remains healthy at approximately $2 3 billion at the end of the quarter, including roughly $100 million of core tracts in PRT backlog, which on an apples to apples basis is consistent with the end of the previous quarter.
Speaker Change: To provide an update on core tracks integration efforts are well underway, we are streamlining functional support where it makes sense and the extra <unk> teams are collaborating on tenders across the world to realize the potential of pull through revenue synergies for.
Speaker Change: For example, we successfully performed five expandable jobs for a new client in Kuwait there.
Speaker Change: Our operations team recognized our casing patch products as the preferred solution for addressing casing corrosion and to provide perforation seals.
Speaker Change: In Brunei, we had one of our first cross product line initiatives between <unk> and contracts, where our well construction field supervisor was mobilized offshore together with a core tracks technician to assist in the running of our CX two bridge plug.
Speaker Change: As just one example of potential revenue and cost synergies coordination of the core <unk> product line in our regional business development team support of incremental CX two activity and we avoided the need to mobilize additional personnel from outside the country.
Speaker Change: Turning to our market outlook, despite near term pressure on commodity prices driven by weakened demand in China and uncertainty around future OPEC plus production levels. We remain optimistic about the long term outlook for international and offshore services and we anticipate the demand for our services and solutions will continue to grow in <unk>.
Speaker Change: 25, and beyond as current commodity prices remain supportive of investment in long cycle development.
Speaker Change: Oil demand is projected to outpace supply through 2024, resulting in inventory draws if OPEC plus continues to delay production increases until late 2024, or early 2025 and successfully navigates near term supply challenges commodity prices should recover with demand and activity should gain momentum as we.
Speaker Change: <unk> through 2025.
Speaker Change: Brent crude prices have declined from $80 per barrel in January of 2024 to an average of $74 per barrel in September the lowest since December 2023, despite lower than average global inventories and the market being prospectively under supplied.
Speaker Change: Since the end of the third quarter, the ebbs and flows of tensions in the middle East have pushed Brent spot prices above $80 per barrel and then back to the mid seventies and the potential for further escalation create significant uncertainty and volatility within the oil markets.
Speaker Change: <unk> assessment indicates ample crude production capacity remains available maintaining their price estimates at $76 per barrel the remainder of 2024.
Speaker Change: Looking ahead to 2025 production is expected to gradually surpassed global demand growth as OPEC, plus unwind voluntary cuts and additional supply comes online from the United States, Guyana, Brazil and Canada.
Speaker Change: This shift is expected to drive inventory builds potentially resulting in downward pressure on oil prices absent a better than expected demand recovery.
Speaker Change: Despite an anticipated modest decline in prices over the course of 2025.
Speaker Change: Currently expect sprint to average $78 per barrel next year.
Speaker Change: Importantly, expected prices should still support continued upstream investment and continued investment in deepwater in particular due to the cost and carbon advantages of deepwater barrels.
Speaker Change: In contrast, global gas markets are demonstrating more stability and storage levels in the U S are expected to keep U S prices below $3 per <unk> throughout 2024. However.
Speaker Change: However, there is room for upward price movement by potentially stronger winter demand continued global growth in LNG demand and the impending end of the Russia, Ukraine Transit agreement in December of 2024.
Speaker Change: Overall, the gas market remains generally balanced with reasonable medium term support for prices and continued investment in LNG to meet growing demand natural gas plays a critical role in reducing carbon emissions and electricity generation and is a key transition fuel towards achieving global net zero targets.
Speaker Change: Despite the negative tone in the equity market operators remain focused on replacing produced reserves as evidenced by record levels of <unk>.
Speaker Change: In 2023 and expected sanctioning activity in 2024, and 2025, particularly in the lower cost lower carbon offshore conventional sector.
Speaker Change: It is anticipated that in 2024 offshore will represent the majority share of Greenfield projects with 82% expected to fall within this segment and 75% in 2025 <unk>.
Speaker Change: This trend should support our multiyear demand for export services and solutions, particularly in our well construction and subsea well access product lines.
Speaker Change: Globally constructive commodity prices should drive continued expenditures on exploration and production with near 2015 levels of upstream investment expected.
Speaker Change: Investment growth is largely driven by the offshore deepwater and shelf segments, particularly notable projects in Guyana, Brazil, The U S Mexico, Saudi Arabia, the Emirates, Norway in China.
In parallel operators continue to focus on fiscal discipline aiming to maximize production from existing assets, while simultaneously reducing emissions to meet ESG targets.
This focus will continue to drive demand for <unk> production related activities, well intervention integrity technologies and wealth management solutions as mature assets approach the end of their economic life the need for cost effective plug and abandonment solutions is increasing which is supporting the decommissioning market and driving incremental activity in Europe.
Speaker Change: And in the U S Gulf of Mexico.
Speaker Change: Investments in new energy solutions, such as geothermal energy, particularly in Asia Pacific and Europe Sub Saharan Africa region, and carbon capture and storage, primarily in North and Latin America, and Europe are being driven by emissions reduction and net zero targets.
Speaker Change: These de carbonization efforts present additional opportunities for <unk> services and technologies.
Speaker Change: In summary, the underlying market fundamentals are set to drive a multiyear expansion for the energy services industry positioning Expo in similar companies to assist operators and meeting growing demand for energy. Despite near term uncertainty commodity prices continue to support upstream investment and activities aimed at extracting resources.
Speaker Change: From existing assets and developing new ones as such our company continues to see demand for our people services and solutions in support of our customers' activities.
Speaker Change: With that I'll hand, it over to Quinn to discuss our financial results.
Quinn Fanning: Thank you Mike.
Quinn Fanning: As Mike noted, we reported revenue of $423 million for the quarter ended September 30th.
Quinn Fanning: As compared to the guidance range for Q3 2020 for revenue of $410 million to $430 million that was provided on our Q2 earnings conference call.
Quinn Fanning: Northern Latin America was really the only region that came in below Q3 revenue expectations, primarily reflecting lower than expected well construction activity in the U S and lower than expected well testing activity in Mexico parsed.
Quinn Fanning: Partially offset by better than expected subsea results in the U S Gulf of Mexico.
Quinn Fanning: Sequentially revenue was down $47 million as a result of the non repeat of a large subsea project in Angola in Q2, and the ramp up of the construction and delivery phase of the Congo production solutions project.
Quinn Fanning: Partially offset by higher revenue in Mena.
Quinn Fanning: Which was driven by incremental activity plus the additional months of <unk> revenue.
Quinn Fanning: Our current expectation that we will see a modest sequential rebound in Italy activity in Q4 in part due to an expected pickup in well testing activity.
Quinn Fanning: And good sequential growth in Isa largely driven by subsea.
Quinn Fanning: Mena and Asia Pacific should be stable with modest sequential growth and strong year over year growth, largely reflecting additional subsea activity, including PRT activity and core tracks.
Quinn Fanning: For reference revenue for the quarter ended September 30th was up $53 million or 14% year over year and was the strongest Q3 revenue since we completed the extra <unk> merger in Q4 of 2021.
Quinn Fanning: Net income for the third quarter of 2024 was $16 million or <unk> 14 per diluted share compared to a net loss of $14 million or <unk> 13 per diluted share in the third quarter of 2023.
Quinn Fanning: Adjusted net income, which excludes merger and integration expense severance and other expense and stock based compensation expense for Q3, 2024 was $28 million or 23 per diluted share.
Quinn Fanning: Compared to a net loss of $6 million or <unk> <unk> per diluted share for Q3 2023.
Quinn Fanning: Adjusted EBITDA for the third quarter of 2024 was $85 million.
As compared to Q3 guidance of $85 million to $95 million.
Quinn Fanning: Resenting a year over year increase of approximately $35 million or 69% relative to the third quarter of 2023.
Quinn Fanning: Adjusted EBITDA margin for the third quarter was 20%.
Roughly 650 basis points year over year.
Speaker Change: As Mike noted the sequential decrease in adjusted EBITDA reflects lower well construction in wealth management revenue, an MLA and lower wealth management, and subsea well access revenue and Isa.
Speaker Change: Partially offset by higher revenue across multiple product lines, and Nino driven by incremental activity and additional months of <unk>.
Speaker Change: Underperformance relative to expectations in Q3 was primarily related to the losses recognized on the Congo production solutions projects again pending resolution of several variation orders.
Speaker Change: For reference results for the Conga project are captured within the ECS segment and.
Speaker Change: And included within the wealth management product line.
Speaker Change: For sequential and year over year comparisons note that we recognize $1 million of revenue in the Congo project in Q3 2024.
Speaker Change: $23 million in Q2, 2024, and $36 million in Q3 2023.
Speaker Change: The margin recognized on the project in Q3 2020 for Q2 2024 in Q3 2023 was negative $7 million.
Speaker Change: $12 million and positive $12 million respectively.
Speaker Change: Also for reference note that over the last four quarters Easter segment EBITDA margin has averaged approximately 24%.
Speaker Change: Excluding the Congo project segment, EBITA margin would have been approximately 30% or about 600 basis points higher.
Speaker Change: Total support costs for Q3, 2024 of $85 million totaled 20% of revenue and were flat sequentially.
Speaker Change: We continue to expect that support costs for the full year 2024 will be around 20% of revenue.
Speaker Change: Corporate G&A, which is a subset of total support costs is expected to be between three and three 5% of revenue.
Speaker Change: Moving to liquidity Q.
Speaker Change: Q3, adjusted cash flow from operations, which excludes cash paid for interest net cash paid for severance and other expense and cash paid for merger and integration expense was $65 million compared to $64 million in Q3 2023.
Speaker Change: Working capital consumed approximately $4 billion of cash in the quarter.
Speaker Change: Total available liquidity at quarter end was approximately $303 million with cash and cash equivalents, including restricted cash of approximately $167 million and approximately $136 million available for borrowings under our revolving credit facility at.
Speaker Change: At quarter end, we had $121 million drawn on our credit facility.
Speaker Change: Turning to our outlook page nine of our accompanying slides summarizes our guidance for Q4 and full year 2024.
Speaker Change: As Mike noted we are refining our full year 2024 guidance anticipated revenues to be in the range of $1 72, and $1 75 billion and adjusted EBITDA to be within a range of 335 and $350 million.
Full year adjusted EBITDA margin is expected to be approximately 20%.
Speaker Change: Cash taxes for the year is expected to be within a range of three and 4% of revenue in capex as a percentage of revenue is expected to be within a range of 7% and 8%.
Speaker Change: Moving to guidance for Q4 2024.
Speaker Change: Revenue is expected to be within a range of 440 and $470 million.
Speaker Change: Implying sequential and year on year growth at the midpoint of guidance of approximately 8% and approximately 12%.
Speaker Change: Adjusted EBITDA is expected to be within a range of <unk> 90 and $105 million.
Speaker Change: Implying Q4, adjusted EBITDA margin falling within a range of 2022%.
Speaker Change: The high end of our guidance for Q4 revenue adjusted EBITDA and adjusted EBITDA margin in part assumes a favorable resolution of variation orders on the Tango project.
Speaker Change: Looking ahead, we have previously stated that the current fundamental backdrop and underlying business momentum provide us with a clear path to $2 billion of run rate revenue.
Speaker Change: Mid Twenty's, adjusted EBITA margin and free cash flow margin of 10% over the medium term.
Speaker Change: We continue to believe that the markets to which we are most levered and our market position will ultimately support that these medium term targets.
Speaker Change: However, as Mike noted given recent market headwinds, we expect that 2025 may start slow and that pricing gains may be more challenging absent an improvement in market tone.
Speaker Change: As a result, achieving these medium term targets might be more within 2026 timeframe.
Speaker Change: In the meantime, we will continue to focus on integrating the businesses that we've acquired and improving margins by continuing to optimize our cost structure.
Speaker Change: With that I'll turn the call back over to Mike for a few closing comments.
Mike Jarden: Thank you Quinn.
Mike Jarden: <unk> accomplished a lot year to date in 2024 with solid financial performance. Some key highlights include the acquisition of core tracks, which enhances our depth and talent and the capabilities of our product offerings and the successful integration of the PRT offshore team as.
Mike Jarden: As Quinn stated, we believe that the fundamental macro backdrop, while setting up to provide only modest near term growth should provide a multiyear up cycle for the international and offshore sectors. We continue to enhance our ability to support our customers through the cycle with our cost effective technology enabled services and solutions, which we believe can.
Mike Jarden: And deliver enhanced returns to our shareholders.
Mike Jarden: Based on project sanctioning levels and customer dialogue, we are confident in our future prospects and believe we have a clear path to sustained momentum for the remainder of the decade.
We are confident that our talented global teams commitment to excellent execution and advancing our strategic initiatives will enable us to champion safety deliver best in class service across the lifecycle of the field and capitalized on organic and inorganic growth opportunities.
Mike Jarden: With that we can now open up the call for questions.
Speaker Change: Thank you if you would like to ask a question. Please press star followed by one on your telephone keypad.
Speaker Change: If you would like to withdraw your question. Please press star followed by <unk>.
Speaker Change: One to ask a question. Please ensure your devices on mute locally.
Speaker Change: Our first question comes from Neil Mehta with Goldman Sachs. Your line is open. Please go ahead.
Neil Mehta: Good morning, Mike Quinn team.
Neil Mehta: I guess a couple questions on the outlook you did great job kind of helping us understand.
Neil Mehta: In the last quarter, but can you just talk about the revision to.
Neil Mehta: The 2024 outlook getting a little bit more detail and what were the most important.
Neil Mehta: And pieces and then that's kind of purchase meet then as a follow up which is as we think about the path to.
Neil Mehta: 25% adjusted EBITDA margin in $2 billion of revenue how should we think about the building blocks to get there and help the market get confidence around that so two related questions. Thanks guys.
Speaker Change: Thanks, Neil I'll start and then Mike can supplement.
Speaker Change: So the midpoint of our current guidance is about five 5% below the midpoint that we laid out on the Q2 call.
Speaker Change: Really the as I mentioned.
Speaker Change: Performance relative to expectations in the third quarter.
Speaker Change: Setting aside the Congo project, which we can touch on as well is really in the north Atlanta market.
Speaker Change: We've had a as Mike mentioned, the what we believe will ultimately be a temporary hiatus in.
Speaker Change: <unk> activity.
Speaker Change: Part of our cost containment effort.
Speaker Change: Similarly in the Gulf of Mexico.
Speaker Change: Yeah.
Speaker Change: Weaker performance in the well construction product line in particular and to a lesser extent testing.
Speaker Change: Those weather in the Gulf of Mexico, certainly in the third quarter that had an impact.
Speaker Change: So the well testing activity in Mexico was separate and apart from that.
Speaker Change: So I guess from our perspective.
Speaker Change: The businesses moving in the right direction and of late has some soft spots.
Speaker Change: We just talked about so I guess as we kind of look forward.
Speaker Change: Getting back to.
The momentum that we thought we had 60 days ago was really just could be a function of customer budgets spending plans and we think it's going to start a little slow given the market tone in the commodity price backdrop.
Sanctioning activity has been high.
Speaker Change: Does it remain high in the international offshore markets and we should be a primary beneficiary of that so we may have a little bit of zigzagging over the next couple of quarters, but by and large we think the market is going to play to our favor.
Speaker Change: Again getting to the higher end of the current guidance probably requires.
Speaker Change: Resolution of the Congo project variation orders.
Speaker Change: There is potentially some upside in terms of an extended season in the.
Speaker Change: Northern European markets.
Speaker Change: If we see a.
Speaker Change: Return to the historical activity that we had in Mexico that should probably help as well.
Speaker Change: But what's the Asia Pac Mina continue.
Speaker Change: Formed strongly.
Speaker Change: He says we're going to have a good quarter, we believe in the fourth quarter with subsea project deliveries in Africa.
Speaker Change: And in Italy at least in our minds is the biggest question Mark in the short term.
Speaker Change: Yes, Neil I guess, a couple of things I would add is.
Speaker Change: And the discussions that I'm, having with customers and to be honest ROE over the course of the last 30 45 days I really kind of tried to redouble their efforts around that to understand where their thought process is that in those type things and I'm certainly not saying project sanctioning is not going to happen or those type things I think there is just some choppiness.
Speaker Change: Right now I think that.
Speaker Change: The fact that there are there happens that we havent been election season in the U S is providing a little bit of uncertainty.
Speaker Change: Ongoing what's going on in the middle East and in the Ukraine.
Speaker Change: Which quite frankly, probably becomes more clear how those two areas will play out given post post the election results in the U S. I think that's kind of creating some uncertainty.
Speaker Change: In the short term and whether thats.
Speaker Change: Another month or another two months or another quarter I think is to be flushed out, but I'm certainly not hearing anything from our customers, where they are just not going to move projects forward.
Speaker Change: I think if you look at some of the longer term indicators.
Speaker Change: The tree order backlogs and what's happening with some of the rig rates and what's happening with some of those kind of things.
Speaker Change: That's why we continue to see strength in activity through the through the tailwind of the decade.
Speaker Change: And then the only other comment I would make and quintin touched on it for Q4 here I am part of this is dependent upon.
Speaker Change: The resolution, we end up with on the Congo project.
Speaker Change: Keep in mind that was a fast track project the nature of it was such that the variation orders would be agreed upon post the commissioning of the facility because it was intended to be fast tracked a little bit unique and we've taken a very careful approach because the project accounting.
Speaker Change: Guidance and those type things both in terms of how we reflected things in Q2, and Q3 and until we have more real clear certainty E sign variation orders, we're going to continue to be key.
Speaker Change: Careful and methodical with that but quite frankly that was a project that was delivered 30% quicker than typical projects of that size and that requirement for the operator.
Speaker Change: And it's <unk>.
Speaker Change: Facility, we've been able to demonstrate has because of the design has a lot of flexibility in which we've been able to operate the facility at greater than 10% of the desired capacity. So there's a lot of those kind of things. It's just a lot of moving pieces and parts that we'll look to get resolved here in the coming couple of months.
Speaker Change: Okay. Thank you and then just a follow up if you could talk about the bridge to the to.
Speaker Change: To that $2 billion, and the 25% EBITDA margin it sounds like.
Speaker Change: You're thinking could be at 26 event what are the milestones we should be watching to suggest that you are moving towards that.
Speaker Change: I guess, just focusing on margins for a second really three building blocks that we've talked about on previous calls number one is going to be kind of activity set in the market.
Speaker Change: We think it's going to be against slower starting out the year. So if you kind of slide our expectations two quarters, that's kind of where our heads are at right now but.
Speaker Change: But its activity mix operating leverage and its pricing and this the activity mix because of the <unk>.
Speaker Change: Slower ramp up in drilling completions activity.
Speaker Change: The case that shifts things out a bit.
Speaker Change: As we've talked about in the past our drilling completions levered businesses tend to come with the highest margins.
Speaker Change: So the productivity and pricing is going to be less part of the story in the short term.
Speaker Change: We're focused on maximizing operating leverage and Thats why Mike mentioned that we have some new cost initiatives.
Speaker Change: We've got more than one tool in the toolkit and we may be emphasizing the cost side of things more so in the short term than the.
Speaker Change: The tailwind that comes with pricing or for that matter.
Speaker Change: More favorable activity mix.
Speaker Change: So I think it's 60 days ago, we would have said that we would probably at some point in 2025 be at that $2 billion run rate.
Speaker Change: A nice glide path towards the mid Twenty's EBITDA margins.
Speaker Change: Youll see that in our near term future probably shifted out of at least a couple of quarters.
Speaker Change: Understood. Thank you team.
Speaker Change: Thank you I appreciate it.
Speaker Change: We now turn to Arun Jairam with Jpmorgan Chase. Your line is open. Please go ahead.
Arun Jairam: Yes, good morning, I wanted to maybe first start with Congo.
Arun Jairam: Mike My understanding is that you're delivering the plant in the third quarter and then you would soon be shifting to the O&M piece, which is the eight year contract is that still correct and is it fair to say that some of the losses that you reported in the last couple of quarters or are those in the rearview mirror.
Arun Jairam: And if you do get some resolution to the change orders that that could potentially be booked.
Arun Jairam: Into earnings in the fourth quarter, just give us a sense of.
Arun Jairam: How the parts and ability of Congo goes from here and what's embedded in that fourth quarter guide in terms of Congo.
Speaker Change: Sure no.
Speaker Change: It's a great question and I appreciate the opportunity to clarify.
Speaker Change: So fundamentally yes, we will go operational and move into the O&M phase here.
Speaker Change: <unk>.
Speaker Change: Any day now so to speak the facility is up and running already but the handover portion is.
Speaker Change: It's about to be completed.
Speaker Change: So we will move into that O&M phase and Thats part of the question around some of these.
Speaker Change: These outstanding variation orders is are they going to be.
Speaker Change: As part of the upfront build phase or are they going to be added into the O&M phase.
Speaker Change: And so that's part of what we're working our way through with some.
Speaker Change: Engages with the customer.
Speaker Change: Overall.
Speaker Change: Project project Economics.
Speaker Change: <unk> may change a little bit based upon the build phase of the O&M phase based upon the resolution of those of those variation orders, but as I said, a few minutes ago fundamentally 30% quicker than historical facilities have been delivered.
Speaker Change: Have the production capability or the capacity capability to ramp up over 10%.
Speaker Change: So there's there's a lot of those kind of pause it doesn't it's just working our way through a fast track project to get those kind of things resolved.
Speaker Change: Resolved and ironed out.
Speaker Change: Okay got it and then have you all in terms of the fourth quarter guide.
Speaker Change: What are your assumptions around Congo.
Speaker Change: Just to be specific.
Speaker Change: Yes, so as I mentioned in my prepared remarks at the high end of guidance, we're going to have some margin recovery in the fourth quarter on the Congo project as Mike mentioned, whether or not that is.
Speaker Change: The central resolved as part of the construction phase, which would benefit Q4 Q1 results were a fits tacked onto the O&M phase that would be spread over a longer period of time. So I think that's a big question Mark.
Speaker Change: In terms of where we fall in our guidance, but maybe just to put things in guidance in context.
Speaker Change: The midpoint of the range that we're talking about is.
Speaker Change: Little over 2% shy of where we established guidance at the beginning of the year certainly moving to the upper half of the guidance as we revise things on the Q2 call.
Speaker Change: It's perhaps unfortunate retrospect.
Speaker Change: But we're still.
Speaker Change: Five 5% lower from where we revised guidance too.
Speaker Change: 90 days ago. So certainly the weather were off 2% relative to the initial guidance for the euro of five 5% relative to the guidance we provided on <unk>.
Speaker Change: With a 40% stock price correction over 90 days the equity market seems to have a more negative view of the outlook that we do.
Speaker Change: Yes fair enough.
Speaker Change: Maybe my follow up is just to maybe Mike to understand.
Speaker Change: What's your sense in the ground.
Speaker Change: Trends in Mexico.
Speaker Change: We had a handoff.
Speaker Change: At the government level. So I know, there's been a little bit of a slackening in activity, but what are you seeing on the ground and maybe just remind us about <unk> exposure to Pemex in terms of your segment.
Speaker Change: Sure.
Speaker Change: So there has been.
Speaker Change: Theres been some governmental transitions, Mexico theres been some pemex leadership transitions.
Speaker Change: And quite frankly, if you'd have asked me that question last week I would have a different answer than what I have today, because we're seeing from a from an exploration standpoint.
Speaker Change: You know.
Speaker Change: More historic kind of fact pattern behavior that we're seeing today than what we were seeing 30 days ago.
Speaker Change: So I think that's just kind of a bit of a process for them to sort through we don't have a.
Speaker Change: The exposure we have in Mexico is largely around some of the exploration testing a little bit of well construction.
Speaker Change: And those.
Speaker Change: Tests tend to be pretty chunky revenues and whether it's.
They don't have success, so they don't test the well or they're trying to.
Speaker Change: Spend their exploration budgets very judiciously like they've kind of.
Speaker Change: After Mike here recently.
Speaker Change: That's most of what our exposure is in activity as we do a lot of that through.
Speaker Change: Through third parties as opposed to we partner with other service providers as opposed to us having a direct relationship with Pemex.
Speaker Change: Alright, Thanks, a lot I'll hand back.
Speaker Change: Great. Thank you Ian.
Speaker Change: Our next question comes from <unk>, Kim with Barclays. Your line is open. Please go ahead.
Speaker Change: Hi, Good morning, just wanted to touch on the outlook for next year.
Speaker Change: It seems like.
Speaker Change: Your views on next year have come down a bit.
Speaker Change: Sure.
Speaker Change: Versus three months ago, especially with kind of a medium term guidance $2 billion revenue, 25% EBIT margins getting pushed out a few quarters.
Speaker Change: That related to.
Speaker Change: The widespread concerns for next year that the offshore drillers have been telegraphing over the past two to three months.
Speaker Change: Or is it something different.
Speaker Change: Yeah.
Speaker Change: I guess I guess, what I would say is we certainly are.
We're still in the very early phases of our budget process for 2025.
Speaker Change: And we really do a kind of a bottoms up high level of granularity. So it's based upon a lot of customer specific customer feedback on projects and we're not.
Speaker Change: As I said, we're kind of in early innings of that.
Speaker Change: I think our commentary is more based upon.
Speaker Change: Some of the sentiment some of the field.
Speaker Change: Getting the white space concerns in the white space issues translated into our activity from my direct conversations with customers, but I think we're trying to be sensitive to.
Speaker Change: Some some commentary from others around moderated activity in 2025 offshore international and at the same high single digit growth, it's kind of more single digit growth I think we're trying to be more sensitive to that and once we kind of go through our budgeting process. It's based on very specific customer project feedback here.
Speaker Change: Over the course of the next.
Speaker Change: 45 days, we will have a better sense of how that kind of translates into activity.
Speaker Change: Going into 2025.
Speaker Change: I think it really is I think we may have 2025, it may be really the tale of two halves I think he may have one act.
Speaker Change: Activity rate in the first half of the year and I would anticipate that the activity rate in the second half of the year is going to be at a much greater slope.
Speaker Change: Which is going to provide some operational challenges, but that's kind of my sense of how we may see things play out in 2025.
Speaker Change: Okay understood.
Speaker Change: And then my follow up is just on net pricing.
Speaker Change: As we talked about.
Speaker Change: Second half of this year to contribute about 100.
Speaker Change: So the overall EBITDA margin uplift this year is that.
Speaker Change: Still the expectation and then <unk>.
Speaker Change: Looking ahead to next year.
Speaker Change: Understand the net pricing gains might be.
Speaker Change: Difficult next year, which you alluded to I mean.
Speaker Change: How much of a contribution.
Speaker Change: Any margin uplift next year should we expect.
Speaker Change: If at all.
Speaker Change: Yes.
Speaker Change: I think it really.
Speaker Change: The.
Speaker Change: My view is the net pricing impact here for the back half for the back half of 2024 is really not different than what we said in the last quarter.
Speaker Change: Our project by project, we try to we tried to get as much of a pricing adjustment as we can.
Speaker Change: Certainly in terms of.
Speaker Change: Net pricing I think how we set ourselves up for 2025 partners, who is going to depend on what is the slope of that first half.
Speaker Change: Activity versus the slope of the second half activity set.
Speaker Change: My feel if it plays out that way.
Speaker Change: We're probably going to see more of the.
Speaker Change: 100 basis points of impact in the second half of 2025 would be my sense today, but again, we're very very early innings of our budget process, which again because it kind of goes through a project by project, we start to see how the the previous pricing levels kind of feather into that activity set for next year, but that would be my sense.
Speaker Change: Colin do you have anything different you want to add.
Speaker Change: Alright.
Speaker Change: I mean, the well construction.
Speaker Change: In particular in the drilling completions levered activity more broadly.
Speaker Change: We are getting.
Speaker Change: Pricing.
Speaker Change: As we've said in the past work that we havent backlog is at better pricing.
Speaker Change: Work that we've been executing.
Speaker Change: To date.
Speaker Change: Whether that moderates more negative tone in the near term.
Open question.
Speaker Change: But I think it's going to come down as it does with most things to supply and demand and the capacity constraints within deepwater well construction and the landing string driven business remain.
Those are.
Speaker Change: Technology enabled services, where you should be able to get pricing and we have been getting pricing and whether or not that pauses or not.
Speaker Change: Good question.
Speaker Change: So we had anticipated.
Speaker Change: 200 basis points of margin benefit 'twenty four from pricing.
Speaker Change: I, probably would have gotten us to the high end of the guidance that we had initially established over 20% to 22% EBITDA margins.
Speaker Change: Based on the current guidance.
Speaker Change: Backing down.
Speaker Change: Closer to plus or minus 20% for the year.
Speaker Change: And we'll finish out Q4 somewhere in the 'twenty, one 'twenty, 2% Zip code or 'twenty to 'twenty, 2% Zip code.
Speaker Change: Really that's off from where we thought we'd be 60 days ago 90 days ago.
Speaker Change: Got it understood and appreciate where we're a bit early.
Speaker Change: On 2025, so I appreciate all the color. Thank you Bob.
Speaker Change: Thanks.
<unk>.
Speaker Change: As a reminder, if you'd like to ask a question. Please press star one on your telephone keypad now.
Speaker Change: We now turn to Steve <unk> with Sidoti. Your line is open. Please go ahead.
Good morning, Mike one claim.
Color and responses. This morning give us a little bit more understanding of where things might be going can you talk a little bit about.
Speaker Change: The new contract awards, and some pretty solid backlog, which is back up back.
Speaker Change: Backlog that youre getting from core toxin.
Speaker Change: Guarantee.
Speaker Change: Trying to get a sense of.
Speaker Change: What's embedded.
Speaker Change: And some of these more more recent contract awards, what's embedded in margins.
Speaker Change: Are you seeing.
Speaker Change: Once youre getting in backlog to be much better pricing somewhat better pricing than what you're reporting right now.
Speaker Change: Somewhat better is probably the best characterization.
Speaker Change: It's again, it's really the drilling and completions levered businesses and in particular.
Speaker Change: We've described is capacity constrained asset classes in deepwater well construction subsea I think as a general matter.
Speaker Change: You've gotten 10, 15% benefit and the repricing of.
Speaker Change: Deepwater well construction.
Speaker Change: Subsea well excess pricing.
Speaker Change: It is not across geographies.
Speaker Change: Covering all of our product lines. So again certain product lines are moving in the right direction and others are less so.
Speaker Change: To get that medium term target by 2026 still implies.
Speaker Change: At least double digit topline growth on 25, 2006, youre still comfortable with that.
Speaker Change: Yes, I think we'll.
Speaker Change: Hold off on providing.
Speaker Change: Our revenue our other guidance for 25 until we get through the budget season, but to get to those medium term targets.
Speaker Change: <unk> seen them.
Speaker Change: <unk> contemplates node plus 10% topline growth.
Speaker Change: And that's certainly not what we're expecting in the very short term.
Speaker Change: Okay.
Speaker Change: We think it's more of a 'twenty sooner than late 'twenty fiber penetration.
Speaker Change: Yes.
Speaker Change: Go ahead please.
Speaker Change: Sure.
Speaker Change: Synergies and.
Speaker Change: How do you feel so far about core tracks.
Speaker Change: Where that's trending and your growth opportunities for core tracks, what Youre thinking now versus maybe 90 days ago. When it was still much more recent.
Speaker Change: Yes, I mean, it's.
Speaker Change: We continue to be very excited about contracts.
Speaker Change: Always.
Speaker Change: A little bit tricky when you get completely under the tent is it is it what you really thought it was and what I can tell you is we've not seen anything that has been a surprise.
Speaker Change: One of the challenges I actually had dinner last night with some of the <unk> team and part of the conversation. We had was really making sure that we rank and prioritize the countries. We're going to go to to pursue first because we cant we operate probably in 10 or 12 countries today on contracts. We can't go to 60 tomorrow. So we're going to focus.
Speaker Change: On the right ones that can have the most impact in the right order.
Speaker Change: But it's great technology.
Speaker Change: One of the things that the <unk> team is so excited about was they have so many more customers have so many more customer touch points and markets like Latin America, and whats <unk> was very underrepresented there.
Speaker Change: They have a lot more customer contracts a lot more customer engagements there so from a revenue synergy standpoint, it's tremendously positive.
Speaker Change: That was never really about a cost synergy it was really more around cost avoidance. So some of the back office support and those types of things that we need in <unk> some of the engineering efforts and finance it.
Speaker Change: In HR, where I'll be able to supplement that in there so.
Speaker Change: It's a great opportunity for us and we continue to be really excited about it and hopefully we can continue to accelerate the growth on that business and it's similar to what we've seen out of the PRT acquisition as well or even delta attack.
Speaker Change: Technology is we thought we were getting really really high performing teams.
Speaker Change: And it's it's really around how do we internationalize those and how do we make sure we go to.
Speaker Change: We go to the next 10 countries, we get those in the right order to go to maximize the potential.
Speaker Change: Right.
Speaker Change: Thanks, Mike Thanks Duane.
Speaker Change: Thanks, Steve Thanks, Steve.
Speaker Change: Our final question comes from Josh Chan with Daniel Energy Partners. Your line is open. Please go ahead.
Speaker Change: Thanks, Good morning.
Speaker Change: We want to step back and just think about a lot of the issues that youre trying to solve for in your business specifically in deepwater.
Speaker Change: Let's call there is white space for the next 12 months, that's fine but day rates are still elevated for a lot of the contracts that are inside and so I would assume the value proposition hasnt changed for a number of new products could you speak to that a little bit.
Speaker Change: Yeah, Josh I think it's I think it's a fair question.
Speaker Change: My sense is because let's keep in mind the <unk>.
Speaker Change: White space.
Speaker Change: It has an effect on some of the drillers, but not all of them.
Speaker Change: And.
Speaker Change: We were active on a wide number of 130 is floating assets were active on probably.
Speaker Change: Probably 70 of them I would say with some different type of services. So I think that white space impact is probably going to be more of a first half of the year phenomenon.
Speaker Change: You continue to see some really strong healthy day rates that are being contracted.
Speaker Change: This is around <unk>.
Speaker Change: Efficiency and those type things and Thats why.
Speaker Change: I highlighted in our prepared remarks around centrify.
Speaker Change: Some of the things we're doing around some of our Delta care technologies, those really bring tremendous operational efficiencies on the rigs and with elevated day rates, even whether its short medium or long term. When you can bring technology to bear that reduces significantly reduces the.
Speaker Change: The amount of operating time, the amount of time waiting on cement and those kind of things. It is a real financial benefit for the customers. So that's kind of see how that's how I see that playing out.
Speaker Change: Part of the reason why my view in what I comment earlier was I think we may see two different slopes of activity growth in 2025, and yes, I think that kind of corresponds a little bit to some of the potential uncertainty with the white space.
Speaker Change: Sure and maybe you could just speak to.
Speaker Change: You've obviously been pretty active in M&A over the last couple of years.
Speaker Change: Maybe one of the positives of a correction in oil prices from what we've seen over the summer is.
Speaker Change: Potential for more opportunities for you, but can you just talk.
Speaker Change: If at all how the correction.
Speaker Change: Pricing.
Speaker Change: Opportunities.
Speaker Change: And I have looked at over the over the last three.
Speaker Change: Three to six months.
Speaker Change: How that potentially has changed your outlook and how you're thinking about uses of capital going forward.
Speaker Change: Sure no.
Speaker Change: It's another real good question, what I would tell you is we.
Speaker Change: We.
Speaker Change: We have a full time dedicated corporate development team, albeit a small team, but we continue we've looked at a large number of potential combinations over the course of the last several years, we continue to work hard on that.
Speaker Change: For us, it's always going to be the industrial logic that has to lead. These these thought processes, we want to become more relevant to our customers. We feel like that's something that's highly important.
Speaker Change: Because I firmly believe that if we become more relevant to our customers, we can explain to investors and to analysts.
Speaker Change: By being more relevant is better for us as a company.
Speaker Change: At some point in time today, we're highly leveraged to the drilling and completion phase of the industry to kind of more of our customers' capex spend we think that's a good place to be given.
Speaker Change: Where we believe drilling completions activity will be for the remainder of the decade, but at some point in time, we're going to want to have a greater exposure to our.
Speaker Change: Our customers' opex spend so more production related more production optimization more intervention related so we continue to look at.
Speaker Change: Different aspects and different opportunities.
Speaker Change: I don't necessarily look at.
Speaker Change: The commodity price correction, as a better or worse opportunity for us.
Speaker Change: We look at the long term industrial logic, and a long term valuation aspects of these kind of things, but but yes long answer to say, we continue to look at things that would help strengthen us and help us become more relevant to our customers and subsequently more relevant to the market.
Speaker Change: Okay. Thanks, and then maybe just one quick.
Speaker Change: Final one to ask a question on <unk> 25, a different way.
Speaker Change: In your prepared remarks, Mike you talked about and maybe this is a question for Glen you talked about.
Speaker Change: You're welcome to call out cost targets for next year at this time, but maybe just at a high level is there any way you could discuss the things that the type of things that you're targeting.
Speaker Change: Obviously, there's going to be synergies from the M&A that you've done.
Speaker Change: But maybe just talk about some of the cost opportunities in the business looking into next year.
Speaker Change: Even if we are in a flattish rig count environment, you guys can still corporate margins margin expansion sure no.
Speaker Change: And I'll start off.
Speaker Change: And Mike Quinn added some additional commentary. So this was something that we kicked off really about 60 days ago. So this is this was prior to any commodity pricing softness in those kind of things and we've really undertaken initiative because what we really want to do is.
Speaker Change: We really have to figure out how are we going to do less with less so how do we start to become more efficient how do we drive more operating efficiency those type things.
Speaker Change: And that's what really what the initiative is about.
Speaker Change: And.
Speaker Change: If we would've said, okay. We want to do these things over the course of the next.
Speaker Change: 18 to 24 months.
Speaker Change: If we're going to have a softer 2025 in the market than what we'd anticipated then we're probably not going to be talking about a 24 month timeframe, we're probably going to be talking about a 9% to 15 month timeframe, so what kind of.
Speaker Change: We'll.
Speaker Change: Kind of double down on what our efforts are there. So we can take those kind of things out for US. This is not just about going through and making up just making a head count reduction that is not what it is it's really around some of our.
Speaker Change: Operational efficiencies some of our internal.
Speaker Change: Processes, whether it's in finance or it's in supply chain and those kind of things really kind of drive that kind of operational efficiency. So it's not just about head count but it's.
Speaker Change: It's simplifying our business, it's making our business more efficient, it's utilizing technology more to our benefit to help accelerate things.
And I think we.
<unk> made significant investments in systems.
Speaker Change: And this is not a novel concept, but.
Speaker Change: Investing a bunch in technology or an ERP platform in order to do bad processes faster is not what we would consider to be a win so we've made the investments in technology.
Speaker Change: We're trying to take a.
Speaker Change: A fresh look at our underlying business processes, where there's inefficiencies redundancy within our matrix organization, whether there is scope for incremental rationalization of support whether there's opportunities to either centralize more.
Speaker Change: The existing centers of excellence or whatever but it's yes. There is a cost benefit associated with it but it's really about creating operating leverage with growth.
Speaker Change: And if we're in a lower growth environment in the short term.
Speaker Change: Maybe it's more.
Speaker Change: Folks on what where can we squeeze margin in the short term, but the real long term objective is to make sure we get margin expansion with revenue growth.
Speaker Change: And as Mike said is trying to do less with less.
Speaker Change: So I think that's what it's about and we'll have pretty specific targa.
Speaker Change: Targets internally and we will articulate in some form or fashion in February when we provide Q4 results, but as I mentioned earlier in the call.
Speaker Change: We've got three tools in the toolkit in terms of margin expansion, whether it's activity mix.
Speaker Change: Pricing or operating leverage.
Speaker Change: The matter is in the short term operating levers become more important than the other two but all three should play into getting us to that mid twenty's level that we've talked about.
Speaker Change: Understood. Thanks for all the detail I appreciate it.
Speaker Change: Thanks, Josh.
Speaker Change: Ladies and gentlemen, this concludes our Q&A on todays <unk> Q3, 2020 earnings presentation.
We'd like to thank you for your participation you may now disconnect your lines.
Speaker Change: [music].
Speaker Change: Yes.
Speaker Change: Yeah.