Q1 2025 Cactus Inc Earnings Call
Simply press Star followed by the number one on your telephone keypad, if you would like to withdraw your question.
<unk> Star one again, thank you.
Speaker Change: I would now like to turn the call over to Alan Boyd Director of corporate development and Investor Relations. Please go ahead.
Alan Boyd: Thank you and good morning, we appreciate you joining us on today's call. Our speakers will be Scott Bender, our chairman and Chief Executive Officer, and Jane <unk>, Our Chief Financial Officer also joining us today are Joel Bender, President Steven Bender, Chief operating officer, Steve Padlock, CEO of Flex deal and will Mark Our General Counsel. Please note.
Alan Boyd: Any comments, we make on today's call regarding projections or expectations for future events are forward looking statements covered by the private Securities Litigation Reform Act.
Alan Boyd: Forward looking statements are subject to a number of risks and uncertainties many of which are beyond our control.
Alan Boyd: These risks and uncertainties can cause actual results to differ materially from our current expectations. We advise listeners to review our earnings release and the risk factors discussed in our filings with the SEC.
Alan Boyd: Any forward looking statements. We make today are only as of today's date and we undertake no obligation to publicly update or review any forward looking statements.
Alan Boyd: In addition, during today's call, we will reference certain non-GAAP financial measures reconciliations of these non-GAAP measures to the most directly comparable GAAP measures are included in our earnings release with that I will turn the call over to Scott.
Scott: Thanks, Alan and good morning to everyone I am pleased with our strong start to 2025, which saw record levels of pressure control product revenues per rig combined with record first quarter bookings and our <unk> technologies business. The market outlook has changed considerably since we last spoke but these.
Scott: First quarter records in our business fundamentals continue to demonstrate why we outperformed market activity trends and support our expectations about our ability to continue to do so we cannot control the change in the general outlook for our industry, but we can control. Our rapid response I continue to be very proud of.
Scott: Our associates commitment to delivering for our customers despite market and supply chain uncertainty. Some first quarter total company highlights include revenue of $280 million adjusted EBITDA of $94 million adjusted EBITDA margin of 33, 5%, we paid a quarterly <unk>.
Jay: Dividend of <unk> 13 per share and we increased our cash balance to $348 million I'll now turn the call over to Jay <unk>, Our CFO, who will review our financial results. Following his remarks I'll provide some thoughts on our outlook for the near term before opening the lines for Q&A.
Scott: Hey.
Jay: Thank you Scott and good morning, everyone. As Scott mentioned total Q1 revenues were $280 million, which were up 3% sequentially and total adjusted EBITDA was $94 million up one 2% sequentially.
Jay: For our pressure control segment revenues of $190 million were up seven 7% sequentially, driven primarily by customer drilling efficiencies leading to record levels of products sold per rigs followed opt.
Jay: Operating income increased $3 5 million or.
Jay: Or six 9% sequentially with operating margins decreasing 20 basis points and adjusted segment EBITDA increased $3 3 million or five 3% sequentially with margins decreasing by 80 basis points.
Jay: The margin decline was primarily due to reserves taken in connection with litigation claims.
Jay: For our small cell technology segment revenues of $93 million were down three 6% sequentially on the expected lower domestic customer activity in the seasonally slow quarter, partially offset by increased international shipments.
Jay: Operating income increased or decreased $1 6 million or six 5% sequentially with operating margins decreasing 80 basis points.
Jay: Due to lower operating leverage.
Jay: Adjusted segment, EBITDA decreased $1 8 million or 5% sequentially.
Jay: While margins decreased by 50 basis points.
Jay: Corporate and other expenses were $9 6 million in Q1 up $3 $7 million sequentially, resulting from professional fees associated with the evaluation of growth initiatives with a focus on international expansion.
Jay: Adjusted corporate EBITDA was $4 $4 million of expense.
Jay: On a total company basis first quarter, adjusted EBITDA was $94 million up one 2% from $93 million during the fourth quarter.
Jay: Adjusted EBITDA margin for the first quarter was 33, 5% compared to 34, 1% for the fourth quarter.
Jay: Adjustments to total company EBIT during the first quarter of 2025 include noncash charges of $6 1 million in stock based compensation and $3 5 million for professional fees associated with growth initiatives.
Jay: Depreciation and amortization expense for the first quarter was $16 million, which includes an ongoing $4 million of ameren amortization expense related to the intangible assets, resulting from the <unk> acquisition.
Jay: During the first quarter to public or class a ownership of the company averaged and ended the period at 86%.
Jay: GAAP net income was $54 million for the first quarter versus $57 million during the fourth quarter.
Jay: The decrease was largely driven by professional fees incurred at corporate.
Jay: Book tax expense during the first quarter was $17 million, resulting in an effective tax rate of just under 24%.
Jay: Adjusted net income and earnings per share were <unk> $59 million and <unk> 73 per share respectively compared to $57 million 71 per share in the fourth quarter adjusted.
Jay: Adjusted net income for the first quarter was net of a 25% tax rate applied to our adjusted pre tax income.
Jay: During the quarter, we paid a quarterly dividend of <unk> 13 per share, resulting in a cash outflow of approximately $11 million, including related distributions to members.
Jay: Additionally, we made a cash tax payment and associated distributions of approximately $25 million in January related to deferred estimated 2020 for taxes as discussed during the fourth quarter call.
We ended the quarter with a cash balance of $348 million, a sequential increase of approximately $5 million.
Jay: This increase was lower than our usual cadence due to the 2020 for tax payments.
Jay: The build of inventory in our <unk> business in anticipation of a seasonally stronger second and third quarters and some continued elevated inventory balances in our pressure control business to mitigate tariff impacts.
Jay: Additionally, strong March revenues led to increased accounts receivable balances at quarter end.
Jay: Net capex, excluding the equity investment in Vietnam was approximately $9 million during the first quarter of 2025.
Jay: In a moment Scott will give you our second quarter operational outlook. Some additional financial considerations. When looking ahead to the second quarter included an effective tax rate of 21% and an estimated tax rate for adjusted EPS of approximately 25%.
Jay: Total depreciation and amortization expense during the second quarter is expected to be approximately $16 million with $7 million associated with our pressure control segment and $9 million and scalable technologies.
We are reducing our full year 2025, net capex outlook.
Jay: Including the $6 million equity investment to a range of $40 million to $50 million given the latest market uncertainty.
Jay: While maintaining critical investments to support our manufacturing diversification strategy and enhance efficiencies in our baytown manufacturing plant.
Jay: We will continue to evaluate further reductions to this planned spend as the year progresses.
Jay: Finally, the board has approved a quarterly dividend of <unk> 13 per share, which will be paid in June.
Scott: This covers the financial review and I'll now turn the call back over to Scott.
Speaker Change: Thanks Jay.
Speaker Change: Like to begin by clarifying our current understanding of the tariff rates that will impact our pressure control business and better quantify the import exposures that we are mitigating.
Speaker Change: By mid next year, we expect the tariff impact to our business to be neutralized.
Speaker Change: We're taking several near and medium term actions to achieve this we are increasing alternative sourcing of product where possible rolling out our new wellhead design, but most importantly, we are ramping up production from our Vietnam facility and working with our customers to support these cost increases while.
Speaker Change: Ensuring on time product delivery for the past several years, we paid a section 301 tariffs of 25% on goods imported from our Chinese manufacturing plant currently we're paying an additional 45% or more.
Speaker Change: On tariffs.
Speaker Change: Im sorry, additional 45% or more tariffs on our imports from China are products imported from Vietnam currently incur the new section 232, 25% tariff.
Speaker Change: <unk> to nearly all countries. The same rate it was applied to imports from our Chinese facility before the recent tariff increases.
Speaker Change: While we had expected no additional tariffs from Vietnam, the 25% tariff will replace the section 301 tariff, we had or that we had already been paying since 2018, so to be clear, we expect that sourcing for Vietnam will put us back into the same tariff position we've been operating on.
Speaker Change: For the past several years. Moreover, we believe Vietnam will provide us with an advantage over the vast majority of our competitors, who rely primarily on Chinese imports and do not have material U S manufacturing.
Speaker Change: The dollar value of goods that we currently import from China exposed to tariffs is highly variable and changing rapidly given these revised rates, but I can share a framework for how to approximate our total imports in 2022 last year, we reported specific product cost of sales before the acquisition of <unk>.
Speaker Change: <unk> steel our pressure control product revenue represented approximately two thirds of our total revenues our product gross margin can be found in our historical filings from the same period.
Speaker Change: Both this product proportion of sales and the gross profit margin are close enough to recent results to utilize to utilize to approximate our total pressure control product cost of goods sold as.
Speaker Change: As we've shared previously about half of our product cost of goods sold relates to imports from China and approximate approximately 80% of our product costs are direct which relates primarily to material cost and freight. These factors can be taken together to calculate the dollar value of our imports that the tariff.
Speaker Change: Expensive lies too, which I think you'll you'll agree is relatively small compared with the total size of our business today.
Speaker Change: Particularly including the contribution of spool technologies, so to reiterate we expect to neutralize the increased tariff expenses by mid next year and although our margins may face modest compression between now and then our inventory on hand, and mitigating efforts will allow us to la.
Speaker Change: Largely preserve our profitability on an absolute basis.
Now moving to our expectations for the second quarter of 2025 by reporting segment notwithstanding strong momentum in April in both segments for the second quarter, we expect pressure drove revenue to be down low this low to mid single digits versus the $190 million reported in the first quarter.
Speaker Change: The anticipated decline is largely due to moderating levels of products sold per rig followed.
Speaker Change: Follows after a record first quarter and a decline in average activity levels from speaking with our customers. We believe that second quarter average U S land drilling activity will be down slightly from first quarter average levels in the industry will exit the second quarter with approximately 30 fewer land rigs operating.
Then today the activity decline is likely to continue as the year progresses, and our customers reset their budgets given the weaker commodity prices and tariff impacts adjusted EBITDA margins at our pressure control segment are expected to remain stable at 33% to 35% for the second quarter.
Speaker Change: This adjusted EBITDA guidance excludes approximately 3 million of stock based comp expense within the segment.
Speaker Change: Regarding our global Technology segment, we expect second quarter revenue to be up.
Speaker Change: Up mid to high single digits from the first quarter, we believe normal second quarter seasonal expansion will more than offset the expectation of lower average U S land activity levels, we booked record Q1 orders, providing us increased confidence in this outlook sales to international locations were up 30%.
Speaker Change: After over quarter, driven by robust demand in Canada.
Speaker Change: Where we had our strongest quarter since acquiring this business in April we also produced and shipped our first commercial order of sour service pipe for high <unk> applications. We're excited about the opportunities of this product, particularly in the mid east market, we remain optimistic in our business performance.
Speaker Change: Despite uncertainty in the general macro environment.
Speaker Change: As a reminder, we have a high quality customer base in our Louisville technologies segment with approximately 70% of our revenue coming from majors large e&ps and I know these customers seem to be more resilient in their purchasing practices in the private and smaller e&ps in a lower commodity price environment.
Speaker Change: We expect adjusted EBITDA margins to be approximately 35% to 37% for Q2, which excludes a $1 billion of stock based comp in this segment given our U S manufacturing footprint, our <unk> technology business is much less directly impacted by tariffs and our pressure control business.
Speaker Change: However, we have experienced an increase in steel input costs year to date, although most of our steel inputs are sourced domestically markets have adjusted pricing to reflect tariffs regardless of where the steel was sourced.
Speaker Change: Adjusted corporate EBITDA is expected to be in.
Speaker Change: To be a charge of approximately $4 5 million in Q2, which excludes $2 million of stock based comp regarding our international expansion plans, we remain committed to establishing an international business, but have no further updates that we can share at this time I can assure you. Our leadership is very focused on this initiative.
Speaker Change: In conclusion, we had a strong start to the year in both segments. Although the industry outlook is clouded considerably in the last 90 days I remain confident that we will deliver strong returns and cash and cash flows through this cycle, given our support of customer base and our industry, leading diverse supply chain.
Speaker Change: And manufacturing cost profile, my management and I are unfortunately, not strangers to making the difficult decisions necessary to preserve returns during market cycles, such as this and we have show as and as we've shown in prior downturns. One positive implication is that operators tend to high grade.
Speaker Change: Suppliers, such as Cactus and times of supply uncertainty. We have received several recent inquiries about expanding business with customers in the areas. We have not historically serviced which supports this thesis and with that I'll turn it back over to the operator, and we can begin Q&A operator.
Speaker Change: At this time I would like to remind everyone in order to ask a question.
Speaker Change: Sorry, then the number one on your telephone keypad, we will pause for just a moment to compile the Q&A roster.
Speaker Change: Your first question comes from the line of David Anderson from Barclays. Please go ahead.
Speaker Change: Hey, David how are you.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Vietnam, It sounds like Youre going to be 100% shifting over from China and about a year I am curious on the Bossier City side, though which appears to be an even greater structural advantage. However, you have talked about some higher costs from importing the steel I am curious if you could talk about how you've mitigated that so far have you been able to source and other areas.
Speaker Change: <unk>.
Speaker Change: And even with that so I'm just kind of curious net net how much of an advantage is it today in terms of costs for our customer.
Speaker Change: Bossier City versus China, I'm, just curious what that looks like.
Speaker Change: What he is looking at.
Speaker Change: Oh.
Speaker Change: Yeah.
Speaker Change: David We've never described Bossier city as a low cost operation.
Speaker Change: It's a fast turnaround.
Speaker Change: Sort of a robust manufacturing environment.
Speaker Change: Which is frankly anything but high cost.
Speaker Change: Low cost what it frankly does is protect our market share by ensuring that we make deliveries.
Speaker Change: So.
Speaker Change: I can just tell you that the steps that we're taking.
Speaker Change: <unk>.
Speaker Change: And Youre right migrating to Vietnam for sourcing for the U S. In addition to several other initiatives.
Speaker Change: Will mean that.
Speaker Change: Our supply chain will still be heavily skewed towards.
Speaker Change: Non Bossier city manufacturing despite the fact that they they account for 50% I really I really don't think that we'll be able to get bossier much over 50% and the reason for that is.
Speaker Change: There's not that much U S manufactured steel so although bossier buys of this deal in U S that doesn't mean, the steel has been sourced in the U S.
Speaker Change: Understood.
Speaker Change: Understood on that.
Speaker Change: We often talk about passing through higher input costs to customers and I don't mean to diminish your performance in the first quarter, but I'm wondering is have you seen any pull forward in the first quarter of customers trying to get ahead of some of these tariffs I heard Jay mentioned some points some more supply chain to get ahead of that I'm curious how your customers.
Speaker Change: We are looking at that today.
Speaker Change: And in the past, we often talk about confidence and pass in all of this through to the customer are you still convinced that the customer can absorb all of this I realize you're a small part of this A&P.
Speaker Change: But I'm just curious how you think your customers are going to behave in this environment. Thank you.
Speaker Change: Yes.
Speaker Change: Maybe we didn't make this clear.
Speaker Change: Once Vietnam replaces China.
Speaker Change: Going to be largely neutral in terms of tariffs.
Speaker Change: So you understand that I think that during this interim period.
Speaker Change: Bob.
Speaker Change: In addition to the various sourcing initiatives that we're taking.
Speaker Change: I am very confident that our customers will bridge the gap so while our profit margin percentages.
Speaker Change: Will decline our absolute profitability will be maintained.
Speaker Change: And so yes, I am confident that that great.
Speaker Change: Great. Thank you Scott.
David Anderson: David you had another get it what was your first question.
Your next question comes from the line of Stephen <unk> of Stifel. Please go ahead.
Stephen: Hey, Thanks, good morning, everybody.
Speaker Change: Well thanks for all the details.
David Anderson: Thank you.
Stephen: My first question.
Speaker Change: So I think <unk> to work with Dave asked but when you look back at prior downturns in cycles in your conversations with customers.
Stephen: Hugh.
Stephen: To my knowledge, you have never kind of wash the customer permanently right.
Stephen: Tended to stick with you because of the quality of the product et cetera.
Where do you where do you expect to see in this downturn, but is there any difference in churn.
Stephen: Our customers are acting or you expect them to act.
Stephen: As they sort of navigate this uncertain period.
Stephen: Well forgive.
David Anderson: Forgive me, if I'm going to answer David.
David Anderson: Davids question. The first question. He asked are we seeing.
Speaker Change: Trying to pull forward purchases, yes, we have had many many requests from customers to pull forward purchases, 100% of which we have denied so.
David Anderson: Yes. They are doing the same thing that we're trying to do but we have not allowed them to do that because.
David Anderson: It's not fair to the other customers to deplete our pre tariff inventory.
David Anderson: So I apologize David for not responding.
Stephen: And then Stephen you want to know.
Stephen: It seems like you've obviously you wont, we don't talk market share anymore, but it's high.
Stephen: And you are a key key cog in the wheel for your customers. So I would imagine that they are.
Stephen: They are sticking by you were not kind of shopping lower price because of the sloppy environment similar they have done in prior cycles, but I just want to make sure thats accurate conclusion, yes, I would say that it is an accurate conclusion.
Stephen: Our major customers are sticking bias I am not.
Stephen: To tell you that they're not competitors out there who.
Stephen: We're not going to try to take advantage of our of our.
Stephen: Of our <unk>.
Stephen: Request for support, but I don't see it as any different than it has been in the past so.
Stephen: Our best Defense has been transparency with our customers.
Stephen: And we've always been transparent with them, we don't take advantage of them.
Stephen: And the fact that we are.
Stephen: To my knowledge, we're really the only supplier who can guarantee delivery and sustainability. So while there might be a few competitors out there who might be able to say I am not going to pass that tariff impact you know that as soon as they deplete their inventory theyre going to have to replace it with higher cost.
Stephen: Or not replace it at all.
The customers with whom we do business. The most important thing to them is sustainability of supply chain.
Stephen: We truly are the only ones that offer that.
Stephen: Great. Thank you.
Speaker Change: The second question I had was around sort of M&A opportunities in this environment I mean, obviously the cash balances is very good you guys are always.
Speaker Change: Always but youre seeking seeking transactions that are.
Speaker Change: Proprietary accretive cash generating et cetera, where do you think youll see in this business.
Speaker Change: Macro environment like you think this creates opportunities for you given how strong the balance sheet is in.
Speaker Change: Anything you can you can shed light on that topic would be helpful.
Speaker Change: Steve It does surprise to you that private equity can't give anything away right now so.
Speaker Change: I don't think Theres, a single investment in oilfield service, it's owned by private equity that's not available at an attractive price.
Speaker Change: Flex deal was.
Speaker Change: A rather unique opportunity.
Speaker Change: I can't I think maybe we have seen one or two that are similar to that but.
Speaker Change: Right now my focus is on the business that we are in the industry that we're in.
Speaker Change: So I wouldn't dismiss and other flex deal and I think theyre going to be more and more flex deal looking opportunities as I say, primarily from private equity, but our focus right now is on our industry.
Great. Thanks for the color.
Speaker Change: Okay.
Speaker Change: Your next question comes from the line of.
Speaker Change: Scott Gruber of Citigroup. Please go ahead.
Speaker Change: Hey, Scott good morning.
Speaker Change: Doing well.
Speaker Change: I missed the revenue guide for pressure control <unk> can you repeat that and then.
Speaker Change: On the EBITDA dollar preservation, which is super impressive.
Speaker Change: Dave asked about pushing pricing.
Speaker Change: I was also curious about startup costs Vietnam.
Speaker Change: Are those material.
Speaker Change: Yeah.
Speaker Change: Our near term profits or there's really de minimis.
Speaker Change: They're de Minimis I'd use the word de minimus since it was in the Wall Street Journal today.
Speaker Change: Did you read that article.
Speaker Change: No.
Speaker Change: Morning, Okay de Minimis tariffs anyway, I do want to use the word de minimis.
Speaker Change: So our second quarter guide revenue wise, Alan was down low to mid single digits, Yes, Scott.
Speaker Change: Okay.
Speaker Change: You bet.
Speaker Change: And then also on Vietnam.
Speaker Change: We saw the estimate.
Speaker Change: Let me answer Vietnam for Ya.
Speaker Change: I don't know if we've explained this.
Speaker Change: Clearly enough we have.
Speaker Change: Two operations in Vietnam.
Speaker Change: And.
Speaker Change: We have already funded.
Speaker Change: The primary operation the one that replaces soochow, so it's done and dusted.
Speaker Change: Except for maybe I don't know couple of hundred thousand dollars Theres really not much.
Speaker Change: Additional money to be spent I think most of it Joel as it were.
Speaker Change: <unk> does all of this is a final at the final EIS, which is always the last thing to go in but it's already producing goods.
Speaker Change: So.
Speaker Change: Youll have note.
Speaker Change: No surprises.
Speaker Change: Got it and then I was curious about the supply chain.
Speaker Change: <unk> or the region really your ability to kind of move away from the China. Chinese supply chain are you are you going to be able to source forging and castings from either Vietnam or.
Speaker Change: Are there other countries.
Speaker Change: In order to completely.
Speaker Change: Kind of move away from from China.
Speaker Change: We're a very clever questioner.
Speaker Change: So.
Speaker Change:
Speaker Change: Okay.
Speaker Change: As much as I hate to respond to this question.
Speaker Change: I have to tell you that we will be more fully integrated can I leave it at that and Vietnam.
Speaker Change: We are in China.
Speaker Change: Sure. Since you gave me a couple that we can leave it there.
Speaker Change: Yeah.
Speaker Change: Okay I appreciate it.
Speaker Change: Your next question comes from the line of Adam <unk> of Jpmorgan. Please go ahead.
Adam: Good morning.
Adam: How you see the mix of Vietnam manufacturing as a total as a percentage of the total and pressure control kind of evolving.
Adam: And as we move through year end and call. It mid year of next year.
Adam: Yes, so the ultimate goal is that Vietnam will.
Adam: Provide.
Adam: <unk> percent or close to 100% of what China provided for the U S market.
Adam: And the Chinese operation will devote resources to the international markets.
Adam: Got it got it and you feel like you can get there by the middle.
Adam: 2026.
Adam: The only thing really standing between us and that is the fact that we have to wait for it.
Speaker Change: API API has this I think I mentioned this before API has a requirement that you have to be up and running for four months show format performance need to have done.
Adam: Okay.
Adam: So we already started.
Adam: <unk>.
Adam: Once we get API in there and get our Monogram, then we can get monogram product, but thats not to say, we're not shipping already because we are just means that we can't ship fully assembled and tested it means we have to finish it in Bossier and then we can monogram it.
Adam: But we have to add value in Bossier once week, the API monogram it can stand alone and ship.
Adam: And the additional expense in Bossier City.
Adam: But yes, both Vietnam was designed.
Adam: To fully replace.
Adam: <unk>.
Adam: Our U S requirements.
Adam: Great great.
Adam: And then my follow up is you guys use the average cost method of inventory for accounting purposes.
Adam: So.
Is it fair to say that <unk>.
Adam: We will not fully.
Adam: Reflect the impact.
Adam: Of.
Adam: Of tariffs on Chinese goods.
Adam: And so we're trying to maybe understand <unk> got quite a few questions on the buy side, maybe just to help understand what type of margin or EBITDA impact could we see in the second half.
Adam: When your inventory.
Adam: Perhaps reflects the leading edge.
Adam: Costs.
Adam: Fortunately because of these tariffs.
Adam: Yeah.
Adam: Yes, Aaron this is Jay so we.
Speaker Change: Let me say, we are on a standard cost basis, but we are rolling our standards. Given these unusual tariff increases and we have quite a bit of pre tariff inventory on hand, so as we roll our standards and pick up the cost we also have.
Adam: The benefit of the amortization of the standard cost rule that provides us some relief over the back half of the year. So.
Adam: And we turn our inventory about two times a year. So we think that we will see some margin a little bit of margin compression in the back half of the year.
Adam: But as we diversify the supply chain and sourcing initiatives that will help mitigate some of the impact on the margins.
Adam: Great. Thanks, a lot.
Adam: Okay.
Adam: Yeah.
Adam: Again as a reminder.
I would like to ask a question press, Taiwan on your telephone keypad.
Speaker Change: Your next question comes from the line of Jeff Leblanc of BPH. Please go ahead.
Adam: Okay.
Jeff LeBlanc: Good morning, Sean and team. Thank you for taking my question good morning.
Speaker Change: I just wanted to see if you could share your thoughts on the potential ongoing section 232 investigation that the administration is ordered by the secretary of Commerce to conduct.
Speaker Change: The additional $2 32 is steel aluminum and derivatives.
Speaker Change: Brian.
Speaker Change: Great.
That's what I thought the day.
Speaker Change: Yes, I thought that they.
Speaker Change: The Secretary of Commerce was directed to conducting an ongoing investigation.
Speaker Change: The impacts of the U S or the U S economy excuse me.
Speaker Change: I'm sorry to see how.
Speaker Change: Yes, I did read that.
Speaker Change: No.
Speaker Change: I don't I'm not sure I can really opine on that.
Speaker Change: <unk>.
Speaker Change: And I don't want to get political but its.
Speaker Change: There's only one conclusion the U S.
Speaker Change: Does not have adequate steelmaking capacity to avoid imports.
Speaker Change: So if we're going to.
Speaker Change: Ramp up manufacturing.
Speaker Change: We're going to rely upon countries, who are willing to sell a steel so the.
Speaker Change: The answer is it's got to be it's got to be inflationary I don't see any way to avoid that.
Speaker Change: Just as an anecdote.
Speaker Change: We've always been a large large consumer of forgings for our industry.
Speaker Change: Back.
Speaker Change: From our wood group days in our Ingram Cactus days those sports companies, who are capable of producing this unique sort of steel because we don't just buy steel we buy shaped four.
Speaker Change: <unk> steel.
Speaker Change: Are either out of business completely and gone.
Speaker Change: Or they converted their manufacturing to munitions.
Speaker Change: In fact, a good friend of mine.
Speaker Change: One is the largest fortunately <unk> company in our area took us on a tour.
Speaker Change: <unk>.
Speaker Change: He is so full of government work that.
Speaker Change: He just told me I am never going back.
Speaker Change: The.
Speaker Change: The cost is.
Speaker Change: Is attractive I am sorry, the selling prices are attractive and the sustainability is pretty much assured and.
Speaker Change: He is just not terribly interested in the volatility of oilfield service requirements.
Speaker Change: So that as they.
Speaker Change: They can spend as much money as they won that's the conclusion there Ain't no steel.
Speaker Change: Okay. So the idea, though is that there wouldn't be incremental sanctions are incremental tariffs related to that investigation.
Speaker Change: It's just the.
Speaker Change: The existing Q, sorry for interrupting the existing $2 32.
Speaker Change: As it.
Speaker Change: It's got to be inflationary so.
Speaker Change: Additional $2 32 tariffs could be nothing but more inflationary there is no substitute for imported steel and <unk>.
Speaker Change: Don't see anybody building a steel mill right now.
Speaker Change: Suitable for our industry.
Speaker Change: Okay. Thank you very much for the color I'll hand, the call back to the operator.
Speaker Change: Okay.
Speaker Change: Yeah.
Don Crist: Your next question comes from the line of Don Crist of Johnson Rice. Please go ahead.
Don Crist: Good morning.
Don Crist: I wanted to ask one question on the sour flexible pipe that you flex steel pipe that you ship, obviously, that's opening up a new market and just kind of your thoughts around how big.
Don Crist: Do you think or how material that order is and kind of how big that market you thinking can grow in the next couple of years, because I know, there's a lot of Sal rollout there.
Don Crist: Yeah.
Don Crist: So in terms of the North American market I think.
Don Crist: Well.
Don Crist: We continue to get more sour over time, so we think the growing opportunity in North America.
Don Crist: Given kind of the robustness of our pipe in the makeup is not we're certainly not the cheapest alternative.
In general when people choose flexibility to use it for the reliability robustness and they're willing to pay the premium and thats going to be the case in our service. So it's going to be I think a small percentage of our sales but.
Don Crist: And a growing percentage over time, it's more material more immediately I think once we have some qualification testing, which I think will be sort of something within a 12 month timeframe for the middle East.
Don Crist: Because in the middle East significant.
Don Crist: Most production has pretty high <unk> content.
Don Crist: We see a lot of opportunity there traditionally in the middle East we have been more used in water injection applications.
Don Crist: But.
Don Crist: We're really pushing the use of our pipeline.
Don Crist: <unk> as well as in our area. So we're pretty excited about the potential.
Don Crist: Yeah.
Don Crist: Right.
Don Crist: And that's kind of what I was I was pointing towards the middle east using a whole lot more pipe because it's seller classification.
Don Crist: I'll turn it back to the operator.
Don Crist: Thanks.
Don Crist: Yeah.
Don Crist: That ends our Q&A session and we appreciate your participation I would now like to turn the call back over to Scott <unk>, Chairman and CEO for closing remarks. Please go ahead.
Don Crist: Okay. Thanks, everybody for listening I know this tariff issue is on everybody's mind.
Don Crist: If you are all in here a patch on the head and tell you that.
Don Crist: I am very comfortable that we have this year.
Don Crist: Under control.
Don Crist: I also would add that historically downturns.
Don Crist: <unk>.
Don Crist: They are good for our business.
Don Crist: They've always created opportunities.
Don Crist: With new customers.
Don Crist: And.
Don Crist: We're already seeing those opportunities right now in fact, a little earlier than I had anticipated.
Don Crist: So.
Don Crist: Just as we've always come out of these periods a stronger.
Don Crist:
Don Crist: Im really.
Don Crist: Comfortable that we will do the same anyway, everybody have a good day.
Don Crist: And thanks for calling in.
Speaker Change: Ladies and gentlemen that concludes today's call. Thank you all for joining you may now disconnect.
Don Crist: Okay.
Speaker Change: Please wait the conference will begin shortly.
Don Crist: Yes.
Don Crist: [music].