Q2 2019 Earnings Call
Hello, and welcome to todays Carbo ceramics, Inc. second quarter 2019 earnings conference call.
Please be advised this call is being recorded today July 25, 2019, and your participation implies consent to our recording this call.
If you do not agree to these terms simply disconnect.
Some comments today may include forward looking statements, reflecting the company's views about future prospects revenues expenses or profits.
These matters involve risks and uncertainties that could cause actual results to differ materially from our forward looking statements. These statements reflect the company's beliefs.
Based on current conditions that are subject to certain risks and uncertainties that are detailed in the company's press release and public filings.
Our comments today also include non non-GAAP financial measures. These non-GAAP measures include EBITDA and adjusted EBITDA are not a substitute for GAAP measures may not be comparable to similar measures of other companies.
A reconciliation of net loss to EBITDA and adjusted EBITDA as discussed on this call is presented in the company's earnings release, which is available on its website.
Your host for today's call is Mr., Gary Kolstad, Chairman and Chief Executive Officer of Carbo Ceramics, Inc.
Mr. Kolstad. Please begin your call.
Good morning, and welcome everyone to our second quarter 2019 earnings call.
As I did last quarter I spend time discussing where we're at in the transformation process and then also I like what we're doing to accelerate that.
The strategy to transform the company is not an easy task nor is it a quick one but we believe our strategy to diversify is the correct. One for the long term sustainability of our business given the extreme volatility of the oil and gas market.
You might ask why do we believe we will be successful in our transformation strategy.
In short it'll be by leveraging Carbos for core strengths, which are material science technology solutions manufacturing expertise.
And marketing and sales and client expertise.
We're a very unique company and that our technology skills and products can be transformed and sold into other industries that really sets us apart from other companies.
We are well along the way in executing our transformation strategy to diversify our revenue streams into more profitable businesses and reduce our reliance on oil and gas activity.
For the first half of 2019, our industrial environmental revenues made up approximately 25% of our total revenue, which is up from 20% in the first half of 2018.
In addition, we continue to see better margin results from cost reductions and an improved product mix.
In addition in recent months, we have started to accelerate our strategy through inorganic opportunities.
Myself and several other members of the management team are spending a majority of our time looking for opportunities ranging from joint marketing agreements to partial investments to acquisitions.
These efforts are evidenced by our recently announced agreement with Frac G O to enhance our Fracpro software offerings.
This agreement will allow revenue sharing opportunities and a larger addressable market opportunity with these enhanced technology offerings.
We believe this opportunity could expand into an ownership investment.
We are also in the process of making additional enhancements to fracpro, whereby individual well data will be available on the cloud for use by operators.
This will allow operators to assess and analyze completion data real time, allowing modification real time as well as an integration of completions data into common platforms for further analysis.
We're targeting our software revenues to grow approximately 20% plus in 2020, primarily driven by our Fracpro Prepped Geo agreement and our cloud enhancements Refrac program.
Additionally, we signed an exclusive marketing agreement with Descartes.
In industrial ceramic grinding media manufacturer to expand our suite of cargo grind grinding products to includes larger ceramic media sizes and heavier densities.
These products are needed for certain milling equipment specifications as well as certain raw or requirements.
These are offerings, we did not have in our products, we previously and increase our ability to address a wider range of client needs and geographies.
We expect this agreement alone to provide approximately 10% revenue growth in our industrial ceramic revenue in 2020.
In addition to these two examples we are in active discussions regarding acquisition opportunities to further diversify and expand product offerings across multiple markets.
Including bringing value added technologies to the industrial and agricultural markets.
We expect to have something to announce here by the end of the year.
So to sum things up we are pleased with the progress made on accelerating our transformation strategy during the quarter.
From expanding our product offerings and industrial markets to enhancing our software offerings. The agreements that were signed will pave the way for future growth.
Now turning to recap our second quarter results.
Revenues for the second quarter of 43 million decreased 9% sequentially and 27% year on year.
The difficult North American oilfield market was the primary reason for both the sequential and year on year decline.
Although revenue was down 9% sequentially due to the continued challenges and volatility in the oil and gas markets.
Our adjusted EBITDA loss of 5.8 million improved 4.3 million sequentially as the revenue mix favoring higher margin technology products.
There were a few large jobs that were delayed during the quarter, which if completed could provide a meaningful uplift in EBITDA for the second half of 2019.
Our oil field sector revenue for the second quarter of 2019 comprised approximately 76% consolidated revenue.
We are pleased that even in this difficult market. We continue to find success for our ceramic technologies in the oil and gas market.
Revenue for those products increased 26% sequentially.
Additional details of these highlights can be found in the technology and business highlights of our press release this morning.
Our industrial sector revenue for the second quarter comprised approximately 7% of consolidated revenue.
We're very focused on getting our underutilized plant capacity back to producing products.
In this regard we did see some success with contract manufacturing revenue increasing over 700% year on year.
The growth in contract manufacturing results is it improved fixed cost absorption at our manufacturing facilities and benefits our profitability.
During the quarter, we executed the definitive agreements that govern our previously announced strategic partnership with mechanics for the production of M. tone.
A new family of functional pigments for the plastics paints and coatings and adhesive markets.
We continue to work with the contacts on the commercialization of the product and we should start to see benefits in late 2019 with expansion in 2020 as for chronic expects to ramp up mtwom product sales in the market.
We're excited for mechanics to start getting this product out in the market.
Recall this product is targeting the high performance black pigment market, which is estimated to be close to a billion and a half or 2 billion dollar market.
Our environmental sector revenue for the second quarter comprised approximately 17% of consolidated revenue.
The difficult Nam oilfield impacted our environmental business, we have been very focused on growing our sales into other industrial applications and are seeing some success.
Sales of our products into industrial applications grew approximately 250% year on year.
We're continuing to build a solid foundation of industrial sales with our asset guard products, which aligns with our overall corporate strategy to diversify our revenue streams across many markets.
Now turning to the outlook.
The carbo, the past will not be the carbo the future.
Our recently signed agreements to expand our product portfolio in the industrial market and enhance our oil and gas software offering is just the beginning.
As mentioned in our release. This morning late stage discussions are underway to capitalize on additional opportunities, including potential contract manufacturing opportunities with other companies.
For context these opportunities vary in size, but in aggregate could provide incremental EBITDA of $3 million to $20 million annually. If we execute on all these initiatives.
We believe these opportunities will set carbo on a new path by continuing to reduce reliance on oil and gas activity.
And provide a platform for growth for many years to come.
Although the first half of 2018 revenues were weaker than expected. We expect the revenue for the second half of 2019 to be stronger as delayed oil and gas projects further from the first half are completed.
As well as we expect to capitalize on some industrial opportunities.
As a result, we believe EBITDA should continue to improve as we work to produce consistent positive cash flow.
In addition, the recently signed agreements previously noted and possible additional opportunities.
Should accelerate our path to achieve this consistent cash flow EBITDA on profitability.
In the oil field, we expect a stronger half in the second half given the delays experienced for technology ceramic products during the second quarter.
Both KRYPTOSPHERE HD and LD sale should see continued growth and contribute meaningfully to revenue.
In addition, we anticipate technology sales of SCALEGUARD and Carbo NRT to also have good results as we close out the year.
In the industrial sector.
As mentioned previously we experienced a temporary temporary reduction in industrial sales due to clients equipment process change during the quarter.
As this client resumes normal activity and we are able to capitalize on the positive results from a number of our industrial product trials.
We anticipate industrial sales to grow in the second half compared to the first half.
We continue to put an immense amount of effort into clothes and contract manufacturing opportunities.
The process is long, but we are optimistic recent successful manufacturing field trials will result in project Awards.
These projects vary in size, but some opportunities at hand could observe a very substantial amount of our idled assets.
This important considering our profit and loss statement has been burdened by more than $14 million of under absorption and idling costs already in 2019.
I won't discuss specifics of these projects to the strict confidentiality agreements we have in place, but when these projects are awarded they provide predictable and profitable work utilize utilizing our idle assets.
These opportunities are key to overcoming the profitability challenges we face today, it's imperative, we get our assets back to work.
And the environmental sector.
Additional industrial sales resource were added during the second quarter of 2019, we expect these additions to lead to increased industrial sales for acid guard products over the remainder of the year.
In addition, our client.
Client count is growing to our ecommerce platform carbo direct which over time will lower client acquisition costs and improve working capital.
Maintaining healthy cash flows is a high priority as we continue our transformation process, excluding any potential M&A transactions and assuming oil and gas activity stabilizes.
We anticipate our cash levels to remain fairly flat for the remainder of the year.
And with that I will turn it over for questions.
Thank you.
We will now begin the question and answer session.
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We will pause momentarily to assemble our roster.
And our first question comes from Ben Carl.
Energy. Please go ahead.
Hi, guys. Thanks for taking my call.
Thanks, just a couple quick ones from me first can you just talk about maybe cost absorption and what that May look like.
With higher activity in Q3, Q4, and how that may affect margins.
Right. So it's I guess, it really it's going to depend on the production cadence.
As we are managing inventory.
So I would say as.
As we were producing at a higher level that particular under absorption goes down that's sort of the the the way the math works.
At the moment I would say, we're we would estimate that given activity at least into the third quarter that that under absorption would subside some as we're able to capitalize more into into the inventory.
Ultimately the margins order.
Flat I guess, because you're you're either.
Either absorbing it in inventory or how you're taking as a period cost, but at least for third quarter. I think we would see a little bit of a benefit.
Great. Thank you.
And just one more I guess on technology product mix and how that help.
Margins in Q2, and just with adding technology to the portfolio.
Can this be more of a sustain margin tailwind in Q3 second half going forward or just kind of what does that look like going forward.
No I think we think the second half will be better than the first half for sure in the second quarter was better than the first quarter and oilfield technology.
And in the industrial World our products there of course much better marching margin then the.
Let's say a lot of the products in oilfield, the base ceramic or sand and stuff like that so any growth in industrial ceramic is very very good for us.
In the environmental business actually has decent margins too.
So we would expect it to be better in the second half.
Great. That's all for me, Thanks, guys I'll turn it back.
Sure.
Our next question comes from Bill does slow.
Titan Capital management. Please go ahead.
Hi, Thank you I have a group of questions here and two if I go too long.
Please just cut me off.
First of all would you please discuss the.
Is it de Cod grinding agreement, however that is properly have pronounced.
Yes, it's a manufacturer of industrial ceramic media, we've made an agreement and also.
The manufacturing suppliers agreement as well as a regional exclusivity marketing and sales agreement with them.
Our portfolio.
Well pretty good needed to expand to get to larger sizes and heavier densities and they were in that business. So we were fortunate to develop a relationship and.
It could go farther than I have.
What we're at today like a lot of these things were looking that we talk about I think I threw out the words joint marketing agreement initial investment or acquisition, that's kind of the model. We're looking at a lot of these.
Projects are working on in the background, but these guys produce a good product and we're going to take it to market.
And then is this product that you are not able to produce in your facilities or is that you believe your facilities are better suited for other products that you think you're going to be.
Filling them with.
No Bill it was just a matter of the size and the density. So you have a combination of both the the raw material as well as the processing side of it and we didnt have that capability. So it's a nice little marriage.
And the timing of when you're going to be able to begin selling these products and just how big this that market is that they address.
Yes, so we're in business right now and.
I think we kind of we don't want to spell too much of that out but what we did say is that it will probably increase our industrial ceramic revenue next year by 10% because of that agreement alone.
So that's kind of how we've characterized it.
Great. Thank you.
Let me shift into your.
Comments in the release about contract manufacturer you field trials.
Provide some.
Some details around that and and fill in as many of the places you can place.
Yes, we've recently done a.
Trial or two with some companies and in this case there.
Fairly large companies and what they are looking for is additional capacity.
To increase the volume of products they can put out so.
You can come and see US we can make them you don't have to put in capital to build plants and all that stuff. So it's kind of the essence of contract manufacturing.
And.
Like I said, we we can't tell you what product it is north of the company because of the agreements.
So that's one of them on the second part you know we're also trying to get done with.
Just pure Rob processing of let's say, let's call it more raw materials, so not necessarily taking it all the way to a finished product type of level and so any of those if we can get into high volume and start to consume.
A line at one of the plants it really makes a material difference.
And.
The sales cycle is long, but you know if we get these things worked out the I think the just the general agreements are pretty long as well the client stickiness is pretty good and.
We're pretty darn good at manufacturing and we've got some wonderful folks at and.
At these plants and so the relationship we've had with clients is very good and we got a lot of know how there so.
I think it's starting to work and I.
We will communicate more after we land some of these.
And to what degree do you think there is a chance to land a land either of them by the end of the year.
I think we see on the one.
We're probably no.
Within the third quarter. The second one I think we'll know within the fourth quarter.
And Andy it it's the large company for that.
With the undisclosed product that would be Q3, and the raw material up production in Q4.
Probably although the raw material.
Might do if a trial in Q3, which will determine the Q4.
Right understood.
And then did we hear correctly that.
The.
Tech oilfield technology product sales were up 26% sequentially.
Yes, yeah from Q1, they're up and we expect a little stronger performance assuming that a couple of.
There's a couple of large jobs that.
Got push though if they complete those you'll see.
We should see a better second half two and.
That that should take place some of these big jobs are really can move around a lot, though just given the complexity of the wells.
And would you.
Would you talk about kind of what you're seeing on that front in that that push and pull and and.
Why the pushes tick took place out of Q2 and the risk of pushing further.
Yes, yes in the offshore World and then to very complex wells that a lot of things can have Doug we.
We never disclose client names, but we we had one well not last year well actually we completed last year and is supposed to be completed the year before so almost a delay of one year on a well.
They are unbelievably expensive wells are unbelievably critical so that's one that can move around a lot.
I would also characterize that we're seeing a lot of success internationally with our oilfield technology products.
You know everybody knows the difficulty of the low quality rocks in us onshore and partial.
Canada too.
So you know the everybody's trying to see how they can possibly make these lower quality rocks work, but internationally, where you have more conventional reservoirs.
We're seeing more adoption of our technology.
And actually our base ceramic too so our guys have done a good job in that way.
Thank you and then a couple of financial questions.
To what degree is the Wilks credit agreement supportive of or encouraging acquisitions versus.
This is more your your strategy and and.
I guess I'll say, they're going along with it.
Bill I think I'd characterize it as one the refinancing.
Allowed us some room.
And former cash to really pursue some of these opportunities in earnest.
That those funds would otherwise.
What had been repaid.
In addition.
We have some latitude built into.
The existing credit facility that allows us to pursue certain types of acquisitions, maybe by that I mean size, maybe even be a little creative on how we fund them.
We were as we continue to identify opportunities.
Yeah, there's a likelihood that we will turn to our senior lender and involve them in certain cases, where an opportunity may be bigger than what we are.
May be eligible to do are allowed to do.
And see if there are some some.
Creative way of working through it.
To allow us to to.
Exploit that opportunity.
I'd say they've been very supportive of good deal is a good deal bill. So we can come up with a something that's financially make sense I think there will be very supportive.
And I posed the question in the spirit of them, having the warrants and ER and the agreement expanding their ability to purchase to purchase stop my more stock. So I mean, it just on the surface. It seemed as though this was something different.
Then your typical bank relationship where were all they want is there interest in money back are these guys. It appears as though they might be looking for more it. That's what I was trying to to capture with the question Yeah, I think our real I would.
I would make the statement that it's been a very constructive relationship and we believe it will continue to be constructed.
Thank you and then.
Did I hear correctly that the new initiatives that you're working on could increase your EBITDA by 3 million to 20 million and.
If I did hear that correctly.
Would you talk about kind of that difference and it's a pretty wide a wide gap is $20 million would actually take you up to.
Net income breakeven to walk through that if you would please.
Yeah, Bill so when I said during the commentary there you know joint marketing agreements initial investment or acquisition. That's why we put such a broad range on a tight I think you know what we.
Couple of things that we landed.
You know, we'll have positive EBITDA ramifications some of the things we think we're going to capture will have positive and that the projects that we are.
Myself and the entire management team working on right now if we land at all of those you'd probably see that high range. So we want to put bookends on on both sides of that and.
It's one of the things that excites us and that we're working hard on that and I can tell you that this everyday we're trying to get more of these cross the finish line.
And.
And these are.
Initiate is that would carry past the end of the calendar year at you.
Am I understanding correctly that you're not expecting you to have all he's done by the end of the year or at least decisions by the end of the year.
I think that that's an appropriate characterization bill.
Some of these.
It maybe maybe to put it this way some as we've noted with Frac Geo.
There was a step one which is the joint development joint marketing.
Step two we're looking at potential investment or acquisition.
On some of the larger opportunities that may be the same courtship right. It may be that we start with a contract manufacturing arrangement, a joint marketing arrangement as Gary's indicated.
And then the the broader step would be some type of M&A.
And those those unfortunately don't happen overnight, especially as some of these might be very large.
It could take it just takes time from a diligence standpoint, and you obviously back to having to.
Be creative in how we approach them from a structure standpoint.
Great. That's helpful. I do you have additional questions and I can either re queue or or follow up one on one what is your preference.
Please go ahead bill.
So, let's let's talk about.
The large jobs that were delayed.
So from the second quarter can you talk about I believe these are offshore or that you're talking about and and what is the current to current schedule now.
One of them is offshore and we think that is potentially at the end of the third quarter could roll into the fourth.
The other one is an onshore well and.
You know, what you're seeing a little bit in.
It's not just us onshore, but probably north America onshore clients are making some decisions to delay completion.
And.
So there's there's means for us to sometimes get the cash or if they changed their mind and decide not to completed in a quarter. So we wait and having said that I think Ernesto I'd characterize is correctly as.
We won't.
Record revenue, but yes, indeed, we got the material pay for that and just sit on the balance sheet. That's right. That's right. I think this is in keeping with something we've discussed in the past Bill where.
The degree we can were trying to change a model and that is where we're going to make an upfront investment in the form of inventory or production that we try and recoup that upfront.
In addition to reducing.
The terms on our receivables so as Gary mentioned, we look to try and.
Get payment, even though upfront even though the revenue itself may not be recognized until later point.
Yeah. That's helpful. And then you did see.
A blip here in your grinding media sales.
Would you talk about that process equipment process change that says that led to that and please take it back to the real basic level, because I don't think I fully understand how the product is used and therefore, what an equipment change it really means.
Well at the end of the day, the carbo grind products are put into mills and they may be horizontal mills meeting like have to sit there and rotating and our.
Our beautiful round parable grind pellets are put in there to grind up first minerals and they just go around around till the grind it up it could be a vertical mill too. So whenever clients go through things such as changing out those mills are having to replace the liners are those mills are just.
Those type of things.
It sounds like a refinery down time, but.
A certain amount of time that's down.
This I'm not going to say their name obviously, but this is a of a mining company.
Internationally, and it's our largest client and.
So but things are back to work now so that's just those things that happen.
And so you should really you you could as much characterize this as a as a turnaround if we think about it in a refinery terms for the mine mining operations, the mining process operations, rather than any sort a wholesale change.
Yeah, it's not obviously nothing is complex as a refinery turnaround, but yeah it'd be like us, losing the killing that a plant that's probably a better way to characterize it you're down for a while right well you fix things.
And and is this a change that they have done going to lead to either more or less ongoing sales of a product from from carbo to them.
I will say I am.
This client has been a wonderful client and as we've introduced new products and this past year with higher performance standards, they've been someone that adopts that.
And usually if you adopt a higher performance product of both sides will win on that they'll get better performance, we'll probably get a little bit more money right.
So.
It's been a nice nice.
Marriage for lot of years now and.
So the answer is yes.
Hi, congratulations.
Then let me shift again, if I if I may.
The pigment and and paint market. That's that's a new one at least for me, which we can talk about that talk about the opportunity and and how that even came about.
Well they approached US and this is <expletive> conics, they approached us and we had idle equipment and we have an extreme amount of know how at the plants.
So with some modifications a small amount of investment a certain trial on air.
We both work together to be able to produce the product there is certain amount of.
Permits all that stuff that's needed everything because it's a new product for the market, it's an incredible product.
It's going to go into the high performance Black pigment market.
And it will outperform literally anything on the market. So we made an arrangement. We we have the assets. We contributed Doug gave us a certain amount of equity.
Oh, we have a manufacturing contract with them.
In an equity ownership and so we're anxious I think we'll get product I think late Q3 early Q4 correct out in the market.
And.
So that you know the sales process, a little bit long as well.
But we're very appreciative of the electronics management and they've been over and gave us their marketing and sales plan. So they identify the clients are going to go to and it's a literally kind of waiting on us to get the product out the door and away. We go and for US I mean this is the kind of thing we really like a high performance high value product, we have and an equity investment in the future. If things are successful we may want to expand that.
So this is a kind of product we like as you know that this is like KRYPTOSPHERE HD right. That's how you should think about no. This is the KRYPTOSPHERE HD of the black pigments.
That's helpful. Thank you and then speaking of KRYPTOSPHERE, let's talk about crypts, just KRYPTOSPHERE X T.
It's it's interest I don't have a lot of familiarity with it and.
Yet.
It seems as though the unconventional wells have shunned anything technology really at the at the expense of just having the lowest cost possible and yet you referenced in the release X T being used in unconventional wells would you. Please bridge the gap between what we think of as he and conventional well usage of technology, and and X TV and incorporate it in.
Well XT is in between KRYPTOSPHERE, LD and KRYPTOSPHERE HD. So it's inventory meant to handle those stresses in between there.
And it's probably.
Much more a high profile well.
Then you know your Unconventionals you are correct to the economics, when you have to deal with low quality rocks such as the shales.
They're just trying to figure out how they can economically make it work and it's impacting the entire oilfield service industry as well as the NP on the U.S. and part of Canada. So that's why we may do a job or two that's probably really very deep very high stress wells or if it's on onshore and internationally. It probably has much more applications offshore it is much more applications, but its a product that is in between LD and HD.
And you just said you think it has more application offshore than it does onshore.
Yes, I am.
None of US are too happy with North America onshore right and the economic challenges of dealing with low quality rock and trying to make it work. So you know I kind of need to characterize a little bit.
If the oilfield picks up were there you know.
But having said that our focus is on oilfield technology ceramic the software business and oilfield and.
The rest of it will be what it may but we are absolutely want to move as much of the company as we can into more of the industrial world and.
Because.
Yes, it's a different.
It's a different value right. The people are struggling to make North America onshore work.
Right. So let me follow up with this H KRYPTOSPHERE HD has primarily been used in those deep tertiary wells and and yet there are a number of wells that had been you know that are being drilled offshore that that are not going into a into that zone.
So are you seeing what proportion of the of the non H D wells, saying that in the Gulf of Mexico that are being drilled do you think that X T could be a addressing.
It's got to be fairly deep wells, we're we're selling some KRYPTOSPHERE LD or for the shallower wells Weve and sell carbo light one of our older products in the shallower wells, but you get that kind of.
Close to tertiary type of depth and some people will be trying the XT for sure.
Understood.
Thank thank you both for the time and taking all the questions.
Thank you Bill.
Our next question comes from foreign car chequered capital.
Please go ahead.
Yes, hi, good morning, guys.
One question, let me ask on the industrial business.
You had to one customer doing there there.
You know the process.
Maintenance or whatever they were doing you talked about how is the trend of revenue.
Gross.
Excluding that it's been a terrific growing business you know.
It's mid double digits.
Aside from this sort of temporary issue.
Are you still on that trajectory or is something changed.
Yes, I think the expansion of our product portfolio in the grinding products carbo grind really it's going to help us 'cause that's held us back a little bit sometimes clients want to have the entire breadth of product so when they.
They do contracts, if you can't supply the whole portfolio, sometimes you are excluded.
Secondly, in the foundry business Oh, we had hoped that would work faster and given the.
Osha issues regarding the permissible exposure limits and things like that but that's moves slower than we thought.
And our next path on here, which will be a multi multi year path is moving into other categories.
And in particular filtering catalyst supports our catalysts.
And we're in the process of actually adding.
Trying to add people experienced people in those places. So that's that's a long term gross and I think were in the first inning.
Okay. Thanks.
And the.
KRYPTOSPHERE wells that were delayed that you talked about is that just so I understand is it the case that.
Your clients client or clients is going forward with those wells, but it's like.
You know the drilling is taking a little bit longer one of those things or is it or was it delayed prior to a final investment decision.
The one is yes definitely just drilling operational delays the second one the well has been drilled.
But they are just waiting to complete then you're going to you're seeing a lot of that is right in.
Gas areas stuff like that the commodity prices. So low you know it.
Oftentimes things are called Ducs right drilled but uncompleted. This is a much more high profile well, but it was the same methodology. They just didn't complete it right now.
Oh I understand Okay, and then just lastly to discuss generally.
Your strategy regarding the balance sheet.
I see you paid some debt down in the quarter, but unless I missed it didnt really.
No it's not a detailed breakdown of what you pay down or what did you pay down what are all the near term maturities this year maturities paid off for.
Just in general what's your strategy for.
So you know for the balance sheet.
Right, so I'll take that on.
The beginning of the quarter, we did pay down.
Some debt approximately $22 million I'm, sorry $27 million.
That was due a that came due we also during the quarter made a payment on our senior note.
And then subsequently refinanced that so the senior debt remains at $65 million, but that gave us some additional liquidity to work with as I mentioned earlier.
To work on some of these growth initiatives.
We continue to have a very constructive relationship with our senior lender and I think on top of that maybe reiterate reiterating some of the things that we're doing just from a from a practice standpoint.
To help bolster cash reserves and the balance sheet.
We are approaching our clients when there are large orders and asking them to at a minimum cover our cost of a particular product maybe cash cost of a particular product and as opposed to running the risk of having to hold the inventory for an extended period of time.
Which has happened in the past I think we're seeing some benefit from that as well as some benefit from.
Our initiative to reduce down terms as opposed to what we've seen historically with respect to DSL.
Every client is treated a little bit differently, just given certain circumstances, but that's the general trend that we're pushing for.
I think that's that's where we are we're going to continue to push hard at reducing cost, which will also help bolster cash.
And as we've mentioned I think consistently throughout the goal is to continue to push hard on this diversification strategy. This sort of growth these growth opportunities and where we may need to go back to our lender and Ah think about creative ways to get some of them down we will.
Okay. So you have a pretty substantial amount of cash on the balance sheet.
What was the.
If I just look at the cash is that they would say the cash burn was about $5 million in the quarter, which is.
A reasonably small.
What is that about what it was it was a little bit more because of refinancing.
No that's that's probably in the ballpark.
Okay Super well and just one last question on that there were some new line items.
Some operating leases that were.
So I'm not sure if those are sort of like on the balance sheet is that new was that related to the recent accounting change or or what were those.
It's simply the the accounting change where you now have to book both the.
Liability and asset for any leases that you have be it office lease or whatever it might be but okay. So.
And right and then an expense since then so okay.
Okay. Thank you very much.
You're welcome.
This concludes the question and answer session Mr. Kolstad I'll turn the call back to you for closing remarks.
Okay. Thank everyone for joining us this morning, a couple of summarizing some key points for you you know the management team. We are working tirelessly to find new growth opportunities to help us diversify away from the highly cyclical oil and gas industry.
We're pretty unique company with our four core strengths and that really.
Allows us to transform our technology in our products into other industries.
Relatively quickly.
And the other unique thing about US is that you know we have all these assets are people plants everything so we don't need a lot of capital, let's say to transform the company.
Now, we just need to get these assets back to work. So I. Thank you for joining us and we'll see you again next quarter. Thanks.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.