Forum Energy Technologies, Inc. (FET) Q2 2012 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Second Quarter 2012 Forum Energy Technologies Inc. Earnings Conference Call. My name is Chris, and I will be your conference moderator for today. [Operator Instructions] And at this time, I would now like to turn the conference over to your presenter for today, Mr. Patrick Connelly, Vice President, Strategic Development and Investor Relations. Sir, you may proceed.

Thank you, Chris. Good morning, and welcome to Forum Energy Technologies' quarterly earnings conference call for the second quarter 2012. With us today to present formal remarks is Cris Gaut, Forum's Chairman, President and Chief Executive Officer; as well as Jim Harris, Senior Vice President and Chief Financial Officer. Also with us today are Forum's 2 division presidents, Charlie Jones, President of Drilling & Subsea division; and Wendell Brooks, President of our Production & Infrastructure division. We issued our earnings release last night and it is available on our website at www.f-e-t.com. The statements made during this conference call, including the answers to your questions, include information that we believe to be forward-looking statements within the meaning of the Private Securities Litigation Reform Act. Forward-looking statements involve risks and uncertainties that may cause actual results or events to differ materially from those expressed or implied in such statements. Those risks include, among other things, matters that we have described in our earnings release and in our filings with the Securities and Exchange Commission. We do not undertake any ongoing obligation, other than that imposed by law, to publicly update or revise any forward-looking statements to reflect future events, information or circumstances that arise after this call. In addition, this conference call contains time-sensitive information that reflects management's best judgment only as of the date of the live call. This call is being recorded and will be available online for replay for 30 days following the call. Management statements may include non-GAAP financial measures. For a reconciliation of these measures, refer to our earnings -- news release available on our website. I am now pleased to turn over the call to Cris Gaut, our CEO.

Thanks, Patrick. Good morning. I will start with some highlights from the quarter, offer a few thoughts on the outlook for our business and then, turn it over to Jim, who will provide greater detail on our financial performance. As a reminder, for those of who are just getting to know Forum, allow me to take a minute and orient you. We are organized into 2 divisions, Drilling & Subsea, managed by Charlie Jones; and Production & Infrastructure, run by Wendell Brooks. Each division has 3 product lines pointed to their respective markets. The product lines within Drilling & Subsea include: Subsea Technologies, Drilling Technologies and Downhole Tools. Production & Infrastructure includes Production Equipment, Valve Solutions and Flow Equipment. I am pleased to report that in the second quarter 2012, we've generated $83 million of EBITDA on $374 million of revenue, producing EBITDA margins greater than 22%. Diluted earnings per share was $0.49 in the second quarter, more than double the diluted earnings per share in the second quarter of 2011. Please keep in mind, our share count increased after the completion of our IPO, which occurred early during the second quarter 2012. We had a strong second quarter of the year, generating good organic revenue growth across most of our product lines, despite the obvious headwinds in North America. The Drilling & Subsea segment led the company with 5% sequential revenue growth over the first quarter 2012, with Subsea Technologies alone generating 14% revenue growth over the first quarter 2012. 2 of the 3 product lines in our Production & Infrastructure segment generated good sequential growth in the second quarter, those being Production Equipment and Valve Solutions. Total orders over the second quarter were $326 million. Although that is a 20% reduction from the first quarter, most of the…

Thank you, Cris, and good morning. We continued our growth trend in the second quarter 2012 with consolidated revenues of $374 million, up 45% year-over-year. On a pro forma basis, organic revenue growth for the second quarter 2012 was up 22% over last year. Sequentially, consolidated revenue increased 3% to a record level in the face of some challenging market conditions for one of our product lines. International revenue was particularly strong this quarter, compensating for softness in North American revenue. Our consolidated earnings for the second quarter 2012 were $0.49 per diluted share compared to $0.22 for the second quarter 2011, an increase of 123% year-over-year. Sequentially, net income increased 4% in the second quarter. However, earnings per share is less than the $0.57 for the first quarter 2012, due to the impact of the additional 16.6 million shares issued in the IPO and the concurrent private placement in mid-April. Our consolidated EBITDA margins for the second quarter remained relatively consistent at 22.2% compared to 22.6% for the first quarter 2012. The second quarter includes a $3.2 million net benefit resulting from the reduction in the amount accrued for contingent consideration related to a 2011 acquisition, partially offset by the write-off of an intangible asset associated with a discontinued service line and transaction expenses incurred during the quarter. EBITDA for the quarter was $83 million, up 142% over the same period last year, and up slightly from the first quarter. I will now review our segment results, comparing the second quarter 2012 with the first quarter 2012. Our Drilling & Subsea segment contributed the majority of our revenue growth, while our Production & Infrastructure segment remained consistent overall with a strong first quarter. The Drilling & Subsea segment revenue of $223 million in the second quarter increased 5% over…

Thanks, Jim. I think the benefit of Forum's portfolio of businesses is becoming evident. Currently, our Flow Equipment product line is facing an adverse market during this period of customer destocking. But we believe in the long-term attractiveness of the frac flow equipment market once the surplus inventory is absorbed. Our Drilling and Downhole product lines are benefiting from increased international and offshore activity, and we see excellent performance and prospects for our Subsea, Valves and Production Equipment product lines. Our growth will be enhanced from our pipeline of new product developments and we are working on some interesting acquisition prospects. I am pleased with the progress Forum has made over the quarter, and I want to recognize and thank our employees for their good work. Thanks for your interest. And at this point, we will open the line for questions. Operator, let's begin the Q&A session.

[Operator Instructions] Our first question comes the line of David Anderson with JPMorgan.

I just wanted to drill down a little bit, just, on the margins in P&I this quarter. It sounds to me like it was basically, completely isolated to Flow earn. Is that the true in terms of the -- where the margins fell this quarter?

Yes. That's correct.

Now as we think about it, you highlighted it as just simply as an inventory correction, so it sounds like it's a couple of quarters, at best, it's going to take. Can you talk to us a little bit in terms of how the cost structure works? Is the cost structure -- are you able to adjust it? Or is this going to be so brief that you're just going to have to take your lumps for a couple of quarters and the margins start picking up again?

The primary issue here is one of orders and revenue. And we've got a certain level of fixed costs, of course. And during this period, when our customers will be working off the inventory that they built up, the orders will be low and our -- due to those -- the operating leverage impacts and margins will be depressed in that product line.

Okay. That product line, can you just remind us again how big of your business, overall, it is?

Yes. It was, in 2011, about 11% or 12%. It was higher in the first quarter, but it's going to be regressing to the low-teens there.

Okay. So it's pretty isolated. You guys have just brought up what I was trying to get at. If you think about -- and if we just kind of factor in, say, a flat rate count from here -- really, to the end of the year, how long do you think this inventory correction takes?

It depends by customer. But we think -- we're trying to be cautious here, David. But we think that by the end of the year, it will be complete. Maybe it works through sooner, but we're trying to be cautious at this point.

Okay. And let me just shift a little bit in terms of your Subsea business. We've certainly seen a lot of positive talk, you had commented very positively about the deepwater market and kind of orders that you'll potentially see in the second half of the year. Where are you right now in terms of your Subsea Technologies business, in terms of utilization? And I guess, is that really the -- is that the way we should think about it, is that the proper way to think about the utilization? Because I guess, what I'm also trying to get at is, if we're seeing this big ramp up happening in activity, how are you addressing that? Are you putting capital in that business to build up? Or kind of, how does that work? If you can just, kind of, help us understand that?

Right. We are seeing a significant increase in, as I've mentioned, orders from the past quarters. Not so much this quarter but certainly, quotation and discussions and negotiation, which will be turning to orders shortly. So we have, over the past year, significantly increased our capacity to produce work class ROVs. We are working hard on our supply chain, we are looking, again, at further expansion. There are some further things we can do and we're also looking at a roofline there, too. But that is something we are focused on, given the prospects that we see for that business.

But right now, are you effectively fully utilized? I guess, I'm just trying to understand how the business itself works? Are you building these specifically for jobs and so therefore, they're always going to be utilized? I don't -- it's not really a business that we, kind of, look at too closely in some of the other companies.

Yes. So we build these and sell them to the offshore construction companies. So we're building these and selling them to customers such as Technip and Canyon and GOSS and some of the leading subsea construction companies, Subsea 7. They own and operate these vehicles and we are a leading manufacturer of these for that market.

Okay. So as their business grows, your business grows right along with it.

Yes.

The next question comes from the line of Doug Becker with Bank of America.

Cris, I wanted to get a little more color on the guidance range. What type of industry backdrop would take earnings toward the $1.85 versus the high end at $2? Obviously, flow iron is going to be an important aspect of that, but just maybe some of the other variables as well.

Yes. So it's partly how severe this overstocking is. But I'm not even sure all of our customers understand how much that is at this point and how much -- how long it takes to work off. But we, at the low end of that range, will be looking I think at a reduction in U.S. land rig count from here and low utilization of pressure pumping.

And so a flat rig count would something be in the middle of that range, just generically speaking?

Yes.

Okay. Interesting that you were able to sell several -- 7 pipe handling packages in modestly declining rig count. I just wanted to get a sense for the repeatability of that in this type of environment.

Yes, we're very pleased with that order. Charlie, do you want to talk about that a bit?

We're particularly pleased because as you know, we've been working to get ourselves in a position to be able to bid some of these packages, and for us to do this and to sell it to an international customer, really opens the door for us in the long-term. So very good about the prospects going forward.

Okay. And then...

It uses a pretty wide range of our tubular handling and capital equipment technology all in this package so it demonstrates our capability.

That's definitely encouraging. And then, Jim, just 1 housekeeping item. You highlighted the $3.3 million, I guess, other income related to the contingent compensation. What's the thought process on that going forward?

So Doug, that contingent consideration is related to one of the acquisitions in the Flow Equipment business that Cris described. So consistent with that outlook that this destocking period that Cris talked about, we have reduced the accrual for that contingent consideration based on our current estimates and that we're required under current accounting rules to reflect that in operating income. So that's come through as a credit in the current period.

So it's a cash impact this year, it's kind of like adjusting your accrual for bonus payments, right, in a way.

And I guess, what I'm getting at is, if we see the rig count declining a little bit, would we see another credit along those lines?

We've tried to be pretty conservative here, Doug.

Okay. And we've seen some other equipment companies being pretty aggressive on the M&A front. Can you just generally speak about the M&A opportunities you see in this environment?

Right. So we are working on a number of deals and our focus in our acquisition effort, currently, is more in the Subsea, international or Downhole areas. And we see good prospects. I think the key is seeing -- a coming together of Stellar's [ph] expectations and -- in our own outlook. But I think in those markets, I think, we can make good progress.

Our next question comes from the line of Brian Uhlmer with Global Hunter.

Just wanted to dig in a little bit on how you look at the balance sheet, and you were talking about looking at the debt markets. They're pretty free and open for good performing businesses right now. If you -- do you think it's a good time to add on a little bit of extra capital or if you just want to pay down the current revolver? Or how you look at -- how leveraged do you want to get in the short run in order to take advantage of the current debt marketers?

Brian, we're not talking about increasing our debt at this point, but rather, replacing our 5-year term loan, bank term loan, with public debt, with no amortization and no covenants and that kind of thing. We're looking at that as a possibility and so just flagging that as something we're looking at and we'll be opportunistic in the market -- anything we could do there.

Okay. So you view the current debt level as kind of the peak debt that you would want to take on or if there's an opportunity, you'll consider more, but at this point, you don't want to expand and just put some extra cash on the books. Is this -- that what I'm hearing?

We're modestly leveraged here. We're less than 0.5x EBITDA. And we would take on additional debt to do acquisitions. But we view the level of debt -- the modest level of debt we have now as kind of our base level of debt in our capital structure, that we think would be efficient for the long-term, and we just want to make sure we have the best possible structure for that portion of our capital.

Okay. Sounds good. Second, kind of, unrelated follow-up. As we look at the puts and takes with some of the Drilling products versus Subsea, is there factory flowthrough that you can use -- an equipment, machine or some personnel that you can use as the Subsea portion ramps up and the ROV business ramps up and the other businesses ramp down? Or will there be market degradation in one, as you don't have flowthrough as much through the factories? And how do you look at those 2 offsetting each other with 1 business going one direction and one going the other?

There are synergies that we think we can get from our manufacturing facilities, right, Charlie? It's driven mostly by, I think, geographic efficiencies. The design and engineering expertise on our Subsea business is in the U.K., but we have, I think, very efficient fabrication facilities in Mexico, in Singapore. We're also looking longer term at other markets closer to our customers as well.

Our next question comes from the line of Robin Shoemaker.

Just going back to the Flow Equipment for a minute. You had, initially, thought you'd have a pretty good increase in sales '12 versus '11. Is it likely that '12 will be above '11 in terms of Flow Equipment sales?

Yes, Robin. We do expect that on a full year basis, we will see an increase over 2011. But we are experiencing sequential declines from that record level in the first quarter.

Yes, Okay. So first quarter was peak, understood. And so just the way that breaks out, as I understand, is roughly 80% related to consumable replacement; 10% to refit existing spreads with new flow iron and 10% flow iron for construction of new fracturing spreads. Is that -- anything within that mix changing?

Well, obviously, I think the number of new spreads that's being ordered is coming to a halt, right? But that, for us was, as you pointed out, not a big part of our market at any rate. But it -- for us, it's we're mostly consumable products related to activity. And as I mentioned, what we've seen is, our customers really were concerned about possible downtime and at a number of different lines in their chain there, they found that they have stocked up a lot of inventory. Kind of the mindset there maybe, I think, it can be indicated by maybe one of the big pressure pumping companies that bought ahead and made a big commitment on guar, right, in anticipation of shortages. And that's a company that has about as sophisticated a supply chain as one can have. But I think it's indicative of the mindset there that, "Gosh, things were so hot. We need to avoid downtime, we need to look at where we can possibly have shortages and buy those consumable products so that we don't have a problem." And I think that just -- that mindset is applied at -- all along the different procurement parts of the cycle and you've got to get work through.

Yes, I understand. So my other question had to do with Drilling Technologies and the order that you received that you highlighted, was that in the international market or U.S.?

Yes, that's for the international market. I believe those rigs will be going to the Middle East.

Right. So that kind of was -- my question was, we hear some generally positive commentary on the international land rig market, in contrast to what's going on in the U.S., at least, for now. So how does that work for you? Does it -- do you need, in any way, to increase your manufacturing footprint for -- internationally, for those opportunities or any of your other divisions?

I think we, at this point in that business, feel we have adequate manufacturing capability between the U.S., Mexico, Asia. I think we're seeing the benefit of our sales and distribution that we can get more of these international sales. Clearly, what we are seeing is the international or the customers in the international land rig market are looking for upgraded equipment, the kind of drilling -- land drilling equipment that has become so popular and efficient in North America. And that is what is driving demand for this improved efficient pipe handling equipment that we're putting on these international rigs.

Yes, right. Just one final quick question. At the time of your IPO, you had indicated that you were kind of looking very close to, perhaps, another transaction and haven't -- is that still possible, or are you kind of, more broadly, just pulled back slightly from the market for M&A?

We haven't pulled back in the market on M&A, but that was the deal we had under our letter of intent at the time. We had only disclosed it just because those are the rules, right? And we had a letter of intent, but before moving ahead with any deal to conclusion, we have to make an assessment of whether it's the right thing at that time or what the prospects are for that business, and that is something we chose not to move forward with due to changes in our view of the market for that entity's products.

The next question comes from the line of Mike Urban with Deutsche Bank.

I apologize if I'm repeating anything here. I got dropped from the call for a little bit there. But I don't mean to parse the guidance too much, but it sounded like kind of at, let's say, the midpoint of the range here, the primary, I guess, differences has been -- the difference has been this whole destocking conduct in the Flow Equipment business. And is that your assumption, again, at the midpoint? It's just that you've worked through the destocking and assuming we still have current levels of activity, you'll get back to kind of the levels of throughput that you've been experiencing previously or expected previously?

Yes, I think that's right, Mike. And we are taking a conservative view on the North America land market in general here going forward. Probably more conservative than we had 3 or 6 months ago, right, for obvious reasons. But we think it's prudent to take a conservative view on that.

Yes, I would agree. That makes sense. And is there anything about the shift in the mix of activity that we've seen in the U.S., whether that's commodity basin whatever the case may be, that changes your view on the intensity or the consumption intensity of the industry relative to your business and your products?

It varies a bit. Wendell, when you say that in the Flow Equipment pressure pumping market, although the increased activity in some of these oily basins, it's probably more stages, it's lower pressure, right?

That's right, Cris. There's actually less equipment required, horsepower-wise, on these oily basins. We see, perhaps, more underutilization of equipment than we saw in the first quarter. The operators also are being more cautious about operating equipment, trying to extend the life of the products. So the oily move, I think, has resulted in less equipment usage and probably better maintenance of the equipment.

Yes. And they're currently looking to keep their costs low, right?

Yes.

On the other hand, in our Production Equipment business, this move to oily basins has increased the per well investment, the per well purchases from us for the Production Equipment on a per well basis because of just the larger pressure vessels and more tanks that are needed for the liquids. And that's one of the things that's benefiting our Production Equipment business.

Okay, makes sense. And shifting over to the rig equipment piece, good to see that business holding up pretty well, including from an order standpoint. And it sounds like you're benefiting -- benefited from some orders internationally. Given your expectations and ours as well, frankly, for a more cautious U.S. land outlook, do you think there is enough interest and ability to migrate that business internationally to offset any decline that you might see in the U.S.?

Yes, Mike. We think so and you're right. We're benefiting from the international, particularly on the capital side, and that's offsetting the activity and consumable sales nature on the domestic side.

Next question comes from the line of John Lawrence with Tudor, Pickering, Holt.

Just a question -- another question on Flow Equipment. Is it just volume-driven or is price coming down as well?

The volume is certainly coming down. Let's see, I would say, on fluid ends, the pricing is quite competitive because you have these pump manufacturers who also make fluid ends, not having much to do on the complete pump side. And that's the primary area of price competition at this point that we're seeing, mostly a volume issue.

Is there any way to quantify that from the peak, as far as price coming down, just in rough terms?

It's -- I'd say, in less than 20%, in the 10% range. We're not seeing, in this space, huge moves in products.

Okay. Okay, great. And then, Cris, I guess, is it safe to say that you're not seeing any softness in the U.S.-levered Production Equipment business. It all seems pretty good there.

Yes. Right, right. Anything on that, Wendell?

Yes. One other point. Some of the growth in Production Equipment is we've been awarded several large contracts with major oil companies to develop larger production and separation systems for multi-wells and that is -- that's a prospect we see growing going forward. We're very pleased with how our business there in Production Equipment is competing.

Our next question comes from the line of Blake Hutchinson with Howard Weil.

Just -- one of the subsegments that kind of hasn't been explored here, sorry if I missed this in the earlier commentary. If we think about the Downhole business within Drilling & Subsea, did we kind of take a step back in top line sequentially here? And is it just kind of leveraged to the pace of completion activity in the Gulf of Mexico and maybe, in the 3Q, 4Q periods, you start to get -- resume what is -- I mean, probably a higher year-over-year growth rate here, maybe somewhere in the 15% to 20% range? How should we think about the Downhole business? It seems like thematically, it should be pretty good tailwinds here but maybe just a bit of a setback quarter-to-quarter?

They had a modest increase over Q1, but we think that, that -- that they will have better improvement moving ahead due to the international orders and to the offshore side getting stronger. So I think I'm agreeing with you, Blake.

And is the -- and just to be clear, the offshore side is more levered to the Gulf or international in general?

Mostly Gulf of Mexico. But yes.

Okay. And then, just kind of following up on some of the commentary so far. Some recent -- some of the recent comments point to the intensity and certainly, size of the process equipment market growing here. Understanding it's a fab business at its heart, is there ever a point where the volume is just so good that we introduce margin improvement, as well, as an element to the story?

Yes. Yes there is, Blake. We're introducing more automated equipment and we think that, that will help our efficiency and certainly, the operating leverage of the greater volumes going through our facilities as well, yes.

And we can see this near term?

We're working on it. That is our goal.

Okay. Thinking about Subsea, I mean, you made some comments with regard to kind of a higher level of margins here. I'm trying to get -- gauge whether that's -- that's sticky because we have a higher level of just unit manufacturing throughput? Or that was more onetime in nature because of the custom product mix? So does that kind of stick around and set a new kind of baseline for your outlook?

I think the second quarter did have a big lump of custom work. But the baseline of work class ROVs is looking very good. And then, we have other elements of the Subsea business, as well, that helped to balance our offering. But the general trend is an upward trend. But it was a great second quarter.

Okay. So maybe give some of the margin success back but certainly, we're operating at a higher level than maybe we would've thought coming into the year?

I don't know that we'll give the margin percentage back but that might be a little bit higher volume. It was an exceptional second quarter from a volume standpoint.

Okay. Great. And just I wanted to follow-up on the Drilling business because you are taking a conservative view to North America. But I think with the line of questioning in some of the commentary, it didn't sound like within the Drilling business we're throwing in the towel and all in terms of sequential top line growth there, despite the fact that we have a kind of flattening view, maybe, a flat to down view on North American rig count?

Yes, that's right. I think we are not at all saying that. We are saying that we think we can continue to grow our Drilling business. And it's largely driven by these international and capital equipment side, right, Charlie?

That's correct.

Great. I just wanted to kind of differentiate that from the kind of flow control commentary and the U.S. commentary around that. Great. I appreciate it and turn it back.

Our next question comes from the line of Joe Gibney with Capital One.

Just a quick clarification on your pipe handling package award. Is this for new build or a retrofit situation?

These are 7 new build rigs.

Okay. And then, Cris or Charlie, can you just maybe comment, then, about -- as we think about order inquiry levels maybe, perhaps, on the retrofit side of drilling capital equipment versus new build. Obviously, some headwinds on the new build front, but some stickiness, probably, still applies on the retrofit side. I'm just kind of curious on your perspective there, how order inquiries have trended certainly quarter-over-quarter.

Yes, definitely, Joe. Charlie?

Yes, Joe, the capital that we're providing into that retrofit market is still improving rig efficiency and speed. And it's very sticky and the outlook still remains strong for that equipment.

Okay, helpful. And then just sort of coming back to some of Blake's questions on Downhole. You referenced in your prepared remarks there's some strength in international and offshore order's ramping up. How big is international as a component of Downhole Technologies as it stands today? It'd be helpful.

I'm not sure I have that but I think it sits, Joe, 20 -- 20s.

20s. Okay. Helpful. And then, last one for me, Cris, could you talk a little bit about Valves? It's picking up a little bit more, it certainly seems like the outlook's a little bit more robust even at -- since the time of your IPO, I mean, some of that's pipeline-oriented in North America. But you referenced some new products in the upstream market. A fair amount of tailwinds here, you saw this out of Canyon as well. I'm just curious if you could comment on the valve market overall. It sounds like things are picking up, perhaps, a little bit more than anticipated.

Sure. And let me amend the answer on Downhole. It's a bit -- international's a bit higher than that, more in the 30s -- 30% range. Currently, we're up and growing. And on Valves, I think our Valves story is a very good one and we feel good about the momentum here. That may be because we have more of a midstream and downstream mix there than the other company you mentioned. But the order flow, the margins all look very good. And again, we're looking at our capacity and making sure that we don't run into constraints there and adding equipment and growing that business because we think the outlook is quite good.

Quite helpful for me. So one last modeling, housekeeping question for Jim, and I'll turn it back. Just on CapEx, materially the same, I think you're at $60 million. Last quarter you referenced, I believe, $55 million. Now -- just, it'd be helpful if you could parse out the subsegment allocation of that $55 million?

Yes, the reduction had to do with the -- and in Production & Infrastructure, we're pushing off some of the projects into 2013. So that was the cause of the delay. But in the D&S business, our D&S division, the CapEx for the full year will be right at $40 million and the balance is for P&I.

Our next question comes from the line of David Smith with Johnson Rice.

Apologies for missing this, what was the inbound figure for the quarter?

326 million orders. Inbound orders, 326, and the change from prior quarter was due to a lag in Subsea orders. But we think those orders are coming. That's the short version there.

That makes sense. So that would be a lumpy business.

Yes.

Most of my questions were asked already. So I'll ask about working capital requirements, which consumed a good portion of the first half operating cash flow. I wanted to ask if this was anything particular to the first half and whether we should expect this pace to continue until revenue growth moderates?

No. We did build working capital in the first half and we don't expect that to be the case in the second half, right, Jim?

Yes, we expect, David, to see a nice turn in cash flow in the second half of the year.

The last question comes from the line of Rob MacKenzie with FBR.

We're deep in the [indiscernible] territory here, but I have one final question. Cris, I believe you guys have said in the past that the Davis-Lynch product line, you saw some opportunity to gain some market share there. Can you update us on how that might be playing out?

Well, that is what we're doing with these -- this increase in our international business in the offshore side that we're seeing. And as we look at that business, I don't think our greatest constraint on growth is the market. I think it's more internal and capacity and process and things that we're working on. But I think we're upgrading our customer accounts and see good prospects there still. But there's a lot of internal work to do.

Great. And how would you kind of rank the magnitude of what you think you can achieve and the timing you might expect to see that?

Well, we see that as a growing business, prospect is good and we see it will be part of our -- very much a part of our growth picture next year and into the future. Well, thanks, folks. I appreciate your interest and we will look forward to talking to you again next quarter and in the interim. If you have any questions, please don't hesitate to give us a follow-up. Thank you.

Ladies and gentlemen, that concludes today's conference. Thank you so much for your participation. You may now disconnect. Have a great day.