Circor International Inc (CIR) 2016 Q3 法說會逐字稿

Good day, ladies and gentlemen, welcome to CIRCOR International's third quarter 2016 financial results conference call. Today's call will be recorded.

At this time, all participants have been placed in a listen-only mode. There will be an opportunity for questions and comments after the prepared remarks. (Operator Instructions).

I'll now like to turn the conference over to David Calusdian from Sharon Merrill for opening remarks and introductions. Please go ahead.

Thank you, and good morning, everyone. On the call today is Scott Buckhout, CIRCORs President and CEO; and Rajeev Bhalla, the Companys Chief Financial Officer.

The slides we will be referring to today will be available on CIRCOR's website at www.CIRCOR.com, on the Webcast and Presentations section of the Investors link. Please turn to slide two.

Today's discussion contains forward-looking statements that identify future expectations. These expectations are subject to known and unknown risks, uncertainties and other factors. For a full discussion of these factors, the Company advises you to review CIRCOR's Form 10-K, 10-Q and other SEC filings. The Company's filings are available on its website at CIRCOR.com.

Actual results could differ materially from those anticipated or implied by today's remarks. Any forward-looking statements only represent the Company's views as of today, October 28, 2016. While CIRCOR may choose to update these forward-looking statements at a later date, the Company specifically disclaims any duty to do so.

On today's call, management will often refer to adjusted operating income, adjusted operating margins, adjusted net income, adjusted EPS, and free cash flow. These non-GAAP metrics exclude any special charges and recoveries. The reconciliation of CIRCOR's non-GAAP measures to the comparable GAAP measures are available in the financial tables of the earnings press release on CIRCOR's website.

Ill now turn the call over to Mr. Buckhout.

Thank you, David, and good morning, everyone. CIRCOR delivered revenue of $135 million and adjusted earnings per share of $0.46 for the third quarter of 2016. Revenue declined 15% organically reflecting the ongoing oil and gas downturn. Despite the cyclical head winds facing our energy business, we continue to focus on what we continue control.

In the third quarter, we negotiated an important strategic acquisition, further reduced costs and improved our working capital and cash flow performance. The supplier quality issues we noted in the second quarter in our Aerospace & Defense business continued to impact our revenue in the third quarter, but as of today theyve been resolved. We expect stronger performance from Aerospace & Defense on the top and bottom line going forward. Please turn to slide three.

October 13, we closed on the acquisition of Critical Flow Solutions. This acquisition is consistent with our disciplined capital deployment strategy. CFS brings an impressive portfolio of high-technology valves and automation equipment for severe service applications and diversifies our revenue base. We're especially excited about increasing our exposure to the high margin after-market business and expanding the percentage of our portfolio that serves the more stable downstream refining segment.

CFS has been able to generate strong margins due to its unique technology, large install base and high proportion of after-market sales. We believe the margins are not only sustainable, but can be expanded as we deliver synergies. We expect this acquisition to deliver a strong return on invested capital.

Innovation and technology development are core strengths for CFS. They have a strong and active pipeline of new products in development with significant growth possible. CFS has an excellent track record of successfully commercializing new technologies. We will integrate the CFS acquisition into our energy group as a new product line focused on the downstream refining market. Please turn to slide four.

Consistent with our simplification program, we're optimizing CIRCOR's organization structure for growth by better aligning our operating segments with end markets. The Control Valves product lines which serve the power, process and industrial end markets were being moved out of the energy group and combined it with our Aerospace & Defense business to create a new group called Advance Flow Solutions or AFS.

Energy team to focus on oil and gas-related markets. AFS will be a diversified flow technology platform to help CIRCOR in the aerospace, defense, power, process, and industrial end markets. In addition this new group will serve as the platform to acquire and integrate innovative technologies and adjacent flow control markets. Sumit Mehrotra will lead this new Group, which will be headquartered in Corona, California. Sumit currently serves as CIRCORs Senior Vice President for Global Supply Chain & Product Management. We expect a complete reorganization in the fourth quarter of 2016 and report the year-end results consistent with the new organization structure.

After Rajeev discusses us our Q3 financial result the, I'll provide more context on our expectations with the review of the end markets.

Thanks, Scott. Let's start with Energy on slide 6. Energy sales of a $100 million decreased 19% from the prior year. As Scott mentioned earlier, our results reflect continued weakness in our Energy end markets, including a sharper-than-expected decline in our short cycle instrumentation business. As expected, engineered valves the revenue began to moderate in Q3 versus the first half of the year. The Control Valves businesses were flat sequentially but lower versus last year, primarily due to weaker end markets, particularly in Europe. Distributed valve revenue in the quarter came in as expected, essentially flat to the prior quarter.

Energys adjusted operating margin was 11.4%, a decrease of 400 basis points year over year. This was primarily due to low volumes across all product lines and pricing pressure across most of the portfolio. Productivity actions, restructuring and sourcing savings helps mitigate the bottom line impact.

For Aerospace and Defense, please turn to slide seven. Aerospace & Defense sales of $35 million were down $1.3 million year over year, primarily due to the negative impact from FX. The supplier quality issues in our defense business that we noted last quarter have been resolved, but it did have an impact on third quarter shipments and margin. This impact was partially offset by higher commercial sales of our fluid control products. We expect to recover most of these delayed shipments in the fourth quarter.

Aerospace & Defense adjusted operating margin was 9.7%, an improvement of 60 basis points versus last year, despite the delayed defense shipments. The restructuring and cost reduction actions helped expand our margins over the prior year. We expect to exit Q4 with solid double-digit adjusted operating margin.

Turn to slide eight for selected P&L items.

There are a number of moving parts to the consolidated results that require some explanation. Overall, our adjusted tax rate for the third quarter is a net benefit. During the quarter, we recorded a tax benefit that increased EPS by $0.10 a share. We decided to repatriate some of our international cash. Based on our current internal tax position, the difference in taxes between the two jurisdictions resulted in a benefit. We recorded $4.7 million in special and restructuring charges. These charges relate to reductions and force and facility exit costs of $2.8 million and the non-cash acquisition-related amortization expense of $1.9 million.

In the second quarter earnings call, we discussed a non-cash accounting charge related to our closed pension plan. That charge will now be recorded in the fourth quarter at approximate $5 million. As Scott mentioned, our adjusted earnings per diluted share were $0.46.

Turning to our cash flow and debt position on slide nine.

During the third quarter, we generated approximately $21 million in cash from operations and over $17 million in free cash flow. Our continued focus on working capital is beginning to show in the results. We saw an improvement in all of the components of working capital, which contributed over $50 million to operating cash flow.

This brings us to our guidance. Please turn to slide ten.

Overall, we expect revenue in the range of $145 million to $155 million and adjusted EPS in the range of $0.35 to $0.45. This guidance includes revenue of approximately $18 million from the CFS acquisition relating to the period from mid-October to the end of the year.

I'd like to note that the CFS revenues are affected by the timing of refinery turnarounds which generally occur in early spring or the fall. As a result, you should generally expect lower after-market revenues sequentially in the fourth quarter. CFS fourth quarter revenue contribute an adjusted EPS of $0.10 per share, reflecting a tax rate of approximately 38%. This fourth quarter guidance range reflects a $0.03 per share impact from higher interest expense based on the higher borrowings for the acquisition. Finally we expected tax rate on a blended basis to be approximately 28%.

The adjusted guidance does not include amoritization related to recently acquired intangible assets. Consistent with treatment of the Schroedahl acquisition, we will report the CFS-related amortization expense as a special charge.

Regarding special and restructuring charges for the fourth quarter, we anticipate charges to be in the range to $7 million to $9 million or $0.29 to $0.32 per share. Included in this range is a non-cash accounting charge related to our closed pension plan of approximately $0.18 per share as discussed earlier. However, this range does not include any intangible amoritization expense related to the CFS acquisition. The valuation of acquired asset is currently under way and expected to be substantially complete before year end.

With that, let me turn it back over to Scott.

Thank you, Rajeev. Let me provide you with an overview of the trends in [IN] markets. First, Energy.

Energy segment orders were lower overall in the third quarter versus the prior year, primarily due to continued weakness in most of our Energy end markets. In our short-cycle distributed valves business, we're cautiously optimistic that the marketed has bottomed. Were starting to see a slight increase in activity with our mid tier distributers at the end of the third quarter and this is continued through October.

For Q4, we expect some growth in our order intake driven by the increase in rig count and the completion of previously drilled wells, especially in the Permian Basin in West Texas.

For mid-stream applications, we continue to our quality our trunnion and fully welded ball valve products with pipeline companies. Recent qualifications include Williams and Kinder Morgan.

During the quarter, we saw a double-digit sequential increase in midstream orders. The third quarter order intake in our long cycle engineered valves business was weak for both new projects and MRO. The bright spot for this business continues to be in the Middle East, however the competition and related pricing pressure is intense. In addition, we're seeing delays in the projects in the Middle East which is a relatively recent development.

Given the weak orders in the third quarter, we anticipate a significant reduction in our revenue in engineered valves in the first half of 2017, compared with the first half of 2016. Order intake from now through the first quarter of 2017 will determine the strength of our revenue in the second half of next year.

In our Control Valves business, the power market is still active but softening globally, resulting in increased competition. The pipeline of power opportunities remains healthy in China and the US but we're increasingly witnessing project delays.

In addition, the industrial market in Europe and China is weaker and pump OEMs are expensing declining revenues. Pump OEMs are a major customer segment for Schroedahls automatic recirculation valves. As a result, Control Valves is expected to remain at current revenue levels for the remainder of this year.

As I mentioned earlier, we saw a sharper than anticipated drop in short cycle orders and our upstream instrumentation business in the third quarter. We experienced a slow down in MRO orders in the North Sea. In addition, the orders we expected to receive in the third quarter from the Johann Sverdrup project have been delayed.

Healthy activity in our downstream sampling business is helping to offset some of the declines were seeing in the upstream portion of this business. Stronger sampling product sales in North America are being driven by stricter regulations on fugitive emissions and refineries. Our closed loop sampling systems meet the stringent regulatory requirements. Overall we expect slight deterioration from the Q3 order run rate through the remainder of 2016.

Turning to Aerospace & Defense, our outlook for this segment remains positive on both the commercial and defense side of the business. Orders are often lumpy given how the customers place orders for large platforms. Recall that we had strong order intake in the second quarter of this year.

Q3, year-to-date book-to-bill ratio is 107%. Boeing and Airbus are continuing to ramp up production rates for both narrow and wide body platforms. In addition, we're making progress in our efforts to build our high margin after-market business and expect sales in 2016 to double over a relatively small base in 2015. We expect to have strong revenue in the fourth quarter and enter 2017 well positioned to deliver growth and margin expansion.

So in summary as we enter Q4, our revenue run rate is modestly improving in our short-cycle distributed valve business and we expect control valves to be flat. We expect instrumentation of sampling to be slightly below Q3 for the remainder of 2016.

For engineered valves, we expect flat revenues sequentially as we deliver on the backlog. However, we will see a significant reduction in revenue in the first half of 2017. Aerospace & Defense revenue should grow significantly in the fourth quarter of 2016 as we deliver on our backlog and shipments that were delayed by supplier quality issues in Q2 and Q3. We expect this business to continue to grow and expand margins in 2017.

In addition as we enter the final quarter of the year, we remain focused on what we control. Were executing on our simplification and margin improvement actions. We continue to stay ahead of the market headwinds to aggressive cost actions including reductions in force, furloughs, factory consolidations and overall cost control.

And finally, we're committed to creating long-term value for our shareholders by investing in organic growth and acquisitions, expanding margins, generating strong free cash flow and being disciplined with capital deployment. We believe that the additional steps we're taking to optimize our organizational structure will further position CIRCOR for above-market growth going forward.

With that, Rajeev and I are available to take your questions.

Thank you. We will now be conducting a question-and-answer session. (Operator Instructions) For participants using speaker equipment, it may be fair to pick up your hand set before pressing the star keys. One moment please while we poll for questions. Our first question comes on the line of Nathan Jones with Stifel. Please proceed with your question.

Good morning, guys.

Hey, good morning, Nathan.

Good morning, Nathan.

I wonder if you could give us a little bit more color on the expected reduction in the engineered valve business in first half of 2017, given that the backlog is pretty much baked for the first half of next year. Maybe frame it up with some number for us on what we should expect going into the first half of next year?

Sure. So we as we said the numbers or the backlog is secure for the remainder of this year and it's playing out exactly as we expected it to.

Going into first quarter of next year, low order intake this quarter end and last quarter is going to lead to a drop. We're looking at a revenue decline for the engineered valve business somewhere in the 30% to 40% range in the first half of next year.

Okay, that's helpful. And then you did talk about some project delays, intense price pressure in the Middle East and things like that in that business. Can you talk about how you're thinking about your approach to that market in terms of having to absorb fixed cost versus taking projects without much margin if any at all on them and just how that's changed as you have gone through this year?

Sure. So, yes. A couple of comments here. We are not putting negative margin projects into our backlog. So were being very disciplined about that. We do believe that some of our competitors are putting negative margin projects into their backlog right now. We haven't done that at this point and we don't intend to.

We have a couple of benefits that our competitors don't have. One of the issues that our competitors worry about is engineers. They have talented engineers that they dont want to lose in the down cycle and they don't to want layoff. We had the benefit of being able to redeploy engineers to parts of our business which weve already started doing. Weve also started taking cost out that we cant take cost out so weve started furloughs and layoffs in our engineered valve business already. And so because of the lead times here, we're going to be able to manage the cost structure very well much easier than some of our short cycle businesses.

So going forward we don't really intend to change our stance here. We don't intend to take negative margin projects. We're not at a point where we're desperate or we think we have to do that to absorb cost. And I don't think were going to get to that point. I think we can manage our cost structure with the diversification of CIRCOR better than some of our pure play peers who are only in project business and have no choice but try to absorb all this engineering fixed cost.

Okay. It sounds like your outlook for that market doesn't improve at the moment. So we probably shouldn't really expect the run rate from the first half of 2017 to change in the second half of 2017, you know, unless something significant changes in the marketplace, is that fair?

I'm not sure I would say it with that much certainty, Nathan. I think that if you look -- you know we track these things very closely. We look at our pipeline of quoted projects, it's pretty large right now. The issue is really the delays to decisions.

It could be significantly better second half than first half next year. I don't how I put my bias on this. The activity is there, the projects are there. I don't know that they're going to be decided in time for us to have a good third quarter or fourth quarter next year, but we'll see. The way you said that was a little bit more certain that what I would say. The second half of next year is still open for us.

And just to add to that, Nathan, the area that we are still quoting a lot on continues to be the Middle East, continue to be Saudi, Kuwait, Oman, that neck of the woods.

Okay, and I guess those things could improve fairly rapidly if oil prices improve or at least maintain the lack of volatility that theyve had over the last few months.

Yes. I think you could say it that way. Or you could say, we've got some large projects that have been quoted and are sitting out there today with oil prices where they are. If those get decided in our favor, the outlook for the back looks pretty good.

Okay. Thanks very much. I'll get back in the queue.

Okay.

Our next question from the line of James Picariello with KeyBanc Capital Markets. Please proceed with your question.

Hey, good morning, guys.

Hey, James.

Just from a higher level here, if Middle East project work is on the reset here, just a temporary reset it seems, how should we think about maybe the net positive impact on the short-cycle distributed valves business in North America? Just because maybe this project work on pause indicates some sustainability or stability in the price of oil here. How are you guys thinking about that?

So I'm not sure I -- I'll try to answer your question. If not, just maybe you could ask it again.

I think what you're getting at is the relationship between our long and short-cycled business and demand in general. And I think -- let me talk about short cycle first. At $50 a barrel, we are seeing increased activity. It's nothing to get too excited about. But clearly there's a clear trend towards more quoting, more orders, and we're expecting sequential growth from, as you know, a very low base here in Q2 and Q3 of 2016.

So the activity is largely happening in Texas in the Permian and I think at $50 a barrel you're going to see modest growth in our short-cycle business in North America. At $60 to $70 a barrel, sustained I think our whole business outlook will change. I don't think at $50 you're going to see significant change in long cycle large projects. $50 just isn't enough. But somewhere between $60 and $70 a barrel I think large projects come back into play and I think you see a more broad recovery in North America in short cycles. So it won't just be the Permian and a few basins. I think you'll see a broader recovery in short cycle at $60 to $70.

So we're watching it closely at $50. We're happy to see some growth in North American short cycle. But we expect a broad recovery in long cycle or even broader recovery in short cycle in North America.

Just to add to that, James, (inaudible) when you talk about the Middle East and the projects there, theres a lot of interplay outside of just kind of the oil price standpoint, whether its social, political and otherwise. So there are a variety of factors that come into play relative to what decision may be made relative to project going forward or not.

That's helpful. And then regarding CFS, you did make the comment around seasonality with respect to downstream refinery maintenance. Can you just expound on that? And basically and more or less talk about whether CFS is in any way exposed to sustained refinery maintenance pushouts which have been going for some time. Any color there would be helpful. Thanks.

Sure. Let's talk about -- or just kind of on what happens during the year. As we mentioned on the prepared remarks, refineries do turn around generally twice a year. And the springtime which can be to the end of February to early part of May and in the fall towards end of August to the early part of October.

And so when you talk about the after-market piece of both DeltaValve and Tapco Enpro, the scope of work at a particular turn around, at a particular point in the year will determine the level of revenue.

So you kind of have that sequential impact going from the third to the fourth quarter or even from the second into the third quarter. And usually it's around 15% to 20% of the after market revenues can be affected when you move sequentially from the third to the fourth quarter.

With respect to kind of the pushout point you made, let's remember that one of the key benefits of this CFS business is a very installed base, especially with the Tapco Enpro side. And having a significant installed base there helps mitigate what may happen in a particular refinery.

So there are well over 220 refineries worldwide with maybe 1,000 [cocodrums]. And so as when those come up for overall repair, that's an opportunity for DeltaValve and Tapco Enproto gain some revenue. So you may have an individual pushout, but overall the large install base helps mitigate that.

I think the other point to make on that, the DeltaValve piece of the business is that while they do have after market and refurbished [metapping] on the unheading devices about every six years, the safety-related item, the large majority of the capital spent in safety is usually one of the last areas to get cut. So the penetration that we expect in this product is unlikely to be cut from capital budgets. And I think the maintenances fits into the same category. So on the DeltaValve side I wouldn't see so much -- I wouldnt expect to see as much seasonality.

Got it. Thanks. I'll get back in queue. Appreciate it.

Thanks, James.

Our next question comes from the line of Charley Brady with SunTrust Robinson Humphrey. Please proceed with your question.

Thanks, good morning, guys.

Good morning, Charley.

I just had a question on this realignment of the segments that you're going to do at year end, does that result in any -- is it more kind of on paper or is that resulting in potentially charges or any kind of accounting treatment that's going to happen? And if so, is that going to recapture in kind of the numbers you laid out for us on that slide for guidance?

Yes, Ill tell you what, Charley, I'll get to these charges in a second. But why don't I turn it over to Scott to talk to you on why we're doing and then well come back on your question.

Yes, so the org change is certainly not just on paper. I mean we're realigning the whole organization here.

I think the -- we were headed in this direction. This was going to happen with or without CFS. We were going to be moving the Control Valves group and combining with Aerospace & Defense. We probably would have done it closer to the end of the year without CFS but CFS became somewhat of a catalyst to go ahead and do it now.

The broad reason for doing this is not so much related to cost and restructuring. It's much more related to growth. So creating the AFS group is creating a platform for us to address the broader market and more aggressively diversify the Company, not only from an end market standpoint, but from a technology standpoint. There's technologies out there that are clearly going to converge with what we do here at CIRCOR that we need to participate in and want to participate in. And this new AFS organization will more easily allow us to participate in that.

It also has the benefit of creating an energy group that is homogenous is not the right word. But its kind of a pure play oil and gas much simpler way to go to market and consistent way to go to market in that business now. And we can do the same thing on the AFS side with how we organize the commercial organization.

So what you'll see going forward is a more aggressive CIRCOR from a growth standpoint organically, but also from an M&A standpoint as we go forward. So with respect to charges and costs, there are some cost savings associated with this reorganization, but they're not large, theyre not something that we're going to call out specifically. But, yes, there are some savings associated with the reorganization.

And just to add to that, so we do not expect there to be any significant charge here. Hopefully benefit at the end of the day. But as Scott mentioned, it's focused on growth. As we do the realignment here, we will restate the prior years, Charley, and we'll file that obviously with an 8-K and you'll have access to the historical information on an apples-to-apples basis.

Yes. I think the other thing to mention is that weve been making some commitments and some forecasts on Aerospace & Defense independent of the rest of the business and we'll follow through and report that out for you at the end of the year on how we close the year in Aerospace & Defense.

Thank you. That will be helpful to have. Just switching gears, as you look at backlog, and Exxon Mobil on today, talking about having a maybe a de-book 4.6 billion-barrels of reserves because of mobile oil prices and the results were down pretty hard year on year. Im just wondering as you look to your backlog, particularly on the project side is any of that at risk? Have you done a risk assessment to see that maybe that stuff actually -- when you think is going to ship -- those wind up shipping it on again canceled?

Yes, we are actually, Charley. Weve looked at it very closely and we do on a regular basis. At this point, we do not see a risk of cancellations and de-booking here. These projects, as we talked about, are focused on the Middle East. And those projects are going forward. So it is an area that we watch closely. Nothing material at this point that jump out from a risk standpoint.

Are you experiencing any issues with collection on receivables either in the Middle East or elsewhere?

The receivables -- two points there. First of all, a little slower on the collection, especially in some of our customers in the Middle East. And then the only other area that we have some exposure to is Venezuela, and weve disclosed that in the past and there are some receivables there that are not been fully reserved at this point that we are working hard to collect.

Can you quantify -- if it's in the (inaudible), I'll look it up, can you quantify -- Im assuming its kind of (multiple speakers) --

No, I'd be happy to do that. There's about $2 million of net receivables from Venezuela that's outstanding.

Thanks very much.

You're welcome.

Our next question comes from the line of Jim Foung with Gabelli & Co. Please proceed with your question.

Hi, good morning, guys.

Good morning, Jim.

Good morning, Jim.

I just wonder can you just talk about the Aerospace & Defense? You resolved the supply issues and expect to have this catch-up shipement in Q4. Can you quantify the amount of the shipment in Q4?

Yes, Jim, there's probably about $2 million to $3 million of sales that we will catch up here in the fourth quarter that we missed in the third quarter.

Okay. And how are you to resolve the supply issue? Did you find another supplier? Is that it?

No, we worked closely with our customer and the supplier to work through the process at the supplier to manage it collectively. So with that properly -- with the customer and the supplier and ourselves.

Okay, sure.

Jim, I don't know if we mentioned this before, that was a customer-directed supplier that weve been working with. So we had the customer heavily involved in helping us solve the problem.

Right, right. And just going back on CFS, I was just wondering if you could just comment in terms of the order rates you're seeing there in the after market I mean in the downstream business? Are you concerned that there might be push outs even though you have a large installed base in that business?

So, Jim, at this point we are not seeing any pull back or redistraction with respect to the order rate yet. With that said, the order rates are lumpy and can be lumpy, especially on the capital projects as well as even the after market side. Because it often depends on not just the timing, but also the scope of work that course during a turn around. But at this point we're not seeing anything negative with respect to the order rate.

Okay. Thank you.

The order rates tend to be lumpy, but the revenue not as much.

Both for the capital projects, right.

Like I said it concerns the customers. Because even in the safety and after-market business, customers are still conserving cash. And they're just cautious in general in their spending.

No, that's true. There, you do see that.

Right. Okay. Thank you.

(Operator Instructions) Our next question from the line of Ryan Cassil with Seaport Global Securities. Please proceed with your question.

Good morning.

Good morning, Ryan.

Hi, Ryan.

Could you touch on the lead times for us in CFS on the project side? How does that stack up to the engineered valves? And I guess is this going to be more of a backlog business that we're looking at on the project side? And any color there would be great.

Sure. On the project side, the lead time is about a year, especially DeltaValve side it's about a year. It's a little lower on the TapcoEnpro probably around seven to nine months.

Okay. Great. And margins, you know, just trying to back in Q4 it looks like the CFS kind of a mid-teens margin. If I'm not off there, is that more like a 20%-type margin its peak turn around season (multiple speakers) --

You're not off there. Mid-teens margin is what we're seeing here. And obviously as you kind of get into a higher revenue and higher peak season you should do better than that.

Okay, great. And then last one for me. On the midstream, you know, continuing to get approvals with some of these newer, larger customers, a bit of a smaller market there from a competitive standpoint than other areas that you participate in. Have you seen any changes in competitive dynamics as you break into that market?

Yes. We actually have. And you're right. You do get to your competitors there. And as you get qualified -- and I think a lot of the oil -- the pipeline companies are actually qualifying fewer suppliers. So that's a good thing.

I think the M&A activity that weve seen in the industry has had an impact here and in our case it's actually been beneficial as we've worked directly with those pipeline companies. So I would say net positive at this point.

The other thing I would need to add in the midstream that is helping us to be just real clear on it is we have one very large competitor in North America who is struggling with lead times and struggling with capacity and that's helping us a lot. And so were having more success and more receptive customers because of the struggles they're having with their existing supplier.

Yes, great. Thanks. I'll turn it back.

Thanks, Ryan.

Ladies and gentlemen, this does conclude our call today. Thank you for joining us. And you may disconnect your lines at this time.