Innovex International Inc (INVX) 2021 Q3 法說會逐字稿

Good day. Thank you for standing by, and welcome to the Dril-Quip Q3 2021 Fireside Chat Conference Call. I would now like to hand the conference over to your speaker today, Mr. James West with Evercore ISI. The floor is yours.

Thanks, and good morning, everyone. Welcome to this morning's fireside chat with Dril-Quip's management team. As mentioned, I'm James West from Evercore ISI. I'm joined today with Blake DeBerry, the company's President and CEO; and Blake's soon-to-be successor, Jeff Bird, who will take over as President and CEO at the turn of the year.

Perhaps before we get started, I'd like to say a few words about Blake and Jeff, I began covering Dril-Quip in the early 2000s when the company's 3 founders shared the titles of Co-Chairman and Co-CEOs. And while Larry, Gary and Mike did an excellent job building Dril-Quip into the highly successful company it is today. It was during Blake's tenure as CEO when a successful transition from a founder-led start-up to a modernized global leader really unfolded.

Blake's tenure has been impressive. It was further augmented when Jeff joined the company in 2017. And together, these 2 gentlemen have further strengthened the company and successfully navigated one of the most challenging periods in the modern oilfield. So I'm very confident Blake is leaving the company in good hands with Jeff as its leader.

Perhaps to start off here, though, I do want Blake to say a few words, maybe give a brief recap of the third quarter and some opening comments.

Sure. Thank you, James, and thanks for covering Dril-Quip throughout my tenure and from the 2000, so 20 years or so covered. And I agree with you, I think the company has been a good -- it's going to be in good hands with Jeff, as I depart and look forward to seeing how the company progresses as we go forward.

With respect to the third quarter, the bookings came in at the lower end of our 40% to 60% range, which is -- it's still within the range that we expected. But on the lower side, revenue was pretty much in line, but our EBITDA was impacted by some onetime items and some margin pressure.

On the positive side, our downhole tools group again had a really strong quarter, set another high for that business since its acquisition in 2016. So that's a positive. This business continues to grow and accelerate. We had another good quarter with respect to free cash flow, which has been a big focus for the management team of Dril-Quip this year.

Kind of looking forward, we saw improvement quarter-over-quarter in our aftermarket and our leasing revenues. And this is always a good indicator of a pickup in activity and pending pickup in activity as our customers are getting back to work and consuming their inventory.

Additionally, we've had good conversations with customers that are trending more positively about activity levels. So we're seeing that happen. And just looking at the market, particularly the offshore rig market, we're hearing more and more positive signs about quotation activity for rigs, number of quotes for rigs, offshore rigs as well as duration of the request for the contract. So those are all positive indicators of an improving market.

So maybe to turn it over to Jeff for a second here. As I think all of us know, with any transition, as soon as you announce it, even though Blake may not be -- may be still in the room, everybody starts hanging out by Jeff's office, more than Blake's office. So you're the man leading the charge here.

Commodity prices have seen a good strength this year since the past several quarters. But all regions are not experiencing the same conditions and recovery and economically where -- what area has already seen or maintaining growth activity? And particularly, when do you think we'll see growth improvements or improvements in the Gulf of Mexico?

Yes. So thanks, James. Just walking around the world. If we think about Gulf of Mexico, we are starting to see signs of recovery there, specifically the independents that are more susceptible or more responsive to higher commodity prices are starting to come back to the market, and we're optimistic about that.

If we go around the rest of the world and just talk subsea, Brazil is definitely back. We've talked a little bit about the 11 wellhead exploration tender that we received last quarter, 26 Liner Hangers that we received last quarter as well. So that's definitely coming back.

There's also a tender that's out there right now on the development wellheads. We expect -- we're optimistic about that. We expect that to be awarded sometime in the fourth quarter as well. So definitely, Brazil is back. If we look at offshore U.K., it's return -- it's not at '19 levels yet, but it's definitely returned.

Norway is very strong right now, a lot of government incentives there. So we're optimistic about that. China also is hot, and we're looking at a tender either late this year, early next year as well. The areas that are slower, Malaysia, Indonesia, India, Australia, also, and those are mainly COVID related, to be honest. We've just seen the activity really curtail there. And then probably further in the distance, we are starting to see some of the large greenfield developments in Africa starting to have conversations again.

Okay. Okay. Makes sense. And do you think that capital discipline, working capital management is going to play a role in kind of how customers think about ordering activity?

Yes. So if we think about that, obviously, in the lower 48. We've got almost no exposure in the lower 48. So that's not really impacting us. As we have conversations with customers, though, we do see a lot of customers really reloading their balance sheet in the fourth quarter and probably the first half of next year where they're going to take advantage of those higher commodity prices to reload balance sheets before they start ordering again in the back half of the year.

So as a result, we believe that the IOCs are more back-end loaded and some of our customers are more back-end loaded next year, primarily because of capital discipline and kind of reloading their balance sheet.

Okay. And are you seeing any change in behavior as we think about kind of energy transition? Is there a hesitancy to sanction larger projects at this point?

Yes. I think there's certainly a little bit more caution around the larger projects than there might have been in the past. So it's going to be more brownfield tieback type projects. We are starting to see some of the large greenfield projects that I mentioned, but it's going to be more brownfield tieback.

We're starting to see, as it relates to energy transition, more robust comments in the tenders and more requests in the tenders, specifically around carbon footprint, specifically around what we can do to help customers reduce their carbon footprint.

In fact, I think we got a tender last quarter that was probably the most robust as it relates to that. We'll be curious to see how that factors into the tendering process, it's not exactly clear right now other than a very robust list of questions and requests.

Sure. Sure. Okay. Well, I do want to come back to the tender and the sort of carbon. But maybe to touch on at least kind of where we are and as we're doing today orders seem to be kind of hanging out in this $40 million to $60 million range. What do you think you need to see to have orders break outside of that range? And do you think this happens potentially Q4 or in just '22?

Yes. So if we think about it, we've been quoting $40 million, $60 million, we believe we'll be at the high end of that range in Q4. That Q4 range is largely dependent on how the independents come in. And right now, we've got a lot of nice projects around those independents coming in, and that would dictate whether we're at the high end of the range or actually even exceed the high end of that range in the fourth quarter.

If we look out to next year and 2022, right now, it's early days, and we see a lot of our customers in the middle of their planning project right now. So we met with the customer, I think, earlier this week actually. When we met with that customer earlier this week, they were actually even surprised at the amount of activity within their own company around their budgeting process.

So I think those customers are still in a state of flux. But early days right now, we see '22 up 20% to 25% on '21 from a booking standpoint. And this year, we expect to book a trees. Next year, we would expect double the number of trees that we booked this year. So we're definitely optimistic about next year. I do think it's going to be choppy as we come out.

Sure. Okay. Okay. Makes sense. And are there any large projects you're tracking or have an update on?

There's really 2. There's the Petrobras development tender that we're talking about, we're -- we believe we're well positioned for that, and we're pretty optimistic about that. We think that will be awarded in the fourth quarter. And then the other one is actually with CNOOC, and that one is actually a collaboration agreement, and that would be our first large collaboration tender. And that we expect that either fourth quarter this year, first quarter next year.

And when you say collaboration, what you...

That's the OneSubsea collaboration. So in the case there, we're actually going in with OneSubsea. We provide the wellhead, they provide a lot of the other kit.

Okay. Okay. Great. Makes sense. So a lot of your focus, especially, Jeff, since you got involved in the business has been taking on the costs out and running the operations more efficiently. Are there any actions or the actions you took last year playing out the way you expected now? And what scenarios could arise that would cause you to consider further changes to the cost structure?

Yes. So I think everything is playing out as we expected. We've gotten the cost out of the business. We're actually a little ahead this year on what our productivity projects are. If you remember back to the transformation, when we position that, we set $400 million of revenue, we do $40 million to $50 million of EBITDA, who knew at the time we thought that would be the trough revenue. Obviously, we didn't expect the pandemic. So the trough revenue is a little lower than we thought.

So I think it's unquestionable right now that we're holding cost than we need to hold in anticipation of a recovery. The spot we don't want to be in, to be honest, is cut a bunch of costs this quarter and find out next quarter or 2 quarters from now that a recovery is underway, and we just add a bunch of that cost track. So we estimate that we're probably holding $20 million to $30 million of excess cost right now as a result of where we are right now in the cycle. We'll continue to monitor that, by the way.

And to your specific question on what triggers we're looking at a $40 million to $60 million range. I think if we start to see orders at the low end of that range or even the mid end of that -- mid part of that range, we'll have to react accordingly from a cost standpoint. We know what the triggers are, we need to pull, we're just trying to be thoughtful about it.

Right. Okay. Okay. And there's been a lot of conversation in the media certainly and amongst investors about rising materials and rising freight prices. What are you seeing on that side in terms of impacts to your business? And how are you trying to mitigate some of those impacts?

So let me divide the business between downhole tools and subsea on the downhole tool side, that is a short-cycle business, right? So those are 12-week lead times. So in those cases, we see the impact much quicker, and we have to pass on the price much quicker around that. So we've immediately gone out with price increases around the downhole tool business, and we've been largely successful around that.

On the subsea side, because those lead times can be anywhere from 26 to 52 to 18 months, we've got a lot longer runway around that. So largely, what we see there is we will see the increases. We are passing along a 10% price increase on the subsea side. And largely, we believe we'll be successful on that subsea side as well. So we don't really see that inflation impact that you'd expect to see in a short time horizon.

Freight is a little different story and freight is an odd story in that We're seeing 2 problems with freight. One is obviously just the escalation in freight prices alone, but it's also availability of routes and modes, if you will. So we find ourselves in some situations where we might normally go ocean somewhere.

We can't get the ocean, and we end up air freighting something out because we can't -- our customer needs it. The ocean mode is not available, and we end up air freighting it. So we do have inflation as it relates to freight. And in some cases, that inflation is just a result of having used a more expensive mode that we might normally use as well.

Right. Okay. Okay. I want to go back to the collaboration part that you mentioned that the project with OneSubsea that you're working on with CNOOC. Historically, I'd say probably before your arrival, Jeff, the collaboration was a big part of Dril-Quip's business.

I still remember spending time with Gary, Larry and those guys, and they always figure they could just do it better. And they did to their credit. But you've put in some collaboration efforts. What's the impact that that's had on the business thus far and what's your future expectations?

Yes. So we've really got 2 major collaboration agreements that we have announced. One is Proserv. And that's where Proserv is providing the controls for us. We did that largely because, candidly, we're holding excess cost and found ourselves in a position where we're going to have to invest a considerable amount of money to get our controls up to the right level.

The benefit there, really, if you look back at the BHP north Shenzi award that happened earlier in the year, that was a direct result of that Proserv collaboration agreement. And if you look out over the next 18 months, we know there's going to be at least a few more trees that will come out of that BHP award and that's going to be a direct result of the Proserv collaboration. So we believe that's working, and that's just one example of how that's working.

The downside of that is that there is some pass-through impact of that, obviously, so those controls pass through at a lower margin than you might normally expect. You just have to keep that in mind and it depends largely, by the way, on how the customer wants the contract. BHP is a good example where they said, we will won contract, 1 month to kick, so to speak. So we end up passing through BHP.

Other customers don't care and will contract separately, and that will make the margins look a little bit better, but I understand that. OneSubsea collaboration we signed recently as well. That's around wellheads. And essentially, we sit down every month and go through what are the joint opportunities out there. And we bid jointly with OneSubsea in many cases. So the CNOOC is a good example we've bid with them.

There are opportunities where we've been with them and bid separately as well, and that's part of the collaboration. It's taken a little while to take off just because of the bid cycle, 26- to 52-week lead times on wellheads. It doesn't happen immediately. So this one in the fourth quarter will likely be the first opportunity that we could see a win fourth quarter this year or first quarter next year.

And are you guys thinking about imagining exploring and other product line and collaboration partners?

Yes. So I think there's really 2 or 3 other opportunities there. One is on the downhole tool side, specifically around Liner Hangers. Liner Hangers is part of that OneSubsea collaboration agreement, that's a little bit behind where the wellheads are right now, but we're starting to gain traction there. We already sell through Schlumberger, but we're starting to gain more traction there as well.

If you think about it in terms of VXTe, which is another opportunity, we would expect to work with other tree manufacturers to provide VXTe through those other tree manufacturers. And then the last opportunity is really around energy transition. And we've got a nice offering on shallow water trees.

And in many cases, there's a lot of much larger enterprises going after large carbon capture and storage projects that don't have good shallow water trees. So we're in conversations with those partners as well. So those are the next 2 opportunities, probably VXTe and something around CCUS, specifically shallow water trees.

Okay. That's great to hear. I did speak to the gentleman who runs your downhole tool business recently and another record quarter in the third quarter. So what do you -- what's happening here? What's driving these improvements in the business? How are you making progress to drive growth in key markets? And what are the longer-term goals and targets that the business can achieve?

Yes. So we brought Steve in, in the last 18 months, 24 months. And when we brought him in, candidly, he looked at where we were playing everywhere in the world around downhole tools. And there are a couple of reasons that we just decided we can't compete in those regions. We'll never make money in those regions. We exited those on the regions we're in, specifically around Middle East, specifically around Latin America, specifically around deepwater. We're very focused on those. We've brought new general managers in, in each of those regions.

And then in addition to that, we put stocking programs in place in each of those regions. So we've got specific SKUs that we've got in those regions. It allows us to respond more to our customers. We've made some inventory investments, I think, around $6 million in inventory investment this year, but it's going to allow us to be up 30% year-on-year in revenue on downhole tools. We expect to be up another 30% again next year, year-on-year in downhole tools.

And we would see ourselves getting to $100 million to $120 million in downhole tools, not '22 necessarily, but think about that as '23 and beyond, right? I mean I think that $100 million is within sight just in the geographies we're in, just at the SKUs we've got. I think that next piece after that is going to take getting into some different geographies and thinking about some different SKUs.

Okay. Okay. Makes a lot of sense. Let's talk a little bit about the e-Series family of technologies because they're beginning to see some success in bookings and installations. And can you maybe talk about which products where you're seeing success and also maybe to update too on the VXTe post trial verdict and how the conversation has changed.

Yes. I'll start with BigBore IIe. And on BigBore IIe, which is our wellhead, we've seen wild success in that, to be honest. In fact, we would expect by the end of next year for 60% to 70% of all the incoming orders that we're getting to be BigBore IIe. So there's been a wide acceptance of that product. That's great for a number of reasons. Obviously, technology is great. But when you get that many of your wellheads going through one product, it just makes inventories easier, it makes manufacturing easier as well.

On the DXe Connector, we've seen 2, 3 installs in Norway, and we're starting to gain pretty good acceptance in that Norway market around the DXe connector. And then on XPak, we've done 2 installs on XPak in deepwater, and we're starting to see traction on that as well. So if you think about the BigBore IIes, way ahead, but following that is probably DXe and XPak.

If you think about VXTe,VXTe, we would expect that we hope to have an install fourth quarter of this year, maybe first quarter of next year. It's largely dependent on the well that's being drilled right now. I think we've talked about it already that it's Walter Oil & Gas that would do that, and it largely depends on how that well looks.

If that works out well, then candidly, I think we'll see that move forward very quickly. We're already in conversations with large IOCs and other customers around VXTe. But as you can appreciate in our industry, there's a lot of I want to be the first to be second.

Sure.

So I think everyone's anxiously looking at that install for the opportunity. So if you think about how we triangulate that, it's really to get the install in the fourth quarter, we've got to pull from the large IOCs and major customers. And then we're working with OneSubsea they've looked at it from a technology standpoint. So it's really the trifecta of those 3 things happening that would prove success in VXTe.

Okay. Okay. Makes sense. Now how do you think about the R&D spend in your business going forward since you've launched the E-Series products, what type of products are kind of next in the queue that you guys are working on?

So one of the things that I'm working on, you joked a little about being in seat. But as the new person in seat really, it's really looking between now and our February earnings call. And what I'd hope is that in our February earnings call, we're coming out, specifically talking about our R&D allocation. We'll continue to spend money on innovation. We'll continue to spend money on R&D. We're keenly focused right now on energy transition. We believe we've got a real opportunity in carbon capture.

We believe we've got a real opportunity in geothermal. It's not that we won't continue to invest in our normal core products. But those are 2 growth areas that we think are real opportunities. And we'd like to talk about R&D in that February meeting as what percentage of our R&D are we spending on energy transmission, specifically around those 2 areas.

Perfect. That leads to my next question because obviously, alternative resources are a big topic today. COP26 is starting next week. How are you approaching or how is Dril-Quip as a firm approaching energy transition? And how is the Green By Design campaign been resonating with customers and what are the key benefits and advantages your technology -- that you do have in your technology that you're conveying to them?

Yes. I'll start with Green By Design. That's been very well received by our customers. And in fact, it plays nicely into the tender that I mentioned earlier, where we are specifically. We've got specific targets around what carbon footprint reduction is, and we've talked a great deal about that and that e-Series of products. So that resonates very well with our customers. And just about across the board, to be honest, NOCs, IOCs and even some of the larger independents are very interested in that.

We did spend this summer really going through every opportunity from an energy transition standpoint. So we went through each of the major verticals, if you will, around energy transition. What we really landed on is the no regret bets for us, Mark carbon capture and geothermal.

It's not to say that we won't pay attention to anything else. It's just to say those are kind of the no regrets, easy bets where we think we can gain traction in the short term. We are -- we did hire someone in to lead energy transition. That person works directly for me.

We continue to look at every other vertical and energy transition. And interestingly, where we are finding some opportunities, there's a lot of -- I'd characterize them as early phase companies that don't have manufacturing capability. And so the inbound calls we often get are those type of companies that say, hey, I've got this opportunity, I'm about to win a tender. I have no idea how I'm going to scale this and manufacture it, right.

And so we're literally meeting -- we've got our VP of Manufacturing and our engineers and our ops people meeting with the companies like that, where they're just looking for a partner. And we're not looking to be a contract manufacturer for those companies, we're really looking to get a stake in the company when that happens. So if we're going to invest our time and energy and resources in setting up manufacturing for those companies.

What we look to do is get a small piece of that company. And if it's successful, that's great for us. We leverage our manufacturing capability here. If it's not successful, it's a very low bet. Very low, no risk bet, if you will. So that's really how we're thinking about energy transition right now.

Okay. Okay. That makes lot of sense. So perhaps maybe turn to some of the balance sheet items for a couple of minutes here. Fortress balance sheet, it's always been that way, substantial cash, no debt. Yes, we're going through an upturn. So you're probably carrying some extra cash at this point that you could potentially return to shareholders or M&A is the other opportunity for cash. So how are you thinking about capital allocation over the next several quarters?

Yes. I mean, look, not unlike our R&D strategy, capital allocation strategy is the same. We'll be working on that over the next few months. We estimate -- without any debt, we estimate we need $100 million to $150 million of cash to maintain the business and even in an upturn, right?

So that leaves us a fair amount of excess cash. You saw we did some stock buyback a little bit in the third quarter, more in the fourth quarter as well. We'll always be thoughtful around how we're thinking about that buyback. We'll always be looking at opportunities there.

But if I go out beyond that, we want to be more thoughtful around M&A and where our opportunities might be there. I think it's unquestionable that in the industry we're in right now, we need some level of consolidation. It's not a secret that at the size and revenue we're at today, it's a scale issue for us right now. And we're not alone in that, right? There's -- we could both name 6, 7, 8 other companies that are in that same spot. So we're constantly looking at those opportunities.

And to be honest, in early days, one of the early things I'm doing is meeting with the CEOs of all these other OFS companies just to get a gauge for their view of the industry and where things are right now and where there might be thoughtful partnerships. And those might not always be M&A. That might be a collaboration agreement as an example. But what we look to do in February is to be more clear about articulating our capital allocation strategy.

One piece is exactly how much we need in recovery. But how much are we going to think about an energy transition where I talked about these collaboration opportunities where we might invest small amounts from an energy transition standpoint, but then also being very clear and intentional about what an M&A strategy is going to look like and probably be a little more aggressive around that as well.

Okay. Okay. Good to hear. And then you guys have a lot of targets for this year, particularly cash flow, working capital improvements and free cash flow seems to be trending higher than the 5% revenue target. Do you expect that to continue here? And the working capital trends have been moving in the positive direction as well. So maybe you can touch upon those.

Yes. So yes, we are trending higher. I mean we'll probably turn closer to a 10% number instead of a 5% number this year. This has really been a year where we've seen a lot of great improvement in accounts receivable, specifically getting past dues down, specifically shrinking our time to invoice and things like that.

That's got legs through the fourth quarter. It gets tougher to continue to do that, especially as we head into a recovery next year. The days of getting huge progress payments and things like that on large projects are not back yet. Question whether they ever get back there, but they certainly won't be back there in the beginning.

We did see a nice reduction in inventory this quarter, and we're starting to -- and I've commented several times around inventory and that's just a much tougher lift. You've got to get the incoming orders. And literally, we have a team of 3 to 5 people that sit in the room and every time an order comes in, they scour to see how can we use existing material on those incoming orders. It's starting to get traction. We believe that will continue in the fourth quarter. We believe that will continue in next year.

So next year, we'll see AR start to level off from an opportunity standpoint. In fact, if things start rebounding, we might even see AR growth. And we would hope that inventory would continue to be an opportunity for us next year. We're probably tapped out on accounts payable.

I think we've got a nice DPO number right now that would be challenging to expand beyond really where we are right now. But cash flow will continue to be a focus next year. But if we start to see multiple quarters of orders, $100 million, you can expect we're going to have a little bit of a burn on working capital as we reel AR.

Okay. That makes perfect sense in lockdown. How do you expect CapEx to trend, your current run rate looks like it's below that $15 million to $17 million expectation, but do you think that moves up? Or do you think we're in a good range? How are you thinking about that?

Yes, it will probably -- we will probably come in below that $15 million to $17 million, although that's kind of a normal. I think we've typically characterized that as kind of our sustaining CapEx, if you will, that we'll spend that much. We are looking at investments that we might need to make over the next 12, 18, 24 months to make sure that our manufacturing footprint is positioned correctly but we don't see anything right now that's material, but we'd probably talk about that more in February, if we have anything there.

Sure, sure. And then inventories, you mentioned good inventory quarter this past third quarter. Are there still more improvements around there? And how do you think about inventory as a competitive advantage as well because there's going to be some guys that are going to be caught off guard when this recovery happens, and they don't have the inventory?

Yes. So I'll talk about it in 2 fronts. One is we do think there's opportunity, but I talked about the incoming orders, so it can be choppy over the next 6 quarters or so where there will be quarters like this quarter where we've got the [10 out], there's going to be quarters where we don't get anything really just because the right orders didn't come in, in the right timing.

It's interesting around the competitive advantage. I talked about downhole tools and the investment we've made there. We now have in each of those key regions, specific inventory targets, specific amount that we've invested in each of those. So we've pushed that out. We're starting to see the revenue increase.

I think the next opportunity right now is starting to improve the turns on the inventory that's been put out there. So right now, we're sitting on a 1.5 or 2 turn on that downhole tool inventory. I'd like to get that to a 4 turn, but I'm not going to do it at the expense of revenue right now. So I'm willing to go a little slower on that just to get that 30% revenue increase.

If I think about it from a subsea standpoint, we've gone from 15 wellheads to 4 wellheads. We talk about BigBore IIe being 60% to 70% of our orders by the end of next year. We're really focused on how do we stock for those 4 wellheads that are left.

We're telling customers when we talk to them, big and small, is if you order one of these 4, you're going to get it faster. Your lead time is going to be better. You're going to get it faster. You can order something that's not of those 4, it's going to take longer. It's going to be more expensive.

And we almost exclusively see every customer saying, how do I get myself in one of those 4 wellheads because all of our customers candidly are looking to push the inventory level back in the supply chain as much as they can. This just helps them be more competitive, to be honest. So that's just one example of what we're doing from a stocking program.

On a monthly basis, we have what we call sales inventory operations planning and we decide where we might strategically stock in other places. So we might do that with a tree block, we might do that with a connector or something like that. But downhole tools is a very intentional area that we're going to keep doing wellheads, the very intentional area that we'll keep doing.

Okay. Okay. How should we think about the fourth quarter in terms of revenue and margins? And then maybe digging a little further out, what do you think more normalized margin profile would potentially look like.

Yes. So if we think about fourth quarter, it's going to look very much like the third quarter, to be honest. It might be plus or minus a little bit, but let's be honest, when you get down into the revenue numbers that we're at, $1 million change looks like a big number, but it's not really that big a number in the grand scheme of things. So fourth quarter will look much like third quarter. And we become more dependent on orders now as we get deeper into '22.

So right now, we're really experiencing those low order trends that we saw in '20, in the middle of the pandemic. We're starting to experience that, and that's starting to flow through in our revenue and EBITDA. If I think about next year and what that revenue trend looks like, I talk about orders being up 20%, 25% year-on-year.

That likely won't manifest in revenue until the back half of next year or early '23, to be honest. I mean we do get some incoming orders that we immediately get percentage of completion, but largely that will start to manifest back half of next year and '23, so from a revenue uptick.

Okay. And then margin -- normalized margin.

Yes. Normalized margins, I think we expect to get back into the low 20s, if you're talking product margin.

Okay. Okay. That makes sense. Blake, this your last fireside chat, last call with Dril-Quip, parting thoughts? I do have another follow-up question to that, but parting thoughts for shareholders, investors, fans, employees, directors?

Yes. So like I've said before, this is me 40 years in the oilfield services, 33 of those which at Dril-Quip and the last 10 as the CEO. It's been an incredible ride. We were talking earlier today as I start to clean up my office and the momentos and things that I've saved have more to do with the people that I've worked with.

And so I certainly appreciate working with all the employees and shareholders and our Board and our customers, it's been an incredible ride living all over the world and traveling all over the world, and I pull up my stack of passports and say, "Oh my god, I've been on every continent except Antarctica."

So I'm really optimistic about the future. I mean, that's one of the reasons I feel comfortable stepping away now. I feel comfortable with Jeff taking this on board, and we've got a good team here. And I believe Dril-Quip is positioned to actually outgrow the market. So I'm good, I'm optimistic of the go forward.

Well, we're optimistic as well. So maybe to finish off our chat today, Blake, I did have the good fortune of meeting your wife recently. And so I know she's named you CEO of her business. But I'm not sure you got the same job description, what are your plans for the future?

Yes. So my wife and I have built a vineyard and a winery in Central Texas. We live -- she lives up there. It's been operational for a little over 6 years now, and she runs that. That's her business to run. So when I was talking about stepping down, I had to negotiate a position at the winery.

She's a tough negotiator. She's told me several times, "I don't think you're going to like your new boss very much." But she did finally agree to let me retain the title of CEO, and I was pretty excited about that. And then she said, so let me define for you your job duties. That means that you're responsible for cleaning, electrical and other, so...

Other sounds scary.

The other part is pretty scary. I think it has to do with something in the bathroom. But yes, just looking forward to spend a little more time together. And today, I'm going up to watch my grandkids play soccer for the first time. So just have more family life and make wine.

That sounds like a good plan, Blake. So Blake, you had a great run at Dril-Quip. Great run as CEO. Congratulations to you on stewarding the company as well as you have. Jeff, best of luck as we move forward here. Because it's you and me now, Blake is going. So we'll give it a go.

I look forward to it.

Absolutely. Well, thanks, everybody, for listening in today. And I think with that, we'll go ahead and end the call. Bye.

All right. Well, thank you, James.

Thanks, James.

Thanks, guys.

That concludes today's conference call. Thank you for participating. You may now all disconnect.