Precision Drilling Corp (PDS) 2015 Q3 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to the Precision Drilling Corporation 2015 third-quarter conference call and webcast. I would now like to turn the meeting over to Mr. Carey Ford, Senior Vice President, Operations, Finance. Mr. Ford, please go ahead, sir.

Thank you. Good afternoon, everyone. I'd also like to welcome to you Precision Drilling Corporation's third-quarter 2015 earnings conference call and webcast. Participating today on the call with me are Kevin Neveu, our Chief Executive Officer, and Rob McNally, our Executive Vice President and Chief Financial Officer. Also present is Gene Stahl, President of Drilling Operations. Through a news release earlier today, Precision Drilling Corporation reported on their third-quarter 2015 results. Please note that the financial figures are in Canadian dollars, unless otherwise indicated. Some of our comments today will refer to non-IFRS financial measures, such as EBITDA and operating earnings.

Please see our press release for additional disclosure on these financial measures. Our comments today will also include statements reflecting Precision's views about the future events and their potential impact on the Corporation's business, operations, structure, rig fleet, balance sheet, and financial results, which are forward-looking statements. We caution you that these forward-looking statements are subject to a number of known and unknown risks and uncertainties that could cause actual results to differ materially from our expectations.

Please see our press release and other regulatory filings for more information on forward-looking statements and these risk factors. Rob McNally will begin the call with a brief discussion of the third-quarter operating results and a financial overview. Kevin Neveu will then provide a business operations update and our outlook. Rob, over to you.

Thanks, Carey. I am going to comment on a number of items today, including the quarterly results, dividends, and asset write-downs, international contract awards, an amendment to our revolving credit facility, an update on our 2015 capital spending plan, and our initial 2016 capital spending plan. As this downturn persists and our visibility into 2016 is murky at best, deleveraging the balance sheet is becoming more of a priority. While our balance sheet is very manageable, with long dated senior unsecured notes and a strong liquidity position, we believe that it is prudent for us to reduce the net debt levels through this downturn.

As of September 30, we had CAD439 million of cash on the balance sheet. During the quarter, we agreed with our lending group to amend our credit agreement to help insure that we have access to the revolver as we move through a potentially extended downturn in activity. Among other things, we have removed the total debt-to-EBITDA covenant permanently, reduced the revolver size by $100 million to $550 million, reduced the interest-coverage ratio to 2 to 1 until the first quarter of 2018. We believe that these changes will go a long way towards ensuring our liquidity position. Today, we declared a dividend of CAD0.07 per share, which is in line with the previous quarter's dividends.

Given the magnitude of the current quarter's loss, which was largely driven by the asset write-down, we believe that it's prudent to highlight the fact that our senior notes contain a restricted payments covenant that may prevent us from paying dividends in the near future if we have continued losses and/or further asset impairments. Turning to the quarterly results, we reported third-quarter revenues of CAD364 million and a net loss of CAD87 million. The net loss included an after-tax asset write-down of CAD75 million. Third-quarter 2015 EBITDA was CAD111 million, which is 44% lower than the third quarter of 2014. The weaker Q3 results reflect decreases in North American drilling and C&P activity.

EBITDA margins were 30% this quarter versus 34% in the third quarter of 2014. Our relatively strong margin performance in the face of a significant industry down-turn, is a reflection of our variable cost operating model, proactive fixed cost management, and contract coverage on our Tier 1 rigs. Restructuring costs were approximately CAD3 million in the quarter, bringing the year-to-date total to CAD14 million. We expect annualized cost savings from these initiatives to be approximately CAD40 million. In the US, during the third quarter, margins were up about CAD500 per day over the third quarter of 2014, due to stronger day-rates and the impact of idle-but-contracted revenue, partially offset by lower absorption of overhead and higher repair and maintenance costs.

The impact of turnkey and idle-but-contracted rigs increased margins by approximately CAD2,500 per day year over year. Today, we have 46 rigs drilling or moving in the US and 10 idle-but-contracted rigs. In Canada, drilling margins improved by CAD500 per day year over year, driven by higher average day-rates partially offset by less overhead absorption, higher labor costs, and rig mix. Drilling activity decreased by 44% over the third quarter of 2014. Today, we have 55 rigs drilling or moving in Canada. In our international drilling business, activity decreased by 1% and revenue by 7% over the third quarter of 2014.

The decrease in revenue from the third quarter of 2014 was primarily driven by a termination payment of CAD8 million that was received in the prior-year period, offset by additional rig deployments in Saudi Arabia and Kuwait. Our Completion and Production segment revenues were CAD43 million, down 49% over the third quarter of 2014. EBITDA in the quarter was CAD4 million, versus CAD17 million a year ago, reflecting the highly competitive pricing and low activity levels in the C&P market.

Let's turn to capital spending. As detailed in our press release this morning, planned capital expenditures for 2015 are now expected to be CAD531 million, which is a decrease of CAD15 million since our last conference call. The expansion capital of CAD423 million is comprised of the total cost to build 18 drilling rigs; four for Canada, 13 for the US and one for Kuwait. All of the rigs are Super Triple either 1,200 or 1,500 horsepower. 17 of the 18 rigs have been delivered. The final Canadian rig will be delivered in the fourth quarter. As a reminder, all of these rigs are contracted.

Our initial 2016 capital budget is expected to be CAD180 million. CAD120 million is expansion capital, which is primarily for the two 3,000 horsepower new build rigs, that we announced for Kuwait earlier today. The CAD60 million of maintenance and infrastructure capital will flex up or down with activity levels. The significant decline in capital spending demonstrates our ability to conserve cash in an extended downturn.

As a reminder, depreciation is calculated on a straight-line basis. The Q3 depreciation level likely marks the highest depreciation level we will have for the foreseeable future, given our announced 2015 and 2016 capital plans. We would expect quarterly depreciation to decrease by approximately CAD8 million by the third quarter of 2016.

Our contract coverage remains solid. For the fourth quarter, we have 87 rigs under contract, and have an average of 64 contracts in hand for the full year of 2016.

In conclusion, we believe that we are very well-positioned not only to weather this downturn, but expect to grow market share because of our balance sheet, strong liquidity position, high quality rig fleet, strong operational performance, and our portfolio of term contracts.

With that, I will turn it over to Kevin for further discussion of the business and the outlook.

Good afternoon and thank you, Rob. Finding opportunities or highlights in this market is challenging, but let me begin with the contract awards for Kuwait. This is an important win for Precision. By early 2017, we'll have five ultra-deep Super Triples running in Kuwait. In a global oil market overshadowed by sub-CAD50 crude, establishing critical mass in Kuwait is a key strategic win and accomplishment for Precision. This is the right place for us to be deploying capital as we develop our international footprint.

Our international inquiry book remains strong with opportunities in several countries. However, due to the highly competitive environment, I really do not want to comment on any of the specifics. But it's becoming more possible that later in 2016, we'll resume our previously guided organic rate of three to four rigs per year internationally and currently, we have nine rigs running.

The second bright spot we've recently mentioned is a Canadian-deep basin for gas and gas liquids development. Now, despite political uncertainty and continued weak commodity prices, Precision's rig count in northeastern British Columbia and northwestern Alberta deep-gas plays is the highest in our recent history. I am very pleased that as the Montney, the Duvernay, and the Horn River plays have unfolded, Precision has achieved significant market positioning with some of our less traditional customers. This should not be surprising as Precision's Super series rigs are typically the rig of choice for resource development in Canada.

So speaking more to Canada, for the winter for Canada, looking forward through the fourth quarter into the winter drilling season, there is a little else to be encouraged about. And while the weaker Canadian dollar, which typically accompanies low oil and gas commodity prices, partially mitigates the cost equation for our customers, the combination of the uncertainties due to the tax and royalty issues and the low commodity prices are severely restricting our customer spending.

And this is no more evident than for our well-service group which is experiencing weak customer demand levels, some 30% lower than we saw in the trough through the 2009 financial crisis. Rob mentioned the well-service assets write-downs earlier. And while Precision can easily absorb the depressed well-service market segment, I remain most concerned for the thousands of field hands with little or no prospect for work in this very tough environment.

For Precision, Rob mentioned 55 drilling rigs currently operating in Canada. This ties our high for the second half of 2015. We currently expect activity may increase slightly later in the fourth quarter, but we also expect an early Christmas shutdown or break up, break period before the 2016 winter season begins. Looking at the Canadian winter drilling season, which usually begins in early January, the outlook is grim. I believe we will see 2016 Canadian E&P drilling budgets reduced anywhere in the range of 30% to 50% from 2015 levels or more.

For Precision, we expect activity levels, like last year, will be buoyed by our Super Triples and we expect to sustain and possibly gain overall market share. Barring unforeseen catalysts, we expect the industry's weakest winter drilling season since the late 1990s.

Earlier this year, we announced intentions to mobilize five Super Triples from the US to Canada. Four of these rigs have been mobilized and the fifth will move up later this year. For now at least, we believe the demand for Super Triples has been satisfied, but we remain prepared to mobilize other underutilized US rigs should additional customer demand emerge.

Generally, Precision remains poised and prepared to execute in any opportunity for high-performance rigs in Canada. In the US, customer demand continues to weaken across all basins. Rob mentioned the current rig count of 46 rigs running and the further 10 idle-but-contracted rigs. I think notably, we have not experienced any further contract cancellations this quarter or for that matter, second or third quarters, and just one in the first quarter. We believe the stickiness of our contract book demonstrates the desire of our customers to protect access to the Precision rigs they have contracted.

We expect that in the new year, reloaded 2016 budgets could lead to a slight increase in activity. But in a sub-$50 WTI environment, we're not expecting any sustained relief, as customer spending and demand for rigs will be substantially reduced year over year for the second year in a row.

As we mentioned in our press release, we believe in the long-term fundamentals, we expect that cyclicality remains a feature of this industry and we believe a rebound is inevitable. We know that the efficiencies Precision has delivered to our customers as a result of our Super Triple rig technology and our highly trained and skilled crews make us a driller of choice in all market conditions and particularly, for resource play development drilling programs. Nonetheless, this downturn will persist into 2016. Visibility on a rebound is nonexistent today and rig demand will lag a commodity price rebound.

Now, none of this should be a surprise to anyone; certainly, not to Precision Drilling. Rob described the restructuring Precision has already undertaken and the cost reductions we've achieved. Precision is a leaner and more focused company today than we were a year ago and we'll continue to use our variable-cost model to adjust Precision to whatever activity levels are present.

I believe the torque in Precision comes from our capital spending flexibility and our strong asset base. Between 2010 and 2015, we added 143 Super Series drilling rigs, bringing our fleet to 236. Today, we have over 150 Super Series rigs available and ready for this inevitable rebound in customer demand. We have leadership teams and resources available to restaff these rigs and we expect minimal capital spending will be required to reactivate the rigs. Precision's earnings torque in the rebounding market will be impressive.

Equally impressive, though, is our ability to reduce capital spending in the down cycle. When this downturn began late last year, we immediately suspended all discretionary capital spending, we cut long-lead programs, and focused on capital spending efficiency. As a result, our 2015 capital spend of approximately CAD530 million is down 48% from 2014 levels. Our planned spending level for 2016 of CAD180 million is a further reduction of 67% from 2015. I believe this clearly highlights the flexibility and responsiveness of our capital programs and particularly, our down cycled torque. This is how we sustain our business through the cycles.

I'm going to finish off by thanking the thousands of PD employees for continuing to deliver excellent operating performance and efficiency for our customers. There is little of more importance for Precision than sustaining high performance, high value promise to our customers in these trying times.

Before I turn the call back to the operator, I'm going to firmly state that we'll not be providing any market pricing commentary, no leading edge day-rate discussions, and no spot-market guidance in our prepared comments or during the Q&A segment. The competitive dynamics remain intense. Suffice it to say that customer demand continues to fall. A true spot market has yet to emerge. At Precision, we remain focusing on maximizing cash flow, not utilization.

So with that comment, I'll turn the call back to the operator for questions. Thank you.

(Operator Instructions)

The first question is from Dana Benner with Altacorp. Please go ahead.

Good afternoon, gentlemen.

Hi, Dana.

I wanted to start with the renegotiated covenants, et cetera. Was there a meaningful cost to have to do that?

No, we paid relatively small fees to do that and feel that the value that we got out of removing the total debt-to-EBITDA covenant and the ability to net cash against debt for calculation of fees more than makes up for the cost.

Sure. Secondly, with respect to the impairments or the impairment charge you took, could you give us a bit more color? I understand that most of it is Canadian service rigs, but can you give color in terms of the number of rigs or anything or even in the rental section or segment, what that might have entailed?

Dana, it is primarily well service and rental items in the Canadian market. There's not really a lot more I think that we want to say about that.

Thirdly, you gave some guidance on depreciation in terms of what happens by Q3 next year. I didn't quite follow -- I know you referenced, I think, a fall of CAD8 million, but could you give us more color on how that progresses?

Well, as you know, it is straight line depreciation, and now, we kind of finished the investment cycle for the time being. And so we'd expect that the depreciation now will start to come down and the reason that we gave the guidance is it seems that some are having a difficult time getting it modeled correctly. But it is fairly straightforward, straight line depreciation, that will start to decline now and the guidance that we're giving is from this level. By Q3 next year, we would expect depreciation to be about CAD8 million less than it was in Q3 of 2015.

Okay, but it's by Q3, there's nothing immediate and it's fairly, obviously, fairly linear.

Yes, fairly linear.

Two more quick questions, with respect to Q4 in the US, do you see a meaningful pull-back, even from these levels as operator budgets wind up or do you think we more or less stay at these levels?

Dana, it's Kevin. So I think we've seen the rig count's been dripping its way down the past few weeks, no reason to believe right now today that's not going to continue through the balance of the year. And our rig count will be affected by that also, if that continues, so I think the trend we've been on, little reason to believe it's going to change.

Just one final question, are you seeing a meaningful diminishment of major client loyalty in the current market? I mean, obviously, there is always some and you've worked hard to build the client base that you have, but are you starting to see cracks in those foundations in this market?

Actually, not at all, Dana. I mean customer loyalty right now is actually probably as strong as it's been even in the peak cycles. What's happening is our customers are trying not to put anybody out of business. So they're being loyal to the service space by trying to spread the work around and trying to do the best they can with very small budgets. They're honoring their contracts. That big rush of renegotiation requests has kind of gone past us now. I'd say our customers are behaving as best they can in a very trying environment.

Okay, well that's great color. I will turn it back, thank you.

Thank you, Dana.

Thank you. The next question is from Andrew Bradford with Raymond James. Please go ahead.

I'm wondering if there is -- just that question, a couple of questions around the Kuwaiti rigs. Is there -- are there any -- what are the differentiated features or design features on these rigs?

Andrew, these are 3,000-horsepower, 15,000 PSI BOP rigs. They're huge rigs, large substructures, heavy duty equipment, huge mud pumping capacity. These are big hole deep rigs.

State of the art, state of the art technology as well.

Is there anything that you can say around the, as you indicated very clearly at the beginning of the conference call, you don't really want to talk about pricing, but is there anything you could say around the term of the contracts or anything along those lines?

These are five year contracts. The economics are in line with North American economics, the pay backs are consistent with what we expect typically. They do have features that allow for automatic renewals if performance is sustained. And you notice if you think about 2017 deployment, they'll be under the original contract in 2022, and likely under -- unless we really mishandle operations, which isn't very likely, they could be under the original contract in 2023 or 2024. Very good contracts.

Okay, just switching gears back to the US for a second, can you provide any additional color beyond the disclosures about the schedule of contract rollovers?

What we've disclosed is an average of 64 rigs under contract in 2016. We also disclosed that we currently have 87, I believe it is, contracts for the fourth quarter of 2015, and what we have said in the past is that you can draw a pretty straight line through it. There's not a cliff of contracts rolling off. So you can get a pretty good sense of what the exit of 2016 needs to be, just kind of straight lining through those two data points.

I would assume that the most recent rigs that were constructed would provide a floor to that straight line?

For sure. For sure. Yes, it doesn't go on forever.

That's all I had. Thank you very much, guys.

Okay. Thanks, Andrew.

Thank you. The next question is from James Wicklund with Credit Suisse. Please go ahead.

Hey, guys, this is Jake for Jim. Thanks for taking the question.

Hi, Jake.

Just had another question on the Kuwaiti rigs. Just kind of thinking about the international markets in general, are there particular geographies that you think are likely to be sources of demand in the future? Specifically, thinking about big Super Triple rigs like the ones you put into Kuwait.

For us, we remain probably the most focused on the Arabian Gulf as kind of our core area for international growth, so we continue to like Kuwait, we like Saudi Arabia, we like other bordering countries, we've got our footprint in Iraq, Kurdistan that we like. And obviously those are all OPEC constituents and they're all focused on continuing production. So I think that speaks highly of both our alignments and where we see the market emerging. There's other potential in other places. We've always been a little bit less anxious about Latin America, but I think there are some possibilities there kind of longer term, but for now, we'll be focused on the Arabian Gulf.

Okay. And I know earlier in the year, you've been talking about your strategy of defending your current contracts and not really giving price concessions, but just sticking with the current contracts. Any update on that? Is that continuing to be your strategy and are you continuing to have customers come back and request price concessions or has that gone away?

The intense action around that discussion was really in the first quarter and really just the first couple of months. In fact, I made a comment, I think, on one of our conference calls, that as soon as we got through earnings season, Q1 earnings season, or Q4 earnings season in February, most of that calmed down. But hear me loud and clear, we've worked closely with our customers. We offer a fair degree of operating flexibility and moving equipment around for them, and we've exercised strong pricing discipline, but we're finding ways to work with our customers and help relieve some of their distress, but not by renegotiating contracts.

Understood. And then you mentioned the investment cycle, kind of going on pause into 2016. I was just wondering if you have any commentary on how we should think about your deferred tax liability as the investment cycle goes on pause?

There is a bunch of moving parts with that, Jake. I mean the guidance that I would give you is that the effective tax rate will be likely very low and potentially negative, as we go through 2015 and into 2016 because of where operating earnings are likely to be and because of the NOLs that we currently have built. So I think you can model low effective tax rates and low cash tax rates as well.

Understood. And then one last one, on the covenant amendments, the change in the interest coverage ratio [to 2 to 1 and 12] until the first quarter of 2018, any color around how first quarter of 2018 came about? Should we read anything into that time frame as it relates to your view on potential duration of the downturn for the land drilling market or how is that determined?

No I wouldn't read anything more than what the banks were willing to do, was defer -- or keep a 2 to 1 ratio through 2016 and 2017 and then the first test that reverts back to 2.5 to 1 is the first quarter into 2018. I wouldn't read anything more into that than what it is.

Okay. Got it, Rob. Thanks a lot, guys.

Okay. Thank you.

Thank you. The next question is from John Daniel with Simmons and Co. Please go ahead.

Hey, guys.

Hey, John.

Hey, I missed one thing, Rob, on the contract coverage. Did you guys say you were going to average 64 rigs in 2016 or you will exit 2016 with 64?

We'll average 64 for 2016. That's the contracts that we have in hand today.

Got it. Okay. Can you say where head count is today versus where were you at year end?

John, don't have those numbers at my fingertips right now. They're reflected in both our -- the savings that Rob discussed and the field head count is directly proportional to activity, but be thinking that we are just slightly over half.

Okay. A bit of a sensitive question, but when you look at the prospect of, I think, the number you used is E&P budgets in Canada down 30% to 50% year-over-year and obviously, it is harsh down here as well, is the current organizational structure, structured for that type of production or is there is more to come?

I think that we're structured appropriately right now for the rig count we're running today. If we're seeing the rig counts level out here, we're in good shape. If they go down another step, another more than 20%, we have more room to realign our business.

Okay. And then last one, a bit of forward-looking commentary here, Kevin, so I apologize, but the outlook for your working rig count internationally next year, it is holding at 9 rigs? Is that a fair number?

We don't give a lot of forward guidance, John, and it could be 9, it could be 10, I don't think it goes much lower. It could go higher. While we have 9 running, we have 4 more right now that are ready to go back to work in the short order and that could happen and tactically, it could happen next month.

Fair enough.

But I wouldn't -- I'm not trying to guide forward to increasing or decreasing activity. We're still looking at a CAD50, sub-CAD50 oil world. It is not constructive for rig count growth.

Are all those nine rigs internationally, are they are all contracted for the year?

They're all contracted, I just can't recall if they all go through the full year or not, but most do.

John, I believe they do all run through the year.

Okay that's all. Thanks, guys.

Thanks, John.

Thank you. The next question is from Sean Meakim with JPMorgan. Please go ahead.

Hi, guys.

Hi, Sean.

So first, I was hoping just to talk a little bit about Canadian activity. I was just curious what type of commodity price environment do you guys think we need to see in order to get a material step change higher and are you assuming at this point in your base case that's likely a 2017 event?

Sean, we don't give forward guidance on commodity prices or on rig counts. I've given you as much as I can give by trying to get some sense of our customers' budgets. Now, if you're asking me what commodity price I think the Canadian E&P companies need to see increasing activity, probably not dissimilar from the US. I think we get in the range of CAD60, CAD65, CAD70, on oil or if we get gas prices in the CAD3 to CAD3.50 range, I think that helps things out a lot in Canada. It certainly increases our cash flow for our customers and in Canada, generally our customers have to put back into the ground what they generate in cash flow. So it is -- maybe a little quicker response in Canada than the US.

Okay. That's fair. I wanted just to touch back on the senior note covenants that Rob was going through in the beginning, just trying to understand the mechanics a little bit better. So there is the restricted payment basket and that could restrict your ability to pay dividends in the future and I think that's what Rob said earlier. It said in the release this morning, that number, the basket was CAD135 million and it is impacted by net income and dividends. As you go forward, are there opportunities to make adjustments or is that effectively kind of where you see things next few quarters and those are effectively the levers that will drive the decision making?

Sean, the basket is affected by net income, positively will grow the basket, but at fifty cents on the dollar, and then it's affected negatively by losses, at dollar for dollar. Then it is affected negatively if we make any restricted payments, which would be things like paying dividends or buying in shares. We wanted to highlight that was out there, because we recognize that most of the investment world wouldn't be aware of that, unless they'd really done some digging in our filings. And because of the magnitude of the loss in this third quarter driven by the asset write-downs, it brings that basket down to a size that if we continue with operating losses or had additional write-downs, we could find ourselves in a position where we couldn't pay the dividend and so we just wanted to be transparent with the market about that.

Got it. Now that makes a lot of sense. Thank you.

Okay. Thanks, Sean.

(Operator Instructions)

The next question is from Scott Treadwell with TD Securities. Please go ahead.

Thanks. Good afternoon, guys. I wanted to talk to you about, ask about the international market. These are 3,000 horsepower rigs that are going there. And I know in the past, you guys have referenced the opportunities to move US assets or North American assets into international, but 3,000-horsepower, is that a bit of a reach? And would that probably point more towards new build, where the 2,000 horsepower segment would be potentially open to transfers?

Hey, Scott. I think the answer is a little bit less clear than just 3,000 versus 2,000. What I would say, is that for Kuwait particularly, likely any rigs going to Kuwait will likely be new builds. They have an expectation for, frankly, for 2016 technology. They want rigs that have the latest and most current technology and they pay for it. There are lots and lots of other markets where we have a handful of 3,000 horsepower rigs underutilized right now that could be redeployed and a few more 2,000 horsepower rigs. So it is generally more customer-specific than it is rig size-specific.

Okay. Perfect. I get that. Just wanted to verify on the maintenance capital forecast for next year at CAD60 million, can you -- again, I don't want to get you into a forward guidance sort of level, is that sort of straight lining where utilization is today or is there some sort of change in that methodology as you go into 2016?

Scott, so generally, when we give our -- when we transmit our expectation on maintenance CapEx for the year, that's our forward guidance and our best guess at activity. And so that would cause you to think that our current activity levels are what we're guessing at, in broad general terms.

Scott, but there are always some one-off items in there that are not reflective of activity levels, but just there's a specific need of a backup BOP in the Middle East. There's some one-off items like that would affect the number.

Okay. But plus or minus, that directional sort of comment is relatively true?

Yes, it is.

Okay. That's good. Last thing, and I'm pretty sure I know the answer to this, I just want to make sure, you guys went through the entire book of assets, both tangible and intangible, before you did this impairment? So sort of no stone was unturned before you did this and at least in your eyes, with no change, you guys have examined everything you should be examining?

Yes, and we will at year end do our normal examination. We did the asset impairment test on the CGUs that we thought there was an indication of impairment.

Okay. Perfect. That's all I wanted guys. Thanks for the color. Appreciate it.

Scott, thank you.

Thanks, Scott.

Thank you. This concludes the question and answer session. I would now like to turn the meeting over to Mr. Ford.

One more question that came in.

I do apologize. Mr. John Daniel from Simmons and Co. Please go ahead.

Thanks for squeezing me in here, guys. I don't know if you are able to answer this, I have not crunched all of the numbers yet based off of the new covenant levels, but in my prior life and I had to deal with banks, we'd typically go to the banks ahead of time if we thought there was going to be an issue to get the amendment rather than having to deal with the waiver down the road. Can you say, were you looking out and you saw an issue with compliance and if so, which one of those covenants was the concern?

So John, the covenant that was the most concern that we were the closest to hitting our head on was the total debt-to-EBITDA covenant, which is the one that we had removed. I would say, when you go to buy health insurance, you can't wait until you're sick to do it. You've got to do it ahead of time. So this really for us was an insurance policy. I don't know that we're going to ever need it, but we needed to go and get it while we didn't need it, because it always turns out, with these types of amendments, that if you really need it, then it's going to be a lot more painful if you can get it at all.

I agree. It's a smart move. I hadn't run the numbers to see which one it was, that's why I was asking you to clarify.

We don't carry any real amount of senior secured debt. All of the debt is in the high yield bonds.

Got it. Okay. Thanks, guys.

Okay, John.

Thank you. Again, there are no further questions registered. I would like to turn the meeting back over to Mr. Ford.

That concludes our third quarter 2015 conference call. Thanks for joining us today.

Thank you. The conference has now ended. Please disconnect your lines at this time. And we thank you for your participation.