Stabilis Solutions Inc (SLNG) 2017 Q4 法說會逐字稿

Good day, and welcome to the AETI To Report Fourth Quarter and Fiscal Year 2017 Results Conference Call.

Certain statements contained in this conference call are not descriptions of historical facts are forward-looking statements as such term is defined in the Private Securities Litigation Reform Act of 1995. Because such statements include risk and uncertainties, actual results may differ materially from those expressed or implied by such forward-looking statements.

Factors that can cause results to differ materially from those expressed or implied by such forward-looking statements include but not -- but are not limited to those discussed in filings made by the company with the Securities and Exchange Commission. Many of the factors that will determine the company's future results are beyond the ability of management to control or predict. Listeners should not place undue reliance on forward-looking statements, which reflect management's views only as of the date hereof. The company undertakes no obligation to revise or update any forward-looking statements or take -- or to make any other forward-looking statements whether as a result of new information, future events or otherwise.

At this time, I'd like to turn the conference over to Mr. Charles Dauber. Please go ahead, sir.

Thank you, and good morning, everyone. I'd like to welcome you all to the American Electric Technologies Fourth Quarter 2017 and Fiscal Year 2017 Earnings Call.

Joining me today is our Senior Vice President and Chief Financial Officer, Bill Brod.

For our call this morning, I'm going to start with a review of fourth quarter results. Bill will walk you through some additional financial details, and then I'll come back and share my thoughts on where we are, as we head into 2018.

We'll then move to a question-and-answer session coordinated by the moderator.

As you saw from our earnings release this morning, AETI announced revenue for the quarter of $12.9 million, which is up 37% from the $9.4 million reported in the fourth quarter of 2016, and down 3% compared with the third quarter of 2017.

The growth in Q4 revenue came primarily from our midstream and downstream oil and gas business and was also boosted by $1.7 million from our Brazilian operations, which was a record quarter for them.

For the year, revenues were $47.1 million, up 25% from $37.8 million in 2016. Gross margin for the quarter was $1.1 million, up $0.9 million from Q4 last year and flat with Q3.

Company reported that EBITDA improved by $1.3 million versus Q4 last year, and by $520,000 from Q3 of this year to a just right below breakeven EBITDA loss of $54,000 for the quarter.

With that, I'll now turn the call over to Bill Brod for more financial details, and we'll come back afterwards for more comments on our business.

Thanks, Charles. Good morning. The company reported net income of $2.3 million for the fourth quarter, a $3.4 million increase versus Q3 of 2017, and an improvement of $4.1 million from the loss of $1.8 million in the fourth quarter of 2016.

As previously reported, net income for the fourth quarter was favorably impacted by the onetime noncash benefit of $2.8 million, resulting from the utilization of fully reserved tax assets to offset tax liabilities related to the company's non-U. S. subsidiary and joint venture resulting from the recently passed Tax Cuts and Jobs Act.

The company reported fully diluted earnings per share of $0.26 for the fourth quarter, an increase of $0.39 per share over the $0.13 per share loss in the third quarter of 2017, and an improvement of $0.47 per share from the fully diluted loss of $0.21 per share reported in the fourth quarter 2016.

Consistent with last quarter, our quarterly fixed costs continue to run in the $3 million to $3.5 million range, which suggests we still need to be in the $50 million to $60 million annualized run rate, depending on revenue mix, to be profitable.

Moving to the balance sheet, we ended the quarter with a cash position of $2.3 million, up $1.1 million from what we've reported at the end of Q3. Total assets were down approximately $750,000 from Q3, due primarily to a combination of lower receivables and cost in excess of billings at year-end.

Total debt at the end of the quarter was $6.1 million, down $300,000 versus Q3. Total liabilities were reduced significantly, $3.7 million from Q3, as a result of the newly-enacted federal tax legislation that allowed us to lower our deferred tax liabilities by the $2.8 million in the fourth quarter.

Working capital at the end of the year was $1 million compared with $1.9 million at the end of Q3, primarily related to the decrease in cost in excess of billings.

As stated last quarter, the company's operations were interrupted for approximately 12 days by Hurricane Harvey. The company is in process of completing a claim under our business interruption insurance and has received an advance in January of $116,000.

With that, I'll turn it back over to Charles for some additional commentary and outlook on the business.

Thanks, Bill. Guys, I'm going to begin with the sector reviews, which is how I tend to like to go through the business overview and I'll start again with the oil and gas market sector.

As we've discussed previously, the majority of our focus here is in the midstream and downstream portions of the oil and gas sector, but there have been some new developments in the upstream market, which I'll discuss as well.

The overall oil and gas market remains very challenging, with strong pricing pressures across the entire sector.

As I highlighted earlier, our oil and gas business continues to drive the company's growth. In Q4, our oil and gas sector revenues increased 200% versus the fourth quarter last year but were down 16% from Q3.

The revenue came from a mix of midstream and downstream oil and gas projects and included revenue from turnkey solutions that incorporated our IntelliSafe Medium Voltage Arc-resistant switchgear project -- product.

We continued to book orders in the midstream and downstream market but had some post-Hurricane Harvey project award delays in the Houston area, which resulted in programming backlog for the oil and gas sector of $11 million versus $15.4 million at the end of Q3.

We see good opportunity following the midstream and downstream oil and gas market and see many opportunities in our new EPC customers for 2018 as well.

Moving to the upstream part of the oil and gas sector, in Q4, we began to see progress in old customers coming back online and needing services to get their drilling rigs back to work. We've seen an increase in retrofit opportunities to existing land drilling rigs and have also started to see new power and control system opportunities, primarily for drilling rigs heading for West Texas as well, which is positive -- a positive sign as we head into 2018.

I look forward to sharing more updates with you on our land and offshore drilling business in future calls.

Moving to BOMAY, our joint venture in China, that's 100% focused on the oil and gas market. BOMAY reported Q4 revenues of $8.9 million, which was up 128% from the $3.9 million reported in Q4 of last year and up 47% compared with Q3 of this year.

AETI recognized 40% of BOMAY's profit as equity income, which was a $150,000 for the quarter. BOMAY has seen an uptick in orders, and we are balancing what looks like an increased demand for Chinese shale-focused drilling rigs, with an overall still down, broader Chinese energy market environment.

I'll now move to our power generation distribution sector. As a reminder, this sector is broken down into 2 pieces: the global power generation OEMs, or original equipment manufacturers -- those are companies that make reciprocating engines or natural gas turbines; and then the projects that we do directly with EPC firms, Engineering Procurement and Construction firms, that are building power plants.

So in Q4, power gen revenues were $0.9 million, which was up from the $0.5 million in Q3, but down 70% from Q4 last year due to the lumpiness of the EPC part of this sector. Backlog in the sector decreased by 5% in the quarter to $5.6 million. The revenue and backlog declines are based on this lumpiness that I mentioned in new natural gas power plant construction, which is impacting both the EPC and our OEM customers. However, interestingly enough, we are seeing an increase in the distributed power generation market that I discussed in our last earnings call. And I look forward to sharing progress in that part of the market with you soon.

Moving to the marine and the other industrial sector. Revenues in the quarter were $1.8 million, up 225% from Q3. The quarterly revenue increase in this sector is attributable to a large marine service project in the U.S. and an increase in the Brazil industrial projects, a products business as well.

Let me dig deeper into M&I Electric Brazil. The M&I Electric Brazil's revenue is split between the 3 sectors that we talked about, oil and gas, power gen and marine and industrial.

In Q4, as I mentioned earlier, revenues in Brazil were a record at $1.7 million, up 18% versus Q3 and up 18% versus Q4 last year.

The M&I Electric Brazil team continues to execute on this strategy in all of the sectors that they are focusing on, and have successfully augmented their services business and have begun delivering product-oriented projects, specifically in the industrial and energy markets in Brazil.

While the Brazilian macroeconomic environment remains challenging, we're very positive about the progress the team is making and I look forward to sharing additional announcements with you in the future.

If I take a step back and look at where we are as a company heading into 2018, we have successfully executed our strategy to transition the company to a midstream and downstream oil and gas and power generation market focus, as the upstream oil market recovery occurs. Our investments in new products, plant capacity and people, have enabled us to break in and successfully execute projects with some of the biggest companies in our industry and against some of the largest electrical equipment companies in the world.

We can also see that our investment in Brazil is really starting to grow and we believe there are signs for growth from our traditional drilling and marine business in 2018 as well.

My summary of 2017 is that, in a flat market that was impacted by a major hurricane, we drove bookings increase of over 100%, we had a 25% year-over-year revenue increase and improved EBITDA by $2.4 million.

So before we proceed with the Q&A session, I'd like to conclude the prepared portion of my comments by really thanking our employees for their hard work. I'd like to thank our customers and our suppliers and our shareholders for their support.

So this concludes the prepared portion of my comments. And I'll now turn the call over to Jake to manage the Q&A section of the call.

(Operator Instructions) And we do have our first caller. The question will come from?

This is Bill Dezellem from Tieton Capital. Would you please, Charles, talk a little bit about the power gen market and why you're feeling like that has paused? This is certainly quite timely that you're going to do an oil and gas offset now, but that power gen headwind had been quite strong for you.

Bill, you're breaking up a tiny bit. Can you ask the question again?

My apologies. Is that any better?

I don't know. Say it again and I'll let you know.

My apologies. Okay. Is this any better for you?

Maybe, yes.

So hoping you can talk about the power gen market, and why from your perspective it has softened, whereas it had been showing a lot of strength earlier in the year?

Okay. Got it. Okay. Look, so I think the core of the power generation market is fundamentally sound. Our strategy of leveraging low cost and high availability natural gas for power generation plants in the United States is still there. It's still working. So if I think about our power gen business, we actually are seeing nice opportunities in the OEM part of the business and so that's people that make the turbines or people that make the engine gensets. And so that part of the business is fine, and based on the projects we see, those are -- there's sort of no challenges on that. I think that we saw softening last year in the power gen EPC side of the business and we had that very large combined-cycle power plant project and that we worked on for, we'll call it 1 year and 1.5 year, and we've just not had projects that replaced that last year. So I still think there are projects out there, I think the market itself is certainly having some overall challenges. You see that people like GE and their power plant business had a layoff several months back, but we still see opportunities. I just think it's quite lumpy. The part that we're trying to figure out is that the lumpiness of the power gen projects, I don't believe that's a long term, I think it's just where things are, where things are and have been over the last quarter or so. But we're also monitoring this, what I call the distributed power generation part of the market, which is instead of people building 600-megawatt combined-cycle power plants for $1 billion, they may be moving or augmenting that to doing small little distributed power plants for 1 megawatt for $1 million. And so we've started seeing a pickup in that side of the business, which is I'll call the third leg of our stool, and so that we're looking forward to telling you about some of the things that with some of the progress we've made on that, as soon as we can make those announcements on that particular part of the market.

Charles, would you please help us understand why -- that shift is taking place to these distributed power plants? And does it tend to be more rural locations? Or what are the dynamics behind that, please?

So I think that there's a couple of things going on. One is, I think in general, the permitting process and the upfront capital and just the things that companies have to do to get these large combined cycle baseload power plants are -- it's a very, very, very big investment and multiple years and the whole thing. And I -- my view in talking to some of these companies is, on the distributed power generation side is, is there's a whole lot of new technologies and business models that are enabling the growth of new distributed power generation type projects. So you can go and deploy 10 different 1-megawatt little natural gas engines and you can use that power for backup purposes and when the grid needs that power, you can turn around and sell that power back to the grid. You tie 10 of those little 1-megawatt sites together and that's a 10-megawatt mini power plant, or that's sort of a virtual equivalent to that. So that seems to be a growing market because you can permit those and get finance for those and execute those projects much smaller. I believe some of this comes from models that people have taken from the solar industry, where you used to see a whole bunch of very, very, very large utility scale solar projects and you still see those, but now what you see is a whole variety of smaller companies that are doing -- they're integrating a whole variety of rooftop solar panels together, and aggregating a thousand customers and that's equivalent to a power plant. So I just think it's the emergence of this new distributed model and we are smack dab in the middle of helping people design power systems and the controls to basically be able to manage and link all these things together.

And when would you anticipate that you would receive orders and start -- and for us on the outside, be noticing the impact of that distributed power?

I think what I would say is we are seeing orders and I'm looking forward to announcing those orders as soon as I'm able to.

And then my last question for now is what hurricane hangover did you have in the fourth quarter, either from a business operation perspective or from an order perspective?

I think -- well, so 2 things. The Harvey recovery, so Harvey was in Q3. I think it was the end of Q3, entering Q4. So our business was interrupted for 12 days. We couldn't get to the plant, there was no water in Beaumont, but that, the recovery after that was instantaneous. We didn't have any damage to the plant, we just had a business interruption. And so from an operations perspective that was basically, making sure all our employees were back to work, and we had about a 10% of our employees were impacted by Harvey in some significant way, they moved out of their houses, or significant damage in Houston and Beaumont. So operationally, we're fine. I would tell you in the region, the real issue was -- is that this sort of -- this made a whole bunch of companies focus energies on recovering their plants or fixing their operations, or helping their employees. And we certainly saw some projects being delayed that were expected to be closed in Q4 and that didn't close in Q4 and moved into 2018.

(Operator Instructions) And we do have a couple of more questions. The next caller. Go ahead, please.

This is George Berman from IFS, Raymond James in Orlando. Congratulations, it looks like we're making the right moves and are on the right track. Quick question on your international operation. In terms of size, there seem to be, for a company of your small size, you have some nice operations now in Brazil. You've had your big operations in China. What are your plans for growing these further? And can you maybe go into little bit more detail on the tremendous increase in you mentioned revenues in BOMAY China as well as the good results from Brazil. Where do you see these 2 going and what kind of contributions can we look forward to in the future?

Okay. Look, I think I wrote all that down, if I didn't, come back and ask me if I don't answer everything there. So I'll just take them one at a time. So let's start in China. So I think the big things for China is, is that they are starting to feel more positive about the future, that the overall Chinese energy market is still pretty down, the Chinese economy is still relatively down, so for the areas that we focus in. But what's happening is, is the Chinese are finally starting to recognize the pollution in China, a lot impacted by the amount of coal-fired power plants, is just not -- it's not sustainable. So they are trying to move towards natural gas-based power generation, just like we talked about with Bill a minute ago in the United States. China has very, very large shale deposits in Western China that have a slightly different topology than the U.S. shale does, but what China's starting to do is invest in more rigs and more technologies to go get that shale oil for their oil requirements and shale gas for their power generation needs in the market. So we expect that, that's going to be a growing focus for BOMAY, the joint venture, and we feel positive about that in the future. We did actually extend the BOMAY joint venture; we're waiting for the Chinese authorities' approval. But we did extend that, we've all signed the Chinese joint venture approval for another 12 years and so our view is, is that, we've got 2 things we're working on: one is taking advantage of this growing shale drilling opportunity with them in China; and then second is looking at what other opportunities we can do that are related to those markets. And they're similar to what the M&I Electric U.S. business is, which is midstream, for example, pipelines, downstream, if there was opportunities for that in China. And those are at the early stages of exploration, okay? So we -- we're -- I'm cautiously optimistic although I'm trying to be cognizant of both of the general Chinese energy market and certainly where they've been the last couple of years as it relates to China. But we think that this is a new dynamic and we're certainly helping them and all of that. So we're positive about that. For Brazil, look Brazil is doing great, the team has got a strong growth plan, they're executing the growth plan for the year. If you remember, when we started Brazil, the original focus was offshore drilling in the oil and gas markets and we have a strong market presence there. But the good news is, we've started to see drilling rigs coming back to Brazil. So we have our technicians on drilling rigs that are heading from wherever they've been stored. They're turning everything back on, testing everything, and those things are coming back to Brazil for the first time in several years, and that's a very positive development for the core of that market. And that's all services. The team made great progress in the power generation market and has orders for doing power plant service, which is the second leg of their markets, just like we've got in the U.S. And if you remember, it's been a year -- well it's been a year, I think last -- we'll call it a year ago, we hired an executive in Brazil to run our industrial and energy, that's what they call it. So they are -- our industrial business. And that's the guy that led the team in Belo Horizonte to break into major accounts like Wally and other major Brazilian industrial companies. And yet the interesting part about that is we're doing not only services, but we're also doing products and we have partners in Brazil that we work with. So we are starting to deliver projects that are a combination of services and hardware in Brazil. So we're in a market that's still crazy, the Brazil macro environment is still very up in the air with the political situation. That team is executing very well and as the market grows, we're in a great position to take advantage of that growth.

The late increase in crude oil prices obviously should help the offshore drilling market, which in turn should help you because you've got lots of expertise there. The very low natural gas prices -- recent reports show, for example, the biggest shale drilling area in the Permian basin here in Southwest Texas, into New Mexico. Lots of pipeline work to be done there. Pipelines connecting Mexico, which is importing more and more of our natural gas. Where do you see the opportunities there? I know that you've done in the past some of the pipeline work as it pertains to fractionation and reprocessing and pressure pumping, et cetera?

Yes, so on the offshore drilling, that's part of why we hired back Doug Williams, 9 months ago, to pursue the global drilling in marine vessel market. So he is driving our increased services business in the Gulf of Mexico and the West Texas. We've got people basically stationed, working on the drilling rig services there, so that's in the upstream part of the oil and gas market, which has started to see a recovery, as we've talked about. And then, look, the majority of our business in the last several years, it's all been in the pipeline market. And so that's exactly what we do, that's exactly where all of our customers are. That's the EPCs, we work with all the major pipeline companies. And so, yes, we -- that's the majority of the business is making switchgear that goes into the PDCs that we do turnkey solutions and ship to these pipelines that are in West Texas, that are in -- well, all over basically. So that's the sort of single largest part of the business, is those pipelines.

And we'll now move to the next caller. Go ahead, please.

It's Bill Dezellem at Tieton Capital, again. Would you please discuss pricing that you're seeing in the market and how that compares today versus the rest of maybe so -- let's just say 1 year ago, and how the pricing of the backlog of the business that you have booked appears?

Okay, so pricing in the market versus a year ago and what was the -- just say the last part about the pricing in the backlog. Say that again, Bill?

Yes, just how does the pricing of the backlog appear versus how the backlog pricing has been throughout 2017?

Got it. Okay. So my view is that the markets are basically the same, okay? And the pricing pressure from a year ago is about the same as it was. The market has the same number of competitors. The projects are still tightly competed for. We have differentiation, and certainly with repeat customers, we -- they understand the value proposition of what we do. I would tell you the pricing, we try to eke our pricing up every opportunity that we can and when we can, we can, and when we can't -- we have customers, especially in some of these markets like the pipeline market, that George was asking about, are very price sensitive, very price competitive. So I would tell you, the book-to-margins are probably similar as they were a year ago. They're down versus where there were 2 years ago, and so I think that sort of a dynamic, it's just -- it's another year of tight -- of very, very tight competitive market. And I think the backlog would be the same. The margins and other things in the backlog are equivalent to where they were. I'm trying to decide if I think they're up a point or so, or down a point. Let's just assume they are consistent with where they were over the last 12 months. The part that's interesting about this, Bill is, we talk about getting to profitability, right? And getting to profitability at our run rate. We need to be at the sort of a $50 million to $60 million annual run rate, but that has a lot to do with not only volume but mix, okay. So the things that are interesting to me about the mix discussion is that the backlog today is primarily filled with midstream and some power gen. But as the backlog on the product side start to see more drilling-oriented, the margins of those products are traditionally significantly higher and the more we drive on the services part of the business, which is at quite a bit higher margin than the day-to-day products business, that whole product mix and product versus services mix is also a critical thing for us.

That's helpful. And then how would you characterize backlog opportunity today versus 1 year ago?

You mean like our sales funnel?

Yes.

So -- our sales pipeline, actually our sales pipeline is good. Our sales pipeline is high. So the sales team, there's lots of opportunities coming in. The number of opportunities we've got is good. They just need to close, all right. And so it's been interesting because the midstream and downstream and power gen, those -- the power gen is lumpy, as we've talked about. Midstream and downstream are good, that projects need -- just need to close. But what's in our pipeline now -- I'm sorry, not in our pipeline, what's in our sales forecast now is for the first time in many years, drilling projects, new drilling rigs and marine vessel projects, literally for 3 years. I don't even remember last time we did one, all right. And so the market's just not been there, but those are things that are in our forecast and are -- we're trying to make those things happen. And again those markets, additive not only from the revenue perspective but from a margin perspective as well.

Would you say the opportunities are larger today in aggregate than they were 1 year ago?

Yes. Let me just articulate that. What's happening is as we break into these large EPC customers and then we win them and then we successfully deliver the project. Let's say that our first project with an EPC firm is $3 million to $4 million, okay? We successfully execute that, then the next level of opportunity is $10 million to $15 million project opportunities. So that's where I see the size of the opportunities, not only overall funnel going up but the size. There is a growing number of opportunities in the funnel, which are significant portion of what any one of our quarter's revenues would be, right, any one single project. So that's a -- so I would say absolutely yes to your question.

And so we are now most of the way through the March quarter. Talk a little bit about bookings that you have had this quarter, if you would, please? And the degree to which the delayed projects from Q4 that they did close in Q1?

Unfortunately, I can't really talk about Q1 numbers or results or anything. We're a couple of days away from closing the quarter. So I have a little bit of a hard time with that. I would just tell you that in general, we have good opportunities. We're closing orders and that's probably as much as I can really say at this point in time.

All right. I'll try it one more time on this one. So I'm going to take advantage of this been a public conference call, and maybe ask you to give some qualitative view on the bookings this quarter, not numbers but qualitatively or directionally some color that you think would be useful?

Look, in general, what I'm comfortable in sharing is the status of the markets and what I would say is, is that the markets are -- the markets that we serve, which is the pipeline market and the downstream market are still buying, there are still projects. The power generation market, it can -- I think -- it continues to show some of the dynamics that we talked about earlier. I think most of the stuff that I shared with you about the markets are still directionally correct for where things are in Q1, and I think that's probably as much as I'm comfortable in sharing in our Earnings Call.

Okay. And then how about competition? What are you seeing, either similar or different from competitors today versus the last several months?

That's an interesting question. I don't think that, that's changed dramatically. I think that there's no new market entrants. I think that the competitors sort of know each other. They understand where each other are. IntelliSafe continues to make waves with customers and nobody has had any competitive answer for IntelliSafe. So we still think we've got strong differentiation on IntelliSafe and on the fact that we're 1 of only 2 companies in our space that has the arc-resistant switchgear that they make and they make their own PDCs. And so I think that's still there. Other than that, I just tell you the market is still competitive, I think that's how we think about it. That's by the way, that's all the midstream, downstream and power gen. I will talk about the upstream market. So there is some dynamics going in the upstream market, which I don't talk about too much, but I will. So on the upstream, which is the drilling power and control systems. We -- of course, we still see National Oilwell Varco as a prime competitor, but one of our other biggest competitors was a division of OMRON that made power and control systems for the drilling industry. And what's happened with that is they were acquired by Schlumberger about a year ago, and so what that means, Schlumberger is also doing -- has a drilling business and so there's some unhappiness in the industry that somebody who's been selling drilling power and control systems is now part of a competitor to our customers, people that are making drilling rigs or selling -- selling drilling rigs. So we think there is a dynamic there, we're trying to figure how to exploit that in the market, but other than that, the market -- the competitive dynamics are similar sort of across the rest of our businesses.

Thank you. And Charles, I am going to ask one more question if you will allow.

Of course.

Your EPC customers or partners, however I should term it. Talk a little bit about how those relationships evolves over the last year, if you would? And what the implications are for this year. And I know you alluded to the fact that smaller projects may be moving to larger projects but any more information or perspective that you could share will be appreciated?

Sure. Look, let's talk about the larger EPC firms. So we've been doing work with the mid-tier EPC firms for years and that's all fine. When we have -- when they have projects we are on the approved suppliers' list and we work with them and that's all good. So I'm really going to talk about the large top tier EPC firms, and if you think about where we've been over the last several years, it wasn't until we had in the PDC business and, which is about 3 years ago and IntelliSafe, which is sort of 1.5 years, 2 years ago, that we could even start calling on these guys, otherwise we didn't have anything that they could -- that they were buying. So we started that path of calling on them. We hired salespeople, we brought them into the plants, we did demos, we got onto the suppliers list, we started bidding projects, we started winning projects. So for the last year, what we've been doing is basically getting our first orders with these guys and then delivering our first orders. And our job is to make sure that the first orders go well and the first orders for these customers have gone well. So the dynamic and where we are as a relationship is, is that we now proven ourselves. And these people want us to quote on their projects and they're helping us to quote more projects and they're bringing us in to more of their projects because they actually know that what we said 2 years ago, 1.5 years ago, we actually can do. And when we say we're going to deliver a project on time, we do. Say we're going to have the right quality, we do, and that sort of thing. So I think the relationship has changed from a -- during the -- first, they have to qualify us, then the next step is they have to actually give us an order and then they have to trust us. Now they trust us, now we are really working with them more as a partner, on how do we go and help them on more projects for the rest of this year and in the future. So I think the implications are very positive. We're considered a trusted partner for them as we've done the first project with them. All right?

That's helpful. And then I thought I had my last question but another one just kind of popped up here. IntelliSafe, is that something that the drilling market or the upstream market is interested in? Or is that not really relevant in that market segment?

I love that question. So historically, no. There -- they've have not been interested in it because they -- I would say, they didn't worry about safety very well. But obviously, in the last 10 years, there's been a significant improvement in the safety orientation certainly in the offshore drilling side, right? I'm not going to go through how they got there, but they are there. So as we're talking to people about offshore drilling, there is certainly an increased interest in arc-resistant or increased safety functionality, like IntelliSafe has. We have actually done some work to articulate how we would add arc-resistant capabilities to drilling rigs, but land drilling rigs are typically low voltage and IntelliSafe is a medium-voltage product, okay? So it's really for the medium-voltage applications, that's where we could see some opportunities. Including, by the way, in marine vessels. There's marine vessels that are operating at medium voltage. They want safety -- the same safety that the market -- the requirements for the downstream market has, and so we're talking to people about that as well. Unfortunately, on drilling, it has to be low voltage and there's some other things that have to come into play, which we've been thinking about and sort of doing some work on investigating but nothing specific on the low-voltage side for the land drilling at this point.

And at this time there is no additional question from the queue. (Operator Instructions) And with no additional questions in the queue, I will be happy to turn the call back to your host for closing remarks.

Thank you all very much. I look forward to talking to you again soon.

And with that ladies and gentleman, this will conclude your call for today. Thank you for your participation. You may now disconnect.