Select Water Solutions Inc (WTTR) 2018 Q2 法說會逐字稿

Greetings, and welcome to Select Energy Services Second Quarter Earnings Conference Call. (Operator Instructions) As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Mr. Chris George, Vice President, Investor Relations and Treasurer. Thank you. You may begin.

Thank you, operator, and good morning, everyone. We appreciate you joining us for the Select Energy Services conference call and webcast to review our 2018 second quarter results.

With me today are John Schmitz, our Executive Chairman; Holli Ladhani, our President and Chief Executive Officer; and Nick Swyka, Senior Vice President and Chief Financial Officer.

Before I turn over the call, I have a few housekeeping items to cover. A replay of today's call will be available by webcast and accessible from our website at selectenergyservices.com. There will also be a recorded replay available until August 24, 2018. The access information for this replay was also included in yesterday's earnings release. Please note that the information reported on this call speaks only as of today, August 10, 2018, and therefore, time-sensitive information may no longer be accurate as of the time of the replay or transcript reading.

In addition, the comments made by management during this conference call may contain forward-looking statements within the meaning of the United States federal securities laws. These forward-looking statements reflect the current views of Select Energy's management. However, various risks, uncertainties and contingencies could cause our actual results, performance or achievements to differ materially from those expressed in the statements made by management. The listener is encouraged to read our Annual Report on Form 10-K for the year ended December 31, 2017, our subsequent quarterly reports on Form 10-Q and current reports on Form 8-K to understand those risks, uncertainties and contingencies. Also, please refer to our second quarter earnings announcement released yesterday for reconciliations of non-GAAP financial measures.

And now, I would like a turn the call over to our Founder and Executive Chairman, Mr. John Schmitz.

Thank you, Chris, and welcome, everyone, to the Select Energy Services 2018 second quarter conference call.

Before I get started, I would like to introduce and welcome Nick Swyka, who recently joined us on May 15th as the Senior Vice President and Chief Financial Officer, succeeding Gary Gillette, who was named Senior Vice President and Chief Administrative Officer. Nick joins us following previous 10 years in the oilfield service sector at Nabors Industries and Pacific Drilling and we are excited to have him join Select.

Looking at the macro environment, operator activity continued to see solid improvements in the second quarter as seasonal weather issues and sand supply constraints that hindered the first quarter abated. Global oil market fundamentals continued to improve with OECD inventory data normalizing and crude prices continuing to trend favorably. Additionally, the CBOE's measure of volatility of crude oil futures has stabilized in the past 6 months, which has provided additional confidence in the overall E&P investment. This creates a market that's positive for both operators and service companies alike.

The rate of permitting and overall activity remained solid with the total U.S. land rig count having increased 5% sequentially per Baker Hughes, while the spudding of new wells grew by 8% during the second quarter based on other industry research. While we believe the number of active frac crews in the market appears to have reached a sufficient level in the second quarter, we believe there is continuing room for additional growth in overall frac stage counts per crew.

We are also starting to see in-basin sand mines coming online, providing meaningful low-cost sand supply growth that we believe will continue to support our customers' demands. These activity levels provide a positive overall backdrop for completions, though Permian takeaway capacity issues do remain an overhang of potential production growth in the coming quarters. While we have not yet experienced meaningful activity delays or deferrals from our customers to-date, we have heard of a couple of operators delaying bringing production online or shifting resources to other basins such as the Eagle Ford. We will continue to closely monitor the issue over the coming quarters, particularly leading into the 2019 capital budgeting cycle.

Overall, we remain constructive on the other basins and believe our nationwide operational footprint provides us valuable optionality for the redeployment of people and assets depending on the duration of any capacity constraints in the Permian.

With that, let me turn it over to Holli.

Thanks, John.

I'd like to echo John's earlier sentiment that we're excited to have Nick on the team and I'd also like to thank Gary for his continued dedication in his new role as our Chief Administrative Officer.

Building off a strong conclusion to the first quarter, I'm pleased with the progress we continued to make as an organization as the team has accomplished a tremendous amount over the first half of the year. The majority of our integration activities have been completed and we continue to see the benefits of having become one Select. The integration of our financial and operational reporting capabilities continues to provide increased operational visibility and improved financial discipline across the organization. I'd also note that year-to-date margins has benefited from notable synergies and we expect to achieve just over $20 million in cost savings, which will exceed the high end of the cost synergies target range identified when we embarked upon this effort late last year.

Nick will take you through the quarterly results in more detail, but looking at our high level financial performance, revenue for the second quarter was up 4.5% sequentially to $393 million and we generated net income of $25 million. Our continued emphasis on efficient operational execution and margin enhancement led to a very strong 51% incremental adjusted EBITDA margin in the second quarter with our adjusted EBITDA for the second quarter coming in at just over $68 million, up 14% from approximately $60 million in the first quarter.

The labor and equipment markets remained tight, which has heightened our focus on pushing price when appropriate and selectively pursuing those customers that offer the most profitable and consistent work. While a component of our recent margin improvement is the result of higher prices, much of the pricing improvement has been offset by continued cost inflation. Labor continues to remain a challenge across the industry and we're highly focused on not only hiring but, more importantly, retaining our talented workforce in a very competitive environment.

In our Water Solutions segment, we continue seeing meaningful opportunity across all basins. In the Permian in particular with our GRR footprint in the Northern Delaware area, the number of long-term opportunities for us remains high in spite of potential near-term constraints.

Select is in a unique position as the market leader in the water solutions industry. We partner with top-tier customers that are driving the leading-edge of increasing completions intensity in this rapidly evolving unconventional landscape and we continue to focus on finding the most cost-effective and value-added ways to service our customers through investments in technology, the right equipment for today's completions and logistically correct water sources and infrastructure.

Additionally, while we remain focused on strengthening our leadership position in pre-frac water services, we'll continue to evaluate investment opportunities across the entirety of the Water Solutions supply chain. We believe our AquaView and AquaLogic suite of monitoring and automation technologies continue to represent a strategic advantage for our Water business over our competitors.

New technologies provide a safer and more efficient solution for our customers while also providing improved margins through decreased labor costs. Additionally, these technologies allow for the continued improvements in and expansion of our ability to capture real-time data across the supply chain. We ultimately believe that improvements in data capture can provide a very valuable resource for both Select and our customers.

Our Chemicals business had a significant achievement during the quarter with the start of our friction reducer manufacturing at our Midland plant. While we did see some downward margin impact in the second quarter from start-up costs associated with this project, we believe this expansion provides us with a significant cost advantage as we increased our production in-basin. We anticipate seeing continued margin improvement across the rest of the year, largely from lower freight costs for our friction reducer product line as well as a shift in product mix.

Our Wellsite Services segment saw a mixed performance across the different businesses. Second quarter results included meaningful revenue and margin improvements in Peak, our accommodations and rentals business, as well as our Bakken sand hauling service line. Our Affirm business held gross profit relatively flat while our Canadian business saw a typical seasonal revenue decline associated with the spring breakup season. These businesses should continue to benefit from higher levels of rigs and completions activities.

Turning to CapEx. Our spend year-to-date is less than we originally budgeted and we have reallocated some of the budget based on market conditions. We've continued to identify good opportunities to put growth capital to work with paybacks under 2 years, but the tightness in the labor market has limited the number of qualified people we've been able to add to support this growth capital.

For this reason and the fact that we've identified other strong return opportunities, we've reallocated some of our growth capital to increasing our inventory of water sources and small infrastructure projects as well as margin-enhancing projects, which includes replacing rental equipment and adding more automation to our fleet. Automation investments include our pumps, manifolds and automated proportioning systems.

All in, we expect to spend roughly $140 million to $150 million of total CapEx in 2018 versus our previous forecast of $150 million to $160 million. Approximately 80% of the total spend is split evenly between maintenance and growth and the rest is for margin-enhancing projects.

With that, I'll turn it over to Nick to walk through our detailed financial results.

Thank you, John and Holli, and good morning, everyone.

Second quarter marked another step forward in our strategy to improve margins and return on capital. We reported total revenues of $393 million for the second quarter of 2018, up 4% sequentially from the first quarter. Adjusted EBITDA was $68.2 million, up 14% from the first quarter. Net income for the second quarter was $25 million, up 55% from $16.1 million in the first quarter.

Turning to our segment results. Our Water Solutions segment generated gross profit before depreciation and amortization of $70.1 million compared to $63.5 million in the first quarter, an increase of 10%. Gross margin improved by a full percentage point to 25.6% with strength concentrated in our water transfer, sourcing and flowback and well testing business lines. We anticipate achieving further margin increases in the second half of the year through continued operational efficiencies as well as from our margin-enhancing CapEx, which includes rental replacement and automation.

Our Oilfield Chemicals segment generated gross profit before depreciation and amortization of $6.3 million during the second quarter as compared to $6.5 million in the first quarter. We expect to increase gross margins from 9.7% currently to the low- to mid-teen percentage range in the second half of the year. Specific factors that should enable us to achieve this include the reduction of freight costs from the recent opening of our Midland friction reducer in-basin production line and a couple of large new contract awards starting in Q3.

Our Wellsite Services segment generated gross profit before depreciation and amortization of $10.8 million compared to $8.8 million in the first quarter. We anticipate moderate improvement in this segment driven by increased utilization in our accommodations and cranes businesses, along with the closure of underperforming yards in Canada.

Now turning to the balance sheet and cash flow in the quarter. I'm pleased that we were again able to deliver free cash flow that fully covered our net CapEx. Significant uses of cash during the quarter included net CapEx of $28.1 million and working capital growth of $31.1 million. While our accounts receivable and inventory balances support the borrowing base for a low-cost debt facility, we can improve upon these metrics. This will be a focus going forward and we expect to make meaningful progress on our cash conversion cycle in the back half of the year. We expect to finish the year with a lower working capital balance than we had at the end of the second quarter.

We ended the quarter with $80 million of borrowings on our revolver and cash on the balance sheet of $11.3 million. That leaves us with immediate liquidity of approximately $200 million based on our borrowing base at quarter-end. We anticipate generating increased cash flow over the second half of the year through the continued improvement in the quality of our earnings as well as improved working capital management, which, absent the emergence of any major new opportunities for capital deployment, can be used to reduce our outstanding borrowings in the near-term.

I want to also take a minute to briefly summarize some of the recent Q2 activity in the capital structure. On May 1, 2018, approximately 14.1 million shares of our Class A common stock that were issued to legacy Rockwater shareholders in the merger became eligible for resale under Rule 144 of the Securities Act. Additionally, on May 14, 2018, SES Legacy Holdings, LLC distributed an exchange for Class B shares held on their behalf approximately 9.9 million shares of our Class A common stock to certain legacy Select stockholders, which were immediately eligible for resale under Rule 144. Further, approximately 3 million Class A shares were recently issued in exchange for Class B shares that were previously issued to certain other legacy Rockwater shareholders in the merger and were immediately eligible for resale under Rule 144.

We also filed a shelf registration statement on Form S-3 on May 16, 2018 that covers primary sales of certain of our securities as well as resales of up to 50.5 million shares of our Class A common stock held by certain of our existing stockholders. This filing is a requirement of our registration rights agreement with these holders.

Upon conclusion of these activities, we now have approximately 79.3 million Class A shares outstanding and 27.4 million Class B shares outstanding for total shares outstanding of 106.7 million. We believe that all these activities have helped to increase the public float as evidenced by the recent increases in daily average trading volumes and we'll provide more clarity to the capital structure moving forward.

With that, I'll hand it back to Holli for some concluding remarks.

Thanks, Nick.

Overall, the strategic rationale for the merger between Select and Rockwater continues to bear out. Our added scale and scope of services is allowing us to partner with our customers to provide more efficient solution for today's more complicated, ultra-high density pads. As we've discussed previously, in order to seek the best long-term returns for our shareholders, we'll continue to follow a prudent strategy in investing in compelling growth opportunities while maintaining a strong balance sheet.

With that, I'll turn it back over to the operator to take your questions. Operator?

(Operator Instructions) Our first question comes from Jim Wicklund with Crédit Suisse.

Holli, if I could, a little bit of a drill down on the automation. I mean, most people think you guys just supply water to a wellsite and so most people aren't going to really understand what automation plays in what you do. And so can you give us a little granularity on that? And the margin-enhancing CapEx potential, what does that actually involve?

Great. So on automation that -- we think about it in a few different buckets, but it starts with just remote monitoring and that's things like pit levels and tank battery levels. And that's visible to us and our customers so it certainly cuts down on the amount of traffic and time and people to run out and check levels, so that's a cost savings for both of us.

But I'd say the more dramatic piece of what we do comes in to the automation of our equipment. And the largest fleet that -- of automated equipment we have today is around our pumps. And that really, again, it is an unmanned pump that is capable of turning itself on and off and speaking to other equipment. And so we have 150 to 200 pumps deployed today that are capable of that and I think that's where you start to see -- and we'll start to see the savings over the back half of this year and next year associated with the automation of that equipment. But -- and so that's a very proven technology. It's been out for a year or 2 now.

Where we're expanding though is into automation of things like the manifolds as well as automated proportioning systems. The manifolds are fairly obvious on the well pad. And again, you can start to take people out of the equation. And the automated proportioning system is where you can essentially dial up the quality of water you'd like to have going into the frac that's using a fresh source and a produced water source and the system can regulate itself to make sure it's delivering the right water quality. So that one is maybe slightly less of a cost savings, but more from at least a labor perspective, but it's a -- it's the predictability in the water flow and so the quality of the frac can be improved by that.

So when you think about labor being one of the bigger constraints for the whole industry these days, we are laser-focused on finding ways to be able to grow the business without adding headcount and automation is an important way to be able to do that.

So with that, maybe, Ian, I'll -- let's take your questions.

I wanted to ask -- I was a little surprised that the market had a tepid reaction. I thought the results for the quarter were good. I guess, one working theory would be that your top line in Water Solutions in the quarter up 6%, while positive, we're lower than the comparable rate in completions activity. So I was wondering if you could address that and talk about what parts of your Water Solutions business grew stronger or by less in the quarter? And given the flattening completions outlook for the second half but also probably still rising service intensity for companies like you, how do you see your top line trajectory for Water Solutions in the back half?

That's a great, great question. And one of the things that we talked about I think on the last call, Ian, was we really had 2 primary focuses: One was on margin enhancement and one was on integration. And on the margin enhancement front, we really want to make sure we're taking on the right work with the right customers and utilizing our own people and our own equipment. And I'd say we were successful and we achieved another 100 basis point improvement in the Water Solutions business with that strategy. And it's -- again, it's part of a transition we're going through.

And as it relates to integration, I feel like we largely have that behind us and I would look back upon it as a significant amount of work and a big success that the team has done a really fantastic job in a relatively short period of time of bringing these 2 companies together. And the way I look at it is that we now have a higher margin platform to grow from. And we think that there obviously going to continue to be good opportunities to grow this business through our current service lines, through infrastructure. So we're still very optimistic about the ability to grow the top line.

The one thing I would note on the flattening of activity that will be interesting to follow is that we're seeing more stages per crew. And so even though horsepower may stay relatively flat if it hangs together where they continue to find those efficiencies, for us, more stages means more water and so that's well intensity that we would continue to benefit from.

Good. Holli, in prior times -- prior cycles, when we've seen the industry have to respond to basin-specific dynamics and we mobilize activity from one place, it's hardly ever gone seamlessly. When you began to witness now certain operators reallocating capital out of the Permian towards the Eagle Ford and other places, do you see that they are confronting unforeseen logistical headwinds with that? Or do you think that this time it's a bit different and that the activity migration into other basins is going to be a little bit more seamless than it has been previously?

Yes. It's always hard to say it's going to be seamless because there will be some level of inefficiency, but I think you really have to dig a little bit deeper into what is it that you're trying to move around. So I think about it in 2 ways: One, our equipment and our people are obviously very mobile. And they're mobile by pickups. You're pulling them behind pickups. You're not waiting for a large rig and a CDL driver to redeploy those assets to the other regions.

Now, there is some cost to that. So as we make our decisions and following our customers, which we're already doing that to some extent, as you've heard -- as we have some of those -- and their movements, it's -- what's the duration, right? If you're moving for 6 to 9 months, it's worth it to go ahead and move that equipment. If you're moving it from -- you're not going to move it month-to-month though because those costs will start to eat you up. But we're trying to get ahead of this. And for us, the good news is having a national footprint and having established operations in each of the basins, we're not going in and trying to start up a business following our customers. So we have the infrastructure in place to support that. So I think that we're pretty well-positioned to make it, I'll say, relatively efficient. Seamless, probably not, but I don't think that this is the type of thing that should have some sort of draconian impact on our margins.

Our next question comes from Jim Wicklund with Crédit Suisse.

Well, guys, you have actually -- Holli, you answered my question beautifully, but I didn't mean to scare you guys off the line.

Sorry about that.

No, that's quite all right. Like I said, that was a fabulous answer. Ian asked my follow-up, so I'll let other people have the chance. So appreciate it.

Our next question comes from Sean Meakim with JP Morgan.

Can you guys hear me?

Yes. Can you hear us?

Great. Great to hear you. Yes. I also -- maybe talk about appetite among your customers for more integrated solutions, taking the full suite of what you offer now. Can you talk about how that's progressing, maybe types of customers that have that interest in that type of solution? Maybe how that can be -- maybe a continued means of differentiation in driving share gains?

Yes. Sure, Sean. And it's interesting because just recently, in a conversation we have with an important customer to us on supplying them and supporting them on a pre-frac water project that would be a longer-term relationship and commitment, it turned into a full cradle-to-grave solution conversation, including the post-frac side of the equation. So I think that it's clearly moving in that direction. And certainly, our focus is going to be, certainly, leveraging our current skill sets and our current position on strategic water sources, but keeping an eye on the prize from the cradle-to-grave opportunities that are out there.

Okay. Good. Yes. I mean, that sounds very constructive. And maybe just a little more on capital allocation. I think Nick gave a very good overview. You mentioned some more appetite for CapEx into freshwater sourcing. Can you maybe talk about how that -- how M&A fits into that? You guys have a long history of really smart acquisitions, being able to find these little gems with respect to freshwater and helping create more to run your business. Can you talk about how that piece fits into how you're looking at inorganic opportunities?

Sure. It's really a combination. So when we talk about, I'll call them sort of mini infrastructure-type projects, this is where you're lining up a water source, either a surface water or we'll go in and drill a water well and then we will develop the infrastructure, being pits and such, to store and be prepared to serve the high rate-type jobs -- these bigger jobs, we -- probably half a dozen of those, it would be in the plans for this year. We've already executed on a few of them. These are the types of things that -- it's $0.5 million to $2 million to $3 million and it's serving multiple customers. So those are the types of things that we're talking about. But then, some of those, we're going in and we think there are opportunities to buy existing, I'll say, almost water depots, if you want to call them that, that are out there. But on the M&A front, you're right. I'll tell you, there will continue to be opportunities there and it will be a mix when you think about our growth, organic as well as those bolt-ons of sorts, that help bolster our business.

Our next question is from Tom Curran with B. Riley FBR.

Holli, on pricing, I know that your mandate to the field has been to pivot to offense now and to start confidently but methodically pushing for increases. Specifically for temporary transfer and flowback and well testing, could you share with us how pricing evolved over 2Q and where it stands now for each relative to the levels at which it troughed for you?

Yes. I probably don't have a crisp answer relative to the trough. I'll tell you, we're not back to where we were. And if I think though on just relative movement, I don't know that I would say there's been a material difference between, say, the logistics of the water in water transfer versus the flowback and well testing. They're probably covered similarly. And maybe though I would say too, I don't think that the flowback and well testing took quite the same dip as water transfer did, but both have made meaningful progress from the trough.

And it's still -- Tom, frankly, it's fairly region-specific, service line-specific, customer-specific. So there are times -- and you really start with the customer, right, and you look at getting down to the profitability of each of those customers. And there's some that there's going to continue to be movement, I believe, in price and others where I feel like we actually are probably at a pretty good spot on pricing. It's a fair price. And when you look at margins of 2.5%, 5.5% on this business with the opportunity to continue to do some efficiencies that we've identified that we do believe we'll be able to gain in the back half of the year, I don't -- we're not building in -- I mean, we're not building in a meaningful margin improvement from a net pricings gain. There will be some in there, but I think it's how we're serving our customers. And again, leveraging technology and those sorts of things. The margin improvement will come more from that, I think, than it will from pricing.

Great. And then turning to the fixed infrastructure side, a 3-part question here. First, could you just share with us an update on where utilization is at for the permanent pipeline systems in the Bakken and Permian? Second, on the last call, you all sounded fairly optimistic about potential opportunities to reactivate the Pecan Hill line in the STACK and/or the International Paper one in the Haynesville. And then third, an update on how your talks have progressed on a handful of large in-ground infrastructure projects you've been pursuing?

Yes. This is John Schmitz. I'll take it on this one.

As far as the utilization, we are very pleased with our Northern Delaware position we have. We're very pleased with volumes and our spot in that market. The Charleston system, that is a very good system for us. Although it fluctuates from month-to-month, it's still a very good system and the volumes are the needed volumes into the space and that's a really good position for us.

When we think about the Pecan Hill or International Paper in the Haynesville, yes, I think the key to us is both of those systems, although utilization is low or nonexistent at the moment, they both touch acreage that we think is a very good acreage position. Although it has no activity there at the moment, it's still acreage that will be developed over time and our position is primary to that acreage and we feel strong about it.

The projects -- and any time you do infrastructure projects, there's different phases of them, whether you're procuring right away, whether you're designing engineering or actually starting to put pipe in the ground or things of that nature. We have a couple of projects now that we're in some form of phase of that development and we're moving those projects forward.

So still chasing. And just to be clear, the updated CapEx budget, like the prior one, does not assume that you win and move forward with any of those projects, right? They would be an incremental $20 million to $50 million expected for each?

That is correct. That capital, if we got to a position to actually start putting pipe in the ground on these 2 projects I've just described, that would be additional capital to Holli's described capital earlier.

Our next question is from Tommy Moll with Stephens Inc.

It's good to hear you're still expecting to see some margin expansion in Water Solutions throughout the rest of the year. I recognize that you likely don't want to give revenue guidance for the third quarter and the second half, but I wonder, when you say you expect to see the margins expand a little bit, does that also apply on flat revenue? Or embedded in that assumption, is there another assumption that there should be some top line growth in the second half?

Yes. The top line will be somewhat dependent upon the activity levels out there and that's why we're usually hesitant to try to put any particular guidance out there, but certainly we would look to perform in line with that market pace. And even in a scenario where things, I'll say, were flat, I think there's still room for us to continue to improve margins, but obviously it's facilitated and a better result when we also have that top line growth.

Understood. Okay. And then, I also wanted to follow-up on your comments regarding the potential for some infrastructure projects. Does either one of those -- would either one of those fit on the post-frac side of the business? In particular in the Permian, do you have any appetite for fixed pipeline infrastructure to handle produced water potentially to tie-in to SWDs or give customers the option to recycle some of that back to the pre-frac side of the business or is that not an area where you would imagine allocating capital?

No. It's fair, Tommy, to assume that's in the scope of capital allocation that we look at. And as I mentioned earlier, we had a project with a customer that we're in conversations with that started on the pre-frac side and it's now moved to a more holistic solution that fold in the post-frac. And we're obviously happy to do that.

And I think also, when you look at the Permian, dealing with the amount of produced water is clearly going to be a big market. Now, there's a lot of people chasing that and so doing it at the right economics is something that we'll be thoughtful about, but we do think that -- we're hopeful that we'll find some opportunities there because it allows us to leverage our full suite of services, including the treatment and recycling of water. And I think we're somewhat uniquely positioned when you start to think about the cradle-to-grave solution to be able to do that. And so, frankly, I think it will be a mistake for us to not have the post-frac as part of our scope of capital allocation.

Our next question is from Kurt Hallead with RBC Capital Markets.

So Holli, just was wondering if you could provide some perspective on the dynamics that might be playing in the market as it relates to the use of recycled water? What do you see as potential opportunities for Select to take advantage of that shift going forward?

Sure. And where you're seeing this primarily is in the Permian, right? And as we talked about the lower 48, there's the Permian and everything else. You're not seeing transformational shifts in reuse in the other regions. It occurs on occasion, but it's not in the same way that we're expecting it to happen in the Permian.

And it's driven by 2 things. There are certain areas where there's just limited freshwater sources, so that will drive to reuse. And then, there are just situations where the amount of water being produced is so massive that rather than paying to dispose all of it, it makes sense to actually reuse it and that tends to happen when the produced water is an enough volume and in the right area to support the next part of the frac program, so contiguous acreage lends itself to this.

And so as you sit and look today, you read different reports and we talk to different operators and you find some of the larger operators are -- they have -- they set for themselves pretty aggressive goals of how much water they want to be able to reuse, but today, the reuse in the Permian is probably still 20% or less. Could that grow to 50% though? That's very possible. When you think about it, that's a lot of water. So that may take a few years to get to that, but it certainly does feel like that's where the industry is headed because that's where the economics are driving the decisions.

Yes. That's great. Great information. I appreciate that. So just want to circle back to one of the questions that were kind of asked before. Your stock is down 5% today and I think it might be an opportunity to stem that tide. Revenue growth, obviously, is a critical dynamic. You provided some update on the margin improvement for the rest of the year.

So by looking at these tricky sets of numbers, if there's a revenue growth expectation in the back half of the year versus the first half of the year of about 10%, how would you characterize that? Would you say that's within realm of reason based on what you're seeing from your customer base and -- even though there's some potential for slowdown in the Permian?

I guess, yes. The way I would think about it is, yes, I thought our results in Q2 were actually pretty solid. Clearly, some -- maybe a different perspective on that based on the stock today, but -- and what -- to what I would consider a good start to the third quarter, we would expect it to be up a bit from the second quarter. Certainly, as you look further out, you can never escape the seasonality of the fourth quarter, but that's always a temporary phenomenon.

And so I think for me, really if I step back, and we're still incredibly constructive on U.S. onshore. We've got healthy commodity prices. We have capital that needs to be put to work by the operators. We've got the ability to follow our customers to wherever they're going to put that capital to work and so the activity is going to follow the economics. And certainly, we feel like we're well-positioned to react to that. And again, what we see in the Permian is a temporary issue. It's still going to be an important part of our business going forward. So again, I remain optimistic about the outlook and what the industry is going to achieve and our participation in that.

This concludes the Q&A portion of the call. I would now like to turn the call back over to management for final comments.

Thanks, everyone. I just want to say thanks for joining the second quarter conference call and look forward to talking to you guys in the future. Have a good day.

Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may disconnect your lines and have a wonderful day.