Drilling Tools International Corp

NASDAQ:DTI

Earnings Call Transcript 2023-Q3

[Operator]

Thank you for standing by and welcome to Drilling Tools International's Third Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session.

[Operator Instructions] I would now like to hand the call over to

[ph] Sevan Hickey Investor Relations for Drilling Tools International (00:00:34). Please go ahead.

[Unverified Participant]

Thank you, Latif, and welcome everyone to Drilling Tools International's third quarter conference call. I am joined today by, Wayne Prejean, our President and Chief Executive Officer; and David Johnson, our Chief Financial Officer.

Before we start, I would like to remind everyone that some of today's comments include forward-looking statements. These statements are subject to many risks and uncertainties that could cause our actual results to differ materially from any expectations we expressed in or are implied by these statements. Please refer to our latest Securities and Exchange Commission filings for risk factors and cautions regarding forward-looking statements.

Our comments today also include non-GAAP financial measures. The underlying details and a reconciliation of GAAP to non-GAAP financial measures are included in our third quarter earnings press release, which can be found on our website. Lastly, as a reminder, today's call is being webcast and a recorded version will be available for replay on the Investor Relations section of the company website shortly after the conclusion of this call. With that, I'll hand it over to Wayne Prejean, Chief Executive Officer.

[Wayne Prejean]

Good morning and thank you for joining our first earnings call as a public company. My name is Wayne Prejean, and I'm Chief Executive of DTI. For those of you who are new to our company's story, I will begin my remarks with an overview of Drilling Tools International, which is more commonly referred to in the industry as DTI. DTI is an industrial service company whose distinct business model combines tools, technology, and equipment rental along with in-house manufacturing capabilities. We primarily serve the oil and gas upstream industry with downhole tools in the wellbore construction process.

In addition, our tools also serve the emerging geothermal and carbon capture business. We employ a loyal and dedicated group of people who believe in our values and share our vision for the future. Our competitive advantage continues to be the people we employ who drive the strength, innovation, and performance of our company. The reason DTI exists is because our customers such as SLB, Baker Hughes, Exxon, Chevron, and Oxy would not find it efficient to own and maintain their own fleet of downhole rental tools. There are just too many assorted configurations, hole sizes, geographies, and engineers preferences that make it inefficient for customers to own their own rental tools fleet.

Although David Johnston, our CFO, will explain results in more detail later, I will briefly describe how our business works. Our business model relies mostly on rental repair and recovery revenues. Our customers count on us to maintain a relevant and sustainable fleet of equipment, our rental and repair income provides the basis for our rental model. The tool recovery revenue, also known as lost or damaged equipment charges, allows us to sustain our fleet, which enables us to not only remain relevant, but also generate positive adjusted free cash flow throughout the energy industry cycles. These financial results provide DTI tremendous flexibility across a variety of business strategies.

We are debt free, and have an enviable income stream from multiple product lines and numerous geographic locations covering every significant oil and gas producing region in North America. We also think we have some of the best professionals in the industry. In a steady state or non-growth environment, our business consistently delivers mid-30% adjusted EBITDA margins, and a high-teen percentage of adjusted free cash flow. I hope this overview was helpful in providing some context for the rest of the call.

Now, we'll take a few minutes to discuss a little bit about our company history, market conditions, how we are executing, a review of the quarter, and our outlook for the remainder of 2023 before opening the line for questions. So let's get started.

DTI was founded in 1984 as Directional Rentals in Lafayette, Louisiana, after 28 years of Gulf Coast success and expanding from one to three locations, the company was sold in 2012 to private equity firm PIX Equity Partners. Oilfield services is an industry where experience and relationships matter. A dedicated group led by experienced management is the key to a sustainable success. This means the strength of our management team is important.

In 2013, the company recruited and hired additional senior management to execute a long range growth plan, and soon after rebranded Drilling Tools International. The senior leadership team in place today has worked together for over 10 years. We have decades of industry experience between us and have successfully managed the business through numerous industry cycles.

Over the last decade, DTI has grown from a small regional tool supplier, primarily servicing independent directional growing clients to a well-established oilfield services company, supplying top tier oil and gas service companies worldwide, providing downhole tools for both the land and offshore drilling markets. Our primary focus is tools and technologies using drilling completion and workover operations. We have a fleet of mission critical tools that include bottom load assembly components such as subs, stabilizers, drill collars, premium drill pipe, and drill pipe accessories, tubing, pressure control equipment, levers, borehole enlargement tools, and production desanders. We also offer some proprietary wellbore optimization products, such as the patented drone ring wellbore conditioning tool, safe flow of patented downhole pressure control valve, and our new patented roto steer technology. All of these provide value added solutions to the evolving challenges in the drilling industry.

DTI operates from our headquarters in Houston, Texas, and from 20 service locations across North America, Europe and the Middle East. Many of these locations have machining, inspection, and repair

[indiscernible] (00:07:10) enable us to efficiently service our equipment, which results in improved customer satisfaction, reliability, and efficient utilization of our assets. We also have full manufacturing capabilities, which allows us to control the cost and delivery of many of our rental tool items.

Our customers' drilling tool needs are ever changing and evolving. To support and manage a complex fleet of assets, you must have a best-in-class

[indiscernible] (00:07:39) with a reliable maintenance process to meet the needs of the industry. To meet these needs, DTI created and deployed a customized state of the art fleet management software system called COMPASS. COMPASS is an acronym for Customer Order Management Portal and Support System. This software system simplifies the complex task of managing a large inventory of tools spread out over numerous geographic locations with tools of various geometry and customer specifications. But most importantly, this system provides valuable performance data to assist the management team with capital allocation priorities.

For example, we've seen asset performance as defined by utilization rates increased almost 10% since implementing the system in 2021, and it continues to improve. While most investors do not yet know us, it is worth noting that we are well known within the industry and to our customers. We service a wide customer base, including blue chip companies such as Chevron, Exxon, BP, Oxy, Pioneer, ConocoPhillips, EOG, SLB, Baker Hughes, and Phoenix Energy Services. In addition, we serve several independent E &P operators such as Mewbourne, Endeavor, and Continental as well as many others.

We are proud of our progress and track record this far. In fact, since 2013, the company has been EBITDA positive every single year during the last 10 years, including 2020, during the depths of COVID. Although we prefer a market that is steady state or upward, we view downturns as opportunities to strengthen our business and we have done so each cycle.

It is noteworthy that Hicks Equity Partners has been the majority owner of DTI since 2012 and remains so today. The Hicks team has invested in the energy industry for over 40 years and we are proud of our strong and enduring working relationship.

Turning now to the market outlook

[indiscernible] (00:09:47) business. In Q4 of 2022, the forecasts across the industry and for 2023 began with rig counts expected to be flat to upward throughout the year. Unfortunately, near the end of the first quarter of 2023, natural gas markets softened and shortly after bank contagion fears created macro concerns of a major worldwide recession. This triggered a softer oil and gas market and resulted in rig count declines in many areas. While US rig activity has declined approximately 19% from December 2022 to September 2023, the company continues to execute on plan with a revenue decrease of less than the linear market decline. Essentially, we have outperformed the market. We will elaborate on this later in the call.

Looking forward, management believes that the North American rig count has bottomed and will begin to move upwards in 2024. Longer-term demand trends remain robust with projections from agencies such as the EIA expecting oil demand to continue to grow through 2050, and gas demand to increase materially in the next few years as in-process LNG plants come on stream.

It is well documented that the industry has underinvested in recent years and to meet future demand, additional drilling, completion, and production of oil and gas wells will be required worldwide. DTI's base business is competitively positioned in North America land and in the US offshore business as well. Our customers have requested we expand to serve them on a more global scale. We recently expanded our fleet to the North Sea Europe market, and we have made steady progress expanding into the Middle East. DTI continually works to provide tools, technology, and services to meet our customers' changing needs in markets throughout the world.

And now, so discussion on growth, mergers and acquisitions, and industry consolidation. Given how highly fragmented the oilfield services industry is today, we believe there are meaningful consolidation opportunities, which exist in the sector. And we have identified a substantial pipeline of accretive growth opportunities within our core competency. To pursue those opportunities, DTI became a public company in June of 2023 to gain public equity as well as other funding methods to execute transactions. Our targets include opportunities that would strengthen our technological capabilities, capture competitive positions, or bolt on assets and expand our reach internationally. As has always been the case, we seek to execute on transactions, which are aligned with our long-term portfolio strategy that increase shareholder value.

It is our goal to make strategic acquisitions that double or triple the size of the company in a relatively short order. And we spend a substantial part of our time each day driving towards this goal. We believe DTI has a proven track record of successfully deploying capital in a disciplined manner for select accretive acquisitions. DTI has executed six acquisitions since 2013, which have included companies, strategic asset purchases, and distribution agreement with technology advantages.

Today DTI has a fortressed balance sheet, zero leverage, an undrawn $60 million ABL credit facility public equity which provide ample financial liquidity. We are poised for accretive growth in numerous areas of our business, have an excellent management team, and continue to execute well, generating strong adjusted free cash flow.

With that, I'll turn it over to our CFO, David Johnson, for a review of our financial results. David?

[David Johnson]

Thanks Wayne, and thank you, everyone for joining us today. DTI generated total consolidated revenue of $38.1 million in the third quarter of 2023, an increase of 4.4% compared to the third quarter of 2022. For the nine months ended September 2023, total consolidated revenue was $116.8 million, 25.8% higher compared to the first nine months of 2022. The revenue contribution from our Tool Rental segment in the third quarter was $29.4 million, which was 9.4% higher compared to the third quarter of 2022. The improvement was primarily driven by increased market activity and customer pricing across all product lines, with the strongest contributions coming from our Directional Tool Rentals and the wellbore optimization tools product lines.

For the nine month period ending September 2023, the Tool Rental segment generated $90.6 million of revenue, which was 29% higher compared to the same nine month period in 2022. Revenue generated by the product sales segment in the third quarter of 2023 was $8.8 million, which was 9.6% lower compared to the third quarter of 2022, primarily due to higher than average tool recovery revenue in the third quarter of 2022.

For the nine months ended September 2023, the Product Sales segment generated revenue of $26.2 million, an increase of 15.9% compared to 2022.

DTI's operating costs and expenses in the third quarter of 2023 were $31 million, which was 8.9% higher compared to the third quarter of 2022. This was primarily driven by higher personnel expenses, depreciation, insurance expense, and other public company costs. For the nine month period ended September of 2023, operating cost and expenses were $93.5 million, an increase of 23.7% compared to the same nine-month period in 2022. It is worth highlighting that for the nine-month period ending in September of 2023, our operating expenses increased at a lower rate than our revenue increased, illustrating our ability to gain operating leverage as activity and pricing improved over the prior year even with the impact of increased costs associated with becoming a public company.

The company posted net income of $4.3 million or $0.14 per diluted share in the third quarter of 2023, compared to net income of $7 million or $0.36 per diluted share in the third quarter of 2022. For the nine-month period ending September 2023, net income was $10.9 million or $0.46 per diluted share compared to net income of $14.3 million or $0.72 per diluted share. The lower result in the nine-month period was impacted by one-time transaction related expenses of $6 million, and one-time related stock option expenses of $1.7 million.

We also had ERC benefits of $4.3 million in the third quarter of 2022 that were not repeated in the third quarter of 2023.

Third quarter and adjusted EBITDA was $12.7 million, which was 2.3% lower compared to the third quarter of 2022. The decrease was primarily driven by higher personnel expenses and other public company costs in the current quarter and higher-than-average Tool Recovery revenue that occurred in the third quarter of 2022. For the nine months ended September 2023 adjusted EBITDA was $40.8 million, which was 45.2% higher compared to the nine months ended September of 2022.

DTI ended the third quarter with strong financial flexibility DTI ended the third quarter with strong financial flexibility with approximately $4 million of cash on hand and an undrawn $60 million credit facility.

Before moving on to guidance for the fourth quarter, I want to take a moment to discuss our capital expenditures and recovery of costs for lost or damaged tools. Since we regularly receive questions on this topic and it is not well understood. As a downhole rental tool company, our maintenance capital is funded by Tool Recovery revenue. The customer is responsible for all lost or damaged tools while the tools are in their care, custody, or control. This Tool Recovery component of our rental business model piece our rental tool fleet relevant and sustainable. For the three and nine month period ending September 2023, maintenance capital was approximately 14% of total consolidated revenue for these periods. This self-funding portion of our capital investments has remained relatively consistent over the past couple of years.

Now I would like to turn our attention to guidance for the full year 2023. As of September 2023, US rig activity has declined by approximately 19%, compared with December of 2022. However, despite the challenging environment, DTI continues to execute well with a monthly revenue decrease of only 5% from December 2022 to September 2023, outperforming the market. Management anticipates the rig count will remain relatively flat in Q4 and we are maintaining our previous projections for the full year 2023, which I will review now.

We expect revenue to be in the range of $150 million to $158 million for the full year 2023. We expect adjusted EBITDA to be within the range of $50 million to $54 million. Gross capital expenditures are expected to be between $44 and $46 million. Net income for the full year is expected to be between $12 million and $19 million. And finally, we expect adjusted free cash flow to be in the range of $6 to $8 million for the year.

That concludes the financial review section. Let me now turn it back over to Wayne to provide some summary comments before Q &A.

[Wayne Prejean]

Thank you, David. So, everyone, to recap a few key items before opening up the line for Q &A. As I stated earlier DTI is currently unknown to the investment community, but we are well known and respected in the industry. We are an established company with seasoned management team but has interests aligned with its shareholders. We have an employee base that is loyal, dedicated, and skilled in supporting our operation. This team is cohesive, collaborative, and has worked together for a number of years.

We are the market leader in numerous categories and have an enviable facility footprint. We have an outstanding roster of customers and large sales force covering numerous geographic locations. We have proven operational performance, and can boast an impressive delivery of steady-state adjusted EBITDA adjusted free cash flow margins. We have a proven track record of successfully executing acquisitions and we believe consolidation opportunities exist in oilfield services.

We have a pipeline of attractive acquisition and organic growth initiatives already in motion. We have a strong balance sheet, zero leverage, an undrawn $6 billion credit facility and equity capital. DTI is well positioned to achieve our strategic portfolio objectives. And to be blunt, at our current stock price, we believe we are an attractive entry point versus our peers. We have a very bright future as a publicly-traded company, and we look forward to getting to know you and for you to get to know DTI.

With that, I'll turn the call back over to our operator who can open the line for questions. Thank you.

[Operator Instructions]

[Operator]

Our first question comes from the line of Donovan Schafer of Northland Capital Markets.

[Donovan Schafer, Analyst, Northland Securities, Inc.]

Great guys. Thanks for taking the questions. I want to start off by asking about – so and forgive me if I missed some of the details on this, but the 5% decrease in revenue despite the rig count being down really almost 20%. Could you give us – can you talk through the specific dynamics there, what it is that you think resulted in you doing performing better than market, I mean, as a starting point just to clarify, are there any sort of timing delays or if not was it the customer mix being more sort of skewed towards Tier 1, I've heard about there's sort of being a flight to quality, and service providers. So, perhaps that's part of it. Or if it's more geographic focus having to do with which basins you're in any sort of color there would be greatly appreciated. Thanks.

[Wayne Prejean]

Okay great. This is Wayne. Thanks for that question. So we believe because of the structure of our business, and our customer base, and the broad geography we have, along with many of our products having contractual links to them, we were able to have a more sustainable activity level than a linear equation where you don't have a one to one equation of lost rigs, lost jobs, having the stickiness to work for Tier 1 operators with large programs enabled us to have a higher sustainability factor. So that not only is our activity a little less more cushioned from the direct reduction in activity, but our pricing also was less volatile, meaning it provided us more runway throughout these down cycles. And we believe that's one of our advantages of the strategic positioning.

[Donovan Schafer, Analyst, Northland Securities, Inc.]

Okay. That's helpful. And then. I know it's a bit early to talk about 2024, but I mean, you guys did talk about thinking – having your own internal view or internal expectations of rig count would be roughly flat in 2024. So but, I know you haven't issued 2024 guidance. But my question just at a higher kind of conceptual level, and kind of thinking about your business model, if it's a flat rig count in 2024, does it follow, or does that imply a relatively flat level of revenue for you guys maybe taking kind of the run rate from this quarter? Or is it something where it's sort of excluding M &A for the time being just with the current businesses that you have, you see yourselves sort of taking share or in contracts, anything happening underneath the hood, if you will, from just a rig count standpoint where revenue would be down or kind of consistent with the rig count.

[Wayne Prejean]

So this is Wayne again answering, we view, our current rig count – US rig count is at 600-ish

[indiscernible] (00:25:33) you're looking at it. It is likely that the rig count will increase in 2024. It's less likely it'll be flat to down. Our view is there will be more rigs in 2024 than there were at the end of 2023 working in 2024. When and how that happens and how it ramps up in which quarter, whether it's frontloaded for customers to start growing their budgets early or organically, move it up the food chain as the year progresses, it's hard to determine. It's possible it could be more than 50 rigs, but I'm going to say I have to take the under on 50 rigs increase.

So we see an uptick in the US activity. That's our view. We believe our business will grow with that uptick, and we also have some new products that we think will gain market share to help provide more revenue and income for us in a tiered basis over and above an existing linear market trend. So I think we have some opportunities to see our business, our revenues and earnings move upward in 2024. And our guidance will be soon as we, as we forecast that in later meetings, but that's we think it's going to be upwards.

[Donovan Schafer, Analyst, Northland Securities, Inc.]

Okay. And actually, you anticipated my next question about the new product launches. So is this the same I think in the deck you refer to them as sort of emerging products, that's RotoSteer and

[ph] DRILLSAFE (00:27:15), are those are two products that you can see layering in incremental revenue next year or are there additional products behind that? And then if you can give us any kind of – it can be pretty rough, but just is that a potential upside revenue in the single-digit percentages, low single-digit, high single-digit, double-digit percentage impact on revenue to the upside. And what kind of a margin that would have if that would be above kind of what your corporate averages are now for margins or below?

[Wayne Prejean]

So, number one, I'm reluctant to give specific guidance on those new products contributions because they're still, we're developing our commercial forecast models on how they will really, what results we can achieve. But, I will say this, that we fully expect them to be at or above the performance of our current product lines because everything we do going forward, we believe, has to be equally or more accretive than our current business model.

And to give you some scale, I know you'd love to have a percentage amount, single, double, triple digits here, but I would probably be reluctant to give too much scale guidance at this point. But it will help us grow our business, more than we have been before. So, I think once we give that guidance forthcoming, there'll be more clarity on that in the coming few weeks, we hope.

[Donovan Schafer, Analyst, Northland Securities, Inc.]

Okay. And then, I do have a couple more, but I want to be respectful to other folks so just if I can check in with the Operator real quick. Operator, are there any other people in the question queue right now?

[Operator]

Please proceed with your question, sir.

[Donovan Schafer, Analyst, Northland Securities, Inc.]

Okay. Thank you. So, then if I can step back and look at a longer kind of time horizon. So, as I understand it, you guys have grown very significantly in the last 10 years. I want to say, I think it's something like six or seven times on a revenue basis and of course, that's not all organic.

There've been some fairly meaningful acquisitions over the course of that time. But it would be good to get your take between the two of you guys, what your sense of like a normalized growth expectation for your business as you're maybe, I guess excluding. And then I guess what – however you think about it, if you think about it, if your mental framework tends to include the M &A, then you can include that. If your mental frame work tend not to, but I'm just trying to orient myself with respect to what your own views are for growth rates over like a 10 year, like a normalized, excluding cycles, talking like a 10 year type growth rate?

[Wayne Prejean]

So, realizing that the US and North America market is it's going to ebb and flow over the next few years. We always feel like we're going to – we are very, very solidly positioned to take full advantage of the activity that exists. We have strong positions in all of our product lines. We're going to have some new product lines, like I said earlier, that will help us achieve growth in that area. I think modestly, you can expect in a steady state, we'll probably achieve more than a flat revenue line. But our opportunity is going to exclude even excluding M &A our opportunities to grow in other markets. And we can push some of our existing tool portfolio into other markets with our distribution partners.

And then if you layer on that some strategic acquisitions we already have in motion that we're in discussions with, and have on our strategy profile of, we should see some better penetration in those markets as we make those acquisitions. So, it's going to depend on the volatility of the North American market. I think that's on everyone's concern list right now whether or not the long term M &A of your Exxons, and Pioneers, and Chevrons, and

[indiscernible] (00:31:53) those types of things. What kind of rig activity and well count will we see as a result of these changes in the macro components of our North American market. So we are well positioned with that. We tend to benefit from those more than that has an adverse impact on our business because we're working for the acquirer. So that's always a good thing.

[indiscernible]

(00:32:18).

[David Johnson]

...echo your comments, and Donovan for your benefit, I mean, I think, it's important to recognize that DTI is entering a new chapter as a public company. So we're able – we're going to be able to do things we didn't do over the last 10 years, even though we built a solid foundation for our business over that 10-year period. But we're now going into a period of where that growth through acquisitions is our strategy, and we'll be able to do more than we have been historically because we have that public currency to kind of add to our tool belt. So we are kind of entering that new chapter.

[Donovan Schafer, Analyst, Northland Securities, Inc.]

Okay. That's helpful. And then I guess, just my last question would be on the international opportunities. And it looks like I think you talked about more recently the UK, and

[indiscernible] (00:33:13) footprint in Germany or something. I'm assuming that's mostly around the North Sea. Correct me if I'm wrong on that, but I'm not. The North Sea was such a big deal in the 1980s and 1990s. I'm not as up to speed on the current state of the North Sea opportunity, but certainly with the Nord Stream gas pipeline, Russia invading Ukraine last winter in Europe. All the kind of chaos and turmoil around there. Do you see the North Sea as a potential important driver going forward? You've historically done, I think it was – you've historically done well with offshore and Gulf of Mexico, I believe, at various times. So is that something you would see yourselves trying to replicate in the North Sea or meaningful opportunity there?

[Wayne Prejean]

So good question. So we believe that despite the attitudes towards fossil fuel development in the North Sea and European areas, I think that logic will prevail and there will be some reliable activity, likely upward activity in the entire North Sea sector over time. I don't think it's going to boom, whether it's hundreds of rigs. But there'll be a steady state of activity, number one.

Number two, being based in the Aberdeen market for offshore, also, many of the West Africa operations that are coming back on stream originate from Aberdeen. And so being positioned there, it gives you more opportunities in that West Africa offshore market.

Then our presence in the European land market, particularly in some of Germany with our partner's areas, we're participating by the geothermal activity, which we're pretty excited about. And we're being having -- we're having requests for more and more tools as those projects become more reliable and understood. So there seems to be a significant amount of interest in the geothermal market as well as carbon capture because wells being drilled, sequestration wells for carbon capture that, we provide tools on. So, we're participating in all of those different segments, and we see that as an opportunity being positioned there gives you those opportunities.

[Donovan Schafer, Analyst, Northland Securities, Inc.]

Okay. Great. Thank you. That's helpful. I'll take the rest of my questions offline. Thanks, guys.

[Wayne Prejean]

Thank you. Thank you.

[Operator]

Thank you. Stand by for our next question. Next question comes from the line of Bill Austin of Daniel Energy Partners.

[Bill Austin, Managing Partner, Daniel Energy Partners LLC]

Hey, guys, congrats on the first call and thanks for taking my questions.

[Wayne Prejean]

Yeah, sure.

[Bill Austin, Managing Partner, Daniel Energy Partners LLC]

So, really just main question is, I know you guys talked a lot about M &A on the call, can you guys speak to which products or even just geographic regions that are most appealing to you guys from an M &A perspective?

[Wayne Prejean]

Sure. This is Wayne, again, the first part of that answer is, is prioritization, right. So, we have to put priorities in three buckets and they have to; number one, we have to we need to see some geographic expansion which we want to achieve, but they also have to provide accretive value. And thirdly, and probably equally important in all in a balance is technology, some sort of differentiating technology where we're remaining in our core competencies of drilling and all the way through pacing and selection. I call it the World War construction, initial World War construction process phase. Eventually we want move into more completion and production type products, but initially we're still focusing on bolt-on, more remote building, we're expanding our differentiating product lines technologically and geographically. But all of those must meet that smell test of accretive value and the ability to grow and expand our income stream. So that would be how I describe the priorities of M &A.

[Bill Austin, Managing Partner, Daniel Energy Partners LLC]

Okay.

[indiscernible]

(00:37:46).

[Bill Austin, Managing Partner, Daniel Energy Partners LLC]

And I know you touched on this with a question from the last caller, but R &D efforts on the new products, are you going to see those come to fruition in 2024 or is that a little longer term than what we talked about?

[Wayne Prejean]

We fully expect to see some positive exposure in 2024 from two or three they're already in motion and then couple of acquisition targets that we are contemplating what would have immediate value going into 2024 and building momentum through 2024 would put a great story in motion for 2025 as well. So 2024 some 2025 more.

[Bill Austin, Managing Partner, Daniel Energy Partners LLC]

And then how do you guys think about R &D kind of a percentage of you kind of going forward as a percentage of your revenue or how are you – how do you guys think about your R &D budget?

[Wayne Prejean]

We do have a budget for R &D within our own business lines as we speak. As a percentage, I kind of have to look back into what we've spent in R &D. We do have a budget for going forward some of the targets that we have in mind bring more engineering, R &D, and what we call

[indiscernible] (00:39:19). So, this is all baked into our cost and is historically insignificant

[indiscernible] (00:39:29) baked it into our cost thus far.

[Bill Austin, Managing Partner, Daniel Energy Partners LLC]

Well, thank you. That's all for me.

[Wayne Prejean]

Okay. Thank you, Bill.

[Operator]

Thank you.

[Operator Instructions] As there appear to be no further questions in queue, I would now like to turn the conference back to Wayne Prejean for closing remarks. Sir?

[Wayne Prejean]

Well, thank you. Well, thanks for joining us, everybody. We look forward to sharing additional information with all of you in the coming quarters. Please don't hesitate to reach out with additional comments or questions. We're always here to answer your questions and inquiries. We look forward to the future and have a great day.

[Operator]

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