Superior Drilling Products, Inc.
Q2 2018 Earnings Call Transcript

Published: 6 Aug 2018

[Operator:]

Greetings and welcome to the Superior Drilling Products' Second Quarter 2018 Financial Results. [Operator Instructions]. I would now like to turn the conference over to Deborah Pawlowski, Investor Relations. Thank you. Please go ahead.

[Deborah Pawlowski:]

Thanks, Brenda, and hello everyone. We certainly appreciate your time and your interest in Superior Drilling Products. On the call today are Troy Meier, our Chairman and CEO and Chris Cashion, our Chief Financial Officer. You should have a copy of the financial results that were released before the markets opened this morning and also should have the slides that will accompany our conversation today. You can find both on our website at www.sdpi.com. As you are aware, we may make some forward-looking statements during the formal discussion, as well as during the Q&A session. These statements apply to future events that are subject to risks and uncertainties, as well as other factors that could cause actual results to differ materially from what is stated here today. These risks and uncertainties and other factors are provided in the earnings release, as well as in other documents filed by the Company with the Securities and Exchange Commission. You can find these documents on our website or at sec.gov. I'd like to also point out that during today's call, we will discuss some non-GAAP measures, which we believe will be useful in evaluating our performance. You should not consider the presentation of this additional information in isolation or as a substitute for results prepared in accordance with GAAP. We have provided reconciliations of non-GAAP with comparable GAAP measures in the tables accompanying the earnings release, as well as in the slide deck. So with that let me turn it over to Troy to begin. Troy?

[Troy Meier:]

Thanks, Deb. Thanks everybody for joining us today for our second quarter conference call. Hopefully I'm coming through clear we've got a little bit of break-up there Deb on your call. Anyway so as we look at the, as we go into the second quarter highlights for 2018 before we get into it little bit, I want to go over a couple of things that we're going to be doing as we move forward throughout the remainder of the year, that's not on this slide deck but we need to touch on a little bit and one of them is the emphasis we're putting on our QA. We're going to be really strengthening our quality assurance team, we're seeing our tools now go into places off-shore that require a whole new level of quality assurance. Our channel partner's been very, very good as supporting these efforts and we want to thank them, they've done a great job DTI has really done a great job supporting us as we moved into a whole new level of quality assurance. The other thing that we don't stress on in the slideshow too much and the slide deck is the channel partner relationships that we're going to be doing throughout the rest of the year, we're really going to be strengthening them, we've made a commitment to that at the start of this year and it's really starting to pay-off and we'll continue to do that throughout the remainder of the year and as we talked about channel partnerships and how that affects this organization it's going to be really important as we rollout the Strider product line as to identify and have the proper channel partners on that as well. The other thing that we'll be talking about throughout the remainder of the year is going to be expansion, you're going to hear about our Texas facility we're in the middle of that right now, our goal is to have that opened by October 1st and Chris will talk about we will be spending some capital to per equipment and the expansion of that facility. So that being said let's get into the highlights and go through the slide deck like you have it. You look at our revenue growth up 33%. Again, we talked about this with the channel partnership programs that we are developing and we have developed. We have always talked about letting these programs grow late. And we are starting to see what that means to these channel partnership relationships is as we have to replenish inventories as fleets age and get used they have got to be replaced. You can't build to a certain level of market share or customer base and then just let those tools get cut out. You got to replace them. And you are starting to see the effects of that replacement program. Additional customers that are accepting the [drilling] product line you are starting to see the benefits of that as well. Our channel partners and that product line is doing a fantastic job going down there and building up the team that’s developing that those relationships. The generation of revenue in the Mid East that was something that came a little bit quicker than what we anticipated. I want to mention that because I think our analysts do a phenomenal job looking at the company going forward that one there is just something happened a little quicker than what we all anticipated. But as we talk about the Middle East and the opportunity there with the DNR we look at this as a great opportunity over there. As we gone over there now and we have run tools we have identified the formations that we are drilling in the wear and tear on the tools that we are pulling over there what the repair schedules are looking like on those tools and we are very pleased with what we're seeing. We are going to be doing some -- looking at KPIs a little differently over there. Over here you can go and this part of the world we can go out there with a list of 10 KPIs and customers go wow, okay, that’s neat let's get after it. I find if we go out there with a list of 10 KPIs and we hit nine they want to talk about the one we didn’t hit. So we are just focusing on what KPI the key performance indicator that best suits what they need depending on what country we are in what location we are in. So a big part of them over there are doing what we call short trips and they will drill down the stand and then they come back up and they rein well if you can think about every 90 feet going back and reaming 90 feet the advantages of not having to do that are really good, are really high. So if we can eliminate those short trips that's one of the KPIs that we look at. We have tools downhaul in Kuwait and Saudi Arabia and we are looking forward to talking about that more so in the third quarter as we can tell you a lot more about that market and how it's shaping up. The Strider tool, we are developing the channel partners on that. It's very important that we get the right lines. We are getting strong results still we just finished over a 2 mile lateral 11,000 feet, going sideways, if you think about that’s pretty impressive. Our tools are being called out when competitive tools can get the job done so developing a good name for itself, the larger tools, we still struggle, we’re struggling not so much with what we’re doing here but our struggle is with our vendors, our supply chain, parts that we have on order for a long time keep getting pushed back and we really got to sit down with our vendors and make sure they start to deliver on dates that they give us and that will help us roll that product lineup much, much better. But that being said you can see how the bottom line is increased. We look at our net income it's up a million bucks. So the results of the second quarter I think you will be pleased with and we’re looking forward to going through the rest of the year with an eye on our channel partnership programs those and also the deployment of our tools in the Mid East. With the being said I’m going to turn it over to Chris.

[Chris Cashion:]

Thank you, Troy. And welcome everyone, so let’s continue our review of the quarter by looking at Slide 6, and this is our revenue growth slide and as you can see on the upper chart to the left our quarterly revenue growth this quarter, compared to prior quarters as Troy mentioned 33% up and over the trailing quarter 17% up, it’s a strong upward trend over the last five quarters, do point out that Q4 '17 that’s what we see as kind of a dip in the industry where spending slows down a bit. So we see the effects of that in our Q4 but you can see from Q1 and Q2 of this year that we are right back on track with that trend line. So $5.4 million in revenue were really pleased about that. Then as Troy mentioned, we also got some international revenue that came in a little quicker than we thought, just to remind everyone this is under our joint market development agreement with Weatherford and so under that agreements we split rental revenue with Weatherford during this market development period also known as the testing period and so while we're getting some good initial results as far as being able to invoice the customer. We still need more runs, we need more field testing, we need more data in order to really flesh out the value proposition of the tool in the Middle East and so we're extending our joint market development agreement with Weatherford and negotiations with them now to extend it to the end of the year. So on the one hand, it's great that we are starting to see some revenue, rental revenue on the other hand, the commercialization agreement that we want to enter into with the channel partner has been extended six months. So we don't anticipate selling tools this year as we do wanted to have a commercial agreement that's similar to our US agreement where we sell tools, but we are seeing some nice rental revenue. So bottom-line the initial results are very good, we got some hurdles to work through this as Troy mentioned but we’re very excited that we’re actually start the revenue generation in the Middle East. With our contract services business versus prior year quarter down a little bit and that’s the custom manufacturing side, the bit refurbishment side of that business is up nicely so that's continues to improve nicely, the refurbishment volume has increased. We inked up our agreements, renewed our agreement with Baker Hughes for another four years. As you may know we got an expanded geographic territory out of that agreement and we’re starting to see some fruit from that. So overall very-very-very pleased with how revenue has grown in Q2 of this year. If we go to the Slide 7, and we kind of break down the tool revenue part of that bar graph, the 4.1 million in tool revenue you can see that breakdown on this slide between the sales of tools and the refurbishments in the royalty revenue that we get and we call that the other tool revenue when you look at the bar chart on the left-hand side of this slide. 25% increase you can see there in tool sales from Q1 from the trailing quarter and so this is the highest tool sales quarter that we’ve had since we entered our U.S. distribution agreement, and so really pleased with the -- with those sales and you can see the other revenue is up 70% over the prior year period, and on a trailing sequential nature it’s flat and that’s just due to the timing of receiving product to refurbish and so very-very pleased with both of those lines and how those are improving. Troy mentioned our channel partner relationships and that's a huge emphasis for us; we’re continuing discussions with our U.S. distributor and to get that distribution agreement reworked, and we’ve got some fairly complex performance metrics that we’re considering, as you may recall horizontal rigs was the market that we were measuring and we have found that some other metrics may be more useful, such as the number of tools on the rig and so it's more complex performance metric that we’re developing and so that’s taken a lot of time to get that nailed down but as you can see it’s hasn’t slowed the business down at all. We’re continuing to do -- perform very well and then our discussions with Middle East channel partners, as Troy mentioned the results preliminarily are very good and we have active discussions with potential market channel partners. So we’re pursuing those relationships and then also on the Strider side we’re building prototype tools for five different size tools, we’ve an extensive field testing program that we are engaged in, a different sized tools all the way from 2 and 3, 8 inch tool up to a 6.5 inch tool and we’re testing it in completion and drilling environments, hard-flow, low-flow environments and multiple geographic environments. So it’s quite an extensive field testing program and to-date as Troy mentioned the performance is very well, we do have quite a bit more work to do and so that's one of the reasons that we’re going from higher spending in the second half of the year has continued, prototype building and field testing of Strider. So, now if we go to Slide 8, taking look at operating expenses and we continue to manage these costs very-very carefully; we’re making sure that spending stays under control and at the same time as we guided last quarter, we are increasing spending in that R&D area that I just referred to and in the expansion of our business internationally. So as we mentioned the last time we are increasing spending in SG&A and just to make sure that one remembers including SG&A is our R&D spending, and so we're seeing that ramp-up but we're keeping it controlled and so you can see from Q1 to Q2 of '18 flat for all types of purchases and then the cost of revenue as a percent of sales to our margins continued to improve. And then as we guided the last time, we expect 2018 SG&A to be approximately $7 million and were on track -- on track to achieve that. Now if we go to Slide 9, and take a look at operating income and we are really excited about what Q2 came in at on the operating income side $1.1 million very, very pleased with that. Good strong operating leverage that's the key there, we talk about that a lot and we see that when we get incremental revenues, we get good operating fall through operating income fall through good leverage on that incremental revenue and it helped to offset some of this incremental spending in the Middle East and R&D, and so that's -- very pleased with that. Timing of some planned SG&A we talked about that in the press release, some of the spending that we thought we would see in Q2 around R&D and international is going to hit us in Q3 and Q4, and so you will see that in our guidance that we're maintaining our guidance, we tightened the range a little bit we'll talk about that just a second but that's some of what's going on. Q2, we're just didn't have the spending that we expect to see in the second half of the year. And then Troy mentioned, a Texas facility a service facility, I'm really excited about that, we're going to put in place that's going to be up and running October 1st and so we will have incremental spending around expanding our service capabilities in the second half of the year. In light of all that, we see a strong operating income both on a GAAP and on adjusted GAAP basis quarter-to-quarter. Now, if we go to Page 10, Slide 10, here in the deck and it's the same story on a GAAP and on adjusted GAAP basis on net income, strong improvements, the adjustment that you see is our amortization expense and as Deborah mentioned when she opened the conference up, we've got a reconciliation on Page 16, specifically shows reconciliations between GAAP numbers and adjusted GAAP and that's a $600,000 of amortization expense. And so that's the light blue part of the bar that you see there, but on either basis either a GAAP or adjusted net incomes performing nicely $1 million in the second quarter and EBITDA responding a very nicely $2 million in the second quarter just under 40% EBITDA and then for the first half of year roughly 3.2 million on roughly 10 million in first half year, and that's hanging in that low 30s, kind of an EBITDA as a percent of revenue and you can see in 2017 that's where we ended-up 31.9% EBITDA as a percent of revenue and so we're maintaining that, even with this incremental spending that we're doing in the areas of R&D and our geographic expansion. And so once again that's the testimony to the strong operating leverage we have and revenue goes up. So basically adjusted EBITDA and adjusted net income we are very pleased with those trend lines. Now if we go to Slide 11 the balance sheet. And this is as always, say just outstanding. We believe this is just really a powerful sheet. You can see cash top bar chart cash is climbed over the last 2.5 years since the 31, '15 up to 3.1 million at the end of the June quarter a nice strong consistent ramp in cash and debt has been coming down nicely. So we have got cash going in the right direction and we got debt headed in the right direction. So when you look at our net debt to EBITDA we are in a 1.3 kind of 1.35 kind of ratio and we are really very pleased with that, generating good operating cash, reducing the debt as I mentioned, refinancing rental mortgage. We have extended that maturity date with our lender, the lender agreed to extend that date for us to give us another six months as we consider various debt restructuring options. And so we are looking at that and we anticipate getting that refinanced and some restructuring done over the next six months or so. We are in discussions with some lenders on our working capital credit facility and we expect to get that put in place as you might know we don't have a working capital credit facility at this point. And we believe that we have got -- some pretty good financial results that we can talk to lenders now and put some facility in place to make some sense for us. Once again, and on the hard rock note just to note that we did make that payment we had our last $500,000 debt payment which was due July 15th. We made that July 15 so see a little pro forma there July 31 the debt came on down to the 0.5 million. So 11 million in total was debt we are really pleased with direction where that’s going. And now on Slide 12 for our guidance. What we have done as we have tightened the range. We guided 18 million to 22 million in revenue in Q1 and we've tightened that up a bit. It's now 20 to 22 so we have moved up the midpoints of the guidance. And we are doing that because of the strong Q2 we had. We have got just more confidence that we are going to come in that higher end of that range of that 18 million to 22 million range. So we have tightened the guidance up which brings a midpoint up. Same thing on operating margin we had that between 5% and 10%, well with the good results in Q2 we are more confident and we tightened that on up to 8% to 10%. So we have got that midpoint just under a couple of million dollars on operating income, pretty much unchanged on interest expense it is going down. It's $900,000 in 2017 three quarters a million kind of going into '18 that’s paying off the hard rock note. Depreciation and amortization unchanged and capital expenditures unchanged for $1 million and we have already spent a $135,000 in CapEx in the first half of the year. Troy mentioned that the repair facility, service facility in Texas is going to require some CapEx. So we are looking at the second half of the year spending some CapEx for those kinds of things. So that’s the reason if we are showing a second half of the year bump in CapEx versus the first half but as you recall a $1 million is about what we spent last. So that’s the same million dollar number. Its more backend loaded in second half of the year rather than the first half. So there is it, that’s our guidance for 2018. And with that I’m going to turn this back over to Troy.

[Troy Meier:]

I believe we are going to go into a question and answer phase, so let's go ahead and step into that.

[Operator:]

[Operator Instructions] Our first question comes from Jason Wrangler with Imperial Capital.

[Jason Wrangler:]

Appreciate all the commentary and specially it sounds like drilling international is working well, didn’t know if you can provide maybe a little more granularity, I think in the slide that you are in Kuwait, Saudi Arabia, are you earnings revenue from both or how is that kind of that working in terms of, are you in different stages in each country or kind of if one works better than others, just how we should be thinking about the kind of progress you guys made so far.

[Troy Meier:]

So really the progress Jason has been in Kuwait that’s where the revenue has come from. We’re running tools in Saudi, we will see some revenues coming from there as well as we go through this third quarter, but most of the runs we had over there have been in Kuwait, we are in talks in Oman, we have tools running there shortly but and we’re just begun starting to run tools in Saudi and we’re seeing the results of those runs now.

[Jason Wrangler:]

And I think Chris you mentioned in your prepared comments that, effectively and I think I talked about it last quarterly call as well that this agreement is kind of a starter if you will and there will be a more formal agreement and then you maybe you start have an agreement more like the ones you have domestically that's probably timing something next year I guess with this time to think about something like that be consistent is that right.

[Chris Cashion:]

That's right. Last time we spoke we thought we would get the market development piece of this done June 30 and as Troy mentioned Kuwait started out really well and continues to go well. Saudi has taken longer and Oman has taking longer than Saudi. So that’s the need for an extension around the testing, market development agreement and at the conclusion of that as we establish the value proposition of the tool and that's were after in this market development agreement is what is the value it's offering to the operators in the Middle East, once we know that then we can move into commercial agreement discussions with channel partners. And so yes, that's going to be early next year. And so the good news is we’re getting some rental revenue $254,000 in Q2. So that's -- that's good but really getting into the tool sell model, which is what we want we want the similar kind of a model that we have here in the U.S, it's going to be into early next year before we're ready to nail that down.

[Jason Wrangler:]

Okay and last one if I could, Chris you mentioned obviously you work on refinancing mortgage. Is there also the opportunity maybe to look at Hard Rock as well since you're kind of doing that and taking everything together or it's kind how you think about balance sheet as you mentioned you have a pretty nice balance sheet to kind of work from as you look forward to the debt side.

[Chris Cashion:]

That’s exactly what we're looking at when I mentioned kind of a broader restructuring. Yes, it wraps it wraps the Hard Rock notes into those discussions, and so we are in discussions with the folks who would like to take a look at the mortgage end up in the Hard Rock notes as a package and so we want to pursue those options before we just -- now down just, so it may not be just a mortgage refinancing, it may be a little broader restructuring and there are people that we’re talking to that’s interested in that and so exactly that -- that’s why we needed some more time to kind of run down those avenues to see what that looks like because that -- as you know Jason, of that $6 million which is still due on that note, 4 million of it is due next year, and the last 2 million is due in 2020. And so we would like to find a way to spread that out. Get that term over three to five years down to two.

[Operator:]

And our next questions comes from the line of John White with ROTH Capital.

[John White:]

On the Middle East, can you talk a little bit about the customers? Are they all service companies or major oil companies or state owned oil companies, national oil companies?

[Troy Meier:]

They are national oil companies. Majority of them.

[John White:]

And you think you’re the only one furnishing the type of -- this type of product in that market.

[Troy Meier:]

Well, there’s competitive products over there; we look at like in -- if we look at Kuwait, we’ve got some competition over there, we think that we’ve got a superior product and I think the performance is showing that, but there’s some companies that got over there before we did.

[John White:]

Yeah, well you're winning some business so that looked very encouraging. On the Texas facility that you described that as a service facility, what is it -- it’s going to take care of units that have already been sold?

[Troy Meier:]

Correct. So, we’ll have a facility in Texas that's going to give us a lot better logistics and servicing our market there. We look at Oklahoma, we look at Texas markets we were going to take that work from the rental facility and perform those services down in Texas, but it also has given us a staging ground for enhancing our relationship with the bit repair side of things and also give us a place to do a field service on our Strider product line. So it’s just not one product line it’s actually three.

[John White:]

Okay, well that sounds good, where is it located?

[Troy Meier:]

We’re looking at -- we’ve been looking at two places, we’ve identified San Angelo and Abilene and we’ve identified a facility in both but I -- looking more like Abilene.

[Operator:]

Our next questions come from the line of John Sturges with Oppenheimer. [Operator Instructions] Please go ahead.

[John Sturges:]

I am just curious that the royalty revenue seems to be a little bit flat versus the first quarter, yet the sales this quarter pretty decent what’s the delay in terms of, or the -- I assume it's a typical delay between the sale, and when royalty revenue starts to come in so roughly what is the time sequence of that?

[Troy Meier:]

Yes, so on that line John is also the refurbishment, as well as the royalty and the equipment that needs to be refurbished it comes in it's out of our control really when we get it and so part of what we believe we are seeing is with all the new equipment that was ordered in the quarter maybe some of the used equipment did need to come in and to be repaired. And so it's just the timing of that it's kind of hard to nail that down. You see Q1 was a nice increase over Q2 and so we -- what we might have had there was just a lot of equipment that came in late that quarter and it didn’t need to be repaired the following quarter. So it's been on that bit re-furb side that really is it's kind of -- it's hard to predict that.

[John Sturges:]

Got it, and looking at the number of ducks ranges record high almost 8000 and my sense is that the CT Strider would have a good application in that space and I just -- can you provide any color as to when this is why the Strider product is likely to be begin to just see some activity there?

[Troy Meier:]

Yes, we're in channel partnership negotiations right now with several companies. We've got one that were very pleased with that services that market very well and they are very strong in Louisiana, Oklahoma and Texas.

[Deborah Pawlowski:]

You might want to comment on the reaction to the tool sales too Troy.

[Troy Meier:]

Yes, I mean the tools are doing very well I mean when we look at the performance of the tool we're constantly seeing, we get customers that call us wanting the tool because they were not able to complete along lateral, in this case I'd say they cannot drilling out the last 7 plugs or last 8 plugs and our tool is developing a very good name as far as getting out there, the world that I talked about earlier not only did we finish the last 8 plugs that brand-x couldn't finish, and when we talk about the plug they are out there on this long lateral so think of miles sideways and our tools taken then out there finishing up the jobs that the competitive tools cannot do, and then taken that tool and then drilling a 11,000 foot drill out on the very next well. So, it's developed a good name we just again, you know the size of our organization and what we do here and we don't have the sales team and you know we've got a gentlemen that heads up the Strider line Elgin and he is doing a phenomenal job with it and he is identifying the right channel partners some of them can get a lot of tools out there, but it's not just tools we need the info, we need to make -- and we need to continue develop and a make these tools so we stay on top of the market. And think we're going to have something that going to be the best tool in the market and for us to do that we've got to have info, we just don’t want to get dirty tools back. So we want to team up with somebody that can give us that info. Yes, we're very pleased with what we've seen so far and except the downside with that line is in our supply chain we just are having a very difficult time getting critical components of this tool delivered on time. So these are parts that we cannot make in house. So we've got to work our supply chain much better than what we've been working it.

[John Sturges:]

So those would be your hardened bits.

[Troy Meier:]

Pardon me.

[John Sturges:]

The hardened bits the…

[Troy Meier:]

No, no, we have identified some really, really neat material that I didn’t know existed up until a year or so ago and we have been -- we put this material in our tools that creates the function of the pulse and it is outlasting all the hardened tool known about.

[John Sturges:]

You had mentioned that in your earlier calls.

[Troy Meier:]

Yes this material is really performing well. The issue is getting them ramped up to supply us consistent parts. And so that's been our biggest struggle but I think we are overcome that struggle in the second half of the year.

[Chris Cashion:]

And part of our strategy is also going to be to carry some additional inventory. As you look at our balance sheet we keep inventory real under real tight control. We keep bringing it down. I didn’t mention that we did sell some slow moving steel inventory that we didn’t need. We did execute that in Q2. So we are sell all of inventory. One of the things we are going to start looking at doing is maybe carrying a little more inventory on these parts so that we can get this equipment built. So that’s going to cost us a little bit working capital but it will payoff.

[John Sturges:]

What I’m curious about this is -- it’s a particular material? Is this specialized alloy type material? Is that not something you can't if -- you are waiting for parts is it not something you could because you have the skill set to do some of this in house to actually create the product yourself?

[Troy Meier:]

Yes, this is not an alloy. This is not something that we can create in house. This is just something our vendor has to ramp up to supply our needs. They are very big company we just got to get them to focus more on what our needs are. And as we build an inventory we are not going to be so acceptable to their missing due dates.

[John Sturges:]

Simply the issue of being a bit smaller than you would like to be at the moment. But that will change.

[Troy Meier:]

Correct.

[Operator:]

Our next question comes from the line of John Bair with Ascend Wealth.

[John Bair:]

Given that you have got this relationship with Weatherford to introduce the tools in the Middle East and that they are a global service company. Can you kind of share what your thoughts might be as far as a marketing arrangement -- distribution arrangement with them in other geographical areas in the world? And then I’m thinking South America, for example. Could you shed some light on there?

[Troy Meier:]

Sure, we are looking at Weatherford right now in the Mid East, we work with them. They have been very instrumental in getting our -- help get our tools out on the rigs. We are really enjoying the people that we are working with. And we like what we are seeing so far we'd like to know that whoever we join hands with that we can move a lot of tools and saturate the market quickly. And that's one thing that we're trying to get comfortable with right now. What's the value of the tools that we can get out into the international markets and how quickly can we do it. So we love the relationship right now that we've created with Weatherford but they are not the only ones we’re looking at.

[Chris Cashion:]

And the idea of was it international product expansion, and so the Middle East was just the first geographic point that we started focusing on. So that's step one if you will. And so that's yeah, this is broadly speaking, it is an international expansion for us and in the Middle East, South America, Southeast Asia all those locations are going to be on the map.

[John Bair:]

I going I was going with the conceptually is that if you're seeing your expansion domestically into different basins within the US if you translate that on more of a international thing, international front, that you would hope that the operators would get wind of the value of your product of your tools and increase demand obviously then you would be good to have some relationship with distributor whatever, I guess that's where I was going with my thought process here.

[Troy Meier:]

You're correct. We get requests for our tools in South America all the time. We got companies in Argentina that would like to pick up the tool, lot of them are companies we never heard of, and we just don't want muddy the waters we been very careful we turn down requests usually on a I would say couple times a month and we got companies calling and saying whether it be Colombia, Argentina, Mexico. We want to make sure that you we don't have the team that can go out there and support getting the tools on the rig and pulling it back and we made a commitment we decide to go with the channel partnerships that we would find those channel partners. And so we make sure that we’re going to find the right channel partner and we're working hard to make sure we get the right channel partner. But we just don’t want to have tool going down, sitting somewhere and having someone think they're now rapping the tool just because you say BP wanted a tool in Argentina and we got a call from a company that wants to be the one to supply the drill-n-ream. Drill-N-Ream is getting very good name throughout the industry, we just got to make sure we distribute it right.

[John Bair:]

And it also sounds that perhaps in light of what you just said that in previous comments about your supply chain that the demand is there, but you can't crank about as fast as you might like is that a fair statement.

[Troy Meier:]

No that's not a fair statement at all, that is just on the Strider tool, the Strider tool has components that we cannot produce here. The Drill-N-Ream we have no problem cranking out tools. The vendors that we have in steel and in diamond are very, very strong and we can order product today and we can have it here tomorrow. Drill-N-Ream there’s no problem with our supply chain.

[Operator:]

Thank you. We’ve reached the end of our question-and-answer session. I’d now like to turn the floor back over to management for closing comments.

[Troy Meier:]

Well thanks again everyone for joining us; we appreciate your getting on the call and listening to what we have to say; we appreciate your support in what we’re doing; we look forward -- we’re going to -- I think you’re going to find out that we’re going to get more aggressive on getting out and seeing more of you often. So, again thank you very much and look forward to seeing you soon.

[Operator:]

This concludes today’s teleconference and you may disconnect your lines at this time; and thank you for your participation.