Good day, ladies and gentlemen, and welcome to the DMC Global First Quarter 2020 Earnings Conference Call. All lines have been placed on listen-only mode and the floor will be open for your questions and comments following the presentation. At this time, it is my pleasure to turn the floor over to your host for today, Mr.

Geoff High, VP of Investor Relations. Sir, the floor is yours..

Hello and welcome to DMC's first quarter conference call. Presenting today are President and CEO, Kevin Longe; and CFO, Mike Kuta.

I'd like to remind everyone that matters discussed during this call may include forward-looking statements that are based on our estimates, projections, and assumptions as of today's date and are subject to risks and uncertainties that are disclosed in our filings with the SEC.

Our business is subject to certain risks that could cause actual results to differ materially from those anticipated in our forward-looking statements. DMC assumes no obligation to update forward-looking statements that become untrue because of subsequent events. A webcast replay of today's call will be available at dmcglobal.com after the call.

In addition, the telephone replay will be available approximately two hours after the call. Details for listening to the replay are available in today's news release. And with that, I'll now turn the call over to Kevin Longe.

Kevin?.

Thank you, Geoff and hello everyone. DMC's core energy market entered a very challenging period during the first quarter. Oil and gas demand collapsed as attempts to slow the COVID-19 pandemic sharply curtailed global economic activity. These difficulties were compounded by rapidly rising crude supplies and declining storage capacity.

The supply demand imbalance led to a 65% drop in oil prices during the first quarter. This price decline accelerated in the second quarter. Earlier this week, U.S. crude future fell by more than 300% in a single day and turned negative for the first time in history. DMC is taking steps to withstand this downturn.

We have a highly efficient operating structure, a strong financial position and a compelling business strategy. Following a review of our first quarter financial results, I will summarize a number of actions we have taken to align our cost structure with lower activity levels.

Consolidated sales for the first quarter were $73.6 million, down 15% sequentially and down 27% versus the 2019 first quarter. DynaEnergetics, our oilfield products business, reported first quarter sales of $53.2 million, down 18% sequentially and 33% versus last year's first quarter.

The decline reflects lower well-completion activity, which was trending down throughout the quarter and then fell sharply in March. Sales at NobelClad, composite metals business, were $20.3 million, down 7% sequentially and flat versus last year's first quarter.

Consolidated gross margin in the first quarter was 33%, down from 35% in last year's fourth quarter and down from 36% in the 2019 first quarter.

The decrease reflects the impact of lower volume on fixed manufacturing overhead at DynaEnergetics as well as a less favorable project mix at NobelClad and a lower proportion of sales at DynaEnergetics versus NobelClad.

DynaEnergetics reported first quarter gross margin of 37% and versus 38% in the 2019 fourth quarter and 39% in last year's first quarter. NobelClad reported first quarter gross margin of 25% and versus 27% in the fourth quarter and 26% in the year ago first quarter.

We reported consolidated adjusted operating income of $7.5 million, which includes an increase of $2.3 million to our reserve for doubtful accounts, but excludes $1.1 million in restructuring charges. The restructuring charges primarily relate to severance expenses associated with the workforce reduction.

Adjusted operating income in the 2019 first quarter was $20.5 million. First quarter adjusted net income was $5.3 million or $0.35 per diluted share versus adjusted net income of $15.2 million or $1.02 per diluted share in last year's first quarter.

Adjusted EBITDA was $11.3 million versus $17.6 million in the fourth quarter and $23.9 million in last year's first quarter. DynaEnergetics reported first quarter adjusted EBITDA of $11.3 million, while NobelClad reported adjusted EBITDA of $2.4 million.

As first quarter customer demand declined, we moved quickly to reduce our activity-based cost structure. Initiatives included the difficult process of reducing our workforce by approximately one-third. This primarily affected direct labor positions at DynaEnergetics where we also implemented shortened work weeks at our manufacturing facilities.

Selling, general, and administrative expenses have been reduced by 25% versus our 2019 quarterly run rate. We have cut our 2020 capital budget by 50%. We now anticipate capital spending of approximately $13 million, which will be focused primarily on maintenance programs and completing current projects. We have also suspended our quarterly dividend.

These initiatives are key to maintaining our financial strength, as we navigate a challenging time for the economy and our industry in particular.

These steps also will enable the continued execution of our medium to longer-term business strategy, which is to create value through investments in research and development, product and market development, digital transformation and operational excellence.

The expanding product offering at DynaEnergetics continues to improve the safety, efficiency and reliability of unconventional well completions.

Exploration and production companies and their service providers are abandoning the outdated process of assembling and hand wiring rudimentary components and have transitioned to our DynaStage DS factory assembled, performance-assured perforating systems.

DS Systems are delivered directly to the well site, reducing the need for assembly personnel related to facilities. They also reduce our customers' investments in inventory, supply chain resources and working capital and significantly improved their returns on invested capital.

NobelClad booked $29 million in orders during the first quarter, making it the second strongest bookings quarter in five years. NobelClad's rolling 12-month bookings were $98 million, up from $90 million at the end of 2019. Order backlog at the end of the quarter was $41.3 million, a 30% sequential improvement.

The economic downturn has severely disrupted our core energy markets. Operators and service companies are revisiting their activity plans daily, and we anticipate second quarter well completions could be down by more than 60% year-over-year.

This volatility has made it very difficult to forecast our near-term performance and we, therefore, are not able to issue financial guidance for the second quarter or full year. Despite these challenges, DMC is well positioned for long-term success.

We have taken aggressive action to maintain our liquidity and reduce costs, which will enable us to continue our investments in new technology, product and market development. By concurrently focusing on innovation and financial strength, we are confident DMC will emerge from the downturn and even stronger company.

I'll now turn the call over to Mike for a few comments on our expenses and balance sheet.

Mike?.

Thanks, Kevin. Looking at our first quarter expenses, consolidated SG&A was $16.6 million or 23% of sales versus SG&A of $15.5 million or 15% of sales in last year's first quarter. As Kevin noted earlier, this year's first quarter included a $2.3 million increase to our allowance for doubtful accounts.

As a result of our cost-cutting initiatives, we expect SG&A will be approximately $12 million during the second quarter. First quarter amortization expense was $354,000 or less than 1% of sales. We ended the first quarter with net cash of $2.9 million as compared with net cash of $6.1 million at December 31, 2019.

Cash and cash equivalents at the end of the quarter were $16.5 million. Total debt at March 31 was $13.5 million, and our debt to adjusted EBITDA leverage ratio was 0.2. With that, we are ready to take any questions.

Operator?.

[Operator Instructions] We'll go first to Tommy Moll at Stephens..

Good afternoon and thanks for taking my questions..

Good afternoon, Tommy..

Kevin, last downturn, one of the things that distinguished DMC Global was you leaned in and really invested in the preassembled gun system that has subsequently taken so much market share. For this downturn, that just started, you identified a few different buckets, technology, products and market development as areas where you still plan to invest.

What can you tell us about the priorities that remain as of today? What's still on the calendar for 2020 in those areas?.

Yes. Good question, Tommy. We have not cut at all our investment in technology, product or market development. Those are longer-term programs with longer-term goals and hopefully end results. And we moved swiftly over the last month to make an adjustment in our activity-based costs.

However, the structure of our company is -- we've worked on for the last five to seven years. And so we feel that we're well positioned, actually better positioned in this downturn than we were in 2015, 2016 to continue those investments. We do think this downturn is going to be more severe.

What happened over 2015 and 2016 seems to be taking place over a month or two. So we're seeing a significant decline in activity, but we don't expect the activity to stay at these levels on a medium to longer term basis. And so we're -- our strategy is not changed one bit..

And just to make sure I'm following, Kevin, that would include some of the new product developments you guys talked about the last quarter, I believe, in terms of the tools adjacent to your preassembled gun, is that correct?.

Correct. Tommy, we've expanded the product line in the preassembled gun to have several additional configurations. We're actually shipping for trials this quarter, our echo, which is a refrac product line. And we've continued with the development of ballistic release tool and a setting tool, which we're currently in the IP phase of those product lines.

And so we're not slowing down one bit on those items..

Okay. Good to hear. And that clarifies a lot. Shifting to your shareholder letter, Kevin, one of the themes you highlighted recently was if you look at the company last cycle, you had 25 manufacturing and distribution facilities around the world. That's now down to eight.

So clearly, this time around, the company looks a lot different and is a lot leaner in terms of the fixed cost structure. If we apply that specifically to DynaEnergetics, and we look at last downturn versus where we might have this downturn.

Last time around, we ended up, and I'm specifically looking at 2016, basically at breakeven EBITDA is how you're able to manage the business at that time. Is there a reason in the context where -- it's perfectly understood you can't give specific guidance given that completion may be down 60-plus percent year-over-year.

But is there a reason just high level to think this time around, you can manage to a larger EBITDA margin? Or there's an ability to do that? Or do you think the last trough is a good precedent for us to look at?.

Yeah, Tommy, this is Mike. I think that -- I think you're heading in the right direction. When you look at that trough, we were EBITDA breakeven. I think we can, in this environment, be EBITDA positive for DynaEnergetics..

Okay. All right. That’s all from me. Thank you..

We'll go next to George O'Leary at Tudor, Pickering and Holt..

Good afternoon guys..

Good afternoon, George..

You all have been very disciplined on price. And it's understandable why, just given the industry structure that you operate in the competitive landscape and the superior product offerings. But in an environment like this, they're invariably going to be pricing pressure.

So just strategically, how do you deal with that? And then tighten with that somewhat, how do you think about component versus system sales in this market where some of your customers looking to go back to just trying to buy components and strap even if it's less efficient just to try to be cheaper to one pricing to just customer behavior? Are they trying to dumb things down just to save a few pennies upfront even if it's not net savings across the cycle?.

George, we are seeing increased price competition, lower prices on components. And also, if you will, a dumbing-down of the perforating system somewhat going back to technology back in the -- before 2015, 2016, we have chosen not to chase that type of business or that kind of activity.

Safety risks are increasing or -- excuse me, safety is decreasing when they move back in technology, but also there's greater misruns and more non-productive time and a lot more activity tied up with our customers and managing the supply chain and inventory and working capital.

And what we see happening is more of a short-term scrambling by companies to stay active, and it's not sustainable. It's not sustainable, because it's higher cost, lower performance and increased risk.

And the DynaStage system does sell at a premium over the components, but it also offers a significant value to our customers, seven to tenfold the cost premium in lowering the cost of completions on a well. And the smarter companies are focused more on the value and use rather than the purchase price cost. And so, we've seen some low prices out there.

We believe we probably lost some share to component manufacturers in the first quarter. And we're fine with that. It's not sustainable on a medium to long-term basis for those companies. They're not making money, and they're certainly not adding value to their customers.

And so we're staying focused on our strategy of providing the most innovative, the safest and the best-performing systems in the marketplace.

We had two large E&Ps tell us that that our failure rate is so much less than our competition, one in 6,400 systems where others are a 7 times to 10 times greater than that, that they more than make up through the life of the well, the cost of our guns.

And so it's – we're focused on companies that are looking to be here, two, three, five years down the road and focus on value..

That's good to hear. And then Tommy, hit on the technology question. Good to hear you guys are still very focused on the planned little offense there.

Just given the balance sheet position you guys are in having a strong balance sheet, are there other ways you think about going on offense is inorganic growth at all being contemplated? And what is that M&A landscape look like? Just curious about other ways you can try to go on offense, given you're much better positioned than most from a balance sheet and from an equity price equity valuation perspective?.

Yeah. We're laser-focused on our customers, our products and the markets that we're currently serving. We don't feel at least not yet that is time to venture off of that..

Got it. And then just one more, if I could. You mentioned that year-over-year down at 60%, and that's certainly helpful color.

I was just curious, if you could frame the pace at which revenue started to fall off in the March time frame? And how that's trended as we've progressed into – and you probably realize that crystal ball is very cloudy and making predictions beyond that as nearly impossible given discussions are changing daily, but just kind of ran how things progressed through the quarter in Q4 – Q1, sorry? And then as we got into April, what you've seen so far?.

Yeah. We saw – first of all, January and February were reasonably strong months for us. We saw a pickup compared to the fourth quarter run rate. But then in March, it dropped 35% to 40% from what that run rate was in the January, February. And it's dropped further, if you will, into April.

And so literally, we saw in 2015, 2016, the market took two years to drop to the level that we think that April was going to be compared to the prior year. It took 45 days this time around..

That's very helpful for me. Thank you very much, Kevin..

Yeah. You’re welcome George..

We'll go next to Stephen Gengaro at Stifel..

Thanks. Good morning..

Yeah. Hi, Stephen..

I guess – hi, Kevin. I guess, I'd start with when we think about the – what you're doing from a CapEx perspective, working capital, how do we – how do you expect free cash flow to unfold knowing, we don't know what the operating results are going to be.

But if you look at working capital drawdowns, possibly, what are the puts and takes we should be thinking about from a free cash flow perspective?.

Okay. Mike, you want to go ahead to it..

Yeah. Hi, Stephen, when we think about free cash flow for the second quarter, it's going to be very a challenging probably operating in that sort of breakeven from a net debt, net cash standpoint, maybe slightly negative.

From a CapEx, thinking about that, $13 million for the full year, $5 million in the first quarter, probably with previously committed projects, $3 million to $4 million in the second quarter, then it's going to taper off quite a bit in the third and fourth quarter.

As far as working capital, I think we're not going to see a lot of that come through in the second quarter. If you think about March, the onset of the COVID-19 pandemic in Asia Pacific, we started building some inventories early in the early in the quarter.

And then – so we – with the lower volumes, we're going to have to burn those inventories down over the next couple of quarters.

So we see cash flow positive, but that's – and quite a bit of working capital bring down on the inventory side, but that's going to probably happen in the third and fourth quarter, which will protect our revolver and preserve our liquidity..

Thank you.

When we think about the – your technology you're delivering to the oilfield and the pricing and the premium pricing that usually you have gotten, what is the – what are the customer discussions like, to the extent you've been able to have many given how fast things have fallen? I mean, do they look – are they less willing to buy into the value proposition you deliver at a premium price when things are falling? Or do you think, ultimately, they actually benefit from it, so it helps? Because I know you mentioned maybe losing a little share of components in the short term, but how do you think that unfolds over the next few quarters?.

Well, and I'll compare and contrast that back to 2015, 2016, because 2015, 2016, we were introducing the product in the business model. And I think our – 2019 performance best indicates that the business strategy and the product is winning. And in this downturn, it actually – it reduces the number of people at a well site when they are completing.

And it significantly reduces working capital, supply chain resources, operating resources. And you get an improvement in performance for a lowering of the cost. So the service quality goes up.

And so we're seeing – we're seeing discussions that are really centered around a partnership rather than a transactional cost on a project-by-project basis, where people are really focused on moving towards our system, but doing it in a way that's sustainable on a long-term basis, so that they can really experience the cost savings of getting rid of their investments in assembling guns, and that's at the service level.

The value proposition at the E&P in terms of oil recovery and other things, it's still very sound. It's at a lower price per barrel, it comes down. But it still far exceeds the value of the product. And ultimately, the delivered product or deployed product in the well..

Okay. Great. Thank you. And then just one final. When we think – I guess it's maybe 1.5, it's kind of two part question. But when you think about the well-completion activity or frac stages, however, you want to sort of frame the market.

But when you think about that decline, we're likely to see in the next quarter or two, do you think you perform – your revenue in DynaEnergetics performs similar to that level of activity decline? And what – how should we think about the kind of gross margin levels? Where do you think we lose a couple of hundred basis points next quarter? How – where do you think that goes?.

Okay. I think – and it's kind of interesting because it is a very confusing time in the marketplace, and there's a lot of companies scrambling to consume inventory and focus, as I was saying earlier, on immediate cost versus performance, and that's kind of flushing itself through.

We believe it's going to flush itself through in the second quarter, maybe a little bit into the third, depending on activity. So we see our share maybe in the very near term, weeks and months, holding. And so we're going to follow the decline in well-completion activity.

But we expect as the markets stabilize before they start growing again, there's going to be a fair amount of attrition in the industry, probably some consolidation, fewer people.

And our solution is on the factory assembled part of it and the performance assured part of it and what it does to lowering personnel and cost is going to be in a stronger position as the market stabilize and they start to come out of it probably at the end of the year and into the first and second quarter of next year..

And Stephen, on the margin question, we're going to see significant under-absorption in the second quarter. It's just going to be a very unusual time. But over -- during the recovery and over the longer-term, we expect to see similar incremental margins on the recovery side as we've seen in the past..

In our variable margins is in the 45% to 50-plus percent range on this product line. And so as the market struggles in the second and third quarter, you're going to see probably similar decremental kind of margins..

Great. Thank you very much. I appreciate it..

We'll go next to Gerry Sweeney of ROTH Capital..

Hey, good afternoon Kevin, Mike, Geoff. Thanks for taking my call..

Yeah. Hi, Gerry..

I want to talk a little bit about strategy. I mean, obviously, next couple of quarters, very difficult. Obviously, I think we're going to see some shakeout of players in this space. And I think you've even mentioned this on previous calls.

So part of your strategy was to, what I'll call is get closer to some good balance sheets, but I think you were previously saying getting closer to maybe the eventual winners, the bigger players in the space, et cetera.

Does this shake out give you an opportunity to realign ourselves, really go after that strategy the last downturn, you talked about R&D, people leaning into R&D and separating yourself from the pack? Is this an opportunity to maybe lean in, get spec-ed in with some of the big players and really drive market share?.

We -- first of all, we have some very good competitors. And we would expect that the stronger companies coming out of the market versus going in are going to be more system focused and value focused versus price focused and initial cost focused. So I don't want to ever underestimate our competitors. I mean, they're very, very good.

We just -- it's not so much that we're leaning into our strategy. We're not leaning out of it, we're staying in it.

And we feel that the focus on creating value for our customers and deploying our product, more focus on innovation and system integration in a market that is going to see some attrition probably on the component end of it, that we're just -- we're going to -- we have a better value proposition.

And so we -- we're staying focused on that, and we think that we'll come out of it stronger. And there's going to be -- it's just -- it's necessary for some of the capacity to come out of the industry. So that there's also a good go forward return on investment for the companies that can stay strong through this downturn and come out the other side.

And so we're just -- we're not deviating one bp from our longer-term strategy. And we expect there to be fewer, stronger, larger, more integrated companies going forward that we hope to be their preferred supplier of perforating systems..

Got it. This may be a good opportunity to maybe dust off the questions from NobelClad. Since in the last downturn, they were strategic in helping you stay positioned, obviously, really good bookings in the quarter. It's a very long-cycle business.

Two questions on this front or maybe -- have you stress tested your backlog? Obviously, it is long-cycle business, but I'm not sure if there's any shorter-term business and projects in there? And then what does the gross margin profile look like in that – in the backlog at NobelClad?.

Okay. We look at it more from a contribution margin standpoint in terms of the backlog and the contribution margins, as I mentioned earlier for DynaEnergetics are in the 50% range, for NobelClad, there 43%, 44%. And their backlog has – is a good margin backlog.

It is a stress test, if you will, and we expect it to -- the revenues to pick up in the second half of this year as we begin shipping part of that backlog.

I will say that in talking with the salespeople and some of the customers in that market, we -- they're not going to escape, if you will, maybe some larger projects starting, but that's going to be later in the year and maybe into next year.

But then on the same hand, there's a lot more everyday business, maintenance business happening in this type of market that we think is offsetting anything that may get pushed into next year..

Got it. That’s it for me. Appreciate it. Thank you..

[Operator Instructions] We'll go next to Edward Marshall at Sidoti & Company..

Hey, how are you? Kevin, Mike, Geoff, hope everyone is doing well, families are safe, etcetera..

Yes. Thank you for that Ed..

Yes, yes. times, right? I kind of want to stay on NobelClad for a second. And I guess, going back to the shareholder letter, you talked about new market opportunities. You mentioned solar, in particular, you've seen some revenue, and we know about that.

But wondering if we could dig in a bit deeper and help us kind of understand maybe the bookings and what might be driving the bookings and backlog? And how much of that is legacy versus kind of new projects that you maybe -- for new markets, new avenues to market that you may be kind of uncovering that would be helpful?.

Yes. I mean, historically, we would say that petrochemical downstream oil and gas and the chemical industry would be 70%, closer to 80% of that business. It's about 65% in the current backlog in bookings – trailing 12-month bookings.

And so, we're seeing a growth in metals and mining, power generation, marine, industrial refrigeration and then some unique applications like this wood products manufacturing that we're getting involved with. And so those new applications are just beginning, and they're really what we're seeing is part of the pickup in their revenues for this year..

And could you define or redefine maybe what the market for NobelClad could be looking at these new business ventures that – new business markets that you might be kind of targeting? What the scope – what the scale of your business – scope of the business could be for the market overall?.

Yes. I think we're up. It's -- NobelClad is, as you mentioned earlier, is a kind of long-cycle business and getting involved on the process end of designing the infrastructure for these applications, it takes some time. And so we're seeing success right now on projects that we've been working on for well over a year.

And I think it's still too early to say what is – whether, that's changed the size of the market on a longer-term basis, we believe it has. But I - until we start seeing repetitive orders in some of these markets, it would be too early for us to forecast it and say that this is a sustainable change in market size..

Got it.

And are you addressing specific new applications? Or are these kind of taking share from maybe some of the rolling mills or taking it from some of the welding companies? Just trying to get a sense as to how that development is working?.

No. They're new applications altogether, and then -- which is -- we like because it's really people recognizing the value -- our value proposition for those composite metals..

Got it. And just following up on the previous questions, you talked about the last downturn. And I think you and I've had the conversation before that without 2015, 2016, the boom in your business, no pun intended, in 2018 and 2019 would never have happened -- 2017, 2018 and 2019. So we're kind of entering that downturn.

I'm kind of curious about how you're targeting market share? And I'm wondering, you kind of talked about to some length already.

But I want to ask specifically, are you focusing on market share from wireline suppliers, customers on the E&P or maybe some of the larger service providers that are out there that might actually compete? I want to ask you that question directly.

Where is your target?.

Well, we're focused on completions, and that means serving both the E&P and the service companies. So it's -- nothing has changed there. And we're -- we don't have a market share goal, if you will. What we have is, we focus on the technology and products and getting these products into market and letting the value drive the volume and the applications.

And so, we focus more on the process to get to the market share than the market share itself. And we also focus on maintaining a healthy margin for our products so that we create that margin by creating value for our customers. And we're not locked into trying to hold on to share for sake of price.

And so, it's really about the value that we create and the value that we can earn for our employees and our shareholders..

Yes, I guess, you have some large service providers that offer some similar products that you offer. Obviously, there's a value opportunity to look at someone like -- to source from someone like DMC.

And as the pie gets smaller, I'm wondering how long they can justify kind of carrying those types of -- is that something that you've kind of spent some time on? Or maybe had some -- I know this is a question that came up to the last downturn and maybe it took off too fast and you were unable to kind of complete some of the initiatives that you are working on.

I'm wondering if the current downturn brings those kind of back to the surface and potential for new opportunities as we move forward?.

Well, I think that companies each have a unique value-add, and our value-add is on integrated perforating systems, factory assembled, deploying the technology that is incorporated in our products. And we feel that we can do that more efficiently than most.

And we've also have invested in the technology and product development that some of the other companies may have gotten away from over the years.

And so to get the efficiency out of the manufacturing and the technology into the products, some of these other companies are going to have to make investments in a downturn, which is much more difficult to do, and we have a strong technology position.

And so, at some point -- and I'm not talking about our most immediate competitors, but some of the service companies, smaller too, larger, they have to ask themselves whether being vertically integrated in the assembly components that they make or don't make, make sense. And that's kind of hard in a market that's under stress..

Got it. I appreciate it. That's what -- that's kind of the guidance, I was looking for. That's what I was looking for. If I look at the accounts, just to touch on that for a second. The $2.3 million, about -- it looks like 3.5%, 4% of your receivables there.

Is that one particular customer? Is it a series of customers? Just help me kind of round that out? And then ultimately, how you think about in the remainder of your collections as you kind of move forward to the next, say, 60 to 90 days?.

Yes. We -- Ed, this is Mike. We just wanted to get out in front and increase our reserves to ensure we're covered from potential AR bad debt standpoint, so more general reserves across maybe a few customers..

And so you've seen receivables move from 60 to say, 90 days? Or have you seen it even further? Is that kind of starting to happen now? Has it already happened? I'm just trying to get a sense as to kind of how you're looking at that?.

We've seen it move out a little bit. We've seen them move out a bit, but a lot of our customers are keeping within their terms, but maybe pushing out just a bit..

Got you. Okay. Thanks guys. Thanks very much. I appreciate it. Stay safe be well..

Yeah. Thank you, Ed..

We'll return to Stephen Gengaro at Stifel..

Thanks. One more, if you don't mind, gentlemen. So given how rapidly this drop-off in the U.S. raw completions is hitting us, I just want to make sure I understand this correctly.

Is there any level of inventory of your product that's kind of in the channel in the hands of the customer that would sort of slow or delay recovery or change the way the business reacts as activity? And I don't think so, but just wanted to check?.

Yes. I mean, we have -- I mean, there's a couple of customers that bought based on activity that since those projects have been canceled or changed that they've looked at us and said, "Hey, can you help us? And -- but there's -- and so if it's new or recent inventory, we would help those customers. If it's older inventory, the answer is no.

I mean, we had a little bit of that in the first quarter. But one of the value propositions that we make for our customers is that they don't have to maintain inventory that this is just in time. And so -- and we've designed our manufacturing facilities to -- if we get an order today that we could ship it by the end of the week.

And that ability to respond has taken and significantly reduced the inventory of -- the service companies that we do business with that are taking advantage of that model.

And so there's a couple that have bought into inventory or -- but that's -- and we don't view that as significant because of the response that we've built into our supply -- our supply chain..

Thank you..

With no other questions holding, I'll now turn the conference back to Mr. Longe for any closing remarks..

Yes. Greatly appreciate the interest that you all have in our company. And I want to highlight and thank our employees through this very difficult time on their continued focus on innovation and their efforts to make us a strong company. There's a concurrent responsibility on our end to be a responsible employer, which we will do.

And everybody, please stay safe, and we look forward to talking with you after the end of the second quarter. Thank you..

Ladies and gentlemen, that will conclude today's call. We thank you for your participation. You may disconnect at this time, and have a great day..