Greetings and welcome to the Nine Energy Services Fourth Quarter and Full Year 2020 Earnings Conference. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Ms. Heather Schmidt, Vice President of Strategic Development and Investor Relations. Thank you. Please go ahead..

Thank you. Good morning, everyone and welcome to the Nine Energy Service earnings conference call to discuss our results for the fourth quarter and full year of 2020. With me today are Ann Fox, President and Chief Executive Officer; and Guy Sirkes, Chief Financial Officer. We appreciate your participation.

Some of our comments today may include forward-looking statements reflecting Nine’s views about future events. Forward-looking statements are subject to a number of risks and uncertainties, many of which are beyond our control. These risks and uncertainties can cause actual results to differ materially from our current expectations.

We advise listeners to review our earnings release and the risk factors discussed in our filings with the SEC. We undertake no obligation to revise or update publicly any forward-looking statements for any reason. Our comments today also include non-GAAP financial measures.

Additional details and reconciliation to the most directly comparable GAAP financial measures are also included in our fourth quarter and full year press release and can be found in the Investor Relations section of our website. I will now turn the call over to Ann Fox..

Thank you, Heather. Good morning, everyone. Thank you for joining us today to discuss our fourth quarter and full year results for 2020. It clearly goes without saying that 2020 was unprecedented.

COVID has taken a major toll on so many from both the health and financial perspective and I want to commend and thank our employees at Nine for their leadership, empathy and professionalism throughout the year. I was reminded again this year how important the team you have around you is, especially when navigating through unthinkable circumstances.

The market saw unparalleled uncertainty and heightened volatility throughout the year and the COVID pandemic caused an extreme decline in global demand, estimated to be close to approximately 17 million barrels per day from peak Q4 2019 levels to the trough in Q2 of 2020.

WTI was negative during the second quarter and our customers responded accordingly, reducing our completely suspending activity across U.S. lands. We estimate that the average U.S. active frac count declined from approximately 330 in 2019 to as low as 73 in May of 2020 and then increasing to approximately 160 active U.S. frac crews at year end.

The EIA reported U.S. completed wells declined approximately 49% year-over-year and new U.S. drilled wells declined approximately 56%.

The choices we made throughout 2020 were critical in positioning ourselves for future success and I would categorize this year as a balancing act, constantly assessing and managing the short, medium and long-term needs of the company.

This included making significant cost reductions to preserve liquidity for the near term, but also maintaining key people, assets and our footprint, so as not to impede the future earnings of the company for the medium and long-term.

Our operational and corporate teams were facing extraordinary market conditions, while also integrating new processes and procedures in the field and a new virtual world of selling and communicating.

Despite this, our team was able to remain opportunistic and continue to execute on our strategy of being an asset-light business, providing the best technology and service for our customers.

Although profitability was down year-over-year in conjunction with the market, we were able to demonstrate our ability to flex quickly cutting costs and preserving liquidity.

By the end of Q2, we reduced our headcount and payroll expense by over 50% and our 2020 CapEx was $10.2 million, an approximate 84% reduction year-over-year and at the low end of our guidance of $10 million to $15 million.

We were able to preserve cash and liquidity through good working capital management, generating approximately $66.5 million in cash from the monetization of accounts receivable and inventory.

During 2020, the company repurchased $53.3 million par value of bonds for $14.6 million of cash, on average, representing 27% of par value and leaving $346.7 million par value of bonds outstanding and an undrawn ABL. We have been very purposeful in balancing near and medium-term liquidity needs with the refinancing of our debt.

Our financial team demonstrated great discipline and patience throughout the year, purchasing the bonds at significant discounts, while maintaining a strong cash balance of $68.9 million as of December 31, 2020 and an undrawn ABL.

Operationally, our team once again demonstrated their ability to gain market share, growing our percentage of stages completed from approximately 17% in 2019 to approximately 23% in 2020. We also organically expanded our cementing service line into the Haynesville.

While we did not sell the absolute number of dissolvable plugs that we anticipated going into 2020 because of the extreme activity declines, we are pleased with the adoption of the tools we saw throughout the year. Year-over-year, our percentage of dissolvable plugs sold compared to composite plugs increased by 700 basis points from Q1 to Q4.

While we faced many headwinds in the macro environment, we have been able to increase adoption through both the performance of the technology and the benefits that come with using dissolvable plugs, including faster cycle times, lower carbon emissions and less operational and safety risk.

Although we always predict completion tool pricing declining over time, the pace and rate of this decline has been exacerbated with this downturn, delaying profitability and margin expansion.

We still believe that adoption of dissolvables will continue to increase, especially with the recent reduction in tool price, which we do not anticipate increasing like we would see in other oilfield services.

Despite a year with new protocols and ways of working, Nine ended the year with the lowest and best safety score in the company’s history with a TRIR of 0.3. I want to congratulate and commend our employees on an incredible accomplishment.

Company revenue for the year was $310.9 million, net loss was negative $378.9 million and adjusted EBITDA was negative $25.8 million. Basic earnings per share, was negative $12.74. Adjusted net loss for the year was negative $118.1 million or negative $3.97 per share. ROIC for the year was negative 16%.

Now, turning to Q4, as anticipated, the holiday and weather shutdowns were not as extreme as we have seen historically. Over the last couple of years, active frac crew counts typically declined 3% to 5% at year end versus the 2% to 3% or 3% to 5% spread increase we saw in December. Most of these frac additions were in the Northeast and Bakken.

Activity increases are reflected in our 25% increase in revenue quarter-over-quarter. However, a combination of continued pricing pressure as well as one-off items, the vast majority of which are non-cash that Guy will address in his section, negatively affected adjusted EBITDA.

All of our service lines saw activity increases quarter-over-quarter, but this was mostly offset by continued pricing degradation, which continues to be the most severe in wireline and completion tools.

We successfully completed our first cementing job in the Haynesville during Q4 and do anticipate ramping up activity levels and gaining market share there throughout 2021. Company revenue for the quarter was $62 million, net loss was negative $35.4 million, and adjusted EBITDA was negative $13.9 million. Basic earnings per share, was negative $1.18.

Adjusted net loss for the quarter was negative $35.7 million or negative $1.20 per share. ROIC for the fourth quarter was negative 35%. I would now like to turn the call over to Guy to walk through detailed financial information..

Thank you, Ann. I want to start with an update on our debt and liquidity profile. As of December 31, 2020, Nine’s cash and cash equivalents were $68.9 million, with $37.9 million of availability under the revolving ABL credit facility, resulting in a total liquidity position of $106.8 million as of December 31, 2020.

We did not repurchase any additional bonds during Q4 and as Ann mentioned, during 2020, the company repurchased $53.3 million par value of bonds for $14.6 million of cash, on average, representing 27% of par value and leaving $346.7 million par value of bonds outstanding and an undrawn ABL.

For Q4, the main cash outflows were related to our approximately $15 million of interest expense for our senior notes and the remainder of our CapEx. Our total CapEx for the year was $10.2 million, a reduction of approximately 84% year-over-year and at the low end of our original guidance of $10 million to $15 million.

During the year, we have been successful in largely offsetting our capital expenditures with equipment sales. For the full year 2020, we spent $9.4 million in cash CapEx compared to $7.6 million in proceeds from sales of PP&E and PP&E insurance proceeds.

During the fourth quarter, revenue totaled $62 million, with adjusted gross loss of negative $5 million and adjusted EBITDA of negative $13.9 million. During the fourth quarter, we had $9.8 million of unusual net costs with substantially all of them increasing cost of sales and negatively impacting adjusted gross profit and adjusted EBITDA.

The largest of these unusual cost items was the $10 million negative inventory adjustment that we recorded as a result of the rationalization of our completion tools portfolio. In Q4, we evaluated our completion tools portfolio to streamline our product offering, resulting in a discontinuation of certain legacy products.

This rationalization of our product offering allows us to transition customers to our newest technologies like the Stinger dissolvable frac plugs. Our other unusual items are relatively small in nature and offset each other such that the net impact is not material.

During the fourth quarter, we completed 509 cementing jobs, an increase of approximately 35% versus the third quarter. The average blended revenue per job decreased by approximately 12%. Cementing revenue for the quarter was $18.2 million, an increase of approximately 19%. We ended the year with 40 cementing units, of which 10 were stacked during Q4.

During the fourth quarter, we completed 3,523 wireline stages, an increase of approximately 14%. The average blended revenue per stage decreased by approximately 6%. Wireline revenue for the quarter was $13.9 million, an increase of approximately 7%. We ended the year with 47 wireline units, of which 22 were stacked during Q4.

For completion tools, we completed 14,032 stages, an increase of approximately 57%. Completion tool revenue was $18 million, an increase of approximately 29%. During the fourth quarter, our coiled tubing days worked increased by approximately 62%, with the average blended day rate remaining flat. Coiled tubing utilization during the quarter was 31%.

Coiled tubing revenue for the quarter was $11.8 million, an increase of approximately 63%. We ended the year with 14 coiled units, of which 7 were stacked during Q4. The company reported selling, general and administrative expense of $11 million compared to $10.7 million for the third quarter.

Depreciation and amortization expense in the fourth quarter was $11.8 million compared to $11.9 million in the third quarter.

The company recognized an income tax benefit of approximately $100,000 in the fourth quarter of 2020 and an overall income tax benefit for the year of approximately $2.5 million, resulting in an effective tax rate of 0.6% for 2020.

The 2020 income tax benefit is primarily comprised of changes to our valuation allowance position due to impairment recorded during the first quarter of 2020 as well as tax benefit from the 5-year net operating loss carry-back provision provided by the CARES Act signed into law during the first quarter of 2020.

For the year end 2020, the company reported net cash provided by operating activities of negative $4.9 million. The average DSO for the fourth quarter was approximately 60.6 days compared to 64.7 days in Q3. Our DSO for 2020 was 60.6 days.

Looking at 2021, our largest cash outflows will be our senior note interest payments of approximately $30 million, CapEx of $15 million to $20 million, and changes in net working capital, which will closely mirror revenue changes.

Our CapEx does not include any new unit additions within our service lines and less than 20% of the total would be classified as growth. I will now turn it back to Ann..

Thank you, Guy. While we have certainly seen improvement in the market and have passed through the trough, we are still anticipating a very challenging environment in 2021.

It will take time for stability to reach the market and we will need significantly more increases in rig and frac crew counts to reach healthy levels for OFS companies coming off all-time activity and pricing lows in 2020.

We, like our customers, are still working on 2021 plans within a great deal of uncertainty around additional COVID lockdowns, vaccine rollouts, when demand will recover and how OPEC will behave.

Even with the recent improvement in commodity prices, we have seen our customers remain committed to capital discipline and rig and frac crew counts are not increasing at anywhere near the same pace as the WTI price.

With what we know today, we anticipate E&P capital plans will be flat to down approximately 10% year-over-year and most public operators will target a 2020 to 2021 exit-to-exit maintenance capital programs to keep production flat. This can obviously change quickly and these assumptions are based on what we know today.

If we see a significant and stable increase in oil prices, we could see public operators increase activity, but we believe most public operators will remain disciplined and return any excess cash to shareholders or pay down debt.

Most of the recent rig additions have been private operators and these customers will be an important wildcard as far as activity levels throughout 2021. The largest challenge will be pricing dynamics and margin expansion. There is little to no pricing leverage for OFS companies today and the competitive landscape continues to be saturated.

The recent downturn accelerated pricing declines, especially within our tools and wireline business.

While we always forecast gradual declines in our tool pricing, market activity as well as competitive behavior has caused pricing deteriorations to be much faster than anticipated and the pace of activity increases we are seeing today are not able to overcome decreases in pricing, leading to relatively anemic revenue growth in incremental margins.

Wireline remains extremely oversupplied. Management estimates there are approximately 300 units in the Permian alone, of which approximately 40% are active. It is very difficult to gain pricing leverage in the service line that competes almost exclusively on service execution.

And with the low capital intensity there is low equipment attrition and easy entry for new competitors. We are slowly and carefully evaluating price increases and our depreciation-based service lines to reach a more sustainable level without sacrificing significant market share with key customers.

At Nine we will continue to flex at the market and we are confident in our ability to capitalize on any recovery without needing significant capital allocation. Our strategy at Nine is unchanged and we are continuing to focus on building an asset-light business with higher barriers to entry.

Our 2021 priorities include profitable market share gains within all of our service lines and continued dissolvable adoption of our new plug technologies, de-levering the company and ESG. We are confident we have the best performing dissolvable plug on the market today for all temperature applications.

We are building a run history that should help drive market share for Nine, especially for those customers focused on cycle times, ESG and safety. ESG is a significant and important undertaking, which we have and will continue to dedicate resources too.

2021 will be focused on internal evaluation, including but not limited to quantifying emissions, benchmarking diversity and ensuring socioeconomic movement for individuals of all backgrounds. From there, we will be able to set goals for the corporation as well as share our data amongst our constituents.

Our mission is to be greener and cleaner in a balanced way. Q1 is off to a slow start and weather conditions in February caused complete shutdowns in Texas, where we generate the majority of our revenue and negatively affected all of our service lines.

Weather-related shutdowns in February aside, we anticipate the pace of Q1 activity in revenue will be better sequentially than Q4, but we still expect to generate a net loss and negative adjusted EBITDA for the quarter. We do believe this will be the worst quarter of 2021 and we are looking forward to moving beyond a market hampered by COVID.

We will now open up the call for Q&A..

Thank you. [Operator Instructions] Our first question is coming from Sean Meakim of JPMorgan. Please go ahead..

Thank you. Good morning..

Good morning, Sean..

So Ann to start, can we maybe talk about the path to positive EBITDA as we move through ‘21? I think your comments on anemic volume improvements and the pricing headwinds I think those are well noted, but what type of incremental margins can you expect to generate as activity is ramping in the first half of the year? What does that look like if we are just growing volumes versus what you think you could generate if you were able to capture some incremental pricing maybe later in the year?.

Yes. Well, it’s a great question, Sean. We are not guiding. So I won’t give you a guide on incremental margins. I would say that largely you can capture this as both a pricing and volume problem. So as volumes increase, clearly, that’s going to help flow through to the margin.

And I think generally speaking, the team has better visibility on volumes than we view on pricing. Clearly, one typically lags the other, but again, with recent commodity prices, we do think that’s helpful. We do think the percentage of the private rig count will be helpful. So we are up around the 40% mark of the U.S. rig count is private.

Obviously, as you well know, they are not subject to investors’ concerns as it relates to cash. So I think that will all be very helpful on the volume that will certainly drive better incremental margins.

And then the question mark is, what is the activity point at which OFS starts to gain leverage against the operators as it relates to price? I do think there is a growing concern amongst operators that what we have at the moment in the sector is just not sustainable. And I think there is a willingness to recognize that.

And I would say we have seen that at private and larger public. So, I do think we get pricing amelioration. I do think we see much better incremental margins. And I will really stress, highlight and underscore that Q1 will be our worst quarter. We had a lot more white space in January than we thought.

So, we had a lot of our specific customers coming out of the gate much slower. And as you know with small numbers, that white space is very challenging. And then clearly, the winter storm was probably the largest number of consecutive days down we have seen in our history at Nine. So, I think again those things will be helped.

We also have just internal organic margin expansion efforts going on with our tools, which we think by year end we will be able to ameliorate those margins up over the double-digit level.

So, the speed of those price declines is just faster than what we could take the cost out of the tool, but that’s forthcoming and we have a lot of confidence in that. And frankly, we have done that before with our Scorpion Composite plug offering, where we have been able to hold the margin despite 25, 30 points of price decline over time.

So, it’s been done and there is going to be a little bit of a lag there, but we are very hopeful about incrementals coming into the back half of the year..

Got it. Thank you for all that detail. I think the natural next question then is the path to positive free cash flow. Your CapEx is going to stay fairly tight. Working capital will be a consumer of cash as you are growing the top line it sounds like. Interest expense is still a pretty decent hurdle in the current environment.

So, can we get back to positive free cash on a quarterly basis at some point in ‘21? How do you see those building blocks?.

Yes. I think again if you look at the company for 2020, what’s really remarkable to me just to go back to this for a minute is, you spent about $7 million outside – you burned about $7 million outside of those bond buybacks, which obviously were all discretionary.

And so to cover down your CapEx and to take a 63% loss on your top line and only rip through $7 million was pretty darn good. I think this year our challenge will be to manage that working capital build and the pace of that.

And our receipt of that, I think is really going to be, I think there is a lot of pencils cracking on budgets right now, again, inside our private operators and maybe even inside of some of our public. And so how fast is activity come on or not is really going to dictate the pace and speed of that cash flow.

As you know, also, obviously, our ability to leverage price and start to get some price will be very important as it relates to generating that cash. So I think we will be very prudent with CapEx. We’ll be very careful. We’ve clearly shown our ability to put up major fences around the cash and shelter it. And we’ll do that this year, too.

Again, the real challenge here will be managing net working capital build, should the activities spike the way some are projecting..

Understood. Thanks a lot..

Thank you, Sean..

Thank you. Our next question is coming from George O’Leary of Tudor, Pickering, Holt. Please go ahead..

Good morning, guys..

Good morning..

Good morning..

On the commentary around private operators, we’ve noticed that phenomenon to certainly in the – on the rig count side of the equation where we kind of drill down on who is adding.

I wondered if you could frame how much of revenue or job mix for Nine comes from those private operators as we sit here today?.

So what I’ll frame for you is that 70% – roughly 70% of this company’s revenue comes out of the Permian. So that’s just an important fact. When you think about like the Haynesville, of course, we’ve got a lot more private operators there that we work for.

The point is, is I think the private operators could be a great driver for incremental revenue for us. We have a good diversification between large independents and super majors all the way down through private. So to answer your question, we will get a kick, a big kick if the privates decide to speed it up. But I don’t want to be overly bullish.

And I do think there is a lot of third degree burns out there. And I think people are going to be careful about risking capital. And I think there is going to be more of a pause than we’ve seen in previous – in our past history in the oil patch. So again, obviously, as we all know, OPEC+ is making this market for us right now.

And I think last year, March 7, none of us were anticipating Russia and Saudi opening this tickets. So when you have something looming over your head that can change within 24 hours, I think it just causes pause and so really important to keep that in mind. And I think that goes for a lot of private operators as well..

Great. That’s helpful. And then the margin expansion with respect to tools that you spoke about in one of Sean’s questions.

Just curious the driver there, is that more manufacturing process driven, lowering the cost to input materials? Kind of what are you guys doing specifically to reduce the costs and up the margins on the completion tools side?.

Sure. So yes. So just to reflect on that a minute, of course, we took a waiving $10 million hit there on inventory in Q4. So it really completes the margins and the profitability of the corporation. As we always do, we first want proof of product. We want to get that product down whole, both on the composite side as well as on the dissolvable side.

We want to make sure anything that we’re doing that’s new is working first. And then we start engineering down the costs. And that can be through minor design changes, it can be through vendors. And so those discounts are showing up in all of those ways. We’ve codified that internally.

We have great confidence in it, and it’s, again, a material change in margin that I’m very confident will be reached by the year-end. So that’s forthcoming.

We’re also transitioning our customer base to some of our newer technologies, which is margin enhancement from some of the legacy products also some of those that were "streamlined" inside of that inventory write-down. So you’ve got a lot of moving parts there.

Some of that, George, would have happened more quickly if we didn’t have the market that we were faced with in 2020. So this is – it’s a little bit slower than we would like. But again, lots of margin enhancement coming through the switch of new products, engineering down the cost and working with vendors.

So, we are very pleased with what we see when we put pen to paper on those products by year end..

Great. I’ll sneak in one more, if I could. You guys touched so many different parts of the wellbore from construction to completion.

Just curious if you’re seeing any notable changes in well design as we look at kind of the runway for 2021 year-over-year versus maybe a more normal year in 2019? Anything you guys are seeing that’s interesting would be much appreciated?.

Sure. I think we’re not seeing much in the way – I would say not material changes in well design. We are seeing, of course, operators continue, I would say, to push out the lateral length and want to play around with 3-mile laterals. From an efficiency perspective, you’re seeing folks play with simul fracs.

But other than that, George, we’re not seeing any new kind of start-ups sprinkled across here. So I think it’s getting back to normal and figuring out what the spend should be for our customers, but we’re not seeing material changes to completion designs..

Thank you, Ann..

Thank you..

Thank you. Our next question is coming from Chris Voie of Wells Fargo. Please go ahead..

Thanks. Good morning..

Thank you..

Just maybe another question on completion tools obviously, it’s a big driver of your margins.

Just curious if you think after this kind of pricing decline, if you could get to maybe prior cycle margins, which I think were 30% plus, maybe 40%, is that achievable? Or do you need really strong growth in activity going forward for that to be possible?.

I think it’s achievable. I think it’s going to depend on volumes as well. So again, in completion tools, there is a bunch of different aspects here. But obviously, as volumes increase, you get more leverage through your supply chain. So that’s one aspect of it.

I think the margin is something we’ll see if we can get those margins back to where they need to be as far as pre-pandemic levels. So that’s something that we are also wondering about. It’s a very good question. As you well know, we never anticipate the price coming back.

So our history over the past 8 years or so with completion tools has been that the price comes down, it doesn’t reset higher. So then, therefore, you’re going to have to get it through margin enhancement on the product and/or volumes and leverage through the supply chain..

Okay, thanks. That’s helpful. And then curious, you mentioned simul frac. That’s obviously an interesting area now that potentially could grow.

Does that, in your mind, kind of dovetail with the increased use of dissolvables? Just curious what you think your participation is on those kind of jobs and if that’s an opportunity or kind of not really impactful?.

I think dissolvables, where that just fits into is just the broader theme of U.S. operators striving for greater and greater efficiencies. And what it just reminds me of is that every time folks question whether they can get more efficient, they come up with – or service and E&P come up with ways to get this land more efficient.

So I think dissolvables play into the efficiencies, certainly, we believe that, especially with the cost of dissolvables coming down, and our incredible science behind our dissolution. So the predictability of the dissolution is so darn good now.

That – now that price point is coming down in some ways, you could ask why would people not use the dissolvable because the time efficiencies created are huge and of course, the green nature of dissolvables and the lack of safety risk without human beings sitting up there, drilling out plugs under pressure is huge.

So I think all of this points in the direction of increased dissolvable adoption. And as painful and hideous and wicked as 2020 was, the one thing it will force this company to do is live within a very cheap dissolvable price and drive a margin. And that, therefore, we think, in the medium term, drives adoption of the dissolvables.

Because remember, the hurdle, there was always price. But so it doesn’t directly – there is not like a direct correlation between simul fracs and dissolvables, but I think generally, a point to these operators searching for efficiency..

Okay. That’s helpful.

And maybe I’ll squeeze in one more here, but I wonder if you could comment on the M&A landscape, but just the tenor that you’re seeing in Nine’s appetite for any kind of combination?.

Yes. I mean I think we – certainly, our history has been through organic and M&A growth. This team is always eyes wide open to new technologies. And again, we did a really key acquisition of the Scorpion Plug product in August of 2015 when nothing seem doable and the next few quarters look as dark as they actually ended up being. So it’s not impossible.

It’s something we’re always pursuing. And I think, generally, of course, the oilfield service sector knows that we’ve got to get some power and some margin enhancement, and there is a lot of us out there. So I would say we’re all considering a bunch of different options for going forward..

Thank you very much..

Thank you. Our next question is coming from Waqar Syed of ATB Capital Markets. Please go ahead..

Thank you for taking my question. Good morning, Ann, Guy and Heather..

Good morning..

Ann, could you comment on international markets, what’s the outlook there and are you having any further market penetration there in Latin America or Middle East?.

Well, thank you for asking that question. We are, in fact. So, if you had asked me when we purchased Magnum, if we would be selling dissolvables into the Middle East? I would have said, wow, that’s ambitious, but we are. And so yes, we are getting market penetration there.

And we are also working on some other tool strings, which I won’t be specific about specifically for the Middle East. So that’s an area of great focus for us. We do sell-through to Argentina. And so that’s something that we’re also excited about. So I do expect that, that grows for us..

Okay. And then in terms of correlating U.S. E&P budgets versus your own revenue projections. If we look at your quarterly run rate for last year, it comes out to be about $78 million. And it looks like that if you have another 25% type revenue growth, first quarter could look like that quarterly run rate for last year.

So your revenues should potentially be higher year-over-year, even though U.S.

E&P budgets could be lower, is that reasonable?.

We’re not guiding forward at this point in time. So I’ll just – I’ll leave that question to the side. I will just remind you, too, of course, as I said, that Q1 had a couple of different factors with the slow start in January as well as the winter weather storm. But again, we’ll leave the forward guys to decide for a minute there, Waqar..

No.

But when you said that the pace in the first quarter would be higher, did you mean that if you grew at 25% in the fourth quarter, the growth rate is going to be higher sequentially in the first quarter? Am I misunderstanding that?.

Waqar, it’s Guy here. I think what we’re saying is just that the – we’re seeing the rig count improve and basically, activity levels are increasing. And so putting aside weather issues in a January slow start, things are starting to pick up. And so the rate of activity is higher than it was before. Sorry if that was unclear and unclearly worded..

So what you’re saying is the absolute level of activity is higher versus the fourth quarter, but the sequential rate of change may not be? Am I putting it correctly?.

The absolute level of activity is higher now. And yes, I mean we’re not guiding whether our revenue will be tracking or not tracking the activity increases proportionately. So we’re not guiding Q1 in any way, yes..

Okay.

And then you mentioned there is a small amount of growth CapEx in our CapEx budgets, could you maybe break that down, what that is? What the growth CapEx is?.

Sure. I’m not going to be very specific here, Waqar, but what I’m going to tell you is it’s some new plug-in electric technology we’re working on..

Okay. Okay.

And when do you – when should we be expecting to hear more about that?.

Yes..

Okay. Thank you and appreciate that..

Thank you, Waqar..

Thank you. Our next question is coming from John Daniel of Daniel Energy Partners. Please go ahead..

Hi, good morning. .

Good morning, John..

No modeling questions or questions for me.

Ann, can you just qualitatively or just discuss the near-term outlook, if you will, between coil, wireline, cementing? Just really where you’ve got better relative visibility? And is it basin-specific, customer-specific, just some of the trends there, please?.

Sure, sure. Yes. So I mean, it’s not going to be a surprise to you, John. You know these basins so well. But as far as basins go, the trends certainly in the Permian are looking quite nice. And I would say, we’ve got all our service lines represented there. So that’s really across service lines from an activity perspective.

I think when you think about pricing going forward, which one is moving faster, we are seeing our depreciation-based service lines moving more quickly in price. And I think that’s – of course, you’ve got a market that’s really constrained by liquidity.

So when you think about our medium and long-term strategy of being asset-light, at the moment, that works against you because the asset-light business lines you can come in and out of, and you don’t impede your liquidity or you’re not trying to find a dollar of cash to do that.

Whereas those coil in those cement spreads are expensive, they are expensive to maintain, their expenses keep working. And so you’re seeing more pricing traction in the depreciation-based service lines. So I’m not sure if that answers your question. Pricing across the board, as you’ve talked about, and you know so well.

It’s just not where it needs to be for the service sector, hasn’t been for some time. But I would say if I had to call which horses are leading the pack right now? It’s cement and coil.

Did that answer your question?.

That’s good enough for me. Thank you..

Okay..

The last one just comes back to ESG.

And I don’t know if you can do this or not, but do you have a – can you hazard a guess, like how many of your customers today are using some sort of ESG score as they procure their services? And just how do you see that playing out a year from today and do the private even care? I think I know the answer a lot, but just I will let you….

Yes. Okay, sure. So I think most of the private, I’ll be careful not to say that they don’t care, but they don’t care. And the publics, yes, most of them have scorecards. We think that pressure increases. And I think they know that allocation of capital to them will be really hampered if they can’t demonstrate that they are first movers in being greener.

And so I think that becomes more and more pronounced. And I don’t see that tailing back. So that’s something we’re very focused on. And once it goes to compensation for our customers, which for many of them, it has, as we know money talks. And people will drive toward those compensation metrics. So we expect that continues..

Okay, got it. So that’s it for me. I will – couple offline when you have some time. Thank you very much..

Thank you, John..

Thank you. At this time, I’d like to turn the floor back over to Ms. Ann Fox for closing comments..

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