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00:03 Good day and thank you for standing by. Welcome to the Cactus Fourth Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded.

[Operator Instructions] 00:25 I would now like to turn the call over to our speaker today, John Fitzgerald, Director of Corporate Development and IR. Please go ahead..

00:33 Thank you, and good morning, everyone. We appreciate your participation in today's call. The speakers on today's call will be Scott Bender, our Chief Executive Officer; and Steve Tadlock, our Chief Financial Officer.

Also joining us today are Joel Bender, Senior Vice President and Chief Operating Officer; Steven Bender, Vice President of Operations; and David Isaac, our General Counsel and Vice President of Administration.

01:00 Please note that any comments we make on today's call regarding projections or expectations for future events are forward-looking statements covered by the Private Securities Litigation Reform Act. 01:12 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.

Any forward-looking statements we make today are only as of today's date, and we undertake no obligation to publicly update or review any forward-looking statements. 01:44 In addition, during today's call, we will reference certain non-GAAP financial measures.

Reconciliation to these non-GAAP measures to the most directly comparable GAAP measures are included in our earnings release. 01:56 And with that, I will turn it over to Scott..

01:58 Thanks, John, and good morning to everyone. Our business improved materially during the fourth quarter, and I was particularly proud of the returns achieved in our product business line in light of supply chain challenges.

As mentioned on our last earnings call, we made a conscious decision to proactively add inventory and people believing that activity gains were on the horizon. 02:20 As a result, we are now well-positioned to capitalize on further growth in our industry.

Some fourth quarter highlights include, revenue increased 13% sequentially outpacing the gain in the U.S. land rig count. Adjusted EBITDA improved by 14% sequentially. Adjusted EBITDA margins were 28%, up 50 basis points versus the third quarter.

02:44 We paid a quarterly dividend of $0.10 per share, and we ended the quarter with 302 million in cash and no debt. Following the quarter, due to our financial strength and performance to the cycle, our Board increased the quarterly dividend by 10% to $0.11 per share.

03:00 I’ll now turn the call over to Steve Tadlock, our CFO, who will review our financial results. Following his remarks, I'll provide some thoughts on our outlook for the near-term before opening the lines for Q&A.

Steve?.

03:14 Thank you. As Scott mentioned, Q4 revenues of 130 million were 13% higher than the prior quarter. Product revenues of 84 million were up 12% sequentially, driven primarily by an increase in rigs followed.

Product gross margin is at 35% rose approximately 100 basis points sequentially as continuing cost recovery efforts reduced the impact of inflationary pressures across the supply chain.

03:40 Rental revenues were 19 million for the quarter, up approximately 26% versus the third quarter of 2021 and gross margins increased 11 percentage points sequentially, due primarily to lower depreciation as a percentage of revenue. 03:55 Field service and other revenues in Q4 were $27 million, up 7% versus the third quarter of 2021.

This represented 26% of combined product and rental related revenues during the quarter. We expect field service revenue to remain approximately 26% of product and rental revenue in the first quarter of 2022.

04:17 Gross margins were 18.1%, down 470 basis points sequentially with the reduction largely attributable to the seasonal impact of the year-end holidays, lower utilization associated with the aforementioned new hires, and overtime required to meet increased activity levels as contributions from our new hires take time to materialize.

04:38 SG&A expenses were 12.9 million during the quarter, up 0.7 million versus the third quarter. This sequential increase was primarily attributable to higher payroll related costs, driven by employee benefits, and a higher bonus accrual. SG&A expenses declined to 9.9% of revenues, down from 10.5% during the third quarter of 2021.

04:59 We expect SG&A to approach 14 million in Q1 2022 inclusive of stock-based compensation expense of approximately $2 million. Fourth quarter adjusted EBITDA was approximately 37 million, up 14% from 32 million during the third quarter of the year.

Adjusted EBITDA for the quarter represented over 28% of revenues, compared to 27.7% for the third quarter. 05:24 Adjustments to EBITDA during the fourth quarter of 2021 included approximately 2 million in stock-based compensation. Depreciation expense for the fourth quarter was 8.8 million, a similar amount is expected for the first quarter of 2022.

05:39 We reported income tax expense of 7.1 million during the fourth quarter, which was inclusive of 1.3 million in income tax expense related to the revaluation of our deferred tax assets. The fourth quarter also included 1.9 million in other income related to the revaluation of our tax receivable agreement liability.

05:57 During the quarter, the public or Class A ownership of the company averaged 78% and ended the quarter at 78%. Barring further changes in our public ownership percentage, we expect an effective tax rate of approximately 22% for Q1 2022.

06:14 GAAP net income was $20 million in Q4 2021 versus $17 million during the third quarter with the increase driven by an increase in operating income. We prefer to look at adjusted net income and earnings per share, which were $18.7 million and $0.25 per share, respectively during the fourth quarter versus $14.7 million and $0.19 per share in Q3.

06:36 Adjusted net income for the fourth quarter excludes 1.9 million in other income and applies a 27% tax rate to our adjusted pre-tax income generated during the quarter. We estimate that the tax rate for adjusted EPS will be 27% during the first quarter of 2022.

06:52 During the fourth quarter, we paid a quarterly dividend of $0.10 per share resulting in a cash outflow of nearly $8 million, including related distributions to members. As stated earlier, the Board has now approved a dividend of $0.11 per share to be paid in March. We ended the year with a cash balance of $302 million.

07:10 For the quarter operating cash flow was approximately 12 million and our net CapEx was 3 million. Inventory rose by approximately 19 million, sequentially, due to the doubling of inventory and transit caused by logistical headwinds, increased freight costs, and the previously mentioned strategic decision to increase safety stocks.

This leaves Cactus in a strong position and able to respond to increased industry demands while affording us better [margin protection] [ph]. 07:36 Working capital and outflows are expected to moderate in Q1, which should benefit cash flow relative to the fourth quarter.

Capital requirements for our business remain modest and we will continue to exercise discipline with regards to growth expenditures. 07:50 Our net CapEx guidance for 2022 is $20 million to $30 million. This is inclusive of an expanded R&D facility, enhancements to our Bossier facility, and additional drilling tools and digital related rental assets.

We expect some of the larger ticket items to occur during the first half of the year. 08:08 That covers the financial review, and I will now turn you back to Scott..

08:12 Thanks, Steve. As previously mentioned, we reported sequential revenue growth across all of our revenue categories during the fourth quarter with total company adjusted EBITDA margins at their highest level of the year.

We reported market share at 42% during the period with most of our rig additions coming from public operators during the quarter. 08:32 Product EBITDA margins improved by 90 basis points in the fourth quarter and incremental product EBITDA margins were above 40% during the period.

Looking to the first quarter of 2022, we anticipate Cactus’ rigs followed to increase by at least 10%. As customer budgets have reset, public operators have modestly increased drilling activity after [seeding] [ph] share to private companies during the last two years.

08:58 Nonetheless, we still expect privates to contribute to the majority of rig gains and to a lesser extent wells drilled. During the first quarter of 2022, product revenue is expected to increase at least 5% sequentially and we anticipate product EBITDA margins to be up approximately 100 basis points.

09:19 Commodity prices remain supportive of continued rig activity increases, while margin performance will be a function of our ability to manage inflationary cost pressures. Rig efficiencies have declined in recent months, due to the service industry supply chain disruptions, and the mix of our activity gains across customers and basins.

09:40 On the rental side of the business, revenues increased by over 25% during the fourth quarter, outperforming the modest gains and overall domestic completion activity. We achieved modest rental growth in the Middle East during the fourth quarter as well. Domestically, the supply and demand dynamics continue to improve, which bodes well.

09:59 In the Mid East, equipment deployments have increased in recent weeks following a pause and activity to start the year. Importantly, we were formally approved as a vendor for Aramco in February, which will allow us to pursue additional opportunities.

For the first quarter of 2022, revenues in our rental business line, are expected to increase by another 15%. EBITDA margins are anticipated to be in the high 50% range during the period.

10:27 In a market where the service industry may begin to struggle meeting the needs of the E&Ps due to equipment and labor shortages, our reputation for reliable equipment, safety, and service execution continues to separate us from our peers. 10:43 In field service revenues continue to be driven by both our product and rental activities.

Revenue as a percentage of product and rental is expected to remain at 26% during the first quarter, labor rate inflation, as well as lower labor utilization due to employee onboarding, represent a headwind to margins.

11:04 However, we still expect field service EBITDA margins to increase into the mid to high 20% range during the first quarter, provided the rate of personnel additions moderates. 11:16 I like to close our prepared remarks by highlighting a few key points.

We are expecting our first South American product equipment shipments to occur during the first half of this year. In this instance, we are supplying equipment to a major international operator. This demonstrates our ability to expand geographically with limited capital requirements.

11:36 Regarding the Mid East, our efforts to penetrate this market continue as we progressed our efforts to secure trial orders in markets where we believe there are prospects for reasonable margins. 11:51 There's been no change to our position regarding M&A.

Our view regarding consolidation within our industry has not changed while opportunities beyond our core offerings have increased. Our team will carefully monitor and evaluate such opportunities to the extent they become available. 12:09 In January, we were pleased to announce a 10% increase in our quarterly dividend rate to $0.11 per share.

This was our second such increase in less than a year and demonstrates our commitment to returning capital to our shareholders. We continue to evaluate our capital return strategy on a regular basis and remained highly aligned with our shareholders given the management team’s significant stake in the business.

12:34 In summary, Cactus remains optimally positioned to succeed in the current industry recovery and is focused on maintaining our excellence in safety, technology, service and execution. 12:46 And with that, I'll turn it back over to the operator so that we may begin Q&A.

Operator?.

12:53 Thank you. [Operator Instructions] Our first question comes from David Anderson with Barclays. Your line is open..

13:08 Hi, good morning, Scott..

13:10 Hi, David.

How are you?.

13:11 I'm doing well. I'm doing well. So, question about Bossier, I think you were mentioning putting some CapEx in that facility. So, if I go back to, I think 2019, I think your manufacturing was something like 60/40 China and Bossier. I know this kind of edged back in recent – over the last couple of years.

So, how are you thinking about this, kind of going forward? Do you think this is going to be more of a secular change where it is an increasing advantage to have more local manufacturing at least to Bossier and kind of building out that mode? And maybe you can just expand a little about some of that CapEx you're spending if you wouldn't mind to provide a few more details? Thanks..

13:47 Yes, David. I think the problem that we've had – we had anticipated that Bossier might presume a larger role in our manufacturing profile, but business increased to the point where it was sort of falling to expect that to happen. So, we continue to rely pretty heavily on our [indiscernible] supply chain.

The additions that are taking place in Bossier right now are more related to our ability to process incoming goods from the Far East and as well as frac valve repairs as opposed to new manufacturing. 14:23 We still have some capacity to manufacture, particularly for these gap parachute orders.

So, I wouldn't look for anything significant in terms of our manufacturing profile..

14:38 And then you talked about the, kind of supply demand getting much better in that rental business and clearly it's starting to pick up. I was just curious in terms of CapEx, I guess last time we were talking about, this was back in 2019.

I'm just kind of curious, kind of when that starts to become a question, in terms of your capacity? And secondarily, I'm just curious, does that rental capacity change? I mean, completion technologies and completion techniques have evolved with things like Simul-Frac, I'm just curious, is there something that needs to be upgraded or like a new type of equipment that you have to invest in just a little bit more details around on that mark? We don't hear a ton about that.

So, I'd love to learn a little bit more..

15:19 Yes. So, we're not seeing a whole lot of Simul-Frac activity, not enough to really change our strategy and answer your question about, has it changed our equipment offerings, I'd say, not to any significant extent. 15:35 Beyond that, the supply demand dynamics are improving.

And I think we all believe you noticed that we've raised our CapEx expectations to the $20 million to $30 million range.

I mean, we're clearly as things stand now at the lower of that 20 million to 30 million range, but fingers crossed, we're expecting, anticipating, hoping that we’ll begin to have to add some large 15,000 PSI valves as we move into the second half of this year.

16:13 And as a result, we also believe that this might finally put some pressure on our competitors to maybe be more realistic in their pricing..

16:27 I was going to ask you as well.

So, pricing is a consideration in that calculation obviously, in terms of …?.

16:34 Yeah, we're not going to add assets unless we see that the pricing has improved..

16:37 Yes. Thanks Scott. Appreciate it. Thank you, David..

16:42 Thank you. Our next question comes from Chase Mulvehill with Bank of America. Your line is open..

16:47 Chase?.

16:49 Hey good morning, Scott..

16:49 How you doing? Can you speak up a little bit?.

16:54 Yeah. Yeah.

Is better or worse?.

16:57 It’s better..

16:58 Better. Alright. I’ll try to be loud.

I’ll get my AirPods in, so hopefully that’s not it, but I guess first question, we keep hearing a lot about supply chain friction on the completion side, whether it’s with trucking or sand and we heard about some pressure pumpers having some rough fourth quarters and some of that kind of continuing into the first quarter and just miss and you’re slow in some jobs because of the supply chain constraints.

Could you talk to, you know if you're seeing that out there on the completion side, obviously, your revenues were up strong on the rental side, but what are you seeing from friction out there on the completion side? And do you think that this could actually hold back completion activity as you look over the near-term?.

17:45 Hey, Jason, Steven. We're certainly hearing about issues, the trucking, and sand, maybe we're just fortunate that the clients for whom we're doing business haven't been constrained by that so far, but I think that it's probably just going to continue to get worse through the first quarter, but so far, we haven't seen it affect our clients..

18:06 Okay, alright. Perfect.

A follow-up is on the rig side, you are seeing pretty constructive near-term right activity, you know basically saying that the cadence of rig adds should continue, but as we kind of look out to the back half, what kind of visibility do you have? What are your thoughts on back half activity? And you offer a number out there and I’d be curious on your thoughts and do you think we can add another 100 horizontal rigs between now and the end of this year?.

18:36 Whoa. [Indiscernible] You know that, will there be a desire to do so? I think there will be a desire to do so. Can we is another question entirely. I think that we all know that there's some significant supply chain constraints right now. We're hearing all sorts of [horror stories] [ph] from our customers.

You know the story of tubulars people are struggling to get the right tubulars on time. They are having to make substitutions. 19:14 We are seeing some rig efficiencies begin to deteriorate, which, you know, it could be a – is attributable to several factors. I'm probably going to answer – I'm probably going to expand my answer beyond your question.

Part of that, of course is the basins, different basins have different efficiency profiles.

19:37 For example, the mid-con slower drilling than perhaps South Texas or the Northeast slower drilling than the Permian, but I think in our view, things at the rig side have slowed down, all things being equal strictly because problems with personnel breakdowns. It's, I think the industry is a bit stressed right now.

20:05 So, when I look at, for example, our customer profile, we added, I guess, I can say this, you know, most of our additions during the period were for majors. We finally turned that around to a lesser degree from private. I think the majors will probably slow down their rig additions in the second half of the year.

20:27 I think the privates will probably hit this level of oil at as many rigs as they can, but the privates are also as you know, no surprise. Less efficient, which translates for us and the less wells per rig per month. 20:43 So, that was my long winded way of saying that, yes, I think there's a desire for 100 rigs.

I don't think, I'd be surprised if the industry can handle it right now with the same level of efficiency..

20:57 And when you [say majors] [ph], you really are referring to the public?.

21:00 Yes. I'm sorry. I meant the public. Yes..

21:05 Perfect. I'll turn it back over. Thanks, Scott..

21:09 Thank you. Our next question comes from Scott Gruber with Citigroup. Your line is open..

21:14 Good morning Scott..

21:14 Good morning..

21:16 How are doing?.

21:17 Doing well. Doing well. So, the rental business is starting to turn, which is good to see. You guys obviously seeded share in rental during the last downturn when prices were just not attractive.

And we got the guide for 1Q, but beyond 1Q, should we expect double digit type growth continuing for a few more quarters in that business, especially given the step up in CapEx?.

21:45 Yes. I would say yes, given what we're seeing right now..

21:50 Got it. Good, good. And then just looking back at the profitability of the business, the 1Q incrementals looks solid, but I look back at 2018, 2019, the segment averaged about [not 70%] [ph] margin.

And I know there's a lot of puts and takes today, but as we look at a few more quarters and kind of think about the margin improvement this cycle, is that level of profitability achievable again?.

22:22 We're talking about rental I hope, when you say 70%..

22:25 Yes rental. Yes..

22:27 Yeah, I know you are, Scott. That was a lousy joke. Prices are still pretty lousy in the rental market. And they are, let's say the pricing is coming back, but it's coming back much slower, but at least it's coming back. And so, is 70% achievable? I believe 70% is achievable. Is it achievable this year? I don't think so.

22:55 I mean, I think that our objective is to get back to 70%, but I'd be looking, and it's so easy for me to say this to you, Scott, in 2023, I just, the market is absolutely tightening for high quality products and services. It's just that it's a highly fragmented market still.

So, it's going to take a bit of time, but I think we all see the light at the end of the tunnel now. Just don't count on it for this year..

23:27 Yes. Not this year, but in the years ahead if the market is down. [Indiscernible] Okay. I appreciate the color. I’ll turn it back. Thanks Scott..

23:38 Thank you. Our next question comes from Stephen Gengaro with Stifel. Your line is open..

23:44 Thanks. Good morning, everybody..

23:46 Good morning..

23:48 Two things.

Just to start with, can you sort of the relationship between the 10% plus growth in rigs followed and sort of the revenue comment on products, up at least 5%, can you just talk about that in the context of what appears to be improving prices?.

24:11 Well, you know, there's a delay between, when rigs, we had rigs and when we recognize product revenue. So, I mean just to be clear, prices are not going down. So, don't think that because rigs follow, go by 10 product revenue goes up by 5, that that’s a reflection of pricing. It is absolutely not.

It's really a reflection of how quickly we can get – how quickly equipment goes out to these rigs. 24:41 The other issue is that pad sizes are increasing. And as pad sizes increase, the deployment of our wellhead equipment extends as well. You can probably, I’m sure that that makes sense to you.

24:56 So, pad sizes over time are our friend, but over the short-term when we're adding rigs are not necessarily that breaks down the correlation between revenue growth and rig growth, but you can assume that over the medium-term, product revenue will more than increase with rigs followed..

25:22 Great. Thanks for the clarification. That was, sort of my assumption, but I wanted to make sure I was thinking about it correctly.

The other question I had was in 2021, you guys appear to do a very good job of capturing some share on the product side from the private, so you obviously historically had a lower share with, how is that evolving as we look into 2022, specifically? I mean, we know you're extremely strong with the public how is it evolving in conversations with the private right now? And how should we be thinking about that in 2022?.

26:02 Yeah, I think that our progress with the privates will continue. We’re never going to be as popular with the privates as we are with the public. So, it's select group of privates, mostly made up of our friends who've exited the publics and gone to work for the privates.

But I think that it's also important to realize that this team did a Herculean job in the fourth quarter of making deliveries. 26:32 So, I think we may be one of the few service companies of which I'm aware that never missed a delivery, which is incredible.

We came close, paint was drying on the trucks is the equipment [love of plant] [ph], but we never missed a delivery.

26:48 What that meant of course is that like it or not, we couldn't be nearly as aggressive in pursuing some of these less high profile accounts because we made a pledge to our core customers and we made personal pledges and I mean the vendors, that we would not miss a delivery. And so that made for some difficult choices.

27:13 I'm happy to say though that particularly in January and early February that we're much better positioned to chase some additional private activity than we were in the fourth quarter of 2021. So, that's my long winded way of saying, I'm feeling much better about our ability to add privates than I did at the end of last year..

27:40 Great. Now, that's helpful. The consistency of results is impressive, and I know a lot goes on in the backdrop that You added some color to it. So, I appreciate that..

27:54 Thank you..

27:55 Thank you. Our next question comes from Ian MacPherson with Piper Sandler. Your line is open..

27:59 Thanks. Good morning, Scott, Steven..

28:01 Great, thanks.

How are you?.

28:03 Great. So, we've all been chasing the rig count higher than we thought it be ripping so far and arguably that's had nothing to do with the recent leg up on oil prices, right. We've gotten to 630 rigs, probably on the price deck that we saw in Q4. And let's just be hypothetical.

And if we don't get any relief in the oil market balances and higher oil prices here to say, the market is asking the U.S. to grow much more beyond this year. 28:38 And not only that, we've seen below growth ads in the Permian, which is supposed to be a growth engine. So, if we break out to a higher call in U.S.

rigs next year, 23 and 24, where is Cactus on capacity? Because you're already getting close to recapturing your prior Cactus rig count from 2019 when we were at a 1,000 rigs and you were in the high two hundreds because you've taken so much share.

So, if we get to that higher normal, what would that require from you to keep pace with that?.

29:11 Well, in terms of manufacturing capacity, I think you may have heard on previous calls that we have to say virtually on limited capacity in the Far East, but we have a lot of capacity in the Far East.

So, our problem or I should say Joel’s problem with manufacturing hasn't been so much getting parts made and manufactured, it's been getting him to the U.S.

29:37 So, if we assume, which I think is fair to assume that the ocean freight situation is going to get better towards the end of this year, not better right now, but if we begin to see in transit times go down, this can't last forever.

Then, I'm not really too concerned about our ability to produce the goods and get them the market, our real concern is people. 30:08 Do we have enough people to satisfy demand. So.

our hiring this year has been pretty remarkable in terms of particularly in terms of field service technicians, and it's continuing at a pretty phonetic pace, of course that impacted our utilization. So, I think we're going to be labor constrained. However, we always find a way. 30:36 I like to think that we are the employer of choice.

We treat people fairly. We pay them a fair wage. We allow them to make as much over time as they can safely make it's a very good work environment. So, to the extent they're out there and willing to work, I think we'll be able to attract our fair share. Attracting them fast enough, I can't mislead you, it's been a problem.

And I think we'd all agree those of us in the room that that is what consumes most of our time right now, the people issue not the product issue right now..

31:16 Okay, that makes sense. Thanks. Well, congrats on the qualification with Aramco, and I think you also said, you your first South American shipments expected later this year.

Can you speak to the scalability of international business organically? And I mean, I would imagine this is not a material amount of product sales for this year, correct me if that's mistaken, but where you see the runway for those markets over the next few quarters?.

31:45 Yes, it's not a token amount. I don't want to over play it, but it’s putting nice order. And we sort of have expectations that this order in South America could turn into something much more substantial. I don't want to tell you when, because I don't know when, but I'm pretty optimistic about that. 32:07 Nicely it's being made in Bossier City.

So, we're not having to rely upon or compete with the logistical headwinds that we have coming out of the Far East. In terms of the mid-East, you know the runway in the mid-East, you know how large that market is. The attractive markets require trials and we're in the middle of getting those done. 32:34 So, I think the runway is pretty substantial.

We are of course, very cognizant of our commitment to our customers here in the U.S. And we're also cognizant of the fact that margins and returns are still better. So, if you have a finite amount of equipment that you can get across the ocean, you know how we are, we're going to send that equipment.

We received the best returns, but having said all that, our long-term plans have not changed in terms of international expansion. I'd like to be more specific, but we have competitors who listen of these calls..

33:15 No, that's great. I appreciate it. Thanks, Scott..

33:21 Thank you. Our next question comes from [Taylor Zurcher] [ph], Tudor, Pickering, Holt & Company. Your line is open..

33:27 Hi, Scott team. I just had a follow-up on the international expansion comments you made there.

So, qualify with Aramco, obviously, you can deploy rental equipment via NEST and Saudi Arabia, but on the wellhead side, just curious now that you're qualified with Aramco, and how we should be thinking about potential well-head penetration for you guys and Saudi moving forward?.

33:47 Yeah, Taylor, that's a good question. I should have been more clear. The approval for Aramco is for rental. Not for well-head equipment..

33:56 Got it. That's helpful. All right..

33:58 The wellhead equipment is much – those are the trials that were involved in initiating now. It's a much longer process..

34:05 We were generating revenue in Q3 and Q4 on a trial basis. And so now we should be able to deploy more equipment..

34:12 That's right..

34:14 Okay. Understood there. And unrelated follow-up on working capital, inventory balance, and I think at all-time highs and there's good reasons for that, which you highlighted.

Just curious, moving forward how we should be thinking about inventory? I mean, are you going to have to keep building that balance up over the course of 2022 to navigate the supply chain or are we sort of at peak levels in and around today or Q1?.

34:40 Yeah. I think we have a little bit more to go, but like we said in the script, it should be moderating in Q1. So, really in Q4 we just had a tremendous amount on the water, much, much greater than we’d ever seen. And then in addition, embedded in that inventory number is higher freight costs as well.

35:02 Like Scott mentioned, you know those are starting to moderate. We expect them to come down over time, but they haven't come down as much as we would like obviously. And I think we'll be in a better place starting in Q2 to say, we've reached a peak..

35:19 Understood. Thanks for answers..

35:22 Thank you. [Operator Instructions] Our next question comes from Cameron Lochridge with Stephens. Your line is open..

35:30 He good morning. Thanks for taking my questions..

35:33 Hey, Cameron.

How are you?.

35:34 Doing well. Thank you.

How you guys doing?.

35:37 We're doing great..

35:39 So, I guess I'll do the honors and ask on M&A and the cash balance. Maybe if you can just speak to what you're seeing in terms of the pace of the [indiscernible] valuations, geographic expansion, you'd even share there.

And then just to refresh for some – where are some of your top considerations if you look at, as you're betting some of these deals?.

36:03 Yes, Cameron, I don't think anything has changed. We have not given up on industry consolidation. So, that's our number one priority. And importantly, I don't think the industry has given up on industry consolidation.

In terms of valuations, yes obviously, the valuations are going to be higher today than they were this time last year, but our currency is also more valuable today than it was this time last year. So, I don't really consider that to be an impediment to getting a deal done. 36:40 The impediment is finding the right deal.

So, I also think that we're seeing, as I mentioned, more deals that are outside of our sort of core offering, but still meet the criteria of being engineered products, manufactured products, products that are sold to end users, rather than service companies and products that can be distributed to our 15 field service locations.

37:16 We are absolutely seeing more of those opportunities out there. I don’t know if it’s – private equity is decided? Well, I'm sure it is. Private equity has decided, maybe now is the time to monetize after they've probably given up hope over the last couple of years.

So, there are certainly more opportunities and we're, sort of in [indiscernible] position of having a cash balance and a valuable currency..

37:49 Yes, that's great. Thank you, Scott. And then as a related follow-up, just on the cash balance.

Wondering as we look into 2022, what we could expect to see just barring any M&A announcement and after the 20 million to 30 million CapEx, after the dividend, should we expect that? Can we expect that to – that balance to grow or is cash flow after the dividend relatively mutual?.

38:24 We would expect cash to grow barring any, like you said, M&A or further dividend increase. So, we're constantly evaluating what to do with that cash. Obviously, we've made M&A evaluation a priority. I think, we're – like Scott said, a buyer of choice and there's not that many buyers for some of these businesses that are looking to sell.

So, we'll continue to be selective and evaluate further capital return initiatives. 38:53 We've been clear before. We don't really like stock buybacks. We think they're typically done at the wrong time. So, barring that, it's further increasing regular dividend or looking at some sort of variable structure, akin to what the operators are doing..

39:10 Makes sense. All right. Thank you. I'll turn it back..

39:14 Thank you..

39:16 Thank you. And I'm currently showing no further questions at this time. I like to hand the call back over to the company for any closing remarks..

39:24 Thanks everyone for joining. Look forward to speaking with you on our next call..

39:27 Thanks everybody. Thanks for your support. Have a good day..

39:31 This concludes today's conference call. Thank you for participating. You may now disconnect..