Cypress Energy Partners' (CELP) CEO Pete Boylan on Q1 2016 Results - Earnings Call Transcript

| About: Cypress Energy (CELP)

Cypress Energy Partners, L.P. (NYSE:CELP)

Q1 2016 Earnings Conference Call

May 16, 2016 11:00 ET

Executives

Richard Carson - General Counsel

Pete Boylan - CEO

Les Austin - CFO

Analysts

Praveen Narra - Raymond James

Michael Hoffman - Stifel

Operator

Welcome to the Cypress Energy Partners First Quarter Earnings Release Conference Call. At this time, all participants are in a listen-only mode. I would like to now turn the call over to Richard Carson. Sir, you may begin.

Richard Carson

Thank you. Hello, and welcome to the Cypress Energy Partners first quarter investor conference call. I'm Richard Carson, the General Counsel. With me today is Pete Boylan, our Chairman and CEO; and Les Austin, our CFO. We released our financial results and posted the associated press release on our website cypressenergy.com. In the press release, you will find an important disclaimer regarding forward-looking statements. This disclaimer is integral to our remarks and you should review it. Also included in the press release are various non-GAAP measures that we have reconciled to Generally Accepted Accounting Principles. Those reconciliations appear at the back of the press release.

So with that, I will turn the call over to Pete.

Pete Boylan

Good afternoon. Thank you, Richard, and thank you for your interest in our company. Today we announced our first quarter operating performance and that we maintained and paid last Friday our distribution consistent with the same distribution per unit for last six quarters despite the continued challenging environment in the energy industry.

Last week we announced that we have made a number of cost reductions to right-size our organization for the downward and current level of business activity. In total we have reduced our cost structure by approximately $5 million. We were one of the last energy companies that was required to lay off good people as a result of the downturn and in hindsight, we should have taken these actions sooner. The first quarter was weaker than we have previously expected in all three segments as many of our clients adjusted their budgets and plans for 2016 during the quarter. After reviewing our results we concluded that it was time to both reduce our cost structure and for Cypress Energy Holdings LLC, CEH, and its affiliates, our sponsor to offer financial support in the form of release of the administrative fee under the omnibus agreement to demonstrate our commitment to CELP.

Fortunately, CELP's business does not require substantial capital expenditures and we have a solid balance sheet. We finished the quarter with approximately $26 million of cash and increase from the prior quarter. And we continue to have liquidity under our credit facility. We would also like to remind our investors that approximately 50% of our units from our IPO are subordinated and owned by CEH and those sub-units protect common unit holders who have the right to first receive available cash upto the minimum quarterly distribution before the subordinated unit holders would receive any cash distributions.

Our sponsor remains aligned with our common unit holders with approximately 65% ownership in CELP. As a result of this alignment as noted earlier, CEH step forward in support of the unit holders with temporary relief of the administrative fee paid to CEH pursuant to the omnibus agreement which would have charged $1 million to CELP during the quarter. The temporary relief will likely continue until the end of 2016 or as such earlier time that our business results improve as determined by CEH.

Our cost structure was adjusted in all three divisions to align it with our level of activity. We were previously stashed to handle over 2,000 inspectors as we did in 2014 before the downturn. These actions taken to right-size our cost structure that totaled over $5 million in annual cost savings are complete and should be seen immediately in the second quarter and future periods.

The pipeline inspection and integrity services business remains a great business that is federally mandated to protect our nation's critical energy infrastructure. The new proposed DOT PHMSA rules will materially benefit our business if enacted. We continue to win new customers and business that will surface in coming periods. We have also been able to capital on the energy downturn, hiring two new very experienced pipeline professionals to further strengthen our management team.

We continue to review acquisition opportunities while maintaining our disciplined approach to reviewing and evaluating these targets. Our sponsor, CEH, is also willing to finance attractive investment opportunities for future dropdown that are larger than what CELP can afford at this time. As a result, we believe we are not simply limited to small acquisitions, in fact, we continue to explore some transformational type of opportunities.

I would like to introduce Les Austin our CFO, so that he can walk you through the highlights on the financials.

Les Austin

Thanks, Pete. I would like to take a moment to highlight some of our financial information released today.

Adjusted EBITDA, which we define as net income plus interest expense, depreciation and amortization expense, income tax expenses, impairments, offering costs, non-cash allocated expenses, and equity-based compensation was $3.1 million, $3.2 million of which is attributable to our common and subordinated unit holders and adjusted EBITDA loss of $155,000 which is attributable to our non-controlling interest holders that owned 49% of our hydrostatic testing division.

Distributable cash flow for the first quarter was $1.8 million, and last Friday we paid a quarterly distribution of $4.8 million, or $0.406413 per unit, which represents a 4.88% increase over our minimum quarterly distribution, and is consistent with the prior six quarterly distributions. Our common unit coverage ratio was 0.77 times given that 50% of our units remain in subordinations following our IPO, providing protection of our common unit holders.

Net loss for the first quarter was $1.4 million comprised of $26,000 attributable to our common and subordinated unit holders, $367,000 attributable to our non-controlling interest holders, and $1 million attributable to our general partner.

In addition to the financial highlights on net income or net loss, adjusted EBITDA and distributable cash flow mentioned previously I would note that we continue to have over 85% of our revenues generated from investment grade customers, and have continued to win new business with additional investment grade customers that should be seen in future periods. More than 90% of our inspection clients continue to be investment grade. Our leverage ratio as calculated under our credit facility was 3.44 times versus our covenant of 4 times, and our interest coverage ratio was 3.92 times versus our covenant of 3 times with our cash position growing to $25.6 million in the quarter.

Based upon the relatively flat average inspector headcounts, we have experienced our -- the most recent periods, we have taken steps to right-size our G&A cost which should lead to over $1 million in annualized savings related to the pipeline inspection services business. And approximately $0.8 million in the remaining quarters of 2016.

We continue to work collaboratively with our customers to help them address the downturn in commodity prices and their need to reduce operating expenses until prices recover. We also continue to carefully evaluate market pricing on a facility-by-facility basis. In response to these conditions, we have temporarily shut-in one SWD facility and reduced the hours of operation and staffing at several other facilities. We also plan to invest approximately $300,000 in automation technology to further enhance our water and environment margins and cash flows. These steps along with other steps taken to right-size our cost related to the water and environmental services business should lead to approximately $1 million of savings on an annualized basis and $0.6 million for the remainder of 2016.

Our integrity service business, Q1 2016, results were materially below our expectations, even with strong bid volumes as customers continue to delay their decisions on various project start dates. In response to these conditions, we have consolidated our operations in Texas to increase our field personnel utilization, and have also adjusted our G&A cost leading to nearly $3 million in annual savings and approximately $1.6 million in the remaining quarters of 2016 in this segment. We have also lowered our bit margins to support our customers and meet the competition. We average 1,130 inspectors and 26 deal personnel per week in the first quarter of 2016.

We disposed of 3.7 million barrels of saltwater during the first quarter of 2016. Average revenue per barrel declined from $0.92 for the first quarter of 2015 to $0.68 for the first quarter of 2016, primarily due to the decline in volumes of residual oil, and the average price we received for these sales which represent approximately 41% lower between the quarters. The other material driver was the decline in average price per barrel of flow back in the Bakken which has been materially higher in the past in comparison with Texas. Sequentially, average revenue per barrel is identical to the fourth quarter of 2015.

Despite the impact of lower drilling activity, oil prices and disposal rates, the water and environment services still generated first quarter gross margins of 55% and strong adjusted EBITDA with nominal maintenance capital expenditures which is attractive relative to many service businesses serving the energy industry. During the quarter, approximately 98% of our volumes was produced water with approximately 43% being piped. The percent of piped water continues to grow and we now have nine pipeline facility into five of our facilities.

Maintenance capital expenditures for the three months ended March 31, 2016 were $99,000 reflecting the attractive business model of limited maintenance capital expenditures required to operate our business. This remains a key differentiator for CELP versus virtually all other MLPs. We continue to gain efficiencies from aspects of our new enterprise resource planning system with all segments currently operating within the new system. We plan to have the full implementation completed by the end of the second quarter. Our sponsor has made this multi-million investment on behalf of the partnership to benefit our unit holders.

And with that, I will turn the call back over to Pete.

Pete Boylan

Thanks, Les. We look forward to demonstrating the impact of our $5 million annual reduction in expenses and the administrative fee relief from our sponsor in the coming quarters. It remains impossible to call the bottom on commodity prices, however, we believe that our inspection and integrity business can benefit materially from the proposed new PHMSA rules and the aging infrastructure in this country.

The number of DUC's or drilled and uncompleted wells, continues to grow, and when commodity prices improve, our SWD business should benefit greatly from those completions and more importantly, from the new long-term produced water from those wells that will offset some of the natural decline curve we're experiencing with the current wells. We have a strong sponsor that has material economic interest in the LP owning 65% that is interested in growing the LP and assisting and financing acquisition opportunities that are larger than what the LP can handle independently.

We truly appreciate your valuable time investment and continued support. And we remain focused on execution. Our board, management team and employees remain committed to building a great company with a focus on long-term unit holder value through a disciplined approach to growth.

Operator, we may begin taking some questions. Operator?

Question-and-Answer Session

Operator

Our first question comes from Praveen Narra.

Praveen Narra

Good morning guys. I just wanted to make sure on ERP systems in terms of $5 million of cost efficiencies that you guys have people just great, that's not included in that number, is it? And could you give us the amount where you think we can squeeze out just ERP implementation?

Pete Boylan

Yes, you're correct. The $5 million has nothing to do with the ERP. The ERP, substantial portion of it has been implemented, the remaining pieces of it, including importantly the capture of time and billable hours and so forth from our inspectors in the field is going to get completed and rolled out here over the next several months. Once we've got that up and running, I think we'll have a better sense of what additional efficiencies can be gained out of that. But right now I don't think we're in a position to predict that. Les, would you add anything to that?

Les Austin

No, I would just state that we're in process as Pete outlined on getting the remainder of the time capture system implemented. And by the time we have that done, we'll be able to potentially quantify the savings from them.

Praveen Narra

Okay, that's helpful. And then in terms of the water volume decline quarter-over-quarter, a little bit sooner than we'd expected. I just wanted to clarify how much of that was based off of Bakken seasonality where how the volumes traded ex-seasonality?

Pete Boylan

Great question. There is always some seasonality but the dramatic change in activity up there, going from in access of 200 rigs at its peak to 25 now, coupled with the natural decline curve of a well and it's hydrocarbon and produced water. There is just an overbuilt market right now with the fine item amount of water, fortunately a lot of water is piped and some of our counterparties are not only investment grade but still have rigs drilling in completing wells. But some of our facilities don't have any active rigs working around them at this time and so we mentioned in the Bakken we specifically, temporarily closed one facility. So we track the number of DUC's around each and every one of our facilities, in both basins.

And there is a tremendous number of DUC's and we've seen a few producers actually shut-in some production on older wells that were producing less than 50 barrels a day until prices improve. We've seen a little bump in pricing and I would suspect that if we see WTI move up to north of 50, you'll see some hedging take place and some of these DUC's get completed which will provide a nice shot in the arm because as you know we have virtually all of our cost covered and incremental new water and/or skim oil from a completion of substantial majority of that drop straight to the bottom-line with no incremental cost.

Praveen Narra

Okay, that's helpful. And then in terms of integrity services business, I know that you mentioned that you're going to have to keep down on margins. Can you give us a sense of the magnitude of that downward bid and where the competition is coming in? And if you could, that kind of -- do you think this is a proper run rate in terms of field personnel?

Pete Boylan

I'll make a few comments and I'll let Les speak to it. The PSI was an acquisition that Brown made in August of 2014 before OPEC took its action in November of 2014. And PSI was headquartered in Houston and predominantly handled offshore hydro testing. The gentlemen who build that company remained with us and tragically suffered a material stroke and became incapacitated. At the same time the offshore market collapsed as a result of commodity prices. So we were running basically dual overhead, dual everything with getting headquarters of Brown about 100 miles away from the PSI headquarters. And all of that duplication we thought could be taken advantage of given the velocity of work we were bidding on.

However, as I mentioned in my comments, a lot of projects got postponed or delayed, in some cases, cancelled, and we just weren't seeing that kind of win rate and we ended up with too many unutilized personnel and the way that business works is different than our inspection business and that we pay those employees regardless of what they are outworking, where the substantial majority of our inspection business is paid when paid by the client. And so our utilization unexpectedly was maturely lower than we thought, and we just came to the conclusion that needed to right size our cost structure, we've kind of outlined the details on that in the call or earlier. In the past, margins could be anywhere from 20% to 40%, depends on lots of variables. And I think on average, unless we were averaging 25% to 30%.

Les Austin

That's correct. What we need to talk to you about and how this G&A cost savings impacts us, it comes out of two spots; it comes out of our SG&A line, it comes out of our cost of sales line, about half of the projected $3 million of annualized Brown savings is kind of come out of that cost of sales line or the net margin that we're realizing. So when Pete's talking about bit margin versus realized margins which we realized 12.4% gross margin in Brown in the first quarter, the impact downward against those bit margins is these under-utilized personnel which we have adjusted through the consolidation of our offices back into getting.

Pete Boylan

So we continue to see nice backlog, we continue to see a substantial amount of work, obviously at the proposed PHMSA rules go into place that as proposed by the government would require mandatory testing of tens and tens of thousands of miles of pipelines over the 1970 that had never been required to be tested. There will be a tremendous amount of work and quite frankly, a shortage of skilled, talented equipment to do that work. So we think we're well positioned, and in the interim, we've actually seen some clients want to get ahead of that potential curve of needing to hydro test some limes but we have made a decision because of this fixed versus variable model associated with this to make sure we're not losing work on gross margin.

So we have lowered our gross margin and we think we are now squarely competitive with some of the other folks that had a sharper pencil than we did. And we are going to remain focused on winning an appropriate amount of work to have an appropriate utilization to address what Les was describing about when it ends up in gross versus bottom-line.

Praveen Narra

That's helpful. Thanks for the color again.

Operator

Our next question comes from Michael Hoffman.

Michael Hoffman

Pete, Les, thanks for taking my questions. A detail one, how many barrels of skim did you end up doing in the quarter?

Pete Boylan

We still have never really disclosed the amount of barrels but it's trending less than a couple of percentage points of our total revenues for the quarter in water segment.

Michael Hoffman

And then as I think about the G&A trend just to get all of the input, thank you, 62 in the first quarter, you've took all out as certain number but you didn't have a full effect of it as my assumption. So how do I think about the step down, 2Q to 3Q to 4Q to get this all out?

Pete Boylan

Well most of the actions that we took were at the end of April and the first part of May. So we're modeling and expect that about half of the quarter and the second quarter will be in G&A savings. And when we talk about the annualized savings of about $5 million, when you look at where those are going to fall geographically on the income statement, about $2.5 million are going to be in the SG&A line on an annualized basis and about $2.5 million up in the cost of sales line on an annualized basis. So as you're thinking about the G&A savings and the step down from the $6.4 million, think about it's not all coming out of that line.

Michael Hoffman

Fair enough. And when you think about -- if you're going to catch 100% of the two five, I get, but what do you think the roll over effect will be into '17 of the $5 million in total?

Pete Boylan

A 100% of the $5 million will be seen in '17.

Michael Hoffman

No, no, I just meant -- Pete, I meant, you're not going to capture 100% of the impact in '16 so I've got a benefit of the rollover of that income on a comparative basis like if you say you're going to take $5 million out, you'll actually book $3 million of it this year, a 100% out by the end of the year but I got a $2 million roll over next year.

Pete Boylan

Yes, theoretically the way you're thinking about is correct. The first and second quarters of 2017 should have that incremental benefit of that incremental $2 million.

Michael Hoffman

Okay. And that's the way to think about it as $3 million booked this year, $2 million rolls over?

Pete Boylan

Correct. I think it was about 64% or something this year, Michael.

Michael Hoffman

Okay, all right. And then what's the trend for book interest going through the year? Is it sort of going to be about this $1.6 million pace run a quarter? And then what's the cash interest in the side-bag?

Pete Boylan

The book interest is going to run at a similar rate. You saw that we lowered our working capital line by $4 million in the quarter. So depending on the activity levels and how the interest goes, it should be relatively flat to that line and on the -- in the cash interest component, it's about that number less what we're advertising off of our deal cost which is about $200,000 a quarter.

Michael Hoffman

Okay. And then within inspection and integrity, I appreciate the high percent of revs that are high quality customers from a balance sheet standpoint. What percent of them have to do what they are doing as opposed to choose to do what they are doing within the mix of your revenues?

Pete Boylan

I'd say a 100% of it has to be done whether it is maintenance and integrity work on an existing line or whether it's a new line being completed, getting ready to go into service. So it's not optional, the things that we're not seeing or recognizing as work or activity would be anything the owner of a pipeline believes that as a prudent operator responsible for that line with all the consequences associated with that, they just choose to differ that project whether it's a dig, whether it's a hydro test, whether it's a well inspection or some pegging, cleaning exercise. And we have seen a fair amount of people reallocate their historical spend on those things but the things we're doing are things they have to do or they wouldn't do it, quite frankly.

Michael Hoffman

Okay. So following that line of thinking, the go slow, where is the regulator keeping pressure on them because if you've got a three-year mandate, a 100% inspection every three years, and there is a slowing down process, you're not going to get it done in three years or there is going to be some enormous ramp up period to catch up?

Pete Boylan

Yes, there is -- it's a complicated question and each and every owner of a pipeline has different considerations and approaches to their integrity program so it's ignore new construction for a second. But since it requires that liquid lines are inspected every five years, natural gas lines every seven years, you probably saw they just got allocated a bunch of additional resources and have hired a lot of new inspectors for enforcement and they are out actively working the market with more manpower than they've had in the past. But each and every client's kind of a different story in terms of where they are at in that cycle. And again, at the end of the day there the party responsible to be the prudent operator within appropriate maintenance and integrity program as it relates to PHMSA. And in some cases there are state regulators that require certain things in addition to the Feds.

Michael Hoffman

So when I hear that, it sounds like whatever goes slow is happening, as everybody is trying to juggle between finances, they're going to have to pick the pace back up again.

Pete Boylan

We think so and we -- these proposed rules are 550 pages and there comments are due -- they were due in May and they just extended the comments from industry till July and I suspect that there will be some compromises but I think everybody that I've spoken with universally believes that there is going to be a substantially higher level of testing in integrity work which fired on a go-forward basis. There continues to be debate as to whether mandatory hydro testing on all these old lines will be required but nobody that I've spoken with believes there will be less dollars and work, everybody is under the belief that there will be more spend in this area.

Michael Hoffman

Okay, And then within water and environmental, this is done and the weeds are little bit but why didn't petroleum has introduced an interesting external financing in our effort in order to -- so you're taking another partner who is basically funding some of their DUC's. Fairly significant funding to go through a fairly significant portion of their FRAC log. Was idea this begins to happen in June. I'm just curious if widening is co-located in areas that you're located and therefore have you picked up some indication of this increased level of activity, it can start in June.

Pete Boylan

We have heard about this, we do have a widening pipeline connected to two of our facilities. And I am hopeful that we will be a beneficiary of that but at this point in time I can't confirm that this partner will indeed be going in and completing DUC's. In the field it's tied to the lines going into our facilities.

Michael Hoffman

Okay, great. Thanks for your answers.

Operator

Thank you. [Operator Instructions] Our next question comes from Mike Dyer [ph]. Sir, please state your question.

Unidentified Analyst

Yes, good morning guys. Could you talk a little bit about your working capital requirements and if you think you can continue to get a benefit coming out of the receivables as you move through the back half of this year?

Les Austin

Right now as I stated, we paid down our working capital facility line, $4 million, so I think we've got $48 million outstanding on that facility which is about what we need to cover the average of 1,100 or 1,200 inspectors and the working that we do and water and our hydrostatic testing business.

Unidentified Analyst

And then maybe -- I guess, I think about the rest of the year, the number of inspectors and the pipeline inspection business. You think relatively same level here as you move to the end of the year, do you expect any increases on that?

Pete Boylan

We expect increases in that and it's also important to note, which I think we've discussed in the past, we have a very different margin model with the non-destructive examination business. We have -- that's much higher than our overall averages. We also have a different margin model with our digs and pig-tracking type of integrity work. And then you have yet the lowest margin model associated with the traditional inspection work. So headcount is not everything in terms of gross margin dollars and that get generated to cover our SG&A. And as that mix of business continues to change, it can positively influence both, EBITDA and DCF out of that particular segment. And we have been very focused since the downturn started on two important things; one is picking up more PUC work which doesn't happen overnight, it's a long lead time. But the public utility companies obviously spend whatever they need to spend on integrity and then they pass it through the right payer typically was some guaranteed return. And so there you are not, as exposed to commodity prices as a traditional energy pipeline or might be.

The other thing that we've been focused on is more integrity work on existing lines. And last focus on some of the new construction projects that continue to be built out there so all of those are variables coming to play in terms of the gross margin dollars being generated to cover the SG&A and ultimately distributable cash flow. And I think we've disclosed about 10 about 5-years of headcount history and our investor presentations in the past. The first quarter is traditional always the seasonally low quarter followed by the second quarter and then our high headcount quarters occur in the third and fourth quarter. So we expect that seasonal pattern will be consistent in this year as well.

Unidentified Analyst

Thank you.

Operator

Our next question comes from Evan Blami [ph]. Sir, please state your question.

Unidentified Analyst

Pete, distribution policy going forward, is that just going to be a function of new integrity work showing up and oil prices bouncing back. And I'm just curious how long you're going to effectively overpay the distributable cash flow?

Les Austin

As I mentioned in the call, based on what we see right now, it's our belief that we will have stronger results in the coming quarters for a variety of different reasons including the cost that we've taken out of the business. And we will continue to look at underlying set of results. But CEH was the sponsor, has decided to provide incremental support with the temporary omnibus relief. And we plan to continue to look at this each quarter and obviously, if it ever became inappropriate to continue with the current distribution, we had that discussion with the board and make a decision but right now we believe that we can continue to make this dividend payment and with the actions taken that we will be able to find yourself in a better position in the coming quarters for some of the reasons unless just elaborated about seasonality and what happens in the business.

Unidentified Analyst

So how should be think about sort of gazing factors or parameters are. Is it as simple as -- you pay the distribution until you run out of covenant room or is a function of -- if you think the business gets reset lower for -- I'm just trying to think, as we're making our own forecast, one of the sort of tests we should come up with to think about sustainability?

Les Austin

Well, I think even in the world going to continue to look at our available cash as calculated under the partnership agreement. We will look at what our forecast is on a go-forward basis. And again, as Pete has mentioned, the levers that our sponsor has pulled with the support and eliminating the holiday to determine what our available cash is under the partnership agreement and then what we can afford to distribute.

Pete Boylan

Yes, we'll certainly continue to protect the credit facility and we have other levers we can pull as the sponsor to be supportive and we believe these actions as quarter demonstrate our support. And again, I can't predict what the future holds but we believe we right-sized the cost structure for the level of activity and we like what we're seeing in terms of backlog and projects won. And as you know the majority of our business today is driven by this inspection and integrity segment where when we started out, it was 50% of TIR, no Brown and 50% water. And we've written the water down dramatically as everybody has with this downturn to where it's not a material driver of the cash flow going forward. Maybe we get lucky and some of these DUC's get completed or maybe we get lucky and commodity prices improve, and if that were to happen, we'd see a dramatic improvement in cash flow but we're not forecasting a material improvement in the water business for the balance of the year as it relates to the comments we've just made.

Unidentified Analyst

Okay. And then one other question, are you seeing more sanity from sellers and are you seeing any quality assets in the market that interests you now?

Pete Boylan

We are seeing some assets, people seem to be becoming more realistic, there has been a bunch of bankruptcies in the water sector. And the inspection, you haven't had that issue but we have a strategy that I think you and I have talked about in the past whereby there are about 15 vendors in the ditch doing pipeline integrity services work, and we're doing two or three or four of those things today. And we would like to do another five or six of those things. And all those clients are spending unnecessary money on duplicative SG&A, MSAs, insurance, schedule delays, etcetera and our clients are in fact, open to the concept of having TIR, Brown side for us to do more.

And so some of those services -- we have identified acquisition candidates and have been talking with parties and they see an opportunity to hitch their wagon to us, given that we've got 80 or 100 MSAs and a substantial amount of client relationships where we can pray to win-win. But the water business is very different than the inspection business as it relates to buyer and seller expectations, those -- a few other lines of businesses you know that we have in our PLR that we continue to look at, one of them being chemicals, that business has changed a lot and we're starting to see people have a different perspective sellers on valuation as their cash flows have come down materially as a result of the downturn.

Unidentified Analyst

Okay. I'm sorry, just one more follow-up, you mentioned the PLR, I know this is supposed to come back to the final rigs on the qualifying income at the end of the month. I don't have any reason to believe but I just thought I'd ask if you had any concerns about that process?

Pete Boylan

We don't based on everything we know and in fact think that some of the languages proposed could be net beneficial to us depending upon how the final rules shake out because today there is a lot of inspection that occurs, that's mandated by state, not federal. And if state level inspections are ultimately considered allowable and essentially, it could broaden the scope of inspection and integrity services we could offer beyond what we do today.

Unidentified Analyst

Good to hear. Thanks, Pete, appreciate it.

Pete Boylan

Thank you.

Operator

And there appear to be no further questions at this time.

Pete Boylan

Great. Well, thank you everybody. We'll look forward to talking to you next quarter. Bye.

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