Essential Energy Services' (EEYUF) CEO Garnet Amundson on Q2 2016 Results - Earnings Call Transcript

| About: Essential Energy (EEYUF)

Essential Energy Services Ltd. (OTCPK:EEYUF)

Q2 2016 Earnings Conference Call

August 10, 2016 12:00 PM ET

Executives

Karen Perasalo – Vice President, Investor Relations

Garnet Amundson – President & Chief Executive Officer

Don Webster – Chief Operating Officer

Allan Mowbray – Chief Financial Officer

Analysts

Mark Westby – AltaCorp Capital

Brian Purdy – PI Financial

Jeff Fetterly – Peters and Company

Steve Kammermayer – Clarus Securities

Operator

Good morning, ladies and gentlemen. Welcome to the Essential Energy Services Limited Second Quarter Results Conference Call and Webcast. I would like to turn the meeting over to Ms. Karen Perasalo, Vice President, Investor Relations. Please go ahead, Ms. Perasalo.

Karen Perasalo

Thank you, Donna. Good morning, and thank you for joining our second quarter conference call. With me on the call today are Garnet Amundson, President and CEO; Don Webster, COO; Jeff Newman, Senior VP, Business Development; and Allan Mowbray, CFO.

This morning, Garnet will give you an overview of our second quarter results, speak to the outlook and open the line for questions.

In this conference call, we will be discussing financial measures, including certain non-IFRS financial measures such as EBITDAS. Please see our August 9, 2016, second quarter news release for definitions of these terms.

Today's call may include forward-looking statements. Such statements are given as of the date of this call and involve risks and uncertainties. A number of factors and assumptions were used to formulate such statements. Actual results could differ materially and there can be no assurance of future performance or market impact. For additional information with respects to forward-looking statements, factors and assumptions, refer to our August 9, 2016, second quarter news release.

I will now turn the call over to Garnet.

Garnet Amundson

Thank you, Karen. Good morning. Yesterday we reported EBITDAS of negative $4.5 million for the second quarter of 2016 and negative $7 million for the first half of 2016. Our negative EBITDAS for the first half of the year is unprecedented for Essential and indicative of the dire state of the Canadian oilfield services industry. Our second quarter losses were larger than we had hoped, especially in view of our completion of a second round of cost reductions in March 2016.

As I commented in our May investor call, our problem is a lack of revenue caused by an industry that is cutting prices and barely working.

Over the past year and a half, Essential has been focused on managing costs and debt by implementing a number of strategies; including two rounds of significant cost reductions, primarily we wage rollbacks and layoffs early in 2015 and 2016, disposition of retired and redundant equipment, suspension of the dividend in May 2016, and renewal of the credit facility in June 2016.

Now some comments specific to the second quarter 2016. Coil well service revenue were $6 million, a 35% decrease from Q2 2015, due to lower activity and price declines in all service lines. The highlight in the quarter was having three Generation IV coil rigs working for two different customers. These customers have operations in the Bakken, Montney and Duvernay plays. Our operations in these areas are typically very long-reach horizontal wells. The Duvernay operations are even more complex than the others as the reservoir pressure is much higher. Our equipment has been performing well. Activity was below our expectations and Q2 2015 results for the Gen II coil, as key customers chose to defer work.

Our Gen III coil was slow just like last year's Q2, but we expect this proven equipment to be in demand in second half 2016. Coil well service revenue per hour declined approximately 10% compared to Q2 2015 that was consistent with Q1 2016. Service rig revenue of $3 million was 55% lower than Q2 2015, again due to lower activity and price declines. Revenue per hour declined approximately 15% compared to Q4 2015. Too many service rigs in the Western Canadian basin and low customer activity reduced utilization and continue to result in aggressive competitor bidding. Well servicing gross margin which includes both coil well service and service rigs, was negative in the quarter, compared to 6% in Q2 2015, as Q2 2016 revenue was not sufficient to cover fixed costs.

Our downhole tools and rental segment reported $6 million of revenue, which was 25% lower than Q2 2015. The decrease from last year is primarily from lower conventional tools revenue, both Canadian and U.S. as a result of lower industry production activity and pricing declines. Tryton MSFS revenue also declined compared to Q2 2015, while rentals revenue was about the same as the prior year period.

Gross margin of 2% in the quarter was an improvement from negative 7% in Q2 2015. This is primarily a result of cost reductions implemented in Canada in Q1 2016 and in the U.S. in Q2 2016. Savings from these cost reductions and higher margin rental activity offset the impact of lower tools and rental revenue.

Now moving on to some discussion about our debt. On June 30, 2016, we had $27 million of debt outstanding, unchanged from March 31, 2016. Normally, we experienced a seasonal low in our debt at the end of the second quarter. Given our lower revenue in Q1 2016, we did not have the usual onset of cash collection from receivables in the spring. As previously announced, we renewed and extended our credit facility in mid-June. This was Essential's first credit facility amendments in this prolonged downturn.

As part of the renewal, we voluntarily decrease the size of our facility from $100 million to $40 million. This reduction offers cost savings in the form of lower amendment and standby fees, while still providing us with sufficient liquidity to meet our near-term finance. Working capital at the end of Q2 was $44 million, exceeding our debt by $17 million. At June 30, 2016, Essential was in compliance with all bank covenants.

Now moving on to capital. Essential's capital budget has been increased from $9 million to $11 million. The increase was primarily for the purchase of specialty drill pipe to meet a specific customer request. To-date in 2016, we have spent $8 million on capital. We took delivery of the fourth Gen IV masted coil tubing rig in the second quarter and hope to have it ready for work by the end of the month. Construction of our remaining two Gen IV rigs are progressing on schedule with delivery of fifth rig expected in the next couple of months and the last rig by the end of the year.

Finally, comments on the outlook. To-date, we have been seeing some improvement in activity compared to Q2 2016, but activity is slower than the same period last year. Customer interest and willingness to engage in sale discussions has improved. We expect activity to remain slower than 2015 for the remainder of the third quarter, as last year we had relatively strong third quarter. Slower activity and excess equipment in the Western Canadian basin is expected to continue to put pressure on prices as companies compete for market share.

Oil and natural gas prices improved in the second quarter from the lows reached earlier in the year, creating some industry optimism. However, when the WTI oil price recently slipped below $40, it seems to put a damper on that optimism. With industry drilling rig utilization had only 13% for July, industry oilfield service activity has improved from Q2 2016, but continues to below 2015.

At Essential, we continue to seek the right balance between cost reductions and our need to retain employees. We want to ensure that we can respond and grow when the industry does pull out of this prolonged downturn. Our cost structure and employee compensation model was established years ago to be highly variable in nature, such that 70% of our costs are variable. With the majority of our field employees working on a variable compensation model, this helps to support margins in periods of low activity. As the downturn continues, we have become more dependent on the smaller number of customers for our revenue. We thank them for their support and trust in Essential. Our investors and employees are being asked to demonstrate incredible patience and trust as we ride out this very long and difficult industry downturn.

Karen Perasalo

Donna, at this time, we will open the line for questions.

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] And the first question is from Mark Westby from AltaCorp Capital. Please go ahead.

Mark Westby

Good morning, guys.

Garnet Amundson

Good morning, Mark.

Mark Westby

Just a couple of questions this morning, the first one relating to the Gen IV enhancements and I then recall you had mentioned that you have done some of these in previous quarter as well. Could you provide a little more detail on perhaps what these enhancements are? Have they been done on just the three rigs that are drilling in service or they only have few rigs, like it's just a cost that will, you expect to happen again and going into 2017 as per your CapEx budget in that year?

Don Webster

Mark, its Don Webster. The enhancements that we did on those rigs were done on only two of the four rigs that we had and it was specifically designed to meet a customer requirement with respect to the amount of pressure involved in the operations that we were going to be doing. Some of the wellhead equipment was quite large and needed to be fit for purpose for that particular project.

Mark Westby

Okay, great. Thanks. Just turning to your debt covenants, how are you guys looking at that going forward?

Garnet Amundson

How do you mean, Mark, can you just be more specific?

Mark Westby

I know with the equity, your provision and things like that, like how do you perceive being onsite going forward in the future or you're going to have to look for amendments, or was there any concerns about that? Just want to get some color on that from your perspective?

Garnet Amundson

Sure. Well, I'll start by summarizing sort of where we are at with the covenant, so this cumulative minimum EBITDA different from our previous covenant which would be a debt to EBITDA. We're waived on the debt to EBITDA, so now we have a minimum EBITDA target to hit for Q3, Q4 and Q1, and it's a cumulative in that if we any of the earlier periods exceed the target, it contributes to the later period. So our target for Q3 2016 is $1 million in EBITDA, and then cumulatively $4 million in EBITDA by the end of the year.

So we don't do any formal forecasting, so it throws the number out there that we won't comment on how we are doing. The best thing I can say is that when we take a look at that and look at the amount of revenue required in any kind of a normal Q3, there is obviously I think a very reasonable chance that we're going to hit those numbers, but and it's a funny thing with the results we've had in the last few quarters certainly with negative EBITDA in Q1 and Q2. It doesn't take a whole lot of changed customer plans to surprise us, both to the good and the bad, even the Gen IV work that we had in Q2.

Some of that were picked up momentum because of the good work that we were doing and we got more work. So, there is certainly the way the weather pattern has been in Western Canada. As a management team we have good days and bad days, but those covenants are out there because we think we got a good fighting chance of hitting them and if something happens that we don't – you rightfully point out that's why our covenant has an equity cure opportunity in there, but there is a long ways to go yet. It's August 10th today, so we are not even half way through the third quarter.

Mark Westby

Okay, great. Thanks. I guess one last question. Obviously, you're getting some traction now on your Gen IV tubing. How are you guys looking as that going forward and I know you provided a little bit of color on that already. But do you expect the new unit to go to work right away as soon as you put in the field and what about the – how busy are you seeing that through with the second half? And how do you see momentum going when you bring the other two units online in Q4?

Don Webster

I guess, Mark, what we're hoping to do is more of the same. We have had a number of discussions with the success we've had in the second quarter. I think it's all been peoplized [ph] to exactly what these units can do and some of the capabilities they have. So, I mean, bottom-line is we're just hoping to do more of the same.

Garnet Amundson

Mark, I had a little color on a broader basis that I highlighted a little bit on the script. It was really a pleasant surprise for us to be able to probably announce the success with those Gen IV units. And if the Gen II units which are highly proven, the Gen III units which are highly proven, if those had any kind of a normal activity period, not due to Essential, but just industry activity. We would add some great results by seeing those incremental Gen IV start to go to work. Those of you are modeling and trying to predict the future, I think we're building up quite a substantial fleet that depending on where the industry goes with its activity. We've got a lot of great equipment now that is ready to contribute when the industry goes back to work.

Mark Westby

Okay, great. Thanks guys. Those all are my questions.

Garnet Amundson

Thanks Mark.

Operator

[Operator Instructions] And the next question is from Brian Purdy from PI Financial. Please go ahead.

Brian Purdy

Good morning, guys.

Garnet Amundson

Good morning, Brian.

Brian Purdy

I wanted to ask about your impression of activity so far in Q3, obviously the rig count had some improvement, but still not at Q1 levels, but some indications are that well completions might be showing a greater improvement than that. And I was just wondering how you viewed that statement?

Garnet Amundson

Yeah. I think our comments so far in Q3, the media here in Calgary, as you've probably seen said I think, the Calgary area in Alberta had something like its decade, if not more of a record rainfall we had in July. Certainly, our heavy equipment like the Gen III and IV coil, that's not good, gets in the way of things moving around. I think the drilling stats as I commented in the formal script. They're higher than Q2 activity, but not what we saw last year. I think there is still an element of people watching this oil price. Our customers want to go to work, but they're suffering with their own cash constraint. So it's not like everybody is sort of kick the horses out of the corral here and told them to get going. It's a bit of a tenuous start. We have tried to get some good data on what you're asking about with completions data relative to drilling. And I think some of you on the analyst side probably noticed, there was a – some weird anomalies there in the Canadian data on completions data relative to drilling. So we're not necessary trusting that data right now, the industry data. My own notional view is I think there is some potential work out there, but customers are still a little bit nervous.

Brian Purdy

Okay. Thanks for that. And then I wanted to ask, you mentioned here that Gen IV rigs did a little – maybe better than you expected. I think last quarter you were saying that customers were still favoring the Gen III just given good capabilities of those units. Do you find that dynamic maybe has changed a little bit over the quarter or is there something else going on?

Garnet Amundson

I'll give my initial action and Don's got a thoughtful look on his face here. We designed the Gen IVs to – I think you guys – some of you have seen the more of these which were the operator cab and I'll say the instrumentation, the shared capability and capacity of those. In our view it's some of the best equipment in Canada and perhaps in North America for Duvernay and deep Montney plays very specialty equipment. What we commented on in Q1 when the Gen III did so well is they've actually exceeded their capability, which starts to cut into what the Gen IV were designed to do. But I think the pleasant surprise for us is, we've perhaps opened up an entirely new market share opportunity with the type of work these units are doing and a different customer dynamic, and that just gives us more opportunities depending on what the future holds.

Don Webster

Garnet just stole my thunder. I can't handle a lot more than what Garnet did, Brian.

Brian Purdy

Okay. Good. And then I was hoping just to ask you about margins a little bit, well servicing margin is down year-over-year which is what I would have expected, but downhole tools showing an improvement in margin year-over-year. I am just wording if the costs improvements that you had made maybe in that division might hold margins up a little better as we head into the second half. I am just wondering if you can give anymore color around that.

Garnet Amundson

Just making sure I understood your question, if the margins in downhole tools are expected to be more resilient going forward, is that sort of your question?

Brian Purdy

Exactly, yeah.

Garnet Amundson

Okay. Well, I'll start with the other side and then come back to that. The well servicing margin hit, you've got a lot of fixed costs, leases, mechanics, on the well servicing side, and then as we always comment our well servicing margin includes coil and service rigs. And the service rig business is suffering a tremendous beat down, primarily driven by – a lot of us saw this in the first quarter, one of our competitor is specifically in the public company data, really low volt prices and just sort of an unprecedented amount and that's going to drag the whole industry down because now you can see with the utilization differentials. Those of us who are relatively healthy financially, we have to chase that to preserve market share and I think it's just an accelerated degradation across the sector and you can see that happening.

So we weren't surprise either to see our negative margin disappointed in Q2, but we'll respond accordingly and manage that going forward. The tools business is very unique. Your fixed costs are really a low base salaries or of course salaries on some of those guys. Our business is really just people, and then you've got least costs in there. So, again that emphasis we put on sort of 17% of our costs are variable, with the costs reductions that were done in the tool business as we commented in Q1 and Q2 in the U.S. I think that gives that business a really good shot to start generating somewhat – I'll call low cycle normal margins in the back half of the year. It's also got a great breath of scope from the rental business, which is typically for us more drilling focused. If the drilling sector goes up, the multistage business which is completion focused, and then the conventional tools really hit the broad spectrum from production, some completion work a little bit and even on the abandonment side, and those guys are really well spread across the Western Canadian basin plus our U.S. operations. So those guys – the comment I made about great customer dialog and people trying to get the wells back on production, I think they are seeing a little bit better work. So, we're hopeful of some positive margins in the back half.

Brian Purdy

Great. Then, just I wanted to ask a little more on the cost side. You know obviously you've got a covenant here to meet in Q3. Do you expect some of your cost reductions to contribute to lower G&A in Q3 than we saw in Q2? Or do you expect it to be more steady?

Garnet Amundson

I don't know that I see – I'll look to see if Karen or Jeff or Allen want to make any comments on it. But the way we got our cost reductions on the G&A front largely completed by the end of March, so my instinct would say that we wouldn't anticipate a tremendous difference from what we saw in the Q2 G&A number. I think that's a decent run rate going forward.

Brian Purdy

Okay.

Garnet Amundson

I'm not getting any objections from my pals here, so we'll take that as a factual statement.

Brian Purdy

Okay. Thanks for that. That's all I had.

Garnet Amundson

Thanks a lot Brian.

Operator

Thank you. The next question is from Jeff Fetterly from Peters and Company. Please go ahead.

Jeff Fetterly

On the Gen IV side, the strength in activity, the surprise that you have seen, are you using price as a motivator or incentive for the customers, or would you be receiving a premium price for the Gen IVs relative to the Gen IIIs?

Garnet Amundson

Good question. Thank you. I believe the – when you use the – in your question, you used the language, are we using? I believe the sales feature that got this equipment working was technology, so it's mentioned in a further, at an earlier question, I think it's the size and capacity of the units, the injectors, the amount of coil we can put on it and even the intellectual property in terms of the data measuring, monitoring. They are just great units for the type of work that's going on. The downside though, is with prices falling all around us. When we have the customer dialogues, it's virtually impossible to go in with your chest out and say, with newer equipments and we got the best equipment and we're not going to compromise on price.

So, we have had to from initially when we were building this equipment, we've had to compromise on our pricing to get it to work. But I can say that our dialogue with the customer has been open, positive and we're going to be very forthcoming that for what we've got invested and what we need from a return point of view as we demonstrate the quality of the equipment, we're going to be striving to get some of that price opportunity back. But you know the dynamic right now, as an oilfield service company, we don't have a lot of stroke with our customers right now in terms of asking for raises.

Jeff Fetterly

Just so I understand that, so if you have an opportunity where a customer project could either use a Gen IV, Gen III unit. Do you have a preference either in terms of profitability of one unit versus the other or capability of one unit versus the other?

Don Webster

It's Don here, Jeff. Actually the answer to the question would be no. Each one of the rigs is designed for a specific type of operation. So, we would not substitute on for the other. And I think I believe that our customers are very much aware of the capabilities of the difference between Gen II or Gen III and Gen IV. So, it's basically project specific.

Jeff Fetterly

Just to clarify and earlier question. From an activity standpoint, what you've seen so far in Q3, I recognize in your comment about whether disruptions, but how would activity within the coil business thus far in Q3 compare to what you had over the course of Q1 of '16?

Garnet Amundson

I don't know – well, it just – I mean after connect, well it's sort of looking at the sky rate now. I don't know if we've done that – that comparison. Maybe we can do Jeff. We've got data here and we'll just let folks sort of rummage a little bit through their papers and I'll – if you have another question, or I'll take the next question and then we will come back and answer that, and you can jump back on, if we don't answer it properly. Does that work for you?

Jeff Fetterly

Yeah. That's great. Just last clarification, from a taxability standpoint, you've seen a fairly material current tax income recovery this year. Do you expect incremental recoveries?

Garnet Amundson

Yeah. We do. Alan, would you like to comment on that at all, and sort of what we're expecting?

Allan Mowbray

Good morning Jeff. Yes, we expect to receive a refund in Q3 here with respect to 2015 taxes and we filed and we also expect that receivable that we have right now on the balance sheet to be recovered in 2017, or 2016 taxes.

Jeff Fetterly

What magnitude in the second half of the year, do you expect to be returned to you?

Allan Mowbray

Approximately $3 million this year.

Jeff Fetterly

Okay. Great. Thank you. That's all I had. Thanks.

Garnet Amundson

Thanks Jeff.

Operator

Thank you. The next question is from Steve Kammermayer from Clarus Securities. Please go ahead.

Steve Kammermayer

Just on the Gen IVs being delivered here in the second half, is there work lined up for them already, or would give you the confidence that they can go to work once they are delivered?

Garnet Amundson

Good morning Steve. So the way that Gen IVs are working, there is relatively small number of customers again that are, as I commented at the end of the call, frankly there is a small number of customers in total working in Canada these days, period. But a smaller number that are able to do this type of work, it is a complete customer call. We're always not shy about saying that we don't get either guarantees or deposits or anything like that from our customers on their work plans. We know that some of these customers have longer-term work plans that they are trying to get done. We know that things seem to have gone quite well with the work we've done to-date, and we're hopeful that we will continue to participate with those customers on their work plans in the back half of the year.

The wild card of course is, we're not seeing the technical measures and successes on flow rates exactly and what their expectations were. We also don't know what their cash limitations are, if they are going keep spending as commodity prices go up and down. So, we don't have any choice except to say, as long as we got our tight relationship with that customer, we're working with them. Our equipment is doing a great job and we know they've got more wells and land to work on. We remain hopeful that we will be the service provider on that equipment. But that's about as tight as we can get for planning.

Steve Kammermayer

Maybe just looking back at the cost here. So, you know assuming G&A sort of at the level of that in the back half of the year, I'm going to throw you a hypothetical. Here I know you don't give guidance, but if we saw activity, similar to Q1 in the current quarter, you did revenue of $31 million. Have you taken out enough operating cost to be able to meet that covenant in the back half of the year, the cumulative EBITDA covenant?

Garnet Amundson

Are you specifically asking about Q3 or Q4?

Steve Kammermayer

Q3 and Q4.

Garnet Amundson

I probably have to give you the – we don't give guidance, and I don't know the answer because the wild car is, I mean a little bit of the smarty pants here, and so you guys are the experts at telling us what's going to go on with the industry and revenue has been really lumpy, and it's been made even more lumpy by the weather issues. When we did our cost cutting at the end of March, what we did is we basically run a revenue model and sort of here's what we expect coming forward. We sort of build in the service pricing reduction and come up with a contribution margin and we looked at our fixed cost structure and said yikes, we need to do a step reduction, a second one in our fixed cost.

We announced the first time we did our cost reductions in 2015, that we expected savings of $10 million on an annualized basis. We didn't publicly announce the second number, because it's just getting more of it frankly, but we believed with our modeling based on all expectations that were normal that those covenants are achievable. And that's still our expectation whether we took out enough cost or not, I guess we're going to know by the time we get to reporting in early November.

But we hope we did. It's very hard to call right now what's going on with customers and the biggest disappointment for us in this whole area, as I said earlier what happened with the service rate business. It has been a great steady business for us. It actually survived quite well through the 2015 period, but with the nonsense that's going on with absurd price cutting that is barely giving positive contribution margin, let alone considering fixed cost return on capital. I don't know.

I think there's going to be a fundamental structural change on the service rig side. That would be the biggest I'll say surprise or difference for me in terms of what I expected in the last round of cost cuts versus what we're seeing. We often talk about the CAODC industry data when we're out in marketing meetings, and you can see that – I think the public reporting republic company group from a fleet size point of view has been behaving very responsibly for the most part and parking and reducing fleet size and – everybody is doing what they can to cut cost and keep going, probably that we're non-public group of oilfield service workers in the service rig business.

That fleet size since Q2 2013 has barely changed. It's gone up and down just a couple of rigs. So that's another thing our customers really need to take a look in the mirror and it would appear that there is constantly private guys that are – we hear stories of them working all-in under $400 an hour, which in our view is just absolutely cash sub-economic. So, those are things that can get in my way Steve much more than whether we cut in our cost.

Steve Kammermayer

Okay. While we're on the conventional service rigs here, so your fleet of 38 rigs here, having 18% utilization last quarter 14% this quarter. Was there utilization throughout the 38 rigs, or was there just some rigs that were parked and maybe we'll see it hired by year's end, or how do you see that playing out?

Don Webster

Sure Steve, it's Don here. Bottom-line is, it was geographic. So, certain areas that we had, we're kind of based all over the place going from Fort St John north to Fort St John down to into the Saskatchewan – southeast Saskatchewan stuff and really it was specific area, specific so. Of the 38 rigs spread out throughout the group. No it wasn't a breadth of all 38, it was area specific.

Steve Kammermayer

Okay. And of the ones I guess that didn't work, is there – I'm just trying to gather if we're going to see some retirements by the end of the year?

Garnet Amundson

I think, one of the things that we have to look at is with the amount of service rigs working and the current price model and our fleet size. And as Don said, it's been quite geographically specific. We have to look at that and try and guess and say where is this sector going to go and we will continue to spend time with our service rig team and take a look at that. The retirement question, when we first retired the first levels of rigs as we've gone into the downturn, it can be equipment that's old worn out as we talked about those. We're packaging off, taking them to auctions, cutting them up, selling them for pieces. But now, if we retire rigs from our 38 rig fleet, there is still good functional operating rigs. We would be retiring them to just literally, I'll say reduce the scope of time and attention from the guys to just shrink the size of the business, which if you are operating only at a certain small size, then, once again it's possible that you are maintaining more fixed cost than you need. But those decisions haven't been made and that's a decision that we normally work closely with these guys on.

Steve Kammermayer

Is there an opportunity perhaps to consolidate some of the basis into regions that you are seeing activity to further boost the utilization, is that an option you are looking at?

Garnet Amundson

You take a look at the busiest areas for us that Don talked about like our – those of you who've been out to our locations, look at our big Red Deer shop which you know you've got service rig and call guys there and GP is the shared facility. And then we've got facility in Nisku which is the shared facility. So there is not a lot when you talk about consolidation. One of the biggest problems, you run into in downturns like this, which you've heard from others, the two biggest cost areas are people, and our next biggest fixed cost becomes leases. And as much as you wish, you could just wish lease of the way, it's not that easy. So, I don't think you could just sort of consolidate quite as simply as you are describing.

Steve Kammermayer

Okay. Great. That's all I had guys. Thanks.

Garnet Amundson

Thanks Steve.

Operator

Thank you. There are no further questions registered at this time. I'd like to turn the meeting back over to Ms. Perasalo.

Karen Perasalo

Thank you Donna, and thank you everyone for joining us today.

Operator

Thank you. The conference has now ended. Please disconnect your lines at this time, and thank you for your participation.

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