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spk03: With your guidance, our successful start to the year gives us further confidence in meeting our financial targets. With that, we'll take questions.
spk04: Thank you. We will now conduct a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment while we post our first question. Our first question comes from Spiro Dunas with Citi. Please proceed.
spk05: Thanks, operator. Morning, team.
spk04: Morning.
spk05: Morning. Morning, morning. Amanda, you had mentioned trying to find some new initiatives to reduce costs beyond what you've laid out so far. Just wondering, can you maybe provide some examples of what you're evaluating there, and if you think maybe this next tranche of cost savings could be as large as what you're doing this year?
spk03: We see the next tranche of – sorry, good morning, Spiro, and thanks for your question. But launching right into the answer, we see the next sort of tranche of cost savings being more incremental. As we've indicated, the electrification process and the cost savings associated with that initiative and with reducing rentals gives us a much larger impact to margins. We are still looking at chemicals. We are still looking at our personnel costs. We are still looking at the construction of our facilities and how we change some of the materials that we use to lower costs. But all of those are going to be incremental and will continue over time to just bring in incremental savings.
spk05: Got it. That's great. The second one just around CapEx, you know, I think as we look for the remainder of the year, it implies a pretty sizable step down in the second half of 23. And I guess I'm just curious, is that a good run rate as we think about 2024? You know, it sounds like you're obviously still evaluating growth initiatives here. And so I'm just trying to get a good sense for what's the more normalized sort of growth CapEx level.
spk03: Well, we've said before on CapEx is that throughout the year, you know, how your CapEx comes in quarter to quarter is very lumpy. This year, we've been very clear that it is front-end loaded, which will result in revenue in 24. Obviously, it is too early. We are looking at 24. Our hope is that that capex obviously continues to come down. We are evaluating additional growth opportunities. We are growing with our customers. But last year, it was back-end loaded. This year, it's front-end loaded. Steve, would you like to add anything to that?
spk06: I think you're right, Amanda. We're going to grow alongside the industry. So while we see sustained levels of completion activity from our customers, we're going to see the capital program play out the way it is this year. It is too early to say where we're going to land next year. But we do see the deceleration going into the second half of the year playing out based on the current outlook.
spk05: Got it. That makes sense. That's all I have today, guys. Thanks for your time. Thank you. Thank you.
spk04: Once again, ladies and gentlemen, to ask a question, please press star 1 on your telephone keypad. Our next question comes from Samantha Hall with Evercore. Please proceed.
spk02: Hey, guys. Thanks for taking my question, and congrats on a really nice quarter. I wanted to maybe spend a little bit of time on this award that you won or that you're a finalist for in Berlin. I didn't realize that that would be an opportunity in terms of the water reuse in Europe, especially since most of your work here is using produced water. But I was just wondering if there is an opportunity there then to apply the process or technologies that you're developing in the Permian to maybe applications in Europe?
spk03: Good morning, Samantha, and thanks for the question. The Global Water Awards are pretty much the premier awards in the world, and they have their ceremony actually tonight where they choose between the four. We were very surprised that we were chosen, particularly that this has produced water in the energy industry, and this was an award that is in Europe. We believe it gives us a lot of exposure to people who may have technologies that we want to see whether or not we can apply them for the cost-effective treatment of produced water for beneficial reuse. But in terms of do we have technologies that we can apply international, yes, we believe we do, but that is not anything that we are looking at at this time. We are very focused domestically. We've got a lot of work to do here. But it's a great compliment. I shouldn't say we don't expect to win, but when you're up against a wildlife park in Singapore and a massive project in Australia, we're just happy out of hundreds of applicants to be on that list.
spk02: Yeah, no, congratulations. It's really nice to see Watery have more of a global solution sort of being applied here. I guess my other question has to do with... you know, just how you're able to keep growing at such a low, like, people intensity. You know, I think we spoke offline about just how you're just not as intensive, you know, in terms of, like, head count, weighted basis. Is there a level at which, like, you will need to scale up more on the people side? Or how do you think about, you know, having, like, training for field hands and Just sort of like what your needs are here based on like what your outlook for growth is and how you're managing through the whole labor shortage, inflationary, you know, like all those very strong macro fundamentals that are going on in the U.S. here.
spk03: That's a good question. As Steve said in his comments, you will see in Q2 that we will have some additional headcount. We are looking at this all the time. We run very lean. We have also talked in past quarters about our automation efforts, and those efforts are to reduce labor across a large geographic area with lots of driving and with facilities that are not necessarily co-located. So we continue to look at the allocation of labor. We are very focused on training, but we do understand the cost associated with that, but we are going to operate efficiently. So as we increase the number of facilities, as we continue to add volumes, you will see us add labor, but it will be a very managed process.
spk00: Yeah, we've spent a lot of capital on automation. And remember, this is a big infrastructure business, so we're putting capital in rather than adding headcount in a lot of places, and we will see the benefits of some of that as we grow, spreading those fixed costs and that labor out over greater volumes.
spk02: Excellent. That does it for me. Thanks, guys. Thank you.
spk04: Thank you. Our next question comes from Wade Supi with Capital One. Please proceed.
spk07: Good morning, everyone, and thank you for taking my question. I wanted to see if y'all might be able to give us a little bit more color on working capital. You had a nice release there, accounts receivable, good decline quarter to quarter. And really more in the context of second half, you know, guidance outlook, and really in the context of free cash. I mean, could we see free cash and collection points maybe a little earlier than expected? Thank you.
spk03: Thanks, Wade. And Steve is very happy you asked that question, so I'm going to defer it to Steve.
spk06: Thanks. Good morning, Wade. You know, I think, as you just heard Bill talk about the automation and investments that we've made on the operations side. What we have on the back office side is ripe for automation. And so that's some of the expense that you see this year in evaluating our accounting systems. And we have added some resources to drive a greater focus on efficiency of working capital. So we're very pleased with what we saw this quarter. We expect to see incremental improvements over the course of the year. And then we are looking to replace our accounting ERP package over the next six to 12 months, which is going to drive further automation. So I don't expect a step change similar to what we saw in Q1 to repeat itself, but we will expect to see further incremental improvements quarter to quarter.
spk07: Wonderful. Thank you. And just switching gears a little bit, you all spent some time last quarter talking about the M&A market. I'm wondering if you could maybe give us an update on what you're seeing out here right now. That's all I've got. Thank you all.
spk03: Wade, obviously we see a lot of opportunities out there. But as we previously indicated, we're always going to be disciplined. We're not going to put the balance sheet at risk. If we see something that we like, it's got to be accretive. It's also got to make sense to work strategically and geographically where we think we bring synergies to a particular opportunity. So that being said, if we see something that fits all of those criteria, we'll take a hard look. But I'll let Bill add to this because he has pretty strong opinions on this. And as you've seen our track record, we have been very disciplined.
spk00: Well, I think, I mean, we continue to believe that growth, accretive growth makes sense, and we will do it opportunistically where we find a fit. And Amanda hit really our key criteria, which is, you know, we are going to protect our balance sheet. We need to see a really strong strategic fit to the business with some synergies going forward, and it needs to be accretive. And obviously, our stock hasn't performed as well as we'd like, and the relative valuations – The private sellers are struggling a little bit with what they think their businesses are worth, and, you know, hopefully there's a meeting of the minds over the course of the next year and we find opportunities that make sense for us to take advantage of. If not, we're happy and we can continue to grow organically at the same time. Wonderful. Thanks again, and great quarter, Chris.
spk03: Thank you.
spk04: The next question comes from Selman at Yola Spiegel. Please proceed.
spk01: Thank you. Good morning. I guess following up on that last question, is there any update on the integration of Delaware Energy Services? And then I have one more after that as well. Thank you.
spk03: Good morning, Salman. We're on track with the Delaware upgrade. As we indicated last quarter, workovers, repairing some of those assets, all of those initiatives are on track. So we expect to be able to achieve I'll talk to incremental run rate either dot in the second half of 23.
spk01: Got it. And then also, you talked several times about, you know, accretive growth, looking at new contracts. I'm wondering maybe could you just talk a little bit about the activity you're seeing in and around your assets as well as what the pricing is out there right now, what the pricing environment is? And that does it for me. Thanks.
spk03: Certainly. Equative growth is obviously very, very important, particularly in this environment. We are seeing steady activity. As Bill said in his opening comments, notwithstanding price fluctuations, what we are seeing is steady growth from our primary customers, our primary customers being Chevron, Mewburn, Conoco, Oxy, everybody with more of a long-term view. And we've been looking at the forecast and re-looking at our forecast, and we are just seeing growth that is consistent with what we laid out for 24. New Bern has had some accelerated growth. They obviously got a lot of rigs out there. So we are seeing consistent growth from our customers in and around our assets. We are also seeing activity in new areas that are proving to be very promising for operators. adjacent to our asset. So, I think you will just continue to see this growth in 23 and beyond.
spk01: Thank you.
spk04: Thank you. At this time, there are no further questions in queue. I would like to turn the call back over to management for closing comments.
spk03: Thank you. So, thank you very much for joining us today. We've had a strong quarter. We look forward to coming back and talking again at the end of second quarter. We also want to thank all of our shareholders and stakeholders, including our customers, and most importantly, our sort of dedicated employees who have been working very hard to continue to make the improvements that we talked about today. So thank you very much and talk to you at the end of second quarter.
spk04: This concludes today's teleconference. You may disconnect your lines at this time, and thank you for your participation.
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