Gary Love - CFO Steve Orr - CEO

Scott Treadwell - TD Securities Sarah Hughes - Cormark Securities Dana Benner - AltaCorp Capital

Thank you. Good morning.

Before we begin this morning's conference call, I would like to take a moment to remind our listeners that today's conference call includes forward-looking statements that involve estimates, judgments, risks, and uncertainties that may cause actual results to differ materially from those projected. The complete text of ShawCor's statement on forward-looking information, included in Section 4 of the second quarter 2015 earnings press release, it is available on SEDAR, and on the company's website at shawcor.com.

I'll now turn the call over to ShawCor's CEO, Steve Orr.

Thank you, Gary, and thank you ladies and gentlemen for joining us on this morning's conference call. Yesterday evening, we released our 2015 second quarter financial results, and as expected, the results showed a significant decline in revenue and earnings, as the company was impacted by the decline in North American oilfield activity, coupled with lower pipe coating activity in Asia-Pacific.

Revenue decreased by 16% from the first quarter of this year. However the utilization, both in North America and a key number of -- key facilities globally was reduced.

It had a major negative impact on gross margins and operating margins with a consolidated gross margin decreasing over nine percentage points from the prior year, and our EBITDA margin before restructuring costs at approximately 7%, down from 19% a year ago. While we cannot conclude approximately of further decreases in oilfield activity, it appears, that the North American drilling completion activity has now stabilized.

Through the cost adjustment measures that we have now implemented in the North American businesses, and with large pipe coating project activity scheduled to ramp up, the company does expect better results in the second half of this year. The restructuring actions we have taken, reflect difficult decisions that we have made in a number of business units, and across support functions.

In each case, our objective has been to align our organizational structure, not only with reduced market activity, but also, to enable our strategic growth plan. In a few moments, I will provide further details on our outlook, both for the second half of this year and beyond, and how we are structuring for future growth.

But first, I will ask, Gary Love, our CFO, to provide you with key details on the second quarter financial results.

Thanks Steve. We are reporting revenue of $398 million, a decrease of 16% from the first quarter of this year.

The reduction is attributable to the pipeline segment, where revenue fell 18%. In contrast, our petrochemical and industrial segment revenue increased by 4%.

Now in North American pipeline, revenue declined by $41 million or 20% from the first quarter, with the most significant decreases occurring in pipe coating and composite pipes, as we felt the full impact of the industry-wide curtailment in gathering line construction. The EMAR pipeline region experienced a $50 million decrease related to lower activity at the Orkanger and Leith pipe coating plants.

While Asia Pacific pipeline revenue decreased by $23 million, due to an absence of large project revenue. Now compared to the second quarter a year ago, revenue decreased by 10% with the overall revenue decrease again attributable to the pipeline segment.

In North America pipeline, revenue was down only $7 million or 4%, but this of course was due to the acquisition of Desert NDT, which contributed over $20 million revenue this quarter. Without the Desert purchase, revenue in the region would have fallen 17%, with the largest impact being in our composite pipe business, with revenue falling by approximately 50% from the prior year.

The other critical area of revenue weakness year-over-year is Asia Pacific, which decreased by $79 million, following the completion of the [indiscernible] project a year ago. Now on the positive side, EMAR pipeline region revenue increased year-over-year by $42 million, due to increasing volumes on the Shah Deniz project at the Baku facility, and in Ras Al Khaimah.

However, low utilization was experienced elsewhere in the EMAR region. The impact of the decline in the oilfield activity in North America and the shift in project activity away from Asia Pacific, has had a very detrimental effect on the company's gross margin and operating margin.

The overall consolidated gross margin decreased by 9.6 percentage points to 31% from 40.6% a year ago. Gross margins were negatively impacted by low utilization at our major pipe coating project plants in Asia Pacific and at the lease on Orkanger facility in EMAR, and from the significant decreases in activity at our North American businesses, that are exposed to wellhead activity and gathering line construction.

EBITDA decreased 84% year-over-year to $12.9 million, with gross profit decreasing $56 million from the lower revenue and margin and SG&A increasing by $14.2 million, an increase attributable to the addition of $5 million from the acquisition of Desert NDT. Restructuring costs of $15 million, and an increase in provisions for doubtful accounts of approximately $3 million.

Also negatively affecting EBITDA were FX losses in the second quarter of $2.9 million. The decreased EBITDA translates into a consolidated EBITDA margin in the second quarter of 3.2%, constituting of 6% in the pipeline segment and 17% in the petrochemical and industrial segment.

Now the restructuring costs recorded in the quarter, include employee severance costs of $11 million, and about $4 million of facility closure costs. This latter amount includes a total of $3 million associated with the rationalization of operating locations in a number of our North American businesses, as well as costs of approximately $1 million to consolidate our various sales offices into one location in Calgary.

These restructuring costs are expected to reduce SG&A costs by at least $5 million per quarter, commencing in the third quarter. Below operating income, finance costs were largely unchanged and we have a tax recovery in the second quarter, versus an expense in the first quarter.

The effective rate of the recovery is 27%, which is in line with the Canadian statutory rate of 27%. Reported EPS is a loss of $0.13 per share, but is a profit of $0.04 per share, before the $15 million of restructuring costs.

Income from operations after adding back non-cash items declined from $61 million a year ago to $17 million in the second quarter. Now notwithstanding this reduction, the company had very strong cash flow performance, as a result of the $90 million reduction in non-cash working capital.

With the results, our cash flow from operations reached $108 million in the second quarter. Now the $90 million cash inflow from change in non-cash working capital was driven by a $110 million decrease in accounts receivable.

Cash flow used in investing activities in the second quarter, excluding increases in short term investments was $60 million, consisting of capital expenditures on property, plant, equipment of $30 million, the most significant of which related to Bredero Shaw and Flexpipe, and a further investment in Zedi common shares of $3 million. During the second quarter, financing activities used net cash of $15.4 million, that consisted of dividends at just under $10 million, and the repayment of bank debt of approximately $6 million.

As a result of the net cash flow of $68 million in the quarter, cash and short term investments increased to $173 million from $99 million as of the end of March. In addition to this cash position of $173 million, the company has available unutilized credit facilities of $434 million, and the company's leverage on a net debt to trailing EBITDA basis is 1.1, which is well below our internal limit of 1.5 times.

I will now turn the call back to Steve for his commentary on our outlook.

Thank you, Gary. There continues to be two core trends that will largely determine ShawCor's financial results over the upcoming quarters.

First, a large pipe coating project activity, while the second is drilling and well completion activity in North America. Looking at large project activity first, our booked order backlog has declined in the quarter to $608 million, from $703 million at the end of March.

The order backlog consisted the value of booked orders that we expect to execute over the next 12 months, and thus is a good indicator of what we will experience in large project activity through the second half of 2015, and the first half of 2016. Over 55% of the backlog is in our EMAR region, with most of this work related to two large projects, South Stream and Shah Deniz.

In July, we commenced concrete weighted coating at the now renovated Baku, Azerbaijan plant and thus we are in full production on the $200 million Shah Deniz export line project. This work will run from the third quarter of this year, until the second quarter of 2016.

After a very low level of activity in the second quarter, our Orkanger, Norway plant is now geared up to run production on the full assurance [ph] insulation coating of flow lines for Shah Deniz. This work will run from the third quarter of this year until 2017, and will provide much improved utilization for the Orkanger facility.

With respect to South Stream project, much of the uncertainty continued to exist. However, we have been advised by Europipe that the suspension of work on line 1 concrete coating has been lifted, and expect to perform this work in the second half of 2015.

Also, we have been advised by our customer, Marubeni Sumitomo, that although their contract for line 2 remains suspended, we are approved to commence the anti-corrosion coating of the pipe we have on hand in our facility in Ras Al Khaimah, to protect and preserve the pipe. Together, the work for South Stream lines 1 and 2 are now expected to generated approximately $75 million of revenue for the third quarter to the end of the second quarter next year.

As of the end of the second quarter, we have excluded from the backlog, a total of $50 million of South Stream contracted work, due to the lack of firm customer commitments on the production schedule. Turning now to the outlook for North American businesses that are leveraged to oil and gas drilling and completions.

We do not have any visibility on how long the current decline in market activity will last, other than to note, that it appears that the rig count has stabilized, following a greater than 50% decline from peak levels a year ago. With the lack of uncertainty on any rebound, we had chosen to plan for an extended downturn and have taken aggressive measures to reduce our cost structures.

Since the end of the third quarter of 2014, total employee levels have reduced by more than 20%, with salary staff level down 31%. To achieve this, the company has incurred severance costs of employment terminations of $4 million in the fourth quarter, 2014, $3 million in the first quarter of this year, and now $11 million in the second quarter.

In addition in the second quarter, we consolidated a number of branch locations in North America, in our Canusa-CPS, Guardian, and Desert NDT business units. Reducing costs to manage through the downturn was the primary driver of the restructuring, however, we have also implemented changes to organized structure to position our businesses to better leverage capabilities, and pursue strategic growth.

Examples of this type of initiatives was the full integration of Socotherm with Bredero Shaw, the integration of ShawFlex with DSG-Canusa businesses, and a number of collocation moves including combining Desert NDT with SPS in Houston, the moving of Canusa-CPS Woodlands operation into the Channelview location, and the centralizing of all our Calgary sales and management groups into one location. Although we lack visibility on the duration of this downturn, we continue to be optimistic about the growth potential based on high level of bidding activity for large projects globally.

As of June 30, 2015, our list of firm bids outstanding has exceeded $800 million, which although reduced from approximately $1 million a quarter ago, remains very strong. Also, in addition to outstanding firm bids, the level of projects for which we have provided clients with engineering estimates has continued to grow to over $1.1 billion.

Most importantly, we are now more optimistic that several of the large projects in our bid list will be moving forward for customer approvals in the second half of 2015, which would bode well for revenue in 2016 and 2017. A significant portion of this activity is centered on large diameter projects in North America, and given this expectation we successfully relaunched the Portland, Oregon, pipe coating plant and started the upgrades to the internal diameter line in the Camrose plant in the second quarter.

Beyond our efforts to build backlog, I would like to assure you that despite the severity of the current downturn in global oil and gas markets, the company remains focused on executing our long term growth strategy across all five of our growth themes. In this regard, I'd like to highlight several important developments in the second quarter.

First, the linking of discrete product and services into en engineered system to address execution risk and operational performances becoming a differentiator. This quarter, the company received two separate awards for major operators in the Gulf of Mexico, where parent and field coatings, supported by modeling and analytical testing, demonstrated the value of the systems approach.

Second, our SPS business also completed a critical technology milestone, with a successful trial of realtime girth weld data transmission. Partnering with Zedi, the trial has proven to the complete satisfaction of a major U.S.

Based transmission pipeline operator. The feasibility of using data transmission in real time to optimize the inspection of girth welds on remote pipelines.

This development offers SPS and Desert NDT the potential for significant productivity improvements and quality assurance, while at the same time, establishing a critical building block in our pipeline integrity management offering. Also in the quarter, SPS expanded its footprint into Canada, with the granting of our operating radiation license and the award of the first commercial job.

In the area of strategic technology development, we remain on track for end of the year commercialization of the six-inch diameter, FlexFlow composite pipe product. During the second quarter, our facility preparation accelerated, as the high speed production liner passed full acceptance testing in the production configuration, allowing the focus to now move to authorization in pipe handling.

Finally, the very strong free cash flow that was generated in the second quarter, combined with our current strong balance sheet, provides ShawCor with substantial investment capacity. We hope that we would be able to put this capacity to work in the second half, to support the execution of our long term growth strategy, through growth investments in potentially several of our five growth themes.

On that note, I will turn the call over to the operator and for questions. Roland, please?

Thanks. Good morning guys.

First one to maybe -- to start with on the margins. I know in the past, when you talked about pipe and pipe services, you had sort of thought that you might be able to dig out to sort of the high 20s when things were all working really well together, and here we see something in the sort of low to mid single digits.

I am just wondering, with this restructuring and with what you see in front of you, have those goalposts sort of moved at all? Where would you sort of be comfortable thinking margins, at least, based on the backlog and visibility you have, might play out in the next kind of 12 months.

Is there anything meaningfully different?

Scott let me -- this is Steve Orr, I will go then I will pass it back to Gary to add some more color. So first of all, we expected truly the margin question would come.

So maybe to break it down into two different components; so the first one certainly has to be -- for us to move towards -- you said, the 20% mark, we have to get utilization up in pipe coating facilities, not only in North America, but internationally in the global market. A plant that is running in two states is the best for us, completely shut-in or running at a volume that pays for the [indiscernible].

In Q2 in particular, I will highlight Orkanger that we have already mentioned. At least the FlexPipe facility so multiple runs of our plant that we don't expect to have low level activity in H2, were under loading utilization levels.

The second component for us to move in the pipeline products and services, has to be the activity in North America, it has to come back, where the margins associated to some of our services lines, and the volume of FlexPipe is back with us again. We have one client that provides product into the market from FlexPipe, and if we don't have the activity in North America, it's not conceivable that we will rake into the high teens and into the 20s.

So those are the two key factors. I strongly expect, and of course, projects and execution is key to make this happen, that we will see an uplift in the second half from plant utilization, so this will happen.

I think North America, although we will do better than in Q2, because of the costs that we have taken out of the system, we do not expect that marginal difference in the activity in North America. I will pass it over to Gary, because he can provide some additional color.

Actually, I think that's a pretty complete answer. The only thing I will add is, that I think as Steve mentioned, we have got to view this thing in two steps.

Step number one is, what we expect to see in the second half, which is the improvement in utilization, particularly in our large pipe coating plants outside of North America. That's going to get us from the very-very low levels of the second quarter, back into double digit operating margin range for the overall pipeline segment.

But moving back to 20%, which we still believe is absolutely achievable, that second step will require the North American wellhead leverage businesses to come back, and three businesses in particular, small diameter pipe coating, FlexPipe and our Desert NDT gathering line weld inspection. Those are high margin businesses, but they cannot be high margin businesses in the current environment.

So that second step will -- we don't think that the 2015 likelihood, that's unfortunately going to have to wait for a better environment in 2016 and beyond.

Okay, good. That's good color on that one.

On a similar note, on the restructuring side, obviously the headcounts is part of it. I am just wondering, how much of that either on a dollar basis or just a percentage of what you have done, how much of that do you think is permanent and fully structural, and how much of that do you think probably gets reverse to some degree, when things start to pick up?

I think the number to kind of put away to one side is, what we have stated, that we expect. From what we have done, we will see a $5 million offset, that is -- will be recognized going forward.

Per quarter.

Per quarter, yes. And a lot of the actions that we took, I will put them in two buckets; so one is resizing, which you correctly have pointed out, that requires us to add -- or put force back on to cover the activity.

But we have also taken a loss of cost out of the system by restructuring. So by putting Socotherm and Bredero together for example, we have taken a lot of the permanent costs out.

We have also done steps for the unshared services in those numbers, right? So we have consolidated some of the transactions around shared services, both towards HR and IT.

I think the one thing you're going to see coming back, Scott, will be directly related to activities, and these are primarily hourly staff. So if you look at the large drop that we have in the hourly population, these are very much linked to activity, and for each head that you add back, there will be an incremental revenue and margin that comes with it.

So I would be quite happy to be adding back heads in the facilities; for example in Guardian and FlexPipe. But most of the salaries are on the large part of the salaries, the employees that we took out are sustainable for the long term.

Okay. So yeah, by and large, even adding back guys at the sharp end of the stick, isn't going to cause you to incur much G&A inflation?

Maybe this is a good opportunity, we made some very-very difficult decisions, and we did it with the visibility on what the company is going to look like going forward. So we have reduced, and I would call them, very dedicated value added employees.

But the structure did not -- the structure going forward, not because of activity, but a view on what the structure would look like. We have exited from the organization.

So these costs, certainly will not be readded.

Okay, good. So to move on from there.

One thing that I noticed, a pretty material build on the inventory line item. I am just wondering, can you give us some color there, was part of that FlexPipe and maybe just ramping down some of the production that didn't get sold into the market, or is there something else at play there?

Actually no, it was almost entirely related to raw material inventory associated with work in EMAR and specifically Shah Deniz. So we were building up the materials and they will need to execute those Shah Deniz work.

And in fact, the opposite in FlexPipe, we reduced finished goods inventory. We had a very significant and important reduction in finished goods inventory in the second quarter, that has actually continued, in fact, in the month of July.

Important for getting the inventory level reset for the current market, unfortunately, not great for margins in the second quarter. So just another element of the margin story in the second quarter, and to put a specific point on this, the FlexPipe production facility was shut down for the entire second quarter, and it did not restart production until in fact, well into July.

So the revenue we generated in the second quarter came entirely out of inventory. Again, not good [indiscernible], but necessary to reset and important from a cash flow perspective.

Okay, good. Last one for me, just your commentary on Zedi and the incremental investment, does that change your ownership share or was that investment pro rata with the other investors?

No it increased our share. We are now in excess of, I believe, 30% ownership.

Perfect. That's great.

As always I appreciate the color. I will turn it back.

Thanks.

Good morning. Shah Deniz, would you be able to tell us how much revenue you expect to generate from that contract in 2015, and how much will go into 2016?

We are going to try and run that project as quickly as we can. We find that on large projects, once the project is launched, the best result is to maximize the throughput.

And so I think on paper, it will run over roughly four quarters, roughly evenly over four quarters. But we will try to accelerate that, and if we can, then we will finish the job earlier than that would suggest.

Okay. And then in Q3, will it be a slow quarter?

Yeah, it should be.

Okay. And then the G&A reduction of $5 million, will we see that full impact in Q3, or any delay there?

We will see it in Q3. There maybe some offsets on the other side, but we will definitely see that in Q3.

Okay. And then Steve, you talked about -- in your bid book a number of North American contracts expected to get approval by the end of this year.

If those end up getting approval, I am just wondering kind of the timing of -- if things go according to plan, the timing of potential revenue recognition you would get from those contracts. Is it 2016 or 2017, if you can give some visibility on that?

Yeah so I would say the -- and as we go through each corner of them. So I think, without exception, its all in the later part of 2016 and into 2017, just the large ones in the North America arena that we are chasing.

Sarah, if you allow me, maybe I can clarify two points. So we use the number that we quoted of the $608 million for back -- I think it would be positive for me to clarify.

We have removed $50 million of South Stream under the backlog. So like for like on the quarter, that $50 million is now removed.

The second part is, last quarter, we have mentioned $1 million in bids that we have outstanding, and now we are down to $800 million. There is one project of about $100 million, that was in the bid that has moved back to budgetary; because of bidding procedures, the bids have expired, and now are being redone again.

So if we weren't so analytical on how we kind of captured these things, the bids that are outstanding, because this one will return very quickly, would be 900. I think its good that I clarify that, because we saw a movement of about $200 million in the bid.

But the reality is, its only $100 million.

Okay. And the regional makeup of that bid book, is that similar to what we have seen in previous quarters?

I think more western?

So it is certainly heavily weighted to the western hemisphere, but we do have projects that we are pursuing, and we use the special of $80 million. We do have projects in excess of $80 million in each one of the regions that we are pursuing.

So heavily weighted to the western hemisphere right now.

Okay. And then just lastly, just on the acquisitions, you talked a little bit about -- in your opening statement, just a bit, maybe in terms of kind of the landscape currently?

I know there is always the talk of -- it takes time for valuation levels to reset, given after a slowdown; just wondering where they are currently and then just overall, to the levels in the pipeline?

So we did a review actually two days ago, and what we see and -- contract multiples are staying flat. There is a subset again -- volume decline year-on-year, so there is less yields being done substantially.

We have now three active pursuit teams running. So we are fully staffed for acquisitions, to get them over the threshold.

We are starting to see, not only depressed sales or whatever, we call distressed sales, which kind of fit into our arena. But we are also starting to be able to communicate our strategy and attract valued partners or acquisition targets to come online.

So we are gaining traction. I am quite optimistic that -- you're never certain till they get over the threshold and you're complete.

But I would believe you are going to see something in the second half, right?

Okay. That's it for me.

Thank you.

Sure. Good morning folks.

Good morning.

Unfortunately, I am in about between two calls at the same, and I just want to clarify one thing, and maybe you already did. With respect to the backlog, the new number $608 million, I understand you got roughly $50 million that has been pulled out due to South Stream.

The Q1 number of $703 million, what would that have been, if you had made the same adjustment?

At the end of Q1, we had about $125 million in the backlog. And so now, as of the end of Q2, $75 million of that $125 million remains in the backlog, and will get executed in the second half and early part of 2016; 2015 has been pulled out.

So yeah, you could pull that $50 million out of both the beginning and the ending backlog.

Okay. So in reality its [indiscernible].

Perfect. Secondly, with respect to the restructuring, I understand the comments you have made about savings to come.

Will those show up predominantly in G&A versus op costs, or is it all G&A? How would you characterize that?

Those are G&A. The G&A savings would be about sort of $5 million a quarter number that we cited earlier.

On the op cost side, its -- the gross margin incredibly low at 31%. That will be benefited by cost saving efforts as well.

It will be benefited, as we go forward, by better utilization. But it will also be benefited by cost saving activity that we have taken as well.

Okay. Would you then characterize your restructuring efforts as largely complete, given what you know about the world today?

I.e., no major deltas one way or another?

Dana yes, and this is what we have communicated to the employees, our customers. We do not anticipate another major reduction in workforce.

We will be considering we are done.

Okay. Terrific.

If you were to characterize the pull back in activity at -- I mean North America is a broad category, and if we look at Desert NDT or FlexPipe, those two, more recent additions to the long term ShawCor fold; would they have performed in better than your small diameter coating business, or are they pretty much in loss there?

Certainly FlexPipe and Gary alluded to it, because we made the decision to reset the inventory levels, we shut down the plant. And so, FlexPipe sells into the gathering lines right away, and it’s a product sales business.

So it was nailed substantially harder than any throughput plans. So I would say, it was hit harder than small diameter.

But the activity was hit the same, but the margins were really hit, because of the decision that we made. Desert is quite unique, because Desert scales its unit and services business.

So they have remained, albeit -- they also have a utilization component, so they can run their cruise on weekends and over 12 hours, they make higher margin. They are still a very profitable business.

Yeah I would add, of our wellhead leverage businesses, Desert was the best performer on a relative basis, and both from a revenue perspective and from a margin protection perspective, unfortunately, FlexPipe was probably the hardest hit.

To extend a little bit further; so FlexPipe production plants is up and running again and our inventory levels are now -- also now we have continued throughput, so that helps substantially on margins. Given the same level of activity that we saw in Q2, which we think were there in our terms [ph], stabilization.

Last question, and coming back to M&A, I mean, you have a fantastic balance sheet. You are well positioned, you have a global platform.

I think you very well -- you have sketched out a very intriguing vision for the future of ShawCor, and I think there are probably lots of people who would have thought we would have seen more deals by now. And is it more a strategic call in your part that things can get cheaper, and you can still get them at a better price?

Or do you simply have unwilling sellers in the area that you really want to constantly go to?

I think we will kind of make two points clear on it, is that we are being very selective on -- they have to fit the strategy, number one, and we have to be determined that we can extract the strategy. So our goal is try to be accretion [ph] in a one year time period, and as the market -- now we are at $45 per barrel of oil, as the market goes, certainly on activity on the other side, means that synergies are more important, right.

So the more uncomfortable you are with the commodity prices, the activity has to get more synergies out of the deal. So that makes it a challenge.

The second point I'd like to make, is that the organization in Q2, because of the decision that we made, that we would be aggressive and we would accelerate, and we would be done by Q2. Management bandwidth was substantially focused internally, and I think in doing so, the challenge for us now was to swing the direction back to customers, and the element of growth, which is the acquisitions.

So in an organization such as ShawCor, to do the -- both in terms of the relocation, shutting down our facilities and the release of several -- a large volume of very talented senior employees, took a lot of energy. And a lot of distractions from the management team.

So that's not an issue, but it’s the reality. So now we have flipped the switch in Q3, and we have three active pursuit teams that knows that we are kind of on standby, are fully engaged now.

Okay. That makes a lot of sense.

So I will turn it back to the queue.

Thanks for taking the follow-up guys. I wanted to ask on FlexPipe, I know when you sort of painted the broad strokes of the picture in the past, you said there is an industry acceptance hurdle to get over, and then there is obviously competitive dynamics with other providers.

I am just wondering, as the landscape has shifted, has the inertia the resistance to trying something new increased, or has the hunger for cost savings potentially presented an opportunity for things like FlexPipe to get into customers who may have been a bit more hesitant in the past?

I think a general comment, Scott, is that we track very closely the active customers and our sales. We continue to add customers on a monthly basis.

But what is clear, is that the volume of sales is less. So we continue to -- and the name of this team is certainly conversion from steel.

And therefore, even with the reduced steel price right now, the value proposition of reduced overall cost of ownership, has continued to sell -- FlexPipe into the marketplace. Where we are now seeing more of a challenge for us, is we do not have larger diameters.

So we are now -- have a limited portfolio to sell from, which is four inch and below, and as the number of wells increase in the pads, the operators need and often they are pushing towards a one supplier model, and we need to get the six inch done. And I think that's the important for us right now.

The market is there, the customers are buying, the -- I think we are going to be surprised in the unconventional arena, where -- we are going to continue to innovate the industry will continue to innovate, and we will make unconventionals profitable at lower commodity prices, and its because of acceptance of technology such as composite, that we are going to continue to see. So I have no concern about adapting or converting steel to composites.

But what I am really concerned about, and that's why we keep mentioned it, and one of the key focuses of the organization, is getting the six inch stick product out, which was via platform for the larger diameters.

Okay, perfect. And I know when you guys talked in the past about the expansion of the available market.

Does that sort of math still hold, that you think, when you get to six, and potentially eight inch diameters, you are talking about adding a global market, in the billions, on a sort of annual basis?

Yeah, if anything the ratio has -- more heavily towards the large diameters. In terms of the ratio yeah.

The overall market is smaller than we estimated because of the activity. It has come down with the number.

But the size of the market adds billions and its more heavily weighted to the larger diameters.

Okay, great. And just to refresh, that will be commercial by the end of the year, that's the goal?

We stay on plan for the end of the year commitment to commercialize the six-inch 750, yes.

Okay, perfect. That's great guys.

Appreciate the color again. Thanks.

Thank you everyone following the call. I appreciate the participation and interest, and we look forward to next quarter.

Thank you.