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Dril Quip Inc (DRQ) Q2 2021 Earnings Call Transcript | The Motley Fool

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Dril Quip Inc (NYSE:DRQ)
Q2 2021 Earnings Call
Jul 30, 2021, 1:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day and thank you for standing by. Welcome to Dril-Quip Second Quarter 2021 Fireside Chat. [Operator Instructions]

I would now like to hand the call over to your speaker today, Mr. Daniel Burke. Please go ahead.

Daniel BurkeAnalyst

Yes, good morning. Want to welcome everyone joining our Dril-Quip discussion via the phone or webcast and I’m happy to introduce Dril-Quip Management CEO, Blake DeBerry; and CFO, Raj Kumar. Welcome, guys and thanks for the opportunity to host this conversation. I want to plunge right in and start with some questions on the second quarter results you guys just released yesterday evening. But before I jump right in, let me hand the floor over to you, Blake, and ask you to highlight any key themes you want to make sure we emphasize here before delving into the specifics.

Blake DeBerryChief Executive Officer & Director

Sure, Daniel. I think the main thing is we’ve laid out several pillars of strategy that we believe will help the company to be successful in the future and we’re getting success on all those strategic initiatives. We’ve outlined our peer-to-peer strategy, which is really a consolidation by collaboration and we did during the quarter signed our first peer-to-peer agreement, actually our second, if you include the agreement. Our downhole tool business, which we’ve been focused on pretty intently to get improvement in that business, is gaining significantly more traction and that business is doing very well. So, we’re very pleased with that.

Further, we spent a lot of time, energy, and effort on new products and we are starting to see now new product adoptions. We had several of those in the quarter, run a lot of serial number ones, which is the most difficult thing to do is get somebody to try it the first time and that generally lend itself to adoption of that product. So, we’ve had success there. Lastly, we identified of $10 million productivity gain for 2021 and we’re well on our way to meeting that productivity gains. So, on balance strategically the things that we’re trying to do, we’re having success within the quarter.

Questions and Answers:

Daniel BurkeJohnson Rice & Company — Analyst

Okay, I appreciate that, Blake. Thanks. Let me let me go ahead then and start with a couple of questions. Really catalyzed by the Q2 release. Let’s start with one that’s a bit high level. You included a handful of updates on your 2021 targets a little bit of an update on year-over-year revenue trend, order outlook, and free cash flow target margin, maybe I thought it would be a worthwhile if you guys could take a second and highlight those updates.

Blake DeBerryChief Executive Officer & Director

Sure. On the revenue side, we originally forecast 2021 to be similar to 2020. I think we’ve guided that down just slightly, so our revenue was down a little bit on the quarter, but that really is just a result of the lower bookings that we had in the back half of 2020, starting to manifest themselves in the top line. That’s just really it. As our booking level increase, which we’re hopeful for in the back half of the year here, we should see improvement in the revenue and things turning around. On the booking side, we had a pretty good bookings quarter right down the fairway of our range of $40 to $60 million. But if you just compare Q1 that Q2 on base bookings. So, in Q1 we booked like $57.58 million, but we had a $20 million booking in there for subsea trees and control systems. So, the net bookings really kind of a $37 million just ropes opened baseline bookings in Q1 and Q2. There was no large one-time. So, we booked $50 million in Q2 and it’s a significant improvement quarter-on-quarter and bookings. So, I’m pleased about that and happy to take more questions on bookings and how we see going forward.

On free cash flow, we had a pretty good free cash flow quarter. We’re trending significantly better than expected and I think we will exceed our target by year end for sure in that area.

Daniel BurkeJohnson Rice & Company — Analyst

Got it. Thanks. That’s a helpful rundown, Blake. So, let’s stay with as you mentioned quarters, you mentioned an expectation that the Q4 2021 orders in particular will be strong. Can you talk about the visibility you have into what’s giving you that conviction and is there any timing element to watch out for where we could see a dip in orders in Q3 before correspondingly strong rebound in Q4?

Blake DeBerryChief Executive Officer & Director

Yes, sure. So, first, on the visibility we have, some of it is qualitative some of it is quantitative. I mean some things we can put our hands on heart and say, yes, that’s something new in order book and then some of it is just more qualitative, what you’re seeing in the environment. But specifically, when we look at our CRM, we see more opportunities coming up, particularly Q4 and into 2022 and we’re starting to see some, what I call availability place with some of our independent customers, hey, I’m going to go drill a well. Do you have something in inventory that we could take now. So those opportunities are starting to appear and be quite candid, if I look at our markets, just on a segmented regional basis, there is more areas where there’s upside and increased activity, there are down or neutral and that’s different than what we’ve seen in the past.

Looking forward, our bookings on Q3, I think we’re going to see Q3 similar to Q2 and again in the mid of that 40 to 60 range and then Q4 is where we hope to see some momentum in our bookings and then that continue on into 2022.

Daniel BurkeJohnson Rice & Company — Analyst

Okay, helpful. Then again just to lean on 2022 for a moment, any reason you think you’ll crack out of that $40 to $60 million per quarter type of range you’ve been at really since the onset of the COVID times?

Blake DeBerryChief Executive Officer & Director

Yes. We expect Q4 to end it. Right now, we’re just saying, we think we’re going to be at the top end of that 40 to 60 million range on bookings on quarter. Right now, 2021 is looking optimistic. I’m not ready to call a number, but I think our Q4 number would be a consistent jump off point. We’re just seeing a lot of improvement in the market. I think you’re seeing even the rig contractors making commentary that they get more activity on leasing the rigs and I think Transocean recently came out and said that all the rigs in the Gulf are going to be mostly subscribed and under contract by the end of the year. So that bodes well for us.

Daniel BurkeJohnson Rice & Company — Analyst

Got it. I also wanted to talk about margins. Q2 product margins did dip about 400 basis points sequentially. You mentioned mix is a reason, but harkening back to last quarter, you mentioned margins in the back half of the year likely to firm up on improving mix and your cost out programs. I guess I want to do firm that’s still the case and you expect to claw back some ground on the margin line.

Raj KumarVice President & Chief Financial Officer

So, Daniel, margins in Q2, we talked about the AF Global impact to margins. About a year and a half ago, we leased our operations to our AF Global and as part of that, we accounted for leasing revenue that we had to accrue for. Some of this leasing revenue was forward in nature that we accrued for and that impact had, the fact that they terminated the lease, had an impact on our margins because it impact of our cost of goods sold. I’ll consider that to be around 300 basis points of impact in Q2. We also had some mix issues in Q2, but when I say mix issues, actually is a good story here. We saw pipe and connector mix go up and that’s always a leading indicator for us. What it means is customers are going back to work. They’re getting the pipe and connectors ordered. They’re going to run down the wellhead inventory and soon, they’re going to see those wellhead inventories have to be replenished and that’s going to help us with our mix going forward. If you think about that and if I were to look out second half of this year, I should see mixed up to improve in Q3 and firm up in Q4. We’ve had some very good results of our downhole tools outsourcing. We are seeing very positive results and expect that to continue. There may be some headwinds with our project mix in terms of we are doing a lot of controls work with Proserv and evidently, we have margin sharing situation there that could be a headwind to our mix. But overall, as I look into Q3 and Q4, I see stabilization in Q3, firming up in Q4. If I were to guide you in terms of EBITDA, I would say that on a normalized basis, our EBITDA should be in the high teens going forward.

Daniel BurkeJohnson Rice & Company — Analyst

Okay, that’s helpful. A recurring theme this earning season has been input cost pressures and how well companies can manage them. One of the more interesting elements of your release with the disclosure that you will impose a 10% surcharge on orders and essentially an effort to be proactive here with the potential for rising costs, can you just talk about how that has been received by customers and how easy you think that’s going to be to implement?

Blake DeBerryChief Executive Officer & Director

Daniel, I think, our customers are understanding of this cost increase. We’re not pushing because its demand based. They’re seeing the same cost pressures themselves. While nobody likes a price increase, it’s just the reality that transportation and materials are going up and that’s putting pressure on our margin and cost base. I recall back in 2003 and 2004 and again in 2006 and 2007, we saw the same kind of price increase on raw materials and our customers may not like it, they accept that that’s the reality of what’s going on in the market. So, I don’t expect too much pushback in that regard.

Daniel BurkeJohnson Rice & Company — Analyst

Okay. Maybe a more basic element of the question and what do you see it in terms of steel pricing, raw material pricing, and freight? What exposure, if any, do you have now against your existing backlog?

Blake DeBerryChief Executive Officer & Director

So, right now, as we look at our backlog in the transportation and the material element in there, there’s really about a blended 10% increase. That’s really why we’re pushing that number out there. The fortunate thing for us is that our business is longer cycle in nature. So, we have the ability to plan ahead. Our supply chain organization that we stood up in 2019 has done a really great job of securing long-term contracts. Right now, even though transportation rates, container freight rates are up as high as $9,000 to $10,000 a container, we still have contracts where we’re paying $3000 to $4,000 a container coming to or from Asia, for example. But those contracts have an end and so that’s why we’re pushing surcharge through, because we have to cover those additional expenses as they come through.

Daniel BurkeJohnson Rice & Company — Analyst

Got it, OK. Then, Raj, you mentioned earlier the impact of the cancellation of the forge lease with AF Global on the Q2 results. But thinking about that strategically, now that they’ve cancel the lease, what are your options for sourcing and what are your plans forge itself?

Raj KumarVice President & Chief Financial Officer

Right now, the immediate step is to as Blake talked about our supply chain organization and they have been very successful in ensuring that we have forge supplies, the ability to get forge supplies from multiple suppliers. So, we’ve kind of mitigated that risk completely. Global, prior to this, they were supporting us only from a domestic perspective and we were very quickly been able to pivot and get other sources of supply. So, we’re not too concerned about that. From a warm stacking perspective, the cost of doing that is negligible. It’s not going to be anywhere close to the $11 to $13 million we saw when we were operating the forge back in today. This will be maybe $100,000 a month. We are actually having conversations with a number of forge operators right now. Some are looking to lease, some are looking to buy. Those conversations are proceeding and I’m confident that we should get to some closure on this issue with the forge by the end of the year.

Daniel BurkeJohnson Rice & Company — Analyst

Okay, that’s helpful. Raj, just to stay with you for one moment. I wanted to revisit a comment you made just a few moments ago, we were talking about margins. You talked about normalized high teens EBITDA margins going forward. I just wanted to get a little incremental clarity there. Are you talking about adjusted companywide EBITDA margins in the high teens once things normalize, which will mean get out of the G&A burden you’ve had related to litigation and again some of Global stuff?

Raj KumarVice President & Chief Financial Officer

That’s absolutely right, Daniel. When I’m talking about normalized, I mean, once we get back to steady state and we know a steady state right now and also Blake earlier comments, the lower order is coming to roost right now. For us, when we start talking normalizes back, when we are back to activity levels that we saw maybe 3 to 4 years ago. Once we get to that level, I should expect us to be in the mid to high teens. The litigation side, yes, that’s been a headwind this year for us, but we’re putting that behind us. We could have some additional cost, but nowhere near where we’ve been and what we’ve experienced over the past year. In that sort of perspective, I would expect very easily once we get to normalize, we should be trending up to the mid and going up to the high teens in terms of EBITDA.

Daniel BurkeJohnson Rice & Company — Analyst

Okay, that’s helpful context. To be clear, it’s kind of cleaning up some of the specials as well as getting back up to maybe a more robust topline than you’re experiencing this year. An element of that margin progression is also on the cost savings that you guys have implemented includes $10 million this year and frankly, looking at the Q2 update, you’re well on your way to that $10 million. Are there any scenarios you could envision that would result in further changes to the cost structure for the company?

Blake DeBerryChief Executive Officer & Director

So, Daniel, it’s in our DNA to constantly evaluate our cost structure. The past 3 years, I think you’ve seen and what you’re calling structural costs, what we call transformational cost. We call it transformational because what we’re looking to do is leverage every dollar cost that we have. Being more efficient in the way we look at $1 spent and if you look at where we are right now and the outlook that we have in terms of bookings, I think we’re in a very strong position, a very good position to get a lot of operating leverage in this recovery. We always had the view when the recovery comes back that we need to be ready to do it and be able to flex our manufacturing and we are in that position right now.

Obviously, we’ll have to pull on overtime to get the first 20% to 30% of output. Once we get some stability in terms of activity levels, we will probably have to look at adding some variable cost to maintain the level of activity that we are anticipating going into next year, but for now, where we sit, we are focused on the productivity improvements. Blake talked about the fact that we’re well underway. We had a $10 million target out there. We have exceeded the run rate. We are close to $8 million right now in terms of our productivity savings and any additional structural changes or transformational changes will have to be evaluated against the market context. But as of now, what we’re seeing is, I think, we are poised and well positioned to take advantage of the recovery.

Daniel BurkeJohnson Rice & Company — Analyst

Got it. Let me pivot and just ask a couple of questions on really the commercial side of the business. We start with something you mentioned previously, Blake, in your opening comments. Your consolidation via collaboration strategy. You mentioned the agreement you signed with Integrated Oil Services peer for wellheads and related equipment. That sounds like it could be significant. Is there any way you can frame up or provide some incremental color on the size of the opportunity and maybe timeline to first sales under the agreement?

Blake DeBerryChief Executive Officer & Director

Certainly. I’m really pleased with our team reaching an agreement. The agreement we signed is with one Subsea and it is for the provision of wellheads and liner hangers and tubular goods, so pipe and connectors. So, it’s pretty significant. The teams are just now starting to work together and comparing opportunities and I guess the way to frame it Daniel, is to the extent that one Subsea is successful than Dril-Quip is going to be successful. They’re going to give us access to markets that we previously didn’t play in, particularly the integrated developments, and I think we’re likely to have some success by the end of this year or early next year. I mean I think there is one opportunity that comes up end of this year. Then there are several out in the future, but I think it’s going to be meaningful to our wellhead business, that’s for sure.

Daniel BurkeJohnson Rice & Company — Analyst

Okay, that’s helpful. Then on the E-Series Technologies, you’ve had some booking success VXTe, Big Bore IIe and I think you mentioned the DXC connector in the press release yesterday afternoon. Just generally, highlight some of the successes you’ve seen initially and maybe highlight as well more specifically VXTe, you’re thinking on timeline there for, as mentioned in the press release, first project or product deployment and opportunities beyond that point.

Blake DeBerryChief Executive Officer & Director

It’s been a good quarter for new products. It’s one of the things I’m extremely pleased about. We just signed a multi-year contract with the major Brazilian NOC. I think that’s pretty clear what that is and this is X Pack TE Liner Hanger system. So, this is an arrangement even turnkey suppliers like Schlumberger and Halliburton will be coming to us to get the X Pack TE for use by this operator. That’s a big, big win on the X Pack TE. Big Bore IIe, I think we announced last quarter, we ran our first Big Bore IIe and ran the second one this quarter but we are now seeing that that same NOC in Brazil is looking very closely at Big Bore IIe in the current tender that’s out and we’re optimistic, but we don’t have a contract yet but they’re starting to realize the time savings has real value and it’s meaningful to their cost structure and same thing with Big Bore IIe, we’ve got to IOCs that are looking to standardize on it and we’re consolidating our wellheads from 15 different [indecipherable] Big Bore IIe is a big part of that and so I think that’s a great start.

Another one, the DXE wellhead connector, this one is a little more subtle to understand, but the top of the wellhead has a profile on there. That’s traditional de facto standard profile has been in H4 profile for over 20, years longer than that probably and the DXC connector is a different profile in the wellhead and it has very high fatigue resistance. When you have large rigs and shallow water, like to have in Norway, the time the rig to stay on the well was very, very short because of fatigue and the DXC connector including the profile in the wellhead is extended by an order of magnitude the amount of time on the road. It’s a significant adoption because it’s not just somebody bought a product, but they decided to change a de facto standard of the interface of a wellhead to the BOP stack. So that’s a big deal. Specifically, to VXTe, we do have another opportunity to run the VXTe with Walter Oil and Gas. They are spudding the wells on April 1. Walter buys these trees and put them in inventory and when they drill a prospect if it is suitable for Subsea development required to treat and they just go right ahead and run the competition and run the tree. So, every time they drill well, we’ve done up to run that; so I’m hopeful that that they are successful on as well and we will get that tree run just at the end of this year, early next year. How that number one behind us?

That said, we had a lot of pressure during the lawsuit. We had several major step back for VXTe over the lawsuit, which resolved. We are reengaging with [Phonetic] come back, they are fully on board. I think we’re getting back on track with our VXTe marketing strategy. It is a meaningful product from a time cost and carbon footprint standpoint.

Daniel BurkeJohnson Rice & Company — Analyst

Got it. Well, again staying on the commercial side, Blake. Let me pivot over to downhole tools. Obviously, the business had a really strong Q1 and it had a pretty good Q2 as well. So, your comp in revenue up about 30% year-over-year, year-to-date and then you’ve touched on these before, but help me better understand the drivers. Is any portion of this catch-up related to disrupted 2020? What portion is structural? I know you’ve made some changes to the business, but help me understand that. Help me understand as well whether you can kind of sustain this higher revenue run rate looking into the second half of the year?

Blake DeBerryChief Executive Officer & Director

Yes, so there is a little bit of catch-up from 2020. But that’s a very small part of it. It’s really more about the changes we’ve made to the operating model of this business. We did bring in new leadership for the downhole tools group, but not only that, over his time with Dril-Quip, we’ve also changed the leadership in several regions where we operate. We have an increase in our geographic focus and we also have some new technology. The other thing we did is we looked at what are the areas where we are underperforming. We closed some businesses and left some areas because it was a distraction. We said we’re going to focus on these key areas, which is really Middle East, Latin America, and our offshore business. That we’ve done. We’ve improved our supply chain with better stocking programs and quite honestly, lower costs, so improved margins there. So, we’re much more competitive now and downhole tools specifically Line Hangers, it’s a business that you sell from inventory. If you don’t have the inventory, you don’t get the business. So, we’ve built that inventory up and we’re being much more competitive than it and we are continuing.

We are maniacally focused right now on our service quality. We’ve got initiatives in place to improve our service quality and so that’s helped to help grow that business. We’re also seeing more peer-to-peer activity. We’ve always provided liner hangers to peer, but that seems to be increasing over the course of the year and those things are just structural and those things just continue on.

Daniel BurkeJohnson Rice & Company — Analyst

Got it. Then, also again, on sort of the commercial front; you guys have fielded a number of energy transition questions over the last few calls, but it does remain your main topic, so let me add one and more the straightforward one. When you look at your green-by-design campaign and the message you tried to convey to customers, what’s the reception been like there.

Blake DeBerryChief Executive Officer & Director

So green-by-design is a campaign we put together that really ties together our R&D focus for all the new products we developed. I think I’ve talked about this before. I challenged our engineers with the concept of I want you to develop equipment that structurally changes how our customers drill wells to provide them permanent cost savings. The way you can do that is I can eliminate things that I have to install. I can reduce the time, so I reduced steel and I reduced time. As the focus shifted more to carbon footprint environment, what we realized was saving time in an offshore spread has a significant impact on carbon footprint. That really kind of changed the way we think about R&D, that time is really important because it’s important both from an IRR perspective and return on the investment, but also from a carbon perspective because the number of vessels working offshore are significant. It really just represents a significant change in how we think about designing and R&D products and just to kind of put a finer point on it, we started doing what’s the carbon footprint savings of installing of the VXTe tree and these are preliminary numbers, because we haven’t added everything.

I’m going to give you a number here that’s probably conservative to the low side, but VXTe about 1,000 metric tons of carbon saved per well and that’s in addition to the five days and $5 million of cost; so it’s pretty meaningful for our customers.

Daniel BurkeJohnson Rice & Company — Analyst

Got it. All right. You’ve also mentioned, Blake, that the Dril-Quip has some ability to kind of step out into the marketplace around carbon capture and geothermal and you described some of those opportunities or adjacencies. But any actual commercial opportunities emerge that are on the horizon.

Blake DeBerryChief Executive Officer & Director

Yes. So, our plan is to be an active player in the energy transition and carbon capture and geothermal are certainly things that are adjacent to what we already do. We have bid a couple of carbon capture projects. We have not been successful. We got a big one coming up next year that we’re really focused on. Every time you bid these things you understand more what the requirements are. And I think we’re going to be successful here. We’re spending a little bit R&D money to do some development work that fine-tunes our tree systems to meet the requirements of carbon capture. But this is an area where we’re going to become more strategic whereas the past which is kind of adhoc opportunities is an area where we now focus on and our sales guys really go out and look for, people for customers that are, that are plan in these geothermal RCC US projects.

Daniel BurkeJohnson Rice & Company — Analyst

Okay. And I wanted to give it back to sort of free cash margin targets and Raj, you might have given the a bit of a hint with your comment on our normalized EBITDA margins for the company being mid high teens and an ambition, we won’t see this year, but a relevant sort of data points so, but building from that. Could you share some thoughts on where free cash flow margin could be or could trend over the intermediate term.

Raj KumarVice President & Chief Financial Officer

Absolutely. So, Daniel. You know we guided at the beginning of the year, we said that we would expect a free cash flow margin to be 5% and what I used to work. Free cash flow margin, and I’m using the margin on revenue, just to be clear on that. If you look at how we’ve been with the progress we’ve made year-to-date. We will exceed that target in 2021. In fact, I’m confident that we’ll get very close to double of that targets of close to 10% by 2020, by the end of 2021 and my only caution is as we approach next year and the back half of this year going into next year, we’re starting to see orders come in, market starting to recover, backlog starting to build. I expect that we could see some headwinds and these to be a good headwinds to working capital, right. But I expect this to be transitionary maybe a slight dip next year and then we should get back to that 10% yield very quickly. If you go back to my comment on the EBITDA, it’s very you can very quickly see you have a capex impact. You’ve got some cash taxes in there and you very, very easily land at that ten plus yield on a normalized basis.

Daniel BurkeJohnson Rice & Company — Analyst

Got it. And Raj, you referring to some of the elements of working capital influencing free cash and so maybe to follow-up there, looks like you guys have made pretty good progress this year on the AR side and the AP side but inventory levels still seems a bit elevated, what can you do. And is there the ability to see improvement there in the face of or in the face of anticipating a rising order trend.

Raj KumarVice President & Chief Financial Officer

Yes. So that’s a good point, Daniel. Let me talk about working capital, right. So, on the AR side, let me talk about the progress we’ve made on the AR and the AP side. On the AR side, a lot of process improvements initially rolled out domestically in the US and then we went into the regions and did a lot of process improvements in terms of invoicing, turnaround, collections efforts coordination with the customer meeting payment terms, et cetera. And that’s, that’s coming to bear fruit for us. I mean this is something we worked on last year and we’re seeing the results of that come into play now. On the AP side, we’ve done a lot with our supply chain group that we recently stood up, we’ve done a lot of vendor management et cetera. In terms of payment terms and that’s helped us deeper relationships with fewer vendors is going to allow us to have better terms basically.

Now, shifting to inventory. Yes, it is a problem, we’ve highlighted maniacally focused on it. We’ve done a lot of substitution efforts this year, we’ve looked at consignment with some of our vendors to help us on the inventory side but these are all you can only do so much, right at the end of the day, we need the booking to come in. The bookings need to come in for us to turn the inventory, so if I look out second half going into next year as bookings start to improve, we should start turning inventory at a faster clip rate and that too is going to help us in terms of adding to the working capital wind down.

Daniel BurkeJohnson Rice & Company — Analyst

Okay, got it. And then, I think that kind of leads us as well too another popular question on the balance sheet, which will and a little bit of a recurrent question here, but you have $270 million in cash after a couple of quarters of free cash flow. What are the latest thoughts on capital allocation and our or M&A opportunities, are they reseating or do they grow as your marketplace transitions to a recovery scenario.

Blake DeBerryChief Executive Officer & Director

So first, the way we look at cash and the way we run our business is very, very return on invested capital focus, is very ROIC focused. I think you can see that, the examples I can talk about our one the Florence, right, we, it was basically a capital allocation by discussion where you think about the Forge, as leasing it to have global understand, there’s been a termination, but we’re looking to now path-fire passway [Phonetic] that’s going to help us in terms of from an ROIC perspective. Another example I can talk to is like the control’s fees collaborating with Proserv, these are areas where it leverages our ROIC and increases our leverage on the business. So, coming to your question on the M&A opportunities, there are M&A opportunities, no doubt about it. There are consolidation opportunities, the problem we are still having is, that bit out spread continues to be wide.

We also find some of the targets balance sheets to be constrained making a deal not possible for us. We’ve always said that we are not going to do a deal just for the sake of doing a deal, it’s got to make sense for us, It’s got to makes sense for us strategically, operationally and financially. And right now, I think — I expect that over the course of the year. Sentiments may change and people may get a bit more reasonable in terms of what valuation should be and we continue to monitor what’s going on in the marketplace. One aspect that we’ve sort of shifted our focus to is, we started to look at energy transition opportunities, looking at areas where we can leapfrog our participation in this area, especially it relates to carbon capture and geothermal because we see ourselves very well positioned with our product suite to target that market and be very successful in that area.

Daniel BurkeJohnson Rice & Company — Analyst

Okay, got it. And then, maybe is close to a final question come back up to a high level, the challenges for you and peers are that the end markets are growing, are poised for growth. But peak industry equity levels are far way off maybe unlikely to recur, you’ve done a lot to take cost out of Dril-Quip. Could you sum up maybe for me, Blake. The initiatives that are most important to you guys as you look at ways to grow top line and admittedly, we’ve touched on a number of these throughout the course of the conversation, but I think if you would be helpful to kind of to go back through would recite them.

Blake DeBerryChief Executive Officer & Director

Certainly. First of all, let’s say, let’s set the stage. I think our expectation is that our customers are going to be a little more conservative with large orders, we’re not going to see the, I recall back the $80 million booking from Petrobras which was right before downturn which they ultimately didn’t fall through on. I just don’t think those are going to happen anymore. I think it’s going to be a much more hollow [Phonetic] type environment, where you have a contract and we’re going to order general and wellheads and book the column off over this time period. And so, so the market has changed admit it, but we believe, and I believe with our strategic growth pillars are going to help us outpaced that market. The peer to peer gives us access to market and opportunities that previously we just couldn’t win and we just didn’t have access to and into to put a little bit of finer point on that, the little bit of work we’ve done so far and it almost doubles our at-bats, if you want to use of basic terminology of opportunities, right.

And so our downhole tools business is on track to get back toward its previous peak levels you know when we acquired TIW and when 17 their peak revenue was about $140 million and we could atleast see half the growth that business where it’s heading up in that way or in the next few years, all the new products that we’ve worked on are starting to get installed and adopted. We’re getting a lot more traction in the more that we run, the more activity, we get from different customers wanting to take advantage of the savings as well as the carbon footprint reduction and we’ve got the company position now where we can on the backlog. And we got a track record of keeping our costs low. So, I think we’re going to see our margin profile and improve, and you put all that together, we’re probably one of the few people that could say, hey, the market can remain flat. But we’re going to gain share through all of these peers and the top line is going to grow.

Daniel BurkeJohnson Rice & Company — Analyst

Got it. Well, I think that was, that was a good summation Blake and that does conclude my questions. Again, I think, I think that was a good finishing off point but Blake there any last messages or thoughts you’d like to share.

Blake DeBerryChief Executive Officer & Director

I just say that we’re really optimistic about 2020 probably how we were optimistic in 19 going into 20. But I think the pandemic is, I think there should be some bumps in the road has come back, I think on balance things are returning back to normal. And I think that’s going to be good for our business, we’ve got everything lined up to be very successful going forward and I’m encouraged what 2022 to has to bring for Dril-Quip, its employees and its shareholders.

Daniel BurkeJohnson Rice & Company — Analyst

That’s great. Thank you. Thank you, Blake. Thank you, Raj. I think that will conclude our discussion, then and hope everybody does have a nice weekend.

Blake DeBerryChief Executive Officer & Director

Thank you.

Raj KumarVice President & Chief Financial Officer

Thank you.

Operator

[Operator Closing Remarks]

Duration: 42 minutes

Call participants:

Blake DeBerryChief Executive Officer & Director

Raj KumarVice President & Chief Financial Officer

Daniel BurkeJohnson Rice & Company — Analyst

More DRQ analysis

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