James West: Okay. That’s great. That’s good to hear. And then on North America, the 15% plus growth that you’re anticipating in forecasting for this year — is there — how much — I guess, could you describe how much of that you think is just kind of the pure inflation in the market, whether it’s rig rates or fractured costs, that kind of stuff versus rig count or activity led growth?
Jeff Miller: Yes, James. It’s — I think it’s a combination of the 2 and certainly the more activity you have, the more sort of replacing type you see. But if I just sort of look back to look forward, if I take last year, 5% production growth last year, year-on-year translated into about 50% revenue growth for us. I know in ’23, the outlook is for, let’s say, 3 production growth. And I think published estimates at least today around operator CapEx or 17% or so. I think it says a couple of things. Number one, producing oil doesn’t get easier, meaning it demands more of our services and higher quality services. And so I’m confident that we’re going to maximize value in North America. And I think that combination of activity and and price is what delivers the north of 15%.
Operator: Our next question comes from Roger Read with Wells Fargo.
Roger Read: Congrats on the quarter there. Just a couple of things to follow up on, Jeff. Your comment in the opening about 45% of your international coming from offshore and obviously talking a little bit about planning for ’24, which greater visibility on offshore, a lot of times than others. I was just curious how you see that potentially changing. Does it increase as a percentage of mix? And how should we think about that in terms of enhanced visibility, top line growth and maybe margin expansion?
Jeff Miller: Yes. Thanks. Look, I’m pleased with the growth on a percentage basis of our position in offshore or the amount of offshore work that we’re doing. Look, I think it continues to grow and I expect our position as we continue to bring out the types of technologies I talked about continue to help drive our growth in offshore work. And so we are levered heavily to offshore, and this is all service lines or levered to offshore. And I think that as we see that business grow, I expect, yes, it does translate into top line growth and margin growth. And I think that what’s clear though, also is it higher service intensity, but it also requires more equipment to do offshore work. So it has a bit of a double effect in terms of growing revenues and margins, but it also tightens up the rest of the business by virtue of consuming backup tools and additional shifts of people.
And so as offshore grows, that has a tightening effect really on everything, which again, helps to drive better margins and better growth.
Roger Read: Okay. And then mine related follow-up on that. You mentioned the Smart frac had picked up quite a bit in the U.S. I think it was up 6x roughly versus a year ago. Any thoughts to what that growth rate is going forward? And should we anticipate sort of any change in terms of margins as that goes forward, positive, negative or unchanged?
Jeff Miller: Yes. Look, I think that, that growth continues at sort of that pace. This is 1 of those solutions that is very affordable and scalable and provides important data to operators particularly as the focus becomes productivity per foot. And so this is really the best way, maybe the only way to meaningfully measure where the sand goes. And as a result of that, that’s the building block of what produces more of what’s better complexity, where is the sand, what’s the most efficient solution. And so I expect that continues to grow at a very fast pace and we’ve continued to introduce more technology around that solution so that it’s easier to deploy and ultimately — this is 1 of those things that our target is to be the most efficient solution in the marketplace.
And as it scales, it becomes more valuable to us and in my view, it’s a very sticky solution because it’s 1 of those things that once you have that data, and it becomes part of a working process, then it becomes very sticky over time.
Operator: Our next question comes from Neil Mehta with Goldman Sachs.
Neil Mehta : First question is about the comments about moving 3 frac fleets from gas to oil basins. Can you talk about whether you see more potential for this to happen? What are some of the switching costs associated with that? And is this the beginning of a greater trend?
Jeff Miller: Well, look, I think what we demonstrated is that’s what we’re going to do. Clearly, gas economics are challenged today. And I don’t think it’s something that service prices solve. And so I think gas is incredibly important, and I expect that it continues. But — and even get stronger as we build into the LNG capacity that gets built here in the U.S. But along the way, we see opportunities for unmet demand in oil, and we’ve made the moves we described. We also want to accelerate our fleet as a percentage of our overall fleet, which requires that we retire fleets along the way. And so from our perspective, that is the path that we take. Now I think it’s — gas operators are continuing to operate, and they are working and really to that end, actually just placed an e-fleet into a gas basin with an operator. So there’s clearly an outlook that gas recovers.
Neil Mehta : And then can you talk about the return of capital comments. You had mentioned you could see a scenario where you go in excess of the 50% of free cash flow back to shareholders. So Talk about how you’re thinking about using the buyback as a tool to create value.
Jeff Miller: Well, as I described, our outlook is strong. I expect we generate a lot of free cash flow. And yes, I believe that as we do that, we’ll be able to return more cash to shareholders. And so we took a step in Q1. But obviously, the ability to the flex there is going to be with share buybacks.
Operator: We have a question from Scott Gruber from Citi.
Scott Gruber: Just to understand that same line of inquiry given the appetite to go above the 50% threshold, Jeff, is there an appetite to pursue buybacks with bigger here near term when the stock is is quite attractively priced? Or do you wait until the cash flows show up later this year and risk buying at a higher price if the fundamentals stay tied as you foresee?
Eric Carre: Yes, Scott, it’s Eric. So generally speaking, how we think about cash returns today is — I mean, obviously, we just raised the dividend. We intend to continue to do small bolt-on acquisition, technology-driven type acquisition, continue to chip at the debt as well as we go along. But clearly, today, the bias is towards increasing buyback as we go through the year. So yes, directionally, that’s correct.
Scott Gruber: Got it. And then an unrelated follow-up. I’m just looking at your year-on-year incrementals in D&E, and they appear quite strong. And I would guess this is largely driven by operating leverage and mix around offshore and technology, just given previous commentary. And I would guess pricing is less impactful today at this juncture with potentially more of a price contribution in the years ahead. Is that a fair assessment? Or is pricing having a significant impact here already in 2Q if you look year-on-year at D&E margins?
Jeff Miller: Well, pricing certainly has improved year-on-year. But I think more importantly is the the depth of the technology that we’re introducing is sort of the duration. And I don’t want to get away from that. It’s not a point in time. I think we’ve got pricing improving, but at the same time, we’ve got substantial capital efficiency happening also in terms of the technology. So the — we’ve been pretty clear about the technology that we are investing in is driving capital efficiency, which means that we capture more of the value and cash flow over time. And so I would expect to see the margin improvement that you saw this quarter year-on-year to continue in terms of incrementals. And I say it that way. I’ve always said that our expectation is that we stack improvement each quarter in terms of margins in D&E.
And expect that to continue to happen. Obviously, there’s some intra-year cyclicality. But I think the key is if we look at each year by quarter, then we ought to be stacking improvements quarter-on-quarter. And I think we’ve got a long runway ahead of us in D&E.
