PES
#Thank you, <UNK>, and good morning.
Joining me here in San Antonio is <UNK> <UNK>.
He is President of our Wireline Services and Coiled Tubing Services segments; and <UNK> <UNK>, President of International Drilling, U.S. Drilling and Well Servicing; and of course, <UNK> <UNK>, our Chief Financial Officer.
Appreciate you joining us for our first quarter call.
We had a great first quarter.
Revenue increased in all 5 core businesses, international drilling, U.S. drilling, wireline services, well services and coiled tubing services and generated a 14% revenue growth overall.
EBITDA increased 38% quarter-over-quarter led primarily by revenue growth and margin expansion in our wireline services business, international drilling operations and domestic drilling operations.
Our U.S. drilling operations continue to be extremely strong and stable.
This business is lean, efficient and outperforming in pretty much every KPI metrics.
Even with the majority of rigs on sub-20,000 per day dayrate contracts and only 3 higher dayrate newbuild contracts remaining, the business is yielding a best-in-class margin per day of 10,436.
All sub-20,000 per day dayrate contracts as well as the 3 remaining newbuild contracts renewed during this calendar year.
And after all these contracts are mark-to-market, we still believe we will be close to 10,000 a day margins.
Equally as exciting is our drilling operations in Colombia.
The seventh rig began drilling at the end of March, and we saw 18% revenue growth in the quarter and 47% increase in gross margin and a 5% gain in margin as a percent of revenue.
The outlook for Colombia is very favorable.
1 rig is contracted through February of 2021, 3 rigs are contracted to April of 2020, 2 rigs into 2019 and 1 rig through the remainder of this year.
Rig reactivation and startup costs are essentially behind us, and we have improved our profitability on mobilizations.
Second quarter will benefit from those changes as well as having the seventh rig in operation for the full quarter, and we still have one more rig, our eighth rig, that can be activated at some point during the year.
On the Production Services side of the business, wireline services again led the way.
Astounding 25% quarter-over-quarter of revenue growth, 60% improvement in gross margin and a 6% gain in margin as a percent of revenue to 25% margins.
Our well servicing business had a 15% growth in revenues and an 8% improvement in gross margin, however, slips slightly 2% in margin as a percent of revenue.
Both our well servicing segment and our coiled tubing segment were slow to get started in the new year, which is pretty much typical seasonality.
But our second quarter outlook for both of those businesses is favorable and improving furthermore throughout the remainder of the year.
Coiled tubing services had a 7% revenue growth, but declined in margin and margin as a percent of revenue.
Essentially, the big pipe market subsidized the small pipe market, and we've also had the customary seasonality.
The coiled tubing business in our markets continues to favor large pipework.
We are transitioning our coiled tubing business in that direction with another 2 and 3H unit coming to us at the end of this month and another by the end of the year.
The offshore market continues to be very soft and April continued to be a little soft, but May and June looked favorable to us and the third quarter as well in our estimation.
I'd like to turn it over to <UNK> for some further financial comments.
Thanks, <UNK>.
Good morning, everyone.
This morning, we reported revenues of $144.5 million and adjusted EBITDA of $23.4 million.
Reported net loss was $11.1 million or $0.14 per share.
Our adjusted net loss were $6.9 million or $0.09 per share, which excludes the impact of the valuation allowance adjustments on deferred tax assets.
I think <UNK> covered some of the headline on the individual segments, so I am going to move to our term contract coverage.
We have currently all 16 of our AC rigs in the U.S. were earning revenues, and 14 of those are under term contracts.
The roll-off on those is as follows: 2 in the second quarter of 2018; 2 in the third quarter of 2018; 5 in the fourth quarter of 2018 and 5 throughout 2019.
Looking at some of our company-wide expense items.
G&A expense was $19.2 million.
For Q2, we expect G&A expense to be $19.5 million to $20 million.
However, I would note that our G&A expense will increase or decrease based on the results of our share price performance and other performance measures for incentive-based comp, which can create some volatility quarter-over-quarter.
Depreciation and amortization is $23.7 million in the first quarter and is expected to be approximately $23.5 million in the second quarter.
Interest expense was $9.5 million in the first quarter and is expected to be about the same, $9.5 million, in the second quarter.
Excluding the valuation allowance, the effect of foreign currency translation and state taxes and other permanent differences, our tax rate in the first quarter would have been in the 21% to 23% range.
We had $9.7 million in committed letters of credit and $56.6 million available under our $75 million asset-based lending facility at the end of the quarter.
At the end of the quarter, our reported cash balance was $70.7 million, which includes $2 million of restricted cash.
As anticipated, we used approximately $5 million in cash during the first quarter, with the primary uses related to our semiannual bond payment and term loan monthly interest capital expenditures and prior year incentive compensation payments.
For the full year 2018, we expect that we'll be cash flow positive.
Cash, capital expenditures in the first quarter were $11.7 million.
We estimate 2018 capital expenditures to be approximately $60 million, which includes estimated routine of $40 million and approximately $20 million for the purchase of the 2 large-diameter coil units <UNK> mentioned, some remaining payments of 3 wireline units, 2 of which we received in January and additional drilling in Production Service equipment.
With that, I'll turn it back over to <UNK> for final comments.
Okay.
Thank you, <UNK>.
As we look forward to the remainder of this year, we remain very optimistic.
As we look forward to the second quarter, we see a continuation of 100% utilization in our U.S. drilling operations with margins remaining in the 10,000 to 10,500 per day range.
In the international operations, we expect to continue running the 7 rigs out of 8 for an 83% to 86% utilization, with margins ranging between 8,000 and 9,000 per day.
On the production services side of the business, we anticipate revenues to continue to improve, up 7% to 10% and margin improvement as well of 1% to 3% to 25% to 27% range.
For the remainder of this year, we are anticipating modest discretionary capital spending with a goal, as <UNK> mentioned, to be free cash flow positive for the year.
Our growth focus will be on reactivating underutilized assets and improving pricing.
And as I stated in our last quarter call, we will continue to strive for positive net earnings by the fourth quarter.
It's challenging, but we are striving for it.
With that, I will conclude the prepared remarks and entertain any questions.
Well, the ---+ we hear the same low- to mid-20s number thrown around there.
Quite honestly, at least in our observation, are not many mid-20 contracts out there.
In fact, I'm not aware of one.
I hear that bantered about, but we're not seeing that.
I would say that repricings today are probably in the $21,500 to $23,000 range.
That sound about right, Don.
And that could strengthen, I think, that would be for one of our very high spec rigs repricing.
I think if someone was to put out a newly built rig, I know for us, at least, we would strive for the mid- kind of 20s in order to do that with multiyear term, but I'm really not hearing too much of that either, so.
Yes.
Well, as I commented, we're ---+ we've been really fortunate and successful in obtaining long-term contracts.
So we would want to do something similar in order to justify putting the eighth rig out.
We would be looking for at least a couple of year term plus and a good margin.
That rig will require a little bit of capital, so we're going to be patient.
It would be less than 5 million, but maybe in the range of 3 million to 4 million-ish to activate it, but ---+ so we are not in a rush, but we ---+ with the right opportunity came along, we have 4 very good clients there that we have great relationships with that we would prefer to keep that rig with one of those 4 because it's worked out extremely well.
And so if the time comes where we're offered a good enough contract, then we'll execute it and start the refurbishment.
I think the demand is there, yes.
<UNK>, do you want to add.
<UNK> just got back from Colombia last week.
Any add on the demand.
No, <UNK>.
It's definitely there.
Again just to reiterate what <UNK> said, we want to get it in the right situation with the right client.
And we're having some conversations now and think if well pricings' in there in maybe third or fourth quarter, we might have an opportunity there to put that rig to work.
But we're being patient in making sure we get the right contract to protect the investment.
I would say we're hopeful that it will rise to the high end of that range and maybe even higher, but we just have to let it operate for a while.
We reactivated all those rigs and there were start-up costs and things associated there that we're still washing out.
And I think there's a good chance we could average 9 or greater once we kind of get it all settled out.
Would you agree to that, <UNK>.
I do.
And again, I think we had some start-up costs associated with the seventh rig that kind of impacted our margins in the first quarter.
We should have a nice clean look at the business in the second quarter.
<UNK>, would you want to weigh in on that.
Sure.
We definitely achieved some pricing increases in both businesses.
And I don't think that we got the full impact there throughout the first quarter, so we definitely see a little more uptick in the second quarter as those continue to flow through.
And I might add on there that in April, we did start seeing an improvement in the well servicing business.
A little bit more utilization and a little bit of pricing and a little bit more 24-hour work.
So we're hoping that will be sustained through the quarter.
And then in our coiled tubing operations, there were seasonal aspects of certain of our markets that persisted into April that now are ---+ we are kind of moving out of that period.
And so we think the May and June months are going to be very favorable there, and then, of course, as we move into the third quarter.
And then we'll be also operating the new 2 and 3H unit where it's in extremely high demand.
We've already got a client that has secured that unit.
It will go right to work straight from the fab yard to a location, so we're excited about that contribution from that new unit.
Right.
Well, we have the favorable seasonal opportunity in the second and third quarter with longer days, more daylight, less weather.
So we have that benefit coming.
We also are activating more of the well servicing rigs that we did that swap.
We have 20-well servicing rigs at the beginning of last year.
We've just about got all those out and positioned.
Labor continues to be very tight, but we're slowly getting labor solved and putting these rigs out.
The wireline, as I've mentioned, I think, on the last quarter call, I think it was 7 or 8 that we're refurbing and putting out, but we're running wireline very, very hard.
So we'll probably be refurbing some, putting them out and then grabbing a few units out of the field that have been running hard and kind of cleaning those up and putting those back out.
So I don't know how many incremental adds we'll have.
It will be maybe a few, but it probably won't be all 7 or 8, 9 units of incremental because we'll need to fix up the others.
Until we get of those cleaned up, then we'll put them back out and then it would be incremental.
And then, of course, we'll be evaluating through the course of the year additional orders that ---+ of specific units where we've had good early success with, and we'll be evaluating that over the next several months.
Deliveries, pretty far out there, so we probably want to make orders this year for early next year type deliveries.
Okay.
Well, thank you very much for participating on the call, and we will look forward to visiting again for the second quarter.
Thank you very much.
