OIS
#Thank you, <UNK>.
Good morning to all of you, and thank you for joining us today for our First Quarter 2017 Earnings Conference Call.
We reported a net loss of $0.34 per share during the quarter after adjusting for $0.01 of severance and other downsizing charges.
Our quarterly results reflect current market trends, including an accelerating recovery in U.S. land-based drilling and completions related activity, offset by reduced spending in certain international regions, coupled with continued underinvestment in deepwater.
Our well site services segment benefited from the early stages of a recovery in U.S. land completions activity in select shale play regions, dampened somewhat by sequentially lower activity in the Gulf of Mexico along with lower international results.
More than 70% of our completion services revenues were driven by U.S. land-based activities, with our land-driven completion services revenue increasing 21% sequentially.
As we noted in our press release, we have revised our Offshore Products segment name to Offshore/Manufactured Products to better reflect the higher weighting of our shorter-cycle products, much of which is driven by land-based activity, to total segment revenues.
We have also provided additional revenue detail for this segment.
Revenues and EBITDA margins in this segment were within our guided range, with margins averaging an adjusted 18% for the quarter.
We recorded an improved book-to-bill ratio of 1.1x this quarter, which resulted in a sequential improvement in backlog.
Our backlog totaled $204 million, which stemmed the tide of 10 quarters of sequential backlog declines.
At this time, <UNK> will take you through more details of our consolidated results and provide highlights of our financial position.
I will follow with more details by segment and provide additional comments on our market outlook.
Thanks, Cindy.
During the first quarter, we generated revenues of $151 million, while reporting an adjusted net loss of $17.1 million or $0.34 per share, which excluded $0.01 per share after tax of severance and other downsizing charges.
First quarter adjusted EBITDA of $5.4 million decreased 60% sequentially, and our adjusted EBITDA margin was 3.6%.
During the first quarter, we invested $5.8 million in capital expenditures related to expansionary investments for our Offshore/Manufactured Products facilities, along with maintenance capital spent on our completion services equipment.
We estimate that our 2017 capital expenditures will range between $35 million and $40 million depending on market activity.
We generated $32 million of cash flow from operations, which allowed us to repay $20 million of debt and to fund the purchase of assets and intellectual property complementary to our crane manufacturing and service lines.
As of March 31, our gross debt level totaled only $26 million, while our cash on hand exceeded our outstanding borrowings by $39 million.
We ended the first quarter of 2017 with total liquidity of $224 million, which is comprised of $159 million available under our revolving credit facility plus cash on hand of $65 million.
In terms of our second quarter 2017 consolidated guidance, we expect depreciation and amortization expense to total $27.7 million, net interest expense to total $1.1 million and corporate cost to total $12.9 million.
Our 2017 consolidated effective tax rate is expected to average 28% to 29%.
And at this time, I'd like to turn the call back over to Cindy, who will take you through the details of our segments.
Thank you, <UNK>.
I'll start with well site services.
In our well site services segment, we generated another quarter of sequential improvement as revenues increased 10% quarter-over-quarter to total $60 million, while adjusted segment EBITDA remained positive totaling $1 million after adjusting for severance and facility closure charges.
These sequential improvements in revenue were driven by an increase in the number of completion services jobs performed along with improved utilization of our land drilling rigs.
While our completion services business benefited from the early stages of a U.S. land-based recovery as evidenced by 21% sequential increase in U.S. land-based revenue, our first quarter total segment results were impacted by higher personnel costs, customer delays in the U.S. Gulf of Mexico and lower international results, which moderated our sequential growth.
Our U.S. land-related completion services results improved throughout the first quarter.
In terms of our well site services guidance for the second quarter of 2017, we see continued growth and estimate that revenues for this segment will improve sequentially and range between $65 million and $75 million, with segment EBITDA margins in the mid- to high single digits.
We continue to believe our incremental margins for our completion services should average 40% to 45% as we progress through 2017 and realize the benefits of growing completions activity in the U.S. driven by the positive impact from the doubling of the U.S. land rig count since the trough reached in May of last year.
In our offshore and manufactured products segment, we generated revenues of $91 million and adjusted segment EBITDA of $16 million during the first quarter of 2017 after adjusting for severance and other downsizing charges.
Revenues, adjusted segment EBITDA and EBITDA margin percentage of 18% came within our guided ranges.
Major project revenues declined 48%, while our short-cycle product sales increased 31%.
Our shorter-cycle product revenues, whose demand is dominated by U.S. land-based activity, comprised 36% of the segment's revenue in the first quarter.
Orders booked for the quarter totaled $97 million, resulting in a book-to-bill ratio of 1.1x.
Backlog totaled $204 million at March 31.
There were no individual major backlog additions above $10 million received during the quarter.
This was the first sequential improvement in backlog since the second quarter of 2014, which is encouraging, and hopefully signals that we are near or have passed a trough in segment backlog.
As we have indicated for several quarters, with lower levels of backlog, we expect our project-driven revenues and EBITDA to trough midyear with incremental backlog projected to be awarded as we progress throughout 2017.
We should continue to see improvement in demand for our shorter-cycle products due to the recovery unfolding in U.S. land drilling and completions activity, which will offset some of the gaps in timing from our major project work.
Given these variables, we estimate that our second quarter revenues in this segment will increase sequentially and range between $100 million and $110 million, while EBITDA margins are expected to remain in the 17% to 18% range.
In conclusion, improvements in the U.S. onshore drilling and completions-related activity are translating into positive results for both of our reporting segments.
We believe the outlook for our well site services segment is trending favorably with expanded U.S. land activity.
In addition, for the first time in almost 3 years, we experienced a sequential improvement in our offshore and manufactured products segment backlog and are focused on rebuilding that backlog as we progress through the remainder of 2017.
Demand for our shorter-cycle products remained strong and is improving at a significant pace, which should serve to help offset near-term declines in major project work resulting from lower levels of major project backlog.
That does complete our prepared comments.
Katie, would you open up the call for questions and answers at this time.
As I kind of indicated in my prepared comments, we, every month in the first quarter, saw gradual improvements in terms of revenue generation.
We have ---+ we obviously have product line details that we do watch, and we actually saw improvement across most of our product lines.
Again, a lot of that is weighted in areas you would think, i.
e.
the Permian, kind of the SCOOP/STACK region, and we are very broad-based.
We are not only located in the Permian, so not all areas increased and yet, we experienced proportionately, I think, appropriate increases in the major markets that saw activity increases.
I do feel like we're beginning to see a migration back to some of our higher end products, particularly our isolation tools, but I would say that was probably realized a bit ---+ little bit later in the quarter rather than early.
As I have explained before, this is largely driven today by land-based activity.
So they were not good, really, in '15 and '16 when the rig count was down 80%.
However, they are accretive today given improved activity levels.
Let me see if I can ---+ <UNK> looks like he's got it at this time.
Sequentially, project-driven revenues were down 48% and short cycle were up 31%, sequentially.
And then the relative contribution of each you can figure out, now that we've given the incremental breakout.
Yes, I can.
First of all, historically, Gulf of Mexico and international hasn't been as significant just because we've had greater land-based activities.
You get to kind of these lower levels and all of a sudden $2 million is quite a lot of money.
And particularly, we've got limited international penetration, I'll call it, mostly driven by Middle East activity and Argentina.
Argentina was down, it feels like, almost the whole quarter because of strikes in the region.
And unfortunately, those are harsh decrementals, because all it means is, I got my people, I got my base and I had no revenue.
I know it might be an exaggeration, but you get my point.
So that was a major event, but it's all ---+ also transitory given that a lot of those things have been addressed at this point in time.
Middle East for us was down a little bit as well.
I don't think that's inconsistent with what you're hearing from the rest of the market.
And Gulf of Mexico, we believe, is transitory as well.
This is some just operational ---+ customer operational delays outside of our control, both on completions work as well as intervention work.
It's hard because a lot of this still remains call-out work, we bid it, we generally think we have the work.
But if the customer has delays in getting kicked off, then obviously, it impacts us.
But again, a lot of this is what I almost call just a victim of small numbers here where one-off events in Argentina, the Gulf of Mexico can impact low levels of EBITDA more significantly than you would think.
But there is nothing here that suggests these are permanent-type trends.
But to reiterate, U.S. land was up 21% sequentially in completion services.
Again, I think, we have to comment more specific to us.
When we're looking at kind of sequential performance in the Middle East, we're kind of flat from Q1, i.
e.
Argentina should recover back because those were unique issues.
And then Gulf of Mexico is kind of the same thing.
Those can be spotty.
But we're not looking for wholesale improvements.
We'd just kind of like to see a steady, either flat to steady improvement from international and Gulf of Mexico.
As it relates to pricing, you're right.
I also don't think that, that is ---+ we'll, more likely to, obviously, see price improvements on land-based activity before international and Gulf of Mexico, even if it is somewhat flat.
I'll say to be determined.
Right now, we are doing 2 things.
We are looking at small tuck-ins and offshore products.
We closed a small one in Q1.
We are looking at U.S. land-driven M&A-type activity.
There is a couple in the hopper that we are looking at now.
Valuation was very concerning 45 to 60 days ago.
Clearly, in fact, I asked <UNK> to kind of model some of the recent trends in IPO performance for the ones that have already had some history as well as recent trends as you point out in terms of value expectations.
So I think that is clearly more favorable.
What will determine our course of action is quality of operations, any intellectual property that the company might have, valuations and after today how that competes with just buying back our own stock.
Well, ours is more specific to infrastructure development, not particularly tied to the rig count.
I mean, we have some offshore consumables and our large OD conductor casing connector that are more well driven, but the large majority that we are looking at in terms of rebuilding backlog are infrastructure related.
It won't surprise you that these are projects that are headline projects right now, the [Leiser] project, Mad Dog 2, [Korando, Zevazebad], some of the Petrobras FPSO opportunities, et cetera, very much feel that ---+ infrastructure driven.
We have got, obviously, good knowledge of bidding and quoting.
The key there is one of timing.
In the past earnings report, I provided to you the thought that we could see some of these bookings come likely in Q2 and/or Q3.
We did not expect to receive them in Q1, and we didn't.
And again, on a positive note, despite that, we still had a book-to-bill north of 1.
Well, again, if you're talking, about 2 ---+ 3 comments come to mind.
Number one, yes, we just fell below $50 a barrel.
That may be your comment.
I don't think that will change the decision on some of these major deepwater projects to move forward or not.
If it had any near-term impact, it would likely be more on land, but I certainly don't expect that you'll see any trend changes this quarter.
I think we are very close.
I don't know if it's Q1 or what would prove to be Q4 on that or Q2.
The 2 variables there are I'm increasing my revenue guidance such that even if I had flat bookings sequentially, it wouldn't quite be 1, it'd be very close to 1.
So we're kind of on a razor's edge here on trough bookings.
But if we're not there, we are very close to there.
And the key will be are we going to get a major project award in Q2, or are they going to be deferred into Q3.
But either way I don't really think that changes the outlook for this segment.
It can be.
Definitely, particularly, our large OD conductor casing connectors.
But again, most of the backlog churn was smaller projects, repair and maintenance and short cycle, as we've talked about.
So I don't know whether to attribute that to seasonality or not, to be honest with you.
In the absence of any major project awards in the quarter, a lot of this almost becomes kind of ongoing ---+ hate to say recurring order activity because who knows what's recurring anymore.
But we feel pretty good about our overall position, and it seems very consistent with the outlook that we provided the market 6 months to 12 months ago.
Well, I'm not as worried about the competitive dynamics.
I think if we are to see any major impact from ---+ you mentioned specifically Schlumberger-Cameron.
It probably would be more in international regions.
Again, that's a lot of their focus and weighting at this point in time.
That's not as significant for us.
So I don't view that as a major threat.
When we talk about the mom-and-pops, they've ---+ quite frankly, a lot of those have very good regional relationships.
They are not as geographically broad-based as we are, we believe.
Still today, we have the [highest-end] technology and better quality programs and people, but we are a little more expensive.
And so when you're in a very weak market cycle that we saw in '15 and '16, price somewhat rules the day.
And if these regional players are raising prices, as we know they are, people are experiencing service quality issues.
We normally have a reversion back where they're willing to pay a little bit more for higher quality products and services.
So again, we feel like our market position is very sound.
We do have a lot of ground to recover just in terms of activity, but all the trends right now on land-based activity is moving in a positive direction.
That's kind of the ---+ I don't know if that's too genetic for your answer, I hope not.
Okay.
Katie, thank you so much.
And I appreciate all of you who joined the call.
I know this is a hectic season and a particularly hectic day based on all the releases that came in last night.
We will standby, be ready for follow-up questions.
Of course, we're about to move into OTC week and so I'm sure we'll see a lot of you there and welcome the interaction.
So thanks so much, and hope to see you next week.
