Blake Holcomb - Director of Investor Relations and Communications Mike Kearney - Chairman and President and Chief Executive Officer Kyle McClure - Senior Vice President and Chief Financial Officer B.J. Latiolais - President of Tubular Running Services Scott McCurdy - President of Blackhawk Specialty Tools.

James Wicklund - Crédit Suisse Byron Pope - Tudor, Pickering, Holt Joe Gibney - Capital One Mike Urban - Seaport Global.

Welcome to the Q1 2018 Frank's International N.V. Earnings Conference Call. My name is James, and I'll be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session [Operator Instructions]. Note this conference is being recorded.

I'd now like to turn the call over to Blake Holcomb. Blake, you may begin..

Thanks, James. Good morning, everyone, and welcome to the Frank's International conference call to discuss the first quarter 2018 earnings. I'm Blake Holcomb, Director of Investor Relations and Communications.

Joining me today on the call are Mike Kearney, Chairman and President and Chief Executive Officer and Kyle McClure, Senior Vice President and Chief Financial Officer. We also have B.J. Latiolais, President of Tubular Running Services and Scott McCurdy, President of Blackhawk Specialty Tools to join the Q&A portion of today's call.

Our presentation has been posted on the website that we will refer to you throughout this call. If you'd like to view the presentation, please go to the Investors section of our Web site at franksinternational.com. Before we begin commenting on the first quarter 2018 results, there are a few legal items we would like to cover, beginning on slide 3.

First, remarks and answers to questions by company representatives on today's call may refer to or contain forward-looking statements. Such remarks or answers are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements.

Such statements speak only as of today's date, or if different, as of the date specified. The company assumes no responsibility to update any forward-looking statements as of any future date.

The company has included in its SEC filings, cautionary language identifying important factors that could cause actual results to be materially different from those set forth in any forward-looking statements.

A more complete discussion of these risks is included in the company's SEC filings, which may be accessed on the SEC's website or on our Web site at franksinternational.com. There, you may also access both the first quarter 2018 earnings press release and a replay of this call.

Frank's International uses its Web site as a channel for distribution of material company information. Such information is routinely posted and accessible in the Investor Relations section.

Please note that any non-GAAP financial measures discussed during this call are defined and reconciled to the most directly comparable GAAP financial measure in the first quarter 2018 earnings release, which was issued by the company earlier today. I'll now turn over the call to Mike for his comments..

first, we've seen lower complexity wells that do not require as much sophisticated technology; and secondly, competitor pricing. We are beginning to see increased prices in areas where we have strong market share. And we're turning down work on projects with lower technology components based solely on the award going to the lowest bidder.

Our technology, safety record, service quality and reliability are too valuable to deeply discount. Our customers are understanding more each day about competitor bargain-basement pricing leading to poor results. We have strong relationships with customers that want to be a partner with us.

These customers are aligned with Frank's in acknowledging that constructing the best possible wells will require the use of technology, technology that will benefit the customer through improved safety, efficiency and with increased well integrity that will extend the life of the well.

I'll now turn the call over to Kyle to provide additional details on the financial and operational results during the quarter.

Kyle?.

Thank you, Mike, and good morning to everyone on the call. Looking at the segment results, I'll start with International Services on Slide 5. International Services revenue in the first quarter was down $4 million or 8% sequentially to roughly $49 million. The decline can be attributed to slowdowns in completion of work in Europe and the Middle East.

However, this was partially offset by the pickup of new work in Africa and Canada during the quarter. Adjusted EBITDA for the International Services in the first quarter was $2.6 million, down roughly $3 million from the fourth quarter 2017.

The decrease was driven by the previously mentioned loss of higher margin work in Europe and higher-than-expected mobilization cost in Latin America. Turning to U.S. Services on Slide 6. First quarter revenue increased 13% to just under $33 million. First quarter U.S.

offshore revenue was up 22% sequentially due to additional activity from rig schedules shifting into the quarter and the ramping-up of new work. The U.S. onshore business grew revenue with the overall market and revenues came in just over $15 million. Adjusted EBITDA for U.S.

Services in the first quarter was a loss of $9 million, an improvement of nearly $2 million sequentially. The improvement is attributed to the increased contribution from offshore services and some lower corporate costs reported in the segment. Slide 7 shows our Tubular Sales segment results.

Revenue in the first quarter was $15 million, down 13% sequentially. Adjusted EBITDA for Tubular Sales in the first quarter was $2.2 million, up from $1.4 million in the fourth quarter 2017. Revenues were lower sequentially due to large volumes of pipe sales pushed into the fourth quarter 2017 that did not recur in the first quarter 2018.

The increase in adjusted EBITDA was driven by improved margins from lower materials cost and better product mix. The recent steel tariffs have caused some uncertainty, leading customers to procure inventory ahead of potential price increases in the coming months.

We're also seeing meaningful increases in the size and number of bids being received from current customers for international markets. This pickup in activity internationally, improving Gulf of Mexico market conditions and current backlog are expected to drive revenue increases during the year. Wrapping up the segments with Blackhawk on slide 8.

Total revenue for Blackhawk was $19 million, relatively flat from the fourth quarter 2017 and up 17% year-over-year. Offshore well construction services revenue was up 18% sequentially due to the improvement in the U.S. Gulf of Mexico activity, offset by seasonally weaker well intervention revenues. Onshore product sales in the U.S.

market also were up, setting a record for the third consecutive quarter. Adjusted EBITDA was lower from the fourth quarter 2017 due to seasonal declines in the higher margin well intervention business. The first quarter is typically lower for well intervention due to the lack of storms impacting offshore operations.

Blackhawk margins were also impacted by a cost ramp to support the continued international expansion. To summarize the quarterly financials on Slide 9. Overall revenues were down 2% sequentially, about in line with what we had expected. TRS was relatively flat as the U.S.

Services segment was driven higher by increased offshore activity and the international segment was lower by the previously mentioned declines in Europe and the Middle East.

Adjusted EBITDA was lower than we had expected as some higher mobilization costs in the international segment and support cost related to Blackhawk international expansion offset improved U.S. Services margins.

First quarter cash flow from operations was down $21 million sequentially as we saw a seasonal slowdown in collections and the timing of payables from 2017. CapEx for the quarter was just over $6 million as we made some investments in equipment related to strategic growth initiatives.

We expect to see CapEx trend higher during the year as we build and commercialize new tools that continue to better shape our TRS technology and further expand Blackhawk and drilling tools to select international markets. We ended the quarter with $265 million in cash and short-term investments on the balance sheet and essentially no debt.

We expect to see cash flow improve throughout the year based on revenue growth and cost reduction projections. However, given our CapEx plans of $40 million to $50 million this year, we see ending 2018 with a lower cash balance year-over-year. To close my comments out, I'll provide some color on what we expect to see in Q2.

Overall, we expect to see total company revenues move higher by mid-single digits in the second quarter. The U.S. Services segment revenue is likely to be lower as some work moved up into Q1 and a couple of rigs from current customers are scheduled to exit the market.

Conversely, the international segment should progress back towards Q4 levels, driven by growth in Latin America, Canada and some improvements in Europe. Revenues in the tubular segment is expected to be roughly flat while Blackhawk is trending toward revenue increases in low double digits quarter-over-quarter.

Looking at adjusted EBITDA, we would expect to see incremental margins for the total company in the 30% to 40% range due to improved international contribution and the initial benefits from cost actions. I'll now turn the call back over to Mike for some final comments before we open the call to Q&A..

Thanks, Kyle. To close our prepared remarks, I'll recap several of our strategic priorities on slide 10. First, by the end of Q2, we will have completed the analysis of our geographic footprint to determine the most critical areas for long-term growth across all product and service lines.

We believe several current locations are eligible for rationalization or consolidation. Second, we will continue to execute on the international expansion of Blackhawk, tubulars and drilling tools in high-potential areas. These products and service lines will be important drivers of incremental growth and profitability.

Even in a slow offshore market recovery, Frank's can realize significant growth through making these offerings available to our existing international customers. Third, we take advantage of opportunities to increase the pricing of our products and services in select areas.

We will also elect to not target opportunities that are purely price-focused and conserve our personnel and technology for projects that offer win-win economics for the customer and Frank's. We will be focused on share of wallet rather than share of rigs in the market.

Lastly, we will continue to have conversations with acquisition targets that can complement our portfolio and with joint venture partners, where mutually beneficial arrangements can be made that will increase our revenue growth potential and lower indirect cost of service delivery.

We are also optimistic that technologies under development will allow for further differentiation of our offering to the customer. Our customers show a strong preference for the differentiated technology we can provide, which increases automation and poses fewer potential risks of injury.

We are confident our current roadmap will lead to improved margins for our products and services. James, we'll now turn the line over to you for questions..

Thank you [Operator Instructions]. And our first question comes from James Wicklund of Crédit Suisse..

Good morning guys.

So Mike, have we hit bottom?.

Yes, I think we have. Obviously, as you know, I don't need to tell you, it's a mixed market out there. We have some markets that have tailed off a little bit, but we're seeing some nice increases in some of our geographic markets. So on balance, we see, I'd say, a slight trending-up from now on through the end of the year. So that's good news..

Not going down anymore is really -- you don't have to feel good, starting to feel better works. Okay. And I understand seasonally, there will be some weakness and all. But first quarter going to second quarter usually works. Okay, good luck, and congratulations on hopefully finding bottom.

Mobilization charges, you mentioned a number of times and you mentioned Latin America.

What's going on in Latin America that has enough of a mobilization charge to be called out?.

Well, this is Kyle. Yes, we've got a lot of work sort of down in the Trinidad, Guyana, Suriname, east coast there off of Brazil. That's a good market right now for us. And as we pick up some additional work scopes down there, we obviously -- we're mobilizing our crews and equipments to get down before that work..

And that, I assume, would be one of the things that drives Latin America revenues higher over the course of this year and next year.

I mean, you're investing in this because of growth, right?.

Yes, this is a no-brainer investment for us quite honestly. These are good offshore markets for us on the gross margin level, so this is an attractive market for us, has been for some time.

And as we pick up more work and we got some more IOCs going to work in these different markets, this is something that we find very attractive from an investment standpoint. .

We like all that just as much as you do, believe me. What's going on in West....

Yes, these aren't massive costs. I would say these aren't massive costs. But when you're operating close to the breakeven point, fairly insignificant cost can show big percentage increases. But they're not massive dollars. But that Caribbean area is really showing continued progress.

And so just to get the tools down there, the people, some training, it creates a little bit of headwind. But there's a reason for it. There's a good future down there..

It's a nice time to have a good balance sheet.

And could you tell me what's going on with West Africa? Is there any green shoots at all being seen in West Africa?.

I would call it, as Mike mentioned, as kind of a mixed bag internationally right now. We're seeing some pros and some cons out here. West Africa is one of these that's sort of just going sideways. Quite honestly, there's not a lot of – we've got one rig in, one rig out sort of one rig that's kind of going up and down the coast right now.

There is not a real trend that I'd call a green shoot in West Africa right now..

Our next questioner, Byron Pope of Tudor, Pickering, Holt..

Just have a question, it's been such a long time since there have been offshore tender opportunities to talk about.

Could you just remind us when you guys secured work for on board deepwater floaters, I'm assuming that you've got pretty good line of sight such that you can see when those mobilization costs are coming such as was the case this quarter? Is that a fair way to characterize it?.

It depends. I mean, if you're looking out 12 months and you know you want a tender, you can start and embed that in your budgeting and forecast process. There are some that come, I'll say, within weeks. Or you're displacing a particular competitor on rig that you, all of a sudden, have to get equipment rehabbed and mobilized.

So it's a little bit depending on which tender, you have a different sort of line of sight with that cost, if you will..

Then just as it relates to those tenders, I realize you say that the impact of these FIDs won't really benefit you guys until 2019.

But could you speak to whether you're starting to see some of those green shoots in some of the shallow water geo markets, where you've got increased jack-up activity?.

Yes. And I'll look to B.J. for this one. But I would say in general, yes, we're seeing a lot more activity. I think internally, we could probably say we've never been busier as it relates to tender activity. I think from a channel – volume and activity standpoint, it's encouraging. And I'll let B.J.

maybe chime in on what he's seeing in some of the geo markets..

So we're seeing increased activity in the Far East, the Middle East with regards to the jack-up markets. It's for the tendering process. So we're getting a little bit more away from some of the land-based operation and seeing more and more of the jack-up work beginning to take hold now..

And then last quick question for me, if I could, Kyle, the comment with regard to international being flattish this year versus last year, is that a comment as it relates to revenues and EBITDA or just the former? Can you help us out there?.

I would tell you it's primarily related to revenues. We've got sort of – amongst the geo markets, you have obviously some winners and some losers within that. I would tell you that on the EBITDA line, we would expect margins to be slightly up over '17.

As we sort of start to go through our country analysis, market analysis, footprint analysis, squeezing out additional profits there on the gross margin line within that segment are certainly the primary focus for us right now. But I think revenues will also be flat. I would say margins at this point in time, we look for them to be up.

Like I said, we're getting some pretty attractive returns in some nice offshore market right now. But you're also seeing sort of pricing resetting in certain markets year-over-year. And so they're sort of battling each other back and forth.

As we pick up some nice work, we're also seeing pricing resetting in certain markets that's a little bit challenging. But I think overall, we see profitability to be up in that market or in that segment rather..

Next question from Joe Gibney of Capital One..

I had a question on Blackhawk, embedded in your sort of quarter-over-quarter growth there, low double digit. I was just curious if you could give a status update on some of the equipment certification process in the new markets. I know specifically North Sea, you guys have called out as a market that you're eager to get some of the products into.

Just are we closer on that? Or is that embedded in some of that lift that we're seeing in 2Q? Just look for an updated there on timing..

This is Scott McCurdy. I think you're seeing an uplift just generally with just being awarded more international work as the name gets out there and we're able to take advantage of the footprint throughout the rest of the company. Specific to the certifications, we have a number of different certification efforts going on.

But generally speaking, those should all be largely completed over the next 4 to 5 months, some earlier, some later within that period. But I would say by end of third quarter, we should have designs and approvals for certified tools that we could operate in any market in the world.

And then obviously, producing those will be subject to the demand in the different markets..

And then just a question on the U.S. onshore. Kyle, the incremental margins that you quoted targeted here for 2Q, I was just trying to ascertain kind of where we stand on incremental margins in your U.S. onshore business. Is it in the same ballpark? Is it a little bit lower? And then Mike, maybe if you could touch on broader strategy, U.S. onshore.

I know most of your efficiency initiatives in cleaning some things up a little bit, looking at footprints seems more targeted internationally. But just kind of curious on your review of where the U.S. onshore portfolio sits as you take a look at that..

Yes, this is Kyle. I'll take the incremental margin question for U.S. onshore. That business, we've talked about, I think, in the past at the gross margin level, right, on the incremental margin for that particular business as a standalone is sort of in the 20% to 30% incremental margin range. We see that as well for going into Q2.

Again, that's at the gross or field margin, if you want to call it that. But that's what we've been seeing here in the last sort of 4 to 5 quarters as the team has done a nice job there running that business and picking up additional pricing from time to time in various basins, so call it 20% to 30% incrementals..

Yes, in terms of the evaluation from a strategic standpoint, everything is up for grabs in terms of what we're looking at. We talk about international because we're in so many places around the world, less now than a year or 2 ago but still quite a few bases. On the domestic side, we're going to look at that as well.

The margins have been improving over the last year or two. Things are looking better. But clearly, some of our bases have much more volume and better profitability than others. So we're going to take a look at that as well. So we just, we wanted to do the right thing in terms of a cost profile. We've got great employees in these locations.

We may, if we reduce in one area, we'll redeploy employees to others. Obviously, the Permian is very hot, people short. So we're just going to look at our overall resource base and make sure we get it deployed the best way possible.

But I think the short answer is we just want to be smart about how we approach the market domestically as well as internationally..

[Operator Instructions] And we also have a question from Mike Urban of Seaport Global..

Thanks, good morning. Could you remind us about your plans for Blackhawk internationally? Clearly, there's a nice ramp embedded there.

And kind of the underlying -- either the growth that you're targeting, where you might like Blackhawk to be in terms of the international revenue relative to the overall business, just kind of sort of the metrics around the Blackhawk rollout?.

Yes. So this is Kyle, and I'll give to Scott. As we talked about this in the last call, we expect that business this year to be growing in the sort of 20% range year-on-year coming off a $71 million base of revenue in 2017 and up 20% this year. About half of that growth is going to come internationally.

And I'll let Scott maybe talk about the geo markets we see that pull-through coming..

Yes, that was correct. I would say right now, I mean, our near-term opportunities are fairly widespread. And we've got increase in activity in the Caribbean, Mexico area, where we've had a presence.

And then you've got new work throughout Canada, Europe, Latin America, Asia that's all starting up, either starting up now or starting up over the next few months. And so the goal would be to build the Blackhawk presence in every market where it makes sense.

And like I said, where we can leverage existing business or existing footprint, that's obviously much easier and a great advantage that we have trying to expand the product line..

And then in the U.S., should we continue to think about the onshore business as being more or less in line with rig count and then the decline is just some of that pull-forward that you experienced in the offshore market?.

Yes, I think the U.S. onshore market has been trending more or less with the overall rig count on land there. The overall onshore, we said we got, we pulled in a little bit in Q1. I think what we're looking at in Q2, we talked about the overall segment being down, that being sort of driven by the offshore space.

I think through a month or so here in the quarter, I think we probably feel a bit better about that we did initially as we pick up some additional work there as well. And I think we probably feel -- we're hedging our bets here around U.S. Services right now for Q2. But I think we feel pretty good about that right now..

Okay, great, those were all the questions. Thank you..

Okay. Well, thank you. That's all the questions. Appreciate your interest. So as we mentioned, we're becoming more optimistic on the overall trends in the market and our ability to execute on our strategy. Frank's in a strong financial position. And we have the technology and expertise to add value to our customers.

And this value that we have translates into better overall performance for Frank's. So thanks very much for your attention today and joining us on the call. And we'll talk to you next quarter. Thank you..

Thank you. Ladies and gentlemen, this concludes today's conference. Thank you for participating. You may now disconnect..