Hello, and welcome to the Q4 2018 Frank's International N.V. Earnings Conference Call. My name is Anaiya, and I'll be the operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct the question-and-answer session. [Operator Instructions] Please note that this conference is being recorded.

I will now turn the call over to Mr. Blake Holcomb. Blake, you m ay begin..

Thanks, Anaiya. Good morning, everyone. And welcome to the Frank's International conference call to discuss the fourth quarter and full-year 2018 earnings. I'm Blake Holcomb, Director of Finance and Investor Relations.

For today's call we have Mike Kearney, Chairman, President and Chief Executive Officer and Kyle McClure, Senior Vice President and Chief Financial Officer as speakers on today's call.

Joining Mike and Kyle for the Q&A portion of today's call will be Steve Russell, President of Tubular Running Services and Scott McCurdy, President of Blackhawk Specialty Tools. A presentation has been posted on our Web site that we will refer to throughout this call.

If you'd like to view this presentation, please go to the Investors section of our Web site at franksinternational.com. Before we begin commenting on our fourth quarter and full-year 2018 results, there are few legal items we would like to cover beginning on Slide 2.

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. those expressed or implied by such statements.

Such statements speak only as of today's date or as 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 Web site or on our Web site at franksinternational.com. There you may also access both the fourth quarter and full year 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 fourth quarter and full year 2018 earnings release, which was issued by the company earlier today. I will now turn the call over to Mike..

Thank you, Blake. We appreciate everyone joining us today for the call. Beginning on Slide 4, I will provide a brief summary of our full-year results and then go over to some of the highlights of the fourth quarter. Entering 2018, we had to believe we would see some improvement in industry fundamentals over the course of the year.

To position Frank's with the anticipated recovery, we placed considerable focus on prioritizing our capital spending and engineering efforts toward business opportunities, which would give us further competitive advantages. Our targeted initiatives in 2018 drove higher profitability and led to significant year-over-year financial improvement.

This included total revenues of $522.5 million, a 15% increase that was supported by growth across all of our business segments. Adjusted EBITDA improved more than 475% versus 2017 to $33.2 million due to a combination of improved pricing, international market share gains and cost control.

Our adjusted EBITDA margin improved to 6.4% which was more than 500 basis points higher than the prior year. Driving the strong increase was an approximate 40% margin on incremental revenue generated over the year.

I want to thank all of Frank's employees for their dedication, hard work and diligence in our efforts to drive further progress in our operational and financial performance. Frank's has been managed conservatively from a financial perspective over a long period of time.

The absence of any debt or financial leverage and our investment in state-of-the-art equipment serve us well in today's market. Operators need to know that the company they call for critical services has the financial capacity to deliver the best equipment and qualified people at the well site.

Operators value our strong financial position and this has contributed to our increases in market share. We will continue to leverage our financial flexibility in support of our customers' long-term needs. Turning to Slide 5. During the fourth quarter, we continued to see strong demand for our higher margin service offerings.

We also benefited from increased customer activity in multiple international regions. Finally, we saw growth in our U.S. operations, especially in the Gulf of Mexico, where we enjoyed a full quarter benefit from recently captured additional market share.

The result was fourth quarter revenues of $145.9 million, which was 13% higher than the third quarter and 23% increase over the fourth quarter of 2017. In addition, our fourth quarter adjusted EBITDA increased 10% sequentially to $12.8 million, which was the highest level we've seen since the first quarter of 2016.

International services posted 13% increase in revenue from the third quarter, primarily due to the ramp-up of work in Africa, Middle East and Europe. We also saw increased sequential margins due to a mix of higher margin work in the Middle East and Africa. These regions will continue to contribute to our 2019 anticipated growth in service revenue.

Revenue for our U.S. services segment increased 12% from the third quarter with the majority of growth associated with additional market share captured in the Gulf of Mexico. The U.S. onshore business also saw top line growth during the period.

Our Blackhawk segment was primarily impacted by reduced well intervention work in the Gulf of Mexico, driven by a relatively calm storm saving. Collectively, Blackhawk saw a 5% decline in sequential revenue. Finally, our tubular sales segment recorded its highest level of quarterly revenue for the year.

Contributing to the 50% increase in the third quarter was a significant order from a long-time customer of Frank's. As a reminder, this line of business has relatively few larger orders in any given quarter, which makes sequential changes to somewhat lumpy.

Looking at Slide 6, as we move into 2019, we believe we are in a solid position to continue to grow our overall business beyond the levels of 2018. During 2018 we put significant efforts into further improving our internal processes and driving up cost to more fully leverage to the full earnings power of our business.

As part of our strategic initiatives, we streamlined our global footprint to ensure our future efforts are laser focused on driving improved returns. While it's always hard to pass on business, we have the discipline to only quote projects that meet our profitability targets. Oil prices since the beginning of the year have stabilized.

We remain optimistic of the sustained but gradual overall market recovery. In particular, we expect to see strength in our offshore business and are well-positioned for 2019. In contrast, the U.S. land market that reacts much more quickly than the offshore markets. Most analysts predicted drop in the U.S.

land rig count and activity in the first half of 2019 and then a bounce back. Regardless of the trajectory in U.S. land our mission is to keep a careful eye on our cost, so we can continue to increase profitability. Given that backdrop, I will now discuss our outlook for the business in a bit more detail.

Frank's remain the go-to provider for tubular running services in complex wells and challenging environments. This differentiated position allows us to gain significant market share last year. And through 2019, we look to continue to grow market share through our best-in-class solutions.

For example, we have seen rapid market acceptance and increasing customer demand for our VERSAFLO tool, which safely accelerates casing fill-ups and circulation operations. TRS also debuted in its U.S. onshore operations, a top drive of mechanical casing running tool that enhances rig floor safety and efficiency.

For 2019, TRS plans to further grow its business in international and deepwater markets. We will continue to focus on rig automation and removal of personnel from well center. As we have discussed in the past, during 2018, the key priorities for Blackhawk was international expansion.

As a result of its focused efforts, Blackhawk more than doubled its sales into international markets during 2018 doing jobs in 15 countries. Last year, Blackhawk also made significant progress in certifying tools to meet the most stringent customer and market requirements.

This will allow us to continue our expansion into additional markets during 2019. Blackhawk plans on materially increasing its international revenue in 2019, as well as grow its U.S. onshore business through further expansion of its products and services. We also look forward to growth in our tubular business in 2019.

Customers rely on our unique ability to develop, engineer and implement technology-based solutions that work in harsh environments, ensure well integrity and reduce the number of personnel on site. So with that, I'll now turn the call over to Kyle to provide additional details on the financial and operational results during the quarter.

Kyle?.

As Mike already touched on a number of segment results, I'll move to this portion of the materials quickly so we can get to the 2019 outlook and Q&A. So let’s go ahead and jump into the segment results, on Slide 7, starting first with our international services segment.

International services revenue in the fourth quarter was up roughly $7 million or 13% sequentially to approximately $61 million.

The growth can be attributed to double-digit increases in revenues in Europe, the Middle-East and Africa, as we saw activity levels closer to the Q2 timeframe, as new work recently won in Europe and Africa kicked-off in addition to some nice gains in the Middle-East.

Adjusted EBITDA for the international services segment in the fourth was $11.6 million, up roughly $4 million from the third quarter as we experienced incremental margins of 54%.

As mentioned during the Q3 call, we continued to see the international offshore market as a real bright spot heading into 2019, and nothing has changed that thinking in the past few months. We feel like we are extremely well positioned to take advantage of a nice step-up from 2018 levels in this segment. Turning to U.S. services on Slide 8.

Fourth quarter revenue increased 12% to approximately $43 million. Fourth quarter U.S. offshore revenue was up roughly 19% sequentially. The growth rate was due to an entire quarters' worth revenues from recent market share gains. The U.S.

onshore services business also grew revenue during the quarter, rising a little more than 5% due to sustained drilling activity in certain basins during the quarter. This marks the 10th consecutive quarter the U.S. onshore business saw growth. Adjusted EBITDA for the U.S.

services segment in the fourth quarter was a loss of $1.6 million, which resulted in a decline of nearly $800,000 sequentially. This can largely be attributed to two items.

First, the increased repair and maintenance expenses, as well as increased labor costs in this segment, as we have seen nice margin improvements in this segment recently, we've had step-up in certain areas to support continued growth.

Secondly, we experienced a few discrete expenses related to some corporate and legal entity restructuring projects that completed in the quarter, which we will not see again. As a reminder, this segment houses a significant portion of our overhead expense associated with running the U.S.

and international services segment, as well as our corporate expenses reside here. Turning to Slide 9, let's take a look at our Blackhawk segment results. Total revenue to Blackhawk was $22.7 million, down roughly $1.2 million from Q3. Sequential revenue was lower primarily due to reduced well intervention activity in the Gulf of Mexico.

Adjusted EBITDA in this segment was $2.3 million in the quarter or 10.1% of revenue, down approximately $2 million versus Q3. This is largely due to a decreased contribution from offshore well intervention and some end of the year inventory adjustments. Wrapping-up the segments with tubular sales on Slide 10.

Revenue in the third quarter was $19.3 million, up almost 50% sequentially as the large number of large pipe orders shifted during the quarter.

Adjusted EBITDA for the tubular sales segment in the third quarter was $500,000, up from $300,000 in the third quarter due to higher product sales offset somewhat by our TRS manufacturing costs, which also sits in this segment, which was up slightly during the quarter due to a few year-end inventory adjustments.

Turning to Slide 11, let me summarize the quarterly financial results. On a companywide basis, revenues were up 13% sequentially with strong growth in the TRS business, significant step-up in the tubular segment with some large orders shipping during the quarter and the Blackhawk segment seeing a slight drop due to the end of storm season.

Adjusted EBITDA was up $1.2 million sequentially as we had some end of the year inventory adjustments, few onetime corporate expenses and generally higher payrolls in the U.S. services segment as the business is staffing up ahead of 2019 in certain markets.

To close out on my comments, as we provided color for 2019 on the last call, nothing has changed our thinking, even with commodity price volatility in Q4.

And I will reiterate on the revenue side, we would expect to see a minimum of 15% growth across the business, as we expect to see strong growth driven by the international services segment with growth expected from all regions in the range of 10% to 20%. The Blackhawk segment will continue to see significant growth internationally and in the U.S.

land market as they commercialize and introduce new products as previously on represented basis. The tubular segment as well should see robust growth as coating activity has increased and customer sentiment has improved. We expect to see the U.S. services segment up but not to the extent as the other businesses as we expect the U.S.

land to be up slightly and don't expect to see the Gulf of Mexico materially improve versus 2018. From a profitability perspective, we would expect to see incremental margins on the revenue growth to be in the 30% to 50% range depending on the mix.

The timing of growth will be gradual throughout the year like the Q1 '19 to be down slightly from Q4 '18, and then working up from there. Obviously, we're not a backlog business and this all subject to our customers and their plans are materializing, specifically on international projects inside of the house.

And we feel we are in excellent position to take advantage of what we see as a better international and offshore market in 2019. And with that, we will open the call to Q&A..

Thank you [Operator Instructions]. Our first question comes from Mike Urban from Seaport Global. Please go-ahead. Your line is open..

So it sounded like from your guidance that you continue to have pretty optimistic view of the year. So I think you may have answered my question. But we've had some folks dial back their expectations for the international and offshore markets based on the commodity volatility that we saw in the fourth quarter.

And not to put words in your mouth, but it sounds like you guys aren't seeing that in the projects or continuing to move forward as previously expected?.

No, that's, exactly right. I've got Steve here, I'll let him comment. But I think overall it speaks to the, frankly the quality of service, the stability and good long-term customer relationships. So Steve, you want to provide any additional color on that..

I think you most of our contracts are quite long-term. So we've got a good contractual position going into 2019. And obviously, these planning for these big international projects stretch out there, so we have line of sight certainly into the first half of what's coming after it. So yes, we're still fairly optimistic on 2019 going forward..

I’d also add that we've got the Blackhawk business, which is going to be rapidly growing, unrepresented countries currently internationally. And so they are expected to see some pretty robust growth in 2019. That’s another piece of the pie here as we think about the international business..

And just following up on that last point on Blackhawk.

Where do you stand on in terms of the international rollout? And if you could quantify what the growth, if you give a little bit of color on that and the qualitative color, give us some color on the growth last year and midway you expect this year internationally from Blackhawk?.

So I guess the second part of your question. Last year, we saw nice growth. We more than doubled the international piece of the business, increased it that over the course of the year. We finished out with about 19% of revenue coming from international. But actually in the fourth quarter, it was about 24%.

So we saw a nice next trend up over the course of the year. And I would say set a good foundation for some pretty substantial growth in 2019 as well as Kyle mentioned that's a pretty significant part of our growth expectation for the year..

Thank you. Our next question comes from Ian Macpherson from Simmons. Please go ahead, your line is open..

Mike, obviously, very favorable outlook for this and you've got a good our growth outlook without the Gulf of Mexico. And I guess we've all been a little bit surprised by the lack of Gulf of Mexico participation in the offshore recovery.

And I just wanted to get your perspective on what will be required in order for the Gulf of Mexico to catch-up with what you're seeing in terms of revitalized international offshore activity?.

That's a good one, and I thank you for asking the wrong person. You need to ask some of the big operators. But I think some of the major developments have come to a production phase. We're seeing projections that the rigs in the Gulf will continue to soften. So it's a challenge. We can't directly dedicate the operators to do what they are going to do.

So we've got to sit back and try to get the best market share and the best probability that we can. So, I don’t know if Steve or any of the other folks have a comment to add to that..

I think you got to look outside just the Gulf, because you've got opening markets obviously, in deepwater Mexico side and down in French Guiana, Suriname. And because of that, you've got operators looking in that whole area, removing rigs around.

So where you don't necessarily see huge amount of excitement in the Gulf, you're seeing obviously quite a bit of excitement in those other areas..

And then I know you've had a favorable market share story in the Gulf of Mexico, and it's not as easy for us to understand exactly how you're outgrowing the market internationally. But we understand it's a combination of market share but also really penetrating underrepresented geographies and market segments as well.

Would you say that you have been or you expect to continue to take share in the international deepwater market in 2019 as well?.

Yes, I think of course we will look at projects on a case-by-case basis. We have line of sight to some projects coming on in Q2 that will give us a little bit more share. We don't want to detriment margins by going out there and grabbing share.

But we do see us picking-up a little bit more share year-on-year, primarily because of the market share we've already captured and that obviously carrying into the projects to ship..

Thank you. [Operator Instructions] Our next question comes from Kurt Hallead from RBC. Please go ahead. Your line is open..

So I appreciate the color and everything to this point. I'm curious when you look at the revenue growth prospects for the full year. I think you've given some general sense on how you think things would take out from a segment standpoint. But to make sure I'm not hearing things correctly, not misinterpreting.

When you look at your four business segments, I was wondering if you can rank order the relative growth you would expect, revenue growth you would expect for the full year?.

I think you take a look at our international services segment is having the overall most dollar revenue growth followed by Blackhawk coming in second, and then our tubular business then followed by U.S. service in terms of ordering..

And then that should probably follow as well from a percentage standpoint as well.

Is that correct?.

That’s correct..

And then in terms of the profitability improvements for the year and in the past, I know you've thrown out your desire to potentially get your segment EBITDA up to 80 million bucks or approaching $80 million.

Can you give us sense on how you feel about that potential target for this year?.

I think to get to $80 million this year that's going to be a bit of a stretch. I think it's going to have to come through a combination of disciplined pricing, operational efficiencies and continued cost control.

I think as we look at our outlook today, I think getting to 80 is going to require everything hitting all cylinders, Blackhawk getting internationalized, international services containing to hit their numbers, as well as we got to continue to focus on cost line here. But I think 80 would be at the high end of the range that I would expect this year..

So initially we set out, if you go back at least three months, $60 million to $80 million EBITDA target. We've had some reversals in the U.S. land Gulf of Mexico does not look very pretty on the U.S. side at least. So we're thinking I know you're up at the top end of that range, it's going to be tough to get there, as Kyle mentioned.

So if we can get even into the low end of that range, we're going to be doubling our EBITDA. So in a market that a lot of people say is we are pretty flat offshore. So we're not ashamed if we can get into the lower half of that $20 million range..

Thank you [Operator Instructions]. Our next question comes from Byron Pope from Tudor Pickering Holt. Please go ahead your line is open..

I just have one question and it relates to the international services. And I think for the Frank's overall, if I recall correctly, I think the Europe, Middle East, Africa region has historically been your second largest region if you want to call the U.S. behind just the U.S. if you want to call that a region.

And so when you described the robust international services top line growth that you guys have untapped. Could you just give some incremental color just on which of those markets within the Europe, Middle East, and Africa region are going to drive the growth? It sounds like you guys have contract wins in both Europe and Africa that will help.

But just more color on the drivers for that international services growth this year would be helpful?.

I think on the European side, we pick up some marketed Norway here. We picked that up in Q4, which actually drove some of that incremental we saw in Q4. Those are long-term contracts so those will carry through on 2019. In Africa, obviously, the outlook in Africa has been a bit spotty on rig count increases.

But we did pick up a nice contract in Angola, which again will carry through till the end of the year. The Middle East, the story is around the UAE and Saudi Arabia where effectively the market share allocations are given out on a quarterly basis. So that can come and go around a quarterly few points..

Our next question comes from Eduardo Royes from Jefferies. Please go ahead your line is now open..

My question is around Blackhawk, obviously, with the big growth and the expansion in margins. Took a little bit of a hit I think in the second half of the year. It's been particularly very lumpy. So just any perspective you can offer as you get some more scale internationally.

How we can maybe think about the Blackhawk margin trajectory for 2019 as a whole, especially just like I said, exiting '18 it's obviously tougher with some of the lumpiness there. Thanks..

This is Kyle, I will address the first part of that question and I will let Scott pick up the second half. We changed our internal methodology in terms of how we’re allocation cost to that segment.

Starting to getting to 2018, so Blackhawk picked up an additional amount of cost burning this year that was not burning in last year, we have that in our disclosures of course. And I will let Scott talk about '19 and what he expects for profitability there..

So to Kyle's point, there has been some increase in cost. But I would say too, if you just look at the fourth quarter in particular you did have a few jobs slide internationally. We did have some expected weakness in the Gulf and some unexpected shift in some product sales.

But the biggest thing is we've also been making some investments in our infrastructure around engineering, new product development and testing and adding some international expertise, so all that will start paying dividends in 2019. I think we expect pretty much growth every quarter for international and U.S.

land over the course of the year, and then the normal volatility in the Gulf based on hurricane season and things like that. But as those volumes increase, as we see those investments we've made covered, the incremental margin should be good and we should see those margins increase over the course of the year..

And my follow-up just curious U.S. land, obviously, we’re going to see some softness in activity, most likely I think most people thinking its maybe a slightly down here. I guess as it relates to you guys.

Is that not enough weakness to really think that we may see much pricing pressure? I think you guys have still been seeing pricing increases well through. So just curious if you're at all concerned about some of the pricing dynamics or the competitive dynamics in U.S. land if we’re talking about rig counts that’s down or spending down flat 10% in U.S.

onshore? And that’s it, thanks..

Let me put that into two pieces. We have two land businesses, one inside of Blackhawk and one inside of U.S services business. I think our TRS services business, we'd likely to see flattish year-on-year based upon the activity levels we’re seeing out there.

I'll flit this to Scott and he'll talk a little bit about what their plans on in terms of where they have been participating and penetrating new markets they haven’t historically been in..

I would say it's very difficult to predict right now for every customer that’s talking about dropping rigs. There is others that are picking up rig. But I would say overall for us as far as market position, we are still fairly underrepresented in U.S. land. We are unrepresented for sure in the Permian area, Oklahoma.

And so just growing into those, almost regardless of market as long as it's still reasonably solid, provides a great opportunity for us. We have had more customer interest in rotating casing while cementing, which is a great driver for us.

We are in a unique position to rollout new products, as well as consolidate third-party products and provide the service at the well site, so that the customers don't have to have as many different company service personnel. So we consolidate a lot of things, which is a unique advantage that we have.

So there is number of factors that make us comfortable that even if the rig count does fall some, we have got a pretty nice growth opportunity. And some of that is just run rate from growth in 2018 as well..

Thank you. We have no further questions at this time. I'll now turn the call back to Mike Kearney for closing remarks..

Yes, thanks. I would like to thank everybody for their interest in Frank's. To conclude, we are pleased with our fourth quarter and full year results for 2018. We are really optimistic about our outlook for 2019.

Our targeted efforts to bolster the operational and financial performance of the company places us on a strong footing for sustained growth and profitability. We look forward to keeping everyone apprised of our progress as we move through the year. Again, thanks for your time today..

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