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Edited Transcript of FI earnings conference call or presentation 2-May-17 3:00pm GMT

Thomson Reuters StreetEvents

Q1 2017 Franks International NV Earnings Call

DEN HELDER May 4, 2017 (Thomson StreetEvents) -- Edited Transcript of Franks International NV earnings conference call or presentation Tuesday, May 2, 2017 at 3:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Blake Holcomb

Frank's International N.V. - Director of IR and Communications

* Douglas Stephens

Frank's International N.V. - CEO and President

* Kyle McClure

Frank's International N.V. - Interim CFO, SVP of Finance and Treasurer

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Conference Call Participants

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* Blake Allen Hutchinson

Scotia Howard Weil, Research Division - Equity Analyst

* Bradley Philip Handler

Jefferies LLC, Research Division - MD and Senior Equity Research Analyst

* Brandon Chase Mulvehill

Wolfe Research, LLC - Oil Services Analyst

* Joseph Donough Gibney

Capital One Securities, Inc., Research Division - Senior Analyst

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Presentation

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Operator [1]

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Welcome to the Q1 2017 Frank’s International Earnings Conference Call. My name is Adrian, and I will be your operator for today's call. (Operator Instructions) Please note this conference is being recorded.

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

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Blake Holcomb, Frank's International N.V. - Director of IR and Communications [2]

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Thank you, Adrian. Good morning, everyone, and welcome to the Frank’s International conference call to discuss the first quarter 2017 earnings. I'm Blake Holcomb, Director of Investor Relations Communications. Joining me today on call are Douglas Stephens, President and Chief Executive Officer; and Kyle McClure, Senior Vice President of Finance, Treasurer and Interim CFO. We have posted a presentation on our website that we will refer to throughout this call. If you'd like to view this presentation, please go to the Investor section of our website at franksinternational.com.

Before we begin commenting on our Q1 '17 results, there are a few legal items we'd like to cover beginning on Page 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 materially differ 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 our website at franksinternational.com. Here you may also access both the first quarter earnings press release and a replay of this call. Please note that any non-GAAP financial measures discussed during this call are defined and reconciled for the most directly comparable GAAP financial measure in the first quarter 2017 earnings release, which was issued by the company earlier today.

I will now turn the call over to Douglas for his comments.

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Douglas Stephens, Frank's International N.V. - CEO and President [3]

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Thank you, Blake, and good morning to everyone on the call. So the first quarter of 2017 results for Frank’s International was the representation what we believe will be a continuing trend for the remainder of the year. The increase in the North America onshore activity is driving revenue growth in our onshore TRS and Blackhawk businesses, and the International segment is beginning to see benefits of scheduled work ramping up and lower costs due to the internal efforts over the past several quarters.

Oil prices are showing signs of stability in the $50 range, and supply appears to be moving more towards in balance with global demand. These macro fundamentals, coupled with efficiency improvements across the supply chain leads us to expect that we will see fewer project cancellations and delays globally than we experienced in 2016.

The exception to this improving market environment is our U.S. offshore and Tubular sales businesses. These businesses have historically been correlated with U.S. Gulf of Mexico activity, where outlook is currently less positive. Working rig count in this region well -- remains well below 2014 levels and is likely to see a slight deterioration through the end of the year.

While we remain a leader in this market, the competition for fewer projects and pricing pressure is likely to continue to negatively impact these businesses until we see an increase in rig activity.

We will provide additional commentary on our outlook later in the call. But I want to begin with providing some highlights from the first quarter on Page 5. Total company revenue for the quarter was up 3% sequentially, with adjusted EBITDA of nearly $2 million. The benefit of a full quarter of Blackhawk revenue and a growing U.S. onshore business help offset some of the onshore business -- offshore business declines. However, we are seeing revenue declines in offshore beginning to slow, and expect that Q1 will represent the bottom in terms of Frank's revenue from a global TRS perspective. I am pleased with the efforts of our team to expand in underrepresented markets and prepare the path for return to global TRS growth in the coming quarters.

The U.S. onshore business was up 16% quarter-over-quarter, as the market continues to see strong activity growth. We remain focused on growing this business profitably and are seeing solid margins, we're electing not to chase opportunities where the pricing of services does not make economic sense. Generating the maximum amount of cash from our operations being the primary objective in this business currently.

As the year progresses, we believe we will continue to see solid growth in the U.S. onshore market and the potential to reclaim share if service supply begins to tighten. Similarly, our Blackhawk segment onshore revenues are posting regional and product revenues each month thus far in 2017. The Permian represents the strongest growth area, and we are more regularly seeing customers opt to combine our TRS and specialty cementing offerings. Blackhawk contribution from the higher margin offshore rental business is facing similar challenges in the Gulf of Mexico, but margin is expected to improve as several offshore synergies materialize. New technology is deployed and storm packer sales see a seasonal pickup.

On the international front, the period between Q4 2016 and Q1 2017 appears to be the lowest cycle for this segment. Some delays in the Asia Pacific region and the Middle East offset the strong performance in Latin America and West Africa. We view the delays as temporary and the coming quarters expect meaningful improvement internationally as our contracted work ramps up.

Before Kyle provides additional details on our operational and financial results, I like to highlight 2 significant achievements thus far in 2017 that demonstrate our leadership in tubular running technology. In March, a Frank's crew deployed 4 new technologies, while landing a completion for a customer offshore in the Gulf of Mexico. The revamped remote control Fluid Grip Tong, the Hydraulic Control Line Spider, 500 ton completion elevator, and the cantilever COBRA control line manipulator were used in running over 20,000 feet of tubing with a total buoyed weight of more than 760,000 pounds. This completion was the first of what is expected to be a 9-well program scheduled through 2020. Frank's is providing casing running and completion work, while Blackhawk is providing diverting tools, cementing heads and other well-construction components.

Commercial applications of these tools is considered a great success by the customer. In fact, the customer has cited excellent planning and execution by our engineering team and crew as one of the differentiating factors in selecting Frank's over the competition for this challenging and complex project. We plan to complete more successful runs using this equipment, as we focus on maintaining our dominant share in the U.S. Gulf of Mexico.

The second achievement I like to point out, came in early April, when Frank's was declared the recipient of the 2017 Safety-in-Seas Safety Practice Award by the National Ocean Industries Association in Washington D.C. This prestigious award was given to us for the Jet String Elevator, an innovative lifting device that improves the safety and efficiency of large diameter pipe handling in the deepwater environment. Anyhow it gives us a great sense of pride to be recognized by our industry's leading trade association for our technology because improving the safety of offshore drilling operations is really at the heart of who Frank's is.

I refer to these accomplishments as they exemplify our strength in technology and operational expertise. Sustaining our reputation for safety, quality and reliability in the downturn will benefit us in the recovery, as we expand our offering in underrepresented markets and look to add new technologies that broaden our well-construction offering.

I will now turn the call over to Kyle to provide details on the financial and operational results during the quarter. Kyle?

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Kyle McClure, Frank's International N.V. - Interim CFO, SVP of Finance and Treasurer [4]

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Thanks, Douglas. Before I get started, just a quick note. Any financial or market comparisons in my prepared commentary will be for fourth quarter 2016 versus first quarter 2017.

Turning to Slide 7. I will provide detail on changes in the global offshore rig markets that we saw during the quarter. Please note that for 2017, we have modified our presentation of this data set to include offshore platforms in addition to mobile rigs. This will better reflect all of our offshore revenue streams.

Overall, market share was flat at 17% as we saw the market decline by 14 rigs. Latin America, Canada and Europe all experienced increased revenue and share on relatively flat rig count during the quarter.

Middle East continues to be an area where we continue to grow share, but revenues and margins in the region are still lagging due to timing of work. West Africa saw an increase in revenue for the first time since the fourth quarter 2014. The increase in higher margin work in new markets, mostly remote countries in West Africa, was the primary reason for the improvement. Based on what we are seeing and hearing in this market, over the coming quarters, we believe that the African market most likely reached the bottom in the fourth quarter 2016.

As we expected and referenced in our fourth quarter call, the largest share and revenue declines were seen in the Gulf of Mexico, as some work shifted to a low-bid competitor during the quarter. Asia Pacific saw revenue and share declines in line with rig count during the quarter.

Moving to the quarterly financial results on Slide 8. Overall, the financial results reflected and met our expectations. The U.S. Services and Tubular segments experienced lower revenues due to decreased Gulf of Mexico activity. As previously mentioned, the International segment was boosted by better-than-expected contribution from Africa. The Blackhawk segment was higher due to a full quarter revenue and continued tailwinds in the U.S. onshore business. Globally, our core TRS business fell 1% in the quarter, providing further indication that the worst may be behind us. The primary drivers for the decrease in the fourth quarter 2016 was the loss of higher margin Gulf of Mexico work, the absence of one-time benefits from tax and payroll adjustments seen in the fourth quarter and a one-time benefit expense that hit during the first quarter.

First quarter cash flow from operations was negative $9 million, which was a $31 million improvement as we didn't have recurring cash severance or acquisition costs, which totaled roughly $27 million during the fourth quarter 2016. Excluding those, cash flow from operations improved by roughly $5 million.

We saw working capital, specifically, trade accounts receivable become a drag during the quarter of about $16 million. We've got some work to do internally to improve this, but as we grow in regions which historically have longer terms, we certainly face some headwinds in the near term. As we come out of the bottom of the cycle, our teams are hyper focused on receivables.

CapEx for the quarter, as expected, was around $12 million. We expect to see CapEx to trend closer to $8 million per quarter for the remainder of the year as most of the CapEx related to our Lafayette administration facility is behind us. We also ended the quarter with just over $284 million in cash on the balance sheet and no debt.

Returning to positive free cash flow, which we define as operating cash flow less net CapEx, is a central focus for the remainder of the year. We believe that we are on track to achieve free cash flow breakeven for the year. We believe this is achievable through an improved business environment throughout 2017, strong working capital and CapEx management and some one-off nonessential asset sales.

In breaking down our segments, we first look at International Services on Slide 9. International Services revenue in the first quarter increased 2% to nearly $47 million. The increase can be attributed to Africa, Canada and Latin America collectively coming in 15% higher versus the prior quarter. We saw declines during the quarter in the Middle East and lower activity from delays in the Asia Pacific region. The overall international market is a bit of a mixed bag right now, but we are generally encouraged by the increase in tenders for new projects we have seen in the last few months.

Adjusted EBITDA for International Services in the fourth quarter was $5.3 million, an increase of almost $4 million. The increase was driven by higher margin West Africa work and lower costs from actions taken near the end of 2016.

Moving to U.S. Services on Slide 10. First quarter revenue decreased 6% to around $31 million. Adjusted EBITDA for U.S. Services in the first quarter was a loss of $7 million. The primary drivers for the decrease from fourth quarter 2016 was the loss of higher margin Gulf of Mexico work, the absence of one-time benefits from tax and payroll adjustments seen in the fourth quarter 2016 and a one-time higher medical benefits expense that hit during the quarter, which was approximately $3 million. As a reminder, this segment is where our corporate overhead resides, which was slightly higher as we began accruing for short-term incentive compensation once again.

First quarter U.S. offshore revenue was 15% lower due -- to roughly $20 million. Revenue was lower in the quarter due to the previously mentioned work lost to an unusually low bid. The U.S. onshore business continues to see significant growth in terms of revenue and adjusted EBITDA as both improved from Q4 2016. We remain a leading provider of TRS in the U.S. onshore market and now have the ability to include Blackhawk's suite of equipment and products for their broader well-construction needs.

Slide 11 shows our Tubular segment performance. Revenue in the first quarter was $17 million, down 12%. Adjusted EBITDA for Tubular Sales in the first quarter was $2.3 million, up from $400,000. The increase in adjusted EBITDA was driven by cost actions in late 2016 and early 2017. As a reminder, this is where our manufacturing department cost is housed, which drove most of the improvement.

The overall demand in the Tubular Sales segment is still soft as decreased Gulf of Mexico activity and adequate customer inventory are leading to fewer orders. Our deepwater fabrication capabilities and expertise, in addition to new opportunities in onshore storage wells are helping sustain the business. However, the outlook for this segment is likely flattish to down for the remainder of the year.

Wrapping up the segments with Blackhawk on Slide 12. As a reminder, that Q1 reflects the full 3 months of this business versus Q4, which we had the business for only 2 months. The revenue for Blackhawk is $16 million as strong U.S. onshore product sales drove revenues throughout the quarter. These were up 40% full quarter Q4 versus full quarter Q1. Offshore rental revenue was adversely impacted by lower activity.

Adjusted EBITDA increased slightly to over $1 million as the shift in product mix to lower margin onshore sales from offshore rentals weighed on margins.

To close my comments out, I'd like to touch on an item in the press release issued earlier this morning and give some color on how we see Q2 shaping up. Effective at the beginning of 2017, the company made changes to the way it classifies cost of revenues versus SG&A. As many of you are aware, we've previously had a very broad definition of SG&A. The company felt that reclassifying certain expenses would allow us as a management team to more accurately assess our performance relative to peers and better allocate resources. These changes had no impact on our consolidated income statement or segment reporting. For comparison purposes, the 2016 numbers have been reclassified to reflect the change.

Moving to the Q2 outlook. We would expect similar sequential revenue drivers to what we saw in Q1. The company sequential revenues are likely to be flattish to slightly higher, driven by increases in our International, Blackhawk and U.S. onshore businesses, but somewhat offset by continued declines in the U.S. offshore and Tubular sales businesses.

Looking at adjusted EBITDA, we would likely see that also flat to moving slightly higher for Q2. Improved international sales, nonrecurring expenses and a more efficient cost structure will likely be offset by U.S. offshore sales declines and the mix of business growth coming from lower margin U.S. onshore work.

I will now turn the call back over to Douglas for some final comments before we open the call to Q&A.

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Douglas Stephens, Frank's International N.V. - CEO and President [5]

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Thank you, Kyle. And prior taking -- prior to taking your questions, let me wrap up on Page 13 by reiterating several specific focus areas that when effectively executed will allow us to maintain positive adjusted EBITDA and return to positive free cash flow, excluding dividends during 2017.

The first will be to capitalize on the significant growth seen in the past 9 months in the U.S. onshore rig count. By most indications, the growth trend onshore is expected to continue and Frank's is well-positioned in the most important basins. We're also having success in engaging our customers to provide quality and reliable bundled TRS and Blackhawk services. The recent successful testing of new Blackhawk line of frac plugs and staging tools also offer upside to our traditional onshore offering. As these wells become more complex, we are seeing greater emphasis on quality well construction that can enhance the life of the well and improve resource recovery.

Additionally, our successful penetration into underrepresented markets, and the ramping up of work we've been planning for several quarters internationally should deliver improved results in the second half of 2017.

Although deepwater rig activity growth still seems several quarters away, we expect scheduled work for Frank's to move forward as planned with fewer delays and cancellations. The expansion into the Middle East market has taken us sometime, but successful execution in this market thus far has earned us the credibility to move to higher revenue and margin work in the future quarters.

We're also encouraged by what we're seeing from customers in countries in Europe and Africa in regards to proceeding with planned offshore projects, where we've been awarded the work. At the same time, delays in Asia Pacific are expected to subside beginning in Q3.

The use of new technologies across all our offerings are also expected to contribute additional revenue streams as deepwater recovery is still potentially several quarters away. While rig rates have come down considerably, we are still seeing customers place priority on safety, efficiency and well integrity. These new technologies are receiving positive feedback from customers and further adoption is expected as we continue conveying the benefits that they provide. Although, it's still early in 2017, we are exceeding our plans in new technology deployment and adoption in each of our markets around the world.

We're also continuing to evaluate the industry landscape for companies or technologies that can further broaden our existing well-construction offering. We believe there are some attractive opportunities out there, and we have the balance sheet strength to take advantage of them at the right price point.

Finally, controlling our costs to maximize cash flow remains a key component of the equation. As mentioned previously, we took additional actions in Q1 that brought us to the higher end of our $40 million to $50 million in cost reductions previously described. We are confident that the $150 million in cost that we've taken out over the last 18 months, approximately a $100 million will be sustainable as the market recovers.

We still plan to evaluate areas where additional cost savings can be realized. Executing on these opportunities to improve margins through a better aligned and more structured organization will help us reach our free cash flow targets.

And in closing, while we continue to operate in a tough market for our deepwater expertise and technology, we're not without opportunity. We are competing vigorously to maintain share in markets, where we have a dominant position, we are gaining traction in underrepresented markets geographically, and we are becoming a more complete well-construction company through new products and service lines. The continued execution of this strategy is the key for our future success as a company and for long-term value creation for our shareholders.

And we'll now open up the line for your questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And our first question comes from Blake Hutchinson from Howard Weil.

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Blake Allen Hutchinson, Scotia Howard Weil, Research Division - Equity Analyst [2]

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Just wanted to delve a little bit into the international guidance. And I guess, differentiate between, I think, Doug, your comments around potentially meaningful international improvement and just kind of having more of a measured improvement in 2Q? I guess, if we take in total, what you've said, some good performance highlights regionally in the quarter, but Middle East and Asia Pac perhaps kicking in later in the year and perhaps even finding somewhat of a bottom later year in your deepwater -- core deepwater markets. Would it be appropriate to think of perhaps the back half of the year perhaps accelerating a little bit in terms of International growth?

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Douglas Stephens, Frank's International N.V. - CEO and President [3]

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Yes. I think, Blake, that's a fairly fair assessment, right. We've seen from the start of the year, the first few months of the year, were fairly slow. The last few weeks, if you want of the quarter were quite good. As we mentioned, we've anticipate -- some of the projects, to some extent, self help in West Africa and in the North Sea, in Europe. As we picked up a few more projects because of the cost reduction we've seen, we've seen very good incrementals on the additional revenue that we've generated and booked [few] markets Africa -- West Africa and the North Sea. Asia and the Middle East have been a little bit slow for us in the first quarter of the year. We do see that accelerating, particularly in the second half of the year. We've won quite a bit of work there. We've talked about that in the past. And I think in the Middle East, what we're seeing is we moved to some of the higher margin work as our reputation and the delivery that we've had on some initial work is showing success and we'll move into some of the higher margin work in some of the key GCC countries. And then in Asia, we've been awarded some key contracts. We've been in the ramp-up phase for the last couple of months. By the time we hit the second half of the year, I think we'll be firing on more cylinders in that part of the world.

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Blake Allen Hutchinson, Scotia Howard Weil, Research Division - Equity Analyst [4]

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Okay. Just want to make sure that's the -- we're getting the right message there. And then, with regard to kind of the near-term trajectory in the Gulf of Mexico, deepwater Gulf of Mexico. I guess, can you draw a differential between the kind of big negative comparison we saw from Q4 to Q1 and then the remainder of the year. Has most of the share loss run its course? Or do we need to consider that kind of having a knock-on impact into 2Q before perhaps that revenue stream firms up?

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Douglas Stephens, Frank's International N.V. - CEO and President [5]

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I think -- of course, if you lose a rig that knocks on and carries over for a while. I think the situation there in the Gulf of Mexico is such that there is so few rigs right now, if you lose 1 or 2, that actually has a material impact on share. And it's -- there is multiple players there and some of our customers want to keep multiple players in the market. So we've seen a bit of share deterioration recently because of that. But as we've said, we're vigorously competing to maintain share, and we think by the second half of the year, there's probably some still -- some further deterioration in terms of the overall rig count through the next quarter or 2, but we expect a slight rebound -- flattening to rebound in the second half of the year, and we're going to be pursuing share. So I don't know if that answers your question, Blake, but that's...

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Blake Allen Hutchinson, Scotia Howard Weil, Research Division - Equity Analyst [6]

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No, that's helpful. I guess at some point with what you've laid out -- you also laid out kind of delays in what your -- in your content, both in U.S. Services and Blackhawk. So it sounds like more deterioration into Q2, but we wouldn't necessarily rule out perhaps having a positive comparison at some point in the back half of the year.

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Kyle McClure, Frank's International N.V. - Interim CFO, SVP of Finance and Treasurer [7]

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Yes, I think, this is Kyle. I think what we'll see here, is kind of Q2 click down potentially some more share challenges. But there's still a lot of stuff that's sort out for tender right now, that we just have not heard back on, there's some very -- we'll call it 6 or 7 rigs, various tenders that are out there right there in the Gulf that are up for grab. So it's sort of hard to model that because we don't have an answer back on a lot of that stuff yet. But we feel pretty comfortable click down into Q2 and sort of flattening out in the back half of the year right now. Potential upside to that, if we get a couple of these tenders come our way.

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Operator [8]

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(Operator Instructions) The next question comes from Joe Gibney from Capital One.

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Joseph Donough Gibney, Capital One Securities, Inc., Research Division - Senior Analyst [9]

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Kyle, just a quick question for you. You referenced corporate overhead in the quarter is slightly higher embedded in U.S. Services. I was just curious what the exact number was? And secondarily, I was wondering if you could share kind of where we were on U.S. Services EBITDA margin? I believe last quarter you indicated we are sort of in exit rate of mid-20% EBITDA margins as a ballpark. Did that hold in the first quarter? Are we seeing improvement? Or is that generally how we should think about that as we enter 2Q? Appreciate it.

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Kyle McClure, Frank's International N.V. - Interim CFO, SVP of Finance and Treasurer [10]

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Yes. So the corporate overhead, let's take a step back, as we have gone through a pretty significant sort of restructuring of where cost reside within that segment. We have pulled out of the Gulf of Mexico and U.S. Land businesses, a lot of sort of administration, insurance, real estate sort of noncontrollable costs and pulled it into the corporate overhead. So as we have been quoting you numbers last year, I think in the $13 million to $15 million range, I'm going to start this year by quoting you a negative $25 million range for sort of corporate overhead, it's engineering, QHSE, all the administrative support functions that really support globally, but lot of them kind of sit in Lafayette and Houston. So we're going to start with that as your new number for this year, we're going to go with $25 million and work off of that as we talk about color. The margins we talked about, Joe in Q1 or sorry, the exit of Q4, similar zip codes in Q1, no real change from kind of that discussion point. I don't want to get into too much specifics on this, but we are in the same zip code.

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Operator [11]

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(Operator Instructions) And our next question comes from Chase Mulvehill from Wolfe Research.

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Brandon Chase Mulvehill, Wolfe Research, LLC - Oil Services Analyst [12]

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So just real quickly, I wanted to ask about, I guess, if you think about your business and the potential for more collaboration or integration with other industry players. Do you see an opportunity here for either onshore or offshore to kind of enhance kind of collaboration across the industry when we think about well construction?

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Douglas Stephens, Frank's International N.V. - CEO and President [13]

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No, I think that's a real trend that we see ongoing, Chase, I think that this downturn is fostered a few things in the industry, it slowed a few things down, I think one of the things that's been a consistent theme over the last few years and we'll see continuing and probably accelerating is this idea of integration, right, across the service sector. And I don't necessarily mean that everything is owned by one company necessarily, but we're seeing rig contractors being getting TRS and other services being included in their contracts. We're seeing bundled services being awarded to various players. And we're participating in all of those types of activities. And actually, looking at how we can more proactively pursue some of those, including on U.S. Land, proactively working with rig providers to provide the services that may be included in their contract, so they may want to go include in their contracts and likewise with offshore. So yes, we do see that and collaboration is something that we see as part of the future.

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Brandon Chase Mulvehill, Wolfe Research, LLC - Oil Services Analyst [14]

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Okay. Great. Any particular markets you think you'll have more success in, especially as we think about onshore -- U.S. onshore, do you think you'll have more success there. And then on, on the offshore markets, is there -- is it the Gulf of Mexico, where you think you'll have better -- more success of collaboration or across the board?

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Douglas Stephens, Frank's International N.V. - CEO and President [15]

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Well, I think what we're going to see is, this collaboration, we'll see different flavors of collaboration in different parts of the world. So what I see in U.S. Land is, typically, we haven't seen a lot of integration, it's been very single service providers there in the service space not just in the TRS space, but kind of overall. But we do see collaboration with the land rig providers as being potentially one of the next steps in our evolution as we go into increased rig count in U.S. Land and customers are still looking how they can make more efficient wells. I think internationally, you're going to -- we see different types of collaboration. This -- a large number of contracts being awarded today through integrated or bundled services with large integrated service providers. And we're actively participating in those. The largest OFS players are also good customers and good partners of ours. And in certain parts of the world, such as the North Sea, TRS services are often included as part of the mobile rig contracts. And again, we're collaborating with rig providers up there. So I think this collaboration will be ongoing, we'll have a slightly different flavor depending on the geography or the customer.

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Brandon Chase Mulvehill, Wolfe Research, LLC - Oil Services Analyst [16]

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Okay. And a quick follow-up. I guess, could you help us with EBITDA margins and sorry if you gave this, for U.S. onshore in 1Q?

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Kyle McClure, Frank's International N.V. - Interim CFO, SVP of Finance and Treasurer [17]

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Yes. So I think we talked about this sort of exiting Q4 in the sort of 20% give or take range. And I think I mentioned, we're in that zip code currently coming out of Q1.

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Brandon Chase Mulvehill, Wolfe Research, LLC - Oil Services Analyst [18]

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Okay. And did you disclose the healthcare claim expense early? Sorry, if I missed it.

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Kyle McClure, Frank's International N.V. - Interim CFO, SVP of Finance and Treasurer [19]

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Yes, it was $3 million in the quarter.

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Brandon Chase Mulvehill, Wolfe Research, LLC - Oil Services Analyst [20]

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Well, $3 million. Okay. It's pretty big.

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Operator [21]

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And our next question comes from Brad Handler from Jefferies.

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Bradley Philip Handler, Jefferies LLC, Research Division - MD and Senior Equity Research Analyst [22]

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I think my question definitely falls in the category of not writing fast enough, so forgive me. But you walked through -- you were good enough to walk through 2Q guidance. Should I be thinking first of all that what we're talking about is, if you say, I think you said flattish, correct sequentially?

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Kyle McClure, Frank's International N.V. - Interim CFO, SVP of Finance and Treasurer [23]

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Yes.

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Bradley Philip Handler, Jefferies LLC, Research Division - MD and Senior Equity Research Analyst [24]

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Okay. Should I be thinking that means 1.5 plus 3. And so we're talking flattish sort of clean, if you will, because I'm backing out that medical expense?

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Kyle McClure, Frank's International N.V. - Interim CFO, SVP of Finance and Treasurer [25]

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So if you start with, we don't have 3 recurring, and we call that 4.5. I think the mix of business will be challenging as you have sort of more U.S. onshore, more Blackhawk onshore, and sort of the tick down in Gulf of Mexico. And so I would say, we'd start at this 4.5 number, but I think there's going to be some headwinds within the Gulf of Mexico and the mix of business there to kind of bring that down a little bit.

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Bradley Philip Handler, Jefferies LLC, Research Division - MD and Senior Equity Research Analyst [26]

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Right. And that's offset by some continued potential in International, that's what gets you to flattish?

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Kyle McClure, Frank's International N.V. - Interim CFO, SVP of Finance and Treasurer [27]

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That's right.

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Bradley Philip Handler, Jefferies LLC, Research Division - MD and Senior Equity Research Analyst [28]

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Is that right?

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Kyle McClure, Frank's International N.V. - Interim CFO, SVP of Finance and Treasurer [29]

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Yes.

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Bradley Philip Handler, Jefferies LLC, Research Division - MD and Senior Equity Research Analyst [30]

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Okay. All right, I just wanted to make sure, like I said, I wasn't quite sure, I've written things down enough. Okay. And then, I guess, while I have you, we have heard at least Q1 had its interruptions as reported by the diversified service players, Nigeria was cited. I don't know that's the biggest market for you, but there was some interruptions certainly in West Africa. So it's interesting that your experience was obviously a little bit better. Were you aware of such interruptions, does that play into a sense that you have that the market for West Africa or your opportunity West Africa in particular gets even stronger as you make your way through the year?

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Douglas Stephens, Frank's International N.V. - CEO and President [31]

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I think the market in West Africa, it's frankly -- it's a tough market, right? And there is multiple countries down there. Some in certain positions as rigs move in and out, I think what we described is that we've been successful in picking up projects in remote countries. We've driven a lot of cost out of our West Africa operations after the really significant downturn we saw through last year. And as a result, when we do pick up work we're seeing very good incrementals on it. So we've got -- reduced our critical mass in many of these countries to the point now when we do pick up work we're seeing good margins in it. But it clearly was a mixed bag, I certainly wouldn't tell you that every country in West Africa was blowing and going in the first quarter because that's far from the case, and I think it'll be a while before the overall market down there turns around.

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Bradley Philip Handler, Jefferies LLC, Research Division - MD and Senior Equity Research Analyst [32]

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Sure. That makes sense, that makes sense. And maybe just a little color also on the Asia -- your Asia commentary. Maybe I'll ask it this way. How do you guys calibrate risk that project delays don't just persist that there is something -- there is enough actually happening on the ground right now to give you that confidence that these will actually get going and then therefore your opportunity gets going later this year?

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Douglas Stephens, Frank's International N.V. - CEO and President [33]

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I think -- no, it's a good question. I think on some of the projects that we have, we said that risk is reduced because the rigs are actually drilling and they're waiting on us to get on the rig. So I think in some of these projects, that's how we're defining it. Again Asia, we see as a market, which will be fairly slow to recover. A lot of these countries $50 oil are not going to be having huge investments in them. Where we've talked in many of these cases, where we're seeing improved results, be it North Sea, Europe, West Africa, or Asia, a lot of it's simply because we've won contracts for rigs that are working or about to start working have been awarded. I think, in short, we're picking up share in some of these key markets, which is because of the reduced cost base it's driving good incremental.

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Operator [34]

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(Operator Instructions) And we have no further questions at this time. I'll turn the call back over to Douglas Stephens for final remarks.

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Douglas Stephens, Frank's International N.V. - CEO and President [35]

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Okay. Thank you very much, Adrian, and thank all of you, for your questions. So as mentioned, we're confident that we have the right strategy in place and look forward to updating you on the progress we're making in executing towards our goals to generate free cash flow, hold share in dominant markets and grow in underrepresented markets, while broadening our well-construction offerings. So I'd like to thank all of you for your time and interest in Frank’s International.

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Operator [36]

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