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Forum Energy Technologies Inc (FET) Q4 2018 Earnings Conference Call Transcript

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Forum Energy Technologies Inc  (NYSE: FET)
Q4 2018 Earnings Conference Call
Feb. 08, 2019, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning, ladies and gentlemen, and welcome to the Forum Energy Technologies Fourth Quarter and Full Year 2018 Earnings Conference Call. My name is Joelle, and I will be your coordinator for today's call. At this time, all participants are in a listen-only mode. And all lines have been placed on mute to prevent any background noise. We will be facilitating a question-and-answer session after the speakers' remarks. As a reminder, this conference call is being recorded for replay purposes. After the speakers' remarks today, I will instruct you on the procedures for asking questions.

I will now turn the conference over to Mark Traylor, Vice President of Investor Relations. Please proceed, sir.

Mark Traylor -- Vice President, Investor Relations

Thank you, Joelle. Good morning, and welcome to Forum Energy Technologies fourth quarter and full year 2018 earnings conference call.

With us today to present formal remarks are Cris Gaut, Forum's Chairman and Chief Executive Officer; as well as Pablo Mercado, our Chief Financial Officer; and Lyle Williams Senior Vice President of Operations. We issued our earnings release last night and it is available on our website.

The statements made during this conference call, including the answers to your questions, may include forward-looking statements. These statements involve risks and uncertainties that may cause actual results or events to differ materially from those expressed or implied in such statements. Those risks include, among other things, matters that we have described in our earnings release and in our filings with the Securities and Exchange Commission. We do not undertake any ongoing obligation, other than that imposed by law, to publicly update or revise any forward looking statements to reflect future events, information, or circumstances that arise after this call.

In addition, this conference call contains time sensitive information that reflects management's best judgment only as of the date of the live call. Management statements may include non-GAAP financial measures. For a reconciliation of these measures, refer to our earnings release. This call is being recorded. A replay of the call will be available on our website for two weeks following the call.

I'm now pleased to turn the call over to Cris Gaut, our Chief Executive Officer.

C. Christopher Gaut -- Chief Executive Officer

Thanks, Mark. Good morning, everyone. The Board recently asked me to lead the company once again, and I'm very committed and motivated to increase our stock price, unlocking Forum's untapped value. I have been focused on ensuring that Forum will manage our business to the existing market conditions and will consistently generate free cash flow through the market cycle. We will have a cost-efficient business model and an emphasis on our winning products and strongest brands.

We are entering year five of the industry downturn from the 2014 peak activity levels. WTI oil is hovering around the low $50 per barrel price range, and the futures market is not much better. Based on our view that this lower industry operating environment is the new normal we have refreshed our strategy. Instead of positioning the company to take full advantage of a secular growth trend that has not materialized, our strategy will now be to position the company to generate free cash flow throughout the market cycle.

I believe under the current market conditions, Forum could generate over $100 million of free cash flow annually through a combination of working capital reduction and EBITDA growth. Forum's balanced portfolio of well-positioned consumable products and strong brands for capital equipment serving global markets across the drilling, completion and production cycle positions us to generate free cash flow on a consistent and continuous basis at any market environment.

For example, we have a strong portfolio of well intervention in artificial lift products including Global Tubing and full protection solution for electric submersible pumps which are attracting new customers globally and generating several cross-selling opportunities. These products benefit from completions and workover activities even on long-standing environmental.

Forum has a complete package of hydraulic fracturing consumable equipment which covers the full suite between the frac engine and the frac stack. These are all value-added products that have attracted the attention of premium customers who are looking to improve efficiency. We have strong drilling and downhole brands such as B&V Oil Tools and Davis-Lynch, and we are a leading provider of catwalks and iron roughnecks. Each of these products has global application and market share opportunities outside of North America.

Our well-known valve brands and processing equipment serves mid and downstream markets which benefit from the continued infrastructure build-out.

Looking ahead, we expect our first quarter operating results to be a bit softer than the fourth quarter, especially in our completion segment and we have taken steps to lower our cost structure, and Lyle we will cover these initiatives in his remarks.

We expect U.S. completions activity will bottom in the first quarter with a gradual improvement throughout the year. As operators put 2019 budgets to work, the oil pipeline capacity constraints are alleviated and completion activity improves. Additionally, we expect international activity will improve modestly throughout 2019 and the global midstream and downstream infrastructure build-out will continue. Based on current market conditions, I expect our EBITDA to increase in 2019 compared to 2018.

Now, let me ask Pablo to take you through our results and financial position.

Pablo G. Mercado -- Senior Vice President & Chief Financial Officer

Thank you, Cris. Good morning. For most of 2018, the U.S. Land Drilling and Completions market remained active and Forum generated almost 80% of our revenue in the domestic market. Our total revenue for the full year 2018 was $1,064 million, up 30% from 2017. Orders for the year were $1,116 million, a 28% increase from 2017, resulting in a book-to-bill ratio of 105%. Adjusted EBITDA for 2018 was $96 million or 9% of revenue, up significantly from $29 million in 2017.

In the fourth quarter, total orders for the company were $271 million, down $4 million or 1% from the third quarter. The decrease resulted primarily from the deferral of new orders like some of our customers due to budget exhaustion as well as a slowdown in U.S. completions activity. This was partially offset by the additional orders of Global Heat Transfer which we acquired in the fourth quarter.

The book-to-bill ratio for the company was 99%. Our fourth quarter revenue was $273 million, up $6 million or 2% sequentially despite the slowdown in completions activity. Our adjusted gross profit was $69 million in the fourth quarter or 25% of revenue, a sequential decrease of approximately 300 basis points from the third quarter.

This margin compression resulted from lower volumes of high margin completions products as well as some pricing pressure in selected product areas and a greater impact of tariffs. The adjustments to our gross profit in the fourth quarter were primarily for inventory reserves and restructuring charges which I will discuss in more detail.

Our adjusted EBITDA for the fourth quarter was $21 million or 8% of revenue, a sequential decline of 320 basis points.

I will now summarize our segment results on a sequential basis. In our Completions segment, orders increased 16% to $133 million. Segment revenue was $120 million, an increase of $2 million resulting in a book-to-bill ratio of 111%. This was primarily due to the acquisition of Global Heat Transfer in the fourth quarter offset by lower completions activity in North America.

Adjusted EBITDA margins were 16%, a decrease of 660 basis points due primarily to lower volumes of high-margin artificial lift, pressure pumping and coiled tubing products. We also experienced pricing pressure in some hydraulic fracturing products, incremental tariffs and under absorption of manufacturing costs which contributed to the decrease in margins.

Production & Infrastructure segment orders were $76 million, a decrease of 24%. This was due to the large well site production equipment orders received in the third quarter for 2019 deliveries and the deferral of new orders by some of our customers due to budget exhaustion. Segment revenue was $91 million, a 4% decrease resulting primarily from lower sales of upstream and midstream valves. Adjusted EBITDA margins were 6% for the segment, a decrease of approximately 210 basis points, primarily due to a lower mix of high margin upstream and midstream valves and an increase in tariffs.

In our Drilling & Subsea segment, orders were $62 million, a 3% increase due to the award of two work-class remotely operated vehicles partially offset by lower orders for drilling equipment. The book-to-bill ratio for the segment was 100%. Segment revenue was $62 million, an increase of $8 million or 14%. This was due to the delivery of drilling equipment to the Middle East and higher revenue recognition on Subsea projects. Adjusted EBITDA for the segment improved to $1.8 million with positive contribution from both product lines.

Net loss for the quarter was $384 million or $3.52 per diluted share. Results for the quarter included pre-tax charges of $349 million for goodwill and intangible asset impairments, $26 million for inventory writedowns and $8 million for restructuring and other charges, partially offset by $2 million of foreign exchange gains. In addition our tax expense included a $50 million valuation allowance on certain deferred tax assets.

We provided a reconciliation table of these special items in our earnings release, but let me provide some accounting details. Due to the precipitous decline in oil prices during the fourth quarter and our stock price ending the year well below our book value, we evaluated the carrying value of goodwill in all of our product lines. As a result of that analysis, we determined that our drilling and downhole product lines were deemed to have an impaired goodwill in addition to some impaired intangible assets in the downhole product line.

Similarly, we performed a thorough assessment of inventories considering historical carrying costs relative to current market conditions. We concluded that the book value of certain inventory items in several of our product lines was higher than current market values. So we have written these values down accordingly.

Consistent with our strategy to focus on free cash flow regeneration, we plan to aggressively reduce excess inventory to a level sufficient to meet current market demand. Also in the fourth quarter, we took several steps to reduce our cost structure resulting in the restructuring charges that I mentioned. Lyle will provide additional details about these changes in his remarks. While we have reduced cost for the current market environment, we are preserving our capabilities and sufficient capacity to respond should market conditions improve. Adjusted net income for the fourth quarter was $0.08 per diluted share, excluding special items.

I will now discuss some additional details about our results and financial position at the Forum level.

Our free cash flow after net capital expenditures in the fourth quarter was $23 million, an improvement of $27 million over the third quarter. We are confident in Forum's ability to generate significant free cash flow in 2019 on a consistent basis as we adjust our working capital levels and cost structure to current market conditions.

Our primary use of free cash flow in the near term will be to reduce debt and improve our liquidity. Our net capital expenditures in the fourth quarter were $4 million. We expect our total capital expenditures for 2019 to be approximately $20 million to $25 million similar to 2018 levels.

Our balance sheet and financial position remain strong. Our liquidity position at the end of the fourth quarter was approximately $215 million. Net debt was $472 million and our net debt to total capitalization ratio was 31%.

Our reported diluted share count for the fourth quarter was 109 million shares. Interest and depreciation and amortization were $9 million and $19 million respectively in the fourth quarter. We expect these to remain at similar levels in the first quarter.

Adjusted corporate expenses were $6 million in the fourth quarter and we expect corporate expenses to be approximately $7.5 million in the first quarter due to a higher level of variable compensation accruals.

We estimate that our effective tax rate for the full year 2019 will be approximately 25%. We expect to continue to see volatility in our quarterly tax rate as we are close to break even in various jurisdictions with different rates and continue to have unrecognized tax benefits.

For more information about our financial results, please review the earnings release on our website.

Now, let me turn the call over to Lyle to discuss some key operating initiatives.

D. Lyle Williams -- Senior Vice President, Operations

Thank you, Pablo. Good morning, everyone. In the fourth quarter, Forum's overall order flow remained strong except for some budget-driven seasonality in the Production & Infrastructure segment. I will share a bit of color about recent orders and how we expect booking patterns to unfold across our product lines.

For Completions, even though we expect lower oil prices to slow orders for newbuild capital pressure pumping fleets, we did received nice orders for capital equipment in the fourth quarter, including power ends for new fleets and conventional and ICBM-styled manifold trailers. Outside of these capital items, demand for our other Completion products will continue to track more closely with U.S. drilling and completions activity.

We also expect market share gains from our innovative artificial lift and well intervention product lines to continue. And international activity growth provides upside for our completions products. For example, we recently received an order from Asia for 25 coiled tubing pressure control equipment packages for delivery in 2019.

Order for our Production & Infrastructure equipment now follow a more seasonal ordering pattern along with budget cycles from operators and inventory planning by major distributors.

Fourth quarter bookings dipped from a strong third quarter and we expect an uptick in the first quarter following budget resets by our customers. Midstream and downstream capital projects continue to move forward and provide support to our overall order profile, despite any slowdown in U.S. upstream activity.

The drilling rig count is a key indicator of our drilling order activity. In the U.S. land market, we expect some softening in the rig count in the face of upgrades. However, discussions with customers related to international land rig newbuild and upgrade activity continue. These are primarily focused in the Middle East, where we expect to receive our share of orders for these projects including our new iron roughneck and hydraulic catwalk.

Our Subsea product line received an order for two work-class ROVs for the oil and gas industry and we expect an additional ROV order in the first quarter. The return of some orders for the oil and gas market combined with subsea projects for renewable and defense industries provide a good backlog to improve the profitability of our subsea product line.

As Cris mentioned, we are feeling the impact of lower industry activity driven by commodity prices and have made organizational improvements to increase our efficiency while reducing our overhead costs. We are streamlining our organizational structure and moving functional authority and accountability back into our product lines to eliminate redundant costs.

We are simplifying our distribution system to reduce our footprint, while providing more direct connection between our production facilities and our customers. We will also be combining our corporate and operating offices into one location from proved alignment across our organization. These changes as well as other targeted cost reductions will reduce our cost structure to the appropriate level for current market conditions.

From a direct cost perspectives, our teams have done a good job with managing our input costs of material and labor. Where needed we have adjusted our direct headcount for increases or decreases in activity. On the material cost front, our strategic sourcing teams are making progress in our best cost country sourcing initiatives and we are partnering with vendors to reduce both cost and lead times to improve our responsiveness in this unpredictable market.

The cost of tariffs increased by just over $1 million from the third quarter to approximately $3.5 million. We expect tariff expenses to increase by a further $1 million in the first quarter bringing these expenses to a normalized level assuming no further changes in tariff legislation. We continued to execute on mitigation strategies, which includes passing along a portion of the costs to our customers and strategic sourcing initiatives.

Our efforts to reduce inventory levels gained traction in the fourth quarter, as gross inventories net of inventory acquired with the acquisition of GHT decreased by $13 million. This reduction came despite the challenges of slower completion market activity and product collection delays by a major valves distributor. We are confident the improvements we have made and continue to make in our planning activities will drive inventory lower in 2019.

Let me turn the call back over to Cris for closing comments.

C. Christopher Gaut -- Chief Executive Officer

Thanks, Lyle. As we begin 2019, you can expect Forum to be focused on generating free cash flow on a consistent and continuous basis, growing EBITDA dollars, emphasizing our strong products and brands with market share opportunities, and managing the business for success in the current market environment.

I would like to thank our employees for their hard work in 2018 and their support for the changes we have made for 2019. Thank you for the interest. And at this point, we will open the line for questions. Joelle, let's take the first question.

Questions and Answers:

Operator

Thank you. (Operator Instructions) Our first question comes from George O'Leary with Tudor, Pickering, Holt. Your line is now open.

George O'Leary -- Tudor, Pickering, Holt -- Analyst

Good morning, Cris; good morning, Pablo.

Hey, George.

Pablo G. Mercado -- Senior Vice President & Chief Financial Officer

Good morning.

George O'Leary -- Tudor, Pickering, Holt -- Analyst

Good morning, Lyle too, sorry, I didn't mean to forget you.

D. Lyle Williams -- Senior Vice President, Operations

Good morning, George.

George O'Leary -- Tudor, Pickering, Holt -- Analyst

Great quarter on the free cash flow generation front. Definitely what most folks were looking to see at you guys. I guess my first question would be as you look forward and anticipate getting to a point where you are generating $100 million in free cash flow on an annual basis, what are your priorities for the use of that free cash flow? Historically, you guys have been fairly acquisitive, but there is a good deal of that last year. Is it returning that to shareholders, paying down debt, are there attractive M&A opportunities out there? Just curious how you're thinking about that capital allocation going forward once you have that $100 million in annualized free cash flow on hand?

C. Christopher Gaut -- Chief Executive Officer

Right, George. So we made the GHT acquisition late in 2018. Our focus with our free cash flow will now be reducing our net debt improving our liquidity. And that's been our pattern as we do an acquisition, finance it with some debt, but then pay down that debt from free cash flow. And so that is our priority focus here at this point in time. Pablo?

Pablo G. Mercado -- Senior Vice President & Chief Financial Officer

Yes. So just to add to that, George, absolutely use of free cash flow pay down debt initially, we are though in the market talking to companies, those acquisitions that we tend to do generally take some time to build relationships and identify targets that we think we can be successful with as we integrate them into Forum. And so we are still out there building those relationships, building the pipeline. I think in this market, there is going to be a bit less M&A activity. So it's a good time to build those and not necessarily feel like you have to pull the trigger and miss something. It is a buyer's market because of the change in market conditions here.

C. Christopher Gaut -- Chief Executive Officer

But to be clear, we want to get our net debt down. It's above the level that we wanted to be at on a normalized basis.

George O'Leary -- Tudor, Pickering, Holt -- Analyst

Understood. It's good to hear. And then you noted Q1 from an operating perspective in 2019 and not trying to be too myopic here, but just to think through the flow through of my model and how best to run those numbers modestly down. I guess, Cris, what would you kind of characterize and maybe you could provide a range or just some sense of what modestly lower in the first quarter be?

C. Christopher Gaut -- Chief Executive Officer

Yes, a bit softer, I think, is what I said. So, I think, what a bit softer means it doesn't mean about the same.

George O'Leary -- Tudor, Pickering, Holt -- Analyst

Got you.

C. Christopher Gaut -- Chief Executive Officer

But it doesn't mean significantly lower which to me would be significantly low would be more than 10% to 15% down. Is that helpful?

George O'Leary -- Tudor, Pickering, Holt -- Analyst

Yes. No, that's a helpful window to think through. And then I'll sneak in one more if I could. Inventory came up a number of times in your comments and just working capital generally seems like inventory is a decent lever to pull to draw down to generate some free cash flow especially in 2019. I guess, is there a -- historically, you guys have laid out some targets on where you'd like inventory turns to go through time. As Cris now as you're kind of back at the helm, how would you frame a targeted either a level of inventory or inventory turns metric to think about going forward?

C. Christopher Gaut -- Chief Executive Officer

Yes, that's -- a primary focus for us is good working capital management, and Lyle has been doing a lot of work on that.

D. Lyle Williams -- Senior Vice President, Operations

Sure. Thanks, George. This is a great question for us. Long term our objective for inventory turns is to be better than three times. We obviously had a lot of inventory now with our turns' levels where they are, and we have been in the past making some inventory bets counting on some uplift in the market.

So, as Cris mentioned, we're going to manage the business for the market environments that we can see and expect in the near term. So that gives us some opportunity to pull those inventory levels down, which will come through reducing our inventory that we have for active orders and things that are moving really quickly, but that are planning but also looking at some areas where we have excess inventories and drawing those down. And I think Pablo mentioned that in his comments as well that we're going to be very aggressive about moving some of that extra inventory.

George O'Leary -- Tudor, Pickering, Holt -- Analyst

Great, guys. It sounds prudent to me. Thanks very much for the color.

C. Christopher Gaut -- Chief Executive Officer

Thanks, George.

Operator

Thank you. And our next question comes from John Watson with Simmons Energy. Your line is not open.

John Watson -- Simmons Energy -- Analyst

Good morning, guys.

C. Christopher Gaut -- Chief Executive Officer

Hi, John.

Pablo G. Mercado -- Senior Vice President & Chief Financial Officer

Hi, John.

John Watson -- Simmons Energy -- Analyst

Hi. I want to follow up on George's question on inventory. I think the market clearly likes the focus on free cash flow. Can you give us some context on what working capital could look like in 2019? How much of a reduction we could see? Just any quantitative metric you could give there? And then also on the inventory reductions, any implications for your ability to increase revenue?

C. Christopher Gaut -- Chief Executive Officer

Yes. So, it's going to be a process to move from where we are now to the three turns that Lyle outlined. And we're going to do that in a smart way, but also do it in a way that it clearly adds to our cash flow. And we'll add EBITDA dollars. So we have set internal goals from a bottoms-up standpoint throughout the company and we have plans to accomplish that. And that is a high priority that we have internally.

Pablo G. Mercado -- Senior Vice President & Chief Financial Officer

That's right. And John, just I think things I would add is in addition to those detailed plans, we feel like we have ample inventory on hand to meet current demands. And as we look ahead, we've made a lot of planning improvements, and I think I talked about those on maybe some of our earlier calls, and we continued to work with our vendors on shortening lead times of our supply chain. All of that's going to allow us to be flexible, have lower inventory levels and continue to be responsive to needs of our customers in the market.

John Watson -- Simmons Energy -- Analyst

Perfect. That's very helpful. And then quick follow up on the completions margin. We got some good color on what drove the degradation quarter-over-quarter in 4Q. Thinking about 1Q and then more broadly in 2019, do you expect the pricing for some of the pressure pumping equipment to return? It seems like that hindered margins in Q4. Just curious about expectations in 2019?

C. Christopher Gaut -- Chief Executive Officer

Yes. So, completions, we did see a slowdown in the fourth quarter. What we expect in the first quarter is that slow start to the year to continue. There are less -- it's primarily on the frac side and as you know there are less spreads working today. And also our customers' pricing has been a bit under pressure. And so for that reason we do expect some of that will impact us in the first quarter, but kind of cadence of that is a gradual improvement starting in the second quarter.

So we don't expect the level of newbuilds that we saw over the past couple of years in the frac business. It's going to be a shift more to sustaining and replacement work. It is still very important for our customers that they have no non-productive time and deliver efficiencies for them. And so that's the emphasis in the products that we're emphasizing and delivering. But clearly, it's a soft spot for pressure pumping. Yes, it is such an important part of the process and delivering production. Now that we're on this faster treadmill in the unconventional place, we do expect that that activity will have to pick up later in the year.

John Watson -- Simmons Energy -- Analyst

Right. Makes sense. So, one more from me. Lyle mentioned some initiatives to reduce G&A that I think are prudent. Is there a target for G&A as a percentage of revenue that Forum has internally and maybe we should be thinking about later in 2019 or into 2020?

C. Christopher Gaut -- Chief Executive Officer

Yes. We have -- we do have those targets internally and we're working toward them in 2019. The difficulty with your question, George is, it's hard to say longer-term where revenue is going and how much further adjustments up or down we would need to make to SG&A. But we want the SG&A levels to be significantly lower as a percentage of revenue than they've been here recently. I think that is about as clear as we can be at this point in time. And let us get our work done and show you the results. And I think that's probably the best way for us to demonstrate what we're doing and the impact it's going to have.

John Watson -- Simmons Energy -- Analyst

Understood. Thanks for the color, guys. I will turn it back.

Operator

Thank you. And our next question comes from Chase Mulvehill with Bank of America Merrill Lynch. Your line is now open.

Chase Mulvehill -- Bank of America Merrill Lynch -- Analyst

Hey, good morning. Welcome back, Cris.

C. Christopher Gaut -- Chief Executive Officer

Thank you.

Chase Mulvehill -- Bank of America Merrill Lynch -- Analyst

I guess the first question, I just wanted to confirm that you said '19 EBITDA you felt would be up year-over-year. You did say that right?

C. Christopher Gaut -- Chief Executive Officer

I did, indeed.

Chase Mulvehill -- Bank of America Merrill Lynch -- Analyst

All right. I guess maybe if you can kind of walk us through the road map of kind of how you get there? And how much market tailwinds you need or are you actually kind of cutting costs? Because one of your bigger competitors reported yesterday, and kind of talked about, a more or less kind of sloppy market for U.S. onshore and especially kind of relative to oilfield service CapEx. So kind of help us understand how much of that you can do on your own versus how much you need the market to kind of come back?

C. Christopher Gaut -- Chief Executive Officer

Yes. There are differences among companies. I think we're less oriented toward newbuild CapEx than the competitor you're referring to. And with our mix of businesses, with the opportunities we have in the well intervention side and the artificial lift side, we are seeing growth in the Drilling & Subsea business as we referred to before. And with the -- on the production side, the midstream build out and the investment in process industries were expecting growth in that part of our business as well. I would agree with your implication that there is going to be less new land rigs built, less new coiled tubing units built and certainly not many offshore things built. But as I say, we're much less exposed to that part of the market than what you're referring to.

Chase Mulvehill -- Bank of America Merrill Lynch -- Analyst

Okay, and that makes sense. Is there a big cost cutting number that you can point to and you can think about it as it relates to kind of 2019 as you kind of been in there I guess a couple of months now and then potentially see an opportunity to cut costs?

C. Christopher Gaut -- Chief Executive Officer

Yes. We are very much have a focus internally on cutting our cost particularly on the SG&A side. I think you will see that over time realizing this is a kind of a show me market that we're in, let us demonstrate those savings to you and then review the results. But we have specific targets for cost efficiencies throughout the organization. And I think that's going to help contribute to the EBITDA growth that I was referring to.

Chase Mulvehill -- Bank of America Merrill Lynch -- Analyst

Okay. All righty. That's helpful. Thanks for the color. I guess one last follow-up. Obviously, it seems like the number one, your top priority right now is to generate free cash. What would be your number two priority?

C. Christopher Gaut -- Chief Executive Officer

Yes. So, free cash, emphasizing our strong products and brands and cost efficiency, I think those are the top three things and the result is going to be the result of those initiatives, stronger liquidity and capital structure and more EBITDA dollars.

Chase Mulvehill -- Bank of America Merrill Lynch -- Analyst

All righty. That's all. Very helpful.

C. Christopher Gaut -- Chief Executive Officer

So I'm giving the three points of emphasis and the two results that we're looking for.

Chase Mulvehill -- Bank of America Merrill Lynch -- Analyst

All righty. Well, I appreciate it. And again, welcome back Cris. Look forward to working with you.

C. Christopher Gaut -- Chief Executive Officer

Thank you, Chase. Very good.

Operator

Thank you. And our next question comes from J.B. Lowe with Citi. Your line is now open.

J.B. Lowe -- Citi -- Analyst

Hey, good morning, guys.

C. Christopher Gaut -- Chief Executive Officer

Good morning.

Pablo G. Mercado -- Senior Vice President & Chief Financial Officer

Good morning.

J.B. Lowe -- Citi -- Analyst

Let's see here. First question, what -- if you stripped out the GHT acquisition in 4Q, what do you think your completion segment revenue did quarter-over-quarter?

Pablo G. Mercado -- Senior Vice President & Chief Financial Officer

Yes. So, thanks for the question. GHT was a contributor. You can see it in the tables. It's included in our S&A product line in the revenue there. So it did contribute to an increase in revenue, but that was partially offset by the slowdown that we talked about in completions activity. It was in for most of the quarter, but not all the quarter. That could be enough of a sense?

J.B. Lowe -- Citi -- Analyst

I was just wondering if you had a number, but if not that's fine. I guess just the outlook for -- you guys didn't really mentioned too much on the outlook for GHT specifically. Can you just talk about how their innovation is going? What's the outlook for the business end markets there little bit more clearly?

C. Christopher Gaut -- Chief Executive Officer

Yes, sure. So we are -- we continue to be very excited about GHT. It is a differentiated product that we've acquired there and they've been gaining a lot of traction particularly with the newbuild fleets that took place last year. What we see going forward is a great opportunity to retrofit the existing base of radiators that are out there in the installed fleet with this new more efficient product. And we also see significant potential for cross-selling opportunities and synergies both on the revenue and cost side with our other stimulation products.

J.B. Lowe -- Citi -- Analyst

Okay, great. Second question was, do you guys have an update on the Saudi valve initiatives? And if you could just remind me how much investment you've actually put into that so far?

D. Lyle Williams -- Senior Vice President, Operations

Sure. This is Lyle, J.B.

J.B. Lowe -- Citi -- Analyst

Hey, Lyle.

D. Lyle Williams -- Senior Vice President, Operations

We continued to make good progress in Saudi. And what we've been working on is gaining approvals for major customers. And we all know that that is a long process and a slow process. And while we are making really good progress with major customers, we are behind on that process from where we expected in our initial investment case and what we've been given direction to before.

So we believe fundamentally in the long-term strategy there of being a local assembly and test provider to the Saudi market. And we believe that's going to continue to be a or will be a significant contributor to our valves business in the future. So our investment there J.B. is around $5 million. We feel very positive about what this is going to look like in years to come. But again, as I mentioned, we're in that phase of gaining acceptance with customers in the local market which will come just taking us a little time than we thought.

J.B. Lowe -- Citi -- Analyst

All right. Thanks. And then just one quick last one. Do you guys have a target net debt to EBITDA ratio that you want to kind of get back down to?

C. Christopher Gaut -- Chief Executive Officer

Yes. So, if you look longer-term, we have historically been at two times or better that's what we want to get back to. Obviously, we're not there today. Thus, the focus is on increasing EBITDA and reducing our net debt at this time. Liquidity example, but we do want to reduce debt level.

J.B. Lowe -- Citi -- Analyst

All right. Thanks, guys. Appreciate it.

Operator

Thank you. And our next question comes from Martin Malloy with Johnson Rice. Your line is now open.

Martin Malloy -- Johnson Rice -- Analyst

Good morning.

C. Christopher Gaut -- Chief Executive Officer

Hey, Martin.

Pablo G. Mercado -- Senior Vice President & Chief Financial Officer

Good morning.

Martin Malloy -- Johnson Rice -- Analyst

The $100 million free cash flow number that you've mentioned at the beginning of the call. How much of that is coming from working capital reduction?

Pablo G. Mercado -- Senior Vice President & Chief Financial Officer

Yes. So we've got probably roughly equal contributions from EBITDA and working capital as a reference point here, Marty. Now how the year unfolds, clearly there's some uncertainty about that. If we do see a strengthening in the market then the waiting of EBITDA would increase as a cash generator. If there's softening in the market then the waiting from working capital would increase. So regardless that is our objective. But exactly what the pie, if you will, would look like, and the pie chart will depend on how the year unfolds and what the market looks like.

Martin Malloy -- Johnson Rice -- Analyst

Okay. And then I just wanted to ask about the pricing on the Completions equipment. And with the pricing pressure that some of your customers are under, I would expect that they're looking to reduce their inventories in spares and parts, and other vendors like yourself are probably looking to reduce their inventory levels. What are you seeing in terms of pricing today out there for some of your equipment?

C. Christopher Gaut -- Chief Executive Officer

Yes, I'd say in that stimulation the product sold with pressure pumpers, the pricing index if you will for a number of those products is coming down at the current time, but still good positive margins. And as we said we expect that over the course of this year demand will increase and we'll see what impacts that would have on pricing later in the year?

Pablo G. Mercado -- Senior Vice President & Chief Financial Officer

Okay. Just going to add to that a little bit more color. I think we're getting better pricing in some of our new products that create efficiencies. So that goes a little bit to offset. Some of that is on the intervention side of that product line. And then I think that there is a sense of operators or service companies looking to reduce capital costs. So I think that's an important distinction Cris made about how we have exposure to activity. And often that reduction in capital investment does need a little bit higher maintenance cost as well.

Martin Malloy -- Johnson Rice -- Analyst

Okay. Thank you.

Operator

Thank you. And our next question comes from Edward Muztafago with Societe Generale. Your line is now open.

Edward Muztafago -- Societe Generale -- Analyst

Hello, guys. Cris, good to see you back at the helm there.

C. Christopher Gaut -- Chief Executive Officer

Thank you.

Edward Muztafago -- Societe Generale -- Analyst

You're probably getting a little bit tired of talking about inventory here, but I want to maybe think about this in little bit a different way. It seems like what we're seeing among the larger players is a bit of a shift back toward focus on maintaining margin over maintaining market share that kind of dominated the last couple of downturns. And it sort of seems like that's what underpinning your focus around inventory. And there is some suggestion that this is a structural shift going forward. But there is always been a risk in up cycles as to not having enough inventory on hand and ultimately that leads to ceding market share sometimes to other players. Can you just talk about how you're thinking about inventory longer-term and inventory management in the up cycles and not just kind of the current soft period that we are in?

C. Christopher Gaut -- Chief Executive Officer

Yes, I think that's a good question in good time. And probably how we got in the situation that we are today is that there was an expectation that the market improvement would be much stronger and built inventory anticipation of that and got a bit over our SKUs. So going -- so we're responding to that getting our working capital back in line. But I think the important point is the one that Lyle was talking about before is let's make sure we have a very strong process in place for what the demand is and what we are building to and shortening up the lead times. So we reduce the risk of getting over our SKUs and can manage the working capital in a strengthening market that are in line with that demand. Anything you want to add, Lyle?

D. Lyle Williams -- Senior Vice President, Operations

No, I think generally if you look at our overall inventory levels at below two turns, we've got plenty of inventory right now. And if we could get that up to three or better turns, we'll be back in more of what a normalized level for an oilfield service manufacturer might look like which gives plenty of opportunity for us to service those customers and meet growth in the marketplace.

Edward Muztafago -- Societe Generale -- Analyst

Okay. That's helpful sort of things. It gives us some thought process about how to manage our model working capital longer term. And then as a follow up, and I have been sort of back and forth between things I hope I'm not asking what someone else asked. But with a projection of higher EBITDA year-over-year, can you maybe walk us down a little bit through the segments. You sort of went through some of the outlook for orders on the segments, but what segment would lead in terms of EBITDA improvement? What segment would you see lagging? And should we see EBITDA up across the entire business as opposed to on a segment basis as opposed to a consolidated basis?

C. Christopher Gaut -- Chief Executive Officer

Yes, I think, we have plans as we focused on our stronger products and brands to improve EBITDA in each of the segments. And we did talk a bid about this before. We are seeing stronger demand in D&S as we mentioned a bit of the international improvement affecting the Drilling business and some market share opportunities there. Even in the Subsea, we are beginning to see some oil and gas orders coming back which is nice to see after their absence for quite a period of time.

In the Completions business, I think our artificial lift and intervention businesses we expect to do well. And as we said before in the Production side with the ongoing investment trends, positive trends, in the midstream and in the process industries with that build-out there, those should be good drivers for us in our Production & Infrastructure segment.

Edward Muztafago -- Societe Generale -- Analyst

Okay. Great. Now, that's good to hear. I mean, I think we all expect sort of completion related stuff to rebound pretty shortly in the back half of the year, but certainly positive that there is good trends across the business overall.

C. Christopher Gaut -- Chief Executive Officer

Okay.

Operator

Thank you. (Operator Instructions) Our next question comes from Connor Lynagh with Morgan Stanley. Your line is now open.

Connor Lynagh -- Morgan Stanley -- Analyst

Yes, thanks. Good morning.

C. Christopher Gaut -- Chief Executive Officer

Hi, Connor.

Connor Lynagh -- Morgan Stanley -- Analyst

So I just wanted to clarify, Cris, the comment you made in response to George's question. The range you were kind of setting in terms of -- down slightly, but not 10% to 15% down. Was that a comment related to revenue or EBITDA?

C. Christopher Gaut -- Chief Executive Officer

I think what I said was that we expected operating results to be a bit softer. So, I think...

Connor Lynagh -- Morgan Stanley -- Analyst

So would that be EBITDA or EBIT? What's the...

C. Christopher Gaut -- Chief Executive Officer

Yes, I was trying -- obviously, I think you folks are focused on EBITDA, right, most. So it would -- although we are not trying to get away from giving specific numbers for EBITDA, I don't think that's a long-term best practice. We are trying to give you a good flavor there, and so when we say operating results that's not top line.

Connor Lynagh -- Morgan Stanley -- Analyst

Okay. Got it. Thank you. And then maybe just a higher level one. So, you've highlighted some of the international opportunities that you see out there. Can you just talk to how big these are relative to your business as it exist today when you would think that they would start to contribute meaningfully in a way that if the U.S. is little slower this year relative to last year that we would start to see that?

C. Christopher Gaut -- Chief Executive Officer

Yes. So, thanks for the question. Most of our exposure to the international market we face is in our Drilling & Subsea segment, which has really yet to benefit from the international recovery that is ahead of us. We are going into the year in Subsea with backlog, almost three times greater than what we had last year at this time. And also the Drilling product line has had some nice orders and continued momentum for the Middle East rig projects. So, I think it's significant for those businesses.

We also have exposure to the international markets in our Completion segment. Historically, coiled tubing is 30% international. The BOP order that we received was for an international market that's in intervention. And the Davis-Lynch casing, it's a mining hardware, also sells quite a bit of product internationally.

And then lastly, in P&I, there is more international exposure on the valve side than there has been historically where the business used to be mostly North America, we are doing more in Asia and of course the Middle East.

Connor Lynagh -- Morgan Stanley -- Analyst

Got it. And I'm not trying to pin you down on the timing exactly, but just as an aspirational goal, if you did about $1 billion of revenue last year, I mean, let's say $100 million opportunity, $200 million, like what -- how much can this be to the company?

C. Christopher Gaut -- Chief Executive Officer

So, I think, a good way to think about that is historically in the market where the industry was hitting kind of on both cylinders, we were more like 60-40. And I think we still have that type of product mix and that capability to be 60-40.

Pablo G. Mercado -- Senior Vice President & Chief Financial Officer

Cris, it's 75-25 where we are today.

C. Christopher Gaut -- Chief Executive Officer

Yes, or more like 80-20 here more recently like in North America.

Pablo G. Mercado -- Senior Vice President & Chief Financial Officer

Yes, including Canada.

Connor Lynagh -- Morgan Stanley -- Analyst

Yes, got it. That's helpful. Thank you.

Operator

Thank you.

C. Christopher Gaut -- Chief Executive Officer

Great. If we have no more questions, Joelle, let's wrap up.

Operator

I'm not showing any further questions at this time.

C. Christopher Gaut -- Chief Executive Officer

Thank you very much. Good interest and good questions. Enjoyed the discussion. Glad to be back with you and we will talk to you again next quarter. Thank you.

Operator

Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program. And you may all disconnect. Everyone, have a great day.

Duration: 55 minutes

Call participants:

Mark Traylor -- Vice President, Investor Relations

C. Christopher Gaut -- Chief Executive Officer

Pablo G. Mercado -- Senior Vice President & Chief Financial Officer

D. Lyle Williams -- Senior Vice President, Operations

George O'Leary -- Tudor, Pickering, Holt -- Analyst

John Watson -- Simmons Energy -- Analyst

Chase Mulvehill -- Bank of America Merrill Lynch -- Analyst

J.B. Lowe -- Citi -- Analyst

Martin Malloy -- Johnson Rice -- Analyst

Edward Muztafago -- Societe Generale -- Analyst

Connor Lynagh -- Morgan Stanley -- Analyst

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