Q3 2019 Earnings Call
My name is that effect and I would be or operator for today's call.
At this time all participants are in a recent only mode. Later, we will conduct a question and answer session. During the question answer session. If you have a question. Please press Star then one on your Touchtone phone.
I'll now turn the call over to your House, Patricia Gil Investor Relations.
Thank you then I saw good morning, and welcome to oil States its third quarter 2019 earnings conference call.
Call today will be led by Cindy Taylor oil States is president and Chief Executive Officer, Biologic oil States as executive Vice President and Chief Financial Officer, and we are joined by Chris crack well States as executive Vice President operations before we begin we would like to caution listeners regarding forward looking statement.
To the extent that our remarks today contain information other than historical information.
Please note that we are relying on the safe harbor protections afforded by federal law.
Any such remarks shouldn't be weight in the context of the many factors that affect our business, including those risks disclosed in our Form 10-K , along with other FTC filings. This call is being webcast and can be accessed oil states is website a replay of the conference call will be available one and a half hours after the completion of the call.
I'll be available for one month.
Well now turn the call overextending.
Thank you Patricia good morning to all of you and backing for joining us today to participate in our third quarter 2019 earnings conference call.
Our reported results for the third quarter, what largely in line with the guidance that we provided to the market in connection with our second quarter earnings Conference call. While our revenues were at the lower end of our guided range. Our margins were at the upper end, allowing us to exceed the midpoint of our guidance.
On EBITDA.
Similar to many other oilfield service companies, we witness U.S. land based activity declines lighter in the quarter, but our operations were fairly reselling, our overall and benefited from international and deepwater drilling activity in place night.
Our third quarter revenues were flat sequentially, while our costs were lower contributing to an 18% sequential increase in EBITDA.
Each of our three segments contributed to the sequential EBITDA improvement, which can be attributed to strong operational execution and good cost control I will go through each segment's operating results in more detail lighter and the call.
As I have highlighted on previous calls our company has consistently generated free cash flow. After capex and this quarter is no exception, our cats work them operations totaled $50 million, which allowed us to pay down $34 million I've revolving credit facility borrowings.
In the quarter after spending $14 million on capital expenditures.
As you will see we have continued to consistently reduce debt and 2019, resulting and I know that to book capitalization ratio at 15% at September Thirtyth Boyd well reviewed debts with you in more detail boy, Thanks, Sandy and good morning ever.
One.
During the third quarter, we generated revenues of 264 million.
While reporting a net loss of 32 million or 54 cents per share.
Third quarter earnings were negatively impacted by 34 million dollar or 45 cents per share noncash impairment charge to reduce the carrying value of the fixed assets and our drilling services business.
Our third quarter EBITDA totaled 31 million.
With an EBITDA margin percentage of 12%.
Reported EBITDA was also negatively negatively impacted by $700000 of severance and downsizing charges.
As we continue to adjust our cost structure and rightsize global operations to better align with the industry outlook.
Yes, Andy mentioned, we generated 50 million and cash flow from operations and invested 14 million and capital expenditures.
Resulting in $36 million, a free cash flow generated in the quarter.
On a year to date basis, we have generated 70 million of free cash flow.
Which is cash flow from operations after capex.
And a pay down 71 million, an outstanding borrowings under our revolving credit facility.
In addition, during the third quarter, we repurchased $1 million in principle amount.
Of our convertible senior notes at a 14% discount to par value.
Operations have historically and continued to generate significant amounts of free cash flow.
2014, and through the third quarter of 2019.
We have been free cash flow positive and all but two quarters.
At September 30.
Our net debt to book capitalization ratio was 15%.
And our available liquidity position at the end of the third quarter.
Was approximately 154 million inclusive of cash on hand totaling 15 million.
Our liquidity position increased $45 million since the end of the second quarter.
In terms of our fourth quarter 2019 consolidated guidance.
We expect depreciation and amortization expense to totaled 29 billion.
Further we expect net interest expense to total 4.6 million.
All of which approximately 2 million is noncash amortization of debt discount and debt issue cost.
Our corporate expenses are projected to totaled 11.4 million.
Fourth quarter capital expenditures should approximate 15 million.
As we are in the early stages of our budget process for 2020.
We believe it's important to provide some initial color and our expectations for capital expenditures and depreciation and amortization expense for next year.
For the full year 2020, we expect invested approximately 50 million in Capex.
Further.
With the write down on the carrying value of our land drilling rigs and the third quarter.
Combined with lower levels of capital investments over the last few years, our depreciation and amortization expense is expected to approximate 105 million in 2020.
And at this time, we'd like to turn the call back over to Cindy.
We'll take you can be operating results for each of our business segments.
Thank you lied starting with our offshore manufactured product segment, we generated revenues of $105 million segment, EBITDA 17 million and a segment EBITDA margin of 16% during the third quarter. This represented a 3% sequential increase and segment revenues.
And a 7% sequential increase in segment EBITDA.
Our improved results were driven by an increase and project driven sales and other products and services revenues, coupled with improved facility cost absorption at the higher revenue levels are incremental segment EBITDA margins were strong at 37% as a result.
All.
We received one notable project award during the third quarter of 2019.
Military products to be delivered over the next few years, our orders booked in the quarter totaled $123 million, resulting in a 4% sequential increase in backlog and a book to bill ratio up 1.2 time.
Year to date, our book to Bill ratio totals 1.5 times at September 30th our backlog totaled $293 million, which is our highest reported backlog since March 31st 2016 customer conversations remind constructive.
And visibility for additional major project award is developing favorably for subsea pipeline and floating production facility content as we progressed into 2020.
And our Wellsite services segment, we generated $116 million up rabbinate $20 million. The segment EBITDA on a segment EBITDA margin that averaged 17% and the third quarter 2019, compared to 16% reported in the preceding quarter.
These results benefited from improved completion services customer activity and international markets and in the Gulf of Mexico, along with the benefits have continued cost reduction measures in our completion services business. Our revenues were flat sequentially. However, our incremental EBITDA.
Margins were 352%, reflecting cost reduction initiatives and the improved mix of international and Gulf of Mexico work, which by the third quarter comprised 21% of our completion services business revenues during the third quarter at 2019.
Pain following a strategic review of our drilling services operations, we made the decision to reduce the scope of our drilling operations.
Plans to reduce our flight from 34 rigs to nine rigs, reflecting ongoing weakness in customer demand for vertical drilling units, particularly in the Permian basin.
As a result, our drilling services business recorded a non cash impairment charge at $33.7 million the remaining non rigs and our fleet will continue to serve customers in the Rocky Mountain region.
And our downhole technologies segment, we generated revenues of $43 million and segment EBITDA of $6 million and the third quarter, while sequential segment EBITDA improved considerably revenue declines were realized as this segment experienced lower customer activity levels lighter in the third.
Third quarter.
Segment, EBITDA margin was 14% compared to 8% in the preceding quarter.
As a reminder, second quarter 2019 segment EBITDA margin was negatively impacted by 1.4 million as inventory write off associated with new product design changes.
Regarding progress on our integrated gone offerings, we were pleased to read lease our vapor integrated gun system earlier. This month. The Viper system provides the benefit of an integrated Gan system with the versatility of an open architecture design, providing operational flexibility.
To meet wireline and operator customer needs and preferences.
Paper can be provided with our newly released addressable switch.
The addressable switches I proprietary intrinsically safe switch that is uniquely build configurable TV run in standard our rapid fire modes, improving speed and efficiencies.
In addition to the Viper system, we are progressing field trials of our stride acts integrated Gan system, which is a premium system design to exceed all other integrated Gan offerings on the market today by offering the lowest requirements for handling on the well site.
We expect to commercialize the strategy system by year end and look forward to providing our customers a set of integrated Gan offerings designed to best meet their individual needs for reliability efficiency and performance.
I would not now like to share our thoughts on the market outlook for the fourth quarter.
All of you realize the U.S. rig count is currently 8% below the third quarter average of 920 rigs as a result, we expect our us onshore businesses and product lines to be negatively impacted by these lower rig counts and seasonal weather coupled with the likely.
Impacts of holiday downtime and exhausted customer budget.
Offsetting these U.S. headwinds and we expect sequential revenue and EBITDA growth to be generated our offshore manufacture product segment as higher levels of backlog convert to revenue days and we benefit from improved facility cost absorption.
And our offshore manufactured products segment, we forecast revenues and a range between 104, and a $112 million Boyd bahar, starting backlog level, which will convert over time into greater major project revenues segment EBITDA margins are expected to averaged 15 to.
17%, depending on product and service mix.
We estimate that fourth quarter revenues for our well site services segment should range between 96, and a 103 million with segment EBITDA margins expected to averaged 15% to 16%.
Given our decision to reduce our land drilling fleet. We believe it is important to provide a separate guidance for our completion services business.
With revenues expected to range from $90 million to $95 million and EBITDA margins expected the averaged 16% to 17%.
For our downhole technologies segment, we believed that our fourth quarter revenues will decline sequentially data expected lower customer activity levels and range between 33 and $39 million with segment EBITDA margins, averaging 9% to 11%.
In conclusion, we continue to position our segments to capture future market opportunities, while tightly managing costs are growing offshore manufactured products segment backlog provides enhanced revenue visibility into 2020 and beyond by generating a higher base line of revenue in the.
Segment, we're better able to absorb our cost and deliver improved margins going forward argues land based operations will be challenged in the fourth quarter given my comments above.
However, in our completion services business, we continue to expand our scope of operations and our nationally to capture incremental revenue outside the United States mitigating some of the pressure that we expect to face from weakening us land based activity.
All of our segments remain focused on the research and development of new technologies, which support our product and service offerings over the long term, we remain diligent and controlling our cost continuing to generate positive free cash flow, while reducing leverage.
As we strive to generate sustained returns for our shareholders.
That completes our prepared comments the NASA would you. Please open the call for questions and answers at this time.
Thank you we will now begin our question and answer session. If you have a question. Please press Star then one on your Touchtone phone if you wish to be removed from the Q you can press the pound sign or the hash key if you're using a speaker phone you may need to pick up the handset first before pressing the number.
Once again, if you have a question. Please press Star then one on your Touchtone phone, we have our first question from George O'leary with Tudor Pickering Holt.
Morning, guys Oriol.
Hi, George Good morning.
Yes.
One of the startup Cindy's really nice to hear the progress on the vapor perforating.
System, and then just comparing and contrasting that with what you guys are working on the Stratix side is we think dirty NPU well designs seems to be that shorter perkins or better whereby you can get more clusters are more shots per stage.
Executed is that.
Part of the thought process there.
Just kind of help us walk through the differences between those two two systems and then how much did that length of each perforating gun segment matter.
I mean, you've hit on industry trends for sure, but shorter guns are absolutely preferred by our customers and so just except that as the new no arm. If you will and we have obviously made to that.
In response to customer needs basically, but that would be integrated obviously into both.
The Viper system and the Stratix systems, So think of that as just an industry trend that will permeate all of the future offerings, whether that is our conventional or integrated.
Okay. That's that's very helpful. And then on the completion services side it was.
Encouraging to see international and Gulf of Mexico work kick in I know that can be good work for you guys would it crop. So just wanted to think through the line of sight to that work and not from necessarily a near term perspective, the think through 2020 is more.
Of that work looking like it's going to crop up is there more dialogue around that type of work.
Going forward.
George our you know, it's always hard to predict exactly where you end up I would just point out that kind of waiting of international plus Gulf of Mexico, and the progression this year and use that as an indicator we had a relative percentage whiting towards international in Gulf of Mexico in the first quarter at 16%.
A great, 18% and the second quarter and this quarter came in at 21%. So you're seeing that continue on which is reflective of our efforts to expand internationally and I would point out that's not just a completion services strategy. We've got a good base of operation obviously, we have like.
The balance of having both international and with exposure to the U.S. shale basins that these are also initiatives that permeate NCR downhole.
Technology segment as well, so yes, visibilities never great. Their year end. The you asked by the Middle East, but I think if you look at that trend line you can see that we're making some good strides.
Towards getting that balance.
Great. That's that's super helpful niches sneaking in one more.
A lot of folks have complained about.
Stocking of inventories by their customers, especially as it relates to the North American onshore market I would imagine that downhole technologies business might be seeing.
Some of that at this point is that contributing to the compression quarter over quarter and in that segments revenue guidance.
Historically as you analyze that business.
Eventually you know I'm going to side I think you. This half the kind of look at each company individually and not necessarily assume that something like de stocking affects everybody when I think about.
We are so good at our manufacturing process.
As it truly feels like I just in time inventory with a lot of these downhole consumables and there might be a modest amount if you're selling into distribution centers, but the reality as we pretty much book and ship strike with a well site and.
I don't see that as a significant issue for us that I will side that that ordering activity might sometimes pre seed some of the work at the well site. So maybe it's an early indicator and again the rig counts down 8% today relative to the average at Q3, So I don't think it's unusual too.
See that downhole technologies, particularly in the latter portion of the quarter solve some of those early indicators of these rigs.
Going down into the holiday period.
Thanks for the color Cindy.
Thank you George.
Thank you we have our next question from Sean Meakim with JP Morgan.
Good morning, Sean Thanks say good morning.
Morning.
So city in downhole congrats on getting the first integrates this in commercial and I think that the suite of system sounds very interesting.
Could you maybe talk about expectations for sale cycle with customers on these new systems, and again folks ready to trial it.
Just some more detail on your market penetration strategy will be helpful, I think and including to what extent pricing as part of that strategy.
Well I appreciate the question very much and their first of all let's just maybe talk about where the market is and what our strategy is around the integrated gone offerings and I would just site simply put.
We remain a customer focused organization and wherever responding basic lake to what we're hearing for our customers that.
On per far more be open architecture system.
That allows them to customize their gun systems, and certainly our wireline company, that's already made investments and gun loading shop and wiring Carson now.
Our preference there to kind of step beyond from conventional systems to the Viper system. The Stratix system again, we believe will be kind of stayed about the art for the industry as we move forward, but depending on who you are that may not be your immediate preference. So first things first we're going to get that vice.
Our system out we've introduced big addressable switch, which is also a new product line, but I think your question, which I appreciate as it does take us a little while to ramp the supply chain. So this will kind of progress more towards meaningful sales in 2020, and one might say why didnt.
Ramp that quicker well, we wrote off switches in Q2, and we are cautious to be sure that we got the switch white.
But we will be ramping up that supply chain for vapor and marketing that in the near term and progressing the stratix system throughout the quarter and we feel like.
We have really kind of and I don't want to use the word be Bob, but I'd say more than anything communication as an example from shooting panels through this which is tweaking a little bit and we'd like a couple more field trials under our belt and so we kind of anticipate finalizing that process light this quarter. So it's.
Definitely as more of a 2020, but very pleased with the efforts and of our engineering staff and the technology staff into getting us where we are.
Really as we enter into the fourth quarter.
That's really helpful feedback. Thank you got Cindy.
The improvement in Downhole Tech margins will certainly nice to see.
You mentioned the write off of this which is that your twoq that have any impact on on boosting the margin in Threeq, you and I and then as looking at them the.
The guidance you offered for Fourq margins is that just basically fixed cost absorption or is there anything else in there in terms of pricing or mix that we should consider.
Well, it's really big first of all our products carry them.
Hi, good incremental solve I'm eager to start talking about incrementals, rather than decrementals, but yes, I mean, its fixed costs, we reduced the topline may our and we're working a lot on our manufacturing efficiencies evaluating in sourcing manufacturing versus outsourcing doing anything we can too.
Really become a very very.
Efficient manufacturer and we will continue to do that but just the mere fact that the topline is coming down hearts, it's a bit on fixed cost absorption, but we had no benefit if thats. The question in Q3 related to switches and we really had no sales yet. So this is kind of a new product that will help us.
Prospectively.
On.
The margins right now are just you know its little hard to predict perfectly, but we gave you, particularly in this environment as we entered the fourth quarter, but we can do what we think very rational margin guidance at this point.
Understood. Thanks relatively I appreciate it.
Thanks, John .
And we have our next question from Privy Mehra with Raymond James.
Hey, good morning.
Hi, Good morning, I guess thinking on the downhole technologies, how this year has been pretty lumpy in terms of.
We're revenues and margins have gone so how should we think about what that normalized incremental should be as we go into 2020.
We get some of these project product Rollouts.
No I would side first of all as we are bringing new products to market lets think about that kind of sequentially improving throughout 2020, it won't be immediate in terms of the revenue bring up and therefore, the margins just because that that fixed cost absorption.
Probably go hand in hand, with that and like any business I'll tell you. The incrementals are dependent on two major drivers not going to be a shock to you hear that is both volume and price and we're going to see volume ramp at new products do that that helps you from a fixed cost absorption.
We've all seen some pricing pressures in the market generally.
That I think will temper some of those incremental so if I kind of bring all that to bear I would say in the early quarter that assuming we're going to get a steady level of activity from year end I think the incrementals are probably more in the range of 25% to 40%.
And again, it's that tension between what the volume ramp and what's the pricing implications in mix, but I think at a healthy 25% to 40%.
Is reasonable.
Okay, that's very helpful.
I guess, if we can think about the offshore manufactured products segment.
For the guide.
Obviously, we have product driven revenues should start to increase.
How do we think about the short cycle piece of that last year, it held up pretty well.
What are you guys expecting for Fourq, you and then as we go into 2020 for for the short surveying again at the just the great question. Some follow whats well and you know our business that major projects ramping backlog supports that margins and our backlog are at consistent levels with prior period. So that is the plus.
That leads on a global basis to better cost absorption again, another applies but theres going to be a tempering impact on our short cycle, but as it is exposed to us land based activity embedded in the guidance, even though were up sequentially on both revenues and EBITDA. It does factor in a decline in our.
Short cycle very similar at the Decrementals very similar to what we're talking about in our completion services line and also and our downhole technologies lines, So while up not up as much as it could be once we kind of reestablish improving activity and on on us land.
Great. That's good color. Thank you very much good quarter gross.
Thanks for them.
And thank you we have our next question from Kurt Hallead with RBC capital markets.
Hey, good morning.
Our.
Thanks, So much for off road color are you always provide Cindy I really appreciate that.
I guess my focus here would be on on the offshore manufactured part of the business you talked about increased.
Visibility or feeling good about the visibility for specifically for subsea pipeline and and floating content.
Kind of give us some some general sense there of maybe what regions.
You kind of see some of this dynamic coming from and.
Do you have any sense as to whether or not there is additional legs.
Maybe even beyond say 2020, not kind of trying to pin into a corner just trying to get some feel for what kind of momentum you see building there.
Yeah, you know it was interesting we just had our board meeting and Scott Moses who leads that division kind of showed US a chart of major offshore production facility content on it was just stark in terms of the lag in activity that we've seen in 2016 2017 2018, but.
Based on bidding and quoting project announcements. The next three to five years do look very promising and so again. These are very specific projects right now of course, the writing we're seeing.
It's Brazil.
Obviously, the Guiana prospects and Gulf of Mexico are kind of some of the more.
No not one that will say, but a little bit broader value. This is that in the past with the north they havent them.
Smaller opportunities southeast Asia, contributing but the weight are really going to be and.
America.
Gotcha appreciate that color and then with with that kind of dynamic as a backdrop do you feel pretty good thing is a reasonable assumption at this point to thank you can get a book to bill North of 1.0.
As you head out into next year as well.
Well, you know where will we had gone through the I'd like to have a budget and facts behind me before I give that but just in terms of overall send my first of all I should say, we expect bookings in Q4 to be at similar levels to Q3, just in terms of book to Bill ratios I'll give you a bad.
Our formal guidance on 2020 hit in lease off guidance. Once we go through the formal budgeting process, but my however on that is we're seeing.
Better activity bidding and quoting not only on production infrastructure, which obviously that some of our core.
Best performing kind of bread and butter project. So we're excited about that there is a certain amount of capital drilling equipment that is coming to market largely because of an improvement in offshore activity. We can participate in that area as well what we hope for.
Or is that we leased spend a stabilization of land based activity. So that really all segments are contributing as opposed to having the major projects contributing but being weighed down a bit by us land activity and right now.
I think I feel more positive about 2020 than than maybe others do just based on basic supply demand fundamentals as as we see acknowledging that it won't be immediate it might take to mid year to get visibility for some of that but.
I feel really good about where we are positioned overall I think.
Both the offshore an international areas are beginning to recover off very low basis, all acknowledge that.
And we'll see as I believe lower 48 stabilized next year, but.
Great Thats Awesome, and then if I exclude has one more interest on capital allocation guys already provided.
Now look for Capex for next year, I know that you guys tend to see quite a bit of.
M&A related type type dynamics, but just curious to get it did an update on your temperature as to.
Share repo versus debt reduction versus versus M&A, and how you see things at this juncture.
No I think Thats, obviously, the most important questions shareholders want to understand from us and what we've done throughout 2019 as you know is simply pay down the revolve our we're not concerned about our balance sheet at all quite frankly, particularly have in our real that add.
Bart that carries a 1.5% cash interest rate.
Another was when we think about free cash flow from operations less Capex, we get a pretty healthy number and very little of that has to go to debt service and we paid down that revolver, our dramatically more because we just sensing a lot of op M&A optionality and quite frankly, there are no.
Any more companies and the space as I'll call. It that are not nearly as healthy as we are and we will not do a deal that debt further levers our company or damages our balance sheet. We think it's a differentiator right now and we're going to be very few.
Securing keeping that.
I'll also say, we just had seen much of anything we would be interested in doing from an M&A perspective, and probably lack of opportunity puts at lower on the list quite frankly as much as anything so.
Near term, you'll continue to see debt pay down obviously share repurchases are.
An option for us that we are constantly evaluating.
Particularly in our we took great pride insight and I've been here 20 years than we Didnt have any real net incremental shares outstanding from when I took the company public in 2001 with the exception of acquiring the Geo transaction. So we've got to out 8.7 million incremental share.
For the market love that transaction when we did it stock was up dramatically and that was valued at 34 share. So it's not lost on the I can buyback a decent amount of shares at a much lower price and it will be carefully evaluated.
From us against other capital allocation priorities that share repurchases type front stage about M&A I'll say that unequivocally.
We'd also meeting with all of our major shareholders.
I think we have very sustainable free cash flow after capex and therefore I wouldnt.
Necessarily alone might the thought of a dividend at some point in time, either I think we're uniquely positioned to have that.
Possibility, but again, we listen to our shareholders and try to play with debut as priorities then.
I'll always site research and development and organic growth always comes first but we have always been able to find the both of those things out of free cash flow, So I'm really talking about.
Capital allocation priorities after funding.
Necessary growth Capex and.
R&D.
Fantastic, Thanks, and I appreciate that.
Thanks cars.
Thank you. Our next question is from Marc Bianchi with Cowen.
Hi, Mark Thank you.
Hey, Cindy I wanted to just go back to the the order progression fourth quarter that you talked about for offshore manufactured sounds like it's going to be at a pretty healthy level here, but.
I don't I'm curious if there's anything any large awards that are contemplated in that or if this is sort of.
Kind of a run rate recurring number that we might be able to think about as we head into 20.
Yes, I mean, I think thats a good question, but there we do predict that we'll have one we defined larger order as in excess of $10 million, we do have wine forecasted in Q4.
Okay. Okay. That's helpful.
And then just on the on well site, if I look at the guidance here.
It implies a decremental at the midpoint of about 30%.
Which seems reasonable but you have.
Some cost cutting thats going on.
I would've thought that perhaps the cost cutting could offset that more maybe there's more pricing weakness may be.
Maybe there's conservatism Im just curious if you could talk to kind of whats left in the in the pot in terms of cost cutting opportunity and kind of how you're seeing the pricing dynamics shape up.
Yes, I'll talk first side that you now we have to retain our failed hand, they are our revenue generating.
Potential and honestly there is some ability to control costs through overtime at that point in time for a lot of the efforts have been around.
The layers of management in the field.
I district managers regional managers very hard decisions to make.
But we feel it's critically important to maintain our field hands in our field workers, while managing overtime obviously.
So that is the statement line I actually don't think that decrementals of 30% are necessarily.
Weak in any why we're not 100% variable based company, we never will base. So there is a fixed cost element.
To be absorbed both in terms of district managers shop facilities warehouse thing.
As well as just the the people that are out there every day in the field.
I am measured the monitored and our guidance that yet I think youre decrementals are pretty close to right, but I think there are appropriate based on the topline guidance that we gave you.
Okay, and any comment on just sort of the trajectory of pricing.
I don't think Theres a service company one that's going to tell you it is other than competitive.
So we have never really marketed products.
But below breakeven and so our and actually at a reasonable margin and so.
I'm not going to tell you want to set here in stack equipment at its noneconomic, because we've we've always.
We would not bidding job that losses, and so but decided that we don't have.
Our customers are facing challenges from lower crude prices and strong balance sheets and we're trying.
To.
Be responsive as a service company to help them make it through a tough time and honestly helpful. Mike better wells at the end of the die and that's what we have to do.
But also protect the health of this company and respond to our shareholders. So.
Just simply put there it's a competitive environment.
For every product line out there and I'm sure of that there are certain product lines that have had been under certain price pressures that it's incumbent upon us as managers to work through that and continue to generate returns on the investment and free cash flow just simple as that.
Yep Yep, well good free cash flow this quarter. So thanks, very much I'll turn it back.
Thanks Mark.
Thank you. Our next question is from Cole Sullivan with Wells Fargo.
Hi, good macro.
On offshore and manufactured products margins.
We seem to be.
Kind of in that 16, and a half range.
We got guidance for the fourth quarter.
As we look into 2020, we have project driven revenues improving.
Maybe short cycle can stabilize next year and the military award that you guys book This quarter will help the kind of other products category is is that what's needed to kind of get margins back towards 20% maybe as early as next year.
Yes.
I think our backlog is up.
Im looking at Lloyds, 68% since the end of the year. So am I right at the end of 18 year over year, Yeah, our year over year and so I. So we're doing what we need to do to drive the project driven products, which drives absorption throughout our facilities, what I really need another words I don't want to say it then.
The bag because you've got to execute but were all those headwinds and are behind us. We've got now backlog thats good I need to get some stabilization in land on us on my short cycle products and if I get both of those things moving in the favorable direction margins will come up.
Alright, thank you for that.
And then in completion services looks like the wind side was fairly resilient through Q and then obviously the guidance is.
Pointing things breaking lower than for Q.
What kind of drove that resiliency, we saw in through June .
And what are some of the moving parts you guys are factoring in Fourq, you, obviously us land is down, but but I guess what are you seeing on the Gulf of Mexico and international side there specifically.
Okay and call just to be very clear, our new with land.
Operations was down sequentially in Q3, however, it was more than offset by improved Gulf of Mexico and international activity.
That coupled with some prudent cost measures implemented early this year led to I thought very good results in Q3 relative to really our competitors and relative to.
Just rig count signals, if you will frac fleet signals to the market. So proud of that activity, but cost control improved Gulf of Mexico in international or drivers there.
So now you say, okay, what about Q4.
Again, we're getting every week I get that report the rig counts down seven to nine rigs and mini white gone up in your down about 20% year over year.
Coupled with what we know will likely be holiday softness. So that's really what's embedded in that guidance for Q4.
Alright, Thank you I'll turn it back.
Thanks.
Thank you next question is from that by snack with Howard Weil.
Hey, good morning, and congratulations on a good quarter.
Especially dope low site was pretty awesome.
Yes.
One question and I think it's a system.
The nation of the last question so.
Matt correctly, it seems like Gulf of Mexico, plus international was almost 30% can you just for white collar ondeck.
Well, if that is correct and what's driving that and the sustainability.
Well.
I don't have all my fast in front of and I always caution at but when you look at overall industry activity.
The the rig count is up in the Gulf of Mexico. In fact, I think it was up about 50% I'd, just caution everybody and saying if you.
You asked golf last time, I looked active rigs were up 53% higher just no that's off of a week base coming into it but improved activity in the Gulf of Mexico and then.
And just generally speaking a lot of our activity is around in and around the middle east in their activities also improving but we've taken very specific initiatives and put them in place to expand our international activity.
Particularly with Saudi and so I think those are.
The real drivers of the improvement I didn't do the math.
Other than the improving relative percentage of the total of Gulf of Mexico and in our national relative to my completion services.
Revenue.
Again, you may be ride I, just didn't do it.
It sounds like it's sustainable going forward as well.
We believe it at yes, I'm sorry that was the end of your question.
Just one follow up.
With that downhole technologies like can you see how much of that is international.
Right now, there's very little international contribution.
The last time I looked at it international was about 5% of total revenues that can vary. Some of these are more PNM related and lumpier as I'll call. It but density smooth that out as maybe 5% I will say however, we are.
Aggressively trying to expand that number with initiatives predominantly I'll say in the middle East, but also Argentina and Mexico.
North Sea as well of course that northeast kind of our base that we have now, but some new initiatives and new markets.
More around the Middle East Argentina, Mexico.
Thank you for taking my questions.
You bet.
And thank you. It seems we have a follow up question from Kurt Kelly with RBC capital markets.
Hey, good morning Garrett.
Just just want to make sure I I understood one piece of the guidance correctly.
Lloyd you referenced about $4.6 million of interest expense and then if that you referenced that there was going to be some from noncash.
Opponent of that could could you repeat that for me. Please.
Yes, absolutely Kurt So 4.6 millions we estimate for total interest expense.
For Q4 of which about 2 million is noncash amortization of the debt issue costs on the debt discount.
Yes, just to clarify this convert that areas conversion feature that accounting rules basically forced you to put a value.
That conversion feature so you accrete up to the face amount of that 200 million dollar convert over its life. So it's definitely a noncash item that some people forget about because alleys just try to point out our cash interest carry is fairly small and felt that allows it's true.
Cash flow available to shareholders at the end of the day as opposed to.
Debt holders.
And Kurt we have a separate long line item on the cash flow statement for that for the debt issue cost in that debt discounts 5.9 million year to date. So that's the delta between total interest expense and cash cash interest expense.
Okay. That's helpful that 4.6 million would would though compare apples to apples with the 4.3 4.4 million. The guys just reported in the third quarter is that correct.
That's correct.
Okay awesome. Thank you.
Thank you.
As a reminder, if you have a question. Please press Star then one on your Touchtone phone standing by for questions.
Okay, Vanessa it sounds like there might not be any.
Correct.
Okay I'll just close I know, it's a very busy day I was reading all the earnings reports that came out this morning, but I just liked to close you know with a a thought for all of you and I always think about sustainability and all I think it's an ill defined and oftentimes over use tarm, but I, just say I'm very <unk>.
<unk> in the long term success of oil states based on our technology leadership, our strategic focus our mix of businesses and importantly are consistent free cash flow generation as always.
Where receptive to follow up questions regarding the quarter should you have and we look forward to future discussions as we move into 2020, thanks to all of you.
Thank you ladies and gentlemen. This concludes today's conference. Thank you for participating you may now disconnect speakers. Please standby for your posts conference.