Q3 2019 Earnings Call
That's tied all participants are to listen only mode.
Question that this session will follow the formal presentation.
If anyone should require a brighter systems during the conference. Please press Star then zero on your telephone keypad.
Please note. This conference is being recorded I will now turn the conference over to your host Mr., Chris Third Chief Financial Officer. Please go ahead.
Good day and welcome to the necessary <unk> third quarter 2019 earnings call with me today is Sharif soda, Chairman and Chief Chief Executive Officer of any <unk> SAR.
On today's call, we will comment on our third quarter results an overall performance.
After our prepared remarks, we will open up the cold questions before we begin I'd like to remind our participants that some of the statements will be making today are forward looking.
These matters involves risks and uncertainties that could cause results to differ materially from those projected in these statements.
Hi, there for refer you to our latest earnings release filed earlier today, another FCC filings.
Our comments today make it also include non-GAAP financial measures additional details on reconciliations to the most directly comparable GAAP financial measures can be found in our press release, which is on our website.
Finally somebody you may calling for the first time, so field. Please feel free to contact us after the call with any additional questions. You may have our investor relations contact information is available on our website now handover the call over to Sharif.
Thanks, Chris.
Ladies and gentlemen, thank you for participating in this conference call.
We are excited to report on this quarter results.
And on some of the by breaking work, which our teams on the ground have done.
This seminal effort operationally and commercially will set the stage for us for the coming quarter and the near term future.
Additionally, we have greater visibility on achieving I'm, we're very aggressive targets next year and beyond.
This quarter, we grew our revenue 11% year over year, despite the geopolitical turbulence in the region.
As reported I was on the ground when the incident happened in Saudi and we quickly put our emergency response plan in action.
As well as informed our steam customer that would be ready to help in any manner. They require.
Our operations equipment for Ciena, we're ready to perform any need it does.
As you all have witnessed Saudi aramco wouldn't that word glass processes and system managed to bring production back online in record time.
Coming back to some numbers I would production group revenue increased by approximately 10% year over year.
Most of the growth came from our poor countries operations.
We managed to start than all the new countries and the later part of the quarter.
The delay was mainly due to the extended holiday season in July and August .
We started providing coiled tubing services in shot.
And did I would first jobs successfully.
Similarly, we executed the first cementing jobs in Kuwait.
Modestly during September .
This broth process will further accelerate in Q4 as we would see the 40 weight of these additions throughout the quarter as well as part of some of new operations.
I can comfortably say that the production group is poised for some significant growth and the near term and will grow very rapidly and 2020 .
We are perceived by our customers as one of the strongest companies in terms of solid execution technology and capacity.
I would depending on the valuation group grew by 13% year over year and was pretty widespread across the geographies.
As you know in most countries outside of a man we have much smaller de any portfolio then our production footprint.
We are starting to see the level of maturity in the countries, where we won contracts earlier this year.
We have established a strong base.
Build the infrastructure and now serving larger piece of the contracts.
This growth of 13% also includes the effect of the decrease in our legacy drilling on Workover rigs product line.
In essence.
Outside of the rig product line then he grew in excess of 20% year over year.
We're also making progress on the evaluation front and in the third quarter, we started nester first perforating job in Indonesia.
This may good job was successfully completed and involve 67 perforation run into Wes.
Commonly one would start with a very small job that does not complex.
However, we opted to start with a big and challenging operation and we're extremely appreciated by our customer.
We are now said to do more of these in the future.
In addition, we're working on evaluating and fish testing our late this production logging tool with our partner.
This technology once proven will enable us to play a bigger role and the growing case toward market across the region.
Now, let me spend some time talking about the overall macro of the region.
As we have been saying oilfield service activity for the region is too large extent decouple from the current oil or gas or LNG prices you see on the markets.
Our customers in the region do not operate with the short term view.
But our working towards their long term strategic goals.
This is reflected in our activity and how we view our market evolving which has only been one way since I have started doing these calls a year and a half ago.
And what the basis of thesis, which led to mess.
This is going to accelerate in the coming quarters due to addressing more complex reservoirs with higher intensity of services required.
This is completely at odds with what the market C and react to in North America.
He had a slight changes and E storage number change in regulation can move how the public market view this service sector, causing significant volatility.
We on the other hand operating in an environment, which is completely different and which the market than us have secondly grown with minimum volatility.
Being very close to our customers I can assure you that most of them have very aggressive budgets lines for the future.
Some of the project being sanctioned out in magnitude higher at that anything done in the past in terms of complexity and socks.
The quest to increase offshore spend and proving new reservoir is evident in many countries.
I'm very optimistic with the exploration success rate, which means several new frontiers will start in the region.
The Best example is offshore Kuwait.
As previously discussed extensively in my calls that in various forms one of the main strategic goal in the region is being self sufficient than gas. So they can power and grow that economies.
This is evident from the large scale project, we are witnessing today with few customers, especially working towards multiple unconventional prospects.
For us this quarter, we have moved from just discussing the possibility of link parts or how to participate in those project to seriously qualifying this services and preparing to lead a big part of it.
Today, we are actively engaged with four of our customers at different stages.
To be able to take part in this growth we have to ensure that our ground teams as well as the few layers, which we have about them are operationally and technically equipped to handle such a potential increase in unconventional activity.
This speaks a lot of investment than people as well as hardware and the way we want to undertake it is to ensure that our customers get the best equipment as well as processes in the word with no compromise.
This include bays and support facility.
Logistic infrastructure supply chain as well as just pure execution hardware and personnel.
For the company of our size. This is a significant commitment in resources and demand.
All hands on Dec approach I.
I can tell you that all of US here are pretty hands on type folks and our aim is to ensure that we hit the ground running and deliver worth glass level of service efficiency to our clients.
We are very pleased with our progress in advancing the qualification process.
As I had mentioned earlier this can tick up to two years to get qualified.
For us our aim is to reach that call before year end.
On the convention size as I mentioned, we initiated the work on previously announced contract awards in Kuwait and chat.
And we continue our streak of gaining market share.
Also we did start our operation in Bahrain during October .
All of these have been flawless startups and I'm very proud of our teams which have made this happen.
I just came back from Kuwait and I can tell you that our customer there is very pleased with the way we have mobilized for this event in contract they have never seen anybody mobilized with such intent and deliver on time.
We had the visit to our operation by the top senior management, and we discuss ramping up the contract a number of rigs we serve at a much faster pace.
We also got awarded at the Best Cementing company for one of our biggest declines.
Well actually our overall service efficiency across all the segment was better than everybody else.
We have completed the first integrated once construction in Iraq.
This included our rig and all the services.
We have demonstrated our ability to perform integrated work professionally.
And most important profitably.
We are in discussion to increase the scope of this six well campaign.
On the 10 bidding front besides the earlier announced new wins in North Africa, where do we will upgrade for the first time to new customers. We won several other smaller awards.
We won an award to provide services for the European operator in Yemen, where do we have been in discussion for long time to ensure the security of our operations.
We have successfully mobilize coiled tubing and Slickline services to east Libya.
We are in direct negotiation with declined to add those services to our current contracts.
We added the final stage of 10 during two large contract and hopefully we'll be able to announce them positively before year end.
And on that note I will pass the call over to Chris to talk about the financials in detail.
Okay.
Thanks, Gary.
This morning, we filed our earnings release reporting our results for the third quarter.
Third quarter revenues were 162 million, an increase of 11% over the prior year quarter.
We were pleased to see year over year revenue growth in both the production group and drilling group.
Adjusted EBITDA is 48 million for the third quarter of 2019, with adjusted EBITDA margins, increasing sequentially to nearly 30% from less than 29% in the prior quarter.
Year to date, our adjusted EBITDA is $134 million, which is 20% higher than the first nine months of 2018 for the combined company.
EBITDA adjustments of 4.8 million for the quarter are primarily for integration costs as well of startup costs for the new products and locations.
Sequential increases in these adjustments are primarily due to higher restructuring costs Socs implementation planning and new country entry expenses.
Adjusted net income is 16.2 million or 19 cents per diluted share as compared to 16.4 million or 19 cents per diluted share reported in the second quarter.
Despite higher sequential EBITDA adjusted net income was impacted in the third quarter, primarily due to increased depreciation of 1.2 million as we deployed to new capital expenditures during the third quarter.
We note that our net income both down in future quarters will include amortization charges of 3.8 million, resulting from the purchase accounting of last year's business combination.
In addition, we would expect to see a similar increase in sequential depreciation in the fourth quarter as we finalize the 2019 capital spending program.
Moving to our segments our drilling in evaluation segment revenue for the third quarter is 64 million.
Growing 13% over the same quarter last year.
Results for de anywhere led from our market, leading position, Oman, where our drilling services and rentals business, which provides drilling tools and servicing of equipment generated incremental activity as compared to the sense sequential quarter.
Outside of Oman, our team's efforts to expand the any market share into other geographies continues to yield results with Saudi Arabia contributing significantly to the growth in do you need results over the last year.
Adjusted EBITDA margins were relatively flat flat sequentially at 25%.
Separately, our production segment revenue for the third quarter is $97 million growing 10% over the same period last year.
Growth in our production services group was led by increases in coiled tubing and completion activity.
Adjusted EBITDA margins were relatively flat sequentially at 35%.
The effective tax rate for the third quarter of 2019 is 24% decrease of four percentage points from the second quarter.
Second quarter included a discrete reserve related to prior year taxes of approximately 500000.
On an adjusted basis third quarter tax rate was approximately 20% as many of the adjustments to pre tax income have no tax benefit.
We are aggressively exploring tax restructuring activities and believe they will positively impact the tax rate in the future.
Looking at the balance sheet and cash flows for the first nine months of 2019 operating cash flow was 45 million.
Operating cash flow has been impacted by delayed collections in several markets primarily related to slower invoice approval and delayed retention repayments.
As compared to fourth quarter of 2018.
DSO level decreased accounts receivable collections of approximately 42 million have contributed significantly to the increase in working capital during 2019.
As was expected due to summer holidays, and due to other geopolitical disruptions collections in the third quarter approximately matched billing that we did not reduce the level of excess receivables.
During the fourth quarter, we expect to see retention release payments of approximately 20 million and a reduction in delayed receivables of approximately 20 million.
In October we already started receiving the retention funds from one of these contracts.
The entire organization is highly focused and committed to need collection efforts.
Capital expenditures for the first nine months of 2019 were 90.2 million as part of our efforts to invest in our growth opportunities.
Most capex for the year was ordered in the first half and has been substantially received as of the ended the third quarter.
As to Refis discussed, which you should see the benefit of these investments any upcoming quarter and next year.
We expect lower cash capital spending in the fourth quarter.
Cash and cash equivalents decreased to $43.1 million as of September Thirtyth 2019, while net debt increased to 331 million, yielding a net debt increase of 34 million since June thirtyth.
Turning 19.
The incremental net debt was used primarily financed the temporarily elevated level of receivables.
The proceeds from the receivables reduction in the fourth quarter will be applied to reducing the revolving credit facility.
Rcs capacity has been dags designated for other growth initiatives, such as M&A in which we are still actively engaged in several prospects.
Interest expense decreased from 5.8 million to 5 million between the second and third quarters as the write off of unamortized cost associated with the prior debt facility did not reoccur.
As of September Thirtyth 2019, our net debt to adjusted EBITDA ratio is 1.8, but should reduce our target level of approximately 1.5 in future quarters as collections improved and we see returns from our capital spending investments.
We are optimistic as we entered the fourth quarter 2019. This quarter has historically been robust for oilfield service companies as oil companies into aggressively utilize the remaining capital expenditure budget. Additionally, our team will continue to explore opportunities to provide new service lines to our existing customer as well source boasts equipment and skilled labor.
Labour from markets with excess capacity.
With this I'd like to pass back to Sri for his closing comments.
Thanks, Chris and closing Q3 was another strong quarter and I'm happy that we are on the path to deliver on our objectives this year and for the future.
This quarter with a transition and very important for us as we started a lot of new contract in new countries and put in place structures for a few more.
We ramped up our investments significantly.
And improved our infrastructure to prepare for the coming business.
Our customers are extremely pleased to see the commitment we have put in place.
They trust that we will exceed all that expectations in terms of delivery time and quality.
We are confident to reap the benefit than hardware the entire organization have put in place in the coming quarters.
I would future is very bright and we are working on exceeding all the financial goals, we have placed on our selves.
The Mena region will continue to grow at the stable rate.
And we are confident to at least double that rate for the foreseeable future.
With this I would like to take this opportunity to thank everybody for joining this and call and we'd be very happy to address all your question now thank you.
Sam.
At this time well be conducting a question answer session.
If you would like to ask a question. Please press Star then one on your telephone keypad.
Summation today.
Yes.
Good question Keith.
You May press Star then too if you would like to your base your question Q.
Specific to the speaker equipment.
Necessary to pick up your handset.
I think mickey's.
One moment, please folly poll for questions.
Your first question comes of Byron Pope.
Hey, Craig.
Please go ahead.
Good morning, guys.
Morning.
Just wanted to at a high level not asking for.
Detail, but just at a high level just given the where you characterize the region is having a steady growth and projects that you have ramping up could you just frame for us at a high level. How we should think about the primary growth drivers for for necessary as you head into 2019, whether it's by business segment or bye.
A few key countries again, just trying to frame.
What will be the growth drivers for you guys next year.
Thanks, Brian So as I explained the growth were us is across all the countries I would say.
You have the core countries, where we are growing on our.
Mean business segment, the drilling evaluation of production segments, and we are growing significantly on those by adding.
Now the latest wins on the contracts, we are adding a lot of those businesses to serve the customer we secured most of the contracts for the next three to four years.
So you will see a lot of addition, with the market and we had adding some of the other segments.
If you look at the new countries, where we just entered we have a very very small position in those countries. So definitely the growth as a percentage is much more than the core countries. Because we didnt exist before we were very small if you look at the driver of those countries as we said before all this.
Countries have very stable and significant growth plan. So if you look at offshore.
Which.
I've been saying and you saw the market you have Kuwait that is drilling for the first time evident that are in their history offshore prospect the drilling started and the the initial indication from even the seismic looks very promising.
You have on nine that is going through exploration offshore you have obviously the increase of activity in Qatar you have you see that is that just actually announced the discovery and they are going through the island, they're going through a lot of other projects in all. This addition of offshore under normal business you have this on.
And on Monster that is coming to the region, which is going to be at lease at least five ex that what used to do so if you look at the fracturing business. If you look at the number of stages that the region anti region have been doing before what's coming to the future. It's it's a magnitude it's at least five to 10 x.
Of the number of stages for that region. So overall you have the gas which is very strategic you have the new frontiers, which is all the offshore projects and you have the normal business that is growing at this stable six to 8% to 9%. So you can arguably say.
The minimum growth of that region will be in my opinion, not less than 10% year over year.
That's helpful. Thanks, or even then just one follow up question is as I think about the growth opportunities on tap for you guys, particularly in Unconventionals.
I think you're going to be in a relatively unique position among service companies in terms of helping opportunities to invest growth capital.
As we step into next year and so.
It's too early to it to really frame are you guys are thinking about Capex next year.
Given some of these growth opportunities that you guys are going to have.
So no I can tell you I mean, obviously, we've been planning this as I tried to explain.
We started this from the second quarter to get our subsequently filed so we've been engaged with the.
For the in four countries.
To get qualified and I can tell you comfortably that we will be qualified at least in two of them before the end of year.
Which means that to get qualified you need to demonstrate how you're going to qualified which means what were already or is your chemistry coming from you have to demonstrate some even pilot projects you have to show commitment on Capex you have to show commitment on a person then et cetera et cetera. So we already.
Got it investing this year and that.
And we will continue to invest next year and our Capex plan based on the opportunistic view, we look at it and the partnership.
We want to maintain asset light and we want them and then within the framework of the 100 million per year spent despite the fact that you're going to grow significantly so ticking.
The opportunity of definitely the slower growth in North America, and how to position ourselves and the favorable.
Way to not to spend the same way the U.S. spend when they grow this unconventional resources. So in a very simplistic way, we want to maintain the 100 million spend per year. This year next year, that's great. Thanks, sorry, if I appreciate it.
Thank you.
Thank you Sir your next question comes from Sean Meakim from JP Morgan. Please go ahead.
Thanks, Good morning.
Good morning, Sean.
So sure you noted as much in your prepared comments I think it bears repeating particularly as we have headlines. This morning, suggesting other OPEC cut could be on the way something that investors have been expecting for probably the first half in 2020 and this is a topic comes up quite a bit when your stock is being discussed.
How should investors think about the relationship between upstream capex activity versus production.
Maybe just elaborate on that.
As it pertains to your outlook for next year.
Yes, sure it's a completely de couple of minutes the the production cut APIC.
It's basically closing the top.
On the on the oil has absolutely nothing to do with activity. So.
If you look at the across the region and if you look at the number of rigs the number of regular sites, it's actually keep growing.
If you look at how many rigs are being added or being contracted with a four to five years.
Plan.
It's exactly the same and that is zero difference in and activity what will happen if they cut I'd like to significantly.
Going forward, usually what happens is you have some delays of what we call. The rig lists activity. So if you have for example, denom and production from the biggest reservoirs and you have some activity like a testing high rates stimulation et cetera, they would delay that.
Because they don't need the oil production, but the majority of the spend today and most of the countries are as I said is for God that has absolutely nothing to do with the upper cuts and how to do a lot with the offshore and expedition and the frontiers and this is all going as planned if you look at dead plan.
I just came a couple of days ago each country. They have actually exactly the same budget plan for next year, that's obviously going to get approved and sanctioned by their government towards the end toward next month, but it's all based on the same level of activity and the growth next year.
Got it I think people think books will find that helpful.
Bigger competitors in the region I've been talking more about capital discipline and margins over market share seems like it's a shift in the rhetoric can maybe just indicate.
Shifting those dynamics on the ground just your view of the competitive landscape recently.
Yes, I mean, I I, obviously, I'm not going to a point on any one specifically the difference obviously between us and the and the Big Service Company is we are growing at a much faster pace and we are very small. So we are putting a lot of capacity in place to make sure that we can take much bigger projects.
So.
Definitely the level of spend that we have as a percentage, though our size is much higher than anybody else. Because we are at a much that big growth path and we have a big contract that we just one on me out it definitely want that to make sure that we as we say we hit the floor running and.
And be able to do to capture that if you look at it from a time from from a disciplined approach on some of the tendering.
As I said before the market is.
I would say getting I wouldn't say getting tighter, but I think.
Similarly to my last quarter comment when the project is a UGI, it's very big is huge.
And it does and let you get type.
You do not see the discipline yet.
Some of it is coming which is very positive but on the smaller stuff. Yes people are more disciplined and making sure that they do not I would say by the work at any price and which is very positive sign for the region.
Got it. Thank you one last one if I could just.
We have presentation.
As we talk as you think about.
The collection disruption in the quarter.
Can you just talk about how you see.
Banality, and working capital and normalized basis, which is particularly given the pace at which you're growing top line it'd be helpful that to see maybe Chris copper. Some comments just on how you see normalized seasonality working capital as it pertains to what we what we saw.
So far this year.
This is Chris I think we part of the as we said some of this is not just.
Some of it was seasonal I think probably the summer months are usually always the the slowest period, just so theres a lot of people on holidays and getting approvals done, but we also had around growing pains of new contracts and.
On that on our side as well all of that obviously being worked hard to be resolved and cleared up in the fourth quarter. So I think the normal seasonality, we'll probably look more like slow a little slower collection pace in the summers just because of less.
People around the new approvals, but I think that would be the normal cycle.
Yes.
Yes, there are working John if I am sorry, sorry go ahead, you had something.
Is there are working capital to sales metric or something we should use just to be cognizant of.
Your working capital needs will grow as you continue to drive topline growth.
Sure I mean, I think we've stayed a long time, but at least on our balance sheet. When we talk receivables. It's the actual invoice the unbilled and the retention we look at all of that together as our total amount of receivables.
Something in the targets, we working hard to get US back 200, I wondered maybe 110 days.
Max that's the level of receivables inventory will move a little bit, but a lot of our inventory is for.
Equipment spare parts and those won't.
Not a direct correlation to revenue like you would have him a manufacturing type environment.
That's very helpful. Thanks, a lot.
Thank you. Your next question comes from Greg Goldman from National Bank. Please go ahead.
Hey, Thanks, a lot guys.
Just wanted to start by talking a little bit about.
Earnings seasonality.
In the prior years.
Obviously, the great sequential growth from from Q1 through Q4, which is good to see.
In the prior years, and we don't have a lot of history, but in prior years, we've seen substantial upticks in Q3. This year, we did see the growth, but it was a little bit more muted is that due to some of the nonsense. We saw regionally in the quarter and should we expect the seasonal growth to accelerate going into year end.
Sort of resuming the overall annual average or is this sort of more muted growth Q to Q3, something we should be thinking will persist into year end.
Thanks, Greg So I'd say tried to explain so this quarter with regard to rise with two things you had the month of Ramadan fasting month game and definitely in the quarter and then you had what you call extended.
Holiday season would that pilgrimage in August .
So it all came into effect July August then you had the geopolitics that happen and incident.
Across the region so.
What happened is you had a lot of Denise.
Which you saw it actually in the International Service Company results was exactly the same.
So we havent delays from.
Moving from I would say Q3, two Q4, so you would see this normalized if you take it to overage.
So basically whatever growth that was supposed to happen in Q3 will happen, but it will be added to Q4. So in a very simplistic way. So this seasonality is exactly the same it just matters because of the.
Extended vacation period, a couple of geopolitics. So you have some of the I would say not the rig related the rig less related activity, which shifted towards Q4. In addition to our size and outdoor ourselves we had all the new contracts that were awarded for.
Before we started them in Q3 was supposed to start than July majority of them never did not start and waited until September . So you had only one month out of three and the water and in Q4. He would have the three month of the three so you would see and the huge uptake in Q4 as well due to that.
So got it and it's so in a nutshell yacht you will have the same edged do overage won similarly to what we had before.
We'll see a catch up.
Yes exactly.
Then just to build on some sean's questions on the competitor side there.
Continued challenges, we're seeing in North America, and you know.
Seems like everyday we're getting more challenges in sort of shale growth and relative economics there.
It appears the relative attractiveness of rest of the world regions like Middle East are getting much more parents. So my question would be are are you seeing any increased competition or focus from some of the super majors, who operate in both regions, who would look to try to augment stagnating North American revenue or margin pressures by trying to get more.
Market share in your areas.
Which are obviously relatively quite quite a bit more attractive.
Yeah, absolutely I mean, obviously the region is the is the best by far and has been for you know.
Has been the case, but.
I can tell you.
Quite frankly, the barrier of entry is actually harder now than any time before right. So the in country value Lukas content.
The presence in the region how to.
Navigate the contract how to make sure that you have to.
All the.
Requirements to operate is extremely extremely complicated right. So with all due respect that you cannot just go there and say okay I'm not the region is very good then I'm going to go and bring my.
No 10, coiled tubing units and four frac fleets, because they're sitting doing nothing in North America I'm going to go on and get the contract and the in Middle East, it's not going to happen right. So.
What what is the the the best approach is definitely that's what we are looking at is all the companies that have very unique position and have very strong.
I would say technology portfolio, we're very happy to partner with and in some of the unique activities that we don't have and they don't and obviously in that region and me we go to get that they're right and Thats, what I would say the most optimum way if you look at.
The Big service company different today, our present there for 80 90 years very very strong and they definitely are the strongest players to to reap the benefits. So between the I would say the national strong and local companies and the multi national they.
We will be the major force in the region, it's not going to be a U.S. Canadian.
Small company be able to operate and there is.
That makes perfect sense on those majors that have multi decades got to a century of experience there are they coming down market.
For the sort of the smaller contracts that are very meaningful for you, but less so for them simply because of the north American challenges or you're not seeing them.
Competitive wage in the areas years your shopping.
No no. It's everybody is going after every comfort I can tell you that nobody is living anything anywhere.
So we are competing.
On all the contracts.
As you mentioned before we always maintain.
That we compete professionally and we are not like little outfit of our local company without a national champion of the region, meaning that we operate very professionally when we compete on a service quality order delivery on project, we compete head to head and we perform when I.
When I put the my earlier remarks, when we were perceived by one of the biggest clients as the best service quality provided in the quarter that was against everybody that was against all the multi national against all the small guys and we scored the best 99% efficiency, which was the number one position against everybody, yet so and Thats how you.
Maintain that market share on you maintain that leadership.
The key there is not to take jobs that you cannot do so when we cannot provide services in certain technology and we do not have it and obviously the multinational habit. We are very honest and Frank to declined to say we cannot provide that service. We are not good that it and you should use X or y right.
So.
The discipline in the tendering and Thats, what I was trying to allude to.
You see that the some of the multinational service company, which I'm very happy that they see them. They are more disciplined and the past they do not by the word the price properly and which is a very good time. So they do not go just after everything with any price and lose money in the.
Doing they are moving to a disciplined approach the only on disciplined approach as I said is still some of the elastic it project where people sometimes still by the work.
Got it. Thanks for that then just wrapping up in sort of take a bunch questions here on capex just to be clear.
You're still comfortable with us thinking about 100 million for total.
2019, capex, despite being truce or 90% of it in the first first nine months.
Yes, I would say I mean, you might get five 6 million more or something towards the year end, but yes. We are we front loaded our capex as we all agree then and we have this consciously done like this to ensure that we serve the contract than we have capacity and.
And we are comfortable we will end up the or maybe as I said, maybe some of the Capex would be received the you know like in December five 6 million from next year earlier, but we should have the same and then next year, we should maintained the same.
Capex level. Despite the fact that we going to grow we going to keep growing at a database.
Got it and this is absolute last one here just on a bid pipeline.
How's that looking moving into 2020 are you expecting to be as strong as it has been in the past 12, 18 months and I'm, focusing specifically on sort of incremental.
Contracts, you're not necessarily renewals, but but on the growth side.
Yeah, absolutely I mean, if you look at the majority of the all the Mega contracts.
We got we started them as I said in September so the for the next year, you're going to see the for the 12 month of dose of this contract. In addition, we are negotiating couple of.
Huge contract and hopefully we will be able to close them before year end, which means that you're going to see the benefit of this contracts for the entire next year. So no. It's looking extremely extremely positive.
For next year and when might.
Break all records again.
Thanks, very much for that that's it for me.
Thank you. Your next question comes from Igor Levi from BTG. Please go ahead.
Hi, Thank you.
You guys just mentioned that the majority of the contract. So you got this year you already started in September or are going to start shortly so I wanted to ask how much of the expected growth in plenty plenty has already been book or and how much of that growth is expected to come from the two tenders.
You mentioned that you expect to announce said before the end of the year.
Okay got it so that obviously going to almost give guidance like this but I can.
Yes, the majority of newly awarded new countries, where it started in September and with the only exception of Bahrain, where we started in October .
So you did not see any of those benefit in the numbers if you like.
This quarter at all almost and you would only see it in Q4 and then over the next year.
Some of the announced contract that we said before like the Saudi season.
The amount et cetera, we had these contract and they were renewal, but within it needs to court. So you're already saw part of that growth. This year, but you would see it at a much bigger.
Numbers next year, because obviously it gets mature endoscope gets bigger so I tried as well to explain for example, the Dms portfolio, where you we won a lot of contracts outside the Oman and today, we are establishing Algeria in Saudi and Kuwait.
Great.
Just entering other countries as well and you will only see that because the drilling growth comes at the much slower pace than the production because you know the type of work you do when you run a fishing remedial with stocks downhole tools. The thru tubing this stuff gets.
Maturity with longer time, because the client has to be comfortable with you that you can replace.
Multinational company and be able to do this professionally and the scope gets.
Bigger, but slower right on the production parts on the production segment, you get exactly the opposite where because you are replacing someone you got the cementing contract for example, or it could give in contract you replace that other companies and you'll see the revenue immediately so.
I'm not sure if I answered your question, but but in a nutshell you would see a lot of the growth already booked.
The contracts we have next year. So we have a very strong visibility on our growth next year based on the contract who won the contracts that we are looking at in Q4 to secure will be an additional two that growth.
Great. Thank you and.
Shifting gears looking at how weak the U.S. oil services market has a guy and are there some potential opportunities to acquire technology at a meaningful discounted something you've done in the past, but I imagine that discount or has guy and a bit more attractive over the course of the year.
Yeah, I mean, obviously that has a lot of things that comes like productive, but as you know we do not just go and buy capacity and any no stuff that has not technology because.
You can just buy from your supply right. So if there is an opportunistic view when could we just want to contracts and we want to buy outs someone.
With a very good equipment and I add capacity at much lower Capex spend we do it and we are actually in negotiation with couple of those but the key is to look at innovative business models with those some of the very strong companies in North America. So.
And when I say innovative meaning we look at how we do it with a capex light how we do it with the partnership how we share revenue and how can we grow our portfolio much bigger without buying anyone so both of US can go together at the.
I talk is certain contract and do something unique in the region and it's a win win win so basically we.
Take a benefit they take a benefit the very happy.
They trust us the we trust them, we have a very strong infrastructure in the region. We can put together and service that contract without anyone buying anymore right. So this innovative business model, we are negotiating today with like three companies.
And ER and hopefully.
Based on the contract awards on based on how our customer perceived that relationship we will be able to come up with something very unique.
Initial.
Great. That's very helpful I'll turn it back.
Thank you.
Thank you once again, if you wish to ask a question. Please press Star then one on your telephone keypad. Your next question comes to break graduated from Wolfe Research. Please go ahead.
Hey, Thanks, Good morning, I am just one question for me, but it's in two parts.
You alluded to offshore frontier, probably more on this call than you have in the past I was just wondering what the timeline is for that work what the timeline is for your qualifying for that work and maybe some incremental investment that you need to make specifically in DNA to improve the technological efficacy of your portfolio in competing against these projects and then.
Secondly, as it relates to technology you talked about.
Startups with companies in North America.
One of your larger diversified peers has talked more about technology access basically technology rental.
Both in North America and internationally.
Imagine mean as a good market for them to target I was wondering if you do have access to some of the technology offerings of your larger diversified peers and maybe if that will improve your competitiveness, specifically on offshore and maybe unconventional gas moving forward.
Thanks, Blake So I addressed your first question on offshore.
So as you know we operate onshore and offshore already today. So the investment we need to do to operate offshore is nothing new for us. So we need to today I would all of our operation in the countries, where it's like you know in Abu Dhabi Qatar.
Saudi we work offshore and we continue to work offshore no problem at all right. So for US that is nothing really that we need to do significantly to be able to operate offshore in in some of the new countries very honestly.
If they started with the frontier an exploration I don't they will not use us right. So they will use the multinational very understandably because it's an exploration phase you need to run you know.
Exploration logs and if I I found the client I would definitely use.
Actually one of the multinational for that matter so.
There is no issue for us here, but this is the frontier and when I keep saying on the did increase of activity. What's different does it may because we make sure that we can be qualified when they go to development and some of it because the increase spend gets you to operate actually both on land and offshore.
Or even because the the pie is much bigger so and that's why I'm, saying there is a huge.
Activity increase offshore today, which we going to play part of it if I look at even.
Our investment will just be on some of the capex to install some of the equipment. So as an example in Saudi Arabia. We for example, now put brand new cementing packages zoned to to be able to put it on the newly offshore rigs that they just acquired so we are qualified the guy.
See us that were very professional we look at our efficiency.
At the 99%. So they said okay, you will be able to you will get awarded for example, three four new offshore Bill and I need you to put your brand new zone too.
With all the automatic thats to control et cetera, et cetera bells and whistles on these rigs and that's where we again become very uniquely position in that sense that you aren't as good as the multinationals and they trust you to be able to place those equipment on that rigs and that's very good right.
So.
If I look at your second question, which is the technology access yeah, absolutely I mean today, we talk to everybody. We are very open to.
Deal with.
Basically two of them all the assets that are open for that but again I mean, you have to make sure that as well what value offering to your client right. So if today I'm going to dig the scene on the same contract and offer declined the same tool that they have already from the multinational to be honest why would they do that.
Why don't they just access it directly from the multinational right I mean, we don't try to you know to do something that is already given or existing we want to be differentiated. If there is a project that we have access to and multinational do not have access to.
Because we just got awarded.
So definitely we talk to them and actually as a matter of fact, we just did that last month. So we had the contract and we did not have a certain product.
And there was it's not on the Guinea actually it was on the production chemicals, and we talked to a one off the multinationals. We we agreed that we take the chemicals from them and we bumped that chemical to the well and the Calamp was very happy because we had that contract, but we our product was not.
Qualified and the product of the sort of come so it's a win win they sold the chemical we bumped it and no problem.
On the direction drilling and maybe I think thats whats your little eluding to again, if we do not.
Any differentiation and we do not give any added value to the customer I actually I advise the customer to go directly with the multi not.
If we there is something that we going to make a difference and working together with the multinational can bring value to decline we will do that and so we are open to discuss with everybody and we have a very good relationship with with all of them.
I hope I answered your question.
Nope, that's a that's very interesting unhelpful I'll turn it back.
Thank you.
Thank you we have free standing my question answer session and I will now turn the call back over to the speaking for closing remarks.
Thank you very much we really appreciate your time and very excited about our quota very excited about the future. We're looking again extremely extremely positive with the amount of contracts and the pipeline we have very comfortable on on the growth targets and just one added to point then.
And I keep saying it our customers are the best in class and the middle East and even if you see some receivable issue they will pay and they are the best they had into words. So the vet, we're very comfortable on our cash flow and our receivables and looking forward for a very bright future. Thank you very much.
[noise].
[noise].
[noise] [noise] [noise].
[noise] [noise].
[noise].
[noise].
[noise].
[noise].
[noise].