Q4 2019 Earnings Call
Greetings.
Welcome to National Energy services reunited fourth quarter 2019 earnings call.
This time, all participants are in listen only mode.
A brief question answer session will follow the formal presentation.
If anyone today should require operated assistance during the conference. Please press star Zero Premier telephone keypad.
Please note this conference is being recorded.
At this time I'll turn the conference over to Chris Boone CFO Mr. going you may begin.
Good day, and welcome to any endorsed fourth quarter and full year 2019 earnings call.
I guess shrinks.
<unk> Chief Executive Officer anyway.
On today's call, we will comment on our fourth quarter results and overall performance.
Our prepared remarks, well open up the cold question.
Before we begin I'd like to remind our purchase Scott.
Well be making today are forward looking.
These matters with the uncertainties caused results to differ materially from those projected that need state.
I'd Airport refer you to our latest earnings release filed earlier today and other Hepc trial.
Comments today May also include non-GAAP financial measures.
Well detailed reconciliations to the most directly comparable GAAP financial measures can be found in our press release, which is also on our website.
Finally, please feel free to contact with after the call with any additional questions you banks.
Our Investor Relations contact information that's available on our website now I'll hand, the call a British <unk>.
I can persist.
Ladies and gentlemen.
Thank you Paul.
This conference call.
Yeah exactly when this quarter.
I can't even talk.
The topic can you get that since our last call, which would happen significant anything like how do I didn't ship talk format.
[laughter].
R&D simply I know I'm talking about shot already stands out.
Hi, how are they [laughter] acquired.
What did you generating high Oh goodness.
And your market.
[noise] this quarter was a record quarter.
70% you already here.
The question.
Despite do differently in North Africa.
Do you have seen recently actually putting everything it yeah, we'd like you mentioned that it's getting it doesn't get all sports.
Production is down significantly.
We going.
And on top accordingly.
Let's turn to work.
He wants to do there I know what I'm sure.
Similarly, How's your beyond what did the continuation and then talk [laughter] camping operation.
Okay, well, you're going to be gross dollar customers.
Sure, we support that [laughter] indoors [laughter] situation.
Oh gosh grew at an average growth rate of 20% over the last two years.
It didn't seem to backup world I called all of our portfolio.
[laughter], there's nothing like.
Okay.
Hi.
Probably people.
Over the long, which grew at this stage.
Taken together with the need for getting into watching what Andy I'm going to any of your channel.
Well I think youre going up it's not been here and we haven't begun.
For the future.
Well, we all across the different all the problem is we're not providing blockier.
Well, that's cool Gavin walking Chad financial performance, you need to be scenery, though I can tell the baby competitive.
Of course supply.
Hi, just talk dialing in rational pricing behavior and that sort of an industry today.
This is accretive to the reinvented himself the kind of these market.
Great that's not that we have developed.
Why don't you have this kinda like guns.
And the environment, which we operate.
Most important thing that's cool.
You mean actually watching on ceiling Tenda has.
He environment.
And then drinks I can guarantee by our customers.
I didn't strongly input oriented.
The most focused organization, we haven't shipped over 77 production and just any have you pretty much every week.
You can go [laughter] I wish I had strike has increased by 25%.
Oh for anything I've already agreed by approximately 50%.
[laughter] that's the highest.
Non standard.
And our business.
It's lumpy on different than anybody that's good that's what the aftermarket thing.
And I'm very proud that again this quarter I wouldn't need and customer right that's ever been designated for quite a ways in terms of non productive style.
Then the people Howard counterpart.
Even with all this vegetables and beating Tibet you didn't know what do you look happy days like top and bottom line.
So I'm kind of 10 million dollar benefit to execute on what we think we I'm going to digitally.
Which brings me to the first meeting topic. Good come then see like our joint venture in fracturing operationally Saudi Arabia.
I wouldn't that's paying down the big picture before and then anymore [laughter] good color for Corporation.
We don't seem to be on seismic shifts happening.
The mean that region.
You recently, so I know from doing opened its still pretty healthy 18, Tcs jumping on the reservoir, which is the largest covering all the got hooked up walked into Barbara.
Oh my goodness.
And Joe Affordably.
What do you get that Kim Jong tcf of gas.
Hi, good morning.
Saudi Arabia intention is to become a guy and petrochemical exporting.
Digging down.
That's because you've got the 40 capital while we corrected itself.
That's right I think the gas usage for domestic power consumption.
So if in fact [laughter].
We think about putting three I'm going to kind of conduction, what's gone wrong, how fast I, we're comfortable because they can be I'm going back shock I don't think bunch of reservoir a lot.
So Mike maybe.
He will happen how they approach because one gas looking up the profit.
I would probably go walk in pretty good from all the way I really want to adopt no smoking, where they are able to do that.
Right.
I think it external growth starting to change the speed up the degree of the key objectives.
This is where it.
I'd say it's Tonight.
And changing the parts ours when they reach.
What you thought that discussion with Saudi Aramco and the first talking about kind of 19 on the drilling and North American style, Hi, if this you're getting pretty.
Great using our existing excites beforehand, and cool that same site management about congrats with area.
We finally caught up with ironical Brokaw Nexidia and apart.
Sure.
Well not other technologies when can we collectively partner.
We're talking appointed finish the qualification kinda to try and dropped in the second half.
I'd like away, we broke all records on stage, it's been a within the first week at this stage as.
Within the first focusing on operational.
Needless to say Oh, that's going to depend on page one hour groundbreaking beforehand, and that's basically decided to borders and its journey call truck for June solve it gears.
Oh, that's likely wouldn't take years, because we are working on medscape.
We might be talking not think breaking records in six months.
Just wanted you to protect our capability, but also our customer nimble.
One thing I think the boss.
Hey, what's your extremity companies.
Thanks, a lot.
I think the world.
Just to give you the scale of our operational which fracking is a subset we take on the website everything from Frac fleets wildlife fracturing mailing and I feel good activity.
When we get the producing wasn't back to our clients.
This is part of our school. We also on the stock which include the gosh catering sample James Big as well provide for all the characters.
This is Kevin what we got a cheap in terms of a cold starts and permits Institute.
[laughter] currently to both our teams next year.
I could support of our trying to conventional Andy.
Our commitment to pretty much smaller than almost more partnerships.
Well, that's been trending and you're pretty.
Yes, the existing capacity significantly expanding on top like Kerry.
[laughter] part question also a lot, but can address the supply chain for both the complaint resulting in a win win.
Right.
[music].
Yes, that's people other companies in beverage.
We have an all that's what it did though are demanding operation going.
I agree thing our market share on the back up a solid start up which our customer complemented us all.
We also deplored outfit.
When you are not watching in Q1 first watching buying both services.
What are you getting competition market share that.
I don't want across contracting inkjet.
And your Iraq, we walk and large integrated contract, we did something major that we'd never worked with before.
And the current clock once you didn't significant kinda talk more Ross.
That's what I'm talking about their certification of our organization for him and Iraq.
During the fourth quarter, we opened think anything like that three manufacturing facility needs while I'm not.
Integrating them to present.
Thats it from the midpoint on Guy.
No no other customers.
The Blackstone has the capacity to handle all the demand.
[laughter] she can actually.
I know I'm one of the keeps up and then it drivers of page.
Sure. We think it's not something that can generate the country for generates Kevin.
Employment forecast.
We haven't seen here thinking about some of our investment in the putting tones and fishing and that's when you agreed at large scale manufacturing and set up and growing but a large number of online.
Sure.
To me, but your Michelle.
We are going to continue and grow our efforts in this regard.
And we are calling and then victory aligned with the country vision.
Exactly what you got to compete.
You did that's why don't you 24 of them your name, which we hadn't occurred I thinking of our research and innovation Center.
Morning.
Yes, good luck picked up on the second major points on the call, which we recently announced that meets our agreement to acquire step at school.
All good service company and the Mena region.
With operation across Egypt.
Yes, you eat Kuwait and Saudi Arabia.
We have been what do you always acquisition put her knowledge here.
And then now and David financing that we didnt products and.
And the logic foundry and the economic engine.
In addition, we get an important time and that's good pipeline services with the leadership positions.
Egypt is one of the growth markets Amina wouldn't there be took known to be they've got a top for eastern med.
In addition separate from your expiration contracts were signed recently with excellent.
Chevron.
Yes.
I'll talk about Egypt set this platform from which we got half.
Blocks look like on a consolidated.
40 shrinking upon Levine.
They have a strong leadership position that's kept separate business in Egypt, and any plans to take it.
Brent often concrete.
Yes.
We have to immediately start completing went dead and companies like Saudi Henry.
Yes, obviously its business lines, what do you can pay some benefit that operate in Egypt.
And then think drilling.
Yeah.
On an unaudited pro forma basis. They finished the with approximately 65, many hadn't bottlers in revenue and pointing mini any detail.
Like margins are in line ops.
We expect the front that trend by cheaper.
We have spent the last two weeks in Cairo finalized.
I can tell you that both sides are still pretty excited we've built Virginia and provides to grow.
We also had our board we think there I mean, we are totally committed to our customers embedded.
We also have to honor our hosting the minutes starts and towards him and he was kind enough to share the vision for the engine upstream sector and got problems to be part of this great story.
Chris will talk about that didn't numbers and then but in summary, we are finding good talking to this transaction only by health status.
Our very strong free cash flow charters.
I don't like.
Ill discuss the global workforce.
Thank you Sharif.
Fourth quarter revenues were 185 million, an increase of 17% over the prior year quarter in 15% over the third quarter.
Adjusted EBITDA is 52 million for the fourth quarter of 2019.
Increasing 8% over the prior quarter.
Year to date or adjusted EBITDA is 186 million, which is 15% higher than 2018 for the combined company.
EBITDA adjustments of 11.6 million for the quarter are primarily for costs associated with the unconventional qualification process plus integration and restructuring costs.
As well, we incurred certain discrete costs, consisting primarily of a noncash actuarial expense due to the impact of lower discount rates on projected employee end of service benefits.
And the non cash increase and Algerian tax reserves.
We do not expect additional costs for the unconventional qualification process to be incurred and 2020.
Also integration and restructuring costs than 2020 should reduce the primarily include.
Sox implementation cost and some PENSCO transaction and integration costs.
Adjusted net income is 18.9 billion or 21 cents per diluted share as compared to 16.2 million or 19 cents per diluted share reported in the third quarter.
Reported net income was impacted in the fourth quarter. Some increased depreciation was up 7 million.
Higher sequential depreciation is primarily related to incremental unconventional equipments.
The contracted unconventional equipment with next year follows capital lease accounting and his depreciated.
This higher depreciation rate will continue in 2020.
With quarterly depreciation also increasing sequentially each quarter by approximately one to 2 million as our 2020 Capex program is capitalized.
In addition, once the transaction as close so petco will add three to 5 million net annualized depreciation and amortization depending on final purchase accounting.
Moving to our segments our drilling in evaluation segment revenue for the fourth quarter is $64 million growing 8% or the same quarter last year.
Year over year results forgive me were led from our continued expansion of our any service lines from our market leading position in Oman the other geographies.
Adjusted EBITDA margins fell sequentially due to an unfavorable segment mix.
Separately, our production segment revenue for the fourth quarter is $121 million growing 23% over the same period last year from multiple product lines.
Adjusted EBITDA margin for the production growth were approximately 33% with a sequential decline primarily related to the impacted activity in North Africa.
The effective tax rate for the fourth quarter 2019 as 37%.
The fourth quarter rate was impacted by a noncash Algeria and tax reserve.
As adjusted for charges and credits, including qualifying and other startup costs the fourth quarter tax rate was approximately 17%.
As we enter 2020 <unk> effective tax rate should show improvement from the reported 25% effective tax rate for the full year 2019, due to the reduced impact of startup costs on pre tax income and lower noncash tax reserves.
In addition, we are actively exploring several tax planning strategies that we believe will positively impact our effective tax rate in future periods.
Looking at the balance sheet and cash flows.
Free cash flow for the fourth quarter was 26 million.
Operating cash flow improve significantly for the third quarter due to improved accounts receivable collections offset partially by new receivables from revenue growth during the quarter.
Gross collections were 270 million, a 34% increase over the third quarter of 2019.
The company wide focus on improving our billing processes to limit payment delays and increased customer outreach on past due invoices produced positive results.
Companywide days sales outstanding improved from a 128 days the Q3 2019 to 110 days in Q4 2019.
During the first quarter 2020, we expect to see further improvement in collections, including the release of delayed retention payments and other older receivables of approximately 20 million.
Capital expenditures for 2019 were 111 million as as part of our efforts to invest in our growth opportunities.
In 2020, we expect the Capex spend of approximately 100 million, but could trend upwards, depending on the timing of cash payments.
Cash and cash equivalents increased to $73 million as of December 31st 2019, while net debt decreased to 310 million or a decline of 20 million since September Thirtyth 2019.
The decrease in net debt was primarily driven by improved working capital.
Interest expense decreased slightly from five from 5 million to 4.3 million.
As of December 30, Onest 2019, our net debt to adjusted EBITDA ratio was approximately 1.7, but should produce store target level of approximately 1.5 in future quarters. That's collections continue to improve and we see returns from our capital spending investments.
We will be a short term increase the Mets said from this a petco transaction as we fund to 27 million cash portion of the purchase.
Repay certain debt of 22 million and assume some additional short term liabilities of 8 million.
We will fund the 49 million of cash needed it clothing from our existing cash balances and credit facility.
We're excited to continue our journey and financing at the National champion for the Middle East as we enter 2020, we closed 2019 at a high now generating record revenue, while the same time significantly strengthening our balance sheet buying gribbin collections and reducing net debt.
With that I'd like to pass back to shrink for his final comment.
Thanks, Chris.
Thanks.
Well you line is already invested here.
We grew significantly our country.
Talked in period charters.
As a separate technology dog portfolio I can best could that be something unique startups.
We brought on efficiency records for the Unconventionals in Saudi.
And finalize and increases that many production we should open can you mark.
In your product line for us.
All this while maintaining stellar and service quality.
Got it took a bit and I'm thinking of the box for business model.
Partnership.
I'm very proud of the thing and we realized the pace at which we operate and make decision. It's extremely dynamic and is a key to our Texas.
Looking forward to try to train all I would like to say that if you haven't gone.
Joining me on team or just the trade or thoughts you wouldn't see venture.
We expect to grow at that more accelerated pace than previous years.
On that positive note I would like to baskets arm could operate there for your question. Thank you operator.
Thank you.
I'll now be conducting a question and answer session. If you like to ask a question today. Please press star one from your telephone keypad and the confirmation Telenor indicate your line is the question Q.
Me pressing star too if you like to move your question from the Q.
Participants on the speaker equipment, it may be necessary to pick up your handset before pressing the star he's.
One moment, please while we poll for questions.
Thank you. My first question is from the line of Sean Meakim with JP Morgan. Please proceed with your question.
Thanks.
Hey, guys.
So sharif I'd like to start by talking about how you see the margin trajectory in 2020.
Chris highlights from the start up costs that impacted 2019 results. So.
Lapping of lower numbers, there should help.
But specifically can you talk about the mix in DNA that drove that lower margin in the quarter and how we should think about.
That trajectory through 2020.
Yes, sure so Sean there.
And then he asked me you mentioned in previous quarters order wins Hydro makes all drilling banking regulation and add the Tradename Ben as best we have is the majority of it has to do with fishing and maybe easier word it's actually fluctuate by far.
The month, so in terms of Saddam job very big.
I would say, which were having jobs and backing that arena that counts with very profitable and from time to have more of the ready because it's been.
That is less profitable than the others devaluation business. When you have with more to valuation work then you get the more profitable among many others. So then take any segment makes.
Moreover, that that's why I always said, if you look at it over a year more or less when be stabilize them that way and I don't expect it to go to the 30% plus lacked introduction so.
There are important influx and training them and all the way that makes it contains a drilling antibodies and insight into where they have been megs of and second.
Right. So we've got some.
Sure.
Morning.
Yes for DNA in particular, and I guess, bringing that back to the overall company margin trajectory. Yeah. We've had also some mix as you say given some of the cost plus work that's impacted by some of the larger projects that you one.
How do we roll it all together how should the margin trajectory look.
Year on year or exit to exit how should we think about how that trend you keep growing.
Volumes should keep growing and there's not much dispute there, but then I think people are trying to get better handle on how the margins progress given all these moving pieces of the business.
Yes, so our plan is to keep.
The gross.
Profitability grounds.
We also.
For the data as we said before we ought to embed the arts way.
So what do you think about it makes up the company and think about what's going to happen with all the new contract that we've been awarded I would say you when you would get.
I would think growth rate and he wasn't always one on two points on the margins. So if you will see out hopefully we didnt like when do I always get between 25, a very violent sell off the call, but we can run above the 38 I'm talking contract. We are the 25. So that makes you always be within that between 2500 30.
Then definitely when do you have more of the cost blob that gets us talking up the orders.
Basically do a local discount on catering et cetera, I think on block, which is basically it ended up against you in different do you have a little margin, but our goal of Boston exactly so I wouldn't say to get your number we always want to maintain and the high twentys.
Numbers Winches anytime between 20, and 27 26 29, and this is what we always.
Have we welcomed our quarters and our twentyth.
Right. Okay. Thank you for that and then just.
The capex spend around a little hot in the year end, you know, perhaps or front loading a bit for some of the gross revenues for 2020.
Working capital saw some improvements on ongoing effort Chris made some helpful comments there about early in 2020, maybe there's some catch up coming just how do we think about balancing growth with per serving those margins like we just talked about and then generating more cash than we consumed in 2020.
So.
Overall I mean.
As far more but if I look overall, that's our commitment is to if you keep rolling out did you know a plus 20% year on year.
And we are expecting.
But even in 2020.
I'll, let Bob.
The topic that can span is going to mention to you is that a lot I'll just call Approx launches, we already contracted so we know we upfront and the Capex, we joined as we want to be ready. If he also something when you talk about being gay boats into all of its kind of project in six months, obviously, you have to how to help.
Equipment, and that's paying according to your being blogging et cetera, I mean unprofitable topic, how do we see already that are happening to train coming. So that's why we are going to hop, including back with some purposeful we maintained 100 million.
On the other parties money.
As Pat.
Yes of course, when or how much more.
As I said, sometimes it makes the.
A movement from one category to another between our our net debt and Capex as we said it sometimes it's a decision of when we choose to pay things.
Yes, we had the cash we make thing for them. It by builds I begin to short term borrowings and that delays the capex cash so having said that the numbers can fluctuate a bit we haven't targeted over amount of time. It will it will be to saying, but it can be plus or minus.
Yeah that 5 million or clubs and I'd say, we've got a little bit of extra capex to support the unconventional which we didnt necessarily.
Got you to last quarter.
Right. Okay. Thank you have you back.
Thank you our next questions from the line of Igor Levi with BTG. Please proceed with your question.
Thank you Hey, guys.
So you first talked about the young conventional opportunity in the middle East extensively about.
A year ago and since then yeah, you now have one of the two unconventional Lee.
Operating in Saudi.
So that's a pretty big achievement, but the question is how much bigger could be unconventional service requirement. The in a in Saudi and do you see any near term opportunities for unconventional work and other middle East markets.
Yeah sure I mean.
You know.
Management of our apply and between both annually and Saudi and you can see that can it's flight.
Much bigger than what we talked about before right. So if you talk about today, Saudi Arabia jump for rock that basin, which with the Crown Prince and mentioning the last week.
It happens right. So its besides what you get from an estimate that based on the performance me valuations to achieve in Saudi Arabia, Mark I know that actually let me just getting back office the number of stages, because we managed to break into the efficiency.
The same rate what do you see today at the Permian, which was never achieved over the last six or seven years in the middle East today, you have that scale. So you know that you get into its number of stage.
Dan per month, so if I hope I think right.
Fortunately they are going to why did that name on the drilling performance or they I think today that I think ways to choose they've talked about.
Yeah.
For a basin and Meanwhile, you saw.
Hi, Doug and higher paying the same.
I would say big Big discovery, and definitely you wouldn't see more tax payment made in that face today, we are engaged as we said before.
And our last quarter, we had engagement the p. countries and we are qualifying our equipment like our services and what you're saying is once we see the opportunity at the right down to deploying and funny, we will inventory to bleed and we haven't very strong agreement.
The next tier.
The baby equipment, and we will push the but anyway. I mean are all that's again I got the contracts and we've been able we're going to happen same success that today behalf in Saudi Arabia, I mean, you're talking about we scaled that they are much bigger than anyone ever Paul.
Great that's very helpful and.
Where do you see the biggest risks in.
In your 2020 expectations is that North Africa, you out a few announcement there, but there's been some somebody reps there or is it still anywhere you are having some the biggest fastest ramp up we've seen a for your company.
Well.
This is have region again, he is a long term and yard to offer is remember because nothing the with north American than it did these import long term so anyhow they the girl inquiries.
Let me hit that any activity drop from zero that they were activity to drop so they're all doing business. All these countries. They think they got a business for long term. So did friends that you have four deck Fierbinti. Indeed, you should eat it went on its security all the geopolitical risks such.
Today for example, as I mentioned gather yeah, you have to production now down to what 200000 barrels and almost shutdown. So that's going to sit there, but obviously a much lower than what they expected some of the efficiency I'll go back together on the rig it that's why hasn't been affected so I wouldn't say I guess.
Sure in North Africa, and Iraq will always be that number one higher higher rents than the other TCC country because of security concerns. So you might the topic lines, maybe you want to help ensure mark until they feel it's more secure and namely the Vicky and feel good.
Macro view anything they will go to the bottom will drop by another many admired or something right. Yeah definitely declines with I will tell us that would be across the entire hospital right, but today. If you look at the glass on our plasma and again small so we know that.
He Ben.
It's like a somewhat I thought that 40% market share.
Today, we do not see with our 2020 numbers, except south small pockets in West Africa, I think you're out Iraq.
Yes.
Great. Thank you very much I'll turn it back.
Thank you.
The next question is from the line of Great Coleman with National Bank Financial Please ask your question.
Hey, Thanks, Hi, guys. Congrats on a good looking quarter I hate to harp on margins, but I'm going to.
So I'd like just to come back and focus on that for a little bit and talk about.
Let's talk about the mix.
Im sorry, sorry.
[music].
Hum problems and back out your though.
If if we look at the margins, which we saw EBIDTA margins in Q4 were down.
300 bits year over year sequentially, they were down as well, but the production services revenue was actually up 25% sequentially I'm just trying to reconcile that because you know per your earlier comments batteries, we always your production services as being the highest quarter. Most important business. So that's kind of 0.1 I'm just trying to understand the rising production services contribution with declining margins.
And then number two is just more factually youre Dexter JV that partnership is that in production services as well is that were you keep that that is that additive or dilutive to that segment's margin contribution.
Okay, sorry, if I could first quarter ending I think are you observe that makes up margins. So if you look back at the last four quarters or so you would see all of this they didn't open fluctuation of the JV margin.
Right.
It's actually quite big I mean, 500 basis points or so so again, saying she and I feel I tried to give shop, it's because of the makes me Jim.
Because of the conference we have right. So it's more of that fishing, where you need yet gold et cetera. Some once you get I get that some uptick a month of a bit with very high margin in the most of the activities is ramped isn't type basic business. If you get most of the order.
Evaluation work, it's like dry basic business, you would get to the lowest end of the margin not the high end of the March right. So.
This is all of them instead of Medicaid and ended up going to really be.
Brent as an internship.
You look at the production now that they all the game that we had a significant team on the corporate swine, where majority orbitz came actually from the production did and so we won.
A lot, but north Africa.
Well intervention, which is fortunate on block we won coupled with all the instead of data coming to the new geographies like ways like shot with again into production arena and differently now you have to advanced or I'm hard pressed for that business does is that it's flat huge so they didn't vendor.
For the entire James.
Production, except the park the Dod surplus.
Alright, and then you have the margin, but just some dilution to read into cost lost so you have to cost plus written because you're doing a good Frank you do the trucking either the sand and all the crop that they've been through margin expectation should be dot the profit as running close to.
Important pledge.
Hi.
You would happen every couple of points that Dan you ended up the production because all the cost what visibility do with it so that but the overall if you grow about business for a hub as one did something for time I need those couple of points instead acceptable.
Okay. That's very helpful. Just make sure I understand your correctly. The production services is higher margin contribution versus the drilling in evaluation, but the drilling in evaluation margins itself can vary greatly from quarter to quarter. So even though we saw production services revenue of 25% sequentially middle the margin pressures was.
Because in D. any that's that's where that variability sets.
Correct.
Got it.
And then.
Just finally and I might have missed that the on there.
As we see the ramping up the unconventional work as we see seemed budget expansions tripling of of Saudi commitment towards some of the larger reservoirs I think you mentioned that the opening comments, but I can't remember if you did or not.
We would expect to see a larger percentage of your business about segment as well.
We're wherever the margin profile of got style of work sort out on this on the spectrum that we're looking out from sort of the low twentys into the 25 for the D. And then up to as high as 35 for the for the production services, where would or would that specific bucket of what seems to be more meaningful work for the coming couple of years set on that margin.
Great scale.
Yeah. So.
If I say exactly the bid has like it held at the production.
Okay.
That's how the fracturing business.
It's three entire depends on the efficiency of Washington, So if you already admissions and perform the number of stages.
I would like USA as we ought to be until meeting with the pricing again go above 30% margins. So if you go and now at a hardware for the patients he has a bit below.
For comfort are being done for records of wasn't for some of the enforced block, yes, you're going to among and between March and more that's right. So it makes the based on long term tomorrow, but our expectation on our our philosophy about contract is to be within that range, which are.
No the production today above 30%, but not to growth to be always in the twentyth.
And depending on the bottom all efficiency you can fluctuate about a month ended the quarter respectively.
Got it I hope it thanks for your question.
It doesn't I appreciate it and then just one last one for me switching gears entirely on the M&A side. So every time I look at my screen things just keep get cheaper over here in North America.
With the oversupply frac equipment here some of the companies are trading not necessarily just on Frac, maybe expanding in technology I know you just execute on.
Probably the largest purchase today, but are you seeing an increase opportunity to pick up assets either asset purchases or whole company purchases in some of the north American stopped basically plane yard between the weakness in the market here and the strength in the market, where your operating or is it kinda on change any of any front I basically trying to figure out are we gonna see a pickup in your M&A activity in it.
And then sort of six nine months, because where asset prices are here.
Yeah I forgot to then for me I don't Gong did that condition or M&A I found that those topics. So if we find.
Which I discussed with the wouldn't separate them Canadian.
Red companies, if I may have added anomie getting buying that plane test the dollar or you know why don't we are open we look into it did come out there haven't been even condition and had to be fit for purpose morbidities and good luck on equipment not fit into that he's operation and stuff.
I'm, a 102 I'm I'm not really.
He now focused on getting Tahira I would say, but.
I think what may end up high and the operation we haven't amenities. So you have to about on the does what happening to acquire the company as a whole then M&A in North America and bring it over to the Middle East today, I don't see about maybe install opportunistic technology and that.
Where we both either partnership or if we hope to prudent investment and sound what they call innovative technology sounds like very unique IP very unique.
You know.
It sounds quite a ballpark exhausted that we can think it and make it fit for purpose. It's like a start up like MPC type of things like we did with packed ethics for their go ahead. So it did to something we'd like interest again.
Otherwise, yes, we were going up we don't see any value brings all new you know must fit our capacity and by the company and I definitely agree obvious that'd be I'm not planning to operate that held Craig so getting providing while it's about anybody in Norfolk.
Got it and then just one more thing that your comments spurred a a one more question, which is you just see it as Capex, which is what are you spending capex and organic or Capex on acquisitive just more from a clarification perspective is the money you're deploying first Tesco.
Part of your 100 million dollar capex budget or outside of that yeah. Yeah. Capex budget is what has done a lot Fargo.
As part of it better so your bargain. So we added a capex reduction from last year, because as I said earlier, we upfront and the love our Capex. We already planned. This we already deployed a bit and more gas is coming for more growth, but that doesn't today that the tobacco capex.
Thats, we plan for Rick.
Included in our 100 million as you're going to you as I said earlier in my remarks, we landed a year ago. So we've been in negotiation for here. So we know exactly what our equipment we need to.
Through the portfolio.
Do they have registered dig over over the Ministry and die.
And 100 limiting.
Got it got asked thank you very much that's it for me.
Thank you.
The next question just from the line of Blake agenda with Wolfe Research. Please proceed with your question.
Hey, good morning, Thanks for taking my questions. My first upon Greg's line of questioning is just on the.
Overall market and maybe some of the behavior of your peers at this point you mentioned.
Pricing being irrational at times I'm, just wondering just given the sheer deterioration in the oil price. It we've seen and current a virus may or may not be impacting operations in the in the Mena region broadly I don't suspect they are at this point.
But what is the risk you know if we see further fallout in U.S. land that your larger peers start to rotate capacity into the region.
Is it is your sense of there is some some downside I guess to the way that they're behaving are they already behaving somewhat irrationally at this point and there's not much to go further down.
Oh, let's say a pay it so it's again, it's a nice most all.
Without opening the mentioning names, but you have.
So I'll have opted out of.
The big guided our our discipline and they don't guide the reinsurance and they look at the drawing.
The.
When do you want it makes sense and when in fact, we didn't do there.
Which is fairly even timing and they are coming out.
Hi.
And some others.
I'll now.
Overall, because you can see as well as all of it off the growing up and that's been taken to deepen did not deliberate on tinder blackout very aware of that.
Okay. That's helpful. And then certainly back on D. any for a second here I'm. Just wondering you know the progress you've made in pulling through the G.S. portfolio elsewhere in the region have you found that it's been easier to pull through more of the drilling product lines or.
Are you getting some traction on the evaluation side as well I would imagine that you know some of the some of the friction on margin maybe is due to.
Pulling labor throughout the region and kind of spreading the portfolio out that way.
[noise] catch me intermediate they've got an Ajay again to really true to puts into perspective, it's more the Gulf energy strength is really put forward into it that now.
Maybe its strength wasn't there, but the trading portfolio is pretty strong.
And then you take it outside of that so one contract that separates countries.
But that ice contract in that portfolio type of work is lower margin then right and then putting forth. So why even start they all these countries you definitely doing up game you get some of those contracts you get done with that we put a little pending rentals.
I call a bargain.
And you know once again I know you become more trusted partner to the customer I'm sure. You grow scale. Then your margin improved margins are better than we don't have a good basis there.
There is pretty strong.
So I thought that they have over the last 10 years. When you brought it into Australia, Saudi Kuwait, a rock except for the start up is different than he is not as profitable because you're asking a lot of assets. The bulk of capex I get that business dog fishing and then he has a downhaul yeah that so many.
Ah equipment all side.
And basically on all the compound the problem. So anyway, it's not the baby and where it's like you are there all the time to good pick up on bottom all the time.
So that's why did it as one of this fishing are they didn't get worse, it's a lot for everybody right. It's about Goodman, but overall, if you look at the margin compared to the industry, it's actually a hurdle because the margin as you know and many other payment negative. So we don't we when you go out with isn't it.
It seems like for Sun, especially good drydock, so I'd have to stop I didnt, because it's small contingent become.
Big enough drop brain that happens can come to improve your margins, but are they always been saying nothing it needs to be a 30%.
Got it that's a that's helpful. And then one more if I can submit in here on the M&A side. It was a pretty slick deal that you structure was the best go.
Wondering just given that you know equity prices across the board going to be challenged here in the foreseeable future. Some opportunity as was mentioned earlier on the call, but if you have to now go forward with mostly cash.
In debt transactions I'm, just wondering if there was a maximum leverage that you guys would be.
I'm comfortable with not going above essentially and if that potentially limits I guess, the near term M&A opportunity for you in the region now.
No I mean, obviously we.
I don't want to haven't called almost too.
And we see a we have been we haven't discussion with several that we already got nice trends there all the countries and to have done on black and white M&A within mean, just because me for the good without a this is why don't I saw the numbers is that created.
So you get two birds with what was what I would say you got to benefit or what the last country, which in Egypt.
Industrial cleaning service or them, but to bypass sort of it but we don't stop and today just forget your scale when they did that opens the door in project, which was the largest they've got project I think worldwide that went from exploration <unk> production and 22 month add to it to a true now produced 2.7 Bcf.
Okay, and they have no Henrietta project between.
The four countries in the east bed and they need all of them with made that services and.
Let's go managed to do that because they have that leadership position and not there now we are bringing that expedia than that.
Yeah, good years into all the countries should give you a neighboring most of these one we pride ourselves or even at the previous company and no one MTS and what kind of gene they could not because the clients which require tend to pick any had experience for you to visit there's been missing it could not listening to everybody.
Worried that youre spot on the beauty business I'd have an issue so David watching what is your timeline what is your experience well you got to get accompanying out with 40 Europeans. So did guide.
Oh, I'm, what acquired Saudi Kuwait, the new any and all these countries. They didn't do it because they don't want to spend the topics in all these companies to too you know trends today most of the equipment I have the index for either the know how and the number of years. So all of the something I have all these countries or I know how to bid.
For all of them so.
It's pretty obvious why it makes sense because again once you have an M&A that had almost no overlap. It's the most accretive there's no busy there is no problem because we've developed working interest and they have been assigned to bring some idle.
So it's a very strong position if I look at although we do look at other I don't know before see anything that would require us to change our leverage.
And then engine.
That's a that's really helpful perspective breach at the time I'll turn it back.
Thank you.
To ask a question see me press Star one.
The next question comes from the line of Andreas Mental health with Evercore ISI. Please proceed with your question.
[noise] fishery seacrest.
[noise] Oh, so so sues question, reducing the seems go acquisition.
I think about capacity one to two years or your teams have really been working on optimizing the back office ERP systems Truman tools of your company.
Al Seeps goes operations fit into that and how you see about the operational risk profile of the company I guess my my question related on top of that is do you plan to leveraging new footprint, Egypt received come back office in corporate for your company.
So obviously, one off and very strong just trying to solve some best will reach out we didnt mentioned before they have out so they adopt the SVP and they had very strong 10 year fixed feed me and enter the system and they have the.
Full gone back office.
In house deployed so that's another approximately we that's another part, though we love about acquisition, it's actually go into adult.
And looking $3 or going into studies and Chris at that point team took a dial how is that.
How can we think that they've been should we take it across the country. It didn't seem ready to deploy it and that's what are the big advantage.
I can shop leasing up hopping back up and for other than Egypt, and depending on the low cost right. So it's a very cost competitive.
The country and we will be in Britain to deploy and many other ICA remotes and Oh.
However, driving some office property when we went to capitalize that leverage that are striving there plus the use of performance again over 40 years to try to take it to the other countries.
Okay, great. Thank you for that and then my second last question I need to believing the point on that on margins, but when you just trying to purchase a different way.
So if I read to proxy that you guys filed in early November and I. Appreciate you disclose your conversation goals you pay for performance framework, when you're not really required to do that at this point. So thank you for doing it for your short term conversation goals trees, I see a different targets or revenue EBITDA and you can add.
A target you have a superior targeting Yemen exceptional target right with different times EBITDA margins for each but I think of the exceptional targets that you said for yourself last year, which is entirely 33% EBITDA.
The rest of the target, which is only 20, 29% mood have to happen in your business in order to get to those there's target margins I mean, what kind of things we have to sea Ray and his is really maybe the 20% to 29% level you target.
EBITDA margin for short term loans is that is that maybe the more appropriate way to think about things going forward.
So okay. I mean, obviously I don't want to give guidance, but if I look I if I look at the the growth profile. If I want to that are also going through a term bridge that the margin except for US we can't right I mean that it's obviously it will limit some of that.
Growth that you're too so if I take my core business, but for example, like when production business I hope all the add on items that have gone on the Danny I can't bring 'em Ben I, you haven't Bible crossing integrated Ivy I've got margin so didn't get at the end up today, we are now.
Thank you know.
It does that goes up and overhead to die conventional I'm doing this basically there was 21 come to and from a major service company that it's in that project I mean, and basically we are being back with a lot tomorrow I am just thoughtful so I guess.
How are you gave us, though I mean that they did you have to take on the pull it off.
And a bit of the side of the gap up again, putting up the time that fits into your yes. It does and yet your 50% picked up to 27% or Brunswick splits up depending on how many mentioned in this month.
[laughter], yes, I want to keep coming back again.
Okay deducted unit there now.
Taking a company down if I, if I guess, because if you go to grow.
Turning pretty sad, but year over year, Unfortunately, but I think couple of points.
Down on the margins and bright spot right. It's agreed to fight against the dollar, but it's what does that affect the picture market based on the profile of the projects you are taking we're thinking now and they said.
Before I give it isn't going to appreciate that you're thinking for com large scale development project interrupt for a dentist. Besides that is like ticket for there's one or two companies operating there and we're very proud that we are one of them. So that is to educate and I did back in June and.
But passion for the future of this activity once it goes to develop as does the Saudi or Oncomed amounts.
Great. Thanks, remembering on and that was on the question that now I'll turn it back to Q.
Thank you at this time Weve reached the end of our lifetime for question and answers and I'll turn the floor rights management for closing remarks.
Thank you very much.
Very proud off a lot of our up the year.
Looking forward, we're very successful twentytwenty, a with a much more orphan designation. Thank you.
Thank you. This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation.
Okay.