Q4 2020 Oil States International Inc Earnings Call
Welcome to the oil States International Inc. Fourth quarter 2020 earnings Conference call. My name is James and I'll be your operator for today's call.
All participants are in a listen only mode. Later, we will conduct a question and answer session.
During the Q&A session. If you have a question. Please press star one on your phone.
And I'd now like to turn the call over to Ellen Pennington Ellen you may begin.
Thanks, James Good morning, and welcome to oil States fourth quarter 2020 earnings conference call. Our call today will be led by our CEO, Cindy Taylor and Boyd hijack oil States' executive Vice President and Chief Financial Officer.
Before we begin we would like to caution listeners regarding forward looking statements to the extent that our remarks today contain information other than historical information. Please note that we're relying on the safe harbor protections afforded by federal law.
One should assume these forward looking statements remain valid later in the quarter or beyond any such remarks should be weighed in the context of the many factors that affect our business.
Including those risks disclosed in our form 10-K, along with other SEC filings. This call is being webcast and can be accessed at oil states website. A replay of the conference call will be available one and a half hours. After the completion of this call and will be available for one month.
I'll now turn the call over to Cindy.
Thank you Earl and good morning to each of you and thank you for joining us today to participate in our fourth quarter 2020 earnings Conference call first I would like to extend my sincere hope that all of you had been able to safely navigate the horrendous rather that we've had over the last.
Weak along with the associated power outages and impacted water supplies. Our prayers are extended to you for a speedy returned to normalcy.
December 31st Mark the end of a year that will go down into the record books for the oil and gas industry.
Energy companies face the daunting challenges of excess supply.
Man crisis triggered by Covid, and OPEC supply management problem and investor apathy toward the sector.
Already six years into an extended downturn the industry took a notable turn for the worst in 2020 with the onset of the COVID-19 pandemic, leading to epic levels of demand destruction for crude oil and associated products with commodity prices and dangerous.
Territory, coupled with deteriorating activity and financial results energy companies had to respond quickly rig counts and customer capex spending collapsed in the second and third quarters of 2020.
In response to these events, we took immediate action to shore up liquidity and stabilized cash flows. We will update you on these matters give you our thoughts on near term market conditions and summarize our continued efforts to mitigate costs, both capital and operating as we navigate the early.
Stages of a U S led market recovery.
As we discussed on our third quarter earnings call. We believed that U S shale drilling activity, while at historic low levels was improving as we entered the fourth quarter was stronger crude oil prices activity in the U S. Shale basins has historically been the first market to decline and are down.
Turn but it is also the first to recover.
As a result U S completions activity steadily improved during the fourth quarter, albeit off a low base.
Ending the quarter up 67% sequentially in terms of the average frac spread count as reported by primary vision, our fourth quarter results reflected 2% sequential growth in revenues and a significant 55% improvement in gross profit before.
DD&A.
Reflecting the cost mitigation measures implemented earlier in the year parcels.
Partially offsetting these benefits was two 7 million of severance and restructuring charges.
During the fourth quarter, our well site services revenues were up 3% sequentially and adjusted segment EBITDA margins improved our completion services incremental adjusted EBITDA margins came in at 89%.
In our downhole technologies segment revenues continued their recovery and were up 24% sequentially with adjusted segment EBITDA margins also up nicely in.
In contrast revenues in our offshore manufactured products segment, which is our later stage business decreased 4% sequentially due primarily to weaker connector products sales.
Segment backlog at December 31, 2020 totaled $219 million, a decrease of 4% sequentially. Our segment bookings totaled $65 million for the quarter, yielding what appears to be an industry, leading book to bill ratio of 0.9 times.
For the fourth quarter, and 0.8 times for the year.
During stress periods in our business, we know that the immediate focus needs to be on the preservation of liquidity and the management of variable and fixed cost to that and we had an exceptional year in 2020 generating 133 million of cash flow from operations with our <unk>.
Significant free cash flow, we materially delever during the year, reducing our total net debt by $128 million.
In addition, despite capital being extremely tight in the U S for banks lending to the industry. We successfully syndicated a new four year asset based credit facility with our key banking relationships last week Lloyd will review additional details with you shortly.
We believe that we have managed the company effectively during a very difficult period, and we will continue to closely manage our debt working capital and cash flow generation in the quarters to come Little White will now review, our consolidated results of operations and financial position in more detail before.
I go into a discussion of each of our segments.
Thank you Cynthia and good morning, everyone.
During the fourth quarter, we generated revenues of $137 million, while reporting a net loss of $19 million or <unk> 31 cents per share.
Our revenues increased 2% sequentially and our adjusted consolidated EBITDA improved significantly due to better cost absorption in our U S businesses.
After generating significant free cash flow in prior quarters, we were essentially cash flow neutral after capex during the fourth quarter.
For the fourth quarter 2020, our net interest expense totaled $2 $6 million of which the majority are $1.8 million.
It was noncash amortization of debt discount and debt issue costs.
At December 31, our net debt to book capitalization ratio was 12, 8% and our total net debt declined $128 million during 2020.
Through opportunistic open market purchases of our convertible senior notes and repayments of borrowings outstanding under our revolving credit facility.
As Cindy mentioned on February 10th we announced that we'd entered into a new $125 million asset based revolving credit agreement.
With a group of our key commercial relationship banks.
Our existing revolving credit facility was terminated upon entering into the new asset based revolving credit facility.
Borrowing availability under the new facility is based on a monthly borrowing base on eligible U S customer accounts receivable and inventory.
The maturity date of the revolving credit facility as February 10th 2000, and twenty-five as Cindy mentioned, a four year credit facility with.
With a springing maturity 91 days prior to the maturity of any outstanding debt with a principal amount in excess of $17 5 million.
Excluding the seller promissory note associated with our acquisition of Geodynamics.
Borrowings outstanding under the new revolving credit facility.
Will bear interest at LIBOR, plus a margin of 275% to $3 two 5% based on our calculated availability under the facility with a LIBOR floor of 50 basis points.
We must also pay a quarterly commitment fee of <unk>, 375% to 0.5% on the unused commitments.
At the closing of the new facility.
We had approximately $29 million available, which was net of 12 million in outstanding borrowings and $29 million of standby letters of credit.
Together with $72 million of cash on hand at the end of December.
Pro forma liquidity would have been approximately $101 million.
At December 31, our net working capital, excluding cash and the current portion of debt and lease obligations totaled $215 million.
In terms of our first quarter 2021 consolidated guidance.
We expect depreciation and amortization expense to total $23 million net.
Net interest expense to total $2 1 million of which approximately 1 million is noncash and our corporate expenses are projected to total $8 4 million.
In this environment, we expect to invest approximately $15 million in total capex during 2021.
Which is essentially flat when compared to 2020 spending levels.
At this time I'd like to turn the call back over to Cindy who will take you through the operating results for each of our business segments.
Lloyd in our offshore manufactured products segment, we generated revenues of $76 million and adjusted segment EBITDA of $7 5 million during the fourth quarter revenues decreased 4% sequentially due primarily to continued slow connector product sales.
<unk> segment, EBITDA margin of 10% compared to 12% margins achieved in the third quarter, reflecting lower revenues and reduced cost absorption as I mentioned earlier orders booked in the fourth quarter totaled $65 million with a quarterly book to Bill ratio of 0.9 times.
At December 31st our backlog total $219 million.
For over 75 years, our offshore manufactured products segment has endeavored to develop leading edge technologies, while cultivating the specific expertise required for working in highly technical deepwater and offshore environments.
Product developments should help us leverage our capabilities and support a more diverse base of energy customers going forward. We continue to bid on potential award opportunities supporting our traditional subsea floating and fixed production systems drilling and military.
Clients, while experiencing an increase in bidding to support multiple new clients actively involved in subsea mining offshore wind development and other alternative energy systems globally.
While our 2020 bookings were lower than the levels achieved in 2019.
Our book to Bill ratio for the year average 0.8 times, providing visibility as we progress into 2021.
In our downhole technologies segment, our revenues accelerated for the second quarter in a row, increasing 24%, while generating incremental adjusted segment EBITDA margins of 68% sequentially due primarily to cost savings measures implemented at the segment level.
Sales trends for our strat ex integrated gun systems, and addressable switches continue to gain improved customer acceptance and we experienced a 49% sequential improvement in international sales of our traditional perforating products. We also continue to.
Focus on the commercialization of ancillary perforating products, including a new wireline release tool and two new families of shaped charge technology. Our product development efforts are designed with our wireline and E&P customers in mind, where we strive to.
To provide them with flexibility improved functionality and increased performance, while ensuring the highest level of safety and reliability.
In our well site services segment, we generated $39 million of revenue with sequentially, increasing adjusted segment EBITDA. The 3% sequential revenue increase was driven by better U S land completion activity in the quarter, but was partially offset by sea.
No fourth quarter declines in operator, spending and the northeastern United States, excluding the northeast region revenues increased 20% sequentially.
International and U S Gulf of Mexico market activity comprised 26% of our fourth quarter completion service business revenues.
We remain focused on streamlining our operations and pursuing profitable activity in support of our global customer base. We will continue to focus on core areas of expertise in this segment and are actively developing and conducting field trials of selected new proprietary service offerings.
To differentiate oil states completions business.
Moving on to outlook COVID-19, disruptions continue to hamper activity in domestic and international markets. The fourth quarter 2020 U S rig count average was 311 rigs, which was up 22% sequentially.
Our leading industry experienced a 67% sequential increase in the average U S frac spread count, which favorably impacted all of our segments with short cycle U S shale driven exposure.
As we are now a month and a half into the first quarter of 2021. The average frac spread count has increased by about 26 spreads are roughly 20% since the fourth quarter. This increase gives us optimism that the first quarter is setting up more favorably.
For our U S shale driven product and service offerings.
Given improvements in the Frac spread count over the last several months, we expect our well site services and downhole technologies segments to grow sequentially in 2021 with increasing EBITDA contributions.
Revenues in our offshore manufactured products segment will continue to lag into the first half of 2021 until our book to Bill ratio exceeds one time and our short cycle product demand improve.
Our outlook for 2021 suggest that our consolidated revenue will be flat or decline modestly given the very strong first quarter of 2020, which of course was pre pandemic.
With EBITDA growth, resulting from cost mitigation efforts.
We expect.
'twenty 'twenty, one full year consolidated EBITDA.
$35 million to $40 million with roughly 60 per cent of the total generated in the second half of 2021 day.
The first quarter will undoubtedly be the weakest quarter of 2021, given the impact of severe weather that has gripped. The nation. This week record breaking temperatures and dangerous conditions have limited our field operations and manufacturing locations for several days.
Now I would like to offer some concluding comments, we believe that we have made substantial progress in 2020 in terms of shoring up our liquidity with exceptionally strong free cash flow generation, coupled with associated debt reduction initiatives.
As I mentioned earlier, we stabilized the company during a very difficult period and have managed our debt working capital and cash flow generation throughout the period.
Oil states will continue to conduct safe operations and will remain focused on providing technology leadership and our various product lines with value added products and services to meet customer demands globally as we recover from the harsh effects of the COVID-19 pandemic.
Which dramatically reduced travel and business activity, thereby depressing global oil demand and correspondingly demand for our products and services that completes our prepared comments James would you open up the call for questions and answers at this time please.
Sure well, we can begin our Q&A session. If you have a question. Please press star one on your phone if you wish removed from the question queue. You May press, the pound sign or a hashed E and.
And if you're using a speakerphone you may need to pick up the handset first before pressing numbers. So once again, if you have a question press star one and our first question is from George O'leary of G P H and company.
Close enough.
Good morning.
Hi, George.
Oh Boy you guys can hear me.
Intermittently, losing power as everybody is in Houston.
Just wanted to.
To start off with I thought it was interesting you mentioned you guys are focused on new completion technology. That's obviously, a big part of the oil States story historically wonder if you could kind of Peel back the onion, a little bit more there and what.
Your customers are in need of help with or what areas of efficiencies you guys are looking to enhance moving forward.
Well I think I was pretty detailed in terms of our downhole technology focus and investments through integrated gun systems again addressable switches wireline relates to oil if there's a number of things that working in close collaboration with our customers had yielded the opera.
<unk>, obviously, some new technology advancements and.
Newer products, if you will bringing to the market in the case of our well site services segment, we've been very focused really on enhancing operational efficiencies and certain customer needs and clothing.
Expansions are well off our extended reach technology.
Technology equipment as well as some investments.
Investments in valve technology that will help us be more efficient cost effective and obviously more reliable at the end of the day. Those are all goals that we are looking for.
In the case of offshore products, we've got a number of initiatives.
Initiatives underway about the in terms of our subsea production infrastructure or some of our long standing products on a.
The drilling rig equipment side, and then of course as you know we're doing some initial Ah R&D type work with new customers around both.
Deep water, if you will subsea mining activity as well as clear legwork, we we have a long standing presence in a fixed platform business globally, and so wind also offer some interesting opportunities for the longer term.
Great. That's very helpful. Net flows into my next question you mentioned, just kind of the subsea mining opportunity in wind opportunities I Wonder if you could frame up.
As you look at 2021 with that order book looks like either on a 2021 versus 2020.
All part just given most of the folks on the call that's not their area of expertise and I'm sure you guys have been doing a lot of market research. So any help with just market size increase year over year.
Importance to the business would be incredibly helpful.
Well and you know I'm I'm one let's just be realistic. These are very early stage developments wind obviously could be earlier, just because it's more of an established offshore wind. It's obviously not new at this point in time, whereas.
Rare Earth minerals mining off the seabed is and so I view this as.
Kind of long term opportunity, we probably had in the range of yeah, I'm going to say Barry just a small amount of bookings and are mostly technology related R&D type bookings and 2020.
Does set the stage for a little better contribution in 'twenty, 'twenty, one, but I'm not going to try to oversell. This opportunity in the near term. It's a much longer term prospect adds in my view are all of these alternative energy investments.
But with that being said, we are bidding and quoting quite a lot more particularly well it's really both win but also on there just aren't that many players doing research yet on rare Earth minerals.
Mining offshore at this point, but I do see that as an opportunity again. The assumption is we're going to progress alternative energy a development. If you do that we're gonna be heavily reliant on rare Earth minerals.
In those developments.
Thank you very much Cindy I'll turn it back over.
Thank you George and thanks for dialing in today.
Our next restaurant from insurance income of J P. Morgan.
Thank you and good morning.
Yeah, I hope you guys are doing well.
John This is Cindy.
You all did a lot in 2020 in the face of what was a pretty brutal macro so just in terms of the balance sheet operating costs.
A lot thrown at you guys.
Made a lot of headway.
So looking forward if the cycle.
Remains directionally.
Getting better as you expect but let's say the magnitude of opportunities ends up being more lukewarm.
Are you working on more dramatic strategies to boost EBITDA cash flow ultimately returns in other words I guess can you help us think about.
The opportunity set for more dramatic moves to the portfolio, whether it's organic or inorganic just how you think about.
More than just kind of the the meat and potatoes blocking and tackling.
Depending on what the cycle gives you over the next couple of years.
Well, you're absolutely focused on the right question and I reflect on the year 2020, and I just think of what we've been through in our clear obvious immediate focus was on reducing cost mitigating margin pressure through all of our operations and business lines and importantly.
Preserving liquidity, but we stand here and of course booking backlog, but as we stand today, we are beginning to see the well I'll call. The early stages of a market recovery certainly the macro fundamentals of global supply demand for crude oil has improved dramatically at ports. It had two from the extreme it.
Dance.
2020, but we've been going through really a robust planning process.
To respond to a recovering market anything that we do it's going to be done from the lens of focusing on return on net capital employed obviously, we've got to come back to positive net income and positive returns on invested capital. Our primary focus is going to be an error.
He is where we think we can have larger share scale you know some of our product lines depend on niche dominance. If you will but we have some of that particularly in our offshore manufactured products and then we look to what can we do we're not going to expand excessive amounts of cash.
Capital, we're going to be very cautious about that capex allocation wet weather that is for equipment or whether it's a responsive to R&D spending on unique new technology.
I always favor what we can do internally at their own product initiatives and the R&D initiatives that tend to generate the greatest returns that being said there will be opportunities and we have seen some where there are M&A optionality is out there.
Our products.
Very clear stance on that is they have to be highly strategic and honestly right. Now it will have to be funded with stock, which means you've got to have a high degree of confidence in the valuation you pay and in our case.
I think the modeling method methodology demands free cash flow generation, particularly in your early years, you have to be less reliant on any type of terminal growth rate or terminal value at the end of the period, particularly if you believe the sentiment that is out there that crude oil.
Demand will peak in either 2028 or 2030 that tells you what you've got to do in the ensuing 10 years from a valuation perspective, whether that is capex or M&A, but.
But we are seeing some opportunities of interest at this point.
If I sum up those kind of opportunities of interest we're looking for businesses that have some technological differentiation that fit well into our existing product lines and that have a capital light model much like what we described when we made the G O acquisition.
We need to say free cash flow generation with a semblance of recurring cash flow streams.
I hope that is a high level strategic overview, obviously I can't be specific on the M&A front, but I think that frames very well our thought process. I will also tell you that I do believe that scale matters and we've got to be highly efficient with our cost structure.
But we can certainly leverage that if we're able to grow the topline which needs to be our focus in 2021.
It's a very thoughtful response, thanks Cindy.
And then.
Maybe just transitioning to talk a little bit more about some of these emerging opportunities.
You've always focused on building product and service portfolios that have.
Core differentiated products with more concentrated market positions and then you seem to kind of build around those other tangential.
Services and products, they may end up being a bit more competitive so in terms of these.
These emerging revenue opportunities, whether it's offshore wind or even the subsea rare earth mining could.
Could you just talk about the competitive landscape.
Maybe how you characterize your potential positioning and.
And how you could maybe enhance that positioning as these opportunities more fully manifest themselves.
Well, we're bidding quite a lot of opportunities and just you know I always say.
Do be differentiated and do what you do well and so we have been fixed platform industry specialists now for 50 plus years there of wind installation is in offshore fixed platform and deepwater application. So our reputation along.
How's us in our history allows us to bid very effectively on that now you're bidding to a different group of customers, but because of our history. It really makes no sense for wind.
Wind install our developer to try to create from scratch theyre going to draw from industry expertise that is already out there and of course, it only makes sense for us to bind all of those bidding opportunities and bid on those accordingly, which were successful in getting to see those opportunities at this.
And time and as you know Sean.
All the capital in the market wants to flow towards towards alternative investments right. Now so customer funding is not going to be the issue as to whether these projects per seat or not again these are unique opportunities.
That on rare Earth mining and deepwater fields in applications again, do what you do well we are experts and riser technology, we are exports and stabilizing our facilities from the sea bad to the.
Surface of the water and so again those are what we're trying to draw on as opposed to trying to go into a lab with no immediate knowledge of what youre going to create at the end of the day that would be a luxury we quite frankly don't have when it comes to R&D. We are very very focused on the markets.
Net of opportunities and we've kind of issued a guideline that we think you have to have revenue opportunities in 18 months or less.
We're going to re prioritize R&D initiatives elsewhere in the company.
That's very helpful. Thanks Cindy.
Thank you.
And our next question comes from Steven <unk> Garro of Stifel.
Thanks, Good morning, I Hope I Hope you guys are all doing well in Texas.
Hum.
Two things first just to follow up on that.
Right now you've been talking about.
Do you think about these new investments.
And I know you've been we're very return focused since since the company went public.
How do you think about sort of the the time frame that those returns have to show up.
It is elongated as biggest technologies take a little longer to gain traction in but how do we figure out that type of investment from or the timing of returns necessary.
You know one of the beauties of what we're doing right. Now this is existing technology to a large degree adapted to a different demand environment. So we have the facilities. We have the engineering capability to all the requisite machining capabilities et cetera to deliver per.
Products and services to kind of a new customer base. So those are a bit easier as I think we progressed. This there will be opportunities as an example, an offshore mining for a more complete product portfolio. Because this is brand new.
<unk> technology, and so rather than just relying as an example on some of the riser technology opportunities that are out there you may expand those products further as this market develops I don't want to oversell. This at this stage, we had one contract last year that is very much a reset.
Search based opportunity.
But we have multiple bidding opportunities this year, so that the prairie as these technologies prove up you know this transition to alternative at a heavier weighting I'm not going to say a full transition to alternate but a heavier weighting to alternatives will belong to develop and I don't want to mislead anyone on this.
Carl I think these are 2030 year type development over time I'm, just pleased that we have the background capabilities and technology to be able to use some of that in newer applications, but again. It is for the long term we are bidding a lot now, but I'm not counting.
When I do a plan I'm not counting on tons and tons of bookings coming from this I hope they come out play out.
Great. Thank you and then two other.
Two other questions just about about your commentary on 2021.
You provided some full year numbers, which which is which is helpful.
I haven't done the math, yet when you look at the incremental margins.
Does that sort of suggest sort of normal historical incrementals for well site.
And the offshore manufactured products.
You know I as you know I kind of manage life based on our Incrementals, but I.
Back them to be quite frankly, exceedingly strong and we witnessed that in the fourth quarter, sometimes its hard with the depth of the downturn to see the strength of the Incrementals I did call those out I believe on the conference call, but you know going back to the U S.
<unk> recovery in 2021 again, we lost 80% of the completion count from in about 60 days from.
Q2, Q1 to Q2, so with that context, obviously, we're seeing some improvement, but with that downhole will do well I. It's in my notes, but I believe their adjusted EBITDA Incrementals. They were certainly north of 50%.
Which is historically a strong incremental margin as you know in the case of well site. They were north of 80% and that is we're not going to sustain over the long term, but we do believe that what we have done on the cost front will allow.
Greater than historic Incrementals now.
And a tempered that because it all sounds good we all talk about book to Bill ratios and in my offshore manufactured products. We had one of the best on the Street. Nonetheless, my backlog is down about 22% year over year. It would be foolhardy may decide that we can do better in the first half of 2000 Twenty's.
One in that segment with a 22% down on a reduction in my beginning backlog the good news as.
Of the bookings we got in the fourth quarter. We had two that we kind of call out that are north of $10 million in terms of size. The other good news is this is our very critical subsea production infrastructure won't surprise you that a lot of that activity is in Guyana, and Brazil right now.
That mix is good for us and.
Our expectations are that we will exceed a one time book to bill.
In 2021, which again is what we need that's number one coupled with number two a recovery in the short cycle products in that segment.
So what I'm speaking to as while we were enthusiastic about the U S led incrementals no that particularly in the first half we will be trying to manage decremental margins.
In our offshore manufactured products segment.
Great. That's very helpful color and then just just one final and I know it's it's.
So it's a hard question given what's going on in Texas recently.
Given the disruptions, we're seeing and given your full year guidance on 'twenty 'twenty. One are you thinking just to kind of calibrate the first quarter kind of being plus or minus flat with the fourth quarter and sort of companywide EBITDA.
Absolutely, but I'm going to also say that before this week, we can't really kind of expected to see sequential improvement I would temper that as you have suggested insight flat to modestly down there bright uncertainty, we still don't have power and water.
In most of the state of Texas, and while we are not a Texas based company by any means 50% roughly.
The U S land rig count is in Texas, or new Mexico, everybody on this call knows that and so I certainly have not really quantified the impact but I can tell you. While we are in a downtown office today in Houston. It is the first day that just got anybody has been able to get out and drive so that was a reality.
That's why I really wanted to give broader guidance our full year right now, it's setting up a bit more favorably than probably the street has projected and of course, we will update that but you know like everybody. We pulled any semblance of annual got it last year, but I think the I think the market needs. It.
And.
That's the best information, we have but I'll put a little caution on Q1, because its not just Texas, Oklahoma and New Mexico, and Louisiana, It's been all over the nation.
Quite frankly, a pretty harsh winter weather.
Great.
Great color I appreciate it thank you.
Thank you, Steve and good talking to you.
Alright.
And our next question from Chris Voie Wells Fargo.
Thanks, Good morning, Thanks for taking my questions first.
Maybe on the on the guidance again for 2021, if we take out the backlog driven business and offshore what kind of year over year revenue growth do you expect for for downhole and well site compared to the the overall consolidated guidance.
You know, we're trying to work through that.
You know I would just generally say that well site will be up year over year and.
Maybe I should back up first of all I worry a little bit about given year over year guidance and I tried to put that in my notes remember everybody. Please remember the strength of the first quarter pre pandemic and so your year over year revenue growth may look a bit muted I always look you look at it two ways what year over year.
And what is either for Q annualized our second half annualized and you get a very different answer well side I would say can be up year over year, probably 5% to 10%.
But if I do Q4 annualized is probably up more like 20% if that makes sense.
Downhole technologies is recovering sooner and again, it's a downhole consumable business very much driven by.
The Frac fleet count and so we're expecting higher growth there it could be up roughly 20% year over year, maybe 30% from either for Q annualize those types of numbers.
We are expecting pretty strong growth.
Offshore manufactured products, you're going to have a weaker first half pick up steam on again, we got to get good bookings in Q4, we're bidding a lot in Q1. So we will build backlog in my opinion, but that starts turning to revenues a little bit lighter in the year, we will get some offset from short cycle products.
But it's not going to necessarily rescue the day Ann.
Bring revenues up year over year, it's going to be a little bit of a lag effect, but in totality.
I don't think youre going to have it down materially.
Probably 5% to 10% in revenues.
But again, that's very helpful order that.
In the fourth quarter and I think it's very important from cindy's appointment.
You got to look at that how strong first quarter of 2020 was you have to take that out of your analysis as you annualize either the second third and fourth fourth quarter or the second half of 2020, and that's true for all your activity drivers of average rig count average frac spread count you almost have to pull it out of the mix and pull Q2 out.
But when you collapse.
Rig count in a complete completion count to the degree that we did.
It just has less meaning to look year over year averages.
Right, Okay that makes tons of sense. Thank you and then to follow up maybe touch on price for a little bit does the EBITDA guidance for the year contemplate any pricing improvement in U S land and.
And secondly, do you think that you can get to kind of normalized margins absent price improvement, maybe just with efficiency gains and lower cost of manufacturing for some of your products or do you think you need some price improvement to get back to normalized margins.
Well, we'd certainly I've always focused on that's what we really need in the near term is just higher top line revenue, which is activity based.
It gives us our product lines have always been individually positive margins I don't do work for negative margins, sometimes I think people do.
So give me the activity lever first we've.
We've not predicated on a lot of price improvement and our model I think we're going to get some that may be mix oriented as much as it is and I do expect some improvement from my international contributions, which can help me from a mix perspective.
We've not talked about that that it stands to benefit both our well site services and downhole.
<unk> technologies and again, if we get pricing good and I just want to be clear we are not going to continue to work at margins that don't sustain our cost structure and <unk>.
Certain competitors are starting to announce price increases that's.
That's probably fundamentally better for the market, but it is stunning to me look to continue to look at reports that come out.
With negative EBITDA I mean that has to stop in the service sector in the manufacturing sector and I think we've done well we continue to have cost rationalization, probably some but not to by any means to what we saw last year, we just need to learn to do.
More with less and as a good friend of mine has said you've got a rip the band aid off.
Which I think we've done and we've got to maintain those cost initiatives that we put in place not let them creep back into the system I think if we do all those things you will see a sustained higher margins and again, it's got to have the fundamentals.
The market behind you, but it looks like we do have that.
I'd say as it relates to the U S.
What everybody is trying to you know, we basically nearly hit 13 million barrels a day of production. We're now teetering around 11 million barrels a day, we are 15 year lows on global Capex investment the same is true.
For the U S. So the real question is how much does the rig count and the Frac fleet count need to expand too just to sustain that 11 million barrels a day and I think everybody.
Except and recognizes that the current levels, even though they're up significantly from fourth quarter, they're probably not adequate to sustain that 11 million barrels a day of production. So I do see some upside from here I don't think you'll see I quote unquote peak, it's not factored in our planning until about Q3.
Free.
And then as is typical we may get a little fourth quarter softness both from holiday downtime and budget exhaustion, but that is how we have.
Come up with our plans for 'twenty and 'twenty one.
Alright, Thank you and good luck with the weather.
Thank you Chris.
Once again, if you have a question please press star one.
And we have a question from John Daniel of Daniel Energy Partners.
Hey, good morning, Thanks for putting me in John You bet Oh, one question as bankers come to see you guys on pitch deals. These days what percent of them are sort of traditional oil fast versus alternatives.
We really haven't seen a portfolio of alternative opportunities.
At this stage, they're going to generally be more still.
Conventional or traditional along with our business lines and quite frankly, I just think 'twenty 'twenty was somewhat frozen in terms of.
Opportunities generally for two reasons number one everybody was internally focused on trying to manage their own liquidity and financial results and outlook number too many had too much debt a lot declared bankruptcy quite frankly and went through a restructuring and then to Covid I mean.
We haven't had a lot of investment bankers come by although I welcome them.
With any opportunities that they have so I think 'twenty 'twenty, one will be a different year.
But there's a whole lot of R&D out there right now John but there aren't mature companies on alternative energy right now so I think everybody's in the design phase of these things and so there's just not a whole lot of things I think that will even see this year other than what we can do internally.
Let me ask you this in a world of all else being equal presented company, a which is O F. S. Something you know very well and company B, which is alternative ever.
Everything in Excel says, it's gonna be exactly the same returns.
What do you do.
Or do you stick to what you know now.
I got to be totally honest with you I have always tried to do what we are good at and what we are knowledgeable of and capable of I don't think this will be a pivot.
I won't be long retired before this matures into a broad industry in my opinion because people are forecasting 2040, 2050, it's going to evolve.
We're not just going to jump off a ledge and SIOP was one day conventional energy and tomorrow I'm alternative it will be ever evolving and if nothing else convinces you look that look at Texas will become a case study of <unk>.
Exactly what has happened this week.
America needs affordable reliable energy that can be produced safely. We have failed anybody that when we have people dying of carbon monoxide poisoning in this state because they're too cold somebody needs to step back and look at what can we do as a pack.
<unk> to deliver affordable reliable safe energy to this country and stop the politics are.
We're going to have to accept this as a norm, which in my view is completely unacceptable.
Well said, thank you for your time.
Total on the weather.
Thanks, John.
And there are no more questions.
Alright. Thank you so much James for hosting our call today and to all of you that took the time to dial in today. We appreciate your participating participation today I know it's been tough many of you have connectivity issues no power and no water.
But your continued support of oil states and importantly, this industry is so critical to us I just thank you.
For your continued support let's pray that the 2021 gets better from here I think Lloyd said it best yesterday, when he said I don't think we're in the new year yet we're in the 14th month of 2020. So maybe next week is a better week take care and we'll talk to you soon.
Thank you ladies and gentlemen. This concludes today's conference. Thank you for participating you may now disconnect speakers. Please standby for your post conference.
Sure.