Q1 2021 Franks International NV Earnings Call

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Welcome to the Q1 2021 Franks International N V Earnings Conference call. My name is James and I'll be your operator for today's call. At this time all participants are in a listen only mode and I now like to turn the call over to Melissa Kugel, Let's see you may begin.

Good morning, and welcome to the Franks International Conference call to discuss our first quarter 2021 earnings from our speakers today as shown on slide two of the earnings presentation are Mike Kearney, Chairman, President and Chief Executive Officer, and myself, Melissa <unk>, Senior Vice President and Chief Financial Officer and.

A presentation has been posted on our website that we will refer to throughout this call if you'd like to view. This presentation. Please go to the investors section of our corporate website at Franks International Dot Com on.

On today's call Mike will provide an overview of our first quarter results recent operational and technological achievements and an update on our merger with X program and I.

And will then review the financial performance for the first quarter, we will not be hosting a question and answer session on today's call. Although we encourage our investors to please reach out for further discussion.

Before we begin commenting on our first quarter results. There are a few legal items, we'd like to cover on slides two and three <unk>.

First remarks named by company Representatives may refer to or contain forward looking statements.

Such remarks are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements.

Such statements speak only as of today's date and the company assumes no responsibility to update any forward looking statements as of any future date.

The company has included in its SEC filings cautionary language identifying important factors that could cause actual results to be materially different from those set forth and any forward looking statements.

And more complete discussion of these risks is included and the Companys SEC filings, which may be accessed on the SEC's website or on our website at Brinks International Dot com.

Please note that any non-GAAP financial measures discussed during this call are defined and reconciled to the most directly comparable GAAP financial measure and our first quarter 2021 earnings release.

I will now turn the call over to Mike.

Thank you Melissa we appreciate everyone joining us for the call today.

Turning to slide five we delivered solid first quarter results with adjusted EBITDA, increasing 44% sequentially to $6 $7 million.

Total revenue was largely in line with the prior quarter and our previously disclosed expectations. Our profitability continues to improve from prior quarters attributable to our cost reduction activities undertaken in 2020, as well as improvement and our tubular running services segment.

From an operational perspective, we experienced higher customer activity levels, and all of our international operating basins and accelerated improvement and our U S land business.

The improvement and our tubular running services segment was principally driven by higher activity levels and in particular rigs returning to work and the North Sea and offshore West Africa. We were also aided by the full quarter impact of project startups, and the middle East and accelerated improvement and U S lab.

And with the U S land rig count, increasing and another 25% and the first quarter.

And our tubular segment revenue decreased 26% sequentially. This was largely due to strong tubular deliveries and higher drilling tool activity and the fourth quarter, making for a tough Q1 comparison.

Additionally, some scheduled Q1 deliveries moved from the first quarter to later in the year based on shifting customer schedules.

Though we experienced a pullback in our tubular segment and the first quarter, we are forecasting improvements in both domestic and international tubular deliveries and drilling to activity in the coming quarters.

And our cementing equipment segment revenue increased 9% sequentially due to accelerated improvement and U S land and the execution of our international growth strategy.

We were pleased to see new activity and our Asia Pacific region, and the Caribbean during the first quarter.

Before covering specific geography highlights I would like to provide a brief update on the COVID-19 situation.

We've been able to successfully adapt to delivering our services and our safe manner for our customers and I'm happy to report that we experienced no disruptions from COVID-19 and the first quarter.

Additionally, we believe the backdrop is beginning to shift toward more normal operating conditions and most areas.

However, we are still forced to contend with international travel protocols and restrictions and some customer driven drilling program delays.

Mostly and remote operating regions that require rotating crews.

These travel restrictions and delays have continued to reduce efficiencies and make it more challenging the operating in general.

Even though we think the worst is behind US we remain in active communication with our customers and we will continue to work closely with him as we plan our near term operations.

Turning to slide six looking at our geographical performance, our Europe and Africa region experienced the full quarter impact of rigs returning to work, especially and offshore West Africa, and and the North Sea.

Additionally, we witnessed higher customer activity levels and several core operating countries select project extensions and some notable project startups and the latter half of the first quarter.

This provides strong operating momentum and the second quarter, especially since we expect additional project startups and Q2 and throughout the second half of the year.

Improvements in our Asia Pacific region, and the first quarter were mostly driven by higher customer activity levels and select project startups and the middle East.

Additionally, we commenced operations on our inaugural multi well cementing project and South East Asia and secured our first cementing services to sale with a national oil company from multi well project that will commence and the second quarter.

Looking forward, we expect activity levels to improve as customers deploy additional rigs and we realize the full quarter impact of projects that commenced and the latter part of the first quarter.

And our South America region, we had significant projects startup for a long time major integrated customer operating and offshore, Brazil, which resulted in improved revenue and profitability and the first quarter.

We expect activity levels to remain elevated and this region due to another project startup that is expected to commence early and the second half of 2021.

Our North America offshore region was the most challenged region during the first quarter due to customers' operationally shifting from one rig to another with that said all operators that change rigs during the quarter or and the process of returning to normal operations. Additionally, as I will explain in more detail in a moment.

We secured a multiyear extension with a longtime major integrated customer operating multiple rigs and the Gulf of Mexico.

This extension along with our recent cementing services contract with another valued customer operating and the Caribbean provides excellent operating momentum and the second quarter and the remainder of the year.

And finally U S onshore market activity accelerated throughout the first quarter with the average U S land rig count increasing another 25% sequentially to just over 415 land rigs running as we exited the first quarter.

As we have previously discussed our U S land strategy has been to focus on cost control and appropriately right sizing the business.

To ensure we are well positioned to flex our operations up as the market improves.

During the first quarter, we reopened previously closed facilities and returned our U S onshore business to profitability for the first time and several quarters.

We remain well positioned to expand market share and increased profitability as the market continues to improve.

Highlighting some of our operational and technology accomplishments during the first quarter.

Centrify consolidated control console continues to lead the way with its multi functional ability to control various elements of tubular running equipment from outside the Red zone.

This increases safety for our employees as well as those of our customers and other service providers.

Now fully commercialized the console has successfully completed over 30 jobs and the Gulf of Mexico.

When packaged with our suite of digital and intelligent technology, including ICANN connection analyzed makeup system and the iPhone intelligent autonomous connections.

Forms one of the most robust digital systems and the industry.

This remotely operated suite of intelligent equipment is aimed at reducing hazardous exposures and costly nonproductive time, all without compromising well integrity or efficiency.

Additionally, as previously mentioned and the first quarter, we further solidified our position and the Gulf of Mexico with a major integrated customer by executing a three year contract extension with potential multi year extensions. This contract win was based on our ability to quickly deploy this capri.

Hence <unk> digital package across their operational footprint.

And anticipation of the upcoming storm season, our cementing equipment segment released the industry's first 22 inch from mechanically set packer as part of our root and line of vs. Three rated barrier systems, which can withstand the toughest downhole tool conditions.

The group Packer and provides a resettable isolation barrier, whereas the conventional and flexible Packer technology of competitors is not able to meet the same reliability standards.

In addition, our recently commercialized Aero rumors are rolling out across our global footprint, most notably and our lower 48 U S land business, Alaska and onshore Canada.

This performance drilling solution adds to our robust suite of drilling technologies and trusted by customers operating and the most challenging environments.

Finally, I'd like to provide a brief update on our recently announced merger with X Pro group.

The merger is on track to close during the third quarter.

As we discussed at the merger announcement, both companies are laser focused on a smooth path to closing and successful integration.

I am pleased to announce that several elements of the integration planning process have begun as we await shareholder and regulatory approvals on.

A world class consulting firm has been engaged to assist and integration and synergy capture.

Together both companies have also established and integration management office with executives and management teams from Franks and ex growth.

Both teams are very excited about creating one of the largest global providers of oilfield services with a culture of outstanding customer service and safety.

As we work towards closing this transaction Franks will remain focused on providing its historically excellent service quality and safety to our customers as we continue to position our company for the next phase of growth and value creation.

With that I'll now turn the call over to Melissa <unk>, who will discuss our first quarter financial results and Melissa.

Thank you Mike.

Turning to slide seven revenue decreased one 6% sequentially in line with our previously disclosed expectation, we experienced sequential improvement and both our tubular running services and from then.

And equipment segments, this quarter and relatively lower performance and our tubular segment and some of our pipe deliveries have been pulled forward into the fourth quarter of 2020.

During the first quarter the company delivered adjusted EBITDA of $6 $7 million, increasing just over 44% sequentially.

Note, our first quarter adjusted EBITDA margin was 7%. This was an improvement from the pre COVID-19 first quarter of 2020, primarily due to our cost reduction activities, which demonstrate our continued commitment to managing our profitability. Additionally.

Additionally, the first quarter benefited from higher customer activity levels, and almost all of our international operating basis.

Particularly those with higher operating margins as well as and accelerated improvement and our U S land business that positively affected results and both our Trs and cementing equipment segment.

Turning to slide eight our tubular running services segment first quarter revenue totaled $66 3 million.

Compared to $65 million and the prior quarter.

Activity levels and most of our international operating regions drove this sequential improvement, which was largely offset by reduced activity levels and our North America offshore region due to customer rate changes during the quarter.

<unk> adjusted EBITDA totaled $8 1 million or 12% of revenue and the first quarter compared to $3 8 million or 6% of revenue and the prior quarter.

The sequential increase and adjusted EBITDA was mostly driven by an increase in customer activity levels and some of our higher margin operating basin.

And our <unk> segment as presented on slide nine first quarter revenue totaled $11 7 million compared.

Compared to $15 9 million and the prior quarter, we have long mentioned and more volatile performance of this segment the decrease and the first quarter was mostly due to a couple of large tubular deliveries that had been pulled forward into the fourth quarter of 2020, along with a positive activity for certain drill tool jobs internationally.

Segment, adjusted EBITDA totaled $600000 or 5% of revenue and the first quarter compared to $3 9 million and the prior quarter.

The decrease in profitability, mostly pertain to product mix changes and higher product costs for a select customer delivery during the first quarter.

Concluding the segments on slide 10, cementing equipment segment revenue for the first quarter totaled $16 9 million and increase of 9% compared to $15 5 million and the prior quarter.

The sequential increase was driven by higher activity levels and U S land and increased activity and both our North America offshore and Asia Pacific regions.

And adjusted EBITDA totaled $4 $8 million or 28% of revenue and the first quarter compared to $4 million or 26 percentage of revenue and the prior quarter, resulting in an incremental EBITDA margin of approximately 57%.

Adjusted EBITDA margins and this segment exceed those of pre pandemic levels and we feel continue to reinforce our efficiency initiatives put into place over the past year.

Focusing on the balance sheet. The company ended the first quarter with just over $191 million of cash and no borrowings outstanding on its credit facility, resulting in approximately $215 million of total liquidity.

During the quarter the company's cash balance was reduced by various tax payments that are typical during the first quarter increased compensation and inventory costs as well as slower customer collections, which has not been uncommon for us to see at the beginning of the new year.

We remain focused on managing our cash flows through the quarters and fill the back half of the year will provide for much stronger results in this regard.

We were able to successfully manage our capital expenditures to $2 $3 million for the quarter and continue to challenge each incremental capital dollar to ensure returns justify such outlays.

And looking forward and referenced on slide 11, we believe that activity levels will continue to increase as we are seeing additional rig deployments and project startups already during the second quarter and we expect them to continue into the second half of 2021 as our customers begin to resume more normalized activities.

We are already improving profitability beyond that which was achieved during pre pandemic levels and we remain confident and our ability to generate further revenue growth and margin expansion in 2021 and.

This will be on the back of improved customer activity and holding the cost reductions that we implemented in 2020.

Additionally, we will maintain our strong balance sheet and aggressively focus on improving working capital metrics, along with the progress achieved and controlling our capital expenditures with that I will turn the call back over to Mike for a few closing comments.

Thank you Melissa before.

Before we close out today's call I would like to reiterate a few key points.

First we are excited about our planned combination with extra group, which is expected to close by the end of the third quarter.

The teams of both respective companies remain excited and dedicated to creating one of the strongest oilfield services companies and the industry.

Providing some of the most innovative solutions to our customers globally.

Second <unk> expects to experience material improvement and the second quarter as we maintain a strong line of sight on additional rig deployments and project startups and the second quarter as well as throughout the second half of 2021.

Finally, we will continue to focus on operational execution capital discipline and cost reduction efforts, which has enabled us to maintain one of the strongest balance sheets and the oilfield services space.

This enviable position puts the new combined company on solid footing as it progresses through the integration process and positions itself for future growth and expansion.

In closing I would like to reiterate my continued thanks to all of our employees for their hard work and dedication to the Franks organization.

And as we move closer to finalizing the merger with X Pro group It will be the hard work and dedication of our employees that enable our organization to stay focused on providing the absolute best service quality and safety for our customers we.

We look forward to updating you on our progress and the near future as a combined entity. Many thanks to everyone on the call for your continued interest and Franks. We hope you enjoy the rest of your day Goodbye.

Thank you ladies and gentlemen. This concludes today's conference. Thank you for participating you may now disconnect.