Q2 2021 Franks International NV Earnings Call

Welcome to the Q2.2021 Franks International N V Earnings Conference call. My name is Vanessa and I will be your operator for today's call. At this time all participants are in a listen only mode. Later, we will.

Thank you so much for standing by I will now turn the call over to Melissa Kugel.

Good morning, and welcome to Franks International Conference call to discuss our second quarter results. Our speakers today as shown on slide 2 of the earnings presentation are Mike Kearney, Chairman, President and Chief Executive Officer, and myself from article Senior Vice President and Chief Financial Officer.

The 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.

Before we begin commenting on our second quarter results. There are a few legal items that we would like to cover on slides 3 and for first remarks made 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 todays day 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 in any forward looking statements a more complete discussion of these risks is included in the company's SEC filings, which may be accessed on the SEC's website or on our website at for them.

The 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 in our second quarter 2021 earnings release, I will now turn the call over to Mike, who will give some financial and operational highlights from our second quarter and an update on our merger with X program.

After which I will review the financial performance details, we will not be hosting a question and answer session on today's call. Although we encourage our analysts and investors to please reach out with any follow ups.

Thank you Melissa we appreciate everyone joining us for the call today, turning to slide 5 we delivered solid second quarter results with adjusted EBITDA, increasing 85% sequentially.

Total revenue also improved 14% from the prior quarter of.

Our profitability has continued to improve each quarter since we initiated our profitability improvement plan.

These actions as well as our general business recovery resulted in adjusted EBITDA margins of 12%, which of the highest margins achieved since the beginning of 2016.

Customer activity levels have continued to increase across all of our segments and geographies, starting with revenue growth of 8% sequentially and our tubular running services segment.

In our tubular segment revenue increased 42% sequentially with strong tubular deliveries and higher drilling tool activity, including an international tubular delivery of.

Though we experienced the pullback in our tubular segment in the first quarter, we did see the expected improvements in both domestic and international tubular deliveries in the second quarter and believe the second half of the year will bring more steady progress barring any unplanned delays in deliveries.

In our cementing equipment segment revenue increased 15% sequentially due to improvements in the Gulf of Mexico, and the execution of our international growth strategy, which included additional activity in Asia Pacific and the Caribbean.

We continue to contend with the challenges brought about by COVID-19, as previously communicated we have been able to successfully adapt and deliver our services and of safe manner for our customers and once again, we experienced no disruptions from Covid this past quarter.

We continue to monitor the situation to ensure we are keeping our employees safe, while delivering exemplary service to our customers in spite of our significantly improved operating results. We still are incurring additional costs related to COVID-19 travel protocols and restrictions placed on a rotating crews.

We look forward of the time with Fracs as well as our customers are not bearing the inconveniences and cost brought on by the pandemic.

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

Turning to slide 6 we will now provide some high level thoughts on our geographical performance.

In our Europe, and Africa region, we continue to see higher customer activity levels, especially in offshore West Africa, and the North Sea.

The strong operating momentum we have gained is expected to continue to build in the second half of the year as our customers startup of additional projects.

Improvements in our Middle East and Asia Pacific region in the second quarter were driven by strong growth in Australia, and Malaysia offset by some activity declines in the middle East in the back half of this year, we anticipate moderate growth across the region as new product technologies are introduced and customer activity level.

<unk> build.

In our South America region were seeing improved revenue and profitability related to the new contracts. The commenced during the first quarter. We've had a couple of nice contract wins in this region over the past 2 quarters.

Including our first contract from a major NFC for Franks extreme family of connectors, we anticipate the steady growth in this region as we focus on on additional projects starting up.

Commencing in the second half of this year, our North America offshore region has continued its rebound. We are pleased to report that this region is now seeing pre COVID-19 revenue levels as the consequence of strong focus on all of our product lines and strong customer uptake.

Of our new technologies.

Looking forward, we do see a moderation of activity in the third quarter, and then project the sharp increase in the fourth quarter of the year.

Finally, the U S onshore market activity did increase during the second quarter. However, the pace of that increase has slowed the average U S rig count was 437 deployed rigs as we exited the second 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 can flex our operations up as the market improves.

During the second quarter, we have reopened all previously idled facilities and our U S onshore business remains profitable.

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

On slide 7 we highlight our operational technology and ESG accomplishments during the second quarter, We recently announced the Frank's International was honored with the inaugural 2021, most valuable partner award from the Super Major operating in Guiana.

This award recognizes excellence reliability, adaptability and proactively and truly working as a partner for.

<unk> won this award by providing the highest level of service and safety to effectively lower the overall cost of well ownership for our customer. It is recognition like this that highlights of the core values that we as a company embrace on the day to day basis.

In keeping with these values Franks recently installed the completion string in record time offshore Guyana.

This was achieved by our dedicated and highly trained crew of 100% local Guyanese technicians for.

<unk> dedication to meticulous operational planning and execution led the hours of rig time saves and zero rejected connections showcasing our ability to always go above and beyond what is the ASP.

<unk> also continues to increase our presence in the performance of drilling market the.

New Aero Reamer series tools represent our successful entry into the rooming, while drilling business. These tools of expanded our drilling technologies toolbox and added a suite of solutions focused on wellbore conditioning, and bottom hole Assembly, where mitigation free.

<unk> is working with customers to apply this technology, which will improve drilling performance and limit costly where damage.

<unk> acquisition the Arrow remember series has exceeded its business objectives, and we are excited about the incremental opportunities it brings.

On the ESG Franks continues to look for ways to ensure a cleaner environment and participate in the energy transition.

1 example of our participation is through a recently awarded work scope for a multi sized tubular installation project in the Caribbean.

For a geothermal energy development.

It has been gratifying for Franks to be involved in such a project. We are actively seeking opportunities to play an increasing ROE and the clean energy arena and helping create a sustainable energy future.

We not only seek work that supports renewable energy sources, but are investing in technologies that reduce rig time and improve safety.

Finally, referring to slide 8 I would like to provide an update on our announced merger with extra growth.

Over the last several months integration teams have been making great strides in the identification of synergies and making preparations for day, 1 of the new X growth.

We remain on schedule to close on the third quarter and begin realizing our shared vision of a new global full cycle leader in energy services.

Our integration teams of plans well underway to bring together our 2 companies in a way that will enable us to hit the ground running and take advantage of significant synergies and truly unleash the power of our combined platform.

Working with the X pro team over the past several months has only strengthened my conviction in the opportunities ahead for our combined company. We are confident of the opportunities before us to build substantial value for shareholders employees and customers as the combined company, we will have significant scale and expand.

The portfolio to offer customers cost effective innovative solutions to address their requirements.

At every stage of the wells lifecycle.

By combining X bro, and Franks portfolios and global footprints, we will benefit from significant growth in cost savings opportunities.

As well as opportunities to strengthen our relationships with and better serve our collective blue chip customer base.

With a very robust balance sheet and enhanced cash flow profile, we will have the capacity to continue to invest in our technology platforms. Our next generation of solutions will assist our customers and their energy transition plans to achieve of lower carbon future for.

<unk> Board and management team have been strong believers in the benefits of industry consolidation and I'm proud to say, we moved aggressively to gain scale in the thoughtful way that will benefit our shareholders.

With that I'll now turn the call over to Melissa, Google, who will discuss our second quarter financial results Melissa.

Thank you Mike for <unk>.

Turning to slide 9 during the second quarter revenue increased 14% sequentially showing strong growth, we experienced improvement across all segments and regions during the quarter with increasing activity levels globally and improve the penetration of our newer product lines. The.

The company was able to translate these increases into significantly improved profitability with adjusted EBITDA of $12.4 million, an increase of 85% from the prior quarter. This strong performance is due to Franks historically high operating leverage with additional benefit from our cost improvements made and the adoption of higher.

Margin technology packages.

Turning to slide 10, our tubular running services segment second quarter revenue totaled $71.9 million.

Compared to $66.3 million on the prior quarter.

Higher activity levels across regions drove the sequential improvement with several rig startups that occurred during the first quarter now seeing a full quarter of revenue.

Adjusted EBITDA totaled $9.8 million of 14% of revenue in the second quarter compared to $8.1 million or 12% of revenue in the prior quarter.

We see continued incremental improvement in this segment in the second half of the year.

In our tubular segment as presented on slide 11 second quarter revenue totaled $16.6 million.

Compared to $11.7 million in the prior quarter, increasing 42% sequentially with a couple of significant tubular deliveries occurring during the quarter and over 25% growth in our drilling technologies business, which is seeing revenue expand past pre COVID-19 levels.

Segment, adjusted EBITDA totaled $4.1 million or 25 percentage of revenue in the second quarter compared to $600000 or 5 percentage of revenue in the prior quarter the increase.

And profitability pertained to largely to product mix changes as well as the tubular delivery during the first quarter that carried higher product costs.

Concluding segment of reviews on slide 12, cementing equipment revenue for the second quarter totaled $19.4 million, an increase of 15% compared to $16.9 million in the prior quarter.

Both of our North America offshore and Asia Pacific regions contributed heavily to this increase.

<unk> adjusted EBITDA totaled $4.9 million or 25 per cent of revenue in the second quarter compared to $4.8 million or 28% of revenue in the prior quarter.

The adjusted EBITDA margin in this segment were lower due to a change in product mix from the prior quarter. They continue to exceed those of pre pandemic levels reinforcing efficiency initiatives put into place over the past year we.

We do expect that adjusted EBITDA margins will remain in the mid to high 20 percentage wise for the foreseeable future.

And on top and bottom line growth is expected in the back half of the year.

Focusing on the balance sheet. The company ended the second quarter with over $192 million of cash restricted cash and short term investments with no borrowings outstanding on its credit facility the.

The company had approximately $224 million of total liquidity as of June 30.

Working capital metrics had 2 significant items worth mentioning this quarter for.

Firstly, the company made payments of nearly $10 million for tubular product deliveries during the second quarter.

Additionally for $3 million of merger related expenses for paid during the second quarter.

The company's cash flow metrics would have been significantly higher if not for these exceptional items.

While we expect additional merger and acquisition related payments upon closing of the transaction with X brand. We continue to focus on managing our cash flow through the quarters until the back half of the year, we will provide for stronger results in this regard.

We were able to successfully manage our capital expenditures to $2.2 million for the quarter and continued to justifying and validate returns before making capital purchases, we do still anticipate spending between 20 and $25 million during 2021, 1 capital expenditures.

And looking forward and referenced on slide 13, we believe that activity levels will continue to increase into the second half of 2021 as our customers begin to resume more normalized activity.

We remain confident in our ability to generate further revenue growth and margin expansion in 2021 and into 2022.

We also believe our communicated goals of growing revenues and expanding EBITDA is firmly in hand and will be accretive.

Through this growth, we will maintain our balance sheet and focus on working capital metric improvement.

Along with holding the progress achieved in controlling our capital expenditures with that I will turn the call back over to Mike for a few closing comments.

Thank you Melissa before we close out today's call I would like to reiterate a few key points first we are very excited about our planned combination with X Pro group, which is expected to close by the end of the third quarter. The teams of both respective companies are dedicated to creating more of the strongest oilfield service companies and the industry.

Free and providing some of the most innovative solutions to our customers globally.

Second Frank expects to experience additional improvement in the second half of the year as we maintain a strong line of sight on additional rig deployments and project startups.

Finally, we will continue to focus on operational execution capital discipline and cost reduction efforts, which has enabled us to maintain 1 of the strongest balance sheets in 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.

As we approach the closing of the extra merger I would like to reiterate my continued thanks to all of our employees for their hard work and dedication to the Franks organization, you're unselfish drive to excel even through the difficulties brought about by Covid has enabled our organization to stay focused on providing the AD.

Salute best service quality for our customers and safety for our employees. We look forward to updating you on our progress in the near future as the combined entity. Many thanks to everyone on the call for your continued interest in Franks. We hope you enjoy the rest of your day Goodbye.

Yeah.

Thank you ladies and gentlemen, this concludes our conference. We thank you for participating you may now disconnect.

Okay.

[music].

Sure.

Yes.

[music].

Yes.

[music].

Yes.

[music].