Oil States International Inc (OIS) 2015 Q4 法說會逐字稿

Welcome to the Oil States International fourth-quarter 2015 earnings conference call. My name is Hilda and I will be your operator for today.

(Operator Instructions)

Please note that this conference is being recorded.

I will now turn the call over to Ms. Patricia Gil, Investor Relations. Ms. Gill, you may begin.

Thank you Hilda and welcome to Oil States' fourth-quarter 2015 earnings conference call. Our call today will be led by Cindy Taylor, Oil States' President and Chief Executive Officer; Lloyd Hajdik Senior Vice President and Chief Financial Officer; and we are also joined by Chris Cragg, Senior Vice President, Operations.

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 are relying on the Safe Harbor protection afforded by Federal law. Any such remarks should be weighed in the context of many factors that affect our business including those risks disclosed in our form 10-K and other SEC filings.

I will now turn the call over to Cindy.

Think you, Patricia. Good morning to all of you and thanks for joining us today for our earnings conference call. We reported fourth-quarter 2015 earnings per share of $0.13 after adjusting for significant items highlighted in our press release.

This severe industry downturn has had a pronounced negative effect on our Well Site Services segment given rig count declines of 70% since activity peaked in 2014. Our customers are under significant pressure with commodity prices at levels that do not currently support profitable operations, forcing many to cease drilling and completion operations in the fourth quarter altogether. The price of WTI crude oil averaged $42.02 a barrel in the fourth quarter, down 10% sequentially and the average US rig count deteriorated an additional 13%.

Our Well Site Services segment experienced a 15% decline in Completion Services dropped tickets and average utilization for our land rig fell to 22%. In our Offshore Products segment, revenues held up fairly will only declining 3% sequentially. We recognized a new record-average EBITDA margin of 30% for the quarter exceeding the high end of our guidance range.

Our book-to-bill ratio for the fourth quarter totaled 0.7 times bringing us to a full-year book-to-bill ratio of 0.8 times which, in the current environment, is considered quite an achievement. Despite reaching our book-to-bill expectations for the year, backlog declined 14% sequentially to total $340 million at December 31, 2015, as customers continued to preserve liquidity and defer major project sanctioning.

At this time Lloyd, will take you through more details of our consolidated results and provide highlights of our financial position. I will follow with more detail by segment and provide additional comments on our market outlook.

Thanks, Cindy. During the fourth quarter, we generated revenues of $234 million and reported adjusted net income of $6.4 million or $0.13 per diluted share. Our fourth quarter adjusted EPS excluded pretax charges of $1.9 million for severance and downsizing costs, a pretax charge of $3.4 million for a lease-termination provision and $1.8 million of deferred-tax asset adjustment. EBITDA, adjusted for severance cost, totaled $42.5 million during the quarter.

Our consolidated fourth-quarter adjusted EBITDA margin of 18.1% was an improvement over the 15.3% adjusted EBITDA margin we achieved in the third quarter of 2015. We continue to focus on our balance sheet and our liquidity. We ended the fourth quarter with total liquidity of $475 million which is comprised of $439 million available under our revolving credit facility plus cash on hand of $36 million.

Our liquidity position is likely to decline throughout 2016 from the December 31, level as a result of lower expected levels of EBITDA on a trailing 12 months, or TTM basis, which is expected to restrict our full access to amounts available under our revolving credit facility. Our financial position remains healthy with our gross and net debt levels, at December 31, totaling $129 million and $93 million, respectively.

In the current operating environment, where preserving liquidity is critical for long-term success, we generated $3 million of cash flow from operations and utilized cash from our balance sheet to pay down $31 million of debt. Our net debt-to-book capitalization ratio was 6.9% at December 31, and our leverage ratio, using TTM-adjusted EBITDA, was 0.6 times well below our maximum level of 3.25 times provided for in our credit agreement. Further, we have no significant debt maturities until 2019 when our credit agreement is set to mature.

During the quarter, we invested $22 million in capital expenditures. Capital spending during the quarter related to ongoing facility expansion in the Offshore Products segment, primarily in the UK, along with maintenance CapEx for our completion services equipment.

For the full-year 2016, we expect to spend approximately $50 million to $55 million in capital expenditures. However, our level of planned CapEx is highly variable and can be adjusted upwards or downwards depending on the prevailing market conditions.

In terms of our first quarter 2016 consolidated guidance, we expect depreciation and amortization expense to total $30.8 million, net-interest expense to total $1.5 million and corporate cost to total $12.3 million. Our 2016 consolidated effective tax rate is expected to average 38% for the full year.

And at this time, I'd like to turn the call back over to Cindy who will take you through our business segments.

Thanks, Lloyd. In our Offshore Products segment, we generated revenues of $170 million during the fourth quarter of 2015, down 3% sequentially. Fourth-quarter EBITDA totaled $51 million for the segment compared to $40 million reported in the third quarter of 2015. Our EBITDA margin percentage exceeded our guidance and averaged a record 30% for the current quarter.

We experienced somewhat of a perfect storm during the quarter with strong project execution on several jobs completed during the quarter combined with favorable percentage of completion project adjustments. We have also been very attentive to our overall cost structure. Orders booked for the quarter totaled $121 million in backlog, at December 31, with $340 million, net of $3 million of backlog cancellations.

Our fourth-quarter book-to-bill ratio was 0.7 times, bringing our full-year 2015 gross book-to-bill ratio to 0.8 times in line with our expectations for the year. Again, against the economic backdrop in which we are operating, we were quite pleased with our 2015 bookings. Major backlog additions during the fourth quarter included orders for pipeline and connected products destined for various global markets and replacement equipment on a Gulf of Mexico production facility.

As we progress into the first quarter of 2016, we believe that revenue in our Offshore Products segment will decline with lower backlog levels and range between $140 million and $150 million as we expect further reductions in revenues from our shorter cycle and consumable products and services as our customers remained acutely focused on cash flow preservation. EBITDA margin guidance for the first quarter is forecasted to range between 19% and 21%.

In our Well Site Services segment, results were generally in line with our projections and the guidance ranges that we provided in connection with our third-quarter 2015 earnings conference call. Our fourth quarter results continued to be impacted by the extremely depressed levels of activity in the US land drilling and completions market, with several operators in the US suspending drilling and completion operations altogether during the quarter and into 2016.

In the fourth quarter, our Well Site Services segment revenues totaled $65 million, which represented a 22% sequential decrease caused by a 15% decrease in the number of completion services jobs performed, a 5% decrease in revenue per completion services ticket and low utilization of our land drilling rigs. EBITDA decreased 90% sequentially to total just over $1 million, but did remain positive. Excluding the severance we paid during the quarter and other costs we incurred to right size the segment, our EBITDA margins would have been 3.4%.

Land-rig utilization persisted at low levels in the fourth quarter averaging 22% and has essentially collapsed in the first quarter of 2016. Activity remains low in the vertical rig market and we currently have only two rigs out of our total fleet of 34 land drilling rigs working today.

We are now midway through the first quarter and the outlook surrounding land-based North American drilling and completion activities still remains at terribly depressed levels. Customers are slashing their capital spending budgets for 2016 for the second consecutive year. With two successive years of capital expenditure decline, which has not occurred since the 1986, 1987 downturn, we're forecasting a very weak first half of 2016 in our North American land-based operations.

Given all of these variables, it is extremely challenging to forecast activity and results for our Well Site Services segment. Visibility is muted at best, but we remain confident in our ability to weather this cycle. We estimate that first-quarter revenues for our Well Site Services segment will again decline and range between $45 million and $50 million with EBITDA at or slightly below breakeven.

In conclusion, 2016 is expected to be another very challenging year for both North American onshore service markets that we support and the offshore deepwater capital equipment industries, generally. We are facing another year of customer budget reductions coupled with already depressed levels of drilling and completion activity and lower backlog levels resulting from major project deferrals and selected cancellations.

Although visibility in this market is limited, Oil States remain in an enviable position with a strong balance sheet characterized by low levels of leverage and $475 million of currently available liquidity at the end of the fourth quarter. We remain committed to optimizing our liquidity, maintaining very low levels of debt and managing operational efficiencies while carefully monitoring our customers' credit quality. The actions that we have taken in the past quarters and continue to proactively pursue will put us in a better position once the industry recovery begins.

That completes our prepared comments. Hilda, would you open the call up for questions and answers at this time please?

Thank you. We will now begin the question-and-answer session.

(Operator Instructions)

Marshall Adkins from Raymond James.

Hi, Marshall.

Hi, Cindy. First of all I want to thank you for your very bright uplifting comments there.

I get about 50 every morning. How about you?

I hear you. It's pretty ugly out there. So a quick question on the book-to-bill for Offshore Products. It seems like I ask this every time, but most of the people that we would call your peers in that arena are putting up book-to-bills of like one-half or one-third of you. Help us to understand why that part of your business seems to be holding up a lot better than everyone else out there.

Again, I think we've commented before, we've got a little more of a diversified product offering. Some of which are just tied to reaching development drilling activity, our large OD conductor casing connectors are an example of that.

We've had some good additions in our subsea side on the subsea pipeline side. A lot of that has come from Brazil albeit a lot of that floating activity has slowed, as an example.

But I think the exposure to production infrastructure, in addition to that, clearly has helped our backlog overall. And those have been the drivers in terms of what even impacted our fourth quarter.

There haven't been a lot of FIDs that are out there. However, we do generally have some content on most. Appomattox is an example of one. It's kind of a combination and we did acknowledge that part of our bookings in Q4 related to Gulf of Mexico replacement equipment as well.

I know the challenge in the offshore arena, in general, is to get costs down, very different dynamic cost drivers there than on land. How far along are we in that process? Do you have any sense of how well the offshore arena is going to be able to get costs down to compete with US land?

I would say every basin and every operator has a different experience but without doubt, a lot of the major initial declines have come from reductions in deepwater rig rates and vessel rates. But, in addition to that, whether you are looking at existing feed type work and engineering work, there is a concentrated effort to getting those costs down, as well.

But we are also seeing, of course, some reengineering work and redesigns of fields, all of which are bringing that down. I don't think I could generalize. I've seen commentaries, that on certain fields, certain operators going from breakeven economics around 70 down to as low as 40.

But it's hard to generalize, but we do know that those costs are coming down across the board, and deepwater is always a bit of a conundrum in the sense that there is work to be done, there are high profile projects that are still out there. They should be, if you believe in the industry at all, they are going to be economic over the long-term.

It really comes down to what is the cash flow profile of the operator, number one and their partners, number two, all of which, as you can expect, have caused significant delays in getting some of these FID done.

It's much different than land just because the timing of bringing on those reserves, but I do absolutely believe that substantial costs have been reduced, at this point in time, and efficiency gained. And again, not all of that has come out of the supply chain. Part of that is just going back to more standard equipment, standard approaches, engineering designs that have been in the field for a while.

Right. Thank you for the guidance. That's helpful. I appreciate it guys.

Thank you.

Jim Wicklund from Credit Suisse.

Good morning.

Hi Jim.

Congratulations on this and for Mark Papa joining your Board. Cindy, you mentioned when you were talking liquidity that you have a current availability under your revolver. Can you talk to us about what you expect and horror stories about banks dealing with companies that didn't have positive EBITDA right now. Can you give us some color on your qualification there on liquidity?

Yes, I will. And to be very, very clear, this is all we are talking about is availability under the credit facility. We are way, way beneath our covenant levels on our two metrics, one of which is the debt to EBITDA metric. There is a limit there of 3.25. I'm going to have Lloyd give you the specifics on where we are at the end of the year in terms of that and then the interest-coverage ratio that we are not even close to.

That's correct.

But being intellectually honest, everything that 3.25 leverage is based on, your TTM EBITDA. And if you look at our quarterly performance, Q1 2015 to Q4 2015 as well is going into 2016, obviously, there is a downward slope there, just, I want everybody to think about when you think about opportunities to deploy cash in 2016, being fully transparent, even though we had that availability under the facility plus cash in the order of magnitude of $475 million, that does erode somewhat.

It's again, opportunities do deploy cash. We, at this point, have no concerns about any type of credit metric whatsoever under our facility. But I want Lloyd to give you some specific data points on that.

That's exactly right, thanks Cindy. Jim, our EBITDA levels moved down during 2016. The maximum leverage that we have is that assumed-level EBITDA of 3.25 times. So that's max leverage and we adjust that for standby letters of credit, that we assume in our model, and the expected level of debt outstanding at December 31. Again, I think our lowest point liquidity, as you can appreciate, would be TTM December 31, 2016. So it's not Q1, not Q2, it's really Q4 of 2016. And then we just add back--.

That's great That's very helpful. I appreciate it. My follow-up, if I could, you note on the press release excellent execution and catch up on the percentage of completion contract. Of course, that just means that your historical earnings were a bit understated the way the percentage of completion works, I guess. But can you tell us how big that was?

I know you had record EBITDA in the segment. Can you tell us how much of it was related to this percentage of completion contract and how much of it is more short-cycle work?

I will ask you not to give that color because what we had is multiple projects underway throughout the year that some of these are our higher-margin projects to start with. Percentage of completion means you are recognizing revenue and profits based on your best estimates as you progress through that project, many of which are 12 to 18 months in duration.

Several of those came to closure in the fourth quarter and, when we did the final analysis, we had some better performance which is really a -- these are not things that should've been booked in 2014 booked in 2015. I want to be very clear about that, but what you have was a previously bid backlog at good margins. It was a high-quality mix for us.

We have been very proactive reducing headcounts and other costs, aggressively working with our suppliers on pricing and, obviously, executing well. Just through the progression of that job, the closure led to some better results. I am not going to discount the fact that we made 30% EBITDA margins for this fantastic performance.

I call it kind of a perfect storm of things coming together, prospectively. I'm actually pleased that in the near-term we are going to continue to guide to our historical margins of 19% to 21%, particularly given the backlog erosion that we and everybody else in this industry have witnessed, but it's in the context of us adjusting our cost as we progress through this cycle we are in.

Okay, thank you very much. Impressive numbers, thank you Cindy.

Blake Hutchinson from Howard Weil.

Good morning.

Hey, how are you.

Very well, very well. Just a question regarding how offshore projects full year might tend to unfold here at a bit lower backlog levels than we have entered the last several years. Typically, you've pointed towards a burn of backlog or a throughput of 90% of what we see as stated backlog and maybe we just gross up for the services and consumable work.

Is there any impact, especially the way you have executed, it looks like you've been turning faster in the back half of the year? Should we consider that maybe order flow bid in the first quarter or the full first half of the year actually moves a little more quickly or is that really more contingent upon customer demands for timing of delivery?

I want to be sure I address the question the way that you ask it, but we believe our backlog turn into revenues is comparable to what it's been in the past in the range of that 80% of backlog turning into sales in the forward 12 months plus or minus a little bit there.

From that, what we have, are ongoing service work which we think is going to be fairly resilient from exit rate on 2015 in our short-cycle products that typically don't carry a lot of backlog. So, if I'm addressing your question in the way you ask it, I think we will be a little more weighted at these lower revenue levels to service the short-cycle work than backlog work, but I still caveat.

You can't just do the math and add in service and short cycle and say you've got it in the bag. We've got to get some bookings throughout the year to sustain the estimates that are out there and we are well aware of that.

But that's a bigger picture and you've seen that in the chart that we always put in our investor relations depending on the mix of work that you have that service and short-cycle work can ebb and flow as a percentage of the total, just depending on where you are in the cycle.

Sure and I guess the heart of my question was, given the lower level of backlog and the fact that it looks like you are executing at a greater pace, at least in the back half of the year, would that tend to suggest that orders that do come in in Q1, and maybe even Q2, that in the last several years due to just where you were capacity-wise would actually make it through in 2016 -- actually make it into 2016 or just not think about that any differently really?

Yes, I think my comments are in line with that. We are probably going to see more repair, replacement work, shorter-cycle work, in my mind, anyway. We've got a whole list of the larger-project FIDs, but it's kind of hard for me to see right now that much of those come into backlog in the first half of the year. And so I think that's going to be the scenario that we see.

Okay, excellent and just to be clear on the benefits to Offshore product margin this quarter, was the UK-facility transfer, specifically, positive? I was under the impression that might be more later-year phenomenon if there was a benefit to margin.

It's actually a 20, we're in fact, we are just now working through our final certificate of occupancy. With these significant projects that we had ongoing and underway even throughout the fourth quarter, it would have been very disruptive to move while these projects were going on. So that move is actually going to occur this year. So you are right.

Okay great and just a technical one, so we are keeping track correctly. I guess my impression was that, in terms of percentage of the Offshore Products segment that was under POC accounting, it was something more in the 10% to 20% range, is that a misnomer?

No. Offshore projects was about 35% POC.

Okay, excellent. Great, this is just what I was looking for. Thanks.

Thanks, Blake.

George O'Mary from Tudor, Pickering, Holt.

Morning guys.

Good morning.

Wanted to get a little color on the revenue mix in backlog for the Offshore Products business. Any color you can provide on how that might have shifted as we progressed through 2015 with respect what geographies comprise that backlog today.

Yes. I think I can do that. We are not terribly exposed to drilling-related equipment. And so if I look at that, it's drawn to plus or minus 5% of backlog. That is probably not a surprise to anybody on the phone. More SCR TLT products or about 16% pipeline products. 26% are standard connectors in the range of 12. And then we have all others in that backlog.

So again, I have been saying this all along, we are going to see more production infrastructure subsea related type, both revenue generation and backlog. We're not as heavily exposed to drilling-rig equipment, even previously, certainly not now, with the state of the industry the way it is. But then we have other kind of fixed platform, frames, winches et cetera, that kind of balance out and a little bit, we've always had a little bit of military exposure as well.

That's very helpful. Could you frame the outlook? Maybe sticking with that Offshore Products business as we look into 2016 comparing the geographic, which regions are really driving the revenue in 2016 versus which regions drove the revenue in 2014 and 2015. Is there a shift going on at all?

Not really. As you think about recent project FIDs in the last two years. And, again, that's in our investor presentation, major awards for the last 18 or 24 months. But what you will see is, there is Gulf of Mexico exposure, Brazil exposure, those are probably the larger two, but then we also have some North Sea, Southeast Asia, West Africa as well. I won't say it's Dallas, because if you just look at the major FIDs that are out, we've had significant pipeline awards over the past 12 to 18 months out of Brazil that are in process and then Gulf of Mexico projects, many of which you are familiar with.

I would say, that what we are seeing right now is, what are active bids and it's a bit of a question mark whether these are ongoing or not. Some of which we have been working on for 12 to 18 months.

But we had some content, probably, maybe a little more visible actually in Southeast Asia, Australia and to, plus or minus, I will put a question mark around Brazil with a little bit ongoing in the Gulf of Mexico, but we always see geographic shifts there. But that is more what we are seeing today.

All right, great. Thanks guys, that is it for me.

Thank you.

Thanks, George.

Chase Mulvehill from SunTrust.

Hey, good morning or early afternoon.

Yes.

I guess I'm going to stay on Offshore Products for a minute. So if you think about and assume that Q4 margins were clean margins were 23% to 24% which seems to be the historical run rate over the past four or five quarters, this assumes about $10 million to $13 million of percentage of completion benefits in the fourth quarter.

And if you spread that over four or five quarters, that implies that margins were understated by, call it 100 to 150 bits over the past few quarters. So, help me, that assumes 24% -ish margins for Offshore Products over the past four or five quarters, if we adjust for that.

Let's get off this commentary at this point. We don't feel like there is anything that has not been recognized in prior quarters and I don't know what numbers you are putting out there, they are not ours. And so maybe why don't you address your comments more generally, for me.

So I guess, then, I'm trying to understand, because when you continue to guide to 19% to 21% margins and so I'm trying to understand, you continue to beat that. So maybe help us understand on the margin side what drives the beat every quarter.

I would love to tell you we could do that every quarter, but I tried to explain to you we've got a strong backlog, we had a good mix. These are very complicated multi-quarter type projects that I would say that that's easy, everybody could do it. But we have been managing our headcount throughout all of this as having to adjust it with movements in our backlog on a facility-by-facility basis.

We, like everybody else, are working with our customers trying to gain efficiencies. We are shifting things that we outsourced previously to bring those in house. There is no one silver bullet here that I can answer to that.

We've got less rejects in terms of welding success. There are a lot of projects. You get close to done and you go through all of your acceptance steps and you have issues. We had fewer issues here.

So again these are highly, highly complex multi-million dollar projects that span long periods of time, that we are constantly working on to enhance efficiency throughout all of our operations. So, I really, that's the best answer that I can give you.

And as you recognize profitability, your initial estimates as you progress are based on pretty much bid margins until you are able to realize true savings in either your facility work, your headcount, your labor costs, the materials as they come in, et cetera.

Okay and on the materials side, remind us how much of Cost Of Goods Sold is related to materials for Offshore Products?

It varies depending on what type of project I'm talking about, whether it is a PLP project, a subsea project or repair, but if you average that, it is plus or minus 50%.

Okay. All right. Any help just with modeling on 2015 for the book-and-turn business, how much that was down? And the aftermarket business, how much that was down in 2015 as well?

Yes, I'm afraid I actually don't have that at my fingertips, so we disclosed service cost. And so I think you will be able to pick that up. But Lloyd is flipping pages. If he can give you something quickly, he will.

Okay, while he's flipping, I'll ask one more real fast on the completion services. How much, in the fourth quarter, how much of your costs in Completion Services was fixed versus variable and, if we think about in this fixed portion as we move forward, how much can you continue to take that down?

I would really -- we've got that the 10-K is being filed, I think, tomorrow, so very quickly. It is what you call fixed in this environment, I will be honest with you, but I took a good look at SG&A as we will call it semi-fixed, but the reality is, as Draconian as this market is, there's almost nothing that is fixed anymore.

But, historically, we have generally said that for this operation, as a whole, about 60% to 65% is people. It is labor in the field. We are a service operation, we're the guys that are in the field running the equipment and supporting our customers everyday. So I think that's a good estimate for you to think about.

Okay, all right. Lloyd, did you have a chance to look at book-and-turn?

I am right now. It is somewhere between 30% and 40%.

Okay. Both of them are down 30% to 40%?

Yes. Service is less than that, but your book-in-turn, like your elastomer products, your valve products, the service-cycle product business is 30% to 40%.

Okay. Thank you.

Thank you.

John Daniel from Simmons & Company.

Good morning.

Good morning John.

No modeling questions from me. Just a couple big picture ones. Cindy, as you think about potential acquisitions, which of the segments are you being shown or do think you are going to see the most opportunity?

And then how much of your time is spent simply managing the downturn right now versus trying to step back and think strategically about growth when the cycle does turn?

Those are, as always, John, fabulous questions. So we are and even me, specifically, I will just call it beating the bushes because I think these are the kind of cycles that do bring opportunity to better the Company and get some sustained growth when high periods sometimes don't offer those possibilities.

I want to put this conversation in three buckets. One is the smaller tuck-in acquisitions for cash and we are seeing both Completion Services and Offshore Products in that vein. I will say that most of the North American land-based things that we are seeing are challenged. They're really, really challenged and they typically are carrying debt and they've got negative EBITDA.

So, very, very hard optically to wade through those and get curtailed and enthusiastic about getting them done, quite frankly. And so, that is my perspective, anyway. I think everybody is maybe a little bit different. But that's what we've seen.

In Offshore Products, much like our us, performance has held up, particularly if you've got a global platform, operations have held up reasonably well if you had a good backlog. So we see opportunities there, we are having some discussions that nobody feels compelled to do anything for cash at a lower point in the market. And so again, I just say I like to fish. A lot of hooks in the water.

I don't know where that goes but the other two buckets we are very focused on working with some of the private equity players who really not seeing any near-term liquidity options to them and certainly don't really want it for cash, but I think there's the possibility where you might have a sponsored company merge with a public company, for example, get access to a high quality stock.

We're also looking at bigger stock for stock combinations that could make sense in this market. But it's all with a caveat that. We celebrated our 15th year as a public company last week, and my Offshore Products business has been here for over 70 years.

And I only say that, we've got good staying power. We've got a very strong balance sheet. We are in an enviable position in a lot of respects with our global platform and our technology and so we're not going to do anything to damage that profile.

What that means is that, if you look at the type of combinations we are talking about, we want high quality, high technology, low leverage companies that may or may not be interested in that. So even though I think most people on this call would be saying where is the M&A? Why aren't we seeing it? I think I've annunciated a lot of reasons for that.

Your latter question, which was a fantastic one, you know Doug, he always said he worked ten times as hard in a bad market as you do in a good market when you get all the glory and I think that's absolutely true. But, we are absolutely trying to be very, very strategic right now, because these types of cycles do create opportunities.

Okay, thank you for that color. Just one final one for me and it goes back to a comment you made in your answer to me but, given the strength of the balance sheet, how do you juggle making potentially further significant cost cuts, if you will, making deeper cuts in the muscle versus leveraging that balance sheet to keep you better prepared, maybe eat more costs, just keep you better prepared versus peers for when the market recovers?

That's the hardest thing about what we're going through now and have been going through for 15 months and I will just generally say it is the overall lack of visibility. I think everybody in this industry, and on this call, knows that we are sustainably at non-sustainable levels in crude-oil pricing right now. And that doesn't mean that the ship is changing though and so what we need, and I keep thinking early in the third quarter things will begin to some semblance of a recovery here, it only makes common sense that they will.

That gives you more confidence in saying I'm going to take the actions you talk about. It's hard not to be responsive to my Well Site Services operations going to essentially just above breakeven in Q4 and, likely, at or below breakeven as I guided you to in Q1 and not be responsive to that; we have to be.

But that your point is, how much further do go and have you really hurt the operation's ability to pick up because if we don't think there is a pickup coming at some point, we ought to all be doing something else. And I've been in this industry all my working life and I'm still optimistic and positive about it, but we have to be prudent in the meantime. And letting a business go to negative cash flow and EBITDA for any extended period, by leveraging to do that does not feel right to me.

Okay. Fair enough, thank you for your time.

Thanks, John.

Kurt Hallead had from RBC Capital Markets.

Hi, good morning. How is everybody? Hanging in there, right?

Good. You?

Indeed, indeed, no doubt. I had just a couple of follow-ups. You guys covered a lot of territory in the Q&A and on the call and everything else. Just curious I know you are thinking about the CapEx progression for the year and how you are going to- delineating between continued growth opportunities, if there are some, vis-a-vis the existing maintenance.

We guided to a range of CapEx of $50 million to $55 million. And, obviously, that's fairly-- I will call it low levels of maintenance CapEx in our Well Site Services segment when we've got backed equipment all over the place, all we need to do is maintain the equipment that we are running in the field with very little, virtually none, likely, dedicated to drilling operations with the current outlook there.

Offshore Products will still carry what I will call a normal average in their plans in the $25 million maybe $30 million range, but even in there we have some expansion in our CapEx that we will evaluate as we move forward. So it's only, I'm going to say, maybe $15 million in Offshore Products that would be deemed expansionary at this point time. So everything else think along the lines of it being maintenance capital.

Got it. That's helpful. And I know you went through great pains to explain how resilient your Offshore Products business is relative to everything that we've heard about the Offshore business. Just curious, though, if you would be willing to throw out a soft booking target for Offshore Products for the year.

Not ready to for the year. What I will tell you is I think the first half is challenged and likely to be lower than the second half. But there have been so many projects that have shifted to the right that we just don't, I don't think anybody in the industry has good visibility about when they are going to actually attain FID. Not today, anyway.

Fair enough. Appreciate it. Thank you.

Thanks Kurt.

Darren Affitje from KLR Group.

Hey, thank you. I wanted to ask, on the Completion Services business, you guys put a pretty good chart in all of your decks on what's in the offering and what products are involved. I wanted hopefully get a little better sense of what's happening incrementally now with pricing and mix amongst products, just to get a sense of how that business is affected. Clearly, margins have come in and I'm just trying to get a sense of, if we've gone bottomed on that on the margin side or what are the moving parts to really be thinking about?

I think that, I made in my comments, the rig count in the US is down 70% from when it peaked in the third quarter of 2014. And I don't think there is a massive change in mix of assets. Chris has always said the work that is getting done in the field is typically high-end work. Multi-well pads, tons and tons of stages.

I heard one the other day in the Northeast that is mind-boggling. A three-well pad that had over, I think, 347 stages completed. So it is our type of equipment that is desired, but it's in the environment of a 70% reduction in activity coupled with massive pricing pressure. So that's what we are dealing with.

But in terms of is there any product line being abandoned? No, not at all, but there are certain of them, we like to weigh ourselves towards a more proprietary product line. But even they are subject to huge activity declines and pricing pressures.

There have been different things that have maybe been more impacted than others. And some of the more competitive product lines have had greater pricing pressure than others. So I don't know if that is responsive to your question, but with this huge umbrella of massive activity decline, this is what happens. I don't care how good you are.

Sure Cindy, I appreciate that. What I'm trying to understand is, are we done with the pricing pressure given where margins have arrived at? Everybody understands that everybody is under pressure on that side, but is it flushed through or is there more to come to flow through off the pricing side as well?

I will tell you what my answer is. We don't bid jobs to lose cash. We don't. But we have in the past seen companies that have bid jobs that will lose cash. We don't think that lasts very long. Those doors get closed.

We've been tracking regional facility closures now for about 12 months. And so it's never over till it's over. You get a competitor out there that is making poor decisions, but we are not going to do that. And we don't have to.

Again, I will go back to John Daniel's comment. You can always take on a little more leverage and keep your quality people and your quality assets. Sustained bidding at cash-negative margins just makes no sense.

Got you. Thank you, that is helpful. One last one on drilling rigs. You have 34, from what I understand. Is there any chance we may be retiring some of those, given in the current environment? Or is there any change in our outlook and how to think about that business?

You know our headcount in that and realize, for everyone on the call, it is a very, very small segment of our operations to start with. Our headcount is down [90%] and so even, as I've said, we are working two rigs. We are not burning cash or money. There is no reason to scrap the rigs. They are great quality assets and historically we always need our niche assets that work very well.

The vertical market has generally been about 15% of the overall market, concentrated force in the Permian, but over time these assets actually perform very well and earn a reasonable return. I don't think we are going to stay at this level forever. It would be a different outlook if I did.

We have seen it before into, in the 2008 and 2009 downturn, we got down to three rigs working for those of you that followed us and remember that. So we've been here before, but my overall view of those assets has not changed today.

Thanks, I appreciate your time.

Thanks.

We show no further questions. I would like to turn the call back over to our speakers for any final remarks.

Thanks to everybody. Whether we are at or near the bottom this year, we can all pray for that. I appreciate your support as always. I did want to make one comment.

There was an earlier question or comment congratulating Mark Papa for joining our Board. I just wanted to be clear everybody knew he has actually been on our Board since our IPO and given us very, very valued insights and commentary. I believe he is one of the greatest industry icons around. This is just a normal succession plan where Steve Wells who, quite frankly, has been on our public Company Board and our predecessor's private Company Board for 20 years has just decided to transition out of the Chairman role. So I thank them both. I credit them both, but Mark has been with us a long time.

With that, I hope you all have a good rest of the earnings season and week and we will talk to you in upcoming conferences. Thanks so much.

Thank you. Ladies and gentlemen, this concludes today's conference. Thank you for participating. You may now disconnect.