Oil States International Inc (OIS) 2017 Q2 法說會逐字稿

Welcome to the Oil States International Second Quarter 2017 Earnings Conference Call. My name is Victoria, and I will be your operator for today's call. (Operator Instructions) Please note that this conference is being recorded.

And I will now turn the call over to Executive Vice President, Chief Financial Officer and Treasurer, Lloyd Hajdik. Lloyd, you may begin.

Thanks, Victoria. Good morning, and welcome to Oil States' Second Quarter 2017 Earnings Conference Call. Our call today will be led by Cindy Taylor, Oil States' President and Chief Executive Officer; myself, Oil States' Executive Vice President and Chief Financial Officer; and we are also joined by Chris Cragg, our Executive Vice President for Operations.

Before we begin, we'd 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. 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.

And now I'd like to turn the call over to Cindy.

Thank you, Lloyd. Good morning to all of you, and thank you for joining us today for our second quarter 2017 earnings conference call.

As you read in our news release, we reported a net loss of $0.27 per share during the quarter after adjusting for $0.01 of severance and other downsizing charges. Our quarterly results reflect current market trends highlighted by strong year-over-year and sequential growth in U.S. shale-based drilling and completion-related activity, partially offset by reduced spending internationally and in deepwater.

Our well site services segment benefited from the ongoing improvement in U.S. land-based completions activity across most of the shale play regions in which we operate, but was offset somewhat by sequentially lower activity in international region. Our completion services revenues that were driven by U.S. land-based activities were up 28% sequentially and represented over 75% of our completion services revenue.

Revenues and EBITDA margins in our offshore/manufactured products segment were within our previously guided range but at the low end, with margins averaging an adjusted 17% for the quarter. Sales of our shorter cycle manufactured products experienced significant growth during the quarter, offsetting ongoing declines in major project work.

We recorded a book-to-bill ratio of 0.99x in the quarter with backlog remaining above $200 million. When you combine our U.S. well site services segment results with sales of our shorter cycle manufactured products, over 50% of our second quarter consolidated revenues were driven by U.S. land drilling and completions-related activity.

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 details by segment and provide additional comments on our market outlook.

Thanks, Cindy.

During the second quarter, we generated revenues of $171 million while reporting an adjusted net loss of $13.6 million or $0.27 per share, which excluded $0.01 per share of severance and other downsizing charges.

Second quarter adjusted EBITDA of $10.4 million increased 91% sequentially, and our adjusted EBITDA margin was 6%.

We generated $13 million of cash flow from operations during the second quarter and invested $7.5 million in capital expenditures. We continue to estimate that our 2017 capital expenditures will range between $35 million and $40 million.

We utilized our second quarter free cash flow, which is after CapEx, along with revolving credit facility borrowings, to repurchase $16 million of our common stock and fund the purchase of assets and intellectual property complementary to our riser testing, inspection and repair service offerings. For the first half of 2017, we generated a total of $32 million of free cash flow, utilizing $13 million for M&A activities and $16 million for the aforementioned share repurchases.

With respect to share repurchases, we bought back 562,000 shares of our common stock under our authorized share repurchase program at an average price of $28.99 per share, a total of $120.5 million remains available under the share repurchase program, which was extended by our board for 1 year to July 29, 2018.

As of June 30, our debt totaled $51 million while our cash on hand exceeded these outstanding borrowings by $22 million. We ended the second quarter of 2017 with total liquidity of $200 million, which is comprised of $128 million available under our revolving credit facility plus cash on hand of $72 million.

In terms of our third quarter 2017 consolidated guidance, we expect depreciation and amortization expense to total $27.4 million, net interest expense to total $1.1 million and corporate cost to total $12.8 million. Our 2017 consolidated effective tax rate benefit is expected to average 28% to 29%.

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

Thanks.

In the following segment comments, the term adjusted EBITDA excludes severance and other downsizing charges.

In our well site services segment, we generated another quarter of sequential improvement as revenues increased 15% quarter-over-quarter to total $69 million while adjusted segment EBITDA increased to $6 million. These sequential improvements in revenue were driven by a 16% increase in the number of completion services jobs performed along with the 2% increase in revenue per completion services job.

While our well site services segment benefited from the acceleration of well completion activity as evidenced by a 28% sequential increase in U.S. land-based completion services revenues compared to the 21% increase in the average U.S. rig count, our second quarter results in this segment were moderated by lower international results.

Despite this mix, our incremental EBITDA margins and completion services averaged 46% in the second quarter when compared to the first quarter of 2017.

While our drilling services result has improved both year-over-year and sequentially, utilization remained at 25% during the second quarter.

In terms of our well site services guidance for the third quarter of 2017, we see continued growth in U.S. land-based activity and estimate that revenues for our well site services segment will improve sequentially and range between $75 million and $85 million with segment EBITDA margin in the low double digits.

We continue to believe our incremental margins for completion services should average 40% to 45% as we progress through 2017, assuming the ramp in completions activity in the U.S. shale play region is sustained.

In our offshore products -- in our offshore/manufactured product segment, we generated revenues of $102 million and adjusted EBITDA of $17 million during the second quarter of 2017. We reported an EBITDA margin percentage of 17%, which came within our guided range albeit at the low end. The 12% sequential increase in total segment revenues was driven predominantly by a 21% increase in our shorter cycle product sales and by a 46% increase in sales of our standard connectors. Demand for our shorter cycle products, which comprise 39% of the segment's revenues, are largely driven by U.S. land-based activity.

Orders booked for the quarter totaled $101 million resulting in a book-to-bill ratio of 0.99x. Backlog totaled $202 million at June 30, essentially unchanged from the end of the first quarter.

Our second quarter bookings included a backlog addition exceeding $10 million involving standard casing and conductor connectors destined for the Caspian region. We continue to believe that our backlog is troughing and expect to receive additional rewards associated with major project sanctioning as we progress through the second half of 2017.

Demand for our shorter cycle products should remain strong given expectations for U.S. land completions activity through the balance of 2017, which will partially offset some of the gaps in timing from our major project work. Given the timing of sales of our standard casing and conductor casing connectors, we estimate that our third quarter revenues in this segment will decrease sequentially and range between $90 million and $100 million, while EBITDA margins are expected to average 16% to 17%.

In conclusion, the outlook for our E&P customer spending on U.S. onshore drilling and completions-related activity is expected to steadily increase over the balance of 2017, which should create incremental demand for our completion services along with demand for our shorter cycle manufactured products. This growth should help mitigate near-term declines in major project work in our offshore/manufactured products segment.

We are still anticipating improved major project order flow during the second half of this year, which should increase bookings in our overall levels of backlog in the second half of 2017.

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

(Operator Instructions) Our first question comes from Sean Meakim from JPMorgan.

Cindy, I thought we could start just a little bit drilling into the completion services business and give a little bit detail just there. But just thinking about the reconciliation between the U.S. land completion revenue number up 28%, job tickets were up 16%, revenue per job up a little bit. Is it fair to say that the non-Lower 48 revenue was mostly flat? And then I guess underlying that revenue change, is there going to be some mix there in terms of the job sizes across those regions? But then also, kind of what you're seeing on a pricing perspective within the Lower 48.

Yes. Let me -- just stop me and ask me if I missed any of the commentary that you're looking for there. But I think I heard you kind of reconciling as we have the 16% activity improvement with modest pricing is kind of the theme of the day; U.S. land-based revenue's up about 28%; and again, tickets more aligned with that. Again, there is some mix between international Gulf of Mexico. International was down. We haven't called out Canadian breakup and obviously religious holidays in the Middle East, but there's some dampening of activity there that is somewhat cyclical, if you will, or seasonal at that point in time. Gulf of Mexico had slightly improved results sequentially. Again, that was tempered just a bit by Tropical Storm Cindy at the end of the quarter. But just overall, we kind of felt like generally flattish activity in the Gulf of Mexico; weaker activity, international. Again, strong U.S. land-based activity, which as we progressed, if that trend continues, we'll kind of get that land-driven activity more in line with historic norms. We do see a little bit of improvement in the Gulf of Mexico as we move into Q3, if that answered your question. And again, the ticket count is not always a perfect indicator depending on mix. However, those are the trends that are reflected in that activity measure.

Got it. Yes, that was helpful to kind of just go through with it one more time. And then on the offshore/manufactured products business, we're seeing that mix shift short cycle becoming a bigger component. Just we're taking down kind of the band on the margin expectation. Can you help us, Cindy, quantify how much of that is fixed cost absorption and some of the changes there versus the mix shift that's also taking place?

Obviously, there's a little bit of both. And we're very clear -- it's hard to call an exact trough because Q1 wasn't a strong of a quarter either. So they're -- you're kind of plus or minus in that revenue and EBITDA band. In the case of guidance for Q3, number one, we noted in the notes a 40% -- 46% increase in our standard connector product sales. Those can be very lumpy. You have orders that go out in major development drilling programs. We had some decent orders particularly coming out of South East Asia, and our U.K. operations will have less in Q3 but then an improvement in Q4. So I think of that as more lumpiness in our guidance than any macro trend. And again, if I step back and look at the macro, the trends you've highlighted are appropriate, which are strong growth in our short cycle products, again driven by completion activity, which is a good trend. It has helped us manage through a very difficult market over the last couple of years in terms of major project work and awards. I have said consistently, and I will reiterate again, that we do expect a couple more what I call major project awards, i.e. awards tied to major project FIDs as opposed to the standard connector products, which we generally have in our backlog and revenue stream fairly predictably. There are 2 that we are counting on in terms of a bookings basis or a bookings projection in the second half of 2017 that if delivered as expected, our bookings -- our book-to-bill ratio will go above 1.0 for the second half.

Our next question comes from Stephen Gengaro from Loop Capital.

Two questions, if you don't mind. One is back to completion services. Actually, both are. The first has to do with the second quarter. Were you surprised by the land drilling utilization, or did I just mismodel it? Because I was expecting it up a bit. And can you kind of give us a sense of what you're seeing there?

Well, I hate to ever tell an analyst that they mismodel anything. And -- but I will say, you kind of were not alone in terms of our review and reflection of first call numbers out there that there was a bit of a headwind for us driven by drilling. And we've always had 2 comments about drilling. Number one, we have historically been weighted to the vertical markets. The vertical markets are not as in favor, obviously, as the extended reach horizontals. So that's just a macro trend we know about. We are doing what we can to expand -- with the assets that we have, to expand our exposure to the horizontal work, both through surface drilling or top hole drilling for pads, if you will, all of which can be done very cost effectively, and also saltwater disposal wells in support of horizontal activity. That being said, these assets are generally geared more towards vertical drilling work, which has always been highly cyclical and sensitive to crude oil price. I've always said, you get into that 52 above, we tend to start putting rigs out, you start drilling below that. And again, we are so efficient that we are drilling wells every week. And so these tend to go up or down depending on the sensitivity of the vertical markets. Again, what can we do about that? We are trying to gain as much exposure to support the horizontal drilling activity as we can. So with that macro environment, I think that whether it was you or a group of analysts, I do think that drilling kind of caught a tailwind that was ahead of reality just a little bit. Now that being said, as we progress into Q3, we are projecting higher utilization. We are seeing a couple of rigs being reactivated; that is our plan anyway as we move forward. And so the trends in what we're trying to do strategically should lift utilization a bit. But I don't want to get too euphoric again within the macro that these are lower-end rigs more suited towards vertical drilling.

Okay. Now that makes sense. And then my second question was just on the completion services specifically. Do you expect, and I can work through your guidance a bit, but do you expect the second half to accelerate a bit? And I'm just thinking in terms of your growth in that business, I would think, would be faster than the rig count in the back half of the year. Is that fair?

It has been. And I think that -- I think we're all questioning what is the average rig count going to be in Q3? And right now, I would say that we are projecting what we think to be a decent improvement in the rig count. I don't know that it's going to be up 21% as it was in this quarter, but we are seeing increases. We're seeing the beginnings at least of a favorable mix shift. So there's nothing that we know today that would tell us anything other than, yes, we should at least track and likely do better than the average rig count, particularly given the number of drilled and uncompleted wells that are in the market right now. That's the best knowledge we have.

Our next question comes from John Daniel from Simmons & Company.

Cindy, just to start with the -- can you speak a little bit about the $9 million M&A this quarter and then give us some color on this deal and your thoughts on the bigger picture perspective about strategy for additional acquisitions?

Yes, absolutely. I've been -- everybody that knows me knows that we're trying to do what we can to gain scale in an otherwise difficult market. We've been very focused on M&A. We've historically been incredibly successful with these small tuck-ins, particularly ones that are geared towards enhancing existing technology. We've done a couple of things this year, one in Q1, one in Q2. The first one tied to some of our crane technology. This one tied to our riser technology. These are just things that really help us enhance our existing technology and we think could be the small, fairly inexpensive tuck-ins. So we remain highly focused on trying to view M&A. And again, I've been very open about the fact that it's been a roller coaster this year in terms of market outlook and valuation expectations. They were particularly high in the first quarter when a lot of the smaller IPOs were going to market, and that really did, quite frankly, delayed our success in closing anything. I think as we've gone through Q2, a lot of things have happened on the valuation front, both IPOs and people that are in the Q to go public. And all of that has been a bit of a reality check, we believe, on valuations. So we're going to continue to do assessments. I think that we are historically one of the more active, particularly on the less than $100 million type acquisitions. And we firmly believe that in a challenged market, that consolidation should occur. And so we've not, in any way, wavered from that focus. There are deals we're continuing to work on and negotiate. I will always come back to -- these are either direct overlaps or close market adjacencies. We feel like we know how to value these companies relative to our own, and the focus absolutely continues.

Okay. I'll ask one more then jump back in the queue. Just a little bit of a modeling one. But we just assumed we'd sort of stay in this [$0.45] to $2 world through the end of the year. At this point, would you expect a bit more of a pronounced holiday impact in Q4, seasonal holiday impact?

It's always a wildcard when we go in the holidays. I personally just kind of don't sense that as much. It's been such a struggle, quite frankly, for particularly Permian operators to get equipment reactivated, to get people hired, back on location, get some continuity drilling and completion plans and programs. And I think everybody knows to shut this down, and not to mention pad drilling, takes longer than a lot of the work we used to do. So again, as the sentiment holds going into Q4, I really don't see an exacerbated holiday downtime because of the difficulties and problems that creates in terms of kicking back off in Q1.

Our next question comes from Blake Hutchinson from Howard Weil.

I think if we just took it back to your first quarter commentary, you had mentioned perhaps one of the overhangs in completion services is, contrary to maybe popular logic, the Permian area was tough for you given that so much equipment had migrated in. As we're exiting the quarter, and I think you mentioned this in terms of mix as well helping. Did we see a little bit of that pressure start to get alleviated as we saw some shortages of equipment at least on the pumping side? And does it give you a little higher level confidence in terms of 3Q outlook in that regard?

Yes, I would say a little bit of the pressure is lessening, and part of that is because there's a little bit of an activity improvement elsewhere. I'm trying to remember my stand-alone Permian activity, but we saw decent improvement sequentially, if not, maybe even better than what the overall rig count projected. But the key thing, everything is still being bid on a job-by-job basis, so that kind of tells me the market is not terribly tight in terms of equipment. However, if we kind of lose a job to a low price, there's been another backdrop to pick it up. And so overall, I would feel that it's firming, but I don't want to suggest that the market is tight on equipment. We're also starting to look at some more higher end, specialized-type equipment, which that will be more of a differentiator for us, 15k type equipment.

And you didn't -- was there a pronounced change in terms of, I guess, demand for more proprietary equipment just because time and location is becoming a little more, I guess, precious?

Yes, I think -- I hope I said that earlier. We are beginning to see that migration to, again, a lot of times, we're talking about extended reach technology in our isolation equipment. So we're seeing some of that, yes.

Great. I just wanted to clarify that. And then I guess, as you -- as we see you guys we reengage here in a share repo, I mean, is that an expression kind of a bit of the frustration with getting something done, M&A front or just financial strength or even just at this point, kind of cleaning up some of the creep in dilution?

Well, it's all of the above, quite frankly. And you named a whole mouthful. But I would just point out, I think you all know, we've been free cash flow-positive in 2015, 2016, to date, in 2017. We have the financial wherewithal, obviously, to do things that -- our stock recovered somewhat last year. It's been a fairly dismal year, not only for us, for everybody. And our stockbroker level that we feel like it was trading below long-term intrinsic value, that is the time certainly you start thinking about share repurchases, particularly, it's a layup, so to speak, to mitigate dilution. I've always taken great pride in saying that I think I have about the same shares outstanding today that I had 16 years ago, 17 years ago when we went public. So that's been a consistent thing for us. I always look at share repurchases as a capital deployment opportunity. A lot of times, we do end up kind of comparing that to the type of value and returns we can get from the M&A market. Again, no secret. I was not on the valuations that were out there for a smaller M&A in the first quarter of this year, and so obviously, share repurchase are an alternative to that. And we look a lot about what we believe is our intrinsic value compared to what we can gain in the M&A space. That's not indicative of a change in strategy; it's more indicative of a valuation in a point in time. And we've always seen throughout our history, those things ebb and flow and normalize in a highly cyclical business. It's kind of that simple, really. But it's a little bit of all of the above on the points that you focused on.

Our next question comes from Marc Bianchi from Cowen and Company.

I guess I wanted to start with some of the shorter cycle businesses within well site and also in the manufactured products. Just thinking about this buildup of DUCs that everybody's talking about and how things progress, if the rig count were to be down, say 5% to 10%, in 2018, what could keep these short cycle services and products flatten? And maybe you could talk to well site and the manufactured business as well.

Sure, I'll be happy to do that. That's, thematically, a 5% to 10% decline, I think I'm hearing you say, in rig count.

Rig count.

What holds that tail, if you will, is obviously a couple of things. Number one, the level of drilled uncompleted wells that are out there. We kind of lagged on the upcycle as we waited for the completions to kick off. The same would be true if you hypothetically went into a lower activity-type scenario that I think would help us. The second thing, again, we said this consistently, the more complex the work, extended horizontals, pad drilling, should help become -- make our equipment and services a little more sticky through a cycle like that. In terms of our short cycle manufactured product business, I always say the beauty of these things is we go in and the blow them up every day. And so if there's no residual there that gets reused, recertified, reinspected and reworked with just the continual treadmill of manufacture and delivery, and we've not seen anything to suggest that the wells we are completing are going to get any easier, and therefore, require less product downhaul.

Would you say one is more resilient than the other?

I think it's hard to say, honestly. It's -- again, this is the type of business that typically consumable and a service are sustainably pretty good through cycle, particularly on a returns on investment standpoint. And again, what we struggle with is the amount of equipment, i.e., oftentimes, in a cyclical business, you get too much deployed. I don't know that, that's really the case in this cycle. So I think a focus on services and a focus on consumables remains a good strategy.

Okay. Maybe if I could ask one more as it relates to the backlog in the offshore/manufactured business. Historically, this has been a 80% to 90% type conversion. And now this year, you're talking about a 70% conversion. Can you maybe bucket the backlog into a few different categories and talk to what the underlying assumptions are for that 70% conversion that it all averages out to.

Well, yes. We've tried everybody to recognize that there is a bit of a mix shift going on in backlog. And I can't -- I'm not going to validate your conversion cycle simply because I've not necessarily done the math. If I look at kind of major project-type backlog, I think the same trends exists today that existed before. The real difference is we've got a little higher weighting towards military simply because we've had a shrinkage in deepwater-type awards in FIDs, but also has been the expanded activity on short cycle. And so to call that 70% conversion would be a huge mistake. To call it 100% would be a huge mistake, because I've said before, we're generally rebooking -- we may be carrying 45 to 60 days max of backlog relative to inventory. So this thing is churning every single month. So there's a multiplier, if you will, on backlog, above 100%. I've not done the math because it varies a bit quarter-by-quarter. Does that make sense to you?

Yes, it sure does. I guess if I were to just think about the nonmilitary piece and sort of the more traditional energy markets piece that's truly long cycle backlog, is that continuing at the traditional 80% to 90% conversion? Or is there just some projects that are rolling through that would be maybe unusual?

No, in terms of our major project backlog, the trends are the same. The difference is we just got a lot less of it. So let's focus on the second half, get a couple of these orders in and have a more favorable conversation. All it means is that number has shrunk so that military and our shorter cycle are a bigger percentage of the pie and the trends are a bit different.

Our next question comes from Jud Bailey from Wells Fargo.

Question, Cindy, you mentioned 2 potential orders in the back half of the year to take book-to-bill up by 1. I'm just curious, given the number of conversations you're having, is 2 kind of the number you feel confident with? Is there a possibility you could have more than 2? Or how does the back half of the year look in terms of timing as you kind of look at all the different FIDs that are out there?

Well, we have gone to very specific forecasting every single product category to try to get our arms around those projections. And when I mentioned 2, these are announced FIDs generally that we think will come into backlog, quite frankly, one in Q3, one in Q4. And so we've done sensitivities around the what if, could more come in? Of course, they could. We've also done sensitivities. If those were to slip into '18, what does that kind of downside bookings look like for the second half? But overall, I think we're trending very consistent with the guidance we've given you to date. We couldn't more guarantee these awards coming in, in specifically a given month or a given quarter, but we feel obviously reasonably certain that we wouldn't be having the conversation on our conference call.

Okay. All right. Appreciate that. And then my second question is trying to think about the margin outlook for offshore, the new guidance of 16% to 17% for the third quarter. You get the bookings in the back half of the year. As we think about 2018, is there a way to think about the way the mix is going to impact how to think about margins as we look into the next year as offshore starts to become perhaps a bigger component just maybe even directionally?

Well, sure. I mean, first of all, just we've kind of guided you to troughing bookings backlog and EBITDA margins this year. And assuming that -- whether it was Q3 or Q1, wherever we end up at trough, I would tell you, it's better where we've been in past down cycles. Maybe your question is, is there any reason we won't recover those margins back? No. As long as we get some decent backlog additions, we should do pretty good in terms of margins. Then I will also tell you that based on our internal forecast today, we think Q4 is better than Q3 simply because of absorption. And again, a lot of -- we classify these large OD conductor casing connectors in our major product work, but it's more long-term multiyear development drilling programs. But again, there is a certain order flow and lumpiness to that, and so absorption gets it a little bit in Q3, which is lower standard connectors, particularly coming out of the U.K. and Southeast Asia and, of course, trough or near-trough major project type backlog. That's the headwind we're facing. Both of these, again, I think the standard connectors is temporary with Q4 improving. Again, if we even get the 2 major -- more significant awards in the back half this year, then my major project revenues improve, and therefore, absorption. So it's -- I'm reticent call an exact bottom, particularly when we're talking about small margin percentage differences here at the end of the day, but we do have a little more improved outlook as we move into fourth quarter.

Great. Well, it sounds like at a minimum, you feel comfortable with margins starting to move back up assuming that the bookings come through in the back half of the year, if I...

Correct, very correct. Yes.

Our next question comes from Ken Sill from SunTrust.

I'm struggling. Subsea major projects, a few of those really helped your backlog. One of the things that looks like it's for sure going to be happening is that people are going to continue to keep existing infrastructure, particularly in the Gulf of Mexico, full via subsea tiebacks. What's the revenue opportunity for you guys in a subsea tieback if that activity continues to remain strong?

Well, that varies widely at the end of the day, but those are generally going to be -- and we have those in and out of our backlog. A lot of that is small tiebacks, repair-type work that we have consistently, not only in the Gulf of Mexico, but elsewhere. But typically, those are below $10 million and they're not individually called out.

But that is -- and that kind of leads into my second question about there, is, obviously, people shut spinning down dramatically in '15, '16 and even early in 2017. But is your trough level of activity, whichever quarter it ends up being, is that indicative of kind of the baseload of kind of repair and spare parts and tieback projects? Or has that been artificially depressed because people are just pulling inventory and delaying things? I'm just trying to get a normalized run rate...

We're pretty close to that with the caveat, late last year, early this year, we did have some runoff of major project work into our revenues. But we called out an FID order, I believe, it was in Q3 of last year, and we haven't had much, even -- we may have called out a $10 million order, but again, that was standard connectors more with development drilling programs as opposed to field infrastructure such as FPSOs, TLPs, risers, et cetera. So yes, plus or minus, whether you're talking about bookings or revenues, I think we're about at that level. And I think that's why you kind of see this flatline trend at about 1 book-to-bill ratio because I think that's more or less with where we are, again, with the caveat, we're weighted more towards short cycle right now, certain military and others. So that if we get even one FID, it could be more beneficial from both a backlog standpoint and an absorption standpoint.

Our next question comes from Chase Mulvehill from Wolfe Research.

Most of my questions have been answered, but I guess the first, well, I was a little bit surprised by the wide revenue guidance, the wide range of revenue guidance for well site services. So I don't know if you can kind maybe help us kind of understand what drives you to the low end or the high end. I don't know if there's any kind of large international offshore projects that could hit in 3Q, but just kind of help us understand the wide range.

Well, let's be honest, when crude goes down from $50 to $45, all we start hearing about is the risk that this expansion starts to retreat. So that colors your thinking. And of course, if you were to say, if anything, a little more lumpy. Well, Gulf of Mexico kind of fits that mode. And international has been, quite frankly, very slow. So there's no great confidence that we have that international gets any tailwind at this point in time. We don't want to be terribly punitive either. But I'm trying to put -- I'm looking at Lloyd or Chris to tell me. I think the midpoint of that guidance is suggestive of a decent sequential increase.

15% increase.

Even the low end, I think, was about 10%, so.

Yes. So -- $75 million to $85 million is the guidance, $80 million is the midpoint. Which would suggest for well site services, a 15% incremental increase in revenues.

So. Yes, thank you for that. But I think that the low end is more reflective of kind of current indications of sequential improvement. Then we all can answer the question, does that flatline from here? Does it continue to increase? And therefore, I think that creates our range with -- for us, even though we're now at least about 3 quarters driven by U.S. land, we still have the element of international in Gulf of Mexico that is not growing at that rate.

Okay, that's helpful. And then if we think about completion services and kind of the higher technology product revenue in 2Q, did it significantly outperform the 28% sequential increase that you saw in U.S. land revenues?

I'll be honest with you, I don't have that at my fingertips. So a lot of times, we're looking more by growth on a region basis, and I don't have the product line details in front of me. But just as we suggested, there is a migration that began in the quarter towards some of our higher-end equipment, but that's more consistent with a lot of these larger completion programs really getting lags, too.

Our next question comes from George O'Leary from TPH & Co.

Just one for me. And most of my questions have been answered. Following on to John's question earlier, as you guys look out at the M&A landscape and bid ask spreads start to close, I guess, where would you say your attention is more focused? Is it onshore opportunities, offshore opportunities? And then where would you say that bid ask spread has compressed the most? So are valuations closer on what you're actually interested in? Or is it not playing out that way?

I've kind of said we'll look at both opportunities, but I'd have to tell you, our focus has been weighted towards completion services right now, largely driven by land-based activity. That's where our operation fell off the swiftly just given the nature of the business. That is also where we believe we offer high-quality solution to our customers. It cost a bit of money in terms of quality, HS&E, recertification, traceability, all the things we do. So I do feel strongly that we need more scale in that market to really defensively cover some of the quality offerings that we believe we give to our customer base. And so that's very important. Synergies are, of course, important. I think those can be oftentimes greater in your offshore products business, but there are some certainly on a U.S. land-based product offering as well. So we're very focused, but I would say that the businesses of size anyway are more weighted towards completion services right now.

And there are no further questions at this time.

Okay, great. Thanks to all of you. We appreciate, one, that you follow this company consistently; and two, that you were on the call this morning on a very active and busy week. And so we look forward to ongoing dialogue as we move through the second half of this year. So appreciate it very much.

Thank you, ladies and gentlemen. That does conclude today's call. Thank you for participating. You may now disconnect.