Expro Group Holdings NV (XPRO) 2013 Q4 法說會逐字稿

Good morning. My name is Brandy and I will be your conference operator today. At this time, I would like to welcome everyone to the Frank's International Q4 FY13 earnings call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session at which time instructions will be given. I would now like to turn the call over to Mr. Thomas Dunavant to begin.

Good morning, everyone, and welcome to Frank's International conference call to discuss fourth-quarter and full-year 2013 earnings. I am Thomas Dunavant, Manager of Investor Relations. Joining me on today's call are Keith Mosing, Chairman, President, and Chief Executive Officer; John Walker, Executive Vice President of Operations; and John Sinders, Executive Vice President of Administration; and Mark Margavio, Chief Financial Officer.

Keith will begin today's call with general highlights; John Sinders will provide a review of our strategy and outlook; John Walker will provide an overview of our operations; and Mark will follow with a more detailed financial discussion of the quarter. Keith will then wrap up with some closing comments.

Before we begin commenting on fourth-quarter and full-year results, there are a few legal items that we would like to cover. First, remarks and answers to questions by Company representatives on today's call may refer to or contain forward-looking statements. Such remarks or answers are subject to risk and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements, and such statements speak only as of today's date, or if different, as of the date specified. 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. Also, you may access both fourth-quarter and full-year 2013 press release and a replay of this call on our website at www.franksinternational.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 the fourth-quarter and full-year 2013 earnings release, which was issued by the Company yesterday and is available on our website. I will now turn the call over to Keith for his comments.

Thank you, Thomas. We were very pleased by our results of 2013. We are excited about our outlook for 2014. In 2013, we grew about 4% over our record year of 2012. We are very pleased with that result.

The Gulf of Mexico has grown the fastest at 22%. This growth has driven our continued increase in offshore drilling around the world. We believe that the Company is well positioned to continue to grow with increased offshore activity in the Gulf of Mexico and internationally.

We are continuing to position ourselves in all the new frontiers and drilling in complex, deeper wells, that we provide our services to. We are continuing to invest in equipment and are focused on technology. Fourth quarter alone, we received four new patent grants, and we applied for another seven in the last quarter.

We expect international and Gulf of Mexico to grow by at least 10%. Our growth is tied to the new drilling wells associated with the new continuing exploration and development activities and not just rig rates.

Lastly, we are proud to say that we have promoted John Walker and John Sinders to Executive Vice Presidents of Operations and Administrative, respectively. They will report to me. And I will now turn this over to John Sinders.

At Frank's, we pride ourselves on our premium tool and services. We believe our innovative tools and our premium service and customer focus differentiates us from our competitors and uniquely positions us with leading exploration production companies to help them globally access their reserves.

Because of our high margins relating to our premium services, the Company generates cash flow way in excess of its capital needs. As we think about deploying this cash, we are first focused on acquisitions, but then we focus also on returning capital to shareholders.

As we look at opportunities to grow the Company and where the industry is heading, we're focused on more than just tubulars. We believe in addition to our opportunities to expand our casing operations through acquisitions, there are also opportunities to grow complementary new technologies and equipment, as well as to look at the next round of technology that will be utilized in running tubulars.

Mark will review our fourth-quarter and full-year results in a minute, but I want to provide you with an outlook for 2014. Despite the market's uncertainty about E&P CapEx spending in deepwater drilling rig utilization, we believe there are a number of opportunities for us in 2014. Remember, our customers are the exploration and production companies, not the drilling contractors, and it is their spending on exploration and development that drives our growth.

We see deep and ultra-deep exploration and development growing fastest in the Gulf of Mexico, sub-Saharan Africa and Asia-Pacific. We have a strong presence in those areas and have had recent success winning new business in Asia-Pacific. Overall we believe our international services and Gulf of Mexico businesses should grow by at least 10% in 2014.

Our land business was impacted in 2013 by increased competition, which has led to revenue declines. We have increased our sales effort in certain basins and moved resources, both equipment and crews, to where we see the best opportunities. We have begun to have success with these efforts, but we anticipate revenue for this business will be slightly down for 2014. Our goal is to maintain our EBITDA margins and provide safety for our exploration and production clients, as opposed to hitting any market-share targets.

Lastly, our tubular sales business is the least predictable, and therefore, the most difficult to forecast, as inter-quarter sales and timing of customers' projects can positively or negatively affect our revenue in the quarter. At this time, we expect tubular sales revenue to be up at least 4% in 2014, and this includes recognition of approximately $20 million in deferred revenue associated with one customer's order. We also pursuing several exciting orders and are very excited about the outlook for tubular sales.

Our adjusted EBITDA margins are impacted by business mix and type of work within each segment. For 2014, though, we anticipate being able to maintain our current margins at or above 40%, with our offshore business segments generating the highest margins.

We will expect to continue to generate operating cash flow in excess of our CapEx and current dividend. Our capital expenditure budget for 2014 is approximately $250 million, and this includes $140 million in rental equipment, and the remainder is for new facilities and buildings.

The majority of our building budget is for the development of a new facility in Lafayette and office. This facility should be able to sustain our growth over the next decade. Excess free cash flow will either be used to grow the Company through acquisition or it will be returned to shareholders.

I look forward to updating you on progress of our efforts and successes as it relates to our financials. I will now turn our call over to John Walker for an update on our operational results.

Thank you, John. As Keith said, we are very pleased with our fourth-quarter and full-year 2013 results. Our results in the fourth quarter exceeded our own expectations, due to higher than expected offshore work in the Gulf of Mexico and success gaining new customers in the tubular sales segment. I am excited about the offshore opportunities for Frank's in 2014.

I recently traveled to several of our international locations, and I have not heard any comments from our customers cutting back their offshore drilling companies. In fact, there appears to be a height in motivation from a number of operators to pursue an array of new geological exploration and appraisal teams.

These teams are all often more complex and sophisticated in nature. Complexities can vary from ranging from wells in drills deeper below the mud line, drilled in deeper water, requiring heavier casing and landing streams, and exposure to sour gas, higher pressure, and higher temperature, to name a few. Each program requires its own unique set of circumstances. All of these complexities uniquely position Frank's to use our expertise to deliver innovated solutions.

In regards to our US onshore operations, while this market remains competitive, and we expect land revenue to decline in 2014, we are taking a very active approach to managing this business.

Turning now to our business segment results, our international services revenue for external sales increased slightly sequentially, but declined 4% year over year to $122 million. For the full year, international services revenue was $475 million, up 2% over 2012.

2013 revenue was positively impacted by our offshore drilling drilled in Africa and success winning work with customers in the Far East. These increases were partially offset by year-over-year declines in Latin America, due to the decreased business with customers in the region, and Europe, specifically Israel, where a customer reduced operations in the region due to changes in regulations.

Adjusted EBITDA margin for the international services in the fourth quarter was 38% for external sales, and for the year it was 42%. EBITDA margin in the fourth quarter was impacted by increase in supplies ordered ahead of job opportunities in 2014. We do not anticipate these expenses going forward.

Moving to the US services, revenue for external sales increased 5% sequentially and 6% year over year to $114 million. With our US services segment, our Gulf of Mexico business grew 19% in the fourth quarter of 2013, versus the fourth quarter of 2012. For the year, it grew 22%. The land of our US services segment, which remains very competitive as we previously discussed, declined 10% in the fourth quarter versus the same time period in 2012 and declined 17% for the year.

Adjusted EBITDA margin for the US services in the fourth quarter was 43% for external sales. For the full year, US services revenue was $435 million, up 3% over 2012, and the adjusted EBITDA margin was 46%.

Lastly, tubular sales revenue for external sales in the fourth quarter was $46 million, an increase of 15% for the third quarter and 15% year over year. For the full year, tubular sales revenue was $167 million, up 12% over 2012.

Adjusted EBITDA margin for tubular sales in the fourth quarter was 32% of external sales. Adjusted EBITDA margin was 24%. In the fourth quarter, our adjusted EBITDA margin benefited from the recognition of previously deferred revenue on fabrication work for a customer in the Gulf of Mexico.

And finally, I would like to commend our employees, and specifically, our HSE team for their efforts with our safety program. In 2013, our total recordable incident rate, or TRIR, was 1.13, and our lost time incident rate, or LTIR, was 0.33. Both were down year over year and below industry averages. Safety has been and will always be our number-one core value.

And with that, let me turn over to Mark for a review of our financial results for the quarter.

Thank you, John. Here is a brief overview of the quarter's results. Total revenues for the quarter were $282 million, which reflects a 4% increase sequentially and a 3% increase year over year. For the full year, revenue was $1.078 billion from continuing operations, an increase of 4% over our record year in 2012.

Net income for the quarter was $76 million. Net income attributable to Frank's International NV was $55 million, or $0.36 per share. Diluted net income, which includes the assumed tax impact of conversion of preferred shares was $74 million, or $0.36 per diluted share.

Taxes for the fourth quarter were lower than expected due to our full year international business mix more weighted toward lower rate jurisdictions. At this time, we estimate our effective tax rate for 2014 to between 20% and 25%. 2013 income from continuing operations was $308 million, with $224 million of income from continuing operations attributable to common shareholders.

Basic earnings per share from continuing operations for 2013 was $1.69, and diluted EPS from continued operations was $1.68. A full reconciliation of our EPS calculations are in our press release.

Our adjusted EBITDA for the quarter was $110 million, or 39% of revenue. For the full year, adjusted EBITDA was $439 million, or 41% of revenue.

We ended the year with $405 million in cash and essentially no debt on our balance sheet. Our cash flow from operations for 2013 was $277 million, down 20% year over year, due to changes in working capital, including increased inventories. Our free cash flow, which we define as operating cash flow minus capital expenditures, was $93 million.

Lastly, on February 18, the Board of Directors declared a dividend of $0.075 per common share, subject to applicable Dutch dividend withholding taxes, for the record date of February 28 with payment on March 21, 2014. We currently anticipate our diluted share count to be approximately 207.2 million in Q1; 208 million for the full year.

I will now turn the call back over to Keith for some final comments before we open up the call to Q&A.

If we look at what we've added on to our facilities in Dubai, where we've added on to our facilities down in Alvin, Texas, what we're spending the money on actively here, we are focused on technology with the engineering staff that we have, with the R&D that we have. All these kind of things I think are very exciting.

We're putting investment back in the industry and back in our Company. We have put so much emphasis on technology, safety, and taking care of the customer with our global footprint around the world. I am very proud of all of that.

To me, the customer satisfaction -- when I walk in and talk to a customer and that guy looks at me and says thank you very much, you really did a great job on this particular job, I am really, really happy about that.

Frank's seems to get all the high-tech work. We seem to be inundated with just taking care of the very high exposure-type wells.

We look forward to updating you on our progress throughout the year. Thank you for your continuing interest in Frank's International. I will now turn it over to your questions.

(Operator Instructions)

Jim Wicklund of Credit Suisse.

Good morning.

Good morning.

Well done press release. You can tell you guys are working hard at being a public Company, and it shows. Good job on all that.

John Walker, you say you have been traveling and everybody is giddy about all we are going to drill. Yet Seadrill, TransOcean, Noble, Diamond, have all come out in the last two weeks and say they see rig utilization coming down. They see demands -- excuse me, bids coming down, duration shortening.

I am trying to figure out the disconnect between what the deep-water drilling companies are telling us and what you are hearing from their client.

Sure. Good morning, Jim. First of all, when I've traveled, our focus -- our customers are E&Ps, the exploration and production companies, as you are aware. Our opportunities are not tied to rig rates. They are actually tied to the exploration and development growth.

As I went from region to register, I met all the senior people -- or a lot of the senior people in the exploration and production companies. And their budgets are on track to deliver good growth this year across the platform that we are certainly participating in. Remember, our focus is in the challenging (inaudible) architectures, and that was a sales in Australia recently, and we've recently secured some new business in Australia, Asia-Pacific, and also up and down the sub-Saharan Africa.

So, the important factor to focus on is not the rig rates, but the spread costs from the well --.

John, I understand the difference, but I have got Seadrill and our own math showing that we are going to retire 50 to 60 floaters over the next four to five years.

Four to five years, we are looking at the moment one year, two years out.

Fair enough.

What we are seeing is good, steady growth.

Okay. That is fair enough. And if I can ask on the same note, the guidance you have for EBITDA margins for 2014, can you guys give us a little of a break down on the US Gulf of Mexico versus onshore, what the margin differentials are looking like?

Sure, Jim. It is John Sinders. How are you?

Hi, John.

We are looking in the low to mid 40s for the Gulf of Mexico and the mid 30s onshore.

That is helpful. Thank you, guys. Appreciate it.

Blake Hancock of Howard Weil.

Good morning, Blake.

Good morning, guys. Following up on that last question, you see the deep-water contract terms possibly shortening here. Knowing that you are tied to the operators and not necessarily to the rigs, do the shorter-term contracts create a greater competition or some cost frictions, with regard to reassigning people and equipment? Are there any other dislocations that are created there?

We have a good mix of -- there are certain areas of the globe that are in the exploration phase, and then other areas going through the appraisal and going into development. We have a good mix of business in all of those arenas.

As far as price pressure on exploration, there is no difference from our services perspective, because it goes back to the spread cost, again of execution of the project. In fact, it could be considered that in the exploration phase, when people are starting up, that they have a lot of start-up costs, so their spread costs are actually higher than when you go in the development phase where the efficiencies are derived.

For the tubular sales, did you guys recognize the cost in 3Q? The revenue was a pure drop-down this quarter? I am trying to figure out how that works going forward with the $20 million you guys called out.

This is Mark Margavio. Blake, what happens is the expenses for fabrication of any of the larger items with tubular sales, those are already recognized, but the actual cost for the pipe itself and the pipe that goes into it, that is in this quarter, as well.

That is great. I will turn it over. Thank you

Robin Shoemaker of Citi.

Thank you, good morning. I wanted to ask about the issue that was discussed in the last call about the delivery of deep-water rigs and the amount of time it takes to foresee trials, acceptance, testing and so forth, so that when you actually get on the rig and start drilling and generate revenues, it is, of course, the critical time for you. But are you seeing any changes in that issue and in your guidance, most importantly for 2014? What have you anticipated in regard to these start-up issues for ultra deep-water rigs?

Well, as far as the deep-water rigs and the shipyards, we get the front-end market intelligence, and we engaged in the client at that point. The [SIT] about the integration testing, we are actually at the shipyard where we would then mobilize our equipment to the shipyard and integrate into the rig. The rig would then obviously be deployed to its first location of operation.

We are seeing a little bit of slowness in the rigs actually coming out on schedule. Various factors, and not necessarily related to shipyard delays, but related to the manufacture of components coming in on a schedule. But as far as our sales, we have not been pressed in that area. We have got capacity to deliver and we are well positioned for that.

So, in other words, that slowness that you are referring to is a factor that you have incorporated in your guidance for revenue growth this year?

That is correct, Robin.

Okay. So, my other question then, has to do with the international market. You cited Europe and Latin America as having a full-year decreased activity. Could you comment on Petrobras, which I think maybe is -- well clearly has slowed down.

Then in the North Sea, do you expect those two regions to be performing less than your 10% growth that you see across the international regions?

I think the short answer is yes.

Okay. So, the areas that you see growth would be everywhere outside of those two areas, and the total picture looks like at least 10% growth?

Your assumption would be correct there, Robin. Yes, absolutely. Now, there will be continued opportunities in both of those other regions, as the market drivers change, as we have guided for previously. As the international operating companies take more of a leadership role in the Brazil market, that creates an opportunity for us. Also in the European sector of the market, as we see the jack-ups coming into the Norwegian sector, drilling more challenging wells, deeper wells, harsher environments, again, we have got a good portfolio of technology in that area.

I would like to take this point to talk about our patented technology, because we actually have in 2013 now, a total of 245 patents globally. In 2013, we actually secured 18 new patents, and we filed 40 new patents. There is an additional 50 engineering services of projects that we have got ongoing. So, we are very excited about that. As Keith mentioned, we have continued to invest within the platform and infrastructure and we will continue to grow.

Okay. Thank you very much.

Thank you.

Byron Pope of Tudor, Pickering, Holt.

I wanted to ask a little more with regard to Asia-Pac; you mentioned that one as being one of the strongest growth regions for deep-water. I think you mentioned Australia being one of the countries where you've recently won some market shares, some new contracts.

For the Asia-Pac region more broadly, I was curious if you could speak to how Frank's is positioned for that growth. Because I tend to think of Asia-Pac as being more jack-up oriented versus deep-water, so a little more color on Asia-Pac outlook.

Sure. Going around the region of Far East of Asia-Pac, some deep-water plays in Indonesia that we're well positioned for and have secured some business. Malaysia, we continue with some deep-water activities in Malaysia. We talked about Australia.

We just completed a deep-water well there in China. So, the sub-Saharan Africa area is where the larger volume of deep-water -- deep wells, I should say -- deep well plays are occurring.

But we have a -- we are very mature in Asia-Pac. We have been there over 25 years, so we have a good infrastructure and good knowledge of the market. We have got good intelligence, so we want to make sure we focus our efforts where we create the most value and where the spread costs are highest and where the value is for the client is efficiency drivers.

Okay. Then a second question from me. In thinking about the 2014 CapEx that is allocated to rental tools, should we think about that as being tools that will serve for contracts wrapping up in international, whether it be the Gulf of Mexico or West Africa? Or is some of that capital positioning for growth beyond 2014?

I think a substantial amount of the capital is for the next two to three years. A majority of it this year will be for the international side of the business. The larger CapEx investments in the US will be for facilities. But, in general, this equipment has a life as much as 10 years, so this is definitely for the future and what is happening out there in the deep-water arena.

Thank you. Appreciate it.

Thank you.

Ian MacPherson of Simmons.

Thank you. John Walker, you mentioned that your international margin in the fourth quarter was burdened by some front loading of some costs. I wanted to probe into that. If you were to adjust for that, would you have seen margin for international in Q4 that was better than 40%? Is that the outlook for 2014 for international that will be similar to your Gulf of Mexico margins in '14?

Good morning, Ian. Yes. As you summarized there, the reduction in EBITDA margin for Q4 was specifically related to supply of expenses for year-end for restocking. On a go-forward basis for 2014, we see from the mid 40%s to the low 40%s, and as we've guided before, that the platforms infrastructure took a significant growth in 2011 going into 2012 there at 43%. Then we talked about building head-count infrastructure.

As Keith talked about earlier, we have got facility in the Middle East that is going to have our state-of-the-art training facility, and we are currently embracing new head count, a mixture of we're very proud of the legacy people we've got at Frank's. They are very well tenured in excess of 25 years of experience, and we are mixing that experience with some publicly traded management experience. Of course, we will have to train those people and integrate them into the Frank's way of business, which we believe to be the best in class.

That is helpful. Thank you. Follow-up question, with you're on shore business right now ending -- this lagging what is happening with the general momentum in North America, where most service companies are seeing a pretty good upturn with activity levels. I wonder if you could share with us how you are repositioning and adjusting the business, and whether there is a trajectory that is lost in your full-year outlook that might point towards improving conditions later in the year or the front of the year, or if you don't have that visibility at this point?

Hi. This is John Sinders. We try to be very conserve in our outlook onshore. What we're seeing onshore, irrespective of the increase in activity is it's not just highly competitive, but it's -- the margins the competitors are very low.

We're not going to -- we have a great deal of margin discipline, so we are focusing on the parts of the on-shore market where our traditional clients are, which it would have to be larger clients, majors, large independents.

Also, we focus very highly on safety. It is almost impossible to provide some the service at some of the pricing we see, if you are going to be using the newest equipment, and you price in the quality and Q&A and safety procedures that we have. So we are marketing that.

We are talking to our clients. We are explaining to them why we think that spending the extra dollars makes sense, but for some clients it is not persuasive; for some it is.

Okay. So at this point in time, the competitive dynamics really trump the improving overall activity level?

Yes, I think they do. I think it is going to tighten. I think we won't have -- it won't be -- we won't decline anywhere near where we did last year. We think the decline will be more mid single digits, but we don't see it changing in the first part of the year.

Okay. Thank you, both Johns.

Thank you Angie Sedita of UBS.

Good morning, Angie.

As a follow-up to one of the questions earlier on the offshore rig count, can you give us a little bit of an idea or do you know the exposure you have offshore to the mid-water market, which is where we have the greater risk clearly, if we are idling capacity versus deep-water and ultra deep-water?

Angie, it is John Sinders. I think it is a good question and it explains the seemingly disconnect between what you see in the rig count and what you see in our results. We have virtually no exposure to the mid-water market. So, the areas where we see exposure is like in the Gulf of Mexico, it is deep; in sub-Saharan Africa, it is deep in. Other parts of the world it tends to be deep, or at least it is with deep wells.

So, although you can look at rig count and deep-water, like Gulf of Mexico was a good proxy for our growth in the Gulf of Mexico, generally you can't look at the rig count overall, around the globe as a good proxy for our growth.

Okay. That is very helpful. Then, obviously, we are not going to see any deep-water or ultra deep-water rigs stacked, so therefore, you don't have that risk in the downturn as you do in the mid-water market?

Correct.

On the tubular sales guidance as far as growth of 4%, it was a bit lower than we expected. Certainly in 2011 and 2012, you had pretty impressive growth rates. Can you talk about your guidance in a little bit more detail? Is it tied to the rig count or is it more special projects?

Also, if you could talk about where your opportunities are in the market geographically, new customers, or by product line?

It is John Sinders again. I will take the first part, and then turn it over to John Walker for the second.

What we have tried to do, and we have said we would shoot for when we have spoken to all of you all, is from a guidance perspective, we are looking at things that our people are pretty comfortable in securing. We are actually looking at places where they are having talks that we think are going to result into sales or where we think we have backlog. So I think it is conservative.

This is a very lumpy area, however. If we look at places where they are having discussions with other people, they are pretty large projects, pretty large sales, that could be possible. We think it is better in this area to hit what we think is a minimum and let the other things come in and talk to you quarter by quarter. John, can I --.

Sure. Good morning, Angie. As Keith talked about opening up the new facility in Alvin, Texas. Our ability to increase capacity, and we are not at maximum capacity at this time, but our ability to increase capacity. So it has allowed us as a Company to get the services side of the business, the management of the services side of the business to focus their efforts for additional sales and tubular sales segment.

When we embraced that a year ago, we saw a significant uptick there from an international basis. The management team have been -- it is clearly defined to them that this is a growth area for us, and our capacity to deliver is obviously important. The platform at which the management team is going to allow us to continue to deliver.

So the 4%, at least 4% is conservative, but lessons learned, we are going to be conservative in nature. We look forward to seeing good things in this area.

Okay. Thank you. That is helpful. How much visibility do you have? Do you have visibility actually into Q1? Obviously you still have some catch up on the deferred revenues. Could you give us at least a little bit of color and insights that you have at this point at least on Q1 and Q2 margins for tubular sales?

Sure. As far as visibility are concerned, let me answer that portion of it, is we do have decent visibility because delivery points -- it actually takes up to 60 days to deliver it to the final point of use. So, decline has to be ordering this pipe and quoting for this pipe for the six months in advance.

The type of tubular's that we have been very successful in are the related again, back to the deep-water. The well architectures of 36 inches diameter, 22 inches diameter, that is an area that has been a good market for us. And as far as --.

I think with margins, what we are looking at is somewhere around the 20% number.

For both Q1 and Q2?

Yes, and that can vary Angie, because it depends on whether we wholesale pipe and then sell it on or whether we are billing for welding and what not, so it --.

It is a mix.

It is a mix; that is why it's hard to -- and why you will see variation in our margins.

Great. Thank you, I will turn it over.

Sean Meakim of Barclays.

Good morning, gentlemen.

Good morning, Sean.

Hi, Sean.

Just wanted to drill down a little bit more on those international margins. Understood the point regarding some restocking at year end and some of the start up costs, of course, ahead of the offshore rig deliveries. Should we be thinking about seasonality in that business?

It seems -- we have limited data going back, but it seems like there could be seasonality throughout the year. Can you give us a little more on that?

Seasonality is a good point. If you look at our projections for Q1, 2014 and you extrapolate that out, it certainly doesn't come out to the total guidance that we have given you. So we do see some seasonality in the northern hemisphere, in the Norwegian market, in East Russia, and the Canadian market, there has been a little bit of slowness there. As far as on a go-forward basis throughout the year, we see that will eventually pick up -- will catch up and pick up.

Should we expect in 4Q to see a restocking pit to the margin on an annual basis, or is that all one time in nature?

No. That was a one-time event, and that was related specifically to some year-end stocking that we -- was already in process. Delivery of some of these components then, Sean -- it's third-party suppliers for us to manufacture. We order the stuff, sometimes three, six months of raw material in advance.

It is getting better, but we -- it was already in process, so we took delivery of it. Obviously the expenses are current, but it is not recurring expense.

Okay. That is very helpful. Then I think earlier we touched a little bit on the deferred recognition of that large pipe order. I think you said in the prepared remarks, maybe $20 million was going to be recognized in 2014? Is that correct --

That's correct.

A push-out from the last time we spoke on the conference call?

It is $20 million we are certain of in 2014. We are working on the other $20 million. It is difficult to time. There is not a specific timeframe for that to be recognized, but we are talking with our customer about changing the contract in some ways to make it recognized if they are not going to use it.

Okay. That helps maybe explain a little bit of the guidance versus where expectations were on that business.

Yes.

Very helpful. Thank you.

Thank you, Sean.

(Operator Instructions)

Georg Venturatos of Johnson Rice.

Good morning, guys.

Good morning, George.

Just wanted to touch a little more on the land US onshore business. Obviously, we are seeing some continued competitive pressures, and you did talk about some of the strategic moves you are making there.

Are those all in effect today, or are we still waiting for additional improvement potentially there? Trying to get a sense of how we should expect that margin progression throughout the year. That mid-30s target, should that be a little weaker near term?

We don't expect our margins to be weaker near turn, because that is the target, and that is something that we are not going to vary yet. We hope to see the efforts that we have undertaken bear fruit, but that is difficult to predict.

We certainly are aggressively marketing much more so, and we are certainly out talking about our safety program and comparing it with others and showing people that when they deal with Frank's, they get a level of quality that actually is of a complete different class. But whether that is going to take hold or not is difficult to say.

Okay, appreciate that. Then apologizes if I missed this, on the tubular service side, so the $20 million of deferred revenue that we know is going to hit in 2014, or at least embedded within guidance, do we have a sense of what quarter that could be impacting?

Mark, would you take this one?

It is anywhere between $20 million and $28 million that we expect to deliver, but it is pretty much disbursed out throughout the year. That is the ones we can get some level of commitment from the clients on accepting delivery.

Okay. Appreciate the answers, guys.

Waqar Syed of Goldman Sachs.

Thank you, a couple of questions here. Number one, as we compare international service revenues between 2012 and 2013, the revenues grew roughly by 2%. And based on some of the data from ODS-Petrodata, the floater working rig count, the deep-water working rig count, was up close to 7%.

Now for you to deliver 10% revenue growth in 2014 in the international services business, what are you assuming for rig count growth for the deep-water rig count growth in 2014?

I think we are assuming for the deep-water rig count growth, somewhere around the high single digits in the markets in which we operate. It varies, because you are seeing various data that shows differences between the average and the year-end rig count. And it is also not consistent between rig logic and Petrodata entirely.

Okay. So you see the same level of rig count growth in 2014 in your market as you saw in 2013?

For example, in West Africa in the floaters and the rigs that is we look at, we actually see rig count growth on the average of 21%, but then we see on a year-round basis more around 9%. So it depends on what the statistics are. From what we give you is to our numbers are based on actually talking to the exploration production companies. So, it doesn't even over all of the rig counts -- in the markets where we are.

John Walker here, I would like to add to that is if we did not have the offset in Latin America or some reduction in Israel, our [drills] would have been substantially higher. So based on the forecast that we are seeing in the marketplace, those areas are not going to have that same reduction, and therefore, as a consequence of that, we are going to have at least 10% growth.

Sure. Now, as you look forward into 2014, is there a way to estimate what proportion of your revenues comes from rigs that are up for renewal in 2014?

Yes, we know what rigs we are working on and what rigs we are targeting to work on. We probably wouldn't share that level of data with you, because it is highly proprietary.

Sure.

Our numbers for this year are based on actual conversations with the E&P companies, in many cases where we have already -- by and large where we have already secured the work. Again, it really isn't something that relates as directly to rig counts or any specific rig.

Okay. Fair enough. You mentioned acquisition as one of the areas of -- that you are targeting it for to deploy capital. Could you talk about what are the key financial features that you will be looking at in acquisition candidates in terms of EPS accretion/dilution or margin accretion/dilution as you look at the candidates?

Anything of size has to have EPS accretion. Okay? At a minimum, it has to have EPS accretion. Margin accretion is more difficult because there aren't that many acquisitions you can make that have the margins as great as ours.

What we would look to see is, we prefer things that have the same margin configuration or complexion that we have, but overall, what we really look at is we look at earnings accretion, return on capital, and for our larger acquisitions. For smaller acquisitions, the -- there it is completely different, because what we are doing there by and large is buying something that we think will be accretive over time or through technology or something of that nature, but it may not be immediately accretive.

Sure. For the larger acquisitions, how do you define that? What would be a dollar amount that you may subscribe to a larger acquisition?

Probably anything over $50 million, actually.

Okay. Great.

The ones we are looking at currently are all -- are margin accretive and earnings accretive.

Okay.

Thank you for your questions.

Thank you very much.

Your final question comes from Ian MacPherson of Simmons.

A fitting final question, Mark, could you update us with your full-year outlook for G&A expense, including the equity compensation component of that?

Sure. We are expecting -- if you want to know the color for the RSU grants, you're looking at approximately $20 million for the year. Non-cash expense for that is included in our SG&A numbers. Overall, we are budgeting for SG&A somewhere in the mid 50s to the low 60s for G&A.

Got it.

Depending on the quarter.

Perfect. Thank you.

Thank you.

There are no further questions. I would now like the turn the call back over to Mr. Keith Mosing for any closing comments.

I want to thank everybody and let everyone know that it's a new experience for us, being in business 75 years privately, and then finally going public. We have enjoyed it. It has been a lot of fun.

We have a lot of people we need to thank along the way. We are very positive about the outcome of our future.

To have a record year last year, and then to beat that record year two years in a row, we are ramping up with investing in technology, investing in new equipment, and the other important thing is training and safety. With the new training facilities that we are expanding into the Middle East, Europe.

So we have got a great Board now. We have got Gary Luquette, Shel Erikson, Mike Kearney on board from outside directors, have been very, very good for supporting and guidance. We think we are on a positive track. We think we are on the right road for the future, so we want to thank everybody again.

Thank you. That concludes today's conference call. You may now disconnect.