Expro Group Holdings NV (XPRO) 2014 Q3 法說會逐字稿

Welcome to the Frank's International Q3 FY14 earnings call. My name is Alexandra and I will be your operator for today's call.

(Operator Instructions)

Please note that this conference is being recorded. I will now turn the call over to Thomas Dunavant. Thomas, you may begin.

Good morning, everyone, and welcome to Frank's International's conference call to discuss third-quarter earnings. I am Thomas Dunavant, Manager of Finance and 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 Interim CFO. Keith will begin today's call with general highlights. John Walker will provide an overview of our operations, then John Sinders will provide a review of our results and outlook. Keith will then provide some closing comments.

Before we begin commenting on third-quarter 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 and 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 statement 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 results is included in the Company's SEC filings, which may be accessed on the SEC's website or on our website at www.franksinternational.com. Also, you may access both third-quarter earnings press release and a replay of this call on our website. 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 third-quarter 2014 earnings release, which was issued by the Company today and is available on our website.

I will now turn the call over to Keith for his comments.

Okay. Thank you, Thomas. Third-quarter results, I'm very pleased to report, were very good. Results showed a continued increase in international deepwater activity, as well as a continued rebound in the US land business. However, our Gulf of Mexico was impacted by loop currents again this year. Overall, as I mentioned, we're very pleased with our results.

Revenue increased 9% for the second quarter. EBITDA margins were 40% in the quarter. Current dividend yield is over 3%. Our outlook for 2014 is in line with previous guidance. We expect strong growth in the Gulf of Mexico and our international business, continued improvement in the US land business, also. Steady contributions are coming in from our tubular sales. 2015 guidance will be in February of 2015.

Frank's focus is on serving the customer. Our customer is generally a petroleum or mechanical engineer working in the oil and gas industry. We follow that engineer from graduation to retirement. As they grow within their company and take on more responsibility, we are there to service them throughout their entire career.

I will now turn the call over to John Walker and John Sinders for their comments before providing my closing comments.

Thank you, Keith. As Keith said, we are very pleased with our third-quarter results. We grew revenue 9% compared to the second quarter, with an adjusted EBITDA margin of over 40%. Within our US services segment, our US land business continued to grow where we have been regaining market share due to our recent refocus within this market.

Offshore activity in the Gulf of Mexico was hampered in the quarter by loop currents, but our expectations are for continued increased inactivity and rig count. Our international services segment continues to grow, as more rigs are working in our markets and we're providing additional services to our customer in those markets.

We continue to look for ways to grow and leverage on our tubular sales segment. Despite macro concerns regarding oil prices and seasonal issues in the Gulf of Mexico, our outlook for the balance of 2014 remains unchanged. We continue to have increased opportunities in all segments that are leading to revenue growth.

Now turning to our business segment results, our international services revenue for external sales increased 11% sequentially and 18% year over year, to $143 million. West Africa, Europe, Latin America, and the Middle East all had double-digit sequential growth. In Africa, we continued to gain more work, signing several new contracts in Nigeria and Angola for work starting in upcoming quarters. Angola and Nigeria are two important markets for us, from both a market share and size perspective. East and West Africa, as well as Egypt, present continued growth opportunities going forward.

Activities in these areas has been increasing, as the pipeline of opportunities indicates growth well into 2015. In Europe, our primary market is Norway, where we have at an almost 40% sequential revenue growth. In the third quarter, we continued to expand our product placement with existing customers.

We executed a high-value, high-margin completion job in Norway using our Collar Load Support System and our patented Fluid Grip Technology for a large independent oil company -- the first in the region with this customer. We hope to build on this success and product placement to drive more opportunities with this customer.

The Middle East is presently a smaller market for us, but one with a lot of potential. We discussed, last quarter, the integrated product management, or IPM, contracts that we had secured. In addition to those opportunities, we had success selling our services with drilling optimization equipment within the region. Our Harmonic Isolation, or HI tool, along with our Cutting Bed Impeller, or CBI tools, have had success in this market, both on- and offshore applications. These tools will drive continued success into 2015.

In the Far East, we have been successful at increasing our market share in Australia, commencing work on a drillship in the region during the third quarter. This is a market that we have identified as a growth opportunity for the Company, and we're pursuing several additional opportunities in the region.

Latin America has pockets of opportunity for us. In the third quarter, we mobilized our equipment to commence work during the fourth quarter on a tension-leg platform rig, running riser-running services in Brazil. Existing tenders show that activity could increase in some of the northern and western coast countries, including Colombia and Peru. Overall, the region is growing for us. The revenue is up double digits sequentially versus the second quarter. We expect continued growth off a small revenue base.

Lastly, Canada. Although the East Canada offshore market is a small market, compared to the Gulf of Mexico and West Africa, we have a strong market share. We expect to begin work on an additional semisub, further increasing our market share within the region.

Overall, adjusted EBITDA margin for international services in the third quarter was 46% of external sales. Adjusted EBITDA margin increased sequentially, as we had less in-freight charges in the quarter, and previous quarter mobilization and labor-training expenses led to revenue in the quarter.

Now moving to the US services, revenue for external sales increased 6% sequentially and 4% year over year to $112 million. Adjusted EBITDA margin for the US services in the third quarter was 41% of external sales. Adjusted EBITDA margins were lower than the prior quarter, due to the mix of business between the US onshore and the Gulf of Mexico. Within our US services segment, our Gulf of Mexico revenue was essentially flat sequentially, but grew 7% year over year.

Our Gulf of Mexico results were impacted by lower rig activity due to loop currents, slightly offset by completion and shelf activities. These currents caused unplanned rig idle time and, therefore, reduced our revenue. The currents are present every year, but this year they've lasted longer than expected. Despite the delays related to loop currents, we did begin operations on two new-build rigs in the Gulf of Mexico during the quarter. We expect to be working on these rigs, both drillships, throughout the rest of the year and into 2015.

Revenue for the land portion of our US segment increased 18% sequentially, to $46 million. Year-over-year results were down 1%. Sequentially, our two large revenue growth divisions were Eagle Ford and Permian; both grew over 25% versus the previous quarter.

The US land business has recovered better than expected. We are very pleased with the results after our recent management and strategy change within the market. We continue to look for ways to reinvest in this market in order to capture more market share. We do expect results for the US land business in the fourth quarter to be flat to down sequentially, due to weather and holidays.

Lastly, tubular sales revenue for external sales in the third quarter was $41 million. This was up 7% sequentially and 1% on a year-over-year basis. Adjusted EBITDA margins for tubular sales in the third quarter was 23% of external sales.

We recently hired a new head of tubular sales. In his short time with the Company, he has identified opportunities for us to grow this business and position ourselves to provide tubulars to our customers around the world. This emphasis, along with internal development that we are pursuing, will allow the segment to deliver further growth in coming years.

Overall, I'm very satisfied with our results and the opportunities we are pursuing for 2015. I continue to push to find ways to increase our time on the rig and the amount of equipment that we place on the rig. This effort will increase the value that Frank's provides to our customers and increase the returns that we deliver to our shareholders.

With that, let me turn over to John Sinders to review the financial results for the quarter and outlook for the year.

Thank you, John. I am also very pleased with our quarter's results. We had a solid overall results in the third quarter and are maintaining our full-year outlook. As we said in our last earnings call, we were confident in our second-half expectations, and the strong third quarter positions us to meet our full-year expectations.

Now, turning to the results for the third quarter, total revenue for the quarter was $296 million, a 9% sequential increase and a 10% increase year over year. Net income for the third quarter was $67 million, with net income attributable to Frank's International N.V. of $47 million, or $0.31 a share.

Diluted net income, which includes $3.7 million in assumed tax impact of conversion of preferred shares, was $63.7 million or, again, $0.31 per diluted share. A full reconciliation of our EPS calculations is included in our press release.

Our adjusted EBITDA for the quarter was $121 million or 41% of revenue. For the first nine months of 2014, our adjusted EBITDA margin was 39%. Due to the timing of our revenue and the mix of business between our segments, long-term trends are a better measure than short-term results. We will discuss 2014 outlook in a minute, but we continue to expect adjusted EBITDA margins to be in the high 30%s going forward.

On September 30, we had $468 million in cash and essentially no debt. Our CapEx spend for the first nine months was $124 million; of this, $85 million was in equipment, with the remainder spent on buildings, vehicles, and other PP&E. We continue to estimate CapEx for the year to be approximately $190 million. Our full-year 2014 expectations are unchanged from the second quarter.

We expect both our international services segment and the offshore portion of our US services segment to grow revenue at least 10% year over year. This is broadly in line with the secular rig-count growth in their regions. We expect revenue from the onshore portion of our US services segment to be down 10% year over year. We also expect our tubular sales segment to grow revenues at least 4%.

Lastly, we are estimating a full EBITDA margin of between 37% and 39%, with an effective tax rate of 20% to 25%. For our fully diluted EPS calculation, there's an additional tax expense, due to the assumed conversion of preferred shares and the elimination of the limited partnership interest. This increases the tax rate by about 5 percentage points.

For modeling purposes, this should be applied to income from continuing operations to arrive at our diluted net income. Diluted EPS is in the number divided by our diluted share count, which is currently 208 million shares. The reconciliation in our earnings release and 10-Q shows this calculation, but please feel free to reach out for us with any questions you may have, as we know these calculations are very complex.

Implied in our full-year results is a flat to slightly up sequential total Company revenue in the fourth quarter. This is due to seasonality in some markets and differences in the timing of a project's completion and initiation. Our Board of Directors has declared a $0.15 per share common dividend, subject to applicable Dutch withholding taxes, for the record date of November 28, with payment on December 15.

Lastly, we are attending several investor conferences this year. We'll be presenting at the Jefferies Energy Conference on November 11, the Cowen Energy Conference on December 2, and the Capital One Energy Conference on December 10. Please visit the Investor Relations section of our website for links to these webcasted events. We also will have an updated investor presentation on our website next week.

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

Thank you, John. We're very excited about the opportunities we see in the industry in 2015. Whether the industry is up or down, we feel that Frank's is on track. Our strong balance sheet enables us to grow, even during a downturn, and our exclusive patented equipment helps us and gives us an advantage, whether the market is up or down.

Our CFO search continues and we should have an update for you soon. I want to thank you for your continued interest and support in Frank's International.

We will now open up the call for your questions.

(Operator Instructions)

Robin Shoemaker, KeyBanc Capital Markets.

I just wanted to start off by asking about the Gulf of Mexico. You mentioned a couple of rigs started operations and that was one of the issues for this year is some delayed startups of rigs. Recently, we've heard about some rig delivery delays at shipyards. Apart from the loop current issue, which you've described, where do we stand in terms of the rigs that you expected to be working on in 2014 and how many more are there that will come in, say, the next six months or so?

Good morning, Robin. This is John Walker speaking. In regard your question, the loop currents, as I mentioned earlier, that was actually offset by additional market share that we secured in the completion and the shelf side of the business. So even though the loop currents were longer than anticipated, it didn't have such a material effect in the overall plan.

With regard to new rigs coming in, we have two more rigs coming in Q4. We've talked to our client or clients and there is no indication, at this time, that those rigs are going to be delayed. As far as the look ahead into 2015, we're going to give annual guidance at the Q4 call, so I really don't want to get into the real specifics at this point.

But I would like to highlight that as we see the delays in the project, it gives us additional opportunities to refocus our efforts on the completion side of the business. This past quarter, we've been successful at gaining additional market share on that side. It's very optimistic for us and we remain within the annual guidance that we've previously highlighted.

Right. Okay, well thank you. If I could follow up on one other question, at the time of your IPO and subsequently, you talked about one of the efforts you were going to make is to penetrate some international markets, which you felt were underserved and where Frank's was underrepresented. In those early phases of that, you would incur a fair amount of startup costs.

I wondered if you could give us a progress report on that; specifically, with regards to some of the international markets that you've targeted and where we stand in terms of the costs you've expended and the revenues that presumably you're starting to generate?

Sure. With regard to international, the Middle East is coming from a small basis for us and we put a lot of focus and effort into the Middle East operation. As we talked about in our Q2 call, we had some front-end loaded costs there with regard to training, with regard to mobilization of equipment, and all the associated operations. More so within the Middle East, Saudi Arabia has got a lot of opportunity for us and the types of well architecture that's going to be embarked upon in some of their new areas, we see a good match for us with the technology.

As far as the Middle East is concerned, also in the Abu Dhabi area, there's a substantial amount of opportunities for us in that market, along with, as I mentioned earlier, Egypt. Egypt, now that we've settled down politically in Egypt, the investment is continuing to proceed and we've been successful with our drilling optimization technology, the HI tool, in that sector of the market.

Also, I'd like to highlight, earlier this year, the Latin American portion of our business had a stall out and we put a lot of focus on that and there's a lot of opportunity, actually, Q4 and then into 2015. A lot of the E&Ps have confirmed that they're proceeding with exploration campaigns and the tenders have been coming through. We've been, let me say, very successful with that.

Okay, great. I appreciate the update. Thank you.

Ian Macpherson, Simmons.

Good quarter, notwithstanding the loop. Has that been a continuing headwind for you in October or early November? Would you be able to provide any sort of frame of reference for how big of a headwind it was in Q3?

Sure. In Q3, we had five of our operations in the Gulf of Mexico were affected by loop currents and it was an inconsistent period where, dependent where the well activity was, whether we would actually be mobilized or not. Because once we're latched on, then we're mobilizing and then, the drilling proceeds, the well execution proceeds. For Q4, the impact has been significantly less where we, in the early part of October, we were down to one rig operation that was being affected by loop current.

Okay. Thanks, John. You highlighted a lot of impressive share increases and significant awards internationally. I'm going to ask you, also, the deepwater rig contracts that had been awarded in the past quarter domestically have been the Independence, it's been Hess, and Stone and Deep Gulf, et cetera. Have the tubular services contracts for those rigs been awarded yet and how do you see yourself positioned on those?

It's a mixed bag there because they haven't all been awarded. But we're starting to see the same level of success as we've had in the past, as far as market share. In fact, certainly from an exploration and the appraisal aspect, but as we move into the development phase of some of these projects where the completion equipment has more of an emphasis in value, we've been seeing success there.

It goes back to the quality of service and the differentiating technology because if you look on a go-forward basis, the undertone, as we're aware, is about reducing well cost. This is where a client, then, elects to choose the best in class. Someone who can actually optimize his well, reduce well costs at well center, and that is done by differentiating technology.

Our whole model is predicated on well cost reductions and sustainability.

It can't just be the one-time application. One good example of that is in the Gulf of Mexico, recently. The tail end of the Q3 was, we installed 25,000 feet of casing and line in the Gulf of Mexico with our extended reach technology.

That casing string concluded at over 2 million pounds of casing into the well bore. That's a significant achievement from the client and also from ourselves. We saved and then we protected the clients' investment.

As you're aware, a deepwater well in the Gulf of Mexico can far exceed $100 million. So that type of approach is how we're going to continue to develop this sector of the Business. In addition to that, as we move into the shelf, we are in the shelf, but as we continue to develop share in the shelf and the wells get more complex in nature, it just allows us to then emphasize the technology again.

That's good color. Thanks.

Ole Slorer, Morgan Stanley.

Thank you very much. Again, echo, good results. Good to see you guys back on track again. You highlight good momentum in offshore drilling and your rig count, yet the headline sort of global activity numbers are pretty flat this year and let's assume they look pretty flat into next year as well. What is it that's driving your reference to increased rig count or rig activity? Is it a switch?

Are we seeing a big switch from exploration and appraisal towards development drilling at the moment? I would imagine that might have some impact on you. Or is it a pure market share in your rig count that's going up? Or could you just clarify a little bit what you mean?

Absolutely. Ole, in regard to -- you answered the question there. As we move in from the African exploration into the development campaigns in the subsea developments, that's where we have substantial differentiating technology that will allow us to reduce well costs. In addition to that, Brazil is an opportunity for us where we just started that riser running application that's been in the pipeline for, coming up for a year.

It's taken a year for them to get to this point, but we finally mobilized and that's a multi-year contract and that's with the large national down there. That gives us a significant opportunity with that client to show the differentiating services that we can offer because we have previously been successful in Brazil, but we elected not just flood the market on a price point basis. We've really held firm offering our technology and we're starting to see some traction at that point.

In answer to your question about 2015, we're still waiting, as everyone is, to see where the E&Ps are going to allocate their capital. But with being a global portfolio and having the technology on hand, we should be in a good form. To Keith's point earlier, in the event that there is some flattening within the market, which is highly likely, we can then use our balance sheet to optimize in some of these valuations of being more realistic.

So if there is, let's assume, a flat market, I don't think that's completely unrealistic, but you see StatOil and others really cutting back on exploration drilling and the prioritizing development drilling. What is the lever on development drilling for you relative to exploration and appraisal?

For the development, so once the well is drilled and it's cased, the conduit's cased, that final completion string that's going to go in for the well production life of up to 10 to 15 years, there's a lot more focus on, not just the speed in which you actually run it into the well bore and get it sealed, is the well integrity side. We have a suite of technology tools that can validate the well integrity.

We've been successful, and actually to talk about Norway, as I mentioned earlier, that we've been successful in Norway with a client there with that technology and we see more opportunity going forward there.

Finally, if I may, we're seeing some changes, let's say Libra, on managed pressure drilling and techniques that are designed to drill faster. How does that impact -- if you move towards more managed pressure drilling offshore and deepwater in general, West Africa and Brazil, how does that impact, if at all, your business?

Two aspects of coming further up the whole, as we go to casing drilling, we have a suite of tools with the CRT tools. Those tools actually allow us to rotate the casing into the well bore and then, as we get to the managed pressure drilling aspect of the business, the quicker that they can actually drill that bore, the better for the client. The reduction in costs and the bores will get deeper.

The theory, of course, is to get deeper with the conduit to a larger size. And as we get there, then the deeper casing strings that matches with the high-capacity handling tools that we have to install it in the well bore. So from an overall evaluation perspective, there's no material difference in our business and certainly not from a negative standpoint.

Maybe positive. This is very finally, if I may, on the Eagle Ford and West Texas, very impressive growth numbers. But you historically highlighted that North American land is a mom and pop business, more fragmented, lower margins. So with those kind of growth rates now demonstrated in the US land, how come and how should we think about your margin outlook as a result of a bigger percentage of presumed lower margin business?

Ole, it's John Sinders. Obviously, as we expand land and if it expands at a greater growth rate or a greater overall amount to offshore, which we don't anticipate that to happen, but if it were, it's got a lower margin, so arithmetically, our margins come down on a corporate basis. So I think what you have to do with us going forward and what we'll try to do is look segment by segment so we can guide you towards your modeling and how to view margins in each different segment.

I mean, right now, our margins onshore actually are better than we expected. We're in the low 30s. We have some economies of scale that we're actually achieving as we've entered into our new marketing campaign. But clearly, that reduces our overall corporate margins, because our margins in our offshore areas are north of 40.

John, I'm very, very happy as long as you keep on writing North American land market in the low 30s. It's still very good margins. But it would be helpful if you help us break it out on a go-forward. But I'll hand it back. Thank you very much.

Brad Handler, Jefferies.

(multiple speakers) be a quick one, but maybe just to start, can you update us on deferred revenues and how that progressed in the third quarter?

It's a good news, bad news story. We have more deferred revenues. So it's right now right around $77 million, and that's the bad news, I guess. The good news is that, as you know, with our deferred revenues, we get paid. We just can't recognize it in income at this time. Some of the revenue that we recognized that was in deferred revenue will be recognized in 2015.

On some of the revenue, about $40 million-odd is with one client and we're working with him to find ways to recognize it earlier. But fundamentally, deferred revenue is not that bad a thing. Essentially, it's partly what that business has. A large part of that business, not the majority but a large part, is clients coming in and we help them manage their pipe logistics.

Because of that, you're going to have deferred revenue because they're going to be getting pipe and connectors with us that they plan on taking down at a later date. So it's not something that we are out there discouraging clients from doing because we want the business, we just want to try to manage it a little better so that we can have more forward, a better forward feel on recognition.

Now what we do do, and we started doing this some time ago, when we guide you on revenue recognition in tubular sales, that excludes deferred revenue, so we don't throw that in there. So the way we look at it, deferred revenue, as it does get booked, is almost like lagniappe. It's a little something extra that comes through.

Understand. I guess that's -- I think rightly or wrongly, you can steer me otherwise. I guess we're latching onto it a little just thinking about, does it divulge something about customer behavior, right? Not executing projects as quickly as they expected to or they guide you to? Maybe you're going to tell me that's probably not the right way to look at it, though?

Not entirely, no. It really is a logistics function as much as anything. There certainly are changes in customer expectations on their wells and the timing of their wells. So that's partly why they contract with us, so they have the luxury of having that flexibility. But there's nothing in it in the deferred revenue that is reflective of any drop-off in drilling plans or anything of that nature. I mean, if we see something like that, we'll certainly keep you updated.

A key thing to close in this point, Brad, is that, as I mentioned earlier, we've hired a new head of tubular sales. Just restructuring that part of our business will allow us to develop efficiency, so we're confident in that area. It's just going to take a little bit of time and close going forward and confident.

Brad, this is Keith Mosing. I just want to add to what John and John just said. This actually shows up on our books, now that we're a public Company, but this is actually a service for our clients. We provide pipe yard and so if it doesn't leave our yard or our facilities, we can't book it.

But it's actually a service that we've been doing for many, many years to take care of our clients to actually, he can inventory his purchases from us in-house. But now that we're public, we can't actually book it.

But it's not necessarily a bad thing. If you can add it to what we're doing, it's really quite positive. The client, you know the client is eventually going to use it and when he uses it, eventually we're going to do the work on it.

Right.

It's not necessarily a negative thing. It's a service we've been providing for many, many years.

Understand. I appreciate the extra color and it does, it makes sense. Okay.

Maybe just one more for me, please, I recognize you're going to give us more of a 2015 look soon, coming into early next year where your visibility gets that much better. But I guess I am curious about the North Sea, if you can speak to it, even generally, your views on where the North Sea might be headed next year?

There's certainly a sluggishness in contracting for rigs. It feels as though it is poised, perhaps, to take a step back next year. I'm just curious how you see that, how you infer that?

Sure, Brad. There's quite a substantial amount of tendering going on at the moment, within the tubular services demand for Europe. So it's ongoing. So there's no specific conclusion I can come to at this point; however, the Norwegian portion of our market, as we have identified as being the primary portion of our market with 40% sequential growth revenue, the contracts in Norway are long-term in nature.

Yes, we've seen recent deferrals from the large national there, but that has not affected us. That's not a portion of the business that we were participating in. So as far as the remaining part of the business and the European or the Norwegian sector, it's looking optimistic for us for 2015.

As far as the remaining part of Europe, within Holland and reaching into central Europe, we know that there's always been an economic slowdown there, as well as the oil price contraction. So we're just monitoring like everyone else is, but we're certainly not getting any massive swings in a negative form.

Okay. That's very helpful, thanks.

Jim Wicklund, Credit Suisse.

Good quarter. Good hit on the numbers. I know, again, we're not talking about 2015, particularly, but the jack-up market, I think you guys mentioned that one of the things that helped out was the shelf in the quarter and I know that earlier this year, you guys had started to staff up to make a bigger penetration in the jack-up market. Have we seen any changes in the jack-up market? I guess there's been several idled in the Gulf of Mexico, but more on a global scale. Has the outlook for the jack-up market changed in the last quarter or two?

As far as to get your question, we'll start with the floater market. The floater market, we're seeing 36 rigs coming out by the end of 2015, of which 50% are still uncontracted, so we're keeping a close eye on that. In parallel with it, the larger volume, up to something in the region of 70 rigs in the jack-up side is going to be coming out. So the ones that we're focused on are the higher-end jack-up, where we can create the most value at the well center and the well architecture.

So as these rigs are being contracted, we're immediately following up with the type of well architecture that's happening. We're not seeing a significant slowdown in the target market that we're approaching. Now we are seeing and hearing, of course, deferrals and slowness coming out of the shipyards. So at this point, we're just not seeing a significant impact on our forward outlook.

Particularly, we're seeing some of the new, more sophisticated jack-up activity in the North Sea, in the Norwegian sector. That's an opportunity for us, actually. So overall, clearly, jack-up count is falling in a lot of markets and particularly, when you're looking at more conventional drilling, but in the North Sea, it's positive right now, for us, at least. The Middle East isn't doing badly, either, and that's a growth opportunity we're focused on for 2015.

Correct me if I'm wrong, but you guys don't have a whole lot of exposure to third and fourth generation floaters, in general, anyway, relative to the fleet. If you're going to increase your focus on jack-ups now, I guess the time to be hitting the newer high spec and not having a big entrenched position in lower-end shallow water, that's probably not bad timing. Is that a good way to look at it? Is that right?

That's a good way to look at it.

Okay. My second question, if I could, which business has a better margin? You talk about how exploration's slowing down, but it plays into your completions business. Which one would you rather do from a margin point of view?

You know, we love all business and spoken like a true company guy. Probably really complex exploration wells have the highest margin, but the margin on the completion activity is very, very strong and it's very steady. So the completion, the nice thing about it is, once you get that going, a development campaign going, it's something that just -- almost a manufacturing type of thing and we have some very proprietary technology.

Jim, just interject, I'm sorry, John. If you take a close look at the subsea wellhead manufacturers and you can see that the backlog they have coming out and through the pipeline in 2015, 2016 and that's an indicator of all the subsea well activity that will happen globally. That's where we can create something of significant value. When the subsidy wellheads are in place, they're going to complete those wells and that's where we were differentiate with the completion services.

Okay, that's very helpful. Thanks, guys. I appreciate the help.

Jeff Tillery, Tudor, Pickering, Holt.

My question is really just around the International Services margins. If I look back in the last quarter, obviously, it was hurt by some of the costs that didn't recur and this quarter, it looks like it was helped by some of the mix of work. But should I think about those two EBITDA margins as kind of the endpoints of what's reasonable over the next kind of -- as we step forward, so kind of 38% to 46%? Or how should we think about the services margins internationally?

I mean, you can absolutely look at them as goalposts. What happened last quarter, and we had mentioned it, is that we had some expenses that we incurred and wherein you would see the revenue recognition there from in the following quarter. So, that's partly what you're seeing here.

We also mentioned before that our business is a little lumpy. I mean it's not as -- when you look at our business, on some of the rigs that we're on, we can make $3 million, $5 million on a rig in a job.

You'll have expenses to gear up and it isn't always completely covered or matched in the quarter. So you can have that type of, I guess, overlay between one quarter and another.

So I think yes, you're right, we don't see any reason why it should be less than 37%, and I think I'd be shocked if it were more than 46%, or 45% going forward. Between those, where we look internally is the high 30%s, low 40%s. That's what we expect.

Thank you for the answer. That's all I had. Thank you.

Michael LaMotte, Guggenheim.

Thanks, good morning, guys. Let me also offer my congratulations on the quarter.

Thank you.

A question for John Walker, you mentioned in your prepared comments the new contracts in Nigeria and Angola. I know that there had been some chatter in the market of increased competition in West Africa with obviously some of your bigger competitors now back and active in that market. Can you comment on the competitive landscape there and perhaps the impact on pricing as it pertains to that new work?

A little bit of color on that one, in regard to the southern part of West Africa, for example, during the exploration phase, when the market started going sub south, we have differentiating technology that we developed in the Gulf of Mexico and subsequently moved it to West Africa and the lower portion. When the tenders came out and we go into a development phase, it became very clear that we had differentiating technology that would reduce their well cost.

So it was a lot easier for us to justify the difference in price to the client, so we've been successful in that domain on multiple occasions throughout this year. Regarding exploration, there was a flurry of activity in the North and Northwest portion of Africa with a mixed bag of results, some not so good and then some good potential for 2015. In that area, there was a little bit of price point at push. We've reacted to it. It's natural.

But we've now subsequently secured the contracts and then we go and explain to them about there's a better way to do it. There's a more cost-effective way to do it and that's offering our differentiating technology again. So we've been successful this year applying that methodology. We'll just continue to focus on that market.

That's great color. Thank you. I've also noticed that, over the last three or four quarters, there's more discussion about the tools in the tool portfolio. Just curious, as we look out over the next 12 months or so, is that trend going to continue? Do you have new technologies and tools that will be rolling out over the next year?

Yes. We continue with our Research and Development group developing the technology. I don't actually have the number at hand, but I'd be happy to talk with you off-line about the patents, but the general numbers are 250 patents globally and the patent portfolio is still strong. It's not that there's a depletion in the near-term. We actually keep on adding patents and patent applications to that portfolio. So from a health standpoint and a competitive advantage, again, we feel confident in that area.

In terms of the revenue impact, we see it, both, obviously on the equipment side, but the pull-through in terms of contract wins just as you described in West Africa, correct?

Correct.

All right, thank you.

Georg Venturatos, Johnson Rice.

Just had a couple follow-up questions on the jack-up opportunity that obviously you all have discussed. Just wanted to see if you could provide us an update on where you are from a market share perspective? I believe you've talked about kind of low teens most recently. Given the new build supply that's coming online that kind of is in your wheelhouse on the high spec side, where you would anticipate that potential market share going over the next couple years?

On the jack-up side, we really don't have any better market share numbers than we gave you last quarter. We're still somewhere right in the low to mid-teens and that's going to take time to move up. On the floaters side of the market, we've really been reluctant and have never given precise market share and probably won't do that now, either, but we see it increasing. Let's leave it at that, and especially on the completion side.

Okay and just a follow-up on that, in terms of margin profile within jack-up work, first what you're doing deepwater floater-side, how do those or at least your expectations of those comparing over time?

Really, the problem with jack-ups is that you can have all kinds of different work on jack-ups. On some of the simpler jack-ups or smaller jack-ups, we might do hammer work. On some of the more sophisticated and newer jack-ups that you see in the North Sea, you're going to have more sophisticated drilling. There are parts even on some shallow water jack-ups in the Gulf of Mexico, if you're doing lower tertiary or something like that, so it's really hard to generalize.

I mean by and large, it's lower margin than our floaters, but to put one number on, it's just not fungible. The opportunities vary tremendously. I know that doesn't help you, Georg, and we'll try to, as we get a larger number in market share, we'll start to see some trends that we could probably call out and identify for you to help on your modeling. But right now, anything I would give you would be misleading.

Right, I appreciate that. Understood. Thanks for the answers, John.

Mark Brown, Global Hunter Securities.

Hi, guys. Congratulations on the US land growth and it seems like you've made a huge amount of progress in that business. I was wondering, how broad-based is that growth? You called out the Permian and Eagle Ford specifically, but is that -- are you targeting certain markets to focus your resources or is that fairly broad-based in terms of your new strategy?

I'd answer that quite simply, it's broad-based. We appointed this single head earlier on in this year. We consolidated our sales efforts and we came up with targets and are proud of the sales team. The sales team has executed their plan and our operations team has followed behind it and maintained the market share.

We don't see -- there should be no significant reason as to why we'd have contraction in that area, but as we mentioned, it's going to be flat in that area for Q4. The rationale behind is we're going to have some stair-stepping going on. We can't just, all of a sudden, just see continual compounded growth there. We're going to stair step our market share penetration and things are looking optimistic in that segment.

Okay, thank you. I just wanted to ask, you called out in the prepared remarks your Fluid Grip automated tong for a large IOC in the North Sea and I was just wondering if there was -- what was the significance of calling that out and highlighting that? Is that kind of a new version of the technology or is it just a new market or new customer? I don't know if you have any color that you can provide.

Sure. Well, it is a slightly new version of the technology where it has higher capacities and it can attract a wider array of tubular. Now, without getting into the technicalities of it, the value that it creates should extend the well production life due to mitigation on the corrosion aspect of the tube. So that was the reason that we brought it out.

It is a complete differentiated technology unique to our Company. We certainly have had it in different markets for over 10 years. However, we've revitalized that product and we have a new marketing campaign going forward.

All right. Last question for me is just in the Gulf of Mexico, is there any potential for catch-up work in Q4 in the Gulf given once those rigs that were down come back online? Any chance that the customers will accelerate the work in the Gulf?

An interesting question there ,because I talked to our US Gulf of Mexico leadership team and they came back and I asked that exact same question. They said, well, it's not like a haircut. You don't have two in the quarter, you just have one. If the work has slipped because of weather, it's slipped. It doesn't go away, it just slipped. So as a result of that, it allowed us to penetrate additional markets on the completion side of the business and also the shelf and that offset and we're pleased with our numbers.

That makes sense. Thank you. Great quarter.

Tom Curran, FBR Capital Markets.

Very helpful Q&A, so far. I guess returning to the North Sea, first, for Norway, could you clarify how much market share gain, if any, contributed to the 40% sequential increase in revenue? On the UK side, I know that's been a long-time opportunity for greater market penetration. Is that dependent, to any degree, on either the floater or jack-up side or specific customers? What I'm trying to nail down is depending on how the UK market evolves, will that determine the potential opportunity for share gain in 2015?

So we don't actually breakout the market share by region for the markets, but as far as the European sector as a whole, Norway is the number one sector of the market for us. As far as the UK is concerned, there's a substantial amount of tenders that are ongoing right now and there's a possibility that we would secure some of that business. We're only approaching that business on the basis of what value it would create for the client and where the margin would be for ourself.

So we're not just going to drop the price point on that to penetrate the market. It's difficult for us to really articulate, at this point, as to what the conclusion will be. If the market grows in the UK sector, we would expect to have a small addition to it. But by no means is there going to be a significant material change from what we've guided for Q4. And then 2015, as I say, we'll guide for 2015 in the Q4 call.

Thanks for that, John. Just a clarification, the tenders you've referenced a couple of times now, are those primarily for floaters, for jack-ups, a combination?

It's actually interesting. It's floaters, but there's also some platform work. There's a lot of mature platforms that are looking for some stimulation, well intervention and stimulation, and there's actually some platform work that are looking for abandonment. So they're actually abandoning the platforms, so all those portions of the business is a tubular opportunity for us and that's generally where the tendering process is around at the moment.

Okay. Turning to the Gulf of Mexico, I know when it comes to the mix of your revenues by job stage, you've been focused on growing the portion you derive from the most lucrative production string installation phase. Could you give us a sense of where you're at with that effort? In other words, a rough idea of what it contributed to your revenues in 3Q versus a year ago?

We really don't break that out. We can say this, is that the renewed focus on completion work with our proprietary technology has -- we have seen an increase in market share everywhere we've done that and pushed it, but that's about as much as we'd want to go into.

Okay. My last one, I guess, is a jump ball, but could you just provide us with an update on how the acquisition prospects pipeline has evolved since the last call?

It's moving on. The one good thing about some of the other stock prices coming in is that -- look, our balance sheet is perfect. Keith loves to buy things when markets are a little more in disarray and so do I, because the chance for companies to go public and to do leverage recaps and all that type of stuff that keeps -- that pushes up their value, it doesn't exist right now. So we're the liquidity source.

I would think that we're going to have -- we could see an increase in acquisition activity. But we haven't done any, so even one would be an increase. But I think we can see an increase in the next year.

This is Keith Mosing. It's not like we're not looking. John and I have reviewed several, but we just feel that the margins are a little bit too high right now. But we're always ready and we're always looking for opportunities, I can assure you that.

All right. Thanks for the answers, guys. I appreciate it.

Ian Macpherson, Simmons.

I just have a couple of nitpicky ones on the fourth quarter or the implied fourth quarter guidance, John, I think you did reaffirm that you're looking for your land revenues to be flat to down. Your guidance for full-year to be down 10%, that looks like it's too low, correct, if you're flat to down, the year should be down 4% or 5%? Just wanted to confirm that.

Yes, your math is correct. On the other hand we really are -- the fourth quarter is a seasonally weak quarter onshore and so we really don't want to update our guidance. But the math that you're coming out with is correct. So you can't add up everything we gave you and come up with what we've guided for the full year, because onshore has been stronger to date and so therefore, it doesn't foot.

John, thanks. The more important curiosity I had, really, was your EBITDA guidance, 37% to 39%. You were at 39.1% in the first three orders. Could you instruct us whether there is something particular in fourth quarter that could skew down into the midpoint of that range?

No, not really. What we could see, and this is why we try to give the ranges, is could we end up with some extra expense internationally as it's growing and we're having to move things and like we had before? Yes, that could happen to us and that's primarily where it happens is in some of our stronger African and Middle Eastern markets. So that's why we give the range.

I understand. Thanks a lot.

I'm sorry, we have no further questions at this time.

Okay. This is Keith Mosing, and I just want to thank everybody for their interest in following along with Frank's and let everybody know that, even though we've only been public now for a little over a year, 14 months, we've been in business servicing this industry for over the last 76 years. We're very pleased with our revenues. We're very pleased with our growth. Also, our future looks really, really bright and we're a strong Company. No matter whether the market's up or down, I think we'll prevail just like we've always have. Again, I want to thank everybody for their support and interest. Thank you.

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