Expro Group Holdings NV (XPRO) 2015 Q3 法說會逐字稿

Good morning, and welcome to the Frank's International third-quarter 2015 earnings call. My name is Brandon, and I will be your operator for today.

(Operator Instructions)

Please note: This conference is being recorded.

And I will now turn it over to Blake Holcomb. You may begin, sir.

Thanks, Brandon. Good morning, everyone, and welcome to the Frank's International conference call to discuss third-quarter 2015 earnings. I am Blake Holcomb, Director of Investor Relations. Joining me today on the call are Gary Luquette, President and Chief Executive Officer; Jeff Bird, Executive Vice President and Chief Financial Officer; John Walker, Executive Vice President of Operations; and Keith Mosing, Executive Chairman.

We have posted our presentation on our website that we will refer to throughout this call. If you'd like to view this presentation, please go to the investors section of our website at franksinternational.com.

Gary will begin today's comments with operational highlights and an overview of the quarter. Jeff will then provide a more detailed overview of our operations and financial results. Gary will conclude with his closing remarks. Everyone will be available for questions after prepared comments. In the interest of time, we ask that you limit yourself to one question and one follow-up question during the Q&A session.

Before we begin commenting on the third-quarter results, there are a few legal items that we would like to cover, beginning on page 3. 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 risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements. Such statements speak only as of 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 materially differ from those being set forth in any forward-looking statements. A more complete discussion of these risks is included the Company's SEC filings, which may be accessed on the SEC's website or on our website at franksinternational.com. There you may also find the third-quarter earnings press release and a replay of this call.

Please note that any non-GAAP financial measures discussed in this call are defined and reconciled to the most directly comparable GAAP financial measures in the third-quarter 2015 earnings release, which was issued by the Company earlier today.

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

Thank you, Blake. Good morning to everyone on the call.

Before I get started with my comments on the quarter, I wanted to make a quick announcement regarding some personnel changes that we have planned. John Sinders, our Executive Vice President of Corporate Development and Planning, has decided to leave the Company effective at the end of this year. [Jose Xavier], Vice President of Corporate Development, will be working with John over the coming months to ensure a smooth transition of our M&A group. I want to take this time to thank John for his time at Frank's, specifically stepping in during a time of transition where he served as interim CFO and, later, EVP of Administration. We appreciate all the work that John did. And he will remain connected to the Company on a consultancy basis, and available to assist us further if and when needed.

Now turning to the results from quarter three, the oilfield services industry faces strong headwinds for the foreseeable future. A decrease in customer capital spending, lower well-construction activity, and price reductions paint the backdrop of the challenges we face. In light of this climate, our focus as a Company continues to center around controlling what we can control. Before Jeff dives deeper into the drivers of our financial results this quarter, I would like to touch on several of the main themes that summarize our performance in the quarter, which can be seen on page 5.

Overall, third-quarter performance was a reflection of what we began to see materializing as we exited the second quarter. Our US offshore business saw an uptick in activity in market share, as projects recovered from operational- and weather-related delays. Our international business, particularly West Africa, held market share, but was adversely impacted by steeper activity declines and pricing concessions.

In the areas of our Business we can control, we continue to see good progress. Our lean initiatives and the cost-controlling measures we implemented earlier this year are yielding positive results in our US Services segment and the Company's cash flow. The next phase of these initiatives will be focused on our international business, where activity levels are beginning to slow.

Top-line revenue fell 6% in the quarter, with our international business being hit the hardest by activity decreases. Total Company EBITDA fell 8% from the second quarter, as the benefits of international cost-cutting initiatives could not be realized in time to match revenue declines. However, US Services and Tubular sales margins both improved in the quarter as cost reductions and manufacturing process improvements took hold. As a result, total Company EBITDA margin performance was above 30%, and solid positive free cash flow was achieved for the ninth consecutive quarter.

This marks the second straight quarter we saw Tubular sales contribute meaningfully to the overall results for the quarter. In fact, the third quarter was our highest revenue and EBITDA quarter for the Tubular sales business since turning public. We continue to pursue contracted spot opportunities in this segment, but would expect to see more tempered results as we close out 2015.

Turning to page 6, you will see a high-level overview of how our offshore regions were impacted by price, activity and rig count during the third quarter. The majority of our operational areas saw declines, with the exception of Europe and the Gulf of Mexico. In Latin America and the Middle East, we maintained market share but began to see reduced activity in the form of projects being pushed to the right. This is a similar impact to what we saw in the US Gulf earlier this year. Top-line revenue in each region was down 20% to 30% quarter over quarter as a result of the shift.

The pricing and activity impacts also included a combination of customer discounts, currency fluctuations, and the type of work being done. The scope of work we perform for our customers will likely continue to ebb and flow, but the percent of rigs operating that we participate on is a key indicator for our Business. In fact, the percentage of rigs that Frank's worked on in Q3 was flat to Q2, despite a decrease in activity in the majority of the markets we serve. There has been some shifting away from work on higher-margin projects to lower-margin jobs that may not require some of our highly specialized tools and services we offer. This shift in the mix of work was a key driver in the reduction in our international margins during the quarter.

Page 7 gives us a closer look at what we saw in our two biggest operating areas during the third quarter. On the positive side, the Gulf of Mexico market share has grown during the year, even as fewer rigs remain active. We are working closely with our customers to find the right balance between preserving market share versus pricing concessions, and are satisfied with the results we are seeing. As we move through the balance of the year, it is looking more and more as if we are approaching a market bottom in the US Gulf, and expect to sustain [their current] market level.

The West Africa market is a different story. While our market share is holding, it is holding in a market that has seen nearly a 20% decline in the number of active rigs. In addition to an overall rig decline, an unsuccessful exploratory campaign in the pre-salt that would have required more complex well-construction designs has exacerbated the issue. In other words, it is not only a loss of rigs, but also the type of work we are performing on the remaining rigs that involves less complexity, and thus, a lower need for Frank's technology. As a result, we anticipate the margin seen in some pre-salt areas of West Africa, particularly Angola, to be the new normal for the fourth quarter and most, if not all, of 2016. However, we believe that the worst is behind us, and we would expect more revenue stability as we continue to compete for market shares in other areas of West Africa, and margin improvement as we drive our costs lower in the region.

Moving to page 8, this provides a high-level overview of how our team is evaluating the current M&A market. Despite the poor industry backdrop and its impact on our Business, we remain vigilant to find opportunities to take advantage of the downcycle. While getting leaner and more efficient are priorities, we also want to position the Company for appropriate growth well into the future. We have begun to see bid-ask spreads narrow as balance sheets are stretched and value expectations become more realistic. We have the advantage of being a company with good cash flow and a strong balance sheet that allows us to be selective, and make a potentially transformative acquisition that would be accretive to the Company and support our already industry-leading margins.

The three key factors, among others, being considered as we evaluate M&A opportunities are: first, if it allows us to gain market share in an under-represented market or displace a competitor. Second, if it offers a compelling technology that could be transformative in maintaining our foothold as a leader in technology and/or provide an added benefit to our clients in the form of lower overall cost of ownership and safety. Or third, if it's a complementary business to tubular running services that allows us to offer additional services to the customer, and deliver more of the expertise and professionalism that they have come to expect from Frank's. We will continue to update the market on what we're seeing in the M&A space, and how we can best leverage our balance sheet to position Frank's to emerge a stronger company when the market does recover. With our financial strength, we will remain diligent in our evaluation of potential transactions.

I will now turn the call over to Jeff Bird for his comments, before providing my closing comments. Jeff?

Thank you, Gary.

Looking at page 10, we see a summary of the financial highlights from the third quarter. Net income attributable to Frank's International was $17 million or $0.11 per share. Diluted net income, which includes $1.6 million in assumed additional tax impact of conversion of preferred shares, was $22 million or $0.11 per diluted share.

Earnings per share felt the impact of a higher quarterly effective tax rate of 31% due to shifts in the business mix between US and international jurisdictions. We would expect our annual effective tax rate to be between 25% and 28%. Additionally, due to US dollar strength, specifically in Norway and Brazil, we incurred a $5 million loss in the quarter. Aside from these impacts, and as Gary touched on, our revenues and adjusted EBITDA were in line with what we expected.

As we exited Q2, many of the themes we discussed during the last call came to pass during Q3, primarily as it relates to challenges in West Africa and the timing of projects in the Gulf of Mexico. We also held total Company EBITDA margin to above 30%, and saw deleveraging at a rate of 47% in the quarter, which I will discuss further in a minute. As we work our way through the trough of the cycle, we will attempt to maintain our industry-leading margins with full knowledge that further downside risk exists if our current market thesis doesn't play out, and we experience an even more severe and prolonged downcycle.

Looking more closely at the different business segments, we will first look at International Services on page 11. International Services revenue from external sales in the third quarter declined 16% sequentially and 28% year over year to $103 million. Decreased activity across the majority of our markets was the overwhelming driver. In fact, pricing has been relatively stable, and only accounted for about 15% of the revenue declines. Our overall market share was flat quarter over quarter, but with a fewer number of exploratory wells being drilled and the overall rig count having declined, we are holding share of an overall smaller pie. Adjusted EBITDA for International Services in the third quarter was $39 million or 38% of external sales, down 29% sequentially and down 40% year over year.

The rate of decline in activity, as well as the mix of work we conducted in the quarter, outpaced our ability to implement cost-saving initiatives. We have identified some of the same opportunities we saw in the US Services segment, and have already begun taking similar actions in Q4 that will show up more fully in Q1 of 2016. Some of the actions are associated with adjusting the current activity levels, but roughly one-third are more structural in nature and will carry through as the cycle recovers. We believe that we are still in the early innings of this cost-optimization process in the International business, and the possibilities to harvest efficiencies abroad are on par or greater than those we have seen within our US operations.

Moving to US Services on page 12, the third-quarter revenue from sales decreased 5% sequentially and 34% year over year to $74 million. Adjusted EBITDA for US Services in the third quarter was $18 million or 24% of external sales, up 9% sequentially and down 60% year over year. The incremental pickup in EBITDA shows that the cost-cutting actions we have taken during the year are working their way through to the bottom line.

Looking closer at our US Services business segment, Gulf of Mexico third-quarter revenue was roughly flat sequentially and down 20% year over year at $53 million. Revenue held steady as we gained market share in the quarter due to customers moving forward with some previously delayed projects, despite the Gulf being down one rig and loop current impacts. While pricing and activity continued to fluctuate, US offshore margins remain healthy.

US land decreased 15% sequentially and 53% year over year to $22 million. The struggles facing the US land market have been well documented over the last year, and are expected to be in this range until we see a meaningful and sustainable increase in commodity prices. While aggressive pricing and the fragmented market continues, we are seeing market share in key areas grow as competitors exit the market. However, the gains in share are not enough to completely offset expenses, and we are now seeing EBITDA margins below break-even levels. Despite the temporary negative impact on earnings we see in US land, it remains a strategic area for Frank's, as we expect it to return more quickly and more sharply in response to commodity price recovery.

Finally, page 13 shows our Tubular sales performance. This has been a real bright spot for the Company here over the last couple of quarters. Revenue from external sales in the third quarter was $62 million, up 17% sequentially and up 53% year over year. Adjusted EBITDA for Tubular sales in the third quarter was $16 million or 26% of external sales, up 100% sequentially and up 71% year over year.

While we continue to be the go-to provider our customers value and trust, we wouldn't expect this segment to perform the way it has the past two quarters. Orders taken and delivered move around from quarter to quarter, and are often placed with varying amounts of lead time. We do, however, expect this business to contribute meaningfully going forward, as a reflection of the cost improvements in manufacturing and continued commercial focus.

Taking a look at page 14, process improvements have been a priority since becoming a public company after a long and successful history as a family-run business. Already this year, we have seen our working capital, excluding cash and equivalents, reduced roughly 19% as a result of new initiatives. Improving invoicing and collections practices have reduced our net accounts receivable by approximately $66 million. And a leaner manufacturing function has brought our inventory down roughly $30 million to a more just-in-time level, as opposed to a just-in-case one.

We're also seeing efficiency in our revenue per dollar of capital spent. Our third-quarter CapEx spend was $17 million. For the first nine months of 2015, CapEx spend was $88 million. As a continued part of our process improvements and prudent spending, we are revising full-year 2015 CapEx downward to $120 million from $150 million.

Additionally, we expect full-year 2016 CapEx to come down even further to approximately $75 million as we continue to prioritize spending to meeting our customers' needs, maintain equipment, and make the strategic investments to upgrade our business management systems as part of the continued transition from a private to a public company. These capital reductions are a sign of the times, and appropriate, but our financial strength allows the flexibility to ramp up when the conditions warrant.

Page 15 highlights the results we are seeing as our cost-savings initiatives work their way through to EBITDA. When we first began implementing our plan, we saw an $0.88 drop in EBITDA for each $1 of lower revenue. From Q2 to Q3, we saw this ratio drop to $0.46 for each $1 of revenue, and we would expect to see this trend continue.

I want to reiterate that nearly one-third of these controlling-what-we-can-control initiatives are not solely related to industry trends, but lasting improvements that we estimate will save the Company $55 million on an annualized basis. This represents an upward revision from the $30 million we discussed in Q2, which will be a key element in our efforts to support our strong margins going forward.

Closing with page 16, I would like to follow up on the announcement yesterday regarding a distribution of approximately 119 million shares from our largest shareholder, FWW B.V. to the 12 Mosing family beneficial owners. The governing documents of FWW, established prior to the IPO, provided the framework to allow the Mosing family members to ultimately take direct ownership of their shares in the Company. The distribution accomplishes this end.

There is a six-month lock-up period to sell shares outside of the existing Frank's shelf registration. After the six-month period, each owner will be eligible to manage their shares in the manner they deem appropriate within the boundaries of the typical insider transaction filings. We have not been informed of any timetable for the Mosing family to change their ownership position in the Company. Nor are we aware that the family has a target level of total ownership in the Company. However, we plan to work closely with the Mosing family if and when the time comes for a change in the total family ownership, in an effort to ensure a smooth and orderly transaction in the marketplace.

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

Thanks, Jeff.

Before we open the call up to your questions, I would like to talk a bit on our outlook for 2016, which can be found on page 17. With the majority of our customers keenly focused on cash flow, and responding accordingly with reduced capital budgets, it is unlikely that we would expect to see a recovery in the oilfield services space in 2016. We expect visibility to remain cloudy, activity to be muted, and further discussions around price relief expected in 2016.

While painful in the short term, large reductions in capital spending are necessary to balance the oil supply/demand fundamentals, and we believe we will begin to see the current imbalance narrow in the latter part of 2016. Even if commodity prices begin to show signs of recovery in the second half of 2016, it is doubtful our customers would have the confidence to increase capital spending that quickly. Therefore, we would not be surprised to see our [full-year] revenues fall from 2015 levels.

The amount of activity and the scope of activity lies in the hands of our operating customers around the world. But how we respond in terms of reducing costs, improving efficiency, and demonstrating our value to the customers to compete for business is in our control. We are confident that even if 2016 offers additional downward pressure to the top line, we can deliver good margins and be cash flow neutral to positive at the trough of the cycle by controlling what we can control.

Thank you for your time and attention. And with that, we will open up the call for questions.

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

(Operator Instructions)

From Credit Suisse, Jim Wicklund.

Good morning, guys. You talk about the Middle East and Brazil as places you would like to be. I know that in the past Brazil hasn't afforded you the pricing and margin opportunity you'd like. But just in general, this next on in Chevron it seems that the most complex wells are part of the most complex and expensive projects and those are getting pushed to the right. Is this really the bottom line of what's hitting, and are there opportunities really in the next couple of years in those two markets?

Jim, I think there are. And I will tell you these big projects represent the largest accumulations. And you can slide goes to the right and still preserve the projects, but at some point you're going to have to act. And you've got to remember that many of these deepwater developments or pre-salt developments take many years in order to move from the exploration and evaluation phase all the way through development and then eventually first oil.

I think what's happening now is our customers are managing short-term cash flow needs, but at some point you can't slide it to the right anymore without having lease expiration or some other consequence that would cause the project to move out of the inventory. So we are seeing this sliding to the right, but there is a limit to that.

Okay. We know there are complex wells in Brazil but is there enough complexity in the Middle East to warrant -- or we should expect to see any meaningful improvement in markets whether it's acquired or not?

Well, the Middle East, the attraction there is the staying power of the national oil companies and some of the improved economics just because of the lack of geologic, geophysical risk, reservoir risk as well as well complexity, so not all markets are the same, obviously. Some markets represent higher margin opportunities. Others represent a more stable base. And managing the overall portfolio is what we're trying to do to keep top-line revenues at or higher than what we are seeing now.

From Barclays, David Anderson.

Thank you. You mentioned about a shift of mix in work internationally. You say not as high margin, not as much high in equipment. Is this just primarily related to exploration activity starting to go away? I was wondering if you could help us understand which region it's most pronounced? It looks like West Africa is probably the most. But can you give us a little bit of a walk through on how it's shifting in other regions as well?

So it is mostly West Africa in the short term. Obviously, these big projects that are slipping to the right also have some pretty substantial well complexity challenges with them that also represent opportunities for higher margins. But those are ones we think eventually will have to eventually be committed to and executed.

But in particular in [Kadenda], we mentioned in my opening remarks the lack of economic success that they have had in the sub-salt play in Angola -- has really caused a huge shift in well complexity. We are pursuing other opportunities in West Africa to offset some of the loss that we see in this sub-salt play, but those would come with less complex wells. And obviously, less complex wells typically translates into a lower margin operation.

Understood. If I just shift my attention over to the Gulf of Mexico, the resiliency there was certainly a pleasant surprise this quarter. You had mentioned in the release about customers moving past operational delays. I was wondering if you could expand upon that comment a little bit and whether or not you think you kind of hit this kind of stability level here in the Gulf? I know the past couple of quarters you've talked about the same shift in business going away from the drilling to other things. I was just wondering if you can talk about those two elements?

In our last quarter call we mentioned there were an abnormal amount of either infrastructure delays associated with installation problems. There were an abnormal high number of loop current impacts that set drilling back, as well as just some well drilling and completion problems. It was abnormal. We felt that as we would move out of that quarter we would start seeing some of that work pick up and we have.

I'd love to tell you that our confidence that operational issues are going to go away and we're going to see a new normal that is reflected in what we saw this quarter, but it is really impossible to predict that. We'd like to think that our customers learn from some of their challenges and as they drill subsequent wells they build those learnings into the execution plan and avoid those. But it is just hard for us to predict that.

From Jefferies, Brad Handler.

Thanks. Good morning, guys. I guess I found myself trying to keep track of a couple things, so if I ask you to repeat a little, forgive me. But I'm trying to sort through in the international markets the aggregate affect of pricing. The aggregate affect, maybe a break down? Just in terms of trying to understand the revenue mix and then maybe better the margin impacts.

Sure. This is Jeff Bird. So if you look at Africa, we saw about $2 million impact in the quarter from a pricing standpoint on a Q-on-Q basis. The rig count decline was specific to the pre-salt falling off, and we've seen a little bit of mix there as well that's impacted as well. The pre-salts tend to be the higher margin segment of our business. As we move out of that, we see the margins come down as well. But about $2 million from a pricing standpoint.

Okay. It sounds like you had a little in Latin America and Asia Pac as well. Was the aggregate impact of pricing, just if I eyeball regions, is it fairly flat in the quarter sequentially?

Sequentially, fairly flat in the quarter on the international side.

From RBC, Kurt Hallead.

Good morning. I wanted to get into maybe tubular services here a little bit. You had, obviously, a record quarter there. You indicated that it will come down in the fourth quarter. Just maybe gauge how you're handicapping the magnitude of that change and out into the fourth quarter? And any initial prognostications on how you think the first quarter of 2016 might set up there?

Yes. This is Jeff Bird again. Specifically on the tubular segment, we talked earlier in the year, we saw some sub-par margins earlier in the year. And we talked about those margins coming back to the 20% level. They exceeded that this quarter. They exceeded that this quarter primarily because, as we talked about, tubular sales can be pretty lumpy from quarter to quarter, so we wouldn't expect to see the level of sales that we had this quarter. It comes down to more of an average.

If you really look at the average for the year, you're going to see that business come down to more of the average for the year. Things move sometimes from quarter to quarter. It makes the numbers look odd there, but you'd see the average revenue -- if you average those first three quarters, that would be about the average in the fourth quarter with about a 20% margin. Then, we are not really looking or commenting right now on 2016 outlook.

Got it. All right, that's good for me. Thanks.

From Seaport Global Securities, Ken Sill.

Hey, guys. I was really going to ask some housekeeping questions. We didn't get the guidance here on with the cost cutting what might happen to SG&A, what's going on with DD&A with the CapEx coming down? Then get an idea of the magnitude of headcount reductions you guys have done so far?

Sure. If we look through the end of the third quarter, we have eliminated about 1,000 positions from the beginning of the year til now. As I said on the last call, we are not going to make a big bang announcement about those things anymore. You're just going to see them in the releases and you're going to see the benefit of those flowing through the bottom line. You see that in the deleveraging slide that we showed earlier that that is starting to go to the bottom line there.

As far as CapEx, we're calling a CapEx number of about $75 million for next year now. That's down substantially from the $120 million that we are now advertising for this year. We will continue to evaluate that $75 million, and you know we can go either way with it. We got a very strong balance sheet. So if we saw opportunistic areas where we needed to invest, we can certainly do that. But right now $75 million is the target.

And what's going to be the impact on SG&A and DD&A run rate given the headcount reductions and lower cost of CapEx?

I will speak specifically around -- I think what you're asking, if I understand, is you're asking specifically around what the cost benefit is of the positions eliminated. Our overall productivity projects inclusive of that, are base closures and positions eliminated. The annualized benefit of that is around $55 million.

From Simmons, Ian Macpherson.

Thanks. I appreciate the slides. Those are very helpful. I had a question on the Gulf of Mexico market share. That's a big impressive step up in Q3 -- in this past Q3. Is that a blip or have you taken a significant structural gain there that's going to be sustainable over the coming quarters there at two-thirds market share?

I would like to think that it's a structural shift, but again, it's many of these projects are individual wells, are competitively bid, rigs move from region to region. So this has always been kind of our backyard. It's an area where we have great capability, especially when we think about lower tertiary trend wells that require the highest of technology and capacities to be able to execute. I'd love to think that there's a structural shift there that could be sustained, but it's hard to really be able to say that with any confidence.

Okay. Fair enough. Thanks, Gary. Then I had a question separately on your land margins, below breakeven currently. Is there a target or any opportunity to bring those up to better than breakeven just through cost improvements, or do you really need the market to turn up in order to get margins positive there?

Sure. Let me comment on that. I think a couple of things there. One is we continue to look at the costs base there, so we have shut down, year to date, we've closed 10 bases and we're continuing to evaluate that as we go forward.

But there is certainly a level you reach where we wouldn't want to go below because this is a strategic business for us. And we really look at it over the entire cycle, and we recognize that right now we might continue to operate below breakeven. But if you look at it over the entire market cycle, it's a very good business for us. It's a business we want to be in. We'll do some cost actions, but tentatively we are going to need some market recovery to really get back above breakeven.

(Operator Instructions)

From Goldman Sachs, Waqar Syed.

Thank you for taking my call. On the international business line, could you give us a break down of how the land versus offshore business kind of tracked on a year-over-year basis and sequentially?

We really don't break out the international business between land and on shore, so wouldn't want to comment on that.

Okay, but generally they were kind of the same ballpark in terms of changes?

Yes, I'd say they're in the same ballpark.

Okay. Then on the M&A side, you mentioned complementary businesses. Could you provide us with any color on what kind of business would you be interested in? Secondly, what is the appetite for that on the balance sheet?

Okay. When we talk about complementary product and service lines, it would be definitely limited to within the well construction space. There's still a lot of opportunities there. For instance, there's a lot of jewelry that is clamped on to casing and tubulars that we run. Obviously, that would be an opportunity.

We're looking at you know just about anything to increase our time on the rig floor. So when we talk about that sort of thing, we're looking at things that don't move too far out of our sweet spot, but things that would complement what we are good at and what our main business is today.

Just building, then, on Gary's comment around debt on the balance sheet. We would go up to 2 times trough EBITDA from a debt standpoint. We'd consider something in that range. Obviously with having $0.5 billion on the balance sheet today, we've got a little bit of room to move before we have to worry about that.

From SunTrust, Chase Mulvehill.

Yes. Thank you. Good morning. I guess the first question, I want to come back to Handler's question around pricing. I think prior comments around pricing was that you'd given 5% to 10% price discounts. So where do we sit in regards to pricing average kind of across your business, right now, offshore?

On the offshore side? The offshore side is probably still in that 5% to 10% range. We talked earlier that -- so if we talk about the three markets, US land has obviously been hit the hardest from a pricing standpoint. Second is Gulf of Mexico. And international we have seen a little bit of movement, but we've not seen much movement at all on the international side. Overall, offshore is probably in that 5% to 10% range. If you start adding in the US land that becomes a larger number.

Right. Okay. On the international side, how much did you say -- is that more, that 5% to10%, is that more international or Gulf of Mexico?

More weighted towards Gulf of Mexico, right now.

Okay. And the reason that you haven't seen it in international is just because that is more of a contracted business, or how should we think about that?

More contracted, complex wells where, quite frankly, we've got the right technology and we can continue to maintain those margins.

And our National Oil Company customers and the IOCs that work for them have just not moved as quickly in the price space as we have seen in the US.

(Operator Instructions)

From Credit Suisse, Jim Wicklund.

Me again, guys. Over the last couple of years you guys have won some significant contracts that boosted your regional market share. Are there any material contracts floating around right now in the industry that would give someone, you know a player, to gain share in a particular market?

Jim, I don't think I would feel comfortable in answering that question, just because obviously there's some competitive forces at work here. So I think we'll let that one just lie.

That's okay. The way you answered it still helps, so I appreciate that.

Yes.

The last question, US onshore, you say, bounces back more quickly and sharply. And I take it on a relative basis that's at the expense of deepwater. So thinking that things move into balance next year, how much is the delay, if US onshore bounces back quickly and sharply -- how much is the there a delay before deepwater starts to respond?

Well, I think the deepwater response, Jim, is going to be more a function of lease obligations, lease schedules, and major capital project schedules than they are going to be pricing related. Obviously, if there's options to defer because your risk profile is a little more difficult, a little more challenged in the deepwater, I would expect those to be slid to the right as far as the operator can because those represent the more capital intense projects and if it's expiration or delineation drilling, represents your highest risk profile wells. But as I mentioned earlier, in response to a question, the fungibility of that program is limited. And at some point you have to decide whether you're going to let that discovery go and allow it to go back into the till for others to bid on later or whether you're going to go ahead and commit to a project on the premise that you will see price recovery longer term and that will intersect with the first oil schedule.

From SunTrust, Chase Mulvehill.

Thanks for letting me back in. If we can just hash out the 4Q outlook -- I mean if we kind of walk through each of them, the tubular sales is obviously going to be down. You talked about 20% margins. Gulf of Mexico sounds flattish. Obviously, whatever we think is going to happen here on US onshore, we can make our own assumptions there. That just leaves international. If you give us a little bit of color around revenue expectations and maybe margin expectations?

Sure. I think that Q3 to Q4 international is going to be flattish as well. From a margin standpoint, we talked about the cost actions we are taking. You won't see a meaningful impact on those in the fourth quarter. You will likely see that benefit more in the first quarter of next year as we work through those. But I think you'd see it flattish from Q3 to Q4.

Okay. Awesome. Thank you.

We have no further questions at this time. We will now turn it back to Blake Holcomb for final remarks.

Thank you, everybody, for joining the call today. If you have any follow-up questions feel free to reach out to me at my contact information. Thank you very much.

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