Release Date: July 29, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Consolidated revenues and adjusted EBITDA increased by 11% and 38% sequentially, respectively.
- Offshore and international revenues were up 18% sequentially.
- Well site services adjusted segment EBITDA increased 30% sequentially.
- Bookings in the offshore, manufactured products segment improved significantly, totaling $101 million.
- Cost reduction initiatives yielded strong incremental margins.
Negative Points
- Well site services segment revenues decreased by 2% sequentially.
- The company incurred pretax facility consolidation exit charges of $3.5 million.
- Patent defense charges amounted to $1 million during the quarter.
- The US land-driven revenues only increased by 1%, indicating a sluggish domestic market.
- The company recorded charges of $1.5 million due to the consolidation of Southeast Asian operations.
Q & A Highlights
Q: Cindy, it was obviously great to see a nice sequential rebound in the offshore manufactured products business. How are you thinking about revenue and margin trajectory based on the timing of what's in backlog today?
A: Clearly, if you look at the guidance, the revenue and trajectory over the next couple of quarters looks strong but fairly level given that our bookings to date are at 0.9 times. We expect our overall book-to-bill to be north of 1, which implies greater than a 1 time book-to-bill for the second half of this year, setting up very well for 2025.
Q: On the well site services and downhole technologies, you mentioned internal cost management has paid off in margin benefits. Any sense of the magnitude of potential margin expansion in the flattish outlook?
A: With us closing some of these underperforming locations, we could see well site services margins getting into the low 20% range, EBITDA margins. For downhole technologies, we expect high single digits to low double digits on EBITDA margin.
Q: Were you suggesting well site margins in the low 20s in the second half of the year?
A: Yes.
Q: Cindy, you've been watching this market a long time. What are your thoughts on the lack of US activity growth on the land side and potential catalysts for recovery?
A: Activity on land is down kind of 20%-plus over the last 15 months. Despite that, we're producing record levels. I believe that M&A activity is geared towards resource play and extended laterals. I see a better 2025 shaping up, driven by natural gas and LNG demand, and potential reversal of OPEC+ production cuts.
Q: When you think about rig efficiency and longer laterals, where does that benefit you the most?
A: It benefits both our well site services and downhole technologies segments. Our active seat valves and new EPIC portfolio of perforating systems are designed for extended laterals and multi-pad work, which should help us gain market share.
Q: When thinking about the trajectory of growth for offshore manufactured products, should we use offshore deepwater rig activity as the best proxy?
A: Yes, rigs going to work in development drilling profiles lead to longer-term production infrastructure. Our managed pressure drilling technologies and other products are seeing incremental demand, which will drive growth.
Q: If US land activity stays flat, how do you see that changing the competitive landscape?
A: Smaller players may shut down local operations, but the bigger picture is market consolidation through M&A. We see many opportunities for optimization through M&A, which seems to be heating up.
Q: Can you address customer willingness to try new products and expected adoption rates?
A: There's greater willingness to trial new technologies on US land due to smaller AFE costs and operator involvement. Offshore, the barriers to entry are significant, but our long history and proven technologies like high-pressure riser systems and MPD systems help us gain acceptance.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
