Oil States International, Inc. (OIS) Q2 2014 Earnings Report, Transcript and Summary

Welcome to the Oil States International Inc. Second Quarter 2014 Earnings Conference Call. My name is Angela, 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 Patricia Gill. Patricia, you may begin.

Thank you. Welcome to Oil States' Second Quarter 2014 Earnings Conference Call. Our call today will be led by Cindy Taylor, Oil States' President and Chief Executive Officer; and Lloyd Hajdik, Senior Vice President and Chief Financial Officer. Before we begin, we would like to caution listeners regarding forward-looking statements. To the extent that our remarks today contain information other than historical information, please note that we are relying on the Safe Harbor protections afforded by Federal law. Any such remarks should be weighed in the context of the many factors that affect our business, including those risks disclosed in our Form 10-K and other SEC filings. I will now turn the call over to Cindy.

Thank you, Patricia. Good morning to all of you, and thank you for joining our earnings conference call today. During the second quarter, we accomplished a major strategic initiative by completing the spinoff of our Accommodations segment into a separate publicly traded company, Civeo Corporation. Today, Oil States is a technology-focused, pure play energy services company and I am excited about future growth opportunities for our business segment. Our second quarter results were burdened with significant spinoff-related charges, but our continuing operation from our Well Site Services and Offshore Products segment were strong overall, with meaningful sequential improvements in both segments. Leading our results for the quarter, our Offshore Products segment reported record revenues and EBITDA of $251 million and $56 million, respectively, with an EBITDA margin percentage of 22.4%. Order flow was also strong, resulting in a book-to-bill ratio of 1.1x. Backlog reached a new record level and totaled $599 million as of June 30. In our Well Site Services segment, we reported sequential improvements in quarterly revenue and EBITDA, as activity in the United States accelerated during the quarter, partially offset by seasonal declines in Canada. Completion services' jobs performed, increased 5% quarter-over-quarter and utilization of our land drilling rigs averaged 91%, up from average utilization of 81% in the first quarter. At this time, Lloyd will take you through more details of our consolidated results and financial position, and then I will provide a detailed discussion of each of our business segments and give you our thoughts on the current market outlook.

Thank you, Cindy. The second quarter 2014 results included charges related to the spinoff of Civeo Corporation, which was completed on May 30, 2014. We want to remind listeners that the historical results for Civeo and our previously owned Tubular Services segments have been reported as discontinued operations for all periods recorded through their respective transaction closing dates, May 30 for Civeo and September 6, 2013, for Tubulars. For the second quarter of 2014, discontinued operations for Civeo included the allocation of certain transition costs, a portion of the interest expense associated with the company's senior notes and the write-off of deferred financing costs associated with the Canadian portion of the terminated credit facility. During the second quarter, we generated revenues of $460 million and reported net income from continuing operations of $47.6 million or $0.88 per diluted share, excluding the spinoff-related charges totaling $110 million or $1.33 per diluted share. Adjusted EBITDA for the quarter ended June 30, 2014, was $109 million, excluding $9.6 million of spinoff-related charges. In detail, these spinoff-related charges included $100.4 million or $1.22 per diluted share from a loss incurred on debt extinguishment associated with the repurchase of our senior notes completed in connection with the spinoff as the fair market value exceeded the carrying value of the senior notes. In addition, we wrote off the unamortized debt issuance costs related to the senior notes and the previous credit facility, which was terminated. Further, as I mentioned, we incurred $9.6 million or $0.11 per diluted share of transaction and related costs incurred in connection with the spinoff. For comparison, in the first quarter of 2014, we generated revenues of $405 million and reported net income from continuing operations of $35.6 million or $0.66 per diluted share, excluding spinoff-related transaction costs of $1.4 million or $0.02 per diluted share. On a quarter-over-quarter basis, revenues increased 13% and excluding spinoff-related charges from both quarters of 2014, adjusted EBITDA would have increased 17% as a result of continuing strong demand for our completion services business offerings, higher utilization of our land drilling rigs and increased sales of production facility and subsea products in the Offshore Products segment. In connection with the spinoff restructuring efforts, on May 28, 2014, we entered into a new $600 million, 5-year revolving credit facility with a syndicate of banks. As of June 30, we had $182 million outstanding under the revolving credit facility. Further, we had total liquidity of approximately $451 million comprised of $386 million available under our revolver after the reduction of standby letters of credit of $32 million and $65 million of cash on hand. The new facility provides for an accordion future of up to $150 million with additional lender commitments. Our gross and net debt levels at June 30, 2014, totaled $189 million and $124 million, respectively, representing a net debt to book capitalization ratio of approximately 9%. And at June 30, our leverage ratio using adjusted EBITDA was 0.5x. During the second quarter 2014, we invested $43.3 million in capital expenditures for our continuing operations. Spending primarily related to the addition of incremental completion services equipment deployed to service the active U.S. shale plays and ongoing facility expansions in the Offshore Products segment. In the second quarter, we repurchased $2.7 million or 28,000 shares of our common stock under our authorized share repurchase program at an average price of $94.92 per share, which was a pre-spin stock price. In July, we repurchased an additional 221,000 shares of our common stock totaling $13.8 million, at an average price of $62.19 per share. We currently have 219 million remaining under our share repurchase authorization, which is scheduled to expire on September 1, 2014. In terms of our third quarter 2014 consolidated guidance, we expect depreciation and amortization expense to approximate $31 million, net interest expense to approximate $1.7 million; and corporate cost to approximate $14.5 million. Our 2014 consolidated effective tax rate for continuing operations is expected to average approximately 35% for the full year as a greater proportion of our earnings from our 2 business segments will come from our domestic operations. The company currently plans to spend approximately $200 million to $250 million in capital expenditures during the full year 2014, primarily related to the addition of incremental completion services equipment and ongoing facility expansions in the Offshore Products segment. This is lower than our prior CapEx guidance of $275 million for the full year due to the spend associated with the expansions for our Offshore Products facilities, a portion of which is expected to carry over into 2015. At this time, I'd like to turn the call over to Cindy, who will address activities in our business segments. Cindy?

Thanks. I'll lead off with our Offshore Products segment. In this segment, we generated $251 million of revenue and $56 million of EBITDA during the second quarter, both of which were above the high end of our guided range and represented quarterly records for this segment. We achieved EBITDA margins of 22% in the second quarter, largely due to a good product mix, favoring production facility and subsea equipment, along with an increase in service work and improved cost absorption and facility utilization. We realized strong order flow during the quarter and booked $277 million in new orders. Backlog at June 30, 2014 reached a new record level, totaling $599 million. To provide additional color, backlog additions during the second quarter included subsea connector products destined for Brazil; TLP equipment for both the Gulf of Mexico and Southeast Asia; cranes for Southeast Asia; and proprietary Merlin connectors destined for the Caspian Sea. Despite just completing a record quarter, we believe that the third quarter's revenue will increase further and range between $250 million and $260 million due to higher activity levels in production facility of subsea equipment, connector products and continued strong demand for service work. EBITDA margins, as always, will depend upon our actual revenue mix, project execution success and overhead absorption. Over the last 4 quarters, our guidance for EBITDA margins has been in a range of 18% to 21%. However, given strong performance in the last 2 quarters, we are raising our EBITDA margin guidance for the third quarter to range between 20% and 22%, as revenues forecasted for the third quarter are expected to provide continued cost absorption and strong levels of facility utilization. In our Well Site Services segment, we generated an 8% sequential increase in revenues during the second quarter, which totaled $209 million compared to revenues of $193 million in the first quarter of 2014. Activity in the U.S. onshore markets continued to strengthen during the second quarter. EBITDA increased 6% sequentially and totaled $67 million. these sequential improvements for both revenue and EBITDA were largely due to increased land rig utilization, which averaged 91% for the quarter and a 5% quarter-over-quarter increase in the number of completion services jobs performed. These results were impacted by Canadian spring breakup, which experienced sequential declines, periodic sand shortages and logistical challenges faced by some of the pressure pumping companies that we work with. EBITDA margins were 32% during the second quarter, coming in at the low end of our guided range. We continue to believe that North American onshore activity, well completions and service intensity will continue to rise throughout the second half of this year, absent a significant commodity price decline. We estimate that third quarter revenues for our Well Site Services segment will range between $210 million and $220 million, with EBITDA margins of 32% to 34%. Embedded in this guidance is the expectation of continued strengthening in the completion services markets we serve, somewhat offset by slightly lower expected contributions from our Drilling business, given some permitting delays currently being experienced by some of our drilling rig customers. In closing, with the completion of a major strategic initiative having successfully spun off of our Accommodations segment, Oil States is positioned very well to capture our share of the continued growth in both the onshore shale play market, as well as the deepwater capital equipment market. We are very excited about the future of our company and the opportunities that we see in the markets we serve. That completes our prepared comments. Angela, would you open up the call for questions and answers at this time, please.

[Operator Instructions] Our first question is from Stephen Gengaro from Sterne Agee. Stephen D. Gengaro - Sterne Agee & Leach Inc., Research Division: The thing I wanted to ask about, Cindy, was when I think about the job ticket numbers and how the margins play out within Well Site, I guess there's 2 parts to the question. One is how big of an impact is sort of the drag from Canada first quarter to second quarter? And then, second, how is the overall pricing outlook for those services right now?

Stephen, that's a great question. We've spent a lot of time kind of dissecting our results between the U.S. operations which is, of course, the majority of our Canadian results and the international results as well. And the sequential impact, and I'm going to focus on EBITDA this morning, but the sequential impact on Canada was about $1.7 million Q1 to Q2, which, if I did the math correctly, the margin impact on the EBITDA margin percentage was 1.1%. So I think that kind of gives you a feel for the impact on the quarter. And I think your second -- the second part of your question had to do with pricing, is that right? Stephen D. Gengaro - Sterne Agee & Leach Inc., Research Division: Yes.

I just don't worry. We've always tried to focus on activity enhancements, volume improvements. To some degree, mix will always have an impact as far as pure pricing. We're really not pushing prices significantly. But again, we didn't really come down on a pricing basis like some of the North American peers did last year. Our margins remain at very high levels relative to the market peers. And so again, there can be some mix benefit and -- but we're really focused more on high-end equipment such that overall, we think pricing can improve. But it's not pure price book increases, if that's what you're asking about. Stephen D. Gengaro - Sterne Agee & Leach Inc., Research Division: Okay. And then just one follow-up. I think Lloyd mentioned the outstanding repurchase authorization. I think it expires September '14? Is that...

Yes, September 1 of this year, Stephen, correct. Stephen D. Gengaro - Sterne Agee & Leach Inc., Research Division: Would you expect to work through that by then?

I'd say, we're opportunistic depending on the market, Stephen.

It looks like the market may be creating some opportunities right now. Stephen D. Gengaro - Sterne Agee & Leach Inc., Research Division: Yes. That was my sense, that's why I asked the question.

Our next question is from Jim Wicklund from Crédit Suisse. Jonathan Sisto - Crédit Suisse AG, Research Division: It's actually Jonathan. Cindy, my question, you answered more or less about sustainability of the offshore product margins. Has the -- you mentioned mix in some of the products that were added. Has something changed as it relates to the go-forward?

Well, I mean, for us, we've been trying to get the message out that we have a decent portfolio of proprietary products in the market that are leveraged to floating production facilities, subsea pipelines and the like. Again, a lot of things are in play here, but as I mentioned in the color added on the backlog development, we are seeing TLP orders as an example, the connector products destined for Brazil had to do with subsea pipelines. Again, our proprietary Merlin connector going to the Caspian. The message there is that it's a favorable mix and so that's playing into our revenue stream, number one. We certainly saw sequential improvements in our gross margin in the second quarter. The backlog being at record levels, coupled with what we believe is a good mix, sets us up pretty well to expand that EBITDA margin guidance. There's always the caveat of getting things out on time, executing well, but we are incredibly focused on that. For those of you that have been our shareholders for a long time and followed us for a long time, all of you know that we had an intense focus and goal on getting these EBITDA margin percentages north of 20%, and I'm very pleased to say that we now had 2 quarters achieving that goal. And so I think it would be wrong of me to put out cautionary guidance at the historically guided range when 2 quarters had demonstrated our ability to do it. Jonathan Sisto - Crédit Suisse AG, Research Division: Absolutely. Cindy, kind of dovetailing off that. Are there -- you mentioned quality connectors in the release that closed late last year. Are there new products that Oil States is introducing to the market that are helping lead to additional growth going forward?

We're always kind of rolling out, I'll say, expanded technology on the margin. But a lot of this has to do with higher pressure, higher temperature, expanded capabilities of some of our base product lines. But again, understand that our strategy has been to add in areas that we think can enhance our overall operations, those being similar to the QCS acquisition, the Acute acquisition, the Piper Valve acquisition. And again, I think that the improvement in the top line and the margin is validation that the strategy is working. Jonathan Sisto - Crédit Suisse AG, Research Division: And just one last quick one. On the completion tools that you placed orders, are those pretty short lead time items that would show up in the second half of the year?

This is kind of an ongoing process for us, and we've been very attentive to the specific equipment demands in the regions that we operate in. Where we're seeing shortages, we're trying to attack those rather quickly. We have some equipment coming in the second quarter, but yes, we will continue to be proactive and try to get this equipment on the ground so that we're not turning down jobs. As to lead time, I would just -- I generally ballpark 6 months kind of lead time for some of the more complex equipment.

Our next question is from Jim Rollyson from Raymond James. James M. Rollyson - Raymond James & Associates, Inc., Research Division: Cindy, now that you have completed the Civeo spinoff, congratulations on that, first of all, and you got this nice, clean streamline company and you think about getting back into growth mode like you've done before, is it more a strategy of continuing to focus on add-ins to what you're already doing, like especially on the Offshore Products side and maybe on the Well Site Services, or are there any other markets that you have interest in getting into down the road? Just kind of curious your big picture thoughts on how you grow this going forward outside of just organically?

Well, we immediately commenced work in our next 5-year strategic plan, and interestingly enough, I call it just kind of execution, small tuck-in acquisitions. We actually get very good 5-year growth on that based on the market dynamics that we see today that translate into an attractive share price appreciation over that period. However, I feel like we're in a great place because we're a much more focused pure play company. I think it does open the landscape up for some interesting opportunities that might allow us to grow the company even at a greater degree than what would be otherwise indicated by the historical kind of tuck-in acquisitions and, of course, organic growth, which we're focused on right now with the expansions in Brazil and in the U.K. But I generally look back and say we don't have to do transactions to make this company work and make the stock price work. However, with the increased pure play focus that we have, I think we are going to see some attractive opportunities. And maybe the other thing -- and I think now that you can see what recurring operations look like and the cash flow profile of the company, I think you can see that it's a pretty attractive opportunity step for us. James M. Rollyson - Raymond James & Associates, Inc., Research Division: Pretty much opportunistic driven on the bigger M&A opportunities, correct?

Absolutely. I'm from the old school that think acquisitions ought to be accretive. And so we've always been -- we've done a lot of things but we've always been selective in terms of the ones that we do. James M. Rollyson - Raymond James & Associates, Inc., Research Division: And then just one follow-up, maybe along the lines of what Jonathan was asking. You clearly laid out your view on the margin side of Offshore Products. Can you talk about how you see -- there's been a lot of talk about offshore spending and what direction that's going here of late, yet you've managed to keep your book-to-bill north of 1x. Maybe what visibility you have and how comfortable you are on maintaining the revenue side of that equation?

Well, it's going to come down to backlog development, and I have said all year long that my goal is to keep backlog north of 1x. We have been successful doing so today. We've got a good quoting book ahead of us. So I see no reason that that's going to deteriorate in the near term, i.e. the booking rate. And so this should keep us bouncing along at record levels of backlog. There's certainly a lot in the organization that wanted one more million dollars of backlog to get over the $600 million mark this quarter. It just didn't quite happen. But I guess the one comment I'd have for you, there's a laser focus right now that everybody has on leading rig day rates, floaters and jackups. And I've always been, and still believe, that a lot of that has to do with supply/demand dynamics, whereas rig supply just got in ahead of demand, putting downward pressure on rates. From our perspective, particularly with the portfolio that is more focused on production and facility -- floating production facility, subsea equipment, as well as some, I'll call them, downhaul consumables, i.e. the Merlin connectors used on large OD casing conductors, our outlook is very positive. And it's not tied to new rig construction to a large degree. And so we feel pretty confident at this stage now. I'll also tell you, it's a quarter-by-quarter, 6 months by 6 months exercise that we have to go through. And a lot of times, these large projects do get deferred rarely, particularly on the production side do they go away. All of our customers are challenged with getting their production up and so rarely do they go away. We did have a lot of project deferrals last year, but nonetheless exited the year 2013 with strong backlog levels. But of course, that gave us pretty good confidence in making the statement that we should be able to sustain that book-to-bill north of 1 this year. And I think it's playing out pretty much according to expectations.

Our next question is from Blake Hutchinson from Howard Weil.

Maybe the way to just kind of follow on to that line of questioning, I know over the course of the year, probably, one of your least favorite questions has been drilling based order flow. As we look at the strong order intake for Q2, can you give us, in broad strokes, what might have been derived from the kind of more drilling compartmented portion of your business? And maybe give us an insight even further than that to what would be kind of considered new build rig derived.

Well -- and again, I draw a distinct differentiation. When you say drilling, there's 2 things: one is the downhaul consumables in the drilling process, which we love because they're not like the field-type investments, quite frankly; and what is rig equipment. And I think the -- and my investor days is kind of laser-focused on the differentiation between equipment going on new build rigs given the current oversupply of rigs and what is more production infrastructure-related. I have not done the math, so I'm going to just ask you to bear with me when I give a swag on what might be drilling equipment oriented, I'd tell you it might be in the 10% range, if that's helpful. And generally speaking, it has to do with some valve technology going on drilling risers and certainly, if there's a new build rig, our drilling riser, FlexJoint, which is highly proprietary, is on about every floating drilling rig in the world. But given the breadth of our product line, we are not overly dependent upon new rig orders to sustain our activity level.

No, that's exactly what I was looking for. And then switching over to some of your comments on the Completion Services side. You sort of alluded to this, and maybe it's because we hold that segment to such a high standard, but the relationship between job count and revenue per job, maybe just you're reading too much into it. Your equipment is spending, perhaps, more time on location, especially your proprietary equipment, as the jobs get more intense. Did you, in any kind of widespread fashion, run into what you would deem capacity limitations more quickly than you would have thought?

We always are going to have isolated regions, where we have to turn down a job, if that's the question. But again, we try to be on top of that and anticipate it such that, that does not occur. I'm going to tell you, I don't think it is broad based. And for us, again, the job tickets being up 5%, I venture to tell you, the U.S. side was up a bit higher. It was reduced by spring breakup in Canada. So job counts not going to tell the whole story between the 2. It was a good quarter. If I look at our sequential performance, Well Site Services was up about 8% sequentially. I've looked at all of the North American peers, generally, and I think that is in a good position on a top line performance relative to those peers. I will say, could it have been better? Sure. We're leading to increase top line that's embedded in our guidance. But part of that is because we have witnessed logistical challenge, some of which has come out on conference calls by the pressure pumping companies. And again, sand shortages, logistical challenges, water. There are several issues out there. But I'll just say on the margin, that has impact on us. I mean, we are -- I always say our equipment is the entry point of a pressure pumping job, so as that pressure pumping job is delayed, some of our equipment or the job that we expected to go out on gets deferred. It happens but they get deferred. And So again, on the margin, I think we're going to see our top line go up sequentially.

Great. So maybe a little bit more of their downtime for the interim period becomes your downtime than any limitation on capacity...

Yes. And again, the jobs don't go away, they're just deferred.

Our next question is from Jeff Tillery from Tudor, Pickering, Holt. Jeff Tillery - Tudor, Pickering, Holt & Co. Securities, Inc., Research Division: One of the things we're just seeing pretty widespread adoption of is frac contingencies always -- it's been growing pretty significantly but it seems to have taken a step function change higher over the last 6 months. How does that -- as we think about the impact of the completion services business, what does that mean for you guys? I mean, if the Bakken well goes from 30 stages to 50, what does that mean for you guys?

Chris just gave me 2 thumbs up, meaning that's a good thing. As we've said, and again, we try to put it in the investor presentation that our revenue has grown -- has significantly outperformed the rig count. And I've always said that the measure of that is a lateral or horizontal footage drill than the number of stages completed. And so if we, in fact, have that increase, that's going to be very favorable to our top line. Jeff Tillery - Tudor, Pickering, Holt & Co. Securities, Inc., Research Division: And so is that just the tool on-site longer? I mean, do you have anything that charges by the stage? I'm just trying to think through mechanically how that flows through.

Well, it's a combination. But a lot of it is days on location and think about a really high-end job. Number one, it's going to command the higher pressure, higher temperature equipment. Think of that as being a multipad-type activity. You're not going to do all of the trans in, trans out, you're going to leave that piece of equipment on location. So a lot of it is just increased days on location but then it becomes mix because that's our higher-end equipment as well. And I think that's probably -- it's hard to say, there are a few things that are priced on a job basis but I think the bigger thing is it lends itself to a higher-end operator. We don't have as much competition from some of the smaller startups in those types of activities. Jeff Tillery - Tudor, Pickering, Holt & Co. Securities, Inc., Research Division: That's very helpful. And then as you think about capital structure going forward, obviously, half a turn of debt is low kind of with the portfolio of the new Oil States. What's a high end you're comfortable with? I'm just trying to think through as the next few years play out, what is a reasonable high end to think about it for debt level going to?

Well, it's always hard to say what is the maximum you would ever undertake. But again, the cash flow profile of this business is very comfortable. The fact that we have backlog gives us good visibility in Offshore Products generally for a year. You normally see if there's a market hiccup or so. We have a year of visibility before we impact -- are impacted by that. But I'll just prefer to say, we're really looking towards more a targeted debt-to-cap range of 30%. That doesn't mean I wouldn't feel comfortable going higher than that depending upon the terms and conditions of the lending that is out there. But I think it'd be a mistake to have no mix of debt versus equity. And so we're more looking at a targeted range long term in that 30% range.

Our next question is from Kurt Hallead from RBC.

I just continue to be curious and kind of dovetails on one of the earlier questions. You talked about the stages being a good thing for your Well Site Services business and you have some proprietary completion services technologies that you're employing in the field. Can you give us some general sense or maybe an update on how we should be thinking about the prospective pricing power opportunities in U.S. land business and U.S. completion business, given that it looks like the frac services business is starting to accelerate in and of itself and the prospects for pricing power in that segment are increasing in online is a positive leading indicator, and what kind of magnitude pricing power could we ultimately expect out of that business?

Well, I go back, Kurt, expanding activity is great, mix will improve us. Obviously, if it gets really tight on equipment and we have the fairway to increase some pricing, we will. But I just caution everybody, a lot of the sequential margin improvement for these peers are because they -- the pricing collapsed last year. Ours did not. And so I always look at it in that vein. Do I think we can get pricing if we go from 20 stages to 50 stages and we have an improvement? Absolutely. We know we can. But we're not really forecasting that and that's not embedded in our guidance range that we gave you for Q3. I don't know if that's helpful but we're really not trying to be a snapback story here.

I think [indiscernible] that is through the cycle pricing. If you look at our historical margins on Well Site Services over the last 3 or 4 years, they've averaged in the low- to mid-30s. And now our guidance is 32% to 34%. So we don't have -- we haven't seen the volatility in our margins similar to where the pressure pumpers have had.

Our next question is from Jeff Spittel from Clarkson Capital Markets.

Cindy, maybe if you could walk us through how you think about devoting incremental growth capital to the completions business. Is that more a function of looking at things on a case-by-case basis and the equipment availability within your fleet? Or is it also combined with proactively looking at the pressure pumpers starting to add a little capacity on the horsepower side?

Well, yes. I mean, we have all of our market dynamics there, including, of course, a lot of customer conversations trying to understand what their needs are going to be. But I think we've got, with our breadth of operations and our boots on the ground, so to speak, we have a pretty good idea of what we need to bring in equipment-wise. And we have -- we will take indications from pressure pumpers. But honestly, with the rate of expansion that they experienced that caused a significant price weakening in 2013, I'm kind of glad it didn't follow exactly what they did.

That's what I was looking for. That's good news. And then maybe shifting to Offshore Products. It sounded from the last couple of quarters like the mix of potential awards that are out there on the pipeline, still plenty of larger projects, TLPs. Does it still up like there's a pretty good mix of potential proprietary awards on the pipeline over the next few quarters?

Absolutely. If you want an expansion around that, I've said before, these are fairly broad-based and I hope you got it from the color we added. We had good content orders in Brazil, we had them in Southeast Asia, Gulf of Mexico. We didn't per se announce any in West Africa but we're seeing bidding and quoting activity there as well as are many players in this space.

Our next question is from Stephen Gengaro from Sterne Agee. Stephen D. Gengaro - Sterne Agee & Leach Inc., Research Division: Cindy, I wanted to just follow up because you've gotten, for me and others, the pricing question on completion. I look back your incremental margins in Well Site Services over the years, they look very healthy in general. I mean, I think I'm looking at something of 30%-plus. Is that a realistic expectation?

Absolutely. You've seen, obviously, the sequential impact for us this quarter masks some of the Canadian spring breakup. But if you look over the course of history, absolutely, those are very reasonable incrementals, if not higher. Stephen D. Gengaro - Sterne Agee & Leach Inc., Research Division: Okay, yes. I just wanted to sort of calibrate the earnings leverage. It's still pretty significant even without "significant price moves".

Yes, that's -- I'm glad you pointed that out, you're absolutely correct.

[Operator Instructions]

Okay, Angela, it sounds like there's a long pause, we might be done.

We do have one question that just came in. We have John Daniel from Simmons and Company. John M. Daniel - Simmons & Company International, Research Division: Cindy, can you provide some additional color on the land drilling utilization assumptions you're expecting for Q3?

Well, yes. I'm not trying to be alarmist in any way, but for us, particularly with some of the smaller operators, both in the Permian and in the Rocky Mountain region, there have been some permitting delays, we call it gaps in the schedule, not anything else. But you're going to lose a week or 2 here or there until those issues are resolved. But we had a really good second quarter, both in terms of terms of utilization, efficiency, cost management and control, and we're just going to say on the margin, we're probably going to be down modestly in Q3 because of a few gaps. We watch it day by day and there are certain rigs that are down for isolated periods of time. I don't have a projected utilization statistic for you, but think somewhere, obviously, kind of mid-80s would be my guess. John M. Daniel - Simmons & Company International, Research Division: Okay. And then does that -- will that have an impact on the implied day rate, the revenue per day coming down too?

I don't think so. A lot of the day rate impacts right now, are you doing footage, are you doing day work, and what's the trans in both in and out, as you know. You know the business well, John. John M. Daniel - Simmons & Company International, Research Division: Yes, okay. Just checking. Last one is on the share buyback program, and I apologize if someone asked this, I wasn't paying attention, but I think you said it expires on September 1.

Yes, we -- Yes. I'll just kind of caveat. We've got a board meeting in August [indiscernible] strategy.

Our next question is from Blake Hutchinson from Howard Weil.

Sorry to requeue but this will free up some time in the afternoon for Patricia and Lloyd. Just -- can you reset for us from a -- just help us from a franchise perspective, what your mix, Gulf of Mexico versus rest of the world is in Offshore? And I ask that partially to really to -- from a tax perspective, is that radically different? I'm trying to get around kind of point-of-sale, point of derivation and tie it back to the tax rate guidance.

Well, we really don't even follow internally because it varies. It's project-dependent. I'm more interested in where is the project, where is the equipment destined? Those are 2 very different issues from where is it manufactured and produced. Which is that's going to attract the taxation question. And so you really have the demand driver, and then you have the manufacturing location. As Lloyd has given you good guidance, first of all, we spun off Canada, we spun off Australia, if you look at 2012 and 2013, I don't have the effective tax rates in front of me but let's say they were high 20-ish, that is because of the weighting of those foreign operations. I think everybody knows you have tax rates that are about the highest in the developed world and we're going to be more U.S. focused given our -- first of all, Well Site Services is weighted towards the U.S. activity. And then from a manufacturing standpoint in Offshore Products, I'd say our major manufacturing locations are the United States, the U.K. and Singapore, although we have top line contributions elsewhere. But that weighting towards the U.S. is going up.

Right, and I guess within -- if the guidance is almost statutory U.S., then most of the Offshore Products is -- we can probably consider U.S. And I ask -- the whole point was, I guess, to get to your cash on hand is mainly U.S. domiciled and we should expect if most of the free cash generated to be similar?

Actually, like the cash on hand we have here is mostly outside the U.S. And on the tax rate, the way I look at the 35% is in the U.S., you obviously have the marginal tax rate plus state taxes that actually takes you above 35%. So there are some of the benefit from the foreign operations that's bringing it down. So the blended rate around 35% has -- above with state taxes and slightly below with foreign taxes.

We have no further questions at this time.

Fantastic, Angela, I appreciate you hosting the call, and thanks to everybody for joining us today. We look forward to continued activity with you as we kind of progress forward. We're very pleased. I think our 10-Q will be filed today, as far as I know, and the beauty of that, I think, it again gives good visibility of continuing operations and a clean balance sheet that will help you model going forward. And so thanks again for following the company and we look forward to future meetings with you.

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