Welcome to the Q1 2017 Frank's International Earnings Conference Call. My name is Andrea, and I'll be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we'll conduct a question-and-answer session. Please note this conference is being recorded. And, I'll turn the call over to Blake Holcomb. Blake, you may begin.

Thank you, Andrea. Good morning, everyone, and welcome to the Frank's International conference call to discuss the first quarter 2017 earnings. I'm Blake Holcomb, Director of Investor Relations and Communications. Joining me today on the call are Douglas Stephens, President and Chief Executive Officer; and Kyle McClure, Senior Vice President of Finance, Treasurer and Interim CFO. We have posted a presentation on our website that we will refer to throughout this call. If you'd like to view this presentation, please go to the Investor section of our website at franksinternational.com. Before we begin commenting on our Q1 2017 results, there are few legal items we'd like to cover beginning on page three. 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 the 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 set forth in any forward-looking statements. A more complete discussion of these risks is included in 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 access both the first quarter earnings press release and a replay of this call. 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 first quarter of 2017 earnings release, which was issued by the company earlier today. We will now turn the call over to Douglas for his comments.

Thank you, Blake, and good morning to everyone on the call. So, the first quarter of 2017 results for Frank's International with representation, what we believe will be a continuing trend for the remainder of the year. The increase in the North America onshore activity is driving revenue growth in our onshore TRS and Blackhawk businesses, and the International segment is beginning to see benefits of scheduled work ramping up and lower cost due to the internal efforts over the past several quarters. Oil prices is showing signs of stability in the $50-range, and supply appears to be moving more towards the balance of global demand. These macro fundamentals, coupled with efficiency improvements across the supply chain, leads us to expect that we will see fewer project cancellations and delays globally than we experienced in 2016. The exception to this improving market environment is our U.S. offshore and Tubulars Sales businesses. These businesses have historically been correlated with U.S. Gulf of Mexico activity, where outlook is currently less positive. Working rig count in this region well – remained well below 2014 levels and is likely to see a slight deterioration through the end of the year. While we remain a leader in this market, the competition for fewer projects and pricing pressure is likely to continue to negatively impact these businesses until we see an increase in rig activity. We will provide additional commentary on our outlook later in the call, but I want to begin with providing some highlights from the first quarter on page five. Total company revenue for the quarter was up 3% sequentially with adjusted EBITDA of nearly $2 million. The benefit of the full quarter of Blackhawk revenues and a growing U.S. onshore business help offset some of the onshore business – offshore business declines.…

Thanks, Douglas. Before I get started, just a quick note. Any financial or market comparisons in my prepared commentary will be for fourth quarter 2016 versus first quarter 2017. Turning to slide seven; I'll provide detail on changes in the global offshore rig market that we saw during the quarter. Please note that for 2017, we have modified our presentation of this data set to include offshore platforms in addition to mobile rigs. This will better reflect all of our offshore revenue streams. Overall, market share was flat at 17% as we saw the market declined by 14 rigs. Latin America, Canada and Europe all experienced increased revenue in share on relatively flat rig count during the quarter. Middle East continues to be an area where we continue to grow share, but revenues and margins in the region are still lagging due to timing of work. West Africa saw an increase in revenue for the first time since the fourth quarter 2014. The increase in higher margin work in new markets, mostly remote countries in West Africa, was the primary reason for the improvement. Based on what we are seeing and hearing in this market, over the coming quarters, we believe that the African market most likely reached the bottom in the fourth quarter 2016. As we expected and referenced in our fourth quarter call, the largest share and revenue declines were seen in the Gulf of Mexico as some work shifted to a low-bid competitor during the quarter. Asia Pacific saw revenue and share declines in line with rig count during the quarter. Moving to the quarterly financial results on slide eight; overall, the financial results reflected and met our expectations. The U.S. Services and Tubular segments experienced lower revenues due to decreased Gulf of Mexico activity. As previously…

Thank you, Kyle. And prior to the taking your questions, let me wrap up on page 13 by reiterating several specific focus areas that when effectively executed will allow us to maintain positive adjusted EBITDA and return to positive free cash flow excluding dividends during 2017. The first will be to capitalize on the significant growth seen in the past nine months in the U.S. onshore rig count. By most indications, the growth trend onshore is expected to continue and Frank's is well positioned in the most important basins. We're also having success in engaging our customers to provide quality and reliable bundled TRS and Blackhawk services. The recent successful testing of new Blackhawk line of frac plugs and staging tools also offer upside to our traditional onshore offering. As these wells become more complex, we are seeing greater emphasis on quality well construction that can enhance the life of the well and improve resource recovery. Additionally, our successful penetration into underrepresented markets and the ramping up of work we've been planning for several quarters internationally should deliver improved results in the second half of 2017. Although deepwater rig activity growth still seems several quarters away, we expect scheduled work for Frank's to move forward as planned with fewer delays and cancellations. The expansion into the Middle East market has taken us some time, but successful execution in this market thus far has earned us the credibility to move to higher revenue and margin work in the future quarters. We're also encouraged by what we are seeing from customers and countries in Europe and Africa in regards to proceeding with planned offshore projects, where we've been awarded the work. At the same time, delays in Asia-Pacific are expected to subside beginning in Q3. The use of new technologies across all…

Thank you. And our first question comes from Blake Hutchinson from Howard Weil. Please go ahead.

Good morning.

Good morning, Blake.

Just wanted to delve a little bit into the International guidance. And I guess, differentiate between, I think, Doug, your comments around potentially meaningful International improvement and just kind of having more of a measured improvement in 2Q. I guess, if we take in total, what you've said, some good performance highlights regionally in the quarter, but Middle East and Asia-Pac perhaps kicking in later in the year and perhaps even finding somewhat of a bottom later year in your core deepwater markets, would it be appropriate to think of perhaps the back half of the year perhaps accelerating little a bit in terms of International growth?

Yes. I think, Blake, that's a fairly fair assessment, right. We've seen from the start of the year, the first few months of the year were fairly slow. The last few weeks, if you wanted, the quarter were quite good. As we mentioned, we've anticipated – some of the projects, to some extent self-help in West Africa and in the North Sea in Europe as we picked up a few more projects. Because of the cost reduction we've seen, we've seen very good incrementals on the additional revenue that we generated in both the two markets Africa – West Africa, and the North Sea. Asia and the Middle East have been a little bit slow for us in the first quarter of the year. We do see that accelerating, particularly in the second half of the year. We've won quite a bit of work there. We've talked about that in the past. And I think in the Middle East, what we're seeing is we moved to some of the higher margin work as our reputation and the delivery that we've had on some initial work is showing success and we'll move into some of the higher margin work in some of the key GCC countries. And then in Asia, we've been awarded some key contracts. We've been in the ramp-up phase for the last couple of months. By the time, we hit the second half of the year, I think we'll be firing on more cylinders in that part of the world.

Okay. Just wanted to make sure that we're getting the right message there. And then, with regard to kind of the near-term trajectory in the Gulf of Mexico, deepwater Gulf of Mexico. I guess, can you draw a differential between the kind of big negative comparison we saw from Q4 to Q1 and then the remainder of the year? Has most of the share loss run its course or do we need to consider that kind of having a knock-on impact into 2Q before, perhaps, that revenue stream firms up?

I think, of course, if you lose a rig, that knocks on and carries over for a while. I think the situation there in the Gulf of Mexico is such that there is so fewer rigs right now, if you lose one or two, that actually has a material impact on share. And there's multiple players there, and some of our customers want to keep multiple players in the market. So, we've seen a bit of share deterioration recently because of that. But as we've said, we're vigorously competing to maintain share. And we think, by the second half of the year – there is probably still some further deterioration in terms of the overall rig count through the next quarter or two. But we expect a slight rebound – flattening to rebound in the second half of the year, and we're going to be pursuing share so. I don't know if that answers your question, Blake.

No. That's helpful, I guess. I guess, at some point, with what you've laid out, you also laid out kind of delays in what your – in your content, both in the U.S. Services and Blackhawk. So it sounds like more deterioration into Q2, but we wouldn't necessarily rule out, perhaps, having a positive comparison at some point in the back half of the year.

Yeah. I think – this is Kyle. I think, what we'll see here is kind of a Q2 click down potentially some more share challenges. But there is still a lot of stuff that's sort of out for tender right now that we just have not heard back on. There are some very – I recall I think, six or seven rigs various tenders that are out there right now in the Gulf that are up for grab. So, it's sort of hard to model that because we don't have an answer back on a lot of this stuff yet. But we feel pretty comfortable click down into Q2 and sort of flattening out in the back half of the year right now. Potentially upside of that, if we get a couple of these tenders come our way.

That's great. That's very helpful. I appreciate it, and I'll turn it back guys.

And the next question comes from Joe Gibney from Capital One.

Thanks. Good morning. Kyle, this is a quick question for you. You referenced corporate overhead in the quarter was slightly higher embedded in U.S. Services. I'm just curious what the exact number was? And, secondarily, I was wondering if you could share kind of where we were on U.S. Services EBITDA margin? I believe last quarter you indicated we were sort of at an exit rate of mid-20% EBITDA margins as a ballpark. Did that hold in the first quarter? Are we seeing improvement or is that a generally how we should think about that as we enter 2Q? I appreciate it.

Yeah. So the corporate overhead – let's take a step back. We have gone through a pretty significant sort of restructuring of our cost reside within that segment. We have pulled out of the Gulf of Mexico and U.S. Land businesses, a lot of it for the administration, insurance, real estate, sort of non-controllable costs and pulled it into the corporate overhead. So, as we have been quoting you numbers last year, I think, in the $13 million to $15 million range, I'm going to start this year by quoting you a negative $25 million range for sort of corporate overhead, that's engineering, QHSE, all the administrative support functions that really support globally. But a lot of them kind of sit in Lafayette and Houston. So, we're going to start with that as your new number for this year. We're going to go with $25 million and work off of that as we talk about color. The margins we've talked about, Joe, in Q1 – sorry, the exit of Q4, similar zip codes in Q1, no real change from kind of that discussion point. I don't want to get in too much specifics on this, but we are in the same zip codes.

Understood. I appreciate it.

Yep.

And our next question comes from Chase Mulvehill from Wolfe Research. Please go ahead.

Hey, how are you, all?

Good morning, Chase. How are you doing?

Good morning, Chase.

Hey, Doug. So just real quickly, I wanted to ask about I guess, if you think about your business and the potential for more collaboration or integration with other industry players. Do you see an opportunity here for either onshore or offshore to kind of enhance kind of collaboration across the industry when we think about well construction?

No, I think that's a real trend that we see ongoing, Chase. I think this downturn has fostered a few things in the industry. It slowed a few things down. I think one of the things that's been a consistent theme over the last few years and will seek continuing and probably accelerating of this idea of integration, right, across the service sector. I don't necessarily mean that everything is owned by one company necessarily, but we're seeing rig contractors being getting TRS and other services being included in their contracts. We're seeing bundled services being awarded to various players. And we're participating in all of those types of activities. And actually, looking at how we can more proactively pursue some of those, including on U.S. Land has been proactively working with rig providers to provide the services that may be included in their contracts so they may want to go include in their contracts, and likewise, with offshore. So yes, we do see that in collaboration is something that we see as part of the future.

Okay. Great. Any particular markets you think you'll have more success in, especially as we think about onshore – U.S. onshore, do you think you'll have more success there? Then on the offshore market is there, is it the Gulf of Mexico where you think you'll have more success of collaboration or across the board?

Well, I think what we're going to see as this collaboration, we'll see different flavors of collaboration in different parts of the world. So, what I see in U.S. Land is, typically, we haven't seen a lot of integrations; it's been very single-service providers there in the service space, not just in the TRS space but kind of overall. But we do see collaboration with the land rig providers as being potentially one of the next steps in our evolution as we go into increased rig count in U.S. Land and customers are still looking how they can make more efficient wells. I think internationally, we see different types of collaboration. A large number of contracts being awarded today through integrated of bundled services with large integrated service providers. And we're actively participating in those. The largest OFS players are also good customers and good partners of ours. And in certain parts of the world, such as the North Sea, TRS services are often included as part of the mobile rig contracts. And again, we're collaborating with rig providers up there.

That's very helpful.

So I think collaboration will be ongoing, we'll have a slightly different flavor depending on the geography or the customer.

Okay. And quick follow-up. I guess, could you help us with EBITDA margins, and sorry, if you gave this, for U.S. onshore in 1Q?

Yes. So, I think we talked about this sort of exiting Q4 and these were 20% give or take range. And I think I mentioned, we're in that zip code currently coming out of Q1.

Okay. And did you disclose the healthcare claim expense early? Sorry, if I missed it.

Yeah. Yeah. That was $3 million in the quarter.

Oh, wow. $3 million. Okay.

Yeah.

All right.

So, it's a big one.

Yeah. It's pretty big. All right. Thank you. I'll turn it back over.

And the next question comes from Brad Handler from Jefferies. Please go ahead.

Thanks. Good morning, guys.

Good morning.

I think my question definitely falls in the category of not writing fast enough, so forgive me. But you walked through – you were good enough to walk through 2Q guidance. Should I be thinking, first of all, that what we're talking about is, if you say – I think you said flattish, correct, sequentially?

Yes.

Okay. Should I be thinking that means $1.5 million plus $3 million, and so we're talking flattish sort of clean if you will?

Yes.

...or some backing up that medical expense?

So, if you start with we don't have three recurring, and we call that $4.5 million. I think the mix of business will be challenging as you have sort of more U.S. onshore, more Blackhawk onshore, and sort of the tick down in Gulf of Mexico. And so I would say we started at that $4.5 million number, but I think there is going to be some headwinds within Gulf of Mexico in the mix of business there to kind of bring that down a little bit.

Right. And that's offset by some continued potential in International, that's would get you to flattish?

That's right.

Is that right?

Yes.

Okay. All right. I want to make sure like I said I wasn't quite sure I had written things down enough. Okay, thank you. And then, I guess, while I have you, we have heard at least Q1 had its interruptions as reported by the diversified service players, Nigeria was cited. I don't know if that's the biggest market for you, but there were some interruption certainly in West Africa. So it's interesting that your experience was obviously a little bit better. Were you aware of such interruptions, is that playing into a sense that you have the market for West Africa or your opportunity in West Africa in particular gets even stronger as you make your way through the year?

I think the market in West Africa, it's frankly – it's a tough market, right? And there's multiple countries down there, some in certain positions as rigs move in and out. I think what we described is that we've been successful in picking up projects in remote countries. We've driven a lot of cost out of our West Africa operations after the really significant downturn we saw through last year, and as a result, when we do pick up work we're seeing very good incrementals on it. So, we've reduced our critical mass in many of these countries to the point now when we do pick up work we're seeing good margins in it. But it clearly was a mixed bag. I certainly wouldn't tell you that every country in West Africa was blowing and going in the first quarter because that's far from the case. And I think it will be a while before the overall market down their turns around.

Sure. That makes sense. That makes sense. And maybe just a little color also on the Asia – your Asia commentary. Maybe I'll ask it this way. How do you guys calibrate risk that project delays don't just persist that there is something – there is enough actually happening on the ground right now to give you that confidence that these will actually get going and then therefore your opportunity gets going later this year?

I think – it's a good question. I think on some of the projects that we have, we said that risk is reduced because the rigs are actually drilling and they are waiting on us to get on the rigs side. I think in some of these projects, that's how we're defining it. Again, Asia, we see as a market, which will be fairly slow to recover. A lot of these countries, $50-oil are not going to be having huge investments in them. Where we've talked in many of these cases, where we're seeing improved results via North Sea, Europe, West Africa, or Asia, a lot of it's simply because we won contracts for rigs that are working or about to start working have been awarded.

Got it, got it. Okay. Thank you. I appreciate it. I'll turn it back.

In short, we're picking up share in some of these key markets, which is because of the reduced cost base, it's driving good incrementals.

Right, right. That's for the tough site. Got it. Thank you.

And we have no further questions at this time. I'll turn the call back over to Douglas Stephens for final remarks.

Okay. Thank you very much, Andrea, and thank all of you for your questions. So as mentioned, we are confident that we have the right strategy in place and look forward to updating you on the progress we're making in executing towards our goals to generate free cash flow, hold share in dominant markets, and grow in underrepresented markets, while broadening our well-construction offering. So, I'd like to thank all of you for your time and interest in Frank's International.

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