Welcome to the Q2 2017 Frank's International NV Earnings Conference Call. My name is John, and I'll be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Please note the conference is being recorded. And now, I'll turn the call over to Blake Holcomb.

Thanks, John. Good morning, everyone, and welcome to the Frank's International conference call to discuss the second 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 and Chief Financial Officer. We have posted a presentation on our website that we'll 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. Before we begin commenting on our Q2 2017 results, there are few legal items we'd 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 be materially different from those set forth in these forward-looking statements. A more complete discussion of these risks is included in the company's SEC filings, which may be accessed from the SEC's website or on our website at franksinternational.com. There, you may also access both the second quarter earnings press release and a replay of this call. Frank's International uses its website as a channel for distribution of material company information. Such information is routinely posted and accessible in the Investor Relations section. Please note, any non-GAAP financial measures discussed in this call are defined and reconciled to the most directly comparable GAAP financial measure in the second quarter 2017 earnings release which was issued by the company earlier today. I will now turn the call over to Douglas for his comments.

Thank you, Blake, and good morning to everyone on the call. So the second quarter for Frank's International was another step on our path back to an improved and sustainable business based on the actions we've been implementing over the last few quarters. And I'm pleased with the progress we've made in executing our strategy, and we're beginning to see the results of increased activity from our efforts to gain market share. However, as you can see, we are clearly not yet where we need to be. And from the macro perspective, the commodity prices appear to be range-bound in the $40 to $50 per barrel range. And although well economics for some offshore projects are improving, we do not yet see this translate into an overall market rebound. So, in this environment, the base pricing for our services remains under pressure. We continue to combat this pricing pressure by upselling our technology that saves our customers money by reducing rig time and improving the overall integrity of their wells. We're also taking a hard look at our cost structure to be sure we are keeping our expenses under control and eliminating indirect costs that impede the margins and cash flow. That being said, the outlook for our business is improving in the second half of 2017 and on into 2018. We're benefiting from the commencement of international work awarded over the past several quarters, the expansion of Blackhawk, and the upturn in the U.S. onshore market. We're also making progress in improving our cash flow while employing a more disciplined approach to capital programs. But we understand there's more work to do. We've continued to find methods to improve our margins, to protect our strong balance sheet, and improve our profitability. Moving on to page 5, I will comment…

Thanks, Douglas, and good morning to everyone. Before I get started, just a quick note. Any financial or market share comparisons in my prepared commentary will be for second quarter 2017 versus first quarter 2017. Turning to slide 7, I will discuss some of what we saw during the quarter in the offshore market. Overall, market share was up slightly to 18% as we saw rig activity increased for the second consecutive quarter, primarily driven by jack-up rigs. Europe saw the largest increase in share during the quarter as work commenced on seven new rigs. Asia Pacific and the Middle East also saw gains in share and revenues. Revenues in Africa were up over 10% as an improved business mix was realized in the quarter. Latin America and Canada saw small declines in revenue and share, and we successfully completed a couple of projects during the quarter. However, we expect to pick up some work in Brazil later this year and continue to hold 100% of the offshore rigs in Eastern Canada. The U.S. Gulf of Mexico weakened again in the second quarter, as we expected. This continues to be a challenging market in terms of pricing and activity but should begin to level out towards the end of the year and then we should see a pickup from the six rigs recently won. Turning to the quarterly financials on slide 8. Revenues for Q2 came in higher than we expected due to the acceleration of TRS growth internationally. Q2 2017 represents the first time in 10 quarters that core revenues have grown sequentially. Globally, our core TRS business was up 7%, providing further indication that we are having success winning in a mixed market. The International segment saw the most meaningful improvement as significant work scopes came online in…

Thank you, Kyle. And let me conclude our prepared comments on page 13 by emphasizing the key takeaways from the quarter and for the remainder of the year. So despite the offshore market remaining mostly flat to down, we expect to grow our top line revenues 5% to 10% in the second half versus the first half of 2017. In a company where over 75% of our revenues come from offshore services and product sales, we see this as a very positive trend. It reflects our success in gaining share in international land and shelf, as well as targeted new geographies where we had previously been under-represented. We're also expecting to see significant growth from our Blackhawk and our U.S. onshore business as we catch up to the rig activity over the past 12 months and drive pricing. The introduction and commercialization of new technology will also be a key factor to improving our incremental margin on top line growth. Some of these technologies broaden our traditional service offering and provide the opportunity to increase our revenue per rig while improving customer efficiency, safety, and well integrity. The other components of delivering better margins will be how we manage our costs through disciplined spending and the removal of indirect or unnecessary expenses. Some cost inflation comes with growth, but we are confident we can find ways to improve accountability within our organization and bring more to the bottom line. Taking these steps, in combination with selling some non-essential assets through the remainder of the year, will allow us to achieve our breakeven cash flow target for 2017. And as you know, we're fortunate to have a strong balance sheet that offers the flexibility to allow us to grow through a variety of paths, and we plan to maintain that optionality. Enhancing our product and service portfolio with acquisitions such as Blackhawk give us the ability to grow revenue and profitability in a market that we do not expect to see meaningful improvements in the near to medium term. The recent successes we have seen winning new businesses serves as a confirmation that our customers continue to value our services to meet their well construction needs. And I'm proud of our operational support teams that have maintained focus in doing their job safely and putting the customer first. As the industry continues to find ways to make exploration development projects more productive and economic, Frank's reputation for quality and reliable services will position us to take advantage of new opportunities. But until a full market recovery occurs, we will continue to find ways to grow our business through introduction of new technology and further expansion of our broader service offering across our global footprint. Continued success in accomplishing these goals will allow us to produce attractive returns on capital and generate cash flow to create shareholder value over the longer term. We will now open up the line for your questions.

Thank you. We'll now begin the question-and-answer session. And our first question is from Sean Meakim from JPMorgan.

Thanks. Hey. Good morning.

Good morning, Sean.

So, I was hoping maybe we could start with a little more detail on the contract win. Could you give us maybe just a little more on the scope, timing. It sounds like maybe more of a 2018 event. Just trying to get a sense for the impact here. And just thinking about given the challenges in that market, I imagine there's some cross – some different moving pieces here with respect to the margins and that's how your margin work. At the same time, it's a pretty challenging pricing environment. Just trying to get a sense of the impact on the U.S. business.

Yeah. So good morning, Sean. So, thanks for the question. So, yes, I think your analysis is correct is that – look, this is a customer that we have been working for some time. We've worked for them previously and we worked for them around the world, but not here in the Gulf of Mexico for over a year. So, we're very happy with this, and I think our sales team has done a very good job. You are correct. There's pricing pressure in the Gulf of Mexico compared to where we were historically. But I can assure you, we can assure you that the variable margin for this work at the well site is still very good. And with fixed rigs that's coming on-line, this gives us quite a bit of volume to absorb, particularly cost for our operational base in the Gulf of Mexico. And we expect to start this up in Q4. It's not going to be immediate. I think the customers in the Gulf of Mexico are fairly sophisticated and they're very concerned about loss time, so they manage – the management change is quite sophisticated. So, we don't have all the rig charts yet, when we're going to be starting up. We're anticipating starting the first rig in Q4 October-ish and then ramping up the remainder of the rigs through the remainder of this year and into 2018, which is why we haven't indicated a lot in terms of revenue in this year or primarily in 2018.

Thank you for that. And can you give me – maybe give us a little more with respect to – Kyle talked about the growth capital for this year. Is there any growth capital associated with these projects? It didn't sound like there is any increment over what you guided previously. And also maybe just any mobilization costs or things that will run to the P&L in the second half?

Yeah. So, for the CapEx – hey, Sean. It's Kyle – for the most part, we have all these equipment at the ready. As we think about sort of the 2018 sort of maintenance and growth CapEx, we're not quite there from a budget and process standpoint. But these particular rigs, we've got the assets in play at this point.

Okay. Fair enough. Thank you.

Our next question is from Chase Mulvehill from Wolfe Research.

Hey. Good morning.

Good morning, Chase.

Good morning, Chase.

Good morning. So, I guess I just want to come back to the guidance a little bit. The incremental guidance was second half versus first half, the 25% to 30%. A little bit lower than I probably would have thought, especially maybe it's probably targeted at the Gulf of Mexico. So, maybe if you can kind of walk us through on the margin side, the pluses and minuses in the back half of the year. I'm assuming that International is probably better, offset by Gulf of Mexico. So maybe if you can just kind of help us back into those numbers a little bit on the 25% to 30% incremental?

Yes. So if you take a look at Gulf of Mexico which did $16 million in the quarter, we have that coming down by kind of 15% into Q3 and then kind of holding flat into Q4. So the decremental margins in Gulf of Mexico will come in at 100%. So, it's sort of a tough headwind. It's worth dollar per dollar coming out, and we haven't really layered in the six rigs on our back-half forecasted. As we said, we don't have the sort of the schedule to kind of feel comfortable putting that out there in the public domain at this point in time. So, the puts and takes on International, you're going to get nice incremental margins here sort of across the board. But as we look at the U.S. services segment, obviously, we've got our sort of global sort of organizational support and corporate overhead sitting there. And then, you got the headwinds sort of as the Gulf of Mexico deleveraging happening in that space there. U.S. land will be a good story in the back half of the year as we continue to see that pick up nicely. But when you're dealing with sort of 50% variable margins at the well site, those guys coming offline has a pretty big impact on us for the incremental headwind at this point in time.

Okay. And on the International margin side, do you think that the back half of the year we could average 20% adjusted EBITDA margins?

Yeah. I think that's a fair assumption for the back half of the year.

Okay. All right. Last one and I'll turn it back over. How much of your International revenues are onshore versus offshore now?

I would say they're predominantly offshore. We've got some onshore in the Middle East, but by and large it's offshore.

Okay. All righty. I'll turn it back over. Thanks.

Thanks.

The next question is from Ian Macpherson from Simmons. Ian Macpherson - Simmons & Company International: Hey. Thank you. Douglas, can you say what the average term duration is of the six new contracts in the Gulf of Mexico?

Yes. These are long-term multi-year contracts that we've signed this for – I won't give you all the details, but this is not a well-by-well type of contract, right? This is a longer-term contract. And we anticipate having a very long-term relationship with this group, with this customer. It's one of our best customers globally, so we anticipate this being longer. Ian Macpherson - Simmons & Company International: When you sign multi-year contracts in this phase of the cycle, is the pricing fixed throughout the term or does it have variable mechanisms?

There are typically variable mechanisms in the latter half of the contracts. Ian Macpherson - Simmons & Company International: Okay. And then, also following up on Chase's question on the International side. Looking at the second half or even into 2018, how do you measure your progress with regard to underpenetrated markets? So I think specifically the international jack-up market. Are you hitting your targets and do you still see significant runway ahead in terms of more market share penetration that you haven't gone to yet?

Yeah. So there's a couple of things. So, of course, we're not chasing everything. We are going after specific markets, with these return targeted markets. And there's some countries in the GCC which are very attractive for us where, to some extent, the easy oil is behind them and they're really targeting or having a lot more complex wells. And in certain countries in Asia as well where we haven't had a strong presence as we would've liked, and again there's only a few countries there where there's multi-rig, multi-year contracts available. I think we've done very well on gaining share and winning contracts. That side has gone quite well. Where I think we need more progress is actually being able to ramp up and sell the technology and start generating real margin. So the contracts have been awarded, but we haven't been as quick in terms of generating the revenue and generating the margins as we would like. Ian Macpherson - Simmons & Company International: Understood. Okay. Thank you.

Our next question is from Brad Handler from Jefferies.

Thanks. Good morning, guys.

Good morning, Brad.

I guess, a few different questions for me. I suppose we can start with the Gulf of Mexico in a couple of different ways. But on the revenue side, perhaps – congratulations on the win, by the way – are there some contracts rolling off? Is there a net number that we should think about if we're to try think about your market share? Have you lost some bids? Or is that did you have to give up some work relative to positioning yourself to be ready to serve on the six rigs that are coming?

So, Brad, there are still some contracts that are outstanding and, of course, there's always rigs coming off and on. But no, we certainly didn't have to give up anything to get this work we have, the infrastructure, the ability to do it. And there is no quid pro quo type of thing, if you give up this, we'll give you that. So we certainly see this as a net gain right now. There are contracts obviously rolling on and rolling off. So there may be some wins and losses elsewhere, but certainly smaller in scope. That's what we're anticipating right now compared to the space that there's not too many customers out there that actually have six rigs working for a multi-year program. So there's not too many opportunities to pick up this type of work. So I guess the net result is, we see a significant increase in our share in 2018.

Makes sense. Actually, can you share your perception of your deepwater market share in 2018 once all the rigs have started in the Gulf of Mexico?

No, I'd be a little bit reluctant actually to give you that number to tell you the truth.

Okay. All right. A follow-up or an unrelated follow-up, I guess. You made some references to profitability in the U.S. being impacted by property taxes and professional fees. Can you just give us a little bit more color around that, what the magnitude of those were and I don't know that those sound like they have to be onetime events. So, maybe a little sense – is that something we can think about will continue to pop up or happen at a certain time of the year or again some more context around those, please.

Yes. This is Kyle. It's a good question. If you look at our U.S. services segment kind of where we sort of pile all of our organizational global support and kind of corporate overhead business buckets. So, we have sort of a lot of cats and dogs sort of piled into the segment here. So as we have a one-off expense flow-through in the company really impact this segment from quarter-to-quarter, I wouldn't anticipate sort of the property taxes, or professional services either – we sort of joke around here a little bit which is sort of the loss, small number that we are in right now that if you have a $1 million unanticipated, unaccrued for expense come through in the quarter, it really kind of throws that segment out of kilter. And so, that's what we're sort of calling out there, is that we have a one-off property tax that we didn't anticipate coming in, in the quarter or professional services fee that we didn't anticipate as well. It's all sort of housed in this bucket. So, we wanted to sort of make sure people are aware that this segment has some sort of underlying cost volatility to it.

Understood. But to be clear, I guess, the guidance you're giving with respect to, say, decremental margins or what have you, you're not stripping out anything to arrive at a clean number as a base that's including these charges, right?

Yes. We're not stripping – it's included.

Okay. Okay. Got it.

Yeah.

I guess just one last one for me, please. I know these things can be very, very difficult to try to anticipate, but you have had recurring expenses related to the investigation that you obviously had to call out. Any feel for how long that – from a charges standpoint, I can understand resolution can be very difficult, but at some point maybe the investigation, the spending part is done. Any feel for when that kind of wraps up?

Not this time, I think we're still obviously – we made the announcement last year. On this day, we still have some tail on this from just the underlying investigation cost. Obviously, we'll call it out in the reconciliation to adjusted-EBITDA, but no real time to provide any kind of – on the tail for that spend.

Not long enough. Okay. Got it. Thanks for the answers, guys.

Okay.

Thank you.

And our next question is from Joe Gibney from Capital One.

Thanks. Good morning. Douglas, just a question on Blackhawk as we think about this into the back half of the year, in particular on the equipment certification process. I know sort of dovetailing into other markets and getting a little bit more synergies sort of predicated on a little bit of that lag. But could you kind of update us there sort of timeframe of maybe when you might see a little bit more traction in other markets like, say, North Sea that you've been targeting? Is this for first half of 2018 we start to get a little more traction there? Just help us a little bit there in terms of timing.

Yeah. Thank you, Joe. Very good question. No, you're correct. In actual fact, when the acquisition was done, it was anticipated that some of these rental tools would take a bit of time for certification in other markets and it's panning out as planned. So outside of the U.S. we're actually seeing pretty good results, very good results in Mexico thus far in some of the activities going on offshore there. The next places will be further east across the Atlantic, and it would be in Q4 and into Q1 when we really start seeing revenue upticks there and through 2018 when we start seeing meaningful growth in the equipment rentals for Blackhawk, as you've said, as we get the various certification requirements completed.

Okay. That's helpful. And Kyle, just a question for you again, circling back to the issue on global support and corporate overhead, just trying to understand. So I think last quarter was like a $20 million sort of guidance and that was up obviously with some moving parts and some shifting with some G&A you guys alluded to. But it also included, I believe, some one time on medical that boosted that number more to like $20 million. So, is going forward sort of a $20 million to $25 million range what you're kind of indicating, or is this – we got the good guys and bad guys in the quarter that kind of impacted that to get to the $25 million number? So just trying to understand, you said flat $25 million, but I thought it was lower last quarter in 1Q.

Yes. So, I think if you're going to sort of think about the rest of the year, I think we would probably think that $25 million number as more likely to kind of be a run rate here in the near term. We obviously look at sort of opportunities around that cost structure here internally and what opportunities we might have there. But likely for the back half of the year, we should probably be thinking sort of closer to that $25 million number for Q3 and Q4.

Okay. Appreciate it. Thanks.

And I'm showing no further questions in the queue.

Okay. So, I just want to take this opportunity to thank everyone who's involved in the call, taking the time and thank you for your participation, your interest in Frank's International.