Welcome to the Third Quarter 2019 Frank's International N.V. Earnings Conference Call. My name is Sylvia and I'll be your operator for today. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. [Operator Instructions]. Please note that this conference is being recorded. I will now like to turn the call over to Ms. Erin Fazio. Ms. Fazio, you may begin.

Good morning and welcome to the Frank's International conference call to discuss third quarter 2019 earnings. I'm Erin Fazio, Director of Finance and Investor Relations. Our speakers on today’s call as shown on Slide 2 of the earnings presentation, we have Mike Kearney, Chairman, President, and Chief Executive Officer; and Melissa Cougle, Senior Vice President and Chief Financial Officer. Joining Mike and Melissa for the Q&A portion of today's call will be Steve Russell, President of Tubular Running Services; Nigel Lakey, President of Tubulars; and Scott McCurdy, President of Cementing Equipment. A presentation has been posted 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. On today’s call, Mike will discuss our recently announced profitability improvement project as well as the segment technology highlights. Melissa will then review the financial performance of the quarter, discuss the details of the profitability improvement project, and give general guidance for the remainder of the year and 2020. We'll close with a question-and-answer session. Before we begin commenting on our third quarter 2019 results, there are a few legal items that we'd like to cover beginning on Slide 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 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. 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 third quarter 2019 earnings release which was issued by the company earlier today. I will now turn the call over to Mike.

Thank you, Erin. We appreciate everyone joining us today for the call. I want to start my remarks by saying that for the last quarter, the management team has spent a tremendous amount of time looking at every area of the company in terms of how we deliver safe quality services and products to our customers, and do it in the most cost efficient manner. We call this effort our profitability improvement project. We examine the entire organization, and delve deeply into approximately 20 distinct areas of our operations, and cost structure to determine how we can operate more cost effectively. Everything was on the table to be examined with a set of fresh eyes, and we went through our organization in a zero base clean sheet type approach. Every member of the executive team has been deeply involved. We established an internal working Steering Committee, which included eight direct reports to the executive team members. The project started with an eight week diagnostic analysis by a globally recognized management consulting firm with a long-standing successful history of projects. We set up an employee portal where employees at any level could submit opportunity areas and do it anonymously if they like. Our employee engagement has been hard throughout the process, as most of our employee base realizes that a more profitable operation will be key to our future. Having their support has been amazing. And I'm personally immensely grateful for the professionalism everyone has shown in these past several months. The reason for my sharing such significant detail is because our investors should know Frank's entire employee base appreciates the fact we must boost profitability to the maximum extent possible, while not only preserving, but enhancing our ability to safely serve our customers, and provide the great technological solutions that…

Thank you, Mike. During the third quarter, Frank's faced some headwinds in the North American market which was somewhat expected. As we have heard through this earnings season, the North American land erosion story is not new news. And so we will not spend much time dwelling on it. We've also seen demonstrated and discussed in prior quarters that our Tubular business can show large swings when our customer drilling schedules change. And this was one of those quarters creating some unexpected headwinds. On the positive side, our international businesses continue to show steady improvement and positive momentum, and our margins are showing strong leverage as well. In reviewing our results on Slide 4, in the third quarter we generated $140 million of revenue, which was up 9% from the third quarter of 2018, although down 10% sequentially, largely as a consequence of the Tubular product sales delays. Adjusted EBITDA was $16 million in Q3, and $43 million for the first nine months of the year, demonstrating year-over-year incremental margins of 35%. We are most pleased to report that we generated $16 million of free cash flow this quarter, highlighting our focus on capital discipline and working capital management. Turning to Slide 5, our TRS segment produced third quarter revenue of $102 million, a slight sequential decrease driven by the substantial headwinds in the North American markets this quarter. While we were able to maintain growth through the second quarter of 2019, despite the declining rig counts, as expected, our third quarter results were affected and we expect those headwinds to continue for at least the next couple of quarters. These challenges have been partially offset in certain international markets that continue to see increasing activity. Europe and the Middle East have both been notable bright spots this quarter. Asia-Pacific…

Thank you. We will now begin the question-and-answer session. [Operator Instructions]. We have a question from Ian Macpherson from Simmons.

Good morning. Due to the background noise, I'll ask quickly unmuted. So Melissa for the 2020 top-line Tubulars is the most feasible with double-digit and then surely international and I would expect total offshore, at least high-single-digit top-line for next year. Is that credible that just leaves the U.S. land piece at the black box?

Ian, appreciate the question. I think we're still looking through it. Next year, we are going through the process right now presently of quantifying essentially the contracts that are rolling over. We are optimistic, as you mentioned about the offshore space Tubulars does have really strong line of sight. I think we didn't need to hold on giving you any more than that probably for a couple more months as we get through everything else clustered.

That's fair enough. The drilling contractors are getting pricing now as they historically been in correlation there that we should think about in terms of recovery for your pricing, or is that not in your thinking yet for 2020?

It's not in our thinking yet for 2020. I'll let Steve expand upon it as well. Certainly, we would expect there would be a correlation. I would say it's fair, Steve chime in that we have not factored that into our 2020 budget at present.

Yes, Ian, I think Melissa is correct on that. I mean, we are seeing a mixed story on pricing this, I think we reached bottom when we're in the early stages of a recovery internationally. As Melissa alluded to, there's some market headwinds specifically in U.S. land that will no doubt give us some challenges on pricing next year.

Got it. Thank you. Then last one for me. Can you offer anything on CapEx for next year yet?

Give us a little bit of time there, Ian. We're still working through some projects as part of linking back to the profitability improvement program. We have some early days, but I think we'd rather come back to you with firmer guidance there in future.

[Operator Instructions]. We have a question from David Anderson from Barclays.

Hi, good morning. I was wondering if you could just kind of dig into your International TRS business a little bit for me. You had said in your remarks that the Middle East and Europe were positive for you in the quarter. Can you just kind of talk about it’s kind of within your projections how you think about next year and you talked about overall revenue growth. Can you remind us how much the international business is offshore? And I think what you're referring to is more the onshore business and can you just kind of talk about where that business is in terms of kind of your strategic vision, a few years ago that was a business you guys got into? I'm just kind of curious how you feel the business is running today. Is that a business that you think you can continue to expand? I'm thinking you just kind of talk about the different nuances of international please?

Yes, thank you. So I think first of all, if we look forward to next year, we're generally seeing an increasing market trend internationally. For us this geographical -- it's a hot spot for us, we see pretty decent growth coming out of Asia-Pacific, Africa and Europe next year. To the specific comments on the Middle East that for us is a mix land in offshore market. It's approximately half and half, the offshore being a shelf market. And in general, I would say that gives us some opportunities for next year, we don't see that as one of the major growth opportunities for next year internationally.

Okay. And then when you've talked about your Tubular business and kind of the optimism you have there for some of those big diameter pipes, does that give you kind of confidence on the offshore market for next year? Just kind of curious what you're hearing from your customers. The offshore rig count has kind of plateaued here a little bit. What's your confidence that that offshore rig count picks up next year and does that Tubular business; can you give me some of that confidence?

Yes, thanks, David. It’s Nigel Lakey here. The market for us is localized, if you will from our perspective, our customers are going to increase their level of activity that gives us strong line of sight and good confidence for Q4 recovering from Q3 and certainly into 2020 also.

And I guess a final question from me would be on some of your cost-out program, you talked about the additional $15 million that you could take out on supply chain. I was wondering if you could just talk about that a little bit. I know it's been something we've talked about with Frank's in past years in terms of kind of fixing up some of the supply chain; I know you've got different businesses that aren't necessarily talking to each other internally. Can you just talk about some of the plans there of kind of what you're looking out on the supply chain? And maybe also just help us understand it's kind of what's the ultimate goal here? You had a nice quarter in free cash flow this quarter. But as you look out going forward and as you think about maybe that EBITDA of $100 million plus next year, and do you have a goal in mind in terms of the free cash flow conversion on that, and how does that supply chain, I guess overall fit into that?

So I'll take the supply chain first, this is Mike. In terms of our business, we have discrete business units. So we actually procure things in a number of locations and our objective there and of course, it's longer-term is to get better visibility in terms of all of these functions that are somewhat disparate, and bring them together more closely and try to get that volume purchasing power by being more coordinated. So that's clearly a longer-term project. In that you've got to go your vendors, you've got to seek to get reductions. If you can't get the reductions you want, then you need to look harder for other vendors. So it's definitely a longer-term initiative. But we’re just in the early stages of that, but I think we can do a better job and we'll be working on that. But we didn't want to -- we view that as longer-term, not something you've kind of flip the switch and get those savings. In terms of the free cash flow, I'll let Melissa speak to that one in terms of 2020.

Yes, I think I would also add to what Mike just said, and what you also heard from us is that the supply chain optimization was coinciding with an ERP implementation. So that $15 million, we would tap into on the backside of having what we view as far more clarity and real time data to be able to react to. So proper category spend to facilitate vendor discussions, better working capital management because we can get a firm handle on invoices getting out of the door quicker and can pull our outstanding receivable reports more efficiently. So the general efficiency that comes along with an ERP implementation is also rolled into that. Everything Mike said plus some more is what I would say. From a free cash flow next year perspective, what I would tell you is we're still going through the process right now of really recasting our view as relates to U.S. Land as well as pushing through our profitability improvement project. So we are -- it would be fair to say we’re highly focused on free cash flow. We understand its priority in the space and it is a primary metric for us to track. So we will be looking to optimize and make it as efficient as possible. That being said, we feel like there's still more work to do in quantifying and pushing out the work that we know we can do into the financials to see how it flows through to the free cash flow line.

Okay. So to be continued, so actually that was my question on your supply chain and whether or not your infrastructure kind of improvements were required and I guess the answer to that is yes. So you think that will take kind of -- how long do you think it takes to implement the new ERP system?

Well, we're largely looking at next year as our timeline to get to -- when we start 2021, now we -- there are things as Mike mentioned, there are things we can do now and we will be doing what we can do now. But a lot of this longer-term stuff starts to tap into when you have good clear clarity to your spend categories and you can go back to your vendors with full spends and global agreements.

As you probably know, these ERP projects are long and complicated. And we're choosing to implement in phases. So one approach is the Big Bang where you try to convert everything at the same time. And so our first phase is going to be kind of our financial and back office piece, which would include a lot of supply chain components. And we're targeting to have that pretty much done by the end of next year. And then there'll be other things beyond that in terms of our inventory management and other modules, HR would be added on at a later date, but it'll be a sequential process. We're not going to stop and take a break. We'll do it one module at a time, but it will take place over more than one year.

[Operator Instructions]. We show no further questions. I would like to turn the call back to Mr. Kearney for final remarks.

Okay, thank you, Sylvia. Well, we appreciate everyone joining us on today's call. And the management team is very excited about the steps we're taking to improve our profitability and serve our customers in the safest, most cost effective manner. We look forward to updating everyone on our fourth quarter call. Thanks for joining.

Thank you. And ladies and gentlemen, this concludes today's conference. We thank you for participating. You may now disconnect.