Welcome to the Third Quarter 2020 Frank's International Earnings Conference Call. My name is Shelby, and I will be your Operator for today's call. At this time, all participants are in a listen-only mode. [Operator Instructions] I will now turn the call over to Melissa Cougle. Melissa, you may begin.

Good morning and welcome to the Frank's International conference call to discuss our third quarter 2020 earnings. Our speakers today as shown on slide two of the earnings presentation are Mike Kearney, Chairman, President and Chief Executive Officer; and myself, Melissa Cougle, Senior Vice President and Chief Financial Officer. Joining us for the Q&A portion of today's call will be Steve Russell, Senior Vice President of Operations. A presentation has been posted on our Web site that we will refer to throughout this call. If you'd like to view this presentation, please go to the Investor section of our corporate Web site at franksinternational.com. On today's call, Mike will provide an overview of the third quarter and our ongoing response to the COVID-19 pandemic and our thoughts on fourth quarter activity. Additionally, he will review technology highlights and our progress towards achieving our 2020 key initiatives. I will then review the financial performance for the third quarter. We will close for the question-and-answer session. Before we begin commenting on our third quarter 2020 results, there are few legal items that we would like to cover beginning on slide three. First, remarks by company representatives may refer to or contain forward-looking statements. Such remarks are subject to risks and uncertainties that could cause actual results to differ materially from those expressed on slide by such statements. Such statements speak only as of today's date. 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 Web site, or on our Web site 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 2020 earnings release which was issued by the company. I will now turn the call over to Mike.

Thank you, Melissa. We appreciate everyone joining us for the call today. Turning to slide four, our third quarter results continued to reflect the effects of the unprecedented industry downturn caused by the COVID-19 pandemic and lower commodity prices. Despite the challenging operating environment and customers spending reductions, I'm proud to report our organization continued to deliver high-quality products and services to our customers while maintaining our focus on reducing costs. Even though our consolidated revenue declined 2% sequentially, our profitability improved with adjusted EBITDA increasing primarily due to our cost-reduction efforts. Consolidated revenue in the third quarter benefited from strong results in our Tubular segment which partially offset drilling activity declines in our Tubular Running Services segment. Revenue in our Cementing Equipment segment was flat sequentially due to improvement in offshore activity, offset by continued weakness in U.S. land. As I briefly mentioned in my opening remarks, the COVID-19 virus continues to be a disrupting factor, and has hit the oil and gas industry hard. Our third quarter results represent the first sequential quarterly financial comparison in this new lower activity environment. As you know, our customer base expands the globe and each of the geographies in which we operate face differing degrees of COVID-related disruption. This means we're seeing a wide range of customer responses in terms of altered activity. Some customers continue to have reduced operations due to logistical limitations and border closings, while others are back to or nearly back to pre-COVID activity levels. Activity overall is increasing. So, this positions us well for an improving revenue backdrop in the fourth quarter. We see these trends continue into 2021, and believe next year will provide for stronger top line growth that will translate into significantly improved EBITDA and margins. At Frank's, we continue to be laser-focused…

Thank you, Mike. Referring to slide six, during the third quarter of 2020, we generated $84.4 million of revenue, which was down 2% sequentially and 40% year-over-year. Third quarter revenue benefited from strong performance in our Tubular segment which partially offset declines in our Tubular Running Services segment related to the full quarter effect of drilling program changes that began during the second quarter. Our third quarter adjusted EBITDA totaled negative $1 million, an improvement compared to the second quarter of 2020. Our cost reduction measures which Mike elaborated on earlier helped us to improve profitability from the prior quarter despite marginally lower revenues. Taking a closer look at liquidity, the company produced $21.2 million in operating cash flow in the third quarter. We were able to enhance free cash flow generation with strong working capital management that included select U.S. tax refunds, additional cost reductions, and further controlling capital spend. As we discussed last quarter, we amplified our engagement with customers to reduce our outstanding receivables, which results in an 18% reduction in Days Sales Outstanding. As of the end of the third quarter, the company had cash and cash equivalent of $206 million, an improvement of $13 million over the second quarter. The company has placed significant focus through the past six months on improving free cash flow, resulting in $15.7 million of free cash flow generation this quarter. The company had cash CapEx during the third quarter of $5.5 million compared to $10.3 million in the second quarter. The company intends to maintain a strong focus on limiting capital expenditures going forward during this period of uncertainty. Turning to slide seven, our TRS revenue totaled $52.9 million, generating $1 million in adjusted EBITDA during the third quarter. Our TRS segment was negatively affected by the full quarter…

Thank you, Melissa. Before we close out today's call, I would like to reiterate a few key points. First, we have one of the strongest balance sheets in all of oil services that will continue to help our organization navigate these challenging market conditions. It also places us in an enviable position to be able to react when opportunities arise. Second, we have increased our projected reduction targets every quarter for the past year, thanks to the diligent efforts of our teams. This provides a strong tailwind for profitability in 2021. Third, we continue to maintain a disciplined approach to capital spending that will allow us to further enhance our formidable liquidity position. We are spending in areas that we feel are needle-movers for Frank's in the future, and being highly selective about the opportunities we pursue. Finally, the combination of our cost control achievements, disciplined capital spending, and the strengthening market trajectory places Frank's in a strong position for an improved fourth quarter, which we believe will carry over into 2021. With that, operator, we are now ready to open the line for Q&A.

Thank you. We will now begin the question-and-answer session. [Operator Instructions] And our first question comes from Taylor Zurcher from Tudor, Pickering.

Hi, good morning, and thank you, Mike, Melissa, you provided some helpful outlook commentary by region in the prepared remarks, and frankly, it sounds like almost every region you operate in today is, if not bottoming, certainly improving into Q4, and so I'm curious, as we look at Q4, if you'd be willing to help us think about the magnitude of the sequential improvement at least on the top line you're seeing, and more of a high level follow-up to that, as revenue starts to trend back higher into Q4 and certainly into 2021, what sort of incremental margins on that revenue growth do you expect to achieve maybe relative to historical norms for the business?

Thanks, Taylor, for calling in. In terms of Q4 revenue, we're certainly good signals from some of our customers in terms of resuming projects or even starting a few new projects. Once again, in the short-term, we have almost zero impact on what our customers do in terms of their business which relates to our revenue generation. So we're seeing a number of optimistic signs, but it's frankly very hard to quantify. We have our own internal forecast, and it looks like we'll definitely see an uptick in revenue, but I think it would be a slippery slope to try to put a percentage or even a range on that. So I wish I could help you out, but we're sitting here talking to our customers every day, and they still have flexibility in their plans as well. So it's hard to pin it down exactly, but we're pretty optimistic about Q4 and we're hearing good solid things from our customers. Melissa, Steve, if you want to comment further or on the incremental margins?

Yes, maybe let me comment first. I think we've seen some rigs going back to work in both Africa and the Caribbean, which are important markets for us. So we have line of sight to some pickup there, and again, in U.S. Land, we've seen a bottoming out of the rig count there in mid August, and since then we've seen a small rebound, and that's going to help us a bit as we go into Q4 as well. So I think I'll let Melissa take the one on incremental margin.

Yes, so Taylor, thank you for the questions. On the incremental margin, you've seen our historical margins. We've typically got it off 35% to 50%, maybe even 55%. I think we'll be looking, and you've seen us talk this year about the decrementals and being able to keep them quite low. I think as we look to regain some traction and top line we're going to look to fall through to the maximum extent possible. We think that that's probable. So we're going to look to achieve the high end of that range as we look forward.

Understood, thanks for that, and from a regional perspective, you talked in that response about some rigs going back to work in Africa. I know 2021 is still a little bit a ways away, but it feels like Brazil and the Caribbean region in general are probably the two primary bright spots for 2021. Given your exposure to the deepwater Gulf of Mexico, both on the U.S. side obviously, and then growing on the Mexico side. Could you help us think about how we should be thinking about that region or activity in that region for you guys as we turn the page to 2021?

Yes, I think in the U.S. Gulf, we're still talking to our clients, and they're still going through their budget cycles, but in general I wouldn't see a huge growth in the U.S. side of the Gulf of Mexico next year. The more bullish market is probably on the Mexican side here, where there's been sort of a notable uptick in activity here last year, and we participated in that, and we see solid activity for next year on the Mexican side, yes. We report that whole region in -- or we view that whole region as part of North America Offshore, which also includes the Caribbean, and that market continues to be very robust for us, both in Trinidad and Guyana, and the opening market in Suriname.

And to Brazil, maybe rounding that out, we are looking at, so all the regions Steve just spoke to, I think we're seeing -- we've seen resilience. We continue to see resilience. We're looking at some paced growth, is what I would say, next year. Brazil is actually -- we have several rigs and programs going on there. If you want to speak to that as well?

Yes, I mean I think as you know, that the Brazilian market has opened up to IOCs being able to participate in the deepwater market, so several of them are starting programs next year, which will include our services. So we're looking forward to a ramp up in Brazil in 2021.

Got it. Well, that's encouraging. I'll turn it back. Thank you.

No further questions at this time.

Okay, well, thank you, operator. So despite the challenging market conditions we faced in the third quarter, our operational teams executive very well, and as an organization we continue to exhibit strong cost discipline. As always, we will continue to stay focused on ensuring safe operations, and delivering the excellent service quality and technologically advanced products to our customers. We look forward to updating you on our progress and performance on our fourth quarter call, in February. Thanks to everyone on the call, and for your continued interest in Frank's. Goodbye.

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