Frank’s International N.V. Announces Second Quarter 2014 Results

  • Company doubles quarterly dividend to $0.15 per share
  • Total revenue increased 3% sequentially
  • International Services revenue increased 9% sequentially
  • Revenue for the onshore portion of U.S. Services increased 9% sequentially

HOUSTON--()--Frank’s International N.V. (NYSE: FI) (the “Company”) today reported revenues of $272.9 million and net income of $50.0 million for the three months ended June 30, 2014. Diluted earnings per share for the second quarter were $0.23, with weighted average shares outstanding of 207.8 million. Adjusted EBITDA for the quarter was $103.2 million.

Results for the quarter were reduced by an out-of-period cumulative non-cash adjustment for share-based compensation of $7.5 million. In addition, the in-period second quarter share-based compensation expense was $7.8 million instead of the previous expectation of $5.0 million. The out-of-period adjustment and increase in quarterly share-based compensation expense was due to the Company determining that certain retirement provisions in the restricted stock unit agreements under its 2013 Long-Term Incentive Plan required accelerated recognition of compensation expense in connection with the Company’s initial public offering. Total share-based compensation expense, which is accounted for within general and administrative expenses, for the quarter was $15.3 million or $0.07 per diluted share.

D. Keith Mosing, Frank’s International’s Chairman, Chief Executive Officer and President, said, “Frank’s International has doubled its quarterly dividend to $0.15 per share. Our tremendous free cash flow positions us to return cash to shareholders while continuing to pursue growth opportunities globally, both organically and through acquisition.”

Mr. Mosing continued, “We remain confident about our opportunities around the globe. Our International Services segment delivered 9% sequential revenue growth in the second quarter and is expected to grow revenue at least 10% this year. Our U.S. land business, which has previously been in decline, had 9% sequential revenue growth and is expected to grow sequentially the rest of the year. Lastly, we continue to be selected for work as we signed several meaningful contracts this quarter that further strengthen our pipeline of work for the remainder of 2014 and well into 2015 and 2016.”

Second Quarter 2014 Results

  • Revenue was $272.9 million, up 3.2% compared to the first quarter of 2014, but down 6.8% compared to the second quarter of 2013
    • International Services revenue was $129.5 million, up 9.2% compared to the first quarter of 2014, and up 7.1% year-over-year
    • U.S. Services revenue was $105.6 million, up 1.7% compared to the first quarter of 2014, but down 8.7% year-over-year
    • Tubular Sales revenue was $37.9 million, down 10.0% compared to the first quarter of 2014 and down 32.9% year-over-year
  • Net income was $50.0 million with $35.2 million, or $0.23 per share, attributable to common shareholders
  • Diluted earnings per share were $0.23 with weighted average shares outstanding of 207.8 million
  • Adjusted EBITDA totaled $103.2 million with an Adjusted EBITDA margin of 37.8%
  • Effective tax rate for the second quarter of 2014 was 24.1%
  • Cash flow from operations for the first half of 2014 was $161.9 million, up 8.0% year-over-year

Adjusted EBITDA, Adjusted EBITDA margin and segment Adjusted EBITDA, which are financial measures not presented in accordance with U.S. generally accepted accounting principles (“GAAP”), are defined and reconciled to their most directly comparable GAAP financial measures below. Adjusted EBITDA, segment Adjusted EBITDA and the other segment data discussed below do not include income from discontinued operations.

Segment Results

International Services

International Services revenue from external sales was $129.5 million in the second quarter of 2014, up 9.2% compared to the first quarter of 2014, and up 7.1% compared to the second quarter of 2013. Second quarter 2014 revenue increased sequentially in every region. Year-over-year, West Africa, Europe, Canada and the Middle East all had revenue growth.

Segment Adjusted EBITDA for the second quarter of 2014 of $48.9 million was down 4.2% compared to the first quarter of 2014, and down 10.2% compared to the second quarter of 2013. Segment Adjusted EBITDA margin for the second quarter 2014 was 37.8% of external revenue. Adjusted EBITDA was negatively impacted by increased labor and mobilization expenses related to positioning of equipment for upcoming projects.

U.S. Services

U.S. Services revenue from external sales was $105.6 million in the second quarter of 2014, up 1.7% compared to the first quarter of 2014, but down 8.7% compared to the second quarter of 2013.

For the second quarter, onshore revenue within the U.S. Services segment of $39.3 million was up 8.9% compared to the first quarter of 2014 and down 13.5% year-over-year. The Company has changed its strategy for the onshore U.S. region, adjusting pricing and margin expectations as well as committing to increasing capital expenditures in order to deliver revenue growth.

Offshore revenue within the U.S. Services segment for the second quarter declined 2.1% compared to the first quarter of 2014 and 5.6% year-over-year. Sequential declines were due to continued rig-related downtime and delays of new rigs entering the region.

Segment Adjusted EBITDA of $45.0 million was up 7.4% compared to the first quarter of 2014 and down 24.4% compared to the second quarter of 2013. Segment Adjusted EBITDA margin was 42.6% of external revenue for the second quarter of 2014.

Tubular Sales

Tubular Sales revenue from external sales was $37.9 million in the second quarter of 2014, down 10.0% compared to the first quarter of 2014, and down 32.9% compared to the second quarter of 2013. Year-over-year and sequential declines in revenue were due to timing of deliveries related to customers’ projects. Deferred revenue increased 12% to $69.9 million compared to the first quarter 2014 balance.

Segment Adjusted EBITDA for the second quarter was $9.3 million, down 0.7% compared to the first quarter of 2014, and down 33.7% compared to the second quarter of 2013. Segment Adjusted EBITDA margin was 24.6% of external revenue for the second quarter.

Capital Expenditures and Balance Sheet

Capital expenditures were $77.7 million for the first half of 2014. The Company’s consolidated cash balance at June 30, 2014 was $443.7 million compared to $404.9 million at December 31, 2013. At June 30, 2014, there was a combined $193.6 million of unused capacity under the Company’s $100.0 million multi-year and $100.0 million one-year credit facilities, net of outstanding letters of credit.

Dividends

On August 6, 2014, the Board of Managing Directors of the Company (the “Management Board”), with the approval from the Board of Supervisory Directors of the Company (the “Supervisory Board”, and jointly with the Management Board the “Boards”), increased the quarterly dividend distribution by the Company from $0.075 per share to $0.15 per share. Also, on August 6, 2014, the Boards declared that the Company will pay a cash dividend of $0.15 per share (subject to applicable Dutch dividend withholding tax) on September 19, 2014 to all common stockholders of record as of August 29, 2014 as part of an increase in its regular quarterly cash dividend program. Future declarations of dividends and their record and payment dates are subject to the final determination of the Boards.

2014 Outlook

The Company is revising its full year 2014 outlook for adjusted EBITDA margin and revenue from the onshore portion of the U.S. Services segment. All other expectations are unchanged from the initial outlook, first issued on February 25, 2014. The Company currently expects:

  • International Services revenue to grow at least 10%;
  • Revenue from the offshore portion of the U.S. Services segment revenue to grow at least 10%;
  • Revenue from the onshore portion of the U.S. Services segment to decline 10% versus previous expectation of down slightly year-over-year;
  • Tubular Sales revenue to grow at least 4%;
  • Adjusted EBITDA margin to be between 37% and 39% versus previous expectation of around 40%;
  • The effective tax rate for 2014 is expected to be between 20% and 25%; and,
  • 2014 capital expenditures is expected to be approximately $190 million versus previous expectation of $250 million.

For the third quarter of 2014, the Company expects revenues to be between $270 million and $280 million, with Adjusted EBITDA margins between 37% and 39%.

Conference Call

The Company will host a conference call to discuss second quarter results on Friday, August 8, 2014 at 9:30 a.m. Central Time (10:30 a.m. Eastern Time). Participants may join the conference call by dialing (855) 674-1399 (for U.S. and Canada) or (386) 218-2315 (International). The conference access code is 73666590 for all participants. To listen via live web cast, please visit the Investor Relations section of the Company's website, www.franksinternational.com.

An audio replay of the conference call will be available approximately two hours after the conclusion of the call and will remain available for seven days. It can be accessed by dialing (855) 859-2056 (for U.S. and Canada) or (404) 537-3406 (International). The conference call replay access code is 73666590 for all participants. The replay will also be available in the Investor Relations section of the Company’s website approximately two hours after the conclusion of the call and remain available for approximately 90 days.

Forward Looking Statements

This release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements, other than statements of historical facts, included in this press release that address activities, events or developments that the Company expects, believes or anticipates will or may occur in the future are forward-looking statements. Without limiting the generality of the foregoing, forward-looking statements contained in this press release specifically include statements, estimates and projections regarding the Company’s future business strategy and prospects for growth, cash flows and liquidity, financial strategy, budget, projections and operating results, the amount, nature and timing of capital expenditures, the availability and terms of capital, the level of activity in the oil and gas industry, volatility of oil and gas prices, unique risks associated with offshore operations, political, economic and regulatory uncertainties in international operations, the ability to develop new technologies and products, the ability to protect intellectual property rights, the ability to employ and retain skilled and qualified workers, the level of competition in the Company’s industry and other guidance. These statements are based on certain assumptions made by the Company based on management's experience, expectations and perception of historical trends, current conditions, anticipated future developments and other factors believed to be appropriate. Forward-looking statements are not guarantees of performance. Although the Company believes the expectations reflected in its forward-looking statements are reasonable and are based on reasonable assumptions, no assurance can be given that these assumptions are accurate or that any of these expectations will be achieved (in full or at all) or will prove to have been correct. Moreover, such statements are subject to a number of assumptions, risks and uncertainties, many of which are beyond the control of the Company, which may cause actual results to differ materially from those implied or expressed by the forward-looking statements. These include the factors discussed or referenced in the “Risk Factors” section of the Company’s Annual Report on Form 10-K for the year ended December 31, 2013. Any forward-looking statement speaks only as of the date on which such statement is made, and the Company undertakes no obligation to correct or update any forward-looking statement, whether as a result of new information, future events or otherwise, except as required by applicable law.

About Frank’s International

Frank’s International N.V. is a global oil services company that provides a broad and comprehensive range of highly engineered tubular services to leading exploration and production companies in both offshore and onshore environments, with a focus on complex and technically demanding wells. Founded in 1938, Frank’s has over 4,000 employees and provides services in approximately 60 countries on six continents. The Company’s common stock is traded on the NYSE under the symbol “FI.” Additional information is available on the Company’s web site, www.franksinternational.com.

Use of Non-GAAP Financial Measures

This news release and the accompanying schedules include the non-GAAP financial measures of Adjusted EBITDA, segment Adjusted EBITDA and Adjusted EBITDA margin, which may be used periodically by management when discussing the Company’s financial results with investors and analysts. The accompanying schedules of this news release provide a reconciliation of these non-GAAP financial measures to their most directly comparable financial measure calculated and presented in accordance with GAAP. Adjusted EBITDA, segment Adjusted EBITDA and Adjusted EBITDA margin are presented because management believes these metrics provide additional information relative to the performance of the Company’s business. These metrics are commonly employed by financial analysts and investors to evaluate the operating and financial performance of the Company from period to period and to compare it with the performance of other publicly traded companies within the industry. You should not consider Adjusted EBITDA, segment Adjusted EBITDA and Adjusted EBITDA margin in isolation or as a substitute for analysis of the Company’s results as reported under GAAP. Because Adjusted EBITDA, segment Adjusted EBITDA and Adjusted EBITDA margin may be defined differently by other companies in the Company’s industry, the Company’s presentation of Adjusted EBITDA, segment Adjusted EBITDA and Adjusted EBITDA margin may not be comparable to similarly titled measures of other companies, thereby diminishing their utility.

The Company defines Adjusted EBITDA as income from continuing operations before net interest income or expense, depreciation and amortization, income tax benefit or expense, asset impairments, gain or loss on sale of assets, foreign currency gain or loss and other non-cash adjustments. The Company uses Adjusted EBITDA to assess its financial performance because it allows the Company to compare its operating performance on a consistent basis across periods by removing the effects of its capital structure (such as varying levels of interest expense), asset base (such as depreciation and amortization) and items outside the control of the Company’s management team (such as income tax rates). The Company defines Adjusted EBITDA margin as Adjusted EBITDA divided by total revenue.

Please see the accompanying financial tables for a reconciliation of these non-GAAP measures to their most directly comparable GAAP measures.

         
FRANK'S INTERNATIONAL N.V.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)
 
 
Three Months Ended Six Months Ended
June 30, March 31, June 30, June 30,
2014 2014 2013 2014 2013
Revenues:
Equipment rentals and services $ 231,838 $ 220,813 $ 234,649 $ 452,651 $ 440,513
Products   41,099   43,679     58,326     84,778     85,035  
Total revenue   272,937   264,492     292,975     537,429     525,548  
 
Operating expenses:
Cost of revenues, exclusive of
depreciation and amortization
Equipment rentals and services 90,029 83,991 82,061 174,020 149,638
Products 26,261 26,029 36,060 52,290 60,153
General and administrative expenses 71,760 59,451 51,987 131,211 95,912
Depreciation and amortization 21,895 21,193 19,013 43,088 36,706
(Gain) loss on sale of assets   154   (241 )   (79 )   (87 )   (56 )
Operating income   62,838   74,069     103,933     136,907     183,195  
 
Other income (expense):
Other income 2,918 2,371 5,280 5,289 7,407
Interest income (expense), net 80 (44 ) (461 ) 36 (663 )
Foreign currency gain (loss)   65   (65 )   (1,688 )   -     (5,275 )
Total other income (expense)   3,063   2,262     3,131     5,325     1,469  
Income from continuing operations
before income tax expense 65,901 76,331 107,064 142,232 184,664
Income tax expense   15,852   15,969     6,081     31,821     12,384  
 
Income from continuing operations 50,049 60,362 100,983 110,411 172,280
Income from discontinued operations,
net of tax   -   -     40,887     -     42,635  
Net income 50,049 60,362 141,870 110,411 214,915
Net income attributable to
noncontrolling interest   14,833   18,499     36,506     33,332     55,351  
Net income attributable to
Frank's International N.V. $ 35,216 $ 41,863   $ 105,364   $ 77,079   $ 159,564  
 
Basic earnings per share:
Continuing operations $ 0.23 $ 0.27 $ 0.63 $ 0.50 $ 1.07
Discontinued operations   -   -     0.26     -     0.27  
Total $ 0.23 $ 0.27   $ 0.89   $ 0.50   $ 1.34  
 
Diluted earnings per share:
Continuing operations $ 0.23 $ 0.27 $ 0.59 $ 0.50 $ 1.00
Discontinued operations   -   -     0.23     -     0.25  
Total $ 0.23 $ 0.27   $ 0.82   $ 0.50   $ 1.25  
 
Weighted average common shares
outstanding:
Basic   153,524   153,524     119,024     153,524     119,024  
Diluted   207,822   207,202     172,000     207,641     172,000  
         
FRANK'S INTERNATIONAL N.V.
SELECTED OPERATING SEGMENT DATA
(In thousands)
(Unaudited)
 
 
Three Months Ended Six Months Ended
June 30, March 31, June 30, June 30,
2014 2014 2013 2014 2013
Revenue
International Services $ 129,456 $ 118,585 $ 120,872 $ 248,041 $ 231,361
U.S. Services 105,564 103,755 115,612 209,319 213,169
Tubular Sales   37,917   42,152   56,491   80,069   81,018
Total $ 272,937 $ 264,492 $ 292,975 $ 537,429 $ 525,548
 
Segment Adjusted EBITDA:
International Services $ 48,873 $ 51,028 54,423 $ 99,902 $ 104,382
U.S. Services 44,968 41,879 59,486 86,846 102,279
Tubular Sales 9,311 9,374 14,054 18,685 20,555
Corporate and other   -   -   184   -   36
Total $ 103,152 $ 102,281 $ 128,147 $ 205,433 $ 227,252
   
FRANK'S INTERNATIONAL N.V.
SELECTED BALANCE SHEET AND CASH FLOW DATA
(In thousands)
(Unaudited)
 
June 30, December 31,
2014 2013
Cash and cash equivalents $ 443,676 $ 404,947
Working capital 851,678 795,472
Property, plant and equipment, net 546,033 511,199
Total assets 1,658,054 1,561,195
Total debt 340 376
Noncontrolling interest 247,192 235,895
Total equity 1,419,454 1,333,327
 
 
Six Months Ended
June 30,
2014 2013
 
Net cash provided by operating activities $ 161,945 $ 149,954
Net cash used in investing activities (76,772 ) (40,605 )
Net cash used in financing activities   (45,290 )   (158,771 )
39,883 (49,422 )
Effect of exchange rate changes on cash activities   (1,154 )   2,484  
Increase (decrease) in cash and cash equivalents $ 38,729   $ (46,938 )
 
Capital expenditures $ 77,722   $ 87,468  
         
FRANK'S INTERNATIONAL N.V.
NON-GAAP FINANCIAL MEASURES
($ in thousands)
(Unaudited)
 
ADJUSTED EBITDA AND ADJUSTED EBITDA MARGIN RECONCILIATION
 
Three Months Ended Six Months Ended
June 30, March 31, June 30, June 30,
2014 2014 2013 2014 2013
 
Revenues $ 272,937   $ 264,492   $ 292,975   $ 537,429   $ 525,548  
 
 
Income from continuing operations $ 50,049 $ 60,362 $ 100,983 $ 110,411 $ 172,280
Interest (income) expense, net (80 ) 44 461 (36 ) 663
Depreciation and amortization 21,895 21,193 19,013 43,088 36,706
Income tax expense 15,852 15,969 6,081 31,821 12,384
(Gain) loss on sale of assets 154 (241 ) (79 ) (87 ) (56 )
Foreign currency (gain) loss (65 ) 65 1,688 - 5,275
Stock-based compensation   15,347     4,889     -     20,236     -  
Adjusted EBITDA $ 103,152   $ 102,281   $ 128,147   $ 205,433   $ 227,252  
 
Adjusted EBITDA margin 37.8 % 38.7 % 43.7 % 38.2 % 43.2 %
 
SEGMENT ADJUSTED EBITDA RECONCILIATION
 
Three Months Ended Six Months Ended
June 30, March 31, June 30, June 30,
2014 2014 2013 2014 2013
Segment Adjusted EBITDA:
International Services $ 48,873 $ 51,028 $ 54,423 $ 99,902 $ 104,382
U.S. Services 44,968 41,879 59,486 86,846 102,279
Tubular Sales 9,311 9,374 14,054 18,685 20,555
Corporate and other   -     -     184     -     36  
Adjusted EBITDA Total 103,152 102,281 128,147 205,433 227,252
Interest income (expense), net 80 (44 ) (461 ) 36 (663 )
Income tax expense (15,852 ) (15,969 ) (6,081 ) (31,821 ) (12,384 )
Depreciation and amortization (21,895 ) (21,193 ) (19,013 ) (43,088 ) (36,706 )
Gain (loss) on sale of assets (154 ) 241 79 87 56
Foreign currency gain (loss) 65 (65 ) (1,688 ) - (5,275 )
Stock-based compensation   (15,347 )   (4,889 )   -     (20,236 )   -  
Income from continuing operations $ 50,049   $ 60,362   $ 100,983   $ 110,411   $ 172,280  
 
FRANK'S INTERNATIONAL N.V.
EARNINGS PER SHARE CALCULATIONS
(In thousands, except per share amounts)
(Unaudited)
                     
Three Months Ended Six Months Ended
June 30, March 31, June 30, June 30,
2014 2014 2013 2014 2013
Numerator - Basic
Income from continuing operations $ 50,049 $ 60,362 $ 100,983 $ 110,411 $ 172,280
Less: Net income attributable to
noncontrolling interest (14,833 ) (18,499 ) (36,506 ) (33,332 ) (55,351 )
Discontinued operations attributable
to noncontrolling interest - - 10,488 - 10,936
Less: Preferred stock dividends   (1 )   -     -     (1 )   -  
Income from continuing operations
attributable to common shareholders 35,215 41,863 74,965 77,078 127,865
Income from discontinued operations
attributable to FINV   -     -     30,399     -     31,699  
Net income attributable to
common shareholders $ 35,215   $ 41,863   $ 105,364   $ 77,078   $ 159,564  
 
Numerator - Diluted
Income from continuing operations
applicable to common shareholders $ 35,215 $ 41,863 $ 74,965 $ 77,078 $ 127,865
Add: Exchange of noncontrolling interest
for common stock (1) 11,776 14,560 26,018 26,336 44,415
Add: Preferred stock dividends   1     -     -     1     -  
Diluted income from continuing operations
applicable to common shareholders 46,992 56,423 100,983 103,415 172,280
Income from discontinued operations,
net of tax   -     -     40,887     -     42,635  
Dilutive net income available
to common shareholders $ 46,992   $ 56,423   $ 141,870   $ 103,415   $ 214,915  
 
Denominator
Basic weighted average common shares 153,524 153,524 119,024 153,524 119,024
Exchange of noncontrolling interest
for common stock 52,976 52,976 52,976 52,976 52,976
Restricted stock units   1,322     702     -     1,141     -  
Diluted weighted average common shares   207,822     207,202     172,000     207,641     172,000  
 
Basic earnings per common share:
Continuing operations $ 0.23 $ 0.27 $ 0.63 $ 0.50 $ 1.07
Discontinued operations   -     -     0.26     -     0.27  
Total $ 0.23   $ 0.27   $ 0.89   $ 0.50   $ 1.34  
 
Diluted earnings per common share:
Continuing operations $ 0.23 $ 0.27 $ 0.59 $ 0.50 $ 1.00
Discontinued operations   -     -     0.23     -     0.25  
Total $ 0.23   $ 0.27   $ 0.82   $ 0.50   $ 1.25  
 
(1)   Adjusted for additional tax expense of $3.1 million and $3.9 million for the quarters ended June 30, 2014 and March 31, 2014, respectively, and $7.0 million for the six months ended June 30, 2014.

Contacts

Frank’s International N.V.
Thomas Dunavant, 713-358-7343
Manager – Finance and Investor Relations
thomas.dunavant@franksintl.com
or
Josh Grodin, 713-231-2468
Director – Communications and Public Relations
josh.grodin@franksintl.com

Contacts

Frank’s International N.V.
Thomas Dunavant, 713-358-7343
Manager – Finance and Investor Relations
thomas.dunavant@franksintl.com
or
Josh Grodin, 713-231-2468
Director – Communications and Public Relations
josh.grodin@franksintl.com