Fiserv, Inc.
Q3 2013 Earnings Call Transcript

Published: 13 Nov 2013

[Operator:]

Good morning, my name is Heith and I will be your conference operator today. At this time, I would like to welcome everyone to the Frank’s International Third Quarter Fiscal Year 2013 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers remarks there will be a question-and-answer session. (Operator Instructions) Thank you, Mr. John Walker, Vice President of Finance and Investor Relations. You may begin your conference.

[John Walker:]

Good morning everyone and welcome to Frank’s International conference call to discuss third quarter 2013 earnings, I’m John Sinders, Senior Vice President of Finance and Investor Relations and joining me today on our call are Keith Mosing, Chairman, President and Chief Executive Officer, Mark Margavio, our Chief Financial Officer and John Walker, our Vice President of International Operations. Keith will begin today’s call with general highlights of the third quarter, John will provide an overview of our operations and Mark will follow with a more detailed financial discussion of the quarter. Keith will then wrap up with some closing comments. Before we begin our third quarter results there are few legal items that we would like to cover. First with – answers to questions by the company’s representatives on today’s call may refer to or contain certain forward-looking segments. Such remarks or answers are subject to risk and uncertainties that could cause actual results to differ materially from those expected or implied by such statements and such statements speak only as of today’s date or a different as of the date specified. The company assumes no liability to update any forward-looking statements as of any future date. The company is included in its SEC filings cautionary language identifying important factors that not necessarily all factors, it could cause actual results to be materially different from those set forth in the forward-looking statements. A more complete discussion of these risk is included in the company’s SEC filings. Also you may have access both the third quarter 2013 earnings press release and a replay of this call on our website at www.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 2013 earnings release which was issued by us yesterday. Now I will turn the call over to Keith for his comments.

[Donald Keith Mosing:]

Thank you, John. Everything operationally has performed well as expected especially offshore Gulf of Mexico, we delivered 43% last year this year we are going to come in maybe flat but still ahead of last year so that will be two record years of our history, we are performing well, our outlook is well, business is strong and I think Frank’s will continue to be a dominant player in the market. And now I’ll turn it over to John Walker please.

[John Walker:]

Thank you, Keith. We continue to invest in the company design and build new equipments to add to our rental tool inventory. For example last quarter, we designed and developed in six weeks a mechanized tong package which integrates with a specialized iron roughneck. This equipment along with our supply trade enhancement tools allowed us to win a contract, on the drillship in New Zealand, which is scheduled to begin work in Q4. This is just one of the many examples how we believe Frank’s unique engineering capacities, given that the strong market negotiation worldwide. We strive to maintaining and increase our market share to make revenue financial sense. All of the data that we had seen and the conversation that we have with our customers points to continued opportunities and ultimately growth for the company. Looking at the business segments, international services revenue for external sales increased slightly sequentially and 5% year-over-year to $120 million. Adjusted EBITDA margin was 40% of the external sales and including in these results as we previously mentioned $8 million in bad debt reserves. The bad debt reserve our adjusted EBITDA margin end up being 4% to 7%, the International offshore business, which is the majority of our International Services revenue continues to grow for example in Sub Saharan Africa based on market projections, we see an increase in 2014 of 25% in drilling activity with complex wells over 2013. This is a market where you a majority of the market share. Moving to U.S. Services, revenue for external sales decreased 6% sequentially and 4% year-over-year to $108 million, adjusted EBITDA margin with 44% of the external sales our U.S. Services business consists of both on and offshore activities Onshore, we are witnessing a decreasing rig count and a competitive pricing pressure. Because of this we are not increasing market share and instead focusing on maintaining margins. Offshore activity in the Gulf of Mexico continues to increase and forecast for 2014 shows even more increase in Deep Water activity. In this region, we have secured contracts for work on new rigs coming online in Q4, as well as 2014 and we have recently renegotiated contracts in a positive direction on existing rigs. Lastly, Tubular Sales revenue for external sales in the third quarter was $40 million a decrease of 29% sequentially, but an increase of 5% year-over-year. Adjusted EBITDA margin was 13% of external sales by its nature this segments results are lumpy. Quarterly results are affected by customer activities and orders as well as the timing of delivery. With that let me turn over to Mark to view our financial results for the quarter.

[Mark Margavio:]

Thank you, John. Here is a brief overview of the quarter’s results, total revenue from the quarter was $270 million which reflecting 8% decrease sequentially and a 1% increase year-over-year. We currently have $65 million in deferred revenue on our balance sheet of the Tubular Sales segment approximately two thirds are related to one customer, this customer has ordered and paid for the pipes and connectors related to projects in the Gulf of Mexico. We anticipate that customer will begin to take delivery of the product in either 2014, first quarter or second quarter which will allow us to begin recognizing the revenue. Net income from continuing operations was $59 million, because of the new public company expenses, changes in our tax structure and reserve for bad debt expense we discussed earlier, we feel our year-over-year and sequential comparison are not comparable. Our results for the quarter were impacted by several items, due to the recent IPO, there was an additional $2.5 million year-over-year in expense relating to stock-based compensation. Going forward, we anticipate approximately $5 million in stock-based compensation expense per quarter. We had $2.4 million in non-recurring IPO transaction related costs and $8 million additional tax expense due to our U.S. operations becoming taxable subsequent to the IPO. Please note our anticipated effected tax rate for Q4 of 2013 will be approximately 18% to 20%. This accounts for the tax and tax associated with the possible conversion of the preferred shares outstanding. Also specific to the third quarter, results were impacted by an $8 million reserve for bad debt expenses related to outstanding on the paid invoices in Latin America. With that adjusted EBITDA for the quarter was $101 million and includes a reduction for $8 million to reserve I just mentioned. Adjusted EBITDA margin for the quarter was 37.5%. As a Company, we focused on EBITDA, our EBITDA margin impacted by a segment mix. Third quarter diluted earnings per share was $0.29 with weighted average shares outstanding of a 190.4 million included in the per share calculation as the assumed effect from preferred share conversion of about $4 million. Q4 weighted shares outstanding will be approximately 207 million shares. Lastly, the Board of Directors declared a dividend of $0.075 per share for common share subject to applicable dividend with whole new taxes. For the record date of November 29, was paid at on the December 2013. I will now turn the call back over to Keith for some final comments before we open the call to question-and-answers.

[Donald Keith Mosing:]

Again, I think Frank’s position is still strong and I think the Company was strong and our outlook is fairly one another little note, we added two new board members, Mr. Gary Luquette. He comes to us with 35 years as President of Chevron Corporation and Mr. Mike Kearney, who has 35 years in the industry also on the planning side. At this time, I’d like to go ahead and thank everyone for their continuing support and turn it over to questions.

[Operator:]

(Operator Instructions) Your first question comes from the line of Sean Meakim with Barclays.

[Sean Meakim:]

Hey, good morning guys.

[Donald Keith Mosing:]

Good morning.

[John Walker:]

Good morning.

[Sean Meakim:]

So I just wanted to start off talking a little bit about that what you’re expecting in the current 2013 being flat to 2012. As we think about the sequential change from 3Q to 4Q, what’s driving maybe the revenues a bit lower kind of by segment how are your seeing things in 4Q?

[Donald Keith Mosing:]

What we’re seeing is lower revenues coming from our U.S. land markets and also our Pipe and Products division of Tubular sales.

[Sean Meakim:]

So can you kind of breakdown for us a little bit more, I guess you’re expecting these Pipe orders in 3Q and 4Q, so you expect kind of cross this two and so all that shifting into the first half of next year?

[Donald Keith Mosing:]

The Pipe orders we think we’ll get through next year, probably in the first half, but it’s not clear.

[Sean Meakim:]

So is there any – so in terms of that change, would you classify any of it as being delays in offshore, whether it’s Gulf of Mexico or international?

[John Walker:]

Yes if I could. Shaun it is John Walker. You’re absolutely correct, the delays we see slippages, I’m sure that the general industry feeing, we are seeing slippage in delivery of that components on the drilling rigs and ultimately the drilling rigs being deployed to post operations. As was anticipated in Q4 that some of the rigs would come in Q4 and from a Gulf of Mexico as well as the Africa, Sub Saharan Africa basis we are seeing slippage there and just we have reassessed it and we see that going to be in that first half of 2014.

[Sean Meakim:]

Okay, so then as you guys think about you mentioned the pressure in the U.S. Can you give us a little more color on where are you seeing competitive pressure is it in some of more active place where there is lot of equipment say in Texas or North Dakota or where you are seeing competitive pressures and what that dynamic looks like?

[Donald Keith Mosing:]

Sure. Again in Texas for example in Corpus Christi the year-over-year was then both $6.5 million, so we are seeing a lot more competitive nature on bonds, we have actually got 31 competitors in Corpus Christi, we are seeing overall on the line has been done approximately $18 million, so that’s a reflection of just the competitive nature in the market, we’re also seeing a North Dakota a reduction of over 2012 and Oklahoma as well, so overall the Latin markets has been little bit disappointed for us but the optimism in the goal forward is the deepwater offshore side of business continue to communicate with every one. And it just becomes a matter of timing and the pipe – the tubular sales side of the business again is related to the majority of our tubular sales so to the offer side of the business.

[Sean Meakim:]

All right, that make sense, I guess one last thing from me, are you learning to kind of give us some initial thoughts on 2014 and kind of where you think things have – things to shake out from a revenue basis?

[Donald Keith Mosing:]

We really don’t want to go there Shaun, our operations are largely as you know driven by the rig count, particularly the deepwater offshore rig count and obviously we are seeing a lot of that construction being delivered in 2014 and we are getting our share of it, so we think it will be up when we think there is lot of positive operations on the onshore side it is really difficult, when it tightens up we have performed quite well, so when it stays competitively like it is, we are not going to chase the market downwards and use always at lower markets, we are not prepared to do that, so we are optimistic about 2014, we think our overall operations is just we want them to be but at this we are not comfortable in giving specific guidance.

[Sean Meakim:]

All right, fair enough. Thanks a lot.

[Donald Keith Mosing:]

Sure.

[Operator:]

Your next question comes from the line of Jim Wicklund from Credit Suisse.

[Jim Wicklund:]

Good morning, guys. If I could drill down just a little bit more on the U.S. part, we have really kind of been given guidance that you guys generate about $50,000 for casing an onshore U.S. well and if I look at the sequential drop in revenues, then that seems fairly significant. And we haven’t seen the rig count or the well count onshore particularly dropping and we’ve actually had a couple of rig additions in the Gulf of Mexico. So can you give us an idea of how big of price competition, what the magnitude is, so we can have a better handle on how to model this going forward?

[Donald Keith Mosing:]

John, why don’t you handle the offshore side and I will do the onshore?

[John Walker:]

Sure, well, as we talked about earlier, the rig slippage has been an effect on us, because when we planned and projected for it we really saw a lot of deliveries coming in, in Q4 and affects the Services side of the business primarily. But then the follow-on of course is the Pipe and Tubular Sales. So when the slippage started occurring, the business is still there. It’s under contract. It’s just a matter of timing. And we just feel more comfortable in putting that into 2014 at this point. It’s optimistically some of it moves into the last month of 2013, so be a good for everyone. But we just feel more comfortable at this point based on us just being a newly publicly traded company that that is moving into 2014.

[Jim Wicklund:]

Okay.

[Donald Keith Mosing:]

Some of the new build that came out in the Gulf of Mexico, the ones we got have slipped and they’re going to start up in 2014. So I mean that’s just a way it slipped off. Our competitors have some of the ones to start 2013. Onshore in the areas in which we operate, the rig count is flat to down. And so you got increased competition in some of those areas and again it’s the way we run our Company is not purely for market share. And so in areas where it’s been already competitive and people are pricing at levels that we don’t want to go to, we just start, we’re not going to chase it now, because we think this market is going to strengthen. And when it strengthens, we don’t have to sit there and then walk our prices back up. So that is really what drives, it’s not across the Board onshore, it’s specific markets, but we really don’t want to go into those specific market on the front.

[Jim Wicklund:]

Yeah, okay.

[John Walker:]

Jim, I want to expand a little bit and give you a little bit of flavor on that from a global basis, or let’s talk a little bit about international. And this is generally speaking. Africa regions, our Far East regions, and Canada has been just as expected. There is a lot of optimism there. We’ve seen slippage in Azerbaijan over the past year, two quarters. It’s more affected right now. But we do see through the end of Q4 and going into 2014, a pick up there and that’s a long-term commitment and contract for ourselves. Israel has been slower than expected due to the gas export legislation negotiation. It appears now that’s been resolved and activity should increase the second half of 2014. Norway has historically been good for us, and it was good in the mid part of the year. But there is tightness in the market in Norway and I’m sure everyone is aware of all these new high-capacity jackups that are coming in. And once they actually start getting deployed, we’re in a good position there, because we actually have five-year contracts in place in Norway for a lot of the IOCs there. So on the disappointments side, rig deployments in China and New Zealand have contributed to the reassessment of Q4. Brazil has slowed down due to the IOC, generally slowing down and I’m sure that everyone is watching news to the Brazilian independent, a large independent there stopping operations. So we don’t work in Brazil for their large integrated oil company at this time that they are approaching us recently. So that’s an overview from an offshore perspective internationally.

[Donald Keith Mosing:]

I mean bright note to offshore and this will address some of the comments I’ve seen, we have seen demand less on our margins, we’re in the same margins that we have offshore, so we have not had pricing pressure and our offshore contracts. And that is good news and we’re comfortable and we’re pleased without that how the offshore market is going, it’s just like John said we just had some places where things have slipped to 2014.

[Operator:]

Your next question comes from the line of Ian Macpherson with Simmons

[Ian Macpherson:]

Thanks. Just wanted to continue along that Fred is what is sort of been pushed back internationally and Mike it sounds like your general outlook structurally has not changed I wonder as we look at Q4 going through the third quarter and the first three quarters year-on-year, your international service revenues have grown 4% to 5% on a year-on-year basis, like you might expect in the fourth quarter and should be possibly expecting the several of that next year and some of these slippages direct themselves and work themselves out.

[Donald Keith Mosing:]

Good question Mike add, Ian as you take the comments about has been flat, the reflective of how we see in the near term as far as 2014 there is a lot of optimism and as long as the rig gets deployed based on the schedules that we are seeing at the moment, we should see a obviously positive upward trend but as far as s specifics we are not comfortable in getting specific numbers because it is obviously and can change one thing it is important like John Sinders talked about earlier, our margins are healthy, we actually renegotiated contracts just recently at the Gulf of Mexico where we had positive outcome with longer term contracts being expanded and a positive direction price point was. So we are definitely under price pressure on a forward basis in the deepwater offshore side of the business and as far as the Q4, the Q4 will be flat and I think that was a alluded to number in the 255, 260 mark and that was one of the analyst trade back on us, so acquisition of that will be flat…

[Ian Macpherson:]

Okay. Then separately, I might’ve missed this in the prepared remarks. The amount of revenue deferral with the Pipe and Products, the product that was paid, that you received payment that has not shipped and that can be recognized in the first half of next year, what was that dollar amount?

[Mark Margavio:]

Well present balance for the deferred revenue is $65 million beginning imbalance and beginning of the year was $23 million, so the change for the year was $42 million again we expect to be delivering some time in 2014 current anticipation is most probable in the first half first and second quarters.

[Ian Macpherson:]

Right and Mark do you still have pretty good visibility on the margin on that business thing and make 120s on the structural basis?

[Mark Margavio:]

Based on what I’m seeing now in the differed revenue I would say yes, oaky. All right thank s you.

[Operator:]

Your next question comes from the line of Joe Gibney with Capital One.

[Joe Gibney:]

Yes good morning just more of a clarified one comment on the $80 million recognize in revenue on the onshore side. Were you specifically referring to U.S. onshore sequential change, or was that year-over-year? Or you were referring to aggregate onshore operations inclusive of International? I just wanted to clarify that point?

[John Walker:]

It was for US operations and it was and it was a year-over-year number.

[Joe Gibney:]

Okay. And just sort of stepping back, you seem to be referring to some sort of a stabilization. From a US onshore perspective, where are we, looking into the fourth quarter? The price degradation that you guys encountered here in 3Q, has it stabilized? What is your broader sense of where we stand, US onshore, looking into the fourth quarter? Was 3Q the more material step-down? Just trying to get a sense of directionality on your US onshore view?

[John Walker:]

Mark could you take that…

[Mark Margavio:]

Sure, basically what has happened is that we have foregone increased revenues for the purpose of maintaining our margins in a number of the land locations and that is traditionally been our strategy in the past. We do have some bright spots in the land markets which we don’t want to give you any details on that but as a general rule it’s been trending downward.

[Joe Gibney:]

Okay, fair enough. And last one for me, just on International onshore. I know it’s a less material piece of that business; you guys didn’t really spend too much time talking about that. Is that still directionally flat? Is it improving? I know most of the focus obviously deepwater when you are talking about International, but how about international onshore? Still holding in, trending up? Just curious on your perspective there.

[Mark Margavio:]

It’s flat for us as a company of course we see the trend internationally definitely growing. The focus of the company is on the deepwater side of the business, and that’s obviously a certain portion of the business and as we deployed and that starts to become fully fledged and operational at that point, we’ll look at some further penetration into the other sectors. From the Saudi to the challenges going on in Egypt to the remainder parts of the Middle East. We are present on all of those locations and have been there for several decades. But it’s not our primary focus at this point.

[Joe Gibney:]

Okay, fair enough. Mark, one last one, just to sneak it in is a CapEx for the year still targeting $200 million (technical difficulty)

[Mark Margavio:]

About $63 million coming in for the fourth quarter.

[Joe Gibney:]

Okay, thank you.

[Operator:]

Your next question comes from the line of Robin Shoemaker with Citi.

[Robin Shoemaker:]

Thank you. I wanted to (technical difficulty) globally is growing at about 13% with about two-thirds offshore and one-third onshore. Is that still your view, broadly speaking, of the market?

[Mark Margavio:]

Robin, yes that would be correct. That’s based on the [indiscernible] Associates evaluation.

[Robin Shoemaker:]

Okay. And in certain markets, sometimes we hear about oil companies shifting from more of a drilling mode to a completions mode. Obviously, that would impact demand for your services. We have heard about that, for example, in Brazil here recently and particularly with Petrobras; and I’m not sure if that’s your customer there. But how does that – do you find that sometimes your business is impacted when there is a shift from drilling to completions from a major customer?

[Mark Margavio:]

Robin, good question and absolutely right, there is an impact but it’s actually on the positive side, it’s not on the negative side it’s not on the negative side. As we move from the exploration and the appraisal wells and then from a casing and tubular installation standpoint and moving to the completion and work over intervention phase, that creates a whole new market for us. And we have a substantial amount of technology in that arena that we currently offer the market. But as the market moves more into the completion phase, that can only benefit our sales. As far as answering to your question on Brazil that’s had no impact on us whatsoever, with Petrobras moving from a casing exploration phase into a development phase

[Robin Shoemaker:]

Okay. Then one final question, Mark. So we are subtracting $4 million from net income before calculating EPS. Now what is – is that $4 million a preferred dividend, or what is that?

[Mark Margavio:]

What occurs is that the actual financial statements are showing approximately 74% of the US taxes, because of course the public company side owns 74% Mosing Holdings owns 26%, so that particular number is the assumption and we do a fully diluted earnings per share calculation you need to assume that number into our EPS or netted income.

[Robin Shoemaker:]

And that number is $4 million?

[Mark Margavio:]

That’s approximately $4 million I think it was $4.8 million was the number for the third quarter what happens is once you go ahead and assume the entire exchange happening which we think is pretty much pretty remote then you have to go ahead and include that in the earnings per share of calculations.

[John W. Sinders:]

I mean Robin, its John Sinders we can take you though some of that…

[Robin Shoemaker:]

Okay.

[John W. Sinders:]

Off-line if you like to make sure that you are using [indiscernible] correctly using actually right number of shares et cetera I know there has been a lot of confusion around this and we can clarify that.

[Robin Shoemaker:]

Okay. Appreciate that. Thank you.

[Donald Keith Mosing:]

That’s the best way to handle evaluations will be back EBITDA I think at this point until the earnings per share comes back to normal.

[Robin Shoemaker:]

Okay. Thank you.

[Operator:]

Your next question comes from the George Venturatos with Johnson Rice.

[George Venturatos:]

Good afternoon, guys.

[Donald Keith Mosing:]

Good afternoon, Vent

[George Venturatos:]

I wanted to touch on the U.S. Services business. Apologies if I missed this, but you mentioned US onshore was down year-over-year wanted to see if you could give us that change sequentially for U.S. land and 3Q and then also how do you think about the U.S. service margins going forward as a result of what appears to be a positive revenue mix shift going on?

[Mark Margavio:]

George, we normally do not disclose our revenue numbers for our onshore business, I can say that what we have done and we mentioned earlier in the call, was that we have focused on maintaining our margins in the onshore business or rather than chasing revenue.

[George Venturatos:]

Okay. If you look at kind of what you said, US onshore wise it sounds like there is specific plays where we are seeing pricing pressure. Just curious if you could maybe just tell us how concentrated that pressure is, in terms of the number of plays versus what you are currently operating in today?

[Donald Keith Mosing:]

Not related I mean I think you can say that is.

[John Walker:]

Where the gas is gas, we have some competition in the other areas too.

[George Venturatos:]

Okay.

[Donald Keith Mosing:]

As the market heats up, particularly for oil. That’s a positive for us.

[George Venturatos:]

Okay, appreciate it guys.

[Operator:]

Your next question is a follow-up question from the line of Ian Macpherson with Simmons.

[Ian Macpherson:]

Hey, thanks. Mark, just a couple follow-ups, with your bad debt expense, I would presume that’s OGX; is that correct? And really I guess more the real question is, are you fully purged with your bad debt risk or is there anything left on the books we should contemplate for Q4, for going forward?

[Mark Margavio:]

In general, we our reserves are fairly conservative and they should cover all of our – any items that we may have happening in the future. We might take a further reserve in future. But again based upon our current policy and our review of the situation, we feel we’re in pretty good shape and we’ve been very prudent about that and very conservative as well.

[Ian Macpherson:]

Okay. You mentioned $5 million of stock compensation going forward and I wonder if I could just double-check my G&A assumptions with you going forward of about $48 million to $50 million for the fourth quarter, and as a reasonable run rate going forward.

[Mark Margavio:]

We’re estimating $54 million for the fourth quarter.

[Ian Macpherson:]

Okay. And that’s indicative for a run rate?

[Donald Keith Mosing:]

Second run rate?

[Mark Margavio:]

I would say yes.

[Ian Macpherson:]

Okay. Great, thank you.

[Donald Keith Mosing:]

Thanks, Ian.

[Operator:]

Your next question comes from the line of Brian Finkelstein with Key Group.

[Brian Finkelstein:]

Yeah, hey, how are doing? Thanks for taking my call. I just had a quick question. Just directionally, the offshore working rig count year-over-year is up about 10% to 15%, whether it is jackups or floaters. And just trying to understand why your revenue did not track in line with just, I guess where the rig count growth happened.

[Donald Keith Mosing:]

I mean we’re not tied just to the rig count. We are tied more and you can look at this more to the deep and ultra deep side of the rig count. And so therefore that’s why we’re not going to track with the total offset rig count.

[Brian Finkelstein:]

Okay. Was there any other like mix shift or market share changes?

[Donald Keith Mosing:]

No actually we’re happy with – we got the contracts we wanted. Obviously, we always like to get more business. So our market share stayed or in some places did better.

[John Walker:]

Yeah, Brian, this is John Walker. Just to reiterate what John Sinders was saying there, the execution plan of where we focus our business. We executed on plan. We have no dilution or penetration. So as far as you’re talking about the jackups, we’re very familiar that the high-capacity jackups are an attractive portion of the market. We’d be focused on the new build that deepwater rigs come within the marketplace by the appropriate location. So there is no dilution there.

[Brian Finkelstein:]

Okay. And just a follow-up question from what was said earlier. I think, did you guys say West Africa you thought there would be a 25% increase in drilling activity? Is that…

[John Walker:]

That was Sub-Saharan Africa.

[Brian Finkelstein:]

Sub-Saharan, okay, perfect. Okay, I appreciate with that.

[John Walker:]

Thanks Brian.

[Operator:]

Our final question from the line of Dick Kindig with Keeley Asset Management.

[Dick Kindig:]

Yeah, I’d like to understand a little bit more competitive situation. Who are the competitors offshore? And how could you possibly have 31 competitors in Corpus Christi onshore? I mean, who are they, drilling contractors?

[Donald Keith Mosing:]

Dick, sort of first question offshore, our major competitor offshore is Weatherford and we actually have other competitor would be Baker. From an onshore basis, there are 31 competitors in the Corpus Christi area and that’s a combination of international service companies. But there is a lot of small players there with that 1.2 assets packages of equipment and ultimately Nick they compete against a full certain portions of the market, the barriers to entry and the land market are limited that rate changing from a regulation standpoint and the complex well get deeper and more into lateral through the requirements were fracking. But it is a very competitive market – is a market that we want to continue to be in for very strategic reasons, but we do have to have some 31 since that?

[Dick Kindig:]

Are they primarily drilling contractors, or are they just casing?

[Donald Keith Mosing:]

It’s a combination, some of the drilling contractors will offset that service inclusive of the day rates, but the majority of that would be the service providers.

[Dick Kindig:]

Is it and more difficult to set casing in a horizontal well than it is a vertical well? And wouldn’t that be more beneficial to a company like yours, with all your experience?

[Donald Keith Mosing:]

Yes, absolutely as I end the longer the lateral sessions in more complex edge to get the board isolated with the feel integrity and well integrity. So the regulations continue to increase and we also become more complex and that puts us in a stronger position.

[Dick Kindig:]

Okay. Thank you.

[Donald Keith Mosing:]

Thank you.

[Operator:]

Thank you ladies and gentlemen for participating in Frank’s International, third quarter fiscal year 2013 earnings conference call. This concludes today’s conference call. You may now disconnect.