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spk07: Welcome to the Oil States International Inc's fourth quarter 2020 earnings conference call. My name is James, and I'll be your operator for today's call. All participants are in a listen-only mode. Later, we will conduct a question and answer session. During the Q&A session, if you have a question, please put star 1 on your phone. And I'd now like to turn the call over to Ellen Pennington. Ellen, you may begin.
spk02: Thanks, James. Good morning and welcome to Oil State's fourth quarter 2020 earnings conference call. Our call today will be led by our CEO, Cindy Taylor, and Lloyd Hodgick, Oil State's Executive Vice President and Chief Financial Officer. Before we begin, we would like to caution listeners regarding forward-looking statements. To the extent that our remarks today contain information other than historical information, please note that we are relying on the safe harbor protections afforded by federal law. No one should assume that these forward-looking statements remain valid later in the quarter or beyond. Any such remarks should be weighed in the context of the many factors that affect our business, including those risks disclosed in our Form 10-K, along with other SEC filings. This call is being webcast and can be accessed at Oil State's website. A replay of the conference call will be available one and a half hours after the completion of this call and will be available for one month. I will now turn the call over to Cindy.
spk01: Thank you, Ellen. Good morning to each of you, and thank you for joining us today to participate in our fourth quarter 2020 earnings conference call. First, I would like to extend my sincere hope that all of you have been able to safely navigate the horrendous weather that we've had over the last week, along with the associated power outages and impacted water supplies. Our prayers are extended to you for a speedy return to normalcy. December 31st marks the end of a year that will go down into the record books for the oil and gas industry. Energy companies face the dawning challenges of excess supply, a demand crisis triggered by COVID, an OPEC supply management problem, and investor apathy toward the sector. Already six years into an extended downturn, the industry took a notable turn for the worst in 2020 with the onset of the COVID-19 pandemic leading to epic levels of demand destruction for crude oil and associated products. With commodity prices in dangerous territory coupled with deteriorating activity and financial results, energy companies had to respond quickly. Rig counts and customer CapEx spending collapsed in the second and third quarters of 2020. In response to these events, we took immediate action to shore up liquidity and stabilize cash flows. We will update you on these matters, give you our thoughts on near-term market conditions, and summarize our continued efforts to mitigate costs, both capital and operating, as we navigate the early stages of a U.S.-led market recovery. As we discussed on our third quarter earnings call, we believed that U.S. Shell-driven activity, while at historic low levels, was improving as we entered the fourth quarter with stronger crude oil prices. Activity in the U.S. Shell basins has historically been the first market to decline in a downturn, but it is also the first to recover. As a result, U.S. completions activity steadily improved during the fourth quarter, albeit off a low base, ending the quarter up 67% sequentially in terms of the average frack spread count as reported by Primary Vision. Our fourth quarter results reflected 2% sequential growth in revenues and a significant 55% improvement in gross profits before DD&A, reflecting the cost mitigation measures implemented earlier in the year. Partially offsetting these benefits was $2.7 million of severance and restructuring charges. During the fourth quarter, our well site services revenues were up 3% sequentially and adjusted segment EBITDA margins improved. Our completion services incremental adjusted EBITDA margins came in at 89%. In our downhole technology segment, revenues continued their recovery and were up 24% sequentially, with adjusted segment EBITDA margins also up nicely. In contrast, revenues in our offshore manufactured product segment, which is a later stage business, decreased 4% sequentially due primarily to weaker connector product sales. Segment backlog at December 31, 2020 totaled $219 million, a decrease of 4% sequentially. Our segment bookings totaled $65 million for the quarter, yielding what appears to be an industry-leading book-to-bill ratio of 0.9 times for the fourth quarter and 0.8 times for the year. During stress periods in our business, We know that the immediate focus needs to be on the preservation of liquidity and the management of variable and fixed costs. To that end, we had an exceptional year in 2020, generating $133 million of cash flow from operations. With our significant free cash flow, we materially delevered during the year, reducing our total net debt by $128 million. In addition, Despite capital being extremely tight in the U.S. for banks lending to the industry, we successfully syndicated a new four-year asset-based credit facility with our key banking relationships last week. Lloyd will review additional details with you shortly. We believe that we have managed the company effectively during a very difficult period and will continue to closely manage our debts, working capital, and cash flow generation in the quarters to come. Lloyd will now review our consolidated results of operations and financial position in more detail before I go into a discussion of each of our segments.
spk00: Thank you, Cindy, and good morning, everyone. During the fourth quarter, we generated revenues of $137 million, while reporting a net loss of $19 million, or 31 cents per share. our revenues increased 2% sequentially and our adjusted consolidated EBITDA improved significantly due to better cost absorption in our U.S. businesses. After generating significant free cash flow in prior quarters, we were essentially cash flow neutral after CapEx during the fourth quarter. For the fourth quarter of 2020, our net interest expense totaled $2.6 million, of which the majority, or $1.8 million, was non-cash amortization of debt discount and debt issue costs. At December 31, our net debt to book capitalization ratio was 12.8%, and our total net debt declined $128 million during 2020 through opportunistic open market purchases of our convertible senior notes and repayments of borrowings outstanding under our revolving credit facility. As Cindy mentioned, on February 10th, we announced that we had entered into a new $125 million asset-based revolving credit agreement with a group of our key commercial relationship banks. Our existing revolving credit facility was terminated upon entering into the new asset-based revolving credit facility. Barring availability under the new facility is based on a monthly borrowing base on eligible U.S. customer accounts receivable and inventory. The maturity date of the revolving credit facility is February 10, 2025, as Cindy mentioned, a four-year credit facility, with a springing maturity 91 days prior to the maturity of any outstanding debt with a principal amount in excess of $17.5 million, excluding the seller promissory note associated with our acquisition of Geodynamics. Borrowings outstanding under the new revolving credit facility will bear interest at LIBOR plus a margin of 2.75% to 3.25% based on our calculated availability under the facility with a LIBOR floor of 50 basis points. We must also pay a quarterly commitment fee of 0.375% to 0.5% on the unused commitments. At the closing of the new facility, we had approximately $29 million available which was net of $12 million in outstanding borrowings and $29 million of standby letters of credit. Together with $72 million of cash on hand at the end of December, pro forma liquidity would have been approximately $101 million. At December 31, our net working capital, excluding cash in the current portion of debt and lease obligations, totaled $215 million. In terms of our first quarter 2021 consolidated guidance, we expect depreciation and amortization expense to total $23 million, net interest expense to total $2.1 million, of which approximately $1 million is non-cash, and our corporate expenses are projected to total $8.4 million. In this environment, we expect to invest approximately $15 million in total CapEx during 2021. which is essentially flat when compared to 2020 spending levels. At this time, I'd like to turn the call back over to Cindy, who will take you through the operating results for each of our business segments.
spk01: Thank you, Lloyd. In our offshore manufactured product segment, we generated revenues of $76 million and adjusted segment EBITDA of $7.5 million during the fourth quarter. Revenues decreased 4% sequentially due primarily to continued slow connector product sales. Adjusted segment EBITDA margin of 10% compared to 12% margins achieved in the third quarter reflecting lower revenues and reduced cost absorption. As I mentioned earlier, orders booked in the fourth quarter totaled $65 million with a quarterly book-to-bill ratio of 0.9 times. At December 31st, our backlog totaled 219 million. For over 75 years, our offshore manufactured product segment has endeavored to develop leading edge technologies while cultivating the specific expertise required for working in highly technical, deep water, and offshore environments. Recent product developments should help us leverage our capabilities and support a more diverse base of energy customers going forward. We continue to bid on potential award opportunities supporting our traditional subsea floating and fixed production systems, drilling and military clients, while experiencing an increase in bidding to support multiple new clients actively involved in subsea mining, offshore wind developments, and other alternative energy systems globally. While our 2020 bookings were lower than the levels achieved in 2019, our book-to-bill ratio for the year averaged 0.8 times, providing visibility as we progress into 2021. In our downhole technology segment, our revenues accelerated for the second quarter in a row, increasing 24%. while generating incremental adjusted segment EBITDA margins of 68% sequentially due primarily to cost savings measures implemented at the segment level. Sales trends for our Stratex integrated gun systems and addressable switches continue to gain improved customer acceptance, and we experience a 49% sequential improvement in international sales of our traditional perforating products. We also continue to focus on the commercialization of ancillary perforating products, including a new wireline release tool and two new families of shape charge technology. Our product development efforts are designed with our wireline and E&P customers in mind, where we strive to provide them with flexibility improved functionality, and increased performance while ensuring the highest level of safety and reliability. In our well site services segment, we generated $39 million of revenue with sequentially increasing adjusted segment EBITDA. The 3% sequential revenue increase was driven by better U.S. land completion activity in the quarter, but was partially offset by seasonal fourth quarter declines in operator spending in the northeastern United States. Excluding the northeast region, revenues increased 20% sequentially. International and U.S. Gulf of Mexico market activity comprised 26% of our fourth quarter completion service business revenues. We remain focused on streamlining our operations and pursuing profitable activity in support of our global customer base. We will continue to focus on core areas of expertise in this segment and are actively developing and conducting field trials of selected new proprietary service offerings to differentiate Oil State's completions business. Moving on to outlook. COVID-19 disruptions continue to hamper activity in domestic and international markets. The fourth quarter 2020 U.S. rig count average was 311 rigs, which was up 22% sequentially. Similarly, the industry experienced a 67% sequential increase in the average U.S. frack spread count, which favorably impacted all of our segments with short-cycle U.S. shell-driven exposure. As we are now a month and a half into the first quarter of 2021, the average frack spread count has increased by about 26 spreads, or roughly 20% since the fourth quarter. This increase gives us optimism that the first quarter is setting up more favorably for our U.S. shell-driven product and service offerings. Given improvements in the frack spread count over the last several months, We expect our well site services and downhole technology segments to grow sequentially in 2021 with increasing EBITDA contributions. Revenues in our offshore manufactured product segment will continue to lag into the first half of 2021 until our book-to-bill ratio exceeds one time and our short cycle product demand improves. Our outlook for 2021 suggests that our consolidated revenue will be flat or decline modestly given this very strong first quarter of 2020, which of course was pre-pandemic, with EBITDA growth resulting from cost mitigation efforts. We expect 2021 full-year consolidated EBITDA of $35 to $40 million with roughly 60% of the total generated in the second half of 2021. The first quarter will undoubtedly be the weakest quarter of 2021, given the impact of severe weather that has gripped the nation this week. Record-breaking temperatures and dangerous conditions have limited our field operations and manufacturing locations for several days. Now I would like to offer some concluding comments. We believe that we have made substantial progress in 2020 in terms of shoring up our liquidity with exceptionally strong free cash flow generation coupled with associated debt reduction initiatives. As I mentioned earlier, we stabilized the company during a very difficult period and have managed our debt, working capital, and cash flow generation throughout the period. oil states will continue to conduct safe operations and will remain focused on providing technology leadership in our various product lines with value-added products and services to meet customer demands globally as we recover from the harsh effects of the COVID-19 pandemic, which dramatically reduced travel and business activity, thereby depressing global oil demand and and correspondingly demand for our products and services. That completes our prepared comments. James, would you open up the call for questions and answers at this time, please?
spk07: Sure. Well, we can begin our Q&A session. If you have a question, please press star 1 on your phone. If you wish to be removed from the question queue, you may press the pound sign or the hash key. And if you're using a speakerphone, you may need to pick up the handset first before pressing numbers. So once again, if you have a question, press star one. And our first question is from George O'Neary of GPH and Company.
spk04: Close enough. Morning, Cindy. Morning, Lloyd. Hi, George. Hopefully you guys can hear me. I'm kind of intermittently losing power as everybody is in Houston. I just wanted to... To start off with, I thought it was interesting, you mentioned you guys are focused on new completion technology. That's obviously a big part of the whole state's story historically. What if you could kind of peel back the onion a little bit more there and what your customers are in need of help with or what areas of efficiencies you guys are looking to enhance moving forward?
spk01: Well, yeah, I think I was pretty detailed in terms of our downhole technology focus and investments through integrated gun systems, again, addressable switches, wireline release tools. There's a number of things that working in close collaboration with our customers had yielded the opportunity for obviously some new technology advancements and newer products, if you will, bringing to the market. In the case of our well site services segment. We've been very focused really on enhancing operational efficiencies and certain customer needs, including expansions, I will, of our extended reach technology equipment as well as investments in valve technology that will help us be more efficient, cost effective, and obviously more reliable at the end of the day. Those are all that we are looking for. In the case of offshore products, we've got a number of initiatives underway, both in terms of our subsea production infrastructure, some of our longstanding products on the drilling rig equipment side, and then, of course, as you know, we're doing some initial R&D-type work with new customers around both offshore Deepwater, if you will, subsea mining activity, as well as clearly we have a longstanding presence in fixed platform business globally. And so wind also offers some interesting opportunities for the longer term.
spk04: Great. That's very helpful. And that flows into my next question. You mentioned just kind of the subsea mining opportunity and what wind opportunities. I wonder if you could frame up as you look at 2021 with that order book looks like either on a 2021 versus 2020 ballpark, just given most of the folks on the call, that's not their area of expertise. And I'm sure you guys have been doing a lot of market research. So any help with just market size increase year over year importance to the business would be incredibly helpful.
spk01: Well, and, you know, I'm one. Let's just be realistic. These are very early stage developments. Wind obviously could be earlier just because it's more of an established offshore wind. It's obviously not new at this point in time, whereas rare earth minerals mining off the seabed is. And so I view this as kind of long-term opportunity for We probably had in the range of, I'm going to say, just a small amount of bookings and mostly technology-related R&D-type bookings in 2020. It does set the stage for a little better contribution in 2021, but I am not going to try to oversell this opportunity in the near term. It's a much longer-term prospect, as, in my view, are all of these alternative energy investments. But with that being said, we are bidding and quoting quite a lot more, particularly, well, it's really both when, but also on, there just aren't that many players doing research yet on rare earth minerals mining offshore at this point. But I do see that as an opportunity. Again, the assumption is we're going to progress alternative energy developments. If you do that, we're going to be heavily reliant on rare earth minerals mining.
spk03: in those developments thank you very much cindy i'll turn it back over thank you george and thanks for dialing in today our next question from sean nickham of jp morgan thank you good morning yeah i hope you guys are doing well uh so cindy you know you all did a lot in 2020 in the face of what was a pretty brutal macro. So just in terms of the balance sheet, operating costs, you guys made a lot of headway. So looking forward, if the cycle remains directionally getting better, as you expect, but let's say the magnitude of opportunities ends up being more lukewarm, are you working on more dramatic strategies to boost EBITDA cash flow ultimately returns? In other words, I guess, can you help us think about the opportunity set for more dramatic moves to the portfolio, whether it's organic or inorganic? Just how you think about more than just kind of the meat and potatoes blocking and tackling, depending on what the cycle gives you the next couple of years.
spk01: Well, you're absolutely focused on the right question, and I reflect on the year 2020, and I just think of what we've been through, and our clear, obvious, immediate focus was on reducing cost, mitigating margin pressure throughout all of our operations and business lines, and importantly, preserving liquidity. But we stand here, and of course, booking backlog, but As we stand today, we are beginning to see what we'll call the early stages of a market recovery. Certainly the macro fundamentals of global supply demand for crude oil has improved dramatically. Of course, it had to from the extreme events of 2020, but we've been going through really a robust planning process to respond to a recovering market. Anything that we do is going to be done from the lens of focusing on return on net capital employed. Obviously, we've got to come back to positive net income and positive returns on invested capital. Our primary focus is going to be in areas where we think we can have larger share scale. You know, some of our product lines depend on niche dominance, if you will, but we have some of that, particularly in our offshore sector. manufactured products, and then we look to what can we do. We're not going to expend excessive amounts of capital. We're going to be very cautious about that CapEx allocation, whether that is for equipment or whether it's responsive to R&D spending on new technology. I always favor what we can do internally. Through our own product initiatives and R&D initiatives, those tend to generate the greatest returns. That being said, there will be opportunities, and we have seen some, where there are M&A optionalities out there. Our very clear stance on that is they have to be highly strategic, and honestly, right now, it will have to be funded with stock, which means you've got to have a high degree of confidence in the valuation you pay, and in our case, I think the modeling methodology demands free cash flow generation, particularly in your early years. You have to be less reliant on any type of terminal growth rate or terminal value at the end of the period, particularly if you believe the sentiment that is out there that crude oil demand will peak in either 2028 or 2030. That tells you what you've got to do in the ensuing 10 years from a valuation perspective, whether that is CapEx or M&A. But we are seeing some opportunities of interest at this point. If I sum up those kind of opportunities of interest, we're looking for businesses that have some technological differentiation that fit well into our existing product lines and that have a capital light model Much like what we described when we made the GEO acquisition, we need to see free cash flow generation with a semblance of recurring cash flow streams. I hope that is a high-level strategic overview. Obviously, I can't be specific on the M&A front, but I think that frames very well our thought process. I will also tell you that I do believe that scale matters. And we've got to be highly efficient with our cost structure. But we can certainly leverage that if we're able to grow the top line, which needs to be our focus in 2021.
spk03: It's a very thoughtful response. Thanks, Cindy. And then maybe to transition and talk a little bit more about some of these emerging opportunities. You've always focused on building product and service portfolios that have core differentiated products with more concentrated market positions and then you seem to kind of build around those with other tangential services and products that may end up being a bit more competitive. So in terms of these emerging revenue opportunities, whether it's offshore wind or even the subsea rare earth mining, could you just talk about the competitive landscape, maybe how you characterize your potential positioning and how you can maybe enhance that
spk01: Positioning as these opportunities more fully manifest themselves Well, we're bidding quite a lot of opportunities and just you know, I always say Do be differentiated and do what you do well, and so we have been fixed platform industry specialists now for 50 plus years there a wind installation is an offshore fixed platform and in deep water applications. So our reputation allows us and our history allows us to bid very effectively on that. Now, you're bidding to a different group of customers, but because of our history, it really makes no sense for a wind installer or developer to try to create from scratch. They're going to draw from industry expertise that is already out there. And of course, it only makes sense for us to find all of those bidding opportunities and bid on those accordingly, which we're being successful in getting to see those opportunities at this point in time. And as you know, Sean, all the capital in the market wants to flow towards alternative investments right now. So customer funding is not going to be the issue as to whether these projects proceed or not. Again, these are unique opportunities. that on rare earth mining and deep water fields and applications, again, do what you do well. We are experts in riser technology. We are experts in stabilizing facilities from the seabed to the surface of the water. And so, again, those are what we're trying to draw on as opposed to trying to go into a lab with no immediate knowledge of what you're going to create at the end of the day. that would be a luxury we quite frankly don't have. When it comes to R&D, we are very, very focused on the market set of opportunities, and we've kind of issued a guideline that we think you have to have revenue opportunities in 18 months or less, or we're going to reprioritize R&D initiatives elsewhere in the company.
spk03: It's very helpful. Thanks, Cindy.
spk01: Thank you.
spk07: And our next question comes from Steven Garo of Stifel.
spk08: Thanks. Good morning. I hope you guys are all doing well in Texas. Two things. Cindy, first, just to follow up on the theme right now you've been talking about. When you think about these new investments, and I know you've been very return-focused since the company went public. How do you think about sort of the time frame that those returns have to show up? Is it elongated because technologies take a little longer to gain traction? How do we figure out that type of investment from the timing of returns necessary?
spk01: You know, one of the beauties of what we're doing right now, this is existing technology to a large degree adapted to a different demand environment. So we have the facilities. We have the engineering facilities. capabilities, all the requisite machining capabilities, et cetera, to deliver products and services to kind of a new customer base. So those are a bit easier. As I think we progress this, there will be opportunities, as an example, in offshore mining for a more complete product portfolio because this is brand new technology. And so rather than just relying, as an example, on some of the riser technology opportunities that are out there, you may expand those products further as this market develops. I don't want to oversell this at this stage. We had one contract last year that is very much a research-based opportunity. But we have multiple bidding opportunities this year. So the prayer is these technologies prove up. You know, this transition to alternative, a heavier weighting, I'm not going to say a full transition to alternatives, but a heavier weighting to alternatives will be long to develop. And I don't want to mislead anyone on this call. I think these are 20, 30-year type developments over time. I'm just pleased that we have the background capabilities and technology to be able to use some of that in newer applications. But, again, it is for the long term. We are bidding a lot now, but I'm not counting. When I do a plan, I'm not counting on tons and tons of bookings coming from this. I hope they come out, play out.
spk08: Great. Thank you. And then two other questions. Robert Marlayson, Two other questions just about about your your commentary on 2021 you you provided some full your numbers which, which is, which is helpful the I haven't done the math yet when you look at the the incremental margins. Robert Marlayson, Does that sort of suggested of normal historical incremental for for well site and and offshore manufacturer products.
spk01: You know, as you know, I kind of manage life based on our incrementals, but I expect them to be, quite frankly, exceedingly strong, and we witnessed that in the fourth quarter. Sometimes it's hard with the depth of the downturn to see the strength of the incrementals. I did call those out, I believe, on the conference call, but You know, going back to this U.S.-led recovery in 2021, again, we lost 80% of the completion count in about 60 days from Q1 to Q2. So with that context, obviously, we're seeing some improvement. But with that, downhold will do well. It's in my notes, but I believe their adjusted EBITDA incrementals, they were certainly north of 50%. which is historically a strong incremental margin, as you know. In the case of WellSight, they were north of 80%, and those are not going to sustain over the long term, but we do believe that what we have done on the cost front will allow greater than historic incrementals. Now, we're going to temper that because it all sounds good. We all talk about book-to-bill ratios, and in My offshore manufacturer products, we had one of the best on the street. Nonetheless, my backlog is down about 22% year over year. It would be foolhardy of me to say that we can do better in the first half of 2021 in that segment with a 22% down climb or reduction in my beginning backlog. The good news is of the bookings we got in the fourth quarter, we had two that we kind of call out that are north of $10 million in terms of size. The other good news is this is our very critical subsea production infrastructure. It won't surprise you that a lot of that activity is in Guiana in Brazil right now. That mix is good for us, and our expectations are that we will exceed a one-time book-to-bill in 2021, which again is what we need. That's number one, coupled with number two, a recovery in the short cycle products in that segment. So what I'm speaking to is while we're enthusiastic about the U.S.-led incrementals, know that particularly in the first half, we will be trying to manage decremental margins in our offshore manufactured product segment.
spk08: Great. That's a very helpful color. And then just one final, and I know it's a hard question given what's going on in Texas recently. Given the disruptions we're seeing and given your full year guidance on 2021, are you thinking just to kind of calibrate the first quarter kind of being plus or minus flat with the fourth quarter instead of company-wide EBITDA?
spk01: Absolutely. But I'm going to also say that Before this week, we really kind of expected to see sequential improvement. I will temper that, as you have suggested, and say flat to modestly down. Great uncertainty. We still don't have power and water in most of the state of Texas. And while we are not a Texas-based company by any means, 50% roughly, the U.S. land rig count is in Texas or New Mexico. Everybody on this call knows that. And so I certainly have not really quantified the impact. But I can tell you, while we are in a downtown office today in Houston, it is the first day that just about anybody has been able to get out and drive. So those are realities. That's why I really wanted to give broader guidance. Our full year right now is setting up a bit more favorably than probably the street has projected. And, of course, we will update that. But, you know, like everybody, we pulled – Any semblance of annual guidance last year, but I think the market needs it. And that's the best information we have. But I'll put a little caution on Q1. And it's not just Texas, Oklahoma, New Mexico, and Louisiana. It's been all over the nation, quite frankly, pretty harsh winter weather.
spk08: Great. Now, this is a great call. I appreciate it. Thank you.
spk01: Thank you, Stephen. Good talking to you.
spk08: Bye-bye.
spk07: And our next question from Chris Boy of Wells Fargo. Thanks.
spk06: Good morning. Thanks for taking my question. First, maybe on the guidance again for 2021, if we take out the backlog-driven business and offshore, what kind of year-over-year revenue growth do you expect for downhole and well site compared to the overall consolidated guidance?
spk01: You know, we're trying to work through that. You know, I would just generally say that WellSight will be up year over year. And maybe I should back up. First of all, I worry a little bit about giving year over year guidance. And I tried to put that in my notes. Remember, everybody, please remember the strength of the first quarter pre-pandemic. And so your year over year revenue growth may look a bit muted. I always look at it two ways, what's year-over-year and what is either 4Q annualized or second-half annualized, and you get a very different answer. Well site, I would say, can be up year-over-year, probably 5% to 10%. But if I do Q4 annualized, it's probably up more like 20%, if that makes sense. Downhole technologies is recovering sooner. And again, it's a downhole consumable business, very much driven by the FRAC fleet count. And so we're expecting higher growth there. It could be up roughly 20% year over year, maybe 30% from either 4Q, annualized, those types of numbers. But we are expecting pretty strong growth. Offshore manufactured products are going to have a weaker first half, pickup steam. Again, we got two good bookings in Q4. We're bidding a lot in Q1. So we'll build backlog, in my opinion, but that starts turning to revenues a little bit later in the year. We will get some offset from short cycle products, but it's not going to necessarily rescue the day and increase bring revenues up year over year. It's going to be a little bit of a lag effect, but in totality, I don't think you're going to have it down materially, probably 5% to 10% in revenues. But again, up from fourth quarter.
spk00: It's up from fourth quarter, and I think it's very important from Cindy's point of view, you've got to look at how strong first quarter of 2020 was and take that out of your analysis as you annualize either the second, third, and fourth, fourth quarter or the second half of 2020.
spk01: Yeah, and that's true for all your activity drivers of average rig count, average frack spread count. You almost have to pull it out of the mix and pull Q2 out. You know, when you collapse a rig count and a completion count to the degree that we did, it just has less meaning to look year-over-year averages.
spk06: Right. Okay, that makes tons of sense. Thank you. And then to follow up, maybe touch on price for a little bit. Does the EBITDA guidance for the year contemplate any pricing improvement in U.S. land? And secondly, do you think that you can get to kind of normalized margins absent price improvement, maybe just with efficiency gains and lower cost of manufacturing for some of your products? Or do you think you need some price improvement to get back to normalized margins?
spk01: Well, we certainly have always focused on this. What we really need in the near term is just higher top line revenue, which is activity-based. Our product lines have always been individually positive margins. I don't do work for negative margins. Sometimes I think people do. So give me the activity lever first. We've not predicated on a lot of price improvement in our model. I think we're going to get some that may be mix-oriented as much as it is, and I do expect some improvement from my international contributions, which can help me from a mixed perspective. We've not talked about that, but it stands to benefit both well site services and downhill technologies. And, again, if we get pricing good, I just want to be clear, we are not going to continue to work at margins that don't sustain our cost structure. And, you know, certain competitors are starting to announce price increases. That's probably fundamentally better for the market. But it is stunning to me to continue to look at reports that come out with negative EBITDA. I mean, that has to stop. in the service sector and the manufacturing sector. And I think we've done, will we continue to have cost rationalization? Probably some, but not by any means to what we saw last year. We just need to learn to do more with less. And as a good friend of mine has said, you've got to rip the Band-Aid off, which I think we've done. And we've got to maintain those cost initiatives that we've put in place. not let them creep back into the system. I think if we do all those things, you will see sustained higher margins. And again, it's got to have the fundamentals of the market behind you, but it looks like we do have that. I'd say as it relates to the U.S., what everybody is trying to, you know, we basically nearly hit 13 million barrels a day of production. We're now teetering around 11 million barrels a day. We are at 15-year lows on global CapEx investment. The same is true for the U.S. So the real question is, how much does the rig count and the frack fleet count need to expand to just to sustain that 11 million barrels a day? And I think everybody accepts and recognizes that the current levels, even though they're up significantly from fourth quarter, they're probably not adequate to sustain that 11 million barrels a day of production. So I do see some upside from here. I don't think you'll see a quote unquote peak. It's not factored in our planning until about Q3. And then as is typical, we may get a little fourth quarter softness, both from holiday downtime and budget exhaustion. But that is how we have come up with our plans for 2021.
spk06: Thank you. Good luck with the weather.
spk01: Thank you, Chris.
spk07: Once again, if you have a question, please press star 1. We have a question from John Daniel of Daniel Energy Partners.
spk05: Hey, good morning. Thanks for putting me in.
spk01: Good morning, John. You bet.
spk05: I just have one question. As bankers come to see you guys and pitch deals these days, what percent of them are sort of traditional OFS versus alternative?
spk01: We really haven't seen a portfolio of alternative opportunities at this stage. They're going to generally be more still conventional or traditional along with our business lines. And quite frankly, I just think 2020 was somewhat frozen in terms of opportunities generally for two reasons. Number one, everybody was internally focused on trying to manage their own liquidity and financial results and outlook. Number two, many had too much debt, a lot declared bankruptcy, quite frankly, and went through restructuring. And then two, COVID. I mean, we hadn't had a lot of investment bankers come by, although I welcomed them. with any opportunities that they have. So I think 2021 will be a different year. But there's a whole lot of R&D out there right now, John. But there aren't mature companies on alternative energy right now. So I think everybody's in the design phase of these things. And so there's just not a whole lot of things I think that we'll even see this year other than what we can do internally.
spk05: Let me ask you this. In a world of all else being equal, you're presented, you know, company A, which is OFS, something you know very well, and company B, which is alternative. Everything in Excel says it's going to be exactly the same returns. What do you do? Do you pivot or do you stick to what you know?
spk01: No, I've got to be totally honest with you. I have always tried to do what we are good at and what we are knowledgeable of and capable of. I don't think this will be a pivot. I will be long retired before this matures into a broad industry, in my opinion, because people are forecasting 2040, 2050. It's going to evolve. We're not just going to jump off a ledge and say I was one day conventional energy and tomorrow I'm alternative. It will be ever evolving. And if nothing else convinces you of that, Texas will become a case study of exactly what has happened this week. America needs affordable, reliable energy that can be produced safely. We have failed. Anybody that, when we have people dying of carbon monoxide poisoning in this state because they're too cold, somebody needs to step back and look at what can we do as a package to deliver affordable, reliable, safe energy to this country and Stop the politics. Or we're going to have to accept this as a norm, which in my view is completely unacceptable.
spk05: Well said. Thank you for your time and for that battle in the weather.
spk01: Thanks, John.
spk07: And there are no more questions?
spk01: All right. Thank you so much, James, for hosting our call today. And to all of you that took the time to dial in today. We appreciate your participation today. I know it's been tough. Many of you have connectivity issues, no power, no water, but your continued support of oil states and importantly, this industry is so critical to us. I just thank you for your continued support. Let's pray that the 2021 gets better from here. I think Lloyd said it best yesterday when he said, I don't think we're in the new year yet. We're in the 14th month of 2020. So maybe next week is a better week. Take care, and we'll talk to you soon.
spk07: Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect. Speakers, please stand by for your post-conference.
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