Parker Drilling Company (PKD) CEO Gary Rich on Q2 2014 Results - Earnings Call Transcript

Aug.10.14 | About: Parker Drilling (PKD)

Parker Drilling Company (NYSE:PKD)

Q2 2014 Earnings Conference Call

August 6, 2014 11:00 AM ET

Executives

Rich Bajenski - Director, IR

Gary Rich - President and CEO

Chris Weber - SVP and CFO

Analysts

Klayton Kovac - Tudor Pickering Holt

Matt Marietta - Stephens

Walt Chancellor - Macquarie

Chris Bamman - Sidoti & Company

Pike Howard - Johnson Rice

Operator

Good day and welcome to the Parker Drilling Second Quarter 2014 Conference Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Rich Bajenski. Please go ahead, sir.

Rich Bajenski

Thank you, operator. Good morning and thank you for joining the Parker Drilling 2014 second quarter conference call. This is Richard Bajenski, Director of Investor Relations. Joining me today are Gary Rich, Chairman, President and CEO, and Chris Weber, Senior Vice President and Chief Financial Officer.

In the course of our comments today, we may make statements regarding management's expectations for the Company's future performance we believe will be informative to our shareholders. These statements are considered forward-looking statements within the meaning of U.S. securities laws. Each forward-looking statement speaks only as of the date of this call, and actual results may differ materially due to various factors we referenced in our public filings and other factors addressed during this call, including changes in market conditions affecting our industry.

We will also refer to non-GAAP financial measures such as adjusted EBITDA, non-routine items and operating gross margin excluding depreciation and amortization expense, which we will refer to as segment gross margin during this call. Please refer to the table in our current press release or on the company's website for a definition of adjusted EBITDA and a reconciliation of this measure to the comparable GAAP measure and for further information regarding non-routine items. I ask you to take note of this caution about forward-looking statements as we make our comments today.

Our next comments are from Gary Rich. Gary?

Gary Rich

Thank you, Rich. We made some good progress this quarter, as I believe our results demonstrate. That doesn't mean we don't have further work to do but we are definitely making gains in both our Drilling and Rental Tools operations.

Compared with the previous quarter, our combined Drilling operations delivered a 12% increase in revenues and a 35% increase in gross margin. And our Rental Tools business delivered an 8% increase in revenues and a 16% increase in gross margin. As I said, good progress.

Let me review some of the highlights. Starting with our U.S. Barge Drilling segment. Our barge rig business is in great shape. Dayrates are up, the fleet has grown, and our average utilization moved up to 90%. This quarter, the business reported a 53.4% gross margin as a percentage of revenue. That is the highest quarterly gross margin for this business segment since the second quarter of 2008.

One of the key contributors was another increase in average dayrates. This quarter marks the 15th time in the last 18 quarters we have achieved an increase in dayrates. I believe this demonstrates the confidence our customers have in us. During the quarter, Rig 55B went to work at a fleet-leading dayrate after being refurbished and added to the fleet in May. The rig continues to work on its initial multi-well contract and has performed very successfully for the customer.

Also in May, we acquired a competitor's relatively new barge rig, only three-years-old at a very attractive price of $12.25 million, which we believe is less than half of what a new barge of this class would cost. The addition of Rig 30B brings our total fleet size to 13 rigs, half of the overall industry fleet of 26.

Rig 30B is a highly capable, 1,500-horsepower posted* barge rig that is a great complement to our fleet. After undergoing a thorough mechanical survey, being painted and crewed, the rig went to work last week on a multi-well contract that should keep it employed until early 2015. We believe this investment will produce a very attractive return on capital for our shareholders. Today, we have 11 of our 13 barges on contract, one of the two rigs not currently working, Rig 15B has been pulled from the market for upgrade work, including installation of a top drive and new mast. While we have worked this rig very effectively for many years without a top drive, we're putting on a top drive and upgrading other equipment to make the rig even more competitive. This upgrade is expected to be completed in the fourth quarter. We already have work tentatively lined up for this rig when it comes in and returns to service, work that may keep it utilized through much, if not all of 2015. We have similar upgrade plans for Rig 12B that will take place early in 2015.

Moving on to our International Drilling operations, our international rig fleet utilization was 74% in the second quarter, an uptick from the prior quarter's 73% utilization. Contributing to that was putting Rig 122, a rig that has been idle since 2010, to work in Mexico. Also during the quarter we contracted Rig 216 in Kazakhstan for startup in the fourth quarter. This rig has been idle since 2010 as well. In addition, we re-contracted our 3,000 horsepower rigs in Mexico on four-year terms at higher day rates.

Turning now to the Rental Tools business. Our U.S. Rental Tools business had a notable quarter. Activity levels rose for the second quarter in a row and we achieved pricing improvements in some markets, with good gains in West Texas. As a result, this business delivered high revenues, gross margins and gross margin percent in the quarter.

The second quarter was a challenging quarter for our International Rental Tools business, due to several factors, including civil unrest in Iraq, business interruptions affecting operators in Mexico and our refurbishment and relocation of some key facilities. Although, our second quarter did not show financial progress in this business, we made some important changes in leadership, completed most of our facilities moves, and registered some commercial gains during the quarter.

In July, we hired a new Global Rental Tools product line business leader, Abdou Djendou. Abdou joined us following a long and successful career at Schlumberger, most recently as Vice President of Schlumberger's Drilling Tools and Remedial operations in the Middle East and Asia, where he was responsible for developing and implementing the Company's growth strategy in the region. He is already deeply involved in the business and I expect he will make a big contribution to our success.

In addition, we have allocated senior operational leadership from within the Parker organization to our International Rental Tools operations. These are experienced individuals with strong oilfield services management backgrounds, who are working closely with existing operating teams on developing, among other things, more robust business development, sales planning, supply chain management, and financial analysis capabilities.

We also completed most of our facility moves and refurbishments during the quarter, outfitting shops in Iraq, Malaysia, and Scotland for increased operating capacity and more efficient operations. All of this should lead to a greater ability to generate the level of activity we expect from the business and to grow it profitably.

Those are the key points I wanted to make. Chris will provide additional information about the quarter and then I'll return to offer some thoughts regarding our outlook. Chris?

Chris Weber

Thanks, Gary. For the second quarter, we reported revenues of $254.2 million, adjusted EBITDA of $72.5 million, or 28.5% of revenues, and net income of $15.7 million. Included in the quarter's results was $1 million pre-tax of income from non-routine items including the receipt of $1.5 million from escrow establishing connection with the ITS acquisition and $500,000 of debt extinguishment expenses associated with the refinancing of our [9.125] senior notes. Excluding these items, net income was $15.1 million or $0.12 per diluted share and adjusted EBITDA was $71 million.

We had a solid contribution to the quarter's results from the Company's combined Drilling business. Combined Drilling revenues increased 12% to $167.1 million in the 2014 second quarter from $148.7 million in the first quarter. Gross margin increased 35% to $46.3 million from $34.4 million and Drilling operations gross margin as a percentage of revenues increased to 27.7% from 23.2%.

Here's a review of the individual Drilling operations. Our U.S. Barge Drilling segment reported second quarter revenues of $40.3 million, 32% higher than the 2014 first quarter's $30.5 million. Segment gross margin rose 82% to $21.5 million or 53.4% of revenue from the prior quarter's $11.8 million or 38.8% of revenues.

The increases in revenues and earnings were primarily the result of higher utilization and increase in average day rates and the addition of Rig 55B. The business also benefited from lower workers' compensation expense in the second quarter.

Our U.S. Drilling segment reported second quarter revenues of $20.3 million, up 3% from the 2014 first quarter's $19.4 million. Segment gross margin declined 10% to $5 million or 24.9% of revenues from the prior quarter's $5.6 million or 28.7% of revenues.

Excluding the beneficial impact in the prior quarter of a reduction in our allowance for doubtful accounts, both segment gross margin and gross margin as a percent of revenue increased, reflecting continued gains in the operating performance of this business.

Our International Drilling segment reported second quarter revenues of $91.8 million, an increase of 7% from the 2014 first quarter's $85.5 million. Segment gross margin increased 15% to $18.8 million or 20.5% of revenues from the prior quarter's $16.4 million or 19.2% of revenues. The growth in revenue and gross margin reflects increases in utilization and realized day rates. Revenues rose further due to a $5 million increase in reimbursables and segment gross margin benefited from lower operating expenses.

Our Technical Services segment reported second quarter revenues of $15 million, an increase of 12% from the 2014 first quarter's $13.3 million. Segment gross margin increased 56% to $1 million or 6.8% of revenues from the prior quarter's $700,000 or 4.9% of revenues. Revenues and gross margin, both benefited from the advanced development of a customer funded engineering and design project.

Now let me turn to Rental Tools. Rental Tools revenues increased 8% to $87.2 million in the 2014 second quarter from $80.5 million in the first quarter. Segment gross margin increased 16% to $33.3 million from $28.8 million, and segment gross margin as a percentage of revenues increased to 38.2% from 35.7%.

Before I provide details on these results, I want to point out a change in the way we will be reviewing this business. In the past, we reviewed our business on a brand name basis, Quail Tools and ITS and often likened that to U.S. and international trends respectively.

Having integrated ITS' activity into Parker's, we can now focus the discussion of our Rental Tools business on a geographic basis, U.S. and international regardless of brand. While I will call out ITS' specific results today, I will base my review of business trends, events and financial performance on a geographic basis that should provide a more useful depiction of our business results and business potential.

So for our U.S. Rental Tools business, revenues are up 13% to $57 million from $50.4 million and gross margin rose 19% to $29.8 million from $25 million. These increases are primarily due to rising utilization in the U.S. land drilling market, accompanied by price gains in some areas. Revenues for our International Rental Tools business increased to $30.2 million from $30.1 million while gross margin declined 8% to $3.5 million from $3.8 million.

Regarding ITS, their contribution to the second quarter results includes revenues of $26.9 million and zero gross margin. International Rental Tools revenues benefited from increased business in Africa, offset by the impact of disruptions in Iraq and Mexico that Gary described earlier, many of which occurred in the first quarter. Though we anticipated some continuation of these impacts when we reviewed our first quarter results with you in May, the magnitude has been greater than we expected.

Regarding other financial items, second quarter G&A expense was $7 million, down from $9 million for the 2014 first quarter, primarily due to receipt of $1.5 million from an escrow account established in connection with the ITS acquisition to cover certain post-acquisition costs.

We expect G&A expenses for the remainder of the year will be approximately $10 million to $12 million per quarter. Second quarter results also included $500,000 of debt extinguishment costs associated with our recent debt refinancing, specifically related to calling the portion of our [9.125%] notes not tendered in the first quarter. Second quarter interest expense was $10.6 million, down from $12 million in the first quarter and $13.9 million in the 2013 fourth quarter, reflecting the benefit of lower debt levels and lower interest rates.

For the 2014 second quarter, we reported income tax expense of $11.7 million or 42.5% of pre-tax income. We expect our full year tax rate to be around the mid-40%s. At the end of the quarter, we had $620 million of debt outstanding, $34 million less than at year-end 2013, primarily due to our refinancing. Including a cash balance of $86 million, our net debt position was $534 million or 45% of net capitalization. Measured as a multiple of EBITDA, total debt was 2.4 times the trailing four quarters' adjusted EBITDA, down from 2.8 times at the end of 2013.

Our total liquidity at the end of the quarter was approximately $161 million including our cash balance and approximately $75 million available under our credit facility. Capital spending during the second quarter was $68.7 million, including the $12.25 million purchase of barge Rig 30B. That brings our year-to-date spend to $106.2 million. We still estimate 2014 capital spending will be approximately $190 million.

Before I finish, allow me to anticipate what may be on some listeners' minds and outline the extent of our business presence in Russia and Iraq. Our activities in Iraq include two drilling rigs operating in the Kurdistan region and two rental tool operations, one in the Kurdistan region, the other in Southern Iraq. The revenue stream from these operations, excluding rate* reimbursables, accounted for approximately 7% of our consolidated second-quarter revenues. Approximately 80% of this business is in the Kurdistan region.

Our Drilling operations in the Kurdistan region have been unaffected so far by the recent insurgent activity in the country. We are away from the fighting and other disruptive events and our customers have not curtailed operations. However, we believe the current unsettled state of affairs has hampered our ability to get two rigs in Tunisia on contract for work in this region as potential customers have delayed their near-term plans. On other hand, our Rental Tools operations in both the Northern and Southern areas of Iraq have experienced business disruptions and lost business since late last year as some operators have curtailed activities there.

Our activities in Russia are related to operations on Sakhalin Island off the East Coast of Russia. There we provide drilling services for the Sakhalin I project that include an O&M project using customer-owned equipment, operated and maintained by Parker and a separate drilling contract for Parker owned Rig 270. The revenue stream from these activities, excluding reimbursables, accounted for approximately 10% of our consolidated second quarter revenues and segment gross margin.

To-date we have had no disruptions in our operations there. We are currently evaluating the recently introduced EU and U.S. economic sanctions and expect controls against Russia. At the present time, we are working with our business partners in Sakhalin to ensure full compliance with these regulations. However, these regulations are quite new and our assessment may change as implementing regulations are formulating.

That is the financial review. I'll turn this back to Gary for comments on the outlook. Gary?

Gary Rich

Thanks, Chris. Looking to the third-quarter, we believe revenues will be in the range of $235 million to $255 million and EBITDA as a percent of revenues will be in the high 20%s. In the third quarter, we expect higher revenues from U.S. and International Rental Tools due to increases in activity levels and a further contribution from our U.S. barge drilling operations from the inclusion of Rigs 55B for the full period and 30B since late July. However, utilization will be lower in our Latin America rig fleet as drilling programs there have been slow to develop. In addition, we expect reduced project revenues from Technical Services and lower reimbursable revenues, both of which have little impact on gross margin levels.

We anticipate a stronger fourth quarter in both our Rental Tools and Drilling Operations. In Rental Tools, we expect to benefit from increases in activity in the U.S. land drilling market and deployment of Rental Tools already contracted to work on several deepwater projects in the Gulf of Mexico. We also expect our International Rental Tools business to benefit from contracted jobs coming online.

At our Drilling operations, we should benefit from having our recently acquired barge Rig 30B in the fleet for a full quarter and the start-up of operation for Rig 216 in Kazakhstan. We're also in advanced contract discussions to put one, possibly two rigs back to work in Colombia in the fourth quarter.

Turning to the full year outlook, we're expecting revenue growth between 12% and 15% for the year compared with 2013 and an EBITDA percentage in the high 20%s. This is lower than our prior guidance primarily due to the civil unrest in Iraq and lower than expected demand in Latin America.

Looking forward, I am encouraged by recent industry trends and that many forecasts are calling for that those trends to continue. Drilling activity in the U.S. land market and offshore Gulf of Mexico has been expanding and international E&P spending has been growing. Recent industry forecast of drilling activity in the U.S. suggests further increases in the land drilling rig count and surveys of E&P spending plans point to stronger spending in the U.S. and abroad.

That summarizes our outlook. As a Company, our attention remains focused on developing strong, durable and competitive operations, capable of providing our customers with innovative, reliable and efficient business solutions that bring value to them and produce higher returns and continued growth for Parker and its shareholders. I believe all our businesses are very capable of converting the business opportunities this will provide into sustainable, profitable results.

That concludes my comments. Operator, we're ready to take questions from the audience.

Question-And-Answer Session

Operator

Thank you. The question-and-answer session will be conducted electronically. (Operator Instructions)

And we'll first go to Klayton Kovac from Tudor Pickering Holt.

Klayton Kovac - Tudor Pickering Holt

So, first question from me is given the improvement in U.S. Rental Tools utilization and pricing, and also drilling contractors continuing to announce new rigs, when would you guys consider expanding your budget?

Gary Rich

Our budget from a CapEx point of view?

Klayton Kovac - Tudor Pickering Holt

Yes.

Gary Rich

We already have reallocated some of the capital that we had anticipated spending in other areas of the world to the U.S. market this year and so we're already increasing our capital budget, in terms of the allocation, trying to keep the total budget consistent with what we've previously communicated, but we have shifted some of those funds to the U.S. market.

Klayton Kovac - Tudor Pickering Holt

Okay. And then just as a follow-up, what's your strategy for managing your cost structure around the International Rental Tools business during this kind of period of interruptions?

Gary Rich

We're looking at the cost structure there to ensure that it's aligned consistent with the forecasted levels of business activity, particularly taking into consideration things like the turmoil that we're experiencing in Iraq right now with that business, and I feel the team is on top of going through and managing that cost structure.

Operator

[Operator Instructions]. We'll now go to Matt Marietta from Stephens.

Matt Marietta – Stephens

My first question is more of a clarification question. Sorry to go back to this but can we go back to the ITS or now International Rental Tools numbers that were provided? I think I may have caught a couple of different numbers there and I'm just trying to reconcile that to 1Q?

Gary Rich

You have a specific question or...

Matt Marietta – Stephens

What the revenue was for ITS and the gross profit for ITS, if you don't mind?

Gary Rich

Yes. So, go back to that.

Chris Weber

So I'll jump in. So the revenues for ITS in the second quarter were $26.9 million and they had a zero gross margin in the quarter.

Matt Marietta – Stephens

And then when you look at the Rental Tools business, you guys have talked about, the recapitalization there and it's going to take some time to get to a number somewhere between kind of Quail in the low to mid-20% where the business was last year. Can you maybe walk through that time line again and given the changes and the geopolitical issues? Are we talking about kind of a back half '15 event or is this something that we would expect in 2016 or how can we look at our models in terms of the margin contribution of ITS?

Gary Rich

That's a great question Matt. I think that obviously some of this unrest in Iraq is something that we didn't anticipate when we were putting together some of those forecast, the things we've communicated. Nonetheless, we feel like that business has enough geographic basis in other areas in that we see still continued growth opportunity in that business. We still feel optimistic about Iraq working out well. As far as when we get to those mid-20% margin numbers that we've talked about before, it might be closer to the latter half of 2015 but our target is to push it sooner than that.

Matt Marietta – Stephens

And one more for me if you don't mind. Obviously, Quail is very well positioned to benefit from North America and you look at kind of where the third quarter of 2011 was at 71% margins versus the 55% in the most recent quarter. Can you maybe discuss about what it would take to get back to those peak margins if those are even achievable given the higher general inventory levels in the market?

Gary Rich

Well, it's a challenging environment still out there on the competitive situation. While we've been able to achieve some price improvement in some of the geographies in the U.S. in this last quarter, we still have some pretty strong competitive pressures in others. And if you get back to that 71% type margins we had before, clearly you've got to have an additional uptick in activity, quite a significant uptick in activity. I don't know exactly how much it would take but at this point I think that we're quite a ways away from being able to get back to 71%. Nonetheless, we do feel optimistic and feel like we're going to continue this. We're building momentum in that direction both on the utilization side as well as on the pricing side.

Matt Marietta – Stephens

Perfect. So directionally we're still moving higher, just not quite to prior peaks?

Gary Rich

Right.

Operator

[Operator Instructions]. We'll now go to Walt Chancellor from Macquarie.

Walt Chancellor - Macquarie

Hey. So just starting with the Barge segment here, are you expecting any impact from the hurricane season over the course of Q3 and maybe early Q4?

Gary Rich

I don't know, maybe you're a better weather forecaster than I am, it's hard to tell. I think that historically we've had some clients that were hesitant to contract a rig during the third-quarter Walt, because they obviously didn't want the exposure to the hurricane. But right now, as we're going into the third quarter, we feel pretty good about where we're at and feel like activity should hold up. The contracts on 55B and the new contract on -- and the contract on this new 30B rig that we just brought into service give us some optimism for that Q3, as well on into Q4. We feel pretty good about it.

Walt Chancellor - Macquarie

Yes. I guess leading into sort of the follow-up there, I was impressed by some of those longer term duration contracts you're talking about. How is the mix across the fleet trending, multi-well versus term versus well-to-well? Have you seen a shift in that recently?

Gary Rich

I'm hesitant to say there's a shift. I think it is, I guess just anecdotally, as we go through and review the business and review the opportunities with respect to some of these rigs that we are talking about some extended periods of work for some of the rigs going forward. We mentioned the upgrade of the rig that we're going to -- that we've got, we've taken out of service now, where we're going to put new mast and new top drive on it. That's being done in conjunction with discussion with a particular client that will suggest we would have work that goes well into 2015 for that rig when it comes out of refurbishment. So we do have a little more perhaps of that kind of discussion, but I'm not sure that we're ready to say that the environment has changed there.

Walt Chancellor - Macquarie

Okay. Great. Well, certainly directionally at least anecdotally it sounds good. And just moving to international, you mentioned some opportunities, four rigs in Colombia. If those opportunities were to not develop, is there an opportunity to maybe move those to Mexico as things start picking up in 2015? How are you thinking across that entire fleet given your potential for some flexibility there?

Gary Rich

Well, we've talked before about how it's our intention to focus our international rigs on regions that we consider to represent good promise. And when we talk about regions, we look at Mexico and Colombia as a combined region where we can move rigs between the two countries, as we see appropriate. So that's always on the table and will certainly be a possibility. But saying that, as mentioned in the comments earlier on my outlook, we do have some pretty good – one of the three rigs, we've already been awarded the work and we're just in final discussions on the contract. I don't see anything that's going to hold us back from that. Second rig, we feel very optimistic will go to work before the end the year, but that's a little less certainty than the first one. The third one, we've got a little more work to do, but we've also got prospects for that one. So I'm not ready to give up on Colombia. I was down there not too long ago and visited with the senior leadership in Ecopetrol and some of the other clients, and I feel that Colombia still represents a very good opportunity for us long term.

Walt Chancellor - Macquarie

Okay. Great. And then just following up there, in Mexico, has there been any impact to either revenue or margin from some of the activity disruptions in the south? Is that something you expect moving forward? If you can just talk about how we should think about your contract situation there?

Gary Rich

Well, we mentioned that we've just re-contracted the three 3,000-horsepower rigs for a four-year term with a dayrate increase, which we're pretty excited about. That notwithstanding, there are some, I guess, challenging things going on in the environment down there. It hasn't affected our revenue or margin a whole lot at this point, but we just don't know how it's all going to play out. I think we're all, speaking of it from an industry perspective, excited about the prospects of Mexico as they continue to make progress on changing some of the regulations that would allow additional operators to come and work in the country. And so we're excited about that. What's uncertain is just how quickly that's going to progress and when it's going to actually materialize into some meaningful activity. I've heard some people suggest that it will be in 2015. I've heard others just say it's going to be at the very beginning of 2016-type timeframe. It's hard for me to forecast, but we feel very good about our position down there.

Operator

We'll now take a question from Chris Bamman from Sidoti and Company.

Chris Bamman – Sidoti and Company

I was just curious to know if you could talk a little bit about the gross margin at the International Drilling business. It has improved over the first quarter. What needs to, I guess, sort of happen to sort of get back to some of the levels that you saw in the second and third quarter of last year, close to 25% and around 26%? Can you maybe talk about the dynamic of that a little bit, please?

Chris Weber

Yes. So we came in around 20% in Q2. Q3 margins will probably be high-teens in International Drilling just because of the some of the lower utilization in Latin America with some of the rigs in Colombia being down. Q4, looking forward, assuming with Rig 216 going to work, the likelihood of getting some rigs in Colombia back to work or at least one should help margins. Plus, we have the potential for some additional work in Asia Pacific and PNG and Indonesia. We think margins will be sort of the low-20%s in Q4. And one of the things that were still hampered by in our financial results in International Drilling, as we've talked about it before, is the amortization of our mobilization costs on the two rigs that we have operating in Kurdistan. We had a net mob expense in there that limits the EBITDA margin on those two rigs. At the end of this year that will be done and will be kind of more -- those margins will move up. And at that point, assuming we keep the utilization up in the other areas we talked about, you could see margins move in kind of a low to mid-20%s areas.

Operator

And we'll now go to Pike Howard from Johnson Rice.

Pike Howard – Johnson Rice

Just a quick clarification real quick. I apologize to go back to this. But the International Rental Tools revs and gross margin, could you review that real quick?

Gary Rich

Yes. So, we said revenues for our International Rental Tools business was $30.2 million in the second quarter versus $30.1 million in the first quarter and gross margin was $3.5 million in the second quarter versus $3.8 million in the first quarter.

Pike Howard – Johnson Rice

Okay. So just thinking about that, and what you gave us for ITS, clearly there's a little bit of uplift there, I guess, coming from Quail and relocations in the International Rental side. Is there any way you can help us think about second half of the year looking at this segment from an international perspective?

Chris Weber

Yes. So, when we move into this geographic discussion versus brand discussion, realize the driver is to be able to talk about the results and better matched business activity with the relevant market drivers. And so Quail had some revenue and gross margin that it generated internationally, and then ITS had a small portion of revenue and gross margin in the U.S. associated with a whipstock and jars business. And so you can give Rich a call, and he can, kind of, give you the numbers, you might get a real clean reconciliation. But going forward, in the international results that we talked about in Q2, there is about $3.5 million of revenue and associated gross margin that historically has been Quail's business. And that's pretty stable piece of business, and so really looking forward, we anticipate changes in results on the international side to be driven by ITS activity effectively. Does that help?

Pike Howard – Johnson Rice

Yes, that's helpful.

Operator

And there are no further questions. I'll turn the conference back over to our presenters for any additional or closing remarks.

Rich Bajenski

Great. Thank you, operator. That ends our call today. I want to thank you for your time and your interest in Parker Drilling. If you have questions about the material that was covered in our earnings announcement or in this call today, please feel free to contact me by phone or e-mail. Good-bye and all of you have a good day.

Operator

This concludes today's presentation. Thank you for your participation.

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