Good morning, and welcome to Drill-Quip's Third Quarter 2023 Earnings Call. [Operator Instructions] As a reminder, this call is being recorded. At this time, I will turn the call over to Erin Fazio, Corporate Finance Director for Drill-Quip. Please go ahead.

Thank you, and good morning. We appreciate you joining us on today's call. An updated investor presentation has been posted under the Investors tab on the company's website along with the earnings release. This call is being recorded, and a replay will be made available on the company's website following the call. Before we begin, I would like to remind you that Drill-Quip's comments may include forward-looking statements and discuss non-GAAP financial measures. It should be noted that a variety of factors could cause Drill-Quip's actual results to differ materially from the anticipated results or expectations expressed in these forward-looking statements. Please refer to the third quarter 2023 financial and operational results announcement we released yesterday for a full disclosure on forward-looking statements and reconciliations of non-GAAP measures. Speaking on the call today from Drill-Quip, we have Jeff Bird, President and Chief Executive Officer; and Kyle McClure, Vice President and Chief Financial Officer. I would now like to turn the call over to Jeff Bird.

Thank you, Erin, and thank you for joining us today. During the third quarter, we delivered strong top line results that were up 31% sequentially and 33% year-over-year. In addition to the revenue from Great North, we saw continued strength in key end markets, specifically Latin America, the Middle East and a further strengthening African market. While revenue was consistent with our guidance, we did see some customer-specific headwinds as a result of both rig availability in a very tight rig market and FPSO delivery timing. This directly impacts our ability to service certain customers, and as a result, our higher-margin service segment delivered lower revenue than expected. We do expect our service segment to rebound in Q4. The availability also directly impacts the timing of certain bookings, specifically MSA call-offs in Latin America and the Middle East as well as the timing of certain subsea tree orders. Accordingly, we are adjusting our outlook slightly for the fourth quarter of 2023, which Kyle will go into in more detail later. Bookings in the quarter were $46.5 million, a decrease of $26 million sequentially as a result of the rig and FPSO timing. During the third quarter, we were also notified of the award of the Petrobras tender valued at up to $28 million, of which most is not included in bookings for the quarter. This is an incremental Master Service Agreement supporting Petrobras in their pre-salt development wells project and we expect the first call-offs against the agreement to occur as soon as the next couple of months. We have over 70 open MSAs and ended the quarter with approximately $200 million in backlog. The strength of our backlog, combined with our confidence in the underlying market backdrop, supports our long-term growth outlook. As a reminder, approximately 80% of our…

Thank you, Jeff, and good morning, everyone. As Jeff mentioned, third quarter revenue was $117.2 million, an increase of 33% year-over-year and 31% sequentially, driven by strong organic growth of 11% sequentially, led by Subsea Products and with the addition of Great North, which added another 17% or $15.5 million Q-on-Q. Taking a look at the segment results. Subsea Products revenue increased 15% compared to the prior year and 25% sequentially, which was driven by the delivery of certain customer milestones in the quarter in Europe. Subsea Services revenue increased 6% year-over-year and was up 3% sequentially. This segment was expected to grow double digits sequentially but, as Jeff mentioned, rig availability for certain customers has moved drilling schedules to the right. Increased activity in Brazil offset some weather and customer schedule delays in the Gulf of Mexico and Asia Pacific. Finally, the Well Construction segment grew 117% year-over-year and 76% sequentially, reflecting the addition of Great North and activity increases in Latin America, Saudi Arabia, Brazil and West Africa. As Jeff mentioned, we installed our first big bore liner hanger down in Brazil for a deepwater customer, which we think is going to be a great platform for future growth. Gross margins during the second quarter were 27%, up approximately 150 basis points year-over-year. The improvement in gross margin is largely due to the addition of Great North and our ongoing initiatives across the organization to drive operational efficiency. Selling, general and administrative expenses increased 22% sequentially to $27 million, which was driven by the addition of Great North expenses and an increase in our bad debt reserve due to higher activity. Engineering expenses were roughly flat sequentially and up slightly compared to the prior year at $3.1 million. Adjusted EBITDA for the quarter was $12.4 million, an increase…

[Operator Instructions] Your first question is coming from Eddie Kim with Barclays.

Just wanted to touch on the light orders this quarter. You mentioned rig availability and FPSO delivery timing. But the first one makes sense. I mean, if the customer can't get the rig, there's no drilling that's going to take place. But could you expand upon the FPSO comment? I would have thought drilling and production would be a bit independent of each other. And just curious if, I guess, which regions this apply to, this FPSO delivery timing that you experienced?

Yes. So just a little bit about order trend in general. So the rig availability is specifically around Middle East, where we're seeing some challenges there and also around some of our smaller customers that might be fighting for rig availability. We see that specifically on tree orders and things like that. The FPSO would be more related to Brazil, where we're seeing some delays there in call-offs as a result of that. But if I step back and just look at the broader order trend, with the addition of Great North, right now, Eddie, about 80% of our business is book and bill and/or call-off against MSA. So you think about that Well Construction business, and the Well Construction business is almost all book and bill, all call-off from MSA. Services is obviously book and bill, maybe a little bit of call-off from MSA, and that really leaves Subsea Products as our one business now that really is a backlog or an order of business. And even inside of that, the wellhead that we have now are largely call-off as well. So you think about the mention of Petrobras and the recent award that we got on Petrobras, up to $28 million. Of that $28 million, only about $4 million or $5 million of the $28 million actually goes into bookings and goes into backlog. Traditionally, that would have been all $28 million would have gone on the bookings or would have gone into backlog. So just a very different model now than we might have seen before from an order standpoint. Obviously, Kyle talked a little bit earlier about the $75 million to $100 million in the fourth quarter as it relates to order trends. Those are largely 6 trees. Trees can be anywhere from $3 million to $5 million, depends on the size and scope of the tree and the size and scope of the project. But those are large orders. And then at the small end of well construction, you could have something as small as a $100,000 call-off. So just a pretty diverse set of products now for us than you might have remembered 5, 10 years ago even.

Got it. And just on that fourth quarter bookings guidance of $75 million to $100 million, that is a big step-up from third quarter levels. What gives you the confidence kind of in that bookings range? And separately, any kind of preliminary thoughts on bookings for 2024? I would think that as rigs become more available and the FPSOs get delivered, your book would increase year-over-year. Just any preliminary thoughts on '24 bookings?

Yes, yes. So that ramp in Q4, we've got good visibility to the ramp. It will largely be dependent on FID timing for a number of customers. That's what the 6 trees are based on. As you know, Eddie, our SPS customers tend to be the smaller customers that are probably more reliant on rig availability and fighting for rig, probably a little tougher in a higher interest rate, high rig rate environment. So whether it's Q4 or Q1, we have confidence in the inbound orders. It will just be a timing question in Q4 really around the 6 trees, and that will kind of dictate where we end up in that range in the quarter. If I look out to next year, we see a pretty constructive market next year, pretty optimistic. Just getting early gauges right now from a number of our customers there and their budgeting cycles right now, but all early indications are another strong year next year.

Also, if you go back and look, I don't know, 5 to 10 years, we looked at this as well. The Q3 to Q4 step-up is always there for us. It's almost ends up doubling what we've got coming out of Q3. So we would expect a pretty decent order flow for Q4. If you go back, we have a seasonality to it effectively is what we typically see, if we went back, at least -- 7 or 8 years back, and that's always been the case.

This does conclude our question-and-answer session and concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.