Welcome to the Oil States International Third Quarter 2019 Earnings Conference Call. My name is Vanessa, and I will be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. [Operator Instructions]. I will now turn the call over to your host Patricia Gil, Investor Relations.

Thank you, Vanessa. Good morning and welcome to Oil States' third quarter 2019 earnings conference call. Our call today will be led by Cindy Taylor, Oil States' President and Chief Executive Officer; Lloyd Hajdik, Oil States' Executive Vice President and Chief Financial Officer; and we are joined by Chris Cragg, Oil States’ Executive Vice President, Operations. 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. 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 States' website. A replay of the conference call will be available one and a half hours after the completion of the call and will be available for one month. I will now turn the call over to Cindy.

Thank you, Patricia. Good morning to all of you and thank you for joining us today to participate in our third quarter 2019 earnings conference call. Our reported results for the third quarter were largely in line with the guidance that we provided to the market in connection with our second quarter earnings conference call. While our revenues were at the lower end of our guided range, our margins were at the upper end, allowing us to exceed the midpoint of our guidance on EBITDA. Similar to many other oilfield service companies, we witnessed U.S. land-based activity declines later in the quarter but our operation were fairly resilient overall and benefited from international and deepwater-driven activity improvement. Our third quarter revenues were flat sequentially, while our costs were lower, contributing to an 18% sequential increase in EBITDA. Each of our three segments contributed to the sequential EBITDA improvement, which can be attributed to strong operational execution and to cost control. I will go through each segment's operating results in more detail later in the call. As I have highlighted on previous calls, our company has consistently generated free cash flow after CapEx and this quarter is no exception. Our cash flow from operations totaled $50 million, which allowed us to pay down $34 million of revolving credit facilities borrowings in the quarter, after spending $14 million on capital expenditures. As you will see, we have continued to consistently reduce debt in 2019, resulting in a net debt-to-book capitalization ratio of 15% at September 30. Lloyd will review this with you in more detail. Lloyd?

Thanks, Cindy and good morning, everyone. During the third quarter, we generated revenues of $264 million, while reporting a net loss of $32 million or $0.54 per share. Our third quarter earnings were negatively impacted by $34 million or $0.45 per share, non-cash impairment charge to reduce the carrying value of the fixed assets in our drilling services business. Our third quarter EBITDA totaled $31 million with an EBITDA margin percentage of 12%. Reported EBITDA was also negatively impacted by $700,000 of severance and downsizing charges, as we continue to adjust our cost structure and rightsize our global operations to better align with the industry outlook. As Cindy mentioned, we generated $50 million in cash flow from operations and invested $14 million in capital expenditures, resulting in $36 million of free cash flow generated in the quarter. On the year-to-date basis, we have generated $70 million of free cash flow which is cash flow from operation after CapEx and have paid down $71 million in outstanding borrowings under our revolving credit facility. In addition, during the third quarter, we repurchased $1 million in principal amount of our convertible senior notes at a 14% discount to the par value. Our operations have historically and continue to generate significant amounts of free cash flow. Since 2014 and through the third quarter of 2019, we have been free cash flow positive in all the two quarters. September 30, our net debt to book capitalization ratio was 15%, and our available liquidity position at the end of the third quarter was approximately $154 million, inclusive of cash on hand totaling $15 million. Our liquidity position increased $45 million, since the end of the second quarter. In terms of our fourth quarter 2019 consolidated guidance, we expect depreciation and amortization expense to total $29 million. Further, we expect net interest expense to total $4.6 million of which approximately $2 million is non-cash amortization of debt discount and debt issue costs. Our corporate expenses are projected to total $11.4 million. Fourth quarter capital expenditures should approximate $15 million. As we are in early stages of our budget process for 2020, we believe it's important to provide some initial color on our expectations for capital expenditures and depreciation and amortization expense for next year. For the full year 2020, we expect investing approximately $50 million in CapEx. Further with the write-down on the carrying value of our land drilling rigs in the third quarter combined with lower levels of capital investments over the last few years, our depreciation and amortization expense is expected to approximate $105 million in 2020. And 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.

Thank you, Lloyd. Starting with our Offshore/Manufactured Products segment, we generated revenues of $105 million, segment EBITDA of $17 million, and a segment EBITDA margin of 16% during the third quarter. This represented a 3% sequential increase in segment revenues and a 7% sequential increase in segment EBITDA. Our improved results were driven by an increase in project-driven sales and other products and services revenues coupled with improved facility cost absorption at the higher revenue level. Our incremental segment EBITDA margins were strong at 37%, as a result. We received one notable project award during the third quarter of 2019 for military products to be delivered over the next few years. Our orders booked in the quarter totaled $123 million, resulting in a 4% sequential increase in backlog and a book-to-bill ratio of 1.2 times. Year-to-date our book-to-bill ratio totaled 1.5 times. At September 30, our backlog totaled $293 million, which is our highest reported backlog since March 31, 2016. Customer conversations remain constructive and visibility for additional major project awards is developing favorably for subsea pipeline and floating production facility content as we progress into 2020. In our Well Site Services segment, we generated $116 million of revenues, $20 million of segment EBITDA and a segment EBITDA margin that averaged 17% in the third quarter 2019 compared to 16% reported in the preceding quarter. These results benefited from improved completion services customer activity in international markets and in the Gulf of Mexico, along with the benefits of continued cost-reduction measures. In our completion services business, our revenues were flat sequentially. However, our incremental EBITDA margins were 352%, reflecting cost-reduction initiative and the improved mix of international and Gulf of Mexico work, which for the third quarter comprised 21% of our completion services business revenues. During the third quarter of…

[Operator Instructions] We have our first question from George O'Leary with Tudor, Pickering, Holt.

Good morning guys.

Hi George. Good morning.

Wanted to start off Cindy it's really nice to hear the progress on the vapor perforating system and then just kind of comparing and contrasting that with what you guys are working on the static side is, we think your E&P well design seems to be that shorter perf guns are better whereby you can get more clusters and more shots per stage executed. Is that part of the thought process there? Just kind of help us walk through the differences between those two systems and then how much does that length of each perforating gun segment matter?

Well I mean you hit on industry trends for sure, but shorter guns are absolutely preferred by our customers. And so just accept that as the new norm, if you will and we have obviously moved to that in response to customer needs basically, but that would be integrated obviously into both the vapor system and the static system. So think of that as just an industry trend that will permeate all of the future offerings whether those are conventional or integrated.

Okay. That's very helpful. And then on the completion services side, it was encouraging to see international and Gulf of Mexico work kick in. I know that can be good work for you guys when it crops up. I just wanted to think through the line of sight to that work and not from necessarily a near-term perspective as you think through 2020 is more of that work looking like it's going to crop up? Is there more dialogue around that type of work going forward?

Yes. George it's always hard to predict exactly where you end up. I would just point out that the kind of waiting of international plus Gulf of Mexico and the progression this year and use that as an indicator, we had a relative percentage waiting for the international and Gulf of Mexico in the first quarter at 16%. It grew to 18% in the second quarter and this quarter came in at 21%. So you're seeing that continue on which is reflective of our efforts to expand internationally. And I would point out that's not just a completion services strategy. We've got a good base of operation. Obviously, we'd like the balance of having both international and with exposure to the U.S. shale basins that these are also initiatives that permeate into our Downhole Technologies segment as well. So visibility is never great whether you're in the U.S. or the Middle East, but I think if you look at the trend line you can see that we're making some good strides towards getting that balance.

Great. That's super helpful. And then just sneak in one more. A lot of folks have complained about destocking of inventories by their customers, especially as it relates to the North American onshore market. I would imagine that Downhole Technologies just might be seeing some of that at this point. Is that contributing to the compression quarter-over-quarter in that segment's revenue guidance historically as you analyze that business eventually...

I'm going to say -- I think you just have to kind of look at each company individually and not necessarily assume that something like destocking affects everybody. When I think of that we are so good at our manufacturing process that it truly feels like a just-in-time inventory with a lot of these downhole consumables. And there might be a modest amount if you're selling into distribution centers, but the reality is we're pretty much book and ship straight to the wellsite and I don't see that is a significant issue for us. I will say that ordering activity may sometimes precede some of the work at the wellsite so maybe it's an early indicator. Again the rig count is down 8% today relative to the average of Q3. So, I don't think it's unusual to see that Downhole Technologies particularly in the latter portion of the quarter saw some of those early indicators that these rigs going down into the holiday period.

Thanks for the color Cindy.

Thank you, George.

Thank you. We have our next question from Sean Meakim with JPMorgan.

Good morning Sean.

Thanks, hey good morning. So, Cindy in Downhole congrats on getting the first integrated system commercial and I think the suite of systems sounds very interesting. Can you maybe talk about expectations for the sales cycle with customers on these new system? I know you've folks ready to trial it. Just some more detail on your market penetration strategy would be helpful I think and including to what extent pricing is part of that strategy?

Well, I appreciate the question very much. And first of all, let's just maybe talk about where the market is and what our strategy is around integrated gun offerings. And I would just say simply put we remain a customer-focused organization and we're responding basically to what we're hearing from our customers that some prefer more of the open architecture system that allows them to customize their gun systems and certainly a wireline company that's already made investments in gun loading shop and wiring personnel preference there to kind of step beyond from conventional systems to the vapor system. The Stratech System, again, we believe will be kind of state-of-the-art for the industry as we move forward, but depending on who you are that may not be your immediate preference. So, first thing first. We're going to get that vapor system out. We've introduced the addressable switch, which is also a new product line. But I think your question which I appreciate is it does take us a little while to ramp the supply chain. So, this will kind of progress more towards meaningful sales in 2020. And one might say why didn't you ramp it quicker? Well, we wrote off switches in Q2 and we were cautious to be sure that we got the switch right, but we will be ramping up that supply chain for vapor and marketing that in the near-term and progressing the Stratech System throughout the quarter and we feel like we have really kind of -- and I don't want to use the word debug, but I say more than anything communication as an example from shooting panels to the switches, tweaking a little bit and we'd like a couple more field trials under our belt. And so we kind of anticipate finalizing that process late this quarter. So, it definitely is more of a 2020, but very pleased with the efforts of our engineering staff and the technology staff into getting us where we are really as we enter into the fourth quarter.

That's very helpful feedback. Thank you, Cindy. The improvement in Downhole Tech margins were certainly nice to see. You mentioned the write-off of the switches after 2Q. Did that have any impact on boosting the margin in 3Q? And then as looking at the guidance you offered for 4Q margins is that just basically fixed cost absorption or is there anything else in there in terms of pricing or mix that we should consider?

Well, it's really fixed. First of all, our products carry some pretty good incremental. So, I'm eager to start talking that incrementals rather than decrementals, yes, I mean its fixed cost. We reduced the topline there and we're working a lot on our manufacturing efficiencies evaluating in-sourcing manufacturing versus outsourcing doing anything we can to really become a very, very efficient manufacturer and we'll continue to do that. But just the mere fact that the top line is coming down hurts us a bit on fixed cost absorption, but we had no benefit, if that's the question in Q3 related to switches. And we really had no sales yet. So, this is kind of new product that will help us prospectively. The margins right now are just – it's a little hard to predict perfectly, but we gave you – particularly in this environment as we enter the fourth quarter, but we gave you what we think is very rational margin guidance at this point.

Understood. Thanks a lot, Cindy. Appreciate it.

Thanks, Sean.

And we have our next question from Praveen Narra with Raymond James.

Hey, good morning.

Hi, Praveen.

I guess speaking on the Downhole Technologies, how this year has been pretty lumpy in terms of where revenues and margins have gone. So how should we think about what that normalized incremental should be as we go into 2020 and we get some of these project – product rollouts?

I would say, first of all, as we are bringing new products to market, let's think about that kind of sequentially improving throughout 2020. It won't be immediate in terms of the revenue bring-up and therefore the margins just because of that fixed cost absorption will probably go hand-in-hand with that. And like any business, I'll tell you the incrementals are dependent on two major drivers, not going to be a shock to you here that is both volume and price. And we're going to see volume ramp new products do that that helps you from a fixed cost absorption. We've all seen some pricing pressures in the market generally that I think will temper some of those incremental. So, if I kind of bring all of that to there, I would say, in the early quarters, assuming we're going to get a steady level of activity from year-end, I think the incrementals are probably more in the range of 25% to 40%. And again, it's that tension between what's the volume ramp – and what's the pricing implications and mix. But I think a healthy 25% to 40% is reasonable.

Okay. That's very helpful. And then I guess, if we can think about the Offshore/Manufactured Products segment and maybe the guide also we have product-driven revenue should start to increase, how do we think about the short cycle piece of that? Last year, it held up pretty well. What are you guys expecting for 4Q and then as we go into 2020 for the short –

Praveen, again that's a – just a great question. Son, you follow us well and you know our business, but major projects ramping backlog supports that margins in our backlog are at consistent levels with prior periods. So that is the plus. That leads on a global basis to better cost absorption. Again, another plus, but there's going to be a tempering impact on our short cycle, because it is exposed to U.S. land-based activity. Embedded in the guidance, even though we're up sequentially in both revenues and EBITDA, it does factor in a decline in our short cycle very similar – at the decremental, very similar to what we're talking about in our completion services line and also in our Downhole Technologies line. So, while up not up as much as it could be once we kind of reestablish improving activity on U.S. land.

Great. That's all I needed. Thank you very much. Good quarter, guys.\

Thanks, Praveen.

Thank you. We have our next question from Kurt Hallead with RBC Capital Markets.

Hey, good morning.

Hi, Kurt.

Thanks so much for all the color. You always provide Cindy. I really appreciate that. I guess my focus here would be on the Offshore/Manufactured part of the business. You talked about increased visibility or feeling good about the visibility for – specifically for subsea pipeline and floating content. Just kind of give us some general sense there of maybe what regions you kind of see some of this dynamic coming from? And do you have any sense as to whether or not there is additional legs maybe even beyond say 2020 not kind of trying to pinning into a corner just trying to get some feel for what kind of momentum you see building there?

Yeah. It was interesting. We just had our Board meeting and Scott Moses, who leads that division kind of showed us a chart of major offshore production facility content and it was just start in terms of the lag in activity that we've seen in 2016, 2017, 2018 but based on bidding and quoting project announcements, the next three to five years do look very promising. And so again, these are very specific projects. Right now of course the weighting we're seeing is Brazil. Obviously the Guyana prospects and Gulf of Mexico are kind of some of the more imminent ones I will say but they're a little bit broader base as I said in the past with the North Sea having some smaller opportunity Southeast Asia contributing but the weight are really going to be in South America.

Got you. Appreciate that color. And then with that kind of dynamic as the backdrop do you feel pretty -- you think it's a reasonable assumption at this point to think you can get a book-to-bill north of 1.0 as you head out into next year as well?

Well, we hadn't gone through the -- I'd like to have a budgeted and facts behind me before I give that but just in terms of overall -- first of all I should say we expect bookings in Q4 to be at similar levels to Q3 just in terms of book-to-bill ratio. I'll give you a better formal guidance on 2020, at least false guidance once we go through the formal budgeting process but however on that is we're seeing better activity bidding and quoting not only on production infrastructure, which obviously that's some of our core best-performing kind of bread-and-butter projects. So we're excited about that. There is a certain amount of capital drilling equipment that is coming to market largely because of an improvement in offshore activity. We can participate in that area as well. What we hope for is that we at least stand a stabilization of land-based activity, so that really all segments are contributing as opposed to having the major projects contributing but being weighed down a bit by U.S. land activity. And right now, I think I feel more positive about 2020 than maybe others. They're just based on basic supply-demand fundamentals as we see them, acknowledging that, it won't be immediate, it may take to mid-year to get visibility for some of that. But anyway, I feel really good about where we are positioned overall. I think both the offshore and international areas are beginning to recover off very low bases, I'll acknowledge that. And we'll see, I believe, Lower 48 stabilize next year.

Good. Great. And then if I squeeze one more in just on capital allocation. You guys already provided an outlook for CapEx for next year. I know that you guys tend to see quite a bit of M&A-related type dynamics but just curious to get an update on your temperature as to share repo versus debt reduction versus M&A and how you see things at this juncture?

No, I think that's obviously, the most important question shareholders want to understand from us. And what we've done throughout 2019 as you know is simply pay down the revolver. We're not concerned about our balance sheet at all quite frankly, particularly having our real debt that convert that carries a 1.5% cash interest rate. And otherwise, when we think of the free cash flow from operations less CapEx, we get a pretty healthy number and very little of that has to go to debt service. And we paid down that revolver dramatically more because we just hadn't seen a lot of M&A optionality. And quite frankly there are many more companies in the space, as I'll call it that are not nearly as healthy as we are and we will not do a deal that further levers our company or damages our balance sheet. We think it's a differentiator right now and we're going to be very secure in keeping that. I'll also say, we just hadn't seen much of anything we would be interested in doing from an M&A perspective and probably lack of opportunity puts it lower on the list, quite frankly as much as anything. So, near term, you'll continue to see debt paydown. Obviously, share repurchases are an option for us that we are constantly evaluating. Particularly, we -- I feel great pride in saying, I've been here 20 years and we didn't have any real net incremental shares outstanding from when I took the company public in 2001 with the exception of acquiring the geo transaction. So we've got about 8.7 million incremental shares. The market loved that transaction when we did it, stock was up dramatically and that was valued at 34 shares. So it's not lost on me, I can buy back a decent amount of shares at a much lower price and it will be carefully evaluated from us against other capital allocation priorities that share repurchases take front stage above M&A. I'll say that unequivocally. We're also meeting with all of our major shareholders. I think we have very sustainable free cash flow after CapEx, and therefore, I wouldn't necessarily eliminate the thought of a dividend at some point in time either. I think we're uniquely positioned to have that possibility, but again we listen to our shareholders and try to weigh what they view as priorities. And I'll always say research and development and organic growth always comes first. But we have always been able to fund both of those things out of free cash flow. So I'm really talking about capital allocation priorities after funding necessary growth CapEx and R&D.

Fantastic. Thanks Cindy. Appreciate that.

Thanks, Kurt.

Thank you. Our next question is from Marc Bianchi with Cowen.

Hi, Marc.

Thank you. Hi, Cindy. I wanted to just go back to the order progression for fourth quarter that you talked about for Offshore/Manufactured. Sounds like it's going to be at a pretty healthy level here, but I don't -- I'm curious if there's anything -- any large awards that are contemplated in that? Or if this is sort of kind of a run rate recurring number that we might be able to think about as we head into 2020?

Yeah, I mean I think that's a good question, but there we do predict that we'll have one -- we define large order as in excess of $10 million and we do have one forecasted in Q4.

Okay, okay. That's helpful. And then just on the -- on Well Site. If I look at the guidance here, it implies a decremental at the midpoint of about 30%, which seems reasonable but you have some cost cutting that's going on. I would have thought that perhaps the cost cutting could offset that more maybe there's more pricing weakness, maybe there's conservatism. I'm just curious if you cold talk to what's left in the part in terms of cost cutting opportunity and how you're seeing the pricing dynamics shape up?

Yeah. I'll first say that we have to retain our field hand. They are our revenue generating potential and honestly there is some ability to control cost through over time at that point in time. So a lot of the efforts had been around the layers of management in the field, i.e., district managers, regional managers very hard decisions to make, but we feel it's critically important to maintain our field hands and our field workers while managing over time obviously. So that is statement one. I actually don't think that decrementals of 30% are necessarily weak in anyway. We're not a 100% variable-based company. We never will be. So there is a fixed cost element to be absorbed both in terms of district managers, shops facilities, warehousing, as well as the people that are out there every day in the field. So I measured and monitored in our guidance that I think your decrementals are pretty close to right, I think they are appropriate based on the top-line guidance that we gave you.

Okay. And any comment on just the trajectory of pricing?

I don't think there is a service company one that's going to tell you it is other than competitive. But we have never really marketed products below breakeven. And so -- and actually at a reasonable margin. And so I'm not going to tell you we're going to sit here and stack equipment that is noneconomic, because we've always -- we've not bidding jobs at losses. And so -- but to say that we don't have -- our customers are facing challenges from lower crude prices and strained balance sheets and we're trying to be responsive as a service company to help them make it through that tough time and honestly help them make better wells at the end of the day and that's what we have to do, but also protect the health of this company and respond to our shareholders. So just simply put it's a competitive environment for every product line out there. And I'm sure that there are certain product lines that have been under certain price pressures, but it's incumbent upon us as managers to work through that and continue to generate returns on the investment and free cash flow. It's just simple as that.

Yes, yes. Well, good free cash flow this quarter. So, thanks very much. I'll turn it back.

Thanks Marc.

Thank you. Our next question is from Cole Sullivan with Wells Fargo.

Hi good morning.

Hi Cole.

On Offshore and Manufactured Products margins we seem to be kind of in that 16.5 range and we got guidance for the fourth quarter. As we look into 2020, we have project-driven revenues improving maybe short cycle can stabilize next year and the military award that you guys booked this quarter will help the kind of other products category. Is that what's needed to kind of get margins back towards 20% maybe as early as next year?

Yes, I think our backlog is up. I'm looking at Lloyd, 68% since the end of the year so -- am I right since the end of 2018?

Year-over-year.

Yes, year-over-year. And so I -- so we're doing what we need to do to drive the project-driven products which drives absorption throughout our facilities. What I really -- in other words, I don't want to say it's in the bag you got to execute, but we're -- all those headwinds are behind us we got now backlog that's good. I need to get some stabilization in land on U.S. on my short-cycle products. And if I get both of those things moving in a favorable direction our margins will come up.

All right. Thank you for that. And then in completion services, looks like the land side was fairly resilient in 3Q and then obviously the guidance is pointing things breaking lower in 4Q. What kind of drove that resiliency we saw in 3Q? And then what are some of the moving parts you guys are factoring in in 4Q? Obviously, U.S. land is down but I guess what are you seeing on the Gulf of Mexico and international side there specifically?

Yes. And Cole just to be very clear U.S. land operations was down sequentially in Q3. However it was more than offset by improved Gulf of Mexico and international activity. That coupled with some prudent cost measure implemented early this year led to I thought very good results in Q3 relative to really our competitors and relative to just rig count signals if you will frankly signals to the market. So, proud of that activity, but cost control improved Gulf of Mexico and international were drivers there. So, now you say okay what about Q4? Again, we're getting -- every week I get that report the rig count is down seven to nine rigs. And when you wake up and you're down about 20% year-over-year coupled with what we know will likely be holiday softness. So, that's really what's embedded in that guidance for Q4.

All right. Thank you. I'll turn it back.

Thanks.

Thank you. Our next question is from Vebs Vaishnav with Howard Weil.

Hey good morning and congratulations on a good quarter, especially the Well Site was pretty awesome. I guess one question and I think it's just a continuation of the last question. So, if I'm doing my math correctly it seems like Gulf of Mexico plus international was almost up 30%. Can you just provide color on like if -- first of all, if that is a correct math and like what's driving that and the sustainability?

Well, I don't have all my stats in front of me and I always caution it, but when you look at overall industry activity, the rig count is up in the Gulf of Mexico. In fact I think it was up about 50%. I just caution everybody and saying it's -- and yes U.S. Gulf last time I looked active rigs were 53% higher. Just know that's off of a weak base coming into it but improved activity in the Gulf of Mexico and then just generally speaking, a lot of our activity is around in and around the Middle East and their activity is also improving, but we've taken very specific initiatives and put them in place to expand our international activity, particularly with Saudi. And so I think those are the real drivers of the improvement. I didn't do the math other than the improving relative percentage of the total of Gulf of Mexico and international relative to my completion services revenue. Again you maybe right, I just didn't do it.

And it sounds like it's sustainable going forward as well...

Absolutely. We believe it is. Yes I'm sorry that was the end of your question.

Okay. Just one follow-up, if I think about the Downhole Technology it is -- like can you say how much of that is international?

Right now there is very little international contribution. The last time, I looked at it international was about 5% of the total revenue. That can vary -- some of these are more P&A related and lumpier as I'll call it, but just if you smooth that out this maybe 5%, I will say. However we are aggressively trying to expand that number with initiatives predominantly I'll say in the Middle East, but also Argentina and Mexico, North Sea as well. Of course that North Sea is kind of our base that we have now, but some new initiatives and new markets more around the Middle East, Argentina and Mexico.

Okay. Thanks.

You bet.

And thank you. It seems we have a follow-up question from Kurt Hallead with RBC Capital Markets.

Hey good morning. I just want to make sure I understood one piece of the guidance correctly. Lloyd you referenced about $4.6 million of interest expense and then I think you referenced that there was going to be some non-cash component to that. Could you repeat that for me please?

Yes absolutely Kurt. So $4.6 million is the estimate for total interest expense for Q4 of which about $2 million is non-cash amortization of the debt issue cost and the debt discount.

And just to clarify this converge -- there is a conversion feature that accounting rules basically force you to put a value of that conversion feature, so you accrete up to the face amount of that $200 million convert over its life. So it's definitely a non-cash item that some people forget about because I always just try to point out our cash interest carry, it's fairly small. And so that allows its true cash flow available to shareholders at the end of the day, as oppose to debtholders.

And Kurt we have a separate line item in the cash flow statement for the debt issue costs and the debt discounts $5.9 million year-to-date. So that's the delta between total interest expense and cash interest expense.

Okay. That's helpful. That $4.6 million would though compare apples-to-apples with the $4.3 million $4.4 million you guys just reported in the third quarter, is that correct?

Yes, correct.

Okay. Awesome. Thank you.

[Operator Instructions]

Okay. Vanessa sounds like there might not be any.

That's correct.

Okay I'll just close. I know it's a very busy day. I was reading all the earnings report that came out this morning, but I just like to close with a thought for all of you and I always think about sustainability and I think it's an ill-defined and oftentimes overused term. But I just want to say I'm very confident in the long-term success of Oil States based on our technology leadership, our strategic focus our mix of businesses and importantly our consistent free cash flow generation. As always, we're receptive to follow-up questions regarding the quarter should you have them and we look forward to future discussions as we move into 2020. Thanks to all of you.

Thank you. Ladies and gentlemen this concludes today's conference. Thank you for participating. You may now disconnect.