Alphabet (GOOG) Q2 2016 Earnings Call

Ruth Porat, CFO & Senior VP

Advertising especially mobile search is driving top line growth

“For the quarter, our consolidated revenue grew 25% in constant currency versus last year. Once again, the primary driver was the increased use of Mobile Search by consumers, benefiting from our ongoing efforts to enhance the Mobile Search experience. We also benefited from solid growth in Desktop and Tablet Search as well as continued strength in YouTube and programmatic advertising.”

Strong currency headwinds negatively impacting growth

“ Alphabet revenues by geography highlight both the strength of our business around the globe as well as the impact the currency headwinds continue to have on our non-U.S. business relative to last year. ”

They are carefully managing expenses while seeking to grow revenues long-term

“I’ve commented many times that our focus on long-term revenue growth does not give us a pass on managing expenses. We invest a lot of time and effort in assessing how to manage for revenue growth with the utmost respect for the resources deployed and a focus on getting the best return on those resources, recognizing that in some areas secular trends are creating margin headwinds.”

They seek to have full autonomous cars

“Self-driving cars is in our Other Bets area…We’ve self-driven over 1.6 million miles. And the focus here for us is we’re solving a really big need, safety, access, and city efficiency…Our approach is quite different from most others. We’re focused on fully-autonomous cars because in early testing we saw the risk of depending on drivers to remain engaged once you give them the option to switch off.”

Sundar Pichai – CEO, Google, Inc.

Mobile is the focal point presently

“The strength of the quarter is about Mobile. It’s transformed the way that people consume information, and Google’s products have become a central and much-loved part of their experience. Our investment in Mobile now underlines everything that we do today, from Search and YouTube to Android and advertising. Mobile is the engine that drives our present. And now to our deep investments in machine learning and AI, we are building the engine that will drive our future.”

While machine learning is their future

“…machine learning is the engine that will drive our future, and it’s already making our products better and helping users every day. In fact, more than 100 teams are currently using machine learning at Google, from Street View to Gmail to Voice Search and more. For example, in Search, we use a ranking signal called RankBrain, which relies on deep learning to improve results. It’s already enhancing the search experience in 40 languages. And based on user testing, RankBrain can accurately guess which results users will favor with about 80% accuracy. Advances like this help us make our search results even more relevant.”

Increasingly more people are turning to voice search

“Voice is obviously very, very exciting for us. I mentioned this at I/O. if you look at Android, the Google app on Android in the U.S., 20% of the queries are voice queries. So today in terms of evolving to a conversational assistant, we have a big head start…it’s incredibly exciting to see how people interact with voice differently from text. It’s more intuitive. It’s more personal, and it’s a bit more emotional and an engaging experience for users.”

Youtube usage is growing strongly especially on mobile

“On YouTube, at a high level I would say we don’t have any new metrics. But on mobile alone, as I’ve said before, we reach more 18-to-34 and 18-to-49s than any other TV network, broadcast or cable. And every indication we see is that the growth is very, very strong, being driven by mobile, and it’s growing globally as well. So overall, I think engagement is very, very healthy.”

Google (GOOGL) Senior Vice President Diane Greene Interview

Google (GOOGL) Senior Vice President Diane Greene highlighted Google cloud’s security edge

“We are providing the most secure cloud environment.  Google has over 600 full time security engineers protecting clients.  We notified people of 4,000 attacks from state sponsored attackers per month.”

Google (GOOGL) Senior Vice President Diane Greene said the company’s engineers want to make their users happy

“Every engineer at Google wants to make their end users happy.  But what they’ve been doing is making their internal users very happy, now [that we’ve opened up the platform] we can make the whole world happy.  The core of Google is collaboration, technology, and really high quality people.”

 

 

 

Source: Fortune Interview July 11, 2016 https://www.youtube.com/watch?v=wD_bmXkUaZ4

Alphabet 1Q16 Earnings Call Notes

Ruth Porat – Chief Financial Officer & Senior Vice President

US revenue up 21% y/y

“U.S. revenue was up 21% year-over-year to $9.4 billion and down 9% versus Q4. UK revenue was up 15% year-over-year to $1.9 billion and flat sequentially. In fixed FX terms, the UK grew 21% year-over-year and 5% quarter-over-quarter. Rest of world revenue was up 14% versus last year to $9 billion and down 2% versus Q4.”

Operating income $5.3B

“On a GAAP basis, operating income was $5.3 billion, up 20% versus last year. The operating margin was 26%. Non-GAAP operating income was $6.8 billion, up 21% versus last year. The operating margin was 34%.”

Mobile continues to outperform

“what’s hopefully clear from the opening comments, is that Mobile continues to outperform. Desktop growth did pick up modestly in Q1, but, from opening comments, should be clear that Mobile Search revenue was up significantly.”

TAC is higher on mobile and mobile is growing at a faster rate

“And on your TAC question, as I’ve indicated a number of times already on the call, the TAC rate is higher on Mobile. Mobile’s growing at a faster rate and what you’re seeing here is a mix shift. So there is a delta between the two. But I think, importantly, we are benefiting from an important secular trend behind Mobile, and like the revenue dollars and the gross profit dollars that come as a result of that, and we’ll continue to innovate on mobile and are excited about the opportunity, in particular with all the changes that we continue to see in the way users use the phone and the opportunities.”

Sundar Pichai – Chief Executive Officer, Google, Inc.

We have just scratched the surface of what’s possible

“Google’s mission is to organize the world’s information and make it universally accessible and useful. And after 17 years, we have just scratched the surface of what’s possible. We are reinvigorated around this mission and, as you will hear, we are making solid progress across many of our products.”

Three main reasons why we’re ramping up cloud

“Just on the first one, I would say there are three points of inflection for us, and that’s why we are really ramping it up. The first is we’ve always been doing cloud. It’s just that we were consuming it all internally at Google, but as we have grown, really matured in terms of how we handle our data center investments and how we can do this at scale, we have definitely crossed over to the other side where we can thoughtfully serve external customers. So that’s the first point of inflection. The second point of inflection for us is as we’ve been investing in machine learning and AI for years, but I think we are at an exceptionally interesting tipping point where these technologies are really taking off. And that is very, very applicable to businesses as well, and so thoughtfully doing that externally, we view as a big differentiator we have over others. And third, is definitely Diane Greene coming in. And I think I want her to scale our efforts here thoughtfully when it is set up with a great leader who understands this space deeply. And so those are the three main reasons why we are significantly ramping up what we are doing there.”

Miscellaneous Notes 4.14.16


Source: Amazon 2015 Annual Report

Amazon (AMZN) CEO Jeff Bezos says their success due in part to both luck and their differentiated culture

“This year, Amazon became the fastest company ever to reach $100 billion in annual sales. Luck plays an outsized role in every endeavor, and I can assure you we’ve had a bountiful supply. But beyond that, there is a connection between these two businesses. Under the surface, the two are not so different after all. They share a distinctive organizational culture that cares deeply about and acts with conviction on a small number of principles. I’m talking about customer obsession rather than competitor obsession, eagerness to invent and pioneer, willingness to fail, the patience to think long-term, and the taking of professional pride in operational excellence.”

Amazon (AMZN) CEO Jeff Bezos says cultures take years to reinforce

“A word about corporate cultures: for better or for worse, they are enduring, stable, hard to change. They can be a source of advantage or disadvantage. You can write down your corporate culture, but when you do so, you’re discovering it, uncovering it – not creating it. It is created slowly over time by the people and by events – by the stories of past success and failure that become a deep part of the company lore. If it’s a distinctive culture, it will fit certain people like a custom-made glove. The reason cultures are so stable in time is because people self-select. Someone energized by competitive zeal may select and be happy in one culture, while someone who loves to pioneer and invent may choose another. The world, thankfully, is full of many high-performing, highly distinctive corporate cultures. We never claim that our approach is the right one – just that it’s ours – and over the last two decades, we’ve collected a large group of like-minded people. Folks who find our approach energizing and meaningful.”

Amazon culture embraces failure

“One area where I think we are especially distinctive is failure. I believe we are the best place in the world to fail (we have plenty of practice!), and failure and invention are inseparable twins. To invent you have to experiment, and if you know in advance that it’s going to work, it’s not an experiment. Most large organizations embrace the idea of invention, but are not willing to suffer the string of failed experiments necessary to get there. Outsized returns often come from betting against conventional wisdom, and conventional wisdom is usually right. Given a ten percent chance of a 100 times payoff, you should take that bet every time. But you’re still going to be wrong nine times out of ten. We all know that if you swing for the fences, you’re going to strike out a lot, but you’re also going to hit some home runs. The difference between baseball and business, however, is that baseball has a truncated outcome distribution. When you swing, no matter how well you connect with the ball, the most runs you can get is four. In business, every once in a while, when you step up to the plate, you can score 1,000 runs. This long-tailed distribution of returns is why it’s important to be bold. Big winners pay for so many experiments.”

Amazon getting into the finance business

“We also created the Amazon Lending program to help sellers grow. Since the program launched, we’ve provided aggregate funding of over $1.5 billion to micro, small and medium businesses across the U.S., U.K. and Japan through short-term loans, with a total outstanding loan balance of about $400 million. Click-to-cash access to capital helps these small enterprises grow, benefits customers with greater selection, and benefits Amazon since our marketplace revenue grows along with the sellers’ sales. We hope to expand Amazon Lending and are now working on ways to partner with banks so they can use their expertise to take and manage the bulk of the credit risk.”


Source: New York Times Interview https://www.youtube.com/watch?v=ru995JyegDc

Dupont (DD) Former CEO Ellen Kulman

“The world is a more competitive place, it is getting more competitive not less competitive. So what that means is that you have to be really clear about what you’re doing,where you’re going, and how you’re going to get there.”


Source: CSX 2015 Annual Report

CSX CEO Michael Ward emphasized cost reduction in his annual report, much like many of the other Fortune 500 CEO’s

“Over the past decade, CSX has consistently delivered significant gains in productivity, even during the tough years of the most recent recession. 2015 was no different, with efficiency initiatives and cost reductions driving more than $180 million in productivity despite declines in some of the most profitable markets. The initiatives behind those savings are designed to create sustainable changes such as improving fuel efficiency and increasing the use of technology automation. What’s more, CSX delivered a total cost reduction of nearly $375 million, which includes savings from right- sizing resources to match demand. We have demonstrated repeatedly that we can aggressively manage costs in what is often considered a high fixed-cost business.”

Doesn’t expect coal markets to recover anytime soon

“The baseline coal market, which generated $3.7 billion in revenue in 2011, declined to $2.3 billion in 2015, and will continue to decline in 2016 and beyond. While this market remains important, it has given way to more consumer-oriented markets that demand premium, and ever more cost-effective, service. In an era in which the $1.4 billion in coal revenue declines over the past five years will continue to accelerate, the status quo is no longer an option.”


Source: Schwab 2015 Annual Report

Schwab (SCHW) CEO Walt Bettinger tries to be as candid as possible in his annual letter to shareholders about the state of the business

“Each year it is an honor to sit down and craft a letter to share my thoughts on Schwab with you, our valued stockholders. I strive to write this letter with a minimum of jargon, corporate speak and trendy business buzzwords. It isn’t written to compete with the latest bestseller on business strategy or how to be a better leader in changing times; it is written with the goal of simply discussing the current state of our company and the future we face together. The litmus test for this letter is: “Does it read as if I were corresponding with a business partner who has been out of touch for the past year?” As always, my hope is that you will share with me your feedback on whether this goal has been achieved.”

Schwab (SCHW) CEO Walt Bettinger said humans will continue to seek a human relationship in some form when seeking investment or financial advice

“One of the most over-hyped aspects of investing in the past year is the concept of “robo-advice.” A “robo-advisor” offers a user-friendly website and mobile experience where an investor can answer a few questions, have a complete investment portfolio built, and receive ongoing management with rebalancing and, in some cases, tax-loss harvesting. Now, I say over-hyped because the press has speculated that growth in “robo-advice” could jeopardize the desire for investors to want an in-person relationship–a suggestion that we see as folly. That said, there are real benefits to the concept of automated investment advice if it is combined with the availability of live professionals by phone, chat or in person.”

Schwab (SCHW) CEO Walt Bettinger says they are disrupting themselves in order to create a better client experience

“Today, despite what you might hear in the press about “Silicon Valley disruptors” and “fintech,” Schwab remains the consummate challenger in the investment industry. Each day we ask ourselves a question consistent with our “Through Clients’ Eyes” strategy: “How can we use our deep knowledge of investing to help our clients be better investors, to deliver services to clients at a lower cost, and to ultimately help them achieve better outcomes and take ownership of their financial futures?”

Federal Reserve’s low interest rate policy is hurting their business results

“Punishing. There is no other way to describe the financial impact on our company from the unprecedented experiments taken by the Federal Reserve since 2008. While the Fed experimented with zero interest rates and printing money under the guise of a fancy term–quantitative easing–savers suffered, responsible people who had avoided large debt suffered, and our company suffered as well. In 2008, when client assets at Schwab were slightly in excess of $1 trillion, we generated revenue of just over $5 billion. In 2015, when client assets were in excess of $2.5 trillion, we generated revenue of just over $6 billion. Put more succinctly, during that period total client assets grew by about 120% while revenues grew just 24%. Punishing. And you can attribute virtually this entire scenario to the interest rate policies of the Fed.”

Schwab (SCHW) CFO Joe Martinetto said they are assuming one Federal Reserve rate hike this year for their internal budgeting

“With that crucial first Fed rate move behind us, the path forward could be a bit brighter. As we finalized our annual planning at the beginning of 2016, the forward rate curve implied that, despite some global market jitters, the U.S. economy was strong enough to support expectations for at least one more Fed move in 2016, and we developed our baseline scenario with that in mind. Our baseline scenario also includes relatively flat long-term rates and a 6.5% improvement in the S&P 500 Index relative to year-end 2015, as well as a potential decline in revenue trades as average portfolio turnover continues to slow.”


Source: October 2015 Stanford Interview https://www.youtube.com/watch?v=hcRxFRgNpns&list=PLnsTB8Q5VgnVzh1S-VMCXiuwJglk5AV–&index=8

Alphabet (GOOGL) Chairman Eric Schmidt

“The ideal business is the Microsoft business. A monopoly software business with hardware competitors who are competing for good treatment by you in a global and growing industry. Let’s use Uber as an example. Uber spends an awful lot of time saying that the drivers don’t work for them and they don’t own the cars. There’s a reason and it’s not legal or liability reasons. It’s because if you think of them as a software infrastructure company that helps assemble this thing, they have very different economics. In that sense, it’s the modern version of a franchisee. Why do people own McDonald’s franchises rather than McDonald’s owning them? Well, it’s because McDonald’s couldn’t get the capital to own them all themselves.”


Source: November 2015 Stanford Interview https://www.youtube.com/watch?v=jYhP08uuffs&index=16&list=PLnsTB8Q5VgnVzh1S-VMCXiuwJglk5AV–

Netflix (NFLX) CEO Reed Hastings says you can never know anything for sure

“Maintaining a reservoir of doubt is extremely important.
“We often do an exercise, every year or so, what would be different at Netflix if you were CEO? It’s a way for me to gather all the different strategies. Would you change the pricing? Would we be in the ad business? And I really try to think through all the different methods, We call it farming for dissent. You can never be confident of anything, you always have to be curious. Yet you have to be executing really firmly. Simultaneously, knowing there is no certainty yet working really hard to know what you think.”

They don’t do company acquisitions

“In 17 years, we’ve never done an acquisition. People have tried to acquire us, but it never worked.”


Source: McCormick 2015 Annual Report

McCormick (MKC) CEO Alan Wilson said they are accelerating their shift to digital advertising

“Across all of our markets, we increased brand marketing support by 6% in 2015. Increasingly, we are shifting toward digital marketing, which comprised 38% of our advertising, up from 11% in 2011. Digital marketing creates a direct connection to consumers, including Millennials, who view the McCormick brand positively. As an example, our mccormick.com site has become a top 50 most visited food/lifestyle site.”


Source: Morningstar 2015 Annual Report

Morningstar (MORN) CEO Joe Mansueto says the company benefits from key tailwinds

“We benefit from some important industrywide trends, such as outsourced investment management, the convergence of the advisor and workplace/retirement spaces, the shift to passive investing and strategic- beta strategies, and growing market acceptance of new credit-ratings entrants.

Morningstar (MORN) CEO Joe Mansueto says asset management clients remain cautious about spending

“Low interest rates and the industrywide shift to passive investment manage- ment continued to put pressure on spending for many of our asset management clients.”

Alphabet 3Q15 Earnings Call Notes

10 years from now everything will be different again in ways no one can predict

“computing transforms people’s lives, we’ve gone from the PC revolution to the Internet revolution to the mobile revolution. And 10 years from now, everything will be different again in ways no one can predict. ”

Now indexing information that lives within apps

“We have now indexed more than hundred billion deep links within third-party apps. So if you’re looking for information that lives within an app will surface it as a result, and even give you an install link if you don’t already have it. ”

Our mission statement is incredibly broad

“I think we are fortunate to have an incredibly broad mission statement. Organizing the world’s information turns out to be something that has a lot of room ahead, we are still in the early days.”

In technology incrementalism leads to irrelevance

” one of the many very important statements from the founders that explains this framework is when they said in the letters some years ago and repeated since, incrementalism in technology leads to irrelevance and thus innovation is critical.”

There’s an appreciation that there needs to be prioritization of resources

“I think after a period of big expense buildup, there was an appreciation that we needed to manage the cadence of spend. And that’s what we’re doing and collectively we’re locked arm-in-arm to make sure that there’s resource prioritization.”

Alphabet allows for greater insight into Google

“Alphabet it gives us the opportunity to then provide some greater insight into the extraordinary operating performance within Google and breakouts you can see the investments that we’re doing and we’re working very tightly as a senior team here as we make that next step into this new environment in Alphabet.”

Mobile will eventually blend with desktop

“mobile is a computing paradigm is eventually going to blend with what we think of his desktop today as well. So overall it’s a shift in a computing paradigm, it’s not just form factors. And so overtime we see all of this is together. ”

Ad blockers are not new. It’s important to understand that ads fund all services that people use

“On the ad blocker stuff, it’s not a new phenomenon. I think it’s important to understand that ads today fund almost all the services which people use, including products like Google Search, Google Maps many, many third-party products. For publishers, it represents the majority of the revenue and I think users are okay with the contract and we need to make sure it works well. It’s also clear that that are areas where the ad experience is getting in the way, it affects performance, and so we as industry need to collectively do all that better. And so we are going to work hard to do that.”

We’re just scratching the surface on deep linking

“we’re beginning to scratch the surface in terms of how we get it information within apps. What’s been exciting to us is all of the indication show that when we provide these deep links. Users respond to them the same way they’ve done with links to websites and the model is working well.”

How do we broaden the nature of issues that we’re able to address?

“within other bets we have a pretty broad array of challenges, opportunities that are being tackled, as you know well from life sciences to driverless cars to what we’re doing in access and energy. And those we’re funding, we’ve got a very rigorous disciplined approach to looking at the metrics against which they’re performing and growing. But you used a term, when do they move into Google. And I wouldn’t assume that, that’s the plan. What we’re really looking at is how do we continue to broaden the nature of issues that we’re able to address.”

We want alphabet to be a magnet for entrepreneurs

“What we want with Alphabet is to be an extraordinary magnet, the best magnet for entrepreneurs, and to be an accelerant for their development. And to give them that the kind of environment where we can continue to thrive, and therefore build great businesses that generate tremendous returns as well for our stakeholders on top of solving big problems.”

The progress in machine learning has been dramatic in the last two years

“Machine learning is core transformative way by which we are rethinking everything we are doing. We’ve been investing in this area for a while. We believe we are state-of-the-art here. And the progress particularly in the last two years has been pretty dramatic. And so we are – we are thoughtfully applying it across all our products, be it search, be it ads, be it YouTube and Play et cetera. And we are in early days, but you will see us in a systematic manner, think about how we can apply machine learning to all these areas.”

Google 2Q15 Earnings Call Notes

Stock-based compensation was $1.2B, but please exclude that

“On a GAAP basis, operating profit was $4.8 billion and the operating margin was 27%. On a non-GAAP basis, that is excluding stock-based compensation, operating profit was $6 billion and the operating margin was 34%”

YouTube watch time is up 60% y/y

“Growth in watch time on YouTube has accelerated and is now up over 60% year-over-year, the fastest growth rate we’ve seen in two years. Mobile watch time has more than doubled from a year ago”

Solving problems creates monetization opportunities

“Google’s goal is to develop great new services that significantly improves the lives of as many people as possible. Solving problems for users at scale ultimately results in monetization opportunities.”

More searches now take place on mobile devices than PCs in ten countries

“More Google searches now take place on mobile devices than on computers in ten countries, including the U.S. and Japan, two of our largest markets. And we know that when people search on their mobile phones, they’re looking for immediacy and action”

30% of mobile searches are related to location

“30% of mobile queries are related to location and our efforts around local search are helping consumers to find relevant information fast.”

brand dollars are following the shift to digital content consumption

“As consumers continue to shift their content consumption from television to digital, brand dollars are flowing – I am sorry following, which we’re seeing an upfront buying through our Google preferred model.”

Youtube growth is just things coming together

“I think it’s really combination of all of the strength of YouTube coming together it starts with having over a billion users nearly almost one-third of all people on the internet everyday watching hundreds of millions of hours on the services and that creates billions of views ”

Big initiatives in online to offline conversion

“And then we’ve created way for advertisers to measure the impact of these ads on store visits. So just to give you a couple of examples, Target, one of our advertisers found that mobile search ads greatly influence in-store store sales and using our store visit data they found that a third of their paid search ads resulted in a user visiting a target store during 2014 holiday season. So we love to continue working with them and other advertisers to show the results and then build on that.”

JS Earnings Call Notes – SLB, GOOGL

Jeremy S., an investment analyst here in Southern California, has started to contribute to Avondale’s company notes database. Below are quotes from some of the calls that Jeremy has read this week.

 

Google (GOOGL) CFO Ruth Porat said she is bringing further expense discipline and balance to the company 

“The sequential deceleration in expense growth achieved in the second quarter reflects in part the benefit of expense discipline discussed in prior calls. A key focus is on the levers within our control to manage the pace of expenses while still ensuring and supporting our growth. We will do this while we continue to invest in engineering talent to keep us preeminent in innovation globally.”

But she also reminded investors that the company’s goal of creating terrific products that impact billions of people will require significant expenditures 

“Google’s goal is to develop great new services that significantly improves the lives of as many people as possible. Solving problems for users at scale ultimately results in monetization opportunities. How we prioritize and focus on these opportunities remains paramount, both for our employees, who remain inspired by the opportunity to work on the most cutting edge developments with maximum global impact and for our shareholders.”

Google (GOOGL) Chief Business Officer Omid Kordestani stated the company now has 5 different services which have one billion users

“First, our core products continue to do well and users love them. In fact, Google Search, YouTube, Android, Chrome and Google Maps, each have over one billion users.”

Google (GOOGL) Chief Business Officer Omid Kordestani thinks the company nailed the shift to mobile

More Google searches now take place on mobile devices than on computers in ten countries, including the U.S. and Japan, two of our largest markets. And we know that when people search on their mobile phones, they’re looking for immediacy and action. In fact, 30% of mobile queries are related to location and our efforts around local search are helping consumers to find relevant information fast.  We’re investing in creating great mobile experiences for people across Google products.”

Omid went on to declare that the Youtube audience reach and engagement has accelerated 

“On mobile alone, YouTube reaches more 18 to 49 year old in the U.S. than any U.S. cable network. And the number of users coming to YouTube, who start at the Youtube homepage similar to the way they might turn on their TV is up over three times year-on-year plus once users are in YouTube, they are spending more time per session watching videos, on mobile the average viewing session is now more than 40 minutes up more than 50% year-over-year.”

 

 

 

Schlumberger (SLB) CEO Paal Kibsgaard said he doesn’t expect the company’s immediate pricing power to rise in the event of a rebound in oil prices

“In this environment, we focus on carefully balancing market share growth with protection of operating margin and by negotiating pricing concessions in return for additional work, integration opportunities or improved contract terms, knowing from experience that any permanent pricing concessions that we make will be very hard to recover even as market conditions improve.”

And their business continues to be all about helping their clients extractin oil more efficiently

While we set goals for new technologies and increasing elements of service integration, we also target a 10-fold reduction in customer non-productive time, a doubling in asset utilization, a 25% reduction in inventory days, a 20% increase in workforce productivity and a 10% lowering of unit support costs.

Schlumberger (SLB) CEO Paal Kibsgaard stated that North America has seen the largest percentage drop in oil exploration and production expenditures and the oil services market will remain weak in the near-term

“Turning to our industry, the largest drop in E&P investments is, as expected, occurring in North America, where 2015 spend will now largely be down by more than 35%, driven by both pricing and activity on land. We do believe that the North American rig count has now reached bottom, but that we will only see a slow increase in drilling and completion activity in the second half of the year, which will not make any material dent in the massive overcapacity that has been created. This again means that there will be little to no improvement in pricing levels and, hence, the market will still remain very challenging for the foreseeable future.”