Ladies and gentlemen, thank you for standing by and welcome to the Q1 2020 Tenaris S.A. Earnings Conference Call. At this time, all participant lines are in a listen-only mode. After the speaker's presentation, there will be a question- and- answer session. To ask a question during the session, you will need to press star one on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star zero. I would now like to hand the conference over to your speaker today, Mr. Giovanni Sardagna, Investor Relations Officer. Thank you. Please go ahead, sir.
Thank you, Gigi, and welcome to Tenaris 2020 first quarter conference call. Before we start, I would like to remind you that we will be discussing forward-looking information in the call, and that our actual results may vary from those expressed or implied during this call. Joining me on the call today are Paolo Rocca, our Chairman and Chief Executive Officer, Alicia Mondolo, our Chief Financial Officer, Guillermo Vogel, Vice Chairman and Member of our Board of Directors, Germán Curá, Vice Chairman and Member of our Board of Directors, Gabriel Podskubka, President of our Eastern Hemisphere Operations, and Luca Zanotti, President of our U.S. operations.
Before passing over the call to Paolo for his opening remarks, I would like to briefly comment our quarterly results. Our sales in the first quarter of 2020 reached $1.8 billion and remain in line with those of the previous quarter, even after the integration of IPSCO.
As a result of low sales backlog at the completion of the acquisition and lower sales in all our main markets as a consequence of the rapid decline of economic activity and the collapse in global oil demand as a result of the measures taken to contain the spread of the COVID-19 pandemic around the world. Average selling prices in our Tubes operating segment declined 7% compared to the corresponding quarter of 2019, and 2% sequentially. Our EBITDA for the quarter was down 4% sequentially to $280 million and was affected by losses at the IPSCO and severance charges amounting to $23 million. Our EBITDA margin decreased to around 16%. Excluding severance charges, our EBITDA would have been $303 million and a margin of 17%.
Our operating income for the quarter was negative for $510 million, but includes impairment charges for $622 million on the current value of goodwill and other assets in the U.S. These impairment charges reflect the severe change in business condition we are experiencing with the collapse in oil demand and prices and their impact on drilling activity and OCTG demand. During the quarter, cash flow from operation was $560 million, as we reduced our working capital by $317 million. Even after the acquisition of IPSCO for $1.1 billion at the beginning of the year, we have been able to close the quarter with a net cash position of $271 million.
Given the uncertainty around the effects of the recession originated by COVID-19 on our industry, the Board of Directors have proposed to limit the dividend in respect of the 2019 fiscal year to the $153 million payment already made as an interim dividend in November of last year. I will ask Paolo to say a few words before we open the call to questions.
Thank you, Giovanni, and good morning to all of you. Since we published our 2019 annual results in February, the world has changed completely. The rapid spread of the COVID-19 virus and the measures adopted to contain it have precipitated a global crisis that is unprecedented in the speed and severity with which it has affected the economy and our everyday lives. The recovery from this crisis will take time and will have some changes in many fields. The impact on the energy sector is particularly severe and there will be a lasting impact on trade, travel, and the way we interact with each other. Never before we have seen demand for energy collapse so much and so fast, driving prices in the U.S. down to levels unseen in the past. Oil and gas companies are focused on maintaining financial sustainability through this unforeseen chain of events.
An investment in exploration and production will be reduced to a level comparable only to that of the 1999 crisis. With the shales, this downturn is happening faster, and it is the shale that will be most affected. While lower cost offshore and conventional drilling may be less so. It is difficult to foresee the timing of the recovery in the oil demand and the extent of the structural change that this sector will go through. Before turning to the measures we are taking in response to this crisis, I would first like to thank our employees and the medical staff in the communities where we work for the tremendous response that they are making in these extraordinary circumstances. I will give you two example.
At the height of the emergency in the Bergamo region in Italy, our employees in Dalmine continued to produce gas cylinder, which were needed to respond to the medical emergency in the region. While in Campana in Argentina, our employees decided to design, retool equipment, and fabricate face masks in our facilities to contribute to the safety of hospital staff and first responders in the region. A quick word on the first quarter. As we mentioned in our last call, we have moved rapidly to integrate IPSCO business and asset into Tenaris. The sales backlog we inherited was small, while the level of inventory was high due to the action taken by the distributor to shift purchases from IPSCO to other suppliers during the prolonged antitrust investigation.
Given the collapse in market condition, it will take time to recover the former market position, and we have had to close down, for the time being, most of the assets that we acquired. Our results were solid, and I'm pleased to say that in March, we had our best ever monthly safety performance. This is very important for our people, for our company. I would also like to highlight the free cash flow we generated. This amounted to $448 million, or 25% of revenues, as we maintain operating margins and reduce working capital. This result for a month will help us in the coming months as our operation adjust to a much lower level of sales and we implement our restructuring programs.
First and foremost, however, we are taking comprehensive measures to protect the health and safety of our employees and ensure a safe working environment that will allow a gradual return to production when condition permits in the countries where we operate. We are checking the temperature of all the person who enter the facilities, providing appropriate protective gears, fully disinfecting our facilities, ensuring that social distancing rule are respected, and using home working where possible. We are also taking special care to protect the most vulnerable. In China, our facilities are now fully back in operation, while in Italy and Argentina, where production has been stopped for a while, we are gradually starting up production again. We are supporting our communities where the everyday lives of families and neighbors have been deeply affected.
We are using our global capabilities, including our regional office in China, to strengthen local health provider with the supply of medical equipment, protective gear, and infrastructure, as well as providing support for affected person. A $6 million fund has been established for this purpose. We are doing all we can with the resilience and ingenuity of our people to fulfill our commitment and strengthen our relationship with customer and supplier. They will be essential for our future, and they should feel that we are accompanying them during this period. Looking forward, we expect a substantial reduction in our sales and operations for an extended period of time, and we need to adjust the company to this new reality.
To ensure financial stability and maintain the continuity of our operation, we are rapidly reducing production levels and implementing a plan to downsize our fixed cost structure and contain cost around the world. In the U.S., we had to close many of our facilities and reduce our workers. In other countries, we are using suspension and government programs in consultation with labor unions while respecting government recommendation, particularly in relation to the population deemed as most at risk. We plan to reduce our fixed cost structural cost by 25%, or around $220 million annualized by the end of the year. We will preserve our capacity to react to the eventual market recovery and our unique global and local deployment capabilities in a world where local content and service is only going to become more relevant. This plan involves salary adjustment at all levels, including reduction of 20% for top management.
Yesterday, a member of our board also volunteered to reduce their emoluments. We will prioritize cash flow, focusing on reducing our working capital through the crisis and reducing our investment to a minimum without compromising our long-term transformational programs. We plan to reduce our CapEx and R&D investment this year by $150 million or over 35%, while maintaining our long-term investment plan focused on the environment and safety, as well as digital integration initiatives aimed at reducing costs in our operation and those of our customer. Digital integration has become a key feature of our unique Rig Direct value proposition, as the opportunities for simplifying operation becomes even clearer. The oil and gas industry is being deeply affected by this crisis, and the competitive environment in which we operate will be transformed in a way that today is difficult to anticipate.
As we concentrate on securing our financial stability in a highly uncertain environment, we are proposing to limit our 2019 fiscal year dividend to the amount already paid in November. Eventually, the world will resume a growth path, and the need for a reliable supply of energy will be essential for recovery. While we need to be prepared for the future, we also need to act swiftly and resolutely in facing the challenges of today. Thank you. We will then receive your question.
As a reminder, to ask a question, you will need to press star one on your telephone. To withdraw your question, press the pound key. We ask that you please limit yourself to one question and one follow-up question. Please stand by while we compile the Q&A roster. Our first question comes from the line of Igor Levi from BTIG. Your line is now open.
Thank you. You mentioned that your margins will be potentially in the high single digits in the second quarter. If you account for all the cost savings that you're expecting to achieve by the end of the year, what would you expect your EBITDA margin run rate to be when accounting for the cost savings?
Thank you, Igor, for your question. Well, I think that it is very difficult today to understand the condition of the market, pricing, demand by the end of the year. What we are doing, we are preparing for the reduction. We are taking the measure we need to take internally to adjust our structure and to reduce the perimeter of our production facilities. I think would be difficult today to forecast level of margin by the end of the year, because this will be influenced in the end by the volume and pricing, and not only but the measure we can take internally. I wouldn't today make a forecast for our margin on, let's say, the medium term, like the end of the year.
This crisis is being driven by the pandemic, and there are not so many clues to forecast how the recovery will occur and how fast the recovery in mobility, in demand for oil, for instance, may occur, and the impact that this could have on our sector and ourselves.
Great, thank you. Looking at your free cash flow of around $450 million for the quarter, came in a bit higher than we thought, and it looks like you got $300 million of that from reducing working capital. How much more do you think working capital could come down over the next few quarters? Do you think free cash flow could approach $1 billion again because of the working capital reduction seen this year?
Well, the structure of Tenaris, and the way we manage our supply chain act in a way that allow us to reduce working capital in a crisis. It happened in the previous cycle, and you have seen this with substantial cash generation, and it will happen also in this crisis. Part of this is due to the fact that Rig Direct means that our sales basically move according to the real consumption and demand by the client, and we are the owner of large part of the stock. When the crisis step in and consumption go down, we reduce production and we reduce our own stock. We are, to some extent, sheltered by the stock overhang in the market. The stock is in our hand, and when the crisis steps in, we reduce it. Our cash generation in this environment is structurally strong.
You are not far in your view of what we expect could be the possible evolution of our cash flow during 2020.
Great. Thank you very much for that. I'll turn it back.
Thank you. Our next question comes from the line of Sean Meakim from JPMorgan. Your line is now open.
Thank you. Maybe if we could just talk a little more about the 35% reduction in sales that you forecasted potentially for the second quarter. As you try to break apart what that could look like on a geographic basis, I was initially thinking maybe that's something like a 50% cut to North American onshore, and then international offshore markets maybe down something like 15% would get you to that type of mix. In the release, you also noted that most of the weakness is in the Western Hemisphere, that the East is doing okay so far. Perhaps that means it's more tilted internationally towards Latin America. Maybe just could we get a little bit more granularity on how you're seeing the different geographic regions unfold in the second quarter? That'd be very helpful.
Thank you, Sean. I would say that the main reduction that we see coming for the next quarter is coming from the U.S. and Canada. Canada will be strongly affected. U.S. will be strongly affected. Oil industry is reacting fast in reducing their investment in face of the collapse of the oil price. What's following this is Latin America, for different reason, not only related to the oil prices, but the level of operation drops in Argentina, and also in Ecuador and in Colombia. In all of Latin America, we see a reduction in the level of operation. As I said before, where we operate on a Rig Direct basis, we may see, let's say, this reflected to a lesser extent in our direct sales, but there are in part of this market also, areas, which we are really affected by postponement of project and reduction of domestic demand.
This is also true for Brazil, where Petrobras will, to some extent, react to this crisis, and will curtail investment. The impact of this crisis and the drop is less significant, especially in the Middle East and in the long-term project, that are continuing on the normal basis. This 35% reduction, I would say, is mainly related today to what I'm saying, Canada, U.S., and Latin America, in the first place.
Understood. Thank you for that. On the cost reduction, could you talk about how much you think you'll have to spend in terms of cash costs, severance, et cetera, in order to achieve those reductions?
Well, we will have a relevant restructuring cost during this year because of the action we are taking all around the world. We expect this figure to be in the range of above $100 million in the end, over the entire course of year. Let's say, this is a program that will be executed all along the year, will not be concentrated only in the second or in the third Q. This is something that will be affecting, will be implemented during the course of the year.
Got it. That's very helpful. Thank you very much.
Thank you. Our next question comes from the line of Ian Macpherson from Simmons. Your line is now open.
Thank you. Paolo, this is an unprecedented time. How are you evaluating the duration of your shutdown of your U.S. production lines? I'm not asking you when you think you're going to restart, because you don't know, what signals are you looking at to determine when it's time to reopen Bay City or to reopen the new IPSCO assets that have been shuttered? Is there a rig count formulation that you have in mind that you need to see? Can you compare the cost and difficulties of restarting these facilities compared to the swing capacity on the welded side that you've brought off and on over the past several years?
Thank you, Ian. Well, in fact, in the U.S., Bay City will continue to operate during this year. In this moment, we have a temporary stoppage, maintenance stoppage. We may have temporary stoppage just to reduce overall production, but Bay City will be continuing to operate together with other facility. What we know is that we are actually investing in this moment in the Koppel steel shop to prepare the steel shop to supply the full range of product needed in the U.S., probably by the beginning of next year. We have a plan for managing the facility during this period of time, and to prepare for a recovery when it may come.
I would ask Luca to add some comments on the level of operation that we have today. Then on the plan, as I mentioned, for Koppel, the steel shop to start back in some moment at the beginning of next year.
Yes. Thank you, Paolo. Good morning, Ian. Frankly, not much to add on top of what you just said. Bay City is currently down for the annual shutdown, but we maintain our capability of operating to a certain extent, of course. The only thing that I would add is that our Rig Direct model provides us a possibility of being somewhat less affected by the overhang inventory. We're going to keep maintaining the possibility of supplying from fresh production, our customers, and any need that our customer may have in the future. I will conclude with our capability to bounce back when needed. Here I will say that we have no problem because even if we are committed to a strong reduction in cost, we are maintaining all the capabilities and all the potential to spring back when this will be needed.
For the rest, I will buy what you just said.
Thank you so much, Luca.
Thank you. Our next question comes from the line of Marc Bianchi from Cowen. Your line is now open.
Thank you. I wanted to ask about, first, on the restructuring that you mentioned, about $100 million over the year. Is that from second quarter through year- end, or are you counting the restructuring that occurred in the first quarter? With regard to the guidance here for second quarter on the margin rate, is that reflecting restructuring, and it would be higher if we excluded the restructuring?
Thank you, Marc. The restructuring charge I was mentioning was in the second, third, and fourth quarter. If you add the first quarter, this will be slightly higher now, $120 million. In this range, the restructuring charge for the entire year. As far as the margin, we are talking about the adjusted margin for the next quarter. We are not including the restructuring charges. Also, restructuring charges could wait on the second or the third in a different way, depending on the program, how we implement program of reduction on this. When we talk about our forecast on margin, it's basically a forecast on the adjusted EBITDA without even considering the restructuring charge.
Great. Thanks for that, Paolo. In terms of the total cost cuts that you're planning, the decline in revenue here for the second quarter, what is the expectation for the remainder of the year in context of those cost cuts? Really what I'm asking is, what would you need to see in the market to maybe look at cost cuts greater than what you've outlined here today?
Well, as I was saying before, this is probably the most difficult to predict crisis. We lived through many crises, and we did it in Tenaris over the life of the company. This is the most difficult one to have a prediction, because basically depends on something that is the reaction to the fear in the different countries of the virus, the ability to come out with a solution that allow return to mobility over time. This is extremely uncertain. I wouldn't be now in a position to make a forecast beyond what we mentioned the second quarter. We will see. I'm sure that over time, the world will recover mobility and level of activity, of economic activity, and that the shale will have a role in the overall oil and gas energy metrics worldwide. I have no doubt about this.
We know that the shale will come back in some moment, but it is very difficult to have a forecast on how fast and how steep could be this recovery. Our adjustment in the structure of the company is designed considering a scenario of reduction in our level of operation, that it will not be for a very short period of time. We will be prepared any time to recover if needed.
Great. Thanks very much. I'll turn it back.
Thank you. Our next question comes from the line of Alessandro Pozzi from Mediobanca. Your line is now open.
Hi. Thank you for taking my questions. The first one is on the lockdown measures in Q1. I was wondering whether that had any extra cost, led to extra cost in the quarter, which could be maybe reflected again in Q2. I believe you mentioned that this crisis may lead to profound changes in the company as well. I was wondering, are you planning to keep some of the production idle maybe throughout 2020? Thank you.
Well, for sure, the lockdown in our operation in Italy, in Argentina, and occasionally in some other parts of the world for short period of time, will be impacting our margin, our results, our cost in the second quarter. This is inevitable. Today, the level of operation is recovering, and what is limiting level of overall production today is the evolution of the market and the need to reduce our inventory. It started with some constraint on our production side. Now it's basically constraint on the demand side, or at least driven by the need to reduce our stock. Obviously, this is entailing cost for fixed cost of the facility, cost of our people, that in some situation is working only on limited time. We are containing this, but this is driving some additional cost into our balance sheet. That is considering the forecast that we presented.
I do not envisage any specific additional cost to put back into operation the facility. We had no disruption. We are not managing blast furnaces that has particularly complex comeback cost and timing. We are moving on electrical furnaces and rolling mill that basically could get back to operation pretty smoothly. When we look over 2020, we are preparing for keeping some of the facility idle for an extended period of time, because we know that it's very difficult that demand will recover fast in some of the area. We are not doing permanent shutdown in any of the facility of the system, because we think that over time, there will be a recovery, and we will have to have production in some of these facilities. Some of these facility are important for local market in different part of the world.
We know that in some moment when activity start back again, the fact of being present with industrial activity locally will be one of our differentiator. We need to keep the resources to start back, even in countries in which we have reduced to a bare minimum or idle.
Okay. Thank you. Just a follow on. Do you think that Q2, we could see the bottom of the rig count in the U.S., or that's likely to be continuing in the Q3 as well?
I think it's very difficult to have predict the level of rig count beyond the next quarter. We know that the rig count will continue to go down for a while. There are factors like some of the company, they may have hedge their production, some other that need to continue investment, have financial position to do it, and some other that will continue to reduce level of activity. This will depend on how fast the world gets back to level of activity, operation, and mobility. I think it will be very difficult today to have a forecast of level of rigs operating in the course of, let's say, the third and the fourth quarter of this year. We know it will go down now, we do not know where it will be six months from now.
All right. Thank you. Thank you very much.
Thank you. As a reminder, to ask a question, you will need to press star one on your telephone. To withdraw your question, press the pound key. We ask that you please limit yourself to one question and one follow-up question. Our next question comes from the line of John Letizia from Stifel. Your line is now open.
Yes. It's John on for Stephen. I was wondering if you can give us a little color on raw material pricing and maybe how you expect that to impact margins in the second half, given the lag between the two?
Well, in this environment, I frankly expect some of our raw material to go down. The level of pricing of hot rolled coils should, to some extent, accompany the reduction in prices of our product. Demand is clearly reducing for scrap also. Also scrap, to some extent, should go down. There will be some impact from the valuation in some of the countries in which we operate. That also may have an impact on reducing our cost. We are keeping this into consideration. Our visibility on this is pretty limited to the next quarter. After this, the level of pricing in raw material and the level of cost may be influenced by recovering China. Recovering China may drive up some of the iron ore prices.
It will be difficult today to forecast the level of pricing of raw material and metallics in the second part of the year. Still, what we see is that you have seen the decline in prices of pipes there. The reduction in cost will absorb or will only marginally and also only gradually, because in the end, we have in our inventory large part of the past cost. We will see reduction in cost very gradually in an environment in which we have inventory to reduce because of the IFRS.
All right. Thank you. I was wondering if I could just squeeze one more in. Do you think the Rig Direct model is going to have a positive impact on market share during this downturn? What's your take on that?
I think yes. Because in the end, as I was saying, we are following in our sale, the reduction in the consumption. If our clients are reducing rigs, we are reducing shipments. We are kind of sheltered from the overhang inventory because in the end, we have no intermediary. We go straight to our client, and our clients are loyal to us. We have a good client base that continue to work with us. We renew some long-term contracts during this period. Obviously, we adjust prices to have prices of the market applied to this contract. In terms of volume, I think that the Rig Direct give us stability, and in some circumstances, could give us increase market share. Now, there is one very relevant issue here. There is the level of import. This is a key concern for us.
We see material entering into a phase in condition of dumping, and it looks to me unreasonable that at the moment in which everybody is struggling to support local industry and defend employment and so, we still continue to have import of material in dumping condition. On this, I will ask Germán to add some comment, because imports are very important. It was a component for the future of the sector in the state.
Thank you, Paolo. Good morning. Indeed, John, the view we have is, given the market situation, which we have explained, we are convinced that a substantial part of the imports are coming under material dumping conditions, which, together with the rest of the industry, we're evaluating and considering to initiate legal proceedings in the coming months.
Great. Thank you.
In general, we expect to increase, to defend well our market share or to increase slightly. I think we have an agenda that includes action to contain import in this moment.
Thank you. I'll turn it back.
Thank you. Our next question comes from the line of Vlad Sergievskiy from Bank of America. Your line is now open.
Yes, hello. Thank you for taking my question. The one on working capital, please, and specifically on potential room for you to release cash from inventories. At the end of last quarter, you held $2.2 billion in inventories. Which is about $700 million higher than the trough inventory number in the past downturn in 2016. I am wondering, is there any reason for you not to be able to reduce inventory to this trough $1.5 billion you saw in 2016?
Well, thank you, Vlad, for your question. Compared to the last crisis, our Rig Direct program progress, no doubt, for part, and not only in the U.S., but also, in other parts of the world. We will, as I mentioned before, be able to reduce our level of inventories, more or less in the range, as I was saying before, of $1 billion in the entire course of the year. I don't know if we will be able to go much lower than this. Frankly, I hope that the recovery in the second part of the year, in the latter part, will maybe even reduce our cash generation for working capital, and we will need to protect some of the working capital for a market that may pick up again in the first part of 2021. We do not know.
If things continue as they are and with a very limited recovery, my expectation that we can, between inventories and receivables, contribute to our cash generation in the range that I mentioned.
Thank you very much, Paolo, for that. If I can quickly follow up on a more strategic point, obviously, looking at your competition across the globe, it is entering this downturn in, let's say, vulnerable financial position. Do you think it offers a market share opportunity for Tenaris? If yes, then are there any particular regions where you think you're well-positioned to structurally gain market share?
Well, you are absolutely right that Tenaris is a financially very strong company, stronger than any of its competitor worldwide. There is a clear difference, and when you enter into a crisis, this financial difference is very relevant. The clients are perceiving Tenaris as a solid, reliable, long-term partner, good for developing relation, good for developing long-term supply agreement, good for developing product innovation, and have support. No doubt, we think that in the face of a client, when the market starts to recover, our financial strength, the quality of our facility, and the positioning that we achieved over this year will be a very important differential factor. Now, the timing, how the recovery will take place, the region in which it will happen, will determine how this repositioning could be more or less favoring our overall global position.
The fundamentals, for sure, are strong and very different from that of all of our competitors. I think our clients are aware, and this could be a factor that may be relevant at the moment in which there is a turn of the tide into the industry.
Thank you very much, and good luck.
Thank you, Vlad.
Thank you. Our next question comes from the line of James Evans from Exane BNP Paribas. Your line is now open.
Hi. Good afternoon. Thank you for taking my questions, and I hope everybody is safe and well. I've got two, please. Firstly, I want to ask about the $220 million fixed cost reduction. Basic question, could you just give me a sense of what the base is in terms of fixed cost today or what the reduction represents as a percentage of the fixed cost? That was my first question. My second question, I want to ask a little bit more about the Middle East and beyond the Q2. What are your Middle Eastern clients communicating to you about their intentions into the second half and beyond? We've seen a very mixed picture with Aramco reducing its budget, ADNOC maybe delaying some projects. We've obviously got the OPEC production cut. What are they saying to you about their intentions into the second half of the year and beyond? Thank you.
Well, thank you, James. On the first question, the reduction we are envisaging is a reduction in our structure. The $220 million we mentioned for this is an estimate, but is an estimate that represents around 25% of our fixed cost. It is a reduction that is not really affecting our capacity to bounce back when needed. This is how we are thinking of our restructuring this moment. Is also focused on the region in which we perceive that the market.
Ladies and gentlemen, please stand by. Your conference will begin again momentarily. Ladies and gentlemen, please stand by.
Hello, James. If you can hear me, this is Gabriel Podskubka. If you want, I can answer you the question.
Yes, Gabriel, go on. We connect it now. Please, Gabriel, go on with your answer.
Okay, James. The environment in the Middle East is challenging and evolving rapidly. Clearly, we perceive that this region is on the stronger side of the spectrum, and that the few markets that evidence resilience remain here in the Middle East. Despite the OPEC- announced cuts, we have not seen major adjustments. Some adjustments, but not major in the drilling programs of our NOC customers. However, given the present circumstances, this is not something that can be ruled out in the future, but has not happened. To give you some color on Saudi, we continue there to face some mute achievement due to the destocking cycle. In the last quarter, we have even, on a positive note, experienced a recent recovery on the purchasing activity, especially in the premium segment.
This is strengthening our backlog and giving us an improved visibility towards the end of the year. In the case of ADNOC, also there has been just minor adjustment to the drilling program on some more expensive areas, but not the core of the drilling activity in the UAE. We expect our shipments in the UAE to continue to grow and increase during the year, but still not reaching the running rate of the full potential of the contract, something that probably we would see into 2021. In the rest of the Middle East, we also have a substantial backlog of long-term contracts, which give a certain resilience to our revenue line. We expect to be pretty resilient and solid over the next few quarters, maybe with some adjustment downwards, but lower than average for sure.
Yep. Thank you, Gabriel. Thank you, James.
Thank you. At this time, I'm showing no further questions. I would like to turn the call back over to Giovanni Sardagna for closing remarks.
Okay. Thank you again, thank to all of you for joining us in the call. Sorry again for the inconvenience with one of our lines, we hope we made the point. We hope to see you soon. Thanks.
Ladies and gentlemen, this concludes today's conference call. Thanks for participating. You may now disconnect.