T-3 Energy Services, Inc. (TTES)

Q2 2010 Earnings Call Transcript

July 30, 2010 11:00 am ET

Executives

Steve Krablin – Chairman, President and CEO

Jay Mitchell – CFO

Analysts

Marshall Adkins – Raymond James

Chris Glycine – Simmons & Company

Terese Fabian – Sidoti & Company

Blake Hutchinson – Howard Weil

Stephen Gengaro – Jefferies

Victor Marchon – RBC Capital Markets

Jeff Spittel – Madison Williams

Joe Gibney – Capital One

Mark Rogers – Gagnon

Brian Uhlmer – Pritchard Capital

Presentation

Operator

Good day, ladies and gentlemen and welcome to the T-3 Energy Services second quarter 2010 earnings conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. (Operator instructions) As a reminder, today's conference call is being recorded.

I'd now like to turn the conference over to your host, Mr. Steve Krablin, President and CEO. Please go ahead, sir.

Steve Krablin

Good morning and welcome to our teleconference to review our financial results for the second quarter of 2010. I'm Steve Krablin, CEO of T-3 and with me today is, Jay Mitchell, our CFO.

I would like to remind everyone that during our call, we may make certain forward-looking statements with respect to sales, earnings and other matters. These statements are based on our current assumptions and expectations and are subject to risk and uncertainties. Actual results may differ materially from the results predicted. A complete explanation of forward-looking statements, as well as numerous risk factors and uncertainties are discussed in depth in our Annual Report on Form 10-K and in our other SEC filings, and I encourage each of you to refer to these disclosures. T-3 does not intend to publicly update any forward-looking statements.

Thanks to the hard work of our employees, our second-quarter results were good even though we found ourselves in a very difficult and challenging environment. Many customers’ decisions went into more or less a short-term paralysis during the quarter due to uncertainty about certifications and the requirements that were being developed for pressure control equipment in response to the Gulf incident.

In spite of this uncertainty, we had our fourth consecutive quarter of increased bookings and our second consecutive quarter of backlog growth, and of course we had sequential revenue and earnings improvement. Jay is going to take us through the details.

Jay Mitchell

Thank you very much Steve. I’m going to take a few moments, as Steve said, to go through the numbers. As everyone has seen in the press release, T-3 earned $3.3 million or $0.25 per diluted share from continuing operations for the quarter. This is up from $2.0 million or $0.15 per diluted share in the first quarter, and as Steve mentioned bookings are continuing to recover. They are up to $15.8 million and we sequentially increased our backlog 6% to $42.1 million, up from $39.7 million at the end of last quarter. Consolidated revenues for the quarter were $48.4 million, up $3.4 million or 8% from the first quarter.

We did this on flat pricing, and we had a strong mix across all our business units. I will provide some more details about the business mix in a few moments. We had – the mix between products and services remained relatively constant with the first quarter. We had 82% of our revenues from products. Within that products revenue we did have a shift proportionately to some of our well head products, which tend to be somewhat lower margins than the products in our other business units. However, every individual business unit increased their margins for products this quarter.

As you know we do report in one segment. I want to give a little bit more detail about some of the individual business units we have underneath that one segment. At PCG, this is our pressure control group with BOPs and all the related pressure control equipment; revenues for the quarter were 32.5 million or 67% of total company revenues. That is up about $0.5 million sequentially. The revenues did continue to be produced in the offshore and international markets, but we are seeing a shift to domestic and onshore users.

Approximately 40% of our revenues were destined for offshore use this quarter compared with just under 50% in the first quarter of 2010. Q2 revenues were 51% going to the non-North America, compared with 60% in the first quarter. Again, quarterly pricing was flat, but the mix was somewhat favorable. We sold particular products that had higher standard prices per unit, and we benefited from some quick turn items, which do tend to have better pricing as well.

We are doing some things to help take advantage of some of the quick turn items that may be available for sale at some point in the near future, and I will address that in a few moments when I talk about the balance sheet. In the pressure control group, our bookings were impacted as Steve mentioned earlier by the Deepwater Horizon incident, which caused our customers to re-evaluate their capital equipment needs and servicing requirements in light of the expected new rules and regulations for the industry.

In practice, what this did for us was it caused us to have great falloff in our bookings during the month of May, and going forward, we are seeing a slight shift in the type of bookings we are actually receiving. We had increased bookings for service and certification work. Currently we have approximately 40 BOPs in line for NTL work right now that is less than $1 million in total value, but does represent both deepwater and shallow water right now. Approximately a fifth of the dollars in our backlog for NTL work relate to deepwater BOP items.

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