Oil States International, Inc. ( OIS)

Q2 2011 Earnings Call

August 2, 2011 11:00 a.m. ET


Patricia Gill

Cindy Taylor – President & CEO

Bradley Dodson – VP, CFO & Treasurer


Victor Marchon – RBC Capital Markets

John Daniel – Simmons & Company

John Lawrence – Tudor Pickering

Arun Jayaram – Credit Suisse

Marshall Atkins – Raymond James

Blake Hutchinson – Howard Weil

Ryan Fitzgibbon – Global Hunter Securities

Daniel Burke – Johnson Rice & Co.

Doug Garber – Dahlman Rose

Ashish Gupta – GB Capital



Welcome to the Oil States International second quarter earnings conference call. My name is Monica, and I’ll be your operator for today’s conference. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session. Please note that this conference is being recorded. I will now like turn the call over to Patricia Gill, Ms. Gill, you may begin.

Patricia Gill

Thank you, Monica. Welcome to Oil States’ second quarter 2011 earnings conference call. Our call today will be led by Cindy Taylor, Oil States’ President and Chief Executive Officer and Bradley Dodson, Senior Vice President, Chief Financial Officer and Treasurer.

Before we begin, we would like to caution listeners regarding forward-looking statements. To the extent the remarks today contain information other than historical information, 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 and our other SEC filings.

I will now turn it over to Cindy.

Cindy Taylor

Thank you, Patricia, and thanks to all of you for joining our call this morning. Our businesses provided strong results for the second quarter of 2011, with notable contributions coming from our growing accommodation segment, due to organic RIM count expansion and last year’s acquisitions of the Mac and Mountain West.

Activity for our well site services and tubular services segment remains robust, as horizontal drilling and completion activity continued to increase in the oil shale regions in the United States, which tend to favor our high-end and proprietary equipment.

On the hills of a 17% increase in the first quarter of 2011, backlog at our offshore product segment increased 25% during the second quarter to reach a new record level of $519 million as of June 30, 2011.

During the second quarter of 2011, Oil States generated earnings of $1.34 per diluted share on $74 million of net income, $161 million of EBITDA, and over $800 million in revenue.

At this time, Bradley Dodson will take you through details of our consolidated results and financial position, and then I will conclude our prepared remarks with a discussion of each of our segments, and we’ll give you our thoughts as to the current market outlook.

Bradley Dodson

Thank you, Cindy. During the second quarter of 2011, we reported operating income of $115 million on revenues of $820 million. Our net income for the second quarter of 2011 totaled $74 million or $1.34 per diluted share.

The comparable second quarter 2010 were $58 million of operating income on revenues of 595 million. Second quarter 2010 net income totaled $37 million or $0.71 per diluted share. The year-over-year increases in profitability were broad based, including higher contributions from each of our business segments, along with the contributions from the three acquisitions closed in the fourth quarter of 2010.

During the second quarter of 2011, we completed a $600 million high-yield offering and used those net proceeds to re-pay off any borrowings under U.S. and Canadian revolving credit facilities, as well as for general corporate purposes. The notes were issued at par yielding 6.5% with a 8 year maturity.

The quarterly interest expense will be approximately $18 million going forward, with the additional interest expense from these notes. This quarterly interest expense forecast is expected to continue through the end of 2012.

We recently also increased our Australian loan facility to $150 million Australian, on substantial to stand terms and conditions. We plan to use the added borrowing capacity to fund announced expansion of our Australian accommodations business.

In terms of third quarter 2011 expectations, we forecast depreciation and amortization to be approximately $47 million, and net interest expense, as I mentioned, to approximate $18 due to the full quarter interest expense associated with high-yield notes. Diluted shares are expected to total 55 million shares in the third quarter of 2011.

We currently estimate our effective tax rate for the third quarter of 2011 to be flat to slightly down when compared to the second quarter of 2011.

During the second quarter 2011, we reported cash flow from operations of $60 million, offset by a working capital increase of 70 million and capital expenditures of 138 million. Our net debt at the end of the second quarter totaled $954 million and our debt-to-cap ratio is approximately 37%.

As of June 30, 2011, the company had $808 million of combined availability under our credit facilities, and a cash balance totaling 123 million. We currently expect to spend approximately $650 million in capital expenditures in 2011.

At this time, I’d like to turn the discussion back over to Cindy, who will review the activities in each of our business segments.

Cindy Taylor

Thank you, Bradley. I’d like to lead off with our accommodation segment. Our major oil sands lodges in Australian villages enjoyed strong occupancy levels during the second quarter of 2011. Accommodations revenues increased 66% year-over-year and EBITDA increased 102% year-over-year.

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