Oil States International, Inc. (OIS)

1Q 2012 Earnings Call

April 27, 2012 11:00 a.m. ET


Cindy Taylor – President and CEO

Bradley Dodson – SVP, CFO and Treasurer

Patricia Gill – Director, IR


Stephen Gengaro – Sterne Agee

Jeff Tillery - Tudor, Pickering, Holt & Co.

John Daniels - Simmons & Co.

Collin Gerry - Raymond James

Anthony Walker, Barclays

Mark Urness - Credit Agricole & Securities



Welcome to the Oil States International First Quarter 2012 Earnings Conference Call. My name is John and I will be your operator for today's call. (Operator instructions) Later we will conduct a Question and Answer Session. Please not that this conference is being recorded.

I will know turn the call over to Ms. Patricia Gill. Ms. Gill, you may begin.

Patricia Gill

Thank you, John. Welcome to Oil States' First Quarter 2012 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 and Chief Financial Officer.

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 other SEC filings.

I will now turn the call over to Cindy.

Cindy Taylor

Thank you, Patricia and thanks to all of you for joining our call this morning. The first quarter of 2012 was a great quarter for Oil States. We generated record earnings of $2.43 per diluted share on $135 million of net income and $1.1 billion in revenue.

First quarter results did include a pre-tax benefit of $17.9 million or $0.23 per diluted share after tax, related to a favorable contract settlement in our U.S. Accommodations business. All of our business segments performed well and strong activity continues.

Highlights from our first quarter 2012 included record accommodations revenues and EBITDA due to strong Canadian Mobile Camp results and continued strength in occupancy levels and revenues at our lodges and villages.

Our offshore product segment delivered a very good quarter with continued strong financial results, margins and new bookings into backlog.

We reported record shipments in our Tubular Services segment with improved pricing and margin and we delivered solid performance in our Well Site Services segment as margins and volumes held up well despite the shifting of U.S. drilling and completion activity between dry gas and oil basins.

Our Accommodations business continues to grow providing strong revenue visibility for our company through our long-term accommodations contracts.

In our Offshore Products segment, bidding and quoting activity remains robust particularly for our subsea equipment and for proprietary floating production facility content, for delivery and installation into Brazil, West Africa and Southeast Asia.

In North America, oil-directed drilling and completion activity continued to strengthen, substantially offsetting the weakness in natural gas drilling. Demand for our rental tools and service personnel was strong, particularly in the Bakken, Eagle Ford and Permian Basin markets. Customer demand for tubulars remains robust due to strong overall U.S. land drilling activity, coupled with increased activity offshore in the Gulf of Mexico both deep-water and

on the shale.

At this time Bradley will take you through more details of our consolidated results and financial position. And then I will conclude our prepared remarks with a discussion of each of our segments in more detail and will give you our thoughts as to the current market outlook.

Bradley Dodson

Thank you, Cindy. For the first quarter of 2012 we reported operating income of $204 million on revenues $1.1 billion. Our net income for the first quarter of 2012 totaled a $135 million or $2.43 per diluted share. This included a pretax benefit of $17.9 million or $0.23 per diluted share after-tax related to a contract settlement.

The comparable first quarter of2011 results were $95 million of operating income on revenues of $760 million. First quarter of 2011 net income totaled $62 million or $1.13 per diluted share. The year-over-year increase in profitability were primarily due to organic growth initiatives, strong occupancy levels in our Accommodation lodges and villages, increased deep-water spending and higher U.S. drilling and completion activity.

During the first quarter we reported cash flow from operations of $67 million which was net of $122 million investment in working capital. The first quarter working capital investment was driven by higher activity levels in our Tubular services, our Accommodations and Offshore Product segments generating higher accounts receivable and inventory balances at March 31, 2012.

During the quarter we spent a $101 million in capital expenditures. The majority, of which, were spent on the expansion of our accommodation lodges and villages.

Our net debt at the end of the first quarter totaled $1.1 billion and our debt-to-Cap ratio was 36%. As of March 31, 2012 the company had a proximately $738 million of combined availability under our credit facilities along with $71 million in cash.

In terms of the second quarter 2012 guidance, we expect depreciation and amortization expense to be $53 million and net interest expense to approximate $19 million. Diluted shares are expected to total $55.6 million in the second quarter of 2012 and we currently expect our second quarter 2012 effective tax rate to approximate 28.5%. We continue to expect to spend approximately $600 to $700 million in capital expenditures during the calendar year of 2012.

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