Superior Energy Services, Inc. (SPN)

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Superior Energy Services (SPN)

Q4 2012 Earnings Call

February 27, 2013 11:00 am ET

Executives

Greg A. Rosenstein - Executive Vice President of Investor Relations & Corporate Development

David D. Dunlap - Chief Executive Officer, President and Director

Robert S. Taylor - Chief Financial Officer, Principal Accounting Officer, Executive Vice President and Treasurer

Analysts

James C. West - Barclays Capital, Research Division

J. Marshall Adkins - Raymond James & Associates, Inc., Research Division

Michael R. Marino - Stephens Inc., Research Division

Robin E. Shoemaker - Citigroup Inc, Research Division

Jeffrey Spittel - Global Hunter Securities, LLC, Research Division

Byron K. Pope - Tudor, Pickering, Holt & Co. Securities, Inc., Research Division

Blake Allen Hutchinson - Howard Weil Incorporated, Research Division

Daniel J. Burke - Johnson Rice & Company, L.L.C., Research Division

Stephen D. Gengaro - Sterne Agee & Leach Inc., Research Division

Brad Handler - Jefferies & Company, Inc., Research Division

Presentation

Operator

Good day, ladies and gentlemen, and thank you for standing by. Welcome to Superior Energy's Fourth Quarter Earnings Conference Call. [Operator Instructions] This conference is being recorded today, February 27, 2013. I'd now like to turn the call over to Greg Rosenstein. Please go ahead, sir.

Greg A. Rosenstein

All right. Thank you and good morning, everyone. Thanks for joining today's conference call. Joining me today are Superior's President and CEO, David Dunlap; and Chief Financial Officer, Robert Taylor.

Let me remind everyone that during this conference call, management may make forward-looking statements regarding future expectations about the company's business management plans for future operations or similar matters. The company's actual results could differ materially due to several important factors, including those described in the company's filings with the Securities and Exchange Commission.

Also during the call, management will refer to non-GAAP financial measures. And in accordance with Regulation G, the company provides a reconciliation of these non-GAAP financial measures on its website.

With that, I'll now turn the call over to David Dunlap

David D. Dunlap

Thank you, Greg, and good morning to everyone. We reported quarterly revenue last night of $1.2 billion, EBITDA of $290 million and adjusted net income from continuing operations of $77.6 million or $0.49 per diluted share.

The last half of 2012 and the fourth quarter in particular played out as we expected with lower completions activity in the U.S., strong growth in the Gulf of Mexico and continued expansion in the international markets.

In the U.S. land market during the fourth quarter, our pressure pumping revenue and profitability increased from the third quarter as we had one additional frac fleet that resumed to 7-day work schedule. However, our other completions related in coiled tubing services saw revenue and profits declined during the fourth quarter. Collectively, the rate of decline was less severe than we experienced during the third quarter.

While U.S. land revenue declined 7%, international revenue increased 16% and Gulf of Mexico grew 12%. The increase in Gulf of Mexico was particularly noteworthy as the fourth quarter usually has some seasonality.

In the international markets, Latin America and Africa experienced the most growth. This is the first quarter in which we are reporting to you in our new segment format. One of the benefits of this new format is the ability to isolate our performance in the U.S. completions market. We've talked in the past about how our contracted pressure pumping model coupled with our diverse product line and basin exposure should produce solid margin performance throughout the cycle. You can see now at our onshore work-over and completion services segment that our operating margin declined just 120 basis points from the third quarter and is down less than 700 basis points from our peak in Q2 this year. The same type of progression has taken place in the production services segment, where Q4 operating margins were down about 400 basis points from Q3. It is less of a decline than the 600-basis point dropping from Q3 to Q2 -- or from -- in Q3 from Q2.

The largest component of this segment is coiled tubing, which has probably been impacted by pricing declines more than any of our other U.S. services. After Robert walks you through some of the financial details of the quarter, I will discuss our guidance and outlook.

And with that, I'll now turn the call over to Robert Taylor.

Robert S. Taylor

Thank you, Dave. As we go through each segment, I'll make comparisons to the third quarter of 2012. In the Drilling Products and Service segment, revenue was $193 million and income from operations was $57 million, which represents a 1% sequential decline in revenue and a 9% sequential decline in operating income. The decrease in revenue and operating margins were primarily due to a decline in U.S. land activity, where revenue was off by 11% to $76 million. We experienced lower demand for accommodations. Rentals of premium pipes were also down primarily in the Bakken and Rockies.

Gulf of Mexico revenue increased 12% to $69 million primarily due to an increase in premium drill pipe and specialty rental.

International revenue was unchanged at $48 million.

In the Onshore Completion and work-over Services segment, revenue was $418 million, and income from operations was $47 million, which represents a 1% sequential decrease in revenue and a 10% sequential decline in income from operation. Virtually all the revenue comes from the U.S. land market.

Our pressure pumping revenue increased 2%, which was more than offset by declines in fluid management services and well service rigs. The increase in pressure pumping activity came from both the Permian and the Bakken.

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