Superior Energy Services, Inc. (SPN)

SPN 
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Superior Energy Services (SPN)

Q4 2010 Earnings Call

February 24, 2011 11:00 am ET

Executives

Greg Rosenstein - Vice President of Investor Relations, Secretary and Member of Administrative Committee

Rob Taylor - Chief Financial Officer, Principal Accounting Officer, Executive Vice President, Treasurer and Member of Administrative Committee

David Dunlap - Chief Executive Officer and Director

Analysts

Daniel Burke - Johnson Rice & Company, L.L.C.

Joe Hill - Tudor, Pickering, Holt & Co. Securities, Inc.

Jeffrey Spittel - Madison Williams and Company LLC

John Daniel - Simmons & Company International

William Conroy - Pritchard Capital Partners, LLC

Geoff Kieburtz - Weeden & Co., LP

Joseph Gibney - Capital One Southcoast, Inc.

Robin Shoemaker - Citigroup Inc

David Duong - Pali Capital

J. Adkins - Raymond James & Associates, Inc.

Presentation

Operator

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Superior Energy Services Fourth Quarter Earnings Conference Call. [Operator Instructions] This conference is being recorded today, Thursday, February 24, 2011. I would now like to turn the conference over to Mr. Greg Rosenstein. Please go ahead, sir.

Greg Rosenstein

All right. Good morning, and thank you for joining today's conference call. Joining me today are Superior's CEO, David Dunlap; and Chief Financial Officer, Robert Taylor.

Let me remind everyone that during this call, management may make forward-looking statements regarding future expectations about the company’s business, management’s 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.

During the call, management will refer to EBITDA and adjusted income from operations, both of which are non-GAAP financial measures. And in accordance with Regulation G, the company provides a reconciliation between net income and these items on its website. Now I'll turn the call over to David Dunlap.

David Dunlap

Good morning, everyone, and thanks for joining us today. Last night, we reported revenue of $456.9 million. When excluding special charges that we outlined in our earnings release, we had an EBITDA of $123 million and adjusted net income of $34.1 million or $0.42 per diluted share. The fourth quarter reflects continued success in our ongoing initiative to diversify geographically as we had another record quarter for non-Gulf of Mexico revenue at $297 million. For the year, we had a record $1 billion in non-Gulf of Mexico revenue, which represented 60% of our total revenue.

In the fourth quarter, the international market had the biggest increase relative to the third quarter with 9% revenue growth. A lot of that growth came from Hallin Marine, which had its best quarter since we acquired them. In addition to higher vessel utilization, Hallin sold their sat diving [saturation diving] system, which they do typically as they tend to sell their older equipment each year and replace it with newer units. I don't think they've turned the corner quite yet as their rates remain low and Asia-Pacific market remains depressed, but they continue to do a great job of finding work for vessels outside of that region. Pricing remains the biggest hurdle for them at this point.

In domestic land revenue, we increased 8% and continue to see growth and demand for coiled tubing and premium drill pipe. Coiled tubing pricing was up anywhere from 5% to 10% for the first half of 2010, and we expect pricing to remain firm in 2011. And once again, we were able to grow our Drilling Products and Services land revenue at a faster rate than the U.S. rig count. Despite these successes, the earnings power of this quarter did not reach its full potential due to the current state of the Gulf of Mexico, which adversely impacted us in three ways.

First, as you know from our prior announcement in June and subsequent earnings calls, the biggest impact from the lack of deepwater drilling has occurred in the Drilling Products and Services segment, where we estimate about $100 million in annual revenue at very high margins is not being realized. Our team has done an outstanding job repositioning some assets and expanding into new markets. But nonetheless, that impact is still being felt.

Second, the Marine Stimulation business that we acquired in the third quarter as part of the sand control completion tool acquisition cost us about $0.04 in earnings during the fourth quarter due to a lack of permitting and spillover effect in the shallow water.

Finally, the slow pace of permitting and additional time required to prepare and submit permits in the shallow water, resulting in us completing just one P&A project at our Bullwinkle platform rather than the three that we originally modeled. A lot of those same factors will exist in the first quarter, and we will talk more about this when we discuss earnings guidance later in the call.

Now we'll continue to work through these challenges in the Gulf of Mexico, but the upside is that when the market does return, it should have a positive incremental impact to our earnings power. Our Chief Financial Officer, Robert Taylor, will walk you through some of the various margins by segment and discuss changes to the balance sheet and some of our 2011 guidance assumptions. I'll then follow up with remarks regarding 2011 earnings guidance, and we'll take your questions. So for now, I'll turn the call over to Robert.

Rob Taylor

Thank you, Dave, and good morning. As we go through each segment, I'll make comparisons to the third quarter. When I discuss income from operations, I'll be excluding the impact of special charges that flow through the segments so that you can make an apples-to-apples comparison to the prior quarter.

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