Superior Energy Services, Inc. (SPN)

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Superior Energy Services (SPN)

Q3 2012 Earnings Call

October 25, 2012 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

Marshall Adkins

Robin E. Shoemaker - Citigroup Inc, Research Division

Jeffrey Spittel - Global Hunter Securities, LLC, Research Division

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

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

William Sanchez - Howard Weil Incorporated, Research Division

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

Trey Cowan - Clarkson Capital Markets, Research Division

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

Brad Handler - Crédit Suisse AG, Research Division

Presentation

Operator

Good day, ladies and gentlemen. Thank you for standing by. Welcome to Superior Energy Services Third Quarter Earnings Conference Call. [Operator Instructions] This conference is being recorded today, Thursday, October 25, 2012. I would now like to turn the conference over to Mr. Greg Rosenstein, Executive Vice President of Investor Relations and Corporate Development. Please go ahead, sir.

Greg A. 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 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.

During this call, management will refer to non-GAAP financial measures in accordance with Regulation G. The company provides a reconciliation of these non-GAAP financial measures on its website. Now I'll turn the call over to David Dunlap.

David D. Dunlap

Thank you, Greg, and good morning to everyone. Yesterday afternoon, we reported quarterly revenue of $1.2 billion, EBITDA of $308 million and adjusted net income from continuing operations of $95 million, or $0.60 per diluted share. The major difference between the $0.60 in earnings in the upper end of our pre-earnings guidance on October 2 comes from lower depreciation expense and better-than-expected international performance.

Our EBITDA was in line with the upper end of the guidance that was included in our pre-announcement press release. We really had 2 themes for the second half of 2012 that we talked about during our last conference call, and both are coming to reality.

The first theme, as we discussed last quarter, is that the slower customer spending and reduced rig count activity in the U.S. would impact utilization for completion-related services, especially pressure pumping, coiled tubing and fluid management services. This has been the case, although the utilization has certainly declined at a more rapid pace than we anticipated when we guided you in this direction last quarter.

The second theme is that while we anticipated a reduction in operating margins, those margins would still compare favorably to our North American peers. Operating margins for our U.S.-focused services are meeting expectations in this market environment, thanks to our contracted pressure pumping model, broad exposure to many bases and services and a strong presence in the high-margin drilling products and services space.

While our U.S. land revenue declined 11% from the second quarter, our Gulf of Mexico revenue increased 11% and our international revenue grew 7%.

Our Gulf of Mexico revenue was negatively impacted by Hurricane Isaac, which resulted in about 2 weeks of lower rental tool revenue and as much as 3 weeks of delays in intervention and P&A projects.

However, increases in deepwater drilling, 2 platform decommissioning projects and a stronger completions activity drove our revenue above second quarter levels. We are extremely pleased with the progress we made in our international results in Q3, especially coming off a strong second quarter.

We've spoken repeatedly during the past 2 years about international expansion being a key to our long-term growth, and results are now becoming more apparent.

Our efforts in Saudi Arabia, along with completion services inroads in Asia and West Africa, contributed to growth in the quarter.

In addition, we closed on a small acquisition in Argentina during the quarter, which I will discuss later, establishing our footprint in a country that will be emphasizing shale resource development in the years to come.

After Robert walks you through some of the financial details of the quarter, I will discuss our guidance and outlook. And with that, I 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 second quarter of 2012.

In the Subsea and Well Enhancement segment, revenue was $985 million and income from operations was $117 million, which represents a 6% sequential decline in revenue and 35% sequential decline in operating income.

In product lines, as Dave mentioned earlier, pressure pumping, fluid management and coiled tubing were collectively 14% lower from the second quarter. U.S. land revenue in this segment decreased 11% to $703 million. We experienced a slight decline in revenue from well service rigs, a product line that has held up better than most.

Gulf of Mexico revenue increased 16% to $128 million, primarily due to an increase in platform decommissioning projects and demand for completion tools and services in the deepwater. We estimate that downtime related to Hurricane Isaac resulted in lost or deferred revenue in this segment of approximately $13 million.

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