Nabors Industries Ltd (NBR) 2007 Q1 法說會逐字稿

Good day, ladies and gentlemen. And welcome to the Superior Well Services first quarter 2007 earnings conference call. My name is Annie. And I'll be your coordinator for today.

(OPERATOR INSTRUCTIONS)

I would now like to turn the presentation over to your host for today's call, Mr. Dave Wallace, Chairman and Chief Executive Officer. Please proceed, sir.

Thanks, Annie. Good morning, everyone. I'd like to welcome you to the Superior Well Services first quarter 2007 earnings call. Joining me today is Tom Stoelk, Chief Financial Officer.

I'd like to remind all those participating on the call that a replay of our conference call today will be available to listen through May 25th by dialing 888-286-8010 and referencing the conference ID number of 37589455

The webcast will be archived for replay on the company's website for 15 days. Additionally, our form 10-Q was filed this morning shortly after the earnings release. A copy of the 10-Q is now posted on the company's website.

Before I begin with comments on our first quarter operating performance, I'd like to make the following disclaimer regarding our call today.

Except for historical information, statements made in this presentation, including those relating to acquisition or expansion opportunities, future earnings, cash flow, and capital expenditures, are forward-looking statements within the meeting of Section 27A of the Securities Act of 1933 and Section 21E of the Security Act of 1934.

All statements other than statements of historical facts included in this presentation that address activities, events, or developments that Superior expects, believes, or anticipates will or may occur in the future are forward-looking statements.

These statements are based on certain assumptions made by Superior based on management's experience and perception of historical trends, current conditions, expected future developments, and other factors they believe are appropriate in the circumstances.

Such statements are subject to a number of assumptions, risks, and uncertainties, many of which are beyond Superior's control, which may cause Superior's actual results to differ materially from those implied or expressed by the forward-looking statement.

These risks are detailed in Superior's Securities and Exchange Commission filings. The company undertakes no obligation to publicly update or revise any forward-looking statements.

Let's begin. Our first quarter of 2007 stands out for continued top line growth, another quarterly revenue record. The quarter was also characterized by several factors, including weather and higher costs that led to margins that were softer than we have historically achieved.

First, let's talk about the top-line. We set a new quarterly record of $76.7 million, a 61% increase over the same quarter in 2006 and a 2% sequential increase over fourth quarter 2006.

Year over year, the 61% growth rate outpaces the 15% growth rate of the drilling rate count and continues to show that we're doing a good job of making market penetration and executing our strategy at our new and existing service center locations.

Most of this revenue growth was in our newer regions of Mid-Con, Rocky Mountain, and Southwest region, which we continue to highlight as our focal areas of growth. The Mid-Con and Rocky Mountain regions had some lost days in the quarter due to cold and ice.

And our customers were challenged by large negative gas price differentials in the Rockies. So we were excited about the revenue contribution that was generated in these areas.

Our Appalachian region reflected the year-over-year increase despite harsh seasonality in February and March, while our Southeast region remained a little sluggish beginning the year and in the first quarter.

Now for the bottom line. Our operating income for the quarter was $14.3 million, a 37% increase over 2006 and our EBITDA grew to $19.8 million for the quarter, a 46% increase.

As I alluded to, margins were softer due to a confluence of factors. These were, one, higher labor costs; two, higher material cost; three, equipment delays; and four, a very cold first quarter weather.

While we always have to deal with these factors in some way, shape, or form, it was an unusual quarter in that it had an exceptionally large effect from all of them concurrently.

Labor costs were up about 110 basis points due to staffing of personnel in our new and existing service centers in preparation of new equipment arriving as part of our $84 million CapEx budget for 2007.

We increased our employee count during the quarter by 9% sequentially to 1,182 employees in order to have new employees hired, trained, and ready for our new equipment. This occurred throughout all of our regions.

This created a short-term reduction in margins. But it will provide a long-term benefit. This is similar to what we did in 2006 in Alvarado and Farmington.

Our material costs were up 250 basis points for the quarter. This increase was due to more revenue from our newer regions that are still tweaking their cost structures and logistics, type of jobs, and delays in key equipment.

Some of the increased material costs were a result of equipment delays and the need to outsource to other third-party handlers, particularly in the areas of sand and nitrogen.

While these delays were unfortunate, we see them as sporadic events. And we're working increasing harder to order with more lead time and prevent them.

An example of a costly delay this quarter was in Mid-Con, where we picked up a large foam project for a large customer.

Our new nitrogen pumping equipment and transports were delayed by the builder for 60 days, causing us to hire a third-party supplier to support the project.

This worked well but was very expensive, greatly increased our materials cost for this work, and by itself added about 50 basis points to our overall quarterly material cost increase.

We're also seeing delays for sand movers during the first quarter that had a negative impact on our sand handling cost, which added to our material cost increase.

Our primary supplier was supposed to deliver seven units during the first quarter. But due to labor shortages and backlogs from year end was only able to deliver two units.

This increased our delivery costs on profit deliveries as it become shorter notice and had more demurrage times associated. We expect these delay-related costs to improve over the next two quarters as the new needed equipment arrives.

Focusing on our regions, Appalachia had revenues of $32.5 million, up 33% over 2006. We saw our usual seasonal drop off, but it was more intense than in 2006, likely due to February's extraordinarily cold weather.

When the weather is extremely cold, the crews get shut down and then remain out of commission during the longer seasonal breakup when the deeper frost starts thawing.

Customer activity in this region is now quite robust. And the ramp of activity in the shale plates continues.

Our newest Appalachian location in Jane Lew, West Virginia, added personnel in the first quarter. And they started generating revenue during April. We're still adding equipment. And we'll have [some] stimulation in nitrogen services at this location.

We will continue to add technical pumping equipment and wire line equipment to this region to meet growing demand.

We note that Cabot and Equitable are ramping activity in 2008, which is a long-term positive for us as Atlas and Great Lakes increase in shale well activity in 2007-2008.

Our Southeast region had revenues of $13.1 million sales for the quarter, up 6% over 2006. Bossier and Columbia started a little sluggish in January but picked up as anticipated.

We're adding additional stimulation and cementing equipment to both of these locations late in the first quarter.

This equipment was about 45 days behind expected delivery. But we feel confident on our revised delivery date. We continue to chase more technically challenging jobs because we've seen stimulation pricing pressure in Bossier on the lower tech jobs.

We successfully added remote data transmission to our Bossier stimulation services. This service allows real-time stimulation job data in Northern Louisiana to be satellite transmitted to a customer's office in Houston, which is of great benefit to our customer.

We fully anticipate expanding this service to other regions. Alabama was a little sluggish for the quarter, similar to 2006, as customers evaluate the dewatering process of the coal bed wells to see if they should modify drilling areas.

Our Mid-Continent region had a revenue increase of 46% year over year and a 16% sequential increase over fourth quarter. We did a great job on the revenue side as we saw market penetration in Arkansas and Oklahoma.

And we picked up additional revenue from the [ELI] acquisition in Hays, Kansas. However, we also noted higher operating costs for the quarter. Part of this was discussed earlier with the third-party nitrogen charges.

We also saw higher labor costs as the harsh winter slowed down and delayed jobs, making crews less efficient.

We're also seeing some pricing pressure for lower tech jobs in Northwestern Oklahoma, which again is [sealing] the push for us to garner higher tech work in the region.

Part of this pricing pressure is from seasonal competition from the Rockies trying to keep busy while the Rockies go through a winter slowdown. We've also been adding personnel to this region as we prepare for our expansion.

We continue to add resources to our service center in Van Buren, Arkansas, which saw a significant jump in revenue for the quarter.

The Fayetteville and Woodford Shale activity continues to expand. And the extra resources will align with customer expansion. We plan to add wire line services to this location in the third quarter.

Our acquisition of ELI in Hays, Kansas, in February is transitioning smoothly. Hays has been slightly slower than expected due to the weather impacts in this area, as discussed earlier. But the second quarter looks to be on target.

The compatibility of crews and equipment make it very easy to ship crews between Hays, Trinidad, and Oklahoma activity.

We're adding a new service center in Clinton, Oklahoma, during the third quarter to participate in the more technical work in Southwestern Oklahoma. This service center will have cementing and stimulation services.

The move to Clinton, Oklahoma, aligns with our long-term strategy of continuing to move into the more technical basins in the U.S. We've been very focused on growing the mechanical and technical sides of our business for the past two years.

On the mechanical side, we've gone from 70,000 horsepower at our IPO to about 190,000 at the end of the quarter, to an anticipated 250,000-plus horsepower at the end of 2007.

The deeper, more technical basins require more horsepower to stimulate. And we will now have the necessary horsepower to compete now.

We've also been growing on the technical side through expanding our stimulation and cementing fluids to work in the deeper, hotter, more technical basins. The financial rewards for these basins are greater than in the lower tech basins.

The proximity of Clinton to our technical lab in Alvarado, Texas, for support was an essential part of this growth plan.

We were very pleased with the performance of our Rocky Mountain region during the quarter.

Revenues for the quarter were $8.4 million, up 656% over 2006 and 18% sequentially.

This is especially impressive when we consider that all three of our service centers in the Rockies were affected by severe winter weather.

And for our producers, the Rockies in general were experiencing a challenging natural gas pricing environment in the quarter. We continue to make market penetration in this region. And it's a focus area for growth in 2007.

We saw Vernal, Utah, improve from a soft first quarter 2006 to have a strong revenue quarter. We adjusted our customer mix in 2007 to make sure we had active customers in the first quarter, unlike getting seasonal shutdown customers in 2006.

Farmington continues to add to their customer list and shows good sequential gains from fourth quarter 2006. We recently added cementing services in Farmington in February and enjoyed a profitable cementing month in March.

An added bonus is that cementing is bringing extra customers and stimulation with it. This is similar to what we saw in Vernal in 2006. We've expanded our acidizing capabilities in this location.

And we'll add more nitrogen and cementing equipment to this location in the second and third quarters. Trinidad shook off a weather-affected January to bounce back in February and March.

And we're more than pleased with the performance of this acquisition, which is performing in line with expectations. Crews are compatible with Hays and Oklahoma and can be shifted around to optimize utilization.

The Rockies is a focus for our future growth. And we're adding two new service centers in this region. We're adding technical pumping services in Rock Springs, Wyoming, during the third quarter.

This location will service the busy Johan, Pinedale, and Wamsutter fields in Southwest Wyoming. We're currently in the process of adding personnel in this service center. A large part of this area is very technical and again meets our focus on moving into the more technically challenging regions.

We're also adding a new service center in Eastern Colorado near Brighton, Colorado, to participate in the active DJ Basin. This location will offer stimulation and acidizing services initially to this basin and will be started in the third quarter.

Timing of equipment is essential to our planned start date as we've already delayed these service centers 45 days. But we're now confident of the delivery time.

To support expansion to these highly technical basins, we will establish a second technical lab near Denver, Colorado, similar to our lab in Alvarado, Texas. We have ordered compatible equipment to what we have in Alvarado, Texas.

In our Southwest region, the growth in Alvarado, Texas, was a highlight of the quarter. In only the second full quarter in operation, Alvarado accounted for 11% of our quarterly revenues. Alvarado had a 62% sequential gain over fourth quarter '06.

We continue to see increased utilization. And our margins continue to improve. We still have efficiency gains to realize from our material handling. And the arrival of the delayed equipment discussed earlier will assist with this improvement.

We're expanding our cementing crews to meet the increasing demand and adding an additional 14,000 horsepower to this service center to expand our current two stimulation crews to higher-rate crews.

We are still progressing on adding wire line services to Alvarado during the third quarter and offer packaging of stimulation and perforating.

Overall, our performance in Alvarado was enhanced by the opening of our testing lab, which has been a successful selling tool. This location is meeting expectations.

We're adding a second service center to the Southwest region with a new service center in Artesia, New Mexico.

Artesia covers the oily activity in the Western Permian Basin and also will service the shell drilling activity in the Western Barnett and Woodford plays.

This is a very active area being serviced by the big three. We're currently adding people and preparing our facility. We will start adding technical pumping services of cementing and stimulation to this center during the late second and early third quarters.

Our market outlook at this point is very positive. While we had a more challenging operating environment in first quarter '07, we continue to take a bigger piece of the pressure pumping pie and believe we can continue that trend.

Softening gas prices in the fourth quarter of 2006 make customers more sensitive than the last couple years.

And as we have spoken about before, this cost cutting actually helped us to receive more opportunities to work for new customers or expand with existing customers in new regions.

We see oil and gas prices firming up after the winter. And based on customer feedback, we think the rig count will remain at current or higher levels.

We continue to see market penetration as we become more widely known among customers and as our five new service centers for 2007 give us an expanded base of operations in more technically challenging areas.

We stay focused on our goal at Superior Well Services to continue our pursuit of becoming a higher tier service company in our industry. At this time, I'll turn it over to Tom for some financial highlights.

Thanks, Dave. Net income for the three months ended March 31, 2007, totaled $9 million, which was a 41.7% increase when compared to last year's first quarter, and was down 7.8% when compared to our previous sequential quarter.

Fully diluted earnings per share reached $0.39, which was an 18.1% increase over fully diluted shares in the first quarter of '06 and was down 20% when compared to fully diluted earnings per share from our previous quarter.

As Dave mentioned in his remarks, the company achieved record revenue growth. However, our earnings were affected by delays in equipment deliveries and weather in several of our operating regions as well as increased pricing competition in select locations during the first quarter of 2007.

Revenues for the three months ended March 31, 2007, totaled $76.7 million, which was a $29 million increase, or it was about 61% over the comparable period in 2006. Each operating region had revenue increases over the same period in the prior year.

Really increased activity levels at existing locations, new service centers, some wire line acquisitions that we made, and pricing improvements made in 2006 and 2007 all contributed to that increase.

Revenue by operating region increased in 2007 by $8.5 million in the Southwest, $8 million in Appalachia region, $7.3 million in the Rocky Mountain region, $4.5 million in the Mid-Continent region, and $700,000 in the Southeast region.

Approximately $17.5 million of the revenue increase in the first quarter ended March 31, '07, comparing it to last year's first quarter, was attributable to our new service centers.

We define a new center as a location that has less than 12 months of complete operating history.

New center revenue by operating region increased in 2007 by $8.5 million in the Southwest, $4 million in the Rocky Mountain region, $3.3 million in Appalachia, and $1.7 million in the Mid-Continent operating region.

Revenue from our technical pumping services increased approximately 56.4% from a $43 million level in the first quarter of '06 to $67.3 million for the three months ended March 31, 2007. Technical pumping revenues accounted for 87.7% of total revenues.

And the breakout of that is 58.4% from stimulation, 21.2% from cementing, and 8.1% from nitrogen.

Approximately $17.5 million of the technical pumping revenue increase between the first quarter of '07 and '06 was attributable to our new service centers.

New service center revenue by operating region increased in 2007 by $8.5 million in the Southwest region, $4 million in the Rocky Mountain region, $3.3 million in the Appalachia region, and $1.7 million in the Mid-Continent operating region.

Revenue from our down-hole surveying services doubled in 2007 when compared to 2006 first quarter and reached $9.4 million for the three-month period ended March 31, '07.

The asset acquisitions of wire line companies that we made late last year and early this year contributed to the majority of that revenue increase.

When comparing the first quarter 2007 revenues to the fourth quarter revenues in 2006, the sequential growth between quarters was 2.1%.

Revenue by operating region increased by $3.2 million in the Southwest region, $1.9 million in the Mid-Continent region, and $1.3 million in the Rocky Mountain region, and decreased by $2.2 million in the Appalachian region and $2.6 million in the Southeast region.

As Dave referenced in his comments, most of the revenue growth was in our newer operating regions, which are the Southwest, Rockies, and Mid-Continent.

Weather and equipment delays impacted results in several regions during the first quarter of '07 as well as sluggish customer activity in the Southeast region. The sequential revenue decrease can be attributed more to weather and seasonality.

As many of you may recall, the 2006 winter weather was milder than 2007, which allowed for higher levels of drilling activity, particularly in the Appalachian region.

Cost of revenue increased 70.1% to $54 million for the three months ended March 31, 2007, compared to $31.7 million for the first quarter of '06. That's about a $22 million aggregate increase.

The increase in dollar amount of these costs was due to the fact that these costs bury with revenue in the higher activity levels.

Cost of revenues as a percentage of total revenues increased approximately 3.8% for the quarter ended March 31st when compared to the first quarter of last year. Higher material and labor costs were the principle drivers of this increase.

Material cost increases were caused by higher sand and cement transportation expenses experienced in the Southwest, Mid-Continent, and Rocky Mountain regions.

Additionally, as Dave mentioned in his remarks, when scheduled equipment deliveries were delayed in the Mid-Continent region, certain services were contracted to other well servicing operators, which increased our costs and impacted our operating margins during the first quarter of 2007.

Labor expenses as a percentage of revenue increased from 18.3% in the first quarter of 2006 to 19.4% in the first quarter of 2007.

The 1.1% increase in labor expense as a percentage of revenues in '07 was primarily due to additional staff being added in preparation of equipment deliveries and new service center startups.

Additionally, labor as a percentage of total revenues increased due to lower utilization caused by winter weather and equipment delays that Dave talked about.

New centers increased cost of revenues in the first quarter of 2007 over comparable 2006 amounts by $12.4 million.

By operating region, the new center cost of revenues increased in the first quarter over last year's first quarter by $6.4 million in the Southwest region, $2.5 million in the Appalachian region, $2.3 million in the Rocky Mountain region, and $1.2 million in the Mid-Continent region.

Cost of revenues as a percentage of total revenues increased from 68.2% in the fourth quarter of '06 to 70.4% in the first quarter of '07. Higher labor and material costs were the principle drivers of this increase.

During the first quarter of '07, we began increasing our technical pumping staff to prepare for equipment delivers expected in early '07 that were delayed.

The remain cost of revenue increases between the sequential quarter is primarily due to outsourcing expenses and a little higher material costs and startup expenses associated with our new service centers.

SG&A expenses were $8.4 million for the three month period ended March 31st, '07, compared to $5.5 million for the comparable period in '06. That's an increase of $2.9 million or approximately 53%.

As a percentage of revenue, SG&A expenses declined from 11.6% in the first quarter of '06 to 11% in the first quarter of '07.

The percentage decline was due to our ability really to allocate the fixed cost component of these costs over a higher base of revenues.

Approximately $1.9 million of the increased SG&A expenses in the first quarter of '07 as compared to the first quarter of '06 was attributable to the establishment of new service centers.

New service center SG&A expenses by operating region increased '07 first quarter by $400,000 in the Appalachian region, $200,000 in the Mid-Continent region, $800,000 in the Southwest region, and $0.5 million in the Rocky Mountain operating region.

Labor expenses comprised $1.3 million of the cost increases related to the new centers as we hired additional personnel to manage the growth in our operations.

As a result of this growth, first quarter of 2007 increased over comparable first quarter '06 amounts by $200,000 for rent, a couple hundred thousand for insurance, and $300,000 for office expenses.

As a percentage of revenue, the portion of labor included in SG&A was 6.5% in the first quarters of both '06 and '07. Labor expenses and SG&A increased $1.9 million in total to $5 million for the quarter in '07 when you compare it to '06.

When comparing first quarter 2007 SG&A expenses to the fourth quarter 2006 SG&A expenses, the sequential increase between quarters was approximately $1.2 million.

Labor expenses represented $800,000 of the SG&A expense increase compared to the prior quarter.

Additional management, sales, administrative personnel were added to manage the growth in our new service center startups. SG&A as a percentage of revenues increased in the first quarter of 2007 when compared to the prior quarter by 1.4% to 11%.

The increased is reflective of the startup expenses incurred when establishing new service center startups that contribute little, if any, revenue during their startup phase.

Facility costs and office expenses for new centers comprised the majority of the remaining SG&A increases during the first quarter of '07 when compared to the previous quarter.

Operating income was $14.3 million for the three months ended March 31, 2007, compared to $10.4 million for the three months ended March 31st, 2006.

That's an increase of $3.9 million or about 37%. As a percentage of revenues, operating income decreased from 21.9% in the first quarter of '06 to 18.6% in the first quarter of '07.

The primary reason for the decrease was higher transportation costs for sand and cement, increased labor and outsourcing expenses, as well as the establishment of our new service center operations.

Milder weather during the first quarter of '06 allowed improved labor utilization as compared to the lower labor utilization rates that we experienced in the first quarter of '07 due to the extremely cold weather conditions in a number of our operating regions.

New centers increased operating income by $3.1 million for the three month period ended March 31st, 2007, when compared to the previous fourth quarter of '06.

New service center operating income by operating region increased in 2007 by $1.3 million in the Southwest region, $1.2 million in the Rocky Mountain region, and $300,000 in the Appalachian region, and $300,000 in the Mid-Continent region.

Operating income decreased from $16.6 million in the fourth quarter to $14.3 million in the first quarter, which is a percentage decrease between sequential quarters of 3.5%.

As I mentioned earlier, the primary reason for this decrease was higher transportation costs for sand and cement, outsourcing expenses, and delays in equipment deliveries, increased labor expenses.

Turning to the balance sheet for a moment, we ended the quarter with approximately $65 million of working capital. Total debt at March 31st was approximately $2 million, which consisted of building and seller financings.

At March 31, 2007, debt to cap was approximately 1%. Capital expenditures for the quarter ended March 31st, 2007, totaled $38.5 million, which included $17.9 million [sic - see press release] of wireline acquisitions that we made in February. This compares to $14 million of cap expenses in the first quarter of last year.

Obviously, the increased capital expenditure in '07 was due to the higher amounts of capital expenditures as we continue to grow with our new service centers, as well as acquisitions of additional equipment and incrementally adding equipment to our existing service center locations.

The company's 2007 CapEx budget remains at $84 million, which excludes the $7.9 million spent on acquisitions to date.

Coming into the year, we expected to spend about two-thirds of our CapEx by the end of the second quarter. But given the delays in equipment deliveries, we think that slid probably 30 to 60 days.

At this point, I'm going to turn the call back to Annie for Q&A.

(OPERATOR INSTRUCTIONS) And your first question comes from the line of Stacy Nieuwoudt with Pickering Energy Partners.

Good morning, guys.

Good morning, Stacy.

Question for you on pricing, you mentioned pricing pressure, especially from the Canadians in the Mid-Con. Can you kind of walk us through which regions are best and worst, and on the regions that are worst, how much pricing is off versus the peak seen at the end of the last year?

Our more established areas have been the more solid pricing areas, which would be Appalachia, part of Southeast. And then the places we're seeing the pressure, as we mentioned earlier, has been kind of Northwest Oklahoma and then also East Texas.

And we really saw a kind of a spike in that in February, is where we started seeing a little spike. And again, we think part of that was due to some idle crews by our competition in the Rockies working their way down and just looking for some incremental business in those areas while they were a little slack.

As far as Southwest, it's a new area for us. Pricing stayed pretty solid there, what we expected. And the Rockies pricing, we're a fairly small player in the Rockies. Our customer base has stayed pretty solid there.

Okay. That's very helpful. You mentioned in your last call that you'd recently pushed through an 8% price increase in Appalachia. How much of that has been realized?

It was 8% through a book price increase that we did February 1st. And when we talk about 8%, that's before discount, so roughly 4% after discount and then maybe 2% to 3% at the bottom line.

Again, as I mentioned earlier, the areas that we're not seeing the tougher pricing of Northwest Oklahoma, East Texas, most of those areas, we saw the price book pass through. So a little bit of pushback even in our established areas. But as a general rule, we saw the pass through in those areas.

Okay. Great. And just one last question--with the increased horizontal count in Appalachia by some larger independents, like Chesapeake and Equitable, have you seen an increase in the mix shift to larger [cracks] in the area and any adoption of new technology, given the extensive clay content in the rock?

From what we're seeing at this time, there's still a little testing going on between straight hole and horizontal.

The number of horizontal is definitely increasing. And the mix of shale in each area is going to have a little variable as far as how you change your chemical makeup.

So I think it's still in the early stages to determine what the best fluids and the best type of treatment are. But it's definitely ramping up.

That's very helpful. I'll turn it back over. Thanks, guys.

Thanks.

Your next question comes from the line of Scott Gill with Simmons & Company.

Yes, good morning, gentlemen.

Good morning, Scott.

Tom, let me start with you. In the press release, it said that the acquisition price was like $7.9 million. You're saying $17 million, so.

No, no, no. I think I corrected myself because I misspoke. It was $7.9 million, Scott.

Okay. So it was $7.9 million. And so that means that your ongoing capital spending was $30 million?

Correct, little over $30 million.

Okay. And you're still sticking with $84 million for the year.

Right. And the $30 million includes a lot. We have to make equipment deposits. So that's included in that $30 million number. That isn't $30 million for stuff that went in services is the differentiation I'm making.

Okay. And as you look into 2008, are you having to start to make commitments to capital today for '08 equipment?

We're just starting that process now. We've got an upcoming board meeting this month. And that's on the agenda. We're certainly looking at the stuff that takes much longer lead times to lay some commitments out there with respect to it. But at this point, we haven't committed '08.

Okay. And David, if you could just help us with some guidance here as to how we ought to be thinking about the Appalachian recovery here in the second quarter.

You said April looked very strong. Even in the first quarter, you're up well over 30% year over year, I believe is the number.

Second quarter, how do you think that plays out on a year over year basis? Do we kind of recoup the havoc from the weather? And maybe is this up as much as 40%?

April's usually one of our softer months. Just Michigan's still in frost laws and then Northern Pennsylvania, which is a couple of our very active areas. They still get some impact in April.

And then they usually take off very hard May-June for the second quarter. And then as far as Southern Appalachia, which is a growing part of our business, it's getting very active. And again, we're adding extra resources down there.

So we expect to see just with the increased equipment that we have year over year to see nice growth over '06.

Okay. And just total company, if either one of you could help us with what we should be expecting on operating income margins.

Do you think all of the issues that we saw in the first quarter, are they pretty much behind you? And should we be looking at those margins to expand for Q2? And if so, by about how much?

We're thinking that Q2 could be a little flattish because we're still going to be adding personnel in preparing for the extra equipment coming on. And then Q3-Q4 is where we expect to see the ramp up in revenue and margin.

Okay. Great. Thank you.

(OPERATOR INSTRUCTIONS) And your next question comes from the line of Jack Aydin with Keybanc Capital Markets.

Hi, guys.

Hi, Jack.

Morning, Jack.

Could you just--I know you talked about direction about Appalachia in the second quarter. Could you talk a little bit more on the other regions? How do you see the business situation?

I mean, we know you had a very tough January in the first quarter. Are things are recovering across the board in the all regions?

We're looking at April. And year over year in April is looking very strong. And the big thing is going to be the timing of equipment and getting the new service centers online.

We started seeing part of the equipment come in late first quarter and early second quarter. So right now, our business outlook for other regions still looks very good.

We think the oil and gas prices starting to firm up over--they were looking pretty soft in January and had customers kind of sitting back deciding what they should do. But now that they've kind of firmed up, we're seeing that the customers are more bullish on the rest of the year.

And again, we like the new market that we're moving into, so makes us feel pretty good about the rest of the year.

Okay. With somebody like Halliburton moving into overseas and maybe people are out to follow, are you seeing your business--are you picking up some business from those people?

Probably the thing that's helped us most--and we are picking up more business for the larger independents in the U.S. And part of that is we've grown our footprint. So now we have a larger geographic footprint.

Also, we've grown the amount of equipment that we have. And also, we're getting to be better known in some of the more technical plays. So this is all kind of ramping up.

And then, you know, we made a conscious effort last year to put city sales offices in Houston, Denver, and Oklahoma City again to increase our presence with these customers. So all this is kind of working to our favor.

And again, same technology at a lower price, we're seen as an alternative to the big guys. So all this is kind of working in a positive way to increase our business and grow it with more of the larger EMP guys in the U.S.

Dave, when we had you here visiting clients, you were mentioning a tool that you were going to get from England. And you got first delivery. Is that tool in? And how is the reception?

Actually, that tool has been delayed a little bit. It's our digital slim-hole, open-hole logging tool that you're referring to. And it's close. But it still hasn't made it to the down-hole test part for us.

But we've been over there recently. And they're making progress. They're still just tweaking a few things. So it's been delayed a little bit.

Thanks. That's all for me. Thank you very much.

Thanks, Jack.

Your next question comes from the line of F. Poe with A.G. Edwards.

Good morning, Dave. Good morning, Tom.

Hey, Poe.

Good morning, Poe.

Hey, I just wanted to get an appreciation for the top line sequentially. You talked about Appalachia being traditionally soft in April. But should we--I assume that we're expecting a sequential growth in that market, recovery.

And then can you give me an appreciation for how it might compare to the fourth quarter? You really dropped off in the first quarter. And can you back to where you were in the fourth quarter in Appalachia.

Actually, usually April in Appalachia is still impacted by frost laws and some of the road restrictions. So it will be a little softer.

When you look at fourth quarter, all three of the months were very strong. When you look at April, it's going to be a little bit soft yet. And then May and June are going to be ramping up.

Again, we're adding more resources. We just started Jane Lew in Southern Appalachia. So that area is already out of frost laws and kind of ramping up. So may be off still a little bit from fourth quarter, just mainly due to April.

And then I thought in the fourth quarter conference call that you had indicated that you were seeing a seasonal rebound in the Southeast. And yet the quarter came in pretty light relative to the fourth quarter. Where do you stand in the Southeast as far as a monthly ramp there, Dave?

Mississippi and Louisiana are pretty well up to expectations. They were a little bit softer in January. But then they bounced back in February-March. The one that's been a little sluggish is Alabama.

It's a fairly small customer mix down there. And part of the customers are -- they've been very active in some new step-out areas. And they've kind of been watching their dewatering. And we saw this last year in 2006 in January and February. And then the ramped up in March.

This year, January, February were pretty well on track with last year. The pushed back the ramp up. And we didn't see it in March. So that was the area that we dropped off a little bit.

And even though you talked about some of the seasonality of the business in the Rockies and the weather impact in the Rockies, too, you had really good sequential growth in both the Rockies and the Southwest. Is that likely to continue over the rest of this year?

We like our position in both areas. Again, when you look at the Southwest, it's only been the second quarter of operation, had a really nice ramp up from first quarter. We added extra horsepower to that location. And that's going to increase our job capabilities.

We originally were set up for one large sim crew or two small simulation crews. We're seeing the jobs are mainly larger jobs. So we added the extra horsepower to ramp that up to two large stimulation crews.

Poe was asking Rockies.

Okay. And then in the Rockies, again, we've seen a nice ramp up. They did have some seasonality there. So we expect it to continue to ramp up. Plus, we're bringing two new service centers online third quarter.

They'll have a little impact in third quarter and then more impact in fourth quarter. So as far as the Rockies go, we continue to see it ramping up also.

So Rock Springs is fully operational in the fourth quarter and partially in the third quarter, Dave?

That's correct. That's our current plan based on timing of equipment.

Okay. And then, Tom, just some fine tuning--SG&A, are you expecting this to be the run rate for the year as far as about $8.4 million?

Yeah, I think you're going to see it probably trickle up a little bit higher than that in the second quarter as we continue to add a little bit of administration associated with the new centers, but not significantly. And then I think it'll be fairly flattish really after that.

And--

As a percentage of revenues, I think you're going to kind of see it decline. If you take a look historically, even like in '06, we started it at 11.6% SG&A as a percentage of total revenues. And then each sequential quarter, you saw it kind of ramp down to about--it averaged 10.5% for the year.

We're starting out at a little lower starting point. And so I think you're going to see it--maybe the way to analyze it for us, or a way that we certainly look at it is as a percentage of total revenues. And I think that it's going to be probably between 10% and 10.5%, somewhere in there by the end of the year.

And is 39% a tax rate that we should use for the full year?

Yeah, I think so. I mean, there's nothing that tells me any different at this point, Poe.

Great. Thanks a lot for your help.

You bet.

Okay. Thanks, Poe.

Your next question comes from the line of Joe Agular with Johnson Rice.

Thanks. Good morning. I was wanting to go back for a second to the horsepower numbers that you gave earlier. I think you said 190,000 at present

That's correct.

Could you tell us where you were at the end of the first quarter?

We were at 153,000 at the end of the year. And then actually the 190,000 was at the end of the first quarter.

Okay.

So we got some stuff late in the first quarter and pushed it up to about 190,000.

It seems like you have a pretty big add actually in the first quarter.

Yeah, if anything, we're seeing that horsepower is pretty well coming on schedule.

Right.

But some of the other key units--blenders, nitrogen trucks, and then these sand movers, that's been the three items that have been delayed. And you can have an $8-million stimulation crew planned. But it can't function without that $200,000 sand mover.

So we got the horsepower on time. But the blender, sand movers were kind of the key items to delay the crews getting started.

Okay. That really helps explain it a lot. Thank you very much.

All right. Thanks, Joe.

Okay.

And at this time, there are no further questions.

Thanks, Annie. In closing, I'd like to thank our employees who work exceedingly hard everyday to make Superior successful.

Additionally, we wish to thank our suppliers who assisted us in providing services to our customers and our investors who trust and support and have contributed to our growth.

And foremost, we want to thank our customers whom we value and recognize as our motivation to at all times remain superior. Thanks, everyone. And we'll talk to you next quarter.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. And have a great day.