Nabors Industries Ltd (NBR) 2007 Q2 法說會逐字稿

Thank you for your patience, ladies and gentlemen, and welcome to the Second Quarter 2007 Superior Well Services, Inc. Earnings Conference Call. My name is Candace, and I'll be your coordinator for today.

At this time, all participants are in listen-only mode. We will be facilitating a question-and-answer session after the prepared remarks.

(OPERATOR INSTRUCTIONS).

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

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

I'd like to remind all those participating on the call today that a replay of our conference call today will be available to listen to through August 23 by dialing 888-286-8010, and referencing the conference ID number 79025980. The webcast will be archived for the replay on the Company's website for 15 days.

Additionally, our Form 10-Q was filed 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 second 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 opportunity, future earnings, cash flow and capital expenditures are forward-looking statements within the meaning 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 it believes 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 statements.

These risks are detailed in Superior's Securities and Exchange Commission filing. The Company undertakes no obligation to publicly update or review any forward-looking statement.

Let's begin. We're delighted to report Superior Well Services had an outstanding second quarter, setting new, impressive Company records in revenue and EBITDA, while also improving margins sequentially.

Our revenue for second quarter 2007 was $84.8 million, reflecting a 55% gain over second quarter 2006, and a sequential increase of 11%.

Revenue generation improved over first quarter partly because we exited our seasonal areas, in tandem with receiving delayed equipment for new crews and new service centers. After a sluggish April within our seasonal location, these service centers reversed their trend and showed improved performance during May and June.

Overall, Superior again faced challenging conditions, such as unseasonably wet weather during May and June in Texas and Oklahoma, a longer break-up season in the northern regions, low gas prices in the Rockies, and subsequent stimulation job delays, sequentially flat rig counts, softening gas prices and the sediment that comes along with high gas storage levels.

However, despite these obstacles, we're pleased to report that our strategy of increasing market penetration is working as our overall activity level remains strong. While the rig count was up 7% year-over-year, our revenues grew by 55%. This was a truly noteworthy and excellent second quarter, and here are a few highlights.

Our operating income for the quarter was $16.5 million, up 54% over 2006 and up 15% sequentially. Operating margins were 19.4%, up sequentially 80 basis points from first quarter. Our margins improved from first quarter as we received the delayed nitrogen pumping and fan handling equipment needed to reduce third-party cost as we discussed last quarter.

Our EBITDA grew to $22.6 million, a 62% increase over second quarter 2006 and up 14% sequentially over last quarter. Our earnings per share were $0.44, up 33% over 2006 and 13% sequentially.

We continue to add to our workforce, have grown to 1,262 employees, reflecting a 7% sequential increase and including several key hires with a wealth of big three experience. This quarter we actually decreased our hiring pace to better coincide with new equipment deliveries and thus avoid some of the negative impacts of delays that we saw last quarter.

Recognizing the importance of hiring and training personnel, we continue to build our workforce in a planned progression, while maintaining a close eye on gas and oil prices and rig counts in our current location.

Focusing on our regions, Appalachia had revenues of $35.2 million, up 26% over 2006 and up 8% sequentially. We still experienced some sluggishness in April due to the long frost laws in PA and Michigan. However, both of these areas bounced back during May and June, giving the region a very strong quarter. Appalachia's were 42% of total revenues.

Our newest service center in Jane Lew, West Virginia, started generating revenue in April and showed monthly increases in May and June. Cementing in Jane Lew has increased quicker than expected, and as a result, we have added extra cementing crews and equipment to this location. Jane Lew is still awaiting extra nitrogen equipment that will help to maximize the stimulation scheduling and utilization.

Importantly, we continue to field ongoing calls for expanding shale work in this region. The shale growing activity increased throughout all of Appalachia. Shale stimulation jobs are a market shift for the area as they will mainly be high-rate water fracs, similar to job types in the Barnett, Woodford and Fayetteville shales.

These jobs will require 15,000 to 20,000 horsepower per crew, compared to the normal 2,000 to 3,000 horsepower per crew used in conventional Appalachia wells. Sand requirements on these jobs will require higher quantities and smaller-sized proppants than normal conventional wells.

We are initially covering these jobs with stimulation service crews from other regions until we have the resources in place in Appalachia.

Our Southeast region had revenues of $16.7 million, up 21% over 2006 and a 28% sequential increase. This region bounced back from a sluggish first quarter as customer activity ramped up, and responsively, we added extra cementing and stimulation equipment to this region.

We continue to make good market penetration throughout the region, adding equipment to meet the growing need. We noted some pricing pressure in the lower tax stimulation markets in this region and will negate this as we continue with our strategy of transitioning to the higher tech markets.

Bossier has benefited from having closed access to our testing lab in Alvarado, alongside the addition of remote data transmission to this location. Our technical lab in Alvarado remains a great selling and support tool for our high-tech market strategy penetration.

Our Mid-Continent region had revenue of $14 million for the quarter, an increase of 41% year-over-year. We saw some utilization in revenue reductions due to the heavy rains and flooding in Oklahoma that cancelled several frac days and reduced utilization.

The muddy environment can add significantly to well cost and negatively impact well economics. This creates job delays until well locations dry out. Our nitrogen margins bounced back to expected levels, as we added the new nitrogen equipment and eliminated third-party charges.

Our Hays, Kansas, location that was acquired from ELI in February is meeting expectations. Revenue in this area has rebounded during the second quarter from a soft first quarter. Our operation in Hays generates significant revenue from integrity testing of cavern storage wells. This activity is increasingly busy during the second and third quarters each year.

Our newest Mid-Con location is in Clinton, Oklahoma. Currently, we're prepping our facility, hiring personnel and adding equipment. We expect to start generating revenue during the third quarter. Our Clinton location is in line with expectations.

Our Rocky Mountain region continues to grow with revenues of $9.4 million, reflecting 11% of our total revenue. We think that with the high gas price differentials in the Rockies and increased competition from Canada, it is significant to note that revenues here showed 11% sequential increase over first quarter and a 230% increase over 2006.

Our stimulation crew utilizations can be impacted positively or negatively based on natural gas prices and pipeline capacities. Cementing and open-hole logging utilizations are usually not affected as drilling rigs continue to drill, as stimulation and cased-hole perforating a well will be delayed until the customers see favorable market conditions. We've expanded our cementing services at our existing service centers in this region during the quarter.

Our acquired service center in Trinidad continues to meet expectation. Trinidad usually sees a ramp-up in activity during the second and third quarters, while pushing to complete as much work as possible for hitting the anticipated seasonal slowdown.

The Rockies continue to be a focal point of our future growth. We're progressing with the opening of Superior's two new service centers in Rock Springs, Wyoming, and Brighton, Colorado. Currently, we're prepping our facilities and hiring personnel to match the arrival of equipment for those locations during the third and fourth quarters.

Both of these locations are in very high-tech markets. Consequently, we're making additional modifications to the equipment above our standard equipment design in preparation for this activity. This will involve a slight delay in some equipment, pushing it into the fourth quarter. Thus, at this juncture, these locations are slightly behind planned start-up expectations.

We will continue to monitor regional gas prices and deliverability to evaluate the effect on drilling activity, in accordance with determining how to best to optimize our equipment and crew utilization.

Looking at the Southwest region, we continue to see expected growth in Alvarado. Revenues for the quarter grew 12% sequentially to $9.5 million, and Alvarado is now at 11% of total revenue.

Our revenue growth continues in both cementing and stimulation as our crews continue the season, giving customers more confidence, which makes it easier to penetrate new customer accounts. Alvarado noted some reduced utilization in June as the heavy rain slowed down stimulation activity.

We are encouraged by the continued growth and rig count in the Barnett area, along with the increased number of stimulation stages per well. A growing rig count of faster growing rigs and more stimulation jobs per well is a multiplier for increased stimulation work in the region. We will continue to monitor the need to add extra equipment to this location.

The use of temporary personnel is in place to enhance our growing employment needs. This location continues to meet expectations and in the future has cost efficiencies to gain. Our newest service center in this region near Artesia, New Mexico, is located in the oily Western Permian Basin. This location is currently prepping the facility, hiring personnel and adding equipment with the expectation of generating revenue in August.

We continue to receive significant customer interest in this area and expect this location to be a typical start-up. High oil prices will help to enhance our expected activity levels. Acidizing and stimulation equipment will be added to this location initially, followed by cementing equipment. Equipment for Artesia is currently being pre-testing in Alvarado before placement in the Artesia location.

Alongside our continued focus of adding more sales and technical support to large customer areas, Superior will add our next city sales office to the Dallas/Fort Worth market area and our next technical testing lab near Brighton, Colorado, before year end.

I'd also like to highlight our down-hole surveying product line for the quarter. Down-hole surveying service continues to be a growth area for Superior. Revenue for the second quarter were $13.2 million, up 40% sequentially, and were 16% of total revenue. Along with the three acquisitions during the last year, we persist in adding to our fleet.

While currently testing our new open-hole logging tool strings from England, delivery of these into the marketplace will help to enhance job performance and provide additional growth opportunity.

Down-hole surveying has proven to be a highly effective bundling of services mechanism, which provides a good entry point and a new market. The compatibility of current equipment makes it increasingly easy to ship resources among current service centers. We're expanding the service line into our Van Buren and Alvarado service centers during the third quarter.

We continue to be intensely optimistic about our market growth as evidenced by our 55% year-over-year revenue growth and margin improvement for the quarter. We are encouraged that the rig count remains extremely bullish despite softening gas prices, and Superior continues to succeed in customer and market penetration.

We can take advantage of softening gas prices by penetrating new customers and markets that require lower service cost to be successful. We observe strong growth opportunities in all our service lines and continue to capitalize on the bundling of our mix of services.

Superior's main focus persists in expanding geographically, adding additional equipment in existing locations, making selective acquisitions and moving into the higher tech market.

This objective provides a continued growth platform for creating long-term value for investors. We remain 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. As David mentioned net income for the three month ended June 30, 2007, totaled $10.2 million, which was a 58% increase when it was compared to last year's second quarter and was up 12.8% when compared to our previous quarter.

Fully diluted earnings per share reached $0.44, which was a 33.3% increase over the second quarter of '06 and was up 12.8% when compared to diluted earnings per share in the previous quarter.

EBITDA for the three-month period ended reached $22.6 million. David mentioned a 61.9% increase, and a sequential increase of about $2.8 million from first quarter amounts. Revenues for the three months ended June 30 total $84.8 million, which was an aggregate increase year-over-year of $30.2 million, a little over 55%.

Each offering region had revenue increases over the same period in the prior year. Really, our increased activity level, the new centers, the Wireline acquisition that Dave had referenced, as well as a pricing increase has contributed to the increases experienced in 2007.

Revenue by operating region in 2007 was $9.5 million in the Southwest, $7.2 million in Appalachia, $6.5 million in the Rockies, $4.1 million Mid-Continent and $2.9 million in the Southeast.

Approximately $20.8 million or about 69% of the revenue increase in the quarter ended '07 compared to the quarter -- year-over-year quarter of '06 was attributable to new service centers. New centers include organic start-up locations and acquisitions that have less than 12 months of operating history with the Company.

New service center revenue by operating region increased in 2007 by $9.5 million in the Southwest, $5.9 million in the Rocky Mountain region, $2.6 million in Appalachia and $2.8 million in the Mid-Continent regions.

Revenue from our technical pumping services increased approximately 46% year-over-year, from $49 million for the three-month period ended June 30, 2006, to $71.6 million for the quarter ended June 30, 2007.

Technical pumping revenues accounted for 84.4% of total revenues. And the breakdown of technical pumping revenues by service type was 54.7% for stimulation, 20.5% for cementing and 9.2% for nitrogen.

Approximately $13.9 million of the technical pumping revenue increase between a three-month period as ended June 30 '07 and '06 was attributable to new service centers.

New service center revenue by operating region increased in 2007 by $9.5 million in the Southwest region, $2 million in the Rocky Mountain region, and $2.4 million in the Appalachian region.

Revenue from our down-hole surveying services increased 137% in '07, when compared to 2006 second quarter, and reached $13.2 million. The asset acquisitions made in the last quarter of '06 and the first quarter of '07 contributed to the majority of this revenue increase.

Revenue by operating region increased in the second quarter of '07 when compared to the second quarter of '06, by $3.8 million in the Rocky Mountain region, $2.3 million in the mid-continent region, and $1.4 million in Appalachian, and $100,000 in the Southeast region.

When comparing second quarter revenues to first quarter revenues in '07, the sequential revenue growth between quarters was 10.6 % or $8.1 million. Each service line showed increases sequentially.

Revenue by operating region increased by $3.6 million in the Southeast region, $2.7 million in the Appalachian region, $1 million in the Southwest region, and $900,000 in the Rocky Mountain region. We showed a small sequential decrease of $100,000 in the mid-continent region.

As Dave referenced in his comments, the Southeast bounced back after a sluggish first quarter, as well as (inaudible) contributions made by the Wireline centers that were recently acquired in Oklahoma and Colorado.

Cost of revenue increase 57.8% to $59.5 million for the three month ended June 30, 2007 compared to $37.7 million for the three month period ended June 30, 2006, that's a $21.8 million aggregate increase.

Increase the dollar amount of these costs really due to the fact that these costs vary with revenue and the higher activity levels.

Cost of revenues is a percentage of total revenues, increased 1.1% for the quarter ended June 30, 2007 while compared to last year's second quarter.

As a percentage of revenue, depreciation increased 1.3% to 6.8% for the second quarter of 2007, compared to the second quarter of 2006 really due to the higher levels of capital expenditures made to expand their fleet of equipment.

Partially offsetting the increase the cost of revenues due to depreciation was a decrease in labor expenses of percentage of revenues.

Labor expenses as a percentage of revenues decreased from 19.1% on the second quarter 2006, to 18.9% on the second quarter of '07, really due to the higher personnel utilization in several of our operating areas.

By operating region, new service center cost of revenues increased in the second quarter of '06 compared to the second quarter of '07 -- I'm sorry, second quarter of '07, when compared to the second quarter of '06 by $7.2 million in the Southwest, $3.2 million in the Rocky Mountain region, $2.4 million in the Appalachian region, and $1.9 million in the Mid-Continent region.

SG&A expenses were $8.8 million for the three month ended June 30 '07 compared to $6.2 million for the three month ended June 30, 2006. That's an aggregate increase of $2.6 million or 43.7% year-over-year.

As a percentage of revenues, SG&A declined last year, second quarter of '06 it was 11.3% declined at 10.4% of the second quarter of '07. And that's really attributable to the fact that we can allocate the fixed cost component of these costs over a higher revenue base.

Approximately $1.8 million of the aggregate increase in SG&A expenses in the second quarter of '07, as compared to second quarter of '06 was really attributable to the established fund of new service centers.

New service center SG&A by operating region increased in '07 by $400,000 in Appalachia, $400,000 in mid-continent, $600,000 in the Southwest region, and $400,000 in the Rocky Mountain region.

Labor expenses increased $1.6 million in the second quarter of '07 compared to the second quarter of '06, because we hired additional management sales and administrative personnel to manage the growth in our operations.

Approximately $1.1 million of this labor increase in the year-over-year comparison is attributable to our new service centers.

As a percentage of revenue the portion of labor expenses in the SG&A declined, decreased from 6.4% in '06 to 6% for the second quarter of '07.

Higher activity levels caused rent, insurance, and office expenses to increase by $200,000, $300,000, and $200,000 respectively.

When comparing second quarter 2007 SG&A to the first quarter 2007 SG&A, the sequential increase between quarters was approximately $400,000. Labor expenses accounted for approximately half of that, and that was just for the additional management and personnel that we hired as staffed up our new centers.

SG&A as a percentage of revenue has declined from 11% in the first quarter to 10.4% in the second quarter.

This decrease is reflective of our ability to allocate just over a higher revenue level of facility costs and office expenses, comprise really the remainder of the increases during the sequential quarter.

Operating income was $16.5 million for the three months ended June 30 compared to $10.7 million for the three months ended June 30, 2006, that's an increase of $5.8 million or 53.6%.

As a percentage of revenue, operating income decreased from 19.7% in '06 to 19.4% in '07. Primary reason for the decrease was lower pricing in certain markets, higher depreciation expenses, coupled with the establishment of our new service centers that aren't generating revenue as of yet.

Operating income increased from $14.3 million in the first quarter to $16.5 million in the second quarter of '07, which is a percentage increase between quarters sequentially at 15.5%.

As a percentage of revenues operating increase, operating income increased from 18.6% in '06 to 19.4% in '07.

Primary reason for the increase was really our ability to allocate fixed cost components over a higher revenue base.

Turning to the balance sheet for a moment, we ended the quarter with $51.2 million of working capital. Total debt at June 30 was approximately $1.7 million that consisted mostly of building and [seller] financing.

At June 30 2007, debt to cap was approximately 1%. Capital expenditures for the six month period ended June 30, totaled $69.3 million and that included $7.9 million for our Wireline acquisition that we made in February of 2007.

This compares to $27.3 million of capital expenditures for the sixth month period ended in June 30th of '06.

Increased capital expenditures in '07 really are due to the higher level of capital expenditures to finance the growth in our new centers, as well as the asset acquisitions that we made during the first six months.

The company's 2007 capital expenditure budget remains at $84 million and that budget excludes the $7.9 million to spend on the Wireline acquisition.

At this point I'm going to turn the call back over to the operator to open up the lines for Q&A.

Thank you sir. (OPERATOR INSTRUCTIONS). Our first question will come from the line of [David Duer] of Simmons & Company. Please proceed.

Hey, good morning guys.

Morning.

Morning David.

Great quarter. With respect to pumping in Appalachia, you guys posted 8% sequential revenue growth. Still one of your competitors they posted over 30% sequential revenue growth. Is that a reflection of a shift in market share? Or can you walk us through what's going on in that region?

When you look at Appalachia, it's just part of our total growth package and part of our future growth is planned more for mid-con, Rockies and Southwest.

We continue to grow in Appalachia but it's somewhat of a controlled growth. We saw a little seasonality again second quarter mainly in Pennsylvania and Michigan, which is coming out of a late frost [law].

Okay and I guess with respect to your Wireline business close to 16% of your revenues this quarter, where do you see that going over the next few quarters?

It's one that we continue to focus on as a growth product line for us. We're just in the process of adding our new down-hole, open-hole logging tools, and its one that we can continue to add equipment too, and expand in other regions.

Okay, great. Thanks a lot guys.

Thanks David.

Our next question will come from the line of Victor Marchon of RBC Capital Markets. Please proceed.

Thank you. Good morning and congratulations on the quarter.

Thanks.

First question I have was just on pricing, and Dave you had mentioned this. I just wanted you sense as in to you mentioned that you'd seen it on the low tech side, I just wanted to get a sense as in to when you look at your business, how much of your business are you seeing a pricing pressure?

And for the remaining portion what's pricing like there? Is it flat? Is it -- are you guys able to push it a little bit here?

The area that we're seeing less of the pricing pressure as we mentioned is stimulation work and the low tech areas.

As far as the higher tech and the other product lines, we're seeing -- we had a price increase in February where we were able to pass through capture quite a bit of that.

So, we continue to see a little more pricing momentum in the areas outside the low tech stem work. It would vary by region, gas prices, utilization, things like that can fluctuate and have a little impact on pricing.

But as a general rule, other than the low tech stimulation areas we still see a pricing momentum (inaudible).

We didn't really see a lot of deterioration from the first quarter to the second quarter either, really even across service lines.

A lot of the pricing deterioration was really first quarter in that it was probably less than a 0.5% as far as our aggregate discounts increased in the second quarter over first quarter.

It wasn't much Victor but it seems to be concentrated more in the stimulation areas, in more of the markets that there maybe a little bit more capacity.

And Tom you had said less than 0.5% sequentially on that side of the business?

Correct, on discounts.

Second question I have was just on the Rockies. I just wanted to see what you guys were sensing with the pipeline capacity constraints.

Any indications you're getting as that works itself out, as into the timing of that and what that can mean as your guys ramp up in that region?

We remain pretty optimistic on the Rockies and mainly because it's a high active, drilling potential growth area for us.

And as you mentioned, the Rocky Mountain express pipeline which is scheduled to come online in January should have a big impact on getting better pricing, and then getting the gas bottleneck out of that area.

One thing we may see in the short-term is the rigs are going to continue to drill. Some of the stimulation work will get delayed just -- and we're watching that and matching up our equipment with that.

It's going to get delayed a little bit because they don't want to simulate the wells and have them sitting there, waiting until they can start selling the gas.

But, we see that once the pipeline opens up then there's going to be a little backlog of stimulation which should help us ramp up in that area.

So, short-term maybe, a little sluggish, will probably plan our equipment adds based on that, add cementing first, some of those areas, add stimulation a little later. But once they get ready to start working on that backlog, we want to make sure we have our stimulation equipment in place.

The last one I have is just on what you guys are seeing on the demand side. Have you guys taken a look at [Horace Tower] adds, or [Center] adds as you look into 2008?

We still see areas that fit us, again we like our mix of services, sometimes we'll enter with one product line then add the other product line.

We remain very focused on growing in the high tech markets because we feel like less competition there and more opportunity for a Company like us to take advantage of that. So we still have several identified in the future that fit our program

Yes, Victor we haven't finalized our '08 budget yet, but we have a partially approved budget of about $50 million for the longer lead time type items.

And we've gone ahead and made probably about $40 million, $42 million of that has been committed for '08 billed for longer lead time stop. And we have about a little over $20 million, $22 million left to go on our '07 budget.

That's great. That's all I had, thank you.

Thanks Victor.

(OPERATOR INSTRUCTIONS). Our next question will come from the line of Stacy Nieuwoudt of Pickering Energy Partners. Please proceed.

Good morning guys.

Morning Stacy.

Could you tell me what you're seeing on pricing for your cased-hole Wireline services?

Cased-hole would be a region by region basis. If it's lower tech and in a competitive environment where there can be large players and really small players. We've probably seen extra discounting in those areas.

If its area were to higher pressure, deeper work, and less competition kind of squeezes out the smaller guys, then we're still seeing that we can generate good pricing in some of those areas.

Okay, that's helpful. And the big three have talked about defending market share on some of their last calls. Can you walk us through more regions of strength and weakness on the pumping side? Are you still seeing a lot of weakness in East Texas and South Texas?

The areas we identified last call, that we're seeing pricing pressure were mid-continent and East Texas, mainly because again high rate jobs lowered technical work, the barrier to entry is more just getting equipment. And that's just on the stimulation side.

As far as cementing and some of the other services, we're not seeing the competitive environment that we are just on the low tech stimulation part.

Probably added to that list would be a little bit of the Rockies. And that's mainly due to as I mentioned earlier, just the pipeline situation and maybe Northern Rockies where they're going to continue to drill.

We continue to see cementing work but the stimulation work may lag a little bit till they see that they're getting closed ready to start producing gas.

But overall, the other service lines we continue to see strength. When you talk about the competition, we've heard them mention that they want to defend market share. As a general rule, we are not seeing that as an overall view.

We may see in certain areas where they have a particular customer that they -- that's strategic for them that they will work hard to try and hang onto. That's usually just in stimulation and not the other service lines.

That's very helpful. And can you give me the horsepower number that you have today and what you now expect to be at the end of the year given some equipment delays?

We entered the quarter at 218,000 on horsepower and still expect to be right around 250,000 at the end of the year.

Very helpful, thank guys.

Thanks Stacy.

Our next question will come from the line of Michael Marino of Johnson & Rice Company. Please proceed.

Good morning.

Morning.

Morning.

My question's on the margin front. Q2 I think historically has been your weaker quarter on margins with all the start-up costs and I know this quarter, you had some equipment delays as well.

I was curious as to your comments in a flat pricing environment or even maybe a slight down tick in pricing environment, if you still expect to see a margin ramp in the second half, I guess is the question?

I think we will. We're going to see a little bit of impact from our new start-ups, the new locations come online and don't generate a lot of revenue and they have a lot of cost associated with that.

We saw it in the second quarter last year. We continued to grow in second quarter this year but we pushed part of that growth in the third quarter.

So, we'll start seeing the revenue ramp up from the new service centers, but again pretty small impact and as a general rule, they'll have a little compression on our margins during third quarter and that's continued to improve during fourth quarter.

Did you all quantify how much the equipment delays cost you in the second quarter?

We mentioned that -- it's pushed us about 45 days from where we expected to be as far as new locations start-ups. That carried over from first quarter, the 45 day delay.

But I guess similar to last quarter if I recall correctly, you all were renting third party equipment to get some work done, and that really had a pretty big impact on your margin. Did you see a similar effect his quarter?

The two areas that it impacted were Nitrogen and sand handling. And those actually improved. We got the equipment late first, early second quarter, therefore our margins improved in those areas.

It wasn't near as significant Michael, I think last quarter we're probably about 0.5% wasn't it on the margins --?

That's right.

This quarter is probably a 0.1% to 0.2%. We worked ourselves out of that situation.

Okay, good. Well that's helpful. Thanks guys.

(OPERATOR INSTRUCTIONS).

Ladies and gentlemen, this concludes the question and answer portion of today's conference. I will turn the call back to management for any closing remarks.

Thanks Candance. In closing I'd like to thank our employees who work exceedingly hard every day to make Superior successful.

Additionally we wish to thank our suppliers who assist us in providing services to our customers, our investors who trust and support and 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. We'll talk to you next quarter.

Thank you for your participation. Ladies and gentlemen, you may now disconnect. Have a great day.