Oil States International Inc (OIS) 2005 Q2 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Oil States International second quarter 2005 earnings conference call. My name is Stephen and I will be your coordinator today. At this time, all participants are in a listen-only mode. We will conduct a question and answer session at the end of today’s comments. For assistance at any time during the call, please press *0 and a coordinator will be happy to assist you. As a reminder, this conference is being recorded or replay purposes. I would now like to turn the presentation over to the host for today’s call, Mr. Bradley Dodson. Sir, please go ahead.

Thank you. Welcome to the Oil States second quarter 2005 earnings conference call. Our call today will be led by Douglas Swanson, Oil States President and Chief Executive Officer, and Cindy Taylor, Oil States Senior Vice President and Chief Financial Officer.

Before we begin, we would like to caution our listeners regarding forward-looking statements. To the extent remarks today contain other than historical information, we are relying on Safe Harbor protection reported by federal law. Any such remarks should be weighed in the context of the many factors that affect our business, including those risks disclosed in our Form 10-K and our other SEC filings. Now, I’ll turn it over to Douglas.

Thank you, Bradley. Thank you for joining us this morning. We’re pleased to announce that Oil State International completed the second quarter of 2005 with outstanding results led by continued strength in North American land drilling activity, growth in our Canadian Oil Sands region and the impact of acquisitions completed during 2004 and 2005.

We completed the Ellenburg acquisition on February 1st, which provides us with a strong base of drilling operations in the Rockies. This acquisition added seven rigs to our fleet.

On May 2nd we completed the Stinger acquisition, which provides us with significant exposure to North American pressure pumping drilling. This acquisition is reported in our Rental Tool business line.

On June 2nd we completed the acquisition of Phillips Casing and Tubing, which expands our penetration into the OCTG distribution business.

We significantly outperformed previous estimates due, largely, to contributions from our Tubular Services and Well Site Services segments. All of our business lines reported significantly improved year-over-year operating results.

Our Tubular Service segment was up, sequentially, in revenues, 21.7 percent and an EBITDA of 19.6 percent due to improved volumes. Our Well Site Service segment was down, sequentially, due to the normal seasonal conditions in Canada which affected our Well Site Services business segment. Out Offshore Products segment was down 4 percent in revenue, but EBITDA was up 2.2 percent on a sequential basis. Our Offshore Product’s EBITDA margins improved, sequentially, from 11.6 to 12.4 percent. In addition, our Offshore Product’s backlog increased to $113.5 million from $99.8 million at the end of the first quarter.

Net income was 49 cents per share, which more than doubled, compared to the 24 cents per share reported in the second quarter of 2004.

At this time, I’ll turn the meeting over to Cindy Taylor, who will give us a financial review.

I’m going to give you an overview of the consolidated results. For the second quarter of 2005 we reported operating income of $42 million on revenues of $358.5 million. Our EBITDA totaled $53.6 million for the quarter. These results compare to $21.6 million of operating income on revenues of $222.2 million for the second quarter of 2004. The second quarter of 2004 EBITDA totaled $30.7 million for a comparison. Our current quarter performance represents a 61.3 percent year-over-year increase in revenues and a 74.8 percent improvement in EBITDA.

Sequentially, our revenues were up 8 percent, while our EBITDA increased by 2.2 percent. This sequential growth was masked somewhat by normal seasonal activity declines in Canada, which we always experience as we come out of the winter months.

Our net income totaled $24.9 million, or 49 cents per diluted share, for the second quarter of 2005. As Doug mentioned, these current quarter results reflect the benefits of improved North American drilling activity, significant growth in the Oil Sands region of Canada where we provide our Accommodations business lines and, also, contributions that were completed in 2004 and early 2005, which resulted in year-over-year growth in both our Well Site Services and our Tubular Services segments.

Well Site Services EBITDA was up $13 million, or 76.2 percent, year-over-year. In addition, our Tubular Services segment did very well during the quarter due to the impact of increasing pricing for OCTG, continued strong demand and the impact of the Hunting acquisition, which we closed in May of 2004 and, also, the partial impact of the Phillips Casing and Tubing acquisition, which we closed on June 2, 2005. Our Tubular Services EBITDA was up $7.7 million, or 71.1 percent, year-over-year. Our Offshore Products segment contributed EBITDA growth of $3.2 million, or 67.1 percent, year-over-year, due, primarily, to increased activity levels and also due to margin improvements.

From a balance sheet perspective, our leverage did increase during the quarter, due to the acquisitions that were closed, resulting in a debt to total capitalization ratio of 39.1 percent at June 30, 2005. Our total debt increased by $135.2 million during the quarter due to closing the Stinger, Phillips and Nobel acquisitions and also investing capital expenditures of $16.7 million during the quarter and making other working capital investments, primarily for inventory in our Tubular Services segment.

Also during the quarter, we sold $125 million of 2-3/8 percent convertible notes. The notes are not cullable until July 1, 2012 and are convertible at 31.75 per share on a net fair settlement basis. In connection with this note offering, we also bought in 1,183,432 shares of our common stock into treasury, thereby reducing our shares outstanding to 48,888,454 at June 30, 2005. Proceeds from the sale of the notes were used to fund the share repurchase with the excess proceeds being applied to reduce amounts outstanding under a $25 million bridge loan that was temporarily taken out to fund our acquisitions and also to pay down amounts outstanding under our bank credit facility. As of June 30, 2005, availability under our bank credit facility totaled $92.6 million.

Subsequent to the end of this quarter, we sold an additional $50 million of the 2-3/8 percent convertible notes pursuant to the purchasers option which we granted at the time of the initial sale of notes. Net proceeds of $48.5 million were used to further reduce amounts outstanding under our bank credit facility, thereby increasing our availability that we have currently available to us.

At this time, I would like to turn the discussion back over to Douglas, who is going to take you through activities on a high-level basis in each of our business segments and also provide you with our thoughts as to the market outlook.

Thank you, Cindy. I plan to focus my comments on a sequential basis for the significant business sides of each of these segments. All key operating and financial data is available within our press release.

The first business I’ll go through is Well Site services, on a sequential basis, revenue was $126.8 million, basically flat with the first quarter. EBITDA was $30.1 million, compared to $32.1 million in the first quarter, down $2.2 million, or 6.4 percent, and our margin was down to 23.7 percent from 25.2 percent. These sequential decreases in revenues, EBITDA and EBITDA margin are primarily due to the impact of the seasonality in Canada. This decline was largely offset by the impact of acquisitions in this segment, coupled with strength in our land drilling and rental tool operations. Basically, the sequential decline in the Accommodations business was down $10.3. If was offset, substantially offset by an $8.2 million increase in our drilling, rental and work over activities for a net decrease of about $2 million.

EBITDA from Oil Sands represented approximately 87 percent of our Canadian business in the second quarter of 2005, compared to 70 percent in the second quarter of 2004. EBITDA from the Oil Sands activities in our Accommodations business grew over $2.5 million on a year-over-year basis. This was principally due to the fact that we had a 32 percent increase in our capacity and a 50 percent increase in our utilization on a year-over-year basis. Our land drilling operations were strong sequentially in both revenues and EBITDA due to the Ellenburg acquisition completed in February, coupled with improved utilization and pricing from our base business.

Our average daily revenues were up on a sequential basis to $10,400 a day from $9,600 a day in the previous quarter, an $800 increase. Our daily cash margin increased to $3,400 from $3,100 in the first quarter, a $100 a day increase. A total job on a footage basis in Texas costs up approximately $800,000, or about $422 a day. So, without that job, we would have substantially higher incremental margins in our land drilling business.

In addition, our utilization in Wyoming suffered during the quarter due to wet weather and permitting issues. This had a particularly strong impact in the Wyoming area.

The second business segment is our Offshore Products. Revenue was $63.9 million in the second quarter, down 4 percent from the first quarter. However, EBITDA was $7.9 million, up from $7.7 million in the first quarter of 2005. We also had an increase in our margin to 12.4 from 11.6 percent. Our EBITDA margin improved significantly year-over-year due to stronger activity levels and improved cost absorption. Backlog at the end of the quarter was $113.5 million, up 13.7 percent, from $99.8 million at March 31st.

In Tubular Services we had a very strong quarter. Our revenue was $167.8 million, up 21.7 percent from the previous quarter. Our gross margin declined to 12.7 percent from the 13 percent in the first quarter and our EBITDA margin was 11 percent, compared to 11.2 percent in the first quarter of 2005. Year-over-year improvements in volumes were due to improved demand, increased OCTG prices and the benefits from the Hunting and Phillips acquisition. Volumes were up 18.9 percent year-over-year and 22.7 percent, sequentially.

We saw a strong increase in our order book during the quarter due to spot market orders and the impact of the Hunting and Phillips acquisitions. Our order book indicated that our orders backlogged were $29.5 million, compared to $230 million at the end of the first quarter, and double that amount at the end of the fourth quarter of 2004.

Our inventory was $189.7 million, a 33.8 percent increase from the March 31st inventory. However, our tons were $132.6 million, only a 20 percent increase from the March 31st number. This, obviously, was a result of increased purchase prices. Our purchase price average price cost per ton at the end of the second quarter was $1425 per ton, compared to $1288 a ton at March 31st, an increase of 10.6 percent. At the end of the quarter, approximately 78 percent of our inventories were committed to customer orders. OCTG demand and shipment of inventories, were fairly balanced during the quarter. Supply on the ground remained reasonable at the current rig count. It’s estimated that there are probably 4.5 months supply of inventory on the ground.

Looking at the outlook for 2005 in Well Site Services, our year-over-year results in Canada were much improved due to the impact of the expenditures in our Oil Sands development area and the construction in that area. We see this trend continuing for the balance of the year and for several years to come. Land drilling utilization is strong and should continue throughout 2005. Backlog visibility remains strong in Texas, Ohio and the Rockies with commitments extending through the second half of 2005. We are realizing price increases as our rigs come off their current commitments. We had a new rig, our 26th rig, spudded (ph) on June 17th in the Rockies. In addition, we will be putting out another rig, our 27th rig, at the end of the third quarter or the fourth quarter and it will probably be working in the Permian Basin. Rental Tool contributions should continue to increase, due to the acquisitions completed, the rig count improvements and the improvements in the capacity of our equipment.

In Offshore Products, second quarter revenues decreased slightly, but EBITDA increased 2.2 percent, sequentially, evidencing improved activity levels and cost absorption. Our backlog position improved from March 31st, based on bidding activity and the overall activity in the deep water area. We expect our backlog and mix of business to continue to improve in 2005 and into 2006.

We are continuing to work on the process of reorganizing our Houston home operations in an effort to enhance the manufacturing efficiencies and project execution. Various costs and reduction initiatives have been implemented and should be finalized in 2005, resulting in improved margins.

In Tubular Services, our sales mix is heavily weighted to alloy crudes. Approximately 80 percent of our revenues in 2004 were from alloy. We see prices continuing to increase during the second quarter for alloy-grades as mills implemented additional price increases. We expect mills to increase prices for alloy products in the third and fourth quarters. Carbon-grade pricing softened during the quarter, primarily due to increasing import levels, but as I indicated, only about 20 to 25 percent of our business is in the carbon-grade products. Our OCTG inventories are still at low levels. Given our order book at the end of the quarter, we expect to continue to realize strong results during 2005 with current activity levels, the realization of these price increases and the benefits of the Hunting and Phillips acquisitions. Our margins remain very strong in the second quarter due to the strong customer demand and the level of pricing.

Looking at the overall year for the Company, we expect continued growth in all of our business segments. Our tax rate for the year should be in the 35 to 38 percent range. We plan to adopt stock option accounting in the first quarter of 2006. Third quarter, 2005 earnings should be up sequentially in virtually all of our business lines, with the possible exception of Tubular Services, depending upon the level of margins realized. Looking at the third quarter, we’re looking at earnings in the range of 50 to 55 cents per diluted share.

We’d be pleased to answer any questions you might have.

Ladies and gentlemen, if you wish to ask a question, please press *1. (OPERATOR INSTRUCTIONS) Your first question comes from Stephen Gengaro with Jeffries and Company.

Thanks and good morning. Can you maybe add a little detail, on the Tubular side you mentioned 78 percent of inventories were committed, of the inventories not committed can you give us a sense for what the mix is? Is it about 80/20, like the rest of the business as far as alloy versus carbon?

I would say the majority would be alloy. Traditionally, we just provide mostly alloy products and so were wouldn’t be speculating in holding a significant carbon inventory.

Okay. Then, also, of the inventory, how much inventory in a month, do you have, basically, a quarter’s worth of the backlog right now?

I’m sorry. A backlog?

I guess, of the committed inventories in the Tubular segment, I think you said about $190 million of inventory.

Our revenue in the quarter was $167 million and our inventory was $189 million. We said about 78 percent of it was committed. We have less than a month, a quarter supply of inventory.

Right and, as you know, some things in our revenue stream are direct from the mill, but we feel like, obviously, particularly for alloy grades, there’s still a tightness in supply. We’re running fairly thin on a month’s supply and, clearly, now, less than a quarter. Obviously, some of those commitments may go out of the quarter, but if you just kind of do the math, like Douglas walked through, it’s a fairly low level of - -

Our turnover in the quarter was 3.5, compared to 3.6 in the first quarter. It’s about a quarter’s inventory. We think we have very little exposure.

It sounds like - - and I don’t want to put words in your mouth so, maybe, you could comment - - but it sounds like you’re a bit more optimistic about the sustainability of those margins now than you were, maybe, three months ago?

Or six months ago. The market has a lot more drive than we thought six months ago.

And particularly the alloy grades remain very tight, as you know, in the marketplace. It’s been very gradual, but we’ve seen improvements in the Offshore rig count, which does help, obviously. We keep a very tight supply of your high-strength alloy-grades. Two of our mills have recently come out with price increases for late third quarter, so all the signals are there for continued strong market there through the third quarter.

Thanks. Then, just one final question, on the Offshore Product side, would you be willing to speculate as to, not necessarily next quarter, but where you think you can get the margins to, maybe, over the next several quarters?

In the past, as you know, we kind of look at the absolute value of our backlog, which is looking pretty good, but also the mix, and we see kind of a continuation of what we have right now, until we get some more of the higher visibility projects in that backlog, the mix has really not moved yet in our favor. We’re not going to see substantial margin improvements until that mix does change.

Historically, our goal is 15 percent EBITDA margin in that business segment. We had a high of about 17.4 percent, I think, in 2002. To achieve that high, it will have to be driven by some of our higher margin products, which are primarily driven by contracts for products provided for TLT’s. With the number of new TLT’s being announced, we’re hopeful that we will be able to bid on some of these contracts and obtain some of these awards, which would help us achieve our objective. We think that the fundamental drivers for the deep water are favorable and, hopefully, will impact the Offshore Products group.

Great. Thank you.

Your next question comes from Bill Herbert with Simmons International.

Good morning. Sticking to the Offshore Products theme for a second here, that actually was, at least from our standpoint, the nicest positive surprise quarter-on-quarter, which was great, and recognizing the fact that, clearly, x is a very prominent component with respect to the margin that is generated in a given quarter and leading edge indicators for TLT’s look pretty good, at what juncture do we start seeing these project awards and a P&L impact to Oil States?

We have several, obviously, that we’re tracking right now. I think there will be a good TLT order that comes into our backlog in the last half, in either Q3 or Q4 of this year. I guess it’s possible that two come in, but we kind of expect right now, the second TLT would come in early next year. What that means, obviously, if we don’t have it in backlog now, it won’t have appreciable P&L benefit for us until 2006. We are, clearly, still very optimistic that that mix moves in our favor over the next six months, so that when we end the year, we think we’ll have an improved margin in that backlog.

Call it 13, 14 percent sequential growth in backlog and visibility of orders going forward, not just speaking to TLT, but in general, Offshore Products visibility, is there any reason to expect for the backlog not to continue to grow given just the spate of deep water drilling that’s unfolding and the blossoming of deep water development projects?

I think, based upon those assumptions, we expect it to grow. We concur with those factors that are happening in the marketplace.

Good. Then, the next subject is new - - you addressed it partially in your commentary - - the relatively subdued rate of sequential improvement in cash margins for your land drilling fleet, partly driven by - - in fact, mostly driven by the weather issues in Wyoming, I think is what you said?

We have now three kinds of concentrations of rigs. In West Texas, we have a large number of rigs. We have seven in Colorado, Wyoming, Montana areas. Weather was a big factor there, particularly in May. Ohio had weather issues as well.

I guess the question is, Cindy, recognizing we have several different pods here of land contract drilling exposure, we had some weather issues in the second quarter, can we expect some relatively significant cash up in cash margins in the third quarter?

Bill, I pointed out in my comments that we had a bad footage job that costs us $800,000 in costs, and that cost us $400 a day in margin. Our margin has gone up $800 a day - - our revenue went up $800, our margin went up $100, but, if you added that $400 back, that would get you up to about $500. Our incremental margins, if you didn’t have a bad job like that one, it would be about 62 percent, which is pretty good incrementals. The point I’m making is that I think we have better basic margins, except for that bad job. We are pushing through price increases but, as you know, a lot of our rigs are contracted on a term basis in the Wyoming area in the Rockies, and then we have multiple term contracts for 10, 20, 50 wells in the Permian Basin, and this does not allow us to move it up as quickly as we can. When every contract rolls over, we are increasing prices. You can expect some increase in prices and increase in margins going forward.

But if you’re weather adjusted, can you expect something close to $1000 cash margin improvement in the third quarter?

That wouldn’t be unreasonable.

Okay. Great. Sequential impact from the acquisitions in the second quarter was what, about .07 cents, something like that in terms of from an EPS standpoint?

I didn’t calculate that, Bill, on an EPS basis. We did put kind of the major EBITDA contributors in there.

I think it was $6.2 million in EBITDA, if tax suspected $3.9 million net income, culled 49 million shares outstanding, .07, .08 cents, right?

That sounds fine, yes.

What can we expect, if those acquisitions were done at different points in the quarter, incremental EBITDA that wasn’t realized in the second quarter that will be forthcoming in the third quarter from those acquired entities? I can get this off-line, if you want me to.

We did $4.5 million at Stinger and we only had two months in there, so even a straight annualization is $6.8, but they’ll do better than that because Canada suffered at - -

They had weather problems in Canada, as you recall, in the second quarter and they did substantially less than we anticipated in Canada in the second quarter, which has more than made up by higher activity in the U.S. though.

So, you can add a factor to that.

Cindy, I can work on this.

Ellenburg, of course, was in for the full quarter, albeit, they had some weather issues.

Finally, Canada, the visibility going into Q3 and the back half of the year, does Canada look to be meeting your expectations, exceeding them, or sort of characterize that for us?

Canada is kind of two different pieces for us. We always have a hard breakup impact because we work in the northern regions from a drilling perspective. You saw those percentage contributions that were substantial from Oil Sands in the quarter just because drilling, effectively, shuts down for us. It was worse this year - - it was about as bad as it can get, because it was extremely wet. You only go up from there, going sequentially. Third quarter is never outstanding, but it has improved, historically, over second. I think the feeling is that we’ll have a good drilling season. I don’t think anybody is looking for tremendous changes. You probably know better than I. The Oil Sands piece is just kind of a - - it’s year-round. It’s not subject to the seasonality, so that piece will hold true and then we’ll get some upside from drilling.

Does the 50 to 55 cents - - last question, I promise you - - does the 50 to 55 cents guidance for Q3 include or encompass any impact from a potential storm in the Gulf?

In our forecasting, we do adjust our forecast for hurricane weather.

Okay. Thanks very much.

Your next question comes from Ken Sill with Credit Suisse.

Good morning. I’m just trying to figure out where we’re going, sequentially, following up on some of Bill’s questions, particularly in Tubular Services, you acquired Phillips, last year you had a big acquisition, but you’ve seen some pretty good sequential revenue growth and I’m assuming, with the inventory up, you’re expecting some pretty solid revenue growth, sequentially, in Tubular Services from Q2 to Q3?

In terms of the top line, we do expect some top line improvement, obviously. I think that’s probably likely to come from pricing more so than volumes at this stage. We had a very healthy Q2, obviously, in terms of volumes.

And, I guess, one of the comments Douglas was talking about was that margins, and sooner, have been very strong relative to where we were thinking. How much of that is coming from pricing and how much of it is just coming because of the scale, as you’ve grown that business pretty substantially over the last year?

I’m sorry, did you talk about volume growth?

I’m talking about Tubular Services, how much of the improvement in margin - - I mean, the margins have been holding in very, very well. At one point you guys had said that you expect those margins to start declining, the pricing has been holding, and I’m wondering how much of the margin, being this strong as priced, versus are you getting any benefits from increasing the scale any sooner with all the acquisitions you’ve done there?

We, clearly, are getting some benefits from scale. I don’t know how you quantify that, to be honest. Prices had, obviously, a significant impact. The right of price increase has slowed this year and, yet, our margins have held up. That’s, clearly, an indicator that there are some changes in the underlying market dynamics. You always have to go back to supplies are extremely tight. I think that is one critical element. I really don’t know how you would estimate the relative contributions from each of those pieces, to be honest, but we do think there’s some impact, obviously. That’s the reason we did the acquisitions.

Because of our size and our call on the mills, we have a large supply of pipe available to us in our large inventory that we’re able to meet the needs of the customers out there. Demand is strong and there is a situation where demand and supply is in balance. Having the size that we have and the availability of the product is a definite advantage to us, which will contribute to the higher margins that we have. But, as Cindy said, it’s also the higher pricing, the continued increase in pricing for alloy products continues to help us as we price at market levels.

Let me put it another way then. In the past you’ve talked about assuming pricing stops going up and the pricing issue fades away. Before, you had indicated that you thought that that gross margin in that business would drop back down towards kind of the mid-single digits, but it seems like - - I guess, if you’re looking for normalized, which we know there is no such thing in this business - - but your normalized margin basis, if you take away some of the price increases, is that kind of creeping up into the 7, 8, 9 percent range, or do you even have a feel for that?

We really don’t have a feel for that. It’s hard to say. Again, these are negotiated transactions. Each of our sales are. It depends on supply and demand and, obviously, our salesmen - - based on it they have the supply and it’s in short supply, they’re going to get the best prices available.

Okay. Then moving on to Well Site Services, you added to the manufacturing side there, which brought the margins down, is Q3 going to look pretty similar to Q2 then, in terms of how the margins look because the Accommodations business doesn’t really bounce back that hard?

We’ll have some margin improvement going into Q3 just with, again, the second quarter is the trough for drilling activity. It won’t go back to peak margins, but I think that you can see that fairly consistently throughout our history that Q2 usually troughs and, then, you do have recovery going into Q3 and Q4.

Okay. It just looks like - -

I assume you’re talking only Canada when you’re asking that question?

Yes.

Okay.

And then it will flow through to everything?

Right. The businesses, obviously, have pretty strong margins throughout, but Canada has that seasonal element that hits in the second quarter.

Okay. One last question on Offshore Products, Nobel, on their conference call, talked about new mooring requirements, potentially, I guess, upping the hurricane mooring standards for the semis. We’ve heard very wild different numbers for how much that would affect a mooring system. Is that something that could be increment to your Scaggats-Matco (ph) business?

It absolutely is, and of course, the beauty Nobel is one of our top customers - - we’re proud to have them - - and other drilling contractors, but I think right now, Nobel is kind of leading the charge with some of those upgrades. We’ve worked for them in past years and would, obviously, - -

They have some of our wenches on their rigs right now. Following that activity of level, we have people who are involved in the committees, so it could potentially have a nice impact on our Offshore Products group.

What is the incremental revenue potential, if you went from - - I guess, now it’s pretty standard to have eight or nine point mooring systems going up to 12 on the big rigs. How much would that be in terms of a revenue, if you added three to four anchors and wenches and stuff to a rig? How much does that mean to you guys?

Ken, you’re exactly right. It’s dependent upon the number and the size, but I’d say a range is probably anywhere from $8 million to $18 million and that depends on the design of the rig that you’re working on.

Is that for the whole spread system or is that the incremental for going up to 12 point?

I think that would be for the whole spread system and other related equipment. I think, just on wenches alone, it could be a lower number, $4 or $5 million for a modification up to - - any additional equipment gets you up to that higher number on the range, plus additional equipment that they might need.

Okay. Great. Thanks a lot.

Your next question comes from Will Foley with Sidoti and Company.

Good morning. On the Accommodations business, the decline in the EBITDA margins, sequentially, is that just the increased Oil Sands contribution that’s the primary issue there and the seasonal slowdown?

It’s the seasonal slowdown and the fact that we have a higher weighting towards lower margin manufacturing. It’s a combination of the two. If you look in history, we always have a margin erosion going in Q2, but we also have an additive mix element this quarter as well with the significant award we got from CNRL for their Horizon project.

Okay. Could you, maybe, give me - - obviously, your top line is very strong year-over-year in Accommodations, could you give me a sense of, for 2005, how much you see the overall top line up and what the overall EBITDA margin is that you’re kind of anticipating just so I can get a sense of how the second half is looking?

Top line for Accommodations?

Yes, just Accommodations.

The last I recall it was up year-over-year about 35 percent, but you’ll have to bear with me, I’ll have to check that. It looks to be in kind of in the range of 36 to39 percent top line growth.

Okay. For 2005, that’s kind of the range?

Yes.

In terms of the EBITDA margin, I guess we’re looking for it to improve in the second half of the year, where do you see it coming in, kind of all in for the year, roughly speaking? Around 20 percent, or something like that?

That range is probably realistic considering that we have those manufacturing revenues in there.

Okay. Around 20 percent or so?

Yes.

Then, lastly, could you just give me a sense of your outlook - - or run rates, kind of for depreciation, amortization and SG&A?

I can do that. It’s probably beneficial to everybody. Our DD&A for the second quarter was $11.2 million, run rates going more like to $11.9 million as we pick up the full quarter’s charge from the acquisitions that we closed throughout the quarter. Similarly, our SG&A was $20.7 million, rounded up. Going forward, it’s going to be in the range of $21.3 to $21.4 million per quarter.

Actually, I need one last question, with the convert, that transaction kind of completed, can you just give me a sense of where your total debt and total cash balances are at the moment?

I can give it to you as of June 30th. Obviously, there’s been some migration both ways. Our net debt as of June 30th was $330 million. Remember that we had gotten that proceeds of $48.5 million, but we put that as a straight reduction of our bank debt, so it’s just a swapping of character as of June 30th.

Great. Thank you.

Your next question comes from Steve Pluns with Houston Energy Partners.

Good morning. I noticed the EBITDA margins in Rental Tools here are very good and, of course, offshore trends for that business. Can you just give us an idea of what the revenue outlook and the margin trends look like going forward?

That was in Rental Tools?

That’s right. In fact, the envelope looks like, year-over-year, EBITDA margins were up 9, 10 percent.

Our margin, if you’re talking about EBITDA margin percentages, looks like they’re going to be up about two percent year-over-year on margin percentages. If you’re talking about top line, of course, we acquired the Stinger operation so our revenues are going to be up fairly significantly due to that.

Okay. Thank you.

Our next question comes from Stephen Gengaro with Jeffries and Company.

One more follow-up on more of a general basis, can you give us a sense for what you’re seeing on an acquisition front as far as going forward? Is it getting harder? Are you still seeing things out there and just what your thoughts are in that area?

Stephen, since our IPO in February of 2001, I think we’ve done about 30 acquisitions and we’ve had three significant ones in the first half of this year. We’re continuing to see transactions and, obviously, the pricing is going up to some degree, but, as you know, we look at full-cycle earnings and all our transactions are done on full-cycle multiples. We see more continuing activity and we’ll be active going forward as we always have been. Again, we’ll still use the same financial parameters we’ve always used looking at full-cycle earnings and trying to get short-term paybacks.

That’s helpful. Just as another follow-up, on the Tubular Services side, when you - - and, maybe, Cindy, this gets to answering another question - - if you were to sort of strip out this sort of inventory profits, can you give us a sense for the margin performance in the quarter?

We don’t look at this as “inventory profits”, Stephen, as quickly as we turn it. Now, clearly, you hold inventory, and even though we’re carrying, as Douglas said, less than a quarter’s supply, if you get price increases, you get some element of margin expansion. If we would have held inventory that we had a year ago, I’d say, yes, you have inventory holding gains, but with the rate that we’re turning it, we just don’t look at it that way.

As we pointed out, 78 percent of our inventory is committed and a lot of it is committed at prices that we quoted so there wouldn’t be any, so called, inventory gain in that.

It sounds like sort of in the current volume/pricing environment there’s not a lot of sort of margin erosion that’s likely, going forward here? I know it’s sort of getting back to what I said earlier, but it sounds reasonable.

I think you’re correct.

Okay. Thank you.

Our next question comes from Will Craft with A H Lasante.

I came on the call a little late and I heard a little talk of the one bad job that you guys had, can you just outline what happened there quickly and where it was, what sector it was in? I just missed the context completely.

We do a significant amount of our drilling on a footage basis where we take risk for the hole. We agree to drill to a specified depth for so much per foot. In this particular well, we were near TD and we got stuck. We had a fish in the hole. We had drill collars and drill pipe in the hole and we attempted to retrieve it. We weren’t successful. In the past we’ve been able to retrieve it and, if we can’t retrieve it, we can leave the fish in the hole and then side-tract it. Due to the lease constraints and geological conditions, that alternative wasn’t available to us that would have allowed us to mitigate our cost. We had to continue fishing for 30, 40 days to get the fish out of the hole and we accrued this additional cost. This was a unique situation that was driven by the offset owners and the geological conditions there. Normally, we have a more cost-effective option to reduce our exposure there, but this was a unique situation where we didn’t have an alternative.

That’s understandable. Where was that again?

It was the Permian Basin in West Texas.

Thank you very much.

As a reminder, please press *1 to ask a question. It appears there are no further questions, sir.

Thank you very much for joining us and we appreciate your calling in. Have a good day.

Thanks, everybody.

Ladies and gentlemen, this does conclude your conference. You may now disconnect. Have a good day.