Oil States International Inc (OIS) 2011 Q1 法說會逐字稿

Welcome to the Oil States Q1 earnings conference call. My name is John, and I'll be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Please note that this conference is being recorded.

I will now turn the call over to Ms. [Patricia Gill].

Thank you, John. Welcome to Oil States first quarter 2011 earnings conference call. Our call today will be led Cindy Taylor, Oil States' President and Chief Executive Officer; and Bradley Dodson, Senior Vice President, Chief Financial Officer and Treasurer.

Before we begin, we'd like to caution listeners regarding forward-looking statements. To the extent the remarks today contain information other than historical information, we are relying on the Safe Harbor protection afforded 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.

I'll now turn the call over to Cindy.

Thank you, Patricia, and thanks to all of you for joining our call this morning. We successfully completed the first full quarter of 2011 with contribution highlights coming from our fourth quarter 2010 acquisition, along with continued strong activity levels in all of our major markets.

We realized full quarter contributions from the three acquisitions that we closed during the fourth quarter of 2010, most notably from our Australian accommodations business. In addition, we experienced increased activity in our well site services and tubular services segment due to stronger North American drilling and completion activity.

Our businesses continued to deliver strong results as we benefited from greater geographic and resource exposure, growing revenue streams and increased service intensity arising from horizontal drilling and completion activity. This expanded service intensity led to improvements in both pricing and product mix in our well site services segment, while OCTG shipments remained strong sequentially with tubular services gross margins improving to 5.9% during the quarter.

Backlog in our offshore products segment increased 17% during the first quarter of 2011, to total $415 million as of March 31.

At this time, Bradley will take you through details of our consolidated results and financial position, and then I will conclude our prepared remarks with a discussion of each of our segments and will give you our thoughts on the current market outlook.

Thank you, Cindy. For the first quarter of 2011, we reported an operating income of $95 million on revenues of $760 million. Our net income for the first quarter of 2011 totaled $62 million or $1.13 per diluted share. The comparable first quarter 2010 results were $60 million of operating income on revenues of $532 million. First quarter of 2010 net income totaled $40 million or $0.78 per diluted share.

The year-over-year increases in profitability were due to increased activity in our well site services and tubular services segments due to the stronger North American drilling and completion activity, along with contributions from three acquisitions closed in the fourth quarter of 2010.

Relative to our prior guidance, we reported stronger operating results primarily due to better-than-expected margins in our rental tool group, despite the weather impacts during the quarter, coupled with improved volumes in tubular services and offshore products.

Accommodations results were generally in line with expectations. The quarter was slightly impacted by acquisition-related expenses totaling $1.1 million.

In terms of the second quarter 2011 expectations, we forecast depreciation and amortization to be approximately $45 million and net interest expense to be approximately $12 million due to the increased borrowings needed to fund CapEx plans.

Diluted shares are expected to total $55 million in the second quarter of 2011, and we currently estimate our effective tax rate to be -- remain flat in the second quarter of 2011.

During the first quarter, we reported cash flow from operations of $36 million, which was net of $78 million spent on capital -- working capital investments. And we spent $93 million on capital expenditures.

Our net debt at the end of the first quarter was $869 million, and our debt-to-cap ratio was approximately 36%.

As of March 31, 2011, the Company had $324 million of combined availability under our credit facilities and a cash balance totaling $97 million. We currently expect to spend approximately $600 million to $625 million in capital expenditures for the full year 2011. Our planned CapEx has increased from our prior guidance due to lodge and village expansions in our accommodations segment, as well as increased spending in well site services segment for completion-related equipment destined for the shale plays.

At this time, I'd like to turn the call back over to Cindy, who will [read] the activities in each of our business segments.

We enjoyed strong occupancy levels in all of our major oil sands lodges and Australian villages during the first quarter of 2011. Accommodations revenues increased 35% year over year, and EBITDA increased 30% year over year, due primarily to the full quarter contributions from the recent acquisitions of The MAC and Mountain West.

In our offshore products segment, we generated $128 million of revenues and $19 million of EBITDA in the first quarter of 2011, compared to $118 million of revenues and $20 million of EBITDA in the fourth quarter of 2010. The sequential improvement in revenues was primarily due to increased demand for connector products, partially offset by reduced shipments of drilling rig and vessel equipment.

We closed the quarter with $188 million of new orders resulting in a sequential backlog increase of 17% to $415 million as of March 31, 2011. Significant awards during the quarter included tendon connectors on the Big Foot Project in the Gulf of Mexico and additional content awarded on Mars B.

Our well site services segment generated revenues of $141 million and EBITDA of $41 million in the first quarter of 2011, compared to $139 million and $37 million respectively in the fourth quarter of 2010. Improved performance in our rental tools business created the sequential increases in EBITDA.

Revenues from our rental tools increased 3% when compared to the fourth quarter of 2010, while EBITDA increased an impressive 22%. These sequential improvements were attributable to increases in US completion activity, particularly in support of horizontal drilling and complex completions in the shale plays, leading to improvements in pricing and service mix.

On a sequential basis, our drilling revenues and EBITDA decreased 5% and 16% respectively, primarily due to seasonally lower activities in our Rockies operations. Despite this seasonality, our drilling rig utilization was flat sequentially due to offsetting increases in activity in the Permian Basin.

Day rates increased by 4%, but cash margins declined sequentially, largely due to lower cost absorption in the Rockies operations, coupled with adverse weather impacts.

During the first quarter of 2011, tubular services generated revenues of $294 million and EBITDA of $14 million, compared to revenues in EBITDA of $297 million and $9 million respectively in the fourth quarter of 2010.

Tubular services OCTG shipments increased 4% sequentially to 154,400 tons from 148,400 tons shipped in the fourth quarter of 2010.

Gross margin as a percent of revenues improved to 5.9% during the quarter. The Company's OCTG inventory increased 6% to $352 million at March 31, 2011, in support of increased activity and customer orders.

Now, if I could transition a bit, I'd like to talk about our outlook for the second quarter. Demand for our remote site accommodations in Canada and Australia remains robust as witnessed by our recent press announcement for construction of our new [Hinday] Lodge in Alberta, Canada, and further expansion of our Coppabella Village in Australia.

With these expansions, we expect our average available rooms to grow from 12,970 rooms available on average in the first quarter of 2011, to approximately 14,000 average available rooms in the second quarter of 2011, which represents an 8% sequential growth rate.

This organic growth will be somewhat moderated by normal seasonal declines during spring breakup in Canada. As a result, we expect accommodations revenues to total $190 million to $200 million in the second quarter of 2011, with EBITDA margins continuing in the 37% to 38% range.

In our offshore products segment, we booked orders totaling $188 million in the first quarter, leading to increasingly higher backlog levels, which positions us well for a strong second half 2011 and a strong year in 2012. We project second quarter revenues to total $140 million to $150 million, with EBITDA margins ranging from 16% to 18%.

Activity for our rental tools business is primarily tied to completion and production services activity in North America, with particular leverage to high-end multistage completions and will generally track movements in shale drilling and the horizontal rig count. Our rental tools business is expected to see sequential improvement, as new equipment purchased through our expansion area CapEx program goes to work.

Second quarter 2011 earnings in our drilling business are anticipated to improve quarter over quarter as we expect our fleet utilization to increase and our cost structure to improve from the negative impacts of adverse weather during the first quarter.

We expect well site services revenues to approximate $150 million to $155 million in the second quarter of 2011.

The OCTG market remains fairly well in balance with approximately 5.6 months supply on the ground. Imported products continues to represent approximately 50% of the market, but US mills did recover some market share during the first quarter.

Our OCTG sales generally follow trends in the US rig count, with premium grades and high demand currently due to active North American shale play development.

Our gross margins should remain strong throughout the second quarter, with projects in the 5% to 6% range. We anticipate tubular services revenues in the range of $290 million to $295 million during the second quarter of 2011.

In conclusion, we had a very successful year in 2010, which has positioned us for strong results in each of our business lines. We have successfully integrated the three acquisitions (inaudible) during the fourth quarter of 2010 and are optimistic about our growth prospects.

That concludes our prepared comments. John, would you please open up the calls for questions and answers at this time?

Thank you. We will now begin the question-and-answer session. (OPERATOR INSTRUCTIONS) Our first question comes from John Lawrence from Tudor Pickering. Please go ahead.

Hey, guys. Good morning.

Hi, John.

Congrats on a great quarter.

Thank you so much.

So just hitting rental tools margins, could you -- really nice sequential uptick -- just kind of walk us through kind of the outlook for the next year and as we get into 2012? It seems like there's still a lot of room to go there on the margin side.

We definitely saw some good improvements as witnessed by our sequential increases on the rental tool front. Not surprisingly, a lot of that sequential improvement came from bases like the Marcellus, the Bakken, some North Louisiana work and also West Texas and Eagle Ford type work. So good indications there, both from activity, and importantly the product mix is obviously going in our favor. Not all of our increases are obviously pricing related. We did get some pricing, but a lot of it is mixed with the improved service intensity, particularly coming from the basins that we mentioned.

It's hard not to have a positive outlook about Q2 and really the balance of the year, given the strength of the activity and all of these basins and the ever-increasing drive for these liquid rich plays and oil-driven plays. And so we do definitely have a favorable outlook.

Right now I think one of the general theses from the morning is sustainability of the EBITDA margins that we realized in Q1. And again, at this stage, we do believe that those margins are sustainable.

Okay. Okay, great. And then just on the accommodations side, obviously you guys are adding a lot of capacity this year. Could you just talk about where you are from a manufacturing perspective? And is this -- are you guys kind of going full out this year? In other words, is the capacity you're adding in Canada, can you add more this year? Concerning Australia, can you add more this year as well?

Well, you raise a very good point. As most of the people on the call do know, we generally do manufacture for our own account, and we have of course been exceedingly busy in both Canada and Australia. And as you will -- we noted on the call and most of you will know, we made two recent announcements for incremental capacity. One being the Hinday Lodge in Canada and also an expansion of our Coppabella Village, pursuant to contract in Australia.

So obviously we're in good plays there. We are already outsourcing some work, i.e., bringing in some incremental capacity from third parties to augment what we are able to do actually in both markets. We opened a new manufacturing facility in Brisbane earlier this year to handle our Australian manufacturing needs in that market, and we have been able to, on a short-term basis, extend the lease that we have in our Adelaide facility. So we're manufacturing out of two facilities right now.

And I'd say if there's any gating factors for us right now, the major gating factors are actually not so much on the manufacturing side as it is the installation side. Again, recall that we really do everything from start to finish in these operations, and we've got a substantial number of installation crews that are working in both markets to get these units up and running and earning revenues.

In the case of Canada where, you know, it's incredibly remote, there's no place to say, so actually our installation crews are taking some of our capacity up right now, so that they can have access to a place to live while they do the installations for facilities like Hinday.

In the case of Australia, we're doing a great job there. They were clearly hindered on the installation front by the massive rains and flooding that occurred in the first quarter.

All that being said, everybody is doing a fantastic job and are generally ahead of the curve in terms of our delivery obligations to our customers in these markets.

Okay. Well, great. Thank you very much, guys.

Thank you.

Thanks, John.

Our next question comes from Victor Marchon from RBC Capital Markets. Please go ahead.

Thank you. Good morning. And I'll echo the comments of congratulations on the quarter.

Thank you.

Thanks, Victor.

Just on the accommodations side, thank you for the second quarter room number. And I just wanted to get a sense if you could provide something for an exit rate for this year on what you expect for the villages and the lodges.

We typically put that in our investor presentations. I'm looking to Bradley to see if he happens to have that handy with him. I'm not sure.

I think we'll be a little over 15,000 rooms by the end of the year.

Okay.

That'll be fourth quarter average available rooms.

Okay. And just as it relates to the CapEx increase and as it relates to accommodations, is the increase that was associated with that business, was that all to account for the announced expansions, or does that give you guys some flexibility for incremental work that may come to fruition later this year?

There are no -- there are a handful of smaller projects that haven't been announced, but that includes all the major projects. So all the major projects have been announced that comprised the $625 million forecast.

Okay, great. And the last one just on offshore products. A similar question that was asked earlier on on accommodations just regarding the capacity there and how things look, you know, on that end, you know, as orders are ramping. Just wanted to get a sense as to your guys' capacity, and how you see that over the next 12 to 18 months.

I'm sorry. Would you ask that again?

Sure. Just the capacity at offshore products as order flow has obviously picked up to a great extent. And just wanted to get a sense as into -- with the increase of order flow, what your capacity is there and how you see that progressing through the year.

That's a great question. You know, we have certainly been at these backlog levels before, so we're not concerned about our ability to deliver products to our customers at the levels that we're at. We are broad based in our manufacturing capacity, really on a global basis.

And so we've got more availability right now, particularly I would say in Houston and Houma, some of our US-based locations. A lot of the backlog growth is coming in our UK type operations and facilities. But the good thing is, a lot of these projects are timed in such a way that, again, we'll be able to handle that.

I was just in Singapore, and we had our facility grand opening there. We talked about that before. It's a great facility, and it does expand our capability to support our customers in that Southeast Asian region (inaudible) last year. We've added capacity, manufacturing capacity in areas like Thailand. We've entered some joint ventures in other regions that should help us.

So I think that we are overall fine relative to where we are now. Again, we've got excess capacity and would like some more work in our Houston-based operations and our Houma-based operations. We will be focusing more intensely on expanding our operations in Brazil this year.

That's great. I appreciate it. Thank you, guys.

Thanks, Victor.

Our next question comes from Stephen Gengaro Jefferies & Company. Please go ahead.

Thanks. Hi, Cindy and Bradley.

Hey, Stephen.

Just really two things from me. The first is we've talked in the past a little bit about the offshore products margins and the mix content, and my sense was I think you've gotten to 19.9% twice but never over. And my sense is you may be able to sort of break 20% by the end of the year. Can you talk about the mix there and how we should think about margin progression?

Well, the mix of what we're receiving currently is a favorable mix weighted towards our high-end, high-specification connector products. That's always really a good thing from a mix perspective. And importantly, our performance is generally very sound on the delivery of those types of connectors.

What I'd like to see to really leverage us above and beyond the range that we guided to, as I alluded to, was increased backlog and activity in Houston and Houma. Because what happens, if they don't have enough throughput, their cost absorptions tends to drag down our overall margins just a bit. And so those are the things that we're focused on. But clearly, again, the trend lines are all very favorable in terms of the backlog build that we are booking currently.

Okay. Thank you. And two other actually quick ones. While we -- the corporate and other line, what should that look like as we go forward here for 2011?

It should average about $9.5 million per quarter.

Okay. And then the final question on the accommodations side, you've obviously announced a few things here. As we sort of think about it maybe beyond the scope of what's already been announced, what are you hearing from customers both in Canada and Australia as far as longer-term plans and maybe how we should think about maybe folding in incremental capacity in 2012? I mean, I know without giving specifics, I mean, is there a very high level of discussion? Is it still sporadic? I mean, how should we think about it going forward?

I really don't have any other way to characterize those things other than saying that they are robust. There was a clear slowing of activity through the global financial crisis in both Canada and Australia. You don't see it in our results because we had such a strong base of existing operations.

And in fact, both markets had record results at the time, even in the downturn, but there was no one that was really leveraging new projects, new developments and moving those forward. And all of the sudden, a lot of those delays seem to be getting [legs]. And now, again, it's just an incredibly active bidding, quoting, kind of overall demand environment really in both markets.

Great. And then if I could sneak in one final one. I'm just looking back historically at the model, and you used to give out -- or you used to provide a little more color on sort of the seasonal accommodations, rental units. And I'm not asking for the breakout, but is that -- is the size of that business kind of about what it used to be from a seasonality perspective, you know, if we go back sort of three or four years, or has it gotten bigger?

It has not gotten bigger. What's happened, our more year-round operations have grown proportionately, if you will, in the sense that it is mitigating some of the seasonal declines. However, they are still ever present because we do have fleet works that works in conventional applications, and we just want to remind you of that.

But if you'll remember, if we went back probably five or six years ago, about 50% of our accommodation's EBITDA would be generated in the first quarter. That is clearly not the case any longer. But you -- we still do get seasonal type contributions from fleet assets, again, working in conventional areas. I hope that's helpful. I don't know if Bradley wants to add anything to my comments.

No. I think -- yes, I think the net result this year is going to be the seasonal decline, and it will be offset by the increased lodge and village capacity, plus or minus. So they're kind of going to be offsetting Q1 to Q2 this year.

Okay. Yes. Now the seasonality gets hidden because the year-round work has gotten so significant, so that's fine.

Right.

Okay. Great. Just wanted to check that. Thank you for your help.

Thanks, Stephen.

Thank you.

Our next question comes from Jeff Spittle from Madison Williams. Please go ahead.

Thanks. Good morning, Cindy and Bradley.

Thanks, Jeff.

Good morning, Jeff.

With regard to offshore products, obviously we've got a new build cycle going on with drilling rigs in the offshore market. Can you remind us again in terms of cycle times how long lead times are for people that are ordering equipment that would go on drilling rigs? And has everything from the prior cycle that's scheduled to come out of the [yard] potentially ordered what they need? And then I guess that'll kind of help us out in terms of this next (inaudible) of the new builds.

Yes, it does help. You know, and a lot -- I'll be honest, we're not a big provider of rig equipment, although we obviously provide some. So our visibility is not going to be nearly as strong, obviously, as [peak] visibility. I'll just caveat that. And there are times where, you know -- as you all know, we've got our drilling rise or flex joint that is part of the drilling rig itself, if you will, but it comes later down the chain, the demand chain in terms of when it's delivered.

And there are times that we don't even know which rigs that they are going to. So I'm not completely able to answer that probably as fully as you would like. However, it is my general feeling that we are -- what we have in backlog and what we're booking into revenue as it relates to drilling rig construction is fairly minimal at this stage. We do still have some in backlog but not a whole lot.

So I feel like I'm excited to see that there is this wave of new rig construction, and we will be a beneficiary of that over time.

Okay. And then switching over to accommodations, it looks like there was another project expansion sanctioned up in the Christina Lake area. I won't put words in your mouth in terms of whether that business ultimately might go in your direction. But if it's potentially out there with the timeframe that they've talked about on that project, is that something that would necessitate an expansion to the existing facility? And if so, could you give us a helping hand in terms of timing there?

We're talking about the Cenovus announcement?

Yes.

Generally -- they've generally in-sourced a lot of their work, although that's -- I guess it's always possible they could use us. I think generally what it's going to do in that Conklin region and Christina Lake region is tighten up overall supply of accommodations. And so I don't know that we'll get a contract there, but I think generally we'll have -- we've got plenty of opportunities with a couple of other customers that we're working on right now.

So I think overall the message is positive. That in and of itself, I don't know if that leads to direct work, but overall the activity in the area is strong, and we expect to get good opportunities in our lodges.

Great. Thanks very much. Great quarter, guys.

Thanks, Jeff.

Thank you so much.

Our next question comes from Collin Gerry from Raymond James. Please go ahead.

Hey. Good morning.

Hi, Collin.

Hi, Collin.

So I want to follow up a little bit on the accommodations side. You know, in the US, I think the strength of the oilrig count has -- well, it's certainly surprised us, and it seems a lot more like it's going to continue going forward. We're also hearing there's a lot of people bottlenecks in places like the Bakken where you're seeing a lot of that shrink. Maybe talk to us about how that affects your accommodations business. Are there opportunities for you there?

There are continued opportunities and realize that that was one of the primary reasons that we were interested in and closed on the Mountain West acquisition was their exposure to that market. And then in addition to that, coming out of Canada, we opened three what we termed open camps of our own in that marketplace, and we do have plans to leverage and build off of that base of operations that we have established over the last six months or so.

Okay. That certainly makes sense. And again, I guess, we're hearing huge, huge issues with people up in that region, so it certainly makes a lot of sense there.

The -- switching gears a little bit to the tubular side, I guess back to my commentary on the rig count, it seems -- or at least we are, we're getting a little more bullish on that activity, particularly as it relates to oily activity.

Maybe help us understand how a more bullish rig count environment could affect this. Could we see pricing from mills get a little bit better? And what would it take for you to be more bullish on the outlook from a margin and pricing perspective on the tubular side?

Yes. I mean, obviously if the rig count continues to increase and accrete up, particularly as your recent report has suggested it has a propensity to, that's right from the standpoint of tonnage delivered, the real question mark we've kind of had off and on all year is where pricing goes. And there's a lot of dynamics here in play. I'd say pricing has just kind of leaped up but by nominal amounts. The last OCTG report only had pricing up like $10 or $11 a ton on average.

So what's happening is fairly consistent with our expectations coming into the year. And a lot of that has come from the -- this increasing ramp in imported product into the marketplace, or I should say a recovery of imported products into the marketplace that's kind of put a lid, I think, on pricing.

There was some moderation of that with the US mills, as I mentioned, gaining some market share in Q2. So one of the key variables of the course is the age-old question in terms of where international activity goes and whether that can consume some of that imported product that's hitting the US markets, number one.

And then don't forget that there's quite a lot of US capacity coming on this year, and that is all the reasons that we have kind of projected a very flattish pricing environment this year. You know, there's obviously potential implications from the tsunami that hit Japan and other regions that we've yet to kind of get our arms around. But I just don't see anything yet today that tells me there's a lot of price leverage this year, but that is the key critical upside, I would say, from where we are today, but I'm just not banking on it yet.

Okay. And just to follow up there, it sounds like one of the key variables there is maybe the Gulf of Mexico and international activity needing to soak up supply, that's more critical to tightening the things on -- from a pricing perspective than just the US rig count. Is that fair?

I think so.

Okay. And then last one from me, you did increase your CapEx a little bit more. Obviously the rental tool business was going gangbusters this quarter. Is part of that increased CapEx for the rental tools side?

Absolutely.

Yes.

Any degree of magnitude?

Bear with me.

No problem.

I think we added about an order of magnitude, you know, $10 million or $15 million of additional CapEx in the forecast for rental tools, which on a percentage basis is fairly substantial.

Okay. That's it for me. Again, great quarter. Thanks.

Thanks so much.

Our next question comes from Blake Hutchinson from Howard Weil. Please go ahead.

Good morning.

Morning.

Good morning, Blake.

Just a quick question with regard to your EBITDA margin guidance for accommodations typically (inaudible) quarter. You know, 37% to 38% is certainly not out of the realm of what you've done historically. However, it's a little bit tighter range around the higher end of what you've achieved. Is this symbolic at all of kind of a higher comfort level with the integration of the two recent acquisitions? And should we expect that (inaudible) them in will point us towards a higher end of that range going forward, or is there something else at work there?

Well, I don't think there's too much unusual in there, but I think it's a couple of things. As we mentioned earlier, there's less of a seasonal impact in downturn than what we've experienced from Q1 to Q2 in earlier years, if you will, and certainly that has some impact. And again, the margins of the acquired businesses are very strong margins. So the mix is a good mix for us overall.

And, you know, just generally speaking, what we're deploying in the region right now is very consistent in terms of, you know, the revenue and EBITDA generation of what we have in our base accommodations business now. So I think it's kind of a culmination of those things.

Would I take that commentary to mean -- I mean, that would probably be consistent throughout the remaining quarters of the year as well, correct?

Absent any unusual kind of --

Yes.

(Inaudible), or, you know, unusual events, I think that's a fair assessment.

Yes, I agree. Yes.

Okay. (Inaudible).

I'll rephrase it, and let me know if this answers the question. But I would say is there an upward bias from here on margins in the back half of the year, I think at this point there probably is, as Cindy pointed out, barring any other third-party sales, et cetera.

Great. That's extremely helpful. And then just a smaller question. Has [Caraffa] been permitted for its full volume, full plant volume?

I'll be honest with you, I'd have -- we got the initial permit in place for the rooms that we've announced. I'd have to actually follow up and get a clear indication of whether we've got incremental approval. I don't think that we do yet.

Right.

Nor do we need to until the end of the year. But I think we're expecting that in kind of third quarter. I'd, again, have to refresh my knowledge of that one.

That's right.

That's fine. And then just kind of in broad strokes with regard to the pipeline of opportunities you have in offshore products, we've had several quarters here of very nice order rate. I mean, is there anything you see within your pipeline, understanding it's hard to call quarterly order numbers, that would lead you to believe that, you know, these levels, order levels, are kind of unsustainable?

I won't say that they're unsustainable, but I do think they're going to moderate. And as I've always said, we're going to have variability in our order book quarter by quarter. Q4 of '10, Q1 of '11 were exceedingly strong orders booked historically. And both of those did include some sizeable awards from notable big work projects and contracts. I call them the shots in the arm that really leveraged that book to bill over one.

If -- I'd tell you it'd be hard for me to tell you. I think we're going to have that from this quarter forward. You'll see some moderation there.

Okay, great. Thanks so much for the help.

You bet.

Our next question comes from Kyle Cavanaugh from Palisade Capital. Please go ahead.

Hi. Good morning, Cindy and Bradley.

Good morning, Kyle.

Hi, Kyle.

I just -- could you explain one thing to me about the dynamics of the accommodations (inaudible). Last two quarters the organic growth in accommodations was flat to negative. I understand there's a lot of demand there, but could you explain those dynamics to me as to why they were flat to negative on the organic side?

On a year-over-year basis the --

Year over year, yes.

The biggest factor was last year we had the Vancouver Olympics project on the open camp side, which didn't repeat -- which didn't fully get repeated. Those assets did go to work but certainly not at the revenue and margin that we had experienced in that project. That was the biggest negative variance on the Canadian business.

The US business was [at] strong year over year. And obviously the Australian business and the acquisition of Mountain West added on the acquisition side.

Okay. Thank you.

Good.

Our next question comes from Thad Vayda from Stifel Nicolaus.

Morning, guys.

Hey, Thad.

Hi, Thad.

Hey. You spent some time talking about capacity in your offshore products division. Could you kind of walk through what you're seeing on the product pricing front, sort of where you might be seeing some leverage and where you're absolutely not seeing any?

You know, it's hard to push pricing, per se, I think in the market that we're in today. But we feel like we'll be able to retain our pricing and retain our margins and improve our mix. So what that translates to is a pretty favorable trend line overall. We've got to watch our cost and control our costs and bid those appropriately just to be sure that if inflation does hit, as many project, that we don't erode those margins.

But, you know, I'm not going to tell you that we're pushing pricing on a lot of what we're doing. It's because we're not -- I think you're seeing that from a lot of the other people that are announcing. A lot of our backlog build right now has been in our connector products, and we don't have quite as much competition as possibly someone that's bidding (inaudible) might have. And so I believe our pricing is holding up well, and our margins should hold up well also.

Okay. And actually there was some comments earlier concerning labor costs. Are you seeing any significant inflation yet? I mean, everybody's sort of watching it, but have you noticed it sort of creeping into your cost structure?

Well, the highest exposure we had if you -- I say exposure, and let me caveat that -- but areas that should experience the most significant labor increases right now, in my opinion, for our operations are in Canada and in Australia. There is beginning to be some labor inflation in the field in the US as well, but I'd say it's not nearly as significant as what we are expecting in these other two markets because they're not nearly as -- have the labor availability. Their employment levels are already low, and their growth rate in those markets is very significant.

We did just conclude a fairly lengthy labor negotiation successfully in our Canadian marketplace, so we have better visibility there in terms of where we sit.

As you know, where we do have long-term contracts in place in both Canada and in Australia, we have those contracts provide for inflation protection should we hit those hyperinflationary type timeframes that we've seen in the past in Canada.

Okay. And I apologize if you said this earlier, but last one. The percentage of your tubular inventory that is committed to customers at this juncture?

It's over 90%.

Okay. Thank you very much.

Thank you.

(OPERATOR INSTRUCTIONS) We have no further questions at this time.

Great. Well, thank you so much. I won't keep anybody any longer. I know this is an extremely busy day from an earnings perspective, and we do very much appreciate those of you who dialed into the call today and look forward to visiting with you as we progress through the second quarter. Thanks so much.

Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.