Oil States International Inc (OIS) 2011 Q3 法說會逐字稿

Welcome to the Oil States International third-quarter earnings conference call. My name is John, and I'll be your operator for today's call. (Operator Instructions). I will now turn the call over to Ms. Patricia Gill. Ms. Gill, you may begin.

Thank you, John.

Welcome to Oil States International's third-quarter 2011 earnings conference call. Our call today will be led by Cindy Taylor, Oil States International President and Chief Executive Officer, and Bradley Dodson, Senior Vice President, Chief Financial Officer and Treasurer. Before we begin, we would 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 protections afforded by federal law. Any such remarks should be weighed in the context of the many factors that affect our business, including risks disclosed in the form 10-K and our other SEC filings. I will now turn the call over to Cindy.

Thank you, Patricia, and thanks to all joining our conference call this morning. I am pleased to report that Oil States generated record quarterly revenues and EBITDA in the third quarter of 2011 as each of our business lines witnessed strong demand for our products and services despite the global economic uncertainty impacting the equity market and our stock price.

Our accommodation segment reported sequential revenue growth of 12% due to organic expansions in the Canadian oil sands region coupled with growing contributions from the MAC and Mountain West acquisitions. Strong US drilling and completion activity drove sequential improvement in our well site services and our tubular services segment.

Our offshore products business also performed very well during the quarter with EBITDA up 27% sequentially on strong margins. We were able to maintain our high backlog levels in the third quarter consistent with our guided book-to-bill ratio of approximately 1 time for the second half of 2011. We expect global deep water spending to continue at strong levels with additional project opportunities coming from Brazil, West Africa, Southeast Asia, and Australia over the next 12 months.

During the third quarter of 2011, Oil States generated earnings of $1.67 per diluted share on $92 million of net income, $192 million of EBITDA, and over $900 million in revenue. Consolidated operating income more than doubled to $144.5 million in the current quarter, up from $70.4 million in the third quarter of 2010, and our gross margins improved to 26% from 24% a year ago.

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. In the third quarter of 2011 we reported operating income of $144 million on revenues of $903 million. Our net income for the third quarter of 2011 totaled $92 million or $1.67 per diluted share. The comparable third-quarter 2010 results were $70 million of operating income on revenues of $588 million.

Third-quarter 2010 net income totaled $46 million or $0.88 per diluted share. The year-over-year increases in profitability were primarily due to improved earnings from each of our business segments as well as contributions from the 3 acquisitions closed in the fourth quarter of 2010.

During the third quarter, we reported cash flow from operations of $126 million, offset by capital expenditures of $141 million. Our net debt at the end of the third quarter totaled $979 million, and our debt-to-cap ratio was approximately 38%. As of September 30, 2011, the Company had approximately $846 million of combined availability under our credit facilities and a cash balance totaling $119 million.

During the third quarter of 2011, we repurchased 209,000 shares of common stock at an average price of $60.35, for a total cost of $12.6 million. As of September 30, 2011, we had approximately $87 million available under our authorized share repurchase program, which expires in September of 2012.

In terms of fourth-quarter 2011 guidance, we forecast D&A to be approximately $51 million; net interest expense to be approximately $19 million. Diluted shares are expected to total $55 million in the fourth quarter of 2011, and we currently estimate our effective tax rate for the fourth quarter to be sequentially flat at approximately 28%.

We currently expect to spend a total of $635 million in capital expenditures in 2011. Some of this forecast may carry over into early 2012 depending on the timing of those expenditures. At this time, I'd like to turn the discussion back over to Cindy, who will review the activities in each of our business segments.

I lead off with our accommodations segment. Our major Oil Sands lodges in Australian villages continued to realize strong occupancy levels during the third quarter of 2011. Accommodations revenues increased 78% year-over-year, and EBITDA increased 103% year-over-year, primarily due to contributions from the MAC and Mountain West acquisitions, which closed during the fourth quarter of 2010. In addition to a 32% increase in average available rooms and higher RevPAR year-over-year at the Company's Oil Sands lodges.

On a sequential basis, revenues increased 12%, while average available rooms for our major lodges and villages increased 14%. Revenue per available room was slightly lower sequentially due to the mix of available rooms and internal utilization of rooms used by our installation crews executing ongoing expansions.

In our offshore product segment, we generated $140 million of revenues and $28 million of EBITDA in the third quarter of 2011, compared to $132 million of revenues and $22 million of EBITDA in the second quarter of 2011. This 6% sequential improvement in revenues was due to higher connector products and production platform-related equipment, partially offset by lower Subsea equipment sales. Revenues for this segment came in below our prior guidance as some connector product sales from our Asian operations slipped into the fourth quarter.

Reported EBITDA margins were strong at 20%, reflecting some positive margin adjustments on production equipment orders. We booked approximately $150 million of new orders during the third quarter of 2011 and maintained a strong backlog level, with $514 million reported as of September 30, 2011. Our backlog was negatively affected during the quarter by the strengthening US dollar, which led to a reduction in the amount of our backlog denominated in foreign currencies.

Our well site services segment generated revenues of $173 million and EBITDA of $56 million in the third quarter of 2011, compared to $154 million and $47 million respectively in the second quarter of 2011. The 21% sequential increase in EBITDA was driven by growth in the US completion activity that continued to favor our higher-end and proprietary completion equipment, coupled with improved utilization from our drilling business.

Revenues from our rental tools business increased 13%, and EBITDA increased 22% when compared to the second quarter of 2011. These sequential improvements were attributable to better pricing and service mix related to the continued increases in US completion activity in support of horizontal drilling and complex completions in the shale plays with particularly strong activity in the Bakken, Marcellus, Eagle Ford, and Permian Basin regions.

Revenues and EBITDA from our drilling segment increased 11% and 16% respectively on a sequential basis due to higher rig utilization, as 2 previously inactive rigs resumed operations during the third quarter, coupled with better cost absorption.

During the third quarter of 2011, tubular services generated revenues of $363 million and EBITDA of $19 million, compared to revenues and EBITDA of $332 million and $18 million respectively in the second quarter of 2011. Tubular services OCTG shipments increased 5% sequentially to 182,300 tons from 173,300 tons shipped in the second quarter of 2011.

Gross margin as a percent of revenues remain strong at 6.3% during the third quarter of 2011. Our OCTG inventory decreased modestly to $375 million at September 30, 2011 due to strong demand experienced in the third quarter with increased tonnage sold particularly in the Permian Basin region.

Now I would like to transition and give you some of our thoughts as to the market outlook. As it relates to accommodations, demand for our remote site accommodations continues to grow in all of our major markets and we continue to focus on future expansionary opportunities.

We recently announced the construction of a new Australian village named the Calliope Village near Gladstone in Queensland, Australia. The village will have an initial capacity of 300 rooms and is expected to be ready for occupancy during the fourth quarter. Calliope's proximity to the various L&G projects sanctioned in the Gladstone and Curtis Island area broadens our commodity exposure to include coal seam gas and L&G.

At the time of the announcement, we had secured a 9-month contract with options for extensions for 100 rooms, and are pleased to report that a second customer signed a 1-year contract, for the remaining rentable rooms. In the fourth quarter we expect our average available rooms to grow from 15,931 rooms to approximately 17,000 average rooms available, which represent a 7% sequential growth. Accommodations revenues are expected to total $235 million to $245 million in the fourth quarter of 2011.

Our internal forecast suggests that EBITDA margins will likely be slightly down by roughly 100 basis points sequentially in the fourth quarter as we mobilize equipment in Canada for winter activity and incur expected holiday down time.

In our offshore products segment, we booked approximately $150 million in orders in the third quarter and maintained a strong backlog level that provides us with good revenue visibility for a strong 2012. Fourth-quarter revenues are projected to total $155 million to $165 million, as we expect to receive incremental revenues from product sales that carried over into the fourth quarter. EBITDA margins should approximate 18% during the quarter.

As it relates to well site services, our rental tools business is closely tied to US completion and production services activity, with particular leverage to high-end multistage completions and will generally track movements in shell drilling and the horizontal rig count.

Revenues in margins for rental tools in the fourth quarter of 2011 will be dependent on the extent of holiday down time experienced in the key shale regions. This will affect the entire industry and should not be viewed as a company-specific issue. We could see some reduced revenues and margins in rental tools sequentially in the fourth quarter of 2011, depending upon the extent of holiday down time.

We anticipate utilization for our drilling business in the fourth quarter to see impact from holiday and weather-related down time, but nonetheless expect utilization to remain at 80% or higher. Accordingly, well site services revenues are expected to approximate $100 million to $175 million in the fourth quarter of 2011.

The OCTG market remains active and the supply-demand balance have tightened further with approximately 4.3-month supply of inventory on the ground. Distributor and mill pricing is improving in a gradual and disciplined manner, with recent mill price increases announced in the range of $50 to $100 per ton. Imported product has decreased recently but still represents approximately 46% of the market.

Our OCTG sales generally followed trends in the US rig count and current indications from our customer base are positive and reflect strong activity continuing into the immediate future. We expect our tubular services segment to generate revenues of between $380 million and $390 million in the fourth quarter of 2011 with gross margins ranging from 5.5% to 6.5%.

In conclusion, the first 9 months of 2011 have produced record results for our Company due to excellent operational execution amongst our business lines. We have also benefited from acquisitions that closed during the fourth quarter of 2010, whose earnings contributions have well exceeded our acquisition economics. Oil prices have rebounded to levels that continue to be supportive of our customer spending plans and remain optimistic about additional accretive growth opportunities for each of our business segments.

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

(Operator Instructions) Our first question comes from Collin Gerry from Raymond James. Please go ahead.

Good morning.

Good morning, Collin.

This quarter for you guys is quite refreshing relative to some of the industry tidbits that have been coming out from oil service land in general. We've been hearing a lot of companies report about cost inflation and supply chain disruptions affecting operations.

It didn't seem to come through in your numbers and not in your guidance either. Maybe talk a little bit about, generally speaking, what you are seeing in terms of cost inflation or supply chain problems and how that may affect your business or if it's not.

I think we performed pretty well during the quarter and we're not seeing dramatic delays. One thing that we did do, particularly in our rental pool equipment line is really expand our own internal facilities, particularly in Oklahoma City, where particularly our proprietary equipment, we manufacture and build in house, so to some degree we are controlling our own destiny, so to speak, from a supply chain perspective.

In the rental tools you can see in our results that we got particular benefit. A lot of that was tied to isolation equipment and frac equipment and again, all of that equipment is manufactured and controlled out of our own operations, and I think that does make a difference, both from the standpoint of planning, inflation and timely deliveries, which really helped our operation.

So I'm not going to say that it's not a tight market, because clearly it is. We are challenged every day to retain our hands and our workers and manage the cost in the field. But again, I think we had an outstanding quarter in this segment, and I think it's reflective of good planning.

Yes, certainly relative to some of the other guys, it is impressive. Switching gears, I think to date pretty much all your divisions have been doing phenomenally well, except maybe tubular has been the laggard. Based on your guidance and revenue to Q4 and kind of margin, am I sensing an inflexion in the market?

And maybe talk about your confidence as we move in to 2012 about some of those numbers being sustainable. I mean I guess we are worried about the macro trends, but based on what we know now.

Maybe I'm a little sensitive to it but our revenues were actually up sequentially, 9.2% on the heels of a 6.5% expansion in the US rig count, so I didn't necessarily think that that operation disappointed. Our shipments were up 5.2%, and the balance of the increase was price-related. So, I think part of it may be what analysts were projecting relative to rig count assumptions.

I don't know the answer to that. As it relates to Q4, again, we are continuing to see increased activity, expansions in the rig count, exceedingly strong activity for this segment, particularly in West Texas in the Eagle Ford and the Bakken and other regions.

We've met with our customers and again, we track log. We don't publish backlog in this segment, but we certainly track customer orders and our forecasts are always predicated on the visibility and timing of those expected orders.

My only other caveat to you - this a day by day sales business. It can vary, obviously. It's not like having a firm contract out there that you have assurance in terms of volumes and price.

But we have pretty good outlook. And typically our fourth quarter is a stronger quarter in terms of volumes delivered. For many reasons, but a lot of it is, I think, customers trying to get the wells down before year end, spending their capital programs and the like. But if I just go back the last couple of years, Q4 usually is a pretty good quarter.

Okay. So, there is a little bit of seasonality, but it does sound like your opinion was that market in general is a little bit more bullish now than maybe earlier in the year.

I would say so, but a lot of that, we've had very good rig count expansions, and we've had continual reductions of inventory on the ground. The only guidance I gave you early in the year is, even though we've had a strong rig count there is capacity coming into the market that has given you a pretty solid in-balance type market. In other words, we are not seeing momentum price increases, but we're seeing, as I said on the call, gradual disciplined price increases that lead to a very firm market.

All right. I will stick to my two question rule, thanks again, great quarter.

Next question comes from the John Lawrence from Tudor Pickering Holt. Please go ahead.

Just a quick question on accommodation margins. I realize Australia helps there on the mix side, but what is really driving the better margins? Is it scale, is it better execution? What is the driver there?

I think it is, and it continues to be that the lodge and village business, as we continue to grow, it does garner a higher margin, and that contributes a greater percentage to the revenues and therefore the EBITDA. We guided all along that the margins should continue to accrete upwards.

I think in addition, our team in the US has, with the Mountain West acquisition, has a good critical mass in that region, and that's helped quite a bit as well. And I think the execution in Australia and in Canada year-to-date has been quite good. I think within plus or minus range of where we were in Q2 and Q3 on margins, I think these margins are sustainable in the near term.

Great. And Just on 12 CapEx, I think on the last call you talked about $600 million. Is that still the case? And then on the accommodations as there, will most of those be on contract, or will you build those on spec?

We've not updated our guidance from $600 million, so we are going to keep that for right now. We are in the budgeting process as we speak. We will have a firmer number for you as we move into the fourth quarter and then obviously announce fourth quarter earnings in February.

The room counts, well, originally, Calliope, we started billing that somewhat on a spec basis, but then got those two contracts which is we're very pleased about. That's a big win. The two hundred rooms at (Carafta) in Australia don't have contracts yet. Those are the speculative rooms in Australia that are on the drawing board right now.

In Canada, the expansion Wapasu of a thousand rooms this year, that was all contracted. The expansion at Henday was all contracted. We've got about 800 rooms that we were adding to Athabasca and Beaver River, and originally we were going to add some to Conklin.

Those are speculative. Some of those rooms now we believe are going to be -- instead of Conklin are going to go to Henday, so that will be a positive there as well. We see greater demand in that Firebag Curl region.

Okay, great. Thanks a lot, guys. Congrats on a great quarter.

Our next question comes from Geoff Spittles from Global Hunters. Please go ahead.

Maybe on offshore products, if we could start off there and just maybe some incremental color on the margin road maps in the next 12 months. Correct me if I'm wrong, but we would add favorable mix and pricing trends ongoing over the last 12 months, and then of course through-put improving a little bit, and so could you walk us through those dynamics? And certainly looks like we are ahead of schedule in terms of margins that you guys have achieved already, but how does it play out from here?

You've hit on a lot of the points there. The mix in our backlog is a favorable mix. It's weighted toward our connector products and our production facility connectors and equipment, which historically have been very good for us, both in terms of bit margins and execution.

We did have a very strong margin quarter this quarter. Revenues were a little lighter than we thought. Again, it's just high demand in our Southeast Asian region that slipped into Q4, not a loss of revenue, and we did have some favorable POC adjustments, but that just means the projects are going well. That's good news.

It's always hard to -- I think an analyst wants to know, is it going to be exactly 18% or 18.5% every quarter, and we can't answer that. But what we can tell you is that our margins are trended on a higher end. Most people that know me have known that a personal goal is to get those EBITDA margins to 20%.

So I was very pleased with this quarter's performance. We will be ramping revenue as evidenced in our projections, and the only hesitation right now on margins is just the fact that there is always some under-absorption due to holiday down time typically in this quarter.

We don't think it will be significant, and therefore we guided to the roughly 18% EBITDA margins in Q4. But importantly, as we move forward into 2012, we've got a very strong backlog level, the mix is very good, and so, the outlook for margins continues to be on a favorable trend.

Very encouraging. And then switching to the combinations business, I want to make sure I understand the seasonal dynamics between Australia and Canada. You've got some holiday downtime and mobilization in this quarter, and then, correct me if I'm wrong, typically you have a little bit of rainy season and holiday in the first quarter down in Australia, offset by strength in Canada, and then sort of a reversal of that as you work in to spring break up in Q2?

That's exactly right.

Okay. Congrats on a another great quarter.

Our next question comes from the Steven Gengaro from Sterne, Agee & Leach.

Really just two follow-ups. One, can you give us any sense for what your initial plan is for room growth in '12? I know you alluded to it in the last conference call. Should we stick with that for now, or do you have any additional color?

I'm going to kick off. Why don't we stick with that for now. There is a lot of irons in the fires, particularly as it relates to our Canadian operations in terms of bidding prospects and opportunities, but there is nothing solidified to a point that we can announce it.

And so, Bradley, in giving the guidance, doing the best that he can in terms of what he put out there to date, but we will be going through formal budgeting process over the course of the balance of November and all of December. And again, we do expect to firm up some of these conversations, that hopefully we can give you more specifics. But I will let Bradley give you more color to that.

No, I think right now we are still looking at 1,500 room additions, both 1,500 rooms added next year in Australia and 1,500 rooms added next year in Canada. We will firm that up as we go in to February, but I still stick by the guidance. I think those are good numbers.

Okay. And then you bought back stock in the quarter. I think your net debt to cap is right in the mid-30s. Should I assume that that debt to cap level is where you feel comfortable longer term, and you would not be against buying back stock with your current ratio going forward, right? Is that a good way to think about it, as far as what you might do from a repurchase perspective?

Yes, I think we will continue to be-- our share repurchase program is a component of our capital allocation and our capital discipline. Certainly our returns have always been the best off of organic growth opportunities.

We are not going to forego organic growth opportunities to buy back stock. Certainly in the third quarter during-- there are periods where the stock, we felt, had acted irrationally, and it's always good to be opportunistic to buy in some stock, and that practice will continue.

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

Just wanted to get your thoughts. Cindy, you did mention the award cycle and offshore products shifting from Gulf of Mexico to the rest of the world here over the next 12 months. Is there a time frame that you have kind of circled on the calendar where, whether it's late first quarter of next year or second quarter of next year, or any particular time that you feel like the bulk of the awards tend to center around, in terms of timing.

That's always a mystery as everybody knows, the more you promise, a lot of these tenders get delayed. But if you'll recall, we had guided to a book to bill of about one at the end of our second quarter going into the second half of 2011.

That's not to say that we are not evaluating and bidding quite a lot of projects. Most of those projects are currently more in Brazil, West Africa, Southeast Asia and Australia, simply because, as I mentioned, a lot of the awards that were available to us in the Gulf of Mexico during 2011 are already reflected in our backlog.

There are various bids, significant bids in all of these major markets that are ongoing in various stages. I cannot pinpoint which quarter they will be let and awarded. However, my outlook for 2012 is very strong generally.

Okay. And is there - I don't know if you can answer this, but is there a significant portion of current backlog that's scheduled for delivery in '13 rather than '12.

Typically - Bradley is flipping his book - but typically 75% to 80% of our backlog will turn to revenues in the forward 12 months. That's been our history. I will be looking to him to see if that trend line has changed in anyway.

No, it was right at 75% last quarter, and I will calculate it here in a second. We have some work, order of magnitude of $30 million to $40 million worth of backlog that is set for '13 delivery.

Okay, great. And then just from a modeling perspective, Bradley, do we need to be thinking about as many subsea peers have, some sort of extreme seasonality from Q4 to Q1. In other words, a drop off in top line there and not getting too far ahead of ourselves with top line in Q1?

In offshore products?

Yes, sir.

At this point, I don't think there will be any. As we progress through the final quarter, if I see anything, we will update everyone. But at this point, that's not typically been an issue for us.

Great. Finally, just looking at the rental pools business, at least sequentially, little more driven here by job count than pricing. In your mind is that-- how is that divided up between being, a) just being a healthy market, b) pick up and completion and c) kind of new equipment that you've had on order coming in to the market.

Those are a lot of items. Let me see if I can answer them correctly.

In other words, was it-- is there any disproportion amount of the activity increase that is simply driven by taking delivery of new equipment. I think that would be more to the heart of the question.

It is new equipment. I think it's also a market that's favoring our proprietary isolation equipment, as well as our higher end equipment. We've got broad coverage across the market in all the shale plays, but we've been very strong in the Bakken, we've been strong in South Texas and the Marcellus.

And so between the strength of isolation equipment and frac rentals, as well as being in the right places with the right type of equipment, and then adding some of that equipment this quarter, I was pleased with how the tick account was up. I was pleased with how we continue to have some pricing power in the market.

Great. So, all of the above.

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

First question is on accommodations. You guys have talked about Oil Sands in Australia. I just wanted to get your thoughts and your outlook and potential growth opportunities in the US, particularly with Mountain West.

The Mountain West acquisition, as I alluded on the call, has performed exceedingly well. There are certainly shortages in all those major basins that we operate in. Our customers need equipment and we're going to be adding capacity to support their efforts as we go forward. We're also looking to potentially expand that type of product and service outside of the Rocky Mountain Bakken region into other markets as well.

Great. And the only other-- on the drilling side, I just wanted to ask, on the opportunities of unstacking additional equipment. Or, are you guys thoughts on any upgrades or new builds for that business?

You're talking about drilling?

Yes.

We don't have many rigs available. There's one that has gone down temporarily here or there, but most of our rigs are working now. We talked about on that second quarter reactivating and upgrading some rigs pursuant to contracts with our more significant customers in that segment.

We have been in discussions on some new-build rigs, but for us to do that, we want pretty sound economics and reasonable contract visibility. So I don't know that that materializes or not. I think it's kind of right now, operate effectively, get high utilization, good cost absorption, and where we can, price increases going forward.

And the last one, Cindy, I'm sorry, I just missed the guidance for well site services revenue in the fourth quarter.

We were at-- let me just make sure I've got it right. $170 million to $175 million.

Okay, great. Congrats on the quarter.

Our next question comes from Daniel Burke with Johnson RIce. Please go ahead.

Most questions have been asked. But I was curious, looking at the prospective opportunities for the MAC. You guys have talked pretty consistently about the opportunities around L&G and cold seam gas. I was wondering, there's a couple big mining projects in Southern Australia. Do those factor into the potential opportunities set for the MAC?

It's not on our radar screen in terms of our growth projections yet. We've been in continual dialog with those major projects, probably for the last 5 or 7 years. Particularly the Olympic Dam project, if that's the one you're referring to. I think we're in a good stead to participate in some of that activity if it moves forward. It's just been on and off so long that I don't have good visibility, and therefore that's not considered in our growth plans in the immediate future.

Okay, that's helpful. And then, maybe a last one, really revisiting an earlier question, but has-- on the Mountain West side, has Mountain West been able to match the margin improvement trajectory of the overall accommodations business over the last couple quarters?

It's margins are consistent with the overall segment, if that answers your question.

It does. That's really all I had left.

Our next question comes from John Daniel with Simmons & Company. Please go ahead.

Just a couple housekeeping points. Bradley, I think you said the average rooms and accommodation for Q4 would be 17,000. What's the exit rate for Q4?

I don't have the exact exit rate. We will be a little bit higher than that. I can get that, though.

Okay. Can you tell us how many of the drilling rigs are drilling today?

All of them.

All of them? Okay. And generally well-to-well, short-term contracts still?

For the most part. We do have 6 rigs with one customer that we are upgrading 2 of them, and with that we are getting 6 one-year contracts, which will essentially begin in '12.

Got it. Okay.

And we've got one in the Rockies under a longer term contract.

Excellent. And then last one, as we look at the-- we just assume you continue to spend at current levels on CapEx, what do you think is a reasonable range for depreciation next year?

For depreciation, I will get a better number by the time of the fourth quarter earnings call, but I've been using depreciation specifically for '12 of $220,000, and then you've got-- amortization shouldn't change, so that's about $13 million.

Okay. $230,000 to $240,000 is good.

Next question comes from Brad Handler from Credit Suisse. Please go ahead.

Couple unrelated questions, just as we--you helped us with a little bit of margin thinking in the accommodations area. For next quarter and just conceptually how to think about it, is there anything as '12 evolves in your mind that changes the margin range from the '11 experience? Is there something about growth in any of the areas which is somehow margin dilutive or accretive?

I will tackle it and let Cindy add some color at the end. As I go through the segments, offshore products, the backlog, margins and backlog are good. So, I would say it should have a, because they are favoring more production-related equipment, it should have an upward bias there.

There it just depends on through-put through all the facilities. Very good volumes going through Aberdeen and Arlington and Southeast Asia. The question is, as we've said before, can we build enough backlog in Houma and Houston, so they are not a drag on margins. Both areas are profitable. They are just not up to the margins of the rest of the business.

Accommodations, if we continue to grow, Mountain West, the MAC and Oil Sands rooms, we should be able to maintain these margins. They could have an upward bias, but they should be in this range. For the North American businesses, well site services and tubular services, you are going to have to plug in your rig count assumption.

Obviously dependant on activity there, okay. That's very helpful, thank you. Maybe you've addressed this in prior calls, and if you have, I apologize, but I'll ask you to revisit briefly.

How are you-- what is the opportunity set as it relates to floating production systems in Brazil? In other words, like the replica FPSOs, what's your-- is there an opportunity for you there?

Absolutely. We've gotten very good content on previous FPSOs in our offshore product segment, which I presume is what you are speaking to. And there's quite a lot of future pre-thought development bids and opportunities going forward, which, again as I mentioned, some of our brightest areas for potential backlog build are in Brazil.

And so, the content on an FPSO is typically our higher end semi-proprietary equipment where generally we enjoy strong market share, number one, and again good project execution. That's been a consistent theme for us. So, these types of developments are very attractive bidding opportunities for us.

Sure. As it relates to that specific bid that I was referring to the 8 replica version, I don't think there has been any awards there. I guess I'm curious. Other suppliers of components have been awarded all 8, if you will. Can we think about the connector products maybe similarly? Is that how the bid is structured?

When you refer to-- I'm more by project name, I don't know what 8 replica version. I'm not sure I don't know which one you are speaking to.

I'm not sure that I have a name for it. I just know that Petrobras is pursuing efficiencies where they order 8 FPSO replica--

Fair enough, you are talking about FPSOs generally, not necessarily the ones that are build-specific. And our timing is such that, we are going to lag just a little bit in terms of timing of award, i.e. they are going to go to the installation, whoever is going to build the unit, so to speak, and a lot of times we will either bid direct to Petrobras, or bid to the recipient of the award for who fills the actual FPSO. But we're not going to be first in line in terms of receiving that award content.

Right. That makes sense. Okay, I think you've gotten to it.

And if I could, I will answer John's question from a minute ago. I think the exit rate on rooms for accommodations is probably in 17,500 to 17,600 range exiting 2011. So, a little bit higher than the average rooms available for the quarter.

Our next question comes from Tim Everett from Hunter Global. Please go ahead.

On the Canadian accommodations, can you give us update on Suncor, potential new projects there? And then longer term, what the EBITDA margin potential is on new projects, is it similar? I understand Australia has a higher EBITDA margin, but how we should think going forward of new projects EBITDA margin in Canada.

We expect our lodge EBITDA margins to be consistent with new opportunities versus existing opportunities. They are not major updates. I mean Suncor / Total are out there with a lot of feelers right now and bidding opportunities, but there is nothing solidified to a point that we can give you specific feed back in terms of opportunities set at this stage. Again, as I mentioned, I'll just characterize it.

We've got a lot of irons in the fire with various project opportunities and customers that are fairly significant opportunities that have yet, for various reasons not materialized, either project delays, environmental permitting, all the host of things that impact Canadian Oil Sands development, if not company specific issues. But again, there is some very good growth opportunities that could leverage us better than our obviously telegraphed growth. We will just have to see how they play out and whether we win the work.

Okay. And just one follow-up question. I think in the past you talked about potential expansion into Latin America. Maybe you can give us an update there?

It's still on the to-do list. We would like to move the accommodations business into South America specifically. So, we are working on it. It's going to be one of these things that it's going to take time to do.

It's not going to be contributing to earnings, certainly by year end, and if we could get something done by the end of next year, that would be a huge success. But that market is going to evolve. It's not to the same level of maturity that we see in Canada and Australia.

So it will be-- our first entree into it will be a starting point, and I don't see it being a major contributor for several years. But if the market where we need to enter into now so that we are there when it does mature, and does get to a point where it can really be a significant contribution to the overall accommodations business.

Great quarter, guys.

(Operator Instructions) We have no further questions at this time.

Okay. Thanks so much. We are very excited to have the call today. We are very proud of our operations and our execution during the quarter and look forward to a good fourth quarter and an even stronger 2012 and appreciate your attendance, your loyalty, and your support of the company, and we will be talking to you soon. Thank you so much.

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