Halliburton's (HAL) Management Presents at Wells Fargo West Coast Energy Conference 2016 - Brokers Conference Transcript

| About: Halliburton Company (HAL)

Halliburton Company (NYSE:HAL)

Wells Fargo West Coast Energy Brokers Conference

June 21, 2016, 02:45 PM ET

Executives

Mark A. McCollum - Chief Financial Officer

Analysts

Judson E. Bailey - Wells Fargo Securities LLC

Operator

Judson E. Bailey

Thank you everybody. We are going to go ahead and get started with our lunch time speaker joining me for a fireside chat today is Mark McCollum, Chief Financial Officer of Halliburton. Mark, welcome.

Mark A. McCollum

Hi Jud.

Judson E. Bailey

Thanks for coming to San Francisco. I wanted to start off by taking about kind of post the deal break on Baker Hughes, kind of the strategy moving forward with Halliburton, how you are thinking about Halliburton and kind of the oil service landscape which is kind of changing a number of different ways.

Mark A. McCollum

No, well obviously we are at Halliburton very disappointed that we weren’t able to complete the Baker Hughes transaction. That transaction itself was really designed to accomplish a number of things that have been part of our strategy for a long period of time and then we, you've been following us for a while knew that we are interested in growing our franchise on a global basis to be as fully integrated as we possibly could be targeting unconventional mature fields and Deepwater as separate segments of the market.

And we felt like the Baker Hughes transaction was a step toward making sure that our product and service portfolio was complete to address all aspects of that market as well as providing some technologies that we felt were critical in growing our capabilities in those various components.

Now that the Baker Hughes transaction is over, we stepped back, but we're not changing our strategy. Our strategy is still the same. I analogize to some that you think about typically our M&A strategy is like a bit baseball playing small ball and maybe small ball wins, you know you are hitting singles and doubles either by buying bolt-on technologies or some product line extensions and things like that. The Baker deal was an opportunity with the pitch right down the middle of the swing for the fence, it dropped on the warning track for us, but now in fact the small ball and so we're going to continue to execute that.

So in that regard, organic growth always is the first order of business for us. We think that's the highest return of business and the fact that we have a global franchise already and we have spent almost $1.5 billion before the downturn to build out our infrastructure in key international markets. We've gotten a portion of the –unparalleled North American franchise and a footprint to do business, we have the ability to continue to grow organically and to do the things that we need to do and kind of expanding the business and key things that we have today.

In certain product line categories like artificial lift and then the production chemicals to businesses that the Baker Hughes transaction would have significantly accelerate our growth and we're going to step back. There are ways to do that organically. It will take a little bit more time, but we know how to do it. We've done it before in our testing business. We are going to execute that again and then to the extent that there may be technologies that present themselves or some things that we can tuck in on the acquisition front, we'll look at those.

Judson E. Bailey

I have been curious to get your thoughts on Schlumberger who is looking at more integration, capital equipment services and then now you have Baker Hughes with their new strategy of kind of altering the distribution model more equipment focused and then you have Weatherford too I think has some constraints from a financial perspective.

When you think about Halliburton, how do we think about your strengths from a financial perspective? When you think about Halliburton how do we think about your position and what that could mean for you in opportunities down the road?

Mark A. McCollum

No, that's an interesting question, Jud. You know, it strikes me at this point in time there is probably more differentiation between the major service companies than there ever has been. And so, if I am an investor in terms of thinking about who I would invest with, I don’t think at any point in time there has been a clear line of sight as to how everybody is attacking the market.

And I think from our perspective that creates unique opportunities to not just differentiate ourselves with you guys, but also to differentiate ourselves with our customer set. In terms of our strategy always we have prided ourselves at being a return focused company. I mean they are incredibly important. I mean let's be frank, that's how I get paid. That's how we as a management team get paid is driving returns. But as we look back again, that's exactly what we're going to continue to try to do.

We think at this point in time in the cycle the market itself will be – we're coming off of the bottom and we feel like we have kind of at the bottom at least in North American and approaching a bottom internationally. But that the recovery itself is going to be a lower slope recovery than maybe some others have been.

And in that regard, it's probably not to going to be a straight line for the fact that this was a supply based downturn that you have a relatively low demand growth overall and the fact that North America is also now the swing producer in the world with relatively little energy policy and a free market at a lot of access to capital that the recovery itself may be somewhat choppy, because you have shorter cycles here, that as your best foot comes in prices modulate around the supply/demand equation.

Those kinds of things sort of call for you to be variable, as variable as you possibly can to be capital light, so that you can flex more rapidly with the changing dynamics of the market, that this type of market calls for more vertical integration rather than horizontal integration, being able to spread fixed cost over greater revenue base. And then that's going to inform our strategy as we go forward, again all of which are trying to drive the highest returns in the industry.

So in that regard, let me also say that in this recovery we think that unconventionals in North America clearly are the first mover. They are the cheapest, fastest barrel to market and so they become the swing barrel, the incremental barrel out there.

We also think that in this type of recovery with a lower potential price environment that mature fields production enhancement of mature fields, Brownfield type projects probably increases in priority among our international customers portfolios which seems to have a onshore bend to it maybe, but clearly Deepwater, even though it is still an important market out there is somewhat structurally disadvantaged at least for the next couple years.

And so that will – that causes us to make certain tactical tilts in terms of how we invest and then it also suggests to us that we're going to put our dollars to work, are going to be things that are going to go after those particular markets and continue to build out our unconventional capabilities to - as we talked about with artificial lift or production chemicals, to try to continue to make sure that we have the capabilities to address those aspects of the market.

And then major investment and things like capital equipment for Deepwater are interesting, but probably not timely at least at this point for us. And so we look ahead it is going okay, first of all customers aren’t asking for it and our general view is now that we have one customer who has kind of locked himself into a particular strategy with particular players that creates the opportunity for a lot of others in the market to watch and see and partner together when the time is right to do so. And hopefully, that strategy will drive our returns than the rest of the group.

Judson E. Bailey

Great. Another element that Halliburton talked about has since the earnings call on the way to drive better returns is the billion dollars in cost cuts globally. Could you may be talk a little bit about where that's going to be focused and kind of where those costs are coming out of and if you are structural, so my interpretation is those are going to be somewhat permanent and that it will help your margin profile going forward?

Mark A. McCollum

Yes, it is certainly intended for those costs to be permanent. We call them structural because most of these things are – you are not attacking cost of the coal face. You know, variable cost around labor with cruise or that just kind of always comes out when revenues fall off and the works not there, it is easy to get that type of cost out whether it's people or commodities or raw materials or things – the harder part is always the back office. It is the fixed cost, the infrastructure to support operations that gets built in.

And you know, oftentimes I mean, just is the way the nature of things when you're really working hard, you're very busy, you know that cost is there, but it's very hard to go try to be disruptive and get it out when everybody is working 24 hours a day, seven days a week, about as far as you possibly can work.

And so we had laid the groundwork and things like our bracket the future and we had a project called Battle Red where we did a lot of changes in our back office and streamlined systems as we, our new Q10 pump that we've been rolling out over the past five or six years that changed the way we should be doing maintenance and things of that nature. But we hadn’t really been able to take out some of the structural cost around those categories to really capture all of the savings that they brought.

So now that we're at the low point and there's flex and capacity of the market we're getting after it. So we're working hard to change the way that our maintenance structure operates across North America as an example. We've eliminated entire layers of management, both at the district level in the field as well as in the back office across our national markets to strip out and create a more lean infrastructure behind the scenes. Every function, every product line leadership team, every region has had targets that they've had. It is probably 1000 different projects that we're going after, but they're all fixed in nature.

Now, will they every come back? I guess it would be a high-class problem for us to have the need for some of those costs to come back. Right now though, the great thing about it is that for them to come back it requires my approval. It will require Jeff Miller's approval. You know it is not something that people are empowered to bring back on their own throughout the organization. And so we're – that's what it is. I mean, it is a lot of people. They'll be systems changes and process changes that we're deploying, but all of them are designed to be sticky, very, very sticky it is our intent to keep them as long as possible.

Judson E. Bailey

All right and kind of staying a longer at the same line, when we think about Halliburton long term, when we – as the recovery unfolds, I think Dave and I think you have talked about your larger profile that at some point you want to get back up to 20% in North America. Can you kind of walk us through how you see that as a possibility and what needs to happen for Halliburton to get back up to that level of profitability which you've seen historically over the last 10, 15 years?

Mark A. McCollum

Sure, well obviously that's always the goal. But my goal is higher. I'd like us to get into the mid 20s, but we needs some help from our customers to provide a little pricing to do that, recognize that we didn’t get there in the last upturn. We got close. I think we hit about 19.5% at the peak. And there is nothing obviously structural around the way the industry operates today that you change the ability to get there.

We didn't have a whole lot pricing in the last up cycle. A lot of it was really designed around utilization of equipment. We designed our work to try to work 24 hours a day, seven days a week and to maximize that utilization to limit the amount of fixed cost burden that we're applying to the business overall. And as we go into this next cycle, hopefully having cut this billion dollars of structural cost out which because it is fixed cost and we allocate cost would suggest that about 50% to 55% of that cost should accrue to the benefit of North America and the rest of it to our international markets.

So that already creates several hundred basis points of margin headwind – or tailwind. So as we come back, the key think for us we'll be getting our utilization up. Our view is that getting just the active fleets working and in our portfolio you know, which obviously, is not everything that we have available. The active fleet is working at full utilization. It can get out margins up into the high single digits in North America, possibly low double-digits with maybe a little bit of pricing help.

And then when we get all the crews that we have off the fence and back into the field and working and get toward a full utilization of the entire fleet and our assets they are again moving out of the warehouse, our drilling tools and things like that, we should be able to get there. So what does that entail? It means that suggests that we kind of need to be for the top end of the market. Our view is that the rig count doesn’t have to go back to 1900 rigs. Maybe 1200, 1300 rigs to sort of achieve full utilization of our equipment. You know which again creates that opportunity, get there. Okay? If we get a little bit pricing on top of that, you know, they are nothing, maybe we can chase them all behind.

Judson E. Bailey

Okay, kind of sticking with North America, last, depending on what you are trying to look at, last three or four weeks, the rate count has started to show some signs of life and surprising people continuing to talk about what you are saying and what are you hearing from customers in terms of activity levels, I mean kind of how the discussions are going at this point is things at a minimum or stabilized, even in some cases are maybe ticking up of the bottom a little bit?

Mark A. McCollum

Now, clear is the data points I have gotten more encouraging and I think that that's changing the conversation. The conversation itself has been more constructive about future activity. I think their own view is, while the conversations have been more constructive the market is still looking for more conviction around that these prices will hold in there and that the data every week with constructive data points, you things get better.

It would be wrong to say that the data points have already resulted in a meaningful change in work, just has of yet and Q2 is going to be an ugly quarter and so in line with what have suggested on our Q1 call, in terms of activity being down and even margins probably being down as well.

But as we look forward, I think that the dialogue is helpful. We think there will be some additional rigs that standup between now and the end of the year. Our view always has been that price is in the $50 to $55 range began to coax out some additional rigs that probably get folks working down their DUC inventory and will help us for getting better utilization of the equipment that is active in the field itself. There is probably not enough to start pulling a lot of equipment off the fence if anything, that prices would probably need to be about $10 higher for some period of time. So I think that would again change the psyche around what type of activity levels are going to be and so, our view is that probably is 2017 event at this point in time.

Judson E. Bailey

Correct, and if we continue to see the rig count trend higher in the back half of the year and we think about your North America revenues and margins and can we think of the second quarter as potentially being the bottom in margins or does that kind of slip into third quarter? In 2009 I don’t think margins have bottomed to the third quarter even though the rate count was going up. We are cutting out a lot of costs, how should we think about our margin progression in the back half of the year?

Mark A. McCollum

Again it is sort of early. We're still looking at all the forecast, but it feels like given where the data points that are coming out and the small levels of activity that are jetting up, combined with the cost savings that feel like we're kind of nearing the bottom of margins. We should be there Q3 is most often you have increased activity.

Anyway it is a seasonal thing that you typically experience and there is nothing out there that would suggest that we won't see that now and I think with the rig count now leaving a drift North a little bit, I feel like that that's likely going to be the case again this year. So, I don’t like the last time they were here at the bottom is what it feels like.

Judson E. Bailey

That's good to hear. One other kind of topic of conversation is when you hear it on the E&P and the service side is the sustainability of current service prices. When you look around the industry, you've got a lot of smaller competitors with some negative EBITDA margins. Halliburton's operating margins are negative as are Schlumberger's.

What are your thoughts on the sustainability of current pricing and how that ultimately normalizes? You know, you have a lot of excess capacity in the field right now.

Mark A. McCollum

No, I mean clearly guys it is ugly right? I mean everybody is underwater at this point in time and there is - that’s you know, that is definition of an unsustainable market. Right? So, they cannot hold here for any of this and so we are going to do need some pricing relief here at some point of time.

It’s really going to depend on who you are, where you are right? For us when we are negative, but yet, I mean essentially says you’re not covering your depreciation and may be some of the fixed cost allocation that’s you are making to your business, utilization actually becomes a more important factor than just price. I mean price is important, but the ability to improve the utilization on the existing equipment which comes at a variable margin of 60 plus percent is a lot more dramatic than just share price. So the first order of business for us even though we - we’re going to be pushing all price.

I mean, we always push on price, but is to really try to, to make sure we maximize that utilization and get everything working as hard as we can. We need to - there is a lot of capacity in the market to soak up and so, I think that’s going to be a little while to do. If you are below EBITDA, you are underneath there, more utilization does not help you probably makes it worse right. That clearly is not sustainable and that's got to be fixed.

It also will make a difference as we start pulling equipment off the fence depending on how that equipment has been maintained while it’s been stacked it’s going to make a difference as well. The cost differential, the polar piece of warm stacked equipment, when you got to really replace fluids and get the crew ready to go is significantly different than if I’m replacing power ends and fluids ends and half into, sort of recertify that equipment wholly.

And I think that, the early equipment that needs to come off the fence may not need a bunch of pricing, it’s going to need something, but as we get more rigs up, more pricing is going to be required for any equipment to come off and so…

Judson E. Bailey

So, is it fair to say, even some of the equipment may not be that much investment, you may not be able to justify account prices, am I understanding clear?

Mark A. McCollum

I think that if we pull stuff off the fence, we’re not going to pull it off the fence at a loss.

Judson E. Bailey

Got it.

Mark A. McCollum

Okay, that’s just I mean, fundamentally.

Judson E. Bailey

Make sense.

Mark A. McCollum

So, some things will have to start changing.

Judson E. Bailey

Yes and another I guess popular topic releases relates in North America is service intensity, well intensity and more stages, more sand and what are you seeing in terms of are you still seeing an improve or an increase and what your customers are demanding from a service intensity standpoint and when the wells are completed?

Mark A. McCollum

No, clearly service intensity has gone up dramatically over the last couple of years. I mean, if you think about the sand volumes per well are about three times what they were in the middle part of 2013. We’re using about 6 million pounds per well and on a typical frag job is quite dramatic. The amount of horsepower per crew has gone up about 15% over the last couple years. Which means there is actually fewer crews out there even if you look at all the stuff that is on the fence, dramatically fewer crews than there were few years ago to do the work that’s out there. Total sand volumes are only down about 15% from the peak.

Judson E. Bailey

Yes.

Mark A. McCollum

And so when you think about the rig count, what it takes to kind of all of a sudden get us back to sort of a level of tightness in the overall market is not - we don’t have to go back to the same rig count level this all of a sudden again to probably create some stress in the system. I have reminded some folks that it was the third quarter of 2014 when we began to really have some pinch points with sand, logistics and other things we were addressing that's when we established our sand wall room and began to really work on transload and other things to address the market and it was right after that the market rolled over.

Judson E. Bailey

Yes.

Mark A. McCollum

And so there was a lot of investment that actually never happened to sort of get the market ready to address the volumes that we could potentially be facing. And so I think that the combination of the higher demand or horsepower that the probably the constraints that we may see on logistics for sand at least moving, getting it on location, higher levels of maintenance, all those things will probably served, observed capacity faster than we envision. We always try to be as analytical and linear as we can in thinking about the horsepower requirements. So we’ve always underestimated how quickly things get absorbed.

Judson E. Bailey

Let me ask you yes. We could see a situation where sand demand gets back to or potentially exceeds prior peaks while the rig count does not. Halliburton and others are aggressively cutting their infrastructure and in some cases logistics, if you get to ramp up to see that kind of level of demand on propylene is Halliburton you think well equipped to meet logistically and I guess not have some of the bottlenecks we had in 2014 with the lower cost structure.

Mark A. McCollum

We believe we’re ready.

Judson E. Bailey

Yes.

Mark A. McCollum

We've tried to do, we have cut back on some things, but most of it has been mothballed. We have transloading capacity that is actually been mothballed, sort of but standing ready. We have a lot of rail cars, we have a lot of rail cars, both owned and leased and we’ve been hesitant to release a lot of leased rail cars in anticipation that they may be needed right around the corner.

So we continue to build out capacity. If we had things underway as a downturn starter, we continue to build through 2014 and 2015 to finish up projects and either open up camps and transloading where we felt like that the market was going to be.

For instance in the SCOOP, STACK area and in the Delaware and other locations around, so we've tried to manage that carefully and we have tried to reframe our contracts for sand in a way that we think will service so that our contracts are in around volumes percentage of revenue basis versus just sort of strict take or pay that allows us to flex with the market.

So, knock on wood, we think we’re ready. I think that we’re at least in my own view that where the pinch point likely is going to come. It is about last mile trucking which is the one element of the market that we don’t control. And so getting those guys ready to go or if you think about 6 million pounds about 150 trucks per well, truckloads, so I mean that’s a lot of sand, we've got to move if all a sudden the market starts coming.

Judson E. Bailey

Okay. Before I go to international, one question I had meant to follow or ask you earlier when you were talking about your strategy is capital allocation. You've got a little more leveraging you typically had after paying the breakup fee, how do you think about capital allocation moving forward when we start generating free cash in terms of dividends, stock buybacks, M&A those sort of things?

Mark A. McCollum

Sure. Yes, I mean, obviously we do have a little bit more leverage than I would like to have. It is when the smoke clears this quarter, it should end up being a little north of 40% net debt to cap, what that means is that I’ve got more cash that I really need to manage the business but we’re not going to probably do something artificial to de-lever, but we will have some opportunity to probably de-lever the business over the next few years anyway with regular maturities.

We also though, always plan our business every year to live within our cash flow and some years like this year, quite frankly has been incredibly painful to do that at the bottom but in most years it creates discipline around investment both in working capital as well as CapEx that keeps some governor on the growth of the business in a way that helps us. And what that means, we will be generating cash as it were we will have an opportunity to de-lever the business as well, if it makes sense to do.

I don’t feel pressure to do that, we had ordinarily planned to refinance all those maturities out into the next decade anyway because following 2025; I have got a full decade of no maturities for debt that so we will need to think about that.

So at the time that we face those we will sort of evaluate where things stand, but we are generating excess cash. Let me also say on the organic investment, we’re not going to continue to be this lower right now spending about less than $1 billion. We will kick up our investment going into next year around artificial lift and chemicals.

Some of the things I’ve talked about earlier we will put some more money to work rebuilding starting again our build of Q10 pumps and some of the sand conveyance systems that are part of our surface efficiency model that I'll kind of address these things that we’re seeing coming on the market from market, again it would still be lower than normal.

My view always is there is no reason to hold cash if we don’t need it long-term and so we’ll return it. If I can’t it doesn’t make sense to reduce the leverage and there is not an investment opportunity right in front of us that we don’t give it back to our shareholders.

Judson E. Bailey

Okay. Thank you. Moving over to the international side, kind of a broad question, you’re starting to see signs of obviously activity improved in the U.S. are you seeing anything similar to that in any of the international markets at this point?

Mark A. McCollum

Frankly no, not yet. I mean the international markets historically always lag the domestic market about six to nine months and they’re really not seeing anything different about this downturn. The Middle East has hung in fairly well through this down cycle as the Latin America though as you look at there, I mean that has really been a very particularly hard market overall and we’re going to continue to see downward pressure. I mean, as you think about like Latin American this quarter, Brazil the rig count of Brazil is down 50% quarter-over-quarter, Mexico is down 40% quarter-over-quarter.

Venezuela is not down as much yet, but you’ve heard both Schlumberger and us talk about the need to really hit the brakes there because we’re not getting paid for the work that we’re doing and so rig count holding and when you don’t get paid that is not sustainable.

Judson E. Bailey

Yes.

Mark A. McCollum

So we’re there is probably more downward pressure on rig counts in Latin America, this quarter is going to be uglier than we had projected to be in Latin America.

Judson E. Bailey

Okay. On the revenue and the margin side or?

Mark A. McCollum

Yes, I think so, Latin America probably the rig count will be down low double-digits and I think the rig count, I mean the margins as well will press down equally as hard. So will probably high single digits there. But in Eastern Hemisphere, you start to see the rig count bounce back a little bit, that was kind of in Asia-Pacific some shallow water work, I think there will be some signs there that things are beginning to stabilize probably some continued pressure in deepwater projects as they sanction the projects that we’re working on now roll off continue to see some rigs probably released in the near term.

And our view generally is that international markets will likely follow more of a budgetary cycle, so that if we create, if we stabilize the North America pricing, improved somewhat probably then where the change will begin, we will see this in the budget cycle for 2017 where and those will start turning into work probably second quarter of next year.

Judson E. Bailey

In the Eastern Hemisphere I think your guidance in the first quarter call was for flat revenues and I think margins are down 300 to 400 basis points it sounds like that.

Mark A. McCollum

That is still, I think Eastern Hemisphere is still relatively intact there. I think that in about half that margin degradation is really the reintroduction of depreciation on the Sperry assets, we have been holding those as assets held for sale during the Baker deal bringing that in at couple of hundred basis points for depreciation. So we’re still seeing some pricing pressure.

Judson E. Bailey

Yes.

Mark A. McCollum

There in the international markets and then there is probably that's 100 basis points and about 100 basis points around activity.

Judson E. Bailey

Okay. Historically, when we look at international markets or margins from the big service companies relative to the U.S market there is in a lot of cases a fair four to six quarter lag between when the U.S. bottoms and then when international start to, is there a case to be made that perhaps international revenues or margins could start to recover a little bit quicker, just given the severity of this downturn or do you still think it’s kind of that same timeframe I guess?

Mark A. McCollum

It feels to me that it’s probably in that same timeframe, I think that again this downturn being a supply driven downturn with prices sort of moving up slowly, I think you have still a lot of NOCs that are very structurally dependent on cash flows for their GDP and I think that that will cause the capital budgets to move up slowly.

You have IOCs who really right now also are have some cash flow dependencies, you know that that may also be a little bit more methodical in terms of adding back budget, so just as we see it, I don’t see a big inflection that that would cost, then there are obviously some geopolitical things that could possibly happen, that could create a supply shock, but there is no way to forecast those.

Judson E. Bailey

Yes.

Mark A. McCollum

But I think adds something of that nature is probably going to be sort of a again relatively slow off the bottom for the international markets.

Judson E. Bailey

And then looking at pricing environment internationally, my sense is that the pricing reductions this downturn are not as bad as what you saw in 2009, 2010 we clearly don’t – yes, we think about is there any prospects do you think of little bit more of a pricing recovery internationally with the why contracts are restructured to that sort of thing for you guys?

Mark A. McCollum

That’s an interesting question. I mean, in 2009, it was interesting. We were asked to give a lot of pricing in response to the financial crises, in the markets turndown very, very dramatically very quickly. And so, we gave pricing, but it was also, yes we’re getting price of the day, but there was a path toward recovery that was outside of contract retendering and of course when we hit those thresholds we went back and asked for that pricing and our customers randomly said, yes and no.

And so, I watch history quite a bit, I’m not sure that in this upturn that probably behavior would be any different, once we give that pricing, the why they were ultimately going to recapture it is by performance, going through the retendering process and as excess equipment capacity around the world get absorbed, then will be able to work out from under it, but it was – it took us a number of years and a very disciplined process to get that pricing back and I guess at least internally within Halliburton our approach this time as we need to gear up the same machine and get it back again next time when we go .

Judson E. Bailey

My last question on internationals, when I think about Halliburton's done a great job in last five, ten years taking share internationally and you’ve really established a foothold in the lot of different areas. We think about the extra recovery how you think or it is well Halliburton's international business is perhaps look differently are there going to be other areas of focus or products or geo markets you think, you see a greater opportunity in this upturn versus say the last up turn.?

Mark A. McCollum

We feel like that our international footprint is where it needs to be at this point in time. There are certainly markets that we'd like a larger share in and so we’ll be working at pursuing those. As I said earlier, I think that tactically we’re tilting that there will be more work around Brownfield projects, production enhancement mature fields and so trying to shift the portfolio be ready for that work its will be a part of what we will attempt to do.

We knew last time around that the way you gain share internationally you’ve got it - first of all you’ve got to be present to win, you’ve got to be present to win and so having a presence in the markets, having the ability to provide the full scope of products and services is incredibly important, maintaining close relationships, owning the last mile is all a critical part of that.

Ultimately you’ve got the, when the work you’ve got to be the little better is period, decision, no other way to do it. You have to have a sharp enough pencil to know what it takes to win the bid, to keep the work and to gain more share you’ve got to execute.

And so a large part of what we’ve attempted to do is, have that sharp pencil but then execute like crazy and deliver service quality and in key markets that we’ve really focused on and use that strategy, it has worked and we have been gaining share vis-à-vis our competition and as a result of that also improving our margins which spreads fixed cost and creates a better ability to compete as you continue to grow.

Judson E. Bailey

Okay.

Mark A. McCollum

So we see that as a winning formula. We’re not going to change our game plan going into this upturn. We think while it may look a little bit different, the formula for winning remains the same and that’s what you’ll see us do.

Judson E. Bailey

Okay, well great. We have a few more minutes before lunch is over. If there are any questions in the audience; we have a microphone if anyone would like to ask a question or two? All right, I guess everyone is full from lunch. So again, thank you Mark. I appreciate it.

Question-and-Answer Session

Operator

Mark A. McCollum

Thank you, guys.

Judson E. Bailey

Thanks.

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