Executives
Michael Mayer - Chief Financial Officer
Joseph Winkler – Chairman and Chief Executive Officer.
Analysts
Dan Pickering - Tudor, Pickering, Holt.
Kevin Pollard - JP Morgan.
Mike Drickamer - Morgan Keegan.
David Anderson - UBS.
Pierre Conner - Capital One South Coast.
Stephen Gengaro - Jefferies.
Theresa Fox - Stone Harbor Investments.
Jim – Raymond James.
Complete Production Services, Inc. (CPX) Q407 Earnings Call February 6, 2008 9:00 AM ET
Operator
Good day ladies and gentlemen and welcome to the Fourth Quarter 2007 Complete Production Services Earnings Conference Call. My name is Jeremy and I will be your coordinator for today. At this time, all participants are in listen only mode. We will be facilitating a question-and-answer session towards the end of the conference. (Operator Instructions).
I would now like to turn the presentation over to your host for today’s call, Mr. Michael Mayer, Chief Financial Officer. You may proceed sir.
Michael Mayer – Chief Financial Officer
Good morning. Thank you for joining us this morning as we host our fourth quarter 2007 earnings conference call. I am Mike Mayer, the Chief Financial Officer of Complete Production Services.
Before we begin the discussion of our financial results, please note that some of the statements we make during this call may contain projections and estimates including comments about our outlook for the company’s business, which are forward-looking statements within the meaning of the Securities Acts of 1933 and 1934. These forward - looking statements are based on limited information as of today, which is subject to change. These forward-looking statements are further subject to risk and uncertainties and actual result may differ materially. You should not assume that these forward - looking statements remain valid beyond the current year. I will refer you to our various documents filed with the Securities and Exchange Commission for more detailed discussion of some of the risk factors that might impact our business.
With that, I will now turn it over to Joe Winkler, our Chairman and Chief Executive Officer.
Joseph Winkler – Chairman and Chief Executive Officer
Thanks Mike. Good morning and I would like also thank you for taking the time joining us this morning. We will briefly review our performance in Q4 first year-over-year, then sequentially and then from a full year perspective. Quarter 4 results for the quarter, we generated revenue of $424.5 million, net income of $41.9 million, and fully diluted earnings per share of $0.57 before an impairment charge for goodwill in Canada, a $13.1 million or $0.18 per diluted share. Year-over-year revenue increased by 17% or $61 million.
During this period, the growth rate in US REIT count was approximately 4%. All of our year-over-year growth was from our completion in production services segment. Our operating profit margin was 17.9%, as compared to 21.2%, and our EBITDA margin was 26.9% versus 28.3% the prior year. Our EBITDA incrementals were 19%.
Our completion and production services segment revenue increased approximately $61 million or about 23%. Our EBITDA margins were 31%, and we delivered EBITDA incrementals of approximately 36%. Most of this increase was attributable to organic investments.
Overall service business delivered a good performance with good incrementals. We took delivery of nine new units and although our utilizations were down slightly in Woodford well. Our pressure pumping business contributed to the growth as a result of the full quarter revenue versus a partial quarter in 2006 from our acquisition and the impact of CapEx deployed over the course of 2007.
Our coiled tubing business generated additional revenue on the strength of our coiled tubing drilling project and additional volume from our investment in the US and Mexico. Our EBITDA incremental were not as high as desired. There are number of factors influencing this including an excellent prior year margin for comparison purposes. We encouraged some weather related values and expenses in our Mexico operation, and as discussed last quarter there is better shift in the quality of mix of work to a greater portion of lower pressure applications. Pricing for this type of work is a function of depth in pressure and is depended upon customer’s plans and needs. The pattern is not unusual; however, the amount of premium work available may be down due to the impact of additional capacity in the market. We believe there was some minor pricing pressure uncoiled versus last year.
Our fluid handling business also performed well during the quarter. Our volume was up with good incrementals due to the benefit of our investments and equipment and to a lesser extent the impact of a couple of acquisitions done early this year. This in spite of the fact that has mentioned in Q3, we have seen the impact of additional capacity of this business in the form of lower pricing and lower utilization in some markets and we have incurred higher fuel cost.
Offsetting these positive performances were challenges in Canada, Canada although only 5% of our total revenue was down EBITDA on flat revenue.
Moving to our drilling services segment, profits were down significantly on an increase in revenue with EBITDA guidance declining from 37.3% to 25.9%. Our contract drilling business revenue was up slightly, however, margins were negatively affected by lower utilization, higher operating cost, and lower rates on a couple of our rigs.
Our rig logistics business also struggled during the quarter resulting in lower revenue and lower EBITDA. This was partially due the carryover impact of the equipment relocation discussed last quarter. However, we also experienced lower utilization and lower pricing in some markets due to the impact of additional capacity and we continue to feel the affects of inflation on our cost structure.
Within our product sale segment revenue was up slightly, but EBITDA was down due primarily to product mix within our supply store business mainly the sale of pipe at very low margins. That’s the recap of year-over-year, now to the sequential overview.
Revenue up $11.6 million and EBITDA up $2.1 million. There was really little impact from acquisitions during this period. Within completion and production services, revenue was up $12.9 million and EBITDA was up $5.4 million resulting in EBITDA incremental of 41%.
Our coiled tubing business performed well in Q4, revenue was up a couple of million dollars with good incrementals. We recall that we have startup cost in Q3, related to our coiled tubing drilling project and the impact of weather on volume and cost primarily in Mexico but also parts of the US. We also experienced similar weather impacts in Q4 in Mexico but our drilling project is often running and we are performing well.
Our pressure pumping business was down from Q3. The pricing pressure we began to experience in Q3 carried over into Q4 resulting in lower revenues and EBITDA. This is mainly in the stimulation portion of our pressure pumping business. In spite of all this, our margins are still very good, within the pressure pumping business.
Our well service business was steady during the quarter, revenue was up slightly but margins were down a little. In most areas pricing and utilization was firm during the quarter. We were negatively impacted by the shorter workdays and year-end holidays, as well as lower utilization and pricing in the southwest Wyoming area as a result of less activity.
Our fluid handling business performed very well in Q4. In some areas we experienced higher utilization as a result of moving assets to more active areas and the recovery and activity in areas has slowed down due to pending or just completed property sales. Also, we better managed the trade up between price and utilization in some of our markets, and we are the beneficiary of the salt water disposal well cost in Q3 that did not repeat.
Our Canadian business increased volume but generated lower EBITDA as that market continues to be a near-term challenge.
Drilling services margins declined on slightly higher volume of low pricing and additional cost, and product sale margins were flat on a little less revenue.
For the full year 2007, our revenue increased 37% to a 255 million, EBITDA Increased 39% to 465 million. Earnings per fully diluted before the impact of the goodwill impairment of $0.18 was $2.38, up 18% compared to the 202 earned in 2006. Most of the growth in '07 was organic, but direct result of investment and equipment to take advantage of our well-established position in the prolific resource basins in North America.
Although our full year EBITDA margin for the year increased to 28.1%, from 27.5%. The US performance was (Inaudible) with different forces impacting the front half, versus the back half. Although customer activity levels were generally good throughout the year, the notable exceptions being Canada and Southwest Wyoming, we began to in the second half of the year, experience the impact of additional equipment coming to market in the form of lower utilization, in some cases, lower pricing. This, during a time of continued cost inflation, and some isolated slowdowns by customers due to holidays, year-end and property sales.
We stated last year that we would monitor the market carefully and execute our long-range strategy including building upon our solid foundation in the right basins. During the year, we deployed five coast units including a core drilling unit, 41 oil service units, two frac spreads, four cementing units, and numerous other assets.
Our total CapEx investment for the year was approximately 373 million. As the market began to show signs of uncertainty, we said we would slowdown the acquisition pace and improve our leverage ratio. We did just that. Our total 2007 acquisition spend was approximately 46.4 million and front-end loaded. As a result, our leverage ratio was lowered significantly.
As we look forward into 2008, our view is not greatly different than it was at the beginning of 2007. We expect our customer's activity in the markets we serve to be healthy. Additional equipment will continue to arrive but not at the pace of 2007, to our outlook.
I will walk through the expected activity levels in the major basins in which we operate, then I'll cover general pricing and utilization expectations for our five largest service lines. In aggregate, we expect the activity levels in our major markets to be good. The Barnett Shale in East Texas areas continue to be active, and we expect the two areas to remain strong. The same can be said for the Mid Continent, which includes the Texas panhandle over to the new Fayetteville Shale plays in Eastern Oklahoma and Arkansas.
Activity in the PRs and the DJ have good, and we expect more of the same. The southwest Wyoming area did slow down toward the end of last year, but we expect it to recover over the course of this year. In fact, it is already showing signs of improving.
Our current expectations for our service lines are as follows: well-servicing – no major change expected for the year, as likely we see some minor price pressure and some lower utilization, but don't expect major changes. Coil tubing, we did see some minor pricing pressure during Q3 and Q4 and we anticipate some additional minor pressure due to new capacity coming in. We also expect a little lower utilization, and a steady product mix relative to what we had in Q3 and Q4.
Drilling day rates seem to have stabilized, but could see some additional pressure and perhaps a little lower utilization. Fluid handling has shown the most impact to date in both pricing and utilization pressure, although we had a good Q4, we expect there to be some continued pressure on pricing and utilization, which will vary by market. And in pressure pumping, we did see some stimulation pricing pressure in Q4, which will likely carryover into 2008, but not much beyond that incurred in Q4. Cementing has been fine and we expect it to remain as such.
The next challenge facing us in 2008 is the impact of inflation and the effect it has on our margins in the face of possible lower utilization and lower pricing in some areas. There is still a great deal of uncertainty regarding the supply of natural gas in North America, and the impact excess supply might have on customer activity. This along with the possible effects of excess equipment capacity could create a challenging market in the near term. This could also create some excellent opportunities for those with a solid market position and a strong balance sheet. Throughout the last 2+ years we have established a formidable position in the market through our investment in new equipment and personnel, and we began to strengthen our balance sheet in 2007.
Our 2008 CapEx plans ex the impact of acquisitions will be in the range of 145 to 150 million as we monitor the market forces. But half of that spend is expected to be maintenance, the other half growth. We will continue to focus on improving our operational execution and take full advantage of our market position. In this matter we can be opportunistic and we will have the position and ability to participate in future opportunities should be become available, and if the market continues to improve, we can easily pickup the phase.
In summary, a good performance in 2007 in spite of the changing market conditions. Our people really rose to the challenge. First half and versus second half revenue were up 37%, EBITDA margins greater than `06 of 28.1%.
Completion and production services performed well, revenue up 44%, EBITDA incrementals of 38%, we invested in our solid market position. We struggled in drilling services. We slowdown our acquisition pace and we improved our leverage ratio.
In 2008, we will slowdown our CapEX plans, monitor the market conditions, be opportunistic and take advantage of our market position. While there maybe short term uncertainty or headwins, we believe a long-term fundamentals in North America natural gas were solid. And with that, I will turn it back to Mike to cover a few more details.
Michael Mayer – Chief Financial Officer and Senior Vice President
Thanks Joe. As Joe mentioned during the quarter we invested approximately $97 million in capital expenditures bringing our year-to-date CapEx total to about $373 million. As a result of our investments in CapEx over the course of the year, depreciation and amortization expense increased $12 million in the quarter when compared to the fourth quarter of 2006, and net interest expense increased by about 3.3 million for the same period due to the additional debt incurred to fund these investments.
In addition as previously mentioned, we booked a non-cash charge related to the impairment of goodwill in our Canadian operation during the quarter. You will also note that our tax rate for the quarter of 2007 was 40.8%. This rate was adversely impacted by the impairment charge which is not deductible for tax purposes.
Excluding the impact of the impairment charge, our effective tax rate for the quarter was 32.1%, it includes a favorable adjustment primarily related to lower state income taxes, a favorable domestic production activity deduction and lower foreign tax rates, and brings the year-to-date rate down to 34.9%.
Looking at the balance sheet, our working capital decreased approximately 3.5 million during the quarter, largely due to a decrease in inventory in our products segment. Total debt as of the end of 2007 stood at 827 million up 5 million from September 30th, and consist primarily a $650 million of 10 year bonds that we issued last year or in 2006, $12 million of outstanding balances on our revolver in Canada and 162 million of outstanding borrowings on our revolver in the US. Total debt net of cash on hand actually declined slightly from the prior quarter.
From a leverage perspective, our calculated leverage ratio was 1.78 times driven EBITDA. We reduced our leverage ratio by over 20% during the year. Our debt-to-capital ratio was 41.7% at quarter end. We believe this amount of leverage is well within the appropriate range for our business. We believe that our available liquidity and our revolving credit facility coupled with cash flow from operations should be more than adequate for the foreseeable future.
Finally, during the fourth quarter of 2007 we recorded approximately $1.9 million of non-cash compensation expense related to stock options and restricted (Inaudible).
With that, I will turn it back to Joe.
Joseph Winkler – Chairman of the Board and Chief Executive Officer
Thanks Mike. We will go ahead and entertain questions.
Question-and-Answer Session
Operator
(Operator Instruction). And your first question comes from the line of (Jim Wilson) of Raymond James. You may proceed.
Jim
Good morning gentlemen.
Joseph Winkler
Good morning.
Michael Mayer
Hi Jim
Jim
Joe, you talked about the 145 to 150 CapEx about half of which you said was growth. Can you maybe talk about what – maybe what reasons or what type of equipment that’s kind of targeted for? And remind us of any lagging equipment deliveries from last year that maybe carrying into the shift?
Joseph Winkler
Good question, and that is -- an issue is the lag effect between the spend versus he deploy. In terms of our plan going forward into the spend we’re looking at all one, maybe two core spreads probably in the range of 6 to 8 work over units, well service units for cement units. And then we will have some carryover from the sixth and seventh fleets.
Recall that – as we mentioned in the last couple of quarters the flow of our fleets will have two more coming that we committed to sometime ago, once there will be some additional funding on that. I also mentioned that we ended the year, I think, that where a couple of coiled units come in right at the end or right at the beginning of end of `07, beginning of '08, while we would have putout the dollar for that likely in the ‘07 number will be the beneficiary of that coming into our fleet flow in '08. But that's a general overview. There will be other, will largely invest in other things as well, but that’s a general overview.
Jim
Got you. And then just, maybe for a follow-up, I think last quarter you talked about kind of the outlook for the market you saw, you are thinking $0.50 to $0.60 a quarter was probably a reasonable run rate for us to look for, you think now that fourth quarter is behind you and you are probably in the first quarter, is that still a fair range or what are you thinking?
Joseph Winkler
That's probably not a bad range, you noticed, we did not give guidance in the commentary, I mean, Q3 and Q4, were challenging quarters both from the standpoint of what was going on due to utilization pricing, but also a lot of noise in both quarters, delays, weather, just a lot of anomalies, very, very difficult to get a good read on, of the pace and the tempo on the direction. And as we settle up just very too much uncertainty, so it's probably not a bad way to do it, but we intentionally did not give guidance given the uncertainty in the market.
Jim
Understood. Thanks.
Operator
And so, your next question comes from the line of Dan Pickering with Tudor, Pickering, Holt. You may proceed.
Dan Pickering
Good Morning guys.
Joseph Winkler
Hi Dan, Good Morning.
Dan Pickering
Joe, the capital spending number that you are talking about for this year, even if we assume, a little bit of it was accelerated into the fourth quarter, it still looks lower than you talked about on the last call. Where are you spending less than your forecast three months ago?
Joseph Winkler
Dan, it is lower than what we talked about on the last call and it's come in generally in the couple of areas, coil, as we looked at our performance in Q3 and Q4 and the capacity that's come into the market and the answer is it may be time just to slow that down a bit and concentrate on execution and watch the market. Same thing in our well service business, because last time we were talking, thinking about a number of more rigs. We’re not saying gloom and doom on either service line, we’re (inaudible) that’s absorbable we have today and then go from there, but it's principally on those two areas.
Dan Pickering
Okay
Joseph Winkler
And all this is well, but that's principally the areas
Dan Pickering
Okay. And then you talked about you know being ready to take advantage of opportunities. Mike, you mentioned your balance sheet. How do you think about your fire power here in terms of borrowing capacity, as well as your free cash doing acquisitions, I mean, is it $50 million, is it $500 million, I mean I assume its somewhere in between, but what do you feel comfortable with in terms of size?
Michael Mayer
Well, first of all, lets talk about the capital structure first, because I think that's important, it adds to the equation, 650 million of our debt structure is out to 2016, that's not unimportant as we think about our capital structure going forward. Dan. we don't know what kind of opportunities will come along, we worked very hard to establish the solid market position and we want the option to be enabled to participate. Do we think there could be some $5,000 or $7,500 million opportunities come along? Yes we do. Will they happen to be determined? Can we handle something in the $400 to 500 million range at the right time, the right deal? I think we can, and that's frankly what we are looking to do. We are not saying it's a gloom and doom market by any stretch, it's a type of market than it was late '06, early '07 and that creates the opportunity. And so, what we are doing is positioning ourselves to take advantage of that opportunity and if the market begins activity, wise pick up and ripen, I am very confident in our team and our people, we can get after and we can pick up our pace pretty quickly. So as your question is we are comfortable, we can do 50 to 100, we can do something up to 500 right time, right deal.
Dan Pickering
Okay. And Joe, that $500 million that would be debt finance, would you consider using your equity here?
Michael Mayer
Starting forward we all debt, but, Dan, you have to look at the deals, what should allow you to, do you need a low equity unit to be able to get the deal done as it makes sense, but heavily weighted toward debt, all other things being equal. Get stock price, thereafter we'll think about some equity.
Dan Pickering
Here we go. Thank you.
Michael Mayer
Okay.
Operator
And gentlemen your next question comes from the line of Kevin Pollard with JP Morgan. You may proceed.
Kevin Pollard
Thanks and good morning guys. I want to follow up on the last several questions on your CapEx a little more as well as debt. I don't understand you say you're kind of thinking 6 to 8 new well service units this year?
Joseph Winkler
Yes.
Kevin Pollard
And that would be down from you kind of talking 30 to 40?
Joseph Winkler
I think in 2007, we deployed 40 to 41 units, yes. And by the way we did 40 plus or minus in 2006.
Kevin Pollard
Okay. But that sounds like that's where the biggest cut to your CapEx, you found out last quarter coming from?
Joseph Winkler
Well in terms of what we were thinking last quarter, we were thinking bringing it down into the 250 range and in that thinking we were thinking that was likely in the 30 plus range on the well service. We’re going to bring that down a bit.
Kevin Pollard
Right, Okay.
Joseph Winkler
(Inaudible).
Kevin Pollard
Okay. If I could shift over to the pressure pumping business for a second, with the other big national companies having recessed some of their price books you know, their contracts in December and reports of them being down as much as 10%. How does that impact your business, which I know is more of a callout business? Do you see a GAAP down in your pricing or is that kind of being reflected as we've been going along last couple of quarters?
Joseph Winkler
I think we saw that and starting to manifest in Q3 and really then in Q4 as a result of that. I think all of what was going on probably along with the capacity coming in put some additional pressure on pricing in the stimulation end. We don't expect to see a lot more pressure on pricing and stimulation. We got a lot of time to cover here in 2008, so to be determined, but we are cautiously optimistic that that's somewhat stabilized as a result of those things being re-negotiated and customers get back to their work plans.
Kevin Pollard
Okay. Can you give us a magnitude, the type of price declines you've seen over the last quarter?
Joseph Winkler
Well, this is stimulation again and we are probably talking in the 15% range in the fourth quarter versus third quarter.
Kevin Pollard
Okay.
Joseph Winkler
May be in some cases 15 to 20.
Kevin Pollard
Okay. And last question the two additional frac fleet, could you see it still looking to deploy as they come on and in the Woodford as opposed to the Barnett?
Joseph Winkler
We'll be looking to get them outside of the Barnett, wood could be one of the areas of opportunity and as we did with our fifth fleet, we're going to deploy those properly. We're not going to just throw them out there and hope to get work. We want to plan it properly, crew them properly, and we're building for the long-term in our reputation in performance matters.
Kevin Pollard
And, what's the exact timing of the deployment of those two fleets again?
Joseph Winkler
I think Q2 and Q3 something along those lines give or take.
Kevin Pollard
Okay. Thanks Joe. I appreciate it.
Joseph Winkler
And we probably have a little latitude on how we move those two.
Operator
And your next question is from the line of Mike Drickamer with Morgan Keegan. Go ahead.
Mike Drickamer
Hi! Joe. I got a follow up on the CapEx as well. You talked about $500 million acquisition, right deal, right timing and everything. Would you consider doing an international acquisition, something of that size, is international important to you right now?
Joseph Winkler
Well, international is an important market and a great opportunity is international. Would we do that right now? I don't know that we would. But I have to -- again I'm not going to say we wouldn't do it. I'm a big believer that if you do it internationally, you do it in a big way and you need to have a solid base in the U.S. in order to be able to do that.
Mike Drickamer
Okay.
Joseph Winkler
Solid base, be in a good steady stream of cash flow, the right capital structure, the right outlook. So I wouldn't say no, but it wouldn't be eminent I believe.
Mike Drickamer
Okay. And Mike if I can just follow up with you on a little bit here. Can you provide a little guidance perhaps on DD&A, and then your effective tax rate for 2008?
Michael Mayer
Yeah, I think that you will continue to see depreciation increase up slightly and I believe full year will be probably in the range of 10%, between 10 and 12% over 2007. And -- what was that the…
Mike Drickamer
The effective tax rate?
Michael Mayer
The effective tax rate would be, we think as we look at it today kind of flattish to maybe just up very slightly to where we have ended the year for 2007, 35% to 35.5%.
Mike Drickamer
Okay flat with the full year 2007 rate?
Michael Mayer
Excluding the impact of the impairment charge.
Mike Drickamer
Perfect. Okay guys, that's my questions. Thank you.
Joseph Winkler
Thank you very much.
Operator
And your next question is from the line of David Anderson with UBS. You may proceed.
David Anderson
Thanks. Joe as you mentioned, targeting the Woodford is kind of one of the areas to deploy some of your, obviously your much more modest CapEx at this year. I heard news you talk about yesterday or the day before that you are increasing in lateral is going to add fairly 100 foot lateral, so many things will stop, but other operators as well. It sounds like we’re hearing more fact stages, longer laterals; obviously that means more horsepower, it sounds like its more service intensive. Are you starting to see that impact your business yet if not, when would you?
Joseph Winkler
We clearly see that trend and I can't tell you that we are necessarily seeing that in our business yet David. But it’s coming and that has been the part of the reason behind our strategy from the get-go was the increasing intensity of service needs in these wells and the continued growth. And so, the answer to your question is, no, I don’t think we have seen it directly in our business, and yes, we see the trend and that should start effecting people soon. I'm sorry I can't give you precise information, but we've not seen it to a large degree that I'm aware.
David Anderson
No, it’s obviously -- how did you get precise information on that. I guess its kind of looking at some of the other trends we are seeing in – and its funny, I was talking to you on some of the other day and you had actually mentioned the end about a year and half ago that you felt you would see 20% increase in equipment supply in 2007 and at the time I should've believed you at that time. What do you think you are going to see this year? We heard, I think BJ say they were thinking of seeing about 10% increase in equipment and I think they are obviously just talking about stimulation. I think it’s front-end loaded,. Can you characterize it for us?
Joseph Winkler
Yeah, I would, last year we saw a 20% plus in certain areas. As we go through this year, and as you know it’s extremely difficult to pin that down. Clearly there is a lot of slower pace of capacity coming in, in stimulation. But I'll have a hard time arguing with others view that has ought to be in an around 10%. It could be a little more and could be a little less.
In the coil area, I think we saw in the range of 20% to 25% come in, in 2007, and that percentage in the US is going to come down as well. And I suspect in the US that's probably going to be more in the 10% range, something along those lines. But I'm not implying that the manufacturer's skews are shortening to the contrary a lot of this stuff is going international, however.
On the well service area, it is also a difficult one. I think we estimated somewhere in the range of about 250 units to come in 2007. My sense is that that rate comes down in 2008 by how much David I'm not sure. But I suspect we're not the only ones beginning to bring down the flow of well service units into the market.
David Anderson
So with the trend, I would first mention to start with and based on your comments there, could you add it up and think the pricing could start stabilizing in the second half like some are suggesting?
Joseph Winkler
Yeah, it’s not inconceivable, and in particular we’re in a market where the ability to execute matters, let's not lose side of that, that unlike 18 months ago how kid will work. You really need to be good at what you do now. Customers have options and they are really focussed on being efficient in the proper execution of their well plans. It’s not inconceivable. Activity continues to rock along pickup a little bit; capacity come down, the amount of service required per well goes up, some kit gets worn out. Yeah we could get into a market where we could see back end of the year some pricing leverage shift back to the service providers. That's not out of the question.
David Anderson
Great thanks Joe.
Joseph Winkler
Okay.
Operator
And your next question comes from the line of Pierre Conner with Capital One South Coast. You may proceed.
Pierre Conner
Good morning gentleman.
Joseph Winkler
Good morning Pierre.
Pierre Conner
Most of the general questions have been asked. I wonder if I could delve a little bit more into coil tubing Joe.
Joseph Winkler
Yes sir.
Pierre Conner
You said you added sort of one unit at the end of the year, one in the beginning. So I'm assuming there are a couple of units added here and then the one to two you would add over the course of the year the new capacity, would that be replacement or it would be true incremental capacity from your standpoint?
Joseph Winkler
That would be incremental capacity.
Pierre Conner
Okay.
Joseph Winkler
As we look, just in a general sense, we look at the floor and they say there is a lead lag effect between the direct flow and the deployment of the equipment. We estimate, our US fleet will grow somewhere on a unit basis, somewhere between 20% and 25% year-over-year and that’s based upon the flow of the equipment for 2007. Our units slowed in more toward the back-end and that which we will get in 2008 will be more toward the front-end. So we get about a 20 to 25% average unit growth year-over-year.
Pierre Conner
Annualized guidance. That’s actually, exactly what I was trying to get.
Joseph Winkler
Okay.
Pierre Conner
On the coil tubing drilling operation, sort of where do that impact, you said we are up and running now and we got some during the quarter, what would be your outlook, I mean, that’s something if I have some swing in there too?
Joseph Winkler
Yeah there is going to be some swing and so, we are up and running doing, the team is doing well, to be determined how much longer it goes and that’s a function on the customer results both the production growth, recovery and as well their economics. So to be determined, and if the project continues that’s great, if not, we can quickly reconfigure it to be and what I will call a routine or normal unit and go back to work in that manner.
Pierre Conner
Okay. The results on that program would be expected sometime this quarter Joe?
Joseph Winkler
From a customer's perspective, yeah, we'll have a pretty good read as this quarter price out as to how long or if that program for us continues.
Pierre Conner
Okay.
Joseph Winkler
So, a little early, yet.
Pierre Conner
Okay. Alright, couple of other quick ones. You know, historically, you've had some of these sequential 4Q to 1Q growth, a lot of that is rev growth, if I am talking about just some additional equipment as well. I know in Canada you’ve mentioned only 5%, is there anything material on the seasonality we also think about in the next quarter, did Canada have any recovery that’s material with uptick in the winter drilling activity?
Joseph Winkler
Hundred times I will tell you, yes in Canada. Canada has been -- and Canada will be a good market in the future, it would get back to some reasonable level. Hard to say what's going to happen in Canada in Q1? Our team has worked very hard to do the right things and whatever activity comes we'll do reasonably well. I don’t know that it picks up significantly in Q1 from Q4, but we'll probably get a little benefit of that here. Seasonality elsewhere guys other than what is getting better, longer day light, longer hours (multiple speakers) that happens toward the beginning of Q2. So Q1 sequentially, but, Pierre, I am really thinking I went it through, sequentially, but for the traditional pick up in Canada, I don’t think there is huge seasonality in the rest of their business.
Pierre Conner
And nothing related to Wyoming?
Joseph C. Winkler
From 4 to 1.
Pierre Conner
Got it. Okay.
Joseph C. Winkler
Okay.
Pierre Conner
Okay. Alright, and the last one is more generalized, your perception on this. So one of the things you’ve spoken about on the well servicing side would be, good to get some more consolidation, and we actually interestingly enough, since you said that, it seem you know, a number and going back in the September with the market closing. Now we have recently two drilling contracts, I was assuming that valley Bronco deal, in your perception some of those that are getting acquired by drilling, is that moving towards what you would like to see in the overall market. Does it make it difference, or would you rather see consolidation by the main well service players?
Joseph Winkler
Well I would rather see consolidation by us.
Pierre Conner
Yeah.
Joseph Winkler
But it's got to be under the right terms and conditions. So I don’t view that as a major change, I don’t – frankly, we haven’t given that on a whole lot of thought in terms of how it changed and not that it shouldn’t be given some thought, I just have enough time, as to how it might change the profile in anyway. But I am going to assume that they are paying a fair price for it and we'll continue to do the right things in the market, be disciplined in their approach et cetera, et cetera. So I don’t necessarily view that as major issue at this point.
Pierre Conner
Anyway, okay. Alright, great. Last one Mike, just quick clarification, I wanted to make sure I heard you correctly, 34.9 is your year-to-date, that’s your guidance, so to speak at this point?
Mike Mayer
That’s a little bit, right away at 35 let's say.
Pierre Conner
Got it. Yeah, close to that. Got it. Alright, thanks gentleman.
Michael Mayer
Alright thanks.
Operator
And your next question comes from Stephen Gengaro of Jefferies. Go ahead.
Stephen Gengaro
Thanks. Good morning gentleman. You really just, one thing I wanted to hit on that wasn't asked. And that is given what you see in the market, you have heard just a little bit. But from an acquisition perspective, are you seeing sort of asking prices and sort of potential terms have come down at all over the last say six months or people, do you think there is anymore motivated sellers out there or what are you seeing from that perspective on sort of valuation of deals?
Michael Mayer
We are seeing maybe a little bit.
Joseph Winkler
Yeah maybe a little bit, and perhaps the bit has come in more in the line. But, I mean, there are still other people out there buying, and we are in a market environment Stephen that no one is, at least at this stage, forced to have to do anything. And so, as little time goes on depending upon the length of investments and their holding period by others, I mean, that could begin to weigh more heavily in the thinking. But, yes, a little bit comes out of little bit, but we are still in an environment where no one is forced to have to do anything; it’s not that where we are.
Stephen Gengaro
Okay, that’s helpful. Thank you.
Joseph Winkler
Okay. Thanks.
Operator
And your next question is a follow up from Dan Pickering of Tudor, Pickering, Holt. Go ahead.
Dan Pickering
Hi, thanks, I can't get enough here.
Joseph Winkler
You gave one shot that’s it.
Dan Pickering
Yeah. If we look at the, you've got a number of business lines obviously as you talked through your outlook, I heard you mentioned kind of slight pricing pressures, slight utilization pressure, as you think about how the business line interact with organic revenue growth that you are going to generate from various deployment equipment et cetera. Do we windup with overall – if you exactly windup with overall margin pressure from sort of the Q4 levels that again, you see the moving pieces better than we do I mean, how are you thinking about EBITDA margins as you step through the first half of 2008?
Joseph Winkler
Dan that’s a fair assumptions and fair assessment and as we said in the call, in our commentary '07 was a bifurcate year, first half versus second half. And it’s pretty clear, while the performance in Q3 and Q4 are not horrible, its not as good as it was in the first half of the year and we are getting the same kind of pricing leverage. We are commenting that we are seeing some pricing pressure perhaps, some lower utilization as some additional inflationary forces. So for us to overcome all of those forces in the near term to improve our margins would be very, very difficult. And whether we do or not, will be more function of the impact of the volume generated from the investments in the second half of the year and that which we'll do in the first half of the year. Hard to say we are brining the level of investment going forward down. So it’s going to be difficult to improve margins go forward, without some improvement in the market.
Dan Pickering
Okay. Thank you. And then I wanted to clarify, I heard you on the fifth fleet, the fifth frac fleet in terms deployment, is that out and working now, are you still in the process of growing?
Joseph Winkler
That one is out and working, and I believe it’s working in an around the Barnett area. But it is out and working.
Dan Pickering
Okay. So the Barnett, I know there is some discussion about maybe taking it away from?
Joseph Winkler
Yes
Dan Pickering
The Barnett area, it sounds like the Barnett continues to be sort of the strongest market in which you guys participate?
Joseph Winkler
In which we participate that’s correct. And we are looking to do things elsewhere, but we are doing it just slow, and it’s taking a little longer than we thought. And that’s fine we will do it right.
Dan Pickering
Yeah, okay. Alright, great. Those were my thoughts. Thank you.
Joseph Winkler
Yeah, thanks so much.
Operator
And your next question from the line of (Theresa Fox) with Stone Harbor Investments. You may proceed.
Theresa Fox
Thank you. I missed, when you said your cash balance, do you think you could repeat that for me?
Joseph Winkler
I am sorry. Cash balance.
Michael Mayer
Cash balance was about 13 million at the end of the quarter.
Theresa Fox
Alright. Thank you.
Joseph Winkler
Thank you.
Operator
And at this time, we have no further questions.
Joseph Winkler
Well with that we want to thank you on behalf of Complete Production Services for taking the time to join us this morning. And we look forward to your participation in the next call. Thanks so much.
Michael Mayer
Thank you.
Operator
Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the presentation and you may now disconnect. Have a wonderful day.
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