Boots & Coots International Well Control, Inc. Q4 2007 Earnings Call Transcript

| About: Boots & (WEL)

Boots & Coots International Well Control, Inc. (WEL) Q4 2007 Earnings Call March 11, 2008 11:00 AM ET

Executives

Jerry L. Winchester - Chief Executive Officer and Director

Gabriel Aldape - Chief Financial Officer

Dewitt H. Edwards - Executive Vice President

Analysts

Neal Dingmann – Dahlman Rose & Co.

Michael Drickamer – Morgan, Keegan & Company, Inc.

Ted Wolf – U.S. Financial

Michael Cohen – C.K. Cooper & Company

Kevin Wenk – Polynius Capital

Jeffrey Wrath - Morgan, Keegan & Company, Inc.

Tamara Manoukian - Greenwood Investments

Douglas Campbell – Spirit Capital

[Mark VanSkendal] – Private Investor

Operator

Ladies and gentlemen thank you for standing by. Your Boots & Coots fourth quarter earnings call will begin shortly. We appreciate your patience. Thank you for standing by. We will begin shortly.

Ladies and gentlemen welcome to our Boots & Coots fourth quarter earnings call for 2007. Your hosts for today’s call are Jerry Winchester, President and Chief Executive Officer, Gabe Aldape, Chief Financial Officer and Dee Edwards, Executive Vice President.

At this time all lines are listen-only mode with a question and answer session to follow. Boots & Coots’ earnings release was distributed yesterday evening and for those of you who did not receive a copy of the release please contact Jennifer Tweeton at (281) 931-8884 or at the following email: jtweeton@boots-coots.com or download it from the Boots & Coots website. For those who wish to listen to a live recording of today’s call a replay will be available via phone or via webcast.

Some of the statements made in this call are forward-looking and as such are subject to many factors that could cause actual results to differ materially from expectations reflected in the forward-looking statements. These factors are described in the company’s SEC documents. Boots & Coots undertakes no obligation to publicly update or revise any forward-looking statements. Today’s presentation will also include certain non-GAAP financial measures as defined under the SEC rules. To comply with these rules the company has provided a reconciliation of the non-GAAP measures in its earnings release.

Now I would like to turn the call over to your host, Jerry Winchester. Please proceed.

Jerry Winchester

Thanks Mike and good morning everyone. We thank you for joining us today to discuss our 2007 results. When we reported 2006 results a year ago we refer to it as a milestone year led by our acquisition of HWC and our continued growth in SafeGuard and other prevention services. 2006 was the first year that Well Intervention revenues exceeded response revenues. In 2007 we have reached another milestone, over $100 million revenues, of which the fourth quarter was the significant contributor.

During 2007 we raised $29 million dollars and began the strategic deployment of that investment both domestically and internationally. These investments not only positioned us for growth in 2008, but they enabled us to re-deploy or reposition assets to offset some of the regional downturns we saw in 2007.

A portion of that investment went into expanding our capabilities by adding a pressure control rental service line, a natural fit with our other pressure control businesses. We generated just under $2 million in domestic pressure control revenues during the fourth quarter and have a strong outlook for significant growth for 2008.

We expanded our investment in the mid-continent and Barnett Shale region by adding a new service facility in north Texas and additional “stand alone” and rig assist snubbing equipment. That location generated approximately $3.5 million in 2007 revenues and is providing us with the geographical presence we need to bring all our service lines into an extremely high activity region.

As announced last [September] we closed on the acquisition of StassCo Pressure Control based in Rock Springs, Wyoming and during the last five months of 2007 generated an additional $2.7 million in revenue, over $1.5 million of that during the fourth quarter.

During the first quarter of this year we have refurbished and redeployed a “stand alone” quick rig up unit out of the gulf coast into the Rockies and are conducting simultaneous operations at high utilization rate. We anticipate that deployment of a second unit into the Rockies early into the second quarter of this year.

Our geographic position in the region continues to facilitate this type of growth as well as provide a new opportunity to expand our services in the region.

We also invested in two new HWO units that were deployed in North Africa in December of 2007. These units are working under a guaranteed utilization agreement and continue to expand our presence in the region.

All in we are forecasting an uplift of over $28 million from these and other strategic initiatives. We have accomplished a lot in 2007 with good results. Most importantly we have positioned ourselves for a strong 2008.

I’ll discuss the first quarter and 2008 outlook after Gabe runs you through our 2007 financial results. Gabe…

Gabe Aldape

Thank you Jerry. For the quarter ending December 31, 2007, we reported a net income of $5.8 million or 8 cents per diluted share. This compares to net income of $4.5 million or 7 cents per diluted share for the fourth quarter of 2006. Revenues for the three months were $36.1 million compared to $33.7 million in the fourth quarter of 2006. EBITDA was $9.9 million in the fourth quarter of 2007 compared to $8.9 million for the same period of 2006.

For the year ending December 31, 2007, we reported net income of $7.9 million or 11 cents per diluted share compared to the $11.8 million or 21 cents per diluted share for the same 12 month period in 2006.

Revenues for the current year were $105.3 million compared to $97 million for the prior year.

EBITDA was $8.7 million in 2007 compared to $24.8 million in 2006.

Income tax expense was $2.7 million for the year which represents an effective tax rate of 25.8 compared to tax expense of $5.9 million or an effective tax rate of 34.4 percent for 2006.

The percentage increase in 2007 was due to taxable income in foreign jurisdictions with lower statutory rates coupled with a reversal of an allowance expenses asset tax.

On a segment basis for the fourth quarter of 2007, will intervention generated $31.3 million in revenue and $7.9 million in EBITDA compared to $22.5 million and $4.2 million respectively on 2006 representing a year-over-year increase of 39% in revenues and 88% in EBITDA.

Included in 2007 fourth quarter revenues was $3 million contract settlement with the Qatar National Oil Company resulting in EBITDA of $2.8 million.

The remaining increase in revenues is the due to growth initiatives in the company’s international operations as well as domestic improvements and due to the acquisition of StassCo in the Rocky Mountains, the start-up of the company’s mid-continent operations and start-up of our pressure control equipment rentals and service business.

This was partially by lower activity in the Gulf of Mexico and Venezuela. Dividend margins were favorably impacted by $1.8 million gain resulting from an insurance settlement from assets lost in West Africa and partially offset by $600,000 in start-up expenses related to start-up costs for international expansion in the company’s stubbing service line.

The utilization rate for the fourth quarter of 2007 was 42% compared to 32% in the fourth quarter of 2006 and 37.8 sequentially.

The hydraulic workover and snubbing business contributed $23.8 million in revenue in the fourth quarter of 2007 while our prevention business contributed $5.7 million and our pressure control rental business contributed $1.8 million for the fourth quarter of 2007.

For the 2007 12-month period Well Intervention generated $92 million in revenues and $13.7 million in EBITDA compared to revenues of $76.7 million and EBITDA of $16.5 million for the 2006 period.

The inclusion of 12 months of snubbing and workover results in 2007 compared to ten months in 2006 accounted for $5.3 million in increase in revenues. The company realized a $23.7 increase in prevention services year-over-year due to our revenue margins were negatively impacted by lower activity in Venezuela and the Gulf of Mexico coupled with semi-fixed personnel costs associated with snubbing and workover businesses in these locations.

EBIDTA margins also declined due to start-up costs of $2.4 million for global expansion of the company’s snubbing and workover prevention services and entrance into the pressure control equipment rental and services.

Moving over to our Response segment for the fourth quarter of 2007, the Response segment reported revenues of $4.9 million and EBITDA of $1.9 million compared to $11.2 million and $4.8 million respectively in the fourth quarter of 2006.

Lower international activity contributed to reduced revenues in EBITDA margins during the quarter.

For the year, our Response segment reported $13.3 million in revenues and $5.1 million in EBITDA compared to $20.4 million and $8.3 million respectively in 2006.

By December 31, 2007, we had working capital of $34.7 million compared to $25.5 million on December 31, 2006.

Our cash balance at December 31, 2007 was $6.5 million compared to $5 million for the prior year.

We ended the year with stockholder’s equity of $77 million, which increased $38.6 million compared to $38.4 million in the prior year primarily due to our 2007 equity offering proceeds of $28.8 million and the 2007 net income of $7.9 million.

Capital additions during the fourth quarter were $8.5 million, which included $5.7 million in expansionary capital and $2.8 million in maintenance capital expenditures.

Our total debt was $28.1 million at the end of the year, which was up from $27.5 million sequentially due to offering against our revolver facilities. Our outstanding debt balance is comprised of a term credit facility balance of $5.9 million, a revolving credit facility of $1.1 million and unsecured subordinated debt outstanding to Oil States International of $21.2 million.

We made principal payments of $485,000 against our term credit facility during the December 2007 quarter. Our credit availability under our revolver was $7 million at the end of the year.

Jerry?

Jerry Winchester

Thanks Gabe. As many of you know 2008 marks our thirtieth year in business and we expect it will be a memorable one. Perhaps some of you may have noticed a new logo at the top of our earnings release. We believe this logo recognizes our tradition and history as a founder in the well control industry and though that foundation will always be a proud part of our heritage and traditions, the new logo better represents our expanded growth in the pressure control industry as a whole and no we are not just a blowout company any more.

We’ve talked about key milestones and results for 2007 and it is time to look towards 2008. We are seeing another quarter of growth in our international SafeGuard services led by an extensive project in Bangladesh. In addition to taking on the role of project manager of all subcontractors, we were able to provide risk management, engineering, well control and pressure control rental services to our client.

This type of project is exactly what we’ve positioned ourselves to deliver and we’re looking forward to future projects of this type during the year. Though not quite as extensive as the Bangladesh project we have a similar job ongoing today in Oman.

We are also seeing a stronger quarter for our response services. In addition to our normal activity levels we are seeing an increase and higher level response in some of our international markets. That said, we’ve gotten off to a good start and believe we will provide the earnings per share of six to seven cents for the first quarter of 2008.

Looking ahead through the year we are excited about our new geographic positioning. In January 2006 we operated out of three locations. Today we operate out of ten locations and have an opportunity to utilize those bases to bring new services into the regions. We also have an opportunity to utilize our international and domestic client relationships to further expend into additional geographic regions.

Our clients tell us what services they need and where they need them and we simply follow their lead. This strategy not only will lead us to continued growth in our existing core services throughout the world, it will also continue to provide opportunities to add to those services in the future. All in, this is an exciting time for me, our employees and our stakeholders and I look forward to continuing our discussion with your questions.

So Mike if you’ll open up the call we’ll take a few questions.

Question-And-Answer Session

Operator

Our first question comes from the line of Neal Dingmann – Dahlman Rose & Co.

Please proceed.

Neal Dingmann – Dahlman Rose & Co.

Good morning guys. Outstanding quarter. Say, could you give a little color…I know the response to this is always tough but for the first quarter how much are you factored in and responsed sort of on a go-forward basis? Is there any way to tell how that market sort of is tracking this year versus last year?

Jerry Winchester

Well certainly Neal for the first quarter we think we have about 2 cents in that for response.

Gabe Aldape

As an uplift.

Jerry Winchester

As an uplift.

Neal Dingmann – Dahlman Rose & Co.

And then what are you seeing sort of…you know is there a way to sort of gauge in that market overall? I know that is sort of a phone ring type business but is there a sense as far as customers using you, have you added clients? Have you added anything? What does it look like versus last year?

Jerry Winchester

Obviously you are exactly right. That is difficult for us to look at. I think the thing that we have added more this year is our ability to do some of the integrated projects. We talked about a couple of the ones that we’ve got going on and you know we’ve got some nicer stuff. But the geographic presence we felt would always help us and you know going to as many locations as we have now and with the opportunity to expand that a little bit in 2008 we think that will continue to carry on. So we like that.

We’ve got some other stuff that we’re working on throughout 2008, some domestic insurance strategies and some things like that. I wish there was more visibility to it, but you know everything that we are doing has an opportunity to drive revenue to the well control side of our business and we just take that as it comes and look at it as an opportunity.

Neal Dingmann – Dahlman Rose & Co.

Okay. And the rental tool side, Jerry, are you still seeing enough uplift there to make you even more encouraged or is it looking as good as it was entering the year and would that cause you to maybe invest even more capital into that in the near term?

Jerry Winchester

I don’t think there is any doubt we’re going to invest more capital into it this year. There is a lot more opportunity. Really kind of the surprise for us is that we took off and ended up with some international stuff as quickly as we did. Some of that is [pull through] opportunity but I mean for us it is a great chance to go out and do some work with some really nice margins whether we are working for ourselves in our varied projects or regions. We know North America for us continues to be pretty strong. We’re seeing some geographic expansion on that service line as well. So yeah you’ll see us put some money into that this year.

Neal Dingmann – Dahlman Rose & Co.

Okay. Then lastly we are on the subject as far as you mentioned a lot of the new markets that you are going in. Is it more to expand into those markets or generally add more assets in those markets? Do you wait until you have the physical orders or do you have enough color to actually start adding some more assets in some of what I call the newer regions?

Jerry Winchester

Well certainly expansion in existing areas – for us internationally that is what we have done. We look at the areas we are at or we add another customer or a customer says I want additional units. That’s pretty easy to make a case for when you are looking at CapEx.

The North America market is a little different because it is a call-out market. We have looked at all kinds of things. What our day rates are doing. What the utilization is doing. Do we feel there is an opportunity to add some capacity in the Rockies to our business? Yes. We talked about the quick rig up side of our business and simultaneous operation. That has taken off pretty strong for us and as we talked about earlier the redeployment of equipment into that market. So that is kind of what we have looked at as far as the expansion opportunities and where that is at.


You know if we had gone out with a plan to grossly speculate and go build a bunch of units poke them some place…that’s not what we’ve done. We’ve really listened to what our customers say like, “we’d like another unit in this area” or “we’d like to work something else,” we try to accommodate them that way and have a contract so that we know what we’re going to get into.

Neal Dingmann – Dahlman Rose & Co.

Okay perfect. Thanks guys. I’ll let somebody else ask a question.

Operator

The next question comes from the line of Michael Drickamer – Morgan, Keegan & Company, Inc.

Please proceed.

Michael Drickamer – Morgan, Keegan & Company, Inc.

Great quarter guys. Gabe, I apologize here, but you kind of went through the tax rate issue a little quickly. Could you explain again what happened in the fourth quarter that you such a sequential decrease in the tax rate?

Gabe Aldape

There are two components of that. One of them is the international component of our business where we weren’t able to differ tax on some of our international businesses in the Middle East and West Africa. The second component of that is the fact you have to go through at year-end and evaluate…there is basically a tax asset that has got a reserve against it so we took down the reserve for one year based on our forecast of our U.S. tax position.

Michael Drickamer – Morgan, Keegan & Company, Inc.

Okay. Trying to look at the gains you guys had in the fourth quarter and take those out so that I can compare it against my estimates on an apples-to-apples basis, is there any reason why those gains were not taxed at the overall effective corporate tax rate of around 22%?

Gabe Aldape

Gain…you’re talking about…which gains specifically? I’m sorry.

Michael Drickamer – Morgan, Keegan & Company, Inc.

I’m talking about as far as the contract settlement as well as the insurance settlement in the fourth quarter.

Gabe Aldape

We ran that…it is about 50/50 split. I mean we ran some of that differed and some of that came to the U.S.

Michael Drickamer – Morgan, Keegan & Company, Inc.

So it would have been at the 22.5% tax rate then?

Gabe Aldape

I think the 22 is a good lending rate, yes.

Michael Drickamer – Morgan, Keegan & Company, Inc.

Okay. Now when I look at your guidance you just gave for first quarter of 2008 of six to seven cents, what tax rate are you assuming in that?

Gabe Aldape

31%.

Michael Drickamer – Morgan, Keegan & Company, Inc.

31%. And is that for all 2008?

Gabe Aldape

That’s where we currently are yes. We evaluate this on a year-to-year basis every quarter so that’s what we are planning.

Michael Drickamer – Morgan, Keegan & Company, Inc.

Okay. How abut SG&A and also depreciation as assumed on that guidance?

Jerry Winchester

Let’s see…SG&A for the quarter is about $2.2 million. Depreciation is $2.1 million.

Michael Drickamer – Morgan, Keegan & Company, Inc.

Okay. And how about full year 2008 CapEx plans?

Gabe Aldape

We’ve got $11 million in expansionary CapEx and $10 million in…I’m sorry it is…

Jerry Winchester

It is about $11 million for…

Gabe Aldape

$6 million in maintenance CapEx and $11 million in expansionary.

Michael Drickamer – Morgan, Keegan & Company, Inc.

I was never good when I did math off the top of my head, but that looks like $17 million to me total?

Jerry Winchester

That’s correct Mike.

Michael Drickamer – Morgan, Keegan & Company, Inc.

Okay. Jerry, one more thing. In your presentation you guys present…you have a slide in there for project updates. You talk about estimated revenues from several of the growth initiatives in 2008. Previously you had been talking about $28 million in estimated revenues in 2008. Is that still a good number? Or is there a better number now that we saw a very strong quarter here in the fourth quarter?

Jerry Winchester

Well obviously we don’t think it will be any worse than that. It could be a little bit better and it depends on how some of those things…back on that slide, Mike, we talked about the North America land portion at about $8 million and our rental tools being at about over $10 million and then of course our addition into North Africa at about $10 million but for 2008 we have some opportunity in the Middle East and gutter for our unit…our SafeGuard business has obviously taken off in Oman. We have some SafeGuard expansion into South America as well. So there are a few other pieces that could provide us some other uplift. It’s just right now having the visibility to know what the timing is going to be for those if we start them and really we feel pretty comfortable with the $28 number. I think it is a just a gut feeling I think it will be…

Gabe Aldape

And that’s all specific investment. We’ve had additional gains referenced to an additional $11 million on expansion and we could start seeing some of that towards the end of the year. The SafeGuard program there is no CapEx requirement on that program.

Jerry Winchester

Yeah. Just people and computers.

Michael Drickamer – Morgan, Keegan & Company, Inc.

Alright. And Jerry let me follow-up on one of Neal’s questions. He asked specifically if you were adding additional clients on the response side of the business. Historically when discussed you have talked about being comfortable at the annual run rate of $8-$10 million. It sounds to me with the first quarter expectation here you’d be more comfortable here towards the higher end of that range. Has anything else fundamentally changed that perhaps you’d be comfortable at a higher range than that?

Jerry Winchester

I think that comfortably we might bump that up to about $15 million.

Gabe Aldape

We did $13 million last year. $20 million the year before. So yeah it is working. I think our market share is improving. We are in a very strong position internationally. As Jerry mentioned awhile ago we have some strategies in place where some domestic insurers to help expand that and I think we’ll see some of that benefit. So I’m comfortable with $15 at this point. So of course that is still in the dark.

Michael Drickamer – Morgan, Keegan & Company, Inc.

Sure I understand the volatile nature of the business. Okay guys I’ll let somebody ask a question.

Jerry Winchester

Thanks Mike.

Operator

The next question comes from the line of Ted Wolf of U.S. Financial.

Please proceed.

Ted Wolf – U.S. Financial

Good morning. Congratulations on the quarter. The sunshine sure is nice isn’t it? I have just a brief question on financial outlook. I believe you said that you have about $17 million CapEx planned for this year?

Jerry Winchester

Yes sir.

Ted Wolf – U.S. Financial

That would indicate to me that as long as you are operating the way you are that as the company you are you could self-finance. It looks to me as you would only need to finance an addition if it was necessary to make a large acquisition. Is that correct?

Jerry Winchester

That is correct.

Ted Wolf – U.S. Financial

Thanks very much.

Operator

The next question comes from the line of [Kevin Wenk with Polynius Capital].

Please proceed.

Kevin Wenk – Polynius Capital

Morning Jerry and Gabe and congratulations on a great quarter. The first question…on intervention and revenue growth in Q3 to Q4 of $6.7 million. If you could give us a little bit more a breakdown to help us out to see where growth is coming from there.

Gabe Aldape

Well we picked up about $1 million of that in SafeGuard and we began to see the recovery in the hydraulic workover snubbing side and that picked up a majority of the balance. Though we did have some stronger domestic prevention risk management type services that were also bringing in to that quarter and carrying into the first quarter. Some of the things Jerry mentioned in his script about those strategic locations and Barnett Shale and our ability to capitalize on that for domestic SafeGuard.

Kevin Wenk – Polynius Capital

Okay. Going on to the Q1 guidance, in prevention how much do you think that will go up in Q1 versus Q4? I’m sorry….Response.

Gabe Aldape

Let’s see…we did $4.8 million. Yeah. We’re up probably…that’s pretty difficult at this point but we’re thinking that we may put another $2 million on top of that. And this is early in the month. There is still a lot of opportunity for the longer range and trying to project the timing of those jobs the length of those jobs is difficult so please bear with us as we try to give that guidance.

Kevin Wenk – Polynius Capital

No, I appreciate how difficult that is to forecast. Gabe I want to try to sort through how the two special items went through the income statement. The $3 million contract settlement you could almost say you could take it off the top of the well and intervention revenues and then the $200,000 cost of sales will come out of cost of sales for the $2.8 million positive EBITDA. The $1.8 million insurance settlement though, was that an offset to cost of sales or did it run through both cost of sales and operating expenses?

Gabe Aldape

It was a net $18 operating expense.

Kevin Wenk – Polynius Capital

Okay and so operating before the $1.8 million were lets say $6.2 million. Is that correct? Because the $4.4 million on the income statement. And if the $1.8 million insurance settlement was an offset in that then operating expenses would have been $6.2 million.

Gabe Aldape

That’s correct.

Kevin Wenk – Polynius Capital

And so in Q3 they are $4.4 million and so essentially the offset was part of the insurance settlement was offset again by the $1.8 million in expense increase. So I just wondered where that $1.8 million expense increase came from and what that is attributable to?

Gabe Aldape

It is attributable to some bonuses at year’s end. Also just what operating expense represents basically the basic business and operating expense.

Jerry Winchester

And a million of that is in the cost of sales. This is where we did approximately $2 million in the fourth quarter as well and we did $29,000 in the third quarter.

Kevin Wenk – Polynius Capital

Okay. Now going forward into this year it sounds like bonuses, just thinking about the size of possible bonuses that might have inflated it $500,000 but are operating expenses now running lets say $5.2 to $5.5 million a quarter on an ongoing basis?

Gabe Aldape

Just one second please. Yeah I think the $5 million is in the range. Because we’re adding infrastructure in different locations and looking at growth initiatives like Dee mentioned with interest to that it is a pretty healthy level.

Jerry Winchester

And you’ve got about 35% variable costs associated with the delivery of our services so there is a variable component with the revenue but over the base operating costs of 35-40% is a good number.

Kevin Wenk – Polynius Capital

Okay. I appreciate that. That’s helpful. Then one more question about the six to seven cents as mentioned for Q1. If you use some of the other information as given on the call, SG&A I’ll say $2.2 million, depreciation and amortization of $2.1 million, and then what we were just discussing about where operating expenses may go, it looks like you have to have cost of sales in Q1…I’m making some of my own assumptions on revenues, but it looks like you have cost of sales for Q1 around the low 60’s level which is great. It shows huge operating leverage in the business but that’s the only way I can get to six to seven cents per share. Am I on the right track there or is there something else I’m possibly missing in the model?

Gabe Aldape

No I think that is reasonable in the Q1 and the higher level of response. Our cost of sales on response is pretty low so the fall through is higher than the blended average of 35-40…or the 60% in response.

Jerry Winchester

And I think when you look at like the snubbing stuff we’re adding in North Africa…I mean that just goes in there without any additional overhead to that business other than the crude.

Gabe Aldape

As Jerry mentioned in the script we managed a significant project in Bangladesh during the quarter and we had quite a bit of third-party subcontractors along with that we were able to generate significant that added to the bottom line for the quarter.

Jerry Winchester

Part of the expectation also it helps to see how utilization is trending on hydraulic workover’s. In Q3 we were running 38%. In Q4 we were at 42% and into Q1 of the current year we are running kind of at a 50% run rate. So operating leverage is definitely a factor.

Kevin Wenk – Polynius Capital

Okay great. Thank you for your comments Gabe, Dee and Jerry.

Operator

The next question comes from the line of Michael Cohen of C.K. Cooper & Company.

Please proceed.

Michael Cohen - C.K. Cooper & Company

Hi guys. Sorry about that. I disconnected myself before. A couple of questions here. We had spoke previously about a $2.5 million exit rate for the rental tools, which assuming there was sequential growth this year got it to that $10 million and you mentioned that we exited this quarter at $2 million. Was that something that was below your expectations or was the $10 million sort of taking into consideration a sequential increase over the next four quarters?

Jerry Winchester

I think that was pretty much what we had expected in 2008 but you know again with a start-up and you’ll remember that the revenues off of the third quarter were pretty negligible. But that’s really come along for us and again we had anticipated most of that annual run rate from domestic revenue and we’re already seeing some opportunities that we have slipped off into some international jobs with that and that is a pretty good place for us to be.

Gabe Aldape

We started generating the rental tool…this service line revenue in September so if you consider that we’re almost at $2 million in Q4. I think that the $2.5 million is reasonable.

Michael Cohen - C.K. Cooper & Company

Okay. I also wanted to ask you about…I guess on your last earnings call you spoke about the Bangladesh job and the comment was it is a great move for us just in terms of expansion of markets but the revenue is negligible. Now that you have expanded the service offering there does the revenue become more tangible to the…do you want to talk about that?

Jerry Winchester

What I mean about the revenue being negligible, certainly we had some good revenue in that. I think one of the things we experienced in that was a margin degradation because we had so much third-party attached to that because that’s what happens when you’re managing the overall project and you get to run all those costs on your ticket, so…

Gabe Aldape

And it turns out to be more significant than we originally anticipated because of our ability to bring in pressure controls and our ability to bring in the engineering so we were able to bring in some more…

Jerry Winchester

Services that we didn’t anticipate when we put the job together.

Michael Cohen - C.K. Cooper & Company

Okay. And then do you have an update on the units that were in addition to the ones that were already over in Algeria heading over there…I think there was talk of the JV. Has anything happened there?

Jerry Winchester

We’re currently hindering on the two additional units. We think that could be like a start of the third quarter kind of deal. We like that. I was in Algeria two weeks ago. We have had an update on the JV opportunity and the stuff that the customers got and moved forward relative to that. So we continue to work on that but the other side of that, Michael, is we’re putting units into that market and regardless of what the timing is for the JV opportunity we like where we’re currently sitting and where that is heading for us.

Michael Cohen - C.K. Cooper & Company

So are those in and working or are those there…

Jerry Winchester

The two that we sent in the fourth quarter are working. They started working in January. The other two are still in the shop being refurbished and we don’t think they will start until the beginning of the third quarter.

Michael Cohen - C.K. Cooper & Company

Okay. And are they in a shop in the states?

Jerry Winchester

Yes. They’re in [OMA].

Michael Cohen - C.K. Cooper & Company

And my last question, you spoke about in the North Texas operation $2-$3 million revenue for next year and it sounded like you did $3.5 million this year so combined snubbing we’re looking at about $9-$10. So that seems a little bit conservative considering you also did $2.7 million from the StassCo in the fourth quarter and we were looking for six to seven…

Gabe Aldape

Mike I think I might not have been clear. The $3.5 is what we did in North Texas in 2007. The five months that we had the StassCo I think was $2.5 or $2.7, something like that. Those 2007 numbers obviously yeah when we look forward I think when we look at that in combination with our Gulf of Mexico operations we are $25+ million for 2008.

Michael Cohen - C.K. Cooper & Company

Okay. Great. And then just one last question in terms of clarification in terms of those one-time charges or the one-time events in the fourth quarter. How long were these…I guess the settlement in Qatar…how long was that process? Was that a couple years?

Gabe Aldape

It might not be quite fair to characterize it as a one-time event when you look at, for example, the Congo because we had to continue to incur the costs while it was being replaced and it had been replaced so though it hit in one quarter in a one-time fashion…

Jerry Winchester

If the boat hadn’t sunk we’d have had revenue continuously right through the whole deal.

Dee Edwards

And the same with Qatar. It was a very similar situation and we have since replaced the Qatar revenue with actually a portion of that was from Bangladesh and a future opportunity for Qatar in the second quarter. So though it was a one-time charge it is actually a component of the ongoing operation. We successfully negotiated the contract to cover our costs.

Michael Cohen - C.K. Cooper & Company

Okay. So would it be fair to characterize that as almost less revenue than you would have anticipated if the operations had just continued on without…

Jerry Winchester

Certainly as a whole. The gas will be less revenue because we covered for the year and it was a 3-year project. As Dee pointed out we are replacing that revenue in a couple of different areas. As far as the Congo the replacement unit is there and it is working and so it just continues on as part of our business.

Michael Cohen - C.K. Cooper & Company

Okay great. Thanks guys.

Operator

The next question comes from the line of Jeffrey Wrath of Morgan, Keegan & Company, Inc.

Please proceed.

Jeffrey Wrath - Morgan, Keegan & Company, Inc.

Hey guys. Nice to end the year on a high note. I really want to congratulate you on the positioning for the way you got yourselves into some higher growth businesses and higher growth markets.

My question is really related to the non-response business and unfortunately my math is not as good as Mike Drickamer’s or some of the analysts following the company so I’m going to try and keep it simple.

As you look at the non-response business now and a whole bunch of new segments. In 2007 we know the utilization rates were low. Gabe pointed out I think very importantly that those utilization rates are increasing but looking at those rates for 2007 it seems that EBITDA margin on the non-response business was sub 20%. Gabe is that fair? 18%?

Gabe Aldape

Well…

Jeffrey Wrath - Morgan, Keegan & Company, Inc.

In 2007? My question really is…what is a reasonable, sustainable EBITDA margin for your non-response businesses as a whole looking at where your utilization rates are?

Gabe Aldape

I think for the year we are at 15% on EBITDA margins when you look at it on a segment basis. I think there is some operating leverage based on activity in international growth as well as domestic growth. As far as operating leverage we feel comfortable with 35-40% operating leverage going forward in that segment. So…

Dee Edwards

And I think we are comfortable…going back to your question, I think we are comfortable in the 23-25% range on well intervention EBITDA. As we talked about before, Jeff, we included in that number the start-up costs for the rental business, the start-up costs we had to expense for North Texas and…

Jerry Winchester

And we also had the sustaining costs of our operation in Venezuela that we didn’t really ratchet down until late in the fourth quarter.

Dee Edwards

Those costs are in control now and the same in [OMA] so I think 23-25% is very sustainable and reasonable expectation for well intervention.

Jeffrey Wrath - Morgan, Keegan & Company, Inc.

And I’m sorry did I hear Gabe say that the number for 2007 were actually about 15%?

Gabe Aldape

Right. Yes on EBITDA margin on that segment.

Jeffrey Wrath - Morgan, Keegan & Company, Inc.

So keeping it simple, if you did $92 million in revenues in 2007 for non-response and you think that number grows…you talk about X amount of incremental revenue from rental tools, from StassCo and other stuff, from that business segment alone you should be looking at a mid to high 20’s EBITDA for 2008 conservatively. Is that fair?

Dee Edwards

I think Gabe pointed out about 23-25% is achievable based on operating leverage. We had start-up costs that we incurred during the year.

Jeffrey Wrath - Morgan, Keegan & Company, Inc.

And anything from response would be incremental to that? So it seems like 2008 is setting up to be a real good year.

Jerry Winchester

Yeah. Jeff that is the cake. I think, Jeff, that is what we consistently said in 2007 is that we were making the steps. We were putting stuff together. We said that the third quarter would be better and it was. We said the fourth quarter was on that trend. I think we’re seeing the effects of all of the pain we had through the acquisitions and some of the other stuff we did through that part of the year and it is really shaping up to be a nice year for us. Owing to the fact that our international business has continued to expand and that portion of our business is less effected by some of the commodity pricing of North American gas but at the same time our North American business has picked up with it as well and that is not showing any signs at least near-term signs of slowing up.

Jeffrey Wrath - Morgan, Keegan & Company, Inc.

Well fellows I appreciate your help. Just keep up the good work. I look forward to seeing it.

Operator

The next question comes from the line of Tamara Manoukian of Greenwood Investments.

Please proceed.

Tamara Manoukian – Greenwood Investments

Hi guys. Great quarter. Congratulations. Just a few follow-up questions. Can you break down what was the SafeGuards for the fourth quarter in terms of revenue?

Gabe Aldape

It was $5.2 million.

Tamara Manoukian – Greenwood Investments

Okay and new Bangladesh were in the middle of that for the quarter?

Jerry Winchester

No. Maybe just a few hundred thousand dollars towards the end of December when we actually mobilized on that in mid-January.

Tamara Manoukian – Greenwood Investments

Okay so that should be mostly incremental.

Jerry Winchester

That’s correct.

Tamara Manoukian – Greenwood Investments

Now in terms of the $28 million of additional revenue that was mentioned earlier from the slides, unfortunately I don’t have the slides, so what segments are included in that $28 million?

Dee Edwards

That is North American land, there is about $8 million in that. The rental tools is $10 million and then the two units we put in North Africa are $10 million, so that puts it at $28.

Tamara Manoukian – Greenwood Investments

Okay. What do you think the EBITDA margin is on these three incremental lines?

Jerry Winchester

I think we are pretty comfortable with that fall through or the operating leverage in that 35-40% range.

Tamara Manoukian – Greenwood Investments

I see. Okay. Now, about just want to get more color on the start-up expenses. Would you qualify start-up expenses as one-time in nature or is it that every time you need to move your equipment around you incur that so you shouldn’t really qualify…

Gabe Aldape

Yeah they are one-time expense. Start-up at different locations. Typically when we mobilize for a job like Bangladesh there is a mobilization cost we charge the customer for that as well as a de-mobilization, so that would not be considered start-up. Start-up relates to the growth initiative that we have undertaken in the North American land business, the two units in Algeria which entails having to hire people and put in some additional infrastructure to be in a position to operate those contracts. That’s what we consider start-up costs.

Tamara Manoukian – Greenwood Investments

Okay so all $2.4 million for the year and $600,000 are all one-time charges?

Dee Edwards

That’s correct.

Tamara Manoukian – Greenwood Investments

Thank you. And now in terms of settlement of $2.8 in terms of Qatar, $1.8 insurance settlement, what was the lost business or lost revenue associated with that and do you think that the settlement do you think that the settlement offset that and what was the timing of the lost business? Was it this year? Last year?

Dee Edwards

As far as the end in Qatar we had anticipated having six months of operating that contract for six months in 2007 so that is approximately $4 million.

Gabe Aldape

Both of them together were about $6-$7 million in revenue lost. Is that about right?

Dee Edwards

I think when you talk about what we’ve lost, in the Congo we were able to talk to the customer and work through keeping us on standby. They didn’t want us to walk away. They understood that we needed to roll some equipment in there and they needed to support the infrastructure that was in place at the time. So for Congo from lost revenue standpoint there was no lost revenue there.

Tamara Manoukian – Greenwood Investments

Congo is related to the $1.8 million insurance settlement?

Dee Edwards

That’s right.

Tamara Manoukian – Greenwood Investments

So Congo….did you say altogether that was $6 million in lost business? I think that I heard Jerry say $6 million.

Dee Edwards

No. There was $4 million in Qatar that was offset by the $3 million.

Tamara Manoukian – Greenwood Investments

Okay. That’s it for me. Thank you.

Operator

The next question comes from the line of Douglas Campbell with Spirit Capital.

Please proceed.

Douglas Campbell – Spirit Capital

Thanks. In a moment I’ll ask two or three questions and you’ll see what I’m trying to get at is the order strategy for increasing the business both geographically and by the number of services you offer. When you follow your customers to new geography, do you seek to create sort of a semi-permanent presence in that new geography from which you can begin to solicit business from perspective customers in the area? And then you seem to want to add services. Things are getting pretty pricey in oil field services and prices nowadays and do you expect you try pretty hard to do that could require a fair amount of capital in both of those…reaching for both of those targets.

Dee Edwards

Yeah. When we go to certain locations with a customer we like to be there on a permanent basis. Typically what happens is we go in and we start working for a customer in a region and then other customers who are in the region see the work we are doing, get familiar with our people, then begin to ask us about well if you are doing this service for them could you also provide some of this stuff for us on a particular case…and we have seen our business grow like that. Then as the relationship in that region with a customer grows, then they say, “Well you guys are doing the snubbing for us over in this area. We’d like to see that over here. We’ve got a need. We’ve got a contract or we’ve got an opportunity.” Then we really look at our pool of equipment on a global basis with respect to utilization and what we can do and we’ve got either un or underutilized assets and we can move them to areas where the utilization can be higher and at the same time we can expand that business.

So you know depending on how you expand the need for capital can be real but for us we have expanded a lot…our foothold has come in our SafeGuard business and then it was just like the SafeGuard business we expanded that into Libya and then the next thing that happened we picked up some snubbing work there and then we do well control work in there.

Then a lot of times essentially in a risk mitigation sense for well control the customer buys the equipment. And so we look at that and they buy it from us a lot of times and so that is also an opportunity there to be a provider in the region and not have a serious capital hurdle to have to be in there.

Douglas Campbell – Spirit Capital

Ideally if you follow your customers in a sense it leads you to geographic expansion with revenues and expenses are occurring simultaneously instead of having to lead with the expense side.

Dee Edwards

Well that’s exactly right because that is the last question that Gabe talked about. We talked about start-up costs and that comes at hiring the people and those people have to be in place. You can’t just have the equipment and the people all show up in the same day and revenue/expense start and so for us we have fought that urge to go out and take a bunch of people or take a bunch of equipment into an area and wait for the phone to ring. Kind of alright we’re here and start working through that. When we started in the Rockies we did not do that. We bought a company that gave us immediate access to a customer base and I think that is why our start-up business as far as mid-continent was a little bit slower coming around. We had some customers in the area but we really had to broaden that base because of the call out nature of the work so that the utilization would be higher. So we like the strategy of letting the customers tell us what they will buy from us and where they will buy it.

Douglas Campbell – Spirit Capital

Thank you. That’s all.

Operator

The next question comes from the line of [Mark VanSkendal] a private investor.

Please proceed.

Mark VanSkendal – Private Investor

Hi. It is Mark [VanSkendal]. Mr. Winchester I have two short questions. The first is where do you see the company in five years and the second short question would be do you have any plans to move from the American Stock Exchange to NASDAQ?

Jerry Winchester

You know I think the company in five years obviously we said, Mark, we wanted to be and our strategy has been to be a very comprehensive pressure control company. That means we have some additional services that we need to add to our company. There are some other tools that we don’t have to be a well-rounded player in that game. So that looks like that could be some acquisition that looks like something that gets us the rest of those tools. But at the end of the day, back to where we wanted to be our focus was purely on pressure control and from the standpoint if you are a customer and you have pressure you don’t need we have a blowout response business that will help deal with that. But if you are a customer and you are working in a field where you have wells that you need to manipulate things under pressure or service those wells then we can do that. And if you need pressure…if you need to work a well over because you want to regain some pressure then we want to be able to do that all in the vain of what works for us because we feel that is a good differentiator for us and at the same time it allows us to play to our strengths.

So that has been our focus. We gets lots of people that show up that have widgets or companies or things that are outside that scope and we have resisted that because we wanted to do things in the right manner.

It’s going to be a curious thing about the AMEX you know with the stuff going on with the New York Stock Exchange and everything that encompasses that. Yeah, I’d like to think that we reach a hurdle relative to the sophistication of the company and the price of the stock and things like that which allow us to move and do something exchange wise that allows us to better capture the value of the stock and not see it stalled about by small trading volumes and stuff like that. Sometimes that perplexes me so I’m with you. Opportunities to go do that and to provide a better platform for which to trade that in for our shareholders to recognize that volume is certainly something that we need to do and I think you’ll see that in due course. But I think we’ll see some interesting movement relative to the new acquisition of the AMEX.

Mark VanSkendal – Private Investor

Thank you for answering my question.

Operator

And at this time I’d like to turn it back to management for closing remarks.

Jerry Winchester

We appreciate everybody calling in and again sticking with us through the year. I know this last year was a great opportunity for us as far as things we wanted to accomplish and the things that we got done. Seeing that come to fruition in 2008 and then what we can add to that. You know, rest assured that we’re thinking about 2009 every day here as to what we have got to do relative to how we look at growth rates and things of that nature. So we’re really focused on that and we appreciate everyone’s support and again if there is anything we can do feel free to give us a call throughout the quarter and we look forward to talking to you guys in the next call. Thank you very much.

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