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Carbo Ceramics Inc. (NYSE:CRR)

Q2 2008 Earnings Call

July 31, 2008 11:00 am ET

Executives

Gary Kolstad - President & CEO

Paul Vitek - CFO

Analysts

Jeff Tillery - Tudor, Pickering

Roger Read - Natixis Bleichroeder

Robert Christensen - Buckingham Research

Gregory Macosko - Lord Abbett

Justin Tugman - Perkins Wolf

Danny Arnuk - BlackRocks

Operator

Hello and welcome to today's Carbo Ceramics Second Quarter 2008 Earnings Conference Call. I would like to remind all participants that, during the course of this conference call, the company will make statements that provide information other than historical information and will include projections concerning the company's future prospects, revenues, expenses or profits. These statements are considered forward-looking statements under the Safe Harbor provision of the Private Securities Litigation Reform Act of 1995 and are subject to risks and uncertainties that could cause actual results to differ materially from these projections. These statements reflect the company's beliefs based on current conditions but are subject to certain risks and uncertainties that are detailed in the company's press release and the public filings.

Your host for today's call is Mr. Gary Kolstad, President and Chief Executive Officer of Carbo Ceramics. Mr. Kolstad, please begin your call.

Gary Kolstad

Thank you and good morning to everybody and thank you for joining us to discuss our second quarter results and also our plans to expand our Toomsboro, Georgia production facility. This morning, we reported first quarter net income of $13.5 million or $0.55 per diluted share, an increase of 5% from last year's first quarter. Our revenues continue to grow and we posted record quarterly revenues of $103 million, an increase of 32% compared to last year's second quarter.

Looking at the second quarter results, the demand for our ceramic proppant continue to grow globally. Our total proppant sales volume for the quarter was 281 million pounds, up 36% compared to last year. The strong proppant sales volume was a result of significant increases in both North America and overseas sales volume. Our second quarter sales volume in North America increased 35% over last year's second quarter on the strength of record U.S. sales. The continued rapid acceptance of CARBOHYDROPROP, was a major factor contributing to US growth.

However, the U.S. sales exclusive of HYDROPROP also increased 9% year-over-year, despite a relatively flat U.S. natural gas rig count. Regionally, U.S. growth was led by East Texas, north Louisiana, and the Rockies. We believe the increased utilization in these regions and also in the Canyon Sands of West Texas is a direct result of developmental work we have been doing in those areas, over the past year.

In Canada, we experienced the usual seasonal slowdown in the second quarter, but are encouraged by the fact that the second quarter sales were 52% higher than the same period a year ago. Overseas proppant sales volumes grew 38% compared to the second quarter of 2007, again led by our success in Russia, where sales volume increased more than 2.5 times last year's sales.

Pinnacle Technologies continued its outstanding performance with revenues up 57% and pretax income more than double last year. While the average selling price of our ceramic proppant declined 5% from the previous year, this was due primarily to a shift in the product mix with more lightweight proppant sales including increase in sales of CARBOHYDROPROP which has a lower selling price than our other products.

In general, pricing improved during the quarter. We have recently implemented price increases and applied energy surcharges in some markets and the full impact of which will be seen in the third quarter. Margins in the proppant business have been impacted by increased depreciation and amortization, roughly $1.3 million up from the previous year and inflationary pressures primarily from imported raw material and energy costs. Pinnacle Technologies continued its impressive operating and financial performance in the second quarter, with an increase of 57% in revenue.

Net income before tax is more than double the same period last year. Pinnacle continues to see increased competition but is also benefiting from an increased level of drilling in complex resource plays in North America.

SG&A expenses for the second quarter of 2008 increased $2.5 million compared to last year, but declined as the percentage of revenue compared to last year. The largest increases in SG&A were related to increased sales activity and increased growth in international operations. The net result of these changes is that operating income increased approximately $700,000 in the second quarter, compared to the second quarter of 2007.

In non-operating results, pretax income was reduced by approximately $200,000 with reductions in interest income and foreign currency exchange gains. Net income increased by $700,000 as 2008 income tax expense was reduced due to a refunds of prior year's state income taxes.

Under technology highlights, we are continuing to increase our focus on technical developments in both of our business segments. A few highlights from the second quarter, an updated analysis of a West Texas field trial, which incorporated a year's worth of production data, showed that the use of CARBOECONOPROP lightweight ceramic proppant increased initial production rates over 20% versus wells fractured using conventional sand. And you will get to see that in the eastern regional SPE, in which the paper will be put out.

As I previously mentioned, we saw the benefit of work we initiated last year in the Bakken formation of North Dakota. Some of you have seen the SPE Publication number 110679, to which we contributed. The publication clearly shows the benefits of wider fractures and higher conductivities proppants in horizontal wells with transverse fractures.

Our lightweight ceramic proppants have been the preferred solution in this area. We have supplied ceramic proppant for several wells in the emerging play in the Haynesville Shale formation in East Texas, while there has been considerable press and hype about this play; it is too early to estimate the future demand for our products in this region. However the deep high pressure, high temperature characteristics of this formation do seem to favor the use of ceramic proppant.

In the fractured reservoir diagnostics business segment, using a stacked tool string to perform fracture mapping in the Northern part of the Jonah Field for EnCana, Pinnacle increased microseismic hearing distance by approximately 20%.

Moving to the future outlook, looking forward we are optimistic about the future of our business. This is demonstrated by our board's approval of a third production line at our Toomsboro, Georgia location and the recent approval of a 21% increase in our quarterly dividend. In the past three years, we have increased our dividend by 70%. The new production line will increase our capacity by 250 million pounds a year, roughly an increase of 20% from our current capacity. It'll cost about $70 million and is expected to be completed in the first half of 2010.

Toomsboro, which is located in Central Georgia, is strategically positioned to take advantage of the large scaling deposits we control in that area.

With the growth we have seen in proppant demand in North America, our U.S. manufacturing facilities are currently operating at full capacity. However, we can increase quarterly sales volume by reducing inventory in North America and increasing sales from our facilities in Russia and China.

With respect to pricing, we believe the market for all proppant is relatively tight and we have recently implemented price increases and applied energy surcharges in some markets.

As I mentioned earlier, we are experiencing inflationary pressures. However, with current market conditions, we believe we are in a better position to increase pricing than we have historically. As we work to construct new capacity in the proppant business, our near-term focus will be on improving margins and growing overseas sales volumes.

In Russia, we saw excellent year-over-year growth in sales volumes. For the first half of 2008, our sales have been approaching full manufacturing capacity. In our fracture mapping business, we expect increased drilling in complex formations to result in attractive growth opportunities. In the second half year-over-year growth, however, may slow from the 53% rate of the first half due to increasing competition.

From a financial perspective, operating margins in the third quarter should be similar to those in the first half, as improving prices offset anticipated increases in raw material and energy costs. CARBO remains the leader in each of its business segments. We are again expanding our proppant manufacturing capacity and continue to provide advanced technology solutions in our fractured reservoir diagnostics business. This completes our prepared remarks. At this time, we'd be happy to address any questions.

Question & Answer Session

Operator

(Operator Instruction). We will pause momentarily to assemble our roster. Your first question will come from the line of Jeff Tillery with Tudor, Pickering.

Jeff Tillery - Tudor, Pickering

Hi, good morning.

Gary Kolstad

Good morning, Jeff.

Jeff Tillery - Tudor, Pickering

You mentioned just in your prepared remarks on pricing increases. You are feeling comfortable enough to push on those but margin is kind of flat in the third quarter with what you did in the first half of the year. If we extend the period out to kind of the next six months, do you think you are able to push pricing enough to expand margins on a net basis?

Unidentified Company Representative

Yeah, I think we may be able to get some improvement in margins, perhaps on the magnitude of 75 to a 100 basis points. A lot of that is going to be dependent on what happens with energy prices, specifically natural gas that we consume in the production facilities and the diesel fuel that's consumed in the transportation of the goods to the end user.

Jeff Tillery - Tudor, Pickering

And with the pull back in natural gas here, are you viewing that as an opportunity to hedge or is that something you would rather to leave open to the spot market?

Unidentified Company Representative

We have become more aggressive in the past week-and-a-half to two weeks as prices have come down. We have said in the past that our strategy is to be about 70% covered in the North American market for the next 12 months and we have been running behind that level for much of this year and into next year. We are still below those levels but we have become more aggressive with our purchasing in recent weeks.

Jeff Tillery - Tudor, Pickering

Just on the Toomsboro expansion, could you give us a feel for when the bulk of the costs are incurred. Is most of the $70 million, is that going to be 2009 from a CapEx standpoint?

Unidentified Company Representative

Yes. Those capital projects are always back end loaded. We think that our CapEx for the remainder of this year is probably on the magnitude of $20 million to $25 million and that includes the initial spending on that project, but the bulk of the $70 million will be spent in 2009.

Jeff Tillery - Tudor, Pickering

And the third line in terms of Toomsboro, similar to the first two lines, is that going be focused strictly on the lighter weight proppant?

Unidentified Company Representative

We'll be focused on lightweight proppants and it could be a combination of several of our lightweight proppants.

Jeff Tillery - Tudor, Pickering

Okay and then my last question. Could you give us a feel for, within your product spectrum, what a couple of the emerging plays are tending to use, I guess, one the Bakken, and two, the Haynesville thus far. What kind of within your product portfolio has been the demand there?

Gary Kolstad

As I mentioned on my remarks, we are extremely excited about what's happening the Bakken. And our work with an ENP operator and the SPE paper we put out really showed the benefits of our lightweights up there. So that is absolutely busy with our lightweights, CARBOECONOPROP in particular.

The Haynesville, we have supplied a variety of proppants in there and I think it is probably too early to tell what the operators will ultimately use for their reservoir and we really have supplied a range of our products in there. So we are excited about that. But once again, there is a lot to data and wells need to be drilled and production need to be seen before we get too far ahead of ourselves there.

Jeff Tillery - Tudor, Pickering

Okay. Thank you guys.

Operator

Your next question will come from the line of Roger Read with Natixis Bleichroeder.

Roger Read - Natixis Bleichroeder

Hey good morning, gentlemen.

Gary Kolstad

Good morning, Roger.

Roger Read - Natixis Bleichroeder

I guess Jeff kind of hit the price issue. But as you look at mix changes that could occur back half of this year and into 2009 and certainly if you were to step away from as much in the way of sales of HYDROPROP to some of the other higher margin proppants, what is your thought process here on HYDROPROP? Do you continue to push it aggressively? Do you step back a little bit and focus on margins? What's more important? Market penetration or margin cash flow, things like that?

Gary Kolstad

Well, we have already kind of worked through that decision process. The acceptance of it was overwhelming because of the technology behind it so what we have already done, we have limited the output of it and, as we mentioned, not in particular about particular products, but in the latter part of the second quarter we did improve pricing. So we are working on the margin side of it. And we certainly understand how to put out the different products out of the plan.

Roger Read - Natixis Bleichroeder

Okay. So if I kind of take the capacity you have available now, the say $1.250 billion, and that's roughly 310 to 315 a quarter that you could produce or incremental $40 million from what you did in the second quarter, safe to say that incremental $40 million is vast majority the higher margin products? I am making the assumption that you are going to go to max capacity, obviously, based on what we are seeing in terms of drilling in the Shale plays.

Gary Kolstad

Yeah. We are probably going be at max capacity. That's absolutely for sure and we have already kind of set our limit on the amount of HYDROPROP that we produce. So the answer is that we will be pumping our higher margin products, yes.

Unidentified Company Representative

Roger, I'd be a little careful though in terms of your margin assumptions because some of that incremental volume, in fact a good part of it, is in fact outside the North American market where we are not at capacity and we are operating at lower margins in both Russia and China right now so some of that growth will be in Russia and China. But you know you are absolutely correct, with respect to the North American market, we will maximize the sales of the higher margin products but leave enough of HYDROPROP in the market to keep demand stimulated, until we have the additional capacity available.

Roger Read - Natixis Bleichroeder

And how much could you sell out of inventory. When I think back to the '05/'06 period, you had a similar situation, hit maximum capacity before the new lines came on. I know you don't give a lot of detail historically on inventories. But you still in North America you got some of the ECONOPROPS sitting around, you can clearly surprise us a little bit on the volume upside which can help margins. Could you give us any sort of feel for where you are on the inventory front today?

Unidentified Company Representative

Yeah Roger you have followed us for a long time. You recall the days when we used to carry about 45 days worth of finished goods inventory. We are not going to get back to those levels. We have got a broader more complex product line now than we had then, so we are going to continue to run 60 days or more in inventory. So, I don't know, we'll maybe plus or minus 20 million pounds.

Roger Read - Natixis Bleichroeder

Okay.

Unidentified Company Representative

For inventory

Roger Read - Natixis Bleichroeder

And then my final question, just on the Toomsboro three lines, if memory serves you were able to build the number two line in about 15 months. Given that I am sitting here in July of '08 and you're talking about a start-up in the beginning of 2010, does that indicate that the board has approved but construction doesn't begin until later? Or are we just seeing, as we are through a lot of the rest of the industry, is taking longer and costing more to do what you wand to do?

Unidentified Company Representative

Roger, we'll definitely begin construction immediately. We have got some timing that is constrained by permits and then you obviously have noted the fact that projects are taking longer and costing more so there is an aspect of that as well. But suppose if you say, that plant will get built as quickly as we are capable of building the plant.

Roger Read - Natixis Bleichroeder

Okay. Thanks. That is it for me.

Operator

Your next question will come from the line of Robert Christensen with Buckingham Research.

Robert Christensen - Buckingham Research

Yes, have you guys been approached for long-term contracts for some of your, I guess proppant that might go to the Haynesville Shale? 12 months is what some producers are now talking about trying to line up.

Gary Kolstad

We have seen an interest in understanding our ability to produce and those other things. We would just as soon stay away from mentioning our contract strategy and everything. But yeah, there is a lot of interest in knowing what the capacities to supply the Haynesville will be.

Robert Christensen - Buckingham Research

And when I hear about someone doing an 11, 12, 13 stage frac job, and a combination of sand and ceramic. How does that work? How is a job like that pumped? It seems to be sort of, I don't know why, I don't know how to frame the question I guess properly, but when I see 1.3 million of sand and 300,000 pounds of ceramic or resin comes in, how is this mixing done and why is it done?

Gary Kolstad

Well, I don't want to comment too much on the operators' decisions to do that, but technically near the well bore, you have the largest draw down so the greatest pressure, so I suspect the logic is that you put the ceramics near the well bore and therefore the drawdown, the highest pressure will be absorbed by the ceramics versus the sand which can't hold it. We logically and certainly have seen the benefits of putting ceramic throughout the wells. And I think that will come in time. When you look at what's happening with our business and our acceptance in particular of our lightweight ceramics in various places, such as the Bakken, the East Texas, all these other ones, I think our story is getting out more and more.

And in particular, gas prices what they are, the clients' awareness of the value that they create when they use our ceramic proppants and get production up 10% or 20% I think is becoming more evident. Much more than $4, $5, $6 gas, I think they see the benefits of using ceramics today.

Robert Christensen - Buckingham Research

If I hear about a 12 stage frac job in the Haynesville, about how many pounds of proppant is going into some of those wells? And I am not just talking about ceramic, just total.

Gary Kolstad

Plus or minus 2 million.

Robert Christensen - Buckingham Research

Thank you very much.

Operator

Your next question will come from the line of Gregory Macosko with Lord Abbett.

Gregory Macosko - Lord Abbett

Yes, thank you. Just with regard to the last question with the kind of acceptance, etcetera, how would you typify the reactions and the interest that you have gotten in the last, say, three to six months? Is it relative to other times in the company's history? Would you say that it's really a step function in terms of acceptance of proppants versus other times?

Gary Kolstad

Well first I'd like to characterize it by, when we introduced the new product in the CARBOHYDROPROP technology; we significantly expanded the market for ceramic proppants.

So that is a new product that addresses different types of reservoirs and so that was an enormous gain there. Having said that, some of our technical marketing efforts in places that I have mentioned before, East Texas, the Bakken, have really started to prove the benefits of ceramics there. So I would characterize in particular Q2 and partially Q1 as probably the best, the largest acceleration let's say of people using ceramic proppant.

Gregory Macosko - Lord Abbett

But primarily from the lightweight?

Gary Kolstad

Yes that is true. As you know, there is a benefit on the volume side of using our ceramic lightweight.

Gregory Macosko - Lord Abbett

And then with regard to the new line that you are going to put in, are there any regulations, local regulations that are limiting things there at all? Or limiting start-up or what you are allowed to do or when?

Unidentified Company Representative

No, we don't anticipate any limitations. It's just a question of timing, of getting permits that we expect to be granted.

Gregory Macosko - Lord Abbett

Okay. Good. And then back to the inventory, I believe you have some seasonality to your demand. Are you looking at perhaps maybe producing differently, or maybe producing more in the off-season and building inventories that might then be run down? Or could you talk about that a little bit?

Gary Kolstad

We currently are trying to produce everything we can. The cyclicality, we normally see a lower consumption of lightweights in Canada during Q2. We have added Russia now, which has ability due to weather just like Canada. But we are going full out now.

Gregory Macosko - Lord Abbett

So that's something different than it has been in the past, correct?

Gary Kolstad

Well, we have always tried to build the inventory during slow times to get ready for the business times, the cyclical nature of the quarters. But, yes, is full speed now.

Gregory Macosko - Lord Abbett

Okay. And finally, with regard to the natural gas cost, etcetera, relative to your costs, if we were to see the natural gas price, say, just per say, say stay flat at current levels around $9 or so, could you give us a sense of what the differential in your margins would have been?

Gary Kolstad

Paul you can answer that other than I would say Q3 won't be impacted because we have already, for the most part, made our purchases. Paul you want to add to that?

Paul Vitek

Unfortunately, Greg, we really don't want to break down to that level of specificity of our cost structure for competitive reasons. So I think you need to rely on the guidance we are giving with respect to overall margins and realize that our assumptions about gas pricing are included there.

Gregory Macosko - Lord Abbett

Okay. Thank you.

Operator

(Operator Instructions) Your next question will come from the line of Justin Tugman with Perkins Wolf.

Justin Tugman - Perkins Wolf

Good morning.

Paul Vitek

Good morning, Justin.

Justin Tugman - Perkins Wolf

Paul, a couple of questions for you here. One of the things we have seen in the news recently is that there have been a lot of facilities shut down temporarily in China because of Olympics. Are you impacted at all from that?

Paul Vitek

No, we are not. We are well outside of Beijing.

Justin Tugman - Perkins Wolf

Okay. And then going back to the Shale plays, are you seeing interest from any of your customers in moving ceramics into other Shale plays where you don't have a large presence now?

Gary Kolstad

Yes, they are interest in several other plays as you know the names, the Woodford and Horn River But you know the Woodford is much more established. Something like the Horn River is that its infancy and there is a whole infrastructure question there. Marcellus we just a very small amounts so, there is always interest and the attractive thing about the Horn River, the Haynesville, is that you are deeper, hotter and just the reservoir itself requires ceramics.

Justin Tugman - Perkins Wolf

And then I apologize if you answered this earlier, but when you do look at the volumes that you are pumping into the Shale well that you have worked, are you seeing higher volumes of ceramics pumped in than say a more traditional non-Shale well?

Gary Kolstad

Well, you probably need to relate it to the length of the horizontals, the number of stages. It depends. We have wells in the Rockies that pump enormous amounts. So it's hard to categorize that way. But the trend towards more stages per well is absolutely a trend that has been in place for several years.

Justin Tugman - Perkins Wolf

Okay. Maybe let me ask it this way. If you looked at the average well you have pumped, say in 2007 or first half of '08 versus what you've done so far in, say, the Haynesville or Bakken, how do those Haynesville/Bakken wells compare to your average that you have seen over the past couple of years?

Gary Kolstad

Well, they are larger for sure. Having said that, when we introduced our new product, we replaced a lot of wells that use much smaller volumes. So on balance, I don't know how much has changed but you are correct on the two you mentioned that they are larger jobs, let's say.

Justin Tugman - Perkins Wolf

Okay. Thank you very much.

Operator

You have a follow up question from the line of Roger Read with Natixis Bleichroeder.

Roger Read - Natixis Bleichroeder

Yes, I guess it indicates how strong profits are that no one has asked much about Pinnacle. Good growth in the quarter both year-over-year and sequentially. Last several quarters you have talked about the challenges in getting the right people and getting the right equipment. Can you give us an idea, is the growth rate we are seeing at Pinnacle something that we should consider fairly sustainable at this point? And I am kind of thinking about expectations with maybe 25% to 30% top line growth and we are obviously running considerably higher than that the first half of this year.

Gary Kolstad

Yes, Paul. And I haven't done too good on predicting the growth rate of Pinnacle over time. But on my earlier comments, we think it's difficult to duplicate the 53% growth rate in the first half, but it will have very attractive growth and the work continues on adding equipments and people. And it will still have great growth rate.

Roger Read - Natixis Bleichroeder

Okay. I hadn't gone back and checked it all the way, but margins in Pinnacle, are they holding up as you would expect or is there any change in the mix there that has impacted either way, negative or positive?

Paul Vitek

No, the margins, if you look at our segment reporting information, you'll see they have stabilized in that business and we don't expect much change there.

Roger Read - Natixis Bleichroeder

Okay. Thank you.

Operator

You have a follow up from the line of Robert Christensen with Buckingham Research.

Robert Christensen - Buckingham Research

Yeah, with TNK-BP so much in the news in Russia, should we worry about lesser activity, maybe from that company or others that might affect your prospects there?

Gary Kolstad

No, we have not seen any affect on that and I don't guess that would worry us that much. It may even provide opportunities in the consulting services business.

Robert Christensen - Buckingham Research

On another geopolitical, how about China, we've got a new operator there, EOG Resources taking over the Conoco Burlington Szechuan type gas leases and they say they are going to be pretty aggressive using their horizontal drilling techniques. Would that reopen opportunities for you in China? And I guess, just an overall update on what the China facility is doing at the moment.

Gary Kolstad

Well, it is probably too early, but that certainly can't hurt that they are doing that. We have underutilized capacity in China. We have recently added a Manager for Asia Pacific region and based in Beijing, so we want to develop the domestic market in China better. And hopefully, we'll see some impact from that later on this year. It's still one of the larger markets in terms of the number of frac jobs performed annually in. There is some issues about export and VAT taxes, things like that, which encourages us to sell more internal into China.

So we are adding some human resources to help that process.

Robert Christensen - Buckingham Research

Is the environment for natural gas in China, though, improving because of some legislation to raise the domestic price to encourage exploration, to help the balance of trade even more? I know they import a lot of oil, and a lot of LNG, coal, and now they are looking at the domestic market. Is that working in your direction, I guess?

Gary Kolstad

There is, probably better people to answer that question than myself, experts on China. But they have a lot of moving parts they can place in China right now and I think they are trying to sort them out.

Ultimately, they have to have more energy resources, so it stays into our hand long term I think and we still produce an incredible high quality product there. So it's once again the efforts that we do in the North America type style where we talk about the quality in the production. And we are finally getting the resources in there so we can start those efforts.

Robert Christensen - Buckingham Research

Thank you.

Operator

Your next question will come from the line of [Danny Arnuk with BlackRockss].

Danny Arnuk - BlackRocks

Yeah, given the capacity issues that you guys are having, is there any thoughts to potentially restarting the New Iberia plant?

Gary Kolstad

Yeah Danny we certainly look at that and we'll continue to look at it. There is an issue there that we have gone into, that the plant is in obviously an older facility it's a smaller facility and therefore less efficient, but one of the big issues we have is it needs to use a very specific grade of raw material and that grade of raw material has become increasingly scarce and therefore more expensive on the marketplace. So it's really going to be a function of what happens in the economics in the industry. If we can find a technical way around the limitations of that plant or if pricing improves to the point where we can justify a restart of that plant, it is certainly something that we can and are prepared to do, but it is not imminent.

Danny Arnuk - BlackRocks

And in terms of maybe retrofitting it, is that what you are referring to produce other types? Is that what you are referring to?

Gary Kolstad

Not a significant retrofit, as that would probably require more capital than we are prepared to spend in a facility of that age.

Danny Arnuk - BlackRocks

Okay. Thank you.

Operator

At this time there appear to be no more questions. Mr. Kolstad, I'll turn the call back to you for closing remarks.

Gary Kolstad

Okay. Thank you. And thanks everybody for joining us this morning. I want to summarize a few key points for you. Our top line growth in both our business, have been outstanding in the first half. We are particularly pleased with the renewed growth in the proppant sale due to success of our technical marketing program and the introduction of new technology with CARBOHYDROPROP and then the overall excellent efforts by our entire sales force on both of our business segments.

Our commitment to remain the industry leader in adding capacity to respond to customers' needs and the growing demands of the industry, are reflected in our decision to add a third production line to our Toomsboro facility. Having accomplished our objective of improving capacity utilization, we will increase our focus on margin improvement through cost reductions where possible and price improvements as the industry conditions permit. We will remain sharply focused on R&D activities to identify and develop more value-creating products and services.

We intend to grow our business organically and we'll look for acquisition opportunities that increase long-term earnings and cash flow. And finally I'd like to thank all of our employees for their efforts to accomplish this incredible growth we've had in the first half. And for the rest of you, I wish you a good day and look forward to speaking to you in the future.

Operator

Ladies and gentlemen, this does conclude the Carbo Ceramics second quarter 2008 earnings conference call. You may now disconnect.

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