Superior Well Services Reports Record 3Q05 Income



Superior Well Services reports for the three months ended September 30, 2005, revenues, EBITDA (1) and operating income reached record levels of $34.9 million, $8.4 million and $6.1 million, respectively. The Company incurred a net loss for the quarter of $4.6 million due to an $8.6 million non-cash adjustment to establish deferred taxes. This charge for deferred taxes was due to the impact of the Company's recent IPO and reorganization. Prior to this reorganization, the Company operated as two limited partnerships that were not subject to federal or state income taxes.

Revenue for the three months ended September 30, 2005 was $34.9 million compared to $20.7 million for that same period in 2004, an increase of $14.2 million or 68.5%. Approximately $7.8 million of this increase was attributable to an increase in the drilling activity of our customers in our established locations and the remaining $6.4 million of our increase was attributable to our establishment of new service centers. Revenue from our technical pumping services increased by approximately 70.5% to $31.6 million in 2005 from $18.5 million in 2004. Approximately $6.7 million of this increase was attributable to an increase in the drilling activity of our existing and new customers in our established locations and the remaining $6.4 million of this increase was attributable to our new service centers. Revenue from our down-hole surveying services increased approximately 51.4% to $3.4 million in 2005 from $2.2 million in 2004. The increase was attributable to an increase in the drilling activity of our existing and new customers in our established locations.

Cost of revenue increased 63.3% to $23.3 million for the three months ended September 30, 2005 compared to $14.3 million for that same period in 2004. Approximately $4.0 million of this increase was attributable to an increase in the drilling activity of our customers in our established locations and the remaining $5.0 million of our increase was attributable to our establishment of new service centers. As a percentage of revenue, cost of revenue decreased to 66.7% in 2005 from 68.8% in 2004. This percentage decrease was primarily due to lower labor expenses, which were partially offset by higher fuel and material costs. As a percentage of revenue, the portion of labor expenses included as a cost of revenue decreased from 19.7% in 2004 to 16.6% in 2005. Aggregate labor expenses increased $1.7 million to $5.8 million in 2005. As a percentage of revenue, fuel costs increased 0.7% in 2005 versus 2004. Additionally, material cost as a percentage of revenues increased 0.4% in 2005 versus 2004. The material cost increases occurred principally in our stimulation and cementing supplies.

SG&A expenses were $5.5 million for the three months ended September 30, 2005 compared to $3.4 million for that same period in 2004, an increase of 59.3%. During 2005, the portion of labor expenses included in SG&A expenses increased $1.0 million to $2.7 million. Approximately $0.4 million of the labor expense increases related to the establishment of our new service centers. Labor expenses increased because we hired additional management, sales and administrative personnel to manage the growth in our operations. As a percentage of revenue, the portion of labor expenses included in SG&A expense decreased from 8.3% in 2004 to 7.7% in 2005. In addition, costs associated with being a public company and office expenses increased $0.5 million and $0.2 million in 2005, respectively.

Operating income was $6.1 million for the three months ended September 30, 2005 compared to $3.0 million for that same period in 2004, an increase of 103.3%. The primary reason for this increase was the increase in drilling activity by our customers in our established operating locations, coupled with the opening of new service centers. This increase in operating income was partially offset by the increases in our cost of revenue and SG&A expenses as described above. Operating income in the Appalachian, Southeast, Mid-Continent and Rocky Mountain regions increased $1.8 million, $0.9 million, $0.3 million and $0.1 million, respectively. Historically, when the Company establishes a new service center in a particular operating region, it may take from 12 to 24 months before that service center has a positive impact on the operating income that the Company generates in the relevant region.

In August 2005, the Company completed its IPO of 6,460,000 shares of its common stock, which included 1,186,807 shares sold by selling stockholders and 840,000 shares sold by Superior to cover the exercise by the underwriters of an option to purchase additional shares to cover over-allotments. Proceeds to the Company, net of underwriting discount and offering expenses, were approximately $61.6 million. After completion of the IPO, the Company had 19,376,667 shares of common stock outstanding.

Commenting on the results, David Wallace, Chief Executive Officer, stated, "We are extremely pleased with Superior's strong third quarter performance. We continued to see increased activity and pricing improvements in each of our operating regions. We believe the market for our services is strong and we see good growth opportunities within each operating region."
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 - Superior Well Services Reports Record 3Q05 Income (Nov 08)