Superior Well Services Increases Revs for 10th Consecutive Year
David Wallace, Superior Well Service's Chief Executive Officer, said, "Our full-year results demonstrate the strength of our growth strategy, although several factors combined to soften our fourth quarter results. Unexpected delays in the start up of our new service centers, longer than anticipated holiday shut- downs and greater pricing discounts in certain markets all resulted in lower than expected profitability.
We opened five new start-up service centers last year, three of them in the fourth quarter. Although these new service centers were staffed, delays in receiving equipment and obtaining regulatory permits deferred activity and created operational inefficiencies. Also, utilization was lower than expected due to holiday shut-downs that were longer than we experienced the previous year. Finally, increased pressure pumping capacity in certain regions resulted in a more competitive pricing environment that reduced our profitability.
Our activity levels have rebounded from those experienced in December of last year. We are working diligently to secure the permits necessary to increase our bulk materials handling capabilities at our new centers, which will reduce operating costs and increase efficiencies. Business at our new service centers is increasing and we are seeing improvements in utilization as a result.
We believe the long-term industry fundamentals are favorable for our business and we are positioned for growth in more markets than at any point in our history. In 2007, our 43% revenue growth outpaced the modest 4% increase in U.S. rig count, which is a positive indication of customer acceptance for our high-performance services and increased market penetration. We believe our expertise in technical fluids pumping combined with our comprehensive service line gives us a strong competitive position."
Revenues were $350.8 million for the year ended December 31, 2007, an increase of 43% as compared to $244.6 million the prior year. Revenue in each of our operating regions increased year over year, driven by higher activity levels and wireline asset acquisitions made during 2006 and 2007. Stimulation, nitrogen, cementing and down-hole surveying revenues amounted to 54.3%, 12.0%, 20.6% and 13.1% of revenues in 2007, respectively. Sales discounts increased in all regions, except Appalachia, which partially offset the higher utilization. As a percentage of revenues, sales discounts increased by 4.8% in 2007 as compared to 2006 due to increased competition.
Cost of revenue increased 52.2% to $252.5 million for the year ended December 31, 2007 as compared to $165.9 million for the year ended December 31, 2006. The aggregate dollar increase in cost of revenues was due to the fact that these costs vary with revenue and higher activity levels. As a percentage of revenue, cost of revenue increased to 72.0% for the year ended December 31, 2007 from 67.8% for the year ended December 31, 2006. This percentage increase between periods was primarily due to higher labor expense, depreciation and material costs as a percentage of revenue in 2007 as compared to 2006. Additionally, higher sales discounts lowered net revenues and resulted in an increase in the cost of revenue as a percentage of revenue in 2007 as compared to 2006.
Cost of revenue's labor expenses as a percentage of revenues increased 1.7% to 19.9% in 2007 compared to 2006 due to lower utilizations at new service centers established during 2007. Delays in receiving equipment and regulatory permits deferred revenue producing activities at the new service centers opened during the second half of 2007, which lowered our utilization levels. These delays postponed the opening of the Clinton service center, which commenced operations during the third quarter of 2007, and the Brighton, Artesia and Rock Springs service centers that were established in the fourth quarter of 2007.
Material costs as a percentage of revenues increased by 0.9% to 40.7% in 2007 as compared to 2006. Higher sand material handling costs were the primary reason for the increase, as well as greater cement trucking costs for new service centers without bulk handling facilities. Delays in receiving regulatory and environmental approvals postponed the construction of bulk handling facilities at these new service centers, which resulted in additional trucking costs to transport cement from other service centers. Depreciation expense as a percentage of revenues increased 1.3% to 7.0% in 2007 when compared to 2006 due to higher amounts of capital spending in 2007, as well as lower utilizations at new service centers established during 2007.
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