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Edited Transcript of SPN earnings conference call or presentation 21-May-20 1:00pm GMT

Q1 2020 Superior Energy Services Inc Earnings Call

NEW ORLEANS Jun 9, 2020 (Thomson StreetEvents) -- Edited Transcript of Superior Energy Services Inc earnings conference call or presentation Thursday, May 21, 2020 at 1:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* David D. Dunlap

Superior Energy Services, Inc. - President, CEO & Director

* Paul Vincent

Superior Energy Services, Inc. - VP of Treasury & IR

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Presentation

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Operator [1]

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Good morning, and welcome to the Superior Energy Services First Quarter 2020 Earnings Conference Call. (Operator Instructions) Please note, this event is being recorded.

I would now like to turn the conference over to Paul Vincent, Vice President of Treasury and Investor Relations. Please go ahead.

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Paul Vincent, Superior Energy Services, Inc. - VP of Treasury & IR [2]

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Good morning, and thank you for joining Superior Energy's first quarter 2020 conference call. With me today are Superior's President and CEO, Dave Dunlap; and our CFO, Westy Ballard.

During this conference call, management may make forward-looking statements regarding future expectations about the company's business, management's plans for future operations or similar matters. The company's actual results could differ materially due to several important factors, including those described in the company's filings with the Securities and Exchange Commission.

Management will refer to non-GAAP financial measures during this call. In accordance with Regulation G, the company provides a reconciliation of these measures on its website.

With that, I'll turn the call over to Dave Dunlap.

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David D. Dunlap, Superior Energy Services, Inc. - President, CEO & Director [3]

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Thank you, Paul, and good morning to everyone listening today. I will provide a brief review of our Q1 results, followed by an update on our response to the uncertainty that has arisen from the precipitous decline in both oil demand and oil prices resulting from the COVID-19 pandemic and the rapid pace at which our customers have reduced their spending.

In addition, as we disclosed in our press release, we have determined that we will allow the merger agreement related to the planned combination of our North American production and completion-related service lines with Forbes Energy Services to terminate as well as the related note exchange offer in accordance with their respective terms. The significant reduction in crude oil prices resulting from rapid increases to global supply and the demand destruction caused by the COVID-19 pandemic has resulted in rapidly declining demand for oilfield services in North America. Although we have worked tirelessly to complete this combination, the onset of COVID-19 and the abrupt oil price decline has made it impractical to complete this transaction along the terms which were originally contemplated.

Although we will not be moving forward with this specific transaction, we continue to believe that Superior Energy should ultimately be separated into 2 separate companies, and we'll continue to focus on achieving that goal.

As many listeners are aware, this entire transaction has involved a series of steps and numerous constituencies. As a result, we will not have further comment or be opening the line for Q&A today. However, we will continue to provide additional disclosure as it is warranted.

For the first quarter of 2020, Superior Energy generated revenue of $322 million, adjusted EBITDA of $55 million and an adjusted net loss from operations of $12 million or $0.78 per share.

Operationally, the quarter was progressing much as we expected after the seasonal slowdown during the fourth quarter. The significant decline we are experiencing during the second quarter, as a result of the exogenous factors that I have mentioned, began to manifest in mid-March and impacted our first quarter financial results to a lesser degree than we will experience in the second quarter.

As it relates to these events of global significance, we are hopeful that we'll resolve over the short term but are preparing for them to have lasting impacts on our business. What this means is that we will continue to take measures to reduce potential cash burn. We have no intention of exiting any business lines or basins in which we currently operate, but activity that is at risk of being cash flow negative over the near term will be temporarily idled until the environment supports positive cash flow operations.

To date, since our last quarterly update, we have reduced our capital budget by approximately 45% and expect to spend no more than $50 million this year, with much of it having been committed in the first quarter. We have also embraced governmental relief efforts, affording us the ability to defer payroll taxes and have filed for a tax refund of approximately $30 million.

Additionally, our payroll costs have declined sharply through a combination of headcount, salary reductions and furloughs as we adjust our cost structure to significantly lower levels of customer activity. In total, we estimate that we have reduced these costs by approximately $115 million on an annualized basis. We are taking all actions necessary to generate free cash flow, reduce debt and improve returns on invested capital to unlock value for stakeholders, but it is difficult to match cost reduction in real-time to the magnitude of revenue decline and near-term activity expectations. We will continue to explore every avenue available to push out costs from our system over the coming quarters.

As far as our outlook is concerned, over the near term, it isn't good. Rig count has continually fallen, and completion activity is stagnant. Recent abatement of crude oil price declines is encouraging, as is the commencement of reopening of economies across many states. While encouraging, we remain cautious and prepared for continued volatility. Although it is impossible to provide guidance with any certainty, as I am sure most listeners understand, our expectation for the second quarter is for a sharp decline in revenue and profitability, although we believe we can generate breakeven to slightly positive EBITDA.

The oil and gas business was just beginning to come out of a multiyear cyclical downturn when these unforeseeable events occurred almost simultaneously. The fact of the matter is that our world has changed seemingly overnight. As leaders and capital allocators, it will take some time for us to understand the second and third-order effects of the global pandemic on the business environment. The entire global economy remains in varying degrees of shutdown, again, making it very difficult to forecast when supply and demand will balance, reflecting a new normal or what the impact will be on our customers' ability to execute their long-range work plans.

In addition, the unprecedented fiscal intervention by central banks across the globe, while welcomed and seemingly effective in providing much-needed liquidity, is likely to have widespread effects on currencies and global trade, which will impact everything, especially businesses like ours which operate globally.

We are doing everything we can to evaluate the impact of these unprecedented events as quickly as we can. In the short term, we are responding to the market in front of us, without emotion and without hesitation.

Our workforce has responded admirably to the circumstances we face and has maintained high levels of productivity, even as many work from home. We have taken measures to protect our employees who must be in the field or in office environments and are doing everything we can to support our communities and health care system and taking this extremely contagious virus seriously and doing what we can to reduce its spread.

As I said, the future is suddenly and irreversibly different now. Of that, I suspect there is little debate. What isn't different is that our industry continues to have too much capacity and too many competitors. We are even more certain today that the future winners of our industry will be the ones who reduce the fragility of their business through this downturn and emerge as disruptors, with a durable business model and return-oriented capital allocation process.

As stated earlier, we believe the best long-term path for Superior Energy is to separate our North America service-oriented business lines from our technologically advantaged global businesses. As we work towards that objective, our near-term priorities are to preserve and, where possible, build cash as well as retire debt.

Behaviorally, our industry needs to change. With too much debt and too much equipment chasing too little work, it is only a matter of time before the gravity of the cycle and lack of external capital forces the difficult but increasingly obvious decision that consolidation is the clearest and perhaps only option for us to collectively return to a profitability level, which will draw the attention of investors. Everything we are doing strategically is with the intent to reposition the company to maximize stakeholder value and to participate in this much-needed industry consolidation.

We've done our best to provide you with an outlook, but as I am sure most of you are struggling with your own businesses, there is very little clarity at this point. One thing you can be certain of is that when activity does pick up, and it will, our decisions to allocate capital, deploy assets and scale our business will be driven by full-cycle fundamentals and, ultimately, what is in the best interest of our stakeholders.

Thank you for joining our call this morning, and we'll speak to you as we have updates.

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Operator [4]

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The conference has now concluded. Thank you for attending today's presentation, and you may now disconnect.