BOOTS & COOTS INTERNATIONAL WELL CONTROL, INC.
2003 YEAR-END EARNINGS CALL
March 25, 2004, 2:00 p.m. Central

TRANSCRIPT

Jerry Winchester:

Thank you, David, and good afternoon everyone. Thank you for joining us today in this conference call to discuss our 2003 results.

Our earnings release for December 31, 2003 was distributed last evening. For those of you that did not receive a copy of the release, you can call Vollmer at 713-970-2100 or download it from our Web site. We also plan to have today’s transcript posted to our Web site within the next 24 hours.

For legal purposes, I must remind you that some of the statements made in this call are forward-looking statements and as such, are of course subject to many factors that could cause actual results to differ materially from our expectations reflected in the forward-looking statements. These factors are described in our SEC documents. Boots & Coots undertakes no obligation to publicly update or revise any forward-looking statements.

Any of you who have been with us for a while can attest that 2003 was definitely a pivotal year. To put this into perspective, we began the year in default with lenders. We had a working capital deficit of $17 million. Shareholder equity was negative dollars and consequently we were not in compliance with the continued listing standards of the American Stock Exchange. Today, we are in covenant compliance with all of our lenders. We reported a strong liquidity position including a positive working capital of $9.5 million. Shareholder equity is positive by $380,000 and we are awaiting confirmation that we are in compliance with all of the continued listing standards of the AMEX. The Board, management and employees of Boots & Coots are proud of these achievements.

With that, I’d like to turn the call over to Kevin Johnson, our Senior Vice President of Finance, to walk you through the actual results in the balance sheet and income statement. Afterward, I’ll follow back up with an operations overview and some insights on the company going forward. Kevin?

Kevin Johnson:

Thank you, Jerry.

The earnings release shows that we are now a very stable company. 2003 was a banner year for Boots & Coots. Revenues are $35.9 million, up 155 percent over the 2002 year of $14.1 million and we have achieved diluted earnings per share of $0.26 as compared to a loss of $1.14 per diluted share in 2002. We now have positive equity of $380,000 as compared to a deficit of $14.0 million in the prior year.

Leading the revenue increase was the Response segment’s revenues of $19.8 million, a 207 percent increase over the prior year revenue of $6.4 million. The increase is related to the company providing lead contract work in Iraq during 2003.

The Prevention segment’s revenue also increased dramatically over the prior year. The prevention revenue of $16.2 million is a 111 percent increase over the $7.7 million in 2002. The $8.5 million increase includes a $6.6 million equipment sale in connection with Iraq. That reflects an increase of $1.9 million primarily related to the Venezuelan operation and the WELLSURE® program.

The operating income increased $11.8 million to $10.2 million as a result of these increased revenues in 2003. After deducting interest, taxes and discontinued operations, the company earned a net income of $7.1 million as compared to the prior year loss of $9.2 million. Dividends on preferred stock amounted to $1.2 million, resulting in income to common shareholders of $5.9 million for the year, which correlated to net income per diluted share of $0.26. EBITDA (earnings before interest, taxes, depreciation and amortization) were $11.2 million as compared to $1.9 million for the prior year.

Turning to the balance sheet, the company made remarkable progress in improving its liquidity position. Cash increased to $1.5 million as compared to $0.3 million at the prior year-end. Receivables increased to $13.2 million as compared to $2.9 million.

Our working capital has also improved, to $9.5 million as compared to a negative $17 million at December 31, 2002. The $14.4 million increase in equity is a result of $5.9 million of net income to common shareholders, $1.7 million from the conversion of debt into common stock, $3.9 million related to a short swing profit contribution and $1.5 million related to cash received for exercising options and paying for services rendered.

In summary, improvements in liquidity allowed the company to pay down current maturities of outstanding debt, significantly reduce payables owing to vendors and settle certain legal proceedings relating to the company’s past financial problems. The company believes its liquidity position will meet the company’s working capital needs into 2005.

At this point, I would like to turn the call back over to Jerry Winchester, President and Chief Executive Officer.

Jerry Winchester:

Thank you, Kevin.

As I’m sure you are all aware, our operations in Iraq played a prominent role in the achievement of our goals in 2003. Response revenues for this year were a record-setting $19.8 million primarily because of our involvement in the Restore Iraqi Oil (RIO) program: $14.8 million of the company’s response revenue was directly attributable to our work under this agreement. The resulting income has enabled us to remove the company from its internal distractions to a position where it can focus and capitalize on our core strategies: predictable revenue growth in our prevention markets and providing the industry with the premier response capabilities it expects from the teams at Boots & Coots.

Our 2003 prevention revenues of $16.1 million also represent an all time high. Though we are pleased with the overall result in the segment, I believe we could have done a better job of developing new business under our SafeGuard and WELLSURE® programs. In 2003, SafeGuard Venezuela led the way with an 86 percent growth in revenue. Our WELLSURE® program also grew by 65 percent over its 2002 results. Overall, the segment increased its revenues by 48 percent over the prior year, excluding equipment sales in each year. Not bad…but we will do better.

SafeGuard is a service strategy that not only expands the predictable non-event revenue base of the company but also the geographic footprint of our capabilities. In 2004, while we will continue to expand our services and revenues in existing SafeGuard locations in Algeria, Venezuela and Kazakhstan, we will also focus on opportunities for immediate growth in India and South America. We will continue to assess and develop expansion opportunities in Mexico, Asia and Indonesia for 2004 and beyond.

Service fees under our WELLSURE® program grew by 65 percent year-on-year. Our expansion into the Canadian market last fall has resulted in 17 new clients to date. With the stabilization of insurance premium rates and increased activity levels among our client base we can anticipate similar program growth for 2004. The WELLSURE® program also facilitates a business development vehicle to provide risk mitigation services to non-WELLSURE® clients. We are implementing business strategies to capitalize on this opportunity and anticipate results by year-end 2004.

As we announced the first week of February, the US Army Corps of Engineers awarded KBR the contract to continue its RIO operations in southern Iraq for a period of two years. Under the new contract, we expect to continue to provide contingency planning, well control services and assistance in evaluating and restoring Iraq’s petroleum infrastructure, the same scope of work we provided in 2003. While we are in transition to the new agreement, we have demobilized our personnel from Iraq. While it is still not determined as to when we will be re-deployed, we remain ready as the contracted well control response company in case of a critical event.

It’s important to understand, however, that Boots & Coots is not relying on the ROI contract to provide a return to its shareholders in 2004. As I said earlier, the previous work in Iraq was an enabler that allowed us to resolve critical impairments in our balance sheet. Now that most of these issues are resolved, our focus is on continued prevention growth and response preparedness. Any work performed under the new ROI agreement will be additive to management’s 2004 plan.

The first quarter of this year will show a recovery in domestic response activity offset by a decrease in prevention revenues from the prior year. Not the strong quarter we had worked toward but we currently anticipate positive cash flows. Going forward, we expect to see prevention revenues pick back up in the second quarter as we mobilize under a revised Algerian contract and the new contract with ONGC. For the year, with the expansion of existing SafeGuard services, development of new SafeGuard locations and continued WELLSURE® growth, we expect our base prevention revenues to increase by 35 to 45 percent in 2004. Absent Iraq, with the contribution from our other response revenues in the first quarter and the prevention revenues expected over the next three quarters, this company is at a point of being self sustained, and any additional response revenues will have a direct positive impact on cash flow and earnings.

To close, 2003 was an outstanding year for the company. Resolving the lender and AMEX issues is huge. Cleaning up the balance sheet and capital structure was another very positive milestone achieved.

With the new additions to our new board, we are positioned to move to a new level of corporate governance and we are excited about their involvement in directing the strategic course of the company.

Lastly, the employees of Boots & Coots have done an outstanding job this past year. Being the sole well control company selected to respond to the problems in Iraq speaks volumes for our team. Their performance in the most dangerous and inhospitable scenario imaginable was exemplary. Working in an active war zone is a challenge no other company like ours has ever faced. However, had it not been for the constant presence and protection afforded us by the United States Armed Forces, we could not have accomplished this task. We want to thank them for their support and pray for their safe return home.

^ Back to Top