Hyduke Announces third quarter 2010 Financial results
EDMONTON, Nov. 12 /CNW/ - Hyduke Energy Services Inc. (HYD - TSX), announced operating results for the nine months ended September 30, 2010. Hyduke's third quarter results mark the fourth straight quarter of increased revenue. Hyduke's Financial Statements and Management's Discussion and Analysis have been filed with regulators and are available at www.hyduke.com and at www.sedar.com.
Highlights for the third quarter of 2010 include the following:
- Revenue of $17.8 million is up 146% over the prior year
- Net loss per share of 4 cents is down 41% over the prior year
- EBITDAS of $(1.1) million is up $0.5 million over the prior year
- International revenues represent 32% of total revenue
- Liquidity remains strong with current ratio at 2.11 to 1.00
- Outlook for 2010 remains positive with approximately $10.5 million of backlog of significant projects
- New lending arrangement with operating lender
A summary of those results is as follows:
Selected Income Statement Information |
Three Months Ended | Nine Months Ended | |||
($000's, except per share data) | Sept 30 2010 |
June 30 2010 |
Sept 30 2009 |
Sept 30 2010 |
Sept 30 2009 |
Revenue | 17,823 | 15,447 | 7,258 | 49,816 | 23,799 |
Gross margin1 | 984 | 1,392 | (274) | 4.789 | (57) |
Gross margin (%) | 5.5% | 9.0% | (3.8)% | 9.6% | (0.2)% |
Adjusted gross margin1 | 1,426 | 1,583 | 547 | 5.616 | 1,194 |
Adjusted gross margin (%) | 8.0% | 10.3% | 7.5% | 11.3% | 5.0% |
EBITDAS 1 | (1,054) | 131 | (1,581) | (211) | (4,259) |
Adjusted EBITDAS 1 | (569) | 131 | (966) | 274 | (3,644) |
Net loss | (1,314) | (182) | (1,398) | (866) | (3,731 |
Loss per share-basic ($) | (0.054) | (0.019) | (0.064) | (0.038) | (0.017) |
Loss per share-diluted ($) | (0.054) | (0.019) | (0.064) | (0.037) | (0.017) |
1 The Company uses certain non-GAAP measures as indicators of financial performance and believes that these non-GAAP measures provide useful supplemental information to investors. Gross margin, adjusted gross margin, EBITDAS and adjusted EBITDAS are measures used by the Company that do not have a standardized meaning prescribed by GAAP. The Company's method of calculating these non-GAAP measures may differ from other companies and may not be comparable to similar measures presented by other companies.
Gross margin is defined as revenue less cost of sales. Cost of sales includes direct materials, direct labor, variable and fixed manufacturing overhead, and other costs closely associated with the manufacture of goods; costs of service and supply inventory including costs required to locate the inventory in its current location; provisions to reduce inventory to estimated net realizable value; and contract loss provisions. Adjusted gross margin is defined as gross margin before manufacturing related amortization, provisions to reduce inventory to estimated net realizable value, and contract loss provisions. EBITDAS is defined as earnings before interest, taxes, depreciation and amortization, gain or loss on sale of property, plant and equipment, gain or loss on foreign exchange, and stock-based compensation. Adjusted EBITDAS is defined as EBITDAS before goodwill impairment charges, provisions to reduce inventory to estimated net realizable value, contract loss provisions and allowance for doubtful accounts receivable provisions.
The third quarter of 2010 continues to reflect the revenue recovery begun in the fourth quarter of 2009. Revenue of $17.8 million for the three months ended September 30, 2010 represents an increase of $10.6 million or 146% over the prior year and an increase of $0.98 million (15.4%) over the previous quarter. The past three quarters of revenue strength is due primarily to an increase in international projects and additionally, industry activity levels in Canada were higher than in the previous year resulting in increases in revenue in all our Canadian operations in the first three quarters of 2010.
The third quarter of 2010 gross margin of $1.0 million shows a significant increase over the same period in the prior year ($1.3 million or 459%) and represents a decrease of $0.4 million or 29% over the previous quarter. The increase over the prior year is due to increased revenue levels. The decrease over the previous quarter is due to the completion of two significant projects for Canadian-based drilling contractors. Because of continuing pricing pressure for domestic work, these projects realized very low gross margins.
Third quarter 2010 EBITDAS of $(1.1) million represents an increase of $0.5 million over the prior year. This year over year increase is primarily due to an increase in gross margin. Third quarter 2010 EBITDAS decreased $1.2 million over the previous quarter and is due primarily to a decline in gross margin percentage and an increase in general & administrative costs. Management continues to take steps to reduce operating costs and infrastructure while minimizing any potential negative impact on revenue producing capability. Management is actively monitoring anticipated activity levels to optimize the level of available human and capital resources and increase labour efficiencies where possible.
Third quarter 2010 net loss of $1.3 million represents a slight betterment of $.1 million over the same quarter in the previous period which saw a loss of $1.4 million. Third quarter 2010 net loss saw a decrease of $1.4 million over the previous quarter. The net decrease is comprised of the following: Revenue increase of 15.4% and gross margin decrease of 29.3% contributed $0.4 million of the decrease. Included in the decrease in gross margin was a one-time write-down of $0.25 million in WIP. The loss also included an increase in general and administrative expenses of $0.9 million, which included a provision for bad debts of $0.32 million.
Selected Balance Sheet Information | As At | ||
($000's, except ratios) | September 30 2010 |
December 31 2009 |
December 31 2008 |
Total assets | 45,333 | 38,795 | 48,971 |
Total current assets | 33,667 | 26,862 | 36,479 |
Total liabilities | 17,347 | 10,900 | 17,414 |
Total current liabilities | 15,961 | 9,213 | 15,187 |
Total bank indebtedness | 3044 | Nil | 6,975 |
Total long-term debt | 970 | 1,823 | 2,267 |
Total shareholders' equity | 27,986 | 27,894 | 31,557 |
Current ratio (current assets divided by current liabilities) | 2.11 to 1.00 | 2.92 to 1.00 | 2.40 to 1.00 |
Debt to equity ratio (long-term debt divided by shareholders' equity) | 0.04 to 1.00 | 0.07 to 1.00 | 0.07 to 1.00 |
Net working capital (current assets less current liabilities) of $17.7 million as at September 30, 2010 basically equals the net working capital of December 31, 2009.
Total bank indebtedness of $3.0 million has increased from nil at December 31, 2009 and is due to new a new lending arrangement with its operating lender.
The Company continues to maintain a strong current ratio at 2.11 to 1.00 and a negligible debt to equity ratio of 0.04 to 1.00. The Company continues to focus on managing cash flow through converting current assets into cash and continues to strengthen the cash position. Management believes that this balance sheet strength will allow Hyduke to weather the current economic challenges currently facing the Canadian oil and gas industry.
OPERATING LINE AGREEMENT
On July 8, 2010 the Company entered into a new financing agreement with its operating lender. Under the new financing agreement the Company has available a revolving demand loan of $4,000,000, bearing interest at prime plus 2%.
The Company was in breach of one of its covenants on its revolving demand loan at September 30, 2010. Under the terms of its revolving demand loan, the Company is not permitted to have a negative 25% variance or maximum $750,000 between Actual EBITDAS and Budgeted EBITDAS. This entitles the bank to make demand of the credit facilities at any time. Management is currently negotiating its credit facilities with its operating lender.
OUTLOOK
Economic developments in the most recent quarter have maintained the sense of uncertainty regarding the extent and timing of the global recovery. The demand for energy and related oilfield equipment depends on improved general economic conditions. This quarter has seen relatively stable and improved crude oil prices. The demand for energy is rising as the global economies are starting to improve and move out of the bottom of the recession. However, natural gas prices continue to be low. Until the natural gas prices improve and levels of drilling increase, the industry will not attain its full potential.
The first nine months of 2010 saw substantially higher drilling activity in Canada than the prior year. The Canadian Association of Oilwell Drilling Contractors (CAODC) initially forecast the number of wells to be drilled in 2010 to be 8,523, and revised their estimate to 11,527, representing a 42% increase from 2009. The sector is experiencing year over year improvements in activity. For example, one of Hyduke's major customers has indicated 12 new drilling rigs and 6 new well service rigs to be built. Currently, the Company is manufacturing three drilling rigs. Subsequent to September 30, 2010, the Company was awarded two well service rigs with the possibility of an additional two rigs after that.
Internationally, the industry continues to experience a significant slowdown, but new interest groups continue to inquire about Hyduke's potential. The Company continues to aggressively market its products to international markets with the objective of maintaining a steady flow of significant international projects throughout 2010 and 2011. Over the past three months, our sales and marketing team has conducted marketing trips to Russia, South America, North Africa, the Middle East, Asia-Pacific and Latin America. As a result, we are building an extensive contact network worldwide to who we are aggressively promoting our products and services to. We continue to actively quote on international proposals and continue to be encouraged by positive indications for the future. To ensure continued growth, the Company has continued to focus on international sales. As a result, the international sales for the nine months ended September 30, 2010 represented 32% of total revenue, versus 23% for the same time period in 2009.
The Company has seen its revenue from Canadian sources almost double in comparison with the same time period of 2009, being $34 million in 2010 and $18 million in 2009. Internationally, the Company's revenue has grown from $5 million in 2009 to $16 million in 2010. The increase level of activity is offset by reduced margins in new work and consistently high payroll costs. The current levels of industry activity experienced in 2010 are moderately increasing the revenue levels in Hyduke's Life Cycle Management businesses such as repair and maintenance, inspections and certification, and consumables. We continue to focus on increasing market share through marketing Hyduke's Life Cycle Management and Single Source Supplier platforms to customers. These platforms benefit customers by offering continued support throughout the useful life of their equipment and by offering a wide array of consistent, reliable services from a single source.
Hyduke's strong working capital position and low debt load in relation to equity will be a factor in protecting the Company from a prolonged downturn as well as allow the Company to pursue viable financing alternatives should conventional operating line lending become restricted.
Forward Looking Statements
This report contains certain forward-looking statements under the heading "Outlook" and elsewhere concerning future events or the Company's operations, anticipated financial performance, business prospects and strategies of Hyduke. Forward-looking information typically contains statements with words such as "anticipate", "believe", "estimate", "expect", "plan", "intend" or similar words suggesting future outcomes or outlooks on, without limitation, estimates of business activity, supply and demand for the Company's products, the estimated amounts and timing of capital expenditures, anticipated future debt levels, or other expectations, beliefs, plans, objectives, assumptions or statements about future events or performance. Readers are cautioned not to place undue reliance on forward-looking information. By its nature, forward-looking information involves numerous assumptions, inherent risks and uncertainties both general and specific that may cause actual future results to differ materially from those contemplated and contribute to the possibility that the predictions, forecasts, projections and other forward-looking statements will not occur. These factors may affect anticipated earnings or assets and include, but are not limited to: industry activity levels, market liquidity, customer credit risk, competition, oil and gas prices, product liability, fixed price contracts, development of new products, uninsured and underinsured losses, access to additional financing, source of supply of raw material and third party components, availability of key personnel, agreements and contracts, government regulations, foreign exchange exposure, interest rate risk, international scope of operations, environmental health and safety regulations and Hyduke's anticipation of and success in managing the risks implied by the foregoing. The Company cautions that the foregoing list of important factors is not exhaustive. The Company believes that the expectations reflected in the forward-looking statements are reasonable, but no assurance can be given that these expectations will prove to be correct and such forward-looking statements included in this report should not be unduly relied upon. The forward-looking statements in this report speak only as of the date of this report. Hyduke undertakes no obligation to update publicly or otherwise revise any forward-looking information, whether as a result of new information, future events or otherwise, except as required pursuant to applicable securities legislation.
About Hyduke
Hyduke is an integrated oilfield services company with over thirty years experience in the manufacture, repair and distribution of oilfield equipment and supplies in Canada and worldwide. Hyduke specializes in providing customized, integrated solutions to the drilling and well service industries including:
- Turn-Key Equipment - drilling rig and service rig packages including in-house design, engineering and drafting, major component procurement and overall project management;
- Life Cycle Management - inspection, certification, service, repair and supply services throughout the operating life of the drilling or well service rig; and
- Single Source Supply - providing new capital equipment, repair and maintenance on existing capital equipment and supply of operating consumables.
Hyduke is headquartered in Nisku, Alberta and has facilities in Edmonton, Calgary, Nisku, Leduc, Red Deer and Lloydminster, Alberta.
Hyduke operates in three operating segments. The Drilling Equipment segment includes manufacture and repair of land-based drilling rigs and drilling rig structures, supply and repair of drilling rig equipment, procurement and distribution of drilling supplies, supply and service of pneumatic controls, engineering and design of drilling rigs and inspection and certification of drilling rig equipment. The Well Service Equipment segment includes manufacture and repair of well service rigs, mobile and skid mounted pump units and other well service equipment, procurement and distribution of well servicing supplies, supply and service of pneumatic controls, engineering and design of well service rigs and inspection and certification of well service equipment. The Other Oilfield Services segment includes manufacture and distribution of cased hole and overburden drill bits and drilling systems, custom and production machining services, industrial sandblasting, painting and collision repair and distribution and repair of truck-mounted equipment including cranes, winches and dump boxes.
The TSX has not reviewed and does not accept responsibility for the adequacy or accuracy of this News Release.
For further information:
Gordon R. McCormack, CA President and Chief Executive Officer (780) 955-0355 |
Dennis Rendflesh, CA Chief Financial Officer (780) 955-0355 |
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