NISKU, AB, Aug. 14, 2017
/CNW/ - Hyduke Energy Services Inc. ("Hyduke" or the
"Company") (HYD – TSX) announced operating results for the six
months ended June 30, 2017 and 2016.
Hyduke's Financial Statements and Management Discussion &
Analysis have been filed with regulators and are available at
www.sedar.com.
SELECTED FINANCIAL INFORMATION
|
|
|
|
|
|
|
|
Three months
ended
June 30,
2017
|
Year-over-year
change (%)
|
Three months
ended
June 30, 2016
(restated)(1)
|
Six months
ended
June 30,
2017
|
Year-over-year
change (%)
|
Six months
ended June 30,
2016 (restated)(1)
|
Revenue
|
12,253
|
250%
|
3,496
|
18,287
|
185%
|
6,410
|
Cost of goods
sold
|
11,114
|
229%
|
3,375
|
16,443
|
156%
|
6,426
|
Gross
margin(2)
|
1,139
|
|
121
|
1,844
|
|
(16)
|
Gross margin
%
|
9.3%
|
|
3.5%
|
10.0%
|
|
(0.2%)
|
Selling, general
& administrative
|
2,456
|
80%
|
1,367
|
3,930
|
38%
|
2,841
|
EBITDAS(2)
continuing operations
|
(1,143)
|
(8%)
|
(1,063)
|
(1,725)
|
29%
|
(2,443)
|
Net profit
(loss)
from continuing
operations
|
(1,722)
|
(27%)
|
(1,359)
|
(2,659)
|
13%
|
(3,072)
|
Net loss
|
(1,720)
|
(5%)
|
(1,639)
|
(2,655)
|
28%
|
(3,693)
|
Per share – basic
& diluted
|
(0.02)
|
|
(0.04)
|
(0.05)
|
|
(0.10)
|
|
June 30,
2017
|
|
December 31,
2016
|
Total
assets
|
35,527
|
|
18,214
|
Total
liabilities
|
18,062
|
|
10,218
|
(1)
Certain amounts related to selling and distribution, general and
administrative, and other operating income and expenses were
reclassified from Cost of Sales.
|
(2) See
"Non-GAAP Measures"
|
Revenue
|
|
|
|
Three Months Ended
June 30
|
Six Months Ended
June 30
|
|
2017
|
2016
|
Change
(%)
|
2017
|
2016
|
Change
(%)
|
Manufacturing &
Fabrication
|
10,201
|
2,312
|
341%
|
13,041
|
3,670
|
255%
|
Supply &
Service
|
2,329
|
1,206
|
93%
|
5,593
|
2,778
|
101%
|
Elimination
Entries
|
(277)
|
(22)
|
|
(348)
|
(38)
|
|
Total
Revenue
|
12,253
|
3,496
|
250%
|
18,286
|
6,410
|
185%
|
For the three months ended June 30,
2017, the Manufacturing & Fabrication segment generated
$10,201 of revenue, a 341% increase
over the same period in the prior year. Approximately 65% of the
increase reflects revenues from acquisitions and 35% from increased
revenues from organic growth. The organic growth reflects increased
revenues related to oil sands projects and the diversification of
its products and services to include the manufacture and repair of
storage tanks and custom steel fabrication.
Consistent with the increase in operating drilling and service
rigs, Supply & Service revenue increased 93% in the second
quarter of 2017 compared to the second quarter of 2016. The sector
experienced an overall increase in activity resulting from an
increase in oil prices in addition to a longer winter drilling
season compared to the early spring break up experienced in 2016.
These factors resulted in an increase in demand for oilfield
supplies, pneumatics and inspection services.
Gross margin (see "Non-GAAP Measures") was $1,139 or 9.3% compared to gross margin of
$121 (3.5% of revenue) in the second
quarter of 2016. The increased gross margin reflects a combination
of increased revenues, operating efficiencies, and price
improvements offset by some increases in SG&A costs.
SG&A expenses for the three months ended June 30, 2017 were $2,456, an increase of 80% compared to
$1,367 for the three months ended
June 30, 2016.
Negative EBITDAS for continuing operations was $1,143 for the second quarter of 2017 compared to
a negative EBITDAS of $1,063 in the
second quarter of 2016.
Depreciation and amortization of $355 increased from $168 in the second quarter of 2016. The increase
in the expense was due to the property, plant, and equipment
acquired with the business acquisitions.
Stock based compensation was $47
compared to $18 in the second quarter
of 2016.
The Company recorded $173 in
interest charges during the second quarter of 2017, an increase of
$62 from 2016. The increase is due to
an increase in the rate of interest on its term loan facility.
Continuing operations net loss for Q2/17 was $(1,722) compared to a loss of $(1,359) in Q2/16.
REFINANCED TERM DEBT
The Company closed an $8,500,000
financing facility on August 11, 2017
and used the funds advanced on closing to pay in full the Term Debt
facility scheduled to mature on August 15,
2017. The Company also simultaneously completed an amendment
to its operating facility allowing immediate access to $1.5 million of that facility.
MANAGEMENT REVIEW AND OUTLOOK
Three years ago management began to execute a turnaround
strategy for Hyduke. The plan was to simplify the business, improve
margins and profits, and expand into other sectors of the oil and
gas industry besides drilling and service rigs. One year into that
strategy, the oilfield services industry entered a severe downward
cycle caused by the collapse of world oil prices. This downturn
slowed the pace but not progress of the turnaround strategy.
Non-core and non-relevant businesses have been divested or shut
down. The Company has improved and expanded safety, quality, sales
and engineering capabilities. New product lines like the Swift
Environmental fluid management system have been added and our
customer base has been expanded within the oilfield and into
additional industries.
More recently, in anticipation of a reversal of the oilfield
services down cycle, Hyduke has focused on the growth elements of
the turnaround strategy with a focus on non-traditional product
lines and customers. This has included the acquisitions of Western
Manufacturing Ltd. and Avalanche Metal Industries Ltd. to expand
manufacturing capacity and geographic footprint. Nisku manufacturing capabilities were expanded
and enhanced to manufacture pressure vessels by obtaining our ABSA,
ASME and U stamp certifications. The recent accreditation by the
American Petroleum Institute allows Hyduke to use the API Standard
650 Monogram on our field constructed storage tanks.
Late in 2016 and into the first quarter of 2017, the E&P
industry began to show signs of increased activity as commodity
prices increased and stabilized. Drilling rig activity in Q1 2017
averaged 253 up from 172 in Q4 2016 and up sharply from only 153 in
Q1 2016. Hyduke has seen the impact of these improvements with a
significant increase in our first quarter revenue compared to both
Q4 2016 and Q1 2016. Current indications are that 2017 rig activity
should remain above 2016 levels. The revenues of BW Rig have
historically been directly impacted by this increased industry
activity, a trend already evidenced in the 2017 financial
statements. Revenues from Manufacturing & Fabrication are also
ultimately related to rig activity but is typically delayed one to
two quarters. Rig activity increases production which ultimately
drives the need for on-site storage and expansion of midstream
facilities. This is the new market Hyduke has pursued through
marketing and acquisitions to fabricate and sell tanks and pressure
vessels.
The Company believes that the diversification of its product
line and expansion of the geographic footprint and manufacturing
capacity will allow Hyduke to offer unique solutions to customers,
grow revenues and leverage the fixed cost base across more revenue
in the current stabilizing business cycle. The financial
performance of the legacy Hyduke business lines have met
expectations and have provided significantly improved financial
performance on a year-over-year basis in terms of both revenue and
operating margins. However, the complete integration of the
acquisitions of Western and Avalanche into Hyduke's operating
protocols will take longer than the three months in Q2 when the
Company owned them. Both companies were acquired on attractive
terms relative to their historic financial performance.
Therefore, results for the second quarter demonstrates both the
successes of the expansion and diversification strategy and focus
of management for the future. The signing of a $20 million contract with AltaGas as a key vendor
for AltaGas's Ridley Island propane
export facility provides a solid base of revenue for the Company
over the coming quarters and, importantly, solidly positions the
Company as a participant in the market for large storage tanks.
Financial results for both the Supply business and Hyduke's legacy
Manufacturing businesses showed strong revenue and margin
performance. However, the complete integration of Western and
Avalanche with Hyduke into a single and more efficient business
unit remains a key priority of management for the rest of the 2017
fiscal year.
As discussed earlier in this MD&A, the Company has been
successful in renegotiating its capital structure to replace its
legacy long-term debt due August 15,
2017 with a 25-year mortgage on its real estate assets. As a
result of the significant increase in working capital as measured
by inventory and accounts receivable, the Company's operating
facility lender has amended its covenants to provide Hyduke with
enhanced liquidity to pursue the growing business opportunities the
recovery in the industry it serves and its acquisition strategies
have created.
As at August 10, 2017 the active
drilling rig count in western Canada was 223, significantly higher than 130
on the same day in 2016. On July 31,
2017 the Petroleum Services Association of Canada (PSAC) increased its forecast for the
number of wells drilled for the third time since its original
forecast was released in November of last year. PSAC now believes
7,200 wells will be drilled on a rig-released basis this year, up
30% from an estimate of only 4,175 wells late last year. This is
because of strong activity in the second quarter and the shift of
capital from oil sands exploitation to conventional plays with
quicker returns.
This improved outlook for the remainder of 2017, new business
lines in storage tanks and steel fabrication, plus the large
AltaGas project which will take over a year to complete, give
Hyduke confidence the higher revenues experienced year-over-year
will continue. This gives management the ability to concentrate on
integration, margin improvement, capital management and operating
efficiency.
Additional information relating to Hyduke is available under the
Company's profile on SEDAR website at www.sedar.com and
www.hyduke.com
Forward looking information
This news release contains forward-looking information
relating to the expectations of management that the integration
process will lead to improvements in operations and efficiency for
both Western and Hyduke. Such forward-looking information is
subject to important risks, uncertainties and assumptions. The
results or events predicated in this forward-looking information
may differ materially from actual results or events. As a result,
you are cautioned not to place undue reliance on this
forward-looking information.
Forward-looking information is based on certain factors and
assumptions regarding, among other things, general assumptions
respecting the business and operations of Hyduke and economic
factors. While the Company considers these assumptions to be
reasonable based on information currently available to it, they may
prove to be incorrect.
Forward looking-information is subject to certain factors,
including risks and uncertainties that could cause actual results
to differ materially from what is currently expected. These factors
include but are not limited to risks associated with the failure of
the Company to obtain the benefits of integration; volatility in
market prices for oil and natural gas; and the general economic
conditions in Canada.
You should not place undue importance on forward-looking
information and should not rely upon this information as of any
other date. While the Company may elect to, the Company is under no
obligation and does not undertake to update this information at any
particular time, except as required by law.
About Hyduke
Trading on the TSX under the symbol "HYD," Hyduke Energy
Services Inc. is a supplier of equipment and services to the oil
and gas drilling and well servicing industry.
The TSX has not reviewed and does not accept responsibility for
the adequacy or accuracy of this News Release.
SOURCE Hyduke Energy Services Inc.