NISKU, AB, Nov. 14, 2017 /CNW/ - Hyduke Energy Services Inc.
("Hyduke" or the "Company") (HYD – TSX) announced operating results
for the nine months ended September 30,
2017 and 2016. Hyduke's Financial Statements and Management
Discussion & Analysis have been filed with regulators and are
available at www.sedar.com.
Unless otherwise stated, tabular amounts presented are expressed
in thousands of Canadian dollars and per-share figures in dollars
per weighted average common share.
SELECTED FINANCIAL INFORMATION
|
|
|
|
|
|
|
|
Three
months
ended
September
30,
2017
|
Year-over-
year
change
(%)
|
Three
months
ended
September
30,
2016
(restated)(1)
|
Nine
months
ended
September
30,
2017
|
Year-
over-year
change
(%)
|
Nine
months
ended
September
30,
2016
(restated)(1)
|
Revenue
|
15,213
|
422%
|
2,913
|
33,499
|
259%
|
9,323
|
Cost of goods
sold
|
13,715
|
431%
|
2,582
|
30,158
|
235%
|
9,009
|
Gross
margin(2)
|
1,497
|
352%
|
331
|
3,341
|
964%
|
314
|
Gross margin
%
|
9.8%
|
|
11.4%
|
10.0%
|
|
3.4%
|
Selling, general
&
administrative
|
2,892
|
137%
|
1,221
|
6,822
|
68%
|
4,062
|
EBITDAS(2)
continuing
operations
|
(1,214)
|
58%
|
(768)
|
(2,939)
|
(8%)
|
(3,212)
|
Net profit
(loss)
from
continuing
operations
|
(1,797)
|
68%
|
(1,072)
|
(4,456)
|
8%
|
(4,143)
|
Net loss
|
(1,809)
|
34%
|
(1,607)
|
(4,464)
|
(16%)
|
(5,301)
|
Per share – basic
&
diluted
|
(0.03)
|
|
(0.05)
|
(0.07)
|
|
(0.17)
|
|
September 30,
2017
|
|
December 31,
2016
|
Total
assets
|
35,138
|
|
18,214
|
Total
liabilities
|
19,281
|
|
10,218
|
(1)
|
Certain amounts
related to selling and distribution, general and administrative,
and other operating income and expenses were reclassified from Cost
of Goods Sold.
|
(2)
|
See "Non-GAAP
Measures" in the Company's Management Discussion &
Analysis
|
Revenue
|
|
|
|
Three Months Ended
September 30
|
Nine Months Ended
September 30
|
|
2017
|
2016
|
Change
(%)
|
2017
|
2016
|
Change
(%)
|
Manufacturing &
Fabrication
|
13,029
|
1,064
|
1125%
|
26,070
|
4,735
|
451%
|
Supply &
Service
|
2,652
|
1,877
|
41%
|
8,243
|
4,654
|
77%
|
Corporate
Services
|
6
|
8
|
25%
|
17
|
19
|
(11%)
|
Elimination
Entries
|
(474)
|
(35)
|
1254%
|
(831)
|
(84)
|
1133%
|
Total
Revenue
|
15,213
|
2,913
|
422%
|
33,499
|
9,324
|
259%
|
|
|
|
|
|
|
|
|
The nine month period ended September 30,
2017 showed a 451% increase in revenues to $26,070. For the three months ended September 30, 2017, the Manufacturing &
Fabrication segment generated $13,029
of revenue, an 1125% increase over the same period in the prior
year. Approximately 40% of the third quarter increase reflects
revenues from acquisitions and 60% from increased revenues from
organic growth. The organic growth reflects increased revenues
related to the AltaGas project, 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 77% to $8,243 during the nine months of 2017 compared to
the same period of 2016, and 41% to $2,652 for the three month period. 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") for the three months
ended September 30, 2017 was
$1,497 or 9.8% compared to gross
margin of $331 (11.4% of revenue) in
the third 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 nine months ended September 30, 2017 was $6,825, an increase of 156% compared to
$4,062 for the nine months ended
September 30, 2016. The three month
period ending September 30, 2017
increased 137%, or $1,671, over the
same period in 2016. SG&A costs from the Company's acquisitions
account for approximately 57% of this increase. The remaining
increase is comprised of the removal of employee wage rollbacks and
additional staff for the AltaGas project.
Negative EBITDAS from continuing operations was $1,214 for the nine months ended September 30, 2017 compared to a negative EBITDAS
of $768 in the same period of
2016.
Depreciation and amortization of $365 increased from $163 in the third 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 $29
compared to $17 in the third quarter
of 2016.
The Company recorded $161 in
interest charges during the third quarter of 2017, a decrease of
$17 from 2016. The decrease is due to
the payout of the term loan in August
2017.
Continuing operations net loss for Q3/17 was $(1,797) compared to a loss of $(1,072) in Q3/16.
MANAGEMENT REVIEW AND OUTLOOK
The third quarter and first nine months of the current fiscal
year were a combination of success and challenges.
On the positive side, due to acquisitions, new contract wins in
the process and production facilities sector of the upstream and
downstream oil and gas industry, and activity improvements in
conventional oilfield activity, total sales in the first nine
months ended September 30 were over
three times higher than the same period in the 2016 fiscal year. In
the third quarter, revenue exceeded $15
million for the first time since the third quarter of 2013.
With the exception of the BW Rig supply business, the majority of
the revenue Hyduke has generated in 2017 is from customers and
industry sectors the company has never worked for before.
However, the financial results indicate the marketplace for
certain product lines remains extremely competitive resulting in
continuing challenged gross margins. Combined with higher fixed
costs for sales, general and administration expenses because of the
acquisitions and the reversal of wage rollbacks in prior year's
cuts in the second quarter, the EBITDA gain over the first nine
months was only marginal and for Q3 the EBITDA loss was higher than
in the prior year.
Management continues to take the necessary measures to restore
positive cash flow as a first step to sustainable
profitability.
A major event in the third quarter was the refinancing of the
Company's long-term debt whereby a loan due in August of 2017 was
replaced with a multi-year mortgage on its real estate assets which
matures in 2043. This gives the Company enhanced financial
flexibility and certainty and allows management to place more focus
on operations.
Another major event in the third quarter was the hiring of two
key members of the senior executive team in the positions of Chief
Financial Officer and Vice-President of Operations. Based in
Edmonton, Jimmie Yeung and Boyd
Mahon respectively have decades of experience in financial
management in a diverse range of industries and manufacturing,
fabrication and assembly of major capital assets, primarily in
Hyduke's key focus areas of upstream, midstream and downstream oil
and gas. The marketing team in Calgary has been refocused to ensure it is
selling the entire Hyduke product and service suite to the vast
range of clients headquartered in that city.
Divisionally, four of five major business units are meeting or
exceeding expectations. BW Rig, a provider of operating supplies to
drilling and service rigs, is performing positively as expected due
to increased field activity in western Canada. Opportunities to expand BW into new
geographical markets continue to be investigated. Avalanche Metal,
the new manufacturing division in Kelowna, is enjoying its highest levels of
activity since 2014. Avalanche operates in a lower cost labor
market than Alberta hence the
Company is continuing to send Avalanche more business. Hyduke's
main fabrication facility in Nisku
is steady having completed some interesting new equipment
components for the oil sands tailing pond cleanup operations of a
major bitumen miner. The AltaGas project on Ridley Island on Canada's west coast, which kicked off major
operations in July, is unfolding as planned.
The major obstacle to improved operating margins is related to
the Western Manufacturing acquisition. This company was in severe
financial difficulty when Hyduke purchased the capital and
inventory assets at cost effective April 1,
2017. The company had been in survival mode for some time
and had a backlog of projects quoted at prices too low to cover all
costs. Hyduke has discontinued quoting any new business below an
acceptable gross margin and has made significant reductions in
fixed costs as Western is integrated into Hyduke's administrative,
management and marketing infrastructure.
Eliminating operating losses at Western was a significant focus
of the Company in Q3 as it restructured its long-term debt and
augmented its senior executive team. It will be the primary
objective for the remainder of the 2017 fiscal year and until the
issue is resolved. Field production tank manufacturing is a very
competitive business but Western has some fundamental strengths,
one being its location in the heart of the Montney natural gas and liquids play. Of the
209 active drilling rigs in western Canada on November
7 according to the JWN Rig Locator, 132 or 63% are operating
in PSAC activity areas B2, A2, A6 and A7 which encompasses all of
the Montney and the increasingly
attractive Duvernay play to the
east and south. Virtually all of these wells are focused on liquids
production which requires tankage.
The Company continues to explore new business opportunities in
new markets and with new customers. In the past nearly 100% of
Hyduke's business came entirely from drilling and well servicing
contractors. Today the client base includes some of Canada's largest and most respected oil and
gas producing and midstream companies. This gives the Company
credibility with a growing range of clients looking for a reliable
and trustworthy supplier with capacity, engineering, integrity and
a transparent commitment to safety.
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.