NISKU, AB, May 15, 2018 /CNW/ - Hyduke Energy Services Inc.
("Hyduke" or the "Company") (HYD – TSX) announced operating results
for the three months ended March 31,
2018. 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
March 31,
2018
|
Year-over-year
change (%)
|
Three months
ended
March 31,
2017
|
Revenue
|
12,206
|
102.3%
|
6,033
|
Cost of goods
sold
|
9,835
|
84.6%
|
5,328
|
Inventory
impairment
|
-
|
|
-
|
Gross
profit
|
2,371
|
236.3%
|
705
|
Gross profit
%
|
19.4%
|
7.7%
|
11.7%
|
Selling, general
& administrative
|
2,980
|
95.3%
|
1,474
|
Net loss
|
(906)
|
(3.3%)
|
(937)
|
from continuing
operations
|
Net loss
|
(914)
|
(2.2%)
|
(935)
|
Per share –
basic (continuing operations)
|
(0.01)
|
|
(0.03)
|
Per shares – diluted
(continuing operations)
|
(0.01)
|
|
(0.03)
|
EBITDAS(1)
– continuing operations
|
(29)
|
(95.0%)
|
(582)
|
|
March 31,
2018
|
|
December 31,
2017
|
Total
assets
|
27,124
|
|
26,563
|
Total
liabilities
|
19,466
|
|
17,883
|
(1)
See "Non-IFRS Measures"
|
Revenue
|
|
|
|
|
March 31,
2018
|
March 31,
2017
|
Change (%)
|
Manufacturing &
Fabrication
|
10,648
|
2,840
|
274.9%
|
Supply &
Service
|
2,221
|
3,264
|
-32.0%
|
Elimination
Entries
|
(663)
|
(71)
|
|
Total
Revenue
|
12,206
|
6,033
|
102.3%
|
The three months period ended March 31,
2018 showed a 102.3% increase in total revenues to
$12,206. In the quarter the
Manufacturing & Fabrication segment generated $10,648 of revenue, a 274.9% increase over the
same period in the prior year. The growth reflects increased
revenues related to a recovery in legacy businesses, oil sands
projects, and the diversification of its products and services to
include the manufacture and repair of storage tanks in company
facilities and remote locations and custom steel fabrication.
Supply & Service revenue decreased 32.0% to $2,221 in the first quarter of 2018 compared to
the first quarter of 2017. The sector experienced an overall
decrease in activity in Q1 2018 comparing to Q1 2017. These factors
resulted in a decrease in demand for oilfield supplies, pneumatics
and inspection services.
On a consolidated basis, contribution margin for Q1/18 increased
by $1,852 to $3,339 (27.4% of revenue) compared to
$1,487 (24.6% of revenue) in 2017.
Indirect costs of $968 increased
23.8% compared to $782 in 2017 as
discussed above. The resulting consolidated gross profit was
$2,371 (19.4% of revenue) in Q1/18
compared to a margin of $705 (11.7%
of revenue) in 2017.
SG&A expenses for the three months ended March 31, 2018 was $2,980, an increase of 95.3% compared to
$1,474 for the same period in 2017.
SG&A costs from the Q2 2017 acquisitions account for
approximately 71.9% of this increase. The remaining increase is
comprised of the removal of employee wage rollbacks and additional
staff for remote tank fabrication activities. The SG&A expenses
to total revenue was 24.4% in 2018 compared to 25.3% in 2017.
Negative EBITDAS (Refer to page 11 of Company's MD&A for
definition of EBITDAS) for continuing operations was $29 for the first three months of 2018 compared
to a negative EBITDAS of $582 in
2017.
Depreciation and amortization of $259 increased from $152 for the same period in 2017 mainly due to
the Q2 2017 acquisition and amortization of intangible assets and
increased property, plant and equipment.
Stock based compensation was $46
compared to $42 for the same period
in 2017.
The Company recorded $157 in
interest charges during the first three months of 2018, compared to
$165 for the same period in 2017.
The loss on assets disposal was $410, and was mainly due to an asset disposal in
Western Manufacturing.
Continuing operations net loss for the three months ended
March 31 was $906 in 2018 compared to a loss of $937 in 2017.
MANAGEMENT REVIEW AND OUTLOOK
In the quarter ended March 31,
2018 showed significantly increased financial performance in
terms of revenue, gross profit and EBITDA compared to the same
period in the three prior fiscal years. Revenue of $12.2 million was more than double the
$6.0 in sales for the same period in
2017. Gross profit of $2.4 million
based on an operating margin of 19.4% was the highest for this
three-month period since the first quarter of 2014. While EBITDA
was slightly negative at ($29,000),
for the same period in 2017 it was negative ($0.6 million) and negative ($1.4 million) in 2016.
Although the company is still not where management would like to
be in terms of generating positive EBITDA and free cash flow from
operations after debt servicing expenses and capital investments,
the progress is steady and the year-over-year improvement
meaningful. Based on these financial metrics, this is the best
operating financial performance for Hyduke in the first quarter
since world oil prices collapsed in late 2014.
April 2018 was the final winding
down of Western Manufacturing Ltd operations, a business in
northwest Alberta the Company
acquired in March of 2017. Western had a prior history of rapid
growth and profitability. It saw its direction reverse post 2014
and by the end of 2016 appeared to be attractively priced. Based in
the heart of the active Montney
natural gas, liquids and crude oil development, Hyduke was of the
view a recovery was underway and that under new management Western
could resume a growth path towards profitability.
Post-closing, financial and operating issues emerged not
identified during the purchase negotiations. The result was Hyduke
being forced to commit considerably more working capital to Western
than contemplated to complete preexisting orders and settle with
trade creditors. In spite of eliminating over $1.5 of annualized overhead shortly after
purchase, Western was unable to profitably complete any of the
acquired backlog. Further, the historic goodwill associated with
Western in this unique, regional market was difficult to
reestablish given Hyduke's unwillingness to continue to price new
work at or below cost.
These were some of the factors contributing to the operating
losses in the second half of 2017.
Early in 2018 negotiations began with the former owners and
current landlord of Western to vacate the leased premises at
Hythe, Alberta and settle certain
financial arrangements. An agreement was signed April 3, 2018 and is referred to in the Q1
financial statements as a subsequent event. Western was released
from the lease effective April 1,
2018 to its legal termination December 31, 2018. Including property taxes and
utilities Hyduke estimates annual savings of approximately
$700,000.
Hyduke is completing its remaining orders in its main facility
in Nisku and its subsidiary,
Avalanche Metal Industries, in Kelowna,
B.C.
Another subsequent event took place on May 8, 2018 when Hyduke finished up at the
AltaGas Ridley Island Propane Export Terminal (RIPET). The Company
began this project in May of last year. It completed the
fabrication and air raise of a 1.5 million pound roof on
January 27, 2018.
The completion on the RIPET site will allow the accelerated
release of a 10% construction holdback.
Business in other company segments is steady. The company has
projects underway in areas of oil sands tailing pond reclamation,
utilities, agrifoods and transportation. Particularly encouraging
is renewed interest in Hyduke's legacy business of building,
repairing and refitting drilling and well servicing rigs. One rig
was refit and modified in April to go back into service in
northeast Alberta. Other drilling
and well servicing contractors are making inquiries about new
equipment, modifications and repairs. Some companies are looking at
reworking their rigs in anticipation of putting them to work in the
significantly more active market in the
United States.
The conventional upstream oil and gas industry has not been
strong for Hyduke in the past three years. The company's survival
has been in diversification into new products, new markets and new
industries. Hyduke is here today because it began looking beyond
its legacy businesses three years ago.
Higher oil prices are having a positive impact on Canada's upstream oil and gas industry despite
all the well-publicized challenges regarding pipelines, market
access and competitiveness.
In its May 7 weekly upstream
industry analysis, ARC Energy Research Institute once again
increased its estimate for revenue and after-tax cash flow for
2018. Based on average production of 7.5 million boe/day – the
highest in history – and despite low natural prices, ARC is now
forecasting revenue from production this year will be $122.5 billion and after-tax cash flow
$57.6 billion. Revenue is up 49% from
only $82.3 billion in 2016 while
after-tax cash flow will rise by 117% from $26.6 billion two years ago.
The continually improving outlook from rising oil prices helped
ARC increase its most recent revenue and after-tax cash flow
forecast from earlier estimates January 2,
2018 when it was only estimated at $105.8 billion and $44.2
billion respectively
ARC has not increased is capital spending or drilling estimates
for 2018, nor have other organizations that regularly do this such
as the Petroleum Services Association of Canada or the Canadian Association of Oilwell
Drilling Contractors.
However, in the absence of public data anticipating increased
spending because of increase funds available, Hyduke is noticing a
rise in inquiries from new and former customers as general economic
conditions for this significant industry continue to improve.
Challenges remain. Because of the issues described above working
capital and liquidity is tight. To this end, Hyduke is continuously
reviewing the fixed cost side of its business. Shutting down
Western's Hythe facility and
exiting the RIPET project has permanently reduced fixed property
and labor costs. The objective is to continually improve
operating efficiency by increasing revenue, increasing margins and
reducing fixed costs.
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.