NISKU, AB, April 2, 2018 /CNW/ - Hyduke Energy Services Inc.
("Hyduke" or the "Company") (HYD – TSX) announced operating results
for the year ended December 31, 2017.
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
(all amounts herein are in thousands)
|
|
|
|
|
|
Year
ended
|
Year-over-year
change
(%)
|
Year
ended
|
Year
ended
|
Dec 31,
2017
|
31-Dec-16
|
31-Dec-15
|
|
(restated)(1)
|
(restated)(1)
|
Revenue
|
42,848
|
238.3%
|
12,667
|
21,671
|
Cost of goods
sold
|
43,406
|
240.7%
|
12,742
|
22,973
|
Gross
profit(2)
|
(558)
|
644.0%
|
(75)
|
(1,301)
|
Gross profit
%
|
(1.3%)
|
-0.7%
|
(0.6%)
|
(6.0%)
|
Selling, general
& administrative
|
8,138
|
53.9%
|
5,289
|
2,802
|
Net loss
|
(11,307)
|
89.8%
|
(5,957)
|
(4,594)
|
from continuing
operations
|
Net loss
|
(11,599)
|
49.4%
|
(7,764)
|
(6,396)
|
Per share –
basic (continuing operations)
|
(0.18)
|
|
(0.19)
|
(0.15)
|
Per shares – diluted
(continuing operations)
|
(0.18)
|
|
(0.19)
|
(0.15)
|
EBITDAS(2)
– continuing operations
|
(9,005)
|
92.8%
|
(4,671)
|
(3,031)
|
Total
assets
|
26,563
|
45.8%
|
18,214
|
27,596
|
Total
liabilities
|
17,794
|
74.1%
|
10,218
|
11,897
|
|
|
(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"
|
The market for the Company's products was weak during 2015 and
2016 resulting from a prolonged downturn in the oil and gas
exploration and production industry globally and particularly in
Canada caused by the collapse of
world oil prices in late 2014 and continued low natural gas prices.
Beginning in late 2016 and accelerating 2017, an upturn in oil and
gas exploration, development and production spending was
experienced. The number of active drilling rigs in Canada in the first nine months of 2017 nearly
doubled compared to the same period in 2016. In addition, the
Company completed two acquisitions in late Q1/17 and early Q2/17
adding to its manufacturing and fabrication footprint. As a result,
the Company's revenues increased 238.3% during the year. Increases
were achieved in both the Manufacturing segment and Supply
segment.
Revenue
|
|
|
|
|
December 31,
2017
|
December 31,
2016
|
Change (%)
|
Manufacturing &
Fabrication
|
32,479
|
5,694
|
470.4%
|
Supply &
Service
|
11,471
|
7,076
|
62.1%
|
Elimination
Entries
|
(1,102)
|
(103)
|
|
Total
Revenue
|
42,848
|
12,667
|
238.3%
|
The year ended December 31, 2017
showed a 238.3% increase in revenues to $42,848. The Manufacturing & Fabrication
segment generated $32,479 of revenue,
a 470.4% increase over prior year. Approximately 44% of the
increase reflects revenues from acquisitions and 56% from increased
revenues from organic growth. The organic growth reflects increased
revenues related to the AltaGas Ltd. ("AltaGas") Ridley Island
Propane Export Terminal 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 62.1% to $11,471 during 2017 compared to 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.
2017 Gross profit remains under pressure to -$558 (-1.3% of revenue) compares to negative
$75 for 2016. The acquisitions did
not perform as well as the Company's core businesses during the
year due to integration activities. These companies also
experienced significant downturns in 2015 and 2016. Therefore,
management has been focused on introducing improved processes and
company-wide operating efficiencies, which it expects will result
in improved profitability in future years.
SG&A expenses for the year ended December 31, 2017 was $8,138, an increase of 53.9% compared to
$5,289 for the year 2016. SG&A
costs from the Company's acquisitions account for approximately 69%
of this increase. The remaining increase is comprised of the
removal of employee wage rollbacks and additional staff for the
AltaGas project.
Negative EBITDAS for continuing operations was $9,005 for the year of 2017 compared to a
negative EBITDAS of $4,671 in
2016.
The decrease of EBITDAS was mainly due to $1,380 inventory write down, $1,382 intangible asset amortization and
impairment, $1,045 revenue write off
related to acquisition, and $243
working capital adjustment.
Depreciation and amortization of $1,452 increased from $666 in 2016. The increase in the expense was due
to the property, plant, and equipment acquired with the business
acquisitions.
Stock based compensation was $166
compared to $62 in 2016.
The Company recorded $663 in
interest charges during 2017, an increase of $80 from 2016. The increase is due to the
utilization of the available revolving demand loan and higher
interest rates, comparing to 2016, on the term loan that matured on
August 11, 2017.
Continuing operations net loss for 2017 was $11,307 compared to a loss of $5,957 in 2016.
As at December 31, 2017, the
Company had working capital of $3,194. The Company has invested $1,798 in additional working capital (largely
accounts receivable and unbilled revenue) during the year of 2017.
The Company reached an agreement with its revolving debt provider
to amend covenants to initially provide access to $1.5 million of the revolving line and was able
to draw on this from the third quarter. The Company expects that
the financing of increased working capital will continue to be
instrumental to its growth strategy and will continue to work with
its revolving debt provider to seek increases to this facility to
support the Company's growth in working capital. Without these
increases or alternative funding sources, liquidity will continue
to be an issue impacting the Company's ability to grow.
The Company recognizes that to stabilize its capital structure
it needed to replace its long-term debt facility. On August 11, 2017, the Company closed an
$8.5 million debt financing pursuant
to which $6.5 million was advanced on
closing. The $6.5 million, together
with $0.5 million from cash, was used
to pay the term debt maturing August 15,
2017 in full (see Note 7 of the December 31, 2017 financial statements).
MANAGEMENT REVIEW AND OUTLOOK
The 2017 fiscal year ended December 31,
2017 was a combination of executing the multi-year retooling
of Hyduke's customer base and business model, accompanied by
unexpected commercial challenges.
Revenue increased by 238% from $12,667 for the year ended December 31, 2016 to $42,848 in fiscal 2017. This was primarily due to
new business from clients Hyduke has never dealt with before
including major infrastructure equipment for oil sands tailings
pond cleanup, a large capacity propane export facility on the
Pacific coast, the entry into storage tank and production equipment
manufacturing in the most active conventional oil and gas
development region in Canada in
northwest Alberta and
northeast B.C., and a new manufacturing and fabrication business in
the interior of B.C. serving entirely new customers and
markets.
Rapid growth into entirely new businesses in new markets also
presented new operating and cash management challenges. As a
result, the operating loss increased by 51% to $11,688 in the 2017 fiscal year compared to
$7,764 in the prior year.
For the first time a significant portion of the manufacturing
and fabrication revenue was generated not in Hyduke's Nisku manufacturing facility but in other
facilities a significant distance from head office or on a remote
third-party site. Hyduke emerged from the multi year contraction
period 2013 to 2016 – where revenue declined annually from over
$100 million (which has been restated
to reflect Hyduke's exit from several legacy business units) to
only 12% of that amount four years later - with a diminished
workforce.
Hyduke faced the challenge of profitably managing Western
Manufacturing Ltd. ("Western") in Hythe,
Alberta, acquired March 9,
2017. The Company purchased the shares of Western under what
appeared to be attractive terms.
What Hyduke acquired with Western was an order book of contracts
bid during a highly competitive period resulting in materially
lower gross profits. The goodwill associated with Western's
substantial client base in the region had been eroded due to issues
that took place before Hyduke acquired the company.
Therefore, the Company has made the decision to wind down the
Western operation from its historic form. This includes moving out
of the rented facility at Hythe at
March 31, 2018 and terminating the
majority of the personnel. Hyduke will continue to support this
market from a smaller facility in Grande
Prairie which will be shared with a new location for the BW
Rig division.
In the third quarter of 2017 Hyduke hired a new vice-president
of operations and a new chief financial officer.
The business outlook for the rest of the year is a combination
of opportunity and uncertainty.
Upstream oil and gas capital expenditures in Canada for 2018 are going in a different
direction than cash flow from production. In its weekly upstream
industry macro-analysis released March 26,
2018, ARC Energy Research Institute estimated in 2018
production should be at an all-time record levels of nearly 7.5
million barrels of oil equivalent per day. Because of higher
production volumes and higher oil and natural gas liquids prices,
ARC estimates after tax cash flow from existing production will
increase from $26.2 billion in 2016
to $48.3 billion in 2018. This is a
$22.1 billion or 77% increase in the
funds oil and gas producing companies have for reinvestment
including capital expenditures.
However, in the same report ARC estimates capital expenditures
on conventional oil and gas and oil sands development will total
$42.7 billion, a 5% or $2.3 billion decline from 2017. This reflects
eroding investment confidence in the upstream oil and gas industry
in Canada due to external factors
such as depressed bitumen and natural gas prices due to market
access problems, higher taxation and increasingly complex
regulatory approval processes. The challenges the industry faces in
improving market access are daily front-page news. The Canadian
Association of Petroleum Producers addressed this issue in February
of this year when it publicly announced its concerns about the
competitiveness of investment in the Canadian upstream oil and gas
industry compared to other jurisdictions.
This dynamic between increased production and cash flow for
investment without commensurate reinvestment in Canada indicates that producers and midstream
operators will still have cash to invest in maintenance, production
enhancement and market growth. With its new business model away
from its legacy business model, Hyduke is positioned to capture
business it would not have otherwise.
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.