Hyduke Energy Services Inc. Announces 2009 Financial Results

TSX Symbol: HYD

EDMONTON, March 31 /CNW/ - Hyduke Energy Services Inc. (HYD - TSX), announced operating results for the three and nine months ended December 31, 2009. A summary of those results is as follows:

    
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    Selected Income Statement Information    Three Months     Twelve Months
                                                Ended             Ended
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                                           Dec 31,  Dec 31,  Dec 31,  Dec 31,
    ($000's, except per share data)         2009     2008     2009     2008
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    Revenue                                15,929   14,727   39,728   57,779
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    Gross margin(1)                         2,235      129    2,178    3,900
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    Gross margin (%)                        14.0%     0.9%     5.5%     6.7%
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    Adjusted gross margin(1)                2,420      639    3,614    5,921
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    Adjusted gross margin (%)               15.2%     4.3%     9.1%    10.2%
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    EBITDAS(1)                                431   (4,373)  (3,828)  (4,311)
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    Adjusted EBITDAS(1)                       920   (1,092)  (2,723)    (303)
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    Net income (loss)                          30   (4,076)  (3,701)  (5,120)
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    Net income (loss) per share -
     basic ($)                              0.001   (0.186)  (0.168)  (0.233)
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    Net income (loss) per share -
     diluted ($)                            0.001   (0.186)  (0.168)  (0.233)
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    (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.
    

Fiscal 2009 revenue decreased $18.1 million (31%) over the prior year and reflected a significant reduction in drilling and well service activity levels and construction of new equipment in Western Canada. Internationally, the Company has been able to increase revenues $3.6 million (29%) over the prior year through a continued focus on developing international markets and reducing the Company's exposure to the cyclicality of the Western Canadian market.

The fourth quarter of fiscal 2009 saw a significant revenue improvement over the prior quarter. Revenues of $15.9 million for the three months ended December 31, 2009 represents an increase of $8.7 million (119%) over the previous quarter (3 months ending September 30, 2009) and is due primarily to a significant international project that was awarded to the Company in October 2009.

Fiscal 2009 gross margin decreased $1.7 million (44%) over the prior year and was due to reduced revenue levels (70% of the decrease) and a slight reduction in gross margin percentage of 1.2% points (30% of the decrease). The Company continues to face downward pricing pressure in an environment of low demand.

The fourth quarter of fiscal 2009 saw a significant gross margin improvement over the prior quarter. Gross margin of $2.2 million for the three months ended December 31, 2009 represents an increase of $2.5 million (916%) over the previous quarter and is due primarily to a significant international project that was awarded to the Company in October 2009.

Fiscal 2009 EBITDAS increased $0.5 million (11%) over the prior year and is due to a fiscal 2008 EBITDAS lowered by the effect of a goodwill impairment of $2.4 million. Adjusting for the goodwill impairment, fiscal 2009 EBITDAS decreased $1.9 million over the prior year which is directly related to reduced revenue levels.

The fourth quarter of fiscal 2009 saw a significant EBITDAS improvement over the prior quarter. EBITDAS of $431 thousand for the three months ended December 31, 2009 represents an increase of $2.0 million (127%) over the previous quarter and is due primarily to a significant international project that was awarded to the Company in October 2009 and to continued cost control. 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.

Fiscal 2009 net loss decreased $1.4 million (28%) over the prior year and is due to a fiscal 2008 net loss increased by the effect of a goodwill impairment of $2.4 million. Adjusting for the goodwill impairment, fiscal 2009 net loss increased $1.0 million over the prior year which is directly related to reduced revenue levels.

The fourth quarter of fiscal 2009 saw a significant improvement in earnings over the prior quarter. Net income of $30 thousand for the three months ended December 31, 2009 represents an increase of $1.4 million (102%) over the previous quarter and is due primarily to a significant international project that was awarded to the Company in October 2009 and to continued cost control.

    
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    Selected Balance Sheet Information                As At
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    ($000's, except ratios)           12 months     12 months     12 months
                                        ended         ended         ended
                                     December 31,  December 31,  December 31,
                                         2009          2008          2007
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    Total assets                          38,795        48,971        48,552
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    Total current assets                  26,862        36,479        33,494
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    Total liabilities                     10,900        17,414        12,286
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    Total current liabilities              9,213        15,187         9,871
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    Total bank indebtedness                  Nil         6,975         2,243
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    Total long-term debt                   1,823         2,267         2,359
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    Total shareholders' equity            27,894        31,557        36,266
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    Current ratio (current assets
     divided by current
     liabilities)                   2.92 to 1.00  2.40 to 1.00  3.39 to 1.00
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    Debt to equity ratio
     (long-term debt divided by
     shareholders' equity)          0.07 to 1.00  0.07 to 1.00  0.07 to 1.00
    -------------------------------------------------------------------------
    

Total assets of $38.8 million as at December 31, 2009 represents a decrease of 21% or $10.2 million from the prior year. Total current asset decrease of $9.6 million relates primarily to an accounts receivable decrease of $6.1 million due primarily to a decline in sales activity and a net inventory and unbilled revenue decrease of $3.1 million due to reduced activity and a focus on reducing inventory levels.

Total liabilities of $10.9 million as at December 31, 2009 represents a decrease of 37% or $6.5 million from the prior year. Total current liabilities decrease of $6.0 million relates primarily to a decrease in bank indebtedness of $7.0 million to nil at year end. The Company has focused on eliminating the bank indebtedness due to the risk associated with being in default with the operating line lender.

The Company continues to maintain a strong current ratio at 2.92 to 1.00 and a negligible debt to equity ratio of 0.07 to 1.00. The Company is focusing on managing cash flow and is continuing to work on converting current assets into cash and continue 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.

OUTLOOK

Industry expectations for Western Canada for 2010 continue to reflect the current economic uncertainty through reduced activity as measured by the number of wells drilled. The Canadian Association of Oilwell Drilling Contractors (CAODC) have forecast the number of wells to be drilled (on a completion basis) for 2010 to be 8,523 which is consistent with 2009 activity. The Petroleum Services Association of Canada (PSAC) have forecast the number of wells to be drilled (on a rig released basis) for 2010 to be 9,000 which again, is consistent with 2009 activity.

While it is expected that new rig builds for use in Western Canada during 2010 will be limited, management believes that additional penetration into international markets will help to offset the domestic Turn-Key Equipment slowdown. Hyduke continues to actively market its products and services to international markets in the Russian Federation, India, South America, North Africa, Middle East, Asia-Pacific and Latin America. While the project decision making cycle is longer on international work, active quoting continues on a significant number of international opportunities. In 2009, Hyduke saw its international revenues increase to over 40% of its total revenues. It is expected that the volume and proportion of international revenue will continue as these international relationships are further developed.

The reduced levels of industry activity forecast for 2010 are also anticipated to negatively impact Hyduke's Life Cycle Management businesses such as repair and maintenance, inspections and certification, and consumables. There is a continued 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.

Management recognizes that we continue to operate in a very uncertain economic environment. Continued weakness in the general economy and weakness in natural gas pricing will require a continued focus on cost control in both capital and operating budgets for companies in our industry sector. Management is prepared for these challenging conditions. We are very actively developing markets outside of Western Canada and expect to build upon our historical successes. Operationally, we continue to focus on cost control, realizing on vertical integration opportunities and prudent cash management and investment. 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.

Hyduke continues to be confident that its strategic plan considers current and expected market conditions and that strategic growth will continue to be achieved through increased products and services and increased penetration into international markets.

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.

%SEDAR: 00008371E

SOURCE Hyduke Energy Services Inc.

For further information: For further information: Gordon R. McCormack, CA, President and Chief Executive Officer, (780) 955-0355; Veronica Dutchak, CA, Chief Financial Officer, (780) 955-0355


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