Hyduke announces second straight quarter of profitability

TSX Symbol: HYD

EDMONTON, May 13 /CNW/ - Hyduke Energy Services Inc. (HYD - TSX), announced operating results for the three months ended March 31, 2010. Hyduke's first quarter results mark the second straight quarter of profitability. Hyduke's Financial Statements and Management's Discussion and Analysis have been filed with regulators and are available at www.hyduke.com and at www.sedar.com.

    Highlights for the first quarter of 2010 include the following:
    -   Revenue of $16.5 million is up 71% over the prior year
    -   Net income per share of 3 cents is up 171% over the prior year
    -   EBITDAS of $1.2 million is up $2.1 million over the prior year
    -   International revenues represent 42% of total revenue
    -   Liquidity remains strong with current ratio at 2.68 to 1.00
    -   Outlook for 2010 improving with approximately $14.1 million of
        backlog of significant projects

    A summary of those results is as follows:
    Selected Income
     Statement Information                     Three Months Ended
                                      March 31    December 31     March 31
    ($000's, except per share data)     2010          2009          2009

    Revenue                               16,546        15,929         9,649
    Gross margin(1)                        2,414         2,235           516
    Gross margin (%)                       14.6%         14.0%          5.3%
    Adjusted gross margin(1)               2,608         2,420           735
    Adjusted gross margin (%)              15.8%         15.2%          7.6%
    EBITDAS(1)                             1,163           431          (928)
    Adjusted EBITDAS(1)                    1,163           920          (928)
    Net income (loss)                        630            30          (881)
    Earnings (loss) per share
     - basic ($)                           0.029         0.001        (0.040)
    Earnings (loss) per share
     - diluted ($)                         0.029         0.001        (0.040)

    (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.

The first quarter of 2010 continues to reflect the revenue recovery begun in the fourth quarter of 2009. Revenue of $16.5 million for the three months ended March 31, 2010 represents an increase of $0.6 million (4%) over the previous quarter and an increase of $6.9 million (71%) over the prior year. The past two quarters of revenue strength is due primarily to a significant international project that was awarded to the Company in October 2009. Additionally, industry activity levels in Canada in the first quarter of 2010 were higher than in recent quarters resulting in increases in revenue in all our Canadian operations in the first quarter.

First quarter 2010 gross margin of $2.4 million shows consistency with the previous quarter and a significant increase ($1.9 million or 368%) over the prior year.

First quarter 2010 EBITDAS of $1.2 million represents an increase of $2.1 million over the prior year. This year over year increase is due to a $6.9 million increase in revenue and a $1.9 million increase in gross margin. First quarter 2010 EBITDAS increased $0.7 million over the previous quarter and is due primarily to a $0.7 million reduction in general and administrative expenses. 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.

First quarter 2010 net income of $0.6 million represents an increase of $1.5 million (171%) over the prior year and is due to significant increases in revenue and gross margin levels.

First quarter 2010 net income saw an increase of $0.6 million over the previous quarter. The net increase is comprised of the following: Revenue increase of 4% and gross margin increase of 8% contributed to an increase of $0.18 million plus a reduction in general and administrative expenses contributed to a further increase of $0.68 million and offset by an increase in tax expense increase of $0.25 million.

    Selected Balance
     Sheet Information                               As At
                                     March 31     December 31    December 31
    ($000's, except ratios)            2010           2009          2008
    Total assets                          41,080        38,795        48,971
    Total current assets                  29,383        26,862        36,479
    Total liabilities                     12,553        10,900        17,414
    Total current liabilities             10,973         9,213        15,187
    Total bank indebtedness                1,631           Nil         6,975
    Total long-term debt                   1,684         1,823         2,267
    Total shareholders' equity            28,526        27,894        31,557
    Current ratio (current
     assets divided by
     current liabilities)           2.68 to 1.00  2.92 to 1.00  2.40 to 1.00
    Debt to equity ratio
     (long-term debt divided by
     shareholders' equity)          0.06 to 1.00  0.07 to 1.00  0.07 to 1.00

Net working capital (current assets less current liabilities) of $18.4 million as at March 31, 2010 represents an increase of $0.8 million (5%) from December 31, 2009 and is due primarily to net income being generated in the quarter.

Total bank indebtedness of $1.6 million has increased from nil at December 31, 2009 and is due to cash flows used in non-cash working capital balances, primarily unbilled revenue.

The Company continues to maintain a strong current ratio at 2.68 to 1.00 and a negligible debt to equity ratio of 0.06 to 1.00. The Company continues to focus on managing cash flow through converting current assets into cash and continues 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. See Liquidity and Capital Resources for further information on the relationship with our lenders.


Industry expectations for Western Canada for 2010 are beginning to show some optimism. The Company experienced an increase in activity in the first quarter. The Petroleum Services Association of Canada (PSAC) have recently increased their forecast for the number of wells to be drilled (on a rig released basis) for 2010 to be 11,250 which is a 35% increase over 2009 activity. However, 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.

Over the past two months, the Company has been awarded a number of projects from six customers, both domestic and international. For the Canadian market, the Company has been awarded two partial drilling rig packages and one service rig package totalling approximately $2.7 million. Internationally, the Company has been awarded five drilling rig equipment projects totalling approximately $11.4 million. These projects are all commencing in the second quarter and will be completed over the next six to eight months. Management is cautiously optimistic that this recent increase in activity is an indicator that industry activity levels are going to increase both in Canada and Internationally.

While it is expected that new rig builds for use in Western Canada during 2010 will continue to be limited, management believes that additional penetration into international markets will help to offset a flat domestic Turn-Key Equipment market. Hyduke continues to actively market its products and services to international markets in the United States, 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. Over the past 15 months, 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.

If the emerging optimism results in increased levels of Canadian industry activity in 2010, Hyduke's Life Cycle Management businesses such as repair and maintenance, inspections and certification, and consumables will experience an increase in activity. Additionally, Hyduke continues to 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 while the recent two quarters show a significant improvement in results, we are experiencing an economic environment that continues to have some uncertainty. As the general economy, credit markets and gas pricing improve, management's strategic plan balances this uncertainty against an aggressive growth plan intended to capitalize on emerging opportunities. We will continue to actively develop 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 if recent positive results do not continue.

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

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

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