- Published: 11 November 2008
- Written by Editor
Wenzel Downhole Tools Ltd. Announces Third Quarter Results for 2008
Wenzel Downhole Tools Ltd. (TSX:WZL) (the "Company") announces financial results for the third quarter ended September 30, 2008.
2008 Third Quarter Results and Highlights of Operations
Record third quarter revenues of $17.2 million were achieved by the Company, which is a 53% increase over the same period in 2007. Revenues increased in all segments of the Company's operations; Canada, U.S. and international. Gross profit for Q3 was $8.3 million for a gross margin of 48%. Earnings before taxes were $5.6 million compared to a loss of $18 thousand for Q3, 2007 and the net earnings per share for the third quarter of 2008 were $0.12 compared to $0.00 in 2007. Earnings before interest, taxes, depreciation and amortization, (EBITDA), was $7.5 million, compared to $2.1 million in Q3, 2007.
In Canada the Company improved its Q3 revenues to $6.1 million, a 32% increase compared to the $4.6 million in Q3, 2007. The average number of rigs working during Q3, 2008 was 20% higher than in Q3, 2007. Most of this increase can be attributed to increases in directional and horizontal drilled wells in Saskatchewan and B.C. These kinds of wells utilize downhole tools of the type the Company produces. For the nine month period ending September 30, 2008, revenues in Canada were up by 13% to $17 million, while the average active rig count was up by 10%.
U.S. revenues for Q3, 2008 were $8.7 million in Canadian dollars, an increase of 43% or $2.6 million over the same period in 2007. Management believes that this year-over-year improvement in revenues reflects increased knowledge within the industry of Wenzel's products and service, growing drilling activity and an increase in directional and horizontal drilling. It should be acknowledged that the rapid changes in the value of the Canadian dollar over the last two years can make U.S. revenues, as expressed in Canadian dollars, appear to be more variable than is actually the case. However, management feels that U.S. sales will continue to grow, at or near current rates, for the near to mid term.
Revenues from sales outside of North America were $2.4 million for the third quarter of 2008. This amount substantially exceeds the $0.5 million in international revenues in the third quarter of 2007. The percentage increase of 373% reflects the fact that orders from international customers tend to be fewer in number but larger in size which if plotted over time produce an irregular pattern. This makes point to point percentage comparisons less useful as measures of performance. The Company has significant international backorders and indications of growing interest in the Company's products in several international markets. Management anticipates continued growth in international sales.
OVERALL PERFORMANCE
The record revenues achieved in the third quarter of 2008 reflect the increasingly positive performance of the Company. Comparing the first nine months of 2008 with the same three quarters of 2007 shows that revenues increased by 39%, EBITDA by 118%, earnings before taxes by 453% and net earnings by 541%. While management is very pleased with these results it should again be noted that currency fluctuations had the effect of depressing 2007 numbers and inflating those in 2008 thus exaggerating the improvement in 2008 over 2007. Nevertheless there was good growth in all of the geographical segments in which the Company operates. On the cost side, the Cost of Goods and Services, as well as General Expenses, increased less than revenues, thus producing increased margins.
The significant run up in oil prices in the first half of the year plus the growing interest in petrolific shales, which were previously thought to be non-economic for development, resulted in overall activity in the western Canadian sedimentary being higher in 2008 than originally forecast. This momentum is expected to continue through to spring breakup in 2009. Beyond that point drilling activity will depend upon global factors which are currently unfolding and impossible to predict. Management believes that the demand for hydrocarbon energy will remain at levels sufficient to sustain significant continued drilling activity but is prepared to deal with the range of possible outcomes.
Drilling activity in the U.S. for the first nine months of 2008 continued at or near record levels with horizontal and directional wells making up an increasing percentage of all wells. This enabled the Company to grow its U.S. revenue for the first nine months of 2008 to $23 million compared to $16.9 million for the same period in 2007, an increase of 36%. Revenues from U.S. operations exceeded revenues from Canada by 36% for the first nine months and management expects that percentage to continue to grow. Given the maintenance of high demand for petroleum energy and the maturation of many of the world's petroleum producing basins, the Company believes that overall drilling will continue to grow worldwide and that, in an effort to increase recoveries through directional and horizontal drilling, more and more of the wells will be utilizing the kind of downhole tools the Company manufactures.
Highlights of the third quarter and first nine months of 2008 are summarized in the following table:
($000's except for earnings per share)
---------------------------------------------
3 months 9 months 12 months
ended ended ended
September 30 September 30 December 31
2008 2007 2008 2007 2007
---------------------------------------------
Revenue 17,154 11,192 50,841 36,657 54,228
Gross profit(2) 8,277 4,406 21,813 14,200 20,358
Gross profit percentage 48% 39% 43% 39% 38%
EBITDTA(1) 7,511 2,087 18,142 8,341 12,173
Earnings (loss) before income
taxes 5,615 (18) 12,376 2,239 3,869
Net earnings (loss) 3,805 (70) 8,533 1,332 2,387
Net earnings (loss) per share
- basic and diluted 0.12 (0.00) 0.28 0.04 0.08
Total assets 62,842 58,178 62,842 58,178 56,100
Long term debt 2,470 4,020 2,470 4,020 3,572
Note (1) EBITDA, or earnings before interest, taxes, depreciation and
amortization is calculated by adding these items back to reported
net earnings. In addition to EBITDA, stock based compensation
expense has been excluded so as to make year to year comparisons
more meaningful.
---------------------------------------------
3 months 9 months Year
ended ended ended
September 30 September 30 December 31
2008 2007 2008 2007 2007
---------------------------------------------
Net earnings (loss) $3,805 $ (70) $8,533 $ 1,332 $ 2,387
Income taxes 1,810 51 3,843 908 1,483
Depreciation 1,684 1,620 5,005 4,730 6,578
Interest 188 466 628 1,211 1,559
Stock based compensation 24 20 133 160 166
---------------------------------------------
EBITDA $7,511 $ 2,087 $18,142 $ 8,341 $ 12,173
Management uses EBITDA as a measurement to determine the ability of the Company to generate cash from normal operations. EBITDA does not have a standardized meaning for Canadian generally accepted accounting principles ("GAAP") and therefore may not be comparable with calculations of similar measures presented by other issuers. EBITDA is not intended to represent net income for the period nor should it be viewed as an alternative to operating or net income or other measures of financial performance calculated in accordance with GAAP.
Note (2) Gross profit and Gross profit percentages for the three and nine month periods ended September 30, 2007, as previously reported have been adjusted for the reallocation of certain service related costs previously recorded as general and administration expenses to costs of goods and services. This reallocation has no effect on net earnings (loss) for the period.
About Wenzel Downhole Tools Ltd.
Wenzel Downhole Tools Ltd. is a manufacturer, seller and renter of drilling tools used in oil and gas exploration. In Canada the company has its manufacturing and servicing facilities located in Edmonton, Alberta and its corporate offices in Calgary, Alberta. Its U.S. headquarters and service facilities are in Conroe, Texas, with a service and sales office in Casper, Wyoming and a sales office in Oklahoma City, Oklahoma. Wenzel Downhole Tools Ltd. is listed for trading on the TSX, symbol WZL. The Company's Third Quarter Consolidated Financial Statements and Management's Discussion and Analysis will be posted on SEDAR (www.sedar.com) on or about November 11, 2008.
This news release may contain forward-looking information. Actual future results may differ materially from those contemplated. The risks, uncertainties and other factors, both known and unknown, that could influence actual results may be substantial and include those described in documents filed with regulatory authorities, such as the Company's most recently filed Annual Report and Annual Information Form. Accordingly, no assurances can be given that any of the events anticipated by the forward-looking statements will transpire or occur, or if any of them do so, what benefits the Company will derive therefrom. Please refer to the Company's public disclosure documents for more information on these risks and uncertainties as they apply to the Company.
SOURCE: Wenzel Downhole Tools Ltd.
Wenzel Downhole Tools Ltd. Harvie Andre President and CEO (403) 262-3050 (403) 265-8154 (FAX) Wenzel Downhole Tools Ltd. William T. Spence Chief Financial Officer (403) 262-3050 (403) 265-8154 (FAX) Website: www.downhole.com
