HOUSTON--(BUSINESS WIRE)--April 29, 2004--Hanover Compressor
Company (NYSE:HC), a global market leader in full service natural gas
compression and a leading provider of service, fabrication and
equipment for oil and natural gas processing and transportation
applications, today reported financial results for the quarter ended
March 31, 2004.
Summary
First quarter 2004 revenue was $274.3 million compared to first
quarter 2003 revenue of $273.7 million.
EBITDA from continuing operations (consolidated income (loss) from
continuing operations before interest expense, leasing expense,
provision for (benefit from) income taxes, depreciation and
amortization, and goodwill impairment) for the first quarter 2004 was
$76.5 million, compared to $31.7 million for the same period a year
earlier. Included in first quarter 2003 EBITDA was a $42.1 million
charge to provide for the cost of the securities-related litigation
settlement that became final in March 2004.
Net loss for the first quarter 2004 was $9.5 million, or $0.11 per
share compared with a net loss of $26.6 million, or $0.33 per share in
the first quarter 2003. The company's provision for income taxes for
the first quarter 2004 did not include a tax benefit for the company's
estimate of anticipated U.S. losses because the benefit is not
anticipated to be realized during the year. Based on a statutory rate,
the company estimates that its tax expense was approximately $9.4
million higher because of its current tax position in the U.S. This
expense is discussed in detail below.
"In the first quarter we realized continued improvement in our
domestic rental fleet utilization as it improved from 76% at year end
2003 to 78% at the end of March," said Chad Deaton, President and
Chief Executive Officer of Hanover. "During the quarter, we also
achieved an improvement in EBITDA, in comparison to last quarter and
the same period a year earlier, and an improvement in backlog in both
the compression and production and processing fabrication lines of
business. We believe this increased backlog should lead to improved
margins for both fabrication business segments. Our parts and service
business segment in the quarter was bolstered by strong installation
revenue and gross profit, but the base parts and service revenue was
lower than anticipated due to continued delays in maintenance by our
customers because of the current strong gas price environment,
particularly in North America. Going into the second quarter, we
intend to increase our focus on our parts and service business and to
continue to work to enhance our margins in all of our lines of
business."
Summary of Business Segment Results
Domestic Rentals
(in thousands)
Three months ended
March 31, Increase
------------------
2004 2003 (Decrease)
--------- ------- -----------
Revenue $ 86,592 $78,649 10%
Operating expense 35,539 31,204 14%
--------- -------
Gross profit $ 51,053 $47,445 8%
Gross margin 59% 60% (1)%
Domestic rental revenue and gross profit increased in the first
quarter 2004, compared to the same period a year earlier, due
primarily to improved utilization in the company's compression rental
fleet. Utilization of Hanover's domestic compression rental fleet
increased to 78% at March 31, 2004, from 73% at March 31, 2003. Gross
margin for the quarter decreased slightly, compared to the previous
year's results, due to increased maintenance and repair expense and
increased start up costs associated with bringing idle compression
units online.
International Rentals
(in thousands)
Three months ended
March 31, Increase
------------------
2004 2003 (Decrease)
--------- ------- -----------
Revenue $ 55,569 $51,440 8%
Operating expense 17,126 15,020 14%
--------- -------
Gross profit $ 38,443 $36,420 6%
Gross margin 69% 71% (2)%
First quarter 2004 international rental revenue and gross profit
increased, compared to the first quarter 2003, due to increased
compression rental activity, primarily in Argentina and Mexico, and
the addition in the second half of 2003 of two gas processing plants
in Mexico and Brazil. Gross margin for the first quarter 2004
decreased when compared to the same period in 2003, due primarily to
the inclusion of approximately $1.7 million of 2002 revenue that was
recognized in the first quarter 2003 because of concerns about the
ultimate receipt of this revenue due to the unofficial national strike
in Venezuela.
Parts, Service and Used Equipment
(in thousands)
Three months ended
March 31, Increase
------------------
2004 2003 (Decrease)
--------- ------- -----------
Revenue $ 44,607 $37,770 18%
Operating expense 33,230 24,463 36%
--------- -------
Gross profit $ 11,377 $13,307 (15)%
Gross margin 26% 35% (9)%
Parts, service and used equipment revenue for the first quarter
2004 was higher than the same period a year earlier due primarily to
increased installation sales. Gross profit and gross margin for the
quarter were lower than the previous year's results primarily due to
slower activity in parts and service in North America and a high
margin on a used equipment sale in the first quarter 2003. For the
first quarter 2004, parts and service revenue was $25.2 million with a
gross margin of 25%, compared to $29.8 million and 32%, respectively,
for the first quarter 2003. Used rental equipment and installation
sales revenue in the first quarter 2004 was $19.4 million with a gross
margin of 27%, compared to $8.0 million at a 48% gross margin for the
same period a year earlier.
Compression and Accessory Fabrication
(in thousands)
Three months ended
March 31, Increase
------------------
2004 2003 (Decrease)
--------- ------- -----------
Revenue $ 28,150 $21,380 32%
Operating expense 25,916 18,638 39%
--------- -------
Gross profit $ 2,234 $ 2,742 (19)%
Gross margin 8% 13% (5)%
For the first quarter 2004, compression fabrication revenue
increased primarily due to the company's increased focus on
fabrication that led to increased sales. Gross profit and gross margin
declined, compared to first quarter 2003, due primarily to continued
strong competition for new orders, which negatively impacted sales
prices and the resulting gross margin.
Production and Processing Equipment Fabrication
(in thousands)
Three months ended
March 31, Increase
------------------
2004 2003 (Decrease)
--------- ------- -----------
Revenue $ 53,429 $80,140 (33)%
Operating expense 47,696 69,562 (31)%
--------- -------
Gross profit $ 5,733 $10,578 (46)%
Gross margin 11% 13% (2)%
Production and processing equipment fabrication revenue for the
first quarter 2004 was lower than the same period in 2003. Included in
production and processing equipment fabrication revenue and expense
for the first quarter 2004 was $30.3 million in revenue and $26.9
million in expense for Belleli, compared to $35.4 million in revenue
and $31.7 million in expense in the first quarter 2003. Belleli
revenue was down, compared to the same period a year earlier, due to
reduced activity in the Middle East. Gross profit and gross margin for
production and processing equipment fabrication for the first quarter
of 2004 declined, compared to the first quarter 2003, due primarily to
less activity which led to lower utilization of the company's
fabrication facilities resulting in less absorption of fixed overhead
that negatively impacts gross margins.
Selling, general, and administrative expense ("SG&A") for the
first quarter 2004 was $39.9 million, compared to $39.3 million in the
first quarter 2003. For the first quarter 2004, Belleli SG&A expense
was $3.6 million, compared to $2.5 million in the first quarter 2003.
The increase in SG&A expense at Belleli was primarily due to the
appreciation of the Euro relative to the U.S. Dollar.
Depreciation and amortization expense for the first quarter 2004
increased to $43.0 million, compared to $34.6 million for the same
period a year ago. First quarter 2004 depreciation and amortization
increased primarily due to approximately $4.2 million in additional
depreciation expense associated with the compression equipment
operating leases that were consolidated into Hanover's financial
statements in the third quarter of 2003 and increased depreciation
expense due to additions to the rental fleet, including maintenance
capital, placed in service during the first quarter 2004 and during
2003.
The company's effective tax rate for the first quarter 2004 was
(444)%, compared to 31% for the same period a year earlier. Due to
Hanover's recent domestic tax losses, the company cannot reach the
conclusion that it is "more likely than not" that certain of its U.S.
deferred tax assets will be realized in the near future. Accordingly,
the company's provision for income taxes for the first quarter 2004
did not include a tax benefit for the company's estimate of
anticipated U.S. losses because the benefit is not anticipated to be
realized during the year. Based on a statutory rate, the company
estimates that its tax expense for the first quarter of 2004 was
approximately $9.4 million higher because of its current tax position
in the U.S.
Liquidity and Other
Hanover had capital expenditures of approximately $17 million in
the first quarter 2004, compared to approximately $36 million for the
same period last year. At March 31, 2004, the company had
approximately $6 million outstanding under its $350 million bank
credit facility and approximately $30 million in cash on its balance
sheet.
"We continue to focus on capital discipline and debt reduction and
are on target to meet our 2004 goal of at least $60 million in debt
repayment through cash flow," said John Jackson, Senior Vice President
and Chief Financial Officer of Hanover.
Total compression horsepower at March 31, 2004 was approximately
3,478,000, including approximately 2,564,000 horsepower in the United
States and approximately 914,000 horsepower internationally. Hanover's
total compression horsepower utilization rate as of March 31, 2004 was
approximately 82%, an increase over utilization of approximately 81%
at December 31, 2003, and 79% at March 31, 2003. Domestic and
international utilization at March 31, 2004 was approximately 78% and
94%, respectively, compared to approximately 76% and 94%,
respectively, at December 31, 2003, and approximately 73% and 94%,
respectively, at March 31, 2003.
At March 31, 2004, Hanover's third-party fabrication backlog,
excluding Belleli, was approximately $97 million compared to
approximately $46 million at December 31, 2003 and $94 million at
March 31, 2003. Backlog for Belleli at March 31, 2004 was
approximately $124 million, compared to approximately $107 million at
December 31, 2003 and $64 million at March 31, 2003.
Conference Call Details
Hanover will host a conference call at 11:00 a.m. Eastern Time, on
Thursday, April 29, 2004 to discuss financial results for the first
quarter 2004, and other matters. To access the call, US and Canadian
participants should dial 800-601-8584, international participants
should dial 706-643-1959 at least ten minutes before the scheduled
start time. Please reference Hanover conference call number 6684014.
For those unable to participate, a replay will be available from 2:00
p.m. Eastern Time on Thursday, April 29th until midnight on Thursday,
May 6th. To listen to the replay, please dial 800-642-1687 in the
United States and Canada, or 706-645-9291 internationally, access
code 6684014. The company's conference call will also be broadcast
live over the Internet. To access the webcast, log onto the company's
web site (www.hanover-co.com), and click on the webcast link located
on the company's home page.
About Hanover Compressor
Hanover Compressor Company (www.hanover-co.com) is a global market
leader in full service natural gas compression and a leading provider
of service, fabrication and equipment for oil and natural gas
processing and transportation applications. Hanover sells and rents
this equipment and provides complete operation and maintenance
services, including run-time guarantees for both customer-owned
equipment and its fleet of rental equipment. Founded in 1990 and a
public company since 1997, Hanover's customers include both major and
independent oil and gas producers and distributors as well as national
oil and gas companies.
Certain matters discussed in this document are "forward-looking
statements" intended to qualify for the safe harbors established by
the Private Securities Litigation Reform Act of 1995 and Section 21E
of the Securities Exchange Act of 1934. These forward-looking
statements can generally be identified as such because of the context
of the statement or because the statement includes words such as
"believes," "anticipates," "expects," "estimates," or words of similar
import. Similarly, statements that describe Hanover's future plans,
objectives or goals or future revenues or other financial measures are
also forward-looking statements. All forward-looking statements are
subject to risks and uncertainties that could cause our actual results
to differ materially from those anticipated as of the date the
statements were made. These risks and uncertainties include, but are
not limited to: our inability to renew our short-term leases of
equipment with our customers so as to fully recoup our cost of the
equipment; reduced profit margins or the loss of market share
resulting from competition or the introduction of competing
technologies by other companies; legislative changes or changes in
economic or political conditions in the countries in which we do
business; the inherent risks associated with our operations, such a
equipment defects, malfunctions and failures and natural disasters;
governmental safety, health, environmental and other regulations,
which could require us to make significant expenditures; our inability
to implement certain business objectives such as integrating acquired
businesses, implementing our new enterprise resource planning systems,
generating sufficient cash, accessing capital markets, refinancing
existing or incurring additional indebtedness to fund our business,
and executing our exit and sale strategy with respect to assets
classified on our balance sheet as discontinued operations and held
for sale; our inability to comply with covenants in our debt
agreements and the decreased financial flexibility associated with our
substantial debt. A discussion of these and other factors is included
in the Company's periodic reports filed with the Securities and
Exchange Commission.
HANOVER COMPRESSOR COMPANY
CONSOLIDATED FINANCIAL DATA
AND EBITDA RECONCILIATION
(in thousands of dollars, except per share amounts)
(unaudited)
Three Months Ended
March 31,
-------------------
2004 2003
-------- ---------
Revenues and other income:
Domestic rentals $86,592 $78,649
International rentals 55,569 51,440
Parts, service and used equipment 44,607 37,770
Compressor and accessory fabrication 28,150 21,380
Production and processing equipment
fabrication 53,429 80,140
Equity in income of non-consolidated
affiliates 4,852 2,880
Other 1,092 1,428
-------- ---------
274,291 273,687
Expenses:
Domestic rentals 35,539 31,204
International rentals 17,126 15,020
Parts, service and used equipment 33,230 24,463
Compressor and accessory fabrication 25,916 18,638
Production and processing equipment
fabrication 47,696 69,562
Selling, general and administrative 39,873 39,272
Foreign currency translation (1,502) 373
Cost of securities litigation settlement (60) 42,103
Other (40) 1,367
-------- ---------
197,778 242,002
-------- ---------
EBITDA from continuing operations(1),(2) 76,513 31,685
Depreciation and amortization 42,984 34,578
Leasing expense -- 22,335
Interest expense 35,250 12,147
-------- ---------
78,234 69,060
-------- ---------
Loss from continuing operations before income
taxes (1,721) (37,375)
Provision for (benefit from) income taxes 7,647 (11,745)
-------- ---------
Loss from continuing operations (9,368) (25,630)
Discontinued operations, net of tax (86) (969)
-------- ---------
Net loss $(9,454) $(26,599)
======== =========
Basic loss per common share:
Loss from continuing operations $(0.11) $(0.32)
Loss from discontinued operations, net of
tax -- (0.01)
-------- ---------
Net loss $(0.11) $(0.33)
======== =========
Diluted loss per common share:
Loss from continuing operations $(0.11) $(0.32)
Loss from discontinued operations, net of
tax -- (0.01)
-------- ---------
Net loss $(0.11) $(0.33)
======== =========
Weighted average common and equivalent shares
outstanding:
Basic 83,035 80,435
======== =========
Diluted 83,035 80,435
======== =========
Gross profit percentage:
Domestic rentals 59% 60%
International rentals 69% 71%
Parts, service and used equipment 26% 35%
Compressor and accessory fabrication 8% 13%
Production and processing equipment
fabrication 11% 13%
(1) EBITDA from continuing operations consists of consolidated
income (loss) from continuing operations before interest expense,
leasing expense, provision for (benefit from) income taxes,
depreciation and amortization and goodwill impairment. We believe that
EBITDA is a commonly used measure of financial performance for valuing
companies in our industry. EBITDA should not be considered as an
alternative to measures prescribed by generally accepted accounting
principles and may not be comparably calculated from one company to
another. Forward-looking information concerning Hanover's 2004 net
income, which we believe is the most directly comparable GAAP
financial measure to Hanover's EBITDA is unavailable because the
following items are significantly uncertain so as make a 2004
prediction inadvisable: interest expense, foreign currency
translation, taxes, depreciation, selling, general, and administrative
expense, mark to market of derivative related to the shareholder note
and net results from and proceeds of the sale of our discontinued
operations. The ultimate outcome of these uncertain items may have an
impact on our net income.
(2) First quarter 2003 EBITDA included a $42.1 million estimated
charge for the securities-related litigation settlement
CONTACT: Hanover Compressor Company
Investor Relations:
Lee Beckelman, 281-447-8787
SOURCE: HANOVER COMPRESSOR COMPANY