HOUSTON--(BUSINESS WIRE)--July 30, 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
June 30, 2004.
Summary
Second quarter 2004 revenue increased 7% to $296.7 million
compared to second quarter 2003 revenue of $276.4 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 second quarter 2004
increased by 9% to $77.6 million from $70.9 million for the same
period a year earlier. Included in second quarter 2003 EBITDA was a
$1.7 million charge to provide for the cost of the securities-related
litigation settlement.
Net loss for the second quarter 2004 was $9.1 million, or $0.11
per share compared with net income of $0.2 million, or $0.00 per share
in the second quarter 2003. Based on the U.S. statutory rate, the
company estimates that its tax expense for the three months ended June
30, 2004, was approximately $4.7 million higher because of its current
tax position in the U.S. This expense is discussed in greater detail
below.
"In the second quarter of 2004, our focus on core operations began
paying off as evidenced by our increased EBITDA, utilization,
improving fabrication results and increased parts and service
revenue," said Chad Deaton, President and Chief Executive Officer of
Hanover. "Going into the second half of 2004, we anticipate improving
market conditions, both domestically and internationally.
Domestically, we expect slow, but steady improvement in both the
rental and fabrication markets, with healthy activity levels in the
Gulf Coast and Western United States. Internationally, Belleli's
increased backlog should lead to continued operating improvements in
the second half of the year. We believe that Latin America will
continue to be an active market and we are encouraged by the progress
we have made recently in the Middle East and West Africa. "
Summary of Business Segment Results
Domestic Rentals
(in thousands)
Three months ended
June 30, Increase
------------------
2004 2003 (Decrease)
--------- ------- -----------
Revenue $ 83,680 $80,256 4%
Operating expense 34,950 31,006 13%
--------- -------
Gross profit $ 48,730 $49,250 (1)%
Gross margin 58% 61% (3)%
Domestic rental revenue increased in the second quarter 2004,
compared to the same period a year earlier, due primarily to improved
utilization in the company's domestic compression rental fleet.
Utilization of Hanover's domestic compression rental fleet increased
to 79% at June 30, 2004 from 73% at June 30, 2003. Gross profit and
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
June 30, Increase
------------------
2004 2003 (Decrease)
--------- ------- -----------
Revenue $ 58,359 $51,014 14%
Operating expense 15,196 14,905 2%
--------- -------
Gross profit $ 43,163 $36,109 20%
Gross margin 74% 71% 3%
Second quarter 2004 international rental revenue and gross profit
increased, compared to the second quarter 2003, primarily due to
increased compression and processing plant rental activity in
Argentina, Brazil and Mexico. Gross margin for the second quarter 2004
increased, when compared to the same period in 2003, primarily due to
lower repair and maintenance expense that is expected to increase in
the second half of 2004. Revenues and gross profit in the second
quarter 2004 included approximately $0.9 million in additional
contractual inflation adjustments in Venezuela and approximately $1.1
million in negotiated start up payments received in Brazil associated
with a compression rental project that was scheduled to start up in
the first quarter 2004 but was delayed by the customer.
Parts, Service and Used Equipment
(in thousands)
Three months ended
June 30, Increase
------------------
2004 2003 (Decrease)
--------- ------- -----------
Revenue $ 41,913 $34,976 20%
Operating expense 31,748 26,011 22%
--------- -------
Gross profit $ 10,165 $ 8,965 13%
Gross margin 24% 26% (2)%
Parts, service and used equipment revenue and gross profit for the
second quarter 2004 was higher than the same period a year earlier due
primarily to increased international parts and service revenue. Gross
margin for the quarter was lower than the previous year's results
primarily due to a high margin installation project in the second
quarter 2003. For the second quarter 2004, parts and service revenue
increased 15% to $35.4 million with a gross margin of 28% from $30.8
million and 27%, respectively, for the second quarter 2003. Used
rental equipment and installation sales revenue in the second quarter
2004 was $6.5 million with a gross margin of 4%, compared to $4.2
million at a 19% gross margin for the same period a year earlier.
Compression and Accessory Fabrication
(in thousands)
Three months ended
June 30, Increase
------------------
2004 2003 (Decrease)
-------- -------- -----------
Revenue $ 44,159 $ 36,420 21%
Operating expense 40,454 32,965 23%
-------- --------
Gross profit $ 3,705 $ 3,455 7%
Gross margin 8% 9% (1)%
For the second quarter 2004, compression fabrication revenue and
gross profit increased primarily due to the company's increased focus
on fabrication that led to increased sales. Gross margin declined,
compared to second quarter 2003 as the company continues to face
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
June 30, Increase
------------------
2004 2003 (Decrease)
-------- -------- -----------
Revenue $ 63,017 $ 65,810 (4)%
Operating expense 53,887 60,145 (10)%
-------- --------
Gross profit $ 9,130 $ 5,665 61%
Gross margin 14% 9% 5%
Production and processing equipment fabrication revenue for the
second quarter 2004 was lower than the same period in 2003 primarily
due to a decrease in orders received from the company's customers in
the second half of 2003. Included in production and processing
equipment fabrication revenue and expense for the second quarter 2004
was $31.9 million in revenue and $27.7 million in expense for Belleli,
compared to $30.9 million in revenue and $29.2 million in expense for
Belleli in the second quarter 2003. Gross profit and gross margin for
production and processing equipment fabrication for the second quarter
of 2004 increased, compared to the second quarter 2003, due primarily
to improvements in Belleli's operating performance.
Selling, general, and administrative expense ("SG&A") for the
second quarter 2004 was $41.7 million, compared to $40.2 million in
the second quarter 2003. As a percentage of revenue, SG&A in the
second quarter 2004 was 14%, compared to 15% for the same period a
year earlier.
Depreciation and amortization expense for the second quarter 2004
increased to $44.5 million, compared to $36.1 million for the same
period a year ago. Second quarter 2004 depreciation and amortization
expense increased primarily due to: (i) 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; (ii) increased
depreciation expense due to additions to the rental fleet, including
maintenance capital, placed in service during the first six months of
2004 and during 2003; and (iii) approximately $1.0 million in
additional amortization expense to write off deferred financing costs
associated with the June 2004 refinancing of the company's 2000A
compression equipment lease obligations.
The company's effective tax rate for the second quarter 2004 was
(262)%, compared to 72% 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 second 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 in the near future. Based on a statutory rate, the company
estimates that its tax expense for the second quarter of 2004 was
approximately $4.7 million higher because of its current tax position
in the U.S.
Liquidity and Other
Hanover had capital expenditures of approximately $20 million in
the second quarter 2004, compared to approximately $40 million for the
same period last year. At June 30, 2004, the company had no
outstanding borrowings under its $350 million bank credit facility,
approximately $1.76 billion in debt, and approximately $52 million in
cash.
"We continue to demonstrate capital discipline as evidenced by our
reduced capital expenditures in the second quarter, relative to the
same period a year earlier," said John Jackson, Senior Vice President
and Chief Financial Officer of Hanover. "In addition, we continue to
be focused on debt reduction and year to date, through July, we have
paid down approximately $60 million in debt and compression equipment
lease obligations through positive cash flow."
Total compression horsepower at June 30, 2004, was approximately
3,481,000, including approximately 2,568,000 horsepower in the United
States and approximately 913,000 horsepower internationally. Hanover's
total compression horsepower utilization rate as of June 30, 2004, was
approximately 83%, an increase over utilization of approximately 82%
at March 31, 2004, and 79% at June 30, 2003. Domestic and
international utilization at June 30, 2004, was approximately 79% and
96%, respectively, compared to approximately 78% and 94%,
respectively, at March 31, 2004, and approximately 73% and 94%,
respectively, at June 30, 2003.
At June 30, 2004, Hanover's third-party fabrication backlog,
excluding Belleli, was approximately $104 million compared to
approximately $97 million at March 31, 2004, and $84 million at June
30, 2003. Backlog for Belleli at June 30, 2004, was approximately $162
million, compared to approximately $124 million at March 31, 2004, and
$77 million at June 30, 2003.
Conference Call Details
Hanover will host a conference call at 11:00 a.m. Eastern Time, on
Friday, July 30, 2004, to discuss financial results for the second
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 8533822.
For those unable to participate, a replay will be available from 2:00
p.m. Eastern Time on Friday, July 30th until midnight on Friday August
6th. To listen to the replay, please dial 800-642-1687 in the United
States and Canada, or 706-645-9291 internationally, access code
8533822. 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; prolonged substantial reduction in oil and gas prices,
which could cause a decline in the demand for our compression and oil
and natural gas production 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 Six Months Ended
June 30, June 30,
------------------- -------------------
2004 2003 2004 2003
-------- -------- -------- --------
Revenues and other income:
Domestic rentals $ 83,680 $ 80,256 $170,272 $158,905
International rentals 58,359 51,014 113,928 102,454
Parts, service and used
equipment 41,913 34,976 86,520 72,746
Compressor and
accessory fabrication 44,159 36,420 72,309 57,800
Production and
processing equipment
fabrication 63,017 65,810 116,446 145,950
Equity in income of
non-consolidated
affiliates 4,907 6,412 9,759 9,292
Other 646 1,476 1,738 2,904
-------- -------- -------- --------
296,681 276,364 570,972 550,051
Expenses:
Domestic rentals 34,950 31,006 70,489 62,210
International rentals 15,196 14,905 32,322 29,925
Parts, service and used
equipment 31,748 26,011 64,978 50,474
Compressor and
accessory fabrication 40,454 32,965 66,370 51,603
Production and
processing equipment
fabrication 53,887 60,145 101,583 129,707
Selling, general and
administrative 41,683 40,222 81,556 79,494
Foreign currency
translation 627 (573) (875) (200)
Cost of litigation
settlement 157 1,650 97 43,753
Other 387 (862) 347 505
-------- -------- -------- --------
219,089 205,469 416,867 447,471
-------- -------- -------- --------
EBITDA from
continuing
operations (1), (2) 77,592 70,895 154,105 102,580
Depreciation and
amortization 44,460 36,109 87,444 70,687
Leasing expense -- 20,804 -- 43,139
Interest expense 35,731 12,287 70,981 24,434
-------- -------- -------- --------
80,191 69,200 158,425 138,260
-------- -------- -------- --------
Income (loss) from
continuing operations
before income taxes (2,599) 1,695 (4,320) (35,680)
Provision for (benefit
from) income taxes 6,804 1,222 14,451 (10,523)
-------- -------- -------- --------
Income (loss) from
continuing operations (9,403) 473 (18,771) (25,157)
Income (loss) from
discontinued operations,
net of tax 342 (266) 256 (1,235)
-------- -------- -------- --------
Net income (loss) $ (9,061) $ 207 $(18,515) $(26,392)
======== ======== ======== ========
Basic loss per common
share:
Income (loss) from
continuing operations $ (0.11) $ 0.01 $ (0.22) $ (0.31)
Loss from discontinued
operations, net of tax -- (0.01) -- (0.02)
-------- -------- -------- --------
Net income (loss) $ (0.11) $ -- $ (0.22) $ (0.33)
======== ======== ======== ========
Diluted loss per common
share:
Income (loss) from
continuing operations $ (0.11) $ 0.01 $ (0.22) $ (0.31)
Loss from discontinued
operations, net of tax -- (0.01) -- (0.02)
-------- -------- -------- --------
Net income (loss) $ (0.11) $ -- $ (0.22) $ (0.33)
======== ======== ======== ========
Weighted average common
and common equivalent
shares outstanding:
Basic 85,114 80,804 84,076 80,620
======== ======== ======== ========
Diluted 85,114 82,004 84,076 80,620
======== ======== ======== ========
Gross profit percentage:
Domestic rentals 58% 61% 59% 61%
International rentals 74% 71% 72% 71%
Parts, service and
used equipment 24% 26% 25% 31%
Compressor and
accessory
fabrication 8% 9% 8% 11%
Production and
processing equipment
fabrication 14% 9% 13% 11%
(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) Second quarter 2003 EBITDA included a $1.7 million estimated
charge for the securities-related litigation settlement. First half
2003 EBITDA included a $43.8 million estimated charge for the
securities-related litigation settlement.
CONTACT: Hanover Compressor Company
Investor Relations:
Lee Beckelman, 281-447-8787
SOURCE: Hanover Compressor Company