Hanover Comp (NYSE:HC)
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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 production, processing
and treating applications, today reported financial results for the
quarter ended March 31, 2007.
Summary
First quarter 2007 revenue increased to $473.2 million, a 27% increase
over first quarter 2006 revenue of $372.8 million. Net income for the
first quarter 2007 was $25.4 million, or $0.23 earnings per share,
compared with net income of $22.4 million, or $0.22 earnings per share,
in the first quarter 2006.
EBITDA(1) from continuing operations for the
first quarter 2007 was a record $117.6 million, a 13% increase over
first quarter 2006 EBITDA of $104.2 million. The first quarter 2006
EBITDA included a $28.4 million gain on the sale of amine rental assets
and a $5.9 million charge related to debt extinguishment costs.
“Hanover’s strong
start to the year was underpinned by significant improvements in
profitability in our Eastern Hemisphere business,”
said John Jackson, President and CEO. “We
remain focused on running our business and continue to be enthusiastic
about the benefits of the anticipated merger with Universal Compression
Holdings, Inc., which we still expect to close in the third quarter of
2007. We continue to see strong fabrication backlog and robust activity
across our service lines, providing a high degree of visibility going
forward.”
Summary of Business Line Results
U.S. Rentals
(in thousands)
Three months ended
March 31,
2007
2006
Increase(Decrease)
Revenue
$
99,636
$
91,643
9%
Operating expense
38,877
38,091
2%
Gross profit
$
60,759
$
53,552
13%
Gross margin
61%
58%
3%
U.S. rental revenue, gross profit and gross margin increased during the
quarter ended March 31, 2007, compared to the quarter ended March 31,
2006, due primarily to an improvement in market conditions that has led
to an improvement in pricing.
International Rentals
(in thousands)
Three months ended
March 31,
2007
2006
Increase(Decrease)
Revenue
$
67,291
$
62,506
8%
Operating expense
23,305
21,332
9%
Gross profit
$
43,986
$
41,174
7%
Gross margin
65%
66%
(1)%
During the first quarter of 2007, international rental revenue and gross
profit increased, compared to the first quarter of 2006, primarily due
to increased rental activity in Brazil. Gross margin decreased primarily
due to higher repair and maintenance costs in Argentina and lower
revenue in Nigeria due to local civil unrest.
Parts, Service and Used Equipment
(in thousands)
Three months ended
March 31,
2007
2006
Increase(Decrease)
Revenue
$
81,340
$
49,271
65%
Operating expense
66,845
41,062
63%
Gross profit
$
14,495
$
8,209
77%
Gross margin
18%
17%
1%
Parts, service and used equipment revenue and gross profit for the
quarter ended March 31, 2007 were higher than the quarter ended March
31, 2006 primarily due to higher installation revenues and used rental
equipment sales during the current quarter. Gross margin was higher in
the first quarter of 2007 due to an increase in installation revenues at
higher margins.
Parts, service and used equipment revenue includes two business
components: (1) parts and service and (2) used rental equipment sales
and installation revenues. For the quarter ended March 31, 2007, parts
and service revenue was $47.3 million with a gross margin of 24%,
compared to $42.9 million and 26%, respectively, for the quarter ended
March 31, 2006. Installation revenue and used rental equipment sales for
the quarter ended March 31, 2007 was $34.0 million with a gross margin
of 9%, compared to $6.4 million with a (44%) gross margin for the
quarter ended March 31, 2006. The increase in sales and gross margin was
primarily due to the completion of installation projects in the first
quarter of 2007 with improved gross margins primarily due to $3.0
million of cost overruns on installation jobs recorded in the first
quarter of 2006 that did not reoccur in 2007. Our installation revenue
and used rental equipment sales and gross margins vary significantly
from period to period and are dependent on the exercise of purchase
options on rental equipment by customers and timing of the start-up of
new projects by customers.
Compressor and Accessory Fabrication
(in thousands)
Three months ended
March 31,
2007
2006
Increase(Decrease)
Revenue
$
78,708
$
54,691
44%
Operating expense
63,245
46,693
35%
Gross profit
$
15,463
$
7,998
93%
Gross margin
20%
15%
5%
For the quarter ended March 31, 2007, compression and accessory
fabrication revenue, gross profit and gross margin increased primarily
due to improved market conditions that led to higher sales levels,
better pricing and an improvement in operating efficiencies.
Production and Processing Equipment Fabrication
(in thousands)
Three months ended
March 31,
2007
2006
Increase(Decrease)
Revenue
$
133,238
$
78,619
69%
Operating expense
111,538
68,963
62%
Gross profit
$
21,700
$
9,656
125%
Gross margin
16%
12%
4%
Production and processing equipment fabrication revenue, gross profit
and gross margin for the quarter ended March 31, 2007 increased over the
quarter ended March 31, 2006, primarily due to an increase in revenue
and improved operating results at Belleli. Belleli’s
revenue and gross profit increased for the quarter ended March 31, 2007
compared to the same period in 2006 due to improved market conditions.
During the quarter ended March 31, 2007, Belleli’s
revenue increased $55.4 million to $97.6 million and gross profit
increased $8.6 million to $12.4 million compared to the quarter ended
March 31, 2006.
Capital and Other
Hanover had capital expenditures of approximately $73 million in the
first quarter of 2007, compared to approximately $58 million in the
first quarter of 2006. At March 31, 2007, the Company had approximately
$1.38 billion in debt and compression equipment lease obligations,
compared to $1.49 billion at March 31, 2006.
Hanover’s fabrication backlog was
$772.5 million on March 31, 2007, compared to approximately $807.6
million at December 31, 2006 and $660.4 million at March 31, 2006. As of
March 31, 2007, compression and accessory fabrication backlog was $354.0
million compared to $200.5 million at March 31, 2006. Production and
processing equipment fabrication backlog was $418.5 million at March 31,
2007, compared to $459.9 million at March 31, 2006, including Belleli’s
backlog of $321.0 million and $388.2 million at March 31, 2007 and 2006,
respectively.
Total compression horsepower at March 31, 2007 was approximately
3,335,000, consisting of approximately 2,433,000 horsepower in the
United States and approximately 902,000 horsepower internationally.
Compression HP Utilization Rate
Date
U.S.
International
Total
March 31, 2007
83%
96%
87%
December 31, 2006
84%
97%
87%
March 31, 2006
83%
98%
87%
Conference Call Details
Hanover Compressor Company (NYSE:HC) announces the following schedule
and teleconference information for its first quarter 2007 earnings
release:
Earnings Release: Tuesday, May 1, 2007 before market open by
public distribution through Business Wire and the Hanover website at www.hanover-co.com.
Teleconference: Tuesday, May 1, 2007 at 11 a.m. EDT hosted by
Stephen York, Vice President, Investor Relations and Technology.
Speakers will be John E. Jackson, President and CEO, and Lee E.
Beckelman, Senior Vice President and CFO. To access the call, United
States and Canadian participants should dial (800) 289-0494.
International participants should dial (913) 981-5520 at least 10
minutes before the scheduled start time. Please reference Hanover
conference call number 8617194.
Live Webcast: The webcast will be available in listen-only mode
via the Company’s website: www.hanover-co.com.
Webcast Replay: For those unable to participate, a replay will
be available from 1:30 p.m. EDT on Tuesday, May 1, until 1:30 p.m. EDT
Tuesday, May 8, 2007. To listen to the replay, please dial
888-203-1112 in the U.S. and Canada, or 719-457-0820 internationally
and enter access code 8617194.
About Hanover Compressor Company
Hanover Compressor Company (NYSE:HC) 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 production, 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.
More information can be found at www.hanover-co.com.
Forward-looking Statements
Certain matters discussed in this presentation are "forward-looking
statements" intended to qualify for the safe harbors from liabilities
established by the Private Securities Litigation Reform Act of 1995 and
Section 21E of the Securities Exchange Act of 1934, as amended. 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. Such forward-looking
statements are subject to certain 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; a prolonged substantial reduction in oil and natural gas
prices, which could cause a decline in the demand for our compression
and oil and natural gas production and processing equipment; reduced
profit margins or the loss of market share resulting from competition or
the introduction of competing technologies by other companies; changes
in economic or political conditions in the countries in which we do
business, including civil uprisings, riots, terrorism, kidnappings, the
taking of property without fair compensation and legislative changes;
changes in currency exchange rates; the inherent risks associated with
our operations, such as equipment defects, malfunctions and natural
disasters; ability to obtain components used to fabricate our products;
our inability to implement certain business objectives, such as
international expansion, ability to timely and cost-effectively execute
integrated projects, integrating acquired businesses, generating
sufficient cash, accessing the capital markets, and refinancing existing
or incurring additional indebtedness to fund our business; our inability
to consummate the proposed merger with Universal Compression Holdings,
Inc.; changes in governmental safety, health, environmental and other
regulations, which could require us to make significant expenditures;
and 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,
2007
2006
Revenues and other income:
U.S. rentals
$99,636
$91,643
International rentals
67,291
62,506
Parts, service and used equipment
81,340
49,271
Compressor and accessory fabrication
78,708
54,691
Production and processing equipment fabrication
133,238
78,619
Equity in income of non-consolidated affiliates
5,683
5,848
Gain on sale of business and other income
7,332
30,219
473,228
372,797
Expenses:
U.S. rentals
38,877
38,091
International rentals
23,305
21,332
Parts, service and used equipment
66,845
41,062
Compressor and accessory fabrication
63,245
46,693
Production and processing equipment fabrication
111,538
68,963
Selling, general and administrative
51,794
48,055
Merger expenses
324
—
Foreign currency translation
(308)
(1,497)
Early extinguishment of debt
—
5,902
355,620
268,601
EBITDA from continuing operations (1)
117,608
104,196
Depreciation and amortization
50,896
41,968
Interest expense
26,865
31,640
77,761
73,608
Income from continuing operations before income taxes
39,847
30,588
Provision for income taxes
14,445
8,447
Income from continuing operations
25,402
22,141
Loss from discontinued operations, net of tax
—
(92)
Cumulative effect of accounting change, net of tax
—
370
Net income
$25,402
$22,419
Basic income per common share:
Income from continuing operations
$0.25
$0.22
Income (loss) from discontinued operations, net of tax
0.00
0.00
Cumulative effect of accounting change, net of tax
0.00
0.00
Net income
$0.25
$0.22
Diluted income per common share:
Income from continuing operations (2)
$0.23
$0.22
Income (loss) from discontinued operations, net of tax
0.00
0.00
Cumulative effect of accounting change, net of tax
0.00
0.00
Net income
$0.23
$0.22
Weighted average common and common equivalent shares outstanding:
Basic
103,405
100,759
Diluted
117,619
111,428
Gross profit percentage:
U.S. rentals
61%
58%
International rentals
65%
66%
Parts, service and used equipment
18%
17%
Compressor and accessory fabrication
20%
15%
Production and processing equipment fabrication
16%
12%
(1) EBITDA from continuing operations consists of consolidated income
from continuing operations before interest expense, provision for income
taxes, and depreciation and amortization. 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.
Three Months Ended
March 31,
2007
2006
EBITDA Reconciliation
Income from continuing operations
$25,402
$22,141
Add:
Depreciation and amortization
50,896
41,968
Interest expense
26,865
31,640
Provision for income taxes
14,445
8,447
EBITDA from continuing operations
$117,608
$104,196
(2) Net income for the diluted earnings per share calculation for the
quarter ended March 31, 2007 is adjusted to add back interest expense
and amortization of financing costs totaling $1.6 million, net of tax,
relating to the Company’s convertible senior
notes due 2014 and convertible subordinated notes due 2029. Net income
for the diluted earnings per share calculation for the quarter ended
March 31, 2006 is adjusted to add back interest expense and amortization
of financing costs totaling $1.8 million, net of tax, relating to the
Company’s convertible senior notes due 2014.