Wenzel Downhole Tools Ltd.

Wenzel Downhole Tools Ltd.

November 08, 2006 09:00 ET

Wenzel Downhole Tools Ltd. Announces Third Quarter Results for 2006

CALGARY, ALBERTA--(CCNMatthews - Nov. 8, 2006) - Wenzel Downhole Tools Ltd. ("WZL" or the "Company") (TSX:WZL) announces financial results for the third quarter ended September 30, 2006.

Results for Third Quarter and Nine Months Ended September 30, 2006

In the third quarter of 2006 gross revenue was $14.2 million, an increase of 51.7% over $9.4 million for 2005. For the nine month period ending September 30, 2006 gross revenue was $35.9 million compared to $27.3 million, an increase of 31.5% for the same period in 2005. This improvement is a result of increased international sales and strong industry activity both in Canada and the U.S., plus greater use of mud motors in oil and gas well drilling and increased market penetration.

Earnings before income taxes and other expenses were $3.9 million for the third quarter compared to $2.7 million in the same period in 2005 and $8.6 million for the nine month period in 2006 compared to $4.5 million in 2005. For the first nine months EBITDA (earnings before interest, taxes, depreciation, amortization and other expenses) was $14.2 million in 2006 compared to $9.0 million in 2005.

Extra administration costs associated with the hostile take-over bid during the second and third quarters plus the fact that the company is taxable in 2006 resulted in net after tax earnings of $1.8 million for the third quarter or $0.06 per share versus $2.3 million or $0.08 in 2005.

Gross profit margins of 52% for the nine months ended September 30, 2006 also show an increase as compared to nine months ended 2005. High utilization rates on rental assets, together with increased service capacities related to our new generation of drilling motors and continuous improvement to our service operations have resulted in this improvement to gross margin. Gross profit percentage for the third quarter decreased to 49% compared to 56% in the same period of 2005. The historically strong economic and industry factors in which the Company operates are substantially unchanged from the year ended December 31, 2005, nevertheless, margins were reduced this quarter as a result of adding new inexperienced staff, higher freight charges and increased outsourcing of manufacturing to meet demand.

Highlights of the three and nine months ended September 30, 2006 and 2005 are summarized in the following table together with comparative year end 2005

3 Months Ended 9 Months ended Year Ended
September 30 September 30 December 31
($000's) ($000's) ($000's)
2006 2005 2006 2005 2005
Revenue 14,198 9,356 35,896 27,263 39,397
Gross Profit 6,900 5,233 18,624 12,678 18,960
Gross Profit Percentage 49% 56% 52% 47% 48%
Earnings before interest,
taxes, depreciation,
amortization and other
expenses Note(1) 5,527 4,098 14,180 8,988 13,758

Operating earnings before
other expenses and
income taxes 3,880 2,702 8,610 4,473 7,820
Earnings before income
taxes 2,691 2,317 6,658 3,697 6,644
Net earnings 1,824 2,317 4,341 3,614 6,507
Net earnings per share
- basic 0.06 0.08 0.14 0.12 0.21
Total Assets 53,435 40,551 53,435 40,551 43,625
Long Term Debt 5,455 6,951 5,455 6,951 6,806

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 and other expenses due mainly to professional fees associated with the investigations arising from the cease trade, the recent takeover bid, and related regulatory matters have been excluded so as to make year to year comparisons more meaningful. Management uses EBITDA as a measurement to determine the ability of the Company to generate cash from recurring 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.

On July 4, 2006 the Company announced that its Board of Directors had approved its conversion to an Income Trust, subject to regulatory and shareholder approvals, however, on October 31, 2006 the Minister of Finance of Canada proposed new tax provisions for income trusts. As a result, the Company has cancelled any further work on a conversion to an income trust.

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 15, 2006.

Forward Looking Statements

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 there from. Please refer to the Company's public disclosure documents for more information on these risks and uncertainties as they apply to the Company.


Contact Information

  • Wenzel Downhole Tools Ltd.
    Harvie Andre
    President and CEO
    (403) 205-6696
    (403) 265-8154 (FAX)
    Wenzel Downhole Tools Ltd.
    Ron Dooley
    Chief Financial Officer
    (403) 205-6696
    (403) 265-8154 (FAX)
    Website: www.downhole.com