Hanover Reports Strong Results for Second Quarter 2007

Hanover Compressor (NYSE:HC) reported financial results for the quarter ended June 30, 2007.

Second quarter 2007 revenue increased to $515.7 million, a 27% increase over second quarter 2006 revenue of $405.7 million. Net income for the second quarter 2007 was $26.1 million, or $0.23 earnings per share, compared with net income of $21.7 million, or $0.21 earnings per share, in the second quarter 2006.

EBITDA(1) from continuing operations for the second quarter 2007 was a record $121.8 million, a 17% increase over second quarter 2006 EBITDA of $103.8 million. Second quarter 2007 EBITDA includes $3.1 million in merger related expenses. Second quarter 2006 EBITDA included an $8.0 million pre-tax gain on the sale of fabrication assets in Canada, or approximately $0.07 per share.

"We are pleased with the strong results for the second quarter, with record revenue, EBITDA, backlog and fabrication margin," said John Jackson, President and CEO. "I want to congratulate the Hanover employees on these operational records and job well done to position the Company for a successful merger with Universal."


Summary of Business Line Results

                                 U.S. Rentals
                                (in thousands)

                                         Three months ended
                                              June 30,
                                       -----------------------
                                                                Increase
                                          2007        2006     (Decrease)
                                       ----------- ----------  -----------
    Revenue                            $   99,562  $  93,073           7%
    Operating expense                      40,258     36,729          10%
                                       ----------- ----------
    Gross profit                       $   59,304  $  56,344           5%
    Gross margin                               60%        61%         (1)% 

U.S. rental revenue and gross profit increased during the three months ended June 30, 2007, compared to the three months ended June 30, 2006, due primarily to an improvement in market conditions for higher horsepower units that has led to an improvement in pricing. Gross margin decreased slightly in the current quarter as compared to the same period last year due to higher repair and maintenance expenses.

International Rentals
                                (in thousands)

                                         Three months ended
                                              June 30,
                                       -----------------------
                                                                Increase
                                          2007        2006     (Decrease)
                                       ----------- ----------- -----------
    Revenue                            $   69,645  $   67,520          3%
    Operating expense                      27,675      23,691         17%
                                       ----------- -----------
    Gross profit                       $   41,970  $   43,829         (4)%
    Gross margin                               60%         65%        (5)%

During the three months ended June 30, 2007, international rental revenue increased, compared to the three months ended June 30, 2006, primarily due to increased rental activity in Brazil and Mexico. Gross margin and gross profit decreased primarily due to higher repair and maintenance costs in Argentina and Venezuela as well as lower revenues in Nigeria in the second quarter of 2007. Revenue related to our Nigerian Cawthorne Channel Project was not recognized during the three months ended June 30, 2007 since the project was not on-line, however, we recorded expenses of $0.8 million related to maintaining the project. The three months ended June 30, 2006 included $3.9 million in revenue and $1.6 million in operating costs related to this project.

Parts, Service and Used Equipment
                                (in thousands)

                                         Three months ended
                                              June 30,
                                       -----------------------
                                                                Increase
                                          2007        2006     (Decrease)
                                       ----------- ----------- -----------
    Revenue                            $   72,664  $   55,737          30%
    Operating expense                      56,036      45,061          24%
                                       ----------- -----------
    Gross profit                       $   16,628  $   10,676          56%
    Gross margin                               23%         19%          4% 

Parts, service and used equipment revenue, gross profit and gross margin for the three months ended June 30, 2007 were higher than the three months ended June 30, 2006 primarily due to an increase in parts and service revenues in both the U.S. and internationally as well as higher used rental equipment sales.

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 three months ended June 30, 2007, parts and service revenue was $49.8 million with a gross margin of 27%, compared to $41.9 million and 21%, respectively, for the three months ended June 30, 2006. Used rental equipment and installations sales for the three months ended June 30, 2007 was $22.8 million with a gross margin of 14%, compared to $13.8 million with a 14% gross margin for the three months ended June 30, 2006. 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
                                              June 30,
                                       -----------------------
                                                                Increase
                                          2007        2006     (Decrease)
                                       ----------- ----------- -----------
    Revenue                            $  139,508  $   70,128          99%
    Operating expense                     106,016      58,482          81%
                                       ----------- -----------
    Gross profit                       $   33,492  $   11,646         188%
    Gross margin                               24%         17%          7% 

For the three months ended June 30, 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. As of June 30, 2007, we had compression fabrication backlog of $299.0 million, compared to $193.0 million at June 30, 2006.

Production and Processing Equipment Fabrication (in thousands) Three months ended June 31, ----------------------- Increase 2007 2006 (Decrease) ----------- ----------- ----------- Revenue $ 122,595 $ 103,653 18% Operating expense 104,336 89,203 17% ----------- ----------- Gross profit $ 18,259 $ 14,450 26% Gross margin 15% 14% 1%

Production and processing equipment fabrication revenue, gross profit and gross margin for the three months ended June 30, 2007 increased over the three months ended June 30, 2006, primarily due to an improvement in market conditions that led to an increase in awarded sales, improved pricing and an improvement in operating efficiencies. During the quarter ended June 30, 2007, Belleli's revenue increased $24.4 million to $81.0 million and gross profit increased $0.4 million to $6.3 million compared to the quarter ended June 30, 2006. Belleli's gross profit was negatively impacted during the three months ended June 30, 2007 by approximately $6.7 million of re-work costs on one of its projects.

As of June 30, 2007, we had a production and processing equipment fabrication backlog of $731.6 million compared to $521.5 million at June 30, 2006, including Belleli's backlog of $569.4 million and $454.2 million at June 30, 2007 and 2006, respectively.

Capital and Other

Hanover had capital expenditures of approximately $69 million in the second quarter of 2007, compared to approximately $62 million in the second quarter of 2006. At June 30, 2007, the Company had approximately $1.35 billion in debt and compression equipment lease obligations, compared to $1.44 billion at June 30, 2006. At June 30 2007, the Company had approximately $53.8 million in cash on its balance sheet.

Total compression horsepower at June 30, 2007 was approximately 3,343,000, consisting of approximately 2,419,000 horsepower in the United States and approximately 924,000 horsepower internationally.


    Backlog (in millions)

                                 Compression &  Production &     Total
    Date                           Accessory   Processing(a)  Fabrication
    ---------------------------- ------------- -------------- ------------
    June 30, 2007                $       299.0 $        731.6 $     1030.6
    December 31, 2006                    325.1          482.5        807.6
    June 30, 2006                        193.0          521.5        714.5

    (a) Includes Belleli backlog of $569.4 million, $414.0 million and
     $454.2 million at June 30, 2007, December 31, 2006 and June 30, 2006,
     respectively.


    Compression HP Utilization Rate

    Date                             U.S.      International     Total
    ---------------------------- ------------- ------------- -------------
    June 30, 2007                          81%           96%           85%
    December 31, 2006                      84%           97%           87%
    June 30, 2006                          84%           98%           88% 
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