Allis-Chalmers Sees 41% Increase in 2Q Revenues

Allis-Chalmers reported results for the second quarter of 2010. Revenues for the second quarter of 2010 increased 41.0% to $158.6 million compared to $112.5 million for the second quarter of 2009 and Adjusted EBITDA increased 159% in the quarter to $27.2 million compared to $10.5 million for the second quarter of 2009. Allis-Chalmers reported a net loss attributed to common stockholders for the second quarter of 2010 of $6.0 million, or $0.08 per diluted share, compared to a net loss of $125,000, or $0.00 per diluted share in the second quarter of 2009. Results for the second quarter of 2010 included the impact of a strike in Argentina which negatively affected pre-tax income by an estimated $1.7 million. Results for the second quarter of 2009 included a $26.4 million pre-tax gain on debt extinguishment.

Revenues for the first six months of 2010 increased 16.1% to $299.0 million compared to $257.6 million for the first six months of 2009. Allis-Chalmers reported a net loss attributed to common stockholders for the first six months of 2010 of $16.2 million, or $0.23 per diluted share, compared to a net loss of $2.7 million, or $0.08 per diluted share for the first six months of 2009. Results for the first six months of 2010 included the impact of a strike in Argentina which negatively affected pre-tax income by an estimated $1.7 million. Results for the first six months of 2009 included a pre-tax gain of $26.4 million from the extinguishment of debt.

EBITDA and Adjusted EBITDA are non-GAAP financial measures that are not necessarily comparable from one company to another and additional information and discussion regarding EBITDA and Adjusted EBITDA are provided later in this release.

Weighted average shares of common stock outstanding on a diluted basis increased to 71.3 million for the second quarter of 2010 compared to 37.0 million for the second quarter of 2009.

Micki Hidayatallah, Allis-Chalmers' Chairman and Chief Executive Officer, stated, "We have seen significant improvement in our performance compared to the challenging environment which existed in the first half of 2009. Since the second quarter of 2009 our total revenues have increased sequentially in each of the past four quarters, and our Adjusted EBITDA is up 159% from the second quarter of 2009 and up 23.6% compared to the first quarter of 2010. Our Oilfield Services segment revenues increased 25.5% in the second quarter compared to the first quarter of 2010 led by improved utilization and pricing in our directional drilling and coiled tubing business lines. We have successfully focused our resources on the strongest U.S. onshore markets, including the Marcellus, Haynesville and Eagle Ford shale plays."

Mr. Hidayatallah continued, "Revenues for our Rental Services segment increased sequentially by 5.7% compared to the first quarter of 2010, due to our emphasis on providing the highest quality equipment for the onshore unconventional gas market, where pricing and equipment utilization is the most favorable. Even prior to the U.S. Gulf of Mexico blowout, Allis-Chalmers has been proactive in diversifying from the U.S. offshore market and responding to market demands with strategic initiatives such as: 1) redeploying rental equipment to Egypt, Saudi Arabia and Brazil, 2) investing in equipment that is in strong demand in the U.S. land shale plays, and 3) embarking on an aggressive plan to recertify our existing inventory of blowout preventers (BOPs) so that we can maintain our competitive strength in providing certified BOPs both offshore in the Gulf of Mexico and onshore in the U.S. In the third quarter we expect to have Rental Services facilities in Pennsylvania to serve the Marcellus shale activity and in Macae, Brazil to serve the offshore market with our large diameter drill pipe and patented deepwater landing string system."

Mr. Hidayatallah concluded, "As a result of improved pricing and rig utilization in Argentina and new contracts in Bolivia, our Drilling and Completion segment achieved a 29.1% increase in operating income compared to the first quarter of 2010. This is a remarkable achievement considering labor disruptions in Argentina during the second quarter which had a $2.1 million negative impact on revenues and an estimated $1.7 million negative impact on pre-tax income. We expect strong utilization of our drilling rigs in Argentina and Bolivia for the remainder of 2010."

Segment Results for Second Quarter 2010

  • Oilfield Services. Revenues for the quarter ended June 30, 2010 for the Oilfield Services segment were $49.7 million, an increase of 68.7% compared to $29.5 million in revenues for the quarter ended June 30, 2009. Income from operations increased $12.3 million and resulted in income from operations of $2.1 million for the second quarter of 2010 compared to a loss from operations of $10.3 million in the second quarter of 2009. Our Oilfield Services segment revenues and operating income for the second quarter of 2010 increased compared to the second quarter of 2009 due to increased drilling activity in the U.S. which resulted in increased demand and improved pricing for our services. The loss from operations in the second quarter of 2009 includes $868,000 of costs related to the closing of unprofitable locations and downsizing other locations in our Oilfield Services segment. In addition, in the second quarter of 2009 we recorded bad debt expenses of $2.4 million as a result of decreased oil and natural gas prices and the financial difficulties some of our customers faced in 2009.
  • Drilling and Completion. Revenues for the quarter ended June 30, 2010 for the Drilling and Completion segment were $96.0 million, an increase of 41.6% compared to $67.8 million in revenues for the quarter ended June 30, 2009. Income from operations increased to $7.1 million in the second quarter of 2010 compared to $403,000 in the second quarter of 2009. This increase was due to: 1) improved rig utilization and rig rates in Argentina and Bolivia during the three months ended June 30, 2010, 2) a $1.9 million non-cash loss recorded in the three months ended June 30, 2009 on an asset disposition, and 3) $329,000 of costs incurred to consolidate operating locations in Brazil in the second quarter of 2009. Partially offsetting the improved results in the second quarter of 2010 was decreased rig utilization and pricing in Brazil and an increase in depreciation expense of $1.0 million.
  • Rental Services. Revenues for the quarter ended June 30, 2010 for the Rental Services segment were $12.9 million, a decrease from $15.2 million in revenues for the quarter ended June 30, 2009. Our Rental Services segment generated a loss from operations of $831,000 in the second quarter of 2010 compared to $588,000 of operating income in the second quarter of 2009. The decrease in revenues and income from operations is due to the decrease in utilization of rental equipment due to a decline in drilling activity in the U.S. Gulf of Mexico. Our income from operations in the second quarter of 2009 included $800,000 of bad debt expense due to the financial difficulties some of our customers faced in 2009, and $235,000 of costs related to closing a rental yard and reducing our work force.
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