W-H Energy Services Announces Second Quarter 2008 Results
W-H Energy Services, Inc. (NYSE:WHQ) announced second quarter net income of $45.8 million or $1.45 per share (excluding approximately $5.1 million or $0.16 per share of transaction costs related to the proposed acquisition of the Company by Smith International, Inc.) as compared to the $39.1 million or $1.25 per share reported for the same period in the prior year. In the preceding quarter, the Company reported net income of $37.1 million or $1.18 per share.
Revenues for the second quarter of $346.9 million were 25 percent higher than the second quarter of 2007 and were 15 percent higher than the preceding quarter. Domestic revenues increased 26 percent as compared to the second quarter of last year and were 17 percent higher than the preceding quarter. International revenues also increased 13 percent as compared to the second quarter of last year and were 1 percent higher than the preceding quarter.
The Company spent approximately $62.0 million in capital expenditures during the second quarter, resulting in a year-to-date capital spend of approximately $120.1 million.
QUARTERLY SEGMENT RESULTS
Drilling
Revenues in the drilling segment were $223.0 million in the second quarter, 25 percent higher than the comparable period in the prior year and 15 percent higher than the preceding quarter. Sequential increases in revenue from the Company’s drilling lines of business were 38 percent in rental tools, 17 percent in drilling fluids, and 10 percent in measurement/logging-while-drilling, directional drilling and motors.
Operating income from the drilling segment of $43.2 million was 5 percent higher than the comparable period in the prior year and 15 percent higher than the preceding quarter.
Completion and workover
Second quarter revenues in the completion and workover segment were $124.0 million, 26 percent higher than the comparable period in the prior year and 16 percent higher than the preceding quarter. Sequential increases in revenue from the Company’s completion and workover lines of business were 23 percent in completion fluids, 18 percent in rental tools, 17 percent in cased-hole wireline, and 12 percent in coiled tubing.
Operating income from the completion and workover segment of $34.8 million recorded in the second quarter was 34 percent higher than the comparable period in the prior year and 23 percent higher than the preceding quarter.
W-H Energy is a diversified oilfield service company that provides products and services used in connection with the drilling and completion of oil and natural gas wells and the production of oil and natural gas. The Company has operations in North America and select areas internationally.
Statements in this press release that are not strictly historical are “forward-looking” statements as defined in the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those projected in the forward-looking statements due to, among other things, the current and expected future prices of crude oil and natural gas, the level of exploration, development and production activity of, and the corresponding capital spending by, our customers, risks associated with events that result in personal injuries, loss of life, damage to or destruction of property, equipment or the environment and suspension of operations, unavailability of or costs associated with insurance, competition in our industry, difficulty in continuing to develop, produce and commercialize technologically advanced products and services, loss of use of certain technologies and weather conditions in offshore markets. These and other risks are more fully described in W-H Energy Services, Inc.’s Annual Report filed on Form 10-K with the Securities and Exchange Commission. The Company disclaims any obligation to update the statements in this press release.
Smith International, Inc. (“Smith”) filed a registration statement on Form S-4 and a tender offer statement on Schedule TO with the SEC on June 24, 2008, as amended, and W-H filed a solicitation/recommendation statement on Schedule 14D-9 on June 24, 2008, as amended, in connection with Smith’s pending exchange offer to acquire all the outstanding shares of W-H common stock. These documents contain important information about the exchange offer that should be read carefully before any decision is made with respect to the exchange offer. These materials will be made available to the shareholders of W-H at no expense to them. Investors and security holders may obtain the documents free of charge at the SEC’s web site, www.sec.gov. In addition, such materials (and all other documents filed with the SEC) may be obtained free of charge at www.smith.com or www.whes.com. You may also read and copy any reports, statements and other information filed by Smith or W-H with the SEC at the SEC public reference room at 100 F Street N.E., Room 1580, Washington, D.C. 20549. Please call the SEC at (800) 732-0330 or visit the SEC’s website for further information on its public reference room. Copies of the exchange offer materials may also be obtained at no charge from MacKenzie Partners, Inc., the information agent for the exchange offer, toll-free at 1-800-322-2885.
W-H ENERGY SERVICES, INC. UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share amounts) Three Months Ended Six Months Ended June 30, June 30, ——————- ——————- 2008 2007 2008 2007 ——— ——— ——— ——— Revenues $346,937 $277,752 $647,905 $550,639 Costs and Expenses: Cost of revenues 191,276 145,386 355,314 292,805 Selling, general and administrative 50,874 44,964 97,044 88,244 Transaction related costs (1) 5,350 – 5,350 – Research and development 6,849 5,485 12,943 10,201 Depreciation and amortization 24,671 19,162 47,988 36,714 ——— ——— ——— ——— Total costs and expenses 279,020 214,997 518,639 427,964 Operating income 67,917 62,755 129,266 122,675 Other expenses: Interest expense, net 2,770 1,896 5,178 3,889 Other income, net (4) (70) (12) (41) ——— ——— ——— ——— Income before income taxes 65,151 60,929 124,100 118,827 Provision for income taxes 24,405 21,855 46,294 43,929 ——— ——— ——— ——— Net income $ 40,746 $ 39,074 $ 77,806 $ 74,898 ========= ========= ========= ========= Earnings per common share: Basic $ 1.33 $ 1.29 $ 2.54 $ 2.48 Diluted $ 1.29 $ 1.25 $ 2.48 $ 2.42 Weighted average shares outstanding: Basic 30,670 30,315 30,622 30,196 Diluted 31,480 31,140 31,389 31,008 (1) Transaction related costs for the three and six months ended June 30, 2008 includes costs related to the proposed acquisition of the Company by Smith International, Inc. For more information, see the reconciliation of non-GAAP measures presented elsewhere in this press release.
W-H ENERGY SERVICES, INC. UNAUDITED CONSOLIDATED CONDENSED BALANCE SHEETS (in thousands) June 30, 2008 December 31, 2007 ————- —————– Assets: Cash and cash equivalents $ 30,943 $ 23,076 Accounts receivable, net 281,437 252,313 Inventory 119,232 102,584 Other current assets 31,056 28,880 ————- —————– Total current assets 462,668 406,853 Property and equipment, net 516,302 448,913 Other assets 199,603 151,264 ————- —————– Total assets $ 1,178,573 $ 1,007,030 ============= ================= Liabilities and Shareholders’ Equity: Accounts payable and accrued liabilities $ 127,685 $ 116,815 ————- —————– Total current liabilities 127,685 116,815 Long-term debt (1) 225,149 150,000 Other liabilities 84,502 84,687 ————- —————– Total liabilities 437,336 351,502 Shareholders’ equity 741,237 655,528 ————- —————– Total liabilities and shareholders’ equity $ 1,178,573 $ 1,007,030 ============= ================= (1) As of June 30, 2008, there was approximately $139.4 million available under the Company’s revolving credit facility.
W-H ENERGY SERVICES, INC. UNAUDITED SEGMENTED AND SELECTED FINANCIAL DATA (in thousands) For the Three Months Ended: ————————————————- December September June 30, March 31, 31, 30, June 30, 2008 2008 2007 2007 2007 ——— ——— ——— ——— ——— SEGMENTED INFORMATION: Revenue: Drilling $222,984 $194,253 $192,555 $187,456 $179,141 Completion and workover 123,953 106,715 100,821 95,536 98,611 ——— ——— ——— ——— ——— Total revenue $346,937 $300,968 $293,376 $282,992 $277,752 ========= ========= ========= ========= ========= Depreciation and amortization: Drilling $ 14,899 $ 14,063 $ 13,737 $ 12,542 $ 11,600 Completion and workover 9,709 9,190 8,352 7,825 7,493 Corporate 63 64 66 50 69 ——— ——— ——— ——— ——— Total depreciation and amortization $ 24,671 $ 23,317 $ 22,155 $ 20,417 $ 19,162 ========= ========= ========= ========= ========= Operating income: Drilling $ 43,242 $ 37,593 $ 39,272 $ 40,114 $ 41,307 Completion and workover 34,842 28,447 26,318 21,726 26,032 Corporate (1) (10,167) (4,691) (4,999) (5,147) (4,584) ——— ——— ——— ——— ——— Total operating income $ 67,917 $ 61,349 $ 60,591 $ 56,693 $ 62,755 ========= ========= ========= ========= ========= (1) Corporate operating expense for the three months ended June 30, 2008 includes costs of approximately $5.4 million related to the proposed acquisition of the Company by Smith International, Inc. For more information, see the reconciliation of non-GAAP measures presented elsewhere in this press release.
W-H ENERGY SERVICES, INC. UNAUDITED RECONCILIATION OF NON-GAAP FINANCIAL MEASURES (1) (in thousands, except per share amounts) Three Months Ended Six Months Ended June 30, June 30, —————— —————— 2008 2007 2008 2007 ——— ——– ——— ——– Net income (as reported) $ 40,746 $39,074 $ 77,806 $74,898 Transaction related costs 5,350 – 5,350 – Less: Tax impact of transaction related costs (281) – (281) – ——— ——– ——— ——– Transaction related costs, net of tax 5,069 – 5,069 – ——— ——– ——— ——– Net income before transaction related costs $ 45,815 $39,074 $ 82,875 $74,898 ========= ======== ========= ======== Per diluted common share information: Net income (as reported) $ 1.29 $ 1.25 $ 2.48 $ 2.42 Transaction related costs, net of tax 0.16 – 0.16 – ——— ——– ——— ——– Net income before transaction related costs $ 1.45 $ 1.25 $ 2.64 $ 2.42 ========= ======== ========= ======== Corporate segment operating expense (as reported) $(10,167) $(4,584) $(14,858) $(9,498) Transaction related costs 5,350 – 5,350 – ——— ——– ——— ——– Corporate segment operating expense before transaction related costs $ (4,817) $(4,584) $ (9,508) $(9,498) ========= ======== ========= ======== (1) Management believes that the non-GAAP financial measures included within this press release are used by financial analysts and investors to provide comparative financial information regarding the continuing operations of the Company, particularly with regard to transaction costs that have been incurred as a result of the proposed acquisition of the Company by Smith International, Inc. These measures should not be considered as an alternative to net income or any other measure of operating performance calculated in accordance with generally accepted accounting principles.