Q1 2011The MD&A and Financials were released on SEDAR on June 14. In my opinion the Q1 results were decent but they do have some challenges ahead. The directional drilling business accounted for 84% of the revenues and generated positive EBITDA of $742K and net income of $596K. On the other hand, the pipeline business posted 16% of revenues and generated positive EBITDA of $18K and a net loss of $466K. I like Management's focus on securing strong margin contracts only. The gross margin improved significantly from the same quarter in 2010.
My concerns lie with cash flow and the debt due in November 2011. We are going into the seasonally slow summer months with a significant amount of debt due on the other side. Management has enterred into 2 favorable debt agreements for $1.8M and $1.1M which should take care of most of the term debt due in November 2011. So long as they maintain positive cash flows from opertions through Q2 and Q3, the debt should not be a problem as the Company will just use the new debt to pay down the 24% term loan.
I was hoping for a stronger revenue line but I'm glad they have not enterred into negative margin contracts (not sure why they ever did enter negative margin contracts) or weak margin contracts. I hope they continue to rent out idle equipment and sell off non-core assets.
Overall I think 2011 could be a year of change as the Company transitions more to direcitonal drilling and focuses on strong margin contracts, pays down debt and cleans up its balance sheet.