HSE Integrated Ltd. (HSEIF.PK)

Q1 2011 Earnings Conference Call

May 17, 2011 11:00 AM ET

Executives

David Yager – Chief Executive Officer and Chairman of the Board

Lori McLeod-Hill – Chief Financial Officer

Analysts

Peter Prattas

Jamie Vallin

Presentation

Operator

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Good morning. My name is Amanda and I will be your conference operator today. At this time, I would like to welcome everyone to the HSE Integrated Limited 2011 First Quarter Financial Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] Thank you.

I would now like to turn the conference call over to Mr. David Yager, CEO and Chairman of the Board. Please go ahead.

David Yager – Chief Executive Officer and Chairman of the Board

Good morning. Thank you very much. I am joined by Lori McLeod-Hill, our Chief Financial Officer. Lori is going to do a summary of the financial performance in the quarter and then I am going to talk about operations and outlook.

Lori McLeod-Hill – Chief Financial Officer

Okay, good morning and welcome to our first quarter 2011 results call. Before we begin our discussion, I’d like to refer you to the forward-looking information disclosure on the last two pages of our MD&A. I would also like to note that all comparative numbers and our message today has been adjusted to confirm with International Financial Reporting Standards.

As we reported for the quarter ended March 31, 2011, total revenue was $24.5 million for the quarter, a 17% increase compared to $20.9 million in Q1, 2010. Net earnings for the quarter were $0.5 million or $0.01 per basic and diluted share. This compared to net earnings of $0.1 million in Q1, 2010.

Oilfield safety services revenue increased 33% to $11.9 million for the quarter ended March 31, 2011 compared to $29 million for the quarter ended March 31, 2010. This improvement with the results has improved oil prices and overall increases in drilling activity. Industrial safety services revenue increased 5% to $12.6 million for the quarter ended March 31, 2011 from $11.9 million in Q1, 2010.

Industrial revenues comprised 51% of total revenues, which is down from 57% at the same time last year. Improved industrial revenues resulted from new capital projects, where HSE is providing the safety services. Oilfield safety services are associated exclusively with conventional upstream oil and gas activity, which is up in short-term mobile and temporary, because they are related to interruptible exploration, drilling, completion and work over activities.

Industrial health and safety services are those provided to all other industries and include oil sands manufacturing, oil and gas processing, refining, petrochemicals. Industrial safety services are in most cases delivered in permanent facilities that operate continuously. EBITDA increased 26% from $2 million for the quarter ended March 31, 2010, $2.5 million for the quarter ended March 31, 2011. HSE continues to focus on margin improvements in all aspects of our business.

SG&A expenses increased $0.1 million in Q1, 2011 compared to the same time last year. Balance sheet was very strong. Working capital at March 31, 2011 was $10 million compared to $10 million at March 31, 2010. Day sales outstanding improved from 78 days at March 31, 2010 to 74 days, which is consistent with year-end. Capital expenditures for the first quarter were $1.2 million. Capital expenditures for Q1, 2010 were $0.5 million. At March 31, 2011, HSE has $0.5 million cash on hand and was compliant with all debt coming into March 31.

David Yager – Chief Executive Officer and Chairman of the Board

Thanks Lori.

Lori McLeod-Hill – Chief Financial Officer

Thanks Dave.

David Yager – Chief Executive Officer and Chairman of the Board

All right. Good morning. We – first of all, we are delighted to report our fifth consecutive quarter-over-quarter improvement. This is a trend that started in the first quarter of 2010 and continued through the first quarter of 2011. It’s our second consecutive profitable quarter and our intention is to keep this up to the greatest degree possible as we go into Q2, Q3, and the rest of the year. So, the business has improved and we are going to work on margin and profitability gains.

Of the two segments and we discussed this at length in the press release and the MD&A, there is the oilfield type. The oilfield type grew in the first quarter revenues for the first time since 2006. However, what we do, do is discuss at length how sour gas drilling, which has been the key component of companies like ours since inception is really on the shelf because of current gas prices and high operating costs. So, this is a fundamental change in our business. We have been talk about this as drilling targets and we discussed this at length in the MD&A as drilling switches

from gas to oil could we participate.

Well, the good news is we can participate in the sense that the year-over-year oilfield increases that we are moving along, but the business isn’t what it was. The water sensitive reservoirs that contain oil, our fire trucks are working. They are fracturing with hydrocarbon-based compounds, including gas fracs using liquefied petroleum or they are using large acid jars. So, that part of the business looks pretty good. But the reality is the solid gas component, which has been a core element, is just not coming back any time soon.

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