Canyon Services Group Inc. (TSX:FRC) reports first quarter 2008 results
Wed May 14, 5:35 PMCALGARY, May 14 /CNW/ - Canyon Services Group Inc. today announced its first quarter 2008 results. The following should be read in conjunction with the Management's Discussion and Analysis, the consolidated financial statements and notes of Canyon Services Group Inc. which are available on SEDAR at www.sedar.com.
Certain statements in this document may constitute "forward-looking" statements which involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. When used in this document, such statements use such words as "may", "would", "could", "will", "intend", "expect", "believe", "plan", "anticipate", "estimate" and other similar terminology. These statements reflect the Company's current expectations regarding future events and operating performance and speak only as of the date of this document. Forward-looking statements involve significant risks and uncertainties, should not be read as guarantees of future performance or results, and will not necessarily be accurate indications of whether or not such results will be achieved. A number of factors could cause actual results to differ materially from the results discussed in the forward-looking statements, including, but not limited to price volatility for oil and natural gas and the consequent effect on demand for oilfield services, competition, availability of materials and personnel, and general political, economic and weather conditions. Actual results may vary materially from those anticipated depending on the outcome of any of these uncertainties.
OVERVIEW OF FIRST QUARTER 2008
For nearly two years, the oil and gas services sector has been impacted by weak demand for well stimulation services leading to lower equipment utilization levels and downward price pressures. This was also evident in the first quarter of 2008, as well licensing activity and drilling rig utilization, the key indicators for utilization of stimulation equipment, trailed the prior year's quarter by about 7% and 9% respectively. Nevertheless, throughout the economic downturn, Canyon achieved growing customer acceptance for its proprietary technologies resulting in higher job counts and revenues. This was the case in Q1 2008 when Canyon's job count and revenues increased by 89% and 30% respectively over the prior year's quarter, even though activity levels in the well stimulation services industry were lower.
The operational and financial highlights for the first quarter of 2008 may be summarized as follows:
Highlights
- As previously reported, in January 2008, Canyon was granted a
Canadian patent for its proprietary Grand Canyon process. The
benefits of this process for Canyon's customers include no reservoir
damage, higher production rates, reduced completion costs and the
elimination of water use.
- Canyon's job count continues to grow quarter by quarter, with
500 jobs completed in Q1 2008, an increase of 89% over the 265 jobs
completed in Q1 2007 and an increase of 26% from the 396 jobs
completed in the previous quarter, Q4 2007.
- In Q1 2008, Canyon achieved significant growth in the Hydraulic
Fracturing Services Division which contributed 42% of the job count
compared to 25% in Q1 2007. This gain can be attributed to the
addition of experienced sales professionals in the last half of 2007.
A further addition to the sales team was made in March 2008.
- During the current quarter under review, Canyon's High Rate Nitrogen
Services Division completed a 160-well program for a major E&P
company. This program commenced in Q4 2007 and utilized the
proprietary Grand Canyon process with excellent results for the
customer.
- In Q1 2008, Revenues increased by 30% to $18.5 million from
$14.2 million in the prior year comparable quarter.
- The fixed component of operating and SGA expenses decreased by
$0.7 million in Q1 2008 over Q1 2007 due to cost cutting and
efficiency measures introduced in 2007.
- Canyon has introduced a new service line, remedial cementing, which
is expected to commence operations in June 2008 and which will deploy
existing underutilized equipment in the Chemical Services and
Cementing Division. No capital expenditures are required to introduce
this new service line and the staffing is in place.
- Q1 2008 EBITDA (before stock option expense) was $1.7 million,
unchanged from the $1.7 million earned in Q1 2007. Although revenues
increased by 30%, pricing competition drastically reduced operating
costs.
QUARTERLY COMPARATIVE STATEMENTS OF OPERATIONS
Quarter Ended March 31, 2008 March 31, 2007
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($, except per share amounts) (Unaudited) (Unaudited)
Revenues $18,454,141 $14,220,235
Expenses
Operating 15,022,341 10,957,063
Selling, general and administrative 1,946,718 1,687,998
Interest on long-term debt 356,614 270,833
Other interest 30,362 36,844
Depreciation 2,381,235 2,446,454
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Loss before income taxes (1,283,129) (1,178,957)
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Income taxes-current (recovery) - (749,864)
Income taxes-future (reduction) (299,312) 402,978
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(299,312) (346,886)
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Net loss ($983,817) ($832,071)
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EBITDA before stock option expense
- Note(1) $1,669,294 $1,747,692
EBITDA - Note(1) $1,485,082 $1,575,174
Loss per share:
Basic ($0.04) ($0.04)
Diluted ($0.04) ($0.04)
Note (1): See Non-GAAP Measures.
Revenues
In Q1 2008, the total number of jobs completed by Canyon increased by 89% to 500 from 265 in the prior year's quarter, while revenues increased by 30% to $18.5 million from $14.2 million over the same periods. The percentage increase in job count was not matched by a comparable increase in job revenues as the pricing of well stimulation services across the industry declined in response to lower demand by E&P companies and pricing competition within the pumping services industry. Revenue per job declined by 31% to $37,059 in Q1 2008 from $53,481 in the prior year's comparable quarter.
Operating Expenses
Operating expenses for the quarter ended March 31, 2008 were $15.0 million compared to $11.0 million for Q1 2007, a 37% increase. The increase is largely due to the significantly higher job count in the current quarter under review. Although overall operating expenses have increased as a result of increased activity, total fixed costs, including selling, general and administrative expenses decreased by $0.7 million in Q1 2008 compared to Q1 2007, due to cost cutting and efficiency measures introduced in 2007.
Selling, General and Administrative Expenses
Selling, general and administrative expenses have increased in Q1 2008 to $1.9 million from $1.7 million in Q1 2007. The increase is mostly due to one-time costs associated with hiring additional sales professionals and a second operating base in Grande Prairie which became fully operational in January 2008. Included in this category of expense is non-cash stock-based compensation expense of $0.2 million in Q1 2008, unchanged from the $0.2 million recorded in Q1 2007.
EBITDA (See Non-GAAP Measures)
EBITDA before stock option expense in Q1 2008 was $1.7 million, unchanged from the $1.7 million recorded in the prior year's comparative quarter. This amount is computed as Loss before income taxes of ($1.3) million, plus Depreciation and amortization of $2.4 million, plus Interest on long-term debt and Other interest of $0.4 million, plus non-cash stock option expense $0.2 million. The prior year's quarter recorded EBITDA before stock option expense of $1.7 million which comprises Loss before income taxes of ($1.2) million, plus Depreciation and amortization of $2.4 million, plus Interest on long-term debt and Other interest of $0.3 million, plus stock option expense $0.2 million. The increase in EBITDA was not proportionate to the increase in Revenues mainly because of pricing pressures associated with the reduced demand by E&P companies for well stimulation services.
Interest Expense
Interest on long-term debt and Other interest increased to $0.4 million for Q1 2008 from $0.3 million for Q1 2007 as the average level of long-term debt outstanding increased to partially fund Canyon's equipment build program that was completed in 2007.
Depreciation Expense
Depreciation expense was recorded at $2.4 million in Q1 2008, unchanged from the $2.4 million recorded in Q1 2007. In the current quarter under review, Canyon provided for depreciation on its full fleet of 13 equipment spreads compared to ten spreads depreciated in Q1 2007. Effective October 1, 2007 in consultation with suppliers and operations management, Canyon changed its estimate for salvage value used in the calculation of depreciation on fracturing equipment which is amortized over ten years on a straight line basis. Previously, salvage values had been estimated to be insignificant. This change reduced the depreciation expense in Q1 2008 by $0.5 million.
Income Tax Expense
At the expected combined income tax rate of 30%, Loss before income taxes from continuing operations for Q1 2008 of $1.3 million would have resulted in income tax recovery of approximately ($379,000) compared to the actual provision of ($299,000). The future income tax recovery was reduced by $80,000 as a result of the effect of stock based compensation and other non-deductible expenses.
Net Loss and Loss per Share
Net loss totaled ($1.0) million for Q1 2008 compared to ($0.8) million for Q1 2007. Although Revenues were 30% higher in Q1 2008, the increase in Net loss is due to several factors including lower margins due to downward pricing pressure caused by industry-wide reduced demand for well stimulation services.
For the quarter ended March 31, 2008, basic and diluted Loss per share was ($0.04) unchanged from the ($0.04) Loss per share recorded in Q1 2007.
NON-GAAP MEASURES
The Company's Consolidated Financial Statements are prepared in accordance with Canadian Generally Accepted Accounting Principles ("GAAP") and are reported in Canadian currency.
The term "EBITDA" is used in this document to refer to Earnings from continuing operations before interest, taxes, depreciation and amortization. EBITDA is not a term recognized under Canadian GAAP and does not have a standardized meaning prescribed by GAAP. While management of the Company believes that EBITDA is commonly used, and is a useful measure for readers in evaluating financial performance of the Company, the Company's method of calculating EBITDA may differ from, and therefore, not be comparable to similar measures provided by other reporting issuers.
2008 OUTLOOK
As Canyon exited Q1 2008, the fundamentals for natural gas show signs of much improvement with the strengthening of natural gas prices over the recent winter season, combined with strong strip prices over the remainder of 2008. Leading causes for the improved price of natural gas include a colder than expected winter, an improved natural gas storage position as a result of increasing production declines in Canada, reduced LNG imports into the United States and modest growth in demand. These factors point to increasing confidence among E&P companies that natural gas prices are sustainable at or near current levels.
Management feels that the higher commodity prices should boost E&P companies' revenues which should result in increased capital budgets for Western Canada and a corresponding increased demand for well stimulation services as we enter the second half of 2008. With its existing equipment fleet, with its proprietary technologies including the patented, Grand Canyon process, with the addition of the new service line, remedial cementing, and with the recently-hired, four additional professional sales staff, Canyon will continue to meet the growing demand by customers for its services.
ContactsBrad Fedora
President
Canyon Technical Services Ltd
No. 1600
510-5th St. S.W.
Calgary
Alberta
T2P 3S2
Phone (403) 290-2491
Fax: (403) 355-2211 Or Barry O'Brien
Vice President
Finance and CFO
Canyon Technical Services Ltd
No. 1600
510-5th St. S.W.
Calgary
Alberta
T2P 3S2
Phone (403) 290-2478
Fax: (403) 355-2211
