IROC Energy Services Corp. announces first quarter 2009 results
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/THIS PRESS RELEASE IS NOT FOR DISSEMINATION IN UNITED STATES OR TO ANY
UNITED STATES NEWS SERVICES/
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IROC Energy Services Corp. ("IROC" or the "Company") (TSX: "ISC") announces the Company's financial results for the three months ended March 31, 2009.
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FINANCIAL HIGHLIGHTS
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For the 3 months ended Mar 31,
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(Unaudited)
2009 2008 % Change
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Revenue - continuing operations $ 14,007 $ 19,520 -28%
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Operating costs 9,226 11,685 -21%
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Gross margin 4,781 7,835 -39%
Gross margin % 34% 40% -15%
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General and administrative
expenses 2,201 1,922 15%
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EBITDAS - continuing operations(1) 2,580 5,913 -56%
Per share diluted(1) 0.06 0.13 -54%
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Net earnings - continuing
operations 82 2,124 -96%
Per share diluted 0.00 0.05 -100%
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Net earnings 488 2,710 -82%
Per share diluted 0.01 0.06 -83%
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Number of shares outstanding
Basic 44,296,448 44,251,080 0%
Diluted 44,296,448 44,277,345 0%
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(1) EBITDAS and EBITDAS per share are "NON-GAAP MEASURES". EBITDAS is
defined as "earnings before interest, taxes, depreciation and
amortization, stock-based compensation expense, foreign exchange
gains and losses and gains or losses on disposal of property and
equipment." EBITDAS and EBITDAS per share are not recognized measures
under GAAP.
Overview
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The first quarter of 2009 began with the expectation of continued reduced activity for the oilfield services industry as a result of uncertainty continuing to hang over our industry. The global economic conditions and the uncertainty of commodity prices for oil and gas lead to some of the lowest historical activity levels in the oilfield in Canada and around the world during the first quarter. The result of these factors has had a dramatic effect on oil and gas producers leading to many of our customers reducing their planned activity levels in exploration and development for fiscal 2009 with a focus on balance sheet preservation and matching spending with realistic cash flows. Increased spending by producers is expected to begin again when producers see sustained periods of higher natural gas and oil prices. The downturn in activity brought about by the decline in economic conditions, including a significant decline in commodity prices for oil and gas and the worldwide credit crisis, has lead to substantial pricing pressure and lower utilization in all oilfield related services.
IROC was able to substantially strengthen its balance sheet through the timely disposition of certain divisions' assets, thereby providing greater flexibility in a time of uncertainty in our business. Going forward we feel that we have positioned IROC very well on a number of fronts. Actions have been taken to make our balance sheet stronger, appropriate asset rationalizations have been made, administrative costs have been cut, our equipment is best in class, opportunity exists for us to continue to grow and management continues to remain focused on growing shareholder value. We understand that we are in a cyclical business and therefore the need to manage the down side of the cycle is just as important to our longer term viability as it is during periods of greater activity.
Further focus on our core businesses was a key component of our strategy going forward and as such during the fourth quarter of 2008 management solicited interest for the sale of the assets and operations of Oricomm and Envirocore divisions. During the first quarter of 2009 IROC completed the sale of both Oricomm and Envirocore divisions for a total of $8.44 million, of which $6.3 million was received in cash and the balance on assumption of notes receivable totaling $2.14 million resulting in a recorded gain on sale of approximately $1.0 million. The cash proceeds of $6.3 million were used to further reduce IROC's outstanding long-term debt.
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First Quarter Highlights:
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- IROC's revenue from continuing operations for the first quarter ended
March 31, 2009 decreased 28%, from $19.5 million to $14 million
compared to the same period in 2008. Although IROC had additional
equipment capacity year over year from the service rig build program
in fiscal 2008 additional revenue growth was hampered as a result of
lower than expected utilization and competitive pressure on pricing.
Activity levels were also lower in both the Aero Rentals and Canada
Tech divisions year over year for the first quarter as a result of
the low demand brought about by low commodity prices for oil and gas
driving customers to reduce their spending significantly.
- EBITDAS from continuing operations for the three months ended
March 31, 2009 was $2.6 million or $0.06 per share, compared to
$5.9 million, or $0.13 per share, in the same period of 2008. EBITDAS
for the quarter decreased $3.3 million or 56% year over year mainly
as a result of lower activity levels across the industry.
Additionally, operating costs were higher as field personnel wages
were increased in October 2008 at a time when the industry activity
levels were reducing. Pricing to customers is usually increased to
partially offset some of these higher costs and with the increased
competitive environment and lower demand from customers, pricing
increases were not achievable. Generally costs associated with field
activities have not moved directionally with the lower demand
environment. EBITDAS as a percentage of revenue was 18.4% and 30.3%
for the three months ended March 31, 2009 and 2008, respectively.
- The Corporation recorded net earnings from continuing operations of
$0.1 million, or earnings of $0.00 per share, for the three months
ended March 31, 2009 compared to net earnings of $2.1 million, or
earnings of $0.05 per share, for the comparable period for 2008. The
decrease in the net earnings for the three months ended March 31,
2009 compared to 2008 is due to lower margins on its services and
products as a result of lower utilization and lower prices in some
cases and partially offset by lower interest costs for debt servicing
due to significant debt reductions.
- Further strengthened the balance sheet by reducing debt levels with
cash proceeds of approximately $6.3 million from the sale of Oricomm
and Envirocore divisions and the discontinuance of these operations
during the first quarter. IROC exited the first quarter of 2009 with
net debt of approximately $7 million.
- On April 27, 2009 IROC's board of directors declared a semi-annual
cash dividend on its common shares of three cents. The dividend will
be payable May 21, 2009, to shareholders of record at the close of
business on May 7, 2009. Over the past few months IROC has
significantly reduced debt obligations through the strategic
dispositions of three divisions. While the total proceeds from these
dispositions were approximately $40-million, the dispositions did not
significantly reduce the profitability or cash flow. Also, we expect
to incur only minimal capital costs in the near term given the newer,
high-quality assets in all our businesses. Management and the board
believe our balance sheet is strong, ongoing cash flows are adequate
and that pursuing a business model that includes paying a dividend in
addition to funding accretive expansion over time is a prudent course
of action. Accordingly, the board has determined that it is
appropriate to initiate a dividend for the benefit of our
shareholders at this time.
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Eagle Well Servicing
Eagle Well Servicing ("Eagle"), which comprises a significant portion of the Drilling and Production Services segment, finished the first quarter of 2009 with a fleet of 36 service rigs, an increase of 2 service rigs from the end of fiscal 2008. The average number of rigs available in the first quarter of 2009 compared to 2008 increased to 34.2 rigs from 30 rigs as a result of our organic rig builds through 2008 and continuing in the first quarter of 2009. Eagle's utilization during the first quarter of 2009 was approximately 43% compared 63% utilization in the comparable period of 2008. Revenue per hour remained relatively flat decreasing only $1 per hour from same period in 2008. Eagle continued to increase its capacity by completing the build of two previously announced service rigs during the first quarter of 2009 to bring its total fleet of service rigs to 36. Revenue generated from Eagle during the first quarter of 2009 was $10.4 million compared to $13.5 million in the same period of 2008, a decrease of 23%. EBITDAS for the first quarter of 2009 from Eagle was $3.4 million compared to $5.5 million in the same period of 2008, a decrease of 38%. EBITDAS was hampered by higher variable operating costs primarily from the increase in field wage costs implemented during the fourth quarter of 2008 based on recommended wage increases by the CAODC and lower customer demand that lead to one of the lowest utilization levels experienced during the normally high activity winter season.
Aero Rentals
Aero Rental Services ("Aero") provides rental equipment for surface pressure control in drilling and workover operations and tubular handling equipment in the workover, re-entry and completion areas. Aero's results are affected by the level of drilling activity in the industry. During the first quarter of 2009 Aero contributed revenue of $1.4 million compared to $1.7 million in the prior year period, a decrease of 20%. EBITDAS was $0.3 million for the first quarter of 2009 compared to $0.6 million in the same period of 2008. Aero was significantly affected by the slower industry activity during the first quarter of 2009 which resulted in equipment utilization and pricing at lower levels than expected. The costs in this division are somewhat fixed in nature and as such has led to lower EBITDAS for the periods of low activity.
Canada Tech
Canada Tech is a developer, manufacturer and marketer of a wide line of tools and systems that measure pressures and temperatures in the downhole and surface environment of oil and gas wells. This segment generated revenue of $2.2 million, or 16% of the Corporation's total consolidated revenue, for the three months ended March 31, 2009, compared to $4.3 million or 22% of total consolidated revenue for the comparable period of fiscal 2008. Product sales decreased year over year as Canada Tech was affected by the slowdown in the oil and gas industry worldwide. In the past year the Canada Tech division has focused significant efforts on developing international market penetration. The international market generally has longer lead times to complete the sales process as it is more complex on all levels, including but not limited to bid processes, logistics of delivery and collection of receivables. For the three months ended March 31, 2009, Canada Tech had negative EBITDAS of $0.2 million compared to positive EBITDAS of $0.8 million in the same period of 2008, a decrease of 121%. The primary result of decreased EBITDAS is attributable to the lower than expected product sales volume year over year. The margin on products improved by approximately 15% from the benefit of improved foreign exchange rates on our sales denominated in US dollars offset by lower volume of sales to spread the same level of fixed overhead costs leading to lower profitability in the quarter. Subsequent to the quarter end, we have initiated cost reductions in a number of areas including reduced head count and elimination of discretionary spending in a number of areas to assist in improving profitability for the remainder of the year.
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Outlook
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The outlook for 2009 remains uncertain. The global economic crisis is affecting all industries and the fall in oil and gas commodity pricing from the highs seen in the third quarter of 2008 continue to have a significant adverse affect on the oilfield service business. The conditions appear to have hindered the ability for oil and gas producers to access debt or equity markets to finance their operations. Most producers have substantially reduced their spending for 2009 with a focus on matching spending with realistic cash flows. Any positive change in commodity pricing will positively affect our outlook with any movement in oil providing the most immediate increase in utilization. The declining utilization and competitive pricing environment will likely continue through the second quarter of 2009 and potentially longer depending upon oil and gas prices.
Going forward we feel that we have positioned IROC well on a number of fronts. Actions have been taken to strengthen our balance sheet, administrative costs have been cut, our equipment is best in class, opportunity exists for us to continue to grow and management continues to remain focused on growing shareholder value. We understand that we are in a cyclical business and therefore need to manage the down side of the cycle just as we need to during better times.
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Conference Call
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Commensurate with this press release the company has ceased hosting conference calls following the release of its financial results. We invite all investors and analysts to contact IROC management and investor relations at investorrelations@iroccorp.com or (403) 263-1110 to discuss any questions. We thank everyone that has participated in the past conference calls.
Publicly reported information for IROC Energy Services Corp. is available at www.sedar.com.
About IROC Energy Services Corp.
IROC Energy Services Corp. is an Alberta oilfield services company that, through the IROC Energy Services Partnership, provides a diverse range of products, services and equipment to the oil and gas industry that are among the newest and most innovative in the WCSB. IROC combines cutting-edge technology with depth of experience to deliver a product and services offering in three core areas: Well Servicing & Equipment, Downhole Temperature & Pressure Monitoring Tools, and Rental Services. For more information on IROC Energy Services Corp. visit our website at www.iroccorp.com.
Cautionary Statements
Certain statements contained in this press release may constitute forward looking statements concerning, among other things, expected revenues, expected expenses, profits, developments and strategies for IROC's operations all of which are subject to certain risks, uncertainties and assumptions. These forward looking statements are identified by their use of terms and phrases such as "anticipate", "continue", "estimate", "expect", "may", "will", "projected", "should", "believe" and other similar terms and phrases. By its nature, such forward looking information involves known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward looking statements. These risks include, but are not limited, to the risks associated with the oil and gas industry generally, fluctuating prices in crude oil and natural gas, changes in drilling activity, general global economic, political and business conditions, weather conditions, regulatory changes and availability of products, qualified personnel and manufacturing capacity and raw materials. If any of these uncertainties materialize, or if assumptions are incorrect actual results may vary materially from those expected. IROC relies on litigation protection for any forward looking statements.
This press release is not for dissemination in United States or to any United States news services. The Common Shares of IROC have not and will not be registered on the United States Securities Act of 1933, as amended (the "United States Securities Act") or any state securities laws and are not offered or sold in the United States or to any US person except in certain transactions exempt from the registration requirements of the United States Securities Act and applicable state securities laws.
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Consolidated Balance Sheets
Expressed in thousands of dollars
(Unaudited)
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March 31, December 31,
2009 2008
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Assets
Current assets:
Cash $ 1 $ 1
Accounts receivable 12,285 13,128
Notes receivable 750 -
Inventory 4,393 4,130
Prepaid expenses and deposits 540 452
Income taxes receivable 72 72
Assets of discontinued operations 1,105 3,615
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19,146 21,398
Notes receivable 1,390 -
Intangible assets 4,180 4,487
Property and equipment 65,163 64,759
Goodwill 6,850 6,850
Assets of discontinued operations - 7,170
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$ 96,729 $ 104,664
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Liabilities and Shareholders' Equity
Current liabilities:
Operating loan $ 3,134 $ 4,716
Accounts payable and accrued liabilities 4,145 6,393
Current portion of long-term debt 5,627 4,891
Liabilities of discontinued operations 94 472
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13,000 16,472
Long-term debt 14,563 20,116
Future income taxes 4,667 4,132
Shareholders' equity:
Share capital 51,506 51,591
Contributed surplus 3,678 3,526
Retained earnings 9,315 8,827
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64,499 63,944
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$ 96,729 $ 104,664
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Consolidated Statements of Income, Comprehensive Income, and Retained
Earnings
Expressed in thousands of dollars except share and per share amounts
(Unaudited)
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Three months ended
March 31,
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2009 2008
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Revenue $ 14,007 $ 19,520
Expenses:
Operating 9,226 11,685
General and administrative 2,201 1,922
Stock-based compensation 110 76
Depreciation and amortization 2,011 1,914
Interest on long-term debt 212 975
Interest and accretion on debentures - 236
Other interest 73 135
Interest income (12) -
Gain on disposal of property and equipment (4) (57)
Foreign exchange loss (gain) 54 (64)
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13,871 16,822
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Earnings before income taxes from continuing
operations 136 2,698
Income taxes:
Future 54 574
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54 574
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Net income and comprehensive income from
continuing operations 82 2,124
Net income and comprehensive income from
discontinued operations 406 586
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Net income and comprehensive income 488 2,710
Retained earnings, at beginning of period 8,827 6,479
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Retained earnings, at end of period $ 9,315 $ 9,189
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Earnings per share from continuing operations:
Basic $ 0.00 $ 0.05
Diluted $ 0.00 $ 0.05
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Earnings per share from discontinued
operations:
Basic $ 0.01 $ 0.01
Diluted $ 0.01 $ 0.01
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Earnings per share:
Basic $ 0.01 $ 0.06
Diluted $ 0.01 $ 0.06
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Weighted average number of shares outstanding:
Basic 44,296,448 44,251,080
Diluted 44,296,448 44,277,345
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Consolidated Statement of Cash Flows
Expressed in thousands of dollars
(Unaudited)
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Three months ended
March 31,
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2009 2008
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Cash flows from operating activities:
Net earnings from continuing operations $ 82 $ 2,124
Items not affecting cash:
Depreciation and amortization 2,011 1,914
Future income taxes 54 574
Stock-based compensation 110 76
Non-cash accretion on debentures - 96
Gain on disposal of property and equipment (4) (57)
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2,253 4,727
Changes in non-cash working capital balances (874) (3,170)
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1,379 1,557
Discontinued operations:
Funds (used in) provided by discontinued
operations (151) 1,553
Changes in non-cash working capital balances
of discontinued operations 2,131 622
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3,359 3,732
Cash flows from investing activities:
Proceeds on disposal of property and
equipment - discontinued operations 6,042 -
Purchase of property and equipment
- continuing operations (2,137) (683)
Change in non-cash working capital balances (906) -
Proceeds on disposal of property and
equipment - continuing operations 88 231
Purchase of property and equipment
- discontinued operations (4) -
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3,083 (452)
Cash flows from financing activities:
Repayment of long-term debt (4,817) (27)
Operating loan repayments (1,582) (2,930)
Shares repurchased for cancellation (43) -
Issuance of common shares - 17
Loan commitment fees - (340)
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(6,442) (3,280)
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Change in cash during the period - -
Cash, beginning of period 1 1
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Cash, end of period $ 1 $ 1
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%SEDAR: 00014277E
SOURCE: IROC Energy Services Corp.
IROC Energy Services Corp., Mr. Thomas M. Alford, President and CEO, or Kevin Howell,
CFO, Telephone: (403) 263-1110, email: investorrelations@iroccorp.com
.
