Canyon Services Group Inc. (TSX:FRC) reports third quarter 2009 results and
announces Chief Executive Officer's retirement and appointment
CHIEF EXECUTIVE OFFICER
OVERVIEW OF THIRD QUARTER 2009
Following the seasonal spring break-up of the previous quarter, activity levels across the well stimulation industry did not rebound to the levels normally expected in the third quarter. In response to continuing low natural gas prices, exploration and production ("E&P") companies across the Western Canadian Sedimentary Basin ("WCSB") continued to rein in capital expenditure budgets during the quarter. As a result, in Q3 2009, the key indicators for utilization of stimulation equipment, well licensing activity and drilling rig utilization, significantly trailed the prior year's levels. Well licenses issued in Q3 2009 and for the first nine months of 2009 were 63% and 53% lower respectively than the 2008 comparable periods. Drilling rig utilization in
Although consolidated activity and corresponding revenues were very low, Canyon continued to expand into the deeper segments of the WCSB adding to the Company's portfolio of large, horizontal, multi-stage fracs in the Montney. This has resulted in increases of 28% and 22% respectively in the average revenue per job for the three and nine months ended
To capitalize on the Company's success penetrating the deeper segments of the market, Canyon completed an equity financing in
However, where Q3 2009 is concerned, the increase in the average revenue per job was significantly more than offset by the lower number of jobs completed by Canyon, the direct result of reduced industry-wide activity, leading to a 76% decline in revenues over the 2008 comparable quarter.
The operating and financial highlights for the three and nine months ended
Operating and Financial Highlights
- On October 28, 2009, Canyon issued 10,000,000 common shares at $2.00 per common share pursuant to a bought deal prospectus offering, and 15,000,000 common shares at $2.00 per common share pursuant to a concurrent private placement, resulting in the total issuance of 25,000,000 common shares for gross proceeds of $50 million and net proceeds after fees and expenses of approximately $47 million. Canyon intends to use the proceeds to purchase additional hydraulic horsepower capacity and ancillary equipment, temporarily reduce bank indebtedness and for general corporate purposes. - In connection with the concurrent private placement with limited partnerships comprising ARC Energy Fund 6, Mr. Douglas Freel, Vice President of ARC Financial Corp. was appointed to the Canyon board of directors effective as of October 28, 2009. - Canyon's continued penetration into the deeper segments of the market resulted in the consolidated average revenue per job increasing in Q3 2009 by 28% to $55,268 from $43,231 in Q3 2008, while for the first nine months of 2009, consolidated average revenue per job increased by 22% to $47,956 from $39,188 in the 2008 comparable period. - The significant reduction in industry-wide activity in 2009 to date resulted in Canyon's revenues decreasing by 76% to $4.9 million in Q3 2009 from $20.7 million in Q3 2008. In the nine months ended September 30, 2009, total revenues decreased by 24% to $33.0 million from $43.4 million in the 2008 comparable period. - In Q3 2009, Canyon completed 90 jobs compared to 481 jobs completed in Q3 2008, while for the first nine months of 2009 total jobs completed decreased to 689 from 1,113 in the 2008 comparable period. - As a result of significant, company-wide cost reductions implemented in late March 2009, fixed costs and SG&A before stock based compensation expense were reduced by 17% in Q3 2009 compared to Q3 2008. - Continued weak demand across the industry for well stimulation services in the quarter resulted in EBITDA before stock option expense of negative $2.1 million in Q3 2009 compared to $4.1 million earned in Q3 2008. This has resulted in a loss before income taxes of $4.7 million in Q3 2009 compared to income before income taxes of $1.2 million in Q3 2008. - As at September 30, 2009, the Company's available credit facilities total $15.9 million. - Effective November 13, 2009 Mr. Dennis Weinberger retired as Chief Executive Officer and was succeeded by Mr. Bradley Fedora. Mr. Weinberger will continue as a director of the Corporation. QUARTERLY COMPARATIVE STATEMENTS OF OPERATIONS September 30, September 30, Quarter Ended 2009 2008 ------------------------------------------------------------------------- (unaudited) (unaudited) Revenues $4,872,938 $20,719,250 Expenses Operating 5,647,894 15,015,838 Selling, general and administrative 1,359,471 1,568,823 Stock based compensation 127,657 194,223 Interest on long-term debt 151,062 368,989 Other interest 26,200 44,313 Depreciation and amortization 2,299,031 2,284,163 -------------------------- Income (loss) before income taxes (4,738,377) 1,242,901 -------------------------- Income taxes-future (reduction) - - -------------------------- - - -------------------------- Net income (loss) and comprehensive income (loss) $(4,738,377) $1,242,901 -------------------------- -------------------------- EBITDA before stock based compensation(1) $(2,134,427) $4,134,589 -------------------------- -------------------------- Income (loss) per share: Basic $(0.21) $0.06 Diluted $(0.21) $0.06 -------------------------- -------------------------- Note (1): See Non-GAAP Measures.
Revenues
In Q3 2009, consolidated average revenue per job increased by 28% to
Operating Expenses
As a result of the reduced job count, operating expenses decreased by 62% to
Selling, General and Administrative Expenses
Selling, general and administrative expenses decreased to
Stock-Based Compensation Expense
In Q3 2009, the Company recorded stock-based compensation expense of
EBITDA (See Non-GAAP Measures)
In Q3 2009, the significant reduction in industry activity has resulted in EBITDA before stock based compensation expense of negative $(2.1) million, compared to the
Interest Expense
Interest on long-term debt and other interest totals
Depreciation Expense
Depreciation expense was recorded at
Income Tax Expense
At the expected combined income tax rate of 29.0%, loss before income taxes for Q3 2009 of $(4.7) million would have resulted in an expected income tax recovery of approximately $(1.4) million compared to the actual recovery of nil. The expected future income tax recovery was reduced by
Net Income (Loss) and Income (Loss) per Share
Net income (loss) and comprehensive income (loss) totaled $(4.7) million for Q3 2009, compared to
For the quarter ended
2009 YEAR-TO-DATE COMPARATIVE STATEMENTS OF OPERATIONS
September 30, September 30, Nine Months Ended 2009 2008 ------------------------------------------------------------------------- (Unaudited) (Unaudited) Revenues $32,959,966 $43,364,536 Expenses Operating 29,326,472 36,010,228 Selling, general and administrative 4,753,899 5,193,800 Stock-based compensation 721,793 597,689 Interest on long-term debt 464,217 1,105,495 Other interest 57,138 136,962 Depreciation and amortization 6,888,935 7,020,856 -------------------------- Loss before income taxes (9,252,488) (6,700,494) -------------------------- Income taxes-future (reduction) (69,550) (395,727) -------------------------- (69,550) (395,727) -------------------------- Net loss and comprehensive loss $(9,182,938) $(6,304,767) -------------------------- -------------------------- EBITDA before stock based compensation(1) $(1,120,405) $2,160,508 -------------------------- -------------------------- Loss per share: Basic $(0.41) $(0.28) Diluted $(0.41) $(0.28) -------------------------- -------------------------- Note (1): See Non-GAAP Measures.
Revenues
For the nine months ended
Operating Expenses
Operating expenses for the nine months ended
Selling, General and Administrative Expenses ("SG&A")
Selling, general and administrative expenses before stock-based compensation expense were
Stock-Based Compensation Expense
In the nine months ended
EBITDA (See NON-GAAP MEASURES)
In the nine months ended
Interest Expense
Interest on long-term debt and other interest totals
Depreciation Expense
Depreciation expense totaled
Income Tax Expense
At the expected combined income tax rate of 29.0%, loss before income taxes for the nine months ended
Net Loss and Loss per Share
Net loss and comprehensive loss totaled $(9.2) million for the nine months ended
Basic and diluted loss per share for the nine months ended
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 before stock compensation expense is also used in this document. 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.
The following table provides a reconciliation of net loss and comprehensive loss under GAAP as disclosed in the consolidated statements of operations to EBITDA before stock-based compensation expense.
------------------------------------------------------------------------- Three months ended Nine Months ended September 30 September 30 ------------------------------------------------------------------------- 2009 2008 2009 2008 ------------------------------------------------------------------------- EBITDA before stock-based compensation expense $(2,134,427) $4,134,589 $(1,120,405) $2,160,508 ------------------------------------------------------------------------- Add (Deduct): Depreciation and amortization (2,299,031) (2,284,163) (6,888,935) (7,020,856) Other interest (26,200) (44,313) (57,138) (136,962) Interest on long-term debt (151,062) (368,989) (464,217) (1,105,495) Stock-based compensation (127,657) (194,223) (721,793) (597,689) Income taxes - - 69,550 395,727 ------------------------------------------------------------------------- Net loss and comprehensive loss $(4,738,377) $1,242,901 $(9,182,938) $(6,304,767) -------------------------------------------------------------------------
FORWARD-LOOKING STATEMENTS
This document contains certain forward-looking information and statements within the meaning of applicable securities laws. The use of any of the words "expect", "anticipate", "continue", "estimate", "guidance", "objective", "ongoing", "may", "will", "project", "should", "believe", "plans", "intends", "budget", "strategy" and similar expressions are intended to identify forward-looking information or statements. In particular, but without limiting the foregoing, this document contains forward-looking information and statements pertaining to the following: future oil and natural gas prices; future results from operations; future liquidity and financial capacity and financial resources; future costs, expenses and royalty rates; future interest costs; future capital expenditures; future capital structure and expansion; the making and timing of future regulatory filings; and the Company's ongoing relationship with major customers.
The forward-looking information and statements contained in this document reflect several material factors and expectations and assumptions of the Company including, without limitation: that the Company will continue to conduct its operations in a manner consistent with past operations; the general continuance of current or, where applicable, assumed industry conditions; the continuance of existing (and in certain circumstances, the implementation of proposed) tax, royalty and regulatory regimes; certain commodity price and other cost assumptions; the continued availability of adequate debt and/or equity financing and cash flow to funds its capital and operating requirements as needed; and the extent of its liabilities. The Company believes the material factors, expectations and assumptions reflected in the forward-looking information and statements are reasonable but no assurance can be given that these factors, expectations and assumptions will prove to be correct.
The forward-looking information and statements included in this document are not guarantees of future performance and should not be unduly relied upon. Such information and statements involve 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 information or statements including, without limitation: changes in commodity prices; changes in the demand for or supply of the Company's services; unanticipated operating results; changes in tax or environmental laws, royalty rates or other regulatory matters; changes in the development plans of third parties; increased debt levels or debt service requirements; limited, unfavourable or a lack of access to capital markets; increased costs; a lack of adequate insurance coverage; the impact of competitors; reliance on industry partners; and certain other risks detailed from time to time in the Company's public disclosure documents (including, without limitation, those risks identified in this document and the Company's Annual Information Form).
The forward-looking information and statements contained in this document speak only as of the date of the document, and none of the Company or its subsidiaries assumes any obligation to publicly update or revise them to reflect new events or circumstances, except as may be required pursuant to applicable laws.
For further information: For further information: Brad Fedora, President, Canyon Technical Services Ltd, Suite 1600, 510-5th Street 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, Suite 1600, 510-5th Street S.W., Calgary, Alberta, T2P 3S2, Phone: (403) 290-2478, Fax: (403) 355-2211
Share this article