IROC Energy Services Corp. announces year end and fourth quarter results for
2009
/THIS PRESS RELEASE IS NOT FOR DISSEMINATION IN THE UNITED STATES OR TO ANY UNITED STATES NEWS SERVICES/
CALGARY, April 28 /CNW/ - IROC Energy Services Corp. ("IROC" or the "Corporation") (TSX Venture Exchange: "ISC") announces the Company's financial results for the three and twelve months ended December 31, 2009.
FINANCIAL HIGHLIGHTS
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(expressed in thousands of dollars, except per share amounts)
For the 3 months For the year
ended Dec. 31, ended Dec. 31,
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(Unaudited) (Audited)
% %
2009 2008 Change 2009 2008 Change
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Revenue -
continuing
operations $15,483 $17,004 -9% $49,023 $65,324 -25%
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Operating
costs 10,385 10,691 -3% 33,086 40,839 -19%
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Gross margin(1) 5,098 6,313 -19% 15,937 24,485 -35%
Gross margin
%(1) 33% 37% -11% 33% 37% -11%
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General and
administrative
expenses 2,125 2,411 -12% 8,436 8,666 -3%
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EBITDAS -
continuing
operations(1) 2,973 3,902 -24% 7,501 15,819 -53%
Per share
diluted(1) 0.07 0.09 -22% 0.17 0.36 -53%
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Net earnings
(loss) -
continuing
operations (395) 1,532 -126% (10,886) 3,812 -386%
Per share
diluted (0.01) 0.03 -133% (0.25) 0.09 -388%
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Net earnings
(loss) and
comprehensive
income (481) 1,268 -138% (10,576) 2,178 -586%
Per share
diluted (0.01) 0.03 -133% (0.24) 0.05 -589%
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Number of
shares
outstanding
Basic 43,565,754 44,304,504 -2% 44,000,524 44,294,837 -1%
Diluted 43,565,754 44,324,122 -2% 44,000,524 44,304,653 -1%
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(1) Refer to the "NON-GAAP MEASURES" section for further details
The Corporation is a product and service provider to oil and gas exploration, development and production companies with most of our customers and operations being located in western Canada, in the provinces of Alberta and Saskatchewan. IROC's business consists of three divisions. Eagle Well Servicing ("Eagle") contracts service rigs to oil and gas companies to perform various completion, testing and maintenance services on oil and natural gas wells. Eagle has offices and equipment in Red Deer, Grand Prairie and Lloydminster in Alberta and an office and equipment in Estevan, Saskatchewan with equipment being used in those geographic areas. AERO Rental Services ("AERO") provides oilfield equipment used primarily in oil and natural gas well drilling, completion and service operations with an office in Red Deer, Alberta and equipment being rented for use primarily in Alberta. Canada Tech manufactures and sells or rents surface and downhole monitoring tools and equipment used to measure pressure, temperature and other attributes of oil and natural gas wells with both domestic and international customers.
HIGHLIGHTS FOR THE YEAR ENDED DECEMBER 31, 2009:
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- Completed the sale of our Oricomm and Envirocore divisions and the
discontinuance of these operations during the first quarter netting
cash proceeds of approximately $6.3 million.
- Reduced borrowings under our long and short term bank credit
facilities by $9.4 million from a total of $29.7 million at December
31, 2008 to $20.3 million at December 31, 2009.
- Achieved a positive EBITDAS from continuing operations for the year
ended December 31, 2009 of $7.5 million or $0.17 per share in a
challenging operating environment.
- Initiated a semi-annual cash dividend program paying three cents per
common share in May, 2009. During 2008 and 2009 IROC has
significantly reduced debt obligations through the strategic
disposition of three divisions. While the total proceeds from these
dispositions were approximately $39.2-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 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 determined that it was appropriate to initiate
a dividend for the benefit of our shareholders. Since the payment of
the first dividend management determined there should be a refinement
of the timing for the dividend process to better align it with the
Corporation's cash flow cycles and, subsequent to December 31, 2009,
declared a two cent per common share dividend on January 15, 2010
which was paid on January 29, 2010.
RESULTS OF OPERATIONS
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Revenue
Revenue for the year ending December 31, 2009 decreased 25% to $49.0 million from $65 million in the previous year. Although IROC had additional equipment capacity year over year from the service rig build program which started in fiscal 2008 and added 2 new rigs into service during 2009, revenue declined due to lower year over year utilization on equipment in Eagle and Aero, competitive pressures on pricing and lower product sales volumes in Canada Tech. Low oil and natural gas prices drove customers to reduce their spending significantly during 2009 and reduced the demand for services in all of our businesses. The Alberta royalty changes implemented in 2009 also caused a shift of activity away from Alberta and into British Columbia and Saskatchewan where the Royalty structures remained competitive and there was more confidence in the stability of the fiscal regime. Less demand has increased competitive pressure on pricing and resulted in lower rates for services and products.
For the three months ended December 31, 2009 IROC recorded quarterly revenue of $15.5 million compared to $17 million in the same period of 2008, a decrease of $1.5 million or 9%. While the overall reason for the decline is the same as noted above for the full year period comparisons, it is notable that the decrease for the quarter was only 9% as compared to the annual decrease which was 24%. This relative improvement reflects increased levels of activity and utilization rates in the fourth quarter of 2009 as compared to the prior three quarters of this year.
Crude oil and natural gas prices are activity drivers for all of our businesses as our customers make capital and operating expenditure decisions based on the their revenue streams which are generated by selling crude oil and natural gas. Crude oil prices improved during the fourth quarter with NYMEX crude oil prices per barrel averaging $US 76.19 in the quarter as compared to $US 58.73 in the prior year quarter and $US 57.00 in the previous three quarters. Natural gas prices had less of a recovery with AECO monthly index averaging $4.01 per GJ in the quarter as compared to $6.43 in the prior year quarter and $3.89 in the previous three quarters.
Operating Costs and Gross Margin
Operating costs for the fiscal year 2009 were $33 million as compared to $40.8 million in the prior year for a reduction of $7.7 million or 19%. For the fiscal years ending December 31, 2009 and 2008, gross margins were 33% and 37% respectively.
For the three months ended December 31, 2009 operating costs of continuing operations were approximately $10.4 million (67% of revenue) as compared to $10.7 million in the same period of the previous year. Gross Margins for the 3 months ending December 31, 2009 and 2008, were 33% and 37%, respectively.
While a large portion of our costs are variable in nature, lower equipment utilization in the current year, coupled with weaker customer pricing and lower product sales volumes have affected efficiencies in our operations in both fixed and variable operating cost leverage. Variable operating costs have decreased year over year but not as much as revenues have decreased on a percentage basis. This is largely due to sales prices decreasing year over year while hourly wage rates for rigs crews increased year over year. Due to their nature, fixed costs did not change appreciably between the two years.
We continue to focus on operating cost efficiencies in all areas of our business and have reduced head counts and discretionary spending where possible to match costs with activity levels.
EBITDAS
EBITDAS from continuing operations for the year ended December 31, 2009 was $7.5 million or $0.17 per share compared to $15.8 million, or $0.36 per share, in the previous year, a decrease of 53%. EBITDAS decreased year over year mainly as a result of lower activity levels across the industry and reduced demand for the Corporation's goods and services. Additionally, operating costs were higher as field personnel wages were increased in October 2008 at a time when the industry activity levels were reducing. In the past, pricing to customers was increased to partially offset some of these higher costs but 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 despite best efforts of our people as there is a base line of costs necessary to operate.
EBITDAS from continuing operations for the three months ended December 31, 2009 was $3.0 million or $0.07 per share, compared to $3.9 million, or $0.09 per share, in the same period of 2008, an overall decrease of 24%. Again, it is notable that while the decrease for the quarter was significant at 24%, it was much smaller than the full year decrease in EBITDAS which was 53% and again reflects the recovery which started in the fourth quarter. On a percentage basis, EBITDAS decreased more than revenues due in part to fixed costs which did not decline proportionately with the decline in revenues and activity.
Net Income
Overall, this was a tough year with net losses from continuing operations of $10.9 million or $0.25 per share in the year ended December 31, 2009 as compared to net income $3.8 million or $0.09 per share in the prior year. All of the factors described above under Revenues, Operating Costs and Gross Margin, and EBITDAS are causes for the reduced level of earnings. However, the main reasons for the significant loss in the current year are two one-time non-cash items: the recognition of impairment in goodwill of $6.8 million, or $0.16 per share, and the recognition of impairment of a note receivable of $1.5 million, or $0.03 per share.
The recognition of impairment of goodwill is a non-cash item resulting from management's assessment that the carrying value of goodwill related to the Technology Services segment exceeded its fair value and resulted in no remaining carrying value of goodwill as at December 31, 2009. See "Goodwill".
The recognition of the impairment in notes receivable is a non-cash item resulting from deterioration in the financial condition of the counterparty to the note. This note was received as part of the consideration in the sale of our Envirocore business and is discussed more fully under the headings "Discontinued Operations" and "Notes Receivable" in the Annual Management Discussion & Analysis for the year ended December 31, 2009.
OUTLOOK
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The outlook for 2010 remains uncertain. The global financial crisis is affecting all industries and has led to a significant fall in oil and gas commodity pricing from the highs seen in the third quarter of 2008. The effects of this, while difficult to predict with any high degree of certainty, appear to have hindered the ability for oil and gas producers to access debt or equity markets to finance their operations. Increased spending by producers has begun to appear in specific areas but further increases in activity are dependent on producers seeing sustained periods of higher natural gas and oil prices. Any positive change in commodity pricing will positively affect our outlook with any movement in oil providing the most immediate increase in utilization. Management is pleased with how our assets are positioned and will continue to monitor activity to ensure that they are deployed as efficiently as possible.
Going forward we feel that we have positioned IROC very well on a number of fronts. Actions have been taken to put our balance sheet into proper shape, 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 need to manage the down side of the cycle just as we need to during better times.
Publicly reported information for IROC Energy Services Corp., including the annual audited financial statements for the year ended December 31, 2009 and Management's Discussion & Analysis, is available at www.sedar.com.
About IROC Energy Services Corporation
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 the 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.
Neither TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.
NON-GAAP Measures
The financial statements have been prepared in accordance with GAAP. Certain supplementary information and measures not recognized under GAAP are provided where Management believes they assist the reader in understanding IROC's results. These measures include:
1. EBITDAS and EBITDAS per share - EBITDAS is defined as earnings before
interest, taxes, depreciation and amortization, stock-based
compensation expense, foreign exchange gains and losses, goodwill
impairment, note receivable impairment, and gains or losses on
disposal of property and equipment. EBITDAS and EBITDAS per share are
not recognized measures under GAAP. The Corporation believes that
EBITDAS is provided as a measure of operating performance without
reference to financing decisions, income tax impacts and non-cash
expenses, which are not controlled at the operating management level.
Accordingly, the Corporation believes EBITDAS is a useful measure for
prospective investors in evaluating the financial performance of the
Corporation, and specifically, the ability of the Corporation to
service the interest on its indebtedness. Investors should be
cautioned that EBITDAS should not be construed as an alternative to
net income determined in accordance with GAAP as an indicator of the
Corporation's performance. IROC's method of calculating EBITDAS may
differ from those of other companies, and accordingly, EBITDAS may
not be directly comparable to measures used by other companies.
2. Gross margin is defined as revenue less operating expenses. Gross
margin % is defined as gross margin divided by revenue. The Company
believes that gross margin and gross margin % are useful measures
which provide an indicator of the Corporation's fundamental ability
to make money on the products and services it sells. The Corporation
believes the relationship between revenues and costs expressed by the
gross margin % is a useful measure when compared between different
financial periods as it demonstrates the trending relationship
between revenues, costs and margins. Gross margin and gross margin %
are not recognized measures of GAAP and do not have any standardized
meaning prescribed by GAAP. IROC's method of calculating gross margin
and gross margin % may differ from those of other companies, and
accordingly, may not be directly comparable to measures used by other
companies. Gross margin is reconciled to revenue - continuing
operations in the FINANCIAL HIGHLIGHTS table.
The following is a reconciliation of EBITDAS and EBITDAS per share to net income from continuing operations:
For the 3 months For the year
ended Dec. 31, ended Dec. 31,
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("Unaudited") ("Audited")
(in thousands of dollars) 2009 2008 2009 2008
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Net earnings (loss) -
continuing operations ($395) $1,532 ($10,886) $3,812
Add:
Depreciation and
amortization 2,392 1,791 8,454 7,540
Goodwill Impairment 0 0 6,850 0
Note Receivable Impairment 0 0 1,500 0
Other interest 92 155 269 382
Interest on long-term debt 373 357 1,048 2,915
Interest and accretion on
debentures 0 0 0 624
Interest on Note Receivable (19) 0 (85) 0
Stock based compensation
expense 74 67 326 265
Foreign exchange loss
(gain) 43 (616) 619 (697)
Loss (gain) on disposal of
equipment 33 1 26 (74)
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2,593 3,287 8,121 14,767
Income taxes:
Current (recovery) 420 (45) 420 (45)
Future (recovery) (40) 660 (1,040) 1,097
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EBITDAS - continuing
operations 2,973 3,902 7,501 15,819
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EBITDAS - per share basic 0.07 0.09 0.17 0.36
EBITDAS - per share diluted 0.07 0.09 0.17 0.36
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For further information: IROC Energy Services Corp., Mr. Thomas M. Alford, President and CEO, Telephone: (403) 263-1110, Email: [email protected]
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