CALGARY, ALBERTA -- (Marketwired) -- 11/06/13 -- GASFRAC Energy Services Inc. (TSX: GFS)
COMPARATIVE QUARTERLY FINANCIAL INFORMATION
September 30 September 30
For the three months ended 2013 2012
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CAD$ CAD$
Revenue 30,423 40,851
Operating expenses 22,950 35,381
Selling, general and administrative expenses 3,922 5,786
EBITDA(1) 3,016 1,060
(Loss) Profit for the period (5,061) (7,144)
(Loss) Earnings per share - basic (0.08) (0.11)
(Loss) Earnings per share - diluted (0.08) (0.11)
Weighted average number of shares - basic 63,601 63,043
Total assets 253,489 323,748
Total non-current liabilities 35,958 35,794
Revenue days 59 91
Revenue per revenue day 516 448
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(1) Defined under Non-IFRS Measures
OVERVIEW OF THE QUARTER ENDED SEPTEMBER 30, 2013
As discussed in previous quarters, the Company has focused recent efforts on; improving its cost structure, ensuring service delivery reliability and expanding value add service offerings.
The introduction of our engineered fluids and Hybrid LPG system has been instrumental in expanding our services with a major customer in South Texas. In addition, these services have attracted the attention of several potential customers in the USA and, as a result, we expect to conduct trials with two or more new customers during the fourth quarter. In Canada trials were conducted with two new customers during the third quarter, one of whom has scheduled additional work for the fourth quarter and the other is evaluating results at this time.
From a balance sheet perspective, capital expenditures were $2.1 million for the nine months this year and are expected to remain low for the year. Draw on the bank line, net of cash on hand, was $24.1 million at quarter end, funding our $32.8 million of accounts receivable.
FINANCIAL OVERVIEW - FOR THE THREE MONTHS ENDED
September 30, 2013
Canada U.S. Corporate Total
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CAD$ CAD$ CAD$ CAD$
Revenue 19,250 11,173 30,423
Cost of sales 10,418 54.1% 3,858 34.5% 14,276 46.9%
Variable operating
costs 1,570 8.2% 1,629 14.6% 3,199 10.5%
Fixed operating
costs 3,294 17.1% 2,181 19.5% 5,475 18.0%
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Operating expenses 15,282 79.4% 7,668 68.6% - 22,950 75.4%
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Selling, general
and administration 2,546 13.2% 822 7.4% 554 3,922 12.9%
Number of revenue
days 35 24 59
Revenue per day 550 466 516
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September 30, 2012
Canada U.S. Corporate Total
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CAD$ CAD$ CAD$ CAD$
Revenue 26,746 14,105 40,851
Cost of sales 12,983 48.5% 9,200 65.2% 22,183 54.3%
Variable operating
costs 3,312 12.4% 2,197 15.6% 5,509 13.5%
Fixed operating
costs 4,557 17.0% 3,132 22.2% 7,689 18.8%
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Operating expenses 20,852 78.0% 14,529 103.0% - 35,381 86.6%
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Selling, general
and administration 2,881 10.8% 1,593 11.3% 1,312 5,786 14.2%
Number of revenue
days 57 34 91
Revenue per day 468 415 448
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FINANCIAL OVERVIEW - FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 2013
Canada U.S. Corporate Total
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CAD$ CAD$ CAD$ CAD$
Revenue 70,042 22,400 92,442
Cost of sales 37,854 54.0% 8,026 35.8% 45,880 49.6%
Variable operating
costs 6,752 9.6% 3,295 14.7% 10,047 10.9%
Fixed operating
costs 10,786 15.4% 6,028 26.9% 16,814 18.2%
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Operating expenses 55,392 79.1% 17,349 77.5% - 72,741 78.7%
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Selling, general
and administration 8,094 11.6% 3,643 16.3% 1,928 13,665 14.8%
Number of revenue
days 143 48 191
Revenue per day 490 467 484
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September 30, 2012
Canada U.S. Corporate Total
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CAD$ CAD$ CAD$ CAD$
Revenue 74,136 28,418 102,554
Cost of sales 37,008 49.9% 18,205 64.1% 55,213 53.8%
Variable operating
costs 10,588 14.3% 4,924 17.3% 15,512 15.1%
Fixed operating
costs 13,705 18.5% 7,898 27.8% 21,603 21.1%
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Operating expenses 61,301 82.7% 31,027 109.2% - 92,328 90.0%
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Selling, general
and administration 9,044 12.2% 3,665 12.9% 4,238 16,947 16.5%
Number of revenue
days 148 67 215
Revenue per day 500 424 477
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REVENUE
Revenue for the quarter decreased 26% to $30.4 million from $40.9 million in the third quarter of 2012.
During the quarter, the Company earned revenues from six customers with the top three customers representing 86% of the Company's revenue (2012 - 69%).
Canadian operations:
The third quarter revenue from the Canadian operations decreased 28% to $19.3 million from $26.7 million in the third quarter of 2012.
The Canadian operations executed 35 revenue days at an average daily revenue of $550 per day. By comparison, during the third quarter of 2012, the Canadian operations executed 57 revenue days at an average daily revenue of $468 per day. Wet weather in Northern Alberta delayed drilling activity during the first part of the quarter.
Revenue was earned from four customers during the quarter with the top two customers representing 80% of the total revenue from the Canadian Operations.
U.S. operations:
Revenue for the quarter decreased 21% to $11.2 million from $14.1 million in the third quarter of 2012. Revenue in the third quarter increased 36% over the second quarter, reflecting steady demand for and execution of Hybrid LPG fracturing treatments.
The U.S. operations executed 24 revenue days at an average daily revenue of $466 per day. By comparison, during the third quarter of 2012, the Company executed 34 revenue days at an average daily revenue of $415 per day. The decrease in the amount of revenue days is due to field trials that occurred in the third quarter of 2012. The increase in average daily revenue is attributable to the successful introduction of the Hybrid LPG fracturing that allows the Company the ability to place more proppant into our customer's formation in a revenue day.
OPERATING EXPENSES
Operating expenses consist of cost of sales (variable costs directly attributable to a fracturing treatment), variable operating expenses (variable costs not directly attributable to a fracturing treatment), and fixed operating costs (costs that do not fluctuate with the Company's level of activity). During the quarter, the Company's operating expenses decreased 35% to $23.0 million (76% of revenue) from $35.4 million (87% of revenue) in the third quarter of 2012.
As a percentage of revenue, cost of sales decreased to 47% of revenue ($14.3 million) from 54% ($22.2 million) of revenue in the third quarter of 2012.
As a percentage of revenue, variable operating expenses decreased to 11% of revenue ($3.2 million) from 14% of revenue ($5.5 million) of revenue in the third quarter of 2012.
Fixed operating costs decreased 29% to $5.5 million in the third quarter of 2013 as compared to $7.7 million in the third quarter of 2012.
Canadian operations:
Total operating expenses for the quarter were $15.3 million (cost of sales - $10.4 million, variable operating costs - $1.6 million and fixed operating costs - $3.3 million) as compared to $20.9 million (cost of sales - $13.0 million, variable operating costs - $3.3 million and fixed operating costs - $4.6 million) in the third quarter of 2012.
Cost of sales were 54% of revenue for the quarter as compared to 49% of revenue in the third quarter of 2012. The increase in cost of sales as a percentage of revenue was largely attributable to higher LPG margins during the third quarter of 2012.
Variable operating expenses decreased to 8% of revenue ($1.6 million) from 12% of revenue ($3.3 million) in the third quarter of 2012. Fixed operating costs decreased to $3.3 million from $4.6 million in the third quarter of 2012. The decrease in the variable operating costs and fixed operating costs reflects the results of the initiative that the Company initiated in September 2012 to bring the Company's cost structure into alignment with the current revenue.
U.S. operations:
Total operating expenses for the quarter were $7.7 million (cost of sales - $3.9 million, variable operating costs - $1.6 million and fixed operating costs - $2.2 million) as compared to $14.5 million (cost of sales - $9.2 million, variable operating costs - $2.2 million and fixed operating costs - $3.1 million) in the third quarter of 2012.
Cost of sales for the quarter decreased to 35% of revenue from 65% of revenue in the third quarter of 2012. The decrease in the cost of sales reflects the direct purchase of fracturing fluid by the customer. This process has the impact of reducing the Company's revenue and cost of sales by like amounts and effectively decreasing cost of sales as expressed as a percentage of revenue. In addition, the Company has realized operating efficiencies in the USA through improved process delivery as compared to 2012.
Variable operating expenses decreased to 14.6% of revenue ($1.6 million) from 15.6% of revenue ($2.2 million) in the third quarter of 2012. Fixed operating costs decreased to $2.2 million from $3.1 million in the third quarter of 2012. As noted with the Canadian operations, the decrease in the variable operating costs and fixed operating costs reflects the results of the initiative that the Company initiated in September 2012 to bring the Company's cost structure into alignment with the current revenue.
SALES, GENERAL & ADMINISTRATIVE ("SG&A") EXPENSES
SG&A expense for the quarter were $3.9 million as comparable to the $5.8 million in the third quarter of 2012. The reduction in SG&A is primarily due to the steps taken by the Company to reduce the overall costs and includes reductions in headcount, travel expenses and consultants.
DEPRECIATION & AMORTIZATION
Depreciation and amortization decreased 10% to $6.3 million compared to $7.0 million in the third quarter of 2012. The reduction in depreciation and amortization expense is due to the impairment charge that was recorded at December 31, 2012.
EBITDA
EBITDA for the quarter was $3.0 million compared to EBITDA of $1.1 million in the third quarter of 2012. Overall revenue was down $10.0 million from third quarter 2012 however EBITDA improved by $1.9 million reflecting the changes the Company has made to its cost structure and efficiencies gained in operations.
NET LOSS
Net loss for the quarter was $5.1 million compared to a $7.1 million loss during the third quarter of 2012. The effective tax rate was 0% (2012 - 1.87%) compared to the statutory rate of 25.0% (2012 - 25.0%). The difference in effective tax rate as compared to the statutory tax rate results largely from certain tax losses not being recognized, at this time, for accounting purposes.
OTHER COMPREHENSIVE LOSS
Other comprehensive loss of $1.2 million represents exchange differences arising from translation of the financial statements of the Company's foreign subsidiaries which have U.S. dollars as their functional currency.
SUMMARY OF QUARTERLY RESULTS
Dec. 31 Mar. 31 Jun. 30 Sep. 30
2011 2012 2012 2012
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CAD$ CAD$ CAD$ CAD$
Revenue 59,304 44,969 16,734 40,851
(Loss) Profit for the period 1,519 (4,926) (16,949) (7,144)
(Loss) Earnings per share -
basic 0.03 (0.08) (0.27) (0.11)
(Loss) Earnings per share -
diluted 0.03 (0.08) (0.27) (0.11)
EBITDA (1) 7,914 2,259 (10,430) 1,060
Capital expenditures 30,877 22,162 15,404 4,955
Working capital (2) 28,491 27,894 8,994 (1,092)
Shareholders' equity 264,713 263,695 247,519 237,201
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SUMMARY OF QUARTERLY RESULTS
Dec. 31 Mar. 31 Jun. 30 Sep. 30
2012 2013 2013 2013
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CAD$ CAD$ CAD$ CAD$
Revenue 46,888 31,458 30,561 30,423
(Loss) Profit for the period (48,450) (7,884) (4,811) (5,061)
(Loss) Earnings per share -
basic (0.77) (0.12) (0.08) (0.08)
(Loss) Earnings per share -
diluted (0.77) (0.12) (0.08) (0.08)
EBITDA (1) 7,684 468 3,246 3,016
Capital expenditures 6,593 509 1,404 274
Working capital (2) 25,740 (4,384) 2,627 4,108
Shareholders' equity 190,444 184,266 181,951 175,884
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(1) Defined under Non-IFRS Measures
(2) Working capital is defined as current assets less current liabilities
LIQUIDITY AND CAPITAL RESOURCES
September 30 September 30
2013 2012
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CAD$ CAD$
Cash provided by (used in)
Operating activities (8,379) (8,972)
Financing activities 4,832 15,604
Investing activities 3,175 (3,879)
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(372) 2,753
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As at September 30, 2013 the Company had $4.1 million of working capital compared to working capital of $2.6 million as at June 30, 2013 and a working capital deficit of $4.4 million as at March 31, 2013. The sequential increase in working capital is primarily due to the sale of excess pressure pumping equipment and EBITDA generated from the Company's operating activities.
As at September 30, 2013, the Company had approximately $0.2 million of capital commitments as part of the 2013 capital program. The Company anticipates being able to fund these capital expenditures through cash on hand, operating cash flows and debt facilities.
In managing liquidity risk, the Company has access to a range of funding through the capital markets and banks. As at September 30, 2013, the Company had unused committed bank credit facilities in the amount of $25.6 million (December 31, 2012 - $30 million) plus cash and accounts receivable of $0.4 million (December 31, 2012 - $7.9 million) and $32.8 million (December 31, 2012 - $30.5 million) respectively, for a total of $58.8 million (December 31, 2012 - $68.4 million) available to fund cash outflows related to its financial liabilities. The Company has incurred losses and experienced reduced cash flow in recent quarters and as a result conducted an operations review and reduced its cost structure and restructured its credit facility to address the impact of these past losses on trailing twelve month EBITDA covenants. In the nine month period prior to the Operation Review the Company incurred an EBITDA loss of $7.1 million. In the twelve month period subsequent to the Review the Company has positive EBITDA of $14.4 million. Further, the Company has minimal capital expenditure requirements for 2013 and thus anticipates that any additional draws required on its credit facility will result from additional revenues (receivables and inventory) and that the $50 million available under its credit facility should be sufficient for these purposes.
OPERATING
Net cash used by operating activities was $8.4 million as compared to $9.0 million used in the third quarter of 2012. The cash used is primarially due to a build up of accounts receivable.
FINANCING
Net cash generated by financing activities for the quarter was $4.8 million compared to $15.6 million generated in the third quarter of 2012. The funds were used primarily to fund accounts receivable.
The Company has a bank syndication for a $40 million revolving facility and a $10 million operating facility. The Company is in compliance with all its debt covenants.
INVESTING
Net cash generated by investing activities for the quarter was $3.2 compared to cash used by investing activities of $3.9 million in the third quarter of 2012. During the quarter, the Company received the remaining proceeds for excess pressure pumping equipment sold in the second quarter. The Company has four sets of equipment currently parked and thus does not, at this time, anticipate significant capital expenditures will be required through 2013 and into 2014.
The timing of cash outflows relating to financial liabilities are outlined in the following table:
Contractual
cash flows at Greater
September 30 Less than 1 to 3 4 to 5 than 5
2013 1 year years years years
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CAD$ CAD$ CAD$ CAD$ CAD$
Trade payables and accrued
liabilities (excluding
performance share units
and accrued interest on
debentures) 14,309 14,309 - - -
Performance share units 322 198 124 - -
Deferred share units 85 85 - - -
Provisions 903 903 - - -
Finance lease obligation 2,017 1,452 565 - -
Credit facility 25,533 25,533 - - -
Convertible debentures 50,112 2,818 47,294 - -
Operating lease payments 9,989 2,017 3,179 2,368 2,425
Commitment to purchase raw
materials 68,818 9,872 54,063 2,566 2,317
Commitment to purchase
plant and equipment 221 221 - - -
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Total 173,718 57,408 106,634 4,934 4,742
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ACCOUNTING POLICIES AND ESTIMATES
This MD&A is based on the Company's annual consolidated financial statements that have been prepared in accordance with IFRS. Management is required to make assumptions, judgments and estimates in the application of IFRS. The Company's significant accounting policies are described in Note 2 of the December 31, 2012 audited consolidated financial statements. The preparation of the consolidated financial statements requires that certain estimates and judgments be made concerning the reported amount of revenue and expenses and the carrying values of assets and liabilities. These estimates are based on historical experience and management's judgment. Anticipating future events involves uncertainty and, consequently, the estimates used by management in the preparation of the consolidated financial statements may change as future events unfold, additional experience is acquired or the environment in which the Company operates changes.
All key assumptions concerning the future, and other key sources of estimation uncertainty made at the end of the last full reporting period were applied consistently for the nine months ended September 30, 2013.
RELATED PARTY TRANSACTIONS
During the period the Company has had no related party transactions (2012 - $nil).
OUTSTANDING SHARE DATA
Common Share
Shares Warrants Options
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# # #
Balance as at January 1, 2012 62,399,074 825,000 2,430,000
Issues / Granted 55,000 - 1,645,000
Issued / Exercised 1,067,420 (825,000) (130,000)
Forfeited (5,830) - (1,135,000)
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Balance as at December 31, 2012 63,515,664 - 2,810,000
Issues / Granted - - 855,000
Issued / Exercised 87,753 - (75,000)
Forfeited - - (393,333)
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Balance as at September 30, 2013 and as
at November 6, 2013 63,603,417 - 3,196,667
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DISCLOSURE CONTROLS AND PROCEDURES
An evaluation was performed under the supervision and with the participation of the Company's management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures, as defined in National Instrument 52-109. Based on the evaluation, the Company's management, including the Chief Executive Officer and Chief Financial Officer, concluded that the Company's disclosure controls and procedures were designed to provide a reasonable level of assurance over the disclosure of material information, and are effective as of September 30, 2013.
INTERNAL CONTROLS OVER FINANCIAL REPORTING
The Company's management, including the Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO") have assessed and evaluated the design and effectiveness of the Company's internal controls over financial reporting as defined in National Instrument 52-109 as at September 30, 2013. In making this assessment the Company used the criteria established by the Committee of Sponsoring Organizations ("COSO") in the "Internal Control-Integrated Framework". These criteria are in the areas of control environment, risk assessment, control activities, information and communication and monitoring. The Company's assessment included documentation, evaluation and testing of its internal controls over financial reporting. Based on the evaluation, the Company's management, including the Chief Executive Officer and Chief Financial Officer, concluded that the Company's internal controls over financial reporting are effective to provide reasonable assurance regarding the reliability of the Company's financial reporting and its preparation of financial statements are effective as of September 30, 2013.
Internal control over financial reporting, no matter how well designed, has inherent limitations. Therefore, internal control over financial reporting determined to be effective can provide only reasonable assurance with respect to financial statement preparation and may not prevent or detect all misstatements.
There have been no changes in the Company's internal controls over financial reporting during the quarter ended September 30, 2013, which have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
OFF-BALANCE SHEET ARRANGEMENTS
The Company is not party to any off balance sheet arrangements or transactions.
NON-IFRS MEASURES
Certain supplementary measures in this MD&A do not have any standardized meaning as prescribed under IFRS and, therefore, are considered non-IFRS measures. These measures have been described and presented in order to provide shareholders and potential investors with additional information regarding the Company's financial results, liquidity and ability to generate funds to finance its operations. These measures may not be comparable to similar measures presented by other entities, and are further explained as follows:
EBITDA is defined as net income before interest income and expense, taxes, depreciation, amortization and non-controlling interest. EBITDA is presented because it is frequently used by securities analysts and others for evaluating companies and their ability to service debt.
EBITDA was calculated as follows:
September 30 September 30
2013 2012
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Net loss (5,061) (7,144)
(Deduct) Add back:
Interest expense (income) - net 1,774 1,311
Depreciation and amortization 6,303 7,027
Income tax (benefit) expense - (134)
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EBITDA 3,016 1,060
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OUTLOOK
The North American pressure pumping market has experienced a continued transition from natural gas based activity to activity driven by oil and liquids-rich basins. The decline in gas based drilling activity combined with added equipment capacity has resulted in reduced pricing and margins in the North American pressure pumping industry over the last two years. Through 2013 the overall market has moved towards equilibrium. Further, it is anticipated that activity levels will increase marginally in 2014 in both Canada and the USA. As a result pricing should stabilize, although not increase significantly. In Canada, assuming commodity prices remain firm, it is expected that additional activity in the Duvernay and Montney will drive demand for additional horsepower in Canada for 2014. In the US, the overall pressure pumping market has an oversupply of equipment which we do not expect to reverse until later in 2014. However, on a region by region basis, particularly in oil rich areas such as South Texas, activity remains strong. The current scarcity of equity capital for Exploration and Production companies and their more conservative use of debt cause the level of future capital expenditures to be highly leveraged to commodity prices. As such, anticipated 2014 E&P capital expenditures are highly dependent on commodity price assumptions.
While the fundamentals of the overall pressure pumping market are an important factor in our operations, the most significant factor remains the pace of adoption of our technology by E&P companies. We believe that the production benefits offered by GASFRAC provide our customers an advantage and that the major challenge for the Company is increasing our market share through succinct demonstration of this benefit will impact us to a greater extent than the overall pressure pumping market conditions. The key barriers we have encountered impacting the pace of adoption are; demonstration of the cost/benefit, safety considerations, awareness and "inertia". The key on the cost/benefit side is the collection of basin by basin production data to provide more case studies to potential customers showing the positive impact on production and net present values. The current E&P market is very focused on cost efficiencies as they develop large resource plays. As such, the higher up front cost of GASFRAC's service can be a key criteria in purchasing decisions. We expect that the service delivery initiatives we undertook over the last few quarters, particularly engineered fluids that allow significant recovery of frac load fluids, will reduce the net cost of our service to our customers and result in increased adoption as current customers realize the benefits and these benefits are demonstrated to potential customers. While safety will always remain a key focus for the Company, the equipment and procedures put in place during 2011 have largely removed this as a barrier for most customers - although education and safety audits will remain part of the sales cycle. We have observed an increased awareness and expressed interest in GASFRAC services in the basins we are targeting. While this increased interest has not resulted in added customers in the most recent quarter, the volume of specific requests for proposals has risen. Marketing at technical and industry forums as well as one-on-one meetings with key executives represent the key actions being taken by GASFRAC to continue to increase awareness of the Company and our technology. By "inertia" we refer to the tendency for operating companies to continue with their current processes in field developments where they are achieving acceptable returns. This tendency towards inertia drives GASFRAC to focus more on new field developments or identify opportunities which cause the return in current manufacturing processes to be interrupted - for instance reduction in commodity prices or increases in regulation or costs associated with water fracturing.
We believe the key to improving the adoption is to focus sales efforts on the independent operators who are able to more quickly assess new technologies and adapt to operational changes. In addition, the introduction of our Hybrid LPG and customized fluids should be attractive to targeted customers, particularly those with exposure to oil reserves.
During this period of adoption, our operations in both Canada and the United States remain concentrated with a few key customers and our revenues are subject to fluctuation dependent on the level of drilling operations by these customers in the areas in which we are servicing them. Their levels of drilling activity can be impacted by numerous factors including, but not limited to, operational difficulties, infrastructure limitations, weather conditions, hunting restrictions, and budgetary priorities. While these fluctuations add a degree of uncertainty to the timing of our cash flows, our current cost structure allows us to remain cash positive at approximately $10 million of revenue per month. Further, our capital commitments and requirements for 2013 are minimal. As such, our draw on our bank credit facility is expected to remain at a level driven by the amount of our accounts receivable.
At our Canadian operations we anticipate that our core customers will continue operations at or above current levels during the fourth quarter. We anticipate growth in activity from current customers as they develop their projects during 2014.
Our sales efforts in the US are focused on independent operators in South Texas. Our work with a major customer recommenced in early May and is planned to continue at a constant pace for the remainder of the year. While, we have experienced interruptions to fracturing activity on this project in the past for various reasons, we expect that, amongst other things, the introduction of the Hybrid LPG technology should help alleviate future operational delays. In addition to our established customers, we have a number of customers who have indicated an intention to trial our Hybrid LPG services during the fourth quarter. However, the level of repeat activity with these customers cannot be determined at this time. We see opportunity for growth in activity with our existing customers during 2014 and also anticipate additional trials and adoption by new customers during the year.
FORWARD-LOOKING STATEMENTS
This document contains certain statements that constitute forward-looking statements under applicable securities legislation. All statements other than statements of historical fact are forward-looking statements. In some cases, forward-looking statements can be identified by terminology such as "may", "will", "should", "expect", "plan", "anticipate", "believe", "estimate", "predict", "potential", "continue", or the negative of these terms or other comparable terminology. These statements are only as of the date of this document and we do not undertake to publicly update these forward looking statements except in accordance with applicable securities laws. These forward looking statements include, among other things:
-- expectations that the Company's innovative technology will provide the
Company with opportunities to expand the Company's market share in
Canada and the USA;
-- expectations as to the impact of the Company's new service offerings
(Hybrid LPG and customized fluids) on customer costs and rates of
adoption;
-- expectations that drilling activity will improve marginally in 2014;
-- expectations as to the number of new customers trialing the Company's
technology;
-- expectations of limited requirements for additional capital expenditures
for 2013;
-- expectations as to the level of funding available under the Company's
credit facility;
-- expectations as to anticipated draw on the Company's credit facility;
-- expectations as to the degree of activity by key customers;
-- expectations as to fluctuations in revenue due to customer
concentration;
-- expectations as to the rate of adoption of the Company's technology by
E&P companies;
-- expectations as to the Company's future market position in the industry;
-- expectations as to the pricing of the Company's services in Canada and
the USA;
-- expectations of fracturing industry pricing and the pricing of the
Company services in North America in 2013 and 2014;
-- expectations of oil and natural gas commodity prices in 2013 and 2014;
-- expectations as to the revenue required to remain cash positive.
These statements are only predictions and are based on current expectations, estimates, projections and assumptions, which we believe are reasonable but which may prove to be incorrect and therefore such forward-looking statements should not be unduly relied upon. In addition to other factors and assumptions which may be identified in this document, assumptions have been made regarding, among other things, industry activity; effect of market conditions on the demand for the Company's services; amount of and access to credit facilities; rate of adoption of the Company's technology; anticipated activity of the Company's key customers; future oil and natural gas prices and the ability of the Company to successfully market its services.
By its nature, forward-looking information involves numerous assumptions, known and unknown risks and uncertainties, both general and specific, that contribute to the possibility that the predictions, forecasts, projections and other forward-looking statements will not occur. These risks and uncertainties include: changes in drilling activity; fluctuating oil and natural gas prices; general economic conditions; weather conditions; regulatory changes; the successful development and execution of technology; customer acceptance of new technology; the potential of competing technologies by market competitors; the availability of qualified staff, raw materials and property and equipment.
Condensed Consolidated Statement of Financial Position
Unaudited
As at: Sep 30, 2013 Dec 31, 2012
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CAD$ '000 CAD$ '000
ASSETS
CURRENT ASSETS
Cash and cash equivalents 371 7,927
Trade and other receivables 32,757 30,529
Inventory 9,507 6,521
Prepaids and short term deposits 3,120 1,346
Assets held for sale - 1,352
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TOTAL CURRENT ASSETS 45,755 47,675
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NON-CURRENT ASSETS
Plant and equipment 199,257 219,056
Intangible assets 829 1,021
Long term deposits 7,648 7,704
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TOTAL NON-CURRENT ASSETS 207,734 227,781
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TOTAL ASSETS 253,489 275,456
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LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Trade payables and accrued liabilities 14,951 17,318
Provisions 903 768
Current portion of finance lease obligation 1,360 1,349
Current portion of credit facility 24,433 2,500
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TOTAL CURRENT LIABILITIES 41,647 21,935
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NON-CURRENT LIABILITIES
Finance lease obligation 539 1,035
Operating lease obligations 69 38
Credit facility - 27,500
Convertible debentures 35,350 34,504
Commitments and contingencies
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TOTAL NON-CURRENT LIABILITIES 35,958 63,077
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TOTAL LIABILITIES 77,605 85,012
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CAPITAL & RESERVES
Share capital 259,805 259,551
Contributed surplus 6,352 5,810
Foreign currency translation reserve 3,455 1,055
Retained earnings (deficit) (93,728) (75,972)
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TOTAL EQUITY 175,884 190,444
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 253,489 275,456
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Condensed Consolidated Statements of Comprehensive Loss
Unaudited
For the three months For the nine months
ended ended
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Sep 30, Sep 30, Sep 30, Sep 30,
2013 2012 2013 2012
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CAD$ '000 CAD$ '000 CAD$ '000 CAD$ '000
REVENUE 30,423 40,851 92,442 102,554
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EXPENDITURES
Operating expenses 22,950 35,381 72,741 92,328
Selling, general and
administrative 3,922 5,786 13,665 16,947
Share based compensation 290 (1,320) 866 375
Depreciation and
amortization 6,303 7,048 19,273 19,299
Impairments - - 120 1,491
Finance cost 1,775 1,339 5,109 3,333
Foreign exchange (gain)
loss 193 (56) 186 15
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35,433 48,178 111,960 133,788
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OTHER INCOME
Net gain/(loss) on
disposition of assets (52) 21 1,746 1
Interest income 1 28 16 51
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(51) 49 1,762 52
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LOSS BEFORE INCOME TAXES (5,061) (7,278) (17,756) (31,182)
Income tax benefit - 134 - 2,163
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LOSS FOR THE PERIOD (5,061) (7,144) (17,756) (29,019)
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OTHER COMPREHENSIVE INCOME /
(LOSS)
Exchange differences on
translating foreign
operations (1,233) (3,494) 2,400 (2,746)
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OTHER COMPREHENSIVE INCOME /
(LOSS) (1,233) (3,494) 2,400 (2,746)
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TOTAL COMPREHENSIVE LOSS FOR
THE PERIOD (6,294) (10,638) (15,356) (31,765)
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LOSS PER SHARE
Basic (per share) (0.08) (0.11) (0.28) (0.46)
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Diluted (per share) (0.08) (0.11) (0.28) (0.46)
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Condensed Consolidated Statements of Cash Flows
Unaudited
For the three months For the nine months
ended ended
------------------------
Sep 30, Sep 30, Sep 30, Sep 30,
2013 2012 2013 2012
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CAD$ '000 CAD$ '000 CAD$ '000 CAD$ '000
CASH FLOW FROM OPERATING
ACTIVITIES
Loss for the period (5,061) (7,144) (17,756) (29,019)
Adjusted for:
Depreciation and
amortization 6,303 7,048 19,273 19,299
Equity settled share
based compensation 227 (905) 646 152
Impairments - - 120 1,491
Bad debt expense - 335 528 796
Finance cost 1,775 1,339 5,109 3,333
Net (gain)/loss on
disposition of assets 52 (21) (1,746) (1)
Unrealized foreign
exchange loss/(gain) 68 (1) 204 4
Income tax benefit - (134) - (2,163)
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3,364 517 6,378 (6,108)
Net change in non-cash
operating working capital (9,644) (7,658) (8,165) 21,407
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Cash used in operations (6,280) (7,141) (1,787) 15,299
Interest paid (2,099) (1,831) (4,524) (2,242)
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NET CASH USED IN OPERATING
ACTIVITIES (8,379) (8,972) (6,311) 13,057
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CASH FLOW FROM INVESTING
ACTIVITIES
Purchases of plant and
equipment (253) (4,357) (2,084) (41,736)
Acquisition of intangible
assets (21) (598) (103) (785)
Proceeds from sale of
plant and equipment and
assets held for sale 4,077 - 8,065 2,119
Net change in non-cash
investing working capital (628) 1,076 (1,398) (10,663)
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NET CASH GENERATED BY/ USED
IN INVESTING ACTIVITIES 3,175 (3,879) 4,480 (51,065)
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CASH FLOW FROM FINANCING
ACTIVITIES
Proceeds from common
shares issued (net of
share issue cost) - 823 150 1,310
Finance leases (236) (171) (502) (482)
Credit facility 5,068 14,952 (5,567) 32
Convertible debentures
issued - - - 37,888
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NET CASH GENERATED BY / USED
IN FINANCING ACTIVITIES 4,832 15,604 (5,919) 38,748
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Net change in cash and cash
equivalents (372) 2,753 (7,750) 740
Cash and cash equivalents at
beginning of period 802 3,014 7,927 5,026
Effects of exchange rate
changes on the balance of
cash held in foreign
currencies (59) (114) 194 (113)
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CASH AND CASH EQUIVALENTS AT
THE END OF THE PERIOD 371 5,653 371 5,653
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The Company will host a conference call on Thursday, November 7, 2013 at 9:00 a.m. MT (11:00 a.m. ET) to discuss the Company's results for the third quarter of 2013.
To listen to the webcast of the conference call, please enter: http://www.gowebcasting.com/4938 in your web browser or visit the Investor Information section of our website www.gasfrac.com.
To participate in the Q&A session, please call the conference call operator at 1-866-226-1793 or 1-416-340-2218 fifteen minutes prior to the call's start time and ask for "GASFRAC Third Quarter Results Conference Call".
A replay of the call will be available until November 14, 2013 by dialing 1-800-408-3053 (North America) or 1-905-694-9451 (outside North America). Playback passcode: 4472037. The Company will also archive the conference on its website at www.gasfrac.com.
GASFRAC is an oil and gas service company headquartered in Calgary, Alberta, Canada, whose primary business is to provide LPG fracturing services to oil and gas companies in Canada and the USA.
This press release contains certain statements that constitute forward-looking statements under applicable securities legislation. All statements other than statements of historical fact are forward-looking statements. In some cases, forward-looking statements can be identified by terminology such as "may", "will", "should", "expect", "plan", "anticipate", "believe", "estimate", "predict", "potential", "continue", or the negative of these terms or other comparable terminology. These statements are only as of the date of this document and we do not undertake to publicly update these forward looking statements except in accordance with applicable securities laws. Forward-looking statements are based on current expectations, estimates, projections and assumptions, which we believe are reasonable but which may prove to be incorrect and therefore such forward-looking statements should not be unduly relied upon. In addition to other factors and assumptions which may be identified in this document, assumptions have been made regarding, among other things: industry activity; the general stability of the economic and political environment; effect of market conditions on demand for the Company's products and services; the ability to obtain qualified staff, equipment and services in a timely and cost efficient manner; the ability to operate its business in a safe, efficient and effective manner; the performance and characteristics of various business segments; the effect of current plans; the timing and costs of capital expenditures; future oil and natural gas prices; currency, exchange and interest rates; the regulatory framework regarding environmental matters in the jurisdictions in which the Company operates; and the ability of the Company to successfully market its products and services. Forward-looking statements are subject to a number of risks and uncertainties, which could cause actual results to differ materially from those anticipated. These risks and uncertainties include: fluctuating prices for crude oil and natural gas; changes in drilling activity; general global economic, political and business conditions; weather conditions; regulatory changes; the successful exploitation and integration of technology; customer acceptance of technology; success in obtaining issued patents; the potential development of competing technologies by market competitors; and availability of products, qualified personnel, manufacturing capacity and raw materials. In addition, actual results could differ materially from those anticipated in these forward-looking statements as a result of the risk factors set forth under the section entitled "Business Risks" in the Company's MD&A.
Requests for shareholder information should be directed to James M. Hill.
Contacts:
GASFRAC Energy Services Inc.
James M. Hill
Chief Executive Officer
403-515-3387
www.gasfrac.com
