Mr. James Hill reports
GASFRAC ANNOUNCES FIRST QUARTER 2011 RESULTS
Gasfrac Energy Services Inc. has provided its first quarter financial results.
DwightLoree, Chief Executive Officer commented "Revenue for the quarterincreased 91% to $30.5 million from $15.9 million in 2010. However, thisrevenue was below our expectations due to capacity constraintsresulting from a well site incident on January 14, 2011 which resultedin us suspending operations for a three week period. Subsequently wealso added several data collection and monitoring systems to ouroperating procedures to enhance safety. This additional data monitoringcapability exceeded the bandwidth of the data vans as currentlyconfigured resulting in an additional short-term constraint on revenuecapacity which has now been alleviated. The net result of the shutdownand bandwidth limitation was to reduce the Company's effective revenuegeneration capacity during the quarter to 60% of that originallyplanned. With the added equipment from our capital build now coming online, I expect revenue capacity to significantly increase in for thesecond half of the year."
Financial Overview
Revenues
Revenuefor the quarter increased 91% to $30.5 million from $15.9 million in2010. The increase reflects a combination of added equipment capacity aswell as additional demand for our services in Canada. However, revenuefor the quarter was below our expectations due to capacity constraintsresulting from a well site incident on January 14, 2011. As the Companyhas previously described in press releases, the incident was caused by apremature mechanical failure. The Company took the precaution ofdiscontinuing all fracturing operations until it determined the cause ofthe incident. As a result, operations for the quarter were shut downfor a three week period. Further, as a result of its review, the Companyadded several data collection and monitoring systems to its operatingprocedures. This additional data monitoring capability exceeded thebandwidth of the data vans as currently configured thus requiring theuse of two data vans per fracturing job. This requirement for two datavans per job effectively removed one fracturing set from operationsuntil additional monitoring bandwidth was added to each equipment set.This was completed early in the second quarter. The net result of theshutdown and bandwidth limitation was to reduce the Company's effectiverevenue generation capacity during the quarter to 60% of that originallyplanned. In 2011, the demand for fracturing services in Canada hasimproved significantly and the Company has participated in thisimprovement due to increased acceptance of its LPG fracturing technologyand added equipment capacity. During the quarter, three customersrepresented 56% of revenue.
During the quarter the Companycompleted 139 treatments at an average price of $219 compared to 78treatments at an average job price of $204 during Q1 2010.
Operating Expenses
Operatingexpenses increased to $25.6 million (84% of revenue) during Q1 2011from $11.9 million (75% of revenue) in Q1 2010. In addition to theincrease related to revenue volume, the increase is comprised of threecomponents. First, direct field costs increased by approximately 4percentage points ($1.2 million) resulting from standby charges incurredduring the shutdown and equipment rental costs. Second, repair costsincurred as a result of the January 14, 2011 incident were
.5 million.Third, our US operation incurred fixed operating costs of
.8 millionduring the quarter.
Selling, General and Administrative ("SG&A") Expenses
SG&Aexpenses increased to $3.7 million (12% of revenue) during Q1 2011 from$3.6 in Q4 2010 and $1.9 million (12% of revenue) in Q1 2010. Theincrease is primarily due to the hiring of administrative and operationsstaff to support the growth in both our Canadian and US operations.
Amortization
Amortizationincreased to $2.9 million during Q1 2011 from $1.5 million in Q1 2010.The increase is due to an increase in operating capital assets.
EBITDA
EBITDAdecreased to
.1 million during Q1 2011 from $4.0 million in Q1 2010.The decrease is largely due to the revenue capacity limitationexperienced during the quarter without a reduction in the cost basebuilt to support the higher revenue.
Net Income
Net income decreased to a loss of $2.5 million during Q1 2011 from net income of $1.7 million during Q1 2010.
Asat March 31, 2011 the Company had $79.1 million of working capitalcompared to $118.3 million at December 31, 2010. The decrease in workingcapital is primarily due to investing in capital assets offset by anincrease is cash provided from operating activities.
The Companyhad approximately $101 million of capital commitments as part of the2011 capital program. The Company anticipates being able to fund thesecapital expenditures through cash on hand, operating cash flows andcurrent debt facilities.
Operating
The Company's fundsprovided by operations (as defined under Non-IFRS Measures) was $1.4million for Q1 2011 compared to $4.1 million in 2010. The decrease islargely due to the loss for the quarter as compared to a profit in 2010.
Financing
Netcash provided by financing activities for Q1 2011 was $1.0 millioncompared to
.3 million during Q1 2010. Both result from the exerciseof stock options and warrants.
As at March 31, 2011 the Companyhad a $15 million demand revolving loan facility and a $35 millioncommitted revolving facility (see Note 11 of the interim consolidatedfinancial statements). No amounts were drawn on these facilities as atMarch 31, 2011 or as at the date of this MD&A. The Company is incompliance with all its debt covenants.
Investing
For Q12011 the Company's net cash used for investing activities was $41.3million as compared to $6.2 million in Q1 2010. The Company invested$38.9 million in capital equipment to add revenue producing capacity. In2010, The Company invested $6.2 million in capital equipment.
GASFRAC ENERGY SERVICES INC.
Consolidated Statement of Comprehensive (loss) Income (unaudited)
(000s)
Three Months Ended: Mar 31, 2011 Mar 31, 2010
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(Note 15)
REVENUE $ 30,452 $ 15,906
OTHER INCOME
Interest income 255 -
Business interruption claim - 2,030
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30,707 17,936
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EXPENDITURES
Operating 25,567 11,913
Selling, general and administrative 3,670 1,932
Stock based compensation 1,047 166
Amortization 2,885 1,490
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33,169 15,501
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(LOSS) PROFIT BEFORE INCOME TAX (2,462) 2,435
Foreign exchange loss (gain) 102 (12)
Deferred income tax (benefit) expense (49) 718
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NET (LOSS) INCOME / COMPREHENSIVE (LOSS)
INCOME (2,515) 1,729
(Loss) Earnings per share
Basic $ (0.04) $ 0.05
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Diluted $ (0.04) $ 0.05
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The Company will host a conference call on Tuesday, May10, 2011 at 10:00 a.m. MT (12:00 p.m. ET) to discuss the Company's firstquarter 2011 results.
To participate in the Q&A session,please call the conference call operator at 1-866-226-1792 fifteenminutes prior to the call's start time and ask for "GASFRAC FirstQuarter Results Conference Call".
We seek Safe Harbor.