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Press release from CNW Group

Canyon Services Group Inc. (TSX:FRC) reports record first quarter 2010 results

Wednesday, May 12, 2010

Canyon Services Group Inc. (TSX:FRC) reports record first quarter 2010 results19:35 EDT Wednesday, May 12, 2010CALGARY, May 12 /CNW/ - Canyon Services Group Inc. ("Canyon") today announced its first quarter 2010 results. The following should be read in conjunction with the Consolidated Financial Statements and Notes of Canyon Services Group Inc. ("Canyon" or the "Company") as at and for the three months ending March 31, 2010 and March 31, 2009, and should also be read in conjunction with the Audited Consolidated Financial Statements for the years ended December 31, 2009 and 2008. Additional information relating to the Company, including the Company's Annual Information Form for the year ended December 31, 2009, is available on SEDAR at www.sedar.com.OVERVIEW OF FIRST QUARTER 2010In Q1 2010, Canyon continued to implement its strategy of improving its market share in the deep basin of Northwest Alberta and Northeast British Columbia. Canyon's increased equipment fleet capacity, which averaged 50,000 hydraulic horsepower ("HHP") in Q1 2010, combined with a much improved operating environment for the well stimulation industry resulted in record total revenues and EBITDA before stock option expense of $41.5 million and $16.1 million, respectively. This represents a 72% revenue increase and a 303% EBITDA increase over Q1 2009. Average consolidated revenue per job increased to $62,646 in Q1 2010, representing 30% growth over the fourth quarter of 2009 and a 31% increase over Q1 2009. A shift to larger, higher-priced jobs and improved pricing were the leading factors for the strong revenue performance and higher average revenue per job.In Q1 2010, Canyon has seen its customers expand their capital expenditure programs with a focus on pressure pumping intensive resource plays requiring significantly more HHP capacity to complete the well. As a result, HHP capacity was in strong demand during Q1 2010 allowing pressure pumping companies to improve prices over historically low levels experienced in 2009. The industry recovery was underpinned by strong oil prices and increased activity in emerging and established oil plays such as the Cardium and Bakken. In addition, natural gas resource plays in Northeast British Columbia and Northwest Alberta such as the Montney and Horn River were also very active. Well licenses issued and drilling rig utilization rates for Q1 2010 were higher by 22% and 47% respectively over the comparable quarter of 2009. Importantly, E&P companies have increased proportionately the number of oil wells drilled which accounted for about 50% of all wells drilled in the Western Canadian Sedimentary Basin ("WCSB") in Q1 2010 compared to about 30% historically. Also, the higher oil prices have improved the economics of liquids-rich natural gas plays, helping to offset the impact of the ongoing weakness of natural gas prices. In Q1 2010, average WTI oil prices have remained strong averaging $78.68 US per barrel, 3% higher than the average price for the previous quarter, but 82% higher than Q1 2009. The average Nymex natural gas spot price remained relatively unchanged in Q1 2010 at $4.99 US per mcf, 1% higher than the previous quarter and 12% higher than Q1 2009.Canyon exited Q1 2010 with approximately 75,000 HHP and averaged approximately 50,000 HHP throughout the quarter. Subsequent to the quarter, Canyon closed a $47 million equity financing. The net proceeds of the financing will be used to fund the expansion of the pressure pumping equipment fleet to 125,000. The additional HHP is expected to be delivered by year end 2010.The operating and financial highlights for the three months ended March 31, 2010 may be summarized as follows:Operating and Financial Highlights << - In Q1 2010, Canyon's consolidated revenues increased by 72% to a record $41.5 million from $24.1 million in Q1 2009, while jobs completed in the current quarter increased by 32% to 661, from 502 jobs completed in Q1 2009. - Canyon exited Q1 2010 with approximately 75,000 HHP and averaged approximately 50,000 HHP throughout the quarter. The equipment fleet capacity is projected to increase to 125,000 HHP by the end of the 2010 year. - Average consolidated revenues per job increased by 30% to $62,646 in Q1 2010 from $48,252 in the previous quarter when the industry-wide recovery in activity levels was first observed. The increase in average revenues per job was attributable to Canyon's continuing success in penetrating the deeper segments of the market and to improved pricing. - Canyon's continued penetration into the deeper segments of the market resulted in the Hydraulic Fracturing Division contributing 83% of consolidated revenues during the quarter, or $34.4 million, compared to 47%, or $11 million, in the first quarter of 2009. The average revenue per job within this division increased by 34% in Q1 2010 over Q1 2009. - Approximately 70% of the consolidated total revenue is generated from fracturing operations in the deep basins of NW Alberta and NE BC. - EBITDA before stock based compensation expense (see Non-GAAP Measures) quadrupled to $16.1 million in Q1 2010 from $4.0 million in Q1 2009, mainly due to higher industry activity, a shift to completing larger jobs, improved pricing and fixed costs remaining largely unchanged. - Fixed operating costs and selling, general and administrative costs increased by only 3% in Q1 2010 compared to Q1 2009 as most of the infrastructure to support the higher revenues was already in place. - Net income was recorded at $12.0 million in Q1 2010, a thirteen-fold increase from the $0.9 million recorded in Q1 2009. - On April 6, 2010, the Company closed its previously announced bought deal equity financing and issued 12,305,000 common shares at a price of $3.80 per common share for total gross proceeds of $46.8 million. The net proceeds, estimated at $44.0 million, will be used to fund Canyon's expanded capital expenditure program. - Capital expenditure programs commencing in November 2009 and totaling $89 million are well underway. In addition to the $16 million spent in Q4 2009, Canyon invested an additional $20 million in Q1 2010. The remaining $53 million will be funded from the $44 million of net proceeds from the April 2010 equity offering, funds from operations and available credit facilities. The program is expected to be completed by year end 2010. The combined capital expenditure programs will add approximately 100,000 HHP of additional pumping equipment, high rate blending equipment, and sand transportation and storage equipment. - As at March 31, 2010, the Company's available cash and credit facilities total $37.8 million. QUARTERLY COMPARATIVE STATEMENTS OF OPERATIONS Quarter Ended March 31, 2010 March 31, 2009 ------------------------------------------------------------------------- (unaudited) (unaudited) Revenues $41,459,800 $24,075,659 Expenses Operating 23,361,610 18,286,419 Selling, general and administrative 1,951,199 1,772,547 Stock-based compensation expense 1,126,059 171,756 Interest on long-term debt 22,494 142,240 Other interest 33,948 22,109 Depreciation and amortization 2,652,567 2,299,355 -------------------------------- Income before income taxes 12,311,923 1,381,233 -------------------------------- Income taxes - future 295,169 436,793 -------------------------------- 295,169 436,793 -------------------------------- Net income and comprehensive income $12,016,754 $944,440 -------------------------------- -------------------------------- EBITDA before stock option expense(1) $16,146,991 $4,016,693 -------------------------------- -------------------------------- Income per share: Basic $0.25 $0.04 Diluted $0.25 $0.04 -------------------------------- -------------------------------- Note (1): See Non-GAAP Measures. >> RevenuesConsolidated revenues for Q1 2010 increased by 72% to a record $41.5 million compared to the $24.1 million earned in Q1 2009. Jobs completed in the current quarter increased by 32% to 661, from 502 jobs completed in Q1 2009. The increase in average revenues per job to $62,646 in Q1 2010 from $48,252 in Q1 2009 was attributable to Canyon's continuing success in penetrating the deeper segments of the market and to improved pricing.Operating ExpensesOperating expenses in Q1 2010 were $23.4 million, or 56% of revenues, compared to $18.3 million, or 76% of revenues, for the comparable quarter of 2009. Operating costs include a significant fixed component comprising salaries and wages for field and support staff, insurance, licenses and registrations for the equipment fleet, safety, laboratory, communications, and operating base costs. Despite the increase in activity Canyon has maintained control over these costs, posting virtually identical numbers in the first quarter of 2010 and 2009.Selling, General and Administrative ExpensesSelling, general and administrative expenses increased to $2.0 million in Q1 2010 from $1.8 million in Q1 2009 primarily due to the increases in sales and marketing expenses.Stock-Based Compensation ExpenseStock-based compensation expense represents the value assigned to the granting of options and incentive-based units under the Company's Share Purchase Option Plan and Stock Based Compensation Plan respectively, using the Black-Scholes model. For Q1 2010, $0.2 million (2009 - $0.2 million) was charged to expenses and included in contributed surplus in respect of these two plans. In addition, obligations for payments under the Company's Deferred Share Unit Plan are accrued as stock-based compensation expense over the vesting period. The accrued liability increases or decreases with fluctuations in the price of the Company's common shares, with a corresponding increase or decrease in the stock-based compensation expense. This expense totaled $0.9 million for Q1 2010 (Q1 2009 - $nil) and is included in accounts payable and accrued liabilities.EBITDA (See Non-GAAP Measures)In Q1 2010, the shift to completing larger jobs, improved pricing and fixed costs remaining largely unchanged has resulted in EBITDA before stock based compensation expense of $16.1 million, significantly higher than the amount of $4.0 million recorded in Q1 2009. The Q1 2010 EBITDA before stock based compensation expense of $16.1 million consists of income before income taxes of $12.3 million, plus depreciation and amortization of $2.6 million, plus interest on long-term debt and other interest of $0.1 million, plus stock-based compensation expense of $1.1 million. The comparable Q1 2009 EBITDA before stock based compensation expense of $4.0 million consists of income before income taxes of $1.4 million, plus depreciation and amortization of $2.3 million, plus interest on long-term debt and other interest of $0.2 million, plus stock-based compensation expense of $0.2 million.Interest ExpenseInterest on long-term debt and other interest was $0.1 million for Q1 2010, compared to $0.2 million for Q1 2009. The decrease is due to lower debt levels following repayment of $20 million from the net proceeds of the October 2009 equity financing.Depreciation ExpenseDepreciation expense was recorded at $2.6 million in Q1 2010, compared to the $2.3 million recorded in Q1 2009. The increase is due to the addition of equipment in late 2009 and Q1 2010 funded from the net proceeds of the October 2009 equity financing. Commencing with Q1 2010, Canyon reassessed the salvage value estimate for fracturing equipment resulting in additional depreciation expense of $0.1 million in the quarter.Income Tax ExpenseAt the expected combined income tax rate of 28.0%, the net income before income taxes for Q1 2010 of $12.3 million would have resulted in an expected income tax expense of $3.4 million compared to an actual expense of $0.3 million. The expected future income tax expense was increased by $0.1 million as a result of the effect of stock based compensation expense, other non-deductible expenses and future tax rate differences, and reduced by $3.2 million as a result of the effect of a decrease in a future income tax valuation allowance.Net Income and Comprehensive Income and Income per ShareNet comprehensive income totaled $12.0 million for Q1 2010, compared to $0.9 million in Q1 2009. The increase in net comprehensive income is due to the significant increase in demand by exploration and production companies for well stimulation services in response to industry recovery.For the quarter ended March 31, 2010, basic and diluted income per share was $0.25, compared to basic and diluted income per share of $0.04 recorded in Q1 2009.NON-GAAP MEASURESThe 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-based 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 comprehensive income (loss) under GAAP as disclosed in the consolidated statements of operations to EBITDA before stock compensation expense. << ------------------------------------------------------------------------- Three months ended March 31 (Unaudited) ------------------------------------------------------------------------- 2010 2009 ------------------------------------------------------------------------- EBITDA before stock compensation expense $16,146,991 $4,016,693 ------------------------------------------------------------------------- Add (Deduct): Depreciation and amortization (2,652,567) (2,299,355) Interest on long-term debt (22,494) (142,240) Other interest (33,948) (22,109) Stock-based compensation (1,126,059) (171,756) Income taxes (295,169) (436,793) ------------------------------------------------------------------------- Net comprehensive income $12,016,754 $944,440 ------------------------------------------------------------------------- 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: 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