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Press release from CNW Group

Canyon Services Group Inc. (TSX:FRC) reports strong second quarter 2010 results

Tuesday, August 03, 2010

Canyon Services Group Inc. (TSX:FRC) reports strong second quarter 2010 results20:51 EDT Tuesday, August 03, 2010CALGARY, Aug. 3 /CNW/ - Canyon Services Group Inc. ("Canyon") today announced its second 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 and six months ending June 30, 2010 and June 30, 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 SECOND QUARTER 2010 << 000's except per share Three months ended Six months ended and job amounts June 30 June 30 -------------------- -------------------- 2010 2009 2010 2009 -------- -------- -------- -------- Consolidated revenues $22,817 $4,011 $64,276 $28,087 Operating income (loss)(1) $5,228 $(1,381) $23,326 $4,408 Net income (loss) $340 $(5,389) $12,357 $(4,445) Per share-basic $0.01 $(0.24) $0.23 $(0.20) Per share-diluted $0.01 $(0.24) $0.23 $(0.20) EBITDA before stock option expense(1) $3,254 $(3,003) $19,401 $1,014 Capital expenditures $19,686 $178 $39,572 $337 Long term debt $58 $16,782 $58 $16,782 Working capital $40,532 $4,757 $40,532 $4,757 Total jobs completed 308 97 969 599 Consolidated average revenue per job $73,871 $41,193 $66,214 $46,857 Note (1): See Non-GAAP Measures >> So far, 2010 has experienced much improved operating conditions across the well stimulation industry. The second quarter also experienced better than expected activity levels as many exploration and production ("E&P") companies worked through spring break-up to complete new wells plus wells drilled in their winter drilling programs, in advance of anticipated increased activity in the second half of 2010.In Q2 2010, Canyon achieved a significant improvement in operating and financial results compared to Q2 2009. Canyon recorded total revenues of $22.8 million, almost six times the revenue of $4.0 million recorded in Q2 2009. For the first time in the Company's history, Canyon achieved positive EBITDA (before stock option expense) in the quarter totaling $3.4 million, compared to negative $3.0 million in Q2 2009. Average consolidated revenue per job has increased significantly to $73,871 in Q2 2010, representing a 79% increase over Q2 2009 and an 18% increase over Q1 2010.Canyon's strong revenue performance and higher average revenue per job in Q2 2010, are attributable to the improved operating environment and Canyon's shift to the deeper more complex areas of the Western Canadian Sedimentary Basin ("WCSB") and the subsequent increase in job size and a better pricing environment. The rapid growth in the Company's hydraulic pumping capacity, which averaged 75,500 hydraulic horsepower ("HHP") in Q2 2010, has allowed Canyon to successfully work on larger jobs and longer-term projects.To-date in 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 is in strong demand in 2010 allowing pressure pumping companies to improve prices over historically low levels experienced in 2009. The industry recovery is 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 are very active. Well licenses issued and drilling rig utilization rates for Q2 2010 were higher by 98% and 86% respectively over the comparable quarter of 2009. Importantly, E&P companies have increased proportionately the number of oil wells drilled which accounted for approximately 47% of all wells drilled in the WCSB in Q2 2010 compared to about 24% in Q2 2009. 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 Q2 2010, average WTI oil prices have remained strong averaging $77.88 US per barrel, 31% higher than the average price for Q2 2009. The average Nymex natural gas spot price increased by 14% to $4.35 US per mcf in Q2 2010 from $3.81 US per mcf in Q2 2009.In 2010, Canyon's pressure pumping equipment fleet has grown rapidly to an average 75,500 HHP in Q2 2010 from about 25,000 HHP in 2009. This increase in equipment capacity was funded by a $50 million equity issue completed in Q4 2009. In April 2010, Canyon completed an additional $47 million equity financing with the net proceeds earmarked to fund further expansion of the pressure pumping equipment fleet to 125,500 HHP. The additional 50,000 HHP is expected to be delivered by year end 2010.The operating and financial highlights for the three and six months ended June 30, 2010 may be summarized as follows:Operating and Financial Highlights << - Canyon completed its first 50,000 HHP capital expansion program which was initiated in the fall of 2009. Canyon's hydraulic pressure pumping fleet averaged 75,500 HHP in Q2 2010. - In Q2 2010, Canyon's consolidated revenues increased almost six-fold to $22.8 million from $4.0 million in Q2 2009. For the six months ended June 30, 2010, consolidated revenues more than doubled to $64.3 million compared to $28.1 million in Q2 2009. - Jobs completed in the quarter tripled to 308, from 97 jobs completed in Q2 2009, while for the six months ended June 30, 2010, jobs completed increased by 62% to 969 from 599 in the comparable 2009 period. - EBITDA before stock based compensation expense (see Non-GAAP Measures) improved dramatically to $3.3 million in Q2 2010 from a negative $3.0 million in Q2 2009, mainly due to higher industry activity, a shift to completing larger jobs and improved pricing. For the six months ended June 30, 2010, EBITDA before stock based compensation expense increased to $19.4 million from $1.0 million in the comparable 2009 period. - Net income was recorded at $0.3 million in Q2 2010, compared to a net loss of ($5.4) million in Q2 2009, while for the six months ended June 30, 2010, net income improved to $12.4 million from a net loss of ($4.4) million in the 2009 comparable period. - Average consolidated revenue per job increased by 18% to $73,871 in Q2 2010, from $62,646 in the previous quarter and by 79% from $41,193 in Q2 2009. This growth is due to Canyon's continuing success in expanding its market share in the deeper segments of the market resulting in larger, higher priced jobs, and to improved pricing. For the six months ended June 30, 2010, average consolidated revenues per job increased by 41% to $66,214 from $46,857 in the comparable 2009 period. - Canyon's continued penetration into the deeper segments of the market resulted in the Hydraulic Fracturing Division contributing 86% of consolidated revenues during the quarter compared to 63% in the second quarter of 2009. For the six months ended June 30, 2010, this division contributed 84% of consolidated revenues compared to 49% in the comparable 2009 period. In 2010 year to date, approximately 73% of the consolidated total revenue is generated from fracturing operations in the deeper, more complex areas of the WCSB including Northwest Alberta and Northeast BC. - On April 6, 2010, the Company closed a 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 of $44.0 million will be used to fund Canyon's expanded capital expenditure program which will add an additional 50,000 HHP by year- end 2010. - Canyon's total capital expenditures for fiscal 2010 are estimated at $79 million. $20 million was incurred in Q2 2010 bringing total capital outlays for the six months ended June 30, 2010 to $40 million. The expanded capital program will increase Canyon's equipment capacity to approximately 125,500 HHP by the end of 2010 and add an operating base in Southeast Saskatchewan. The remaining $39 million will be funded from available cash of $32 million as at June 30, 2010, and funds from operations (See Non-GAAP Measures). - In July 2010, Canyon purchased land in Estevan, Southeast Saskatchewan and has commenced construction of an operating base. - As at June 30, 2010, the Company's available cash and credit facilities total $68.5 million. >> QUARTERLY COMPARATIVE STATEMENTS OF OPERATIONS << June 30, June 30, Quarter Ended 2010 2009 ------------------------------------------------------------------------- (unaudited) (unaudited) Revenues $22,816,613 $4,011,369 Expenses Operating 17,588,780 5,392,159 Selling, general and administrative 1,973,399 1,621,881 Stock-based compensation expense 216,584 422,380 Interest on long-term debt 22,319 170,915 Other interest 1,897 8,829 Depreciation and amortization 2,929,327 2,290,549 ------------------------- Income (loss) before income taxes 84,307 (5,895,344) ------------------------- Income taxes-future (reduction) (255,602) (506,343) ------------------------- (255,602) (506,343) ------------------------- Net income (loss) and comprehensive income (loss) $339,909 $(5,389,001) ------------------------- ------------------------- EBITDA before stock option expense(1) $3,254,434 $(3,002,671) ------------------------- ------------------------- Income (loss) per share: Basic $0.01 $(0.24) Diluted $0.01 $(0.24) ------------------------- ------------------------- Note (1): See Non-GAAP Measures. >> RevenuesConsolidated revenues for Q2 2010 increased almost six-fold to a record $22.8 million compared to the $4.0 million earned in Q2 2009. Jobs completed in the current quarter tripled to 308, from 97 jobs completed in Q2 2009. Average consolidated revenues per job increased to $73,871 in Q2 2010 from $62,646 in the previous quarter and from $41,193 in Q2 2009 due to the general recovery in the industry in 2010 which has led to improved pricing, and to Canyon's continuing success in expanding its market share in the deeper segments of the market which has led to larger, higher priced jobs.Operating ExpensesOperating expenses in Q2 2010 were $17.6 million, or 77% of revenues, compared to $5.4 million, or 134% of revenues, for the comparable quarter of 2009. The increase in operating expenses is due to the three-fold increase in jobs completed in Q2 2010 compared to Q2 2009. In Q2 2010, the fixed component of operating costs which comprise salaries and wages for field and support staff, insurance, equipment registrations and licenses, safety training programs, laboratory, communications, and operating base costs, etc. increased by 77% over Q2 2009 as increased business activity and the additions to Canyon's equipment fleet in 2010 has necessitated additional field and support staff. Also, Q2 2009 fixed operating costs were reduced with staff reduction and wage rollbacks in response to industry conditions.Selling, General and Administrative ExpensesSelling, general and administrative expenses increased to $2.0 million in Q2 2010 from $1.6 million in Q2 2009 primarily due to the increases in sales and marketing expenses and a generally more active business environment.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 Q2 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 $16 thousand for Q2 2010 (Q2 2009 - $0.2 million) and is included in accounts payable and accrued liabilities.EBITDA (See Non-GAAP Measures)In Q2 2010, the increased utilization, shift to completing larger jobs and improved pricing has resulted in EBITDA before stock based compensation expense of $3.3 million, significantly higher than the negative amount of $3.0 million recorded in Q2 2009. The Q2 2010 EBITDA before stock based compensation expense of $3.3 million consists of income before income taxes of $0.1 million, plus depreciation and amortization of $2.9 million, plus interest on long-term debt and other interest of $0.1 million, plus stock-based compensation expense of $0.2 million. The comparable Q2 2009 EBITDA before stock based compensation expense of negative $3.0 million consists of loss before income taxes of ($5.9) 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 $0.4 million.Interest ExpenseInterest on long-term debt and other interest was $24 thousand for Q2 2010, compared to $0.2 million for Q2 2009. The decrease is due to lower debt levels following repayment of $20 million in Q4 2009 from the net proceeds of the October 2009 equity financing.Depreciation ExpenseDepreciation expense was recorded at $2.9 million in Q2 2010, compared to the $2.3 million recorded in Q2 2009. The increase is due to the addition of equipment in late 2009 and the first quarter of 2010 mostly funded from the net proceeds of the October 2009 equity financing. Commencing with Q1 2010, Canyon reassessed the salvage value estimate for certain 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 Q2 2010 of $0.1 million would have resulted in an expected income tax expense of $24 thousand compared to an actual income tax reduction of $0.3 million. The expected income tax expense was decreased by the effect of the future tax benefit of obligations for payments under the Company's Deferred Share Unit Plan and increased by the effect of other non-deductible expenses and future tax rate differences.Net Income (Loss) and Comprehensive Income (Loss) and Income (Loss) per ShareNet comprehensive income totaled $0.3 million for Q2 2010, compared to net comprehensive loss of ($5.4) million in Q2 2009. The increase in net comprehensive income for Q2 2010 is due to the significant increase in Canyon's fracturing services as discussed above.For the quarter ended June 30, 2010, basic and diluted income per share was $0.01, compared to basic and diluted loss per share of ($0.24) recorded in Q2 2009.2010 YEAR-TO-DATE COMPARATIVE STATEMENTS OF OPERATIONS << June 30, June 30, Year To Date 2010 2009 ------------------------------------------------------------------------- (unaudited) (unaudited) Revenues $64,276,413 $28,087,028 Expenses Operating 40,950,390 23,678,578 Selling, general and administrative 3,924,598 3,394,428 Stock-based compensation expense 1,342,643 594,136 Interest on long-term debt 44,813 313,155 Other interest 35,845 30,938 Depreciation and amortization 5,581,894 4,589,904 ------------------------- Income (loss) before income taxes 12,396,230 (4,514,111) ------------------------- Income taxes-future (reduction) 39,567 (69,550) ------------------------- 39,567 (69,550) ------------------------- Net income (loss) $12,356,663 ($4,444,561) ------------------------- ------------------------- EBITDA before stock option expense(1) $19,401,425 $1,014,022 ------------------------- ------------------------- Income (Loss) per share: Basic $0.23 ($0.20) Diluted $0.23 ($0.20) ------------------------- ------------------------- Note (1): See Non-GAAP Measures. >> RevenuesConsolidated revenues for the six months ended June 30, 2010 more than doubled to $64.3 million from $28.1 earned in the comparable 2009 period. Jobs completed in the six months ended June 30, 2010 totaled 969, a 62% increase from the 599 jobs completed in the six months ended June 30, 2009. Average consolidated revenues per job increased to $66,214 in the half-year to June 30, 2010 from $46,857 in the comparable 2009 period. The increase in revenues, jobs and average consolidated revenues per job is due to the much improved operating environment across the well stimulation industry, as discussed above. In addition, Canyon continued to be successful in expanding our market share in the deeper segments of the basin resulting in about 73% of consolidated revenues being generated from larger-priced jobs.Operating ExpensesOperating expenses for the first half of 2010 increased by 73% to $41.0 million from $23.4 million in the first half of 2009 mainly due to the increased job count and a corresponding higher fixed operating cost component. The 73% increase in operating costs does not match the 129% increase in revenues due to the fixed component which includes salaries and wages for field and support staff, insurance, licenses and registrations for the equipment fleet, safety, laboratory, communications, and operating base costs, etc. Fixed operating costs increased by 30% in the six months ended June 30, 2010 over the comparable 2009 period as Canyon added staff and equipment to match the increase in activity. The 2009 period was impacted by significant cost cutting measures implemented in response to the decreased level of activity in the industry, consisting mostly of staff reductions and wage and benefit rollbacks.Selling, General and Administrative ExpensesSelling, general and administrative expenses increased to $3.9 million in the six months ended June 30, 2010 from $3.4 million in the comparable 2009 period mostly due to additional sales and engineering staff and the reversal of wage and benefit reductions implemented in March 2009. Management expects that SG&A will grow at a low rate as the Company's operating activities continue to expand, as much of the back-office infrastructure necessary to support expanded operational activities is already in place.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 method. For the six months ended June 30, 2010, $0.4 million (2009 $0.4 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. Fluctuations in the price of the Company's common shares change the accrued stock-based compensation and are recognized when they occur. This expense totaled $0.9 million for the first half of 2010 (2009 - $0.2 million) and included in accounts payable and accrued liabilities.EBITDA (See NON-GAAP MEASURES)In the first half of 2010, EBITDA before stock-based compensation expense was $19.4 million, significantly higher than the $1.0 million of EBITDA before stock based compensation expense recorded in the first half of 2009. The leading factors for the increase are higher utilization, Canyon's shift to larger, higher-priced jobs and improved pricing, as discussed above.The first half 2010 EBITDA before stock based compensation expense of $19.4 million consists of income before income taxes of $12.4 million, plus depreciation and amortization of $5.6 million, plus interest on long-term debt and other interest of $0.1 million, plus stock-based compensation expense $1.3 million. The comparable first half 2009 EBITDA before stock based compensation expense of $1.0 million consists of loss before income taxes of $(4.5) million, plus depreciation and amortization of $4.6 million, plus interest on long-term debt and other interest of $0.3 million and stock based compensation expense of $0.6 million.Interest ExpenseInterest on long-term debt and other interest decreased to $0.1 million in the first half of 2010 compared to $0.3 million for the first half of 2009. The decreased interest expense 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 $5.6 million for the first half of 2010, up from $4.6 million recorded in the first half of 2009. The increase is due to the addition of equipment in late 2009 and in the first quarter of 2010 mostly 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 $0.2 million in the period to June 30, 2010.Income Tax ExpenseAt the expected combined income tax rate of 28%, income before income taxes for the first half of 2010 of $12.4 million would have resulted in income tax expense of approximately $3.5 million compared to actual income tax expense of $40 thousand. The income tax expense was increased by $0.1 million as a result of the effect of stock-based compensation expense and other non-deductible expenses, reduced by $0.3 million for 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 (Loss) and Comprehensive Income (Loss) and Income (Loss) per ShareNet income and comprehensive income totaled $12.4 million for the first half of 2010 compared to a net loss and comprehensive loss of ($4.4) million. The significant improvement in net income and comprehensive income in 2010 is primarily due to increased activity levels and revenues resulting from a significant increase in demand by E&P companies for well stimulation services as discussed above.Basic income per share for the first half of 2010 was $0.23 (diluted - $0.23), compared to the basic and diluted loss per share of ($0.20) in the first half of 2009.FORWARD-LOOKING STATEMENTSThis 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 & CEO, 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 & CFO, Canyon Technical Services Ltd, Suite 1600, 510-5th Street S.W., Calgary, Alberta, T2P 3S2, Phone: 403-290-2478, Fax: 403-355-2211