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Press release from Marketwire

McCoy Announces 2010 Results with EBITDAS of $12.7 Million on Revenues of $109.7 Million and Declares Special Dividend

Friday, March 18, 2011

McCoy Announces 2010 Results with EBITDAS of $12.7 Million on Revenues of $109.7 Million and Declares Special Dividend08:00 EDT Friday, March 18, 2011EDMONTON, ALBERTA--(Marketwire - March 18, 2011) -McCoy Corporation ("McCoy" or "the Corporation") (TSX:MCB) today announced results for the three months and year ended December 31, 2010. The Corporation also declared a special dividend of $0.04 per share. McCoy reports revenue for 2010 of $109.7 million, up 34 percent compared to 2009 revenue of $81.8 million. EBITDAS(1) for 2010 was $12.7 million, compared to $2.5 million in 2009. As an indication of McCoy's focus on attaining higher margins, EBITDAS increased to 11.6% of revenues in 2010 from 3.1% in 2009. Earnings from continuing operations before other and income taxes for the year have increased to $7.8 million from a loss of $3.1 million in 2009.McCoy has continued to add strength to its balance sheet. The Corporation had cash on hand at December 31, 2010 of $16.8 million and a net cash position of $10.4 million. This compares to net debt of $2.1 million one year prior.Financial Summary for the Years Ended December 31($000 except per share amounts)201020092008Total revenue109,72781,771143,496Net earnings (loss) from continuing operations for the year4,417(12,623)(6,587)Net earnings (loss) for the year4,857(13,163)(5,553)Net earnings (loss) from continuing operations per share0.17(0.48)(0.24)Net earnings (loss) per share0.18(0.50)(0.20)Net earnings (loss) from continuing operations before other and income tax7,816(3,113)9,975Net earnings (loss) from continuing operations before other and income taxes per share0.30(0.12)0.36EBITDAS(1)12,7102,53816,151EBITDAS(1) per share0.480.100.58Cash flow from continuing operating activities15,5729,77310,468Cash flow from continuing operating activities per share0.590.370.38Cash on hand at period end16,8184,8714,450Net cash position (net debt)(2) at period end10,419(2,146)(6,706)Weighted average shares outstanding - (000)26,47626,47627,653(1)EBITDAS is a non-GAAP measurement. EBITDAS is defined as "earnings from continuing operations before other non-recurring items, interest, taxes, depreciation and amortization and stock-based compensation." EBITDAS is not considered an alternative to net earnings in measuring McCoy's performance. EBITDAS does not have a standardized meaning and is therefore not likely to be comparable with similar measures used by other issuers. However, McCoy calculates EBITDAS consistently from period to period. (2)Net cash (debt) is non-GAAP measurement. Net cash (debt) is defined as "cash on hand less the sum of current portion of long-term debt, current portion of obligations under capital lease, long-term debt and obligations under capital lease." Net cash (debt) does not have a standardized meaning and is therefore not likely to be comparable with similar measures used by other issuers. However, McCoy calculates net cash (debt) consistently from period to period. "As anticipated, 2010 was a bridge year for McCoy in terms of transitioning from a difficult market when the worldwide economy slowed down in 2009 back to a more normal economy," commented Mr. Jim Rakievich, McCoy's President and CEO. "Throughout the year we showed ever-improving financial results due to our focus on more efficient operations, higher margin businesses and global sales. We took important steps towards our overall growth strategy."The three building blocks of McCoy's growth strategy are as follows:Building global reach – Selling products and services around the world will provide greater stability and greater market penetration. Building the drilling and completions product line – Selling a full-line of drilling and completions equipment means McCoy can become a one-stop shop for customers. Maintaining and enhancing financial strength – A focus on balance sheet strength and strong margins gives McCoy the ability to reward shareholders while keeping options open for growth. Special Dividend DeclaredOn March 17, 2011, McCoy's Board of Directors approved a special dividend of $0.04 per common share to be paid to shareholders of record on March 28, 2011. The payment date will be April 11, 2011. This special dividend is in addition to the $0.01 quarterly dividend that was reinstated by McCoy's Board of Directors in December 2010, for the first quarter of 2011. The special dividend was declared as a result of McCoy's 2010 financial results and the recently announced strategic sale of McCoy Parts & Service."This dividend continues our balancing act of rewarding long-term shareholders while keeping the momentum of building our balance sheet strength and investing in growth," stated Mr. Rakievich.McCoy's SegmentsMcCoy has two operating segments: Energy Products & Services ("EP&S") and Mobile Solutions. EP&S is engaged in the design, manufacture and distribution of drilling and completions equipment, service and replacement parts for the global oil and gas industry, as well as a range of coatings and hydraulic manufacturing and repair services. The Mobile Solutions segment is involved in the manufacture of custom heavy-duty trailers, largely used in the oil and gas industry for multi-stage fracturing, as well as the manufacture of vac and hydrovac equipment. In December 2010, McCoy made a change to its business structure by moving its McCoy Vac and Hydrovac division from the EP&S segment to the Mobile Solutions segment. This was done to ensure like services were aligned in each segment. Also, effective December 31, 2010, McCoy sold its Parts & Service business, which was formerly part of the Mobile Solutions segment.Energy Products & Services SegmentRevenue for the EP&S segment increased by 15%, or $10.0 million, to $76.0 million in 2010 from sales of $66.0 million in 2009, due to increased spending in the global drilling equipment and down-hole tool markets. International drilling activity has remained a bright light in 2010 as international sales remained strong in certain countries due to the recovering price of oil. While rig counts have increased substantially over the last year they remain well below 2008 peak levels; however, McCoy is seeing both quoting and order activities increase. Capital goods orders for drilling & completions equipment typically lag the immediate increase in drilling rig activity and this cycle is no exception. EP&S has experienced a backlog build up and the revenue pipeline for drilling and completions equipment has recovered, but not to 2008 levels. Inotec Coatings & Hydraulics Inc. ("Inotec") has also experienced a slow recovery from the significant market slowdown of 2009. Over half of Inotec's historic revenues were generated by providing turnkey products, finish coatings or refurbishment of down-hole tools. This market is heavily influenced by active conventional rig counts in North America. In 2009, rig count activity dropped significantly and the down-hole tool business for Inotec dried up. McCoy is now seeing a slow but steady recovery as customers begin to work through their inventories that were built up prior to the slowdown of 2009. However, the hydraulics portion of the business which derives 80% of its revenue from customers operating equipment in the oil sands has remained strong and Inotec is looking to increase market-share in this area.Mobile SolutionsThe Mobile Solutions segment experienced a major increase in revenue of $19.0 million from $22.5 million in 2009 to $41.5 million in 2010. The increase was primarily due to the continued recovery in conventional oil and gas activity in the Western Canadian Sedimentary Basin (WCSB) as well as the U.S. land market, from which the majority of revenue for the Mobile Solutions segment is derived. Capital equipment programs for several key pressure pumping companies have extended the backlog for trailers into Q3 2011.McCoy Trailers has been successful in generating revenue above forecast and has more than doubled the revenues from 2009, primarily due to steady demand for horizontal drilling and more horsepower for multi-stage fracturing. This has driven the demand for additional custom drilling and well servicing chassis. McCoy is the market leader for these custom trailers in North America with an estimated 28% market share. Capital equipment spending is continuing by key pressure pumping companies. The Marcellus Shale play is drawing equipment into the region, both fracturing and rig moving. The backlog for standard rig moving trailers in the WCSB and the southern United States is steadily building.The McCoy Trailers Penticton plant is operating at approximately 80% capacity. Plant efficiencies are now starting to improve based on improvements made within the supply chain. The segment continues to recruit and train new employees to increase capacity.Revenues from Rebel Metal Fabricators Ltd. ("Rebel"), McCoy's Red Deer based vacuum tank and hydrovac business, continued to struggle throughout the fourth quarter however this business is experiencing an increase in quoting and sales. Rebel's traditional market has been the WCSB which has experienced a recovery in the conventional oil and gas sector. 2010 Gross Profit by Operating Segment($000 except percentages)EP&SMobile SolutionsTotal2010 Gross Profit34,8739,86044,733% of Sales46%24%41%2009 Gross Profit29,0214,10533,126% of Sales44%18%41%Annual Increase5,8525,75511,607Consolidated gross profit percentage is at 40.8% for 2010 which is consistent with the gross margin of 40.5% in 2009. The maintenance of gross margin is a result of McCoy's continued monitoring and reduction of overhead costs where possible to ensure protection of the gross profit in times of increased activity.Discontinued OperationsEffective December 31, 2010, the Truck and Trailer Parts & Service division of McCoy and the service and parts division of Peerless Limited ("McCoy Parts & Service") were sold.This was a strategic divestiture for McCoy allowing the Corporation to focus on global expansion in the energy industry and grow the most profitable businesses in the EP&S and Mobile Solutions segments. The net cash proceeds from the sale will be used to support and invest in McCoy's strategic growth plans in the global energy industry.Fourth Quarter 2010 ResultsThe fourth quarter of 2010 shows a continued recovery in revenues compared to 2009 due to improved activity in the WCSB, North America and internationally as order books have remained strong in both McCoy segments. The fourth quarter of 2010 saw a significant increase in revenue from the fourth quarter of 2009 in the amount of $16.5 million.In the fourth quarter of 2010, McCoy made a strategic decision to exit the Top Drive product line. McCoy concluded that it lacked the range of Top Drive size offerings to reach the volumes necessary to have a self-sustaining business and that the investment of capital, time and people required to develop the size range offerings for Top Drive are better allocated to other growth opportunities.McCoy has written-down the Top Drive assets and reclassified them as assets held for sale on the balance sheet. This impairment has resulted in a $0.468 million charge to McCoy's fourth quarter income statement, or $0.02 per share.Increased revenues were partially offset by a decrease in the consolidated gross margin to 37.4% for the fourth quarter, down from 43.2% in the third quarter of 2010. This decrease is attributable to the change in mix of revenues as the mix has changed to 55.6% EP&S and 44.4% Mobile Solutions for the fourth quarter of 2010 compared to 68.4% EP&S and 31.6% Mobile Solutions for the third quarter of 2010.Earnings from continuing operations before other and income taxes for the fourth quarter increased to $3.2 million from a loss of $1.3 million for the same period in 2009. EBITDAS for the quarter also increased by $4.3 million from the fourth quarter of 2009. These increases are directly attributable to McCoy reducing its expenses in the fourth quarter of 2010 to 28.1% of revenues from 45.5% during the same period in 2009.OutlookMcCoy anticipates continued growth in 2011 due to increased worldwide rig counts and McCoy's strategic position. The fourth quarter of 2010 represents the highest point to date in McCoy's revenues since the downturn in 2009. McCoy expects 2011 to continue to show growth; however, the Corporation is continuing to view the recovery cautiously to ensure the revitalization is sustained.As a result of McCoy's cost cutting measures and continued focus on expanding global reach, the Corporation has been able to strengthen its balance sheet and position itself to take advantage of the recovering markets.McCoy's EP&S order backlog reversed its decline and began to increase in late 2009 and through 2010. Capital goods orders for drilling & completions equipment typically lag the immediate increase in drilling rig activity and this cycle is no exception. McCoy experienced a backlog build up and anticipates the revenue pipeline for drilling & completions equipment to continue. Order backlog growth is dependent upon a sustained recovery in global drilling activity. McCoy is a global market leader in the hydraulic power tong business.McCoy will continue to integrate its drilling and completions equipment operations of Farr, Superior and PDT in order to gain cost efficiencies, accelerate product development and take full advantage of McCoy's sales and marketing group. During the fourth quarter of 2010, McCoy added a VP, Sales and Marketing for the Drillings & Completions division. Ron Roling plays a key role in McCoy's long-term strategy to become an international leader in supplying a full line of drilling and completions products. McCoy is also implementing a new ERP system and will have the entire Drilling & Completions division on the same system by the middle of 2012.McCoy has expanded its footprint into the "hub" of the global oil and gas business, Houston, Texas, where the Corporation has purchased a facility during the first quarter of 2011. This location will be the anchor point for McCoy's international sales and marketing team, will house an additional engineering design group, and will provide calibration services for many of McCoy's Houston based customers. In the future, this facility will be a distribution point for drilling equipment parts and consumables.The recent civil unrest that has swept through the Middle East and Northern Africa will impact McCoy's business due to the uncertainty facing customers operating in certain countries. However, McCoy's exposure is limited as the majority of the Corporation's business is located outside of the Middle East and Northern Africa. We estimate that up to 5% of revenue in our Drilling & Completions division could be impacted.McCoy's EP&S segment is focused on growing its replacement parts and service business for drilling equipment used worldwide. On September 30, 2010, the McCoy Board approved the capital expenditure for organic growth, which will be developed within Superior Manufacturing & Hydraulics plant. This new product line will sell Superior and Farr spare parts along with other rig equipment replacement parts to McCoy's customers. As customers continue to use existing capital equipment, the recurring revenue from maintaining this equipment is a large, worldwide market that McCoy has the ability to penetrate.In addition, McCoy will continue to pursue opportunities to fill-in certain product offerings that will make the Corporation an integrated supplier of drilling equipment. This is part of McCoy's long term strategy to become a significant supplier of this equipment globally. This will be done both through internal research and development as well as strategic acquisitions. McCoy has ramped up its investment in new product development and will continue to invest in bringing new and innovative ideas to the market.McCoy is moving forward with a stronger commitment than ever to increase product development and innovation activities. There are many opportunities to help customers become safer, more efficient and more profitable with new tools and equipment. This commitment includes increasing McCoy's engineering resources in 2011 and beyond.Growth in the Mobile Solutions segment will be pursued through market expansion into the United States and overseas; and diversification of the product offering into less cyclical markets using McCoy's internal engineering expertise. The ongoing development of trailer models for the wind energy transportation and specialized oilfield rig moving markets is an example of this strategy.McCoy has experienced recovery in almost all of the Corporation's business units in 2010. Provided that commodity prices for oil and natural gas hold up or improve, McCoy would expect to see continued strengthening of financial results in 2011. McCoy entered 2010 with a strong balance sheet and cost reduced operations and finished the year in an even stronger position. McCoy's management believes there are interesting and exciting opportunities to execute McCoy's growth strategy, both organically and as well as through potential strategic acquisitions, and the Corporation's balance sheet gives McCoy the flexibility to take advantage of opportunities.Conference CallMcCoy will host a conference call and webcast on March 18, 2011 (today) at 9:00 a.m. Mountain time (11:00 a.m. Eastern time). Management participants will be:Jim Rakievich, President & Chief Executive Officer; Milica Stolic, Chief Financial Officer; and DeAnn McNally, Manager Corporate Affairs Participants calling from Canada or the United States should call toll-free: 1-866-253-4938. Callers from other locations may access the call at: 1-416-849-6209. Those who prefer to join by webcast, can do so at the following link: http://www.snwebcastcenter.com/event/?event_id=1630.A recording of the call will be available via telephone for seven days by calling 1-866-245-6755 or 1-416-915-1035. The replay passcode number is 954464. The transcript of the conference call will be archived on the investor page of McCoy's website.The Corporation's Financial Statements and Management's Discussion and Analysis have been filed and are available at McCoy's website at www.mccoyglobal.com and will also be available at www.sedar.com.About McCoy – Moving Global Energy ForwardMcCoy provides innovative products and services to the global energy industry. McCoy's two segments, Energy Products & Services and Mobile Solutions, operate internationally through direct sales and distributors with its operations based out of the Western Canadian Sedimentary Basin and the US Gulf Coast. McCoy's corporate office is located in Edmonton, Alberta, Canada with offices in Alberta, British Columbia, Louisiana, and Texas.Forward-Looking InformationThis News Release contains forward-looking statements and forward-looking information within the meaning of applicable securities laws. The use of any of the words "expect", "anticipate", "continue", "estimate", "objective", "ongoing", "may", "will", "project", "should", "believe", "plans", "intends" and similar expressions are intended to identify forward-looking information or statements. More particularly and without limitation, this News Release contains forward-looking statements and information concerning McCoy's future financial performance. The forward-looking statements and information are based on certain key expectations and assumptions made by McCoy, including expectations and assumptions concerning fluctuations in the level of oil and gas industry capital expenditures, McCoy's ability to integrate acquired businesses and complete strategic acquisitions of additional businesses and other factors that affect demand for McCoy's products. Although McCoy believes that the expectations and assumptions on which such forward-looking statements and information are based are reasonable, undue reliance should not be placed on the forward-looking statements and information because McCoy can give no assurance that they will prove to be correct. By its nature, such forward-looking information is subject to various risks and uncertainties, which could cause McCoy's actual results and experience to differ materially from the anticipated results or expectations expressed. These risks and uncertainties, include, but are not limited to, fluctuations in oil and gas prices, fluctuations in the level of oil and gas industry capital expenditures and other factors that affect demand for McCoy's products, industry competition, the need to effectively integrate acquired businesses, uncertainties as to McCoy's ability to implement its business strategy effectively in Canada and the United states, labour, equipment and material costs, access to capital markets, interest and McCoy's ability to attract and retain key personnel. Additional information on these and other factors is available in continuous disclosure materials filed by McCoy with Canadian securities regulators. Readers are cautioned not to place undue reliance on this forward-looking information, which is given as of the date it is expressed in this News Release or otherwise, and to not use future-oriented information or financial outlooks for anything other than their intended purpose. McCoy undertakes no obligation to update publicly or revise any forward-looking information, whether as a result of new information, future events or otherwise, except as required by law.FOR FURTHER INFORMATION PLEASE CONTACT: Mr. Jim RakievichMcCoy CorporationPresident and Chief Executive Officer(780) 453-8451info@mccoycorporation.cawww.mccoycorporation.ca