Press Release Source: GasFrac Energy Services Inc. On Thursday March 10, 2011, 5:40
pm
CALGARY, ALBERTA--(Marketwire - March 10, 2011) - GASFRAC Energy Services
Inc. ("GASFRAC") (TSX VENTURE:GFS - News) achieved revenue of $41.1 million in
the fourth quarter of 2010 as compared to $7.1 million in the fourth quarter of 2009.
EBITDA was $6.1 million as compared to an EBITDA loss of ($1.3 million) in 2009.
Dwight Loree, Chief Executive Officer commented, "The results this quarter show that
GASFRAC has achieved a firm foothold in the Canadian market. Revenues for the
quarter were well above our revenues for the entire 2009 year and more than five times
2009 fourth quarter results. Revenue of $96.9 million for 2010 were more than triple that
of $30.4 million in 2009. At the same time EBITDA for the year of $16.1 million is more
than five times the $3.0 million earned in 2009.
I am confident that we have the team that can support continued growth in Canada as we
add revenue producing capacity with our new equipment build. Further, I am optimistic
that our USA operations in Texas will contribute to our growth with the delivery of two
sets of fracturing equipment in March and April."
Management's Discussion and Analysis
December 31, 2010
The consolidated financial statements have been prepared in accordance with Canadian
generally accepted accounting principles ("GAAP"). Readers should also refer to the
"Forward-Looking Statements" legal advisory at the end of this management discussion
and analysis ("MD&A"). This MD&A has been prepared using information that is
current to March 10, 2011.
All references to dollar amounts are in Canadian dollars. Figures are in 000s except share
and per share data or as otherwise noted.
Unless the context otherwise requires, all references in this MD&A to "we", "us" or "our"
mean GASFRAC.
Business of GASFRAC
GASFRAC Energy Services Company Inc. ("GASFRAC" or the "Company") was
incorporated on February 13, 2006 in Canada under the Business Corporations Act in the
Province of Alberta. The Company is an oil and gas well fracturing company that has
developed new technology, the "LPG Fracturing Process", to enable wells to be fractured
safely with LPG, more specifically propane and butane. The Company has three whollyowned
subsidiaries, GASFRAC Services GP Inc., GASFRAC Energy Services Limited
Partnership and GASFRAC Inc. (a U.S. incorporated entity).
Comparative Annual Financial Information
2010 2009
2008
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Revenue 96,906 30,428
23,522
Operating expenses 72,190 21,016
16,803
Selling, general and
administrative expenses 10,579 6,227
3,844
EBITDA (1) 16,112 2,973
4,549
Net income 5,053 (2,210)
4,096
Net income per share - basic 0.13 (0.07)
0.05
Weighted average number of shares
- basic 38,920,602 32,380,356
21,380,384
Treatments performed 419 142
142
Revenue per treatment 231 214
165
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(1) Defined under Non-GAAP Measures
Overview of 2010
2010 was a year of transition and expansion for GASFRAC. The changes, improvements
and additions that took place should allow the Company to continue to expand its
operations to meet a growing demand for its services. During the year advances made in
our business strategy included:
- Growing revenue to $96.9 million from $30.4 million in 2009;
- Achieving a net income of $5.1 million compared to a loss of ($2.2 million) in 2009;
- Performing 419 fracturing treatments as compared to 142 in 2009;
- Building a strong management team with the addition of several well experienced
personnel in operating, technical, sales and financial positions;
- Increasing our revenue generating capacity with the addition of equipment in 2010 and
commitment to add further equipment - three sets to be delivered in Q1 of 2011 and 4
additional sets in Q4 of 2011;
- Performance of our first fracturing operations in Texas;
- Becoming a publicly traded company;
- Maintaining a strong balance sheet with equity financings of $65 million in June 2010
and $109 million in December 2010.
Financial Overview
Revenues
Revenue for the year increased 219% to $96.9 million from $30.4 million in 2009. The
increase reflects an increase of 195% in the number of treatments performed in 2010
(419) as compared to 2009 (142) combined with an increase in average revenue per
treatment to $231 in 2010 from $214 in 2009. The increase in number of treatments was
driven by continued acceptance of the Company's technology in Canada and an increase
in equipment capacity for service delivery. The Company continues to balance the
demands of its significant customers for limited equipment with the requests of new
customers to utilize the LPG technology. During the year, the Company earned revenues
from more than forty customers with three of these customers representing 63% of
revenue.
Operating Expenses
With the increase in revenue, operating expenses increased to $72.2 million (74.5% of
revenue) during 2010 from $21.0 million (69.1% of revenue) in 2009. The increase as a
percentage of revenue reflects the cost of maintaining the US operation during the fourth
quarter ($1.3 million), mobilization costs for equipment redeployed to Canada ($0.3
million) and recruiting and training personnel for equipment to be delivered in the first
quarter of 2011 ($3.0 million). Operating costs consist primarily of product costs
(propane, proppant, chemicals), cost of field staff, equipment costs and the cost for
maintaining two operational bases. Components of the current operational infrastructure
have been developed to maintain and support a larger scale of operations than GASFRAC
has experienced to date.
Selling, General and Administrative ("SG&A") Expenses
SG&A expenses increased to $10.6 million (10.9% of revenue) during 2010 from $6.2
million (20.5% of revenue) in 2009. The increase is due to the hiring of administrative
and operations staff to support the growth in both our Canadian and US operations. The
relative decrease in SG&A as a percentage of revenue reflects the scalability of this cost
base.
Amortization
Amortization increased to $7.9 million in 2010 from $5.0 million in 2009 reflecting an
increase in operating capital assets of $83.4 million during 2010.
EBITDA
EBITDA increased to $16.1 million during 2010 from $3.0 million in 2009 as a result of
increased revenues and margins.
Other Income
Other income during 2010 included $2.8 million for insurance proceeds related to a
business interruption loss from a mobilization incident that took place in November 2009
and which has been settled in full.
Other income for 2009 is comprised of $638 business interruption claim from 2008
which has been settled in full, $583 from Scientific Research and Experimental
Development credits resulting from the Company's research activities and $201 of
interest income relating to interest earned on short-term investments.
Net Income
As the Company has increased its activity and revenue levels the fixed costs have
reduced as a percentage of revenue. In addition, as equipment becomes more effectively
utilized, the relative cost of amortization is reducing. As a result, the Company had net
income for the year of $5,053 compared to a net loss in 2009 of ($2,210).
Summary of Quarterly Results
(000s)
MAR. 31 JUN. 30 SEP. 30
DEC. 31
2009 2009 2009
2009
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Revenue $ 11,326 $ 2,295 $ 9,662 $
7,145
Net income (loss) $ 901 $ (1,055) $ 782 $
(2,838)
Net income (loss)
per share (basic) $ 0.03 $ (0.03) $ 0.02 $
(0.09)
EBITDA (1) $ 2,376 $ (477) $ 2,396 $
(1,322)
Capital expenditures $ 5,724 $ 9,739 $ 6,658 $
5,358
Working capital (2) $ 39,156 $ 29.031 $ 25,430 $
19,513
Shareholders' equity $ 85,555 $ 84,553 $ 85,970 $
83,731
MAR. 31 JUN. 30 SEP. 30
DEC. 31
2010 2010 2010
2010
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Revenue $ 15,906 $ 13,323 $ 26,590 $
41,087
Net income (loss) $ 1,672 $ (1,266) $ 2,585 $
2,062
Net income (loss)
per share (basic) $ 0.05 $ (0.04) $ 0.06 $
0.04
EBITDA (1) $ 4,039 $ 624 $ 5,336 $
6,113
Capital expenditures $ 6,247 $ 7,430 $ 35,871 $
33,897
Working capital (2) $ 17,792 $ 13,484 $ 42,005 $
118,744
Shareholders' equity $ 85,808 $ 85,379 $ 150,999 $
258,721
(1) Defined under Non-GAAP Measures
(2) Working capital is defined as current assets less current
liabilities
Revenues
Revenue for the fourth quarter of 2010 was $41.1 million, an almost six-fold increase
compared to $7.1 million in the fourth quarter of 2009. There were 148 treatments
performed in the fourth quarter of 2010 at an average revenue of $278 per treatment as
compared to 46 treatments in the same quarter of 2009 at an average revenue per
treatment of $155. The increased volume of treatments reflects both the increased
acceptance of the Company's LPG fracturing technology and the increased number of
equipment sets(crews) the Company has in place. The improved average revenue per
treatment in the quarter results from larger average job size in 2010 as compared to 2009
as the Company has deployed its 100 tonne equipment in 2010 whereas only 32 tonne
equipment was available in 2009. In addition, during the fourth quarter of 2010 the
Company had a greater percentage of large vertical fracture jobs which tend to have a
greater average treatment revenue than horizontal fractures. The Company continues to
balance the demands of its significant customers for limited equipment with the requests
of new customers to utilize the LPG technology. During the quarter two customers
accounted for 65.5% of the Company's revenue.
Operating Expenses
With the increase in revenue, operating expenses increased to $31.7 million (77.1% of
revenue) during the fourth quarter of 2010 from $6.3 million (88.7% of revenue) in the
fourth quarter of 2009. During the fourth quarter the Company redeployed fracturing
equipment from Texas to Canada to meet the market demand in Canada. In anticipation
of mobilizing equipment back to the USA in the first quarter of 2011, the Company did
not downsize USA operations and, as such, incurred $1.3 million of operating costs
associated with those operations during the quarter. Further, the Company incurred costs
of approximately $0.3 million to mobilize the equipment to Canada and approximately
$0.8 million of training and staffing costs for crews hired in anticipation of delivery of
additional fracturing sets in Q1 2011. Operating costs consist primarily of product costs
(propane, proppant, chemicals), cost of field staff, equipment costs and the cost for two
operational bases. Components of the current operational infrastructure have been
developed to maintain and support a larger scale of operations than GASFRAC has
experienced to date.
Selling, General and Administrative ("SG&A") Expenses
SG&A expenses increased to $3.3 million (8.0% of revenue) during the fourth quarter of
2010 from $0.8 million (11.8% of revenue) in the fourth quarter of 2009. The increase is
primarily due to the hiring of administrative and operations staff to support the growth in
both our Canadian and US operations. These costs represent the necessary costs of
building a support infrastructure for the Company's added revenue base and are
anticipated to be able to support future revenue growth without significant additional
growth to this cost base.
Amortization
Amortization increased to $2.5 million in the fourth quarter of 2010 from $1.6 million in
fourth quarter of 2009 reflecting an increase in operating capital assets during the year.
EBITDA
EBITDA increased to $6.1 million during the fourth quarter of 2010 from an EBITDA
loss of ($1.3) million in the fourth quarter of 2009 as a result of increased revenues and
margins.
Other Income
Other income for the fourth quarter of 2010 included $0.7 million for insurance proceeds
related to a business interruption loss from mobilization incident that took place in
November 2009 and which has been settled in full.
Net Income
As the Company has increased its activity and revenue levels, the fixed costs have
reduced as a percentage of revenue. In addition, as equipment becomes more effectively
utilized, the relative cost of amortization is reducing. As a result, the Company had net
income for the fourth quarter of 2010 of $2.1 million compared to a net loss in the fourth
quarter of 2009 of ($2,838).
Liquidity and Capital Resources
Year ended December 31, 2010
2009
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Cash Provided by (used in)
Operating Activities $ 3,326 $
(438)
Financing Activities 167,135
100
Investing Activities (83,403)
(5,972)
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$ 87,058 $
(6,310)
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As at December 31, 2010 the Company had $119 million of working capital compared to
$19.5 million at December 31, 2009. The increase in working capital is primarily due to
funds provided from operations(as defined under Non-GAAP Measures) of $16.9 million
and $166.3 million raised through the Company's June private placement and December
bought deal financing offset by $83.2 million of capital expenditures made to increase the
revenue earning capacity.
The Company had approximately $41 million of capital commitments remaining in
respect of its 2010 capital program and has initiated a 2011 capital program of $150
million. The Company anticipates being able to fund these capital expenditures through
cash on hand, operating cash flows and current debt facilities.
Operating
The Company's funds provided by operations (as defined under Non-GAAP Measures)
was $16.9 million for 2010 as compared to $4.4 million in 2009. The increase is due to
the Company's increased revenue. With the Company's growth, a large portion of these
funds from operations was invested in added working capital ($13.6 million as compared
to $4.9 million in 2009).
Financing
Net cash provided by financing activities for 2010 was $167.1 million largely consisting
of a private placement of equity in June of $61.6 million and a bought deal equity
financing in December of $104.7 million. This compares to net cash from financing in
2009 of $100 from the exercise of stock options.
As at December 31, 2010 the Company had a $15 million demand revolving loan facility
and a $35 million committed revolving facility (see Note 10 of the consolidated financial
statements). No amounts were drawn on these facilities as at December 31, 2010 or as at
the date of this MD&A. The Company is in compliance with all its debt covenants.
Investing
For 2010 the Company's net cash used for investing activities was $83.4 million as
compared to $6.0 million in 2009. For 2010, the Company invested $83.2 million in
capital equipment to add revenue producing capacity and $1.4 million of long-term
deposits on supplier agreements for key raw materials. Offsetting these investments was
an increase of $1.4 million in accounts payable for capital equipment. In 2009, The
Company invested $27.3 million in capital equipment which was offset by an increase in
accounts payable of $1.5 million and a reduction in short term investments of $19.9
million.
Commitments and contractual obligations
The Company has operating lease commitments for vehicles and office
space
as follows:
Year 2011 2012 2013 2014
2015
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Amount $ 2,197 $ 1,606 $ 911 $ 573 $
573
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As at December 31, 2010, the Company has commitments totaling approximately $41
million (2009 - $8 million) relating to the construction of fixed assets in 2011 and $86
million (2009 - $3 million) for the purchase of operating supplies