NOT FOR DISTRIBUTION TO U.S. NEWSWIRE SERVICES OR FOR DISSEMINATION IN THE
UNITED STATES. ANY FAILURE TO COMPLY WITH THIS RESTRICTION MAY CONSTITUTE A
VIOLATION OF U.S. SECURITIES LAW
Poseidon Concepts Corp. ("Poseidon" or the "Company") (TSX:PSN) announces its
financial and operating results for the third quarter of 2012, which included
strong growth over the third quarter of 2011 but weaker results than in the
second quarter of 2012 due to slower activity in its core U.S. operating
regions.
Poseidon is pleased to announce that new products and services complementary to
the Company's core tank rental business are now active in the field and
generating revenue. These include an innovative, patent-pending tank heating
system, a proprietary tank monitoring system, and "pump-and-pipe" water transfer
services.
"Rolling out three major new products and services demonstrates that Poseidon is
focused on leading the evolution of fluid handling across North America, and
emphasizes our commitment to expanding the Company's footprint in the fluid
management space," said Lyle Michaluk, Poseidon's Chief Executive Officer.
"While we are disappointed in the third quarter's weaker financial results, this
was a transformational quarter for our business. We remain optimistic both about
our core tank rental business and the ability of the new products and services
to attract new customers and generate incremental revenues. We are already
experiencing strong customer enthusiasm in response to the new offerings."
Poseidon's monthly dividend of $0.09 per common share remains unchanged.
Poseidon's interim consolidated financial statements and notes thereto, as well
as the related management's discussion and analysis for the three and nine
months ended September 30, 2012, were filed today on SEDAR and are available at
www.sedar.com and on the Company's website at www.poseidonconcepts.com.
Financial Highlights
Three months Three months Nine months Nine months
ended ended ended ended
(in thousands except Sept. 30, Sept. 30, Sept. 30, Sept. 30,
per share amounts) 2012 2011 2012 2011
----------------------------------------------------------------------------
Revenue $ 41,116 $ 23,969 $ 148,120 $ 44,943
EBITDA (1) 26,589 20,120 116,300 36,202
Per basic share 0.33 0.33 1.45 0.62
Per diluted share 0.32 0.32 1.43 0.60
Net income from
continuing operations 7,832 14,298 68,654 25,360
Per basic share 0.10 0.24 0.85 0.43
Per diluted share 0.10 0.22 0.85 0.42
Net working capital
surplus (debt) (end of
period) $ 102,739 $ (46,399) $ 102,739 $ (46,399)
Weighted average shares
outstanding
Per basic share 81,097 60,491 80,341 58,503
Per diluted share 82,428 63,650 81,181 60,241
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) EBITDA is calculated as earnings before interest, taxes, foreign exchange,
bad debt expense, depreciation, amortization, and stock-based compensation.
Corporate Highlights
In the three months ended September 30, 2012, Poseidon:
-- Had quarterly revenue of $41.1 million, an increase of 72 percent from
the third quarter of 2011;
-- Had EBITDA of $26.6 million ($0.33 per basic and $0.32 per diluted
share), an increase of 32 percent from $20.1 million in the third
quarter of 2011;
-- Had net income of $7.8 million ($0.10 per basic and diluted share), a
decrease of 45 percent from the third quarter of 2011, primarily
attributable to a bad debt provision of $9.5 million;
-- Paid monthly dividends for July, August and September at a rate of $0.09
per share;
-- Achieved growth in the tank fleet to 440 units by the end of September;
and
-- Exited the third quarter with working capital of $102.7 million.
Subsequent to the end of the third quarter, Poseidon:
-- Paid a monthly dividend for October at a rate of $0.09 per share, and
announced dividends for November and December at the same monthly rate;
-- Approved the implementation of a dividend reinvestment plan (DRIP),
subject to TSX approval, enabling shareholders to use their dividends to
acquire additional common shares in Poseidon at a discount to the market
price; and
-- Announced the roll-out of multiple new products and services, including
an innovative tank heating system, a remote tank monitoring system and
water transfer services, all of which were field-deployed and generating
revenue and EBITDA by the end of the third quarter and brought
Poseidon's combined rental equipment fleet to more than 500 rental
pieces.
MESSAGE TO SHAREHOLDERS
The third quarter of 2012 was a mixed period for the Company, with a slowdown in
well completion activity in several of our main operating regions dampening our
financial results, while the successful field-testing, deployment and continued
development of a suite of new products and services in the water handling space
are of a potentially transformational nature to Poseidon.
The industry-wide slowdown created further impetus for Poseidon's push to
diversify its business geographically and broaden its suite of products and
services. The new, innovative product and service offerings move the Company
decisively towards becoming a full-cycle fluid management solutions provider,
and we are very proud to report that Poseidon is now open for business in fluid
storage, fluid heating and fluid transfer.
Third Quarter 2012 Operating and Financial Overview
During the third quarter of 2012, North American oilfield service market
conditions were both transitional and challenging. With continued strengthening
of Poseidon's market position in the southern U.S. region, which includes Texas,
Oklahoma and New Mexico, a strong rebound in our western Canada business, and
essentially flat activity in the eastern U.S., the Company's slowdown was
primarily the result of lower well completion activity in the Bakken shale play
(North Dakota and Montana) and the Rockies market (Colorado and Wyoming). The
combination of declining rig counts, delays to completion programs and,
ultimately, lower capital spending by exploration and production companies
attempting to rationalize service costs and stay within reduced 2012 budgets,
meant lower utilization and pricing for Poseidon's tank fleet.
The impact of the slowdown became evident to Poseidon in the second half of the
third quarter. Throughout the North American oilfield service industry, several
fracturing-related and ancillary rental services experienced significant spot
market pricing declines, and Poseidon was not completely immune to the adverse
conditions. While there was reported price discounting of up to 75 percent among
some suppliers of 400- and 500-barrel steel tanks in various regions, Poseidon
was able to hold its price discounting to within 15 to 30 percent of historical
norms. This is a testament to our disciplined pricing strategy and our
significant operational and cost advantages relative to incumbent products.
Poseidon's tank utilization and revenue in the quarter were further affected as
we renegotiated terms on several long-term agreements with specific, strategic
customers due to changes in their project schedules and capital budgets.
Meanwhile, several other long-term agreements lapsed without renewal or were
suspended as certain customers' activities were reduced due to macro
considerations or capital budget constraints. In addition, the Company
experienced some difficulty in collecting payment from certain customers,
necessitating the write-off of approximately $9.5 million in accounts
receivable, which was charged to earnings for the quarter.
We were pleased to see a rebound in our western Canadian results from the second
quarter's seasonal downturn. Despite a year-over-year decline of almost 30
percent in industry well completion activity, Poseidon's tank utilization and
quarterly revenue in the third quarter of 2012 were up on both a sequential and
year-over-year basis. Given the challenging macro backdrop, we opted to respond
strategically to pricing pressure, discounting by 15 to 30 percent in order to
maintain and, in some play areas, strengthen our market position. The Company
also experienced the first "pull" response from customers opting to use
Poseidon's expanded offering in a bundled group.
In addition, the third quarter brought an important change in the accounting
classification of certain third-party services associated with the tank rental
business. Previously, third-party services including trucking, rental equipment
required for product deployments and associated labour costs were invoiced by
the third-party service provider to the customer, and were not recorded as
revenue or expenses by Poseidon. In providing greater turnkey or "one call"
fluid handling services, we are increasingly booking these services on behalf of
the customer and have commenced recording the associated revenues and expenses
in Poseidon's financial statements, consistent with International Financial
Reporting Standards (IFRS).
This accounting classification change increases Poseidon's reported revenues and
operating expenses by significant and almost equal amounts, resulting in the
same absolute gross margin but a reduced gross margin percentage. The
classification change accounted for approximately half or 9 percentage points of
the margin reduction in the third quarter from the second quarter of 2012. Not
including this change, Poseidon's gross margin declined to 87 percent in the
third quarter from 94 percent in the second quarter with the variance due to
lower utilization and pricing combined with increased staffing as we launched
the new products and services.
Poseidon's weaker third quarter financial results were a reminder that the oil
and natural gas service and supply sector is intrinsically cyclical. The
setbacks in the quarter were also partly a consequence of the Company's rapid,
exponential growth over multiple quarters and the management, personnel and
business process advancements that are needed to keep pace with it. We are
constantly evaluating and improving our business processes, systems and
controls, as well as adding bench strength to better respond to future growth as
well as volatility in regional business conditions. Finally, the third-quarter
slowdown underscored the importance of geographical diversification as strong
growth in our southern U.S. region, and relatively solid performances in the
eastern U.S. and western Canada, helped offset the weakness in our Bakken and
Rockies regions.
New Product and Service Initiatives
Since Poseidon's launch as a publicly traded corporation one year ago, we have
noted our intention to evolve into a full-cycle fluid management solutions
provider. Our strategic objectives are to generate growth for shareholders,
ensure sustainability of the dividend, diversify the business both
geographically and operationally, and create further competitive differentiation
through innovation. We have devoted considerable effort and resources to
conceiving, evaluating, developing, field-testing and refining multiple new
products, of which several came to fruition over the past few months. We are
generating revenue from these new business lines and are pleased to announce
that Poseidon is now offering its customers:
-- Fluid storage - our founding business;
-- Fluid heating - proprietary, patent-pending customized fluid heating
solution; and
-- Fluid handling solutions - water sourcing, water transfer and remote
fluid monitoring.
Everything we do is driven by the needs of the E&P sector and the rapidly
evolving dynamics in the water management space. We look forward to the full
integration of these new products with our core tank product to help further
improve our customers' field efficiencies, profitability through costs savings
and environmental sustainability.
Our evolution towards full-cycle fluid management is mutually complementary
among the product and service lines, and levers our existing market presence. We
expect that Poseidon's economic efficiencies and ability to remain an innovative
high-margin business will be strengthened as we are now able to provide turnkey
or "one-call" services that few competitors can match. This capability is in
keeping with an industry-wide trend of bundled services that provide customers
with greater value and convenience while, for the successful service provider,
generating new business and strengthening customer loyalty.
Fluid heating
Poseidon is pleased to announce the roll-out of the Volcano(TM) E-Z Heat, a
proprietary, patent-pending customized tank heating solution for use in Poseidon
tanks. The Volcano(TM) E-Z Heat levers off our core tank rental product and was
designed with the same principles - to be efficient, rapidly deployable, simple
to use, safe, environmentally superior to traditional methods and responsive to
a clear field need. The Volcano(TM) E-Z Heat is in keeping with the Poseidon
tradition of creating an intrinsic competitive advantage by beginning with a
superior design concept.
Fracturing fluids stored in the field require heating for much of the year in
most regions across North America. The traditional solution, known as in-line
heating, is functional but expensive due to low thermal efficiency. The
Volcano(TM) E-Z Heat is different from traditional heating methods in that
instead of drawing fracturing fluids out of the tank and running them through an
adjoining heater, our product heats the fracturing fluids in-place via radiators
inside the tank.
The result is rapid, evenly distributed heating of the entire fluid volume, with
remarkable thermal efficiency of 70 percent - a key to customer savings.
Further, the Volcano(TM) E-Z Heat units' bi-fuel capability enables the customer
to run them on either diesel fuel or natural gas. This provides customers with
another significant cost and environmental advantage through the use of a
cleaner-burning and lower-priced alternative that also reduces exhaust
emissions. Bi-fuel capability also provides operational advantages, including
reducing the amount of gas flared at oil wells and eliminating the need to truck
in diesel fuel for tank heating.
Rolling out the Volcano(TM) E-Z Heat has been very exciting for our entire team.
This proprietary technology is proving to be everything we hoped, as it creates
further competitive differentiation and demonstrates that our original Poseidon
tank was merely the first in a line of innovative products that can generate
high profitability for years to come.
Remote fluid monitoring
We are pleased to announce the roll-out of Poseidon's proprietary Iris(TM)
remote fluid monitoring system. The Iris(TM) sends real-time fluid level and
temperature data from individual tanks to the customer's computer or mobile
device. We have seen immediate uptake for the Iris(TM) and it has already
provided a competitive edge for customers seeking to improve their fluid
management and inventory control.
Monitoring and adjusting fluid temperature is important for producers seeking to
optimize their hydraulic fracturing results. An accurately measured and stable
water temperature is necessary to achieve desired fracturing fluid viscosity
which, in turn, is one of the keys to a successful well completion. The Iris(TM)
is a highly refined measurement system, enabling customers to program
customizable alerts on key fluid parameters, including temperature and water
level changes, that go out automatically by e-mail or are viewable on a secure
web-based dashboard. The Iris(TM) can also be linked to Poseidon's new tank
heating system, discussed above, enabling remote management of tank heating. It
also facilitates remote operation of pumps, enabling customers to move fluids
among tanks, which is particularly convenient on central storage projects with
multiple tanks and locations.
Fluid handling solutions - water transfer services
Centralized storage of large water volumes on a semi-permanent basis is a trend
among larger producers conducting field programs totalling dozens or hundreds of
wells. With Poseidon already supplying tanks for centralized storage, plus
hub-and-spoke arrangements, it was a natural step for us to become a turnkey
solutions provider by also handling the related parts and processes -
engineering the design, laying pipe, installing pumps and managing suppliers.
Such an arrangement simplifies the producer's supply chain through
single-point-of-contact relationships with key suppliers. Poseidon intends to be
among those key suppliers, and we have added bench strength with technical and
engineering staff, as well as experienced field personnel. We have already
completed or are active on over 20 successful water transfer projects - and all
included our core product, large capacity storage tanks, clearly demonstrating
the power of these value-added services to increase revenue per job.
Appointment of New Director
Poseidon is pleased to announce the appointment of Jim McKee, CA, to its Board
of Directors. Mr. McKee brings with him over 30 years of experience in
investment banking, global oilfield services and public accounting. Mr. McKee is
the Senior Vice President and Chief Financial Officer of Saxon Energy Services
Inc., an international contract driller and well services company with nearly
100 rigs and operations in 13 countries. Mr. McKee will be a valuable addition
to Poseidon's Board and Audit Committee, providing ongoing strategic direction
as the Company broadens its product and service offerings in the fluid
management space and positions itself in new and emerging markets.
Approval of Dividend Reinvestment Plan
Poseidon is pleased to announce that its Board of Directors has approved the
implementation of a Dividend Reinvestment Plan (DRIP). The DRIP, which is
subject to the approval of the TSX, will enable common shareholders to reinvest
all or part of their cash dividends, at their choosing, into additional Poseidon
shares in an efficient and cost-effective manner. Shareholders are not required
to participate in the DRIP.
Under the proposed DRIP, the Company will have the option of issuing new shares
from treasury, buying shares on the Canadian market or choosing a combination of
the two. Any decision made by the Board of Directors to change either the
purchase method for the shares or the discount granted on the purchase price of
shares issued from treasury will be communicated by press release.
Further details on the proposed DRIP program will be announced once the plan is
formally implemented.
Outlook
We are excited about the opportunity to market Poseidon's greatly expanded
product and service offerings to the energy sector throughout North America. For
our core tank rental business, we have a cautious outlook for the remainder of
the fourth quarter, anticipating flat activity quarter-over-quarter, and a
cautiously optimistic outlook for the first quarter of 2013.
Due to the lower activity in some of our core operating regions, the pause in
E&P spending heading into year-end, and a somewhat uncertain commodity price
environment, we are reducing 2012 EBITDA guidance to a range of $140 million to
$150 million, coupled with a reduction of 42 percent in capital expenditures to
$35 million. The ability to quickly curtail capital expenditures demonstrates
the flexibility of our business model, as we are able to scale back or halt tank
construction with minimal notice and without a costly stream of parts or
components in the supply chain. Similarly, we can resume tank construction as
soon as customer demand warrants. Poseidon's balance sheet remains strong, with
working capital of $103 million and $56 million drawn on our $100 million
revolving credit facility exiting the third quarter. Poseidon's monthly dividend
of $0.09 per share is unchanged.
Our short-term market outlook for the core tank rental business is mixed given
the lack of urgency and cautious tone exhibited by many E&P customers heading
into year-end. We anticipate activity in several of our key U.S. operating
regions to remain muted for the remainder of the fourth quarter, with an
increase anticipated in the new year as 2013 capital budgets are approved. The
pause in drilling and the record backlog of uncompleted wells in the North
Dakota Bakken is unlikely to persist should oil prices remain firm, as
full-cycle economics remain robust for the play, boding well for 2013. Our
southern U.S. business, meanwhile, which now accounts for a material proportion
of the active tank rental fleet, continues to show growth potential.
The modest rally in natural gas prices from a very low base is showing signs of
positive effects in western Canada, especially in some of the larger resource
plays in Alberta's Deep Basin and northeast B.C. We were recently engaged in
field trials of Poseidon tanks for several of the most active intermediate
producers, which is highly encouraging for our go-forward business. With colder
weather beginning in the second half of October, the Volcano(TM) tank heating
rental business has been gaining traction and is starting to generate material
revenue. We are cautiously optimistic on the winter drilling season as the
acceleration of key resource plays that are both fracturing- and
water-intensive, such as the Duvernay Shale and Montney, bode well for our new
integrated service package.
We continue to find that many customers recognize added value in Poseidon's
strong track record, reliability, safety, environmental protection and
availability of complementary services. Such strengths are important for
producers executing multi-well, multi-pad drilling programs in a tightly
scheduled winter season, and provide Poseidon with a clear competitive
advantage. Poseidon is very proud of its operational record, which includes
having executed close to 3,000 fluid handling jobs without a tank failure or
reportable incident. We believe customers recognize this as a differentiating
feature and competitive advantage.
Thanks to our focus on evolving into a full-cycle fluid management solutions
provider, we exited the third quarter with more than 500 rental pieces in our
combined fleet, including 440 large-capacity storage tanks. We are continuing to
expand the overall business with the manufacture of Volcano(TM) tank heaters and
Iris(TM) monitoring systems and we are also adding water transfer equipment on a
project-by-project basis. Our first international tank rental contract is
ongoing, and we continue to pursue other high-graded opportunities in selected
international markets. In summary, we are establishing our long-term business
model - to field a suite of rental products and value-added services beyond the
core North American tank rental business, providing a true portfolio of
revenue-generating sources.
POSEIDON CONCEPTS CORP. IS A PUBLICLY TRADED CANADIAN ENERGY EQUIPMENT AND
SERVICES COMPANY THAT PROVIDES INNOVATIVE FLUID STORAGE AND HANDLING SOLUTIONS
TO THE OIL AND NATURAL GAS INDUSTRY ACROSS NORTH AMERICA. POSEIDON HAS
APPROXIMATELY 81.1 MILLION COMMON SHARES ISSUED AND OUTSTANDING, WHICH TRADE ON
THE TSX UNDER THE SYMBOL "PSN". FURTHER INFORMATION ON POSEIDON'S BUSINESS AND
OPERATIONS CAN BE FOUND ON POSEIDON'S WEBSITE (www.poseidonconcepts.com).
Reader Advisory
Certain statements contained in this news release constitute forward-looking
statements and other information (collectively, "forward-looking statements")
within the meaning of applicable Canadian securities laws. Such forward-looking
statements relate to future events or the Company's future performance. All
statements other than statements of historical fact contained in this news
release may be forward-looking statements. Such statements and information may
be identified by words such as "approximately", "will", "intend", "anticipate",
"could", "should", "may", "might", "expect", "estimate", "forecast", "plan",
"potential", "project", "assume", "contemplate", "believe", "budget", "shall",
"continues" and similar terms or the negatives thereof or other comparable
terminology. The forward-looking statements contained in this news release
involve known and unknown risks, uncertainties and other factors that are beyond
the Company's control, which may cause actual results or events to differ
materially from those anticipated in such forward-looking statements.
Forward-looking statements are based on the estimates and opinions of the
management of Poseidon at the time the statements were made. In addition,
forward-looking information may include statements attributable to third party
industry sources. There can be no assurance that the plans, intentions or
expectations upon which such forward-looking statements are based will occur.
Management of Poseidon believes the expectations reflected in these
forward-looking statements are reasonable but no assurance can be given that
these expectations will prove to be correct and such forward-looking statements
included in this news release should not be unduly relied upon.
This news release contains forward-looking statements pertaining to the
following: the Company's growth strategy and related milestones and schedules;
the Company's ability to maintain its competitive position; the Company's
forecast operating and financial results; the Company's planned capital
expenditures; the Company's ability to fund debt maturities; the timing, payment
and amount of dividends; the anticipated mandate of the health, safety and
environment committee of the Board of Directors; and the future use and
development of technology. With respect to forward-looking statements contained
in this news release, the Company has made a number of assumptions. The key
assumptions underlying the aforementioned forward-looking statements, include
but are not limited to: the assumptions inherent in the Company's current
guidance, including utilization rates for tank systems and foreign exchange and
interest rates; the Company's projected capital expenditures; the flexibility of
the Company's current capital spending plans and the associated sources of
funding; the Company's ability to generate sufficient cash flow from operations
to meet its current and future obligations; the Company's ability to collect its
receivables on a timely and consistent basis; the Company's expectations of the
demand for tank systems and the general activity of the oil and natural gas
industry; long-term commitments or contracts with customers and related activity
levels; the ability of the tank system manufacturers to source raw materials;
the Company's ability to renew its credit facilities on acceptable terms; and
the current tax and regulatory regime remaining substantially unchanged. Certain
or all of the foregoing assumptions may prove to be incorrect.
The Company's actual results could differ materially from those anticipated in
the forward-looking statements as a result of substantial known and unknown
risks and uncertainties, certain of which are beyond the Company's control. Such
risks and uncertainties include, without limitation: dependence on manufacturers
of the tank systems; operating risk liability; credit facility risk; demand for
tank systems; long-term commitments or contracts with customers and related
activity levels; levels of competition in the fracturing fluid storage industry;
the Company's limited operating history in the fracturing fluid storage
industry; the Company's ability to attract and retain clientele; delays
resulting from or inability to obtain required regulatory approvals; the impact
of general economic conditions in Canada, the United States and globally;
industry conditions; the Company's ability to maintain or increase its market
share; the Company's ability to develop or acquire new or complementary product
lines; changes in laws and regulations (including the adoption of new
environmental laws and regulations in Canada or the United States) and changes
in how they are interpreted and enforced; obtaining required approvals of
regulatory authorities in Canada or the United States; increased competition; a
lack of qualified personnel or management; fluctuations in foreign exchange or
interest rates; the ability to collect its receivables on a timely basis; and
stock market volatility. Readers are cautioned that the foregoing lists of
factors and risks are not exhaustive and reference is made to the items under
"Risk Factors" in the Company's Annual Information Form ("AIF") for the year
ended December 31, 2011, which is filed on SEDAR and available for review at
www.sedar.com. All subsequent forward-looking statements, whether written or
oral, attributable to the Company or persons acting on its behalf are expressly
qualified in their entirety by these cautionary statements. Furthermore, the
forward-looking statements contained in this news release are made as at the
date hereof and the Company does not undertake any obligation to update publicly
or to revise any of the included forward-looking statements, whether as a result
of new information, future events or otherwise, except as may be required by
applicable securities laws.
This news release contains the term EBITDA which is defined as earnings before
interest, taxes, bad debt expense, foreign exchange, stock based compensation,
depreciation, and amortization. EBITDA as presented does not have any
standardized meaning prescribed by international financial reporting standards
(IFRS) and therefore it may not be comparable with the calculation of similar
measures for other entities. Management uses EBITDA to analyze the operating
performance of the business. EBITDA as presented is not intended to represent
cash provided by operating activities, net earnings or other measures of
financial performance calculated in accordance with IFRS.
FOR FURTHER INFORMATION PLEASE CONTACT:
Poseidon Concepts Corp.
Lyle D. Michaluk
Chief Executive Officer
403-262-9280
Poseidon Concepts Corp.
Matt C. MacKenzie
Chief Financial Officer
403-206-6107
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