MONTREAL, QUEBEC — (Marketwire) — 08/10/11 — ProSep Inc. (TSX: PRP)(“ProSep” or the “Company”) dedicated to providing process solutions to the oil and gas industry, today announced its financial results for the three and six-month periods ended June 30, 2011. All amounts are reported in Canadian dollars unless otherwise stated.
Selected highlights of the quarter and important subsequent events:
Financial(1):
Commercial:
Operations:
“These results show a clear turnaround in our top-line, with two consecutive year-over-year quarterly revenue improvements on sustained US and Asia Pacific growth. We–ve also concluded more new orders during the first half of this year than we did during all of 2010, said Jacques L. Drouin, President & CEO. “We believe that this momentum will continue into the third and fourth quarters, as we are working on a number of promising opportunities. Weakness in new orders in the second quarter was due to anticipated delays in contract awards.”
“To further accelerate growth, we invested in human resources and hired additional talent. With the contribution of these new resources, we can accelerate commercialization of our promising proprietary technologies and capture an increasing market share of a growing industry. This investment strategy should only temporarily affect our bottom line as we foresee significant new bookings in the second half of the year, and should accelerate our path to profitability,” concluded Mr. Drouin.
(i)EBITDA is a non-IFRS financial measure and the Company defines it as earnings or loss from operations excluding amortization, financial charges and income taxes. Gross margin is defined by the Company as excluding amortization expenses and as such is also a non-IFRS financial measure. Please refer to section “Non-IFRS Financial Measures” in the MD&A.
Financial Results
This Press Release reports consolidated results. For detailed segmented financial results please see the Management Discussion and Analysis and Unaudited Interim Condensed Consolidated Financial Statements for the period ended June 30, 2011.
Revenues
ProSep reported consolidated revenues of $9.6 million during the quarter ended June 30, 2011, an increase of 11% from $8.7 million generated during the same period in 2010. This represents the second quarterly year-over-year revenue increase. Significant revenue growth was achieved at the Company–s two largest operations, with 46% growth in Asia Pacific and 37% at the US Operations. Revenues at the European and Middle East Operations were affected by changes currently implemented at this business unit to improve its contribution to the Company–s overall success. These changes will better align this operation with ProSep–s new strategic plan and accelerate commercialization of high value proprietary technologies. Year-to-date, consolidated revenues grew to $19.5 million, an 8% increase again on significant US and Asia Pacific order intake.
ProSep–s bidding activity continues to reach record levels. For the six months of this year, new contract awards exceed last year–s total bookings by more than 10%, totalling nearly $26 million. Most of these new bookings were concluded during the first quarter. Because of delays in contract awards during the second quarter, new bookings were unusually low, at $3.3 million. At the end of the second quarter of 2011, the Company–s backlog was 35% higher year-over-year, and grew by 70% since the start of the year.
Gross Margins
Overall gross margin for the second quarter of 2011 stood at $2.2 million, or 23% of revenues, compared to $2.6 million or 30% of revenues achieved during the same period last year. Margins as a percentage of revenues improved at the US and Asia Pacific Operations; however, the contribution of the European and Middle East Operations, where the Company–s more profitable proprietary offering resides, was much lower during the second quarter of 2011.
Year-to-date, overall gross margin stood at $4.4 million, or 23% of revenues, compared to $5.1 million or 29% of revenues achieved during the same period last year. This is the result of lower margin contracts signed during the industry downturn. The industry started recovering in the second half of 2010 and higher margin contracts were concluded. As these systems are delivered and revenues recognized in the coming quarters, the Company expects to report improved gross margins. To further improve this situation, the Company–s strategic initiative to integrate business functions, develop synergies and improve procurement and execution should lead to higher margins.
EBITDA and Net Loss
Second quarter EBITDA was negative $1.8 million in 2011 compared to negative $0.2 million for the same period last year. Despite the higher business volume realized, the current quarter–s EBITDA was negatively impacted by weaker gross margins and an increase in the level of fixed costs to implement the new strategic plan and accelerate growth. This initiative included an investment in the Company–s human resources by hiring close to twenty industry leading business development professionals, recognized process engineering experts and related resources. This should allow ProSep to be better positioned to benefit from industry growth and capture increased market share.
Basic loss per share was determined using the weighted-average number of 192,154,776 Common Shares outstanding during the second quarter of 2011. At June 30, 2011, 191,823,008 Common Shares were issued and outstanding compared to 191,721,295 at June 30, 2010.
Covenant Waivers
At March 31, as well as at June 30, 2011, one of the Company–s wholly-owned subsidiaries was in breach of one of the financial ratios stipulated in a banking facility. This situation stemmed mostly from the Company–s decision to accelerate its pace of growth in view of the opportunities offered in the marketplace, and more specifically to the up-front investments in hiring and related operating expenses that were approved as part of this strategy. The Company anticipates that its subsidiary will continue to remain in breach of this covenant at the quarter-end date of September 30, 2011. A covenant waiver wherein the Lender confirmed that the breached covenant is not deemed to constitute an event of default was obtained by the Company and its subsidiary for the March 31 breach, as well as for the June 30, 2011 breach. A new waiver request will be presented over the coming weeks with respect to the anticipated breach at the quarter-end date of September 30, 2011.
Under the same banking facility, the Company–s subsidiary is subject to a “clean-down” obligation, whereby the facility is to be undrawn for a period of no less than three weeks, twice during a rolling 12-month period, each “clean-down” period to be separated by at least eight weeks. In order for the subsidiary to comply with this covenant, the next “clean-down” period would need to begin no later than August 26, 2011. The Company anticipates that its subsidiary will likely be in breach of this covenant at the stated date. The Company has entered into discussions with the Lender for purposes of securing a waiver in respect of such anticipated covenant breach. The Company has obtained waivers from this Lender in the past, in connection with similar events of breach.
The Company is in discussions with current shareholders and potential new investors with the objective of securing a financing that would provide the liquidities to support its working capital requirements and investments in its new strategic plan. If these discussions are successful, proceeds received from this potential financing are expected to be sufficient to allow the Company–s subsidiary to comply with the “clean-down” covenant mentioned above. In Management–s view, it is unlikely that such a transaction could be completed before August 26, 2011, and the Company is unable to confirm that such discussions will lead to any successful transaction.
Conference Call and Webcast Details
ProSep will host a conference call and webcast on Wednesday August 10, 2011 at 8:00 a.m. (EST) to review the financial results and highlights of the second quarter ended June 30, 2011. To access the conference call by telephone, dial 1-416-981-9000 or 1-800-771-6692, through ProSep–s website under “Calendar of Events” in the “News and Investor Center” and on . For audio replay, dial 1-416-626-4100 or 1-800-558-5253 with the reservation code # 21532837.
Regulatory Filings
ProSep filed its Unaudited Interim Condensed Consolidated Financial Statements for the three and six-month periods ending June 30, 2011 and related Management Discussion and Analysis with securities regulatory authorities. The material will be available through SEDAR at and on the Company–s website, .
About ProSep
ProSep is a technology-focused process solutions provider to the upstream oil and gas industry. ProSep designs, develops, manufactures and commercializes technologies to separate oil, water and gas generated by oil and gas production. For more information, please visit .
Caution concerning forward-looking statements
This press release may contain forward-looking statements, including statements regarding the business and anticipated financial performance of ProSep Inc. These statements are based, among others, on the Company–s current assumptions, expectations, estimates, objectives, plans and intentions regarding projected revenues and expenses, the economic and industry environments in which the Company operates or which could affect its activities, the Company–s ability to attract new clients and consumers as well as its operating costs, raw materials and energy supplies which are subject to a number of risks and uncertainties. Forward-looking statements can generally be identified by the use of the conditional tense, the words “may”, “should”, “would”, “believe”, “plan”, “expect”, “intend”, “anticipate”, “estimate”, “foresee”, “objective” or “continue” or the negative of these terms or variations of them or words and expressions of similar nature. Actual results could differ materially from the conclusion, forecast or projection stated in such forward-looking information. These statements are subject to a number of risks and uncertainties that may cause actual results to differ materially from those contemplated by the forward-looking statements. Some of the factors that could cause such differences include but are not limited to the Company–s ability to develop, manufacture, and successfully commercialize value added equipments and services, the availability of funds and resources to continue its operations and pursue its projects, legislative or regulatory developments, competition, technological change, changes in government and economic policy, inflation and general economic conditions in geographic areas where ProSep Inc. operates. These and other factors should be considered carefully and undue reliance should not be placed on the forward-looking statements.
Contacts:
ProSep Inc.
Investor Relations and Media:
Danielle Ste-Marie
VP Marketing and Communications
(514) 522-5550 ext. 238