THIS PRESS RELEASE IS NOT FOR DISSEMINATION IN UNITED STATES OR TO ANY UNITED
STATES NEWS SERVICES.
IROC Energy Services Corp. ("IROC" or the "Corporation") (TSX:ISC) announces the
Corporation's financial results for the three months ended March 31, 2008.
FINANCIAL HIGHLIGHTS
For the 3 months ended March 31,
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(Unaudited)
2008 2007 % Change
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Revenue - continuing operations $ 25,611 $ 25,961 -1%
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Operating costs 15,770 14,671 7%
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Gross margin 9,841 11,290 -13%
Gross margin % 38% 43% -12%
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General and administrative expenses 2,374 2,934 -19%
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EBITDAS - continuing operations (1) 7,467 8,356 -11%
Per share diluted 0.17 0.20 -15%
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Net earnings - continuing operations 2,710 3,178 -15%
Per share diluted 0.06 0.08 -25%
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Net earnings 2,710 3,256 -17%
Per share diluted 0.06 0.08 -25%
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Number of shares outstanding
Basic 44,251,080 40,979,302 8%
Diluted 44,277,345 41,100,275 8%
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(1) EBITDAS and EBITDAS per share are "NON-GAAP MEASURES". EBITDAS is
defined as "earnings before interest, taxes, depreciation and
amortization, stock-based compensation expense, foreign exchange gains
and losses and gains or losses on disposal of property and equipment."
EBITDAS and EBITDAS per share are not recognized measures under GAAP.
Overview
The first quarter of 2008 could well prove to be an inflection point in the oil
& gas services business in Western Canada. Underlying industry fundamentals were
showing signs of improvement by the end of the quarter. Problems that had
plagued the industry over the past two years began to dissipate as the quarter
ended. The Canadian dollar has shown stability at close to parity with the U.S.
dollar, natural gas prices have strengthened significantly while crude oil
pricing remained strong and the Alberta government has announced plans to deal
with certain unintended consequences from the royalty review; all of which have
contributed to renewed optimism throughout our industry. Despite the fact that
the difficult conditions in our industry continued through much of the quarter,
IROC was still able to generate good results in terms of both revenues and cash
flows for the three months ended March 31, 2008.
First Quarter Results
IROC's revenue from continuing operations for the quarter ended March 31, 2008
decreased 1%, from $26.0 million to $25.6 million compared to the same period in
2007. Revenue essentially remained flat year over year for the three month
period. Although IROC had additional equipment capacity year over year from the
organic build program completed in fiscal 2007, revenue growth was hampered as a
result of lower than expected utilization in most of our service lines. While
demand for our service rigs remained strong and pricing increased slightly over
the prior year, utilization was lower year over year due to reduced activity on
an industry wide basis.
EBITDAS from continuing operations for the three months ended March 31, 2008 was
$7.5 million or $0.17 per share, compared to $8.4 million, or $0.20 per share,
in the same period of 2007. EBITDAS for the quarter decreased $0.9 million or
11% year over year mainly as a result of lower pricing in drilling rigs.
Additionally, operating costs were higher as recruitment of personnel remains a
challenge, fuel costs continue to rise and general costs associated with
activities in the field have not moved directionally with the lower demand.
EBITDAS as a percentage of revenue was 29.2% and 32.2% for the three months
ended March 31, 2008 and 2007, respectively.
The Corporation recorded net earnings from continuing operations of $2.7
million, or earnings of $0.06 per share, for the three months ended March 31,
2008 compared to net earnings of $3.2 million, or earnings of $0.08 per share,
for the comparable period for 2007. The decrease in the net earnings for the
three months ended March 31, 2008 compared to 2007 is due to higher depreciation
and amortization expense in the current year as a result of significant
additions to equipment in the past year, higher interest costs for debt
servicing due to higher debt incurred to support the growth over the past two
years and lower margins in most of its services and products as a result of
lower prices, and in some cases lower utilization.
We are confident that our financial performance will continue to improve as the
efficiencies associated with having more equipment operating in the field are
realized.
Our capital expenditure program for 2007, which focused primarily on the
expansion of Eagle Well Servicing and Aero Rentals because of the continued
demand for the products and services offered by these divisions, should lead to
further benefits in the coming months.
IROC continues to perform well financially and management is keenly aware of the
environment that we are currently operating in and we continue to monitor the
market as it affects IROC, its competitors and its customers.
Tom Alford, President and CEO of IROC commented that, "our Q1 2008 revenues
effectively matched our performance from the previous year. The highlights for
the quarter include continued strong margins for IROC as a whole, a stronger
balance sheet as cash flow was dedicated to debt reduction over the past four
months, strong relative utilization for our service rigs, continued revenue
growth at Canada Tech and the strengthening price of natural gas. Prospects for
our industry certainly improved as the quarter ended." Additionally Mr. Alford
indicated that, "while we continue to face obstacles as we grow our Company,
management believes that the landscape is changing for the better. We anticipate
that we will resume the internal growth initiatives in the second half of 2008
that have served us well up until now and we will continue to monitor the
industry for acquisition opportunities that might present themselves. There is
an air of anticipation and excitement inside our Company right now, a good sign
for the coming months."
Outlook
The outlook for fiscal 2008 appears to be improving with substantially higher
natural gas prices, a more stable Canadian dollar and the Alberta government's
announcement of plans to address unintended consequences of the proposed new
royalty structure by offering certain deep drilling incentives. All combined
these factors should positively impact producers cash flows and provide a step
towards increased spending and greater activity at the field level in the
industry. It should be noted however that the increased spending by producers
will take time to develop as they look for sustained periods of higher natural
gas prices and adjust their budgets for 2008 and into 2009.
IROC's growth strategy is focused on organic growth through new service rig
construction and increased capacity in its other services that generate a
reasonable return on the capital employed. While we currently do not have any
capital build plans for the first half of fiscal 2008, management is currently
evaluating its needs and more importantly the demand from customers for its
equipment. Customers have clearly indicated its desire for technically advanced,
highly mobile, well designed rigs with access to high-performing crews and
personnel. We are able to offer our customers some of the newest equipment in
each of our services offered and have strength in terms of personnel and
technology providing a competitive advantage for our customers. We have the
benefit of being diversified geographically and across product lines. We believe
these factors will provide for superior relative performance in the competitive
oil and gas service business.
Publicly reported information for IROC Energy Services Corp. is available at
www.sedar.com.
About IROC Energy Services Corp.
IROC Energy Services Corp. is an Alberta oilfield services company that, through
the IROC Energy Services Partnership, provides a comprehensive and diverse range
of products, services and equipment to the oil and gas industry. IROC combines
cutting-edge technology with depth of experience to deliver a product and
services offering in six core areas: Well Servicing & Equipment, Drilling Rig
Equipment & Services, Down hole Temperature & Pressure Monitoring Tools, Rental
Services, Lease Building, and Safety, Monitoring & Communications Services. For
more information on IROC Energy Services Corp. visit our website at
www.iroccorp.com.
Cautionary Statements
Certain statements contained in this press release may constitute forward
looking statements concerning, among other things, expected revenues, expected
expenses, profits, developments and strategies for IROC's operations all of
which are subject to certain risks, uncertainties and assumptions. These forward
looking statements are identified by their use of terms and phrases such as
"anticipate", "continue", "estimate", "expect", "may", "will", "projected",
"should", "believe" and other similar terms and phrases. By its nature, such
forward looking information involves 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 statements. These risks include, but
are not limited, to the risks associated with the oil and gas industry
generally, fluctuating prices in crude oil and natural gas, changes in drilling
activity, general global economic, political and business conditions, weather
conditions, regulatory changes and availability of products, qualified personnel
and manufacturing capacity and raw materials. If any of these uncertainties
materialize, or if assumptions are incorrect actual results may vary materially
from those expected. IROC relies on litigation protection for any forward
looking statements.
The Common Shares of IROC have not and will not be registered on the United
States Securities Act of 1933, as amended (the "United States Securities Act")
or any state securities laws are not offered or sold in the United States or to
any US person except in certain transactions exempt from the registration
requirements of the United States Securities Act and applicable state securities
laws.
Consolidated Balance Sheets
Expressed in thousands of dollars
(Unaudited)
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March 31, December 31,
2008 2007
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Assets
Current assets:
Cash $ 1 $ 1
Accounts receivable 22,448 18,383
Inventory 4,814 5,442
Prepaid expenses and deposits 477 359
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27,740 24,185
Property and equipment 97,637 99,471
Intangible assets 5,408 5,376
Goodwill 8,621 8,621
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$ 139,406 $ 137,653
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Liabilities and Shareholders' Equity
Current liabilities:
Operating loan $ 492 $ 3,421
Accounts payable and accrued liabilities 7,016 6,010
Income taxes payable 190 190
Current portion of long-term debt 6,911 6,831
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14,609 16,452
Long-term debt 56,446 56,457
Future income taxes 4,268 3,481
Shareholders' equity:
Share capital 51,564 51,547
Warrants 828 828
Contributed surplus 2,502 2,409
Retained earnings 9,189 6,479
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64,083 61,263
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$ 139,406 $ 137,653
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Consolidated Statements of Earnings and Retained Earnings
Expressed in thousands of dollars except share and per share amounts
(Unaudited)
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Three months ended
March 31,
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2008 2007
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Revenue $ 25,611 $ 25,961
Expenses:
Operating 15,770 14,671
General and administrative 2,374 2,934
Stock-based compensation 93 186
Depreciation and amortization 2,652 2,414
Interest and accretion on debentures 236 236
Interest on long-term debt and notes payable 974 506
Other interest 135 252
Loss (gain) on disposal of equipment (57) 9
Foreign exchange loss (gain) (63) 8
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22,114 21,216
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Earnings before income taxes from continuing
operations 3,497 4,745
Income taxes:
Current - 85
Future 787 1,482
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787 1,567
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Net earnings from continuing operations 2,710 3,178
Net earnings from discontinued operations - 78
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Net earnings 2,710 3,256
Retained earnings, beginning of period 6,479 4,340
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Retained earnings, end of period $ 9,091 $ 7,596
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Earnings per share from continuing operations:
Basic $ 0.06 $ 0.08
Diluted $ 0.06 $ 0.08
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Earnings per share from discontinued operations:
Basic $ 0.00 $ 0.00
Diluted $ 0.00 $ 0.00
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Earnings per share
Basic $ 0.06 $ 0.08
Diluted $ 0.06 $ 0.08
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Weighted average number of shares outstanding:
Basic 44,251,080 40,979,302
Diluted 44,277,345 41,100,275
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Consolidated Statements of Cash Flows
Expressed in thousands of dollars
(Unaudited)
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Three months ended
March 31,
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2008 2007
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Cash provided by (used in):
Operations:
Net earnings from continuing operations $ 2,710 $ 3,178
Items not affecting cash:
Depreciation and amortization 2,652 2,414
Future income taxes 787 1,482
Stock-based compensation 93 186
Non-cash accretion on debentures 96 96
Loss (gain) on disposal of equipment (57) 9
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6,281 7,365
Changes in non-cash working capital balances (2,549) (5,272)
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3,732 2,093
Discontinued operations :
Funds provided by discontinued operations - 28
Changes in non-cash working capital balances of
discontinued operations - 265
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3,732 2,386
Investing:
Purchase of property and equipment -
continuing operations (683) (5,575)
Proceeds on disposal of property and equipment from
continuing operations 231 106
Proceeds on disposal of property and equipment from
discontinued operations - 903
Change in non-cash working capital balances - (1,992)
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(452) (6,558)
Financing:
Operating loan (payments) advances (2,930) 4,496
Loan commitment fees (340) (200)
Repayment of long-term debt (27) (209)
Issue of common shares 17 -
Issue of long-term debt - 85
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(3,280) 4,172
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Increase in cash - -
Cash at beginning of period 1 1
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Cash at end of period $ 1 $ 1
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