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Poseidon Concepts Corp. ("Poseidon" or the "Company") (PSN.TO) is pleased to announce record quarterly revenue, EBITDA, cash flow from operations and net income driven by continued growth in customer demand during the three months ended June 30, 2012. The Company is also pleased to maintain its guidance for 2012 EBITDA and third-quarter tank fleet growth.
"We are very proud of Poseidon's record results for the second quarter of 2012 as the Company overcame the traditional seasonal Canadian spring downturn to deliver sequential growth in consolidated revenue, EBITDA, cash flow from operations and net income over the first quarter of 2012," said Lyle Michaluk, Poseidon's Chief Executive Officer. "The operating margin equalled the margin achieved in the first quarter of 2012 and all key metrics posted very strong growth from the second quarter of 2011, a significant achievement given the impact of wet weather on operating conditions in western Canada, where 20 percent of our fleet is situated".
Poseidon's interim consolidated financial statements and notes thereto, as well as the related management's discussion and analysis for the three and six months ended June 30, 2012, were filed today on SEDAR and are available at www.sedar.com and on the Company's website at www.poseidonconcepts.com.
(in thousands Three months Three months Six months Six months except per ended ended ended ended share amounts) June 30, 2012 June 30, 2011 June 30, 2012 June 30, 2011 ---------------------------------------------------------------------------- Revenue $ 54,875 $ 9,647 $ 107,004 $ 20,974 EBITDA(1) 46,008 7,245 89,711 16,083 Per basic share 0.57 0.12 1.12 0.28 Per diluted share 0.57 0.12 1.11 0.27 Net income from continuing operations 31,183 4,781 60,822 11,062 Per basic share 0.38 0.08 0.76 0.19 Per diluted share 0.38 0.08 0.75 0.19 Net working capital surplus (debt) (end of period) $ 101,751 $ (44,251) $ 101,751 $ (44,251) Weighted average shares outstanding Per basic share 81,081 60,317 79,959 57,492 Per diluted share 81,343 62,584 80,632 58,920 ---------------------------------------------------------------------------- ----------------------------------------------------------------------------
(1) EBITDA is calculated as earnings before interest, taxes, depreciation, amortization, and stock-based compensation.
In the three months ended June 30, 2012, Poseidon:
-- Had record EBITDA of $46.0 million ($0.57 per basic and diluted share), an increase of 535 percent from the second quarter of 2011 and 5 percent from the first quarter of 2012; -- Had record net income of $31.2 million ($0.38 per basic and diluted share), an increase of 552 percent from the second quarter of 2011 and 4 percent from the first quarter of 2012; -- Had record quarterly revenue of $54.9 million, an increase of 469 percent from the second quarter of 2011 and 5 percent from the first quarter of 2012; -- Paid monthly dividends for April, May and June at a rate of $0.09 per share; -- Achieved growth in the tank fleet to 400 units by the end of June; -- Closed a new and increased $100 million two-year extendible revolving credit facility; -- Was added to the S&P/TSX Composite Index, exposing Poseidon's common shares to a broader range of investors and investment funds; and -- Exited the second quarter with a working capital surplus of $101.8 million.
Subsequent to the end of the quarter, Poseidon:
-- Paid a monthly dividend for July at a rate of $0.09 per share, and announced dividends for August and September at the same monthly rate; -- Signed its first international contract, a two-year agreement for tanks with an existing U.S. customer that has a long track record and respected reputation in several international jurisdictions; and -- Executed successful initial field trials with its new product initiatives.
MESSAGE TO SHAREHOLDERS
Poseidon's goals for the second quarter of 2012 were to continue penetrating unconventional oil and liquids-rich natural gas plays across the United States, to add new customers and strengthen relationships with existing customers, to continue working on new products and services that are complementary to our primary fracturing fluid handling business and to maintain growth in financial results. We are pleased to report that all these goals were achieved. Quarterly financial results exceeded our internal forecasts and, combined with a continued positive outlook, provided the confidence to maintain 2012 guidance.
The Company is particularly proud to have generated sequential growth in all its key financial metrics over the first quarter, in contrast to the second quarter of 2011, which was down from the first quarter of that year. Poseidon's continued growth in the United States more than offset the seasonal weakness in western Canada, as its U.S. customers remained focused on efficient water management applications given the rapidly evolving market dynamics and regulatory requirements. The much larger size of the U.S. market, and Poseidon's modest overall penetration, continued to offer broad scope for expansion. Also of note, our U.S. customer base consists mainly of large, well-capitalized companies with extensive hedging and long-term capital programs, which tends to insulate their activity from short-term commodity price movements such as those experienced in the second quarter.
The second quarter is historically a weak period for western Canadian service and supply companies, as the wet weather and soft ground conditions of spring break-up typically reduces or prevents heavy equipment moves due to restrictions on rural roads, making many well sites inaccessible. The second quarter of 2012 featured a particularly wet May and June, with well completion activity in western Canada down by 38 percent year-over-year and near a decade low. The simultaneous sharp decline in crude oil prices also caused some Canadian customers to further reduce their activities. Approximately 20 percent of Poseidon's fleet was deployed in western Canada, and experienced very low activity for about half the quarter, but the combination of key customer relationships and increased market share relative to traditional fluid storage products contributed to the Company showing year-over-year revenue growth of 38 percent.
The Company's new $100 million revolving credit facility, announced on July 5, complements our other financial advantages of strong and growing revenue and EBITDA, minimal maintenance capital expenditures, low debt and sustainable dividends. Our 2012 EBITDA forecast of $210 million is expected to result in approximately $170 million in after-tax cash flow from operations, which in conjunction with existing bank lines to fund ongoing working capital requirements, can fund our planned 2012 dividends of $87 million and $60 million in planned capital expenditures. Our residual liquidity will be free to be deployed at the appropriate time into further initiatives to enhance shareholder returns, including the advancement of development efforts towards new products and services with strong free cash flow characteristics, potential growth in the dividend level or, depending on the Company's future share price versus the underlying value of the business, the potential to repurchase common shares.
We exited the second quarter with 400 tanks, in-line with our guidance. Having spent approximately one-third of our planned 2012 capital expenditures as of the end of the second quarter, the Company has the financial flexibility to remain in an aggressive growth mode for the balance of the year. We are continuing to build tanks at a steady rate from all five current model sizes, and we continue to forecast exiting the third quarter of 2012 with 500 tanks.
Poseidon's approach to fluid handling remains a fundamentally new idea, and this creates a dynamic environment in which to grow and build out the business geographically, on a customer basis and in the products and services being offered. The business itself is just over two years old and over half of our customers have been engaged with us for one year or less. The second quarter saw Poseidon strengthen its customer reputation for excellent job execution, including safety, which is helping us cement a brand built on customer satisfaction, cost-effectiveness, innovation and integrity. It is part of levering our first-mover advantage, and a strengthening brand image is among the positive results.
We continue to work closely with customers in the "adoption" or initial testing phase for our system, then moving to the "integration" phase. In the integration phase, a customer rents multiple tanks to perform simultaneous well completions on a program basis, re-uses tanks from well to well, and may also employ equipment on a longer-term basis for central storage of fluids that will be re-used on successive wells. Large, high-quality customers can account for up to 10 percent of Poseidon's tank fleet rented at a time, and also tend to generate repeat business. Central storage has become a major part of our business, and is an important source of stable, recurring revenue.
Geographically, Poseidon became active in two additional regions during the quarter, bringing its operational footprint to 19 U.S. states. Many of the key oil and liquids-rich U.S. basins remain in growth mode as it relates to the fluid management cycle, and have break-even prices far below today's forward commodity strip, while the revival of historical oil-producing areas are also delivering strong economics at current commodity prices.
Operationally, we continued to make inroads in presenting the Poseidon system as an environmentally friendly alternative to lined pits, the traditional method to accommodate fluids for large fracturing jobs. North Dakota's prohibition on lined pits took effect in April and environmental scrutiny of everything to do with water - fresh water sourcing, trucking, handling and treatment, water disposal - is intensifying in several U.S. jurisdictions. This trend is increasing customer motivation on economic as well as environmental grounds to find efficient alternatives.
We continue to field shareholder inquiries about the competitive threats to our business, and similarly to our shareholder message last quarter, we remind shareholders that Poseidon is the new alternative to traditional methods that work but are challenged in this new era of increased environmental scrutiny and fracturing service intensity. Poseidon offers a cost efficient alternative to the thousands of 400- and 500-barrel steel tanks that have been in service throughout North America for several decades and is an environmentally sound alternative to lined pits. The Poseidon modular tank system is very cost-competitive and has multiple operational advantages including a smaller carbon footprint, vastly more efficient transport, faster setup and superior heat retention.
The combined market penetration of all the alternative systems, Poseidon included, is still only a fraction of the overall market potential. We continue to use our first-mover advantage, which includes our service-first culture, leading HS&E standards, multi-basin critical mass, safety track record and strengthening industry brand. We remain confident that Poseidon's business model is sustainable over the longer-term thanks to its inherent advantages over incumbent methods, and because being a rental business with low fixed costs and basic physical infrastructure requirements can help us maintain a high level of free-cash flow. Our second quarter results illustrate that we can succeed in keeping our fixed costs low when activity diminishes - a testament to our unique business model and corporate culture, which allows margins to remain healthy in the face of macro headwinds and competitive pressures as well.
New Ventures Update
Our customer base, especially those in the United States, remains firmly focused on water management and the rapidly evolving market dynamics and regulatory requirements around sourcing, storage, recycling and disposal of fluid. The need for more efficient water applications is ever-evolving, particularly in executing more complex handling systems for longer-term multi-well projects, and this trend is an opportunity for Poseidon to further develop our product offering. We continue to expand our fluid management technical team and our engineers have spent considerable time with several key customers to better understand their processes and challenges. Our R&D and new product initiatives are driven by these customer and market needs.
We are very pleased to report that our engineering and operations team has advanced development and conducted successful initial field trials of new products and services with very encouraging technical and operational results. The details of these initiatives will remain confidential for competitive reasons and we will update shareholders as these new products and services become material. We look forward to continued collaboration with our customers to help improve their field efficiencies, financial profitability through cost savings and environmental sustainability through applying innovative ideas.
Poseidon is also pleased to announce that it recently signed its first international contract, a two-year agreement for tanks with an existing U.S. customer that has a long track record and respected reputation in several international jurisdictions. Our business development team continues to work on building Poseidon's international presence in several markets and we remain optimistic about the long-term potential in specific regions.
People and Safety
An ongoing driver of Poseidon's success is the Company's pristine safety performance, which as of late July includes a track record of over 2,000 fluid handling jobs safely executed. North America's exploration and production sector is very focused on safety, while risk management around fracturing-related services is a particular priority for larger producers in the United States. This creates a significant competitive advantage for service providers that can demonstrate an excellent safety record, as it helps to retain customers and contributes to being accepted as a new supplier by prospective customers. As our operations grow and we continue to add staff and geographical breadth, we will focus on maintaining our strong safety performance by continuing to advance training programs and incentivizing our employees through safety milestones.
Poseidon wishes to advise that Brad Wanchulak is no longer with the Company in his role as Senior Vice President, Global Development. Mr. Wanchulak's responsibilities will be handled by the existing and recently bolstered Business Development team. The Company wishes to thank Mr. Wanchulak for his dedicated service and wishes him every success in his future endeavours.
Poseidon's management team and Board of Directors look forward to the remainder of 2012 and towards 2013 with optimism and confidence.
Market conditions in western Canada remain somewhat uncertain, as this region faces some unique macro challenges relative to the U.S., although drilling programs and fracturing-related activities have recently begun to increase. Various producers remain concerned about commodity prices and are limited by capital constraints, and at this juncture, we expect a third quarter that is flat or slightly below activity in the third quarter of 2011.
Our outlook in the United States remains strong. The regionally-based U.S. market facilitates producers reallocating capital to the highest-return play areas and this process is continuing as activity in "dry" gas and other lower-return areas is significantly reduced, while well drilling and completions hold or accelerate in liquids-rich gas and light oil-focused areas. The improved efficiencies and lower costs offered by Poseidon provide further incentive for cost-conscious producers to utilize our products and also position us to lever off a future rebound in natural gas prices.
Revenue visibility for the remainder of 2012 remains positive due to the high proportion of longer-term contracts in the Company's revenue base, which provide stable, recurring revenues. Dealing with large, well-hedged customers that tend to take a longer-term view provides further stability. With Poseidon remaining a fundamentally new service offering, our growth depends mainly on market penetration rather than overall market expansion.
Our goals for the remainder of 2012 are much the same as they were for the first half:
-- To continue adding new customers across the North American market; -- To continue penetrating new geographical regions and play areas; -- To continue replacing lined pits; -- To work closely with customers to implement larger, more complex fluid storage solutions; -- To continue adding to the fleet at the rate of approximately seven tanks per week; and -- To develop, field-test and roll out new products and services.
We have secured several major new customers in the last few months, with the full revenue impact to be felt in the following quarters. Meanwhile we are working with recent and established customers to integrate our system into their fluid-handling activities. We are encouraged by the openness of producers to competitive solutions that save time and expense while maximizing operational performance, as well as their eagerness to hear ideas for new products and services.
We continue to forecast 2012 EBITDA of $210 million and growth in the tank fleet to 500 units at the end of the third quarter. While we have not articulated growth plans for the fourth quarter of 2012, Poseidon plans to discuss our outlook for tank fleet growth through year-end after capital plans have been finalized around new product development. We would like to take this opportunity to thank our shareholders for their continued support and the Company looks forward to providing a refined forecast incorporating all forms of expansion at a later date.
POSEIDON CONCEPTS CORP. IS A PUBLICLY TRADED CANADIAN ENERGY EQUIPMENT AND SERVICES COMPANY THAT PROVIDES AN INNOVATIVE FLUID HANDLING SYSTEM 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).
This news release contains certain forward-looking statements and other information (collectively "forward-looking information") about our current expectations, estimates and projections. Forward-looking information in this news release is identified by words such as "anticipate", "believe", "expect", "plan", "forecast", "target", "could", "focus", "vision", "goal", "proposed", "scheduled", "milestone", "outlook", "potential", "may", "looking forward to", or similar expressions and includes suggestions of future outcomes, including statements about our growth strategy and related milestones and schedules, forecast operating and financial results, planned capital expenditures, future dividends, future use and development of technology and projected increasing shareholder value. Readers are cautioned not to place undue reliance on forward-looking information as our actual results may differ materially from those expressed or implied in the forward-looking statements. Developing forward-looking information involves reliance on a number of assumptions and consideration of certain risks and uncertainties, some of which are specific to Poseidon and others that apply to the industry generally. The factors or assumptions on which the forward-looking information is based include without limitation: assumptions inherent in our current guidance, including foreign exchange and interest rates; our projected capital investment levels; the flexibility of capital spending plans and the associated source of funding; our ability to generate sufficient cash flow from operations to meet our current and future obligations; our expectations of the demand for tank systems and the general activity of the oil and gas industry; and other risks and uncertainties described from time to time in the filings we make with securities regulatory authorities.
Actual results could differ materially from those currently anticipated due to a number of factors, risks and uncertainties. Such risks and uncertainties include, without limitation, risks associated with dependence on manufacturers of the Poseidon tank systems; operating risk liability; demand for Poseidon's tank systems; levels of competition in the fracturing fluid storage industry; the ability of Poseidon to attract and retain clientele; the ability of Poseidon to fund its ongoing capital requirements; 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; changes in laws and regulations (including the adoption of new environmental laws and regulations) and changes in how they are interpreted and enforced; increased competition; the lack of availability of qualified personnel or management; fluctuations in foreign exchange or interest rates; and stock market volatility. Readers are cautioned that the foregoing list of factors is not exhaustive. All subsequent forward-looking statements, whether written or oral, attributed to Poseidon or persons acting on its behalf are expressly qualified in their entirety by these cautionary statements. Additional information on the foregoing risks and other factors that could affect Poseidon's operations and financial results are on file with Canadian securities regulatory authorities and may be accessed through the SEDAR website (www.sedar.com). Furthermore, the forward-looking statements contained in this news release are made as at the date of this news release and Poseidon 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, 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.