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, 2013. All amounts are reported in Canadian dollars
unless otherwise stated.
Highlights of the Second Quarter of 2013 and Subsequent
Events
Financial Results
-- Revenues for the second quarter of 2013 were $8.8 million, compared to
$13.9 million recognized in the equivalent quarter of last year.
-- Gross margin for the quarter stood at $2.1 million, or 24% of revenues,
compared to $3.0 million, or 22% of revenues for the equivalent period
of 2012.
-- EBITDA(i) for the quarter was negative $1.6 million compared with a
negative EBITDA of $0.7 million in the equivalent period of 2012.
-- Net profit for the second quarter amounted to $2.5 million ($0.12 per
share), compared to a net loss of $1.6 million ($0.08 per share) in the
corresponding period of last year. The successful completion of the sale
of the investment held in the South Korean joint venture ProSep Kolon
Ltd., for a gain of $4.8 million, account for this significant
improvement.
-- Including recent contract awards, ProSep's backlog stands at
approximately $18 million at August 1, 2013, compared to $18.6 million
at the start of the year. At quarter end (June 30, 2013), ProSep's
backlog stood at $12.8 million.
Financial Events
-- A Special Committee appointed by the Board of Directors is working with
KPMG Corporate Finance and is currently reviewing strategic alternatives
with a number of interested parties.
-- Concluded the sale of the 51% investment in South Korean joint venture
ProSep Kolon Ltd. for gross proceeds of approximately $5 million.
-- Reimbursed a debenture and accrued interest related to ProSep Kolon Ltd.
for a total amount of $1.1 million.
-- Initiatives to control costs and streamline operations have contributed
to generate approximately $1.4 million in cost savings year-to-date.
Commercial
-- During the second quarter, concluded $9 million in new contracts and $6
million subsequent to quarter end, for a total of $17.2 million signed
year-to-date. Most contracts signed since the start of the year are for
produced water treatment for onshore and offshore installations.
Operations
-- Continued to maintain exceptional Health, Safety and Environment
("HS&E") track record and zero Total Recordable Incident Rate ("TRIR")
for two years.
(i) EBITDA is a non-IFRS measure, see MD&A for details.
Selected Financial Highlights (in $ millions except for loss per
share)
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Quarter ended June 30 Six-months ended June 30
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2013 2012 2013 2012
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Revenue $8.8 $13.9 $17.6 $22.2
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Gross margin(i) $2.1 $3.0 $5.3 $5.7
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Gross margin as a
percentage of revenues 24% 22% 30% 26%
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EBITDA(ii) (loss) ($1.6) ($0.7) ($2.2) ($2.9)
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Profit (loss) for the
period $2.5 ($1.6) $1.1 ($3.1)
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Basic and diluted income
(loss) per share $0.12 ($0.00) $0.05 ($0.01)
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Weighted average number
of shares (basic and
diluted) 21,068,737 20,978,721 21,118,215 20,947,221
----------------------------------------------------------------------------
As at: June 30, 2013 December 31, 2012
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Net Invested Working
Capital(iii) $0.6 ($0.9)
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Total Assets $23.7 $29.8
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Borrowings $3.8 $9.3
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Equity ($0.04) ($1.4)
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(i) Gross margin is a non-IFRS financial measure and the Company defines
it as margin excluding amortization expense.
(ii) 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.
(iii) Net Invested Working Capital is a non-IFRS financial measure and the
Company defines it as follows: (Restricted cash + Trade and other
receivables + Inventories + Prepaid expenses) - (Trade and other
liabilities + Deferred revenue).
"Since the start of the year, a special committee formed by the
Board of Directors has been reviewing strategic alternatives in
order to enhance shareholder value and develop long term
partnerships that would help further the Company's business plan.
We are currently reviewing various alternatives with a number of
interested parties," said Jacques L. Drouin, President & CEO.
"With a more streamlined organization, recent pick-up in orders,
and promising short term prospects, we are in a good position
entering the second half of the year."
Financial Results
This announcement reports on consolidated results. For detailed
segmented financial results please see Management Discussion and
Analysis and Interim Condensed Consolidated Statement for the three
and six-month period ended June 30, 2013.
During the second quarter of 2013, ProSep reported consolidated
revenues of $8.8 million, compared to $13.9 million reported in the
equivalent period of 2012, a 37% reduction in revenues. During the
first six-months of the year, consolidated revenues were down 21%
to $17.6 million from $22.2 million for the first half of 2012.
Revenue growth at the US Operations was not sufficient to offset
declines at the Asia Pacific Operations. As further detailed in the
segment comments below, the Asia Pacific Operations renewed their
book of opportunities since the start of the year and concluded $6
million of new contracts, compared to $4.5 million announced in the
first six months of 2012, leading to a stronger backlog entering
the second half of this year.
Overall consolidated gross margin for the second quarter of 2013
stood at $2.1 million (or 24% or revenues) compared to $3.0 million
(or 22% of revenues) for the equivalent period of 2012. For the
first six months of 2013, consolidated gross margins stood at $5.3
million (or 30% of revenues) compared with $5.7 million (or 26% of
revenues) for the equivalent period of 2012. Although gross margins
remained low at the Asia Pacific operation, on a consolidated
basis, gross margins as a percentage of revenues improved mainly on
increased contribution from proprietary technologies.
The success of the new strategy introduced in 2010, which aims
to accelerate the commercialization of the Company's proprietary
technologies, is evidenced in the year-to-date consolidated gross
margins. As these systems gain market acceptance and are deployed
at existing and new customer's operations, gross margins should
continue to improve.
EBITDA for the second quarter ended June 30, 2013 was negative
$1.6 million compared to negative $0.7 million during the second
quarter of last year. Non-recurring expenses related to the ongoing
strategic review negatively affected EBITDA by approximately $0.5
million in the second quarter of 2013. Year-to-date, EBITDA stood
at negative $2.2 million, an improvement over last year's EBITDA of
negative $2.9 million. EBITDA further improves, to negative $1.3
million if non-recurring items related to the strategic review are
removed.
Since the start of the year, higher gross margins from
proprietary technologies, higher utilization rate of personnel to
projects and implementation of a cost reduction plan contributed in
reducing losses. Year-to-date, these initiatives provided cost
savings of approximately $1.4 million in general and administrative
expenses.
For the three-month period ended June 30, 2013, the Company
reported a net profit of $2.5 million ($0.12 per share), on the
realization of a gain on disposal of its investment in the South
Korean joint venture company ProSep Kolon. This joint venture was
created at the end of 2010 and ProSep sold its interest in the
company during the start of the second quarter of 2013 for gross
proceeds of $5 million. During the second quarter of last year, the
Company reported a net loss of $1.6 million (or $0.08 per share).
Year-to-date, net profit amounts to $1.1 million (or $0.05 per
share), compared to a net loss of $3.1 million (or $0.15 per share)
for the first six-months of last year.
At June 30, 2013, the Company had $1.9 million in cash compared
to $2.8 million in cash at December 31, 2012.
Covenant Waiver
At June 30, 2013 one of the Company's wholly-owned subsidiaries
was in breach of a covenant to maintain financial ratios as well as
a "clean-down" obligation, whereby the facility is to be undrawn
for a pre-determined period time. A conditional covenant waiver
wherein the lender confirmed that the breached covenant is not
deemed to constitute an event of default was obtained by the
Company's subsidiary for the six-month period ended June 30, 2013.
The Company also obtained an extension by which the subsidiary has
to start a clean-down by October 1, 2013.
Conference Call and Webcast Details
ProSep will host a conference call and webcast on Thursday
August 8th, 2013 at 8:00 a.m. (EST) to review the financial results
and highlights of the second quarter of 2013. To access the
conference call by telephone, dial 1-416-981-9000 or
1-800-734-8507. A live audio webcast of the conference call will
also be available through ProSep's website under "Calendar of
Events" in the "News and Investor Center" and on
www.marketwire.com. For audio replay, dial 1-416-626-4100 or
1-800-558-5253 with the reservation code # 21669601.
Regulatory Filings
ProSep filed its Interim Condensed Consolidated Financial
Statements for the three and six-month periods ended June 30, 2013
and related Management Discussion and Analysis with securities
regulatory authorities. The material will be available through
SEDAR at www.sedar.com and on the Company's website at
www.prosep.com.
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 www.prosep.com.
Caution concerning forward-looking statements
This press release may contain forward-looking statements within
the meaning of Canadian securities laws. 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. In particular,
forward-looking statements regarding ProSep's plans for its
business development strategy, anticipated customer orders, sales
and revenues, financial and operational projections and anticipated
results, anticipated results of field testing with potential
customers and expected benefits of ProSep's proprietary
technologies; and anticipated impact on ProSep of the factors
discussed under the heading "Selected Risks" in the latest
management discussion and analysis document ("MD&A"). These
forward-looking statements are based on, among other things,
management's assumptions, expectations, estimates, objectives,
plans and intentions as of the date hereof pertaining to, but not
limited to demand for ProSep's solutions, 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 customers, projected operating
costs and cost of raw materials and energy supply, expected timing
and amount of capital expenditures program of ProSep's potential
customers, target market acceptance of ProSep's solutions, current
and future solutions performance, evolving market conditions for
oil & gas producers; and success of commercialization approach
and strategic partnership initiatives. Although ProSep believes
that the expectations and assumptions on which the forward-looking
statements are based are reasonable, undue reliance should not be
placed on the forward-looking statements because ProSep can give no
assurance that they will prove to be correct. Because
forward-looking statements address future events and conditions, by
their very nature they involve numerous inherent risks and
uncertainties that contribute to the possibility that the
forward-looking statements may prove to be incorrect. ProSep cannot
assure investors that any of these forward-looking statements will
prove to be accurate.
Further, if any of these statements are inaccurate, the
inaccuracy may be material. Actual performance and results could
differ materially from those currently anticipated in the
forward-looking statements due to a number of factors and risks.
Some of the factors that could cause such differences include, but
are not limited to uncertainty as to market acceptance of new
solutions and possible technological change, competition, economic
environment and especially conditions in the oil & gas
industry, legislative or regulatory developments, ProSep's ability
to penetrate core markets, expand into new markets and manage
future growth, the need for additional financing and uncertainties
as to access to sufficient capital financing a timely basis and on
acceptable terms, uncertainty as to achievement of profitability
and ability to meet cash requirements, availability and retention
of management and key personnel, the long sales and implementation
cycles for ProSep's solutions, reliance on major customers,
manufacturing, project execution, product defect and product
liability risks, dependence on third party suppliers, exchange rate
and currency fluctuations, protection of ProSep's intellectual
property rights; and risks related to ProSep's foreign operations
and compliance with anti-corruption and anti-bribery laws.
Assumptions, expectations and estimates made in the preparation of
forward-looking statements and risks that could cause actual
results to differ materially from current expectations are further
discussed under "Selected Risks" in the latest MD&A. In light
of the significant risks and uncertainties in these forward-looking
statements, investors should not place undue reliance on or regard
these statements as a representation or warranty by the Company or
any other person that the Company will achieve its objectives,
strategies and plans in any specified time frame, if at all. The
forward-looking statements contained or incorporated by reference
in this management discussion and analysis relate only to events as
of the date on which the statements are made. Except as required
under applicable securities legislation, the Company does not
undertake to update or revise these forward-looking statements,
whether as a result of new information, future events or
otherwise.
Contacts: ProSep Inc. Investor Relations and Media: Danielle
Ste-Marie VP Marketing & Corporate Development (514) 522-5550
ext. 238dste-marie@prosep.com
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