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 twelve-month period ended
December 31, 2012 and three-month period ended March 31, 2013. All
amounts are reported in Canadian dollars unless otherwise
stated.
Highlights and Subsequent Events
Financial Results for the First Quarter Ended March 31, 2013
-- Revenues for the first quarter of 2013 were $8.8 million, up 7% from
$8.3 million recognized in the equivalent quarter of last year.
-- Gross margin for the quarter stood at $3.1 million, or 35% of revenues,
compared to $2.6 million, or 32% of revenues for the equivalent period
of 2012. Gross margin improved on higher contribution from proprietary
technologies.
-- EBITDA(i) improved to negative $0.6 million compared with a negative
EBITDA of $2.2 million in the equivalent period of 2012, on account of
higher gross margin and cost control.
-- Loss for the first quarter of 2013 amounted to $1.4 million ($0.07 per
share), equivalent to the corresponding period of 2012. Loss on foreign
exchange offset improvements in gross margin during the quarter.
-- At quarter end, ProSep's backlog stood at $13.7 million compared to
$18.6 million at the start of the year. Including recent contract
awards, ProSep's backlog stood at $18.4 million at April 30, 2013.
Financial Results for the Year Ended December 31, 2012
-- Revenues for 2012 were $41.6 million, up 23% from $33.7 million
recognized in 2011.
-- Gross margin for the year stood at $7.5 million, or 18% of revenues,
compared to $8.1 million, or 24% of revenues achieved in 2011, mostly
due to cost overruns on certain projects.
-- EBITDA(i) was negative $7.4 million compared to negative $7.9 million in
2011.
Excluding goodwill and intangible impairment charges of $13.1
million, loss for the year was $8.5 million, an improvement over
2011 loss of $11.4 million which excludes impairment charges of
$3.7 million during that period.
Financial Events of the First Quarter 2013
-- Sold investments held in the notes related to the Canadian third party
asset-backed commercial paper for total proceeds of $4.7 million and
fully reimbursed the related credit facility (see note 7 of the
Unaudited Interim Condensed Consolidated Financial Statements).
-- Sold 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.
-- Implemented a cost optimization program to provide annual savings of
approximately 15% of operating expenses.
-- The Company and the Board of Directors engaged KPMG Corporate Finance as
financial advisors to assist in reviewing the Company's business,
financial performance and investigate strategic alternatives.
-- Received waiver for breach of covenants under borrowing facilities with
DnB Bank.
Financial Event of the Year Ended December 31, 2012
-- Completed a twenty-for-one consolidation of ProSep's Common Shares.
Commercial Events of the First Quarter 2013
-- During the first quarter, concluded $2.2 million in new contracts and
almost $7 million subsequent to quarter end. Most contracts signed since
the start of the year are for produced water treatment for onshore and
offshore installations.
-- Concluded a memorandum of understanding with UOP LLC, a Honeywell
company ("UOP"), that aims to make ProSep a preferred UOP supplier for
the design and fabrication of their CO2 membrane-based packaged plants.
Commercial Events of Year 2012
-- Announced $55 million in new contracts, of which $36.6 million were
awarded to ProSep and $18 million to the Company's Korean joint venture.
This compares to $49.4 million contracts awarded in 2011.
-- Received record orders for a total of approximately $10 million for
proprietary technologies and significantly increased the number of firm
proposals outstanding for this higher margin offering.
-- Signed a large contract valued at $13 million for the Company's new line
of seawater treatment and water injection systems, for installation on
an offshore platform in the Gulf of Mexico.
-- Concluded several field trials with customers operating in Latin America
and the Middle East, demonstrating the economic and environmental
benefits of ProSep's proprietary mixing technologies.
-- Significantly increased the size and quality of pipeline of
opportunities.
Operational Events of the First Quarter of 2013
-- Nominated Parag Jhonsa as President and General Manager of ProSep (USA).
Mr. Jhonsa has been with ProSep since 2005 and most recently held the
position of Executive Vice President, Operations.
-- Continued to maintain exceptional Health, Safety and Environment
("HS&E") track record and zero Total Recordable Incident Rate ("TRIR")
for two years.
Operational Events of Year 2012
-- Received approved vendor status at Saudi Aramco, a significant
achievement that strengthens commercial relationships with the world's
largest oil and gas producer.
-- Hired Benoit Crowe CPA, CA, as Vice-President Finance. Mr. Crowe was
previously corporate controller at Richelieu Hardware.
-- Nominated Yee Phak Chuin as General Manager of the Asia Pacific
Operations, replacing Matthew Rummer who became ProSep Kolon's CEO. Mr.
Chuin has been with ProSep since 2009 as Projects Manager.
-- Advanced product development activities for three new offerings and the
integration of proprietary technologies in ProSep's conventional
offering.
-- Obtained Achilles registration, a leading industry network of buyers and
suppliers focused on risk management and facilitating the procurement
process.
(i) EBITDA is a non-IFRS measure, see above section for
details.
First Quarter 2013 Selected Financial Highlights (in $ millions
except for loss per share)
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Quarters ended March 31
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2013 2012
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Revenue $8.8 $8.3
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Gross margin(i) $3.1 $2.6
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Gross margin as a percentage of
revenues 35% 32%
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EBITDA(ii) ($0.6) ($2.2)
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Loss for the period ($1.4) ($1.4)
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Basic and diluted loss per share ($0.07) ($0.07)
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Weighted average number of shares
(basic and diluted) 21,019,258 20,915,719
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As at: March 31, 2013 December 31, 2012
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Net Invested Working Capital(iii) ($2.2) ($0.9)
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Total Assets $22.6 $29.8
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Borrowings $4.7 $9.3
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Equity ($2.3) ($1.4)
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Year Ended December 31, 2012 Selected Financial Highlights (in $
millions except for loss per share)
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Quarters ended Twelve-months ended
December 31 December 31
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2012 2011 2012 2011
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Revenue $9.1 $7.3 $41.6 $33.7
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Gross margin(i) $0.2 $1.5 $7.5 $8.1
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Gross margin as a
percentage of revenues 2.4% 21% 18% 24%
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EBITDA(ii) ($3.4) ($1.5) ($7.4) ($7.9)
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Loss for the period ($16.9) ($7.2) ($21.6) ($15.1)
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Basic and diluted loss
per share ($0.81) ($0.42) ($1.03) ($0.07)
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Weighted average number
of shares (basic and
diluted) 20,989,721 17,025,759 20,966,502 11,486,079
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As at: December 31, 2012 December 31, 2011
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Net Invested Working Capital(iii) ($0.9) $2.8
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Total Assets $29.8 $41.4
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Borrowings $9.3 $9.1
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Equity ($1.4) $20.4
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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).
"In 2012, we achieved over 20% revenue growth and increased the
proportion of proprietary technologies to 30% of our year-end
backlog, compared to a historical average of 5%. This has improved
our 2013 first quarter gross margins and led to a neutral EBITDA
excluding non-recurring items. Additionally, recent cost reductions
and divestiture of our Korean joint venture are providing
additional cash flows required for working capital purposes," said
Jacques L. Drouin, President & CEO.
First Quarter Ended March 31, 2013 Financial Results
In the first quarter of 2013, ProSep reported consolidated
revenues of $8.8 million, an increase of 7% over $8.3 million
reported in the same period of 2012. Strong revenue growth at the
US Operations offset declining revenues at the Asia Pacific
Operations, in the context of a more competitive local market.
Gross Margin
Overall consolidated gross margin for the first quarter ended
March 31, 2013 stood at $3.1 million (or 35% or revenues) compared
to $2.6 million (or 32% of revenues) for the equivalent period of
2012. Gross margins improved on higher volume of business at the US
operations and improved contribution from proprietary technologies
for a Latin American customer. Gross margin at the Asia Pacific
operations remain below target.
EBITDA and Loss
EBITDA for the first quarter ended March 31, 2013 was negative
$0.6 million, an improvement over the negative EBITDA of $2.2
million reported in the first quarter of last year. Slightly higher
revenues and the implementation of a cost reduction plan improved
financial performance.
For the three-month period ended March 31, 2013 the Company
reported a loss of $1.4 million ($0.07 per share) equivalent to
last year's corresponding period. The implementation of a cost
reduction plan significantly improved operating losses in the first
quarter of 2013.
Basic and diluted loss per share was determined using the
weighted average number of 21,019,258 Common Shares outstanding
during the first three-month period of 2013. At March 31, 2013,
21,106,716 Common Shares were issued and outstanding compared to
20,978,721 Common Shares at the corresponding date of 2012.
At March 31, 2013, the Company had $3.6 million in cash compared
to $2.8 million in cash at December 31, 2012.
Financial Results for the Year and Fourth Quarter Ended December
31, 2012
During the twelve-month period of 2012, ProSep reported
consolidated revenues of $41.6 million, an increase of 23% over
$33.7 million reported during the equivalent twelve-month period of
2011. Strong revenue growth at the Asia Pacific Operations (up more
than 100%) is responsible for all of this year's revenue increase,
while revenues dropped slightly at all other business units.
During the fourth quarter of 2012, ProSep reported consolidated
revenues of $9.1 million, up 23% year-over-year. A shift in revenue
growth occurred in the fourth quarter of 2012, where an increase of
66% occurred at the US Operations, offsetting declining revenues
from the Asia Pacific and Europe & Middle East business
units.
Gross Margin
Overall consolidated gross margin for the year ended December
31, 2012 stood at $7.5 million (or 18% or revenues) compared to
$8.1 million (or 24% of revenues) for year 2011. In 2012 gross
margins were mostly affected by execution issues at the Asia
Pacific Operations on two large projects that experienced cost
overruns and delays. With efforts dedicated to improving execution
at all business centers and increased focus on proprietary
technologies (which generate more interesting gross margin levels),
management expects this situation to improve.
Fourth quarter consolidated gross margin, as a percentage of
revenues, is down to 2.4% compared to 21% in the corresponding
quarter of last year. Low margin at the US and Asia Pacific
Operations explain most of this variance.
EBITDA and Loss
EBITDA for the year ended December 31, 2012 was negative $7.4
million, an improvement over the negative EBITDA of $7.9 million
reported last year. Despite lower gross consolidated margins,
higher revenues from the Asia Pacific Operations and close control
of expenses throughout the Company contributed to alleviate losses
in EBITDA. The Company's objective is to continue controlling its
cost structure and accelerate the commercialization of its
proprietary technologies to improve overall profitability.
At December 31, 2012, the Company recorded a $12.9 million
write-down of goodwill, further to the performance of impairment
tests, on goodwill valued at $13.2 million at December 31, 2011.
After this write-down and currency fluctuations, there was no
goodwill remaining on the Company's financial statements at
December 31, 2012. Other intangible assets stood at $3.5 million at
December 31, 2012, compared to $4.2 million in December 2011. At
December 31, 2012, the Company recorded a $0.2 million write-down
on other intangible assets further to the performance of impairment
tests.
Excluding goodwill and intangible assets impairment charges of
$13.1 million, loss for the year was $8.5 million, an improvement
over 2011 loss of $12.5 million which excludes impairment charges
of $3.7 million during that period.
Basic and diluted loss per share was determined using the
weighted average number of 20,966,502 Common Shares outstanding
during the twelve month period of 2012. At December 31, 2012,
20,989,721 Common Shares were issued and outstanding compared to
20,905,221 at the corresponding date of 2011. At December 31, 2012,
ProSep held cash of $2.8 million compared with $4.1 million at
December 31, 2011.
Covenant Waiver
At March 31, 2013 as well as at December 31, 2012, one of the
Company's wholly-owned subsidiaries was in breach of a covenant of
its credit facility agreement. 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's subsidiary as at
December 31, 2012, as well as for the most recent breach, at March
31, 2013. The Company also obtained an extension to August 1, 2013
of the obligation for its subsidiary to start a clean down (whereby
the facility is to be undrawn for a pre-determined period of
time).
Conference Call and Webcast Details
ProSep will host a conference call and webcast on Thursday May
16, 2013 at 8:00 a.m. (EST) to review the financial results and
highlights of the first quarter of 2013 and year ended December 31,
2012. To access the conference call by telephone, dial
1-416-981-9000 or 1-800-735-5968. 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 # 21657889.
Regulatory Filings
ProSep filed its Interim Condensed Consolidated Financial
Statements for the three-month period ended March 31, 2013 and 2012
and Annual Audited Consolidated Financial Statements for the years
ended December 31, 2012 and 2011 and related Management Discussion
and Analysis and Annual Information Form 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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