Questor Technology Inc. (“Questor” or the “Company”) (TSX-V: QST)
announced today its financial and operating results for the first
quarter of 2020.
FIRST QUARTER 2020 RESULTS
(Stated in Canadian dollars except per share and
unit data)
Three Months Ended March 31, |
2020 |
2019 |
Increase |
(decrease) |
|
|
|
|
Revenue |
4,489,470 |
7,720,488 |
(3,231,018) |
Gross profit |
1,986,946 |
4,418,783 |
(2,431,837) |
Earnings for the period |
1,265,452 |
2,336,069 |
(1,070,617) |
Gross profit as a percent of revenue |
44% |
57% |
(13)% |
Net cash generated from operating activities |
1,360,790 |
1,631,394 |
(270,604) |
Earnings per share |
|
|
|
Basic |
0.05 |
0.09 |
(0.04) |
Diluted |
0.05 |
0.09 |
(0.04) |
|
|
|
|
Increase |
As at |
March 31, 2020 |
December 31, 2019 |
(decrease) |
Total
assets |
41,173,274 |
42,110,012 |
(936,738) |
Total
equity |
37,046,477 |
35,333,667 |
1,712,810 |
Shares outstanding(1) |
Basic |
27,348,018 |
27,048,432 |
299,586 |
Diluted |
27,815,940 |
27,649,762 |
166,178 |
|
|
|
|
(1) |
Weighted
average shares outstanding during the year. |
Questor’s Audited Consolidated Financial Statements and
Management’s Discussion and Analysis for the three months ended
March 31, 2020 are available on the Company’s website at
www.questortech.com and through SEDAR at www.sedar.com.
PRESIDENT’S MESSAGE
The Questor team delivered $4.5 million of
revenue this quarter, a 42% decline from the same period in 2019.
The results for the three months ended March 31,2020 reflect the
significant impact of the Coronavirus pandemic and the commodity
price collapse that started impacting industry activity in February
2020. In March 2020, we saw a return of rental units and suspension
of sales orders, as our clients cut capital and shut in production
to reduce costs and conserve cash. Gross profit decreased $2.4
million to $2.0 million in this quarter from $4.4 million in Q1
2019. Earnings for this period are $0.05 per share vs. $0.09 per
share in the corresponding period in 2019. We finish this quarter
in strong financial position with $15 million of cash in the bank,
zero debt and $20 million of working capital.
We have and continue to take action to reduce
costs to ensure the long-term strength of the organization. The
Company expects these fixed cost reduction measures will reduce
year over year fixed costs by approximately 20%. While these cost
reductions are significant, the Company will continue to look at
all aspects of its business for further business optimization
opportunities in these uncertain times. The Federal Government of
Canada announced a new wage subsidy program recently, and we will
assess how this and other available programs can be utilized to
reduce the impact of this downturn on our staffing levels going
forward. Audrey
Mascarenhas, Questor’s CEO stated: “Financially, the progress we
have achieved over the last three years leaves Questor well
positioned to navigate this challenging environment. Our balance
sheet demonstrates the financial flexibility of the company and we
will continue to ensure that our liquidity needs are not
compromised. With future industry activity levels uncertain, we
will manage the business accordingly and will continue to operate
at the highest efficiency to further protect the interests of all
our stakeholders. Questor’s strong balance sheet with zero debt,
our substantial cash reserves, and large rental fleet will enable
us to plan and strategize during this challenging market cycle and
emerge as a stronger company. This strong foundation will enable us
to move forward on a series of strategic initiatives and support
our exponential growth when the market’s confidence has returned.
Questor intends to preserve its cash flow through 2020 and continue
to be fiscally responsible, making prudent capital investments
during this challenging period.”
The Company believes that the clean technology
industry will remain an integral component of resource development
over the medium to long term and that Questor will be well
positioned given its focus on top-tier service, quality, logistics
management and our best in class equipment. The Company’s proven,
cost effective technology solutions will play an instrumental role
in enabling our customers to meet their emission goals and
targets.
The Company has focused its strategy to be
positioned to capitalize on opportunities coming out of this
downturn. During this time, we will be focusing our marketing
efforts, educating our customers around our solutions for combating
emissions, diversifying into other industries and expanding our
waste heat to power offering. To support this effort a corporate
rebranding is underway. We will continue to build our digital
capability focused on an emissions platform that will eventually
enable us to credibly quantify emission reductions for our clients
and guarantee a zero emissions site, with the end goal of
monetizing the emission reduction offsets.
In April, the Canadian federal government
announced it will invest $1.7 billion to clean up abandoned and
inactive natural gas and oil wells. In addition, it will establish
a $750 million Emission Reduction Fund, with a focus on methane, to
create and maintain jobs through pollution reduction efforts. This
goes a long way toward indicating the federal government does
understand the importance of this industry and the struggles it
currently faces. The Company currently evaluating opportunities in
this area. The Company believes that it is uniquely positioned
within the market to offer products and services to support these
initiatives.
Our underlying theme for this down cycle is
resilience and we are approaching 2020 with strategic discipline, a
focus on consistent execution, a strong balance sheet, great
products, a clear commitment to environmental, social and
governance leadership and an excellent team that is experienced
with challenge and change. The Company is confident that with our
base, our approach to business and outstanding customer service, we
will emerge from this challenge, poised for continued success.
FIRST QUARTER 2020 OVERVIEW
- The worldwide pandemic and commodity price collapse negatively
impacted the Company’s activity starting in February 2020 with more
significant returns of rental units and suspension of sales orders
occurring during the month of March 2020.
- Revenue decreased $3.2 million (42 percent) for the three
months ending March 31, 2020 versus the same period in 2019:
- Incinerator equipment sales decreased 13 percent from $2.5
million in 2019 to $2.2 million in 2020;
- Revenue from incinerator rentals decreased 54 percent from $4.5
million in 2019 to $2.0 million in 2020;
- Incinerator service revenue decreased 61 percent from $0.8
million in 2019 to $0.3 million in 2020;
- During the first quarter of 2020, the Company sold and
delivered 6 incinerator units to customers.
- Gross profit decreased $2.4 million (55 percent) from $4.4
million in 2019 to $2.0 million in 2020:
- Gross profit as a percentage of revenue decreased from 57
percent in 2019 to 44 percent in 2020;
- The Company implemented a mitigation strategy subsequent to the
first quarter of 2020. The strategy revolves around:
- Managing operations infrastructure ensuring indirect
operational resources are consistent with activity;
- Commitment to supply chain management focused on procuring
quality materials and sourcing materials at competitive
prices.
- Gain on foreign exchange increased $1.0 million from 2019 to
2020:
- The Company recorded a $0.9 million foreign exchange gain
versus a $0.1 million loss in 2019. The Canadian dollar weakened
significantly versus the US dollar in the first three months of
2020 due to the collapse of energy commodity prices and general
financial market uncertainty.
- Earnings decreased $1.0 million (46 percent) from 2019 to
2020.
- The Company continues to be in a strong financial position at
March 31, 2020:
- Cash increased to $14.9 million from $13.5 million at December
31, 2019;
- The Company has an undrawn $1.0 million revolving demand loan
facility and an undrawn $5.0 million capital loan facility;
- Healthy cash reserves provide the working capital to thrive
during tough market cycles;
- Strong balance sheet that will serve as a foundation to launch
into new products and markets once the economy rebounds;
- The Company has suspended capital expansion plans until there
is a sustained commodity price recovery. This strategy preserves
our liquidity while improving capital efficiency;
- The Company applied increased focus on operating efficiencies
and enhancing cash flow by working with our service providers to
further reduce costs.
OUTLOOK
Key Markets
In response to the COVID-19 pandemic,
governmental authorities in Canada and internationally have
introduced various recommendations and measures to try to limit the
spread of the virus, including travel restrictions, border
closures, non-essential business closures, quarantines,
self-isolations, shelters-in-place and social distancing. Those
measures are having a significant impact on the private sector and
individuals, including unprecedented business, employment and
economic disruptions. The continued spread of COVID-19 nationally
and globally has had, and will continue to have, a material adverse
effect on our business, operations and financial results. In
addition, the unprecedented reduction of crude oil prices due to
excessive supply compared to energy consumption, notwithstanding
the recent agreement among OPEC members and other global oil
producing countries to implement supply reductions, will continue
to have a significant impact on our industry for months to come. As
such, overall market conditions are anticipated to remain uncertain
for the foreseeable future. Upstream, midstream and downstream
companies will continue to reduce or carefully manage spending for
capital projects and operations where possible until some sort of
market stability has returned.
The Company feels that a strong balance sheet is
imperative for success and has focused efforts to that strategy for
several years. Having a strong balance sheet not only protects the
Company in economic turmoil but enables growth when the market’s
confidence improves. The Company currently has substantial cash
reserves, a large rental fleet, and no debt.
On April 17, 2020, the Canadian federal
government announced it will invest $1.7 billion to clean up
abandoned and inactive natural gas and oil wells. In addition, it
will establish a $750 million Emission Reduction Fund, with a focus
on methane, to create and maintain jobs through pollution reduction
efforts. This goes a long way toward indicating the federal
government does understand the importance of this industry and the
struggles it currently faces. The Company is currently evaluating
opportunities in this area. The Company believes that it is
uniquely positioned within the market to offer products and
services to support these initiatives.
ABOUT QUESTOR TECHNOLOGY
INC.
Headquartered in Calgary, Alberta, with
operations across North America, the Company provides specialized
waste gas incineration products and services that destroys harmful
pollutants in any waste gas stream at 99.99% efficiency enabling
our clients to meet emission regulations, address community
concerns and improve safety at industrial sites.
There are several methods for handling waste
gases at oil and gas industrial facilities, the most common being
combustion. Flaring and incineration are two methods of combustion
accepted by many provincial and state regulators. Historically, the
most common type of combustion has been flaring which is the
igniting of natural gas at the end of a long metal tube or flare
stack. This action causes the characteristic flame associated with
flaring.
Incineration is the mixing and combusting of
waste gas streams, air, and fuel in an enclosed chamber which are
mixed at a controlled rate and ignited so that no flame is visible
when operating properly. A correctly designed and operated
incinerator can yield higher combustion efficiencies through proper
mixing, gas composition, retention time, and combustion
temperature. Combustion efficiency, generally expressed as a
percentage, is represented by the amount of methane converted to
CO2, or H2S converted to SO2. The more converted, the better the
efficiency.
The Company designs, manufactures and services
proprietary high efficiency waste gas incineration systems.
The Company’s incineration product line is based on clean
combustion technology that was developed by the Company and
initially patented in both Canada and the United States in 1999.
The Company has continued to evolve the technology over the years
making several improvements from the original patent which expired
in November 2019. The Company currently has five new patent filings
that are pending.
The Company’s highly specialized technical team
works with the client to understand the waste gas volume and
composition allowing it to determine the correct incineration
product specification to achieve 99.99 percent combustion
efficiency. The incinerators vary in size to accommodate small to
large amounts of gas handling ranging from 20 mcf/d to 5,000 mcf/d.
The incinerators also vary in automation and instrumentation
depending on the client’s requirements. The Company’s incinerators
are currently used in multiple segments of the Oil and Gas industry
including drilling, completions, production, midstream, downstream,
and transportation and distribution.
The Company has three primary incinerator
related revenue streams: sales, rentals and services. Incinerator
services include hauling, commissioning, repairs, maintenance and
decommissioning. The Company’s current key incineration markets are
Colorado, North Dakota, Mexico, Pennsylvania, Texas,
Alberta and North East BC.
The Company services its key markets with field
offices in Brighton and Fort Lupton, Colorado; Watford City, North
Dakota and Grande Prairie, Alberta. The infrastructure at the field
offices consist of field technicians, maintenance technicians,
technical sales and administration. The facilities generally
include, office space, maintenance shop and a yard to store
incinerators. Personnel based out of the Company’s head office in
Calgary, Alberta include Officers of the Corporation, management,
engineering, technical sales, accounting and administration.
NEW DEVELOPMENTS
In April 2020, Questor became the first
ETV-certified clean combustion company in the world. ISO 14034 is
an internationally recognized certificate that verifies the
performance of innovative environmental technologies. The project
was supported by Standard Council of Canada and the certification
issued by 350Solutions. The organization is the only company
accredited by national accreditation board of ANSI, in the United
States.
The evaluation process of ETV certification,
verifies company’s performance claims according to the procedures
outlined in ISO14034. This certification confirms that Questor’s
performance claims of 99.99% combustion efficiency and H2S
destruction efficiency. Historical data and rigorous statistical
analysis were used to verify the validity of the performance
claims. All data were collected on client sites during operation or
during the unit performance test runs for regulatory
compliance.
QUESTOR TRADES ON THE TSX VENTURE EXCHANGE UNDER THE
SYMBOL ‘QST’.
Audrey Mascarenhas |
Dan Zivkusic |
President and Chief Executive Officer |
Chief Financial Officer |
Phone: (403) 571-1530 |
Phone: (403) 539-4371 |
Facsimile: (403) 571-1539 |
Facsimile: (403) 571-1539 |
Email: amascarenhas@questortech.com |
Email: dzivkusic@questortech.com |
Certain information in this news release
constitutes forward-looking statements. When used in this news
release, the words "may", "would", "could", "will", "intend",
"plan", "anticipate", "believe", "seek", "propose", "estimate",
"expect", and similar expressions, as they relate to the Company,
are intended to identify forward-looking statements. In particular,
this news release contains forward-looking statements with respect
to, among other things, business objectives, expected growth,
results of operations, performance, business projects and
opportunities and financial results. These statements involve 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. Such statements
reflect the Company’s current views with respect to future events
based on certain material factors and assumptions and are subject
to certain risks and uncertainties, including without limitation,
changes in market, competition, governmental or regulatory
developments, general economic conditions and other factors set out
in the Company’s public disclosure documents. Many factors could
cause the Company’s actual results, performance or achievements to
vary from those described in this news release, including without
limitation those listed above. These factors should not be
construed as exhaustive. Should one or more of these risks or
uncertainties materialize, or should assumptions underlying
forward-looking statements prove incorrect, actual results may vary
materially from those described in this news release and such
forward-looking statements included in, or incorporated by
reference in this news release, should not be unduly relied upon.
Such statements speak only as of the date of this news release. The
Company does not intend, and does not assume any obligation, to
update these forward-looking statements. The forward-looking
statements contained in this news release are expressly qualified
by this cautionary statement.
Neither TSX Venture Exchange nor its Regulation
Services Provider (as that term is defined in the policies of the
TSX Venture Exchange) accepts responsibility for the adequacy or
accuracy of this release.
This document is not intended for dissemination
or distribution in the United States.
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