Formation Fluid Management Inc.
TSX VENTURE : FFM

Formation Fluid Management Inc.

November 27, 2014 21:11 ET

Formation Fluid Announces Profitable Quarterly Results

CALGARY, ALBERTA--(Marketwired - Nov. 27, 2014) - Formation Fluid Management Inc. (TSX VENTURE:FFM) ("Formation Fluid" or the "Company") announces its consolidated financial results for the three months ended September 30, 2014 and 2013 and is pleased to report profitable operations for the three months ended September 30, 2014.

FIRST QUARTER 2014 KEY TAKEAWAYS

  • Gross margin of 65%;
  • Cash position of over $2.4 million;
  • Working capital of over $2.5 million;
  • Shareholders' equity of over $6.3 million.
FINANCIAL SUMMARY
Three months ended September 30,
2014 2013
Revenues $ 1,154,480 $ 2,545,537
EBITDA (1) $ 478,924 $ 1,435,256
Diluted per share $ 0.01 $ 0.03
EBITDA as % of revenues (1) 41 % 56 %
Funds from operations (1) $ 478,924 $ 1,420,773
Diluted per share $ 0.01 $ 0.03
Net earnings $ 145,931 $ 1,374,375
Basic per share $ 0.00 $ 0.04
Diluted per share $ 0.00 $ 0.03
Property & equipment additions (disposals); net cash $ 683,671 $ (18,150 )
As at September 30,
2014 2013
Weighted average shares outstanding:
Basic 51,126,421 38,904,243
Diluted 61,838,597 38,904,243
Working capital $ 2,567,384 $ 513,159
Total assets $ 7,040,940 $ 5,286,257
Loans excluding current portion $ 470,455 $ NIL
Total shareholders' equity $ 6,381,131 $ 3,955,694
(1) Refer to Non-GAAP discussion below.

Business Outlook

The Company expects to see continued strong growth as a result of the following factors:

  • Fabrication of an additional RO unit is complete pending commissioning, which now provides the company with two sets of equipment. Manufacturing is in progress of additional equipment including an "emergency response" unit;
  • The successful completion of two major remediation projects has demonstrated the efficiency and robustness of the Company's equipment, allowing FFT to offer clients the ability to clean saline spills as well as produced and frac water returns to potable water standards;
  • The industry's continued focus on contaminated water issues such as tailing ponds is providing the company with expanding market opportunities;
  • An aggressive marketing program in Western Canada and the southern United States has resulted in strong and favorable inquiries from several major producers: and
  • The Company's expanded shop facilities now includes testing facilities allowing the company to provide clients with complete engineering solutions for their water needs.

Financial Results

During the quarter ended September 30, 2014, the Company generated $1,154,480 (2013: $2,545,537) in revenue from water filtration services and incurred field expenses of $400,739 (2013: $960,932) resulting in gross margin of $753,741 (2013: $1,584,605) or 65% (2013: 62 %), and net income of $145,931, $0.00 basic and diluted income per share (2013: $1,374,375; $0.04 basic and $0.03 diluted income per share). EBITDA for 2014 was $208,870 (2013: $1,435,256). Field expenses consist of the direct costs associated with providing the water filtration services generating the Company's revenues.

In the quarter ended September 30, 2014 the Company generated cash provided by operations of $706,110 (2013: $1,033,616). The Company used net cash of $683,671 in 2014 for capital expenditures (2013: $(18,150)). The capital expenditures in Q1 of 2015 were incurred to commence construction of additional water processing plants to meet expected customer demand.

The Company's financing activities in the quarter ended September 30, 2014 generated cash of $285,860 from a long term bank loan agreement for the construction of capital equipment. In 2013 the Company repaid short term bank indebtedness of $70,499. Total cash inflows exceeded total cash outflows during the period ended September 30, 2014 by $308,299 (2013: $981,267).

At September 30, 2014, the Company had cash of $2,441,755 and working capital of $2,567,384, (2013: cash of $981,267, working capital of $513,159). Shareholders' equity at September 30, 2014 was $6,381,131 (2013: $3,955,614).

The Company's full financial statements and management discussion and analysis are available online at SEDAR at www.sedar.com.

Non-GAAP Measures

FFM uses certain performance measures throughout this document that are not recognizable under Canadian generally accepted accounting principles ("GAAP"). These performance measures include EBITDA, EBITDA per share, funds from operations and funds from operations per share. Management believes that these measures provide supplemental financial information that is useful in the evaluation of the Corporation's operations and are commonly used by other oil and natural gas service companies.

Investors should be cautioned, however, that these measures should not be construed as alternatives to measures determined in accordance with GAAP as an indicator of FFM's performance. The Corporation's method of calculating these measures may differ from that of other organizations, and accordingly, these may not be comparable. Per share amounts are calculated using the treasury stock method whereby deemed proceeds on the exercise of the share options are used to reacquire common shares at an average share price. The calculations of per share amounts on a dilutive basis do not include anti-dilutive options.

EBITDA

EBITDA, defined as earnings before interest, taxes, stock-based compensation, depreciation and amortization, is not a financial measure that is recognized under GAAP. Investors should be cautioned that EBITDA should not be construed as an alternative measure to net earnings determined in accordance with GAAP.

The following is a reconciliation of net earnings to EBITDA:

Three months ended September 30,
2014 2013
Net earnings (loss) $ 145,931 $ 1,374,375
Add:
Depreciation and amortization 62,896 57,982
Stock-based compensation 270,054 -
Provision for income taxes - -
Interest expense, net 43 2,899
EBITDA as reported $ 478,924 $ 1,435,256

Funds from Operations

Funds from operations is defined as cash flows generated from operating activities before changes in non-cash working capital. Investors should be cautioned that this financial measure should not be construed as an alternative measure to cash flows from operating activities determined in accordance with GAAP.

The following is a reconciliation of cash flows from operating activities to funds from operations:

Three months ended September 30,
2014 2013
Cash flows from operating activities $ 706,110 $ 1,033,616
Add:
Changes in non-cash working capital (227,229 ) 384,258
Provision for income taxes - -
Interest expense, net 43 2,899
Funds from operations $ 478,924 $ 1,420,773

About Formation Fluids

Formation Fluid Technology has developed a waste water treatment plant that uses a proprietary process to clean waste water. The system is mobile and can be scaled to process required volumes. This system treats water to meet or exceed CCME Guidelines (Canadian Environmental Quality Guidelines), resulting in reusable water that can be used for: Boilers, Frac Water, Water Floods, and Drilling Operations. Formation Fluids is seeking to service a significantly underdeveloped segment within the oil and gas industry; its waste water treatment system is intended to cost effectively deal with produced water while satisfying the need to reuse and recycle an increasing valuable resource. For more information, please visit: www.formationfluid.com or contact Investor Relations at 403 887-8874.

On behalf of the Board of Directors.

Ken Rose, Chief Executive Officer

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.

CAUTIONARY STATEMENT ON FORWARD-LOOKING INFORMATION

Certain statements contained in this news release, including references to the Company's receipt of applicable approvals, may constitute forward-looking information under applicable Canadian securities legislation. These statements relate to future events and are prospective in nature. All statements other than statements of historical fact may constitute forward-looking statements or contain forward-looking information. Forward-looking statements are often, but not always, identified by the use of words such as "may", "will", "project", "predict", "potential", "plan", "continue", "estimate", "expect", "targeting", "intend", "could", "might", "seek", "anticipate", "should", "believe" or variations thereof. Forward-looking information may relate to management's future outlook and anticipated events or results and may include statements or information regarding the future plans or prospects of the Company. Forward-looking information is subject to a variety of known and unknown risks, uncertainties and other factors that could cause actual events or results to differ from those reflected in the forward-looking statements. The Company believes that the expectations reflected in the forward-looking statements contained in this news release are reasonable, but no assurance can be given that they will prove to be correct. Actual results and future events may differ materially from those anticipated and accordingly forward-looking statements should not be unduly relied upon. Forward-looking statements contained in this document speak only as of the date of this news release. Except as required by applicable law, the Company disclaims any obligation to update any forward-looking information.

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