Norex Exploration Services Inc.
TSX : NRX

Norex Exploration Services Inc.

March 12, 2008 21:50 ET

Norex Reports Record Fourth Quarter Results

CALGARY, ALBERTA--(Marketwire - March 12, 2008) - Norex Exploration Services Inc. ("Norex" or the "Company") (TSX:NRX) today announced a 21% increase in consolidated revenue to $34.4 million for the fourth quarter ended December 31, 2007 compared to $28.5 million for the fourth quarter of 2006. EBITDA(1) increased 62% to $5.3 million compared to $3.3 million for the three months ended December 31, 2006. The significant improvement in revenue and EBITDA reflects Norex's successful expansion into the United States and increased field productivity and cost management in western Canada. Fourth quarter revenue from the Company's United States and Eastern Canada ("USEC") division totaled $19.2 million compared to $12.8 million in the fourth quarter of 2006. Revenue from the Company's western Canada division was $15.2 million in the quarter of 2007, compared to $15.7 million for the three months ended December 31, 2006. The Company's USEC division generated 56% of consolidated revenue and 66% of consolidated gross profit in the fourth quarter.

"We completed a challenging year with strong performance in the fourth quarter. These improved financial results reflect the success of our U.S. expansion. In fact, for the first time in Norex's history, over half of our quarterly revenue and gross profit was generated from our U.S. and eastern Canada operations. We also focused on productivity improvements and cost management in the midst of a competitive pricing environment in western Canada. With a geographic presence throughout Canada and the United States and a solid balance sheet, we are well positioned to capitalize on growth opportunities to enhance shareholder value in 2008," commented Mr. Paul Crilly, President and CEO.

Highlights for the three months ended December 31, 2007:

- Revenue increased 21% to $34.4 million compared to $28.5 million in the same period last year. Gross profit(2) increased to $6.7 million, or 19% of revenue, compared to $4.5 million, or 16% of revenue. Gross profit as a percentage of seismic acquisition activities(4) increased to 26.8% compared to 25.3% in the fourth quarter of 2006 (see note 4 below for a description of this calculation). The increase in gross profit, both on a total and percentage of seismic acquisition revenue basis, was attributable to growth in the United States, improved efficiencies at the field level in western Canada, a greater proportion of 3D work versus 2D work and a larger proportion of vibroseis work in the U.S. compared to dynamite-based acquisition.

- The USEC division achieved revenue of $19.2 million compared to $12.8 million for the same period in 2006. Gross profit was $4.6 million, or 37% of seismic acquisition revenue, compared to $3.4 million, or 45% of seismic acquisition revenue, for the three months ended December 31, 2006.

- Western Canadian operations generated $15.2 million of revenue compared to $15.7 million for the three months ended December 31, 2006. Gross profit was $2.1 million, or 18% of seismic acquisition revenue, compared to $1.0 million, or 10% of seismic acquisition revenue, in 2006.

- EBITDA was $5.3 million, or $0.14 per share in the fourth quarter of 2007, compared to $3.3 million, or $0.09 per share in the same period of 2006.

- The Company recorded net earnings of $2.3 million ($0.06 per diluted share) compared to net earnings of $1.3 million ($0.04 per diluted share) in the three months ended December 31, 2006.

- Amidst depressed industry conditions in Western Canada, Norex has maintained a solid balance sheet with $1.7 million of working capital and conservative debt levels with total long term debt at December 31, 2007 representing approximately 76% of 2007 EBITDA.

- On February 19, 2008, Norex announced $35 million of new credit facilities with HSBC. These facilities provide for Canadian and U.S. dollar borrowings, which significantly improve the Company's ability to operate seamlessly in the United States and provides available capacity for future expansion of the business.

Financial Highlights

The Company changed its fiscal year from April 30 to December 31, effective December 31, 2006. For purposes of this news release, comparisons are made to the three month period ended December 31, 2006 and the two month period ended December 31, 2006. These prior year periods have not been audited or reviewed by the Company's external auditors. Information for the three and twelve months ended December 31, 2006 has been provided as supplementary information to assist the reader, as it was not aligned with the Company's standard quarterly reporting period. The omission of October in the two month period ended December 31, 2006 may reduce the comparability of this period to the three month period ended December 31, 2007. Readers are advised to take these limitations into consideration when reviewing the comparative information for the three months ended December 31, 2006 and the two months ended December 31, 2006



Three Months Ended Year Ended
December 31 December 31
($000's, except per share data) 2007 2006 2007 2006
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Revenue 34,395 28,482 109,803 115,377
Gross Profit (2) 6,714 4,462 18,821 23,518
EBITDA (1) 5,250 3,298 13,255 18,980
- Per share $0.14 $0.09 $0.34 $0.55
Net Earnings 2,346 1,286 3,108 9,251
- Per share, basic $0.06 $0.04 $0.08 $0.27
- Per share, diluted $0.06 $0.04 $0.08 $0.26
Working capital 1,732 2,834 1,732 2,834
Total long term borrowings (3) 10,099 13,759 10,099 13,759
Capital expenditures 2,041 1,273 9,062 12,903
Weighted average shares outstanding
(000's) 38,601 35,475 38,597 34,835
Total shares outstanding (000's) 38,601 38,496 38,601 38,496
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Highlights for the year ended December 31, 2007 and other items:

- Consolidated revenue was $109.8 million compared to $115.4 million for the twelve months ended December 31, 2006, representing a decrease of 5%. EBITDA was $13.3 million, or $0.34 per share compared to $19.0 million, or $0.55 per share, for the same period in 2006. The decline in revenue and EBITDA was primarily due to continued weakness in the western Canadian oil and gas industry throughout the year which reduced demand for the Company's services and placed downward pressure on pricing for seismic services.

- Norex made excellent progress on its U.S. expansion initiatives as USEC revenue was up 43% on the year to $39.7 million compared to $27.7 million for the twelve months ended December 31, 2006. Gross profit increased 24% to $8.3 million for the USEC division compared to $6.7 million for the twelve months ended December 31, 2006. A slow start in the first quarter in the USEC division was more than overcome by gains made in the second and third quarters, and a strong finish in the fourth quarter. The fourth quarter was the first quarter in Norex's history in which over half of the Company's consolidated revenue was derived from the USEC operation.

- Western Canadian operations generated $70.1 million of revenue for the twelve months ended December 31, 2007, compared to $87.7 million for the same period in 2006. Gross profit was $10.5 million, or 24% of seismic acquisition revenue, compared to $16.7 million, 32% of seismic acquisition revenue, for the comparable period in 2006. Reduced pricing for seismic services was the most significant factor for the decline in margins due to the significant curtailment in exploration activities in western Canada.

- Net earnings for the twelve months ended December 31, 2007 was $3.1 million, or $0.08 per share, compared to $9.3 million, or $0.27 per share, for the same period last year.

Outlook

Currently, Norex has greater geographical and customer diversity than any time in the past. The Company also has a strong balance sheet with working capital of $1.7 million at December 31, 2007 and long-term debt of $10.1 million which is only 76% of the Company's 2007 EBITDA. The Company believes its operational and financial strengths will enable it to continue to pursue its growth strategy in the United States and position it for the challenging industry landscape in western Canada.

Supported by awarded work as of the date of this news release, Norex expects to field up to ten crews in the first quarter of 2008, of which up to seven crews are expected to operate in western Canada and up to three crews in the United States. Norex anticipates a busy winter in the Alberta oilsands including the completion of a $6.3 million contract with a major oilsands customer in northern Alberta. The award of this contract is evidence of our technical and operational capabilities in the provision of oilsands seismic services.

Management continues to re-direct efforts and resources to expansion initiatives in the U.S. in order to meet the expected demand for our services. We have been successful at establishing a reputation based on our operational performance and efficiency and, as a result, have made solid inroads with the larger exploration and production companies in the U.S. We expect this momentum to continue.

The Company cautions that its field crews can be delayed or impacted by weather conditions and various permits required by its clients to complete their programs.

Norex has created one of the largest seismic acquisition Company's in Canada. The Company's strong competitive position will allow it to weather the inevitable cycles in our industry and potentially take advantage of these cycles to grow its business further.

Notes

(1) "EBITDA" is a financial measure that does not have any standardized meaning prescribed by Canadian generally accepted accounting principles ("GAAP") and may not be comparable to similar measures presented by other companies. EBITDA is a measure of the Company's operating profitability. EBITDA provides an indication of the results generated by the Company's principal business activities prior to how these activities are financed, assets are amortized or how the results are taxed in various jurisdictions. EBITDA is calculated from the Consolidated Statements of Earnings and Retained Earnings and is calculated as net earnings plus or minus interest expense, income taxes, depreciation and amortization, stock based compensation, gains or losses on disposal of equipment and foreign exchange gains or losses.

(2) "Gross profit" is a financial measure that does not have any standardized meaning prescribed by Canadian generally accepted accounting principles ("GAAP") and may not be comparable to similar measures presented by other companies. Gross profit is provided to assist investors in determining Norex's ability to generate earnings from its field operations and is calculated by subtracting direct field expenses and subcontractor expenses from revenue. These measures do not have any standardized meaning prescribed by GAAP and may not be comparable to similar measures presented by other companies.

(3) Includes long term debt and capital lease obligations, including current portions thereof.

(4) A significant portion of the Company's revenue includes the provision of subcontracted services from which the Company generates a nominal profit. Prior to seismic data acquisition, many customers look to Norex to procure and manage third-party services related to the use of shot hole drilling, ground surveying and line-clearing. The Company is reimbursed for these expenses by its clients, plus an administration fee. In accordance with generally accepted accounting principles, these subcontract revenue and costs included at their gross amounts in revenue and expenses. Because subcontracted services as a percentage of total revenue will vary from job to job, they may distort the movement of the actual gross margins for the seismic acquisition recording services performed directly by Norex. In order to assist readers to more clearly understand the changes in gross profits for the services directly provided by Norex, and understand the profitability of the seismic data acquisition services provided by Norex, the following table details gross profit as a percentage of seismic acquisition revenue. (note: the nominal administration fee earned on the "flow-through" of subcontracted services has been included in seismic acquisition revenue):



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Three Months Ended
($000's) December 31, December 31,
2007 2006
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Seismic acquisition revenue (A) 24,880 17,615
Subcontractor revenue 9,515 10,867
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Total revenue (B) 34,395 28,482

Less:
Direct costs 18,166 13,153
Subcontractor costs 9,515 10,867
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Gross Profit (C) 6,714 4,462
Gross Profit as % of seismic acquisition
revenue (C / A) 27.0% 25.3%
Gross Profit as % of total revenue (C / B)
19.5% 15.7%
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CONSOLIDATED BALANCE SHEETS
As at December 31, 2007 and December 31, 2006

(in thousands of dollars)

----------------------------------------------------------------------------
December 31, December 31,
2007 2006
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Assets

Current assets:
Cash $ - $ 1,251
Accounts receivable 29,238 24,365
Prepaid expenses and deposits 455 333
Future income taxes 586 -
Income taxes receivable - 625
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30,279 26,574

Property and equipment 34,075 31,890
Goodwill 7,097 7,097
Intangible assets 2,257 2,721
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$ 73,708 $ 68,282
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Liabilities and Shareholders' Equity

Current liabilities:
Operating lines of credit $ 4,745 $ 1,390
Accounts payable and accrued liabilities 15,916 15,355
Income taxes payable 1,264 351
Current portion of long-term debt 1,523 1,412
Current portion of capital lease obligations 5,099 5,232
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28,547 23,740

Long-term debt - 702
Capital lease obligations 3,477 6,413
Future income taxes 3,338 3,018
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35,362 33,873

Shareholders' equity:
Share capital 23,352 23,246
Contributed surplus 1,289 566
Retained earnings 13,705 10,597
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38,346 34,409

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$ 73,708 $ 68,282
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CONSOLIDATED STATEMENTS OF EARNINGS AND RETAINED EARNINGS

(in thousands of dollars, except per share amounts)

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3 Months 2 Months 12 months 8 Months
Dec 31, Dec 31, Dec 31, Dec 31,
2007 2006 2007 2006
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Revenue $ 34,395 $ 18,081 $109,803 $ 60,872

Expenses:
Direct costs 18,166 9,787 51,073 27,204
Subcontractors 9,515 5,216 39,909 23,859
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Earnings before the undernoted 6,714 3,078 18,821 9,809

General and administrative
expenses 1,462 719 5,564 3,007
Depreciation and amortization 1,788 990 6,670 3,381
Interest expense 231 179 1,017 597
Loss (gain) on disposal of
equipment 36 (32) 137 (854)
Stock-based compensation 263 124 725 432
Foreign exchange loss (gain) (102) (186) 451 (209)
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3,678 1,794 14,564 6,354
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Earnings before income taxes 3,036 1,284 4,257 3,455

Income taxes:
Current 1,254 180 1,415 728
Future (reduction) (564) 209 (266) 364
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690 389 1,149 1,092

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Net earnings 2,346 895 3,108 2,363

Retained earnings, beginning of
period 11,359 9,702 10,597 8,234
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Retained earnings, end of period $ 13,705 $ 10,597 $ 13,705 $ 10,597

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Net earnings per share:
Basic $ 0.06 $ 0.03 $ 0.08 $ 0.07
Diluted $ 0.06 $ 0.02 $ 0.08 $ 0.06
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CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands of dollars)

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3 months 2 Months 12 months 8 Months
Dec 31, Dec 31, Dec 31, Dec 31,
2007 2006 2007 2006
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Cash provided by (used in):

Operations:
Net earnings (loss) $ 2,346 $ 895 $ 3,108 $ 2,363
Items not involving cash:
Depreciation and amortization 1,788 990 6,670 3,381
Loss (gain) on disposal of equipment 36 (32) 137 (854)
Stock-based compensation 263 124 725 432
Unrealized foreign exchange loss
(gain) (158) - 138 -
Future income taxes (recovery) (564) 209 (266) 364
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3,711 2,186 10,512 5,686
Change in non-cash operating
working capital (6,097) (4,585) (3,034) (2,847)
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(2,386) (2,399) 7,478 2,839

Investing:
Acquisition of property and
equipment (1,440) (901) (5,886) (5,178)
Proceeds on disposal of property and
equipment 119 37 259 1,532
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(1,321) (864) (5,627) (3,646)

Financing:
Decrease operating lines of credit
(net) 4,745 1,390 3,355 1,390
Repayment of long-term debt 305 (195) (591) (769)
Repayment of capital lease
obligations (1,941) (747) (5,970) (3,322)
Proceeds on issue of common shares - 2,615 104 2,623
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3,109 (3,063) (3,102) (78)

Decrease in cash (598) (200) (1,251) (885)
Cash, beginning of period 598 1,451 1,251 2,136
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Cash, end of period $ - $ 1,251 $ - $ 1,251
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Supplemental cash flow
information:
Interest paid $ 231 $ 157 $ 1,017 $ 658
Income taxes paid $ 69 $ - $ 69 $ 4,622
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Forward-looking Statements

Certain information set forth in this news release, including management's assessment of the Company's future plans and operations, contains forward-looking statements, which are based on the Company's current internal expectations, estimates, projections, assumptions and beliefs, which may prove to be incorrect. Some of the forward-looking statements may be identified by words such as "expects", "anticipates", "believes", "projects", "intends", "continues", "estimates", "objective", "ongoing", "may", "will", "should", "might", "plans" and similar expressions. These statements are not guarantees of future performance and undue reliance should not be placed on them. Such forward-looking statements necessarily involve known and unknown risks and uncertainties, which may cause the Company's actual performance and financial results in future periods to differ materially from any projections of future performance or results expressed or implied by such forward-looking statements.
The Company provides seismic data acquisition services and is exposed to a number of risks and uncertainties that are common to companies in the same business. These risks and uncertainties include demand for the Company's services which is affected by, among other things, the speculative nature of resource exploration and development activities, changes in commodity prices, general economic, market and business conditions; competition for capital and skilled personnel and shortages thereof; the competitive nature of the seismic industry; the ability to keep pace with constantly changing technology; uncertainty in various factors in the oil and gas industry, including the ability to comply with current and future health, safety, environmental and other laws; the general risk inherent to seismic data acquisition activities; risks relating to expansion including pressure on operational and technical resources; risks relating to the reliance on key officers, employees and consultants, including an unexpected loss or departure of any one of them; cancellation of work previously awarded to the Company; the possibility of a conflict of interest arising for the directors and officers of Norex who are participants in other sectors of the oil and gas industry; risks relating to having shareholders who are able to exert influence over the affairs of Norex; the possibility of the need for future financing, which may not be available on favourable terms; the volatility of the trading market for the shares of Norex; actions by governmental or regulatory authorities including increasing taxes and changes in other regulations; and the occurrence of unexpected events involved in resource exploration including, but not limited to, adverse weather conditions and wind. Adverse weather or field operating conditions can also negatively impact field productivity and, as a result, the Company's overall profitability. Certain jobs awarded to the Company are on a "turnkey" pricing basis where the Company bears the risk of lost productivity, increased input and/or subcontractor costs. As a result, factors reducing field productivity and any in increases in the Company's input costs could have a material affect on the Company's profitability.

The forward-looking information and statements included in this press release are not guarantees of future performance and should not be unduly relied upon. Forward-looking statements are based on current expectations, estimates and projections that involved a number of risks and uncertainties, which could cause actual results to differ materially from those anticipated and described in the forward-looking statements.

The information contained in this press release should not be considered all-inclusive as it excludes changes that may occur in general economic, political and environmental conditions. The Company cautions that actual performance will be affected by a number of factors, many of which are beyond its control. Investors are cautioned against attributing undue certainty to forward-looking statements. The forward-looking information and statements contained in this press release speak only as of the date hereof and, subject to its obligations under applicable law, the Company does not intend, and does not assume any obligation, to update these forward looking statements if conditions or opinions should change.

Norex, and its divisions Conquest Seismic Services and US subsidiary, Conquest Seismic Services, Inc., provide premium 2D, 3D, 4D and 3C land-based seismic data acquisition services in Canada and the United States. Norex is the largest operator of ARAM-ARIES® recording equipment in Canada and provides state-of-the-art technology to the North American oil and gas industry. Norex trades on the TSX under the symbol "NRX"

Contact Information

  • Norex Exploration Services Inc.
    Mr. Paul Crilly
    President and CEO
    (403) 216-5929
    or
    Norex Exploration Services Inc.
    Mr. Rob Morin, CA
    Vice-President Finance and CFO
    (403) 216-5923