Phoenix Oilfield Hauling Inc.
TSX VENTURE : PHN

Phoenix Oilfield Hauling Inc.

August 24, 2007 13:49 ET

Phoenix Oilfield Hauling Inc. Announces Financial Results for the Second Quarter Ended June 30, 2007

NISKU, ALBERTA--(Marketwire - Aug. 24, 2007) -

THIS PRESS RELEASE IS NOT TO BE DISTRIBUTED TO U.S. NEWSWIRE SERVICES OR FOR DISSEMINATION IN THE UNITED STATES. ANY FAILURE TO COMPLY WITH THIS RESTRICTION MAY CONSTITUTE A VIOLATION OF U.S. SECURITIES LAW.

Phoenix Oilfield Hauling Inc. (TSX VENTURE:PHN) is pleased to announce its financial and operating results for the second quarter of 2007.

"Reader Advisory

This news release contains certain forward-looking statements, which include assumptions with respect to (i) future operations; (ii) future economic conditions; (iii) future capital expenditures; and (iv) cash flow. The reader is cautioned that assumptions used in the preparation of such information may prove to be incorrect. All such forward looking statements involve substantial known and unknown risks and uncertainties, certain of which are beyond the Company's control. Such risks and uncertainties include, without limitation, risks associated with oil and gas exploration, development, exploitation, production, loss of markets, volatility of commodity prices, currency fluctuations, environmental risks, competition from other companies, ability to access sufficient capital from internal and external sources, the impact of general economic conditions in Canada, the United States and overseas, industry conditions, changes in laws and regulations (including the adoption of new environmental laws and regulations) and changes in how they are interpreted and enforced, increased competition, the lack of availability of qualified personnel or management, fluctuations in foreign exchange or interest rates, stock market volatility and market valuations of companies with respect to announced transactions and the final valuations thereof, and obtaining required approvals of regulatory authorities. The Company's actual results, performance or achievements could differ materially from those expressed in, or implied by, these forward-looking statements and, accordingly, no assurances can be given that any of the events anticipated by the forward-looking statements will transpire or occur, or if any of them do so, what benefits, including the amount of proceeds, that the Corporation will derive therefrom. Readers are cautioned that the foregoing list of factors is not exhaustive. All subsequent forward-looking statements, whether written or oral, attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by these cautionary statements. Furthermore, the forward-looking statements contained in this news release are made as at the date of this news release and the Corporation does not undertake any obligation to update publicly or to revise any of the included forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required by applicable securities laws."



Financial Summary

The following table summarizes selected financial data for:
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(In thousands of dollars, Three months ended Six months ended
except per share data) June 30, June 30,
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2007 2006 2007 2006
Revenue $ 3,859 $ 4,605 $ 13,700 $ 11,472
Operating expenses 2,543 2,757 7,804 6,513
Operating expenses, % of revenue 66% 60% 57% 57%
Selling, general and administrative
expenses 948 643 2,039 1,219
Due diligence costs respecting
abandoned acquisition 330 - 330 -
(Gain) on disposal of assets - (77) (12) (118)
EBITDA (1) 38 1,282 3,539 3,858
EBITDA % 1% 28% 26% 34%
Net income (loss) (603) 659 1,435 2,155
Earnings per share - basic (0.01) 0.02 0.03 0.10
Earnings per share - diluted (0.01) 0.02 0.03 0.10
Funds flow from operations $ 4,019 $ 1,425 $ 6,916 $ 1,669
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June 30, December 31,
2007 2006
(In thousands of dollars) (unaudited)
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Total assets $ 55,759 $ 56,066
Long-term financial liabilities 2,232 1,861
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(1) EBITDA is not a recognized measure under GAAP and consequently does not
have a standard prescribed meaning. EBITDA is equal to Net Income
adjusted to exclude amortization expense, depreciation expense, interest
expense, and income taxes. EBITDA includes stock based compensation
expense. EBITDA is commonly used by investors and financial analysts in
the oilfield services industry as a supplementary non-GAAP financial
measure in order to evaluate a company's operating performance.
Phoenix's method of calculating EBITDA may differ from other companies,
and accordingly, it may not be comparable to a similarly described
measure used by another company.


EBITDA (1) is calculated by the Company as follows:

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Three months ended Six months ended
(In thousands of dollars) June 30, June 30,
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2007 2006 2007 2006
Net income (loss) $ (603) $ 659 $ 1,435 $ 2,155
Add (Deduct):
Depreciation 641 276 1,288 518
Interest on long-term debt 195 66 398 136
Other interest (income) 6 (61) 33 (45)
Amortization of intangible assets 287 27 673 27
Income taxes (488) 315 (288) 1,067
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EBITDA (1) $ 38 $ 1,282 $ 3,539 $ 3,858
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Seasonality of Business

The Company's earnings follow the seasonal activity pattern of western Canada's oil and gas industry. The oil and gas industry in western Canada is typically more active during the winter months as the movement of heavy equipment over frozen ground is generally easier. During the spring the effect of road bans that limit load weights and wet weather ("spring break-up") can adversely impact the Company's ability to generate revenue. Rain through the spring, summer and fall also reduces activity levels because of the weather's effect on ground conditions and consequently its load bearing capacity.

Results of Operations

The Company operates in one dominant industry segment, which involves the transportation of products, materials, and equipment required for the exploration, development and production of petroleum resources. All of the Company's assets are located in Western Canada.



----------------------------------------------------------------------------
Three months ended Six months ended
(In thousands of dollars) June 30, June 30,
----------------------------------------------------------------------------
2007 2006 2007 2006
Revenue $ 3,859 $ 4,605 $ 13,700 $ 11,472
Operating expenses 2,543 2,757 7,804 6,513
Operating expenses, % of revenue 66% 60% 57% 57%
Selling, general and administrative
expenses 948 643 2,039 1,219
Due diligence costs respecting
abandoned acquisition 330 - 330 -
Gain on disposal of assets - (77) (12) (118)
EBITDA (1) 38 1,282 3,539 3,858
EBITDA % 1% 28% 26% 34%
Depreciation 641 276 1,288 518
Interest on long-term debt 195 66 398 136
Other interest (income) 6 (61) 33 (45)
Amortization of intangible assets 287 27 673 27
Income taxes (488) 315 (288) 1,067
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Net income (loss) $ (603) $ 659 $ 1,435 $ 2,155
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Results of Operations for the Three Months Ended June 30, 2007

Revenue

Revenue for the three months ended June 30, 2007 was $3.9 million, versus $4.6 million for the three months ended June 30, 2006. Industry conditions were extremely active in the four sequential quarters from Q3 2005 through Q2 2006 (See - "Outlook") and consequently utilization of the Company's equipment was high during these periods. Reduced drilling activity in subsequent periods has reduced sales volumes and utilization resulting in a year over year revenue decline.

Operating Expenses

Operating expenses were $2.5 million or 66% of revenue for the three months ended June 30, 2007. Comparable operating expenses were $2.8 million for the three month period ended June 30, 2006 or 60% of revenue. The Company's operating cost ratio was higher for the three month period ended June 30, 2007 versus the comparable period in 2006 principally due to lower utilization of its equipment. Operating expenses, which are not all variable costs, are typically highest as a percentage of revenue in the second and third quarters when utilization of the fleet is at its lowest (see - "Seasonality of Business"). Lower fleet utilization contributed to a higher cost ratio when compared to the prior year.

The Company's principle expenses are variable costs paid to owner operators, wages paid to drivers and the cost of insuring, maintaining and operating its fleet.

Selling, General and Administrative Expenses

Selling, general and administrative expenses ("SG&A") were $0.9 million or 25% of revenue for the three months ended June 30, 2007. Comparative SG&A expenses were $0.6 million or 14.0% of revenue for the three month period ended June 30, 2006. The increase in SG&A expense as a percentage of revenue versus the comparative period in 2006 relates to lower utilization during softer industry conditions in the second quarter of 2007 (see - "Outlook") where largely fixed SG&A increased in proportion to sales volumes.

Depreciation

Depreciation expense was $0.6 million for the three months ended June 30, 2007 versus comparative expense of $0.3 million for the three month period ended June 30, 2006. Increased depreciation expense reflects the purchase of equipment and the purchase of equipment in connection with business acquisitions that occurred in 2006.

Interest on Long-term Debt

Interest on long-term debt was $0.2 million for the three months ended June 30, 2007 versus comparative expense of $0.1 million for the three month period ended June 30, 2006. Interest expense reflects interest charges on debt used to fund that portion of equipment purchases and business acquisitions not funded through cash flow from operations. The Company has demand loans, long-term debt and obligations under capital lease, including current portion, of $11.1 million as at June 30, 2007.

Income taxes

Income taxes were a recovery of ($0.5) million for the three months ended June 30, 2007 or 45% of pre-tax income versus $0.3 million or 32% of pre-tax income for the three months ended June 30, 2006. The income tax provision in 2007 reflects a reduction in tax expense of approximately $0.1 million realized from the drawdown of the deferred credit which is being amortized into income on a basis that is pro rata to the expensing of a related future income tax asset.

Net earnings

Net loss for the three months ended June 30, 2007 were $0.6 million versus net earnings of $0.6 million or 14.3% of revenue for the three months ended June 30, 2006.

Results of Operations for the Six Months Ended June 30, 2007

Revenue

Revenue for the six months ended June 30, 2007 was $13.7 million, versus $11.5 for the six months ended June 30, 2007. The acquisition of Robin's and Ability contributed to substantially all of the increase in revenue. Industry conditions were extremely active in the four sequential quarters from Q3 2005 through Q2 2006 (See - "Outlook") and consequently utilization of the Company's equipment was higher during these periods. Lower utilization and sales volumes were offset by revenue from acquisitions in the first six months of 2007.

Operating Expenses

Operating expenses were $7.8 million or 57% of revenue for the six months ended June 30, 2007. Comparable operating expenses were $6.5 million for the six month period ended June 30, 2007 or 57% of revenue. The Company's operating cost ratio was similar for the six month period ended June 30, 2007 versus the comparable period in 2006. Operating expenses, which are not all variable costs, are typically highest as a percentage of revenue in the second and third quarters when utilization of the fleet is at its lowest (see - "Seasonality of Business").

The Company's principle expenses are variable costs paid to owner operators, wages paid to drivers and the cost of insuring, maintaining and operating its fleet.

Selling, General and Administrative Expenses

Selling, general and administrative expenses ("SG&A") were $2.0 million or 15% of revenue for the six months ended June 30, 2007. Comparative SG&A expenses were $1.2 million or 10.6% of revenue for the six month period ended June 30, 2006. The increase in SG&A expense as a percentage of revenue versus the comparative period in 2007 relates to (i) lower utilization during softer industry conditions in the first six months of 2007 (see - "Outlook") where largely fixed SG&A increased in proportion to sales volumes and (ii) costs related to being a Public Company that were not applicable for part of the comparative period in 2006.

Depreciation

Depreciation expense was $1.3 million for the six months ended June 30, 2007 versus comparative expense of $0.5 million for the six month period ended June 30, 2007. Increased depreciation expense reflects the purchase of equipment and the purchase of equipment in connection with business acquisitions that occurred in 2006.

Interest on Long-term Debt

Interest on long-term debt was $0.4 million for the six months ended June 30, 2007 versus comparative expense of $0.1 million for the six month period ended June 30, 2006. Interest expense reflects interest charges on debt used to fund that portion of equipment purchases and business acquisitions not funded through cash flow from operations. The Company has demand loans, long-term debt and obligations under capital lease, including current portion, of $11.1 million as at June 30, 2007.

Income taxes

Income taxes were a recovery of ($0.3) million for the six months ended June 30, 2007 versus $1.1 million or 33.1% of pre-tax income for the six months ended June 30, 2007. The income tax provision in 2007 reflects a reduction in tax expense of approximately $0.7 million realized from the drawdown of the deferred credit which is being amortized into income on a basis that is pro rata to the expensing of a related future income tax asset.

Net earnings

Net earnings for the six months ended June 30, 2007 were $1.4 million or 10% of revenue versus $2.2 million or 18.7% of revenue for the six months ended June 30, 2006.

Summary of Quarterly Results

The Company's financial information for the past eight quarters is presented below:



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(In thousands of dollars, 2007 2006
except per share data) Q2 Q1 Q4 Q3
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Revenue $ 3,859 9,841 7,572 6,018
Operating expenses 2,543 5,261 4,310 3,550
Operating expenses, % of revenue 65.8% 53.5% 56.9% 59.0%
Selling, general and administrative
expenses 948 1,091 1,415 970
Due diligence costs respecting
abandoned acquisition 330 - - -
Loss (gain) on disposal of assets - (12) 53 -
EBITDA (1) 38 3,501 1,794 1,498
EBITDA % 1% 35.6% 23.7% 24.9%
Net income (loss) (603) 2,038 723 542
Weighted average shares - basic 53,641 53,641 52,228 48,641
Weighted average shares - diluted 53,641 53,641 52,228 48,830
Earnings (loss) per share - basic (0.01) 0.04 0.01 0.01
Earnings (loss) per share - diluted (0.01) 0.04 0.01 0.01
Funds flow from operations $ 4,019 2,896 (538) 93
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(In thousands of dollars, 2006 2005
except per share data) Q2 Q1 Q4 Q3
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Revenue $ 4,605 6,868 5,334 4,082
Operating expenses 2,757 3,757 3,034 1,972
Operating expenses, % of revenue 59.9% 54.7% 56.9% 48.3%
Selling, general and administrative
expenses 643 576 576 2,049
Due diligence costs respecting
abandoned acquisition - - - -
Loss (gain) on disposal of assets (77) (41) (46) -
EBITDA (1) 1,282 2,576 1,770 61
EBITDA % 27.8% 37.5% 33.2% 1.5%
Net income (loss) 659 1,495 976 (452)
Weighted average shares - basic 30,605 13,912 13,912 13,912
Weighted average shares - diluted 30,674 13,912 13,912 13,912
Earnings (loss) per share - basic 0.02 0.11 0.07 (0.03)
Earnings (loss) per share - diluted 0.02 0.11 0.07 (0.03)
Funds flow from operations $ 1,425 243 547 738
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The results of operations reflect, in general, the normal seasonal and cyclical nature of the oilfield services business (see - "Seasonality of Business").

Liquidity & Capital Resources

Historically the oilfield services business has been cyclical and management of the Company has maintained an appropriate balance sheet to mitigate the risk of this volatility and to meet its obligations as they become due. As at June 30, 2007 the Company had no bank indebtedness in respect of amounts drawn on its operating credit line, cash balances of $4.2 million, and a working capital deficiency of $4.2 million, including demand loans with a Canadian chartered bank of $7.5 million. Long-term debt and obligations under capital lease were $3.7 million, including the current portion of $1.5 million. Working capital, adjusted to include only scheduled annual principal repayments on demand loans, is an adjusted working capital surplus of $3.3 million. The Company does not expect demand loans to be called in 2007, which are subject to an annual review by the lender.

The Company increased the maximum amount available under its authorized line of credit from $1.5 million to $9.0 million during the period. The interest rate on advances was reduced from prime plus 1.5% to prime plus 0.75%. There was no change to the security for the advances or the borrowing base for the facility which continues to be calculated as a percentage of qualifying accounts receivable. At June 30, 2007 the Company had no amounts drawn against its authorized line of credit.

Phoenix generated cash flow from operations of $4.0 million for the three months ended June 30, 2007 and $6.9 million for the six months ended June 30, 2007 versus $1.4 million for the three months ended June 30, 2006 and $1.7 million for the six months ended June 30, 2006.

The Company has a longstanding relationship with its principal lender, a Canadian chartered bank, and has traditionally negotiated and obtained facilities, including those arranged for business acquisitions, which are by their terms demand loans. These facilities, in the absence of demand, have scheduled principal reductions, typically over a five year term. Classification of such loans under Canadian generally accepted accounting principles is to include the full amount of the liability as a current liability. In time the Company may seek to arrange its facilities where, in the absence of default, material adverse change or other specific events, the terms of the loan do not allow for demand and hence under Canadian generally accepted accounting principles only the principal due in the next year would be included as a current liability with the balance classified as non-current. The Company is not currently seeking such amendment to its facilities, nor is it assured of obtaining such amendment if requested. As noted above the Company does not expect demand loans to be called in 2007.

Investing Activities

During the three months ended June 30, 2007 the Company acquired $1.2 million of equipment and leasehold improvements, which principally relate to the acquisition of new trucks and trailers. No equipment was acquired under capital lease during the period except for the equipment acquired through the sale and leaseback (see - "Financing Activities"). For the three months ended June 30, 2006, the company acquired $0.5 million of equipment and leasehold improvements, which principally relate to the acquisition of new trucks and trailers.

During the six months ended June 30, 2007 the Company acquired $1.7 million of equipment and leasehold improvements, which principally relate to the acquisition of new trucks and trailers. No equipment was acquired under capital lease during the period except for the equipment acquired through the sale and leaseback (see - "Financing Activities"). For the six months ended June 30, 2006, the company acquired $1.1 million of equipment and leasehold improvements, which principally relate to the acquisition of new trucks and trailers.

The Company has a capital expenditure program to acquire approximately $3.8 million in new equipment in fiscal 2007 principally during the second half of the year. The Company expects to fund the fiscal 2007 additions through a combination of cash flow from operations and through debt facilities that it intends to specifically arrange for that purpose. In the opinion of management the Company has sufficient resources to fund its business plan.

Financing Activities

In the normal course of operations the Company acquires equipment, rigs the equipment for the type of service required, and then sells the equipment to, and immediately leases the equipment back from, its principal lender. During the three months ended June 30, 2007 $0.5 million of trucks were sold and immediately leased back by the Company, some of which were acquired in 2006. During the six months ended June 30, 2007 $1.3 million of trucks were sold and immediately leased back by the Company, some of which were acquired in 2006. All sale and leaseback transactions were with the Company's principal lender.

As at June 30, 2007 the Company had 53,640,774 common shares outstanding. The Company had 1,575,000 warrants to purchase common shares of the Company outstanding at June 30, 2007 and 1,715,000 stock options. No common shares were issued subsequent to June 30, 2007.

Outlook

The Company earns revenue by providing specialized contract transportation of products, materials, supplies and equipment required for the exploration, development and production of petroleum resources. Demand for the Company's transportation services is therefore linked to the economic conditions of the energy industry and the general level of exploration, development and production of petroleum resources in Western Canada. Activity in the Western Canadian Sedimentary Basin ("WCSB") has in recent history been supported by record levels of oil and gas drilling. The last two quarters of 2005 and the first two quarters of 2006 were particularly active and demand for the Company's services was high. Lower natural gas prices and higher than normal natural gas inventory in storage since the second quarter of 2006 however have affected the number of gas wells drilled in the WCSB and are likely, in the view of management, to impact drilling and activity levels in fiscal 2007. The second quarter, where spring breakup particularly affects drilling activity and demand for the Company's services, was substantially weaker than the comparative quarter in 2006. The Canadian Association of Oilwell Drilling Contractors ("CAODC") forecasts, in its most recent forecast dated May 24, 2007, 16,339 well completions in 2007, a reduction of approximately 26% versus 2006, with the principal reductions relating to reduced activity in natural gas drilling. While the Company maintains good relationships with its customers and has a balanced exposure to gas related drilling activity, versus service work that is not as highly correlated to new drilling, the Company is likely to be affected by reduced capital spending and drilling activity.

The Company's financial statements are available on SEDAR.

The securities offered have not been registered under the U.S. Securities Act of 1933, as amended, and may not be offered or sold in the United States absent registration or an applicable exemption from the registration requirements. This press release shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of the securities in any State in which such offer, solicitation or sale would be unlawful.

The TSX Venture Exchange has not reviewed and does not accept responsibility for the adequacy and accuracy of the contents of this news release.

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