Phoenix Technology Income Fund
TSX : PHX.UN

Phoenix Technology Income Fund

May 05, 2009 17:44 ET

Phoenix Reports Financial and Operational Results for the Three-Month Period Ended March 31, 2009

CALGARY, ALBERTA--(Marketwire - May 5, 2009) - Phoenix Technology Income Fund (TSX:PHX.UN) is pleased to report on its financial and operating results for the three-month period ended March 31, 2009. As expected, customer demand for the Fund's services in North America declined due to low commodity prices caused by the state of the global economy. Revenue for the three-month period ended March 31, 2009 decreased by 15 percent to $35.5 million from $42.0 million in the 2008 period. Consolidated operating days for the three-month period ended March 31, 2009 decreased by 23 percent to 3,299 days as compared to 4,275 days in the 2008 period.

Distributable cash for the three-month period ended March 31, 2009 decreased by 8 percent to $9.2 million in 2009 from $10.0 million in 2008, and cash distributions paid to unitholders increased 42 percent to $6.2 million for the 2009 quarter from $4.4 million in 2008. This resulted in a cash payout ratio for the 2009 period of 67 percent as compared to 44 percent in the 2008 period.



(Stated in thousands of dollars except per unit amounts, cash payout ratios
and units outstanding)

Three-month period ended March 31,
2009 2008 % Change
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Operating Results (unaudited) (unaudited)
Revenue 35,534 42,011 (15)
Net earnings 5,475 7,311 (25)
Earnings per unit - diluted 0.23 0.32 (28)
EBITDA (1) 9,033 10,615 (15)
EBITDA per unit - diluted (1) 0.37 0.47 (21)
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Cash Flow
Cash flows from operating n.m.
activities (547) 5,863
Distributable cash (1) 9,215 10,015 (8)
Distributable cash per unit -
diluted (1) 0.38 0.44 (14)
Cash distributions made 6,209 4,376 42
Cash distributions per unit (2) 0.255 0.195 31
Cash payout ratio(1) 67% 44%
Capital expenditures 5,423 5,402 -
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Financial Position March 31, 2009 Dec. 31, 2008
Working capital 25,974 26,600 (2)
Long-term debt (3) 5,000 5,000 -
Unitholders' equity 90,546 90,198 -
Fund units outstanding 24,355,324 24,337,524 -
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(1) Refer to non-GAAP measures section.
(2) Cash distributions on a per unit basis paid in the period.
(3) Includes current portion of long-term debt.
n.m. - not meaningful


Non-GAAP Measures

The Fund uses certain performance measures throughout this document that are not recognizable under Canadian generally accepted accounting principles ("GAAP"). These performance measures include earnings before interest, taxes, and depreciation ("EBITDA"), EBITDA per unit, distributable cash, distributable cash per unit, and cash payout ratio. Management believes that these measures provide supplemental financial information that is useful in the evaluation of the Fund's operations. 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 Phoenix's performance. Phoenix's method of calculating these measures may differ from other organizations, and accordingly, these may not be comparable. Please refer to the Non-GAAP measures section.

Cautionary Statement Regarding Forward-Looking Information and Statements

Certain statements and information contained in this document and other continuous disclosure documents of the Fund referenced herein, including statements related to the Fund's capital expenditures, projected growth, view and outlook toward future oil and natural gas commodity prices and activity levels, cash distributions, customer pricing, future market opportunities and statements and information that contain the words such as "could", "should", "can", "anticipate", "expect", "believe", "will", "may" and similar expressions relating to matters that are not historical facts constitute "forward-looking information" within the meaning of applicable Canadian securities legislation. These statements and information 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 and information. The Fund believes the expectations reflected in such forward-looking statements and information are reasonable, but no assurance can be given that these expectations will prove to be correct. Such forward-looking statements and information included in this document should not be unduly relied upon. These forward looking statements and information speak only as of the date of this document.

In particular, forward-looking information and statements include:

- estimates that $10.2 million of total capital expenditures will be incurred in 2009;

- there are no planned additions in job capacity in the 2009 year other than one MWD system that were carried forward from 2008;

- planned asset growth and cash distributions will be financed by existing debt facilities, cash flow and working capital;

- it is expected that there will be sufficient cash flow from operations and working capital to maintain current distributions; however, if current economic uncertainty and volatile financial markets persist for a sustained period of time the distribution levels may be reviewed and reduced;

- lower oil and natural gas commodity prices in 2009 are expected to continue to adversely impact customer cash flows and their drilling activity, and as a result their demand for Phoenix's drilling services will continue to be weak;

- lower commodity prices will continue to put pressures on customer pricing levels; and

- the Peruvian market is expected to present the Fund with future growth opportunities.

The above are stated within this document.

In addition to other factors and assumptions which may be identified in this document and other continuous disclosure documents of the Fund referenced herein, assumptions have been made in respect of such forward-looking statements and information regarding, among other things: anticipated financial performance, business prospects, impact of competition, strategies, the general stability of the economic and political environment in which the Fund operates, exchange and interest rates, tax laws, the sufficiency of budgeted capital expenditures in carrying out planned activities, the availability and cost of labour and services and the ability to obtain financing on acceptable terms, which are subject to change based on commodity prices, market conditions, and future oil and natural gas prices, and potential timing delays. Although management considers these assumptions to be reasonable based on information currently available to it, they may prove to be incorrect.

Readers are cautioned that the foregoing lists of factors are not exhaustive. Additional information on these and other factors that could affect the Fund's operations and financial results are included in reports on file with the Canadian Securities Regulatory Authorities and may be accessed through the SEDAR website (www.sedar.com) or at the Fund's website. The forward-looking statements and information contained in this document are expressly qualified by this cautionary statement. The Fund does not undertake any obligation to publicly update or revise any forward-looking statements or information, whether as a result of new information, future events or otherwise, except as may be required by applicable securities laws.

Results of Operations

Customer demand for Canadian and US drilling services in the industry weakened in the first quarter of 2009 due to a depressed global economy and low oil and natural gas commodity prices. Phoenix's customers' drilling budgets were cut back and, in some cases, drilling projects were cut out completely. This created lower equipment utilization for the Fund and, due to excess industry capacity, Phoenix experienced downward competitive pressures on its customer day rates throughout the 2009 period. Although the total industry drilling activity in Canada and the US declined, horizontal and directional drilling activity continues to represent an increasing level of overall activity. In the first quarter of 2009, horizontal and directional drilling activity represented an average of 50 percent and 57 percent of the total drilling activity in Canada and the US, respectively. (Source: Daily Oil Bulletin and Baker Hughes.) This compares to the 2008 fourth quarter averages of 45 percent in Canada and 52 percent in the US.

Consolidated revenue decreased by 15 percent for the three-month period ended March 31, 2009 to $35.5 million as compared to $42.0 million in 2008. For the same 2009 period, consolidated operating days were 3,299, a decrease of 23 percent from 4,275 days generated in 2008. Although it was originally anticipated that the Fund's operations within Albania would grow in 2009, there was no drilling activity in the period due to customer budget cutbacks. It is expected that drilling activity will resume late in the second quarter.

The US operations still maintained a healthy percentage of consolidated revenue at 54 percent for the three-month period ended March 31, 2009 versus 40 percent in the corresponding 2008 period.

Distributions to unitholders for the three-month period ended March 31, 2009 were $6.2 million, or $0.255 per unit, as compared to $4.4 million, or $0.195 per unit, in the 2008 period. The resulting cash payout ratio in the three-month period ended March 31, 2009 was 67 percent compared to 44 percent in the 2008 period.

As a direct result of lower activity levels and earnings, distributable cash for the three-month period ended March 31, 2009 decreased by eight percent over the 2008 period to $9.2 million from $10.0 million.

For the period ended March 31, 2009, EBITDA decreased by 15 percent to $9.0 million from $10.6 million in 2008. Net income for the three-month period ended March 31, 2009 decreased to $5.5 million, $0.23 per unit diluted, or by 25 percent from $7.3 million, $0.32 per unit diluted in 2008.

In the first quarter, Phoenix increased its job capacity to 113 concurrent jobs through the addition of one positive pulse measurement while drilling ("MWD") system and four current loop telemetry electromagnetic ("CLT-EM") MWD systems. At the end of the first quarter 59 MWD systems were located in Canada and 54 MWD systems in the US. One CLT-EM MWD system was expected to be put into service during the first quarter of 2009, but this has been delayed to the second quarter. It is expected that the Fund will not add any further systems to its fleet in 2009. As a result, Phoenix expects to exit the 2009-year with a MWD fleet of 60 CLT-EM MWD systems and 54 positive pulse MWD systems, for a total concurrent job capacity of 114.

The Fund is pleased to announce that it has deployed equipment and personnel into South America and has recently commenced full service operations in Peru through its 80 percent owned subsidiary Phoenix Cantech S.A.C. ("Phoenix Cantech"). The minority interest of the subsidiary is held by a Peruvian corporation. Phoenix Cantech is being managed by very experienced sales and operational staff that have in depth knowledge and expertise in this market. Currently, there are many international oil and natural gas operating companies that have an interest in developing Peru's vast oil and natural gas resources. Currently, Phoenix Cantech has a job capacity of 4 to 5 full service MWD jobs, complete with performance drilling motors, non-magnetic drill collars and ancillary equipment. The company is in the final stages of establishing a full service drilling motor and MWD repair facility in the NW region of Peru. Phoenix will commit additional resources to the Peruvian market as demand dictates, as well as use this as an operational base to explore other market opportunities in South America. It is expected that Peru will add important geographical diversification to the Fund, generating growth in revenue and profitability in 2009 and beyond.

Revenue

The Fund reports its operations through two geographical areas, namely, the Canadian provinces of Alberta, Saskatchewan, British Columbia, Manitoba, Ontario and Nova Scotia, and the Gulf Coast, Northeast and Rocky Mountain regions of the United States.

Canadian Revenue

For the three-month period ended March 31, 2009, the Fund's Canadian revenue decreased by 35 percent to $16.4 million as compared to $25.3 million in 2008. Operating days decreased from 2,460 in 2008 to 1,594 in 2009, a 35 percent decline. The Fund realized lower activity levels in most of its key operating areas including the oil regions in the Bakken and the shallow gas regions in Alberta. Horizontal oil well drilling represented 38 percent of Phoenix's overall Canadian drilling activity, down from 44 percent in 2008. As an industry comparison, during the first quarter of 2009 the number of industry horizontal and directional drilling days in Canada decreased by 23 percent to 19,393 days from 25,098 days in the 2008 period. (Source: Daily Oil Bulletin)

Although Phoenix realized a decline in day rates in the 2009 period as compared to 2008, the impact of this was minimal due to a larger proportion of four-man horizontal operating days that generate higher revenues versus two-man directional operating days. Since the end of the first quarter, Phoenix has continued to experience day rate declines of an average of seven percent from the average 2008 first quarter levels.

In 2009, the Fund looks to expand its Remote Access Directional Drilling ("RADD") division into deeper gas wells in various regions to create further cost savings for its customers. Historically, the RADD division has been focused on the fast drilling shallow gas areas.

United States Revenue

Nevis Energy Services Inc. ("Nevis"), the Fund's wholly-owned subsidiary, realized a decrease in its operating days for the three-month period ended March 31, 2009 to 1,705 days, a six percent decrease from 1,815 days in the 2008 period. Nevis operates predominantly in the natural gas drilling markets across the US through its operation centers in Houston, Texas, Traverse City, Michigan and Casper, Wyoming. The US horizontal and directional drilling market has grown continuously over the past few years; however, in the first quarter of 2009 the US industry, as measured by the average number of horizontal and directional rigs running on a daily basis, decreased by seven percent to 760 rigs from 821 rigs in the 2008 period. (Source: Baker Hughes) In fact, when compared to the average number of total rigs running in the fourth quarter of 2008 the decline is even more pronounced at 24 percent.

Revenue for the three-month period ended March 31, 2009 increased by 15 percent to $19.2 million from $16.7 million in the 2008 period. Despite a decline in operating days and day rates, Nevis' revenue showed positive growth due primarily to more favorable exchange rates prevalent in the 2009 period which arose from a stronger US dollar. In addition, fewer "rental only" jobs were performed in the 2009 period.

As in Canada, Nevis continues to see customer budget cutbacks and project cutting, as well as downward pressures on day rates.

Operating Costs and Expenses

Direct costs are comprised of field and shop expenses and include current period research and development ("R&D") expenditures. Direct costs for the three-month period ended March 31, 2009 decreased by 15 percent to $22.9 million from $26.9 million in 2008. Included in direct costs was a favorable adjustment of $3.6 million that related to revised cost accrual estimates relating to the 2008-year. If the impact of this is excluded from the 2009 results, gross profit as a percentage of revenue decreased in the 2009 period to 25 percent as compared to 36 percent in 2008.

The key areas that adversely affected the Fund's margins in the 2009 period were:

- declining day rates due to competitive market pressures. Although the overall Canadian revenue impact of this was offset by a greater quantity of four-man horizontal work; the added labour cost required to perform this work reduced margin percentages;

- increased labour costs. As a direct result of tight labour markets and record activity levels obtained by the Fund in 2008, Canadian and US field labour rates increased. In order to meet the increasing level of demand, the number of field and shop personnel in Canada and the US increased by 36 percent from March 2008 to February 2009; and

- due to an increase in the number of R&D initiatives and projects undertaken by Phoenix, R&D expenses increased by 133 percent to $0.7 million in 2009 from $0.3 million in 2008.

SG&A costs for the three-month period ended March 31, 2009 increased by seven percent to $4.8 million, or 13 percent of consolidated revenue, as compared to $4.5 million, or 11 percent of revenue, in the 2008 period. The increases in SG&A costs in the 2009 period are associated with higher staff related and facility costs. In addition, expenses were incurred in the 2009 period that relate to the start-up activities in Peru.

Due to the low level of activity experienced in the first quarter and the outlook for the remainder of 2009, the Fund undertook several cost cutting initiatives both during the 2009 period and subsequent to the end of the quarter, which included;

- Company-wide salary and incentive plan cuts of 10 percent, effective April 1, 2008;

- cuts in field day rates of 12 to 15 percent, effective mid-February; and

- staff layoffs of approximately 18 percent of the Fund's work force in late February and early March. A further six percent of the remaining staff was laid off in April 2009.

In aggregate, these initiatives did not have significant financial impact on the Fund's first quarter results; however, Phoenix expects that the savings in direct and SG&A cost levels will be more evident in upcoming quarters. Phoenix will continue to monitor customer prices and activity levels and the Fund will initiate further cost cutting measures where necessary.

As a result of the record level of capital expenditures made in the 2008 financial year, depreciation and amortization for the three-month period ended March 31, 2009 increased to $2.9 million from $2.0 million in the 2008 period.

Stock-based compensation costs for the 2009 period deceased by 55 percent to $149,000 from $331,000 in 2008. The charges relate to the amortization of the fair values of issued Fund options in past periods.

The Fund reported a foreign exchange gain of $179,000 in the 2009 period as compared to a foreign exchange loss of $109,000 in 2008. Foreign exchange gains or losses result primarily from the translation of US and Canadian denominated trade receivables and payable balances, and from movements in US and Canadian dollar exchange rates. The favorable result in 2009 was due primarily to the strengthening US dollar and resulting gains on translation of the Canadian denominated inter-company loans owed by Nevis to Canadian subsidiaries of the Fund.

For the three-month period ended March 31, 2009, gains on disposition of drilling equipment increased by 168 percent to $1.1 million from $0.4 million in 2008. These gains relate primarily to equipment lost in well bores and are uncontrollable in nature. The balances reported are net of any asset retirements that are made before the end of their useful lives and self-insured downhole equipment losses.

Income Taxes

The Fund reported an income tax provision of $0.6 million for the 2009 period as compared to $1.2 million in 2008. The effective income tax rate for the three-month period ended March 31, 2009 was 10 percent compared to an expected US-Canada consolidated income tax rate of 29.5 percent. The difference in the two rates is primarily due to the deductibility of declared cash distributions that are allowable in calculating taxable income of the Fund. Under the Income Tax Act (Canada), as an investment trust, the Fund is subject to income taxes only on income not distributed to its unitholders. The effective income tax rate in the 2009 quarter decreased due to the lower level of earnings the period.

Investment

Capital expenditures were $5.4 million in both the 2008 and 2009 periods. In conjunction with the start-up of Peruvian operations, Phoenix incurred expenditures of $1.6 million for downhole equipment specific for this area. The majority of the remaining 2009 expenditures related to equipment that was ordered in 2008 but received in 2009. The capital expenditures undertaken in the 2009 period were financed from cash, cash flow from operations, and working capital.

For the three-month period ended March 31, 2009, the Fund realized proceeds from the involuntary disposal of drilling equipment in well bores of $3.3 million compared to $1.2 million in the 2008 period. In the 2009 period there was a higher incident rate of lost equipment in well bores.

Cash Flow, Distributions and Payout Ratio

The Fund reviews its distribution levels on a regular basis and sets its rates taking into consideration its own financial performance, forecasted activity levels and industry outlook. Currently, the Fund sets its cash distributions at levels that still allow the Fund to have sufficient funding for capital expenditures. Activity levels in the industry are seasonal, and as a result cash flow will fluctuate. Despite these fluctuations, Phoenix's policy is to pay a consistent level of distributions throughout the year, whenever possible.

For the three-month period ended March 31, 2009, cash distributions of $6.2 million were financed from the Fund's cash flows from operating activities and a portion of working capital. Under Phoenix's current level of forecasted activity, it is anticipated that sufficient cash flow from operations and working capital will allow the Fund to maintain its current cash distribution rate to unitholders.

Sustained current market uncertainty and financial market volatility may arise that could adversely affect the Fund's cash flow from operations such as reduced capital spending by producer companies and decreasing world oil and natural gas commodity prices. If a sustained downturn in activity occurred as a result of low commodity prices and the persistence of the current economic uncertainty and volatile financial markets, the Fund would review its distribution levels accordingly. However, due to the Fund's low level of debt and strong financial strength, debt facilities could be utilized to fund a certain portion of distributions for a short term period, if required.

Cash Requirements for Capital Expenditures

Historically, the Fund has financed its capital expenditures and acquisitions through cash flows from operating activities, debt and equity. The 2009 capital budget has been set at $10.2 million. The balance of the unspent capital expenditure budget will be financed from cash, cash flow from operations, and by the Fund's unused credit facilities, where required.

Outlook

The first quarter of 2009 was a reflection of the unstable economic environment that, as forecasted, has resulted in depressed commodity prices and drastically reduced industry activity. Phoenix is satisfied with its first quarter results despite the decreases reported, and ultimately views each quarter that reflects the economic recession as a step closer to a recovery and a return to the higher profitability that is characteristic of the Fund.

The impact of this sustained period of global recession on the energy services sector has resulted in a drop in oil and natural gas drilling to the lowest level of our expectations. However, Phoenix believes that the realization of these floor predications will place a strong pressure on future natural gas production levels as current storage levels will deplete at a quicker pace than initially predicted, and thus, it is likely that an increase in gas prices and associated drilling activity may now occur during the 2009-year.

When this takes hold, Phoenix expects that E&P operating companies will focus their drilling efforts and capital expenditures on the emerging shale gas plays discovered throughout North America. For these plays to reach their maximum returns horizontal technologies are required; because of Phoenix's past growth incentives, we currently have operations centers in nearly all these areas, and therefore, are well positioned to be an active participant in this resurgence.

At the end of the 2008 year, Phoenix had focused objectives that defined clearly where our resources and attention would be concentrated to not only survive the turbulent period ahead, but to emerge competitively stronger. This strength will be generated through organic growth and expansion, as this proven model built Phoenix's foundation, and is continuing to develop opportunities as is the case with our recent entry into the Peruvian drilling industry. Phoenix currently has established a subsidiary company with a marketing and administrative office in Lima and a fully equipped operations facility in Talara (NW Peru).

The action plan for increasing our competitive advantage during this volatility included the need to create cost efficiencies and implement cost reductions. Phoenix has taken actions in this regard by lowering salaries and bonus structures throughout the Company, reducing employee numbers in various areas including the field and administrative support, and decreasing field personnel and consultants' rates. Phoenix continues to closely monitor its cost structure and will respond further, if necessary.

It is also key to our strategy that R&D initiatives are intensified, capital requirements are enhanced and new technology targeted toward shale gas plays are announced. Many of our technology projects were underway in the first quarter and Phoenix is confident that some of these projects will be commercialized.

Non-GAAP Measures

1) EBITDA

EBITDA, defined as earnings before interest, taxes, depreciation and amortization, is not a financial measure that is recognized under GAAP. However, management believes that EBITDA provides supplemental information to net earnings that is useful in evaluating the Fund's operations before considering how it was financed or taxed in various countries. Investors should be cautioned; however, that EBITDA should not be construed as an alternative measure to net earnings determined in accordance with GAAP. Phoenix's method of calculating EBITDA may differ from that of other organizations and, accordingly, its EBITDA may not be comparable to that of other companies.



The following is a reconciliation of net earnings to EBITDA:

(Stated in thousands of dollars) Three-month period ended March 31,

2009 2008
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Net earnings 5,475 7,311
Add (deduct):
Depreciation and amortization 2,873 1,989
Provision for income taxes 640 1,243
Interest on long-term debt 48 25
Other interest (income) (3) 47
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EBITDA as reported 9,033 10,615
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Diluted EBITDA per unit is calculated using the treasury stock method whereby deemed proceeds on the exercise of the unit options are used to reacquire fund units at an average unit price. The calculation of EBITDA on a dilutive basis does not include anti-dilutive options.

2) Distributable Cash

Distributable cash is defined as cash flows generated from operating activities before net changes in non-cash working capital, excluding bad debt provisions, and is not a measure recognized under GAAP. However, management believes that distributable cash provides supplemental information to cash flows from operating activities that is useful in evaluating the Fund's operating cash flow before considering changes in working capital balances. Management uses this measure to calculate its cash payout ratio to show what percentage of its distributable cash is paid out to its unitholders. Investors should be cautioned; however, that distributable cash should not be construed as an alternative measure to cash flows from operating activities determined in accordance with GAAP. Phoenix's method of calculating distributable cash may differ from that of other organizations and, accordingly, its distributable cash may not be comparable to that of other companies.

The Fund considers its maintenance capital expenditures to be minimal. Maintenance capital would only be relevant to the Fund's retirement of tubular equipment that is subsequently replaced. Typically, lost-in-hole equipment is replaced, but these losses are funded by the proceeds from insurance or customers. In addition, due to the nature of the industry, the Fund's drilling equipment is frequently re-conditioned to an "as new" state with the associated costs expensed and included in the Fund's direct costs. Consequently, the Fund will not make an adjustment to distributable cash for capital maintenance expenditures. The Fund's assumptions used with respect to maintenance capital are believed to be reasonable at the time of preparation; however, no assurance can be given that these assumptions will prove to be correct and, consequently, the Fund's distributable cash could differ materially in the future.



The following is a reconciliation of net earnings to distributable cash:

(Stated in thousands of dollars) Three-month period ended March 31,

2009 2008
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Net earnings 5,475 7,311
Add (deduct) items not affecting cash:
Depreciation and amortization 2,873 1,989
Future income taxes 2,063 693
Unrealized foreign exchange loss (230) 107
Gain on disposition of drilling equipment (1,115) (416)
Stock-based compensation 149 331
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Distributable cash 9,215 10,015
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Diluted distributable cash per unit is calculated using the treasury stock method whereby deemed proceeds on the exercise of the unit options are used to reacquire fund units at an average unit price. The calculation of distributable cash per unit on a dilutive basis does not include anti-dilutive options.

3) Cash Payout Ratio

The cash payout ratio is defined as cash distributions made by the Fund in the period divided by its distributable cash for the same period. The cash payout ratio is not a measure recognized under GAAP. However, management believes the cash payout ratio provides supplemental information that is useful in evaluating the level of cash distributions in relation to the Fund's distributable cash. Investors should be cautioned, however, that the cash payout ratio should not be construed as an alternative measure to other GAAP measures. Phoenix's method of calculating its cash payout ratio may differ from other organizations, and accordingly, the cash payout ratio may not be comparable to other companies.

Overview of Business

Phoenix is in the business of providing horizontal and directional technology and drilling services in Canada, the United States, Albania and Peru. In addition to this core business, the Fund also rents downhole performance drilling motors, and various other drilling equipment in Canada. Phoenix manufactures its Current Loop Telemetry ("CLT") electromagnetic ("EM") measurement while drilling ("MWD") tool, which was developed by its research and development department, for use in the Fund's internal operations or for lease to other horizontal and directional service providers in the industry. The Fund maintains its corporate head office, research and development, Canadian sales, service and operational centers in Calgary, Alberta. The Fund's US operations, conducted through the Fund's wholly-owned subsidiary, Nevis Energy Services Inc. ("Nevis"), is headquartered in Houston, Texas. Nevis has sales and service facilities in Houston, Texas; Traverse City, Michigan; and Casper, Wyoming. In addition, sales offices are located in Denver, Colorado and Fort Worth, Texas.



Consolidated Balance Sheets
(Unaudited)


31-Mar-09 31-Dec-08
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ASSETS
Current assets:
Cash and cash equivalents $ 1,914,196 $ 12,621,811
Accounts receivable 29,266,228 40,773,509
Inventory 9,154,861 6,680,448
Prepaid expenses 2,604,193 1,088,468
Income tax receivable 2,038,658 322,958
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44,978,136 61,487,194

Drilling and other equipment 66,212,869 63,570,964
Goodwill 8,876,351 8,876,351
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$ 120,067,356 $ 133,934,509
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LIABILITIES AND UNITHOLDERS' EQUITY

Current liabilities:
Bank indebtedness $ 2,051,883 $ -
Accounts payable and accrued liabilities 14,682,441 32,818,149
Distributions payable 2,070,203 2,068,690
Current portion of long-term debt 200,000 -
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19,004,527 34,886,839

Long-term debt 4,800,000 5,000,000
Future income taxes 5,716,873 3,849,398
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29,521,400 43,736,237
Unitholders' equity:
Unitholders' capital 67,414,959 67,236,158
Contributed surplus 3,009,709 2,908,568
Retained earnings 18,165,913 18,901,636
Accumulated other comprehensive income 1,955,375 1,151,910
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20,121,288 20,053,546
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90,545,956 90,198,272

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$ 120,067,356 $ 133,934,509
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Consolidated Statements of Earnings
(Unaudited)


Three-month period ended March 31, 2009 2008
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Revenue $ 35,533,929 $ 42,011,319
Direct costs 22,872,609 26,909,526
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Gross profit 12,661,320 15,101,793
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Expenses:
Selling, general and administrative 4,773,177 4,462,512
Depreciation and amortization 2,873,055 1,989,351
Stock-based compensation 149,379 330,956
Foreign exchange (gain) loss (179,717) 108,687
Interest on long-term debt 48,265 25,052
Other interest (income) (2,681) 47,318
Gain on disposition of drilling equipment (1,115,015) (415,851)
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6,546,463 6,548,025
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Earnings before income taxes 6,114,857 8,553,768
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Provision for (recovery of) income taxes
Current (1,423,259) 550,187
Future 2,063,259 692,813
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640,000 1,243,000
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Net earnings $ 5,474,857 $ 7,310,768
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Earnings per unit - basic $ 0.23 $ 0.33
Earnings per unit - diluted $ 0.23 $ 0.32
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Consolidated Statements of Comprehensive Income
(Unaudited)

Three-month period ended March 31, 2009 2008
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Net earnings $ 5,474,857 $ 7,310,768
Foreign currency adjustment 803,465 631,854
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Comprehensive income $ 6,278,322 $ 7,942,622
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Consolidated Statements of Cash Flows
(Unaudited)


Three-month period ended March 31, 2009 2008
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Cash flows from operating activities:
Net earnings $ 5,474,857 $ 7,310,768
Add (deduct) items not affecting cash:
Depreciation and amortization 2,873,055 1,989,351
Future income taxes 2,063,259 692,813
Unrealized foreign exchange (gain) loss (230,613) 101,924
Gain on disposition of drilling equipment (1,115,015) (415,851)
Stock-based compensation 149,379 330,956
Change in non-cash working capital (9,761,747) (4,147,249)
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(546,825) 5,862,712
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Cash flows from investing activities:
Proceeds on disposition of drilling equipment 3,254,776 1,169,279
Acquisition of drilling and other equipment (5,423,276) (5,401,652)
Change in non-cash working capital (3,965,643) 885,891
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(6,134,143) (3,346,482)
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Cash flows from financing activities:
Issuance of units from unit option plan 130,563 323,655
Distributions to unitholders (6,209,094) (4,376,112)
Proceeds from bank overdraft facility 2,051,883 (246,251)
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(4,026,648) (4,298,708)
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Decrease in cash and cash equivalents (10,707,616) (1,782,478)
Cash and cash equivalents, beginning of period 12,621,811 3,008,797
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Cash and cash equivalents, end of period $ 1,914,195 $ 1,226,319
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Contact Information

  • Phoenix Technology Services Inc.
    John Hooks
    President and CEO
    (403) 543-4466
    (403) 543-6025 (FAX)
    or
    Phoenix Technology Services Inc.
    Cameron Ritchie
    Senior Vice President Finance and CFO
    (403) 543-4466
    (403) 543-6025 (FAX)
    or
    Phoenix Technology Services Inc.
    Suite 630, 435 4th Avenue SW
    Calgary, Alberta T2P 3A8
    Website: www.phoenixcan.com