ProSep Inc.
TSX : PRP

ProSep Inc.

May 14, 2013 17:00 ET

ProSep Reports 2012 Annual and 2013 First Quarter Financial Results

MONTREAL, QUEBEC--(Marketwired - May 14, 2013) - ProSep Inc. (TSX:PRP) ("ProSep" or the "Company"), dedicated to providing process solutions to the oil and gas industry, today announced its financial results for the twelve-month period ended December 31, 2012 and three-month period ended March 31, 2013. All amounts are reported in Canadian dollars unless otherwise stated.

Highlights and Subsequent Events

Financial Results for the First Quarter Ended March 31, 2013

  • Revenues for the first quarter of 2013 were $8.8 million, up 7% from $8.3 million recognized in the equivalent quarter of last year.
  • Gross margin for the quarter stood at $3.1 million, or 35% of revenues, compared to $2.6 million, or 32% of revenues for the equivalent period of 2012. Gross margin improved on higher contribution from proprietary technologies.
  • EBITDA* improved to negative $0.6 million compared with a negative EBITDA of $2.2 million in the equivalent period of 2012, on account of higher gross margin and cost control.
  • Loss for the first quarter of 2013 amounted to $1.4 million ($0.07 per share), equivalent to the corresponding period of 2012. Loss on foreign exchange offset improvements in gross margin during the quarter.
  • At quarter end, ProSep's backlog stood at $13.7 million compared to $18.6 million at the start of the year. Including recent contract awards, ProSep's backlog stood at $18.4 million at April 30, 2013.

Financial Results for the Year Ended December 31, 2012

  • Revenues for 2012 were $41.6 million, up 23% from $33.7 million recognized in 2011.
  • Gross margin for the year stood at $7.5 million, or 18% of revenues, compared to $8.1 million, or 24% of revenues achieved in 2011, mostly due to cost overruns on certain projects.
  • EBITDA* was negative $7.4 million compared to negative $7.9 million in 2011.

Excluding goodwill and intangible impairment charges of $13.1 million, loss for the year was $8.5 million, an improvement over 2011 loss of $11.4 million which excludes impairment charges of $3.7 million during that period.

Financial Events of the First Quarter 2013

  • Sold investments held in the notes related to the Canadian third party asset-backed commercial paper for total proceeds of $4.7 million and fully reimbursed the related credit facility (see note 7 of the Unaudited Interim Condensed Consolidated Financial Statements).
  • Sold 51% investment in South Korean joint venture ProSep Kolon Ltd. for gross proceeds of approximately $5 million.
  • Reimbursed a debenture and accrued interest related to ProSep Kolon Ltd. for a total amount of $1.1 million.
  • Implemented a cost optimization program to provide annual savings of approximately 15% of operating expenses.
  • The Company and the Board of Directors engaged KPMG Corporate Finance as financial advisors to assist in reviewing the Company's business, financial performance and investigate strategic alternatives.
  • Received waiver for breach of covenants under borrowing facilities with DnB Bank.

Financial Event of the Year Ended December 31, 2012

  • Completed a twenty-for-one consolidation of ProSep's Common Shares.

Commercial Events of the First Quarter 2013

  • During the first quarter, concluded $2.2 million in new contracts and almost $7 million subsequent to quarter end. Most contracts signed since the start of the year are for produced water treatment for onshore and offshore installations.
  • Concluded a memorandum of understanding with UOP LLC, a Honeywell company ("UOP"), that aims to make ProSep a preferred UOP supplier for the design and fabrication of their CO2 membrane-based packaged plants.

Commercial Events of Year 2012

  • Announced $55 million in new contracts, of which $36.6 million were awarded to ProSep and $18 million to the Company's Korean joint venture. This compares to $49.4 million contracts awarded in 2011.
  • Received record orders for a total of approximately $10 million for proprietary technologies and significantly increased the number of firm proposals outstanding for this higher margin offering.
  • Signed a large contract valued at $13 million for the Company's new line of seawater treatment and water injection systems, for installation on an offshore platform in the Gulf of Mexico.
  • Concluded several field trials with customers operating in Latin America and the Middle East, demonstrating the economic and environmental benefits of ProSep's proprietary mixing technologies.
  • Significantly increased the size and quality of pipeline of opportunities.

Operational Events of the First Quarter of 2013

  • Nominated Parag Jhonsa as President and General Manager of ProSep (USA). Mr. Jhonsa has been with ProSep since 2005 and most recently held the position of Executive Vice President, Operations.
  • Continued to maintain exceptional Health, Safety and Environment ("HS&E") track record and zero Total Recordable Incident Rate ("TRIR") for two years.

Operational Events of Year 2012

  • Received approved vendor status at Saudi Aramco, a significant achievement that strengthens commercial relationships with the world's largest oil and gas producer.
  • Hired Benoît Crowe CPA, CA, as Vice-President Finance. Mr. Crowe was previously corporate controller at Richelieu Hardware.
  • Nominated Yee Phak Chuin as General Manager of the Asia Pacific Operations, replacing Matthew Rummer who became ProSep Kolon's CEO. Mr. Chuin has been with ProSep since 2009 as Projects Manager.
  • Advanced product development activities for three new offerings and the integration of proprietary technologies in ProSep's conventional offering.
  • Obtained Achilles registration, a leading industry network of buyers and suppliers focused on risk management and facilitating the procurement process.

* EBITDA is a non-IFRS measure, see above section for details.

First Quarter 2013 Selected Financial Highlights (in $ millions except for loss per share)

Quarters ended March 31
2013 2012
Revenue $8.8 $8.3
Gross margin* $3.1 $2.6
Gross margin as a percentage of revenues 35 % 32 %
EBITDA** ($0.6 ) ($2.2 )
Loss for the period ($1.4 ) ($1.4 )
Basic and diluted loss per share ($0.07 ) ($0.07 )
Weighted average number of shares (basic and diluted) 21,019,258 20,915,719
As at: March 31, 2013 December 31, 2012
Net Invested Working Capital*** ($2.2 ) ($0.9 )
Total Assets $22.6 $29.8
Borrowings $4.7 $9.3
Equity ($2.3 ) ($1.4 )

Year Ended December 31, 2012 Selected Financial Highlights (in $ millions except for loss per share)

Quarters ended
December 31
Twelve-months ended December 31
2012 2011 2012 2011
Revenue $9.1 $7.3 $41.6 $33.7
Gross margin* $0.2 $1.5 $7.5 $8.1
Gross margin as a percentage of revenues 2.4 % 21 % 18 % 24 %
EBITDA** ($3.4 ) ($1.5 ) ($7.4 ) ($7.9 )
Loss for the period ($16.9 ) ($7.2 ) ($21.6 ) ($15.1 )
Basic and diluted loss per share ($0.81 ) ($0.42 ) ($1.03 ) ($0.07 )
Weighted average number of shares (basic and diluted) 20,989,721 17,025,759 20,966,502 11,486,079
As at: December 31, 2012 December 31, 2011
Net Invested Working Capital*** ($0.9 ) $2.8
Total Assets $29.8 $41.4
Borrowings $9.3 $9.1
Equity ($1.4 ) $20.4
* Gross margin is a non-IFRS financial measure and the Company defines it as margin excluding amortization expense.
** EBITDA is a non-IFRS financial measure and the Company defines it as earnings or loss from operations excluding amortization, financial charges and income taxes.
*** Net Invested Working Capital is a non-IFRS financial measure and the Company defines it as follows: (Restricted cash + Trade and other receivables + Inventories + Prepaid expenses) - (Trade and other liabilities + Deferred revenue).

"In 2012, we achieved over 20% revenue growth and increased the proportion of proprietary technologies to 30% of our year-end backlog, compared to a historical average of 5%. This has improved our 2013 first quarter gross margins and led to a neutral EBITDA excluding non-recurring items. Additionally, recent cost reductions and divestiture of our Korean joint venture are providing additional cash flows required for working capital purposes," said Jacques L. Drouin, President & CEO.

First Quarter Ended March 31, 2013 Financial Results

In the first quarter of 2013, ProSep reported consolidated revenues of $8.8 million, an increase of 7% over $8.3 million reported in the same period of 2012. Strong revenue growth at the US Operations offset declining revenues at the Asia Pacific Operations, in the context of a more competitive local market.

Gross Margin

Overall consolidated gross margin for the first quarter ended March 31, 2013 stood at $3.1 million (or 35% or revenues) compared to $2.6 million (or 32% of revenues) for the equivalent period of 2012. Gross margins improved on higher volume of business at the US operations and improved contribution from proprietary technologies for a Latin American customer. Gross margin at the Asia Pacific operations remain below target.

EBITDA and Loss

EBITDA for the first quarter ended March 31, 2013 was negative $0.6 million, an improvement over the negative EBITDA of $2.2 million reported in the first quarter of last year. Slightly higher revenues and the implementation of a cost reduction plan improved financial performance.

For the three-month period ended March 31, 2013 the Company reported a loss of $1.4 million ($0.07 per share) equivalent to last year's corresponding period. The implementation of a cost reduction plan significantly improved operating losses in the first quarter of 2013.

Basic and diluted loss per share was determined using the weighted average number of 21,019,258 Common Shares outstanding during the first three-month period of 2013. At March 31, 2013, 21,106,716 Common Shares were issued and outstanding compared to 20,978,721 Common Shares at the corresponding date of 2012.

At March 31, 2013, the Company had $3.6 million in cash compared to $2.8 million in cash at December 31, 2012.

Financial Results for the Year and Fourth Quarter Ended December 31, 2012

During the twelve-month period of 2012, ProSep reported consolidated revenues of $41.6 million, an increase of 23% over $33.7 million reported during the equivalent twelve-month period of 2011. Strong revenue growth at the Asia Pacific Operations (up more than 100%) is responsible for all of this year's revenue increase, while revenues dropped slightly at all other business units.

During the fourth quarter of 2012, ProSep reported consolidated revenues of $9.1 million, up 23% year-over-year. A shift in revenue growth occurred in the fourth quarter of 2012, where an increase of 66% occurred at the US Operations, offsetting declining revenues from the Asia Pacific and Europe & Middle East business units.

Gross Margin

Overall consolidated gross margin for the year ended December 31, 2012 stood at $7.5 million (or 18% or revenues) compared to $8.1 million (or 24% of revenues) for year 2011. In 2012 gross margins were mostly affected by execution issues at the Asia Pacific Operations on two large projects that experienced cost overruns and delays. With efforts dedicated to improving execution at all business centers and increased focus on proprietary technologies (which generate more interesting gross margin levels), management expects this situation to improve.

Fourth quarter consolidated gross margin, as a percentage of revenues, is down to 2.4% compared to 21% in the corresponding quarter of last year. Low margin at the US and Asia Pacific Operations explain most of this variance.

EBITDA and Loss

EBITDA for the year ended December 31, 2012 was negative $7.4 million, an improvement over the negative EBITDA of $7.9 million reported last year. Despite lower gross consolidated margins, higher revenues from the Asia Pacific Operations and close control of expenses throughout the Company contributed to alleviate losses in EBITDA. The Company's objective is to continue controlling its cost structure and accelerate the commercialization of its proprietary technologies to improve overall profitability.

At December 31, 2012, the Company recorded a $12.9 million write-down of goodwill, further to the performance of impairment tests, on goodwill valued at $13.2 million at December 31, 2011. After this write-down and currency fluctuations, there was no goodwill remaining on the Company's financial statements at December 31, 2012. Other intangible assets stood at $3.5 million at December 31, 2012, compared to $4.2 million in December 2011. At December 31, 2012, the Company recorded a $0.2 million write-down on other intangible assets further to the performance of impairment tests.

Excluding goodwill and intangible assets impairment charges of $13.1 million, loss for the year was $8.5 million, an improvement over 2011 loss of $12.5 million which excludes impairment charges of $3.7 million during that period.

Basic and diluted loss per share was determined using the weighted average number of 20,966,502 Common Shares outstanding during the twelve month period of 2012. At December 31, 2012, 20,989,721 Common Shares were issued and outstanding compared to 20,905,221 at the corresponding date of 2011. At December 31, 2012, ProSep held cash of $2.8 million compared with $4.1 million at December 31, 2011.

Covenant Waiver

At March 31, 2013 as well as at December 31, 2012, one of the Company's wholly-owned subsidiaries was in breach of a covenant of its credit facility agreement. A covenant waiver wherein the lender confirmed that the breached covenant is not deemed to constitute an event of default was obtained by the Company's subsidiary as at December 31, 2012, as well as for the most recent breach, at March 31, 2013. The Company also obtained an extension to August 1, 2013 of the obligation for its subsidiary to start a clean down (whereby the facility is to be undrawn for a pre-determined period of time).

Conference Call and Webcast Details

ProSep will host a conference call and webcast on Thursday May 16, 2013 at 8:00 a.m. (EST) to review the financial results and highlights of the first quarter of 2013 and year ended December 31, 2012. To access the conference call by telephone, dial 1-416-981-9000 or 1-800-735-5968. A live audio webcast of the conference call will also be available through ProSep's website under "Calendar of Events" in the "News and Investor Center" and on www.marketwire.com. For audio replay, dial 1-416-626-4100 or 1-800-558-5253 with the reservation code # 21657889.

Regulatory Filings

ProSep filed its Interim Condensed Consolidated Financial Statements for the three-month period ended March 31, 2013 and 2012 and Annual Audited Consolidated Financial Statements for the years ended December 31, 2012 and 2011 and related Management Discussion and Analysis and Annual Information Form with securities regulatory authorities. The material will be available through SEDAR at www.sedar.com and on the Company's website at www.prosep.com.

About ProSep

ProSep is a technology-focused process solutions provider to the upstream oil and gas industry. ProSep designs, develops, manufactures and commercializes technologies to separate oil, water and gas generated by oil and gas production. For more information, please visit www.prosep.com.

Caution concerning forward-looking statements

This press release may contain forward-looking statements within the meaning of Canadian securities laws. Forward-looking statements can generally be identified by the use of the conditional tense, the words "may", "should", "would", "believe", "plan", "expect", "intend", "anticipate", "estimate", "foresee", "objective" or "continue" or the negative of these terms or variations of them or words and expressions of similar nature. In particular, forward-looking statements regarding ProSep's plans for its business development strategy, anticipated customer orders, sales and revenues, financial and operational projections and anticipated results, anticipated results of field testing with potential customers and expected benefits of ProSep's proprietary technologies; and anticipated impact on ProSep of the factors discussed under the heading "Selected Risks" in the latest management discussion and analysis document ("MD&A"). These forward-looking statements are based on, among other things, management's assumptions, expectations, estimates, objectives, plans and intentions as of the date hereof pertaining to, but not limited to demand for ProSep's solutions, projected revenues and expenses, the economic and industry environments in which the Company operates or which could affect its activities, the Company's ability to attract new customers, projected operating costs and cost of raw materials and energy supply, expected timing and amount of capital expenditures program of ProSep's potential customers, target market acceptance of ProSep's solutions, current and future solutions performance, evolving market conditions for oil & gas producers; and success of commercialization approach and strategic partnership initiatives. Although ProSep believes that the expectations and assumptions on which the forward-looking statements are based are reasonable, undue reliance should not be placed on the forward-looking statements because ProSep can give no assurance that they will prove to be correct. Because forward-looking statements address future events and conditions, by their very nature they involve numerous inherent risks and uncertainties that contribute to the possibility that the forward-looking statements may prove to be incorrect. ProSep cannot assure investors that any of these forward-looking statements will prove to be accurate. Further, if any of these statements are inaccurate, the inaccuracy may be material.

Actual performance and results could differ materially from those currently anticipated in the forward-looking statements due to a number of factors and risks. Some of the factors that could cause such differences include, but are not limited to uncertainty as to market acceptance of new solutions and possible technological change, competition, economic environment and especially conditions in the oil & gas industry, legislative or regulatory developments, ProSep's ability to penetrate core markets, expand into new markets and manage future growth, the need for additional financing and uncertainties as to access to sufficient capital financing a timely basis and on acceptable terms, uncertainty as to achievement of profitability and ability to meet cash requirements, availability and retention of management and key personnel, the long sales and implementation cycles for ProSep's solutions, reliance on major customers, manufacturing, project execution, product defect and product liability risks, dependence on third party suppliers, exchange rate and currency fluctuations, protection of ProSep's intellectual property rights; and risks related to ProSep's foreign operations and compliance with anti-corruption and anti-bribery laws. Assumptions, expectations and estimates made in the preparation of forward-looking statements and risks that could cause actual results to differ materially from current expectations are further discussed under "Selected Risks" in the latest MD&A. In light of the significant risks and uncertainties in these forward-looking statements, investors should not place undue reliance on or regard these statements as a representation or warranty by the Company or any other person that the Company will achieve its objectives, strategies and plans in any specified time frame, if at all. The forward-looking statements contained or incorporated by reference in this management discussion and analysis relate only to events as of the date on which the statements are made. Except as required under applicable securities legislation, the Company does not undertake to update or revise these forward-looking statements, whether as a result of new information, future events or otherwise.

Contact Information

  • ProSep Inc.
    Investor Relations and Media:
    Danielle Ste-Marie
    VP Marketing & Corporate Development
    (514) 522-5550 ext. 238
    dste-marie@prosep.com