ProSep Reports 2011 First Quarter Financial Results

ProSep Reports 2011 First Quarter Financial Results


MONTREAL, QUEBEC – May 11, 2011 - 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 three month period ended March 31, 2011.  All amounts are reported in Canadian dollars unless otherwise stated. As of January 1, 2011, the Company adopted International Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board.

Selected highlights of the quarter and important subsequent events:
Financial:

• Revenues of $9.9 million, an increase of 5% when compared to $9.4 million for the corresponding period of 2010. This represents the first quarterly year-over-year revenue increase during the last three years.
• Gross margin of $2.2 million (22% of revenues) compared to $2.6 million (27%) for the corresponding period of 2010.
• EBITDA was negative $2.3 million compared to negative $0.7 million for the corresponding period of 2010, reflecting important investments to support organic growth.
• Net loss of $3.0 million compared with a net loss of $1.3 million for the corresponding quarter of 2010. 
• Backlog stands at $19 million, up 150% from year-end and up 70% year-over-year.
• Concluded a $2.5 million revolving credit facility with Fondaction, the Company’s largest shareholder to provide additional working capital.

Operations:

• Announced $23 million in new contracts, already surpassing last years’ total new bookings.
• Concluded the sale of the Company’s largest offshore gas dehydration system to a new customer operating in South East Asia.
• Took advantage of a unique market opportunity and hired a team of seasoned industry experts to complete the business development and engineering teams.
• Started commercialization of the Company’s offering to the South Korean FPSO market with the ProSep Kolon joint venture.
• Successfully concluded Phase IV development and testing of the ProDry^TM with positive results demonstrating robustness and scalability.
• Obtained ISO certification of the Asia Pacific, Korean and European Operations. Ongoing ISO certification of American Operations.
• Appointed Claude Samson, CA, MBA a seasoned executive with some 30 years of experience in finance, as the Company’s Chief Financial Officer and Corporate Secretary.
• Promoted Gustav Wee to manage the European and Middle-Eastern Operation.
• Hired Carl Nilsson as Manager, Process Engineering and Product Development, a multiphase flow expert, to further the development of key proprietary technologies.
• Maintained outstanding TRIR (Total Recordable Incident Rate) at all operations.

“Our backlog has grown 150% since the start of the year. Our first quarter revenues are starting to reflect this significant improvement with strong revenue growth from our US and Asia Pacific operations”, said Jacques L. Drouin, President and CEO. “We have recently seen a number of industry leading engineers and business development professionals join our ranks. Combined with our industry’s momentum, this additional engineering knowledge and customer relationships should significantly accelerate our growth plans,” added Drouin.

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

*EBITDA is a non-IFRS financial measure and the Company defines it as earnings or loss from operations excluding depreciation and amortization, financial charges and income taxes. Gross margin is defined by the Company as excluding depreciation and amortization expenses and as such is also a non-IFRS financial measure. Please refer to section “Non-IFRS Financial Measures” in the MD&A.
 

Financial Results

This Press Release reports consolidated results. For detailed segmented financial results please see the Management Discussion and Analysis and Financial Statements for the quarter ended March 31, 2011.

Revenues

ProSep reported consolidated revenues of $9.9 million during the quarter ended March 31, 2011, an increase of 5% from $9.4 million generated during the same period in 2010. Since ProSep’s sales cycle averages 6 to 18 months, revenue growth achieved in this quarter marks the first sign of the industry’s recovery and strong backlog growth. As such, strong revenue growth was achieved at the Company’s two largest operations, with 44% growth in Asia Pacific and 32% at the US Operations. Because of volatility in proprietary equipment sales, revenues at the European and Middle-Eastern Operation were lower this quarter. To improve this business unit’s contribution to the Company’s overall success, changes are currently being implemented to better align its activities with ProSep’s new strategic plan.

 
The Company’s backlog grew 70% year-over-year, and 150% since the start of the year. To build on this momentum and achieve above industry results, ProSep has set forth a new strategic plan to benefit from renewed industry growth and a unique market opportunity. Consolidation in the process equipment industry has motivated a group of seasoned process engineers and business development professionals to join the Company since the start of the year. These individuals are recognized experts in their fields and bring with them complimentary process knowledge and new customer relationships. This will allow the Company to further improve and expand its offering in all of its product lines (oil, gas and produced water) and strengthen its competitive position.

Gross Margins

Gross margin for the first quarter of 2011 stood at $2.2 million, or 22% of revenues, compared to $2.6 million or 27% achieved during the same period of last year. Overall margins improved at the American and Asia Pacific operations. However, contribution from the Company’s proprietary offering was lower during the first quarter of 2011.

To improve gross margin levels across the organization, ProSep set forth two important initiatives as part of its global integration plan (see “Growing Backlog and New Strategic Direction” in MD&A). By implementing a globally integrated organizational structure and grouping employees around their business functions, the Company can leverage its best resources, develop synergies and improve execution and procurement across all business units. The second initiative is to train key engineers throughout the organization on proprietary solutions which will improve the ability of all business units to promote these new solutions in their respective markets and achieve higher gross margin levels.

EBITDA and Net Loss

First quarter EBITDA was negative $2.3 million in 2011 compared to negative $0.7 million during the same period of last year. As noted above, ProSep set forth an ambitious investment plan to benefit from a unique opportunity in the market and hired some of the industry’s most seasoned engineers and business development professionals. This explains a significant portion of the increase in marketing and administrative expenses and should be expected to be a better indication of the cost structure going forward. This investment program was initiated at the end of the previous year and is expected to continue, at a lesser pace, to the end of the second quarter of 2011.

EBITDA in the first quarter was also affected by certain changes in the European and Middle Eastern Operations which were made so as to better align this business units’ activities with ProSep’s overall growth objectives. Important non-recurring costs, of approximately $0.4 million were incurred to adapt the structure and ensure a smooth transition towards the new model. It is expected that additional and residual non-recurring costs will be incurred through the second quarter as investments are being made to bring in new talent, ensure retention of key employees and support an intensive training program. Going forward, a reduced cost structure will result from the better alignment of this business unit with its new objectives.

Basic loss per share was determined using the weighted-average number of 191,798,008 Common Shares outstanding during the first quarter of 2011. At March 31, 2011, 191,798, 008 Common Shares were issued and outstanding compared to 163,255,910 at March 31, 2010. 
 

Strengthened Business Development and Engineering Teams

Consolidation in the process equipment industry has motivated a group of seasoned process engineers and business development professionals to join the Company since the start of the year. This unique market opportunity has allowed ProSep to double the size of its sales and engineering departments. These additional resources will accelerate the development of new customer relationships and help expand the network of agents into new markets. They bring with them new engineering knowledge that will allow the Company to improve and quickly expand its offering.

Changes at the Norwegain-Based Operation

To manage this business unit and lead the execution of the new strategic direction, Mr. Gustav Wee was appointed as General Manager. He was formerly in charge of business development and sales for this business unit, and has been actively involved in ProSep’s Middle Eastern activities. Gustav possesses over 25 years of industry experience, from Field Engineer to Managing Director for various O&G service and equipment Companies. 

In support of the new strategic direction and to lead the development of ProSep’s proprietary technology, the Company nominated Mr. Carl Nilsson as Manager, Process Engineering & Product Development. Mr. Nilsson holds a Master of Physics from the University of Bergen and is a recognized multiphase flow expert. He has held various research positions, most recently at Polytech R&D Institute and Petrotech in Norway and is a published author and industry speaker.

Covenant Waiver

At March 31, 2011, one of the Company’s wholly-owned subsidiaries was in breach of one of the financial ratios set forth under a banking facility. This situation stems from the Company’s decision to accelerate its pace of growth in view of the opportunities offered in the marketplace, and more specifically to the up-front investments in hiring and related operating expenses that have been approved as part of this strategy. The Company anticipates that its subsidiary will remain in breach on this very same covenant at the June 30, 2011 and the September 30, 2011 quarter end dates. A covenant waiver has been obtained by the Company and its subsidiary for the March 31breach, covering as well the June 30, 2011 anticipatedbreach. A new waiver request will be presented later in the year with respect to the anticipated breach at the September 30, 2011 quarter end date.

Conference Call and Webcast Details

ProSep will host a conference call and webcast on Wednesday, May 11, 2011 at 8:00 a.m. (EST) to review the financial results and highlights of the first quarter ended March 31, 2011. To access the conference call by telephone, dial 1-416-981-9000 or 1-800-771-6692, 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 # 21521480.

Annual and Special Shareholders Meeting

ProSep will hold its annual and special shareholder meeting on Wednesday, May 11, 2011 at 10:00 a.m. (EST) at Best Western Ville-Marie Hotel & Suites, 3407 Peel Street, Montreal, Quebec. The presentation given at the shareholders’ meeting will be made available on ProSep’s website after the event.

Regulatory Filings

ProSep filed its Unaudited Interim Consolidated Financial Statements for the three month period ending March 31, 2011 and related Management Discussion and Analysis with securities regulatory authorities. The material will be available through SEDAR at www.sedar.com and on the Company’s website, 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, including statements regarding the business and anticipated financial performance of ProSep Inc. These statements are based, among others, on the Company’s current assumptions, expectations, estimates, objectives, plans and intentions regarding 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 clients and consumers as well as its operating costs, raw materials and energy supplies which are subject to a number of risks and uncertainties. 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. Actual results could differ materially from the conclusion, forecast or projection stated in such forward-looking information. These statements are subject to a number of risks and uncertainties that may cause actual results to differ materially from those contemplated by the forward-looking statements. Some of the factors that could cause such differences include but are not limited to the Company's ability to develop, manufacture, and successfully commercialize value added equipments and services, the availability of funds and resources to continue its operations and pursue its projects, legislative or regulatory developments, competition, technological change, changes in government and economic policy, inflation and general economic conditions in geographic areas where ProSep Inc. operates. These and other factors should be considered carefully and undue reliance should not be placed on the forward-looking statements.

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