ProSep Reports 2011 First Quarter Financial Results
ProSep Reports 2011 First Quarter Financial Results
Selected highlights of the quarter and important subsequent events:
“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.
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.
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.
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.
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.
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.
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.
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.
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.