News Column

Aqua-Pure Venture Inc. Reports Second Quarter and First Half 2014 Financial Results

August 27, 2014



By a News Reporter-Staff News Editor at Engineering Business Journal -- Aqua-Pure Ventures Inc. ("Aqua-Pure" or the "Company") (TSXV:AQE), a premier recycler of oil field and shale gas wastewater, reported financial results for its second quarter ended June 30, 2014. In line with the Company's diversification strategy implemented in 2012, it accomplished several milestones during the first half of 2014, resulting in positive financial results. Key Second Quarter Year-Over-Year Financial Results Summary Q2 2014 revenue increased to $2.7 million, a 114% increase over previous year's second quarter and a 16% increase over Q1 2014.

Record gross margins. Gross profit as a percent of sales improved to 42% from 37% in Q2 2013 and 40% in Q1 2014.

Aqua-Pure recognized its first income contribution from FQS Ventures of approximately $95,000.

Aqua-Pure reported its first income from operations, generating $445,000 in operating income in Q2 2014 versus a loss from operations of $(576,000) in Q2 2013 and a loss from operations of $(177,000) in Q1 2014.

Commenced construction on three additional ROVERS. FQS Ventures contracts a second ROVER to an operator in the Eagle Ford.

Aqua-Pure reported second quarter 2014 revenues of $2.7 million, a 114% increase compared to revenues of $1.3 million for the same period of the previous year and a 16% increase compared to revenues of $2.3 million for the first quarter of 2014. The significant increase in year over year revenues is predominantly due to the Company's second full quarter of operations of the four NOMADS installed in the third and fourth quarters of 2013 at two customer sites in the oil-rich Permian basin. The greatly improved weather conditions from first quarter in Texas contributed to management's ability to recycle greater volumes of water in the Permian. Management anticipates continued increases in processing recycled water at all 4 NOMAD units in the second half of the year. Importantly, the industry trend towards reuse and recycling of water for fracking is on the raise. Both Pioneer and Cimarex have indicated continued interest in additional NOMAD and ROVER units as well as a number of new potential customers within the region. Currently, Aqua-Pure has commenced production of three ROVER units for which the Company has received great interest from new customers, both within and outside of the Company's joint-venture with Select Energy. In fact, the joint venture has already contracted one of the units for three months to an operator in the Eagle Ford. Operations are expected to commence in September.

The Company's net loss from continuing operations improved from ($1.1) million in Q2 2013 to ($196,000) in Q2 2014. However, mostly due to non-cash items, the Company reported a comprehensive loss of $(862,000) or $(0.01) per basic share for the second quarter of 2014, which included a foreign currency exchange loss of $(666,000) and a loss of $(93,000) on the fair value of the company's warrant derivatives. This compares to a comprehensive loss of $(545,000) or $(0.01) per basic share for the same period in 2013, which included a foreign currency exchange gain of $566,000 plus a loss of $(112,000) on the fair value of the Company's warrant derivatives, and a comprehensive income of $553,000 or $0.01 per basic share for the first quarter 2014, which included foreign currency exchange gain of $701,000 and a gain of $588,000 on the fair value of the company's warrant derivatives.

During the second quarter of 2014, Aqua-Pure reported its first profit from operations (before financing and other costs) of $445,000 versus a loss from operations of $(576,000) during the same period of the prior year and a loss from operations of $(177,000) in the first quarter 2014. The improvement in operating margins reflects the impact of the Company's cost reduction initiatives combined with its diversification strategy, which included product diversification with the 2013 introduction of the ROVER to recycle contaminated frack water to clean brine, and the geographic expansion into the oil rich shale regions where market pricing is more advantageous and supplemental revenue from higher margined oil recovery and brine treatment exists. The Company's diversification has materially improved gross margins and provided greater opportunity for revenue growth.

Aqua-Pure's gross profit on revenue totaled $1.1 million in the second quarter of 2014, yielding a record gross margin of 42%. This compares to 37% and 40% gross margins in the prior year's second quarter and first quarter of 2014, respectively. The margin improvements are the result of achieving higher prices in the new oil shale play operations (as compared to the dry gas Barnett shale) combined with the implementation of many cost cutting and productivity improvements that were previously incurred and expensed.

Late in the first quarter, the Fountain Quail/Select joint venture company - FQS Ventures - commenced work on a three month ROVER project with a large Permian operator. Given the 50% ownership split of FQS Ventures, Aqua-Pure has added a line item just below gross profit in its income statement to account for its share of joint venture profit/(loss). For the first quarter, FQS Ventures incurred a loss of $(20,000) (50% attributed to Aqua-Pure) due to start-up transportation and set-up costs for a ROVER unit during which the venture had very little production time. During the second quarter, FQS Ventures generated revenues of $635,000 and net income of $190,000 from the one ROVER unit in operation in the Permian. As a 50% partner in the venture, Aqua-Pure recognized a contribution from FQS Ventures of approximately $95,000. Going forward Aqua-Pure anticipates continued growth from the joint venture as several additional ROVER opportunities have been identified, the first of which has already been contracted for the second ROVER for a three month term to be deployed in the Eagle Ford in September 2014.

Operating expenses during the second quarter of 2014 totaled $774,000, a decrease of approximately $268,000 or 26% over the second quarter of 2013, reflecting a $195,000 positive shift in foreign currency exchange, a $45,000 positive shift in stock based compensation, and a $35,000 reduction in engineering and product development given the completion of the ROVER launch during 2013. Similarly, operating expenses decreased $333,000 when compared to the first quarter 2014 primarily due to a $234,000 positive reversal in foreign currency exchange, approximately $56,000 reduction in stock based compensation, and a $38,000 decrease in engineering and product development expenses as a result of lower engineering support costs. Interest expense for the three months ended June 30, 2014 totaled $311,000 plus accretion of debentures of $237,000 compared to $274,000 in interest expense and $148,000 of accretion of debentures during the second quarter of 2013 and $329,000 in interest expense and $230,000 of accretion of debentures during the first quarter 2014. Overall financing costs (interest, debenture accretion, derivative value, cost of financing) increased year-over-year by approximately $107,000 and quarter-over-quarter increase by $671,000 primarily attributed to the reversal of a significant first quarter derivative value gain of $588,000 that subsequently was recorded as a loss of $(93,000) in the second quarter.

For the six months ended June 30, 2014, Aqua-Pure reported revenues of $5.0 million, a 134% increase compared to the same period in 2013, largely reflecting a full two quarters of four NOMAD units in operation in the oil-rich Permian. The Company reported a comprehensive loss for the six months ended June 30, 2014 totaling $(309,000) or $(0.00) per basic share compared to $(1.6) million or $(0.02) per basic share for the same period in 2013. Aqua-Pure reported income from operations, before financing costs, of $268,000 which included for the first time a contribution from FQS Ventures of $85,000, versus a loss from operations of $(1.4) million during the same period of the prior year.

At June 30, 2014, the Company reported cash and cash equivalents of $992,000, accounts receivable of $613,000 (DSOs less than 30 days) and inventory of $430,000. Total assets during the second quarter increased by $597,000 to $18.8 million from year end 2013 due primarily to an increase in cash of $881,000 through a net draw-down of $1.4 million from the $3 million, 5.12%, five-year secured loan agreement the company entered into with the Agriculture Financial Services Corporation ("AFSC") (a Provincial Government Crown Corporation) for the construction of additional NOMAD and ROVER units and a $108,000 increase in accounts receivable, offset by a $122,000 decrease in prepaid expenses and a $206,000 reduction in the Company's equipment due to the effect of foreign currency exchange.

As of June 30, 2014, the Company's non-convertible debt totaled $7.7 million, an increase of $1.3 million from year end 2013 predominantly due to the AFSC loan discussed earlier. Of the Company's overall debt totaling $19.1 million (face value), $13.4 million is effectively held by two directors of Aqua-Pure in the form of $7.8 million in a convertible debenture and $5.6 million in notes and advances payable. During the first half of 2014, the Company's monthly cash burn (before capital expenditures) averaged approximately $69,000.

Keywords for this news article include: Engineering, Finance and Investment, Aqua-Pure Ventures Inc..

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Source: Engineering Business Journal


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