McCoy Global Inc. Announces First Quarter 2016 Results

EDMONTON, May 12, 2016 /CNW/ - McCoy Global Inc. ("McCoy", "McCoy Global" or "the Corporation") (TSX:MCB; OTCQB:MCCRF) today announced its operational and financial results for the three months ended March 31, 2016.

"The ongoing deterioration of industry fundamentals has reduced customer spending to unprecedented levels, which continues to negatively impact McCoy Global's performance," said Jim Rakievich, President and CEO of McCoy Global. "Our team has been taking proactive steps to manage through the weakening market since late 2014 and has continued to reduce our cost structure each quarter. The duration of this negative business environment remains uncertain and management will continue to adjust McCoy's cost structure in order to endure this prolonged down cycle and preserve the Corporation's strong balance sheet. We remain committed to providing our customers with the service and support they have come to expect and will continue to invest in technical solutions to meet our customers' challenges in the field."

First Quarter Operational Summary

For the first quarter, McCoy Global reported:

• Revenue of $7.2 million, compared to $25.8 million in Q1 2015
• Net loss of $9.4 million, compared to earnings of $2.2 million in Q1 2015. The $9.4 million loss includes a pre-tax impairment charge of $4.3 million ($3.1 million after-tax) related to capitalized research and development expenditures, pre-tax restructuring charges of $0.1 million ($0.1 million after-tax), $1.3 million in other pre-tax losses ($0.9 million after-tax) consisting primarily of foreign exchange losses, and a $0.3 million income tax charge to reduce deferred tax assets for tax loss carryforwards
• Adjusted EBITDA¹ of ($5.6 million), compared to $5.8 million in Q1 2015
• Backlog² of $6.0 million at March 31, 2016, compared to $5.0 million at December 31, 2015
• Book-to-bill ratio³ of 1.21 for the three months ended March 31, 2016 compared to 0.66 for the three months ended December 31, 2015
• A $2.9 million, or 49%, decrease in general and administrative ("G&A") expense compared to Q1 2015, largely due to a 50% reduction in organizational headcount since January 1, 2015 and continued discipline over discretionary spending

Quarterly Financial Summary

Revenue for the three months ended March 31, 2016 was $7.2 million, a decrease of $18.6 million, or 72%, from the first quarter of 2015. Industry fundamentals continued to deteriorate over the quarter, with drilling and completions activity declining to levels not experienced in decades. This led to further pricing pressure and significant reductions in demand for capital equipment. Aftermarket revenue, as a percentage of overall revenue, is typically higher in a down cycle as customers defer capital equipment spend and maintain their existing equipment fleet. The percentage of aftermarket revenues in comparison to overall revenue has increased, however the severity of this down cycle has led to many customers deferring equipment maintenance, cannibalizing idle equipment for any required parts and servicing equipment internally.

Gross profit percentage for the three months ended March 31, 2016 decreased 60 percentage points from the first quarter of 2015. Gross profit was significantly impacted by the 72% decline in revenues realized as a result of the down cycle. Lower activity levels resulted in fewer production hours and significant under-absorption of production facility costs. This was the primary factor contributing to the negative gross profit of 20% in Q1 2016.

G&A expense for the three months ended March 31, 2016 was $3.1 million, a $1.0 million decrease from the fourth quarter of 2015 and a $2.9 million decrease from the first quarter of 2015. The decreases are largely due to a 50% reduction in headcount since January 1, 2015, and continued discipline over discretionary spending. Sales and marketing expenses decreased by $0.5 million, or 33%, compared to the first quarter of 2015 as the Corporation balanced cost reductions with strategic sales and marketing initiatives.

Net loss for the three months ended March 31, 2016 was $9.4 million ($0.34 loss per basic share), compared to earnings of $2.2 million ($0.08 per basic share) in the first quarter of 2015. The loss includes a pre-tax impairment charge of $4.3 million ($3.1 million after-tax) related to capitalized research and development expenditures, pre-tax restructuring charges of $0.1 million ($0.1 million after-tax), $1.3 million in other pre-tax losses ($0.9 million after-tax) consisting primarily of foreign exchange losses and a $0.3 million income tax charge to reduce deferred tax assets for tax loss carryforwards.

Adjusted EBITDA¹ for the three months ended March 31, 2016 was ($5.6 million) compared to $5.8 million for the first quarter of 2015. Adjusted EBITDA was primarily impacted by a 72% reduction in revenue. Although McCoy Global has continued to reduce expenses, the decline in revenue has been greater than the reductions made to the Corporation's cost structure.

At March 31, 2016, McCoy Global had working capital of $67.6 million, including $21.9 million in cash and cash equivalents. At the end of the first quarter, the Corporation was not in compliance with certain financial covenants under its credit facility. The Corporation requested and obtained a covenant waiver letter, specific to a fixed charge coverage ratio covenant, for the quarterly reporting period ending March 31, 2016 from the lender. The Corporation does not have access to draw under the credit facility except for access to the swing line loan and senior letter of credit facilities, up to a maximum amount of $0.5 million. The Corporation is in negotiations with its lenders to revise the covenants under the credit facility.  

Subsequent to quarter-end, the size of the credit facility was reduced from $25 million to $10 million to lower standby expenses.

Selected Quarterly Information

($000 except per share amounts and percentages)		Q1 2016	Q1 2015	% Change
Total revenue		7,159	25,800	(72)
Gross profit		(1,429)	10,378	(114)
	as a percentage of revenue	(20)	40	(60)
Net (loss) earnings		(9,377)	2,229	(521)
	per common share – basic	(0.34)	0.08	(525)
	per common share – diluted	(0.34)	0.08	(525)
Adjusted EBITDA^1		(5,624)	5,834	(196)
	per common share – basic	(0.20)	0.21	(195)
	per common share – diluted	(0.20)	0.21	(195)
Total assets		95,265	136,764	(30)
Total non-current liabilities		428	3,928	(89)
Total liabilities		10,441	29,669	(65)

¹ Adjusted EBITDA is a non-GAAP measure defined as "net (loss) earnings before finance charges, net, income tax expense (recovery), depreciation, amortization, impairment losses, restructuring charges, non-cash changes in fair value related to derivative financial instruments and share-based compensation". The Corporation reports on adjusted EBITDA because it is a key measure used by management to evaluate performance. Adjusted EBITDA is used in making decisions relating to distributions to shareholders and is used in monitoring compliance with debt covenants. The Corporation believes adjusted EBITDA assists investors in assessing McCoy Global's performance on a consistent basis without regard to impairment losses, restructuring charges, non-cash changes in fair value related to derivative financial instruments, depreciation, amortization and share-based compensation expense, which are non-cash in nature and can vary significantly depending on accounting methods or non-operating factors. Adjusted EBITDA is not considered an alternative to net (loss) earnings in measuring McCoy Global's performance. Adjusted EBITDA does not have a standardized meaning and is therefore not likely to be comparable to similar measures used by other issuers. However, McCoy Global calculates adjusted EBITDA consistently from period to period. Adjusted EBITDA should not be used as an exclusive measure of cash flow since it does not account for the impact of working capital changes, capital expenditures, debt changes and other sources and uses of cash, which are disclosed in the consolidated statement of cash flows.

² McCoy Global defines backlog as orders that have a high certainty of being delivered and is measured on the basis of a firm customer commitment, such as the receipt of a purchase order. Customers may default on or cancel such commitments, but many are secured by a deposit and/or require reimbursement by the customer upon default or cancellation. Backlog reflects likely future revenues; however, cancellations or reductions may occur and there can be no assurance that backlog amounts will ultimately be realized as revenue, or that the Corporation will earn a profit on backlog work. Expected delivery dates for orders recorded in backlog historically spanned from one to six months, however under current market conditions customers are shifting their purchasing habits towards a just-in-time model.

³ The book-to-bill ratio is a measure of the amount of net sales orders received to revenues recognized and billed in a set period of time. The ratio is an indicator of customer demand and sales order processing times. The book-to-bill ratio is not a GAAP measure and therefore the definition and calculation of the ratio will vary among other issuers reporting the book-to-bill ratio. McCoy Global calculates the book-to-bill ratio as net sales orders taken in the reporting period divided by the revenues reported for the same reporting period.

Conference Call Information

McCoy Global will host a conference call and webcast at 9:00 a.m. Mountain Time (11:00 a.m. Eastern Time) on May 12, 2016. Management participants will include: Jim Rakievich, President & CEO; Jacob Coonan, CFO; Kenny Watt, Senior Vice President; and Suzanne Langier, Vice President, Human Resources.

Participants calling from Canada or the United States should call toll-free at: 1-888-231-8191. Callers from other locations may call in at: 1-647-427-7450. A live audio webcast of the conference call will be available at the following link: http://event.on24.com/r.htm?e=1177254&s=1&k=CEEF6B40448FE03C41B66177D55C6A7F

The conference call will be archived for replay until Thursday, May 19, 2016 at midnight. To access the archived conference call, dial 1-855-859-2056 or 1-416-849-0833 and enter the replay passcode 96457495.

About McCoy Global

McCoy Global provides innovative products and services to the global energy industry. The Corporation operates internationally through direct sales and distributors with operations in Canada, the United States of America, the United Kingdom, Singapore and the United Arab Emirates. McCoy's corporate headquarters are located in Edmonton, Alberta, Canada.

Forward-Looking Information

This News Release contains forward‑looking statements and forward‑looking information (collectively referred to herein as "forward‑looking statements") within the meaning of applicable Canadian securities laws. All statements other than statements of present or historical fact are forward‑looking statements. Forward‑looking information is often, but not always, identified by the use of words such as "could", "should", "can", "anticipate", "expect", "objective", "ongoing", "believe", "will", "may", "projected", "plan", "sustain", "continues", "strategy", "potential", "projects", "grow", "take advantage", "estimate", "well positioned" or similar words suggesting future outcomes. This News Release contains forward‑looking statements respecting the business opportunities for the Corporation that are based on the views of management of the Corporation and current and anticipated market conditions; and the perceived benefits of the operating strategy of the Corporation are based upon the financial and operating attributes of the Corporation as at the date hereof, as well as the anticipated operating and financial results. Forward‑looking statements regarding the Corporation are based on certain key expectations and assumptions of the Corporation concerning anticipated financial performance, business prospects, strategies, 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 market conditions and potential timing delays. Although management of the Corporation consider these assumptions to be reasonable based on information currently available to them, they may prove to be incorrect. By their very nature, forward‑looking statements involve inherent risks and uncertainties (both general and specific) that forward‑looking statements will not be achieved. Undue reliance should not be placed on forward‑looking statements, as a number of important factors could cause the actual results to differ materially from the beliefs, plans, objectives, expectations, anticipations, estimates and intentions expressed in the forward‑looking statements, including inability to meet current and future obligations; inability to complete or effectively integrate strategic acquisitions; inability to implement the Corporation's business strategy effectively; access to capital markets; fluctuations in oil and gas prices; fluctuations in capital expenditures of the Corporation's target market; competition for, among other things, labour, capital, materials and customers; interest and currency exchange rates; technological developments; global political and economic conditions; global natural disasters or disease; and inability to attract and retain key personnel. Readers are cautioned that the foregoing list is not exhaustive. The reader is further cautioned that the preparation of financial statements in accordance with IFRS requires management to make certain judgments and estimates that affect the reported amounts of assets, liabilities, revenues and expenses. These judgments and estimates may change, having either a negative or positive effect on net earnings as further information becomes available, and as the economic environment changes. The information contained in this News Release identifies additional factors that could affect the operating results and performance of the Corporation. We urge you to carefully consider those factors. The forward‑looking statements contained herein are expressly qualified in their entirety by this cautionary statement. The forward‑looking statements included in this News Release are made as of the date of this News Release and the Corporation does not undertake and is not obligated to publicly update such forward‑looking statements to reflect new information, subsequent events or otherwise unless so required by applicable securities laws.

SOURCE McCoy Global

Mr. Peter Watson, McCoy Global Inc., Vice President, Corporate Development & General Counsel, Phone: [phone], E-mail: [email protected], Website: www.mccoyglobal.com