Black Diamond Income Fund Reports Results of Operations for the Period Ended December 31, 2006
CALGARY, ALBERTA--(CCNMatthews - Feb. 27, 2007) -
NOT FOR DISTRIBUTION TO US NEWSWIRE SERVICES OR FOR DISSEMINATION IN THE UNITED STATES.
Black Diamond Income Fund ("Black Diamond" or the "Fund") (TSX:BDI.UN) is pleased to announce the results of operations for the period from its initial public offering on September 26, 2006 to December 31, 2006.
Consolidated revenues generated for the period from inception on September 26, 2006 to December 31, 2006 (hereafter referred to as the "Period") were $5.61 million. Revenues are derived from the two operational fleets deployed by the Company as well as from the provision of services. Workforce accommodation revenues were $3.81 million for the Period. Utilization of the workforce accommodation fleet averaged 73% for this period ranging from a low of 65% during October 2006 to a high of 78% during November 2006. The utilization is a reflection of the type of equipment the Fund deploys as well as the longer term nature of the rental contracts the Fund has favored. The accommodation units have some seasonality to their usage with a higher degree of utilization during the winter months. However, the Fund has taken a large degree of the seasonality out of its revenue generation due to the nature of the longer term, paid monthly contracts that the majority of the fleet is contracted under.
Revenues for the space rentals segment for the Period were $1.05 million. Utilization of the space rental fleet for the period ended December 31, 2006 averaged 85%.
The Fund's service division generated $1.29 million of revenue for the Period. 42% of this revenue is generated by providing service to the other divisions of the Fund and is eliminated on consolidation. The remaining 58% of the revenue is generated from third parties representing customers from across the workforce accommodation and space rental sectors.
Direct Costs
Direct costs were $1.91 million for the Period resulting in a gross profit of $3.70 million or a gross profit margin of 66%. Direct costs attributable to the revenues in arriving at the gross profit are the labor, fuel, freight and maintenance required in maintaining, servicing and moving the units to the contracted sites. In addition, there are often opportunities for the Fund to sell some units from its fleet, rent equipment from third parties and re-rent the equipment, provide transportation services or to provide installation and other services to customers. These ancillary revenue streams are generally at lower gross margins than the fleet rental operations. Therefore, depending on the level of activity of these other areas of operations in a period, the gross profit margins may be affected. For the Period, approximately 48% of the revenues were derived from these ancillary revenue streams which have gross profit margins ranging from 11% to 34%.
Selling, general & administrative costs ("SG&A") including stock based compensation charges for the Period were $0.968 million or 17% of revenue. Within this figure, personnel costs were the largest item representing approximately 56% of the SG&A while other significant items included occupancy costs and insurance combining for 13%. Stock-based compensation charges included in the SG&A were $0.013 million. As at December 31, 2006, the Fund employed 14 people in sales and administrative positions. The majority of the roles required to obtain new contracts, manage the fleets and service personnel as well as staff a back office operation on a larger scale are now in place for the Fund. As the Fund continues to add to its scale of operations, personnel costs will not increase at the same rate and as a result management expects that the SG&A costs as a percentage of revenue will trend downward.
The Fund's Earnings before Income Taxes, Depreciation and Amortization ("EBITDA" see "Non-GAAP measures") was $2.49 million for the Period. This represents an EBITDA margin of 48%. As noted above this margin will fluctuate from period to period depending on the level and mixture of the revenues generated from the rental of the fleet assets as compared to the ancillary revenue streams such as transportation, installation, services and sublease. Also, as the SG&A as a percentage of revenue declines as the Fund adds to its economies of scale, the EBITDA margin would be expected to trend upwards.
The Fund's Balance Sheet is in a strong position at December 31, 2006 with working capital of $2.59 million. Long term debt is at $15.67 million on tangible assets of $45.28 million and Unitholders equity of $73.10 million.
Property & Equipment
Capital expenditures during the Period were $15.26 million. For the Period, the Fund expended $15.26 million on additions to property and equipment. The additions to the property and equipment consisted of:
- $13.05 million on workforce accommodation structures and ancillary equipment rented along with these units
- $2.18 million on space rental structures with ancillary equipment rented along with these units
- $0.03 million on computers, furniture and service related equipment
The following is a summary of the number of units and the average units in operation for the Period in each of the fleet segments:
Workforce Accommodation units in operation at end of period            494
Average units in operation for the period                              318
Utilization                                                             73%
Space Rental units in operation at end of period                       423
The Fund declared distributions to unitholders of $2.01 million during the Period. This is $0.261 per unit for the Period, or the equivalent of $1.00 per unit on an annualized basis. A summary of the distributions declared is as follows:
Distribution per
Record Date                                    Unit ($)   Distributions ($)
September 30, 2006                              0.0111              85,470
October 31, 2006                                0.0833             641,410
November 30, 2006                               0.0833             641,410
December 31, 2006                               0.0833             641,410
Balance, end of period                                           2,009,700
Cash flow from operations (see "Non-GAAP measures") for the period was $2.06 million after adjusting for maintenance capital. Distributions represent 97% of this adjusted cash flow from operations which management believes is indicative of the cash generated by the operations in the Period which would be available for distribution to unitholders. Management believes that the payout ratio (see "Non-GAAP measures") in future periods will be substantially reduced as the Fund increases its revenue in concert with the increase in the fleet asset base in which revenues are derived while at the same time realizing efficiencies of scale with respect to the overhead costs of the business.
The outlook for Black Diamond remains positive. The Fund added a significant number of units to its rental fleets in the fourth quarter. As a result, the Fund enters its 2007 fiscal year with a substantially larger operating platform. This operating platform continues to be weighted towards large workforce accommodation facilities operating under long term rental contracts. The majority of the Fund's rental revenue is being generated from large infrastructure projects in and around the Alberta Oil Sands. These factors provide the Fund's Management with a high degree of visibility for revenues and cash flow over the next several quarters. Based on this visibility, Management is confident that, should the current operating environment remain stable, the Fund will be able to generate distributable cash adequate to maintain current monthly distributions while meeting its target payout ratio of approximately 60%.
The Fund has set a growth capital budget of just over $25 million of which approximately $20 million has already been committed. This capital is being directed to fleet additions with a continued weighting towards large accommodation facilities in Black Diamond Camps and towards increasing the size of both the Alberta and Ontario space rentals fleets of BOXX Modular. The Fund has not, at this time, committed to any additional drill camps or drilling related accommodation equipment. This organic growth of our rental fleets throughout 2007 will allow the Fund to continue to build its revenue base. Management is confident that customer demand and current opportunities, specifically in the oil sands region, will provide adequate market absorption for this additional equipment.
Utilization in the workforce accommodation fleet is expected to decline in the second and third quarter given the traditional seasonality of the Alberta oil industry. However, given the volume of long term monthly rental contracts in place, this decline is expected to be moderate. Almost half of the Fund's drill camp fleet is committed under long term paid monthly contracts. This will insulate the Fund from the current slow down in drilling activity and from the seasonality of drilling related revenues.
Utilization and rental rates for the BOXX Modular division's space rentals units remain consistent and high. Growth of this segment is promising and offers a counterbalance to the more cyclical nature of the Fund's operations in the energy sector.
The Black Diamond Site Services division continues to maintain its operating levels through maintenance and support commitments with a variety of customers in Alberta and British Columbia. Additional large installation projects are expected in early spring and summer which will significantly add to the backlog and growth of this division.
The Fund recently entered into a long term agreement with a large Canadian oil and gas company whereby the Fund will provide management of field camps, worker housing, and coordination of food services to the company. This agreement will generate monthly management fees, and service revenue. In addition, there is the opportunity for the Fund to acquire additional fleet equipment and provide it to the company on long term rental contracts. Management considers this a significant strategic opportunity that will prove to be accretive to the Fund.
Despite the recent declines in oil and gas commodity prices, we continue to find opportunities to deploy our rental equipment on long term contracts. Management believes that these long term commitments, which are predominantly related to long term energy resources development projects in Northern Alberta, will continue to provide a stable revenue stream and continued growth opportunities for the Fund. Management further believes that the large oilsands related projects will remain viable in the current commodity price environment.
EBITDA refers to earnings as determined in accordance with generally accepted accounting principles before interest expense, tax expense and depreciation and amortization. Black Diamond uses EBITDA primarily as a measure of operating performance. Management feels that the operating performance as determined by EBITDA is meaningful because it presents the performance of the operation on a basis which excludes the impact of how it has been financed.
Gross Profit refers to revenues less direct costs, and prior to the deduction of selling, general and administrative costs, interest expense, tax expense, depreciation and amortization and any gains or losses on disposal of assets. Management believes that, in addition to net earnings, Gross Profit is a useful supplemental measure as it provides information of the contribution to earnings from the Fund's principal business activities.
Distributable Cash from Operations is calculated as the cash flow from operating activities as defined by GAAP including the changes in non-cash working capital and adjusted for 1) maintenance capital expenditures made in the period, 2) funding of long term unfunded contractual obligations arising from operations and 3) restrictions on distributions arising from compliance with financial covenants at the date of the calculation. Maintenance capital expenditures are capital expenditures incurred during the period to maintain existing levels of productive capacity and service or expenditures that were incurred to enhance the operational life of existing property and equipment. Growth capital expenditures are excluded from this calculation. Management believes that Distributable Cash from Operations is a useful measure as it provides an indication of the cash generated by the operations of the business available for distribution. Funds not distributed are then available for re-investing in the business and funding the growth prospects of the Fund.
Cash flow from Operations is calculated as the Distributable Cash from Operations excluding the changes in non-cash working capital.
Payout Ratio is calculated as the distributions declared for the period divided by the Distributable Cash from Operations.
The following selected financial information summarizes the Fund's consolidated results for the period from inception on September 26, 2006 to December 31, 2006. The Fund's consolidated financial statements and management's discussion and analysis for the period will be available at www.sedar.com on or about February 28, 2007.
BLACK DIAMOND INCOME FUND
CONSOLIDATED STATEMENT OF
EARNINGS and ACCUMULATED Earnings/(LOSS)
For the period from inception on September 26, 2006 to December 31, 2006
Revenue                                                          5,608,565
Direct costs                                                     1,908,885
Selling, general and administrative costs                        1,198,909
Amortization of property and equipment                             815,504
Amortization of intangibles and deferred financing fees            356,115
Interest on long-term debt                                         263,234
Stock-based compensation                                            13,874
Net income                                                       1,052,044
Accumulated earnings, beginning of period                                -
Distributions declared                                          (2,009,700)
Accumulated earnings (loss), end of period                        (957,656)
Earnings per unit
Basic and Diluted                                                     0.14
Operating activities
Add (deduct) non-cash items:
Amortization of property and equipment                            815,504
Amortization of intangibles and deferred financing costs          356,115
Stock-based compensation expense                                   13,874
Change in non-cash working capital related to operating
activities                                                       (809,273)
Investing activities
Purchase of property and equipment                             (15,260,512)
Business acquisition                                           (15,000,000)
(30,260,512)
Financing activities
Proceeds from long-term debt                                    15,669,888
Repayment of overdraft and long-term debt assumed              (17,057,254)
Distribution payments                                           (1,368,290)
Net proceeds from issuance of units                             32,039,294
Increase in cash                                                   451,390
Cash, beginning of period                                                -
Cash, end of period                                                451,390
CONSOLIDATED BALANCE SHEET
As at December 31, 2006
Cash                                                              451,390
Accounts receivable                                             4,699,171
Prepaid expenses                                                  264,341
Property and equipment                                          45,280,207
Intangibles                                                     12,706,270
Goodwill                                                        29,316,090
LIABILITIES AND UNITHOLDERS' EQUITY
Accounts payable and accrued liabilities                        2,427,818
Distributions payable                                             641,410
Long-term debt                                                  15,669,888
Due to related party                                               882,841
Unitholders' equity
Trust units and exchangeable partnership units                 74,039,294
Contributed surplus                                                13,874
Accumulated earnings (loss), net of accumulated
distributions                                                   (957,646)
The Fund is an unincorporated open ended investment trust governed by the laws of the Province of Alberta. The principal undertaking of the Fund, through its indirect wholly-owned subsidiary, Black Diamond Limited Partnership, is to rent modular structures for use as workforce accommodation and temporary workspace, and to provide complementary services including transportation, installation, dismantling, repair and maintenance of modular structures, as well as related services through three operating divisions consisting of Black Diamond Camps, BOXX Modular, and Black Diamond Site Services.
This news release does not constitute an offer to sell securities, nor is it a solicitation of an offer to buy securities, in any jurisdiction. All sales will be made through registered securities dealers in jurisdictions where the offering has been qualified for distribution. The securities offered are not, and will not be, registered under the securities laws of the United States of America, nor any state thereof and may not be sold in the United States of America absent registration in the United States or the availability of an exemption from such registration.
Certain information set forth in this press release, including a discussion of future plans and operations, contains forward looking statements that involve substantial known and unknown risks and uncertainties. These forward-looking statements are subject to numerous risks and uncertainties, some of which are beyond management's control, including but not limited to, the impact of general economic conditions, industry conditions, fluctuation of commodity prices, fluctuation of exchange rates, environmental risks, industry competition, availability of qualified personnel and management, stock market volatility, timely and cost effective access to sufficient capital from internal and external sources. Actual results, performance or achievement could differ materially from those expressed in or implied by these forward-looking statements. For more information please contact Black Diamond Income Fund, by its Manager, Black Diamond Group Inc.
The TSX has not reviewed and does not accept responsibility for the adequacy or accuracy of this news release.
Black Diamond Income Fund, by its Manager,Black Diamond Group Inc.
Black Diamond Income Fund, by its Manager,
Black Diamond Group Inc.
Vice President and Chief Financial Officer