MYCELX Technologies Provides Half Year Results Statement For Six Months Ended 30 June 2017

Announced Date :  Sep 13, 2017


MYCELX Technologies Corporation ("MYCELX" or the "Company"), the clean water technology company providing patented solutions for the Oil and Gas market and commercial industrial markets worldwide, is pleased to announce its interim unaudited results for the six months ended 30 June 2017 for which highlights are set out below.
Financial

- 51% increase in Revenue YoY: $5.9 million (2016 H1: $3.9 million)

- EBITDA of $0.3 million (2016 H1: negative $0.6 million)

- Gross profit margin of 52.2% (2016 H1: 53.5%)

Operational

- Contract awards reflect both the culmination of successful pilot trial work in new regions and the reinvigoration of business development efforts in the MENA region:

• Nigeria: Awarded first contract in the Nigerian Oil and Gas market to provide an onshore water treatment solution to a leading independent oil and gas producer

• Saudi Arabia: Awarded a contract for $1.1 million to rapidly respond to the immediate water treatment needs of a new SABIC-affiliate customer

• Saudi Arabia: Enhanced an existing system at a SABIC-affiliate customer leading to increased operational and maintenance role and greater recurring media sales

• Oman: Sale of Cooling Water treatment system after successful trial in 2016

• Mauritania: Sale of oily water treatment system

Post Period

• Saudi Arabia: Extension of the rapid response unit deployment to treat additional challenging waste water at new SABIC-affiliate customer

• Canada: Successful trial for RE-GEN media with large producer in polymer flood application

• Global: Finalist for World Oil's 2017 Awards for Best Enhanced Oil Recovery Technology

Outlook

- Leverage business relationships in the Middle East to continue to grow downstream business in MENA

- Adopt a managed growth approach to ensure that the momentum is maintained while ensuring rigorous cost controls and cash preservation

- Continued focus on customer trials that lead to new equipment sales and recurring media revenue

- Work with Schlumberger's global sales and marketing platform to bolster the successful trial work for RE-GEN that MYCELX has undertaken with leading EOR producers

 

Commenting on these results, Connie Mixon, CEO, said:

 

"The Company has made good progress in H1 2017 with a series of contract wins in new country markets while extending our footprint in core markets. In the first half we delivered a positive EBITDA, increasing revenue by $2 million despite the continued sluggish industry environment.

 

It is pleasing that we are now beginning to see the benefits of our 2016 pilot trial strategy come to fruition with our entry into the Nigerian market where we have sold a complete treatment system for an onshore facility.

 

In Saudi Arabia, the assignment of a Director of Business Development has already resulted in new business, capitalising on the strong foundations in that core market. Looking forward, our focus will be on maintaining this renewed momentum and converting the pipeline of opportunities to achieve critical mass in Saudi Arabia and the GCC, while maintaining strict inventory and cost controls.

 

In Canada, India and the Middle East, our collaborative study undertaken with SNF Floerger has led to further interest and trials for leading Enhanced Oil Recovery (EOR) producers. These trials, together with our strategic partnership with Schlumberger, are helping to increase industry recognition of the step change improvement that our RE-GEN product delivers. This is further demonstrated by the fact that MYCELX RE-GEN was nominated as a finalist for Best EOR Technology in the 2017 World Oil Awards, and we have been asked to speak at the upcoming Produced Water Society Conference in the Middle East.

 

MYCELX is a technology company that continues to expand its exceptional water treatment expertise. MYCELX's growing knowledge base supports the innovation and commercialisation of next generation technology to meet our customers' current and future needs. We are more reliable and cost effective than outdated conventional methods. The oil and gas and petrochemical industries are integrating MYCELX® technology into critical, real-time production and processes, where increased uptime performance goes straight to the bottom line. Our technology will deliver sustainable water treatment for years to come."

Chairman's and Chief Executive Officer's Statement

 

Introduction:

 

Market conditions during the first half of 2017 continued to be challenging for the oil and gas industry as uncertainty remains around the strength of the oil price recovery and the petrochemical industry remains in tight cost control mode. The oil and gas service sector experienced more consolidation as a result of two years of curtailed activity and delayed investment by producers. In the face of this tenuous and extremely cost-conscious market, MYCELX is pleased to report that the Company has delivered a positive EBITDA for H1 2017, increasing revenue by $2 million, compared to H1 2016, despite the continued sluggish industry environment. We have achieved this improved performance from a combination of renewed business development and the strict cost control measures that have become engrained in the Company's general approach. It is this managed growth approach that will allow the Company to successfully navigate an industry well known for its boom and bust cycles.

 

Our H1 results were underpinned by winning two large contracts, one in a new country and the other extending our footprint in our leading market, and we are pleased to note a resurgence in momentum in the Company's efforts across all operational fronts. Opening up the Nigerian market offers a host of opportunities where our solutions will both improve water treatment but also enhance production. In Saudi Arabia, our new Director of Business Development is spearheading efforts to leverage our strategic assets to chase down opportunities. Successful trial collaboration work on RE-GEN with SNF Floerger has led to in-field trials where RE-GEN has demonstrated its superior capability to leading EOR producers across the globe. These trials together with our strategic partnership with Schlumberger are helping to increase industry recognition of the step change improvement that our RE-GEN product delivers. This is further demonstrated by the fact that RE-GEN has been nominated as a finalist for Best EOR Technology in the 2017 World Oil Awards.

 

Operational Review

 

Middle East and North Africa

 

The first half of 2017 has seen a resurgence in momentum in the MENA region for MYCELX, especially within Saudi Arabia. Recognizing the immense opportunities in the region, in early 2017 the Company added a Director of Business Development for MENA and Asia who resides in and oversees the regional business initiative from Al Jubail Industrial City, where the Company has had continuous business operations since 2010. This addition of this position demonstrates the enthusiasm the Company has for the future of MYCELX technology in the region. This appointment has acted as the necessary catalyst to consolidate our position and restore momentum in this core market. By leveraging our strong track record, proven cost saving solutions and the ability to deploy quickly, due to our in-country rental equipment fleet, we have been able to chase down and seize new opportunities. This renewed and proactive engagement with existing customers is leading to new opportunities, with customers considering either expansions of existing MYCELX systems or deployment of our technology for further applications at their sites. In this manner, a new customer win for the Company is merely the beginning of a relationship that can lead to several contract wins.

 

The Company has ongoing activity in the downstream and upstream markets in the GCC. In the downstream petrochemical sector, the Company is treating quench water for reuse in the petrochemical process, managing challenging oily water onsite by deploying equipment from the rental fleet and is engaged in intermittent plant turnaround operations. The Company's downstream strategy continues to target delivering reliable production uptime in the quench water loop which creates cost benefits that directly enhance the bottom line. This niche application and unique capability is attributable to the small footprint and highly efficient technology MYCELX provides, where space is limited and performance is key to ongoing operations and consistent production. In the upstream sector, the target market is produced water treatment during EOR production. The aging fields in the Middle East are deploying advanced EOR methods to extract more oil from their reservoirs. These methods require more advanced water treatment and MYCELX has been successfully trialed in the Middle East and other locations to treat EOR produced water. The Company views the EOR market as one of the largest water plays for years to come.

 

One of the key reasons that our Saudi Arabian customers choose MYCELX solutions is that we are always ready and prepared to solve their problems. We have a dedicated 24/7 hour service office in Jubail, and our rental equipment fleet has meant that we can quickly deploy solutions to their sites. It was this rapid response customer service that led to our recent new SABIC customer win. MYCELX was awarded a $1.1 million contract to rapidly deploy its in-country rental fleet equipment to treat an immediate waste water situation. Our solution was so successful and cost effective that the customer requested that we extend our deployment of the unit to treat other waste water sources. Recognition that our solutions offer superior treatment performance and significant cost benefits by removing the need for costly haulage off site is growing within Saudi Arabia and has resulted in further opportunities which the Company is currently pursuing.

 

Adding to the large scale wins, the Company was awarded two small-scale contracts to deliver oily water treatment systems in Oman and Mauritania. Each of these installations will produce recurring revenue adding to the ongoing legacy media sales.



Nigeria



In an exciting contract award for the Company, MYCELX opened the Nigerian market with the sale of an onshore water treatment solution to a leading independent oil and gas producer focused on the development of its reserves in the Niger Delta. MYCELX's complete water system will be deployed to solve cost effectively the current and future water challenges as the operator progresses to use water injection and enhanced oil recovery techniques to further increase production and reserves. The sale of this complete system is important not only because it opens up an exciting new geographical frontier for MYCELX and supports our internal 2017 growth projections, but it also marks the first contract award from our concerted efforts in 2016 of working directly with clients to explore how our technology can best support their goals through many months of trials and collaboration. The on-going sale of filter media will further add to MYCELX's recurring revenue base. The Company will continue to market in Nigeria where it sees vast opportunity for its technology. MYCELX not only supports the goals of producers who are striving to reduce the environmental impact of industry, it fits their plans to ramp up their production into the future using enhanced oil recovery techniques which plays to MYCELX's experience and strength.

North America

 

MYCELX operates in both the offshore and onshore markets in the United States. Due to our technology's small footprint, we have been retrofitted or scoped into the design of Gulf of Mexico rigs such as Jack St Malo. During H1, the Company has seen an improvement in the demand for media from such installations. The US onshore market is ramping up activity with certain producers aggressively increasing production, which will require more effective produced water recycling. Our innovative technology enables producers to recycle produced water while mitigating the need for fresh water during operations and is in increasing demand. MYCELX is working with its strategic partner Schlumberger on pursuing the US onshore market with an advanced water recycle system that includes effective complementary technologies. MYCELX has sold and supported systems for onshore water treatment in the past therefore we are enthusiastic the combined system will bring better performance to produced water recycle applications.

 

EOR - Canada & India

 

MYCELX's efforts in the EOR market are focused on growing industry recognition of our RE-GEN media's superior results when treating EOR produced water. In 2016, MYCELX collaborated with SNF Floerger on a white paper that demonstrated in the lab that RE-GEN was able to effectively treat polymer laden water, and actually preserves the valuable polymer thereby improving the overall economics of this effective EOR technique. As a result of that collaborative paper, MYCELX was invited to conduct onsite trials with some of the leading polymer flood producers in the world.

 

Post the period under review, MYCELX conducted a successful RE-GEN media trial at a polymer flood field with a major Canadian producer. With the improved oil price, producers are once again looking to implement technology that provides cost benefits and performance beyond what they have experienced with conventional technologies. The capabilities of the RE-GEN media in polymer flood applications is best demonstrated with pilot trials so the end user sees first-hand the remarkable performance and ease of operation. The primary goal of the trials is to highlight the differentiators of RE-GEN and conventional equipment that is onsite. This approach has had the greatest impact on end users. MYCELX has been active in Alberta for five years and, with the oil price recovery, looks forward to pushing forward in a market where increased EOR activity looks set to continue well into the future.

 

During H1 the Company also continued trialing in India where production goals for future field expansion lie in further implementation of enhanced oil recovery techniques. These projects are extremely complex and have far-reaching implications for the producers. As such, the timelines are long. Nonetheless, lessons learned and the vast experience MYCELX has gained through prolonged onsite EOR trials is unparalleled and invaluable to future success in India and elsewhere globally. MYCELX RE-GEN media is capable of treating water during enhanced oil recovery operations and polymer flood in particular. Recognizing conventional water treatment in the EOR market has struggled to match the production technique advances, MYCELX will continue to trial our technology to showcase the efficacy of the RE-GEN media in this lucrative global application and leverage the knowledge base the Company has amassed.

 

Financial

 

Total revenue increased by 51.3% to $5.9 million for the first half of 2017, compared to $3.9 million in the first half of 2016. Revenue from equipment sales and leases increased by 130.8% to $3.0 million in the first half of 2017 (2016 H1: $1.3 million), while revenue from consumable filtration media and service increased 11.5% to $2.9 million (2016 H1: $2.6 million). Gross profit increased by 47.6% to $3.1 million in the first half of 2017, compared to $2.1 million in the first half of 2016. Gross profit margin decreased in the first half of 2017 to 52.2% (2016 H1: 53.5%) due to a larger portion of total revenue coming from equipment sales.

 

Total operating expenses for the first half of 2017 were $3.4 million which is consistent with the first half of 2016. The largest component of operating expenses was selling, general and administrative ("SG&A") expenses which includes $1.8 million of staff costs.



EBITDA was $300,000 for the first half of 2017, compared to negative $600,000 for the first half of 2016. EBITDA is net income before interest expense, provision for income taxes, depreciation and amortisation of fixed and intangible assets including depreciation of leased equipment which is included in cost of goods sold. The Company uses EBITDA as the profitability measure for making decisions regarding allocating resources and assessing performance.



The Company recorded a loss before tax of $350,000 in the first half of 2017 compared to a loss before tax of $1.4 million in the first half of 2016. Basic loss per share was 3 cents for the first half of 2017, compared to basic loss per share of 8 cents for the first half of 2016.



Cash preservation continues to be an imperative for the Company and MYCELX ended the period with $4.7 million of cash and cash equivalents, including restricted cash. The Company experienced an operating cash outflow of approximately $900,000 in the first half of 2017, compared to an operating cash inflow of $200,000 for the first half of 2016. The outflow was due to the timing of customer payments that were subsequently received in early July.



In keeping with the goals and parameters set in 2015 the Company will continue to be a prudent steward of its cash with monitoring in place to ensure specific measures are taken in the event of a revenue shortfall or contract delay during the year and any additional equipment purchased will be supported by a sales contract. The ability to convert business development opportunities into cash generation while maintaining effective expense control demonstrates the discipline and focus of the entire Company.



Outlook

 

As the market recovers and resets the Board of Directors and the Company are well aware of the challenges the Company faces. MYCELX believes that market conditions could improve in H2 but is maintaining a cautious outlook for its business for the remainder of the year. We plan to enhance our prospects for new contract wins, preserve existing revenue streams and maintain our cost control program. We continue to believe long-term success and building a global brand will be achieved by engaging in large scale projects as well as smaller scale, fast-to-market opportunities of which both have been achieved in H1. We continue to progress large, complex projects by undertaking paid trials to refine the water treatment solution to meet customers' specific requirements. During H1 and post period we closed three small scale projects which was a goal of the Company mentioned last year. These projects will bridge the gap of lengthy project timelines and will be additive to annual recurring revenue for years to come.

 

Our immediate growth strategy remains focused on geographic regions of the Middle East, North America and the recent addition of Nigeria. While tenuous, the improved price stability in the Oil and Gas market as well as industry producers adjusting to the new oil price range has resulted in opportunities with operators keen to seek out advanced technology. MYCELX offers better performance, cost benefits through increased production uptime and relief from conventional technology that struggles to keep pace with new extraction techniques and process improvements. Each of our targeted geographical markets is water stressed therefore each has need and significant bottom-line incentive to adopt technology that offers better uptime performance, requires less water during operations and supports major environmental goals in the region.

 

We continue to pursue strategic partnerships to leverage sales and marketing platforms that value differentiated technology. It is clear that the Oil and Gas industry wants and needs technology that can effectively perform and deliver strong cost benefits to operations. The ongoing adoption of MYCELX technology as demonstrated by more contract wins is further confirmation that our technology has its role in achieving sustainable water treatment for years to come. Our strategic partnership with Schlumberger has supported these efforts to broadcast our capabilities to a wider global audience. Our goal is to be the industry leader by providing the technology and expertise necessary to stay ahead of the production and process advancements of the Oil and Gas industry and paving the way for the future of water treatment.

 

MYCELX management takes a focused approach and constantly refines its evaluation process for project pipeline opportunities to ensure all resources expended are cost efficient and in alignment with project expectations. We continue to take a risked approach to our revenue outlook and taken together with our cost cutting initiatives the Company is on track to achieve our cash goals for the full year 2017.

 

At its core, the Company is a technology company with exceptional water expertise gained through onsite, real-time water treatment experience. The library of knowledge the Company has amassed in its specific applications with MYCELX technology is unparalleled in industry. The Company will continue to use this knowledge to innovate and pave the way for next generation technology to meet our customers' current and future needs more reliably and cost effectively than outdated conventional methods. The endorsement and support of Schlumberger in upstream along with the footprint we have established with leading operators around the world positions MYCELX well to achieve its ultimate goal of becoming the new industry standard for water treatment.

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