GasFrac -- The First Quarter misses big

Just hours after I wrote about how the management of GasFrac has to convince us that the company can generate revenue in the market and that it would be a mistake to fall in love with the story of the company, we got a release from GasFrac alerting us all to some very bad news. Management is warning that revenue for the first quarter of 2012 will be 50% better than the revenue in the same period of 2011. That sounds wonderful until one realizes that the company has more than twice as much equipment in the field this year and that in 2011, work was shut down for three weeks company-wide due to safety concerns. In other words, the revenue figures are terrible.

Let me put this into perspective. The latest estimates from the many analysts who cover GasFrac were that revenues for the just completed quarter would be $68.5 million. This would be an increase from the $59 million in revenue in the fourth quarter of 2011. Instead of hitting the modest figure put forward by the analysts, the company is warning that revenue will be in the area of only $45 million. This is lower than the lowest estimate by any analyst at the security firms. Indeed, GasFrac is going to miss the consensus estimate on revenues by about 35%, an almost unheard of figure in the investment community.

Management does put forward some excuses for the poor revenue. The spring break up in Canada came earlier this year and there was "low activity" in the USA. Strangely, only one of these excuses is actually an excuse. If the weather in Canada hit a few weeks earlier than normal, it could the pace of work. On the other hand, blaming the low revenue in the USA on lack of activity is a tautology. Obviously, if there is little work, there will not be revenue.

The excuses from management were followed in the announcement by a long list of forward looking statements about all the great things in the pipeline. While I assume that management is sincere in what it says, it does not change what has happened. GasFrac has failed in a major way to execute its business plan. The company has not attracted customers to the extent that it should have.

I wrote earlier today that GasFrac was a story stock. Right now, that story does not have a happy ending. I intend to wait to hear management explain the first quarter on the conference call after the earnings are released. I could not fault anyone who bailed out of the stock totally at this point. The short term certainly does not look good.

UPDATE -- A confirmation of the bad outlook for the short term came within hours from both TD and BMO. TD cut GasFrac from Hold to Reduce. Bank of Montreal made a bigger change cutting GasFrac from Outperfrom to Underperform.