The Gasfrac Third Quarter 2012 Earnings

Last night, GasFrac Energy Services (GFS in Canada and GSFVF on the pink sheets) announced its earnings for the third quarter of 2012. There were no surprises. Revenues came in slightly above $40 million (Canadian). This was almost exactly the level predicted by the company a few weeks back. The operational changes made to cut costs were indeed the same ones that the compnay told us about previously. GasFrac is now set to have three operational sets of equipment in Canada and two in the United States. Excess personnel were laid off. Rational steps were taken to improve the company's debt structure. While the company lost eleven cents per share, nearly 40% of that loss was due to currency rates. The company only had a cash burn of 9 million during the quarter, a level that should decline now that the expenses have been cut.

The remarkable thing about this report is that, for the first time in a long time, it is just as expected. The crazy revenue shortfalls of the past did not occur. The past misleading statements regarding equipment levels did not reoccur. The report told us where the company worked and what the status was of the largest accounts. We got a reasonable outline of the expectation for the fourth quarter.

It may not sound like much to say that GasFrac put out an earnings report that meet the basic requirements for such a document, but for this company it is a big step forward. It seems that the new, albeit temporary, management has finally come to understand that being honest and open with shareholders is a much better policy than surprising them with very bad news every quarter. I congratulate the new management for getting this correct.

Beyond confirming the accuracy of past forecasts and announcements, the report also provides a reasonable amount of hope for the future. After all, if the issue facing the company is achieving a sales breakthrough among potential customers, then the basic advantages of LPG fracking come into play. My sense of this is such that I still expect GasFrac to succeed in the long term and to do so in a major way.

The next big test for the company is to sustain the current level of openness and to advance towards greater acceptance of the technology. For the moment, I am prepared to give the new management the chance to show progress on that front.

I recommend holding the stock for the time being. If management achieves a sales breakthrough, GasFrac has enough equipment to gear up quickly and inexpensively to meet higher demand. Growth could come very quickly. In my view, the company deserves the chance to achieve this goal.

DISCLOSURE: I remain long GasFrac.
UPDATE: The conference call was held on 11-8. It was a further exercise in restoring confidence in management, although it offered essentially no new information. Prehaps the only nugget worth repeating is that the temporary CEO said that the company could possibly sell some of its equipment, but he hastened to add that nothing was in the works and that any sales would be small.