/NOT FOR DISSEMINATION IN THE UNITED STATES OF AMERICA/
CALGARY, Aug. 12, 2014 /CNW/ - Cathedral Energy Services Ltd. (the "Company" or "Cathedral" /TSX: CET) announces its consolidated financial results for the three and six months ended June 30, 2014 and 2013. Dollars in 000's except per share amounts.
This news release contains "forward-looking statements" within the meaning of applicable Canadian securities laws. For a full disclosure of forward-looking statements and the risks to which they are subject, see "Forward-Looking Statements" later in this news release.
2014 Q2 KEY TAKEAWAYS
- Record revenues for Q2 period;
- U.S. directional drilling achieved all-time record quarterly revenues and Canadian directional drilling and production testing divisions achieved record revenues for Q2;
- Excluding revenues related to International operations which were terminated in early 2014, quarterly revenues increased by 40% and year-to-date revenues increased 32%;
- Market share gains were realized by Canadian and U.S. directional drilling divisions;
- Increase in quarterly EBITDAS of 15% and year-to-date EBITDAS increased by 6%; and
- 54% increase in year-to-date net earnings.
2014 Q2 FINANCIAL SUMMARY
| Three months ended June 30 |
Six months ended June 30 |
||||||||
| 2014 |
2013 |
2014 |
2013 |
||||||
| Revenues |
$ |
56,797 |
$ |
45,639 |
$ |
124,817 |
$ |
99,713 |
|
| Adjusted gross margin % (1) |
19.7% |
22.0% |
20.2% |
23.4% |
|||||
| EBITDAS (1) |
$ |
6,151 |
$ |
5,342 |
$ |
14,732 |
$ |
13,934 |
|
| Diluted per share |
$ |
0.17 |
$ |
0.15 |
$ |
0.41 |
$ |
0.38 |
|
| EBITDAS (1) as % of revenues |
10.8% |
11.7% |
11.8% |
14.0% |
|||||
| Funds from operations (1) |
$ |
3,767 |
$ |
3,576 |
$ |
11,887 |
$ |
11,083 |
|
| Diluted per share |
$ |
0.10 |
$ |
0.10 |
$ |
0.33 |
$ |
0.30 |
|
| Net earnings (loss) |
$ |
253 |
$ |
(309) |
$ |
2,702 |
$ |
1,750 |
|
| Basic per share |
$ |
0.01 |
$ |
(0.01) |
$ |
0.07 |
$ |
0.05 |
|
| Diluted per share |
$ |
0.01 |
$ |
(0.01) |
$ |
0.07 |
$ |
0.05 |
|
| Dividends declared per share |
$ |
0.0825 |
$ |
0.0750 |
$ |
0.1650 |
$ |
0.1500 |
|
| Property and equipment additions (cash) |
$ |
7,062 |
$ |
6,476 |
$ |
16,979 |
$ |
13,174 |
|
| Weighted average shares outstanding |
|||||||||
| Basic (000s) |
36,230 |
35,854 |
36,208 |
36,307 |
|||||
| Diluted (000s) |
36,253 |
35,898 |
36,235 |
36,361 |
|||||
| June 30 |
December 31 |
||||||||
| 2014 |
2013 |
||||||||
| Working capital |
$ |
29,729 |
$ |
26,031 |
|||||
| Total assets |
$ |
216,873 |
$ |
205,375 |
|||||
| Loans and borrowings excluding current portion |
$ |
51,333 |
$ |
38,462 |
|||||
| Total shareholders' equity |
$ |
122,986 |
$ |
126,612 |
|||||
| (1) Refer to MD&A: see "NON-GAAP MEASUREMENTS" |
|||||||||
OUTLOOK
Industry fundamentals that contributed to a strong first half of 2014 in the Canadian market place are expected to continue into the back half of the year. Overall, oil and natural gas producers have been able to increase their capital spending due to improved cash flows from operations and access to capital markets. Upside for the Canadian industry continues to focus around increased take away capacity by rail and new and expanded pipelines as well as further liquefied natural gas related developments.
Based upon performance, Cathedral's Canadian directional drilling division has been able to increase market share by adding new customers and incremental work from existing customers. The key to our performance at the field level is a combination of quality staff and equipment, specifically our EM-MWD system and nDurance™ mud motor line. Cathedral's Canadian directional drilling division started 2014 Q3 slower than expected due to rain and flooding issues in Saskatchewan and Manitoba but is expecting year-over-year growth for the remainder of 2014. Key resource plays in which Cathedral is active includes the Montney, Bakken, Cardium, Viking, Duvernay, Falher, Glaucontic, Ostracod and Wilrich plays.
Our Canadian production testing division completed a very strong first half of 2014 and is expected to complete the balance of the year at high operating levels.
Industry analysts are expecting the U.S. market to experience a year-over-year increase in capital spending with producers directing capital to oil and liquids targets. U.S. producers are expected to continue to expand the use of horizontal, multi-stage fracturing to complete conventional and unconventional oil and natural gas plays both of which align with Cathedral's service offerings.
Our U.S. directional drilling division continues to make strides increasing activity levels at favorable day rates and further growth in activity days is expected in all U.S. operating areas over the balance of 2014. The Company's efforts towards enhancing profitability through managing costs have resulted in improved U.S. margins. Cathedral's current activity is focused in the Permian, Eagle Ford, DJ Basin, Mississippian Lime, San Juan, Utica and Marcellus plays with additional work in Bakken, Woodford Shale, Granite Wash and Piceance Basin plays.
The U.S. production testing division is making substantive progress with expanding its customer base in the remainder of the year.
Cathedral's "Claw" series of the nDurance™ mud motor line continues to open doors to new and existing customers either as part of our directional drilling service package or on a standalone rental basis. Our build out of the Claw mud motor line continues and at the end of 2014 Q2 had built 58 of a planned fleet of 81. The Claw is designed to operate at higher flow rates and has superior torque output compared to conventional power sections. This motor has significantly increased drilling rate of penetration which leads to reduced drilling time and costs for Cathedral's customers.
Cathedral's focus for 2014 continues to be on: i) increasing revenue and market share in both operating divisions and geographic areas; ii) enhancing profitability through managing costs; and iii) continued investment in research and development of proprietary technologies.
DIVIDENDS
It is the intent of the Company to pay quarterly dividends to shareholders. The Board of Directors will review the amount of dividends on a quarterly basis with due consideration to current performance, historical and future trends in the business, the expected sustainability of those trends and enacted tax legislation which will affect future taxes payable as well as required long-term debt repayments, maintenance capital expenditures required to sustain performance and future growth capital expenditures. The Directors have approved a 2014 Q3 dividend in the amount of $0.0825 per share which will have a date of record of September 30, 2014 and a payment date of October 15, 2014.
2014 CAPITAL PROGRAM
During the six months ended June 30, 2014 the Company invested $16,979 (2013 - $13,174) in property and equipment excluding non-cash items. The following table details the current period's net property and equipment additions:
| Six months ended |
||||
| June 30, 2014 |
||||
| Property and equipment additions: |
||||
| Growth capital (1) |
$ |
8,301 |
||
| Maintenance capital(1) |
5,995 |
|||
| Replacement capital (1) |
1,032 |
|||
| Infrastructure capital(1) |
1,651 |
|||
| Total cash additions |
16,979 |
|||
| Less: proceeds on disposal of property and equipment |
(3,200) |
|||
| Net property and equipment additions (1) |
$ |
13,779 |
||
| (1) See "NON-GAAP MEASUREMENTS" |
||||
The major additions for growth capital were $6,116 for additional drilling motors and related equipment for specific job requirements and $2,185 for additional ancillary production testing equipment which will reduce future rental costs. Infrastructure capital relates to the construction of a new shop in Oklahoma which is expected to be operational in early 2015 and computer system upgrades.
Cathedral's 2014 capital budget remains at $24,000 which includes $12,000 of growth capital, $8,000 of maintenance capital and $4,000 of infrastructure expenditures.
Cathedral intends to finance its 2014 capital budget from cash flow from operations and its existing credit facility.
The following is a summary of major equipment owned by the Company:
| June 30 |
December 31 |
June 30 |
|
| 2014 |
2013 |
2013 |
|
| Directional drilling - MWD systems (1) |
140 |
139 |
134 |
| Production testing units |
66 |
72 |
72 |
| (1) |
The Company has 10 Geolink MWD systems that have been excluded from the above figures as they are held for sale. |
During 2014 Q2, the Company disposed of 6 production testing units that were low pressure and not suited to Cathedral's customer requirements for proceeds of $550.
RESULTS OF OPERATIONS – THREE MONTHS ENDED JUNE 30
| Three months ended June 30, 2014 |
Three months ended June 30, 2013 |
||||||||||||||||
| Directional |
Production |
Resale |
Directional |
Production |
Resale |
||||||||||||
| Revenues |
drilling |
testing |
and Rental |
Total |
drilling |
testing |
and Rental |
Total |
|||||||||
| Canada |
$ |
12,821 |
$ |
7,991 |
$ |
- |
$ |
20,812 |
$ |
8,650 |
$ |
4,066 |
$ |
- |
$ |
12,716 |
|
| United States |
28,636 |
7,349 |
- |
35,985 |
18,835 |
8,914 |
- |
27,749 |
|||||||||
| International |
- |
- |
- |
- |
- |
- |
5,174 |
5,174 |
|||||||||
| Total |
$ |
41,457 |
$ |
15,340 |
$ |
- |
$ |
56,797 |
$ |
27,485 |
$ |
12,980 |
$ |
5,174 |
$ |
45,639 |
|
Revenues 2014 Q2 revenues were $56,797 which represented an increase of $11,158 or 24% from 2013 Q2 revenues of $45,639. Both Canadian divisions and U.S. directional drilling division experienced revenue increases. Excluding international operations, 2014 Q2 revenues have increased 40% over 2013 Q2.
Canadian directional drilling revenues increased from $8,650 in 2013 Q2 to $12,821 in 2014 Q2; a 48% increase. Canadian revenues were at record levels for Q2. This increase was the result of: i) a 45% increase in activity days from 679 in 2013 Q2 to 987 in 2014 Q2; and ii) a 2% increase in the average day rate from $12,739 in 2013 Q2 to $12,990 in 2014 Q2. In 2013 Q2 there had been an overall industry slow-down, a decline in work for a significant client that carried over from 2013 Q1 and a slow start after spring break-up. In addition to the general improvements in the overall market, there was increased activity in 2014 compared to 2013 due to efficiencies related to pad drilling which is an expanding industry trend, new customers and incremental work for existing customers. This increase was achieved despite the decline in work during the latter half of June 2014 due to weather delays and certain clients delaying projects to later dates.
U.S. directional drilling revenues increased from $18,835 in 2013 Q2 to $28,636 in 2014 Q2; a 52% increase. This increase was the result of: i) a 41% increase in activity days from 1,602 in 2013 Q2 to 2,260 in 2014 Q2; and ii) an 8% increase in the average day rate from $11,757 in 2013 Q2 to $12,671 in 2014 Q2 (when converted to Canadian dollars). The increase in U.S. activity days were due to further expansion in the Texas and Oklahoma markets, offset by reduced drilling in the U.S. northeast area within the existing customer base. The increased average day rate was primarily due to a stronger U.S. dollar and somewhat due to higher rates that were achieved on jobs where the pricing was tied to performance. On a sequential basis, U.S. directional drilling revenues for 2014 Q2 are up significantly over 2014 Q1 revenues of $23,672. U.S activity days are up on a sequential basis (2014 Q2 – 2,260 versus 2014 Q1 – 1,880) due to gains in the Rocky Mountain region and further expansion of work in Oklahoma and Texas regions.
Canadian production testing revenues increased from $4,066 in 2013 Q2 to $7,991 in 2014 Q2; a 97% increase. The Canadian operating days and revenues were up in each month of the quarter compared to 2013 and resulted in record revenues for a Q2. In 2013 Q2 there was downturn in work due to general industry wide decline in wells completed and client specific delays in completion work that has been deferred into future periods. However, in 2014 Q2 there were new customers added and customers were able to work during the traditionally slow spring breakup season due to use of multi-well pad designs.
U.S. production testing revenues decreased from $8,914 in 2013 Q2 to $7,349 in 2014 Q2; an 18% decrease. The year-over-year decline in revenue is attributable to a significant customer shifting work to a competitor in 2013 Q4. The division was successful with securing work from new customers, but they did not make up for the lost customer.
Gross margin and adjusted gross margin The gross margin for 2014 Q2 was 11.3% compared to 11.5% in 2013 Q2. Adjusted gross margin for 2014 Q2 was $11,176 (19.7%) compared to $10,018 (22.0%) for 2013 Q2. The decrease in adjusted gross margin of 2.3% was due in part to the impact of international operations. Excluding international operations, adjusted gross margin for 2013 Q2 was 19.8% which is marginally higher than the adjusted gross margin in 2014 Q2 of 19.7%.
The slight decrease in adjusted gross margin excluding 2013 Q2 international operations of 0.1% was primarily due to increased equipment rentals and equipment repairs which were offset by decreased field labour costs. Equipment rentals were 2.7% of revenues in 2014 Q2 compared to 1.9% in 2013 Q2 (excluding international operations). The Company is in the process of reducing equipment rental costs through capital additions.
Depreciation allocated to cost of sales increased marginally from $4,709 in 2013 Q2 to $4,733 in 2014 Q2. Depreciation included in cost of sales as a percentage of revenue was 8.3% for 2014 Q2 and 10.3% in 2013 Q2.
Selling, general and administrative expenses ("SG&A") SG&A expenses were $6,147 in 2014 Q2 which represents a decrease of $4 when compared with $6,151 in 2013 Q2. As a percentage of revenue, these costs were 11% in 2014 Q2 and 13% in 2013 Q2. Non-cash expenses (depreciation and share-based compensation) totaled $96 for 2014 Q2 and $293 for 2013 Q2. 2014 Q2 SG&A included non-recurring recovery of prior period SG&A related to international operations and 2013 Q2 SG&A includes expenses related to international operations which were not incurred in 2014 Q2 after the wind down of those operations. Excluding these non-cash and non-recurring items SG&A increased $748 ("Adjusted SG&A").
Adjusted SG&A increased primarily due to wages, benefits and variable compensation. These increases relate to increased sales commissions, additions to sales staff to accommodate current and future U.S. growth and additions to research and development personnel. Staffing costs included in SG&A relate to executives, sales, accounting, human resources, payroll, safety, research and development and related support staff.
The remaining increase in adjusted SG&A is attributable to increased rent due to the sale and leaseback of Alberta properties which closed in 2013 Q3.
Gain on disposal of property and equipment During 2014 Q2 the Company had a gain on disposal of property and equipment of $880 compared to $1,125 in 2013 Q2. The Company's gains are mainly due to recoveries of lost-in-hole equipment costs including previously expensed depreciation on the related assets. The timing of lost-in-hole recoveries is not in the control of the Company and therefore can fluctuate significantly from quarter-to-quarter.
Foreign exchange gain/loss The Company had foreign exchange gain of $478 in 2014 Q2 compared to a loss of $273 in 2013 Q2 due to the fluctuations in the Canadian dollar compared to U.S. dollars. The Company's foreign operations are denominated in a currency other than the Canadian dollar and therefore, upon consolidation gains and losses due to fluctuations in the foreign currency exchange rates are recorded in other comprehensive income ("OCI") on the balance sheet as a component of equity. However, gains and losses in the Canadian entity on U.S. denominated intercompany balances continue to be recognized in the statement of income. Included in the 2014 Q2 foreign currency gain are unrealized gains of $332 (2013 Q2 – losses of $330) related to intercompany balances.
Finance costs Finance costs consist of interest expenses on operating loans, loans and borrowings and bank charges of $606 for 2014 Q2 versus $648 for 2013 Q2.
Income tax For 2014 Q2, the Company had an income tax expense of $770 compared to a recovery of $372 in 2013 Q2. The effective tax rate was 75% for 2014 Q2 and 55% for 2013 Q2. Income tax expense is booked based upon expected annualized effective rates. Annually, Q2 typically results in Canadian operations experiencing a loss for the quarter due to "spring breakup" which has significantly reduced activity levels. In both 2013 Q2 and 2014 Q2 such losses were offset by International income which has a nominal effective tax rate and when combined with a U.S. effective tax rate that is higher than in Canada, resulted in the effective 2013 Q2 tax rate of 55% and a 2014 Q2 tax rate of 75%.
RESULTS OF OPERATIONS – SIX MONTHS ENDED JUNE 30
| Six months ended June 30, 2014 |
Six months ended June 30, 2013 |
||||||||||||||||
| Directional |
Production |
Resale |
Directional |
Production |
Resale |
||||||||||||
| Revenues |
drilling |
testing |
and Rental |
Total |
drilling |
testing |
and Rental |
Total |
|||||||||
| Canada |
$ |
41,611 |
$ |
16,569 |
$ |
- |
$ |
58,180 |
$ |
32,244 |
$ |
11,832 |
$ |
- |
$ |
44,076 |
|
| United States |
52,308 |
14,329 |
- |
66,637 |
33,344 |
17,119 |
- |
50,463 |
|||||||||
| International |
- |
- |
- |
- |
- |
- |
5,174 |
5,174 |
|||||||||
| Total |
$ |
93,919 |
$ |
30,898 |
$ |
- |
$ |
124,817 |
$ |
65,588 |
$ |
28,951 |
$ |
5,174 |
$ |
99,713 |
|
Revenues 2014 revenues were $124,817 which represented an increase of $25,104 or 25% from 2013 revenues of $99,713. The increase was attributed to both Canadian divisions and U.S. directional drilling operations which were offset by declines in U.S. production testing and international operations. Excluding international operations, year-to-date revenues have increased 32% over 2013.
Canadian directional drilling revenues increased from $32,244 in 2013 to $41,611 in 2014; a 29% increase. This increase was the result of: i) an 31% increase in activity days from 2,781 in 2013 to 3,636 in 2014; and ii) a 1% decrease in the average day rate from $11,594 in 2013 to $11,444 in 2014. Cathedral's was able to increase its activity levels by 31% due to increased industry activity, efficiencies related to pad drilling which is an expanding industry trend and market share gains. Such market share gains were the result of securing work from existing customers and the addition of new customers.
U.S. directional drilling revenues increased from $33,344 in 2013 to $52,308 in 2014; a 57% increase. This increase was the result of: i) a 41% increase in activity days from 2,931 in 2013 to 4,140 in 2014; and ii) an 11% increase in the average day rate from $11,376 in 2013 to $12,635 in 2014 (when converted to Canadian dollars). The increase in U.S. activity days were due to further expansion in the Texas and Oklahoma markets, offset by reduced drilling in the U.S. northeast area within the existing customer base. The increased average day rate was due to the stronger U.S. dollar and higher rates that were achieved in the Rocky Mountain and Texas regions on jobs where the pricing was tied to performance.
Canadian production testing revenues increased from $11,832 in 2013 to $16,569 in 2014; a 40% increase. In 2013 Q1 and Q2, the Canadian operations were affected by a general industry wide decline in wells completed and client specific delays in completion work. There were no significant delays in 2014 and the Company benefitted from the addition of work for new customers and expanded use of multi-well pad designs that allowed customers to work during the traditionally slow breakup season.
U.S. production testing revenues decreased from $17,119 in 2013 to $14,329 in 2014; a 16% decrease. The year-over-year decline in revenue is attributable to a significant customer shifting work to a competitor in early 2013 Q4. The division was successful with securing work from new customers, but they did not make up for the lost customer.
Gross margin and adjusted gross margin The gross margin for 2014 was 12.8% compared to 13.9% in 2013. Adjusted gross margin for 2014 was $25,193 (20.2%) compared to $23,376 (23.4%) for 2013. The decrease in adjusted gross margin of 3.2% was due in part to the impact of international operations which only impacted 2013. Excluding international operations, adjusted gross margin for 2013 was 22.6% compared to 20.2% in 2014.
The decrease in adjusted gross margin excluding 2013 international operations of 2.4% was primarily due to increased equipment rentals and equipment repairs.
Depreciation allocated to cost of sales decreased marginally from $9,374 in 2013 to $9,197 in 2014. Depreciation included in cost of sales as a percentage of revenue was 7.4% for 2014 and 9.4% in 2013.
Selling, general and administrative expenses ("SG&A") SG&A expenses were $12,417 in 2014 which represents an increase of $695 when compared with $11,722 in 2013. As a percentage of revenue, these costs were 10% in 2014 and 12% in 2013. Non-cash expenses (depreciation and share-based compensation) total $239 for 2014 and $661 for 2013. Additionally 2014 SG&A included non-recurring recovery of prior period SG&A related to international operations while 2013 SG&A included non-recurring items related to severance costs, a recovery of prior period SG&A related to international and costs related to international operations which were not incurred in 2014 after the wind down of those operations. Excluding these non-cash and non-recurring items SG&A increased $1,608 ("Adjusted SG&A").
Adjusted SG&A increased primarily due to wages, benefits and variable compensation. These increases relate to increased sales commissions, additions to sales staff to accommodate current and future U.S. growth and additions to research and development personnel. Staffing costs included in SG&A relate to executives, sales, accounting, human resources, payroll, safety, research and development and related support staff.
The remaining increase in adjusted SG&A is attributable to increased rent due to the sale and leaseback of Alberta properties which closed in 2013 Q3 and insurance.
Gain on disposal of property and equipment During 2014 the Company had a gain on disposal of property and equipment of $1,614 compared to $1,630 in 2013. The Company's gains are mainly due to recoveries of lost-in-hole equipment costs including previously expensed depreciation on the related assets. The timing of lost-in-hole recoveries is not in the control of the Company and therefore can fluctuate significantly from quarter-to-quarter.
Foreign exchange loss The Company had foreign exchange loss of $19 in 2014 compared to $553 in 2013 due to the fluctuations in the Canadian dollar compared to U.S. dollars. The Company's foreign operations are denominated in a currency other than the Canadian dollar and therefore, upon consolidation gains and losses due to fluctuations in the foreign currency exchange rates are recorded in other comprehensive income ("OCI") on the balance sheet as a component of equity. However, gains and losses in the Canadian entity on U.S. denominated intercompany balances continue to be recognized in the statement of income. Included in the 2014 foreign currency loss are unrealized losses of $122 (2013 – $542) related to intercompany balances.
Finance costs Finance costs consist of interest expenses on operating loans, loans and borrowings and bank charges of $1,202 for 2014 versus $1,128 for 2013. The increase in finance costs relate mainly to an increased utilization of the Company's operating loan and to a lesser extent increases in interest rates.
Income tax For 2014, the Company had an income tax expense of $1,197 compared to $356 in 2013. The effective tax rate was 31% for 2014 and 17% 2013. Income tax expense is booked based upon expected annualized effective rates. Annually, Q2 typical results in Canadian operations experiencing a loss for the quarter due to "spring breakup" which has significantly reduced activity levels. In both 2013 Q2 and 2014 Q2 such losses were offset by International income which has a nominal effective tax rate and when combined with a U.S. effective tax rate that is higher than in Canada, resulted in the effective rates as above
LIQUIDITY AND CAPITAL RESOURCES
Overview On an annualized basis the Company's principal source of liquidity is cash generated from operations. In addition, the Company has the ability to fund liquidity requirements through its credit facility and the issuance of debt and/or equity. For the six months ended June 30, 2014, the Company's significant sources of cash flows were funds from operations of $11,887 (2013 - $11,083), advances on loans and borrowings of $13,000 (2013 - $5,000) and increase in operating loan of $nil (2013 - $12,272). The Company's significant uses of cash flows were property and equipment additions, excluding non-cash items, of $16,979 (2013 - $13,174), decrease to operating loan of $474 (2013 - $nil) and payment of dividends of $5,969 (2013 - $5,492).
Working capital At June 30, 2014 the Company had a working capital position of $29,729 (December 31, 2013 - $26,031) and a working capital ratio of 1.71 to 1 (December 31, 2013 – 1.66 to 1).
Credit facility On August 8, 2014 the Company entered into a 3 year committed revolving credit facility in the amount of $85,000 which represents a $10,000 increase from the prior credit facility. The new credit facility includes a $25,000 accordion feature which is subject to approval of the syndicate of lenders. The syndicate of lenders consists of The Bank of Nova Scotia, the sole lender on the prior facility, and National Bank of Canada.
The facility bears interest at the bank's prime rate plus 0.50% to 2.00% or bankers' acceptance rate plus 1.75% to 3.25% with interest payable monthly. Interest rates spreads for the credit facility will depend on the level of funded debt to EBITDA (earnings before interest on long-term debt, taxes, depreciation, amortization and non-cash compensation expense – as defined in the credit agreement).
The credit facility is secured by a general security agreement over all present and future personal property and is subject to certain covenants regarding the payment of dividends and the maintenance of certain financial ratios. As at June 30, 2014, the Company was in compliance with all covenants under its credit facility.
The following table outlines the credit facility existing at June 30, 2014:
| June 30 |
December 31 |
||||||||
| 2014 |
2013 |
||||||||
| Available credit facility (effective August 8, 2014 renewed at $85,000) |
$ |
75,000 |
$ |
75,000 |
|||||
| Drawings on credit facility: |
|||||||||
| Operating loan |
9,727 |
10,119 |
|||||||
| Revolving term loan |
50,000 |
37,000 |
|||||||
| Letter of credit |
700 |
700 |
|||||||
| Total drawn facility |
$ |
60,427 |
$ |
47,819 |
|||||
| Borrowing capacity (see NON-GAAP MEASUREMENTS) |
$ |
14,573 |
$ |
27,181 |
|||||
| Net debt (see NON-GAAP MEASUREMENTS): |
|||||||||
| Loans and borrowings, net of current portion |
$ |
51,333 |
$ |
38,462 |
|||||
| Working capital: |
|||||||||
| Current assets |
$ |
71,448 |
$ |
65,409 |
|||||
| Current liabilities |
(41,719) |
(39,378) |
|||||||
| Working capital |
$ |
29,729 |
$ |
26,031 |
|||||
| Net debt |
$ |
21,604 |
$ |
12,431 |
|||||
Contractual obligations In the normal course of business, the Company incurs contractual obligations and those obligations are disclosed in the Company's MD&A for the year ended December 31, 2013. As at June 30, 2014, the Company's commitment to purchase equipment is approximately $2,737, and the outstanding contractual obligation related to the building of a facility in Oklahoma is $2,597. Cathedral anticipates expending the funds related to the purchase equipment obligations in in 2014 Q3 and the building obligations over the next 3 financial quarters ending in 2015 Q1.
Share capital At August 12, 2014, the Company has 36,260,380 common shares and 1,339,863 share options outstanding with a weighted average exercise price of $7.01.
The Normal Course Issuer Bid ("NCIB") expired on July 7, 2014. There were no repurchases under the expiring NCIB. The Company did not renew the NCIB.
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
June 30, 2014 and December 31, 2013
Dollars in '000s
(unaudited)
| June 30 |
December 31 |
|
| 2014 |
2013 |
|
| Assets |
||
| Current assets: |
||
| Cash and cash equivalents |
$ 3,751 |
$ 289 |
| Trade receivables |
48,464 |
46,400 |
| Current taxes recoverable |
1,162 |
1,473 |
| Prepaid expenses |
2,374 |
3,334 |
| Inventories |
15,697 |
13,913 |
| Total current assets |
71,448 |
65,409 |
| Property and equipment |
128,773 |
123,487 |
| Intangible assets |
1,707 |
1,474 |
| Deferred tax assets |
9,097 |
9,157 |
| Goodwill |
5,848 |
5,848 |
| Total non-current assets |
145,425 |
139,966 |
| Total assets |
$ 216,873 |
$ 205,375 |
| Liabilities and Shareholders' Equity |
||
| Current liabilities: |
||
| Operating loan |
$ 9,727 |
$ 10,119 |
| Trade and other payables |
24,651 |
22,236 |
| Dividends payable |
2,991 |
2,984 |
| Loans and borrowings |
757 |
722 |
| Deferred revenue |
3,593 |
3,317 |
| Total current liabilities |
41,719 |
39,378 |
| Loans and borrowings |
51,333 |
38,462 |
| Deferred tax liabilities |
835 |
923 |
| Total non-current liabilities |
52,168 |
39,385 |
| Total liabilities |
93,887 |
78,763 |
| Shareholders' equity: |
||
| Share capital |
74,322 |
73,850 |
| Contributed surplus |
9,157 |
9,065 |
| Accumulated other comprehensive loss |
324 |
1,239 |
| Retained earnings |
39,183 |
42,458 |
| Total shareholders' equity |
122,986 |
126,612 |
| Total liabilities and shareholders' equity |
$ 216,873 |
$ 205,375 |
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Three and six months ended June 30, 2014 and 2013
Dollars in '000s except per share amounts
(unaudited)
| Three months ended June 30 |
Six months ended June 30 |
|||||||
| 2014 |
2013 |
2014 |
2013 |
|||||
| Revenues |
$ |
56,797 |
$ |
45,639 |
$ |
124,817 |
$ |
99,713 |
| Cost of sales: |
||||||||
| Direct costs |
(45,621) |
(35,621) |
(99,624) |
(76,337) |
||||
| Depreciation |
(4,733) |
(4,709) |
(9,197) |
(9,374) |
||||
| Share-based compensation |
(25) |
(43) |
(73) |
(119) |
||||
| Total cost of sales |
(50,379) |
(40,373) |
(108,894) |
(85,830) |
||||
| Gross margin |
6,418 |
5,266 |
15,923 |
13,883 |
||||
| Selling, general and administrative expenses: |
||||||||
| Direct costs |
(6,051) |
(5,858) |
(12,178) |
(11,061) |
||||
| Depreciation |
(69) |
(159) |
(130) |
(316) |
||||
| Share-based compensation |
(27) |
(134) |
(109) |
(345) |
||||
| Total selling, general and administrative expenses |
(6,147) |
(6,151) |
(12,417) |
(11,722) |
||||
| 271 |
(885) |
3,506 |
2,161 |
|||||
| Gain on disposal of property and equipment |
880 |
1,125 |
1,614 |
1,630 |
||||
| Earnings from operating activities |
1,151 |
240 |
5,120 |
3,791 |
||||
| Foreign exchange gain (loss) |
478 |
(273) |
(19) |
(553) |
||||
| Finance costs |
(606) |
(648) |
(1,202) |
(1,128) |
||||
| Share of loss from associate |
- |
- |
- |
(4) |
||||
| Earnings (loss) before income taxes |
1,023 |
(681) |
3,899 |
2,106 |
||||
| Income tax recovery (expense): |
||||||||
| Current expense |
(1,504) |
(641) |
(1,231) |
(1,221) |
||||
| Deferred recovery |
734 |
1,013 |
34 |
865 |
||||
| Total income tax recovery (expense) |
(770) |
372 |
(1,197) |
(356) |
||||
| Net earnings (loss) |
253 |
(309) |
2,702 |
1,750 |
||||
| Other comprehensive income (loss): |
||||||||
| Foreign currency translation differences for foreign operations |
(1,298) |
1,433 |
(915) |
2,138 |
||||
| Total comprehensive income (loss) |
$ |
(1,045) |
$ |
1,124 |
$ |
1,787 |
$ |
3,888 |
| Net earnings (loss) per share |
||||||||
| Basic |
$ |
0.01 |
$ |
(0.01) |
$ |
0.07 |
$ |
0.05 |
| Diluted |
$ |
0.01 |
$ |
(0.01) |
$ |
0.07 |
$ |
0.05 |
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
Six months ended June 30, 2014 and 2013
Dollars in '000s
(unaudited)
| June 30 |
June 30 |
|
| 2014 |
2013 |
|
| Cash provided by (used in): |
||
| Operating activities: |
||
| Net earnings from continuing operations |
$ 2,702 |
$ 1,750 |
| Items not involving cash: |
||
| Depreciation |
9,327 |
9,690 |
| Total income tax expense |
1,197 |
356 |
| Unrealized foreign exchange loss on intercompany balances |
122 |
542 |
| Finance costs |
1,202 |
1,128 |
| Share-based compensation |
182 |
464 |
| Gain on disposal of property and equipment |
(1,614) |
(1,630) |
| Share of loss from associate |
- |
4 |
| Cash flow from continuing operations |
13,118 |
12,304 |
| Changes in non-cash operating working capital |
1,142 |
(7,628) |
| Income taxes paid |
(908) |
(1,948) |
| Cash flow from operating activities |
13,352 |
2,728 |
| Investing activities: |
||
| Property and equipment additions |
(16,979) |
(13,174) |
| Intangible asset additions |
(338) |
- |
| Proceeds on disposal of property and equipment |
3,200 |
2,618 |
| Investment in associate |
- |
(1,580) |
| Changes in non-cash investing working capital |
(1,305) |
(56) |
| Cash flow from (used in) investing activities |
(15,422) |
(12,192) |
| Financing activities: |
||
| Change in operating loan |
(474) |
12,272 |
| Interest paid |
(1,173) |
(1,220) |
| Advances of loans and borrowings |
13,000 |
5,000 |
| Repayments on loans and borrowings |
(322) |
(278) |
| Proceeds on exercise of share options |
382 |
25 |
| Repurchase of common shares |
- |
(4,434) |
| Dividends paid |
(5,969) |
(5,492) |
| Cash flow used in financing activities |
5,444 |
5,873 |
| Effect of exchange rate on changes in cash and cash equivalents |
88 |
844 |
| Change in cash and cash equivalents |
3,462 |
(2,747) |
| Cash and cash equivalents, beginning of period |
289 |
8,470 |
| Cash and cash equivalents, end of period |
$ 3,751 |
$ 5,723 |
FORWARD LOOKING STATEMENTS
This news release contains certain 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 statements are often, but not always, identified by the use of words such as "anticipate", "achieve", "believe", "plan", "intend", "objective", "continuous", "ongoing", "estimate", "outlook", "expect", "may", "will", "project", "should" or similar words suggesting future outcomes. In particular, this news release contains forward-looking statements relating to, among other things: industry fundamentals to continue at year-over-year improved levels in the last six months of 2014; growth in year-over-year activity levels; market share gains and margin improvements in all operating areas; timing of expenditures on purchase commitments; a new shop in Oklahoma to be operational in 2015 Q1; improved cash flow for oil and natural gas producers; U.S. oil and natural gas producers accelerate capital programs; U.S. producers to continue to expand the use of horizontal, multi-stage fracturing to complete conventional and unconventional oil and natural gas plays; further expansion of the fleet of "Claw" motors; continued investment in research and development of proprietary technologies; and dividends. The Company believes the expectations reflected in such forward-looking statements are reasonable as of the date hereof but no assurance can be given that these expectations will prove to be correct and such forward-looking statements should not be unduly relied upon.
Various material factors and assumptions are typically applied in drawing conclusions or making the forecasts or projections set out in forward-looking statements. Those material factors and assumptions are based on information currently available to the Company, including information obtained from third party industry analysts and other third party sources. In some instances, material assumptions and material factors are presented elsewhere in this news release in connection with the forward-looking statements. You are cautioned that the following list of material factors and assumptions is not exhaustive. Specific material factors and assumptions include, but are not limited to:
- the performance of Cathedral's businesses, including current business and economic trends;
- oil and natural gas commodity prices and production levels;
- capital expenditure programs and other expenditures by Cathedral and its customers:
- the ability of Cathedral to retain and hire qualified personnel;
- the ability of Cathedral to obtain parts, consumables, equipment, technology, and supplies in a timely manner to carry out its activities;
- the ability of Cathedral to maintain good working relationships with key suppliers;
- the ability of Cathedral to market its services successfully to existing and new customers;
- the ability of Cathedral to obtain timely financing on acceptable terms;
- currency exchange and interest rates;
- risks associated with foreign operations;
- the ability of Cathedral to realize the benefits of its conversion from an income trust to a corporation;
- risks associated with winding up operations in Venezuela, including the ability to sell Cathedral's interest in the Venezuela joint venture;
- changes under governmental regulatory regimes and tax, environmental and other laws in Canada, United States ("U.S.") and Venezuela; and
- a stable competitive environment.
Forward-looking statements are not a guarantee of future performance and involve a number of risks and uncertainties some of which are described herein. Such forward-looking statements necessarily involve known and unknown risks and uncertainties, which may cause the Company's actual performance and financial results in future periods to differ materially from any projections of future performance or results expressed or implied by such forward-looking statements. These risks and uncertainties include, but are not limited to, the risks identified in this news release and in the Company's Annual Information Form under the heading "Risk Factors". Any forward-looking statements are made as of the date hereof and, except as required by law, the Company assumes no obligation to publicly update or revise such statements to reflect new information, subsequent or otherwise.
All forward-looking statements contained in this news release are expressly qualified by this cautionary statement. Further information about the factors affecting forward-looking statements is available in the Company's current Annual Information Form and Annual Report which have been filed with Canadian provincial securities commissions and are available on www.sedar.com.
NON-GAAP MEASUREMENTS
This news release refers to certain non-GAAP measurements that do not have any standardized meaning within IFRS and therefore may not be comparable to similar measures provided by other companies. Management utilizes these non-GAAP measurements to evaluate Cathedral's performance.
The specific measures being referred to include the following:
i) "Adjusted gross margin" - calculated as gross margin plus non-cash items (depreciation and share-based compensation); is considered a primary indicator of operating performance (see tabular calculation);
ii) "Adjusted gross margin %" - calculated as adjusted gross margin divided by revenues; is considered a primary indicator of operating performance (see tabular calculation);
iii) "EBITDAS" - defined as earnings before share of income/loss from associate, finance costs, unrealized foreign exchange on intercompany balances, unrealized foreign exchange due to hyper-inflation accounting, taxes, non-recurring gains and losses on disposal of property and equipment (see non-GAAP measurement), depreciation and share-based compensation plus dividends from associate; is considered an indicator of the Company's ability to generate funds flow from operations prior to consideration of how activities are financed, how the results are taxed and measured and non-cash expenses (see tabular calculation);
iv) "Funds from operations" - calculated as cash provided by operating activities before changes in non-cash working capital and income taxes paid less current tax expense; is considered an indicator of the Company's ability to generate funds flow from operations on an after tax basis but excluding changes in non-cash working capital which is financed using the Company's operating loan (see tabular calculation);
v) "Growth property and equipment additions" or "Growth capital" – is capital spending which is intended to result in incremental revenues. Growth capital is considered to be a key measure as it represents the total expenditures on property and equipment expected to add incremental revenues and funds flow to the Company;
vi) "Maintenance property and equipment additions" or "Maintenance capital" – is capital spending incurred in order to refurbish or replace previously acquired other than "replacement property and equipment additions" (see non-GAAP measurement). Such additions do not provide incremental revenues. Maintenance capital is a key component in understanding the sustainability of the Company's business as cash resources retained within Cathedral must be sufficient to meet maintenance capital needs to replenish the assets for future cash generation;
vii) "Replacement property and equipment additions" or "Replacement capital" – is capital spending incurred in order to replace equipment that is lost downhole. Cathedral recovers lost-in-hole costs including previously expensed depreciation on the related assets from customers. Such additions do not provide incremental revenues. The identification of replacement property and equipment additions is considered important as such additions are financed by way of proceeds on disposal of property and equipment (see discussion within the news release on "gain on disposal of property and equipment);
viii) "Infrastructure property and equipment additions" or "Infrastructure capital" – is capital spending incurred on land, buildings and leasehold improvements. Infrastructure capital is a component in understanding the sustainability of the Company's business as cash resources retained within Cathedral must be sufficient to meet maintenance capital needs
ix) "Non-recurring gains and losses on disposal of property and equipment" – are disposals of property and equipment that do not occur on a regular or periodic basis. Unlike the lost-in-hole recoveries the proceeds from these gains are not used on equivalent replacement property. These are often on non-field equipment such as land and buildings;
x) "Net property and equipment additions" – is property and equipment additions expenditures less proceeds on the regular disposal of property and equipment (the proceeds on sale of land and buildings have been excluded). Cathedral uses net property and equipment additions to assess net cash flows related to the financing of Cathedral's property and equipment additions;
xi) "Borrowing capacity" - is total available credit facility less drawings on credit facilities; and
xii) "Net debt" – is loans and borrowing less working capital. Management uses net debt as a metric to shows the Company's overall debt level.
The following tables provide reconciliations from GAAP measurements to non-GAAP measurements referred to in this news release:
| Adjusted gross margin |
|||||||||||
| Three months ended June 30 |
Six months ended June 30 |
||||||||||
| 2014 |
2013 |
2014 |
2013 |
||||||||
| Gross margin |
$ |
6,418 |
$ |
5,266 |
$ |
15,923 |
$ |
13,883 |
|||
| Add non-cash items included in cost of sales: |
|||||||||||
| Depreciation |
4,733 |
4,709 |
9,197 |
9,374 |
|||||||
| Share-based compensation |
25 |
43 |
73 |
119 |
|||||||
| Adjusted gross margin |
$ |
11,176 |
$ |
10,018 |
$ |
25,193 |
$ |
23,376 |
|||
| Adjusted gross margin % |
19.7% |
22.0% |
20.2% |
23.4% |
|||||||
| EBITDAS |
|||||||||||
| Three months ended June 30 |
Six months ended June 30 |
||||||||||
| 2014 |
2013 |
2014 |
2013 |
||||||||
| Earnings (loss) before income taxes |
$ |
1,023 |
$ |
(681) |
$ |
3,899 |
$ |
2,106 |
|||
| Add (deduct): |
|||||||||||
| Depreciation included in cost of sales |
4,733 |
4,709 |
9,197 |
9,374 |
|||||||
| Depreciation included in selling, general and administrative expenses |
69 |
159 |
130 |
316 |
|||||||
| Share-based compensation included in cost of sales |
25 |
43 |
73 |
119 |
|||||||
| Share-based compensation included in selling, general and administrative expenses |
27 |
134 |
109 |
345 |
|||||||
| Unrealized foreign exchange (gain) loss on intercompany balances |
(332) |
330 |
122 |
542 |
|||||||
| Finance costs |
606 |
648 |
1,202 |
1,128 |
|||||||
| Share of loss from associate |
- |
- |
- |
4 |
|||||||
| EBITDAS |
$ |
6,151 |
$ |
5,342 |
$ |
14,732 |
$ |
13,934 |
|||
| Funds from operations |
||||
| Three months ended June 30 |
Six months ended June 30 |
|||
| 2014 |
2013 |
2014 |
2013 |
|
| Cash flow from operating activities |
$ 11,758 |
$ 7,469 |
$ 13,352 |
$ 2,728 |
| Add (deduct): |
||||
| Changes in non-cash operating working capital |
(7,455) |
(5,013) |
(1,142) |
7,628 |
| Income taxes paid |
968 |
1,761 |
908 |
1,948 |
| Current tax expense |
(1,504) |
(641) |
(1,231) |
(1,221) |
| Funds from operations |
$ 3,767 |
$ 3,576 |
$ 11,887 |
$ 11,083 |
Cathedral Energy Services Ltd. (the "Company" or "Cathedral") is incorporated under the Business Corporations Act (Alberta). The Company is publicly traded on the Toronto Stock Exchange under the symbol "CET". The Company together with its wholly owned subsidiary, Cathedral Energy Services Inc., is engaged in the business of providing selected oilfield services to oil and natural gas companies in western Canada and selected oil and natural gas basins in the U.S. In early 2014, Cathedral decided to terminate pursuit of operations in Venezuela. The Company strives to provide its customers with value added technologies and solutions to meet their drilling and production testing requirements. For more information, visit www.cathedralenergyservices.com.
SOURCE: Cathedral Energy Services Ltd.
Requests for further information should be directed to: P. Scott MacFarlane, President, Chief Executive Officer and Interim Chief Financial Officer or Randy Pustanyk, Executive Vice President and Chief Operating Officer, Cathedral Energy Services Ltd., 6030 3 Street S.E., Calgary, Alberta T2H 1K2, Telephone: 403.265.2560, Fax: 403.262.4682, www.cathedralenergyservices.com
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