Cathedral Energy Services Ltd. reports results for 2013 Q2 and 2013 Q3 dividend
/NOT FOR DISSEMINATION IN THE UNITED STATES OF AMERICA/
CALGARY, Aug. 13, 2013 /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, 2013 and 2012. 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.
2013 Q2 KEY TAKEAWAYS
- $0.075/ share dividend for 2013 Q2 paid in July 2013 and approved a $0.075/share dividend for 2013 Q3;
- Expanded U.S. production testing with 3 new high pressure units for a total of 33 U.S. units. During 2013, the Company entered the Texas market and now has a fleet of 7 units in the region;
- 2013 Q2 set a record for U.S. production testing revenue. This is the second consecutive quarter of record revenues for U.S. production testing;
- Continued growth in U.S. directional drilling activity;
- Combined U.S. revenues have increased 10% on a year-to-date basis;
- Successfully drilled several wells in an Oklahoma basin with the Company's proprietary Fusion EM/MWD platform ("Fusion MWD platform") in formations where other services providers have not had success with EM technology. This is expected to open new opportunities for long-term work;
- Canadian operations were reduced due to weather and customer delays; and
- The Company's international subsidiaries completed signing of all required agreements with Vencana Servicios Petroleros, S.A. ("Vencana") in which the Company has 40% ownership.
2013 Q2 FINANCIAL SUMMARY
| Three months ended June 30 | Six months ended June 30 | ||||||||
| 2013 | 2012 | 2013 | 2012 | ||||||
| Revenues | $ | 45,639 | $ | 40,699 | $ | 99,713 | $ | 108,528 | |
| Adjusted gross margin % (1) | 22.0% | 19.1% | 23.4% | 28.4% | |||||
| EBITDAS (1) | $ | 5,342 | $ | 2,068 | $ | 13,934 | $ | 24,024 | |
| Diluted per share | $ | 0.15 | $ | 0.05 | $ | 0.38 | $ | 0.63 | |
| EBITDAS (1) as % of revenues | 11.7% | 5.1% | 14.0% | 22.1% | |||||
| Funds from operations (1) | $ | 3,576 | $ | 1,148 | $ | 11,083 | $ | 18,645 | |
| Diluted per share | $ | 0.10 | $ | 0.03 | $ | 0.30 | $ | 0.49 | |
| Net earnings | $ | (309) | $ | (3,222) | $ | 1,750 | $ | 9,406 | |
| Basic per share | $ | (0.01) | $ | (0.09) | $ | 0.05 | $ | 0.25 | |
| Diluted per share | $ | (0.01) | $ | (0.09) | $ | 0.05 | $ | 0.25 | |
| Dividends declared per share | $ | 0.075 | $ | 0.075 | $ | 0.150 | $ | 0.150 | |
| Property and equipment additions (cash) | $ | 6,476 | $ | 6,542 | $ | 13,174 | $ | 18,487 | |
| Weighted average shares outstanding | |||||||||
| Basic (000s) | 35,854 | 37,485 | 36,307 | 37,420 | |||||
| Diluted (000s) | 35,898 | 37,744 | 36,361 | 37,911 | |||||
| June 30 | December 31 | ||||||||
| 2013 | 2012 | ||||||||
| Working capital | $ | 23,686 | $ | 29,173 | |||||
| Total assets | $ | 230,572 | $ | 224,080 | |||||
| Loans and borrowings excluding current portion | $ | 51,345 | $ | 46,151 | |||||
| Total shareholders' equity | $ | 132,464 | $ | 137,932 | |||||
| (1) see "NON-GAAP MEASUREMENTS" | |||||||||
OVERVIEW
The Company completed 2013 Q2 with quarterly revenues of $45,639 and year-to-date revenues of $99,713 compared to 2012 Q2 revenues of $40,699 and 2012 year-to-date revenues of $108,528. Year-to-date revenues have decreased 8% from 2012. The 2013 Q2 revenues were comprised of 60% (2012 Q2 - 65%) from the directional drilling division, 28% (2012 Q2 - 35%) from the production testing division and 12% (2012 Q2 - nil) from international operations.
2013 Q2 EBITDAS were $5,342 ($0.15 per share diluted) which represents a $3,274 increase from 2012 Q2 EBITDAS of $2,068 ($0.05 per share diluted). For the three months ended June 30, 2013, the Company's loss was $309 ($0.01 per share diluted) as compared to a loss $3,222 ($0.09 per share diluted) in 2012. The quarter-over-quarter increase in EBITDAS is due to 2013 Q2 including international resale of equipment to Cathedral's Venezuela joint venture, increased operating levels in both U.S. divisions, offset by a decline in Canadian operating levels. 2013 year-to-date EBITDAS was $13,934 ($0.38 per share diluted) which represents a $10,090 or 42% decrease from $24,024 ($0.63 per share diluted) in 2012. On a 2013 year-to-date basis, the Company's net income was $1,750 ($0.05 per share diluted) as compared to a $9,406 ($0.25 per share diluted) in 2012.
OUTLOOK
The investment in the U.S. continues to be the focus of the Company. This investment is beginning to bear fruit as both the Texas and new Oklahoma regions are seeing increased activity levels. This along with the success of Cathedral's Fusion MWD platform and "nDurance" mud motors is leading to positive events happening in all of Cathedral's U.S. operating regions.
Cathedral continues to see delays in Canadian field operations as weather has been an issue that has carried on since late Q2. The rig count continues to lag that of last year. The access to capital has continued to be an issue for most Canadian oil and natural gas operators, although Canadian oil differentials have tightened.
The Company continues to move forward with its Venezuelan joint venture. The Company's subsidiaries have now signed all required agreements prior to commencement of operations. Over the last few months there has been a renewed urgency to move things forward with the Venezuelan national oil company and its subsidiaries. The Company's Directional Plus International Ltd. subsidiary is now focused on delivering the remaining required equipment to initiate operations.
Cathedral has signed a non-binding letter of intent for the sale and leaseback of its Calgary 6030 Campus and its Nisku, Alberta motor repair facility. The net proceeds are expected to be approximately $22,000 and will be used to reduce debt. The sale is expected to close in September 2013.
Cathedral has renewed its normal course issuer bid as it believes that the trading price of its common shares does not accurately reflect the value of the Company and it will assist in stabilizing the trading price and to provide liquidity in the market for its shareholders.
The Company has expanded its 2013 capital program by an additional $5,000. This will allow the Company to continue its expansion in the Texas, Oklahoma and Rocky Mountain regions of the U.S.
2013 CAPITAL PROGRAM
For the six months ended June 30, 2013 the Company has invested an additional $13,174 (2012 - $18,487) in property and equipment. The main 2013 capital additions were upgrades and replacement of downhole tools, the addition of 3 retrievable positive pulse systems, 3 high pressure production testing units and auxiliary production testing equipment. In 2013, $5,956 of the additions related to growth capital, with the remaining $7,218 for maintenance, upgrade and replacement capital. . The net property and equipment additions (additions net of proceeds on the disposal of property and equipment) to date in 2013 were $10,556 (2012 - $12,099).
The following is a summary of major equipment owned by the Company:
| June 30 | December 31 | June 30 | |
| 2013 | 2012 | 2012 | |
| Directional drilling - MWD systems (1) | 134 | 136 | 129 |
| Production testing units | 72 | 69 | 67 |
| (1) The Company has 15 Geolink MWD systems that have been excluded from the June 30, 2013 figures as they are held for sale. As at June 30 and December 31, 2012 there were 10 Geolink MWD systems that were excluded. | |||
Cathedral's 2013 capital budget has increased by $5,000 for U.S. drilling expansion. The budget has increased from the initially announced amount of $22,000 to $27,000.
The additional $5,000 is for additional capital for the drilling division are addition of mud motors, drill collars and power sections for the expected expansion of Company's U.S. Rocky Mountain, Houston and Oklahoma City operation bases.
The maintenance capital remains unchanged at $12,000.
These capital expenditures are expected to be financed by way of cash flow from operations, proceeds of disposal of property and equipment and the Company's credit facility.
RESULTS OF OPERATIONS - THREE MONTHS ENDED JUNE 30
| Three months ended June 30, 2013 | Three months ended June 30, 2012 | |||||||
| Directional | Production | Resale | Directional | Production | ||||
| Revenues | drilling | testing | and Rental | Total | drilling | testing | Total | |
| Canada | $ 8,650 | $ 4,066 | $ - | $ 12,716 | $ 10,522 | $ 6,368 | $ 16,890 | |
| United States | 18,835 | 8,914 | - | 27,749 | 15,988 | 7,821 | 23,809 | |
| International | - | - | 5,174 | 5,174 | - | - | - | |
| Total | $ 27,485 | $ 12,980 | $ 5,174 | $ 45,639 | $ 26,510 | $ 14,189 | $ 40,699 | |
Revenues 2013 Q2 revenues were $45,639 which represented an increase of $4,940 or 12% from 2012 Q2 revenues of $40,699. The increase was attributed to international and U.S. operations which were offset by declines in Canada operations.
Canadian directional drilling revenues decreased from $10,522 in 2012 Q2 to $8,650 in 2013 Q2; an 18% decrease. This decrease was the result of: i) a 15% decrease in activity days from 801 in 2012 Q2 to 679 in 2013 Q2; and ii) a 3% decrease in the average day rate from $13,136 in 2012 Q2 to $12,739 in 2013 Q2. Canadian activity days decreased due to a number of factors including: i) a decline in industry activity due to oil take away restrictions; marginal natural gas prices and a general lack of access to equity markets; ii) a decline in work for a significant client that carried over from 2013 Q1: and iii), a slow start after the spring break-up and further delays due to weather in June that pushed start dates for certain jobs in to 2013 Q3.
U.S. directional drilling revenues increased from $15,988 in 2012 Q2 to $18,835 in 2013 Q2; an 18% increase. This increase was the result of: i) a 7% increase in activity days from 1,493 in 2012 Q2 to 1,602 in 2013 Q2; and ii) a 10% increase in the average day rate from $10,709 in 2012 Q2 to $11,757 in 2013 Q2 (when converted to Canadian dollars). The increase in U.S. activity days were due to increased traction in the Texas and Oklahoma markets, offset by reduced drilling in the Rocky Mountain and Pennsylvania areas within the existing client base. The increased average day rate was mainly due to higher rates that were achieved in the Rocky Mountain and Texas regions.
Canadian production testing revenues decreased from $6,368 in 2012 Q2 to $4,066 in 2013 Q2; a 36% decrease. The Canadian operations were affected by a general industry wide decline in wells completed in 2013 Q2 versus 2012 Q2 and client specific delays in completion work that has been deferred into 2013 Q3.
U.S. production testing revenues increased from $7,821 in 2012 Q2 to $8,914 in 2013 Q2; a 14% increase. This increase is attributable to having 3 additional units in 2013 Q2 versus 2012 Q2 and expansion into the Eagleford (Texas) market.
Gross margin and adjusted gross margin The gross margin for 2013 Q2 was 11.5% compared to 7.8% in 2012 Q2. Adjusted gross margin for 2013 Q2 was $10,018 (22.0%) compared to $7,792 (19.1%) for 2012 Q2. The increase in adjusted gross margin of 2.9% 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 2012 Q2.
In the Canadian and U.S. drilling markets, there have been declines in the total per day revenue rates which have a negative effect on the gross margin realized. The Canadian testing division saw increased labour costs due to increased use of senior field personnel while the U.S. testing division saw a slight decline in labour costs. The increased labour costs were offset by decreases in repairs and battery costs, for the overall slight increase in North American margin.
Depreciation allocated to cost of sales increased from $4,530 in 2012 Q2 to $4,709 in 2013 Q2 due to capital additions in the period from 2012 Q2 to 2013 Q2. Depreciation included in cost of sales as a percentage of revenue was 10.3% for 2013 Q2 and 11.1% in 2012 Q2.
Selling, general and administrative expenses ("SG&A") SG&A expenses were $6,151 in 2013 Q2; an increase of $108 compared with $6,043 in 2012 Q2. As a percentage of revenue, these costs were 13% in 2013 Q2 and 15% in 2012 Q2. Non-cash expenses total $293 for 2013 Q2 and $405 for 2012 Q2. SG&A net of these non-cash items were $5,858 in 2013 Q2 and $5,638 in 2012 Q2, an increase of $220.
Wages increased $351; this increase was primarily related to staff additions for research and development department and staff positions added to accommodate current and future U.S. growth; net of decreases in variable compensation. The staffing costs included in SG&A relate to executives, sales, accounting, human resources, payroll, safety, research and development and related support staff. The remaining net decrease of $131 relates to various changes none of which are individually significant.
Gain on disposal of property and equipment During 2013 Q2 the Company had a gain on disposal of property and equipment of $1,125, compared to $28 in 2012 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 loss The Company's foreign exchange loss of $315 in 2012 Q2 has declined to a loss of $273 in 2013 Q2 due to the fluctuations in the Canadian dollar compared to U.S. dollars and Venezuelan bolivars. 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 2013 Q2 foreign currency loss are unrealized losses of $330 (2012 Q2 - $201) related to intercompany balances.
Finance costs Finance costs consist of interest expenses on operating loans, loans and borrowings and bank charges of $648 for 2013 Q2 versus $513 for 2012 Q2. The increase in finance costs relate to increases in interest rates as well as increased utilization of the Company's operating loan.
Income tax For 2013 Q2, the Company had an income tax recovery of $372 compared to $428 in 2012 Q2. The effective tax rate was 55% for 2013 Q2 and 12% for 2012 Q2. 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 2013 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%.
RESULTS OF OPERATIONS - SIX MONTHS ENDED JUNE 30
| Six months ended June 30, 2013 | Six months ended June 30, 2012 | |||||||
| Directional | Production | Resale | Directional | Production | ||||
| Revenues | drilling | testing | and Rental | Total | drilling | testing | Total | |
| Canada | $ 32,244 | $ 11,832 | $ - | $ 44,076 | $ 44,034 | $ 18,753 | $ 62,787 | |
| United States | 33,344 | 17,119 | - | 50,463 | 30,895 | 14,846 | 45,741 | |
| International | - | - | 5,174 | 5,174 | - | - | - | |
| Total | $ 65,588 | $ 28,951 | $ 5,174 | $ 99,713 | $ 74,929 | $ 33,599 | $ 108,528 | |
Revenues 2013 revenues were $99,713 which represented a decrease of $8,815 or 8% from 2012 revenues of $108,528. The increase was attributed to international and U.S. operations which were offset by declines in Canada operations.
Canadian directional drilling revenues decreased from $44,034 in 2012 to $32,244 in 2013; a 27% decrease. This decrease was the result of: i) a 21% decrease in activity days from 3,514 in 2012 to 2,781 in 2013; and ii) a 7% decrease in the average day rate from $12,531 in 2012 to $11,594 in 2013. Canadian activity days decreased due to a number of factors including: i) a decline in industry activity due to oil take away restrictions, marginal natural gas prices and a general lack of access to equity markets; ii) a decline in work for a significant client; and iii) a slow start after the spring break-up and further delays due to weather in June that pushed start dates for certain jobs in to 2013 Q3. There were new clients added, but these were not enough to offset the decreased work on existing clients.
U.S. directional drilling revenues increased from $30,895 in 2012 to $33,344 in 2013; an 8% increase. This increase was the result of: i) an1% increase in activity days from 2,915 in 2012 to 2,931 in 2013; and ii) a 7% increase in the average day rate from $10,599 in 2012 to $11,376 in 2013 (when converted to Canadian dollars). The increase in U.S. activity days were due to increased traction in the Texas and Oklahoma markets, offset by reduced drilling in the Rocky Mountain and Pennsylvania areas within the existing client base. The increased average day rate is increase was due to increases that were achieved in the Rocky Mountain and Texas regions, net of declines in the northeast.
Canadian production testing revenues decreased from $18,753 in 2012 to $11,832 in 2013; a 37% decrease. The Canadian operations were affected by a general industry wide decline in wells completed and client specific delays in completion work that has resulted in such work being delayed until 2013 Q3.
U.S. production testing revenues increased from $14,846 in 2012 to $17,119 in 2013; a 15% increase. This increase is attributable to having 3 additional units in 2013 versus 2012 and expansion into the Eagleford (Texas) market.
Gross margin and adjusted gross margin The gross margin for 2013 was 13.9% compared to 20.2% in 2012. Adjusted gross margin for 2013 was $23,376 (23.4%) compared to $30,856 (28.4%) for 2012. The decrease in adjusted gross margin of 5.0% was offset in part to the impact of international operations. Excluding international operations, adjusted gross margin for 2013 was 22.6%.
In the Canadian and U.S. drilling markets, there have been declines in the total per day revenue rates which have a negative effect on the gross margin realized. The Canadian production testing division saw increased labour costs due to increased use of senior field personnel while the U.S. production testing division saw a slight decline in labour costs. In addition there were increases in costs for accommodation of field staff and increases in non-field wages. The increase in non-field wages relates to the continued build out of personnel in the Houston, Texas facility and staff for the newly established facility in Oklahoma City, Oklahoma. The Company is expecting increased levels of activity from the markets covered by these facilities. Despite Cathedral's highly variable field cost structure, non-field salaries are of a fixed nature and therefore when the Company's revenue declines as which was experienced in the Canadian market, such costs become a higher percentage of revenues.
Depreciation allocated to cost of sales increased from $8,794 in 2012 to $9,374 in 2013 due to capital additions in the period from July 2012 to June 2013. Depreciation included in cost of sales as a percentage of revenue was 9.4% for 2013 and 8.1% in 2012.
Selling, general and administrative expenses ("SG&A") SG&A expenses were $11,722 in 2013; an increase of $238 compared with $11,484 in 2012. As a percentage of revenue, these costs were 12% in 2013 and 11% in 2012. Non-cash expenses total $661 for 2013 and $829 for 2012. SG&A net of these non-cash items were $11,061 in 2013 and $10,655 in 2012, an increase of $406.
In 2013 Q1, there was a recovery of international SG&A offset by one-time costs for severance. The recovery of international SG&A was from the Company's joint venture partner in Vencana Servicios Petroleros, S.A. ("Vencana"), of which Cathedral owns 40%, for amounts previously expended by the Company on the start-up of Vencana. These costs had been previously expensed by Cathedral. The Company is currently in negotiations with its joint venture partner for the re-imbursement of additional costs. If we remove these items from SG&A, net of non-cash items, adjusted SG&A was $11,644 in 2013 compared to $10,655 in 2012 Q1, an increase of $989.
Wages increased $2,088; this increase was primarily related to staff additions for research and development department and staff positions added to accommodate current and future U.S. growth, net of decreases in variable compensation. The staffing costs included in SG&A relate to executives, sales, accounting, human resources, payroll, safety, research and development and related support staff. The remaining net decrease of $244 relates to various changes none of which are individually significant.
Gain on disposal of property and equipment During 2013 the Company had a gain on disposal of property and equipment of $1,630, compared to $3,732 in 2012. Included in the 2012 gain of $3,732 was $2,034 related to the sale of property and equipment by Cathedral's subsidiaries to Vencana. The Vencana related portion of the gain includes the portion of the gain related to the joint venture partner's share. The Company's remaining 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's foreign exchange loss of $54 in 2012 has increased to a loss of $553 in 2013 due to the fluctuations in the Canadian dollar compared to U.S. dollars and Venezuelan bolivars. 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 2013 foreign currency loss are unrealized losses of $542 (2012 - $145) related to intercompany balances.
Finance costs Finance costs consist of interest expenses on operating loans, loans and borrowings and bank charges of $1,128 for 2013 versus $1,086 for 2012. The increase in finance costs relate to increases in interest rates as well as increased utilization of the Company's operating loan.
Income tax For 2013, the Company had an income tax expense of $356 compared to $3,593 in 2012. The effective tax rate was 17% for 2013 and 28% 2012. 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 2013 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 year-to-date tax rate of 17%.
LIQUIDITY AND CAPITAL RESOURCES
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, 2013, the Company had funds from operations of $11,083 (2012 - $18,645). The decline in funds from operations is due to the Company's reduced levels of Canadian source revenues on a year-over-year basis.
At June 30, 2013 the Company had a working capital position of $23,686 (December 31, 2012 - $29,173) and a working capital ratio of 1.52 to 1 (December 31, 2012 - 1.75 to 1).
The following table outlines the current credit facility:
| June 30 | December 31 | |||||||
| 2013 | 2012 | |||||||
| Available credit facility | $ | 75,000 | $ | 75,000 | ||||
| Drawings on credit facility: | ||||||||
| Operating loan | 13,133 | 880 | ||||||
| Revolving term loan | 50,000 | 45,000 | ||||||
| Total drawn facility | $ | 63,133 | $ | 45,880 | ||||
| Borrowing capacity (see NON-GAAP MEASUREMENTS) | $ | 11,867 | $ | 29,120 | ||||
| Net debt (see NON-GAAP MEASUREMENTS): | ||||||||
| Loans and borrowings, net of current portion | $ | 51,345 | $ | 46,151 | ||||
| Working capital: | ||||||||
| Current assets | $ | 69,463 | $ | 68,142 | ||||
| Current liabilities | (45,777) | (38,969) | ||||||
| Working capital | $ | 23,686 | $ | 29,173 | ||||
| Net debt | $ | 27,659 | $ | 16,978 | ||||
The Company's credit facility includes a $35,000 accordion feature which is subject to approval of the Company's bank. As at June 30, 2013, the Company is in compliance with all covenants under its credit facility. During 2013 Q2, the credit facility was renewed with new expiry date of June 30, 2014.
NORMAL COURSE ISSUER BID
In 2013 Q2, the Company repurchased and cancelled an additional 416,521 common shares at a cost of $1,730 or an average cost of $4.15 per common share. A total of 1,838,075 of common share at a cost of $8,395 or an average cost of $4.57 per common share were repurchased under the Company's Normal Course Issuer Bid that expired on June 19, 2013. The Normal Course Issuer Bid was renewed and has an expiry date of July 7, 2014. At August 13, 2013, the Company has 35,824,877 common shares and 3,288,733 share options outstanding.
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 2013 Q3 dividend in the amount of $0.075 per share which will have a date of record of September 30, 2013 and a payment date of October 15, 2013.
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
June 30, 2013 and December 31, 2012
Dollars in '000s
(unaudited)
| June 30 | December 31 | ||||
| 2013 | 2012 | ||||
| Assets | |||||
| Current assets: | |||||
| Cash and cash equivalents | $ | 5,723 | $ | 8,470 | |
| Trade receivables | 39,530 | 36,094 | |||
| Current taxes recoverable | 897 | 153 | |||
| Prepaid expenses | 9,039 | 10,419 | |||
| Inventories | 14,274 | 13,006 | |||
| Total current assets | 69,463 | 68,142 | |||
| Property and equipment | 137,579 | 135,093 | |||
| Intangible assets | 589 | 719 | |||
| Deferred tax assets | 10,147 | 9,379 | |||
| Investment in associate | 6,946 | 4,899 | |||
| Goodwill | 5,848 | 5,848 | |||
| Total non-current assets | 161,109 | 155,938 | |||
| Total assets | $ | 230,572 | $ | 224,080 | |
| Liabilities and Shareholders' Equity | |||||
| Current liabilities: | |||||
| Operating loan | $ | 13,133 | $ | 880 | |
| Trade and other payables | 21,030 | 21,773 | |||
| Dividends payable | 2,687 | 2,768 | |||
| Loans and borrowings | 662 | 711 | |||
| Deferred revenue | 8,265 | 12,837 | |||
| Total current liabilities | 45,777 | 38,969 | |||
| Loans and borrowings | 51,345 | 46,151 | |||
| Deferred tax liabilities | 986 | 1,028 | |||
| Total non-current liabilities | 52,331 | 47,179 | |||
| Total liabilities | 98,108 | 86,148 | |||
| Shareholders' equity: | |||||
| Share capital | 72,244 | 74,408 | |||
| Contributed surplus | 9,322 | 8,863 | |||
| Accumulated other comprehensive loss | (541) | (2,679) | |||
| Retained earnings | 51,439 | 57,340 | |||
| Total shareholders' equity | 132,464 | 137,932 | |||
| Total liabilities and shareholders' equity | $ | 230,572 | $ | 224,080 | |
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Three and six months ended June 30, 2013 and 2012
Dollars in '000s except per share amounts
(unaudited)
| Three months ended June 30 | Six months ended June 30 | ||||||||
| 2013 | 2012 | 2013 | 2012 | ||||||
| Revenues | $ | 45,639 | $ | 40,699 | $ | 99,713 | $ | 108,528 | |
| Cost of sales: | |||||||||
| Direct costs | (35,621) | (32,907) | (76,337) | (77,672) | |||||
| Depreciation | (4,709) | (4,530) | (9,374) | (8,794) | |||||
| Share-based compensation | (43) | (69) | (119) | (171) | |||||
| Total cost of sales | (40,373) | (37,506) | (85,830) | (86,637) | |||||
| Gross margin | 5,266 | 3,193 | 13,883 | 21,891 | |||||
| Selling, general and administrative expenses: | |||||||||
| Direct costs | (5,858) | (5,638) | (11,061) | (10,655) | |||||
| Depreciation | (159) | (159) | (316) | (315) | |||||
| Share-based compensation | (134) | (246) | (345) | (514) | |||||
| Total selling, general and administrative expenses | (6,151) | (6,043) | (11,722) | (11,484) | |||||
| (885) | (2,850) | 2,161 | 10,407 | ||||||
| Gain on disposal of property and equipment | 1,125 | 28 | 1,630 | 3,732 | |||||
| Earnings (loss) from operating activities | 240 | (2,822) | 3,791 | 14,139 | |||||
| Foreign exchange loss | (273) | (315) | (553) | (54) | |||||
| Finance costs | (648) | (513) | (1,128) | (1,086) | |||||
| Share of loss from associate | - | - | (4) | - | |||||
| Earnings (loss) before income taxes | (681) | (3,650) | 2,106 | 12,999 | |||||
| Income tax recovery (expense): | |||||||||
| Current expense | (641) | (892) | (1,221) | (1,647) | |||||
| Deferred recovery (expense) | 1,013 | 1,320 | 865 | (1,946) | |||||
| Total income tax recovery (expense) | 372 | 428 | (356) | (3,593) | |||||
| Net earnings (loss) | (309) | (3,222) | 1,750 | 9,406 | |||||
| Other comprehensive income: | |||||||||
| Foreign currency translation differences for foreign operations | 1,433 | 940 | 2,138 | 293 | |||||
| Total comprehensive income (loss) | $ | 1,124 | $ | (2,282) | $ | 3,888 | $ | 9,699 | |
| Net earnings (loss) per share | |||||||||
| Basic | $ | (0.01) | $ | (0.09) | $ | 0.05 | $ | 0.25 | |
| Diluted | $ | (0.01) | $ | (0.09) | $ | 0.05 | $ | 0.25 | |
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
Six months ended June 30, 2013 and 2012
Dollars in '000s
(unaudited)
| 2013 | 2012 | |||||
| Cash provided by (used in): | ||||||
| Operating activities: | ||||||
| Net earnings from continuing operations | $ | 1,750 | $ | 9,406 | ||
| Items not involving cash: | ||||||
| Depreciation | 9,690 | 9,109 | ||||
| Total income tax expense | 356 | 3,593 | ||||
| Unrealized foreign exchange loss on intercompany balances | 542 | 145 | ||||
| Finance costs | 1,128 | 1,086 | ||||
| Share-based compensation | 464 | 685 | ||||
| Gain on disposal of property and equipment | (1,630) | (3,732) | ||||
| Share of loss from associate | 4 | - | ||||
| Cash flow from continuing operations | 12,304 | 20,292 | ||||
| Changes in non-cash operating working capital | (7,628) | 41,950 | ||||
| Income taxes paid | (1,948) | (3,013) | ||||
| Cash flow from operating activities | 2,728 | 59,229 | ||||
| Investing activities: | ||||||
| Property and equipment additions | (13,174) | (18,487) | ||||
| Intangible asset additions | - | (677) | ||||
| Proceeds on disposal of property and equipment | 2,618 | 6,388 | ||||
| Investment in associate | (1,580) | - | ||||
| Changes in non-cash investing working capital | (56) | 503 | ||||
| Cash flow used ininvesting activities | (12,192) | (12,273) | ||||
| Financing activities: | ||||||
| Change in operating loan | 12,272 | (12,888) | ||||
| Interest paid | (1,220) | (1,094) | ||||
| Advances of loans and borrowings | 5,000 | - | ||||
| Repayments on loans and borrowings | (278) | (251) | ||||
| Proceeds on exercise of share options | 25 | 786 | ||||
| Repurchase of common shares | (4,434) | (50) | ||||
| Dividends paid | (5,492) | (5,048) | ||||
| Cash flow from (used in) financing activities | 5,873 | (18,545) | ||||
| Effect of exchange rate on changes in cash and cash equivalents | 844 | 144 | ||||
| Change in cash and cash equivalents | (2,747) | 28,555 | ||||
| Cash and cash equivalents, beginning of period | 8,470 | 2,902 | ||||
| Cash and cash equivalents, end of period | $ | 5,723 | $ | 31,457 | ||
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: capital expenditures are expected to be financed by way of cash flow from operations and the Company's credit facility; development and deployment of new technologies; expected growth in the U.S. market on a quarter-over-quarter basis for the remainder of the year in both operating divisions; components of expected 2013 capital budget and financing thereof; timing of payment of purchase commitments; expected activity levels; future expansion; that no further agreements are required to be signed prior to commencement of operations in Venezuela; intent to pay quarterly dividends; sources to fund liquidity requirements; and reduction in debt levels from the sale and leaseback transaction. 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 the Company's businesses, including current business and economic trends;
- oil and natural gas commodity prices and production levels;
- capital expenditure programs and other expenditures by the Company and its customers;
- the ability of the Company to retain and hire qualified personnel;
- the ability of the Company to obtain parts, consumables, equipment, technology, and supplies in a timely manner to carry out its activities;
- the ability of the Company to maintain good working relationships with key suppliers;
- the ability of the Company to market its services successfully to existing and new customers;
- the ability of the Company to obtain timely financing on acceptable terms;
- currency exchange and interest rates;
- risks associated with foreign operations including Venezuela;
- the ability of the Company to realize the benefit of its conversion from an income trust to a corporation;
- risks associated with finalizing ancillary joint venture agreements that are required prior to the commencement of operations of the Venezuela joint venture;
- risks associated with Venezuela joint venture company being awarded work by the Venezuela state run oil and natural gas corporation;
- 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, 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" described below. 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 form 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) "Net property and equipment additions" - is property and equipment additions expenditures less proceeds on the disposal of property and equipment. Cathedral uses net property and equipment additions to assess net cash flows related to the financing of Cathedral's property and equipment additions;
ix) "Borrowing capacity" - is total available credit facility less drawings on credit facilities;
x) "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 | ||||||||
| 2013 | 2012 | 2013 | 2012 | ||||||
| Gross margin | $ | 5,266 | $ | 3,193 | $ | 13,883 | $ | 21,891 | |
| Add non-cash items included in cost of sales: | |||||||||
| Depreciation | 4,709 | 4,530 | 9,374 | 8,794 | |||||
| Share-based compensation | 43 | 69 | 119 | 171 | |||||
| Adjusted gross margin | $ | 10,018 | $ | 7,792 | $ | 23,376 | $ | 30,856 | |
| Adjusted gross margin % | 22.0% | 19.1% | 23.4% | 28.4% | |||||
| EBITDAS | |||||||||
| Three months ended June 30 | Six months ended June 30 | ||||||||
| 2013 | 2012 | 2013 | 2012 | ||||||
| Earnings (loss) before income taxes | $ | (681) | $ | (3,650) | $ | 2,106 | $ | 12,999 | |
| Add (deduct): | |||||||||
| Depreciation included in cost of sales | 4,709 | 4,530 | 9,374 | 8,794 | |||||
| Depreciation included in selling, general and administrative expenses | 159 | 159 | 316 | 315 | |||||
| Share-based compensation included in cost of sales | 43 | 69 | 119 | 171 | |||||
| Share-based compensation included in selling, general and administrative expenses | 134 | 246 | 345 | 514 | |||||
| Unrealized foreign exchange loss on intercompany balances | 330 | 201 | 542 | 145 | |||||
| Finance costs | 648 | 513 | 1,128 | 1,086 | |||||
| Share of loss from associate | - | - | 4 | - | |||||
| EBITDAS | $ | 5,342 | $ | 2,068 | $ | 13,934 | $ | 24,024 | |
| Funds from operations | |||||||||
| Six months ended June 30 | |||||||||
| 2013 | 2012 | ||||||||
| Cash flow from operating activities | $ | 2,728 | $ | 59,229 | |||||
| Add (deduct): | |||||||||
| Changes in non-cash operating working capital | 7,628 | (41,950) | |||||||
| Income taxes paid | 1,948 | 3,013 | |||||||
| Current tax expense | (1,221) | (1,647) | |||||||
| Funds from operations | $ | 11,083 | $ | 18,645 | |||||
Cathedral Energy Services Ltd. (the "Company" or "Cathedral") is incorporated under the Business Corporations Act (Alberta) (the "Act"). 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. The Company is in the process of establishing operations in Venezuela for providing directional drilling services through a joint venture with Petroleros de Venezuela, S.A. ("PDVSA"), the state owned oil and gas corporation of the Bolivarian Republic of Venezuela. The Company strives to provide its clients 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:
Mark L. Bentsen, President and Chief Executive Officer or P. Scott MacFarlane, Chief Financial 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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