Cathedral Energy Services reports record Q4 and annual revenues for 2014, reduction in capital spending and dividend
/NOT FOR DISSEMINATION IN THE UNITED STATES OF AMERICA/
CALGARY, March 4, 2015 /CNW/ - Cathedral Energy Services Ltd. (the "Company" or "Cathedral" /TSX: CET) announces its consolidated financial results for the three months and year ended December 31, 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 Q4 KEY TAKEAWAYS
- Total revenues up 12% to a record $73,242 from 2013 Q4 of $65,238;
- Record 2014 Q4 total revenues, including:
- Q4 record for U.S. directional drilling;
- Q4 record revenue for Canadian production testing;
- EBITDAS increased 16% to $9,408 from 2013 Q4 of $8,124;
- 2014 EBITDAS was $38,487 ($1.06 per share diluted) representing a $5,672 or 17% increase from $32,815 ($0.91 per share diluted) in 2013
- Introduction of new proprietary technologies including:
- upgrades to our proprietary EM-MWD platform to improve reliability and accuracy;
- introduction of a real time downhole drilling diagnostics system (HAWK) to optimize drilling performance by minimizing wasted energy, increasing bit life and minimizing equipment damage; and
- developing our own proprietary MWD gamma sensor design which has improved reliability and reduced system costs;
- Introduction of the "Claw" line to our nDurance™ drilling motors series which has generated regular inbound customer inquiries regarding interest in this motor's enhanced performance capabilities and also resulted in standalone rentals of these motors; and
- The value of our MWD platform and nDurance™ drilling motors was further demonstrated in 2014 based on us achieving a number of record drilling times for new and existing customers.
| 2014 Q4 AND YEAR END FINANCIAL SUMMARY |
|||||||||
| Three months ended December 31 |
Year ended December 31 |
||||||||
| 2014 |
2013 |
2014 |
2013 |
||||||
| Revenues |
$ |
73,242 |
$ |
65,238 |
$ |
275,435 |
$ |
224,685 |
|
| Adjusted gross margin %(1) |
20.7% |
20.7% |
21.6% |
23.1% |
|||||
| EBITDAS (1) |
$ |
9,408 |
$ |
8,124 |
$ |
38,487 |
$ |
32,815 |
|
| Diluted per share |
$ |
0.26 |
$ |
0.22 |
$ |
1.06 |
$ |
0.91 |
|
| As % of revenues |
13% |
12% |
14% |
15% |
|||||
| Funds from operations (1) |
$ |
8,395 |
$ |
6,400 |
$ |
32,114 |
$ |
25,359 |
|
| Diluted per share |
$ |
0.23 |
$ |
0.18 |
$ |
0.87 9 |
$ |
0.70 |
|
| (Write-down of) recovery on investment in associate and related assets |
$ |
177 |
$ |
(13,066) |
$ |
177 |
$ |
(13,070) |
|
| Earnings (loss) before income taxes |
$ |
3,063 |
$ |
(11,394) |
$ |
14,970 |
$ |
1,114 |
|
| Basic per share |
$ |
0.08 |
$ |
(0.32) |
$ |
0.41 |
$ |
0.03 |
|
| Diluted per share |
$ |
0.08 |
$ |
(0.32) |
$ |
0.41 |
$ |
0.03 |
|
| Net earnings (loss) |
$ |
1,776 |
$ |
(11,248) |
$ |
9,771 |
$ |
(1,542) |
|
| Basic per share |
$ |
0.05 |
$ |
(0.31) |
$ |
0.27 |
$ |
(0.04) |
|
| Diluted per share |
$ |
0.05 |
$ |
(0.31) |
$ |
0.27 |
$ |
(0.04) |
|
| Dividends declared per share |
$ |
0.0825 |
$ |
0.0825 |
$ |
0.3300 |
$ |
0.3075 |
|
| Property and equipment additions (cash) |
$ |
3,826 |
$ |
6,736 |
$ |
30,763 |
$ |
28,283 |
|
| Weighted average shares outstanding |
|||||||||
| Basic (000s) |
36,295 |
36,158 |
36,244 |
36,171 |
|||||
| Diluted (000s) |
36,295 |
36,223 |
36,255 |
36,241 |
|||||
| December 31 |
December 31 |
||||||||
| 2014 |
2013 |
||||||||
| Working capital |
$ |
38,135 |
$ |
26,031 |
|||||
| Total assets |
$ |
230,534 |
$ |
205,375 |
|||||
| Loans and borrowings excluding current portion |
$ |
56,142 |
$ |
38,462 |
|||||
| Total shareholders' equity |
$ |
128,368 |
$ |
126,612 |
|||||
| (1) see "NON-GAAP MEASUREMENTS" |
|||||||||
OUTLOOK
Following a successful year for Cathedral in 2014 we are now faced with the reality of a rapid decline in oil prices in 2015 with a lot of uncertainty around how long these low prices may last. Coupled with the recent oil price decline is soft natural gas pricing. Both these factors have resulted in our customers reducing their capital spending budgets in 2015 which has a direct impact on our business. Industry analysts are predicting a 40% to 50% activity declines over 2014 which is similar or worse than what was experienced in the 2008/2009 downturn.
Our strategy with dealing with this current reality is three fold:
- Adjust our cost structure and financial obligations to reflect the decline in activity levels and protect our balance sheet;
- Preserve our key employee base so when industry conditions improve we are able to ramp up quickly; and
- Continue to pursue operational improvements and execute on our strategic objectives to position Cathedral to be a stronger company in the future.
With respect to aligning our cost structure with the current environment we began to aggressively implement expense reductions in early January. Approximately 55% of our expenses are labor, much of which is variable depending on activity levels. We have undertaken a workforce reduction primarily focusing on positions that will be directly impacted by lower activity in the field, shop and office. We have implemented wage rollbacks across the Company, including our directors, ranging from 5% to 20% depending on the position and pay level. Employee benefit programs have also been reduced. We are reviewing all expense items looking for savings opportunities both short and long-term. Our capital expenditure program in 2015 has also been reduced significantly from 2014 to target a capital spend in the $7,000 range. Capital spending in 2015 will be largely offset by the sale and leaseback of our Oklahoma City facility in the March timeframe which we anticipate will generate net proceeds of $4,800 and proceeds from redundant asset disposals. We have also reduced our quarterly dividend to $0.04 per common share (previously $0.0825) to manage liquidity, maintain a strong balance sheet and better position the Company to take advantage of opportunities which may present themselves.
As much as 2015 will be a challenging year for Cathedral we also see opportunities. The current energy company focus on costs is an opportunity for Cathedral to offer performance advantages that can impact their overall drilling program. For example, our ability to assist our customers in shortening drilling times has an impact on all the site services they require which can create significant cost savings overall. It is also an opportunity for Cathedral to demonstrate our technology and service capabilities in new areas as both existing and potential customers are more receptive to gaining efficiencies. The slowdown also affords Cathedral the opportunity to implement a number of sales and operational performance improvements which will benefit the Company in the long-term. We are confident that we will come out of this current downturn in a very strong position to deliver increased value to our customers and our shareholders.
DIVIDENDS
It is the intent of the Company to pay quarterly dividends to shareholders. The Board of Directors 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 2015 Q1 dividend in the amount of $0.04 per share which will have a date of record March 31, 2015 and a payment date of April 15, 2015, 2015.
ANNUAL AND SPECIAL MEETING
Cathedral will be holding its Annual and Special Meeting ("Meeting") in the Plaza Room of the Metropolitan Centre, 333 - 4th Avenue S.W., Calgary, Alberta at 3:00p.m. (MT) on Monday, May 11, 2015. Business at the meeting will include the election of directors, appointment of auditors and consideration of approving unallocated entitlements under Cathedral's stock option plan. Mr. Dan O'Neil has indicated he will not be running for re-election at the Meeting. On behalf of Cathedral, we would like to thank Dan for his contributions to the company, his insights into the energy industry and wish him well in his future business endeavors.
2015 CAPITAL PROGRAM
Cathedral's 2015 capital budget has been revised downward from the originally announced amount of $15,000 to $7,000. The new capital budget includes $5,100 of growth capital, $1,400 of maintenance capital and $500 of infrastructure expenditures.
The Directional Drilling division is expected to invest $5,750 of the 2015 capital budget including $3,915 for growth, $1,335 for maintenance and $500 for infrastructure. Growth capital expenditures will include the addition of nDurance™ motors and drill collars for the replacement of high rental expense items and certain MWD equipment. Maintenance capital expenditures are related to motors, trucks and EM/MWD equipment. The infrastructure investment of $500 relates to the remaining construction costs for an operations facility in Oklahoma City with full service repair capabilities. Cathedral has entered into a Purchase and Sale Agreement related to the facility being built in Oklahoma City and will enter into a lease for the facilities with the purchaser. The Company expects this transaction to close approximately March 31, 2015 with net proceeds of approximately $4,800.
The Production Testing division anticipates investing a total of $1,250. Growth capital expenditures of $1,185 are related to storage tanks and additional equipment that would otherwise be rented. Maintenance expenditures of $65 are mainly related to purchase of ancillary equipment.
Cathedral intends to finance its 2015 capital budget from cash flow from operations, proceeds of the Oklahoma City facility sale and leaseback, proceeds from redundant asset sales and if necessary, its existing credit facility.
2014 CAPITAL PROGRAM
In 2014 the Company invested an additional $30,763 (2013 - $20,283) in property and equipment, excluding non-cash capital lease additions. The major additions for growth capital were $12,608 for additional directional drilling motors and related equipment for specific job requirements and $2,935 for additional ancillary production testing equipment which will reduce future rental costs. Infrastructure capital relates to progress payments on the construction of an operating facility in Oklahoma City which is expected to be operational in early 2015 and computer system upgrades. Maintenance capital included additional upgrades to existing production testing equipment and maintenance of downhole tools. The net property and equipment additions (additions net of proceeds on the regular disposal of property and equipment) to date in 2014 were $25,213 (2013 - $20,996).
| The following table summarizes the capital expenditures (cash basis): |
|||||
| December 31 |
December 31 |
||||
| 2014 |
2013 |
||||
| Growth capital (1) |
$ |
15,543 |
$ |
12,897 |
|
| Replacement capital (1) |
1,257 |
2,498 |
|||
| Infrastructure capital (1) |
4,324 |
1,330 |
|||
| Maintenance capital (1) |
9,639 |
11,558 |
|||
| Property and equipment expenditures |
30,763 |
28,283 |
|||
| Less: proceeds on the regular disposal of property and equipment |
(5,550) |
(29,547) |
|||
| Add back: non-recurring proceeds on disposal of property and equipment |
- |
22,260 |
|||
| Net property and equipment additions (1) |
$ |
25,213 |
$ |
20,996 |
|
| (1) Refer to MD&A "NON-GAAP MEASUREMENTS" |
|||||
| The following is a summary of major equipment owned by the Company: |
|||||
| December 31 |
December 31 |
||||
| 2014 |
2013 |
||||
| Directional drilling - MWD systems |
140 |
139 |
|||
| Production testing units |
66 |
72 |
|||
| RESULTS OF OPERATIONS – THREE MONTHS ENDED DECEMBER 31 |
|||||||||||||||
| Three months ended December 31, 2014 |
Three months ended December 31, 2013 |
||||||||||||||
| Directional |
Production |
Directional |
Production |
Resale and |
|||||||||||
| Revenues |
drilling |
testing |
Total |
drilling |
testing |
rental |
Total |
||||||||
| Canada |
$ |
22,582 |
$ |
7,656 |
$ |
30,238 |
$ |
19,320 |
$ |
9,241 |
$ |
- |
$ |
28,561 |
|
| United States |
32,408 |
10,596 |
43,004 |
23,536 |
7,150 |
- |
30,686 |
||||||||
| International |
- |
- |
- |
- |
- |
5,991 |
5,991 |
||||||||
| Total |
$ |
54,990 |
$ |
18,252 |
$ |
73,242 |
$ |
42,856 |
$ |
16,391 |
$ |
5,991 |
$ |
65,238 |
|
Revenue 2014 Q4 revenues were $73,242 which represented an increase of $8,004 or 12% from 2013 Q4 revenues of $65,238. The increase was primarily attributed to the U.S. directional drilling and U.S. production testing divisions which both achieved record Q4 revenue results.
Canadian directional drilling revenues increased to $22,582 in 2014 Q4 from $19,320 in 2013 Q4; a 17% increase. This increase was the result of: i) an 13% increase in activity days to 1,896 in 2014 Q4 from 1,683 in 2013 Q4; and ii) a 4% increase in the average day rate to $11,910 in 2014 Q4 $11,480 in 2014 Q4. For western Canada, the number of wells drilled declined in 2014 Q4 on a quarter over quarter basis from 2013 Q4 and the increase in Canadian activity days represents a market share gain.
U.S. directional drilling revenues increased to a record level of $32,408 in 2014 Q4 from $23,536 in 2013 Q4; a 38% increase. This increase was the result of: i) a 22% increase in activity days of 2,477 in 2014 Q4 from 2,027 in 2013 Q4; and ii) a 13% increase in the average day rate of $13,084 in 2014 Q4 from $11,611 in 2013 Q4 (when converted to CADs). The increase in U.S. activity days were due to the Texas and Oklahoma markets, with increased activity coming from both existing and new customers. The 13% increase in day rates is a combination of day rate increases in USD (4%) and in part due to strengthening of the USD versus the CAD (9%). The average day rate increase in USD was due to performance based pricing, this was partially offset by lower pricing in the Oklahoma region.
Canadian production testing revenues decreased to $7,656 in 2014 Q4 from $9,241 in 2013 Q4; a 17% decrease. The Canadian operating days were down 22% based on work declines from specific existing customers mainly due to the clients expending their maximum capital budget. 2013 Q4 had one of the highest activity levels in Company history. The activity decline was partially offset by increased day rates achieved from customers using multi-pad well programs that require additional ancillary equipment and on-site staff.
U.S. production testing revenues increased to a record level of $10,596 in 2014 Q4 from $7,150 in 2013 Q4; a 48% increase. Both activity levels and day rates increased as the division has replaced and then exceeded the lost work from a customer that shifted to a competitor in late 2013. The 38% increase in day rates is a combination of day rate increases in USD (27%) and in part due to strengthening of the USD versus the CAD (11%). The increase in USD day rates related to benefit of revenue from additional equipment and staff due to a shift in the nature of work.
The international resale and rental revenue was nil in 2014 Q4 as the Company decided to terminate its pursuit of operations in Venezuela.
Gross margin and adjusted gross margin Gross margin for 2014 Q4 was 13.5% compared to 12.9% in 2013 Q4. Adjusted gross margin (see Non-GAAP Measurements) for 2014 Q4 was $15,155 (20.7%) compared to $13,474 (20.7%) for 2013 Q4. The maintenance of the adjusted gross margin percentage was primarily due to declines in labour costs resulting from an ongoing effort to maintain a cost effective mix of staff and offset by increases in repair and rental costs resulting from overall increased activity.
Depreciation allocated to cost of sales increased to $5,231 in 2014 Q4 from $5,036 in 2013 Q4. As a percentage of revenue, depreciation included in cost of sales decreased to 7.1% for 2014 Q4 from 7.7% for 2013 Q4.
Selling, general and administrative expenses ("SG&A") SG&A expenses were $6,377 in 2014 Q4; a decrease of $342 compared with $6,719 in 2013 Q4. As a percentage of revenue, these costs were 9% in 2014 Q4 and 10% in 2013 Q4. Adjusted SG&A (see Non-GAAP Measurements) was $5,963 in 2014 Q4 compared to $4,973 in 2013 Q4, an increase of $990. Adjusted SG&A increased primarily due to wages, benefits and variable compensation. These increases related to increased sales commissions and additions to research and development personnel. In addition, adjusted SG&A was also higher due to higher insurance costs resulting from increases in activity.
Gain on disposal of property and equipment During 2014 Q4 the Company had a gain on disposal of property and equipment of $392 compared to $1,462 in 2013 Q4. 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. In 2013 Q4 there was an adjustment to gain on disposal of land and buildings resulting in a decrease in previously recognized gain of $460 (2014 – nil).
Write-down/recovery of investment in associate and related assets Cathedral decided to terminate its pursuit of operations in Venezuela. As a result in 2013 Q4, the Company recorded a charge in the amount of $13,070 related to the write-off of its investment in Vencana as well as certain assets located within Venezuela. During 2014 there was a minor recovery in the amount of $177. Cathedral will attempt to sell its interest in Vencana and any proceeds with respect to the sale of its joint venture interest will be recorded on a cash received basis as a recovery of this write-down.
Foreign exchange loss The Company had foreign exchange loss of $335 in 2014 Q4 compared to a loss of $372 in 2013 Q4 due to the fluctuations in CAD compared to USD. The Company's foreign operations are denominated in a currency other than CAD 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 Q4 foreign currency gain are unrealized losses of $452 (2013 Q4 - $336) related to intercompany balances.
Finance costs Finance costs consist of interest expenses on operating loans, loans and borrowings and bank charges of $699 for 2014 Q4 versus $661 for 2013 Q4.
Income tax For 2014 Q4, the Company had an income tax expense of $1,287 compared to a recovery of ($146) in 2013 Q4. The effective tax rate for 2014 Q4 was 42%. Under IFRS, the quarterly tax provisions are based upon an estimated annual rate and the company did not utilize non-capital losses to the extent that was planned in the quarterly provision. As a result, 2014 Q4 effective rate is higher than the annualized rate for 2014.
Included in the 2013 Q4 amount is an adjustment to prior year's deferred tax recovery of $313. Due to the write-off of investment in associate in the 2013 Q4 the effective tax rate is not meaningful and is not presented.
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 year ended December 31, 2014, the Company had funds from continuing operations of $32,114 (2013 - $25,359). The increase in funds from continuing operations is due to stronger earnings.
Working capital At December 31, 2014 the Company had working capital of $38,135 (2013 - $26,031) and a working capital ratio of 1.8 to 1 (2013 – 1.7 to 1). During 2014 Cathedral's joint venture partner unexpectedly advanced Cathedral USD $6,782. In the context that the joint venture will be wound up or sold to the Company's joint venture partner, the ultimate characterization of this payment is not determinable at this time and accordingly, the Company has recorded CAD equivalent as a trade payable and this amount is included in the change in non-cash working capital.
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 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 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 rate spreads for the credit facility depends on the level of funded debt to EBITDAS (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. As at December 31, 2014 the Company is in compliance with all covenants under the credit facility including the following financial covenants:
| Ratio |
December 31, 2014 value |
| Debt service ratio – must be not less than 2.50:1 |
6.96:1 |
| Funded debt to EBITDA (as defined in credit facility) – must be not greater than 3.00:1 |
1.66:1 |
The new credit facility has a "swing line" (operating loan component) of $10,000 compared to $20,000 operating loan under the prior facility.
| The following table outlines the current credit facility: |
||||||
| December 31 |
December 31 |
|||||
| 2014 |
2013 |
|||||
| Total credit facility |
$ |
85,000 |
$ |
75,000 |
||
| Drawings on credit facility: |
||||||
| Operating loan |
1,069 |
10,119 |
||||
| Revolving term loan |
55,000 |
37,000 |
||||
| Letter of credit |
700 |
700 |
||||
| Total drawn facility |
$ |
56,769 |
$ |
47,819 |
||
| Undrawn portion of credit facility |
$ |
28,231 |
$ |
27,181 |
||
| Net debt (see NON-GAAP MEASUREMENTS): |
||||||
| Loans and borrowings, net of current portion |
$ |
56,142 |
$ |
38,462 |
||
| Working capital: |
||||||
| Current assets |
$ |
83,392 |
$ |
65,409 |
||
| Current liabilities |
(45,257) |
(39,378) |
||||
| Working capital |
$ |
38,135 |
$ |
26,031 |
||
| Net debt |
$ |
18,007 |
$ |
12,431 |
||
Contractual obligations In the normal course of business, the Company incurs contractual obligations and those obligations are disclosed below. As at December 31, 2014, the Company had a commitment to purchase equipment of approximately $2,279, and the outstanding contractual obligation related to the building of a facility in Oklahoma was $450. Cathedral anticipates expending funds related to the purchase of equipment obligations in 2015 Q1 and Q2 and the building obligation in 2015 Q1.
Contingencies On October 29, 2014 Cathedral received a letter from one of its U.S. clients alleging a down-hole drilling incident which impacted two of their wells in December 2013. The client has indicated potential damages of $3,000. Cathedral does not normally carry insurance for this type of incident. Cathedral is currently in the process of investigating the particulars related to this letter to understand its potential liability and the impact any liability may have on the Company. Due to the uncertainty around what amount, if any, and the means of settlement, the Company has made no provision in the financial statements for this incident.
The Company's wholly-owned subsidiary, Cathedral Energy Services Inc. ("INC"), has been named in a legal action in Houston, Texas commenced by a former employee and was subsequently joined by one former employee (the "Claimants") alleging that they were improperly classified as exempt under the Fair Labor Standards Act and therefore entitled to overtime that was not previously paid. Legal actions involving similar alleged violations have been filed in the United States against a number of other drilling companies. The Claimants assert that they will seek to have the action certified as a collective action which may result in additional employees or former employees of INC joining the action. INC has filed a defense to the action and intends to vigorously defend the same including, without limitation, any motion which may be brought for certification. Based upon a preliminary assessment of information available and certain assumptions the Company believes to be reasonable at this time, Cathedral believes it has a number of defenses to the claims asserted and the action is not currently believed to be material to the Company.
Share capital At March 3, 2015, the Company had 36,295,380 common shares and 1,221,641 options outstanding with a weighted average exercise price of $6.94. The Company's prior 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 |
|||||
| December 31, 2014 and December 31, 2013 |
|||||
| Dollars in '000s |
|||||
| (unaudited) |
|||||
| December 31 |
December 31 |
||||
| 2014 |
2013 |
||||
| Assets |
|||||
| Current assets: |
|||||
| Cash and cash equivalents |
$ |
5,109 |
$ |
289 |
|
| Trade receivables |
58,770 |
46,400 |
|||
| Current taxes recoverable |
- |
1,473 |
|||
| Prepaid expenses and deposits |
2,383 |
3,334 |
|||
| Inventories |
17,130 |
13,913 |
|||
| Total current assets |
83,392 |
65,409 |
|||
| Property and equipment |
131,877 |
123,487 |
|||
| Intangible assets |
1,905 |
1,474 |
|||
| Deferred tax assets |
7,512 |
9,157 |
|||
| Goodwill |
5,848 |
5,848 |
|||
| Total non-current assets |
147,142 |
139,966 |
|||
| Total assets |
$ |
230,534 |
$ |
205,375 |
|
| Liabilities and Shareholders' Equity |
|||||
| Current liabilities: |
|||||
| Operating loans |
$ |
1,069 |
$ |
10,119 |
|
| Trade and other payables |
35,201 |
22,236 |
|||
| Dividends payable |
2,994 |
2,984 |
|||
| Current taxes payable |
1,232 |
- |
|||
| Loans and borrowings |
857 |
722 |
|||
| Deferred revenue |
3,904 |
3,317 |
|||
| Total current liabilities |
45,257 |
39,378 |
|||
| Loans and borrowings |
56,142 |
38,462 |
|||
| Deferred tax liabilities |
767 |
923 |
|||
| Total non-current liabilities |
56,909 |
39,385 |
|||
| Total liabilities |
102,166 |
78,763 |
|||
| Shareholders' equity: |
|||||
| Share capital |
74,481 |
73,850 |
|||
| Contributed surplus |
9,261 |
9,065 |
|||
| Accumulated other comprehensive income |
3,850 |
1,239 |
|||
| Retained earnings |
40,776 |
42,458 |
|||
| Total shareholders' equity |
128,368 |
126,612 |
|||
| Total liabilities and shareholders' equity |
$ |
230,534 |
$ |
205,375 |
|
| CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME |
|||||||||
| Three months and years ended December 31, 2014 and 2013 |
|||||||||
| Dollars in '000s except per share amounts |
|||||||||
| (unaudited) |
|||||||||
| Three months ended December 31 |
Year ended December 31 |
||||||||
| 2014 |
2013 |
2014 |
2013 |
||||||
| Revenues |
$ |
73,242 |
$ |
65,238 |
$ |
275,435 |
$ |
224,685 |
|
| Cost of sales: |
|||||||||
| Direct costs |
(58,087) |
(51,764) |
(215,865) |
(172,863) |
|||||
| Depreciation |
(5,231) |
(5,036) |
(19,373) |
(19,270) |
|||||
| Share-based compensation |
(19) |
(16) |
(112) |
(177) |
|||||
| Total cost of sales |
(63,337) |
(56,816) |
(235,350) |
(192,310) |
|||||
| Gross margin |
9,905 |
8,422 |
40,085 |
32,375 |
|||||
| Selling, general and administrative expenses: |
|||||||||
| Direct costs |
(6,256) |
(6,776) |
(24,470) |
(23,777) |
|||||
| Depreciation |
(76) |
(70) |
(280) |
(557) |
|||||
| Share-based compensation |
(45) |
127 |
(200) |
(335) |
|||||
| Total selling, general and administrative expenses |
(6,377) |
(6,719) |
(24,950) |
(24,669) |
|||||
| 3,528 |
1,703 |
15,135 |
7,706 |
||||||
| Gain on disposal of property and equipment |
392 |
1,462 |
3,102 |
4,852 |
|||||
| Gain (loss) on disposal of land and buildings |
- |
(460) |
- |
4,894 |
|||||
| (Write-down of) recovery on investment in associate and related assets |
177 |
(13,066) |
177 |
(13,070) |
|||||
| Earnings (loss) from operating activities |
4,097 |
(10,361) |
18,414 |
4,382 |
|||||
| Foreign exchange loss |
(335) |
(372) |
(881) |
(752) |
|||||
| Finance costs |
(699) |
(661) |
(2,563) |
(2,516) |
|||||
| Earnings (loss) before income taxes |
3,063 |
(11,394) |
14,970 |
1,114 |
|||||
| Income tax recovery (expense): |
|||||||||
| Current expense |
(621) |
(262) |
(3,271) |
(2,604) |
|||||
| Deferred recovery (expense) |
(666) |
408 |
(1,416) |
(52) |
|||||
| Total income tax recovery (expense) |
(1,287) |
146 |
(4,687) |
(2,656) |
|||||
| Net earnings (loss) |
1,776 |
(11,248) |
10,283 |
(1,542) |
|||||
| Other comprehensive income: |
|||||||||
| Foreign currency translation differences for foreign operations |
1,609 |
2,364 |
2,611 |
3,918 |
|||||
| Total comprehensive income (loss) |
$ |
3,385 |
$ |
(8,884) |
$ |
12,894 |
$ |
2,376 |
|
| Net earnings (loss) per share |
|||||||||
| Basic |
$ |
0.05 |
$ |
(0.31) |
$ |
0.28 |
$ |
(0.04) |
|
| Diluted |
$ |
0.05 |
$ |
(0.31) |
$ |
0.28 |
$ |
(0.04) |
|
| CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS |
|||||||
| Years months ended December 31, 2014 and 2013 |
|||||||
| Dollars in '000s |
|||||||
| (unaudited) |
|||||||
| 2014 |
2013 |
||||||
| Cash provided by (used in): |
|||||||
| Operating activities: |
|||||||
| Net earnings (loss) |
$ |
10,283 |
$ |
(1,542) |
|||
| Items not involving cash |
|||||||
| Depreciation |
19,653 |
19,827 |
|||||
| Income tax expense |
4,687 |
2,656 |
|||||
| Unrealized foreign exchange loss on intercompany balances |
1,166 |
670 |
|||||
| Finance costs |
2,563 |
2,516 |
|||||
| Share-based compensation |
312 |
512 |
|||||
| Gain on disposal of property and equipment |
(3,102) |
(4,852) |
|||||
| Gain on sale of land and buildings |
- |
(4,894) |
|||||
| Write-down of investment in associate and related assets |
(177) |
13,070 |
|||||
| Cash flow from continuing operations |
35,385 |
27,963 |
|||||
| Changes in non-cash operating working capital |
2,160 |
(10,082) |
|||||
| Income taxes paid |
(604) |
(3,855) |
|||||
| Cash flow from operating activities |
36,941 |
14,026 |
|||||
| Investing activities: |
|||||||
| Property and equipment additions |
(30,763) |
(28,283) |
|||||
| Intangible asset additions |
(675) |
(990) |
|||||
| Proceeds on disposal of property and equipment |
5,550 |
29,547 |
|||||
| Investment in associate |
- |
(6,558) |
|||||
| Changes in non-cash investing working capital |
(632) |
(1,032) |
|||||
| Cash flow from investing activities |
(26,520) |
(7,316) |
|||||
| Financing activities: |
|||||||
| Change in operating loan |
(9,120) |
9,255 |
|||||
| Interest paid |
(2,610) |
(2,517) |
|||||
| Advances of loans and borrowings |
28,000 |
8,000 |
|||||
| Repayments on loans and borrowings |
(10,673) |
(16,578) |
|||||
| Proceeds on exercise of share options |
515 |
1,326 |
|||||
| Repurchase of common shares |
- |
(4,434) |
|||||
| Dividends paid |
(11,955) |
(10,884) |
|||||
| Cash flow from financing activities |
(5,843) |
(15,832) |
|||||
| Effect of exchange rate on changes in cash and cash equivalents |
242 |
941 |
|||||
| Change in cash and cash equivalents |
4,820 |
(8,181) |
|||||
| Cash and cash equivalents, beginning of year |
289 |
8,470 |
|||||
| Cash and cash equivalents, end of year |
$ |
5,109 |
$ |
289 |
|||
FORWARD LOOKING STATEMENTS
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: activity levels and potential declines; adjusted cost structure; position to be a stronger company; preserve key employee base; offer performance advantages; implement performance improvements; savings opportunities from expense reviews; projected capital expenditures and commitments and the financing thereof; expected completion date of Oklahoma City operations facility; intention to sell and leaseback the Oklahoma City operations facility following its completion for net proceeds of $4,800; timing of expenditures on purchase commitments; opportunity for Cathedral to demonstrate our technology and service capabilities in new areas as both existing and potential customers are more receptive to opportunities to gain efficiencies; ability to come out of this current downturn in a very strong position to deliver increased value to our customers and our shareholders; contingent liabilities and eventual outcomes; ability to remain competitive; tax provisions are adequate; intention to defend its filing position with regard to conversion from a trust to a corporation; Cathedral's intention to file future tax returns on a basis consistent with its view of the outcome of the conversion from a trust to a corporation; expected benefits from maintenance capital expenditures; expectation to continue to selectively seek strategic acquisitions; continued investment in research and development of proprietary technologies; no expected changes in production testing technology; benefits associated with in-house mud motor design; benefits associated with financial results; intention to continue relationships with customers; availability of insurance coverage; technology advances; 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 and reliance on major customers;
- risks associated with technology development and intellectual property rights;
- the ability of Cathedral to maintain safety performance
- the ability of Cathedral to obtain timely financing on acceptable terms;
- the ability to obtain sufficient insurance coverage to mitigate operational risks;
- currency exchange and interest rates;
- risks associated with foreign operations;
- risks associated with acquisitions and business development efforts;
- environmental risks
- 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
- competitive risks.
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 which has 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) "Adjusted selling, general and administrative expenses" ("Adjusted SG&A") – defined as selling, general and administrative expenses excluding non-cash depreciation and share-based compensation, non-recurring executive compensation (such as severance) and excluding expenses related to operations in Venezuela.
iv) "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);
v) "Funds from continuing 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);
vi) "Growth property and equipment additions" or "Growth capital" – is capital spending which is intended to result in incremental revenues or decreased operating costs. 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;
vii) "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;
viii) "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 MD&A on "gain on disposal of property and equipment);
ix) "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;
x) "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;
xi) "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; 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 MD&A:
| Adjusted gross margin |
|||||||||
| Three months ended December 31 |
Year ended December 31 |
||||||||
| 2014 |
2013 |
2014 |
2013 |
||||||
| Gross margin |
$ |
9,905 |
$ |
8,422 |
$ |
40,085 |
$ |
32,375 |
|
| Add non-cash items included in cost of sales: |
|||||||||
| Depreciation |
5,231 |
5,036 |
19,373 |
19,270 |
|||||
| Share-based compensation |
19 |
16 |
112 |
177 |
|||||
| Adjusted gross margin |
$ |
15,155 |
$ |
13,474 |
$ |
59,570 |
$ |
51,822 |
|
| Adjusted gross margin % |
20.7% |
20.7% |
21.6% |
23.1% |
|||||
| Adjusted SG&A |
|||||||||
| Three months ended December 31 |
Year ended December 31 |
||||||||
| 2014 |
2013 |
2014 |
2013 |
||||||
| Total selling, general and administrative expenses |
$ |
6,377 |
$ |
6,719 |
$ |
25,950 |
$ |
24,669 |
|
| Less: |
|||||||||
| Non-recurring compensation |
(234) |
(1,545) |
(234) |
(2,380) |
|||||
| Expenses related to international operations |
(59) |
(258) |
(194) |
(590) |
|||||
| Depreciation |
(76) |
(70) |
(280) |
(557) |
|||||
| Share-based compensation |
(45) |
127 |
(200) |
(335) |
|||||
| Adjusted gross margin |
$ |
5,963 |
$ |
4,973 |
$ |
24,042 |
$ |
20,807 |
|
| EBITDAS |
|||||||||
| Three months ended December 31 |
Year ended December 31 |
||||||||
| 2014 |
2013 |
2014 |
2013 |
||||||
| Earnings before income taxes |
$ |
3,063 |
$ |
(11,394) |
$ |
14,970 |
$ |
1,114 |
|
| Add (deduct): |
|||||||||
| Depreciation included in cost of sales |
5,231 |
5,036 |
19,373 |
19,270 |
|||||
| Depreciation included in selling, general and administrative expenses |
76 |
70 |
280 |
557 |
|||||
| Share-based compensation included in cost of sales |
19 |
16 |
112 |
177 |
|||||
| Share-based compensation included in selling, general and administrative expenses |
45 |
(127) |
200 |
335 |
|||||
| Non-recurring gains on disposal of property and equipment |
- |
460 |
- |
(4,894) |
|||||
| Write-down (recovery) of investment in associate and related assets |
(177) |
13,066 |
(177) |
13,070 |
|||||
| Unrealized foreign exchange (gain) loss on intercompany balances |
452 |
336 |
1,166 |
670 |
|||||
| Finance costs |
699 |
661 |
2,563 |
2,516 |
|||||
| EBITDAS |
$ |
9,408 |
$ |
8,124 |
$ |
38,487 |
$ |
32,815 |
|
| Funds from continuing operations |
|||||||||
| Three months ended December 31 |
Year ended December 31 |
||||||||
| 2014 |
2013 |
2014 |
2013 |
||||||
| Cash flow from operating activities |
$ |
12,028 |
$ |
6,077 |
$ |
36,941 |
$ |
14,026 |
|
| Add (deduct): |
|||||||||
| Changes in non-cash operating working capital |
(3,204) |
(261) |
(2,160) |
10,082 |
|||||
| Income taxes paid (recovered) |
192 |
846 |
604 |
3,855 |
|||||
| Current tax expense |
(621) |
(262) |
(3,271) |
(2,604) |
|||||
| Funds from continuing operations |
$ |
8,395 |
$ |
6,400 |
$ |
32,114 |
$ |
25,359 |
|
Cathedral Energy Services Ltd. (the "Company" or "Cathedral"), based in Calgary, Alberta is incorporated under the Business Corporations Act (Alberta) and operates in the U.S. under Cathedral Energy Services Inc. The Company is publicly traded on the Toronto Stock Exchange under the symbol "CET". Cathedral, is a trusted partner to North American energy companies requiring high performance directional drilling services and dependable flowback and production testing solutions. We work in partnership with our customers to tailor our equipment and expertise to meet their specific geographical and technical needs. Our experience, technologies and responsive personnel enable our customers to achieve higher efficiencies and lower project costs. For more information, visit www.cathedralenergyservices.com..
SOURCE Cathedral Energy Services Ltd.
Requests for further information should be directed to: P. Scott MacFarlane, President and Chief Executive Officer or Michael F. Hill, 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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