Cathedral Energy Services Reports Results for 2017 Q1
/NOT FOR DISSEMINATION IN THE UNITED STATES OF AMERICA/
CALGARY, MAY 11, 2017 /CNW/ - Cathedral Energy Services Ltd. (the "Company" or "Cathedral" /TSX: CET) announces its consolidated financial results for the three months ended March 31, 7016 and 2016. 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.
FINANCIAL HIGHLIGHTS
Dollars in 000's except per share amounts
| Three months ended March 31 |
|||||
| 2017 |
2016 |
||||
| Revenues |
$ |
38,323 |
$ |
18,744 |
|
| Adjusted gross margin % (1) |
22% |
26% |
|||
| Adjusted EBITDAS (1) |
$ |
6,796 |
$ |
1,476 |
|
| Diluted per share |
$ |
0.16 |
$ |
0.04 |
|
| As % of revenues |
18% |
8% |
|||
| Funds from continuing operations (1) |
$ |
3,989 |
$ |
167 |
|
| Diluted per share |
$ |
0.09 |
$ |
- |
|
| Gain on disposal of foreign subsidiary |
$ |
- |
$ |
10,865 |
|
| Earnings before income taxes |
$ |
3,972 |
$ |
11,010 |
|
| Basic and diluted per share |
$ |
0.09 |
$ |
0.30 |
|
| Diluted per share |
$ |
0.09 |
$ |
0.30 |
|
| Net earnings |
$ |
2,581 |
$ |
9,683 |
|
| Basic and diluted per share |
$ |
0.06 |
$ |
0.27 |
|
| Diluted per share |
$ |
0.06 |
$ |
0.27 |
|
| Equipment additions - cash basis |
$ |
1,570 |
$ |
268 |
|
| Weighted average shares outstanding |
|||||
| Basic (000s) |
42,606 |
36,295 |
|||
| Diluted (000s) |
42,761 |
36,295 |
|||
| March 31 |
December 31 |
||||
| 2017 |
2016 |
||||
| Working capital |
$ |
29,710 |
$ |
39,324 |
|
| Total assets |
$ |
124,460 |
$ |
136,017 |
|
| Loans and borrowings excluding current portion |
$ |
84 |
$ |
26,322 |
|
| Shareholders' equity |
$ |
106,186 |
$ |
90,772 |
|
| (1) Refer to "NON-GAAP MEASUREMENTS" |
|||||
2017 Q1 KEY TAKEAWAYS
Revenues increased 105% from $18,744 in 2016 Q1 to $38,323 in 2017 Q1.
Adjusted EBITDAS increased 360% from $1,476 in 2016 Q1 to $6,796 in 2017 Q1. Adjusted EBITDAS margin increased to 18% of revenues in 2017 Q1 from 8% in 2016 Q1.
In January, the Company completed the sale of its Flowback and Production testing ("F&PT") assets for net proceeds of $17,241.
On February 15, 2017, the Company closed a bought deal public offering and insider private placement financing for total gross proceeds of $14,130. As a consequence of this financing and the sale of the F&PT assets, the Company had no bank debt at March 31, 2017 (excluding letters of credit).
The Company has increased its capital program for 2017 to a committed amount of $6,800 and may increase capital spending further based on operating cash flow availability in subsequent quarters in 2017. These funds are focused on increasing the capacity of existing equipment and replacing equipment previously lost down hole.
OUTLOOK
What a difference a year can make! In 2016 Q1 we were suffering from the impact of oil prices that had hit a bottom in the $26 USD bbl range in February. In the first quarter of 2016 we had an average of 10 active jobs running in the United States ("U.S.") and five running in Canada. For the first quarter of 2017 our average job count was almost three times 2016 levels. We have had to make a tremendous shift from shrinking our business throughout most of 2016 to a rapid ramp up starting in late 2016 and into 2017. Ramping up our business has also had many challenges including making sure we have equipment and people available and also ensuring we maintain a high service quality with our customers. We were very pleased with revenue growth and margins achieved in 2017 Q1, on a year-over-year basis, and compared to 2016 Q4.
Despite increased activity levels, we are still challenged on pricing in an environment where there is upward pressure on our costs. Although customers concede that their service related costs will increase in 2017, they are trying to defer price increases as long as possible. At the same time, competitive pressure remains intense as there is still a large amount of directional drilling equipment capacity in the market. Some competitors appear willing to work at low margins in order to generate some cash contribution or are pricing aggressively in an effort to gain market share. We expect pricing levels will improve modestly throughout 2017. We have been able to achieve price increases with our some of our longer term clients starting in late Q1 and into Q2. Our customer value proposition is delivering "Better Performance Every Day" which is supported by our proprietary equipment, great people, engineering services and size and scale. This strategy positioned us well during the industry downturn and as activity levels have improved. We are confident our performance matters approach will prevail long term. Competing based on price alone is not a sustainable strategy for our competitors going forward.
Another challenge we are facing, in part due to the competitive dynamics, is that customers are pushing our equipment harder than has been the case in the past to improve drilling times. This has resulted in above average equipment damage and equipment lost-in-hole. In most cases we can recover these costs from customers, however, these loses and damages are impacting our available equipment capacity short-term while the equipment is repaired or replaced. Through our Drilling Engineering Services and Sales teams, we are working with customers to improve drilling practices and are also being more selective with customers we work with. In addition, we are investing capital to improve our equipment capacity and capabilities.
On the expense side we are still focused on cost management and also trying to ensure our expense increases lag price increases. Most of our expenses relate to labour and we are seeing labour cost pressure as the industry ramps up and as a consequence of a tight labour pool resulting from people leaving the industry over the past two years. Our suppliers are in similar positions and also expecting price increases to help them ramp up.
We continue to manage our business cautiously with the expectation we will see continued commodity price volatility going forward. With the increased rig count and productivity of North American shale wells, oil production and inventories are increasing which has put pressure on prices. However, despite the WTI oil price volatility, the rig count in the U.S., our primary market, has been increasing. As goes the outlook on oil prices, so goes the rig count and directional drilling industry activity levels.
An exciting development in 2017 Q1 was the commercial introduction of our downhole generator. The downhole generator uses mud flow to create power for the Measurement-While-Drilling ("MWD") equipment thereby reducing battery use and the associated battery costs. The downhole generator also facilitates improved Electro-Magnetic ("EM") MWD data transmission to improve EM performance and allow it to be used in difficult formations and areas where competitor technologies have limitations.
We are fortunate that the business improvement areas we focused on in the face of adversity over the past two years have set us up favorably to capitalize on an upturn in our industry. Many of the strategic initiatives we have been working on over the last two years have been focused on making sure we can ramp up our business effectively. On the sales side, we have strategies to help us secure higher pricing for our services. On the operations side, we are looking at ways to better manage our labor pool, keep our expenses in line and continue to deliver high quality service. Our technology group continues to make equipment improvements to our existing equipment and explore new products aimed at revenue generation and expense and capital cost reductions.
We remind our shareholders that Q2 is typically a lower revenue quarter for the Canadian oil field services industry, including Cathedral, due to lower activity levels in Canada as a result of spring break-up.
2017 CAPITAL PROGRAM
During the three months ended March 31, 2017 the Company invested $1,036 (2016 - $268) in equipment. The following table details the current period's net equipment additions:
| Three months ended |
|||
| March 31, 2017 |
|||
| Equipment additions: |
|||
| Growth capital (1) |
$ |
492 |
|
| Maintenance capital(1) |
38 |
||
| Replacement capital (1) |
506 |
||
| Total cash additions |
1,036 |
||
| Less: proceeds on disposal of equipment (excluding capital lease settlements) |
(2,250) |
||
| Net equipment additions (1) |
$ |
(1,214) |
|
| (1)See "NON-GAAP MEASUREMENTS" |
|||
Cathedral's 2017 capital budget ("capex") reviewed by the Board of Directors in December 2016 was for expenditures of $3,400 with $350 for growth capital and $1,500 for replacement and $1,550 for maintenance capital. Based on improved activity levels and operating cash flow, on May 11, 2017, the Board of Directors approved a revised capex program of $10,000 of net equipment additions(1) for the year.
The $10,000 capex plan for 2017 is comprised of $5,200 of replacement and maintenance capital and $4,800 of growth capital. The $5,200 amount, is substantially related for investment to replace items that have been lost-in-hole over the past two years and for equipment upgrades and replacements to improve the capacity of Cathedral's existing MWD and motor fleet. Over the past 2 years, Cathedral deferred replacement and maintenance capital expenditures in the face of low equipment utilization and in order to pay down debt. Subject to operating results and industry outlook, on a go forward basis equipment lost-in-hole will be replaced funded from the proceeds received. As such, Cathedral's total capex in any year may exceed the above noted capex. The 2017 capital budget will be reviewed quarterly based on anticipated future activity levels and operating cash flow. Cathedral intends to finance its 2017 capital budget from cash flow from operations, proceeds from assets lost-in-hole, working capital (cash) and credit facility availability.
RESULTS OF OPERATIONS – THREE MONTHS ENDED MARCH 31
| Revenues |
2017 |
2016 |
||
| Canada |
$ |
10,466 |
$ |
5,663 |
| United States |
27,857 |
13,081 |
||
| Total |
$ |
38,323 |
$ |
18,744 |
Revenues 2017 Q1 revenues were $38,323, which represented an increase of $19,579 or 105% from 2016 Q1 revenues of $18,744. Both Canada and United States U.S. operations had increases due to increases in drilling activity. In late 2016, due to a limited supply of the Company's proprietary motors, the Company made the decision to reduce the number of rental motors available in both Canada and the U.S. in favor of redirecting motors on jobs where both equipment and staff are deployed and the total cash flow contribution is typically higher. As a consequence motor rental revenue in both Canada and the U.S. were less in 2017 Q1 compared to 2016 Q1.
Canadian revenues (excluding motor rental revenues) increased to $9,307 in 2017 Q1 from $3,354 in 2016 Q1; a 178% increase. This increase was the result of: i) a 184% increase in activity days to 1,423 in 2017 Q1 from 501 in 2016 Q1; net of ii) a 2% decrease in the average day rate to $6,540 in 2017 Q1 from $6,695 in 2016 Q1. Partially offsetting the revenue increase was a decrease of $1,150 in motor rental revenue. Motor rental revenues for 2017 Q1 were $1,159 (2016 Q1 - $2,309).
The average active land rig count in Canada was up 87% in 2017 Q1 compared to 2016 Q1. The increase in the Company's activity days relative to the active rigs drilling was a result of sales and marketing efforts and the Company demonstrating performance on client jobs. The decrease in day rates was in part due to type of work performed, but mainly due to decreases in day rates charged to customers, which were a result of competitive pressure, and pricing concessions provided to customers to secure work. Many of these customer pricing concessions were carried forward from late 2016.
U.S. Directional Drilling revenues (excluding motor rental revenues) increased to $27,578 in 2017 Q1 from $11,977 in 2016 Q1; a 130% increase. This increase was the result of: i) a 162% increase in activity days to 2,565 in 2017 Q1 from 979 in 2016 Q1; net of ii) a 12% decrease in the average day rate to $10,752 in 2017 Q1 from $12,234 in 2016 Q1 (when converted to Canadian dollars). All U.S. operating areas saw increases in activity days.
The average active land rig count for the U.S. was up 36% in 2017 Q1 compared to 2016 Q1. Again, due to efforts of sales and marketing staff and performance on client jobs, the Company was able to increase market share compared to 2016 Q1. Day rates in USD fell to $8,117 USD in 2017 Q1 from $8,906 USD in 2016 Q1; a 9% decline. U.S. day rates decreases were partially offset by the U.S. division providing footage drilling services to certain clients, which can result in higher relative day rates. U.S. motor rental revenues for 2017 Q1 were $279 compared to $1,104 in 2016 Q1.
Gross margin and adjusted gross margin Gross margin for 2017 Q1 was 15% compared to 10% in 2016 Q1. Adjusted gross margin (see Non-GAAP Measurements) for 2017 Q1 was $8,486 or 22% compared to $4,949 or 26% for 2016 Q1.
Adjusted gross margin, as a percentage of revenue, decreased due to increases in field labour rates, higher equipment rentals and slightly higher equipment repairs on a percentage of revenue basis. These increases were offset by a reduction in the fixed component of cost of sales which were 13% lower on a percentage of revenue basis in 2017 Q1 compared to 2016 Q1. The decrease in the fixed component of cost of sales as a percentage of revenue was mostly attributable to increase in revenues, however there were increases in costs largely related to salaries and other labour related costs.
Depreciation allocated to cost of sales decreased to $2,606 in 2017 Q1 from $3,111 in 2016 Q1. Depreciation included in cost of sales as a percentage of revenue was 7% for 2017 Q1 and 17% in 2016 Q1.
Selling, general and administrative expenses ("SG&A") SG&A expenses were $3,823 in 2017 Q1; a decrease of $448 compared with $4,271 in 2016 Q1. As a percentage of revenue, SG&A was 10% in 2017 Q1 compared to 23% in 2016 Q1.
Excluding the non-cash items of depreciation and share-based compensation, SG&A was $3,751 in 2017 Q1 compared to $4,188 in 2016 Q1, a decrease of $437 or 10%. SG&A decreased primarily due to work force reductions. Additionally, 2016 Q1 had costs related to severance that were not incurred in 2017 Q1. Staffing costs included in SG&A include executive, sales, accounting, human resources, payroll, safety, technology support and related support staff. As well, there were year-over-year reductions in virtually every SG&A item due to efforts to reduce expenditures in 2016.
Gain on disposal of equipment During 2017 Q1, the Company had a gain on disposal of equipment of $2,014 compared to $891 in 2016 Q1. These gains mainly relate to equipment lost-in-hole. Proceeds from clients on lost-in-hole equipment are based on amounts specified in service agreements and, in most cases; these proceeds exceed the net book value of the equipment and result in a gain. The timing of lost-in-hole recoveries is not in the control of the Company and therefore can fluctuate significantly from quarter-to-quarter.
Finance costs Finance costs consist of interest expenses on operating loans, loans and borrowings and bank charges of $302 for 2017 Q1 versus $379 for 2016 Q1. The decrease in finance costs relate to repayments of loans in 2017 Q1 partially offset by increases in the interest rates.
Foreign exchange The Company had a foreign exchange gain of $218 in 2017 Q1 compared to a gain of $2,354 in 2016 Q1 due to the fluctuations of the Canadian dollar relative to the U.S. dollar. 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 as other comprehensive income 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 comprehensive income (loss). Included in the 2017 Q1 foreign currency gains are unrealized gain of $192 (2016 Q1 - $2,364) related to intercompany balances.
Gain on disposal of foreign subsidiary During 2016 Q1, the Company completed the sale of its wholly-owned Barbados subsidiary for net proceeds of $nil which resulted in a non-cash gain on sale of $10,865. The subsidiary held the Company's investment in Venezuela and this sale completed Cathedral's exit from carrying on a business in Venezuela.
Net loss from discontinued operations In 2016 Q4, the Company made the decision to sell its F&PT assets and focus its attention and resources fully on the directional drilling business where it believes it has a strong competitive advantage and better future growth prospects. The proceeds from this sale were used to pay down debt. As such, operating results for the F&PT business have been included in the statements of comprehensive income and statements of cash flows as discontinued operations. For 2017 Q1, the net loss from discontinued operations was $(118) compared to $(1,420) net loss for 2016 Q1.
Income tax For 2017 Q1, the Company had an income tax expense of $1,273 compared to recovery of $93 in 2016 Q1. Excluding adjustments to prior years' tax provisions, the effective tax rate was 32% for 2017 Q1. Excluding the non-cash gain on disposal of foreign subsidiary but including the loss from discontinued operations, the effective tax rate was 30% for 2016 Q1. Income tax expense is booked based upon expected annualized effective rates.
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 three months ended March 31, 2017, the Company had funds from continuing operations (see Non-GAAP Measurements) of $3,989 (2016 –$167). The increase in funds related to continuing operations is due to the increase in activity levels.
During 2017 Q1 the Company completed two major transactions that had a material impact on its outstanding debt. In January, the Company completed the sale of its F&PT assets for net proceeds of $17,241. On February 15, 2017, the Company closed a bought deal public offering and insider private placement financing for total gross proceeds of $14,130. As a result of these transactions, in 2017 Q1 the Company reduced its loans and borrowings by $26,315 which included a complete repayment of revolving term loan of $26,250. Cash balances as at March 31, 2017 were $3,783.
Working capital At March 31, 2017 the Company had working capital of $29,710 (December 31, 2016 - $39,324) and a working capital ratio of 2.7 to 1 (December 31, 2016 – 3.3 to 1). The decrease in working capital level was primarily due to the sale of F&PT assets held for sale which had been classified as a current asset at December 31 in the amount of $17,241. Partially offsetting this was an increase in trade receivables of $8,084 from December 31, 2016. Upon closing of the F&PT sale on January 16, 2017, $17,200 of the revolving term loan was repaid. The Company continues to retain a good accounts receivable aging profile with 89% of receivables under 60 days at March 31, 2017.
Credit facility The Company has a committed revolving credit facility (the "Facility") that expires in December 2018. The Facility is secured by a general security agreement over all present and future personal property.
The current Facility has been amended seven times. These amendments have certain restrictions, including, but not limited to; paying dividends, utilization of the accordion feature, enhanced lender financial reporting and a cap on any litigation settlement payments without lender approval. As well, effective 2016 Q1, the Company includes lost-in-hole equipment proceeds in the definition of Bank EBITDA (as defined in the credit agreement).
The financial covenants associated with the amended Facility are as follows:
| Quarter ending: |
Maximum Funded Debt to Bank EBITDA Ratio |
Minimum Debt Service Ratio |
| March 31, 2017 |
3.5:1 |
2.0:1 |
| June 30, 2017 |
3.5:1 |
2.5:1 |
| September 30, 2017 |
3.5:1 |
3.0:1 |
| December 31, 2017 |
3.25:1 |
3.0:1 |
| March 31, 2018 and thereafter |
3.0:1 |
3.0:1 |
Additionally, there is a minimum working capital ratio of 1.25:1.
The Seventh Amending Agreement, dated January 16, 2017, reduced the aggregate commitment to $23,000 after $17,200 was repaid upon the sale of F&PT assets and the maturity date was extended to December 2018.
After the amendments discussed above, the Facility bears interest at the bank's prime rate plus 0.50% to 5.00% or bankers' acceptance rate plus 1.75% to 6.25% with interest payable monthly. Interest rate spreads for the Facility depend on the level of funded debt to the 12 month trailing Bank EBITDA. The Facility provides a means to lock in a portion of the debt at interest rates through bankers' acceptance ("BA") based on the interest rate spread on the date the BA was entered into.
Cathedral is currently in compliance with all covenants. Based on current available information, Cathedral expects to comply with all covenants for the next twelve months.
At March 31, 2017, the Company had cash balances in excess of outstanding letters of credit and capital lease obligations. As such its Funded debt to bank EBITDA ratio ("Funded debt ratio") was negative (i.e. net cash balance). As such, the Funded debt ratio has been met, but is not meaningful ("NM") for presentation. For the three months ended March 31, 2017 Bank EBITDA was $7,021.
The Company's financial ratios at March 31, 2017 were:
| Ratio |
Actual |
Required |
| Funded debt to Bank EBITDA ratio |
NM |
3.5:1 Maximum |
| Debt service ratio |
6.8:1 |
2.0:1 Minimum |
| Working capital ratio |
2.7:1 |
1.25:1 Minimum |
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, 2016. As at March 31, 2017, the Company had a commitment to purchase approximately $810 of equipment.
Share capital At May 11, 2017, the Company has 48,916,451 common shares and 2,411,750 options outstanding with a weighted average exercise price of $1.47.
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
March 31, 2017 and December 31, 2016
Dollars in '000s
(unaudited)
| March 31 |
December 31 |
||||
| 2017 |
2016 |
||||
| Assets |
|||||
| Current assets: |
|||||
| Cash |
$ |
3,783 |
$ |
1,898 |
|
| Trade receivables |
34,329 |
26,245 |
|||
| Current taxes recoverable |
- |
1,336 |
|||
| Prepaid expenses |
1,421 |
1,611 |
|||
| Inventories |
7,768 |
8,037 |
|||
| Assets held for sale |
- |
17,241 |
|||
| Total current assets |
47,301 |
56,368 |
|||
| Equipment |
66,256 |
68,158 |
|||
| Intangible assets |
2,013 |
1,978 |
|||
| Deferred tax assets |
8,890 |
9,513 |
|||
| Total non-current assets |
77,159 |
79,649 |
|||
| Total assets |
$ |
124,460 |
$ |
136,017 |
|
| Liabilities and Shareholders' Equity |
|||||
| Current liabilities: |
|||||
| Operating loan |
$ |
- |
$ |
2,105 |
|
| Trade and other payables |
14,766 |
12,837 |
|||
| Current taxes payable |
220 |
- |
|||
| Loans and borrowings |
382 |
459 |
|||
| Provision for settlements, current |
2,223 |
1,643 |
|||
| Total current liabilities |
17,591 |
17,044 |
|||
| Loans and borrowings |
84 |
26,322 |
|||
| Provision for settlements, long-term |
599 |
1,879 |
|||
| Total non-current liabilities |
683 |
28,201 |
|||
| Total liabilities |
18,274 |
45,245 |
|||
| Shareholders' equity: |
|||||
| Share capital |
87,617 |
74,481 |
|||
| Contributed surplus |
9,679 |
9,620 |
|||
| Accumulated other comprehensive income |
11,009 |
11,371 |
|||
| Deficit |
(2,119) |
(4,700) |
|||
| Total shareholders' equity |
106,186 |
90,772 |
|||
| Total liabilities and shareholders' equity |
$ |
124,460 |
$ |
136,017 |
|
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Three months ended March 31, 2017 and 2016
Dollars in '000s except per share amounts
(unaudited)
| Three months ended March 31 |
|||||
| 2017 |
2016 |
||||
| Revenues |
$ |
38,323 |
$ |
18,744 |
|
| Cost of sales: |
|||||
| Direct costs |
(29,837) |
(13,795) |
|||
| Depreciation |
(2,606) |
(3,111) |
|||
| Share-based compensation |
(15) |
(11) |
|||
| Total cost of sales |
(32,458) |
(16,917) |
|||
| Gross margin |
5,865 |
1,827 |
|||
| Selling, general and administrative expenses: |
|||||
| Direct costs |
(3,751) |
(4,188) |
|||
| Depreciation |
(25) |
(34) |
|||
| Share-based compensation |
(47) |
(49) |
|||
| Total selling, general and administrative expenses |
(3,823) |
(4,271) |
|||
| 2,042 |
(2,444) |
||||
| Gain on disposal of equipment |
2,014 |
891 |
|||
| Earnings (loss) from operating activities |
4,056 |
(1,553) |
|||
| Finance costs |
(302) |
(379) |
|||
| Foreign exchange gain |
218 |
2,354 |
|||
| Write-down of inventory |
- |
(277) |
|||
| Gain on disposal of foreign subsidiary |
- |
10,865 |
|||
| Earnings before income taxes |
3,972 |
11,010 |
|||
| Income tax recovery (expense): |
|||||
| Current |
(655) |
126 |
|||
| Deferred |
(618) |
(33) |
|||
| Total income tax recovery (expense) |
(1,273) |
93 |
|||
| Net earnings from continuing operations |
2,699 |
11,103 |
|||
| Net loss from discontinued operations |
(118) |
(1,420) |
|||
| Net earnings |
2,581 |
9,683 |
|||
| Other comprehensive income (loss): |
|||||
| Foreign currency translation differences for foreign operations |
(362) |
(3,205) |
|||
| Foreign currency translation gain on disposal of foreign subsidiary |
- |
1,348 |
|||
| Total comprehensive income |
$ |
2,219 |
$ |
7,826 |
|
| Net earnings from continuing operations per share |
|||||
| Basic and diluted |
$ |
0.06 |
$ |
0.31 |
|
| Net loss from discontinued operations per share |
|||||
| Basic |
$ |
(0.00) |
$ |
(0.04) |
|
| Net earnings per share |
|||||
| Basic and diluted |
$ |
0.06 |
$ |
0.27 |
|
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
Three months ended March 31, 2017 and 2016
Dollars in '000s
(unaudited)
| Three months ended March 31 |
||||||
| 2017 |
2016 |
|||||
| Cash flow provided by (used in): |
||||||
| Operating activities: |
||||||
| Net earnings from continuing operations |
$ |
2,699 |
$ |
11,103 |
||
| Items not involving cash: |
||||||
| Depreciation |
2,631 |
3,145 |
||||
| Total income tax (recovery) expense |
1,273 |
(93) |
||||
| Unrealized foreign exchange gain on intercompany balances |
(192) |
(2,364) |
||||
| Finance costs |
302 |
379 |
||||
| Share-based compensation |
62 |
60 |
||||
| Gain on disposal of equipment |
(2,014) |
(891) |
||||
| Write-down of inventory |
- |
277 |
||||
| Gain on disposal of foreign subsidiary |
- |
(10,865) |
||||
| Cash flow - continuing operations |
4,761 |
751 |
||||
| Cash flow - discontinued operations |
(117) |
(710) |
||||
| Changes in non-cash operating working capital |
(6,105) |
4,235 |
||||
| Income taxes (paid) recovered |
893 |
(120) |
||||
| Cash flow - operating activities |
(568) |
4,156 |
||||
| Investing activities: |
||||||
| Equipment additions |
(1,036) |
(268) |
||||
| Intangible asset additions |
(79) |
(45) |
||||
| Proceeds on disposal of equipment |
2,393 |
1,205 |
||||
| Proceeds on disposal of discontinued operations |
17,252 |
- |
||||
| Changes in non-cash investing working capital |
196 |
646 |
||||
| Cash flow - investing activities |
18,726 |
1,538 |
||||
| Financing activities: |
||||||
| Change in operating loan |
(2,105) |
(2,088) |
||||
| Repayments on loans and borrowings |
(26,313) |
(2,603) |
||||
| Proceeds on share issuance from bought deal public offering and insider private placement |
13,131 |
- |
||||
| Proceeds on share issuance from exercise of share options |
4 |
- |
||||
| Payments on settlement |
(668) |
- |
||||
| Interest paid |
(305) |
(134) |
||||
| Cash flow - financing activities |
(16,256) |
(4,825) |
||||
| Effect of exchange rate on changes in cash |
(17) |
(95) |
||||
| Change in cash |
1,885 |
774 |
||||
| Cash, beginning of period |
1,898 |
1,426 |
||||
| Cash, end of period |
$ |
3,783 |
$ |
2,200 |
||
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: expect pricing levels will improve modestly throughout 2017; expectation we will see continued commodity price volatility going forward; many of the aspects of our business that we focused on in the face of adversity over the past two years have set us up favorably to capitalize on an upturn in our industry; have strategies to help us secure higher pricing for our services; looking at ways to better manage our labor pool, keep our expenses in line and continue to deliver high quality service; technology group continues to make equipment improvements to our existing equipment and explore new products aimed at revenue generation and expense and capital cost reductions; and Cathedral expects to comply with all covenants during 2017.
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;
- changes under governmental regulatory regimes and tax, environmental and other laws in Canada and U.S.; 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 and Annual Report which have been filed with Canadian provincial securities commissions and are available on www.sedar.com.
NON-GAAP MEASUREMENTS
Cathedral uses certain performance measures throughout this document that are not defined under GAAP. Management believes that these measures provide supplemental financial information that is useful in the evaluation of Cathedral's operations and are commonly used by other oil and gas service companies. Investors should be cautioned, however, that these measures should not be construed as alternatives to measures determined in accordance with GAAP as an indicator of Cathedral's performance. Cathedral's method of calculating these measures may differ from that of other organizations, and accordingly, may not be comparable.
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) "Total Adjusted EBITDAS" - defined as earnings before share of income/loss from associate, write-down/recovery on investment in 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 equipment (see non-GAAP measurement), depreciation, write-down of goodwill, write-down of equipment, write-down of inventory and share-based compensation; 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). This measure includes both discontinued F&PT operations and continuing Directional Drilling operations;
iv) "Adjusted EBITDAS from discontinued operations" – Total Adjusted EBITDAS as calculated above from discontinued F&PT operations only;
v) "Adjusted EBITDAS from continuing operations" – Total Adjusted EBITDAS as calculated above for ongoing Directional Drilling as well as corporate administrative costs;
vi) "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);
vii) "Growth 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 equipment expected to add incremental revenues and funds flow to the Company;
viii) "Maintenance equipment additions" or "Maintenance capital" – is capital spending incurred in order to refurbish or replace previously acquired other than "replacement 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;
ix) "Replacement 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 equipment additions is considered important as such additions are financed by way of proceeds on disposal of equipment (see discussion within the news release on "gain on disposal of equipment);
x) "Infrastructure 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;
xi) "Non-recurring gains and losses on disposal of equipment" – are disposals of 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;
xii) "Net equipment additions" – is equipment additions expenditures less proceeds on the regular disposal of equipment (the proceeds on sale of land and buildings have been excluded). Cathedral uses net equipment additions to assess net cash flows related to the financing of Cathedral's equipment additions; and
xiii) "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 March 31 |
|||||
| 2017 |
2016 |
||||
| Gross margin |
$ |
5,865 |
$ |
1,827 |
|
| Add non-cash items included in cost of sales: |
|||||
| Depreciation |
2,606 |
3,111 |
|||
| Share-based compensation |
15 |
11 |
|||
| Adjusted gross margin |
$ |
8,486 |
$ |
4,949 |
|
| Adjusted gross margin % |
22% |
26% |
|||
Total Adjusted EBITDAS
| Three months ended March 31 |
|||||
| 2017 |
2016 |
||||
| Earnings before income taxes |
$ |
3,972 |
$ |
11,010 |
|
| Add: |
|||||
| Depreciation included in cost of sales |
2,606 |
3,111 |
|||
| Depreciation included in selling, general and administrative expenses |
25 |
34 |
|||
| Share-based compensation included in cost of sales |
15 |
11 |
|||
| Share-based compensation included in selling, general and administrative expenses |
47 |
49 |
|||
| Finance costs |
302 |
379 |
|||
| Subtotal |
6,967 |
14,594 |
|||
| Unrealized foreign exchange gain on intercompany balances |
(192) |
(2,364) |
|||
| Write-down of inventory |
- |
277 |
|||
| Gain on disposal of foreign subsidiary |
- |
(10,865) |
|||
| Non-recurring expenses |
127 |
436 |
|||
| Adjusted EBITDAS from continuing operations |
6,902 |
2,078 |
|||
| Adjusted EBITDAS from discontinued operations |
(106) |
(602) |
|||
| Total Adjusted EBITDAS |
$ |
6,796 |
$ |
1,476 |
|
Funds from operations
| Three months ended March 31 |
|||||
| 2017 |
2016 |
||||
| Cash flow - operating activities |
$ |
(568) |
$ |
4,156 |
|
| Add (deduct): |
|||||
| Changes in non-cash operating working capital |
6,105 |
(4,235) |
|||
| Income taxes paid (recovered) |
(893) |
120 |
|||
| Current tax recovery (expense) |
(655) |
126 |
|||
| Funds from operations |
$ |
3,989 |
$ |
167 |
|
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. 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, Michael F. Hill, Chief Financial Officer or Randy Pustanyk, Executive Vice President, Product Line Management, Cathedral Energy Services Ltd., 6030 3 Street S.E., Calgary, Alberta T2H 1K2, Telephone: 403.265.2560, Fax: 403.262.4682, www.cathedralenergyservices.com
Share this article