Newalta Reports First Quarter 2018 Results

TSX Trading Symbol: NAL

CALGARY, May 8, 2018 /CNW/ - Newalta Corporation ("Newalta") (TSX:NAL) today reported results for the three months ended March 31, 2018.

FINANCIAL HIGHLIGHTS⁽¹⁾

		Three months ended March 31,
($000s except per share data) (unaudited)		2018		2017	% change
Revenue		61,749		60,810	2
General & administrative expenses		6,851		7,531	(9)
Net loss		(10,433)		(14,475)	(28)
	- per share ($) basic and diluted	(0.12)		(0.16)	(25)
Adjusted EBITDA^(2)		12,675		10,479	21
	- per share ($) basic and diluted	0.14		0.12	17
Maintenance capital expenditures^(2)		1,719		1,099	56
Growth capital expenditures^(2)		6,817		1,069	n/m
Weighted average shares outstanding		88,148		88,148	-
Shares outstanding, March 31,^(3)		88,148		88,148	-

(1)	Refer to Newalta's Management's Discussion and Analysis ("MD&A") and unaudited Condensed Consolidated Financial Statements for further information. References to GAAP are synonymous with IFRS and references to Consolidated Financial Statements and notes are synonymous with Financial Statements.
(2)	These financial measures do not have any standardized meaning prescribed by GAAP and are therefore unlikely to be comparable to similar measures presented by other issuers. Non-GAAP financial measures are identified and defined in our MD&A.
(3)	Newalta had 88,148,148 shares outstanding as at May 8, 2018.

MANAGEMENT COMMENTARY

"Performance in the first quarter exceeded our guidance and reflects continued execution of our business strategy," said John Barkhouse, President and Chief Executive Officer. "Adjusted EBITDA of $12.7 million is a 21% improvement over the prior year and is primarily driven by increased utilization in Drilling Services and production related waste volumes received at our Heavy Oil facilities, partially offset by decreased mining contributions from Heavy Oil Onsite.

"With the first quarter behind us, we turn our focus to Q2 and the remainder of 2018. Our Q2 Adjusted EBITDA guidance range is $8 million to $10 million, which reflects an anticipated prolonged spring break-up. Our full year guidance remains unchanged at $50 million to $60 million. We anticipate steady improvements to our business in 2018 predicated on the continuation of the recent strength in commodity prices and associated activity levels. Our Adjusted EBITDA guidance for full year 2018 is based on a WTI forecast of $60 to $70 per barrel.

"On April 30, 2018, we achieved another milestone on the path to merging with Tervita Corporation as the plan of arrangement resolution was approved with overwhelming support by our securityholders.  Looking forward, the next steps in the process include receiving approval from the Competition Bureau and the Alberta Court of Queen's Bench. We remain on track for the arrangement to close late in the second quarter or early in the third quarter of 2018."

FINANCIAL RESULTS

• Q1 2018 revenue of $61.7 million increased by 2% compared to prior year, primarily driven by increased utilization in Drilling Services and production related waste volumes received at our Heavy Oil facilities, partially offset by decreased mining contributions from Heavy Oil Onsite.
• Net loss for the quarter was $10.4 million compared to $14.5 million in prior year. The year-over-year improvement was primarily related to the reversal of impairment of certain Heavy Oil assets and increased contributions from the Oilfield division, partially offset by increased restructuring and other expense.
• Adjusted EBITDA for the quarter was $12.7 million, a 21% increase compared to prior year driven by increased contributions from Drilling Services and Heavy Oil Facilities as well as G&A savings of $0.7 million, partially offset by decreased contributions from Heavy Oil Onsite. 
• Our contract model continued to provide predictable cash flow. These contracts are of varying lengths, generally are not tied directly to commodity price changes or drilling activity and provide a solid foundation for our business, particularly in depressed markets. On a trailing-twelve month ("TTM") basis, contracts represented 16% of our revenue.

Heavy Oil

• In the first quarter, Heavy Oil revenue decreased by 7% to $20.1 million as increased SAGD volumes received at our facilities were more than offset by decreased mining contributions from Onsite. Net earnings before taxes in the quarter were $7.3 million, a $5.5 million increase over last year primarily driven by decreased depreciation and amortization and the reversal of impairment on certain Heavy Oil assets. Divisional EBITDA remained flat to prior year.

Oilfield

• In the first quarter, Oilfield revenue increased 6% over prior year to $41.7 million, primarily driven by improvements in Drilling Services. Net earnings before taxes in the quarter were $2.6 million, a 38% decline over prior year, due to increased contributions from both business units being more than offset by increased depreciation and amortization. Divisional EBITDA increased by 16% over prior year to $11.1 million primarily as a result of improved drilling activity.

Corporate and Other

• Capital expenditures for the three months ended March 31, 2018 were $8.5 million, an increase of $6.4 million over prior year. Expenditures for the quarter were primarily focused on growth projects.
• In the first quarter G&A was $6.9 million, a decrease of 9% over prior year. The year-over-year improvement was driven by our disciplined focus on managing overheads.
• Restructuring and other expense for the three months ended March 31, 2018, was $2.4 million compared to $0.7 million in the prior year. The current year expense is primarily comprised of transaction costs related to the proposed merger transaction with Tervita Corporation announced on March 1, 2018.

Recent Developments

On February 28, 2018, we entered into an arrangement agreement (the "Arrangement Agreement") with Tervita Corporation ("Tervita"), pursuant to which Tervita has agreed, through a series of transactions, to acquire all of our issued and outstanding common shares on the basis of: (i) 0.1467 of a Class A Common share ("Amalco Share") of Amalco (as defined herein); and (ii) 0.0307 of one warrant ("Amalco Warrant") to purchase one Amalco Share, for each outstanding common share of Newalta, and Newalta and Tervita will amalgamate to form "Tervita Corporation" ("Amalco"). Each Amalco Warrant will be exercisable for a period of two years from the closing of the Arrangement (as defined herein) at a price of $18.75 per equivalent Amalco Share. The transaction is to be completed by way of a plan of arrangement (the "Arrangement") under the Business Corporations Act (Alberta).

At the annual and special meeting of the securityholders of Newalta held on April 30, 2018, the Arrangement, among other matters, was approved by: (i) 99.83% of the votes cast by securityholders of Newalta who voted on the Arrangement, voting together as a single class; and (ii) pursuant to the rules and policies of the Toronto Stock Exchange (the "TSX"), 99.81% of the votes cast by shareholders of Newalta who voted on the Arrangement. Additionally, at the annual and special meeting of shareholders of Tervita held on April 30, 2018, the Arrangement, among other matters, was approved by 100% of the votes cast by shareholders of Tervita who voted on the Arrangement, voting together as a single class. On May 2, 2018, Tervita received conditional listing approval for the Amalco Shares and Amalco Warrants from the TSX.  Such listing is subject to Amalco meeting minimum listing requirements and fulfilling all other application listing requirements of the TSX. Completion of the Arrangement remains subject to regulatory approvals including pursuant to the Competition Act (Canada), as well as approval by the Alberta Court of Queen's Bench. Assuming the satisfaction or waiver of these conditions, the Arrangement is expected to close by the end of the second quarter or early in the third quarter of 2018.

For additional details, please see the full text of the Arrangement Agreement included in our joint information circular dated March 23, 2018 filed under Newalta's SEDAR profile at www.sedar.com.

The following section contains forward-looking information as it outlines our Outlook for 2018. Our Outlook is based on several key assumptions including growth capital contributions, commodity prices and activity levels in the oil and gas industry. Changes to these assumptions could cause our actual results to differ materially. Please refer to our Forward-Looking Information later in this document. We are subject to a number of risks and uncertainties in carrying out our activities including market conditions, ability to expand the business, competition, regulation, and the ability to attract and retain personnel. A complete list of our risk factors is disclosed in our most recently filed Annual Information Form. 

OUTLOOK & BUSINESS DRIVERS

Our business performance is tied to drilling and production related activities in western Canada and the United States. Sustained, stable oil and gas prices enable our customers to make capital decisions to invest in the drilling and completion of new wells and reactivation of shut-in wells. Activity levels, which correlate to the generation of production waste volumes, will vary among plays based on their cost profile. We provide enhanced value solutions to our customers, enabling them to extract greater value from their operations irrespective of cost profile.

The key drivers of our business performance are as follows:

Crude Oil Prices

• Crude oil prices (primarily Canadian benchmarks WCS and CLS) directly impact the value of the products we recover from waste.
• Relative strength and stability of crude oil benchmarks impact confidence amongst producers and play a key role in determining their capital budgets, which in turn drives activity levels.

Drilling Activity

• Drilling Services performance is driven by active rigs and is the first business line to respond to changes in activity.
• Wells drilled and completed in the areas we serve drive waste volumes into our facilities.
• Drilling activity in the areas we serve is dependent on the cost profile of the play, with low cost profile shale play activity being initiated at lower oil prices than the more expensive profile plays such as in heavy oil areas.
• At higher asset utilization levels, we generally see increased pricing for our services.

Production Impact & Other

• Primarily comprised of the net impact of production related waste volumes and shifts in waste mix, net impact of contributions from Onsite contracts and, to a lesser extent, customer pricing and operational efficiencies.
• We typically see a time lag between the deployment of producers' capital budgets, including turnarounds and workovers, and the subsequent production related waste volume increases to our business.
• The composition of waste volumes impacts the degree of processing complexity and the amount of recoverable oil.
• CHOPS waste volumes are also dependent on the drilling of new wells to replace production volumes lost through their naturally steep decline curves.
• SAGD waste volumes are dependent on the number, timing and length of event-based upsets occurring in the normal course of SAGD facility operations.
• The timing and amount of mining contributions will be dependent on the approval of producers' mitigation plans to meet the Tailings Management Framework. We continue to work with producers to develop solutions to meet these requirements.
• We continue to prudently manage our operational and corporate cost structure.

Outlook

Our outlook for 2018 is based on our expectation of year-over-year trends including:

• Increased commodity prices:
• Strengthening WTI, CLS and WCS prices
• The wide WTI-WCS differential experienced in the early part of 2018 is expected to improve but remain wider than in 2017
• Marginal increases in drilling and completions activity in the areas we serve
• Production related activity improvements, driven by:
• Return on capital investments to realize operational efficiencies
• Waste volumes at our Oilfield Facilities remaining relatively flat
• Incremental improvements in CHOPS waste volumes
• Increased demand for project work
• Disciplined focus on maintaining our streamlined cost structure and business processes

Specifically, we anticipate the second quarter results to be impacted by lower drilling activity and production levels due to a prolonged spring breakup.

Our Q2 and full-year 2018 guidance ranges are:

• Revenue of $50 million to $60 million for the second quarter and $235 million to $260 million for the full year; and
• Adjusted EBITDA of $8 million to $10 million for the second quarter and $50 million to $60 million for the full year.

The following table outlines the factors we expect to impact Adjusted EBITDA performance in the second quarter and full year of 2018:

Factor	Actual^(1)	Assumption	Expected impact on Adjusted EBITDA  compared to prior year period^(1)
	Q1 2018	Q2 and Full Year 2018	Q2 2018	2018
West Texas Intermediate (US$/bbl)	Q1: $62.87	Q2 2018: $65 – $70 2018: $60 – $70
Canadian Light Sweet (CDN$/bbl)^(2)	Q1: $72.28	Q2 2018: $75 – $80 2018: $67 – $77	$0.25M – $0.75M ↑	$1M – $3.5M ↑
Western Canadian Select (CDN$/bbl)^(2)	Q1: $48.84	Q2 2018: $65 – $70 2018: $52 – $62	$0.25M – $0.75M ↑	$0.5M  – $2.5M↑
Drilling activity^(2) over prior year	Q1: 25%	Q2 2018: (10%) - Flat 2018: 5% – 15%	$0.5M ↓ – Flat	$1M – $6M ↑
Production Impact & Other^(3)	Q1: $0.2M		$1.5M – $1M ↓	$3M – $3.5M ↑
Adjusted EBITDA Guidance			$8M – $10M	$50M – $60M

(1)	M refers to millions.
(2)	Impact derived from annual sensitivities based on forecast performance and volumes outlined in the "Sensitivities" section of our 2017 Annual Report and may be adjusted for expected volumes. The actual impact from crude oil prices may vary with fluctuations in volumes.
(3)	This factor is expected to have an impact on our performance through the year and cannot be quantified on any linear sensitivity.

Managing debt leverage and use of cash and capital are our highest priorities. We expect to remain within our debt covenants throughout 2018.

Management's Discussion and Analysis and Financial Statements

The condensed consolidated financial statements and MD&A, which contain additional notes and disclosures, are available on SEDAR at www.sedar.com or our website at www.newalta.com under Investor Relations/Financial Reports.

Quarterly Conference Call
Management will hold a conference call on May 9, 2018 at 11:00 a.m. (ET) to discuss Newalta's performance for the quarter. To participate in the teleconference, please call 647-427-7450 or toll free 1-888-231-8191. To access the simultaneous webcast, please visit www.newalta.com. For those unable to listen to the live call, a taped broadcast will be available at www.newalta.com and, until midnight on Wednesday, May 16, 2018, by dialing 855-859-2056 and using the pass code 2829719.

About Newalta
Newalta is a leading provider of innovative engineered environmental solutions that enable customers to reduce disposal, enhance recycling and recover valuable resources from oil and gas exploration and production waste streams. We simplify the critical challenges of sustainable environmental practices through the use of advanced processing capabilities deployed through a differentiated business model. We serve customers onsite directly at their operations and through a network of locations throughout North America. Our proven processes and excellent record of safety make us the first-choice provider of sustainability-enhancing services for oil and gas customers. With a highly skilled team of people, more than a two-decade track record of innovation and a commitment to commercializing new solutions, Newalta is positioned for sustained future growth and improvement. We are Sustainability Simplified^TM. Newalta trades on the TSX as NAL. For more information, visit www.newalta.com.

The press release contains certain statements that constitute forward-looking information.  Please refer to the section below, "Forward-Looking Information", for further discussion of assumptions and risks relating to this forward looking information.

This press release contains references to certain financial measures, including some that do not have any standardized meaning prescribed by GAAP and are therefore unlikely to be comparable to similar measures presented by other issuers. Non-GAAP financial measures are identified and defined in our MD&A.

FORWARD-LOOKING INFORMATION

Certain statements contained in this document constitute "forward-looking information" as defined under applicable securities laws. When used in this document, the words "may", "would", "could", "will", "intend", "plan", "anticipate", "believe", "estimate", "expect", "potential", "strategy", "target" and similar expressions, as they relate to Newalta Corporation and the subsidiaries of Newalta Corporation, or their management, are intended to identify forward-looking information. In particular, forward-looking information included or incorporated by reference in this document includes information with respect to:

• future operating and financial results;
• business prospects and strategy including related timelines;
• capital expenditure programs and other expenditures;
• realization of anticipated benefits of growth capital investments, acquisitions, divestitures and our innovation and process development initiatives;
• realization of anticipated benefits from the implementation of cost rationalization initiatives including the anticipated value and sustainability of the cash savings from such initiatives;
• the expected utility of non-GAAP financial measures used in this document;
• the availability to us of financing alternatives, including those that may permit the refinancing of our November 2019 debentures prior to their maturity and the timing of such refinancing, if any;
• our capital structure objectives;
• anticipated industry activity levels, including drilling and completions activity;
• anticipated commodity prices;
• expected demand for our services;
• expected expansion opportunities for our business;
• the amount of dividends declared or payable in the future;
• our projected cost structure and cash flow management activities;
• expectation and implications of changes in legislation; and
• the Arrangement (as defined herein), including the consideration to be paid under the Arrangement, the ability to obtain all necessary approvals for completion of the Arrangement and the expected closing date of the Arrangement.

Expected future financial and operating performance and related assumptions are set out under "Outlook & Operating Leverage". Such information reflects our current views with respect to future events and are subject to certain risks, uncertainties and assumptions, including, without limitation:

• strength of the oil and gas industry, including drilling and completions activity;
• general market conditions;
• fluctuations in commodity prices for oil and the price we receive for our recovered oil;
• fluctuations in interest rates and exchange rates;
• financial covenants in our debt agreements that may restrict our ability to engage in transactions or to obtain additional financing;
• effectiveness of our cash flow management activities and cost rationalization initiatives;
• success of our growth, acquisition and innovation and process development strategies including integration of businesses and processes into our operations and potential liabilities from acquisitions;
• our ability to secure future capital to support and develop our business, including the issuance of additional common shares;
• our ability to secure alternative financing, if needed, and including financing that may permit the refinancing of our November 2019 debentures prior to their maturity, at all or on terms acceptable to us and consistent with our capital structure objectives;
• the highly regulated nature of the environmental services and waste management business in which we operate;
• the competitive environment of our industry in Canada and the United States;
• possible volatility of the price of, and the market for, our common shares, and potential dilution for shareholders in the event of a sale of additional shares;
• dependence on our senior management team and other operations management personnel with waste industry experience;
• potential operational and safety risks and hazards, obtaining insurance for such risks and hazards on reasonable financial terms and potential failure of meeting customer safety standards;
• the seasonal nature of our operations;
• timing and term of contracts for our services;
• risk of pending and future legal proceedings;
• risk to our reputation;
• our ability to attract, retain and integrate skilled employees;
• open access for new industry entrants and the general unprotected nature of technology used in the waste industry;
• costs associated with operating our landfills;
• the receipt, in a timely manner, of regulatory, court and third party approvals in respect of the Arrangement;
• the satisfaction or waiver of all conditions to closing of the Arrangement;
• that the Arrangement Agreement (as defined herein) will not be terminated prior to closing of the Arrangement; and
• such other risks or factors described from time to time in reports we file with securities regulatory authorities.

By its nature, forward-looking information involves numerous assumptions, known and unknown risks and uncertainties, both general and specific, that contribute to the possibility that the predictions, forecasts, projections and other forward-looking information will not occur. Many other factors could also cause actual results, performance or achievements to be materially different from any future results, performance or achievements that may be expressed or implied by such forward-looking information and readers are cautioned that the foregoing list of factors is not exhaustive. Should one or more of these risks or uncertainties materialize, or should assumptions underlying the forward-looking information prove incorrect, actual results may vary materially from those described herein as intended, planned, anticipated, believed, estimated or expected. Furthermore, the forward-looking information contained in this document is made as of the date of this document and, in each case, is expressly qualified by this cautionary statement. Unless otherwise required by law, we do not intend, or assume any obligation, to update any such forward-looking information.

SOURCE Newalta Corporation

Investor Relations, 1-855-506-9010, [email protected]

Related Links

http://www.newalta.com