CALGARY, ALBERTA--(Marketwired - April 30, 2015) -
NOT FOR DISTRIBUTION TO U.S. NEWS WIRE SERVICES OR FOR DISSEMINATION IN THE UNITED STATES ("U.S.")
The news release contains "forward-looking information and statements" within the meaning of applicable securities laws. For full disclosure of the forward-looking information and statements and the risks to which they are subject, see the "Cautionary Statement Regarding Forward-Looking Information and Statements" later in this news release.
Strad Energy Services Ltd. (TSX:SDY), ("Strad" or the "Company"), a North American-focused, energy services company, today announced its financial results for the three months ended March 31, 2015. All amounts are stated in Canadian dollars unless otherwise noted.
SELECTED FINANCIAL AND OPERATIONAL HIGHLIGHTS:
- First quarter adjusted EBITDA (1) of $7.1 million decreased 36% compared to $11.0 million for the same period in 2014;
- First quarter earnings per share decreased to $0.01 from $0.11 for the same period in 2014;
- First quarter revenue of $34.4 million decreased 34% compared to $51.9 million for the same period in 2014;
- Capital additions totaled $7.0 million during the first quarter of 2015;
- Total funded debt (2) to EBITDA (3) ratio was 0.7 to 1 at the end of the first quarter of 2015;
- Strad has approved $10.0 million in capital spending for 2015; and
- During the first quarter of 2015, Strad identified and revised certain comparative balances. This revision resulted in an increase to AOCI (accumulated other comprehensive income), a balance sheet equity account, with an offsetting decrease to accounts payable and accrued liabilities in the amount of $9.5 million at December 31, 2014, and $4.5 million at December 31, 2013, and the resulting impacts on the Company's other comprehensive income and statement of cash flow. The revision has no impact on the Company's previously reported key performance measures including Net Income, Earnings per Share, adjusted EBITDA, Return on Total Asset, Funds from Operations, ending cash and cash equivalents balance, debt balance or bank covenants at December 31, 2014, or any of these measures going forward. Further detail is included in the Company's MD&A on page 8 and note 2 of the unaudited condensed interim consolidated financial statements for the three months ended March 31, 2015.
| Notes: | |
| (1) | Earnings before interest, taxes, depreciation and amortization and other adjustments ("adjusted EBITDA") is not a recognized measure under IFRS; see "Non-IFRS Measures Reconciliation". |
| (2) | Funded debt includes bank indebtedness plus long-term debt plus current and long-term obligations under finance lease less cash. |
| (3) | EBITDA is based on trailing twelve months adjusted EBITDA plus share based payments. |
"As expected, 2015 to this point has been challenging for the oil and gas industry in North America and with further rig activity declines since the first quarter, we anticipate that market conditions in the second quarter will continue to be challenging," said Andy Pernal, President and CEO of Strad. "Although our business has been directly impacted by these challenges, our diversification into energy infrastructure opportunities and continued focus on service with our key customer relationships will position us well in this environment and we will be prepared to respond when activity improves."
"In response to the challenging oil and gas environment we have responded with cost reduction initiatives including wage rollbacks and layoffs," said Greg Duerr, Chief Financial Officer of Strad. "We have reduced employee headcount by approximately 25% since the beginning of 2015 in an effort to better align the cost structure with current activity levels. These cost reduction efforts will impact results in the latter part of the second quarter and reduce the anticipated decline in margins resulting from lower activity levels. These cost reduction efforts combined with a strong balance sheet, minimal capital spending resulting in free cash flow generation, position the business well to weather the current downturn in activity."
| FIRST QUARTER FINANCIAL HIGHLIGHTS | ||||||
| (in thousands of Canadian Dollars, except per share amounts) | Three months ended Mar 31, | |||||
| 2015 | 2014 | % Chg. | ||||
| Revenue | 34,370 | 51,888 | (34 | ) | ||
| Adjusted EBITDA (1) | 7,057 | 10,988 | (36 | ) | ||
| Adjusted EBITDA as a % of revenue | 21 | % | 21 | % | ||
| Per share ($), basic | 0.19 | 0.30 | (37 | ) | ||
| Per share ($), diluted | 0.19 | 0.29 | (34 | ) | ||
| Net income | 204 | 4,141 | (95 | ) | ||
| Per share ($), basic | 0.01 | 0.11 | ||||
| Per share ($), diluted | 0.01 | 0.11 | ||||
| Funds from operations (2) | 7,387 | 10,533 | (30 | ) | ||
| Per share ($), basic | 0.20 | 0.29 | (31 | ) | ||
| Per share ($), diluted | 0.20 | 0.28 | (29 | ) | ||
| Capital expenditures (3) | 6,959 | 8,873 | (22 | ) | ||
| Total assets | 234,522 | 224,010 | ||||
| Long-term debt | 31,500 | 38,400 | (18 | ) | ||
| Total long-term liabilities | 46,706 | 48,077 | (3 | ) | ||
| Common shares - end of period ('000's) | 37,280 | 37,253 | ||||
| Weighted avg common shares ('000's) | ||||||
| Basic | 36,908 | 36,730 | ||||
| Diluted | 37,335 | 37,476 | ||||
| Notes: | |
| (1) | Earnings before interest, taxes, depreciation and amortization and other adjustments ("adjusted EBITDA") is not a recognized measure under IFRS; see "Non-IFRS Measures Reconciliation". |
| (2) | Funds from operations is cash flow from operating activities before changes in non-cash working capital. Funds from operations is not a recognized measure under IFRS; see "Non-IFRS Measures Reconciliation". |
| (3) | Includes assets acquired under finance lease and purchases of intangible assets. |
| FINANCIAL POSITION AND RATIOS | ||
| As at March 31, | ||
| ($000's except ratios) | 2015 | 2014 |
| Working capital (1) | 21,352 | 17,513 |
| Funded debt (2) | 39,371 | 45,004 |
| Total assets | 234,522 | 224,010 |
| Funded debt to EBITDA(3) | 0.7 | 1.1 |
| Notes: | |
| (1) | Working capital is calculated as current assets less current liabilities, excluding assets held for sale. |
| (2) | Funded debt includes bank indebtedness plus long-term debt plus current and long-term obligations under finance lease less cash. |
| (3) | EBITDA is based on trailing twelve months adjusted EBITDA plus share based payments. See "Non-IFRS Measures Reconciliation". |
FIRST QUARTER RESULTS
Strad reported a decrease in revenue and adjusted EBITDA of 34% and 36% respectively, during the three months ended March 31, 2015, compared to the same period in 2014. Decreased revenue during the first quarter was a result of reduced equipment utilization and pricing in both Canada and the United States ("U.S.") and lower Product Sales due to a significant decline in rig activity levels year-over-year. Adjusted EBITDA margin percentage remained consistent with the prior year at 21% during the first quarter of 2015 due in part to a shift in revenue mix to rental operations from lower margin product sales.
Strad's Canadian Operations reported lower revenue and adjusted EBITDA during the three months ended March 31, 2015, compared to the same period in 2014. Decreased revenue was a result of lower pricing and utilization of the surface equipment fleet as a result of a 55% decline in the average drilling rig count to 232 rigs during Q1 2015 compared to 521 for the same period in 2014. Strad's Canadian Operations was also impacted by an early spring breakup season in the Western Canadian Sedimentary Basin ("WCSB"). Declines in the surface equipment fleet utilization during the first quarter were partially offset by increased utilization of a larger matting fleet.
Rig counts in Strad's targeted U.S. resource plays were also, year-over-year, significantly lower during the first quarter of 2015 compared to the same period in 2014. Rig counts in the Bakken, Rockies and Marcellus regions decreased by 35%, 33%, and 12%, respectively, year-over-year. The declines in market activity were partially offset by market share gains achieved due to investment in the Company's field sales force and the equipment fleet during 2014 resulting in only a 5% decline in revenue during the first quarter of 2015 compared to the same period in the prior year. Despite declines in revenue year-over-year, adjusted EBITDA increased 15% and adjusted EBITDA as a percentage of revenue increased to 30% compared to 24% in the first quarter of 2014 due to cost reductions in 2014.
During the first quarter of 2015, capital expenditures were $5.3 million in Canada and $1.6 million in the U.S. Strad has approved a total of $10.0 million in budgeted capital for 2015, including $5.0 million of maintenance capital expenditures. The Company continues to invest in equipment, mainly matting, which is in demand in both Canada and the U.S.
| RESULTS OF OPERATIONS | ||||||
| Canadian Operations | ||||||
| Three months ended March 31, | ||||||
| ($000's) | 2015 | 2014 | % chg. | |||
| Revenue | 17,898 | 21,384 | (16 | ) | ||
| Direct Costs | 12,150 | 13,436 | (10 | ) | ||
| Selling, general and administrative | 2,068 | 2,344 | (12 | ) | ||
| Net Income | 811 | 3,959 | (80 | ) | ||
| Adjusted EBITDA (1) | 3,680 | 5,604 | (34 | ) | ||
| Adjusted EBITDA as a % of revenue | 21 | % | 26 | % | ||
| Capital expenditures (2) | 5,252 | 6,792 | (23 | ) | ||
| Gross capital assets | 122,449 | 111,306 | 10 | |||
| Total assets | 114,220 | 113,476 | 1 | |||
| Notes: | |
| (1) | Earnings before interest, taxes, depreciation and amortization and other adjustments ("adjusted EBITDA") is not a recognized measure under IFRS; see "Non-IFRS Measures Reconciliation". |
| (2) | Includes assets acquired under finance lease and purchases of intangible assets. |
Revenue for the three months ended March 31, 2015, of $17.9 million decreased 16% compared to $21.4 million for the same period in 2014. Decreased revenue during the quarter was primarily a result of lower rental revenue from the surface equipment fleet. Utilization levels for surface equipment declined by 26% during the first quarter of 2015, compared to the same period in 2014, in addition to price declines, due to a 55% decline in average rig count in the WCSB over the same time period. A significant decline in commodity prices in late 2014 caused the decline in rig counts during the first quarter of 2015 as Strad's customers reduced capital spending.
During the first quarter, increased revenue from Strad's matting rental fleet partially offset the decline in the surface equipment fleet revenue. Strad's Canadian matting fleet increased to approximately 48,600 pieces as at March 31, 2015, compared to approximately 29,900 pieces as at March 31, 2014, and utilization increased by 35% during the first quarter of 2015, compared to the first quarter of 2014, due to an early start to the annual spring breakup season. The increase in Strad's matting fleet and utilization during the first quarter of 2015 was partially offset by a decline in pricing compared to the prior year.
Adjusted EBITDA for the three months ended March 31, 2015, of $3.7 million, decreased 34% compared to $5.6 million for the same period in 2014. Adjusted EBITDA as a percentage of revenue, for the three months ended March 31, 2015, decreased to 21% compared to 26% for the same period in 2014. The decline in adjusted EBITDA and adjusted EBITDA as a percentage of revenue is a result of the decline in total revenue during the first quarter. Additionally, the first quarter of 2015 adjusted EBITDA as a percentage of revenue was also impacted by a shift in the mix of revenue, as lower margin service and trucking revenue made up a larger portion of total revenue compared to the same period in 2014.
Direct costs for the three months ended March 31, 2015, of $12.2 million decreased 10% compared to $13.4 million for the same period in 2014. The decline in direct costs during the first quarter of 2015 is a result of lower activity levels. A portion of the Company's direct costs are fixed, thus the percentage decline is lower for direct costs compared to revenue.
Selling, general and administration costs ("SG&A") for the three months ended March 31, 2015, of $2.1 million decreased 12% compared to $2.3 million for the same period in 2014. SG&A costs decreased due to cost reductions implemented by management including staff reductions, wage roll backs and reductions in discretionary spending.
| U.S. Operations | ||||||
| Three months ended March 31, | ||||||
| ($000's) | 2015 | 2014 | % chg. | |||
| Revenue | 14,087 | 14,851 | (5 | ) | ||
| Direct Costs | 8,050 | 8,917 | (10 | ) | ||
| Selling, general and administrative | 1,880 | 2,329 | (19 | ) | ||
| Net Income | (1,004 | ) | 270 | (472 | ) | |
| Adjusted EBITDA (1) | 4,157 | 3,605 | 15 | |||
| Adjusted EBITDA as a % of revenue | 30 | % | 24 | % | ||
| Capital expenditures (2) | 1,629 | 2,077 | (22 | ) | ||
| Gross capital assets | 139,829 | 111,581 | 25 | |||
| Total assets | 118,565 | 107,933 | 10 | |||
| Notes: | |
| (1) | Earnings before interest, taxes, depreciation and amortization and other adjustments ("adjusted EBITDA") is not a recognized measure under IFRS; see "Non-IFRS Measures Reconciliation". |
| (2) | Includes assets acquired under finance lease and purchases of intangible assets. |
Revenue for the three months ended March 31, 2015, decreased 5% to $14.1 million from $14.9 million for the same period in 2014. The decline in revenue is due to a combination of lower rental fleet utilization rates and average pricing offset with an increase in the size of the rental fleets and a strengthening U.S. dollar. During the first quarter of 2015, utilization rates for Strad's U.S. matting, surface equipment and solids control fleets declined by 14%, 5%, and 27%, respectively, compared to the same period in 2014. Pricing pressure in Q1 2015 contributed further to revenue declines. Both utilization and price declines year-over-year are the result of a decline in rig count across all Strad's targeted resource plays in the U.S. Average rig count declined in the Bakken, Rockies and Marcellus regions by 35%, 33%, and 12%, respectively, during the first quarter of 2015 compared to the same quarter in 2014.
An increase in the matting, surface equipment and solids control rental fleets year-over-year offset declines in utilization rates and average pricing. The U.S. matting fleet increased by 1,966 pieces to 12,810 as at March 31, 2015, compared to 10,844 pieces as at March 31, 2014. The U.S. surface equipment fleet increased by 561 pieces of equipment to 1,992 pieces as at March 31, 2015, compared to 1,431 pieces as at March 31, 2014. Strad's U.S. solids control fleet increased by 3 centrifuges to a total of 52 as at March 31, 2015, compared to 49 centrifuges as at March 31, 2014. Finally, a strengthening U.S. dollar from Q1 2014 to Q1 2015 helped offset a portion of the revenue decline.
Adjusted EBITDA for the three months ended March 31, 2015, increased 15% to $4.2 million compared to $3.6 million for the same period in 2014. Adjusted EBITDA as a percentage of revenue, for the three months ended March 31, 2015, was 30% compared to 24% for the same period in 2014. The increase in both adjusted EBITDA and adjusted EBITDA as a percentage of revenue is primarily due to a reduced cost structure compared to the same period in 2014.
Direct costs for the three months ended March 31, 2015, of $8.1 million decreased 10% compared to $8.9 million for the same period in 2014. SG&A costs for the three months ended March 31, 2015 of $1.9 million decreased 19% compared to $2.3 million for the same period in 2014. The percentage declines in both direct costs and SG&A are higher than the revenue percentage declines due to cost structure reductions completed during 2014.
| Product Sales | ||||||
| Three months ended March 31, | ||||||
| ($000's) | 2015 | 2014 | % chg. | |||
| Revenue | 2,385 | 15,653 | (85 | ) | ||
| Direct Costs | 2,504 | 12,885 | (81 | ) | ||
| Selling, general and administrative | 43 | 49 | (12 | ) | ||
| Net Income | 34 | 1,622 | (98 | ) | ||
| Adjusted EBITDA (1) | (162 | ) | 2,719 | (106 | ) | |
| Adjusted EBITDA as a % of revenue | (7 | )% | 17 | % | ||
| Capital expenditures (2) | - | - | ||||
| Total assets | 290 | 658 | (56 | ) | ||
| Notes: | |
| (1) | Earnings before interest, taxes, depreciation and amortization and other adjustments ("adjusted EBITDA") is not a recognized measure under IFRS; see "Non-IFRS Measures Reconciliation". |
| (2) | Includes assets acquired under finance lease and purchases of intangible assets. |
Product Sales are comprised of in-house manufactured products sold to external customers, third party equipment sales to existing customers and sales of equipment from Strad's existing fleet to customers.
Revenue for the three months ended March 31, 2015, decreased 85% to $2.4 million from $15.7 million for the same period in 2014, resulting primarily from lower sales of in-house manufactured products sold to external customers and third party equipment sales. During the first quarter, Product Sales consisted of $1.3 million of in-house manufactured products, $0.9 million of third party equipment sales and $0.2 million of rental fleet sales compared to $8.5 million, $6.5 million and $0.7 million, respectively, during the same period in 2014. Sales in the quarter were impacted by a significant decrease in demand, typical in the business when drilling activity levels decline.
Adjusted EBITDA for the three months ended March 31, 2015, decreased to a loss of $0.2 million compared to $2.7 million for the same period in 2014. Adjusted EBITDA as a percentage of revenue, for the three months ended March 31, 2015, decreased to (7)% compared to 17% for the same period in 2014. The decrease in adjusted EBITDA was due to lower sales revenue during the first quarter of 2015 compared to the same period in the prior year.
Direct costs for the three months ended March 31, 2015, of $2.5 million decreased 81% compared to $12.9 million for the same period in 2014. Direct costs were removed from the business as activity levels declined.
OUTLOOK
Commodity prices began to level off over the latter part of Q1 2015 after a significant decline since July 2014. While recent increases in crude oil WTI prices above the $US 50/bbl level are positive, pricing at these levels continues to negatively impact activity. Henry Hub natural gas prices have not had a similar rebound and remained below $US 3.00/mcf for much of the quarter.
Low commodity prices have produced a marked decline in industry drilling rig activity across most basins in North America. The decline in rig count has manifested in 2015 in the Canada and U.S. markets, particularly in the oil producing regions in Western Canada and the Bakken. First quarter activity has declined in the WCSB and is on pace with the profile of rig count declines in 2009, but overall Q1 2015 activity was the weakest in 15 years. This has resulted in a competitive environment and increased pricing pressure in 2015 and management expects pricing pressure to continue across all regions in 2015 as producers seek to reduce drilling costs.
Activity levels during the quarter steadily declined in most of the Company's operating regions. Utilization levels in the surface equipment products delivered to drilling applications declined throughout the quarter as well, reflecting the broader industry trend in drilling activity.
In the WCSB, active drilling rigs in the first quarter of 2015 were down approximately 55% over the prior year, averaging 232 compared to 521 for the same period in 2014. WCSB active rigs had declined to 100 by March 31, 2015, 77% lower than the same period in 2014. In the U.S., drilling rig activity continued to vary by region, with the total active U.S. rig count decreasing by 31% on a year-over-year basis and 33% sequentially. The majority of Strad's U.S. fleet continues to operate in the Bakken and Marcellus resource plays. The Bakken region experienced a decline similar to the WCSB while the Marcellus play, given its gas weighting, experienced a more modest decline. The active rig count in the Bakken averaged 117 rigs in the first quarter of 2015, down 35% from 180 in the prior year period but had declined to 91 by March 31, 2015. In the gas-weighted Marcellus and Utica plays, the active rig count averaged 108 during the first quarter of 2015, 12% lower than 122 during the prior year period and had declined to 99 by March 31, 2015.
Bakken operations are in close proximity to the Rockies region, consisting of Colorado, Wyoming, and Utah, where an average of 93 rigs were drilling during the first quarter, representing a decline of 34% from 140 rigs in the previous period. The rig count in these regions declined to 73 by March 31, 2015.
Management anticipates that the decline in commodity prices and corresponding reduction in spending will continue to have a significant negative impact on drilling activity for the foreseeable future across all regions where Strad operates. In Canada, the typical seasonal downturn in activity due to spring breakup has occurred, further reducing rig count each week in the early part of Q2 2015. Management expects a prolonged spring breakup season in Canada with little visibility regarding how many rigs will come back to work when breakup ends.
Although the commodity price exposure in the U.S. is split almost equally between natural gas and crude oil, which serves to diversify the business, the sequential decline in rig count from Q4 2014 to Q1 2015 in the Bakken and Rockies oil prone regions has been nearly 40%. Strad's exposure to natural gas activity in the Marcellus basin has resulted in more modest declines in activity as rig count in this basin have not declined as significantly.
The same challenges impacting the Canada and U.S. Operations has also impacted the Product Sales segment. This business typically fluctuates from month to month and can produce volatility in earnings as projects tend to be large and are interspersed with periods of lower activity. Much of the product manufactured in this business has application in drilling and as such, demand has been soft through most of Q1 2015. The pipeline for manufacturing work, at the beginning of Q2 2015, is also very modest. Management has taken action to remove costs from the business and will continue to manage costs in line with activity and revenue.
Although the reduced activity levels will likely negatively impact the Company's traditional drilling related markets, the expansion of service offerings to the Energy Infrastructure market, including pipeline construction, power transmission construction and energy facilities construction, further diversifies the business into markets that are expected to be less commodity price sensitive in the near term. Matting demand has been reasonably strong in Canada as several infrastructure related projects continue to progress despite the weak commodity price environment.
Overall, Strad's diversification across geographies in Canada and the U.S., exposure to both crude oil and natural gas activity, product line diversification, blue chip and well capitalized customer base, and exposure to energy infrastructure projects collectively, will serve to insulate the business to some degree from the decline in drilling activity levels.
In response to actual declines in drilling activity, cost reduction initiatives continued throughout Q1 2015 and into Q2 2015. In addition to staff layoffs, reduction of labour hours, companywide wage rollbacks, and reductions in discretionary expenditures discussed previously, further reductions of direct labour and SG&A staff have been completed to align the cost structure to the level of activity present in the business. Since the end of 2014, Strad has reduced its employee headcount by over 80 staff or nearly 25%.
Management's strategy in the current environment is to preserve cash, pay down debt and maintain maximum flexibility to be able to respond to opportunities that are presented when the market does recover. The maintenance capex requirement in the business continues to be modest and can be managed at or below $5 million for the year in this environment. The Company has made select capital expenditures, mostly in the matting product line, to support reasonably strong demand in that business.
Even at significantly reduced revenue and adjusted EBITDA levels, the business has the capability of producing positive free cash flow. Prudent management of the business has put the Company in a manageable debt leverage position. The Company's financial stability, flexible operating cost structure, and depth of the Management Team, have put the Company in a better position than it has ever been to weather this type of downturn.
| LIQUIDITY AND CAPITAL RESOURCES | ||
| ($000's) | March 31, 2015 | December 31, 2014 |
| Current assets | 47,528 | 57,683 |
| Current liabilities | 26,176 | 31,362 |
| Working capital (1) | 21,352 | 26,321 |
| Banking facilities | ||
| Operating facility | 6,228 | 826 |
| Syndicated revolving facility | 31,500 | 36,000 |
| Total facility borrowings | 37,728 | 36,826 |
| Total credit facilities (2) | 110,000 | 110,000 |
| Unused credit capacity | 72,272 | 73,174 |
| Notes: | |
| (1) | Working capital is calculated as current assets less current liabilities, excluding assets held for sale. |
| (2) | Facilities are subject to certain limitations on accounts receivable, inventory, and net book value of fixed assets and are secured by a general security agreement over all of the Company's assets. As at March 31, 2015, Strad had access to the entire $110 million of credit facilities. |
As at March 31, 2015, working capital was $21.4 million compared to $26.3 million at December 31, 2014. The change in current assets is a result of a 21% decrease in accounts receivable to $38.2 million for the first quarter of 2015 compared to $48.5 million for the fourth quarter of 2014. Accounts receivable decreased due to the 39% decline in revenue during the first quarter of 2015 compared to the fourth quarter of 2014 offset by an increase in the overall age of receivables. Additionally, inventory decreased by 14% to $6.3 million for the first quarter of 2015 from $7.4 million for the fourth quarter of 2014, offset by an increase in prepaid expenses of $0.9 million at the end of the first quarter compared to the fourth quarter of 2014. Inventory decreased due to the decline in Product sales during Q1 2015 compared to Q4 2014.
The change in current liabilities is a result of a 35% decrease in accounts payable and accrued liabilities to $16.4 million for the first quarter of 2015 compared to $25.2 million at year end, offset by an increase of $5.4 million in bank indebtedness at the end of the first quarter. Accounts payable decreased due to a decline in activity and operating expenses during Q1 2015 compared to Q4 2014. The increase in bank indebtedness is primarily due to repayments of a portion of the Company's long term debt. The overall decrease in working capital is consistent with the decrease in revenue from the fourth quarter of 2014 to the first quarter of 2015.
Funds from operations for the three months ended March 31, 2015, decreased to $7.4 million compared to $10.5 million for the three months ended March 31, 2014. Capital expenditures totaled $7.0 million for the three months ended March 31, 2015. Strad's total facility borrowing increased by $0.9 million during the first quarter of 2015. Management monitors funds from operations and the timing of capital additions to ensure adequate capital resources are available to fund Strad's capital program.
The Company's syndicated banking facility consists of an operating facility with a maximum principal amount of $15.0 million CAD and $10.0 million USD, and an $85.0 million syndicated revolving facility, both of which are subject to certain limitations on accounts receivable, inventory and net book value of fixed assets and are secured by a general security agreement over all of the Company's assets. As at March 31, 2015, the Company has access to the entire $110 million of credit facilities. The syndicated banking facility bears interest at bank prime plus a variable rate, which is dependent on the Company's funded debt to EBITDA ratio. The Company's syndicated banking facility matures on September 30, 2017.
Based on the Company's funded debt to adjusted EBITDA ratio of 0.7 to 1 at the end of the first quarter of 2015, the interest rate on the syndicated banking facility is bank prime plus 0.75% on prime rate advances and at the prevailing rate plus a stamping fee of 1.75% on bankers' acceptances. For the three months ended March 31, 2015, the overall effective rates on the operating facility and revolving facility were 4.22% and 3.45%, respectively. As of March 31, 2015, $6.2 million was drawn on the operating facility and $31.5 million was drawn on the revolving facility. Required payments on the revolving facility are interest only.
As at March 31, 2015, the Company was in compliance with all of the financial covenants.
The relevant definitions of financial debt covenant ratio terms as set forth in the Company's syndicated banking facility are as follows:
- Funded debt includes bank indebtedness plus long-term debt plus current and long-term obligations under finance lease less cash.
- EBITDA is based on trailing twelve months adjusted EBITDA plus share based payments.
- Interest coverage ratio is calculated as the ratio of trailing twelve months adjusted EBITDA plus share based payments to trailing twelve months interest expense on loans and borrowings.
The above noted definitions are not recognized under IFRS and are provided strictly for the purposes of the financial debt calculation.
| Financial Debt Covenants | As at March 31, 2015 | As at December 31, 2014 |
| Funded debt to EBITDA ratio (not to exceed 3.0:1.0) | ||
| Funded debt | 39,371 | 38,677 |
| EBITDA | 55,194 | 59,174 |
| Ratio | 0.7 | 0.7 |
| EBITDA to interest coverage ratio (no less than 3.0:1.0) | ||
| EBITDA | 55,194 | 59,174 |
| Interest coverage | 2,096 | 2,176 |
| Ratio | 26.3 | 27.2 |
NON-IFRS MEASURES RECONCILIATION
Certain supplementary measures in this press release do not have any standardized meaning as prescribed under IFRS and, therefore, are considered non-IFRS measures. These measures are described and presented in order to provide shareholders and potential investors with additional information regarding the Company's financial results, liquidity and its ability to generate funds to finance its operations. These measures are identified and presented, where appropriate, together with reconciliations to the equivalent IFRS measure. However, they should not be used as an alternative to IFRS, because they may not be consistent with calculations of other companies. These measures are further explained below.
Earnings before interest, taxes, depreciation and amortization ("adjusted EBITDA") is not a recognized measure under IFRS. Management believes that in addition to net income, adjusted EBITDA is a useful supplemental measure as it provides an indication of the results generated by the Company's principal business activities prior to consideration of how those activities are financed or how the results are taxed. Adjusted EBITDA is calculated as net income plus interest, finance fees, taxes, depreciation and amortization, loss on disposal of property, plant and equipment, loss on foreign exchange, loss on assets held for sale, less gain on foreign exchange and gain on disposal of property, plant and equipment. Segmented adjusted EBITDA is based upon the same calculation for defined business segments, which are comprised of Canadian Operations, U.S. Operations, Product Sales and Corporate.
Funds from operations are cash flow from operating activities excluding changes in working capital and share-based payments. It is a supplemental measure to gauge performance of the Company before non-cash items. Working capital is calculated as current assets minus current liabilities, excluding assets held for sale. Working capital, cash forecasting and banking facilities are used by Management to ensure funds are available to finance growth opportunities.
Funded debt is calculated as bank indebtedness plus long-term debt plus current and long-term portion of finance lease obligations, less cash.
| Reconciliation of EBITDA and Funds from Operations | ||||
| ($000's) | ||||
| Three months ended March 31, | ||||
| 2015 | 2014 | |||
| Net income | $204 | $4,141 | ||
| Add: | ||||
| Depreciation and amortization | 7,045 | 5,487 | ||
| Gain on disposal of PP&E | (45 | ) | (758 | ) |
| Loss on disposal of assets held for sale | - | 38 | ||
| Share-based payments | 89 | 138 | ||
| Deferred income tax (recovery) expense | (449 | ) | 864 | |
| Financing fees | 47 | 88 | ||
| Interest expense | 496 | 535 | ||
| Funds from operations | 7,387 | 10,533 | ||
| Add: | ||||
| Gain on foreign exchange | (135 | ) | (67 | ) |
| Current income tax (recovery) expense | (106 | ) | 660 | |
| Subtotal | 7,146 | 11,126 | ||
| Deduct: | ||||
| Share-based payments | 89 | 138 | ||
| Adjusted EBITDA | 7,057 | 10,988 | ||
| Reconciliation of quarterly non-IFRS measures | ||||||||
| ($000's) | ||||||||
| Three months ended | ||||||||
| Mar 31, 2015 | Dec 31, 2014 | Sep 30, 2014 | Jun 30, 2014 | |||||
| Net income | $204 | $6,125 | $7,968 | $4,763 | ||||
| Add: | ||||||||
| Depreciation and amortization | 7,045 | 7,543 | 5,799 | 5,739 | ||||
| (Gain) loss on disposal of PP&E | (45 | ) | (16 | ) | 665 | (241 | ) | |
| (Gain) loss on disposal of assets held for sale | - | (11 | ) | - | 161 | |||
| (Gain) loss on foreign exchange | (135 | ) | 47 | (181 | ) | 236 | ||
| Current income tax (recovery) expense | (106 | ) | 850 | 967 | (81 | ) | ||
| Deferred income tax (recovery) expense | (449 | ) | 2,092 | 2,042 | 1,025 | |||
| Interest expense | 496 | 495 | 543 | 599 | ||||
| Impairment loss | - | 406 | - | - | ||||
| Finance fees | 47 | 40 | 32 | 99 | ||||
| Adjusted EBITDA | 7,057 | 17,571 | 17,835 | 12,300 | ||||
| Three months ended | ||||||||
| Mar 31, 2014 | Dec 31, 2013 | Sep 30, 2013 | Jun 30, 2013 | |||||
| Net income | $4,141 | $1,923 | $2,373 | $13 | ||||
| Add: | ||||||||
| Depreciation and amortization | 5,487 | 5,265 | 7,259 | 8,824 | ||||
| (Gain) loss on disposal of PP&E | (758 | ) | 477 | 162 | 76 | |||
| Loss on disposal of assets held for sale | 38 | 637 | - | 17 | ||||
| Gain on foreign exchange | (67 | ) | (5 | ) | (63 | ) | (18 | ) |
| Current income tax expense | 660 | 466 | 627 | 94 | ||||
| Deferred income tax expense (recovery) | 864 | (225 | ) | (808 | ) | (1,099 | ) | |
| Interest expense | 535 | 665 | 784 | 791 | ||||
| Restructuring recovery | - | (514 | ) | - | - | |||
| Impairment expense | - | 1,901 | - | - | ||||
| Finance fees | 88 | 88 | 88 | 71 | ||||
| Adjusted EBITDA | 10,988 | 10,678 | 10,422 | 8,769 | ||||
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION AND STATEMENTS
Certain statements and information contained in this press release constitute forward-looking information and statements within the meaning of applicable securities laws. The use of any of the words "expect", "plan", "continue", "estimate", "anticipate", "potential", "targeting", "intend", "could", "might", "should", "believe", "may", "predict", or "will" and similar expressions are intended to identify forward-looking information or statements. More particularly, this press release contains forward-looking statements concerning future capital expenditures of the Company and funding thereof, changes and expectations in margins to be experienced by Strad, debt, the ability to maintain payment of dividends, demand for the Company's products and services, drilling activity in North America, pricing of the Company's products and services, introduction of new products and services and the potential for growth and expansion of the Company's business, manufacturing capacity to meet anticipated demand for the Company's products, and expected exploration and production industry activity including the effects of industry trends on demand for the Company's products. These statements relate to future events or to the Company's future financial performance and involve known and unknown risks, uncertainties and other factors that may cause the Company's actual results, levels of activity, performance or achievements to be materially different from future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements.
Various assumptions were used in drawing the conclusions or making the projections contained in the forward-looking statements throughout this press release. The forward-looking information and statements included in this press release are not guarantees of future performance and should not be unduly relied upon. Forward-looking statements are based on current expectations, estimates and projections that involve a number of risks and uncertainties, which could cause actual results to differ materially from those anticipated and described in the forward-looking statements. Such information and statements involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking information or statements. In addition to other material factors, expectations and assumptions which may be identified in this press release and other continuous disclosure documents of the Company referenced herein, assumptions have been made in respect of such forward-looking statements and information regarding, among other things: the Company will continue to conduct its operations in a manner consistent with past operations; the general continuance of current industry conditions; anticipated financial performance, business prospects, impact of competition, strategies, the general stability of the economic and political environment in which the Company operates; exchange and interest rates; tax laws; the sufficiency of budgeted capital expenditures in carrying out planned activities; the availability and cost of labour and services and the adequacy of cash flow; debt and ability to obtain financing on acceptable terms to fund its planned expenditures, which are subject to change based on commodity prices; market conditions and future oil and natural gas prices; and potential timing delays. Although Management considers these material factors, expectations and assumptions to be reasonable based on information currently available to it, no assurance can be given that they will prove to be correct.
Readers are cautioned that the foregoing lists of factors are not exhaustive. Additional information on these and other factors that could affect the Company's operations and financial results are included in reports on file with the Canadian Securities Regulatory Authorities and may be accessed through the SEDAR website (www.sedar.com) or at the Company's website. The forward-looking statements and information contained in this press release are expressly qualified by this cautionary statement. The Company does not undertake any obligation to publicly update or revise any forward-looking statements or information, whether as a result of new information, future events or otherwise, except as may be required by applicable securities laws.
This press release shall not constitute an offer to sell, nor the solicitation of an offer to buy, any securities in the United States, nor shall there be any sale of securities mentioned in this press release in any state in the United States in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such state.
FIRST QUARTER EARNINGS CONFERENCE CALL
Strad Energy Services Ltd. has scheduled a conference call to begin promptly at 8:00 a.m. MT (10:00 a.m. ET) on Friday, May 1, 2015.
The conference call dial in number is 1-800-355-4959
The conference call will also be accessible via webcast at www.stradenergy.com
A replay of the call will be available approximately one hour after the conference call ends until Friday, May 8th, 2015, at 11:59pm ET. To access the replay, call 1-800-408-3053, followed by pass code 5277023.
| Strad Energy Services Ltd. | ||||
| Interim Consolidated Statement of Financial Position | ||||
| (Unaudited) | ||||
| (in thousands of Canadian dollars) | As at March 31, 2015 | As at December 31, 2014 | As at January 1, 2014 | |
| $ | $ | $ | ||
| (Revised) | (Revised) | |||
| Assets | ||||
| Current assets | ||||
| Trade receivables | 38,204 | 48,542 | 35,569 | |
| Inventories | 6,328 | 7,400 | 5,788 | |
| Prepaids and deposits | 2,614 | 1,741 | 1,772 | |
| Note receivable | - | - | 350 | |
| Income taxes receivable | 382 | - | 40 | |
| 47,528 | 57,683 | 43,519 | ||
| Assets held for sale | 276 | 260 | 3,167 | |
| Non-current assets | ||||
| Property, plant and equipment | 166,214 | 159,100 | 142,108 | |
| Intangible assets | 1,157 | 1,210 | 1,685 | |
| Long term assets | 2,070 | 1,914 | - | |
| Goodwill | 17,277 | 17,277 | 17,277 | |
| Deferred income tax assets | - | 15 | 164 | |
| Total assets | 234,522 | 237,459 | 207,920 | |
| Liabilities | ||||
| Current liabilities | ||||
| Bank indebtedness | 6,228 | 826 | 1,879 | |
| Accounts payable and accrued liabilities | 16,404 | 25,207 | 20,854 | |
| Income taxes payable | - | 1,579 | - | |
| Deferred revenue | 117 | 259 | 785 | |
| Current portion of obligations under finance lease | 818 | 882 | 1,887 | |
| Dividend payable | 2,609 | 2,609 | 2,050 | |
| 26,176 | 31,362 | 27,455 | ||
| Non-current liabilities | ||||
| Long-term debt | 31,500 | 36,000 | 38,500 | |
| Obligations under finance lease | 825 | 969 | 770 | |
| Deferred income tax liabilities | 14,381 | 14,138 | 7,797 | |
| Total liabilities | 72,882 | 82,469 | 74,522 | |
| Equity | ||||
| Share capital | 118,362 | 118,351 | 117,824 | |
| Contributed surplus | 11,845 | 11,757 | 11,612 | |
| Accumulated other comprehensive income | 21,906 | 12,950 | 5,152 | |
| Retained earnings | 9,527 | 11,932 | (1,190 | ) |
| Total equity | 161,640 | 154,990 | 133,398 | |
| Total liabilities and equity | 234,522 | 237,459 | 207,920 | |
| Strad Energy Services Ltd. | ||||
| Interim Consolidated Statement of Income and Comprehensive Income | ||||
| For the three months ended March 31, 2015 and 2014 | ||||
| (Unaudited) | ||||
| (in thousands of Canadian dollars, except per share amounts) | ||||
| 2015 | 2014 | |||
| $ | $ | |||
| Revenue | 34,370 | 51,888 | ||
| Expenses | ||||
| Operating expenses | 22,705 | 35,206 | ||
| Depreciation | 6,876 | 5,301 | ||
| Amortization of intangible assets | 147 | 186 | ||
| Amortization of long term assets | 22 | - | ||
| Selling, general and administration | 4,519 | 5,556 | ||
| Share-based payments | 89 | 138 | ||
| Gain on disposal of property, plant and equipment | (45 | ) | (758 | ) |
| Foreign exchange gain | (135 | ) | (67 | ) |
| Finance fees | 47 | 88 | ||
| Interest expense | 496 | 535 | ||
| Loss on assets held for sale | - | 38 | ||
| (Loss) income before income tax | (351 | ) | 5,665 | |
| Income tax (recovery) expense | (555 | ) | 1,524 | |
| Net income for the period | 204 | 4,141 | ||
| Other comprehensive income | ||||
| Items that may be reclassified subsequently to net income | ||||
| Cumulative translation adjustment (Revised) | 8,956 | 3,181 | ||
| Total comprehensive income for the period | 9,160 | 7,322 | ||
| Earnings per share: | ||||
| Basic | $0.01 | $0.11 | ||
| Diluted | $0.01 | $0.11 | ||
| Strad Energy Services Ltd. | ||||
| Interim Consolidated Statement of Cash Flow | ||||
| For the three months ended March 31, 2015 and 2014 | ||||
| (Unaudited) | ||||
| (in thousands of Canadian dollars) | ||||
| 2015 | 2014 | |||
| Cash flow provided by (used in) | $ | $ | ||
| (Revised) | ||||
| Operating activities | ||||
| Net income for the period | 204 | 4,141 | ||
| Adjustments for items not affecting cash: | ||||
| Depreciation and amortization | 7,045 | 5,487 | ||
| Deferred income tax expense | (449 | ) | 864 | |
| Share-based payments | 89 | 84 | ||
| Interest expense and finance fees | 543 | 623 | ||
| Gain on disposal of property, plant and equipment | (45 | ) | (758 | ) |
| Loss on assets held for sale | - | 38 | ||
| Changes in items of non-cash working capital | 2,775 | (3,622 | ) | |
| Net cash generated from operating activities | 10,162 | 6,857 | ||
| Investing activities | ||||
| Purchase of property, plant and equipment | (6,959 | ) | (8,873 | ) |
| Proceeds from sale of property, plant and equipment | 791 | 2,213 | ||
| Purchase of intangible assets | (75 | ) | (28 | ) |
| Proceeds from assets held for sale | - | 81 | ||
| Changes in items of non-cash working capital | (3,143 | ) | (129 | ) |
| Net cash used in investing activities | (9,386 | ) | (6,736 | ) |
| Financing activities | ||||
| Proceeds on issuance of long-term debt | - | - | ||
| Repayment of long-term debt | (4,500 | ) | (100 | ) |
| Repayment of finance lease obligations (net) | (334 | ) | (501 | ) |
| Issuance of shareholder loan (net of repayments) | 10 | - | ||
| Interest expense and finance fees | (543 | ) | (623 | ) |
| Payment of dividends | (2,609 | ) | (2,050 | ) |
| Changes in items of non-cash working capital | (1 | ) | 346 | |
| Net cash used in financing activities | (7,977 | ) | (2,928 | ) |
| Effect of exchange rate changes on cash and cash equivalents | 1,799 | 238 | ||
| Decrease in cash and cash equivalents | (5,402 | ) | (2,569 | ) |
| Cash and cash equivalents (including bank indebtedness) - beginning of year | (826 | ) | (1,879 | ) |
| Cash and cash equivalents (including bank indebtedness) - end of period | (6,228 | ) | (4,448 | ) |
| Cash paid for income tax | 1,600 | - | ||
| Cash paid for interest | 435 | 516 | ||
ABOUT STRAD ENERGY SERVICES LTD.
Strad is a North American energy services company that focuses on providing well-site infrastructure solutions to the oil and natural gas industry. Strad focuses on providing complete customer solutions in well-site-related oilfield equipment for producers active in unconventional resource plays.
Strad is headquartered in Calgary, Alberta, Canada. Strad is listed on the Toronto Stock Exchange under the trading symbol "SDY".
Contact Information:
Andy Pernal
President and Chief Executive Officer
(403) 775-9202
(403) 232-6901 (FAX)
apernal@stradenergy.com
Strad Energy Services Ltd.
Greg Duerr
Chief Financial Officer
(403) 705-4333
(403) 232-6901 (FAX)
gduerr@stradenergy.com
www.stradenergy.com