CALGARY, ALBERTA--(Marketwired - Aug. 5, 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., ("Strad" or the "Company") (TSX:SDY), a North American-focused, energy services company, today announced its financial results for the three and six months ended June 30, 2015. All amounts are stated in Canadian dollars unless otherwise noted.
The Company today also announced that its Board of Directors has declared a quarterly dividend of $0.07 per common share for the quarter ending September 30, 2015. The dividend is payable to shareholders of record at the close of business on September 30, 2015, to be paid on October 9, 2015. The ex dividend date is September 28, 2015.
SELECTED FINANCIAL AND OPERATIONAL HIGHLIGHTS:
- Second quarter adjusted EBITDA (1) of $3.9 million decreased 69% compared to $12.3 million for the same period in 2014;
- Second quarter (loss) earnings per share decreased to $(0.05) from $0.13 for the same period in 2014;
- Second quarter revenue of $29.9 million decreased 44% compared to $53.7 million for the same period in 2014;
- Reduced total funded debt by $11.1 million since March 31, 2015;
- Total funded debt (2) to EBITDA (3) ratio was 0.6 to 1.0 at the end of the second quarter of 2015; and
- Capital additions totaled $0.5 million during the second quarter of 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 we anticipated, the challenging market conditions facing the oil and gas industry in North America continued into the second quarter resulting in sharp year-over-year rig count declines," said Andy Pernal, President and CEO of Strad. "Our business was not immune to the decline in demand for drilling related services across North America as a result of reduced capital spending by our customers. However, we continue to believe that our diversification strategy into energy infrastructure related opportunities and proactive cost management will position us well to respond when activity levels improve."
"During the second quarter, we continued to exercise discipline on the cost side of our business by reducing discretionary spending and further reducing our headcount," said Greg Duerr, Chief Financial Officer of Strad. "In addition, in the second quarter we benefited from the cost reduction initiatives we implemented early in 2015, which reduced anticipated declines in margin during the second quarter. Our cost reduction initiatives and minimal capital spending during the quarter resulted in a significant working capital unwind and debt repayment. We continue to believe that our strong balance sheet has us positioned well to weather this downturn in activity and take advantage of future opportunities."
SECOND QUARTER FINANCIAL HIGHLIGHTS
| (in thousands of Canadian Dollars, except per share amounts) | Three months ended Jun 30, | Six months ended Jun 30, | ||||||||||
| 2015 | 2014 | % Chg. | 2015 | 2014 | % Chg. | |||||||
| Revenue | 29,907 | 53,692 | (44 | ) | 64,277 | 105,580 | (39 | ) | ||||
| Adjusted EBITDA (1) | 3,854 | 12,300 | (69 | ) | 10,911 | 23,288 | (53 | ) | ||||
| Adjusted EBITDA as a % of revenue | 13 | % | 23 | % | 17 | % | 22 | % | ||||
| Per share ($), basic | 0.10 | 0.33 | (70 | ) | 0.30 | 0.63 | (52 | ) | ||||
| Per share ($), diluted | 0.10 | 0.33 | (70 | ) | 0.29 | 0.62 | (53 | ) | ||||
| Net (loss) income | (1,887 | ) | 4,763 | (140 | ) | (1,683 | ) | 8,904 | (119 | ) | ||
| Per share ($), basic | (0.05 | ) | 0.13 | (0.05 | ) | 0.24 | ||||||
| Per share ($), diluted | (0.05 | ) | 0.13 | (0.05 | ) | 0.24 | ||||||
| Funds from operations (2) | 4,032 | 12,267 | (67 | ) | 11,419 | 22,800 | (50 | ) | ||||
| Per share ($), basic | 0.11 | 0.33 | (67 | ) | 0.31 | 0.62 | (50 | ) | ||||
| Per share ($), diluted | 0.11 | 0.33 | (67 | ) | 0.31 | 0.61 | (49 | ) | ||||
| Capital expenditures (3) | 476 | 12,800 | (96 | ) | 7,509 | 21,205 | (65 | ) | ||||
| Total assets | 210,701 | 218,825 | 210,701 | 218,825 | ||||||||
| Long-term debt | 22,500 | 44,400 | (49 | ) | 22,500 | 44,400 | (49 | ) | ||||
| Total long-term liabilities | 35,815 | 55,544 | (36 | ) | 35,815 | 55,544 | (36 | ) | ||||
| Common shares - end of period ('000's) | 37,280 | 37,255 | 37,280 | 37,255 | ||||||||
| Weighted avg common shares ('000's) | ||||||||||||
| Basic | 36,916 | 36,732 | 36,914 | 36,733 | ||||||||
| Diluted | 37,343 | 37,680 | 37,336 | 37,555 | ||||||||
| 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 June 30, | |||
| ($000's except ratios) | 2015 | 2014 | |
| Working capital (1) | 13,596 | 21,561 | |
| Funded debt (2) | 28,222 | 47,883 | |
| Total assets | 210,701 | 218,825 | |
| Funded debt to EBITDA(3) | 0.6 : 1.0 | 1.1 : 1.0 |
| 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". |
SECOND QUARTER RESULTS
Strad reported a decrease in revenue and adjusted EBITDA of 44% and 69% respectively, during the three months ended June 30, 2015, compared to the same period in 2014. Decreased revenue during the second 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 decreased to 13% compared to 23% in the prior year during the second quarter of 2015 due to the decrease in overall revenue during the quarter.
Strad's Canadian Operations reported lower revenue and adjusted EBITDA during the three months ended June 30, 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 51% decline in the average drilling rig count to 96 rigs during Q2 2015 compared to 197 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").
Rig counts in Strad's targeted U.S. resource plays were also significantly lower year-over-year during the second quarter of 2015 compared to the same period in 2014. Rig counts in the Bakken, Rockies and Marcellus regions decreased by 56%, 51%, and 25%, respectively, year-over-year. The rig count declines resulted in a 46% decrease in revenue during the second quarter of 2015 compared to 2014. As a result of lower revenue, adjusted EBITDA decreased 87% and adjusted EBITDA as a percentage of revenue decreased to 9% during the second quarter of 2015 compared to 37% in the second quarter of 2014.
During the second quarter of 2015, capital expenditures were $0.1 million in Canada and $0.4 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.
RESULTS OF OPERATIONS
Canadian Operations
| Three months ended June 30, | Six months ended June 30, | ||||||||||||
| ($000's) | 2015 | 2014 | % chg. | 2015 | 2014 | % chg. | |||||||
| Revenue | 15,080 | 19,644 | (23 | ) | 32,978 | 41,028 | (20 | ) | |||||
| Operating expenses | 10,002 | 12,518 | (20 | ) | 22,151 | 25,954 | (15 | ) | |||||
| Selling, general and administrative | 1,674 | 2,516 | (33 | ) | 3,742 | 4,862 | (23 | ) | |||||
| Net Income | 480 | 3,104 | (85 | ) | 1,291 | 7,063 | (82 | ) | |||||
| Adjusted EBITDA (1) | 3,403 | 4,610 | (26 | ) | 7,084 | 10,214 | (31 | ) | |||||
| Adjusted EBITDA as a % of revenue | 23 | % | 23 | % | 21 | % | 25 | % | |||||
| Capital expenditures (2) | 131 | 6,850 | (98 | ) | 5,383 | 13,342 | (60 | ) | |||||
| Gross capital assets | 120,732 | 113,374 | 6 | 120,732 | 113,374 | 6 | |||||||
| Total assets | 103,680 | 108,024 | (4 | ) | 103,680 | 108,024 | (4 | ) | |||||
| 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 June 30, 2015, of $15.1 million decreased 23% compared to $19.6 million for the same period in 2014. Decreased revenue during the quarter was primarily a result of lower rental revenue from the surface equipment and matting fleets. In addition to price declines, utilization levels for surface equipment declined by 43% during the second quarter of 2015, compared to the same period in 2014, due to a 51% 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 count during the second quarter of 2015 as Strad's customers reduced capital spending.
During the second quarter, revenue from Strad's matting rental fleet decreased due to lower utilization and pricing, partially offset by an increase in the overall size of the matting fleet. Strad's Canadian matting fleet increased to approximately 55,500 pieces as at June 30, 2015, compared to approximately 42,900 pieces as at June 30, 2014. However, utilization decreased by 20% during the second quarter of 2015, compared to the second quarter of 2014, due to the rig count decline in the WCSB.
Adjusted EBITDA for the three months ended June 30, 2015, of $3.4 million, decreased 26% compared to $4.6 million for the same period in 2014. Adjusted EBITDA as a percentage of revenue, for the three months ended June 30, 2015, remained consistent with the same period of 2014 at 23%. The decline in adjusted EBITDA is a result of the decline in total revenue during the second quarter.
Revenue for the six months ended June 30, 2015, of $33.0 million, decreased 20% compared to $41.0 million for the same period in 2014. Decreased drilling activity was the primary driver of lower revenue year-over-year.
Adjusted EBITDA for the six months ended June 30, 2015, of $7.1 million, decreased 31% compared to $10.2 million for the same period in 2014. Adjusted EBITDA as a percentage of revenue, for the six months ended June 30, 2015, was 21% compared to 25% for the same period in 2014.
Operating expenses for the three and six months ended June 30, 2015, of $10.0 million and $22.2 million decreased 20% and 15% respectively compared to $12.5 million and $26.0 million for the same period in 2014. The decline in operating expenses during the second quarter of 2015 is a result of lower activity levels. A portion of the Company's operating expenses are fixed, thus the percentage decline is lower for operating expenses compared to revenue.
Selling, general and administration costs ("SG&A") for the three and six months ended June 30, 2015, of $1.7 million and $3.7 million respectively decreased 33% and 23% compared to $2.5 million and $4.9 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 June 30, | Six months ended June 30, | ||||||||||||
| ($000's) | 2015 | 2014 | % chg. | 2015 | 2014 | % chg. | |||||||
| Revenue | 9,406 | 17,396 | (46 | ) | 23,493 | 32,247 | (27 | ) | |||||
| Operating expenses | 7,014 | 8,715 | (20 | ) | 15,063 | 17,633 | (15 | ) | |||||
| Selling, general and administrative | 1,531 | 2,173 | (30 | ) | 3,407 | 4,501 | (24 | ) | |||||
| Net (loss) income | (52 | ) | 414 | (113 | ) | (1,056 | ) | 684 | (254 | ) | |||
| Adjusted EBITDA (1) | 861 | 6,513 | (87 | ) | 5,015 | 10,118 | (50 | ) | |||||
| Adjusted EBITDA as a % of revenue | 9 | % | 37 | % | 21 | % | 31 | % | |||||
| Capital expenditures (2) | 351 | 5,701 | (94 | ) | 1,980 | 7,582 | (74 | ) | |||||
| Gross capital assets | 137,848 | 113,316 | 22 | 137,848 | 113,316 | 22 | |||||||
| Total assets | 105,137 | 107,505 | (2 | ) | 105,137 | 107,505 | (2 | ) | |||||
| 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 June 30, 2015, decreased 46% to $9.4 million from $17.4 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 second quarter of 2015, utilization rates for Strad's U.S. matting, surface equipment and solids control fleets declined by 62%, 38%, and 52%, respectively, compared to the same period in 2014. Pricing pressure in Q2 2015 contributed further to revenue declines. Both utilization and price declines year-over-year are the result of a decline in rig counts across all Strad's targeted resource plays in the U.S. Average rig counts declined in the Bakken, Rockies and Marcellus regions by 56%, 51%, and 25%, respectively, during the second 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 2,168 pieces to 13,083 as at June 30, 2015, compared to 10,915 pieces as at June 30, 2014. The U.S. surface equipment fleet increased by 491 pieces of equipment to 2,033 pieces as at June 30, 2015, compared to 1,542 pieces as at June 30, 2014. Strad's U.S. solids control fleet increased by 5 centrifuges to a total of 53 as at June 30, 2015, compared to 48 centrifuges as at June 30, 2014. Finally, a strengthening U.S. dollar from Q2 2014 to Q2 2015 helped offset a portion of the revenue decline.
Adjusted EBITDA for the three months ended June 30, 2015, decreased 87% to $0.9 million compared to $6.5 million for the same period in 2014. Adjusted EBITDA as a percentage of revenue, for the three months ended June 30, 2015, was 9% compared to 37% for the same period in 2014. The decrease in both adjusted EBITDA and adjusted EBITDA as a percentage of revenue is primarily due to the decline in revenue compared to the same period in 2014 and a time lag in achieving cost savings from staff reductions and related one time severance costs incurred during the second quarter as part of the Company's cost reduction initiatives.
Revenue for the six months ended June 30, 2015, decreased 27% to $23.5 million compared to $32.2 million for the same period in 2014. The year-over-year decrease in revenue was primarily driven by decreased utilization of Strad's matting and surface equipment fleets.
Adjusted EBITDA for the six months ended June 30, 2015, decreased 50% to $5.0 million compared to $10.1 million for the same period in 2014. Decreased adjusted EBITDA was due to lower revenue compared to the same period in 2014. Adjusted EBITDA as a percentage of revenue for the six months ended June 30, 2015, was 21% compared to 31% for the same period in 2014.
Operating expenses for the three and six months ended June 30, 2015, of $7.0 million and $15.1 million, respectively, decreased 20% and 15% compared to $8.7 million and $17.6 million for the same period in 2014. The decline in direct costs during the second quarter of 2015 is a result of lower activity levels. A portion of the Company's operating expenses are fixed, thus the percentage decline is lower for operating expenses compared to revenue.
SG&A costs for the three and six months ended June 30, 2015, of $1.5 million and $3.4 million, respectively, decreased 30% and 24% compared to $2.2 million and $4.5 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.
Product Sales
| Three months ended June 30, | Six months ended June 30, | ||||||||||||
| ($000's) | 2015 | 2014 | % chg. | 2015 | 2014 | % chg. | |||||||
| Revenue | 5,421 | 16,652 | (67 | ) | 7,806 | 32,305 | (76 | ) | |||||
| Operating expenses | 5,112 | 14,367 | (64 | ) | 7,615 | 27,257 | (72 | ) | |||||
| Selling, general and administrative | 44 | 52 | (15 | ) | 87 | 101 | (14 | ) | |||||
| Net Income | 11 | 755 | (99 | ) | 45 | 2,377 | (98 | ) | |||||
| Adjusted EBITDA (1) | 267 | 2,230 | (88 | ) | 104 | 4,944 | (98 | ) | |||||
| Adjusted EBITDA as a % of revenue | 5 | % | 13 | % | 1 | % | 15 | % | |||||
| Capital expenditures (2) | - | 12 | - | 14 | (100 | ) | |||||||
| Total assets | 545 | 1,145 | (52 | ) | 545 | 1,145 | (52 | ) | |||||
| 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 June 30, 2015, decreased 67% to $5.4 million from $16.7 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 second quarter, Product Sales consisted of $2.3 million of in-house manufactured products, $2.2 million of third party equipment sales and $0.9 million of rental fleet sales compared to $5.5 million, $8.9 million and $2.3 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 June 30, 2015, decreased 88% to $0.3 million compared to $2.2 million for the same period in 2014. Adjusted EBITDA as a percentage of revenue, for the three months ended June 30, 2015, decreased to 5% compared to 13% for the same period in 2014. The decrease in adjusted EBITDA was due to lower sales revenue during the second quarter of 2015 compared to the same period in the prior year.
Revenue for the six months ended June 30, 2015, decreased 76% to $7.8 million compared to $32.3 million for the same period in 2014. Revenue was lower during the first six months of 2015 due to decreased rig activity. Sales of Strad's rental fleet equipment fluctuate quarter-over-quarter and are primarily dependent on strategic opportunities to monetize underutilized rental assets.
Adjusted EBITDA for the six months ended June 30, 2015, decreased 98% to $0.1 million compared to $4.9 million for the same period in 2014. The decrease in adjusted EBITDA was due to lower sales revenue during the first half of 2015 compared to the same period in 2014. Adjusted EBITDA as a percentage of revenue, for the six months ended June 30, 2015, was 1% compared to 15% for the same period in 2014.
Operating expenses for the three and six months ended June 30, 2015, of $5.1 million and $7.6 million respectively decreased 64% and 72% compared to $14.4 million and $27.3 million for the same period in 2014. Operating expenses were removed from the business as activity levels declined.
OUTLOOK
Commodity prices over most of Q2 2015 were flat to higher than levels at the end of Q1 2015, but continue to be well below pricing levels from 2014. WTI crude oil prices rebounded from Q1 2015 lows below $50/bbl to exceed $60/bbl for much of the second quarter before falling back to levels below $50/bbl at the end of Q2. Pricing at these levels continues to negatively impact activity. Henry Hub natural gas prices have remained below $US 3.00/mcf for much of the first half of the year.
Low commodity prices have produced a marked decline in industry drilling rig activity across most basins in North America. The lower activity levels continue to be reflected in rig counts with year-over-year declines in Q2 2015 that exceeded those in Q1 2015. Oil producing regions in Western Canada and the Bakken continue to be impacted to the greatest degree. The decline in activity continues to result in pricing pressures 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. Further, utilization levels in the surface equipment products delivered to drilling applications declined in Canada due to typical seasonal factors related to spring breakup.
In the WCSB, active drilling rigs in the second quarter of 2015 were down approximately 51% over the prior year, averaging 96 compared to 197 for the same period in 2014. WCSB active rigs increased to 125 in June 2015, up from 78 rigs for the month of May 2015. In the U.S., drilling rig activity continued to vary by region, with the total active U.S. rig count decreasing by 51% on a year-over-year basis and 34% 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 80 rigs in the second quarter of 2015, down 56% from 181 in the prior year. In the gas-weighted Marcellus and Utica plays, the active rig count averaged 91 during the second quarter of 2015, 25% lower than 121 during the prior year period.
Bakken operations are in close proximity to the Rockies region, consisting of Colorado, Wyoming, and Utah, where an average of 68 rigs were drilling during the second quarter, representing a decline of 51% from rigs in the previous period.
The decline in commodity prices and corresponding reduction in spending is expected to have a continued negative impact on drilling activity for the foreseeable future across all regions where Strad operates. There continues to be little visibility regarding capital spending plans from producers and continued volatility in crude oil prices brought on by recent macroeconomic and geopolitical events is unlikely to alleviate this uncertainty in the near term.
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 Q2 2015 and into Q3 2015. In addition to staff layoffs, reduction of labour hours, company wide 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 nearly 120 staff or more than 33%. The Company expects to realize the full benefit of the most recent cost reductions in the fourth quarter of 2015.
Management's strategy continues to reflect a prudent and measured approach with a focus on cash preservation, debt pay down and maintaining 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 is anticipated to 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. A reduction in working capital during the quarter combined with prudent capital spending resulted in the reduction of outstanding debt in excess of $11 million from March 31, 2015, levels. 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) | June 30, 2015 | December 31, 2014 | |
| Current assets | 33,089 | 57,683 | |
| Current liabilities | 19,493 | 31,362 | |
| Working capital (1) | 13,596 | 26,321 | |
| Banking facilities | |||
| Operating facility | 4,313 | 826 | |
| Syndicated revolving facility | 22,500 | 36,000 | |
| Total facility borrowings | 26,813 | 36,826 | |
| Total credit facilities (2) | 110,000 | 110,000 | |
| Unused credit capacity | 83,187 | 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 June 30, 2015, Strad had access to the entire $110 million of credit facilities. |
As at June 30, 2015, working capital was $13.6 million compared to $26.3 million at December 31, 2014. The change in current assets is a result of a 50% decrease in accounts receivable to $24.4 million for the second quarter of 2015 compared to $48.5 million for the fourth quarter of 2014. Accounts receivable decreased due to the 47% decline in revenue during the second quarter of 2015 compared to the fourth quarter of 2014. Additionally, inventory decreased by 14% to $6.3 million for the second quarter of 2015 from $7.4 million for the fourth quarter of 2014, offset by an increase in prepaid expenses of $0.1 million at the end of the second quarter compared to the fourth quarter of 2014. Inventory decreased due to the decline in Product Sales during Q2 2015 compared to Q4 2014.
The change in current liabilities is a result of a 54% decrease in accounts payable and accrued liabilities to $11.6 million for the second quarter of 2015 compared to $25.2 million at year end, offset by an increase of $3.5 million in bank indebtedness at the end of the second quarter. Accounts payable decreased due to a decline in activity and operating expenses during Q2 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 second quarter of 2015.
Funds from operations for the three months ended June 30, 2015, decreased to $4.0 million compared to $12.3 million for the three months ended June 30, 2014. Capital expenditures totaled $0.5 million for the three months ended June 30, 2015. Strad's total facility borrowing decreased by $11.1 million during the second 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 June 30, 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 EBITDA ratio of 0.6 to 1.0 at the end of the second 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 six months ended June 30, 2015, the overall effective rates on the operating facility and revolving facility were 4.18% and 3.35%, respectively. As of June 30, 2015, $4.3 million was drawn on the operating facility and $22.5 million was drawn on the revolving facility. Required payments on the revolving facility are interest only.
As at June 30, 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 expense 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 June 30, 2015 | As at December 31, 2014 | ||
| Funded debt to EBITDA ratio (not to exceed 3.0:1.0) | ||||
| Funded debt | 28,222 | 38,677 | ||
| EBITDA | 46,895 | 59,174 | ||
| Ratio | 0.6 | 0.7 | ||
| EBITDA to interest coverage ratio (no less than 3.0:1.0) | ||||
| EBITDA | 46,895 | 59,174 | ||
| Interest expense | 1,926 | 2,176 | ||
| Ratio | 24.3 | 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 Jun 30, | Six months ended Jun 30, | ||||||||||||
| 2015 | 2014 | 2015 | 2014 | ||||||||||
| Net (loss) income | $ | (1,887 | ) | $ | 4,763 | $ | (1,683 | ) | $ | 8,904 | |||
| Add: | |||||||||||||
| Depreciation and amortization | 7,020 | 5,739 | 14,065 | 11,226 | |||||||||
| Gain on disposal of PP&E | (80 | ) | (241 | ) | (125 | ) | (999 | ) | |||||
| Loss on disposal of assets held for sale | - | 161 | - | 199 | |||||||||
| Share-based payments | 79 | 122 | 168 | 260 | |||||||||
| Deferred income tax (recovery) expense | (1,541 | ) | 1,025 | (1,990 | ) | 1,889 | |||||||
| Financing fees | 50 | 99 | 97 | 187 | |||||||||
| Interest expense | 391 | 599 | 887 | 1,134 | |||||||||
| Funds from operations | 4,032 | 12,267 | 11,419 | 22,800 | |||||||||
| Add: | |||||||||||||
| (Gain) loss on foreign exchange | (81 | ) | 236 | (216 | ) | 169 | |||||||
| Current income tax (recovery) expense | (18 | ) | (81 | ) | (124 | ) | 579 | ||||||
| Subtotal | 3,933 | 12,422 | 11,079 | 23,548 | |||||||||
| Deduct: | |||||||||||||
| Share-based payments | 79 | 122 | 168 | 260 | |||||||||
| Adjusted EBITDA | 3,854 | 12,300 | 10,911 | 23,288 | |||||||||
Reconciliation of quarterly non-IFRS measures ($000's)
| Three months ended | ||||||||||||
| Jun 30, 2015 | Mar 31, 2015 | Dec 31, 2014 | Sep 30, 2014 | |||||||||
| Net (loss) income | $ | (1,887 | ) | $ | 204 | $ | 6,125 | $ | 7,968 | |||
| Add: | ||||||||||||
| Depreciation and amortization | 7,020 | 7,045 | 7,543 | 5,799 | ||||||||
| (Gain) loss on disposal of PP&E | (80 | ) | (45 | ) | (16 | ) | 665 | |||||
| Gain on disposal of assets held for sale | - | - | (11 | ) | - | |||||||
| (Gain) loss on foreign exchange | (81 | ) | (135 | ) | 47 | (181 | ) | |||||
| Current income tax (recovery) expense | (18 | ) | (106 | ) | 850 | 967 | ||||||
| Deferred income tax (recovery) expense | (1,541 | ) | (449 | ) | 2,092 | 2,042 | ||||||
| Interest expense | 391 | 496 | 495 | 543 | ||||||||
| Impairment loss | - | - | 406 | - | ||||||||
| Finance fees | 50 | 47 | 40 | 32 | ||||||||
| Adjusted EBITDA | 3,854 | 7,057 | 17,571 | 17,835 | ||||||||
| Three months ended | ||||||||||||
| Jun 30, 2014 | Mar 31, 2014 | Dec 31, 2013 | Sep 30, 2013 | |||||||||
| Net income | $ | 4,763 | $ | 4,141 | $ | 1,923 | $ | 2,373 | ||||
| Add: | ||||||||||||
| Depreciation and amortization | 5,739 | 5,487 | 5,265 | 7,259 | ||||||||
| (Gain) loss on disposal of PP&E | (241 | ) | (758 | ) | 477 | 162 | ||||||
| Loss on disposal of assets held for sale | 161 | 38 | 637 | - | ||||||||
| Loss (gain) on foreign exchange | 236 | (67 | ) | (5 | ) | (63 | ) | |||||
| Current income tax (recovery) expense | (81 | ) | 660 | 466 | 627 | |||||||
| Deferred income tax expense (recovery) | 1,025 | 864 | (225 | ) | (808 | ) | ||||||
| Interest expense | 599 | 535 | 665 | 784 | ||||||||
| Restructuring recovery | - | - | (514 | ) | - | |||||||
| Impairment expense | - | - | 1,901 | - | ||||||||
| Finance fees | 99 | 88 | 88 | 88 | ||||||||
| Adjusted EBITDA | 12,300 | 10,988 | 10,678 | 10,422 | ||||||||
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, anticipated cash flow, 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.
SECOND 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 Thursday, August 6, 2015.
The conference call dial in number is 1-800-408-3053 / 1-905-694-9451
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 Thursday, August 13th, 2015, at 11:59pm ET. To access the replay, call 1-800-408-3053, followed by pass code 5141172.
| Strad Energy Services Ltd. |
| Interim Consolidated Statement of Financial Position |
| (Unaudited) |
| (in thousands of Canadian dollars) | As at June 30, 2015 | As at December 31, 2014 | As at January 1, 2014 | ||||
| $ | $ | $ | |||||
| (Revised) | (Revised) | ||||||
| Assets | |||||||
| Current assets | |||||||
| Trade receivables | 24,387 | 48,542 | 35,569 | ||||
| Inventories | 6,285 | 7,400 | 5,788 | ||||
| Prepaids and deposits | 1,835 | 1,741 | 1,772 | ||||
| Note receivable | - | - | 350 | ||||
| Income taxes receivable | 582 | - | 40 | ||||
| 33,089 | 57,683 | 43,519 | |||||
| Assets held for sale | - | 260 | 3,167 | ||||
| Non-current assets | |||||||
| Property, plant and equipment | 157,166 | 159,100 | 142,108 | ||||
| Intangible assets | 1,006 | 1,210 | 1,685 | ||||
| Long term assets | 2,013 | 1,914 | - | ||||
| Goodwill | 17,277 | 17,277 | 17,277 | ||||
| Deferred income tax assets | 150 | 15 | 164 | ||||
| Total assets | 210,701 | 237,459 | 207,920 | ||||
| Liabilities | |||||||
| Current liabilities | |||||||
| Bank indebtedness | 4,313 | 826 | 1,879 | ||||
| Accounts payable and accrued liabilities | 11,601 | 25,207 | 20,854 | ||||
| Income taxes payable | - | 1,579 | - | ||||
| Deferred revenue | 32 | 259 | 785 | ||||
| Current portion of obligations under finance lease | 938 | 882 | 1,887 | ||||
| Dividend payable | 2,609 | 2,609 | 2,050 | ||||
| 19,493 | 31,362 | 27,455 | |||||
| Non-current liabilities | |||||||
| Long-term debt | 22,500 | 36,000 | 38,500 | ||||
| Obligations under finance lease | 471 | 969 | 770 | ||||
| Deferred income tax liabilities | 12,844 | 14,138 | 7,797 | ||||
| Total liabilities | 55,308 | 82,469 | 74,522 | ||||
| Equity | |||||||
| Share capital | 118,361 | 118,351 | 117,824 | ||||
| Contributed surplus | 11,921 | 11,757 | 11,612 | ||||
| Accumulated other comprehensive income | 20,080 | 12,950 | 5,152 | ||||
| Retained earnings (deficit) | 5,031 | 11,932 | (1,190 | ) | |||
| Total equity | 155,393 | 154,990 | 133,398 | ||||
| Total liabilities and equity | 210,701 | 237,459 | 207,920 |
| Strad Energy Services Ltd. |
| Interim Consolidated Statement of Income and Comprehensive Income |
| For the three and six months ended June 30, 2015 and 2014 |
| (Unaudited) |
| (in thousands of Canadian dollars, except per share amounts) | ||||||||||
| Three Months Ended | Six Months Ended | |||||||||
| June 30, | June 30, | |||||||||
| 2015 | 2014 | 2015 | 2014 | |||||||
| $ | $ | $ | $ | |||||||
| Revenue | 29,907 | 53,692 | 64,277 | 105,580 | ||||||
| Expenses | ||||||||||
| Operating expenses | 22,130 | 35,585 | 44,835 | 70,791 | ||||||
| Depreciation | 6,869 | 5,556 | 13,745 | 10,857 | ||||||
| Amortization of intangible assets | 129 | 183 | 276 | 369 | ||||||
| Amortization of long term assets | 22 | - | 44 | - | ||||||
| Selling, general and administration | 3,844 | 5,685 | 8,363 | 11,241 | ||||||
| Share-based payments | 79 | 122 | 168 | 260 | ||||||
| Gain on disposal of property, plant and equipment | (80 | ) | (241 | ) | (125 | ) | (999 | ) | ||
| Foreign exchange (gain) loss | (81 | ) | 236 | (216 | ) | 169 | ||||
| Finance fees | 50 | 99 | 97 | 187 | ||||||
| Interest expense | 391 | 599 | 887 | 1,134 | ||||||
| Loss on assets held for sale | - | 161 | - | 199 | ||||||
| (Loss) income before income tax | (3,446 | ) | 0 | 5,707 | (3,797 | ) | 0 | 11,372 | ||
| Income tax (recovery) expense | (1,559 | ) | 944 | (2,114 | ) | 2,468 | ||||
| Net (loss) income for the period | (1,887 | ) | 0 | 4,763 | (1,683 | ) | 0 | 8,904 | ||
| Other comprehensive (loss) income | ||||||||||
| Items that may be reclassified subsequently to net (loss) income | ||||||||||
| Cumulative translation adjustment (Revised) | (1,826 | ) | (2,863 | ) | 7,130 | 318 | ||||
| Total comprehensive (loss) income for the period | (3,713 | ) | - | 1,900 | 5,447 | - | 9,222 | |||
| (Loss) earnings per share: | ||||||||||
| Basic | ($0.05 | ) | $0.13 | ($0.05 | ) | $0.24 | ||||
| Diluted | ($0.05 | ) | $0.13 | ($0.05 | ) | $0.24 | ||||
| Strad Energy Services Ltd. |
| Interim Consolidated Statement of Cash Flow |
| For the six months ended June 30, 2015 and 2014 |
| (Unaudited) |
| (in thousands of Canadian dollars) | |||||
| 2015 | 2014 | ||||
| Cash flow provided by (used in) | $ | $ | |||
| (Revised) | |||||
| Operating activities | |||||
| Net (loss) income for the period | (1,683 | ) | 8,904 | ||
| Adjustments for items not affecting cash: | |||||
| Depreciation and amortization | 14,065 | 11,226 | |||
| Deferred income tax (recovery) expense | (1,990 | ) | 1,889 | ||
| Share-based payments | 168 | 159 | |||
| Interest expense and finance fees | 984 | 1,321 | |||
| Gain on disposal of property, plant and equipment | (125 | ) | (999 | ) | |
| Loss on assets held for sale | - | 199 | |||
| Changes in items of non-cash working capital | 11,720 | (7,766 | ) | ||
| Net cash generated from operating activities | 23,139 | 14,933 | |||
| Investing activities | |||||
| Purchase of property, plant and equipment | (7,435 | ) | (20,942 | ) | |
| Proceeds from sale of property, plant and equipment | 2,267 | 2,826 | |||
| Purchase of intangible assets | (74 | ) | (263 | ) | |
| Proceeds from assets held for sale | - | 558 | |||
| Changes in items of non-cash working capital | (2,541 | ) | 3,014 | ||
| Net cash used in investing activities | (7,783 | ) | (14,807 | ) | |
| Financing activities | |||||
| Proceeds on issuance of long-term debt | - | 8,000 | |||
| Repayment of long-term debt | (13,500 | ) | (2,100 | ) | |
| Repayment of finance lease obligations (net) | (597 | ) | (162 | ) | |
| Issuance of shareholder loan (net of repayments) | 6 | - | |||
| Interest expense and finance fees | (984 | ) | (1,321 | ) | |
| Payment of dividends | (5,218 | ) | (4,100 | ) | |
| Changes in items of non-cash working capital | 3 | 424 | |||
| Net cash (used) generated in financing activities | (20,290 | ) | 741 | ||
| Effect of exchange rate changes on cash and cash equivalents | 1,447 | 24 | |||
| (Decrease) increase in cash and cash equivalents | (3,487 | ) | 891 | ||
| Cash and cash equivalents (including bank indebtedness) - beginning of year | (826 | ) | (1,879 | ) | |
| Cash and cash equivalents (including bank indebtedness) - end of period | (4,313 | ) | (988 | ) | |
| Cash paid for income tax | 1,882 | 744 | |||
| Cash paid for interest | 648 | 1,113 | |||
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