SOURCE: Aveda Transportation and Energy Services

Aveda Transportation and Energy Services

March 30, 2015 16:10 ET

Aveda Transportation and Energy Services Announces Record Revenue and EBITDA for the Fourth Quarter of 2014

CALGARY, AB--(Marketwired - March 30, 2015) - Aveda Transportation and Energy Services Inc. ("Aveda" or the "Company") (TSX VENTURE: AVE), a leading provider of oilfield hauling services and equipment rentals to the energy industry, today announced record results for the three and twelve months ended December 31, 2014.

2014 FOURTH QUARTER BUSINESS HIGHLIGHTS

  • Revenue for the three months ended December 31, 2014 grew by $24.1 million to $45.9 million, compared with revenue of $21.8 million for the same period in 2013. US revenue increased by 132.1% and Canadian revenue increased by 56.5% which resulted in overall revenue increase of 110.6%;
  • Generated Adjusted EBITDA1 for the quarter ended December 31, 2014 of $8.3 million, an increase of $5.3 million or 173.1% compared with Adjusted EBITDA1 of $3.1 million for the same period in 2013. Excluding the impact of non-steady state items2, 2014 fourth quarter Adjusted EBITDA1 would have been approximately $9.5 million;
  • Generated net income for the quarter ended December 31, 2014 of $0.7 million, compared to $0.5 million of net income for the same period in 2013. Basic earnings per share were $0.03 compared to basic earnings per share of $0.05 in the comparative period;
  • Repaid loans and borrowings of $10.1 million in the quarter from internally generated cash flow. The Company expects to reduce its debt further in the first quarter of 2015 through internally generated cash flow;
  • The Company ended the year with $16.8 million in working capital with a working capital ratio of 1.9:1; and
  • Due to strong Adjusted EBITDA1, cash flow generation and debt reductions, Aveda's debt to EBITDA ratio improved from 3.06 at the end of third quarter to 2.04 at the end of fourth quarter.

2014 BUSINESS HIGHLIGHTS

  • Revenue for the twelve months ended December 31, 2014 grew by approximately $67.2 million to $155.9 million compared with revenue of $88.7 million for the same period in 2013. US revenue increased by almost 100.0% and Canadian revenue increased by 23.4% which resulted in an overall revenue increase of 75.8%. Almost 80% of the Company's revenue now comes from the United States;
  • Generated Adjusted EBITDA1 for the twelve months ended December 31, 2014 of $24.5 million, an increase of $9.5 million compared with Adjusted EBITDA1 of $15.0 million for the same period in 2013, an increase of 63.1% year over year. Excluding the impact of non-steady state items2, Adjusted EBITDA1 increased to $28.4 million versus $14.2 million in the same period of 2013;
  • Generated net income for the twelve months ended December 31, 2014 of $2.5 million, compared to $5.3 million of net income for the same period in 2013. Basic earnings per share were $0.13 compared to basic earnings per share of $0.53 in the comparative period;
  • The Company completed the acquisition of Precision Drilling Corporation's ("Precision") US rig moving assets on July 1, 2014 for total consideration of US $24.0 million;
  • On January 31, 2014, completed the acquisition of the operating assets of Williston, North Dakota based M&K Hotshot Trucking, Inc. and M&K Rig Service, Inc. (collectively "M&K");
  • The Company opened a new branch in Cherokee, Oklahoma during the year, as the result of an agreement with a new customer operating in the Mississippian Basin in Oklahoma and Kansas to provide a minimum threshold of monthly rig moves for a one year period;
  • The Company hired approximately 150 additional employees due to the acquisition of Precision's US rig moving assets and to fill other vacant positions including the expansion into Oklahoma;
  • Expanded equipment base by acquiring $59.8 million of additional equipment during 2014, including the acquisition of Precision's US rig moving assets and the M&K acquisition;
  • Generated net cash provided by operating activities for the year ended December 31, 2014 of $18.3 million, an increase of $5.9 million compared to $12.5 million for the same period in 2013;
  • In connection with the completion of the M&K acquisition, the Company closed a $23.0 million bought deal private placement offering of 6.4 million Subscription Receipts of the Company (the "Subscription Receipts") at a price of $3.60 per Subscription Receipt in December 2013. Concurrent with the closing of the M&K acquisition, all Subscription Receipts automatically converted into 6.4 million common shares of the Company; and
  • The Company increased its senior secured credit facility from $75.0 million to $125.0 million. The Company has $51.0 million drawn on the facility and undrawn availability of $54.4 million at the end of 2014.

"In 2014 we continued to execute on the growth strategy laid out three years ago as the Aveda team completed two transformational acquisitions and an organic expansion to Oklahoma that positioned the Company as one of the largest energy transportation companies in North America. The foundation we have laid down thus far has greatly diversified our revenue sources to withstand the current downturn in the energy sector," said Kevin Roycraft, President and Chief Executive Officer of Aveda. "In the fourth quarter of 2014, the Company achieved higher revenue and EBITDA than in any previous quarter in the Company's history due to the hard work and diligence of the Aveda team. 2015 is shaping up to be a challenging year across the energy industry, we are focusing even more on cost management and gaining additional market share by providing our customers unparalleled safety and service."

"The strong performance in the fourth quarter demonstrates the Company's ability to execute operationally," said Bharat Mahajan, Vice-President and Chief Financial Officer of Aveda. "The Company remains well capitalized and well positioned to thrive and weather the current downturn. With $16.8 million in working capital, a debt to total capitalization ratio of 41.0% and debt to EBITDA of approximately 2 times, we have a strong balance sheet. This financial flexibility will allow the Company to seize on opportunities these current industry conditions may offer."

The Company also announces that it has been extremely successful purchasing its common shares under the Normal Course Issuer Bid ("NCIB") announced on December 23, 2014. As at March 30, 2014, the Company had purchased and returned to treasury 844,000 shares at an average purchase price of $2.11/share. The Company has approximately 19.1 million shares outstanding. The Company believes its shares are significantly undervalued and at existing valuation levels will continue purchasing shares under the terms of its NCIB.

Aveda is also pleased to announce that it will be presenting at the 2015 Bristol Capital Smart Conference on April 2nd at 11:00 am Eastern Standard Time. Investors who wish to watch the webcast presentation may do so by logging in at https://event.webcasts.com/starthere.jsp?ei=1058284. The event will be recorded and an archive can be viewed for six months from the date of the presentation. Aveda's updated investor has been posted to the Company's website at http://www.avedaenergy.com/investors/presentation/default.aspx.

The Company will host its fourth quarter fiscal 2014 results conference call on Wednesday, March 31st, 2015 at 9:00 a.m. Eastern Time (ET). President and CEO Kevin Roycraft and Vice-President, Finance and CFO Bharat Mahajan will discuss Aveda's financial results for the quarter and then take questions from securities analysts.

To access the conference call by telephone, dial (647) 427-7450 or 1-888-231-8191. A live audio webcast of the conference call will be available at http://www.newswire.ca/en/webcast/detail/1503003/1674593.

The conference call webcast will be archived and available at http://www.avedaenergy.com/investors/Conference-Calls/default.aspx until May 31, 2015.

The Company's consolidated financial statements and Management's Discussion and Analysis are available on the Company's website at www.avedaenergy.com and the SEDAR website at www.sedar.com.

Financial Overview

(in thousands, except per share and ratio amounts)         
                   
   Twelve Months Ended December 31, 2014  Twelve Months Ended December 31, 2013  % Change 2013 - 2014  Three Months Ended December 31, 2014  Three Months Ended December 31, 2013  % Change 2013 - 2014
Revenue  155,900  88,664  75.8%  45,893  21,793  110.6%
Gross profit5  27,223  18,597  46.4%  8,334  4,595  81.4%
Gross margin  17.5%  21.0%  N/A  18.2%  21.1%  N/A
Gross profit5 excluding depreciation and amortization  44,177  26,472  66.9%  14,236  6,596  115.8%
Gross margin excluding depreciation and amortization  28.3%  29.9%  N/A  31.0%  30.3%  N/A
Adjusted EBITDA1  24,533  15,039  63.1%  8,335  3,052  173.1%
Adjusted EBITDA1 as a percentage of revenue  15.7%  17.0%  N/A  18.2%  14.0%  N/A
Net income  2,468  5,299  -53.4%  656  487  -34.7%
Net income as a percentage of revenue  1.6%  6.0%  N/A  1.4%  2.2%  N/A
Adjusted EBITDA1 per share  1.28  1.51  -15.2%  0.42  0.30  40.0%
Earnings per share - basic  0.13  0.53  -75.5%  0.03  0.05  40.0%
Earnings per share - diluted  0.13  0.51  -74.5%  0.03  0.05  40.0%
Current ratio2  1.93  2.17  -11.3%  1.93  2.17  -11.3%
Debt to equity ratio3  0.70  0.70  0.0%  0.70  0.70  0.0%
Debt to EBITDA ratio3, 4  2.04  1.67  22.3%  2.04  1.67  22.3%

Outlook

Aveda earns revenue primarily by providing specialized transportation services to companies engaged in the exploration, development and production of petroleum resources. As a result, demand for Aveda's transportation services are generally linked to the economic conditions of the energy industry and the level of drilling activity in the Western Canadian Sedimentary Basin ("WCSB") and US.

Recently, drilling activity in North America has declined significantly due to a collapse in oil and natural gas prices (collectively, "energy prices"). In the fourth quarter of 2014, the average West Texas Intermediate ("WTI") spot price was approximately $73 per barrel, compared to $97 per barrel during the same period of 2013. During the fourth quarter, WTI prices dropped from approximately $91 to $53 per barrel, a 42% decline over 3 months. Last time WTI was at the $50 per barrel level was mid-2009. Natural gas prices also declined significantly during the fourth quarter of 2014. At the beginning of the quarter, the Henry Hub spot price was approximately $4.15 per million British Thermal Units ("MMBtu"). At the end of the quarter, natural gas prices dropped to $3.15 per MMBtu, a 24% decline. As of March 23, 2015, WTI was at $47.40 per barrel and Henry Hub was at 2.72 per MMBtu7

The significant drop in energy prices, WTI in particular, started to result in sharp declines in rig count near the end of the quarter. The pace at which the rig counts declined accelerated significantly during the first few months of 2015. At the start of the fourth quarter, land rig count in the US was 1,861. At the end of the quarter, the rig count was 1,782, a 4% decline. By March 20, 2015, the rig count was 1,172, a 37% decline compared to the beginning of the fourth quarter in 2014. Rig counts in Canada followed a similar pattern. At the beginning of the fourth quarter, the rig count was 430. By the end of the quarter, the rig count was 389, a decline of 10%. By March 20, 2015, the rig count was 140, a decline of 67% compared to the beginning of the fourth quarter in 20148. The most significant declines in rig count, on a percentage basis year over year, were experienced in Alberta, as well as in the oil-weighted plays in the US, such as those surrounding Aveda's Pleasanton, Midland and Williston terminals. The significant declines in rig count have made the environment for rig moves more competitive. This combined with oil and gas producers looking to reduce costs has resulted in considerable downward pricing pressure. In order to remain competitive over the short term, Aveda has elected to temporarily reduce rates in select regions where the competition and pressure from clients is highest. These pressures are expected to impact results until rig counts and energy prices, WTI in particular, start to rebound. 

The outlook for WTI is highly debated making the future uncertain. The US Energy Information Administration is projecting average WTI prices of approximately $55 per barrel during 2015. For 2016, they are expecting prices to average $71 per barrel9. Scotiabank's forecast is similar with an average WTI price of $58 per barrel during 2015 and $65 per barrel during 201610. Conversely, some are forecasting a quicker and more aggressive recovery due to the significant decreases in capital expenditures at current price levels. The assumption being that production from existing projects will decline over time, and due to less current investment in growth projects, there may be a period of insufficient supply. Harold Hamm, CEO of Continental Resources, and John Hofymeister, former President of Shell, believe prices will return to the $80 - $90 per barrel range within 12 to 18 months11.

Despite pricing pressures, in the short term, Aveda's business will be positively impacted by the strong US dollar as approximately 80% of Aveda's revenue comes from the United States. As at March 26, 2015, the US to Canadian dollar exchange rate was approximately 1.25. The National Bank of Canada is forecasting that the exchange rate will remain in this range through to the second quarter of 201612. For every 10% change in the exchange rate, Aveda estimates its revenue is impacted by approximately $11.1 million, EBITDA by $1.9 million and net income by $0.3 million.

Since the decline in energy prices, Aveda's Canadian operations, in particular, have seen a dramatic decline in activity, and consequently, profitability. Conversely, Aveda's US operations have demonstrated considerable resilience. Despite early challenges, Aveda's 2014 acquisitions of M&K (North Dakota) and Precision's US rig moving assets have now been fully and successfully integrated in Aveda. In the first quarter of 2015, early results are indicating that the assets from these acquisitions are performing relatively well given market conditions and will be an important driver of future growth.

With the current industry outlook described above, the Company is continuing and intensifying its focus on cost control while maintaining its leadership position in safety and high level of service to its customers. As part of this initiative on the operations level, the Company has closed its Slave Lake, AB branch and is in the process of merging its Alice, TX branch with its Pleasanton, TX branch to reduce travel time to its customer sites. In addition, the Company has relocated its Calgary Service branch, which performs mostly hotshot trucking services, to the same location as its Heavy Haul branch to reduce overhead costs. Management is currently reviewing options to restructure operating wages in selective regions. At the corporate level, the Company's CEO, CFO and other executives have taken a voluntary wage reduction of up to 10%. Members of Aveda's Board of Directors have also agreed to decrease their fees by 10%. The Company is also consolidating its accounting and finance functions to the Calgary head office. Further cost saving opportunities are being evaluated.

Given the recent volatility in energy prices, there is significant uncertainly for oilfield service companies in 2015. However, the Company expects the positive impacts from the strong US dollar, the successful integration of the two transformative 2014 acquisitions and the cost reductions outlined above should, to a large extent, offset the negative impacts of the drop in Canadian activity, customer pricing pressures and declining rig counts. Aveda's internal forecasts reflect a WTI pricing between $40 and $50 per barrel during the first half of 2015 with a recovery in price and rig counts through to the end of 2015. Based on those assumptions, and the cost saving measures being implemented, management is anticipating that on a relative basis, Aveda's 2015 revenue and Adjusted EBITDA performance should generally be better than other oil and gas service companies.

Despite the current oil and gas industry turmoil, Aveda's business remains well capitalized and well positioned to weather the downturn, and thrive during the eventual recovery. The Company's balance sheet remains strong, with $16.8 million in working capital and a working capital ratio of 1.9:1. The Company's debt to total capitalization ratio is 41.0%. Aveda's debt to Adjusted EBITDA ratio is 1.96:1 as defined in the loan facility agreement which is well below the maximum allowable ratio of 3.0. The Undrawn Availability was approximately $54.4 million at December 31, 2014. As of March 20, 2015 the Undrawn Availability has increased to $56.6 million, which demonstrates the Company's ability to further pay down debt and increase its flexibility in the current environment. The financial flexibility will allow the Company to take advantage of any opportunities current industry conditions may offer.

Over the longer term, the current market conditions may present significant opportunities for Aveda. In the rig moving industry specifically, the majority of Aveda's competitors are relatively small and privately held, and specialize in specific areas. Their limited size, potential challenges with access to capital and lack of diversification (country, region and commodity) may result in attractive acquisition opportunities, especially in regions where Aveda does not currently have terminals such as Colorado, New Mexico, Arkansas and Louisiana. Aveda's low maintenance capital expenditure budget for 2015 (estimated at $3.0 million) and 2016 (estimated at $3.0 - $5.0 million), strong balance sheet and available credit facility, position the Company well to execute on potential acquisition opportunities that will increase shareholder value. Aveda's pipeline of acquisition opportunities is extremely robust. There are numerous transactions the Company is actively exploring. The Company expects to continue acquiring complementary assets when capital market conditions reflect an appropriate valuation of Aveda's share price.

In 2012, the Company began implementing an enterprise resource planning system. In 2014 the first phase of the implementation was completed and Aveda has started to evaluate data from the system. Through the data gathered to date and based on normalized prices received by Aveda in 2014, Aveda has determined that its asset base as at December 31, 2014 is capable of generating between $225 million and $250 million revenue per year (assuming 20 - 30% 3rd party usage) and between $40 million and $55 million in EBITDA per year. While it would be unreasonable to expect such results in 2015, the Company has the most diverse geographic footprint in the rig moving industry (covering approximately 81% of the entire North American rig moving market) and one of the youngest fleets in the industry and as such, Aveda is extremely well positioned to deliver solid results with the recovery of commodity prices and drilling activity levels.

Despite the unfavorable outlook of the oil and gas services industry, Aveda is extremely well positioned. In the last 3 years the Company has spent approximately $107 million in growth capital on equipment and acquisitions. Of this $107 million, $18.7 million was spent in 2012 to acquire predominantly trucks and trailers, $6.3 million in 2013 and $73.8 million in 2014. The M&K and Precision asset acquisitions both added fairly young equipment to Aveda's already modern fleet. The Company's management and employees will continue to focus on providing a high level of safety and service to its customers and seize on opportunities that will create shareholder value in the long term.

About Aveda Transportation and Energy Services

Aveda provides specialized transportation services and equipment required for the exploration, development and production of petroleum resources in the Western Canadian Sedimentary Basin and in the United States of America principally in and around the states of Texas, Pennsylvania, Oklahoma and North Dakota. Transportation services include both the equipment necessary to move the load as well as a trained, professional driver capable of securing, moving and manipulating the load at its origin and destination. Aveda's rental operations include the rental of well-sites, tanks, mats, pickers, light towers and other equipment necessary for oilfield operations.

Aveda was incorporated in 1994 as a private company to serve the oil and gas industry. In the spring of 2006 the Company went public on the TSX Venture Exchange. Aveda has major operations in Calgary, AB, Leduc, AB, Edson, AB, Mineral Wells, TX, Pleasanton, TX, Midland, TX, Williamsport, PA, Buckhannon, WV, Williston, ND, and Cherokee, Oklahoma. Aveda is publicly traded on the TSX Venture Exchange under the symbol AVE. For more information on Aveda please visit www.avedaenergy.com.

This News Release contains certain forward-looking statements and forward-looking information (collectively referred to herein as "forward-looking statements") within the meaning of applicable Canadian securities laws. All statements other than statements of present or historical fact are forward-looking statements. Forward-looking statements are often, but not always, identified by the use of words such as "anticipate", "achieve", "could", "believe", "plan", "intend", "objective", "continuous", "ongoing", "estimate", "outlook", "expect", "may", "will", "project", "should" or similar words, including negatives thereof, suggesting future outcomes. In particular, this News Release contains forward-looking statements relating to: demand for the Company's services and general industry activity level; the Company's growth opportunities; and expectations regarding the Company's revenue, EBITDA and equipment utilization. Aveda believes the expectations reflected in such forward-looking statements are reasonable as of the date hereof but no assurance can be given that these expectations will prove to be correct and such forward-looking statements should not be unduly relied upon.

Various material factors and assumptions are typically applied in drawing conclusions or making the forecasts or projections set out in forward-looking statements. Those material factors and assumptions are based on information currently available to Aveda, including information obtained from third party industry analysts and other third party sources. In some instances, material assumptions and material factors are presented elsewhere in this News Release in connection with the forward-looking statements. Readers are cautioned that the following list of material factors and assumptions is not exhaustive. Specific material factors and assumptions include, but are not limited to:

  • the performance of Aveda's businesses, including current business and economic trends;
  • oil and natural gas commodity prices and production levels;
  • the effect of the rebranding on Aveda's businesses;
  • capital expenditure programs and other expenditures by Aveda and its customers:
  • the ability of Aveda to retain and hire qualified personnel;
  • the ability of Aveda to obtain parts, consumables, equipment, technology, and supplies in a timely manner to carry out its activities;
  • the ability of Aveda to maintain good working relationships with key suppliers;
  • the ability of Aveda to market its services successfully to existing and new customers;
  • the ability of Aveda to obtain timely financing on acceptable terms;
  • currency exchange and interest rates;
  • risks associated with foreign operations;
  • changes under governmental regulatory regimes and tax, environmental and other laws in Canada and the United States; and
  • a stable competitive environment.

The forward-looking statements regarding Aveda's potential revenue and EBITDA are included herein to provide readers with an understanding of Aveda's anticipated cash flow and Aveda's ability to fund its expenditures based on the assumptions described herein. Readers are cautioned that this information may not be appropriate for other purposes. 

Forward-looking statements are not a guarantee of future performance and involve a number of risks and uncertainties, some of which are described herein. Such forward-looking statements necessarily involve known and unknown risks and uncertainties, which may cause Aveda's actual performance and financial results in future periods to differ materially from any projections of future performance or results expressed or implied by such forward-looking statements. These risks and uncertainties include, but are not limited to, the risks identified in Aveda's annual information form and management discussion and analysis for the year ended December 31, 2014 (the "MD&A"), which are available for viewing on SEDAR at www.sedar.com. Any forward-looking statements are made as of the date hereof and, except as required by law, Aveda assumes no obligation to publicly update or revise such statements to reflect new information, subsequent or otherwise.

This News Release contains the terms "EBITDA" and "Adjusted EBITDA" which are defined in the MD&A. EBITDA and Adjusted EBITDA as presented do not have any standardized meanings prescribed by international financial reporting standards ("IFRS") and therefore may not be comparable with the calculation of similar measures for other entities. Management uses Adjusted EBITDA to analyze the operating performance of the business. Adjusted EBITDA as presented is not intended to represent cash provided by operating activities, net earnings or other measures of financial performance calculated in accordance with IFRS.

This News Release contains the terms "cash flow", "working capital" and "working capital ratio", which do not have any standardized meanings prescribed by IFRS and therefore may not be comparable with the calculation of similar measures for other entities. As an indicator of the Company's performance, cash flow should not be considered as an alternative to, or more meaningful than, net cash from operating activities as determined in accordance with IFRS. The Company considers cash flow to be a key measure as it demonstrates the Company's underlying ability to generate the cash necessary to fund operations and support activities related to its major assets. Cash flow is determined by adding back changes in non-cash operating working capital to cash from operating activities. Management calculates working capital as current assets less current liabilities and uses this measure to analyze operating performance and leverage. 

Notes:

(1)This News Release contains the term Adjusted EBITDA. Adjusted EBITDA as presented does not have any standardized meaning prescribed by international financial reporting standards (IFRS) and therefore it may not be comparable with the calculation of similar measures for other entities. Management uses Adjusted EBITDA to analyze the operating performance of the business. Adjusted EBITDA as presented is not intended to represent cash provided by operating activities, net earnings or other measures of financial performance calculated in accordance with IFRS. It is defined as earnings before interest, taxes, depreciation and amortization excluding foreign exchange gains or losses which are primarily related to the US dollar activities of the Company and can vary significantly depending on exchange rate fluctuations, which are beyond the control of the Company, and write downs of intangible assets, goodwill impairment, financing costs, gains or losses on disposal of assets, stock based compensation, fees and expenses on settlement of debt and losses on extinguishment of debt.
(2)See MD&A Section 5.
(3)Current ratio calculated as current assets divided by current liabilities.
(4)Debt includes loans and borrowings as per their carrying amounts on the balance sheet.
(5)EBITDA used is Adjusted EBITDA for the trailing twelve months.
(6)Gross profit calculated as revenue less direct operating expense.
(7)U.S. Energy Information Administration, accessed on March 26, 2015.
(8)Baker Hughes, accessed on March 26, 2015.
(9)U.S. Energy Information Administration, "Short-Term Energy Outlook", February 10, 2015.
(10)Scotiabank Global Economics, "Commodity Price Index", February 23, 2015.
(11)Forbes, "Forecasts of Oil Price Bottom and Recover", February 9, 2015.
(12)National Bank Financial Markets, FOREX Economics and Strategy Group, March 2015.

Neither TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.

Contact Information

  • For more information, please contact:
    Bharat Mahajan, CA
    Vice President, Finance and Chief Financial Officer
    (403) 264-5769
    bharat.mahajan@avedaenergy.com