Enseco Energy Services Corp.
TSX VENTURE : ENS

Enseco Energy Services Corp.

May 29, 2015 19:09 ET

Enseco Energy Services Corp. Announces Results for the Three Months Ended March 31, 2015

CALGARY, ALBERTA--(Marketwired - May 29, 2015) - ENSECO ENERGY SERVICES CORP (TSX VENTURE:ENS) ("Enseco" or the "Company") announces its financial results for the three months ended March 31, 2015.

Results from Operations

Financial Quarter Ended (Unaudited)
($ thousands, except per share amounts) Mar 15 Dec 14 Sep 14 Jun 14 Mar 14
Revenue $ 11,282 $ 20,899 $ 22,197 $ 12,750 $ 23,035
Gross Margin 2,098 4,050 4,426 (59 ) 4,726
Adjusted gross margin 1 3,600 5,446 7,049 1,562 6,286
EBITDAS 1 126 2,445 3,050 (2,214 ) 2,434
Net income (loss) before tax 1 (879 ) 920 257 (4,454 ) 476
Per common share - basic (0.04 ) 0.04 0.01 (0.20 ) 0.02
Per common share - diluted (0.04 ) 0.04 0.01 (0.20 ) 0.02
Net income 1 $ (525 ) 191 257 (4,454 ) 476
Per common share - basic $ (0.02 ) 0.01 0.01 (0.20 ) 0.02
Per common share - diluted $ (0.02 ) 0.01 0.01 (0.20 ) 0.02
Cash flow before changes in non-cash working capital 1 635 2,072 3,374 (2,369 ) 2,489
Cash flow from (used in) operating activities 6,925 2,997 (2,794 ) 5,841 (5,243 )
1 See definition within the Non-IFRS Measures section of the MD&A for the three months ended March 31, 2015

Takeaways for the three months ended March 31, 2015

  • Canadian rig activity has dropped over 44% and US rig activity has dropped over 21% from same period last year. The Company has been reducing its operating costs as well as its SG&A, but the decline in the rig activity has caused a similar decline in the Company's revenue this quarter.
  • Despite the decline in rig activity the US testing division increased their year over year revenue 39%, gross margin by 27% and EBITDA by 29%.
  • Even with the decrease in revenue of 51%, the Company was able to increase adjusted gross margins by 5% versus same period last year due to cost reductions.
  • SG&A expenses declined by $506 thousand versus the same period last year. This is expected to decline further in future quarters.

Outlook

Energy prices have shown modest increases beginning at the end of the first calendar quarter and are slowly showing improvement but the duration of the current downturn is still unknown and management has created and will continue to create review processes in a number of areas including pricing, service, and cost structure streamlining to achieve a sustainable, client service focused company that will operate efficiently, effectively and reliably in all market conditions. With cost reduction pressures from exploration and production companies being adopted and energy prices showing improvement, discussions on any potential activity level increases for the second half of 2015 have become more optimistic. The Company expects that Q2, traditionally a period of low activity in Canada, will see decreased activity compared to last year and compared with the already low activity of Q1. While discussions for Q3 and Q4 have become more optimistic that has not yet transformed into increased visibility into activity levels.

The programs Enseco began in January to reduce its costs including salary and personnel reductions, consolidation of its strategic vendor relationships, and evaluation of its process management have been implemented and are continually being reevaluated. A comprehensive wage roll-back was enacted, impacting all levels including both office and field personnel. Director fees were suspended, benefits and matching programs have been re-engineered or suspended and job sharing programs are in the process of being rolled-out. Facilities and services provided to us are under reassessment with cost reductions being implemented. In the first quarter, approximately $2.0 million of annual salaries were eliminated at a one-time severance cost of $250 thousand and $450 thousand of annual salary roll-back and benefit matching suspension were completed, for the remaining employees. Had the termination changes all occurred in early January and without the one-time severance costs, SG&A costs would have been reduced 25% from the same period last year.

Field personnel rate reductions ranging from 10-25% were also implemented at the beginning of the quarter and are reflected in the results. With low activity in Q1 and anticipated in Q2, these changes should have larger impacts in Q3 and Q4 if higher activity levels begin to return.

The Company had an operating loss of approximately $1.4 million and a working capital deficit at March 31, 2015 of approximately $12.8 million. The Company was not in compliance with its financial covenants under its credit agreements and anticipates continued violations, all of which are more fully described in Enseco's unaudited condensed consolidated interim financial statements and associated management's discussion and analysis.

Subsequent to the end of the first quarter, Enseco entered into a Forbearance Agreement with its lender, a copy of which has been filed on SEDAR. The agreement is in effect until June 30, 2015. The Company is exploring various options to improve its financing terms and obtain reduced debt repayment terms through the downturn.

Enseco remains focused on realigning it cost structure to reflect the impact of the downturn, maintaining a key personnel base and improvements to be more efficient and cost effective when activity levels return.

Filings

Enseco has filed with Canadian securities regulatory authorities its audited consolidated financial statements for the three months ended March 31, 2015 and accompanying management's discussion and analysis ("MD&A"). These filings are available under Enseco's SEDAR profile at www.sedar.com.

About Enseco Energy Services Corp.

Enseco is a premier supplier of directional drilling, production testing and frac flowback services operating throughout the Western Canadian Sedimentary Basin and select markets in the United States, Our corporate office is located in Calgary and sales offices are located in both Calgary and Denver. Enseco is led by an experienced management team with a focus on continued value creation through accretive acquisitions and organic growth.

Forward-Looking Statements

Certain information and statements contained in this MD&A constitute forward-looking information, including, but not limited to: statements concerning Enseco's future business strategy, focus, marketing and other plans; general industry conditions; plans to continue to reduce costs; expectations regarding the future performance of the Company regarding financial results including future revenues, cash flow, gross margins, EBITDAS, efficiencies and cost reductions, future debt levels, other financial results and continued financial covenant breaches; statements as to future economic, industry and operating conditions, including commodity prices, industry activity levels, access to capital and capital expenditures, expectations about the Company's ability to finance its current operations, capital expenditure and future growth and manage its current debt levels; expectations about the Company's ability to obtain the continued cooperation of its lender; plans to refinance the Company's debt and the terms thereof; and expectations regarding future accounting standards and elections. Although management of the Company believes that the expectations reflected in such forward looking statements are reasonable, it can give no assurance that such expectations will prove to have been correct. Accordingly, readers should not place undue reliance upon any of the forward-looking information set out in this MD&A. Readers should review the cautionary statement respecting forward-looking information that appears below. All of the forward looking statements of the Company contained in this MD&A are expressly qualified, in their entirety, by this cautionary statement.

The information and statements contained in this MD&A that are not historical facts are forward-looking statements. Forward-looking statements (often, but not always, identified by the use of words such as "seek", "plan", "continue", "estimate", "project", "predict", "potential", "targeting", "intend", "could", "might", "should", "believe", "expect", "may", "anticipate" or "will" and similar expressions) may include plans, expectations, opinions, or guidance that are not statements of fact. Forward-looking statements are based upon the opinions, expectations and estimates of management as at the date the statements are made and are subject to a variety of risks and uncertainties and other factors that could cause actual events or outcomes to differ materially from those anticipated or implied by such forward-looking statements. These factors include, but are not limited to, such things as changes in industry conditions (including the levels of capital expenditures made by oil and gas producers and explorers), the credit risk to which the Company is exposed in the conduct of its business, the Company's ability to service its debt, fund operations and obtain the continued support its lender; fluctuations in prevailing commodity prices or currency and interest rates, the competitive environment to which the various business divisions are, or may be, exposed in all aspects of their business, the ability of the Company's various business divisions to access equipment (including parts) and new technologies and to maintain relationships with key suppliers, the ability of the Company's various business divisions to attract and maintain key personnel and other qualified employees, various environmental risks to which the Company's business divisions are exposed in the conduct of their operations, inherent risks associated with the conduct of the businesses in which the Company's business divisions operate, timing and costs associated with the acquisition of capital equipment, the impact of weather and other seasonal factors that affect business operations, availability of financial resources or third-party financing and the impact of new laws or changes in administrative practices on the part of regulatory authorities.

Forward-looking information concerning the nature and timing of growth within the various business divisions is based on the current budget of the Company (which is subject to change), factors that affected the historical growth of such business divisions, sources of historic growth opportunities and expectations relating to future economic and operating conditions. Forward-looking information concerning the future competitive position of the Company's business divisions is based upon the current competitive environment in which those business divisions operate, expectations relating to future economic and operating conditions, current and announced build programs and other expansion plans of other organizations that operate in the energy service business. Forward-looking information concerning the financing of future business activities is based upon the financing sources on which the Company has historically relied and expectations relating to the continued cooperation of the Company's lender and future economic and operating conditions. Forward-looking information concerning future economic and operating conditions is based upon historical economic and operating conditions, opinions of third-party analysts respecting anticipated economic and operating conditions.

With respect to forward-looking statements contained in this MD&A, Enseco has made assumptions regarding commodity prices and royalty regimes, availability of skilled labor, timing and amount of capital expenditures, future foreign exchange rates, interest rates, the impact of increasing competition, conditions in general economic and financial markets, effects of regulation by governmental agencies, and future operating costs.

Management has included the above summary of assumptions and risks related to forward-looking information provided in this MD&A in order to provide shareholders with a more complete perspective on Enseco's future operations and such information may not be appropriate for other purposes. Enseco's actual results, performance or achievement could differ materially from those expressed in, or implied by, these forward-looking statements and, accordingly, no assurance can be given that any of the events anticipated by the forward-looking statements will transpire or occur, or if any of them do so, what benefits that the Enseco will derive there from. Readers are cautioned that the foregoing lists of factors are not exhaustive. These forward-looking statements are made as of the date of in this MD&A and Enseco disclaims any obligation to update publicly any forward-looking statements, whether as a result of new information, future events or results or otherwise, other than as required by applicable securities laws.

Non-IFRS Measures

EBITDAS means earnings before interest, taxes, depreciation and amortization, and stock -based compensation and is equal to earnings before income taxes from continuing operations plus interest on debt, other charges and interest expense, depreciation and amortization, stock-based compensation, unrealized foreign exchange loss, and loss on sale of equipment. Adjusted gross margin from continuing operations equals gross margin, plus interest on debt, other charges and interest expense, depreciation and amortization, stock-based compensation, impairment loss/recovery, and loss on sale of equipment. Cash flow means cash flows provided by continuing operations before changes in non-cash working capital items.

EBITDAS, adjusted gross margin from continuing operations, and cash flows from continuing operations before changes in non-cash working capital items are not recognized measures under International Financial Reporting Standards ("IFRS"). Management believes that in addition to net losses, EBITDAS and cash flows, are useful supplemental measures as they provide an indication of the results generated by the Company's primary business activities prior to consideration of how those activities are financed, amortized or how the results are taxed in various jurisdictions as well as the cash generated by the Company's primary business activities. Readers should be cautioned, however, that EBITDAS and cash flows from continuing operations before changes in non-cash working capital items should not be construed as an alternative to net losses determined in accordance with IFRS as an indicator of Enseco's performance. Enseco's method of calculating operating losses, EBITDAS and cash flows from continuing operations before changes in non-cash working capital items may differ from other organizations and, accordingly, such measures may not be comparable to measures used by other organizations. For reconciliation to the appropriate IFRS measure, see our MD&A.

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

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