CALGARY, ALBERTA--(Marketwired - Feb. 26, 2014) -
NOT FOR DISTRIBUTION TO U.S. NEWS WIRE SERVICES OR FOR DISSEMINATION IN THE 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 months and year-ended December 31, 2013. All amounts are stated in Canadian dollars unless otherwise noted.
SELECTED FINANCIAL AND OPERATIONAL HIGHLIGHTS:
- EBITDA(1) from continuing operations of $10.7 million and $40.5 million for the three months and year-ended December 31, 2013, an increase of 39% and a decrease of 13%, respectively, compared to $7.7 million and $46.6 million for the same periods in 2012;
- Revenue from continuing operations of $47.9 million and $189.6 million for the three months and year-ended December 31, 2013, a 15% increase and a 7% decrease, respectively, compared to $41.5 million and $203.2 million for the same periods in 2012;
- Capital additions totaled $9.5 million during the fourth quarter and $25.5 million for the year. Reported capital expenditures, net of $1.6 million and $11.8 million rental asset disposals during the respective periods, were $8.0 million during the fourth quarter and $13.7 million for the year;
- Total funded debt (2) to twelve month trailing EBITDA ratio of 1.0 to 1 at December 31, 2013;
- Earnings (loss) per share from continuing operations of $0.05 and $0.15 for the three months and year-ended December 31, 2013, respectively, compared to $(0.10) and $0.20 for the same periods in 2012. Adjusted for the loss on assets held for sale, impairment loss and reversal of the Company's restructuring provision, earnings per share would otherwise be $0.09 and $0.19 for the three months and year-end December 31, 2013; and,
- During the fourth quarter of 2013, the Company completed a review of the estimated useful lives and residual value estimates of certain rental equipment. As such, effective October 1, 2013, management has amended the useful life and residual value estimates on certain components of its rental equipment assets and has commenced depreciation of these assets over the revised estimate of useful life. This has resulted in a reduced depreciation expense of approximately $2.0 million for the three month period ended December 31, 2013, in comparison to the prior quarter. Depreciation expense is expected to decrease by approximately $8.0 million on an annual basis based on the current capital base.
Notes:
| (1) | Earnings before interest, taxes, depreciation and amortization ("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. EBITDA is based on trailing twelve months. See "Non-IFRS Measures Reconciliation". |
"Our positive year-over-year fourth quarter performance was influenced by slightly higher activity levels in our Canadian Operations, in part due to LNG related drilling activity in northeast British Columbia, and fourth quarter U.S. margins that were substantially higher year-over-year due to our restructuring efforts late in 2012. EBITDA from Product Sales was also up as we completed several large matting projects to close out 2013," said Andy Pernal, President and CEO of Strad. "We look forward to continuing this momentum, in all three reporting segments, into the first quarter of 2014."
"Earnings per share will be meaningfully impacted going forward by Strad's revised depreciation policy", said Greg Duerr, CFO of Strad. "The reduction in depreciation expense is driven by Strad's experience with the durability of the assets as well as its robust repair and maintenance program. The full year impact of the revision is expected to reduce depreciation expense on the existing asset base by approximately $8.0 million and creates an earnings profile that is more reflective of the returns generated by the asset base."
YEAR END FINANCIAL HIGHLIGHTS
| (in thousands of Canadian Dollars) | Three months ended December 31, |
Year-ended December 31, |
||||||||||
| 2013 | 2012 | % Chg. | 2013 | 2012 | % Chg. | |||||||
| Revenue from continuing operations | 47,850 | 41,465 | 15 | 189,574 | 203,164 | (7 | ) | |||||
| EBITDA from continuing operations (1) | 10,678 | 7,675 | 39 | 40,528 | 46,571 | (13 | ) | |||||
| EBITDA as a % of revenue | 22 | % | 19 | % | 21 | % | 23 | % | ||||
| Per share ($), basic | 0.29 | 0.21 | 38 | 1.11 | 1.27 | (13 | ) | |||||
| Per share ($), diluted | 0.29 | 0.20 | 45 | 1.08 | 1.24 | (13 | ) | |||||
| Net income (loss) from continuing operations (2) | 1,923 | (3,490 | ) | (155 | ) | 5,372 | 7,342 | (27 | ) | |||
| Per share ($), basic | 0.05 | (0.10 | ) | (150 | ) | 0.15 | 0.20 | (25 | ) | |||
| Per share ($), diluted | 0.05 | (0.09 | ) | (156 | ) | 0.14 | 0.20 | (30 | ) | |||
| Funds from continuing operations (3) | 10,369 | 8,123 | 28 | 39,922 | 44,844 | (11 | ) | |||||
| Per share ($), basic | 0.28 | 0.22 | 27 | 1.09 | 1.22 | (11 | ) | |||||
| Per share ($), diluted | 0.28 | 0.22 | 27 | 1.07 | 1.19 | (10 | ) | |||||
| Capital expenditures from continuing operations | 9,545 | 11,737 | (19 | ) | 25,504 | 70,185 | (64 | ) | ||||
| Dispositions of rental assets (4) | (1,574 | ) | (340 | ) | 363 | (11,785 | ) | (3,032 | ) | 289 | ||
| Net capital expenditures (5) | 7,983 | 11,397 | (30 | ) | 13,731 | 67,153 | (80 | ) | ||||
| Total assets | 207,920 | 232,705 | (11 | ) | 207,920 | 232,705 | (11 | ) | ||||
| Return on average total assets (6) | 20 | % | 13 | % | 18 | % | 20 | % | ||||
| Long-term debt (7) | 38,500 | 55,500 | (31 | ) | 38,500 | 55,500 | (31 | ) | ||||
| Total long-term liabilities | 47,067 | 67,064 | (30 | ) | 47,067 | 67,064 | (30 | ) | ||||
| Common shares - end of period ('000's) | 37,251 | 37,251 | 37,251 | 37,251 | ||||||||
| Weighted avg common shares ('000's) | ||||||||||||
| Basic | 36,720 | 36,572 | 36,612 | 36,655 | ||||||||
| Diluted | 37,419 | 37,489 | 37,361 | 37,550 | ||||||||
Notes:
| (1) | EBITDA is not a recognized measure under IFRS; see "Non-IFRS Measures Reconciliation". |
| (2) | Net income from continuing operations excludes income attributable to the non-controlling interests. |
| (3) | Funds from continuing operations is cash flow from operating activities before changes in working capital. Funds from operations is not a recognized measure under IFRS; see "Non-IFRS Measures Reconciliation". |
| (4) | Dispositions reported at net book value. |
| (5) | Includes assets acquired under finance lease and purchases of intangible assets. Net capital expenditures are net of rental asset disposals. |
| (6) | Return on average total assets is not a recognized measure under IFRS; see "Non-IFRS Measures Reconciliation". |
| (7) | Excluding current portion. |
FINANCIAL POSITION AND RATIOS
| As at December 31, | ||
| ($000's except ratios) | 2013 | 2012 |
| Working capital (1) | 11,515 | 13,028 |
| Funded debt (2) | 43,036 | 63,008 |
| Total assets | 207,920 | 232,705 |
| Funded debt to EBITDA(2) | 1.0 | 1.3 |
Notes:
| (1) | Working capital is calculated as current assets less current liabilities. 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. EBITDA is based on trailing twelve months. See "Non-IFRS Measures Reconciliation". |
FOURTH QUARTER RESULTS
Strad reported an increase in revenue and EBITDA of 15% and 39%, respectively, during the three months ended December 31, 2013, compared to the same period in 2012. During the fourth quarter of 2013, Strad's results benefited from increased drilling activity levels in Western Canada during December and increased product sales. In the U.S., drilling activity levels varied by region compared to 2012. In the Bakken, average rig counts declined 9% year-over-year, which was offset by modest rig count increases of 3% and 6% in the Marcellus and Rockies regions, respectively. As a result, Strad's U.S. Operations experienced consistent revenue levels during the fourth quarter of 2013 compared to 2012, while EBITDA margins increased due to the cost restructuring plan implemented in the fourth quarter of 2012.
Strad's Canadian Operations reported higher EBITDA during the three months ended December 31, 2013, compared to the same period in 2012. Increased EBITDA was a result of higher drilling activity during December 2013 compared to 2012, which impacted demand for Strad's surface equipment and drill pipe rental fleet, as well as the elimination of the Company's Communications product line in 2012, which contributed negative EBITDA of $0.4 million during the fourth quarter of 2012. Overall drilling activity averaged 2% higher year-over-year during the quarter.
During the fourth quarter, Strad's U.S. Operations reported similar revenue and higher EBITDA in 2013 compared to 2012. Revenue during the quarter was similar due to relatively stable utilization and pricing for Strad's U.S. rental fleet resulting from relatively stable overall rig counts discussed previously. Fourth quarter EBITDA was higher, despite similar revenue, due to the cost restructuring strategy implemented in the fourth quarter of 2012. The successful implementation of that plan resulted in EBITDA margin percentages that averaged 28%, and were as high as 32%, during 2013 versus an average of 25% in 2012.
During the fourth quarter, capital expenditures were $5.3 million in Canada and $2.6 million in the U.S., net of $1.1 million and $0.4 million, respectively, in rental asset disposals. Capital expenditures are reported net of the net book value of rental assets sold in the period. For the year-ended December 31, 2013, Strad has spent $25.5 million on a gross basis, or $13.7 million, net of $11.8 million in rental asset disposals, of its budgeted $15.0 million capital program. Strad continued to invest in equipment which is in high demand in both Canada and the U.S.
RESULTS OF OPERATIONS
Canadian Operations
| Three months ended December 31, |
Year-ended December 31, |
|||||||||||
| ($000's) | 2013 | 2012 | % chg. | 2013 | 2012 | % chg. | ||||||
| Revenue | 19,250 | 16,437 | 17 | 70,452 | 73,053 | (4 | ) | |||||
| EBITDA (1) | 5,284 | 4,913 | 8 | 18,342 | 24,056 | (24 | ) | |||||
| EBITDA % | 27 | % | 30 | % | 26 | % | 33 | % | ||||
| Capital expenditures from cont. operations | 6,411 | 8,204 | (22 | ) | 16,217 | 31,836 | (49 | ) | ||||
| Dispositions of rental assets (2) | (1,143 | ) | (283 | ) | 304 | (10,322 | ) | (2,383 | ) | 333 | ||
| Net capital expenditures (3) | 5,268 | 7,921 | (33 | ) | 5,895 | 29,453 | (80 | ) | ||||
| Gross capital assets | 109,170 | 110,681 | (1 | ) | 109,170 | 110,681 | (1 | ) | ||||
| Total assets | 100,108 | 108,841 | (8 | ) | 100,108 | 108,841 | (8 | ) | ||||
Notes:
| (1) | EBITDA is not a recognized measure under IFRS; see "Non-IFRS Measures Reconciliation". EBITDA excludes Restructuring Expenses. |
| (2) | Dispositions represented at net book value. |
| (3) | Includes assets acquired under finance lease and purchases of intangible assets. Net capital expenditures are net of rental asset sales. |
Revenue generated for the three months ended December 31, 2013, was $19.3 million, an increase of 17% compared to $16.4 million for the same period in 2012. Fourth quarter 2013 revenue increased due to higher year-over-year drilling activity in the Western Canadian Sedimentary Basin ("WCSB"), which resulted in higher utilization of the surface equipment and drill pipe fleets. Strad's customer base was particularly more active in the latter half of December in 2013 than in the prior year. Pricing during the fourth quarter of 2013 remained consistent with prior year pricing. Finally, another factor that improved fourth quarter revenue was higher trucking and service revenue associated with increased utilization of the surface rental fleet.
Revenue generated during the year-ended December 31, 2013, decreased 4% to $70.5 million compared to $73.1 million for the same period in 2012. Lower drilling activity levels earlier in 2013 and a smaller matting rental fleet, after the sale of the SteelLock mats in the second quarter of 2013, were the main drivers of year-over-year revenue declines.
EBITDA for the three months ended December 31, 2013, of $5.3 million, increased 8%, compared to $4.9 million for the same period in 2012. EBITDA as a percentage of revenue for the three months ended December 31, 2013, was 27% compared to 30% for the same period in 2012. This decrease was primarily due to lower margins on trucking revenue in 2013. Strad's surface equipment fleet realized higher utilization levels during the fourth quarter, however, Strad received lower margins on the trucking charges to move equipment into areas with higher drilling activity levels.
EBITDA for the year-ended December 31, 2013, decreased 24% to $18.3 million compared to $24.1 million for the same period in 2012. Decreased EBITDA was a result of declines in higher margin rental revenue, a shift in product mix during 2013 compared to 2012 and lower margins on trucking revenue in 2013. EBITDA as a percentage of revenue for the year-ended December 31, 2013, was 26% compared to 33% for the same period in 2012.
U.S. Operations
| Three months ended December 31, |
Year-ended December 31, |
|||||||||||
| ($000's) | 2013 | 2012 | % chg. | 2013 | 2012 | % chg. | ||||||
| Revenue | 13,882 | 14,080 | (1 | ) | 54,225 | 71,481 | (24 | ) | ||||
| EBITDA (1) | 3,948 | 2,163 | 83 | 15,441 | 17,553 | (12 | ) | |||||
| EBITDA % | 28 | % | 15 | % | 28 | % | 25 | % | ||||
| Capital expenditures from cont. operations | 3,070 | 2,549 | 20 | 8,676 | 35,517 | (76 | ) | |||||
| Dispositions of rental assets (2) | (431 | ) | (54 | ) | 698 | (1,463 | ) | (649 | ) | 125 | ||
| Net capital expenditures (3) | 2,639 | 2,495 | 6 | 7,213 | 34,868 | (79 | ) | |||||
| Gross capital assets | 105,011 | 108,839 | (4 | ) | 105,011 | 108,839 | (4 | ) | ||||
| Total assets | 104,927 | 112,880 | (7 | ) | 104,927 | 112,880 | (7 | ) | ||||
Notes:
| (1) | EBITDA is not a recognized measure under IFRS; see "Non-IFRS Measures Reconciliation". EBITDA excludes Restructuring Expenses. |
| (2) | Dispositions represented at net book value. |
| (3) | Includes assets acquired under finance lease and purchases of intangible assets. Net capital expenditures are net of rental asset sales. |
Revenue for the three months ended December 31, 2013, decreased 1% to $13.9 million from $14.1 million for the same period in 2012. Overall rig counts during the fourth quarter declined year-over-year by 9% in the Bakken and increased by 3% and 6% in the Marcellus and Rockies regions, respectively. As a result, utilization and pricing remained stable during 2013.
Revenue for the year-ended December 31, 2013, decreased 24% to $54.2 million from $71.5 million for the same period in 2012. The decrease in revenue year-over-year was primarily due to lower drilling activity in the Marcellus region, which affected results during the first nine months of 2013 compared to 2012, and continued competition in the maturing Bakken resource play. The Bakken continued to be the most active resource play for Strad's U.S. Operations, generating 56% of total U.S. revenue.
EBITDA for the three months ended December 31, 2013, increased 83% to $3.9 million compared to $2.2 million for the same period in 2012. EBITDA as a percentage of revenue for the three months ended December 31, 2013, was 28% compared to 15% for the same period in 2012. The increase in both EBITDA and EBITDA as a percentage of revenue, despite stable revenue year-over-year, is due to the success of management's restructuring plan, which was implemented in the fourth quarter of 2012 and re-aligned the U.S. Operations cost structure with current market conditions.
EBITDA for the year-ended December 31, 2013, decreased 12% to $15.4 million compared to $17.6 million for the same period in 2012. The modest decline of $2.2 million in EBITDA in the context of a $17.3 million revenue decrease was achieved due to the cost reduction plan implemented during the fourth quarter of 2012. Similarly, despite lower revenue levels year-over-year, EBITDA as a percentage of revenue for the year-ended December 31, 2013, increased to 28% compared to 25% for the same period in 2012.
Product Sales
| Three months ended December 31, |
Year-ended December 31, |
|||||||||||
| ($000's) | 2013 | 2012 | % chg. | 2013 | 2012 | % chg. | ||||||
| Revenue | 14,717 | 10,948 | 34 | 64,897 | 58,630 | 11 | ||||||
| EBITDA (1) | 2,497 | 1,560 | 60 | 10,492 | 8,473 | 24 | ||||||
| EBITDA % | 17 | % | 14 | % | 16 | % | 14 | % | ||||
| Capital expenditures (2) | 31 | 843 | (96 | ) | 295 | 1,698 | (83 | ) | ||||
| Total assets | 672 | 6,377 | (89 | ) | 672 | 6,377 | (89 | ) | ||||
Notes:
| (1) | EBITDA is not a recognized measure under IFRS; see "Non-IFRS Measures Reconciliation". EBITDA excludes Restructuring Expenses. |
| (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 December 31, 2013, increased 34% to $14.7 million from $10.9 million for the same period in 2012, resulting primarily from increased sales of in-house manufactured products. During the fourth quarter, Product Sales consisted of $11.0 million of in-house manufactured products, $1.9 million of third party equipment sales and $1.8 million of rental fleet sales compared to $4.9 million, $5.0 million and $1.0 million, respectively, during the same period in 2012. Manufactured product sales increased as a result of two large rig mat orders from large customers during the quarter. Sales of Strad's rental fleet equipment fluctuate quarter-over-quarter and are primarily dependent on strategic opportunities to sell underutilized rental assets.
Revenue for the year-ended December 31, 2013, increased 11% to $64.9 million from $58.6 million for the same period in 2012. Product Sales consisted of $31.9 million of in-house manufactured products, $17.2 million of third party equipment sales and $15.8 million of rental fleet sales compared to $29.7 million, $23.8 million and $5.1 million, respectively, during the same period in 2012. Increased matting sales during the second quarter and rig mat sales during the fourth quarter were the primary drivers of year-over-year revenue increases.
EBITDA for the three months ended December 31, 2013, of $2.5 million increased by 60% compared to $1.6 million for the same period in 2012. The increase in EBITDA was due to higher revenue during the fourth quarter of 2013 compared to the prior year. EBITDA as a percentage of revenue for the three months ended December 31, 2013, increased to 17% compared to 14% for the same period in 2012, as a result of higher margins on in-house manufactured products. EBITDA as a percentage of revenue tends to vary quarter-over-quarter depending on the mix of sales, as realized margins on third party equipment sales and sales of equipment from Strad's existing fleet fluctuate more compared to sales of in-house manufactured products.
EBITDA for the year-ended December 31, 2013, of $10.5 million, increased by 24% compared with $8.5 million for the same period in 2012. EBITDA as a percentage of revenue for the year-ended December 31, 2013, increased to 16% from 14% during the same period in 2012.
OUTLOOK
Industry conditions during the fourth quarter remained relatively consistent on a year-over-year basis in Canada, whereas overall drilling activity in the U.S. declined slightly. Limited growth in the WCSB was driven by a continuation of broader constraints relating to oil transportation bottlenecks as well as low natural gas drilling activity and the general lack of access to capital for many companies in the Canadian exploration and production ("E&P") sector. South of the border, U.S. drilling activity continued to be impacted by the reduced number of rigs targeting lower margin natural gas plays as well as the ongoing maturation of the Bakken and Marcellus resource plays, which supported increased drilling efficiency.
In the WCSB, active drilling rigs in the fourth quarter of 2013 remained relatively level, averaging 370 compared with 362 for the same period in 2012. However, active rigs in the month of December 2013 were up more than 10% over the prior year, reflecting a more robust pace to the winter drilling season in 2013. In the United States, drilling rig activity continued to vary by region, with the total active U.S. rig count in the fourth quarter of 2013 declining by 3% on a year-over-year basis. The majority of Strad's U.S. fleet continues to operate in the Bakken and Marcellus resource plays. The active rig count in the Bakken averaged 180 rigs in the fourth quarter of 2013, down 9% from 197 in the prior year period. In the gas-weighted Marcellus play, the active rig count, including the Utica shale, averaged 123 during the fourth quarter of 2013, up 3% from 120 in the prior year period. On a sequential basis, rig counts in the Marcellus, including the Utica, increased 3%.
Bakken operations are also in close proximity to the Rockies region, consisting of Colorado, Wyoming and Utah, where an average of 149 rigs were drilling during the fourth quarter, compared to 141 rigs in the fourth quarter of 2012. Both the Utica Shale and Rockies region represent platforms to grow utilization of rental assets from existing operating regions. In addition to drilling activity, the long-term build out of Liquefied Natural Gas ("LNG") infrastructure in Canada could result in increased demand for Strad's products and services.
Early in 2014, the pace of drilling rig activity in the WCSB continued from the increased levels seen in December 2013, but has recently leveled off to prior year levels. In the U.S., rig activity in Strad's markets has been more or less in line with the prior year. Capital spending announcements from oil and gas producers in 2014 suggest that activity may be up modestly in 2014 over the prior year. Although many of the major producers and state owned oil companies that comprise the majority of Strad's customers do not announce capital spending by basin, current expectations are that the capital spending profile of these producers will at least match expectations for the broader market. LNG related drilling activity is driving some of the rig activity increase over the prior year in Canada. Strad has participated in this activity increase with multi-well equipment packages deployed to key customers in northeast British Columbia. Activity increases in the Marcellus region have also resulted in early modest gains in utilization of surface equipment and matting in Strad's fleet. Sustained higher natural gas prices are expected to have a positive impact on rig activity in the Marcellus region.
Product Sales activity finished higher in 2013 compared to 2012, due to several large matting projects being completed in December 2013. The increased pace of activity in the fourth quarter of 2013 reduced the backlog of projects entering 2014. Although there is limited visibility on projects and limited backlog in the manufacturing business entering the year, Strad continues to expect Product Sales to be driven by similar market forces to those that drive demand for the rental assets over time.
Strad remains focused on improving operational efficiency, maximizing utilization on its existing asset base and disciplined deployment of capital targeted at opportunities in select areas such as matting in Canada and the Marcellus, solids control in the Bakken, and rental assets deployed to LNG related drilling activity in Canada. The capital program for the first half of 2014 is expected to total $17.0 million. The Company's free cash flow and financial position provide Strad with significant flexibility to pursue additional opportunities in the second half of the year depending on industry conditions.
LIQUIDITY AND CAPITAL RESOURCES
| ($000's) | December 31, 2013 |
December 31, 2012 |
|
| Current assets | 43,519 | 50,010 | |
| Current liabilities | 32,004 | 36,982 | |
| Working capital (1) | 11,515 | 13,028 | |
| Banking facilities | |||
| Operating facility | 1,879 | 2,488 | |
| Syndicated revolving facility | 38,500 | 55,500 | |
| Total facility borrowings | 40,379 | 57,988 | |
| Total credit facilities (2) | 110,000 | 110,000 | |
| Unused credit capacity | 69,621 | 52,012 | |
| (1) | Working capital is calculated as current assets less current liabilities, excluding assets held for sale. See "Non-IFRS Measures Reconciliation". |
| (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 the Company's assets. As at December 31, 2013, Strad had access to $105 million out of the $110 million credit facility. |
At December 31, 2013, working capital was $11.5 million compared to $13.0 million at December 31, 2012. Current assets decreased despite an increase in revenue in the fourth quarter of 2013 compared to the fourth quarter of 2012, which was due to sales of inventory and faster collection of accounts receivable balances. The decrease in current liabilities is due to the repayment of the outstanding note payable during the fourth quarter of the current year, a reduction of the restructuring provision and repayment of finance lease obligations during 2013. Funds from operations for the year-ended December 31, 2013, decreased to $39.9 million compared to $44.8 million during the same period in 2012. Capital expenditures from continuing operations totaled $25.5 million and $70.2 million for the year-ended December 31, 2013 and December 31, 2012, respectively, and were offset by $11.8 million and $3.0 million of rental asset sales during the same periods. Management used funds from operations to repay $17.6 million of Strad's total facility borrowing during 2013. 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 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 the Company's assets. 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. On July 18, 2013, the Company amended its syndicated credit facility, extending the maturity date from July 25, 2015 to July 25, 2016.
Based on the Company's funded debt to twelve month trailing EBITDA ratio of 1.0 to 1 at the end of the fourth quarter of 2013, the interest rate on the syndicated banking facility is bank prime plus 1.25% on prime rate advances and at the prevailing rate plus a stamping fee of 2.25% on bankers' acceptances. For the three months and year-ended December 31, 2013, the overall effective rates on the operating facility was 4.03% and 4.01% respectively, and the overall effective rate on the revolving facility was 3.46% and 3.51%, respectively. As of December 31, 2013, $1.9 million was drawn on the operating facility and $38.5 million was drawn on the revolving facility. Payments on the revolving facility are interest only.
As at December 31, 2013, the Company was in compliance with all of the syndicated banking facility covenants.
NON-IFRS MEASURES RECONCILIATION
Certain supplementary measures in this MD&A 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 expense, taxes, depreciation and amortization ("EBITDA") is not a recognized measure under IFRS. Management believes that in addition to net income, 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. EBITDA is calculated as net income from continuing operations plus interest expense, finance fees, taxes, depreciation and amortization, non-controlling interest, loss on disposal of property, plant and equipment, loss on foreign exchange, loss on assets held for sale, restructuring expenses, impairment loss, less gain on foreign exchange, gain on disposal of property, plant and equipment and restructuring expense reversal. Segmented 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. Working capital, cash forecasting and banking facilities are used by Management to ensure funds are available to finance growth opportunities.
Annualized return on average total assets for the year-ended December 31, 2013, is calculated as annualized year-to-date EBITDA divided by the average of total assets over the fourth quarter of 2012 and the first, second and third quarters of 2013, including a three month lag. The three month lag represents the time between the purchase of capital assets and when they are deployed in the field and earning revenue.
Funded debt is calculated as bank indebtedness plus current and long-term portion of 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 December 31, |
Year-ended December 31, |
|||||||
| 2013 | 2012 | 2013 | 2012 | |||||
| Net income (loss) from continuing operations for the period | 1,923 | (3,490 | ) | 5,372 | 7,342 | |||
| Add: | ||||||||
| Depreciation and amortization | 5,265 | 7,668 | 28,974 | 28,285 | ||||
| Loss on disposal of PP&E | 477 | 226 | 1,301 | 272 | ||||
| Loss on assets held for sale | 637 | - | 812 | - | ||||
| Non-controlling interest | - | - | - | 355 | ||||
| Share-based payments | 152 | 239 | 590 | 819 | ||||
| Deferred income tax (recovery) | (225 | ) | (3,804 | ) | (1,787 | ) | (1,628 | ) |
| Finance fees | 88 | 66 | 319 | 245 | ||||
| Restructuring (reversal) expense | (514 | ) | 4,129 | (514 | ) | 4,129 | ||
| Impairment loss | 1,901 | 2,350 | 1,901 | 2,350 | ||||
| Interest expense | 665 | 739 | 2,954 | 2,675 | ||||
| Funds from operations | 10,369 | 8,123 | 39,922 | 44,844 | ||||
| Add: | ||||||||
| Foreign exchange (gain) loss | (5 | ) | (196 | ) | (207 | ) | 684 | |
| Current income tax expense (recovery) | 466 | (13 | ) | 1,403 | 1,862 | |||
| Subtotal | 10,830 | 7,914 | 41,118 | 47,390 | ||||
| Deduct: | ||||||||
| Share-based payments | 152 | 239 | 590 | 819 | ||||
| EBITDA | 10,678 | 7,675 | 40,528 | 46,571 | ||||
| Reconciliation of quarterly non-IFRS measures ($000's) |
||||||||
| Three months ended |
||||||||
| December 31, 2013 |
September 30, 2013 |
June 30, 2013 |
March 31, 2013 |
|||||
| Net income from continuing operations for the period | 1,923 | 2,373 | 13 | 1,063 | ||||
| Add: | ||||||||
| Depreciation and amortization | 5,265 | 7,259 | 8,824 | 7,626 | ||||
| Loss on disposal of PP&E | 477 | 162 | 76 | 586 | ||||
| Loss on assets held for sale | 637 | - | 17 | 158 | ||||
| Foreign exchange gain | (5 | ) | (63 | ) | (18 | ) | (121 | ) |
| Current income tax expense | 466 | 627 | 94 | 216 | ||||
| Deferred income tax (recovery) expense | (225 | ) | (808 | ) | (1,099 | ) | 345 | |
| Interest expense | 665 | 784 | 791 | 714 | ||||
| Restructuring (reversal) expense | (514 | ) | - | - | - | |||
| Impairment loss | 1,901 | - | - | - | ||||
| Finance fees | 88 | 88 | 71 | 72 | ||||
| EBITDA | 10,678 | 10,422 | 8,769 | 10,659 | ||||
| Communications operating loss | - | - | - | - | ||||
| EBITDA (Adjusted) | 10,678 | 10,422 | 8,769 | 10,659 | ||||
| Three months ended |
||||||||
| December 31, 2012 |
September 30, 2012 |
June 30, 2012 |
March 31, 2012 |
|||||
| Net (loss) income from continuing operations for the period | (3,490 | ) | 2,937 | 2,772 | 5,123 | |||
| Add: | ||||||||
| Depreciation and amortization | 7,667 | 7,362 | 7,003 | 6,253 | ||||
| Loss (gain) on disposal of PP&E | 226 | 22 | (11 | ) | 35 | |||
| Foreign exchange (gain) loss | (195 | ) | 510 | (32 | ) | 401 | ||
| Non-controlling interest | - | 22 | (187 | ) | 520 | |||
| Current income tax (recovery) expense | (13 | ) | 788 | (104 | ) | 1,191 | ||
| Deferred income tax (recovery) expense | (3,804 | ) | (528 | ) | 748 | 1,956 | ||
| Interest expense | 739 | 854 | 638 | 444 | ||||
| Restructuring (reversal) expense | 4,129 | - | - | - | ||||
| Impairment loss | 2,350 | - | - | - | ||||
| Finance fees | 66 | 63 | 58 | 58 | ||||
| EBITDA | 7,675 | 12,030 | 10,885 | 15,981 | ||||
| Communications operating loss | 679 | 610 | 556 | 167 | ||||
| EBITDA (Adjusted) | 8,354 | 12,640 | 11,441 | 16,148 | ||||
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION AND STATEMENTS
Certain statements and information contained in this MD&A constitute forward-looking statements. More particularly, this MD&A contains forward-looking statements concerning future capital expenditures of the Company, debt, 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, manufacturing capacity to meet anticipated demand for the Company's products, and expected exploration and production industry activity. 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.
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. 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. These factors include, but are not limited to, such things as the impact of general industry conditions, fluctuation of commodity prices, industry competition, availability of qualified personnel and management, stock market volatility and timely and cost effective access to sufficient capital from internal and external sources. The risks outlined above should not be construed as exhaustive. 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 press release. All of the forward-looking statements of the Company contained in this press release are expressly qualified, in their entirety, by this cautionary statement. The various risks to which the Company is exposed are described in this press release under the heading "Risk Factors" above and in additional detail in the Company's Annual Information Form ("AIF"). Except as required by law, the Company disclaims any intention or obligation to update or revise any forward-looking information or statements, whether the result of new information, future events or otherwise.
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.
FOURTH 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, February 27, 2014.
The conference call dial in number is 1-800-355-4959 or 1-416-340-8527.
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, March 6th, 2014, at 11:59pm ET. To access the replay, call 1-800-408-3053 or 1-905-694-9451, followed by pass code 9180048.
| Strad Energy Services Ltd. |
| Consolidated Statement of Financial Position |
| As at December 31, 2013 and 2012 |
| (in thousands of Canadian dollars) | As at December 31, 2013 |
As at December 31, 2012 |
||
| $ | $ | |||
| Assets | ||||
| Current assets | ||||
| Trade receivables | 35,569 | 33,418 | ||
| Inventories | 5,788 | 12,022 | ||
| Prepaids and deposits | 1,772 | 2,379 | ||
| Current portion of notes receivable | 350 | 665 | ||
| Income taxes receivable | 40 | 1,526 | ||
| 43,519 | 50,010 | |||
| Assets held for sale | 3,167 | 4,728 | ||
| Non-current assets | ||||
| Property, plant and equipment | 142,108 | 157,042 | ||
| Intangible assets | 1,685 | 2,721 | ||
| Notes receivable | - | 729 | ||
| Goodwill | 17,277 | 17,277 | ||
| Deferred income tax assets | 164 | 198 | ||
| Total assets | 207,920 | 232,705 | ||
| Liabilities | ||||
| Current liabilities | ||||
| Bank indebtedness | 1,879 | 2,488 | ||
| Accounts payable and accrued liabilities | 25,403 | 24,244 | ||
| Deferred revenue | 785 | 160 | ||
| Current portion of obligations under finance lease | 1,887 | 2,735 | ||
| Note payable | - | 1,492 | ||
| Dividend payable | 2,050 | 2,050 | ||
| Restructuring provision | - | 3,813 | ||
| 32,004 | 36,982 | |||
| Non-current liabilities | ||||
| Long-term debt | 38,500 | 55,500 | ||
| Obligations under finance lease | 770 | 2,285 | ||
| Deferred income tax liabilities | 7,797 | 9,279 | ||
| Total liabilities | 79,071 | 104,046 | ||
| Equity | ||||
| Share capital | 117,824 | 117,462 | ||
| Contributed surplus | 11,612 | 11,016 | ||
| Accumulated other comprehensive income (loss) | 603 | (1,451 | ) | |
| Retained (deficit) earnings | (1,190 | ) | 1,632 | |
| Total equity | 128,849 | 128,659 | ||
| Total liabilities and equity | 207,920 | 232,705 |
| Strad Energy Services Ltd. |
| Consolidated Statement of Income |
| For the years ended December 31, 2013 and 2012 |
| (in thousands of Canadian dollars, except per share amounts) |
| 2013 | 2012 | ||||
| $ | $ | ||||
| Continuing operations | |||||
| Revenue | 189,574 | 203,164 | |||
| Expenses | |||||
| Operating expenses | 119,069 | 122,071 | |||
| Depreciation | 27,805 | 26,715 | |||
| Amortization of intangible assets | 1,169 | 1,570 | |||
| Selling, general and administration | 29,387 | 33,703 | |||
| Share-based payments | 590 | 819 | |||
| Loss on disposal of property, plant and equipment | 1,301 | 272 | |||
| Foreign exchange (gain) loss | (207 | ) | 684 | ||
| Finance fees | 319 | 245 | |||
| Interest expense | 2,954 | 2,675 | |||
| Loss on assets held for sale | 812 | - | |||
| Impairment loss | 1,901 | 2,350 | |||
| Restructuring (reversal) expense | (514 | ) | 4,129 | ||
| Income before income tax from continuing operations | 4,988 | 7,931 | |||
| Income tax (recovery) expense | (384 | ) | 234 | ||
| Net income from continuing operations for the period | 5,372 | 7,697 | |||
| Income from discontinued operations, net of tax | - | 437 | |||
| Net income for the period | 5,372 | 8,134 | |||
| Net income attributable to: | |||||
| Owners of the parent | 5,372 | 7,779 | |||
| Non-controlling interests | - | 355 | |||
| 5,372 | 8,134 | ||||
| Earnings per share from continuing operations attributable to the equity owners of the Company: | |||||
| Basic | $ | 0.15 | $ | 0.20 | |
| Diluted | $ | 0.14 | $ | 0.20 | |
| Earnings per share from discontinued operations attributable to the equity owners of the Company: | |||||
| Basic | $ | 0.00 | $ | 0.01 | |
| Diluted | $ | 0.00 | $ | 0.01 | |
| Earnings per share from total operations attributable to the equity owners of the Company: | |||||
| Basic | $ | 0.15 | $ | 0.21 | |
| Diluted | $ | 0.14 | $ | 0.21 | |
| Strad Energy Services Ltd. |
| Consolidated Statement of Comprehensive Income |
| For the years ended December 31, 2013 and 2012 |
| (in thousands of Canadian dollars) |
| 2013 | 2012 | |||
| $ | $ | |||
| Net income for the period | 5,372 | 8,134 | ||
| Other comprehensive income (loss)Items that may be reclassified subsequently to net income | ||||
| Cumulative translation adjustment | 2,054 | (866 | ) | |
| Total other comprehensive income (loss) | 2,054 | (866 | ) | |
| Comprehensive income for the period | 7,426 | 7,268 | ||
| Comprehensive income attributable to: | ||||
| Owners of the parent | 7,426 | 6,913 | ||
| Non-controlling interests | - | 355 | ||
| 7,426 | 7,268 | |||
| Strad Energy Services Ltd. |
| Consolidated Statement of Cash Flow |
| For the years ended December 31, 2013 and 2012 |
| (in thousands of Canadian dollars) |
| 2013 | 2012 | |||
| Cash flow provided by (used in) | $ | $ | ||
| Operating activities | ||||
| Net income for the period | 5,372 | 8,134 | ||
| Adjustments for items not affecting cash: | ||||
| Depreciation and amortization | 28,974 | 28,285 | ||
| Deferred income tax (recovery) | (1,787 | ) | (1,628 | ) |
| Share-based payments (net of cash settlement on stock option exercises) | 542 | 617 | ||
| Interest expense and finance fees | 3,273 | 2,920 | ||
| Loss on disposal of property, plant and equipment | 1,301 | 272 | ||
| Loss on sale of investment in subsidiary | - | 441 | ||
| Loss on assets held for sale | 812 | - | ||
| Impairment loss | 1,901 | 2,350 | ||
| Changes in items of non-cash working capital | 10,994 | 9,888 | ||
| Net cash generated from operating activities | 51,382 | 51,279 | ||
| Investing activities | ||||
| Purchase of property, plant and equipment | (12,696 | ) | (63,270 | ) |
| Proceeds from sale of property, plant and equipment | 1,495 | 961 | ||
| Purchase of intangible assets | (546 | ) | (1,557 | ) |
| Proceeds on sale of subsidiaries | - | 7,129 | ||
| Purchase of assets held for sale | (125 | ) | (2,481 | ) |
| Proceeds from sale of assets held for sale | 1,895 | - | ||
| Purchase of non-controlling interest | - | (5,864 | ) | |
| Changes in items of non-cash working capital | (7,657 | ) | (2,433 | ) |
| Net cash (used) in investing activities | (17,634 | ) | (67,515 | ) |
| Financing activities | ||||
| Proceeds on issuance of long-term debt | 4,000 | 37,000 | ||
| Repayment of long-term debt | (21,000 | ) | (5,000 | ) |
| Repayment of finance lease obligations (net) | (2,363 | ) | (2,645 | ) |
| Issue of share capital | - | 24 | ||
| Issue of shareholder loan (net of repayments) | 378 | (501 | ) | |
| Interest expense and finance fees | (3,273 | ) | (2,920 | ) |
| Payment of dividends | (8,194 | ) | (4,098 | ) |
| Changes in items of non-cash working capital | 362 | (219 | ) | |
| Net cash (used) generated from financing activities | (30,090 | ) | 21,641 | |
| Effect of exchange rate changes on cash and cash equivalents | (3,049 | ) | (2,118 | ) |
| Increase in bank indebtedness | 609 | 3,287 | ||
| Bank indebtedness - beginning of year | (2,488 | ) | (5,775 | ) |
| Bank indebtedness - end of period | (1,879 | ) | (2,488 | ) |
| Cash paid for income tax | 1,637 | 6,415 | ||
| Cash paid for interest | 2,585 | 2,532 |
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