CALGARY, ALBERTA--(Marketwired - Feb. 25, 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. and its subsidiaries, ("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, 2014. All amounts are stated in Canadian dollars unless otherwise noted.
SELECTED FINANCIAL AND OPERATIONAL HIGHLIGHTS:
- Record fourth quarter and annual adjusted EBITDA (1) of $17.6 million and $58.7 million, an increase of 65% and 45% respectively, compared to $10.7 million and $40.5 million for the same periods in 2013;
- Fourth quarter and record annual earnings per share of $0.17 and $0.63 compared to $0.05 and $0.15 for the same periods in 2013;
- Revenue of $56.1 million and $219.8 million for the three months and year-ended December 31, 2014, increased 17% and 16% compared to $47.9 million and $189.6 million for the same periods in 2013;
- Capital additions totaled $11.9 million during the fourth quarter and $42.7 million for the year. Reported capital expenditures, net of $2.0 million and $5.3 million of rental asset disposals, were $9.9 million during the fourth quarter and $37.4 million for the year 2014; and
- Total funded debt (2) to trailing twelve months adjusted EBITDA ratio was 0.7 to 1 as at December 31, 2014.
| Notes: | |
| 1) | Earnings before interest, taxes, depreciation and amortization ("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. Adjusted EBITDA is based on trailing twelve months. See "Non-IFRS Measures Reconciliation". |
"We are pleased to announce that 2014 was a record financial year for Strad," said Andy Pernal, President and CEO of Strad, "which was the result of our entire team continuing to execute our strategic plan with focused discipline. During 2014, our sales team continued to generate new opportunities and increase Strad's market share across all of the regions in which we operate in and our operations team continued to provide exceptional service to all of our customers across North America. We expect that 2015 is going to be a challenging year for the oil and gas industry in North America. Our customers are expecting to face some challenges in 2015 and our plan will be to continue to focus on managing costs while continuing to provide exceptional service to our customers in all of the regions in which we operate."
"Strad's record financial results in 2014, along with management's disciplined approach to allocating capital, resulted in a strong financial position at December 31, 2014, with a funded debt to adjusted EBITDA ratio of 0.7 to 1," said Greg Duerr, Chief Financial Officer of Strad. "We believe our strong balance sheet, disciplined approach to cost management and high free cash flow generation has positioned us well for a challenging operating environment in 2015. We believe we are well positioned to give our Sales and Operations Teams the flexibility they need to meet the changing needs of our customers."
YEAR-END FINANCIAL HIGHLIGHTS
| (in thousands of Canadian Dollars, except per share amounts) | Three months ended Dec 31, | Year-ended Dec 31, | ||||||||||||||||
| 2014 | 2013 | % Chg. | 2014 | 2013 | % Chg. | |||||||||||||
| Revenue | 56,089 | 47,850 | 17 | 219,784 | 189,574 | 16 | ||||||||||||
| Adjusted EBITDA (1) | 17,571 | 10,678 | 65 | 58,694 | 40,528 | 45 | ||||||||||||
| Adjusted EBITDA as a % of revenue | 31 | % | 22 | % | 27 | % | 21 | % | ||||||||||
| Per share ($), basic | 0.48 | 0.29 | 66 | 1.60 | 1.11 | 44 | ||||||||||||
| Per share ($), diluted | 0.47 | 0.29 | 62 | 1.56 | 1.08 | 44 | ||||||||||||
| Net income | 6,125 | 1,923 | 219 | 22,997 | 5,372 | 328 | ||||||||||||
| Per share ($), basic | 0.17 | 0.05 | 0.63 | 0.15 | ||||||||||||||
| Per share ($), diluted | 0.16 | 0.05 | 0.61 | 0.14 | ||||||||||||||
| Funds from operations (2) | 16,785 | 10,369 | 62 | 56,742 | 39,922 | 42 | ||||||||||||
| Per share ($), basic | 0.45 | 0.28 | 61 | 1.54 | 1.09 | 41 | ||||||||||||
| Per share ($), diluted | 0.45 | 0.28 | 61 | 1.51 | 1.07 | 41 | ||||||||||||
| Capital expenditures | 11,900 | 9,557 | 25 | 42,715 | 25,516 | 67 | ||||||||||||
| Dispositions of rental assets (3) | (2,022 | ) | (1,574 | ) | 28 | (5,323 | ) | (11,785 | ) | (55 | ) | |||||||
| Net capital expenditures (4) | 9,878 | 7,983 | 24 | 37,392 | 13,731 | 172 | ||||||||||||
| Total assets | 237,459 | 207,920 | 237,459 | 207,920 | ||||||||||||||
| Return on average total assets (5) | 30 | % | 20 | % | 27 | % | 18 | % | ||||||||||
| Long-term debt | 36,000 | 38,500 | (6 | ) | 36,000 | 38,500 | (6 | ) | ||||||||||
| Total long-term liabilities | 51,107 | 47,067 | 9 | 51,107 | 47,067 | 9 | ||||||||||||
| Common shares - end of period ('000's) | 37,279 | 37,251 | 37,279 | 37,251 | ||||||||||||||
| Weighted avg common shares ('000's) | ||||||||||||||||||
| Basic | 36,910 | 36,720 | 36,789 | 36,612 | ||||||||||||||
| Diluted | 37,587 | 37,419 | 37,592 | 37,361 | ||||||||||||||
| Notes: | |
| (1) | Earnings before interest, taxes, depreciation and amortization ("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) | Dispositions reported at net book value. |
| (4) | Includes assets acquired under finance lease and purchases of intangible assets. Net capital expenditures are net of rental asset disposals. |
| (5) | Return on average total assets is not a recognized measure under IFRS; see "Non-IFRS Measures Reconciliation". |
FINANCIAL POSITION AND RATIOS
| As at December 31, | |||
| ($000's except ratios) | 2014 | 2013 | |
| Working capital (1) | 16,823 | 11,515 | |
| Funded debt (2) | 38,677 | 43,036 | |
| Total assets | 237,459 | 207,920 | |
| Funded debt to adjusted EBITDA(2) | 0.7 | 1.0 | |
| Notes: | |
| (1) | Working capital is calculated as current assets less current liabilities, excluding assets held for sale. 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. Adjusted EBITDA is based on trailing twelve months. See "Non-IFRS Measures Reconciliation". |
FOURTH QUARTER RESULTS
Strad reported an increase in revenue and adjusted EBITDA of 17% and 65% respectively, during the three months ended December 31, 2014, compared to the same period in 2013. Increased revenue during the fourth quarter was a result of higher equipment utilization in the U.S. and increased revenue from Canada's larger matting fleet, offset by lower Product Sales compared to the prior year. Adjusted EBITDA margin percentage increased to 31% during the fourth quarter compared to 22% in the fourth quarter of 2013 due to increased revenue as previously noted.
Strad's Canadian Operations reported higher revenue and adjusted EBITDA during the three months ended December 31, 2014, compared to the same period in 2013. Increased revenue was a result of a larger matting rental asset base, increased trucking and service revenues and higher drilling activity in the Western Canadian Sedimentary Basin ("WCSB") during the quarter.
During the fourth quarter, rig counts in Strad's targeted U.S. resource plays increased slightly compared to levels in the fourth quarter of 2013. Rig counts in the Bakken, Rockies and Marcellus regions increased by 4%, 4%, and 6% respectively, year-over-year. Overall, Strad's U.S. Operations reported higher revenue and adjusted EBITDA during the fourth quarter of 2014 compared to the prior year. Adjusted EBITDA as a percentage of revenue, increased from 28% to 47% year-over-year due to an increase in utilization of a larger rental asset base.
During the fourth quarter, capital expenditures were $4.7 million in Canada and $5.2 million in the U.S., net of $1.6 million and $0.4 million 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, 2014, Strad spent $42.7 million on a gross basis, or $37.4 million, net of $5.3 million in rental asset disposals, of its previously approved $40.0 million 2014 capital program.
RESULTS OF OPERATIONS
Canadian Operations
| Three months ended December 31, | Year-ended December 31, | |||||||||||||||||
| ($000's) | 2014 | 2013 | % chg. | 2014 | 2013 | % chg. | ||||||||||||
| Revenue | 23,664 | 19,250 | 23 | 97,853 | 70,452 | 39 | ||||||||||||
| Adjusted EBITDA (1) | 6,148 | 5,284 | 16 | 26,025 | 18,342 | 42 | ||||||||||||
| Adjusted EBITDA as a % of revenue | 26 | % | 27 | % | 27 | % | 26 | % | ||||||||||
| Capital expenditures | 6,351 | 6,411 | (1 | ) | 26,694 | 16,217 | 65 | |||||||||||
| Dispositions of rental assets (2) | (1,649 | ) | (1,143 | ) | 44 | (3,987 | ) | (10,322 | ) | (61 | ) | |||||||
| Net capital expenditures (3) | 4,702 | 5,268 | (11 | ) | 22,707 | 5,895 | 285 | |||||||||||
| Gross capital assets | 118,136 | 109,170 | 8 | 118,136 | 109,170 | 8 | ||||||||||||
| Total assets | 114,646 | 100,108 | 15 | 114,646 | 100,108 | 15 | ||||||||||||
| Notes: | |
| (1) | Earnings before interest, taxes, depreciation and amortization ("adjusted EBITDA") is not a recognized measure under IFRS; see "Non-IFRS Measures Reconciliation". |
| (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, 2014, of $23.7 million increased 23% compared to $19.3 million for the same period in 2013. Increased revenue during the quarter was primarily a result of higher matting rental revenue due to a larger matting rental fleet compared to the same period in 2013. Increased matting revenue during the quarter was offset by lower surface equipment and drill pipe revenue due to slightly lower utilization rates compared to 2013. Utilization in these two product lines was lower despite slightly higher rig counts during the fourth quarter of 2014 compared to 2013.
Adjusted EBITDA for the three months ended December 31, 2014, of $6.1 million, increased 16% compared to $5.3 million for the same period in 2013. Adjusted EBITDA as a percentage of revenue, for the three months ended December 31, 2014, decreased slightly to 26% compared to 27% for the same period in 2013. Although the rental revenue and service revenue were both higher in the fourth quarter of 2014, compared to the prior year, adjusted EBITDA as a percentage of revenue was impacted by lower margin service revenue making up a larger percentage of total revenue during the fourth quarter of 2014, compared to the prior year. Higher service revenue was due to increased infrastructure related matting work in the fourth quarter of 2014 compared to the prior year.
Revenue for the year-ended December 31, 2014, of $97.9 million increased 39% compared to $70.5 million for the same period in 2013. Energy Infrastructure related work, increased drilling activity, higher matting service and trucking revenue and a larger rental fleet are the primary drivers of higher revenue year-over-year.
Adjusted EBITDA for the year-ended December 31, 2014, of $26.0 million increased 42% compared to $18.3 million for the same period in 2013. Adjusted EBITDA as a percentage of revenue, for the year-ended December 31, 2014, was 27% compared to 26% for the same period in 2013.
U.S. Operations
| Three months ended December 31, | Year-ended December 31, | |||||||||||||||||
| ($000's) | 2014 | 2013 | % chg. | 2014 | 2013 | % chg. | ||||||||||||
| Revenue | 21,852 | 13,882 | 57 | 73,840 | 54,225 | 36 | ||||||||||||
| Adjusted EBITDA (1) | 10,191 | 3,948 | 158 | 28,982 | 15,441 | 88 | ||||||||||||
| Adjusted EBITDA as a % of revenue | 47 | % | 28 | % | 39 | % | 28 | % | ||||||||||
| Capital expenditures | 5,529 | 3,070 | 80 | 15,666 | 8,676 | 81 | ||||||||||||
| Dispositions of rental assets (2) | (374 | ) | (431 | ) | (13 | ) | (1,336 | ) | (1,463 | ) | (9 | ) | ||||||
| Net capital expenditures (3) | 5,155 | 2,639 | 95 | 14,330 | 7,213 | 99 | ||||||||||||
| Gross capital assets | 126,825 | 105,011 | 21 | 126,825 | 105,011 | 21 | ||||||||||||
| Total assets | 120,917 | 104,927 | 15 | 120,917 | 104,927 | 15 | ||||||||||||
| Notes: | |
| (1) | Earnings before interest, taxes, depreciation and amortization ("adjusted EBITDA") is not a recognized measure under IFRS; see "Non-IFRS Measures Reconciliation". |
| (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, 2014, increased 57% to $21.9 million from $13.9 million for the same period in 2013. During the fourth quarter of 2014, Strad's U.S. Operations continued to achieve increased utilization rates and revenue despite only slightly higher rig counts year-over-year in the Bakken, Rockies and Marcellus regions, with increases of 4%, 4%, and 6% respectively, year-over-year. Management's investment in field sales presence during the second half of 2013 continued to result in increased market share for Strad in all three U.S. regions during the fourth quarter of 2014, which drove higher utilization of Strad's U.S. equipment fleet. Revenue also increased due to a larger rental equipment fleet in 2014 compared to 2013. The Bakken continued to be the most active basin for Strad's U.S. Operations, accounting for 42% of total revenue during the quarter.
Adjusted EBITDA for the three months ended December 31, 2014, increased 158% to $10.2 million compared to $3.9 million for the same period in 2013. Adjusted EBITDA as a percentage of revenue, for the three months ended December 31, 2014, was 47% compared to 28% for the same period in 2013. The increase in both adjusted EBITDA and adjusted EBITDA as a percentage of revenue is primarily due to increased utilization of Strad's rental fleet in the U.S. and a reduced cost structure compared to the same period in 2013.
Revenue for the year-ended December 31, 2014, increased 36% to $73.8 million compared to $54.2 million for the same period in 2013. The year-over-year increase in revenue was primarily driven by increased utilization of Strad's Matting, Surface Equipment and Solids Control product lines.
Adjusted EBITDA for the year-ended December 31, 2014, increased 88% to $29.0 million compared to $15.4 million for the same period in 2013. Increased adjusted EBITDA was due to higher revenue and a reduced cost structure during the year compared to the same period in 2013. Adjusted EBITDA as a percentage of revenue for the year-ended December 31, 2014, increased to 39% compared to 28% for the same period in 2013.
Product Sales
| Three months ended December 31, | Year-ended December 31, | |||||||||||||||||
| ($000's) | 2014 | 2013 | % chg. | 2014 | 2013 | % chg. | ||||||||||||
| Revenue | 10,574 | 14,717 | (28 | ) | 48,091 | 64,897 | (26 | ) | ||||||||||
| Adjusted EBITDA (1) | 2,269 | 2,497 | (9 | ) | 7,639 | 10,492 | (27 | ) | ||||||||||
| Adjusted EBITDA as a % of revenue | 21 | % | 17 | % | 16 | % | 16 | % | ||||||||||
| Capital expenditures (2) | 2 | 31 | 26 | 295 | ||||||||||||||
| Total assets | 505 | 672 | (25 | ) | 505 | 672 | (25 | ) | ||||||||||
| Notes: | |
| (1) | Earnings before interest, taxes, depreciation and amortization ("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 December 31, 2014, decreased 28% to $10.6 million from $14.7 million for the same period in 2013, resulting primarily from lower sales of in-house manufactured products sold to external customers. During the fourth quarter, Product Sales consisted of $6.7 million of in-house manufactured products, $1.7 million of third party equipment sales and $2.2 million of rental fleet sales compared to $11.1 million, $1.7 million and $2.0 million respectively, during the same period in 2013. Sales in the quarter were impacted by fluctuations in demand, typical in the business.
Adjusted EBITDA for the three months ended December 31, 2014, decreased 9% to $2.3 million compared to $2.5 million for the same period in 2013. Adjusted EBITDA as a percentage of revenue, for the three months ended December 31, 2014, increased to 21% compared to 17% for the same period in 2013. The decrease in adjusted EBITDA was due to lower sales revenue during the fourth quarter of 2014 compared to the same period in the prior year.
Revenue for the year-ended December 31, 2014, decreased 26% to $48.1 million compared to $64.9 million for the same period in 2013. Revenue was lower during the year due to a one-time sale of used SteelLock Mats in 2013 and lower sales in the latter half of 2014 of in-house manufactured products and third party equipment.
Adjusted EBITDA for the year-ended December 31, 2014, decreased 27% to $7.6 million compared to $10.5 million for the same period in 2013. The decrease in adjusted EBITDA was due to lower sales revenue in 2014 and a one-time sale of used SteelLock Mats in 2013. Adjusted EBITDA as a percentage of revenue, for the year-ended December 31, 2014, was consistent at 16% when compared to the same period in 2013.
OUTLOOK
Commodity prices declined significantly over the last six months of 2014 and have continued to decline in 2015. Crude oil WTI prices have declined from levels above $US 100/bbl in July 2014 throughout the balance of the year to below $US 50/bbl in 2015. Natural gas Henry Hub prices also declined from levels in excess of $US 4.50/mcf at the end of the second quarter of 2014 to levels below $US 3.00/mcf in 2015.
The decline in commodity prices has produced an expected decline in industry drilling rig activity across most basins in North America as producers adjust to the new commodity price reality. The decline in rig count has manifested in 2015 in the Canada and U.S. markets, particularly in the oil targeted rigs. Management expects this decline to continue as producers further reduce capital spending plans in 2015. Management also expects pricing pressure across all regions in 2015 as producers seek to reduce drilling costs per well.
Despite the decline in commodity prices over the quarter, and the corresponding reduction in activity in 2015, activity levels for the Company in the fourth quarter of 2014 had not begun to adjust to the new crude oil and natural gas price environment and were very strong across all regions and product lines. Utilization levels were higher in most product lines in both Canada and the U.S. year-over-year and were in line with the robust levels in the third quarter for most of the last three months of the year, except for typical seasonal changes in certain product lines.
In the WCSB, active drilling rigs in the fourth quarter of 2014 were up approximately 4% over the prior year, averaging 383 compared to 370 for the same period in 2013. WCSB active rigs had declined to 318 by February 13, 2015, 39% lower than the same period in 2014. In the U.S., drilling rig activity continued to vary by region, with the total active U.S. rig count increasing by 4% on a year-over-year basis and 1% sequentially. The majority of Strad's U.S. fleet continues to operate in the Bakken and Marcellus resource plays, both of which experienced slight increases in rig counts year-over-year and sequentially in the quarter. The active rig count in the Bakken averaged 187 rigs in the fourth quarter of 2014, up 4% from 180 in the prior year period but had declined to 128 by February 13, 2015, a 27% decrease year-over-year. In the gas-weighted Marcellus and Utica plays, the active rig count averaged 130 during the fourth quarter of 2014, 6% higher than 123 during the prior year period and had declined to 108 by February 13, 2015, a 12% decrease year-over-year.
Bakken operations are in close proximity to the Rockies region, consisting of Colorado, Wyoming, and Utah, where an average of 154 rigs were drilling during the fourth quarter, representing an increase of 3% from 149 rigs in the previous period. The rig count in these regions declined to 100 by February 13, 2015, a 27% decrease year-over-year.
Management anticipates that the decline in commodity prices and corresponding reduction in spending will continue to have a significant negative impact on drilling activity for the foreseeable future across all regions where Strad operates. In Canada, the typical seasonal downturn in activity due to spring breakup is anticipated, however, Management expects a prolonged spring breakup in Canada with little visibility regarding how many rigs will come back to work when the breakup ends.
Rig activity in the Company's U.S. operating regions is expected to be less seasonally volatile. The commodity price exposure in the U.S. is also split almost equally between natural gas and crude oil, diversifying the business.
The same challenges impacting the Canada and U.S. Operations is also expected to similarly impact the Product Sales segment. This business typically fluctuates from month to month and can produce volatility in earnings as projects tend to be large and are interspersed with periods of lower activity. The pipeline for manufacturing work, at the beginning of 2015, is very modest. Management has taken action to remove costs from the business and will continue to manage costs in line with activity and revenue.
Although the reduced activity levels will likely negatively impact the Company's traditional drilling related markets, the expansion of service offerings to the Energy Infrastructure market, including pipeline construction, power transmission construction and energy facilities construction, further diversifies the business into markets that are expected to be less commodity price sensitive in the near term.
The Company's recent expansion into the Rockies region in the U.S. continues to provide a new market to deploy equipment and build on the strong service reputation developed over the last year was instrumental in gaining market share in that region in 2014.
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 expected declines in drilling activity, cost reduction initiatives have been undertaken in the first quarter of 2015 to reduce the impact of lower activity and revenue levels on profitability. Staff layoffs, reduction of labour hours, companywide wage rollbacks, and reductions in discretionary expenditures were implemented. In an effort to maintain a strong balance sheet and preserve flexibility, capital spending plans were reduced significantly and in the near term will be limited to maintenance capital spending. Management will seek to preserve cash, pay down debt and maintain maximum flexibility to be able to respond to opportunities that are presented when the market does recover. The maintenance capex requirement in the business continues to be modest and can be managed at or below $5 million for the year in this environment.
Even at significantly reduced revenue and adjusted EBITDA levels, the business has the capability of producing positive free cash flow. Prudent management of the business has put the Company in a manageable debt leverage position. The Company's financial stability, flexible operating cost structure, and depth of the Management Team, have put the Company in a better position than it has ever been to weather this type of downturn.
LIQUIDITY AND CAPITAL RESOURCES
| ($000's) | December 31, 2014 | December 31, 2013 | ||
| Current assets | 57,683 | 43,519 | ||
| Current liabilities | 40,860 | 32,004 | ||
| Working capital (1) | 16,823 | 11,515 | ||
| Banking facilities | ||||
| Operating facility | 826 | 1,879 | ||
| Syndicated revolving facility | 36,000 | 38,500 | ||
| Total facility borrowings | 36,826 | 40,379 | ||
| Total credit facilities (2) | 110,000 | 110,000 | ||
| Unused credit capacity | 73,174 | 69,621 | ||
| Notes: | |
| (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 all of the Company's assets. As at December 31, 2014, Strad had access to the entire $110 million of credit facilities. |
As at December 31, 2014, working capital was $16.8 million compared to $11.5 million at December 31, 2013. The change in current assets is consistent with the increase in revenue from the fourth quarter of 2013, to the fourth quarter of 2014. The increase in current liabilities is due to an increase in accounts payable, which directly relates to the increase in fourth quarter revenues, compared to the same period in the prior year.
Funds from operations for the three months ended December 31, 2014, increased to $16.8 million compared to $10.4 million for the three months ended December 31, 2013. Capital expenditures totaled $11.9 million for the three months ended December 31, 2014, and $9.6 million for the three months ended December 31, 2013. Capital expenditures were offset by asset disposals totaling $2.0 million in the fourth quarter of 2014, compared to $1.6 million during the fourth quarter of 2013. Strad's total facility borrowing decreased by $3.6 million during the year due to increased adjusted EBITDA in 2014, compared to 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 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. The syndicated banking facility bears interest at bank prime plus a variable rate, which is dependent on the Company's funded debt to adjusted EBITDA ratio. The Company's syndicated banking facility matures on September 30, 2017.
Based on the Company's funded debt to twelve months trailing adjusted EBITDA ratio of 0.7 to 1 at the end of the fourth quarter of 2014, 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 year-ended December 31, 2014, the overall effective rates on the operating facility and revolving facility were 4.16%, and 3.44% respectively. As of December 31, 2014, $0.8 million was drawn on the operating facility and $36.0 million was drawn on the revolving facility. Required payments on the revolving facility are interest only.
As at December 31, 2014, the Company was in compliance with all of the financial covenants.
Effective September 30, 2014, the Company extended its syndicated banking facility by one year. The facility matures on September 30, 2017. Under the terms of the restated and extending credit agreement, interest rates over the term of the facility will decline by 0.25%.
NON-IFRS MEASURES RECONCILIATION
Certain supplementary measures in this press release do not have any standardized meaning as prescribed under International Financial Reporting Standards ("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, or comparable to, 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.
Annualized return on average total assets for the year-ended December 31, 2014, is calculated as year-to-date adjusted EBITDA divided by the average of total assets over the fourth quarter of 2013, and first, second, and third quarters of 2014, 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.
Working capital is calculated as current assets less current liabilities, excluding assets held for sales.
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 adjusted EBITDA and Funds from Operations |
| ($000's) |
| Three months ended December 31, | Year-ended December 31, | |||||||||
| 2014 | 2013 | 2014 | 2013 | |||||||
| Net income | 6,125 | 1,923 | 22,997 | 5,372 | ||||||
| Add: | ||||||||||
| Depreciation and amortization | 7,543 | 5,265 | 24,568 | 28,974 | ||||||
| (Gain) loss on disposal of PP&E | (16 | ) | 477 | (350 | ) | 1,301 | ||||
| (Gain) loss on disposal of assets held for sale | (11 | ) | 637 | 188 | 812 | |||||
| Share-based payments | 111 | 152 | 480 | 590 | ||||||
| Deferred income tax expense (recovery) | 2,092 | (225 | ) | 6,022 | (1,787 | ) | ||||
| Financing fees | 40 | 88 | 259 | 319 | ||||||
| Restructuring recovery | - | (514 | ) | - | (514 | ) | ||||
| Impairment loss | 406 | 1,901 | 406 | 1,901 | ||||||
| Interest expense | 495 | 665 | 2,172 | 2,954 | ||||||
| Funds from operations | 16,785 | 10,369 | 56,742 | 39,922 | ||||||
| Add: | ||||||||||
| Loss (gain) on foreign exchange | 47 | (5 | ) | 35 | (207 | ) | ||||
| Current income tax expense | 850 | 466 | 2,397 | 1,403 | ||||||
| Subtotal | 17,682 | 10,830 | 59,174 | 41,118 | ||||||
| Deduct: | ||||||||||
| Share-based payments | 111 | 152 | 480 | 590 | ||||||
| Adjusted EBITDA | 17,571 | 10,678 | 58,694 | 40,528 | ||||||
| Reconciliation of quarterly non-IFRS measures |
| ($000's) |
| Three months ended | |||||||||
| Dec 31, 2014 | Sep 30, 2014 | Jun 30, 2014 | Mar 31, 2014 | ||||||
| Net income | 6,125 | 7,968 | 4,763 | 4,141 | |||||
| Add: | |||||||||
| Depreciation and amortization | 7,543 | 5,799 | 5,739 | 5,487 | |||||
| (Gain) loss on disposal of PP&E | (16 | ) | 665 | (241 | ) | (758 | ) | ||
| (Gain) loss on disposal of assets held for sale | (11 | ) | - | 161 | 38 | ||||
| Loss (gain) on foreign exchange | 47 | (181 | ) | 236 | (67 | ) | |||
| Current income tax expense (recovery) | 850 | 967 | (81 | ) | 660 | ||||
| Deferred income tax expense | 2,092 | 2,042 | 1,025 | 864 | |||||
| Interest expense | 495 | 543 | 599 | 535 | |||||
| Impairment loss | 406 | - | - | - | |||||
| Finance fees | 40 | 32 | 99 | 88 | |||||
| Adjusted EBITDA | 17,571 | 17,835 | 12,300 | 10,988 | |||||
| Three months ended | |||||
| Dec 31, 2013 | Sep 30, 2013 | Jun 30, 2013 | Mar 31, 2013 | ||
| Net income | 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 disposal of assets held for sale | 637 | - | 17 | 158 | |
| Gain on foreign exchange | (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 recovery | (514) | - | - | - | |
| Impairment loss | 1,901 | - | - | - | |
| Finance fees | 88 | 88 | 71 | 72 | |
| Adjusted EBITDA | 10,678 | 10,422 | 8,769 | 10,659 | |
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", "forecasted", 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, forecasted maintenance capital spending requirements, debt levels, the ability to maintain payment of dividends, demand for the Company's products and services, anticipated declines in North American drilling activity, anticipated length of the Canadian spring breakup period, anticipated seasonal volatility of U.S. drilling rig counts, pricing of the Company's products and services, potential for growth and expansion of the Company's business into new market segments, anticipated impact of drilling activity levels on Product Sales, anticipated free cash flow generation, expectations regarding activity in 2015 and our ability to meet the changing needs of our customers in 2015 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 document 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.
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 26, 2015.
The conference call dial in number is 1-800-355-4959 or 1-416-340-2216
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 5th, 2015, at 11:59pm ET. To access the replay, call 1-800-408-3053 or 1-905-694-9451, followed by pass code 6537511.
| Strad Energy Services Ltd. |
| Consolidated Statement of Financial Position |
| As at December 31, 2014 and 2013 |
| (in thousands of Canadian dollars) | As at December 31, 2014 | As at December 31, 2013 | |||
| $ | $ | ||||
| Assets | |||||
| Current assets | |||||
| Trade receivables | 48,542 | 35,569 | |||
| Inventories | 7,400 | 5,788 | |||
| Prepaids and deposits | 1,741 | 1,772 | |||
| Note receivable | - | 350 | |||
| Income taxes receivable | - | 40 | |||
| 57,683 | 43,519 | ||||
| Assets held for sale | 260 | 3,167 | |||
| Non-current assets | |||||
| Property, plant and equipment | 159,100 | 142,108 | |||
| Intangible assets | 1,210 | 1,685 | |||
| Long-term assets | 1,914 | - | |||
| Goodwill | 17,277 | 17,277 | |||
| Deferred income tax assets | 15 | 164 | |||
| Total assets | 237,459 | 207,920 | |||
| Liabilities | |||||
| Current liabilities | |||||
| Bank indebtedness | 826 | 1,879 | |||
| Accounts payable and accrued liabilities | 34,705 | 25,403 | |||
| Income taxes payable | 1,579 | - | |||
| Deferred revenue | 259 | 785 | |||
| Current portion of obligations under finance lease | 882 | 1,887 | |||
| Dividend payable | 2,609 | 2,050 | |||
| 40,860 | 32,004 | ||||
| Non-current liabilities | |||||
| Long-term debt | 36,000 | 38,500 | |||
| Obligations under finance lease | 969 | 770 | |||
| Deferred income tax liabilities | 14,138 | 7,797 | |||
| Total liabilities | 91,967 | 79,071 | |||
| Equity | |||||
| Share capital | 118,351 | 117,824 | |||
| Contributed surplus | 11,757 | 11,612 | |||
| Accumulated other comprehensive income | 3,452 | 603 | |||
| Retained earnings (deficit) | 11,932 | (1,190 | ) | ||
| Total equity | 145,492 | 128,849 | |||
| Total liabilities and equity | 237,459 | 207,920 |
| Strad Energy Services Ltd. |
| Consolidated Statement of Income and Comprehensive Income |
| For the years ended December 31, 2014 and 2013 |
| (in thousands of Canadian dollars, except per share amounts) | |||
| 2014 | 2013 | ||
| $ | $ | ||
| Revenue | 219,784 | 189,574 | |
| Expenses | |||
| Operating expenses | 138,093 | 126,076 | |
| Depreciation | 23,852 | 27,805 | |
| Amortization of intangible assets | 716 | 1,169 | |
| Selling, general and administration | 22,517 | 22,380 | |
| Share-based payments | 480 | 590 | |
| (Gain) loss on disposal of property, plant and equipment | (350) | 1,301 | |
| Foreign exchange loss (gain) | 35 | (207) | |
| Finance fees | 259 | 319 | |
| Interest expense | 2,172 | 2,954 | |
| Loss on assets held for sale | 188 | 812 | |
| Impairment loss | 406 | 1,901 | |
| Restructuring recovery | - | (514) | |
| Income before income tax | 31,416 | 4,988 | |
| Income tax expense (recovery) | 8,419 | (384) | |
| Net income for the period | 22,997 | 5,372 | |
| Other comprehensive income | |||
| Items that may be reclassified subsequently to net income | |||
| Cumulative translation adjustment | 2,849 | 2,054 | |
| Comprehensive income for the period | 25,846 | 7,426 | |
| Earnings per share: | |||
| Basic | $0.63 | $0.15 | |
| Diluted | $0.61 | $0.14 | |
| Strad Energy Services Ltd. |
| Consolidated Statement of Cash Flow |
| For the years ended December 31, 2014 and 2013 |
| (in thousands of Canadian dollars) | |||||
| 2014 | 2013 | ||||
| Cash flow provided by (used in) | $ | $ | |||
| Operating activities | |||||
| Net income for the period | 22,997 | 5,372 | |||
| Adjustments for items not affecting cash: | |||||
| Depreciation and amortization | 24,568 | 28,974 | |||
| Deferred income tax expense (recovery) | 6,022 | (1,787 | ) | ||
| Share-based payments | 145 | 542 | |||
| Interest expense and finance fees | 2,431 | 3,273 | |||
| (Gain) loss on disposal of property, plant and equipment | (350 | ) | 1,301 | ||
| Loss on assets held for sale | 188 | 812 | |||
| Impairment loss | 406 | 1,901 | |||
| Changes in items of non-cash working capital | (5,867 | ) | 10,994 | ||
| Net cash generated from operating activities | 50,540 | 51,382 | |||
| Investing activities | |||||
| Purchase of property, plant and equipment | (37,079 | ) | (12,696 | ) | |
| Proceeds from sale of property, plant and equipment | 3,662 | 1,495 | |||
| Purchase of intangible assets | (312 | ) | (546 | ) | |
| Purchase of assets held for sale | - | (125 | ) | ||
| Proceeds from assets held for sale | 662 | 1,895 | |||
| Changes in items of non-cash working capital | 1,741 | (7,657 | ) | ||
| Net cash used in investing activities | (31,326 | ) | (17,634 | ) | |
| Financing activities | |||||
| Proceeds on issuance of long-term debt | 11,000 | 4,000 | |||
| Repayment of long-term debt | (16,000 | ) | (21,000 | ) | |
| Repayment of finance lease obligations (net) | (806 | ) | (2,363 | ) | |
| Proceeds on repayment of share-purchase loan | 421 | 378 | |||
| Interest expense and finance fees | (2,431 | ) | (3,273 | ) | |
| Payment of dividends | (9,318 | ) | (8,194 | ) | |
| Changes in items of non-cash working capital | 317 | 362 | |||
| Net cash used in financing activities | (16,817 | ) | (30,090 | ) | |
| Effect of exchange rate changes on cash and cash equivalents | (1,344 | ) | (3,049 | ) | |
| Decrease in cash and cash equivalents | 1,053 | 609 | |||
| Cash and cash equivalents (including bank indebtedness) - beginning of year | (1,879 | ) | (2,488 | ) | |
| Cash and cash equivalents (including bank indebtedness) - end of period | (826 | ) | (1,879 | ) | |
| Cash paid for income tax | 1,715 | 1,637 | |||
| Cash paid for interest | 2,155 | 2,585 |
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