CALGARY, ALBERTA--(Marketwired - Aug. 6, 2014) -
NOT FOR DISTRIBUTION TO U.S. NEWS WIRE SERVICES OR FOR DISSEMINATION IN THE UNITED STATES ("U.S.")
The news release contains "forward-looking information and statements" within the meaning of applicable securities laws. For full disclosure of the forward-looking information and statements and the risks to which they are subject, see the "Cautionary Statement Regarding Forward-Looking Information and Statements" later in this news release.
Strad Energy Services Ltd., ("Strad" or the "Company") (TSX:SDY), a North American-focused, energy services company, today announced its financial results for the three and six months ended June 30, 2014. All amounts are stated in Canadian dollars unless otherwise noted.
SELECTED FINANCIAL AND OPERATIONAL HIGHLIGHTS:
- Second quarter EBITDA (1) of $12.3 million increased 40% compared to $8.8 million for the same period in 2013;
- Second quarter earnings per share of $0.13 compared to $nil for the same period in 2013;
- Second quarter revenue of $53.7 million increased 8% compared to $49.6 million for the same period in 2013;
- Capital additions totaled $14.9 million during the second quarter. Reported capital expenditures, net of $2.1 million rental asset disposals, were $12.8 million during the second quarter and $21.2 million for the first half of 2014;
- Total funded debt (2) to twelve month trailing EBITDA ratio of 1.1 to 1 at the end of the second quarter of 2014; and
- Strad has approved an additional $10.0 million in capital spending, bringing the total capital budget to $35.0 million for 2014.
| 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". |
"We are pleased to announce strong second quarter EBITDA of $12.3 million and earnings per share of $0.13," said Andy Pernal, President and CEO of Strad. "The sequential increase in EBITDA and earnings per share during the second quarter reflects increased momentum from our operations and sales teams on both sides of the border. We look forward to taking advantage of improving industry conditions throughout the balance of 2014 and into 2015."
"Based on continued momentum across our regions, Strad has approved an additional $10.0 million of capital for 2014," said Greg Duerr, Chief Financial Officer of Strad. "During the second half of 2014, management will continue to seek opportunities to build off of the sales momentum built during the second quarter and add assets to our key product lines on both sides of the border. Increased market share penetration in key regions and improved macro environment conditions are expected to result in more opportunities for strategic growth during the remainder of 2014 and into 2015."
| SECOND QUARTER FINANCIAL HIGHLIGHTS |
| (in thousands of Canadian Dollars, except per share amounts) | Three months ended June 30, |
Six months ended June 30, |
||||||||||
| 2014 | 2013 | % Chg. | 2014 | 2013 | % Chg. | |||||||
| Revenue | 53,692 | 49,576 | 8 | 105,580 | 94,299 | 12 | ||||||
| EBITDA (1) | 12,300 | 8,769 | 40 | 23,288 | 19,428 | 20 | ||||||
| EBITDA as a % of revenue | 23 | % | 18 | % | 22 | % | 21 | % | ||||
| Per share ($), basic | 0.33 | 0.24 | 38 | 0.63 | 0.53 | 19 | ||||||
| Per share ($), diluted | 0.33 | 0.23 | 43 | 0.62 | 0.52 | 19 | ||||||
| Net income | 4,763 | 13 | 36,538 | 8,904 | 1,076 | 728 | ||||||
| Per share ($), basic | 0.13 | - | 0.24 | 0.03 | ||||||||
| Per share ($), diluted | 0.13 | - | 0.24 | 0.03 | ||||||||
| Funds from operations (2) | 12,267 | 8,788 | 40 | 22,800 | 19,541 | 17 | ||||||
| Per share ($), basic | 0.33 | 0.24 | 38 | 0.62 | 0.53 | 17 | ||||||
| Per share ($), diluted | 0.33 | 0.24 | 38 | 0.61 | 0.52 | 17 | ||||||
| Capital expenditures | 14,937 | 5,254 | 184 | 23,838 | 10,636 | 124 | ||||||
| Dispositions of rental assets (3) | (2,137 | ) | (6,361 | ) | (66 | ) | (2,633 | ) | (9,078 | ) | (71 | ) |
| Net capital expenditures (4) | 12,800 | (1,107 | ) | (1,256 | ) | 21,205 | 1,558 | 1,261 | ||||
| Total assets | 218,825 | 217,904 | 218,825 | 217,904 | ||||||||
| Return on average total assets (5) | 23 | % | 15 | % | 22 | % | 17 | % | ||||
| Long-term debt | 44,400 | 49,400 | (10 | ) | 44,400 | 49,400 | (10 | ) | ||||
| Total long-term liabilities | 55,544 | 59,118 | (6 | ) | 55,544 | 59,118 | (6 | ) | ||||
| Common shares - end of period ('000's) | 37,255 | 37,251 | 37,255 | 37,251 | ||||||||
| Weighted avg common shares ('000's) | ||||||||||||
| Basic | 36,732 | 36,533 | 36,733 | 36,533 | ||||||||
| Diluted | 37,680 | 37,327 | 37,555 | 37,334 | ||||||||
| Notes: | |
| (1) | Earnings before interest, taxes, depreciation and amortization ("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 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 June 30, | ||||
| ($000's except ratios) | 2014 | 2013 | ||
| Working capital (1) | 16,807 | 19,505 | ||
| Funded debt (2) | 47,883 | 55,802 | ||
| Total assets | 218,825 | 217,904 | ||
| Funded debt to EBITDA(2) | 1.1 | 1.4 | ||
| 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. EBITDA is based on trailing twelve months. See "Non-IFRS Measures Reconciliation". |
SECOND QUARTER RESULTS
Strad reported an increase in revenue and EBITDA of 8% and 40% respectively, during the three months ended June 30, 2014, compared to the same period in 2013. Increased revenue during the second quarter was a result of higher equipment utilization in both Canada and the U.S. offset by lower product sales compared to the prior year. In the Western Canadian Sedimentary Basin ("WCSB") region, drilling rig activity averaged 31% higher during the second quarter compared to the second quarter of 2013. Increased revenue from high margin product lines, in conjunction with a reduced cost base in both Canada and the U.S., resulted in EBITDA margins of 23% compared to 18% in 2013.
Strad's Canadian Operations reported higher revenue and EBITDA during the three months ended June 30, 2014, compared to the same period in 2013. Increased revenue was a result of a larger rental asset base, higher drilling activity in the WCSB during the quarter and increased infrastructure related activity, which resulted in higher utilization of Strad's Canadian surface equipment and matting fleets.
During the second quarter, rig counts in Strad's targeted U.S. resource plays remained similar to levels in the second quarter of 2013. Rig counts in the Bakken declined by 3% year-over-year, offset by a 4% rig count increase in the Rockies region and an 8% increase in the Marcellus region. Overall, Strad's U.S. operations reported higher revenue and EBITDA during the second quarter of 2014 compared to the prior year. EBITDA as a percentage of revenue, increased from 31% to 37% year-over-year due to an increase in utilization and a reduced cost structure.
During the second quarter, capital expenditures were $6.9 million in Canada and $5.7 million in the U.S., net of $1.4 million and $0.7 million in rental asset disposals. Capital expenditures are reported net of the net book value of rental assets sold in the period. Strad has spent $23.8 million on a gross basis, or $21.2 million, net of $2.6 million in rental asset disposals, of its previously approved $25.0 million 2014 capital program. Strad has approved an additional $10.0 million in budgeted capital for the balance of the year bringing the total capital budget to $35.0 million for 2014. The Company continues to invest in equipment which is in high demand in both Canada and the U.S.
RESULTS OF OPERATIONS
Canadian Operations
| Three months ended June 30, |
Six months ended June 30, |
|||||||||||
| ($000's) | 2014 | 2013 | % chg. | 2014 | 2013 | % chg. | ||||||
| Revenue | 19,644 | 14,331 | 37 | 41,028 | 32,073 | 28 | ||||||
| EBITDA (1) | 4,610 | 2,667 | 73 | 10,214 | 7,459 | 37 | ||||||
| EBITDA as a % of revenue | 23 | % | 19 | % | 25 | % | 23 | % | ||||
| Capital expenditures | 8,292 | 3,656 | 127 | 15,084 | 6,419 | 135 | ||||||
| Dispositions of rental assets (2) | (1,442 | ) | (5,539 | ) | (74 | ) | (1,742 | ) | (8,105 | ) | (79 | ) |
| Net capital expenditures (3) | 6,850 | (1,883 | ) | (464 | ) | 13,342 | (1,686 | ) | (891 | ) | ||
| Gross capital assets | 113,374 | 101,983 | 11 | 113,374 | 101,983 | 11 | ||||||
| Total assets | 108,024 | 102,833 | 5 | 108,024 | 102,833 | 5 | ||||||
| Notes: | |
| (1) | Earnings before interest, taxes, depreciation and amortization ("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 June 30, 2014, of $19.6 million, increased 37% compared to $14.3 million for the same period in 2013. Increased revenue during the quarter was primarily a result of a larger rental asset base, higher drilling activity in the WCSB and increased infrastructure related work, which resulted in higher utilization of Strad's Canadian matting and surface equipment fleets. Second quarter revenue was also impacted by higher matting service and trucking revenue. The increase in matting service revenue is a result of increased utilization of Strad's matting fleet. Trucking revenue increased during the quarter due to the increased use of third party transport suppliers.
EBITDA for the three months ended June 30, 2014, of $4.6 million, increased 73%, compared to $2.7 million for the same period in 2013. EBITDA as a percentage of revenue, for the three months ended June 30, 2014, was 23% compared to 19% for the same period in 2013.
Revenue for the six months ended June 30, 2014, of $41.0 million, increased 28% compared to $32.1 million for the same period in 2013. Increased drilling activity and a larger rental fleet are the primary drivers of higher revenue year-over-year.
EBITDA for the six months ended June 30, 2014, of $10.2 million, increased 37% compared to $7.5 million for the same period in 2013. EBITDA as a percentage of revenue, for the six months ended June 30, 2014, was 25% compared to 23% for the same period in 2013.
U.S. Operations
| Three months ended June 30, |
Six months ended June 30, |
|||||||||||
| ($000's) | 2014 | 2013 | % chg. | 2014 | 2013 | % chg. | ||||||
| Revenue | 17,396 | 12,783 | 36 | 32,247 | 26,762 | 20 | ||||||
| EBITDA (1) | 6,513 | 3,916 | 66 | 10,118 | 8,421 | 20 | ||||||
| EBITDA as a % of revenue | 37 | % | 31 | % | 31 | % | 31 | % | ||||
| Capital expenditures | 6,396 | 1,498 | 327 | 8,473 | 3,798 | 123 | ||||||
| Dispositions of rental assets (2) | (695 | ) | (821 | ) | (15 | ) | (891 | ) | (973 | ) | (8 | ) |
| Net capital expenditures(3) | 5,701 | 677 | 742 | 7,582 | 2,825 | 168 | ||||||
| Gross capital assets | 113,316 | 105,269 | 8 | 113,316 | 105,269 | 8 | ||||||
| Total assets | 107,505 | 110,233 | (2 | ) | 107,505 | 110,233 | (2 | ) | ||||
| Notes: | |
| (1) | Earnings before interest, taxes, depreciation and amortization ("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 June 30, 2014, increased 36% to $17.4 million from $12.8 million for the same period in 2013. During the second quarter of 2014, Strad's U.S. Operations achieved revenue increases despite similar rig counts year-over-year in the Bakken and Rockies regions, with a 3% decline and 4% increase respectively, and an 8% increase in rig count in the Marcellus region. Management's investment in field sales presence during the second half of 2013 resulted in increased market share for Strad in all three U.S. regions, which drove higher utilization of Strad's U.S. matting and surface equipment fleets. The Bakken continues to be the most active basin for Strad's U.S. Operations, accounting for 48% of total revenue during the quarter.
EBITDA for the three months ended June 30, 2014, increased 66% to $6.5 million compared to $3.9 million for the same period in 2013. EBITDA as a percentage of revenue, for the three months ended June 30, 2014, was 37% compared to 31% for the same period in 2013. The increase in both EBITDA and EBITDA as a percentage of revenue is primarily due to increased utilization of Strad's surface equipment and matting rental fleets in the U.S. and a reduced cost structure compared to the same period in 2013.
Revenue for the six months ended June 30, 2014, increased 20% to $32.2 million compared to $26.8 million for the same period in 2013. The year-over-year increase in revenue was primarily driven by increased utilization of Strad's matting and surface equipment fleets.
EBITDA for the six months ended June 30, 2014, increased 20% to $10.1 million compared to $8.4 million for the same period in 2013. Increased EBITDA was due to higher revenue and a reduced cost structure during the first six months of 2014 compared to the same period in 2013. EBITDA as a percentage of revenue for the six months ended June 30, 2014 and 2013 was consistent at 31%.
Product Sales
| Three months ended June 30, |
Six months ended June 30, |
|||||||||||
| ($000's) | 2014 | 2013 | % chg. | 2014 | 2013 | % chg. | ||||||
| Revenue | 16,652 | 22,462 | (26 | ) | 32,305 | 35,462 | (9 | ) | ||||
| EBITDA (1) | 2,230 | 3,010 | (26 | ) | 4,944 | 5,363 | (8 | ) | ||||
| EBITDA as a % of revenue | 13 | % | 13 | % | 15 | % | 15 | % | ||||
| Capital expenditures (2) | 14 | - | - | 14 | 203 | (93 | ) | |||||
| Total assets | 1,145 | 1,099 | 4 | 1,145 | 1,099 | 4 | ||||||
| Notes: | |
| (1) | Earnings before interest, taxes, depreciation and amortization ("EBITDA") is not a recognized measure under IFRS; see "Non-IFRS Measures Reconciliation". |
| (2) | Includes assets acquired under finance lease and purchases of intangible assets. |
Product Sales are comprised of in-house manufactured products sold to external customers, third party equipment sales to existing customers and sales of equipment from Strad's existing fleet to customers.
Revenue for the three months ended June 30, 2014, decreased 26% to $16.7 million from $22.5 million for the same period in 2013, resulting primarily from a one-time sale of used SteelLock mats in 2013, which did not reoccur in 2014. During the second quarter, Product Sales consisted of $5.5 million of in-house manufactured products, $8.9 million of third party equipment sales and $2.3 million of rental fleet sales compared to $5.5 million, $8.7 million and $8.3 million, respectively, during the same period in 2013.
EBITDA for the three months ended June 30, 2014, decreased 26% to $2.2 million compared to $3.0 million for the same period in 2013. EBITDA as a percentage of revenue, for the three months ended June 30, 2014 and 2013, was consistent at 13%. The decrease in EBITDA was due to lower sales revenue during the second quarter of 2014 compared to the same period in the prior year, and a shift in revenue mix.
Revenue for the six months ended June 30, 2014, decreased 9% to $32.3 million compared to $35.5 million for the same period in 2013. Revenue was lower during the first six months of 2014 due to the one-time sale of used SteelLock mats in 2013 as discussed previously. Sales of Strad's rental fleet equipment fluctuate quarter-over-quarter and are primarily dependent on strategic opportunities to monetize underutilized rental assets.
EBITDA for the six months ended June 30, 2014, decreased 8% to $4.9 million compared to $5.4 million for the same period in 2013. The decrease in EBITDA was due to lower sales revenue and a shift in revenue mix during the first half of 2014 compared to the same period in 2013. EBITDA as a percentage of revenue, for the six months ended June 30, 2014 and 2013 was consistent at 15%.
OUTLOOK
Industry conditions during the second quarter remained relatively level on a year-over-year basis in the Company's U.S. markets and were improved year-over-year in Canada. In the U.S. markets, drilling activity in the Marcellus region continued to be impacted by the reduced number of rigs targeting lower margin natural gas plays as well as the ongoing maturation and increased drilling efficiency of the Bakken resource play. In Canada, drilling activity during the second quarter was improved over the prior year as a result of a shorter breakup period due to a favorable combination of colder April weather and drier June weather which allowed equipment to get back to work.
The commodity price environment has continued to be supportive of existing activity levels with crude oil maintaining pricing levels at or above $100/bbl WTI due in part to ongoing geopolitical factors. Although natural gas prices have more recently demonstrated volatility, pricing levels continue to be supportive of ongoing activity in low cost basins such as those in which Strad operates. Commodity prices have also led to improved producer cash flows. Higher cash flows, in addition to improved access to capital, should position producers to spend capital and exploit resource plays over the balance of the year.
In the WCSB, active drilling rigs in the second quarter of 2014 were up approximately 31% over the prior year, averaging 198 compared to 151 for the same period in 2013. In the U.S., drilling rig activity continued to vary by region, with the total active U.S. rig count increasing by 2% 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 relatively flat rig counts year-over-year and sequentially in the quarter. The active rig count in the Bakken averaged 182 rigs in the second quarter of 2014, down 3% from 188 in the prior year period. In the gas-weighted Marcellus and Utica plays, the active rig count averaged 122 during the second quarter of 2014, 8% higher than 113 during the prior year period. On a sequential basis, rig counts in the Bakken and Marcellus were both level with the prior quarter.
Bakken operations are in close proximity to the Rockies region, consisting of Colorado, Wyoming and Utah, where an average of 141 rigs were drilling during the second quarter. 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 energy infrastructure in Canada, including pipelines, LNG facilities and power transmission, could result in increased demand for Strad's products and services.
During the second quarter, the Company realized improved EBITDA margins in both Canada and the U.S. businesses on both a sequential and year-over-year basis. These margin improvements were achieved as a result of cost reductions and increases in rental revenue across all regions. The rental revenue increases were achieved in part due to increased activity in Canada but in the U.S. were achieved despite relatively flat rig counts in the Bakken and the Marcellus resource plays. In each of these markets, the Company's investment into its field sales force have reinforced a solid foothold and created opportunities to expand. The increase in revenue and corresponding increases in margin reflects the operating leverage in the business. Although the rig activity levels have been relatively flat in the Bakken and Marcellus, Strad remains optimistic regarding the potential of its operations in the maturing Bakken and Marcellus markets and an emerging market in the Rockies region.
The Company's Product Sales business is made up of its manufactured product sales, third party sales, and existing rental fleet asset sales. The manufactured product third party sales typically produce the majority of the division's overall revenue stream. Strad's Product Sales division remains strongly correlated with its U.S. and Canadian matting rental fleet divisions, with similar demand drivers impacting both aspects of the Company's business.
Year to date, net capital expenditures totaled $21.2 million. The current capital program is expected to be $35.0 million for the full year in 2014. Management has identified attractive opportunities to deploy capital in the Matting, Surface Equipment and EcoPond® businesses in Canada and the Matting, Solids Control and Surface Equipment businesses in the U.S. Management plans to continue its practice of deploying cash from operations towards both capital expenditures and debt reduction on a quarter-by-quarter basis, thereby allowing the Company to selectively target key areas for growth, maintain its current dividend and reduce its overall debt levels.
| LIQUIDITY AND CAPITAL RESOURCES |
| ($000's) | June 30, 2014 | December 31, 2013 | |||
| Current assets | 46,713 | 43,519 | |||
| Current liabilities | 29,906 | 32,004 | |||
| Working capital (1) | 16,807 | 11,515 | |||
| Banking facilities | |||||
| Operating facility | 988 | 1,879 | |||
| Syndicated revolving facility | 44,400 | 38,500 | |||
| Total facility borrowings | 45,388 | 40,379 | |||
| Total credit facilities (2) | 110,000 | 110,000 | |||
| Unused credit capacity | 64,612 | 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 the Company's assets. As at June 30, 2014, Strad had access to $109 million of the total credit facility. |
As at June 30, 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 second quarter of 2014. The decrease in current liabilities is due to the decreases in the operating facility and the current portion of obligations under capital lease, offset by an increase in the dividend payable compared to the fourth quarter of 2013.
Funds from operations for the three months ended June 30, 2014, increased to $12.3 million compared to $10.4 million for the three months ended December 31, 2013. Capital expenditures totaled $14.9 million for the three months ended June 30, 2014, and $9.5 million for the three months ended December 31, 2013. Capital expenditures were offset by asset disposals totaling $2.1 million in the second quarter of 2014 compared to $1.6 million during the fourth quarter of 2013. Strad's total facility borrowing increased by $5.0 million during the first half of 2014 due to an increase in the asset base from growth in working capital and growth in the rental fleet. 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 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. The Company's syndicated banking facility matures on July 25, 2016.
Based on the Company's funded debt to twelve month trailing EBITDA ratio of 1.1 to 1 at the end of the second quarter of 2014, 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 six months ended June 30, 2014, the overall effective rates on the operating facility and revolving facility were 4.16% and 3.45%, respectively. As of June 30, 2014, $1.0 million was drawn on the operating facility and $44.4 million was drawn on the revolving facility. Required payments on the revolving facility are interest only.
As at June 30, 2014, the Company was in compliance with all of the banking facility covenants.
NON-IFRS MEASURES RECONCILIATION
Certain supplementary measures in this press release do not have any standardized meaning as prescribed under IFRS and, therefore, are considered non-IFRS measures. These measures are described and presented in order to provide shareholders and potential investors with additional information regarding the Company's financial results, liquidity and its ability to generate funds to finance its operations. These measures are identified and presented, where appropriate, together with reconciliations to the equivalent IFRS measure. However, they should not be used as an alternative to IFRS, because they may not be consistent with calculations of other companies. These measures are further explained below.
Earnings before interest, taxes, depreciation and amortization ("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 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 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 six months ended June 30, 2014, is calculated as annualized year-to-date EBITDA divided by the average of total assets over the fourth quarter of 2013 and first quarter 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.
Funded debt is calculated as bank indebtedness plus long-term debt plus current and long-term portion of finance lease obligations, less cash.
| Reconciliation of EBITDA and Funds from Operations |
| ($000's) |
| Three months ended June 30, | Six months ended June 30, | |||||||
| 2014 | 2013 | 2014 | 2013 | |||||
| Net income | 4,763 | 13 | 8,904 | 1,076 | ||||
| Add: | ||||||||
| Depreciation and amortization | 5,739 | 8,824 | 11,226 | 16,450 | ||||
| (Gain)/loss on disposal of PP&E | (241 | ) | 76 | (999 | ) | 662 | ||
| Loss on disposal of assets held for sale | 161 | 17 | 199 | 175 | ||||
| Share-based payments | 122 | 95 | 260 | 283 | ||||
| Deferred income tax expense (recovery) | 1,025 | (1,099 | ) | 1,889 | (753 | ) | ||
| Financing fees | 99 | 71 | 187 | 143 | ||||
| Interest expense | 599 | 791 | 1,134 | 1,505 | ||||
| Funds from operations | 12,267 | 8,788 | 22,800 | 19,541 | ||||
| Add: | ||||||||
| Loss (gain) on foreign exchange | 236 | (18 | ) | 169 | (139 | ) | ||
| Current income tax expense (recovery) | (81 | ) | 94 | 579 | 309 | |||
| Subtotal | 12,422 | 8,864 | 23,548 | 19,711 | ||||
| Deduct: | ||||||||
| Share-based payments | 122 | 95 | 260 | 283 | ||||
| EBITDA | 12,300 | 8,769 | 23,288 | 19,428 | ||||
| Reconciliation of quarterly non-IFRS measures |
| ($000's) |
| Three months ended | ||||||||
| Jun 30, 2014 | Mar 31, 2014 | Dec 31, 2013 | Sept 30, 2013 | |||||
| Net income | 4,763 | 4,141 | 1,923 | 2,373 | ||||
| Add: | ||||||||
| Depreciation and amortization | 5,739 | 5,487 | 5,265 | 7,259 | ||||
| (Gain)/loss on disposal of PP&E | (241 | ) | (758 | ) | 477 | 162 | ||
| Loss on disposal of assets held for sale | 161 | 38 | 637 | - | ||||
| Gain on foreign exchange | 236 | (67 | ) | (5 | ) | (63 | ) | |
| Current income tax (recovery) expense | (81 | ) | 660 | 466 | 627 | |||
| Deferred income tax expense/(recovery) | 1,025 | 864 | (225 | ) | (808 | ) | ||
| Interest expense | 599 | 535 | 665 | 784 | ||||
| Restructuring reversal | - | - | (514 | ) | - | |||
| Impairment loss | - | - | 1,901 | - | ||||
| Finance fees | 99 | 88 | 88 | 88 | ||||
| EBITDA | 12,300 | 10,988 | 10,678 | 10,422 | ||||
| Three months ended | ||||||||
| Jun 30, 2013 | Mar 31, 2013 | Dec 31, 2012 | Sept 30, 2012 | |||||
| Net income (loss) | 13 | 1,063 | (3,490 | ) | 2,937 | |||
| Add: | ||||||||
| Depreciation and amortization | 8,824 | 7,626 | 7,667 | 7,362 | ||||
| Loss on disposal of PP&E | 76 | 586 | 226 | 22 | ||||
| Loss on disposal of assets held for sale | 17 | 158 | - | - | ||||
| (Gain)/loss on foreign exchange | (18 | ) | (121 | ) | (195 | ) | 510 | |
| Non-controlling interest | - | - | - | 22 | ||||
| Current income tax expense/(recovery) | 94 | 216 | (13 | ) | 788 | |||
| Deferred income tax expense/(recovery) | (1,099 | ) | 345 | (3,804 | ) | (528 | ) | |
| Interest expense | 791 | 714 | 739 | 854 | ||||
| Restructuring expense | - | - | 4,129 | - | ||||
| Impairment expense | - | - | 2,350 | - | ||||
| Finance fees | 71 | 72 | 66 | 63 | ||||
| EBITDA | 8,769 | 10,659 | 7,675 | 12,030 | ||||
| Communications operating loss | - | - | 679 | 610 | ||||
| EBITDA (Adjusted) | 8,769 | 10,659 | 8,354 | 12,640 | ||||
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. More particularly, this press release contains forward-looking statements concerning future capital expenditures of the Company and funding thereof, changes and expectations in margins to be experienced by Strad, debt, the ability to maintain payment of dividends, demand for the Company's products and services, drilling activity in North America, pricing of the Company's products and services, introduction of new products and services and the potential for growth and expansion of the Company's business, manufacturing capacity to meet anticipated demand for the Company's products, and expected exploration and production industry activity including the effects of industry trends on demand for the Company's products. These statements relate to future events or to the Company's future financial performance and involve known and unknown risks, uncertainties and other factors that may cause the Company's actual results, levels of activity, performance or achievements to be materially different from future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements.
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 and assumptions 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 speak only as of the date hereof and are expressly qualified, in their entirety, by this cautionary statement. The various risks to which the Company is exposed are described in additional detail in the Company's Management Discussion and Analysis and the Annual Information Form. Except as may be required by applicable securities laws, 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.
SECOND QUARTER EARNINGS CONFERENCE CALL
Strad Energy Services Ltd. has scheduled a conference call to begin promptly at 8:00 a.m. MT (10:00 a.m. ET) on Thursday, August 7, 2014.
The conference call dial in number is 1-866-225-2055
The conference call will also be accessible via webcast at www.stradenergy.com
A replay of the call will be available approximately one hour after the conference call ends until Thursday August 14th, 2014, at 11:59pm ET. To access the replay, call 1-800-408-3053, followed by pass code 8664971.
| Strad Energy Services Ltd. |
| Interim Consolidated Statement of Financial Position |
| (Unaudited) |
| (in thousands of Canadian dollars) | As at June 30, 2014 |
As at December 31, 2013 |
||
| $ | $ | |||
| Assets | ||||
| Current assets | ||||
| Trade receivables | 37,626 | 35,569 | ||
| Inventories | 6,343 | 5,788 | ||
| Prepaids and deposits | 2,501 | 1,772 | ||
| Note receivable | 178 | 350 | ||
| Income taxes receivable | 65 | 40 | ||
| 46,713 | 43,519 | |||
| Assets held for sale | 2,372 | 3,167 | ||
| Non-current assets | ||||
| Property, plant and equipment | 150,806 | 142,108 | ||
| Intangible assets | 1,487 | 1,685 | ||
| Goodwill | 17,277 | 17,277 | ||
| Deferred income tax assets | 170 | 164 | ||
| Total assets | 218,825 | 207,920 | ||
| Liabilities | ||||
| Current liabilities | ||||
| Bank indebtedness | 988 | 1,879 | ||
| Accounts payable and accrued liabilities | 25,241 | 25,403 | ||
| Deferred revenue | 18 | 785 | ||
| Current portion of obligations under finance lease | 1,051 | 1,887 | ||
| Dividend payable | 2,608 | 2,050 | ||
| 29,906 | 32,004 | |||
| Non-current liabilities | ||||
| Long-term debt | 44,400 | 38,500 | ||
| Obligations under finance lease | 1,444 | 770 | ||
| Deferred income tax liabilities | 9,700 | 7,797 | ||
| Total liabilities | 85,450 | 79,071 | ||
| Equity | ||||
| Share capital | 117,838 | 117,824 | ||
| Contributed surplus | 11,765 | 11,612 | ||
| Accumulated other comprehensive income | 716 | 603 | ||
| Retained earnings (deficit) | 3,056 | (1,190 | ) | |
| Total equity | 133,375 | 128,849 | ||
| Total liabilities and equity | 218,825 | 207,920 |
| Strad Energy Services Ltd. |
| Interim Consolidated Statement of Income and Comprehensive Income |
| For the three and six months ended June 30, 2014 and 2013 |
| (Unaudited) |
| (in thousands of Canadian dollars, except per share amounts) |
| Three Months Ended | Six Months Ended | |||||||
| June 30, | June 30, | |||||||
| 2014 | 2013 | 2014 | 2013 | |||||
| $ | $ | |||||||
| Revenue | 53,692 | 49,576 | 105,580 | 94,299 | ||||
| Expenses | ||||||||
| Operating expenses | 35,585 | 34,815 | 70,791 | 63,542 | ||||
| Depreciation | 5,556 | 8,543 | 10,857 | 15,730 | ||||
| Amortization of intangible assets | 183 | 281 | 369 | 720 | ||||
| Selling, general and administration | 5,685 | 5,897 | 11,241 | 11,046 | ||||
| Share-based payments | 122 | 95 | 260 | 283 | ||||
| (Gain) loss on disposal of property, plant and equipment | (241 | ) | 76 | (999 | ) | 662 | ||
| Foreign exchange loss (gain) | 236 | (18 | ) | 169 | (139 | ) | ||
| Finance fees | 99 | 71 | 187 | 143 | ||||
| Interest expense | 599 | 791 | 1,134 | 1,505 | ||||
| Loss on assets held for sale | 161 | 17 | 199 | 175 | ||||
| Income (loss) before income tax | 5,707 | (992 | ) | 11,372 | 632 | |||
| Income tax expense (recovery) | 944 | (1,005 | ) | 2,468 | (444 | ) | ||
| Net income for the period | 4,763 | 13 | 8,904 | 1,076 | ||||
| Other comprehensive income | ||||||||
| Items that may be reclassified subsequently to net income | ||||||||
| Cumulative translation adjustment | (929 | ) | 1,160 | 113 | 1,768 | |||
| Comprehensive income for the period | 3,834 | 1,173 | 9,017 | 2,844 | ||||
| Earnings per share: | ||||||||
| Basic | $0.13 | $0.00 | $0.24 | $0.03 | ||||
| Diluted | $0.13 | $0.00 | $0.24 | $0.03 | ||||
| Strad Energy Services Ltd. |
| Interim Consolidated Statement of Cash Flow |
| For the six months ended June 30, 2014 and 2013 |
| (Unaudited) |
| (in thousands of Canadian dollars) | ||||
| 2014 | 2013 | |||
| Cash flow provided by (used in) | $ | $ | ||
| Operating activities | ||||
| Net income for the period | 8,904 | 1,076 | ||
| Adjustments for items not affecting cash: | ||||
| Depreciation and amortization | 11,226 | 16,450 | ||
| Deferred income tax expense | 1,889 | (753 | ) | |
| Share-based payments (net of cash settlements on share option exercises) | 159 | 247 | ||
| Interest expense and finance fees | 1,321 | 1,648 | ||
| (Gain) loss on disposal of property, plant and equipment | (999 | ) | 662 | |
| Loss on assets held for sale | 199 | 175 | ||
| Changes in items of non-cash working capital | (7,561 | ) | (5,835 | ) |
| Net cash generated from operating activities | 15,138 | 13,670 | ||
| Investing activities | ||||
| Purchase of property, plant and equipment | (20,942 | ) | (988 | ) |
| Proceeds from sale of property, plant and equipment | 2,826 | 1,550 | ||
| Purchase of intangible assets | (263 | ) | (396 | ) |
| Purchase of assets held for sale | - | (125 | ) | |
| Proceeds from assets held for sale | 558 | 1,876 | ||
| Changes in items of non-cash working capital | 3,014 | (518 | ) | |
| Net cash generated from (used in) investing activities | (14,807 | ) | 1,399 | |
| Financing activities | ||||
| Proceeds on issuance of long-term debt | 8,000 | 2,000 | ||
| Repayment of long-term debt | (2,100 | ) | (8,100 | ) |
| Repayment of finance lease obligations (net) | (162 | ) | (1,464 | ) |
| Repayment of shareholder loan | - | 115 | ||
| Interest expense and finance fees | (1,321 | ) | (1,648 | ) |
| Payment of dividends | (4,100 | ) | (4,096 | ) |
| Changes in items of non-cash working capital | 424 | - | ||
| Net cash generated from (used in) financing activities | 741 | (13,193 | ) | |
| Effect of exchange rate changes on cash and cash equivalents | (181 | ) | (2,235 | ) |
| Increase (decrease) in cash and cash equivalents | 891 | (359 | ) | |
| Cash and cash equivalents (including bank indebtedness) - beginning of year | (1,879 | ) | (2,488 | ) |
| Cash and cash equivalents (including bank indebtedness) - end of period | (988 | ) | (2,847 | ) |
| Cash paid for income tax | 744 | 731 | ||
| Cash paid for interest | 1,113 | 1,512 |
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