CALGARY, ALBERTA--(Marketwired - Nov. 5, 2013) -
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"), a North American-focused, energy services company, today announced its financial results for the three and nine months ended September 30, 2013. All amounts are stated in Canadian dollars unless otherwise noted.
SELECTED FINANCIAL AND OPERATIONAL HIGHLIGHTS:
- Third quarter EBITDA(1) from continuing operations of $10.4 million decreased 13% compared to $12.0 million for the same period in 2012;
- Third quarter revenue from continuing operations of $47.4 million, a 7% decrease compared to $51.1 million for the same period in 2012;
- Capital additions totaled $5.3 million during the third quarter. Reported capital expenditures, net of $1.1 million rental asset disposals, were $4.2 million during the third quarter and $5.7 million year to date;
- Total funded debt(2) to twelve month trailing EBITDA ratio of 1.2 to 1 at the end of the third quarter of 2013; and
- Third quarter earnings per share from continuing operations of $0.06 compared to $0.08 for the same period in 2012.
Notes:
(1) Earnings before interest, taxes, depreciation and amortization ("EBITDA") is not a recognized measure under IFRS; see "Non-IFRS Measures Reconciliation".
(2) Funded debt includes bank indebtedness plus long-term debt plus current and long-term obligations under finance lease less cash. EBITDA is based on trailing twelve months. See "Non-IFRS Measures Reconciliation".
"Our third quarter results were influenced by a wetter than normal start to the Canadian drilling season and declining year-over-year rig counts in selected U.S. resource plays," said Andy Pernal, President and CEO of Strad. "Despite these challenges, revenue generated by our matting and surface equipment product lines increased steadily throughout the quarter. Further, a steady ramp-up in Canadian drilling activity towards the end of the third quarter positions our surface equipment assets well as we advance into the more active winter drilling season."
"Despite a revenue decline in the U.S. business during the third quarter compared to 2012, revenue increased sequentially over the second quarter of this year," said Greg Duerr, CFO of Strad. "Although margins have pulled back in Q3 from Q2, EBITDA increased year-over-year on a lower revenue base. We expect fourth quarter margins to trend back into the 25% to 30% range as equipment goes back to work and investments in field sales staff produce results."
THIRD QUARTER FINANCIAL HIGHLIGHTS
| (in thousands of Canadian Dollars) | Three months ended September 30, |
Nine months ended September 30, |
||||||||||
| 2013 | 2012 | % Chg. | 2013 | 2012 | % Chg. | |||||||
| Revenue from continuing operations | 47,425 | 51,094 | (7 | ) | 141,724 | 161,699 | (12 | ) | ||||
| EBITDA from continuing operations(1) | 10,422 | 12,030 | (13 | ) | 29,850 | 38,896 | (23 | ) | ||||
| EBITDA as a % of revenue | 22 | % | 24 | % | 21 | % | 24 | % | ||||
| Per share ($), basic | 0.28 | 0.33 | (15 | ) | 0.82 | 1.06 | (23 | ) | ||||
| Per share ($), diluted | 0.28 | 0.32 | (13 | ) | 0.80 | 1.03 | (22 | ) | ||||
| Net income (loss) from continuing operations(2) | 2,373 | 2,937 | (19 | ) | 3,449 | 10,832 | (68 | ) | ||||
| Per share ($), basic | 0.06 | 0.08 | (25 | ) | 0.09 | 0.30 | (70 | ) | ||||
| Per share ($), diluted | 0.06 | 0.08 | (25 | ) | 0.09 | 0.29 | (69 | ) | ||||
| Funds from continuing operations(3) | 10,013 | 10,950 | (9 | ) | 29,554 | 36,722 | (20 | ) | ||||
| Per share ($), basic | 0.27 | 0.30 | (10 | ) | 0.81 | 1.00 | (19 | ) | ||||
| Per share ($), diluted | 0.27 | 0.29 | (7 | ) | 0.79 | 0.98 | (19 | ) | ||||
| Capital expenditures from continuing operations | 5,325 | 9,921 | (46 | ) | 15,959 | 58,448 | (73 | ) | ||||
| Dispositions of rental assets(4) | (1,133 | ) | (826 | ) | 37 | (10,211 | ) | (2,692 | ) | 279 | ||
| Net capital expenditures(5) | 4,192 | 9,095 | (54 | ) | 5,748 | 55,756 | (90 | ) | ||||
| Total assets | 207,448 | 236,327 | (12 | ) | 207,448 | 236,327 | (12 | ) | ||||
| Return on average total assets(6) | 19 | % | 20 | % | 17 | % | 23 | % | ||||
| Long-term debt(7) | 39,000 | 53,500 | (27 | ) | 39,000 | 53,500 | (27 | ) | ||||
| Total long-term liabilities | 47,564 | 70,101 | (32 | ) | 47,564 | 70,101 | (32 | ) | ||||
| Common shares - end of period ('000's) | 37,251 | 37,251 | 37,251 | 37,251 | ||||||||
| Weighted avg common shares ('000's) | ||||||||||||
| Basic | 36,621 | 36,623 | 36,575 | 36,683 | ||||||||
| Diluted | 37,389 | 37,499 | 37,345 | 37,623 | ||||||||
| Notes: |
| (1) Earnings before interest, taxes, depreciation and amortization ("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 September 30, | |||
| ($000's except ratios) | 2013 | 2012 | |
| Working capital(1) | 13,212 | 24,117 | |
| Funded debt(2) | 46,230 | 62,505 | |
| Total assets | 207,448 | 236,327 | |
| Funded debt to EBITDA(2) | 1.2 | 1.1 | |
| 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". |
THIRD QUARTER RESULTS
Strad reported a decrease in revenue and EBITDA of 7% and 13%, respectively, during the three months ended September 30, 2013, compared to the same period in 2012. Strad's Q3 2013 results continued to be impacted by modest drilling activity levels in the Marcellus and Bakken regions due to low natural gas prices, improving drilling efficiencies, lower year-over-year customer spending and increased competition and pricing pressure. In the WCSB region, drilling rig activity increased at a slower pace, versus historical levels, during the third quarter due to unseasonably wet weather conditions. These declines were partially offset by profit generated from product sales related to sales of in-house manufactured products.
Strad's Canadian Operations reported lower EBITDA during the three months ended September 30, 2013, compared to the same period in 2012. Decreased EBITDA was a result of reduced drilling activity in the WCSB, which impacted matting pricing when compared to the third quarter of 2012. Early in the third quarter, wet weather conditions resulted in a 5% decrease in year-over-year drilling activity. Overall drilling activity averaged 2% higher year-over-year by the end of the quarter.
During the third quarter, Strad's U.S. Operations continued to be impacted by a continuation of lower year-over-year utilization levels in the Marcellus and Bakken resource plays. Overall rig counts during the third quarter declined year-over-year by 11% and 13%, in the Marcellus and Bakken, respectively, resulting in relatively lower utilization rates and pricing for Strad's surface equipment fleet. Third quarter results in the U.S. were also affected by a reduced matting fleet size resulting from sales of SteelLock mats during the second quarter of 2013. Third quarter results were also impacted by management's strategic decision to invest in U.S. field sales staff to increase market share in Strad's key regions in the U.S. Increased solids control utilization in the Bakken region during the third quarter partially offset utilization and pricing impacts on surface equipment.
During the third quarter, capital expenditures were $2.3 million in Canada and $1.7 million in the U.S., net of $1.1 million and $0.1 million in rental asset disposals. Capital expenditures are reported net of the net book value of rental assets sold in the period. For the nine months ended September 30, 2013, Strad has spent $15.9 million on a gross basis, or $5.7 million, net of $10.2 million in rental asset disposals, of its budgeted $15.0 million capital program. Strad 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 September 30, | Nine months ended September 30, | ||||||||||||||||
| ($000's) | 2013 | 2012 | % chg. | 2013 | 2012 | % chg. | |||||||||||
| Revenue | 19,129 | 19,165 | - | 51,202 | 56,616 | (10 | ) | ||||||||||
| EBITDA(1) | 5,599 | 7,618 | (27 | ) | 13,058 | 19,144 | (32 | ) | |||||||||
| EBITDA % | 29 | % | 40 | % | 26 | % | 34 | % | |||||||||
| Capital expenditures from cont. operations | 3,386 | 4,225 | (20 | ) | 9,806 | 23,632 | (59 | ) | |||||||||
| Dispositions of rental assets(2) | (1,073 | ) | (575 | ) | 87 | (9,179 | ) | (2,100 | ) | 337 | |||||||
| Net capital expenditures(3) | 2,313 | 3,650 | (37 | ) | 627 | 21,532 | (97 | ) | |||||||||
| Gross capital assets | 105,872 | 103,322 | 2 | 105,872 | 103,322 | 2 | |||||||||||
| Total assets | 100,269 | 104,255 | (4 | ) | 100,269 | 104,255 | (4 | ) | |||||||||
| Notes: |
| (1) Earnings before interest, taxes, depreciation and amortization ("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 September 30, 2013, was $19.1 million, level with $19.2 million for the same period in 2012. Third quarter 2013 revenue was consistent, despite a slower increase in drilling activity early in the quarter due to wet weather conditions. At the beginning of the third quarter, drilling activity was down 5% year-over-year and ended the quarter 2% higher than during the same period in 2012. Third quarter 2013 rental revenue was impacted by a decline in the size of Strad's Canadian matting rental fleet, after sales of used SteelLock mats in the second quarter of 2013. In addition to a smaller fleet, matting rental revenue was also impacted by lower year-over-year pricing. Lower Canadian drill pipe revenue also affected third quarter results, as Strad re-allocated drill pipe from Canada to the U.S., in order to capitalize on long-term contract opportunities. However, offsetting declines in matting and drill pipe rental revenue were higher surface equipment rental revenue, higher trucking, service and other revenues, which increased despite the wet weather conditions.
Revenue generated for the nine months ended September 30, 2013, decreased 10% to $51.2 million compared to $56.6 million for the same period in 2012. Lower drilling activity levels were the main driver of year-over-year revenue declines.
EBITDA for the three months ended September 30, 2013, of $5.6 million, decreased 27%, compared to $7.6 million for the same period in 2012. EBITDA as a percentage of revenue for the three months ended September 30, 2013, was 29% compared to 40% for the same period in 2012. This decrease was primarily due to reduced rental revenue and a shift in product mix from matting and drill pipe to surface equipment. Lower rental revenue was offset by higher service, trucking and other revenues, which typically have lower margins than rental revenue.
EBITDA for the nine months ended September 30, 2013, decreased 32% to $13.1 million compared to $19.1 million for the same period in 2012. Decreased EBITDA was a result of lower rental revenue and a shift in product mix during the first nine months of 2013 compared to the same period in 2012. EBITDA as a percentage of revenue for the nine months ended September 30, 2013, was 26% compared to 34% for the same period in 2012.
U.S. Operations
| Three months ended September 30, | Nine months ended September 30, | ||||||||||||||||
| ($000's) | 2013 | 2012 | % chg. | 2013 | 2012 | % chg. | |||||||||||
| Revenue | 13,580 | 16,550 | (18 | ) | 40,343 | 57,401 | (30 | ) | |||||||||
| EBITDA(1) | 3,071 | 2,785 | 10 | 11,493 | 15,390 | (25 | ) | ||||||||||
| EBITDA % | 23 | % | 17 | % | 28 | % | 27 | % | |||||||||
| Capital expenditures from cont. operations | 1,808 | 4,540 | (60 | ) | 5,607 | 32,966 | (83 | ) | |||||||||
| Dispositions of rental assets(2) | (60 | ) | (251 | ) | (76 | ) | (1,033 | ) | (593 | ) | 74 | ||||||
| Net capital expenditures(3) | 1,748 | 4,289 | (59 | ) | 4,574 | 32,373 | (86 | ) | |||||||||
| Gross capital assets | 102,048 | 105,754 | (4 | ) | 102,048 | 105,754 | (4 | ) | |||||||||
| Total assets | 103,089 | 118,872 | (13 | ) | 103,089 | 118,872 | (13 | ) | |||||||||
| Notes: |
| (1) Earnings before interest, taxes, depreciation and amortization ("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 September 30, 2013, decreased 18% to $13.6 million from $16.6 million for the same period in 2012. Year-over-year revenue declines continue to reflect the impact of lower drilling activity in the U.S., specifically in the Marcellus and Bakken resource plays, where rig counts declined 11% and 13%, respectively, from third quarter 2012 levels. Decreased rig counts have resulted in increased competition in both resource plays, which caused lower surface equipment utilization as well as pricing pressure relative to 2012. Third quarter revenue was also impacted by idle drill pipe, which was on standby and not collecting a day rate while rig moves were completed during the quarter. The Bakken continued to be the most active resource play for Strad's U.S. Operations, generating 72% of total U.S. revenue.
Revenue for the nine months ended September 30, 2013, decreased 30% to $40.3 million from $57.4 million for the same period in 2012. The decrease in revenue year-over-year was due to the same activity related factors impacting the third quarter results in comparative periods.
EBITDA for the three months ended September 30, 2013, increased 10% to $3.1 million compared to $2.8 million for the same period in 2012. EBITDA as a percentage of revenue for the three months ended September 30, 2013, was 23% compared to 17% for the same period in 2012. The increase in both EBITDA and EBITDA as a percentage of revenue, despite the previously mentioned year-over-year decline in revenue, is due to the ongoing success of management's restructuring plan, which re-aligned the U.S. Operations cost structure with current market conditions. EBITDA as a percentage of revenue has declined from first and second quarter 2013 levels of 32% and 31%, respectively, due to drill pipe being idle during the third quarter, a shift in product mix and management's strategic investment in an expanded U.S. field sales force.
EBITDA for the nine months ended September 30, 2013, decreased 25% to $11.5 million compared to $15.4 million for the same period in 2012. The decrease is consistent with utilization and revenue declines discussed previously. EBITDA as a percentage of revenue for the nine months ended September 30, 2013, increased to 28% compared to 27% for the same period in 2012.
Product Sales
| Three months ended September 30, | Nine months ended September 30, | ||||||||||||||||
| ($000's) | 2013 | 2012 | % chg. | 2013 | 2012 | % chg. | |||||||||||
| Revenue | 14,716 | 15,379 | (4 | ) | 50,179 | 47,682 | 5 | ||||||||||
| EBITDA(1) | 2,632 | 2,357 | 12 | 7,995 | 6,913 | 16 | |||||||||||
| EBITDA % | 18 | % | 15 | % | 16 | % | 14 | % | |||||||||
| Capital expenditures(2) | 61 | 208 | (71 | ) | 264 | 855 | (69 | ) | |||||||||
| Total assets | 838 | 8,339 | (90 | ) | 838 | 8,339 | (90 | ) | |||||||||
| Notes: |
| (1) Earnings before interest, taxes, depreciation and amortization ("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 September 30, 2013, decreased 4% to $14.7 million from $15.4 million for the same period in 2012, resulting primarily from lower in-house manufactured product sales. During the third quarter, Product Sales consisted of $8.5 million of in-house manufactured products, $4.7 million of third party equipment sales and $1.5 million of rental fleet sales compared to $9.4 million, $5.0 million and $1.0 million, respectively, during the same period in 2012. Manufactured product sales decreased due to lower drilling activity in 2013 compared to 2012. However, demand for manufactured products, primarily rig mats, increased sequentially during the third quarter compared to the second quarter of 2013. Sales of Strad's rental fleet equipment fluctuate quarter-over-quarter and are primarily dependent on strategic opportunities to monetize underutilized rental assets.
Revenue for the nine months ended September 30, 2013, increased 5% to $50.2 million from $47.7 million for the same period in 2012. Product Sales consisted of $20.9 million of in-house manufactured products, $15.4 million of third party equipment sales and $13.9 million of rental fleet sales compared to $24.9 million, $19.5 million and $3.3 million, respectively, during the same period in 2012. Increased matting sales during the second quarter were the primary driver of year-over-year revenue increases. Matting sales during the first nine months of 2013 consisted of both third party mat sales and sales of Strad's rental fleet to existing customers.
EBITDA for the three months ended September 30, 2013, of $2.6 million increased by 12% compared to $2.4 million for the same period in 2012. The increase in EBITDA was due to higher in-house manufactured product sales margins during the third quarter of 2013 due to reduced overhead costs. EBITDA as a percentage of revenue for the three months ended September 30, 2013, increased to 18% compared to 15% for the same period in 2012. 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 nine months ended September 30, 2013, of $8.0 million, increased by 16% compared with $6.9 million for the same period in 2012. EBITDA as a percentage of revenue for the nine months ended September 30, 2013, increased to 16% from 14% during the same period in 2012.
OUTLOOK
Industry conditions during the third quarter remained relatively level on a year-over-year basis in Canada, whereas overall drilling activity in the U.S. declined slightly. Limited growth in the WCSB was a byproduct of wetter than normal summer months as well as the continuation of broader constraints relating to oil transportation bottlenecks and the general lack of access to capital for many companies in the Canadian 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 and increased drilling efficiency of the Bakken resource play.
In the WCSB, active drilling rigs in the third quarter of 2013 remained relatively level, averaging 338 compared with 331 for the same period in 2012. In the United States, drilling rig activity continued to vary by region, with the total active U.S. rig count declining by 7% on a year-over-year basis. The majority of Strad's U.S. fleet continues to operate in the Bakken and Marcellus resource plays, both of which experienced reduced rig counts. The active rig count in the Bakken averaged 183 rigs in the third quarter of 2013, down 13% from 210 in the prior year period. In the gas-weighted Marcellus play, the active rig count averaged 83 during the third quarter of 2013, down 11% from 93 in the prior year period. On a sequential basis, rig counts in the Bakken and Marcellus declined 3% and increased 5%, respectively.
Marcellus operations are in close proximity to the Utica Shale where rig counts have grown 64% over the prior year period. 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 third 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 the long-term build out of Liquefied Natural Gas ("LNG") infrastructure in Canada could result in increased demand for Strad's products and services.
Strad's third quarter Canadian operations were impacted by unseasonably wet weather conditions during the months of June and July, which resulted in a slower ramp up in third quarter drilling activity. Strad's matting fleet had lower revenues on similar year-over-year utilization levels, which was primarily a result of Strad's reduced matting inventory following sales of used mats in the second quarter. Strad's Canadian matting business also experienced some pricing pressure in the third quarter, which impacted the product line's contribution to company-wide revenue. A similar decline in revenue contribution was also experienced with Strad's Canadian drill pipe rentals, where Strad has re-allocated a portion of these assets to its U.S. operating regions to capitalize on long-term contract opportunities. The Company expects drilling activity levels in the WCSB to ramp up through the fourth quarter and into the winter drilling season.
In Strad's U.S. business, the Company realized EBITDA margins of 23% during the third quarter despite the year-over-year decline in rig counts in the Bakken and Marcellus resource plays. Management continues to expect margins to normalize in the range of 25% to 30% for the Company's U.S. operations and views this margin range as sustainable for the foreseeable future. Strad remains optimistic regarding the potential of its operations in the maturing Bakken and Marcellus markets where the Company's investment into its field sales force have reinforced a solid foothold and created opportunities to expand.
Strad's product sales division continues to comprise a consistent component of the Company's revenue stream. The Company's product sales business is made up of its manufacturing, third party sales, and existing rental fleet asset sales operations. The manufacturing and 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.
Strad's third quarter net capital expenditures totaled $4.2 million, with the majority of this capital deployed in Canada. This represented a year-over-year decline of 54%, which continues to be the result of significant investment made to Strad's fleet during 2012 as well as relatively stagnant industry conditions. 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) | September 30, 2013 | June 30, 2013 | |
| Current assets | 45,301 | 50,466 | |
| Current liabilities | 32,089 | 30,961 | |
| Working capital(1) | 13,212 | 19,505 | |
| Banking facilities | |||
| Operating facility | 4,079 | 2,847 | |
| Syndicated revolving facility | 39,000 | 49,400 | |
| Total facility borrowings | 43,079 | 52,247 | |
| Total credit facilities(2) | 110,000 | 110,000 | |
| Unused credit capacity | 66,921 | 57,753 |
| (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 September 30, 2013, Strad had access to $104 million out of the $110 million credit facility. |
At September 30, 2013, working capital was $13.2 million compared to $19.5 million at June 30, 2013. The change in current assets is consistent with the decrease in revenue from the second quarter to the third quarter of 2013 and faster collection of accounts receivable balances. The increase in current liabilities is due to the timing of payments at the end of the third quarter. Funds from operations for the three months ended September 30, 2013, increased to $10.0 million compared to $8.8 million for the three months ended June 30, 2013. Capital expenditures from continuing operations totaled $5.3 million for the three months ended September 30, 2013 and June 30, 2013, and were offset by $1.1 million and $6.4 million of rental asset sales during the same periods. Management used funds from operations and proceeds from Product Sales to repay $9.2 million of Strad's total facility borrowing during the third quarter of 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 1.2 to 1 at the end of the third 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 ended September 30, 2013, the overall effective rates on the operating facility and revolving facility were 4.36% and 3.51%, respectively. As of September 30, 2013, $4.1 million was drawn on the operating facility and $39.0 million was drawn on the revolving facility. Payments on the revolving facility are interest only.
As at September 30, 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, 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, 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 charges, impairment loss, 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. 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 nine months ended September 30, 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 and second 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 September 30, | Nine months ended September 30, | ||||||||||
| 2013 | 2012 | 2013 | 2012 | ||||||||
| Net income from continuing operations | 2,373 | 2,937 | 3,449 | 10,832 | |||||||
| Add: | |||||||||||
| Depreciation and amortization | 7,259 | 7,362 | 23,709 | 20,618 | |||||||
| Loss on disposal of PP&E | 162 | 22 | 824 | 46 | |||||||
| Loss on disposal of assets held for sale | - | - | 175 | - | |||||||
| Non-controlling interest | - | 22 | - | 355 | |||||||
| Share-based payments | 155 | 218 | 438 | 580 | |||||||
| Deferred income tax (recovery)/expense | (808 | ) | (528 | ) | (1,561 | ) | 2,176 | ||||
| Financing fees | 88 | 63 | 231 | 179 | |||||||
| Interest expense | 784 | 854 | 2,289 | 1,936 | |||||||
| Funds from operations | 10,013 | 10,950 | 29,554 | 36,722 | |||||||
| Add: | |||||||||||
| (Gain)/loss on foreign exchange | (63 | ) | 510 | (202 | ) | 879 | |||||
| Current income tax expense/(recovery) | 627 | 788 | 936 | 1,875 | |||||||
| Subtotal | 10,577 | 12,248 | 30,288 | 39,476 | |||||||
| Deduct: | |||||||||||
| Share-based payments | 155 | 218 | 438 | 580 | |||||||
| EBITDA | 10,422 | 12,030 | 29,850 | 38,896 | |||||||
| Reconciliation of quarterly non-IFRS measures | ||||||||||||
| ($000's) | ||||||||||||
| Three months ended (unaudited) |
||||||||||||
| September 30, 2013 |
June 30, 2013 |
March 31, 2013 |
December 31, 2012 |
|||||||||
| Net income/(loss) from cont. operations | 2,373 | 13 | 1,063 | (3,490 | ) | |||||||
| Add: | ||||||||||||
| Depreciation and amortization | 7,259 | 8,824 | 7,626 | 7,667 | ||||||||
| Loss on disposal of PP&E | 162 | 76 | 586 | 226 | ||||||||
| Loss on disposal of assets held for sale | - | 17 | 158 | - | ||||||||
| (Gain)/loss on foreign exchange | (63 | ) | (18 | ) | (121 | ) | (195 | ) | ||||
| Current income tax expense/(recovery) | 627 | 94 | 216 | (13 | ) | |||||||
| Deferred income tax (recovery)/expense | (808 | ) | (1,099 | ) | 345 | (3,804 | ) | |||||
| Interest expense | 784 | 791 | 714 | 739 | ||||||||
| Restructuring expense | - | - | - | 4,129 | ||||||||
| Impairment loss | - | - | - | 2,350 | ||||||||
| Finance fees | 88 | 71 | 72 | 66 | ||||||||
| EBITDA | 10,422 | 8,769 | 10,659 | 7,675 | ||||||||
| Communications operating loss | - | - | - | 679 | ||||||||
| EBITDA (Adjusted) | 10,422 | 8,769 | 10,659 | 8,354 | ||||||||
| Three months ended (unaudited) |
||||||||||||
| September 30, 2012 |
June 30, 2012 |
March 31, 2012 |
December 31, 2011 |
|||||||||
| Net income from cont. operations | 2,937 | 2,772 | 5,123 | 7,661 | ||||||||
| Add: | ||||||||||||
| Depreciation and amortization | 7,362 | 7,003 | 6,253 | 5,713 | ||||||||
| Loss/(gain) on disposal of PP&E | 22 | (11 | ) | 35 | (96 | ) | ||||||
| Loss/(gain) on foreign exchange | 510 | (32 | ) | 401 | 52 | |||||||
| Non-controlling interest | 22 | (187 | ) | 520 | 543 | |||||||
| Current income tax expense/(recovery) | 788 | (104 | ) | 1,191 | 1,177 | |||||||
| Deferred income tax (recovery)/expense | (528 | ) | 748 | 1,956 | 1,499 | |||||||
| Interest expense | 854 | 638 | 444 | 620 | ||||||||
| Finance fees | 63 | 58 | 58 | - | ||||||||
| EBITDA | 12,030 | 10,885 | 15,981 | 17,169 | ||||||||
| Communications operating loss | 610 | 556 | 167 | 213 | ||||||||
| EBITDA (Adjusted) | 12,640 | 11,441 | 16,148 | 17,382 | ||||||||
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 MD&A. The forward-looking information and statements included in this MD&A 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 MD&A. All of the forward-looking statements of the Company contained in this MD&A are expressly qualified, in their entirety, by this cautionary statement. The various risks to which the Company is exposed are described in this MD&A 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.
THIRD QUARTER EARNINGS CONFERENCE CALL
Strad Energy Services Ltd. has scheduled a conference call to begin promptly at 8:00 a.m. MT (10:00 am. ET) on Wednesday, November 6, 2013.
The conference call dial in number is 1-800-565-0813
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 Wednesday, November 13th, 2013, at 11:59pm ET. To access the replay, call 1-800-408-3053, followed by pass code 7220278.
| Strad Energy Services Ltd. | ||||
| Interim Consolidated Statement of Financial Position | ||||
| (Unaudited) | ||||
| (in thousands of Canadian dollars) | As at September 30, 2013 |
As at December 31, 2012 |
||
| $ | $ | |||
| Assets | ||||
| Current assets | ||||
| Trade receivables | 35,631 | 33,418 | ||
| Inventories | 6,888 | 12,022 | ||
| Prepaids and deposits | 1,774 | 2,379 | ||
| Current portion of notes receivable | 690 | 665 | ||
| Income taxes receivable | 318 | 1,526 | ||
| 45,301 | 50,010 | |||
| Assets held for sale | 2,690 | 4,728 | ||
| Non-current assets | ||||
| Property, plant and equipment | 139,660 | 157,042 | ||
| Intangible assets | 2,237 | 2,721 | ||
| Notes receivable | 208 | 729 | ||
| Goodwill | 17,277 | 17,277 | ||
| Deferred income tax assets | 75 | 198 | ||
| Total assets | 207,448 | 232,705 | ||
| Liabilities | ||||
| Current liabilities | ||||
| Bank indebtedness | 4,079 | 2,488 | ||
| Accounts payable and accrued liabilities | 20,548 | 24,244 | ||
| Deferred revenue | 1465 | 160 | ||
| Current portion of obligations under finance lease | 2,374 | 2,735 | ||
| Note payable | 1,029 | 1,492 | ||
| Dividend payable | 2,050 | 2,050 | ||
| Restructuring provision | 544 | 3,813 | ||
| 32,089 | 36,982 | |||
| Non-current liabilities | ||||
| Long-term debt | 39,000 | 55,500 | ||
| Obligations under finance lease | 777 | 2,285 | ||
| Deferred income tax liabilities | 7,787 | 9,279 | ||
| Total liabilities | 79,653 | 104,046 | ||
| Equity | ||||
| Share capital | 117,840 | 117,462 | ||
| Contributed surplus | 11,469 | 11,016 | ||
| Accumulated other comprehensive loss | (449 | ) | (1,451 | ) |
| Retained (deficit) earnings | (1,065 | ) | 1,632 | |
| Total equity | 127,795 | 128,659 | ||
| Total liabilities and equity | 207,448 | 232,705 | ||
| Strad Energy Services Ltd. | ||||||||||
| Interim Consolidated Statement of Income | ||||||||||
| For the three and nine months ended September 30, 2013 and 2012 | ||||||||||
| (Unaudited) | ||||||||||
| (in thousands of Canadian dollars, except per share amounts) | ||||||||||
| Three Months Ended | Nine Months Ended | |||||||||
| September 30, | September 30, | |||||||||
| 2013 | 2012 | 2013 | 2012 | |||||||
| Continuing operations | ||||||||||
| Revenue | 47,425 | 51,094 | 141,724 | 161,699 | ||||||
| Expenses | ||||||||||
| Operating expenses | 29,703 | 30,796 | 89,823 | 97,655 | ||||||
| Depreciation | 7,025 | 6,952 | 22,755 | 19,477 | ||||||
| Amortization of intangible assets | 234 | 410 | 954 | 1,141 | ||||||
| Selling, general and administration | 7,145 | 8,050 | 21,613 | 24,568 | ||||||
| Share-based payments | 155 | 218 | 438 | 580 | ||||||
| Loss on disposal of property, plant and equipment | 162 | 22 | 824 | 46 | ||||||
| Foreign exchange (gain) loss | (63 | ) | 510 | (202 | ) | 879 | ||||
| Finance fees | 88 | 63 | 231 | 179 | ||||||
| Interest expense | 784 | 854 | 2,289 | 1,936 | ||||||
| Loss on assets held for sale | - | - | 175 | - | ||||||
| Income before income tax from continuing operations | 2,192 | 3,219 | 2,824 | 15,238 | ||||||
| Income tax (recovery) expense | (181 | ) | 260 | (625 | ) | 4,051 | ||||
| Net income from continuing operations for the period | 2,373 | 2,959 | 3,449 | 11,187 | ||||||
| Income from discontinued operations, net of tax | - | - | - | 437 | ||||||
| Net income for the period | 2,373 | 2,959 | 3,449 | 11,624 | ||||||
| Net income attributable to: | ||||||||||
| Owners of the parent | 2,373 | 2,937 | 3,449 | 11,269 | ||||||
| Non-controlling interests | - | 22 | - | 355 | ||||||
| 2,373 | 2,959 | 3,449 | 11,624 | |||||||
| Earnings per share from continuing operations attributable to the equity owners of the Company: | ||||||||||
| Basic | $ | 0.06 | $ | 0.08 | $ | 0.09 | $ | 0.30 | ||
| Diluted | $ | 0.06 | $ | 0.08 | $ | 0.09 | $ | 0.29 | ||
| Earnings per share from discontinued operations attributable to the equity owners of the Company: | ||||||||||
| Basic | $ | 0.00 | $ | 0.00 | $ | 0.00 | $ | 0.01 | ||
| Diluted | $ | 0.00 | $ | 0.00 | $ | 0.00 | $ | 0.01 | ||
| Earnings per share from total operations attributable to the equity owners of the Company: | ||||||||||
| Basic | $ | 0.06 | $ | 0.08 | $ | 0.09 | $ | 0.31 | ||
| Diluted | $ | 0.06 | $ | 0.08 | $ | 0.09 | $ | 0.30 | ||
| Strad Energy Services Ltd. | ||||||||||||
| Interim Consolidated Statement of Comprehensive Income | ||||||||||||
| For the three and nine months ended September 30, 2013 and 2012 | ||||||||||||
| (Unaudited) | ||||||||||||
| (in thousands of Canadian dollars) | ||||||||||||
| Three Months Ended | Nine Months Ended | |||||||||||
| September 30, | September 30, | |||||||||||
| 2013 | 2012 | 2013 | 2012 | |||||||||
| $ | $ | $ | $ | |||||||||
| Net income for the period | 2,373 | 2,959 | 3,449 | 11,624 | ||||||||
| Other comprehensive (loss) incomeItems that may be reclassified subsequently to net income | ||||||||||||
| Cumulative translation adjustment | (766 | ) | (1,002 | ) | 1,002 | (1,171 | ) | |||||
| Total other comprehensive (loss) income | (766 | ) | (1,002 | ) | 1,002 | (1,171 | ) | |||||
| Comprehensive income for the period | 1,607 | 1,957 | 4,451 | 10,453 | ||||||||
| Comprehensive income attributable to: | ||||||||||||
| Owners of the parent | 1,607 | 1,935 | 4,451 | 10,098 | ||||||||
| Non-controlling interests | - | 22 | - | 355 | ||||||||
| 1,607 | 1,957 | 4,451 | 10,453 | |||||||||
| Strad Energy Services Ltd. | |||||
| Interim Consolidated Statement of Cash Flow | |||||
| For the nine months ended September 30, 2013 and 2012 | |||||
| (Unaudited) | |||||
| (in thousands of Canadian dollars) | |||||
| 2013 | 2012 | ||||
| Cash flow provided by (used in) | $ | $ | |||
| Operating activities | |||||
| Net income for the period | 3,449 | 11,624 | |||
| Adjustments for items not affecting cash: | |||||
| Depreciation and amortization | 23,709 | 20,618 | |||
| Deferred income tax (recovery) expense | (1,561 | ) | 2,176 | ||
| Share-based payments (net of cash settlement on stock option exercises) | 399 | 383 | |||
| Interest expense and finance fees | 2,520 | 2,115 | |||
| Loss on disposal of property, plant and equipment | 824 | 46 | |||
| Loss on sale of investment in subsidiary | - | 441 | |||
| Loss on assets held for sale | 175 | - | |||
| Changes in items of non-cash working capital | 3,453 | 1,457 | |||
| Net cash generated from operating activities | 32,968 | 38,860 | |||
| Investing activities | |||||
| Purchase of property, plant and equipment | (4,944 | ) | (53,451 | ) | |
| Proceeds from sale of property, plant and equipment | 1,574 | 1,060 | |||
| Purchase of intangible assets | (463 | ) | (1,355 | ) | |
| Proceeds on sale of subsidiaries | - | 7,129 | |||
| Purchase of assets held for sale | (125 | ) | (2,094 | ) | |
| Proceeds from sale of assets held for sale | 1,876 | - | |||
| Purchase of non-controlling interest | - | (4,627 | ) | ||
| Changes in items of non-cash working capital | (4,565 | ) | (5,521 | ) | |
| Net cash (used) in investing activities | (6,647 | ) | (58,859 | ) | |
| Financing activities | |||||
| Proceeds on issuance of long-term debt | 2,000 | 33,000 | |||
| Repayment of long-term debt | (18,500 | ) | (3,000 | ) | |
| Repayment of finance lease obligations (net) | (1,869 | ) | (3,199 | ) | |
| Issue of share capital | - | 24 | |||
| Issue of shareholder loan (net of repayments) | 378 | (308 | ) | ||
| Interest expense and finance fees | (2,520 | ) | (2,115 | ) | |
| Payment of dividends | (6,146 | ) | (2,049 | ) | |
| Changes in items of non-cash working capital | 219 | (242 | ) | ||
| Net cash (used) generated from financing activities | (26,438 | ) | 22,111 | ||
| Effect of exchange rate changes on cash and cash equivalents | (1,474 | ) | 148 | ||
| (Decrease) increase in cash and cash equivalents | (1,591 | ) | 2,260 | ||
| Cash and cash equivalents (including bank indebtedness) - beginning of year | (2,488 | ) | (5,570 | ) | |
| Cash and cash equivalents (including bank indebtedness) - end of period | (4,079 | ) | (3,310 | ) | |
| Cash and cash equivalents - included in liabilities of disposal group | - | (205 | ) | ||
| Cash and cash equivalents (including bank indebtedness) - end of period | (4,079 | ) | (3,515 | ) | |
| Cash paid for income tax | 1,290 | 5,521 | |||
| Cash paid for interest | 2,106 | 2,191 | |||
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