Total Energy Services Inc.
TSX : TOT

Total Energy Services Inc.

August 10, 2016 17:52 ET

Total Energy Services Inc. Announces Q2 2016 Results

CALGARY, ALBERTA--(Marketwired - Aug. 10, 2016) - Total Energy Services Inc. ("Total Energy" or the "Company")(TSX:TOT) announces its consolidated financial results for the three and six months ending June 30, 2016.

Financial Highlights
($000's except per share data)
Three Months Ended June 30 Six Months Ended June 30
(unaudited) (unaudited)
2016 2015 %
Change
2016 2015 %
Change
Revenue $ 43,893 $ 71,908 (39 %) $ 93,849 $ 164,398 (43 %)
Operating Income (Loss) (5,289 ) 3,155 (268 %) (7,802 ) 17,730 (144 %)
EBITDA (1) 1,368 13,276 (90 %) 5,671 35,151 (84 %)
Cashflow (2) 1,775 6,482 (73 %) 6,814 13,982 (51 %)
Net Income (Loss) (4,203 ) 921 (556 %) (6,335 ) 10,104 (163 %)
Per Share Data (Diluted)
EBITDA (1) $ 0.04 $ 0.43 (91 %) $ 0.18 $ 1.13 (84 %)
Cashflow (2) 0.06 0.21 (71 %) 0.22 0.45 (51 %)
Net Earnings (0.14 ) 0.03 (567 %) (0.20 ) 0.33 (161 %)
June 30 Dec. 31
2016
(unaudited
) 2015
(audited
) %
Change
Financial Position
Total Assets $ 509,349 $ 532,379 (4 %)
Long-Term Debt and Obligations Under Finance Leases (excluding current portion) 47,483 49,185 (3 %)
Working Capital (3) 79,386 90,314 (12 %)
Net Debt (4) nil nil -
Shareholders' Equity 374,004 383,335 (2 %)
Shares Outstanding (000's)
Basic and Diluted 30,985 30,997 -

Notes 1 through 4 please refer to the Notes to the Financial Highlights set forth at the end of this release.

Total Energy's results for the three months ended June 30, 2016 reflect continued difficult industry conditions that were compounded by spring break-up in Canada. A strong focus on managing credit risk limited the Company's provision for bad debt during the second quarter of 2016 to $0.2 million.

Total Energy's Contract Drilling Services segment achieved 3% utilization during the second quarter of 2016, recording 52 operating days (spud to rig release), compared to 126 operating days, or 8% utilization, during the second quarter of 2015. Revenue per operating day decreased 23% for the second quarter of 2016 relative to the prior year comparable period due to reduced pricing.

The Rentals and Transportation Services segment achieved a utilization rate on major rental equipment of 10% during the second quarter of 2016 as compared to 19% during the second quarter of 2015. Segment revenue per utilized rental piece decreased 15% for the second quarter of 2016 compared to the same period in 2015 due to lower pricing. This segment exited the second quarter of 2016 with approximately 10,000 pieces of rental equipment and 112 heavy trucks as compared to 10,000 rental pieces and 120 heavy trucks at June 30, 2015.

Revenue in the Compression and Process Services segment decreased 34% to $37.1 million for the three months ended June 30, 2016 compared to $56.2 million for the same period in 2015. This segment exited the second quarter of 2016 with a $35.9 million backlog of fabrication sales orders as compared to $68.0 million at June 30, 2015 and $49.4 million at March 31, 2016. At June 30, 2016, approximately 12,000 horsepower of compression equipment was on rent compared to 28,900 horsepower on rent at June 30, 2015. The gas compression rental fleet operated at an average utilization rate of 30% during the second quarter of 2016 as compared to 69% during the second quarter of 2015.

Despite very low equipment utilization in the Contract Drilling Services and Rentals and Transportation Services segments due in part to the Company's determination not to pursue unprofitable work, Total Energy generated $1.8 million of positive cash flow while at the same time minimized wear and tear on its equipment. Adjusting for bad debt expense and share-based compensation expense, second quarter EBITDA was $2.1 million.

During the second quarter, Total Energy declared a quarterly dividend of $0.06 per share to shareholders of record on June 30, 2016. This dividend was paid on July 29, 2016. For Canadian income tax purposes, all dividends paid by Total Energy on its common shares are designated as "eligible dividends" unless otherwise indicated. During the second quarter of 2016, 10,000 common shares were purchased under the Company's normal course issuer bid at an average price of $13.10 per share (including commissions). Such shares were cancelled subsequent to June 30, 2016.

Outlook

While oil and natural gas prices have strengthened since the beginning of 2016 and industry sentiment has modestly improved, commodity prices remain volatile and significant uncertainty exists regarding near term industry activity levels. In this challenging and uncertain market, Total Energy continues to focus on safely and efficiently managing its existing businesses, protecting its financial strength and liquidity and pursuing investment opportunities that provide acceptable risk-adjusted returns.

Subsequent to June 30, 2016, the Company's Compression and Process Services segment received a $21.3 million order from a large Australian natural gas producer, which order is not included in the June 30, 2016 fabrication sales backlog. The compression equipment to be provided pursuant to this order is destined for Queensland, Australia and is currently expected to be completed by the end of the first quarter of 2017.

Total Energy's 2016 capital expenditure budget is $17.2 million, of which $13.6 million had been expended to June 30, 2016. The remaining $3.6 million of budgeted capital expenditures relates primarily to expansion of the gas compression rental fleet and is discretionary in nature. At June 30, 2016 approximately $0.1 million of future capital expenditure commitments existed.

During the second quarter of 2016, Total Energy invested $5.1 million to complete two acquisitions that expanded the Company's Rental and Transportation Services segment's presence in North Dakota. Efforts are currently underway to relocate operations from a leased facility in Minot to a newly acquired facility in Watford City.

Total Energy's financial condition remains very strong, with $79.4 million of positive working capital (including $14.9 million, or $0.48 per share, of cash and marketable securities) and no net debt as at June 30, 2016. The Company's only bank debt consists of a $47.8 million mortgage loan, which is secured by approximately 60% of the Company's real estate holdings (based on value). Total Energy's $65 million operating credit facility was undrawn at June 30, 2016 and remains undrawn. The Company's mortgage loan and operating credit facility require that it maintain a debt (less cash) to equity ratio below 2.5 to 1.0 and a current ratio of at least 1.3 to 1.0. As at June 30, 2016, Total Energy's debt to equity ratio was 0.11 to 1.0 and the current ratio was 4.33 to 1.0.

Conference Call

At 9:00 a.m. MDT on August 11, 2016 Total Energy will conduct a conference call and webcast to discuss its second quarter financial results. Daniel Halyk, President & Chief Executive Officer, will host the conference call. A live webcast of the conference call will be accessible on Total's website at www.totalenergy.ca by selecting "Webcasts". Persons wishing to participate in the conference call may do so by calling (866) 225-2055 or (416) 340-2218. Those who are unable to listen to the call live may listen to a recording of it on Total Energy's website. A recording of the conference call will also be available until August 18, 2016 by dialing (800) 408-3053 (passcode 1814423).

Selected Financial Information

Selected financial information relating to the three and six month periods ended June 30, 2016 and 2015 is attached to this news release. This information should be read in conjunction with the consolidated financial statements of Total Energy and the attached notes to the consolidated financial statements and management's discussion and analysis to be issued in due course and reproduced in the Company's 2016 second quarter report.

Consolidated Statements of Financial Position
(in thousands of Canadian dollars)
June 30, December 31,
2016 2015
(unaudited) (audited)
Assets
Current assets:
Cash and cash equivalents $ 9,669 $ 8,875
Accounts receivable 37,031 48,091
Inventory 50,769 59,066
Income taxes receivable 2,152 2,733
Other assets 5,259 5,768
Prepaid expenses and deposits 3,232 4,101
108,112 128,634
Property, plant and equipment 390,114 392,622
Income taxes receivable 7,070 7,070
Goodwill 4,053 4,053
$ 509,349 $ 532,379
Liabilities & Shareholders' Equity
Current liabilities:
Accounts payable and accrued liabilities $ 17,207 $ 22,002
Deferred revenue 5,803 10,556
Dividends payable 1,859 1,860
Current portion of obligations under finance leases 1,703 2,023
Current portion of long term debt 2,154 1,879
28,726 38,320
Long-term debt 45,938 46,900
Obligations under finance leases 1,545 2,285
Deferred tax liability 59,136 61,539
Shareholders' equity:
Share capital 88,710 88,875
Contributed surplus 8,262 8,255
Retained earnings 277,032 286,205
374,004 383,335
Commitments and contingencies
$ 509,349 $ 532,379
Consolidated Statements of Comprehensive Income (Loss)
(in thousands of Canadian dollars except per share amounts)
Three months ended
June 30
Six months ended
June 30
2016 2015 2016 2015
(unaudited) (unaudited) (unaudited) (unaudited)
Revenue $ 43,893 $ 71,908 $ 93,849 $ 164,398
Cost of services 37,202 54,337 76,856 117,413
Selling, general and administration 5,264 7,301 11,088 15,029
Share-based compensation 501 323 1,010 451
Depreciation 6,215 6,792 12,697 13,775
Operating income (loss) (5,289 ) 3,155 (7,802 ) 17,730
Gain on sale of property, plant and equipment 442 3,329 776 3,646
Finance income 11 262 11 395
Finance costs (804 ) (1,313 ) (1,327 ) (3,859 )
Net income (loss) before income taxes (5,640 ) 5,433 (8,342 ) 17,912
Current income tax expense 81 4,293 396 6,663
Deferred income tax (recovery) expense (1,518 ) 219 (2,403 ) 1,145
Total income tax (recovery) expense (1,437 ) 4,512 (2,007 ) 7,808
Net income (loss) and total comprehensive income (loss) for the period $ (4,203 ) $ 921 $ (6,335 ) $ 10,104
Earnings (loss) per share
Basic earnings (loss) per share $ (0.14 ) $ 0.03 $ (0.20 ) $ 0.33
Diluted earnings (loss) per share $ (0.14 ) $ 0.03 $ (0.20 ) $ 0.33
Consolidated Statements of Cash Flows
(in thousands of Canadian dollars)
Three months ended
June 30
Six months ended
June 30
2016 2015 2016 2015
(unaudited) (unaudited) (unaudited) (unaudited)
Cash provided by (used in):
Operations:
Net income (loss) for the period $ (4,203 ) $ 921 $ (6,335 ) $ 10,104
Add (deduct) items not affecting cash:
Depreciation 6,215 6,792 12,697 13,775
Share-based compensation 501 323 1,010 451
Gain on sale of property, plant and equipment (442 ) (3,329 ) (776 ) (3,646 )
Unrealized loss (gain) on other assets 354 (439 ) 379 560
Finance costs 450 1,752 948 3,299
Unrealized loss (gain) on foreign currencies translation (41 ) 141 713 (347 )
Current income tax expense 81 4,293 396 6,663
Deferred income tax (recovery) expense (1,518 ) 219 (2,403 ) 1,145
Income taxes recovered (paid) 378 (4,191 ) 185 (18,022 )
Cashflow 1,775 6,482 6,814 13,982
Changes in non-cash working capital items:
Accounts receivable 2,881 24,384 10,421 43,022
Inventory 7,023 969 8,297 (5,545 )
Prepaid expenses and deposits 450 (348 ) 869 2,136
Accounts payable and accrued liabilities (2,543 ) (16,624 ) (2,221 ) (21,680 )
Deferred revenue (2,845 ) (2,308 ) (4,753 ) 4,379
Cash provided by operating activities 6,741 12,555 19,427 36,294
Investing:
Purchase of property, plant and equipment (2,571 ) (2,620 ) (4,882 ) (9,113 )
Acquisitions (5,099 ) - (8,689 ) (1,231 )
Proceeds on sale of other assets 13 - 66 -
Purchase of other assets - (197 ) - (5,272 )
Proceeds on disposal of property, plant and equipment 1,916 20,896 4,221 22,124
Changes in non-cash working capital items (100 ) (1,873 ) (2,128 ) (8,982 )
Cash (used in) provided by investing activities (5,841 ) 16,206 (11,412 ) (2,474 )
Financing:
Advances under long-term debt - 50,000 - 50,000
Repayment of long-term debt (536 ) (303 ) (1,000 ) (303 )
Repayment of obligations under finance leases (601 ) (871 ) (1,266 ) (1,591 )
Repayment of convertible debentures - (69,000 ) - (69,000 )
Dividends to shareholders (1,859 ) (1,860 ) (3,719 ) (3,720 )
Repurchase of common shares (131 ) - (288 ) (69 )
Interest paid (450 ) (823 ) (948 ) (2,863 )
Cash used in financing activities (3,577 ) (22,857 ) (7,221 ) (27,546 )
Change in cash and cash equivalents (2,677 ) 5,904 794 6,274
Cash and cash equivalents, beginning of period 12,346 8,115 8,875 7,745
Cash and cash equivalents, end of period $ 9,669 $ 14,019 $ 9,669 $ 14,019

Segmented Information

The Company operates in three main industry segments, which are substantially in one geographic segment. These segments are Contract Drilling Services, which includes the contracting of drilling equipment and the provision of labour required to operate the equipment, Rentals and Transportation Services, which includes the rental and transportation of equipment used in drilling, completion and production operations and Compression and Process Services, which includes the fabrication, sale, rental and servicing of natural gas compression and oil and natural gas process equipment.

As at and for the three months ended June 30, 2016 (unaudited)


As at and for the three months ended
June 30, 2016
Contract
Drilling
Services
Rentals and
Transportation
Services
Compression
and Process
Services

Corporate
(1)


Total
Revenue $ 675 $ 6,091 $ 37,127 $ - $ 43,893
Cost of services 619 4,492 32,091 - 37,202
Selling, general and administration 382 2,671 1,440 771 5,264
Share-based compensation - - - 501 501
Depreciation 196 4,143 1,854 22 6,215
Operating income (loss) (522 ) (5,215 ) 1,742 (1,294 ) (5,289 )
Gain on sale of property, plant and equipment 10 125 307 - 442
Finance income - - - 11 11
Finance costs (89 ) (186 ) (109 ) (420 ) (804 )
Net income (loss) before income taxes (601 ) (5,276 ) 1,940 (1,703 ) (5,640 )
Goodwill - 2,514 1,539 - 4,053
Total assets 110,960 226,944 155,693 15,752 509,349
Total liabilities 20,083 37,961 28,340 48,961 135,345
Capital expenditures(2) $ 195 $ 7,185 $ 286 $ 4 $ 7,670

As at and for the three months ended June 30, 2015 (unaudited)


As at and for the three months ended
June 30, 2015
Contract
Drilling
Services
Rentals and
Transportation
Services
Compression
and Process
Services

Corporate
(1)


Total
Revenue $ 2,125 $ 13,553 $ 56,230 $ - $ 71,908
Cost of services 1,243 7,805 45,289 - 54,337
Selling, general and administration 457 3,191 2,335 1,318 7,301
Share-based compensation - - - 323 323
Depreciation 477 4,139 2,160 16 6,792
Operating income (loss) (52 ) (1,582 ) 6,446 (1,657 ) 3,155
Gain on sale of property, plant and equipment 28 327 2,968 6 3,329
Finance income - - - 262 262
Finance costs (173 ) (360 ) (238 ) (542 ) (1,313 )
Net income (loss) before income taxes (197 ) (1,615 ) 9,176 (1,931 ) 5,433
Goodwill - 2,514 1,539 - 4,053
Total assets 112,857 236,095 187,633 10,967 547,552
Total liabilities 17,472 45,484 43,339 53,638 159,933
Capital expenditures $ 87 $ 1,272 $ 1,345 $ (84 ) $ 2,620

As at and for the six months ended June 30, 2016 (unaudited)


As at and for the six months ended
June 30, 2016
Contract
Drilling
Services
Rentals and
Transportation
Services
Compression
and Process
Services

Corporate
(1)


Total
Revenue $ 3,862 $ 17,235 $ 72,752 $ - $ 93,849
Cost of services 2,556 11,685 62,615 - 76,856
Selling, general and administration 908 5,413 3,287 1,480 11,088
Share-based compensation - - - 1,010 1,010
Depreciation 733 8,193 3,731 40 12,697
Operating income (loss) (335 ) (8,056 ) 3,119 (2,530 ) (7,802 )
Gain on sale of property, plant and equipment 10 180 586 - 776
Finance income - - - 11 11
Finance costs (182 ) (375 ) (220 ) (550 ) (1,327 )
Net income (loss) before income taxes (507 ) (8,251 ) 3,485 (3,069 ) (8,342 )
Goodwill - 2,514 1,539 - 4,053
Total assets 110,960 226,944 155,693 15,752 509,349
Total liabilities 20,083 37,961 28,340 48,961 135,345
Capital expenditures(2) $ 245 $ 12,041 $ 1,281 $ 4 $ 13,571

As at and for the six months ended June 30, 2015 (unaudited)


As at and for the six months ended
June 30, 2015
Contract
Drilling
Services
Rentals and
Transportation
Services
Compression
and Process
Services

Corporate
(1)


Total
Revenue $ 7,355 $ 43,424 $ 113,619 $ - $ 164,398
Cost of services 4,273 23,180 89,960 - 117,413
Selling, general and administration 1,011 7,141 4,766 2,111 15,029
Share-based compensation - - - 451 451
Depreciation 1,091 8,337 4,317 30 13,775
Operating income (loss) 980 4,766 14,576 (2,592 ) 17,730
Gain on sale of property, plant and equipment 33 254 3,353 6 3,646
Finance income - - - 395 395
Finance costs (377 ) (799 ) (542 ) (2,141 ) (3,859 )
Net income (loss) before income taxes 636 4,221 17,387 (4,332 ) 17,912
Goodwill - 2,514 1,539 - 4,053
Total assets 112,857 236,095 187,633 10,967 547,552
Total liabilities 17,472 45,484 43,339 53,638 159,933
Capital expenditures(3) $ 421 $ 5,938 $ 3,965 $ 20 $ 10,344
(1) Corporate includes the Company's corporate activities, accretion of convertible debentures in 2015 and obligations pursuant to long-term credit facilities.
(2) Includes acquisitions of assets in January and May of 2016 described in note 4 to Q2 2016 Condensed Interim Consolidated Financial Statements.
(3) Includes January 2015 acquisition of a business described in note 5 to 2015 audited Financial Statements.

Total Energy Services Inc. is a growth oriented energy services corporation involved in contract drilling services, rentals and transportation services and the fabrication, sale, rental and servicing of natural gas compression and oil and natural gas process equipment. The common shares of Total Energy are listed and trade on the TSX under the symbol TOT.

Notes to Financial Highlights

(1) EBITDA means earnings before interest, taxes, depreciation and amortization and is equal to net income before income taxes plus finance costs plus depreciation minus finance income. EBITDA is not a recognized measure under IFRS. Management believes that in addition to net income, EBITDA is useful supplemental measure as it provides an indication of the results generated by the Company's primary business activities prior to consideration of how those activities are financed, amortized or how the results are taxed in various jurisdictions as well as the cash generated by the Company's primary business activities without consideration of the timing of the monetization of non-cash working capital items. Readers should be cautioned, however, that EBITDA should not be construed as an alternative to net income determined in accordance with IFRS as an indicator of Total Energy's performance. Total Energy's method of calculating EBITDA may differ from other organizations and, accordingly, EBITDA may not be comparable to measures used by other organizations.
(2) Cashflow for the six months ended June 30, 2015 is net of $12.7 million of income taxes paid during the period that relates to 2014 taxable income as a result of the Company not having been required to make income tax installment payments during 2014.
(3) Working capital equals current assets minus current liabilities.
(4) Net Debt equals long-term debt plus obligations under finance leases plus current liabilities minus current assets.

Certain statements contained in this press release, including statements which may contain words such as "could", "should", "expect", "believe", "will" and similar expressions and statements relating to matters that are not historical facts are forward-looking statements. Such forward-looking statements involve known and unknown risks and uncertainties which may cause the actual results, performances or achievements of Total Energy to be materially different from any future results, performances or achievements expressed or implied by such forward-looking statements. Such factors include fluctuations in the market for oil and natural gas and related products and services, political and economic conditions, the demand for products and services provided by Total Energy, Total Energy's ability to attract and retain key personnel and other factors. Reference should be made to Total Energy's most recently filed Annual Information Form and other public disclosures (available at www.sedar.com) for a discussion of such risks and uncertainties.

The TSX has neither approved nor disapproved of the information contained herein.

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