Total Energy Services Inc.
TSX : TOT

Total Energy Services Inc.

November 12, 2014 11:05 ET

Total Energy Services Inc. Announces Q3 2014 Results

CALGARY, ALBERTA--(Marketwired - Nov. 12, 2014) - Total Energy Services Inc. ("Total Energy" or the "Company") (TSX:TOT) announces its consolidated financial results for the three and nine months ending September 30, 2014.

Financial Highlights
($000's except per share data)
Three Months Ended
September 30
Nine Months Ended
September 30
(unaudited) (unaudited)
2014 2013 %
Change
2014 2013 %
Change
Revenue $ 108,233 $ 89,060 22% $ 307,040 $ 252,639 22%
Operating Earnings (1) 16,262 13,698 19% 48,266 38,631 25%
EBITDA (1) 24,596 20,752 19% 76,195 59,800 27%
Cashflow (1) (5) 24,184 18,899 28% 78,078 36,456 114%
Net Income 11,752 9,109 29% 39,996 26,614 50%
Per Share Data (Diluted) (2)
EBITDA (1) $ 0.70 $ 0.61 15% $ 2.19 $ 1.76 24%
Cashflow (1) (5) $ 0.69 $ 0.55 25% $ 2.24 $ 1.07 109%
Net Earnings $ 0.37 $ 0.29 28% $ 1.24 $ 0.86 44%
Sept. 30 Dec. 31
2014
(unaudited
) 2013
(audited
) %
Change
Financial Position
Total Assets $ 574,119 $ 518,782 11%
Long-Term Debt, Convertible Debentures and Obligations Under Finance Leases (excluding current portion) 68,732 67,221 2%
Working Capital (3) 97,624 69,651 40%
Net Debt (4) Nil Nil -
Shareholders' Equity 372,913 340,612 9%
Shares Outstanding (000's)
Basic 31,174 31,176 -
Diluted (2) 34,744 34,838 -
Notes 1 through 5 please refer to the Notes to the Financial Highlights set forth at the end of this release.

Total Energy's results for the three and nine months ended September 30, 2014 reflect a seasonal increase in field activity levels within the Contract Drilling Services and Rentals and Transportation Services divisions coming out of spring breakup. Continued growth within the Compression and Process Services division was tempered by the sale of approximately 23,900 horsepower of rental compression during the first half of 2014 upon the exercise of purchase options by customers.

Total Energy's Contract Drilling Services division achieved 55% utilization during the third quarter of 2014, recording 863 operating days (spud to release) with a fleet of 17 rigs, compared to 798 operating days, or 54% utilization, during the third quarter of 2013 with a fleet of 16 rigs. Rig 17 was completed and commenced operations in late August of 2014. Revenue per operating day increased 5% for the third quarter of 2014 relative to the prior year comparable period due primarily to the mix of equipment operating. Despite operating earnings margins for the third quarter of 2014 being negatively impacted by significant non-routine rig repair costs, year to date operating earnings margins in the Contract Drilling Services division have increased by 13% as compared to 2013. The Rentals and Transportation Services division achieved a utilization rate on major rental equipment of 40% during the third quarter of 2014, which was consistent with the third quarter of 2013. Divisional revenue per utilized rental piece increased 17% for the third quarter of 2014 compared to the same period in 2013, due primarily to the mix of equipment utilized. Revenues in the Compression and Process Services division increased 26% to $61.4 million for the three months ended September 30, 2014 compared to $48.8 million for the same period in 2013. This division exited the third quarter of 2014 with a $78.6 million backlog of fabrication sales orders as compared to $57.6 million at September 30, 2013. Excluded from the September 30, 2014 sales backlog is approximately $11.5 million (10,900 horsepower) of compression equipment that was sold during the third quarter but converted to rentals subsequent to September 30, 2014. At September 30, 2014, approximately 35,500 horsepower of compression equipment was on rent compared to 35,700 horsepower on rent at September 30, 2013. The gas compression rental fleet operated at an average utilization rate of 86% for the third quarter of 2014 as compared to 85% during the same period in 2013.

During the third quarter, Total Energy declared a quarterly dividend of $0.06 per share to shareholders of record on September 30, 2014. This dividend was paid on October 31, 2014. 268,900 common shares were purchased under the Company's normal course issuer bid during the three months ended September 30, 2014 at an average price of $21.15 per share (including commissions).

Outlook

While activity levels in Western Canada during the third quarter of 2014 were generally higher than the third quarter of 2013, recent declines in global oil prices and associated market volatility give rise to uncertainty as to oil and gas producers' future capital spending plans. In this uncertain environment, Total Energy is focused on completing its 2014 capital expenditure program and efficiently managing its operations during the upcoming seasonally active winter season.

Construction of the Company's 18th rig, a 4,200 meter (vertical depth rating) AC electric telescopic double with a top drive, is on time and on budget and such rig is expected to be completed and commence operations during the first quarter of 2015. There is significant customer interest in this rig and discussions are underway in regards to contracting the rig upon completion.

Well completion activity levels in Western Canada increased significantly during the third quarter and have carried on into the fourth quarter. The Rentals and Transportation Services division is focused on completing its 2014 capital equipment build program and increasing its equipment utilization as the industry enters the seasonally busy winter drilling season.

Demand for compression and process equipment remains strong. To accommodate increased demand for natural gas compression equipment rentals, including the recent conversion of 10,900 horsepower of compression sales to rentals, Total Energy has increased its 2014 capital budget by $5.0 million to $93.1 million. This increase will bring the Company's 2014 capital budget for compression rental fleet expansion to $32.9 million, which includes $7.9 million carried forward from 2013. Offsetting this capital budget increase has been the receipt of $31.5 million from the sale of property, plant and equipment during the first nine months of 2014, a significant portion of which was received upon the sale of approximately 28,160 horsepower of compression rental equipment upon the exercise of purchase options by customers.

To September 30, 2014, $56.2 million of 2014 capital expenditures had been made, with the remaining approximate $36.9 million expected to be expended by the first quarter of 2015. With no significant capital expenditure commitments beyond its 2014 capital budget, Total Energy will continue to evaluate market conditions with a view to pursuing opportunities that meet the Company's investment expectations.

Total Energy's financial condition remains solid with a long-term debt (including convertible debentures) to long-term debt plus equity ratio of 0.17 to 1.0, $97.6 million of positive working capital and no net debt as at September 30, 2014. Total Energy's $35 million operating facility is currently fully available and undrawn.

Conference Call

At 2:30 p.m. MST today, Total Energy will conduct a conference call and webcast to discuss its third quarter financial results. Daniel Halyk, President & Chief Executive Officer, will host the conference call. The call is open to Shareholders and all other interested persons. A live webcast of the conference call will be accessible on Total's website at www.totalenergy.ca by selecting "Webcasts". Persons wishing to join the conference call live may do so by calling (800) 766-6630 or (416) 340-8530. 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 November 20, 2014 by dialing (800) 408-3053 (passcode 6885693).

Selected Financial Information

Selected financial information relating to the three and nine month periods ended September 30, 2014 and 2013 is attached to this news release. This information should be read in conjunction with the condensed unaudited interim 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 third quarter report.

Condensed Interim Consolidated Statements of Financial Position
(in thousands of Canadian dollars)
September 30, December 31,
2014 2013
(unaudited) (audited)
Assets
Current assets:
Cash and cash equivalents $ 19,750 $ 3,210
Accounts receivable 97,800 78,130
Inventory 44,920 38,858
Income taxes receivable - 2,402
Prepaid expenses and deposits 7,454 5,921
169,924 128,521
Property, plant and equipment 392,508 382,347
Other assets 7,634 3,861
Goodwill 4,053 4,053
$ 574,119 $ 518,782
Liabilities & Shareholders' Equity
Current liabilities:
Accounts payable and accrued liabilities $ 50,658 $ 46,224
Deferred revenue 9,638 8,710
Income taxes payable 7,863 -
Dividends payable 1,870 1,559
Current portion of obligations under finance leases 2,271 2,377
72,300 58,870
Obligations under finance leases 2,871 2,775
Convertible debentures 65,861 64,446
Deferred tax liability 60,174 52,079
Shareholders' equity:
Share capital 89,100 83,243
Contributed surplus 6,547 6,677
Equity portion of convertible debenture 4,601 4,601
Retained earnings 272,665 246,091
372,913 340,612
$ 574,119 $ 518,782
Condensed Interim Consolidated Statements of Comprehensive Income
(in thousands of Canadian dollars except per share amounts)
Three months ended
September 30
Nine months ended
September 30
2014 2013 2014 2013
(unaudited) (unaudited) (unaudited) (unaudited)
Revenue $ 108,233 $ 89,060 $ 307,040 $ 252,639
Cost of services 76,167 60,573 211,473 169,076
Selling, general and administration 7,991 7,188 23,967 22,358
Share-based compensation 176 643 1,524 2,556
Depreciation 7,637 6,958 21,810 20,018
Results from operating activities 16,262 13,698 48,266 38,631
Gain on sale of property, plant and equipment 697 96 6,119 1,151
Finance income 110 107 2,188 342
Finance costs (1,379 ) (1,501 ) (4,423 ) (4,451 )
Net income before income taxes 15,690 12,400 52,150 35,673
Current income tax expense 2,766 1,954 4,059 5,241
Deferred income tax (recovery) expense 1,172 1,337 8,095 3,818
Total income tax expense 3,938 3,291 12,154 9,059
Net income and total comprehensive income for the period $ 11,752 $ 9,109 $ 39,996 $ 26,614
Earnings per share
Basic earnings per share $ 0.38 $ 0.30 $ 1.28 $ 0.87
Diluted earnings per share $ 0.37 $ 0.29 $ 1.24 $ 0.86
Condensed Interim Consolidated Statements of Cash Flows
(in thousands of Canadian dollars)
Three months ended
September 30
Nine months ended
September 30
2014 2013 2014 2013
Cash provided by (used in):
Operations:
Net income for the period $ 11,752 $ 9,109 $ 39,996 $ 26,614
Add (deduct) items not affecting cash:
Depreciation 7,637 6,958 21,810 20,018
Share-based compensation 176 643 1,524 2,556
Gain on sale of property, plant and equipment (697 ) (96 ) (6,119 ) (1,151 )
Finance income 9 (107 ) (1,916 ) (342 )
Finance costs 1,379 1,501 4,423 4,451
Current income tax expense 2,766 1,954 4,059 5,241
Deferred income tax (recovery) expense 1,172 1,337 8,095 3,818
Income taxes recovered (paid) (10 ) (2,400 ) 6,206 (24,749 )
24,184 18,899 78,078 36,456
Changes in non-cash working capital items:
Accounts receivable (28,473 ) (17,353 ) (19,670 ) (7,712 )
Inventory (3,616 ) (1,553 ) (6,062 ) 1,517
Prepaid expenses and deposits 1,466 (1,385 ) (1,608 ) (3,336 )
Accounts payable and accrued liabilities 7,721 6,674 7,683 6,435
Deferred revenue 1,174 (1,402 ) 928 (1,277 )
2,456 3,880 59,349 32,083
Investments:
Purchase of property, plant and equipment (21,772 ) (19,400 ) (56,200 ) (36,472 )
Acquisition of business - - - (16,954 )
Proceeds on sale of other assets 733 - 1,022 -
Purchase of other assets - - (2,879 ) -
Proceeds on disposal of property, plant and equipment 4,042 841 31,509 4,351
Changes in non-cash working capital items (3,464 ) 5,103 (1,188 ) 880
(20,461 ) (13,456 ) (27,736 ) (48,195 )
Financing:
Repayment of obligations under finance leases (707 ) (795 ) (2,437 ) (2,279 )
Dividends to shareholders (1,879 ) (1,530 ) (5,314 ) (4,598 )
Issuance of common shares 1,649 3,277 5,791 4,705
Repurchase of common shares (5,483 ) (1,427 ) (9,106 ) (5,420 )
Interest paid (1,884 ) (1,994 ) (4,007 ) (4,157 )
(8,304 ) (2,469 ) (15,073 ) (11,749 )
Change in cash and cash equivalents (26,309 ) (12,045 ) 16,540 (27,861 )
Cash and cash equivalents, beginning of period 46,059 34,236 3,210 50,052
Cash and cash equivalents, end of period $ 19,750 $ 22,191 $ 19,750 $ 22,191

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 process equipment.

As at and for the Contract Rentals and Compression
three months ended Drilling Transportation and Process
September 30, 2014 Services Services Services Other(1) Total
Revenue $ 16,758 $ 30,088 $ 61,387 $ - $ 108,233
Cost of services 11,456 14,892 49,819 - 76,167
Selling, general and administration 872 3,401 2,469 1,249 7,991
Share-based compensation - - - 176 176
Depreciation 1,690 3,945 1,993 9 7,637
Results from operating activities 2,740 7,850 7,106 (1,434 ) 16,262
Gain on sale of property, plant and equipment - 105 592 - 697
Finance income - - - 110 110
Finance costs (206 ) (531 ) (260 ) (382 ) (1,379 )
Net income (loss) before income taxes 2,534 7,424 7,438 (1,706 ) 15,690
Goodwill - 2,514 1,539 - 4,053
Total assets 121,325 245,996 184,426 22,372 574,119
Total liabilities 24,198 51,386 48,000 77,622 201,206
Capital expenditures $ 4,791 $ 7,162 $ 9,801 $ 18 $ 21,772
As at and for the Contract Rentals and Compression
three months ended Drilling Transportation and Process
September 30, 2013 Services Services Services Other(1 ) Total
Revenue $ 14,772 $ 25,508 $ 48,780 $ - $ 89,060
Cost of services 9,460 12,248 38,865 - 60,573
Selling, general and administration 841 3,250 2,048 1,049 7,188
Share-based compensation - - - 643 643
Depreciation 1,597 3,722 1,630 9 6,958
Results from operating activities 2,874 6,288 6,237 (1,701 ) 13,698
Gain on sale of property, plant and equipment - (19 ) 115 - 96
Finance income - - - 107 107
Finance costs (204 ) (552 ) (241 ) (504 ) (1,501 )
Net income (loss) before income taxes 2,670 5,717 6,111 (2,098 ) 12,400
Goodwill - 2,514 1,539 - 4,053
Total assets 102,233 224,203 153,071 14,855 494,362
Total liabilities 19,583 43,570 32,388 68,920 164,461
Capital expenditures $ 2,816 $ 5,255 $ 9,855 $ 1,474 $ 19,400
As at and for the Contract Rentals and Compression
nine months ended Drilling Transportation and Process
September 30, 2014 Services Services Services Other(1 ) Total
Revenue $ 46,124 $ 88,555 $ 172,361 $ - $ 307,040
Cost of services 29,290 45,647 136,536 - 211,473
Selling, general and administration 2,631 10,360 7,421 3,555 23,967
Share-based compensation - - - 1,524 1,524
Depreciation 4,283 11,624 5,889 14 21,810
Results from operating activities 9,920 20,924 22,515 (5,093 ) 48,266
Gain on sale of property, plant and equipment 22 197 5,827 73 6,119
Finance income - - - 2,188 2,188
Finance costs (613 ) (1,578 ) (778 ) (1,454 ) (4,423 )
Net income (loss) before income taxes 9,329 19,543 27,564 (4,286 ) 52,150
Goodwill - 2,514 1,539 - 4,053
Total assets 121,325 245,996 184,426 22,372 574,119
Total liabilities 24,198 51,386 48,000 77,622 201,206
Capital expenditures $ 18,283 $ 16,016 $ 21,876 $ 25 $ 56,200
As at and for the Contract Rentals and Compression
nine months ended Drilling Transportation and Process
September 30, 2013 Services Services Services Other(1 ) Total
Revenue $ 37,687 $ 79,225 $ 135,727 $ - $ 252,639
Cost of services 24,158 37,933 106,985 - 169,076
Selling, general and administration 2,409 10,048 6,331 3,570 22,358
Share-based compensation - - - 2,556 2,556
Depreciation 3,907 11,414 4,668 29 20,018
Results from operating activities 7,213 19,830 17,743 (6,155 ) 38,631
Gain (loss) on sale of property, plant and equipment (22 ) 216 957 - 1,151
Finance income - - 53 289 342
Finance costs (608 ) (1,648 ) (711 ) (1,484 ) (4,451 )
Net income before income taxes 6,583 18,398 18,042 (7,350 ) 35,673
Goodwill - 2,514 1,539 - 4,053
Total assets 102,233 224,203 153,071 14,855 494,362
Total liabilities 19,583 43,570 32,388 68,920 164,461
Capital expenditures (2) $ 4,547 $ 12,657 $ 31,248 $ 2,020 $ 50,472
(1) Other includes the Company's corporate activities, accretion of convertible debentures and obligations pursuant to long-term credit facilities.
(2) Includes January 1, 2013 acquisition of a process equipment fabrication business included in Compression and Process Services segment.

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 process equipment. The common shares of Total Energy are listed and trade on the TSX under the symbol TOT.

Notes to Financial Highlights

  1. Operating earnings means results from operating activities and is equal to net income before income taxes minus gain on sale of property, plant and equipment plus finance costs. EBITDA means earnings before interest, taxes, depreciation and amortization and is equal to net income before income taxes plus finance costs plus depreciation. Cashflow means cash provided by operations before changes in non-cash working capital items. Operating earnings, EBITDA and cashflow are not recognized measures under IFRS. Management believes that in addition to net income, operating earnings, EBITDA and cashflow are useful supplemental measures as they provide 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 operating earnings, EBITDA and cashflow 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 operating earnings, EBITDA and cashflow may differ from other organizations and, accordingly, operating earnings, EBITDA and cashflow may not be comparable to measures used by other organizations.
  1. Per share data (diluted) and the number of common shares outstanding on a diluted basis includes the impact of the approximate 3.1 million common shares issuable upon the entire conversion of the $69 million principal amount of convertible debentures issued by the Company in February 2011.
  1. Working capital equals current assets minus current liabilities.
  1. Net Debt equals long-term debt plus obligations under finance leases plus convertible debentures plus current liabilities minus current assets.
  1. Cashflow for the nine months ended September 30, 2013 is net of $15.3 million of income taxes paid during the period that relates to 2012 taxable income as a result of the Company not having been required to make income tax installment payments during 2012.

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 Toronto Stock Exchange has neither approved nor disapproved of the information contained herein.

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