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CALGARY, Alberta, Feb. 28, 2019 (GLOBE NEWSWIRE) -- Strad Energy Services Ltd., (“Strad” or the “Company”), an industrial matting and equipment rentals company, today announced its financial results for the year-ended December 31, 2018. All amounts are stated in Canadian dollars unless otherwise noted.
YEAR-END FINANCIAL AND OPERATIONAL HIGHLIGHTS
Revenue increased by 2% to 119.9 million compared to $117.6 million in 2017;
EBITDA (1,4) increased 9% to $27.2 million compared to $25.0 million in 2017;
Net loss improved to $1.0 million compared with net loss of $7.3 million in 2017, including a $10.9 million impairment in the Equipment Rentals segment. Excluding the impact of the impairment, net earnings in 2018 would have been $6.9 million or $0.12 per share;
Capital additions totaled $33.8 million, of which $31.3 million was deployed to maintain and grow the Company’s industrial matting fleet to meet the expected demand in Canada and the U.S.;
Grew the industrial matting fleet by 31% to 111,710 mats;
Funded debt(2) increased to $14.0 million at December 31, 2018, compared to $9.8 million at December 31, 2017. Funded debt(2) to covenant EBITDA(3) ratio was 0.5 : 1.0 at December 31, 2018; and
Subsequent to year-end, Strad's board approved a $6.0 million increase in the 2019 capital program, bringing total approved capital to $18.0 million for the year.
Notes:
Earnings before interest, taxes, depreciation and amortization (“EBITDA”) is not a recognized measure under IFRS, and, accordingly, Strad's use of such a term may not be comparable to similarly defined measures presented by other entities; see “Non-IFRS and Additional IFRS Measures and Reconciliations”.
Funded debt includes bank indebtedness plus long-term debt plus current and long-term obligations under finance lease less cash.
Covenant EBITDA, as defined in the Company's credit facility agreement, is based on trailing twelve months adjusted EBITDA plus share based payments, plus additional one-time charges.
During the second quarter of 2018, the Company changed the method of calculation for EBITDA by no longer adjusting for gains or losses resulting from foreign exchange or the disposal of property, plant and equipment during the normal course of business. These changes have been updated for prior period balances.
FOURTH QUARTER FINANCIAL AND OPERATIONAL HIGHLIGHTS
Revenue increased by 17% to $32.3 million compared to $27.5 in 2017;
EBITDA (1,4) increased 110% to $10.6 million compared to $5.1 million in 2017;
Net loss increased to $5.4 million compared to a net loss of $3.4 million in 2017, due to a $10.9 million impairment in the Equipment Rentals segment in the quarter. Excluding the impact of the impairment, net earnings for the quarter would have been $2.5 million or $0.04 per share;
Commenced an industrial matting project in Canada related to the North Montney Mainline;
Capital additions totaled $12.2 million focused on maintaining and growing the Company's industrial matting fleet.
Notes:
Earnings before interest, taxes, depreciation and amortization (“EBITDA”) is not a recognized measure under IFRS, and, accordingly, Strad's use of such a term may not be comparable to similarly defined measures presented by other entities; see “Non-IFRS and Additional IFRS Measures and Reconciliations”.
Funded debt includes bank indebtedness plus long-term debt plus current and long-term obligations under finance lease less cash.
Covenant EBITDA, as defined in the Company's credit facility agreement, is based on trailing twelve months adjusted EBITDA plus share based payments, plus additional one-time charges.
During the second quarter of 2018, the Company changed the method of calculation for EBITDA by no longer adjusting for gains or losses resulting from foreign exchange or the disposal of property, plant and equipment during the normal course of business. These changes have been updated for prior period balances.
“2018 marked a pivotal year for Strad as we realigned the Company to focus on high growth industrial matting, allowing us to participate in a broad range of sectors across North America including construction and the maintenance of large-scale infrastructure projects. We set a goal to grow our matting fleet by dedicating our entire growth capital budget in 2018 to Industrial Matting knowing this segment can drive growth and profitability,” said Andy Pernal, President and CEO of Strad. “The fundamentals for industrial matting remain strong in Canada and the U.S. as evidenced by our fourth quarter results. We are confident in our outlook for 2019, providing several approved infrastructure projects, such as LNG Canada and Coastal GasLink, remain on schedule with no delays in construction.”
“The fourth quarter highlighted the potential for our Industrial Matting business line to deliver high rates of return with a 110% increase in EBITDA for the segment. In the quarter, we kicked off a large matting project in the Montney region and saw increased activity from our U.S. business. Both of these developments contributed to a 17% increase in revenue for the quarter versus the same period in 2017,” said Michael Donovan, CFO of Strad. “With our available cash flow for the year, we ramped up our matting growth capital investments by 50% for the year, made payments on our long-term debt, and bought back 5% of our shares through our NCIB.”
YEAR-END FINANCIAL HIGHLIGHTS (in thousands of Canadian dollars)
Three months ended December 31, 2018
Industrial Matting
Equipment Rentals
Corporate
Total
Revenue
$
18,493
$
13,810
$
—
$
32,303
Operating expenses
8,675
9,059
—
17,734
Selling, general and administration
1,422
1,935
605
3,962
Share based payments
29
40
15
84
(Gain) loss on disposal of property, plant and equipment
(17
)
(204
)
3
(218
)
Foreign exchange loss
64
78
—
142
EBITDA (1)
8,320
2,902
(623
)
10,599
Depreciation and amortization (2)
3,475
14,570
208
18,253
EBIT (3)
4,845
(11,668
)
(831
)
(7,654
)
Interest expense
235
235
Income tax recovery
(2,518
)
(2,518
)
Net income (loss)
1,452
(5,371
)
Equipment Fleet:
Matting fleet at period end
111,710
—
—
111,710
Average matting fleet
107,900
—
—
107,900
Equipment fleet at period end
—
6,120
—
6,120
Average equipment fleet
—
6,140
—
6,140
Three months ended December 31, 2017
Industrial Matting
Equipment Rentals
Corporate
Total
Revenue
$
12,492
$
15,030
$
—
$
27,522
Operating expenses
7,110
11,951
—
19,061
Selling, general and administration
994
1,353
822
3,169
Share based payments
47
61
15
123
Loss on disposal of property, plant and equipment
6
7
3
16
Foreign exchange loss
20
30
44
94
EBITDA (1)
4,315
1,628
(884
)
5,059
Depreciation and amortization (2)
3,599
4,725
594
8,918
EBIT (3)
716
(3,097
)
(1,478
)
(3,859
)
Interest expense
158
158
Income tax recovery
(653
)
(653
)
Net loss
(983
)
(3,364
)
Equipment Fleet:
Matting fleet at period end
85,300
—
—
85,300
Average matting fleet
87,020
—
—
87,020
Equipment fleet at period end
—
6,200
—
6,200
Average equipment fleet
—
6,070
—
6,070
Notes:
Earnings before interest, taxes, depreciation and amortization (“EBITDA”) is not a recognized measure under IFRS, and, accordingly, Strad's use of such a term may not be comparable to similarly defined measures presented by other entities; see “Non-IFRS and Additional IFRS Measures and Reconciliations”. During the second quarter of 2018, the Company changed the method of calculation for EBITDA by no longer adjusting for gains or losses resulting from foreign exchange or the disposal of property, plant and equipment during the normal course of business.
Included in depreciation and amortization for the three months ended December 31, 2018, are impairment charges of $10.9 million related to the impairment of Equipment Rentals assets during the fourth quarter of 2018.
Earnings before interest and tax (“EBIT”) is an additional measure under IFRS, see “Non-IFRS and Additional IFRS Measures and Reconciliations”.
(in thousands of Canadian dollars)
Year-ended December 31, 2018
Industrial Matting
Equipment Rentals
Corporate
Total
Revenue
$
60,463
$
59,459
$
—
$
119,922
Operating expenses
33,826
44,056
—
77,882
Selling, general and administration
5,197
6,960
2,987
15,144
Share based payments
113
158
61
332
Gain on disposal of property, plant and equipment
(256
)
(527
)
(5
)
(788
)
Foreign exchange loss (gain)
67
97
(6
)
158
EBITDA (1)
21,516
8,715
(3,037
)
27,194
Depreciation and amortization (2)
7,468
26,497
404
34,369
EBIT (3)
14,048
(17,782
)
(3,441
)
(7,175
)
Interest expense
812
812
Income tax recovery
(6,970
)
(6,970
)
Net income (loss)
2,717
(1,017
)
Equipment Fleet:
Matting fleet at period end
111,710
—
—
111,710
Average matting fleet
91,780
—
—
91,780
Equipment fleet at period end
—
6,120
—
6,120
Average equipment fleet
—
6,100
—
6,100
Year-ended December 31, 2017
Industrial Matting
Equipment Rentals
Corporate
Total
Revenue
$
57,480
$
60,119
$
—
$
117,599
Operating expenses
32,062
46,596
—
78,658
Selling, general and administration
4,270
5,787
3,717
13,774
Share based payments
153
213
127
493
Gain on disposal of property, plant and equipment
(81
)
(115
)
(22
)
(218
)
Foreign exchange (gain) loss
(120
)
(168
)
222
(66
)
EBITDA (1)
21,196
7,806
(4,044
)
24,958
Depreciation and amortization (2)
10,927
18,498
807
30,232
EBIT (3)
10,269
(10,692
)
(4,851
)
(5,274
)
Interest expense
1,518
1,518
Income tax expense
484
484
Net loss
(6,853
)
(7,276
)
Equipment Fleet:
Matting fleet at period end
85,300
—
—
85,300
Average matting fleet
80,970
—
—
80,970
Equipment fleet at period end
—
6,200
—
6,200
Average equipment fleet
—
6,070
—
6,070
Notes:
Earnings before interest, taxes, depreciation and amortization (“EBITDA”) is not a recognized measure under IFRS, and, accordingly, Strad's use of such a term may not be comparable to similarly defined measures presented by other entities; see “Non-IFRS Measures and Additional IFRS Measures and Reconciliations”. During the second quarter of 2018, the Company changed the method of calculation for EBITDA by no longer adjusting for gains or losses resulting from foreign exchange or the disposal of property, plant and equipment during the normal course of business.
Included in depreciation and amortization for the year-ended December 31, 2018, are impairment charges of $10.9 million related to the impairment of Equipment Rentals assets during the fourth quarter of 2018.
Earnings before interest and tax (“EBIT”) is an additional measure under IFRS, see “Non-IFRS and Additional IFRS Measures and Reconciliations”.
FINANCIAL POSITION AND RATIOS
(in thousands of Canadian dollars, except ratio amounts)
As at December 31, 2018
As at December 31, 2017
Working capital(1)
$
19,333
$
19,617
Funded debt(2)
14,009
9,768
Total assets
175,477
174,821
Funded debt to EBITDA(3)
0.5 : 1.0
0.4 : 1.0
Notes:
(1)Working capital is calculated as current assets less current liabilities. (2)Funded debt includes bank indebtedness plus long-term debt plus current and long-term obligations under finance lease. (3) EBITDA is based on trailing twelve months adjusted EBITDA plus share based payments, plus severance and transaction costs.
FOURTH QUARTER RESULTS
Strad reported an increase in revenue and EBITDA of 17% and 110%, respectively during the three months ended December 31, 2018, compared to the same period in 2017. During the three months ended December 31, 2018, Strad reported a net loss of $(5.4) million compared to a net loss of $(3.4) million in 2017. The higher net loss in 2018 was due to the recognition of a $10.9 million impairment in Equipment Rentals as a result of the deteriorating outlook for the Canadian market.
For the three months ended December 31, 2018, Strad's Industrial Matting segment reported an increase in revenue and EBITDA of 48% and 93% as compared to the same period in 2017. Earnings before interest and taxes ("EBIT") from Industrial Matting increased from $0.7 million in the fourth quarter of 2017 to $4.8 million in the fourth quarter of 2018. The increase in revenue, EBITDA and EBIT was a result of a significant matting project in Canada that occurred throughout the fourth quarter of 2018, as well as an 83% increase in U.S. revenue year-over-year. The increase in revenue for the fourth quarter of 2018 was also impacted by improved customer pricing as compared to the same period in 2017.
Strad’s Equipment Rentals segment reported a decrease in revenue and an increase in EBITDA of 8% and 78%, respectively, during the three months ended December 31, 2018, compared to the same period in 2017. The decrease in revenue was a result of lower revenue in Canada, due to the discontinuance of the drill cuttings management service line, which was mostly offset by an increase in pricing and utilization in the U.S.
During the fourth quarter of 2018, capital expenditures were $12.0 million in Industrial Matting, $0.1 million in Equipment Rentals and $0.1 million in Corporate. The majority of the capital spending related to wood matting additions, which were acquired to prepare for and to support industrial matting projects for the upcoming 2019 year. As of December 31, 2018, the industrial matting fleet was 111,710 as compared to 101,210 at September 30, 2018.
OUTLOOK
We continued to execute on our industrial matting strategy announced in 2018, with company EBITDA for the year totaling $27.2 million compared to $25.0 million in the prior year. Industrial Matting EBITDA totaled $21.5 million compared to $21.2 million in the prior year, while Equipment Rentals contributed $8.7 million compared to $7.8 million in the prior year. Despite a challenging macro-economic environment, the fourth quarter of 2018 was our strongest quarter since 2014. Financial results for the quarter were attributed primarily to the strong margins in the Industrial Matting segment, posting $8.3 million of EBITDA compared to $4.3 million for the same period in 2017. Results for the quarter were propelled by a large matting project related to the North Montney mainline.
We believe strongly in the opportunities presented in both Canada and the U.S. for our Industrial Matting segment. Formal approval of the LNG Canada project and associated Coastal GasLink pipeline will provide significant opportunity for the Industrial Matting segment in 2019. The Trans Mountain Expansion Project will similarly provide opportunities for Strad. However, any delay in construction could impact timing of potential matting projects.
In 2019, we will look to employ our expertise in deploying large-scale matting projects in the U.S. market. With increasing environmental responsibility and regulation throughout North America, we expect the overall matting market to increase as we also look to increase our market share. Our internal estimates place the current market size for matting in North America at over $2.0 billion annually and growing.
Consistent with our strategy to grow our matting fleet, we deployed $31.3 million of capital to maintain and increase our fleet in 2018. The remainder of our $33.8 million capital program was comprised of maintenance capital and technology enhancements. Our board has approved a 2019 capital program of $18.0 million with the expectation that total capital spend in 2019 will be approximately $30.0 million, of which $29.0 million will be allocated to maintaining and growing the industrial matting fleet.
The equipment rentals market in Canada saw a dramatic shift in macro economic conditions in the fourth quarter. Market access restrictions in Canada culminated in average Western Canadian Select (“WCS”) pricing of under six US dollars per barrel in December 2018, a decline of over 85% from the prior year. These conditions have led to initial reductions in 2019 capital budgets by major Canadian producers which have impacted first quarter 2019 rig counts and expected activity levels in the Equipment Rentals segment throughout the first half of 2019. In the U.S., the outlook for Equipment Rentals remains consistent with 2018 as West Texas Intermediate (“WTI”) pricing has remained relatively consistent. Drilling activity is expected to be stable throughout 2019 in the U.S.
On November 26, 2018, we announced the approval from the Toronto Stock Exchange to renew our Normal Course Issuer Bid (“NCIB”) allowing us to buy back a maximum of 4,067,205 common shares. The NCIB commenced on November 28, 2018 and will terminate November 27, 2019. Subsequent to year-end, the Company purchased 471,408 common shares under the NCIB. Under our previous NCIB, which expired September 13, 2018, we purchased and canceled 2,768,320, or 5% of the outstanding common shares.
In 2018, our funds from operations allowed us to increase our capital program, repurchase shares under our NCIB, while carrying a minimal amount of debt. We expect this trend to continue in 2019 as our funds from operations and strong balance sheet provide the flexibility to evaluate various alternatives to create shareholder value, including, without limitation, organic growth opportunities or strategic acquisitions.
RESULTS OF OPERATIONS
Industrial Matting
(in thousands of Canadian dollars)
Three months ended December 31,
Year-ended December 31,
2018
2017
%
2018
2017
%
Canadian revenue
$
13,869
$
9,969
39
%
$
43,629
$
49,787
(12
)%
U.S. revenue
4,624
2,523
83
%
16,834
7,693
119
%
Total Revenue
18,493
12,492
48
%
60,463
57,480
5
%
EBITDA(1)
8,320
4,315
93
%
21,516
21,196
2
%
EBITDA as a percentage of revenue
45
%
35
%
36
%
37
%
EBIT(2)
4,845
716
577
%
14,048
10,269
37
%
EBIT as a percentage of revenue
26
%
6
%
23
%
18
%
Capital expenditures(3)
11,941
4,570
161
%
31,307
19,250
63
%
Property, plant and equipment
64,921
45,021
44
%
64,921
45,021
44
%
Equipment Fleet:
Matting fleet at period end(4)
111,710
85,300
31
%
111,710
85,300
31
%
Average matting fleet(5)
107,900
87,020
24
%
91,780
80,970
13
%
Average utilization %(6)
45
%
33
%
35
%
36
%
Notes:
Earnings before interest, taxes, depreciation and amortization (“EBITDA”) is not a recognized measure under IFRS, and, accordingly, Strad's use of such term may not be comparable to similarly defined measures presented by other entities; see “Non-IFRS and Additional IFRS Measures and Reconciliations”. During the second quarter of 2018, the Company changed the method of calculation for EBITDA by no longer adjusting for gains or losses resulting from foreign exchange or the disposal of property, plant and equipment during the normal course of business. These changes have been updated for prior period balances.
Earnings before interest and tax (“EBIT”) is an additional measure under IFRS, see “Non-IFRS and Additional IFRS Measures and Reconciliations”.
Includes assets acquired under finance lease and purchases of intangible assets.
Matting fleet balances are as at December 31, 2018 and 2017.
Matting fleet balances are averages for the three months and year-ended December 31, 2018 and 2017.
Equipment utilization includes matting equipment on rent only and is calculated using gross asset value.
Revenue for the three months ended December 31, 2018, of $18.5 million increased 48% compared to $12.5 million during the same period of 2017. Increased revenue was primarily due to the timing of industrial matting projects in comparison to the same quarter of 2017. Average utilization improved from 33% to 45% during the fourth quarter of 2018 as compared to the same period in 2017, partially due to a significant pipeline project along the North Montney Mainline that occurred in 2018. Average pricing improved by 25% for the three months ended December 31, 2018 as compared to the same period in 2017, which further contributed to the increase in revenue during the fourth quarter.
Strad's matting fleet increased to 111,710 mats as at December 31, 2018, compared to 85,300 mats at December 31, 2017, to meet the expected increase in customer demand.
EBITDA for the three months ended December 31, 2018, increased 93% to $8.3 million as compared to $4.3 million during the three months ended December 31, 2017. EBITDA as a percentage of revenue was 45% during the three months ended December 31, 2018, compared to 35% during the same period in 2017. The increase in EBITDA was driven primarily by the increase in revenue which was partially offset by a 22% increase in operating expenses as compared to the same period in 2017.
During the fourth quarter of 2018, EBIT increased to $4.8 million compared to $0.7 million during the same period of 2017. The primary driver for the increase in EBIT were the same factors that led to the increase in EBITDA for the fourth quarter of 2018 compared to the fourth quarter of 2017.
Revenue for the year-ended December 31, 2018, increased 5% to $60.5 million from $57.5 million during the same period of 2017. The primary increase in revenue year-over-year was due to the 119% increase in U.S. industrial matting revenue as compared to the year-ended December 31, 2017. This was offset by the 12% revenue decrease in Canada to $43.6 million, compared to $49.8 million during the same period in 2017, due to the delay of matting projects until the fourth quarter of 2018, which led to a decrease in utilization to 35% from 36%. Further impacting revenue was a 32% increase in pricing year-over-year.
During the year-ended December 31, 2018, EBITDA increased 2% to $21.5 million compared to $21.2 million for the same period of 2017. The increase in EBITDA is primarily due to the increase in revenue year-over-year, which was partially offset by a 6% increase in operating expenses year-over-year. EBITDA as a percentage of revenue decreased slightly to 36% for the year-ended December 31, 2018, as compared to 37% for the year-ended December 31, 2017.
EBIT for the year-ended December 31, 2018, increased to $14.0 million as compared to $10.3 million for the same period in 2017. The increase in EBIT was primarily driven by the increase in EBITDA for the fourth quarter of 2018 as compared to the fourth quarter of 2017. The increase in EBIT was further improved by a decrease in depreciation expense to $7.5 million for the year-ended December 31, 2018, as compared to $10.9 million for the year-ended December 31, 2017. The decrease in depreciation expense is due to the accelerated depreciation of mats with no remaining useful life during 2017 that did not occur in 2018.
Operating expenses for the three months and year-ended December 31, 2018, increased 22% and 6%, respectively, to $8.7 million and $33.8 million as compared to $7.1 million and $32.1 million during the same period of 2017. The increase in operating expenses was primarily due to higher transportation and other third party costs for the three months and year-ended December 31, 2018, as compared to the same periods in 2017.
Equipment Rentals
(in thousands of Canadian dollars)
Three months ended December 31,
Year-ended December 31,
2018
2017
%
2018
2017
%
Canadian revenue
$
7,112
$
9,550
(26
)%
$
33,770
$
40,513
(17
)%
U.S. revenue
6,698
5,480
22
%
25,689
19,606
31
%
Total Revenue
13,810
15,030
(8
)%
59,459
60,119
(1
%)
EBITDA(1)
2,902
1,628
78
%
8,715
7,806
12
%
EBITDA as a percentage of revenue
21
%
11
%
15
%
13
%
EBIT (2)
(11,668
)
(3,097
)
nm
(17,782
)
(10,692
)
nm
EBIT as a percentage of revenue
(84
)%
(21
)%
(30
)%
(18
)%
Capital expenditures(3)
97
458
(79
)%
1,171
2,669
(56
)%
Property, plant and equipment
71,790
96,689
(26
)%
71,790
96,689
(26
)%
Equipment Fleet:
Equipment fleet at period end(4)
6,120
6,200
(1
)%
6,120
6,200
(1
)%
Average equipment fleet(5)
6,140
6,070
1
%
6,100
6,070
nm
Average utilization %(6)
36
%
33
%
34
%
35
%
Rig Counts(7)
Western Canada
193
202
(4
)%
189
202
(6
)%
Bakken
55
49
12
%
54
46
17
%
Marcellus
75
73
3
%
77
70
10
%
Rockies
68
69
(1
)%
68
63
8
%
Notes:
Earnings before interest, taxes, depreciation and amortization (“EBITDA”) is not a recognized measure under IFRS, and, accordingly, Strad's use of such term may not be comparable to similarly defined measures presented by other entities; see “Non-IFRS and Additional IFRS Measures and Reconciliations”. During the second quarter of 2018, the Company changed the method of calculation for EBITDA by no longer adjusting for gains or losses resulting from foreign exchange or the disposal of property, plant and equipment during the normal course of business. These changes have been updated for prior period balances.
Earnings before interest and tax (“EBIT”) is an additional measure under IFRS, see “Non-IFRS and Additional IFRS Measures and Reconciliations”.
Includes assets acquired under finance lease and purchases of intangible assets.
Surface equipment fleet balances are as at December 31, 2018 and 2017.
Surface equipment fleet balances are averages for the three months and year-ended December 31, 2018 and 2017.
Equipment utilization includes surface equipment on rent only and is calculated using gross asset value.
Source: Baker Hughes "North America Rotary Rig Count". Rig Counts are average rig counts for the period.
Revenue for the three months ended December 31, 2018, decreased 8% to $13.8 million from $15.0 million during the same period in 2017. Revenue decreased primarily due to lower Canadian revenue, which was the result of the discontinuance of the drill cuttings management service line that operated in the fourth quarter of 2017. The decrease was partially offset by the improvement of average utilization to 36% from 33% for the three months ended December 31, 2018, as compared to the same period in 2017. Average utilization improved as a result of the increase in rig counts in the Bakken and Marcellus by 12% and 3%, respectively, which was offset by a decrease in rig counts in the Rockies and western Canada by 1% and 4%, respectively. Overall average pricing improved by 38% in the fourth quarter of 2018 as compared to the same period in 2017.
During the fourth quarter, EBITDA increased 78% to $2.9 million from $1.6 million during the fourth quarter of 2017. EBITDA as a percentage of revenue increased to 21% at December 31, 2018, compared to 11% at December 31, 2017. The increase in EBITDA was driven primarily by the decrease in operating expenses to $9.1 million during the fourth quarter of 2018 as compared to $12.0 million for the same period in 2017.
EBIT for the three months ended December 31, 2018, decreased to $(11.7) million from $(3.1) million during the same period of 2017. The decrease in EBIT was driven primarily by the increase in depreciation expense during the fourth quarter of 2018 to $14.6 million compared to $4.7 million during the same period in 2017. The increase in depreciation expense was due to a $10.9 million impairment of rental equipment assets that occurred during the fourth quarter of 2018 which was partially offset by lower depreciation expense incurred during the fourth quarter of 2018 compared to the same period in 2017.
Revenue for the year-ended December 31, 2018, decreased 1% to $59.5 million from $60.1 million at December 31, 2017. The decrease in revenue was driven by lower Canadian revenue, which decreased 17% to $33.8 million during the year-ended December 31, 2018, as compared to $40.5 million for the same period of 2017. Lower revenue in Canada was the result of a 6% decline in average rig counts and the discontinuance of the drill cuttings management service line. The decrease in Canadian revenue was offset by the 31% increase in U.S. revenue year-over-year, which was the result of increased activity levels in the U.S. as noted by the improved average rig counts in the Bakken, Marcellus and the Rockies of 17%, 10% and 8% respectively. Further offsetting the decrease in Canadian revenue, was an 18% improvement in average pricing in 2018 as compared to 2017.
During the year-ended December 31, 2018, EBITDA increased 12% to $8.7 million from $7.8 million during the same period in 2017. The increase in EBITDA was driven by lower operating expenses from $46.6 million in 2017 to $44.1 million in 2018. EBITDA as a percentage of revenue for the year-ended December 31, 2018, increased to 15% compared to 13% during the same period of 2017.
EBIT for the year-ended December 31, 2018, decreased to $(17.8) million from $(10.7) million during the same period in 2017. EBIT decreased due to the increase in depreciation expense to $26.5 million during the year-ended December 31, 2018, as compared to $18.5 million during the same period in 2017. The increase in depreciation expense was due to a $10.9 million impairment of equipment rental assets that occurred during the fourth quarter of 2018, which was partially offset by lower depreciation expense for the year ended December 31, 2018, as compared to the same period of 2017.
Operating expenses for the three months and year-ended December 31, 2018, decreased 24% and 5%, respectively, to $9.1 million and $44.1 million as compared to $12.0 million and $46.6 million during the same period of 2017. The decrease in operating expenses for the three months and year-ended December 31, 2018, was primarily the result of the discontinuance of the drill cuttings management service line, which led to a decrease in headcount related expenses during the 2018 year, as compared to the same period in 2017.
LIQUIDITY AND CAPITAL RESOURCES
(in thousands of Canadian dollars)
December 31, 2018
December 31, 2017
Current assets
$
36,625
$
31,899
Current liabilities
17,292
12,282
Working capital(1)
19,333
19,617
Banking facilities
Operating facility
$
762
$
—
Syndicated revolving facility
12,934
10,776
Total facility borrowings
13,696
10,776
Total credit facilities(2)
$
48,500
$
48,500
Unused credit capacity
34,804
37,724
Notes:
Working capital is calculated as current assets less current liabilities, as derived from the Company's consolidated statement of financial position.
Facilities are subject to certain limitations on accounts receivable, inventory, and net book value of fixed assets and are secured by a general security agreement over all of the Company's assets. As at December 31, 2018, Strad had access to $48.5 million of credit facilities.
As at December 31, 2018, working capital decreased slightly to $19.3 million compared to $19.6 million at December 31, 2017. The change in current assets is a result of a 23% increase in accounts receivable to $32.0 million for the fourth quarter of 2018 compared to $26.0 million for the fourth quarter of 2017. The increase in accounts receivable is due to the timing of collections of accounts receivable outstanding, in addition to revenue being higher in the fourth quarter of 2018 as compared to the fourth quarter of 2017. Inventory remained the same at $1.8 million at December 31, 2018, as compared to December 31, 2017. Prepaid expenses increased 192% to $2.1 million at December 31, 2018, as compared to $0.7 million at December 31, 2017. The increase in prepaid expenses was the result of a large deposit made during the fourth quarter of 2018 in addition to prepaid rent and higher insurance premiums.
The change in current liabilities is a result of a 37% increase in accounts payable and accrued liabilities to $16.4 million at December 31, 2018, compared to $11.9 million at year end. The increase in accounts payable was primarily due to the timing of payments made during the fourth quarter of 2018.
Cash flow from operating activities for the year-ended December 31, 2018, decreased slightly to $29.8 million compared to $29.9 million for the same period of 2017, due to an increased working capital investment, partially offset by an increase in EBITDA and an increase in proceeds on used fleet sales. Funds from operations for the three months ended December 31, 2018, increased to $11.5 million compared to $6.6 million for the three months ended December 31, 2017. Capital expenditures totaled $12.2 million for the three months ended December 31, 2018. Management monitors funds from operations and the timing of capital additions to ensure adequate capital resources are available to fund Strad’s capital program.
As at December 31, 2018, the Company’s syndicated banking facility consists of an operating facility with a maximum principal amount of $7.0 million CAD and $5.0 million USD, and a $36.5 million CAD syndicated revolving facility, both of which are subject to certain limitations on accounts receivable, inventory, and net book value of fixed assets and are secured by a general security agreement over all of the Company’s assets. As at December 31, 2018, the Company had access to the maximum credit facilities. The syndicated banking facility will mature on September 29, 2021. The syndicated banking facility bears interest at bank prime plus a variable rate, which is dependent on the Company’s funded debt to covenant EBITDA ratio.
Based on the Company's funded debt to covenant EBITDA ratio, the interest rate on the syndicated credit facility is bank prime plus 0.50% on prime rate advances and at the prevailing rate plus a stamping fee of 1.50% on bankers' acceptances. For the year-ended December 31, 2018, the overall effective rates on the operating facility and revolving facility were 4.24% and 4.60%, respectively. As of December 31, 2018, $0.8 million was drawn on the operating facility and $12.9 million was drawn on the revolving facility. Required payments on the revolving facility are interest only.
As at December 31, 2018, the Company was in compliance with all of the financial covenants under its credit facilities.
The relevant definitions related to the financial debt covenant ratio terms as set forth in the Company's syndicated banking facility are as follows:
Funded debt includes bank indebtedness plus long-term debt plus current and long-term obligations under finance lease, less cash.
Covenant EBITDA is based on trailing twelve months adjusted EBITDA plus share based payments, plus additional one-time charges.
Interest expense ratio is calculated as the ratio of trailing twelve months adjusted EBITDA plus share based payments to trailing twelve months interest expense on loans and borrowings.
The above noted definitions are not recognized under IFRS and are provided strictly for the purposes of the financial covenant calculation.
Financial Debt Covenants
As at December 31, 2018
As at December 31, 2017
Funded debt to EBITDA ratio (not to exceed 3.0:1)
Funded debt
$
14,009
$
9,768
Covenant EBITDA
26,877
25,339
Ratio
0.5
0.4
EBITDA to interest coverage ratio (no less than 3.0:1)
Covenant EBITDA
$
26,877
$
25,339
Covenant interest expense
812
1,225
Ratio
33.1
20.7
NON-IFRS AND ADDITIONAL IFRS MEASURES AND RECONCILIATIONS
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 construed as alternative measures to IFRS measures, and as they do not have standardized meanings or standardized methods of calculation, the may not be consistent with or comparable to similar measures presented by 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 (loss), 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 and taxed. As of June 30, 2018, the Company implemented changes to its method of calculating EBITDA, which no longer includes adjustments for gains and losses due to foreign exchange or disposal of property, plant and equipment that occur during the normal course of business. EBITDA is now calculated as net income (loss) before interest, taxes, depreciation and amortization. Segmented EBITDA is based upon the same calculation for defined business segments, which are comprised of Industrial Matting and Equipment Rentals. The Company’s method of calculating EBITDA may differ from that of other organizations and, accordingly, its EBITDA may not be comparable to that of other companies.
Earnings before interest and taxes (“EBIT”) is an additional measure under IFRS. Management believes that in addition to net income (loss), EBIT 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 and taxed.
Funds from operations are cash flow from operating activities excluding changes in non-cash working capital. Funds from operations is a non-IFRS measure commonly used in the energy services industry to assist in measuring a company's ability to finance its capital programs, debt repayments and other financial obligations. Funds from operations is not intended to represent net cash generated from operating activities or other measures of financial performance in accordance with IFRS. It is a supplemental measure to gauge performance of the Company before non-cash items. The Company’s method of calculating funds from operations may differ from that of other organizations and, accordingly, its funds from operations may not be comparable to that of other companies.
Working capital is calculated as current assets minus current liabilities, as derived from the Company's consolidated statement of financial position. Working capital, cash forecasting, and banking facilities are used by Management to ensure funds are available to finance growth opportunities.
Funded debt is a measure used in calculating our bank financial covenants. Funded debt is calculated as bank indebtedness plus long-term debt plus current and long-term portion of finance lease obligations less cash from syndicate institutions.
Reconciliation of Funds from Operations
(in thousands of Canadian dollars)
Three months ended December 31,
Year-ended December 31,
2018
2017
2018
2017
Net cash generated from operating activities
$
6,230
$
19,082
$
29,801
$
29,877
Less:
Changes in non-cash working capital
(5,197
)
12,434
(3,840
)
229
Funds from Operations
11,427
6,648
33,641
29,648
Reconciliation of EBITDA and EBIT
(in thousands of Canadian dollars)
Three months ended December 31,
Year-ended December 31,
2018
2017
2018
2017
Net loss:
$
(5,371
)
$
(3,364
)
$
(1,017
)
$
(7,276
)
Add (deduct):
Depreciation and amortization
18,253
8,918
34,369
30,232
Income tax (recovery) expense
(2,518
)
(653
)
(6,970
)
484
Interest expense
235
158
812
1,518
EBITDA(1)
10,599
5,059
27,194
24,958
(Deduct):
Depreciation and amortization
(18,253
)
(8,918
)
(34,369
)
(30,232
)
EBIT
(7,654
)
(3,859
)
(7,175
)
(5,274
)
(1) During the second quarter of 2018, the Company changed the method of calculation for EBITDA by no longer adjusting for gains or losses resulting from foreign exchange or the disposal of property, plant and equipment during the normal course of business. These changes have been updated for prior period balances.
Reconciliation of quarterly non-IFRS and additional IFRS measures
(in thousands of Canadian dollars)
Three months ended
Dec 31, 2018
Sep 30, 2018
Jun 30, 2018
Mar 31, 2018
Net income (loss):
$
(5,371
)
$
890
$
3,861
$
(397
)
Add (deduct):
Depreciation and amortization
18,253
5,444
5,240
5,432
Income tax (recovery) expense
(2,518
)
(62
)
(4,428
)
38
Interest expense
235
230
157
190
EBITDA(1)
10,599
6,502
4,830
5,263
(Deduct):
Depreciation and amortization
(18,253
)
(5,444
)
(5,240
)
(5,432
)
EBIT
(7,654
)
1,058
(410
)
(169
)
(1) During the second quarter of 2018, the Company changed the method of calculation for EBITDA by no longer adjusting for gains or losses resulting from foreign exchange or the disposal of property, plant and equipment during the normal course of business. These changes have been updated for prior period balances.
(in thousands of Canadian dollars)
Three months ended
Dec 31, 2017
Sep 30, 2017
Jun 30, 2017
Mar 31, 2017
Net (loss) income:
$
(3,364
)
$
598
$
(2,163
)
$
(2,347
)
Add (deduct):
Depreciation and amortization
8,918
7,359
7,572
6,383
Income tax (recovery) expense
(653
)
1,123
(102
)
116
Interest expense
158
359
492
509
EBITDA(1)
5,059
9,439
5,799
4,661
(Deduct):
Depreciation and amortization
(8,918
)
(7,359
)
(7,572
)
(6,383
)
EBIT
(3,859
)
2,080
(1,773
)
(1,722
)
(1) During the second quarter of 2018, the Company changed the method of calculation for EBITDA by no longer adjusting for gains or losses resulting from foreign exchange or the disposal of property, plant and equipment during the normal course of business. These changes have been updated for prior period balances.
Reconciliation of funded debt
(in thousands of Canadian dollars)
Year-ended December 31, 2018
Year-ended December 31, 2017
Bank indebtedness (cash) at syndicate banks
$
762
$
(1,626)
Long term debt
12,934
10,776
Current and long term obligations under finance lease
313
618
Funded Debt
14,009
9,768
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION AND STATEMENTS
Certain statements and information contained in this press release constitute forward-looking information and statements within the meaning of applicable securities laws. The use of any of the words “expect”, “plan”, “continue”, “estimate”, “anticipate”, “potential”, “targeting”, “intend”, “could”, “might”, “should”, “believe”, “may”, “predict”, or “will” and similar expressions are intended to identify forward-looking information or statements. More particularly, this press release contains forward-looking statements concerning future capital expenditures of the Company, including its 2019 capital budget, planned allocations of capital expenditures, and funding thereof, by way of cash flow, anticipated cash flow, debt, anticipated growing demand for the Company’s products and services in 2019 and beyond, and anticipated revenue allocations amongst our service offerings, drilling activity in North America, pricing of the Company’s products and services, and expectations for 2019 and potential for improved profitability, and the potential for growth and expansion of certain components of the Company's business, including further capital being allocated to increase our matting fleet, expanding our matting offerings in the U.S., anticipated benefits from cost reductions and timing thereof, manufacturing capacity to meet anticipated demand for the Company’s products, and expected exploration and production industry activity including the effects of industry trends, including the potential of LNG infrastructure in Canada and large scale matting projects in the U.S., on demand for the Company's products. These statements relate to future events or to the Company’s future financial performance and involve known and unknown risks, uncertainties and other factors that may cause the Company’s actual results, levels of activity, performance or achievements to be materially different from future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements.
Various assumptions were used in drawing the conclusions or making the projections contained in the forward-looking statements throughout this press release. The forward-looking information and statements included in this press release are not guarantees of future performance and should not be unduly relied upon. Forward-looking statements are based on current expectations, estimates, and projections that involve a number of risks and uncertainties, which could cause actual results to differ materially from those anticipated and described in the forward-looking statements. Such information and statements involve known and unknown risks, uncertainties, and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking information or statements. In addition to other material factors, expectations, and assumptions which may be identified in this press release and other continuous disclosure documents of the Company referenced herein, assumptions have been made in respect of such forward-looking statements and information regarding, among other things: the Company will continue to conduct its operations in a manner consistent with past operations; the general continuance of current industry conditions; anticipated financial performance, business prospects, impact of competition, strategies, the general stability of the economic and political environment in which the Company operates; exchange and interest rates; tax laws; the sufficiency of budgeted capital expenditures in carrying out planned activities; the availability and cost of labour and services and the adequacy of cash flow; debt and ability to obtain financing on acceptable terms to fund its planned expenditures, which are subject to change based on commodity prices; market conditions and future oil and natural gas prices; and potential timing delays. Although Management considers these material factors, expectations, and assumptions to be reasonable based on information currently available to it, no assurance can be given that they will prove to be correct.
Readers are cautioned that the foregoing lists of factors are not exhaustive. Additional information on these and other factors that could affect the Company's operations and financial results are included in reports on file with the Canadian Securities Regulatory Authorities and may be accessed through the SEDAR website (www.sedar.com) or at the Company's website. The forward-looking statements and information contained in this press release are expressly qualified by this cautionary statement. The Company does not undertake any obligation to publicly update or revise any forward looking statements or information, whether as a result of new information, future events, or otherwise, except as may be required by applicable securities laws.
FOURTH QUARTER EARNINGS CONFERENCE CALL
Strad has scheduled a conference call to begin promptly at 8:00 a.m. MT (10:00 a.m. ET) on Friday, March 1, 2019.
The conference call dial in number is 1-844-388-0561, followed by Conference ID code 5775086
The conference call will also be accessible via webcast at www.stradenergy.com
A replay of the call will be available approximately after the conference call ends until Friday, March 8th, 2019, at 1:00 p.m. ET. To access the replay, call 1-855-859-2056, followed by pass code 5775086.
Strad Energy Services Ltd. Consolidated Statement of Financial Position As at December 31, 2018 and 2017
(in thousands of Canadian dollars)
As at December 31, 2018
As at December 31, 2017
$
$
Assets
Current assets
Cash
—
1,859
Trade receivables
32,013
26,038
Inventories
1,839
1,818
Prepaids and deposits
2,063
707
Other assets
—
1,289
Income taxes receivable
710
188
Total current assets
36,625
31,899
Non-current assets
Property, plant and equipment
136,978
141,917
Intangible assets
1,448
556
Income tax receivable
305
278
Deferred income tax assets
121
171
Total non-current assets
138,852
142,922
Total assets
175,477
174,821
Liabilities
Current liabilities
Bank indebtedness
762
—
Accounts payable and accrued liabilities
16,373
11,937
Current portion of obligations under finance lease
157
345
Total current liabilities
17,292
12,282
Non-current liabilities
Long-term debt
12,934
10,776
Obligations under finance lease
156
273
Deferred income tax liabilities
9,151
11,567
Total liabilities
39,533
34,898
Equity
Share capital
147,664
154,763
Contributed surplus
13,068
12,736
Accumulated other comprehensive income
23,439
22,635
Deficit
(48,227
)
(50,211
)
Total equity
135,944
139,923
Total liabilities and equity
175,477
174,821
Strad Energy Services Ltd. Consolidated Statement of Income (Loss) and Comprehensive Income (Loss) For the years ended December 31, 2018 and 2017
(in thousands of Canadian dollars, except per share amounts)
Year-ended December 31,
2018
2017
$
$
Revenue
119,922
117,599
Expenses
Operating expenses
77,882
78,658
Depreciation
34,070
29,447
Amortization of intangible assets
299
169
Amortization of other assets
—
616
Selling, general and administration
15,144
13,774
Share-based payments
332
493
Gain on disposal of property, plant and equipment
(788
)
(218
)
Foreign exchange loss (gain)
158
(66
)
Interest expense
812
1,518
Loss before income tax
(7,987
)
(6,792
)
Income tax (recovery) expense
(6,970
)
484
Loss for the period
(1,017
)
(7,276
)
Other comprehensive loss
Items that may be reclassified subsequently to net loss
Cumulative translation adjustment
5,148
(4,328
)
Deferred tax expense on foreign exchange gain
(4,344
)
—
Total comprehensive loss
(213
)
(11,604
)
Loss per share:
Basic and diluted
($0.02
)
($0.12
)
Strad Energy Services Ltd. Consolidated Statement of Cash Flow For the years ended December 31, 2018 and 2017
(in thousands of Canadian dollars)
Year-ended December 31,
2018
2017
$
$
Cash flow provided by (used in)
Operating activities
Net income (loss) for the period
(1,017
)
(7,276
)
Adjustments for items not affecting cash:
Depreciation and amortization
34,369
30,232
Deferred income tax (recovery) expense
(6,710
)
161
Share-based payments
332
493
Interest expense
812
1,518
Unrealized foreign exchange loss (gain)
202
(280
)
Gain on disposal of property, plant and equipment
(788
)
(218
)
Book value of used fleet sale
6,441
5,018
Changes in items of non-cash working capital
(3,840
)
229
Net cash generated from operating activities
29,801
29,877
Investing activities
Purchase of property, plant and equipment
(32,568
)
(22,124
)
Proceeds from sale of property, plant and equipment
1,778
1,011
Purchase of intangible assets
(1,182
)
(65
)
Proceeds from sale of other assets
1,272
—
Cash paid on business acquisition
—
(2,750
)
Cash assumed on business acquisition
—
322
Changes in items of non-cash working capital
364
214
Net cash used in investing activities
(30,336
)
(23,392
)
Financing activities
Repayment of long-term debt
(4,342
)
(21,032
)
Borrowings
6,500
5,307
Repayment of finance lease obligations (net)
(332
)
(958
)
Repayment of shareholder loan
—
304
Issuance of common shares
—
15,000
Share issue costs
—
(1,025
)
Normal course issuer bid
(4,098
)
(167
)
Interest expense
(812
)
(1,518
)
Changes in items of non-cash working capital
11
(73
)
Net cash used in financing activities
(3,073
)
(4,162
)
Effect of exchange rate changes on cash and cash equivalents
987
645
Decrease in cash and cash equivalents
(2,621
)
2,968
Cash and cash equivalents (including bank indebtedness) - beginning of year
1,859
(1,109
)
Cash and cash equivalents (including bank indebtedness) - end of year
(762
)
1,859
Cash paid for income tax
457
690
Cash paid for interest
810
1,273
ABOUT STRAD
Strad specializes in industrial matting and equipment rentals for projects of any size, from a network of branches across Canada and the United States. Strad aims to exceed customer expectations in many industrial sectors, including Oil and Gas, Pipeline, Power Transmission, and Mining.
Strad is headquartered in Calgary, Alberta, Canada. Strad is listed on the Toronto Stock Exchange under the trading symbol “SDY”.
For more information, please contact:
Andy Pernal President and Chief Executive Officer (403) 775-9202 email: apernal@stradenergy.com
