Strad Energy Services Announces First Quarter Results
May 10, 2018 - 6:50 PM EDT
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Strad Energy Services Announces First Quarter Results
NOT FOR DISTRIBUTION TO U.S. NEWS WIRE SERVICES OR FOR DISSEMINATION IN THE UNITED STATES ("U.S.")
The news release contains “forward-looking information and statements” within the meaning of applicable securities laws. For full disclosure of the forward-looking information and statements and the risks to which they are subject, see the “Cautionary Statement Regarding Forward-Looking Information and Statements” later in this news release.
CALGARY, Alberta, May 10, 2018 (GLOBE NEWSWIRE) -- Strad Energy Services Ltd., (TSX:SDY) (“Strad” or the “Company”), a North American-focused, energy services company, today announced its financial results for the three months ended March 31, 2018. All amounts are stated in Canadian dollars unless otherwise noted.
FIRST QUARTER SELECTED FINANCIAL AND OPERATIONAL HIGHLIGHTS:
Revenue increased 3% to $28.4 million compared to $27.7 million for the same period in 2017;
First quarter loss decreased to $(0.4) million compared to $(2.3) million for the same period in 2017;
Adjusted EBITDA(1) of $5.5 million increased 23% compared to $4.5 million for the same period in 2017;
Loss per share decreased to $(0.01) as compared to $(0.04) during the same period in 2017;
During the first quarter of 2018, the Company re-purchased and canceled 1,047,760 common shares under the normal course issuer bid ("NCIB"), bringing total shares repurchased and canceled under the NCIB to 1,154,860 as at March 31, 2018. Subsequent to the first quarter, an additional 1,527,560 common shares were re-purchased and canceled.
Funded debt(2) decreased to $8.5 million for the three months ended March 31, 2018, as compared to $9.8 million at December 31, 2017. Funded debt(2) to covenant EBITDA(3) ratio was 0.3 to 1.0 at March 31, 2018; and
Capital additions totaled $4.8 million during the first quarter of 2018.
Notes:
(1)
Earnings before interest, taxes, depreciation and amortization and other adjustments (“adjusted 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 Reconciliations”.
(2)
Funded debt includes bank indebtedness plus long-term debt plus current and long-term obligations under finance lease less cash.
(3)
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.
"Despite lower average rig counts and a long winter in Canada that delayed our start to the matting season, our first quarter results improved year-over-year,” said Andy Pernal, President and Chief Executive Officer. “We were pleased with the continued improvement in our U.S. Operations year-over-year due to increased rig counts in all of our operating regions. Our relatively fixed cost structure and ability to maintain 2017 exit pricing continue to serve us well.”
“The strength of our balance sheet allowed us to repurchase over one million shares to March 31, 2018, and an additional 1.5 million shares subsequent to the quarter,” said Michael Donovan, Chief Financial Officer of Strad. “In addition to the share buybacks, we were able to reduce funded debt to the lowest level in the past three years as well as continue to invest in our matting fleet. We will continue to allocate capital to opportunities that increase shareholder value while also remaining focused on cost discipline and balance sheet preservation in 2018.”
FIRST QUARTER FINANCIAL HIGHLIGHTS
($000's, except per share amounts)
Three months ended March 31,
2018
2017
% Chg.
Revenue
28,364
27,660
3
%
Net loss
(397
)
(2,347
)
nm
Per share ($), basic
(0.01
)
(0.04
)
nm
Per share ($), diluted
(0.01
)
(0.04
)
nm
Adjusted EBITDA (1)
5,516
4,496
23
%
Adjusted EBITDA as a % of revenue
19
%
16
%
Per share ($), basic
0.09
0.08
13
%
Per share ($), diluted
0.09
0.08
13
%
Cash flow from operating activities
6,479
3,541
83
%
Per share ($), basic
0.11
0.06
83
%
Per share ($), diluted
0.11
0.06
83
%
Funds from operations (2)
6,471
5,527
17
%
Per share ($), basic
0.11
0.08
38
%
Per share ($), diluted
0.11
0.08
38
%
Capital expenditures (3)
4,755
3,470
37
%
Total assets
171,855
194,094
(11
)%
Long-term debt
6,337
15,589
(59
)%
Total long-term liabilities
18,182
27,601
(34
)%
Common shares - end of period ('000's)
58,858
60,013
Weighted average common shares ('000's)
Basic
59,716
55,643
Diluted
60,040
55,643
Notes:
(1)
Earnings before interest, taxes, depreciation and amortization and other adjustments (“adjusted 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 Reconciliations”.
(2)
Funds from operations is cash flow from operating activities excluding changes in non-cash working capital. Funds from operations is not a recognized measure under IFRS; see “Non-IFRS Measures Reconciliations”.
(3)
Includes assets acquired under finance lease and purchases of intangible assets.
FINANCIAL POSITION AND RATIOS
($000's except ratios)
As at March 31, 2018
As at December 31, 2017
Working capital(1)
16,353
19,617
Funded debt(2)
8,494
9,768
Total assets
171,855
174,821
Funded debt to EBITDA(3)
0.3 : 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.
FIRST QUARTER RESULTS
Strad reported an increase in revenue and adjusted EBITDA of 3% and 23%, respectively and a decrease in net loss of 83% during the three months ended March 31, 2018, compared to the same period in 2017. Strad’s first quarter results were driven by increased drilling activity in Strad’s U.S. operating regions, in addition to improved customer pricing. Higher rig counts in all three of the U.S. operating regions, resulted in increased revenue year-over-year. Decreased average rig counts in western Canada, due to higher price differentials, led to reduced operating activity and revenue from our Canadian Operations. Total company adjusted EBITDA margin percentage increased to 19% compared to 16% in the prior year, due to increased revenue and a relatively fixed cost structure.
For the three months ended March 31, 2018, Strad's U.S. Operations reported an increase in revenue and adjusted EBITDA of 63% and 1,047% as compared to the same period in 2017. Net loss from U.S. Operations decreased from $(2.2) million in first quarter 2017 to $(0.1) million in the first quarter of 2018. Rig counts in the Bakken, Marcellus and Rockies regions increased year-over-year by 32%, 24%, and 39% (source: Baker Hughes "North America Rotary Rig Count"), respectively, resulting in increased drilling activity and utilization for the first quarter of 2018 as compared to the same period in 2017. Revenue for the first quarter of 2018 was also impacted by improved customer pricing as compared to the same period in 2017. First quarter adjusted EBITDA increased to $2.3 million, as compared to $0.2 million in the same period of 2017, as a result of the increase in revenue and a lean cost structure in the U.S. due to our focus on reducing overhead costs and discretionary spending.
Strad’s Canadian Operations reported a decrease in revenue, net income and adjusted EBITDA of 9%, 33% and 7%, respectively, during the three months ended March 31, 2018, compared to the same period in 2017. The decrease in revenue was a result of decreased surface equipment and matting utilization, which declined by 7% and 33%, respectively, as compared to the same period in 2017. The decline in utilization was the result of a slower start to the matting season due to colder weather. This was offset by continued improved customer pricing during the first quarter of 2018.
Revenue generated from Strad’s energy infrastructure customer vertical decreased to $6.0 million during the first quarter of 2018 compared to $8.4 million in 2017. The decrease in energy infrastructure revenue is a result of colder weather in March 2018 as compared to 2017, resulting in delayed starts to matting jobs in Canada. The energy infrastructure customer vertical continued to be primarily driven by matting in Canada.
Strad's Product Sales reported a decline in revenue of 42%, as a result of lower third party sales and rental fleet sales which decreased to $0.1 and $0.9 million respectively, during the three months ending March 31, 2018, as compared to $0.5 million and $0.9 million during the same period in 2017.
During the first quarter of 2018, capital expenditures were $4.2 million in Canada, $0.4 million in Corporate and $0.2 million in the U.S. These were related primarily to wood matting additions in Canada, which were acquired to prepare for and to support Strad's energy infrastructure customer vertical during the upcoming 2018 matting season.
RESULTS OF OPERATIONS
Canadian Operations
Three months ended March 31,
($000's)
2018
2017
% chg.
Revenue
19,126
20,946
(9
)%
Operating expenses
13,100
14,711
(11
)%
Selling, general and administration
1,528
1,383
10
%
Share based payments
55
84
Net income (loss)
1,070
1,599
(33
)%
Adjusted EBITDA(1)
4,443
4,768
(7
)%
Adjusted EBITDA as a % of revenue
23
%
23
%
Capital expenditures(2)
4,179
1,260
232
%
Total assets
111,763
123,519
Energy infrastructure revenue
5,250
6,510
(19
)%
Energy infrastructure revenue as a % of revenue
27
%
31
%
Equipment Fleet:
Surface equipment fleet at period end(3)
4,200
4,100
2
%
Average surface equipment fleet(4)
4,000
4,000
nm
Average utilization %(5)
38
%
41
%
Matting fleet at period end(3)
71,800
64,700
11
%
Average matting fleet(4)
68,000
58,800
16
%
Average utilization %(5)
26
%
39
%
Rig Counts (6)
Western Canadian Basin
271
298
(9
%)
Notes:
(1)
Earnings before interest, taxes, depreciation and amortization and other adjustments (“adjusted 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 Reconciliations”.
(2)
Includes assets acquired under finance lease and purchases of intangible assets.
(3)
Surface equipment and matting fleet balances are as at March 31, 2018 and 2017.
(4)
Surface equipment and matting fleet balances are averages for the three months ended March 31, 2018 and 2017.
(5)
Equipment utilization includes surface and matting equipment on rent only and is calculated using gross asset value.
(6)
Source: Baker Hughes "North America Rotary Rig Count".
Revenue for the three months ended March 31, 2018, of $19.1 million decreased 9% compared to $20.9 million for the same period in 2017. Decreased revenue during the quarter was primarily a result of lower rig counts, which decreased by 9% year-over-year (source: Baker Hughes "North America Rotary Rig Count"). This led to decreased operating activity in the Western Canadian Sedimentary Basin ("WCSB") and lower utilization rates for both matting and surface equipment, as compared to the same period in 2017. Further impacting the first quarter results was a slower start to the matting season as a result of colder weather. This was offset by improved customer pricing during the period.
During the first quarter, revenue from energy infrastructure projects was $5.3 million or 27% of total revenue for Canadian Operations as compared to $6.5 million or 31% of total Canadian Operations revenue in the first quarter of 2017. The overall decrease in revenue during the first quarter of 2018 is primarily due to a slower start to the matting season as a result of the longer winter, in addition to fewer energy infrastructure jobs carried over from the prior quarter, as compared to the same period in 2017.
During the first quarter, Strad’s matting fleet increased to 71,800 mats at March 31, 2018, compared to 64,700 mats as at March 31, 2017. First quarter matting utilization decreased to 26% compared to 39% in the same period of 2017 due to the slower start to the matting season.
Adjusted EBITDA for the three months ended March 31, 2018, of $4.4 million, decreased 7% compared to $4.8 million for the same period in 2017. Adjusted EBITDA as a percentage of revenue, for the three months ended March 31, 2018, remained consistent at 23% as compared to the same period in 2017. The decrease in adjusted EBITDA is driven primarily by the decrease in revenue during the first quarter of 2018.
Operating expenses for the three months ended March 31, 2018, of $13.1 million decreased 11% compared to $14.7 million for the same period in 2017. The decrease in operating expenses for the first quarter of 2018, as compared to the first quarter of 2017, is due to a decrease in matting related service work.
Selling, general and administrative expenses ("SG&A") for the three months ended March 31, 2018, of $1.5 million increased 10% compared to $1.4 million for the same period in 2017. SG&A costs increased over the three months March 31, 2018, as a result of increased employees for 2018, resulting in increased costs related to salaries and benefits.
U.S. Operations
Three months ended March 31,
($000's)
2018
2017
% chg.
Revenue
8,275
5,066
63
%
Operating expenses
4,734
3,952
20
%
Selling, general and administration
1,221
896
36
%
Share based payments
13
17
Net loss
(112
)
(2,207
)
nm
Adjusted EBITDA(1)
2,306
201
1,047
%
Adjusted EBITDA as a % of revenue
28
%
4
%
Capital expenditures(2)
170
2,185
(92
)%
Total assets
58,851
69,644
Energy infrastructure revenue
145
439
(67
)%
Energy infrastructure revenue as a % of revenue
2
%
9
%
Equipment Fleet:
Surface equipment fleet at period end(3)
2,000
2,000
nm
Average surface equipment fleet(4)
2,000
2,000
nm
Average utilization %(5)
46
%
25
%
Matting fleet at period end(3)
17,400
17,900
nm
Average matting fleet(4)
18,300
15,700
17
%
Average utilization %(5)
28
%
18
%
Rig Counts (6)
Bakken
49
37
32
%
Marcellus
78
63
24
%
Rockies
71
51
39
%
Notes:
(1)
Earnings before interest, taxes, depreciation and amortization and other adjustments (“adjusted 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 Reconciliations”.
(2)
Includes assets acquired under finance lease and purchases of intangible assets.
(3)
Surface equipment and matting fleet balances are as at March 31, 2018 and 2017.
(4)
Surface equipment and matting fleet balances are averages for the three months ended March 31, 2018 and 2017.
(5)
Equipment utilization includes surface and matting equipment on rent only and is calculated using gross asset value.
(6)
Source: Baker Hughes "North America Rotary Rig Count".
Revenue for the three months ended March 31, 2018, increased 63% to $8.3 million from $5.1 million for the same period in 2017. The increase in revenue is due to a combination of higher surface equipment and matting utilization rates and improved customer pricing resulting from increased drilling activity when compared to the same period in 2017. Average rig counts in the Bakken, Marcellus and Rockies regions increased by 32%, 24%, and 39%, respectively, during the first quarter of 2018 compared to the same period in 2017 (source: Baker Hughes "North America Rotary Rig Count").
During the first quarter, revenue from energy infrastructure projects was $0.1 million or 2% of total revenue for U.S. Operations, compared to $0.4 million or 9% in the same period of 2017. The decrease in revenue from energy infrastructure projects is primarily due to fewer projects in 2018 compared to the same period in 2017.
The U.S. average matting fleet increased to 18,300 mats for the three months ended March 31, 2018, compared to 15,700 mats for the same period in 2017. The increase of mats during 2018 was to support U.S. matting customers.
Adjusted EBITDA for the three months ended March 31, 2018, increased to $2.3 million compared to $0.2 million for the same period in 2017. Adjusted EBITDA as a percentage of revenue, for the three months ended March 31, 2018, was 28% compared to 4% for the same period in 2017. The significant increase in both adjusted EBITDA and adjusted EBITDA as a percentage of revenue is primarily due to higher revenue and a lean cost structure.
Operating expenses for the three months ended March 31, 2018, of $4.7 million, increased 20% as compared to $4.0 million for the same period in 2017. The increase in operating expenses during the three months ended March 31, 2018, is a result of increased activity levels due to the increase in average rig counts.
SG&A costs for the three months ended March 31, 2018, of $1.2 million increased 36% compared to $0.9 million for the same period in 2017. The change in SG&A expenses for the first quarter of 2018, is due to the increased head count for 2018, resulting in increased costs related to salaries and benefits.
Product Sales
Three months ended March 31,
($000's)
2018
2017
% chg.
Revenue
963
1,648
(42
)%
Operating expenses
1,175
1,083
8
%
Selling, general and administration
44
50
(12
)%
Net loss
(157
)
(270
)
nm
Adjusted EBITDA(1)
(256
)
515
(150
)%
Adjusted EBITDA as a % of revenue
(27
)%
31
%
Capital expenditures(2)
—
25
Total assets
—
27
Energy infrastructure revenue
588
1,459
(60
)%
Notes:
(1)
Earnings before interest, taxes, depreciation and amortization and other adjustments (“adjusted 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 Reconciliations”.
(2)
Includes assets acquired under finance lease and purchases of intangible asset.
Product Sales are comprised of third party equipment sales to existing customers and sales of equipment from Strad’s existing fleet to customers.
Revenue for the three months ended March 31, 2018, decreased 42% to $1.0 million from $1.6 million for the same period in 2017, resulting from lower rental fleet sales and third party sales. During the three months ended March 31, 2018, Product Sales consisted of $0.9 million of rental fleet sales and $0.1 of third party equipment sales compared to $0.9 million and $0.5 million, respectively, in addition to $0.2 million of in-house product sales during the same period in 2017. In the fourth quarter of 2017, management made the decision to no longer manufacture in-house products.
During the first quarter, revenue from energy infrastructure projects was $0.6 million or 61% of total revenue compared to $1.5 million or 89% of total revenue in the same period of 2017. Product Sales vary from quarter to quarter and are dependent on project timing and customer demands.
Adjusted EBITDA for the three months ended March 31, 2018, decreased to a loss of $(0.3) million from $0.5 million for the same period in 2017. Adjusted EBITDA as a percentage of revenue, for the three months ended March 31, 2018, was (27)% compared to 31% for the same period in 2017. The decrease in adjusted EBITDA is due to decreased revenue for the three months ended March 31, 2018.
Operating expenses for the three months ended March 31, 2018, of $1.2 million increased 8% compared to $1.1 million for the same period in 2017. Operating expenses vary with individual transactions and business activity levels.
OUTLOOK
In the first quarter of 2018, trends experienced throughout 2017 largely continued. West Texas Intermediate (“WTI”) prices continued to improve, reaching levels not seen since 2014; an indicator that the North American energy sector continues to recover. However, conditions and sentiment remain very different in Canada versus the United States. In Canada, regulatory and political uncertainty continues to hamper any progress on take-away capacity issues which have led to muted capital expenditures from customers and concerns over the outlook of the industry. In the United States, progressive government policy has led to increases in operator investment and sentiment which we expect will continue throughout 2018.
The strength of our balance sheet allowed Strad to repurchase for cancellation over 1 million shares during the first quarter of 2018. Subsequent to the quarter, we repurchased an additional 1.5 million shares. As 2018 progresses, we will continue to examine and evaluate all options to create value for our shareholders.
A longer winter than historically experienced in Canada meant for a slower start to the matting season. As a result, matting utilization was lower than the same period in 2017. Despite weather related activity challenges, 2017 exit pricing was maintained during the period. We invested in our fleet in the quarter as part of our focus on growth in the energy infrastructure customer vertical and to meet customer demand throughout 2018.
Strad’s U.S. Operations continued to improve reporting a decrease in net loss from $(2.2) million to $(0.1) million for the first quarter of 2018 compared to the same quarter in 2017. Adjusted EBITDA from the U.S. Operations has increased 27% from fourth quarter 2017 and 1,047% from the same period in 2017. The adjusted EBITDA increase is a result of improved customer pricing and higher drilling activity as rig counts in all three of the U.S. operating regions increased. Increased WTI prices and the largest corporate tax reduction in recent U.S. history have resulted in an improved investment climate. We expect our U.S. Operations to contribute to our fiscal 2018 results in a meaningful way.
Revenue from the energy infrastructure customer vertical contributed $6.0 million or 21% to total revenue, a decrease of $2.4 million from 2017. We continue focus on growing total revenue year-over-year from the energy infrastructure vertical to provide diversification and reduce reliance on drilling activity.
In the first quarter, we spent $4.8 million of the previously announced $8.0 million capital spending budget of which $4.0 million was directed towards the matting fleet, $0.4 million related to technology initiatives and the remaining $0.4 million related to other maintenance capital. We expect to evaluate the size of our capital program in 2018 as opportunities arise.
Balance sheet preservation and cost containment will remain top priorities in 2018. In order to maintain our relatively fixed cost structure we will be investing in technology to drive efficiencies throughout the organization. Our strong balance sheet and free cash flow allow Strad the flexibility to evaluate and pursue acquisitions or organic growth opportunities as they arise.
LIQUIDITY AND CAPITAL RESOURCES
($000's)
March 31, 2018
March 31, 2017
Current assets
30,453
31,899
Current liabilities
14,100
12,282
Working capital(1)
16,353
19,617
Banking facilities
Operating facility
1,669
—
Syndicated revolving facility
6,337
10,776
Total facility borrowings
8,006
10,776
Total credit facilities(2)
48,500
48,500
Unused credit capacity
40,494
37,724
Notes:
(1)
Working capital is calculated as current assets less current liabilities.
(2)
Facilities are subject to certain limitations on accounts receivable, inventory, and net book value of fixed assets and are secured by a general security agreement over all of the Company's assets. As at March 31, 2018, Strad had access to $48.5 million of credit facilities.
As at March 31, 2018, working capital was $16.3 million compared to $19.6 million at December 31, 2017. The change in current assets is a result of a 1% increase in accounts receivable to $26.3 million for the first quarter of 2018 compared to $26.0 million for the fourth quarter of 2017. The increase in accounts receivable is due to the increase in U.S. operations revenue. At March 31, 2018, the Company had a net bank indebtedness position in current liabilities, as opposed to cash and cash equivalents in current assets at December 31, 2017, which led to a decrease in current assets, an increase in current liabilities and an overall decrease in working capital. Inventory decreased by 11% to $1.6 million at March 31, 2018, from $1.8 million at December 31, 2017. The decrease in inventory is in part due to management's decision to provide for inventory items no longer used in the normal course of business. The provision, of $0.2 million, was offset by purchases made throughout the first quarter of 2018 to support customer requirements. Prepaid expenses increased 6% at March 31, 2018, as compared to December 31, 2017. The increase in prepaids relates to the normal course of business.
The change in current liabilities is a result of a 3% increase in accounts payable and accrued liabilities to $12.2 million at March 31, 2018, compared to $11.9 million at year end. The increase in accounts payable is primarily due to the timing of payments made for the first quarter of 2018.
Cash flow from operating activities for the three months ended March 31, 2018, increased to $6.5 million compared to $3.5 million for the three months ended March 31, 2017, due to a lower net loss, which resulted from higher revenue. Funds from operations for the three months ended March 31, 2018, increased to $6.5 million compared to $5.5 million for the three months ended March 31, 2017. Capital expenditures totaled $4.8 million for the three months ended March 31, 2018. Strad's total facility borrowing decreased by $2.8 million for the first quarter ended March 31, 2018, compared to the fourth quarter of 2017. 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 March 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 March 31, 2018, the Company had access to the maximum credit facilities. The syndicated banking facility will mature on September 29, 2020. 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 0.5% on prime rate advances and at the prevailing rate plus a stamping fee of 1.50% on bankers' acceptances. For the three months ended March 31, 2018, the overall effective rates on the operating facility and revolving facility were 3.76% and 3.39%, respectively. As of March 31, 2018, $1.7 million was drawn on the operating facility and $6.3 million was drawn on the revolving facility. Required payments on the revolving facility are interest only.
As at March 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 March 31, 2018
As at March 31, 2017
Funded debt to EBITDA ratio (not to exceed 3.0:1)
Funded debt
8,494
9,768
Covenant EBITDA
26,294
25,339
Ratio
0.3
0.4
EBITDA to interest coverage ratio (no less than 3.0:1)
Covenant EBITDA
26,294
25,339
Interest expense
936
1,225
Ratio
28.1
20.7
NON-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 they may not be consistent with calculations of other companies. These measures are further explained below.
Earnings before interest, taxes, depreciation and amortization and other adjustments (“adjusted EBITDA”) is not a recognized measure under IFRS. Management believes that in addition to net income (loss), adjusted EBITDA is a useful supplemental measure as it provides an indication of the results generated by the Company’s principal business activities prior to consideration of how those activities are financed or how the results are taxed. Adjusted EBITDA is calculated as net income (loss) plus interest, finance fees, taxes, depreciation and amortization, loss on disposal of property, plant and equipment, loss on foreign exchange, less gain on foreign exchange and gain on disposal of property, plant and equipment. Segmented adjusted EBITDA is based upon the same calculation for defined business segments, which are comprised of Canadian Operations, U.S. Operations and Product Sales. The Company’s method of calculating adjusted EBITDA may differ from that of other organizations and, accordingly, its adjusted EBITDA may not be comparable to that of other companies.
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 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. Working capital is calculated as current assets minus current liabilities. Working capital, cash forecasting, and banking facilities are used by Management to ensure funds are available to finance growth opportunities.
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
($000's)
Three months ended March 31,
2018
2017
Net cash generated from operating activities
6,479
3,541
Less:
Changes in non-cash working capital
8
(1,986
)
Funds from Operations
6,471
5,527
Reconciliation of adjusted EBITDA
($'000's)
Three months ended March 31,
2018
2017
Net loss:
(397
)
(2,347
)
Add (deduct):
Depreciation and amortization
5,432
6,383
Loss (gain) on disposal of PP&E
253
(78
)
Income tax expense
38
116
Financing fees
44
73
Interest expense
146
436
Gain on foreign exchange
—
(87
)
Adjusted EBITDA
5,516
4,496
Reconciliation of quarterly non-IFRS measures
($'000's)
Three months ended
Mar 31, 2018
Dec 31, 2017
Sep 30, 2017
Jun 30, 2017
Net income (loss):
(397
)
(3,364
)
598
(2,163
)
Add (deduct):
Depreciation and amortization
5,432
8,918
7,359
7,572
Loss (gain) on disposal of PP&E
253
16
(6
)
(150
)
Income tax (recovery) expense
38
(653
)
1,123
(102
)
Financing fees
44
89
58
73
Interest expense
146
69
301
419
Loss (gain) on foreign exchange
—
94
(15
)
(58
)
Adjusted EBITDA
5,516
5,169
9,418
5,591
Three months ended
Mar 31, 2017
Dec 31, 2016
Sep 30, 2016
Jun 30, 2016
Net loss:
(2,347
)
(3,105
)
(3,746
)
(6,958
)
Add (deduct):
Depreciation and amortization
6,383
7,610
4,930
4,516
Gain on disposal of PP&E
(78
)
(105
)
(35
)
(268
)
Income tax (recovery) expense
116
(199
)
(281
)
520
Financing fees
73
43
44
47
Interest expense
436
415
318
157
Loss (gain) on foreign exchange
(87
)
123
17
3
Adjusted EBITDA
4,496
4,782
1,247
(1,983
)
Reconciliation of funded debt
($'000's)
Three months ended March 31, 2018
Year-ended December 31, 2017
Bank indebtedness (cash) at syndicate banks
1,669
(1,626
)
Long term debt
6,337
10,776
Current and long term obligations under finance lease
488
618
Funded Debt
8,494
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 2018 capital budget, planned allocations of capital expenditures, and funding thereof, by way of cash flow, anticipated cash flow, debt, anticipated demand for the Company’s products and services in 2018 and anticipated revenue allocations amongst our service offerings, drilling activity in North America, pricing of the Company’s products and services and expectations for 2018 and potential for improved profitability, and the potential for growth and expansion of certain components of the Company's business, including further additions to our matting fleet, 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 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.
This press release shall not constitute an offer to sell, nor the solicitation of an offer to buy, any securities in the United States, nor shall there be any sale of securities mentioned in this press release in any state in the United States in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such state.
FOURTH QUARTER EARNINGS CONFERENCE CALL
Strad Energy Services Ltd. has scheduled a conference call to begin promptly at 8:00 a.m. MT (10:00 a.m. ET) on Friday, May 11, 2018.
The conference call dial in number is 1-844-388-0561, followed by Conference ID code 3374949
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, May 18th, 2018, at 1:00pm ET. To access the replay, call 1-855-859-2056, followed by pass code 3374949.
Strad Energy Services Ltd.
Interim Consolidated Statement of Financial Position
(Unaudited)
(in thousands of Canadian dollars)
As at March 31, 2018
As at December 31, 2017
$
$
Assets
Current assets
Cash
283
1,859
Trade receivables
26,298
26,038
Inventories
1,611
1,818
Prepaids and deposits
749
707
Other assets
1,322
1,289
Income taxes receivable
190
188
30,453
31,899
Non-current assets
Property, plant and equipment
140,050
141,917
Intangible assets
918
556
Income tax receivable
283
278
Deferred income tax assets
151
171
171,855
174,821
Liabilities
Current liabilities
Bank indebtedness
1,669
—
Accounts payable and accrued liabilities
12,202
11,937
Current portion of obligations under finance lease
229
345
14,100
12,282
Non-current liabilities
Long-term debt
6,337
10,776
Obligations under finance lease
259
273
Deferred income tax liabilities
11,586
11,567
Total liabilities
32,282
34,898
Equity
Share capital
152,031
154,763
Contributed surplus
12,819
12,736
Accumulated other comprehensive income
24,197
22,635
Deficit
(49,474
)
(50,211
)
Total equity
139,573
139,923
Total liabilities and equity
171,855
174,821
Strad Energy Services Ltd.
Interim Consolidated Statement of Income (Loss) and Comprehensive Income (Loss)
(Unaudited)
(in thousands of Canadian dollars, except per share amounts)
Three months ended March 31,
2018
2017
$
$
Revenue
28,364
27,660
Expenses
Operating expenses
19,009
19,746
Depreciation
5,387
6,316
Amortization of intangible assets
45
43
Amortization of long term assets
—
24
Selling, general and administration
3,756
3,280
Share-based payments
83
138
Loss (gain) on disposal of property, plant and equipment
253
(78
)
Foreign exchange gain
—
(87
)
Finance fees
44
73
Interest expense
146
436
Loss before income tax
(359
)
(2,231
)
Income tax expense
38
116
Loss for the period
(397
)
(2,347
)
Other comprehensive income
Items that may be reclassified subsequently to net income
Cumulative translation adjustment
1,562
(635
)
Total comprehensive income
1,165
(2,982
)
Loss per share:
Basic
($0.01
)
($0.04
)
Diluted
($0.01
)
($0.04
)
Strad Energy Services Ltd.
Interim Consolidated Statement of Cash Flow
For the three months ended March 31, 2018 and 2017
(Unaudited)
(in thousands of Canadian dollars)
Three months ended March 31,
2018
2017
$
$
Cash flow provided by (used in)
Operating activities
Net loss for the period
(397
)
(2,347
)
Adjustments for items not affecting cash:
Depreciation and amortization
5,432
6,383
Deferred income tax expense
38
116
Share-based payments
83
138
Interest expense and finance fees
190
509
Unrealized foreign exchange gain
31
559
Loss (gain) on disposal of property, plant and equipment
253
(78
)
Book value of used fleet sales in operating activities
841
247
Changes in items of non-cash working capital
8
(1,986
)
Net cash generated from operating activities
6,479
3,541
Investing activities
Purchase of property, plant and equipment
(4,349
)
(3,470
)
Proceeds from sale of property, plant and equipment
1,004
145
Purchase of intangible assets
(405
)
—
Cash paid on business acquisition
—
(2,750
)
Cash assumed on business acquisition
—
322
Changes in items of non-cash working capital
57
(549
)
Net cash generated used in investing activities
(3,693
)
(6,302
)
Financing activities
Repayment of long-term debt
(4,439
)
(10,912
)
Repayment of finance lease obligations (net)
(139
)
(258
)
Share issue costs
—
(1,020
)
Normal course issuer bid
(1,598
)
—
Interest expense and finance fees
(190
)
(509
)
Issuance of common shares
—
15,000
Changes in items of non-cash working capital
97
(148
)
Net cash generated from (used in) financing activities
(6,269
)
2,153
Effect of exchange rate changes on cash and cash equivalents
238
(182
)
Decrease in cash and cash equivalents
(3,245
)
(790
)
Cash and cash equivalents (including bank indebtedness) - beginning of year
1,859
(1,109
)
Cash and cash equivalents (including bank indebtedness) - end of period
(1,386
)
(1,899
)
Cash paid for income tax
—
—
Cash paid for interest
144
262
ABOUT STRAD ENERGY SERVICES LTD.
Strad is a North American energy services company that provides rental equipment and matting solutions to the oil and gas and energy infrastructure sectors. Strad focuses on providing complete customer solutions in Canada and the United States.
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:
Strad Energy Services Ltd.
Andy Pernal
President and Chief Executive Officer
(403) 775-9202
Fax: (403) 232-6901
email: apernal@stradenergy.com
Strad Energy Services Ltd.
Michael Donovan
Chief Financial Officer
(403) 775-9221
Fax: (403) 232-6901
email: mdonovan@stradenergy.com
www.stradenergy.com
