/NOT FOR DISSEMINATION IN THE UNITED STATES OF AMERICA/
CALGARY, MAY 11, 2017 /CNW/ - Cathedral Energy Services
Ltd. (the "Company" or "Cathedral" / TSX: CET) announces its
consolidated financial results for the three months ended
March 31, 7016 and 2016.
Dollars in 000's except per share amounts.
This news release contains "forward-looking statements"
within the meaning of applicable Canadian securities laws.
For a full disclosure of forward-looking statements and the risks
to which they are subject, see "Forward-Looking Statements" later
in this news release.
FINANCIAL HIGHLIGHTS
Dollars in 000's except per share
amounts
|
|
|
Three months ended
March 31
|
|
2017
|
2016
|
Revenues
|
$
|
38,323
|
$
|
18,744
|
Adjusted gross margin
% (1)
|
22%
|
26%
|
Adjusted EBITDAS
(1)
|
$
|
6,796
|
$
|
1,476
|
|
Diluted per
share
|
$
|
0.16
|
$
|
0.04
|
|
As % of
revenues
|
18%
|
8%
|
Funds from continuing
operations (1)
|
$
|
3,989
|
$
|
167
|
|
Diluted per
share
|
$
|
0.09
|
$
|
-
|
Gain on disposal of
foreign subsidiary
|
$
|
-
|
$
|
10,865
|
Earnings before
income taxes
|
$
|
3,972
|
$
|
11,010
|
|
Basic and diluted per
share
|
$
|
0.09
|
$
|
0.30
|
|
Diluted per
share
|
$
|
0.09
|
$
|
0.30
|
Net
earnings
|
$
|
2,581
|
$
|
9,683
|
|
Basic and diluted per
share
|
$
|
0.06
|
$
|
0.27
|
|
Diluted per
share
|
$
|
0.06
|
$
|
0.27
|
Equipment additions -
cash basis
|
$
|
1,570
|
$
|
268
|
Weighted average
shares outstanding
|
|
|
|
Basic
(000s)
|
42,606
|
36,295
|
|
Diluted
(000s)
|
42,761
|
36,295
|
|
|
|
|
March 31
|
December
31
|
|
2017
|
2016
|
Working
capital
|
$
|
29,710
|
$
|
39,324
|
Total
assets
|
$
|
124,460
|
$
|
136,017
|
Loans and borrowings
excluding current portion
|
$
|
84
|
$
|
26,322
|
Shareholders'
equity
|
$
|
106,186
|
$
|
90,772
|
|
|
|
(1) Refer to
"NON-GAAP MEASUREMENTS"
|
|
|
2017 Q1 KEY TAKEAWAYS
Revenues increased 105% from $18,744 in 2016 Q1 to $38,323 in 2017 Q1.
Adjusted EBITDAS increased 360% from $1,476 in 2016 Q1 to $6,796 in 2017 Q1. Adjusted EBITDAS margin
increased to 18% of revenues in 2017 Q1 from 8% in 2016 Q1.
In January, the Company completed the sale of its Flowback and
Production testing ("F&PT") assets for net proceeds of
$17,241.
On February 15, 2017, the Company
closed a bought deal public offering and insider private placement
financing for total gross proceeds of $14,130. As a consequence of this financing and
the sale of the F&PT assets, the Company had no bank debt at
March 31, 2017 (excluding letters of
credit).
The Company has increased its capital program for 2017 to a
committed amount of $6,800 and may
increase capital spending further based on operating cash flow
availability in subsequent quarters in 2017. These funds are
focused on increasing the capacity of existing equipment and
replacing equipment previously lost down hole.
OUTLOOK
What a difference a year can make! In 2016 Q1 we were
suffering from the impact of oil prices that had hit a bottom in
the $26 USD bbl range in
February. In the first quarter of 2016 we had an average of
10 active jobs running in the United
States ("U.S.") and five running in Canada. For the first quarter of 2017 our
average job count was almost three times 2016 levels. We have had
to make a tremendous shift from shrinking our business throughout
most of 2016 to a rapid ramp up starting in late 2016 and into
2017. Ramping up our business has also had many challenges
including making sure we have equipment and people available and
also ensuring we maintain a high service quality with our
customers. We were very pleased with revenue growth and
margins achieved in 2017 Q1, on a year-over-year basis, and
compared to 2016 Q4.
Despite increased activity levels, we are still challenged on
pricing in an environment where there is upward pressure on our
costs. Although customers concede that their service related
costs will increase in 2017, they are trying to defer price
increases as long as possible. At the same time, competitive
pressure remains intense as there is still a large amount of
directional drilling equipment capacity in the market. Some
competitors appear willing to work at low margins in order
to generate some cash contribution or are pricing aggressively
in an effort to gain market share. We expect pricing levels
will improve modestly throughout 2017. We have been able to
achieve price increases with our some of our longer term clients
starting in late Q1 and into Q2. Our customer value
proposition is delivering "Better Performance Every Day" which is
supported by our proprietary equipment, great people, engineering
services and size and scale. This strategy positioned us well
during the industry downturn and as activity levels have
improved. We are confident our performance matters approach
will prevail long term. Competing based on price alone is not
a sustainable strategy for our competitors going forward.
Another challenge we are facing, in part due to the competitive
dynamics, is that customers are pushing our equipment harder than
has been the case in the past to improve drilling times. This
has resulted in above average equipment damage and equipment
lost-in-hole. In most cases we can recover these costs from
customers, however, these loses and damages are impacting our
available equipment capacity short-term while the equipment is
repaired or replaced. Through our Drilling Engineering
Services and Sales teams, we are working with customers to improve
drilling practices and are also being more selective with customers
we work with. In addition, we are investing capital to
improve our equipment capacity and capabilities.
On the expense side we are still focused on cost management and
also trying to ensure our expense increases lag price
increases. Most of our expenses relate to labour and we are
seeing labour cost pressure as the industry ramps up and as a
consequence of a tight labour pool resulting from people leaving
the industry over the past two years. Our suppliers are in
similar positions and also expecting price increases to help them
ramp up.
We continue to manage our business cautiously with the
expectation we will see continued commodity price volatility going
forward. With the increased rig count and productivity of North
American shale wells, oil production and inventories are increasing
which has put pressure on prices. However, despite the WTI
oil price volatility, the rig count in the U.S., our primary
market, has been increasing. As goes the outlook on oil
prices, so goes the rig count and directional drilling industry
activity levels.
An exciting development in 2017 Q1 was the commercial
introduction of our downhole generator. The downhole
generator uses mud flow to create power for the
Measurement-While-Drilling ("MWD") equipment thereby reducing
battery use and the associated battery costs. The downhole
generator also facilitates improved Electro-Magnetic ("EM") MWD
data transmission to improve EM performance and allow it to be used
in difficult formations and areas where competitor technologies
have limitations.
We are fortunate that the business improvement areas we focused
on in the face of adversity over the past two years have set us up
favorably to capitalize on an upturn in our industry. Many of the
strategic initiatives we have been working on over the last two
years have been focused on making sure we can ramp up our business
effectively. On the sales side, we have strategies to help us
secure higher pricing for our services. On the operations side, we
are looking at ways to better manage our labor pool, keep our
expenses in line and continue to deliver high quality service. Our
technology group continues to make equipment improvements to our
existing equipment and explore new products aimed at revenue
generation and expense and capital cost reductions.
We remind our shareholders that Q2 is typically a lower revenue
quarter for the Canadian oil field services industry, including
Cathedral, due to lower activity levels in Canada as a result of spring break-up.
2017 CAPITAL
PROGRAM
During the three months ended March 31,
2017 the Company invested $1,036 (2016 - $268) in equipment. The following table
details the current period's net equipment additions:
|
|
|
Three months
ended
|
|
March 31,
2017
|
Equipment
additions:
|
|
|
Growth capital
(1)
|
$
|
492
|
|
Maintenance
capital(1)
|
38
|
|
Replacement capital
(1)
|
506
|
Total cash
additions
|
1,036
|
Less: proceeds on
disposal of equipment (excluding capital lease
settlements)
|
(2,250)
|
Net equipment
additions (1)
|
$
|
(1,214)
|
(1)See "NON-GAAP
MEASUREMENTS"
|
|
Cathedral's 2017 capital budget ("capex") reviewed by the Board
of Directors in December 2016 was for
expenditures of $3,400 with
$350 for growth capital and
$1,500 for replacement and
$1,550 for maintenance capital.
Based on improved activity levels and operating cash flow, on
May 11, 2017, the Board of Directors
approved a revised capex program of $10,000 of net equipment additions(1)
for the year.
The $10,000 capex plan for 2017 is
comprised of $5,200 of replacement
and maintenance capital and $4,800 of
growth capital. The $5,200
amount, is substantially related for investment to replace items
that have been lost-in-hole over the past two years and for
equipment upgrades and replacements to improve the capacity of
Cathedral's existing MWD and motor fleet. Over the past 2 years,
Cathedral deferred replacement and maintenance capital expenditures
in the face of low equipment utilization and in order to pay down
debt. Subject to operating results and industry outlook, on a
go forward basis equipment lost-in-hole will be replaced funded
from the proceeds received. As such, Cathedral's total capex
in any year may exceed the above noted capex. The 2017
capital budget will be reviewed quarterly based on anticipated
future activity levels and operating cash flow. Cathedral
intends to finance its 2017 capital budget from cash flow from
operations, proceeds from assets lost-in-hole, working capital
(cash) and credit facility availability.
RESULTS OF OPERATIONS – THREE MONTHS ENDED MARCH 31
|
|
|
Revenues
|
2017
|
2016
|
Canada
|
$
|
10,466
|
$
|
5,663
|
United
States
|
27,857
|
13,081
|
Total
|
$
|
38,323
|
$
|
18,744
|
Revenues 2017 Q1 revenues were
$38,323, which represented an
increase of $19,579 or 105% from 2016
Q1 revenues of $18,744. Both
Canada and United States U.S. operations had increases due to
increases in drilling activity. In late 2016, due to a
limited supply of the Company's proprietary motors, the Company
made the decision to reduce the number of rental motors available
in both Canada and the U.S. in
favor of redirecting motors on jobs where both equipment and staff
are deployed and the total cash flow contribution is typically
higher. As a consequence motor rental revenue in both
Canada and the U.S. were less in
2017 Q1 compared to 2016 Q1.
Canadian revenues (excluding motor rental revenues) increased to
$9,307 in 2017 Q1 from $3,354 in 2016 Q1; a 178% increase. This
increase was the result of: i) a 184% increase in activity days to
1,423 in 2017 Q1 from 501 in 2016 Q1; net of ii) a 2% decrease in
the average day rate to $6,540 in
2017 Q1 from $6,695 in 2016 Q1.
Partially offsetting the revenue increase was a decrease of
$1,150 in motor rental revenue.
Motor rental revenues for 2017 Q1 were $1,159 (2016 Q1 - $2,309).
The average active land rig count in Canada was up 87% in 2017 Q1 compared to 2016
Q1. The increase in the Company's activity days relative to
the active rigs drilling was a result of sales and marketing
efforts and the Company demonstrating performance on client
jobs. The decrease in day rates was in part due to type of
work performed, but mainly due to decreases in day rates charged to
customers, which were a result of competitive pressure, and pricing
concessions provided to customers to secure work. Many of
these customer pricing concessions were carried forward from late
2016.
U.S. Directional Drilling revenues (excluding motor rental
revenues) increased to $27,578 in
2017 Q1 from $11,977 in 2016 Q1; a
130% increase. This increase was the result of: i) a 162%
increase in activity days to 2,565 in 2017 Q1 from 979 in 2016 Q1;
net of ii) a 12% decrease in the average day rate to $10,752 in 2017 Q1 from $12,234 in 2016 Q1 (when converted to Canadian
dollars). All U.S. operating areas saw increases in activity
days.
The average active land rig count for the U.S. was up 36% in
2017 Q1 compared to 2016 Q1. Again, due to efforts of sales
and marketing staff and performance on client jobs, the Company was
able to increase market share compared to 2016 Q1. Day rates
in USD fell to $8,117 USD in 2017 Q1
from $8,906 USD in 2016 Q1; a 9%
decline. U.S. day rates decreases were partially offset by
the U.S. division providing footage drilling services to certain
clients, which can result in higher relative day rates. U.S.
motor rental revenues for 2017 Q1 were $279 compared to $1,104 in 2016 Q1.
Gross margin and adjusted gross
margin Gross margin for 2017 Q1 was 15%
compared to 10% in 2016 Q1. Adjusted gross margin (see
Non-GAAP Measurements) for 2017 Q1 was $8,486 or 22% compared to $4,949 or 26% for 2016 Q1.
Adjusted gross margin, as a percentage of revenue, decreased due
to increases in field labour rates, higher equipment rentals and
slightly higher equipment repairs on a percentage of revenue
basis. These increases were offset by a reduction in the
fixed component of cost of sales which were 13% lower on a
percentage of revenue basis in 2017 Q1 compared to 2016 Q1.
The decrease in the fixed component of cost of sales as a
percentage of revenue was mostly attributable to increase in
revenues, however there were increases in costs largely related to
salaries and other labour related costs.
Depreciation allocated to cost of sales decreased to
$2,606 in 2017 Q1 from $3,111 in 2016 Q1. Depreciation included in
cost of sales as a percentage of revenue was 7% for 2017 Q1 and 17%
in 2016 Q1.
Selling, general and administrative expenses
("SG&A") SG&A expenses
were $3,823 in 2017 Q1; a decrease of
$448 compared with $4,271 in 2016 Q1. As a percentage of
revenue, SG&A was 10% in 2017 Q1 compared to 23% in 2016
Q1.
Excluding the non-cash items of depreciation and share-based
compensation, SG&A was $3,751 in
2017 Q1 compared to $4,188 in 2016
Q1, a decrease of $437 or 10%.
SG&A decreased primarily due to work force reductions.
Additionally, 2016 Q1 had costs related to severance that were not
incurred in 2017 Q1. Staffing costs included in SG&A
include executive, sales, accounting, human resources, payroll,
safety, technology support and related support staff. As
well, there were year-over-year reductions in virtually every
SG&A item due to efforts to reduce expenditures in 2016.
Gain on disposal of equipment
During 2017 Q1, the Company had a gain on disposal of equipment of
$2,014 compared to $891 in 2016 Q1. These gains mainly relate
to equipment lost-in-hole. Proceeds from clients on
lost-in-hole equipment are based on amounts specified in service
agreements and, in most cases; these proceeds exceed the net book
value of the equipment and result in a gain. The timing of
lost-in-hole recoveries is not in the control of the Company and
therefore can fluctuate significantly from quarter-to-quarter.
Finance costs Finance costs
consist of interest expenses on operating loans, loans and
borrowings and bank charges of $302
for 2017 Q1 versus $379 for 2016
Q1. The decrease in finance costs relate to repayments of
loans in 2017 Q1 partially offset by increases in the interest
rates.
Foreign exchange The Company had
a foreign exchange gain of $218 in
2017 Q1 compared to a gain of $2,354
in 2016 Q1 due to the fluctuations of the Canadian dollar relative
to the U.S. dollar. The Company's foreign operations are
denominated in a currency other than the Canadian dollar and
therefore, upon consolidation, gains and losses due to fluctuations
in the foreign currency exchange rates are recorded as other
comprehensive income on the balance sheet as a component of
equity. However, gains and losses in the Canadian entity on
U.S. denominated intercompany balances continue to be recognized in
the statement of comprehensive income (loss). Included in the
2017 Q1 foreign currency gains are unrealized gain of $192 (2016 Q1 - $2,364) related to intercompany balances.
Gain on disposal of foreign
subsidiary
During 2016 Q1, the Company completed the sale of its wholly-owned
Barbados subsidiary for net
proceeds of $nil which resulted in a non-cash gain on sale of
$10,865. The subsidiary held the
Company's investment in Venezuela
and this sale completed Cathedral's exit from carrying on a
business in Venezuela.
Net loss from discontinued operations
In 2016 Q4, the Company made the decision
to sell its F&PT assets and focus its attention and resources
fully on the directional drilling business where it believes it has
a strong competitive advantage and better future growth
prospects. The proceeds from this sale were used to pay down
debt. As such, operating results for the F&PT business
have been included in the statements of comprehensive income and
statements of cash flows as discontinued operations. For 2017
Q1, the net loss from discontinued operations was $(118) compared to $(1,420) net loss for 2016 Q1.
Income tax For 2017 Q1, the
Company had an income tax expense of $1,273 compared to recovery of $93 in 2016 Q1. Excluding adjustments to
prior years' tax provisions, the effective tax rate was 32% for
2017 Q1. Excluding the non-cash gain on disposal of
foreign subsidiary but including the loss from discontinued
operations, the effective tax rate was 30% for 2016 Q1.
Income tax expense is booked based upon expected annualized
effective rates.
LIQUIDITY AND CAPITAL RESOURCES
Overview On an annualized basis
the Company's principal source of liquidity is cash generated from
operations. In addition, the Company has the
ability to fund liquidity requirements through its credit facility
and the issuance of debt and/or equity. For the three
months ended March 31, 2017, the
Company had funds from continuing operations (see Non-GAAP
Measurements) of $3,989 (2016
–$167). The increase in funds related to continuing
operations is due to the increase in activity levels.
During 2017 Q1 the Company completed two major transactions that
had a material impact on its outstanding debt. In January,
the Company completed the sale of its F&PT assets for net
proceeds of $17,241. On
February 15, 2017, the Company closed
a bought deal public offering and insider private placement
financing for total gross proceeds of $14,130. As a result of these transactions,
in 2017 Q1 the Company reduced its loans and borrowings by
$26,315 which included a complete
repayment of revolving term loan of $26,250. Cash balances as at March 31, 2017 were $3,783.
Working capital At March 31, 2017 the Company had working capital of
$29,710 (December 31, 2016 - $39,324) and a working capital ratio of 2.7 to 1
(December 31, 2016 – 3.3 to 1).
The decrease in working capital level was primarily due to the sale
of F&PT assets held for sale which had been classified as a
current asset at December 31 in the
amount of $17,241. Partially
offsetting this was an increase in trade receivables of
$8,084 from December 31, 2016. Upon closing of the
F&PT sale on January 16, 2017,
$17,200 of the revolving term loan
was repaid. The Company continues to retain a good accounts
receivable aging profile with 89% of receivables under 60 days at
March 31, 2017.
Credit facility The Company has a
committed revolving credit facility (the "Facility") that expires
in December 2018. The Facility is secured by a general
security agreement over all present and future personal
property.
The current Facility has been amended seven times. These
amendments have certain restrictions, including, but not limited
to; paying dividends, utilization of the accordion feature,
enhanced lender financial reporting and a cap on any litigation
settlement payments without lender approval. As well, effective
2016 Q1, the Company includes lost-in-hole equipment proceeds in
the definition of Bank EBITDA (as defined in the credit
agreement).
The financial covenants associated with the amended Facility are
as follows:
Quarter
ending:
|
Maximum Funded Debt
to Bank EBITDA Ratio
|
Minimum Debt Service
Ratio
|
March 31,
2017
|
3.5:1
|
2.0:1
|
June 30,
2017
|
3.5:1
|
2.5:1
|
September 30,
2017
|
3.5:1
|
3.0:1
|
December 31,
2017
|
3.25:1
|
3.0:1
|
March 31, 2018 and
thereafter
|
3.0:1
|
3.0:1
|
Additionally, there is a minimum working capital ratio of
1.25:1.
The Seventh Amending Agreement, dated January 16, 2017, reduced the aggregate
commitment to $23,000 after
$17,200 was repaid upon the sale of
F&PT assets and the maturity date was extended to December 2018.
After the amendments discussed above, the Facility bears
interest at the bank's prime rate plus 0.50% to 5.00% or bankers'
acceptance rate plus 1.75% to 6.25% with interest payable
monthly. Interest rate spreads for the Facility depend on the
level of funded debt to the 12 month trailing Bank EBITDA.
The Facility provides a means to lock in a portion of the debt at
interest rates through bankers' acceptance ("BA") based on the
interest rate spread on the date the BA was entered into.
Cathedral is currently in compliance with all covenants.
Based on current available information, Cathedral expects to comply
with all covenants for the next twelve months.
At March 31, 2017, the Company had
cash balances in excess of outstanding letters of credit and
capital lease obligations. As such its Funded debt to bank
EBITDA ratio ("Funded debt ratio") was negative (i.e. net cash
balance). As such, the Funded debt ratio has been met, but is
not meaningful ("NM") for presentation. For the three months
ended March 31, 2017 Bank EBITDA was
$7,021.
The Company's financial ratios at March
31, 2017 were:
Ratio
|
Actual
|
Required
|
Funded debt to Bank
EBITDA ratio
|
NM
|
3.5:1
Maximum
|
Debt service
ratio
|
6.8:1
|
2.0:1
Minimum
|
Working capital
ratio
|
2.7:1
|
1.25:1
Minimum
|
Contractual obligations In the
normal course of business, the Company incurs contractual
obligations and those obligations are disclosed in the Company's
MD&A for the year ended December
31, 2016. As at March 31,
2017, the Company had a commitment to purchase approximately
$810 of equipment.
Share capital At May 11, 2017, the Company has 48,916,451 common
shares and 2,411,750 options outstanding with a weighted average
exercise price of $1.47.
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL
POSITION
March 31, 2017
and December 31, 2016
Dollars
in '000s
(unaudited)
|
|
|
|
March
31
|
December
31
|
|
2017
|
2016
|
Assets
|
|
|
Current
assets:
|
|
|
|
Cash
|
$
|
3,783
|
$
|
1,898
|
|
Trade
receivables
|
34,329
|
26,245
|
|
Current taxes
recoverable
|
|
-
|
1,336
|
|
Prepaid
expenses
|
1,421
|
1,611
|
|
Inventories
|
7,768
|
8,037
|
|
Assets held for
sale
|
|
-
|
17,241
|
Total current
assets
|
47,301
|
56,368
|
Equipment
|
66,256
|
68,158
|
Intangible
assets
|
2,013
|
1,978
|
Deferred tax
assets
|
8,890
|
9,513
|
Total non-current
assets
|
77,159
|
79,649
|
Total
assets
|
$
|
124,460
|
$
|
136,017
|
|
|
|
Liabilities and
Shareholders' Equity
|
|
|
Current
liabilities:
|
|
|
|
Operating
loan
|
$
|
-
|
$
|
2,105
|
|
Trade and other
payables
|
14,766
|
12,837
|
|
Current taxes
payable
|
220
|
|
-
|
|
Loans and
borrowings
|
382
|
459
|
|
Provision for
settlements, current
|
2,223
|
1,643
|
Total current
liabilities
|
17,591
|
17,044
|
Loans and
borrowings
|
84
|
26,322
|
Provision for
settlements, long-term
|
599
|
1,879
|
Total non-current
liabilities
|
683
|
28,201
|
Total
liabilities
|
18,274
|
45,245
|
|
|
|
Shareholders'
equity:
|
|
|
|
Share
capital
|
87,617
|
74,481
|
|
Contributed
surplus
|
9,679
|
9,620
|
|
Accumulated other
comprehensive income
|
11,009
|
11,371
|
|
Deficit
|
(2,119)
|
(4,700)
|
Total shareholders'
equity
|
106,186
|
90,772
|
Total liabilities and
shareholders' equity
|
$
|
124,460
|
$
|
136,017
|
|
|
|
CONDENSED CONSOLIDATED STATEMENT OF
COMPREHENSIVE INCOME
Three months ended March 31, 2017 and 2016
Dollars in '000s
except per share amounts
(unaudited)
|
|
|
Three months
ended March 31
|
|
2017
|
2016
|
Revenues
|
$
|
38,323
|
$
|
18,744
|
Cost of
sales:
|
|
|
|
Direct
costs
|
(29,837)
|
(13,795)
|
|
Depreciation
|
(2,606)
|
(3,111)
|
|
Share-based
compensation
|
(15)
|
(11)
|
Total cost of
sales
|
(32,458)
|
(16,917)
|
Gross
margin
|
5,865
|
1,827
|
Selling, general and
administrative expenses:
|
|
|
|
Direct
costs
|
(3,751)
|
(4,188)
|
|
Depreciation
|
(25)
|
(34)
|
|
Share-based
compensation
|
(47)
|
(49)
|
Total selling,
general and administrative expenses
|
(3,823)
|
(4,271)
|
|
2,042
|
(2,444)
|
Gain on disposal of
equipment
|
2,014
|
891
|
Earnings (loss) from
operating activities
|
4,056
|
(1,553)
|
Finance
costs
|
(302)
|
(379)
|
Foreign exchange
gain
|
218
|
2,354
|
Write-down of
inventory
|
|
-
|
(277)
|
Gain on disposal of
foreign subsidiary
|
|
-
|
10,865
|
Earnings before
income taxes
|
3,972
|
11,010
|
Income tax recovery
(expense):
|
|
|
|
Current
|
(655)
|
126
|
|
Deferred
|
(618)
|
(33)
|
Total income tax
recovery (expense)
|
(1,273)
|
93
|
Net earnings from
continuing operations
|
2,699
|
11,103
|
Net loss from
discontinued operations
|
(118)
|
(1,420)
|
Net
earnings
|
2,581
|
9,683
|
Other comprehensive
income (loss):
|
|
|
|
Foreign currency
translation differences for foreign operations
|
(362)
|
(3,205)
|
|
Foreign currency
translation gain on disposal of foreign subsidiary
|
|
-
|
1,348
|
Total comprehensive
income
|
$
|
2,219
|
$
|
7,826
|
|
|
|
Net earnings from
continuing operations per share
|
|
|
|
Basic and
diluted
|
$
|
0.06
|
$
|
0.31
|
Net loss from
discontinued operations per share
|
|
|
|
Basic
|
$
|
(0.00)
|
$
|
(0.04)
|
Net earnings per
share
|
|
|
|
Basic and
diluted
|
$
|
0.06
|
$
|
0.27
|
CONDENSED CONSOLIDATED STATEMENT OF CASH
FLOWS
Three months ended March
31, 2017 and 2016
Dollars in '000s
(unaudited)
|
|
|
Three months
ended March 31
|
|
2017
|
2016
|
Cash flow provided
by (used in):
|
|
|
Operating
activities:
|
|
|
|
Net earnings from
continuing operations
|
$
|
2,699
|
$
|
11,103
|
|
Items not involving
cash:
|
|
|
|
|
Depreciation
|
2,631
|
3,145
|
|
|
Total income tax
(recovery) expense
|
1,273
|
(93)
|
|
|
Unrealized foreign
exchange gain on intercompany balances
|
(192)
|
(2,364)
|
|
|
Finance
costs
|
302
|
379
|
|
|
Share-based
compensation
|
62
|
60
|
|
|
Gain on disposal of
equipment
|
(2,014)
|
(891)
|
|
|
Write-down of
inventory
|
|
-
|
277
|
|
|
Gain on disposal of
foreign subsidiary
|
|
-
|
(10,865)
|
|
Cash flow -
continuing operations
|
4,761
|
751
|
|
Cash flow -
discontinued operations
|
(117)
|
(710)
|
|
Changes in non-cash
operating working capital
|
(6,105)
|
4,235
|
|
Income taxes (paid)
recovered
|
893
|
(120)
|
Cash flow - operating
activities
|
(568)
|
4,156
|
Investing
activities:
|
|
|
|
Equipment
additions
|
(1,036)
|
(268)
|
|
Intangible asset
additions
|
(79)
|
(45)
|
|
Proceeds on disposal
of equipment
|
2,393
|
1,205
|
|
Proceeds on disposal
of discontinued operations
|
17,252
|
-
|
|
Changes in non-cash
investing working capital
|
196
|
646
|
Cash flow - investing
activities
|
18,726
|
1,538
|
|
|
|
Financing
activities:
|
|
|
|
Change in operating
loan
|
(2,105)
|
(2,088)
|
|
Repayments on loans
and borrowings
|
(26,313)
|
(2,603)
|
|
Proceeds on share
issuance from bought deal public offering and insider private
placement
|
13,131
|
|
-
|
|
Proceeds on share
issuance from exercise of share options
|
4
|
|
-
|
|
Payments on
settlement
|
(668)
|
|
-
|
|
Interest
paid
|
(305)
|
(134)
|
Cash flow - financing
activities
|
(16,256)
|
(4,825)
|
Effect of exchange
rate on changes in cash
|
(17)
|
(95)
|
Change in
cash
|
1,885
|
774
|
Cash, beginning of
period
|
1,898
|
1,426
|
Cash, end of
period
|
$
|
3,783
|
$
|
2,200
|
|
|
|
FORWARD LOOKING STATEMENTS
This news release contains certain forward-looking statements
and forward-looking information (collectively referred to herein as
"forward-looking statements") within the meaning of applicable
Canadian securities laws. All statements other than
statements of present or historical fact are forward-looking
statements. Forward-looking statements are often, but not
always, identified by the use of words such as "anticipate",
"achieve", "believe", "plan", "intend", "objective", "continuous",
"ongoing", "estimate", "outlook", "expect", "may", "will",
"project", "should" or similar words suggesting future
outcomes. In particular, this news release contains
forward-looking statements relating to, among other things: expect
pricing levels will improve modestly throughout 2017; expectation
we will see continued commodity price volatility going forward;
many of the aspects of our business that we focused on in the face
of adversity over the past two years have set us up favorably to
capitalize on an upturn in our industry; have strategies to help us
secure higher pricing for our services; looking at ways to better
manage our labor pool, keep our expenses in line and continue to
deliver high quality service; technology group continues to make
equipment improvements to our existing equipment and explore new
products aimed at revenue generation and expense and capital cost
reductions; and Cathedral expects to comply with all covenants
during 2017.
Various material factors and assumptions are typically applied
in drawing conclusions or making the forecasts or projections set
out in forward-looking statements. Those material factors and
assumptions are based on information currently available to the
Company, including information obtained from third party industry
analysts and other third party sources. In some instances,
material assumptions and material factors are presented elsewhere
in this news release in connection with the forward-looking
statements. You are cautioned that the following list of
material factors and assumptions is not exhaustive. Specific
material factors and assumptions include, but are not limited
to:
- the performance of Cathedral's businesses, including current
business and economic trends;
- oil and natural gas commodity prices and production
levels;
- capital expenditure programs and other expenditures by
Cathedral and its customers;
- the ability of Cathedral to retain and hire qualified
personnel;
- the ability of Cathedral to obtain parts, consumables,
equipment, technology, and supplies in a timely manner to carry out
its activities;
- the ability of Cathedral to maintain good working relationships
with key suppliers;
- the ability of Cathedral to market its services successfully to
existing and new customers and reliance on major customers;
- risks associated with technology development and intellectual
property rights;
- the ability of Cathedral to maintain safety performance;
- the ability of Cathedral to obtain timely financing on
acceptable terms;
- the ability to obtain sufficient insurance coverage to mitigate
operational risks;
- currency exchange and interest rates;
- risks associated with foreign operations;
- risks associated with acquisitions and business development
efforts;
- environmental risks;
- changes under governmental regulatory regimes and tax,
environmental and other laws in Canada and U.S.; and
- competitive risks.
Forward-looking statements are not a guarantee of future
performance and involve a number of risks and uncertainties some of
which are described herein. Such forward-looking statements
necessarily involve known and unknown risks and uncertainties,
which may cause the Company's actual performance and financial
results in future periods to differ materially from any projections
of future performance or results expressed or implied by such
forward-looking statements. These risks and uncertainties
include, but are not limited to, the risks identified in this news
release and in the Company's Annual Information Form under the
heading "Risk Factors". Any forward-looking statements are
made as of the date hereof and, except as required by law, the
Company assumes no obligation to publicly update or revise such
statements to reflect new information, subsequent or otherwise.
All forward-looking statements contained in this news release
are expressly qualified by this cautionary statement. Further
information about the factors affecting forward-looking statements
is available in the Company's current Annual Information Form and
Annual Report which have been filed with Canadian provincial
securities commissions and are available on www.sedar.com.
NON-GAAP MEASUREMENTS
Cathedral uses certain performance measures throughout this
document that are not defined under GAAP. Management believes that
these measures provide supplemental financial information that is
useful in the evaluation of Cathedral's operations and are commonly
used by other oil and gas service companies. Investors should be
cautioned, however, that these measures should not be construed as
alternatives to measures determined in accordance with GAAP as an
indicator of Cathedral's performance. Cathedral's method of
calculating these measures may differ from that of other
organizations, and accordingly, may not be comparable.
The specific measures being referred to include the
following:
i) "Adjusted gross margin" -
calculated as gross margin plus non-cash items (depreciation and
share-based compensation); is considered a primary indicator of
operating performance (see tabular calculation);
ii) "Adjusted gross margin %" -
calculated as adjusted gross margin divided by revenues; is
considered a primary indicator of operating performance (see
tabular calculation);
iii) "Total Adjusted EBITDAS" - defined as
earnings before share of income/loss from associate,
write-down/recovery on investment in associate finance costs,
unrealized foreign exchange on intercompany balances, unrealized
foreign exchange due to hyper-inflation accounting, taxes,
non-recurring gains and losses on disposal of equipment (see
non-GAAP measurement), depreciation, write-down of goodwill,
write-down of equipment, write-down of inventory and share-based
compensation; is considered an indicator of the Company's ability
to generate funds flow from operations prior to consideration of
how activities are financed, how the results are taxed and measured
and non-cash expenses (see tabular calculation). This measure
includes both discontinued F&PT operations and continuing
Directional Drilling operations;
iv) "Adjusted EBITDAS from discontinued
operations" – Total Adjusted EBITDAS as calculated above from
discontinued F&PT operations only;
v) "Adjusted EBITDAS from continuing
operations" – Total Adjusted EBITDAS as calculated above for
ongoing Directional Drilling as well as corporate administrative
costs;
vi) "Funds from operations" - calculated as
cash provided by operating activities before changes in non-cash
working capital and income taxes paid less current tax expense; is
considered an indicator of the Company's ability to generate funds
flow from operations on an after tax basis but excluding changes in
non-cash working capital which is financed using the Company's
operating loan (see tabular calculation);
vii) "Growth equipment additions" or "Growth
capital" – is capital spending which is intended to result in
incremental revenues or decreased operating costs. Growth
capital is considered to be a key measure as it represents the
total expenditures on equipment expected to add incremental
revenues and funds flow to the Company;
viii) "Maintenance equipment additions" or "Maintenance
capital" – is capital spending incurred in order to refurbish or
replace previously acquired other than "replacement equipment
additions" described below. Such additions do not provide
incremental revenues. Maintenance capital is a key component in
understanding the sustainability of the Company's business as cash
resources retained within Cathedral must be sufficient to meet
maintenance capital needs to replenish the assets for future cash
generation;
ix) "Replacement equipment additions" or
"Replacement capital" – is capital spending incurred in order to
replace equipment that is lost downhole. Cathedral recovers
lost-in-hole costs including previously expensed depreciation on
the related assets from customers. Such additions do not
provide incremental revenues. The identification of
replacement equipment additions is considered important as such
additions are financed by way of proceeds on disposal of equipment
(see discussion within the news release on "gain on disposal of
equipment);
x) "Infrastructure equipment additions"
or "Infrastructure capital" – is capital spending incurred on land,
buildings and leasehold improvements. Infrastructure capital is a
component in understanding the sustainability of the Company's
business as cash resources retained within Cathedral must be
sufficient to meet maintenance capital needs;
xi) "Non-recurring gains and losses on
disposal of equipment" – are disposals of equipment that do not
occur on a regular or periodic basis. Unlike the lost-in-hole
recoveries, the proceeds from these gains are not used on
equivalent replacement property. These are often on non-field
equipment such as land and buildings;
xii) "Net equipment additions" – is equipment
additions expenditures less proceeds on the regular disposal of
equipment (the proceeds on sale of land and buildings have been
excluded). Cathedral uses net equipment additions to assess
net cash flows related to the financing of Cathedral's equipment
additions; and
xiii) "Net debt" – is loans and borrowing less working
capital. Management uses net debt as a metric to shows the
Company's overall debt level.
The following tables provide reconciliations from GAAP
measurements to non-GAAP measurements referred to in this news
release:
Adjusted gross margin
|
|
|
|
Three months ended
March 31
|
|
2017
|
2016
|
Gross
margin
|
$
|
5,865
|
$
|
1,827
|
Add non-cash items
included in cost of sales:
|
|
|
|
Depreciation
|
2,606
|
3,111
|
|
Share-based
compensation
|
15
|
11
|
|
|
|
Adjusted gross
margin
|
$
|
8,486
|
$
|
4,949
|
Adjusted gross margin
%
|
22%
|
26%
|
|
|
|
Total Adjusted EBITDAS
|
|
|
Three months ended
March 31
|
|
2017
|
2016
|
Earnings before
income taxes
|
$
|
3,972
|
$
|
11,010
|
Add:
|
|
|
|
Depreciation included
in cost of sales
|
2,606
|
3,111
|
|
Depreciation included
in selling, general and administrative expenses
|
25
|
34
|
|
Share-based
compensation included in cost of sales
|
15
|
11
|
|
Share-based
compensation included in selling, general and administrative
expenses
|
47
|
49
|
|
Finance
costs
|
302
|
379
|
Subtotal
|
6,967
|
14,594
|
|
Unrealized foreign
exchange gain on intercompany balances
|
(192)
|
(2,364)
|
|
Write-down of
inventory
|
-
|
277
|
|
Gain on disposal of
foreign subsidiary
|
-
|
(10,865)
|
|
Non-recurring
expenses
|
127
|
436
|
Adjusted EBITDAS from
continuing operations
|
6,902
|
2,078
|
Adjusted EBITDAS from
discontinued operations
|
(106)
|
(602)
|
Total Adjusted
EBITDAS
|
$
|
6,796
|
$
|
1,476
|
|
|
|
Funds from operations
|
|
|
Three months ended
March 31
|
|
2017
|
2016
|
Cash flow - operating
activities
|
$
|
(568)
|
$
|
4,156
|
Add
(deduct):
|
|
|
|
Changes in non-cash
operating working capital
|
6,105
|
(4,235)
|
|
Income taxes paid
(recovered)
|
(893)
|
120
|
|
Current tax recovery
(expense)
|
(655)
|
126
|
Funds from
operations
|
$
|
3,989
|
$
|
167
|
|
|
|
Cathedral Energy Services Ltd. (the "Company" or
"Cathedral"), based in Calgary,
Alberta is incorporated under the Business Corporations Act
(Alberta) and operates in the U.S.
under Cathedral Energy Services Inc. The Company is publicly
traded on the Toronto Stock Exchange under the symbol "CET".
Cathedral, is a trusted partner to North American energy companies
requiring high performance directional drilling services. We
work in partnership with our customers to tailor our equipment and
expertise to meet their specific geographical and technical
needs. Our experience, technologies and responsive personnel
enable our customers to achieve higher efficiencies and lower
project costs. For more information, visit
www.cathedralenergyservices.com.
SOURCE Cathedral Energy Services Ltd.