ClearStream Energy Services Inc. (“ClearStream”) (TSX:CSM)
(TSX:CSM.DB.A) today announced its results for the three months
ended March 31, 2018.
“EBITDAS” and “Adjusted EBITDAS” are not
standard measures under IFRS. Please refer to the “Non-IFRS
measures” section of this release for a description of these items
and limitations of their use.
First Quarter 2018 Highlights
- Revenue increased by $7.1 million or 9% and adjusted EBITDAS
increased by $0.1 million or 6% for the first quarter of 2018
compared to the same period 2017;
- ClearStream completed a refinancing transaction with its major
stakeholders that improved the financial stability of the Company.
As part of this transaction, $108.6 million of long-term debt was
exchanged for a newly created series of Preferred Shares. In
addition, ClearStream issued $19 million of Preferred Shares in
exchange for cash proceeds that will be used to fund existing and
future interest obligations;
- ClearStream completed the sale of its transportation business
during the first quarter of 2018 for total proceeds of $3.4
million; $2.3 million of these proceeds were used to repay
long-term debt;
- Gross profit margins declined to 7.9% compared to 8.4% on a
year-over-year basis; ClearStream’s service lines continue to
remain competitive, which has led to pricing declines and lower
gross profit margins;
Overview of Financial Results
($ millions, except per share amounts) |
Q1 2018 |
Q1 2017 |
Revenue |
84.8 |
|
77.7 |
|
Gross profit |
6.8 |
|
6.5 |
|
Selling, general & administrative expenses |
(4.7 |
) |
(4.5 |
) |
Adjusted EBITDAS |
2.2 |
|
2.1 |
|
Loss from continuing operations |
(3.0 |
) |
(3.6 |
) |
Loss per share from continuing operations, basic and
diluted |
(0.03 |
) |
(0.03 |
) |
Revenues for the three months ended March 31,
2018 were $84.8 million compared to $77.7 million for the same
period in 2017, an increase of 9%. The increase was due largely to
increased demand in the Fort McMurray region including the
commencement of a large turnaround project in March.
Gross profit for the three months ended March
31, 2018 was $6.8 million compared to $6.5 million for the same
period in 2017 and gross margins were 8.0% compared to 8.4% for the
same period in 2017. Gross margins declined on a year-over-year
basis as lower margins for the Wear and Fabrication segment more
than offset slightly higher margins for maintenance and
construction.
Selling, general and administrative (“SG&A”)
costs for the three months ended March 31, 2018 were $4.7 million
compared to $4.5 million in 2017 and remained relatively
consistent on a year-over-year basis. As a percentage of revenue,
SG&A costs have declined to 5.5% from 5.8% for the three months
ended March 31, 2018.
The loss from continuing operations for the
first quarter of 2018 was $2.8 million compared to $3.6 million in
the same period of 2017 due to a reduction in interest
expenses.
Segment Review
MAINTENANCE AND CONSTRUCTION SERVICES
($ millions, except per share amounts) |
Q1 2018 |
Q1 2017 |
Revenue |
69.3 |
|
59.2 |
|
Gross profit |
3.7 |
|
2.4 |
|
Selling, general & administrative expenses |
(0.3 |
) |
(0.3 |
) |
Adjusted EBITDAS |
3.5 |
|
2.1 |
|
Income from continuing operations |
2.1 |
|
2.8 |
|
Revenues for the Maintenance and Construction
Services segment were $69.3 million for the three months ended
March 31, 2018 compared to $59.2 million in the prior year quarter,
an increase of 17%. For the first quarter of 2018, revenues
benefitted from an increase in maintenance demand in the Fort
McMurray region driven largely by the commencement of a large
facility turnaround in March.
Gross profit was $3.7 million for the three
months ended March 31, 2018 compared with $2.4 million for the same
period in the prior year. Gross profit margin for the period was
5.3% compared to 4.1% in 2017. The increase in margins was due to
higher operating leverage on our fixed cost structure combined with
cost and efficiency improvements that reduced cost of revenues.
These factors were partially offset by declines in pricing.
SG&A costs for the Maintenance and Construction segment were
largely consistent on a year-over-year basis.
Income from continuing operations in the prior
year included a $1.9 million gain on the sale of property, plant
and equipment. After adjusting for the one-time gain, the income
from operations for the quarter ended March 31, 2018 increased by
$1.1 million compared to the same period in 2017.
Wear, fabrication, and TransporTation
Services
($ millions, except per share amounts) |
Q1 2018 |
Q1 2017 |
Revenue |
15.6 |
|
18.9 |
|
Gross profit |
3.1 |
|
4.1 |
|
Selling, general & administrative expenses |
(0.1 |
) |
(0.2 |
) |
Adjusted EBITDAS |
3.0 |
|
3.9 |
|
Income from continuing operations |
3.3 |
|
3.0 |
|
ClearStream sold all transportation assets on
January 1, 2018 and shut down this division during the first
quarter of 2018. Total proceeds received on the sale were $3,400
and a gain of $1,032 was recognized on the sale. The following
table shows the quarter-over-quarter results with the
transportation division excluded to facilitate a more relevant
comparative analysis:
($ millions, except per share amounts) |
Q1 2018 |
Q1 2017 |
Revenue |
15.6 |
|
15.8 |
|
Gross profit |
3.1 |
|
4.0 |
|
Selling, general & administrative expenses |
(0.1 |
) |
(0.1 |
) |
Adjusted EBITDAS |
3.0 |
|
3.9 |
|
Revenue for the Fabrication and Wear Technology
segment was $15.6 million for the three months ended March 31, 2018
compared to $15.8 million in the prior year quarter. Increased
revenue for wear technology services was partially offset by a
decline in fabrication revenue. Demand for fabrication services
continues to be negatively impacted by a lack of new oil and gas
project activity in Alberta.
Gross profit was $3.1 million for the three
months ended March 31, 2018 compared with $4.0 million during the
same period of the prior year. Gross profit margin for the period
decreased to 20.0% compared to 25.5% in 2017 due to a decline in
pricing for fabrication services combined with unfavorable changes
in customer mix.
SG&A expenses for the Fabrication and Wear
Technology segment for the three months ended March 31, 2018, were
largely consistent with the same period in the prior
year.
Corporate
($ millions, except per share amounts) |
Q1 2018 |
Q1 2017 |
Selling, general & administrative expenses |
4.3 |
4.0 |
Corporate SG&A expenses were $4.3 million
for the three months ended March 31, 2018 compared to $4.0 million
for the same period in the prior year. SG&A costs increased
slightly on a year-over-year basis due to higher employee
costs.
Outlook
Demand for ClearStream’s services is typically
strong during the second quarter when many oil and gas facilities
undergo significant maintenance. ClearStream has several facility
maintenance projects scheduled for the second quarter of 2018 and
revenue is expected to increase significantly compared to the first
quarter of 2018.
With recent improvements in oil prices, demand
for ClearStream’s services is expected to increase in 2018 compared
to 2017 as our clients slowly increase maintenance budgets to
uphold production levels. However, ClearStream’s business remains
very competitive as more service companies are focused on
increasing exposure to maintenance related service lines. Under
this competitive landscape, pricing is not expected to increase
during 2018 and profit margins are expected to remain at current
levels.
ClearStream will continue to focus on the key
aspects of our business including safety, quality, recruiting, and
cost control.
About ClearStream Energy Services Inc.
With a legacy of excellence and experience
stretching back more than 50 years, ClearStream provides solutions
to the Energy and Industrial markets including: Oil & Gas,
Petrochemical, Mining, Power, Agriculture, Forestry, Infrastructure
and Water Treatment. With offices strategically located across
Canada and over 3,000 employees, we construct, transport and
provide maintenance services that keep our clients moving forward.
For more information about ClearStream, please visit
www.ClearStreamEnergy.ca.
For further information, please contact:
Gary Summach Chief
Financial OfficerClearStream Energy Services Inc. 587-318-1003
gsummach@clearstreamenergy.ca |
Dean MacDonaldExecutive
Chairman and Interim CEOClearStream Energy Services
Inc.dean@tuckamore.ca |
Forward-looking information This report
contains certain forward-looking information. Certain
information included in this report may constitute forward-looking
information within the meaning of securities laws. In some
cases, forward-looking information can be identified by terminology
such as “may”, “will”, “should”, “expect”, “plan”, “anticipate”,
“believe”, “estimate”, “predict”, “potential”, “continue” or the
negative of these terms or other similar expressions concerning
matters that are not historical facts. Forward-looking
information may relate to management’s future outlook and
anticipated events or results and may include statements or
information regarding the future plans or prospects of ClearStream
and reflects management’s expectations and assumptions regarding
the growth, results of operations, performance and business
prospects and opportunities of ClearStream. Without
limitation, information regarding the future operating results and
economic performance of ClearStream constitute forward-looking
information. Such forward-looking information reflects
management’s current beliefs and is based on information currently
available to management of ClearStream. Forward-looking
information involves significant risks and uncertainties. A
number of factors could cause actual events or results to differ
materially from the events and results discussed in the
forward-looking information including risks related to investments,
conditions of capital markets, economic conditions, commodity
prices, dependence on key personnel, limited customer bases,
interest rates, regulatory change, ability to meet working capital
requirements and capital expenditures needs of the Company, factors
relating to the weather and availability of labour. These factors
should not be considered exhaustive. In addition, in
evaluating this information, investors should specifically consider
various factors, including the risks outlined under “Risk Factors,”
in the company’s 2017 Annual Information Form dated February 28,
2018, which may cause actual events or results to differ materially
from any forward-looking statement. In formulating forward-looking
information herein, management has assumed that business and
economic conditions affecting ClearStream will continue
substantially in the ordinary course, including without limitation
with respect to general levels of economic activity, regulations,
taxes and interest rates. Although the forward-looking information
is based on what management of ClearStream considers to be
reasonable assumptions based on information currently available to
it, there can be no assurance that actual events or results will be
consistent with this forward-looking information, and management’s
assumptions may prove to be incorrect. This forward-looking
information is made as of the date of this report, and ClearStream
does not assume any obligation to update or revise it to reflect
new events or circumstances except as required by law. Undue
reliance should not be placed on forward-looking information.
ClearStream is providing the forward-looking financial information
set out in this report for the purpose of providing investors with
some context for the outlook presented. Readers are cautioned that
this information may not be appropriate for any other purpose.
Non-standard measuresThe terms ‘‘EBITDAS’’ and
“Adjusted EBITDAS” (collectively the ‘‘Non-GAAP measures’’) are
financial measures used in this report that are not standard
measures under IFRS. ClearStream’s method of calculating
Non-GAAP measures may differ from the methods used by other
issuers. Therefore, ClearStream’s Non-GAAP measures, as
presented may not be comparable to similar measures presented by
other issuers.
EBITDAS refers to net earnings determined in
accordance with IFRS, before depreciation and amortization,
interest expense, income tax expense (recovery) and stock based
compensation. EBITDAS is used by management and the directors of
ClearStream (the “Directors”) as well as many investors to
determine the ability of an issuer to generate cash from
operations. Management also uses EBITDAS to monitor the
performance of ClearStream’s reportable segments and believes that
in addition to net income or loss and cash provided by operating
activities, EBITDAS is a useful supplemental measure from which to
determine ClearStream’s ability to generate cash available for debt
service, working capital, capital expenditures and income taxes.
ClearStream has provided a reconciliation of income (loss) from
continuing operations to EBITDAS in its consolidated financial
statements and MD&A.
Adjusted EBITDAS refers to EBITDAS excluding
income from equity investments, the gain on sale of assets held for
sale, impairment of goodwill and intangible assets, restructuring
costs, and gain on sale of property plant and equipment.
ClearStream has used Adjusted EBITDAS as the basis for the analysis
of its past operating financial performance. Adjusted EBITDAS is
used by ClearStream and management believes it is a useful
supplemental measure from which to determine ClearStream’s ability
to generate cash available for debt service, working capital,
capital expenditures, and income taxes. Adjusted EBITDAS is a
measure that management believes facilitates the comparability of
the results of historical periods and the analysis of its operating
financial performance which may be useful to investors. ClearStream
has provided a reconciliation of income (loss) from continuing
operations to Adjusted EBITDAS in its MD&A.
Investors are cautioned that the Non-GAAP Measures are not
alternatives to measures under IFRS and should not, on their own,
be construed as an indicator of performance or cash flows, a
measure of liquidity or as a measure of actual return on the
shares. These Non-GAAP measures should only be used with
reference to ClearStream’s Interim Financial Statements and Annual
Financial Statements available on SEDAR at www.sedar.com or
www.clearstreamenergy.ca.
CLEARSTREAM ENERGY SERVICES
INC. Consolidated Balance Sheets(In thousands of Canadian
dollars)(unaudited)
|
March 31, 2018 |
|
December 31, 2017 |
|
|
|
|
Cash |
$ |
- |
|
$ |
4,649 |
|
Restricted cash |
|
8,980 |
|
|
980 |
|
Accounts
receivable |
|
72,287 |
|
|
66,177 |
|
Inventories |
|
4,441 |
|
|
4,304 |
|
Prepaid expenses and
other |
|
1,897 |
|
|
2,989 |
|
Earn-out assets |
|
1,500 |
|
|
1,277 |
|
Assets
held for sale |
|
- |
|
|
2,506 |
|
Total current
assets |
|
89,105 |
|
|
82,882 |
|
|
|
|
Property, plant and
equipment, net |
|
20,259 |
|
|
20,657 |
|
Goodwill and intangible
assets |
|
25,990 |
|
|
26,765 |
|
Earn-out assets |
|
- |
|
|
1,173 |
|
Long-term
investments |
|
607 |
|
|
575 |
|
Deferred
financing costs |
|
607 |
|
|
591 |
|
Total assets |
$ |
136,568 |
|
$ |
132,643 |
|
|
|
|
Bank indebtedness |
$ |
1,689 |
|
$ |
- |
|
Accounts payable and
accrued liabilities |
|
33,237 |
|
|
36,276 |
|
Deferred revenue |
|
148 |
|
|
146 |
|
Current portion of
obligations under finance leases |
|
1,359 |
|
|
1,462 |
|
Current liabilities of
assets held for sale |
|
- |
|
|
1,197 |
|
ABL facility |
|
24,500 |
|
|
27,500 |
|
Senior secured
debentures |
|
- |
|
|
171,988 |
|
Convertible secured
debentures |
|
- |
|
|
24,999 |
|
Current
portion of provision |
|
1,148 |
|
|
1,196 |
|
Total current
liabilities |
|
62,081 |
|
|
271,531 |
|
|
|
|
Provision |
|
4,286 |
|
|
4,582 |
|
Obligations under
finance leases |
|
2,323 |
|
|
2,185 |
|
Senior secured
debentures |
|
96,523 |
|
|
- |
|
Convertible secured debentures |
|
962 |
|
|
- |
|
Total
liabilities |
|
166,233 |
|
|
271,531 |
|
|
|
|
Share capital |
|
462,036 |
|
|
469,030 |
|
Preferred Shares |
|
102,130 |
|
|
- |
|
Contributed
surplus |
|
21,169 |
|
|
2,958 |
|
Deficit |
|
(615,000 |
) |
|
(610,876 |
) |
Total
shareholders’ deficit |
|
(29,665 |
) |
|
(138,888 |
) |
|
|
|
Total liabilities and shareholders' deficit |
$ |
136,568 |
|
$ |
132,643 |
|
CLEARSTREAM ENERGY SERVICES INC.Consolidated
Statements of Loss and Comprehensive Loss(In thousands of Canadian
dollars, except per share amounts)(unaudited)
Three months ended March 31 |
|
2018 |
|
|
2017 |
|
Revenue |
$ |
84,794 |
|
$ |
77,689 |
|
Cost of
revenue |
|
(77,975 |
) |
|
(71,149 |
) |
Gross
profit |
|
6,635 |
|
|
6,540 |
|
|
|
|
Selling, general and
administrative expenses |
|
(4,675 |
) |
|
(4,528 |
) |
Share based
compensation |
|
(79 |
) |
|
(309 |
) |
Amortization of
intangible assets |
|
(757 |
) |
|
(863 |
) |
Depreciation |
|
(1,161 |
) |
|
(1,231 |
) |
Income from equity
investment |
|
32 |
|
|
37 |
|
Interest expense |
|
(3,748 |
) |
|
(5,032 |
) |
Gain on sale of assets
held for sale |
|
1,032 |
|
|
123 |
|
Restructuring
costs |
|
(60 |
) |
|
(277 |
) |
Other loss |
|
(282 |
) |
|
- |
|
Gain on sale of
property, plant and equipment |
|
52 |
|
|
1,917 |
|
Loss before taxes |
|
(2,827 |
) |
|
(3,623 |
) |
|
|
|
Income tax expense -
current |
|
(161 |
) |
|
- |
|
|
|
|
Loss from continuing operations |
|
(2,988 |
) |
|
(3,623 |
) |
|
|
- |
|
|
Loss from discontinued
operations (net of taxes) |
|
(187 |
) |
|
(370 |
) |
|
|
|
Net loss and comprehensive loss |
$ |
(3,175 |
) |
$ |
(3,993 |
) |
|
|
|
Loss per
share |
|
|
Basic &
diluted: |
|
|
Continuing operations |
$ |
(0.03 |
) |
$ |
(0.03 |
) |
Discontinued operations |
$ |
(0.00 |
) |
$ |
(0.00 |
) |
Net loss |
$ |
(0.03 |
) |
$ |
(0.04 |
) |
CLEARSTREAM ENERGY SERVICES INC.Consolidated
Statements of Cash Flows(In thousands of Canadian
dollars)(unaudited)
Three months ended March 31, |
|
2018 |
|
|
2017 |
|
|
|
|
Operating
activities: |
|
|
Net loss
for the period |
$ |
(3,175 |
) |
$ |
(3,993 |
) |
Loss from
discontinued operations (net of income tax) |
|
187 |
|
|
370 |
|
Items not
affecting cash: |
|
|
Stock
based compensation |
|
79 |
|
|
206 |
|
Amortization of intangible assets |
|
757 |
|
|
863 |
|
Depreciation |
|
1,161 |
|
|
1,231 |
|
Income
from equity investments |
|
(32 |
) |
|
(37 |
) |
Accretion
expense |
|
534 |
|
|
187 |
|
Other
loss |
|
282 |
|
|
- |
|
Onerous
lease payments |
|
(642 |
) |
|
- |
|
Amortization of deferred financing costs |
|
151 |
|
|
144 |
|
Gain on
sale of assets held for sale |
|
(1,032 |
) |
|
(123 |
) |
Gain on
sale of property, plant and equipment |
|
(52 |
) |
|
(1,917 |
) |
Changes
in non-cash working capital |
|
(9,263 |
) |
|
8,260 |
|
Cash used in
discontinued operations |
|
(187 |
) |
|
- |
|
Total cash (used in) provided by operating activities |
$ |
(11,232 |
) |
$ |
(11,329 |
) |
Investing
activities: |
|
|
Purchase
of property, plant and equipment |
|
(265 |
) |
|
(1,322 |
) |
Net
proceeds on disposal of property, plant and equipment |
|
176 |
|
|
2,578 |
|
Purchase
of intangible assets |
|
- |
|
|
(49 |
) |
Proceeds
on the disposition of businesses |
|
3,400 |
|
|
- |
|
Transaction costs |
|
(1,060 |
) |
|
- |
|
Change in
non-cash working capital |
|
- |
|
|
(646 |
) |
Total cash provided by investing activities |
$ |
2,251 |
|
$ |
561 |
|
Financing
activities: |
|
|
Increase
in restricted cash |
|
(8,000 |
) |
|
- |
|
Increase
in bank indebtedness |
|
1,689 |
|
|
- |
|
Proceeds
from the issuance of preferred shares |
|
19,000 |
|
|
- |
|
Repayment
of senior secured debentures |
|
(2,340 |
) |
|
- |
|
Refinancing fees |
|
(3,681 |
) |
|
- |
|
Advance
(repayment) on ABL facility |
|
(3,000 |
) |
|
2,250 |
|
Repayment
of obligations under finance leases |
|
(428 |
) |
|
(1,005 |
) |
Changes
in non-cash working capital |
|
1,092 |
|
|
- |
|
Total cash provided by financing activities |
$ |
4,332 |
|
$ |
1,245 |
|
Decrease
in cash |
|
(4,649 |
) |
|
(9,523 |
) |
Cash,
beginning of the period |
|
4,649 |
|
|
11,503 |
|
Cash, end of period |
$ |
- |
|
$ |
1,980 |
|
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