CALGARY, ALBERTA–(Marketwired – March 1, 2017) –
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.
Strad Energy Services Ltd., (“Strad” or the “Company”) (TSX:SDY), a North American-focused, energy services company, today announced its financial results for the year-ended December 31, 2016. All amounts are stated in Canadian dollars unless otherwise noted.
SELECTED FINANCIAL AND OPERATIONAL HIGHLIGHTS:
- Fourth quarter adjusted EBITDA(1) of $4.8 million increased 91% compared to $2.5 million for the same period in 2015. Fourth quarter revenue increased 24% to $27.3 million compared to $22.0 million for the same period in 2015;
- Adjusted EBITDA for the year-ended December 31 2016, decreased 75% to $4.4 million compared to $17.4 million for the same period in 2015. Adjusted EBITDA normalized for transaction and severance costs of the year-ended December 31, 2016, would otherwise be $6.6 million. Revenue for the year-ended December 31 2016, decreased 35% to $72.4 million compared to $111.5 million for the same period in 2015;
- Fourth quarter loss per share decreased to $(0.06) from $(0.23) for the same period in 2015. For the year-ended December 31, 2016, loss per share decreased to $(0.41) from ($0.82). Earnings per share for the year-ended December 31 2016, excluding transaction and severance costs would otherwise have been $(0.36);
- Total funded debt(2) to EBITDA(3) ratio was 3.2 to 1.0 at December 31, 2016;
- Capital additions totaled $0.9 million during the fourth quarter of 2016 and $4.8 million for the year-ended December 31, 2016;
- On February 7, 2017, the Company announced that it had closed the bought deal financing with a syndicate of underwriters. A total of 8,928,572 Class A shares (“common shares”) of the Company, including 1,164,596 common shares pursuant to the exercise in full of the over-allotment option granted to the Underwriters, were issued at a price of $1.68 per common share for gross proceeds of approximately $15 million. Estimated share issues costs were $1.0 million;
- On February 15, 2017, the Company closed the strategic acquisition of Got Mats?, located in Elkhorn, Manitoba. Consideration of $4.5 million was paid, consisting of $1.0 million of cash, and the issuance of 2,143,375 class A common shares, valued at the closing February 15, 2017, share price of $1.65; and
- On February 22, 2017, the Company closed the acquisition of two private companies, located in Fort St. John, British Columbia. Consideration of $2.8 million was paid, consisting of $1.75 million of cash, and the issuance of 561,798 class A common shares, valued at the closing February 22, 2017, share price of $1.83 per share.
| Notes: | |
| (1) | Earnings before interest, taxes, depreciation and amortization and other adjustments (“adjusted EBITDA”) is not a recognized measure under IFRS; see “Non-IFRS Measures Reconciliation”. |
| (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. |
“We are pleased with our results during the fourth quarter on the strength of increased equipment utilization, higher product sales and the first full quarter of results from Redneck and Raptor,” said Andy Pernal, President and Chief Executive Officer of Strad. “The integration of the Redneck and Raptor businesses during the fourth quarter has been a success and together with our $15.0 million bought deal financing and acquisitions subsequent to year-end, we are positioned well to take advantage of further opportunities as they arise in 2017.”
“Despite an increase in activity and a further investment in working capital during the fourth quarter, we maintained a funded debt to adjusted EBITDA ratio of 3.2,” said Michael Donovan, Chief Financial Officer of Strad. “The successful completion of the bought deal financing strengthened our balance sheet further and provided growth capital which will be deployed to high return growth opportunities or accretive acquisitions as opportunities arise in 2017.”
Strad is also pleased to announce the appointment of Mr. Michael J. (Mick) McNulty to the Company’s Board of Directors, effective February 28, 2017. Mr. McNulty has over 40 years of experience in the oilfield services sector, having most recently served for Calfrac Well Services Ltd. as the Chief Financial Officer. Over his career, Mr. McNulty also served as the President and Chief Executive Officer of Saxon Energy Services Inc. and prior to that served as Senior Vice President and Chief Financial Officer. Currently, Mr. McNulty serves as a Managing Partner of PillarFour Capital Partners Inc., a private equity firm based in Calgary, Alberta.
“We are pleased to have Mr. McNulty join Strad as a director,” said Rob Grandfield, Chairman of Strad’s board. “He brings an extensive amount of finance experience in the oilfield services sector and will significantly contribute to helping Strad further develop and execute the Company’s strategic plan in the coming years.”
YEAR-END FINANCIAL HIGHLIGHTS
| ($000’s, except per share amounts) | Three months ended December 31, | Year-ended December 31, | ||||||||||||
| 2016 | 2015 | % Chg. | 2016 | 2015 | % Chg. | 2014 | ||||||||
| Revenue | 27,263 | 21,972 | 24 | 72,378 | 111,548 | (35 | ) | 219,784 | ||||||
| Adjusted EBITDA(1) | 4,782 | 2,500 | 91 | 4,444 | 17,432 | (75 | ) | 58,694 | ||||||
| Adjusted EBITDA as a % of revenue | 18 | % | 11 | % | 6 | % | 16 | % | 27 | % | ||||
| Per share ($), basic | 0.10 | 0.07 | 43 | 0.11 | 0.47 | (77 | ) | 1.60 | ||||||
| Per share ($), diluted | 0.10 | 0.07 | 43 | 0.11 | 0.47 | (77 | ) | 1.56 | ||||||
| Net (loss) income | (3,105 | ) | (8,316 | ) | (63 | ) | (16,803 | ) | (30,361 | ) | (45 | ) | 22,997 | |
| Per share ($), basic | (0.06 | ) | (0.23 | ) | (0.41 | ) | (0.82 | ) | 0.63 | |||||
| Per share ($), diluted | (0.06 | ) | (0.23 | ) | (0.41 | ) | (0.82 | ) | 0.61 | |||||
| Funds from operations(2) | 5,476 | 7,127 | (23 | ) | 8,310 | 23,014 | (64 | ) | 56,742 | |||||
| Per share ($), basic | 0.11 | 0.19 | (42 | ) | 0.20 | 0.62 | (68 | ) | 1.54 | |||||
| Per share ($), diluted | 0.11 | 0.19 | (42 | ) | 0.20 | 0.62 | (68 | ) | 1.51 | |||||
| Capital expenditures(3) | 884 | 1,328 | (33 | ) | 4,755 | 9,606 | (50 | ) | 42,715 | |||||
| Dividends declared | – | – | – | 7,827 | (100 | ) | 9,875 | |||||||
| Dividends declared per share ($) | – | – | – | 0.21 | 0.26 | |||||||||
| Total assets | 185,321 | 169,206 | 10 | 185,321 | 169,206 | 10 | 237,459 | |||||||
| Long-term debt | 26,501 | 15,500 | 71 | 26,501 | 15,500 | 71 | 36,000 | |||||||
| Total long-term liabilities | 37,023 | 22,264 | 66 | 37,023 | 22,264 | 66 | 51,107 | |||||||
| Common shares – end of period (‘000’s) | 48,379 | 37,280 | 48,379 | 37,280 | 37,279 | |||||||||
| Weighted avg common shares (‘000’s) | ||||||||||||||
| Basic | 47,984 | 36,919 | 40,626 | 36,916 | 36,789 | |||||||||
| Diluted | 47,984 | 36,919 | 40,626 | 36,916 | 37,592 | |||||||||
| Notes: | |
| (1) | Earnings before interest, taxes, depreciation and amortization and other adjustments (“adjusted EBITDA”) is not a recognized measure under IFRS; see “Non-IFRS Measures Reconciliation”. |
| (2) | Funds from operations is cash flow from operating activities before changes in non-cash working capital. Funds from operations is not a recognized measure under IFRS; see “Non-IFRS Measures Reconciliation”. |
| (3) | Includes assets acquired under finance lease and purchases of intangible assets. |
FINANCIAL POSITION AND RATIOS
| As at December 31, | |||
| ($000’s except ratios) | 2016 | 2015 | |
| Working capital(1) | 15,636 | 12,403 | |
| Funded debt(2) | 29,025 | 19,385 | |
| Total assets | 185,321 | 169,206 | |
| Funded debt to EBITDA(3) | 3.2 : 1.0 | 1.0 : 1.0 | |
| Notes: | |
| (1) | Working capital is calculated as current assets less current liabilities. |
| (2) | Funded debt includes bank indebtedness plus long-term debt plus current and long-term obligations under finance lease. |
| (3) | EBITDA is based on trailing twelve months adjusted EBITDA plus share based payments, plus severance and transaction costs. |
FOURTH QUARTER RESULTS
Strad reported an increase in revenue and adjusted EBITDA of 24% and 91% respectively, during the three months ended December 31, 2016, compared to the same period in 2015. Increased revenue during the fourth quarter was a result of improved equipment utilization in Canada as well as increased product sales in Canada. The acquisition of Redneck Oilfield Services Ltd. (“Redneck”) and Raptor Oilfield Services Ltd. (“Raptor”) collectively the “Redneck Acquisition,” contributed approximately 20% in overall revenue to Canadian Operations. This was offset by a reduction in rig activity levels in Canada and the US year-over-year. Adjusted EBITDA margin percentage increased to 18% compared to 11% in the prior year due to the increase in overall revenue and lower selling, general and administration costs.
Strad’s Canadian Operations reported a increase in revenue of 43% and adjusted EBITDA of 27% compared to the same period in 2015. Increased revenue was a result of higher utilization rates and the inclusion of the Redneck acquisition, offset by a decrease of 1% in the average drilling rig count to 171 rigs during the fourth quarter of 2016 compared to 173 for the same period in 2015.
Strad’s U.S. Operations reported a decrease in revenue of 40% and adjusted EBITDA decrease of 88% compared to the same period in 2015. Rig counts in Strad’s targeted U.S. resource plays were also lower year-over-year compared to the same period in 2015. Rig counts in the Bakken, Rockies and Marcellus regions decreased by 47%, 24%, and 14%, respectively, year-over-year.
During the fourth quarter of 2016, capital expenditures were $0.7 million in Canada and $0.2 million in the U.S. For the year-ended December 31, 2016, capital expenditures were $3.4 million in Canada and $1.4 million in the U.S.
RESULTS OF OPERATIONS
Canadian Operations
| Three months ended December 31, | Year-ended December 31, | |||||||||||
| ($000’s) | 2016 | 2015 | % chg. | 2016 | 2015 | % chg. | ||||||
| Revenue | 17,136 | 11,971 | 43 | 44,275 | 58,308 | (24 | ) | |||||
| Operating expenses | 12,527 | 7,656 | 64 | 32,084 | 38,304 | (16 | ) | |||||
| Selling, general and administrative | 1,178 | 1,637 | (28 | ) | 4,953 | 7,203 | (31 | ) | ||||
| Share based payments | 35 | – | 103 | 77 | ||||||||
| Net (loss) income | (419 | ) | (1,484 | ) | (72 | ) | 1,532 | (8,616 | ) | (118 | ) | |
| Adjusted EBITDA(1) | 3,396 | 2,677 | 27 | 7,135 | 12,728 | (44 | ) | |||||
| Adjusted EBITDA as a % of revenue | 20 | % | 22 | % | 16 | % | 22 | % | ||||
| Capital expenditures(2) | 716 | 229 | 213 | 3,188 | 5,904 | (46 | ) | |||||
| Gross capital assets | 177,140 | 116,010 | 53 | 177,140 | 116,010 | 53 | ||||||
| Total assets | 111,260 | 74,837 | 49 | 111,260 | 74,837 | 49 | ||||||
| Notes: | |
| (1) | Earnings before interest, taxes, depreciation and amortization and other adjustments (“adjusted EBITDA”) is not a recognized measure under IFRS; see “Non-IFRS Measures Reconciliation”. |
| (2) | Includes assets acquired under finance lease |
Revenue for the three months ended December 31, 2016, of $17.1 million increased 43% compared to $12.0 million for the same period in 2015. Increased revenue was primarily a result of higher rental revenue from the matting fleet due to an increase in utilization, in addition to the inclusion of results from the Redneck Acquisition contributed approximately 20% of overall revenue in the three months ended December 31, 2016. This was offset by a 1% decline in rig counts in Canada during the three months ended December 31, 2016.
During the fourth quarter, revenue from energy infrastructure projects was approximately $10.4 million or 61% of total revenue for Canada Operations.
As at December 31, 2016, Strad’s matting rental fleet increased to approximately 57,000 pieces compared to 51,300 as at December 31, 2015. The Canadian surface equipment fleet increased to 3,400 pieces compared to 2,600 pieces as at December 31, 2015. During the fourth quarter of 2016, utilization rates for Strad’s Canadian matting and surface equipment fleets changed by 27% and 17% compared to the fourth quarter of 2015. Matting utilization increased due to energy infrastructure projects.
Adjusted EBITDA for the three months ended December 31, 2016, of $3.4 million, increased 27% compared to $2.7 million for the same period in 2015. Adjusted EBITDA as a percentage of revenue, for the three months ended December 31, 2016, decreased to 20% compared to 22% for the same period in 2015.
Revenue for the year-ended December 31, 2016, of $44.3 million, decreased 24% compared to $58.3 million for the same period in 2015. Decreased pricing and utilization as a result of lower drilling activities during the first six months of 2016 were the primary driver of lower revenue year-over-year. The Redneck Acquisition contributed approximately 9% of overall revenue for the year-ended December 31, 2016. Revenue from energy infrastructure projects was approximately $30.4 million or 61% of total revenue from Canadian Operations.
Adjusted EBITDA for the year-ended December 31, 2016, of $7.1 million, decreased 44% compared to $12.7 million for the same period in 2015. Adjusted EBITDA as a percentage of revenue, for the year-ended December 31, 2016, was 16% compared to 22% for the same period in 2015.
Operating expenses for the three months and year-ended December 31, 2016, of $12.5 million and $32.1 million increased 64% and decreased 16% respectively compared to $7.7 million and $38.3 million for the same period in 2015. The increase in operating expenses during the fourth quarter of 2016 is a result of the increase in activity.
Selling, general and administration costs (“SG&A”) for the three months and year-ended December 31, 2016, of $1.2 million and $5.0 million respectively decreased 28% and 31% compared to $1.6 million and $7.2 million for the same period in 2015. SG&A costs decreased due to cost reductions implemented by management including staff reductions, wage roll backs and reductions in discretionary spending.
U.S. Operations
| Three months ended December 31, | Year-ended December 31, | |||||||||||
| ($000’s) | 2016 | 2015 | % chg. | 2016 | 2015 | % chg. | ||||||
| Revenue | 4,704 | 7,875 | (40 | ) | 14,955 | 40,083 | (63 | ) | ||||
| Operating expenses | 3,574 | 5,523 | (35 | ) | 12,422 | 26,705 | (53 | ) | ||||
| Selling, general and administrative | 991 | 1,184 | (16 | ) | 4,346 | 5,920 | (27 | ) | ||||
| Share based payments | (1 | ) | 4 | 33 | 9 | |||||||
| Net (loss) income | (3,296 | ) | (5,195 | ) | (37 | ) | (16,403 | ) | (17,388 | ) | (6 | ) |
| Adjusted EBITDA(1) | 140 | 1,148 | (88 | ) | (1,846 | ) | 7,450 | (125 | ) | |||
| Adjusted EBITDA as a % of revenue | 3 | % | 15 | % | (12 | )% | 19 | % | ||||
| Capital expenditures(2) | 168 | 1,098 | (85 | ) | 1,382 | 3,551 | (61 | ) | ||||
| Gross capital assets | 142,295 | 154,570 | (8 | ) | 142,295 | 154,570 | (8 | ) | ||||
| Total assets | 70,848 | 89,236 | (21 | ) | 70,848 | 89,236 | (21 | ) | ||||
| Notes: | |
| (1) | Earnings before interest, taxes, depreciation and amortization and other adjustments (“adjusted EBITDA”) is not a recognized measure under IFRS; see “Non-IFRS Measures Reconciliation”. |
| (2) | Includes assets acquired under finance lease |
Revenue for the three months ended December 31, 2016, decreased 40% to $4.7 million from $7.9 million for the same period in 2015. The decline in revenue is due to a combination of lower rental fleet utilization rates and average pricing, offset by a strengthened U.S. dollar when compared to the same period in 2015. During the fourth quarter of 2016, utilization rates for Strad’s U.S. matting, surface equipment and solids control fleets changed by (38)%, 3%, and (41)%, respectively, compared to the same period in 2015. Both utilization and price declines year-over-year are the result of a decline in rig counts across all Strad’s targeted resource plays in the U.S. Average rig counts declined in the Bakken, Rockies and Marcellus regions by 47%, 24%, and 14%, respectively, during the fourth quarter of 2016 compared to the same quarter in 2015.
A slight increase in the matting fleet year-over-year partially offset declines in utilization rates and average pricing. The U.S. matting fleet increased by 1,800 pieces to 14,400 as at December 31, 2016, compared to 12,700 pieces as at December 31, 2015. The U.S. surface equipment fleet was consistent year-over-year at 2,000 pieces. Strad’s U.S. solids control fleet increased by three centrifuges to a total of 53 as at December 31, 2016, compared to 50 centrifuges as at December 31, 2015.
Adjusted EBITDA for the three months ended December 31, 2016, decreased 88% to $0.1 million compared to $1.1 million for the same period in 2015. Adjusted EBITDA as a percentage of revenue, for the three months ended December 31, 2016, was 3% compared to 15% for the same period in 2015. The decrease in both adjusted EBITDA and adjusted EBITDA as a percentage of revenue is primarily due to the decline in revenue compared to the same period in 2015.
Revenue for the year-ended December 31, 2016, decreased 63% to $15.0 million compared to $40.1 million for the same period in 2015. The year-over-year decrease in revenue was driven by decreased utilization of Strad’s matting, solids control and surface equipment fleets, in conjunction with the decrease in pricing.
Adjusted EBITDA for the year-ended December 31, 2016, decreased 125% to $(1.8) million compared to $7.5 million for the same period in 2015. Decreased adjusted EBITDA was due to lower revenue compared to the same period in 2015. Adjusted EBITDA as a percentage of revenue for the year-ended December 31, 2016, was (12)% compared to 19% for the same period in 2015.
Operating expenses for the three months and year-ended December 31, 2016, of $3.6 million and $12.4 million, respectively, decreased 35% and 53% compared to $5.5 million and $26.7 million for the same period in 2015. The decline in operating expenses during the fourth quarter of 2016 is a result of lower activity levels compared to the prior year and a reduction in staff. A portion of the Company’s operating expenses are fixed, thus the percentage decline is lower for operating expenses compared to revenue.
SG&A costs for the three months and year-ended December 31, 2016, of $1.0 million and $4.3 million, respectively, decreased 16% and 27% compared to $1.2 million and $5.9 million for the same period in 2015. SG&A costs decreased due to cost reductions implemented by management including staff reductions, wage roll backs and reductions in discretionary spending.
Product Sales
| Three months ended December 31, | Year-ended December 31, | |||||||||||
| ($000’s) | 2016 | 2015 | % chg. | 2016 | 2015 | % chg. | ||||||
| Revenue | 5,423 | 2,126 | 155 | 13,148 | 13,157 | – | ||||||
| Operating expenses | 2,852 | 2,700 | 6 | 9,553 | 13,226 | (28 | ) | |||||
| Selling, general and administrative | 15 | 44 | (66 | ) | 59 | 170 | (65 | ) | ||||
| Net (loss) income | (342 | ) | (370 | ) | (8 | ) | (1,048 | ) | (370 | ) | 183 | |
| Adjusted EBITDA(1) | 2,556 | (622 | ) | 3,536 | (245 | ) | ||||||
| Adjusted EBITDA as a % of revenue | 47 | % | (29 | )% | 27 | % | (2 | )% | ||||
| Total assets | 2,332 | 4,100 | (43 | ) | 2,332 | 4,100 | (43 | ) | ||||
| Notes: | |
| (1) | Earnings before interest, taxes, depreciation and amortization and other adjustments (“adjusted EBITDA”) is not a recognized measure under IFRS; see “Non-IFRS Measures Reconciliation”. |
Product Sales are comprised of in-house manufactured products sold to external customers, third party equipment sales to existing customers and sales of equipment from Strad’s existing fleet to customers.
Revenue for the three months ended December 31, 2016, increased 155% to $5.4 million from $2.1 million for the same period in 2015, as a result of an increase in equipment sales relating to the Company’s rental fleet. During the fourth quarter, Product Sales consisted of $0.3 million of in-house manufactured products, $1.2 million of third party equipment sales and $3.9 million of rental fleet sales compared to $0.9 million, $0.2 million and $1.0 million, respectively, during the same period in 2015.
Adjusted EBITDA for the three months ended December 31, 2016, increased to $2.6 million compared to a loss of$(0.6) million for the same period in 2015. Adjusted EBITDA as a percentage of revenue, for the three months ended December 31, 2016, increased to 47% compared to (29)% for the same period in 2015 as a direct result of increased sales of rental assets.
Revenue for the year-ended December 31, 2016, remained consistent at $13.1 million compared to $13.2 million for the same period in 2015. Sales of Strad’s rental fleet equipment fluctuate quarter-over-quarter and are primarily dependent on opportunities to monetize rental assets.
Adjusted EBITDA for the year-ended December 31, 2016, increased to $3.5 million compared to $(0.2) million for the same period in 2015. The increase in adjusted EBITDA was due to lower operating and SG&A expenses in 2016 compared to the same period in 2015. Adjusted EBITDA as a percentage of revenue, for the year-ended December 31, 2016, was 27% compared to (2)% for the same period in 2015.
Operating expenses for the three months and year-ended December 31, 2016, of $2.9 million and $9.6 million respectively increased 6% and decreased 28% compared to $2.7 million and $13.2 million for the same period in 2015. Operating expenses were removed from the business as activity levels declined.
IMPAIRMENT OF PROPERTY, PLANT AND EQUIPMENT
The Company reviews the carrying value of its cash-generating units (‘CGU’s‘) at each reporting date to determine whether there is any indication of impairment. During the year ended December 31, 2016, continued declines in industry activity in the U.S., resulting from the decline in oil and natural gas prices and its impact on current and future business were indicators of impairment for the U.S. Operations CGU, which resulted in the Company conducting a test for impairment as at December 31, 2016. There were no indicators of impairment assessed for the Canadian Operations CGU and therefore no impairment test completed for the Canadian Operations CGU as at December 31, 2016.
The recoverable amount of the U.S. Operations CGU was determined using a value in use calculation, which included discounted cash flow calculations, using forecast prices and cost estimates based on expected future results and a discount rate of 15.5%. Cash flow projections for 2017 to 2020 have assumed a gradual trend toward recovery to near historical activity levels. As a result of these tests it was determined that the recoverable value exceeded the carrying value, therefore no impairment or reversal was recognized as at December 31, 2016.
OUTLOOK
The improvement in customer sentiment we noted during the third quarter continued into the fourth quarter and was further supported by OPEC’s decision to limit production in an effort to stabilize oil prices. This improved outlook resulted in an increase in drilling activity and a corresponding increase in utilization of our equipment fleet during the fourth quarter compared to the third quarter of 2016. Our Canadian Operations segment fourth quarter results reflect the first full quarter of revenue and adjusted EBITDA contribution from Redneck following the closing of the acquisition on August 31, 2016. We focused on integrating Redneck into Strad during the fourth quarter and as a result we have realized over half of the $1.0 million in annual synergies we expect to generate upon full integration of the Redneck business.
Stabilizing commodity prices have led to increased capital spending in 2017 as is being reflected in the North American rig counts during the first quarter. However, pricing for our equipment and services continues to remain challenging in the market despite increased demand in all of our key operating regions. We are focused on increasing pricing in 2017 on certain products lines and services which are in high demand.
Since the third quarter, we have continued to progress on our three key strategic priorities being continued growth of the energy infrastructure customer vertical, continued focus on increasing our size and scale and maintaining our lean cost structure.
Energy infrastructure revenue was 41% and 44% of total revenue for the three months and year-ended December 31, 2016, and we expect this customer vertical to contribute meaningfully to our top-line in 2017. The majority of Strad’s energy infrastructure related work continues to be wood access matting related and focused in western Canada. We are continuing to focus on the energy infrastructure market in the U.S.
Subsequent to year-end we took additional steps to increase our size and scale including the announcement of a $15.0 million equity financing and the addition of Got Mats?, a private company located in Manitoba, and two private companies that provide surface equipment rentals and are located in Fort St. John, British Columbia. The equity financing further strengthened our balance sheet and provided growth capital that can be used for both organic growth and acquisitions in 2017 and beyond. The addition of Got Mats?, a matting company located in southwestern Manitoba provides a platform for growing our business further east in Canada by leveraging existing customer relationships with energy infrastructure and oil and gas customers in southwestern Manitoba and southeastern Saskatchewan. The addition of the two private companies in Fort St. John continues to create a stronger, more diverse rental platform for Strad to better service customers focused in the Montney and Duvernay plays of north east British Columbia and north west Alberta.
We are continuing to approach 2017 with caution and a focus on managing our cost structure as activity levels increase to ensure the efficiencies we gained over the past two years are maintained when the recovery eventually takes hold. Maintaining our balance sheet strength and financial flexibility is key to ensuring we are positioned to take advantage of further opportunities.
LIQUIDITY AND CAPITAL RESOURCES
| ($000’s) | December 31, 2016 | December 31, 2015 | |
| Current assets | 31,852 | 25,035 | |
| Current liabilities | 16,216 | 12,632 | |
| Working capital(1) | 15,636 | 12,403 | |
| Banking facilities | |||
| Operating facility | 1,478 | 2,874 | |
| Syndicated revolving facility | 26,501 | 15,500 | |
| Total facility borrowings | 27,979 | 18,374 | |
| Total credit facilities(2) | 48,500 | 70,000 | |
| Unused credit capacity | 20,521 | 51,626 |
| 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 December 31, 2016, Strad had access to $48.5 million of credit facilities. |
As at December 31, 2016, working capital was $15.6 million compared to $12.4 million at December 31, 2015. The change in current assets is a result of a 46% increase in accounts receivable to $24.4 million for the fourth quarter of 2016 compared to $16.8 million for the fourth quarter of 2015. Accounts receivable increased due to the 24% increase in revenue during the fourth quarter of 2016 compared to the same period in 2015. Prepaid expenses decreased from $1.5 million to $1.1 million for the fourth quarter of 2016, also inventory decreased by 25% to $3.9 million for the fourth quarter of 2016 from $5.2 million for the fourth quarter of 2015.
The change in current liabilities is a result of a 56% increase in accounts payable and accrued liabilities to $13.8 million for the fourth quarter of 2016 compared to $8.9 million at year end 2015, offset by a decrease of $1.4 million in bank indebtedness at the end of the fourth quarter. The accounts payable increase correlates to the increase in activity and operating expenses during the fourth quarter of 2016 compared to the fourth quarter of 2015.
Funds from operations for the three months ended December 31, 2016, decreased to $5.5 million compared to $7.1 million for the three months ended December 31, 2015. Capital expenditures totaled $0.9 million for the three months ended December 31, 2016. Strad’s total facility borrowing increased by $9.6 million for the year ended December 31, 2016, as compared to December, 31, 2015. Management monitors funds from operations and the timing of capital additions to ensure adequate capital resources are available to fund Strad’s capital program.
As at December 31, 2016, the Company’s syndicated banking facility consists of an operating facility with a maximum principal amount of $7.0 million CAD and $5.0 million USD, and a $36.5 million CAD syndicated revolving facility, both of which are subject to certain limitations on accounts receivable, inventory and net book value of fixed assets and are secured by a general security agreement over all of the Company’s assets. As at December 31, 2016, the Company has access to the maximum credit facilities with no limitations on what can be accessed. The syndicated banking facility bears interest at a variable rate, which is dependent on the Company’s funded debt to EBITDA ratio. The Company’s syndicated banking facility matures on September 29, 2018.
Based on the Company’s amended credit facility, the interest rate will increase to bank prime plus 3.50% on prime rate advances and at the prevailing rate plus a stamping fee of 4.50% on bankers’ acceptances during the covenant waiver period in the fourth quarter of 2016 and the first quarter of 2017. The covenant waiver was obtained as a result of the Redneck Acquisition and not as a result of any covenant breach. For the year ended December 31, 2016, the overall effective rate on the operating facility was 5.25% and 3.57% on the revolving facility. As of December 31, 2016, $1.5 million was drawn on the operating facility and $26.5 million was drawn on the revolving facility. Required payments on the revolving facility are interest only.
As at December 31, 2016, the Company was in compliance with all of the financial covenants under its credit facilities.
The relevant definitions of 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.
- EBITDA is based on trailing twelve months adjusted EBITDA plus share based payments, plus additional one time charges, and the trailing twelve month adjusted EBITDA from acquisitions.
- Interest expense ratio is calculated as the ratio of trailing twelve months adjusted EBITDA plus share based payments, additional one time charges, the trailing twelve month adjusted EBITDA from acquisitions and the 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 debt covenant calculation.
| Financial Debt Covenants | As at December 31, 2016 | As at December 31, 2015 | |
| Funded debt to EBITDAratio (not to exceed 5.5:1.0)* | |||
| Funded debt | 29,025 | 19,385 | |
| EBITDA | 9,119 | 20,264 | |
| Ratio | 3.2 | 1.0 | |
| EBITDA to interest coverageratio (no less than 1.75:1.0) | |||
| EBITDA | 9,119 | 20,264 | |
| Interest expense | 1,557 | 1,625 | |
| Ratio | 5.9 | 12.5 |
| * | Funded debt to EBITDA covenant was waived in Q4 2016 |
NON-IFRS MEASURES RECONCILIATION
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 used as an alternative to IFRS, because they may not be consistent with calculations of other companies. These measures are further explained below.
Earnings before interest, taxes, depreciation and amortization (“adjusted EBITDA”) is not a recognized measure under IFRS. Management believes that in addition to net income, 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 plus interest, finance fees, taxes, depreciation and amortization, loss on disposal of property, plant and equipment, loss on foreign exchange, less gain on disposal of property, plant and equipment and gain on foreign exchange. 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.
Funds from operations are cash flow from operating activities excluding changes in working capital. 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.
Reconciliation of Funds from Operations
($000’s)
| Three months ended December 31, |
Year-ended December 31, |
||||||||
| 2016 | 2015 | 2016 | 2015 | ||||||
| Net cash generated from operating activities | $ | 1,947 | $ | 12,417 | 8,756 | 40,220 | |||
| Less: | |||||||||
| Changes in non-cash working capital | (3,529 | ) | 5,290 | 446 | 17,206 | ||||
| Funds from operations | 5,476 | 7,127 | 8,310 | 23,014 | |||||
Reconciliation of annual adjusted EBITDA
($000’s)
| Year-ended December 31, | ||||
| 2016 | 2015 | |||
| Net loss | (16,803 | ) | (30,361 | ) |
| Add (deduct): | ||||
| Depreciation and amortization | 22,205 | 30,807 | ||
| Gain on disposal of PP&E | (601 | ) | (254 | ) |
| Deferred income tax (recovery) | (172 | ) | (8,799 | ) |
| Financing fees | 181 | 168 | ||
| Interest expense | 1,134 | 1,625 | ||
| Impairment | – | 7,822 | ||
| Goodwill impairment | – | 17,277 | ||
| (Gain)/loss on foreign exchange | (294 | ) | 380 | |
| Current income tax recovery | (1,206 | ) | (1,233 | ) |
| Adjusted EBITDA | 4,444 | 17,432 | ||
Reconciliation of quarterly adjusted EBITDA
($000’s)
| Three months ended | ||||||||||||
| Dec 31, 2016 | Sep 30, 2016 | Jun 30, 2016 | Mar 31, 2016 | |||||||||
| Net loss | $ | (3,105 | ) | $ | (3,746 | ) | $ | (6,958 | ) | $ | (2,994 | ) |
| Add: | ||||||||||||
| Depreciation and amortization | 7,610 | 4,930 | 4,516 | 5,149 | ||||||||
| Gain on disposal of PP&E | (105 | ) | (35 | ) | (268 | ) | (193 | ) | ||||
| Loss (gain) on foreign exchange | 123 | 17 | 3 | (437 | ) | |||||||
| Current income tax expense (recovery) | 204 | (242 | ) | (918 | ) | (217 | ) | |||||
| Deferred income tax (recovery) expense | (403 | ) | (39 | ) | 1,438 | (1,201 | ) | |||||
| Interest expense | 415 | 318 | 157 | 244 | ||||||||
| Finance fees | 43 | 44 | 47 | 47 | ||||||||
| Adjusted EBITDA | 4,782 | 1,247 | (1,983 | ) | 398 | |||||||
| Three months ended | ||||||||||||
| Dec 31, 2015 | Sep 30, 2015 | Jun 30, 2015 | Mar 31, 2015 | |||||||||
| Net (loss) income | $ | (8,316 | ) | $ | (20,362 | ) | $ | (1,887 | ) | $ | 204 | |
| Add: | ||||||||||||
| Depreciation and amortization | 7,126 | 9,616 | 7,020 | 7,045 | ||||||||
| Gain on disposal of PP&E | (99 | ) | (30 | ) | (80 | ) | (45 | ) | ||||
| Loss (gain) on foreign exchange | 216 | 380 | (81 | ) | (135 | ) | ||||||
| Current income tax recovery | (677 | ) | (432 | ) | (18 | ) | (106 | ) | ||||
| Deferred income tax recovery | (4,033 | ) | (2,776 | ) | (1,541 | ) | (449 | ) | ||||
| Interest expense | 427 | 311 | 391 | 496 | ||||||||
| Impairment loss | 7,822 | 17,277 | – | – | ||||||||
| Finance fees | 34 | 37 | 50 | 47 | ||||||||
| Adjusted EBITDA | 2,500 | 4,021 | 3,854 | 7,057 | ||||||||
Reconciliation of funded debt
($000’s)
| Year-ended December 31, | |||
| 2016 | 2015 | ||
| Bank indebtedness | 1,478 | 2,874 | |
| Long term debt | 26,501 | 15,500 | |
| Current and long term obligations under finance lease | 1,046 | 1,011 | |
| Total funded debt | 29,025 | 19,385 | |
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 and funding thereof, changes and expectations in margins to be experienced by Strad, anticipated cash flow, debt, demand for the Company’s products and services, drilling activity in North America, pricing of the Company’s products and services, introduction of new products and services and the potential for growth and expansion of certain components of the Company’s business, 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 Thursday, March 2, 2017.
The conference call dial in number is 1-844-388-0561, followed by Conference ID code 47794254
The conference call will also be accessible via webcast at www.stradenergy.com
A replay of the call will be available approximately one hour after the conference call ends until Wednesday, March 9th, 2017, at 11:59pm ET. To access the replay, call 1-855-859-2056, followed by pass code 47794254.
| Strad Energy Services Ltd. |
| Consolidated Statement of Financial Position |
| As at December 31, 2016 and 2015 |
| (in thousands of Canadian dollars) | As at December 31, 2016 |
As at December 31, 2015 |
||
| $ | $ | |||
| Assets | ||||
| Current assets | ||||
| Cash | 369 | – | ||
| Trade receivables | 24,460 | 16,754 | ||
| Inventories | 3,890 | 5,193 | ||
| Prepaids and deposits | 1,111 | 1,484 | ||
| Income taxes receivable | 2,022 | 1,604 | ||
| 31,852 | 25,035 | |||
| Non-current assets | ||||
| Property, plant and equipment | 150,622 | 140,977 | ||
| Intangible assets | 665 | 800 | ||
| Long term assets | 2,023 | 2,184 | ||
| Deferred income tax assets | 159 | 210 | ||
| Total assets | 185,321 | 169,206 | ||
| Liabilities | ||||
| Current liabilities | ||||
| Bank indebtedness | 1,478 | 2,874 | ||
| Accounts payable and accrued liabilities | 13,831 | 8,881 | ||
| Deferred revenue | 62 | 94 | ||
| Current portion of obligations under finance lease | 845 | 783 | ||
| 16,216 | 12,632 | |||
| Non-current liabilities | ||||
| Long-term debt | 26,501 | 15,500 | ||
| Obligations under finance lease | 201 | 228 | ||
| Deferred income tax liabilities | 10,321 | 6,536 | ||
| Total liabilities | 53,239 | 34,896 | ||
| Equity | ||||
| Share capital | 135,935 | 118,401 | ||
| Contributed surplus | 12,243 | 12,012 | ||
| Accumulated other comprehensive income | 26,963 | 30,153 | ||
| Deficit | (43,059 | ) | (26,256 | ) |
| Total equity | 132,082 | 134,310 | ||
| Total liabilities and equity | 185,321 | 169,206 |
| Strad Energy Services Ltd. |
| Consolidated Statement of Loss and Comprehensive Loss |
| For the years-ended December 31, 2016 and 2015 |
| (in thousands of Canadian dollars, except per share amounts) |
| 2016 | 2015 | |||
| $ | $ | |||
| Revenue | 72,378 | 111,548 | ||
| Expenses | ||||
| Operating expenses | 54,059 | 78,235 | ||
| Depreciation | 21,796 | 30,221 | ||
| Amortization of intangible assets | 314 | 494 | ||
| Amortization of long term assets | 95 | 92 | ||
| Selling, general and administration | 13,644 | 15,623 | ||
| Share-based payments | 231 | 258 | ||
| Gain on disposal of property, plant and equipment | (601 | ) | (254 | ) |
| Foreign exchange (gain) loss | (294 | ) | 380 | |
| Finance fees | 181 | 168 | ||
| Interest expense | 1,134 | 1,625 | ||
| Impairment | – | 7,822 | ||
| Goodwill impairment | – | 17,277 | ||
| Loss before income tax | (18,181 | ) | (40,393 | ) |
| Income tax recovery | (1,378 | ) | (10,032 | ) |
| Loss for the period | (16,803 | ) | (30,361 | ) |
| Other comprehensive (loss) income | ||||
| Items that may be reclassified subsequently to net loss | ||||
| Cumulative translation adjustment | (3,190 | ) | 17,203 | |
| Total comprehensive loss for the period | (19,993 | ) | (13,158 | ) |
| Loss per share: | ||||
| Basic | ($0.41 | ) | ($0.82 | ) |
| Diluted | ($0.41 | ) | ($0.82 | ) |
| Strad Energy Services Ltd. |
| Consolidated Statement of Cash Flow |
| For the years ended December 31, 2016 and 2015 |
| (in thousands of Canadian dollars) | ||||
| 2016 | 2015 | |||
| Cash flow provided by (used in) | $ | $ | ||
| (Revised) | ||||
| Operating activities | ||||
| Net loss for the period | (16,803 | ) | (30,361 | ) |
| Adjustments for items not affecting cash: | ||||
| Depreciation and amortization | 22,205 | 30,807 | ||
| Deferred income tax (recovery) expense | (172 | ) | (8,799 | ) |
| Share-based payments | 231 | 258 | ||
| Interest expense and finance fees | 1,315 | 1,793 | ||
| Unrealized foreign exchange (gain) loss | (418 | ) | 762 | |
| Gain on disposal of property, plant and equipment | (601 | ) | (254 | ) |
| Impairment | – | 7,822 | ||
| Goodwill impairment | – | 17,277 | ||
| Book value of used fleet sales in operating activities | 2,553 | 3,709 | ||
| Changes in items of non-cash working capital | 446 | 17,206 | ||
| Net cash generated from operating activities | 8,756 | 40,220 | ||
| Investing activities | ||||
| Purchase of property, plant and equipment | (4,570 | ) | (9,529 | ) |
| Proceeds from sale of property, plant and equipment | 1,990 | 1,277 | ||
| Purchase of intangible assets | (185 | ) | (77 | ) |
| Cash assumed on business acquisition | 196 | – | ||
| Changes in items of non-cash working capital | 195 | (2,595 | ) | |
| Net cash used in investing activities | (2,374 | ) | (10,924 | ) |
| Financing activities | ||||
| Proceeds on issuance of long-term debt | 21,000 | – | ||
| Repayment of long-term debt | (9,999 | ) | (20,500 | ) |
| Repayment of long-term debt assumed in business acquisition | (12,995 | ) | – | |
| Repayment of finance lease obligations (net) | (761 | ) | (940 | ) |
| Issuance of shareholder loan (net of repayments) | (2 | ) | 46 | |
| Interest expense and finance fees | (1,315 | ) | (1,793 | ) |
| Payment of dividends | – | (10,436 | ) | |
| Changes in items of non-cash working capital | (68 | ) | (33 | ) |
| Net cash (used) generated in financing activities | (4,140 | ) | (33,656 | ) |
| Effect of exchange rate changes on cash and cash equivalents | (477 | ) | 2,312 | |
| Increase (decrease) in cash and cash equivalents | 1,765 | (2,048 | ) | |
| Cash and cash equivalents (including bank indebtedness) – beginning of year | (2,874 | ) | (826 | ) |
| Cash and cash equivalents (including bank indebtedness) – end of period | (1,109 | ) | (2,874 | ) |
| Cash paid for income tax | – | 1,924 | ||
| Cash paid for interest | 977 | 1,630 | ||
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.”
Andy Pernal
President and Chief Executive Officer
(403) 775-9202
(403) 232-6901 (FAX)
[email protected]
Strad Energy Services Ltd.
Michael Donovan
Chief Financial Officer
(403) 705-4333
(403) 232-6901 (FAX)
[email protected]
www.stradenergy.com
