CALGARY, ALBERTA–(Marketwired – March 8, 2017) – Ceiba Energy Services Inc. (“Ceiba” or the “Company”) (TSX VENTURE:CEB), a growing environmental fluids processing and disposal company, announces its year-end 2016 financial results. Ceiba has filed its Financial Statements and related Management’s Discussion and Analysis for the year-ended December 31, 2016 on the Company’s profile at www.sedar.com.
Ceiba has positioned itself as a growing energy services company with an ability to improve cash flow and profitability in 2017 and beyond. In a challenging year of low commodity prices and slower overall industry activity, Ceiba deployed growth capital to develop new facilities in strategic areas that will contribute to the Company’s future growth:
- Opened its Obed Class II facility in February 2016;
- Opened its Athabasca Class 1B facility in March 2016 which contributed to nearly 20% of the Company’s 2016 volumes;
- Commissioned its Kaybob Class 1B facility in November 2016 (see further discussion below); and,
- Repaid $7.3 million 12% convertible debentures at their maturity in July 2016.
The Company is reporting lower volumes and lower margins in the fourth quarter of 2016 compared to the fourth quarter of 2015. Ceiba received 87,000 m3 in volumes during the fourth quarter of 2016, a 26% reduction from the same period in 2015. Volume reductions were caused by slower industry activity and abnormally wet weather in Northwestern Alberta. Ceiba’s Eastern Alberta facilities were affected by increased competition and lower oil sands activity.
For the full year, volumes were 381,000 m3, or down 13% compared to 2015. Year over year volume decreases at existing sites due to slower market activity were partially offset by the three new facilities opened in 2016 and a full-year of contributions from the Gordondale facility.
In November 2016, Ceiba announced the opening of its fourth Class 1B facility in the Fox Creek Area of Alberta. Market demand in the area remains strong, however injection expectations for the disposal well have not been met. Ceiba is planning to remediate the well in the second half of 2017.
Ceiba’s near term focus for 2017 is to increase volumes, reduce costs and prudently manage capital spending. Early indications for Q1 2017 show increasing industry activity which is driving volume increases in the first two months of 2017 that are 45% higher than the first two months of 2016 and 30% higher than the first two months of Q4 2016. Additionally, the Company was recently awarded a four-year contract for disposal of specific oil sands related waste fluids, worth over $1,200,000 over the term of the contract, commencing March of 2017.
All tabular amounts are in CDN$ thousands except for per share amounts and where otherwise noted.
ANNUAL OPERATIONAL AND FINANCIAL HIGHLIGHTS
| For the years ended December 31, | ||||||||||||
| ($millions unless noted) | 2016 | 2015 | % Change | 2014 | ||||||||
| Total received volume (000’s m3) | 381 | 437 | (13 | %) | 420 | |||||||
| Revenue | 7.8 | 7.8 | – | 6.8 | ||||||||
| Gross margin(1) | 3.2 | 3.6 | (11 | %) | 3.3 | |||||||
| Gross margin %(1) | 40 | % | 47 | % | (7 | %) | 48 | % | ||||
| Adjusted EBITDA(1) | 1.2 | 1.6 | (27 | %) | 0.9 | |||||||
| Adjusted EBITDA(1)as a % of revenue | 15 | % | 21 | % | (6 | %) | 13 | % | ||||
| Net loss and comprehensive loss | (4.2 | ) | (2.3 | ) | (83 | %) | (12.8 | ) | ||||
| Net loss per share, basic and fully diluted | ($0.03 | ) | ($0.02 | ) | (50 | %) | ($0.13 | ) | ||||
| Funds from (used in) operations | 0.2 | 0.6 | (67 | %) | (0.9 | ) | ||||||
| Total assets | 34.6 | 37.6 | (8 | %) | 35.7 | |||||||
| Net working capital(1) | (6.9 | ) | (- | ) | N/A | 14.9 | ||||||
| Long-term liabilities | 8.4 | 7.1 | 18 | % | 12.2 | |||||||
| Convertible debentures – long term | 1.9 | 1.4 | 36 | % | 8.3 | |||||||
FOURTH QUARTER OPERATIONAL AND FINANCIAL HIGHLIGHTS
| For the three months ended December 31, | |||||||||
| ($millions unless noted) | 2016 | 2015 | % Change | ||||||
| Total received volume (000’s m3) | 87 | 117 | (26 | %) | |||||
| Revenue | 1.5 | 2.2 | (32 | %) | |||||
| Gross margin(1) | 0.2 | 1.0 | (80 | %) | |||||
| Gross margin %(1) | 13 | % | 47 | % | (34 | %) | |||
| Adjusted EBITDA(1) | (0.3 | ) | 0.5 | N/A | |||||
| Adjusted EBITDA(1)as a % of revenue | (20 | %) | 23 | % | (43 | %) | |||
| Net loss and comprehensive loss | (2.5 | ) | (0.6 | ) | N/A | ||||
| Net loss per share, basic and fully diluted | ($0.02 | ) | ($0.00 | ) | N/A | ||||
| Funds from (used in) operations | (0.6 | ) | 0.3 | N/A | |||||
- Refer to “NON-GAAP MEASURES AND OPERATIONAL DEFINITIONS” for additional information
2016 Full Year Summary
- The Company continued its growth strategy of building new, scalable facilities and opened three facilities in 2016: Obed in February, Athabasca in March and Kaybob in November
- Received volumes in 2016 totaled 381,000m3, a 13% decrease from 437,000m3 in 2015. Decreases at Ceiba’s existing facilities were somewhat offset by new volumes at facilities opened in 2016 and a full-year contribution from the Gordondale facility which opened in mid-2015. The suspension of Kinsella for nearly seven months contributed approximately 60,000m3 to the overall decrease in volumes.
- Total revenue was unchanged at $7.8 million. Revenue from Class 1B waste fluid disposal at newer sites offset revenue declines due to reduced volumes.
- Operating costs increased to $4.5 million in 2016 from $4.0 million in 2015 due to the opening of three new facilities in 2016. While volumes have declined overall at Ceiba’s existing facilities operating costs are not fully variable.
- Gross margin was $3.2 million (40% of revenue) in 2016 compared to $3.6 million (47% of revenue) in 2015 as a result of higher operating costs, including the initial start-up costs associated with Athabasca, Obed and Kaybob.
- Adjusted EBITDA was $1.2 million compared to $1.6 million 2015. The decrease in adjusted EBITDA was due to lower gross margins.
- Deployed $7.3 million of capital expenditures to complete the Athabasca facility and open the Obed and Kaybob facilities.
- In line with Ceiba’s sustainability program, the Company abandoned five unused and previously suspended wells at its Chamberlain facility, resulting in a $1.7 million impairment, contributing to a total impairment of $2.0 million.
- The Company reported a total loss and comprehensive loss for 2016 of $4.3 million compared to $2.3 million in 2015. Lower gross margins, higher depreciation and the loss on impairment of assets contributed to this increase in total loss and comprehensive loss.
Balance Sheet
- The Company was not in compliance with its credit facility financial covenant at December 31, 2016 which results in the full amount of its bank debt being classified as current. ATB provided a waiver of its credit facility covenant default on March 7, 2017 for December 31, 2016.
- Ceiba ended 2016 with $0.4 million in cash and net working capital deficit of $6.9 million (including the $1.5 million of convertible debentures due January 31, 2017 and $5.0 million of bank debt).
- The Company had not drawn on the $5.0 million revolving portion of its credit facility at December 31, 2016 except for a $1.0 million letter of credit that was issued to the Alberta Energy Regulator as a partial deposit on its future abandonment, remediation and reclamation of the wells and surface facilities at its sites.
Q4 2016 Summary
- Total volume received for Q4 2016 was 87,000 m3, a decrease of 26% compared to 117,000 m3 received in Q4 2015. Facilities opened more than one year experienced declines due to slower industry activity, wet weather conditions in the fall and weak oil sands volumes. Volume declines were partially offset by new customer volumes at three new facilities: Obed, Athabasca and Kaybob.
- Revenue for Q4 2016 was $1.5 million, a decrease of 32% compared to $2.2 million in Q4 2015. The decrease in revenue is attributed to the decrease in volumes and some pricing erosion in Ceiba’s Eastern Alberta facilities.
- Gross margin for Q4 2016 was $0.2 million, a decrease of $0.8 million from Q4 2015. Gross margin percentage decreased to 13% from 47%. Gross margin declined due to the decrease in revenue and an increase in operating costs from newly opened facilities. Gross margin percentage declined due to start-up costs at the Kaybob facility and lower per unit pricing at the Athabasca and Chamberlain facilities.
- Adjusted EBITDA for Q4 2016 was ($0.3 million) compared to $0.5 million for Q4 2015.
Credit Facility
Ceiba exited 2016 with approximately $0.4 million in cash and its $5.0 million revolving credit facility undrawn except for an issued letter of credit. The Company was not in compliance with its credit facility’s debt service coverage ratio covenant at December 31, 2016 which results in the full amount of its bank debt being classified as current. The non-compliance was the result of lower than expected fourth quarter 2016 operating results and five months of 2015 interest on the Company’s 12% debentures that was paid in 2016 and included in the debt service coverage ratio covenant calculation. ATB provided a waiver of its credit facility covenant default on March 7, 2017. If the Company had been in compliance with its credit facility covenant, the long-term portion of its bank debt would have been $4.5 million, reducing the excess of current liabilities over current assets from $6.9 million to $2.4 million.
On January 31, 2017, the Company repaid $1.5 million of convertible debentures at their maturity with drawings from its lower cost credit facility.
Strategic Review
On September 9, 2016 the Company initiated a process to identify, examine and consider a range of strategic alternatives available to the Company with a view to enhance shareholder value. This review remains ongoing while the Company considers certain potential strategic initiatives in view of recent increasing industry activity, which is driving volume increases. The Company does not intend to disclose developments with respect to this process unless and until the Board has approved a definitive transaction or other course of action or otherwise deems that disclosure of developments is appropriate or otherwise required by law. There can be no assurance that this review will result in a transaction or agreement, or if a transaction is undertaken, as to its terms or timing.
NON-GAAP MEASURES AND OPERATIONAL DEFINITIONS
Certain supplementary measures in this MD&A do not have any standardized meaning as prescribed under GAAP and, therefore, are considered non-GAAP measures. These measures are described and presented in order to provide 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 GAAP measure. However, they should not be used as an alternative to GAAP measures because they may not be consistent with calculations of other companies. These non-GAAP measures, and certain operational definitions used by the Company, are further explained below.
Gross Margin and Gross Margin %
Gross margin is calculated as revenue less royalties and operating expenses that include direct product costs for services, but excludes depreciation, depletion and amortization and general and administrative expenses. Management analyzes gross margin as a key indicator of cost control and operating efficiency. Gross margin % is calculated as gross margin as a percentage of revenue.
EBITDA and Adjusted EBITDA
EBITDA refers to net income before finance costs, taxes, depreciation and amortization. Adjusted EBITDA is calculated as EBITDA before costs associated with non-recurring business acquisition costs and share-based compensation. These measures do not have standardized definition prescribed by GAAP and therefore may not be comparable to similar captioned terms presented by other users.
Management believes that EBITDA and Adjusted EBITDA are key indicators for the results generated by the Company’s core business activities as they eliminate non-recurring items, certain non-cash items and the impact of finance and tax structure variables that exist between entities.
| ($000’s) | Three months ended December 31, | For the year ended December 31, | ||||||||||
| 2016 | 2015 | 2016 | 2015 | |||||||||
| Total loss and comprehensive loss for the period | (2,544 | ) | (572 | ) | (4,167 | ) | (2,313 | ) | ||||
| Add back: | ||||||||||||
| Deferred income tax recovery | (122 | ) | – | (122 | ) | – | ||||||
| Finance costs | 160 | 242 | 857 | 968 | ||||||||
| Depreciation | 507 | 220 | 1,789 | 1,125 | ||||||||
| EBITDA | (1,999 | ) | (110 | ) | (1,643 | ) | (220 | ) | ||||
| Add back: | ||||||||||||
| Share-based compensation | 74 | 142 | 548 | 932 | ||||||||
| Accretion | 70 | 43 | 214 | 155 | ||||||||
| Loss on impairment of goodwill | – | 401 | – | 401 | ||||||||
| Loss on impairment of assets | 1,759 | – | 1,959 | – | ||||||||
| Loss on disposal of assets | – | – | – | 43 | ||||||||
| Inventory writedown | – | – | 106 | – | ||||||||
| Gain on settlement of decommissioning obligations | (199 | ) | (199 | ) | – | |||||||
| Transaction costs | 7 | 72 | 179 | 285 | ||||||||
| Adjusted EBITDA | (288 | ) | 548 | 1,164 | 1,596 | |||||||
Net Working Capital
Net Working Capital is calculated as total current assets less total current liabilities. Management analyzes net working capital as a measure of its ability to settle short-term liabilities with currently available assets.
Reader Advisory
Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or the accuracy of this release.
Forward-looking statements
Certain information regarding Ceiba in this news release, including statements pertaining to strategies for remediation of the Kaybob Waste Fluid Facility, the Company’s 2017 outlook, and the Company’s available liquidity may constitute forward looking statements under applicable securities laws and necessarily involve risks including, without limitation, risks associated with its ability to raise capital, risks associated with obtaining the necessary approvals and rights, risks associated with facility construction and oilfield services operations, risks associated with availability of frac and drilling crews, general risks associated with oil and gas exploration, development, production, marketing and disposal of waste, loss of markets, environmental risks, competition from other service providers, delays resulting from or inability to obtain required regulatory approvals and ability to access sufficient capital from internal and external sources. As a consequence, actual results may differ materially from those anticipated in the forward‐looking statements. Readers are cautioned that the foregoing list of factors is not exhaustive. Additional information on these and other factors that could affect Ceiba’s operations and financial results are included in reports on file with Canadian securities regulatory authorities and may be accessed through the SEDAR website (www.sedar.com). The forward‐looking statements or information contained in this news release are made as of the date hereof and Ceiba does not undertake any obligation to update publicly or revise any forward‐looking statements or information, whether as a result of new information, future events or otherwise, unless so required by applicable securities laws.
Richard Lane
Interim-CEO and COO
403-262-2783
Ceiba Energy Services Inc.
Peter Cheung
CFO and Corporate Secretary
403-262-2783