CALGARY, ALBERTA–(Marketwired – May 12, 2016) – Total Energy Services Inc. (“Total Energy” or the “Company”) (TSX:TOT) announces its consolidated financial results for the three months ending March 31, 2016.
Financial Highlights
($000’s except per share data)
| Three Months Ended March 31 | |||||
| 2016 | 2015 | % Change | |||
| Revenue | $ | 49,956 | $ | 92,490 | (46%) |
| Operating Earnings (Loss) (1) | (2,513) | 14,575 | (117%) | ||
| EBITDA (1) | 4,303 | 21,875 | (80%) | ||
| Cashflow (1) (4) | 5,039 | 7,500 | (33%) | ||
| Net (Loss) Income | (2,132) | 9,183 | (123%) | ||
| Per Share Data (Diluted) | |||||
| EBITDA (1) | $ | 0.14 | $ | 0.71 | (80%) |
| Cashflow (1) (4) | 0.16 | 0.24 | (33%) | ||
| Net Earnings | (0.07) | 0.30 | (123%) | ||
| Mar. 31 | Dec. 31 | ||||
| 2016 | 2015 (audited) |
% Change | |||
| Financial Position | |||||
| Total Assets | $ | 522,225 | $ | 532,379 | (2%) |
| Long-Term Debt and Obligations Under Finance Leases (excluding current portion) | 48,235 | 49,185 | (2%) | ||
| Working Capital (2) | 87,702 | 90,314 | (3%) | ||
| Net Debt (3) | nil | nil | – | ||
| Shareholders’ Equity | 379,696 | 383,335 | (1%) | ||
| Shares Outstanding (000’s) | |||||
| Basic and Diluted | 30,985 | 30,997 | – | ||
| Notes 1 through 4 please refer to the Notes to the Financial Highlights set forth at the end of this release. |
Total Energy’s results for the three months ended March 31, 2016 reflect very challenging industry conditions. Substantial declines in North American oil and natural gas drilling and completion activity have contributed to severe market conditions in certain of the businesses in which Total Energy competes, particularly within the Contract Drilling Services and Rentals and Transportation Services divisions. In this environment, Total Energy continued to be disciplined in the conduct of its business in order to preserve its equipment base, minimize operating losses and protect its financial strength and flexibility. Despite a continued focus on managing credit risk, the Company recorded a $0.2 million provision for bad debt during the first quarter of 2016. Also impacting 2016 first quarter financial results was a net unrealized foreign exchange loss of $0.8 million arising from foreign currency translations. This unrealized foreign exchange loss is included in cost of services and relates primarily to the Company’s Compression and Process Services division.
Total Energy’s Contract Drilling Services division achieved 12% utilization during the first quarter of 2016, recording 196 operating days (spud to release), compared to 263 operating days, or 17% utilization, during the first quarter of 2015. Revenue per operating day decreased 18% for the first quarter of 2016 relative to the prior year comparable period due to reduced pricing. Efforts to reduce operating and overhead costs allowed this division to remain marginally profitable despite very low equipment utilization.
The Rentals and Transportation Services division achieved a utilization rate on major rental equipment of 15% during the first quarter of 2016 as compared to 38% during the first quarter of 2015. Divisional revenue per utilized rental piece decreased 5% for the first quarter of 2016 compared to the same period in 2015 due to lower pricing that was offset somewhat by equipment mix. This division exited the first quarter of 2016 with approximately 10,000 pieces of rental equipment and 115 heavy trucks as compared to 10,000 rental pieces and 119 heavy trucks at March 31, 2015. While this division continued to take action to reduce operating costs during the first quarter, its significant fixed cost structure contributed to the fact that for the first time ever, this division was not profitable during the first quarter which is typically its busiest quarter.
Revenue in the Compression and Process Services division decreased 38% to $35.6 million for the three months ended March 31, 2016 compared to $57.4 million for the same period in 2015. This division exited the first quarter of 2016 with a $49.4 million backlog of fabrication sales orders as compared to $86.6 million at March 31, 2015 and $48.9 million at December 31, 2015. Included in the March 31, 2016 and December 31, 2015 backlog is an $8.1 million order purported to be cancelled without payment of the prescribed cancellation fee and no revenue has or will be recorded in respect of such order until resolution. At March 31, 2016, approximately 11,200 horsepower of compression equipment was on rent compared to 38,400 horsepower on rent at March 31, 2015 and 15,800 at December 31, 2015. The gas compression rental fleet operated at an average utilization rate of 35% for the first quarter of 2016 as compared to 77% during the first quarter of 2015 and 42% in the fourth quarter of 2015.
Cashflow was $5.0 million for the three months ended March 31, 2016, as compared to $7.5 million for the comparable period in 2015. Despite historically low equipment utilization rates in the Contract Drilling Services and Rentals and Transportation Services divisions due in part to the Company’s determination not to pursue unprofitable work, Total Energy managed to generate positive cash flow while at the same time minimize wear and tear on its equipment.
During the first quarter, Total Energy declared a quarterly dividend of $0.06 per share to shareholders of record on March 31, 2016. This dividend was paid on April 29, 2016. For Canadian income tax purposes, all dividends paid by Total Energy on its common shares are designated as “eligible dividends” unless otherwise indicated. During the first quarter of 2016, 12,100 common shares were purchased under the Company’s normal course issuer bid at an average price of $13.01 per share (including commissions).
Outlook
Current industry conditions in North America are as difficult as any faced by Total Energy in its 20 year history and are expected to continue for the foreseeable future. In such environment, the Company is focused on maintaining its financial strength and liquidity, preserving its operating assets, retaining core personnel and pursuing opportunities to add quality personnel and assets so as to be ready, willing and able to go back to work with minimal expense and delay when industry conditions eventually improve.
The challenges facing the energy industry have led to a dysfunctional energy services marketplace, highlighted by unsustainable pricing and equipment cannibalization. Total Energy continues to strategically manage its participation in such market, which is evidenced in part by the Company’s historically low equipment utilizations during the first quarter. Risks relating to the financial solvency of business counterparties remain elevated and Total Energy continues to manage these risks carefully so as to minimize bad debt expense and the costs and disruptions occasioned by insolvent suppliers.
Total Energy continued to take steps during the first quarter to adjust its operating capacity to the current reality. Unfortunately, these adjustments impact many quality people despite the Company’s efforts to preserve its core human resource capacity in the same way it seeks to preserve its equipment base. The Company saw its workforce continue to decrease during the first quarter of 2016 with cumulative headcount reductions now exceeding 50% since the beginning of 2015.
Arising out of this difficult market are numerous investment opportunities. During the first quarter, Total Energy completed the acquisition of the operating assets of an oilfield equipment rental company based in the United States and efforts continue to review numerous potential acquisitions. Apart from valuation, the quality of equipment and personnel are paramount considerations when considering such opportunities.
Total Energy’s financial condition remains very strong, with $87.7 million of positive working capital (including $18.0 million, or $0.58 per share, of cash and marketable securities) and no net debt as at March 31, 2016. The Company’s only bank debt consists of a $48.3 million mortgage loan, which is secured by approximately 60% of the Company’s significant real estate holdings (based on value). To support the mortgage loan, in May of 2015 Total Energy received an independent appraisal of its real estate holdings which estimated the market value to be $110 million. This appraisal excluded $8.4 million of subsequent 2015 real estate additions. The net book value of the Company’s real estate holdings at December 31, 2015 was $55.7 million. The mortgage loan requires monthly principal and interest payments of $278,800 until May of 2020 when the remaining principal amount of approximately $40.2 million becomes due. Total Energy’s $65 million operating credit facility is currently undrawn. The Company’s bank credit facilities require that it maintain a debt (less cash) to equity ratio below 2.5 to 1.0 and a current ratio of at least 1.3 to 1.0. As at March 31, 2016, Total Energy’s debt to equity ratio was 0.10 to 1.0 and the current ratio was 4.05 to 1.0.
The Company’s strong financial position, modern and well maintained fleet of equipment, established market presence and experienced and stable management team allow the Company to conduct its business in a disciplined and sustainable manner. Total Energy will also look to use its financial capacity and flexibility to continue to build sustainable shareholder value.
Conference Call
At 2:30 p.m. MDT today, Total Energy will conduct a conference call and webcast to discuss its year end financial results. Daniel Halyk, President & Chief Executive Officer, will host the conference call. The call is open to Shareholders and all other interested persons. A live webcast of the conference call will be accessible on Total’s website at www.totalenergy.ca by selecting “Webcasts”. Persons wishing to join the conference call live may do so by calling (866) 696-5910 or (416) 340-2217. Those who are unable to listen to the call live may listen to a recording of it on Total Energy’s website. A recording of the conference call will also be available until May 19, 2016 by dialing (800) 408-3053 (passcode 6370681).
Annual Meeting of Shareholders
Shareholders and other interested persons are invited to attend the annual meeting of Shareholders which will commence at 10:00 a.m. (Calgary time) on Thursday, May 19, 2016 at the Calgary Petroleum Club, 319 – 5th Avenue S.W., Calgary, Alberta.
Selected Financial Information
Selected financial information relating to the three month periods ended March 31, 2016 and 2015 is attached to this news release. This information should be read in conjunction with the consolidated financial statements of Total Energy and the attached notes to the consolidated financial statements and management’s discussion and analysis to be issued in due course and reproduced in the Company’s 2016 first quarter report.
Consolidated Statements of Financial Position
(in thousands of Canadian dollars)
| March 31, | December 31, | ||||
| 2016 | 2015 | ||||
| (unaudited) | (audited) | ||||
| Assets | |||||
| Current assets: | |||||
| Cash and cash equivalents | $ | 12,346 | $ | 8,875 | |
| Accounts receivable | 39,820 | 48,091 | |||
| Inventory | 57,492 | 59,066 | |||
| Income taxes receivable | 2,611 | 2,733 | |||
| Other assets | 5,640 | 5,768 | |||
| Prepaid expenses and deposits | 3,433 | 4,101 | |||
| 121,342 | 128,634 | ||||
| Property, plant and equipment | 389,760 | 392,622 | |||
| Income taxes receivable | 7,070 | 7,070 | |||
| Goodwill | 4,053 | 4,053 | |||
| $ | 522,225 | $ | 532,379 | ||
| Liabilities & Shareholders’ Equity | |||||
| Current liabilities: | |||||
| Accounts payable and accrued liabilities | $ | 19,281 | $ | 22,002 | |
| Deferred revenue | 8,648 | 10,556 | |||
| Dividends payable | 1,859 | 1,860 | |||
| Current portion of obligations under finance leases | 1,958 | 2,023 | |||
| Current portion of long term debt | 1,894 | 1,879 | |||
| 33,640 | 38,320 | ||||
| Long-term debt | 46,421 | 46,900 | |||
| Obligations under finance leases | 1,814 | 2,285 | |||
| Deferred tax liability | 60,654 | 61,539 | |||
| Shareholders’ equity: | |||||
| Share capital | 88,841 | 88,875 | |||
| Contributed surplus | 7,761 | 8,255 | |||
| Retained earnings | 283,094 | 286,205 | |||
| 379,696 | 383,335 | ||||
| $ | 522,225 | $ | 532,379 | ||
Consolidated Statements of Comprehensive Income (Loss)
(in thousands of Canadian dollars except per share amounts)
| Three months ended March 31 |
|||||
| 2016 | 2015 | ||||
| (unaudited) | (unaudited) | ||||
| Revenue | $ | 49,956 | $ | 92,490 | |
| Cost of services | 39,654 | 63,076 | |||
| Selling, general and administration | 5,824 | 7,728 | |||
| Share-based compensation | 509 | 128 | |||
| Depreciation | 6,482 | 6,983 | |||
| Results from (used in) operating activities | (2,513) | 14,575 | |||
| Gain on sale of property, plant and equipment | 334 | 317 | |||
| Finance income | – | 133 | |||
| Finance costs | (523) | (2,546) | |||
| Net income (loss) before income taxes | (2,702) | 12,479 | |||
| Current income tax expense | 315 | 2,370 | |||
| Deferred income tax (recovery) expense | (885) | 926 | |||
| Total income tax (recovery) expense | (570) | 3,296 | |||
| Net income (loss) and total comprehensive income (loss) for the period | $ | (2,132) | $ | 9,183 | |
| Earnings (loss) per share | |||||
| Basic earnings (loss) per share | $ | (0.07) | $ | 0.30 | |
| Diluted earnings (loss) per share | $ | (0.07) | $ | 0.30 | |
Consolidated Statements of Cash Flows
(in thousands of Canadian dollars)
| Three months ended March 31 |
||||||
| 2016 | 2015 | |||||
| (unaudited) | (unaudited) | |||||
| Cash provided by (used in): | ||||||
| Operations: | ||||||
| Net (loss)income for the period | $ | (2,132) | $ | 9,183 | ||
| Add (deduct) items not affecting cash: | ||||||
| Depreciation | 6,482 | 6,983 | ||||
| Share-based compensation | 509 | 128 | ||||
| Gain on sale of property, plant and equipment | (334) | (317) | ||||
| Unrealized loss on other assets | 25 | 1,000 | ||||
| Finance costs | 498 | 1,546 | ||||
| Unrealized loss (gain) on foreign currencies translation | 754 | (488) | ||||
| Current income tax expense | 315 | 2,370 | ||||
| Deferred income tax (recovery) expense | (885) | 926 | ||||
| Income taxes paid | (193) | (13,831) | ||||
| 5,039 | 7,500 | |||||
| Changes in non-cash working capital items: | ||||||
| Accounts receivable | 7,540 | 18,638 | ||||
| Inventory | 1,274 | (6,514) | ||||
| Prepaid expenses and deposits | 419 | 2,484 | ||||
| Accounts payable and accrued liabilities | 322 | (5,056) | ||||
| Deferred revenue | (1,908) | 6,687 | ||||
| 12,686 | 23,739 | |||||
| Investments: | ||||||
| Purchase of property, plant and equipment | (2,311) | (6,493) | ||||
| Acquisitions | (3,590) | (1,231) | ||||
| Proceeds on sale of other assets | 53 | – | ||||
| Purchase of other assets | – | (5,075) | ||||
| Proceeds on disposal of property, plant and equipment | 2,305 | 1,228 | ||||
| Changes in non-cash working capital items | (2,028) | (7,109) | ||||
| (5,571) | (18,680) | |||||
| Financing: | ||||||
| Repayment of long-term debt | (464) | – | ||||
| Repayment of obligations under finance leases | (665) | (720) | ||||
| Dividends to shareholders | (1,860) | (1,860) | ||||
| Repurchase of common shares | (157) | (69) | ||||
| Interest paid | (498) | (2,040) | ||||
| (3,644) | (4,689) | |||||
| Change in cash and cash equivalents | 3,471 | 370 | ||||
| Cash and cash equivalents, beginning of period | 8,875 | 7,745 | ||||
| Cash and cash equivalents, end of period | $ | 12,346 | $ | 8,115 | ||
Segmented Information
The Company operates in three main industry segments, which are substantially in one geographic segment. These segments are Contract Drilling Services, which includes the contracting of drilling equipment and the provision of labour required to operate the equipment, Rentals and Transportation Services, which includes the rental and transportation of equipment used in drilling, completion and production operations and Compression and Process Services, which includes the fabrication, sale, rental and servicing of natural gas compression and process equipment.
As at and for the three months ended March 31, 2016 (unaudited)
| Contract Drilling Services |
Rentals and Transp- ortation Services |
Compression and Process Services |
Other(1) | Total | ||||||
| Revenue | $ | 3,187 | $ | 11,144 | $ | 35,625 | $ | – | $ | 49,956 |
| Cost of services | 1,855 | 7,018 | 30,781 | – | 39,654 | |||||
| Selling, general and administration | 526 | 2,742 | 1,847 | 709 | 5,824 | |||||
| Share-based compensation | – | – | – | 509 | 509 | |||||
| Depreciation | 537 | 4,050 | 1,877 | 18 | 6,482 | |||||
| Results from (used in) operating activities | 269 | (2,666) | 1,119 | (1,236) | (2,513) | |||||
| Gain on sale of property, plant and equipment | – | 55 | 279 | – | 334 | |||||
| Finance income | – | – | – | – | – | |||||
| Finance costs | (93) | (189) | (111) | (130) | (523) | |||||
| Net income (loss) before income taxes | 176 | (2,799) | 1,287 | (1,366) | (2,702) | |||||
| Goodwill | – | 2,514 | 1,539 | – | 4,053 | |||||
| Total assets | 114,177 | 229,722 | 163,610 | 14,716 | 522,225 | |||||
| Total liabilities | 19,120 | 42,332 | 31,615 | 49,462 | 142,529 | |||||
| Capital expenditures (2) | $ | 50 | $ | 4,856 | $ | 995 | $ | – | $ | 5,901 |
As at and for the three months ended March 31, 2015 (unaudited)
| As at and for the three months ended | ||||||||||
| March 31, 2015 | ||||||||||
| Contract Drilling Services |
Rentals and Transp- ortation Services |
Compression and Process Services |
Other(1) | Total | ||||||
| Revenue | $ | 5,230 | $ | 29,871 | $ | 57,389 | $ | – | $ | 92,490 |
| Cost of services | 3,030 | 15,375 | 44,671 | – | 63,076 | |||||
| Selling, general and administration | 554 | 3,950 | 2,431 | 793 | 7,728 | |||||
| Share-based compensation | – | – | – | 128 | 128 | |||||
| Depreciation | 614 | 4,198 | 2,157 | 14 | 6,983 | |||||
| Results from operating activities | 1,032 | 6,348 | 8,130 | (935) | 14,575 | |||||
| Gain on sale of property, plant and equipment | 5 | (73) | 385 | – | 317 | |||||
| Finance income | – | – | – | 133 | 133 | |||||
| Finance costs | (204) | (439) | (304) | (1,599) | (2,546) | |||||
| Net income (loss) before income taxes | 833 | 5,836 | 8,211 | (2,401) | 12,479 | |||||
| Goodwill | – | 2,514 | 1,539 | – | 4,053 | |||||
| Total assets | 119,357 | 259,261 | 199,434 | 9,331 | 587,383 | |||||
| Total liabilities | 18,201 | 52,755 | 55,988 | 70,994 | 197,938 | |||||
| Capital expenditures (3) | $ | 334 | $ | 4,666 | $ | 2,620 | $ | 104 | $ | 7,724 |
| (1) Other includes the Company’s corporate activities, accretion of convertible debentures and obligations pursuant to long-term credit facilities. |
| (2) Includes January 1, 2016 acquisition of assets described in Note 4 to Q1 2016 Condensed Interim Consolidated Financial Statements. |
| (3) Includes January 1, 2015 acquisition of a business described in note 5 to 2015 audited Financial Statements. |
Total Energy Services Inc. is a growth oriented energy services corporation involved in contract drilling services, rentals and transportation services and the fabrication, sale, rental and servicing of natural gas compression and process equipment. The common shares of Total Energy are listed and trade on the TSX under the symbol TOT.
Notes to Financial Highlights
(1) Operating earnings means results from operating activities and is equal to net income before income taxes minus gain on sale of property, plant and equipment minus finance income plus finance costs. EBITDA means earnings before interest, taxes, depreciation and amortization and is equal to net income before income taxes plus finance costs plus depreciation minus finance income. Cashflow means cash provided by operations before changes in non-cash working capital items. Operating earnings, EBITDA and cashflow are not recognized measures under IFRS. Management believes that in addition to net income, operating earnings, EBITDA and cashflow are useful supplemental measures as they provide an indication of the results generated by the Company’s primary business activities prior to consideration of how those activities are financed, amortized or how the results are taxed in various jurisdictions as well as the cash generated by the Company’s primary business activities without consideration of the timing of the monetization of non-cash working capital items. Readers should be cautioned, however, that operating earnings, EBITDA and cashflow should not be construed as an alternative to net income determined in accordance with IFRS as an indicator of Total Energy’s performance. Total Energy’s method of calculating operating earnings, EBITDA and cashflow may differ from other organizations and, accordingly, operating earnings, EBITDA and cashflow may not be comparable to measures used by other organizations.
(2) Working capital equals current assets minus current liabilities.
(3) Net Debt equals long-term debt plus obligations under finance leases plus current liabilities minus current assets.
(4) Cashflow for the three months ended March 31, 2015 is net of $12.7 million of income taxes paid during the period that relates to 2014 taxable income as a result of the Company not having been required to make income tax installment payments during 2014.
Certain statements contained in this press release, including statements which may contain words such as “could”, “should”, “expect”, “believe”, “will” and similar expressions and statements relating to matters that are not historical facts are forward-looking statements. Such forward-looking statements involve known and unknown risks and uncertainties which may cause the actual results, performances or achievements of Total Energy to be materially different from any future results, performances or achievements expressed or implied by such forward-looking statements. Such factors include fluctuations in the market for oil and natural gas and related products and services, political and economic conditions, the demand for products and services provided by Total Energy, Total Energy’s ability to attract and retain key personnel and other factors. Reference should be made to Total Energy’s most recently filed Annual Information Form and other public disclosures (available at www.sedar.com) for a discussion of such risks and uncertainties.
The Toronto Stock Exchange has neither approved nor disapproved of the information contained herein.
Daniel Halyk
President & Chief Executive Officer
(403) 216-3921
Total Energy Services Inc.
Yuliya Gorbach
Vice President Finance and Chief Financial Officer
(403) 216-3920
[email protected]
www.totalenergy.ca
