CALGARY, ALBERTA–(Marketwired – May 9, 2017) – Total Energy Services Inc. (“Total Energy” or the “Company”) (TSX:TOT)announces its consolidated financial results for the three months ended March 31, 2017.
| Financial Highlights | ||||||||
| ($000’s except per share data) | ||||||||
| Three months Ended March 31 | ||||||||
| 2017 | 2016 | % Change | ||||||
| Revenue | $ | 84,532 | $ | 49,956 | 69 | % | ||
| Operating Income (Loss) | (241 | ) | (2,513 | ) | 90 | % | ||
| EBITDA (1) | 7,942 | 4,303 | 85 | % | ||||
| Cashflow | 7,821 | 5,039 | 55 | % | ||||
| Net Income (Loss) | (853 | ) | (2,132 | ) | 60 | % | ||
| Per Share Data (Diluted) | ||||||||
| EBITDA (1) | $ | 0.25 | $ | 0.14 | 79 | % | ||
| Cashflow | 0.25 | 0.16 | 56 | % | ||||
| Net Earnings (Loss) | (0.03 | ) | (0.07 | ) | 57 | % | ||
| March 31 | Dec. 31 | |||||||
| 2017 | 2016 | |||||||
| (audited | ) | % Change | ||||||
| Financial Position | ||||||||
| Total Assets | $ | 635,240 | $ | 522,599 | 22 | % | ||
| Long-Term Debt and Obligations Under Finance Leases (excluding current portion) | 58,053 | 46,557 | 25 | % | ||||
| Working Capital (2) | 77,158 | 71,770 | 8 | % | ||||
| Net Debt (3) | nil | nil | – | |||||
| Shareholders’ Equity | 466,149 | 364,302 | 28 | % | ||||
| Shares Outstanding (000’s)(4) | ||||||||
| Basic | 31,448 | 30,920 | 2 | % | ||||
| Diluted | 31,489 | 30,920 | 2 | % | ||||
| Notes 1 through 4 please refer to the Notes to the Financial Highlights set forth at the end of this release. |
Total Energy’s financial results for the three months ended March 31, 2017 reflect improving North American industry activity levels from the historic lows experienced during the prior year. Despite higher activity, operating margins remained under pressure, particularly within the Contract Drilling Services (“CDS”) and Rentals and Transportation Services (“RTS”) segments where spot market pricing suffered from continued competitive market conditions. Efforts to geographically diversify revenues continued to bear fruit with 17% of consolidated revenue for the first quarter of 2017 being derived from Australia and the United States by the CPS and RTS segments. Negatively impacting the Company’s results for the first quarter of 2017 was approximately $1.3 million of non-recurring expenses, including $1.1 million related to the Company’s offer (the “SVY Offer”) to purchase all of the common shares (“Savanna Shares”) of Savanna Energy Services Corp. (“Savanna”). Excluding these non-recurring expenses, EBITDA for the first quarter of 2017 was $9.1 million and Total Energy would have returned to profitability for the first time since the third quarter of 2015.
Total Energy’s CDS segment achieved 27% utilization during the first quarter of 2017, recording 442 operating days (spud to rig release), compared to 196 operating days, or 12% utilization, during the first quarter of 2016 with a fleet of 18 drilling rigs in each period. Revenue per operating day decreased 7% for the first quarter of 2017 relative to the prior year comparable period due to reduced pricing. Effective July 1, 2016, the Company changed its estimate of depreciation for drilling rigs and related equipment by establishing a minimum depreciation charge and reducing residual values to zero. As a result of this change in estimate, there was an increase in depreciation expense of $0.5 million for the three months ended March 31, 2017.
The RTS segment achieved a utilization rate on major rental equipment of 22% during the first quarter of 2017 as compared to 15% during the first quarter of 2016. Segment revenue per utilized rental piece increased 7% for the first quarter of 2017 compared to the same period in 2016 due to a modest increase in pricing and changes in the mix of equipment utilized during the quarter. This segment exited the first quarter of 2017 with approximately 10,000 pieces of major rental equipment (excluding access matting) and 121 heavy trucks as compared to 10,000 rental pieces and 115 heavy trucks at March 31, 2016.
Revenue in the Compression and Process Services (“CPS”) segment increased 69% to $60.1 million for the three months ended March 31, 2017 compared to $35.6 million for the same period in 2016. This segment exited the first quarter of 2017 with a $75.2 million backlog of fabrication sales orders as compared to $49.4 million at March 31, 2016 and $65.5 million at December 31, 2016. At March 31, 2017, there was 40,000 horsepower in the compression rental fleet, of which approximately 16,500 horsepower was on rent as compared to 11,200 horsepower on rent at March 31, 2016 and 12,600 horsepower at December 31, 2016. The gas compression rental fleet operated at an average utilization rate of 38% during the first quarter of 2017 as compared to 35% during the first quarter of 2016.
During the first quarter, Total Energy declared a quarterly dividend of $0.06 per share to shareholders of record on March 31, 2017. This dividend was paid on April 28, 2017. For Canadian income tax purposes, all dividends paid by Total Energy on its common shares are designated as “eligible dividends” unless otherwise indicated.
On March 24, 2017, 7.92 million common shares of Total Energy were issued to holders of Savanna Shares concurrent with the initial acquisition of 51.6% of the outstanding Savanna Shares by Total Energy pursuant to the SVY Offer. However, as Total Energy did not exercise control over Savanna at March 31, 2017, Savanna’s financial results are not included in the Company’s consolidated financial results for the first quarter of 2017. The total consideration paid for the Savanna Shares acquired on March 24, 2017 was $116.7 million, including $104.5 million of share consideration (based on the volume weighted average trading price of Total Energy’s shares for the five trading days immediately prior to the acquisition of such shares, or $13.19) and $12.2 million in cash consideration. Additionally, during the three months ended March 31, 2017 the Company purchased 825,000 Savanna Shares in the open market at total cost of $1.6 million.
Outlook
North American oil and natural gas drilling and completion activity levels continued the recovery which began in the fourth quarter of 2016. While pricing has begun to recover, it remains low by historical comparisons, particularly within the CDS and RTS segments, and further pricing recovery will be required in order for the North American energy services industry to return to substantive profitability. The increase in drilling and completion activity has contributed to increased demand for natural gas compression and oil and gas process equipment. Subsequent to March 31, 2017, the CPS segment has received several significant orders, including a $35 million international order for gas compression equipment that represents the largest single order ever received, which orders have contributed to a substantial increase in the CPS segment fabrication sales backlog.
At March 31, 2017, Total Energy owned 61,777,797 Savanna Shares, which represented approximately 52.3% of the outstanding Savanna Shares. On April 7, 2017, the Company acquired 35,641,916 Savanna Shares (or approximately 30.1% of the outstanding Savanna Shares) pursuant to the SVY Offer and issued 4,633,449 common shares of the Company and paid $7.1 million of cash consideration to the holders of such Savanna Shares. Based on a $13.28 share price for the Company’s common shares, the total consideration paid for the Savanna Shares acquired by the Company on April 7, 2017 was $68.6 million. On April 27, 2017, the Company acquired 3,178,051 Savanna Shares (or approximately 2.7% of the outstanding Savanna Shares) pursuant to the SVY Offer and issued 413,147 common shares of the Company and paid $0.6 million of cash consideration to the holders of such Savanna Shares. Based on a $13.57 share price, the total consideration paid for the Savanna Shares acquired by the Company on April 27, 2017 was $6.2 million.
The SVY Offer expired on April 27, 2017 and no further shares will be acquired by Total Energy pursuant thereto. More information on the SVY Offer can be found at www.sedar.com on the Total Energy and Savanna profiles.
Including Savanna Shares acquired in the open market, Total Energy currently owns 101,572,765 Savanna Shares, representing approximately 85.7% of the outstanding Savanna Shares. Total Energy intends to acquire the remaining Savanna Shares pursuant to an acquisition transaction (the terms and conditions of which are currently being finalized and will be disclosed in due course), which transaction is expected to be completed prior to June 30, 2017. In conjunction with such acquisition transaction, Total Energy is currently finalizing the terms and conditions of a revolving bank credit facility to replace the existing credit facilities of Total Energy and Savanna. Total Energy expects that such credit facility will be sufficient to repay all debt currently due and payable by Savanna as well as to fund the working capital requirements of the combined Total Energy/Savanna enterprise going forward.
Total Energy’s financial condition remains very strong, with $77.2 million of positive working capital and no net debt at March 31, 2017. As at March 31, 2017, Total Energy’s bank debt consisted of a $46.4 million mortgage loan, which is secured by approximately 60% of the Company’s real estate holdings (based on value) and $12.1 million outstanding on the Company’s $65 million operating credit facility. During the first quarter of 2017, the Company drew on its operating credit facility for the first time since 2011 to fund the acquisition of Savanna Shares. The Company’s bank debt requires 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, 2017, Total Energy’s debt to equity ratio was 0.13 to 1.0 and the current ratio was 2.65 to 1.0.
Conference Call
At 9:00 a.m. (Mountain Time) on May 10, 2017 Total Energy will conduct a conference call and webcast to discuss its first quarter financial results. Daniel Halyk, President & Chief Executive Officer, will host the conference call. A live webcast of the conference call will be accessible on Total’s website at www.totalenergy.ca by selecting “Webcasts”. Persons wishing to participate in the conference call may do so by calling (800) 806-5484 or (416) 406-0743 (passcode 7609930#). 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 17, 2017 by dialing (800) 408-3053 (passcode 6513973#).
Selected Financial Information
Selected financial information relating to the three months ended March 31, 2017 and 2016 is attached to this news release. This information should be read in conjunction with the interim condensed consolidated financial statements of Total Energy and the attached notes to the interim condensed consolidated financial statements and management’s discussion and analysis to be issued in due course and reproduced in the Company’s 2017 first quarter report.
| Consolidated Statements of Financial Position | |||||
| (in thousands of Canadian dollars) | |||||
| March 31, | December 31, | ||||
| 2017 | 2016 | ||||
| (unaudited) | (audited) | ||||
| Assets | |||||
| Current assets: | |||||
| Cash and cash equivalents | $ | – | $ | 15,916 | |
| Accounts receivable | 58,373 | 47,545 | |||
| Loans receivable | 2,997 | – | |||
| Inventory | 50,993 | 54,964 | |||
| Income taxes receivable | 4,861 | – | |||
| Other assets | 4,835 | 5,095 | |||
| Prepaid expenses and deposits | 5,197 | 4,029 | |||
| 127,256 | 127,549 | ||||
| Property, plant and equipment | 377,773 | 383,497 | |||
| Long-term investment | 118,613 | – | |||
| Income taxes receivable | 7,070 | 7,070 | |||
| Deferred tax asset | 475 | 430 | |||
| Goodwill | 4,053 | 4,053 | |||
| $ | 635,240 | $ | 522,599 | ||
| Liabilities & Shareholders’ Equity | |||||
| Current liabilities: | |||||
| Accounts payable and accrued liabilities | $ | 38,148 | $ | 36,755 | |
| Deferred revenue | 6,374 | 13,573 | |||
| Dividends payable | 2,331 | 1,856 | |||
| Income taxes payable | – | 249 | |||
| Current portion of obligations under finance leases | 1,293 | 1,408 | |||
| Current portion of long-term debt | 1,952 | 1,938 | |||
| 50,098 | 55,779 | ||||
| Long-term debt | 56,556 | 44,962 | |||
| Obligations under finance leases | 1,497 | 1,595 | |||
| Deferred tax liability | 60,940 | 55,961 | |||
| Shareholders’ equity: | |||||
| Share capital | 193,198 | 88,654 | |||
| Contributed surplus | 7,912 | 7,683 | |||
| Accumulated other comprehensive income | 258 | – | |||
| Retained earnings | 264,781 | 267,965 | |||
| 466,149 | 364,302 | ||||
| $ | 635,240 | $ | 522,599 | ||
| Consolidated Statements of Comprehensive Income (Loss) | |||||||
| (in thousands of Canadian dollars except per share amounts) | |||||||
| Three months ended March 31 |
|||||||
| 2017 | 2016 | ||||||
| Revenue | $ | 84,352 | $ | 49,956 | |||
| Cost of services | 68,715 | 39,654 | |||||
| Selling, general and administration | 7,620 | 5,824 | |||||
| Share-based compensation | 229 | 509 | |||||
| Depreciation | 8,029 | 6,482 | |||||
| Operating loss | (241 | ) | (2,513 | ) | |||
| Gain on sale of property, plant and equipment | 154 | 334 | |||||
| Finance costs | (597 | ) | (523 | ) | |||
| Net loss before income taxes | (684 | ) | (2,702 | ) | |||
| Current income tax expense (recovery) | (4,729 | ) | 315 | ||||
| Deferred income tax expense (recovery) | 4,898 | (885 | ) | ||||
| Total income tax expense (recovery) | 169 | (570 | ) | ||||
| Net loss for the period | $ | (853 | ) | $ | (2,132 | ) | |
| Loss per share | |||||||
| Basic loss per share | $ | (0.03 | ) | $ | (0.07 | ) | |
| Diluted loss per share | $ | (0.03 | ) | $ | (0.07 | ) | |
| Condensed Interim Consolidated Statements of Comprehensive Loss | ||||||
| (unaudited) | ||||||
| Three months ended March 31 |
||||||
| 2017 | 2016 | |||||
| Net loss for the period | $ | (853 | ) | $ | (2,132 | ) |
| Changes in fair value of long-term investment | 270 | – | ||||
| Tax on changes in fair value of long-term investment | (36 | ) | – | |||
| Foreign currency translation adjustment | 24 | – | ||||
| Total other comprehensive income for the period | 258 | – | ||||
| Total Comprehensive loss | $ | (595 | ) | $ | (2,132 | ) |
| Consolidated Statements of Cash Flows | ||||||||
| (in thousands of Canadian dollars) | ||||||||
| Three months ended March 31 |
||||||||
| 2017 | 2016 | |||||||
| Cash provided by (used in): | ||||||||
| Operations: | ||||||||
| Net loss income for the period | $ | (853 | ) | $ | (2,132 | ) | ||
| Add (deduct) items not affecting cash: | ||||||||
| Depreciation | 8,029 | 6,482 | ||||||
| Share-based compensation | 229 | 509 | ||||||
| Gain on sale of property, plant and equipment | (154 | ) | (334 | ) | ||||
| Finance costs | 597 | 523 | ||||||
| Unrealized loss on foreign currencies translation | 185 | 754 | ||||||
| Current income tax expense | (4,729 | ) | 315 | |||||
| Deferred income tax (recovery) expense | 4,898 | (885 | ) | |||||
| Income taxes paid | (381 | ) | (193 | ) | ||||
| Cashflow | 7,821 | 5,039 | ||||||
| Changes in non-cash working capital items: | ||||||||
| Accounts receivable | (10,963 | ) | 7,540 | |||||
| Inventory | 3,971 | 1,274 | ||||||
| Prepaid expenses and deposits | (1,168 | ) | 419 | |||||
| Accounts payable and accrued liabilities | 2,237 | 322 | ||||||
| Deferred revenue | (7,199 | ) | (1,908 | ) | ||||
| (5,301 | ) | 12,686 | ||||||
| Investments: | ||||||||
| Purchase of property, plant and equipment | (2,928 | ) | (2,311 | ) | ||||
| Acquisitions | (13,800 | ) | (3,590 | ) | ||||
| Proceeds on sale of other assets | 115 | 53 | ||||||
| Proceeds on disposal of property, plant and equipment | 917 | 2,305 | ||||||
| Changes in non-cash working capital items | (763 | ) | (2,028 | ) | ||||
| (16,459 | ) | (5,571 | ) | |||||
| Financing: | ||||||||
| Repayment of long-term debt | (479 | ) | (464 | ) | ||||
| Loans advanced | (2,997 | ) | – | |||||
| Repayment of obligations under finance leases | (447 | ) | (665 | ) | ||||
| Dividends to shareholders | (1,856 | ) | (1,860 | ) | ||||
| Repurchase of common shares | – | (157 | ) | |||||
| Interest paid | (464 | ) | (498 | ) | ||||
| Increase in bank indebtedness | 12,087 | – | ||||||
| 5,844 | (3,644 | ) | ||||||
| Change in cash and cash equivalents | (15,916 | ) | 3,471 | |||||
| Cash and cash equivalents, beginning of period | 15,916 | 8,875 | ||||||
| Cash and cash equivalents, end of period | $ | – | $ | 12,346 | ||||
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 oil and natural gas process equipment.
| As at and for the three months ended March 31, 2017 (unaudited) | |||||||||||||||
| Contract | Rentals and | Compression | Corporate | ||||||||||||
| Drilling | Transportation | and Process | |||||||||||||
| Services | Services | Services | (1) | Total | |||||||||||
| Revenue | $ | 6,696 | $ | 17,556 | $ | 60,100 | $ | – | $ | 84,352 | |||||
| Cost of services | 4,813 | 10,426 | 53,476 | – | 68,715 | ||||||||||
| Selling, general and administration | 521 | 3,050 | 1,786 | 2,263 | 7,620 | ||||||||||
| Share-based compensation | – | – | – | 229 | 229 | ||||||||||
| Depreciation | 2,017 | 4,160 | 1,833 | 19 | 8,029 | ||||||||||
| Operating income (loss) | (655 | ) | (80 | ) | 3,005 | (2,511 | ) | (241 | ) | ||||||
| Gain on sale of property, plant and equipment | – | 124 | 30 | – | 154 | ||||||||||
| Finance costs | (91 | ) | (181 | ) | (95 | ) | (230 | ) | (597 | ) | |||||
| Net income before income taxes | (746 | ) | (137 | ) | 2,940 | (2,741 | ) | (684 | ) | ||||||
| Goodwill | – | 2,514 | 1,539 | – | 4,053 | ||||||||||
| Total assets | 111,191 | 234,342 | 154,574 | 135,133 | 635,240 | ||||||||||
| Total liabilities | 23,834 | 47,512 | 36,608 | 61,137 | 169,091 | ||||||||||
| Capital expenditures (2) | $ | 462 | $ | 1,418 | $ | 1,048 | $ | 13,800 | $ | 16,728 | |||||
| Canada | United States | Australia | International | Total | ||||||
| Revenue | $ | 69,958 | $ | 8,464 | $ | 5,919 | $ | 11 | $ | 84,352 |
| Non-current assets (4) | 483,813 | 15,154 | 1,472 | – | 500,439 | |||||
| As at and for the three months ended March 31, 2016 (unaudited) | |||||||||||||||
| Contract | Rentals and | Compression | |||||||||||||
| Drilling | Transportation | and Process | |||||||||||||
| Services | Services | 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 | ||||||||||
| Operating income (loss) | 269 | (2,666 | ) | 1,119 | (1,236 | ) | (2,513 | ) | |||||||
| Gain on sale of property, plant and equipment | – | 55 | 279 | – | 334 | ||||||||||
| 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 (3) | $ | 50 | $ | 4,856 | $ | 995 | $ | – | $ | 5,901 | |||||
| Canada | United States | Australia | International | Total | ||||||
| Revenue | $ | 44,865 | $ | 4,938 | $ | – | $ | 153 | $ | 49,956 |
| Non-current assets (4) | 384,429 | 9,384 | – | – | 393,813 | |||||
| (1) | Corporate includes the Company’s corporate activities and obligations pursuant to long-term credit facilities. |
| (2) | Includes acquisition of Savanna Shares described in Note 4 to the first quarter 2017 interim Condensed Consolidated Financial Statements. |
| (3) | Includes acquisition of assets in January of 2016 described in note 5 to 2016 annual audited Consolidated Financial Statements. |
| (4) | Includes property, plant and equipment and goodwill. |
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 oil and natural gas process equipment. The common shares of Total Energy are listed and trade on the TSX under the symbol TOT.
| Notes to Financial Highlights | |
| (1) | EBITDA means earnings before interest, taxes, depreciation and amortization and is equal to net income (loss) before income taxes plus finance costs plus depreciation minus finance income. EBITDA is not a recognized measure under IFRS. Management believes that in addition to net income (loss), EBITDA is useful supplemental measure as it provides 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 EBITDA should not be construed as an alternative to net income (loss) determined in accordance with IFRS as an indicator of Total Energy’s performance. Total Energy’s method of calculating EBITDA may differ from other organizations and, accordingly, EBITDA 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) | Basic and diluted shares outstanding reflect the weighted average number of common shares outstanding for the period. See note 7 to the Company’s Interim Consolidated Financial Statements for the three months ended March 31, 2017. |
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. Forward-looking statements are based upon the opinions and expectations of management of Total Energy as at the effective date of such statements and, in some cases, information supplied by third parties. Although Total Energy believes the expectations reflected in such forward-looking statements are based upon reasonable assumptions and that information received from third parties is reliable, it can give no assurance that those expectations will prove to have been correct.
In particular, this press release contains forward-looking statements concerning increased capital expenditure programs for North American oil and nature gas producers, expectations regarding Total Energy’s market share, Total Energy’s expectations of their ability to participate in an eventual industry recovery, expansion and growth of the Company’s RTS and CPS segments, timing of the commencement of operations at the Company’s Weirton, West Virginia manufacturing facility and information concerning Total Energy’s offer to acquire Savanna (the “Offer”), the timing for completion of the Offer, the consideration payable under the Offer and the expected benefits of the Offer. Such forward-looking statements are based on a number of assumptions and factors including 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. Forward-looking statements concerning the benefits of the Offer are also based upon various assumptions and factors, including financial information of Savanna available through publicly filed documents, that Savanna has made full and accurate disclosure of all material information concerning Savanna in accordance with applicable Canadian securities laws and Total’s general industry knowledge and experience. 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. 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 TSX 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
