EDMONTON, AB, Aug. 6, 2021 /CNW/ - McCoy Global
Inc. ("McCoy," "McCoy
Global" or "the Corporation") (TSX: MCB) today announced its
operational and financial results for the three months ended
June 30, 2021.
Second Quarter Highlights:
- Field trials for McCoy's
SmartCRTTM resulted in continued customization and
enhancements in preparation for commercial launch in Q3;
- Field trials for our Virtual ThreadRep TM 2.0
progressed with 5 customers. This virtual technology allows
customers to remotely monitor and control premium connection
make-up;
- Commenced development of McCoy's Virtual ThreadRepTM 3.0;
which will allow the torque turn software to autonomously evaluate
and confirm premium connection make-up;
- New product and technology offerings4 contributed
18% of total revenue compared with 16% in Q2 2020;
- Subsequent to the quarter, on August 5,
2021, McCoy strengthened
its Board of Directors with the addition of Oil & Gas veteran
Mike Buker, President of PHX Energy
Services Corp. (TSX:PHX).
"Following a slower start to 2021 for the global oil and gas
industry, we continue to see trends for a prolonged upcycle
starting in the back half of the year as leading indicators and
global bookings begin to show greater strength," said Jim Rakievich, President & CEO of
McCoy. "In the second quarter we
experienced a significant lift in orders for our consumable
products, which is a leading indicator of wellsite activity, and
subsequent to the quarter, order intake levels further improved
with $3.9 million of orders received
to August 5, 2021 including orders
for a Smart Tong package destined for offshore Brazil. In parallel, we continue to invest in
our automated future and have several trials set with North
American customers operating in the Permian basin starting in
August."
"Our second quarter performance was impacted by delays in
receipt of $2.0 million customer
advance payments which prevented our ability to book the revenue in
our second quarter. The funds were received in early July and will
contribute to our third quarter performance," said Lindsay McGill, Vice President & CFO of
McCoy. "McCoy received $2.4
million in forgiveness from first-round funding under the US
Paycheck Protection Loan Program and continues to maintain a solid
balance sheet and a strong net cash position. This offers us great
financial flexibility as we continue to fund our 2021 product
development program for the Digital Technology Roadmap. We deployed
$0.8 million in the first six months
of 2021 to advance our digital products, currently in field trials,
toward commercialization."
Financial Highlights:
- Total revenue decreased by 41% to $6.1
million, compared to $10.4
million in 2020; due to $2.0
million of delayed advance payments from customers that
restricted shipment and delayed revenue recognition to the third
quarter;
- Adjusted EBITDA1 decreased to $0.2 million, or 3% of revenue, compared with
$1.3 million, or 13% of revenue, in
2020;
- Achieved backlog2 of $10.2
million at June 30, 2021,
compared with $8.3 million in
2020;
- Book-to-bill ratio3 was 1.22 for the three months
ended June 30, 2021, compared with
0.39 in 2020;
- Received $2.3 million forgiveness
for first-round funding under the US Paycheck Protection Loan
Program (PPP); and
- Anticipated capital spend for the remainder of 2021 includes up
to US$1.3 million of investment in
the Corporation's Digital Technology Roadmap to accelerate the
transition toward a cloud-based, Tubular Running Service
solution.
On August 5, 2021, McCoy added Oil & Gas industry veteran
Michael Buker to the board of
directors. Mr. Buker is the current President of PHX Energy
Services Corp. ("PHX"), a publicly traded company on the
TSX. In his current role he is responsible for managing
all facets of the business from its US head office in Houston, Texas. Mr. Buker's accomplishments
thus far at PHX include being instrumental in building the
company to be the industry leading technology and service provider
it is today, and guiding teams in the development and
commercialization of premium technologies that deliver significant
competitive advantages that optimize drilling operations, increase
drilling efficiency and decrease drilling days. Prior
to becoming President, Mr. Buker held a various senior management
positions spanning sales & marketing, operations management,
and international business development, which included extensive
field experience. Mr. Buker has completed the ICD-Rotman Directors
Education Program and has obtained the ICD.D designation from the
Institute of Corporate Directors. Mr. Buker has more than 15 years'
experience serving on various public and private boards.
Revenue for the three and six months ended June 30, 2021 continued to be impacted by the
depressed order intake experienced as a result of the COVID-19
pandemic. Second and third rounds of lockdowns, particularly in the
Eastern Hemisphere, have delayed NOC's project approvals, which has
in turn deferred our customers' capital spend. Furthermore, revenue
for the three months ended June 30,
2021 was also impacted by $2.0
million of shipments held as a result of delays in
collection of customer advance payments. Payments for these orders
were received in early July 2021 with
revenues recognized in Q3 2021.
Revenue for the three and six months ended June 30, 2020 was supported by Q4 2019 and early
2020 order intake and was not materially impacted by the COVID-19
pandemic.
Despite the decline in revenue and significant degradation of
market conditions, McCoy grew
revenues from its new product and technology offerings to
$1.1 million or 18% of revenue (Q2
2020 - $1.7 million or 16% of
revenue).
Gross profit as a percentage of revenue for the three and six
months ended June 30, 2021 was 26%
and 28% respectively, an increase of one percentage point from the
comparable periods in 2020. The increase was largely a result of
favourable product mix, with a modest uptick in aftermarket
revenues as the impacts of the COVID-19 pandemic lessened,
economies began to reopen and drilling activity improved
particularly in the North America Land market. Continued focus on
productivity improvement and supply chain efficiencies also
contributed to the improvement in gross profit percentage. Gross
profit for the six months ended June 30,
2021 includes a $0.2 million
recovery for excess and obsolete inventory (2020 – expense of
$0.7 million).
For the three months ended June 30,
2021, G&A increased by 4% from the comparative period,
due to a $0.3 million increase in
cash-settled share-based compensation expense resulting from an
increase in the Corporation's share price, which was offset by the
benefit of cost reduction initiatives. For the six months ended
June 30, 2021, G&A decreased by
3% from the comparative period due to cost reduction initiatives
enacted in April 2020, as well as
continued focus on reduction of overhead spend. This was offset by
an increase in share-based compensation expense.
For the three months ended June 30,
2021, Sales & Marketing increased from the comparative
periods as a result of targeted marketing initiatives related to
soon-to-be commercial products under the Corporation's 'Digital
Technology Roadmap' initiative. For the six months ended
June 30, 2021, Sales & Marketing
decreased from the comparative period due to cost reduction
initiatives enacted in April 2020
which was partially offset by increased marketing efforts.
During the three and six months ended June 30, 2021, McCoy further advanced its 'Digital Technology
Roadmap' initiative through the continued development of 'Smart'
product offerings that will be digitally integrated into its
automated tubular running system SmartTRTM. For the six
months ended June 30, 2021, total
capitalized development expenditures of $0.8
million include internal product design and development
hours, in addition to $0.3 million
(three months ended June 30, 2021 -
$0.2 million) of prototype materials
and field trial expenses for McCoy's SmartCRTTM. For 2021, the
Corporation has committed up to US$2.1
million of growth capital to accelerate its 'Digital
Technology Roadmap' initiative by integrating these product
offerings into SmartTRTM, McCoy's fully automated casing running system.
During the three and six months ended June
30, 2020, capitalized development expenditures pertained to
detail design work completed for McCoy's new Smart product offerings, including
the SmartCRTTM and Virtual Thread RepTM.
For the three and six months ended June
30, 2021, other gains, net is comprised primarily of
$2.4 million loan forgiveness of the
US Paycheck Protection Program, government assistance payments
related to the Canadian Emergency Wage and Rent Subsidies, as well
as gains on the disposal of property, plant and equipment, offset
by a one-time retroactive payment to employees and foreign exchange
losses. In the comparative period, other losses, net was comprised
primarily of foreign exchange fluctuations and gains or losses on
the disposal of property, plant and equipment. For the three and
six months ended June 30, 2020, other
gains include $0.2 million of
government assistance payments in connection with the Canadian
Emergency Wage Subsidy.
Net earnings for the three months ended June 30, 2021 was $1.2
million ($0.04 per basic
share), compared with net earnings of $0.8
million ($0.03 per basic
share) in the second quarter of 2020.
Adjusted EBITDA1 for the three months ended
June 30, 2021 was $0.2 million compared with $1.3 million for the second quarter of 2020.
As at June 30, 2021 the
Corporation had $10.9 million in cash
and cash equivalents, of which $1.3
million was restricted per the conditions of the
Corporation's credit facility.
Selected Quarterly Information
|
($000 except per
share amounts and percentages)
|
Q2 2021
|
Q2 2020
|
% Change
|
|
Total
revenue
|
6,086
|
10,361
|
(41%)
|
|
Gross
profit
|
1,566
|
2,631
|
(40%)
|
|
as a percentage of
revenue
|
26%
|
25%
|
1%
|
|
Net
earnings
|
1,151
|
782
|
47%
|
|
per common share –
basic
|
0.04
|
0.03
|
19%
|
|
per common share –
diluted
|
0.03
|
0.03
|
14%
|
|
Adjusted
EBITDA1
|
174
|
1,327
|
(87%)
|
|
per common share –
basic
|
0.01
|
0.05
|
(87%)
|
|
per common share –
diluted
|
0.01
|
0.05
|
(87%)
|
|
Total
assets
|
53,505
|
63,028
|
(15%)
|
|
Total
liabilities
|
17,802
|
22,781
|
(22%)
|
|
Total non-current
liabilities
|
9,872
|
11,347
|
(13%)
|
Summary of Quarterly Results
|
($000 except per
share
|
Q2
2021
|
Q1
2021
|
Q4
2020
|
Q3
2020
|
Q2
2020
|
Q1
2020
|
Q4
2019
|
Q3
2019
|
|
amounts)
|
|
Revenue
|
6,086
|
7,374
|
9,369
|
7,621
|
10,361
|
11,323
|
11,875
|
15,222
|
|
Net earnings
(loss)
|
1,151
|
(158)
|
(2,150)
|
(720)
|
782
|
(87)
|
61
|
1,238
|
|
Basic & diluted
(loss)
|
0.04
|
(0.01)
|
(0.08)
|
(0.03)
|
0.03
|
-
|
-
|
0.04
|
|
earnings per
share
|
|
EBITDA1
|
2,077
|
749
|
(1,116)
|
312
|
1,886
|
1,078
|
1,176
|
2,144
|
|
Adjusted
EBITDA1
|
174
|
673
|
153
|
365
|
1,327
|
1,919
|
1,487
|
2,213
|
Outlook and Forward-Looking Information
Since mid-2008, the oil & gas extraction complex has
experienced an increasingly volatile pricing environment and
growing public and investor pressure to reduce its impact on the
environment and improve safety. In turn, producers have been
acutely focused on managing their costs and adapting their business
strategy to demonstrate compliance with broader sustainability
efforts.
McCoy has a reputation of
innovation within tubular running services (TRS) operations
globally. The Corporation has extensive experience launching new
products into the markets it serves, offering the highest quality
and safety standards available, and has done so for more than three
decades.
McCoy believes the TRS space is
primed for transformation employing automation and machine
learning. Tools and processes used in TRS today are mechanical,
highly repetitive, require significant labour inputs, have a high
rate of personnel safety exposure, and maintain minimal well
integrity data. Recognizing this opportunity, McCoy has conceptualized a 'Smart' TRS system
that will operate autonomously using the Corporation's cloud-based
data repository and machine learning to improve effectiveness.
NimbusTM, our cloud-based platform and digital
infrastructure that was developed in 2019, will enable future
digital product offerings and enhancements. This cloud-based, real
time, remote data transmission infrastructure will support our
ability to integrate, digitize, and automate the historically
manual processes of tubular make up through our
SmartTRTM autonomous casing running system. The product
suite includes five 'Smart' products: Virtual
ThreadRepTM, SmartCRTTM,
SmartFMSTM, McCoy's
Smart Tong, and McCoy's Smart
Tailing Stabbing Arm.
McCoy is engaged with three key
customer groups:
Service Companies and Drilling Contractors - Producers are
challenging contractors, across the board, to reduce costs. In most
cases, their largest cost is people. With five years of decreasing
oil and gas activity, personnel have left the industry to the point
where there is now a critical shortage of skilled and experienced
labour. This lack of labour and the reality that 65% of TRS cost is
directly attributable to labour is a driving force behind the
transition to an increasingly automated system.
Producers – McCoy's Virtual
ThreadRepTM consolidates data on every connection made
in a Producer's completion program. This repository of data
supports verifiable and reliable well integrity that validates
Environmental Social Governance (ESG) initiatives under the SASB
standard. In addition to providing enhanced data, remote operation
can reduce up to 85% of the labour costs associated with TRS for
our Producer group.
Tubular Manufacturers – Threaded connection integrity is the
standard that all manufacturers are measured by. Tubular
connections at wellsite, which are currently made up by humans,
will be controlled, and torqued to factory specifications by
McCoy's 'Smart' tools, leveraging
autonomous machine learning. OEM's and manufacturers will benefit
from reduced operational risk with systems in place to ensure
connections are made correctly and in accordance with
specifications related to project parameters, reducing the
incidence and potential environmental impact of faulty connections
and leaking wells.
McCoy's digital strategy will
help meet this demand. The NimbusTM cloud platform is
the nucleus of the Corporation's digital strategy and serves as a
repository for real-time, complete well integrity data. Taking
advantage of its first mover status, McCoy expects to launch its next two 'Smart'
products in 2021 with the goal of having a fully automated TRS by
the end of 2022.
The COVID-19 crisis continued to impact the oil and gas industry
globally throughout the first half of 2021. Second and third waves
of the pandemic and the consequential global lockdowns have led to
a slow and choppy recovery, particularly in the Eastern Hemisphere
where project approvals by national oil companies (NOC's) have been
delayed. As we look ahead to the second half of 2021, we see
continued signs of global economic recovery that are expected to
drive improving levels of drilling activity. Although new variant
strains of the COVID-19 virus may further pose a threat to a steady
recovery, we expect customer spending and activity levels to gain
momentum through the remainder of the year as the macro environment
improves.
Looking further into 2022, the activity levels in the oil and
gas industry are expected to improve as global economies stabilize
and grow. With the most complete tubular running suite of products
and strong balance sheet, McCoy is
well positioned to respond to an improving market. Further, we
expect commercial opportunities with our new Smart technology
offering to accelerate in a more robust market.
McCoy reported order intake of
$7.4 million for the second quarter
of 2021, a modest sequential increase of $0.5 million compared to the first quarter. While
bookings showed little improvement for the quarter, subsequent to
June 30, 2021, order intake levels
further improved with $3.9 million of
orders received to August 5, 2021.
McCoy has been able to leverage
its engineering capabilities, technology offerings and strong
market position for revenue sustainability, particularly in these
international and offshore regions.
In summary, we will continue to focus on our key strategic
initiatives to navigate to success:
- Growing market adoption of new and recently developed 'Smart'
portfolio products;
- Prudently investing in technology development initiatives and
certain key rental opportunities;
- Generating cashflow from operations through fiscal discipline
and continued working capital efficiency, despite uncertain market
conditions ahead; and
- Ensuring the health and safety of our employees, their families
and our partners throughout the COVID19 pandemic.
We believe this strategy, together with our committed and agile
team, intimate customer knowledge and global footprint will further
advance the McCoy's competitive
position, regardless of the market environment.
About McCoy Global Inc.
McCoy Global is transforming well construction using automation
and machine learning to maximize wellbore integrity and collect
precise connection data critical to the global energy industry. The
Corporation has offices in Canada,
the United States of America, and
the United Arab Emirates and
operates internationally in more than 50 countries through a
combination of direct sales and key distributors.
Throughout McCoy's 100-year
history, it has proudly called Edmonton,
Alberta, Canada its corporate headquarters. The
Corporation's shares are listed on the Toronto Stock Exchange and
trade under the symbol "MCB".
|
1 EBITDA
is calculated under IFRS and is reported as an additional subtotal
in the Corporation's consolidated statements of cash flows. EBITDA
is defined as net earnings (loss), before depreciation of property,
plant and equipment; amortization of intangible assets; income tax
expense (recovery); and finance charges, net. Adjusted EBITDA is a
non-GAAP measure defined as net (loss) earnings, before:
depreciation of property, plant and equipment; amortization of
intangible assets; income tax expense (recovery); finance charges,
net; provisions for excess and obsolete inventory; other (gains)
losses, net; restructuring charges; share-based compensation; and
impairment losses. The Corporation reports on EBITDA and adjusted
EBITDA because they are key measures used by management to evaluate
performance. The Corporation believes adjusted EBITDA assists
investors in assessing McCoy Global's current operating performance
on a consistent basis without regard to non-cash, unusual (i.e.
infrequent and not considered part of ongoing operations), or
non-recurring items that can vary significantly depending on
accounting methods or non-operating factors. Adjusted EBITDA is not
considered an alternative to net (loss) earnings in measuring McCoy
Global's performance. Adjusted EBITDA does not have a standardized
meaning and is therefore not likely to be comparable to similar
measures used by other issuers. For comparative purposes, in
previous financial disclosures 'adjusted EBITDA' was defined as
"net earnings (loss) before finance charges, net, income tax
expense (recovery), depreciation, amortization, impairment losses,
restructuring charges, non-cash changes in fair value related to
derivative financial instruments and share-based
compensation."
|
|
|
2 McCoy
Global defines backlog as orders that have a high certainty of
being delivered and is measured on the basis of a firm customer
commitment, such as the receipt of a purchase order. Customers may
default on or cancel such commitments, but may be secured by a
deposit and/or require reimbursement by the customer upon default
or cancellation. Backlog reflects likely future revenues; however,
cancellations or reductions may occur and there can be no assurance
that backlog amounts will ultimately be realized as revenue, or
that the Corporation will earn a profit on backlog once fulfilled.
Expected delivery dates for orders recorded in backlog historically
spanned from one to six months. Under current market conditions,
many customers have shifted their purchasing towards just-in-time
buying.
|
|
|
3 The
book-to-bill ratio is a measure of the amount of net sales orders
received to revenues recognized and billed in a set period of time.
The ratio is an indicator of customer demand and sales order
processing times. The book-to-bill ratio is not a GAAP measure and
therefore the definition and calculation of the ratio will vary
among other issuers reporting the book-to-bill ratio. McCoy Global
calculates the book-to-bill ratio as net sales orders taken in the
reporting period divided by the revenues reported for the same
reporting period.
|
|
|
4 New
product and technology offerings as products or technologies
introduced to our portfolio in the past 36 months.
|
Forward-Looking Information
This News Release contains forward looking statements and
forward looking information (collectively referred to herein as
"forward looking statements") within the meaning of applicable
Canadian securities laws. All statements other than statements of
present or historical fact are forward looking statements. Forward
looking information is often, but not always, identified by the use
of words such as "could", "should", "can", "anticipate", "expect",
"objective", "ongoing", "believe", "will", "may", "projected",
"plan", "sustain", "continues", "strategy", "potential",
"projects", "grow", "take advantage", "estimate", "well positioned"
or similar words suggesting future outcomes. This New Release
contains forward looking statements respecting the business
opportunities for the Corporation that are based on the views of
management of the Corporation and current and anticipated market
conditions; and the perceived benefits of the growth strategy and
operating strategy of the Corporation are based upon the financial
and operating attributes of the Corporation as at the date hereof,
as well as the anticipated operating and financial results. Forward
looking statements regarding the Corporation are based on certain
key expectations and assumptions of the Corporation concerning
anticipated financial performance, business prospects, strategies,
the sufficiency of budgeted capital expenditures in carrying out
planned activities, the availability and cost of labour and
services and the ability to obtain financing on acceptable terms,
which are subject to change based on market conditions and
potential timing delays. Although management of the Corporation
consider these assumptions to be reasonable based on information
currently available to them, they may prove to be incorrect. By
their very nature, forward looking statements involve inherent
risks and uncertainties (both general and specific) and risks that
forward looking statements will not be achieved. Undue reliance
should not be placed on forward looking statements, as a number of
important factors could cause the actual results to differ
materially from the beliefs, plans, objectives, expectations,
anticipations, estimates and intentions expressed in the forward
looking statements, including inability to meet current and future
obligations; inability to complete or effectively integrate
strategic acquisitions; inability to implement the Corporation's
business strategy effectively; access to capital markets;
fluctuations in oil and gas prices; fluctuations in capital
expenditures of the Corporation's target market; competition for,
among other things, labour, capital, materials and customers;
interest and currency exchange rates; technological developments;
global political and economic conditions; global natural disasters
or disease; and inability to attract and retain key personnel.
Readers are cautioned that the foregoing list is not exhaustive.
The reader is further cautioned that the preparation of financial
statements in accordance with IFRS requires management to make
certain judgments and estimates that affect the reported amounts of
assets, liabilities, revenues and expenses. These judgments and
estimates may change, having either a negative or positive effect
on net earnings as further information becomes available, and as
the economic environment changes. The information contained in this
News Release identifies additional factors that could affect the
operating results and performance of the Corporation. We urge you
to carefully consider those factors. The forward looking statements
contained herein are expressly qualified in their entirety by this
cautionary statement. The forward looking statements included in
this News Release are made as of the date of this New Release and
the Corporation does not undertake and is not obligated to publicly
update such forward looking statements to reflect new information,
subsequent events or otherwise unless so required by applicable
securities laws.
SOURCE McCoy Global Inc.
