PHX Energy Announces All-Time Record Financial and Operating
Results for the 2013-Year
CALGARY, ALBERTA--(Marketwired - Feb 26, 2014) - For the third
consecutive year, in 2013 PHX Energy (TSX:PHX) generated an
all-time record level of revenue, operating days, EBITDA, net
earnings, and funds from operations.
For the year ended December 31, 2013, the Corporation generated
consolidated revenue of $380.7 million as compared to $301.7
million in the 2012-year; an increase of 26 percent. EBITDA
increased by 49 percent to $72.6 million in 2013 as compared to
$48.8 million in 2012. Net earnings increased to $36.6 million in
2013 from $17.7 million in 2012; a 107 percent increase. The
Corporation's funds from operations were $53.2 million in 2013,
which is 5 percent greater than the $50.6 million achieved in 2012.
Included in the 2013-year's EBITDA and net earnings were gains of
$14.8 million from the re-measurement to fair value of the
Corporation's pre-existing ownership interest in RMS Systems Inc.
("RMS") and RigManager International Inc. ("RMII"), a gain of $2.2
million from the sale of land and an operations centre, and a loss
of $1.2 million that related to the write-off of certain tools as
the technology is no longer being utilized. Excluding these items,
adjusted EBITDA increased by 17 percent to a record $56.9 million
and net earnings increased by 18 percent to a record $20.9 million
in the year ended December 31, 2013.
During 2013, the Corporation benefitted from positive trends in
the Canadian and US industry, such as overall improved commodity
prices and continued strong utilization of horizontal and
directional drilling techniques. Industry horizontal and
directional drilling activity represented approximately 93 percent
(as measured by drilling days) and 75 percent (as measured by rigs
running per day) of the 2013 total drilling activity in Canada and
the US, respectively. This compared to 92 percent in Canada and 71
percent in the US for the 2012-year. (Sources: Daily Oil Bulletin
and Baker Hughes) This, coupled with the Corporation's continued
superior operational performance, led PHX Energy to realize record
activity growth in all of its operating segments in 2013.
PHX Energy's US and international operations achieved record
levels of revenue and represented 48 and 13 percent of consolidated
revenue in the 2013-year compared to 46 and 12 percent in 2012. In
the US, the Corporation continues to build and strengthen its
marketing and operations teams and has been successful in
diversifying its client base. Russia has been at the forefront of
the international operations' growth and Albania demonstrated solid
results throughout the year. PHX Energy expects this growth
momentum to continue in future years.
In line with the Corporation's strategic objective of providing
leading edge technologies to its clients, PHX Energy is in the
process of exploring new technologies and as a result has entered
into third party license and technology development agreements. The
activities are a collaboration between PHX Energy's research and
development ("R&D") department and the third parties. During
2013, the Corporation made payments totaling $4.3 million under
these agreements.
For the year ended December 31, 2013, $41.8 million in capital
expenditures were incurred. During 2013, PHX Energy's down hole
performance drilling motor fleet grew and job capacity increased to
214 concurrent jobs from 210 in 2012. Greater job capacity resulted
from the addition of resistivity while drilling ("RWD") systems. As
at December 31, 2013, the Corporation's measurement while drilling
("MWD") fleet consisted of 132 P-360 positive pulse MWD systems, 65
E-360 electromagnetic ("EM") MWD systems, and 17 RWD systems. Of
these, 96 MWD systems were deployed in Canada, 88 in the US, 15 in
Russia, 6 in Albania, 5 in Colombia, and 4 in Peru.
The Corporation's capital expenditures were financed from a
combination of cash flow from operations, borrowings under the
Corporation's credit facilities, and from an equity financing. On
August 7, 2013, the terms of the Corporation's syndicated loan
agreement with its bank were amended to extend the maturity date of
the syndicated facility and US operating facility from September 6,
2015 to September 5, 2016. The aggregate carrying amount of the
syndicated facility and US operating facility of $70.2 million as
at December 31, 2013 was classified as a non-current liability.
The 2014 capital expenditure budget has been approved by the
Board of Directors and is projected to be $34.7 million. Included
in the budget are MWD guidance systems and components, performance
drilling motors and tubulars required for anticipated growth.
In light of the record financial results and positive company
outlook, on October 30, 2013, the Board of Directors approved
raising the monthly dividend by $0.01 to $0.07 per share. The
dividend increase became effective for the Corporation's November
2013 dividend. For the year ended December 31, 2013, the
Corporation paid dividends of $0.73 per share to its shareholders
(2012 - $0.66 per share), or $21.4 million (2012 - $18.6 million).
PHX Energy ended 2013 with a cash dividend payout ratio of 40
percent (cash dividends paid divided by funds from operations).
On November 28, 2013, PHX Energy successfully completed the
acquisition of RMS through a plan of arrangement. Upon completion
of the arrangement, RMS became a wholly-owned subsidiary of PHX
Energy and ceased trading on the TSX Venture Exchange. RMS was
subsequently amalgamated with PHX Energy on January 1, 2014. RMS
owns web-based remote electronic drilling recorder ("EDR")
technology which allows oil and natural gas companies to retrieve
scientific measurement data in the field and communicate this data
in real-time back to a central web-based data warehouse. PHX Energy
markets these services in Canada through RMS as well as through its
wholly-owned subsidiary RMII worldwide outside Canada; mainly
Albania, and Mexico.
Financial Highlights
(Stated in
thousands of dollars except per share amounts, percentages and
shares outstanding)
|
Three-month periods ended December 31, |
|
Years ended December 31, |
|
|
2013 |
2012 |
% Change |
|
2013 |
2012 |
% Change |
|
Operating Results |
(unaudited) |
(unaudited) |
|
|
|
|
|
|
Revenue |
115,543 |
79,473 |
45 |
|
380,663 |
301,720 |
26 |
|
Net
earnings |
22,259 |
4,537 |
391 |
|
36,567 |
17,707 |
107 |
|
Earnings per share - diluted |
0.68 |
0.16 |
325 |
|
1.23 |
0.63 |
95 |
|
EBITDA (1) |
32,369 |
13,575 |
138 |
|
72,639 |
48,837 |
49 |
|
EBITDA per share - diluted (1) |
0.99 |
0.48 |
106 |
|
2.45 |
1.73 |
42 |
|
Adjusted EBITDA (1) |
17,611 |
13,575 |
30 |
|
56,930 |
48,837 |
17 |
|
Adjusted EBITDA per share - diluted (1) |
0.54 |
0.48 |
13 |
|
1.92 |
1.73 |
11 |
|
Cash
Flow |
|
|
|
|
|
|
|
|
Cash
flows from operating activities |
17,367 |
13,748 |
26 |
|
35,378 |
33,070 |
7 |
|
Funds
from operations (1) |
15,161 |
13,890 |
9 |
|
53,160 |
50,621 |
5 |
|
Funds
from operations per share - diluted (1) |
0.46 |
0.49 |
(6 |
) |
1.79 |
1.79 |
- |
|
Dividends paid |
6,058 |
5,080 |
19 |
|
21,433 |
18,595 |
15 |
|
Dividends per share (2) |
0.19 |
0.18 |
6 |
|
0.73 |
0.66 |
11 |
|
Capital expenditures |
13,272 |
5,334 |
149 |
|
41,818 |
51,452 |
(19 |
) |
|
|
|
|
|
|
|
|
|
Financial Position, December 31, |
|
|
|
|
|
|
|
|
Working capital |
|
|
|
|
66,580 |
45,480 |
46 |
|
Long-term debt |
|
|
|
|
70,208 |
80,000 |
(12 |
) |
Shareholders' equity |
|
|
|
|
198,477 |
115,095 |
72 |
|
Common shares outstanding |
|
|
|
|
34,218,974 |
28,241,371 |
21 |
|
|
|
(1) |
Refer
to non-GAAP measures section. |
(2) |
Dividends paid by the Corporation on a per share basis in the
period. |
Non-GAAP Measures
PHX Energy uses certain performance measures throughout this
document that are not recognizable under Canadian generally
accepted accounting principles ("GAAP"). These performance measures
include earnings before interest, taxes, depreciation and
amortization ("EBITDA"), EBITDA per share, adjusted EBITDA,
adjusted EBITDA per share, funds from operations, funds from
operations per share and senior debt to EBITDA ratio. Management
believes that these measures provide supplemental financial
information that is useful in the evaluation of the Corporation's
operations and are commonly used by other oil and natural gas
service companies. Investors should be cautioned, however, that
these measures should not be construed as alternatives to measures
determined in accordance with GAAP as an indicator of PHX Energy's
performance. The Corporation's method of calculating these measures
may differ from that of other organizations, and accordingly, these
may not be comparable. Please refer to the non-GAAP measures
section.
Cautionary Statement Regarding Forward-Looking Information and
Statements
This document contains certain forward-looking information and
statements within the meaning of applicable securities laws. The
use of "expect", "anticipate", "continue", "estimate", "objective",
"ongoing", "may", "will", "project", "could", "should", "can",
"believe", "plans", "intends", "strategy" and similar expressions
are intended to identify forward-looking information or
statements.
The forward-looking information and statements included in this
document are not guarantees of future performance and should not be
unduly relied upon. These statements and information 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 statements and information. The
Corporation believes the expectations reflected in such
forward-looking statements and information are reasonable, but no
assurance can be given that these expectations will prove to be
correct. Such forward-looking statements and information included
in this document should not be unduly relied upon. These
forward-looking statements and information speak only as of the
date of this document.
In particular, forward-looking information and statements
contained in this document include, without limitation the expected
growth momentum in PHX Energy's US and international operations;
projected capital expenditure budget and how this budget will be
funded; the expected combined Canadian federal and provincial tax
rate; the impact that remote drilling and Prism Optimization
initiatives will have on Canadian margins in 2014; the ability to
diversify the Corporation's client base in Russia; and expectations
to market RMS' EDR technology.
The above are stated under the headings: "Overall Performance",
"Operating Costs and Expenses", "Segmented Information", "Cash
Requirements for Capital Expenditures" and "Acquisition of
Subsidiaries". Furthermore all statements in the Outlook section of
this document contains forward-looking statements.
In addition to other material factors, expectations and
assumptions which may be identified in this document and other
continuous disclosure documents of the Corporation referenced
herein, assumptions have been made in respect of such
forward-looking statements and information regarding, among other
things: the Corporation 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
Corporation 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 Corporation'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 Corporation's website. The
forward-looking statements and information contained in this
MD&A are expressly qualified by this cautionary statement. The
Corporation 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.
Revenue
(Stated in thousands of dollars)
|
Three-month periods ended December 31, |
Years ended December 31, |
|
2013 |
2012 |
% Change |
2013 |
2012 |
% Change |
Revenue |
115,543 |
79,473 |
45 |
380,663 |
301,720 |
26 |
With the strength of ongoing marketing initiatives, superior
operational performance, and the provision of leading edge
technology solutions, PHX Energy generated all-time records in
quarterly consolidated revenue and operating days for the
three-month period ended December 31, 2013. Consolidated revenue
for the fourth-quarter of 2013 was $115.5 million, compared to
$79.5 million in the comparable 2012-quarter, an increase of 45
percent. Consolidated operating days increased by 37 percent to
9,188 days in 2013 from 6,690 days in the 2012-quarter. For the
three-month period ended December 31, 2013, all three regions,
Canada, US and international, achieved record levels of activity
and revenue for any quarter.
Average consolidated day rates for the three-month period ended
December 31, 2013, excluding the motor rental division in Midland,
Texas and the recently acquired EDR business, were $12,285 which is
5 percent higher compared to the day rates of $11,671 realized in
the fourth quarter of 2012.
Horizontal and directional drilling continues to represent a
large majority of total wells in Canada and the US. In the
2013-quarter, horizontal and directional drilling activity
represented 93 percent of total Canadian industry drilling days
(2012 - 93 percent). In the US, horizontal and directional activity
represented approximately 77 percent of the rigs running per day in
the fourth quarter of 2013 compared to 72 percent in the
2012-quarter. (Sources: Daily Oil Bulletin and Baker Hughes)
For the year ended December 31, 2013, PHX Energy generated
record consolidated revenue of $380.7 million, a 26 percent
increase compared to 2012 revenue of $301.7 million. As a result of
the Corporation's strategic focus to grow its operations outside of
Canada, US and international revenue, as a percentage of total
consolidated revenue, grew to 48 and 13 percent, respectively, for
the 2013-year as compared to 46 and 12 percent in 2012.
Consolidated operating days increased by 23 percent to a record
30,711 days compared to 24,930 in 2012. Average consolidated day
rates for the year ended December 31, 2013, excluding the motor
rental division in Midland, Texas and the EDR business, increased
slightly by 2 percent to $12,124 from $11,903 in 2012.
Operating Costs and Expenses
(Stated in thousands of dollars except percentages)
|
Three-month periods ended December 31, |
Years ended December 31, |
|
2013 |
|
2012 |
|
% Change |
2013 |
|
2012 |
|
% Change |
Direct costs |
93,293 |
|
62,990 |
|
48 |
307,680 |
|
238,168 |
|
29 |
Depreciation & amortization (included in direct costs) |
6,362 |
|
5,800 |
|
10 |
24,403 |
|
21,336 |
|
14 |
Gross profit as percentage of revenue excluding depreciation &
amortization |
25 |
% |
28 |
% |
|
26 |
% |
28 |
% |
|
Direct costs are comprised of field and shop expenses, and
include depreciation and amortization on the Corporation's
equipment. Excluding depreciation and amortization, gross profit as
a percentage of revenue was 25 percent for the three-month period
ended December 31, 2013 as compared to 28 percent in the
2012-quarter. For the year ended December 31, 2013, gross profit as
a percentage of revenue (excluding depreciation and amortization)
was 26 percent as compared to 28 percent in 2012.
The decrease in PHX Energy's margins in the three-month period
and year ended December 31, 2013 is primarily due to the following
factors:
- higher performance drilling motor and MWD system repair costs
in Canada and US,
- higher third party equipment rentals,
- increased field personnel costs in Canada, and
- weaker than expected industry activity levels in Peru and
Colombia.
Management continues to implement several strategies and
initiatives aimed at reducing costs and improving profitability.
For the fourth quarter of 2013, the Corporation's third party
equipment rentals were $3.7 million or 3 percent of consolidated
revenue, as compared to $1.9 million, or 2 percent of revenue, in
the corresponding 2012-quarter. For the year ended December 31,
2013, third party equipment rentals were $13.0 million, or 3
percent of consolidated revenue, versus $8.8 million, or 3 percent
of revenue, in 2012.
Depreciation and amortization for the three-month period ended
December 31, 2013 increased by 10 percent to $6.4 million as
compared to $5.8 million in the 2012-quarter. For the year ended
December 31, 2013, depreciation and amortization increased by 14
percent to $24.4 million from $21.3 million in 2012. The increase
in both periods is the result of the Corporation's high level of
capital expenditure program in 2013.
(Stated in thousands of dollars except percentages)
|
Three-month periods ended December 31, |
|
Years ended December 31, |
|
|
2013 |
|
2012 |
|
% Change |
|
2013 |
|
2012 |
|
% Change |
|
Selling, general and administrative ("SG&A") costs |
13,491 |
|
8,456 |
|
60 |
|
43,632 |
|
34,467 |
|
27 |
|
Share-based payments (included in SG&A costs) |
301 |
|
410 |
|
(27 |
) |
1,061 |
|
2,265 |
|
(53 |
) |
SG&A costs excluding share-based payments as a percentage of
revenue |
11 |
% |
10 |
% |
|
|
11 |
% |
11 |
% |
|
|
SG&A costs for the three-month period ended December 31,
2013 increased by 60 percent to $13.5 million from the $8.5 million
incurred in the 2012-period. Included in SG&A costs are
share-based payments of $0.3 million in the 2013-quarter as
compared to $0.4 million in the 2012-quarter. Excluding these
costs, SG&A costs represented 11 percent of consolidated
revenue in the 2013 three-month period compared to 10 percent in
the 2012-period.
For the year ended December 31, 2013, SG&A costs increased
by 27 percent to $43.6 million as compared to $34.5 million in
2012. Excluding share-based payments of $1.1 million in the
2013-year and $2.3 million in the 2012-year, SG&A costs as a
percentage of consolidated revenue were 11 percent in both
periods.
The increase in SG&A costs, in dollar terms, in both
2013-periods was mainly due to higher payroll and marketing related
costs associated with overall increased activity in all of PHX
Energy's operating segments. In addition, costs were incurred in
relation to the acquisition of RMS and the closure of the Peruvian
subsidiary.
Share-based payments relate to the amortization of the fair
values of issued options of the Corporation using the Black-Scholes
model. In the three-month period and year ended December 31, 2013,
share-based payments decreased by 27 percent and 53 percent,
respectively, as the Corporation shifted to rewarding employees
with retention awards rather than options. Share-based cash settled
retention awards are measured at fair value and in the 2013-quarter
and year ended December 31, 2013, PHX Energy recognized $1.2
million and $2.9 million, respectively, in compensation expense
relating to retention awards (2012 - $0.2 million and $0.9 million,
respectively).
(Stated in
thousands of dollars)
|
Three-month periods ended December 31, |
Years ended December 31, |
|
2013 |
2012 |
% Change |
2013 |
2012 |
% Change |
Research and development expense |
565 |
321 |
76 |
2,004 |
1,985 |
1 |
R&D expenditures charged to net earnings during the
three-month periods ended December 31, 2013 and 2012 were $0.6
million and $0.3 million, respectively. During the 2013-quarter, no
R&D expenditures were capitalized as development costs (2012 -
$39,000).
For the year ended December 31, 2013, R&D expenditures of
$2.0 million were incurred, none of which were capitalized as
development costs. R&D expenditures for the year ended December
31, 2012 were $2.1 million, of which $151,000 were capitalized.
(Stated in thousands of dollars)
|
Three-month periods ended December 31, |
Years ended December 31, |
|
2013 |
2012 |
% Change |
2013 |
2012 |
% Change |
Finance expense |
1,131 |
1,091 |
4 |
4,789 |
3,233 |
48 |
Finance expenses relate to interest charges on the Corporation's
long-term and short-term bank facilities. For the three-month
period ended December 31, 2013, finance charges were $1.1 million,
which is comparable to finance charges incurred in the 2012-period.
In the 2013-year, finance charges increased by 48 percent to $4.8
million from $3.2 million in 2012. In order to fund PHX Energy's
capital expenditure programs in 2012 and 2013 and the construction
of the new operations centre in 2013 that was sold in September,
additional bank borrowings were made in the 2013-year.
(Stated in thousands of dollars)
|
Three-month periods ended December 31, |
|
Years ended December 31, |
|
|
2013 |
|
2012 |
|
2013 |
|
2012 |
|
Gains
from pre-existing ownership interest in RMS and RMII |
14,758 |
|
- |
|
14,758 |
|
- |
|
Net
gain on disposition of drilling equipment |
3,488 |
|
575 |
|
7,419 |
|
2,727 |
|
Gain
on sale of land and operations centre |
- |
|
- |
|
2,196 |
|
- |
|
Write-down of technological assets |
- |
|
- |
|
(1,245 |
) |
- |
|
Foreign exchange gains (losses) |
297 |
|
(89 |
) |
(232 |
) |
(1,267 |
) |
Provision for bad debt |
(88 |
) |
(108 |
) |
(60 |
) |
(15 |
) |
Losses from the change in fair value of investment in equity
securities |
- |
|
- |
|
- |
|
(490 |
) |
Other income |
18,455 |
|
378 |
|
22,836 |
|
955 |
|
For the three-month period and year ended December 31, 2013, PHX
Energy recognized a total gain of $14.8 million from the
re-measurement to fair value of the Corporation's pre-existing
39.85 percent interest in RMS and its 50 percent interest in RMII.
This gain is comprised of a gain of $11.3 million related to the
re-measurement of RMS ($15.0 million less the $3.7 million carrying
amount of equity-accounted investee at the acquisition date) and a
gain of $3.4 million related to the re-measurement of RMII ($7.0
million less the $3.6 million carrying amount of equity-accounted
investee at the acquisition date). In addition, included in other
income is a gain of $2.2 million that resulted from the sale of
land and an operations centre on September 17, 2013.
For the three-month period and year ended December 31, 2013, PHX
Energy realized gains on disposition of drilling equipment of $3.5
million (2012 - $0.6 million) and $7.4 million (2012 - $2.7
million), respectively. The dispositions of drilling equipment
relate primarily to equipment lost in well bores that are
uncontrollable in nature. The gain reported is net of any asset
retirements that are made before the end of the equipment's useful
life and self-insured down hole equipment losses, if any. Gains
typically result from insurance programs undertaken whereby
proceeds for the lost equipment are at current replacement values,
which are higher than the respective equipment's book value. In
2013, the Corporation also recognized a $1.2 million write-down of
certain assets, whereby the technology is no longer being utilized.
For the three-month period and year ended December 31, 2013, the
gains on disposition of drilling equipment are higher compared to
the 2012-periods mainly due to higher occurrences of down hole
equipment losses in 2013-year.
For the three-month period ended December 31, 2013, the
Corporation recognized foreign exchange gains of $0.3 million (2012
- foreign exchange losses of $0.1 million) and a bad debt provision
of $0.1 million (2012 - $0.1 million). For the year ended December
31, 2013, other expenses offsetting other income include foreign
exchange losses of $0.2 million (2012 - $1.3 million) and bad debt
provisions of $59,000 (2012 - $15,000).
Foreign exchange gains in the 2013-quarter and foreign exchange
losses in the 2013-year resulted mainly from fluctuations in the
RUR-Canadian and US-Canadian exchange rates that caused revaluation
gains and losses on Canadian-denominated payables and receivables
in Russia and the US, respectively. In the 2012-periods, foreign
exchange losses resulted mainly from the devaluation of Albanian
lek against the Canadian currency.
(Stated in
thousands of dollars)
|
Three-month periods ended December 31, |
Years ended December 31, |
|
2013 |
2012 |
% Change |
2013 |
2012 |
% Change |
Share of losses of equity-accounted investees |
642 |
310 |
107 |
1,947 |
553 |
252 |
Prior to the acquisition of RMS and RMII on November 28, 2013,
the Corporation recognized losses of $0.6 million and $1.9 million
in the three-month period and year ended December 31, 2013,
respectively, as its share in the losses of the previously
equity-accounted investees, RMS and RMII. In the 2012-quarter and
year, the Corporation's share in the losses of RMS and RMII were
$0.3 million and $0.6 million, respectively.
(Stated in thousands of dollars)
|
Three-month periods ended December 31, |
|
Years ended December 31, |
|
|
2013 |
|
2012 |
|
2013 |
|
2012 |
|
Provision for income taxes |
2,618 |
|
2,147 |
|
6,880 |
|
6,561 |
|
Effective tax rates |
11 |
% |
32 |
% |
16 |
% |
27 |
% |
The provision for income taxes for the three-month period ended
December 31, 2013 was $2.6 million as compared to $2.1 million in
the 2012-period. For the year ended December 31, 2013, the
provision for income taxes was $6.9 million as compared to $6.6
million in 2012. The expected combined Canadian federal and
provincial tax rate for 2013 is 25 percent. The effective tax rates
in the three-month period and year ended December 31, 2013 of 11
percent and 16 percent, respectively, are lower than the expected
rate primarily due to non-taxable accounting gains from the
re-measurement to fair value of pre-existing ownership interests in
RMS and RMII and the effect of lower tax rates in foreign
jurisdictions.
(Stated in thousands of dollars except per share amounts and
percentages)
|
Three-month periods ended December 31, |
Years ended December 31, |
|
2013 |
|
2012 |
|
% Change |
2013 |
|
2012 |
|
% Change |
Net
earnings |
22,259 |
|
4,537 |
|
391 |
36,567 |
|
17,707 |
|
107 |
Earnings per share - diluted |
0.68 |
|
0.16 |
|
325 |
1.23 |
|
0.63 |
|
95 |
EBITDA |
32,369 |
|
13,575 |
|
138 |
72,639 |
|
48,837 |
|
49 |
EBITDA per share - diluted |
0.99 |
|
0.48 |
|
106 |
2.45 |
|
1.73 |
|
42 |
EBITDA as a percentage of revenue |
28 |
% |
17 |
% |
|
19 |
% |
16 |
% |
|
The Corporation's level of net earnings and EBITDA in the
three-month period and year ended December 31, 2013 increased
mainly due to stronger activity levels realized across all
operating segments, a $14.8 million gain from the re-measurement to
fair value of pre-existing ownership interests in RMS and RMII, and
a $2.2 million gain on the sale of land and an operations centre.
EBITDA as a percentage of revenue for the three-month period ended
December 31, 2013 was 28 percent (2012 - 17 percent) and for the
2013-year was 19 percent (2012 - 16 percent). Also included in the
2013-year's earnings was $1.2 million that related to the write-off
of certain tools as the technology is no longer being utilized,
$1.9 million of the Corporation's share in the losses of previously
equity-accounted investees, RMS and RMII, and $0.7 million of
losses from RMS and RMII for the 33-day period from the date of
acquisition, November 28, 2013, to December 31, 2013.
The level of net
earnings and EBITDA for the three-month period ended December 31,
2013, excluding the gains from the re-measurement to fair value of
pre-existing ownership interests in RMS and RMII and for the year
ended December 31, 2013, excluding the gains from the
re-measurement to fair value of pre-existing ownership interests in
RMS and RMII, the gain on sale of land and operations centre, and
the write-off of tools are as follows:
(Stated in thousands of dollars except per share amounts and
percentages)
|
Three-month periods ended December 31, |
Years ended December 31, |
|
2013 |
|
2012 |
|
% Change |
2013 |
|
2012 |
|
% Change |
Net
earnings |
7,501 |
|
4,537 |
|
65 |
20,858 |
|
17,707 |
|
18 |
Earnings per share - diluted |
0.23 |
|
0.16 |
|
44 |
0.70 |
|
0.63 |
|
11 |
Adjusted EBITDA |
17,611 |
|
13,575 |
|
30 |
56,930 |
|
48,837 |
|
17 |
Adjusted EBITDA per share - diluted |
0.54 |
|
0.48 |
|
13 |
1.92 |
|
1.73 |
|
11 |
Adjusted EBITDA as a percentage of revenue |
15 |
% |
17 |
% |
|
15 |
% |
16 |
% |
|
The increase in
adjusted EBITDA and net earnings for the 2013 three and
twelve-month periods are generally due to activity growth realized
in all of the Corporation's operating regions.
Segmented Information:
The Corporation reports three operating segments on a
geographical basis throughout the Canadian provinces of Alberta,
Saskatchewan, British Columbia, and Manitoba; throughout the Gulf
Coast, Northeast and Rocky Mountain regions of the US; and
internationally in Albania, Russia and Colombia.
Canada
(Stated in thousands of dollars)
|
Three-month periods ended December 31, |
|
Years ended December 31, |
|
|
2013 |
2012 |
% Change |
|
2013 |
2012 |
% Change |
|
Revenue |
47,521 |
32,344 |
47 |
|
146,896 |
126,712 |
16 |
|
Reportable segment profit before tax |
2,624 |
6,833 |
(62 |
) |
20,175 |
27,953 |
(28 |
) |
PHX Energy's Canadian revenue increased by 47 percent to a
quarterly record of $47.5 million (2012 - $32.3 million) and
operating days increased by 47 percent to a record 4,166 days (2012
- 2,829 days). In comparison, total industry horizontal and
directional drilling activity, as measured by drilling days, was 4
percent higher in the 2013-quarter, 30,493 days, compared to the
2012-quarter's 29,264 days. (Source: Daily Oil Bulletin) Average
day rates changed slightly at $11,407 in the 2013-quarter compared
to $11,433 in the 2012-quarter.
With more horizontal wells being drilled, industry activity in
terms of days is greater as horizontal wells are typically longer;
however, the average rig count was relatively flat with an average
of 370 rigs running per day in the 2013-quarter as compared to 363
rigs in the comparable 2012-period. There was continued pressure on
Canadian day rates in the 2013-quarter due to the stagnant rig
count and the resultant competition in the market.
In the 2013-quarter, PHX Energy built up a diverse customer base
and realized a strong presence in the Montney. In addition,
Canadian operations in the quarter were active in the Viking,
Cardium, Shaunavon, Bakken, and Frobisher areas. The Corporation is
experiencing a trend toward greater activity in liquids rich
natural gas, where approximately 41 percent of fourth quarter
operating days were gas wells.
For the year ended December 31, 2013, the Corporation's Canadian
revenue was $146.9 million, which is 16 percent higher than the
$126.7 million generated in the 2012-year. The number of horizontal
and directional operating days realized in the Canadian industry
during the 2013-year decreased by 7 percent to 109,824 days as
compared to 118,066 days in 2012. (Source: Daily Oil Bulletin) In
comparison, the Corporation's Canadian drilling days increased by
22 percent to 12,901 days in the 2013-year from 10,567 days in
2012.
Reportable segment profit before tax for the three-month period
ended December 31, 2013 decreased to $2.6 million from $6.8 million
in the 2012-quarter. For the year ended December 31, 2013,
reportable segment profit before tax decreased by 28 percent to
$20.2 million from $28.0 million in 2012. The decrease in the
Canadian segment profit for both 2013-periods was due mainly to the
following factors:
- higher performance drilling motor and MWD system repair
costs,
- higher third party equipment rentals,
- greater selling, general and administrative expenses as a
result of increased level of activity and higher number of
personnel, and
- increased field personnel costs.
Also included in PHX Energy's Canadian earnings for the
2013-quarter are losses of $0.7 million from RMS and RMII.
Given the challenges in the Canadian market, PHX Energy is
committed to implementing and growing initiatives that aim to
provide its customers exceptional service and create drilling
efficiencies. In late 2013, the Corporation aimed to increase the
utilization of its remote drilling services, which focus on
reducing operators' costs by centralizing logging services.
Additionally, PHX Energy is growing its Prism Drilling Optimization
operations, whereby real-time solutions for improved drilling
practices are provided by a team of technical experts. It is
expected that both these initiatives will provide a positive impact
on Canadian margins in 2014.
United States
(Stated in thousands of dollars)
|
Three-month periods ended December 31, |
Years ended December 31, |
|
2013 |
2012 |
% Change |
2013 |
2012 |
% Change |
Revenue |
53,094 |
37,824 |
40 |
182,695 |
137,712 |
33 |
Reportable segment profit before tax |
4,692 |
2,068 |
127 |
5,967 |
4,478 |
33 |
PHX Energy's US operations had record quarterly activity and
revenues in two of its three operating regions. For the three-month
period ended December 31, 2013, US revenue of $53.1 million was
generated compared to $37.8 million in the 2012-period; a 40
percent increase. The Corporation's US operating days in the fourth
quarter increased by 22 percent to 3,851 days from 3,152 days in
the 2012-quarter. Average day rates in the US, excluding the motor
rental division in Midland, Texas, increased by 15 percent to
CDN$13,242 in the 2013-quarter compared to CDN$11,557 in the
corresponding 2012-period. This increase is attributable to the
increased utilization of the Corporation's value added
technologies, such as its RWD technology, aided by a stronger US
dollar in the 2013-period.
In the fourth quarter of 2013, US industry activity, as measured
by the average number of horizontal and directional rigs running on
a daily basis, increased by 3 percent to 1,348 rigs from 1,303 rigs
in 2012. (Source: Baker Hughes). Phoenix USA's success in exceeding
industry activity levels are a direct result of the efforts to
strengthen its marketing and operations teams over the past few
periods which has resulted in a more diversified client base. The
most active basins for the Corporation in the quarter were the
Permian, Marcellus, Bakken, Eagle Ford and
Mississippian/Woodford.
Horizontal oil well drilling represented approximately 68
percent of Phoenix USA's overall activity, as measured by drilling
days, in the fourth quarter of 2013 as compared to 49 percent in
the 2012-quarter.
For the year ended December 31, 2013, Phoenix USA generated a
record level of revenue, $182.7 million which was 33 percent higher
than the $137.7 million reported in the 2012-year. Excluding the
motor rental division in Midland, Texas, Phoenix USA achieved a 9
percent increase in its average day rates, which were CDN$12,509 in
2013 as compared to CDN$11,508 in 2012. The Corporation's US
operating days also increased by 21 percent to 13,985 days in the
2013-year compared to 11,534 days in 2012-year. In comparison, US
industry activity, as measured by the average number of horizontal
and directional rigs running on a daily basis, decreased by 3
percent to 1,326 rigs in 2013 compared to 1,367 rigs in 2012.
(Source: Baker Hughes)
Reportable segment profit before tax for the three-month period
ended December 31, 2013 increased to $4.7 million from $2.1 million
in the 2012-period; a 127 percent increase. For the year ended
December 31, 2013, reportable segment profit before tax increased
by 33 percent to $6.0 million from $4.5 million in 2012. The
increase in profitability and improved margins in both periods was
primarily due to higher activity and improved day rates.
International
(Stated in thousands of dollars)
|
Three-month periods ended December 31, |
Years ended December 31, |
|
2013 |
2012 |
% Change |
2013 |
2012 |
% Change |
Revenue |
14,928 |
9,305 |
60 |
51,072 |
37,296 |
37 |
Reportable segment profit before tax |
4,441 |
898 |
395 |
13,987 |
6,786 |
106 |
Lead by strong activity in Russia and solid Albanian operations,
the Corporation achieved a record level of quarterly activity and
revenue in the fourth-quarter of 2013. For the three-month period
ended December 31, 2013, international revenue increased by 60
percent to $14.9 million from $9.3 million in the 2012-period.
International operating days increased by 65 percent from 710 days
in the 2012-quarter to 1,170 days in the 2013-quarter. The
Corporation generated 13 percent of its consolidated revenue from
international operations in the fourth quarter of 2013 compared to
12 percent in 2012.
For the year ended December 31, 2013, revenue increased by 37
percent to $51.1 million as compared to $37.3 million in 2012.
Growth in Russian activity mainly contributed to a 35 percent
increase in operating days, from 2,830 days in 2012 to 3,825 days
in 2013. These were both yearly records for the Corporation's
international segment.
Albanian activity in the fourth quarter of 2013 was relatively
consistent with that in the 2012-quarter, as Phoenix Albania
continued to operate on 5 consecutive rigs for most of the
2013-year. RMII's EDR systems also continued to run on all 5 rigs.
Operating days in the 2013-quarter increased 13 percent as compared
to the 2012-quarter and revenue increased at a greater rate due to
the premium charged for the value added services deployed. In 2013,
Phoenix Albania drilled 145 wells. The Corporation continues to
employee local Albanian staff, which has created efficiencies and
at the same time, goodwill by supporting the local economy. Phoenix
Albania remains the largest portion of PHX Energy's international
revenue and the Corporation presently has a 6 job capacity in
Albania.
Phoenix Russia experienced exceptional growth in the fourth
quarter of 2013 and for the 2013-year as compared to comparable
2012-periods, increasing revenue by 186 and 110 percent,
respectively. In Russia there are currently 100 employees, of which
98 are Russian nationals. The Corporation has positioned itself as
a Russian company with western technology and processes and this
has allowed for the successful penetration into the western
Siberian market. As a result of activity in 2013-year, Phoenix
Russia has solidified its presence as a credible horizontal and
directional drilling service provider in this strategic market, and
the Corporation will continue to diversify its client base which is
critical for ongoing success in 2014. The Corporation presently has
a 15 job capacity in Russia.
In Colombia, the Corporation realized strong growth in the
2013-quarter as compared to the comparable 2012-period. However,
the overall activity realized in the 2013-year was below
expectations generally due to relatively weak market conditions in
the country. PHX Energy is currently examining strategies and
structures with the aim of becoming more profitable in the
2014-year. The Corporation's operations in Colombia currently have
a 4 job capacity.
Given the poor market conditions that persisted in Peru during
2013 and the limited future growth opportunities forecasted, PHX
Energy made the decision to cease operations and withdraw from this
market in the fourth quarter. The Corporation is in the process of
re-allocating the assets that were in this region to more strategic
areas for greater utilization in the future.
For the three-month period ended December 31, 2013, reportable
segment profit before tax was $4.4 million compared to $0.9 million
in the corresponding 2012-period; a 395 percent increase.
Reportable segment profit before tax for the year ended December
31, 2013 was $14.0 million as compared to $6.8 million in 2012; a
106 percent increase. Strong activity levels in Albania and Russia
were the main factors in the international segment's improved
profitability.
Investing Activities
Net cash used in investing activities for the year ended
December 31, 2013 was $21.5 million as compared to $64.7 million in
2012. During the 2013-year, PHX Energy added $28.4 million net in
capital equipment (2012 - $42.4 million). These capital equipment
amounts are net of proceeds from the involuntary disposal of
drilling equipment in well bores of $13.4 million (2012 - $9.0
million). The 2013 capital expenditures included:
- $15.8 million in MWD systems and spare components;
- $14.4 million in down hole performance drilling motors;
- $3.1 million in non-magnetic drill collars and jars;
- $2.4 million in software, network, and computers;
- $2.2 million in machinery and equipment for global service
centres;
- $2.1 million in leasehold improvements and furniture and
fixtures; and
- $1.8 million in other assets, including costs of $1.0 million
relating to a motor facility in the Rocky Mountain region, vehicles
of $0.5 million and EDR systems of $0.4 million.
The capital expenditure program undertaken in the year was
financed from a combination of cash flow from operations, long-term
debt, equity financing, and working capital.
During the year, the Corporation received proceeds of $23.1
million from the sale of land and an operations centre. Payments
relating to the land and operations centre amounted to $18.9
million. The change in non-cash working capital balances of $10.8
million (source of cash) for the year ended December 31, 2013
pertains to $9.4 million of costs that relate to the land and an
operations centre and $1.4 million of net change in the
Corporation's trade payables that are associated with the
acquisition of capital assets. This compares to $16.2 million (use
of cash) for the year ended December 31, 2012.
The Corporation made payments totalling $4.3 million under third
party license and technology development agreements that the
Corporation entered into in the second quarter of 2013. PHX Energy
also made additional investments of $3.0 million and $1.2 million
in RMS and RMII, respectively, earlier in the year, and acquired
$0.3 million of cash upon the acquisition of RMII.
Financing Activities
The Corporation reported cash flows used in financing activities
of $12.5 million in 2013 as compared to $27.6 million (source of
cash) in 2012. In the 2013-year:
- through a short form prospectus equity financing and a
concurrent private placement, the Corporation realized net proceeds
of $34.3 million through the issuance of 3,490,000 common
shares;
- the Corporation made an aggregate re-payments of $31.7 million
on its operating facility and syndicated facility;
- the Corporation paid dividends of $21.4 million to
shareholders, or $0.73 per share; and
- through its option and DRIP programs the Corporation received
cash proceeds of $6.3 million to acquire 714,903 common shares of
the Corporation.
Equity Financing
On October 18, 2013, PHX Energy closed a bought deal financing
pursuant to a short form prospectus offering for aggregate gross
proceeds of $31.1 million. An aggregate of 2,990,000 common shares
of the Corporation were issued at a price of $10.40 per common
share. Concurrent with the closing of the public offering, certain
directors, officers and employees of PHX Energy and their
associates, purchased a total of 500,000 common shares at a price
of $10.40 per share on a private placement basis. The gross
proceeds from the public offering and concurrent private placement
totaled to approximately $36.3 million. The net proceeds of the
offerings were used to temporarily reduce indebtedness, which were
then made available to be re-drawn and applied to fund the
Corporation's ongoing capital expenditure program and for general
corporate purposes.
Acquisition of Subsidiaries
On May 29, 2013, the Corporation completed the purchase of
20,000,000 common shares of RMS at a price of $0.15 per common
share, or $3.0 million, through a private placement, thereby
increasing PHX Energy's ownership interest in RMS to 39.8 percent
at that time from 19.5 percent at the end of 2012. On July 10,
2013, the Corporation subscribed for RMII's preferred shares for
$1.0 million.
On September 25, 2013, PHX Energy and RMS entered into an
Arrangement Agreement whereby the Corporation agreed to acquire all
of the issued and outstanding shares of RMS pursuant to a plan of
arrangement under the Business Corporations Act (Alberta) (the
"Arrangement"). Under the terms of the Arrangement, all
shareholders of RMS received 0.037209 of a common share of PHX
Energy for each RMS share held. Upon the completion of the
Arrangement on November 28, 2013, RMS became a wholly-owned
subsidiary of the Corporation. RMS was also PHX Energy's only
partner to the joint venture entity, RMII. As a result of the
acquisition of RMS, RMII also became a wholly-owned subsidiary of
the Corporation. RMS and PHX Energy were subsequently amalgamated
on January 1, 2014.
The acquisition of RMS and RMII will allow PHX Energy to access
the information and data management segment of the oilfield
services industry, which compliments the Corporation's current
services. RMS has completed upgrades to its technology to create a
more competitive product. PHX Energy expects that it can
successfully market this technology through its existing client
relationships and will be able to expand market share by leveraging
its existing infrastructure in different geographical areas.
Capital Resources
As at December 31, 2013, the Corporation has access to a $10.0
million operating facility. The facility bears interest based
primarily on the Corporation's senior debt to EBITDA ratio, as
defined in the agreement. At the Corporation's option, interest is
at the bank's prime rate plus a margin that ranges from a minimum
of 0.75 percent to a maximum of 2 percent, or the bank's bankers'
acceptance rate plus a margin that ranges from a minimum of 1.75
percent to a maximum of 3 percent. As of December 31, 2013, the
Corporation had nil drawn on this facility.
As at December 31, 2013, the Corporation also has access to a
$95.0 million syndicated facility and a US$25.0 million operating
facility in the US. The facilities bear interest at the same rates
disclosed above. On August 7, 2013, the terms of the Corporation's
syndicated loan agreement with its bank were amended to extend the
maturity date of the syndicated facility and US operating facility
from September 6, 2015 to September 5, 2016. The aggregate carrying
amounts of the syndicated facility and the US operating facility of
$50.0 million and $20.2 million, respectively, as at December 31,
2013, were classified as non-current in the statement of financial
position.
All credit facilities are secured by a general security
agreement over all assets of the Corporation located in Canada and
the US. As at December 31, 2013, the Corporation was in compliance
with all of its bank debt covenants.
Ratio |
Covenant |
As at December 31, 2013 |
Senior debt to EBITDA |
< or = 3.00:1.00 |
1.03:1.00 |
Working capital ratio |
> or = 1.25:1.00 |
1.96:1.00 |
Interest coverage ratio |
> or = 3.00:1.00 |
14.23:1.00 |
Cash Requirements for Capital Expenditures
Historically, the Corporation has financed its capital
expenditures and acquisitions through cash flows from operating
activities, debt and equity. The 2014 capital budget has been set
at $34.7 million subject to quarterly review of the Board of
Directors. These planned expenditures are expected to be financed
from a combination of one or more of the following, cash flow from
operations, the Corporation's unused credit facilities or equity,
if necessary. However, if a sustained period of market uncertainty
and financial market volatility persists in 2014, the Corporation's
activity levels, cash flows and access to credit may be negatively
impacted, and the expenditure level would be reduced accordingly.
Conversely, if future growth opportunities present themselves, the
Corporation would look at expanding this planned capital
expenditure amount.
Outlook
Throughout 2013 PHX Energy forecasted that operations would
exceed activity levels in 2012, and announced increased operating
days in each quarter of the year. In the fourth quarter this
performance continued and the Corporation is pleased to announce it
ended the year with all-time record revenue and activity.
To operate at this record level, qualified personnel and
reliable equipment must be delivered to each well site. This meant
hiring and training new employees, maximizing equipment
utilization, reducing equipment turnaround time and renting
components when demand exceeded capacity. These activities, along
with other factors, created downward pressure on operating margins.
Although activity was robust and capital expenditures related to
equipment expansion is ongoing, additions to the MWD fleet were and
will continue to be limited as PHX Energy is developing a new
platform which it believes will propel future growth when
commercial.
In Canada, a robust winter drilling season created positive
results for PHX Energy. In certain basins, particularly those
focused on horizontal applications, drilling continued through the
typically slower holiday season. The Corporation therefore
sustained a steadier pace through December.
PHX Energy has operated in the US for over a decade and this is
presently the largest horizontal drilling market in the world. The
Corporation set a strategic direction to capture a greater share of
this market and in the fourth quarter of 2013, US operations
achieved new financial and operating benchmarks. Given the
opportunity created by the US industry's sheer size, it remains a
targeted area of growth for PHX Energy.
International records were set during the fourth quarter as a
result of Russian growth adding to the consistent performance in
Albania. PHX Energy believes it can continue this positive momentum
in Russia as it is a large market with a healthy demand for
horizontal and directional drilling services. Additionally, the rig
count outside of North America is large, and an increasing number
of areas are adopting horizontal drilling techniques. As such, PHX
Energy remains posed to evaluate future opportunities that may
materialize.
PHX Energy's outlook for 2014 is positive as it forecasts
operations will continue to generate operating day growth
quarter-over-quarter, exceeding the already robust 2013 levels.
However, the Corporation cautions that the rate of growth achieved
in the past quarters will be most difficult to maintain and
operating at peak levels can potentially erode operating margins.
The 2014 strategy is heavily focused on managing costs and
capturing additional revenue streams to strengthen operating
margins and although the tactics to do so will take time to
implement, the Corporation believes an impact will be seen before
the end of the year.
John Hooks, Chairman of the
Board, President and Chief Executive Officer
February 26, 2014
Non-GAAP Measures
1) EBITDA
EBITDA, defined as earnings before interest, taxes, depreciation
and amortization, is not a financial measure that is recognized
under GAAP. However, Management believes that EBITDA provides
supplemental information to net earnings that is useful in
evaluating the Corporation's operations before considering how it
was financed or taxed in various countries. Investors should be
cautioned, however, that EBITDA should not be construed as an
alternative measure to net earnings determined in accordance with
GAAP. PHX Energy's method of calculating EBITDA may differ from
that of other organizations and, accordingly, its EBITDA may not be
comparable to that of other companies.
The following is a reconciliation of net earnings to EBITDA:
(Stated in thousands of dollars)
|
Three-month periods ended December 31, |
Years ended December 31, |
|
2013 |
2012 |
2013 |
2012 |
Net
earnings |
22,259 |
4,537 |
36,567 |
17,707 |
Add: |
|
|
|
|
Depreciation and amortization |
6,362 |
5,800 |
24,403 |
21,336 |
Provision for income taxes |
2,617 |
2,147 |
6,880 |
6,561 |
Finance expense |
1,131 |
1,091 |
4,789 |
3,233 |
EBITDA as reported |
32,369 |
13,575 |
72,639 |
48,837 |
EBITDA per share - diluted is calculated using the treasury
stock method whereby deemed proceeds on the exercise of the share
options are used to reacquire common shares at an average share
price. The calculation of EBITDA per share on a dilutive basis does
not include anti-dilutive options.
2) Funds from Operations
Funds from operations is defined as cash flows generated from
operating activities before changes in non-cash working capital.
This is not a measure recognized under GAAP. Management uses funds
from operations as an indication of the Corporation's ability to
generate funds from its operations before considering changes in
working capital balances. Investors should be cautioned, however,
that this financial measure should not be construed as an
alternative measure to cash flows from operating activities
determined in accordance with GAAP. PHX Energy's method of
calculating funds from Operations may differ from that of other
organizations and, accordingly, it may not be comparable to that of
other companies.
The following is a reconciliation of cash flows from operating
activities to funds from operations:
(Stated in thousands of dollars)
|
Three-month periods ended December 31, |
|
Years ended December 31, |
|
2013 |
|
2012 |
|
2013 |
|
2012 |
Cash
flows from operating activities |
17,367 |
|
13,748 |
|
35,378 |
|
33,070 |
Add
(deduct): |
|
|
|
|
|
|
|
Changes in non-cash working capital |
(3,972 |
) |
(1,285 |
) |
12,254 |
|
13,054 |
Interest paid |
1,469 |
|
866 |
|
4,201 |
|
2,863 |
Income taxes paid |
297 |
|
561 |
|
1,327 |
|
1,634 |
Funds from operations |
15,161 |
|
13,890 |
|
53,160 |
|
50,621 |
Funds from operations per share - diluted is calculated using
the treasury stock method whereby deemed proceeds on the exercise
of the share options are used to reacquire common shares at an
average share price. The calculation of funds from operations per
share on a dilutive basis does not include anti-dilutive
options.
3) Senior Debt to EBITDA Ratio
Senior debt is represented by loans and borrowings. EBITDA, for
purposes of the calculation of this covenant ratio, is represented
by EBITDA as defined in Non-GAAP Measures above and adding
share-based payments less interest and income taxes paid.
4) Adjusted EBITDA
Adjusted EBITDA, defined as earnings before interest, taxes,
depreciation and amortization, gains from the re-measurement to
fair value of pre-existing ownership interests in RMS and RMII,
gains on sale of land and operations centre, and write-off of
tools, is not a financial measure that is recognized under GAAP.
However, Management believes that adjusted EBITDA provides
supplemental information to net earnings that is useful in
evaluating the Corporation's operations before considering how it
was financed or taxed in various countries and excluding
extraordinary items. Investors should be cautioned, however, that
adjusted EBITDA should not be construed as an alternative measure
to net earnings determined in accordance with GAAP. PHX Energy's
method of calculating adjusted EBITDA may differ from that of other
organizations and, accordingly, its adjusted EBITDA may not be
comparable to that of other companies.
The following is a reconciliation of net earnings to adjusted
EBITDA:
(Stated in thousands of dollars)
|
Three-month periods ended December 31, |
Years ended December 31, |
|
2013 |
|
2012 |
2013 |
|
2012 |
Net
earnings |
22,259 |
|
4,537 |
36,567 |
|
17,707 |
Add: |
|
|
|
|
|
|
Depreciation and amortization |
6,362 |
|
5,800 |
24,403 |
|
21,336 |
Provision for income taxes |
2,617 |
|
2,147 |
6,880 |
|
6,561 |
Finance expense |
1,131 |
|
1,091 |
4,789 |
|
3,233 |
EBITDA as reported |
32,369 |
|
13,575 |
72,639 |
|
48,837 |
Add
(deduct): |
|
|
|
|
|
|
Gains
from pre-existing ownership interest in RMS and RMII |
(14,758 |
) |
- |
(14,758 |
) |
- |
Gain
on sale of land and operations centre |
- |
|
- |
(2,196 |
) |
- |
Write-down of technological assets |
- |
|
- |
1,245 |
|
- |
Adjusted EBITDA as reported |
17,611 |
|
13,575 |
56,930 |
|
48,837 |
Adjusted EBITDA per share - diluted is calculated using the
treasury stock method whereby deemed proceeds on the exercise of
the share options are used to reacquire common shares at an average
share price. The calculation of adjusted EBITDA per share on a
dilutive basis does not include anti-dilutive options.
About PHX Energy Services Corp.
The Corporation, through its directional drilling subsidiary
entities, provides horizontal and directional drilling technology
and services to oil and natural gas producing companies in Canada,
the US, Albania, Russia, and Colombia. PHX Energy develops and
manufactures its E-360 EM and P-360 positive pulse MWD technologies
that are made available for internal operational use. In addition,
PHX Energy, with the acquisition of RMS Systems Inc., provides EDR
technology and services through newly establish subsidiaries.
PHX Energy's Canadian operations are conducted through Phoenix
Technology Services LP. The Corporation maintains its corporate
head office, research and development, Canadian sales, service and
operational centres in Calgary, Alberta. In addition, PHX Energy
has a facility in Estevan, Saskatchewan. PHX Energy's US
operations, conducted through the Corporation's wholly-owned
subsidiary, Phoenix Technology Services USA Inc. ("Phoenix USA"),
is headquartered in Houston, Texas. Phoenix USA has sales and
service facilities in Houston, Texas; Traverse City, Michigan;
Casper, Wyoming; Denver, Colorado; Fort Worth, Texas; Midland,
Texas; Buckhannon, West Virginia; Pittsburgh, Pennsylvania; and
Oklahoma City, Oklahoma. Internationally, PHX Energy has sales
offices and service facilities in Albania, Russia, and Colombia,
and an administrative office in Nicosia, Cyprus.
As at December 31, 2013, PHX Energy had 1,011 full-time
employees and the Corporation utilized over 200 additional field
consultants in 2013.
The common shares of PHX Energy trade on the Toronto Stock
Exchange under the symbol PHX.
Consolidated Statements of Financial Position
|
December 31, 2013 |
December 31, 2012 |
|
ASSETS |
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
Cash
and cash equivalents |
$ |
5,663,880 |
$ |
4,329,969 |
|
|
Trade
and other receivables |
|
97,660,559 |
|
67,189,884 |
|
|
Inventories |
|
30,024,019 |
|
21,833,051 |
|
|
Prepaid expenses |
|
2,913,514 |
|
3,476,559 |
|
|
Assets held for sale |
|
- |
|
9,436,462 |
|
|
Total
current assets |
|
136,261,972 |
|
106,265,925 |
|
|
|
|
|
|
|
Non-current assets: |
|
|
|
|
|
|
Drilling and other equipment |
|
165,771,615 |
|
144,370,109 |
|
|
Goodwill |
|
31,229,756 |
|
8,876,351 |
|
|
Intangible assets |
|
17,113,924 |
|
- |
|
|
Equity-accounted investees |
|
- |
|
5,010,292 |
|
|
Total
non-current assets |
|
214,115,295 |
|
158,256,752 |
|
|
|
|
|
|
|
Total assets |
$ |
350,377,267 |
$ |
264,522,677 |
|
LIABILITIES AND SHAREHOLDERS' EQUITY |
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
Operating facility |
$ |
- |
$ |
5,897,711 |
|
|
Trade
and other payables |
|
64,815,732 |
|
38,165,118 |
|
|
Dividends payable |
|
2,239,910 |
|
1,626,287 |
|
|
Current tax liabilities |
|
2,410,198 |
|
97,020 |
|
|
Current portion of finance leases |
|
215,697 |
|
- |
|
|
Loans and borrowings |
|
- |
|
15,000,000 |
|
|
Total
current liabilities |
|
69,681,537 |
|
60,786,136 |
|
|
|
|
|
|
|
Non-current liabilities: |
|
|
|
|
|
|
Loans
and borrowings |
|
70,208,400 |
|
80,000,000 |
|
|
Deferred tax liabilities |
|
9,833,710 |
|
8,641,858 |
|
|
Deferred income |
|
1,966,667 |
|
- |
|
|
Finance leases |
|
209,935 |
|
- |
|
Total non-current liabilities |
|
82,218,712 |
|
88,641,858 |
|
|
|
|
|
|
|
Equity: |
|
|
|
|
|
|
Share
capital |
|
165,451,599 |
|
99,101,118 |
|
|
Contributed surplus |
|
6,361,710 |
|
7,860,658 |
|
|
Retained earnings |
|
24,284,690 |
|
9,764,748 |
|
|
Accumulated other comprehensive income |
|
2,379,019 |
|
(1,631,841 |
) |
|
Total
equity |
|
198,477,018 |
|
115,094,683 |
|
|
|
|
|
|
|
Total liabilities and equity |
$ |
350,377,267 |
$ |
264,522,677 |
|
Consolidated Statements of Comprehensive Income
Three-month periods ended December 31, |
|
Years ended December 31, |
|
|
2013 |
|
2012 |
|
2013 |
|
2012 |
|
|
(unaudited) |
|
(unaudited) |
|
|
|
|
|
Revenue |
$ |
115,542,950 |
|
$ |
79,473,206 |
|
$ |
380,663,302 |
|
$ |
301,719,813 |
|
Direct costs |
|
93,293,464 |
|
|
62,989,673 |
|
|
307,680,358 |
|
|
238,167,915 |
|
Gross profit |
|
22,249,486 |
|
|
16,483,533 |
|
|
72,982,944 |
|
|
63,551,898 |
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses |
|
13,490,502 |
|
|
8,456,052 |
|
|
43,632,454 |
|
|
34,466,938 |
|
|
Research and development expenses |
|
564,883 |
|
|
320,810 |
|
|
2,004,384 |
|
|
1,985,404 |
|
|
Finance expense |
|
1,130,527 |
|
|
1,090,636 |
|
|
4,789,168 |
|
|
3,232,978 |
|
|
Other income |
|
(18,455,352 |
) |
|
(378,248 |
) |
|
(22,836,329 |
) |
|
(954,849 |
) |
|
|
(3,269,440 |
) |
|
9,489,250 |
|
|
27,589,677 |
|
|
38,730,471 |
|
Share of loss of equity-accounted investees (net of
tax) |
|
642,468 |
|
|
310,327 |
|
|
1,946,892 |
|
|
552,931 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before income taxes |
|
24,876,458 |
|
|
6,683,956 |
|
|
43,446,375 |
|
|
24,268,496 |
|
Provision for income taxes: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Current |
|
(292,463 |
) |
|
209,368 |
|
|
3,572,010 |
|
|
1,579,789 |
|
|
Deferred |
|
2,909,985 |
|
|
1,937,809 |
|
|
3,307,688 |
|
|
4,981,679 |
|
|
|
2,617,522 |
|
|
2,147,177 |
|
|
6,879,698 |
|
|
6,561,468 |
|
Net earnings |
|
22,258,936 |
|
|
4,536,779 |
|
|
36,566,677 |
|
|
17,707,028 |
|
Other comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation |
|
2,288,659 |
|
|
1,587,768 |
|
|
4,010,860 |
|
|
(873,637 |
) |
Total comprehensive income for the period |
$ |
24,547,595 |
|
$ |
6,124,547 |
|
$ |
40,577,537 |
|
$ |
16,833,391 |
|
Earnings per share - basic |
$ |
0.69 |
|
$ |
0.16 |
|
$ |
1.24 |
|
$ |
0.63 |
|
Earnings per share - diluted |
$ |
0.68 |
|
$ |
0.16 |
|
$ |
1.23 |
|
$ |
0.63 |
|
Consolidated Statements of Cash Flows
Three-month periods ended December 31, |
|
Years ended December 31, |
|
|
2013 |
|
2012 |
|
2013 |
|
2012 |
|
Cash flows from operating activities: |
(unaudited) |
|
(unaudited) |
|
|
|
|
|
Net earnings |
$ |
22,258,936 |
|
$ |
4,536,779 |
|
$ |
36,566,677 |
|
$ |
17,707,028 |
|
Adjustments for: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
6,361,933 |
|
|
5,799,949 |
|
|
24,403,158 |
|
|
21,335,874 |
|
|
Provision for income taxes |
|
2,617,522 |
|
|
2,147,177 |
|
|
6,879,698 |
|
|
6,561,468 |
|
|
Unrealized foreign exchange loss |
|
7,099 |
|
|
62,396 |
|
|
581,933 |
|
|
1,188,443 |
|
|
Gain
on disposition of drilling equipment |
|
(3,488,320 |
) |
|
(575,431 |
) |
|
(7,419,366 |
) |
|
(2,727,295 |
) |
|
Write
down of technological assets |
|
- |
|
|
- |
|
|
1,244,946 |
|
|
- |
|
|
Gain
on sale of land and operations centre |
|
- |
|
|
- |
|
|
(2,195,886 |
) |
|
- |
|
|
Share-based payments |
|
300,641 |
|
|
409,895 |
|
|
1,061,177 |
|
|
2,264,706 |
|
|
Finance expense |
|
1,130,527 |
|
|
1,090,636 |
|
|
4,789,168 |
|
|
3,232,978 |
|
|
Provision for bad debts |
|
87,830 |
|
|
108,197 |
|
|
59,374 |
|
|
15,059 |
|
|
Share
of loss of equity-accounted investees |
|
642,468 |
|
|
310,327 |
|
|
1,946,892 |
|
|
552,931 |
|
|
Gains
from pre-existing ownership interest in acquired subsidiaries |
|
(14,757,588 |
) |
|
- |
|
|
(14,757,588 |
) |
|
- |
|
|
Change in fair value of investment in equity securities |
|
- |
|
|
- |
|
|
- |
|
|
490,245 |
|
|
Change in non-cash working capital |
|
3,971,513 |
|
|
1,284,738 |
|
|
(12,254,284 |
) |
|
(13,053,739 |
) |
Cash generated from operating activities |
|
19,132,561 |
|
|
15,174,663 |
|
|
40,905,899 |
|
|
37,567,698 |
|
Interest paid |
|
(1,468,922 |
) |
|
(866,164 |
) |
|
(4,200,775 |
) |
|
(2,863,421 |
) |
Income taxes paid |
|
(296,660 |
) |
|
(560,668 |
) |
|
(1,327,187 |
) |
|
(1,633,970 |
) |
Net cash from operating activities |
|
17,366,979 |
|
|
13,747,831 |
|
|
35,377,937 |
|
|
33,070,307 |
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds on disposition of drilling equipment |
|
5,103,689 |
|
|
2,045,771 |
|
|
13,435,619 |
|
|
9,039,942 |
|
|
Acquisition of drilling and other equipment |
|
(13,271,734 |
) |
|
(5,334,438 |
) |
|
(41,818,387 |
) |
|
(51,452,063 |
) |
|
Acquisition of intangible assets |
|
(584,968 |
) |
|
- |
|
|
(4,344,168 |
) |
|
- |
|
|
Acquisition of subsidiary, cash acquired |
|
334,150 |
|
|
- |
|
|
334,150 |
|
|
- |
|
|
Investment in pre-existing equity-accounted investees |
|
- |
|
|
(1,960,000 |
) |
|
(4,200,000 |
) |
|
(6,053,468 |
) |
|
Proceeds from sale of land and operations centre |
|
- |
|
|
- |
|
|
23,100,000 |
|
|
- |
|
|
Payments relating to the land and operations centre |
|
- |
|
|
- |
|
|
(18,904,114 |
) |
|
- |
|
|
Change in non-cash working capital |
|
4,730,047 |
|
|
(4,946,603 |
) |
|
10,849,065 |
|
|
(16,239,576 |
) |
Net cash used in investing activities |
|
(3,688,816 |
) |
|
(10,195,270 |
) |
|
(21,547,835 |
) |
|
(64,705,165 |
) |
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of share capital |
|
35,675,852 |
|
|
276,006 |
|
|
40,622,300 |
|
|
1,286,060 |
|
|
Dividends paid to shareholders |
|
(6,058,376 |
) |
|
(5,079,636 |
) |
|
(21,432,880 |
) |
|
(18,595,288 |
) |
|
Proceeds on (Repayment of) loans and borrowings |
|
(35,841,000 |
) |
|
2,000,000 |
|
|
(25,787,900 |
) |
|
39,000,000 |
|
|
Proceeds on (Repayment of) operating facility |
|
(6,076,407 |
) |
|
(298,747 |
) |
|
(5,897,711 |
) |
|
5,897,711 |
|
Net cash from financing activities |
|
(12,299,931 |
) |
|
(3,102,377 |
) |
|
(12,496,191 |
) |
|
27,588,483 |
|
Net increase (decrease) in cash and cash
equivalents |
|
1,378,232 |
|
|
450,184 |
|
|
1,333,911 |
|
|
(4,046,375 |
) |
Cash and cash equivalents, beginning of year |
|
4,285,648 |
|
|
3,879,785 |
|
|
4,329,969 |
|
|
8,376,344 |
|
Cash and cash equivalents, end of year |
$ |
5,663,880 |
|
$ |
4,329,969 |
|
$ |
5,663,880 |
|
$ |
4,329,969 |
|
PHX Energy Services Corp.John HooksPresident and
CEO403-543-4466403-543-4485PHX Energy Services Corp.Cameron
RitchieSenior Vice President Finance and
CFO403-543-4466403-543-4485www.phxtech.com
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