NOT FOR DISTRIBUTION TO U.S. NEWS WIRE SERVICES OR FOR DISSEMINATION IN THE U.S.
The news release contains "forward-looking information and statements" within
the meaning of applicable securities laws. For full disclosure of the
forward-looking information and statements and the risks to which they are
subject, see the "Cautionary Statement Regarding Forward-Looking Information and
Statements" later in this news release.
Strad Energy Services Ltd. ("Strad" or the "Company") (TSX:SDY), a North
American-focused, energy services company, today announced its financial results
for the three months and year-ended December 31, 2013. All amounts are stated in
Canadian dollars unless otherwise noted.
SELECTED FINANCIAL AND OPERATIONAL HIGHLIGHTS:
-- EBITDA(1) from continuing operations of $10.7 million and $40.5 million
for the three months and year-ended December 31, 2013, an increase of
39% and a decrease of 13%, respectively, compared to $7.7 million and
$46.6 million for the same periods in 2012;
-- Revenue from continuing operations of $47.9 million and $189.6 million
for the three months and year-ended December 31, 2013, a 15% increase
and a 7% decrease, respectively, compared to $41.5 million and $203.2
million for the same periods in 2012;
-- Capital additions totaled $9.5 million during the fourth quarter and
$25.5 million for the year. Reported capital expenditures, net of $1.6
million and $11.8 million rental asset disposals during the respective
periods, were $8.0 million during the fourth quarter and $13.7 million
for the year;
-- Total funded debt (2) to twelve month trailing EBITDA ratio of 1.0 to 1
at December 31, 2013;
-- Earnings (loss) per share from continuing operations of $0.05 and $0.15
for the three months and year-ended December 31, 2013, respectively,
compared to $(0.10) and $0.20 for the same periods in 2012. Adjusted for
the loss on assets held for sale, impairment loss and reversal of the
Company's restructuring provision, earnings per share would otherwise be
$0.09 and $0.19 for the three months and year-end December 31, 2013;
and,
-- During the fourth quarter of 2013, the Company completed a review of the
estimated useful lives and residual value estimates of certain rental
equipment. As such, effective October 1, 2013, management has amended
the useful life and residual value estimates on certain components of
its rental equipment assets and has commenced depreciation of these
assets over the revised estimate of useful life. This has resulted in a
reduced depreciation expense of approximately $2.0 million for the three
month period ended December 31, 2013, in comparison to the prior
quarter. Depreciation expense is expected to decrease by approximately
$8.0 million on an annual basis based on the current capital base.
Notes:
(1) Earnings before interest, taxes, depreciation and amortization
("EBITDA") is not a recognized measure under IFRS; see "Non-IFRS
Measures Reconciliation".
(2) Funded debt includes bank indebtedness plus long-term debt plus current
and long-term obligations under finance lease less cash. EBITDA is
based on trailing twelve months. See "Non-IFRS Measures
Reconciliation".
"Our positive year-over-year fourth quarter performance was influenced by
slightly higher activity levels in our Canadian Operations, in part due to LNG
related drilling activity in northeast British Columbia, and fourth quarter U.S.
margins that were substantially higher year-over-year due to our restructuring
efforts late in 2012. EBITDA from Product Sales was also up as we completed
several large matting projects to close out 2013," said Andy Pernal, President
and CEO of Strad. "We look forward to continuing this momentum, in all three
reporting segments, into the first quarter of 2014."
"Earnings per share will be meaningfully impacted going forward by Strad's
revised depreciation policy", said Greg Duerr, CFO of Strad. "The reduction in
depreciation expense is driven by Strad's experience with the durability of the
assets as well as its robust repair and maintenance program. The full year
impact of the revision is expected to reduce depreciation expense on the
existing asset base by approximately $8.0 million and creates an earnings
profile that is more reflective of the returns generated by the asset base."
YEAR END FINANCIAL HIGHLIGHTS
(in thousands of Three months ended Year-ended
Canadian Dollars) December 31, December 31,
----------------------------------------------------
2013 2012 % Chg. 2013 2012 % Chg.
----------------------------------------------------
Revenue from continuing
operations 47,850 41,465 15 189,574 203,164 (7)
----------------------------------------------------------------------------
EBITDA from continuing
operations (1) 10,678 7,675 39 40,528 46,571 (13)
EBITDA as a % of revenue 22% 19% 21% 23%
Per share ($), basic 0.29 0.21 38 1.11 1.27 (13)
Per share ($), diluted 0.29 0.20 45 1.08 1.24 (13)
----------------------------------------------------------------------------
Net income (loss) from
continuing operations
(2) 1,923 (3,490) (155) 5,372 7,342 (27)
Per share ($), basic 0.05 (0.10) (150) 0.15 0.20 (25)
Per share ($), diluted 0.05 (0.09) (156) 0.14 0.20 (30)
----------------------------------------------------------------------------
Funds from continuing
operations (3) 10,369 8,123 28 39,922 44,844 (11)
Per share ($), basic 0.28 0.22 27 1.09 1.22 (11)
Per share ($), diluted 0.28 0.22 27 1.07 1.19 (10)
----------------------------------------------------------------------------
Capital expenditures
from continuing
operations 9,545 11,737 (19) 25,504 70,185 (64)
Dispositions of rental
assets (4) (1,574) (340) 363 (11,785) (3,032) 289
Net capital expenditures
(5) 7,983 11,397 (30) 13,731 67,153 (80)
----------------------------------------------------------------------------
Total assets 207,920 232,705 (11) 207,920 232,705 (11)
Return on average total
assets (6) 20% 13% 18% 20%
Long-term debt (7) 38,500 55,500 (31) 38,500 55,500 (31)
Total long-term
liabilities 47,067 67,064 (30) 47,067 67,064 (30)
----------------------------------------------------------------------------
Common shares - end of
period ('000's) 37,251 37,251 37,251 37,251
Weighted avg common
shares ('000's)
Basic 36,720 36,572 36,612 36,655
Diluted 37,419 37,489 37,361 37,550
Notes:
(1) EBITDA is not a recognized measure under IFRS; see "Non-IFRS Measures
Reconciliation".
(2) Net income from continuing operations excludes income attributable to
the non-controlling interests.
(3) Funds from continuing operations is cash flow from operating activities
before changes in working capital. Funds from operations is not a
recognized measure under IFRS; see "Non-IFRS Measures Reconciliation".
(4) Dispositions reported at net book value.
(5) Includes assets acquired under finance lease and purchases of
intangible assets. Net capital expenditures are net of rental asset
disposals.
(6) Return on average total assets is not a recognized measure under IFRS;
see "Non-IFRS Measures Reconciliation".
(7) Excluding current portion.
FINANCIAL POSITION AND RATIOS
As at December 31,
--------------------
($000's except ratios) 2013 2012
--------------------
Working capital (1) 11,515 13,028
Funded debt (2) 43,036 63,008
Total assets 207,920 232,705
Funded debt to EBITDA(2) 1.0 1.3
Notes:
(1) Working capital is calculated as current assets less current
liabilities. See "Non-IFRS Measures Reconciliation".
(2) Funded debt includes bank indebtedness plus long-term debt plus current
and long-term obligations under finance lease less cash. EBITDA is
based on trailing twelve months. See "Non-IFRS Measures
Reconciliation".
FOURTH QUARTER RESULTS
Strad reported an increase in revenue and EBITDA of 15% and 39%, respectively,
during the three months ended December 31, 2013, compared to the same period in
2012. During the fourth quarter of 2013, Strad's results benefited from
increased drilling activity levels in Western Canada during December and
increased product sales. In the U.S., drilling activity levels varied by region
compared to 2012. In the Bakken, average rig counts declined 9% year-over-year,
which was offset by modest rig count increases of 3% and 6% in the Marcellus and
Rockies regions, respectively. As a result, Strad's U.S. Operations experienced
consistent revenue levels during the fourth quarter of 2013 compared to 2012,
while EBITDA margins increased due to the cost restructuring plan implemented in
the fourth quarter of 2012.
Strad's Canadian Operations reported higher EBITDA during the three months ended
December 31, 2013, compared to the same period in 2012. Increased EBITDA was a
result of higher drilling activity during December 2013 compared to 2012, which
impacted demand for Strad's surface equipment and drill pipe rental fleet, as
well as the elimination of the Company's Communications product line in 2012,
which contributed negative EBITDA of $0.4 million during the fourth quarter of
2012. Overall drilling activity averaged 2% higher year-over-year during the
quarter.
During the fourth quarter, Strad's U.S. Operations reported similar revenue and
higher EBITDA in 2013 compared to 2012. Revenue during the quarter was similar
due to relatively stable utilization and pricing for Strad's U.S. rental fleet
resulting from relatively stable overall rig counts discussed previously. Fourth
quarter EBITDA was higher, despite similar revenue, due to the cost
restructuring strategy implemented in the fourth quarter of 2012. The successful
implementation of that plan resulted in EBITDA margin percentages that averaged
28%, and were as high as 32%, during 2013 versus an average of 25% in 2012.
During the fourth quarter, capital expenditures were $5.3 million in Canada and
$2.6 million in the U.S., net of $1.1 million and $0.4 million, respectively, in
rental asset disposals. Capital expenditures are reported net of the net book
value of rental assets sold in the period. For the year-ended December 31, 2013,
Strad has spent $25.5 million on a gross basis, or $13.7 million, net of $11.8
million in rental asset disposals, of its budgeted $15.0 million capital
program. Strad continued to invest in equipment which is in high demand in both
Canada and the U.S.
RESULTS OF OPERATIONS
Canadian Operations
Three months ended Year-ended
December 31, December 31,
----------------------------------------------------
($000's) 2013 2012 % chg. 2013 2012 % chg.
----------------------------------------------------
Revenue 19,250 16,437 17 70,452 73,053 (4)
EBITDA (1) 5,284 4,913 8 18,342 24,056 (24)
EBITDA % 27% 30% 26% 33%
Capital expenditures
from cont. operations 6,411 8,204 (22) 16,217 31,836 (49)
Dispositions of rental
assets (2) (1,143) (283) 304 (10,322) (2,383) 333
Net capital expenditures
(3) 5,268 7,921 (33) 5,895 29,453 (80)
Gross capital assets 109,170 110,681 (1) 109,170 110,681 (1)
Total assets 100,108 108,841 (8) 100,108 108,841 (8)
Notes:
(1) EBITDA is not a recognized measure under IFRS; see "Non-IFRS Measures
Reconciliation". EBITDA excludes Restructuring Expenses.
(2) Dispositions represented at net book value.
(3) Includes assets acquired under finance lease and purchases of
intangible assets. Net capital expenditures are net of rental asset
sales.
Revenue generated for the three months ended December 31, 2013, was $19.3
million, an increase of 17% compared to $16.4 million for the same period in
2012. Fourth quarter 2013 revenue increased due to higher year-over-year
drilling activity in the Western Canadian Sedimentary Basin ("WCSB"), which
resulted in higher utilization of the surface equipment and drill pipe fleets.
Strad's customer base was particularly more active in the latter half of
December in 2013 than in the prior year. Pricing during the fourth quarter of
2013 remained consistent with prior year pricing. Finally, another factor that
improved fourth quarter revenue was higher trucking and service revenue
associated with increased utilization of the surface rental fleet.
Revenue generated during the year-ended December 31, 2013, decreased 4% to $70.5
million compared to $73.1 million for the same period in 2012. Lower drilling
activity levels earlier in 2013 and a smaller matting rental fleet, after the
sale of the SteelLock mats in the second quarter of 2013, were the main drivers
of year-over-year revenue declines.
EBITDA for the three months ended December 31, 2013, of $5.3 million, increased
8%, compared to $4.9 million for the same period in 2012. EBITDA as a percentage
of revenue for the three months ended December 31, 2013, was 27% compared to 30%
for the same period in 2012. This decrease was primarily due to lower margins on
trucking revenue in 2013. Strad's surface equipment fleet realized higher
utilization levels during the fourth quarter, however, Strad received lower
margins on the trucking charges to move equipment into areas with higher
drilling activity levels.
EBITDA for the year-ended December 31, 2013, decreased 24% to $18.3 million
compared to $24.1 million for the same period in 2012. Decreased EBITDA was a
result of declines in higher margin rental revenue, a shift in product mix
during 2013 compared to 2012 and lower margins on trucking revenue in 2013.
EBITDA as a percentage of revenue for the year-ended December 31, 2013, was 26%
compared to 33% for the same period in 2012.
U.S. Operations
Three months ended Year-ended
December 31, December 31,
----------------------------------------------------
($000's) 2013 2012 % chg. 2013 2012 % chg.
----------------------------------------------------
Revenue 13,882 14,080 (1) 54,225 71,481 (24)
EBITDA (1) 3,948 2,163 83 15,441 17,553 (12)
EBITDA % 28% 15% 28% 25%
Capital expenditures
from cont. operations 3,070 2,549 20 8,676 35,517 (76)
Dispositions of rental
assets (2) (431) (54) 698 (1,463) (649) 125
Net capital expenditures
(3) 2,639 2,495 6 7,213 34,868 (79)
Gross capital assets 105,011 108,839 (4) 105,011 108,839 (4)
Total assets 104,927 112,880 (7) 104,927 112,880 (7)
Notes:
(1) EBITDA is not a recognized measure under IFRS; see "Non-IFRS Measures
Reconciliation". EBITDA excludes Restructuring Expenses.
(2) Dispositions represented at net book value.
(3) Includes assets acquired under finance lease and purchases of
intangible assets. Net capital expenditures are net of rental asset
sales.
Revenue for the three months ended December 31, 2013, decreased 1% to $13.9
million from $14.1 million for the same period in 2012. Overall rig counts
during the fourth quarter declined year-over-year by 9% in the Bakken and
increased by 3% and 6% in the Marcellus and Rockies regions, respectively. As a
result, utilization and pricing remained stable during 2013.
Revenue for the year-ended December 31, 2013, decreased 24% to $54.2 million
from $71.5 million for the same period in 2012. The decrease in revenue
year-over-year was primarily due to lower drilling activity in the Marcellus
region, which affected results during the first nine months of 2013 compared to
2012, and continued competition in the maturing Bakken resource play. The Bakken
continued to be the most active resource play for Strad's U.S. Operations,
generating 56% of total U.S. revenue.
EBITDA for the three months ended December 31, 2013, increased 83% to $3.9
million compared to $2.2 million for the same period in 2012. EBITDA as a
percentage of revenue for the three months ended December 31, 2013, was 28%
compared to 15% for the same period in 2012. The increase in both EBITDA and
EBITDA as a percentage of revenue, despite stable revenue year-over-year, is due
to the success of management's restructuring plan, which was implemented in the
fourth quarter of 2012 and re-aligned the U.S. Operations cost structure with
current market conditions.
EBITDA for the year-ended December 31, 2013, decreased 12% to $15.4 million
compared to $17.6 million for the same period in 2012. The modest decline of
$2.2 million in EBITDA in the context of a $17.3 million revenue decrease was
achieved due to the cost reduction plan implemented during the fourth quarter of
2012. Similarly, despite lower revenue levels year-over-year, EBITDA as a
percentage of revenue for the year-ended December 31, 2013, increased to 28%
compared to 25% for the same period in 2012.
Product Sales
Three months ended Year-ended
December 31, December 31,
----------------------------------------------------
($000's) 2013 2012 % chg. 2013 2012 % chg.
----------------------------------------------------
Revenue 14,717 10,948 34 64,897 58,630 11
EBITDA (1) 2,497 1,560 60 10,492 8,473 24
EBITDA % 17% 14% 16% 14%
Capital expenditures (2) 31 843 (96) 295 1,698 (83)
Total assets 672 6,377 (89) 672 6,377 (89)
Notes:
(1) EBITDA is not a recognized measure under IFRS; see "Non-IFRS Measures
Reconciliation". EBITDA excludes Restructuring Expenses.
(2) Includes assets acquired under finance lease and purchases of
intangible assets.
Product Sales are comprised of in-house manufactured products sold to external
customers, third party equipment sales to existing customers, and sales of
equipment from Strad's existing fleet to customers.
Revenue for the three months ended December 31, 2013, increased 34% to $14.7
million from $10.9 million for the same period in 2012, resulting primarily from
increased sales of in-house manufactured products. During the fourth quarter,
Product Sales consisted of $11.0 million of in-house manufactured products, $1.9
million of third party equipment sales and $1.8 million of rental fleet sales
compared to $4.9 million, $5.0 million and $1.0 million, respectively, during
the same period in 2012. Manufactured product sales increased as a result of two
large rig mat orders from large customers during the quarter. Sales of Strad's
rental fleet equipment fluctuate quarter-over-quarter and are primarily
dependent on strategic opportunities to sell underutilized rental assets.
Revenue for the year-ended December 31, 2013, increased 11% to $64.9 million
from $58.6 million for the same period in 2012. Product Sales consisted of $31.9
million of in-house manufactured products, $17.2 million of third party
equipment sales and $15.8 million of rental fleet sales compared to $29.7
million, $23.8 million and $5.1 million, respectively, during the same period in
2012. Increased matting sales during the second quarter and rig mat sales during
the fourth quarter were the primary drivers of year-over-year revenue increases.
EBITDA for the three months ended December 31, 2013, of $2.5 million increased
by 60% compared to $1.6 million for the same period in 2012. The increase in
EBITDA was due to higher revenue during the fourth quarter of 2013 compared to
the prior year. EBITDA as a percentage of revenue for the three months ended
December 31, 2013, increased to 17% compared to 14% for the same period in 2012,
as a result of higher margins on in-house manufactured products. EBITDA as a
percentage of revenue tends to vary quarter-over-quarter depending on the mix of
sales, as realized margins on third party equipment sales and sales of equipment
from Strad's existing fleet fluctuate more compared to sales of in-house
manufactured products.
EBITDA for the year-ended December 31, 2013, of $10.5 million, increased by 24%
compared with $8.5 million for the same period in 2012. EBITDA as a percentage
of revenue for the year-ended December 31, 2013, increased to 16% from 14%
during the same period in 2012.
OUTLOOK
Industry conditions during the fourth quarter remained relatively consistent on
a year-over-year basis in Canada, whereas overall drilling activity in the U.S.
declined slightly. Limited growth in the WCSB was driven by a continuation of
broader constraints relating to oil transportation bottlenecks as well as low
natural gas drilling activity and the general lack of access to capital for many
companies in the Canadian exploration and production ("E&P") sector. South of
the border, U.S. drilling activity continued to be impacted by the reduced
number of rigs targeting lower margin natural gas plays as well as the ongoing
maturation of the Bakken and Marcellus resource plays, which supported increased
drilling efficiency.
In the WCSB, active drilling rigs in the fourth quarter of 2013 remained
relatively level, averaging 370 compared with 362 for the same period in 2012.
However, active rigs in the month of December 2013 were up more than 10% over
the prior year, reflecting a more robust pace to the winter drilling season in
2013. In the United States, drilling rig activity continued to vary by region,
with the total active U.S. rig count in the fourth quarter of 2013 declining by
3% on a year-over-year basis. The majority of Strad's U.S. fleet continues to
operate in the Bakken and Marcellus resource plays. The active rig count in the
Bakken averaged 180 rigs in the fourth quarter of 2013, down 9% from 197 in the
prior year period. In the gas-weighted Marcellus play, the active rig count,
including the Utica shale, averaged 123 during the fourth quarter of 2013, up 3%
from 120 in the prior year period. On a sequential basis, rig counts in the
Marcellus, including the Utica, increased 3%.
Bakken operations are also in close proximity to the Rockies region, consisting
of Colorado, Wyoming and Utah, where an average of 149 rigs were drilling during
the fourth quarter, compared to 141 rigs in the fourth quarter of 2012. Both the
Utica Shale and Rockies region represent platforms to grow utilization of rental
assets from existing operating regions. In addition to drilling activity, the
long-term build out of Liquefied Natural Gas ("LNG") infrastructure in Canada
could result in increased demand for Strad's products and services.
Early in 2014, the pace of drilling rig activity in the WCSB continued from the
increased levels seen in December 2013, but has recently leveled off to prior
year levels. In the U.S., rig activity in Strad's markets has been more or less
in line with the prior year. Capital spending announcements from oil and gas
producers in 2014 suggest that activity may be up modestly in 2014 over the
prior year. Although many of the major producers and state owned oil companies
that comprise the majority of Strad's customers do not announce capital spending
by basin, current expectations are that the capital spending profile of these
producers will at least match expectations for the broader market. LNG related
drilling activity is driving some of the rig activity increase over the prior
year in Canada. Strad has participated in this activity increase with multi-well
equipment packages deployed to key customers in northeast British Columbia.
Activity increases in the Marcellus region have also resulted in early modest
gains in utilization of surface equipment and matting in Strad's fleet.
Sustained higher natural gas prices are expected to have a positive impact on
rig activity in the Marcellus region.
Product Sales activity finished higher in 2013 compared to 2012, due to several
large matting projects being completed in December 2013. The increased pace of
activity in the fourth quarter of 2013 reduced the backlog of projects entering
2014. Although there is limited visibility on projects and limited backlog in
the manufacturing business entering the year, Strad continues to expect Product
Sales to be driven by similar market forces to those that drive demand for the
rental assets over time.
Strad remains focused on improving operational efficiency, maximizing
utilization on its existing asset base and disciplined deployment of capital
targeted at opportunities in select areas such as matting in Canada and the
Marcellus, solids control in the Bakken, and rental assets deployed to LNG
related drilling activity in Canada. The capital program for the first half of
2014 is expected to total $17.0 million. The Company's free cash flow and
financial position provide Strad with significant flexibility to pursue
additional opportunities in the second half of the year depending on industry
conditions.
LIQUIDITY AND CAPITAL RESOURCES
December 31, December 31,
($000's) 2013 2012
----------------------------
Current assets 43,519 50,010
Current liabilities 32,004 36,982
----------------------------
Working capital (1) 11,515 13,028
Banking facilities
Operating facility 1,879 2,488
Syndicated revolving facility 38,500 55,500
----------------------------
Total facility borrowings 40,379 57,988
Total credit facilities (2) 110,000 110,000
----------------------------
Unused credit capacity 69,621 52,012
----------------------------
(1) Working capital is calculated as current assets less current
liabilities, excluding assets held for sale. See "Non-IFRS Measures
Reconciliation".
(2) Facilities are subject to certain limitations on accounts receivable,
inventory, and net book value of fixed assets and are secured by a
general security agreement over the Company's assets. As at December
31, 2013, Strad had access to $105 million out of the $110 million
credit facility.
At December 31, 2013, working capital was $11.5 million compared to $13.0
million at December 31, 2012. Current assets decreased despite an increase in
revenue in the fourth quarter of 2013 compared to the fourth quarter of 2012,
which was due to sales of inventory and faster collection of accounts receivable
balances. The decrease in current liabilities is due to the repayment of the
outstanding note payable during the fourth quarter of the current year, a
reduction of the restructuring provision and repayment of finance lease
obligations during 2013. Funds from operations for the year-ended December 31,
2013, decreased to $39.9 million compared to $44.8 million during the same
period in 2012. Capital expenditures from continuing operations totaled $25.5
million and $70.2 million for the year-ended December 31, 2013 and December 31,
2012, respectively, and were offset by $11.8 million and $3.0 million of rental
asset sales during the same periods. Management used funds from operations to
repay $17.6 million of Strad's total facility borrowing during 2013. Management
monitors funds from operations and the timing of capital additions to ensure
adequate capital resources are available to fund Strad's capital program.
The Company's syndicated banking facility consists of an operating facility with
a maximum principal amount of $15.0 million CAD and $10.0 million USD, and an
$85.0 million revolving facility, both of which are subject to certain
limitations on accounts receivable, inventory and net book value of fixed assets
and are secured by a general security agreement over the Company's assets. The
syndicated banking facility bears interest at bank prime plus a variable rate,
which is dependent on the Company's funded debt to EBITDA ratio. On July 18,
2013, the Company amended its syndicated credit facility, extending the maturity
date from July 25, 2015 to July 25, 2016.
Based on the Company's funded debt to twelve month trailing EBITDA ratio of 1.0
to 1 at the end of the fourth quarter of 2013, the interest rate on the
syndicated banking facility is bank prime plus 1.25% on prime rate advances and
at the prevailing rate plus a stamping fee of 2.25% on bankers' acceptances. For
the three months and year-ended December 31, 2013, the overall effective rates
on the operating facility was 4.03% and 4.01% respectively, and the overall
effective rate on the revolving facility was 3.46% and 3.51%, respectively. As
of December 31, 2013, $1.9 million was drawn on the operating facility and $38.5
million was drawn on the revolving facility. Payments on the revolving facility
are interest only.
As at December 31, 2013, the Company was in compliance with all of the
syndicated banking facility covenants.
NON-IFRS MEASURES RECONCILIATION
Certain supplementary measures in this MD&A do not have any standardized meaning
as prescribed under IFRS and, therefore, are considered non-IFRS measures. These
measures are described and presented in order to provide shareholders and
potential investors with additional information regarding the Company's
financial results, liquidity and its ability to generate funds to finance its
operations. These measures are identified and presented, where appropriate,
together with reconciliations to the equivalent IFRS measure. However, they
should not be used as an alternative to IFRS, because they may not be consistent
with calculations of other companies. These measures are further explained
below.
Earnings before interest expense, taxes, depreciation and amortization
("EBITDA") is not a recognized measure under IFRS. Management believes that in
addition to net income, EBITDA is a useful supplemental measure as it provides
an indication of the results generated by the Company's principal business
activities prior to consideration of how those activities are financed or how
the results are taxed. EBITDA is calculated as net income from continuing
operations plus interest expense, finance fees, taxes, depreciation and
amortization, non-controlling interest, loss on disposal of property, plant and
equipment, loss on foreign exchange, loss on assets held for sale, restructuring
expenses, impairment loss, less gain on foreign exchange, gain on disposal of
property, plant and equipment and restructuring expense reversal. Segmented
EBITDA is based upon the same calculation for defined business segments, which
are comprised of Canadian Operations, U.S. Operations, Product Sales and
Corporate.
Funds from operations are cash flow from operating activities excluding changes
in working capital and share-based payments. It is a supplemental measure to
gauge performance of the Company before non-cash items. Working capital is
calculated as current assets minus current liabilities. Working capital, cash
forecasting and banking facilities are used by Management to ensure funds are
available to finance growth opportunities.
Annualized return on average total assets for the year-ended December 31, 2013,
is calculated as annualized year-to-date EBITDA divided by the average of total
assets over the fourth quarter of 2012 and the first, second and third quarters
of 2013, including a three month lag. The three month lag represents the time
between the purchase of capital assets and when they are deployed in the field
and earning revenue.
Funded debt is calculated as bank indebtedness plus current and long-term
portion of debt plus current and long-term portion of finance lease obligations,
less cash.
Reconciliation of EBITDA and Funds from Operations
($000's)
Three months ended Year-ended
December 31, December 31,
----------------------------------------
2013 2012 2013 2012
----------------------------------------
Net income (loss) from continuing
operations for the period 1,923 (3,490) 5,372 7,342
Add:
Depreciation and amortization 5,265 7,668 28,974 28,285
Loss on disposal of PP&E 477 226 1,301 272
Loss on assets held for sale 637 - 812 -
Non-controlling interest - - - 355
Share-based payments 152 239 590 819
Deferred income tax (recovery) (225) (3,804) (1,787) (1,628)
Finance fees 88 66 319 245
Restructuring (reversal) expense (514) 4,129 (514) 4,129
Impairment loss 1,901 2,350 1,901 2,350
Interest expense 665 739 2,954 2,675
----------------------------------------
Funds from operations 10,369 8,123 39,922 44,844
----------------------------------------
Add:
Foreign exchange (gain) loss (5) (196) (207) 684
Current income tax expense
(recovery) 466 (13) 1,403 1,862
----------------------------------------
Subtotal 10,830 7,914 41,118 47,390
----------------------------------------
Deduct:
Share-based payments 152 239 590 819
----------------------------------------
EBITDA 10,678 7,675 40,528 46,571
----------------------------------------
Reconciliation of quarterly non-IFRS measures
($000's)
Three months ended
December 31, September 30, June 30, March 31,
2013 2013 2013 2013
--------------------------------------------------------
Net income from
continuing
operations for the
period 1,923 2,373 13 1,063
Add:
Depreciation and
amortization 5,265 7,259 8,824 7,626
Loss on disposal of
PP&E 477 162 76 586
Loss on assets held
for sale 637 - 17 158
Foreign exchange
gain (5) (63) (18) (121)
Current income tax
expense 466 627 94 216
Deferred income tax
(recovery) expense (225) (808) (1,099) 345
Interest expense 665 784 791 714
Restructuring
(reversal) expense (514) - - -
Impairment loss 1,901 - - -
Finance fees 88 88 71 72
--------------------------------------------------------
EBITDA 10,678 10,422 8,769 10,659
--------------------------------------------------------
Communications
operating loss - - - -
--------------------------------------------------------
EBITDA (Adjusted) 10,678 10,422 8,769 10,659
--------------------------------------------------------
Three months ended
December 31, September 30, June 30, March 31,
2012 2012 2012 2012
--------------------------------------------------------
Net (loss) income
from continuing
operations for the
period (3,490) 2,937 2,772 5,123
Add:
Depreciation and
amortization 7,667 7,362 7,003 6,253
Loss (gain) on
disposal of PP&E 226 22 (11) 35
Foreign exchange
(gain) loss (195) 510 (32) 401
Non-controlling
interest - 22 (187) 520
Current income tax
(recovery) expense (13) 788 (104) 1,191
Deferred income tax
(recovery) expense (3,804) (528) 748 1,956
Interest expense 739 854 638 444
Restructuring
(reversal) expense 4,129 - - -
Impairment loss 2,350 - - -
Finance fees 66 63 58 58
--------------------------------------------------------
EBITDA 7,675 12,030 10,885 15,981
--------------------------------------------------------
Communications
operating loss 679 610 556 167
--------------------------------------------------------
EBITDA (Adjusted) 8,354 12,640 11,441 16,148
--------------------------------------------------------
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION AND STATEMENTS
Certain statements and information contained in this MD&A constitute
forward-looking statements. More particularly, this MD&A contains
forward-looking statements concerning future capital expenditures of the
Company, debt, dividends, demand for the Company's products and services,
drilling activity in North America, pricing of the Company's products and
services, introduction of new products and services, manufacturing capacity to
meet anticipated demand for the Company's products, and expected exploration and
production industry activity. These statements relate to future events or to the
Company's future financial performance and involve known and unknown risks,
uncertainties and other factors that may cause the Company's actual results,
levels of activity, performance or achievements to be materially different from
future results, levels of activity, performance or achievements expressed or
implied by such forward-looking statements.
The use of any of the words "expect", "plan", "continue", "estimate",
"anticipate", "potential", "targeting", "intend", "could", "might", "should",
"believe", "may", "predict", or "will" and similar expressions are intended to
identify forward-looking information or statements. Various assumptions were
used in drawing the conclusions or making the projections contained in the
forward-looking statements throughout this press release. The forward-looking
information and statements included in this press release are not guarantees of
future performance and should not be unduly relied upon. Forward-looking
statements are based on current expectations, estimates and projections that
involve a number of risks and uncertainties, which could cause actual results to
differ materially from those anticipated and described in the forward-looking
statements. Such information and statements 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 information or
statements. These factors include, but are not limited to, such things as the
impact of general industry conditions, fluctuation of commodity prices, industry
competition, availability of qualified personnel and management, stock market
volatility and timely and cost effective access to sufficient capital from
internal and external sources. The risks outlined above should not be construed
as exhaustive. Although management of the Company believes that the expectations
reflected in such forward-looking statements are reasonable, it can give no
assurance that such expectations will prove to have been correct. Accordingly,
readers should not place undue reliance upon any of the forward-looking
information set out in this press release. All of the forward-looking statements
of the Company contained in this press release are expressly qualified, in their
entirety, by this cautionary statement. The various risks to which the Company
is exposed are described in this press release under the heading "Risk Factors"
above and in additional detail in the Company's Annual Information Form ("AIF").
Except as required by law, the Company disclaims any intention or obligation to
update or revise any forward-looking information or statements, whether the
result of new information, future events or otherwise.
This press release shall not constitute an offer to sell, nor the solicitation
of an offer to buy, any securities in the United States, nor shall there be any
sale of securities mentioned in this press release in any state in the United
States in which such offer, solicitation or sale would be unlawful prior to
registration or qualification under the securities laws of any such state.
FOURTH QUARTER EARNINGS CONFERENCE CALL
Strad Energy Services Ltd. has scheduled a conference call to begin promptly at
8:00 a.m. MT (10:00 a.m. ET) on Thursday, February 27, 2014.
The conference call dial in number is 1-800-355-4959 or 1-416-340-8527.
The conference call will also be accessible via webcast at www.stradenergy.com.
A replay of the call will be available approximately one hour after the
conference call ends until Thursday, March 6th, 2014, at 11:59pm ET. To access
the replay, call 1-800-408-3053 or 1-905-694-9451, followed by pass code
9180048.
Strad Energy Services Ltd.
Consolidated Statement of Financial Position
As at December 31, 2013 and 2012
----------------------------------------------------------------------------
----------------------------------------------------------------------------
As at As at
December 31, December 31,
(in thousands of Canadian dollars) 2013 2012
$ $
Assets
Current assets
Trade receivables 35,569 33,418
Inventories 5,788 12,022
Prepaids and deposits 1,772 2,379
Current portion of notes receivable 350 665
Income taxes receivable 40 1,526
----------------------------
43,519 50,010
Assets held for sale 3,167 4,728
Non-current assets
Property, plant and equipment 142,108 157,042
Intangible assets 1,685 2,721
Notes receivable - 729
Goodwill 17,277 17,277
Deferred income tax assets 164 198
----------------------------
Total assets 207,920 232,705
----------------------------
Liabilities
Current liabilities
Bank indebtedness 1,879 2,488
Accounts payable and accrued liabilities 25,403 24,244
Deferred revenue 785 160
Current portion of obligations under finance
lease 1,887 2,735
Note payable - 1,492
Dividend payable 2,050 2,050
Restructuring provision - 3,813
----------------------------
32,004 36,982
Non-current liabilities
Long-term debt 38,500 55,500
Obligations under finance lease 770 2,285
Deferred income tax liabilities 7,797 9,279
----------------------------
Total liabilities 79,071 104,046
Equity
Share capital 117,824 117,462
Contributed surplus 11,612 11,016
Accumulated other comprehensive income (loss) 603 (1,451)
Retained (deficit) earnings (1,190) 1,632
----------------------------
Total equity 128,849 128,659
----------------------------
Total liabilities and equity 207,920 232,705
----------------------------
Strad Energy Services Ltd.
Consolidated Statement of Income
For the years ended December 31, 2013 and 2012
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(in thousands of Canadian dollars, except per share amounts)
2013 2012
$ $
Continuing operations
Revenue 189,574 203,164
Expenses
Operating expenses 119,069 122,071
Depreciation 27,805 26,715
Amortization of intangible assets 1,169 1,570
Selling, general and administration 29,387 33,703
Share-based payments 590 819
Loss on disposal of property, plant and equipment 1,301 272
Foreign exchange (gain) loss (207) 684
Finance fees 319 245
Interest expense 2,954 2,675
Loss on assets held for sale 812 -
Impairment loss 1,901 2,350
Restructuring (reversal) expense (514) 4,129
---------------------
Income before income tax from continuing operations 4,988 7,931
Income tax (recovery) expense (384) 234
---------------------
Net income from continuing operations for the period 5,372 7,697
---------------------
Income from discontinued operations, net of tax - 437
---------------------
Net income for the period 5,372 8,134
---------------------
Net income attributable to:
Owners of the parent 5,372 7,779
Non-controlling interests - 355
---------------------
5,372 8,134
---------------------
Earnings per share from continuing operations
attributable to the equity owners of the Company:
Basic $ 0.15 $ 0.20
Diluted $ 0.14 $ 0.20
Earnings per share from discontinued operations
attributable to the equity owners of the Company:
Basic $ 0.00 $ 0.01
Diluted $ 0.00 $ 0.01
Earnings per share from total operations attributable
to the equity owners of the Company:
Basic $ 0.15 $ 0.21
Diluted $ 0.14 $ 0.21
Strad Energy Services Ltd.
Consolidated Statement of Comprehensive Income
For the years ended December 31, 2013 and 2012
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(in thousands of Canadian dollars)
2013 2012
$ $
Net income for the period 5,372 8,134
-------------------
Other comprehensive income (loss)Items that may be
reclassified subsequently to net income
Cumulative translation adjustment 2,054 (866)
-------------------
Total other comprehensive income (loss) 2,054 (866)
-------------------
Comprehensive income for the period 7,426 7,268
-------------------
Comprehensive income attributable to:
Owners of the parent 7,426 6,913
Non-controlling interests - 355
-------------------
7,426 7,268
-------------------
Strad Energy Services Ltd.
Consolidated Statement of Cash Flow
For the years ended December 31, 2013 and 2012
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(in thousands of Canadian dollars)
2013 2012
Cash flow provided by (used in) $ $
Operating activities
Net income for the period 5,372 8,134
Adjustments for items not affecting cash:
Depreciation and amortization 28,974 28,285
Deferred income tax (recovery) (1,787) (1,628)
Share-based payments (net of cash settlement on stock
option exercises) 542 617
Interest expense and finance fees 3,273 2,920
Loss on disposal of property, plant and equipment 1,301 272
Loss on sale of investment in subsidiary - 441
Loss on assets held for sale 812 -
Impairment loss 1,901 2,350
Changes in items of non-cash working capital 10,994 9,888
--------------------
Net cash generated from operating activities 51,382 51,279
--------------------
Investing activities
Purchase of property, plant and equipment (12,696) (63,270)
Proceeds from sale of property, plant and equipment 1,495 961
Purchase of intangible assets (546) (1,557)
Proceeds on sale of subsidiaries - 7,129
Purchase of assets held for sale (125) (2,481)
Proceeds from sale of assets held for sale 1,895 -
Purchase of non-controlling interest - (5,864)
Changes in items of non-cash working capital (7,657) (2,433)
--------------------
Net cash (used) in investing activities (17,634) (67,515)
--------------------
Financing activities
Proceeds on issuance of long-term debt 4,000 37,000
Repayment of long-term debt (21,000) (5,000)
Repayment of finance lease obligations (net) (2,363) (2,645)
Issue of share capital - 24
Issue of shareholder loan (net of repayments) 378 (501)
Interest expense and finance fees (3,273) (2,920)
Payment of dividends (8,194) (4,098)
Changes in items of non-cash working capital 362 (219)
--------------------
Net cash (used) generated from financing activities (30,090) 21,641
--------------------
Effect of exchange rate changes on cash and cash
equivalents (3,049) (2,118)
--------------------
Increase in bank indebtedness 609 3,287
--------------------
Bank indebtedness - beginning of year (2,488) (5,775)
--------------------
Bank indebtedness - end of period (1,879) (2,488)
--------------------
Cash paid for income tax 1,637 6,415
--------------------
Cash paid for interest 2,585 2,532
--------------------
ABOUT STRAD ENERGY SERVICES LTD.
Strad is a North American energy services company that focuses on providing
well-site infrastructure solutions to the oil and natural gas industry. Strad
focuses on providing complete customer solutions in well-site-related oilfield
equipment for producers active in unconventional resource plays.
Strad is headquartered in Calgary, Alberta, Canada. Strad is listed on the
Toronto Stock Exchange under the trading symbol "SDY".
FOR FURTHER INFORMATION PLEASE CONTACT:
Strad Energy Services Ltd.
Andy Pernal
President and Chief Executive Officer
(403) 775-9202
(403) 232-6901 (FAX)
apernal@stradenergy.com
Strad Energy Services Ltd.
Greg Duerr
Chief Financial Officer
(403) 705-4333
(403) 232-6901 (FAX)
gduerr@stradenergy.com
www.stradenergy.com
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