ACT Energy Technologies Ltd. press release
Cathedral Energy Services Ltd. Reports Results for 2011 Q3 and 2011 Q4 Dividend
TSX - Toronto Stock Exchange · Canada
/NOT FOR DISSEMINATION IN THE UNITED STATES OF AMERICA/
CALGARY, Nov. 2, 2011 /CNW/ - Cathedral Energy Services Ltd. (the "Company" or "Cathedral" / TSX: CET) is pleased to report its results for 2011 Q3 and 2011 Q4 dividend.
Dollars are in '000's except for day rates and per share amounts
FINANCIAL HIGHLIGHTS
| | | | | | | | | | | | | | Three months ended September 30 | | Nine months ended September 30 | | | | | | | | | 2011 | | 2010 | | 2011 | | 2010 | | | Revenues | $ | 63,409 | $ | 42,022 | $ | 150,004 | $ | 106,720 | | | Adjusted gross margin % (1) | | 35% | | 35% | | 31% | | 34% | | | EBITDAS from continuing operations (1) | $ | 17,666 | $ | 12,206 | $ | 34,668 | $ | 26,777 | | | | Diluted per share | $ | 0.47 | $ | 0.33 | $ | 0.91 | $ | 0.73 | | EBITDAS (1) | $ | 17,666 | $ | 12,216 | $ | 35,117 | $ | 25,006 | | | | Diluted per share | $ | 0.47 | $ | 0.33 | $ | 0.92 | $ | 0.68 | | Funds from continuing operations (1) | $ | 16,701 | $ | 10,566 | $ | 32,197 | $ | 23,191 | | | | Diluted per share | $ | 0.44 | $ | 0.29 | $ | 0.85 | $ | 0.63 | | Earnings (loss) from continuing operations before income taxes | $ | 11,741 | $ | 8,349 | $ | 20,446 | $ | 15,950 | | | Net earnings (loss) | $ | 8,575 | $ | 6,084 | $ | 15,083 | $ | 9,556 | | | | Basic per share | $ | 0.23 | $ | 0.17 | $ | 0.41 | $ | 0.26 | | | Diluted per share | $ | 0.23 | $ | 0.16 | $ | 0.40 | $ | 0.26 | | Dividends declared per share | $ | 0.06 | $ | 0.06 | $ | 0.18 | $ | 0.18 | | | Property and equipment additions | $ | 11,774 | $ | 8,757 | $ | 37,341 | $ | 24,929 | | | Weighted average shares outstanding | | | | | | | | | | | | Basic (000s) | | 37,119 | | 36,423 | | 37,009 | | 36,411 | | | Diluted (000s) | | 37,877 | | 36,915 | | 38,073 | | 36,889 | | | | | | | | | | | | | | | | | | | September 30 | | December 31 | | | | | | | | | 2011 | | 2010 | | | Working capital | | | | $ | 21,465 | $ | 19,516 | | | | Loans and borrowings excluding current portion | | | $ | 42,544 | $ | 35,435 | | | | | Total shareholders' equity | | | $ | 125,023 | $ | 112,191 | | | | | | | | | | | | | | | | (1) Refer to "NON-IFRSMEASUREMENTS" | | | | | | | | | |
Effective January 1, 2011, Cathedral began reporting its results in accordance with International Financial Reporting Standards ("IFRS)". Prior year comparative amounts have been restated to reflect results as if the Company had always prepared its financial results using IFRS. This news release for the three and six months ended June 30, 2011 should be read in conjunction with the disclosures made in the March 31, 2011 Management's Discussion and Analysis related to the transition to IFRS and notes 3, 4 and 15 for the three months ended March 31, 2011 which discuss the transition to IFRS.
FORWARD LOOKING STATEMENTS
This news release contains certain forward-looking statements and forward-looking information (collectively referred to herein as "forward-looking statements") within the meaning of applicable Canadian securities laws. All statements other than statements of present or historical fact are forward-looking statements. Forward-looking statements are often, but not always, identified by the use of words such as "anticipate", "achieve", "believe", "plan", "intend", "objective", "continuous", "ongoing", "estimate", "outlook", "expect", "may", "will", "project", "should" or similar words suggesting future outcomes. In particular, this news release contains forward-looking statements relating to, among other things: access to capital; projected capital expenditures and commitments and the financing thereof; areas of further growth; customer commitments; financial results; activity levels; U.S. expansion; expected increased utilization and dividends. The Company believes the expectations reflected in such forward-looking statements are reasonable as of the date hereof but no assurance can be given that these expectations will prove to be correct and such forward-looking statements should not be unduly relied upon.
Various material factors and assumptions are typically applied in drawing conclusions or making the forecasts or projections set out in forward-looking statements. Those material factors and assumptions are based on information currently available to the Company, including information obtained from third party industry analysts and other third party sources. In some instances, material assumptions and material factors are presented elsewhere in this news release in connection with the forward-looking statements. You are cautioned that the following list of material factors and assumptions is not exhaustive. Specific material factors and assumptions include, but are not limited to:
the performance of the Company's businesses, including current business and economic trends; oil and natural gas commodity prices and production levels; capital expenditure programs and other expenditures by the Company and its customers; the ability of the Company to retain and hire qualified personnel; the ability of the Company to obtain parts, consumables, equipment, technology, and supplies in a timely manner to carry out its activities; the ability of the Company to maintain good working relationships with key suppliers; the ability of the Company to market its services successfully to existing and new customers; the ability of the Company to obtain timely financing on acceptable terms; currency exchange and interest rates; risks associated with foreign operations including Venezuela; the ability of the Company to realize the benefit of its conversion from an income trust to a corporation; risks associated with finalizing ancillary joint venture agreements that are required prior to the commencement of operations of the Venezuela joint venture; risks associated with Venezuela joint venture company being awarded work by the Venezuela state run oil and natural gas corporation; changes under governmental regulatory regimes and tax, environmental and other laws in Canada, United States ("U.S.") and Venezuela; and a stable competitive environment.
Forward-looking statements are not a guarantee of future performance and involve a number of risks and uncertainties some of which are described herein. Such forward-looking statements necessarily involve known and unknown risks and uncertainties, which may cause the Company's actual performance and financial results in future periods to differ materially from any projections of future performance or results expressed or implied by such forward-looking statements. These risks and uncertainties include, but are not limited to, the risks identified in this news release and in the Company's Annual Information Form under the heading "Risk Factors". Any forward-looking statements are made as of the date hereof and, except as required by law, the Company assumes no obligation to publicly update or revise such statements to reflect new information, subsequent or otherwise.
All forward-looking statements contained in this news release are expressly qualified by this cautionary statement. Further information about the factors affecting forward-looking statements is available in the Company's current Annual Information Form and Annual Report which have been filed with Canadian provincial securities commissions and are available on www.sedar.com.
NON-IFRS MEASUREMENTS
This news release refers to certain non-IFRS measurements that do not have any standardized meaning within IFRS and therefore may not be comparable to similar measures provided by other companies. Management utilizes these non-IFRS measurements to evaluate Cathedral's performance.
The specific measures being referred to include the following:
i) "Adjusted gross margin" - calculated as gross margin plus non-cash items (depreciation and share-based compensation); is considered a primary indicator of operating performance (see tabular calculation on the following page);
ii) "Adjusted gross margin %" - calculated as adjusted gross margin divided by revenues; is considered a primary indicator of operating performance (see tabular calculation on the following page);
iii) "EBITDAS" - defined as earnings before finance costs, unrealized foreign exchange on intercompany balances, unrealized foreign exchange due to hyper-inflation accounting, taxes, depreciation and share-based compensation; is considered an indicator of the Company's ability to generate funds flow from operations prior to consideration of how activities are financed, how the results are taxed and measured and non-cash expenses (see tabular calculation on the following page);
iv) "EBITDAS from continuing operations" - defined as earnings before finance costs, unrealized foreign exchange on intercompany balances, unrealized foreign exchange due to hyper-inflation accounting, taxes, depreciation and share-based compensation excluding the portion due from discontinued operations in each component of the calculation; is considered an indicator of the Company's ability to generate funds flow from operations prior to consideration of how activities are financed, how the results are taxed and measured and non-cash expenses (see tabular calculation on the following page);
v) "EBITDAS from discontinued operations" - defined as earnings before finance costs, unrealized foreign exchange on intercompany balances, unrealized foreign exchange due to hyper-inflation accounting, taxes, depreciation and share-based compensation from discontinued operations of the Company's former wireline division in each component of the calculation;
vi) "Maintenance capital expenditures" - refers to capital expenditures required to maintain existing levels of service but excludes replacement cost of lost-in-hole equipment to the extent the replacement equipment is financed from the proceeds on disposal of the equipment lost-in-hole; and
vii) "Funds from continuing operations" - calculated as cash provided by operating activities before changes in non-cash working capital, cash flow from discontinued operations and income taxes paid less current tax expense; is considered an indicator of the Company's ability to generate funds flow from operations on an after tax basis but excluding changes in non-cash working capital which is financed using the Company's operating loan (see tabular calculation on the following page).
The following tables provide reconciliations from IFRS measurements to non-IFRS measurements referred to in this news release:
Adjusted gross margin
| | | | | | | | | | | | | | Three months ended September 30 | Nine months ended September 30 | | | | | | | | | | | 2011 | | 2010 | | 2011 | | 2010 | | Gross margin | $ | 17,946 | $ | 11,699 | $ | 35,597 | $ | 28,030 | | | Add non-cash items included in cost of sales: | | | | | | | | | | | | Depreciation | | 4,105 | | 3,043 | | 11,172 | | 7,905 | | | Share-based compensation | | 82 | | 79 | | 245 | | 232 | | | | | | | | | | | | | Adjusted gross margin | $ | 22,133 | $ | 14,821 | $ | 47,014 | $ | 36,167 | | | | | | | | | | | | | | Adjusted gross margin % | | 35% | | 35% | | 31% | | 34% | | | EBITDAS | | | | | | | | | | | | | Three months ended September 30 | Nine months ended September 30 | | | | | | | | | | | 2011 | | 2010 | | 2011 | | 2010 | | Earnings (loss) from continuing operations before income taxes | $ | 11,741 | $ | 8,349 | $ | 20,446 | $ | 15,950 | | | Add (deduct): | | | | | | | | | | | | Depreciation included in cost of sales | | 4,105 | | 3,043 | | 11,172 | | 7,905 | | | Depreciation included in selling, general and administrative | | | | | | | | | | | expenses | | 41 | | 85 | | 118 | | 248 | | | Share-based compensation included in cost of sales | | 82 | | 79 | | 245 | | 232 | | | Share-based compensation included in selling, general | | | | | | | | | | | and administrative expenses | | 357 | | 640 | | 1,105 | | 1,901 | | | Unrealized foreign exchange (gain) loss on intercompany | | | | | | | | | | | balances | | 868 | | (464) | | 294 | | (231) | | | Unrealized foreign exchange gain due to hyper-inflation | | | | | | | | | | | accounting | | - | | - | | - | | (510) | | | Finance costs | | 472 | | 474 | | 1,288 | | 1,282 | | | | | | | | | | | | | EBITDAS from continuing operations | | 17,666 | | 12,206 | | 34,668 | | 26,777 | | | EBITDAS from discontinued operations | | - | | 10 | | 449 | | (1,771) | | | | | | | | | | | | | | EBITDAS | $ | 17,666 | $ | 12,216 | $ | 35,117 | $ | 25,006 | | | Funds from continuingoperations | | | | | | | | | | | | | | | | | Nine months ended September 30 | | | | | | | | | | | | 2011 | | 2010 | | Cash flow from operating activities | | | | | $ | 18,170 | $ | 16,126 | | | Add (deduct): | | | | | | | | | | | | Cash flow from discontinued operations | | | | | | - | | 1,694 | | | Changes in non-cash operating working capital | | | | | | 12,987 | | 5,343 | | | Income taxes paid | | | | | | 1,191 | | 1,005 | | | Current tax recovery (expense) | | | | | | (151) | | (977) | | | | | | | | | | | | | Funds from continuing operations | | | | | $ | 32,197 | $ | 23,191 | |
OVERVIEW
The Company completed 2011 Q3 with quarterly revenues of $63,409 and year-to-date revenues of $150,004 compared to 2010 Q3 revenues of $42,022 and 2010 year-to-date revenues of $106,720. Year-to-date revenues have increased 41% from 2010. The 2011 Q3 revenues were comprised of 75% (2010 Q3 - 79%) from the directional drilling division and 25% (2010 Q3 - 21%) from the production testing division.
2011 Q3 EBITDAS were $17,666 ($0.47 per share diluted) which represents a $5,450 increase from 2010 Q3 EBITDAS of $12,216 ($0.33 per share diluted). For the three months ended September 30, 2011, the Company's net earnings were $8,575 ($0.23 per share diluted) as compared to a $6,084 ($0.16 per share diluted) in 2010.
2011 year-to-date EBITDAS were $35,117 ($0.92 per share diluted) which represents a $10,111 or 40% increase from $25,006 ($0.68 per share diluted) in 2010. On a 2011 year-to-date basis, the Company's net earnings were $15,083 ($0.40 per share diluted) as compared to a $9,556 ($0.26 per share diluted) in 2010. The increase in revenues and EBITDAS was a result of a combination of increased activity associated with the use of horizontal, multi-stage fracturing technology to complete conventional and unconventional resource plays in both Canada and the U.S., pricing increases and additional equipment over the prior year.
RESULTS OF OPERATIONS - THREE MONTHS ENDED SEPTEMBER 30
| | | | | | | | | | | | | | | | | Nine months ended September 30, 2011 | Nine months ended September 30, 2010 | | | | | | | | | | | | | Directional | | Production | | | | Directional | | Production | | | | Revenues | | drilling | | testing | | Total | | drilling | | testing | | Total | | Canada | $ | 34,732 | $ | 8,837 | $ | 43,569 | $ | 22,257 | $ | 4,075 | $ | 26,332 | | United States | | 13,125 | | 6,715 | | 19,840 | | 11,050 | | 4,640 | | 15,690 | | | | | | | | | | | | | | | | Total | $ | 47,857 | $ | 15,552 | $ | 63,409 | $ | 33,307 | $ | 8,715 | $ | 42,022 |
Revenues and gross margin2011 Q3 revenues were $63,409 which represented an increase of $21,387 or 51% from 2010 Q3 revenues of $42,022. The increase was due to increased drilling activity, additions to major equipment in the last 12 months and day rate pricing increases.
The directional drilling division revenues have increased from $33,307 in 2010 Q3 to $47,857 in 2011 Q3. This increase was the result of: i) a 33% increase in activity days from 3,340 in 2010 to 4,443 in 2011; and ii) an 9% increase in the average day rate from $9,842 in 2010 Q3 to $10,683 in 2011 Q3. For comparison, the 2011 Q2 average day rate was $10,348. On year-over-year basis, Canadian day rates have increased 10% and this increase was attributable to a combination of passing on increased field labour rates to customers and general rate increases. U.S. day rates have increased 3% when converted to Canadian dollars. The U.S. day rates have increased 9% in U.S. dollars, mainly due to the change in types of drilling work performed in 2011. The day rates disclosed in this news release reflect revenue as classified under IFRS - see notes to financial statements for explanation of changes in revenue classifications. Canadian activity days increased from 2,179 to 3,100 and U.S. activity days increased from 1,161 to 1,343.
The Company's production testing division contributed $15,552 in revenues during 2011 Q3 which was a 78% increase over 2010 revenues of $8,715. This increase is attributable to the overall increase in testing units from 51 at the end of 2010 Q3 to 62 at the end of 2011 Q3, plus an increase in oilfield service activities on a year-over-year basis. There were 9 units included in the 2010 Q3 number that were purchased prior to September 30, 2010, but which were not in service until 2010 Q4.
The gross margin was 28% for both 2011 and 2010 Q3. Under IFRS, cost of sales includes the non-cash expenses for a portion of depreciation and share-based compensation and these non-cash expenses total $4,187 for 2011 Q3 and $3,122 for 2010 Q3. Adjusted gross margin for 2011 Q3 was $22,133 (35%) compared to $14,821 (35%) for 2010 Q3. There were no significant changes between the quarters in the components of cost of sales.
Depreciation allocated to cost of sales increased from $3,043 in 2010 Q3 to $4,105 in 2011 Q3 due to capital additions in the period from 2010 Q3 to 2011 Q3. Depreciation included in cost of sales as a percentage of revenue was 6% in 2011 Q3 and 7% in 2010 Q3.
For 2011 Q3 the Company had share-based compensation included in cost of sales of $82 compared to $79 recognized in 2010 Q3. The fair value of the options is being amortized against income over the three-year vesting periods.
Selling, general and administrative expenses ("SG&A")SG&A expenses were $5,790 in 2011 Q3; an increase of $745 compared with $5,045 in 2010 Q3. As a percentage of revenue, these costs were 9% in 2011 Q3 and 12% in 2010 Q3. Under IFRS, SG&A includes the non-cash expenses for a portion of depreciation and share-based compensation. These non-cash expenses total $398 for 2011 Q3 and $725 for 2010 Q3. SG&A net of these non-cash items were $5,392 in 2011 Q3 and $4,320 in 2010 Q3, an increase of $1,072. Staffing costs increased $1,070; this increase was primarily related to staff additions for research and development department, staff positions added to accommodate growth, wage increases for existing staff as well as changes in variable compensation. The staffing costs included in SG&A relate to executives, sales, accounting, human resources, payroll, safety, research and development and related support staff. The remaining net increase of $2 relates to several items, none of which were significant individually.
Depreciation allocated to SG&A decreased from $85 in 2010 Q3 to $41 in 2011 Q3 due to aging assets and less depreciation under the declining balance method of depreciation.
For 2011 Q3 the Company had share-based compensation included in SG&A of $357 compared to $640 recognized in 2010 Q3. The fair value of the options is being amortized against income over the three-year vesting periods.
Gain on disposal of property and equipmentDuring 2011 Q3 the Company had a gain on disposal of property and equipment of $712, compared to $1,397 in 2010 Q3. The Company's gains are mainly due to recoveries of lost-in-hole equipment costs including previously expensed depreciation on the related assets. The timing of lost-in-hole recoveries is not in the control of the Company and therefore can fluctuate significantly from quarter-to-quarter.
Foreign exchange gain (loss) The Company's foreign exchange changed from a gain of $772 in 2010 Q3 to a loss of $655 in 2011 Q3 due to the fluctuations in the Canadian dollar compared to U.S. dollars and Venezuelan bolivars. Upon consolidation the Company's foreign operations are considered to be self-sustaining and therefore gains and losses due to fluctuations in the foreign currency exchange rates are recorded in other comprehensive income ("OCI") on the balance sheet as a component of equity. However, gains and losses in the Canadian entity on U.S. denominated intercompany balances continue to be recognized in the statement of income. Included in the 2011 Q3 foreign currency gain are unrealized losses of $868 (2010 Q3 - $464 gain) related to intercompany balances.