ACT Energy Technologies Ltd. press release
Cathedral Energy Services Income Trust reports record results for 2006 Q4 and the year ended December 31, 2006
TSX - Toronto Stock Exchange · Canada
/NOT FOR DISSEMINATION IN THE UNITED STATES OF AMERICA/
CALGARY, March 7 /CNW/ - Cathedral Energy Services Income Trust (the "Trust" / TSX: CET.UN) is pleased to report its record results for 2006 Q4 and the year-end December 31, 2006. Dollars are in '000's except for day rates and per Trust Unit amounts.
FINANCIAL HIGHLIGHTS
Three months ended Year ended December 31 December 31 2006 2005 2006 2005
Revenues $ 35,327 $ 32,101 $ 138,254 $ 86,002
EBITDA(1) $ 13,046 $ 12,090 $ 52,793 $ 31,580 Per Trust Unit - diluted $ 0.42 $ 0.39 $ 1.68 $ 1.10
Income before taxes $ 9,573 $ 9,335 $ 39,679 $ 24,817
Net income $ 8,127 $ 7,762 $ 35,348 $ 21,807 Per Trust Unit - basic $ 0.26 $ 0.26 $ 1.16 $ 0.76 Per Trust Unit - diluted $ 0.26 $ 0.25 $ 1.12 $ 0.76
Cash distributions declared per Trust Unit $ 0.26 $ 0.1375 $ 0.805 $ 0.385
Distributable income(2) $ 11,283 $ 11,055 $ 45,972 $ 27,551
Cash distributions declared $ 8,026 $ 4,116 $ 24,681 $ 11,162
Payout ratio(3) 71%(4) 37% 54%(4) 41%
Property and equipment additions and corporate acquisitions: Paid or payable in cash $ 4,448 $ 8,112 $ 26,436 $ 31,244 Paid or payable in Trust Units 320 1,769 1,820 13,712 $ 4,768 $ 9,881 $ 28,256 $ 44,956
Weighted average Trust Units outstanding: Basic ('000) 30,831 29,863 30,578 28,711 Diluted ('000) 31,316 30,896 31,423 28,712
December 31 December 31 2006 2005 Working capital $ 15,051 $ 10,571
Long-term debt and capital lease obligations excluding current portion $ 15,552 $ 12,797
Unitholders' equity $ 76,223 $ 59,615
(1) EBITDA is defined as earnings before interest on long-term debt and capital lease obligations, taxes, non-cash compensation expense and depreciation and amortization and is provided to assist investors in determining the ability of the Trust to generate cash from operations. EBITDA does not have any standardized meaning within Canadian Generally Accepted Accounting Principles and therefore may not be comparable to similar measures presented by other companies and/or trusts.
(2) Distributable income is defined as cash flow from operating activities before changes in non-cash operating working capital less required principal repayments on long-term debt and capital lease obligations and maintenance capital expenditures. Distributable income does not have any standardized meaning within Canadian Generally Accepted Accounting Policies and therefore may not be comparable to similar measures presented by other trusts. Distributable income is a main performance measurement used by management and investors to evaluate the performance of the Trust.
(3) Cash distributions declared as a percentage of distributable income.
(4) Payout ratio is 57% for 2006 Q4 and 50% for the year ended December 31, 2006 if the December 2006 "special" cash distribution of $0.05 per Trust Unit is excluded.
FORWARD-LOOKING INFORMATION
Certain statements in this news release including (i) statements that may contain words such as "anticipate", "could", "expect", "seek", "may" "intend", "will", "believe", "should", "project", "forecast", "plan" and similar expressions, including the negatives thereof, (ii) statements that are based on current expectations and estimates about the markets in which the Trust/Cathedral operates and (iii) statements of belief, intentions and expectations about developments, results and events that will or may occur in the future, constitute "forward-looking statements" and are based on certain assumptions and analysis made by the Trust/Cathedral. Forward-looking statements in this news release include, but are not limited to, statements with respect to future capital expenditures, including the amount, nature and timing thereof; oil and natural gas prices and demand; other development trends within the oil and natural gas industry; business strategy; expansion and growth of the Trust's/Cathedral's business and operations including the Trust/Cathedral's market share and position in the oilfield service market; and other such matters. Such forward-looking statements are subject to important risks and uncertainties, which are difficult to predict and that may affect the Trust's/Cathedral's operations, including, but not limited to: the impact of general economic conditions in Canada and the United States; industry conditions, including the adoption of new environmental, safety and other laws and regulations and changes in how they are interpreted and enforced; volatility of oil and natural gas prices; oil and natural gas product supply and demand; risks inherent in the Trust's/Cathedral's ability to generate sufficient cash flow from operations to meet its current and future obligations; increased competition; the lack of availability of qualified personnel or labor unrest; fluctuation in foreign exchange or interest rates; stock market volatility; opportunities available to or pursued by the Trust/Cathedral and other factors, many of which are beyond the control of the Trust/Cathedral. The Trust's/Cathedral's actual results, performance or achievements could differ materially from those expressed in, or implied by, these forward-looking statements and, accordingly, no assurance can be given that any of the events anticipated by the forward-looking statements will transpire or occur, or if any of them do transpire or occur, what benefits the Trust/Cathedral will derive therefrom. Subject to applicable law, the Trust disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
All forward-looking statements contained in this document are expressly qualified by this cautionary statement. Further information about the factors affecting forward-looking statements is available in the Trust's current Annual Information Form and Annual Report which, in due course, will be filed with Canadian provincial securities commissions and will be available on www.sedar.com.
NON-GAAP FINANCIAL MEASUREMENTS
This news release refers to certain financial measurements that do not have any standardized meaning within Canadian Generally Accepted Accounting Principles ("GAAP") and therefore may not be comparable to similar measures provided by other companies and/or trusts. These measures are provided to assist investors in determining the Trust's ability to generate cash from operations and to provide additional information regarding the use of its cash resources. The specific measures being referred to include the following i) "EBITDA" - defined as earnings before interest on long-term debt and capital lease obligations, taxes, non-cash compensation expense and depreciation and amortization; ii) "distributable income" - defined as cash flow from operating activities before changes in non-cash operating working capital less required principal repayments on long-term debt and capital lease obligations and maintenance capital expenditures; iii) "gross margin" - calculated as revenues less operating expenses; iv) "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 v) "payout ratio" - calculated as cash distributions declared divided by distributable income.
OVERVIEW
Cathedral Energy Services Income Trust is pleased to report record results for both the fourth quarter of 2006 and the year-ended December 31, 2006. Revenues for Q4 increased $3,226 or 10% to $35,327 from $32,101 in the comparative period in 2005. On a year-over-year basis, revenues increased $52,252 or 61% to $138,254 from $86,002 in 2005. 2006 Q4 EBITDA was $13,046 which compares to $12,090 in 2005. EBITDA for the year ended December 31, 2006 was $52,793 ($1.68 per diluted Trust Unit) while the comparative figure for 2005 was $31,580 ($1.10 per diluted Trust Unit).
Net income for the three months ended December 31, 2006 was $8,127 ($0.26 per diluted Trust Unit) which compares to $7,762 ($0.25 per diluted Trust Unit) in the same quarter of 2005. For the year ended December 31, 2006, net income was $35,348 ($1.12 per diluted Trust Unit) which compares to $21,807 ($0.76 per diluted Trust Unit) for 2005.
2006 represents the first full year of contribution from the 2005 business acquisitions: i) Tier One Oil Services Ltd. ("Tier One") effective May 6, 2005; ii) Advance Wireline Services Ltd. ("Advance Wireline") effective September 8, 2005; and iii) Xtreme Wireline effective December 22, 2005.
RESULTS OF OPERATIONS - 2006 COMPARED TO 2005
Revenues and operating expenses 2006 2005 Change % Revenues $ 138,254 $ 86,002 $ 52,252 61 Operating expenses (64,886) (42,313) 22,573 53 Gross margin - $ $ 73,368 $ 43,689 $ 29,679 68 Gross margin - % 53.1% 50.8% 2.3%
The Trust generated record annual revenues of $138,254 which represented an increase of 61% over 2005 revenues. The increase was mainly a result of: i) a 30% increase in directional drilling activity days to 11,046 activity days (2005 - 8,472 days); ii) a 6.7% increase in the average day rate for directional drilling services to $8,470 per day (2005 - $7,935); and iii) the full year inclusion of revenues from the 2005 acquisitions of Tier One Oil Services (May 6, 2005), Advance Wireline (September 8, 2005) and Xtreme Wireline (December 22, 2005).
Day rate increases related to providing directional drilling services that were put in place in the later portion of 2005 and early 2006 were partially offset by a shift to providing more directional (versus horizontal) drilling services. Day rates for directional drilling are lower than that for horizontal drilling. The increased activity days are the result of increased demand from customers in both operating regions. During 2006, the Trust added 14 (2005 - 14) Measurement-While-Drilling ("MWD") systems to bring the overall fleet to 68 at December 31, 2006. The Rocky Mountain region of the U.S. remains a very active area and the Trust's revenues from this region increased $10,590 or 54% on a year-over-year basis. Due to increased demand, in 2006 5 MWD systems and related directional drilling equipment were added to the U.S. fleet. At December 31, 2006, the U.S. fleet of MWD systems was 18. As conditions warrant, additional MWD systems will be added to the U.S. fleet to meet demand.
The 2005 acquisitions of Tier One Oil Services, Advance Wireline and Xtreme Wireline contributed $26,994 or 52% of the $52,252 increase in revenues.
The increase in gross margin percentage is the net result of: i) a higher average day rate received in providing directional drilling services; ii) a higher gross margin from providing directional drilling services as there was a higher ratio of directional drilling services provided as opposed to horizontal drilling services (directional, as opposed to horizontal, drilling generates higher gross margins) as well lower repair costs to directional drilling equipment; and iii) offset by an increased contribution by the wireline and production testing divisions which have gross margins that are lower than that obtained from providing directional drilling services.
General and administrative expenses
2006 2005 Change % General and administrative expenses $ 22,066 $ 14,125 $ 7,941 56
The 2005 acquisitions of Tier One, Advance Wireline and Xtreme Wireline contributed to 53% of the year-over-year increase in general and administrative expenses. The balance of the increase is related the directional drilling business which experienced an increased level of business activity both in Canada and the United States as well as increased personnel, insurance and office/shop rental costs. As a percentage of revenues, general and administrative expenses were 16.0% in 2006 and 16.4% in 2005.
Depreciation and amortization
2006 2005 Change % Depreciation and amortization $ 10,692 $ 5,686 $ 5,006 88
This increase is related to the combination of: i) the Trust's investment in property and equipment over the past 12 months; and ii) the inclusion of depreciation and amortization on property and equipment and intangibles acquired as a result of the 2005 acquisitions of Tier One, Advance Wireline and Xtreme Wireline for a full year in 2006. Included in depreciation and amortization for 2006 is $148 (2005 - $46) related to the amortization of intangibles acquired through the Advance Wireline acquisition. As a percentage of revenues, depreciation and amortization amounted to 7.7% for 2006 and 6.6% for 2005.
Interest
2006 2005 Change % Interest - long-term debt and capital lease obligations $ 936 $ 235 $ 701 298 Interest - other $ 482 $ 71 $ 411 579
The main contributing factors to the increase in interest related to long-term debt and capital lease obligations is: i) increase in the effective interest rate related to the Trust's revolving, non-reducing term loan facility; and ii) the amount of debt outstanding on a year-over-year basis. Until the September 8, 2005 acquisition of Advance Wireline the Trust had minimal long-term debt and no capital lease obligations. As part of the Advance Wireline acquisition the Trust incurred $12 million of debt related to its revolving, non-reducing term loan facility plus the assumptions of $885 (net of repayments on closing) of long-term debt and capital lease obligations. In addition, the Trust assumed $574 of capital lease obligations related to the acquisition of Xtreme Wireline. In Q3 2006 the Trust accessed an additional $3,000 of its available revolving non-reducing term loan facility - proceeds of which were used to finance the Trust's acquisition of land and buildings.
The $411 increase in other interest expense is related to the Trust's increased utilization of its operating line of credit.
Foreign exchange (gain) loss
2006 2005 Change % Foreign exchange (gain) loss $ (27) $ 25 $ (52) (208)
The Trust derives revenues from the U.S. which are denominated in the local currency. This causes a degree of foreign currency exchange rate risk which the Trust attempts to mitigate by matching local purchases in the same currency. Furthermore, the Trust's Canadian operations are subject to foreign currency exchange rate risk in that some purchases for parts, supplies and components in the manufacture of equipment are denominated in U.S. dollars. Foreign exchange rates did not fluctuate significantly during 2006 and as a result the Trust's foreign exchange gain/loss was minimal.
Non-cash compensation expense
2006 2005 Change % Non-cash compensation expense $ 1,486 $ 842 $ 644 76
The overall increase in the value of non-cash compensation expense is due to: i) the significant appreciation in the market price for the underlying Trust Units which in turn has increased substantially the value attributed to the Trust Unit options granted during the period using the Black-Scholes option pricing model; and ii) the overall increase in the number of options granted. The value of the options is being amortized against income over the three-year vesting period.
Gain on disposal of property and equipment
2006 2005 Change % Gain on disposal of property and equipment $ 1,946 $ 2,112 $ (166) (8)
The gain on disposal of property and equipment can vary significantly from year-to-year as almost all of the disposals relate to downhole equipment lost-in-hole. Cathedral recovers lost-in-hole equipment costs including previously expensed depreciation on the related assets.
Taxes
2006 2005 Change % Taxes $ 4,331 $ 3,010 $ 1,321 44
The effective tax rate for 2006 was 10.9% while the comparative figure for 2005 was 12.1%. The 2005 tax provision includes the benefit of a reduction in future income taxes related to the June 16, 2005 internal reorganization. Also in relation to 2005, a portion of the Trust's income from its Canadian operating entities for the period June 15, 2005 (effective date of the reorganization) to December 31, 2005 is not subject to corporate income taxes within the corporate structure as this income flows through to Unitholders and is taxed in their hands. Accordingly, there is no tax provision within the Trust's financial statements for that portion of the income which is allocated to the unitholders. For 2006, the period for which a portion of the Trust's income from its Canadian operating entities is not subject to corporate income taxes within the corporate structure was the full year as opposed to the approximate 6 1/2 months in 2005. Also contributing to the decreased effective tax rate is a higher portion of the Trust's pre-tax income being allocated to Unitholders (as opposed to be taxed within the Trust's legal entities) as well as a reduction in Canadian enacted tax rates in 2006 Q2. Most of the tax provision for fiscal 2006 relates to taxation of profits from the Trust's U.S. operations.
LIQUIDITY AND CAPITAL RESOURCES
The Trust's principal source of liquidity is cash generated from operations. The Trust also has the ability to fund liquidity requirements through its credit facility and the issuance of debt and/or equity. At December 31, 2006, the Trust had an operating line of credit with a major Canadian bank in the amount of $12,500 (2005 - $9,000) of which $6,460 (2005 - $5,310) was drawn. In addition, the Trust has a non-reducing revolving term loan facility in the amount of $25,000 (2005 - $12,000) of which $15,000 (2005 $12,000) was drawn as at December 31, 2006. In addition, at December 31, 2006, the Trust had obligations under capital leases in the amount of $664 (2005 - $969) and other long-term debt of $171 (2005 - $383).
Operating activities
Cash provided by operating activities before changes in non-cash operating working capital in 2006 increased from $27,942 in 2005 to $46,831 - an increase of $18,889 or 68%. This increase is a direct reflection of the strong operating results of the Trust for 2006 which includes the contribution of the 2005 acquisitions for a full year. As a result of the increased level of operations in 2006 over 2005, the Trust invested an additional $6,902 (2005 $6,333) in non-cash working capital related to operations in 2006. The Trust has a strong working capital position at December 31, 2006 at $15,051 which compares to $10,571 at the end of 2005.
Investing activities
Cash used in investing activities for the year ended December 31, 2006 amounted to $24,366 which compares to $26,294 in 2005. Excluding the changes in non-cash working capital related to investing activities, cash used in investing activities decreased by $3,999 from $27,158 in 2005 to $23,159 in 2006. In 2006, The Trust's operating entities acquired $26,436 (2005 - $18,583) of property and equipment. The 2006 property and equipment additions included: 14 MWD systems as well as additions to the mud motor and drill collar fleet to complement the increase in directional drilling job capacity; replacement of lost-in-hole directional drilling equipment, 3 production testing units; 7 wireline units and various specialty wireline logging tools and auxiliary wireline equipment; purchase of operating facilities in Whitecourt, Alberta and Vegreville, Alberta; leasehold improvements related to the relocation of the Calgary head office; and progress payments on equipment to be delivered in 2007.
Proceeds on disposal of property and equipment amounted to $3,277 (2005 - $4,086) and is mainly related to recovery of downhole equipment costs that were lost-in-hole in 2006 as well as previously expensed depreciation. Included in 2005 investing activities is the use of funds in the amount of $12,661 related to the acquisition of Tier One, Advance Wireline and Xtreme Wireline (figure excludes the value of Trust Units issued as part of the acquisitions in the amount of $13,712). The Advance Wireline acquisition structure includes additional contingent consideration of up to a maximum of $3,000, payable in Trust Units with an assigned value based upon an average trading price immediately prior to the issuance of the related Trust Units, and will be paid over a 2-year period based upon the financial results of Advance Wireline for the periods ended on the first and second anniversary of the closing date. In December 2006, the Trust issued 187,032 Trust Units with a total assigned value of $1,820 to satisfy the year 1 portion of the contingent consideration. Fluctuations in non-cash working capital related to investing activities are a function of when proceeds on disposal of property and equipment are received and when payments for property and equipment purchases are made.