ACT Energy Technologies Ltd. press release
Cathedral Energy Services Ltd. Reports Results for 2012 Q3 and 2012 Q4 Dividend
TSX - Toronto Stock Exchange · Canada
/NOT FOR DISSEMINATION IN THE UNITED STATES OF AMERICA/
CALGARY, Nov. 6, 2012 /CNW/ - Cathedral Energy Services Ltd. (the "Company" or "Cathedral" / TSX: CET) is pleased to report its results for 2012 Q3 and 2012 Q4 dividend.
| FINANCIAL HIGHLIGHTS | | | | | | | | | | | | Dollars in 000's except per share amounts | | | | | | | | | | | | | | | | | | | | | | | | | Three months ended September 30 | | Nine months ended September 30 | | | | | | | | | | 2012 | 2011 | | 2012 | 2011 | | | | | | | Revenues | $ | 49,830 | $ | 63,409 | | $ | 158,358 | $ | 150,004 | | | | | | | | | | | | | | | Adjusted gross margin % (1) | 28.0% | 34.9% | | 28.3% | 31.3% | | | | | | | | | | | | | | | | | | | EBITDAS (1) | $ | 10,538 | $ | 17,666 | | $ | 34,562 | $ | 35,117 | | | | Diluted per share | $ | 0.28 | $ | 0.47 | | $ | 0.91 | $ | 0.92 | | | | | | | | | | | | | | EBITDAS (1) as % of revenues | 21.1% | 27.9% | | 21.8% | 23.4% | | | | | | | | | | | | | | | | | | | Funds from continuing operations (1) | $ | 8,039 | $ | 16,701 | | $ | 26,684 | $ | 32,197 | | | | Diluted per share | $ | 0.21 | $ | 0.44 | | $ | 0.70 | $ | 0.85 | | | | | | | | | | | | | | Net earnings | $ | 3,813 | $ | 8,575 | | $ | 13,219 | $ | 15,083 | | | | Basic per share | $ | 0.10 | $ | 0.23 | | $ | 0.35 | $ | 0.41 | | | Diluted per share | $ | 0.10 | $ | 0.23 | | $ | 0.35 | $ | 0.40 | | | | | | | | | | | | | | Dividends declared per share | $ | 0.075 | $ | 0.060 | | $ | 0.225 | $ | 0.180 | | | | | | | | | | | | | | | Property and equipment additions | $ | 5,229 | $ | 11,774 | | $ | 23,716 | $ | 37,341 | | | | | | | | | | | | | | | Weighted average shares outstanding | | | | | | | | | | | | | Basic (000s) | 37,455 | 37,119 | | 37,432 | 37,009 | | | | | | | Diluted (000s) | 37,721 | 37,877 | | 37,861 | 38,073 | | | | | | | | | | | | | | | | | | | | | | September 30 | December 31 | | | | | | | | | | | 2012 | 2011 | | | | | | | Working capital | | | | $ | 35,546 | $ | 40,052 | | | | | | | | | | | | | | | | | Total assets | | | | $ | 231,387 | $ | 231,923 | | | | | Loans and borrowings excluding current portion | | | | $ | 45,986 | $ | 50,694 | | | | | | | | | | | | | | | | | Total shareholders' equity | | | | $ | 141,106 | $ | 136,107 | | | | | | | | | | | | | | | | | (1) Refer to "NON-GAAP MEASUREMENTS" | | | | | | | | | | |
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: capital expenditures are expected to be financed by way of cash flow from operations and the Company's credit facility; Cathedral expects to add 11 MWD systems and 7 production testing units in 2012; introduction of new technologies; significant increase in activity levels in Northeast, Houston and Oklahoma regions of the U.S.; the new proprietary mud motor is expected to significantly reduce operating costs as well as increase durability; and progress toward the commencement of providing directional drilling services in its joint venture company, Vencana Servicios Petroleros, S.A. 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-GAAP MEASUREMENTS
This news release refers to certain non-GAAP 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-GAAP 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 below); | | ii) | "Adjusted gross margin %" - calculated as adjusted gross margin divided by revenues; is considered a primary indicator of operating performance (see tabular calculation below); | | 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 below); | | 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) | "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 below). |
The following tables provide reconciliations from GAAP measurements to non-GAAP measurements referred to in this news release:
| Adjusted gross margin | | | | | | | | | | | | | | | | | | | | | | | Three months ended September 30 | | Nine months ended September 30 | | | | | | | | | 2012 | 2011 | | 2012 | 2011 | | | | | | Gross margin | $ | 9,299 | $ | 17,946 | | $ | 31,190 | $ | 35,597 | | Add non-cash items included in cost of sales: | | | | | | | | | | | | Depreciation | 4,614 | 4,105 | | 13,408 | 11,172 | | | | | | Share-based compensation | 44 | 82 | | 215 | 245 | | | | | | | | | | | | | | | | Adjusted gross margin | $ | 13,957 | $ | 22,133 | | $ | 44,813 | $ | 47,014 | | | | | | | | | | | | | Adjusted gross margin % | 28.0% | 34.9% | | 28.3% | 31.3% | | | | | | | | | | | | | | | |
| EBITDAS | | | | | | | | | | | | | | | | | | | | | | | Three months ended September 30 | | Nine months ended September 30 | | | | | | | | | 2012 | 2011 | | 2012 | 2011 | | | | | | Earnings from continuing operations before income taxes | $ | 5,348 | $ | 11,741 | | $ | 18,347 | $ | 20,446 | | Add (deduct): | | | | | | | | | | | | Gain on dispoal of property and equipment from discontinued operations | - | - | | - | 449 | | | | | | Depreciation included in cost of sales | 4,614 | 4,105 | | 13,408 | 11,172 | | | | | | Depreciation included in selling, general and administrative expenses | 163 | 41 | | 478 | 118 | | | | | | Share-based compensation included in cost of sales | 44 | 82 | | 215 | 245 | | | | | | Share-based compensation included in selling, general and administrative expenses | 256 | 357 | | 770 | 1,105 | | | | | | Unrealized foreign exchange (gain) loss on intercompany balances | (378) | 868 | | (233) | 294 | | | | | | Finance costs | 491 | 472 | | 1,577 | 1,288 | | | | | | | | | | | | | | | | EBITDAS | $ | 10,538 | $ | 17,666 | | $ | 34,562 | $ | 35,117 | | | | | | | | | | | | | Funds from continuing operations | | | | | | | | | | | | | | | | | | | | | | | Three months ended September 30 | | Nine months ended September 30 | | | | | | | | | 2012 | 2011 | | 2012 | 2011 | | | | | | Cash flow from operating activities | $ | (2,512) | $ | (2,596) | | $ | 56,717 | $ | 18,170 | | Add (deduct): | | | | | | | | | | | | Changes in non-cash operating working capital | 11,532 | 19,030 | | (30,418) | 12,987 | | | | | | Income taxes paid | (214) | 520 | | 2,799 | 1,191 | | | | | | Current tax expense | (767) | (253) | | (2,414) | (151) | | | | | | | | | | | | | | | | Funds from continuing operations | $ | 8,039 | $ | 16,701 | | $ | 26,684 | $ | 32,197 |
OVERVIEW
The Company completed 2012 Q3 with quarterly revenues of $49,830 and year-to-date revenues of $158,358 compared to 2011 Q3 revenues of $63,409 and 2011 year-to-date revenues of $150,004. Year-to-date revenues have increased 6% from 2011. The 2012 Q3 revenues were comprised of 72% (2011 Q3 - 75%) from the directional drilling division; 24% (2011 Q3 - 25%) from the production testing division; and 4% (2011 Q3 - 0%) from international resale and rentals.
2012 Q3 EBITDAS was $10,538 ($0.28 per share diluted) which represents a $7,128 decrease or 40% decrease from 2011 Q3 EBITDAS of $17,666 ($0.47 per share diluted). For the three months ended September 30, 2012, the Company's net earnings were $3,813 ($0.10 per share diluted) as compared to $8,575 ($0.23 per share diluted) in 2011.
2012 year-to-date EBITDAS was $34,562 ($0.91 per share diluted) which represents a $555 or 2% decrease from $35,117 ($0.92 per share diluted) in 2011. On a 2012 year-to-date basis, the Company's net income was $13,219 ($0.35 per share diluted) as compared to a $15,083 ($0.40 per share diluted) in 2011.
| RESULTS OF OPERATIONS - THREE MONTHS ENDED SEPTEMBER 30, 2012 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Three months ended September 30, 2012 | | Three months ended September 30, 2011 | | | | | | | | | | | | | | | Directional | Production | Resale and | | | Directional | Production | | | | | | | | | | Revenues | drilling | testing | rental | Total | | drilling | testing | Total | | | | | | | | | | | | | | | | | | | | | | | | | | Canada | $ | 21,621 | $ | 5,272 | $ | - | $ | 26,893 | | $ | 34,732 | $ | 8,837 | $ | 43,569 | | | | | | | | | | | | | | | | | | | United States | 13,926 | 6,793 | - | 20,719 | | 13,125 | 6,715 | 19,840 | | | | | | | | | | | | | | | | | | | | | | | | | | International | - | - | 2,218 | 2,218 | | - | - | - | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total | $ | 35,547 | $ | 12,065 | $ | 2,218 | $ | 49,830 | | $ | 47,857 | $ | 15,552 | $ | 63,409 |
Revenues and gross margin2012 Q3 revenues were $49,830which represented a decrease of $13,579or 21% from 2011 Q3 revenues of $63,409. The decrease was primarily attributed to slow down of drilling and completions work in the Canadian market.
The directional drilling division revenues have decreased from $47,857 in 2011 Q3 to $35,547in 2012 Q3. This decrease was the result of a net: i) 28% decrease in activity days from 4,543 in 2011 Q3 to 3,255 in 2012 Q3; and ii) 4% increase in the average day rate from $10,534 in 2011 Q3 to $10,921 in 2012 Q3. On a year-over-year basis, Canadian day rates have increased 6% and this increase was attributable to rate adjustments related to increases in the Company's operating costs and general rate increases. U.S. day rates have increased 4% when converted to Canadian dollars mainly due to the change in types of drilling work performed. Canadian activity days decreased from 3,200 to 1,885 and U.S. activity days increased from 1,343 to 1,370. Canadian activity days were negatively affected by the annual "spring breakup" in 2012 which was extended due to wet weather into July, as well as lower rig counts and the reduction of drilling activity in 2012 Q3 after breakup. The U.S. activity days increased in the northeast and in Texas, but this was offset by modest declines in the Rocky Mountain region.
The Company's production testing division contributed $12,065in revenues during 2012 Q3 which was a 22% decrease from 2011 revenues of $15,552. This decrease is attributable to the decline in the level of well completions in 2012 Q3.
The gross margin for 2012 Q3 was 18.7% compared to 28.3% in 2011 Q3. Cost of sales includes the non-cash expenses for a portion of depreciation and share-based compensation and these non-cash expenses total $4,658for 2012 Q3 and $4,187 for 2011 Q3. The adjusted gross margin (which excludes non-cash expenses) was $13,957 (28.0%) for 2012 Q3 compared to $22,133 (34.9%) for 2011 Q3. The gross margin for 2012 Q3 includes equipment purchased for resale in the international market and the margin on these goods was lower than for drilling and production testing services. The remaining decline in adjusted gross margin is mainly the result of costs for non-field staff that are fixed in nature, which combined with the decline in revenues results in a lower gross margin and adjusted gross margin. The Company expects operating levels to rebound in 2013 and therefore has maintained its non-field staff levels to meet those expected demands. These increases were offset by declines in variable compensation and rent.
Depreciation allocated to cost of sales increased from $4,105in 2011 Q3 to $4,614in 2012 Q3 due to capital additions in the period from 2011 Q3 to 2012 Q3. Depreciation included in cost of sales as a percentage of revenue was 9% for 2012 Q3 and 6% for 2011 Q3.
For 2012 Q3 the Company had share-based compensation included in cost of sales of $75compared to $82 recognized in 2011 Q3. The fair value of the related options is being amortized against income over the three-year vesting periods.
Selling, general and administrative expenses ("SG&A")SG&A expenses were $5,651in 2012 Q3; a decrease of $139compared with $5,790 in 2011 Q3. As a percentage of revenue, these costs were 11% in 2012 Q3 and 9% in 2011 Q3. SG&A includes the non-cash expenses for a portion of depreciation and share-based compensation. These non-cash expenses total $419for 2012 Q3 and $398 for 2011 Q3. SG&A net of these non-cash items were $5,232in 2012 Q3 and $5,392 in 2011 Q3, a decrease of $160. Staffing costs had a net decrease of $108; this net change was primarily related to decreases in variable compensation which was offset by staff positions added to accommodate growth that occurred in 2011 Q4 and 2012 Q1 and wage increases for existing staff. 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 SG&A expenses resulted in a net decrease of $52 and relate to various net changes none of which are individually significant.
Depreciation allocated to SG&A increased from $41 in 2011 Q3 to $163in 2012 Q3 which has mainly increased due to the depreciation of the new head office location which was not depreciated until it was available-for-use in 2011 Q4.
For 2012 Q3 the Company had share-based compensation included in SG&A of $256compared to $357 recognized in 2011 Q3. The fair value of the related options is being amortized against income over the three-year vesting periods.
Gain on disposal of property and equipmentDuring 2012 Q3 the Company had a gain on disposal of property and equipment of $1,732, compared to $712 in 2011 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 loss of $655 in 2011 Q3 to a gain of $459in 2012 Q3 due to the fluctuations in the Canadian dollar compared to U.S. dollars and Venezuelan bolivars. The Company's foreign operations are denominated in a currency other than the Canadian dollar and therefore, upon consolidation 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 2012 Q3 foreign currency gain are unrealized gains of $378(2011 Q3 - $868 loss) related to intercompany balances.
Finance costs Finance costs consist of interest expenses on operating loans, loans and borrowings and bank charges of $491for 2012 Q3 versus $472 for 2011 Q3. The net increase in finance costs mainly relate to an increase in the outstanding balance for the secured revolving term loan and due to the capitalization of interest in 2011 related to the construction of the 6030 Campus. These increases were partially offset by a decrease in the interest on the Company's operating loans, due to a decline in utilization.