ACT Energy Technologies Ltd. press release
Cathedral Energy Services Ltd. reports results for 2013 Q3 and a 10% increase in 2013 Q4 dividend
TSX - Toronto Stock Exchange · Canada
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/NOT FOR DISSEMINATION IN THE UNITED STATES OF AMERICA/
CALGARY, Nov. 5, 2013/CNW/ - Cathedral Energy Services Ltd. (the "Company" or "Cathedral" / TSX: CET) announces its consolidated financial results for the three and nine months ended September 30, 2013and 2012. Dollars in 000's except per share amounts.
_This news release contains "forward-looking statements" within the meaning of applicable Canadian securities laws. For a full disclosure of forward-looking statements and the risks to which they are subject, see "Forward-Looking Statements" later in this news release._
2013 Q3 KEY TAKEAWAYS
2013 Q3 set records for U.S. directional drilling revenues and U.S. production testing revenues; Continued growth in U.S. activity levels for both divisions - 25% increase in year-to-date revenues; Cathedral continues to "win" incremental work due to success of its proprietary Fusion EM/MWD platform; Sale/leaseback of Niskuand Calgary, Albertafacilities is completed with net proceeds of $22,260and gain of $5,354- net proceeds used to reduce bank debt; and Continued operational success, confident outlook and balance sheet flexibility have provided a sound basis for a 10% dividend increase to $0.0825per share.
2013 Q3 FINANCIAL SUMMARY
| | | | | | | | | | | | | | Three months ended September 30 | | Nine months ended September 30 | | | | | | | | | 2013 | | 2012 | | 2013 | | 2012 | | | Revenues | $ | 59,734 | $ | 49,830 | $ | 159,447 | $ | 158,358 | | | Adjusted gross margin % (1) | | 25.1% | | 28.0% | | 24.1% | | 28.3% | | | EBITDAS (1) | $ | 10,757 | $ | 10,538 | $ | 24,691 | $ | 32,528 | | | | Diluted per share | $ | 0.30 | $ | 0.28 | $ | 0.68 | $ | 0.86 | | EBITDAS (1) as % of revenues | | 18.0% | | 21.1% | | 15.5% | | 20.5% | | | Funds from operations (1) | $ | 7,876 | $ | 8,039 | $ | 18,959 | $ | 26,684 | | | | Diluted per share | $ | 0.22 | $ | 0.21 | $ | 0.52 | $ | 0.70 | | Net earnings | $ | 7,956 | $ | 3,813 | $ | 9,706 | $ | 13,219 | | | | Basic per share | $ | 0.22 | $ | 0.10 | $ | 0.27 | $ | 0.35 | | | Diluted per share | $ | 0.22 | $ | 0.10 | $ | 0.27 | $ | 0.35 | | Dividends declared per share | $ | 0.075 | $ | 0.075 | $ | 0.225 | $ | 0.225 | | | Property and equipment additions (cash) | $ | 8,373 | $ | 5,229 | $ | 21,547 | $ | 23,716 | | | Weighted average shares outstanding | | | | | | | | | | | | Basic (000s) | | 35,915 | | 37,455 | | 36,175 | | 37,432 | | | Diluted (000s) | | 36,013 | | 37,721 | | 36,238 | | 37,861 | | | | | | | | | | | | | | | | | | | September 30 | | December 31 | | | | | | | | | 2013 | | 2012 | | | Working capital | | | | | $ | 30,055 | $ | 29,173 | | | Total assets | | | | | $ | 225,938 | $ | 224,080 | | | Loans and borrowings excluding current portion | | | | | $ | 38,253 | $ | 46,151 | | | Total shareholders' equity | | | | | $ | 138,240 | $ | 137,932 | | | | | | | | | | | | | | (1) see "NON-GAAP MEASUREMENTS" | | | | | | | | | |
OVERVIEW
The Company completed 2013 Q3 with quarterly revenues of $59,734and year-to-date revenues of $159,447compared to 2012 Q3 revenues of $49,830and 2012 year-to-date revenues of $158,358. Year-to-date revenues have increased 1% from 2012 and Q3 revenues have increased 20% from 2012. The 2013 Q3 revenues were comprised of 71% (2012 Q3 - 72%) from the directional drilling division, 29% (2012 Q3 - 24%) from the production testing division and nil% (2012 Q3 - 4%) from international operations.
2013 Q3 EBITDAS were $10,757($0.30per share diluted) which represents a $219increase from 2012 Q3 EBITDAS of $10,538($0.28per share diluted). For the three months ended September 30, 2013, the Company's net earnings were $7,956($0.22per share diluted) as compared to a $3,813($0.10per share diluted) in 2012. The quarter-over-quarter increase in EBITDAS is due to increases in U.S. operating results. 2013 year-to-date EBITDAS was $24,691($0.68per share diluted) which represents a $7,837or 29% decrease from $32,528($0.86per share diluted) in 2012. On a 2013 year-to-date basis, the Company's net income was $9,706($0.27per share diluted) as compared to a $13,219($0.35per share diluted) in 2012.
OUTLOOK
Cathedral continues its focus on the build out of its U.S. services. On the directional drilling side of the business we expect continued expansion in Oklahomaand Texasmarkets. Additional technical sales representatives have been added and the Company continues to "win" work based upon the success of Cathedral's Fusion MWD platform and "nDurance" mud motors and performance based work. The Company's U.S. production testing division has completed 3 consecutive quarters of record revenues, but the Company expects 2013 Q4 activity levels to decline from 2013 Q3 levels due to a client deferring work into 2014 and the fact one customer has provided the Company notice that they will be moving work to another service provider as current work is completed. The Company has increased its marketing efforts for U.S. production testing service line by hiring additional technical sales representatives as well as utilizing U.S. directional drilling sales team to market production testing services.
The Company's Canadian directional drilling division continues to focus its marketing efforts on targeting clients in the Deep Basin reservoirs where reduction in drilling times resulting from equipment and technology improvements allow the Company to compete on a performance basis rather than on lowest cost for services. For 2013 Q4 both Canadian divisions are expecting to see increased activity over Q3 which was affected negatively by weather and customers that deferred work to later in the year. 2013 Q4 should also benefit from the addition of new customers as a result of ongoing marketing efforts.
Prior to the end of 2013 Q3, Cathedral completed the sale and leaseback of its Albertaoperating facilities with net proceeds of $22,260which was used to reduce bank debt. This debt repayment will provide the Company with additional financial flexibility as it moves forward.
In 2013 Q4, the Company's Directional Plus International Ltd. subsidiary is expected to ship all of the remaining production testing and wireline equipment which it has committed to sell to its international joint venture.
In mid-October, the Company's President and Chief Executive Officer, Mark Bentsen, left the employment of Cathedral. Until a replacement is secured, Mr. Bentsen's functions will be assumed by P. Scott MacFarlaneas Interim Chief Executive Officer and Randy Pustanykas President and Chief Operating Officer. Messrs. MacFarlane and Pustanyk will maintain their current roles with Cathedral as Chief Financial Officer and Vice President, Operations, respectively. Cathedral has an excellent team of executives in place on a companywide basis, and the Board of Directors are confident that we have the key people necessary to advance our strategy and guide our directional drilling and production testing businesses successfully forward.
DIVIDENDS
It is the intent of the Company to pay quarterly dividends to shareholders. The Board of Directors will review the amount of dividends on a quarterly basis with due consideration to current performance, historical and future trends in the business, the expected sustainability of those trends and enacted tax legislation which will affect future taxes payable as well as required long-term debt repayments, maintenance capital expenditures required to sustain performance and future growth capital expenditures. The Directors have approved an increase of 10% for 2013 Q4 dividend. The 2013 Q4 dividend will be in the amount of $0.0825per share which will have a date of record of December 31, 2013and a payment date of January 15, 2014.
2013 CAPITAL PROGRAM
For the nine months ended September 30, 2013the Company has invested an additional $21,547(2012 - $23,716) in property and equipment, excluding non-cash capital lease additions. The main 2013 capital additions were upgrades and replacement of downhole tools, the addition of 4 retrievable positive pulse systems, 3 high pressure production testing units and auxiliary production testing equipment. In 2013, $9,835of the additions related to growth capital, with the remaining $11,712for maintenance, upgrade and replacement capital. The net property and equipment additions (additions net of proceeds on the disposal of property and equipment) to date in 2013 were $16,683(2012 $13,758).
The following is a summary of major equipment owned by the Company:
| | | | | | | September 30 | December 31 | September 30 | | | 2013 | 2012 | 2012 | | Directional drilling - MWD systems (1) | 135 | 136 | 132 | | Production testing units | 72 | 69 | 69 | | (1) The Company has 15 Geolink MWD systems that have been excluded from the Septermber 30, 2013 figures as they are held for sale. As at September 30 and December 31, 2012 there were 10 Geolink MWD systems that were excluded. | | | |
In 2013 Q3 Cathedral's 2013 capital budget has increased from the previously announced amount of $27,000to $30,000for an increase of $3,000for production testing ancillary equipment in Canadaand U.S., as well as for land and building in Oklahoma City.
The maintenance capital for 2013 has increased to $16,000with additional upgrades to existing production testing equipment and maintenance of downhole tools.
These capital expenditures are expected to be financed by way of cash flow from operations, proceeds of disposal of property and equipment and the Company's credit facility.
RESULTS OF OPERATIONS - THREE MONTHS ENDED SEPTEMBER 30
| | | | | | | | | | | | | | | | | | | | Three months ended September 30, 2013 | | Three months ended September 30, 2012 | | | | | | | | | | | | | | | | Directional | Production | Resale | | | Directional | Production | Resale | | | | | | | | | | Revenues | drilling | testing | and Rental | Total | | drilling | testing | and Rental | Total | | | | | | | | | Canada | $ | 19,571 | $ | 7,572 | $ | - | $ | 27,143 | $ | 21,621 | $ | 5,272 | $ | - | $ | 26,893 | | United States | | 22,836 | | 9,755 | | - | | 32,591 | | 13,926 | | 6,793 | | - | | 20,719 | | International | | - | | - | | - | | - | | - | | - | | 2,218 | | 2,218 | | Total | $ | 42,407 | $ | 17,327 | $ | - | $ | 59,734 | $ | 35,547 | $ | 12,065 | $ | 2,218 | $ | 49,830 |
Revenues2013 Q3 revenues were $59,734which represented an increase of $9,904or 20% from 2012 Q3 revenues of $49,830. All areas, except for Canadian directional drilling were up on a year-over-year basis.
Canadian directional drilling revenues decreased from $21,621in 2012 Q3 to $19,571in 2013 Q3; a 9% decrease. This decrease was the result of: i) a 6% decrease in activity days from 1,885 in 2012 Q3 to 1,771 in 2013 Q3; and ii) a 4% decrease in the average day rate from $11,470in 2012 Q3 to $11,051in 2013 Q3. Canadian activity days decreased due to a number of factors including a decline in work for a significant client and clients delaying work until future quarters. These declines were partially offset by increases in work for existing clients and addition of new clients.
U.S. directional drilling revenues increased from $13,926in 2012 Q3 to $22,836in 2013 Q3; a 64% increase. This increase was the result of: i) a 46% increase in activity days from 1,371 in 2012 Q3 to 1,996 in 2013 Q3; and ii) a 13% increase in the average day rate from $10,158in 2012 Q3 to $11,441in 2013 Q3 (when converted to Canadian dollars). The increase in U.S. activity days were due to further expansion in the Texasand Oklahomamarkets, increases in the Rocky Mountain region, offset by reduced drilling in the Pennsylvaniaareas within the existing client base. The increased average day rate was mainly due to higher rates that were achieved in the Rocky Mountain and Texasregions on certain jobs where the pricing was tied to performance.
Canadian production testing revenues increased from $5,272in 2012 Q3 to $7,572in 2013 Q3; a 44% increase. The Canadian operating days were up in each month of the quarter compared to 2012. Both 2013 and 2012 Q3 activity levels were negatively affected by customers deferring work.
U.S. production testing revenues increased from $6,793in 2012 Q3 to $9,755in 2013 Q3; a 44% increase. This increase is attributable to having 3 additional units in 2013 Q3 versus 2012 Q3 and expansion into the Eagleford (Texas) market and an increased utilization of units.
Gross margin and adjusted gross marginThe gross margin for 2013 Q3 was 16.9% compared to 18.7% in 2012 Q3. Adjusted gross margin for 2013 Q3 was $14,972(25.1%) compared to $13,957(28.0%) for 2012 Q3. The decrease in adjusted gross margin of 2.9% was primarily due to increased field labour costs in the directional drilling divisions.
Depreciation allocated to cost of sales increased from $4,614in 2012 Q3 to $4,860in 2013 Q3 due to capital additions in the period from 2012 Q3 to 2013 Q3. Depreciation included in cost of sales as a percentage of revenue was 8.1% for 2013 Q3 and 9.3% in 2012 Q3.
Selling, general and administrative expenses ("SG&A")SG&A expenses were $6,228in 2013 Q3; an increase of $577compared with $5,651in 2012 Q3. As a percentage of revenue, these costs were 10% in 2013 Q3 and 11% in 2012 Q3. Non-cash expenses total $288for 2013 Q3 and $419for 2012 Q3. SG&A net of these non-cash items were $5,940in 2013 Q3 and $5,232in 2012 Q3, an increase of $708.
Wages increased $438; this increase was primarily related to staff additions for research and development department and staff positions added to accommodate current and future U.S. growth; net of decreases 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 $270relates to various changes none of which are individually significant.
Gain on disposal of property and equipmentDuring 2013 Q3 the Company had a gain on disposal of property and equipment of $1,760compared to $1,732in 2012 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. In addition, in 2013 Q3 the Company had a gain on sale of land and buildings of $5,354and has entered into a 15 year lease on the related assets.
Foreign exchange loss The Company had foreign exchange gain of $173in 2013 Q3 compared to $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 2013 Q3 foreign currency gain are unrealized gains of $208(2012 Q3 - $378) related to intercompany balances.
Finance costs Finance costs consist of interest expenses on operating loans, loans and borrowings and bank charges of $727for 2013 Q3 versus $491for 2012 Q3. The increase in finance costs relate mainly to an increased utilization of the Company's operating loan and to a lesser extent increases in interest rates.
Income taxFor 2013 Q3, the Company had an income tax expense of $2,446compared to $1,535in 2012 Q3. The effective tax rate was 24% for 2013 Q3 and 29% for 2012 Q3. Income tax expense is booked based upon expected annualized effective rates.
RESULTS OF OPERATIONS - NINE MONTHS ENDED SEPTEMBER 30
| | | | | | | | | | | | | | | | | | | | Nine months ended September 30, 2013 | | Nine months ended September 30, 2012 | | | | | | | | | | | | | | | | Directional | Production | Resale | | | Directional | Production | Resale | | | | | | | | | | Revenues | drilling | testing | and Rental | Total | | drilling | testing | and Rental | Total | | | | | | | | | Canada | $ | 51,815 | $ | 19,403 | $ | - | $ | 71,218 | $ | 65,655 | $ | 24,025 | $ | - | $ | 89,680 | | United States | | 56,181 | | 26,874 | | - | | 83,055 | | 44,821 | | 21,639 | | - | | 66,460 | | International | | - | | - | | 5,174 | | 5,174 | | - | | - | | 2,218 | | 2,218 | | Total | $ | 107,996 | $ | 46,277 | $ | 5,174 | $ | 159,447 | $ | 110,476 | $ | 45,664 | $ | 2,218 | $ | 158,358 |
Revenues2013 revenues were $159,447which represented an increase of $1,089or 1% from 2012 revenues of $158,358. The increase was attributed to international and U.S. operations which were offset by declines in Canadaoperations.
Canadian directional drilling revenues decreased from $65,655in 2012 to $51,815in 2013; a 21% decrease. This decrease was the result of: i) a 847 decrease in activity days from 5,399 in 2012 to 4,552 in 2013; and ii) a 6% decrease in the average day rate from $12,161in 2012 to $11,383in 2013. Canadian activity days decreased due to a number of factors including: i) a decline in industry activity due to oil take away restrictions, marginal natural gas prices and a general lack of access to equity markets; ii) a decline in work for a significant client; and iii) a slow start after the spring break-up and further delays due to weather in June that pushed start dates for certain jobs into 2013 Q3 and Q4. There were new clients added, but these were not enough to offset the decreased work on existing clients.
U.S. directional drilling revenues increased from $44,821in 2012 to $56,181in 2013; a 25% increase. This increase was the result of: i) a 15% increase in activity days from 4,286 in 2012 to 4,927 in 2013; and ii) a 9% increase in the average day rate from $10,458in 2012 to $11,402in 2013 (when converted to Canadian dollars). The increase in U.S. activity days were due to increased traction in the Texasand Oklahomamarkets, offset by reduced drilling in the Rocky Mountain and Pennsylvaniaareas within the existing client base. The increased average day rate was due to increases that were achieved in the Rocky Mountain and Texasregions, net of declines in the northeast.
Canadian production testing revenues decreased from $24,025in 2012 to $19,403in 2013; a 19% decrease. The Canadian operations were affected by a general industry wide decline in wells completed and client specific delays in completion work that has resulted in such work being delayed until later in 2013.
U.S. production testing revenues increased from $21,639in 2012 to $26,874in 2013; a 24% increase. This increase is attributable to having 3 additional units in 2013 versus 2012 and expansion into the Eagleford (Texas) market and an increased utilization of units.
Gross margin and adjusted gross marginThe gross margin for 2013 was 15.0% compared to 19.7% in 2012. Adjusted gross margin for 2013 was $38,348(24.1%) compared to $44,813(28.3%) for 2012.
In the Canadian and U.S. drilling markets, there have been increases in the per day field labour rates, while the combined per day revenue rate has fallen slightly. These increases were offset by the Canadian and U.S. production testing divisions where field labour rates have declined as 2012 saw a shortage of junior field staff. These staff were replaced with senior staff who have higher day rates. These net increases in field labour were partially offset by declines in repairs and maintenance for all divisions other than U.S. directional drilling where certain districts were drilling in difficult environments.
Depreciation allocated to cost of sales increased from $13,408in 2012 to $14,234in 2013 due to capital additions in the period from October 2012to September 2013.Depreciation included in cost of sales as a percentage of revenue was 8.9% for 2013 and 8.5% in 2012.
Selling, general and administrative expenses ("SG&A")SG&A expenses were $17,950in 2013; an increase of $815compared with $17,135in 2012. As a percentage of revenue, these costs were 11% for both 2013 and 2012. Non-cash expenses total $949for 2013 and $1,248for 2012. SG&A net of these non-cash items were $17,001in 2013 and $15,887in 2012, an increase of $1,114.