ACT Energy Technologies Ltd. press release
Cathedral Energy Services Ltd. reports results for 2014 Q1 and 2014 Q2 dividend
TSX - Toronto Stock Exchange · Canada
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/NOT FOR DISSEMINATION IN THE UNITED STATES OF AMERICA/
CALGARY, May 7, 2014/CNW/ - Cathedral Energy Services Ltd. (the "Company" or "Cathedral" / TSX: CET) announces its consolidated financial results for the three months ended March 31, 2014and 2013. 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._
2014 Q1 KEY TAKEAWAYS
26% increase in consolidated revenues from 2013 Q1 to 2014 Q1; Market share gains by Canadian and U.S. directional drilling divisions with the U.S. division achieving record quarterly revenues; and 19% increase in net earnings.
2014 Q1 FINANCIAL SUMMARY
| | | | | | | | | | | | | Three months ended March 31 | | | | | | | | | 2014 | 2013 | | | | | | | | | | | | | | Revenues | | | $ | 68,020 | $ | 54,074 | | | | | | | | | | | | Adjusted gross margin % (1) | | | | 20.6% | | 24.7% | | | | | | | | | | | | EBITDAS (1) | | | $ | 8,581 | $ | 8,592 | | | | Diluted per share | | | $ | 0.24 | $ | 0.23 | | | | | | | | | | | EBITDAS (1) as % of revenues | | | | 12.6% | | 15.9% | | | | | | | | | | | | Funds from operations (1) | | | $ | 8,120 | $ | 7,507 | | | | Diluted per share | | | $ | 0.22 | $ | 0.20 | | | | | | | | | | | Net earnings | | | $ | 2,449 | $ | 2,059 | | | | Basic per share | | | $ | 0.07 | $ | 0.06 | | | Diluted per share | | | $ | 0.07 | $ | 0.06 | | | | | | | | | | | Dividends declared per share | | | $ | 0.0825 | $ | 0.0750 | | | | | | | | | | | | Property and equipment additions (cash) | | | $ | 9,917 | $ | 6,698 | | | | | | | | | | | | Weighted average shares outstanding | | | | | | | | | | Basic (000s) | | | | 36,186 | | 36,765 | | | Diluted (000s) | | | | 36,219 | | 36,826 | | | | | | | | | | | | | | March 31 | December 31 | | | | | | | | 2014 | 2013 | | | | | | | | | | | | | | Working capital | | | $ | 27,518 | $ | 26,031 | | | | | | | | | | | | Total assets | | | $ | 222,325 | $ | 205,375 | | | | | | | | | | | | Loans and borrowings excluding current portion | | | $ | 43,608 | $ | 38,462 | | | | | | | | | | | | Total shareholders' equity | | | $ | 126,689 | $ | 126,612 | |
| (1) See "NON-GAAP MEASUREMENTS" |
OUTLOOK
Within the Canadian market, many factors, including improved natural gas prices, unprecedented natural gas storage withdrawals in both Canadaand the U.S., a narrowing of the Canadian differentials for both oil and natural gas and a stronger U.S. dollar, have industry analysts expecting improved cash flow for oil and natural gas producers as we progress through 2014. That combined with improved access to equity markets has better positioned producers with balance sheets enabling them to accelerate capital programs. On a longer term basis, there is potential for a significant increase in spending in western Canadaas producers realize higher netbacks from a combination of enhanced refining capacity, increased shipment of crude by rail, new and expanded oil pipelines together with development of proposed west coast liquefied natural gas terminals.
Based upon feedback from customers and activity levels as projected by industry analysts, post "spring breakup" we are expecting continued strong activity levels within the Canadian market. Cathedral is active in the key resource plays including the Montney, Bakken, Cardium and Viking plays.
Within the U.S. market industry analysts are expecting a year-over-year increase in capital spending with producers directing capital to oil and liquids targets. U.S. producers are expected to continue to expand the use of horizontal, multi-stage fracturing to complete conventional and unconventional oil and natural gas plays.
2014 Q1 activity for our U.S. directional drilling division was lower than anticipated but as we proceed further into 2014 we are expecting operating levels to increase as additional market share is achieved. Market share gains and margin improvements are expected in all operating areas. Cathedral's current activity is focused in the Permian, Eagle Ford, DJ Basin, Mississippian Lime, San Juan, Uticaand Marcellus plays with additional work in Bakken, Woodford Shale, Granite Wash and Piceance Basin plays. Over the past 2 years Cathedral has expanded its U.S. physical and personnel infrastructure and is now expecting to leverage that infrastructure into improved financial results.
Cathedral's "Claw" series of the nDurance mud motor line has been introduced to the market and has been well received. The "Claw" is designed to operate at higher flow rates and has superior torque output than conventional power sections. This motor has significantly increased drilling rate of penetration ("ROP") which leads to reduced drilling time and costs for Cathedral's customers. In addition to including this motor as part of Cathedral's directional drilling service package, due to requests from customers, Cathedral has rented the "Claw" on a standalone basis. Cathedral's 2014 capital program includes further expansion of the fleet of "Claw" motors. At the end of 2014 Q1 Cathedral had 30 "Claw" motors and is building an additional 45 units in 2014 Q2.
For 2014, Cathedral's focus will remain on: i) increasing market share in both operating divisions and geographic areas; ii) enhancing profitability through managing costs; and iii) continued investment in research and development of proprietary technologies.
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 a 2014 Q2 dividend in the amount of $0.0825per share which will have a date of record of June 30, 2014and a payment date of July 15, 2014.
2014 CAPITAL PROGRAM
During 2014 Q1 the Company invested $9,917(2013 Q1 - $6,698) in property and equipment. The following table details the current period's net property and equipment additions:
| | | | | | | | | | Three months ended | | | | | | March 31, 2014 | | | Property and equipment additions: | | | | | | | Growth capital (1) | | $ | 5,241 | | | Maintenance capital(1) | | | 3,410 | | | Replacement capital (1) | | | 436 | | | Infrastructure capital(1) | | | 830 | | Total cash additions | | | 9,917 | | | Less: proceeds on disposal of property and equipment | | | (1,106) | | | Net property and equipment additions (1) | | $ | 8,811 | |
(1)See "NON-GAAP MEASUREMENTS"
The major additions for growth capital were $3,693for additional drilling motors and related equipment for specific job requirements and $1,548for additional ancillary production testing equipment to reduce future rental costs. Infrastructure capital relates to the construction of a new shop in Oklahomawhich is expected to be operational in early 2015.
Cathedral's 2014 capital budget remains at $24,000which includes $12,000of growth capital, $8,000of maintenance capital and $4,000of infrastructure expenditures.
Cathedral intends to finance its 2014 capital budget from cash flow from operations and, if necessary, its existing credit facility.
The following is a summary of major equipment owned by the Company:
| | | | | | | March 31 | December 31 | March 31 | | | 2014 | 2013 | 2013 | | Directional drilling - MWD systems (1) | 139 | 139 | 136 | | Production testing units | 72 | 72 | 69 |
| (1) The Company has 10 Geolink MWD systems that have been excluded from the above figures as they are held for sale. |
RESULTS OF OPERATIONS - THREE MONTHS ENDED MARCH 31
| | | | | | | | | | | | | | | | | Three months ended March 31, 2014 | | Three months ended March 31, 2013 | | | | | | | | | | | | | Directional | Production | | | Directional | Production | | | | | | | | | Revenues | drilling | testing | Total | | drilling | testing | Total | | | | | | | | | | | | | | | | | | | | | | | Canada | $ | 28,790 | $ | 8,578 | $ | 37,368 | | $ | 23,594 | $ | 7,766 | $ | 31,360 | | | | | | | | | | | | | | | | | United States | | 23,672 | | 6,980 | | 30,652 | | | 14,509 | | 8,205 | | 22,714 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total | $ | 52,462 | $ | 15,558 | $ | 68,020 | | $ | 38,103 | $ | 15,971 | $ | 54,074 |
Revenues2014 Q1 revenues were $68,020which represented an increase of $13,946or 26% from 2013 Q1 revenues of $54,074. All areas, other than U.S. production testing were up on a year-over-year basis.
Canadian directional drilling revenues increased from $23,594in 2013 Q1 to $28,790in 2014 Q1; a 22% increase. This increase was the result of: i) a 26% increase in activity days from 2,102 in 2013 Q1 to 2,649 in 2014 Q1; net of ii) a 3% decrease in the average day rate from $11,224in 2013 Q1 to $10,868in 2014 Q1. While overall industry activity levels increased marginally, Cathedral's was able to increase its activity levels by 26% due to market share gains. Such market share gains were the result of additional work for existing customers and the addition of new customers.
U.S. directional drilling revenues increased from $14,509in 2013 Q1 to $23,672in 2014 Q1; a 63% increase. This increase was the result of: i) a 41% increase in activity days from 1,329 in 2013 Q1 to 1,880 in 2014 Q1; and ii) a 15% increase in the average day rate from $10,917in 2013 Q1 to $12,591in 2014 Q1. The increase in U.S. activity days were due to further expansion in the Texasand Oklahomamarkets, offset by reduced drilling in the U.S. northeast area within the existing customer base. The increased average day rate was due to a stronger U.S. dollar and higher rates that were achieved in the Rocky Mountain and Texasregions on jobs where the pricing was tied to performance. On a sequential basis, U.S. directional drilling revenues for 2014 Q1 are slightly over 2013 Q4 revenues of $23,536. U.S activity days are down on a sequential basis (2014 Q1 - 1,800 versus 2013 Q4 - 2,027) due to customers deferring the ramp up of their drilling programs.
Canadian production testing revenues increased from $7,766in 2013 Q1 to $8,578in 2014 Q1; a 10% increase. The Canadian operating days were up 10% compared to 2013 Q1, while rates were unchanged. 2013 Q1 activity levels were negatively affected by customers deferring work to later periods.
U.S. production testing revenues decreased from $8,205in 2013 Q1 to $6,980in 2014 Q1; a 15% decrease. This decrease is attributable a 20% decline in operating days, net of an increase in the average day rate of 7%. The average day rate increase is mainly attributed to a strengthening U.S. dollar. The year-over-year decline in revenue is attributable to a significant customer shifting work to a competitor in early 2013 Q4. There was work for new customers, but they did not make up for the lost customer.
Gross margin and adjusted gross marginThe gross margin for 2014 Q1 was 14.0% compared to 15.9% in 2013 Q1. Adjusted gross margin (excludes non-cash expenses) for 2014 Q1 was $14,017(20.6%) compared to $13,358(24.7%) for 2013 Q1. The decrease in adjusted gross margin of 4.1% was primarily due to increase in equipment rentals and transportation costs in the U.S. in addition to increased MWD repairs on Canadian drilling operations.
Depreciation allocated to cost of sales decreased from $4,665in 2013 Q1 to $4,464in 2014 Q1. Depreciation included in cost of sales as a percentage of revenue was 6.6% for 2014 Q1 and 8.6% in 2013 Q1.
Selling, general and administrative expenses ("SG&A")SG&A expenses were $6,270in 2014 Q1 which represents an increase of $699when compared with $5,571in 2013 Q1. As a percentage of revenue, these costs were 9% in 2014 Q1 and 10% in 2013 Q1. Non-cash expenses (depreciation and share-based compensation) total $143for 2014 Q1 and $368for 2013 Q1. Additionally 2013 Q1 SG&A included non-recurring items related to severance costs and a recovery of prior period SG&A related to Venezuelan operations. Excluding these non-cash and non-recurring items SG&A increased $324("adjusted SG&A").
Adjusted SG&A increased primarily due to wages, benefits and variable compensation. These increases relate to increased sales commissions, additions to sales staff to accommodate current and future U.S. growth and additions to research and development personnel. Staffing costs included in SG&A relate to executives, sales, accounting, human resources, payroll, safety, research and development and related support staff.
The remaining increase in adjusted SG&A is attributable to i) increased rent due to the sale and leaseback of Albertaproperties which closed in 2013 Q3; ii) consulting fees; iii) office, promotion and safety costs associated with expansion within our operating areas; net of iv) reductions in SG&A due to the wind up of activity in Venezuela.
Gain on disposal of property and equipmentDuring 2014 Q1 the Company had a gain on disposal of property and equipment of $734compared to $505in 2013 Q1. 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 loss The Company had foreign exchange loss of $497in 2014 Q1 compared to $280in 2013 Q1 due to the fluctuations in the Canadian dollar compared to U.S. dollars. 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 2014 Q1 foreign currency loss are unrealized losses of $454(2013 Q1 - $212) related to intercompany balances.
Finance costs Finance costs consist of interest expenses on operating loans, loans and borrowings and bank charges of $596for 2014 Q1 versus $480for 2013 Q1. 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 2014 Q1, the Company had an income tax expense of $427compared to $728in 2013 Q1. The effective tax rate was 15% for 2014 Q1 and 26% for 2013 Q1. Income tax expense is booked based upon expected annualized effective rates.
LIQUIDITY AND CAPITAL RESOURCES
OverviewOn an annualized basis the Company's principal source of liquidity is cash generated from operations. In addition, the Company has the ability to fund liquidity requirements through its credit facility and the issuance of debt and/or equity. For the three months ended March 31, 2014, the Company had funds from operations of $8,120(2013 Q1 - $7,507), property and equipment additions of $9,917(2013 Q1 - $6,698), increase to operating loan of $5,425(2013 Q1 - $15,796), advances on loans and borrowings of $5,000(2013 Q1 - $nil) and payment of dividends of $2,984(2013 Q1 - $2,768).
Working capitalAt March 31, 2014the Company had a working capital position of $27,518(December 31, 2013- $26,031) and a working capital ratio of 1.54 to 1 (December 31, 2013- 1.66 to 1).
Credit facilityThe Company has a $20,000demand operating line of credit with a major Canadian bank that bears interest, at the Company's option, at the bank's prime rate plus 0.50% to 2.00% or bankers' acceptance rate plus 1.75% to 3.25% with interest payable monthly and is secured as described in note 14 of the audited consolidated financial statements. Interest rates spreads for the credit facility will depend on the level of funded debt to EBITDA (earnings before interest on long-term debt, taxes, depreciation, amortization and non-cash compensation expense - as defined in the credit agreement).
The Company also has a secured revolving term loan with a major Canadian bank at an authorized amount of $55,000, bearing interest at the bank's prime rate plus 0.50% to 2.00% or bankers' acceptance rate plus 1.75% to 3.25%, without repayment terms, maturing June 30, 2014subject to an annual extension upon agreement between the borrower and the bank for a further one-year period. Interest rates spreads for the credit facility will depend on the level of funded debt to EBITDA (earnings before interest on long-term debt, taxes, depreciation, amortization and non-cash compensation expense - as defined in the credit agreement). Prior to maturity the borrower may convert its revolving term loan to a non-revolving term loan repayable monthly over 36 months with interest only for the first 12 months. The Company's credit facility includes a $35,000accordion feature which is subject to approval of the Company's bank.
The credit facility is secured by a general security agreement over all present and future personal property and is subject to certain covenants regarding the payment of dividends and the maintenance of certain financial ratios. As at December 31, 2013, the Company is in compliance with all covenants under its credit facility.
The following table outlines the current credit facility:
| | | | | | | | | | | | | | March 31 | December 31 | | | | | | | | | 2014 | 2013 | | | | | | Available credit facility | | | $ | 75,000 | $ | 75,000 | | | | Drawings on credit facility: | | | | | | | | | | | Operating loan | | | | 15,506 | | 10,119 | | | | Revolving term loan | | | | 42,000 | | 37,000 | | | | Letter of credit | | | | 700 | | 700 | | | Total drawn facility | | | $ | 58,206 | $ | 47,819 | | | | Borrowing capacity (see NON-GAAP MEASUREMENTS) | | | $ | 16,794 | $ | 27,181 | | | | Net debt (see NON-GAAP MEASUREMENTS): | | | | | | | | | | | Loans and borrowings, net of current portion | | | $ | 43,608 | $ | 38,462 | | | | Working capital: | | | | | | | | | | | Current assets | | | $ | 78,634 | $ | 65,409 | | | | Current liabilities | | | | (51,116) | | (39,378) | | | Working capital | | | $ | 27,518 | $ | 26,031 | | | Net debt | | | $ | 16,090 | $ | 12,431 | | |
Contractual obligationsIn the normal course of business, the Company incurs contractual obligations and those obligations are disclosed in the Company's news release for the year ended December 31, 2013.As at March 31, 2014, the Company had a commitment to purchase approximately $3,168of equipment. Cathedral anticipates expending these funds in 2014 Q2 and Q3.
Share capitalAt May 7, 2014, the Company has 36,252,380 common shares and 1,246,529 share options outstanding with a weighted average exercise price of $7.07.
The Normal Course Issuer Bid was renewed on July 8, 2013and has an expiry date of July 7, 2014.For the three months ended March 31, 2014, the Company did not repurchase and cancel common shares.
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION March 31, 2014and 2013 Dollars in '000s (unaudited)
| | | | | | | | | | March 31 | | December 31 | | | | | 2014 | | 2013 | | | Assets | | | | | | | | | | | | | | Current assets: | | | | | | | | Cash and cash equivalents | $ | 738 | $ | 289 | | | Trade receivables | | 58,723 | | 46,400 | | | Current taxes recoverable | | 1,746 | | 1,473 | | | Prepaid expenses | | 2,616 | | 3,334 | | | Inventories | | 14,811 | | 13,913 | | | | | | | | | Total current assets | | 78,634 | | 65,409 | | | Property and equipment | | 127,961 | | 123,487 | | | Intangible assets | | 1,472 | | 1,474 | | | Deferred tax assets | | 8,410 | | 9,157 | | | Goodwill | | 5,848 | | 5,848 | | | | | | | | | | Total non-current assets | | 143,691 | | 139,966 | | | Total assets | $ | 222,325 | $ | 205,375 | | | | | | | | | | Liabilities and Shareholders' Equity | | | | | | | Current liabilities: | | | | | | | | Operating loan | $ | 15,506 | $ | 10,119 | | | Trade and other payables | | 28,434 | | 22,236 | | | Dividends payable | | 2,985 | | 2,984 | | | Loans and borrowings | | 744 | | 722 | | | Deferred revenue | | 3,447 | | 3,317 | | | | | | | | | Total current liabilities | | 51,116 | | 39,378 | | | Loans and borrowings | | 43,608 | | 38,462 | | | Deferred tax liabilities | | 912 | | 923 | | | | | | | | | | Total non-current liabilities | | 44,520 | | 39,385 | | | Total liabilities | | 95,636 | | 78,763 | | | | | | | | | | Shareholders' equity: | | | | | | | | Share capital | | 73,974 | | 73,850 | | | Contributed surplus | | 9,171 | | 9,065 | | | Accumulated other comprehensive income | | 1,622 | | 1,239 | | | Retained earnings | | 41,922 | | 42,458 | | | | | | | | | Total shareholders' equity | | 126,689 | | 126,612 | | | Total liabilities and shareholders' equity | $ | 222,325 | $ | 205,375 | |