ACT Energy Technologies Ltd. press release
Cathedral Energy Services Ltd. announces record quarterly and nine month revenues and Q4 dividend
TSX - Toronto Stock Exchange · Canada
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/NOT FOR DISSEMINATION IN THE UNITED STATES OF AMERICA/
CALGARY, Nov. 4, 2014/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, 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 Q3 KEY TAKEAWAYS
Record quarterly revenues: Third quarter revenues were up 30% compared to 2013 Q3 and year-to-date revenues excluding international operations are up 31% over 2013; Record nine month revenues; 2014 Q3 EBITDAS increased 33% over 2013 and year-to-date EBITDAS excluding international operations has increased 26% over 2013; and Increase in capital budget from $24,000to $30,600.
2014 Q3 FINANCIAL SUMMARY
| | | | | | | | | | | | | Three months ended September 30 | Nine months ended September 30 | | | | | | | | | | 2014 | 2013 | 2014 | 2013 | | | | | | | Revenues | $ | 77,376 | $ | 59,734 | $ | 202,193 | $ | 159,447 | | | Adjusted gross margin % (1) | | 24.8% | | 25.1% | | 22.0% | | 24.1% | | | EBITDAS (1) | $ | 14,347 | $ | 10,757 | $ | 29,079 | $ | 24,691 | | | | Diluted per share | $ | 0.40 | $ | 0.30 | $ | 0.80 | $ | 0.68 | | EBITDAS (1) as % of revenues | | 18.5% | | 18.0% | | 14.4% | | 15.5% | | | Funds from operations (1) | $ | 11,832 | $ | 7,876 | $ | 23,719 | $ | 18,959 | | | | Diluted per share | $ | 0.33 | $ | 0.22 | $ | 0.65 | $ | 0.52 | | Net earnings | $ | 5,805 | $ | 7,956 | $ | 8,507 | $ | 9,706 | | | | Basic per share | $ | 0.16 | $ | 0.22 | $ | 0.23 | $ | 0.27 | | | Diluted per share | $ | 0.16 | $ | 0.22 | $ | 0.23 | $ | 0.27 | | Dividends declared per share | $ | 0.0825 | $ | 0.0750 | $ | 0.2475 | $ | 0.2250 | | | Property and equipment additions (cash) | $ | 9,958 | $ | 8,373 | $ | 26,937 | $ | 21,547 | | | Weighted average shares outstanding | | | | | | | | | | | | Basic (000s) | | 36,264 | | 35,915 | | 36,227 | | 36,175 | | | Diluted (000s) | | 36,280 | | 36,013 | | 36,250 | | 36,238 | | | | | | | | | | | | | | | | | | | September 30 | | December 31 | | | | | | | | | 2014 | | 2013 | | | Working capital | | | | | $ | 38,538 | $ | 26,031 | | | Total assets | | | | | $ | 243,888 | $ | 205,375 | | | Loans and borrowings excluding current portion | | | | | $ | 59,158 | $ | 38,462 | | | Total shareholders' equity | | | | | $ | 127,913 | $ | 126,612 | |
| (1) see "NON-GAAP MEASUREMENTS" |
OUTLOOK
Cathedral continued to benefit from strong industry fundamentals in Q3 as evidenced by record revenues in our U.S. directional drilling division and continued strong revenue performance in our other divisions.
Both directional drilling divisions were able to increase activity levels by adding new customers, securing additional work from existing customers and having good exposure in all the key resource plays. Continued focus on providing exceptional service and deployment of our proprietary Fusion™ MWD systems and nDurance™ mud motor line has resulted in increased sales opportunities. In particular, we are seeing strong interest in the "Claw" series of our nDurance motor line based on achieving record drilling results for customers in both the US and Canada. The nDurance motors are offered either as part of our directional drilling service package or on a standalone rental basis. We expect to continue to invest in building up our capacity in this motor line.
In October we announced that we had supplied directional drilling equipment and services for over 1,000 wells completed by Tundra Oil and Gas Partnership ("Tundra") in Manitobaand Saskatchewan. This 1,000-well milestone is testimony to how our partnership strategy with customers and our team approach with their suppliers has significantly reduced our customer's drilling costs and provided other beneficial efficiencies.
The U.S. continues to be a focus point for Cathedral's future growth. We are pleased with our revenue growth in the U.S. directional division and how we have established ourselves as a credible player across all key geographies with major energy company clients. We are also making progress with increasing our margins in the U.S. through gaining traction with our performance based drilling offering, better job execution and optimizing the use of our own equipment rather than using third party rentals.
In Canada, our ability to demonstrate we can reduce drilling times significantly has resulted in increased interest from customers. We intend to exploit this competitive advantage further as a means to grow revenue at increased margins.
Both our production testing divisions have experienced strong performance in 2014. In particular, our U.S. testing division has made significant progress rebuilding its revenue to prior levels having lost a couple of significant customers in late 2013 and early 2014. In Canada, our production testing division is capitalizing on its experience with multi-pad well programs which are not as susceptible to adverse weather conditions and reduced activity levels resulting from spring break-up.
The impact from the recent decline in oil prices is not determinable at this time, although we expect industry activity levels will ultimately be impacted in a potentially sustained lower oil price environment. We are monitoring our customer's spending plans to assess any potential impact on our business. Cathedral's focus for 2014 continues to be on: i) increasing revenue and market share in both operating divisions and geographic areas; ii) enhancing profitability through better job execution and 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 giving 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 Q4 dividend in the amount of $0.0825per share which will have a date of record of December 31, 2014and a payment date of January 15, 2015.
2014 CAPITAL PROGRAM
During the nine months ended September 30, 2014the Company invested $26,937(2013 - $21,547) in property and equipment excluding non-cash items. The following table details the current period's net property and equipment additions:
| | | | | | | | | Three months ended | Nine months ended | | | | | | September 30, 2014 | September 30, 2014 | | | | | Property and equipment additions: | | | | | | | | Growth capital (1) | $ | 5,123 | $ | 13,424 | | | Maintenance capital(1) | | 3,162 | | 9,157 | | | Replacement capital (1) | | 125 | | 1,157 | | | Infrastructure capital(1) | | 1,548 | | 3,199 | | Total cash additions | | 9,958 | | 26,937 | | | Less: proceeds on disposal of property and equipment | | (1,642) | | (4,842) | | | Net property and equipment additions (1) | $ | 8,316 | $ | 22,095 | |
| (1)See "NON-GAAP MEASUREMENTS" |
The major additions for growth capital were $10,735for additional directional drilling motors and related equipment for specific job requirements and $2,689for additional ancillary production testing equipment which will reduce future rental costs. Infrastructure capital relates to progress payments on the construction of an operating facility in Oklahoma Citywhich is expected to be operational in early 2015 and computer system upgrades.
Cathedral intends to increase its capital budget to $30,600, primarily to meet the growth needs of the business in the U.S. The original capital budget for 2014 was $24,000.
The increase of $6,600is for additional drilling motors and specialized power sections, MWD system upgrades, replacement capital and IT network infrastructure.
The revised 2014 capital budget includes $15,500of growth capital, $10,800of maintenance capital and $4,300of infrastructure expenditures.
Cathedral intends to finance its 2014 capital budget from cash flow from operations, its existing credit facility and proceeds on disposal of property and equipment. In addition, the Company expects to sell and leaseback the Oklahoma Cityoperations facility in 2015 Q1 for net proceeds of approximately $4,800.
The following is a summary of major equipment owned by the Company:
| | | | | | | September 30 | December 31 | September 30 | | | 2014 | 2013 | 2013 | | Directional drilling - MWD systems (1) | 140 | 139 | 135 | | Production testing units | 66 | 72 | 72 |
| (1) The Company has 10 Geolink MWD systems that have been excluded from the above figures as they are held for sale. |
During 2014 Q2, the Company disposed of 6 production testing units that were not suited to Cathedral's customer requirements for proceeds of $550.
RESULTS OF OPERATIONS - THREE MONTHS ENDED SEPTEMBER 30
| | | | | | | | | | | Three months ended September 30, 2014 | | Three months ended September 30, 2013 | | | | | | | Directional | Production | | | Directional | Production | | | Revenues | drilling | testing | Total | | drilling | testing | Total | | Canada | $ 28,765 | $ 7,889 | $ 36,654 | | $ 19,571 | $ 7,572 | $ 27,143 | | United States | 30,991 | 9,731 | 40,722 | | 22,836 | 9,755 | 32,591 | | Total | $ 59,756 | $ 17,620 | $ 77,376 | | $ 42,407 | $ 17,327 | $ 59,734 |
Revenues2014 Q3 revenues were $77,376which represented an increase of $17,642or 30% from 2013 Q3 revenues of $59,734. With the exception of the U.S. production testing division, all divisions experienced an increase in revenue. U.S. directional drilling revenues for 2014 Q3 were a record for the division. U.S. production testing revenues for 2014 Q3 were the second highest quarterly revenues, which was a significant achievement in light of the loss of a significant client in 2013 Q4.
Canadian directional drilling revenues increased to $28,765in 2014 Q3 from $19,571in 2013 Q3; a 47% increase. This increase was the result of: i) a 37% increase in activity days to 2,423 in 2014 Q3 from 1,771 in 2013 Q3; and ii) a 7% increase in the average day rate to $11,872in 2014 Q3 from $11,051in 2013 Q3. In 2014 Q3 there were activity level improvements in the overall market in addition to continued efficiencies related to pad drilling and increases in work from both new customers and incremental work from existing customers. In comparison, in 2013 Q3 revenue was down relative to other quarters as a result of customers delaying work to future quarters.
U.S. directional drilling revenues increased to a record of $30,991in 2014 Q3 from $22,836in 2013 Q3; a 36% increase. This increase was the result of: i) a 23% increase in activity days to 2,454 in 2014 Q3 from 1,996 in 2013 Q3; and ii) an 10% increase in the average day rate to $12,629in 2014 Q3 from $11,441in 2013 Q3 (when converted to Canadian dollars). The increase in U.S. activity days were due to the Texasand Oklahomamarkets, with continued increased activity levels coming from existing and new customers. The U.S. average day rates increased with the impact of pricing tied to performance and also due to the stronger U.S. dollar. Approximately half of this gain on day rate is due to the change in the U.S. dollar. On a sequential basis, U.S. directional drilling revenues for 2014 Q3 are up from 2014 Q2 revenues of $28,636. U.S activity days are up on a sequential basis (2014 Q3 - 2,454 versus 2014 Q2 - 2,260) due to further expansion of work in the Texasregion, increased activity and new customers in the U.S. northeast.
Canadian production testing revenues increased to $7,889in 2014 Q3 from $7,572in 2013 Q3; a 4% increase. In the prior year, 2013 Q3 had benefited from delays in completion jobs which were deferred into that quarter. Revenues in 2014 Q3 also benefited from increased day rates achieved when compared with 2013 Q3 from customers using multi-pad well programs that requires additional ancillary equipment and staff to be onsite.
U.S. production testing revenues of $9,731in 2014 Q3 were virtually unchanged from $9,755in 2013 Q3. 2013 Q3 holds the record for the highest quarterly revenues for the division and 2014 Q3 has the second highest quarterly revenues. Both activity levels and day rates remained consistent year-over-year. In 2013 Q4 and 2014 Q1, the division lost work with two significant clients and the division has now replaced this work with work with new clients.
Gross margin and adjusted gross marginThe gross margin for 2014 Q3 was 18.4% compared to 16.9% in 2013 Q3. Adjusted gross margin for 2014 Q3 was $19,222(24.8%) compared to $14,972(25.1%) for 2013 Q3. The slight decrease in adjusted gross margin of 0.3% in 2014 Q3 was primarily due to increased equipment rentals and equipment repairs which were offset by decreased field labour costs. Equipment rentals were 3.1% of revenues in 2014 Q3 compared to 1.2% in 2013 Q3 (excluding international operations). The Company is in the process of reducing equipment rental costs through capital additions.
Depreciation allocated to cost of sales increased marginally to $4,945in 2014 Q3 from $4,860in 2013 Q3. Depreciation included in cost of sales as a percentage of revenue was 6.4% for 2014 Q3 and 8.1% in 2013 Q3.
Selling, general and administrative expenses ("SG&A")SG&A expenses were $6,156in 2014 Q3 which represented a decrease of $72when compared with $6,228in 2013 Q3. As a percentage of revenue, these costs were 8% in 2014 Q3 and 10% in 2013 Q3. Non-cash expenses (depreciation and share-based compensation) totaled $120for 2014 Q3 and $288for 2013 Q3. 2013 Q3 SG&A includes expenses related to international operations which were not incurred in 2014 Q3 after the wind down of those operations. Excluding these non-cash and non-recurring items SG&A increased $580in 2014 Q3 ("Adjusted SG&A").
Adjusted SG&A increased primarily due to wages, benefits and variable compensation. These increases relate to increased sales commissions, U.S. sales staff additions and additions to research and development personnel. Staffing costs included in SG&A include executives, sales, accounting, human resources, payroll, safety, research and development and related support staff.
The remaining increase in Adjusted SG&A is mainly attributable to increased rent due to the sale and leaseback of Albertaproperties which closed in 2013 Q3 which was almost fully offset by decreases in several various components none of which were individually significant.
Gain on disposal of property and equipmentDuring 2014 Q3 the Company had a gain on disposal of property and equipment of $1,096compared to $1,760in 2013 Q3. In 2013 Q3 the Company also had a gain on sale of land and buildings of $5,354on the sale and leaseback of Albertaproperties. The remaining 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 had foreign exchange loss of $527in 2014 Q3 compared to $173gain in 2013 Q3 due to the fluctuations in the Canadian dollar compared to the U.S. dollar. 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 Q3 foreign currency gain are unrealized loss of $592(2013 Q3 -$208unrealized gain) related to intercompany balances.
Finance costs Finance costs consist of interest expenses on operating loans, loans and borrowings and bank charges of $662for 2014 Q3 versus $727for 2013 Q3. The decrease in finance costs relate mainly to an increased utilization of the Company's operating loan offset by decreases in interest rates.
Income taxFor 2014 Q3, the Company had an income tax expense of $2,203compared to $2,446in 2013 Q3. The effective tax rate was 28% for 2014 Q3 and 24% for 2013 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, 2014 | | Nine months ended September 30, 2013 | | | | | | | | | Directional | Production | Resale | | | Directional | Production | Resale | | | Revenues | drilling | testing | and Rental | Total | | drilling | testing | and Rental | Total | | Canada | $ 70,376 | $ 24,458 | $ - | $ 94,834 | | $ 51,815 | $ 19,403 | $ - | $ 71,218 | | United States | 83,299 | 24,060 | - | 107,359 | | 56,181 | 26,874 | - | 83,055 | | International | - | - | - | - | | - | - | 5,174 | 5,174 | | Total | $ 153,675 | $ 48,518 | $ - | $ 202,193 | | $ 107,996 | $ 46,277 | $ 5,174 | $ 159,447 |
Revenues2014 revenues were $202,193which represented an increase of $42,746or 27% from 2013 revenues of $159,447. The revenue increase was attributed to both Canadian divisions and U.S. directional drilling operations which were offset by declines in U.S. production testing and international operations. Excluding international operations, year-to-date revenues have increased 31% over 2013.
Canadian directional drilling revenues increased to $70,376in 2014 from $51,815in 2013; a 36% increase. This increase was the result of: i) an 34% increase in activity days to 6,059 in 2014 from 4,522 in 2013; and ii) a 2% increase in the average day rate to $11,615in 2014 from $11,383in 2013. Activity levels increased due to market share gains from securing additional work from existing and new customers. Also, the comparative 2013 activity levels were lower due customers delaying work.
U.S. directional drilling revenues increased to $83,299in 2014 from $56,181in 2013; a 48% increase. This increase was the result of: i) a 34% increase in activity days to 6,594 in 2014 from 4,927 in 2013; and ii) an 11% increase in the average day rate to $12,633in 2014 from $11,402in 2013 (when converted to Canadian dollars). Approximately 4% of this increase relates to increases in rates due primarily performance based pricing and the remaining amount relates to strengthening of the U.S. dollar. Continued expansion in the Texasand Oklahomamarkets has increased the U.S. activity days and is partially offset by reduced drilling in the U.S. northeast.
Canadian production testing revenues increased to $24,458in 2014 from $19,403in 2013; a 26% increase. In 2014, the division benefitted from the addition of work from new customers and expanded use of multi-pad well programs which enables work to continue during the break-up season. In comparison, 2013 was impacted by customers deferring work into future periods.
U.S. production testing revenues decreased to $24,060in 2014 from $26,874in 2014; a 10% decrease. The year-over-year decline in revenue is attributable to a significant customer shifting work to a competitor in early 2013 Q4 and another in customer loss 2014 Q1. The division has made significant gains to offset the lost customers by successfully securing work from new customers and increasing rates with the industry's shift to multi-pad programs that requires additional ancillary equipment and staff to be onsite.
Gross margin and adjusted gross marginThe gross margin for 2014 was 14.9% compared to 15.0% in 2013. Adjusted gross margin for 2014 was $44,415(22.0%) compared to $38,348(24.1%) for 2013. The decrease in adjusted gross margin of 2.1% was due in part to the impact of international operations which only impacted 2013. Excluding international operations, adjusted gross margin for 2014 was 22.0% compared to 23.5% in 2013.