NOT FOR DISTRIBUTION TO U.S. NEWS WIRE SERVICES OR FOR DISSEMINATION IN THE U.S.
The news release contains "forward-looking information and statements" within
the meaning of applicable securities laws. For full disclosure of the
forward-looking information and statements and the risks to which they are
subject, see the "Cautionary Statement Regarding Forward-Looking Information and
Statements" later in this news release.
Strad Energy Services Ltd., ("Strad" or the "Company") (TSX:SDY), a North
American-focused, energy services company, today announced its financial results
for the six months ended June 30, 2013. All amounts are stated in Canadian
dollars unless otherwise noted.
SELECTED FINANCIAL AND OPERATIONAL HIGHLIGHTS:
-- Second quarter EBITDA(1) from continuing operations of $8.8 million
decreased 19% compared to $10.9 million for the same period in 2012;
-- Second quarter revenue from continuing operations of $49.6 million, a 9%
decrease compared to $54.3 million for the same period in 2012;
-- Strad's U.S. Operations maintained an EBITDA(1) margin of 31% during the
second quarter compared to 32% for the first quarter of 2013 and 26% for
the second quarter of 2012;
-- Capital additions totaled $5.3 million during the second quarter.
Reported capital expenditures, net of $6.4 million rental asset
disposals, were $(1.1) million during the second quarter and $1.6
million in the first half of 2013;
-- Total funded debt (2) to trailing EBITDA ratio of 1.4 to 1 at the end of
the second quarter of 2013; and
-- Second quarter earnings per share from continuing operations of $nil,
compared to $0.08 for the same period in 2012. Adjusted for additional
depreciation expense of $1.5 million recognized during the second
quarter to fully amortize assets that are no longer in use, earnings per
share would otherwise be $0.03 for the second quarter of 2013.
Notes:
(1) Earnings before interest, taxes, depreciation and amortization
("EBITDA") is not a recognized measure under IFRS; see "Non-IFRS
Measures Reconciliation".
(2) Funded debt includes bank indebtedness plus current and long-term
portion of debt plus current and long-term obligations under finance
lease less cash. EBITDA is based on trailing twelve months. See "Non-
IFRS Measures Reconciliation".
"Our second quarter results demonstrated relatively stable levels of EBITDA in
comparison to Q1 of this year despite an extended breakup in Canada and
sequential declines in North American drilling activity," said Andy Pernal,
President and CEO of Strad. "While the North American E&P sector has remained
stagnant for some time, we remain cautiously optimistic over the near term and
have recently seen increased request for proposal activity for larger scoped
projects. With that being said, we remain very much aware of the continued
uncertainty facing our industry and plan to continue with our approach to
prudent allocation of capital and resources across our North American markets.
Our business has been designed around flexibility and the ability to quickly
scale our operational base."
"During the second quarter we solidified the success experienced with the
restructuring of our U.S. cost base by delivering another quarter of healthy
U.S. EBITDA margins," said Greg Duerr, Chief Financial Officer of Strad. "We
believe that we currently have a sustainable operation firmly in place on both
sides of the border that allows us the potential to ramp up activity without
adding undue cost to our business. Financially, Strad remains well positioned to
progress through the second half of 2013 and into another winter drilling
season."
SECOND QUARTER FINANCIAL HIGHLIGHTS
Three months ended Six months ended
June 30, June 30,
-----------------------------------------------------
2013 2012 % Chg. 2013 2012 % Chg.
-------- -------- -------- -------- -------- --------
Revenue from
continuing operations 49,576 54,304 (9) 94,299 110,605 (15)
----------------------------------------------------------------------------
EBITDA from continuing
operations (1) 8,769 10,885 (19) 19,428 26,866 (28)
EBITDA as a % of
revenue 18% 20% 21% 24%
Per share ($), basic 0.24 0.30 (20) 0.53 0.73 (27)
Per share ($), diluted 0.23 0.29 (21) 0.52 0.71 (27)
----------------------------------------------------------------------------
Net income (loss) from
continuing operations
(2) 13 2,772 (100) 1,076 7,895 (86)
Per share ($), basic - 0.08 (100) 0.03 0.22 (86)
Per share ($), diluted - 0.07 (100) 0.03 0.21 (86)
----------------------------------------------------------------------------
Funds from continuing
operations (3) 8,788 11,134 (21) 19,541 25,772 (24)
Per share ($), basic 0.24 0.30 (20) 0.53 0.70 (24)
Per share ($), diluted 0.24 0.29 (17) 0.52 0.68 (24)
----------------------------------------------------------------------------
Capital expenditures
from continuing
operations (4) 5,254 23,914 (78) 10,636 48,527 (78)
Dispositions of rental
assets (5) (6,361) (613) 938 (9,078) (1,866) 386
Net capital
expenditures (1,107) 23,301 (105) 1,558 46,661 (97)
----------------------------------------------------------------------------
Total assets
217,904 242,038 (10) 217,904 242,038 (10)
Return on average
total assets (6) 15% 20% 17% 25%
Long-term debt (7) 49,400 52,500 (6) 49,400 52,500 (6)
Total long-term
liabilities 50,358 70,453 (29) 50,358 70,453 (29)
----------------------------------------------------------------------------
Common shares - end of
period 37,251 37,251 37,251 37,251
Weighted avg common
shares
Basic 36,533 36,714 36,533 36,714
Diluted 37,327 37,768 37,334 37,679
Notes:
(1) Earnings before interest, taxes, depreciation and amortization
("EBITDA") is not a recognized measure under IFRS; see "Non-IFRS
Measures Reconciliation".
(2) Net income from continuing operations excludes income attributable to
the non-controlling interests.
(3) Funds from continuing operations is cash flow from operating activities
before changes in working capital. Funds from operations is not a
recognized measure under IFRS; see "Non-IFRS Measures Reconciliation".
(4) Includes assets acquired under finance lease and purchases of intangible
assets. Capital expenditures are net of rental asset disposals.
(5) Dispositions reported at net book value.
(6) Return on average total assets is not a recognized measure under IFRS;
see "Non-IFRS Measures Reconciliation".
(7) Excluding current portion.
FINANCIAL POSITION AND RATIOS
As at June 30,
-----------------------------------
($000's except ratios) 2013 2012
----------------- -----------------
Working capital (1) 19,505 23,531
Funded debt (2) 55,802 64,788
Total assets 217,904 242,038
Funded debt to EBITDA(2) 1.4 1.0
Notes:
(1) Working capital is calculated as current assets less current
liabilities. See "Non-IFRS Measures Reconciliation".
(2) Funded debt includes bank indebtedness plus current and long-term
portion of debt plus current and long-term obligations under finance
lease less cash. EBITDA is based on trailing twelve months. See "Non-
IFRS Measures Reconciliation".
SECOND QUARTER RESULTS
Strad reported a decrease in revenue and EBITDA of 9% and 19%, respectively,
during the three months ended June 30, 2013, compared to the same period in
2012. On a year-over-year basis, Strad continued to experience lower activity
levels in the Marcellus and the Bakken regions due to low natural gas prices,
decreased customer activity and increased competition and pricing pressure. In
the WCSB region, Strad experienced lower year-over-year activity levels
resulting from weather related delays in the post breakup seasonal recovery.
These declines were partially offset by profit generated from Product Sales
related to matting.
Strad's Canadian Operations reported lower revenue and EBITDA during the three
months ended June 30, 2013, compared to the same period in 2012. Decreased
revenue and EBITDA were a result of reduced drilling activity in the WCSB which
impacted asset utilization and pricing when compared to the second quarter of
2012. During the second quarter, an extended breakup season and unusually wet
weather in June resulted in a 14% year-over-year decline in drilling activity.
On a year-over-year basis, second quarter revenue and EBITDA results from
Strad's U.S. Operations continued to be impacted by lower utilization levels in
the Marcellus resource play in Pennsylvania. Overall rig counts in the Marcellus
during the second quarter declined 28% from second quarter 2012 levels,
resulting in relatively lower utilization rates and pricing for Strad's
equipment and matting fleet. Pricing in the Marcellus region has been relatively
consistent since the third quarter of 2012. Strad's U.S. Operations were also
impacted by less favorable weather for the matting business as well as increased
matting rental competition in North Dakota, which resulted in modest pricing
pressure and utilization declines. Despite an 8% decline in revenue during the
second quarter compared to the first quarter, Strad's U.S. Operations maintained
EBITDA margins at 31% compared to 32% during the first quarter of 2013.
During the second quarter, capital expenditures, net of $5.5 million and $0.8
million in rental asset disposals, were $(1.9) million in Canada and $0.7
million in the U.S. Capital expenditures are reported net of the net book value
of rental assets sold in the period. During the second quarter of 2013, Strad's
Canadian Operations sold $3.7 million of net book value ofSteelLock mats to an
existing rental customer. Proceeds from the sale of these mats will be used to
fund a portion of Strad's 2013 capital program. For the six months ended June
30, 2013, Strad has spent $10.6 million on a gross basis, or $1.6 million, net
of $9.0 million in rental asset disposals, of its budgeted $15.0 million capital
program. Strad continues to invest in equipment which is in high demand in both
Canada and the U.S.
RESULTS OF OPERATIONS
Canadian Operations
Three months ended Six months ended
June 30, June 30,
-------------------------- --------------------------
($000's) 2013 2012 % chg. 2013 2012 % chg.
-------- -------- -------- -------- -------- --------
Revenue 14,331 15,625 (8) 32,073 37,451 (14)
EBITDA (1) 2,667 4,153 (36) 7,459 11,526 (35)
EBITDA % 19% 27% 23% 31%
Capital expenditures
from cont. operations
(2) 3,656 7,847 (53) 6,419 19,407 (67)
Dispositions of rental
assets (3) (5,539) (327) 1,594 (8,105) (1,525) 431
Net capital
expenditures (1,883) 7,520 (125) (1,686) 17,882 (109)
Gross capital assets 101,983 99,812 2 101,983 99,812 2
Total assets 102,833 107,421 (4) 102,833 102,833 (4)
Notes:
(1) Earnings before interest, taxes, depreciation and amortization
("EBITDA") is not a recognized measure under IFRS; see "Non-IFRS
Measures Reconciliation". EBITDA excludes Restructuring Expenses.
(2) Includes assets acquired under finance lease and purchases of intangible
assets. Capital expenditures are net of rental asset sales.
(3) Dispositions represented at net book value.
Revenue generated for the three months ended June 30, 2013, decreased 8% to
$14.3 million versus $15.6 million for the same period in 2012. Second quarter
2013 revenue was impacted by a longer spring breakup and unusually wet weather
conditions in June compared to the second quarter of 2012. Under normal
conditions, wet weather typically results in higher matting utilization;
however, unusually wet weather in June resulted in delayed matting deployments,
as road bans limited drill site access. As a result, drilling activity averaged
14% below 2012 levels during the second quarter of 2013 resulting in decreased
surface equipment, matting and drill pipe rental revenue compared to the second
quarter of 2012.
Second quarter revenue was also impacted by a decline in Strad's Canadian
Operations matting rental fleet due to sales of used SteelLock mats to existing
customers. Proceeds generated on the sale of SteelLock mats will be allocated to
other assets with a higher rental return profile during the second half of 2013.
Revenue generated for the six months ended June 30, 2013, decreased 14% to $32.1
million compared to $37.5 million for the same period in 2012. Lower drilling
activity levels are the main driver of year-over-year revenue declines.
EBITDA for the three months ended June 30, 2013, of $2.7 million, decreased 36%,
compared to $4.2 million for the same period in 2012. EBITDA as a percentage of
revenue for the three months ended June 30, 2013, was 19% compared to 27% for
the same period in 2012. This decrease was primarily due to lower rental
revenue.
EBITDA for the six months ended June 30, 2013, decreased 35% to $7.5 million
compared to $11.5 million for the same period in 2012. Decreased EBITDA was a
result of lower rental revenue during the first six months of 2013 compared to
the same period in 2012. EBITDA as a percentage of revenue for the six months
ended June 30, 2013, was 23% compared to 31% for the same period in 2012.
U.S. Operations
Three months ended Six months ended
June 30, June 30,
-------------------------- --------------------------
($000's) 2013 2012 % chg. 2013 2012 % chg.
-------- -------- -------- -------- -------- --------
Revenue 12,783 19,939 (36) 26,762 40,851 (34)
EBITDA (1) 3,916 5,157 (24) 8,421 12,605 (33)
EBITDA % 31% 26% 31% 31%
Capital expenditures
from cont. operations
(2) 1,498 15,545 (90) 3,798 28,425 (87)
Dispositions of rental
assets (3) (821) (286) 187 (973) (341) 185
Net capital
expenditures 677 15,259 (96) 2,825 28,084 (90)
Gross capital assets 105,269 105,674 - 105,269 105,674 -
Total assets 110,233 123,554 (11) 110,233 123,554 (11)
Notes:
(1) Earnings before interest, taxes, depreciation and amortization
("EBITDA") is not a recognized measure under IFRS; see "Non-IFRS
Measures Reconciliation". EBITDA excludes Restructuring Expenses.
(2) Includes assets acquired under finance lease and purchases of intangible
assets. Capital expenditures are net of rental asset sales.
(3) Dispositions represented at net book value.
Revenue for the three months ended June 30, 2013, decreased 36% to $12.8 million
from $19.9 million for the same period in 2012. Year-over-year revenue declines
continue to be the result of lower drilling activity in the U.S., specifically
in the Marcellus and Bakken resource plays, where rig counts declined 28% and
13%, respectively, from second quarter 2012 levels. Decreased rig counts have
resulted in increased competition in both resource plays, which caused lower
surface equipment and matting utilization as well as pricing pressure relative
to 2012. The Bakken continued to be the most active resource play for Strad's
U.S. Operations, generating 70% of total U.S. revenue.
Revenue for the six months ended June 30, 2013, decreased 34% to $26.8 million
from $40.9 million for the same period in 2012. The decrease in revenue
year-over-year was due to the same activity related factors impacting the second
quarter results in comparative periods.
EBITDA for the three months ended June 30, 2013, decreased 24% to $3.9 million
compared to $5.2 million for the same period in 2012. The decrease in EBITDA was
due to the previously mentioned reduction in overall asset utilization rates and
pricing pressure in the Marcellus and Bakken resource plays, offset by a shift
in product mix during the quarter. EBITDA as a percentage of revenue for the
three months ended June 30, 2013, was 31% compared to 26% for the same period in
2012. EBITDA as a percentage of revenue has remained consistent with the first
quarter of 2013 due to the ongoing success of management's restructuring plan,
which re-aligned the U.S. Operations cost structure with current market
conditions.
EBITDA for the six months ended June 30, 2013, decreased 33% to $8.4 million
compared to $12.6 million for the same period in 2012. The decrease is
consistent with utilization and revenue declines discussed previously. EBITDA as
a percentage of revenue for the six months ended June 30, 2013, remained
consistent at 31% in comparison to the same period in 2012.
Product Sales
Three months ended Six months ended
June 30, June 30,
-------------------------- --------------------------
($000's) 2013 2012 % chg. 2013 2012 % chg.
-------- -------- -------- -------- -------- --------
Revenue 22,462 18,740 20 35,464 32,303 10
EBITDA (1) 3,010 2,517 20 5,362 4,556 18
EBITDA % 13% 13% 15% 14%
Capital expenditures
(2) - 475 (100) 203 647 (69)
Total assets 1,099 6,162 (82) 1,099 6,162 (82)
Notes:
(1) Earnings before interest, taxes, depreciation and amortization
("EBITDA") is not a recognized measure under IFRS; see "Non-IFRS
Measures Reconciliation". EBITDA excludes Restructuring Expenses.
(2) Includes assets acquired under finance lease and purchases of intangible
assets.
Product Sales are comprised of in-house manufactured products sold to external
customers, third party equipment sales to existing customers, and sales of
equipment from Strad's existing fleet to customers. Product Sales revenue tends
to fluctuate quarter-over-quarter depending on customer demand and manufacturing
capacity dedicated to external sales.
Revenue for the three months ended June 30, 2013, increased 20% to $22.5 million
from $18.7 million for the same period in 2012, resulting primarily from higher
matting and drill pipe sales. During the second quarter, Product Sales consisted
of $5.5 million of in-house manufactured products and $17.0 million of third
party equipment and rental fleet sales to existing customers compared to $9.2
million and $9.5 million, respectively, during the same period in 2012.
Increased matting sales in the second quarter of 2013 were due to the sale of a
portion of Strad's Canadian Operations SteelLock matting fleet to an existing
customer. Proceeds generated from the sale will be allocated to other higher
rental return assets in Canada and the U.S.
Revenue for the six months ended June 30, 2013, increased 10% to $35.5 million
from $32.3 million for the same period in 2012. Increased matting sales during
the second quarter were the primary driver of year-over-year revenue increases.
Matting sales during the first six months of 2013 consisted of both third party
mat sales and sales of Strad's Canadian Operations rental fleet to existing
customers.
EBITDA for the three months ended June 30, 2013, of $3.0 million increased by
20% compared to $2.5 million for the same period in 2012. The increase in EBITDA
was due to higher Product Sales during the second quarter of 2013. EBITDA as a
percentage of revenue for the three months ended June 30, 2013, remained
consistent with the same period in 2012 at 13%. EBITDA as a percentage of
revenue tends to vary from quarter-over-quarter depending on the mix of sales,
as realized margins on third party equipment sales and sales of equipment from
Strad's existing fleet fluctuate more compared to sales of in-house manufactured
products.
EBITDA for the six months ended June 30, 2013, of $5.4 million, increased by 18%
compared with $4.6 million for the same period in 2012. EBITDA as a percentage
of revenue for the six months ended June 30, 2013, increased to 15% from 14%
during the same period in 2012.
OUTLOOK
Overall industry conditions during the second quarter deteriorated on a
year-over-year basis due to the continued reduction in North American drilling
activity. Lower drilling activity was largely a result of depressed natural gas
pricing across North America, wet weather in Canada, as well as oil
transportation bottlenecks in the WCSB, which has impacted cash flow and access
to capital for many participants in the Canadian Exploration & Production
("E&P") sector.
In the WCSB, active drilling rigs in the second quarter of 2013 averaged 152
compared with 177 for the same period in 2012, a 14% decline. In the U.S.,
drilling rig activity levels varied by region, with the total active U.S. rig
count declining by 11% on a year-over-year basis. The majority of Strad's U.S.
fleet operates in the Bakken and Marcellus resource plays, which were also
subject to reduced drilling activity. The active rig count in the Bakken
averaged 188 rigs in the second quarter of 2013, down 13% from 217 in the prior
year period. In the gas-weighted Marcellus play, the active rig count averaged
79 during the second quarter of 2013, down 28% from 110 in the prior year
period. On a sequential basis, rig counts in the Bakken and Marcellus declined
3% and 13%, respectively.
In Canada, industry activity was impacted by a prolonged spring breakup that
coincided with abnormally wet weather conditions. Wet weather not only reduced
overall Canadian drilling activity, but also adversely impacted Strad's matting
business, with many customers determining that conditions were too wet even for
matting based operations. Despite this, Strad's matting utilization levels
increased this quarter, as the Company was able to sell a lower return component
of its matting fleet, thereby reducing its amount of idle inventory. The Company
plans to subsequently redeploy this revenue into higher rental return assets
during the remainder of 2013. Looking ahead, Management anticipates generally
positive Canadian industry conditions for the duration of the year and is
engaged in the process of bidding on an increased number of projects with
broader scopes than it has in preceding quarters.
In Strad's U.S. business, the Company was successful in maintaining 30% EBITDA
margins during the second quarter, despite increased pricing pressure in the
Bakken. These margins remain in line with those set last quarter following the
successful restructuring of Strad's U.S. cost base. Management expects U.S.
margins to normalize at or near these levels by year-end, although current
activity and planned investment in field sales staff may modestly impact margins
in the third quarter. With overall U.S. industry activity remaining relatively
unchanged on a quarter-over-quarter basis, Strad remains confident in the
current size and scope of its U.S. fleet. Should industry conditions increase to
more robust levels, the Company remains poised to grow without adding
significant cost to its U.S. operations.
During the second quarter capital expenditures, net of $6.4 million in rental
asset disposals, totaled $(1.1) million. The majority of the $5.3 million in new
capital purchases was deployed in Canada. This represented a year-over-year
decline of 77%, which is the result of significant investment made to Strad's
fleet during 2012. As well, capital spending during the first half of 2013 has
been focused on specific opportunities to ensure Strad has the flexibility to
execute on larger scope projects. Strad intends to continue its practice of
applying cash from operations towards a combination of capital expenditures and
debt reduction on a quarter-by-quarter basis. Management believes that this
disciplined approach to cash flow allocation will continue to enable Strad to
selectively target key areas for growth, maintain its current dividend, and
reduce its overall debt levels during 2013.
While Strad maintains a positive outlook for the balance of 2013, management
remains aware of the persistent uncertainty that continues to characterize the
North American E&P sector. Given this reality, Strad remains focused on
maintaining a balanced approach to forward planning, where near-term caution
does not compromise long-term growth prospects. Management continues to believe
in the resiliency of Strad's flexible business model as well as the long-term
potential inherent in its targeted North American markets.
LIQUIDITY AND CAPITAL RESOURCES
($000's) June 30, 2013 March 31, 2013
----------------- -----------------
Current assets 50,466 50,532
Current liabilities 30,961 31,389
----------------- -----------------
Working capital (1) 19,505 19,143
Banking facilities
Operating facility 2,847 3,166
Syndicated revolving facility 49,400 55,500
----------------- -----------------
Total facility borrowings 52,247 58,666
Total available facilities 110,000 110,000
----------------- -----------------
Unused borrowing capacity 57,753 51,334
----------------- -----------------
(1) Working capital is calculated as current assets less current
liabilities. See "Non-IFRS Measures Reconciliation".
At June 30, 2013, working capital was $19.5 million compared to $19.1 million at
March 31, 2013. The change in working capital is consistent with the modest
increase in revenue from the first quarter to the second quarter of 2013. Funds
from operations for the three months ended June 30, 2013, decreased to $8.8
million compared to $10.8 million for the three months ended March 31, 2013.
Capital expenditures from continuing operations totaled $5.3 million and $5.4
million for the three months ended June 30, 2013 and March 31, 2013,
respectively and were offset by $6.4 million and $2.7 million of rental asset
sales during the same periods. Management used funds from operations and
proceeds from Product Sales to repay a portion of Strad's total facility
borrowing during the second quarter of 2013. Management monitors funds from
operations and the timing of capital additions to ensure adequate capital
resources are available to fund Strad's capital program.
The Company's syndicated banking facility consists of an operating facility with
a maximum principal amount of $15.0 million CAD and $10.0 million USD, and an
$85.0 million revolving facility, both of which are subject to certain
limitations on accounts receivable, inventory and net book value of fixed assets
and are secured by a general security agreement over the Company's assets. The
syndicated banking facility bears interest at bank prime plus a variable rate,
which is dependent on the Company's funded debt to EBITDA ratio. On July 18,
2013, the Company amended its syndicated credit facility, extending the maturity
date from July 25, 2015 to July 25, 2016.
Based on the Company's funded debt to EBITDA ratio of 1.4 to 1 at the end of the
second quarter of 2013, the interest rate on the syndicated banking facility is
bank prime plus 1.25% on prime rate advances and at the prevailing rate plus a
stamping fee of 2.25% on bankers' acceptances. For the three months ended June
30, 2013, the overall effective rates on the operating facility and revolving
facility were 4.11% and 3.44%, respectively. As of June 30, 2013, $2.8 million
was drawn on the operating facility and $49.4 million was drawn on the revolving
facility. Payments on the revolving facility are interest only.
As at June 30, 2013, the Company was in compliance with all of the syndicated
banking facility covenants.
NON-IFRS MEASURES RECONCILIATION
Certain supplementary measures in this MD&A do not have any standardized meaning
as prescribed under IFRS and, therefore, are considered non-IFRS measures. These
measures are described and presented in order to provide shareholders and
potential investors with additional information regarding the Company's
financial results, liquidity and its ability to generate funds to finance its
operations. These measures are identified and presented, where appropriate,
together with reconciliations to the equivalent IFRS measure. However, they
should not be used as an alternative to IFRS, because they may not be consistent
with calculations of other companies. These measures are further explained
below.
Earnings before interest, taxes, depreciation and amortization ("EBITDA") is not
a recognized measure under IFRS. Management believes that in addition to net
income, EBITDA is a useful supplemental measure as it provides an indication of
the results generated by the Company's principal business activities prior to
consideration of how those activities are financed or how the results are taxed.
EBITDA is calculated as net income from continuing operations plus interest,
finance fees, taxes, depreciation and amortization, non-controlling interest,
loss on disposal of property, plant and equipment, loss on foreign exchange,
loss on assets held for sale, restructuring charges, impairment loss, less gain
on foreign exchange and gain on disposal of property, plant and equipment.
Segmented EBITDA is based upon the same calculation for defined business
segments, which are comprised of Canadian Operations, U.S. Operations, Product
Sales and Corporate.
Funds from operations are cash flow from operating activities excluding changes
in working capital and share-based payments. It is a supplemental measure to
gauge performance of the Company before non-cash items. Working capital is
calculated as current assets minus current liabilities. Working capital, cash
forecasting and banking facilities are used by Management to ensure funds are
available to finance growth opportunities.
Annualized return on average total assets for the six months ended June 30,
2013, is calculated as annualized year-to-date EBITDA divided by the average of
total assets over the fourth quarter of 2012 and first quarter of 2013,
including a three month lag. The three month lag represents the time between the
purchase of capital assets and when they are deployed in the field and earning
revenue.
Funded debt is calculated as bank indebtedness plus current and long-term
portion of debt plus current and long-term portion of finance lease obligations,
less cash.
Reconciliation of EBITDA and Funds from Operations
($000's)
Three months ended Six months ended
June 30, June 30,
--------------------- ---------------------
2013 2012 2013 2012
---------- ---------- ---------- ----------
Net income from continuing
operations 13 2,772 1,076 7,895
Add:
Depreciation and amortization 8,824 7,003 16,450 13,256
Loss/(gain) on disposal of PP&E 76 (11) 662 24
Loss on disposal of assets held
for sale 17 - 175 -
Non-controlling interest - (187) - 333
Share-based payments 95 113 283 362
Deferred income tax
(recovery)/expense (1,099) 748 (753) 2,704
Financing fees 71 58 143 116
Interest expense 791 638 1,505 1,082
--------------------- ---------------------
Funds from operations 8,788 11,134 19,541 25,772
--------------------- ---------------------
Add:
(Gain)/loss on foreign exchange (18) (32) (139) 369
Current income tax
expense/(recovery) 94 (104) 309 1,087
--------------------- ---------------------
Subtotal 8,864 10,998 19,711 27,228
--------------------- ---------------------
Deduct:
Share-based payments 95 113 283 362
--------------------- ---------------------
EBITDA 8,769 10,885 19,428 26,866
--------------------- ---------------------
Reconciliation of quarterly non-IFRS measures
($000's)
Three months ended
(unaudited)
June 30, March 31, December 31, September 31,
2013 2013 2012 2012
----------- ----------- -------------- --------------
Net income/(loss) from
cont. operations 13 1,063 (3,490) 2,937
Add:
Depreciation and
amortization 8,824 7,626 7,667 7,362
Loss on disposal of
PP&E 76 586 226 22
Loss on disposal of
assets held for sale 17 158 - -
(Gain)/loss on foreign
exchange (18) (121) (195) 510
Non-controlling
Interest - - - 22
Current income tax
expense/(recovery) 94 216 (13) 788
Deferred income tax
(recovery)/expense (1,099) 345 (3,804) (528)
Interest Expense 791 714 739 854
Restructuring expense - - 4,129 -
Impairment loss - - 2,350 -
Finance fees 71 72 66 63
----------- ----------- -------------- --------------
EBITDA 8,769 10,659 7,675 12,030
----------- ----------- -------------- --------------
Communications
operating loss - - 679 610
----------- ----------- -------------- --------------
EBITDA (Adjusted) 8,769 10,659 8,354 12,640
----------- ----------- -------------- --------------
Three months ended
(unaudited)
June 30, March 31, December 31, September 31,
2012 2012 2011 2011
----------- ----------- -------------- --------------
Net income from cont.
operations 2,772 5,123 7,661 7,325
Add:
Depreciation and
amortization 7,003 6,253 5,713 5,214
(Gain)/loss on
disposal of PP&E (11) 35 (96) 52
(Gain)/loss on foreign
exchange (32) 401 52 (915)
Non-controlling
Interest (187) 520 543 497
Current income tax
(recovery)/expense (104) 1,191 1,177 2,074
Deferred income tax
expense 748 1,956 1,499 2,749
Interest Expense 638 444 620 457
Finance fees 58 58 - 31
----------- ----------- -------------- --------------
EBITDA 10,885 15,981 17,169 17,484
Communications
operating loss 556 167 213 179
----------- ----------- -------------- --------------
EBITDA (Adjusted) 11,441 16,148 17,382 17,663
----------- ----------- -------------- --------------
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION AND STATEMENTS
Certain statements and information contained in this MD&A constitute
forward-looking statements. More particularly, this MD&A contains
forward-looking statements concerning future capital expenditures of the
Company, debt, dividends, demand for the Company's products and services,
drilling activity in North America, pricing of the Company's products and
services, introduction of new products and services, manufacturing capacity to
meet anticipated demand for the Company's products, and expected exploration and
production industry activity. These statements relate to future events or to the
Company's future financial performance and involve known and unknown risks,
uncertainties and other factors that may cause the Company's actual results,
levels of activity, performance or achievements to be materially different from
future results, levels of activity, performance or achievements expressed or
implied by such forward-looking statements.
The use of any of the words "expect", "plan", "continue", "estimate",
"anticipate", "potential", "targeting", "intend", "could", "might", "should",
"believe", "may", "predict", or "will" and similar expressions are intended to
identify forward-looking information or statements. Various assumptions were
used in drawing the conclusions or making the projections contained in the
forward-looking statements throughout this MD&A. The forward-looking information
and statements included in this MD&A are not guarantees of future performance
and should not be unduly relied upon. Forward-looking statements are based on
current expectations, estimates and projections that involve a number of risks
and uncertainties, which could cause actual results to differ materially from
those anticipated and described in the forward-looking statements. Such
information and statements involve known and unknown risks, uncertainties and
other factors that may cause actual results or events to differ materially from
those anticipated in such forward-looking information or statements. These
factors include, but are not limited to, such things as the impact of general
industry conditions, fluctuation of commodity prices, industry competition,
availability of qualified personnel and management, stock market volatility and
timely and cost effective access to sufficient capital from internal and
external sources. The risks outlined above should not be construed as
exhaustive. Although management of the Company believes that the expectations
reflected in such forward-looking statements are reasonable, it can give no
assurance that such expectations will prove to have been correct. Accordingly,
readers should not place undue reliance upon any of the forward-looking
information set out in this MD&A. All of the forward-looking statements of the
Company contained in this MD&A are expressly qualified, in their entirety, by
this cautionary statement. The various risks to which the Company is exposed are
described in this MD&A under the heading "Risk Factors" above and in additional
detail in the Company's Annual Information Form ("AIF"). Except as required by
law, the Company disclaims any intention or obligation to update or revise any
forward-looking information or statements, whether the result of new
information, future events or otherwise.
This press release shall not constitute an offer to sell, nor the solicitation
of an offer to buy, any securities in the United States, nor shall there be any
sale of securities mentioned in this press release in any state in the United
States in which such offer, solicitation or sale would be unlawful prior to
registration or qualification under the securities laws of any such state.
SECOND QUARTER EARNINGS CONFERENCE CALL
Strad Energy Services Ltd. has scheduled a conference call to begin promptly at
8:00 a.m. MT (10:00 am. ET) on Thursday, August 8, 2013.
The conference call dial in number is 1-800-925-3017.
The conference call will also be accessible via webcast at www.stradenergy.com.
A replay of the call will be available approximately one hour after the
conference call ends until Thursday, August 15th, 2013, at 11:59pm ET. To access
the replay, call 1-800-558-5253, followed by pass code 21669222.
Strad Energy Services Ltd.
Interim Consolidated Statement of Financial Position
(Unaudited)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
As at As at
(in thousands of Canadian dollars) June 30, 2013 December 31, 2012
$ $
Assets
Current assets
Trade receivables 36,994 33,418
Inventories (note 3) 8,938 12,022
Prepaids and deposits 1,908 2,379
Current portion of notes receivable (note
4) 682 665
Income taxes receivable 1,944 1,526
--------------- ------------------
50,466 50,010
Assets held for sale (note 5) 2,749 4,728
Non-current assets
Property, plant and equipment (note 6) 144,496 157,042
Intangible assets (note 7) 2,399 2,721
Notes receivable (note 4) 384 729
Goodwill 17,277 17,277
Deferred income tax assets 133 198
--------------- ------------------
Total assets 217,904 232,705
--------------- ------------------
Liabilities
Current liabilities
Bank indebtedness (note 8) 2,847 2,488
Accounts payable and accrued liabilities 20,389 24,244
Deferred revenue 372 160
Current portion of obligations under
finance lease (note 9) 2,598 2,735
Note payable (note 10) 1,051 1,492
Dividend payable (note 13) 2,049 2,050
Restructuring provision (note 11) 1,655 3,813
--------------- ------------------
30,961 36,982
Non-current liabilities
Long-term debt (note 12) 49,400 55,500
Obligations under finance lease (note 9) 958 2,285
Deferred income tax liabilities 8,760 9,279
--------------- ------------------
Total liabilities 90,079 104,046
Equity
Share capital (note 13) 117,579 117,462
Contributed surplus (note 13) 11,317 11,016
Accumulated other comprehensive income
(loss) 317 (1,451)
Retained earnings (deficit) (1,388) 1,632
--------------- ------------------
Total equity 127,825 128,659
--------------- ------------------
Total liabilities and equity 217,904 232,705
--------------- ------------------
Strad Energy Services Ltd.
Interim Consolidated Statement of Income
For the three and six months ended June 30, 2013 and 2012
(Unaudited)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(in thousands of Canadian dollars, except per share amounts)
Three Months Ended Six Months Ended
June 30, June 30,
2013 2012 2013 2012
Continuing operations
Revenue 49,576 54,304 94,299 110,605
Expenses
Operating expenses 33,889 34,959 60,120 66,859
Depreciation 8,543 6,637 15,730 12,525
Amortization of intangible
assets 281 366 720 731
Selling, general administration 6,823 8,347 14,468 16,518
Share-based payments 95 113 283 362
Loss (gain) on disposal of
property, plant and equipment 76 (11) 662 24
Foreign exchange (gain) loss (18) (32) (139) 369
Finance fees 71 58 143 116
Interest expense 791 638 1,505 1,082
Loss on assets held for sale 17 - 175 -
---------- ---------- ---------- ----------
(Loss) income before income tax
from continuing operations (992) 3,229 632 12,019
Income tax (recovery) expense
(note 15) (1,005) 644 (444) 3,791
---------- ---------- ---------- ----------
Net income from continuing
operations for the period 13 2,585 1,076 8,228
---------- ---------- ---------- ----------
Income from discontinued
operations, net of tax (note
16) - 744 - 437
---------- ---------- ---------- ----------
Net income for the period 13 3,329 1,076 8,665
---------- ---------- ---------- ----------
Net income attributable to:
Owners of the parent 13 3,516 1,076 8,332
Non-controlling interests (note
14) - (187) - 333
---------- ---------- ---------- ----------
13 3,329 1,076 8,665
---------- ---------- ---------- ----------
Earnings per share from
continuing operations
attributable to the equity
owners of the Company:
Basic $ 0.00 $ 0.08 $ 0.03 $ 0.22
Diluted $ 0.00 $ 0.07 $ 0.03 $ 0.21
Earnings per share from
discontinued operations
attributable to the equity
owners of the Company:
Basic $ 0.00 $ 0.02 $ 0.00 $ 0.01
Diluted $ 0.00 $ 0.02 $ 0.00 $ 0.01
Earnings per share from total
operations attributable to the
equity owners of the Company:
Basic $ 0.00 $ 0.10 $ 0.03 $ 0.23
Diluted $ 0.00 $ 0.09 $ 0.03 $ 0.22
Strad Energy Services Ltd.
Interim Consolidated Statement of Comprehensive Income
For the six months ended June 30, 2013 and 2012
(Unaudited)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(in thousands of Canadian dollars)
Three Months Ended Six Months Ended
June 30, June 30,
2013 2012 2013 2012
$ $ $ $
Net income for the period 13 3,329 1,076 8,665
---------- ---------- ---------- ----------
Other comprehensive income
(loss)Items that may be
reclassified subsequently to
net income
Cumulative translation
adjustment 1,160 931 1,768 (169)
---------- ---------- ---------- ----------
Total other comprehensive
income (loss) 1,160 931 1,768 (169)
---------- ---------- ---------- ----------
Comprehensive income for the
period 1,173 4,260 2,844 8,496
---------- ---------- ---------- ----------
Comprehensive income
attributable to:
Owners of the parent 1,173 4,337 2,844 8,163
Non-controlling interests - (77) - 333
---------- ---------- ---------- ----------
1,173 4,260 2,844 8,496
---------- ---------- ---------- ----------
Strad Energy Services Ltd.
Interim Consolidated Statement of Cash Flow
For the six months ended June 30, 2013 and 2012
(Unaudited)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(in thousands of Canadian dollars)
2013 2012
Cash flow provided by (used in) $ $
Operating activities
Net income for the period 1,076 8,665
Adjustments for:
Depreciation and amortization 16,450 13,256
Deferred income tax (753) 2,704
Share-based payments 283 166
Interest expense and finance fees 1,648 1,198
Loss on disposal of property, plant and equipment 662 24
Loss/impairment on sale of investment in subsidiary - 441
Loss on assets held for sale (note 5) 175 -
Changes in items of non-cash working capital (note 17) (5,835) (1,147)
---------------------
Net cash generated from operating activities 13,706 25,307
---------------------
Investing activities
Purchase of property, plant and equipment (988) (45,071)
Proceeds from sale of property, plant and equipment 1,550 848
Purchase of intangible assets (396) (623)
Proceeds on sale of subsidiaries (note 16) - 7,129
Purchase of assets held for sale (125) (1,439)
Proceeds from sale of assets held for sale 1,876 -
Purchase of non-controlling interest (note 14) - (4,627)
Cash settlement on stock option exercises (36) -
Changes in items of non-cash working capital (note 17) (518) (5,752)
---------------------
Net cash generated (used) in investing activities 1,363 (49,535)
---------------------
Financing activities
Proceeds on issuance of long-term debt 2,000 29,000
Repayment of long-term debt (8,100) -
Repayment of finance lease obligations (net) (1,464) (1,877)
Issue of share capital - 24
Repayment of shareholder loan 115 271
Interest expense and finance fees (1,648) (1,198)
Payment of dividends (4,096) -
---------------------
Net cash (used) generated from financing activities (13,193) 26,220
---------------------
Effect of exchange rate changes on cash and cash
equivalents (2,235) (1,676)
---------------------
(Decrease) increase in cash and cash equivalents (359) 316
---------------------
Cash and cash equivalents (including bank
indebtedness) - beginning of year (2,488) (5,570)
---------------------
Cash and cash equivalents (including bank
indebtedness) - end of period (2,847) (5,254)
---------------------
Cash and cash equivalents - included in liabilities of
disposal group (note 16) - (205)
---------------------
Cash and cash equivalents (including bank
indebtedness) - end of period (2,847) (5,459)
---------------------
Cash paid for income tax 731 5,621
---------------------
ABOUT STRAD ENERGY SERVICES LTD.
Strad is a North American energy services company that focuses on providing
well-site infrastructure solutions to the oil and natural gas industry. Strad
focuses on providing complete customer solutions in well-site-related oilfield
equipment for producers active in unconventional resource plays.
Strad is headquartered in Calgary, Alberta, Canada. Strad is listed on the
Toronto Stock Exchange under the trading symbol "SDY".
FOR FURTHER INFORMATION PLEASE CONTACT:
Strad Energy Services Ltd.
Andy Pernal
President and Chief Executive Officer
(403) 775-9202
(403) 232-6901 (FAX)
apernal@stradenergy.com
Strad Energy Services Ltd.
Greg Duerr
Chief Financial Officer
(403) 705-4333
(403) 232-6901 (FAX)
gduerr@stradenergy.com
www.stradenergy.com
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