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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.
CALGARY, Alberta, March 01, 2018 (GLOBE NEWSWIRE) -- Strad Energy Services Ltd., ('Strad' or the 'Company'), a North American-focused, energy services company, today announced its financial results for the year-ended December 31, 2017. All amounts are stated in Canadian dollars unless otherwise noted.
SELECTED FINANCIAL AND OPERATIONAL HIGHLIGHTS:
Fourth quarter revenue increased 1% to $27.5 million compared to $27.3 million for the same period in 2016. Revenue for the year-ended December 31, 2017, increased 62% to $117.6 million compared to $72.4 million for the same period in 2016;
Fourth quarter adjusted EBITDA(1) of $5.2 million increased 8% compared to $4.8 million for the same period in 2016. Adjusted EBITDA for the year-ended December 31, 2017, increased 455% to $24.7 million compared to $4.4 million for the same period in 2016;
Fourth quarter loss increased to $(3.4) million compared to $(3.1) million for the same period in 2016. The loss for the year ended December 31, 2017, decreased to $(7.3) million compared to $(16.8) million for the same period in 2016;
Fourth quarter loss per share remained at $(0.06) as compared to the same period in 2016. For the year-ended December 31, 2017, loss per share was $(0.12) compared to $(0.41) for the same period in 2016;
Funded debt(2) decreased to $9.8 million for the year-ended December 31, 2017, as compared to $29.0 million in the same period of 2016. Funded debt(2) to covenant EBITDA(3) ratio was 0.4 to 1.0 at December 31, 2017; and
Capital additions totaled $5.2 million during the fourth quarter of 2017 and $22.1 million for the year-ended December 31, 2017.
Notes:
(1) Earnings before interest, taxes, depreciation and amortization and other adjustments ('adjusted EBITDA') is not a recognized measure under IFRS, and, accordingly, Strad's use of such a term may not be comparable to similarly defined measures presented by other entities; see 'Non-IFRS Measures Reconciliations'.
(2) Funded debt includes bank indebtedness plus long-term debt plus current and long-term obligations under finance lease less cash.
(3) Covenant EBITDA, as defined in the Company's credit facility agreement, is based on trailing twelve months adjusted EBITDA plus share based payments, plus additional one-time charges. "Our financial results for the fourth quarter came in as expected,' said Andy Pernal, President and Chief Executive Officer. 'For another consecutive quarter we reported improved financial results from our U.S. Operations as the U.S. business continues to contribute to our bottom line in a meaningful way. Our relatively fixed cost structure, improved customer pricing, particularly in the Canadian matting business, and increased surface equipment utilization resulted in a significant increase in adjusted EBITDA year-over-year.'
'In 2017, our significantly improved financial results and free cash flow generation allowed us to reduce funded debt to $9.8 million at December 31, 2017, from $29.0 million in 2016,' said Michael Donovan, Chief Financial Officer of Strad. 'Our strong balance sheet and free cash flow, position us well to evaluate and pursue acquisitions or other growth opportunities as they arise in 2018.'
YEAR-END FINANCIAL HIGHLIGHTS
($000's, except per share amounts) Three months ended December 31, Year-ended December 31,
2017 2016 % Chg. 2017 2016 % Chg. 2015
Revenue 27,522 27,263 1% 117,599 72,378 62% 111,548
Adjusted EBITDA (1) 5,169 4,782 8% 24,674 4,444 455% 17,432
Adjusted EBITDA as a % of revenue 19% 18% 21% 6% 16%
Per share ($), basic 0.09 0.10 (10)% 0.42 0.11 282% 0.47
Per share ($), diluted 0.09 0.10 (10)% 0.42 0.11 282% 0.47
Net loss (3,364) (3,105) 8% (7,276) (16,803) nm (30,361)
Per share ($), basic (0.06) (0.06) (0.12) (0.41) (0.82)
Per share ($), diluted (0.06) (0.06) (0.12) (0.41) (0.82)
Funds from operations (2) 6,648 5,476 21% 29,648 8,310 257% 23,014
Per share ($), basic 0.11 0.11 nm 0.51 0.20 155% 0.62
Per share ($), diluted 0.11 0.11 nm 0.50 0.20 150% 0.62
Capital expenditures (3) 5,157 884 483% 22,124 4,755 365% 9,606
Total assets 174,821 185,321 (6)% 174,821 185,321 (6)% 169,206
Long-term debt 10,776 26,501 (59)% 10,776 26,501 (59)% 15,500
Total long-term liabilities 22,616 37,023 (39)% 22,616 37,023 (39)% 22,264
Common shares - end of period ('000's) 59,906 48,379 59,906 48,379 37,280
Weighted average commons shares ('000's)
Basic 59,674 47,984 58,665 40,626 36,916
Diluted 60,014 47,984 59,048 40,626 36,916
Notes:
Earnings before interest, taxes, depreciation and amortization and other adjustments ('adjusted EBITDA') is not a recognized measure under IFRS, and, accordingly, Strad's use of such a term may not be comparable to similarly defined measures presented by other entities; see 'Non-IFRS Measures Reconciliations'. Funds from operations is cash flow from operating activities excluding changes in non-cash working capital. Funds from operations is not a recognized measure under IFRS; see 'Non-IFRS Measures Reconciliations'. Includes assets acquired under finance lease and purchases of intangible assets.
FINANCIAL POSITION AND RATIOS
As at December 31,
($000's except ratios) 2017 2016
Working capital(1) 19,617 15,636
Funded debt(2) 9,768 29,025
Total assets 174,821 185,321
Funded debt to EBITDA(3) 0.4 : 1.0 3.2 : 1.0
Notes:
Working capital is calculated as current assets less current liabilities.
Funded debt includes bank indebtedness plus long-term debt plus current and long-term obligations under finance lease.
EBITDA is based on trailing twelve months adjusted EBITDA plus share based payments, plus severance and transaction costs.
FOURTH QUARTER RESULTS
Strad reported an increase in revenue and adjusted EBITDA of 1% and 8%, respectively during the three months ended December 31, 2017, compared to the same period in 2016. Strad's fourth quarter results were driven by increased drilling activity in the WCSB and Strad's U.S. operating regions, in addition to increased customer pricing. Higher drilling activity during the quarter resulted in improved utilization of the Canadian surface equipment fleet and both the U.S. matting and surface equipment fleets resulting in increased revenue year-over-year. Adjusted EBITDA margin percentage increased to 19% compared to 18% in the prior year, due to increased revenue and a relatively fixed cost structure.
Revenue generated from Strad's energy infrastructure customer vertical decreased to $7.0 million during the fourth quarter of 2017 compared to $11.3 million in 2016. The decrease in energy infrastructure revenue is a result of lower Product Sales of $1.2 million for the three months ended December 31, 2017, as compared to $3.6 million in the same period of 2016, due to one time sales that occurred during the fourth quarter of 2016 that did not re-occur in 2017. Additionally, energy infrastructure projects concluded earlier in the fourth quarter of 2017 as compared to the same period of 2016. The energy infrastructure customer vertical continued to be primarily driven by matting in Canada. For the year-ended December 31, 2017, energy infrastructure revenue totaled $37.2 million as compared to $33.9 million, during the same period in 2016.
Strad's Canadian Operations reported an increase in revenue and adjusted EBITDA of 2% and 20%, respectively, during the three months ended December 31, 2017, compared to the same period in 2016. Increased revenue was a result of higher drilling activity, which drove increased surface equipment utilization and continued improved customer pricing during the fourth quarter 2017. Additionally, surface equipment utilization increased by 17% as compared to the fourth quarter of 2016, which contributed to the increase in revenue for the fourth quarter of 2017.
For the three months ended December 31, 2017, Strad's U.S. Operations reported an increase in revenue and adjusted EBITDA of 69% and 1,200% as compared to the same period in 2016. Rig counts in the Bakken, Rockies and Marcellus regions increased year-over-year by 48%, 75%, and 43%, respectively, resulting in increased drilling activity and utilization for the fourth quarter of 2017 as compared to the same period in 2016. Revenue for the fourth quarter of 2017 was also impacted by improved customer pricing as compared to the same period in 2016. Fourth quarter adjusted EBITDA increased to $1.8 million, as compared to $0.1 million in the same period of 2016, as a result of a lower cost structure in the U.S. due to our focus on reducing overhead costs and discretionary spending.
Strad's Product Sales reported a decline in revenue of 61%, as a result of lower in-house manufactured products, third party sales, and rental fleet sales which decreased to $0.1 million, $nil, and $2.0 million respectively, during the three months ending December 31, 2017, as compared to $0.3 million, $1.2 million and $3.9 million during the same period in 2016.
During the fourth quarter of 2017, capital expenditures were $4.5 million in Canada and $0.5 million in the U.S. These were related primarily to wood matting additions in Canada and the U.S. to support Strad's energy infrastructure customer vertical.
RESULTS OF OPERATIONS
Canadian Operations
Three months ended December 31,
Year-ended December 31,
($000's) 2017 2016 % chg. 2017 2016 % chg.
Revenue 17,453 17,136 2% 80,973 44,275 83%
Operating expenses 11,823 12,527 (6)% 52,030 32,084 62%
Selling, general and administration 1,461 1,178 24% 6,261 4,953 26%
Share based payments 85 35 290 103
Net income (loss) (1,054) (419) nm 4,795 1,532 213%
Adjusted EBITDA(1) 4,083 3,396 20% 22,390 7,135 214%
Adjusted EBITDA as a % of revenue 23% 20% 28% 16%
Capital expenditures(2) 4,514 716 530% 18,686 3,188 486%
Gross capital assets(3) 163,926 151,172 8% 163,926 151,172 8%
Total assets 110,786 111,260 nm 110,786 111,260 nm
Equipment Fleet:
Surface equipment(4) 4,200 4,100 2% 4,200 4,100 2%
Utilization %(5) 27% 23% 31% 19%
Matting(4) 67,000 57,000 18% 67,000 57,000 18%
Utilization %(5) 30% 65% 47% 50%
Notes:
Earnings before interest, taxes, depreciation and amortization and other adjustments ('adjusted EBITDA') is not a recognized measure under IFRS, and, accordingly, Strad's use of such a term may not be comparable to similarly defined measures presented by other entities; see 'Non-IFRS Measures Reconciliations'. Includes assets acquired under finance lease and purchases of intangible assets. Gross capital assets are total property, plant and equipment before impairment and depreciation expense. Surface equipment and matting fleet balances are as at December 31, 2017 and 2016. Equipment utilization includes surface and matting equipment on rent only and is calculated using gross asset value. Revenue for the three months ended December 31, 2017, of $17.5 million increased 2% compared to $17.1 million for the same period in 2016. Increased revenue during the quarter was primarily a result of increased pricing in both the matting and surface equipment product lines as well as higher rig counts, which increased by 25%, as compared to the fourth quarter of 2016. Further impacting the fourth quarter results was an increase of 17% in utilization in the surface equipment product line as compared to the prior year. During the fourth quarter, revenue from energy infrastructure projects was $5.5 million or 31% of total revenue for Canadian Operations as compared to $7.1 million or 42% of total Canadian Operations revenue in the fourth quarter of 2016. The overall decrease in revenue during the fourth quarter of 2017 is primarily due to the earlier conclusion of summer and fall energy infrastructure projects as compared to the same period in 2016.
During the fourth quarter, Strad's matting fleet increased to approximately 67,000 mats at December 31, 2017, compared to approximately 57,000 mats as at December 31, 2016, due to capital expenditures throughout the year. Fourth quarter matting utilization decreased to 30% compared to 65% in the same period of 2016 due to the earlier conclusion of summer and fall matting projects, in addition to fewer mats being deployed with energy infrastructure customers, as compared to the same period in 2016.
Adjusted EBITDA for the three months ended December 31, 2017, of $4.1 million, increased 20% compared to $3.4 million for the same period in 2016. Adjusted EBITDA as a percentage of revenue, for the three months ended December 31, 2017, increased to 23% compared to 20% for the same period in 2016. The increase in adjusted EBITDA is driven primarily by the increase in revenue during the fourth quarter of 2017 and a relatively fixed cost structure.
Revenue for the year-ended December 31, 2017, of $81.0 million increased 83% compared to $44.3 million for the same period in 2016. Increased drilling activity, improved customer pricing, and energy infrastructure projects were the primary drivers of increased revenue year-over-year.
During the year-ended December 31, 2017, revenue from energy infrastructure projects was approximately $29.6 million or 37% of total revenue for Canadian Operations as compared to $22.5 million or 51% of total Canadian Operations revenue in the same period of 2016. Increased pricing and an earlier start to the matting season for energy infrastructure projects are the primary drivers of increased revenue year-over-year.
Adjusted EBITDA for the year-ended December 31, 2017, of $22.4 million, increased 214% compared to $7.1 million for the same period in 2016. Adjusted EBITDA as a percentage of revenue, for the year-ended December 31, 2017, increased to 28% compared to 16% for the same period in 2016.
Operating expenses for the three months ended December 31, 2017, of $11.8 million decreased 6% compared to $12.5 million for the same period in 2016. The decrease in operating expenses for the fourth quarter of 2017, as compared to the fourth quarter of 2016, is due to the decrease in matting related service work.
Operating expenses for the year-ended December 31, 2017, of $52.0 million increased 62% compared to $32.1 million for the same period in 2016. The increase in operating expenses during the year-ended December 31, 2017, is a result of increased activity levels and fleet size, as well as an increase in third party expenses, as compared to the same period in 2016. The increase in overall expenses is consistent with the increase in drilling activity and energy infrastructure projects that have occurred during 2017.
SG & A for the three months and year-ended December 31, 2017, of $1.5 million and $6.3 million, respectively, increased 24% and 26% compared to $1.2 million and $5.0 million for the same period in 2016. SG & A costs increased over the three months and year-ended December 31, 2017, as a result of increased head count for 2017, resulting in increased costs related to salaries and benefits.
U.S. Operations
Three months ended December 31, Year-ended December 31,
($000's) 2017 2016 % chg. 2017 2016 % chg.
Revenue 7,937 4,704 69% 27,031 14,955 81%
Operating expenses 5,321 3,574 49% 18,964 12,422 53%
Selling, general and administration 775 991 (22)% 3,525 4,346 (19)%
Share based payments 23 (1) 69 33
Net loss (1,592) (3,296) nm (9,831) (16,403) nm
Adjusted EBITDA(1) 1,820 140 1,200% 4,475 (1,846) nm
Adjusted EBITDA as a % of revenue 23% 3% 17% (12)%
Capital expenditures(2) 514 168 206% 3,208 1,382 132%
Gross capital assets(3) 130,714 142,295 (8)% 130,714 142,295 (8)%
Total assets 63,825 70,848 (10)% 63,825 70,848 (10)%
Equipment Fleet:
Surface equipment(4) 2,000 2,000 nm 2,000 2,000 nm
Utilization %(5) 30% 22% 27% 18%
Matting(4) 18,300 14,400 27% 18,300 14,400 27%
Utilization %(5) 36% 15% 31% 15%
Notes:
Earnings before interest, taxes, depreciation and amortization and other adjustments ('adjusted EBITDA') is not a recognized measure under IFRS, and, accordingly, Strad's use of such a term may not be comparable to similarly defined measures presented by other entities; see 'Non-IFRS Measures Reconciliations'. Includes assets acquired under finance lease and purchases of intangible assets. Gross capital assets are total property, plant and equipment before impairment and depreciation expense. Equipment utilization includes surface and matting equipment on rent only and is calculated using gross asset value. Equipment utilization includes surface and matting equipment on rent only and is calculated using gross asset value. Revenue for the three months ended December 31, 2017, increased 69% to $7.9 million from $4.7 million for the same period in 2016. The increase in revenue is due to a combination of higher surface equipment and matting utilization rates and higher customer pricing resulting from increased drilling activity when compared to the same period in 2016. Average rig counts in the Bakken, Rockies and Marcellus regions increased by 48%, 75%, and 43%, respectively, during the fourth quarter of 2017 compared to the same period in 2016. During the fourth quarter, revenue from energy infrastructure projects was $0.3 million or 4% of total revenue for U.S. Operations, compared to $0.6 million or 13% in the same period of 2016. The decrease in revenue from energy infrastructure projects is due to fewer projects in 2017 compared to the same period in 2016.
The U.S. matting fleet increased to 18,300 mats as at December 31, 2017, compared to 14,400 mats as at December 31, 2016. The addition of mats during 2017 was to support the increase in U.S. matting customers. The U.S. surface equipment fleet remained the same at 2,000 pieces at December 31, 2017, compared to December 31, 2016.
Adjusted EBITDA for the three months ended December 31, 2017, increased to $1.8 million compared to $0.1 million for the same period in 2016. Adjusted EBITDA as a percentage of revenue, for the three months ended December 31, 2017, was 23% compared to 3% for the same period in 2016. The significant increase in both adjusted EBITDA and adjusted EBITDA as a percentage of revenue is primarily due to increased drilling activity levels which resulted in higher utilization and improved customer pricing in the fourth quarter of 2017 compared to the same period of 2016.
Revenue for the year-ended December 31, 2017, increased 81% to $27.0 million from $15.0 million for the same period in 2016. The increase in revenue for the year-ended December 31, 2017, can be attributed to higher surface equipment and matting utilization rates due to increased drilling activity levels across all of our U.S. operating regions and higher customer pricing as compared to the same period in 2016. In addition, energy infrastructure revenue increased to $2.3 million or 9% during the year-ended December 31, 2017, compared to $1.8 million or 12% in the same period of 2016.
Adjusted EBITDA for the year-ended December 31, 2017, increased to $4.5 million compared to $(1.8) million for the same period in 2016. Adjusted EBITDA as a percentage of revenue, for the year-ended December 31, 2017, was 17% compared to (12)% for the same period in 2016. The increase in both adjusted EBITDA and adjusted EBITDA as a percentage of revenue is primarily due to the increase in revenue during 2017 and a reduced fixed cost structure.
Operating expenses for the three months ended December 31, 2017, of $5.3 million, increased 49% as compared to $3.6 million for the same period in 2016. The increase in operating expenses during the three months ended December 31, 2017, is a result of increased activity levels due to the increase in average rig counts.
Operating expenses for the year-ended December 31, 2017, of $19.0 million, increased 53%, as compared to $12.4 million for the same period in 2016. The increase in operating expenses during the year-ended December 31, 2017 is a result of increased activity levels.
SG & A costs for the three months and year-ended December 31, 2017, of $0.8 million and $3.5 million decreased 22% and 19% respectively compared to $1.0 million and $4.3 million for the same period in 2016. The change in SG & A expenses is due to cost reductions implemented by management including staff reductions and reductions in discretionary spending.
Product Sales
Three months ended December 31, Year-ended December 31,
($000's) 2017
2016
% chg. 2017
2016
% chg.
Revenue 2,132 5,423 (61)% 9,595 13,148 (27)%
Operating expenses 1,917 2,852 (33)% 7,664 9,553 (20)%
Selling, general and administration 110 15 633% 261 59 342%
Net loss (618) (342) nm (1,309) (1,048) 25%
Adjusted EBITDA(1) 102 2,556 (96)% 1,671 3,536 (53)%
Adjusted EBITDA as a % of revenue 5% 47% 17% 27%
Capital expenditures(2) — — 25 —
Total assets 976 2,332 nm 976 2,332 nm
Notes:
Earnings before interest, taxes, depreciation and amortization and other adjustments ('adjusted EBITDA') is not a recognized measure under IFRS, and, accordingly, Strad's use of such a term may not be comparable to similarly defined measures presented by other entities; see 'Non-IFRS Measures Reconciliations'. 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.
Revenue for the three months ended December 31, 2017, decreased 61% to $2.1 million from $5.4 million for the same period in 2016, resulting from lower rental fleet sales, in-house manufactured products, and third party sales. During the three months ended December 31, 2017, Product Sales consisted of $2.0 million of rental fleet sales, $0.1 million of in-house manufactured products, and $nil of third party equipment sales compared to $3.9 million, $0.3 million and $1.2 million, respectively, during the same period in 2016. In the fourth quarter of 2017, management made the decision to no longer manufacture in-house products.
During the fourth quarter, revenue from energy infrastructure projects was $1.2 million or 57% of total revenue compared to $3.6 million or 67% of total revenue in the same period of 2016. The decrease in revenue year-over-year is due to one-time sales during the fourth quarter of 2016 that did not re-occur in 2017. Product Sales vary from quarter to quarter and are dependent on project timing and customer demands.
Total assets for Product Sales decreased to $1.0 million at December 31, 2017, as compared to $2.3 million during the same period in 2016 as the Company wound down its rig mat manufacturing operations during the fourth quarter of 2017.
Adjusted EBITDA for the three months ended December 31, 2017, decreased to $0.1 million from $2.6 million for the same period in 2016. Adjusted EBITDA as a percentage of revenue, for the three months ended December 31, 2017, was 5% compared to 47% for the same period in 2016. The decrease in adjusted EBITDA is due to the decreased sales for the three months ended December 31, 2017.
Revenue for the year-ended December 31, 2017, decreased 27% to $9.6 million from $13.1 million for the same period in 2016, resulting primarily from lower in-house manufactured equipment sales year over year. During the year-ended December 31, 2017, Product Sales consisted of $7.5 million of rental fleet sales, $1.5 million of in-house manufactured products, and $0.6 million of third party equipment sales compared to $6.2 million, $1.8 million and $5.2 million, respectively, during the same period in 2016.
During the year-ended December 31, 2017, revenue from energy infrastructure projects was $5.3 million or 55% of total revenue compared to $9.7 million or 74% of total revenue in the same period of 2016. Revenue decreased year-over-year due to additional matting sales to energy infrastructure customers in the fourth quarter of 2016.
Adjusted EBITDA for the year-ended December 31, 2017, decreased to $1.7 million from $3.5 million for the same period in 2016. Adjusted EBITDA as a percentage of revenue, for the year-ended December 31, 2017, was 17% compared to 27% for the same period in 2016.
Operating expenses for the three months and year-ended December 31, 2017, of $1.9 million and $7.7 million decreased 33% and 20% compared to $2.9 million and $9.6 million for the same period in 2016. Operating expenses vary with individual transactions and business activity levels.
OUTLOOK
Fiscal 2017 demonstrated continuing improvement in the North American oil and gas sector as increased oil prices and overall customer sentiment resulted in a marked improvement in our year-over-year revenue and adjusted EBITDA results. Our relatively fixed cost structure, improved customer pricing, particularly in the Canadian matting business, and increased surface equipment utilization resulted in a significant increase in adjusted EBITDA year-over-year.
For the fifth consecutive quarter, we reported improved financial results from our U.S. Operations, driven primarily by improved average rig counts in our operating regions and modest pricing increases. The investment climate in the U.S. continues to improve and oil and gas prices do not suffer from the same price differentials as the Canadian market. As U.S. crude prices have recovered to levels not seen since December 2014, we expect 2017 closing activity levels to continue into the first half of 2018 and believe the U.S. business will continue to contribute to our bottom line in a meaningful way.
Contributing to our improved Canadian results for the year were increased average rig counts in the WCSB, higher surface equipment utilization, and improved customer pricing. During 2017, surface equipment pricing continued to improve and matting prices recovered to 2014 levels. In Canada, we have limited visibility of expected drilling activity levels in 2018 due to weak AECO natural gas prices and Western Canadian Select ("WCS") prices. Capital budgets from major gas players have been reduced while they await normalization of supply and demand. The WCS differential to West Texas Intermediate ("WTI") differential remains substantial as increasing production is met with constrained take-away capacity and restricted market access. Our approach to operating in what is expected to be a challenging environment will focus on maximizing the utilization of our matting and surface equipment fleets with energy infrastructure customers, while continuing to focus on managing costs.
As expected, matting utilization declined during the fourth quarter as large-scale energy infrastructure construction projects wound down and the ground began to freeze. In the fourth quarter, we continued to invest in our matting fleet as part of our focus on growth in the energy infrastructure customer vertical and for what we expect to be continued strong demand in 2018.
Revenue from the energy infrastructure customer vertical contributed $37.2 million or 32% to total revenue, an increase of $3.3 million from 2016. Our diversification strategy to reduce reliance on drilling activity continues to prove successful, maintaining matting fleet utilization rates during cyclical low drilling periods. We expect roughly one third of our revenue to continue to be generated through this vertical in 2018.
In 2017, we deployed $22.1 million of the approved $26.0 million capital budget of which $18.2 million was directed towards the Canadian wood matting fleet. For 2018, our $8.0 million capital program is expected to comprise of maintenance spending including $5.0 million allocated to replacement matting, $1.5 million in information technology upgrades, and $1.5 million of other maintenance capital. As with 2017, we expect to continue to evaluate the size of the capital program as opportunities arise. The capital program is expected to be financed entirely through operating cash flow.
Balance sheet preservation and cost containment will continue to be top priorities in 2018. In 2017, we achieved a 62% increase in revenue with only a marginal increase in Selling, general and administrative costs ("SG & A") expense net of 2016 acquisition costs. Leveraging technology to maintain our relatively fixed cost structure will remain a key focus in 2018. Our strong balance sheet and free cash flow allow us the flexibility to evaluate and pursue acquisitions or organic growth opportunities as they arise.
LIQUIDITY AND CAPITAL RESOURCES
($000's) December 31, 2017
December 31, 2016
Current assets 31,899 31,852
Current liabilities 12,282 16,216
Working capital(1) 19,617 15,636
Banking facilities
Operating facility — 1,478
Syndicated revolving facility 10,776 26,501
Total facility borrowings 10,776 27,979
Total credit facilities(2) 48,500 48,500
Unused credit capacity 37,724 20,521
Notes:
Working capital is calculated as current assets less current liabilities. Facilities 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 all of the Company's assets. As at December 31, 2017, Strad had access to $48.5 million of credit facilities. As at December 31, 2017, working capital was $19.6 million compared to $15.6 million at December 31, 2016. The change in current assets is a result of a 6% increase in accounts receivable to $26.0 million for the fourth quarter of 2017 compared to $24.5 million for the fourth quarter of 2016. The increase in accounts receivable is due to an increase in Matting and Surface Equipment related revenue. During the fourth quarter of 2017, the Company reclassified the long-term other asset to short-term, resulting in an increase in current assets of $1.3 million. In addition, the Company had cash and cash equivalents at December 31, 2017, as opposed to a net debt position at December 31, 2016, which resulted in a reclassification to cash and a further increase in current assets. Inventory decreased by 53% to $1.8 million at December 31, 2017, from $3.9 million at December 31, 2016. The decrease in inventory is partially due to management's decision to no longer manufacture in-house products, resulting in a provision of $225 thousand for raw materials related to in-house manufacturing. The remaining reduction in inventory is a result of the sale of inventory due to the normal course of business. Prepaid expenses decreased 36% to $0.7 million at December 31, 2017, from $1.1 million at December 31, 2016. The decrease in prepaids relates to the normal course of business. The change in current liabilities is a result of a 14% decrease in accounts payable and accrued liabilities to $11.9 million at December 31, 2017, compared to $13.9 million at year end. The decrease in accounts payable as compared to the 2016 year end is primarily due to the timing of payments made for the fourth quarter of 2017.
Funds from operations for the three months ended December 31, 2017, increased to $6.6 million compared to $5.5 million for the three months ended December 31, 2016. Capital expenditures totaled $5.2 million for the three months ended December 31, 2017. Strad's total facility borrowing decreased by $17.2 million for the fourth quarter ended December 31, 2017, compared to the fourth quarter of 2016. Management monitors funds from operations and the timing of capital additions to ensure adequate capital resources are available to fund Strad's capital program.
As at December 31, 2017, the Company's syndicated banking facility consists of an operating facility with a maximum principal amount of $7.0 million CAD and $5.0 million USD, and a $36.5 million CAD syndicated 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 all of the Company's assets. As at December 31, 2017, the Company had access to the maximum credit facilities. The syndicated banking facility was extended and amended during the fourth quarter of 2017 and will mature on September 29, 2020. These amendments include a return to pre-covenant relief period maximum ratio of Funded Debt to covenant EBITDA of 3.0:1 and a minimum ratio of Interest Expense to covenant EBITDA of 3.0:1. The syndicated banking facility bears interest at bank prime plus a variable rate, which is dependent on the Company's funded debt to covenant EBITDA ratio.
Based on the Company's funded debt to covenant EBITDA ratio, the interest rate on the syndicated credit facility is bank prime plus 0.5% on prime rate advances and at the prevailing rate plus a stamping fee of 1.50% on bankers' acceptances. For the three months ended December 31, 2017, the overall effective rates on the operating facility and revolving facility were 5.62% and 4.12%, respectively. As of December 31, 2017, $nil was drawn on the operating facility and $10.8 million was drawn on the revolving facility. Required payments on the revolving facility are interest only.
As at December 31, 2017, the Company was in compliance with all of the financial covenants under its credit facilities.
The relevant definitions related to the financial debt covenant ratio terms as set forth in the Company's syndicated banking facility are as follows:
Funded debt includes bank indebtedness plus long-term debt plus current and long-term obligations under finance lease, less cash. Covenant EBITDA is based on trailing twelve months adjusted EBITDA plus share based payments, plus additional one-time charges. Interest expense ratio is calculated as the ratio of trailing twelve months adjusted EBITDA plus share based payments to trailing twelve months interest expense on loans and borrowings. The above noted definitions are not recognized under IFRS and are provided strictly for the purposes of the financial covenant calculation.
Financial Debt Covenants As at December 31,
2017
As at December 31,
2016
Funded debt to EBITDA ratio (not to exceed 3.0:1)
Funded debt 9,768 29,025
Covenant EBITDA 25,339 9,119
Ratio 0.4 3.2
EBITDA to interest coverage ratio (no less than 3.0:1)
Covenant EBITDA 25,339 9,119
Interest expense 1,225 1,557
Ratio 20.7 5.9
NON-IFRS MEASURES AND RECONCILIATIONS Certain supplementary measures in this Press Release 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 construed as alternative measures to IFRS measures, and they may not be consistent with calculations of other companies. These measures are further explained below.
Earnings before interest, taxes, depreciation and amortization and other adjustments ('adjusted EBITDA') is not a recognized measure under IFRS. Management believes that in addition to net income (loss), adjusted 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. Adjusted EBITDA is calculated as net income (loss) plus interest, finance fees, taxes, depreciation and amortization, loss on disposal of property, plant and equipment, loss on foreign exchange, less gain on foreign exchange and gain on disposal of property, plant and equipment. Segmented adjusted EBITDA is based upon the same calculation for defined business segments, which are comprised of Canadian Operations, U.S. Operations and Product Sales. The Company's method of calculating adjusted EBITDA may differ from that of other organizations and, accordingly, its adjusted EBITDA may not be comparable to that of other companies.
Funds from operations are cash flow from operating activities excluding changes in non-cash working capital. Funds from operations is a non-IFRS measure commonly used in the energy industry to assist in measuring a company's ability to finance its capital programs, debt repayments and other financial obligations. Funds from operations is not intended to represent net cash generated from operating activities or other measures of financial performance in accordance with IFRS. 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.
Funded debt is calculated as bank indebtedness plus long-term debt plus current and long-term portion of finance lease obligations less cash from syndicate institutions.
Reconciliation of Funds from Operations
($000's)
Three months ended December 31,
Year-ended December 31,
2017
2016
2017
2016
Net cash generated from operating activities 19,082 1,947 29,877 8,756
Less:
Changes in non-cash working capital 12,434 (3,529) 229
446
Funds from Operations 6,648 5,476 29,648 8,310
Reconciliation of adjusted EBITDA
($'000's)
Three months ended December 31,
Year-ended December 31,
2017
2016
2017
2016
Net loss: (3,364) (3,105) (7,276) (16,803)
Add (deduct):
Depreciation and amortization 8,918 7,610 30,232 22,205
Loss (gain) on disposal of PP & E 16 (105) (218) (601)
Income tax (recovery) expense (653) (199) 484 (1,378)
Financing fees 89 43 293 181
Interest expense 69 415 1,225 1,134
Loss (gain) loss on foreign exchange 94 123 (66) (294)
Tax (recovery) expense — — — —
Adjusted EBITDA 5,169 4,782 24,674 4,444
Reconciliation of quarterly non-IFRS measures
($'000's)
Three months ended
Dec 31, 2017
Sep 30, 2017
Jun 30, 2017
Mar 31, 2017
Net income (loss): (3,364) 598 (2,163) (2,347)
Add (deduct):
Depreciation and amortization 8,918 7,359 7,572 6,383
Loss (gain) on disposal of PP & E 16 (6) (150) (78)
Income tax (recovery) expense (653) 1,123 (102) 116
Financing fees 89 58 73 73
Interest expense 69 301 419 436
Loss (gain) loss on foreign exchange 94 (15) (58) (87)
Current tax (recovery) expense — — — —
Adjusted EBITDA 5,169 9,418 5,591 4,496
Three months ended
Dec 31, 2016
Sep 30, 2016
Jun 30, 2016
Mar 31, 2016
Net loss: (3,105) (3,746) (6,958) (2,994)
Add (deduct):
Depreciation and amortization 7,610 4,930 4,516 5,149
Gain on disposal of PP & E (105) (35) (268) (193)
Income tax (recovery) expense (199) (281) 520 (1,418)
Financing fees 43 44 47 47
Interest expense 415 318 157 244
Loss (gain) on foreign exchange 123 17 3 (437)
Current tax expense (recovery) — — — —
Adjusted EBITDA 4,782 1,247 (1,983) 398
Reconciliation of funded debt
($'000's)
Three months ended
December 31, 2017
Year-ended December
31, 2017
Bank indebtedness (cash) at syndicate banks (1,626) 1,478
Long term debt 10,776 26,501
Current and long term obligations under finance lease 618 1,046
Funded Debt 9,768 29,025
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION AND STATEMENTS
Certain statements and information contained in this press release constitute forward-looking information and statements within the meaning of applicable securities laws. 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. More particularly, this press release contains forward-looking statements concerning future capital expenditures of the Company, including its 2018 capital budget, planned allocations of capital expenditures, and funding thereof, by way of cash flow, anticipated cash flow, debt, anticipated demand for the Company's products and services in 2018 and anticipated revenue allocations amongst our service offerings, drilling activity in North America, pricing of the Company's products and services and expectations for 2018 and potential for improved profitability, and the potential for growth and expansion of certain components of the Company's business, including further additions to our matting fleet, anticipated benefits from cost reductions and timing thereof, manufacturing capacity to meet anticipated demand for the Company's products, and expected exploration and production industry activity including the effects of industry trends on demand for the Company's products. 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.
Various assumptions were used in drawing the conclusions or making the projections contained in the forward-looking statements throughout this press release. The forward-looking information and statements included in this press release 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. In addition to other material factors, expectations and assumptions which may be identified in this press release and other continuous disclosure documents of the Company referenced herein, assumptions have been made in respect of such forward-looking statements and information regarding, among other things: the Company will continue to conduct its operations in a manner consistent with past operations; the general continuance of current industry conditions; anticipated financial performance, business prospects, impact of competition, strategies, the general stability of the economic and political environment in which the Company operates; exchange and interest rates; tax laws; the sufficiency of budgeted capital expenditures in carrying out planned activities; the availability and cost of labour and services and the adequacy of cash flow; debt and ability to obtain financing on acceptable terms to fund its planned expenditures, which are subject to change based on commodity prices; market conditions and future oil and natural gas prices; and potential timing delays. Although Management considers these material factors, expectations and assumptions to be reasonable based on information currently available to it, no assurance can be given that they will prove to be correct.
Readers are cautioned that the foregoing lists of factors are not exhaustive. Additional information on these and other factors that could affect the Company's operations and financial results are included in reports on file with the Canadian Securities Regulatory Authorities and may be accessed through the SEDAR website (www.sedar.com) or at the Company's website. The forward-looking statements and information contained in this press release are expressly qualified by this cautionary statement. The Company does not undertake any obligation to publicly update or revise any forward looking statements or information, whether as a result of new information, future events or otherwise, except as may be required by applicable securities laws.
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.
FOURTH QUARTER EARNINGS CONFERENCE CALL
Strad Energy Services Ltd. has scheduled a conference call to begin promptly
at 8:00 a.m. MT (10:00 a.m. ET) on Friday, March 2, 2018.
The conference call dial in number is 1-844-388-0561, followed by Conference ID code 3057038
The conference call will also be accessible via webcast at
A replay of the call will be available approximately one hour after the conference call ends until Friday, March 9th,
2018, at 1:00 p.m. ET. To access the replay, call 1-855-859-2056, followed by pass code 3057038.
Strad Energy Services Ltd.
Consolidated Statement of Financial Position
As at December 31, 2017 and 2016
(in thousands of Canadian dollars) As at December 31, 2017
As at December 31, 2016
$
$
Assets
Current assets
Cash 1,859 369
Trade receivables 26,038 24,460
Inventories 1,818 3,890
Prepaids and deposits 707 1,111
Other assets 1,289 —
Income taxes receivable 188 2,022
31,899 31,852
Non-current assets
Property, plant and equipment 141,917 150,622
Intangible assets 556 665
Other assets — 2,023
Income tax receivable 278 —
Deferred income tax assets 171 159
174,821 185,321
Liabilities
Current liabilities
Bank indebtedness — 1,478
Accounts payable and accrued liabilities 11,937 13,893
Deferred revenue — —
Income taxes payable — —
Current portion of obligations under finance lease 345 845
12,282 16,216
Non-current liabilities
Long-term debt 10,776 26,501
Obligations under finance lease 273 201
Deferred income tax liabilities 11,567 10,321
Total liabilities 34,898 53,239
Equity
Share capital 154,763 135,935
Contributed surplus 12,736 12,243
Accumulated other comprehensive income 22,635 26,963
Deficit (50,211) (43,059)
174,821 185,321
Strad Energy Services Ltd.
Consolidated Statement of Loss and Comprehensive Loss
For the years-ended December 31, 2017 and 2016
2017 2016
$
$
Revenue 117,599 72,378
Expenses
Operating expenses 78,658 54,059
Depreciation 29,447 21,796
Amortization of intangible assets 169 314
Amortization of long term assets 616 95
Selling, general and administration 13,774 13,644
Share-based payments 493 231
Gain on disposal of property, plant and equipment (218) (601)
Foreign exchange gain (66) (294)
Finance fees 293 181
Interest expense 1,225 1,134
Loss before income tax (6,792) (18,181)
Income tax expense (recovery) 484 (1,378)
Loss for the period (7,276) (16,803)
Other comprehensive loss
Items that may be reclassified subsequently to net loss
Cumulative translation adjustment (4,328) (3,190)
Total comprehensive loss (11,604) (19,993)
Loss per share:
Basic ($0.12) ($0.41)
Diluted ($0.12) ($0.41)
Strad Energy Services Ltd.
Consolidated Statement of Cash Flow
For the years ended December 31, 2017 and 2016
(in thousands of Canadian dollars)
2017
2016
$
$
Cash flow provided by (used in)
Operating activities
Net loss for the period (7,276) (16,803)
Adjustments for items not affecting cash:
Depreciation and amortization 30,232 22,205
Deferred income tax expense (recovery) 161 (172)
Share-based payments 493 231
Interest expense and finance fees 1,518 1,315
Unrealized foreign exchange gain (280) (418)
Gain on disposal of property, plant and equipment (218) (601)
Book value of used fleet sales in operating activities 5,018 2,553
Changes in items of non-cash working capital 229 446
Net cash generated from operating activities 29,877 8,756
Investing activities
Purchase of property, plant and equipment (22,124) (4,570)
Proceeds from sale of property, plant and equipment 1,011 1,990
Purchase of intangible assets (65) (185)
Cash paid on business acquisition (2,750) —
Cash assumed on business acquisition 322 196
Changes in items of non-cash working capital 214 195
Net cash used in investing activities (23,392) (2,374)
Financing activities
Proceeds on issuance of long-term debt 5,307 21,000
Repayment of long-term debt (21,032) (9,999)
Repayment of long-term debt assumed in business acquisition — (12,995)
Repayment of finance lease obligations (net) (958) (761)
Settlement of shareholder loan 304 (2)
Issuance of common shares 15,000 —
Share issue costs (1,025) —
Normal course issuer bid (167) —
Interest expense and finance fees (1,518) (1,315)
Changes in items of non-cash working capital (73) (68)
Net cash used in financing activities (4,162) (4,140)
Effect of exchange rate changes on cash and cash equivalents 645 (477)
Increase in cash and cash equivalents 2,968 1,765
Cash and cash equivalents (including bank indebtedness) - beginning of year (1,109) (2,874)
Cash and cash equivalents (including bank indebtedness) - end of period 1,859 (1,109)
Cash paid for income tax 690 —
Cash paid for interest 1,273 977
ABOUT STRAD ENERGY SERVICES LTD. Strad is a North American energy services company that provides rental equipment and matting solutions to the oil and gas and energy infrastructure sectors. Strad focuses on providing complete customer solutions in Canada and the United States.
Strad is headquartered in Calgary, Alberta, Canada. Strad is listed on the Toronto Stock Exchange under the trading symbol 'SDY'.
For more information, please contact:
Strad Energy Services Ltd.
Andy Pernal
President and Chief Executive Officer
(403) 775-9202
Fax: (403) 232-6901
email:
Strad Energy Services Ltd.
Michael Donovan
Chief Financial Officer
(403) 775-9221
Fax: (403) 232-6901
email: