August 9, 2018 - 6:25 PM EDT
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Strad Energy Services Announces Second Quarter Results

CALGARY, Alberta, Aug. 09, 2018 (GLOBE NEWSWIRE) -- NOT FOR DISTRIBUTION TO U.S. NEWS WIRE SERVICES OR FOR DISSEMINATION IN THE UNITED STATES ("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., (TSX:SDY) (“Strad” or the “Company”), a North American-focused, energy services company, today announced its financial results for the three months ended June 30, 2018. All amounts are stated in Canadian dollars unless otherwise noted.

SECOND QUARTER SELECTED FINANCIAL AND OPERATIONAL HIGHLIGHTS:

  • Increased U.S. revenue by 71% to $10.8 million compared with $6.3 million in Q2 2017;
  • Total revenue decreased 2% to $28.0 million compared to $28.5 million in Q2 2017;
  • Second quarter income improved to $3.9 million compared to a loss of $(2.2) million in Q2 2017, due to a deferred tax recovery of $4.3 million resulting from the recognition of a foreign exchange gain for tax purposes;
  • EBITDA(1,4) decreased 17% to $4.8 million compared to $5.8 million in Q2 2017; 
  • Earnings per share improved to $0.07 as compared to loss per share of $(0.04) during the same period in 2017. The loss per share before the deferred tax recovery was $(0.01) as compared to $(0.04) for the same period in 2017;
  • Reduced funded debt(2) by 37% to $6.2 million at June 30, 2018, compared to $9.8 million at December 31, 2017. Funded debt(2) to covenant EBITDA(3) ratio was 0.3 : 1.0 at June 30, 2018;
  • Increased the 2018 capital budget by 60% from $8.0 million to $13.0 million. The increase in the capital budget is to meet the expected demand for matting related to energy infrastructure projects in Canada and the U.S.;
  • Capital additions totaled $6.3 million focused on increasing the Company's matting fleet and;
  • On July 4, 2018, the Company announced that it had obtained approval from the Toronto Stock Exchange to amend its normal course issuer bid to increase the maximum number of common shares that may be purchased thereunder to a maximum of 4,946,487 common shares. Since the inception of the NCIB, the Company purchased and canceled 2,708,920 common shares; 

Notes:

  1. Earnings before interest, taxes, depreciation and amortization (“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 and 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.
  4. During the second quarter of 2018, the Company changed the method of calculation for EBITDA by no longer adjusting for gains or losses resulting from foreign exchange or the disposal of property, plant and equipment during the normal course of business. These changes have been updated for prior period balances.

"The continued momentum in our U.S. operations contributed significantly to our quarterly performance, underpinning our strong cash-flow results,” said Andy Pernal, President and Chief Executive Officer. “With our traditional markets beginning to benefit from higher WTI prices and various pipeline approvals our outlook for the second half of 2018 and into 2019 is positive, leading us to increase our growth capital investments by 60%.”

"During the quarter, we repurchased 1.5 million shares and expanded our normal course issuer bid, while at the same time increased our capital program and reduced our debt,” said Michael Donovan, Chief Financial Officer of Strad. “We will continue to allocate capital to the opportunities with the highest rates of return while remaining focused on cost discipline and balance sheet strength in 2018.”

SECOND QUARTER FINANCIAL HIGHLIGHTS

($000's, except per share amounts)Three months ended June 30, Six months ended June 30,
 2018 2017 % Chg.  2018 2017 % Chg. 
        
Revenue28,035 28,494 (2)% 56,399 56,154 nm 
Net income (loss)3,861 (2,163)nm  3,464 (4,512)nm 
Per share ($), basic0.07 (0.04)nm  0.06 (0.08)nm 
Per share ($), diluted0.07 (0.04)nm  0.06 (0.08)nm 
EBITDA (1)4,830 5,799 (17)% 10,093 10,459 (3)%
EBITDA as a % of revenue17%20%  18%19% 
Per share ($), basic0.08 0.10 (20)% 0.17 0.18 (6)%
Per share ($), diluted0.08 0.10 (20)% 0.17 0.18 (6)%
Cash flow from operating activities9,644 3,031 218% 16,123 6,572 145%
Per share ($), basic0.17 0.05 240% 0.27 0.11 145%
Per share ($), diluted0.17 0.05 240% 0.27 0.11 145%
Funds from operations (2)7,109 6,076 17% 13,580 11,603 17%
Per share ($), basic0.12 0.10 20% 0.23 0.20 15%
Per share ($), diluted0.12 0.10 20% 0.23 0.20 15%
        
Capital expenditures (3)6,290 6,264 nm  11,045 9,734 13%
        
Total assets170,516 191,174 (11)% 170,516 191,174 (11)%
Long-term debt6,370 20,951 (70)% 6,370 20,951 (70)%
Total long-term liabilities18,052 32,979 (45)% 18,052 32,979 (45)%
Common shares - end of period ('000's)57,304 60,013   57,304 60,013  
Weighted average common shares ('000's)       
Basic57,623 58,059   58,664 57,669  
Diluted57,947 58,059   58,987 57,669  

Notes:

  1. Earnings before interest, taxes, depreciation and amortization (“ EBITDA”) is not a recognized measure under IFRS, and, accordingly, Strad's use of such term may not be comparable to similarly defined measures presented by other entities; see “Non-IFRS Measures and Reconciliations”. During the second quarter of 2018, the Company changed the method of calculation for EBITDA by no longer adjusting for gains or losses resulting from foreign exchange or the disposal of property, plant and equipment during the normal course of business. These changes have been updated for prior period balances.
  2. 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 and Reconciliations”.
  3. Includes assets acquired under finance lease and purchases of intangible assets.

FINANCIAL POSITION AND RATIOS

   
($000's except ratios)As at June 30, 2018 As at December 31, 2017 
   
Working capital(1)15,327 19,617 
Funded debt(2)6,183 9,768 
Total assets170,516 174,821 
   
Funded debt to EBITDA(3)0.3 : 1.0 0.4 : 1.0 

Notes:
(1)       Working capital is calculated as current assets less current liabilities.
(2)       Funded debt includes bank indebtedness plus long-term debt plus current and long-term obligations under finance lease.
(3)     EBITDA is based on trailing twelve months adjusted EBITDA plus share based payments, plus severance and transaction costs.

SECOND QUARTER RESULTS

Strad reported a decrease in revenue and EBITDA of 2% and 17%, respectively during the three months ended June 30, 2018, compared to the same period in 2017. During the three months ended June 30, 2018, Strad reported net income of $3.9 million compared to a net loss of $(2.2) million, due to certain tax transactions in the U.S. that resulted in the recognition of a deferred tax recovery of $4.3 million. Strad’s second quarter results were impacted by decreased drilling activity in Strad’s Canadian operating regions. Decreased average rig counts in western Canada led to reduced operating activity and revenue from our Canadian Operations. Fewer energy infrastructure projects were taking place in 2018, due to project timing, as compared to 2017, which further impacted Canadian revenue. However, higher rig counts in all three of the U.S. operating regions, resulted in increased revenue year-over-year from our U.S. Operations offsetting a portion of the Canadian Operations decline. Total company EBITDA margin percentage decreased to 17% compared to 20% in the prior year.

During the second quarter of 2018, the Company changed its previous method of calculating EBITDA, by no longer adjusting for gains or losses on foreign exchange or on the sale of property, plant and equipment that occur during the normal course of business.

For the three months ended June 30, 2018, Strad's U.S. Operations reported an increase in revenue and EBITDA of 71% and 256% as compared to the same period in 2017. Net income from U.S. Operations increased from a loss of $(2.1) million in the second quarter of 2017 to income of $4.6 million in the second quarter of 2018. This increase is due to certain tax transactions in the U.S. that resulted in the recognition of a deferred tax recovery of $4.3 million. Rig counts in the Bakken, Marcellus and Rockies regions increased year-over-year by 24%, 13%, and 5% respectively, resulting in increased drilling activity and utilization for the second quarter of 2018 as compared to the same period in 2017. Revenue for the second quarter of 2018 was also impacted by improved customer pricing as compared to the same period in 2017. Second quarter EBITDA increased to $2.4 million, as compared to $0.7 million in the same period of 2017, as a result of the increase in revenue and a lean cost structure in the U.S. due to our focus on reducing overhead costs and discretionary spending.

Strad’s Canadian Operations reported a decrease in revenue, EBITDA and net income of 22%, 47% and 74%, respectively, during the three months ended June 30, 2018, compared to the same period in 2017. The decrease in revenue was a result of decreased surface equipment and matting utilization, which declined to 23% and 29%, respectively, as compared to 28% and 63% in the same period in 2017. Further impacting the decline in revenue during the second quarter of 2018 was the decrease in drilling activity and fewer matting projects as compared to the same period in 2017. This was offset by continued improved customer pricing during the second quarter of 2018.

Revenue generated from Strad’s energy infrastructure customer vertical decreased to $8.2 million during the second quarter of 2018 compared to $11.0 million in 2017. The decrease in energy infrastructure revenue is a result of fewer matting jobs during the second quarter of 2018, primarily due to the timing of projects in 2018, as compared to the same period in 2017. The energy infrastructure customer vertical continued to be primarily driven by matting in Canada.

During the second quarter of 2018, capital expenditures were $3.9 million in Canada, $0.4 million in Corporate and $2.0 million in the U.S. These were related primarily to wood matting additions in Canada and the U.S., which were acquired to prepare for and to support the energy infrastructure projects expected to begin during the second half of 2018.

During the second quarter of 2018, the Company decided to remove Product Sales as a reportable segment. This decision was a result of the Company no longer manufacturing in-house products.

RESULTS OF OPERATIONS

Canadian Operations       
 Three months ended June 30,
  Six months ended June 30,
 
($000's)2018 2017 % chg.  2018 2017 % chg. 
        
Revenue17,251 22,176 (22)% 36,915 44,615 (17)%
Operating expenses12,556 14,701 (15)% 26,410 30,381 (13)%
Selling, general and administration1,624 1,385 17% 3,196 2,819 13%
Share based payments65 65 nm 120 148 nm
(Gain) on disposal of property, plant and equipment(385)(111)nm (469)(192)nm
Foreign exchange (gain) loss50 (183)nm 52 (270)nm
Net income394 1,528 (74)% 1,307 2,857 (54)%
EBITDA(2)3,341 6,319 (47)% 7,606 11,726 (35)%
EBITDA as a % of revenue19%28%  21%26% 
        
        
Capital expenditures(3)3,910 5,776 (32)% 8,089 7,061 15%
Total assets105,542 122,595   105,542 122,595  
Energy infrastructure revenue7,824 9,971 (22)% 13,461 17,876 (25)%
Energy infrastructure revenue as a % of revenue45%45%  36%40% 
        
Equipment Fleet:       
Surface equipment fleet at period end(4)4,190 4,170 nm 4,190 4,170 nm
Average surface equipment fleet(5)4,060 4,010 nm 4,030 3,990 nm
Average utilization %(6)23%28%  30%34% 
Matting fleet at period end(4)71,000 64,200 11% 71,000 64,200 11%
Average matting fleet(5)69,200 61,000 13% 68,600 59,900 15%
Average utilization %(6)29%63%  27%52% 
        
Rig Counts(7)       
Western Canadian Basin103 113 (9)% 187 205 (9)%

Notes:

  1. Earnings before interest, taxes, depreciation and amortization (“EBITDA”) is not a recognized measure under IFRS, and, accordingly, Strad's use of such term may not be comparable to similarly defined measures presented by other entities; see “Non-IFRS Measures and Reconciliations”. During the second quarter of 2018, the Company changed the method of calculation for EBITDA by no longer adjusting for gains or losses resulting from foreign exchange or the disposal of property, plant and equipment during the normal course of business. These changes have been updated for prior period balances.
  2. Includes assets acquired under finance lease and purchases of intangible assets.
  3. Surface equipment and matting fleet balances are as at June 30, 2018 and 2017.
  4. Surface equipment and matting fleet balances are averages for the three months ended June 30, 2018 and 2017.
  5. Equipment utilization includes surface and matting equipment on rent only and is calculated using gross asset value.
  6. Source: Baker Hughes "North America Rotary Rig Count". Rig Counts are average rig counts for the period.

Revenue for the three months ended June 30, 2018, of $17.3 million decreased 22% compared to $22.2 million for the same period in 2017. Decreased revenue during the quarter was primarily a result of lower rig counts, which decreased by 9% year-over-year. This led to decreased operating activity in the WCSB and lower utilization rates for both matting and surface equipment, as compared to the same period in 2017. This was offset by improved customer pricing for both matting and surface equipment by 38% and 8% compared to the three months ended June 30, 2017.

During the second quarter, revenue from energy infrastructure projects was $7.8 million or 45% of total revenue for Canadian Operations as compared to $10.0 million or 45% of total Canadian Operations revenue in the second quarter of  2017. The overall decrease in revenue during the second quarter of 2018 is primarily due to fewer energy infrastructure jobs carried over from the prior quarter, in addition to delayed start dates for energy infrastructure projects, as compared to the same period in 2017.

During the second quarter, Strad’s matting fleet increased to 71,000 mats at June 30, 2018, compared to 64,200 mats as at June 30, 2017 to meet the expected increase customer demand. Second quarter matting utilization decreased to 29% compared to 63% in the same period of 2017 due to the increased fleet size as compared to the second quarter of 2017, as well as timing of energy infrastructure projects during 2018 compared to 2017.

Net income for the three months ended June 30, 2018, of $0.4 million, decreased 74% compared to $1.5 million for the same period in 2017. The decrease in net income is driven primarily by the decrease in revenue during the second quarter of 2018.

EBITDA for the three months ended June 30, 2018, of $3.3 million, decreased 47% compared to $6.3 million for the same period in 2017. EBITDA as a percentage of revenue, for the three months ended June 30, 2018, decreased to 19% as compared to 28% during the same period in 2017. The decrease in EBITDA is driven primarily by the decrease in revenue during the second quarter of 2018. EBITDA related to product sales for the three months ended June 30, 2018 decreased to $(0.1) million compared to $1.0 million in the same period of 2017.

Revenue for the six months ended June 30, 2018, of $36.9 million decreased 17% compared to $44.6 million for the same period in 2017. Decreased revenue during the quarter was primarily a result of lower rig counts, which decreased by 9% year-over-year. This led to decreased operating activity in the Western Canadian Sedimentary Basin and lower utilization rates for both matting and surface equipment, as compared to the same period in 2017. This was offset by improved customer pricing for both matting and surface equipment by 62% and 17% during the period, as compared to the same period in 2017.

During the first half of 2018, revenue from energy infrastructure projects was $13.5 million or 36% of total revenue for Canadian Operations as compared to $17.9 million or 40% of total Canadian Operations revenue in the same period of 2017. The overall decrease in revenue during the second quarter of 2018 is primarily due to a slower start to the matting season as a result of the longer winter, in addition to fewer energy infrastructure projects, as compared to the same period in 2017.

EBITDA for the six months ended June 30, 2018, of $7.6 million, decreased 35% compared to $11.7 million for the same period in 2017. EBITDA as a percentage of revenue, for the six months ended June 30, 2018, decreased to 21% as compared to 26% in 2017. The decrease in EBITDA is driven primarily by the decrease in revenue during the first half of 2018. 

Net income for the six months ended June 30, 2018, of $1.3 million, decreased 54% compared to $2.9 million for the same period in 2017. The decrease in net income is driven primarily by the decrease in revenue during the first half of 2018. 

Operating expenses for the three and six months ended June 30, 2018, of $12.6 million and $26.4 million decreased 15% and 13% compared to $14.7 million and $30.4 million for the same period in 2017. The decrease in operating expenses for the second quarter of 2018, as compared to the second quarter of 2017, is due to a decrease in matting related service work.

Selling, general and administrative expenses ("SG&A") for the three and six months ended June 30, 2018, of $1.6 million and $3.2 million increased 17% and 13% compared to $1.4 million and $2.8 million for the same period in 2017. SG&A costs increased over the three and six months ended June 30, 2018, as a result of increased headcount for 2018, resulting in increased costs related to salaries and benefits. Further impacting the increase in SG&A for the three and six months ended June 30, 2018, are increased IT services associated with technology enhancements.

U.S. Operations       
 Three months ended June 30,
  Six months ended June 30,
 
($000's)2018 2017 % chg.  2018 2017 % chg. 
        
Revenue10,784 6,318 71% 19,484 11,539 69%
Operating expenses7,446 4,807 55% 12,601 8,873 42%
Selling, general and administration1,282 861 49% 2,503 1,757 42%
Share based payments15 14 nm 28 32 nm
(Gain) on disposal of property, plant and equipment(339)(37)nm (3)(35)nm
Foreign exchange loss  nm 3  nm
Net income (loss)4,612 (2,056)nm 4,499 (4,263)nm
EBITDA(2)2,379 669 256% 4,352 920 373%
EBITDA as a % of revenue22%11%  22%8% 
        
        
Capital expenditures(3)1,981 488 306% 2,151 2,673 (20)%
Total assets64,762 67,188   64,762 67,188  
Energy infrastructure revenue352 1,013 (65)% 698 1,517 (54)%
Energy infrastructure revenue as a % of revenue3%16%  4%13% 
        
Equipment Fleet:       
Surface equipment fleet at period end(4)1,910 1,930 nm 1,910 1,930 nm
Average surface equipment fleet(5)1,930 2,010 nm 1,990 2,010 nm
Average utilization %(6)51%25%  49%25% 
Matting fleet at period end(4)21,200 18,500 15% 21,200 18,500 15%
Average matting fleet(5)18,900 18,300 3% 18,600 17,000 9%
Average utilization %(6)32%29%  30%24% 
        
Rig Counts (7)       
Bakken56 45 24% 52 41 27%
Marcellus79 70 13% 78 66 18%
Rockies65 62 5% 68 57 19%

Notes:

  1. Earnings before interest, taxes, depreciation and amortization (“EBITDA”) is not a recognized measure under IFRS, and, accordingly, Strad's use of such term may not be comparable to similarly defined measures presented by other entities; see “Non-IFRS Measures and Reconciliations”. During the second quarter of 2018, the Company changed the method of calculation for EBITDA by no longer adjusting for gains or losses resulting from foreign exchange or the disposal of property, plant and equipment during the normal course of business. These changes have been updated for prior period balances.
  2. Includes assets acquired under finance lease and purchases of intangible assets.
  3. Surface equipment and matting fleet balances are as at June 30, 2018 and 2017.
  4. Surface equipment and matting fleet balances are averages for the three months ended June 30, 2018 and 2017.
  5. Equipment utilization includes surface and matting equipment on rent only and is calculated using gross asset value.
  6. Source: Baker Hughes "North America Rotary Rig Count". Rig Counts are average rig counts for the period.

Revenue for the three months ended June 30, 2018, increased 71% to $10.8 million from $6.3 million for the same period in 2017. The increase in revenue is due to a combination of higher surface equipment and matting utilization rates of 51% and 32% as compared to 25% and 29% in the same period of 2017, as well as improved customer pricing in both surface equipment and matting of 24% and 32%, respectively, as compared to the three months ended June 30, 2017.  The improvements in utilization and customer pricing is driven by the increased drilling activity when compared to the same period in 2017. Average rig counts in the Bakken, Marcellus and Rockies regions increased by 24%, 13%, and 5%, respectively, during the second quarter of 2018 compared to the same period in 2017.

During the second quarter, revenue from energy infrastructure projects decreased to $0.4 million as compared to $1.0 million in the same period of 2017. Energy infrastructure revenue as a percentage of total revenue decreased to 3%, compared to 16% in the same period of 2017. The decrease in energy infrastructure revenue is primarily due to fewer projects in 2018 compared to the same period in 2017.

The U.S. matting fleet as at June 30, 2018, increased to 21,200 mats compared to 18,500 mats during the same period in 2017. The increase in mats during 2018 is to support future expected demand for U.S. customers.

Net income for the three months ended June 30, 2018, increased to $4.6 million compared to a loss of $(2.1) million for the same period in 2017. The significant decrease in net loss is primarily due to certain tax transactions in the U.S. that resulted in the recognition of a deferred tax recovery of $4.3 million. The remainder of the change is due to higher revenue and lower depreciation expense.

EBITDA for the three months ended June 30, 2018, increased to $2.4 million compared to $0.7 million for the same period in 2017. EBITDA as a percentage of revenue, for the three months ended June 30, 2018, was 22% compared to 11% for the same period in 2017. The significant increase in both EBITDA and EBITDA as a percentage of revenue is primarily due to higher revenue. EBITDA related to product sales for the three months ended June 30, 2018 decreased to $(0.2) million compared to $0.1 million in the same period of 2017.

Revenue for the six months ended June 30, 2018, increased 69% to $19.5 million from $11.5 million for the same period in 2017. The increase in revenue is due to a combination of higher surface equipment and matting utilization rates of 49% and 30% as compared to 25% and 24% for the same period of 2017. Further driving improved revenue is increased customer pricing in both surface equipment and matting, which increased by 34% and 56%, as compared to the six months ended June 30, 2017.  The improvements in utilization and customer pricing is driven by the increased drilling activity when compared to the same period in 2017. Average rig counts in the Bakken, Marcellus and Rockies regions increased by 27%, 18%, and 19%, respectively, during the second quarter of 2018 compared to the same period in 2017.

During the first half of 2018, revenue from energy infrastructure projects was $0.7 million or 4% of total revenue for U.S. Operations, compared to $1.5 million or 13% in the same period of 2017.The decrease in revenue from energy infrastructure projects is primarily due to fewer matting jobs for the period ending June 30, 2018, as compared to the same period in 2017.

Net income for the six months ended June 30, 2018, increased to $4.5 million compared to a loss of $(4.3) million for the same period in 2017. The increase in net income is primarily due to certain tax transactions in the U.S. that resulted in the recognition of a deferred tax recovery of $4.3 million. The remainder of the change is due to higher revenue.

EBITDA for the six months ended June 30, 2018, increased to $4.4 million compared to $0.9 million for the same period in 2017. EBITDA as a percentage of revenue, for the six months ended June 30, 2018, was 22% compared to 8% for the same period in 2017. The significant increase in both EBITDA and EBITDA as a percentage of revenue is primarily due to higher revenue and a lean cost structure.

Operating expenses for the three and six months ended June 30, 2018, of $7.4 million and $12.6 million, increased 55% and 42% as compared to $4.8 million and $8.9 million for the same period in 2017. The increase in operating expenses during the three and six months ended June 30, 2018, is a result of increased activity levels due to the increase in average rig counts.

SG&A costs for the three and six months ended June 30, 2018, of $1.3 million and $2.5 million increased 49% and 42% compared to $0.9 million and $1.8 million for the same period in 2017. The change in SG&A expenses for the second quarter of 2018 is due to the increased head count for 2018, resulting in increased costs related to salaries and benefits.

OUTLOOK

During the second quarter, economic and market conditions remained relatively strong as the North American energy sector continues to recover from the downturn experienced in recent years. Robust West Texas Intermediate (“WTI”) prices and a pro-investment political environment have led to a resurgence of the oil and gas market in the United States. While the Permian Basin has attracted the most investment, drilling activity increased around other basins where Strad has operations. Rig counts in the Bakken, Marcellus and Rockies regions have all increased year-over-year and we remain well positioned to capitalize on opportunities in these areas.

A strong balance sheet has allowed Strad to repurchase 2.7 million common shares to June 30, 2018. Subsequent to the quarter, we obtained approval from the TSX to increase the number of common shares that the Company can purchase for cancellation under its Normal Course Issuer Bid (“NCIB”), to 4.9 million common shares. We will continue to evaluate all options to create value for shareholders, including the repurchase of additional common shares.

Geographic diversification between the United States and Canada continues to benefit the Company as our U.S. Operations contributed $2.4 million in EBITDA for the quarter, an increase of 256% from the prior year. The EBITDA increase is a result of improved customer pricing and higher drilling activity in all three of our U.S. operating regions. To date, U.S. results have been driven primarily by equipment rentals, throughout the rest of 2018 and onward we will focus on expanding our matting offerings in the U.S.  

The timing of major infrastructure projects impacted our second quarter results relative to 2017. Canadian operations experienced a year-over-year decline in both revenue and EBITDA of 22% and 47% respectively. Revenue from our energy infrastructure vertical totaled $7.8 million for the second quarter compared to $10.0 million in 2017. In 2017, several major projects were awarded in the first half of the year while larger infrastructure projects in 2018 are expected to be awarded throughout the third and fourth quarter. While the investment climate has been challenging for the Oil and Gas sector in Canada over the past few years, recent announcements provide some renewed optimism for 2018 and early 2019. The commitment by the Federal government to purchase and complete the Trans Mountain Expansion Project increases the likelihood that the initiative will be completed, albeit uncertainty still exists regarding the timing of the construction. The LNG Canada project is expected to make a final investment decision in the second half of the year, which would become the largest active infrastructure project in Canada. These projects, as well as the Coastal Gaslink project which is a sub-set of the LNG Canada project, could provide significant opportunity for the Company if they are approved and move forward in 2019.  

Consistent with our focus on the energy infrastructure vertical, the Board approved an incremental increase of the capital budget to $13.0 million to expand our fleet to meet expected customer demand. During the second quarter we invested $5.3 million in the matting fleet. Total capital spending for the quarter was $6.3 million, with year to date spending totaling $11.0 million. In addition to matting, capital spending primarily centered around technology initiatives to drive further efficiencies throughout our operations. We continue to evaluate the size of our capital program on an ongoing basis, and will make additional strategic investments to the extent opportunities justify additional spending.

Our strong balance sheet and free cash flow continue to provide Strad the flexibility to evaluate many alternatives to create shareholder value, including both organic growth opportunities or strategic acquisitions.

LIQUIDITY AND CAPITAL RESOURCES

($000's)June 30, 2018 December 31, 2017 
   
Current assets29,800 31,899 
Current liabilities14,473 12,282 
Working capital(1)15,327 19,617 
   
Banking facilities  
Operating facility  
Syndicated revolving facility6,370 10,776 
Total facility borrowings6,370 10,776 
   
Total credit facilities(2)48,500 48,500 
Unused credit capacity42,130 37,724 

Notes:

  1. Working capital is calculated as current assets less current liabilities, as derived from the Company's consolidated statement of financial position.
  2. 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 June 30, 2018, Strad had access to $48.5 million of credit facilities.

As at June 30, 2018, working capital was $15.3 million compared to $19.6 million at December 31, 2017. The change in current assets is a result of an 8% decrease in accounts receivable to $24.0 million for the second quarter of 2018 compared to $26.0 million for the fourth quarter of 2017. The decrease in accounts receivable is due to the decrease in Canadian Operations revenue. Inventory increased by 45% to $2.6 million at June 30, 2018, from $1.8 million at December 31, 2017. The increase in inventory is due to the build-up of wood mat inventory, which are available for sale to customers or if client demand increases, can be transferred to the Company's fleet. Prepaid expenses increased 40% at June 30, 2018, as compared to December 31, 2017. The increase in prepaids relates to the normal course of business.

The change in current liabilities is a result of a 20% increase in accounts payable and accrued liabilities to $14.3 million at June 30, 2018, compared to $11.9 million at year end. The increase in accounts payable is primarily due to the timing of payments made for the second quarter of 2018.

Cash flow from operating activities for the six months ended June 30, 2018, increased to $16.1 million compared to $6.6 million for the six months ended June 30, 2017, due to a lower net loss, increased cash generated from used fleet sales, and lower non-cash working capital. Funds from operations for the three months ended June 30, 2018, increased to $7.1 million compared to $6.1 million for the three months ended June 30, 2017. Capital expenditures totaled $6.3 million for the three months ended June 30, 2018. 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 June 30, 2018, 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 June 30, 2018, the Company had access to the maximum credit facilities. The syndicated banking facility  will mature on September 29, 2020. 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 0.50% on prime rate advances and at the prevailing rate plus a stamping fee of 1.50% on bankers' acceptances. For the three months ended June 30, 2018, the overall effective rates on the operating facility and revolving facility were 3.88% and 4.03%, respectively. As of June 30, 2018, $nil was drawn on the operating facility and $6.4 million was drawn on the revolving facility. Required payments on the revolving facility are interest only.

As at June 30, 2018, 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 CovenantsAs at June 30, 2018 December 31, 2017 
Funded debt to EBITDA ratio (not to exceed 3.0:1)  
Funded debt6,183 9,768 
Covenant EBITDA24,499 25,339 
Ratio0.3 0.4 
   
EBITDA to interest coverage ratio (no less than 3.0:1)  
Covenant EBITDA24,499 25,339 
Covenant Interest expense622 1,225 
Ratio39.4 20.7 

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 (“EBITDA”) is not a recognized measure under IFRS.  Management believes that in addition to net income (loss), 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. As of June 30, 2018, the Company implemented changes to its method of calculating EBITDA, which no longer includes adjustments for gains and losses due to foreign exchange or disposal of property, plant and equipment that occur during the normal course of business. EBITDA is now calculated as net income (loss) before interest, taxes, and depreciation and amortization. Segmented EBITDA is based upon the same calculation for defined business segments, which are comprised of Canadian Operations and U.S. Operations. The Company’s method of calculating EBITDA may differ from that of other organizations and, accordingly, its 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 services 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, as derived from the Company's consolidated statement of financial position. 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 June 30,
 Six months ended June 30,
 
 2018 2017 2018 2017 
     
Net cash generated from operating activities9,644 3,031 16,123 6,572 
Less:    
Changes in non-cash working capital2,535 (3,045)2,543 (5,031)
Funds from Operations7,109 6,076 13,580 11,603 

Reconciliation of EBITDA
($000's)

     
 Three months ended June 30,
 Six months ended June 30,
 
 2018 2017 2018 2017 
     
Net income (loss):3,861 (2,163)3,464 (4,512)
Add (deduct):    
Depreciation and amortization5,240 7,572 10,672 13,955 
Income tax (recovery) expense(4,428)(102)(4,390)14 
Interest expense157 492 347 1,002 
EBITDA(1)4,830 5,799 10,093 10,459 


Reconciliation of quarterly non-IFRS measures    
($'000's)    
 Three and six months ended
 Jun 30, 2018 Mar 31, 2018 Dec 31, 2017 Sep 30, 2017 
     
Net income (loss):3,861 (397)(3,364)598 
Add (deduct):    
Depreciation and amortization5,240 5,432 8,918 7,359 
Income tax (recovery) expense(4,428)38 (653)1,123 
Interest expense157 190 158 359 
EBITDA(1)4,830 5,263 5,059 9,439 


 Three and six months ended
 Jun 30, 2017 Mar 31, 2017 Dec 31, 2016 Sep 30, 2016 
     
Net loss:(2,163)(2,347)(3,105)(3,746)
Add (deduct):    
Depreciation and amortization7,572 6,383 7,610 4,930 
Income tax (recovery) expense(102)116 (199)(281)
Interest expense492 509 458 362 
EBITDA(1)5,799 4,661 4,764 1,265 


Reconciliation of funded debt  
($'000's)  
 Six months ended June 30, 2018 Year-ended December 31, 2017 
Bank indebtedness (cash) at syndicate banks(573)(1,626)
Long term debt6,370 10,776 
Current and long term obligations under finance lease386 618 
Funded Debt6,183 9,768 

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.

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 a.m. ET) on Friday, August 10, 2018.

The conference call dial in number is 1-844-388-0561, followed by Conference ID code 8942668

The conference call will also be accessible via webcast at www.stradenergy.com

A replay of the call will be available approximately after the conference call ends until Friday, August 17th, 2018, at 1:00 p.m. ET. To access the replay, call 1-855-859-2056, followed by pass code 8942668.

 

Strad Energy Services Ltd.
Interim Consolidated Statement of Financial Position
(Unaudited)

   
(in thousands of Canadian dollars)As at June 30, 2018 As at December 31, 2017 
 $ $ 
Assets  
Current assets  
Cash573 1,859 
Trade receivables23,970 26,038 
Inventories2,635 1,818 
Prepaids and deposits987 707 
Other assets1,347 1,289 
Income taxes receivable288 188 
 29,800 31,899 
Non-current assets  
Property, plant and equipment139,197 141,917 
Intangible assets1,218 556 
Income tax receivable177 278 
Deferred income tax assets124 171 
 170,516 174,821 
   
Liabilities  
Current liabilities  
Accounts payable and accrued liabilities14,305 11,937 
Current portion of obligations under finance lease168 345 
 14,473 12,282 
Non-current liabilities  
Long-term debt6,370 10,776 
Obligations under finance lease218 273 
Deferred income tax liabilities11,464 11,567 
Total liabilities32,525 34,898 
   
Equity  
Share capital148,007 154,763 
Contributed surplus12,914 12,736 
Accumulated other comprehensive income20,971 22,635 
Deficit(43,901)(50,211)
Total equity137,991 139,923 
Total liabilities and equity170,516 174,821 

 

Strad Energy Services Ltd.
Interim Consolidated Statement of Income (Loss) and Comprehensive Income (Loss)
For the three and six months ended June 30, 2018 and 2017
(Unaudited)

      
(in thousands of Canadian dollars, except per share amounts)     
 Three months ended June 30,
  Six months ended June 30,
  
  2018  2017   2018  2017  
  $
  $
   $
  $  
Revenue 28,035  28,494   56,399  56,154 
Expenses     
Operating expenses 20,002  19,508   39,011  39,254 
Depreciation 5,196  7,507   10,583  13,823 
Amortization of intangible assets 44  41   89  84 
Amortization of long term assets   24     48 
Selling, general and administration 3,793  3,245   7,549  6,526 
Share-based payments 95  150   178  287 
Gain on disposal of property, plant and equipment (729) (150)  (477) (227)
Foreign exchange loss (gain) 44  (58)  45  (145)
Interest expense 157  492   347  1,002 
Loss before income tax (567) (2,265)  (926) (4,498)
Income tax (recovery) expense (4,428) (102)  (4,390) 14 
Income (loss) for the period 3,861  (2,163)  3,464  (4,512)
      
Other comprehensive income (loss)     
Items that may be reclassified subsequently to net income     
Cumulative translation adjustment 1,118  (1,704)  2,680  (2,339)
Deferred tax expense on foreign exchange gain (4,344)    (4,344)  
Total comprehensive income (loss) 635  (3,867)  1,800  (6,851)
      
      
Income (loss) per share:     
Basic $0.07 ($0.04)  $0.06 ($0.08)
Diluted $0.07 ($0.04)  $0.06 ($0.08)
      

 

Strad Energy Services Ltd.
Interim Consolidated Statement of Cash Flow
For the three and six months ended June 30, 2018 and 2017
(Unaudited)

  
(in thousands of Canadian dollars)Six months ended June 30,
 
 2018 2017 
 $ $ 
Cash flow provided by (used in)  
Operating activities  
Net income (loss) for the period3,464 (4,512)
Adjustments for items not affecting cash:  
Depreciation and amortization10,672 13,955 
Deferred income tax (recovery) expense(4,400)14 
Share-based payments178 287 
Interest expense and finance fees347 1,002 
Unrealized foreign exchange loss (gain)94 (264)
Gain on disposal of property, plant and equipment(477)(227)
Book value of used fleet sales in operating activities3,702 1,348 
Changes in items of non-cash working capital2,543 (5,031)
Net cash generated from operating activities16,123 6,572 
   
Investing activities  
Purchase of property, plant and equipment(10,298)(9,734)
Proceeds from sale of property, plant and equipment1,395 627 
Purchase of intangible assets(747) 
Cash paid on business acquisition (2,750)
Cash assumed on business acquisition 322 
Changes in items of non-cash working capital793 (361)
Net cash generated used in investing activities(8,857)(11,896)
   
Financing activities  
Repayment of long-term debt(4,406)(10,857)
Repayment of finance lease obligations (net)(250)(548)
Share issue costs (1,025)
Normal course issuer bid(3,910) 
Interest expense and finance fees(347)(1,002)
Issuance of common shares 15,000 
Changes in items of non-cash working capital2 (28)
Net cash generated from (used in) financing activities(8,911)6,847 
Effect of exchange rate changes on cash and cash equivalents359 862 
Increase (decrease) in cash and cash equivalents(1,286)2,385 
   
Cash and cash equivalents (including bank indebtedness) - beginning of year1,859 (1,109)
Cash and cash equivalents (including bank indebtedness) - end of period573 1,276 
   
Cash paid for income tax  
Cash paid for interest254 509 

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: [email protected]

Strad Energy Services Ltd.
Michael Donovan
Chief Financial Officer
(403) 775-9221
Fax: (403) 232-6901
email: [email protected]

www.stradenergy.com

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Source: GlobeNewswire (August 9, 2018 - 6:25 PM EDT)

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