Total Energy Services Inc. Announces Q3 2015 Results
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E-mailCALGARY, ALBERTA -- (Marketwired) -- 11/10/15 -- Total Energy Services Inc. ("Total Energy" or the "Company") announces its consolidated financial results for the three and nine months ending September 30, 2015.
Financial Highlights
($000's except per share data)
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Three Months Nine Months
Ended September 30 Ended September 30
(unaudited) (unaudited)
2015 2014 % Change 2015 2014 % Change
----------------------------------------------------------------------------
Revenue $ 66,713 $ 108,233 (38)% $ 231,111 $ 307,040 (25)%
Operating
Earnings (1) 2,456 16,262 (85)% 20,186 48,266 (58)%
EBITDA (1) 11,137 24,596 (55)% 46,288 76,195 (39)%
Cashflow (1)
(5) (92) 24,184 (100)% 14,237 78,078 (82)%
Net Income 1,570 11,752 (87)% 11,674 39,996 (71)%
Per Share
Data
(Diluted)
(2)
EBITDA (1) $0.36 $0.70 (49)% $1.49 $2.19 (32)%
Cashflow (1)
(5) $0.00 $0.69 (100)% $0.46 $2.24 (79)%
Net Earnings $0.05 $0.37 (86)% $0.38 $1.24 (69)%
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Sept. 30 Dec. 31
2015 2014
(unaudited) (audited) % Change
----------------------------------------------------------------------------
Financial
Position
Total Assets $ 538,179 $ 595,906 (10)%
Long-Term
Debt,
Convertible
Debentures
and
Obligations
Under
Finance
Leases
(excluding
current
portion) 49,914 69,468 (28)%
Working
Capital (3) 92,607 82,332 12%
Net Debt (4) Nil Nil -
Shareholders'
Equity 387,699 382,063 1%
Shares
Outstanding
(000's)
Basic 30,997 31,005 -
Diluted (2) 31,067 34,114 (9)%
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Notes 1 through 5 please refer to the Notes to the Financial Highlights set forth at the end of this release.
Total Energy's results for the three and nine months ended September 30, 2015 reflect continued challenging North American energy service industry conditions. Despite this difficult environment, Total Energy remained profitable even after incurring significant non-recurring costs and a $1.9 million unrealized loss on the Company's holding of marketable securities during the third quarter.
Total Energy's Contract Drilling Services division achieved 18% utilization during the third quarter of 2015, recording 291 operating days (spud to release) with a fleet of 18 rigs, compared to 863 operating days, or 55% utilization, during the third quarter of 2014 with a fleet of 17 rigs. Revenue per operating day decreased 19% for the third quarter of 2015 relative to the prior year comparable period due to reduced pricing. The Rentals and Transportation Services division achieved a utilization rate on major rental equipment of 22% during the third quarter of 2015 as compared to 40% during the third quarter of 2014. Divisional revenue per utilized rental piece decreased 5% for the third quarter of 2015 compared to the same period in 2014 due to lower pricing that was offset somewhat by equipment mix. This division exited the third quarter of 2015 with approximately 10,000 pieces of rental equipment and 120 heavy trucks as compared to 10,000 rental pieces and 109 heavy trucks at September 30, 2014. Revenue in the Compression and Process Services division decreased 25% to $46.3 million for the three months ended September 30, 2015 compared to $61.4 million for the same period in 2014. This division exited the third quarter of 2015 with a $51.1 million backlog of fabrication sales orders as compared to $78.6 million at September 30, 2014 and $68.0 million at June 30, 2015. At September 30, 2015, approximately 18,900 horsepower of compression equipment was on rent compared to 35,500 horsepower on rent at September 30, 2014 and 28,900 at June 30, 2015. The gas compression rental fleet operated at an average utilization rate of 55% for the third quarter of 2015 as compared to 86% during the third quarter of 2014 and 69% in the second quarter of 2015.
Cashflow was negative $0.1 million for the three months ended September 30, 2015, as compared to $24.2 million of positive cashflow for the comparable period in 2014. The decrease in cashflow was due to lower operating earnings and the payment of $10.2 million of income taxes during the third quarter of 2015 as compared to nominal income tax payments being made during the third quarter of 2014. The increase in tax payments was due in part to the timing of taxation of the Company's limited partnerships which has resulted in $12.7 million of taxes being paid in 2015 that relate to 2014 taxable income. Also included in income taxes paid during the third quarter of 2015 is $6.9 million required to be remitted following the receipt of a $13.7 million reassessment from the Canada Revenue Agency (the "CRA") that relates to the Company's conversion from an income trust to a corporate structure in 2009. This $6.9 million payment represents 50% of the federal tax reassessment that must be remitted pending final adjudication. On November 4, 2015, related provincial income tax reassessments totaling $5.6 million (including interest and penalties) were received although no remittance is required to be made in respect of such reassessments prior to final adjudication. The Company has filed notices of objection in relation to all reassessments and intends to vigorously defend its filing position as well as seek reimbursement from the CRA for the costs and damages arising from the issuance of such reassessments to the fullest extent possible. Total Energy has received legal and tax advice confirming that its filing position is strong and therefore no provision has been made for these reassessments.
During the third quarter, Total Energy declared a quarterly dividend of $0.06 per share to shareholders of record on September 30, 2015. This dividend was paid on October 30, 2015. For Canadian income tax purposes, all dividends paid by Total Energy on its common shares are designated as "eligible dividends" unless otherwise indicated. During the third quarter of 2015, 2,900 common shares were purchased under the Company's normal course issuer bid at an average price of $13.51 per share (including commissions).
Outlook
Substantially lower activity levels coupled with excess industry capacity have resulted in a very difficult operating environment that is expected to continue for the foreseeable future. In this environment, Total Energy looks to work with its customers, suppliers and employees to increase operating efficiencies and reduce operating costs so as to make the various markets in which the Company participates globally competitive. Total Energy also seeks to strike a strategic balance between equipment utilization and price, with a sharp focus on ensuring all business divisions are operating as efficiently as possible to ensure a strong and competitive market presence. However, the Company has and will continue to decline business opportunities that are not profitable. Despite low equipment utilization, depressed pricing and significant costs associated with right-sizing its operations, Total Energy has remained profitable thus far in 2015 and the Company remains committed to managing its business and affairs in a disciplined manner regardless of industry conditions.
Total Energy has experienced several industry downturns since commencing operations in 1997 and views such downturns as a normal part of the business cycle. As such, when making capital investment decisions, the Company's analysis considers the full business cycle, not the prevailing industry conditions at the time such investment decisions are made. This investment approach has resulted in Total Energy having not recorded any capital asset impairments, including goodwill impairments, since its inception.
Total Energy's financial condition remains very strong, with $92.6 million of positive working capital (including $9.4 million, or $0.30 per share, of cash) and no net debt as at September 30, 2015. Total Energy's bank credit facilities require that the Company maintain a debt (less cash) to equity ratio below 2.5 to 1.0 and a current ratio of at least 1.3 to 1.0. As at September 30, 2015, the Company's debt to equity ratio was 0.11 to 1.0 and the current ratio was 3.61 to 1.0. Total Energy's $65 million operating facility is currently undrawn and the Company will look to use its financial capacity and flexibility to pursue investment and consolidation opportunities that arise during such challenging times. However, Total Energy will remain focused and disciplined in the deployment of its owners' capital.
Conference Call
At 2:30 p.m. MST today, Total Energy will conduct a conference call and webcast to discuss its third quarter financial results. Daniel Halyk, President & Chief Executive Officer, will host the conference call. The call is open to Shareholders and all other interested persons. A live webcast of the conference call will be accessible on Total's website at www.totalenergy.ca by selecting "Webcasts". Persons wishing to join the conference call live may do so by calling (800) 355-4959 or (416) 340-2216. Those who are unable to listen to the call live may listen to a recording of it on Total Energy's website. A recording of the conference call will also be available until November 17, 2015 by dialing (800) 408-3053 (passcode 4253877).
Selected Financial Information
Selected financial information relating to the three and nine month periods ended September 30, 2015 and 2014 is attached to this news release. This information should be read in conjunction with the condensed unaudited interim consolidated financial statements of Total Energy and the attached notes to the consolidated financial statements and management's discussion and analysis to be issued in due course and reproduced in the Company's third quarter report.
Condensed Interim Consolidated Statements of Financial Position
(in thousands of Canadian dollars)
----------------------------------------------------------------------------
September 30, December 31,
2015 2014
----------------------------------------------------------------------------
(unaudited) (audited)
Assets
Current assets:
Cash and cash equivalents $ 9,394 $ 7,745
Accounts receivable 51,004 98,920
Inventory 60,598 54,348
Other assets 8,781 -
Prepaid expenses and deposits 3,797 5,576
----------------------------------------------------------------------------
133,574 166,589
Property, plant and equipment 393,693 419,991
Income taxes receivable 6,859 -
Other assets - 5,273
Goodwill 4,053 4,053
----------------------------------------------------------------------------
$ 538,179 $ 595,906
----------------------------------------------------------------------------
Liabilities & Shareholders' Equity
Current liabilities:
Accounts payable and accrued liabilities $ 24,123 $ 59,837
Deferred revenue 10,268 7,430
Dividends payable 1,860 1,860
Income taxes payable 737 12,754
Current portion of obligations under finance
leases 2,114 2,376
Current portion of long term debt 1,865 -
----------------------------------------------------------------------------
40,967 84,257
Long-term debt 47,375 -
Obligations under finance leases 2,539 3,107
Convertible debentures - 66,361
Deferred tax liability 59,599 60,118
Shareholders' equity:
Share capital 88,875 88,899
Contributed surplus 7,740 6,880
Equity portion of convertible debenture - 4,601
Retained earnings 291,084 281,683
----------------------------------------------------------------------------
387,699 382,063
Commitments and contingencies
----------------------------------------------------------------------------
$ 538,179 $ 595,906
----------------------------------------------------------------------------
Condensed Interim Consolidated Statements of Comprehensive Income
(in thousands of Canadian dollars except per share amounts)
----------------------------------------------------------------------------
Three months ended Nine months ended
September 30 September 30
2015 2014 2015 2014
----------------------------------------------------------------------------
(unaudited) (unaudited) (unaudited) (unaudited)
Revenue $ 66,713 $ 108,233 $ 231,111 $ 307,040
Cost of services 49,814 76,167 167,227 211,473
Selling, general and
administration 7,053 7,991 22,082 23,967
Share-based compensation 409 176 860 1,524
Depreciation 6,981 7,637 20,756 21,810
----------------------------------------------------------------------------
Results from operating
activities 2,456 16,262 20,186 48,266
Gain on sale of property,
plant and equipment 1,700 697 5,346 6,119
Finance income 242 110 637 2,188
Finance costs (2,322) (1,379) (6,181) (4,423)
----------------------------------------------------------------------------
Net income before income
taxes 2,076 15,690 19,988 52,150
Current income tax expense 2,663 2,766 9,326 4,059
Deferred income tax
(recovery) expense (2,157) 1,172 (1,012) 8,095
----------------------------------------------------------------------------
Total income tax expense 506 3,938 8,314 12,154
Net income and total
comprehensive income for
the period $ 1,570 $ 11,752 $ 11,674 $ 39,996
----------------------------------------------------------------------------
Earnings per share
Basic earnings per share $ 0.05 $ 0.38 $ 0.38 $ 1.28
Diluted earnings per share $ 0.05 $ 0.37 $ 0.38 $ 1.24
----------------------------------------------------------------------------
Condensed Interim Consolidated Statements of Cash Flows
(in thousands of Canadian dollars)
----------------------------------------------------------------------------
Three months ended Nine months ended
September 30 September 30
2015 2014 2015 2014
----------------------------------------------------------------------------
(unaudited) (unaudited) (unaudited) (unaudited)
Cash provided by (used in):
Operations:
Net income for the period $ 1,570 $ 11,752 $ 11,674 $ 39,996
Add (deduct) items not
affecting cash:
Depreciation 6,981 7,637 20,756 21,810
Share-based compensation 409 176 860 1,524
Gain on sale of
property, plant and
equipment (1,700) (697) (5,346) (6,119)
Unrealized loss (gain)
on other assets 1,878 9 2,438 (1,916)
Finance costs 444 1,379 3,743 4,423
Current income tax
expense 2,663 2,766 9,326 4,059
Deferred income tax
(recovery) expense (2,157) 1,172 (1,012) 8,095
Income taxes (paid)
recovered (10,180) (10) (28,202) 6,206
----------------------------------------------------------------------------
(92) 24,184 14,237 78,078
Changes in non-cash
working capital items:
Accounts receivable 5,328 (28,473) 47,916 (19,670)
Inventory (705) (3,616) (6,250) (6,062)
Prepaid expenses and
deposits (357) 1,466 1,779 (1,608)
Accounts payable and
accrued liabilities (4,479) 7,721 (25,988) 7,683
Deferred revenue (1,541) 1,174 2,838 928
----------------------------------------------------------------------------
(1,846) 2,456 34,532 59,349
Investments:
Purchase of property,
plant and equipment (7,518) (21,772) (16,631) (56,200)
Acquisition of business - - (1,231) -
Proceeds on sale of other
assets 138 733 138 1,022
Purchase of other assets (845) - (6,117) (2,879)
Proceeds on disposal of
property, plant and
equipment 8,849 4,042 30,973 31,509
Changes in non-cash
working capital items 168 (3,464) (8,898) (1,188)
----------------------------------------------------------------------------
792 (20,461) (1,766) (27,736)
Financing:
Advances under long term
debt - - 50,000 -
Repayment of long-term
debt (457) (760)
Repayment of obligations
under finance leases (771) (707) (2,362) (2,437)
Repayment of convertible
debentures - - (69,000) -
Dividends to shareholders (1,860) (1,879) (5,580) (5,314)
Issuance of common shares - 1,649 - 5,791
Repurchase of common
shares (39) (5,483) (108) (9,106)
Interest paid (444) (1,884) (3,307) (4,007)
----------------------------------------------------------------------------
(3,571) (8,304) (31,117) (15,073)
----------------------------------------------------------------------------
Change in cash and cash
equivalents (4,625) (26,309) 1,649 16,540
Cash and cash equivalents,
beginning of period 14,019 46,059 7,745 3,210
----------------------------------------------------------------------------
Cash and cash equivalents,
end of period $ 9,394 $ 19,750 $ 9,394 $ 19,750
----------------------------------------------------------------------------
Segmented Information
The Company operates in three main industry segments, which are substantially in one geographic segment. These segments are Contract Drilling Services, which includes the contracting of drilling equipment and the provision of labour required to operate the equipment, Rentals and Transportation Services, which includes the rental and transportation of equipment used in drilling, completion and production operations and Compression and Process Services, which includes the fabrication, sale, rental and servicing of natural gas compression and process equipment.
As at and for the
three months
ended
September 30, Contract Rentals and Compression
2015 Drilling Transportation and Process
Services Services Services Other(1) Total
----------------------------------------------------------------------------
Revenue $ 4,598 $ 15,861 $ 46,254 $ - $66,713
Cost of services 2,860 8,471 38,483 - 49,814
Selling, general
and
administration 520 3,240 2,014 1,279 7,053
Share-based
compensation - - - 409 409
Depreciation 835 4,096 2,031 19 6,981
----------------------------------------------------------------------------
Results from
operating
activities 383 54 3,726 (1,707) 2,456
Gain on sale of
property, plant
and equipment 6 69 1,617 8 1,700
Finance income - - - 242 242
Finance costs (95) (206) (110) (1,911) (2,322)
----------------------------------------------------------------------------
Net income (loss)
before income
taxes 294 (83) 5,233 (3,368) 2,076
----------------------------------------------------------------------------
Goodwill - 2,514 1,539 - 4,053
Total assets 114,230 238,322 175,456 10,171 538,179
Total liabilities 18,605 43,847 35,139 52,889 150,480
----------------------------------------------------------------------------
Capital
expenditures $ 239 $ 6,841 $ 433 $ 5 $ 7,518
----------------------------------------------------------------------------
As at and for the
three months
ended
September 30,
2014 Contract Rentals and Compression
Drilling Transportation and Process
Services Services Services Other(1) Total
----------------------------------------------------------------------------
Revenue $ 16,758 $ 30,088 $ 61,387 $ - $108,233
Cost of services 11,456 14,892 49,819 - 76,167
Selling, general
and
administration 872 3,401 2,469 1,249 7,991
Share-based
compensation - - - 176 176
Depreciation 1,690 3,945 1,993 9 7,637
----------------------------------------------------------------------------
Results from
operating
activities 2,740 7,850 7,106 (1,434) 16,262
Gain on sale of
property, plant
and equipment - 105 592 - 697
Finance income - - - 110 110
Finance costs (206) (531) (260) (382) (1,379)
----------------------------------------------------------------------------
Net income (loss)
before income
taxes 2,534 7,424 7,438 (1,706) 15,690
----------------------------------------------------------------------------
Goodwill - 2,514 1,539 - 4,053
Total assets 121,325 245,996 184,426 22,372 574,119
Total liabilities 24,198 51,386 48,000 77,622 201,206
----------------------------------------------------------------------------
Capital
expenditures $ 4,791 $ 7,162 $ 9,801 $ 18 $ 21,772
----------------------------------------------------------------------------
As at and for the
nine months
ended
September 30, Contract Rentals and Compression
2015 Drilling Transportation and Process
Services Services Services Other(1) Total
----------------------------------------------------------------------------
Revenue $ 11,953 $ 59,285 $ 159,873 $ - $231,111
Cost of services 7,133 31,651 128,443 - 167,227
Selling, general
and
administration 1,531 10,381 6,780 3,390 22,082
Share-based
compensation - - - 860 860
Depreciation 1,926 12,433 6,348 49 20,756
----------------------------------------------------------------------------
Results from
operating
activities 1,363 4,820 18,302 (4,299) 20,186
Gain on sale of
property, plant
and equipment 39 323 4,970 14 5,346
Finance income - - - 637 637
Finance costs (472) (1,005) (652) (4,052) (6,181)
----------------------------------------------------------------------------
Net income (loss)
before income
taxes 930 4,138 22,620 (7,700) 19,988
----------------------------------------------------------------------------
Goodwill - 2,514 1,539 - 4,053
Total assets 114,230 238,322 175,456 10,171 538,179
Total liabilities 18,605 43,847 35,139 52,889 150,480
----------------------------------------------------------------------------
Capital
expenditures (2) $ 660 $ 12,779 $ 4,398 $ 25 $ 17,862
----------------------------------------------------------------------------
As at and for the
nine months
ended
September 30, Contract Rentals and Compression
2014 Drilling Transportation and Process
Services Services Services Other(1) Total
----------------------------------------------------------------------------
Revenue $ 46,124 $ 88,555 $ 172,361 $ - $307,040
Cost of services 29,290 45,647 136,536 - 211,473
Selling, general
and
administration 2,631 10,360 7,421 3,555 23,967
Share-based
compensation - - - 1,524 1,524
Depreciation 4,283 11,624 5,889 14 21,810
----------------------------------------------------------------------------
Results from
operating
activities 9,920 20,924 22,515 (5,093) 48,266
Gain on sale of
property, plant
and equipment 22 197 5,827 73 6,119
Finance income - - - 2,188 2,188
Finance costs (613) (1,578) (778) (1,454) (4,423)
----------------------------------------------------------------------------
Net income (loss)
before income
taxes 9,329 19,543 27,564 (4,286) 52,150
----------------------------------------------------------------------------
Goodwill - 2,514 1,539 - 4,053
Total assets 121,325 245,996 184,426 22,372 574,119
Total liabilities 24,198 51,386 48,000 77,622 201,206
----------------------------------------------------------------------------
Capital
expenditures $ 18,283 $ 16,016 $ 21,876 $ 25 $ 56,200
----------------------------------------------------------------------------
(1) Other includes the Company's corporate activities, accretion of
convertible debentures and obligations pursuant to long-term credit
facilities.
(2) Includes the acquisition of a private oilfield transportation company
based in Casper, Wyoming as described in note 4 to the second quarter
financial statements.
Total Energy Services Inc. is a growth oriented energy services corporation involved in contract drilling services, rentals and transportation services and the fabrication, sale, rental and servicing of natural gas compression and process equipment. The common shares of Total Energy are listed and trade on the TSX under the symbol TOT.
Notes to Financial Highlights
(1) Operating earnings means results from operating activities and is equal
to net income before income taxes minus gain on sale of property, plant
and equipment minus finance income plus finance costs. EBITDA means
earnings before interest, taxes, depreciation and amortization and is
equal to net income before income taxes plus finance costs plus
depreciation minus finance income. Cashflow means cash provided by
operations before changes in non-cash working capital items. Operating
earnings, EBITDA and cashflow are not recognized measures under IFRS.
Management believes that in addition to net income, operating earnings,
EBITDA and cashflow are useful supplemental measures as they provide an
indication of the results generated by the Company's primary business
activities prior to consideration of how those activities are financed,
amortized or how the results are taxed in various jurisdictions as well
as the cash generated by the Company's primary business activities
without consideration of the timing of the monetization of non-cash
working capital items. Readers should be cautioned, however, that
operating earnings, EBITDA and cashflow should not be construed as an
alternative to net income determined in accordance with IFRS as an
indicator of Total Energy's performance. Total Energy's method of
calculating operating earnings, EBITDA and cashflow may differ from
other organizations and, accordingly, operating earnings, EBITDA and
cashflow may not be comparable to measures used by other organizations.
(2) Per share data (diluted) and the number of common shares outstanding on
a diluted basis includes the impact of the conversion of $69 million
principal amount of convertible debentures issued in 2011 prior to the
redemption of such debentures on May 19, 2015.
(3) Working capital equals current assets minus current liabilities.
(4) Net Debt equals long-term debt plus obligations under finance leases
plus convertible debentures plus current liabilities minus current
assets.
(5) Cashflow for the nine months ended September 30, 2015 is net of $12.7
million of income taxes paid during the period that relates to 2014
taxable income as a result of the Company not having been required to
make income tax installment payments during 2014 and $6.9 million of
taxes paid, representing half of the CRA re-assessment received by the
Company on August 30, 2015.
Certain statements contained in this press release, including statements which may contain words such as "could", "should", "expect", "believe", "will" and similar expressions and statements relating to matters that are not historical facts are forward-looking statements. Such forward-looking statements involve known and unknown risks and uncertainties which may cause the actual results, performances or achievements of Total Energy to be materially different from any future results, performances or achievements expressed or implied by such forward-looking statements. Such factors include fluctuations in the market for oil and natural gas and related products and services, political and economic conditions, the demand for products and services provided by Total Energy, Total Energy's ability to attract and retain key personnel and other factors. Reference should be made to Total Energy's most recently filed Annual Information Form and other public disclosures (available at www.sedar.com) for a discussion of such risks and uncertainties.
The Toronto Stock Exchange has neither approved nor disapproved of the information contained herein.
Contacts: Daniel Halyk President & Chief Executive Officer (403) 216-3921 Yuliya Gorbach Vice-President Finance and Chief Financial Officer (403) 216-3920 [email protected] www.totalenergy.ca
Source: Total Energy Services Inc.
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