Canyon Services Group Inc. Reports First Quarter 2014 Results
TSX - FRC
CALGARY, May 6, 2014 /CNW/ - Canyon Services Group Inc. ("Canyon" or the "Company") is pleased to announce its first quarter 2014 results. The following results should be read in conjunction with the Management's Discussion and Analysis, the interim consolidated financial statements and notes of Canyon Services Group Inc. for the three months ended March 31, 2014 and should also be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2013, and which are available on SEDAR at www.sedar.com.
The operating and financial highlights for the three months ended March 31, 2014 are summarized as follows:
- Q1 2014 was the busiest quarter in Canyon's history as a long cold winter postponed the seasonal spring break-up, allowing Canyon's entire 225,500 HHP equipment fleet to be fully utilized in February and March.
- Jobs completed and revenues earned increased by 89% to 890 and by 59% to $138.2 million respectively in Q1 2014 from the prior year comparable quarter.
- In Q1 2014, Canyon continued its successful expansion into Southeast Saskatchewan and Manitoba increasing revenues for this region to 12% of consolidated revenues in Q1 2014 from 4% in Q1 2013.
- EBITDA before share-based payments increased by 35% to $27.4 million in Q1 2014 from $20.4 million in Q1 2013.
- Profit and comprehensive income increased by 39% to $11.9 million in the current quarter from $8.5 million in Q1 2013. Earnings per share increased to $0.19 in Q1 2014 from $0.14 in the prior year comparable quarter.
- In March 2014, Canyon increased its 2014 capital budget to approximately $63 million, adding $30 million to its previously announced budget. The incremental capital will add 30,000 hydraulic horsepower ("HHP") of fracturing equipment, bringing Canyon's total fleet to 255,500 HHP. In addition, the 2014 capital budget will significantly expand Canyon's fleet of sand and chemical storage and handling equipment, nitrogen pumping and storage equipment, acid units and deep coil tubing assets. The addition of the aggregate 30,000 HHP includes the purchase, effective March 18, 2014, of 20,000 HHP and two data vans from a Canadian competitor for $9.3 million.
- Canyon remains in a very strong financial position. As at March 31, 2014, Canyon had available credit facilities of approximately $100 million, including a $40 million accordion feature, plus positive working capital of $44 million.
- On March 24, 2014, Canyon declared a quarterly dividend of $0.15 per common share, or $9.4 million, which was paid to shareholders on April 25, 2014.
|OVERVIEW OF FIRST QUARTER 2014|
000's except per share, job amounts and hydraulic pumping capacity
Three Months Ended
|Profit (loss) and comprehensive income (loss)||$11,850||$8,527||$37,167|
|EBITDA before share-based payments(1)||$27,432||$20,364||$58,015|
|Funds from operations(1)||$23,866||$18,648||$46,584|
|Total jobs completed (2)||890||470||934|
|Consolidated average revenue per job (2)||$155,963||$185,065||$145,138|
|Average fracturing revenue per job||$197,282||$246,932||$228,564|
|Hydraulic Pumping Capacity|
000's except per share amounts
|Cash and cash equivalents, less bank indebtedness||$2,339||$21,308||$22,584|
|Total long-term financial liabilities||$2,802||$3,096||$3,475|
|Cash dividends declared per share||$0.15||$0.60||$0.60|
|Note (1):||See Non-GAAP Measures|
|Note (2):||Includes all jobs from each service line, specifically hydraulic fracturing; coiled tubing; nitrogen fracturing; acidizing and remedial cementing|
Q1 2014 was the busiest quarter in Canyon's history and followed a very active fourth quarter 2013. Although the quarter got off to a slow start as customers' leases were not ready until mid-January, a long cold winter postponed the seasonal spring break-up allowing Canyon's entire 225,500 HHP equipment fleet to remain fully utilized in February and March. In addition, Canyon continued to grow its market share with certain international oil and gas production companies operating in the deep basin as well as growing market share in southeast Saskatchewan and southwest Manitoba. As a result, jobs completed in the current quarter increased by 89% to 890 from 470 in Q1 2013 and increased by 36% from 654 in the previous quarter, Q4 2013. Consolidated revenues increased by 59% to $138.2 million in Q1 2014 from $86.9 million in Q1 2013 and increased by 33% from $104.2 million in the prior quarter.
Unfortunately, the 89% increase in the job count was not matched by a similar percentage increase in revenues as customer pricing continued to be challenging in Q1 2014, as expected, and only improved very slightly from the unprecedented lows of the prior quarter. During the current quarter Canyon was able to make small adjustments to pricing to recover increased costs for certain inputs such as sand and fuel which resulted in Q1 2014 pricing improving slightly over the Q4 average.
We estimate that overall industry activity in the Western Canadian Sedimentary Basin ("WCSB") increased by approximately five percent in Q1 2014 year over year. The increase was the result of several factors including strengthening natural gas prices, stable oil prices and oil price differentials, more favourable Canadian/US exchange rates, E&P companies' improved access to capital markets to fund capital programs and ongoing LNG-related reserve delineation drilling in North East BC. The AECO spot natural gas price averaged CAD$5.59 per mcf in Q1 2014, up 75% from CAD$3.20 per mcf in Q1 2013, an increase of 59% from CAD$3.52 per mcf in the prior quarter, Q4 2013. The AECO forward strip prices have increased by about 30% since December 2013 and crude oil prices for Edmonton Light increased by 13% to CAD$99.85 per barrel in Q1 2014 from CAD$88.55 per barrel in Q1 2013, up 15% from CAD$87.00 in Q4 2013. The key industry indicators such as well licensing, drilling rig utilization and well completions also support the increased industry-wide activity and point to a positive outlook for the remainder of 2014. Well licensing for service-intensive deep wells in the WCSB increased by about 15% in Q1 2014 compared to Q1 2013, while drilling rig utilization increased by about 4% to 67% over the same periods. Although well completions increased by a modest one percent in Q1 2014 compared to the prior year comparable quarter, the service intensity of these completions has increased significantly due to increasing fracturing stages per well and greater proppant tonnages. Average well depth in the WCSB has increased by about four percent in Q1 2014 compared to Q1 2013. The amount of sand and proppant Canyon pumped in Q1 2014 actually increased 102% compared to Q1 2013.
With Canyon's considerable operating leverage, the increased activity resulted in a significant improvement in profitability. EBITDA before share based payments increased by 35% to $27.4 million in Q1 2014 from $20.4 million in Q1 2013, and increased 149% compared to Q4 2013. Canyon recorded a profit and comprehensive profit of $11.9 million in Q1 2014, an increase of 39% over Q1 2013, and a thirty one fold increase over the profit and comprehensive profit of $0.4 million recorded in Q4 2013.
The Company's Consolidated Financial Statements have been prepared in accordance with International Financial Reporting Standards ("IFRS"). Certain measures in this document do not have any standardized meaning as prescribed by International Financial Reporting Standards ("IFRS") and are considered NON-GAAP measures.
EBITDA before share-based payments and funds from operations are not recognized measures under IFRS. Management believes that in addition to profit and comprehensive income, EBITDA before share-based payments and funds from operations are useful supplemental measures as they provide an indication of the results generated by the Company's business activities prior to consideration of how those activities are financed, amortized or taxed, as well as the cash generated by the Company's business activities without consideration of the timing of the monetization of non-cash working capital items. Readers should be cautioned, however, that EBITDA before share-based payments and funds from operations should not be construed as an alternative to profit and comprehensive income determined in accordance with IFRS as an indicator of the Company's performance. Canyon's method of calculating EBITDA before share-based payments and funds from operations may differ from other companies and accordingly, EBITDA before share-based payments and funds from operations may not be comparable to measures used by other companies. Canyon calculates EBITDA before share-based payments as profit and comprehensive income for the year adjusted for depreciation and amortization, equity settled share-based payment transactions, gain or loss on sale of property and equipment, finance costs, foreign exchange (gain) loss and income tax expense. Reconciliations of these NON-GAAP measures to the most directly comparable IFRS measures are outlined below.
The Company describes revenue less cost of services as gross profit.
|EBITDA before share-based payments|
Three Months Ended
|Profit (loss) and comprehensive income (loss)||$11,850||$8,527|
|Depreciation and amortization||9,814||7,705|
|Foreign exchange (gain) loss||368||(62)|
|Share-based payment transactions||880||910|
|(Gain) Loss on sale of property and equipment||10||(32)|
|Income tax expense (recovery)||4,329||3,160|
|EBITDA before share-based payments||$27,432||$20,364|
|Funds from Operations|
Three Months Ended
|Net cash from operating activities||$2,055||$19,334|
|Income Tax paid||-||1,155|
|Change in non-cash working capital||24,828||(219)|
|Less: current tax (expense)||(3,017)||(1,622)|
|Funds from operations||$23,866||$18,648|
|QUARTERLY COMPARATIVE STATEMENTS OF OPERATIONS|
000's except per share amounts
Three Months Ended
|Cost of services||(114,579)||(69,582)|
|Results from operating activities||16,728||11,781|
|Foreign exchange gain (loss)||(368)||62|
|Profit before income tax||16,179||11,687|
|Income tax expense||(4,329)||(3,160)|
|Profit and comprehensive income||$11,850||$8,527|
|EBITDA before share-based payments(1)||$27,432||$20,364|
|Earnings per share:|
Note (1): See NON-GAAP Measures.
The increased job count resulting from improved industry activity resulted in consolidated revenues increasing by 59% to $138,185 in Q1 2014 from $86,887 in Q1 2013. Jobs completed increased by 89% to 890 in Q1 2014 from 470 in Q1 2013. The increase in the job count and revenues was due to improved industry-wide activity supported by several factors including strengthening natural gas prices, stable oil prices and oil price differentials, E&P companies' improved access to capital markets as well as ongoing LNG-related reserve delineation drilling in North East BC. The percentage increase in the job count was not matched by a similar percentage increase in revenue due to lower pricing and job mix. Over 90% of Q1 2014 consolidated revenues was provided by hydraulic fracturing services with average fracturing revenue per job decreasing by 20% to $197,282 from $246,932 in Q1 2013 due to industry pricing pressure and job mix.
Cost of services
Cost of services for the three months ended March 31, 2014 totaled $114,579 (2013: $69,582) and included materials, products, transportation and repair costs of $77,724 (2013: $42,875), employee benefits expense of $27,481 (2013: $19,359), and depreciation of property and equipment of $9,374 (2013: $7,348).
Materials, products, transportation and repair costs increased by 81% to $77,724 in Q1 2014 from $42,875 in Q1 2013 mainly due to the 89% increase in the job count to 890 jobs from 470 jobs in Q1 2013. Employee benefits expense has increased mainly due to field staff additions in anticipation of increased 2014 activity and inflation in labour rates experienced in 2013. The increase in depreciation of property and equipment was due to additional depreciation pertaining to equipment introduced into service in the last half of 2013 and accelerated depreciation relating to the replacement of a number of pump components.
Administrative expenses for the three months ended March 31, 2014 totaled $6,878 compared to $5,524 in Q1 2013 and included employee benefits expense of $3,834 (2013: $2,717) and share-based payments expense of $880 (2013: $910). Administrative expenses also include depreciation of buildings and office equipment and amortization of intangibles of $441 (2013: $357). In addition, other administrative expenses totaled $1,723 in Q1 2014 compared to $1,540 in Q1 2013. The increase in employee benefits expense was mainly attributable to staff additions and the implementation of a cost of living increase effective October 2013.
Share-based payments expense represents the value assigned to the granting of options and incentive-based units under the Company's Stock Option Plan and Stock Based Compensation Plan respectively, using the Black-Scholes model. For Q1 2014, $1,016 (2013 - $1,000) was charged to expenses and included in contributed surplus in respect of these two plans. In addition, obligations for payments under the Company's Deferred Share Unit Plan are accrued as share-based payments expense over the vesting period. The accrued liability increases or decreases with fluctuations in the price of the Company's common shares, with a corresponding increase or decrease in the share-based payments expense. In Q1 2014, share-based payments were decreased by $136 (2013 - a reduction of $90) for the Company's Deferred Share Unit Plan.
EBITDA before share-based payments (See Non-GAAP Measures)
In Q1 2014, EBITDA before share-based payments (see NON-GAAP MEASURES) increased by 35% to $27,432 from $20,364 in the comparable 2013 quarter. As previously discussed, improved industry activity resulted in the increased EBITDA.
Finance costs include interest on finance lease obligations and automobile loans and totaled $181 in Q1 2014 (2013: $156).
Income Tax Expense
At the expected combined income tax rate of 25%, the income before income tax for Q1 2014 of $16,179 would have resulted in an income tax expense $4,045, compared to the actual income tax expense of $4,329. The increase in the actual income tax expense was due to the impact of non-deductible expenses.
Profit and comprehensive income and earnings per share
Profit and comprehensive income totaled $11,850 in Q1 2014 compared to profit and comprehensive income of $8,527 in Q1 2013. As previously discussed, the increased profit was mostly due to stronger industry-wide activity.
Basic and diluted earnings per share were $0.19 for the three months ended March 31, 2014 compared to basic and diluted earnings per share of $0.14 for the comparable 2013 quarter.
This document contains certain forward-looking information and statements within the meaning of applicable securities laws. The use of any of the words "expect", "anticipate", "continue", "estimate", "objective", "ongoing", "may", "will", "should", "believe", "plans" and similar expressions are intended to identify forward-looking information or statements. In particular, but without limiting the foregoing, this document contains forward-looking information and statements pertaining to the following: future oil and natural gas prices; future results from operations; future liquidity and financial capacity and financial resources; future costs, expenses and royalty rates; future interest costs; future capital expenditures; future capital structure and expansion; the making and timing of future regulatory filings; and the Company's ongoing relationship with major customers.
The forward-looking information and statements contained in this document reflect several material factors and expectations and assumptions of the Company including, without limitation: that the Company will continue to conduct its operations in a manner consistent with past operations; the general continuance of current or, where applicable, assumed industry conditions; the continuance of existing (and in certain circumstances, the implementation of proposed) tax, royalty and regulatory regimes; certain commodity price and other cost assumptions; the continued availability of adequate debt and/or equity financing and cash flow to funds its capital and operating requirements as needed; and the extent of its liabilities. The Company believes the material factors, expectations and assumptions reflected in the forward-looking information and statements are reasonable but no assurance can be given that these factors, expectations and assumptions will prove to be correct.
The forward-looking information and statements included in this document are not guarantees of future performance and should not be unduly relied upon. 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 including, without limitation: changes in commodity prices; changes in the demand for or supply of the Company's services; unanticipated operating results; changes in tax or environmental laws, royalty rates or other regulatory matters; changes in the development plans of third parties; increased debt levels or debt service requirements; limited, unfavourable or a lack of access to capital markets; increased costs; a lack of adequate insurance coverage; the impact of competitors; reliance on industry partners; attracting and retaining skilled personnel and certain other risks detailed from time to time in the Company's public disclosure documents (including, without limitation, those risks identified in this document and the Company's Annual Information Form).
The forward-looking information and statements contained in this document speak only as of the date of the document, and none of the Company or its subsidiaries assumes any obligation to publicly update or revise them to reflect new events or circumstances, except as may be required pursuant to applicable laws.
SOURCE Canyon Services Group Inc.For further information:
President and CEO
Canyon Services Group Inc.
2900 Bow Valley Square III
255 - 5 Avenue SW
Calgary, Alberta, T2P 3G6
Vice President, Finance and CFO
Canyon Services Group Inc.
2900 Bow Valley Square III
255 - 5 Avenue SW
Calgary, Alberta, T2P 3G6