MATRRIX announces first quarter 2014 financial results

CALGARY, May 23, 2014 /CNW/ - MATRRIX Energy Technologies Inc. ("MATRRIX" or the "Corporation") (TSX-V: MXX) announces financial results for the first quarter 2014.

HIGHLIGHTS OF FIRST QUARTER 2014 (COMPARED WITH FIRST QUARTER 2013)

Overall

  • The Corporation's concurrent job capacity was 23 directional and horizontal drilling systems ("Systems") during the quarter with 20 Systems in Canada and 3 in the US, no change from prior quarter
  • achieved record consolidated revenue of $10,854,874, up 77% from $6,137,570
  • consolidated gross margins of 26% compared to 33%
  • net income increased to $573,658, up 77% from $323,633
  • achieved record Adjusted EBITDA of $1,436,956, up 108% from $691,761
  • capital expenditures of $1,034,855 (net of lost in hole replacements) primarily focused on motor related equipment
  • The Corporation maintained a strong balance sheet with $3,144,934 of cash and cash equivalents and working capital of $8,098,255 at March 31, 2014

Canada

  • no change in job capacity of 20 Systems
  • achieved revenue of $9,272,687, up 62% from $5,718,988
    • a result of a 66% increase in operating1 days to 873 from 525 days
    • offset by a 3% decrease in average day rates to $10,628 from $10,904
  • increase in operating days was primarily a result of increased activity in the Cardium and Montney areas with new customers being added and increased activity with existing customers during the quarter

US

  • US performance motor drilling revenue $624,190, up 49% from $418,581 as a result of a key customer increasing activity in the quarter
  • US directional and horizontal drilling operations achieved revenue of $957,997 (with no comparable 2013 as similar operations in the US did not begin until Q2 2013)
    • operating days of 109 with average revenue per day of $8,789 with a 3 System job capacity
  • all revenue generated in the Permian Basin in west Texas

     
1 MATRRIX calculates a stand-by or partial operating day as 0.5 day of an operating day.

MATRRIX achieved continued revenue growth in the first quarter of 2014 compared to 2013 due to continued strength in both Canadian and US operations through the addition of new clients and increased work with existing clients.  Q1 2014 consolidated operating days increased to 982, up 87% from 525 days in Q1 2013 with the same 23 System job capacity year over year.

The Corporation's first quarter of 2014 margins were adversely impacted in both Canada and the US by motor rental charges due to increased activity and changing customer motor requirements.  In addition, MATRRIX incurred increased equipment repair costs as a result of complex drilling environments and the associated high volume of repair required to maintain a strong service offering.  The primary impact of these costs were as follows and are reflected in the gross margins:

First quarter (compared with a year earlier)

  • Canadian motor rental charges represent 10% of total Canadian revenue, up from 4%
  • US motor rental charges represent 17% of total US revenue, up from 9%
  • Canadian equipment repair costs represent 18% of total Canadian revenue, up from 16%
  • US equipment repair costs represent 33% of total US revenue, up from 30%

The majority of Q1 capital additions were motor related equipment focusing on reducing rental costs during the remainder of 2014.

Due to increased activity and intentions of reducing third party rental charges, MATRRIX has increased its 2014 capital expenditure program from $600,000 to $1,485,445.  MATRRIX has spent $1,034,855 (net of lost in hole replacements) in Q1 2014 primarily for motor related equipment to further reduce third party equipment rentals in both Canada and the US.

FINANCIAL SUMMARY HIGHLIGHTS

      Three Months Ended      
      March 31, 2014     March 31, 2013     % Change
Revenue     $10,854,874     $6,137,570     77%
EBITDA  (i)   $1,242,661     $736,559     69%
EBITDA per share                  
  Basic     $0.04     $0.02     80%
  Diluted     $0.04     $0.02     80%
Adjusted EBITDA  (ii)   $1,436,956     $691,761     108%
Adjusted EBITDA per share (ii)                
  Basic     $0.04     $0.02     108%
  Diluted     $0.04     $0.02     108%
Net income     $573,658     $323,633     77%
Net income per share                  
  Basic     $0.02     $0.01     77%
  Diluted     $0.02     $0.01     77%
                   
Weighted Average common shares outstanding     32,184,638     32,176,938     nm
Weighted Average diluted common shares outstanding     32,184,638     32,176,938     nm
                   
As at     March 31, 2014     March 31, 2013     % Change
Working capital     $8,098,255     $9,900,987     -18%
Total assets     $32,399,939     $28,146,885     15%
Long-term debt     $ Nil     $ Nil     nm
Shareholders' equity     $25,169,595     $26,345,337     -4%
Common shares outstanding     $32,184,638     $32,184,638     nm
nm - not meaningful

OUTLOOK

The principal business strategy of MATRRIX is to purchase and deploy drilling technology in Canada and the US and actively seek investment opportunities to acquire existing drilling technology services businesses.  As at the date of this MD&A, MATRRIX has 23 Systems available for deployment to the fields in the WCSB and the US.

The industry now focuses on horizontal drilling to exploit conventional and unconventional oil and liquids-rich natural gas plays across North America.  There always exists uncertainty over commodity prices and customer capital expenditure programs.  Macro-economic factors could adversely impact capital allocations by MATRRIX's customers related to US growth and foreign investment in Canada.

Canada

The customer base in Canada has expanded through Q1 2014 with customers having a mix of oil and/or liquids rich capital programs.  The growth in revenue is from both increased work with existing and new customers.  Customers remain cautious about their capital spending; however, there is market optimism for increased spending levels in 2014 and 2015.  Additionally, with potentially large field developments as a result of proposed west coast LNG terminals, there may be incremental investment into the WCSB in 2014 and beyond. MATRRIX is focused on building customer relationships and increasing its customer base with operators active in areas with oil and/or liquids rich opportunities and strong capital expenditure programs.  MATRRIX is also focused on managing its costs and reducing third party rentals to improve operating margins.

US

MATRRIX continued its performance drilling operations in the Permian Basin and intends to expand operations in this region. Management reviewed its US horizontal and directional drilling strategy and its US focus and is targeting the Permian Basin where the Company has delivered performance drilling since late 2011. MATRRIX expects this focus to result in positive increases in operating margins and lower administration costs.

The Corporation will continue to evaluate opportunities for further capital investment and business acquisitions in Canada and the United States, with future investment being dependent upon customer demand, prospect of strong returns on invested capital, and growth opportunities in that region.  The Company will continue to improve field margins through strong operational execution and improving field support infrastructure resulting in increased efficiency.  MATRRIX has a strong balance sheet, and strives to maintain operational excellence, building on existing customer relationships while creating new opportunities.

President Richard Ryan stated,

"The first quarter of 2014 was a great indicator of potential for this organization. While the market for horizontal and directional drilling has largely been flat since mid-2012, MATRRIX continues to earn the trust and respect of Clients on both sides of the border, as indicated by growing market share. With systems, processes, a talented core group of employees, and a strong revenue base firmly established, we intend to use this momentum to leverage continued growth in revenue and earnings. Clients understand the benefits of using drilling technology to drive returns, and we look forward to potential firming of activity for horizontal and directional drilling in Canada and the US."

The Corporation's financial statements and management's discussion and analysis for the three months ended March 31, 2014 will be available on SEDAR at www.sedar.com.

NON-GAAP MEASURES

This press release contains references to EBITDA, Adjusted EBITDA and gross margin. These financial measures are not measures that have any standardized meaning prescribed by IFRS and are therefore referred to as a non-GAAP measure. The non-GAAP measures used by the Corporation may not be comparable to similar measures used by other companies.

(i) EBITDA is not a measure recognized under IFRS and does not have a standardized meanings prescribed by IFRS. EBITDA is defined as "income (loss) before interest expense, income taxes, depreciation and amortization.

      Three Months Ended  
      March 31, 2014     March 31, 2013     % Change
Net income (loss)    $   573,658     323,633     77%
  Depreciation     669,003     513,041     30%
  Deferred tax expense     -     (100,115)     -
EBITDA   $   1,242,661   $   736,559     69%

 

(ii) Adjusted EBITDA is defined as "income (loss) before interest, taxes, business acquisition transaction costs, reverse takeover adjustments, depreciation, shared based compensation expense, gains on disposal of property and equipment and foreign exchange." Management believes that in addition to net and total comprehensive income (loss), Adjusted EBITDA is a useful supplemental measure as it provides an indication of the results generated by the Corporation's principal business activities prior to consideration of how these activities are financed, how the results are taxed in various jurisdictions, or how the results are affected by the accounting standards associated with the Corporation's stock based compensation plan.

      Three Months Ended      
      March 31, 2014     March 31, 2013     % Change
EBITDA    $   1,242,661   $   736,559     69%
  (Gain)/loss from disposition of property and equipment    $   146,004   $   (15,121)     -1066%
  Gain from equipment lost in hole    $   (40,687)   $   (125,748)     -68%
  Interest and other income    $   (2,634)   $   (23,391)     -89%
  Share based payments     91,328     83,888     9%
  Foreign exchange loss     284     35,574     -99%
Adjusted EBITDA    $   1,436,956   $   691,761     108%

 

(iii) Gross margin is defined as "gross profit from services revenue before stock based compensation and depreciation". Gross margin is a measure that provides shareholders and potential investors additional information regarding the Corporation's cash generating operating performance. Management utilizes this measure to assess the Corporation's operating performance.

    Three Months Ended      
      March 31, 2014     March 31, 2013     % Change
Revenue   $   10,854,874   $   6,137,570     77%
Direct operating expenses   $   8,066,426   $   4,100,412     97%
Gross margin (1)   $   2,788,449   $   2,037,158     37%
Gross margin %     26%     33%     -23%

 

MATRRIX is engaged in the acquisition and supply of horizontal and directional drilling technologies for the oil and gas industry in Canada and the US.

FORWARD-LOOKING INFORMATION

This press release contains certain statements or disclosures relating to MATRRIX that are based on the expectations of MATRRIX as well as assumptions made by and information currently available to MATRRIX which may constitute forward-looking information under applicable securities laws. In particular, this press release contains forward-looking information related to: additional capital expenditures to increase gross margins by lowering rental costs; uncertainty over commodity prices and customer capital spending; macro-economic factors related to US growth and foreign investment in Canada; expectations and assumptions regarding increased industry spending levels in 2014 and 2015; potentially large field developments as a result of proposed west coast LNG terminals leading to expected incremental investment into the WCSB in 2014 and beyond; the Corporation's ability to continue to build and maintain customer relationships and increasing its customer base with operators active in areas with oil and/or liquids rich opportunities and strong capital expenditure programs; focus on reducing third party rentals; the Corporation's ability to identify and procure readily available resources to fund incremental growth in 2014 and beyond; the Corporation's intention to expand its US directional and horizontal operations in the Permian basin along with its existing performance motor drilling operations to increase operational efficiencies; adjustment of the Corporation's US strategy which is intended to help the Corporation achieve year over year overall company growth for 2014, along with an improvement in overall financial metrics; and firming of activity in the industry. Such forward-looking information involves material assumptions and known and unknown risks and uncertainties, certain of which are beyond MATRRIX's control.  Many factors could cause the performance or achievement by MATRRIX to be materially different from any future results, performance or achievements that may be expressed or implied by such forward looking information. MATRRIX's documents filed with securities regulatory authorities (accessible through the SEDAR website www.sedar.com) describe the risks, material assumptions and other factors that could influence actual results and which are incorporated herein by reference. MATRRIX disclaims any intention or obligation to publicly update or revise any forward-looking information, whether as a result of new information, future events or otherwise, except as may be expressly required by applicable securities laws.

Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.

 

 

SOURCE MATRRIX Energy Technologies Inc.

For further information:

Richard Ryan
President & Chief Executive Officer
MATRRIX Energy Technologies Inc.
Tel: (403)  984-5062

Imran Gulam
Vice President Finance & CFO
MATRRIX Energy Technologies Inc.
Tel: (403)  984-5075