Newalta Reports Second Quarter 2016 Results

TSX Trading Symbol: NAL

CALGARY, Aug. 3, 2016 /CNW/ - Newalta Corporation ("Newalta") (TSX:NAL) today reported results for the three and six months ended June 30, 2016.

FINANCIAL HIGHLIGHTS(1)

($000s except per share data)

(unaudited)

Three months ended

June 30,


Six months ended

June 30,


2016

2015

% change

2016

2015

% change

Continuing Operations







Revenue

41,766

81,838

(49)

90,431

179,417

(50)

General & Administrative

7,135

10,925

(35)

16,579

24,855

(33)

Net loss

(21,560)

(13,376)

61

(62,802)

(36,640)

71


- per share ($) basic and diluted

(0.26)

(0.24)

8

(0.91)

(0.65)

40

Adjusted EBITDA(2)

2,268

15,478

(85)

2,301

28,372

(92)


- per share ($)

0.03

0.28

(89)

0.03

0.50

(94)

Maintenance capital expenditures(2)

1,020

4,132

(75)

1,990

6,464

(69)

Growth capital expenditures(2)

319

15,558

(98)

2,017

47,952

(96)

Dividends declared

-

7,029

(100)

-

14,054

(100)


- per share ($)(2)

-

0.125

(100)

-

0.250

(100)

Dividends paid

-

7,026

(100)

3,515

12,750

(72)

Weighted average shares outstanding

81,485

56,220

45

68,861

56,205

23

Shares outstanding, June 30,(3)

88,148

56,237

57

88,148

56,237

57

Combined Operations







Revenue

41,766

81,838

(49)

90,431

221,525

(59)

Net loss

(21,485)

(13,289)

62

(62,791)

(41,030)

53


- per share ($) basic and diluted

(0.26)

(0.24)

8

(0.91)

(0.73)

25

(1)

References to GAAP are synonymous with IFRS.

(2)

These financial measures do not have any standardized meaning prescribed by GAAP and are therefore unlikely to be comparable to similar measures presented by other issuers. Non-GAAP financial measures are identified and defined in our Management's Discussion and Analysis ("MD&A").

(3)

Newalta had 88,148,148 shares outstanding as at August 3, 2016.

 

MANAGEMENT COMMENTARY

"Second quarter results were above guidance, reflecting the actions we've taken to date to rationalize costs, higher commodity prices, increased volumes in Heavy Oil facilities and our work with customers to find cost effective and sustainable solutions," said John Barkhouse, President and Chief Executive Officer. "In addition, the impact of the Fort McMurray wildfires of $4.5 million in Adjusted EBITDA was slightly lower than expected.  While we are beginning to see improvements in certain areas of our business, performance in the first half of 2016 continued to be impacted by reduced drilling and completions activity and lower production waste volumes."

Early in the second quarter, we successfully completed an equity financing to raise $54.2 million in gross proceeds which were primarily used to reduce the amount drawn on our Credit Facility.  We believe this equity financing, combined with our previous actions taken to suspend dividends, rationalize our cost structure, improve flexibility in our credit facility,  and minimize our capital spend for the year, have positioned us to successfully maneuver through this downturn and optimize the operating leverage inherent in our business model in the years ahead.

Strategically, as announced in Q1, we secured an amended contract with a Heavy Oil customer to extend operations on their site through to December 31, 2017.  These and other opportunities we are pursuing allow us to demonstrate value and entrench Newalta in customer operations and in the supply chain.

"Looking to the second half of 2016, we expect substantially stronger performance than in the first half, supported by a number of factors. Improved commodity prices and a slow but steady increase in production volumes flowing into our facilities, combined with targeted improvements in our drill site business and the impact of our ongoing focus on cost management, are reasonable assumptions underpinning our outlook for Q3 2016 and the balance of year.  And, of note, Adjusted EBITDA in the second quarter would have been $6.8 million excluding the impact of the Fort McMurray wildfires.

"We remain well positioned to unlock operating leverage as the markets we serve gradually recover."

SECOND QUARTER AND YEAR-TO-DATE RESULTS HIGHLIGHTS

  • Q2 revenue decreased 49% to $41.8 million compared to prior year. Approximately half of the decline was attributable to Heavy Oil Onsite services, with the remaining balance due to lower production related waste volumes.
  • Year-to-date revenue decreased 50% to $90.4 million from $179.4 million in the prior year, driven by the same factors as the quarter.
  • Net loss in the quarter was $21.6 million compared to prior year of $13.4 million. The loss was primarily driven by the net impact of the decline in revenue year-over-year and the corresponding reduction in operating expense. Savings in G&A from our rationalization initiatives, lower restructuring charges and a tax recovery were partially offset by increased finance charges recognized in the quarter.
  • Year-to-date net loss was $62.8 million compared to $36.6 million in the prior year, driven by the same factors as the quarter.
  • Adjusted EBITDA for the quarter was $2.3 million compared to $15.5 million in the prior year. The decline was driven by a decline in Divisional EBITDA of $17.0 million, partially offset by G&A savings of $3.8 million.
  • Year-to-date Adjusted EBITDA was $2.3 million, down $26.0 million over prior year, driven by a decline in Divisional EBITDA of $34.3 million partially offset by G&A savings of $8.2 million.
  • Performance in the first half of 2016 continued to be impacted by significantly reduced drilling and completion activity and declining production waste volumes in the areas we operate. Factors at play throughout the latter half of 2015 continued into the first half of 2016, with producers shutting in wells, minimizing maintenance activities, and deferring projects and capital spending.
  • Production-driven waste volumes in the quarter decreased by 17% over prior year, with an increase at our Heavy Oil facilities partially offsetting a decline at our Canadian Oilfield facilities. Reduced production waste volumes drove $9.5 million of the $17.0 million decline in Divisional EBITDA in the quarter and $20.4 million of the $34.3 million decline year-to-date. The balance of the decline was primarily a result of lower drilling activity, largely offset by cost savings realized in the first quarter.
  • Our contract model continued to provide steady, predictable cash flow. On a trailing-twelve month ("TTM") basis, contracts represented 26% of our revenue.
  • We have taken the following recent actions to protect profitability and our balance sheet:
    • During the first half of 2016, we completed cost rationalization actions which will drive an incremental $15 million in annualized Adjusted EBITDA savings ($12 million in 2016) by eliminating approximately 90 positions across G&A and operations and further consolidating office space. These actions, combined with our 2015 initiatives, have driven in excess of $50 million in annualized savings over 2014 levels.
    • Early in the second quarter, we successfully completed an equity financing to raise $54.2 million in gross proceeds which were used to reduce the amount drawn on our Credit Facility.
  • Heavy Oil revenue and net earnings before taxes decreased by 47% and 72% respectively, to $19.5 million and $2.2 million compared to prior year. Divisional EBITDA declined 53% over prior year to $6.8 million. These decreases were primarily driven by the Fort McMurray wildfires and the Syncrude MFT contract, which remained in hibernation during the second quarter. Equipment for this contract at Syncrude's Southwest Sands site will be demobilized in the second half of the year. We are actively pursuing opportunities to redeploy these assets within our facility network or on other projects.
  • Oilfield revenue and net earnings before taxes decreased by 51% and 162%, respectively, to $22.3 million and a loss of $4.1 million compared to prior year. Divisional EBITDA decreased by 78% over prior year, to $2.6 million. Performance was driven by lower contributions from both the Oilfield Facilities and Drilling Services business units primarily due to reduced production and drilling activity. Restructuring and other related costs of $1.6 million in the quarter further contributed to the decrease in earnings.
  • For the three and six months ended June 30, 2016, G&A decreased 35% and 33% to $7.1 million and $16.6 million, respectively. The year-over-year improvement reflects the impact of cost rationalization initiatives.
  • We incurred $3.6 million in restructuring and other related costs during the second quarter, comprised of non-cash onerous contracts expense ($1.8 million) and employee terminations and other costs ($1.8 million).
  • Capital expenditures for the three and six months ended June 30, 2016 were $1.3 million and $4.0 million respectively, focused on maintenance projects.
  • In light of the current economic environment, our midstream joint venture partner exercised their right to put their interest in one of our modular processing facilities back to Newalta. We anticipate acquiring their 50% interest in the facility in Q3 2016.

The following section contains forward-looking information as it outlines our Outlook for 2016. Our Outlook is based on several key assumptions including growth capital contributions, commodity prices and activity levels of the industries we serve. Changes to these assumptions could cause our actual results to differ materially. Please refer to our Forward-Looking Information later in this document.

OUTLOOK

Our performance in 2016 has been significantly impacted by the drop in oil prices and activity levels in the oil and gas industry. We expect performance in the second half to be substantially stronger than the first half. This is based on expected improvement in commodity prices, a slow but steady improvement in production volumes flowing into our Heavy Oil and Oilfield facilities, targeted improvement in performance within our drill site business, and the impact of management's ongoing focus on cost management. Our 2016 guidance ranges are:

  • Revenue of $40 million to $60 million for the third quarter of 2016 and $190 million to $220 million for the full year
  • Adjusted EBITDA of $8 million to $12 million for the third quarter of 2016 and $20 million to $30 million for the full year

The following table outlines the factors we expect to impact Adjusted EBITDA performance in the third quarter and full year.

Factor

Actual(1)

Assumption(1)

Expected impact on Adjusted EBITDA compared
to prior year period(1)

Q2 2016

Q3 and Full Year 2016

Q3 2016

2016

West Texas Intermediate (US$/bbl)

$45.48

Q3 2016: $40 – $45

2016: $35 – $45



Canadian Light Sweet (CDN$/bbl)(2)

$55.07

Q3 2016: $50  – $55

2016: $45 – $55

$0M – $0.5M↓

$2M – $4M ↓

Western Canadian Select (CDN$/bbl)(2)

$41.62

Q3 2016: $30 – $35

2016: $25 – $35

$0.5M – $1M ↓

$2M – $4M↓

Drilling activity(2) decline

~50%

Q3 2016(3): 30% – 40%

2016(3): 30% – 40%

$3M – $4M ↓

$13M – $15M ↓

Step Change(4)

($11.5M)


$9.5M – $10.5M ↓

$23M – $28M ↓

Savings from cost rationalization

$6.5M

$10M 2015 carry forward

$10M 2016

$4M – $5M↑

~ $20M ↑

Fort McMurray wildfires

~$4.5M ↓



~$4.5M ↓

 

Adjusted EBITDA Guidance



$8M $12M

$20M $30M

(1)

M refers to millions.

(2)

Impact derived from annual sensitivities based on 2016 forecast performance and volumes outlined in the "Sensitivities" section on page 45 of our 2015 Annual Report. The actual impact from crude oil prices may vary with fluctuations in volumes.

(3)

Estimates for drilling activity decline as disclosed in our 2015 Annual Report have been amended to reflect expectations for the remainder of 2016. The revision does not have an impact on expected Adjusted EBITDA range.

(4)

This factor is expected to have an impact on our performance through the year, and cannot be quantified on any linear sensitivity.

 

  • We will continue to manage cash flows to ensure our financing obligations are met and spending is minimized wherever possible. Tied to our Adjusted EBITDA guidance and its underlying assumptions, we anticipate being cash flow negative in 2016 after the impact of working capital changes and cash costs for severance, onerous lease payments, financing costs, tax and capital expenditures. Beyond 2016, subject to partial recovery in oil price and activity levels, we will target positive cash flow after all cash financing, tax and capital expenditures.

Management's Discussion and Analysis and Financial Statements
The unaudited condensed consolidated financial statements and MD&A, which contain additional notes and disclosures, are available on SEDAR at www.sedar.com or our website at www.newalta.com under Investor Relations/Financial Reports.

Quarterly Conference Call
Management will hold a conference call on August 4, 2016 at 11:00 a.m. (ET) to discuss Newalta's performance for the quarter. To participate in the teleconference, please call 647-427-7450 or toll free 1-888-231-8191. To access the simultaneous webcast, please visit www.newalta.com. For those unable to listen to the live call, a taped broadcast will be available at www.newalta.com and, until midnight on Thursday, August 11, 2016 by dialing 855-859-2056 and using the pass code 49387134.

About Newalta

Newalta is a leading provider of innovative engineered environmental solutions that enable customers to reduce disposal, enhance recycling and recover valuable resources from oil and gas exploration and production waste streams. We simplify the critical challenges of sustainable environmental practices through the use of advanced processing capabilities deployed through a differentiated business model. We serve customers onsite directly at their operations and through a network of locations throughout North America. Our proven processes and excellent record of safety make us the first-choice provider of sustainability-enhancing services for oil and gas customers. With a highly skilled team of people, a two-decade track record of innovation and a commitment to commercializing new solutions, Newalta is positioned for sustained future growth and improvement. We are Sustainability SimplifiedTM. Newalta trades on the TSX as NAL. For more information, visit www.newalta.com.

The press release contains certain statements that constitute forward-looking information.  Please refer to the section below, "Forward-Looking Information", for further discussion of assumptions and risks relating to this forward looking information.

This press release contains references to certain financial measures, including some that do not have any standardized meaning prescribed by GAAP and are therefore unlikely to be comparable to similar measures presented by other issuers. Non-GAAP financial measures are identified and defined in our MD&A.

FORWARD-LOOKING INFORMATION

Certain statements contained in this document constitute "forward-looking information" as defined under applicable securities laws.  When used in this document, the words "may", "would", "could", "will", "intend", "plan", "anticipate", "believe", "estimate", "expect", "potential", "strategy", "target" and similar expressions, as they relate to Newalta Corporation and the subsidiaries of Newalta Corporation, or their management, are intended to identify forward-looking information.  In particular, forward-looking information included or incorporated by reference in this document includes information with respect to:

  • future operating and financial results;
  • business prospects and strategy including related timelines;
  • capital expenditure programs and other expenditures;
  • realization of anticipated benefits from the sale of the Industrial Division including the ability to reinvest the net proceeds of disposition in a timely and efficient manner;
  • realization of anticipated benefits of growth capital investments, acquisitions, divestitures and our innovation and process development initiatives;
  • realization of anticipated benefits from the implementation of cost rationalization initiatives including the anticipated value and sustainability of the cash savings from such initiatives;
  • anticipated industry activity levels;
  • anticipated commodity prices;
  • expected demand for our services;
  • expected expansion opportunities for our business;
  • the amount of dividends declared or payable in the future;
  • our projected cost structure; and
  • expectations and implications of changes in legislation.

Expected future financial and operating performance and related assumptions are set out under "Outlook". 

Such information reflects our current views with respect to future events and are subject to certain risks, uncertainties and assumptions, including, without limitation:

  • strength of the oil and gas industry, including drilling activity;
  • general market conditions;
  • fluctuations in commodity prices for oil and the price we receive for our recovered oil;
  • fluctuations in interest rates and exchange rates;
  • financial covenants in our debt agreements that may restrict our ability to engage in transactions or to obtain additional financing;
  • success of our growth, acquisition and innovation and process development strategies including integration of businesses and processes into our operations and potential liabilities from acquisitions;
  • our ability to secure future capital to support and develop our business, including the issuance of additional common shares;
  • the highly regulated nature of the environmental services and waste management business in which we operate;
  • dependence on our senior management team and other operations management personnel with waste industry experience;
  • the competitive environment of our industry in Canada and the U.S.;
  • possible volatility of the price of, and the market for, our common shares, and potential dilution for shareholders in the event of a sale of additional shares;
  • potential operational and safety risks and hazards, obtaining insurance for such risks and hazards on reasonable financial terms and potential failure of meeting customer safety standards;
  • the seasonal nature of our operations;
  • risk of pending and future legal proceedings;
  • risk to our reputation;
  • our ability to attract, retain and integrate skilled employees;
  • open access for new industry entrants and the general unprotected nature of technology used in the waste industry;
  • costs associated with operating our landfills; and
  • such other risks or factors described from time to time in reports we file with securities regulatory authorities.

By its nature, forward-looking information involves numerous assumptions, known and unknown risks and uncertainties, both general and specific, that contribute to the possibility that the predictions, forecasts, projections and other forward-looking information will not occur.  Many other factors could also cause actual results, performance or achievements to be materially different from any future results, performance or achievements that may be expressed or implied by such forward-looking information and readers are cautioned that the foregoing list of factors is not exhaustive.  Should one or more of these risks or uncertainties materialize, or should assumptions underlying the forward-looking information prove incorrect, actual results may vary materially from those described herein as intended, planned, anticipated, believed, estimated or expected.  Furthermore, the forward-looking information contained in this document is made as of the date of this document and, in each case, is expressly qualified by this cautionary statement.  Unless otherwise required by law, we do not intend, or assume any obligation, to update any such forward-looking information.

SOURCE Newalta Corporation

For further information: Anne M. Plasterer, Executive Director, Investor Relations, Phone: (403) 806-7019

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http://www.newalta.com

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