/NOT FOR DISSEMINATION IN THE UNITED STATES OF AMERICA/
CALGARY, Nov. 5, 2013 /CNW/ - Cathedral Energy Services Ltd. (the "Company" or "Cathedral" /TSX: CET) announces its consolidated financial results for the three and nine months ended September 30, 2013 and 2012. Dollars in 000's except per share amounts.
This news release contains "forward-looking statements" within the meaning of applicable Canadian securities laws. For a full disclosure of forward-looking statements and the risks to which they are subject, see "Forward-Looking Statements" later in this news release.
2013 Q3 KEY TAKEAWAYS
- 2013 Q3 set records for U.S. directional drilling revenues and U.S. production testing revenues;
- Continued growth in U.S. activity levels for both divisions - 25% increase in year-to-date revenues;
- Cathedral continues to "win" incremental work due to success of its proprietary Fusion EM/MWD platform;
- Sale/leaseback of Nisku and Calgary, Alberta facilities is completed with net proceeds of $22,260 and gain of $5,354 - net proceeds used to reduce bank debt; and
- Continued operational success, confident outlook and balance sheet flexibility have provided a sound basis for a 10% dividend increase to $0.0825 per share.
2013 Q3 FINANCIAL SUMMARY
|Three months ended September 30||Nine months ended September 30|
|Adjusted gross margin % (1)||25.1%||28.0%||24.1%||28.3%|
|Diluted per share||$||0.30||$||0.28||$||0.68||$||0.86|
|EBITDAS (1) as % of revenues||18.0%||21.1%||15.5%||20.5%|
|Funds from operations (1)||$||7,876||$||8,039||$||18,959||$||26,684|
|Diluted per share||$||0.22||$||0.21||$||0.52||$||0.70|
|Basic per share||$||0.22||$||0.10||$||0.27||$||0.35|
|Diluted per share||$||0.22||$||0.10||$||0.27||$||0.35|
|Dividends declared per share||$||0.075||$||0.075||$||0.225||$||0.225|
|Property and equipment additions (cash)||$||8,373||$||5,229||$||21,547||$||23,716|
|Weighted average shares outstanding|
|September 30||December 31|
|Loans and borrowings excluding current portion||$||38,253||$||46,151|
|Total shareholders' equity||$||138,240||$||137,932|
|(1) see "NON-GAAP MEASUREMENTS"|
The Company completed 2013 Q3 with quarterly revenues of $59,734 and year-to-date revenues of $159,447 compared to 2012 Q3 revenues of $49,830 and 2012 year-to-date revenues of $158,358. Year-to-date revenues have increased 1% from 2012 and Q3 revenues have increased 20% from 2012. The 2013 Q3 revenues were comprised of 71% (2012 Q3 - 72%) from the directional drilling division, 29% (2012 Q3 - 24%) from the production testing division and nil% (2012 Q3 - 4%) from international operations.
2013 Q3 EBITDAS were $10,757 ($0.30 per share diluted) which represents a $219 increase from 2012 Q3 EBITDAS of $10,538 ($0.28 per share diluted). For the three months ended September 30, 2013, the Company's net earnings were $7,956 ($0.22 per share diluted) as compared to a $3,813 ($0.10 per share diluted) in 2012. The quarter-over-quarter increase in EBITDAS is due to increases in U.S. operating results. 2013 year-to-date EBITDAS was $24,691 ($0.68 per share diluted) which represents a $7,837 or 29% decrease from $32,528 ($0.86 per share diluted) in 2012. On a 2013 year-to-date basis, the Company's net income was $9,706 ($0.27 per share diluted) as compared to a $13,219 ($0.35 per share diluted) in 2012.
Cathedral continues its focus on the build out of its U.S. services. On the directional drilling side of the business we expect continued expansion in Oklahoma and Texas markets. Additional technical sales representatives have been added and the Company continues to "win" work based upon the success of Cathedral's Fusion MWD platform and "nDurance" mud motors and performance based work. The Company's U.S. production testing division has completed 3 consecutive quarters of record revenues, but the Company expects 2013 Q4 activity levels to decline from 2013 Q3 levels due to a client deferring work into 2014 and the fact one customer has provided the Company notice that they will be moving work to another service provider as current work is completed. The Company has increased its marketing efforts for U.S. production testing service line by hiring additional technical sales representatives as well as utilizing U.S. directional drilling sales team to market production testing services.
The Company's Canadian directional drilling division continues to focus its marketing efforts on targeting clients in the Deep Basin reservoirs where reduction in drilling times resulting from equipment and technology improvements allow the Company to compete on a performance basis rather than on lowest cost for services. For 2013 Q4 both Canadian divisions are expecting to see increased activity over Q3 which was affected negatively by weather and customers that deferred work to later in the year. 2013 Q4 should also benefit from the addition of new customers as a result of ongoing marketing efforts.
Prior to the end of 2013 Q3, Cathedral completed the sale and leaseback of its Alberta operating facilities with net proceeds of $22,260 which was used to reduce bank debt. This debt repayment will provide the Company with additional financial flexibility as it moves forward.
In 2013 Q4, the Company's Directional Plus International Ltd. subsidiary is expected to ship all of the remaining production testing and wireline equipment which it has committed to sell to its international joint venture.
In mid-October, the Company's President and Chief Executive Officer, Mark Bentsen, left the employment of Cathedral. Until a replacement is secured, Mr. Bentsen's functions will be assumed by P. Scott MacFarlane as Interim Chief Executive Officer and Randy Pustanyk as President and Chief Operating Officer. Messrs. MacFarlane and Pustanyk will maintain their current roles with Cathedral as Chief Financial Officer and Vice President, Operations, respectively. Cathedral has an excellent team of executives in place on a companywide basis, and the Board of Directors are confident that we have the key people necessary to advance our strategy and guide our directional drilling and production testing businesses successfully forward.
It is the intent of the Company to pay quarterly dividends to shareholders. The Board of Directors will review the amount of dividends on a quarterly basis with due consideration to current performance, historical and future trends in the business, the expected sustainability of those trends and enacted tax legislation which will affect future taxes payable as well as required long-term debt repayments, maintenance capital expenditures required to sustain performance and future growth capital expenditures. The Directors have approved an increase of 10% for 2013 Q4 dividend. The 2013 Q4 dividend will be in the amount of $0.0825 per share which will have a date of record of December 31, 2013 and a payment date of January 15, 2014.
2013 CAPITAL PROGRAM
For the nine months ended September 30, 2013 the Company has invested an additional $21,547 (2012 - $23,716) in property and equipment, excluding non-cash capital lease additions. The main 2013 capital additions were upgrades and replacement of downhole tools, the addition of 4 retrievable positive pulse systems, 3 high pressure production testing units and auxiliary production testing equipment. In 2013, $9,835 of the additions related to growth capital, with the remaining $11,712 for maintenance, upgrade and replacement capital. The net property and equipment additions (additions net of proceeds on the disposal of property and equipment) to date in 2013 were $16,683 (2012 - $13,758).
The following is a summary of major equipment owned by the Company:
|September 30||December 31||September 30|
|Directional drilling - MWD systems (1)||135||136||132|
|Production testing units||72||69||69|
| (1) The Company has 15 Geolink MWD systems that have been excluded from the Septermber 30, 2013 figures as they are held for sale.
As at September 30 and December 31, 2012 there were 10 Geolink MWD systems that were excluded.
In 2013 Q3 Cathedral's 2013 capital budget has increased from the previously announced amount of $27,000 to $30,000 for an increase of $3,000 for production testing ancillary equipment in Canada and U.S., as well as for land and building in Oklahoma City.
The maintenance capital for 2013 has increased to $16,000 with additional upgrades to existing production testing equipment and maintenance of downhole tools.
These capital expenditures are expected to be financed by way of cash flow from operations, proceeds of disposal of property and equipment and the Company's credit facility.
RESULTS OF OPERATIONS - THREE MONTHS ENDED SEPTEMBER 30
|Three months ended September 30, 2013||Three months ended September 30, 2012|
|Revenues||drilling||testing||and Rental||Total||drilling||testing||and Rental||Total|
Revenues 2013 Q3 revenues were $59,734 which represented an increase of $9,904 or 20% from 2012 Q3 revenues of $49,830. All areas, except for Canadian directional drilling were up on a year-over-year basis.
Canadian directional drilling revenues decreased from $21,621 in 2012 Q3 to $19,571 in 2013 Q3; a 9% decrease. This decrease was the result of: i) a 6% decrease in activity days from 1,885 in 2012 Q3 to 1,771 in 2013 Q3; and ii) a 4% decrease in the average day rate from $11,470 in 2012 Q3 to $11,051 in 2013 Q3. Canadian activity days decreased due to a number of factors including a decline in work for a significant client and clients delaying work until future quarters. These declines were partially offset by increases in work for existing clients and addition of new clients.
U.S. directional drilling revenues increased from $13,926 in 2012 Q3 to $22,836 in 2013 Q3; a 64% increase. This increase was the result of: i) a 46% increase in activity days from 1,371 in 2012 Q3 to 1,996 in 2013 Q3; and ii) a 13% increase in the average day rate from $10,158 in 2012 Q3 to $11,441 in 2013 Q3 (when converted to Canadian dollars). The increase in U.S. activity days were due to further expansion in the Texas and Oklahoma markets, increases in the Rocky Mountain region, offset by reduced drilling in the Pennsylvania areas within the existing client base. The increased average day rate was mainly due to higher rates that were achieved in the Rocky Mountain and Texas regions on certain jobs where the pricing was tied to performance.
Canadian production testing revenues increased from $5,272 in 2012 Q3 to $7,572 in 2013 Q3; a 44% increase. The Canadian operating days were up in each month of the quarter compared to 2012. Both 2013 and 2012 Q3 activity levels were negatively affected by customers deferring work.
U.S. production testing revenues increased from $6,793 in 2012 Q3 to $9,755 in 2013 Q3; a 44% increase. This increase is attributable to having 3 additional units in 2013 Q3 versus 2012 Q3 and expansion into the Eagleford (Texas) market and an increased utilization of units.
Gross margin and adjusted gross margin The gross margin for 2013 Q3 was 16.9% compared to 18.7% in 2012 Q3. Adjusted gross margin for 2013 Q3 was $14,972 (25.1%) compared to $13,957 (28.0%) for 2012 Q3. The decrease in adjusted gross margin of 2.9% was primarily due to increased field labour costs in the directional drilling divisions.
Depreciation allocated to cost of sales increased from $4,614 in 2012 Q3 to $4,860 in 2013 Q3 due to capital additions in the period from 2012 Q3 to 2013 Q3. Depreciation included in cost of sales as a percentage of revenue was 8.1% for 2013 Q3 and 9.3% in 2012 Q3.
Selling, general and administrative expenses ("SG&A") SG&A expenses were $6,228 in 2013 Q3; an increase of $577 compared with $5,651 in 2012 Q3. As a percentage of revenue, these costs were 10% in 2013 Q3 and 11% in 2012 Q3. Non-cash expenses total $288 for 2013 Q3 and $419 for 2012 Q3. SG&A net of these non-cash items were $5,940 in 2013 Q3 and $5,232 in 2012 Q3, an increase of $708.
Wages increased $438; this increase was primarily related to staff additions for research and development department and staff positions added to accommodate current and future U.S. growth; net of decreases in variable compensation. The staffing costs included in SG&A relate to executives, sales, accounting, human resources, payroll, safety, research and development and related support staff. The remaining net increase of $270 relates to various changes none of which are individually significant.
Gain on disposal of property and equipment During 2013 Q3 the Company had a gain on disposal of property and equipment of $1,760 compared to $1,732 in 2012 Q3. The Company's gains are mainly due to recoveries of lost-in-hole equipment costs including previously expensed depreciation on the related assets. The timing of lost-in-hole recoveries is not in the control of the Company and therefore can fluctuate significantly from quarter-to-quarter. In addition, in 2013 Q3 the Company had a gain on sale of land and buildings of $5,354 and has entered into a 15 year lease on the related assets.
Foreign exchange loss The Company had foreign exchange gain of $173 in 2013 Q3 compared to $459 in 2012 Q3 due to the fluctuations in the Canadian dollar compared to U.S. dollars and Venezuelan bolivars. The Company's foreign operations are denominated in a currency other than the Canadian dollar and therefore, upon consolidation gains and losses due to fluctuations in the foreign currency exchange rates are recorded in other comprehensive income ("OCI") on the balance sheet as a component of equity. However, gains and losses in the Canadian entity on U.S. denominated intercompany balances continue to be recognized in the statement of income. Included in the 2013 Q3 foreign currency gain are unrealized gains of $208 (2012 Q3 - $378) related to intercompany balances.
Finance costs Finance costs consist of interest expenses on operating loans, loans and borrowings and bank charges of $727 for 2013 Q3 versus $491 for 2012 Q3. The increase in finance costs relate mainly to an increased utilization of the Company's operating loan and to a lesser extent increases in interest rates.
Income tax For 2013 Q3, the Company had an income tax expense of $2,446 compared to $1,535 in 2012 Q3. The effective tax rate was 24% for 2013 Q3 and 29% for 2012 Q3. Income tax expense is booked based upon expected annualized effective rates.
RESULTS OF OPERATIONS - NINE MONTHS ENDED SEPTEMBER 30
|Nine months ended September 30, 2013||Nine months ended September 30, 2012|
|Revenues||drilling||testing||and Rental||Total||drilling||testing||and Rental||Total|
Revenues 2013 revenues were $159,447 which represented an increase of $1,089 or 1% from 2012 revenues of $158,358. The increase was attributed to international and U.S. operations which were offset by declines in Canada operations.
Canadian directional drilling revenues decreased from $65,655 in 2012 to $51,815 in 2013; a 21% decrease. This decrease was the result of: i) a 847 decrease in activity days from 5,399 in 2012 to 4,552 in 2013; and ii) a 6% decrease in the average day rate from $12,161 in 2012 to $11,383 in 2013. Canadian activity days decreased due to a number of factors including: i) a decline in industry activity due to oil take away restrictions, marginal natural gas prices and a general lack of access to equity markets; ii) a decline in work for a significant client; and iii) a slow start after the spring break-up and further delays due to weather in June that pushed start dates for certain jobs into 2013 Q3 and Q4. There were new clients added, but these were not enough to offset the decreased work on existing clients.
U.S. directional drilling revenues increased from $44,821 in 2012 to $56,181 in 2013; a 25% increase. This increase was the result of: i) a 15% increase in activity days from 4,286 in 2012 to 4,927 in 2013; and ii) a 9% increase in the average day rate from $10,458 in 2012 to $11,402 in 2013 (when converted to Canadian dollars). The increase in U.S. activity days were due to increased traction in the Texas and Oklahoma markets, offset by reduced drilling in the Rocky Mountain and Pennsylvania areas within the existing client base. The increased average day rate was due to increases that were achieved in the Rocky Mountain and Texas regions, net of declines in the northeast.
Canadian production testing revenues decreased from $24,025 in 2012 to $19,403 in 2013; a 19% decrease. The Canadian operations were affected by a general industry wide decline in wells completed and client specific delays in completion work that has resulted in such work being delayed until later in 2013.
U.S. production testing revenues increased from $21,639 in 2012 to $26,874 in 2013; a 24% increase. This increase is attributable to having 3 additional units in 2013 versus 2012 and expansion into the Eagleford (Texas) market and an increased utilization of units.
Gross margin and adjusted gross margin The gross margin for 2013 was 15.0% compared to 19.7% in 2012. Adjusted gross margin for 2013 was $38,348 (24.1%) compared to $44,813 (28.3%) for 2012.
In the Canadian and U.S. drilling markets, there have been increases in the per day field labour rates, while the combined per day revenue rate has fallen slightly. These increases were offset by the Canadian and U.S. production testing divisions where field labour rates have declined as 2012 saw a shortage of junior field staff. These staff were replaced with senior staff who have higher day rates. These net increases in field labour were partially offset by declines in repairs and maintenance for all divisions other than U.S. directional drilling where certain districts were drilling in difficult environments.
Depreciation allocated to cost of sales increased from $13,408 in 2012 to $14,234 in 2013 due to capital additions in the period from October 2012 to September 2013. Depreciation included in cost of sales as a percentage of revenue was 8.9% for 2013 and 8.5% in 2012.
Selling, general and administrative expenses ("SG&A") SG&A expenses were $17,950 in 2013; an increase of $815 compared with $17,135 in 2012. As a percentage of revenue, these costs were 11% for both 2013 and 2012. Non-cash expenses total $949 for 2013 and $1,248 for 2012. SG&A net of these non-cash items were $17,001 in 2013 and $15,887 in 2012, an increase of $1,114.
In 2013 Q1, there was a recovery of international SG&A offset by one-time costs for severance. The recovery of international SG&A was from the Company's joint venture partner in Vencana Servicios Petroleros, S.A. ("Vencana"), of which Cathedral owns 40%, for amounts previously expended by the Company on the start-up of Vencana. These costs had been previously expensed by Cathedral. The Company is currently in negotiations with its joint venture partner for the re-imbursement of additional costs. If we remove these items from SG&A, net of non-cash items, adjusted SG&A was $17,604 in 2013 compared to $15,887 in 2012, an increase of $1,717.
Wages, excluding severance, increased $1,691; this increase was primarily related to staff additions for research and development department and staff positions added to accommodate current and future U.S. growth, net of decreases in variable compensation. The staffing costs included in SG&A relate to executives, sales, accounting, human resources, payroll, safety, research and development and related support staff. The remaining net increase of $26 relates to various changes none of which are individually significant.
Gain on disposal of property and equipment During 2013 the Company had a gain on disposal of property and equipment of $3,390, compared to $5,464 in 2012. Included in the 2012 gain was $2,034 related to the sale of property and equipment by Cathedral's subsidiaries to Vencana. The Vencana related portion of the gain includes the portion of the gain related to the joint venture partner's share. The Company's remaining gains are mainly due to recoveries of lost-in-hole equipment costs including previously expensed depreciation on the related assets. The timing of lost-in-hole recoveries is not in the control of the Company and therefore can fluctuate significantly from quarter-to-quarter. In addition, in 2013 Q3 the company had a gain on sale of land and buildings of $5,354. The Company has entered into a 15 year lease on the related assets.
Foreign exchange loss The Company had foreign exchange loss of $380 in 2013 compared to a gain of $405 in 2012 due to the fluctuations in the Canadian dollar compared to U.S. dollars and Venezuelan bolivars. The Company's foreign operations are denominated in a currency other than the Canadian dollar and therefore, upon consolidation gains and losses due to fluctuations in the foreign currency exchange rates are recorded in other comprehensive income ("OCI") on the balance sheet as a component of equity. However, gains and losses in the Canadian entity on U.S. denominated intercompany balances continue to be recognized in the statement of income. Included in the 2013 foreign currency loss are unrealized losses of $334 (2012 - $233 gain) related to intercompany balances.
Finance costs Finance costs consist of interest expenses on operating loans, loans and borrowings and bank charges of $1,855 for 2013 versus $1,577 for 2012. The increase in finance costs relate mainly to an increased utilization of the Company's operating loan and to a lesser extent increases in interest rates.
Income tax For 2013, the Company had an income tax expense of $2,802 compared to $5,128 in 2012. The effective tax rate was 22% for 2013 and 28% 2012. Income tax expense is booked based upon expected annualized effective rates.
LIQUIDITY AND CAPITAL RESOURCES
On an annualized basis the Company's principal source of liquidity is cash generated from operations. In addition, the Company has the ability to fund liquidity requirements through its credit facility and the issuance of debt and/or equity. For the nine months ended September 30, 2013, the Company had funds from operations of $18,959 (2012 - $26,684). The decline in funds from operations is due to the Company's reduced levels of Canadian source revenues on a year-over-year basis.
At September 30, 2013 the Company had a working capital position of $30,055 (December 31, 2012 - $29,173) and a working capital ratio of 1.62 to 1 (December 31, 2012 - 1.75 to 1).
The following table outlines the current credit facility:
|September 30||December 31|
|Available credit facility||$||75,000||$||75,000|
|Drawings on credit facility:|
|Revolving term loan||37,000||45,000|
|Letter of credit||700||-|
|Total drawn facility||$||47,705||$||45,880|
|Borrowing capacity (see NON-GAAP MEASUREMENTS)||$||27,295||$||29,120|
|Net debt (see NON-GAAP MEASUREMENTS):|
|Loans and borrowings, net of current portion||$||38,253||$||46,151|
The Company's credit facility includes a $35,000 accordion feature which is subject to approval of the Company's bank. As at September 30, 2013, the Company is in compliance with all covenants under its credit facility.
NORMAL COURSE ISSUER BID
The Normal Course Issuer Bid was renewed on July 8, 2013 and has an expiry date of July 7, 2014. For the three months ended September 30, 2013, the Company did not repurchase and cancel common shares. For the year-to-date at September 30, 2013, the Company has repurchased 1,088,083 of common shares at a cost of $4,434 or an average cost of $4.07 per common share. A total of 1,838,075 of common share at a cost of $8,395 or an average cost of $4.57 per common share were repurchased under the Company's Normal Course Issuer Bid that expired on June 19, 2013. At November 5, 2013, the Company has 36,163,380 common shares and 2,678,198 share options outstanding.
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
September 30, 2013 and December 31, 2012
Dollars in '000s
|September 30||December 31|
|Cash and cash equivalents||$||4,441||$||8,470|
|Current taxes recoverable||826||153|
|Total current assets||78,598||68,142|
|Property and equipment||123,367||135,093|
|Deferred tax assets||8,759||9,379|
|Investment in associate||8,112||4,899|
|Total non-current assets||147,340||155,938|
|Liabilities and Shareholders' Equity|
|Trade and other payables||27,057||21,773|
|Loans and borrowings||689||711|
|Total current liabilities||48,543||38,969|
|Loans and borrowings||38,253||46,151|
|Deferred tax liabilities||902||1,028|
|Total non-current liabilities||39,155||47,179|
|Accumulated other comprehensive loss||(1,125)||(2,679)|
|Total shareholders' equity||138,240||137,932|
|Total liabilities and shareholders' equity||$||225,938||$||224,080|
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Three and nine months ended September 30, 2013 and 2012
Dollars in '000s except per share amounts
|Three months ended September 30||Nine months ended September 30|
|Cost of sales:|
|Total cost of sales||(49,664)||(40,531)||(135,494)||(127,168)|
|Selling, general and administrative expenses:|
|Total selling, general and administrative expenses||(6,228)||(5,651)||(17,950)||(17,135)|
|Gain on disposal of property and equipment||1,760||1,732||3,390||5,464|
|Gain on sale of land and buildings||5,354||-||5,354||-|
|Earnings from operating activities||10,956||5,380||14,747||19,519|
|Foreign exchange gain (loss)||173||459||(380)||405|
|Share of loss from associate||-||-||(4)||-|
|Earnings before income taxes||10,402||5,348||12,508||18,347|
|Income tax expense:|
|Total income tax expense||(2,446)||(1,535)||(2,802)||(5,128)|
|Other comprehensive income (loss):|
|Foreign currency translation differences for foreign operations||(584)||(1,555)||1,554||(1,262)|
|Total comprehensive income||$||7,372||$||2,258||$||11,260||$||11,957|
|Net earnings per share|
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
Nine months ended September 30, 2013 and 2012
Dollars in '000s
|September 30||September 30|
|Cash provided by (used in):|
|Net earnings from continuing operations||$||9,706||$||13,219|
|Items not involving cash:|
|Total income tax expense||2,802||5,128|
|Unrealized foreign exchange gain (loss) on intercompany balances||334||(233)|
|Gain on disposal of property and equipment||(3,390)||(5,464)|
|Gain on sale of land and buildings||(5,354)||-|
|Share of loss from associate||4||-|
|Cash flow from continuing operations||21,301||29,098|
|Changes in non-cash operating working capital||(10,343)||30,419|
|Income taxes paid||(3,009)||(2,799)|
|Cash flow from operating activities||7,949||56,718|
|Property and equipment additions||(21,547)||(23,716)|
|Intangible asset additions||(717)||(677)|
|Proceeds on disposal of property and equipment||4,864||9,958|
|Proceeds on disposal of land and buildings||22,260||-|
|Investment in associate||(3,011)||(2,472)|
|Changes in non-cash investing working capital||(1,555)||217|
|Cash flow from (used in) investing activities||294||(16,690)|
|Change in operating loan||9,144||(12,128)|
|Advances of loans and borrowings||8,000||-|
|Repayments on loans and borrowings||(16,416)||(5,376)|
|Proceeds on exercise of share options||975||1,074|
|Repurchase of common shares||(4,434)||(585)|
|Cash flow used in financing activities||(12,747)||(26,477)|
|Effect of exchange rate on changes in cash and cash equivalents||475||(165)|
|Change in cash and cash equivalents||(4,029)||13,386|
|Cash and cash equivalents, beginning of period||8,470||2,902|
|Cash and cash equivalents, end of period||$||4,441||$||16,288|
FORWARD LOOKING STATEMENTS
This news release contains certain forward-looking statements and forward-looking information (collectively referred to herein as "forward-looking statements") within the meaning of applicable Canadian securities laws. All statements other than statements of present or historical fact are forward-looking statements. Forward-looking statements are often, but not always, identified by the use of words such as "anticipate", "achieve", "believe", "plan", "intend", "objective", "continuous", "ongoing", "estimate", "outlook", "expect", "may", "will", "project", "should" or similar words suggesting future outcomes. In particular, this news release contains forward-looking statements relating to, among other things: capital expenditures are expected to be financed by way of cash flow from operations and the Company's credit facility; success of new technologies will lead to additional work; expected growth in the Texas and Oklahoma markets for directional drilling in 2013 Q4; the expectation that U.S. production testing activity will decline in 2013 Q4; increased activity for 2013 Q4 for both Canadian divisions; components of expected 2013 capital budget and financing thereof; timing of payment of purchase commitments; expected activity levels; future expansion; that all remaining product will be shipped to Venezuela in 2013 Q4; intent to pay quarterly dividends; and sources to fund liquidity requirements. The Company believes the expectations reflected in such forward-looking statements are reasonable as of the date hereof but no assurance can be given that these expectations will prove to be correct and such forward-looking statements should not be unduly relied upon.
Various material factors and assumptions are typically applied in drawing conclusions or making the forecasts or projections set out in forward-looking statements. Those material factors and assumptions are based on information currently available to the Company, including information obtained from third party industry analysts and other third party sources. In some instances, material assumptions and material factors are presented elsewhere in this news release in connection with the forward-looking statements. You are cautioned that the following list of material factors and assumptions is not exhaustive. Specific material factors and assumptions include, but are not limited to:
● the performance of the Company's businesses, including current business and economic trends;
● oil and natural gas commodity prices and production levels;
● capital expenditure programs and other expenditures by the Company and its customers;
● the ability of the Company to retain and hire qualified personnel;
● the ability of the Company to obtain parts, consumables, equipment, technology, and supplies in a timely manner to carry out its activities;
● the ability of the Company to maintain good working relationships with key suppliers;
● the ability of the Company to market its services successfully to existing and new customers;
● the ability of the Company to obtain timely financing on acceptable terms;
● currency exchange and interest rates;
● risks associated with foreign operations including Venezuela;
● the ability of the Company to realize the benefit of its conversion from an income trust to a corporation;
● risks associated with finalizing ancillary joint venture agreements that are required prior to the commencement of operations of the Venezuela joint venture;
● risks associated with Venezuela joint venture company being awarded work by the Venezuela state run oil and natural gas corporation;
● changes under governmental regulatory regimes and tax, environmental and other laws in Canada, United States ("U.S.") and Venezuela; and
● a stable competitive environment.
Forward-looking statements are not a guarantee of future performance and involve a number of risks and uncertainties some of which are described herein. Such forward-looking statements necessarily involve known and unknown risks and uncertainties, which may cause the Company's actual performance and financial results in future periods to differ materially from any projections of future performance or results expressed or implied by such forward-looking statements. These risks and uncertainties include, but are not limited to, the risks identified in this news release and in the Company's Annual Information Form under the heading "Risk Factors". Any forward-looking statements are made as of the date hereof and, except as required by law, the Company assumes no obligation to publicly update or revise such statements to reflect new information, subsequent or otherwise.
All forward-looking statements contained in this news release are expressly qualified by this cautionary statement. Further information about the factors affecting forward-looking statements is available in the Company's current Annual Information Form and Annual Report which have been filed with Canadian provincial securities commissions and are available on www.sedar.com.
This news release refers to certain non-GAAP measurements that do not have any standardized meaning within IFRS and therefore may not be comparable to similar measures provided by other companies. Management utilizes these non-GAAP measurements to evaluate Cathedral's performance.
The specific measures being referred to include the following:
i) "Adjusted gross margin" - calculated as gross margin plus non-cash items (depreciation and share-based compensation); is considered a primary indicator of operating performance (see tabular calculation);
ii) "Adjusted gross margin %" - calculated as adjusted gross margin divided by revenues; is considered a primary indicator of operating performance (see tabular calculation);
iii) "EBITDAS" - defined as earnings before share of income/loss from associate, finance costs, unrealized foreign exchange on intercompany balances, unrealized foreign exchange due to hyper-inflation accounting, taxes, non-recurring gains and losses on disposal of property and equipment (see non-GAAP measurement), depreciation and share-based compensation plus dividends from associate; is considered an indicator of the Company's ability to generate funds flow from operations prior to consideration of how activities are financed, how the results are taxed and measured and non-cash expenses (see tabular calculation);
iv) "Funds from operations" - calculated as cash provided by operating activities before changes in non-cash working capital and income taxes paid less current tax expense; is considered an indicator of the Company's ability to generate funds flow from operations on an after tax basis but excluding changes in non-cash working capital which is financed using the Company's operating loan (see tabular calculation);
v) "Growth property and equipment additions" or "Growth capital" - is capital spending which is intended to result in incremental revenues. Growth capital is considered to be a key measure as it represents the total expenditures on property and equipment expected to add incremental revenues and funds flow to the Company;
vi) "Maintenance property and equipment additions" or "Maintenance capital" - is capital spending incurred in order to refurbish or replace previously acquired other than "replacement property and equipment additions" described below. Such additions do not provide incremental revenues. Maintenance capital is a key component in understanding the sustainability of the Company's business as cash resources retained within Cathedral must be sufficient to meet maintenance capital needs to replenish the assets for future cash generation;
vii) "Replacement property and equipment additions" or "Replacement capital" - is capital spending incurred in order to replace equipment that is lost downhole. Cathedral recovers lost-in-hole costs including previously expensed depreciation on the related assets from customers. Such additions do not provide incremental revenues. The identification of replacement property and equipment additions is considered important as such additions are financed by way of proceeds on disposal of property and equipment (see discussion within the news release on "gain on disposal of property and equipment);
viii) "Non-recurring gains and losses on disposal of property and equipment" - are disposals of property and equipment that do not occur on a regular or periodic basis. Unlike the lost-in-hole recoveries the proceeds from these gains are not used on equivalent replacement property. These are often on non-field equipment such as land and buildings;
ix) "Net property and equipment additions" - is property and equipment additions expenditures less proceeds on the regular disposal of property and equipment (the proceeds on sale of land and buildings have been excluded). Cathedral uses net property and equipment additions to assess net cash flows related to the financing of Cathedral's property and equipment additions;
x) "Borrowing capacity" - is total available credit facility less drawings on credit facilities; and
xi) "Net debt" - is loans and borrowing less working capital. Management uses net debt as a metric to shows the Company's overall debt level.
The following tables provide reconciliations from GAAP measurements to non-GAAP measurements referred to in this news release:
Adjusted gross margin
|Three months ended September 30||Nine months ended September 30|
|Add non-cash items included in cost of sales:|
|Adjusted gross margin||$||14,972||$||13,957||$||38,348||$||44,813|
|Adjusted gross margin %||25.1%||28.0%||24.1%||28.3%|
|Three months ended September 30||Nine months ended September 30|
|Earnings before income taxes||$||10,402||$||5,348||$||12,508||$||18,347|
|Depreciation included in cost of sales||4,860||4,614||14,234||13,408|
|Depreciation included in selling, general and administrative expenses||171||163||487||478|
|Share-based compensation included in cost of sales||42||44||161||215|
|Share-based compensation included in selling, general and administrative expenses||117||256||462||770|
|Non-recurring gains on disposal of property and equipment||(5,354)||-||(5,354)||(2,034)|
|Unrealized foreign exchange (gain) loss on intercompany balances||(208)||(378)||334||(233)|
|Share of loss from associate||-||-||4||-|
Funds from operations
|Nine months ended September 30|
|Cash flow from operating activities||$||7,949||$||56,718|
|Changes in non-cash operating working capital||10,343||(30,419)|
|Income taxes paid||3,009||2,799|
|Current tax expense||(2,342)||(2,414)|
|Funds from operations||$||18,959||$||26,684|
Cathedral Energy Services Ltd. (the "Company" or "Cathedral") is incorporated under the Business Corporations Act (Alberta) (the "Act"). The Company is publicly traded on the Toronto Stock Exchange under the symbol "CET". The Company together with its wholly owned subsidiary, Cathedral Energy Services Inc., is engaged in the business of providing selected oilfield services to oil and natural gas companies in western Canada and selected oil and natural gas basins in the U.S. The Company is in the process of establishing operations in Venezuela for providing directional drilling services through a joint venture with Petroleros de Venezuela, S.A. ("PDVSA"), the state owned oil and gas corporation of the Bolivarian Republic of Venezuela. The Company strives to provide its clients with value added technologies and solutions to meet their drilling and production testing requirements. For more information, visit www.cathedralenergyservices.com.
SOURCE: Cathedral Energy Services Ltd.
For further information:
P. Scott MacFarlane, Interim Chief Executive Officer and Chief Financial Officer or Randy Pustanyk, Interim President and COO
Cathedral Energy Services Ltd., 6030 3 Street S.E., Calgary, Alberta T2H 1K2
Telephone: 403.265.2560 Fax: 403.262.4682 www.cathedralenergyservices.com