/NOT FOR DISSEMINATION IN THE UNITED STATES OF AMERICA/
CALGARY, March 6, 2014 /CNW/ - Cathedral Energy Services Ltd. (the "Company" or "Cathedral" /TSX: CET) announces its consolidated financial results for the three months and year ended December 31, 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 Q4 KEY TAKEAWAYS
- Record U.S. directional drilling revenues - 86% increase over 2012 Q4;
- Revenue increased in all operating divisions over 2012 Q4;
- Continued client wins as a result of performance from Cathedral's proprietary Fusion MWD system and nDurance series motors; and
- Strategic decision to discontinue operations in Venezuela and renewed focus on North American market.
2013 Q4 FINANCIAL SUMMARY
|Three months ended December 31||Year ended December 31|
|Adjusted gross margin % (1)||20.7%||27.8%||23.1%||28.2%|
|Diluted per share||$||0.22||$||0.22||$||0.91||$||1.08|
|As % of revenues||12%||19%||15%||20%|
|Funds from operations (1)||$||6,400||$||6,586||$||25,359||$||33,270|
|Diluted per share||$||0.18||$||0.18||$||0.70||$||0.88|
|Write-down of investment in associate and related assets||$||(13,066)||$||-||$||(13,066)||$||-|
|Earnings (loss) before income taxes||$||(11,394)||$||2,034||$||1,114||$||20,381|
|Net earnings (loss)||$||(11,248)||$||1,578||$||(1,542)||$||14,797|
|Basic per share||$||(0.31)||$||0.04||$||(0.04)||$||0.40|
|Diluted per share||$||(0.31)||$||0.04||$||(0.04)||$||0.39|
|Dividends declared per share||$||0.0825||$||0.0750||$||0.3075||$||0.3000|
|Property and equipment additions (cash)||$||6,736||$||6,934||$||28,283||$||30,650|
|Weighted average shares outstanding|
|December 31||December 31|
|Loans and borrowings excluding current portion||$||38,462||$||46,151|
|Total shareholders' equity||$||126,612||$||137,932|
|(1) see "NON-GAAP MEASUREMENTS"|
The Canadian directional drilling division is off to a strong start in 2014 as activity levels ramped up quickly after the December 2013 holiday season. Activity levels are expected to be strong until spring breakup. The Company will continue 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.
2013 Q4 activity levels for Cathedral's Canadian production testing division benefited from work which was deferred from Q3. Going forward Cathedral is expecting more normalized activity levels.
The U.S. directional drilling division closed 2013 with a significant increase in activity as evidenced by a 39% increase in annual revenues. To achieve this growth, we expanded our operations, secured new facilities, hired new employees and incurred equipment rental charges, all of which caused downward pressure on operating margins. 2014 activity levels are expected to continue to increase as we move through the year. In particular, Cathedral is expecting market share gains in the Texas and Oklahoma operating areas. Construction on the Oklahoma City operations and repair facility continues and occupancy is expected in early 2015.
For the U.S. production testing division, activity levels in 2013 Q4 were down due to the loss of one significant customer as well as lower revenues from another customer which had planned to reduce its completion activities for that quarter. As we moved into 2014 we have added additional customers and expect continued growth throughout the year. To enhance sales and marketing efforts, Cathedral is looking to add additional production testing sales staff combined with utilizing the services of its directional drilling sales staff to secure work.
Recently, stronger commodity prices have contributed to higher producer netbacks, resulting in renewed interest in the energy industry by the investment community as evidenced by increased financing activity, all of which should provide oil and gas producers with additional funds for capital programs. On a longer term basis, there is potential for a significant increase in spending in western Canada as producers realize higher netbacks from a combination of enhanced refining capacity, increased shipment of crude by rail, new and expanded oil pipelines together with development of proposed west coast liquefied natural gas terminals.
For 2014, Cathedral's focus will remain on: i) increasing market share in both operating divisions and geographic areas; ii) enhancing profitability through managing costs, and iii) continued investment in research and development of proprietary technologies.
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 a 2014 Q1 dividend in the amount of $0.0825 per share which will have a date of record March 31, 2014 and a payment date of April 15, 2014.
Cathedral's 2014 capital budget is $24,000 which includes $13,000 of growth capital, $7,000 of maintenance capital and $4,000 of infrastructure expenditures.
The Directional Drilling division is expected to invest $20,000 of the 2014 capital budget including $10,000 for growth, $6,000 for maintenance and $4,000 for infrastructure. Growth capital expenditures will include the addition of mud motors and drill collars for the expansion of Company's U.S. operations. Maintenance capital expenditures are expected to allow for: 1) continued enhancement of the Company's Fusion MWD platform electronics; 2) addition of mud pulse transmitters to allow for expanded Fusion MWD dual telemetry capabilities; 3) continued conversion to Cathedral's proprietary mud motor bearing section; and 4) expansion of mud motor power section fleet to accommodate extended repair times and new configurations requested by customers. The infrastructure investment relates to the construction of an operations facility in Oklahoma City, Oklahoma with full service repair capabilities. It is the intent of Cathedral to sell and leaseback the Oklahoma City operations facility following its completion.
The Production Testing division anticipates investing $3,000 of growth capital expenditures comprised of auxiliary equipment and line pipe that would otherwise be rented and $1 million of maintenance expenditures.
Cathedral intends to finance its initial 2014 capital budget from cash flow from operations and, if necessary, its existing credit facility.
Overall, for 2014 the focus for Cathedral will be the continuation of its U.S. expansion, increasing market share in Canada and its continuing review of all operating costs and selling, general and administrative expenditures with the goal of enhancing profitability.
The following is a summary of major equipment owned by the Company:
|December 31||December 31|
|Directional drilling - MWD systems (1)||139||136|
|Production testing units||72||69|
|(1) The Company has 10 Geolink MWD systems that have been excluded from the December 31, 2013 and 2012 figures as they are held for sale.|
RESULTS OF OPERATIONS - THREE MONTHS ENDED DECEMBER 31, 2013
|Three months ended December 31, 2013||Three months ended December 31, 2012|
|Directional||Production||Resale and||Directional||Production||Resale and|
Revenues 2013 Q4 revenues were $65,238 which represented an increase of $20,402 or 46% from 2012 Q4 revenues of $44,836. All areas were up on a year-over-year basis.
Canadian directional drilling revenues increased from $19,320 in 2012 Q4 to $16,777 in 2013 Q4; a 15% increase. This increase was the result of: i) an 18% increase in activity days from 1,425 in 2012 Q4 to 1,683 in 2013 Q4; net of ii) a 3% decrease in the average day rate from $11,782 in 2012 Q4 to $11,480 in 2013 Q4. The increase in Canadian activity days on quarter-over-quarter basis is due the Company's ability to replace work after one significant customer suspended drilling activity in late 2012 Q3 as well as work deferred from 2013 Q3. Canadian activity days in 2013 Q4 were expected to increase over 2013 Q3 levels but certain clients ceased their 2013 drilling programs earlier than expected; such work was deferred into 2014.
U.S. directional drilling revenues increased from $12,682 in 2012 Q4 to a record level of $23,536 in 2013 Q4; an 86% increase. This increase was the result of: i) a 60% increase in activity days from 1,266 in 2012 Q4 to 2,027 in 2013 Q4; and ii) a 16% increase in the average day rate from $10,018 in 2012 Q4 to $11,611 in 2013 Q4 (when converted to Canadian dollars). The increase in U.S. activity days were due to market share gains in the Texas region and to a lesser extent the Rocky Mountain area as well as expansion into Oklahoma (Oklahoma commenced operations in November 2012). The increased average day rate was due to increases that were achieved due to performance based pricing.
Canadian production testing revenues increased from $6,791 in 2012 Q4 to $9,241 in 2013 Q4; a 36% increase. The Canadian operating days were up in each month of the quarter compared to 2012. Canadian activity days increased as certain clients had deferred work from earlier in the year to 2013 Q4.
U.S. production testing revenues increased from $6,391 in 2012 Q4 to $7,150 in 2013 Q4; a 12% increase. This increase is attributable to having 3 additional units in 2013 Q4 versus 2012 Q4 and increased utilization of units. On a quarter-over-quarter basis revenue declined in 2013 Q4 compared to 2013 Q3 due to loss of a customer and another customer which had planned to have low activity levels in 2013 Q4. 2013 Q3 had established the record for divisional revenues.
The international resale and rental revenue relates to the resale of assets by Cathedral's subsidiaries to Vencana Servicios Petroleros, S.A. ("Vencana"). This amount includes only the portion of the resale revenue related to the other joint venture partner's share (60% of total selling price).
Gross margin and adjusted gross margin The gross margin for 2013 Q4 was 12.9% compared to 16.3% in 2012 Q4. Adjusted gross margin for 2013 Q4 was $13,474 (20.7%) compared to $12,444 (27.8%) for 2012 Q4. The decrease in adjusted gross margin of 7.1% was primarily due to increases in field labour costs, non-recoverable battery usage in directional drilling and equipment rentals.
In Canada directional drilling field labour rates have remained fairly constant with the prior year, but due to the decline in the average revenue day rate, the cost as percentage of revenue has increased. In U.S., the work performed in Oklahoma increased and it had higher per day labour costs relative to revenue levels. As activity levels increase in Oklahoma we are expecting to average these costs down with the mix of staff levels.
Depreciation allocated to cost of sales decreased slightly from $5,071 in 2012 Q4 to $5,036 in 2013 Q4. Depreciation included in cost of sales as a percentage of revenue was 7.7% for 2013 Q4 and 11.3% in 2012 Q4.
Selling, general and administrative expenses ("SG&A") SG&A expenses were $6,719 in 2013 Q4; an increase of $1,146 compared with $5,573 in 2012 Q4. As a percentage of revenue, these costs were 10% in 2013 Q4 and 12% in 2012 Q4. Total non-cash expenses were a recovery of $57 for 2013 Q4 and an expense of $448 for 2012 Q4. In 2013 Q4, there was a non-recurring cost for severance in the amount of $1,494. Excluding severance, SG&A, net of non-cash items, adjusted SG&A was $5,282 in 2013 Q4 compared to $5,125 in 2012 Q4, an increase of $157. This increase was primarily due to increased wages; 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.
Gain on disposal of property and equipment During 2013 Q4 the Company had a gain on disposal of property and equipment of $1,462 compared to $957 in 2012 Q4. 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.
Additionally, in 2013 Q3 the Company completed the sale and leaseback of its Calgary and Nisku, Alberta land and buildings. In 2014 Q4, there was an adjustment to reduce the gain by $460 due to costs incurred to complete renovations of the Nisku facility.
Write-down of investment in associate and related assets Subsequent to year-end, Cathedral decided to discontinue operations in Venezuela. Management determined the expected political, financial and operational risks do not warrant continuing to pursue business opportunities in Venezuela. Furthermore, management is of the belief there are greater growth opportunities in the North American market and particularly in the U.S. In 2013 Q4, the Company recorded a charge in the amount of $13,066 related to the write-off of its investment in Vencana as well as certain assets located within Venezuela.
Management has taken action to reduce Venezuela costs and on-going costs associated with the wind down of Venezuela operations are expected to be significantly reduced. In 2013 Cathedral incurred $2,017 (2012 - $2,221) of SG&A (this figure excludes the recovery of $1,438 from its joint venture partner in 2013 Q1 in relation to previously expensed SG&A) related to its Venezuelan operations.
Cathedral will be providing its joint venture partner, a wholly-owned subsidiary of Petróleos de Venezuela S.A. ("PDVSA"), the state-owned oil and natural gas corporation of the Bolivarian Republic of Venezuela, with notice that it is pursuing its contractual alternative to find a third-party to purchase Cathedral's 40% interest in Vencana or having Cathedral's joint venture partner purchase its interest. Future proceeds, if any, with respect to the sale of its joint venture interest will be recorded on a cash received basis as a recovery of this write-down. Cathedral expects to re-deploy existing equipment currently located in Calgary, Alberta that was previously scheduled for Venezuela to its current North American operations including six Measurement-While-Drilling ("MWD") tools systems as well as Logging-While-Drilling ("LWD") tools.
Foreign exchange loss The Company had foreign exchange loss of $372 in 2013 Q4 compared to $136 in 2012 Q4 due to the fluctuations in the Canadian dollar compared to U.S. dollars. 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 Q4 foreign currency gain are unrealized losses of $336 (2012 Q4 - $156) related to intercompany balances.
Finance costs Finance costs consist of interest expenses on operating loans, loans and borrowings and bank charges of $661 for 2013 Q4 versus $464 for 2012 Q4. 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 Q4, the Company had an income tax recovery of ($146) compared to expense of $456 in 2012 Q4. Included in the 2013 Q4 amount is an adjustment to prior year's deferred tax recovery of $313. Due to the write-off of investment in associate in the quarter the effective tax rate is not meaningful and is not presented.
Net loss for 2013 Q4 was $(11,248) ($0.31 loss per share) compared to net earnings of $1,578 ($0.04 per share - diluted) in 2012 Q4.
LIQUIDITY AND CAPITAL RESOURCES
Overview 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. In 2013 Q3, the Company completed a sale/leaseback of Nisku and Calgary, Alberta facilities with net proceeds of $22,260. These net proceeds were used to reduce the Company's bank debt including $8,000 of long-term debt. For the year ended December 31, 2013, the Company had funds from continuing operations of $24,997 (2012 - $33,270). The decline in funds from continuing operations is due to the Company's reduced levels of Canadian source revenues on a year-over-year basis.
Working capital At December 31, 2013 the Company had a working capital position of $26,031 (December 31, 2012 - $29,173) and a working capital ratio of 1.66 to 1 (December 31, 2012 - 1.75 to 1).
Credit facility The Company has a $20,000 demand operating line of credit with a major Canadian bank that bears interest, at the Company's option, at the bank's prime rate plus 0.50 % to 2.00% or bankers' acceptance rate plus 1.75% to 3.25% with interest payable monthly and is secured as described in note 14 of the audited consolidated financial statements. Interest rates spreads for the credit facility will depend on the level of funded debt to EBITDA (earnings before interest on long-term debt, taxes, depreciation, amortization and non-cash compensation expense - as defined in the credit agreement).
The Company also has a secured revolving term loan with a major Canadian bank at an authorized amount of $55,000, bearing interest at the bank's prime rate plus 0.50 % to 2.00% or bankers' acceptance rate plus 1.75% to 3.25%, without repayment terms, maturing June 30, 2014 subject to an annual extension upon agreement between the borrower and the bank for a further one-year period. Interest rates spreads for the credit facility will depend on the level of funded debt to EBITDA (earnings before interest on long-term debt, taxes, depreciation, amortization and non-cash compensation expense - as defined in the credit agreement). Prior to maturity the borrower may convert its revolving term loan to a non-revolving term loan repayable monthly over 36 months with interest only for the first 12 months. The Company's credit facility includes a $35,000 accordion feature which is subject to approval of the Company's bank.
The credit facility is secured by a general security agreement over all present and future personal property and is subject to certain covenants regarding the payment of dividends and the maintenance of certain financial ratios. As at December 31, 2013, the Company is in compliance with all covenants under its credit facility
The following table outlines the current credit facility:
|December 31||December 31|
|Available credit facility||$||75,000||$||75,000|
|Drawings on credit facility:|
|Revolving term loan||37,000||45,000|
|Letter of credit||700||-|
|Total drawn facility||$||47,819||$||45,880|
|Borrowing capacity (see NON-GAAP MEASUREMENTS)||$||27,181||$||29,120|
|Net debt (see NON-GAAP MEASUREMENTS):|
|Loans and borrowings, net of current portion||$||38,462||$||46,151|
NORMAL COURSE ISSUER BID
For the three months ended December 31, 2013, the Company did not repurchase and cancel common shares. For the year-to-date at December 31, 2013, Cathedral had purchased a total of 1,838,075 common shares at an average price of $4.57 and the common shares were cancelled. A total of 1,838,075 of common shares 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 March 5, 2014, the Company had 36,186,380 common shares and 1,509,996 options outstanding with a weighted average exercise price of $6.43.
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
December 31, 2013 and 2012
Dollars in '000s
|December 31||December 31|
|Cash and cash equivalents||$||289||$||8,470|
|Current taxes recoverable||1,473||153|
|Prepaid expenses and deposits||3,334||10,419|
|Total current assets||65,409||68,142|
|Property and equipment||123,487||135,093|
|Deferred tax assets||9,157||9,379|
|Investment in associate||-||4,899|
|Total non-current assets||139,966||155,938|
|Liabilities and Shareholders' Equity|
|Trade and other payables||22,236||21,773|
|Loans and borrowings||722||711|
|Total current liabilities||39,378||38,969|
|Loans and borrowings||38,462||46,151|
|Deferred tax liabilities||923||1,028|
|Total non-current liabilities||39,385||47,179|
|Accumulated other comprehensive income (loss)||1,239||(2,679)|
|Total shareholders' equity||126,612||137,932|
|Total liabilities and shareholders' equity||$||205,375||$||224,080|
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Years ended December 31, 2013 and 2012
Dollars in '000s except per share amounts
|Three months ended December 31||Year ended December 31|
|Cost of sales:|
|Total cost of sales||(56,816)||(37,535)||(192,310)||(164,703)|
|Selling, general and administrative expenses:|
|Total selling, general and administrative expenses||(6,719)||(5,573)||(24,669)||(22,708)|
|Gain on disposal of property and equipment||1,462||957||4,852||6,421|
|Gain (loss) on sale of land and buildings||(460)||-||4,894||-|
|Write-down of investment in associate and related assets||(13,066)||-||(13,066)||-|
|Earnings (loss) from operating activities||(10,361)||2,685||4,386||22,204|
|Foreign exchange gain (loss)||(372)||(136)||(752)||269|
|Share of loss from associate||-||(51)||(4)||(51)|
|Earnings (loss) before income taxes||(11,394)||2,034||1,114||20,381|
|Income tax recovery (expense):|
|Deferred recovery (expense)||408||297||(52)||(2,417)|
|Total income tax recovery (expense)||146||(456)||(2,656)||(5,584)|
|Net earnings (loss)||(11,248)||1,578||(1,542)||14,797|
|Other comprehensive income (loss):|
|Foreign currency translation differences for foreign operations||2,364||724||3,918||(538)|
|Total comprehensive income (loss)||$||(8,884)||$||2,302||$||2,376||$||14,259|
|Net earnings (loss) per share|
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
Year ended December 31, 2013 and 2012
Dollars in '000s
|Cash provided by (used in):|
|Net earnings (loss)||$||(1,542)||$||14,797|
|Items not involving cash|
|Income tax expense||2,656||5,584|
|Unrealized foreign exchange (gain) loss on intercompany balances||670||(77)|
|Gain on disposal of property and equipment||(4,852)||(6,421)|
|Gain on sale of land and buildings||(4,894)||-|
|Write-down of investment in associate and related assets||13,066||-|
|Share of loss from associate||4||51|
|Cash flow from continuing operations||27,963||36,437|
|Changes in non-cash operating working capital||(10,082)||27,724|
|Income taxes paid||(3,855)||(3,350)|
|Cash flow from operating activities||14,026||60,811|
|Property and equipment additions||(28,283)||(30,650)|
|Intangible asset additions||(990)||(772)|
|Proceeds on disposal of property and equipment||29,547||11,596|
|Investment in associate||(6,558)||(3,600)|
|Changes in non-cash investing working capital||(1,032)||1,809|
|Cash flow from investing activities||(7,316)||(21,617)|
|Change in operating loan||9,255||(12,108)|
|Advances of loans and borrowings||8,000||-|
|Repayments on loans and borrowings||(16,578)||(5,509)|
|Proceeds on exercise of share options||1,326||1,387|
|Repurchase of common shares||(4,434)||(3,962)|
|Cash flow from financing activities||(15,832)||(32,920)|
|Effect of exchange rate on changes in cash and cash equivalents||941||(706)|
|Change in cash and cash equivalents||(8,181)||5,568|
|Cash and cash equivalents, beginning of year||8,470||2,902|
|Cash and cash equivalents, end of year||$||289||$||8,470|
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: activity levels; focus of marketing activities; market share gains, in particular in Texas and Oklahoma; addition of production testing sales staff to secure additional work; industry activity levels; growth through increased market share; enhancing profitability through managing costs; projected capital expenditures and commitments and the financing thereof; equipment delivery and deployment dates; reductions in future field labour costs; geographic allocation of equipment; ability to remain competitive; expected benefits from maintenance capital expenditures; expected reduction in on-going costs associated with the wind-down of Venezuela operations; expected completion date of Oklahoma City operations facility; intention to sell and leaseback the Oklahoma City operations facility following its completion; expectation to continue to selectively seek strategic acquisitions; continued expansion of U.S. operations; benefits associated with in-house mud motor design; benefits associated with financial results; technology advances; ability to deploy within North American market equipment that was scheduled to be deployed to Venezuela, stronger commodity prices contributing to higher producer netbacks, renewed interest in the energy industry by the investment community, oil and gas producers having additional funds for capital programs, potential for a significant increase in spending in western Canada, producers realizing higher netbacks from a combination of enhanced refining capacity, increased shipment of crude by rail, new and expanded oil pipelines together with development of proposed west coast liquefied natural gas terminals, continued investment in research and development of proprietary technologies and dividends. 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 Cathedral's businesses, including current business and economic trends;
- oil and natural gas commodity prices and production levels;
- capital expenditure programs and other expenditures by Cathedral and its customers:
- the ability of Cathedral to retain and hire qualified personnel;
- the ability of Cathedral to obtain parts, consumables, equipment, technology, and supplies in a timely manner to carry out its activities;
- the ability of Cathedral to maintain good working relationships with key suppliers;
- the ability of Cathedral to market its services successfully to existing and new customers;
- the ability of Cathedral to obtain timely financing on acceptable terms;
- currency exchange and interest rates;
- risks associated with foreign operations;
- the ability of Cathedral to realize the benefits of its conversion from an income trust to a corporation;
- risks associated with winding up operations in Venezuela, including the ability to sell Cathedral's interest in the Venezuela joint venture;
- 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 continuing 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 December 31||Year Ended December 31|
|Add non-cash items included in cost of sales:|
|Adjusted gross margin||$||13,474||$||12,444||$||51,822||$||57,257|
|Adjusted gross margin %||20.7%||27.8%||23.1%||28.2%|
|Three months ended December 31||Year Ended December 31|
|Earnings (loss) before income taxes||$||(11,394)||$||2,034||$||1,114||$||20,381|
|Depreciation included in cost of sales||5,036||5,071||19,270||18,479|
|Depreciation included in selling, general and administrative expenses||70||164||557||642|
|Share-based compensation included in cost of sales||16||72||177||287|
|Share-based compensation included in selling, general|
|and administrative expenses||(127)||284||335||1,054|
|Non-recurring (gain) loss on disposal of property and equipment||460||-||(4,894)||(2,034)|
|Write-down of investment in associate and related assets||13,066||-||13,066||-|
|Unrealized foreign exchange (gain) loss on intercompany balances||336||156||670||(77)|
|Share of loss from associate||-||51||4||51|
Funds from continuing operations
|Three months ended December 31||Year ended December 31|
|Cash flow from operating activities||$||6,077||$||4,094||$||14,026||$||60,811|
|Changes in non-cash operating working capital||(261)||2,694||10,082||(27,724)|
|Income taxes paid||846||551||3,855||3,350|
|Current tax expense||(262)||(753)||(2,604)||(3,167)|
|Funds from continuing operations||$||6,400||$||6,586||$||25,359||$||33,270|
Cathedral Energy Services Ltd. (the "Company" or "Cathedral") is incorporated under the Business Corporations Act (Alberta). 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. Subsequent to year-end, Cathedral decided to discontinue operations in 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:
Requests for further information should be directed to:
P. Scott MacFarlane, President, Chief Executive Officer and Interim Chief Financial Officer or Randy Pustanyk, Executive Vice President and Chief Operating Officer
Cathedral Energy Services Ltd., 6030 3 Street S.E., Calgary, Alberta T2H 1K2
Telephone: 403.265.2560 Fax: 403.262.4682 www.cathedralenergyservices.com