Total Energy Services Inc. Announces Q1 2013 Results

Marketwired

CALGARY, ALBERTA--(Marketwired - May 9, 2013) - Total Energy Services Inc. (TOT.TO) ("Total Energy" or the "Company") announces its consolidated financial results for the three months ending March 31, 2013.

Financial Highlights
($000's except per share data)
Three Months Ended March 31
(unaudited)
2013 2012 % Change
Revenue $ 102,911 $101,449 1 %
Operating Earnings (1) 23,478 33,658 (30 )%
EBITDA (1) 31,577 40,135 (21 )%
Cashflow (1) (5) 12,354 40,105 (69 )%
Net Income 17,391 24,461 (29 )%
Per Share Data (Diluted) (2)
EBITDA (1) $ 0.92 $ 1.14 (19 )%
Cashflow (1) (5) 0.36 $ 1.14 (68 )%
Net Earnings 0.54 $ 0.72 (25 )%
Mar. 31 Dec. 31
2013
(unaudited
) 2012
(audited
) % Change
Financial Position
Total Assets $ 482,050 $ 476,591 1 %
Long-Term Debt, Convertible Debentures and Obligations Under Finance Leases (excluding current portion) 65,722 65,417 n/m
Working Capital (3) 99,649 90,708 10 %
Net Debt (4) Nil Nil n/m
Shareholders' Equity 323,012 306,069 6 %
Shares Outstanding (000's)
Basic 30,757 30,600 1 %
Diluted (2) 34,306 34,300 n/m

Notes 1 through 5 please refer to the Notes to the Financial Highlights set forth at the end of this release.

Total Energy's results for the three months ended March 31, 2013 reflect a decline in oil and natural gas drilling and completion activity in Western Canada that began following the first quarter of 2012 when the Company achieved record quarterly financial results.

Total Energy's Contract Drilling Services division achieved 63% utilization during the first quarter of 2013, recording 908 operating days (spud to release) with a fleet of 16 rigs, compared to 903 operating days, or 66% utilization, during the first quarter of 2012 with a fleet of 15 rigs. Revenue per operating day decreased 12% for the first quarter of 2013 relative to the prior year comparable period due primarily to reduced pricing and the fact that, unlike 2012, neither of the Company's two single rigs performed higher day-rate oil sands coring operations during the first quarter of 2013. The Rentals and Transportation Services division achieved a utilization rate on major rental equipment of 50% during the first quarter of 2013 as compared to a 67% utilization rate during the first quarter of 2012. The Compression and Process Services division generated revenues of $45.1 million for the three months ended March 31, 2013 compared to $30.9 million for the same period in 2012, an increase of 46%. The 2013 first quarter financial results from this division include results from the process equipment fabrication business that was acquired on January 1, 2013. This division exited the first quarter of 2013 with a $49.3 million backlog of fabrication sales orders as compared to $29.3 million at March 31, 2012. Included in the March 31, 2013 fabrication sales order backlog is $38.3 million of compression sales backlog and $11.0 million of process equipment sales backlog. At March 31, 2013, approximately 30,000 horsepower of compression equipment was on rent compared to 25,000 horsepower on rent at March 31, 2012. The gas compression rental fleet operated at an average utilization rate of 86% for the first quarter of 2013 as compared to 83% during the first quarter of 2012.

Negatively impacting cash flow for the first quarter of 2013 was the payment of $15.3 million of income taxes that related to 2012, as income tax installment payments were not required in 2012. Total Energy is required to make monthly income tax installment payments in 2013.

During the first quarter, Total Energy declared a quarterly dividend of $0.05 per share to shareholders of record on March 28, 2013. This dividend was paid on April 30, 2013. 82,000 common shares were purchased under the Company's normal course issuer bid during the first three months of 2013 at an average price of $14.08 per share (including commissions).

Outlook

The slowdown in Canadian drilling and completion activity that began during the second quarter of 2012 continued into the first quarter of 2013 and negatively impacted equipment utilization and pricing in the Company's Contract Drilling Services and Rentals and Transportation Services divisions. Offsetting this weakness has been continued growth in the Compression and Process Services division where compression sales orders received subsequent to March 31, 2013 have resulted in a record compression fabrication sales backlog currently exceeding $60.0 million. While global economic uncertainty and resulting financial and commodity market volatility continue to weigh on industry sentiment, recently improved Canadian oil price differentials and natural gas prices give rise to cautious optimism for activity levels following spring break-up. Total Energy has and will continue to adjust its operating cost structure to reflect the prevailing environment while at the same time not compromising its capacity to provide customers with quality service and equipment in a safe, timely and efficient manner.

Total Energy's financial condition remains solid with a long-term debt (including convertible debentures) to long-term debt plus equity ratio of 0.18 to 1.0, $99.6 million of positive working capital and no net debt as at March 31, 2013. Total Energy's $35 million operating facility is currently fully available and undrawn.

Total Energy's current 2013 capital expenditure budget is $44.9 million, including $12.2 million of 2012 carry-forward, of which $20.4 million has been expended to March 31, 2013. Included in first quarter capital expenditures is the $14.0 million process equipment fabrication business acquisition. Total Energy continues to evaluate numerous investment opportunities and the Company's balance sheet strength provides significant capacity and flexibility to pursue further growth opportunities that meet the Company's investment expectations.

Conference Call

At 2:30 p.m. MST today, Total Energy will conduct a conference call and webcast to discuss its first quarter financial results. Daniel Halyk, President & Chief Executive Officer, will host the conference call. The call is open to Shareholders and all other interested persons. A live webcast of the conference call will be accessible on Total's website at www.totalenergy.ca by selecting "Webcasts". Persons wishing to join the conference call live may do so by calling (877) 440-9795 or (416) 340-8527. Those who are unable to listen to the call live may listen to a recording of it on Total Energy's website. A recording of the conference call will also be available until May 16, 2013 by dialing (800) 408-3053 (passcode 2914992).

Annual and Special Meeting of Shareholders

Shareholders and other interested persons are invited to attend the annual and special meeting of Shareholders which will commence at 10:00 a.m. (Calgary time) on Tuesday May 22, 2013 at the Calgary Petroleum Club, 319 - 5th Avenue S.W., Calgary, Alberta.

Selected Financial Information

Selected financial information relating to the three month period ended March 31, 2013 and 2012 is attached to this news release. This information should be read in conjunction with the condensed unaudited interim consolidated financial statements of Total Energy and the attached notes to the consolidated financial statements and management's discussion and analysis to be issued in due course and reproduced in the Company's first quarter report.

Condensed Interim Consolidated Statements of Financial Position
(in thousands of Canadian dollars)
March 31, December 31,
2013 2012
(unaudited ) (audited )
Assets
Current assets:
Cash and cash equivalents $ 7,709 $ 50,052
Accounts receivable 96,720 63,511
Inventory 32,972 33,240
Income taxes receivable 1,723 -
Prepaid expenses and deposits 4,251 2,547
143,375 149,350
Property, plant and equipment 334,622 323,188
Goodwill 4,053 4,053
$ 482,050 $ 476,591
Liabilities & Shareholders' Equity
Current liabilities:
Accounts payable and accrued liabilities $ 34,764 $ 32,523
Deferred revenue 5,103 6,971
Income taxes payable - 15,098
Dividends payable 1,538 1,530
Current portion of obligations under finance leases 2,321 2,520
43,726 58,642
Obligations under finance leases 2,609 2,723
Convertible debentures 63,113 62,694
Deferred tax liability 49,590 46,463
Shareholders' equity:
Share capital 77,834 76,890
Contributed surplus 5,953 5,160
Equity portion of convertible debenture 4,601 4,601
Retained earnings 234,624 219,418
323,012 306,069
$ 482,050 $ 476,591
Condensed Interim Consolidated Statements of Comprehensive Income
(in thousands of Canadian dollars except per share amounts)
Three months ended
March 31
2013 2012
(unaudited ) (unaudited )
Revenue $ 102,911 $ 101,449
Cost of services 62,755 52,934
Selling, general and administration 8,377 8,410
Share-based compensation 1,133 378
Depreciation 7,168 6,069
Results from operating activities 23,478 33,658
Gain on sale of property, plant and equipment 931 408
Finance costs (1,287 ) (1,289 )
Net income before income taxes 23,122 32,777
Current income tax expense 2,604 1,347
Deferred income tax expense 3,127 6,969
Total income tax expense 5,731 8,316
Net income and total comprehensive income for the period $ 17,391 24,461
Earnings per share
Basic earnings per share $ 0.57 $ 0.78
Diluted earnings per share $ 0.54 $ 0.72
Condensed Interim Consolidated Statements of Cash Flows
(in thousands of Canadian dollars)
Three months ended
March 31
2013 2012
(unaudited ) (unaudited )
Cash provided by (used in):
Operations:
Net income for the period $ 17,391 $ 24,461
Add (deduct) items not affecting cash:
Depreciation 7,168 6,069
Share-based compensation 1,133 378
Gain on sale of property, plant and equipment (931 ) (408 )
Finance costs 1,287 1,289
Current income tax expense 2,604 1,347
Deferred income tax (recovery) expense 3,127 6,969
Income taxes paid (19,425 ) -
12,354 40,105
Changes in non-cash working capital items:
Accounts receivable (33,209 ) (4,955 )
Inventory 3,222 1,801
Prepaid expenses and deposits (1,704 ) (325 )
Accounts payable and accrued liabilities 7,648 1,436
Deferred revenue (1,868 ) 1,842
(13,557 ) 39,904
Investments:
Purchase of property, plant and equipment (6,416 ) (24,242 )
Acquisition of business (16,954 ) -
Proceeds on disposal of property, plant and equipment 3,217 1,026
Changes in non-cash working capital items (4,259 ) (4,606 )
(24,412 ) (27,822 )
Financing:
Repayment of obligations under finance leases (785 ) (891 )
Dividends to shareholders (1,530 ) (1,254 )
Issuance of common shares 1,112 685
Repurchase of common shares (1,155 ) (3,535 )
Interest paid (2,016 ) (1,925 )
(4,374 ) (6,920 )
Change in cash and cash equivalents (42,343 ) 5,162
Cash and cash equivalents, beginning of period 50,052 35,658
Cash and cash equivalents, end of period $ 7,709 $ 40,820

Segmented Information

The Company operates in three main industry segments, which are substantially in one geographic segment. These segments are Contract Drilling Services, which includes the contracting of drilling equipment and the provision of labour required to operate the equipment, Rentals and Transportation Services, which includes the rental and transportation of equipment used in drilling, completion and production operations and Compression and Process Services, which includes the fabrication, sale, rental and servicing of natural gas compression and process equipment.

As at and for the three months ended March 31, 2013 (unaudited)

Contract Rentals and Compression
Drilling Transportation and Process
Services Services Services Other(1 ) Total
Revenue $ 18,630 $ 39,201 $ 45,080 $ - $ 102,911
Cost of services 10,767 15,973 36,015 - 62,755
Selling, general and administration 914 3,897 2,106 1,460 8,377
Share-based compensation - - - 1,133 1,133
Depreciation 1,798 3,861 1,271 238 7,168
Results from operating activities 5,151 15,470 5,688 (2,831 ) 23,478
Gain (loss) on sale of property, plant and equipment (32 ) 165 798 - 931
Finance costs (201 ) (548 ) (180 ) (358 ) (1,287 )
Net income before income taxes 4,918 15,087 6,306 (3,189 ) 23,122
Goodwill - 2,514 1,539 - 4,053
Total assets 104,741 243,837 129,117 4,355 482,050
Total liabilities 18,919 48,213 25,583 66,322 159,037
Capital expenditures (2) $ 1,259 $ 3,477 $ 15,671 $ 9 $ 20,416

As at and for the three months ended March 31, 2012 (unaudited)

Contract Rentals and Compression
Drilling Transportation and Process
Services Services Services Other(1 ) Total
Revenue $ 21,179 $ 49,348 $ 30,922 $ - $ 101,449
Cost of services 9,927 17,272 25,735 52,934
Selling, general and administration 1,125 4,565 1,475 1,245 8,410
Share-based compensation - - - 378 378
Depreciation 1,649 3,508 900 12 6,069
Results from operating activities 8,478 24,003 2,812 (1,635 ) 33,658
Gain on sale of property, plant and equipment 59 167 182 - 408
Finance costs (253 ) (574 ) (124 ) (338 ) (1,289 )
Net income before income taxes 8,284 23,596 2,870 (1,973 ) 32,777
Goodwill - 2,514 1,539 - 4,053
Total assets 98,477 245,461 89,477 28,103 461,518
Total liabilities 19,096 56,741 23,378 66,558 165,773
Capital expenditures $ 4,966 $ 9,952 $ 7,529 $ 1,795 $ 24,242
(1) Other includes the Company's corporate activities, accretion of convertible debentures and obligations pursuant to long-term credit facilities.
(2) Includes January 1, 2013 acquisition of a process equipment fabrication business included in Compression and Process Services segment.

Total Energy Services Inc. is a growth oriented energy services corporation involved in contract drilling services, rentals and transportation services and the fabrication, sale, rental and servicing of natural gas compression and process equipment. The common shares of Total Energy are listed and trade on the TSX under the symbol TOT.

Notes to Financial Highlights

(1) Operating earnings means results from operating activities and is equal to net income before income taxes minus gain on sale of property, plant and equipment plus finance costs. EBITDA means earnings before interest, taxes, depreciation and amortization and is equal to net income before income taxes plus finance costs plus depreciation. Cashflow means cash provided by operations before changes in non-cash working capital items. Operating earnings, EBITDA and cashflow are not recognized measures under IFRS. Management believes that in addition to net income, operating earnings, EBITDA and cashflow are useful supplemental measures as they provide an indication of the results generated by the Company's primary business activities prior to consideration of how those activities are financed, amortized or how the results are taxed in various jurisdictions as well as the cash generated by the Company's primary business activities without consideration of the timing of the monetization of non-cash working capital items. Readers should be cautioned, however, that operating earnings, EBITDA and cashflow should not be construed as an alternative to net income determined in accordance with IFRS as an indicator of Total Energy's performance. Total Energy's method of calculating operating earnings, EBITDA and cashflow may differ from other organizations and, accordingly, operating earnings, EBITDA and cashflow may not be comparable to measures used by other organizations.
(2) Per share data (diluted) and the number of common shares outstanding on a diluted basis includes the impact of the approximate 3.1 million common shares issuable upon the entire conversion of the $69 million principal amount of convertible debentures issued by the Company in February 2011.
(3) Working capital equals current assets minus current liabilities.
(4) Net Debt equals long-term debt plus obligations under finance leases plus convertible debentures plus current liabilities minus current assets.
(5) Cashflow for the three months ended March 31, 2013 is net of $15.3 million of income taxes paid during the period that relates to 2012 taxable income as a result of the Company not having been required to make income tax installment payments during 2012.

Certain statements contained in this press release, including statements which may contain words such as "could", "should", "expect", "believe", "will" and similar expressions and statements relating to matters that are not historical facts are forward-looking statements. Such forward-looking statements involve known and unknown risks and uncertainties which may cause the actual results, performances or achievements of Total Energy to be materially different from any future results, performances or achievements expressed or implied by such forward-looking statements. Such factors include fluctuations in the market for oil and natural gas and related products and services, political and economic conditions, the demand for products and services provided by Total Energy, Total Energy's ability to attract and retain key personnel and other factors. Reference should be made to Total Energy's most recently filed Annual Information Form and other public disclosures (available at www.sedar.com) for a discussion of such risks and uncertainties.

Contact:
Total Energy Services Inc.
Daniel Halyk
President & Chief Executive Officer
(403) 216-3921
Total Energy Services Inc.
Mark Kearl
Vice-President Finance and Chief Financial Officer
(403) 216-3920
investorrelations@totalenergy.ca
www.totalenergy.ca

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