Total Energy Services Inc. Announces Q3 2013 Results

CALGARY, ALBERTA--(Marketwired - Nov. 4, 2013) - Total Energy Services Inc. ("Total Energy" or the "Company") (TOT.TO) announces its consolidated financial results for the three and nine months ending September 30, 2013.

Financial Highlights
($000's except per share data)
  Three Months Ended
September 30
  Nine Months Ended
September 30
 
  (unaudited)   (unaudited)  
  2013 2012 %
Change
  2013 2012 %
Change
 
Revenue $ 89,060 $ 73,517 21 % $ 252,639 $ 229,298 10 %
Operating Earnings (1)   13,698   12,979 6 %   38,631   50,415 (23 )%
EBITDA (1)   20,752   20,078 3 %   59,800   69,333 (14 )%
Cashflow (1) (5)   18,899   20,184 (6 )%   36,456   69,839 (48 )%
Net Income   9,109   9,456 (4 )%   26,614   37,167 (28 )%
                         
Per Share Data (Diluted) (2)                        
EBITDA (1) $ 0.61 $ 0.58 5 % $ 1.76 $ 1.99 (12 )%
Cashflow (1) (5) $ 0.55 $ 0.58 (5 )% $ 1.07 $ 2.01 (47 )%
Net Earnings $ 0.29 $ 0.30 (3 )% $ 0.86 $ 1.16 (26 )%
                         
          Sept. 30
2013
(unaudited)
Dec. 31
2012
(audited)
%
Change
 
Financial Position                        
Total Assets             $ 494,362 $ 476,591 4 %
Long-Term Debt, Convertible Debentures and Obligations Under Finance Leases (excluding current portion)               66,236   65,417 1 %
Working Capital (3)               90,440   90,708 -  
Net Debt (4)               Nil   Nil -  
Shareholders' Equity               329,901   306,069 8 %
                         
Shares Outstanding (000's)                        
Basic               31,091   30,600 2 %
Diluted (2)               34,537   34,300 1 %

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 and nine months ended September 30, 2013 reflect continued momentum in the Company's Compression and Process Services division offset by lower completion and well servicing activity in Western Canada as compared to the first nine months of 2012 that negatively impacted the Rentals and Transportation Services division. While activity levels in the Company's Contract Drilling Services division increased during the third quarter of 2013 as compared to the third quarter of 2012, pricing in this division did not increase to the extent necessary to offset a 7% increase in cost of services, resulting in reduced gross margins and divisional profitability.

Total Energy's Contract Drilling Services division achieved 54% utilization during the third quarter of 2013, recording 798 operating days (spud to release) with a fleet of 16 rigs, compared to 677 operating days, or 49% utilization, during the third quarter of 2012 with a fleet of 15 rigs. Revenue per operating day decreased 2% for the third quarter of 2013 relative to the prior year comparable period due to reduced pricing and the mix of equipment operating. The Rentals and Transportation Services division achieved a utilization rate on major rental equipment of 40% during the third quarter of 2013 as compared to a 44% utilization rate during the third quarter of 2012. Revenue per utilized rental piece decreased 14% for the third quarter of 2013 compared to the same period in 2012, due primarily to lower pricing given the current competitive landscape. The Compression and Process Services division generated revenues of $48.8 million for the three months ended September 30, 2013 compared to $30.2 million for the same period in 2012, an increase of 62%. The 2013 third 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 third quarter of 2013 with a $57.6 million backlog of fabrication sales orders as compared to $35.2 million at September 30, 2012. Included in the September 30, 2013 fabrication sales order backlog is $46.2 million of compression sales backlog and $11.4 million of process equipment sales backlog. At September 30, 2013, approximately 35,700 horsepower of compression equipment was on rent compared to 28,300 horsepower on rent at September 30, 2012. The gas compression rental fleet operated at an average utilization rate of 85% for the third quarter of 2013 as compared to 84% during the same period in 2012.

Negatively impacting cash flow for the first nine months of 2013 was the payment of $15.3 million of income taxes during the first quarter 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 that amounted to approximately $9.5 million for the first nine months of 2013.

During the third quarter, Total Energy declared a quarterly dividend of $0.05 per share to shareholders of record on September 30, 2013. This dividend was paid on October 31, 2013. 89,200 common shares were purchased under the Company's normal course issuer bid during the three months ended September 30, 2013 at an average price of $16.14 per share (including commissions).

Outlook

While drilling activity levels in Western Canada during the third quarter of 2013 were modestly higher than the third quarter of 2012, well completion and well servicing activity continued to lag behind 2012 activity levels, due in part to extended wet weather conditions during July and the first part of August. Current demand for the Company's drilling rigs is strong and suggests the upcoming winter drilling season will be active. While increased drilling activity in Western Canada is positive for the Rentals and Transportation Services division, increased completion and well service activity will be required to substantially improve rental equipment utilization. The substantial fabrication sales backlog enjoyed by the Compression and Process Services division reflects continued solid demand for the Company's compression and process equipment. 

Total Energy's financial condition remains solid with a long-term debt (including convertible debentures) to long-term debt plus equity ratio of 0.17 to 1.0, $90.4 million of positive working capital and no net debt as at September 30, 2013. Total Energy's $35 million operating facility is currently fully available and undrawn. Total Energy continues to evaluate several investment opportunities and the Company's financial position 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 third 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 (866) 226-1792 or (416) 340-2216. 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 November 19, 2013 by dialing (800) 408-3053 (passcode 4497761).

Selected Financial Information

Selected financial information relating to the three and nine month periods ended September 30, 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 third quarter report.

Condensed Interim Consolidated Statements of Financial Position
(in thousands of Canadian dollars)
  September 30, December 31,
  2013 2012
  (unaudited) (audited)
Assets        
Current assets:        
  Cash and cash equivalents $ 22,191 $ 50,052
  Accounts receivable   71,223   63,511
  Inventory   34,677   33,240
  Income taxes receivable   4,410   -
  Prepaid expenses and deposits   5,883   2,547
    138,384   149,350
         
Property, plant and equipment   351,925   323,188
         
Goodwill   4,053   4,053
  $ 494,362 $ 476,591
         
Liabilities & Shareholders' Equity        
Current liabilities:        
  Accounts payable and accrued liabilities $ 38,495 $ 32,523
  Deferred revenue   5,694   6,971
  Income taxes payable   -   15,098
  Dividends payable   1,555   1,530
  Current portion of obligations under finance leases   2,200   2,520
    47,944   58,642
         
Obligations under finance leases   2,247   2,723
         
Convertible debentures   63,989   62,694
         
Deferred tax liability   50,281   46,463
         
Shareholders' equity:        
  Share capital   82,051   76,890
  Contributed surplus   6,294   5,160
  Equity portion of convertible debenture   4,601   4,601
  Retained earnings   236,955   219,418
    329,901   306,069
         
  $ 494,362 $ 476,591
 
Condensed Interim Consolidated Statements of Comprehensive Income
(in thousands of Canadian dollars except per share amounts)
 
  Three months ended
September 30
  Nine months ended
September 30
 
  2013   2012   2013   2012  
  (unaudited)   (unaudited)   (unaudited)   (unaudited)  
                         
Revenue $ 89,060   $ 73,517   $ 252,639   $ 229,298  
                         
  Cost of services   60,573     46,569     169,076     137,826  
  Selling, general and administration   7,188     6,764     22,358     21,594  
  Share-based compensation   643     1,092     2,556     2,023  
  Depreciation   6,958     6,113     20,018     17,440  
Results from operating activities   13,698     12,979     38,631     50,415  
                         
  Gain on sale of property, plant and equipment   96     986     1,151     1,478  
  Finance costs   (1,394 )   (1,149 )   (4,109 )   (3,678 )
Net income before income taxes   12,400     12,816     35,673     48,215  
                         
  Current income tax expense   1,954     5,355     5,241     9,525  
  Deferred income tax expense (recovery)   1,337     (1,995 )   3,818     1,523  
Total income tax expense (recovery)   3,291     3,360     9,059     11,048  
                         
  Net income and total comprehensive income for the period $ 9,109   $ 9,456   $ 26,614   $ 37,167  
                         
Earnings per share                        
  Basic earnings per share $ 0.30   $ 0.31   $ 0.87   $ 1.19  
  Diluted earnings per share $ 0.29   $ 0.30   $ 0.86   $ 1.16  
 
Condensed Interim Consolidated Statements of Cash Flows
(in thousands of Canadian dollars)
 
  Three months ended
September 30
  Nine months ended
September 30
 
  2013   2012   2013   2012  
  (unaudited)   (unaudited)   (unaudited)   (unaudited)  
Cash provided by (used in):                        
                         
Operations:                        
  Net income for the period $ 9,109   $ 9,456   $ 26,614   $ 37,167  
  Add (deduct) items not affecting cash:                        
    Depreciation   6,958     6,113     20,018     17,440  
    Share-based compensation   643     1,092     2,556     2,023  
    Gain on sale of property, plant and equipment   (96 )   (986 )   (1,151 )   (1,478 )
    Finance costs   1,394     1,149     4,109     3,678  
    Current income tax expense   1,954     5,355     5,241     9,525  
    Deferred income tax expense (recovery)   1,337     (1,995 )   3,818     1,523  
  Income taxes paid   (2,400 )   -     (24,749 )   (39 )
    18,899     20,184     36,456     69,839  
  Changes in non-cash working capital items:                        
    Accounts receivable   (17,353 )   (4,745 )   (7,712 )   34,735  
    Inventory   (1,553 )   1,399     1,517     2,293  
    Prepaid expenses and deposits   (1,385 )   (726 )   (3,336 )   (958 )
    Accounts payable and accrued liabilities   6,674     (484 )   6,435     (7,606 )
    Deferred revenue   (1,402 )   (2,106 )   (1,277 )   544  
    3,880     13,522     32,083     98,847  
Investments:                        
  Purchase of property, plant and equipment   (19,400 )   (18,870 )   (36,472 )   (60,291 )
  Acquisition of business   -     -     (16,954 )   -  
  Proceeds on disposal of property, plant and equipment   841     4,460     4,351     6,207  
  Changes in non-cash working capital items   5,103     2,286     880     (1,900 )
    (13,456 )   (12,124 )   (48,195 )   (55,984 )
Financing:                        
  Repayment of obligations under finance leases   (795 )   (757 )   (2,279 )   (2,500 )
  Dividends to shareholders   (1,530 )   (1,550 )   (4,598 )   (4,370 )
  Issuance of common shares   3,277     -     4,705     1,197  
  Repurchase of common shares   (1,427 )   (3,837 )   (5,420 )   (13,634 )
  Interest paid   (1,794 )   (1,740 )   (4,157 )   (3,820 )
    (2,469 )   (7,884 )   (11,749 )   (23,127 )
                         
Change in cash and cash equivalents   (12,045 )   (6,486 )   (27,861 )   19,736  
                         
Cash and cash equivalents, beginning of period   34,236     61,880     50,052     35,658  
                         
Cash and cash equivalents, end of period $ 22,191   $ 55,394   $ 22,191   $ 55,394  

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 September 30, 2013 Contract
Drilling
Services
  Rentals and
Transportation
Services
  Compression
and Process
Services
  Other(1)   Total  
                               
Revenue $ 14,772   $ 25,508   $ 48,780   $ -   $ 89,060  
                               
Cost of services   9,460     12,248     38,865     -     60,573  
Selling, general and administration   841     3,250     2,048     1,049     7,188  
Share-based compensation   -     -     -     643     643  
Depreciation   1,597     3,722     1,630     9     6,958  
Results from operating activities   2,874     6,288     6,237     (1,701 )   13,698  
                               
Gain on sale of property, plant and equipment   -     (19 )   115     -     96  
Finance costs   (204 )   (552 )   (241 )   (397 )   (1,394 )
                               
Net income (loss) before income taxes   2,670     5,717     6,111     (2,098 )   12,400  
                               
Goodwill   -     2,514     1,539     -     4,053  
                               
Total assets   102,233     224,203     153,071     14,855     494,362  
Total liabilities   19,583     43,570     32,388     68,920     164,461  
                               
Capital expenditures $ 2,816   $ 5,255   $ 9,855   $ 1,474   $ 19,400  
                     
As at and for the three months ended September 30, 2012 Contract
Drilling
Services
  Rentals and
Transportation
Services
  Compression
and Process
Services
  Other(1)   Total  
                               
Revenue $ 12,782   $ 30,563   $ 30,172   $ -   $ 73,517  
                               
Cost of services   7,516     14,030     25,022     1     46,569  
Selling, general and administration   760     3,306     1,628     1,070     6,764  
Share-based compensation   -     -     -     1,092     1,092  
Depreciation   1,320     3,787     997     9     6,113  
Results from operating activities   3,186     9,440     2,525     (2,172 )   12,979  
                               
Gain on sale of property, plant and equipment   21     140     825     -     986  
Finance costs   (254 )   (583 )   (69 )   (243 )   (1,149 )
                               
Net income (loss) before income taxes   2,953     8,997     3,281     (2,415 )   12,816  
                               
Goodwill   -     2,514     1,539     -     4,053  
                               
Total assets   95,887     223,830     92,644     46,415     458,776  
Total liabilities   18,460     47,573     19,369     75,950     161,352  
                               
Capital expenditures $ 5,144   $ 11,409   $ 2,291   $ 26   $ 18,870  
                     
As at and for the nine months ended September 30, 2013 Contract
Drilling
Services
  Rentals and
Transportation
Services
  Compression
and Process
Services
  Other(1)   Total  
                               
Revenue $ 37,687   $ 79,225   $ 135,727   $ -   $ 252,639  
                               
Cost of services   24,158     37,933     106,985     -     169,076  
Selling, general and administration   2,409     10,048     6,331     3,570     22,358  
Share-based compensation   -     -     -     2,556     2,556  
Depreciation   3,907     11,414     4,668     29     20,018  
Results from operating activities   7,213     19,830     17,743     (6,155 )   38,631  
                               
Gain (loss) on sale of property, plant and equipment   (22 )   216     957     -     1,151  
Finance costs   (608 )   (1,648 )   (658 )   (1,195 )   (4,109 )
                               
Net income before income taxes   6,583     18,398     18,042     (7,350 )   35,673  
                               
Goodwill   -     2,514     1,539     -     4,053  
                               
Total assets   102,233     224,203     153,071     14,855     494,362  
Total liabilities   19,583     43,570     32,388     68,920     164,461  
                               
Capital expenditures (2) $ 4,547   $ 12,657   $ 31,248   $ 2,020   $ 50,472  
                     
As at and for the nine months ended September 30, 2012 Contract
Drilling
Services
  Rentals and
Transportation
Services
  Compression
and Process
Services
  Other(1)   Total  
                               
Revenue $ 39,896   $ 102,004   $ 87,398   $ -   $ 229,298  
                               
Cost of services   22,323     42,884     72,622     (3 )   137,826  
Selling, general and administration   2,556     10,960     4,501     3,577     21,594  
Share-based compensation   -     -     -     2,023     2,023  
Depreciation   3,604     10,953     2,854     29     17,440  
Results from operating activities   11,413     37,207     7,421     (5,626 )   50,415  
                               
Gain on sale of property, plant and equipment   65     409     1,004     -     1,478  
Finance costs   (760 )   (1,740 )   (262 )   (916 )   (3,678 )
                               
Net income before income taxes   10,718     35,876     8,163     (6,542 )   48,215  
                               
Goodwill   -     2,514     1,539     -     4,053  
                               
Total assets   95,887     223,830     92,644     46,415     458,776  
Total liabilities   18,460     47,573     19,369     75,950     161,352  
                               
Capital expenditures $ 12,433   $ 31,546   $ 14,472   $ 1,840   $ 60,291  
   
(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. 

For further information, please visit our website at www.totalenergy.ca.

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 nine months ended September 30, 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.

The Toronto Stock Exchange has neither approved nor disapproved of the information contained herein.