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Stampede Drilling Inc. announces 2019 third quarter results

CALGARY , Nov. 6, 2019 /CNW/ - Stampede Drilling Inc. ("Stampede" or the "Corporation") (TSX-V:SDI) announces today its financial and operational results for the three and nine month periods ended September 30, 2019 .

The following should be read in conjunction with the Corporation's unaudited condensed consolidated financial statements and the notes thereto for the three and nine month periods ended September 30, 2019 and related management's discussion and analysis, which are available on SEDAR at www.sedar.com.

All amounts or dollar figures are denominated in thousands of Canadian dollars except for per share amounts, number of drilling rigs, and operating days, or unless otherwise noted.

Estimates and forward-looking information are based on assumptions of future events and actual results may vary from these estimates. See "Forward-Looking Information" in this press release for additional details.

OUTLOOK & 2019 OPERATIONAL OVERVIEW

The Corporation's outlook for Western Canada continues to remain conservative for the remainder of 2019. Macro-economic factors such as pipeline expansion and government mandated crude oil production cuts are expected to continue to adversely impact producer spending.

Despite the negative external factors, the Corporation has been able to capitalize on opportunities and continue to build positive momentum since entering the drilling rig business in November 2017 . For the nine month period ended September 30, 2019 , continuing operations revenue was up 70% and adjusted EBITDA was up 87% as compared to the corresponding 2018 period.

The Corporation continues to work on strengthening its balance sheet with a focus on controlling costs. Management will continue its disciplined cash management to help execute on strategic acquisitions, specific customer related rig upgrades and opportunities that align with the Corporation's growth plan.

FINANCIAL HIGHLIGHTS

THIRD QUARTER 2019 SUMMARY (Compared with the third quarter 2018)

  • Revenue from continuing operations of $5,910 , up 93% from $3,068 ;
  • Gross margin from continuing operations of $1,790 , up 106% from $869 ;
  • Adjusted EBITDA from continuing operations of $682 , up 352% from an Adjusted EBITDA $151 ;
  • Net loss from continuing operations of ($705) , up 8% from ($653) ;
  • Net loss from combined operations of ($724) , down 20% from ($905)


NINE MONTHS ENDED SEPTEMBER 30, 2019 SUMMARY (Compared with the nine months ended September 30, 2018 )

  • Revenue from continuing operations of $16,992 , up 70% from $10,003 ;
  • Gross margin from continuing operations of $6,081 , up 90% from 3,193;
  • Adjusted EBITDA from continuing operations of $3,059 , up 86% from $1,641 ;
  • Net loss from continuing operations of ($1,143) , up 89% from net loss of $($606);
  • Net loss from combined operations of ($91) , down 96% from a net loss of ($2,125) .



Three Months Ended


Nine months ended


September 30,


September 30,

(000's CAD $ except per share amounts)

2019

2018

%

Change


2019

2018

%

Change

Continuing operations








Revenue

5,910

3,068

93%


16,992

10,003

70%

Direct operating expenses

4,120

2,199

87%


10,911

6,810

60%

Gross margin (1)

1,790

869

106%


6,081

3,193

90%

Net income (loss) from continuing operations

(705)

(653)

8%


(1,143)

(606)

89%

Basic and diluted per share

(0.01)

(0.01)

nm


(0.01)

(0.01)

nm

Adjusted EBITDA (1)

682

151

352%


3,059

1,641

86%

Basic and diluted per share

0.01

0.00

nm


0.02

0.01

nm

Weighted average common shares

outstanding

131,992

131,577

nm


131,786

130,184

1%

Weighted average diluted common shares

outstanding

131,992

131,577

nm


131,786

130,184

1%

Combined operations (2)








Net income (loss)

(724)

(905)

(20%)


(91)

(2,125)

(96%)

Basic and diluted per share

(0.01)

(0.01)

nm


(0.00)

(0.02)

(100%)

Adjusted EBITDA (1)

682

157

334%


3,533

691

411%

Capital expenditures

3,060

2,260

35%


7,285

14,540

(50%)

nm - not meaningful

(1) Refer to "Non-GAAP Measures" for further information.

(2) Combined operations represents the aggregated results of both continuing and discontinued operations.

 

RESULTS OF CONTINUING OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2019


Nine months ended


September 30,

(000's CAD $ except operating days)

2019

2018(1)

% Change





Revenue

16,992

10,003

70%

Direct operating expenses

10,911

6,810

60%

Gross margin (2)

6,081

3,193

90%

Gross margin %

36%

32%

13%

Net income (loss) from continuing operations

(1,143)

(606)

89%

General and administrative expenses

3,689

1,592

132%

General and administrative expenses as a % of revenue

22%

16%

38%

Adjusted EBITDA (2)

3,059

1,639

87%

Adjusted EBITDA as a % of revenue

18%

16%

13%

Average active rig count at end of period

9

8

19%

Drilling rig operating days

854

567

51%

Drilling rig revenue per day

19.9

17.6

13%

(1) The comparative period has been restated to reflect discontinued operations as discussed in Note 4.

(2) Refer to "Non-GAAP measures" for further information.

 

  • Revenue in the first nine months of 2019 was $16,992 , an increase of $6,987 (70%) compared to $10,005 in the first nine months of 2018. The increase was as a result of an increase in operating days due to the higher average rig count in 2019, and an increase in revenue per day of 13% from $17.6 in the first nine months of 2018 to $19.9 in the comparable 2019 period. The increase in revenue per day was related to the higher day rates in Alberta compared to in Saskatchewan , as the Corporation relocated two rigs from Saskatchewan to Alberta during the second half of 2018 and the Corporation added one rig in Alberta in July 2019. 
  • Operating days in the drilling rig division of 854 days in the first nine months of 2019 was a 51% increase over the 567 operating days in the first nine months of 2018, as a result of the increase in rig count during the period. The drilling rig utilization for the nine months ended September 30, 2019 was 34%, 55% above the CAODC industry average utilization rate of 22%. The increase in average active rig count allowed the Corporation to diversify geographically into the Alberta market and expand its customer base resulting in increased drilling rig utilization in the current year.
  • For the nine months ended September 30, 2019 , gross margin as a percentage of revenue was 36%, up 13% from a gross margin of 32% in the nine months ended September 30, 2018 . The increase in gross margin as a percentage of revenue was primarily a result of increased revenue per day of 13% for the nine month period ending September 30, 2019 as compared to the corresponding 2018 period.
  • General and administrative expenses for the nine months ended September 30, 2019 were $3,059 up $2,097 (132%) from $1,592 for the comparable period of 2018, as a result of increased headcount and the higher allocation of corporate expenses related to salaries, legal, IT, and rent as part of the Corporation's continuing operations.
  • For the nine months ended September 30, 2019 , Adjusted EBITDA was $3,059 , a $1,420 (87%) increase from $1,639 as compared to the corresponding 2018 period, as a result of the increase in active rig count during the period and a higher gross margin which was partially offset by the increased general and administrative expenses compared to 2018.


Other Items


Nine months ended


September 30,

(000's CAD $)

2019

2018

% Change

Gain from disposition of property and equipment

-

172

(100%)

Gain from equipment lost in hole

15

-

nm

Finance costs

(500)

(293)

71%

Other income

104

-

nm

Foreign exchange loss

(6)

1

nm

Transaction costs

(146)

(539)

(73%)

Other items

(533)

(659)

(19%)

 

For the nine months ended September 30, 2019 , finance costs were $500 , a $207 (71%) increase from $293 as compared to the corresponding 2018 period. The increase was due to higher 2019 debt levels associated with the Corporation's line of credit. The higher 2019 debt levels were a result of increased capital spend and increased working capital as a result of increased 2019 activity for the nine months ended September 30, 2019 compared to the corresponding 2018 period.

For the nine months ended September 30, 2019 , other income was $104 as compared to $0 in the corresponding 2018 period. Other income is comprised of rent collections from the Corporation's subleases.

For first nine months of 2019, there was a decrease in transaction costs of $393 (73%) from $539 as compared to the corresponding 2018 period. Transaction costs for the nine months ended September 30, 2019 consist of non-capitalizable amounts related to US start-up costs of $146 . Transaction costs for the nine months ended September 30, 2018 represent non-capitalizable amounts directly related to drilling rig acquisitions which consist of due diligence and external legal fees and US start-up costs.

THIRD QUARTER RESULTS OF CONTINUING OPERATIONS


Three Months Ended


September 30,

(000's CAD $ except per day amounts)

2019

2018(1)

%

Change





Drilling rig revenue

5,910

3,068

93%

Direct operating expenses

4,120

2,199

87%

Gross margin (2)

1,790

869

106%

Gross margin %

30%

28%

7%

Net income (loss) from continuing operations

(705)

(653)

8%

General and administrative expenses

1,284

756

70%

General and administrative expenses as a % of revenue

22%

25%

(12%)

Adjusted EBITDA (2)

682

152

349%

Adjusted EBITDA as a % of revenue

12%

5%

140%

Average active rig count at end of period

10

9

11%

Drilling rig operating days

295

177

67%

Drilling rig revenue per day

20.0

17.4

15%

(1) The comparative period has been restated to reflect discontinued operations as discussed in Note 4.

(2) Refer to "Non-GAAP measures" for further information.

 

  • Revenue in the third quarter of 2019 was $5,910 , an increase of $2,842 (93%) compared to $3,068 in the third quarter of 2018. The increase was as a result of an increase in operating days due to the increased marketable rig count, and an increase in revenue per day of 15% from $17.4 in the third quarter of 2018 to $20.0 in the comparable 2019 period. The increase in revenue per day was related to the higher day rates in Alberta compared to in Saskatchewan , as the Corporation relocated two rigs from Saskatchewan to Alberta during the second half of 2018 and the Corporation added one rig in Alberta in July 2019. 
  • Operating days in the drilling rig division of 295 days in the third quarter of 2019 was a 67% increase over the 177 operating days in the third quarter of 2018, as a result of the Corporation's increased rig count during the period. The drilling rig utilization for the quarter ended September 30, 2019 was 32%, 40% above the CAODC industry average utilization rate of 23%.
  • Direct operating expenses are primarily comprised of personnel, equipment, operating and repair costs, and shop expenses. Direct operating expenses for the three months ended September 30, 2019 were $4,120 , up $1,921 (87%) from $2,199 for the three months ended September 30, 2018 , also as a result of the increased operating days compared to the third quarter of 2018.
  • For the third quarter ended September 30, 2019 , gross margin as a percentage of revenue was 30%, up 7% from a gross margin of 28% in the third quarter of 2018. The increase in gross margin as a percentage of revenue was primarily a result of increased revenue per day of 15% for the three month period ending September 30, 2019 as compared to the corresponding 2018 period.
  • General and administrative expenses for the three months ended September 30, 2019 were $1,284 , up $528 (70%) from $756 for the three months ended September 30, 2018 , as a result of the increased headcount and the higher allocation of corporate expenses related to salaries, legal, IT, and rent as part of the Corporation's continuing operations.
  • For the third quarter ended September 30, 2019 , the Adjusted EBITDA was $682 , a $530 (349%) increase from Adjusted EBITDA of $152 in the comparable quarter of 2018, as a result of the increase in active rig count and higher gross margin which was partially offset by the increased general and administrative expenses compared to 2018.


RESULTS OF DISCONTINUED OPERATIONS

On April 3, 2019 , the Corporation announced the discontinuation of its directional drilling division. As part of this process, the Corporation presented the results of the directional drilling operations using the guidance under "IFRS 5 - Non-Current Assets Held for Sale and Discontinued Operations", as discontinued operations on the condensed consolidated statements of comprehensive income (loss) and the condensed consolidated statements of cash flows for the current and comparative periods.

During the second quarter, the Corporation disposed of its directional drilling assets to an independent, third-party purchaser. In accordance with the disposal, property and equipment with a net book value of $908 was sold on May 27, 2019 for gross proceeds of $1,500 which resulted in recognition of a gain on disposition of $576 , which was classified within discontinued operations.

The general and administrative expenses for the three months ended September 30, 2019 represent those costs required to complete the disposal of the assets. As part of the disposal transaction, right of use assets previously used by the directional drilling division and their related lease liabilities were assigned to the purchaser with the purchaser assuming all rights and obligations under the lease.

The following table sets forth operating results from the discontinued operations for the three and nine months ended September 30, 2019 and 2018:


Three Months Ended


September 30,

(000's CAD $ except per day amounts)

2019

2018

% Change





Directional drilling revenue

-

1,717

(100%)

Direct operating expenses

-

1,340

(100%)

Gross margin (1)

-

377

(100%)

Gross margin %

-

22%

nm

Directional drilling net income (loss)

(19)

(252)

(92%)

General and administrative expenses

19

385

(95%)

General and administrative expenses as a % of revenue

-

22%

nm

Adjusted EBITDA (1)

-

6

(100%)

Adjusted EBITDA as a % of revenue

nm

0%

nm

Directional drilling operating days(2)

-

184

(100%)

Directional drilling revenue per day

nm

9.3

nm

(1) Refer to "Non-GAAP measures" for further information.

[2] A stand-by day is calculated as 0.5 day of an operating day.

 


Nine months ended


September 30,

(000's CAD $ except operating days)

2019

2018

% Change





Directional drilling revenue

1,837

4,304

(57%)

Direct operating expenses

963

3,538

(73%)

Gross margin (1)

874

766

14%

Gross margin %

48%

18%

167%

Directional drilling net income (loss)

1,052

(1,519)

(169%)

General and administrative expenses

736

2,205

(67%)

General and administrative expenses as a % of revenue

40%

51%

(22%)

Adjusted EBITDA (1)

474

(946)

150%

Adjusted EBITDA as a % of revenue

26%

(22%)

218%

Directional drilling operating days(2)

209

512

(59%)

Directional drilling revenue per day

8.8

8.4

5%

(1) Refer to "Non-GAAP measures" for further information.

[2] A stand-by day is calculated as 0.5 day of an operating day.

 

  • Revenue from discontinued operations for the nine month period ended September 30, 2019 was $1,837 , a decrease of $2,467 (57%) from $4,304 in the prior year comparable period, as a result of a 59% decrease in operating days due to the suspension of operations on April 3, 2019 .
  • Direct operating expenses from discontinued operations for the nine month period ended September 30, 2019 were $963 , a decrease of $2,575 (73%) from $3,538 in the prior year comparable period. Gross margin as a percentage of revenue for the nine months ended September 30, 2019 was 48%, up 167% from 18% in the first nine months of 2018. The primary reason for the increase was the rebilling of repairs and maintenance costs of $285 to customers and the deferral of all non-essential repairs to the Corporation's owned equipment.
  • General and administrative expenses from discontinued operations for the nine month period ended September 30, 2019 was $736 , a decrease of $1,469 (67%) compared to $2,205 corresponding 2018 period. The overall decrease was a result of a reduction in headcount in the division and the reallocation of corporate expenses of salaries, legal, IT, and rent from the directional drilling division to the drilling rig division.
  • The overall effect of the increase in revenue and the decrease in direct operating costs and general and administrative expenses resulted in Adjusted EBITDA of $474 for the nine months ended 2019, an increase of $1,420 (150%) from an Adjusted EBITDA loss of $946 as compared to the corresponding 2018 period.
  • General and administrative expenses from discontinued operations for the three month period ended September 30, 2019 were related to severance payments.


NON-GAAP MEASURES

This MD&A contains references to (i) Adjusted EBITDA and (ii) gross margin. These financial measures are not measures that have any standardized meaning prescribed by IFRS and are therefore referred to as non-GAAP (Generally Accepted Accounting Principles) measures. The non-GAAP measures used by the Corporation may not be comparable to similar measures used by other companies.

(i) 

Adjusted EBITDA is defined as "income (loss) from operations before interest income, interest expense, taxes, transaction costs, depreciation and amortization, share-based compensation expense, gains on disposal of property and equipment, impairment expenses, other income, foreign exchange, non-recurring restructuring charges, finance costs, accretion of debentures and other income/expenses, and any other items that the Corporation considers appropriate to adjust given the irregular nature and relevance to comparable operations." Management believes that in addition to net and total comprehensive income (loss), Adjusted EBITDA is a useful supplemental measure as it provides an indication of the results generated by the Corporation's principal business activities prior to consideration of how these activities are financed, how assets are depreciated, amortized and impaired, the impact of foreign exchange, or how the results are affected by the accounting standards associated with the Corporation's stock-based compensation plan. Investors should be cautioned, however, that Adjusted EBITDA should not be construed as an alternative to net income (loss) and comprehensive income (loss) determined in accordance with IFRS as an indicator of the Corporation's performance. The Corporation's method of calculating Adjusted EBITDA may differ from that of other organizations and, accordingly, its Adjusted EBITDA may not be comparable to that of other companies.

 


Three Months Ended


Nine months ended


September 30,


September 30,

(000's CAD $)

2019

2018

%

Change


2019

2018

%

Change

Net loss from continuing operations

(705)

(653)

8%


(1,143)

(606)

89%

Depreciation (1)

1,131

626

81%


3,291

1,548

113%

Finance costs

173

96

80%


500

293

71%

Other income

(9)

(2)

nm


(104)

-

nm

Gain from disposition of property and

equipment

-

-

-


-

(172)

(100%)

Gain from equipment lost in hole

-

-

-


(15)

-

nm

Share-based payments

104

38

nm


378

38

nm

Transaction costs

-

46

(100%)


146

539

(73%)

Foreign exchange loss

(12)

-

nm


6

1

nm

Adjusted EBITDA

682

151

352%


3,059

1,641

86%

nm - not meaningful

(1) Includes depreciation of property and equipment and right-of-use assets

 

(ii) 

Gross margin is defined as "gross profit from services revenue from continuing operations before stock-based compensation and depreciation". Gross margin is a measure that provides shareholders and potential investors additional information regarding the Corporation's cash generating and operating performance. Management utilizes this measure to assess the Corporation's operating performance. Investors should be cautioned, however, that gross margin should not be construed as an alternative to net income (loss) and comprehensive income (loss) determined in accordance with IFRS as an indicator of the Corporation's performance. The Corporation's method of calculating gross margin may differ from that of other organizations and, accordingly, its gross margin may not be comparable to that of other companies.

 


Three Months Ended


Nine months ended


September 30,


September 30,

(000's CAD $)

2019

2018

%

Change


2019

2018

%

Change

Income from operations

731

243

201%


3,079

1,645

87%

Depreciation of property and equipment

1,059

626

69%


3,002

1,548

94%

Gross margin

1,790

869

106%


6,081

3,193

90%

Gross margin %

30%

28%

7%


36%

32%

13%

nm - not meaningful

FORWARD-LOOKING INFORMATION

Certain statements contained in this press release constitute forward-looking statements or forward-looking information (collectively, "forward-looking information"). Forward-looking information relates to future events or the Corporation's future performance. All information other than statements of historical fact is forward-looking information. The use of any of the words "anticipate", "plan", "contemplate", "continue", "estimate", "expect", "intend", "propose", "might", "may", "will", "could", "believe", "predict", and "forecast" are intended to identify forward-looking information.

This press release contains forward-looking information pertaining to, among other things: the expectation that the Corporation's current drilling rig utilization will continue for the remainder of 2019; the expectation that there will not be a significant recovery in industry activity in 2019 from 2018 levels expectations regarding macro-economic factors and their impact on the industry; the view that the Corporation has a strong balance sheet and its expectations regarding its cash management and of having the flexibility to execute on strategic acquisitions, specific customer related upgrades and all other opportunities that align with the Corporation's growth plan; the belief that Adjusted EBITDA is a useful supplemental financial measure; and the expectation of continued expansion into the drilling rig business in Western Canada .

Statements, including forward-looking information, are made as of the date of this press release and the Corporation does not undertake any obligation to update or revise any forward-looking information, whether as a result of new information, future events or otherwise, except as may be required by applicable securities laws. The forward-looking information contained in this press release is expressly qualified by this cautionary statement.

Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.

SOURCE Stampede Drilling Inc.


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