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Strad Announces Third Quarter Results

/NOT FOR DISTRIBUTION TO U.S. NEWS WIRE SERVICES OR FOR DISSEMINATION IN THE UNITED STATES ("U.S.")/

The news release contains "forward-looking information and statements" within the meaning of applicable securities laws. For full disclosure of the forward-looking information and statements and the risks to which they are subject, see the "Cautionary Statement Regarding Forward-Looking Information and Statements" later in this news release.

CALGARY , Nov. 7, 2019 /CNW/ - Strad Inc. today announced its financial results for the three and nine months ended September 30, 2019 . All amounts are stated in Canadian dollars unless otherwise noted.

THIRD QUARTER SELECTED FINANCIAL AND OPERATIONAL HIGHLIGHTS:

  • Revenue increased 7% to $33.3 million as compared to $31.2 million for the same period in 2018;
  • Revenue for Industrial Matting in Canada was $14.5 million , up 22% and in the United States ("U.S.") was $7.4 million , up 65% compared with the prior quarter;
  • EBITDA(1) increased 58% to $10.2 million as compared to $6.5 million for the same period in 2018. EBITDA increased in part due to a $3.5 million improvements in Industrial Matting EBITDA and a $0.5 million improvement Equipment Rentals EBITDA;
  • Net income for the third quarter improved to $1.7 million compared to net income of $0.9 million for the same period in 2018;
  • Capital additions totaled $11.9 million and was deployed to grow and maintain the Company's Industrial Matting fleet to meet the expected demand in Canada and the U.S.;
  • Grew the Industrial Matting fleet by 9% to 138,260 mats in the quarter and 37% from a year ago;
  • Reduced funded debt(2) by 36% to $9.0 million at September 30, 2019 , compared to $14.0 million at December 31, 2018 . Funded debt(2) to covenant EBITDA(3) ratio was 0.3 : 1.0 at September 30, 2019 ; and
  • Purchased and canceled 60,800 common shares in the third quarter at $1.61 under the current normal course issuer bid ("NCIB"). Subsequent to the quarter, the Company purchased 1,686,224 common shares at $1.60 under the current NCIB for $2.7 million .


Notes:

(1)

Earnings before interest, taxes, depreciation and amortization ("EBITDA") is not a recognized measure under IFRS, and, accordingly, Strad's use of such a term may not be comparable to similarly defined measures presented by other entities; see "Non-IFRS and Additional IFRS Measures and Reconciliations".

(2)

Funded debt includes bank indebtedness plus long-term debt less cash.

(3)

Covenant EBITDA, as defined in the Company's credit facility agreement, is based on trailing twelve month EBITDA plus share based payments, plus additional one-time charges, less right of use asset amortization, less interest expense associated with leases.

 

"Our third quarter results continue to demonstrate the attractive opportunity in industrial matting across North America . In Canada , we launched three meaningfully sized projects and in the U.S., we continued to see an uptick in the volume of matting projects, increasing the U.S. average matting fleet by 78% compared with last year," said Andy Pernal , President and CEO of Strad. "Our goal of doubling our matting fleet by 2021 is ahead of schedule. In the quarter, we grew our matting fleet to 138,260 which represents the halfway mark of our goal just one year into our three-year plan."

"The third quarter continued to highlight the impact of our Industrial Matting business to deliver high rates of return, with a 64% EBITDA increase from the segment. The three projects launched in Canada are expected to remain active into the second quarter of 2020; and we continue to expect encouraging levels of utilization in the U.S. This momentum contributed to a 58% increase in EBITDA for the quarter," said Michael Donovan , CFO of Strad. "With our available cash flow from the quarter we invested in our matting fleet, reduced on our long-term debt and bought back shares through our NCIB. Subsequent to the quarter, we purchased an additional 1,686,224 common shares under the current NCIB."

THIRD QUARTER FINANCIAL HIGHLIGHTS


Three months ended September 30, 2019


Industrial
Matting

Equipment
Rentals

Corporate

Total

($000's)





Revenue

$

21,880


$

11,418


$


$

33,298

Operating expenses

11,295


7,182



18,477

Selling, general and administration

1,582


2,165


846


4,593

Share based payments

18


25


1


44

Gain on property, plant and equipment disposals

(21)


(44)



(65)

Loss (gain) on foreign exchange

8


12


(20)


EBITDA(1)(2)

8,998


2,078


(827)


10,249

Depreciation and amortization

4,648


3,443


154


8,245

EBIT(3)

4,350


(1,365)


(981)


2,004

Interest expense



344


344

Income tax recovery



(76)


(76)

Net (loss) income



(1,249)


1,736






Equipment Fleet:





Matting fleet at period end

138,260




138,260

Average matting fleet

134,780




134,780

Equipment fleet at period end


5,860



5,860

Average Equipment fleet


5,880



5,880

 


Three months ended September 30, 2018


Industrial
Matting

Equipment
Rentals

Corporate

Total

($000's)





Revenue

$

16,368


$

14,852


$


$

31,220

Operating expenses

9,599


11,538



21,137

Selling, general and administration

1,337


1,764


532


3,633

Share based payments

23


31


16


70

Gain on property, plant and equipment disposals

(46)


(47)



(93)

(Gain) loss on foreign exchange

(19)


(14)


4


(29)

EBITDA(1,2)

5,474


1,580


(552)


6,502

Depreciation and amortization

1,368


3,992


84


5,444

EBIT(3)

4,106


(2,412)


(636)


1,058

Interest expense



230


230

Income tax recovery



(62)


(62)

Net (loss) income



(804)


890






Equipment Fleet:





Matting fleet at period end

101,210




101,210

Average matting fleet

84,920




84,920

Equipment fleet at period end


6,120



6,120

Average Equipment fleet


6,140



6,140

Notes:

(1)

Earnings before interest, taxes, depreciation and amortization (" EBITDA") is not a recognized measure under
IFRS, and, accordingly, Strad's use of such term may not be comparable to similarly defined measures presented
by other entities; see "Non-IFRS and Additional IFRS Measures and Reconciliations".

(2)

The current period results include impacts from the adoption of IFRS 16 "Leases", which was adopted by the
Company on January 1, 2019. These impacts are discussed in further detail as noted in note 3 of the Unaudited
Condensed Consolidated Interim Financial Statements for the three and nine months ended September 30, 2019.
Comparative information has not been restated, and therefore, may not be comparable.

(3)

Earnings (loss) before interest and tax ("EBIT") is an additional measure under IFRS, see "Non-IFRS and
Additional IFRS Measures and Reconciliations".

 


Nine months ended September 30, 2019


Industrial
Matting

Equipment
Rentals

Corporate

Total

($000's)





Revenue

$

55,940


$

34,914


$


$

90,854

Operating expenses

28,781


23,884



52,665

Selling, general and administration

4,355


5,967


2,700


13,022

Share based payments

71


95


17


183

Gain on property, plant and equipment disposals

(68)


(129)



(197)

Gain on foreign exchange

(10)


(17)


(20)


(47)

EBITDA(1,2)

22,811


5,114


(2,697)


25,228

Depreciation and amortization

13,470


10,478


445


24,393

EBIT(3)

9,341


(5,364)


(3,142)


835

Interest expense



1,005


1,005

Income tax recovery



(1,763)


(1,763)

Net (loss) income



(2,384)


1,593






Equipment Fleet:





Matting fleet at period end

138,260




138,260

Average matting fleet

125,330




125,330

Equipment fleet at period end


5,860



5,860

Average Equipment fleet


5,900



5,900

 


Nine months ended September 30, 2018


Industrial
Matting

Equipment
Rentals

Corporate

Total

($000's)





Revenue

$

41,970


$

45,649


$


$

87,619

Operating expenses

25,151


34,997



60,148

Selling, general and administration

3,775


5,025


2,382


11,182

Share based payments

84


118


46


248

Gain on property, plant and equipment disposals

(239)


(323)


(8)


(570)

Loss (gain) on foreign exchange

3


19


(6)


16

EBITDA(1,2)

13,196


5,813


(2,414)


16,595

Depreciation and amortization

3,993


11,927


196


16,116

EBIT(3)

9,203


(6,114)


(2,610)


479

Interest expense



577


577

Income tax recovery



(4,452)


(4,452)

Net income



1,265


4,354






Equipment Fleet:





Matting fleet at period end

101,210




101,210

Average matting fleet

86,400




86,400

Equipment fleet at period end


6,120



6,120

Average Equipment fleet


6,110



6,110

Notes:

(1)

Earnings before interest, taxes, depreciation and amortization (" EBITDA") is not a recognized measure under
IFRS, and, accordingly, Strad's use of such term may not be comparable to similarly defined measures presented
by other entities; see "Non-IFRS and Additional IFRS Measures and Reconciliations".

(2)

The current period results include impacts from the adoption of IFRS 16 "Leases", which was adopted by the
Company on January 1, 2019. These impacts are discussed in further detail as noted in note 3 of the Unaudited
Condensed Consolidated Interim Financial Statements for the three and nine months ended September 30, 2019.
Comparative information has not been restated, and therefore, may not be comparable.

(3)

Earnings (loss) before interest and tax ("EBIT") is an additional measure under IFRS, see "Non-IFRS and
Additional IFRS Measures and Reconciliations".

 

FINANCIAL POSITION AND RATIOS

($000's except ratios)

As at September 30,
2019

As at December 31,
2018






Working capital(1)

$

4,161

$

19,333

Funded debt(2)

8,978

14,009

Total assets

179,782

175,477




Funded debt to EBITDA(3)

0.3 : 1.0

0.5 : 1.0

Notes:

(1)

Working capital is calculated as current assets less current liabilities.

(2)

Funded debt includes bank indebtedness plus long-term debt less cash.

(3)

EBITDA is based on trailing twelve months adjusted EBITDA plus share
based payments, plus severance and transaction costs.

 

THIRD QUARTER RESULTS

Strad reported an increase in revenue of 7% and an increase in EBITDA of 58%, respectively during the three months ended September 30, 2019 , compared to the same period in 2018. During the three months ended September 30, 2019 , the Industrial Matting segment EBITDA improved by 64% to $9.0 million as compared to $5.5 million for the same period of 2018. Contributing to the improvement was $0.6 million from the adoption of IFRS 16. Equipment Rentals segment EBITDA for the three months ended September 30, 2019 improved by 32% to $2.1 million from $1.6 million . Equipment Rentals EBITDA included a $0.7 million benefit from the adoption of IFRS 16. During the three months ended September 30, 2019 , Strad reported net income of $1.7 million compared to $0.9 million for the same period in 2018.

For the three months ended September 30, 2019 , Strad's Industrial Matting segment reported an increase in revenue and EBITDA of 34% and 64% as compared to the same period in 2018. The increase in revenue was a result of multiple matting projects that occurred in Canada and the U.S. throughout the quarter, as well as significant growth in the overall matting fleet, as compared to the same period of 2018. Earnings before interest and taxes ("EBIT") from Industrial Matting slightly increased by 6% to $4.4 million in 2019 from $4.1 million in 2018. The increase in EBIT is primarily the result of the increase in EBITDA which was offset by increased depreciation of $0.5 million related to the adoption of IFRS 16.

Strad's Equipment Rentals segment reported a decrease in revenue of 23% and an increase in EBITDA of 32% during the three months ended September 30, 2019 , as compared to the same period in 2018. The decrease in revenue was driven by significantly lower rig activity and offset by slightly higher customer pricing in Canada . The decrease in revenue in 2019 was also driven in the U.S. by lower rig activity in the Bakken and Marcellus regions by 5% and 9%, respectively, as compared to the same period in 2018. This was offset by slightly higher rig activity in the Rockies regions and a 15% improvement in average customer pricing in the U.S. for the quarter. EBIT improved to a loss of $1.4 million in 2019 as compared to a loss of $2.4 million during the same period of 2018. The improvement in EBIT is primarily due to the increase in EBITDA.

For the three months ended September 30, 2019 , capital expenditures were $11.7 million in Industrial Matting, of which $7.6 million of the expenditures were for the U.S., and $4.1 million of the expenditures were for Canada . Capital expenditures for Equipment Rentals amounted to $0.1 million . The majority of the capital additions were related to wood matting additions, which were acquired to prepare for and to support industrial matting projects that are planned for 2019.

OUTLOOK

Heading into the fourth quarter of 2019, we are strongly positioned in the Industrial Matting market to continue our growth trajectory within this segment. Three projects of meaningful size, which began in the third quarter, will continue through the fourth quarter and have the potential to gain in scope. The LNG Canada project, and the associated Coastal GasLink project are underway and will continue to provide opportunity for Strad throughout the remainder of 2019 and into subsequent years. The Coastal GasLink project continues with site preparation and preliminary work across western Canada , with the expectation that mainline construction will take place between the years 2020 to 2022. Following the Canadian federal election that took place October 21, 2019 , the minority Liberal government reaffirmed its commitment that the Trans Mountain pipeline expansion would continue as planned. We believe this expansion will continue to generate demand for our matting services for years to come once fall construction commences.

To support and enhance our matting services we have deployed $29.0 million of capital year-to-date in 2019, of which $13.4 million was committed towards opportunities in the U.S. This is consistent with our strategy to double the matting fleet to 180,000 by 2021. To date, the largest matting projects have been in Canada though we have experienced significant growth in the Industrial Matting segment in the US as a result of numerous smaller projects. Of the approved 2019 capital budget of $35.0 million in 2019, we expect approximately half of this capital program to be deployed in the U.S. market. With increasing environmental responsibility and regulation throughout North America , we expect the overall matting market to expand as we also look to increase our market share.

We continue to see challenging times ahead for the Equipment Rentals business throughout North America . Third quarter rig counts were down approximately 37% year-over-year in Canada and 3% year-over-year in the U.S. The Canadian rig forecast for the remainder of the year places 2019 estimates only marginally ahead of historic lows experienced in 2016. Beginning in the first quarter and continuing throughout the third quarter, we moved equipment from Canada to regions in the U.S. experiencing higher demand. Year to date, we have moved approximately $3.8 million net book value of equipment to the U.S. and will continue to be opportunistic with our equipment rentals fleet where possible. The outlook for the U.S. Equipment Rentals business remains stronger than in Canada , however with average rig counts forecasted to be lower in 2020, we expect to be operating in a more competitive environment with only a small exposure to the Permian basin.

On November 26, 2018 , the Company obtained approval from the Toronto Stock Exchange to renew its normal course issuer bid until November 27, 2019 , with the number of common shares the Company can buy back limited to a maximum of 4,067,205 common shares. Under the previous NCIB, which ended on September 9, 2018 , the Company purchased and canceled 2,768,320 common shares. Since the inception of the renewed NCIB through the end of the third quarter of 2019, the Company has purchased 631,747 common shares. Subsequent to the quarter, the Company purchased an additional 1,686,224 common shares at $1.60 for $2.7 million .

While we remain committed to our objective of increasing our matting fleet, our strong cash flow generation and minimal debt balance continue to provide the flexibility to evaluate various alternatives to create shareholder value.

RESULTS OF OPERATIONS

Industrial Matting


Three months ended September 30,

Nine months ended September 30,

($000's)

2019

2018

%

2019

2018

%








Canadian revenue

$

14,452

$

11,865

22%

$

37,887

$

29,760

27%

U.S. revenue

7,428

4,503

65%

18,053

12,210

48%

Total Revenue

21,880

16,368

34%

55,940

41,970

33%








EBITDA (1,2)

8,998

5,474

64%

22,811

13,196

73%

EBITDA as a percentage of revenue

41%

33%


41%

31%









EBIT (3)

4,350

4,106

6%

9,341

9,203

1%

EBIT as a percentage of revenue

20%

25%


17%

22%









Capital expenditures (4)

11,703

10,059

16%

28,640

19,366

48%

Property, plant and equipment

76,096

56,245

35%

76,096

56,245

35%








Equipment Fleet:







Canadian matting fleet

96,260

77,610

24%

96,260

77,610

24%

U.S. matting fleet

42,000

23,600

78%

42,000

23,600

78%

Matting fleet at period end (5)

138,260

101,210

37%

138,260

101,210

37%








Canadian average matting fleet

94,660

62,390

52%

92,270

66,850

38%

U.S. average matting fleet

40,120

22,530

78%

33,060

19,550

69%

Average matting fleet (6)

134,780

84,920

59%

125,330

86,400

45%








Canadian average utilization

38%

36%


31%

30%


U.S. average utilization

39%

43%


38%

33%


Average utilization % (7)

38%

38%


35%

31%









Notes:

(1)

Earnings before interest, taxes, depreciation and amortization (" EBITDA") is not a recognized measure under IFRS,
and, accordingly, Strad's use of such term may not be comparable to similarly defined measures presented by other
entities; see "Non-IFRS and Additional IFRS Measures and Reconciliations".

(2)

The current period results include impacts from the adoption of IFRS 16 "Leases", which was adopted by the Company
on January 1, 2019. These impacts are discussed in further detail as noted in note 3 of the Unaudited Condensed
Consolidated Interim Financial Statements for the three and nine months ended September 30, 2019. Comparative
information has not been restated, and therefore, may not be comparable.

(3)

Earnings (loss) before interest and tax ("EBIT") is an additional measure under IFRS, see "Non-IFRS and Additional
IFRS Measures and Reconciliations".

(4)

Includes purchases of intangible assets.

(5)

Matting fleet balances are as at September 30, 2019 and 2018. 

(6)

Matting fleet balances are averages for the three and nine months ended September 30, 2019 and 2018.

(7)

Utilization includes matting on rent only and is calculated using gross asset value.

 

Revenue for the three months ended September 30, 2019 increased 34% to $21.9 million compared to $16.4 million during the same period of 2018. Increased revenue was driven by the 65% increase in U.S. revenue and a 22% increase in Canadian revenue, as compared to the same quarter of 2018. The increase in the U.S. is due to the increase in average matting fleet by 78%, and an increase in average customer pricing by 38%. This was offset slightly by a decrease in average utilization to 39% for the three months ended September 30, 2019 , from 43% for the same period in 2018. The increase in Canadian revenue was primarily due to three large matting projects that started midway through the quarter. Also contributing to increased Canadian revenue was an increase in average matting fleet by 52%, in conjunction with an increase in average utilization to 38% from 36% for the three months ended September 30, 2019 , as compared for the same period in 2018. This was partially offset by a decrease in average Canadian pricing by 19%.

For the three months ended September 30, 2019 , Strad's average matting fleet increased by 59% to 134,780 mats compared to 84,920 mats for the same period of 2018, to meet the expected increase in customer demand as part of the Company's plan to double the matting fleet to 180,000 mats by late 2021.

EBITDA for the three months ended September 30, 2019 , increased 64% to $9.0 million as compared to $5.5 million during the three months ended September 30, 2018 . EBITDA as a percentage of revenue was 41% for the three months ended September 30, 2019 , compared to 33% for the same period of 2018. The increase in EBITDA was driven primarily by increased U.S. and Canadian revenue and a $0.6 million reduction in operating expenses due to the adoption of IFRS 16.

For the three months ended September 30, 2019 , EBIT improved to $4.4 million compared to $4.1 million during the same period of 2018. The primary driver for the increase in EBIT was due to the increase in EBITDA. This was offset by additional depreciation of $0.5 million related to the adoption of IFRS 16.

Revenue for the nine months ended September 30, 2019 , increased 33% to $55.9 million from $42.0 million for the same period in 2018. Canadian revenue increased 27% to $37.9 million from $29.8 million year-over-year, due in part, to three large matting projects that started midway through the third quarter of 2019. Further contributing to the increase in Canadian revenue was an increase in the Canadian average matting fleet by 38% year-over-year, combined with a slight increase in Canadian utilization to 31% from 30% for the same period of 2018.  Also positively impacting Canadian revenue was the timing of a large scale matting project which began in the fourth quarter of 2018 and carried through to the beginning of the second quarter of 2019. This was offset by an 8% decrease in average Canadian pricing year-over-year. In the U.S., revenue increased 48% to $18.1 million , compared to $12.2 million during the same period in 2018, which was driven by an increase in the U.S. average fleet by 69% and a 27% increase in average customer pricing. Further impacting U.S. revenue for the nine months ended September 30, 2019 was an increase in average utilization to 38% from 33% for the same period of 2018.

During the nine months ended September 30, 2019 , EBITDA increased 73% to $22.8 million compared to $13.2 million during the same period of 2018. The increase in EBITDA is primarily due to the increase in revenue year-over-year and a $1.6 million reduction of operating expenses due to the adoption of IFRS 16.

EBIT for the nine months ended September 30, 2019 , slightly increased 1% to $9.3 million as compared to $9.2 million for the same period in 2018. The increase in EBIT is primarily driven by the increase in EBITDA, which was offset by the increase in depreciation due to growth in matting fleet and the accelerated depreciation of $2.6 million of capital assets with no remaining useful life, as well as depreciation of $1.6 million related to the adoption of IFRS 16, which did not occur in the same period of 2018.

Operating expenses for the three and nine months ended September 30, 2019 , increased 18% and 14%, respectively, to $11.3 million and $28.8 million as compared to $9.6 million and $25.2 million during the same period of 2018. The increase in operating expenses for the three months ended September 30, 2019 was primarily due to non recoverable hauling costs of $1.6 million for various matting projects. This was offset with the adoption of IFRS 16 that resulted in decreased rent and lease payments of $0.6 million . The increase in operating expenses for the nine months ended September 30, 2019 was due to non recoverable hauling costs, service costs, and costs of goods sold related to underutilized mats sold to a customer during the second and third quarter, as compared to the same period in 2018. This was offset by the adoption of IFRS 16, resulting in decreased rent and lease related expenses of $1.6 million .

Equipment Rentals


Three months ended September 30,

Nine months ended September 30,

($000's)

2019

2018

%

2019

2018

%








Canadian revenue

$

5,139

$

7,638

(33)%

$

17,032

$

26,658

(36)%

U.S. revenue

6,279

7,214

(13)%

17,882

18,991

(6)%

Total Revenue

11,418

14,852

(23)%

34,914

45,649

(24)%








EBITDA(1,2)

2,078

1,580

32%

5,114

5,813

(12)%

EBITDA as a percentage of revenue

18%

11%


15%

13%









EBIT (3)

(1,365)

(2,412)

nm

(5,364)

(6,114)

nm

EBIT as a percentage of revenue

(12)%

(16)%


(15)%

(13)%









Capital expenditures(4)

118

142

(17)%

302

1,074

(72)%

Property, plant and equipment

62,247

84,777

(27)%

62,247

84,777

(27)%








Equipment Fleet:







Canadian equipment fleet

3,800

4,220

(10)%

3,800

4,220

(10)%

U.S. equipment fleet

2,060

1,900

8%

2,060

1,900

8%

Equipment fleet at period end(5)

5,860

6,120

(4)%

5,860

6,120

(4)%








Canadian average equipment fleet

3,820

4,250

(10)%

3,870

4,200

(8)%

U.S. average equipment fleet

2,060

1,890

9%

2,030

1,910

6%

Average equipment fleet(6)

5,880

6,140

(4)%

5,900

6,110

(3)%








Canadian average utilization

32%

32%


31%

32%


U.S. average utilization

40%

43%


40%

42%


Average utilization %(7)

36%

36%


35%

36%









Rig Counts(8)







Western Canada

129

206

(37)%

131

193

(32)%

Bakken

52

55

(5)%

55

53

4%

Marcellus

69

76

(9)%

76

78

(3)%

Rockies

70

66

6%

72

67

7%









Notes:

(1)

Earnings before interest, taxes, depreciation and amortization (" EBITDA") is not a recognized measure under IFRS,
and, accordingly, Strad's use of such term may not be comparable to similarly defined measures presented by other
entities; see "Non-IFRS and Additional IFRS Measures and Reconciliations".

(2)

The current period results include impacts from the adoption of IFRS 16 "Leases", which was adopted by the Company
on January 1, 2019. These impacts are discussed in further detail as noted in note 3 of the Unaudited Condensed
Consolidated Interim Financial Statements for the three and nine months ended September 30, 2019. Comparative
information has not been restated, and therefore, may not be comparable.

(3)

Earnings (loss) before interest and tax ("EBIT") is an additional measure under IFRS, see "Non-IFRS and Additional
IFRS Measures and Reconciliations".

(4)

Includes purchases of intangible assets. 

(5)

Equipment rentals fleet balances are as at September 30, 2019 and 2018. 

(6)

Equipment rentals fleet balances are averages for the three and nine months ended September 30, 2019 and 2018.

(7)

Equipment utilization includes surface equipment on rent only and is calculated using gross asset value.

(8)

Source: Baker Hughes "North America Rotary Rig Count". Rig Counts are average rig counts for the period.

 

Revenue for the three months ended September 30, 2019 , decreased 23% to $11.4 million from $14.9 million during the same period in 2018. The decrease in revenue was driven by a 33% decrease in Canadian revenue and a 13% decrease in U.S. revenue. The decrease in Canadian revenue was primarily due to a 37% decrease in rig counts in western Canada . For the three months ended September 30, 2019 , Canadian utilization was comparable at 32%  compared to the same period of 2018, as the Company transferred under-utilized Canadian rental equipment to the U.S., which offset the impact of the decreased rig activity. Canadian revenue also benefited from a slight increase in average customer pricing of 5% as compared to the same period of 2018 due to product mix. The decrease in U.S. revenue was driven by a decrease in rig counts in the Bakken and Marcellus regions by 5% and 9% respectively, which was offset by a 6% increase in rig counts in the Rockies. For the three months ended September 30, 2019 , U.S. average utilization decreased to 40% from 43% for the same period in 2018. This was offset by a 15% increase in average customer pricing for the three months ended September 30, 2019 , as compared to the same period in 2018.

For the three months ended September 30, 2019 , EBITDA increased by 32% to $2.1 million from $1.6 million for the same period of 2018. EBITDA as a percentage of revenue increased to 18% during the three months ended September 30, 2019 , compared to 11% for the same period of 2018. The increase in EBITDA was driven primarily by the decrease in operating expenses of $0.7 million due to the adoption of IFRS 16.

EBIT for the three months ended September 30, 2019 , was a loss of $(1.4) million compared to a loss of $(2.4) million during the same period of 2018. The improvement in EBIT is driven primarily due to lower depreciation on the equipment fleet.

Revenue for the nine months ended September 30, 2019 , decreased 24% to $34.9 million from $45.6 million for the same period in 2018. The decrease in revenue was driven primarily by lower Canadian revenue, which was driven by a 32% decrease in western Canadian rig activity. This resulted in a slight decrease in equipment rental utilization to 31% from 32% year-over-year, as well as a decrease of 4% in average Canadian customer pricing. For the nine months ended September 30, 2019 , the rig counts for Bakken and the Rockies regions increased by 4% and 7%, respectively, which was offset by a slight decrease of 3% in rig counts for Marcellus. Overall, this led to decreased utilization  in the U.S. to 40% from 42%. The decrease in utilization led to a 6% decrease in U.S. revenue for the nine months ended September 30, 2019 as compared to the same period of 2018. This was offset by an increase in average customer pricing by 22% as compared to the nine months ended September 30, 2018 .

During the nine months ended September 30, 2019 , EBITDA decreased 12% to $5.1 million from $5.8 million during the same period in 2018. EBITDA as a percentage of revenue was slightly improved to 15% for the nine months ended September 30, 2019 , compared to 13% for the same period in 2018. The decrease in EBITDA was driven primarily by the decrease in revenue and an increase in non recoverable hauling costs of $0.9 million related to the transfer of equipment from Canada to the U.S. This was offset by a $2.2 million decrease in operating expenses year-over-year due to the adoption of IFRS 16.

EBIT for the nine months ended September 30, 2019 , was a loss of $(5.4) million compared to a loss of $(6.1) million during the same period in 2018. EBIT improved during the nine months ended September 30, 2019 , primarily by the decrease in depreciation expense on the equipment fleet.

Operating expenses for the three and nine months ended September 30, 2019 , decreased by 38% and 32% respectively, to $7.2 million and $23.9 million as compared to $11.5 million and $35.0 million during the same period of 2018. The decrease in operating expenses for the three months ended September 30, 2019 , is the combination of the adoption of IFRS 16 that resulted in decreased rent and lease payments of $0.7 million and lower activity levels. The decrease in operating expenses for the nine months ended September 30, 2019 was a combination of the adoption of IFRS 16 which led to changes in lease accounting, resulting in decreased rent and lease related expense by $2.2 million and lower activity levels. This was offset by the increase of $0.9 million in non recoverable transportation costs.

LIQUIDITY AND CAPITAL RESOURCES

($000's)

September 30, 2019

December 31, 2018




Current assets

$

28,100

$

36,625

Current liabilities

23,939

17,292

Working capital(1)

4,161

19,333




Banking facilities



Operating facility

2,480

762

Syndicated revolving facility

6,498

12,934

Total facility borrowings

8,978

13,696




Total credit facilities(2)

48,500

48,500

Unused credit capacity

39,522

34,804


Notes:

(1)

Working capital is a Non-IFRS measure and calculated by Strad as current
assets less current liabilities, as derived from the Company's consolidated
statement of financial position; see "Non-IFRS and Additional IFRS
Measures and Reconciliations".

(2)

Facilities are subject to certain limitations on accounts receivable, inventory,
and net book value of fixed assets and are secured by a general security
agreement over all of the Company's assets. As at September 30, 2019,
Strad had access to $48.5 million of credit facilities.
 

 

As at September 30, 2019 , working capital was $4.2 million compared to $19.3 million at December 31, 2018 . The change in current assets was a result of an 18% decrease in accounts receivable to $26.3 million for the third quarter of 2019 compared to $32.0 million for the fourth quarter of 2018. The decrease in accounts receivable was primarily due to the collection of a large balance outstanding during the third quarter of 2019, in addition to the timing of smaller collections made in the quarter compared to the fourth quarter of 2018. Inventory and prepaids decreased by 78% and 54% to $0.4 million and $1.0 million at September 30, 2019 , respectively from $1.8 million and $2.1 million at December 31, 2018 respectively. The decrease in inventory was due to mats held in inventory at December 31, 2018 , which were sold in the first quarter of 2019 and the decrease in prepaids was due to a large deposit made in the fourth quarter of 2018 that was cleared out in the first quarter of 2019.

The increase in current liabilities is primarily the result of an increase in bank indebtedness to $2.5 million at September 30, 2019 as compared to $0.8 million at December 31, 2018 . This was also driven by an increase in current lease liabilities of $5.2 million as a result of the adoption of IFRS 16.

Cash flow from operating activities for the nine months ended September 30, 2019 , increased to $37.2 million compared to $23.6 million for the nine months ended September 30, 2018 , due to increased depreciation expense from the adoption of IFRS 16 resulting in a new depreciable asset in 2019 and an increase in non-cash working capital. Funds from operations for the nine months ended September 30, 2019 , increased to $30.6 million compared to $22.2 million for the nine months ended September 30, 2018 . Capital expenditures totaled $29.1 million for the nine months ended September 30, 2019 . Management monitors funds from operations and the timing of capital additions to ensure adequate capital resources are available to fund Strad's capital program.

As at September 30, 2019 , the Company's syndicated banking facility consists of an operating facility with a maximum principal amount of $7.0 million CAD and $5.0 million USD , and a $36.5 million CAD syndicated revolving facility, both of which are subject to certain limitations on accounts receivable, inventory, and net book value of fixed assets and are secured by a general security agreement over all of the Company's assets. As at September 30, 2019 , the Company had access to the maximum credit facilities. The syndicated banking facility will mature on September 29, 2021 . The syndicated banking facility bears interest at bank prime plus a variable rate, which is dependent on the Company's funded debt to covenant EBITDA ratio.

Based on the Company's funded debt to covenant EBITDA ratio, the interest rate on the syndicated credit facility is bank prime plus 0.50% on prime rate advances and at the prevailing rate plus a stamping fee of 1.50% on bankers' acceptances. For the nine months ended September 30, 2019 , the overall effective rates on the operating facility and revolving facility were 3.93% and 3.85%, respectively. As of September 30, 2019 , $2.5 million was drawn on the operating facility and $6.5 million was drawn on the revolving facility. Required payments on the revolving facility are interest only.

As at September 30, 2019 , the Company was in compliance with all of the financial covenants under its credit facilities.

The relevant definitions related to the financial debt covenant ratio terms as set forth in the Company's syndicated banking facility are as follows:

  • Funded debt includes bank indebtedness plus long-term debt less cash.
  • Covenant EBITDA is based on trailing twelve months adjusted EBITDA plus share based payments, plus additional one-time charges, less right of use asset amortization, less interest expense associated with leases.
  • Interest expense ratio is calculated as the ratio of trailing twelve month EBITDA plus share based payments to trailing twelve month interest expense on loans and borrowings.


The above noted definitions are not recognized under IFRS and are provided strictly for the purposes of the financial covenant calculation.

Financial Debt Covenants

As at September 30,
2019

As at December 31,
2018

Funded debt to EBITDA ratio (not to exceed 3.0:1)



Funded debt

$

8,978

$

14,009

Covenant EBITDA

31,405

26,877

Ratio

0.3

0.5




EBITDA to interest coverage ratio (no less than 3.0:1)



Covenant EBITDA

31,405

26,877

Covenant interest expense

946

812

Ratio

33.2

33.1

 

NON-IFRS AND ADDITIONAL IFRS MEASURES AND RECONCILIATIONS

Certain supplementary measures in this Press Release do not have any standardized meaning as prescribed under IFRS and, therefore, are considered non-IFRS measures. These measures are described and presented in order to provide shareholders and potential investors with additional information regarding the Company's financial results, liquidity and its ability to generate funds to finance its operations. These measures are identified and presented, where appropriate, together with reconciliations to the equivalent IFRS measure. However, they should not be construed as alternative measures to IFRS measures, and as they do not have standardized meanings or standardized methods of calculation, the may not be consistent with or comparable to similar measures presented by other companies. These measures are further explained below.

Earnings before interest, taxes, depreciation and amortization ("EBITDA") is not a recognized measure under IFRS.  Management believes that in addition to net income (loss), EBITDA is a useful supplemental measure as it provides an indication of the results generated by the Company's principal business activities prior to consideration of how those activities are financed and taxed. EBITDA is now calculated as net income (loss) before interest, taxes, and depreciation and amortization. Segmented EBITDA is based upon the same calculation for defined business segments, which are comprised of Industrial Matting and Equipment Rentals. The Company's method of calculating EBITDA may differ from that of other organizations and, accordingly, its EBITDA may not be comparable to that of other companies.

Earnings (loss) before interest and taxes ("EBIT") is an additional measure under IFRS.  Management believes that in addition to net income (loss), EBIT is a useful supplemental measure as it provides an indication of the results generated by the Company's principal business activities prior to consideration of how those activities are financed and taxed.

Funds from operations are cash flow from operating activities excluding changes in non-cash working capital. Funds from operations is a non-IFRS measure commonly used in industrial services industries, such as Pipeline, Oil & Gas, Transmission & Distribution and construction, to assist in measuring a company's ability to finance its capital programs, debt repayments and other financial obligations. Funds from operations is not intended to represent net cash generated from operating activities or other measures of financial performance in accordance with IFRS. It is a supplemental measure to gauge performance of the Company before non-cash items. The Company's method of calculating funds from operations may differ from that of other organizations and, accordingly, its funds from operations may not be comparable to that of other companies.

Working capital is calculated as current assets minus current liabilities, as derived from the Company's consolidated statement of financial position. Working capital, cash forecasting, and banking facilities are used by Management to ensure funds are available to finance growth opportunities. 

Funded debt is a measure used in calculating our bank financial covenants. Funded debt is calculated as bank indebtedness plus long-term debt less cash from syndicate institutions.

Reconciliation of Funds from Operations

($000's)




Three months ended September 30,


Nine months ended September 30,


2019


2018


2019


2018






Net cash generated from operating activities

$

10,657


$

7,448


$

37,233


$

23,571

Less:





Changes in non-cash working capital

(731)


(1,186)


6,669


1,357

Funds from Operations

11,388


8,634


30,564


22,214

 

Reconciliation of EBITDA and EBIT

($'000's)







Three months ended September 30,


Nine months ended September 30,


2019


2018


2019


2018







Net income:

$

1,736


$

890


$

1,593


$

4,354

Add (deduct):






Depreciation and amortization

8,245


5,444


24,393


16,116

Income tax recovery

(76)


(62)


(1,763)


(4,452)

Interest expense

344


230


1,005


577

EBITDA(1)

10,249


6,502


25,228


16,595

(Deduct):






Depreciation and amortization

(8,245)


(5,444)


(24,393)


(16,116)

EBIT

2,004


1,058


835


479

(1) The current period results include impacts from the adoption of IFRS 16 "Leases", which was adopted by the
Company on January 1, 2019. These impacts are discussed in further detail as noted in note 3 of the Unaudited
Condensed Consolidated Interim Financial Statements for the three and nine months ended September 30, 2019.
Comparative information has not been restated, and therefore, may not be comparable.

 

Reconciliation of quarterly non-IFRS and additional IFRS measures

($'000's)






Three months ended


Sep 30, 2019


Jun 30, 2019


Mar 31, 2019


Dec 31, 2018






Net income (loss):

$

1,736


$

(1,704)


$

1,566


$

(5,371)

Add (deduct):





Depreciation and amortization(1)

8,245


8,997


7,150


18,253

Income tax (recovery) expense

(76)


(1,820)


132


(2,518)

Interest expense

344


310


351


235

EBITDA(2)(3)

10,249


5,783


9,199


10,599

(Deduct):





Depreciation and amortization

(8,245)


(8,997)


(7,150)


(18,253)

EBIT

2,004


(3,214)


2,049


(7,654)

(1) Included in depreciation and amortization for the three months ended December 31, 2018, are impairment
charges of $10.9 million related to the impairment of Equipment Rentals assets during the fourth quarter of 2018.

(2) During the second quarter of 2018, the Company changed the method of calculation for EBITDA by no
longer adjusting for gains or losses resulting from foreign exchange or the disposal of property, plant and
equipment during the normal course of business. These changes have been updated for prior period balances.

(3) The current period results include impacts from the adoption of IFRS 16 "Leases", which was adopted by the
Company on January 1, 2019. These impacts are discussed in further detail as noted in note 3 of the Unaudited
Condensed Consolidated Interim Financial Statements for the three and nine months ended September 30, 2019.
Comparative information has not been restated, and therefore, may not be comparable.

 


Three months ended


Sep 30, 2018


Jun 30, 2018


Mar 31, 2018


Dec 31, 2017






Net income (loss):

$

890


$

3,861


$

(397)


$

(3,364)

Add (deduct):





Depreciation and amortization

5,444


5,240


5,432


8,918

Income tax (recovery) expense

(62)


(4,428)


38


(653)

Interest expense

230


157


190


158

EBITDA(1)

6,502


4,830


5,263


5,059

(Deduct):





Depreciation and amortization

(5,444)


(5,240)


(5,432)


(8,918)

EBIT

1,058


(410)


(169)


(3,859)

(1) During the second quarter of 2018, the Company changed the method of calculation for EBITDA by no
longer adjusting for gains or losses resulting from foreign exchange or the disposal of property, plant and
equipment during the normal course of business. These changes have been updated for prior period
balances.

 

Reconciliation of funded debt

($'000's)




As at September 30,
2019


As at December 31,
2018

Bank indebtedness at syndicate banks

$

2,480


$

762

Long term debt

6,498


12,934

Lease liabilities


313

Funded Debt

8,978


14,009

 

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION AND STATEMENTS

Certain statements and information contained in this Press Release constitute forward-looking information and statements within the meaning of applicable securities laws. The use of any of the words "expect", "plan", "continue", "estimate", "anticipate", "potential", "targeting", "intend", "could", "might", "should", "believe", "may", "predict", or "will" and similar expressions are intended to identify forward-looking information or statements. More particularly, this Press Release contains forward-looking statements concerning future capital expenditures of the Company, including its 2019 capital program and possible increases thereto, planned allocations of capital expenditures, possible further repurchases under our NCIB, and funding thereof, by way of cash flow, anticipated cash flow, debt, anticipated growing demand for the Company's products and services in 2019 and beyond, and anticipated revenue allocations amongst our service offerings, drilling activity in North America , pricing of the Company's products and services, and expectations for 2019 and potential for improved profitability and the potential impact of changes in governments at legislation, and the potential for growth and expansion of certain components of the Company's business, including further capital being allocated to increase our matting fleet, expanding our matting offerings in the U.S., our strategy to double our matting fleet by 2021, anticipated benefits from cost reductions and timing thereof, manufacturing capacity to meet anticipated demand for the Company's products, and expected exploration and production industry activity including the effects of industry trends, including the potential of LNG infrastructure, on demand for the Company's products. These statements relate to future events or to the Company's future financial performance and involve known and unknown risks, uncertainties and other factors that may cause the Company's actual results, levels of activity, performance or achievements to be materially different from future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements.

Various assumptions were used in drawing the conclusions or making the projections contained in the forward-looking statements throughout this Press Release. The forward-looking information and statements included in this Press Release are not guarantees of future performance and should not be unduly relied upon. Forward-looking statements are based on current expectations, estimates, and projections that involve a number of risks and uncertainties, which could cause actual results to differ materially from those anticipated and described in the forward-looking statements. Such information and statements involve known and unknown risks, uncertainties, and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking information or statements. In addition to other material factors, expectations, and assumptions which may be identified in this Press Release and other continuous disclosure documents of the Company referenced herein, assumptions have been made in respect of such forward-looking statements and information regarding, among other things: the Company will continue to conduct its operations in a manner consistent with past operations; the general continuance of current industry conditions; anticipated financial performance, business prospects, impact of competition, strategies, the general stability of the economic and political environment in which the Company operates; exchange and interest rates; tax laws; the sufficiency of budgeted capital expenditures in carrying out planned activities; the availability and cost of labour and services and the adequacy of cash flow; debt and ability to obtain financing on acceptable terms to fund its planned expenditures, which are subject to change based on commodity prices; market conditions and future oil and natural gas prices; and potential timing delays. Although Management considers these material factors, expectations, and assumptions to be reasonable based on information currently available to it, no assurance can be given that they will prove to be correct.

Readers are cautioned that the foregoing lists of factors are not exhaustive. Additional information on these and other factors that could affect the Company's operations and financial results are included in reports on file with the Canadian Securities Regulatory Authorities and may be accessed through the SEDAR website (www.sedar.com) or at the Company's website. The forward-looking statements and information contained in this Press Release are expressly qualified by this cautionary statement. The Company does not undertake any obligation to publicly update or revise any forward looking statements or information, whether as a result of new information, future events, or otherwise, except as may be required by applicable securities laws.

THIRD QUARTER EARNINGS CONFERENCE CALL

Strad has scheduled a conference call to begin promptly at 8:00 a.m. MT (10:00 a.m. ET) on Friday, November 8, 2019 .

The conference call dial in number is 1-888-664-6383, followed by Conference ID code 99912246
The conference call will also be accessible via webcast at
https://event.on24.com/wcc/r/2102051/9750D577040723EA525FC221CBA9B7AC

A replay of the call will be available approximately after the conference call ends until Friday, November 15, 2019 , at 1:00 p.m. ET . To access the replay, call 1-855-859-2056, followed by pass code 99912246.

Strad Inc.
Interim Consolidated Statement of Financial Position
(Unaudited)

(in thousands of Canadian dollars)

As at September 30, 2019

As at December 31, 2018


$

$

Assets



Current assets



Trade receivables

26,347

32,013

Inventories

409

1,839

Prepaids and deposits

951

2,063

Lease receivable - current portion

351

Income taxes receivable

42

710

Total current assets

28,100

36,625




Non-current assets



Property, plant and equipment

138,487

136,978

Intangible assets

1,176

1,448

Right of use assets

11,542

Income tax receivable

293

305

Lease receivable

184

Deferred income tax assets

121

Total non-current assets

151,682

138,852

Total assets

179,782

175,477




Liabilities



Current liabilities



Bank indebtedness

2,480

762

Accounts payable and accrued liabilities

16,197

16,373

Income taxes payable

94

Lease liabilities - current portion

5,168

157

Total current liabilities

23,939

17,292




Non-current liabilities



Long-term debt

6,498

12,934

Lease liabilities

7,051

156

Deferred income tax liabilities

7,073

9,151

Total liabilities

44,561

39,533




Equity



Share capital

146,334

147,664

Contributed surplus

13,251

13,068

Accumulated other comprehensive income

21,529

23,439

Deficit

(45,893)

(48,227)

Total equity

135,221

135,944

Total liabilities and equity

179,782

175,477

 

Strad Inc.
Interim Consolidated Statement of Income (Loss) and Comprehensive Income (Loss)
For the three and nine months ended September 30, 2019 and 2018
(Unaudited)



(in thousands of Canadian dollars, except per share amounts)





Three months ended
September 30,


Nine months ended
September 30,


2019

2018


2019

2018


$

$


$

$

Revenue

33,298

31,220


90,854

87,619

Expenses






Operating expenses

18,477

21,137


52,665

60,148

Depreciation

6,779

5,373


19,984

15,956

Amortization of intangible assets

138

71


404

160

Amortization of right of use assets

1,328


4,005

Selling, general and administration

4,593

3,633


13,022

11,182

Share-based payments

44

70


183

248

Gain on disposal of property, plant and equipment

(65)

(93)


(197)

(570)

(Gain) loss on foreign exchange

(29)


(47)

16

Interest expense

344

230


1,005

577

Income (loss) before income tax

1,660

828


(170)

(98)

Income tax recovery

(76)

(62)


(1,763)

(4,452)

Income for the period

1,736

890


1,593

4,354







Other comprehensive income (loss)






Items that may be reclassified subsequently to net income






Cumulative translation adjustment

755

(1,085)


(1,910)

1,595

Deferred tax expense on foreign exchange gain


(4,344)

Total comprehensive income (loss)

2,491

(195)


(317)

1,605













Income per share:






Basic

$0.03

$0.02


$0.03

$0.07

Diluted

$0.03

$0.02


$0.03

$0.07


 

Strad Inc.
Interim Consolidated Statement of Cash Flow
For the nine months ended September 30, 2019 and 2018
(Unaudited)

(in thousands of Canadian dollars)




Nine months ended September 30,


2019


2018


$


$

Cash flow provided by (used in)




Operating activities




Net income for the period

$

1,593


$

4,354

Adjustments for items not affecting cash:



Depreciation and amortization

24,393


16,116

Deferred income tax recovery

(1,958)


(4,021)

Share-based payments

183


248

Interest expense

1,005


577

Unrealized foreign exchange loss

89


56

Gain on disposal of property, plant and equipment

(197)


(570)

Book value of used fleet sales in operating activities

5,456


5,454

Changes in items of non-cash working capital

6,669


1,357

Net cash generated from operating activities

37,233


23,571




Investing activities



Purchase of property, plant and equipment

(28,974)


(20,516)

Proceeds from sale of property, plant and equipment

225


1,595

Purchase of intangible assets

(132)


(1,039)

Proceeds from sale of other assets


1,272

Changes in items of non-cash working capital

2,141


1,184

Net cash used in investing activities

(26,740)


(17,504)




Financing activities



Repayment of long-term debt

(6,436)


(4,362)

Repayment of lease liabilities

(3,873)


(252)

Repayment of shareholder loan

91


Normal course issuer bid

(758)


(3,990)

Interest expense

(1,005)


(577)

Changes in items of non-cash working capital

(4)


10

Net cash used in financing activities

(11,985)


(9,171)

Effect of exchange rate changes on cash and cash equivalents

(226)


289

Decrease in cash and cash equivalents

(1,718)


(2,815)




Cash and cash equivalents (including bank indebtedness) - beginning of year

(762)


1,859

Cash and cash equivalents (including bank indebtedness) - end of period

(2,480)


(956)




Cash paid for income tax

120


377

Cash paid for interest

1,019


393

 

ABOUT STRAD

Strad specializes in industrial matting and equipment rentals for projects of any size, from a network of branches across Canada and the United States . Strad aims to exceed customer expectations in many industrial sectors, including Pipeline, Oil and Gas, Transmission & Distribution, as well as Construction.

Strad is headquartered in Calgary, Alberta, Canada . Strad is listed on the Toronto Stock Exchange under the trading symbol "SDY".

SOURCE Strad Inc.


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