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TOTAL ENERGY SERVICES INC. ANNOUNCES Q4 2019 RESULTS

TOTAL ENERGY SERVICES INC. ANNOUNCES Q4 2019 RESULTS

CALGARY, Alberta, March 12, 2020 (GLOBE NEWSWIRE) -- Total Energy Services Inc. (“Total Energy” or the “Company”) (TOT.TO) announces its consolidated financial results for the three months and the year ended December 31, 2019.

Financial Highlights
($000’s except per share data)

  Three Months Ended December 31   Year Ended December 31
       
    2019   2018 Change     2019   2018 Change
Revenue $   151,500 $ 219,846 (31 %)   $   757,398 $ 851,809 (11 %)
Operating Income   14,468   10,748 35 %     16,802   36,558 (54 %)
EBITDA (1)   35,805   29,153 23 %     107,679   114,666 (6 %)
Cashflow   36,896   23,070 60 %     111,727   101,490 10 %
Net Income   8,593   8,570 -       10,091   24,215 (58 %)
Attributable to Shareholders   8,523   8,555 -       10,527   24,458 (57 %)
               
Per Share Data (Diluted)              
EBITDA (1) $   0.79 $ 0.63 25 %   $ 2.36 $ 2.49 (5 %)
Cashflow $   0.82 $ 0.50 64 %   $ 2.45 $ 2.20 11 %
Net Income Attributable to Shareholders $   0.19 $ 0.19 -     $ 0.23 $ 0.53 (57 %)
               
          December 31,
2019
December 31,
2018
Change
Financial Position              
Total Assets         $   997,161 $ 1,078,124 (8 %)
Long-Term Debt and Lease Liabilities (excluding current portion)     248,448   286,319 (13 %)
Working Capital (2)           103,234   124,967 (17 %)
Net Debt (3)           145,214   161,352 (10 %)
Shareholders’ Equity           543,142   560,576 (3 %)
               
Common Shares (000’s)(4)              
Basic and Diluted   45,262   45,933 (1 %)     45,553   46,122 (1 %)
                           

Notes 1 through 4 please refer to the Notes to the Financial Highlights set forth at the end of this release.

Total Energy’s financial results for the three months ended December 31, 2019 reflect continued challenging industry conditions in Canada that were exacerbated by poor field conditions due to wet weather and reduced production activity in the Company’s Compression and Process Services (“CPS”) segment.  Offsetting these challenges were relatively stable business activity levels in the United States and Australia and the receipt of a $17.6 million (US $13.5 million) contract termination payment in the Contract Drilling Services (“CDS”) segment.  Included in fourth quarter cost of services was $2.1 million of unrealized foreign exchange losses arising from the translation of subsidiaries’ working capital balances and $1.4 million of equipment relocation expenses as the Rentals and Transportation Services (“RTS”) segment continued to relocate underutilized equipment from Canada to the United States.  Excluding the unrealized foreign exchange losses and non-recurring equipment relocation expenses, EBITDA for the fourth quarter of 2019 was approximately $39.3 million. 

Total Energy’s CDS segment achieved 18% utilization during the fourth quarter of 2019, recording 1,805 operating days (spud to rig release) with a fleet of 107 drilling rigs, compared to 2,152 operating days, or 21% utilization, during fourth quarter of 2018 with a fleet of 114 drilling rigs.  Excluding the $17.6 million payment that related to the termination in 2017 of contracts for three drilling rigs operating in the United States, revenue per operating day was $23,317 in the fourth quarter of 2019, a 6% increase from the comparable period in 2018.  During the fourth quarter of 2019, the CDS segment had 902 operating days in Canada with a fleet of 82 rigs (12% utilization), 564 days in the United States with a fleet of 20 rigs (31% utilization) and 339 days in Australia with a fleet of 5 rigs (74% utilization).

The RTS segment achieved a utilization rate on major rental equipment of 13% during the fourth quarter of 2019 compared to 27% utilization during the fourth quarter of 2018.  Segment revenue per utilized rental piece in the fourth quarter of 2019 was 68% higher than revenue per utilized piece in the fourth quarter of 2018 due primarily to improved pricing for assets relocated to the United States and the mix of equipment operating.  This segment exited the fourth quarter of 2019 with approximately 10,590 pieces of major rental equipment (excluding access matting) and 87 heavy trucks as compared to 10,600 rental pieces and 90 heavy trucks at December 31, 2018.

Revenue in the CPS segment decreased 65% to $40.7 million for the three months ended December 31, 2019 compared to $115.6 million for the same period in 2018.  This decrease was primarily due to lower fabrication sales activity.  This segment exited the fourth quarter of 2019 with a $48.6 million backlog of fabrication sales orders as compared to $222.9 million at December 31, 2018 and $39.8 million at September 30, 2019. At December 31, 2019, there was 50,200 horsepower in the compression rental fleet, of which approximately 34,800 horsepower was on rent as compared to 34,800 horsepower on rent at December 31, 2018.  The gas compression rental fleet operated at an average utilization rate of 72% during the fourth quarter of 2019 as compared to 70% during the fourth quarter of 2018.

Total Energy’s Well Servicing segment (“WS”) generated $35.2 million of revenue during the fourth quarter of 2019 on 42,175 service hours, or $836 per service hour, with a fleet of 83 service rigs that were located in Canada (57 rigs), the United States (14 rigs) and Australia (12 rigs).  This compares to $37.1 million of revenue during the fourth quarter of 2018 on 42,382 service hours, or $874 per service hour.  Service rig utilization for the three months ended December 31, 2019 was 35% in Canada, 37% in the United States and 72% in Australia. 

During the fourth quarter of 2019 Total Energy repurchased 200,000 common shares at an average price (including commissions) of $5.37 per share pursuant to its normal course issuer bid and declared a quarterly dividend of $0.06 per share to shareholders of record on December 31, 2019.  This dividend was paid on January 31, 2020.  For Canadian income tax purposes, all dividends paid by Total Energy on its common shares are designated as “eligible dividends” unless otherwise indicated.

Outlook

Global economic uncertainty and market volatility remain high, compounded by increasing concerns over the potential economic impact of the coronavirus and recent turmoil in global oil markets.  Total Energy expects that North American industry activity levels will decrease in the near term and remains focused on preserving its liquidity and balance sheet strength.  As such, the Board of Directors has determined to suspend payment of a dividend effective immediately and reduce the Company’s 2020 capital expenditure budget from $23.0 million to $10.0 million.  Until such time as market conditions stabilize and visibility improves, free cash flow will be directed towards the accelerated repayment of debt and share buybacks.

During 2019 Total Energy invested $49.3 million (excluding finance leases) to grow, upgrade and maintain its capital asset base.  This was offset by net proceeds of $8.4 million from the sale of capital assets during 2019 which resulted in a $2.4 million gain on the sale of such assets, being a 40% premium to net book value.  This investment in the Company’s equipment fleet positions Total Energy well in an intensely competitive North American market and also supports the Company’s decision to divert free cash flow towards debt repayment and share buybacks given current equity market valuations.

While drilling activity levels in Canada have increased thus far in 2020 relative to 2019, buoyed by several recent positive developments that have served to move several major energy infrastructure projects forward, political issues continue to provide unique headwinds to the Canadian energy industry.  The Company continues to grow its market share in the United States despite moderating drilling activity, particularly in the RTS segment where underutilized assets have been relocated from Canada.  Industry conditions remain stable in Australia and the recent wildfires had no impact on Total Energy’s Australian operations.

While the CPS segment saw a substantial decline in its year over year financial performance in the fourth quarter of 2019, driven by a decrease in production activity, the fabrication sales backlog at the end of 2019 increased 22% from September 30, 2019.  This represents the first sequential quarterly increase in the CPS fabrication backlog since the third quarter of 2018 as the steady quoting activity that persisted through 2019 began to be converted into sales orders.  While industry conditions remain uncertain and visibility is limited, with over $90 million of parts and raw materials inventory at December 31, 2019 and an almost 80% year over year reduction in inventory purchase commitments at the end of 2019, the CPS segment is expected to generate significant free cash flow as inventory is monetized.  

During 2019, $3.6 million was spent relocating equipment in response to customer demand, primarily in the RTS segment where underutilized equipment was moved from Canada to the United States.  Total Energy expects the relocation of assets and associated costs will moderate significantly in 2020 with the Company’s focus having shifted to finalizing the realignment of the RTS segment’s Canadian fixed cost structure to the realities of a smaller fleet and a more concentrated customer and geographic footprint.

Total Energy continued to generate significant free cash flow in 2019 despite operating its asset base at historically low utilization levels.  The Company’s liquidity position remains strong, with $103.2 million of working capital at December 31, 2019 after reclassifying $40.9 million of mortgage debt maturing in April 2020 as current.  Total Energy expects to renew such maturing mortgage debt at maturity for a new five-year term.  At December 31, 2019, $222.0 million was drawn on Total Energy’s $295.0 million of revolving bank credit facilities that mature in June 2022 unless extended.  The Company remains in compliance with all debt covenants and is able to fully draw on the remaining amounts available under its credit facilities.  Total Energy’s primary credit facility provides the Company with the option to increase such facility by $75 million subject to certain terms and conditions including the agreement of the lenders to increase their commitments.

Conference Call

At 9:00 a.m. (Mountain Time) on March 13, 2020 Total Energy will conduct a conference call and webcast to discuss its fourth quarter financial results.  Daniel Halyk, President & Chief Executive Officer, will host the conference call.  A live webcast of the conference call will be accessible on Total Energy’s website at www.totalenergy.ca by selecting “Webcasts”.  Persons wishing to participate in the conference call may do so by calling (800) 319-4610 or (416) 915-3239.  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 April 13, 2020 by dialing (855) 669-9658 (passcode 4074).

Selected Financial Information

Selected financial information relating to the three months and the year ended December 31, 2019 and 2018 is attached to this news release.  This information should be read in conjunction with the consolidated financial statements of Total Energy and the notes thereto as well as management’s discussion and analysis to be issued in due course and reproduced in the Company’s 2019 Annual report.

Consolidated Statements of Financial Position
(in thousands of Canadian dollars)

  December 31,   December 31,
    2019       2018  
  (audited)   (audited)
Assets      
Current assets:      
Cash and cash equivalents $   19,873     $ 30,640  
Accounts receivable   113,934       155,946  
Inventory   105,672       84,743  
Prepaid expenses and deposits   10,878       17,776  
Income taxes receivable   4,403       7,299  
Other assets   -       527  
Current portion of finance lease asset   664       -  
    255,424       296,931  
       
Property, plant and equipment   730,435       768,613  
Income taxes receivable   7,070       7,070  
Deferred tax asset   -       1,457  
Lease asset   179       -  
Goodwill   4,053       4,053  
  $   997,161     $ 1,078,124  
       
Liabilities & Shareholders' Equity      
Current liabilities:      
Accounts payable and accrued liabilities $   95,742     $ 126,608  
Deferred revenue   3,883       37,316  
Dividends payable   2,710       2,752  
Current portion of lease liabilities   8,270       2,376  
Current portion of long-term debt   41,585       2,912  
    152,190       171,964  
       
Long-term debt   236,278       282,863  
       
Lease liabilities   12,170       3,456  
       
Onerous lease liability   -       1,574  
       
Deferred tax liability   53,381       57,691  
       
Shareholders' equity:      
Share capital   284,510       288,902  
Contributed surplus   7,528       6,384  
Accumulated other comprehensive loss   (16,722 )     (5,320 )
Non-controlling interest   (236 )     238  
Retained earnings   268,062       270,372  
    543,142       560,576  
       
  $   997,161     $ 1,078,124  
               

Consolidated Statements of Comprehensive Income (Loss)
(in thousands of Canadian dollars except per share amounts)

  Three months ended
December 31
Year ended
December 31
    2019     2018     2019     2018  
  (unaudited) (unaudited) (audited) (audited)
         
Revenue $   151,500   $ 219,846   $    757,398    $ 851,809  
         
Cost of services   102,212     178,695     597,336     686,688  
Selling, general and administration   11,778     14,758     49,393     56,301  
Other expense (income)   2,070     (2,730 )   3,928     (5,634 )
Share-based compensation   199     598     1,499     2,396  
Depreciation   20,773     17,777     88,440     75,500  
Operating income   14,468     10,748     16,802     36,558  
         
Gain on sale of property, plant and equipment   564     628     2,437     2,608  
Finance costs   (3,233 )   (3,485 )   (12,938 )   (13,778 )
Net income before income taxes   11,799     7,891     6,301     25,388  
         
Current income tax recovery   (235 )   (7,807 )   (161 )   (2,070 )
Deferred income tax expense (recovery)   3,441     7,128     (3,629 )   3,243  
Total income tax expense (recovery)   3,206     (679 )   (3,790 )   1,173  
         
Net income for period $   8,593   $ 8,570   $   10,091   $ 24,215  
         
Net income (loss) attributable to:        
Shareholders of the Company $   8,523   $ 8,555   $   10,527   $ 24,458  
Non-controlling interest $   70   $ 15   $   (436 ) $ (243 )
         
Income per share:        
Basic and diluted earnings per share $   0.19   $ 0.19   $   0.23   $ 0.53  
         

Consolidated Statements of Comprehensive Income (Loss)

  Three months ended
December 31
Year ended
December 31
  2019 2018 2019 2018
         
Net income for the period $  8,593 $ 8,570   $  10,091   $ 24,215  
         
Other Comprehensive Income (Loss) (OCI):        
         
Foreign currency translation adjustment   19   8,834     (10,626 )   5,539  
Deferred tax effect   15   (940 )   (776 )   (665 )
Total other comprehensive income (loss) for the year   34   7,894     (11,402 )   4,874  
         
Total comprehensive income (loss) $   8,627 $ 16,464   $  (1,311 ) $ 29,089  
         
Total comprehensive income (loss) attributable to:        
         
Shareholders of the Company $   8,557 $ 16,449   $   (875 ) $ 29,332  
Non-controlling interest $   70 $ 15   $   (436 ) $ (243 )
                       

Consolidated Statements of Cash Flows
(in thousands of Canadian dollars)

  Three months ended
December 31
Year Ended
December 31
    2019     2018     2019     2018  
  (unaudited) (unaudited) (audited) (audited)
Cash provided by (used in):        
         
Operations:        
Net income for the period $   8,593   $ 8,570   $    10,091   $ 24,215  
Add (deduct) items not affecting cash:        
Depreciation    20,773     17,777     88,440     75,500  
Share-based compensation    199     598     1,499     2,396  
Gain on disposal of property, plant and equipment    (564 )   (628 )   (2,437 )   (2,608 )
Finance costs   3,234     876     12,257     9,991  
Unrealized (gain) loss on foreign currencies translation   2,025     (2,426 )   2,610     (5,124 )
Current income tax recovery   (235 )   (7,807 )   (161 )   (2,070 )
Deferred income tax expense (recovery)   3,441     7,128     (3,629 )   3,243  
Income taxes (paid) recovered   (570 )   (1,018 )   3,057     (4,053 )
Cashflow   36,896     23,070     111,727     101,490  
Changes in non-cash working capital items:        
Accounts receivable   21,559     (8,699 )   39,641     (5,893 )
Inventory   (22,614 )   8,851     (20,929 )   (16,477 )
Prepaid expenses and deposits   2,179     1,279     9,306     2,060  
Accounts payable and accrued liabilities   4,222     8,419     (34,554 )   19,993  
Onerous leases   -     87     1,297     (1,159 )
Deferred revenue   (1,697 )   (2,349 )   (33,433 )   15,691  
    40,545     30,658     73,055     115,705  
Investments:        
Purchase of property, plant and equipment   (9,013 )   (12,128 )   (49,313 )   (40,630 )
Acquisition of non-controlling interest   -     (1,250 )   (128 )   (1,582 )
Proceeds on sale of other assets   -     2,609     682     3,790  
Proceeds on disposal of property, plant and equipment   1,573     3,790     8,422     7,588  
Changes in non-cash working capital items   92     618     1,128     (1,057 )
    (7,348 )   (6,361 )   (39,209 )   (31,891 )
Financing:        
Advances under long-term debt   5,000     -     15,000     50,000  
Repayment of long-term debt   (8,759 )   (9,843 )   (22,912 )   (91,923 )
Repayment of lease liabilities   (1,881 )   (558 )   (7,164 )   (2,227 )
Partnership distributions to non-controlling interests   (691 )   (250 )   (1,241 )   (725 )
Payment of dividends   (2,721 )   (2,760 )   (10,949 )   (11,007 )
Repurchase of common shares   (1,074 )   (1,472 )   (5,346 )   (4,191 )
Interest paid   (3,198 )   (3,188 )   (12,001 )   (14,255 )
         
    (13,324 )   (18,071 )   (44,613 )   (74,328 )
         
Change in cash and cash equivalents   19,873     6,226     (10,767 )   9,486  
         
Cash and cash equivalents, beginning of year   -     24,414     30,640     21,154  
         
Cash and cash equivalents, end of year $   19,873   $ 30,640   $   19,873   $ 30,640  
         

Segmented Information

The Company provides a variety of products and services in the oil and natural gas industry through five reporting segments, which operate substantially in three geographic segments.  These reporting 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, Compression and Process Services, which includes the fabrication, sale, rental and servicing of natural gas compression and oil and natural gas process equipment and Well Servicing, which includes the contracting of service rigs and the provision of labour required to operate the equipment.  Corporate includes activities related to the Company’s corporate and public issuer affairs.

As at and for the three months ended December 31, 2019 (unaudited, in thousands of Canadian dollars)

null
  Contract Rentals and Compression Well Corporate Total
  Drilling Transportation and Process Servicing (1)  
  Services Services Services