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Total Energy Services Inc. Announces Q2 2019 Results

Total Energy Services Inc. Announces Q2 2019 Results

CALGARY, Alberta, Aug. 08, 2019 (GLOBE NEWSWIRE) -- Total Energy Services Inc. (“Total Energy” or the “Company”) (TOT.TO) announces its consolidated financial results for the three and six months ended June 30, 2019.

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

  Three Months Ended June 30   Six Months Ended June 30
  2019   2018 Change   2019   2018 Change
Revenue $ 212,695     $ 193,823 10 %   $ 434,685   $ 399,038 9 %
Operating Income (loss)   (1,091 )     3,956 nm       7,346     11,516 (36 %)
EBITDA (1)   17,546       23,226 (24 %)     46,961     50,881 (8 %)
Cashflow   22,419       22,472 -       50,872     43,621 17 %
Net Income   2,853       3,662 (22 %)     7,612     6,990 9 %
Attributable to shareholders   3,403       3,829 (11 %)     8,163     6,993 17 %
                                 
Per Share Data (Diluted)                                
EBITDA (1) $ 0.38     $ 0.50 (24 %)   $ 1.03   $ 1.10 (6 %)
Cashflow $ 0.49     $ 0.49 -     $ 1.11   $ 0.94 18 %
Net Income attributable to shareholders $ 0.07     $ 0.08 (13 %)   $ 0.18   $ 0.15 20 %
                                 
          June 30, 
2019
    December 31, 
2018
Change
Financial Position                    
Total Assets         $ 1,026,564   $ 1,078,124 (5 %)
Long-Term Debt and Lease Liabilities (excluding current portion)                     239,287     286,319 (16 %)
Working Capital (2)                     74,283     124,967 (41 %)
Net Debt (3)                     165,004     161,352 2 %
Shareholders’ Equity                     549,851     560,576 (2 %)
                                 
Common Shares (000’s)(4)                                
Basic   45,746       46,223 (1 %)     45,755     46,231 (1 %)
Diluted   45,746       46,223 (1 %)     45,755     46,232 (1 %)

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

“nm” – calculation not meaningful

Total Energy’s financial results for the three months ended June 30, 2019 reflect an approximate 30% year over year decline in drilling activity in Canada offset by relatively stable industry conditions in the United States and Australia. Included in 2019 second quarter cost of services was $0.4 million of equipment relocation expenses in the RTS segment as the Company continued to relocate underutilized RTS equipment from Canada to the United States in response to customer demand.  Operating income, EBITDA and net income for the second quarter of 2019 were also negatively impacted by $1.7 million of other expenses, which consisted of unrealized foreign exchange losses on the translation of foreign subsidiary intercompany balances compared to a $1.7 million unrealized gain in 2018.  As these foreign exchange translations are non-cash in nature, second quarter cashflow was consistent with 2018.  The adoption of IFRS 16 on January 1, 2019 had no material impact on net income, with the resultant $1.3 million reduction in lease related expenses being offset by $1.4 million of increased depreciation and finance costs.

Total Energy’s Contract Drilling Services segment (“CDS”) achieved 13% utilization during the second quarter of 2019, recording 1,304 operating days (spud to rig release) with a fleet of 111 drilling rigs, compared to 1,593 operating days, or 15% utilization, during the second quarter of 2018 with a fleet of 116 drilling rigs.  Revenue per operating day for the second quarter of 2019 was $25,783, a 7% increase from the prior year comparable period due to increased pricing in the United States.  During the second quarter of 2019, the CDS segment had 454 operating days in Canada with a fleet of 82 rigs (6% utilization), 496 days in the United States with a fleet of 24 rigs (23% utilization) and 354 days in Australia with a fleet of 5 rigs (77% utilization).

The Rental and Transportation Services segment (“RTS”) achieved a utilization rate on major rental equipment of 13% during the second quarter of 2019 compared to 19% utilization during the second quarter of 2018.  Segment revenue per utilized rental piece in the second quarter of 2019 was 57% higher than revenue per utilized piece in the second quarter of 2018 due primarily to a change in the mix of equipment operating and improved pricing in the United States.  This segment exited second quarter of 2019 with approximately 10,650 pieces of major rental equipment (excluding access matting) and 86 heavy trucks as compared to 11,000 rental pieces and 112 heavy trucks at June 30, 2018.

Revenue in the Compression and Process Services segment (“CPS”) increased 26% to $132.9 million for the three months ended June 30, 2019 compared to $105.2 million for the same period in 2018.  This increase was primarily due to higher international activity levels and increased manufacturing throughput following a 30% increase in Canadian fabrication capacity in late 2018.  This segment exited the second quarter of 2019 with a $77.2 million backlog of fabrication sales orders as compared to $216.9 million at June 30, 2018 and $159.8 million at March 31, 2019.  At June 30, 2019, there was 46,700 horsepower in the compression rental fleet, of which approximately 31,800 horsepower was on rent as compared to 24,800 horsepower on rent at June 30, 2018.  The gas compression rental fleet operated at an average utilization rate of 68% during the second quarter of 2019 as compared to 57% during the second quarter of 2018.

Total Energy’s Well Servicing segment (“WS”) generated $30.5 million of revenue during the second quarter of 2019 on 31,109 service hours, or $980 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 $35.5 million of revenue during the second quarter of 2018 on 36,472 service hours, or $974 per service hour.  Service rig utilization for the three months ended June 30, 2019 was 18% in Canada, 38% in the United States and 64% in Australia. 

During the second quarter of 2019 Total Energy repurchased 274,100 common shares at an average price (including commissions) of $9.00 per share pursuant to its normal course issuer bid and declared a quarterly dividend of $0.06 per share to shareholders of record on June 28, 2019.  This dividend was paid on July 31, 2019.  For Canadian income tax purposes, all dividends paid by Total Energy on its common shares are designated as “eligible dividends” unless otherwise indicated.

OUTLOOK

Despite a meaningful recovery in realized Canadian oil prices since late 2018, continued challenging industry conditions combined with wet weather conditions have contributed to a significant decrease in Canadian oil and natural gas drilling and completion activity thus far in 2019 compared to 2018.  Market uncertainty has moderated activity levels in the United States.  Australian industry conditions remain relatively stable.

While quoting activity remains active within the CPS segment, the conversion of quotes to orders has slowed compared to historical experience.  During the second quarter, the CPS segment received a court judgment for $11.5 million against a United States midstream operator in regards to a cancelled order from 2015.  The judgment, which includes an award for interest and legal expenses, has been appealed and revenue arising therefrom will be recorded by the CPS segment upon realization.

Total Energy continues to generate significant free cash flow.  During the first half of 2019, the Company completed $22.1 million, or 55%, of its previously announced $40.5 million 2019 capital expenditure budget, reduced long term debt by $16.5 million and returned $8.8 million to shareholders by way of dividends and share repurchases.  $5.9 million of net proceeds have been realized on the disposal of unutilized property, plant and equipment to June 30, 2019, a 48% premium to the net book value of such assets.  The Company’s liquidity position remains strong, with $74.3 million of working capital at June 30, 2019 (after reclassifying $41.9 million of mortgage debt maturing in April 2020 as current), including $33.9 million of cash on hand.  $212.0 million was drawn on Total Energy’s $295.0 million of revolving bank credit facilities at June 30, 2019 and on May 31, 2019 the maturity was extended to June 2022.  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 August 9, 2019 Total Energy will conduct a conference call and webcast to discuss its second 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 (855) 327-6838 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 September 9, 2019 by dialing (855) 669-9658 (passcode 3737).

SELECTED FINANCIAL INFORMATION

Selected financial information relating to the three and six months ended June 30, 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 second quarter report.

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

    June 30   December 31
     2019     2018 
    (unaudited)    (audited) 
Assets        
Current assets:        
Cash and cash equivalents   $   33,867    $   30,640 
Accounts receivable     128,050     155,946
Inventory     84,392     84,743
Prepaid expenses and deposits     10,721     17,776
Income taxes receivable     2,308     7,299
Other assets     -     527
Current portion of finance lease asset     755     -
      260,093     296,931
         
Property, plant and equipment     754,122     768,613
Income taxes receivable     7,070     7,070
Lease asset     464     -
Deferred tax asset     762     1,457
Goodwill     4,053     4,053
    $   1,026,564    $   1,078,124 
         
Liabilities & Shareholders' Equity        
Current liabilities:        
Accounts payable and accrued liabilities   $   110,731    $   126,608 
Deferred revenue     21,086     37,316
Dividends payable     2,731     2,752
Current portion of lease liabilities     8,640     2,376
Current portion of long-term debt     42,622     2,912
      185,810     171,964
         
Long-term debt     226,619     282,863
Lease liabilities     12,668     3,456
Onerous lease liability     -     1,574
Deferred tax liability     51,616     57,691
         
Shareholders' equity:        
Share capital     286,649     288,902
Contributed surplus     6,891     6,384
Accumulated other comprehensive loss     (15,112)     (5,320)
Non-controlling interest     (894)     238
Retained earnings     272,317     270,372
      549,851     560,576
         
    $   1,026,564    $   1,078,124 

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

  Three months ended
June 30
  Six months ended
June 30
  2019   2018   2019   2018
                       
Revenue $   212,695   $ 193,823   $   434,685    $ 399,038
                       
Cost of services   180,861     158,050     360,839     323,619
Selling, general and administration   12,263     14,002     25,025     27,639
Other expense (income)   1,715     (1,688)     2,876     (3,280)
Share-based compensation   494     858     862     1,299
Depreciation   18,453     18,645     37,737     38,245
Operating income (loss)   (1,091)     3,956     7,346     11,516
                       
Gain on sale of property, plant and equipment   184     625     1,878     1,120
Finance costs   (3,362)     (3,497)     (6,607)     (7,353)
Net income before income taxes   (4,269)     1,084     2,617     5,283
                       
Current income tax expense   257     1,939     957     2,774
Deferred income tax recovery   (7,379)     (4,517)     (5,952)     (4,481)
Total income tax recovery   (7,122)     (2,578)     (4,995)     (1,707)
                       
Net income for the period $   2,853   $ 3,662   $   7,612    $ 6,990
                       
Net income (loss) attributable to:                      
Shareholders of the Company $   3,403   $ 3,829   $   8,163    $ 6,993
Non-controlling interest   (550)     (167)     (551)     (3)
                       
Income per share                      
Basic and diluted $   0.07   $ 0.08   $   0.18    $ 0.15
         

Condensed Interim Consolidated Statements of Comprehensive Income (Loss)
(unaudited)

  Three months ended
June 30
  Six months ended
June 30
   2019      2018     2019       2018 
                       
Net income for the period $   2,853   $   3,662   $   7,612    $   6,990 
                       
Foreign currency translation adjustment   (5,550)     144     (9,220)     3,699
Deferred tax effect   (182)     (13)     (572)     (405)
                       
Total other comprehensive income (loss) for the period   (5,732)     131     (9,792)     3,294
                       
Total comprehensive income (loss) $   (2,879)   $   3,793   $   (2,180)   $   10,284
                       
Total comprehensive income (loss) attributable to:                      
                       
Shareholders of the Company $    (2,329)   $   3,960   $   (1,629)   $   10,287
Non-controlling interest   (550)     (167)     (551)     (3)

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

  Three months ended
June 30
  Six months ended
June 30
  2019
    2018
  2019
    2018
                       
Cash provided by (used in):                      
                       
Operations:                      
Net income for the period $   2,853   $ 3,662   $   7,612    $ 6,990
Add (deduct) items not affecting cash:                      
Depreciation   18,453     18,645     37,737     38,245
Share-based compensation   494     858     862     1,299
Gain on sale of property, plant and equipment   (184)     (625)     (1,878)     (1,120)
Finance costs   2,702     3,497     5,926     7,128
Unrealized loss (gain) on foreign currencies translation   1,175     (525)     1,574     (3,092)
Current income tax expense   257     1,939     957     2,774
Deferred income tax recovery   (7,379)     (4,517)     (5,952)     (4,481)
Income taxes recovered (paid)   4,048     (462)     4,034     (4,122)
Cashflow   22,419     22,472     50,872     43,621
                       
Changes in non-cash working capital items:                      
Accounts receivable   18,923     19,178     26,363     20,867
Inventory   11,327     (4,428)     351     (14,002)
Prepaid expenses and deposits   4,586     (2,308)     8,950     1,072
Accounts payable and accrued liabilities   (30,020)     2,674     (17,293)     8,324
Onerous leases   -     (142)     1,297     (1,045)
Deferred revenue   (23,112)     4,889     (16,230)     6,282
Cash provided by operating activities   4,123     42,335     54,310     65,119
                       
Investing:                      
Purchase of property, plant and equipment   (7,369)     (13,472)     (22,069)     (21,077)
Proceeds on sale of other assets   662     -     682     227
Proceeds on disposal of property, plant and equipment   3,230     864     5,900     2,103
Purchase of non-controlling interest   (128)     -     (128)     -
Changes in non-cash working capital items   (1,316)     (578)     913     (2,019)
Cash used in investing activities   (4,921)     (13,186)     (14,702)     (20,766)
                       
Financing:                      
Advances on long-term debt   -     50,000     -     50,000
Repayment of long-term debt   (5,683)     (68,661)     (16,534)     (79,843)
Repayment of lease liabilities   (1,815)     (539)     (3,896)     (1,068)
Dividends to shareholders   (2,746)     (2,701)     (5,498)     (5,475)
Repurchase of common shares   (2,460)     (597)     (3,302)     (597)
Partnership distributions   (500)     (475)     (500)     (475)
Interest paid   (1,881)     (5,510)     (6,651)     (7,980)
Cash used in financing activities   (15,085)     (28,483)     (36,381)     (45,438)
                       
Change in cash and cash equivalents   (15,883)     666     3,227     (1,085)
                       
Cash and cash equivalents, beginning of period   49,750     19,403     30,640     21,154
                       
Cash and cash equivalents, end of period $   33,867   $ 20,069   $   33,867    $ 20,069
                       

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 June 30, 2019 (unaudited, in thousands of Canadian dollars)

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