CALGARY, April 3, 2019 /CNW/ - MATRRIX Energy Technologies
Inc. ("MATRRIX" or the "Corporation") (TSX-V: MXX) announces today
its financial and operational results for the three and twelve
month periods ended December 31,
2018. The Corporation also announces it will be
discontinuing directional drilling operations starting in Q2 2019
and focusing on driving growth and profitability in its drilling
rig division.
The following should be read in conjunction with the
Corporation's audited consolidated financial statements and the
notes thereto for the three and twelve month periods ended
December 31, 2018 and related
management's discussion and analysis, which are available on SEDAR
at www.sedar.com.
All amounts or dollar figures are denominated in thousands of
Canadian dollars except for per share amounts, number of drilling
rigs, directional drilling systems, and operating days, or unless
otherwise noted.
Estimates and forward-looking information are based on
assumptions of future events and actual results may vary from these
estimates. See "Forward-Looking Information" in this press release
for additional details.
2018 OVERVIEW AND OUTLOOK
In Canada, the 2018 drilling
activity tracked 2017 levels for much of the year. Continued
volatile commodity prices for crude oil and natural gas as a result
of record high oil price differentials due to ongoing pipeline
constraints, continued to negatively impact the drilling industry,
by decreasing producer confidence and corresponding capital
budgets.
While the Corporation is cautiously optimistic for 2019, it does
not anticipate a significant recovery in Canadian activity from
2018. The Corporation expects Canadian oil and gas producers will
continue to be faced with the challenge of exporting their products
due to a lack of pipeline infrastructure and continued customer
spending constraints relative to historical levels.
Drilling Rig Division
2018 marked the Corporation's first full calendar year of
operations for its drilling rig division. The drilling rig division
continued its Q4 2017 positive momentum with an annual Adjusted
2018 EBITDA of $3,060 and Q4 2018
Adjusted EBITDA of $1,423. Rig
utilization continued to improve from Q2 2018, as Rig #5 and
Rig #6 were moved from Saskatchewan to Alberta, upgraded and redeployed in September
(Rig #6) and December (Rig #5) of 2018. The Corporation
continues to maintain a strong balance sheet. At
December 31, 2018, the Corporation's total debt to
EBITDA, as defined in the Corporation's lending agreement, was 0.80
to 1. Management believes this provides the Corporation flexibility
to execute on strategic acquisitions and opportunities that align
with the Corporation's growth plan.
During 2018, the Corporation continued its growth plan with the
following highlights:
On January 19, 2018, the
Corporation acquired all of the issued and outstanding shares of D2
Drilling Inc., a private corporation which owned one heavy
telescopic double drilling rig and additional drilling equipment in
the Weyburn/Estevan area of southeast Saskatchewan. The Corporation issued 6,667
common shares of the Corporation at a deemed price of $0.45 per common share and a cash payment of
$530 equal to D2's working capital at
the time of closing, for total consideration of approximately
$3,000.
On May 24, 2018, the Corporation
completed the acquisition of substantially all of the assets of Red
Dog Drilling Inc. ("Red Dog") used in connection with Red Dog's
drilling rig operations consisting of two heavy telescopic double
drilling rigs, one cantilever triple drilling rig and one
cantilever double drilling rig. Pursuant to an asset purchase
agreement dated May 10, 2018 between
Red Dog and the Corporation, the Corporation acquired the Red Dog
assets for a purchase price of $5,511, which was paid as follows: (i) the
issuance of 1,573 common shares at a deemed price of $0.33 per common share, valued at $519; and (ii) $4,992 cash for vendor debt repayment.
On July 25, 2018, the Corporation
announced it's U.S. subsidiary had entered into a management
consulting contract with Randy
Hawkings with the objective of Mr. Hawkings advising the
Corporation regarding existing operations and growth strategies in
the U.S. and internationally. Mr. Hawkings is a seasoned
corporate executive with considerable experience as CEO/President.
Most recently, he was consulting for Trinidad Drilling Ltd.
("Trinidad") in the USA, and prior
thereto he held the position of Executive Vice President, US
Operations for Trinidad. Before
the acquisition of CanElson Drilling Inc. ("CanElson") by
Trinidad in 2015, Mr. Hawkings was
a founder, President and CEO of CanElson.
The Corporation also made significant capital investments in
2018 to upgrade and relocate two rigs from Saskatchewan to Alberta. Both Alberta rigs have been highly utilized since
relocation and are expected to have similar utilization in
2019. The Corporation intends to continue its strategic plan
of geographical diversification of its business and purchasing high
quality assets that have the capability to service a large portion
of the anticipated drilling in the WCSB while providing and
economics required by our customers and the equipment and resources
required by our employees to operate safely and efficiently, and at
the same time providing an appropriate rate of
return. Management believes the Corporation is well positioned
to capture new customer demand while growing with its current
customer base and continues to improve the Corporation's strong
safety culture.
The Corporation now has 11 drilling rigs consisting of nine
complementary heavy telescopic double drilling rigs, one cantilever
triple drilling rig and one cantilever double drilling rig. The
Corporation currently only markets its nine heavy telescopic double
drilling rigs.
Directional Drilling Division
Early in 2018, with the appointment of Mr. Lyle Whitmarsh as President and Chief Executive
Officer, management began a thorough analysis of the directional
drilling division in an effort to improve its performance and
profitability. As a result, the Corporation resized the directional
drilling division in January 2018 by
reducing its headcount and related expenses to align with
forecasted activity in Western
Canada for its directional drilling services. With further
reduced capital budgets within its directional drilling customer
base in 2018, the directional drilling division recorded an annual
Adjusted EBITDA loss of $1,284 and a
Q4 2018 Adjusted EBITDA loss of $337.
The directional drilling division also recorded an impairment
write-down of $1,955 in Q4 2018
(2017: $3,833).
Due to continued directional drilling losses since Q1 2015, and
management's thorough review of the directional drilling division
including the consideration of potential implications of all
available options, management and the Board of Directors determined
that both significant capital investment, which could not be
projected to meet the Corporation's investment criteria, and major
macroeconomic changes, which the Corporation cannot project
happening in the near future in Western Canada, would be required in order to
see a path to profitability for the division. Therefore, the Board
of Directors has approved discontinuing directional drilling
operations starting in Q2 2019. In connection with the cessation of
the directional drilling division, the Corporation announces the
departure of Mr. Charlie Lloyd, Vice
President, Sales. The Board of Directors thanks Mr. Lloyd for
his valuable contribution to the Corporation and wishes him well in
his future endeavors. In addition, Mr. Rob Van Bostelen, Vice President, Operations,
has resigned from his position as an officer of the Corporation but
is continuing as an employee assisting the Corporation in closing
the directional division.
"This was a very difficult decision, but it is the right
decision for Matrrix. With the full support of the Corporation's
Board of Directors, we have determined that it is in the best
interest of the Corporation to discontinue the directional drilling
division and focus on driving growth and profitability in our
drilling rig division. We would like to thank all the staff for
their dedication and hard work," said Lyle
Whitmarsh, Matrrix President and Chief Executive
Officer.
FINANCIAL HIGHLIGHTS
FOURTH QUARTER 2018 SUMMARY (Compared with the fourth
quarter 2017)
- Revenue of $6,566, up 32% from
$4,984;
- Adjusted EBITDA of $1,085, up
206% from $354;
- Impairment write-down related to Directional Drilling assets of
$1,955, down 49% from $3,833;
- Net loss of ($1,999), down 55%
from a net loss of ($4,464);
- Gross margin of $2,471, up 81%
from 1,364.
TWELVE MONTHS ENDED DECEMBER 31,
2018 SUMMARY (Compared with the twelve months ended
December 31, 2017)
- Revenue of $20,873, up 119% from
$9,528;
- Adjusted EBITDA of $1,776, up
1,040% from an Adjusted EBITDA loss of ($189);
- Impairment write-down related to Directional Drilling assets of
$1,955, down 49% from $3,833;
- Net loss of ($1,999), down 55%
from a net loss of ($4,464);
- Gross margin of $6,430, up 128%
from $2,822.
|
Three Months
Ended
|
|
Years
Ended
|
|
|
|
December
31,
|
|
December
31,
|
|
|
(000's CAD
$)
|
2018
|
2017
|
%
Change
|
|
2018
|
2017
|
%
Change
|
|
2016
|
Revenue
|
6,566
|
4,984
|
32%
|
|
20,873
|
9,528
|
119%
|
|
2,334
|
Net loss
|
(1,999)
|
(4,464)
|
(55%)
|
|
(4,124)
|
(6,875)
|
(40%)
|
|
(4,423)
|
Net loss per
share
|
|
|
|
|
|
|
|
|
|
Basic
|
(0.02)
|
(0.06)
|
67%
|
|
(0.03)
|
(0.16)
|
81%
|
|
(0.14)
|
Diluted
|
(0.02)
|
(0.06)
|
67%
|
|
(0.03)
|
(0.16)
|
81%
|
|
(0.14)
|
Adjusted EBITDA
(1)
|
1,085
|
354
|
206%
|
|
1,776
|
(189)
|
(1,040%)
|
|
(1,618)
|
Adjusted EBITDA per
share
|
|
|
|
|
|
|
|
|
|
Basic
|
0.01
|
-
|
nm
|
|
0.01
|
-
|
nm
|
|
(0.05)
|
Diluted
|
0.01
|
-
|
nm
|
|
0.01
|
-
|
nm
|
|
(0.05)
|
Income (loss) from
operations
|
1,376
|
564
|
144%
|
|
2,965
|
209
|
1,319%
|
|
(1,976)
|
Gross Margin
(1)
|
2,471
|
1,364
|
81%
|
|
6,430
|
2,822
|
128%
|
|
603
|
Capital expenditures
related to acquisitions
|
-
|
10,372
|
(100%)
|
|
8,807
|
10,372
|
(15%)
|
|
-
|
Capital
expenditures
|
6,754
|
7,246
|
(7%)
|
|
16,599
|
7,323
|
127%
|
|
144
|
Weighted average
common shares outstanding
|
131,600
|
73,847
|
78%
|
|
130,541
|
43,099
|
203%
|
|
32,185
|
Weighted average
diluted common shares outstanding
|
131,600
|
73,847
|
78%
|
|
130,541
|
43,099
|
203%
|
|
32,185
|
nm - calculation is
not meaningful
|
|
|
|
|
|
|
|
|
|
(1) -
please refer to "Non-GAAP measures" for further
information
|
|
|
|
|
|
|
|
|
|
|
As at December
31,
|
|
|
|
|
2018
|
2017
|
%
Change
|
|
2016
|
Current
assets
|
|
|
|
|
5,636
|
21,334
|
(74%)
|
|
6,317
|
Total
assets
|
|
|
|
|
46,435
|
42,431
|
9%
|
|
18,461
|
Total current
liabilities
|
|
|
|
|
7,692
|
3,511
|
119%
|
|
469
|
Total non-current
liabilities
|
|
|
|
|
2,422
|
2,297
|
5%
|
|
-
|
Shareholders'
Equity
|
|
|
|
|
36,321
|
36,623
|
(1%)
|
|
17,992
|
2018 RESULTS OF OPERATIONS
Consolidated Operations
|
Years
Ended
|
|
December
31,
|
(000's CAD $
except per day amounts)
|
2018
|
2017
|
%
Change
|
|
|
|
|
Drilling rig
revenue
|
16,028
|
1,453
|
1,003%
|
Directional drilling
revenue
|
4,845
|
8,075
|
(40%)
|
Consolidated
revenue
|
20,873
|
9,528
|
119%
|
Direct operating
expenses
|
14,443
|
6,706
|
115%
|
Gross margin
(1)
|
6,430
|
2,822
|
128%
|
Gross margin
%
|
31%
|
30%
|
3%
|
Consolidated net
loss
|
(4,124)
|
(6,875)
|
(40%)
|
General &
administrative expenses
|
6,860
|
7,092
|
(3%)
|
G&A expenses as a
% of revenue
|
33%
|
74%
|
(55%)
|
Adjusted EBITDA
(1)
|
1,776
|
(189)
|
(1,040%)
|
Adjusted EBITDA
%
|
9%
|
(2%)
|
550%
|
Drilling rigs
operating days
|
859
|
80
|
974%
|
Drilling rigs revenue
per day
|
18.7
|
18.2
|
3%
|
Directional drilling
operating days(2)
|
572
|
946
|
(40%)
|
Directional drilling
revenue per day
|
8.4
|
8.3
|
1%
|
(1) -
please refer to "Non-GAAP measures" for further
information
|
|
|
|
(2) MATRRIX calculates a stand-by day
as 0.5 day of an operating day.
|
|
|
|
- In 2018, revenue was $20,873, an
increase of $11,345 (119%) compared
to $9,528 in 2017, as a result of the
first full calendar year of revenue associated with the new
drilling rig division, as well as increases in revenue per day in
both divisions, partially offset by decreases in operating activity
in the Corporation's directional drilling division.
- In 2018, gross margin was $6,430,
an increase of $3,608 (128%) compared
to $2,822 in 2017. As a percentage of
revenue, gross margin was 31% in 2018 an increase of 3% from a
gross margin of 30% in 2017. The increase in gross margin was a
direct result of the profitability of the drilling rig
division.
- General and administrative ("G&A") expenses in 2018 were
$6,860 a decrease of $232 (3%) compared to G&A expenses of
$7,092 in 2017. G&A
expenses for the year ended December 31,
2018 includes an impairment expense of $1,955 compared to $3,833 for the corresponding 2017 period related
to the directional drilling division. Overall, consolidated G&A
expenses increased in 2018 due to the first full calendar year of
operations for the drilling rig division related to an increase in
overall employee headcount and corresponding expenses.
- Adjusted EBITDA in 2018 was $1,776, an increase of $1,965 (1,040%) compared to Adjusted EBITDA of
($189) in 2017. The increase in
Adjusted EBITDA was related to the profitability of the new
drilling rig division.
Directional Drilling Operations
|
Years
Ended
|
|
December
31,
|
(000's CAD $
except per day amounts)
|
2018
|
2017
|
%
Change
|
|
|
|
|
Directional drilling
revenue
|
4,845
|
8,075
|
(40%)
|
Direct operating
expenses
|
4,062
|
5,735
|
(29%)
|
Gross margin
(1)
|
783
|
2,340
|
(67%)
|
Gross margin
%
|
16%
|
29%
|
(45%)
|
Directional drilling
net loss
|
(4,036)
|
(6,503)
|
(38%)
|
G&A
expenses
|
4,197
|
6,879
|
(39%)
|
G&A expenses as a
% of revenue
|
87%
|
85%
|
2%
|
Adjusted EBITDA
(1)
|
(1,283)
|
(458)
|
180%
|
Adjusted EBITDA
%
|
(26%)
|
(6%)
|
(333%)
|
Directional drilling
operating days(2)
|
572
|
946
|
(40%)
|
Directional drilling
revenue per day
|
8.4
|
8.3
|
1%
|
nm - not
meaningful
|
|
|
|
(1) -
please refer to "Non-GAAP measures" for further
information
|
|
|
|
(2) MATRRIX calculates a stand-by day
as 0.5 day of an operating day.
|
|
|
|
- In 2018, revenue for the directional drilling division was
$4,845, a decrease of $3,230 (40%) compared to revenue of $8,075 in 2017. As revenue per day remained
relatively flat in 2018 compared to the corresponding 2017 period,
the overall decrease in revenue was primarily related to the
decrease in operating activity from the Corporation's customer
base.
- Direct operating expenses are primarily comprised of personnel,
equipment operating and repair costs, shop expenses and direct
G&A expenses in support of field operations. Direct
operating expenses were $4,062 in
2018, a decrease of $1,673 (29%)
compared to $5,735 in 2017, this
decrease is directly related to the decrease in operating days in
2018 compared to 2017. On a per operating day basis, direct
operating expenses increased $1.0
(16%) per day from $6.1 in 2017 to
$7.1 in 2018. Gross margins as
a percentage of revenue for 2018 were 16% in the division, down 45%
from gross margins of 29% in 2017. The primary reason for the
decrease in profitability was related to increased repair and
maintenance costs from rental of third-party
Measurement-While-Drilling ("MWD") equipment, increased deferred
repairs and maintenance on MWD and motor equipment and increased
day rates related to field personnel.
- G&A expenses were $4,197, a
decrease of $2,682 (39%) compared to
2017. Directional drilling G&A expenses for the three months
ended December 31, 2018 includes an
asset impairment expense of $1,955
compared to $3,833 for the
corresponding 2017 period. Overall there was a decrease in
directional drilling G&A expenses for Q4 2018 compared to Q4
2017 related to a reduction in headcount in the division and the
reallocation of corporate expenses of salaries, legal, IT, and rent
between the directional drilling and drilling rig divisions. The
decrease was partially offset by non-recurring restructuring
expenses of $330 in the
year.
- The overall effect of the decrease in revenues and the increase
in direct operating expenses per day partially offset by the
decrease in G&A expenses resulted in Adjusted EBITDA loss for
the division of ($1,283) in 2018, a
decrease of $825 (180%) from Adjusted
EBITDA loss of ($458) in 2017.
Drilling Rig Operations
|
Years
Ended
|
|
December
31,
|
(000's CAD $
except per day amounts)
|
2018
|
2017
|
%
Change
|
|
|
|
|
Drilling rig
revenue
|
16,028
|
1,453
|
1,003%
|
Direct operating
expenses
|
10,381
|
971
|
969%
|
Gross margin
(1)
|
5,647
|
482
|
1,072%
|
Gross margin
%
|
35%
|
33%
|
6%
|
Drilling rig net
loss
|
(88)
|
(372)
|
(76%)
|
G&A
expenses
|
2,663
|
213
|
1,150%
|
G&A expenses as a
% of revenue
|
17%
|
15%
|
13%
|
Adjusted EBITDA
(1)
|
3,059
|
269
|
1,037%
|
Adjusted EBITDA
%
|
19%
|
19%
|
0%
|
Drilling rig
operating days
|
859
|
80
|
974%
|
Drilling rig revenue
per day
|
18.7
|
18.2
|
3%
|
(1) -
please refer to "Non-GAAP measures" for further
information
|
|
|
|
- Operations for the Corporation's drilling rig division
commenced on November 21, 2017,
therefore the 2017 figures include the results for the period from
November 22, 2017 through
December 31, 2017.
- The drilling rig division started 2018 with six heavy
telescopic rigs operating in southeast Saskatchewan. On January 19, 2018, the drilling rig division added
an additional heavy telescopic double drilling rig with the
acquisition of D2. On May 24, 2018,
the division added an additional four rigs (two heavy telescopic
double drilling rigs, one cantilever triple drilling rig and one
cantilever double drilling rig) through the business combination
with Red Dog. Of the four rigs purchased from Red Dog, only the two
heavy telescopic doubles have been activated for operations.
- In 2018, revenue in the drilling rig division was $16,028, an increase of $14,575 (1,003%) compared to revenue of
$1,453 in 2017. The increase was a
result of the first full year of operations, an increase in active
rigs from six at the end of 2017 to nine active rigs at the end of
2018, and an increase in revenue per day of 3% from $18.2 in 2017 to $18.7 in 2018. The increase in revenue per day
was related to the higher day rates in Alberta than in Saskatchewan as the Corporation relocated two
rigs from Saskatchewan to
Alberta during the second half of
2018.
- Operating days in the drilling rig division of 859 days in 2018
were up 973% from 80 operating days in 2017, a result of the first
full calendar year of operations for the drilling rig division and
the addition of three active rigs during 2018. The drilling rig
utilization for 2018 was 29% which was on par with the CAODC
industry average utilization rate of 29%.
- Direct operating expenses are primarily comprised of personnel,
equipment operating and repair costs, and shop expenses. Direct
operating expenses in 2018 were $10,381, up $9,410
(969%) from $971 in 2017, as a result
of the increased operating activity from the first full year of
operations. For the year ended December 31,
2018, gross margins as a percentage of revenue were 35% in
the division, up 6% from gross margins of 33% in 2017. The increase
is primarily as a result of the 3% increase in revenue per
operating day while keeping costs per day in line with 2017.
- In 2018, Adjusted EBITDA in the drilling rig division was
$3,059, a $2,790 (1,037%) increase from $269 in 2017, as result of the aforementioned
first full year of operations and increase in active rig count over
the year.
|
Years
Ended
|
|
December
31,
|
|
2018
|
2017
|
%
Change
|
Drilling rigs
(activated rigs)
|
|
|
|
Opening
balance
|
6
|
-
|
na
|
Acquired
|
3
|
6
|
(50%)
|
Ending
balance
|
9
|
6
|
50%
|
|
|
|
|
Operating days (spud
to rig release)
|
859
|
80
|
974%
|
Utilization
|
29%
|
25%
|
14%
|
na - not
applicable
|
|
|
|
Impairment of Property and Equipment
|
Years
Ended
|
|
December
31,
|
(000's CAD
$)
|
2018
|
2017
|
%
Change
|
Impairment of
assets
|
1,955
|
3,833
|
(49%)
|
The Corporation reviews the carrying value of its assets at each
reporting period for indicators of impairment. The Corporation
currently has two CGUs, the service of directional drilling that
includes interchangeable performance motor drilling assets, and
drilling rigs.
For the year ended December 31,
2018, the Corporation completed its assessment and the
recoverable value of the property and equipment of both of the
Corporation's CGUs. The Corporation identified that the directional
drilling CGU carrying amount exceeded the fair value amount using
the market approach. As a result, an impairment of $1,852 was recorded as a reduction in directional
drilling property and equipment for the year ended December 31, 2018 (2017 - $3,630).
Other Items
|
Years
Ended
|
|
December
31,
|
(000's CAD
$)
|
2018
|
2017
|
%
Change
|
Gain from disposition
of property and equipment
|
301
|
140
|
115%
|
Gain from equipment
lost in hole
|
635
|
310
|
105%
|
Interest and other
income
|
45
|
21
|
114%
|
Interest on operating
loan
|
(19)
|
-
|
nm
|
Interest on
convertible debenture
|
(261)
|
(53)
|
392%
|
Accretion on
debentures
|
(125)
|
-
|
nm
|
Foreign exchange gain
(loss)
|
(88)
|
44
|
(300%)
|
Non-recurring
restructuring charges
|
(330)
|
-
|
nm
|
Transaction
costs
|
(683)
|
(454)
|
50%
|
Other
items
|
(525)
|
8
|
(6,663%)
|
nm - not
meaningful
|
|
|
|
For the year ended December 31,
2018, the Corporation recorded a gain of $301 related to the sale of certain directional
drilling and drilling rig equipment compared to $140 in 2017. In addition, for the year ended
December 31, 2018, the Corporation
recorded a gain of $635 related to
equipment lost downhole compared to $310 in 2017. The timing of lost-in-hole
recoveries is not within the control of the Corporation and
therefore can fluctuate significantly from period to period.
Interest and other income primarily related to interest earned from
term deposits and sales of scrap materials.
The Corporation also incurred non-recurring restructuring
charges related to a severance payment and associated legal
expenses of $330 during the year
(2017 - $nil).
Non-capitalizable transaction costs related to acquisitions of
$683 were incurred in 2018, an
increase of $229 (50%) from
$454 in 2017. Transaction costs
represent non-capitalizable amounts directly related to drilling
rig acquisitions which consist of due diligence and external legal
fees.
FOURTH QUARTER RESULTS OF OPERATIONS
Consolidated Operations
|
Three Months
Ended
|
|
December
31,
|
(000's CAD $
except per day amounts)
|
2018
|
2017
|
%
Change
|
|
|
|
|
Drilling rig
revenue
|
6,025
|
1,453
|
315%
|
Directional drilling
revenue
|
541
|
3,531
|
(85%)
|
Consolidated
revenue
|
6,566
|
4,984
|
32%
|
Direct operating
expenses
|
4,095
|
3,620
|
13%
|
Gross margin
(1)
|
2,471
|
1,364
|
81%
|
Gross margin
%
|
38%
|
27%
|
41%
|
Consolidated net
loss
|
(1,999)
|
(4,464)
|
(55%)
|
G&A
expenses
|
3,390
|
4,943
|
(31%)
|
G&A expenses as a
% of revenue
|
52%
|
99%
|
(47%)
|
Adjusted EBITDA
(1)
|
1,085
|
354
|
206%
|
Adjusted EBITDA
%
|
17%
|
7%
|
143%
|
Drilling rigs
operating days
|
292
|
80
|
265%
|
Drilling rigs revenue
per day
|
20.6
|
18.2
|
14%
|
Directional drilling operating days(2)
|
62
|
391
|
(84%)
|
Directional drilling
revenue per day
|
8.7
|
8.9
|
(2%)
|
(1) -
please refer to "Non-GAAP measures" for further
information
|
|
|
|
(2) MATRRIX calculates a stand-by day
as 0.5 day of an operating day.
|
|
|
|
- For the three months ended December 31,
2018, the Corporation recorded revenue of $6,566, an increase of $1,582 (32%) compared to $4,984 recorded in the three months ended
December 31, 2017, as a result of the
full three months of revenue associated with the new drilling rig
division and an increase in revenue per day in the drilling rig
division, offset by an 85% decrease in revenue related to the
directional drilling division.
- For the three months ended December 31,
2018, gross margin was $2,471,
an increase of $1,107 (81%) compared
to $1,364 for the three months ended
December 31, 2017. Gross margin
as a percentage of revenue was 38% in the fourth quarter of 2018 an
increase of 41% from a gross margin of 27% in the fourth quarter of
2017. The increase in gross margin as a percentage of revenue is
directly attributable to the positive results in the drilling rig
division partially offset by lower margins in the directional
drilling division.
- G&A expenses for the three months ended December 31, 2018 were $3,390, a decrease of $1,553 (31%) compared to $4,943 for the corresponding 2017 period. G&A
expenses for Q4 2018 includes an impairment expense of $1,955 compared to $3,833 for the corresponding 2017 period related
to the directional drilling division. Overall, consolidated G&A
expenses increased in Q4 2018 due to the first full calendar year
of operations for the drilling rig division related to an increase
in overall employee headcount and corresponding expenses.
- Adjusted EBITDA for the three months ended December 31, 2018, was $1,085, an increase of $731 (206%) compared to Adjusted EBITDA of
$354 for the three months ended
December 31, 2017. The increase in
Adjusted EBITDA was primarily related to the profitability of the
new drilling rig division.
Directional Drilling Operations
|
Three Months
Ended
|
|
December
31,
|
(000's CAD $
except per day amounts)
|
2018
|
2017
|
%
Change
|
|
|
|
|
Directional drilling
revenue
|
541
|
3,531
|
(85%)
|
Direct operating
expenses
|
524
|
2,649
|
(80%)
|
Gross margin
(1)
|
17
|
882
|
(98%)
|
Gross margin
%
|
3%
|
25%
|
(88%)
|
Directional drilling
net loss
|
(2,518)
|
(4,092)
|
(38%)
|
G&A
expenses
|
2,321
|
4,730
|
(51%)
|
G&A expenses as a
% of revenue
|
429%
|
134%
|
220%
|
Adjusted EBITDA
(1)
|
(337)
|
85
|
(496%)
|
Adjusted EBITDA
%
|
(62%)
|
2%
|
(3,200%)
|
Directional drilling
operating days(2)
|
62
|
391
|
(84%)
|
Directional drilling
revenue per day
|
8.7
|
8.9
|
(2%)
|
(1) -
please refer to "Non-GAAP measures" for further
information
|
|
|
|
(2) MATRRIX calculates a stand-by day
as 0.5 day of an operating day.
|
|
|
|
- For the three months ended December 31,
2018, revenue for the directional drilling division was
$541, a decrease of $2,990 (85%) compared to revenue of $3,531 for the same period in 2017. The decrease
in revenue was primarily related to the decrease in operating
activity from the Corporation's customer base.
- Direct operating expenses are primarily comprised of personnel,
equipment operating and repair costs, shop expenses and direct
G&A expenses in support of field operations. Direct operating
expenses for the three months ended December
31, 2018 were $524, a decrease
of $2,125 (80%) compared to
$2,649 for the three months ended
December 31, 2017. Gross margin as a
percentage of revenue for the three months ended December 31, 2018, was 3% in the division, down
88% from a gross margin of 25% in the fourth quarter of 2017. The
primary reason for the decrease was related to increased repair and
maintenance costs from rental of third-party
Measurement-While-Drilling ("MWD") equipment, increased deferred
repairs and maintenance on MWD and motor equipment and
increased day rates related to field personnel.
- G&A expenses were $2,321, a
decrease of $2,409 (51%) compared to
2017. Directional drilling G&A expenses for the three months
ended December 31, 2018 includes an
impairment expense of $1,955 compared
to $3,833 for the corresponding 2017
period. Overall there was a decrease in G&A expenses for the
three months ended December 31, 2018
compared to the 2017 corresponding period primarily related to a
reduction in headcount in the division and the reallocation of
corporate expenses of salaries, legal, IT, and rent between the
directional drilling and` drilling rig divisions.
- The overall effect of the decrease in revenues and the increase
in direct operating expenses per day partially offset by the
decrease in G&A expenses resulted in Adjusted EBITDA loss for
the division of ($337) in the fourth
quarter of 2018, a decrease of $422
(496%) from Adjusted EBITDA of $85 in
the comparable 2017 period.
Drilling Rig Operations
|
Three Months
Ended
|
|
December
31,
|
(000's CAD $
except per day amounts)
|
2018
|
2017
|
%
Change
|
|
|
|
|
Drilling rig
revenue
|
6,025
|
1,453
|
315%
|
Direct operating
expenses
|
3,571
|
971
|
268%
|
Gross margin
(1)
|
2,454
|
482
|
409%
|
Gross margin
%
|
41%
|
33%
|
24%
|
Drilling rig net
income (loss)
|
519
|
(372)
|
(240%)
|
G&A
expenses
|
1,069
|
213
|
402%
|
G&A expenses as a
% of revenue
|
18%
|
15%
|
20%
|
Adjusted EBITDA
(1)
|
1,422
|
269
|
429%
|
Adjusted EBITDA
%
|
24%
|
19%
|
26%
|
Drilling rig
operating days
|
292
|
80
|
265%
|
Drilling rig revenue
per day
|
20.6
|
18.2
|
13%
|
(1) -
please refer to "Non-GAAP measures" for further
information
|
|
|
|
- Operations for the Corporation's drilling rig division
commenced on November 21, 2017,
therefore the figures for the period ended December 31, 2017 include the results for the
period from November 22, 2017 through
December 31, 2017.
- For the three months ended December 31,
2018, revenue in the drilling rig division was $6,025, an increase of $4,572 (315%) compared to revenue of $1,453 for the three months ended December 31, 2017. The increase was a result of
the first full quarter of operations for the drilling division, an
increase in active rigs from six at the end of 2017 to nine active
rigs at the end of 2018, and an increase in revenue per day of 13%
from $18.2 in the fourth quarter of
2017 to $20.6 in the comparable 2018
period. The increase in revenue per day was related to the higher
day rates in Alberta than in
Saskatchewan as the Corporation
relocated two rigs from Saskatchewan to Alberta during the second half of
2018.
- Operating days in the drilling rig division of 292 days in the
fourth quarter of 2018 was a 265% increase over 80 operating days
in the fourth quarter of 2017, a result of the full quarter's
operations and the increase in rig count. The drilling rig
utilization for the quarter ended December
31, 2018 was 35%, above the CAODC industry average
utilization rate of 28%.
- Direct operating expenses are primarily comprised of personnel,
equipment operating and repair costs, and shop expenses. Direct
operating expenses for the three months ended December 31, 2018 were $3,571, up $2,600
(268%) from $971 for the three months
ended December 31, 2017, also a
result of the first full quarter of operations and the increase in
active rig count over the year. For the fourth quarter ended
December 31, 2018, gross margin as a
percentage of revenue was 41% in the division, up 24% from a gross
margin of 33% in the fourth quarter of 2017. The increase in gross
margin as a percentage of revenue is primarily as a result of
decreased maintenance costs per day compared to the fourth quarter
of 2017 when additional expenditures were made to put the rigs to
use as well as fixed operating costs being allocated over more
operating days and an increase in revenue per day.
- G&A expenses for the three months ended December 31, 2018 were $1,069, up $856
(402%) from $213 for the three months
ended December 31, 2017, a result of
the first full quarter of operations as well as the reallocation of
corporate expenses related to salaries, legal, IT, and rent between
the directional drilling and drilling rig divisions.
- For the three months ended December 31,
2018, Adjusted EBITDA in the drilling rig division was
$1,422, a $1,153 (429%) increase from $269 in the fourth quarter of 2017, as result of
the first full quarter of operations, an increase in active rig
count over the prior year and higher gross margin.
NON-GAAP MEASURES
This MD&A contains references to (i) Adjusted EBITDA and
(ii) gross margin. These financial measures are not measures that
have any standardized meaning prescribed by IFRS and are therefore
referred to as non-GAAP measures. The non-GAAP measures used by the
Corporation may not be comparable to similar measures used by other
companies.
(i)
|
Adjusted EBITDA is
defined as "income (loss) before interest income, interest expense,
taxes, business acquisition transaction costs, depreciation and
amortization, share-based compensation expense, gains on disposal
of property and equipment, impairment expenses, interest and other
income, foreign exchange, non-recurring restructuring charges,
accretion of debentures and other income/expenses, and any other
items that the Corporation considers appropriate to adjust given
the irregular nature and relevance to comparable operations."
Management believes that in addition to net and total comprehensive
income (loss), Adjusted EBITDA is a useful supplemental measure as
it provides an indication of the results generated by the
Corporation's principal business activities prior to consideration
of how these activities are financed, how assets are depreciated,
amortized and impaired, the impact of foreign exchange, or how the
results are affected by the accounting standards associated with
the Corporation's stock-based compensation plan. Investors should
be cautioned, however, that Adjusted EBITDA should not be construed
as an alternative to net income (loss) and comprehensive income
(loss) determined in accordance with IFRS as an indicator of the
Corporation's performance. The Corporation's method of
calculating Adjusted EBITDA may differ from that of other
organizations and, accordingly, it's Adjusted EBITDA may not
be comparable to that of other companies.
|
|
Three Months
Ended
|
Years
Ended
|
|
December
31,
|
|
December
31,
|
(000's CAD
$)
|
2018
|
2017
|
%
Change
|
|
2018
|
2017
|
%
Change
|
Net loss
|
(1,999)
|
(4,464)
|
(55%)
|
|
(4,124)
|
(6,875)
|
(40%)
|
Depreciation
|
1,097
|
801
|
37%
|
|
3,470
|
2,638
|
32%
|
Interest on operating
loan
|
19
|
-
|
nm
|
|
19
|
-
|
nm
|
Interest on
Convertible Debenture
|
66
|
53
|
25%
|
|
261
|
53
|
392%
|
(Gain)/loss from
disposition of property and
equipment
|
12
|
(140)
|
(109%)
|
|
(301)
|
(140)
|
115%
|
Gain from equipment
lost in hole
|
-
|
(268)
|
(100%)
|
|
(635)
|
(310)
|
105%
|
Interest and other
income
|
(16)
|
(2)
|
700%
|
|
(45)
|
(21)
|
114%
|
Share-based
payments
|
47
|
99
|
(53%)
|
|
246
|
223
|
10%
|
Transaction
costs
|
144
|
454
|
(68%)
|
|
683
|
454
|
50%
|
Foreign exchange
(gain) loss
|
29
|
(12)
|
(342%)
|
|
88
|
(44)
|
(300%)
|
Accretion of
debentures
|
27
|
-
|
nm
|
|
125
|
-
|
nm
|
Impairment of
assets
|
1,955
|
3,833
|
(49%)
|
|
1,955
|
3,833
|
(49%)
|
Non recurring
restructuring charges
|
-
|
-
|
nm
|
|
330
|
-
|
nm
|
Deferred tax
recovery
|
(296)
|
-
|
nm
|
|
(296)
|
-
|
nm
|
Adjusted
EBITDA
|
1,085
|
354
|
206%
|
|
1,776
|
(189)
|
(1,040%)
|
nm - not
meaningful
|
|
|
|
|
|
|
|
(ii)
|
Gross margin is
defined as "gross profit from services revenue before stock-based
compensation and depreciation". Gross margin is a measure that
provides shareholders and potential investors additional
information regarding the Corporation's cash generating and
operating performance. Management utilizes this measure to assess
the Corporation's operating performance.
|
|
Three Months
Ended
|
|
Years
Ended
|
|
December
31,
|
|
December
31,
|
(000's CAD
$)
|
2018
|
2017
|
%
Change
|
|
2018
|
2017
|
%
Change
|
Income (loss) from
operations
|
1,376
|
564
|
144%
|
|
2,965
|
209
|
1,319%
|
Depreciation
|
1,095
|
800
|
37%
|
|
3,465
|
2,613
|
33%
|
Gross
margin
|
2,471
|
1,364
|
81%
|
|
6,430
|
2,822
|
128%
|
Gross margin
%
|
38%
|
27%
|
41%
|
|
31%
|
30%
|
3%
|
FORWARD-LOOKING INFORMATION
Certain statements contained in this press release constitute
forward-looking statements or forward-looking information
(collectively, "forward-looking information"). Forward-looking
information relates to future events or the Corporation's future
performance. All information other than statements of historical
fact is forward-looking information. The use of any of the words
"anticipate", "plan", "contemplate", "continue", "estimate",
"expect", "intend", "propose", "might", "may", "will", "could",
"believe", "predict", and "forecast" are intended to identify
forward-looking information.
This press release contains forward-looking information
pertaining to, among other things: the expectation that the
Corporation's drilling rig utilization in 2019 will be similar to
2018 ; the Corporation's expectation that industry activity will
remain challenged ; the Corporation's strategic plan, including
with respect to asset purchases and geographic diversification; the
expectation that the Corporation's strategic plans of acquiring
assets at prices that are expected to provide a high rate of return
for shareholders; the Corporation's expectation regarding its
positioning to capture new customer demand while maintaining its
current customer base and the expectation of driving growth and
building momentum with the drilling rig division
This forward-looking information involves material assumptions
and known and unknown risks and uncertainties and other factors,
certain of which are beyond the Corporation's control, that may
cause actual results or events to differ materially from those
anticipated in such forward-looking information. This press
release, the Corporation's management's discussion and analysis for
the three and twelve month periods ended December 31, 2018, the Corporation's annual
information form for the year ended December
31, 2018 and other documents filed with securities
regulatory authorities (accessible through the SEDAR website
www.sedar.com) describe the risks, the material assumptions and
other factors that could influence actual results, which include,
among other things, anticipated financial performance; the
implementation of the Corporation's growth strategy; the ability to
execute the Corporation's 2018 capital program; business prospects;
conditions in general economic and financial markets; industry
conditions; current commodity prices and royalty regimes;
regulatory developments; the impact of increasing competition;
future exchange rates; the availability and cost of labour and
services; the sufficiency of budgeted capital expenditures in
carrying out planned activities; timing and amount of capital
expenditures; the ability of the Corporation to renew existing
contracts and enter into new contracts; utilization and pricing of
the Corporation's rigs,; supply and demand for oil and natural gas
services relating to drilling and ancillary services; effects of
regulation by governmental agencies; tax laws; future operating
costs; and the ability to obtain financing on acceptable terms,
which are subject to change based on, amongst other factors,
commodity prices, market conditions and potential timing delays.
Although management of the Corporation considers these assumptions
to be reasonable based on information currently available to it,
such assumptions may prove to be incorrect. Actual results,
performance or achievements could differ material from those
expressed in, or implied by, forward-looking information and,
accordingly, no assurance can be given that any of the events
anticipated by the forward-looking information will transpire or
occur, or if any of them do so, what benefits the Corporation will
derive therefrom.
Statements, including forward-looking information, are made as
of the date of this press release and the Corporation does not
undertake any obligation to update or revise any forward-looking
information, whether as a result of new information, future events
or otherwise, except as may be required by applicable securities
laws. The forward-looking information contained in this press
release is expressly qualified by this cautionary statement.
Neither the TSX Venture Exchange nor its Regulation Services
Provider (as that term is defined in the policies of the TSX
Venture Exchange) accepts responsibility for the adequacy or
accuracy of this release.
SOURCE MATRRIX Energy Technologies Inc.