CALGARY, Nov. 14, 2017 /CNW/ - Zedcor Energy Inc. (the
"Company") (TSX VENTURE: ZDC) today announced its financial and
operating results for the three and nine months ended September 30, 2017.
Highlights
Amounts in the following tables are presented in thousands
of dollars, except for per share amounts and
percentages.
|
|
|
Three months ended
September
30
|
Nine months ended
September
30
|
(in
$000s)
|
2017
|
2016
|
2017
|
2016
|
Revenue
|
3,539
|
2,375
|
10,330
|
7,155
|
|
Adjusted
EBITDA1,2
|
1,497
|
463
|
2,905
|
1,887
|
|
Adjusted
EBIT1,2
|
40
|
(9,175)
|
(1,632)
|
(16,101)
|
|
Net (loss) income
from continuing operations
|
(1,254)
|
(8,679)
|
(5,751)
|
(16,510)
|
|
Net (loss) income
per share from continuing operations
|
|
|
|
|
|
|
Basic
|
(0.02)
|
(0.21)
|
(0.12)
|
(0.41)
|
|
|
Diluted
|
(0.02)
|
(0.21)
|
(0.12)
|
(0.41)
|
Amounts in table
represents continuing operations, which are comprised of the Energy
Services segment and Corporate
|
1
Adjusted for severances, business acquisition costs and
refinancing costs
|
2
See Financial Measures Reconciliations below
|
SELECT FINANCIAL RESULTS
- Revenues for the quarter ended September
30, 2017 increased by $1.2
million or 33% from $2.4
million to $3.5 million
compared to the same quarter in 2016. Commodity prices were
stronger in the third quarter of 2017 compared to the same quarter
2016, which in part resulted in increased demand for drilling
services and ancillary support equipment. Rental rates in the
third quarter have improved when compared to the third quarter of
2016, which is due to increased drilling activity in Western
Canada.
- Adjusted EBITDA for the quarter ended September 30, 2017 was $1.5 million, an increase of $1.0 million from the quarter ended September 30, 2016. This increase is a
direct result of both the increased sales and decreased general
administrative costs in the quarter.
- Net loss for the quarter ended September
30, 2017 was $1.3 million, an
improvement of $7.4 million or 86%
from a loss of $8.7 million for the
quarter end September 30, 2016.
The improvement is a result of increased sales and a decrease in
general and administrative expenses of $0.8
million resulting from the cost saving initiatives put in
place over the past year. There was also a quarter over
quarter decrease in deprecation of $6.8
million as the Company divested of under-utilized assets in
2016, there were no significant divestitures in 2017.
- On April 27, 2017, the Company
entered into a Loan and Security Agreement with a new lender for a
term of 12 months. See Liquidity and Capital Resources
section.
- Over the past year, the Company restructured its operations and
divested of both its General Rentals operating segment and Waste
Management operating segment. Net proceeds from both
transactions were used to pay down debt.
SELECT OPERATING RESULTS
- The Energy Services segment includes the operations of Zedcor
Energy Services Corp. and represents 100% of the Company's
continuing operations.
- The third quarter of 2017 saw an improvement in commodity
prices and an increase in drilling activity in the oil and gas
sector in Western Canada compared
to the third quarter of 2016. As a result there was an
increase in utilization of rental equipment and an increase in
rental rates for the equipment compared to the prior year
quarter. Despite the increase in drilling activity, there is
still strong competition from other service providers with idle
assets which is preventing a full recovery in rental pricing.
- For the quarter ended September 30,
2017 revenue was $3.5 million,
an increase of $1.2 million compared
to the same period in 2016. Gross margin increased by
$1.4 million compared to the three
months ended September 30, 2016 as a
result of the increased revenue and the more streamlined cost
structure established through the recent restructuring.
SELECTED QUARTERLY FINANCIAL INFORMATION
|
|
|
|
|
|
|
|
|
(Unaudited – in
$000s)
|
Sept
30
2017
|
Jun
30
2017
|
Mar
31
2017
|
Dec
31
2016
|
Sept
30
2016
|
June
30
2016
|
Mar
31
2016
|
Dec
31
2015
|
Revenue
|
3,539
|
2,348
|
4,442
|
3,444
|
2,375
|
1,469
|
3,311
|
2,426
|
Net income (loss)
from continuing operations
|
(1,254)
|
(3,529)
|
(969)
|
(3,106)
|
(8,679)
|
(4,684)
|
(3,148)
|
(16,032)
|
Net income (loss)
from discontinued operation
|
211
|
—
|
(427)
|
(3,062)
|
(904)
|
(91)
|
(954)
|
(659)
|
Adjusted
EBITDA¹
|
1,497
|
36
|
1,371
|
505
|
463
|
295
|
1,131
|
959
|
Adjusted EBITDA
per share
|
|
|
|
|
|
|
|
|
|
-
basic¹
|
0.03
|
0.00
|
0.03
|
0.01
|
0.01
|
0.01
|
0.03
|
0.03
|
Net income (loss)
per share from continuing operations
|
|
|
|
|
|
|
|
|
|
Basic
|
(0.02)
|
(0.07)
|
(0.02)
|
(0.08)
|
(0.21)
|
(0.12)
|
(0.08)
|
(0.44)
|
|
Diluted
|
(0.02)
|
(0.07)
|
(0.02)
|
(0.08)
|
(0.21)
|
(0.12)
|
(0.08)
|
(0.44)
|
Net income (loss)
per share from discontinued operation
|
|
|
|
|
|
|
|
|
|
Basic
|
0.00
|
—
|
(0.01)
|
(0.08)
|
(0.02)
|
(0.00)
|
(0.02)
|
(0.02)
|
|
Diluted
|
0.00
|
—
|
(0.01)
|
(0.08)
|
(0.02)
|
(0.00)
|
(0.02)
|
(0.02)
|
Adjusted free cash
flow¹
|
(707)
|
222
|
(488)
|
386
|
(1,089)
|
665
|
1,450
|
(6)
|
|
|
|
|
|
|
|
|
|
1
See Financial Measures Reconciliations below
|
LIQUIDITY AND CAPITAL RESOURCES
Revolving operating facility:
On April 28, 2016, the Company's
Syndicated Bank Credit Facility was amended under the Third
Amending Agreement to amend the financial covenant in respect of
the Debt to EBITDA and Interest Coverage ratios.
On November 24, 2016 the Company's
Syndicated Bank Credit facility was amended under the Fourth
Amending agreement. The fourth amending agreement included a
reduction in the revolving facility amount from $55 million to $46 million.
On December 15, 2016 the Company's
Syndicated Bank Credit facility was amended under the Fifth
Amending agreement. The fifth amending agreement included a
reduction in the revolving facility amount from $46 million to $32.5 million and cancellation of
the term facility commitment and swingline loans.
On February 16, 2017, the
Company's Syndicated Credit Facility was amended under the Sixth
Amending Agreement in which the lenders agreed to forbear from
demanding repayment or enforcing its security under the agreement
until April 28, 2017. The sixth
amending agreement included a reduction in the revolving facility
amount from $32.5 million to $20.97
million.
On April 21, 2017, the Syndicated
Credit Facility was repaid in full and forthwith cancelled.
Loan and security facility:
On April 21, 2017, the Company
entered into a Loan and Security Agreement with a new lender.
The Loan and Security Agreement in the amount of $20.4 million was used to repay the Syndicated
Credit Facility, bears interest at a rate of 12.75% and has a term
of 12 months with an option to extend for an additional 12 months
at the satisfaction of the lender. The Loan and Security
Agreement is serviced by six months of interest only payments,
followed by six months of blended principal and interest
payments. The Loan and Security Agreement does not require
quantitative financial covenants, but imposes restrictions on the
Loan's collateral, being the property and equipment of the
Company.
The Company issued the lender 3,651,501 share purchase
warrants. Each warrant entitles the lender to acquire one
common shares in the Company at an exercise price of $0.25 per warrant. The warrants expire 90
days after the term of the loan, July
21, 2019. The warrants fair value of $300 was recorded as a transaction cost of the
loan and will be expensed over the term of the loan.
The Company is beginning to explore options for extension with
the current lender, along with lower cost alternative financing
with new lenders. Management is confident that either
an extension or alternative financing will be secured by April
2018.
Operating loan facility:
On May 10, 2017, the Company signed a
$1 million operating loan agreement
bearing interest at a rate of prime plus 3.3% and secured by the
Company's accounts receivables and restricted cash. The
operating loan facility requires that the Company's current ratio
does not fall below 1.50:1.00 and effective September 30, 2017, the debt service coverage
ratio not be less than 1.50:1.00, calculated in accordance with the
formula set forth in the agreement. As at September 30, 2017 the Company's current ratio,
as defined to exclude the loan facility, was 5.2:1.00 and the debt
service coverage ratio was 1.92:1.00.
OUTLOOK
The improved demand for drilling services and ancillary
equipment in the third quarter of 2017 compared to the same quarter
in 2016 resulted in Zedcor's revenue increasing 33% year over
year. Improvements in commodity prices and industry activity
levels in the quarter allowed the Company to increase pricing while
experiencing stronger demand for rental assets compared to the
prior year.
However, during the last few weeks of the third quarter Zedcor's
rental equipment utilization levels dropped as several customers
paused their drilling and completions activities while they
evaluated their winter drilling plans. By early November,
drilling activity for these customers had resumed with a positive
outlook for the winter drilling season.
Although there continues to be volatility in oil prices and
continued downward pressure on gas prices, current industry
conditions indicate that activity levels through the winter
drilling season should continue to remain strong and experience
year over year pricing improvements.
As such, fourth quarter 2017 revenues will likely be similar to
those experienced in 2016, however with the lower cost structure
now in place compared to the prior year, cash flows will be
improved.
The restructuring efforts over the past year, including the
significant reductions in headcount at the executive level and
reductions in associated discretionary spending, means the Company
now has an operating structure that can support the full
utilization of the existing rental asset base and deliver positive
cash flows. This structure, coupled with superior service quality
and a best-in-class equipment rental fleet are instrumental in
maintaining and growing market share.
The Company continues to expand its market reach and customer
base from beyond its traditional upstream energy services customers
to new industry segments including industrial facilities and
pipeline construction. This should lead to more diversity in its
revenue streams and increase the utilization of existing rental
equipment by penetrating new market segments that are less affected
by seasonal fluctuations.
NON-IFRS MEASURES RECONCILIATION
The Company uses certain measures in this press release which do
not have any standardized meaning as prescribed by International
Financial Reporting Standards ("IFRS"). These measures which
are derived from information reported in the consolidated
statements of operations and comprehensive income may not be
comparable to similar measures presented by other reporting
issuers. These measures have been described and presented in
this press release in order to provide shareholders and potential
investors with additional information regarding the Company.
Investors are cautioned that EBITDA, adjusted EBITDA and
adjusted EBITDA per share, adjusted free cash flow and payout ratio
are not acceptable alternatives to net income or net income per
share, a measurement of liquidity, or comparable measures as
determined in accordance with IFRS.
EBITDA and Adjusted EBITDA
EBITDA refers to net income before finance costs, income taxes,
depreciation and amortization. Adjusted EBITDA is calculated as
EBITDA before costs associated with business acquisition costs,
refinancing, severance, gains or losses on disposal of property and
equipment, and share based compensation. These measures do not have
a standardized definition prescribed by IFRS and therefore may not
be comparable to similar captioned terms presented by other
issuers.
Management believes that EBITDA and Adjusted EBITDA are useful
measures of performance as they eliminate non-recurring items and
the impact of finance and tax structure variables that exist
between entities. "Adjusted EBITDA per share – basic" refers to
Adjusted EBITDA divided by the weighted average basic number of
shares outstanding during the relevant periods.
A reconciliation of net income to Adjusted EBITDA is provided
below:
|
|
|
|
Three months
ended
September 30
|
Nine months
ended
September 30
|
(in
$,000s)
|
2017
|
2016
|
2017
|
2016
|
Net
income
|
(1,254)
|
(8,679)
|
(5,751)
|
(16,510)
|
Add:
|
|
|
|
|
|
Finance
costs
|
912
|
277
|
2,678
|
719
|
|
Depreciation
|
1,453
|
1,761
|
4,487
|
5,926
|
|
Amortization of
intangibles
|
165
|
165
|
495
|
495
|
|
Income
taxes
|
(19)
|
(3,048)
|
(612)
|
(5,879)
|
|
Discontinued
operation
|
211
|
595
|
102
|
1,945
|
EBITDA
|
1,468
|
(8,929)
|
1,399
|
(13,304)
|
Add:
|
|
|
|
|
|
Stock based
compensation
|
5
|
117
|
6
|
121
|
|
(Gain) loss on
disposal of property and equipment
|
(1)
|
6,469
|
51
|
8,235
|
|
Impairment of
property and equipment
|
—
|
2,393
|
—
|
7,801
|
|
Purchase
gain
|
—
|
—
|
—
|
(2,664)
|
|
Severance
costs
|
25
|
364
|
410
|
1,227
|
|
Business acquisition
costs
|
—
|
49
|
—
|
471
|
|
Refinancing
costs
|
—
|
—
|
1,039
|
—
|
Adjusted
EBITDA
|
1,497
|
463
|
2,905
|
1,887
|
Adjusted EBIT
Adjusted EBIT refers to earnings before interest and finance
charges, taxes, amortization, impairment of property and equipment,
purchase gain, refinancing costs, severance costs and business
acquisition costs.
A reconciliation of net income to Adjusted EBIT is provided
below:
|
|
|
|
Three months ended
September
30
|
Nine months ended
September
30
|
(in
$,000s)
|
2017
|
2016
|
2017
|
2016
|
Net
income
|
(1,254)
|
(8,679)
|
(5,751)
|
(16,510)
|
Add:
|
|
|
|
|
|
Finance
costs
|
912
|
277
|
2,678
|
719
|
|
Amortization of
intangibles
|
165
|
165
|
495
|
495
|
|
Impairment of
property and equipment
|
—
|
2,393
|
—
|
7,801
|
|
Purchase
gain
|
—
|
—
|
—
|
(2,664)
|
|
Income
taxes
|
(19)
|
(3,048)
|
(612)
|
(5,879)
|
|
Severance
costs
|
25
|
74
|
121
|
678
|
|
Business acquisition
costs
|
—
|
49
|
—
|
471
|
|
Refinancing
costs
|
—
|
—
|
1,039
|
—
|
|
Discontinued
operation
|
211
|
(406)
|
398
|
(1,212)
|
Adjusted
EBIT
|
40
|
(9,175)
|
(1,632)
|
(16,101)
|
No Conference Call
No conference call will be held in conjunction with this
release. Full details of the Company's financial results, in the
form of the condensed consolidated interim financial statements and
notes for the three and nine months ended September 30, 2017 and Management's Discussion
and Analysis of the results are available on SEDAR at
www.sedar.com and on the Company's website
at www.zedcor.ca.
About Zedcor Energy Inc.
Zedcor Energy Inc. is a Canadian public corporation and parent
company to Zedcor Energy Services Corp. ("Zedcor"). Zedcor is
engaged in the rental of surface equipment and accommodations to
the Western Canadian Oil and Gas Industry. The Company trades on
the TSX Venture Exchange under the symbol "ZDC".
FORWARD-LOOKING STATEMENTS
Certain statements included or incorporated by reference in this
press release constitute forward-looking statements or
forward-looking information, including management's belief that
improvement in demand should begin to drive improvements in
equipment rental rates and that the expanded market reach and
customer base will lead to more diversity in the Company's revenue
stream and increase utilization. Forward-looking statements
or information may contain statements with the words "anticipate",
"believe", "expect", "plan", "intend", "estimate", "propose",
"budget", "should", "project", "would have realized', "may have
been" or similar words suggesting future outcomes or expectations.
Although the Company believes that the expectations implied in such
forward-looking statements or information are reasonable, undue
reliance should not be placed on these forward-looking statements
because the Company can give no assurance that such statements will
prove to be correct. Forward-looking statements or information are
based on current expectations, estimates and projections that
involve a number of assumptions about the future and uncertainties.
These assumptions include that the Company's cost cutting measures
that have been implemented will protect future margins and that the
Company's lean operations will protect against profound down swings
in the economic environment. Although management believes these
assumptions are reasonable, there can be no assurance that they
will be proved to be correct, and actual results will differ
materially from those anticipated. For this purpose, any
statements herein that are not statements of historical fact may be
deemed to be forward-looking statements. The forward-looking
statements or information contained in this press release are made
as of the date hereof and the Company assumes no obligation to
update publicly or revise any forward-looking statements or
information, whether as a result of new contrary information,
future events or any other reason, unless it is required by any
applicable securities laws. The forward-looking statements or
information contained in this press release are expressly qualified
by this cautionary statement.
Neither 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 Zedcor Energy Inc.