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| Share Name | Share Symbol | Market | Type |
|---|---|---|---|
| Cathedral Energy Services Ltd | TSX:CET | Toronto | Common Stock |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 0.90 | 0.89 | 0.90 | 0 | 00:00:00 |
From Dec 2022 to Dec 2024
/NOT FOR DISSEMINATION IN THE UNITED STATES OF AMERICA./
CALGARY, AB, Aug. 10, 2023 /CNW/ - Cathedral Energy Services Ltd.'s (the "Company" or "Cathedral") news release contains "forward-looking statements" within the meaning of applicable Canadian securities laws. For a full disclosure of forward-looking statements and the risks to which they are subject, see the "Forward-Looking Statements" section in this news release. This news release contains references to Adjusted gross margin, Adjusted gross margin %, Adjusted EBITDAS, Adjusted EBITDAS margin % and Free cash flow. These terms do not have standardized meanings prescribed under International Financial Reporting Standards ("IFRS") and may not be comparable to similar measures used by other companies. See the "Non-GAAP Measures" section in this news release for definitions and tabular calculations.
The Company achieved the following 2023 Q2 results and highlights:
Comments from President & CEO Tom Connors:
"Record revenue of $115,058 and Adjusted EBITDAS of $18,222 for any second quarter in corporate history demonstrates continued and deliberate progress on the execution of our size and scale strategy. In fact, since we embarked on our plan we have delivered consistent growth in Adjusted EBITDAS on a weighted average shares outstanding basis when comparing the trailing twelve-month performance at each quarter end from the beginning of 2021."
"With approximately 70% of our revenue on an annualized basis generated in the U.S., the transformative growth in our U.S. business offset the seasonal lows in Canada and bolstered Adjusted EBITDAS, cash flow and net income in a quarter, which is typically challenging. Our increased scale in previous quarters and more consistent performance driven by our U.S. business in the second quarter have contributed to stronger overall performance, which has allowed us to reduce our borrowings substantially from July 2022. Although our debt levels did increase moderately with the recent Rime acquisition, we have continued confidence in activity levels and corresponding cash flows in order to maintain a strong level of liquidity in the business. With a focus on disciplined capital deployment, Cathedral will continue to reduce its leverage profile over the coming quarters, while also having the financial flexibility to allocate funds to share repurchases, depending on market conditions.
"Despite the recent challenging market conditions in the U.S., we achieved a job count in the mid-60's in the second quarter up from the high-40's in late Q1. While the higher job count comes with a higher mix of conventional work, bringing average day rates lower, it is a testament to the performance capabilities of our U.S. team and technology that enabled growth in demand from our customers for our services. We expect the U.S. rig count will bottom sometime in 2023 Q3 and are encouraged by our strong job count on approximately 60 active rigs that continues into the third quarter. We expect the job count to remain steady or slightly improved through the remainder of the year. With the higher job count comes full asset utilization, and in the short-term we anticipate a higher level of equipment rentals to meet demand as we wait on deliveries from our capital program.
"In Canada, the expansion of our business and market share led to a significantly more active second quarter than last year with 64% year-over-year Q2 revenue growth. Our customers remain disciplined with most committed to maintaining capital programs for 2023. Industry rig counts have ticked lower than the same period in 2022, but are expected to remain somewhat consistent to slightly improved in the back half of the year. We anticipate improved margins and consistent market share in the third quarter as the benefits from our repair program earlier in the year flow through to a lower need for rentals.
"With MWD components active on an estimated 40% of U.S. land rigs, our recent acquisition of Rime will provide a pipeline of technology that has wide market acceptance and adoption. We have a tremendous opportunity to deploy industry recognized technology to minimize rentals in Altitude and significantly expand margins as we build out our own proprietary MWD platform beginning in 2023 and into 2024. We are also excited about the expanded capacity to further differentiate ourselves in the market with industry leading technology now and into the future," concluded Mr. Connors.
Canadian dollars in 000's except for otherwise noted
Three months ended June 30, | Six months ended June 30, | |||
2023 | 2022 | 2023 | 2022 | |
Revenues | $ 115,058 | $ 27,652 | $ 242,723 | $ 62,037 |
Gross margin % | 14 % | 2 % | 14 % | 10 % |
Adjusted gross margin % (1) | 23 % | 19 % | 22 % | 24 % |
Adjusted EBITDAS (1) | $ 18,222 | $ 2,836 | $ 33,409 | $ 9,749 |
Adjusted EBITDAS margin % (1) | 16 % | 10 % | 14 % | 16 % |
Cash flow - operating activities | $ 11,232 | $ 4,511 | $ 35,148 | $ 2,753 |
Free cash flow (deficit) (1) | $ 4,984 | $ (12,008) | $ 4,285 | $ (9,197) |
Net income (loss) | $ 2,416 | $ (2,824) | $ 3,210 | $ (581) |
Per share - basic and diluted | $ 0.01 | $ (0.02) | $ 0.01 | $ (0.01) |
Weighted average shares outstanding: | ||||
Basic (000s) | 238,394 | 129,200 | 231,516 | 110,353 |
Diluted (000s) | 240,653 | 131,898 | 238,563 | 112,969 |
As at | June 30, | December 31, |
Working capital, excluding current portion of loans and borrowings | $ 62,048 | $ 60,447 |
Total assets | $ 344,491 | $ 353,990 |
Loans and borrowings | $ 60,080 | $ 80,535 |
Shareholders' equity | $ 169,914 | $ 153,897 |
(1) Refer to the "Non-GAAP Measures" section |
Despite recent volatility in oil and gas prices, the outlook for oilfield services remains constructive. OPEC's continued vigilance around managing a solid floor price for oil in the mid-$60 per barrel has paid off in a summer West Texas Intermediate ("WTI") rally back to approximately $80 per barrel. Commodity markets are now discounting an economic soft landing in the global central bank fight against inflation. There are other factors driving the recovery in oil prices, including an intra-year plateauing of Permian oil production, stalled Russian oil export levels, the end of oil sales from the U.S. Strategic Petroleum Reserve, as well as generally strong oil demand forecasts from numerous agencies, such as the IEA and the EIA. U.S. natural gas prices have also moved higher in 2023 Q3 from second quarter levels, although the lack of additional North American LNG takeaway capacity until later 2024 may be a barrier to a larger near-term price recovery.
A survey of forecasts from seven Canadian-based investment banks shows an expectation for a bottoming of the U.S. land rig count sometime in 2023 Q3 or early 2023 Q4 with a slow ramp up through all four quarters of 2024 (Source: ATB Capital Markets, BMO Capital Markets, National Bank Financial, Peters & Co, Stifel, Raymond James Canada, TD Securities). Specifically, the consensus average U.S. land rig count is forecast to decline to 661 active rigs in 2023 Q3 from 699 in 2023 Q2 (5% drop) before recovering to 670 in 2023 Q4 (1% recovery). The forecast average U.S. land rig count for 2023 is currently 693, down only 2% year-over-year, on average. Although it is early, the forecast average among these seven investment banks is for a modest uptick in 2024 – to an average of approximately 700 active rigs. Looking to 2024 and beyond, to incentivize increased development, oil and natural gas prices need to stabilize at current or higher levels, while natural gas takeaway capacity needs to be added from the Haynesville and Permian to supply the plethora of LNG projects now under development. Once this infrastructure is in place, the call on oilfield service companies with a well-scaled U.S. operating footprint is likely to be considerable. Cathedral believes it is well on the way to establishing such an operating footprint in the U.S.
In Western Canada, the seven analysts predict that the average rig count will be modestly stronger year-over-year in 2023 and 2024 (9% and 4%, respectively), mostly due to the ramping in field spending, related to supplying the first natural gas into LNG Canada for 2025. Although the U.S. has been a much stronger growth market over the last decade, due primarily to field spending in the Permian, looking out to 2024, Canada appears to offer more near-term growth visibility. Canadian exploration and production ("E&P") companies are generating healthy levels of free cash flow and have improved their balance sheets dramatically. Improved E&P balance sheets are less exposed to oil and gas price volatility, which may lead to a moderation in the amplitude of the drilling cycles going forward. Cathedral expects to maintain a strong market share in Canada through the rest of 2023 and is equally optimistic on 2024 activity, given the ongoing ramp in LNG-related spending.
In 2022, the Company executed five strategic acquisitions as detailed below:
In addition to the assets acquired as described above, there were certain other minor working capital, right-of-use assets and lease liabilities, and deferred tax liabilities recognized as part of the purchase price allocations.
Three months ended June 30, | Six months ended June 30, | |||
2023 | 2022 | 2023 | 2022 | |
Revenues | ||||
Canada | $ 21,515 | $ 13,091 | $ 66,858 | $ 38,490 |
United States | 93,543 | 14,561 | 175,865 | 23,547 |
Total revenues | 115,058 | 27,652 | 242,723 | 62,037 |
Cost of sales: | ||||
Direct costs | (88,509) | (22,481) | (189,741) | (47,005) |
Depreciation and amortization | (10,115) | (4,622) | (19,340) | (8,911) |
Share-based compensation | (96) | (49) | (240) | (92) |
Cost of sales | (98,720) | (27,152) | (209,321) | (56,008) |
Gross margin | $ 16,338 | $ 500 | $ 33,402 | $ 6,029 |
Gross margin % | 14 % | 2 % | 14 % | 10 % |
Adjusted gross margin % (1) | 23 % | 19 % | 22 % | 24 % |
(1) Refer to the "Non-GAAP Measures" section. |
The Company recognized $115,058 of revenues in 2023 Q2, an increase of $87,406 or 316%, compared to $27,652 in 2022 Q2. The Company recognized $242,723 of revenues in the six months ended June 30, 2023, an increase of $180,686 or 291%, compared to $62,037 for the same period in 2022.
The Company recognized $98,720 of cost of sales in 2023 Q2, an increase of $71,568 or 264%, compared to $27,152 in 2022 Q2. The Company recognized $209,321 of cost of sales in the six months ended June 30, 2023, an increase of $153,313 or 274%, compared to $56,008 for the same period in 2022.
The Gross margin % increased to 14% both in 2023 Q2 and the six months ended June 30, 2023, compared to 2% and 10% for the same periods in 2022, respectively.
The Adjusted gross margin % increased to 23% in 2023 Q2, compared to 19% in 2022 Q2. The Adjusted gross margin % decreased to 22% in the six months ended June 30, 2023, compared to 24% for the same period in 2022.
Depreciation and amortization expense allocated to cost of sales increased to $10,115 and $19,340 in 2023 Q2 and the six months ended June 30, 2023, compared to $4,622 and $8,911 in the same periods in 2022, respectively, due to property, plant and equipment additions, including those related to the 2022 acquisitions.
Depreciation and amortization expense included in cost of sales as a percentage of revenue was 9% and 8% for 2023 Q2 and the six months ended June 30, 2023, compared to 17% and 14% for the same periods in 2022, respectively.
Revenues
Canadian revenues were $21,515 in 2023 Q2, an increase of $8,424 or 64%, compared to $13,091 in 2022 Q2, mainly due to acquisitions completed in 2022, including Compass and Ensign. The Company realized: i) a 33% increase in activity days to 1,662 days in 2023 Q2, compared to 1,246 days in 2022 Q2, and ii) a 23% increase in the average day rate to $12,945 per day in 2023 Q2, compared to $10,507 per day in 2022 Q2.
Canadian revenues were $66,858 in the six months ended June 30, 2023, an increase of $28,368 or 74%, compared to $38,490 for the same period in 2022, mainly due to acquisitions completed in 2022, including Compass and Ensign. The Company realized: i) a 36% increase in activity days to 5,321 days in the six months ended June 30, 2023, compared to 3,916 days the same period in 2022, and ii) a 28% increase in the average day rate to $12,565 per day in the six months ended June 30, 2023, compared to $9,829 per day for the same period in 2022.
Based on publicly disclosed Canadian drilling activity, Cathedral's Canadian market share in 2023 Q2 and the six months ended June 30, 2023 was 20.1% and 23.4%, compared to 15.4% and 18.2% for the same periods in 2022, respectively.
Direct costs
Canadian direct costs included in cost of sales were $16,422 in 2023 Q2, an increase of $4,735 or 41%, compared to $11,687 in 2022 Q2. The increase is mainly due to higher costs related to the 2022 acquisitions. As a percentage of revenues, direct costs decreased to 76% in 2023 Q2 from 89% in 2022 Q2, mainly due to lower repair and maintenance, third-party rental costs and fixed costs as a percentage of revenues.
Canadian direct costs included in cost of sales were $51,151 in the six months ended June 30, 2023, an increase of $20,935 or 69%, compared to $30,216 for the same period in 2022. The increase is mainly due to higher costs related to the 2022 acquisitions. As a percentage of revenues, direct costs decreased slightly to 77% in the six months ended June 30, 2023 from 79% for the same period in 2022.
Revenues
U.S. revenues were $93,543 in 2023 Q2, an increase of $78,982 or 542%, compared to $14,561 in 2022 Q2, mainly as a result of the acquisitions completed in 2022, including Discovery and Altitude. The Company realized a 862% increase in activity days to 3,963 days in 2023 Q2, compared to 412 days in 2022 Q2. The average day rate decreased to $23,604 per day in 2023 Q2, compared to $35,343 per day in 2022 Q2, mainly as a result of the Altitude acquisition and a change in job mix.
U.S. revenues were $175,865 in the six months ended June 30, 2023, an increase of $152,318 or 647%, compared to $23,547 for the same period in 2022, mainly as a result of the acquisitions completed in 2022, including Discovery and Altitude. The Company realized a 841% increase in activity days to 7,280 days in the six months ended June 30, 2023, compared to 774 days for the same period in 2022. The average day rate decreased to $24,157 per day in the six months ended June 30, 2023, compared to $30,422 per day for the same period in 2022, mainly as a result of the Altitude acquisition and a change in job mix.
Based on publicly disclosed U.S. drilling rig activity, Cathedral's U.S. market share for 2023 Q2 and the six months ended June 30, 2023 was 8.7% and 7.7%, respectively, compared to under 1% for the same periods in 2022.
Direct costs
U.S. direct costs included in cost of sales were $72,087 in 2023 Q2, an increase of $61,293 or 568%, compared to $10,794 in 2022 Q2. The increase is mainly due to higher costs related to the 2022 acquisitions, including Discovery and Altitude. As a percentage of revenues, direct costs also increased to 77% in 2023 Q2 from 74% in 2022 Q2, mainly due to higher labour and third-party equipment rental and other minor costs, offset by lower fixed costs as a percentage of revenues.
U.S. direct costs included in cost of sales were $138,590 in the six months ended June 30, 2023, an increase of $121,801 or 725%, compared to $16,789 for the same period in 2022. The increase is mainly due to higher costs related to the 2022 acquisitions, including Discovery and Altitude. As a percentage of revenues, direct costs also increased to 79% in the six months ended June 30, 2023, compared to 71% in the same period in 2022, mainly due to higher labour and third-party equipment rental costs.
Selling, general and administrative ("SG&A") expenses
Three months ended June 30, | Six months ended June 30, | |||
2023 | 2022 | 2023 | 2022 | |
Selling, general and administrative expenses: | ||||
Direct costs | $ 12,004 | $ 3,287 | $ 26,090 | $ 6,853 |
Depreciation and amortization | 1,499 | 124 | 3,008 | 248 |
Share-based compensation | 674 | 83 | 1,449 | 174 |
Selling, general and administrative expenses | $ 14,177 | $ 3,494 | $ 30,547 | $ 7,275 |
The Company recognized SG&A expenses of $14,177 in 2023 Q2, an increase of $10,683, compared to $3,494 in 2022 Q2. The increase is mainly due to the 2022 acquisitions. SG&A expenses as a percentage of revenues were 12% in 2023 Q2 and 2022 Q2.
The Company recognized SG&A expenses of $30,547 in the six months ended June 30, 2023, an increase of $23,272, compared to $7,275 for the same period in 2022. The increase is mainly due to the 2022 acquisitions and discretionary short-term incentive program payments, which were approved and recognized in 2023, compared to no discretionary incentive payments recognized in 2022. As a percentage of revenues, SG&A expenses were slightly higher at 13% in the six months ended June 30, 2023, compared to 12% for the same period in 2022, mainly due to the discretionary short-term incentive program payments.
Depreciation and amortization recognized in SG&A were $1,499 and $3,008 in 2023 Q2 and the six months ended June 30, 2023, compared to $124 and $248 for the same periods in 2022, respectively.
Stock-based compensation recognized in SG&A were $674 and $1,449 in 2023 Q2 and the six months ended June 30, 2023, compared to $83 and $174 for the same periods in 2022, respectively.
Technology group expenses
The Company recognized technology group expenses of $458 and $1,010 in 2023 Q2 and the six months ended June 30, 2023, compared to $231 and $450 for the same periods in 2022, respectively. Technology group expenses are salaries, benefits and shop supply costs related to new product development and technology.
Gain on disposal of equipment
The Company recognized a gain on disposal of equipment of $4,091 and $7,135 in 2023 Q2 and six months ended June 30, 2023, compared to $1,298 and $2,120 for the same periods in 2022, respectively, mainly related to equipment lost-in-hole. Proceeds on lost-in-hole equipment are based on service agreements held with clients. The Company received proceeds on disposal of equipment of $4,208 and $9,780 in 2023 Q2 and the six months ended June 30, 2023, compared to $3,091 and $4,324 for the same periods in 2022, respectively.
Finance costs
Finance costs were $1,486 in 2023 Q2, an increase of $1,191, compared to $295 in 2022 Q2. Finance costs were $3,216 in the six months ended June 30, 2023, an increase of $2,692, compared to $524 for the same period in 2022.
The higher costs are mainly due to the Company's increased debt levels from $9,170 as at June 30, 2022 to $60,080 as at June 30, 2023, coupled with an increase in interest rates in 2023 relative to 2022. The increased debt was in relation to the 2022 acquisitions (refer to the 'Liquidity and Capital Resources' section of this news release for more details).
In addition, the Company had $205 and $419 of finance costs in 2023 Q2 and the six months ended June 30, 2023 related to lease liabilities, compared to $195 and $384 for the same periods in 2022, respectively.
Foreign exchange
The Company recognized a foreign exchange gain of $954 in 2023 Q2, compared to a foreign exchange loss of $873 in 2022 Q2. The Company recognized a foreign exchange gain of $913 in the six months ended June 30, 2023, compared to a foreign exchange loss of $563 for the same period in 2022. The impact of foreign exchange is due to fluctuations of the Canadian dollar relative to the U.S. dollar related to foreign currency transactions recognized in net income.
The Company recognized a foreign currency translation loss on foreign operations of $3,826 in 2023 Q2, compared to a gain of $983 in 2022 Q2. The Company recognized a foreign currency translation loss on foreign operations of $4,251 in the six months ended June 30, 2023, compared to a gain of $627 for the same period in 2022. The Company's foreign operations are denominated in USD and differences due to fluctuations in the foreign currency exchange rates are recorded in other comprehensive income.
Income tax
Income tax expense was $2,176 and $2,583 in 2023 Q2 and the six months ended June 30, 2023, respectively, compared to an income tax recovery of $756 for the same periods in 2022. Income tax expense is booked based upon expected annualized rates using the statutory rates of 23% for Canada and the U.S.
The Company's effective income tax rate is higher than expected at approximately 45% due to its Canadian entity incurring losses for income tax purposes in the period, the tax benefit of which has not been recognized.
Annually, the Company's principal source of liquidity is cash generated from operations and its proceeds from equipment lost-in-hole. In addition, the Company has the ability to fund liquidity requirements through its syndicated credit facility and the issuance of additional debt and/or equity, if available.
In order to facilitate the management of its liquidity, the Company prepares an annual budget, which is updated as necessary depending on varying factors, including changes in capital structure, execution of the Company's business plan and general industry conditions. The annual budget is approved by the Board of Directors and updated forecasts are prepared as the fiscal year progresses with changes reviewed by the Board of Directors.
Cash flow provided by operating activities was $11,232 and $35,148 in 2023 Q2 and the six months ended June 30, 2023, compared to $4,511 and $2,753 for the same periods in 2022, respectively. Cathedral intends to use the free cash flow generated in the remainder of 2023 to continue to pay down debt while remaining opportunistic in making strategic and accretive acquisitions.
During the six months ended June 30, 2023, 17,731,888 of the April 2022 bought deal offering warrants and 575,000 of the February 2021 private placement warrants were exercised at $0.85 per warrant and $0.24 per warrant totaling $15,072 and $138 in gross cash proceeds, respectively. On April 26, 2023, the remaining 55,462 of the April 2022 bought deal offering warrants expired.
As at June 30, 2023, the 2,000,000 warrants related to the Precision Drilling acquisition were outstanding. Subsequent to June 30, 2023, the warrants were exercised at $0.60 per warrant for gross cash proceeds of $1,200.
At June 30, 2023, the Company had working capital, excluding current portion of loans and borrowings of $62,048 (December 31, 2022 - $60,447).
Syndicated credit facility
During the six months ended June 30, 2023, the Company repaid its balance owing on the Syndicated Operating Facility of $13,000. In addition, the Company made contractual repayments totaling $7,400 related to its Syndicated Term Facility reducing the carrying value to $59,200 as at June 30, 2023. As at June 30, 2023, the $10,000 Revolving Operating Facility remained undrawn. In addition, the Company continues to hold a Highly Affected Sectors Credit Availability Program ("HASCAP") loan.
At June 30, 2023, the Company was in compliance with its financial covenants, which were as follows:
Subsequent to June 30, 2023, the Company entered into a three-year term credit facility (the "Credit Facility"), replacing its existing credit facility with its syndicate of lenders led by ATB Financial ("ATB") related to the acquisition of Rime. The Credit Facility provides an approximate $137,000 principal amount comprised of: i) a $59,200 Syndicated Term Facility (replacing the existing Syndicated Term Facility), ii) a new USD $21,000 term loan, repayable in equal quarterly installments over a five-year amortization period, iii) a $35,000 Syndicated Operating Facility (previously $15,000), and iv) a $15,000 Revolving Operating Facility (previously $10,000). The Credit Facility was utilized to replace and repay Cathedral's existing credit facility. The interest rate and financial covenants were unchanged under the new Credit Facility.
Contractual obligations and contingencies
As at June 30, 2023, the Company's commitment to purchase property, plant and equipment was approximately $8,003. Cathedral anticipates expending these funds in 2023 Q3 and Q4, subject to supply chain delays.
The Company also holds six letters of credit totaling $1,895 related to rent payments, corporate credit cards and a utilities deposit.
The Company is involved in various legal claims associated with the normal course of operations. The Company believes that any liabilities that may arise pertaining to such matters would not have a material impact on its financial position.
Subsequent event
On July 11, 2023, Cathedral, through a wholly-owned subsidiary, acquired Rime, a privately-held, Texas-based, engineering business that specializes in building products for the downhole measurement-while-drilling ("MWD") industry (the "Rime acquisition") in exchange for approximately USD $41,000 comprised of: (a) the payment of USD $21,000 in cash; and (b) the issuance of USD $20,000 of subordinated exchangeable promissory notes ("EP Notes") that are exchangeable into a maximum of 24,570,000 common shares in the capital of Cathedral ("EP Shares") at a deemed price of CAD $1.10 per common share.
The EP Notes have a three-year term and accrue interest payable quarterly at a rate of 5% per annum. Any time prior to expiry of the EP Notes, if the 20-day volume weighted average trading price of the common shares of Cathedral ("Common Shares") equals or exceeds CAD $1.10 per Common Share, Cathedral may cause the exchange of the EP Notes for Common Shares. Cathedral and the holders of the EP Notes may agree to an earlier exchange of the EP Notes into Common Shares. In addition to the statutory hold periods applicable to the EP Shares under Canadian and U.S. securities laws, the parties agreed to contractual restrictions on resale of any EP Shares as follows: 33% of the EP Shares are restricted until July 11, 2024; a further 33% of the EP Shares are restricted until July 11, 2025; and a further 34% of the EP Shares are restricted until July 11, 2026, subject to certain exceptions contained in the terms governing the EP Notes.
Share capital
As at August 10, 2023, the Company has 245,200,173 common shares, no warrants, 19,169,300 stock options and EP Notes that are exchangeable into a maximum of 24,570,000 common shares outstanding.
Change of Transfer Agent
Effective July 11, 2023, Cathedral has replaced Computershare Trust Company, as the registrar and transfer agent of the Company's common shares, with Odyssey Trust Company. Shareholders do not need to take any action with respect to the change in registrar and transfer agent services. All inquiries and correspondence related to shareholder records, transfers of shares, lost certificates and changes of address should now be directed to Odyssey Trust Company, through their offices in Calgary, Vancouver and Toronto: https://odysseytrust.com/.
The following table details the property, plant and equipment additions:
Three months ended June 30, | Six months ended June 30, | |||
2023 | 2022 | 2023 | 2022 | |
Motors and related equipment | $ 5,231 | $ 1,346 | $ 12,647 | $ 2,825 |
MWD and related equipment | 885 | $ 4,866 | 5,408 | 6,671 |
Shop and automotive equipment | 973 | $ — | 1,750 | — |
Other | 1,100 | $ 6 | 2,638 | 26 |
Capital expenditures | $ 8,189 | $ 6,218 | $ 22,443 | $ 9,522 |
The additions of $8,189 and $22,443 (2022 - $6,218 and $9,522) were partially funded by proceeds on disposal of equipment of $4,208 and $9,780 (2022 - $3,091 and $4,324) in 2023 Q2 and the six months ended June 30, 2023, respectively.
The Company's 2023 net capital program has been maintained at $36,000, excluding any potential acquisitions. The net capital program is targeted at growing Cathedral's high-performance mud motor and MWD in both Canada and the U.S. Cathedral intends to fund its 2023 capital plan from cash flow provided by operating activities, along with proceeds on equipment lost-in-hole.
Cathedral uses certain performance measures throughout this news release that are not defined under IFRS or Generally Accepted Accounting Principles ("GAAP"). These non-GAAP measures do not have a standardized meaning and may differ from that of other organizations, and accordingly, may not be comparable.
These measures include the Adjusted gross margin, Adjusted gross margin %, Adjusted EBITDAS, Adjusted EBITDAS margin %, Adjusted EBITDAS per diluted share and Free cash flow. Management believes these measures provide supplemental financial information that is useful in the evaluation of Cathedral's operations. They are commonly used by other oilfield service companies. Investors should be cautioned, however, that these measures should not be construed as alternatives to IFRS measures as an indicator of Cathedral's performance.
These non-GAAP measures are defined as follows:
i) | "Adjusted gross margin" - calculated as gross margin plus non-cash items (depreciation, amortization and share-based compensation); is considered a primary indicator of operating performance (see tabular calculation); |
ii) | "Adjusted gross margin %" - calculated as Adjusted gross margin divided by revenues; is considered a primary indicator of operating performance (see tabular calculation); |
iii) | "Adjusted EBITDAS" - calculated as net income before finance costs, unrealized foreign exchange on intercompany balances, income tax expense, depreciation, amortization, non-recurring costs (including acquisition and restructuring costs), write-down of inventory and share-based compensation; provides supplemental information to earnings that is useful in evaluating the results and financing of the Company's business activities before considering certain charges (see tabular calculation); |
iv) | "Adjusted EBITDAS margin %" - calculated as Adjusted EBITDAS divided by revenues; provides supplemental information to earnings that is useful in evaluating the results and financing of the Company's business activities before considering certain charges as a percentage of revenues (see tabular calculation); |
v) | "Adjusted EBITDAS per diluted share" - calculated as Adjusted EBITDAS divided by the diluted weighted average shares outstanding; provides supplemental information to earnings that is useful in evaluating the results and financing of the Company's business activities before considering certain charges on a per diluted share basis; and |
vi) | "Free cash flow" - calculated as cash flow provided by (used in) operating activities prior to: i) changes in non-cash working capital, ii) income taxes paid (refunded) and iii) non-recurring costs less: i) property, plant and equipment additions, excluding assets acquired in business combinations, ii) required repayments on loans and borrowings, and iii) cash lease payments, offset by proceeds from dispositions of property, plant and equipment. Management uses this measure as an indication of the Company's ability to generate funds from its operations to support future capital expenditures, additional debt repayment or other initiatives (see tabular calculation). |
The following tables provide reconciliations from the IFRS measures to non-GAAP measures.
Adjusted gross margin
Three months ended June 30, | Six months ended June 30, | |||
2023 | 2022 | 2023 | 2022 | |
Gross margin | $ 16,338 | $ 500 | $ 33,402 | $ 6,029 |
Add non-cash items included in cost of sales: | ||||
Inventory write-down | — | — | 378 | — |
Depreciation and amortization | 10,115 | 4,622 | 19,340 | 8,911 |
Share-based compensation | 96 | 49 | 240 | 92 |
Adjusted gross margin | $ 26,549 | $ 5,171 | $ 53,360 | $ 15,032 |
Adjusted gross margin % | 23 % | 19 % | 22 % | 24 % |
Adjusted EBITDAS
Three months ended June 30, | Six months ended June 30, | |||
2023 | 2022 | 2023 | 2022 | |
Net income (loss) | $ 2,416 | $ (2,824) | $ 3,210 | $ (581) |
Add (deduct): | ||||
Income tax expense (recovery) | 2,176 | (756) | 2,583 | (756) |
Depreciation and amortization included in cost of sales | 10,115 | 4,622 | 19,340 | 8,911 |
Depreciation and amortization included in selling, general and administrative expenses | 1,499 | 124 | 3,008 | 248 |
Share-based compensation included in cost of sales | 96 | 49 | 240 | 92 |
Share-based compensation included in selling, general and administrative expenses | 674 | 83 | 1,449 | 174 |
Finance costs - loans and borrowings | 1,486 | 295 | 3,216 | 524 |
Finance costs - lease liabilities | 205 | 195 | 419 | 384 |
18,667 | 1,788 | 33,465 | 8,996 | |
Unrealized foreign exchange gain on intercompany balances | (910) | 758 | (899) | 463 |
Inventory write-down and non-recurring expenses | 465 | 290 | 843 | 290 |
Adjusted EBITDAS | $ 18,222 | $ 2,836 | $ 33,409 | $ 9,749 |
Adjusted EBITDAS margin % | 16 % | 10 % | 14 % | 16 % |
Free cash flow
Three months ended June 30, | Six months ended June 30, | |||
2023 | 2022 | 2023 | 2022 | |
Cash flow provided by operating activities | $ 11,232 | $ 4,511 | $ 35,148 | $ 2,753 |
Add (deduct): | ||||
Income tax paid (refund) | 817 | (20) | 648 | (28) |
Changes in non-cash operating working capital | 1,617 | (3,243) | (9,987) | 4,614 |
Non-recurring expenses | 465 | 290 | 465 | 290 |
Proceeds on disposal of property, plant and equipment | 4,208 | 3,091 | 9,780 | 4,324 |
Less: | ||||
Property, plant and equipment additions(1) | (8,714) | (6,218) | (22,465) | (9,522) |
Required repayments on loans and borrowings(2) | (3,727) | (9,686) | (7,455) | (10,292) |
Repayments of lease liabilities, net of finance costs | (914) | (733) | (1,849) | (1,336) |
Free cash flow (deficit) | $ 4,984 | $ (12,008) | $ 4,285 | $ (9,197) |
(1) Property, plant and equipment additions exclude non-cash additions and assets acquired in business combinations. | |
(2) Required repayments on loans and borrowings in accordance with the credit facility agreement. Excludes discretionary debt repayments. |
This news release contains certain forward-looking statements and forward-looking information (collectively, referred to herein as "forward-looking statements") within the meaning of applicable Canadian securities laws. All statements other than statements of present or historical fact are forward-looking statements. Forward-looking statements are often, but not always, identified by the use of words such as "anticipate", "achieve", "believe", "plan", "intend", "objective", "continuous", "ongoing", "estimate", "outlook", "expect", "may", "will", "project", "should" or similar words suggesting future outcomes. In particular, this news release contains forward-looking statements relating to, among other things:
The Company believes the expectations reflected in such forward-looking statements are reasonable as of the date hereof but no assurance can be given that these expectations will prove to be correct and such forward-looking statements should not be unduly relied upon.
Various material factors and assumptions are typically applied in drawing conclusions or making the forecasts or projections set out in forward-looking statements. Those material factors and assumptions are based on information currently available to the Company, including information obtained from third-party industry analysts and other third-party sources. In some instances, material assumptions and material factors are presented elsewhere in this news release in connection with the forward-looking statements. You are cautioned that the following list of material factors and assumptions is not exhaustive. Specific material factors and assumptions include, but are not limited to:
Forward-looking statements are not a guarantee of future performance and involve a number of risks and uncertainties some of which are described herein. Such forward-looking statements necessarily involve known and unknown risks and uncertainties, which may cause the Company's actual performance and financial results in future periods to differ materially from any projections of future performance or results expressed or implied by such forward-looking statements. These risks and uncertainties include, but are not limited to, the risks identified in this news release and in the Company's Annual Information Form under the heading "Risk Factors". Any forward-looking statements are made as of the date hereof and, except as required by law, the Company assumes no obligation to publicly update or revise such statements to reflect new information, subsequent or otherwise.
All forward-looking statements contained in this news release are expressly qualified by this cautionary statement. Further information about the factors affecting forward-looking statements is available in the Company's current Annual Information Form that has been filed with Canadian provincial securities commissions and is available on www.sedarplus.ca and the Company's website (www.cathedralenergyservices.com).
As at June 30, 2023 and December 31, 2022
Canadian dollars in '000s
(unaudited)
As at | June 30, | December 31, |
Assets | ||
Current assets: | ||
Cash | $ 20,123 | $ 11,175 |
Trade receivables | 93,487 | 113,477 |
Prepaid expenses | 2,652 | 4,529 |
Inventories | 35,282 | 26,195 |
Total current assets | 151,544 | 155,376 |
Property, plant and equipment | 109,435 | 108,530 |
Intangible assets | 34,855 | 38,511 |
Right-of-use assets | 10,169 | 12,178 |
Goodwill | 38,488 | 39,395 |
Total non-current assets | 192,947 | 198,614 |
Total assets | $ 344,491 | $ 353,990 |
Liabilities and Shareholders' Equity | ||
Current liabilities: | ||
Trade and other payables | $ 85,467 | $ 90,389 |
Current taxes payable | 807 | 909 |
Loans and borrowings, current | 15,680 | 15,735 |
Lease liabilities, current | 3,222 | 3,631 |
Total current liabilities | 105,176 | 110,664 |
Loans and borrowings, long-term | 44,400 | 64,800 |
Lease liabilities, long-term | 12,851 | 14,249 |
Deferred tax liability | 12,150 | 10,380 |
Total non-current liabilities | 69,401 | 89,429 |
Total liabilities | 174,577 | 200,093 |
Shareholders' equity: | ||
Share capital | 198,923 | 180,484 |
Treasury shares | (709) | (959) |
Contributed surplus | 14,223 | 15,854 |
Accumulated other comprehensive income | 13,138 | 17,389 |
Deficit | (55,661) | (58,871) |
Total shareholders' equity | 169,914 | 153,897 |
Total liabilities and shareholders' equity | $ 344,491 | $ 353,990 |
Three and six months ended June 30, 2023
Canadian dollars in '000s except per share amounts
(unaudited)
Three months ended June 30, | Six months ended June 30, | |||
2023 | 2022 | 2023 | 2022 | |
Revenues | $ 115,058 | $ 27,652 | $ 242,723 | $ 62,037 |
Cost of sales: | ||||
Direct costs | (88,509) | (22,481) | (189,741) | (47,005) |
Depreciation and amortization | (10,115) | (4,622) | (19,340) | (8,911) |
Share-based compensation | (96) | (49) | (240) | (92) |
Total cost of sales | (98,720) | (27,152) | (209,321) | (56,008) |
Gross margin | 16,338 | 500 | 33,402 | 6,029 |
Selling, general and administrative expenses: | ||||
Direct costs | (12,004) | (3,287) | (26,090) | (6,853) |
Depreciation and amortization | (1,499) | (124) | (3,008) | (248) |
Share-based compensation | (674) | (83) | (1,449) | (174) |
Total selling, general and administrative expenses | (14,177) | (3,494) | (30,547) | (7,275) |
Technology group expenses | (458) | (231) | (1,010) | (450) |
Gain on disposal of property, plant and equipment | 4,091 | 1,298 | 7,135 | 2,120 |
Income (loss) from operating activities | 5,794 | (1,927) | 8,980 | 424 |
Finance costs - loans and borrowings | (1,486) | (295) | (3,216) | (524) |
Finance costs - lease liabilities | (205) | (195) | (419) | (384) |
Foreign exchange (loss) gain | 954 | (873) | 913 | (563) |
Acquisition and restructuring costs | (465) | (290) | (465) | (290) |
Income (loss) before income taxes | 4,592 | (3,580) | 5,793 | (1,337) |
Income tax expense (recovery): | ||||
Current | (525) | — | (561) | — |
Deferred | (1,651) | 756 | (2,022) | 756 |
Total income tax expense (recovery) | (2,176) | 756 | (2,583) | 756 |
Net income (loss) | 2,416 | (2,824) | 3,210 | (581) |
Other comprehensive income (loss): | ||||
Foreign currency translation differences on foreign operations | (3,826) | 983 | (4,251) | 627 |
Total comprehensive income (loss) | $ (1,410) | $ (1,841) | $ (1,041) | $ 46 |
Net income (loss) per share - basic and diluted | $ 0.01 | $ (0.02) | $ 0.01 | $ (0.01) |
Six months ended June 30, 2023 and 2022
Canadian dollars in '000s
(unaudited)
Share capital | Treasury shares | Contributed surplus | Accumulated other comprehensive income | Non-controlling interest | Deficit | Total shareholders' | |
Balance, December 31, 2021 | $ 98,918 | $ — | $ 11,793 | $ 9,011 | $ — | $ (77,218) | $ 42,504 |
Comprehensive (loss) income for the period | — | — | — | 627 | — | (581) | 46 |
Issued pursuant to private placements, net of share issue costs | 27,983 | — | 3,074 | — | — | — | 31,057 |
Consideration for business combination, net of share issue costs | 8,038 | — | — | — | — | — | 8,038 |
Non-controlling interest | — | — | — | — | 177 | — | 177 |
Treasury shares issued for business combination | 959 | (959) | — | — | — | — | — |
Issued pursuant to stock option exercises | 148 | — | (46) | — | — | — | 102 |
Share-based compensation | — | — | 266 | — | — | — | 266 |
Balance, June 30, 2022 | $ 136,046 | $ (959) | $ 15,087 | $ 9,638 | $ 177 | $ (77,799) | $ 82,190 |
Share capital | Treasury shares | Contributed surplus | Accumulated other comprehensive income | Deficit | Total shareholders' equity | |
Balance, December 31, 2022 | $ 180,484 | $ (959) | $ 15,854 | $ 17,389 | $ (58,871) | $ 153,897 |
Comprehensive (loss) income for the period | — | — | — | (4,251) | 3,210 | (1,041) |
Contributed surplus on vesting of treasury shares
| — | 250 | (250) | — | — | — |
Issued pursuant to warrant exercises | 18,186 | — | (2,976) | — | — | 15,210 |
Issued pursuant to stock option exercises | 253 | — | (94) | — | — | 159 |
Share-based compensation | — | — | 1,689 | — | — | 1,689 |
Balance, June 30, 2023 | $ 198,923 | $ (709) | $ 14,223 | $ 13,138 | $ (55,661) | $ 169,914 |
Three and six months ended June 30, 2023 and 2022
Canadian dollars in '000s
(unaudited)
Three months ended June 30, | Six months ended June 30, | |||
2023 | 2022 | 2023 | 2022 | |
Cash provided by (used in): | ||||
Operating activities: | ||||
Net income (loss) | $ 2,416 | $ (2,824) | $ 3,210 | $ (581) |
Non-cash adjustments: | ||||
Income tax expense (recovery) | 2,176 | (756) | 2,583 | (756) |
Depreciation and amortization | 11,614 | 4,746 | 22,348 | 9,159 |
Share-based compensation | 770 | 132 | 1,689 | 266 |
Gain on disposal of property, plant and equipment | (4,091) | (1,298) | (7,135) | (2,120) |
Write-down of inventory included in cost of sales | — | — | 378 | — |
Finance costs - loans and borrowings | 1,486 | 295 | 3,216 | 524 |
Finance costs - lease liabilities | 205 | 195 | 419 | 384 |
Income tax refund (paid) | (817) | 20 | (648) | 28 |
Unrealized foreign exchange loss (gain) on intercompany balances | (910) | 758 | (899) | 463 |
12,849 | 1,268 | 25,161 | 7,367 | |
Changes in non-cash operating working capital | (1,617) | 3,243 | 9,987 | (4,614) |
Cash flow - operating activities | 11,232 | 4,511 | 35,148 | 2,753 |
Investing activities: | ||||
Cash paid on acquisition | — | (3,930) | — | (22,090) |
Property, plant and equipment additions | (8,714) | (6,218) | (22,465) | (9,522) |
Intangible asset additions | (22) | — | (144) | — |
Proceeds on disposal of property, plant and equipment | 4,208 | 3,091 | 9,780 | 4,324 |
Changes in non-cash investing working capital | 174 | 1,046 | (1,755) | 841 |
Cash flow - investing activities | (4,354) | (6,011) | (14,584) | (26,447) |
Financing activities: | ||||
Advances of loans and borrowings | — | — | — | 19,859 |
Repayments on loans and borrowings | (16,727) | (10,779) | (20,455) | (16,723) |
Payments on lease liabilities, net of finance costs | (914) | (733) | (1,849) | (1,336) |
Interest paid | (1,691) | (490) | (3,635) | (908) |
Proceeds on share issuance | 14,479 | 24,686 | 15,367 | 31,160 |
Cash flow - financing activities | (4,853) | 12,684 | (10,572) | 32,052 |
Effect of exchange rate on changes on cash | (990) | 87 | (1,044) | 56 |
Change in cash | 1,035 | 11,271 | 8,948 | 8,414 |
Cash, beginning of period | 19,088 | 41 | 11,175 | 2,898 |
Cash, end of period | $ 20,123 | $ 11,312 | $ 20,123 | $ 11,312 |
Cathedral Energy Services Ltd., based in Calgary, Alberta is incorporated under the Business Corporations Act (Alberta) and operates in the U.S. under Discovery Downhole Services, a division of Cathedral Energy Services Inc. Altitude Energy Partners, LLC and Rime Downhole Technologies, LLC. Cathedral's Common Share are publically traded on the Toronto Stock Exchange under the symbol "CET". Cathedral is a trusted partner to North American energy companies requiring high performance directional drilling services. We work in partnership with our customers to tailor our equipment and expertise to meet their specific geographical and technical needs. Our experience, technologies and responsive personnel enable our customers to achieve higher efficiencies and lower project costs. For more information, visit www.cathedralenergyservices.com.
SOURCE Cathedral Energy Services Ltd.
Copyright 2023 Canada NewsWire
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