/NOT FOR DISSEMINATION IN
THIRD QUARTER HIGHLIGHTS
The Company achieved the following 2023 Q3 results and highlights:
- Industry leading active job count in
Canada during the quarter. - Increased
U.S. activity days and job count versus 2022 Q3, despite a lower industry rig count. - Revenue of
$145.6 million in 2023 Q3 is the highest quarterly revenue in the Company's history and represents an increase of 26%, compared to$115.2 million in 2022 Q3. - Adjusted EBITDAS of
$30.1 million in 2023 Q3, an increase of 7%, compared to$28.1 million in 2022 Q3. - Net income of
$5.7 million in 2023 Q3, compared to$8.7 million in 2022 Q3. - Cash flow - operating activities of
$9.1 million in 2023 Q3, compared to$11.5 million in 2022 Q3. - Free cash flow of
$6.1 million in 2023 Q3, compared to$16.8 million in 2022 Q3. - The Company purchased 2,434,900 common shares of Cathedral ("Common Shares") under its normal course issuer bid for a total purchase amount of
$2.2 million at an average price of$0.82 per common shares. Subsequent toSeptember 30, 2023 , the Company purchased 1,860,000 Common Shares for a total of$1.6 million at an average purchase price of$0.86 per Common Share. - Loans and borrowings less cash of
$71.5 million as atSeptember 30, 2023 , compared to$69.4 million as atDecember 31, 2022 . - The Company acquired
Rime Downhole Technologies, LLC ("Rime"), a privately-held,Texas -based, engineering business that specializes in building products for the downhole measurement-while-drilling ("MWD") industry in exchange for approximately USD$41 million (refer to the "2023 Acquisition" section in this news release). - The Company sees a significant opportunity for margin expansion in its
U.S. business as it deploys its own MWD technology to reduce its rental expenses.
PRESIDENT'S MESSAGE
Comments from President & CEO
"Despite the fact that North American industry rig counts were meaningfully lower year-over-year, particularly in the
"Our
"Cathedral's Canadian directional job counts averaged approximately 42 active rigs per day for the quarter, which was generally on par with a year ago, versus an industry directional and horizontal rig count which averaged approximately 174 rigs (Source: JWN Rig Locator), which was 6% lower than the same period last year, according to the broader
"Cathedral has a keen focus on generating high levels of free cash flow through the balance of 2023 and through 2024 with a target of reducing Loans and borrowings to less than 0.5x Adjusted EBITDAS by year-end 2024. A strong balance sheet will always be a priority as we continue to build size and scale going forward. In preparation for an active winter in
ORGANIZATIONAL UPDATE
Cathedral announces that James R. (J.R.)
FINANCIAL HIGHLIGHTS
Canadian dollars in 000's except for otherwise noted
Three months ended | Nine months ended | |||
2023 | 2022 | 2023 | 2022 | |
Revenues (2) | $ 145,591 | $ 115,184 | $ 399,878 | $ 179,865 |
Gross margin % (2) | 23 % | 26 % | 19 % | 21 % |
Adjusted gross margin % (1)(2) | 31 % | 34 % | 27 % | 32 % |
Adjusted EBITDAS (1) | $ 30,106 | $ 28,066 | $ 63,515 | $ 37,917 |
Adjusted EBITDAS margin % (1) | 21 % | 24 % | 16 % | 21 % |
Cash flow - operating activities (2) | $ 9,128 | $ 11,456 | $ 53,395 | $ 16,840 |
Free cash flow (1)(2) | $ 6,085 | $ 16,814 | $ 10,372 | $ 8,326 |
Net income | $ 5,650 | $ 8,658 | $ 8,861 | $ 8,077 |
Per share - basic and diluted | $ 0.02 | $ 0.04 | $ 0.04 | $ 0.06 |
Weighted average shares outstanding: | ||||
Basic (000s) | 244,574 | 197,085 | 235,978 | 142,726 |
Diluted (000s) | 267,449 | 199,163 | 245,957 | 145,158 |
As at |
|
|
Working capital, excluding current portion of loans and borrowings (1) | $ 70,334 | $ 60,447 |
Total assets | $ 412,566 | $ 353,990 |
Loans and borrowings | $ 82,721 | $ 80,535 |
Shareholders' equity | $ 181,344 | $ 153,897 |
(1) | Refer to the "Non-GAAP Measures" section |
(2) | Refer to the "Reclassifications" section in this news release. |
OUTLOOK
Global oil prices rose considerably in the third quarter while
The North American land rig count has been weaker than many industry observers have been forecasting – both in the
In
A recovery in drilling activity may be slower in the U.S. market as some private E&P players remain cautious. In
Finally, Cathedral is also encouraged by a number of developments that should improve the longer-term outlook for Canadian oil and natural gas. Both the
2023 ACQUISITION
On
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
The purchase price allocation was recognized at fair value under IFRS 3 Business combinations as follows:
As at | |||||
Consideration: | |||||
Cash | $ 27,954 | ||||
Exchangeable promissory notes | 24,632 | ||||
Total consideration | $ 52,586 | ||||
Purchase price allocation: | |||||
Cash | $ 528 | ||||
Inventory | 7,119 | ||||
Other net working capital | 3,373 | ||||
Property, plant and equipment | 3,817 | ||||
Intangible assets | 35,850 | ||||
Right-of-use assets | 492 | ||||
1,899 | |||||
Lease obligations | (492) | ||||
Total purchase price allocation | $ 52,586 |
2022 ACQUISITIONS
In 2022, the Company executed five strategic acquisitions as detailed below:
U.S. - based company, Altitude inJuly 2022 for total consideration of$124.1 million , comprised of a cash payment of$87.2 million and a common share issuance of$36.9 million , with the purchase price allocated primarily to working capital, property, plant and equipment, intangible assets and goodwill;U.S. - based operations, Discovery Downhole Services ("Discovery") inFebruary 2022 for total consideration of$20.9 million , comprised of a cash payment of$18.2 million and a common share issuance of$2.7 million , with the purchase price allocated primarily to inventory and property, plant and equipment;LEXA Drilling Technologies Inc. ("Lexa") inJune 2022 for total consideration of$1.8 million in exchange for intangible assets;- Compass Directional Services ("Compass") in
June 2022 for total consideration of$8.3 million , comprised of a cash payment of$4 million and a common share issuance of$4.3 million , with the purchase price allocated primarily to inventory and property, plant and equipment; and - the Canadian directional drilling business of Ensign Energy Services ("Ensign") in
October 2022 for total common share consideration of$6 million with the purchase price allocated primarily to inventory and property, plant and equipment.
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.
RECLASSIFICATIONS
The Company has changed the presentation of certain figures in the comparative period as follows:
i) Lost-in-hole proceeds and gain on disposal of equipment - reimbursements collected from customers related to lost-in-hole equipment and the corresponding derecognition of the property, plant and equipment ("PP&E") were: a) reclassified from proceeds on disposal of property, plant and equipment to revenues, b) recognized as a write-off of PP&E at the net book value of the equipment and c) included in the Company's cash flows - operating activities rather than cash flows - investing activities on the condensed consolidated statement of comprehensive income and the condensed consolidated statement of cash flows.
The Company has changed its judgement regarding equipment lost-in-hole events that are contracted with its customers in that these events are now considered to be part of its ordinary business activities. The changes are reflected in the current and prior periods, as described above.
ii) Cash paid on acquisition - cash paid on acquisition, net of cash acquired has been presented in aggregate rather than allocated to the individual net assets acquired on the condensed consolidated statement of cash flows.
These reclassifications are summarized below:
Condensed Consolidated Statement of Comprehensive Income (Excerpt)
Three months ended | Nine months ended | ||||||
Reported | Adjustment | Adjusted | Reported | Adjustment | Adjusted | ||
Revenue (1)(2) | $ 107,846 | $ 7,338 | $ 115,184 | $ 169,883 | $ 9,982 | $ 179,865 | |
Cost of sales (1) | (83,557) | (2,046) | (85,603) | (139,490) | (2,058) | (141,548) | |
Gross margin (1) | 24,289 | 5,292 | 29,581 | 30,393 | 7,924 | 38,317 | |
Write-off of PP&E (1) | — | (857) | (857) | — | (1,486) | (1,486) | |
(Loss) gain on disposal of PP&E (1) | $ 4,435 | $ (4,435) | $ — | $ 6,555 | $ (6,438) | $ 117 |
(1) | Related to adjustment i) Lost-in-hole proceeds and gain on disposal of equipment, as described above. |
(2) | The adjusted revenue related to the |
Condensed Consolidated Statement of Cash Flows (Excerpt)
Three months ended | Nine months ended | ||||||
Reported | Adjustment | Adjusted | Reported | Adjustment | Adjusted | ||
Cash flow provided by (used in): | |||||||
Operating activities | |||||||
Write-off of property, plant and equipment (1) | $ — | $ 857 | $ 857 | $ — | $ 1,486 | $ 1,486 | |
Loss (gain) on disposal of | (4,435) | 4,435 | — | (6,555) | 6,438 | (117) | |
Non-cash working capital - cash paid on acquisition (2) | (11,310) | 11,310 | — | (11,310) | 11,310 | — | |
Changes in non-cash operating working capital (2) | (4,272) | (10,627) | (14,899) | (8,886) | (10,628) | (19,514) | |
Cash flow - operating activities | 5,481 | 5,975 | 11,456 | 8,234 | 8,606 | 16,840 | |
Investing activities | |||||||
Cash paid on acquisitions, net | — | (81,703) | (81,703) | — | (103,793) | (103,793) | |
Equipment additions - normal course (1)(2) | (7,730) | 138 | (7,592) | (17,252) | 152 | (17,100) | |
Equipment additions - cash paid on acquisition (2) | (54,276) | 54,276 | — | (76,436) | 76,436 | — | |
Intangible additions - cash paid on acquisition (2) | (28,284) | 28,284 | — | (28,284) | 28,284 | — | |
Proceeds on disposal of | 6,970 | (6,970) | — | 11,294 | (9,615) | 1,679 | |
Cash acquired on acquisition (2) | — | — | — | 70 | (70) | — | |
Cash flow - investing activities | $ (87,376) | $ (5,975) | $ (93,351) | $ (113,823) | $ (8,606) | $ (122,429) |
(1) | Related to adjustment i) Lost-in-hole proceeds and gain on disposal of equipment, as described above. |
(2) | Related to adjustment ii) Cash paid on acquisition, as described above. |
RESULTS OF OPERATIONS
Three months ended | Nine months ended | |||
2023 | 2022 | 2023 | 2022 | |
Revenues | ||||
$ 45,253 | $ 38,073 | $ 116,080 | $ 77,937 | |
100,338 | 77,110 | 283,798 | 101,928 | |
Total revenues | 145,591 | 115,184 | 399,878 | 179,865 |
Cost of sales: | ||||
Direct costs (2) | (101,629) | (76,259) | (293,815) | (123,201) |
Depreciation and amortization | (10,508) | (9,116) | (29,848) | (18,027) |
Share-based compensation | (429) | (228) | (669) | (320) |
Cost of sales | (112,566) | (85,603) | (324,332) | (141,548) |
Gross margin (2) | $ 33,025 | $ 29,581 | $ 75,546 | $ 38,317 |
Gross margin % (2) | 23 % | 26 % | 19 % | 21 % |
Adjusted gross margin % (1)(2) | 31 % | 34 % | 27 % | 32 % |
(1) | Refer to the "Non-GAAP Measures" section. |
(2) | Refer to the "Reclassifications" section in this news release. |
Consolidated
The Company recognized
The Company recognized
The Gross margin % decreased to 23% and 19% in 2023 Q3 and the nine months ended
Gross margins and adjusted gross margins decreased due to continued inflationary costs on the business in 2023, higher than normal repair costs experienced in the first quarter of 2023 and higher labour and rental costs. In addition, margins were impacted by lower
Depreciation and amortization expense included in cost of sales increased to
Depreciation and amortization expense included in cost of sales as a percentage of revenue was 8% and 7% for the 2023 Q3 and the nine months ended
Canadian segment
Revenues
Canadian revenues were
Canadian revenues were
Direct costs
Canadian direct costs included in cost of sales were
Canadian direct costs included in cost of sales were
Revenues
Direct costs
Selling, general and administrative ("SG&A") expenses
Three months ended | Nine months ended | |||
2023 | 2022 | 2023 | 2022 | |
Selling, general and administrative expenses: | ||||
Direct costs | $ 11,611 | $ 9,293 | $ 37,701 | $ 16,119 |
Depreciation and amortization | 2,299 | 3,396 | 5,307 | 3,644 |
Share-based compensation | 1,731 | 235 | 3,179 | 409 |
Selling, general and administrative expenses | $ 15,641 | $ 12,924 | $ 46,187 | $ 20,172 |
The Company recognized SG&A expenses of
Depreciation and amortization recognized in SG&A were
Stock-based compensation recognized in SG&A were
Provision
The Company has recognized a provision of
Research and development ("R&D") costs
The Company recognized R&D costs of
Write-off of property, plant and equipment
The Company recognized a write-off of property, plant and equipment of
Finance costs
Finance costs - loans and borrowings were
The higher costs are mainly due to the Company's increased debt levels as at
In addition, the Company had
Foreign exchange
The Company recognized a foreign exchange loss of
The Company recognized a foreign currency translation gain on foreign operations of
Income tax
The Company recognized an income tax expense of
Income tax expense is booked based upon expected annualized rates using the statutory rates of 23% for
LIQUIDITY AND CAPITAL RESOURCES
Annually, the Company's principal source of liquidity is cash generated from operations. 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 - operating activities was
At
Warrants
During the nine months ended
Normal course issuer bid
On
Under the TSX rules, the Company is entitled to purchase up to the greater of: 25% of the average daily trading volume of the respective class of shares; or 1,000 shares on any trading day; or a larger amount of shares per calendar week, subject to the maximum number that may be acquired under the NCIB, if the transaction meets the block purchase exception rule under TSX rules. Accordingly, unless a block purchase meets the block purchase exception under TSX rules, the Company is entitled to purchase up to 99,621 Common Shares on any trading day.
During the nine months ended
In connection with the NCIB, the Company has established an automatic securities purchase plan ("the Plan") for the Common Shares. Accordingly, the Company may repurchase its Common Shares under the Plan on any trading day during the NCIB, including during regulatory restrictions or self-imposed trading blackout periods. The Plan commenced on
Syndicated credit facility
During the three months ended
During the nine months ended
As at
At
- Consolidated Funded Debt to Consolidated Credit Agreement EBITDA ratio shall not exceed 2.5.0:1; and
- Consolidated Fixed Charge Coverage ratio shall not be less than 1.25:1
Contractual obligations and contingencies
As at
The Company also holds six letters of credit totaling
The Company is involved in various other 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.
Share capital
As at
Change of Transfer Agent
Effective
CAPITAL EXPENDITURES
The following table details the property, plant and equipment additions:
Three months ended | Nine months ended | |||
2023 | 2022 | 2023 | 2022 | |
Motors and related equipment | $ 10,139 | $ 2,736 | $ 22,786 | $ 8,832 |
MWD and related equipment | 4,446 | 4,843 | 9,854 | 8,231 |
Shop and automotive equipment | 334 | — | 2,084 | — |
Other | 471 | 13 | 3,109 | 37 |
Capital expenditures | $ 15,390 | $ 7,592 | $ 37,833 | $ 17,100 |
The Company's 2023 net capital budget is expected to be approximately between
NON-GAAP MEASURES
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. 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 measures include the Adjusted gross margin, Adjusted gross margin %, Adjusted EBITDAS, Adjusted EBITDAS margin %, Free cash flow and Working capital. Management believes these measures provide supplemental financial information that is useful in the evaluation of Cathedral's operations.
These non-GAAP measures are defined as follows:
i) "Adjusted gross margin" - calculated as gross margin before non-cash costs (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 and provision), 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) "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, in accordance with the credit facility agreement, 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 calculation of Free cash flow has been amended from the prior period to demonstrate a more appropriate representation of the Company's Free cash flow by deducting the Company's required repayments on loans and borrowings in the calculation compared to no adjustment included in the prior periods. It is of the Company's view that required repayments of loans and borrowings reduce its Free cash flow and, as such, should be deducted from the Free cash flow calculation.
In addition, there were reclassification adjustments relating to the cash flow from operating activities and proceeds on disposal of property, plant and equipment, as described in the "Reclassifications" section in this news release.
vi) "Working capital" - calculated as current assets less current liabilities, excluding the current portion of loans and borrowings. Management uses this measure as an indication of the Company's financial and cash liquidity position.
The following tables provide reconciliations from the IFRS measures to non-GAAP measures.
Adjusted gross margin
Three months ended | Nine months ended | |||
2023 | 2022 | 2023 | 2022 | |
Gross margin (1) | $ 33,025 | $ 29,581 | $ 75,546 | $ 38,317 |
Add non-cash items included in cost of sales: | ||||
Inventory write-down | 599 | — | 977 | — |
Depreciation and amortization | 10,508 | 9,116 | 29,848 | 18,027 |
Share-based compensation | 429 | 228 | 669 | 320 |
Adjusted gross margin | $ 44,561 | $ 38,925 | $ 107,040 | $ 56,664 |
Adjusted gross margin % | 31 % | 34 % | 27 % | 32 % |
(1) | Refer to the "Reclassifications" section in this news release. |
Adjusted EBITDAS
Three months ended | Nine months ended | |||
2023 | 2022 | 2023 | 2022 | |
Net income | $ 5,650 | $ 8,658 | $ 8,861 | $ 8,077 |
Add (deduct): | ||||
Income tax expense (recovery) | 1,359 | 87 | 3,942 | (669) |
Depreciation and amortization included in cost of sales | 10,508 | 9,116 | 29,848 | 18,027 |
Depreciation and amortization included in selling, | 2,299 | 3,396 | 5,307 | 3,644 |
Share-based compensation included in cost of sales | 429 | 228 | 669 | 320 |
Share-based compensation included in selling, | 1,731 | 235 | 3,179 | 409 |
Finance costs - loans and borrowings | 2,286 | 1,500 | 5,502 | 2,024 |
Finance costs - lease liabilities | 215 | 200 | 634 | 584 |
24,477 | 23,420 | 57,942 | 32,416 | |
Unrealized foreign exchange (gain) loss on intercompany balances | (100) | 2,048 | (999) | 2,511 |
Inventory write-down and non-recurring expenses | 5,729 | 2,598 | 6,572 | 2,990 |
Adjusted EBITDAS | $ 30,106 | $ 28,066 | $ 63,515 | $ 37,917 |
Adjusted EBITDAS margin % | 21 % | 24 % | 16 % | 21 % |
Free cash flow
Three months ended | Nine months ended | |||
2023 | 2022 | 2023 | 2022 | |
Cash flow - operating activities (3) | $ 9,128 | $ 11,456 | $ 53,395 | $ 16,840 |
Add (deduct): | ||||
Income tax paid (refund) | 198 | (30) | 846 | (58) |
Changes in non-cash operating working capital (3) | 17,200 | 14,899 | 7,213 | 19,514 |
Non-recurring expenses, excluding inventory write-down | 839 | 2,598 | 1,304 | 2,990 |
Proceeds on disposal of property, plant and equipment (3) | 70 | — | 733 | 1,679 |
Less: | ||||
Property, plant and equipment additions (1)(3) | (15,385) | (7,592) | (37,850) | (17,100) |
Required repayments on loans and borrowings (2) | (5,154) | (3,737) | (12,609) | (13,423) |
Repayments of lease liabilities, net of finance costs | (811) | (780) | (2,660) | (2,116) |
Free cash flow | $ 6,085 | $ 16,814 | $ 10,372 | $ 8,326 |
(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. |
(3) | Refer to the "Reclassifications" section in this news release. |
FORWARD LOOKING STATEMENTS
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:
- Future commitments;
- The 2023 capital program and financing of the program;
- We believe that our
U.S. operating entity, Altitude, grew market share from early 2023, which is a testament to the strong leadership, operating performance and performance focus that this division continues to display; - We continue to target the deployment of as many as thirty newly-developed Rime MWD packages by the end of the first half of 2024;
- We continue to believe we have a significant opportunity for margin expansion and bolstered margin resiliency as we deploy our internally developed technology to reduce our reliance on third party rental technology;
- Adding an internally developed pulse MWD system to an operation of Altitude's scale could have a meaningful impact on our financial results as 2024 progresses;
- We continue to leverage our technical strength, expertise, and experience in the fast-growing multi-lateral market where we anticipate attractive customer economics will continue to propel growth into the future;
- We are currently gearing up for a very busy winter drilling season that should see activity levels surpass those of a year ago;
- Cathedral has a keen focus on generating high levels of free cash flow through the balance of 2023 and through 2024 with a target of reducing Loans and borrowings to less than 0.5x Adjusted EBITDAS by year-end 2024;
- In preparation for an active winter in
Canada and a steadily improving rig count in theU.S. in 2024 the board has approved a preliminary capital budget of$15 million to allow for delivery of items with longer lead times and the timely build-out of our own MWD technology in the first half of the year; - Global oil prices rose considerably in the third quarter while
U.S. natural gas prices also showed signs of strengthening. This combination will add considerably to the free cash flow of our North American E&P clients and may lead to a gradual increase in land rig counts throughout 2024; - The oil market futures curve has tipped decidedly into backwardation looking out the next few years – a sign that oil market futures traders see a tight supply and demand balance in the foreseeable future;
- The futures curve for
U.S. natural gas has a twelve-month strip price well aboveU.S. $3.00 per mmbtu – another sign of renewed optimism around this critical growth commodity going forward; - A group of six energy service equity analysts (Source:
ATB Capital Markets ,BMO Capital Markets ,National Bank Financial ,Peters & Co , Stifel,TD Securities ) forecast a bottoming of theU.S. land rig count sometime in 2023 Q3 and then a turn higher in 2023 Q4 as improved E&P cash flows allowed drilling budgets to start being replenished. This group of analysts also forecast continued growth through 2024; - The updated consensus outlook from this group suggests that the average
U.S. land rig count forecast will fall to approximately 616 rigs in 2023 Q4 from an average of 630 rigs in 2023 Q3; - Given the current count of under 600 active
U.S. land rigs, this would imply a meaningful move higher in the final two months of 2023; - Further, this group of analysts continues to forecast continuing growth in
U.S. land drilling in each of the four quarters of 2024 (2024 Q1 average of 646 rigs, rising to 661, 676 and 683 rigs sequentially); - In
Canada , the same group of six research analysts sees 2023 Q4 average active rigs numbering 178 rigs vs 181 rigs in 2023 Q3 – likely due to end-of-year E&P budget exhaustion; - In 2024, this group forecasts that the average first quarter Canadian drilling count will be 217 rigs as compared to 199 rigs in 2023 Q1, growth of 9% year-over-year;
- Through all four quarters of 2024, the Canadian drilling rig count is forecast to grow by 8% year-over-year. This contrasts with the full-year 2024 U.S. land rig forecast that is expected to fall by 0.9% year-over-year;
- A recovery in drilling activity may be slower in the U.S. market as some private E&P players remain cautious;
- In
Canada , drilling has accelerated as major producers begin to line up reserves and production volumes to supply the roughly 2 bcf per day LNG Canada project, which is set to begin exporting natural gas volumes in 2025; - The build-out of various new
U.S. LNG facilities also continues at a steady pace. In fact,U.S. natural gas export volumes are set to rise to nearly 21 bcf per day by the end of 2025 from just over 13 bcf per day today (Source:Energy Information Administration ,U.S. Liquefaction Capacity Workbook,June 29 , 2023); - By 2027, a further 4.3 bcf per day of export capacity will come online based on current projects under construction. This will result in almost a doubling of
U.S. gas export volumes within four years (Source: EIA); - The growth in
U.S. LNG export capacity is a reason we remain optimistic about consistent levels of oilfield service activity in the long-term; - Both the
Trans Mountain oil pipeline and the Coastal Gaslink natural gas pipeline are set to be completed in 2024 and receive line pack and first export volumes over the course of the next twelve to eighteen months.
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:
- the performance of Cathedral's business;
- impact of economic and social trends;
- oil and natural gas commodity prices and production levels;
- capital expenditure programs and other expenditures by Cathedral and its customers;
- the ability of Cathedral to attract and retain key management personnel;
- the ability of Cathedral to retain and hire qualified personnel;
- the ability of Cathedral to obtain parts, consumables, equipment, technology, and supplies in a timely manner to carry out its activities;
- the ability of Cathedral to maintain good working relationships with key suppliers;
- the ability of Cathedral to retain customers, market its services successfully to existing and new customers and reliance on major customers;
- risks associated with technology development and intellectual property rights;
- obsolescence of Cathedral's equipment and/or technology;
- the ability of Cathedral to maintain safety performance;
- the ability of Cathedral to obtain adequate and timely financing on acceptable terms;
- the ability of Cathedral to comply with the terms and conditions of its credit facility;
- the ability to obtain sufficient insurance coverage to mitigate operational risks;
- currency exchange and interest rates;
- risks associated with future foreign operations;
- the ability of Cathedral to integrate its transactions and the benefits of any acquisitions, dispositions and business development efforts;
- environmental risks;
- business risks resulting from weather, disasters and related to information technology;
- changes under governmental regulatory regimes and tax, environmental, climate and other laws in
Canada and theU.S. ; and - competitive risks.
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).
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at
Canadian dollars in '000s
(unaudited)
As at |
|
|
Assets | ||
Current assets: | ||
Cash | $ 11,172 | $ 11,175 |
Trade receivables | 108,529 | 113,477 |
Prepaid expenses | 2,409 | 4,529 |
Inventories | 49,139 | 26,195 |
Total current assets | 171,249 | 155,376 |
Property, plant and equipment | 118,781 | 108,530 |
Intangible assets | 70,235 | 38,511 |
Right-of-use assets | 10,886 | 12,178 |
41,415 | 39,395 | |
Total non-current assets | 241,317 | 198,614 |
Total assets | $ 412,566 | $ 353,990 |
Liabilities and Shareholders' Equity | ||
Current liabilities: | ||
Trade and other payables | $ 93,167 | $ 90,389 |
Current taxes payable | 4,328 | 909 |
Loans and borrowings, current | 21,176 | 15,735 |
Lease liabilities, current | 3,420 | 3,631 |
Total current liabilities | 122,091 | 110,664 |
Loans and borrowings, long-term | 61,545 | 64,800 |
Exchangeable promissory notes | 24,063 | — |
Lease liabilities, long-term | 13,406 | 14,249 |
Deferred tax liability | 10,117 | 10,380 |
Total non-current liabilities | 109,131 | 89,429 |
Total liabilities | 231,222 | 200,093 |
Shareholders' equity: | ||
Share capital | 197,344 | 180,484 |
(709) | (959) | |
Exchangeable promissory notes | 1,274 | — |
Contributed surplus | 15,768 | 15,854 |
Accumulated other comprehensive income | 17,980 | 17,389 |
Deficit | (50,313) | (58,871) |
Total shareholders' equity | 181,344 | 153,897 |
Total liabilities and shareholders' equity | $ 412,566 | $ 353,990 |
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Three and nine months ended
Canadian dollars in '000s except per share amounts
(unaudited)
Three months ended | Nine months ended | |||
2023 | 2022 | 2023 | 2022 | |
Revenues (1) | $ 145,591 | $ 115,184 | $ 399,878 | $ 179,865 |
Cost of sales: | ||||
Direct costs (1) | (101,629) | (76,259) | (293,815) | (123,201) |
Depreciation and amortization | (10,508) | (9,116) | (29,848) | (18,027) |
Share-based compensation | (429) | (228) | (669) | (320) |
Total cost of sales | (112,566) | (85,603) | (324,332) | (141,548) |
Gross margin | 33,025 | 29,581 | 75,546 | 38,317 |
Selling, general and administrative expenses: | ||||
Direct costs | (11,611) | (9,293) | (37,701) | (16,119) |
Depreciation and amortization | (2,299) | (3,396) | (5,307) | (3,644) |
Share-based compensation | (1,731) | (235) | (3,179) | (409) |
Total selling, general and administrative expenses | (15,641) | (12,924) | (46,187) | (20,172) |
Provision | (4,291) | — | (4,291) | — |
Research and development costs | (427) | (403) | (1,437) | (853) |
Write-down of property, plant and equipment (1) | (1,555) | (857) | (3,924) | (1,486) |
Gain on disposal of property, plant and equipment (1) | 5 | — | 390 | 117 |
Income from operating activities | 11,116 | 15,397 | 20,097 | 15,923 |
Finance costs - loans and borrowings | (2,286) | (1,500) | (5,502) | (2,024) |
Finance costs - lease liabilities | (215) | (200) | (634) | (584) |
Foreign exchange (loss) gain | (767) | (2,354) | 146 | (2,917) |
Acquisition and restructuring costs | (839) | (2,598) | (1,304) | (2,990) |
Income before income taxes | 7,009 | 8,745 | 12,803 | 7,408 |
Income tax (expense) recovery: | ||||
Current | (3,687) | (87) | (4,248) | (87) |
Deferred | 2,328 | — | 306 | 756 |
Total income tax (expense) recovery | (1,359) | (87) | (3,942) | 669 |
Net income | 5,650 | 8,658 | 8,861 | 8,077 |
Other comprehensive income: | ||||
Foreign currency translation differences on foreign operations | 4,842 | 11,380 | 591 | 12,007 |
Total comprehensive income | $ 10,492 | $ 20,038 | $ 9,452 | $ 20,084 |
Net income per share - basic and diluted | $ 0.02 | $ 0.04 | $ 0.04 | $ 0.06 |
(1) Refer to the "Reclassifications" section of this news release |
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
Nine months ended
Canadian dollars in '000s
(unaudited)
Share | shares | Contributed surplus | Accumulated other comprehensive income | Deficit | Total shareholders' equity | |
Balance, | $ 98,918 | $ — | $ 11,793 | $ 9,011 | $ (77,218) | $ 42,504 |
Comprehensive income for the | — | — | — | 12,007 | 8,077 | 20,084 |
Issued pursuant to private costs | 27,950 | — | 3,075 | — | — | 31,025 |
Consideration for business | 45,031 | — | — | — | — | 45,031 |
business combination | 959 | (959) | — | — | — | — |
Issued pursuant to stock option exercises | 474 | — | (146) | — | — | 328 |
Share-based compensation | — | — | 729 | — | — | 729 |
Balance, | $ 173,332 | $ (959) | $ 15,451 | $ 21,018 | $ (69,141) | $ 139,701 |
Share | shares | EP | Contributed surplus | Accumulated other comprehensive income | Deficit | Total shareholders' equity | |
Balance, | $ (959) | $ — | $ 15,854 | $ 17,389 | $ 153,897 | ||
Comprehensive income | — | — | — | — | 591 | 8,861 | 9,452 |
Purchased pursuant to normal course issuer bid
| (1,987) | — | — | — | — | (303) | (1,987) |
Accrued purchases pursuant | (1,669) | — | — | — | — | — | (1,669) |
EP Notes issued for business combination | — | — | 1,274 | — | — | — | 1,274 |
Contributed surplus on vesting of treasury shares
| — | 250 | — | (250) | — | — | — |
Issued pursuant to warrant exercises | 19,843 | — | — | (3,433) | — | — | 16,410 |
Issued pursuant to stock | 673 | — | — | (251) | — | — | 422 |
Share-based compensation | — | — | — | 3,848 | — | — | 3,848 |
Balance, | $ (709) | $ 1,274 | $ 15,768 | $ 17,980 | $ 181,344 |
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
Three and nine months ended
Canadian dollars in '000s (unaudited)
Three months ended | Nine months ended | |||
2023 | 2022 | 2023 | 2022 | |
Cash provided by (used in): | ||||
Operating activities: | ||||
Net income | $ 5,650 | $ 8,658 | $ 8,861 | $ 8,077 |
Non-cash adjustments: | ||||
Income tax expense (recovery) | 1,359 | 87 | 3,942 | (669) |
Depreciation and amortization | 12,807 | 12,512 | 35,155 | 21,671 |
Share-based compensation | 2,160 | 463 | 3,848 | 729 |
Gain on disposal of property, plant and equipment(1) | (5) | — | (390) | (117) |
Write-down of property, plant and equipment (1) | 1,555 | 857 | 3,924 | 1,486 |
Write-down of inventory included in cost of sales | 599 | — | 977 | — |
Finance costs - loans and borrowings | 2,286 | 1,500 | 5,502 | 2,024 |
Finance costs - lease liabilities | 215 | 200 | 634 | 584 |
Income tax refund (paid) | (198) | 30 | (846) | 58 |
Unrealized foreign exchange loss (gain) on intercompany balances | (100) | 2,048 | (999) | 2,511 |
26,328 | 26,355 | 60,608 | 36,354 | |
Changes in non-cash operating working capital | (17,200) | (14,899) | (7,213) | (19,514) |
Cash flow - operating activities | 9,128 | 11,456 | 53,395 | 16,840 |
Investing activities: | ||||
Cash paid on acquisition, net of cash acquired | (27,426) | (81,703) | (27,426) | (103,793) |
Property, plant and equipment additions | (15,385) | (7,592) | (37,850) | (17,100) |
Intangible asset additions | (14) | (1,456) | (158) | (1,456) |
Proceeds on disposal of property, plant and equipment(1) | 70 | — | 733 | 1,679 |
Changes in non-cash investing working capital | 4,023 | (2,600) | 2,268 | (1,759) |
Cash flow - investing activities | (38,732) | (93,351) | (62,433) | (122,429) |
Financing activities: | ||||
Advances of loans and borrowings, net of upfront financing fees | 27,298 | 87,291 | 27,298 | 107,150 |
Repayments on loans and borrowings | (5,471) | (6,868) | (25,926) | (23,591) |
Payments on lease liabilities, net of finance costs | (811) | (780) | (2,660) | (2,116) |
Interest paid | (2,500) | (1,700) | (6,136) | (2,608) |
Common shares purchased pursuant to NCIB | (3,955) | — | (3,955) | — |
Proceeds on common share issuances | 1,465 | 218 | 16,832 | 31,378 |
Changes in non-cash financing working capital | 1,765 | — | 1,765 | — |
Cash flow - financing activities | 17,791 | 78,161 | 7,218 | 110,213 |
Effect of exchange rate on changes on cash | 2,862 | 229 | 1,817 | 285 |
Change in cash | (8,951) | (3,505) | (3) | 4,909 |
Cash, beginning of period | 20,123 | 11,312 | 11,175 | 2,898 |
Cash, end of period | $ 11,172 | $ 7,807 | $ 11,172 | $ 7,807 |
(1) | Refer to the "Reclassifications" section of this news release |
SOURCE
© Canada Newswire, source