CALGARY, May 15, 2019 /CNW/ - MATRRIX Energy
Technologies Inc. ("MATRRIX" or the "Corporation") (TSX-V: MXX)
announces today its financial and operational results for the three
month period ended March 31, 2019.
The Corporation is pleased to announce its continued success on its
previously announced strategic plan of expanding into the drilling
rig business in Western Canada.
The Corporation recorded positive net earnings for the three months
ended March 31, 2019
The following should be read in conjunction with the
Corporation's unaudited condensed consolidated financial statements
and the notes thereto for the three month period ended March 31, 2019 and related management's
discussion and analysis, which are available on SEDAR at
www.sedar.com.
All amounts or dollar figures are denominated in thousands of
Canadian dollars except for per share amounts, number of drilling
rigs, and operating days, or unless otherwise noted.
Estimates and forward-looking information are based on
assumptions of future events and actual results may vary from these
estimates. See "Forward-Looking Information" in this press release
for additional details.
OUTLOOK & 2019 OPERATIONAL OVERVIEW
The Canadian Association of Oilwell Drilling Contractors'
("CAODC") average utilization for the first quarter of 2019 was
29%, down 28% from the corresponding 2018 period. Management
believes the decrease in activity was primarily related to the
Government of Alberta's mandated
crude oil production curtailment program and continued pricing
pressures related to pipeline capacity restraints in Western Canada. However, there is a sense of
renewed optimism for increased forecasted activity in Western Canada with a newly elected
Alberta government, which ran on a
platform of regulatory and economic reform and a message that
Alberta is "Open for Business".
Notwithstanding the renewed optimism, the Corporation does not
anticipate a significant recovery in Canadian activity in 2019 from
2018 levels.
Drilling Rig Division
Entering into its second full year of operations, the drilling
rig division recorded net income of $1,211 and Adjusted EBITDA of $2,499 for the three months ended March 31, 2019 despite decreased drilling
activity in Western Canada.
Management believes the Corporation has been able to drive
incremental revenue as a direct result of purchasing rigs that are
of high quality and in high demand and have purchase prices below
the cost of new builds. As at March 31, 2019, the Corporation
has nine marketable drilling rigs, seven in Saskatchewan and two in Alberta. Overall utilization for the
Corporation's drilling rig division in the first quarter of 2019
was 47%. The Corporation's two rigs that were upgraded and
relocated from Saskatchewan to
Alberta in the fourth quarter of
2018 continue to be highly utilized, with a combined utilization
rate of 75.6% in the first quarter of 2019. The Corporation's
Saskatchewan rigs had a combined
utilization rate of 45%. The Corporation is optimistic that the
current utilization rates for both Alberta and Saskatchewan will continue through 2019 based
on the 2019 forecasted drilling programs for its current and future
customers.
The Corporation continues to maintain a strong balance sheet. At
March 31, 2019, the Corporation's total debt to EBITDA
(as defined in the Operating Loan Agreement (the "Operating Loan"))
was 0.70 to 1. The Corporation anticipates having full access to
its $15,000 Operating Loan post
spring break up after cash collections have been received from the
winter drilling season. Management believes this access will
provide the Corporation with flexibility to execute on strategic
acquisitions, specific customer related upgrades and other
opportunities that may arise and align with the Corporation's
growth plan.
Directional Drilling Division
In April 2019, the Board of
Directors approved the discontinuation of the Corporation's
directional drilling operations starting in the second quarter of
2019 due to continued losses in the division since the first
quarter of 2015. Management performed a thorough review of the
directional drilling division, including the consideration of
potential implications of all available options. Management and the
Board of Directors determined that both significant capital
investment which could not be projected to meet the Corporation's
investment criteria, and major macroeconomic changes, which the
Corporation could not project happening in the near future in
Western Canada, would be required
in order to see a path to profitability for the division. The
Corporation is currently actively marketing its directional
drilling assets.
FINANCIAL HIGHLIGHTS
FIRST QUARTER 2019 SUMMARY (Compared with the first
quarter 2018)
- Revenue from continuing operations of $7,763, up 41% from $5,488;
- Gross margin from continuing operations of $3,360, up 75% from 1,920;
- Adjusted EBITDA from continuing operations of $2,499, up 59% from $1,567;
- Net income from continuing operations of $1,211, up 52% from $795;
- Net income from combined operations of $2,041, up 921% from $200.
|
Three months
ended
|
|
March 31,
|
(000's CAD
$)
|
2019
|
2018
|
%
Change
|
Continuing
operations
|
|
|
|
Revenue
|
7,763
|
5,488
|
41%
|
Direct operating
expenses
|
4,403
|
3,568
|
23%
|
Gross margin
(1)
|
3,360
|
1,920
|
75%
|
Net income from
continuing operations
|
1,211
|
795
|
52%
|
Basic and diluted per
share
|
0.01
|
0.01
|
0%
|
Adjusted EBITDA
(1)
|
2,499
|
1,567
|
59%
|
Basic and diluted per
share
|
0.02
|
0.01
|
100%
|
Combined
operations (2)
|
|
|
|
Net income
|
2,041
|
200
|
921%
|
Basic and diluted per
share
|
0.02
|
0.00
|
nm
|
Adjusted EBITDA
(1)
|
3,028
|
1,152
|
163%
|
Basic and diluted per
share
|
0.02
|
0.01
|
100%
|
Capital
expenditures
|
255
|
313
|
(19%)
|
Weighted average
common shares outstanding
|
131,614
|
128,472
|
2%
|
Weighted average
diluted common shares outstanding
|
134,452
|
129,508
|
4%
|
nm - not
meaningful
|
|
|
|
(1) Refer to "Non-GAAP Measures" for
further information
|
|
|
|
(2) Combined operations represents
the aggregated results of both continuing and discontinued
operations
|
|
|
As at March
31,
|
|
(000's CAD
$)
|
2019
|
2018
|
%
Change
|
Current assets,
including assets classified as held for sale
|
11,366
|
21,625
|
(47%)
|
Total
assets
|
51,989
|
45,130
|
15%
|
Total current
liabilities,
including liabilities related to assets classified as
held for sale
|
10,062
|
2,874
|
250%
|
Total non-current
liabilities
|
3,529
|
2,341
|
51%
|
Shareholders'
Equity
|
38,398
|
39,915
|
(4%)
|
FIRST QUARTER 2019 RESULTS OF CONTINUING OPERATIONS
|
Three months
ended
|
|
March
31,
|
(000's CAD $
except operating days)
|
2019
|
2018
|
%
Change
|
|
|
|
|
Revenue
|
7,763
|
5,488
|
41%
|
Direct operating
expenses
|
4,403
|
3,568
|
23%
|
Gross margin
(1)
|
3,360
|
1,920
|
75%
|
Gross margin
%
|
43%
|
35%
|
23%
|
Net income
|
1,211
|
795
|
52%
|
General and
administrative expenses
|
998
|
353
|
183%
|
General and
administrative expenses as a % of revenue
|
13%
|
6%
|
117%
|
Adjusted EBITDA
(1)
|
2,499
|
1,567
|
59%
|
Adjusted EBITDA
%
|
32%
|
29%
|
10%
|
Drilling rig
operating days
|
378
|
306
|
24%
|
Drilling rig revenue
per day
|
20.5
|
17.9
|
15%
|
(1) -
Refer to "Non-GAAP measures" for further information
|
|
|
|
- Revenue in the first quarter of 2019 was $7,763, an increase of $2,275 (41%) compared to $5,488 in the first quarter of 2018. The increase
was as a result of an increase in operating days due to the
addition of two marketable rigs from seven at the end of the first
quarter of 2018 to nine during the first quarter of 2019, and an
increase in revenue per day of 15% from $17.9 in the first quarter of 2018 to
$20.5 in the comparable 2019 period.
The increase in revenue per day was related to the higher day rates
in Alberta compared to in
Saskatchewan as the Corporation
relocated two rigs from Saskatchewan to Alberta during the second half of 2018.
- Operating days in the drilling rig division of 378 days in the
first quarter of 2019 was a 24% increase over the 306 operating
days in the first quarter of 2018, as a result of the increase in
rig count. The drilling rig utilization for the quarter ended
March 31, 2019 was 47%, 62% above the
CAODC industry average utilization rate of 29%, but below the
drilling rig utilization of 57% in the first quarter of 2018. The
decrease in drilling rig utilization was a result of the increase
in active rigs from seven at the end of March, 2018, to nine at the
end of March, 2019.
- Direct operating expenses are primarily comprised of personnel,
equipment, operating and repair costs, and shop expenses. Direct
operating expenses for the three months ended March 31, 2019 were $4,403, up $835
(23%) from $3,568 for the three
months ended March 31, 2018, also as
a result of the increased operating days compared to the first
quarter of 2018.
- For the first quarter ended March 31,
2019, gross margin as a percentage of revenue was 43%, up
23% from a gross margin of 35% in the first quarter of 2018. The
increase in gross margin as a percentage of revenue was primarily a
result of decreased maintenance costs per day compared to the first
quarter of 2018 when additional non-capitalizable expenditures were
made to put the rigs acquired in 2017 to use as well as fixed
operating costs being allocated over more operating days and an
increase in revenue per day.
- General and administrative expenses for the three months ended
March 31, 2019 were $998, up $645
(183%) from $353 for the three months
ended March 31, 2018, as a result of
the increased headcount and the higher allocation of corporate
expenses related to salaries, legal, IT, and rent from the
directional drilling division in the first quarter of 2019.
- For the three months ended March 31,
2019, Adjusted EBITDA in the drilling rig division was
$2,499, a $932 (59%) increase from $1,567 in the first quarter of 2018, as a result
of the increase in active rig count and higher gross margin which
was partially offset by the increased general and administrative
expenses compared to the first quarter of 2018.
Other Items
|
Three months
ended
|
|
March
31,
|
(000's CAD
$)
|
2019
|
2018
|
%
Change
|
Gain from equipment
lost in hole
|
15
|
-
|
nm
|
Finance
costs
|
(175)
|
(109)
|
61%
|
Other
income
|
42
|
-
|
nm
|
Foreign exchange gain
(loss)
|
4
|
-
|
nm
|
Transaction
costs
|
(99)
|
(277)
|
(64%)
|
Other
items
|
(213)
|
(386)
|
(45%)
|
nm - not
meaningful
|
|
|
|
For the quarter ended March 31,
2019, the Corporation recorded a gain of $15 related to equipment lost downhole. The
timing of lost-in-hole recoveries is not within the control of the
Corporation and therefore can fluctuate significantly from period
to period.
For the quarter ended March 31,
2019, finance costs were $175,
a $66 (61%) increase from
$109 for the first quarter of 2018.
The increase was due to $67 interest
charged on the operating loan related to capital projects completed
in 2018 and $17 interest on lease
liabilities as a result of IFRS 16, Leases, offset by a
$18 decrease in accretion on
convertible debentures.
Non-capitalizable transaction costs related to potential
acquisitions of $99 were incurred in
the first quarter of 2019, a decrease of $178 (64%) from $277 on acquisitions in the first quarter of
2018. Transaction costs represent non-capitalizable amounts
directly related to drilling rig acquisitions which consist of due
diligence and external legal fees.
RESULTS OF DISCONTINUED OPERATIONS
On April 3, 2019, the Corporation
announced the discontinuation of its directional drilling division.
As part of this process, the Corporation determined that the assets
related to the directional drilling operations had met the criteria
under "IFRS 5 - Non-Current Assets Held for Sale and Discontinued
Operations", to be classified as held for sale on the consolidated
statements of financial position as at March
31, 2019, and the related directional drilling operations to
be presented on the consolidated statements of comprehensive income
as discontinued operations. The criteria were met based on certain
events that occurred during the first quarter of 2019, supporting
the Corporation's intent and high probability of the sale of the
assets of the directional drilling division.
The following table sets forth operating results from the
discontinued operations for the three months ended March 31, 2019 and 2018:
|
Three months
ended
|
|
March
31,
|
(000's CAD $
except operating days)
|
2019
|
2018
|
%
Change
|
|
|
|
|
Directional drilling
revenue
|
1,835
|
1,987
|
(8%)
|
Direct operating
expenses
|
928
|
1,619
|
(43%)
|
Gross margin
(1)
|
907
|
368
|
146%
|
Gross margin
%
|
49%
|
19%
|
158%
|
Directional drilling
net income (loss)
|
830
|
(595)
|
(239%)
|
General and
administrative expenses
|
385
|
865
|
(55%)
|
General and
administrative expenses as a % of revenue
|
23%
|
44%
|
(48%)
|
Adjusted EBITDA
(1)
|
529
|
(415)
|
(227%)
|
Adjusted EBITDA
%
|
29%
|
(21%)
|
238%
|
Directional drilling
operating days(2)
|
209
|
252
|
(17%)
|
Directional drilling
revenue per day
|
8.8
|
7.9
|
11%
|
(1) Refer to "Non-GAAP measures" for
further information
|
|
|
|
[2] MATRRIX calculates a stand-by day
as 0.5 of an operating day
|
|
|
|
- Revenue from discontinued operations for the three month period
ended March 31, 2019 was $1,835, a decrease of $152 (8%) from $1,987 in the prior year comparable period, as a
result of a 17% decrease in operating days offset by an 11%
increase in revenue per day.
- Direct operating expenses from discontinued operations for the
three month period ended March 31,
2019 were $928, a decrease of
$691 (43%) from $1,619 in the prior year comparable period. Gross
margin as a percentage of revenue for the quarter ended
March 31, 2019 was 49%, up 158% from
19% in the first quarter of 2018. The primary reason for the
increase was the rebilling of repairs and maintenance costs of
$285 to customers and the deferral of
all non-essential repairs to the Corporation's owned
equipment.
- General and administrative expenses from discontinued
operations in the first quarter of 2019 were $385, a decrease of $480 (55%) compared to $865 in the first quarter of 2018. The overall
decrease was a result of a reduction in headcount in the division
and the reallocation of corporate expenses of salaries, legal, IT,
and rent from the directional drilling division to the drilling rig
division.
- The overall effect of the increase in revenue and the decrease
in direct operating costs and general and administrative expenses
resulted in Adjusted EBITDA of $529
in the first quarter of 2019, an increase of $944 (227%) from an Adjusted EBITDA loss of
$415 in the first quarter of
2018.
NON-GAAP MEASURES
This press release contains references to (i) Adjusted EBITDA
and (ii) gross margin. These financial measures are not measures
that have any standardized meaning prescribed by IFRS and are
therefore referred to as non-GAAP (Generally Accepted Accounting
Principles) measures. The non-GAAP measures used by the Corporation
may not be comparable to similar measures used by other
companies.
(i)
|
Adjusted EBITDA is
defined as "income (loss) from continuing operations before
interest income, interest expense, taxes, business acquisition
transaction costs, depreciation and amortization, share-based
compensation expense, gains on disposal of property and equipment,
impairment expenses, other income, foreign exchange, non-recurring
restructuring charges, finance costs, accretion of debentures and
other income/expenses, and any other items that the Corporation
considers appropriate to adjust given the irregular nature and
relevance to comparable operations." Management believes that in
addition to net and total comprehensive income (loss), Adjusted
EBITDA is a useful supplemental measure as it provides an
indication of the results generated by the Corporation's principal
business activities prior to consideration of how these activities
are financed, how assets are depreciated, amortized and impaired,
the impact of foreign exchange, or how the results are affected by
the accounting standards associated with the Corporation's
stock-based compensation plan. Investors should be cautioned,
however, that Adjusted EBITDA should not be construed as an
alternative to net income (loss) and comprehensive income (loss)
determined in accordance with IFRS as an indicator of the
Corporation's performance. The Corporation's method of calculating
Adjusted EBITDA may differ from that of other organizations and,
accordingly, its Adjusted EBITDA may not be comparable to that of
other companies.
|
|
Three months
ended
|
|
March 31,
|
(000's CAD
$)
|
2019
|
2018
|
%
Change
|
Net income from
continuing operations
|
1,211
|
795
|
52%
|
Depreciation
|
1,046
|
386
|
171%
|
Finance
costs
|
175
|
109
|
61%
|
Other
income
|
(42)
|
-
|
nm
|
Gain from equipment
lost in hole
|
(15)
|
-
|
nm
|
Share-based
payments
|
29
|
-
|
nm
|
Transaction
costs
|
99
|
277
|
(64%)
|
Foreign exchange
(gain) loss
|
(4)
|
-
|
nm
|
Adjusted
EBITDA
|
2,499
|
1,567
|
59%
|
nm - not
meaningful
|
|
|
|
(ii)
|
Gross margin is
defined as "gross profit from services revenue from continuing
operations before stock-based compensation and depreciation". Gross
margin is a measure that provides shareholders and potential
investors additional information regarding the Corporation's cash
generating and operating performance. Management utilizes this
measure to assess the Corporation's operating
performance.
|
|
Three months
ended
|
|
March 31,
|
(000's CAD
$)
|
2019
|
2018
|
% Change
|
Income from
operations
|
2,422
|
1,534
|
58%
|
Depreciation of
property and equipment
|
938
|
386
|
143%
|
Gross
margin
|
3,360
|
1,920
|
75%
|
Gross margin
%
|
43%
|
35%
|
23%
|
FORWARD-LOOKING INFORMATION
Certain statements contained in this press release constitute
forward-looking statements or forward-looking information
(collectively, "forward-looking information"). Forward-looking
information relates to future events or the Corporation's future
performance. All information other than statements of historical
fact is forward-looking information. The use of any of the words
"anticipate", "plan", "contemplate", "continue", "estimate",
"expect", "intend", "propose", "might", "may", "will", "could",
"believe", "predict", and "forecast" are intended to identify
forward-looking information.
This press release contains forward-looking information
pertaining to, among other things: the expectation that the
Corporation's current drilling rig utilization will continue for
the remainder of 2019; the expectation that there will not be a
significant recovery in industry activity in 2019 from 2018 levels;
the view that the Corporation has a strong balance sheet and its
expectation of having full access to its operating loan facility
and the flexibility that provides; the expectation of increased
forecasted activity with the new Government of Alberta; and the expectation regarding the
sale of the Corporation's directional drilling assets and use of
any net proceeds therefrom.
Statements, including forward-looking information, are made as
of the date of this press release and the Corporation does not
undertake any obligation to update or revise any forward-looking
information, whether as a result of new information, future events
or otherwise, except as may be required by applicable securities
laws. The forward-looking information contained in this press
release is expressly qualified by this cautionary statement.
Neither the TSX Venture Exchange nor its Regulation Services
Provider (as that term is defined in the policies of the TSX
Venture Exchange) accepts responsibility for the adequacy or
accuracy of this release.
SOURCE MATRRIX Energy Technologies Inc.