News Releases

Strad Announces Second Quarter Results

Aug 06, 2014
Strad today announced its financial results for the three and six months ended June 30, 2014.



CALGARY, ALBERTA--(Marketwired - Aug. 6, 2014) -

NOT FOR DISTRIBUTION TO U.S. NEWS WIRE SERVICES OR FOR DISSEMINATION IN THE UNITED STATES ("U.S.")

The news release contains "forward-looking information and statements" within the meaning of applicable securities laws. For full disclosure of the forward-looking information and statements and the risks to which they are subject, see the "Cautionary Statement Regarding Forward-Looking Information and Statements" later in this news release.

Strad Energy Services Ltd., ("Strad" or the "Company") (TSX:SDY), a North American-focused, energy services company, today announced its financial results for the three and six months ended June 30, 2014. All amounts are stated in Canadian dollars unless otherwise noted.

SELECTED FINANCIAL AND OPERATIONAL HIGHLIGHTS:

  • Second quarter EBITDA (1) of $12.3 million increased 40% compared to $8.8 million for the same period in 2013; 
  • Second quarter earnings per share of $0.13 compared to $nil for the same period in 2013;
  • Second quarter revenue of $53.7 million increased 8% compared to $49.6 million for the same period in 2013; 
  • Capital additions totaled $14.9 million during the second quarter. Reported capital expenditures, net of $2.1 million rental asset disposals, were $12.8 million during the second quarter and $21.2 million for the first half of 2014; 
  • Total funded debt (2) to twelve month trailing EBITDA ratio of 1.1 to 1 at the end of the second quarter of 2014; and 
  • Strad has approved an additional $10.0 million in capital spending, bringing the total capital budget to $35.0 million for 2014. 
Notes: 
(1) Earnings before interest, taxes, depreciation and amortization ("EBITDA") is not a recognized measure under IFRS; see "Non-IFRS Measures Reconciliation".
(2) Funded debt includes bank indebtedness plus long-term debt plus current and long-term obligations under finance lease less cash. EBITDA is based on trailing twelve months. See "Non-IFRS Measures Reconciliation".

"We are pleased to announce strong second quarter EBITDA of $12.3 million and earnings per share of $0.13," said Andy Pernal, President and CEO of Strad. "The sequential increase in EBITDA and earnings per share during the second quarter reflects increased momentum from our operations and sales teams on both sides of the border. We look forward to taking advantage of improving industry conditions throughout the balance of 2014 and into 2015."

"Based on continued momentum across our regions, Strad has approved an additional $10.0 million of capital for 2014," said Greg Duerr, Chief Financial Officer of Strad. "During the second half of 2014, management will continue to seek opportunities to build off of the sales momentum built during the second quarter and add assets to our key product lines on both sides of the border. Increased market share penetration in key regions and improved macro environment conditions are expected to result in more opportunities for strategic growth during the remainder of 2014 and into 2015."

SECOND QUARTER FINANCIAL HIGHLIGHTS
     
(in thousands of Canadian Dollars, except per share amounts) Three months ended
June 30,
  Six months ended
June 30,
 
  2014   2013   % Chg.   2014   2013   % Chg.  
                         
Revenue 53,692   49,576   8   105,580   94,299   12  
EBITDA (1) 12,300   8,769   40   23,288   19,428   20  
EBITDA as a % of revenue 23 % 18 %     22 % 21 %    
Per share ($), basic 0.33   0.24   38   0.63   0.53   19  
Per share ($), diluted 0.33   0.23   43   0.62   0.52   19  
Net income 4,763   13   36,538   8,904   1,076   728  
Per share ($), basic 0.13   -       0.24   0.03      
Per share ($), diluted 0.13   -       0.24   0.03      
Funds from operations (2) 12,267   8,788   40   22,800   19,541   17  
Per share ($), basic 0.33   0.24   38   0.62   0.53   17  
Per share ($), diluted 0.33   0.24   38   0.61   0.52   17  
                         
Capital expenditures 14,937   5,254   184   23,838   10,636   124  
Dispositions of rental assets (3) (2,137 ) (6,361 ) (66 ) (2,633 ) (9,078 ) (71 )
Net capital expenditures (4) 12,800   (1,107 ) (1,256 ) 21,205   1,558   1,261  
                         
Total assets 218,825   217,904       218,825   217,904      
Return on average total assets (5) 23 % 15 %     22 % 17 %    
Long-term debt 44,400   49,400   (10 ) 44,400   49,400   (10 )
Total long-term liabilities 55,544   59,118   (6 ) 55,544   59,118   (6 )
Common shares - end of period ('000's) 37,255   37,251       37,255   37,251      
Weighted avg common shares ('000's)                        
Basic 36,732   36,533       36,733   36,533      
Diluted 37,680   37,327       37,555   37,334      
 
Notes:  
(1) Earnings before interest, taxes, depreciation and amortization ("EBITDA") is not a recognized measure under IFRS; see "Non-IFRS Measures Reconciliation".
(2) Funds from operations is cash flow from operating activities before changes in working capital. Funds from operations is not a recognized measure under IFRS; see "Non-IFRS Measures Reconciliation".
(3) Dispositions reported at net book value.
(4) Includes assets acquired under finance lease and purchases of intangible assets. Net capital expenditures are net of rental asset disposals.
(5) Return on average total assets is not a recognized measure under IFRS; see "Non-IFRS Measures Reconciliation".
   
FINANCIAL POSITION AND RATIOS 
     
  As at June 30,  
($000's except ratios) 2014   2013  
         
Working capital (1) 16,807     19,505  
Funded debt (2) 47,883   55,802  
Total assets 218,825   217,904  
         
Funded debt to EBITDA(2) 1.1   1.4  
   
Notes:  
(1) Working capital is calculated as current assets less current liabilities, excluding assets held for sale. See "Non-IFRS Measures Reconciliation".
(2) Funded debt includes bank indebtedness plus long-term debt plus current and long-term obligations under finance lease less cash. EBITDA is based on trailing twelve months. See "Non-IFRS Measures Reconciliation".


SECOND QUARTER RESULTS

Strad reported an increase in revenue and EBITDA of 8% and 40% respectively, during the three months ended June 30, 2014, compared to the same period in 2013. Increased revenue during the second quarter was a result of higher equipment utilization in both Canada and the U.S. offset by lower product sales compared to the prior year. In the Western Canadian Sedimentary Basin ("WCSB") region, drilling rig activity averaged 31% higher during the second quarter compared to the second quarter of 2013. Increased revenue from high margin product lines, in conjunction with a reduced cost base in both Canada and the U.S., resulted in EBITDA margins of 23% compared to 18% in 2013. 

Strad's Canadian Operations reported higher revenue and EBITDA during the three months ended June 30, 2014, compared to the same period in 2013. Increased revenue was a result of a larger rental asset base, higher drilling activity in the WCSB during the quarter and increased infrastructure related activity, which resulted in higher utilization of Strad's Canadian surface equipment and matting fleets.

During the second quarter, rig counts in Strad's targeted U.S. resource plays remained similar to levels in the second quarter of 2013. Rig counts in the Bakken declined by 3% year-over-year, offset by a 4% rig count increase in the Rockies region and an 8% increase in the Marcellus region. Overall, Strad's U.S. operations reported higher revenue and EBITDA during the second quarter of 2014 compared to the prior year. EBITDA as a percentage of revenue, increased from 31% to 37% year-over-year due to an increase in utilization and a reduced cost structure.  

During the second quarter, capital expenditures were $6.9 million in Canada and $5.7 million in the U.S., net of $1.4 million and $0.7 million in rental asset disposals. Capital expenditures are reported net of the net book value of rental assets sold in the period. Strad has spent $23.8 million on a gross basis, or $21.2 million, net of $2.6 million in rental asset disposals, of its previously approved $25.0 million 2014 capital program. Strad has approved an additional $10.0 million in budgeted capital for the balance of the year bringing the total capital budget to $35.0 million for 2014. The Company continues to invest in equipment which is in high demand in both Canada and the U.S. 

RESULTS OF OPERATIONS

Canadian Operations

  Three months ended
June 30,
  Six months ended
June 30,
 
($000's) 2014   2013   % chg.   2014   2013   % chg.  
                         
Revenue 19,644   14,331   37   41,028   32,073   28  
EBITDA (1) 4,610   2,667   73   10,214   7,459   37  
EBITDA as a % of revenue 23 % 19 %     25 % 23 %    
                         
Capital expenditures 8,292   3,656   127   15,084   6,419   135  
Dispositions of rental assets (2) (1,442 ) (5,539 ) (74 ) (1,742 ) (8,105 ) (79 )
Net capital expenditures (3) 6,850   (1,883 ) (464 ) 13,342   (1,686 ) (891 )
                         
Gross capital assets 113,374   101,983   11   113,374   101,983   11  
Total assets 108,024   102,833   5   108,024   102,833   5  
   
Notes:  
(1) Earnings before interest, taxes, depreciation and amortization ("EBITDA") is not a recognized measure under IFRS; see "Non-IFRS Measures Reconciliation".
(2) Dispositions represented at net book value.
(3) Includes assets acquired under finance lease and purchases of intangible assets. Net capital expenditures are net of rental asset sales.

Revenue for the three months ended June 30, 2014, of $19.6 million, increased 37% compared to $14.3 million for the same period in 2013. Increased revenue during the quarter was primarily a result of a larger rental asset base, higher drilling activity in the WCSB and increased infrastructure related work, which resulted in higher utilization of Strad's Canadian matting and surface equipment fleets. Second quarter revenue was also impacted by higher matting service and trucking revenue. The increase in matting service revenue is a result of increased utilization of Strad's matting fleet. Trucking revenue increased during the quarter due to the increased use of third party transport suppliers.

EBITDA for the three months ended June 30, 2014, of $4.6 million, increased 73%, compared to $2.7 million for the same period in 2013. EBITDA as a percentage of revenue, for the three months ended June 30, 2014, was 23% compared to 19% for the same period in 2013. 

Revenue for the six months ended June 30, 2014, of $41.0 million, increased 28% compared to $32.1 million for the same period in 2013. Increased drilling activity and a larger rental fleet are the primary drivers of higher revenue year-over-year.

EBITDA for the six months ended June 30, 2014, of $10.2 million, increased 37% compared to $7.5 million for the same period in 2013. EBITDA as a percentage of revenue, for the six months ended June 30, 2014, was 25% compared to 23% for the same period in 2013. 

U.S. Operations

  Three months ended
June 30,
  Six months ended
June 30,
 
($000's) 2014   2013   % chg.   2014   2013   % chg.  
                         
Revenue 17,396   12,783   36   32,247   26,762   20  
EBITDA (1) 6,513   3,916   66   10,118   8,421   20  
EBITDA as a % of revenue 37 % 31 %     31 % 31 %    
                         
Capital expenditures 6,396   1,498   327   8,473   3,798   123  
Dispositions of rental assets (2) (695 ) (821 ) (15 ) (891 ) (973 ) (8 )
Net capital expenditures(3) 5,701   677   742   7,582   2,825   168  
                         
Gross capital assets 113,316   105,269   8   113,316   105,269   8  
Total assets 107,505   110,233   (2 ) 107,505   110,233   (2 )
   
Notes:  
(1) Earnings before interest, taxes, depreciation and amortization ("EBITDA") is not a recognized measure under IFRS; see "Non-IFRS Measures Reconciliation".
(2) Dispositions represented at net book value.
(3) Includes assets acquired under finance lease and purchases of intangible assets. Net capital expenditures are net of rental asset sales.

Revenue for the three months ended June 30, 2014, increased 36% to $17.4 million from $12.8 million for the same period in 2013. During the second quarter of 2014, Strad's U.S. Operations achieved revenue increases despite similar rig counts year-over-year in the Bakken and Rockies regions, with a 3% decline and 4% increase respectively, and an 8% increase in rig count in the Marcellus region. Management's investment in field sales presence during the second half of 2013 resulted in increased market share for Strad in all three U.S. regions, which drove higher utilization of Strad's U.S. matting and surface equipment fleets. The Bakken continues to be the most active basin for Strad's U.S. Operations, accounting for 48% of total revenue during the quarter.

EBITDA for the three months ended June 30, 2014, increased 66% to $6.5 million compared to $3.9 million for the same period in 2013. EBITDA as a percentage of revenue, for the three months ended June 30, 2014, was 37% compared to 31% for the same period in 2013. The increase in both EBITDA and EBITDA as a percentage of revenue is primarily due to increased utilization of Strad's surface equipment and matting rental fleets in the U.S. and a reduced cost structure compared to the same period in 2013.

Revenue for the six months ended June 30, 2014, increased 20% to $32.2 million compared to $26.8 million for the same period in 2013. The year-over-year increase in revenue was primarily driven by increased utilization of Strad's matting and surface equipment fleets. 

EBITDA for the six months ended June 30, 2014, increased 20% to $10.1 million compared to $8.4 million for the same period in 2013. Increased EBITDA was due to higher revenue and a reduced cost structure during the first six months of 2014 compared to the same period in 2013. EBITDA as a percentage of revenue for the six months ended June 30, 2014 and 2013 was consistent at 31%.

Product Sales

  Three months ended
June 30,
  Six months ended
June 30,
 
($000's) 2014   2013   % chg.   2014   2013   % chg.  
                         
Revenue 16,652   22,462   (26 ) 32,305   35,462   (9 )
EBITDA (1) 2,230   3,010   (26 ) 4,944   5,363   (8 )
EBITDA as a % of revenue 13 % 13 %     15 % 15 %    
Capital expenditures (2) 14   -   -   14   203   (93 )
Total assets 1,145   1,099   4   1,145   1,099   4  
   
Notes:  
(1) Earnings before interest, taxes, depreciation and amortization ("EBITDA") is not a recognized measure under IFRS; see "Non-IFRS Measures Reconciliation".
(2) Includes assets acquired under finance lease and purchases of intangible assets.

Product Sales are comprised of in-house manufactured products sold to external customers, third party equipment sales to existing customers and sales of equipment from Strad's existing fleet to customers.

Revenue for the three months ended June 30, 2014, decreased 26% to $16.7 million from $22.5 million for the same period in 2013, resulting primarily from a one-time sale of used SteelLock mats in 2013, which did not reoccur in 2014. During the second quarter, Product Sales consisted of $5.5 million of in-house manufactured products, $8.9 million of third party equipment sales and $2.3 million of rental fleet sales compared to $5.5 million, $8.7 million and $8.3 million, respectively, during the same period in 2013. 

EBITDA for the three months ended June 30, 2014, decreased 26% to $2.2 million compared to $3.0 million for the same period in 2013. EBITDA as a percentage of revenue, for the three months ended June 30, 2014 and 2013, was consistent at 13%. The decrease in EBITDA was due to lower sales revenue during the second quarter of 2014 compared to the same period in the prior year, and a shift in revenue mix.

Revenue for the six months ended June 30, 2014, decreased 9% to $32.3 million compared to $35.5 million for the same period in 2013. Revenue was lower during the first six months of 2014 due to the one-time sale of used SteelLock mats in 2013 as discussed previously. Sales of Strad's rental fleet equipment fluctuate quarter-over-quarter and are primarily dependent on strategic opportunities to monetize underutilized rental assets. 

EBITDA for the six months ended June 30, 2014, decreased 8% to $4.9 million compared to $5.4 million for the same period in 2013. The decrease in EBITDA was due to lower sales revenue and a shift in revenue mix during the first half of 2014 compared to the same period in 2013. EBITDA as a percentage of revenue, for the six months ended June 30, 2014 and 2013 was consistent at 15%. 

OUTLOOK

Industry conditions during the second quarter remained relatively level on a year-over-year basis in the Company's U.S. markets and were improved year-over-year in Canada. In the U.S. markets, drilling activity in the Marcellus region continued to be impacted by the reduced number of rigs targeting lower margin natural gas plays as well as the ongoing maturation and increased drilling efficiency of the Bakken resource play. In Canada, drilling activity during the second quarter was improved over the prior year as a result of a shorter breakup period due to a favorable combination of colder April weather and drier June weather which allowed equipment to get back to work.

The commodity price environment has continued to be supportive of existing activity levels with crude oil maintaining pricing levels at or above $100/bbl WTI due in part to ongoing geopolitical factors. Although natural gas prices have more recently demonstrated volatility, pricing levels continue to be supportive of ongoing activity in low cost basins such as those in which Strad operates. Commodity prices have also led to improved producer cash flows. Higher cash flows, in addition to improved access to capital, should position producers to spend capital and exploit resource plays over the balance of the year.

In the WCSB, active drilling rigs in the second quarter of 2014 were up approximately 31% over the prior year, averaging 198 compared to 151 for the same period in 2013. In the U.S., drilling rig activity continued to vary by region, with the total active U.S. rig count increasing by 2% on a year-over-year basis and 1% sequentially. The majority of Strad's U.S. fleet continues to operate in the Bakken and Marcellus resource plays, both of which experienced relatively flat rig counts year-over-year and sequentially in the quarter. The active rig count in the Bakken averaged 182 rigs in the second quarter of 2014, down 3% from 188 in the prior year period. In the gas-weighted Marcellus and Utica plays, the active rig count averaged 122 during the second quarter of 2014, 8% higher than 113 during the prior year period. On a sequential basis, rig counts in the Bakken and Marcellus were both level with the prior quarter. 

Bakken operations are in close proximity to the Rockies region, consisting of Colorado, Wyoming and Utah, where an average of 141 rigs were drilling during the second quarter. Both the Utica Shale and Rockies region represent platforms to grow utilization of rental assets from existing operating regions. In addition to drilling activity, the long-term build out of energy infrastructure in Canada, including pipelines, LNG facilities and power transmission, could result in increased demand for Strad's products and services. 

During the second quarter, the Company realized improved EBITDA margins in both Canada and the U.S. businesses on both a sequential and year-over-year basis. These margin improvements were achieved as a result of cost reductions and increases in rental revenue across all regions. The rental revenue increases were achieved in part due to increased activity in Canada but in the U.S. were achieved despite relatively flat rig counts in the Bakken and the Marcellus resource plays. In each of these markets, the Company's investment into its field sales force have reinforced a solid foothold and created opportunities to expand. The increase in revenue and corresponding increases in margin reflects the operating leverage in the business. Although the rig activity levels have been relatively flat in the Bakken and Marcellus, Strad remains optimistic regarding the potential of its operations in the maturing Bakken and Marcellus markets and an emerging market in the Rockies region.

The Company's Product Sales business is made up of its manufactured product sales, third party sales, and existing rental fleet asset sales. The manufactured product third party sales typically produce the majority of the division's overall revenue stream. Strad's Product Sales division remains strongly correlated with its U.S. and Canadian matting rental fleet divisions, with similar demand drivers impacting both aspects of the Company's business. 

Year to date, net capital expenditures totaled $21.2 million. The current capital program is expected to be $35.0 million for the full year in 2014. Management has identified attractive opportunities to deploy capital in the Matting, Surface Equipment and EcoPond® businesses in Canada and the Matting, Solids Control and Surface Equipment businesses in the U.S. Management plans to continue its practice of deploying cash from operations towards both capital expenditures and debt reduction on a quarter-by-quarter basis, thereby allowing the Company to selectively target key areas for growth, maintain its current dividend and reduce its overall debt levels. 

LIQUIDITY AND CAPITAL RESOURCES
         
($000's) June 30, 2014   December 31, 2013  
         
  Current assets 46,713   43,519  
  Current liabilities 29,906   32,004  
Working capital (1) 16,807   11,515  
         
Banking facilities        
  Operating facility 988   1,879  
  Syndicated revolving facility 44,400   38,500  
Total facility borrowings 45,388   40,379  
         
Total credit facilities (2) 110,000   110,000  
Unused credit capacity 64,612   69,621  
   
Notes: 
(1) Working capital is calculated as current assets less current liabilities, excluding assets held for sale. See "Non-IFRS Measures Reconciliation".
(2) Facilities are subject to certain limitations on accounts receivable, inventory, and net book value of fixed assets and are secured by a general security agreement over the Company's assets. As at June 30, 2014, Strad had access to $109 million of the total credit facility.

As at June 30, 2014, working capital was $16.8 million compared to $11.5 million at December 31, 2013. The change in current assets is consistent with the increase in revenue from the fourth quarter of 2013 to the second quarter of 2014. The decrease in current liabilities is due to the decreases in the operating facility and the current portion of obligations under capital lease, offset by an increase in the dividend payable compared to the fourth quarter of 2013.

Funds from operations for the three months ended June 30, 2014, increased to $12.3 million compared to $10.4 million for the three months ended December 31, 2013. Capital expenditures totaled $14.9 million for the three months ended June 30, 2014, and $9.5 million for the three months ended December 31, 2013. Capital expenditures were offset by asset disposals totaling $2.1 million in the second quarter of 2014 compared to $1.6 million during the fourth quarter of 2013. Strad's total facility borrowing increased by $5.0 million during the first half of 2014 due to an increase in the asset base from growth in working capital and growth in the rental fleet. Management monitors funds from operations and the timing of capital additions to ensure adequate capital resources are available to fund Strad's capital program. 

The Company's syndicated banking facility consists of an operating facility with a maximum principal amount of $15.0 million CAD and $10.0 million USD, and an $85.0 million syndicated revolving facility, both of which are subject to certain limitations on accounts receivable, inventory and net book value of fixed assets and are secured by a general security agreement over the Company's assets. The syndicated banking facility bears interest at bank prime plus a variable rate, which is dependent on the Company's funded debt to EBITDA ratio. The Company's syndicated banking facility matures on July 25, 2016.

Based on the Company's funded debt to twelve month trailing EBITDA ratio of 1.1 to 1 at the end of the second quarter of 2014, the interest rate on the syndicated banking facility is bank prime plus 1.25% on prime rate advances and at the prevailing rate plus a stamping fee of 2.25% on bankers' acceptances. For the six months ended June 30, 2014, the overall effective rates on the operating facility and revolving facility were 4.16% and 3.45%, respectively. As of June 30, 2014, $1.0 million was drawn on the operating facility and $44.4 million was drawn on the revolving facility. Required payments on the revolving facility are interest only.

As at June 30, 2014, the Company was in compliance with all of the banking facility covenants.

NON-IFRS MEASURES RECONCILIATION

Certain supplementary measures in this press release do not have any standardized meaning as prescribed under IFRS and, therefore, are considered non-IFRS measures. These measures are described and presented in order to provide shareholders and potential investors with additional information regarding the Company's financial results, liquidity and its ability to generate funds to finance its operations. These measures are identified and presented, where appropriate, together with reconciliations to the equivalent IFRS measure. However, they should not be used as an alternative to IFRS, because they may not be consistent with calculations of other companies. These measures are further explained below. 

Earnings before interest, taxes, depreciation and amortization ("EBITDA") is not a recognized measure under IFRS. Management believes that in addition to net income, EBITDA is a useful supplemental measure as it provides an indication of the results generated by the Company's principal business activities prior to consideration of how those activities are financed or how the results are taxed. EBITDA is calculated as net income plus interest, finance fees, taxes, depreciation and amortization, loss on disposal of property, plant and equipment, loss on foreign exchange, loss on assets held for sale, less gain on foreign exchange and gain on disposal of property, plant and equipment. Segmented EBITDA is based upon the same calculation for defined business segments, which are comprised of Canadian Operations, U.S. Operations, Product Sales and Corporate.

Funds from operations are cash flow from operating activities excluding changes in working capital and share-based payments. It is a supplemental measure to gauge performance of the Company before non-cash items. Working capital is calculated as current assets minus current liabilities, excluding assets held for sale. Working capital, cash forecasting and banking facilities are used by Management to ensure funds are available to finance growth opportunities. 

Annualized return on average total assets for the six months ended June 30, 2014, is calculated as annualized year-to-date EBITDA divided by the average of total assets over the fourth quarter of 2013 and first quarter of 2014, including a three month lag. The three month lag represents the time between the purchase of capital assets and when they are deployed in the field and earning revenue.

Funded debt is calculated as bank indebtedness plus long-term debt plus current and long-term portion of finance lease obligations, less cash.

Reconciliation of EBITDA and Funds from Operations
($000's)
     
  Three months ended June 30,   Six months ended June 30,  
  2014   2013   2014   2013  
                 
Net income 4,763   13   8,904   1,076  
Add:                
Depreciation and amortization 5,739   8,824   11,226   16,450  
(Gain)/loss on disposal of PP&E (241 ) 76   (999 ) 662  
Loss on disposal of assets held for sale 161   17   199   175  
Share-based payments 122   95   260   283  
Deferred income tax expense (recovery) 1,025   (1,099 ) 1,889   (753 )
Financing fees 99   71   187   143  
Interest expense 599   791   1,134   1,505  
Funds from operations 12,267   8,788   22,800   19,541  
                 
Add:                
Loss (gain) on foreign exchange 236   (18 ) 169   (139 )
Current income tax expense (recovery) (81 ) 94   579   309  
Subtotal 12,422   8,864   23,548   19,711  
                 
Deduct:                
Share-based payments 122   95   260   283  
EBITDA 12,300   8,769   23,288   19,428  
 
Reconciliation of quarterly non-IFRS measures
($000's)
  Three months ended  
  Jun 30, 2014   Mar 31, 2014   Dec 31, 2013   Sept 30, 2013  
                 
Net income 4,763   4,141   1,923   2,373  
Add:                
Depreciation and amortization 5,739   5,487   5,265   7,259  
(Gain)/loss on disposal of PP&E (241 ) (758 ) 477   162  
Loss on disposal of assets held for sale 161   38   637   -  
Gain on foreign exchange 236   (67 ) (5 ) (63 )
Current income tax (recovery) expense (81 ) 660   466   627  
Deferred income tax expense/(recovery) 1,025   864   (225 ) (808 )
Interest expense 599   535   665   784  
Restructuring reversal -   -   (514 ) -  
Impairment loss -   -   1,901   -  
Finance fees 99   88   88   88  
EBITDA 12,300   10,988   10,678   10,422  
   
  Three months ended  
  Jun 30, 2013   Mar 31, 2013   Dec 31, 2012   Sept 30, 2012  
                 
Net income (loss) 13   1,063   (3,490 ) 2,937  
Add:                
Depreciation and amortization 8,824   7,626   7,667   7,362  
Loss on disposal of PP&E 76   586   226   22  
Loss on disposal of assets held for sale 17    158    -    -  
(Gain)/loss on foreign exchange (18 ) (121 ) (195 ) 510  
Non-controlling interest -   -   -   22  
Current income tax expense/(recovery) 94   216   (13 ) 788  
Deferred income tax expense/(recovery) (1,099 ) 345   (3,804 ) (528 )
Interest expense 791   714   739   854  
Restructuring expense -    -    4,129    -  
Impairment expense -    -    2,350    -  
Finance fees 71   72   66   63  
EBITDA 8,769   10,659   7,675   12,030  
                 
Communications operating loss -   -   679   610  
EBITDA (Adjusted) 8,769   10,659   8,354   12,640  


CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION AND STATEMENTS

Certain statements and information contained in this press release constitute forward-looking information and statements within the meaning of applicable securities laws. More particularly, this press release contains forward-looking statements concerning future capital expenditures of the Company and funding thereof, changes and expectations in margins to be experienced by Strad, debt, the ability to maintain payment of dividends, demand for the Company's products and services, drilling activity in North America, pricing of the Company's products and services, introduction of new products and services and the potential for growth and expansion of the Company's business, manufacturing capacity to meet anticipated demand for the Company's products, and expected exploration and production industry activity including the effects of industry trends on demand for the Company's products. These statements relate to future events or to the Company's future financial performance and involve known and unknown risks, uncertainties and other factors that may cause the Company's actual results, levels of activity, performance or achievements to be materially different from future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements.

The use of any of the words "expect", "plan", "continue", "estimate", "anticipate", "potential", "targeting", "intend", "could", "might", "should", "believe", "may", "predict", or "will" and similar expressions are intended to identify forward-looking information or statements. Various assumptions were used in drawing the conclusions or making the projections contained in the forward-looking statements throughout this press release. The forward-looking information and statements included in this press release are not guarantees of future performance and should not be unduly relied upon. Forward-looking statements are based on current expectations, estimates and projections that involve a number of risks and uncertainties, which could cause actual results to differ materially from those anticipated and described in the forward-looking statements. Such information and statements involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking information or statements. These factors and assumptions include, but are not limited to, such things as the impact of general industry conditions, fluctuation of commodity prices, industry competition, availability of qualified personnel and management, stock market volatility and timely and cost effective access to sufficient capital from internal and external sources. The risks outlined above should not be construed as exhaustive. Although management of the Company believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to have been correct. Accordingly, readers should not place undue reliance upon any of the forward-looking information set out in this press release. All of the forward-looking statements of the Company contained in this press release speak only as of the date hereof and are expressly qualified, in their entirety, by this cautionary statement. The various risks to which the Company is exposed are described in additional detail in the Company's Management Discussion and Analysis and the Annual Information Form. Except as may be required by applicable securities laws, the Company disclaims any intention or obligation to update or revise any forward-looking information or statements, whether the result of new information, future events or otherwise.

This press release shall not constitute an offer to sell, nor the solicitation of an offer to buy, any securities in the United States, nor shall there be any sale of securities mentioned in this press release in any state in the United States in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such state.

SECOND QUARTER EARNINGS CONFERENCE CALL

Strad Energy Services Ltd. has scheduled a conference call to begin promptly at 8:00 a.m. MT (10:00 a.m. ET) on Thursday, August 7, 2014.

The conference call dial in number is 1-866-225-2055

The conference call will also be accessible via webcast at www.stradenergy.com

A replay of the call will be available approximately one hour after the conference call ends until Thursday August 14th, 2014, at 11:59pm ET. To access the replay, call 1-800-408-3053, followed by pass code 8664971.

Strad Energy Services Ltd.
Interim Consolidated Statement of Financial Position
(Unaudited)
         
(in thousands of Canadian dollars) As at
June 30,
2014
  As at
December 31,
2013
 
  $   $  
Assets        
Current assets        
Trade receivables 37,626   35,569  
Inventories 6,343   5,788  
Prepaids and deposits 2,501   1,772  
Note receivable 178   350  
Income taxes receivable 65   40  
  46,713   43,519  
         
Assets held for sale 2,372   3,167  
         
Non-current assets        
Property, plant and equipment 150,806   142,108  
Intangible assets 1,487   1,685  
Goodwill 17,277   17,277  
Deferred income tax assets 170   164  
Total assets 218,825   207,920  
         
Liabilities        
Current liabilities        
Bank indebtedness 988   1,879  
Accounts payable and accrued liabilities 25,241   25,403  
Deferred revenue 18   785  
Current portion of obligations under finance lease 1,051   1,887  
Dividend payable 2,608   2,050  
  29,906   32,004  
Non-current liabilities        
Long-term debt 44,400   38,500  
Obligations under finance lease 1,444   770  
Deferred income tax liabilities 9,700   7,797  
Total liabilities 85,450   79,071  
         
Equity        
Share capital 117,838   117,824  
Contributed surplus 11,765   11,612  
Accumulated other comprehensive income 716   603  
Retained earnings (deficit) 3,056   (1,190 )
Total equity 133,375   128,849  
Total liabilities and equity 218,825   207,920  
 
Strad Energy Services Ltd.
Interim Consolidated Statement of Income and Comprehensive Income
For the three and six months ended June 30, 2014 and 2013
(Unaudited)
(in thousands of Canadian dollars, except per share amounts)
         
  Three Months Ended   Six Months Ended  
  June 30,   June 30,  
  2014   2013   2014   2013  
  $   $          
                 
Revenue 53,692   49,576   105,580   94,299  
Expenses                
Operating expenses 35,585   34,815   70,791   63,542  
Depreciation 5,556   8,543   10,857   15,730  
Amortization of intangible assets 183   281   369   720  
Selling, general and administration 5,685   5,897   11,241   11,046  
Share-based payments 122   95   260   283  
(Gain) loss on disposal of property, plant and equipment (241 ) 76   (999 ) 662  
Foreign exchange loss (gain) 236   (18 ) 169   (139 )
Finance fees 99   71   187   143  
Interest expense 599   791   1,134   1,505  
Loss on assets held for sale 161   17   199   175  
Income (loss) before income tax 5,707   (992 ) 11,372   632  
Income tax expense (recovery) 944   (1,005 ) 2,468   (444 )
Net income for the period 4,763   13   8,904   1,076  
                 
Other comprehensive income                
Items that may be reclassified subsequently to net income                
Cumulative translation adjustment (929 ) 1,160   113   1,768  
Comprehensive income for the period 3,834   1,173   9,017   2,844  
                 
Earnings per share:                
Basic $0.13   $0.00   $0.24   $0.03  
Diluted $0.13   $0.00   $0.24   $0.03  
                 
Strad Energy Services Ltd.
Interim Consolidated Statement of Cash Flow
For the six months ended June 30, 2014 and 2013
(Unaudited)
         
(in thousands of Canadian dollars)        
  2014   2013  
Cash flow provided by (used in) $   $  
         
Operating activities        
Net income for the period 8,904   1,076  
Adjustments for items not affecting cash:        
Depreciation and amortization 11,226   16,450  
Deferred income tax expense 1,889   (753 )
Share-based payments (net of cash settlements on share option exercises) 159   247  
Interest expense and finance fees 1,321   1,648  
(Gain) loss on disposal of property, plant and equipment (999 ) 662  
Loss on assets held for sale 199   175  
Changes in items of non-cash working capital (7,561 ) (5,835 )
Net cash generated from operating activities 15,138   13,670  
         
Investing activities        
Purchase of property, plant and equipment (20,942 ) (988 )
Proceeds from sale of property, plant and equipment 2,826   1,550  
Purchase of intangible assets (263 ) (396 )
Purchase of assets held for sale -   (125 )
Proceeds from assets held for sale 558   1,876  
Changes in items of non-cash working capital 3,014   (518 )
Net cash generated from (used in) investing activities (14,807 ) 1,399  
         
Financing activities        
Proceeds on issuance of long-term debt 8,000   2,000  
Repayment of long-term debt (2,100 ) (8,100 )
Repayment of finance lease obligations (net) (162 ) (1,464 )
Repayment of shareholder loan -   115  
Interest expense and finance fees (1,321 ) (1,648 )
Payment of dividends (4,100 ) (4,096 )
Changes in items of non-cash working capital 424   -  
Net cash generated from (used in) financing activities 741   (13,193 )
Effect of exchange rate changes on cash and cash equivalents (181 ) (2,235 )
Increase (decrease) in cash and cash equivalents 891   (359 )
         
Cash and cash equivalents (including bank indebtedness) - beginning of year (1,879 ) (2,488 )
Cash and cash equivalents (including bank indebtedness) - end of period (988 ) (2,847 )
         
Cash paid for income tax 744   731  
Cash paid for interest 1,113   1,512  


ABOUT STRAD ENERGY SERVICES LTD.

Strad is a North American energy services company that focuses on providing well-site infrastructure solutions to the oil and natural gas industry. Strad focuses on providing complete customer solutions in well-site-related oilfield equipment for producers active in unconventional resource plays.

Strad is headquartered in Calgary, Alberta, Canada. Strad is listed on the Toronto Stock Exchange under the trading symbol "SDY".

Contact Information