News Releases

Strad Announces Third Quarter Results

Nov 04, 2014
Strad today announced its financial results for the three and nine months ended September 30, 2014.

CALGARY, ALBERTA--(Marketwired - Nov. 4, 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 nine months ended September 30, 2014. All amounts are stated in Canadian dollars unless otherwise noted.

SELECTED FINANCIAL AND OPERATIONAL HIGHLIGHTS:

  • Record third quarter EBITDA (1) of $17.8 million increased 71% compared to $10.4 million for the same period in 2013;

  • Record third quarter earnings per share increased to $0.22 from $0.06 for the same period in 2013;

  • Third quarter revenue of $58.1 million increased 23% compared to $47.4 million for the same period in 2013;

  • Capital additions totaled $7.0 million during the third quarter. Reported capital expenditures, net of $0.7 million rental asset disposals, were $6.3 million during the third quarter and $27.5 million year-to-date in 2014;

  • Total funded debt (2) to trailing twelve months EBITDA ratio was 0.9 to 1 at the end of the third quarter of 2014; and

  • Strad has approved an additional $5.0 million in capital spending, bringing the total capital budget to $40.0 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".

"The third quarter represented a second consecutive strong quarterly financial performance for Strad in 2014, with record EBITDA of $17.8 million and record earnings per share of $0.22," said Andy Pernal, President and CEO of Strad. "Our record results during the quarter were a direct result of our continued focus on sales and service excellence. Our team continued to gain market share in all regions in which we operate on both sides of the border. We look forward to continuing to build our momentum through the balance of 2014 and into 2015."

"Despite the recent decline in crude oil prices, Strad continues to see opportunities to generate long term returns through investment of capital in each of its markets," said Greg Duerr, Chief Financial Officer of Strad. "Strad's diversification across geographies, commodities, product lines and customers, as well as exposure to low cost basins further enhances the Company's ability to continue to generate long term returns in lower commodity price environments."

THIRD QUARTER FINANCIAL HIGHLIGHTS
(in thousands of Canadian Dollars, except per share amounts) Three months ended Sept 30, Nine months ended Sept 30,
2014 2013 % Chg. 2014 2013 % Chg.
Revenue 58,115 47,425 23 163,695 141,724 16
EBITDA (1) 17,835 10,422 71 41,123 29,850 38
EBITDA as a % of revenue 31 % 22 % 25 % 21 %
Per share ($), basic 0.48 0.28 71 1.12 0.82 37
Per share ($), diluted 0.47 0.28 68 1.09 0.80 36
Net income 7,968 2,373 236 16,872 3,449 389
Per share ($), basic 0.22 0.06 0.46 0.09
Per share ($), diluted 0.21 0.06 0.45 0.09
Funds from operations (2) 17,158 10,013 71 39,957 29,554 35
Per share ($), basic 0.47 0.27 74 1.09 0.81 35
Per share ($), diluted 0.45 0.27 67 1.06 0.79 34
Capital expenditures 6,970 5,325 31 30,809 15,959 93
Dispositions of rental assets (3) (668 ) (1,133 ) (41 ) (3,301 ) (10,211 ) (68 )
Net capital expenditures (4) 6,302 4,192 50 27,508 5,748 379
Total assets 234,522 207,448 234,522 207,448
Return on average total assets (5) 32 % 19 % 25 % 17 %
Long-term debt 37,400 39,000 (4 ) 37,400 39,000 (4 )
Total long-term liabilities 50,334 47,564 6 50,344 47,564 6
Common shares - end of period ('000's) 37,275 37,251 37,275 37,251
Weighted avg common shares ('000's)
Basic 36,781 36,621 36,748 36,575
Diluted 37,795 37,389 37,615 37,345
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 non-cash 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". Third quarter return on average total assets is based on annualized third quarter results.
FINANCIAL POSITION AND RATIOS
As at September 30,
($000's except ratios) 2014 2013
Working capital (1) 15,490 13,212
Funded debt (2) 47,541 46,230
Total assets 234,522 207,448
Funded debt to EBITDA(2) 0.9 1.2
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".

THIRD QUARTER RESULTS

Strad reported an increase in revenue and EBITDA of 23% and 71% respectively, during the three months ended September 30, 2014, compared to the same period in 2013. Increased revenue during the third quarter was a result of higher equipment utilization in both Canada and the U.S. and increased revenue from Canada's larger matting fleet, offset by lower Product Sales compared to the prior year. Western Canadian Sedimentary Basin ("WCSB") EBITDA margin percentage increased to 31% during the third quarter compared to 22% in the third quarter of 2013 due to increased revenue as previously noted.

Strad's Canadian Operations reported higher revenue and EBITDA during the three months ended September 30, 2014, compared to the same period in 2013. Increased revenue was a result of increased utilization of a larger matting rental asset base, execution of more energy infrastructure related projects and higher drilling activity in the WCSB during the quarter. In the WCSB region, drilling rig activity averaged 11% higher during the third quarter compared to the third quarter of 2013.

During the third quarter, rig counts in Strad's targeted U.S. resource plays remained similar to levels in the third quarter of 2013. Rig counts in the Bakken, Rockies and Marcellus regions increased by 5%, 2% and 4%, respectively, year-over-year. Overall, Strad's U.S. operations reported higher revenue and EBITDA during the third quarter of 2014 compared to the prior year. EBITDA as a percentage of revenue, increased from 23% to 44% year-over-year due to an increase in utilization and a reduced cost structure.

During the third quarter, capital expenditures were $5.3 million in Canada and $1.7 million in the U.S., net of $0.6 million and $0.1 million in rental asset disposals. Capital expenditures are reported net of the net book value of rental assets sold in the period. For the nine months ended September 30, 2014, Strad has spent $30.8 million on a gross basis, or $27.5 million, net of $3.3 million in rental asset disposals, of its previously approved $35.0 million 2014 capital program. Strad has approved an additional $5 million in budgeted capital for the balance of the year bringing the total capital budget to $40 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 September 30, Nine months ended September 30,
($000's) 2014 2013 % chg. 2014 2013 % chg.
Revenue 33,162 19,129 73 74,191 51,202 45
EBITDA (1) 9,663 5,599 73 19,877 13,058 52
EBITDA as a % of revenue 29 % 29 % 27 % 26 %
Capital expenditures 5,259 3,386 55 20,343 9,806 107
Dispositions of rental assets (2) (596 ) (1,073 ) (44 ) (2,338 ) (9,179 ) (75 )
Net capital expenditures (3) 4,663 2,313 102 18,005 627 2,772
Gross capital assets 116,248 105,872 10 116,248 105,872 10
Total assets 117,832 100,269 18 117,832 100,269 18
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 September 30, 2014, of $33.2 million increased 73% compared to $19.1 million for the same period in 2013. Increased revenue during the quarter was primarily a result of higher matting rental revenue due to a larger matting rental fleet, increased pricing compared to the prior year, and higher utilization. Increased matting utilization was driven primarily by one significant energy infrastructure related project during the quarter which utilized a large portion of Strad's matting fleet. The energy infrastructure project also contributed to higher matting service and trucking revenue during the third quarter compared to the prior year. Matting utilization in Canada typically peaks during the third quarter due to softer ground conditions during the summer months. Also contributing to higher revenue in the third quarter, compared to the same period in 2013, was increased drilling rig activity in the WCSB, which averaged 376 rigs in the third quarter compared to 338 rigs in 2013.

EBITDA for the three months ended September 30, 2014, of $9.7 million, increased 73% compared to $5.6 million for the same period in 2013. EBITDA as a percentage of revenue, for the three months ended September 30, 2014, remained consistent at 29% for the same period in 2013. Although the rental revenue and service revenue were both materially higher in Q3 2014, compared to the prior year, EBITDA as a percentage of revenue was impacted by lower margin service revenue making up a larger percentage of total revenue during Q3 2014, compared to the prior year. A significant component of the higher service revenues related to matting projects. Margins were also impacted by a larger percentage of lower margin sub rent revenue in the third quarter compared to the prior year. Sub rented mats were utilized to meet peak demand requirements during the quarter.

Revenue for the nine months ended September 30, 2014, of $74.2 million increased 45% compared to $51.2 million for the same period in 2013. Energy infrastructure related work, increased drilling activity and a larger rental fleet are the primary drivers of higher revenue year-over-year.

EBITDA for the nine months ended September 30, 2014, of $19.9 million increased 52% compared to $13.1 million for the same period in 2013. EBITDA as a percentage of revenue, for the nine months ended September 30, 2014, was 27% compared to 26% for the same period in 2013.

U.S. Operations
Three months ended September 30, Nine months ended September 30,
($000's) 2014 2013 % chg. 2014 2013 % chg.
Revenue 19,741 13,580 45 51,987 40,343 29
EBITDA (1) 8,684 3,071 183 18,802 11,493 64
EBITDA as a % of revenue 44 % 23 % 36 % 28 %
Capital expenditures 1,665 1,808 10,236 5,607 83
Dispositions of rental assets (2) (72 ) (60 ) 20 (963 ) (1,033 ) (7 )
Net capital expenditures (3) 1,593 1,748 9,273 4,574 103
Gross capital assets 119,902 102,048 17 119,902 102,048 17
Total assets 113,418 103,089 10 113,418 103,089 10
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 September 30, 2014, increased 45% to $19.7 million from $13.6 million for the same period in 2013. During the third quarter of 2014, Strad's U.S. Operations continued to achieve increased utilization rates and revenue despite only slightly higher rig counts year-over-year in the Bakken, Rockies and Marcellus regions, with increases of 5%, 2% and 4%, respectively, year-over-year. Management's investment in field sales presence during the second half of 2013 continued to result in increased market share for Strad in all three U.S. regions during the third quarter, which drove higher utilization of Strad's U.S. equipment fleet. The Bakken continues to be the most active basin for Strad's U.S. Operations, accounting for 46% of total revenue during the quarter.

EBITDA for the three months ended September 30, 2014, increased 183% to $8.7 million compared to $3.1 million for the same period in 2013. EBITDA as a percentage of revenue, for the three months ended September 30, 2014, was 44% compared to 23% 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 rental fleet in the U.S. and a reduced cost structure compared to the same period in 2013.

Revenue for the nine months ended September 30, 2014, increased 29% to $52.0 million compared to $40.3 million for the same period in 2013. The year-over-year increase in revenue was primarily driven by increased utilization of Strad's matting, surface equipment and solids control fleets.

EBITDA for the nine months ended September 30, 2014, increased 64% to $18.8 million compared to $11.5 million for the same period in 2013. Increased EBITDA was due to higher revenue and a reduced cost structure during the first nine months of 2014 compared to the same period in 2013. EBITDA as a percentage of revenue for the nine months ended September 30, 2014, increased to 36% compared to 28% for the same period in 2013.

Product Sales
Three months ended September 30, Nine months ended September 30,
($000's) 2014 2013 % chg. 2014 2013 % chg.
Revenue 5,212 14,716 (65 ) 37,517 50,179 (25 )
EBITDA (1) 420 2,632 (84 ) 5,370 7,995 (33 )
EBITDA as a % of revenue 8 % 18 % 14 % 16 %
Capital expenditures (2) 10 61 - 24 264 (91 )
Total assets 1,665 838 99 1,665 838 99
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 September 30, 2014, decreased 65% to $5.2 million from $14.7 million for the same period in 2013, resulting primarily from lower sales of in-house manufactured products sold to external customers and third party equipment sales. During the third quarter, Product Sales consisted of $3.7 million of in-house manufactured products, $0.7 million of third party equipment sales and $0.8 million of rental fleet sales compared to $8.5 million, $4.7 million and $1.5 million, respectively, during the same period in 2013. Sales in the quarter were impacted by fluctuations in demand, typical in the business, as well as product completed in the quarter awaiting delivery to customers in the fourth quarter.

EBITDA for the three months ended September 30, 2014, decreased 84% to $0.4 million compared to $2.6 million for the same period in 2013. EBITDA as a percentage of revenue, for the three months ended September 30, 2014, decreased to 8% compared to 18% for the same period in 2013. The decrease in EBITDA was due to lower sales revenue during the third quarter of 2014 compared to the same period in the prior year.

Revenue for the nine months ended September 30, 2014, decreased 25% to $37.5 million compared to $50.2 million for the same period in 2013. Revenue was lower during the first nine months of 2014 due to the one-time sale of used SteelLock mats in 2013 and lower third quarter sales of in-house manufactured products and third party equipment.

EBITDA for the nine months ended September 30, 2014, decreased 33% to $5.4 million compared to $8.0 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 nine months of 2014 compared to the same period in 2013. EBITDA as a percentage of revenue, for the nine months ended September 30, 2014, decreased to 14% compared to 16% for the same period in 2013.

OUTLOOK

Industry conditions during the third quarter continue to reflect sustained activity levels on a year-over-year basis in the Company's U.S. markets and also continued a trend of improved activity year-over-year in Canada. In the U.S. markets, drilling activity, in both the Marcellus and Bakken regions, has been consistent throughout the year reflecting the continued attractiveness of these low cost basins. In Canada, drilling activity during the third quarter continued the trend of improved year-over-year activity.

Commodity prices demonstrated strength throughout the quarter with WTI crude oil averaging $97.69/bbl USD and natural gas holding near the $4.00/mcf level. Crude oil prices have recently declined to the $80/bbl USD level. The impact of these lower prices on ongoing activity will depend on how long prices remain at these levels. If lower commodity prices persist, producer cash flows will be impacted, although strong year-to-date cash flows have allowed producers to improve balance sheets. In addition, the impact of commodity prices may be muted in the lower cost basins such as those in which Strad operates.

In the WCSB, active drilling rigs in the third quarter of 2014 were up approximately 11% over the prior year, averaging 376 compared to 338 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 4% on a year-over-year basis and 5% sequentially. The majority of Strad's U.S. fleet continues to operate in the Bakken and Marcellus resource plays, both of which experienced slight increases in rig counts year-over-year and sequentially in the quarter. The active rig count in the Bakken averaged 192 rigs in the third quarter of 2014, up 5% from 183 in the prior year period. In the gas-weighted Marcellus and Utica plays, the active rig count averaged 124 during the third quarter of 2014, 4% higher than 119 during the prior year period.

On a sequential basis, rig counts in the Bakken and Marcellus increased by 5% and 1% respectively from the prior quarter. Bakken operations are in close proximity to the Rockies region, consisting of Colorado, Wyoming and Utah, where an average of 152 rigs were drilling during the third quarter. Both the Utica Shale and Rockies regions 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, facilities and power transmission, represents an emerging market opportunity for Strad's products and services.

During the third quarter, the Company realized improved EBITDA margins in both Canada and the U.S. businesses on a sequential basis. These margin improvements were achieved due to oilfield related rental revenue growth driven by increased field sales presence and market share gains, as well as expansion of the energy infrastructure related work chiefly in the Matting product line in Canada. Strad continues to identify the Rockies region, including the DJ and Powder River basins and the Niobrara formation in the U.S., as an emerging market and source of future growth for Strad.

The Company's Product Sales business is made up of its manufactured product sales, third party sales, and existing rental fleet asset sales. These sales can be uneven from month to month and can produce some volatility in earnings as inventory is built up in one period for orders delivered in a subsequent period. Activity in this segment was considerably slower during the third quarter than it had been over the last several quarters across manufactured product and third party sales. Strad anticipates that a portion of the inventory built in the third quarter will be sold for orders in the fourth quarter and that further orders will be secured for manufactured product.

Year to date, net capital expenditures totaled $27.5 million. The current capital program is expected to be $40.0 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 as well as the Matting, Solids Control and Surface Equipment businesses in the U.S. Going forward, management continues to see attractive opportunities to deploy capital in both Canada and the U.S. businesses and across each of Strad's product lines.

LIQUIDITY AND CAPITAL RESOURCES
($000's) September 30, 2014 December 31, 2013
Current assets 59,032 43,519
Current liabilities 43,542 32,004
Working capital (1) 15,490 11,515
Banking facilities
Operating facility 8,132 1,879
Syndicated revolving facility 37,400 38,500
Total facility borrowings 45,532 40,379
Total credit facilities (2) 110,000 110,000
Unused credit capacity 64,468 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 all of the Company's assets. As at September 30, 2014, Strad had access to the entire $110 million of credit facilities.

As at September 30, 2014, working capital was $15.5 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 third quarter of 2014. The increase in current liabilities is due to the increases in the operating facility and dividend payable, offset by an decrease in the current portion of obligations under capital lease compared to the fourth quarter of 2013.

Funds from operations for the three months ended September 30, 2014, increased to $17.2 million compared to $10.4 million for the three months ended December 31, 2013. Capital expenditures totaled $7.0 million for the three months ended September 30, 2014, and $9.5 million for the three months ended December 31, 2013. Capital expenditures were offset by asset disposals totaling $0.7 million in the third quarter of 2014 compared to $1.6 million during the fourth quarter of 2013. Strad's total facility borrowing increased by $5.1 million during the first nine months 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 all of 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 September 30, 2017.

Based on the Company's funded debt to twelve months trailing EBITDA ratio of 0.9 to 1 at the end of the third quarter of 2014, the interest rate on the syndicated banking facility is bank prime plus 0.75% on prime rate advances and at the prevailing rate plus a stamping fee of 1.75% on bankers' acceptances. For the nine months ended September 30, 2014, the overall effective rates on the operating facility and revolving facility were 4.20% and 3.47%, respectively. As of September 30, 2014, $8.1 million was drawn on the operating facility and $37.4 million was drawn on the revolving facility. Required payments on the revolving facility are interest only.

As at September 30, 2014, the Company was in compliance with all of the financial covenants.

Effective September 30, 2014, the Company extended its syndicated banking facility by one year. The facility matures on September 30, 2017. Under the terms of the restated and extending credit agreement, interest rates over the term of the facility will decline by 0.25%.

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 nine months ended September 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 half of 2014, including a three month lag. Annualized return on average total assets for the three months ended September 30, 2014, is calculated as annualized third quarter EBITDA divided by the average of total assets over the second quarter, 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.

Working capital is calculated as current assets less current liabilities, excluding assets held for sales.
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 September 30, Nine months ended September 30,
2014 2013 2014 2013
Net income 7,968 2,373 16,872 3,449
Add:
Depreciation and amortization 5,799 7,259 17,025 23,709
Loss (gain) on disposal of PP&E 665 162 (334 ) 824
Loss on disposal of assets held for sale - - 199 175
Share-based payments 109 155 369 438
Deferred income tax expense (recovery) 2,042 (808 ) 3,930 (1,561 )
Financing fees 32 88 219 231
Interest expense 543 784 1,677 2,289
Funds from operations 17,158 10,013 39,957 29,554
Add:
Gain on foreign exchange (181 ) (63 ) (12 ) (202 )
Current income tax expense 967 627 1,547 936
Subtotal 17,944 10,577 41,492 30,288
Deduct:
Share-based payments 109 155 369 438
EBITDA 17,835 10,422 41,123 29,850
Reconciliation of quarterly non-IFRS measures
($000's)
Three months ended
Sept 30, 2014 Jun 30, 2014 Mar 31, 2014 Dec 31, 2013
Net income 7,968 4,763 4,141 1,923
Add:
Depreciation and amortization 5,799 5,739 5,487 5,265
Loss (gain) on disposal of PP&E 665 (241 ) (758 ) 477
Loss on disposal of assets held for sale - 161 38 637
(Gain) loss on foreign exchange (181 ) 236 (67 ) (5 )
Current income tax expense (recovery) 967 (81 ) 660 466
Deferred income tax expense (recovery) 2,042 1,025 864 (225 )
Interest expense 543 599 535 665
Restructuring reversal (514 )
Impairment loss - - - 1,901
Finance fees 32 99 88 88
EBITDA 17,835 12,300 10,988 10,678
Three months ended
Sept 30, 2013 Jun 30, 2013 Mar 31, 2013 Dec 31, 2012
Net income (loss) 2,373 13 1,063 (3,490 )
Add:
Depreciation and amortization 7,259 8,824 7,626 7,667
Loss on disposal of PP&E 162 76 586 226
Loss on disposal of assets held for sale - 17 158 -
Gain on foreign exchange (63 ) (18 ) (121 ) (195 )
Non-controlling interest - - - -
Current income tax expense (recovery) 627 94 216 (13 )
Deferred income tax (recovery) expense (808 ) (1,099 ) 345 (3,804 )
Interest expense 784 791 714 739
Restructuring expense - - - 4,129
Impairment expense - - - 2,350
Finance fees 88 71 72 66
EBITDA 10,422 8,769 10,659 7,675
Communications operating loss - - - 679
EBITDA (Adjusted) 10,422 8,769 10,659 8,354

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. 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. 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.

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. In addition to other material factors, expectations and assumptions which may be identified in this press release and other continuous disclosure documents of the Company referenced herein, assumptions have been made in respect of such forward-looking statements and information regarding, among other things: the Company will continue to conduct its operations in a manner consistent with past operations; the general continuance of current industry conditions; anticipated financial performance, business prospects, impact of competition, strategies, the general stability of the economic and political environment in which the Company operates; exchange and interest rates; tax laws; the sufficiency of budgeted capital expenditures in carrying out planned activities; the availability and cost of labour and services and the adequacy of cash flow; debt and ability to obtain financing on acceptable terms to fund its planned expenditures, which are subject to change based on commodity prices; market conditions and future oil and natural gas prices; and potential timing delays. Although Management considers these material factors, expectations and assumptions to be reasonable based on information currently available to it, no assurance can be given that they will prove to be correct.

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.

THIRD 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 Wednesday, November 5, 2014.
The conference call dial in number is 1-800-952-4972
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 Wednesday, November 12th, 2014, at 11:59pm ET. To access the replay, call 1-800-408-3053, followed by pass code 6183441.
Strad Energy Services Ltd.
Interim Consolidated Statement of Financial Position
(Unaudited)
(in thousands of Canadian dollars) As at September 30,
2014
As at December 31,
2013
$ $
Assets
Current assets
Trade receivables 48,579 35,569
Inventories 7,604 5,788
Prepaids and deposits 2,756 1,772
Note receivable 93 350
Income taxes receivable 40
59,032 43,519
Assets held for sale 2,478 3,167
Non-current assets
Property, plant and equipment 154,308 142,108
Intangible assets 1,358 1,685
Goodwill 17,277 17,277
Deferred income tax assets 69 164
Total assets 234,522 207,920
Liabilities
Current liabilities
Bank indebtedness 8,132 1,879
Accounts payable and accrued liabilities 30,590 26,188
Income taxes payable 1,257 -
Current portion of obligations under finance lease 954 1,887
Dividend payable 2,609 2,050
43,542 32,004
Non-current liabilities
Long-term debt 37,400 38,500
Obligations under finance lease 1,055 770
Deferred income tax liabilities 11,879 7,797
Total liabilities 93,876 79,071
Equity
Share capital 118,360 117,824
Contributed surplus 11,769 11,612
Accumulated other comprehensive income 2,101 603
Retained earnings (deficit) 8,416 (1,190 )
Total equity 140,646 128,849
Total liabilities and equity 234,522 207,920
Strad Energy Services Ltd.
Interim Consolidated Statement of Income and Comprehensive Income
For the three and nine months ended September 30, 2014 and 2013
(Unaudited)
(in thousands of Canadian dollars, except per share amounts)
Three Months Ended September 30, Nine Months Ended September 30,
2014 2013 2014 2013
$ $ $ $
Revenue 58,115 47,425 163,695 141,724
Expenses
Operating expenses 34,827 31,331 105,618 94,873
Depreciation 5,622 7,025 16,479 22,755
Amortization of intangible assets 177 234 546 954
Selling, general and administration 5,344 5,517 16,585 16,563
Share-based payments 109 155 369 438
Loss (gain) on disposal of property, plant and equipment 665 162 (334 ) 824
Foreign exchange gain (181 ) (63 ) (12 ) (202 )
Finance fees 32 88 219 231
Interest expense 543 784 1,677 2,289
Loss on assets held for sale - - 199 175
Income before income tax 10,977 2,192 22,349 2,824
Income tax expense (recovery) 3,009 (181 ) 5,477 (625 )
Net income for the period 7,968 2,373 16,872 3,449
Other comprehensive income
Items that may be reclassified subsequently to net income
Cumulative translation adjustment 1,385 (766 ) 1,498 1,002
Comprehensive income for the period 9,353 1,607 18,370 4,451
Earnings per share:
Basic $ 0.22 $ 0.06 $ 0.46 $ 0.09
Diluted $ 0.21 $ 0.06 $ 0.45 $ 0.09
Strad Energy Services Ltd.
Interim Consolidated Statement of Cash Flow
For the nine months ended September 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 16,872 3,449
Adjustments for items not affecting cash:
Depreciation and amortization 17,025 23,709
Deferred income tax expense (recovery) 3,930 (1,561 )
Share-based payments (net of cash settlements on share option exercises) 157 399
Interest expense and finance fees 1,896 2,520
(Gain) loss on disposal of property, plant and equipment (334 ) 824
Loss on assets held for sale 199 175
Changes in items of non-cash working capital (8,802 ) 3,453
Net cash generated from operating activities 30,943 32,968
Investing activities
Purchase of property, plant and equipment (27,210 ) (4,944 )
Proceeds from sale of property, plant and equipment 3,199 1,574
Purchase of intangible assets (298 ) (463 )
Purchase of assets held for sale - (125 )
Proceeds from assets held for sale 557 1,876
Changes in items of non-cash working capital (1,489 ) (4,565 )
Net cash used in investing activities (25,241 ) (6,647 )
Financing activities
Proceeds on issuance of long-term debt 7,900 2,000
Repayment of long-term debt (9,000 ) (18,500 )
Repayment of finance lease obligations (net) (648 ) (1,869 )
Proceeds on repayment of shareholder loan 421 378
Interest expense and finance fees (1,896 ) (2,520 )
Payment of dividends (6,709 ) (6,146 )
Changes in items of non-cash working capital 437 219
Net cash used in financing activities (9,495 ) (26,438 )
Effect of exchange rate changes on cash and cash equivalents (2,460 ) (1,474 )
Decrease in cash and cash equivalents (6,253 ) (1,591 )
Cash and cash equivalents (including bank indebtedness) - beginning of year (1,879 ) (2,488 )
Cash and cash equivalents (including bank indebtedness) - end of period (8,132 ) (4,079 )
Cash paid for income tax 1,089 1,290
Cash paid for interest 1,643 2,106

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

 
Strad Energy Services Ltd.
Andy Pernal
President and Chief Executive Officer
(403) 775-9202
(403) 232-6901 (FAX)
apernal@stradenergy.com

Strad Energy Services Ltd.
Greg Duerr
Chief Financial Officer
(403) 705-4333
(403) 232-6901 (FAX)
gduerr@stradenergy.com
www.stradenergy.com