News Releases

Strad Announces Second Quarter Results

Aug 09, 2017
Strad today announced its financial results for the three and six months ended June 30, 2017.


CALGARY, ALBERTA--(Marketwired - Aug. 9, 2017) -

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, 2017. All amounts are stated in Canadian dollars unless otherwise noted.

SECOND QUARTER SELECTED FINANCIAL AND OPERATIONAL HIGHLIGHTS:

  • Revenue of $28.5 million increased 197% compared to $9.6 million for the same period in 2016;
  • Adjusted EBITDA(1) of $5.6 million compared to $(2.0) million for the same period in 2016;
  • Net loss and loss per share was $(2.2) million and $(0.04), respectively, compared to $(7.0) million and $(0.19) for the same period in 2016;
  • Revenue from the energy infrastructure customer vertical for the three months ended June 30, 2017, increased to $11.0 million or 168% from $4.1 million from the same period in 2016.
  • Increased the 2017 capital budget by $11.0 million to $26.0 million to support demand for Strad's wood matting fleet;
  • Capital additions totaled $6.3 million during the second quarter of 2017; and
  • Total funded debt(2) to EBITDA(3) ratio was 1.2 to 1 at the end of the second quarter of 2017 compared to 1.8 to 1 at the end of the first quarter of 2017.

Notes:

(1) Earnings before interest, taxes, depreciation and amortization and other adjustments ("adjusted 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.

(3) EBITDA is based on trailing twelve months adjusted EBITDA plus share based payments, plus additional one time charges.

"We are pleased with our strong financial results during the second quarter," said Andy Pernal, President and Chief Executive Officer. "Q2 2017 was our Company's strongest Q2 EBITDA from our Canadian Operations since we became a public company in 2010. Our improved financial performance is due to the strong demand for our matting products and services from both the oil and gas and energy infrastructure customer segments. We expect this strong demand to continue through the third quarter as more energy infrastructure projects deploy."

"Our balance sheet strength continued to improve during the second quarter as our funded debt to EBITDA leverage ratio decreased to 1.2 to 1 due to the year-over-year improvement in our second quarter financial results," said Michael Donovan, Chief Financial Officer of Strad. "During the second quarter, we used our financial strength and flexibility to take advantage of opportunities to further expand our matting business and energy infrastructure exposure in western Canada. The recent $11.0 million increase in our 2017 capital budget has us positioned well to further expand our energy infrastructure exposure as more projects begin during the summer months."

SECOND QUARTER FINANCIAL HIGHLIGHTS

($000's, except per share amounts) Three months ended June 30, Six months ended June 30,
2017 2016 % chg. 2017 2016 % chg.
Revenue 28,494 9,580 197 56,154 24,838 126
Adjusted EBITDA(1) 5,591 (1,983 ) 382 10,087 (1,585 ) 736
Adjusted EBITDA as a % of revenue 20 % (21 )% 18 % (6 )%
Per share ($), basic 0.10 (0.05 ) 300 0.17 (0.04 ) 525
Per share ($), diluted 0.10 (0.05 ) 300 0.17 (0.04 ) 525
Net loss (2,163 ) (6,958 ) 69 (4,512 ) (9,952 ) 55
Per share ($), basic (0.04 ) (0.19 ) 79 (0.08 ) (0.27 ) 70
Per share ($), diluted (0.04 ) (0.19 ) 79 (0.08 ) (0.27 ) 70
Funds from operations(2) 6,076 (779 ) 11,603 976
Per share ($), basic 0.10 (0.02 ) 600 0.20 0.03 567
Per share ($), diluted 0.10 (0.02 ) 600 0.20 0.03 567
Capital expenditures(3) 6,264 235 9,734 656
Total assets 191,174 142,257 34 191,174 142,257 34
Long-term debt 20,951 9,000 133 20,951 9,000 133
Total long-term liabilities 32,979 15,842 108 32,979 15,842 108
Common shares - end of period ('000's) 60,013 37,280 60,013 37,280
Weighted avg common shares ('000's)
Basic 58,059 36,946 57,669 36,945
Diluted 58,059 36,946 57,669 36,945

Notes:

(1) Earnings before interest, taxes, depreciation and amortization and other adjustments ("adjusted EBITDA") is not a recognized measure under IFRS; see "Non-IFRS Measures Reconciliation".

(2) Funds from operations is cash flow from operating activities excluding changes in non-cash working capital. Funds from operations is not a recognized measure under IFRS; see "Non-IFRS Measures Reconciliation". Prior period comparative funds from operations have amounts that were reclassified to conform to the current presentation of the interim consolidated statement of cash flows.

(3) Includes assets acquired under finance lease and purchases of intangible assets.

FINANCIAL POSITION AND RATIOS

($000's except ratios) As at June 30, 2017 As at December 31, 2016
Working capital (1) $ 23,429 $ 15,636
Funded debt (2) 21,143 29,025
Total assets 191,174 185,321
Funded debt to EBITDA (3) 1.2 : 1 3.2 : 1

Notes:

(1) Working capital is calculated as current assets less current liabilities.

(2) Funded debt includes bank indebtedness plus long-term debt plus current and long-term obligations under finance lease less cash.

(3) EBITDA is based on trailing twelve months adjusted EBITDA plus share based payments, plus additional one time charges. See "Non-IFRS Measures Reconciliation".

SECOND QUARTER RESULTS

Strad reported an increase in revenue and adjusted EBITDA of 197% and 382%, respectively during the three months ended June 30, 2017, compared to the same period in 2016. Strad's second quarter results were driven by increased drilling activity in the WCSB and Strad's U.S. operating regions which resulted in higher revenue due to increased utilization of our surface equipment and matting fleets in both countries along with improved customer pricing, particularly in Canadian matting, compared to the same period in 2016. In addition, revenue generated from Strad's energy infrastructure customer vertical increased to $11.0 million during the second quarter and continued to be primarily driven by matting in Canada compared to $4.1 million in the same period in 2016. Adjusted EBITDA margin percentage increased to 20% compared to (21)% in the prior year, due to increased revenue and a relatively fixed cost structure.

Strad's Canadian Operations reported an increase in revenue and adjusted EBITDA of 297% and 1,155%, respectively, during the three months ended June 30, 2017, compared to the same period in 2016. Increased revenue was a result of higher drilling activity and more energy infrastructure projects throughout the second quarter, which resulted in a corresponding increase in surface equipment and matting utilization. Revenue gains were impacted by improved matting and surface equipment customer pricing during the second quarter of 2017 compared to the same period in 2016. Revenue was also impacted by an increase in the surface equipment fleet due to the acquisitions completed in the third quarter of 2016 and the first quarter of 2017, as well as an increase in the matting fleet year-over-year due to organic growth and the acquisition of Got Mats? in the first quarter of 2017.

Strad's U.S. Operations reported an increase in revenue of 149% and an increase in adjusted EBITDA of 150% compared to the same period in 2016. Rig counts in all three of Strad's targeted U.S. resource plays were higher during the second quarter of 2017 compared to the same period in 2016. Rig counts in the Bakken, Rockies and Marcellus regions increased by 80%, 130%, and 89%, respectively resulting in increased utilization for the second quarter of 2017 as compared to the same period in 2016. Second quarter results were also impacted by a reduced cost structure in the U.S. due to our focus on reducing overhead costs and discretionary spending.

Strad's Product Sales reported an increase in revenue of 36%, primarily the result of increased in-house manufactured equipment sales and rental fleet sales which increased to $2.1 million and $0.9 million, respectively, during the three months ending June 30, 2017, as compared to $0.1 million and $0.2 million during the same period in 2016. This was offset by a decrease in third party equipment sales of $nil for the second quarter of 2017 as compared to $1.9 million in third party equipment sales in the same period of 2016.

During the second quarter of 2017, capital expenditures were $5.8 million in Canada and $0.5 million in the U.S. Capital expenditures related primarily to wood matting additions in Canada to support Strad's energy infrastructure customer vertical.

RESULTS OF OPERATIONS

Canadian Operations
Three months ended June 30, Six months ended June 30,
($000's) 2017 2016 % chg. 2017 2016 % chg.
Revenue 19,208 4,833 297 40,154 13,408 199
Operating expenses 12,751 4,018 217 27,462 9,832 179
Selling, general and administration 1,336 1,269 5 2,719 2,326 17
Share based payments 64 25 148 44
Net income (loss) 1,532 (693 ) 321 3,131 (253 ) 1,338
Adjusted EBITDA(1) 5,055 (479 ) 1,155 9,824 1,206 715
Adjusted EBITDA as a % of revenue 26 % (10 )% 24 % 9 %
Capital expenditures(2) 5,776 27 7,036 110
Gross capital assets 162,085 112,048 45 162,085 112,048 45
Total assets 122,561 68,514 79 122,561 68,514 79
Equipment Fleet:
Surface equipment 4,000 2,590 54 4,000 2,590 54
Utilization %(3) 28 % 12 % 34 % 16 %
Matting 63,800 45,800 39 63,800 45,800 39
Utilization % 63 % 25 % 52 % 30 %

Notes:

(1) Earnings before interest, taxes, depreciation and amortization and other adjustments ("Adjusted 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.

(3) Equipment utilization includes surface and matting equipment on rent only and is calculated using gross asset value.

Revenue for the three months ended June 30, 2017, of $19.2 million increased 297% compared to $4.8 million for the same period in 2016. Increased revenue during the quarter was primarily a result of higher utilization in matting and surface equipment as compared to the second quarter of 2016. The increase in utilization is primarily the result of the increase in rig counts, which increased by approximately 140%, during the three months ended June 30, 2017. In addition, revenue increased in part to the acquisitions that occurred in the third quarter of 2016 (Redneck acquisition) and first quarter of 2017 (Got Mats? acquisition). Lastly, contributing to the increase in revenue was an increase in customer pricing for the three months ended June 30, 2017, as compared to the same period in 2016.

During the second quarter, revenue from energy infrastructure projects was approximately $8.2 million or 43% of total revenue for Canadian Operations as compared to $2.5 million or 52% of total Canadian Operations revenue in the second quarter of 2016. The primary driver for the increase in energy infrastructure revenue is a result of more projects as compared to the prior year, and higher matting customer pricing as compared to the second quarter of 2016.

During the second quarter, Strad's matting fleet increased to approximately 63,800 mats at June 30, 2017, compared to approximately 45,800 mats as at June 30, 2016. A portion of the increase was due to the Got Mats? acquisition that was completed in February 2017, as well as increased capital spending during the third quarter of 2016 and the second quarter of 2017. Matting utilization increased by 152% during the second quarter of 2017, compared to the second quarter of 2016, due to the increase in energy infrastructure projects and the higher drilling activity during the second quarter of 2017. During the second quarter, Strad's surface equipment fleet increased to approximately 4,000 pieces, compared to approximately 2,590 pieces as at June 30, 2016. A key driver of the increase in fleet size was the Redneck acquisition in the third quarter of 2016 and modest capital expenditures during the six months ended June 30, 2016. Surface equipment utilization increased by 133% during the second quarter of 2017, compared to the same period in 2016, due primarily to the increase in drilling activity.

Adjusted EBITDA for the three months ended June 30, 2017, of $5.1 million, increased 1,155% compared to $(0.5) million for the same period in 2016. Adjusted EBITDA as a percentage of revenue, for the three months ended June 30, 2017, increased to 26% compared to (10)% for the same period in 2016. The increase in EBITDA is driven primarily by the increase in revenue during the second quarter of 2017 as well as a relatively fixed cost structure.

Revenue for the six months ended June 30, 2017, of $40.2 million increased 199% compared to $13.4 million for the same period in 2016. Increased drilling activity and energy infrastructure projects were the primary drivers of increased revenue year-over-year.

During the six months ended June 30, 2017, revenue from energy infrastructure projects was approximately $14.8 million or 37% of total revenue for Canadian Operations as compared to $6.7 million or 50% of total Canadian Operations revenue in the same period of 2016. Increased pricing and an earlier start to the matting season for energy infrastructure projects are the primary drivers of increased revenue year-over-year.

Adjusted EBITDA for the six months ended June 30, 2017, of $9.8 million, increased 715% compared to $1.2 million for the same period in 2016. Adjusted EBITDA as a percentage of revenue, for the six months ended June 30, 2017, increased to 24% compared to 9% for the same period in 2016.

Operating expenses for the three and six months ended June 30, 2017, of $12.8 million and $27.5 million increased 217% and 179% compared to $4.0 million and $9.8 million for the same period in 2016. The increase in operating expenses during the first six months of 2017 is a result of increased activity levels, utilization rates, and fleet size, as well as an increase in third party expenses, as compared to the same period in 2016. The increase in overall expenses is consistent with the increase in drilling activity and energy infrastructure projects throughout the first half of 2017.

Selling, general and administrative costs ("SG&A") for the three and six months ended June 30, 2017, of $1.3 million and $2.7 million, respectively, increased 5% and 17% compared to $1.3 million and $2.3 million for the same period in 2016. SG&A costs increased over the three and six months as a result of the third quarter 2016 Redneck acquisition and first quarter 2017 acquisition of Got Mats?.

U.S. Operations
Three months ended June 30, Six months ended June 30,
($000's) 2017 2016 % chg. 2017 2016 % chg.
Revenue 6,252 2,515 149 11,318 7,301 55
Operating expenses 4,766 2,314 106 8,718 6,444 35
Selling, general and administration 861 1,420 (39 ) 1,757 2,508 (30 )
Share based payments 15 13 32 17
Net income (4,411 ) (7,169 ) 38 (6,618) (9,079 ) 27
Adjusted EBITDA(1) 610 (1,232) 150 811 (1,668 ) 149
Adjusted EBITDA as a % of revenue 10 % (49 )% 7 % (23 )%
Capital expenditures(2) 488 143 2,673 439
Gross capital assets 134,972 141,966 (5 ) 134,972 141,966 (5 )
Total assets 67,188 72,825 (8 ) 67,188 72,825 (8 )
Equipment Fleet:
Surface equipment 2,040 2,010 2,040 2,010
Utilization %(3) 25 % 13 % 25 % 17 %
Matting 17,650 13,220 34 17,650 13,220 34
Utilization %(3) 29 % 12 % 24 % 16 %

Notes:

(1) Earnings before interest, taxes, depreciation and amortization and other adjustments ("Adjusted 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.

(3) Equipment utilization includes surface and matting equipment on rent only and is calculated using gross asset value.

Revenue for the three months ended June 30, 2017, increased 149% to $6.3 million from $2.5 million for the same period in 2016. The increase in revenue is due to a combination of higher surface equipment and matting utilization rates and modestly higher customer pricing resulting from increased drilling activity when compared to the same period in 2016. Average rig counts in the Bakken, Rockies and Marcellus regions increased by 80%, 130%, and 89%, respectively, during the second quarter of 2017 compared to the same period in 2016.

During the second quarter, revenue from energy infrastructure projects was $1.0 million or 16% of total revenue for U.S. Operations compared to $nil in the same period of 2016.

The U.S. matting fleet increased to 17,650 mats as at June 30, 2017, compared to 13,220 mats as at June 30, 2016. The addition of mats during the first half of 2017 was to support the increase in U.S. energy infrastructure customers. The U.S. surface equipment fleet increased slightly by 30 pieces of equipment to 2,040 pieces as at June 30, 2017, compared to 2,010 pieces as at June 30, 2016.

Adjusted EBITDA for the three months ended June 30, 2017, increased to $0.6 million compared to $(1.2) million for the same period in 2016. Adjusted EBITDA as a percentage of revenue, for the three months ended June 30, 2017, was 10% compared to (49)% for the same period in 2016. The increase in both adjusted EBITDA and adjusted EBITDA as a percentage of revenue is primarily due to increased drilling activity levels which resulted in higher utilization and modestly improved customer pricing in the second quarter of 2017 compared to the same period of 2016.

Revenue for the six months ended June 30, 2017, increased 55% to $11.3 million from $7.3 million for the same period in 2016. The increase in revenue for the six months ended June 30, 2017 can be attributed to higher surface equipment and matting utilization rates due to increased drilling activity levels across all of our U.S. operating regions and modestly higher customer pricing as compared to the same period in 2016. In addition, energy infrastructure revenue as a percentage of total revenue increased to $1.5 million or 13% during the six months ended June 30, 2017 compared to $nil in the same period of 2016.

Adjusted EBITDA for the six months ended June 30, 2017, increased to $0.8 million compared to $(1.7) million for the same period in 2016. Adjusted EBITDA as a percentage of revenue, for the six months ended June 30, 2017, was 7% compared to (23)% for the same period in 2016. The increase in both adjusted EBITDA and adjusted EBITDA as a percentage of revenue is primarily due to the increase in revenue during the first six months of 2017 in addition to lower fixed costs.

Operating expenses for the three and six months ended June 30, 2017, of $4.8 million and $8.7 million, respectively, increased 106% and 35% compared to $2.3 million and $6.4 million for the same period in 2016. The increase in operating expenses during the first six months of 2017 is a result of increased activity levels.

SG&A costs for the three and six months ended June 30, 2017, of $0.9 million and $1.8 million decreased 39% and 30% compared to $1.4 million and $2.5 million for the same period in 2016. The decrease in SG&A expenses is due to cost reductions implemented by management including staff reductions and reductions in discretionary spending.

Product Sales
Three months ended June 30, Six months ended June 30,
($000's) 2017 2016 % chg. 2017 2016 % chg.
Revenue 3,034 2,232 36 4,682 4,129 13
Operating expenses 1,991 1,616 23 3,074 3,461 (11 )
Selling, general and administration 49 21 133 99 22 350
Net income (loss) (4 ) (252 ) 98 (274 ) (546 ) 50
Adjusted EBITDA(1) 994 595 67 1,509 646 134
Adjusted EBITDA as a % of revenue 33 % 27 % 32 % 16 %
Capital expenditures(2) - - - 25 - -
Total assets 34 52 (35 ) 34 52 (35 )

Notes:

(1) Earnings before interest, taxes, depreciation and amortization and other adjustments ("Adjusted 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, 2017, increased 36% to $3.0 million from $2.2 million for the same period in 2016, resulting primarily from higher in-house manufactured equipment sales. During the three months ended June 30, 2017, Product Sales consisted of $2.1 million of in-house manufactured products and $0.9 million of rental fleet sales compared to $0.1 million and $0.2 million, respectively, as well as $1.9 million of third party equipment sales during the same period in 2016.

During the second quarter, revenue from energy infrastructure projects was $1.8 million or 57% of total revenue compared to $1.6 million or 71% of total revenue in the same period of 2016.

Adjusted EBITDA for the three months ended June 30, 2017, increased to $1.0 million from $0.6 million for the same period in 2016. Adjusted EBITDA as a percentage of revenue, for the three months ended June 30, 2017, was 33% compared to 27% for the same period in 2016. Adjusted EBITDA has increased more than revenue on a percentage basis, primarily as a result of lower fixed costs related to the manufacturing facility for the three months ended June 30, 2017, as compared to the same period in 2016.

Revenue for the six months ended June 30, 2017, increased 13% to $4.7 million from $4.1 million for the same period in 2016, resulting primarily from higher in-house manufactured equipment sales. Sales of Strad's rental fleet equipment fluctuate quarter-over-quarter and are primarily dependent on strategic opportunities to monetize underutilized rental assets.

During the six months ended June 30, 2017, revenue from energy infrastructure projects was $3.1 million or 67% of total revenue compared to $2.9 million or 70% of total revenue in the same period of 2016.

Adjusted EBITDA for the six months ended June 30, 2017, increased to $1.5 million from $0.6 million for the same period in 2016. Adjusted EBITDA as a percentage of revenue, for the six months ended June 30, 2017, was 32% compared to 16% for the same period in 2016.

Operating expenses for the three and six months ended June 30, 2017, of $2.0 million and $3.1 million increased 23% and decreased 11% compared to $1.6 million and $3.5 million for the same period in 2016. Operating expenses vary with individual transactions and business activity levels.

OUTLOOK

We continued to see a year-over-year improvement in our financial performance as our results were impacted by a number of different variables including increased utilization, improved customer pricing and a significant revenue contribution from our energy infrastructure customer vertical.

Increased demand for our services in the WCSB during the quarter was attributable to increased average rig counts of 298 compared to 158 in the prior year, the addition of Redneck Oilfield Services Ltd. which expanded our equipment offering in western Canada and wet weather conditions which resulted in an early start to our matting season and an increase in utilization during the quarter, compared to the prior year.

In Canada, significantly higher demand for matting from both of our customer verticals, along with a period of under investment in new matting product by most matting providers, lead to favorable supply and demand market conditions during the second quarter which translated into a marked improvement in our average matting prices beyond the double digit increases we disclosed previously. Providing the recent volatility in commodity prices does not alter our customers' 2017 capital programs, we should continue to see similar utilization levels in the third quarter on an expanded matting fleet as a result of the addition of Got Mats? and capital spending during the second quarter. We anticipate deploying the additional $11.0 million of capital throughout the remainder of 2017 to support our matting business and our energy infrastructure customer vertical.

Second quarter results in our U.S. Operations improved significantly compared to the prior year, due to higher rig counts in the regions in which we operate. Stronger demand for our products and services in the U.S. during the quarter continued to support our strategy of increasing our prices in certain product lines and operating regions. We have realized modest pricing gains during the first half of 2017 notwithstanding those gains are being made on historically low pricing levels for our Company. For the remainder of 2017, we expect to see continued improvement in our U.S. operations results based on the current level of demand for our products and services.

During the second quarter, we continued to execute on our strategic priorities being continued growth of the energy infrastructure customer vertical, continued focus on increasing our size and scale and maintaining our lean cost structure. Revenue generated by energy infrastructure customers continued to increase accounting for 38% of total revenue, 43% of Canadian Operations revenue, 16% of U.S. Operations revenue and 57% of Product Sales revenue during the second quarter.

We continued to focus on growing our size and scale through organic growth with $4.6 million of the $6.3 million capital spending being allocated primarily to our Canadian matting fleet to meet strong demand. We plan to continue investing in our matting fleet throughout the remainder of 2017 to meet customer demand primarily in our energy infrastructure customer vertical.

Looking ahead to the remainder of 2017, we expect activity levels to continue to trend higher year-over-year despite the recent volatility in oil prices, providing our customers execute their remaining 2017 capital programs. We see demand for our Canadian matting fleet continuing to be strong during the third quarter as additional energy infrastructure projects begin in the summer months. We anticipate demand for our Canadian surface equipment to remain steady over the second half of 2017. In the U.S., we expect to see a slower and steady improvement in our results over the remainder of 2017 as pricing increases begin to take effect. We will continue our focus on increasing prices for our products and services where we can and managing our lean cost structure to ensure the efficiencies we gained over the past two years are maintained as activity levels increase and drive margin improvement.

LIQUIDITY AND CAPITAL RESOURCES

($000's) June 30, 2017 December 31, 2016
Current assets $ 37,291 $ 31,852
Current liabilities 13,862 16,216
Working Capital(1) 23,429 15,636
Banking facilities
Operating facility - 1,478
Syndicated revolving facility 20,951 26,501
Total facility borrowings 20,951 27,979
Total credit facilities(2) 48,500 48,500
Unused credit capacity 27,549 20,521

Notes:

(1) Working capital is calculated as current assets less current liabilities.

(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 June 30, 2017, Strad had access to $48.5 million of credit facilities.

As at June 30, 2017, working capital was $23.4 million compared to $15.6 million at December 31, 2016. The change in current assets is a result of a 20% increase in accounts receivable to $29.4 million for the second quarter of 2017 compared to $24.4 million for the fourth quarter of 2016. The increase in accounts receivable is due to an increase in matting and surface equipment related revenue, as well as delays in customer payments during the second quarter as compared to the fourth quarter of 2016. Inventory decreased by 5% to $3.7 million at June 30, 2017, from $3.9 million at December 31, 2016, and prepaid expenses decreased 24% to $0.8 million at June 30, 2017 from $1.1 million at December 31, 2016. The decrease in inventory and prepaids relates to the normal course of business.

The change in current liabilities is a result of a 5% decrease in accounts payable and accrued liabilities to $13.1 million at June 30, 2017, compared to $13.9 million at year end. Bank indebtedness decreased to $nil at the end of the second quarter compared to bank indebtedness of $1.5 million for the fourth quarter of 2016.

Funds from operations for the three months ended June 30, 2017, increased to $6.1 million compared to $(0.8) million for the three months ended June 30, 2016. Capital expenditures totaled $6.3 million for the three months ended June 30, 2017. Strad's total facility borrowing decreased by $7.0 million for the three months ended June 30, 2017, compared to the fourth quarter of 2016. Management monitors funds from operations and the timing of capital additions to ensure adequate capital resources are available to fund Strad's capital program.

As at June 30, 2017, the Company's syndicated banking facility consists of an operating facility with a maximum principal amount of $7.0 million CAD and $5.0 million USD, and a $36.5 million CAD 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. As at June 30, 2017, the Company had access to the maximum credit facilities. 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 29, 2018.

Based on the Company's current credit facility, the interest rate on the syndicated credit 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 three months ended June 30, 2017, the overall effective rates on the operating facility and revolving facility were 6.19% and 5.32%, respectively. As of June 30, 2017, $nil was drawn on the operating facility and $21.0 million was drawn on the revolving facility. Required payments on the revolving facility are interest only.

As at June 30, 2017, the Company was in compliance with all of the financial covenants under its credit facilities.

The relevant definitions of financial debt covenant ratio terms as set forth in the Company's syndicated banking facility are as follows:

  • 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 adjusted EBITDA plus share based payments, plus additional one-time charges.
  • Interest expense ratio is calculated as the ratio of trailing twelve months adjusted EBITDA plus share based payments to trailing twelve months interest expense on loans and borrowings.

The above noted definitions are not recognized under IFRS and are provided strictly for the purposes of the financial debt calculation.

Financial Debt Covenants As at June 30, 2017 As at December 31, 2016
Funded debt to EBITDA ratio (not to exceed 5.5:1)
Funded debt $ 21,143 $ 29,025
EBITDA 18,320 9,119
Ratio 1.2 3.2
EBITDA to interest coverage ratio (no less than 2.50:1)
EBITDA $ 18,320 $ 9,119
Interest expense 1,694 1,557
Ratio 10.8 5.9

NON-IFRS MEASURES RECONCILIATION

Certain supplementary measures in this MD&A 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 and other adjustments ("adjusted EBITDA") is not a recognized measure under IFRS. Management believes that in addition to net income, adjusted 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. Adjusted EBITDA is calculated as net income (loss) plus interest, finance fees, taxes, depreciation and amortization, loss on disposal of property, plant and equipment, loss on foreign exchange, less gain on foreign exchange and gain on disposal of property, plant and equipment. Segmented adjusted EBITDA is based upon the same calculation for defined business segments, which are comprised of Canadian Operations, U.S. Operations and Product Sales.

Funds from operations are cash flow from operating activities excluding changes in non-cash working capital. 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. Working capital, cash forecasting and banking facilities are used by Management to ensure funds are available to finance growth opportunities.

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

Reconciliation of Funds from Operations

($000's)
Three months ended June 30, Six months ended June 30,
2017 2016 2017 2016
Net cash generated from operating activities $ 3,031 $ 4,435 $ 6,572 $ 9,681
Less:
Changes in non-cash working capital(1) (3,045 ) 5,214 (5,031 ) 8,705
Funds from Operations 6,076 (779 ) 11,603 976

Notes:

(1) Prior period comparative funds from operations have amounts that were reclassified to conform to the current presentation of the interim consolidated statement of cash flows.

Reconciliation of Adjusted EBITDA

('000's)
Three months ended June 30, Six months ended June 30,
2017 2016 2017 2016
Net loss: $ (2,163 ) $ (6,958 ) $ (4,512 ) $ (9,952 )
Add (deduct):
Depreciation and amortization 7,572 4,516 13,955 9,665
Gain on disposal of PP&E (150 ) (268 ) (227 ) (461 )
Deferred income tax expense (102 ) 1,439 14 238
Financing fees 73 47 147 94
Interest expense 419 157 855 401
Gain on foreign exchange (58 ) 3 (145 ) (434 )
Current income tax recovery - (919 ) - (1,136 )
Adjusted EBITDA 5,591 (1,983 ) 10,087 (1,585 )

Reconciliation of quarterly non-IFRS measures

(000's)
Three months ended
Jun 30, 2017 Mar 31, 2017 Dec 31, 2016 Sep 30, 2016
Net loss: $ (2,163 ) $ (2,347 ) $ (3,105 ) $ (3,746 )
Add (deduct):
Depreciation and amortization 7,572 6,383 7,610 4,930
Gain on disposal of PP&E (150 ) (78 ) (105 ) (35 )
(Gain) loss on foreign exchange (58 ) (87 ) 123 17
Current income tax (recovery) expense - - 204 (242 )
Deferred income tax (recovery) expense (102 ) 116 (403 ) (39 )
Interest expense 419 436 415 318
Finance fees 73 73 43 44
Adjusted EBITDA 5,591 4,496 4,782 1,247
Three months ended
Jun 30, 2016 Mar 31, 2016 Dec 31, 2015 Sep 30, 2015
Net loss: $ (6,958 ) $ (2,994 ) $ (8,316 ) $ (20,362 )
Add (deduct):
Depreciation and amortization 4,516 5,149 7,126 9,616
Gain on disposal of PP&E (268 ) (193 ) (99 ) (30 )
(Gain) loss on foreign exchange 3 (437 ) 216 380
Current income tax recovery (919 ) (217 ) (677 ) (432 )
Deferred income tax (recovery) expense 1,439 (1,201 ) (4,033 ) (2,776 )
Interest expense 157 244 427 311
Impairment loss - - 7,822 17,277
Finance fees 47 47 34 37
Adjusted EBITDA (1,983 ) 398 2,500 4,021
Reconciliation of funded debt
(000's)
Six months ended June 30, 2017 Year ended December 31, 2016
Bank indebtedness, net of cash on hand at syndicate banks $ (865 ) $ 1,478
Long term debt 20,951 26,501
Current and long term obligations under finance lease 1,057 1,046
Total Funded Debt 21,143 29,025

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, including its 2017 capital budget, and funding thereof, changes and expectations in margins to be experienced by Strad, anticipated cash flow, debt, demand for the Company's products and services, drilling activity in North America, pricing of the Company's products and services and expectations for the remainder of 2017, introduction of new products and services and the potential for growth and expansion of certain components of the Company's business, including further additions to our matting fleet, anticipated benefits from cost reductions and timing thereof, 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.

Readers are cautioned that the foregoing lists of factors are not exhaustive. Additional information on these and other factors that could affect the Company's operations and financial results are included in reports on file with the Canadian Securities Regulatory Authorities and may be accessed through the SEDAR website (www.sedar.com) or at the Company's website. The forward-looking statements and information contained in this press release are expressly qualified by this cautionary statement. The Company does not undertake any obligation to publicly update or revise any forward looking statements or information, whether as a result of new information, future events or otherwise, except as may be required by applicable securities laws.

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 10th 2017.

The conference call dial in number is 1-844-388-0561, followed by Conference ID code 60318967

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 17th, 2017, at 1:00pm ET. To access the replay, call 1-855-859-2056, followed by pass code 60318967.

Strad Energy Services Ltd.
Interim Consolidated Statement of Financial Position
(Unaudited)
(in thousands of Canadian dollars) As at
June 30, 2017
As at
December 31, 2016
$ $
Assets
Current assets
Cash 1,276 369
Trade receivables 29,355 24,460
Inventories 3,734 3,890
Prepaids and deposits 843 1,111
Income tax receivable 2,083 2,022
37,291 31,852
Non-current assets
Property, plant and equipment 150,946 150,622
Intangible assets 578 665
Long term assets 1,907 2,023
Deferred income tax assets 452 159
Total assets 191,174 185,321
Liabilities
Current liabilities
Bank indebtedness - 1,478
Accounts payable and accrued liabilities 13,133 13,893
Current portion of obligations under finance lease 729 845
13,862 16,216
Non-current liabilities
Long-term debt 20,951 26,501
Obligations under finance lease 328 201
Deferred income tax liabilities 11,700 10,321
46,841 53,239
Equity
Share capital 154,750 135,935
Contributed surplus 12,530 12,243
Accumulated other comprehensive income 24,624 26,963
Deficit (47,571 ) (43,059 )
Total equity 144,333 132,082
Total liabilities and equity 191,174 185,321
Strad Energy Services Ltd.
Interim Consolidated Statement of Loss and Comprehensive Loss
For the three and six months ended June 30, 2017 and 2016
(Unaudited)
Three months ended June 30, Six months ended June 30,
2017 2016 2017 2016
$ $ $ $
Revenue 28,494 9,580 56,154 24,838
Expenses
Operating expenses 19,508 7,948 39,254 19,737
Depreciation 7,507 4,441 13,823 9,385
Amortization of intangible assets 41 51 84 232
Amortization of long term assets 24 24 48 48
Selling, general and administration 3,245 3,537 6,526 6,567
Share-based payments 150 78 287 119
Gain on disposal of property, plant and equipment (150 ) (268 ) (227 ) (461 )
Foreign exchange (gain) loss (58 ) 3 (145 ) (434 )
Finance fees 73 47 147 94
Interest expense 419 157 855 401
Loss before income tax (2,265 ) (6,438 ) (4,498 ) (10,850 )
Current income tax recovery - (919 ) - (1,136 )
Deferred income tax expense (recovery) (102 ) 1,439 14 238
Loss for the period (2,163 ) (6,958 ) (4,512 ) (9,952 )
Other comprehensive loss
Items that may be reclassified subsequently to net loss
Cumulative translation adjustment (1,704 ) 168 (2,339 ) (5,622 )
Total comprehensive loss for the period (3,867 ) (6,790 ) (6,851 ) (15,574 )
Loss per share:
Basic ($0.04) ($0.19) ($0.08) ($0.27)
Diluted ($0.04) ($0.19) ($0.08) ($0.27)
Strad Energy Services Ltd.
Interim Consolidated Statement of Cash Flow
For the six months ended June 30, 2017 and 2016
(Unaudited)
(in thousands of Canadian dollars) Six months ended June 30,
(revised)
2017 2016
Cash flow provided by (used in) $ $
Operating activities
Loss for the period (4,512 ) (9,952 )
Adjustments for items not affecting cash:
Depreciation and amortization 13,955 9,665
Deferred income tax expense 14 238
Share-based payments 287 119
Interest expense and finance fees 1,002 495
Unrealized foreign exchange gain (264 ) (437 )
Gain on disposal of property, plant and equipment (227 ) (461 )
Book value of used fleet sales in operating activities 1,348 1,309
Changes in items of non-cash working capital (5,031 ) 8,705
Net cash generated from operating activities 6,572 9,681
Investing activities
Purchase of property, plant and equipment (9,734 ) (591 )
Proceeds from sale of property, plant and equipment 627 1,281
Purchase of intangible assets - (65 )
Cash paid on business acquisition (2,750 ) -
Cash assumed on business acquisition 322 -
Changes in items of non-cash working capital (361 ) 8
Net cash (used in) generated from investing activities (11,896 ) 633
Financing activities
Proceeds on issuance of long-term debt 5,307 3,000
Repayment of long-term debt (10,857 ) (9,500 )
Repayment of finance lease obligations (net) (548 ) (273 )
Issuance of shareholder loan (net of repayments) - (22 )
Interest expense and finance fees (1,002 ) (495 )
Issuance of common shares 15,000 -
Share issue costs (1,025 ) -
Changes in items of non-cash working capital (28 ) 10
Net cash generated from (used in) financing activities 6,847 (7,280 )
Effect of exchange rate changes on cash and cash equivalents 862 (682 )
Increase in cash and cash equivalents 2,385 2,352
Cash and cash equivalents - beginning of year (1,109 ) (2,874 )
Cash and cash equivalents - end of period 1,276 (522 )
Cash paid for income tax - -
Cash paid for interest 509 412

ABOUT STRAD ENERGY SERVICES LTD.

Strad is a North American energy services company that provides rental equipment and matting solutions to the oil and gas and energy infrastructure sectors. Strad focuses on providing complete customer solutions in Canada and the United States.

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

Contact Information