PHX Energy Services Corp. (TSX:PHX) ("PHX Energy") achieved an all-time
quarterly record for revenue, operating days, and EBITDA.
For the three-month period ended March 31, 2013, the Corporation generated
consolidated revenue of $92.7 million as compared to $79.8 million in the
2012-period; a 16 percent increase. EBITDA increased by 22 percent to $18.3
million in the first quarter of 2013 from $15.0 million in 2012. As a percentage
of revenue, EBITDA was 20 percent in the 2013-quarter as compared to 19 percent
in the corresponding 2012-quarter. Net earnings also increased by 5 percent from
$7.9 million in the 2012-period to $8.3 million in 2013.
PHX Energy's momentum towards gaining greater market share in the US continued
through the first quarter of 2013. US revenue, as a percentage of consolidated
revenue, increased to 43 percent during the 2013-quarter as compared to 34
percent in the 2012-quarter.
Sturdy growth in international operations also continued with the segment
representing 10 percent of consolidated revenue in the first quarter of 2013.
During the three-month period ended March 31, 2013, $13.5 million was incurred
as part of the 2013 capital expenditure program. An additional $5.4 million is
currently on order and is expected to be received within the next quarter.
In the 2013-quarter, the Corporation paid dividends of $5.1 million or $0.18 per
share; this represented 30 percent of funds from operations.
PHX Energy ended the first quarter with long-term debt of $85.1 million and
working capital of $50.8 million.
On April 23, 2013, the Corporation entered into a subscription agreement to
subscribe for 20,000,000 common shares of RMS Systems Inc. ("RMS") at a price of
$0.15 per common share or $3.0 million through a private placement ("offering").
Closing of the transaction is subject to the approval of the TSX Venture
Exchange ("TSXV") and the shareholders of RMS. Upon closing, PHX Energy will
hold approximately 39.8 percent interest in RMS. PHX Energy believes that given
the prospective synergies that can be realized between RMS' electronic drilling
recorder ("EDR") services and the Corporation's current service offering, these
additional investments will strategically assist PHX Energy in gaining a
position in a lucrative segment of the oil and natural gas industry and further
expanding its markets.
In addition, RMS and PHX Energy agreed to enter into a bridge financing whereby
PHX Energy shall loan $1.0 million ("bridge loan") to RMS upon receipt of TSXV's
conditional approval of the offering, which occurred on April 29, 2013.
Subsequent to this, the bridge loan was funded and the bridge loan will bear
interest at an annual rate of 8 percent and shall be repaid upon the earlier of
the closing of the offering or within 90 days upon demand by PHX Energy.
Financial Highlights
(Stated in thousands of dollars except per share amounts, percentages and shares
outstanding)
Three-month periods ended March 31,
2013 2012 % Change
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Operating Results (unaudited) (unaudited)
Revenue 92,667 79,769 16
Net earnings 8,306 7,918 5
Earnings per share - diluted 0.29 0.28 4
EBITDA (1) 18,329 15,038 22
EBITDA per share - diluted (1) 0.65 0.53 23
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Cash Flow
Cash flows from operating activities 13,302 4,076 226
Funds from operations (1) 16,734 14,748 13
Funds from operations per share -
diluted (1) 0.59 0.52 13
Dividends paid 5,085 3,372 51
Dividends per share (2) 0.18 0.12 50
Capital expenditures 13,495 17,560 (23)
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Financial Position (unaudited) Mar 31, '13 Dec 31, '12
Working capital 50,835 45,480 12
Long-term debt 85,089 80,000 6
Shareholders' equity 121,152 115,095 5
Common shares outstanding 28,370,848 28,241,371 -
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(1) Refer to non-GAAP measures section.
(2) Dividends paid by the Corporation on a per share basis in the period.
Non-GAAP Measures
PHX Energy uses certain performance measures throughout this document that are
not recognizable under Canadian generally accepted accounting principles
("GAAP"). These performance measures include earnings before interest, taxes,
depreciation and amortization ("EBITDA"), EBITDA per share, funds from
operations and funds from operations per share. Management believes that these
measures provide supplemental financial information that is useful in the
evaluation of the Corporation's operations and are commonly used by other oil
and natural gas service companies. Investors should be cautioned, however, that
these measures should not be construed as alternatives to measures determined in
accordance with GAAP as an indicator of PHX Energy's performance. The
Corporation's method of calculating these measures may differ from that of other
organizations, and accordingly, these may not be comparable. Please refer to the
non-GAAP measures section.
Cautionary Statement Regarding Forward-Looking Information and Statements
This document contains certain forward-looking information and statements within
the meaning of applicable securities laws. The use of "expect", "anticipate",
"continue", "estimate", "objective", "ongoing", "may", "will", "project",
"could", "should", "can", "believe", "plans", "intends", "strategy" and similar
expressions are intended to identify forward-looking information or statements.
The forward-looking information and statements included in this document are not
guarantees of future performance and should not be unduly relied upon. These
statements and information 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 statements and information. The
Corporation believes the expectations reflected in such forward-looking
statements and information are reasonable, but no assurance can be given that
these expectations will prove to be correct. Such forward-looking statements and
information included in this document should not be unduly relied upon. These
forward-looking statements and information speak only as of the date of this
document.
In particular, forward-looking information and statements contained in this
document include references to, without limitation, prospective synergies that
can be realized between RMS' EDR services and the Corporation's current service
offering; additional investments in RMS will strategically assist PHX Energy in
gaining a position in a lucrative segment of the oil and natural gas industry
and further expanding its markets; the expected tax rate in Canada; Phoenix
USA's growth in the Permian Basin; growth in Russia as a result of a new
customer added and a marketing person hired; the award of 2 rigs in Colombia
that are expected to start services in the second quarter; the Corporation
exploring all options to provide future growth in Colombia; the growth of the
Corporation's MWD and RWD fleet; projected capital expenditure budget and how
this budget will be funded.
The above references are stated under the headings: "Operating Costs and
Expenses", "Segmented Information", "Investing Activities" and "Capital
Resources". Furthermore, all information contained within the Outlook section of
this document contains forward-looking statements.
In addition to other material factors, expectations and assumptions which may be
identified in this document and other continuous disclosure documents of the
Corporation referenced herein, assumptions have been made in respect of such
forward-looking statements and information regarding, among other things: the
Corporation 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 Corporation 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
Corporation'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 Corporation's website. The
forward-looking statements and information contained in this document are
expressly qualified by this cautionary statement. The Corporation 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.
Revenue
(Stated in thousands of dollars)
Three-month periods ended March 31,
2013 2012 % Change
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Revenue 92,667 79,769 16
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As a result of superior service delivery and strong customer focus, the demand
for the Corporation's services was strong across all regions. PHX Energy
generated an all-time record level of consolidated revenue and operating days
for any quarter. For the three-month period ended March 31, 2013, PHX Energy
generated revenue of $92.7 million as compared to $79.8 million in the
corresponding 2012-period; an increase of 16 percent. US and international
revenue as a percentage of total consolidated revenue were 43 and 10 percent,
respectively, for the 2013-quarter as compared to 34 and 10 percent in 2012.
Consolidated operating days grew by 16 percent to 7,746 days in 2013 as compared
to 6,681 in the 2012-quarter. Average consolidated day rates for the three-month
period ended March 31, 2013, excluding the motor rental division in the US,
decreased slightly to $11,716, which is 1 percent lower than the day rates of
$11,849 in the first quarter of 2012.
In comparison, horizontal and directional drilling as a percentage of total
drilling remained steady in Canada while it increased in the US. In the
2013-quarter, horizontal and directional drilling continued to be a significant
percentage of the Canadian market, approximately 90 percent of total industry
drilling days (2012 - 90 percent). In the US, horizontal and directional
activity levels grew to represent 75 percent of the rigs running per day (2012 -
70 percent). (Sources: Daily Oil Bulletin and Baker Hughes)
Operating Costs and Expenses
(Stated in thousands of dollars except percentages)
Three-month periods ended March 31,
2013 2012 % Change
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Direct costs 70,966 61,663 15
Depreciation & amortization (included
in direct costs) 5,830 4,834 21
Gross profit as percentage of revenue
excluding depreciation &
amortization 30% 29%
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Direct costs are comprised of field and shop expenses, and include depreciation
and amortization on the Corporation's equipment. Excluding depreciation and
amortization, gross profit as a percentage of revenue was 30 percent for the
three-month period ended March 31, 2013 as compared to 29 percent in the
comparable 2012-period.
Increased margins for the three-month period ended March 31, 2013 were partly
the result of robust activity levels experienced across all regions. In
addition, greater demand for the Corporation's resistivity while drilling
("RWD") and other premium directional drilling technologies and lower third
party equipment rentals made a positive impact on the margins. For the
three-month period ended March 31, 2013, third party equipment rentals decreased
to 2 percent of consolidated revenue compared to 3 percent in the corresponding
2012-quarter. Adversely affecting margins were slower than expected levels of
activity in Colombia.
Depreciation and amortization for the three-month period ended March 31, 2013
increased by 21 percent to $5.8 million as compared to $4.8 million in the
2012-quarter. The increase is the result of the Corporation's record level
capital expenditure program in 2012.
(Stated in thousands of dollars except percentages)
Three-month periods ended March 31,
2013 2012 % Change
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Selling, general & administrative
("SG&A") costs 10,485 8,504 23
Share-based payments (included in
SG&A costs) 327 797 (59)
SG&A costs excluding share-based
payments as a percentage of revenue 11% 10%
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SG&A costs for the three-month period ended March 31, 2013 increased by 23
percent to $10.5 million as compared to $8.5 million in 2012. Included in SG&A
costs are share-based payments of $0.3 million for the 2013-quarter and $0.8
million for the 2012-quarter. Excluding these costs, SG&A costs as a percentage
of consolidated revenue for the three-month period ended March 31, 2013 and 2012
were 11 and 10 percent, respectively.
During the first quarter of 2013, SG&A costs, excluding share-based payments,
increased in dollar terms, due to higher payroll and marketing related costs
incurred. These costs are primarily associated with the strong activity levels
achieved in Canada and the US.
Share-based payments relate to the amortization of the fair values of issued
options of the Corporation using the Black-Scholes model. Share-based payments
decreased in the three-month period ending March 31, 2013, as the Corporation
shifted to rewarding employees with retention awards rather than options. In the
first quarter of 2013, the expense included in SG&A costs related to retention
awards was $0.5 million (2012 - $0.1 million).
(Stated in thousands of dollars)
Three-month periods ended March 31,
2013 2012 % Change
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Research & development expense 536 553 (3)
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Research and development ("R&D") expenditures charged to net earnings during the
three-month periods ended March 31, 2013 and 2012 were $0.5 million and $0.6
million, respectively. During the 2013-quarter, there were no capitalized
development costs (2012 - $0.1 million).
PHX Energy recently restructured its R&D department to better align with its
mandate to continuously enhance the performance of the current fleet and provide
leading edge technologies to its clients.
(Stated in thousands of dollars)
Three-month periods ended March 31,
2013 2012 % Change
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Finance expense 1,094 556 97
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Finance expenses relate to interest charges on the Corporation's long-term and
short-term bank facilities. For the three-month period ended March 31, 2013,
finance charges increased to $1.1 million from $0.6 million in the 2012-quarter.
In order to fund PHX Energy's extensive capital expenditure program in 2012 and
the construction of the new operations center that is held for sale, additional
bank borrowings were made.
(Stated in thousands of dollars) Three-month periods ended March 31,
2013 2012 % Change
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Gains on disposition of drilling
equipment 2,341 995 135
Foreign exchange (losses) gains (302) 351 (186)
Losses from the change in fair value
of investment in equity securities - (190) 100
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Other income 2,039 1,156 76
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For the three-month period ended March 31, 2013, PHX Energy realized gains on
disposition of drilling equipment of $2.3 million (2012 - $1.0 million). The
dispositions of drilling equipment relate primarily to equipment lost in well
bores that are uncontrollable in nature. The gain reported is net of any asset
retirements that are made before the end of the equipment's useful life and
self-insured down hole equipment losses, if any. Gains typically result from
insurance programs undertaken whereby proceeds for the lost equipment are at
current replacement values, which are higher than the respective equipment's
book value. In the 2013-quarter, there were higher occurrences of losses
compared to the corresponding 2012-quarter.
Offsetting other income for the three-month period ended March 31, 2013 are
foreign exchange losses of $0.3 million (2012 - foreign exchange gains of $0.4
million), which resulted mainly from fluctuations in the US-Canadian exchange
rates. In the 2013 quarter, the CAD weakened against the USD thereby causing
revaluation losses on Canadian-denominated receivables in the US.
(Stated in thousands of dollars)
Three-month periods ended March 31,
2013 2012 % Change
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Share of losses of equity-accounted
investees 220 - n.m.
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n.m. - not meaningful
The Corporation's share in the losses of the equity-accounted investees,
RigManager International Inc. ("RMII") and RMS, for the three-month period ended
March 31, 2013 were $0.1 million for each investee.
(Stated in thousands of dollars)
Three-month periods
ended March 31,
2013 2012
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Provision for income taxes 3,100 1,730
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The provision for income taxes for the first quarter of 2013 was $3.1 million as
compared to $1.7 million in the 2012-quarter. The expected combined Canadian
federal and provincial tax rate for 2013 is 25 percent. The effective tax rate
in the 2013 three-month period of 27 percent is higher than the expected rate
mainly due to non-deductible expenses and non-recognition of deferred tax assets
for foreign losses.
(Stated in thousands of dollars except per share amounts and percentages)
Three-month periods ended March 31,
2013 2012 % Change
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Net earnings 8,306 7,918 5
Earnings per share - diluted 0.29 0.28 4
EBITDA 18,329 15,038 22
EBITDA per share - diluted 0.65 0.53 23
EBITDA as a percentage of revenue 20% 19%
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The Corporation's level of net earnings and EBITDA for the three-month period
ended March 31, 2013 have both increased due to strong activity levels achieved
across all operating segments and overall profitability. EBITDA as a percentage
of revenue for the three-month period ended March 31, 2013 was 20 percent (2012
- 19 percent).
Segmented Information:
The Corporation reports three operating segments on a geographical basis
throughout the Canadian provinces of Alberta, Saskatchewan, British Columbia,
and Manitoba; throughout the Gulf Coast, Northeast and Rocky Mountain regions of
the US; and internationally in Albania, Peru, Russia and Colombia.
Canada
(Stated in thousands of dollars)
Three-month periods ended March 31,
2013 2012 % Change
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Revenue 44,348 44,490 -
Reportable segment profit before tax 9,621 11,011 (13)
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Despite challenges in the Canadian market, PHX Energy's operations achieved
revenues of $44.3 million for the three-month period ended March 31, 2013, which
is the same level of revenue generated in the corresponding 2012-period (2012 -
$44.5 million). The level of revenue achieved was the third highest quarterly
result in the Corporation's history. During the 2013-quarter, Canadian
operations increased market share through new customers gained, greater demand
from existing customers, and by the introduction of PHX Energy's RWD technology
in Canada. In the first quarter of 2013, operating days increased by 8 percent
to 3,963 days (2012 - 3,678 days). In comparison, total industry horizontal and
directional drilling activity, as measured by drilling days, was 3 percent lower
in the 2013-quarter, 38,432 days, compared to the 2012-quarter's 39,784 days.
(Source: Daily Oil Bulletin)
The positive impact of activity levels on revenues was offset by lower average
day rates which decreased by 7 percent to $11,190 in the 2013-quarter from
$12,096 in the 2012-quarter. The factors that negatively impacted 2013 day rates
included day rate pressures from 2012 continuing through the first quarter of
2013 and PHX Energy experiencing a 10 percent increase in drilling days
associated with directional wells, which require fewer personnel than horizontal
wells.
In the 2013-quarter, PHX Energy's oil well drilling activity (as measured by
operating days) continued to increase representing approximately 82 percent of
its overall Canadian activity as compared to 78 percent in the 2012-quarter.
During the first quarter of 2013, PHX Energy was most active in Montney, Viking,
Cardium, Shaunavon, Bakken, and Frobisher areas.
Reportable segment profit before tax for the first quarter of 2013 decreased to
$9.6 million from $11.0 million in the 2012-quarter. Decreased profitability
realized during the 2013-quarter was due to lower day rates and higher
infrastructure costs.
United States
(Stated in thousands of dollars)
Three-month periods ended March 31,
2013 2012 % Change
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Revenue 39,383 27,165 45
Reportable segment profit before tax 2,780 31 n.m.
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n.m. - not meaningful
Phoenix's USA's operations remained strong and continued to grow in the first
quarter of 2013. Segment revenue was $39.4 million, 45 percent higher than the
$27.2 million in the 2012-quarter, and the second highest quarterly result in
the Corporation's history. Phoenix's USA operating days grew by 30 percent to
3,131 days from 2,403 days in the 2012-quarter. Overall day rates realized,
excluding the motor rental division in Midland, Texas, also increased by 8
percent in the 2013-quarter to $11,967 compared to $11,051 in the 2012-quarter.
Improved day rates resulted primarily from the greater demand for PHX Energy's
value added technologies.
In the three-month period ended March 31, 2013, US industry activity, as
measured by the average number of horizontal and directional rigs running on a
daily basis, decreased by 5 percent to 1,317 rigs compared to 1,389 rigs in the
2012-period. (Source: Baker Hughes) Despite lower levels of rig utilization, the
US continues to be a viable and attractive region for horizontal and directional
drilling service companies as oil-focused horizontal drilling continues to
dominate the industry. In the first quarter of 2013, oil well drilling, as
measured by drilling days, represented approximately 62 percent of Phoenix USA's
overall activity compared to 55 percent in the 2012-period.
During the first quarter of 2013, Phoenix USA's growth strategy focused on the
Permian, Eagle Ford, Mississippian, and the Bakken basins. Phoenix was also
active in the Marcellus, Utica, Niobrara, Barnett, and Woodford plays. In the
Gulf Coast region, due to the strength of the operations, marketing, and
management team, record activity levels were achieved in the 2013-quarter. In
addition, the motor rental and full service operations in the Permian Basin
continued to gain momentum.
Reportable segment income before tax for the first quarter of 2013 increased
exponentially to $2.8 million from $31,000 in the 2012-quarter. The increase in
profitability in the 2013-quarter resulted primarily from strong activity growth
and higher day rates.
International
(Stated in thousands of dollars)
Three-month periods ended March 31,
2013 2012 % Change
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Revenue 8,936 8,114 10
Reportable segment profit before tax 1,644 2,025 (19)
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For the three-month period ended March 31, 2013, international revenue increased
by 10 percent to $8.9 million from $8.1 million in the 2012-period.
International operating days increased by 9 percent from 601 days in the
2012-quarter to 653 days in the 2013-quarter. The Corporation generated 10
percent of its consolidated revenue from international operations in the
2013-quarter which is the same level as in the 2012-quarter.
Phoenix Albania continued to be the most active international area for the
Corporation; however in the 2013-quarter, operating days decreased by 11 percent
compared to the corresponding period in 2012, due to a rig being inactive as it
required repair. Despite this, the level of regional revenue was sustained
through the continued utilization of the Corporation's RWD technology. PHX
Energy's joint venture, RigManager International Inc., continued to run its
electronic drilling recorder systems on all active rigs. Since commencing
operations in 2008, Phoenix Albania has successfully drilled in excess of 321
wells in the country and the Corporation presently has a 6 job capacity in
Albania.
For the three-month period ended March 31, 2013, Phoenix Russia achieved 18
percent growth in operating days compared to the 2012-period. During the
quarter, a new customer, who will likely further the utilization of the
Corporation's RWD technology was added and a Moscow-based marketing person was
hired. Both of which are expected to further the division's growth.
Phoenix Peru realized modest activity in the first quarter of 2013. Peru also
gained a new customer during the 2013-period and the Corporation continues to
share resources between this region and Colombia. Phoenix Peru currently has a
job capacity of 4 full service jobs.
In Colombia, the Corporation continued to suffer lower than expected activity
levels in the first quarter of 2013 and as a result, reorganized its management
structure. However, current sales initiatives have led to the award of 2 rigs
that are expected to start services in the second quarter of 2013 and the
Corporation is exploring all options to provide future growth in this region.
Phoenix Colombia currently has a 5 job capacity.
For the three-month period ended March 31, 2013, reportable segment profit
before tax was $1.6 million, a decrease of 19 percent compared to $2.0 million
in the corresponding 2012-period. Lower profitability has resulted primarily
from slow activity in Colombia and a general increase in infrastructure costs
for all international regions.
Investing Activities
Net cash used in investing activities for the three-month period ended March 31,
2013 was $14.1 million as compared to $22.7 million in 2012. The Corporation
made an additional $0.2 million investment in the joint venture company
RigManager International Inc. in the form of preferred shares, and added $9.9
million in capital equipment in the first quarter of 2013 as compared to $14.3
million in the 2012-quarter. The capital equipment amounts are net of proceeds
from the involuntary disposal of drilling equipment in well bores of $3.6
million and $3.3 million, respectively. The quarterly 2013 expenditures
included:
-- $4.7 million in down hole performance drilling motors;
-- $4.4 million in measurement while drilling ("MWD") systems and spare
components;
-- $2.4 million in non-magnetic drill collars and jars;
-- $1.7 million in other assets, and;
-- $0.3 million in machinery and equipment for global service centers.
The capital expenditure program undertaken in the year was financed from a
combination of cash flow from operations, long-term debt and working capital.
The change in non-cash working capital balances of $4.0 million (use of cash)
for the three-month period ended March 31, 2013, relates to $2.0 million of net
change in the Corporation's trade payables that are associated with the
acquisition of capital assets and $2.0 million of progress billings associated
with an operations center under construction that is currently being held for
sale. This compares to $7.6 million (use of cash) for the three-month period
ended March 31, 2012.
During the first quarter of 2013, PHX Energy's job capacity increased by 2
concurrent jobs to 212 through the addition of 2 RWD systems. As at March 31,
2013, the Corporation's MWD fleet consisted of 133 P-360 positive pulse MWD
systems, 65 E-360 EM MWD systems, and 14 RWD systems. Of these, 101 MWD systems
were deployed in Canada, 81 in the US, 15 in Russia, 6 in Albania, 4 in Peru,
and 5 in Colombia.
At March 31, 2013, the Corporation had on order an additional 3 RWD systems, all
of which are expected to be delivered by the end of the second quarter and an
additional 6 P-360 positive pulse MWD systems to be delivered in the second half
of the year. As a result, by the end of 2013 the Corporation expects to have a
fleet of 221 MWD systems, which would be comprised of 139 P-360 positive pulse
MWD systems, 65 E-360 EM MWD systems and 17 RWD systems.
Financing Activities
The Corporation reported cash flows from financing activities of $2.7 million in
the three-month period ended March 31, 2013 as compared to $14.4 million in the
2012 period. In the 2013-quarter:
-- the Corporation paid dividends of $5.1 million to shareholders, or $0.18
per share;
-- through its option and DRIP program the Corporation received cash
proceeds of $1.1 million from exercised options and reinvested dividends
to acquire 129,477 common shares of the Corporation; and
-- the Corporation received aggregate net proceeds of $6.8 million from its
operating facility and US facility to finance its capital expenditure
program.
Capital Resources
As at March 31, 2013, the Corporation has access to a $10 million operating
facility. The facility bears interest based primarily on the Corporation's
senior debt to EBITDA ratio, as defined in the agreement. At the Corporation's
option, interest is at the bank's prime rate plus a margin that ranges from a
minimum of 0.75 percent to a maximum of 2 percent, or the bank's bankers'
acceptance rate plus a margin that ranges from a minimum of 1.75 percent to a
maximum of 3 percent. As of March 31, 2013, the Corporation had $7.7 million
drawn on this facility.
As at March 31, 2013, the Corporation also has access to a $95 million
syndicated facility and a US$25 million operating facility in the US. The
facilities bear interest at the same rates disclosed above. The syndicated
facility will permanently reduce to $80 million on September 30, 2013, which
coincides with the expected closing of the sale and leaseback of the new
operations center. The remaining $80 million syndicated facility and the US
operating facility mature on September 6, 2015. The maturity date can be
extended for another year at the option of the lender. As at March 31, 2013, $95
million was drawn on the syndicated facility, and $5.1 was drawn on the US
operating facility.
All credit facilities are secured by a general security agreement over all
assets of the Corporation located in Canada and the US. As at March 31, 2013,
the Corporation was in compliance with all of its bank debt covenants.
Cash Requirements for Capital Expenditures
Historically, the Corporation has financed its capital expenditures and
acquisitions through cash flows from operating activities, debt and equity. The
2013 capital budget has been set at $30.4 million subject to quarterly review of
the Board of Directors. These planned expenditures are expected to be financed
from a combination of one or more of the following, cash flow from operations,
the Corporation's unused credit facilities or equity, if necessary. However, if
a sustained period of market uncertainty and financial market volatility
persists in 2013, the Corporation's activity levels, cash flows and access to
credit may be negatively impacted, and the expenditure level would be reduced
accordingly. Conversely, if future growth opportunities present themselves, the
Corporation would look at expanding this planned capital expenditure amount.
Outlook
In the first quarter of the year, PHX Energy remained focused on delivering
superior services and reported record quarterly consolidated results with each
segment generating strong performance.
In Canada, as anticipated, there were numerous challenges throughout the
industry and PHX Energy believes that these will persist in 2013. It is expected
that drilling activity will be curtailed due to a number of issues, namely
commodity price differentials and soft capital markets. Despite this, PHX
Energy's Canadian operations achieved market share growth generating strong
operational and financial results in the first quarter; however, the length of
the spring break-up period in the second quarter could impact PHX Energy's
future activity.
In the US, PHX Energy also outperformed the industry. In the quarter, rig counts
decreased yet Phoenix USA's growth and achievements continued. The Corporation
has focused on building a team of strong leaders and dedicated personnel, and
with that in place has leveraged its asset base to expand its presence in areas
where growth opportunities exist. There are many promising plays where demand
for services and the adoption of horizontal drilling are expected to increase,
such as the Permian Basin, the Eagle Ford shale and the Mid-Continent region.
PHX Energy will continue to support its operations in these regions with the
experienced personnel and equipment required to capture its share of these
markets and believes that the ground work has already been laid.
Internationally, the Corporation's growth compared to the first quarter of 2012
was steady and continues to show progress toward achieving market recognition
and gains. Albanian operations remained consistent with past activity levels,
and like in the US, PHX Energy is focusing on areas where the industry presents
growth opportunities, which at this time for PHX Energy is Russia. Personnel
have been added to the Phoenix Russia team, which will assist in gaining a
greater market share. Although South America at this time does not present the
same opportunity, PHX Energy believes it has the strategies in place required to
sustain profitable operations in both Colombia and Peru.
PHX Energy believes its culture is one of its greatest strengths as it has
attracted and retained the excellent personnel that day in and day out remain
focused on the quality of service provided to our customer and are constantly
striving to take quality of service to the next level. This factored with the
understanding of the key basins in North America and abroad, and having the
infrastructure and assets to service these basins, will continue to generate
positive results for the Corporation and its Shareholders in the future.
John Hooks
Chairman of the Board, President and Chief Executive Officer
May 1, 2013
Non-GAAP Measures
1) EBITDA
EBITDA, defined as earnings before interest, taxes, depreciation and
amortization, is not a financial measure that is recognized under GAAP. However,
Management believes that EBITDA provides supplemental information to net
earnings that is useful in evaluating the Corporation's operations before
considering how it was financed or taxed in various countries. Investors should
be cautioned, however, that EBITDA should not be construed as an alternative
measure to net earnings determined in accordance with GAAP. PHX Energy's method
of calculating EBITDA may differ from that of other organizations and,
accordingly, its EBITDA may not be comparable to that of other companies.
The following is a reconciliation of net earnings to EBITDA:
(Stated in thousands of dollars)
Three-month periods ended
March 31,
2013 2012
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Net earnings 8,306 7,918
Add:
Depreciation and amortization 5,830 4,834
Provision for income taxes 3,100 1,730
Finance expense 1,093 556
----------------------------------------------------------------------------
EBITDA as reported 18,329 15,038
----------------------------------------------------------------------------
----------------------------------------------------------------------------
EBITDA per share - diluted is calculated using the treasury stock method whereby
deemed proceeds on the exercise of the share options are used to reacquire
common shares at an average share price. The calculation of EBITDA per share on
a dilutive basis does not include anti-dilutive options.
2) Funds from Operations
Funds from operations is defined as cash flows generated from operating
activities before changes in non-cash working capital. This is not a measure
recognized under GAAP. Management uses funds from operations as an indication of
the Corporation's ability to generate funds from its operations before
considering changes in working capital balances. Investors should be cautioned,
however, that this financial measure should not be construed as an alternative
measure to cash flows from operating activities determined in accordance with
GAAP. PHX Energy's method of calculating funds from operations may differ from
that of other organizations and, accordingly, it may not be comparable to that
of other companies.
The following is a reconciliation of cash flows from operating activities to
funds from operations:
(Stated in thousands of dollars)
Three-month periods ended
March 31,
2013 2012
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Cash flows from operating activities 13,302 4,076
Add:
Changes in non-cash working capital 1,979 9,462
Interest paid 1,272 531
Income taxes paid 181 679
----------------------------------------------------------------------------
Funds from operations 16,734 14,748
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Funds from operations per share - diluted is calculated using the treasury stock
method whereby deemed proceeds on the exercise of the share options are used to
reacquire common shares at an average share price. The calculation of funds from
operations per share on a dilutive basis does not include anti-dilutive options.
About PHX Energy Services Corp.
The Corporation, through its subsidiary entities, provides horizontal and
directional technology and drilling services to oil and natural gas producing
companies in Canada, the US, Albania, Peru, Russia, and Colombia. PHX Energy
develops and manufactures its E-360 EM and P-360 positive pulse MWD technologies
that are made available for internal operational use.
PHX Energy's Canadian operations are conducted through Phoenix Technology
Services LP. The Corporation maintains its corporate head office, research and
development, Canadian sales, service and operational centers in Calgary,
Alberta. In addition, PHX Energy has a facility in Estevan, Saskatchewan. PHX
Energy's US operations, conducted through the Corporation's wholly-owned
subsidiary, Phoenix Technology Services USA Inc. ("Phoenix USA"), is
headquartered in Houston, Texas. Phoenix USA has sales and service facilities in
Houston, Texas; Traverse City, Michigan; Casper, Wyoming; Denver, Colorado; Fort
Worth, Texas; Midland, Texas; Buckhannon, West Virginia; Pittsburgh,
Pennsylvania; and Oklahoma City, Oklahoma. Internationally, PHX Energy has sales
offices and service facilities in Albania, Peru, Russia, and Colombia, and an
administrative office in Nicosia, Cyprus
Consolidated Statements of Financial Position
(unaudited)
March 31, 2013 December 31, 2012
----------------------------------------------------------------------------
----------------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 6,263,644 $ 4,329,969
Trade and other receivables 72,543,463 67,189,884
Inventories 24,851,791 21,833,051
Prepaid expenses 4,019,848 3,476,559
Assets held for sale 11,449,144 9,436,462
----------------------------------------------------------------------------
Total current assets 119,127,890 106,265,925
Non-current assets:
Drilling and other equipment 151,349,161 144,370,109
Goodwill 8,876,351 8,876,351
Equity-accounted investees 4,990,239 5,010,292
----------------------------------------------------------------------------
Total non-current assets 165,215,751 158,256,752
----------------------------------------------------------------------------
Total assets $ 284,343,641 $ 264,522,677
----------------------------------------------------------------------------
----------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Operating facility $ 7,664,897 $ 5,897,711
Trade and other payables 42,296,869 38,165,118
Dividends payable 1,643,538 1,626,287
Current tax liabilities 1,687,555 97,020
Loans and borrowings 15,000,000 15,000,000
----------------------------------------------------------------------------
Total current liabilities 68,292,859 60,786,136
Non-current liabilities:
Loans and borrowings 85,088,500 80,000,000
Deferred tax liabilities 9,810,761 8,641,858
----------------------------------------------------------------------------
Total non-current liabilities 94,899,261 88,641,858
Equity:
Share capital 100,536,116 99,101,118
Contributed surplus 7,814,573 7,860,658
Retained earnings 12,967,903 9,764,748
Accumulated other comprehensive
income (167,071) (1,631,841)
----------------------------------------------------------------------------
Total equity 121,151,521 115,094,683
----------------------------------------------------------------------------
Total liabilities and equity $ 284,343,641 $ 264,522,677
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Consolidated Statements of Comprehensive Income
(unaudited)
Three-month periods ended March 31,
2013 2012
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Revenue $ 92,666,815 $ 79,768,829
Direct costs 70,965,559 61,663,456
----------------------------------------------------------------------------
Gross profit 21,701,256 18,105,373
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Expenses:
Selling, general and administrative
expenses 10,484,830 8,504,391
Research and development expenses 535,913 553,103
Finance expense 1,093,627 555,631
Other income (2,038,836) (1,155,977)
----------------------------------------------------------------------------
10,075,534 8,457,148
Share of loss of equity-accounted
investee (net of tax) 220,054 -
----------------------------------------------------------------------------
Earnings before income taxes 11,405,668 9,648,225
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Provision for income taxes
Current 1,794,991 1,713,615
Deferred 1,304,832 16,345
----------------------------------------------------------------------------
3,099,823 1,729,960
----------------------------------------------------------------------------
Net earnings 8,305,845 7,918,265
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Other comprehensive income
Foreign currency translation 1,464,770 (935,899)
----------------------------------------------------------------------------
Total comprehensive income for the
period $ 9,770,615 $ 6,982,366
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Earnings attributable to:
Equity holders of the Corporation $ 8,305,845 $ 7,972,780
Non-controlling interests - (54,515)
----------------------------------------------------------------------------
Net earnings $ 8,305,845 $ 7,918,265
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Comprehensive income attributable to:
Equity holders of the Corporation $ 9,770,615 $ 7,014,446
Non-controlling interests - (32,080)
----------------------------------------------------------------------------
Total comprehensive income for the
period $ 9,770,615 $ 6,982,366
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Earnings per share - basic $ 0.29 $ 0.28
Earnings per share - diluted $ 0.29 $ 0.28
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Consolidated Statements of Cash Flows
(unaudited)
Three-month periods ended March 31,
2013 2012
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Cash flows from operating
activities:
Net earnings $ 8,305,845 $ 7,918,265
Adjustments for:
Depreciation and amortization 5,829,609 4,834,224
Provision for income taxes 3,099,823 1,729,960
Unrealized foreign exchange loss 198,453 (282,750)
Gain on disposition of drilling
equipment (2,340,535) (994,638)
Share-based payments 327,037 797,092
Finance expense 1,093,627 555,631
Share of loss of equity-accounted
investee 220,054 -
Change in fair value of investment
in equity securities - 190,095
Change in non-cash working capital (1,979,158) (9,462,278)
----------------------------------------------------------------------------
Cash generated from operating
activities 14,754,755 5,285,601
Interest paid (1,271,814) (530,542)
Income taxes paid (180,752) (679,061)
----------------------------------------------------------------------------
Net cash from operating activities 13,302,189 4,075,998
----------------------------------------------------------------------------
Cash flows from investing
activities:
Proceeds on disposition of drilling
equipment 3,596,968 3,344,445
Acquisition of drilling and other
equipment (13,495,246) (17,559,785)
Investment in equity-accounted
investee (200,000) (910,455)
Change in non-cash working capital (4,000,360) (7,602,858)
----------------------------------------------------------------------------
Net cash used in investing
activities (14,098,638) (22,728,653)
----------------------------------------------------------------------------
Cash flows from financing
activities:
Proceeds from issuance of share
capital 1,061,876 557,544
Dividends paid to shareholders (5,085,438) (3,372,476)
Proceeds on loans and borrowings 4,986,500 9,000,000
Proceeds on operating facility 1,767,186 8,185,605
----------------------------------------------------------------------------
Net cash from financing activities 2,730,124 14,370,673
----------------------------------------------------------------------------
Net decrease in cash and cash
equivalents 1,933,675 (4,281,982)
Cash and cash equivalents, beginning
of period 4,329,969 8,376,344
----------------------------------------------------------------------------
Cash and cash equivalents, end of
period $ 6,263,644 $ 4,094,362
----------------------------------------------------------------------------
----------------------------------------------------------------------------
FOR FURTHER INFORMATION PLEASE CONTACT:
PHX Energy Services Corp.
John Hooks
President and CEO
PHX Energy Services Corp.
Cameron Ritchie
Senior Vice President Finance and CFO
Suite 1400, 250 2nd Street SW
Calgary, Alberta T2P 0C1
403-543-4466
403-543-4485 (FAX)
www.phxtech.com
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