CDN NEWS | 
US NEWS 
FOR: PHX ENERGY SERVICES CORP.
TSX SYMBOL: PHX
Date issue: May 03, 2017
Time in: 5:54 PM e
Attention:
CALGARY, ALBERTA--(Marketwired - May 3, 2017) -
Financial Results
For the three-month period ended March 31, 2017, PHX Energy (TSX:PHX) generated consolidated revenue of $61.1 million. This is a positive contrast from the challenging 2016-year, representing a 51 percent improvement over the $40.4 million generated in the first quarter of 2016 and 31 percent improvement from the $46.6 million generated in the fourth quarter of 2016. The increase in consolidated revenue was primarily the result of greater activity levels in all the Corporation's operating segments. Consolidated operating days rose by 64 percent to 6,684 days in the first quarter of 2017 versus 4,069 days in the comparable 2016-quarter and rose 32 percent over the 5,074 days in the final quarter of the 2016-year.
For the three-month period ended March 31, 2017, adjusted EBITDA (see "Non-GAAP Measures") was $4.3 million (7 percent of revenue), a 5 percent increase from the $4.1 million (10 percent of revenue) reported in the comparable 2016-period. Included in adjusted EBITDA for the first quarter of 2017 is Stream Services' ("Stream") adjusted EBITDA of negative $0.2 million (2016 - negative $0.4 million).
In the first quarter of 2017, PHX Energy reported a net loss of $7.1 million compared to a net loss of $7.4 million in the comparable 2016-period. The Corporation's continued net losses are mainly due to ongoing pricing pressures lowering day rates in each of the Corporation's operating segments, fewer occurrences of gains on disposition of drilling equipment and lower recoveries of income taxes.
As at March 31, 2017, PHX Energy had long-term debt of $12.0 million, which is $17.0 million less than at December 31, 2016, and working capital (see "Non-GAAP Measures") of $58.9 million.
Equity Financing
On February 2, 2017, PHX Energy closed a bought deal financing for aggregate proceeds of $28.8 million. An aggregate of 7,187,500 common shares of the Corporation were issued at a price of $4.00 per common share. Concurrent with the closing of the public offering, certain directors, officers, employees and consultants of PHX Energy purchased a total of 500,000 common shares at a price of $4.00 per share on a private placement basis. The gross proceeds from the public offering and concurrent private placement totaled to approximately $30.8 million.
The proceeds from the equity financing were primarily used to reduce the outstanding loans and borrowings under the Corporation's credit facility from $35.0 million as at December 31, 2016 to $14.0 million as at March 31, 2017.
Capital Spending
The Corporation incurred $1.8 million in capital expenditures in the first quarter of 2017, which is double the $0.9 million spent in the comparable 2016-period. With the proceeds from the equity financing, the Corporation reduced its outstanding indebtedness under its credit facility, thereby freeing up borrowing capacity that may be redrawn, as required, to fund the Corporation's ongoing capital expenditure program. The Corporation continues to anticipate spending $25.0 million on capital expenditures in the 2017-year.
As at March 31, 2017, the Corporation had commitments to purchase drilling and other equipment for $14.4 million; including $11.4 million for Velocity Real-Time Systems ("Velocity"), $2.3 million for electronic drilling recorder ("EDR") equipment and $0.7 million for motors and machinery and equipment. This additional equipment is expected to be delivered by the end of the third quarter of 2017.
(Stated in thousands of dollars except per share amounts, percentages and shares outstanding)
/T/
Three-month periods ended March 31, 2017 2016 % Change ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Operating Results (unaudited) (unaudited) Revenue 61,122 40,449 51 Net loss (7,143) (7,404) (4) Loss per share - diluted (0.13) (0.18) (28) Adjusted EBITDA (1) 4,333 4,115 5 Adjusted EBITDA per share - diluted (1) 0.08 0.10 (20) Adjusted EBITDA as a percentage of revenue (1) 7% 10% ---------------------------------------------------------------------------- Cash Flow Cash flows from (used in) operating activities (9,896) 758 n.m. Funds from operations (1) 3,983 3,584 11 Funds from operations per share - diluted (1) 0.07 0.09 (22) Dividends paid - 416 (100) Dividends per share (2) - 0.01 (100) Capital expenditures 1,799 857 n.m. --------------------------------------------------------------------------------------------------------------------------------------------------------
Mar. 31, Financial Position (unaudited) '17 Dec 31, '16 Working capital (1) 58,866 44,230 33 Long-term debt 11,995 29,014 (59) Shareholders' equity 201,967 178,387 13 Common shares outstanding 58,589,887 50,810,721 15 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- (1) Refer to non-GAAP measures section that follows the Outlook section (2) Dividends paid by the Corporation on a per share basis in the period. n.m. - not meaningful/T/
Non-GAAP Measures
PHX Energy uses certain performance measures throughout this press release that are not recognizable under Canadian generally accepted accounting principles ("GAAP"). These performance measures include adjusted earnings before interest, taxes, depreciation and amortization ("EBITDA"), adjusted EBITDA per share, funds from operations, funds from operations per share, debt to covenant EBITDA ratio and working capital. 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 following the Outlook section for applicable definitions and reconciliations.
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, without limitation, the delivery of capital expenditure items, the projected capital expenditures budget and how this budget will be funded, how R&D projects will enhance and expand PHX Energy's services, and projections related to Russia's future activity levels in Eastern Siberia.
The above are stated under the headings: "Capital Spending", "Operating Cost and Expenses", "Segmented Information" and "Capital Resources". Furthermore all statements in 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; the continuance of existing (and in certain circumstances, the implementation of proposed) tax, royalty and regulatory regimes; 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)
/T/
Three-month periods ended March 31, 2017 2016 % Change ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Revenue 61,122 40,449 51 ---------------------------------------------------------------------------- ----------------------------------------------------------------------------/T/
For the three-month period ended March 31, 2017, consolidated revenue showed a strong improvement, increasing 51 percent to $61.1 million from $40.4 million in the comparable 2016-period. In the three-month period ended March 31, 2017, the Corporation achieved its highest quarterly drilling activity, as measured by operating days, since the first quarter of 2015. There were 6,684 consolidated operating days in the first quarter of 2017, which is 64 percent greater than the 4,069 days recorded in the first quarter of 2016. While the Corporation benefited from increased drilling activity, competition remained aggressive and day rates were lower relative to the comparable 2016-period. Average consolidated day rates for the three-month period ended March 31, 2017, excluding the motor rental division in the US and the Stream division, fell by 9 percent to $8,824 from $9,669 in the first quarter of 2016.
As a percentage of total consolidated revenue, US and international revenues were 44 and 8 percent, respectively, for the 2017-quarter as compared to 54 and 8 percent in 2016-quarter.
The industry continues to show signs of recovery in 2017, and rig counts across North America climbed upward as commodity prices remained relatively stable. The Canadian market improved considerably, with the average rig count being 71 percent greater than in the first quarter of 2016, while the US rig count rallied by 36 percent over the same period. Throughout North America the vast majority of wells continued to be horizontal and directional representing 94 percent of all wells drilled in Canada and 91 percent of the average number of rigs operating per day in the US (Sources: Daily Oil Bulletin and Baker Hughes).
Operating Costs and Expenses
(Stated in thousands of dollars except percentages)
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Three-month periods ended March 31, 2017 2016 % Change ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Direct costs 60,805 46,011 32 Gross profit (loss) as a percentage of revenue 1% (14%) Depreciation & amortization (included in direct costs) 10,931 14,003 (22) Gross profit as percentage of revenue excluding depreciation & amortization 18% 21% ---------------------------------------------------------------------------- ----------------------------------------------------------------------------/T/
Direct costs are comprised of field and shop expenses, and include depreciation and amortization on the Corporation's equipment. In the first quarter of 2017, direct costs rose by 32 percent to $60.8 million from $46.0 million in the comparable 2016-period. The Corporation's gross profit as a percentage of revenue was 1 percent in the first quarter of 2017 compared to a gross loss percentage of 14 percent in the 2016-quarter. The change in direct costs and the improved gross profit as a percentage of revenue was primarily the result of the Corporation's increased operating days, albeit at lower day rates and lower depreciation and amortization.
The reduction in depreciation and amortization expenses in the three-month period ended March 31, 2017 was mainly the result of PHX Energy's lower level of capital spending in the 2016-year. Excluding depreciation and amortization, gross profit as a percentage of revenue fell slightly to 18 percent for the three-month period ended March 31, 2017 from 21 percent in the comparable 2016-period. The lower margin in the current year's quarter is primarily the result of declining client day rates, increased field and shop labor rates that were put in place to retain key and experienced personnel as industry activity increased and labour markets tightened, increased equipment repair costs and greater third party rental costs.
(Stated in thousands of dollars except percentages)
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Three-month periods ended March 31, 2017 2016 % Change ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Selling, general & administrative ("SG&A") costs 7,210 6,679 8 Equity-settled share-based payments (included in SG&A costs) 488 286 71 Cash-settled share-based payments (recoveries) (included in SG&A costs) 132 (149) n.m. Onerous contracts lease payment (107) - (100) SG&A costs excluding equity and cash- settled share-based payments and provision for onerous contracts as a percentage of revenue 11% 16% ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- n.m. - not meaningful/T/
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