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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:
/T/
-- 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./T/
The above noted definitions are not recognized under IFRS and are provided strictly for the purposes of the financial debt calculation.
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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 ---------------------------------------------------------------------------- ----------------------------------------------------------------------------
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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
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($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 ----------------------------------------------------------------------------
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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
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('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) ---------------------------------------------------------------------------
/T/
Reconciliation of quarterly non-IFRS measures
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(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)
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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.
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