Trican Well Service Ltd T.TCW

News Glad I waited.

[gold66]

CALGARY, Alberta, Aug. 01, 2018 (GLOBE NEWSWIRE) -- Calgary, Alberta –August 1, 2018 – Trican Well Service Ltd. (“Trican” or the “Company”) is pleased to announce its second quarter results for 2018. The following news release should be read in conjunction with Management’s Discussion and Analysis, the unaudited interim consolidated financial statements and related notes of Trican for the three and six months ended June 30, 2018, as well as the Annual Information Form for the year ended December 31, 2017. The documents described above are available on SEDAR at www.sedar.com.

HIGHLIGHTS

• The Company purchased and cancelled approximately 4.6 million common shares in the quarter at a weighted average price per share of $3.22 (Q2 2017 – nil) pursuant to its Normal Course Issuer Bid (“NCIB”).
• Subsequent to June 30, 2018 the Company purchased and cancelled approximately 2.9 million common shares at a weighted average price per share of $2.97, bringing the total repurchases under the NCIB to approximately $88 million, representing approximately 23.7 million common shares at a weighted average price per share of $3.73 purchased and cancelled since the NCIB was announced on September 28, 2017, through to July 31, 2018. 
• Consolidated revenue from continuing operations for Q2 2018 was $172.0 million, an increase of 25% compared to Q2 2017.
• The June 2, 2017 acquisition of Canyon, combined with an increase in hydraulic fracturing intensity (more proppant per well), led to significant growth in the volume of proppant pumped this quarter, increasing 31% when compared to Q2 2017.
• In Q2 2018, 100% of Trican’s revenue came from customers focused on oil or liquids rich¹ gas plays (Q2 2017 – oil and liquids¹ rich gas plays: 84% of revenue; dry gas wells: 16% of revenue).
• Adjusted EBITDA¹ for the quarter was slightly negative at $1.5 million, which is net of $3.5 million in expenses for stainless steel fluid ends, compared to $12.2 million in Q2 2017, which had no expenses for stainless steel fluid ends (included as depreciation expense in Q2 2017).
• Net loss from continuing operations for the quarter was $34.4 million (Q2 2017 – net income of $8.1 million).
• Loss in the quarter on the Company’s Investments in Keane of $8.4 million (Q2 2017 – gain of $46.3 million) primarily due to the mark-to-market loss in Keane’s share price to US$13.67 per share as at June 30, 2018 (March 31, 2018 – US$14.80 per share).

CONTINUING OPERATIONS – FINANCIAL REVIEW

	Three months ended			Six months ended
($ millions, except per share amounts; total proppant pumped (thousands); internally sourced proppant pumped (thousands); total job count; and HHP (thousands); (unaudited)	June 30, 2018	June 30, 2017	March 31, 2018	June 30, 2018	June 30, 2017
Revenue	$172.0	$137.2	$306.7	$478.7	$286.6
Gross profit/(loss)	(18.0)	(0.4)	38.9	20.9	17.5
Adjusted EBITDA1	(1.5)	12.2	54.9	53.4	38.3
Net profit / (loss)	(34.4)	8.1	(28.4)	(62.8)	(40.8)
Per share – basic	($0.10)	$0.03	($0.08)	($0.19)	($0.19)
Per share – diluted	($0.10)	$0.03	($0.08)	($0.19)	($0.19)
Total proppant pumped (tonnes)	383	293	484	867	528
Internally sourced proppant pumped (tonnes)	110	161	263	373	291
Total job count	1,997	2,267	3,943	5,940	5,821
Hydraulic Pumping Capacity:	672	680	672	672	680
Active crewed HHP (horsepower)	445	476	433	445	476
Active, maintenance/not crewed HHP	185	93	162	185	93
Parked HHP	42	111	77	42	111

 

($ millions)		As at June 30, 2018	As at December 31, 2017
Cash and cash equivalents		$11.4	$12.7
Current assets - other		$227.3	$279.3
Current portion of loans and borrowings		$-	$20.4
Current liabilities - other		$90.5	$130.5
Long-term loans and borrowings		$70.2	$83.3
Total assets		$1,316.6	$1,506.2

SECOND QUARTER 2018 VS. FIRST QUARTER 2018 SEQUENTIAL OVERVIEW

Revenue in the second quarter decreased 44% compared to the first quarter of 2018.  Q2 activity levels were affected by spring break-up in the WCSB, and as a result, the volume of proppant pumped and the number of jobs decreased by 21% and 49%, respectively. Although our pricing levels remained relatively stable, our job mix was weighted to clients with long-term contracts that supply their own proppant. As a result, revenue decreased more significantly than the decline in proppant volumes pumped. 

Gross profit and adjusted EBITDA¹ for the second quarter of 2018 were negative $18.0 million and negative $1.5 million, respectively.  These declines from Q1 levels were a result of typical second quarter spring break-up conditions. The weaker operating environment also resulted in a decreased volume of proppant and number of jobs, contributing to an increased net loss in Q2 2018 of $34.4 million (Q1 2018 – $28.4 million).

The lower activity levels resulted in both gross profit and adjusted EBITDA¹ decreasing significantly.  Q2 2018 adjusted EBITDA¹ margins were positive in each of cement, fracturing, pipeline and industrial and fluid management divisions, while coiled tubing, nitrogen and the acidizing service lines experienced negative adjusted EBITDA¹ margins during Q2 2018.  Although part of the reason certain of the Company’s service lines generated negative margins is the typical second quarter seasonal slowdown, the Company is focused on improving financial results and return on invested capital in these service lines. Additionally, adjusted EBITDA¹ was affected by $3.5 million of stainless steel fluid end expenditures (Q1 2018 –  $8.6 million). Trican continued to optimize its business which resulted in approximately $1.1 million of severance costs in Q2 2018 (Q1 2018 - $1.4 million) and is included in net loss and adjusted EBITDA¹.

OUTLOOK

Customer Environment
Our outlook remains relatively unchanged from that described in the Company’s first quarter MD&A dated May 9, 2018.  The strength in oil prices has significantly improved our oil and liquids focused clients but our activity levels and cash flows derived from dry gas focused clients have dropped significantly.  Higher oil and liquids weighted job activity has not yet offset dry gas activity declines and as a result, overall activity in the WCSB is flat to slightly down compared to last year.  We anticipate that our oil and liquids clients will increase activity towards the end of 2018 and into 2019 if oil and liquids prices remain in the current range. 

Second Half 2018 Activity 
The third quarter saw a slower start to fracturing activity resulting in July fracturing services utilization running at approximately 75% (July 2017 – 90%), which we believe was relatively consistent within the fracturing industry.  However, current demand for our fracturing fleets now exceeds the capacity of our active crewed fracturing equipment, which is fully booked until the end of the third quarter.  As previously messaged, we are in the process of adding one more crewed fracturing fleet late in Q3 to meet this demand. Additionally, we continue to activate, but not crew, our previously parked horse power fracturing equipment to improve our equipment maintenance scheduling and prepare for higher oil and liquids job activity levels in 2019.

For Q4 2018, one half of our fracturing fleets have hard commitments with long-term clients. The remaining fleets have soft commitments with clients based on their Q4 2018 well completion plans. As is typical, we anticipate that these soft commitments will be firmed up during the third quarter, which is when most companies typically plan their winter drilling schedules. 

2018 second half activity for our cementing services is expected to remain strong and similar to last year. Robust demand for our coil services, combined with the capital investments made into our coil equipment, should result in the Company activating two previously idled coil units.

Pricing for our Services
Service pricing for the remainder of 2018 is expected to remain comparable to first half pricing levels. As disclosed in our MD&A dated May 9, 2018, we have experienced some cost inflation within our hydraulic fracturing services on transportation charges for proppant delivery, trucking, fuel, and certain chemicals. We will work with our clients to pass on cost increases during the second half of the year.  

Capital Allocation
We will continue to be prudent in our investment decisions. The primary uses of our operating cash flows include investment into our NCIB program and investment in our previously announced 2018 capital expenditures program. The low utilization of our borrowing facilities will allow the Company to make incremental share repurchases beyond the Company’s positive operating cash flows. We will continue to evaluate the existing borrowing facilities relative to other debt structures. Presently the best use of cash flows continues to be investment into repurchases of the Company’s common shares. We expect that the Company will fully utilize the existing NCIB program, which expires October 2, 2018 and will apply to the TSX to renew the program for another year effective October 3, 2018. In total, Trican is allocating $70 million towards share repurchases for the period commencing August 3, 2018 to November 7, 2018, which at current share price levels is estimated to be the maximum the Company can repurchase under the current NCIB and the anticipated renewed NCIB programs.  The Company continues to evaluate possible additional share repurchases, supplemental to the planned repurchases under the current and renewed NCIB, and the appropriate funding mechanisms to achieve such.     

Capital Expenditures

The Company has incurred approximately $30 million of capital expenditures towards its $70 million full year capital expenditure program, which remains unchanged from our MD&A dated May 9, 2018.  The $30 million of capital expenditures have been partially funded through $12 million of proceeds on disposition of property and equipment that is no longer suited to the activity in the WCSB. We will continue to look at opportunities to dispose of non-core assets.    

¹ Certain financial measures in this news release – namely adjusted EBITDA and adjusted EBITDA percentage are not prescribed by IFRS and are considered non-GAAP measures. These measures may not be comparable to similar measures presented by other issuers and should not be viewed as a substitute for measures reported under IFRS.  These financial measures are reconciled to IFRS measures in the Non-GAAP Disclosures section of this news release.  Other non-standard measures are described in the Non-Standard Measures section of this news release.

NON-GAAP DISCLOSURE

Certain terms in this MD&A, including adjusted EBITDA and adjusted EBITDA percentage, do not have any standardized meaning as prescribed by IFRS and, therefore, are considered non-GAAP measures and may not be comparable to similar measures presented by other issuers.

Adjusted EBITDA

Adjusted EBITDA is a non-GAAP term and has been reconciled to profit / (loss) for the applicable financial periods, being the most directly comparable measure calculated in accordance with IFRS. Management relies on adjusted EBITDA to better translate historical variability in our principal business activities into future forecasts.  By isolating incremental items from net income, including income / expense items related to how the Company chooses to manage financing elements of the business, management can better predict future financial results from our principal business activities. The items included in this calculation have been specifically identified as they are either non-cash in nature, subject to significant volatility between periods, and / or not relevant to our principal business activities. Items adjusted in the non-GAAP calculation of adjusted EBITDA, are as follows:

• non-cash expenditures, including depreciation, amortization, and impairment expenses; and equity-settled stock-based compensation;
• consideration as to how we chose to generate financial income and incur financial expenses, including foreign exchange expenses and gains/losses on Investments in Keane;
• taxation in various jurisdictions;
• transaction costs, as this cost is subject to significant volatility between periods and is dependent on the Company making significant acquisitions and divestitures which may be less reflective, and / or useful in segregating, for purposes of evaluating the Company’s ongoing financial results; and
• costs resulting in payment of the legal claims made against the Company as they can give rise to significant volatility between periods that are less likely to correlate with changes in the Company’s activity levels.

($ thousands; unaudited)	Three months ended			Six months ended
	June 30, 2018	June 30, 2017	March 31, 2018	June 30, 2018	June 30, 2017
Profit/ (loss) from continuing operations (IFRS financial measure)	($34,395)	$8,055	($28,412)	($62,807)	($40,798)
Adjustments:
Cost of sales - depreciation and amortization	29,468	19,369	29,729	59,197	33,736
Administrative expenses - depreciation	1,268	2,513	814	2,082	3,401
Income tax expense/(recovery)	(8,798)	7,200	(1,554)	(10,352)	11,837
Loss/(gain) on Investments in Keane	8,393	(46,332)	54,446	62,839	5,665
Finance loss/(income)	-	(217)	-	-	(1,142)
Finance costs	2,870	2,867	2,771	5,641	6,596
Foreign exchange (gain)/loss	(3,222)	3,228	(5,377)	(8,599)	1,996
Other expense/(income)	732	(694)	357	1,089	(2,629)
Administrative expenses – other: transaction costs	-	11,910	-	-	13,772
Administrative expenses – other: amortization of debt issuance costs	594	653	683	1,277	1,306
Administrative expenses – other: equity-settled share-based compensation	1,623	1,539	1,393	3,016	2,382
Keane indemnity claim	-	2,158	-	-	2,158
Adjusted EBITDA	($1,467)	$12,249	$54,850	$53,383	$38,280

Adjusted EBITDA %

Adjusted EBITDA % is determined by dividing adjusted EBITDA by revenue from continuing operations. The components of the calculation are presented below:

($ thousands; unaudited)	Three months ended			Six months ended
	June 30, 2018	June 30, 2017	March 31, 2018	June 30, 2018	June 30, 2017
Adjusted EBITDA	($1,467)	$12,249	$54,850	$53,383	$38,280
Revenue	$171,989	$137,197	$306,719	$478,708	$286,600
Adjusted EBITDA %	(1%)	9%	18%	11%	13%

Other Non-Standard Financial Terms

In addition to the above non-GAAP financial measures, this news release makes reference to the following non-standard financial terms.  These terms may differ and may not be comparable from similar terms used by other companies.

Transaction costs
Transaction costs and/or Trican acquisition costs are costs incurred to complete a transaction in subsequent integration, including costs to assist in evaluating and completing the acquisition of Canyon, including legal, advisory, accounting related fees, and severance costs that directly relate to the transaction.