First quarter results released. Absolutely HORRIBLE!!! Worst in a couple of years. They are not adjusting, just failing and failing very bad.
Key Q1 2024 highlights include:
- Consolidated sales for the three months ended March 31, 2024 were $21.4 million, which is a 21% decrease from the prior year. The decrease is directly related to the 19% decrease in Q1 US drilling activity, driven by a lower average rig count and corresponding cementing activities.
- Consolidated gross margin for the three months ended March 31, 2024 decreased by $715 thousand compared to the same period last year. The gross margin dollar decrease is primarily related to the 21% decrease in consolidated sales.
- Adjusted EBITDA for the first quarter 2024 decreased by $2.1 million when compared to the same period in the prior year and operating earnings decreased by $1.4 million for the three months ended March 31, 2024 compared to the prior year.
- Adjusted net loss per diluted share for the three months ended March 31, 2024 was $0.07 per share compared to adjusted net earnings of $0.01 per diluted share for same period last year.
- Working capital, as at March 31, 2024, was $14.7 million compared to $15.9 million at March 31, 2023, a decrease of 8%. The decrease relates to significant decreases in accounts receivable and which was partially offset by increased bank indebtedness and accounts payable.
Summary for the three months ended March 31, 2024:
Consolidated sales for the three months ended March 31, 2024 were $21.4 million compared to $27.2 million for the same period in 2023, representing a $5.8 million decrease over the comparable period. The decrease is due to decreased US drilling activities, driven by a lower average rig count and cementing activities.
Bri-Chem's Canadian drilling fluids distribution division generated sales of $2.8 million for the three months ended March 31, 2024 compared to $3.6 million in the comparable prior period. The decrease in sales relates to the slowing of sales of select commodity items. The number of active operating land rigs in Q1 2024 averaged 209, compared to 223 in the same period last year (Source: Baker Hughes). Bri-Chem's United States drilling fluids distribution division generated sales of $12.6 million for the three months ended March 31, 2024 compared to sales of $16.8 million for the comparable period in 2023, representing a quarterly decrease of 25%. This decrease mainly relates to a decrease in the US rig count as the number of active operating land rigs in Q1 2024 averaged 605, compared to a Q1 2023 average of 743 (Source: Baker Hughes).
Bri-Chem's Canadian blending and packaging division generated sales of $4.6 million for the three months ended March 31, 2024 compared to Q1 2023 sales of $4.3 million, representing a quarterly increase of $277 thousand. The modest increase in sales relates to higher cementing and stimulation activities in Western Canada. US blending and packaging sales for the three months ended March 31, 2024 were $1.4 million compared to $2.5 million in the prior year. The $1.1 million decrease relates to the loss of commodity sales due to customers initiating self supply initiatives.
Operating loss for the three months ended March 31, 2024 was $144 thousand which is a decrease from the operating earnings of $1.3 million from the same period in the prior year. Adjusted EBITDA was negative $443 thousand for Q1 2024 compared to $1.6 million for Q1 2023, the decrease is primarily driven by decreased margin due to lost sales, in tandem with a foreign exchange loss for the quarter. Adjusted EBITDA as a percentage of sales was negative 2% for the quarter, which is a decrease from the 6% in Q1 2023. The Adjusted EBITDA as a percentage of sales decrease is primarily attributable to foreign exchange loss in the quarter.
During Q1 2024, Bri-Chem finalized an amending agreement with the Canadian Imperial Bank of Commerce ("CIBC") relating to its senior lending facility in response to a covenant breach realized in the first quarter. The amended agreement acknowledges the breach of the fixed charge coverage ratio covenant, and the Company is pleased to confirm that the renegotiated structure has been agreed to as a cumulative budgeted EBITDA covenant, tested monthly. The facility amendments also increase the availability block to $3.5 million.
OUTLOOK
North American drilling activity levels were considerably lower in Q1 2024, when compared to Q1 2023. U.S. oil and gas rig counts have decreased 19% quarter over quarter as gas prices dropped significantly in February 2024 which has put a significant strain on U.S. gas drilling activity. Canadian market outlook remains positive with the completion of the Trans Mountain pipeline expansion expected in mid-2024 which will help increase capacity and access to global markets for Canadian oil and gas companies. The LNG pipeline is expected to be in operation by mid-2025 and will serve as a further catalyst for the Canadian oil market. Bri-Chem expects oilfield activity in the United States to remain relatively flat for the balance of the year or until natural gas pricing becomes more favorable for producers to expand drilling in gas regions. Bri-Chem's management team has begun to initiate expense management strategies and deploy an inventory reduction program to re-align the business with current market conditions. New business development and organic growth will become an increasing focus of management in subsequent periods.