CALGARY, AB, March 10, 2022 /CNW/ - CES Energy
Solutions Corp. ("CES" or the "Company") (TSX: CEU)
(OTC: CESDF) announced today the Company's results for the three
and twelve months ended December 31,
2021. Further, CES announced today that it will pay a cash
dividend of $0.016 per common share
on April 15, 2022 to the shareholders
of record at the close of business on March
31, 2022.
Fourth Quarter and Year End Highlights
- Record quarterly revenue of $367.8
million in Q4 2021, and annual revenue of $1.2 billion in 2021;
- Adjusted EBITDAC of $47.8
million in Q4 2021, and $156.1
million in 2021;
- Funds Flow from Operations of $33.5
million in Q4 2021, and $117.3
million in 2021;
- Re-instituted dividend of $0.06 per share on an annualized basis;
- Repurchased 3.9% of outstanding shares at average price of
$1.60 per share in 2021;
- Working Capital Surplus exceeded Total Debt, net of cash, at
December 31, 2021 by $20.4 million.
CES is pleased to announce strong Q4 2021 financial results,
demonstrating record quarterly revenues and another consecutive
quarter of solid margins and surplus free cash flow generation. The
Company continues to focus on strategic investments in working
capital as supply chain constraints persist, while preserving a
strong balance sheet and liquidity metrics in the current rising
cost environment. Revenue for the quarter was $367.8 million, representing a sequential
increase of $53.4 million or 17.0%
over $314.4 million in Q3 2021, and
Adjusted EBITDAC was $47.8 million,
representing a $5.8 million or 13.8%
increase over $42.0 million in Q3
2021. CES generated annual revenue of $1,196.4 million, an increase of $308.4 million or 34.7% from $888.0 million in 2020, and Adjusted EBITDAC of
$156.2 million, compared to
$102.2 million in 2020.
Backed by strong energy market fundamentals, CES realized
revenue growth throughout its business lines during the fourth
quarter as it was able to leverage its established infrastructure,
strong industry positioning, committed employees, and strategic
investments in key raw materials. The continued positive momentum
demonstrated in the quarter has been bolstered by improvements in
rig activity, higher production volumes, pricing increases, and
strategic procurement initiatives that are expected to continue
into 2022.
As industry activity levels continued to improve during Q4, CES
remained disciplined on capital expenditures during the quarter,
retaining substantial liquidity. The Company made strategic use of
its balance sheet to support higher accounts receivable levels
associated with increasing revenue, and financed key surplus raw
materials purchases in a rapidly evolving supply chain environment
to avoid constraints on key inputs and mitigate product cost
inflation. CES exited the quarter with a net draw on its Senior
Facility of $110.1 million
(December 31, 2020 - net cash balance of $18.3 million) and Total Debt, net of cash, of
$439.4 million (December 31, 2020 - $299.7
million), of which $288.0
million relates to Senior Notes which don't mature until
October 21, 2024. At December 31, 2021, CES' Senior Facility had a
maximum available draw of approximately C$ equivalent $232.5 million providing ample liquidity to
support increasing business activity levels. The increases realized
during the quarter were primarily driven by strategic investments
in working capital to support strong sequential revenue growth,
combined with dividends paid out during the quarter totaling
$4.1 million and the repurchase of
2.4 million common shares under the Company's NCIB program for
$4.5 million, at an average price of
1.88 per share. Working Capital Surplus exceeded Total Debt, net of
cash, at December 31, 2021 by
$20.4 million (December 31, 2020 - Net Debt of $26.4 million). As at this date, the Company had
a net draw on its Senior Facility of approximately $133.0 million in support of working capital
levels associated with strong revenue growth and continued
strategic investment in surplus inventory levels.
In the fourth quarter, CES generated revenue of $367.8 million, an increase of $155.0 million or 72.8% compared to $212.8 million in revenue for Q4 2020 and a
sequential increase of $53.4 million
or 17.0% compared to $314.4 million
in revenue for Q3 2021. For the year ended December 31, 2021, CES generated revenue of
$1,196.4 million, an increase of
$308.4 million or 34.7% from
$888.0 million in 2020. As producers'
capital spending improved and production levels increased, activity
and industry rig counts have seen a significant uptick from the
lows seen during the height of the COVID-19 pandemic in 2020 and
are now approaching pre-pandemic levels.
Revenue generated in the US during Q4 2021 was $233.8 million, representing a sequential
increase of $36.9 million or 18.7%
from Q3 2021 and an increase of $96.5
million or 70.4% from the comparative period in 2020. US
revenues were positively impacted by increased industry activity
and the return toward pre-pandemic production levels, along with a
significant increase in bulk product sales in the production
chemicals division. US land drilling activity in Q4 2021 has
improved by 83.8% from Q4 2020 and by 12.3% on a sequential
quarterly basis. For the year ended December
31, 2021, revenue generated in the US increased by 28.8% to
$774.1 million relative to 2020. CES
continues its strong industry positioning, with a US Drilling
Fluids Market Share of 17.6% for Q4 2021.
Revenue generated in Canada
during Q4 2021 was $134.0 million,
representing a sequential increase of $16.5
million or 14.1%, and an increase of $58.4 million or 77.3% from the 2020 comparative
period. Canadian revenues benefited from increased rig counts on
improvement in land drilling activity of 80.2% as compared to Q4
2020 and by 7.5% on a sequential quarterly basis, as well as from
the reversal of temporary production shut-ins. For the year ended
December 31, 2021, revenue generated
in Canada increased 47.1% to
$422.3 million relative to 2020.
CES achieved Adjusted EBITDAC of $47.8
million in Q4 2021, representing an increase of $23.1 million or 93.7% over $24.7 million in Q4 2020 and an increase of
$5.8 million or 13.6% over
$42.0 million in Q3 2021. Adjusted
EBITDAC as a percentage of revenue of 13.0% achieved in Q4 2021
represented a significant improvement from the 11.6% recorded in Q4
2020 as the Company benefited from strong competitive positioning,
pricing increases, improved production levels and increased
drilling activity in both the US and Canada, and was inline with the 13.4% in Q3
2021 on account of rising costs associated with supply chain
pressure. For the twelve months ended December 31, 2021, CES achieved Adjusted EBITDAC
of $156.2 million, compared to
$102.2 million in 2020 as a result of
higher period over period revenues driven by the factors described
above. Margins for both the three and twelve month periods
experienced compression as product and labour costs increased, the
impact of which was partially offset as a result of higher activity
levels and the preservation of G&A at prudent levels.
Net income for the three months ended December 31, 2021 was $24.7 million compared to $40.5 million in Q4 2020. Lower net income for
the period was driven by a smaller deferred tax recovery in Q4 2021
of $9.2 million, as compared to
$44.4 million in Q4 2020, partially
offset by higher industry activity levels and associated revenues.
CES no longer recognized a benefit from the Canada Emergency Wage Subsidy ("CEWS") program
in Q4 2021, compared to $2.9 million
in Q4 2020. Net income for the year ended December 31, 2021 was $49.9 million compared to a net loss of
$222.9 million for the year ended
December 31, 2020. Net loss for the
year ended December 31, 2020 was
impacted by $18.9 million of
inventory valuation write-downs, additional bad debt allowances and
restructuring costs recorded in light of the challenging global
oilfield market, coupled with a $248.9
million goodwill impairment.
On September 1, 2021, the Company
completed an amendment and two-year extension of its existing
syndicated Senior Facility (the "Senior Facility"). The amendment
took effect September 1, 2021 and
will remain in effect until maturity on September 28, 2024, subject to certain terms and
conditions, and the Senior Facility may be extended by one year
upon agreement of the lenders and the Company. The Senior Facility
is comprised of a Canadian facility of $145.0 million and a US facility of US$70.0 million. The principal amendment made to
the Senior Facility was to shift availability to the US through an
increase to the US facility from US$50.0
million to US$70.0 million and
a corresponding reduction in the Canadian facility from
$170.0 million to $145.0 million, for a total facility size of
approximately C$ equivalent $232.5
million. The agreement also preserves the Company's ability
to use proceeds under the Senior Facility to repurchase or redeem a
portion of the Company's outstanding senior unsecured notes,
subject to minimum liquidity requirements. Other terms and
conditions from the amendment remain materially consistent with
those of the previous Senior Facility. Subsequent to December 31, 2021 the company amended its Senior
Facility to exercise $30.0 million of
available accordion capacity, increasing the maximum amount
available on the Canadian facility from $145.0 million to $175.0
million, for a total facility size of approximately C$
equivalent $262.5 million. All other
terms and conditions remain unchanged.
Outlook
The global supply-demand balance for energy continues to be very
constructive with demand approaching pre-COVID levels and tempered
supply increases governed by healthy returns, particularly in CES'
North American target markets. As the global economic recovery
continued to gain momentum, increased activity and demand have led
to improving commodity prices, production levels and drilling
activity. We expect the growth in activity to continue into 2022,
moderated by ongoing challenges with availability of labour and
supply chain constraints. CES is optimistic in its outlook for 2022
as it expects to benefit from elevated upstream activity and
improved pricing across North
America by capitalizing on its established infrastructure,
industry leading positioning, vertically integrated business model,
and strategic procurement practices. While the challenges
surrounding the global supply chain market are expected to persist
into 2022, CES remains confident that a combination of proactive
inventory procurement practices, targeted pricing increases and
working capital focus will help to mitigate the impact of the
elevated cost environment.
CES believes it will continue to capitalize on its asset light,
consumable chemical business model and its ability to maintain a
prudent cost structure in this industry activity level environment.
CES' counter cyclical leverage model was tested during the pandemic
and demonstrated its ability to remain resilient despite declines
in industry activity. As industry activity has continued to
improve, the Company has made strategic investments in working
capital to manage global supply chain challenges, and will continue
to focus on working capital optimization and balance sheet strength
and liquidity as the year progresses.
CES has proactively managed both the duration and the
flexibility of its debt. In September
2021, CES successfully amended and extended its Senior
Facility to September 2024. In
October 2017, CES successfully
re-financed and reduced its coupon on its previously outstanding
$300.0 million Senior Notes by
issuing new 6.375% Senior Notes, which mature in October 2024.
CES expects 2022 capital expenditures to be approximately
$40.0 million, of which $20.0 million is maintenance and $20.0 million is earmarked for expansion. CES
plans to continue its disciplined and prudent approach to capital
expenditures in 2022 and will adjust its plans as required to
support growth throughout the divisions.
CES' underlying business model is capex light and asset light,
enabling generation of significant surplus free cash flow. As our
customers increasingly regulate their business models to maintain
spending within cash flows, we believe that CES will be able to
leverage its established infrastructure, business model, and nimble
customer-oriented culture to deliver superior products and services
to the industry. CES sees the consumable chemical market increasing
its share of the oilfield spend as operators continue to: drill
longer reach laterals and drill them faster; expand and optimize
the utilization of pad drilling; increase the intensity and size of
their fracs; and require increasingly technical and specialized
chemical treatments to effectively maintain existing cash flow
generating wells and treat growing production volumes and water
cuts from new wells.
CES' strategy is to continue to use its decentralized management
model; its vertically integrated manufacturing model; its problem
solving through science approach; its patented and proprietary
technologies; and its superior people and execution to increase
market share. By being basic in the manufacture of the consumable
chemicals it sells, CES' vertically integrated business model
enables it to be price competitive and a technology leader.
Operators require increasingly technical solutions and deeper
customer-centric coverage models to meet their needs. CES believes
that its unique value proposition makes it the premier independent
provider of technically advanced consumable chemical solutions to
the North American oilfield. In its core businesses, CES will focus
on profitably growing market share, controlling costs and managing
working capital, developing or acquiring new technologies and
making strategic investments as required to position the business
to capitalize on current and future opportunities.
Conference Call Details
With respect to the fourth quarter results, CES will host a
conference call / webcast at 9:00 am
MT (11:00 am ET) on
Friday, March 11, 2022. A recording
of the live audio webcast of the conference call will also be
available on our website at www.cesenergysolutions.com. The webcast
will be archived for approximately 90 days.
North American toll-free:
1-(800)-319-4610
International / Toronto callers: (416)-915-3239
Link to Webcast: http://www.cesenergysolutions.com/
Financial Highlights
|
Three Months Ended
December 31,
|
Year Ended December
31,
|
($000s, except per
share amounts)
|
2021
|
2020
|
%Change
|
2021
|
2020
|
%Change
|
Revenue
|
|
|
|
|
|
|
United
States(2)
|
233,842
|
137,262
|
70 %
|
774,112
|
600,898
|
29 %
|
Canada(2)
|
133,952
|
75,552
|
77 %
|
422,308
|
287,149
|
47 %
|
Total
Revenue
|
367,794
|
212,814
|
73 %
|
1,196,420
|
888,047
|
34.7 %
|
Net income
(loss)
|
24,723
|
40,453
|
(39)%
|
49,884
|
(222,903)
|
nmf
|
per share –
basic
|
0.10
|
0.15
|
(38)%
|
0.20
|
(0.85)
|
nmf
|
per share -
diluted
|
0.09
|
0.15
|
(37)%
|
0.19
|
(0.85)
|
nmf
|
Adjusted
EBITDAC(3)
|
47,758
|
24,651
|
94 %
|
156,156
|
102,168
|
53 %
|
Adjusted
EBITDAC(3)% of Revenue
|
13.0
%
|
11.6
%
|
1.4 %
|
13.1
%
|
11.5
%
|
1.5 %
|
Cash provided by
(used in) operating activities
|
(39,506)
|
14
|
nmf
|
(74,405)
|
156,679
|
(147)%
|
Funds Flow From
Operations(4)
|
33,534
|
17,194
|
95 %
|
117,254
|
72,353
|
62 %
|
Capital
expenditures
|
|
|
|
|
|
|
Expansion
Capital(2)
|
8,648
|
1,559
|
455 %
|
17,900
|
14,885
|
20 %
|
Maintenance
Capital(2)
|
3,470
|
832
|
317 %
|
11,465
|
8,063
|
42 %
|
Total capital
expenditures
|
12,118
|
2,391
|
407 %
|
29,365
|
22,948
|
28 %
|
Dividends
declared
|
4,061
|
—
|
—%
|
8,139
|
2,948
|
176 %
|
per
share
|
0.0160
|
—
|
—%
|
0.0320
|
0.0113
|
184 %
|
Common Shares
Outstanding
|
|
|
|
|
|
|
End of
period
|
253,830,896
|
258,264,857
|
|
253,830,896
|
258,264,857
|
|
Weighted average -
basic
|
255,742,883
|
260,997,098
|
|
255,269,304
|
263,065,652
|
|
Weighted
average - diluted
|
262,693,594
|
269,504,464
|
|
263,378,254
|
263,065,652
|
|
|
As at
|
Financial
Position ($000s)
|
December 31,
2021
|
September 30,
2021
|
%Change
|
December 31,
2020
|
%Change
|
Total
assets
|
1,087,598
|
992,511
|
10 %
|
857,888
|
27 %
|
Long-term financial
liabilities(1)
|
423,077
|
356,610
|
19 %
|
298,776
|
42 %
|
Total Debt, net of
cash(5)
|
439,392
|
372,108
|
18 %
|
299,677
|
47 %
|
Working Capital
Surplus(5)
|
459,754
|
386,476
|
19 %
|
273,313
|
68 %
|
Net
Debt(5)
|
(20,362)
|
(14,368)
|
42 %
|
26,364
|
nmf
|
Shareholders'
equity
|
486,675
|
471,190
|
3 %
|
455,663
|
7 %
|
Notes:
|
1Includes the long-term portion
of the Senior Facility, the Senior Notes, lease obligations and
cash settled incentive obligations.
|
2Supplementary financial
measure. Supplementary Financial Measures are provided herein
because Management believes they assist the reader in understanding
CES' results. Refer to "Non-GAAP Measures and Other Financial
Measures" for further detail.
|
3Non-GAAP measure that does not
have any standardized meaning under IFRS and therefore may not be
comparable to similar measures presented by other entities. The
most directly comparable GAAP measure for Adjusted EBITDAC is Net
income (loss). Refer to the section entitled "Non-GAAP Measures and
Other Financial Measures" herein.
|
4Non-GAAP measure that does not
have any standardized meaning under IFRS and therefore may not be
comparable to similar measures presented by other entities. The
most directly comparable GAAP measure for Funds flow from
operations is Cash provided by (used in) operating activities.
Refer to the section entitled "Non-GAAP Measures and Other
Financial Measures" herein.
|
5Non-GAAP measures that do not
have any standardized meaning under IFRS and therefore may not be
comparable to similar measures presented by other entities. The
most directly comparable GAAP measure for Total Debt, net of cash,
Net Debt and Working Capital Surplus is Long-term financial
liabilities. Refer to the section entitled "Non-GAAP Measures and
Other Financial Measures" herein.
|
Business of CES
CES is a leading provider of technically advanced consumable
chemical solutions throughout the life-cycle of the oilfield. This
includes total solutions at the drill-bit, at the point of
completion and stimulation, at the wellhead and pump-jack, and
finally through to the pipeline and midstream market. At the
drill-bit, CES' designed drilling fluids encompass the functions of
cleaning the hole, stabilizing the rock drilled, controlling
subsurface pressures, enhancing drilling rates, and protecting
potential production zones while conserving the environment in the
surrounding surface and subsurface area. At the point of completion
and stimulation, CES' designed chemicals form a critical component
of fracturing solutions or other forms of remedial well stimulation
techniques. The shift to horizontal drilling and multi-stage
fracturing with long horizontal well completions has been
responsible for significant growth in the drilling fluids and
completion and stimulation chemicals markets. At the wellhead and
pump-jack, CES' designed production and specialty chemicals provide
down-hole solutions for production and gathering infrastructure to
maximize production and reduce costs of equipment maintenance. Key
solutions include corrosion inhibitors, demulsifiers,
H2S scavengers, paraffin control products, surfactants,
scale inhibitors, biocides and other specialty products. Further,
specialty chemicals are used throughout the pipeline and midstream
industry to aid in hydrocarbon movement and manage transportation
and processing challenges including corrosion, wax build-up and
H2S.
CES operates in all major basins throughout the United States ("US"), including the
Permian, Eagleford, Bakken, Marcellus and Scoop/Stack, as well as
in the Western Canadian Sedimentary Basin ("WCSB") with an emphasis
on servicing the ongoing major resource plays: Montney, Duvernay, Deep Basin and SAGD. In the US, CES
operates under the trade names AES Drilling Fluids ("AES"), Jacam
Catalyst ("Jacam Catalyst"), Superior Weighting Products ("Superior
Weighting") and StimWrx Energy Services ("StimWrx"). In
Canada, CES operates under the
trade names Canadian Energy Services, PureChem Services
("PureChem"), StimWrx, Sialco Materials ("Sialco"), and Clear
Environmental Solutions ("Clear"). In Oman, CES operates under the trade name CES
Operations.
Following a series of transformative acquisitions, including the
purchase of Jacam Chemicals ("Jacam") in 2013 and Catalyst Oilfield
Services ("Catalyst") in 2016, the Company has been focused on
integrating these businesses into its existing operations and
driving efficiencies and organic growth. On December 31, 2020, the Company completed an
internal organization, which combined the retail businesses of
Jacam and Catalyst to form Jacam Catalyst, LLC.
The Jacam Catalyst, PureChem, and Sialco brands are vertically
integrated manufacturers of advanced specialty chemicals. In
addition to being basic in the manufacture of oilfield chemicals,
Jacam Catalyst and PureChem have expanded distribution channels
into the oilfield. The StimWrx brand provides near matrix
stimulation and remediation of oil, gas, and injection wells
in Western Canada and the US. The
Canadian Energy Services and AES brands are focused on the design
and implementation of drilling fluids systems and completion
solutions sold directly to oil and gas producers. The Superior
Weighting brand custom grinds minerals including barite, which is
the weighting agent utilized in most drilling fluid systems.
Clear is a complimentary business division that supports the
operations and augments the product offerings in the WCSB. Clear is
CES' environmental division, providing environmental consulting,
water management and water transfer services, and drilling fluids
waste disposal services primarily to oil and gas producers active
in the WCSB.
CES continues to invest in research and development of new
technologies and in the top-end scientific talent that can develop
and refine these technologies. CES operates nine separate lab
facilities across North America:
two in Houston, Texas; one in
Midland, Texas; one in
Gardendale, Texas; one in
Sterling, Kansas; and one in each
of Calgary, Alberta; Grande Prairie, Alberta; Carlyle, Saskatchewan; and Delta, British Columbia. In the US, CES' main
chemical manufacturing and reacting facility is located in
Sterling, Kansas with additional
low-temperature reaction and chemical blending capabilities just
outside of Midland, Texas and
chemical blending capabilities in Sonora,
Texas. In Canada, CES has a
chemical manufacturing and reacting facility located in
Delta, British Columbia with
additional chemical blending capabilities located in Carlyle, Saskatchewan, Nisku, Alberta, and Grande Prairie, Alberta. CES also leverages
third party partner relationships to drive innovation in the
consumable fluids and chemicals business.
Non-GAAP Measures and Other Financial Measures
CES uses certain supplementary information and measures not
recognized under IFRS where management believes they assist the
reader in understanding CES' results. These measures are calculated
by CES on a consistent basis unless otherwise specifically
explained. These measures do not have a standardized meaning under
IFRS and may therefore not be comparable to similar measures used
by other issuers.
Non-GAAP financial measures and non-GAAP ratios have the
definition set out in National Instrument 52-112 "Non-GAAP and
Other Financial Measures Disclosure". The non-GAAP measures,
non-GAAP ratios and supplementary financial measures used in this
news release, with IFRS measures, are the most appropriate measures
for reviewing and understanding the Company's financial results.
The non-GAAP measures and non-GAAP ratios are further defined as
follows:
EBITDAC - is a non-GAAP measure that has been
reconciled to net income (loss) for the financial periods, being
the most directly comparable measure calculated in accordance with
IFRS. EBITDAC is defined as net income before interest, taxes,
depreciation and amortization, finance costs, other income (loss),
stock-based compensation and impairment of goodwill, which are not
reflective of underlying operations. EBITDAC includes government
relief subsidies received to help mitigate the impact of the
COVID-19 pandemic. EBITDAC is a metric used to assess the financial
performance of an entity's operations. Management believes that
this metric provides an indication of the results generated by the
Company's business activities prior to how these activities are
financed, how the Company is taxed in various jurisdictions, and
how the results are impacted by foreign exchange and non-cash
charges. This non-GAAP financial measure is also used by management
as a key performance metric supporting decision making and
assessing divisional results.
Adjusted EBITDAC - is a non-GAAP measure that is
defined as EBITDAC noted above, adjusted for specific items that
are considered to be non-recurring in nature. Management believes
that this metric is relevant when assessing normalized operating
performance.
Adjusted EBITDAC % of Revenue - is a non-GAAP ratio
calculated as Adjusted EBITDAC divided by revenue. Management
believes that this metric is a useful measure of the Company's
normalized operating performance relative to its top line revenue
generation and a key industry performance measure.
Readers are cautioned that EBITDAC and Adjusted EBITDAC should
not be considered to be more meaningful than net income (loss)
determined in accordance with IFRS.
EBITDAC, Adjusted EBITDAC, and Adjusted EBITDAC % of Revenue are
calculated as follows:
|
Three Months Ended
December 31,
|
Year Ended December
31,
|
$000s
|
2021
|
2020
|
2021
|
2020
|
Net income
(loss)
|
24,723
|
40,453
|
49,884
|
(222,903)
|
Add back
(deduct):
|
|
|
|
|
Depreciation on
property and equipment in cost of sales
|
11,499
|
11,832
|
45,924
|
51,724
|
Depreciation on
property and equipment in G&A
|
1,581
|
1,856
|
6,899
|
8,347
|
Amortization on
intangible assets in G&A
|
3,791
|
3,793
|
15,155
|
15,440
|
Current income tax
expense
|
1,705
|
740
|
4,282
|
2,342
|
Deferred income tax
recovery
|
(9,210)
|
(44,360)
|
(1,835)
|
(56,240)
|
Stock-based
compensation
|
3,867
|
2,950
|
13,637
|
11,543
|
Finance
costs
|
5,300
|
6,388
|
22,389
|
24,864
|
Other
income
|
(327)
|
(31)
|
(564)
|
(703)
|
Impairment of
goodwill
|
-
|
-
|
-
|
248,905
|
EBITDAC
|
42,929
|
23,621
|
155,771
|
83,319
|
Add back
(deduct):
|
|
|
|
|
Inventory valuation
write-downs
|
-
|
-
|
-
|
12,283
|
Additional bad debt
allowance
|
-
|
668
|
-
|
3,795
|
Restructuring
costs
|
-
|
362
|
-
|
2,771
|
Management transition
costs
|
4,829
|
-
|
4,829
|
-
|
Gain on sale of
building
|
-
|
-
|
(4,444)
|
-
|
Adjusted
EBITDAC
|
47,758
|
24,651
|
156,156
|
102,168
|
Adjusted EBITDAC % of
Revenue
|
13.0%
|
11.6%
|
13.1%
|
11.5%
|
Funds Flow From Operations - is a non-GAAP measure
that has been reconciled to Cash provided by (used in) operating
activities for the financial periods, being the most directly
comparable measure calculated in accordance with IFRS. Funds flow
from operations is defined as cash flow from operations before
changes in non-cash operating working capital and represents the
Company's after tax operating cash flows. This measure is not
intended to be considered more meaningful than cash provided by
operating activities, comprehensive income (loss), or other
measures of financial performance calculated in accordance with
IFRS. Funds Flow From Operations is used by management to assess
operating performance and leverage, and is calculated as
follows:
|
Three Months Ended
December 31,
|
Year Ended December
31,
|
$000's
|
2021
|
2020
|
2021
|
2020
|
Cash provided by
operating activities
|
(39,506)
|
14
|
(74,405)
|
156,679
|
Adjust
for:
|
|
|
|
|
Change in non-cash
operating working capital
|
73,040
|
17,180
|
191,659
|
(84,326)
|
Funds Flow From
Operations
|
33,534
|
17,194
|
117,254
|
72,353
|
Working Capital Surplus - Working Capital
Surplus is a non-GAAP measure that is calculated as current assets
less current liabilities, excluding the current portion of finance
lease obligations. Management believes that this metric is a key
measure to assess operating performance and leverage of the Company
and uses it to monitor its capital structure.
Net Debt and Total Debt - Net Debt and
Total Debt are non-GAAP measures that Management believes are key
metrics to assess liquidity of the Company and uses them to monitor
its capital structure. Net debt represents Total Debt, which
includes the Senior Facility, the Senior Notes, both current and
non-current portions of lease obligations, non-current portion of
cash settled incentive obligations, offset by the Company's cash
position, less Working Capital Surplus.
Readers are cautioned that Total Debt, Working Capital Surplus,
and Net Debt should not be construed as alternative measures to
Long-term financial liabilities determined in accordance with IFRS.
Total Debt, Working Capital Surplus, and Net Debt are calculated as
follows:
|
As at
|
$000's
|
December 31,
2021
|
December 31,
2020
|
Long-term financial
liabilities(1)
|
423,077
|
298,776
|
Current portion of
finance lease obligations
|
16,315
|
19,152
|
Total Debt
|
439,392
|
317,928
|
Cash
|
-
|
(18,251)
|
Total Debt, net of
cash
|
439,392
|
299,677
|
Deduct Working
Capital Surplus:
|
|
|
Current
assets
|
619,201
|
355,288
|
Current
liabilities(2)
|
(159,447)
|
(81,975)
|
Working Capital
Surplus
|
459,754
|
273,313
|
Net Debt
|
(20,362)
|
26,364
|
1Includes long-term portion of
the Senior Facility, the Senior Notes, lease obligations, and cash
settled incentive obligations.
|
2Excludes current portion of
lease liabilities.
|
Supplementary Financial Measures
A supplementary
financial measure: (a) is, or is intended to be, disclosed on a
periodic basis to depict the historical or expected future
financial performance, financial position or cash flow of the
Company; (b) is not presented in the financial statements of the
Company; (c) is not a non-GAAP financial measure; and (d) is not a
non-GAAP ratio. Supplementary financial measures found within this
news release are as follows:
Revenue - United
States - comprises a component of total revenue, as
determined in accordance with IFRS, and is calculated as revenue
recorded from the Company's US divisions.
Revenue - Canada -
comprises a component of total revenue, as determined in accordance
with IFRS, and is calculated as revenue recorded from the Company's
Canadian divisions.
Expansion Capital - comprises a component of total
investment in property and equipment as determined in accordance
with IFRS, and represents the amount of capital expenditure that
has been or will be incurred to grow or expand the business or
would otherwise improve the productive capacity of the operations
of the business.
Maintenance Capital - comprises a component of total
investment in property and equipment as determined in accordance
with IFRS, and represents the amount of capital expenditure that
has been or will be incurred to sustain the current level of
operations.
Cautionary Statement
Except for the historical and
present factual information contained herein, the matters set forth
in this press release, may constitute forward-looking information
or forward-looking statements (collectively referred to as
"forward-looking information") which involves known and unknown
risks, uncertainties and other factors which may cause the actual
results, performance or achievements of CES, or industry results,
to be materially different from any future results, performance or
achievements expressed or implied by such forward-looking
information. When used in this press release, such
information uses such words as "may", "would", "could", "will",
"intend", "expect", "believe", "plan", "anticipate", "estimate",
and other similar terminology. This information reflects CES'
current expectations regarding future events and operating
performance and speaks only as of the date of the press
release. Forward-looking information involves significant
risks and uncertainties, should not be read as a guarantee of
future performance or results, and will not necessarily be an
accurate indication of whether or not such results will be
achieved. A number of factors could cause actual results to
differ materially from the results discussed in the forward-looking
information, including, but not limited to, the factors discussed
below. The management of CES believes the material factors,
expectations and assumptions reflected in the forward-looking
information are reasonable but no assurance can be given that these
factors, expectations and assumptions will prove to be
correct. The forward-looking information contained in this
document speaks only as of the date of the document, and CES
assumes no obligation to publicly update or revise such information
to reflect new events or circumstances, except as may be required
pursuant to applicable securities laws or regulations. The material
assumptions in making forward-looking statements include, but are
not limited to, assumptions relating to demand levels and pricing
for the oilfield consumable chemical offerings of the Company;
fluctuations in the price and demand for oil and natural gas;
anticipated activity levels of the Company's significant customers;
commodity pricing; general economic and financial market
conditions; the successful integration of recent acquisitions; the
Company's ability to finance its operations; levels of drilling and
other activity in the WCSB, the Permian and other US basins, the
effects of seasonal and weather conditions on operations and
facilities; changes in laws or regulations; currency exchange
fluctuations; the ability of the Company to attract and retain
skilled labour and qualified management; and other unforeseen
conditions which could impact the Company's business of supplying
oilfield consumable chemistry to the Canadian and US markets and
the Company's ability to respond to such conditions.
In particular, this press release contains forward-looking
information pertaining to the following: the certainty and
predictability of future cash flows and earnings; expectations that
EBITDAC will exceed the sum of expenditures on interest, taxes and
capital expenditures; expectations of capital expenditures in 2021;
expectations that EBITDAC will provide sufficient free cash flow to
pay down the Company's Senior Facility and add cash to the balance
sheet; expectations regarding improving industry conditions and the
Company's ability to generate free cash flow to sustain the
quarterly dividend; expectations regarding the impact of the
COVID-19 pandemic on CES' operations and the oil and natural gas
industry generally; CES' ability to execute on
financial goals relating to its balance sheet, liquidity, working
capital and cost structure; expectations regarding the
performance of CES' business model and counter cyclical balance
sheet during downturns; expectations regarding CES' ability to
qualify and participate in various government support programs
including the Canadian Government's CEWS
program; expectations that CES will continue to remain
open and fully operating during the COVID-19 pandemic; expectations
regarding the availability and distribution of COVID-19 vaccines
and the corresponding impact on government mandated travel and
gathering restrictions, increased demand for fossil-fuels,
improving commodity prices, increased production levels and
drilling activity; expectations regarding reduced capital
expenditures by CES' customers and the quantum of shut-in
production by CES' customers; expectations that CES' financial
position will provide a competitive advantage in a recovery; the
sufficiency of liquidity and capital resources to meet long-term
payment obligations; CES' ability to increase or maintain its
market share, including expectations that PureChem and JACAM will
increase market share in the oilfield consumable chemical market,
that Catalyst will increase market-share of production and
specialty chemicals in the Permian Basin, and that AES will
increase drilling fluids market share in the Permian Basin;
optimism with respect to future prospects for CES; impact of CES'
vertically integrated business model on future financial
performance; CES' ability to leverage third party partner
relationships to drive innovation in the consumable fluids and
chemicals business; supply and demand for CES' products and
services, including expectations for growth in CES' production and
specialty chemical sales, expected growth in the consumable
chemicals market; industry activity levels; commodity prices;
uncertainty surrounding the duration and severity of a low oil and
natural gas price environment; development of new technologies;
expectations regarding CES' growth opportunities in Canada the US and overseas; expectations
regarding the performance or expansion of CES' operations and
working capital optimization; expectations regarding end
markets for production chemicals and drilling fluids in
Canada and the US; expectations
regarding the impact of production curtailment policies;
expectations regarding demand for CES' services and technology;
investments in research and development and technology
advancements; access to debt and capital markets and
cost of capital; expectations regarding capital allocation
including the use of surplus free cash flow, the purchase of CES'
common shares by CES pursuant to the NCIB, debt reduction through
the repayment of the Company's Senior Facility or repurchases of
the Company's Senior Notes, investments in current operations,
issuing dividends, or market acquisitions; CES' ability to continue
to comply with covenants in debt facilities; and competitive
conditions.
CES' actual results could differ materially from those
anticipated in the forward-looking information as a result of the
following factors: general economic conditions in the US,
Canada, and internationally;
geopolitical risk; fluctuations in demand for consumable fluids and
chemical oilfield services, oilfield activity in the Permian, the
WCSB, and other basins in which the Company operates; a
decline in frac related chemical sales; a decline in operator usage
of chemicals on wells; an increase in the number of customer well
shut-ins; a shift in types of wells drilled; volatility in market
prices for oil, natural gas, and natural gas liquids and the effect
of this volatility on the demand for oilfield services generally;
declines in prices for natural gas, natural gas liquids, oil, and
pricing differentials between world pricing; pricing in
North America and pricing in
Canada; impacts of production
level decisions among OPEC+ members and the potential demand
impacts of COVID-19; competition, and pricing pressures from
customers in the current commodity environment; the degree and
severity of the COVID-19 pandemic, including government laws and
regulations implemented in response to the pandemic and the
resulting impact on the demand for oil and natural gas; government
support programs implemented in response to the COVID-19 pandemic
and potential changes to the qualification criteria and amount of
available support; political and societal unrest that may impact
CES' operations as well as impact the market for oil and natural
gas generally; currency risk as a result of fluctuations in value
of the US dollar; liabilities and risks, including environmental
liabilities and risks inherent in oil and natural gas operations;
sourcing, pricing and availability of raw materials, consumables,
component parts, equipment, suppliers, facilities, shipping
containers and skilled management, technical and field personnel;
the collectability of accounts receivable, ability to integrate
technological advances and match advances of competitors; ability
to protect the Company's proprietary technologies; availability of
capital; uncertainties in weather and temperature affecting the
duration of the oilfield service periods and the activities that
can be completed; the ability to successfully integrate and achieve
synergies from the Company's acquisitions; changes in legislation
and the regulatory environment, including uncertainties with
respect to oil and gas royalty regimes, programs to reduce
greenhouse gas and other emissions, carbon pricing schemes, and
regulations restricting the use of hydraulic fracturing; pipeline
capacity and other transportation infrastructure constraints;
government mandated production curtailments; reassessment and audit
risk and other tax filing matters; changes and proposed changes to
US policies including tax policies or policies relating to
the oil and gas industry; international and domestic trade
disputes, including restrictions on the transportation of oil and
natural gas and regulations governing the sale and export of oil,
natural gas and refined petroleum products; the impact of climate
change policies in regions which CES operates; the impact and speed
of adoption of low carbon technologies; potential changes to the
crude by rail industry; changes to the fiscal regimes applicable to
entities operating in the US and the WCSB; supply chain disruptions
including those caused by global pandemics or disease or from
geopolitical unrest, conflict and blockades; the impact of the
conflict in Ukraine on supply
chains, commodity prices, and the global economy; access to capital
and the liquidity of debt markets; fluctuations in foreign exchange
and interest rates; CES' ability to maintain adequate insurance at
rates it considers reasonable and commercially justifiable; and the
other factors considered under "Risk Factors" in CES' Annual
Information Form for the year ended December
31, 2021 dated March 10, 2022,
and "Risks and Uncertainties" in CES' MD&A for the three and
twelve months ended December 31,
2021, dated March 10,
2022.
THE TORONTO
STOCK EXCHANGE HAS NOT REVIEWED
AND DOES NOT ACCEPT RESPONSIBILITY FOR THE ADEQUACY OR ACCURACY OF
THIS RELEASE.
SOURCE CES Energy Solutions Corp.