Third Quarter Highlights
- For the
three-month period ended September 30, 2023, PHX Energy generated
consolidated revenue of $169.4 million, the highest level of
quarterly revenue in the Corporation’s history. With the first
quarter of 2023 being the second highest level on record, the
2023-year is tracking to be a record year for PHX Energy.
Consolidated revenue in the 2023-quarter included $11.9 million of
motor rental revenue and $6.2 million of motor equipment and parts
sold.
-
Earnings from continuing operations, adjusted EBITDA(1) from
continuing operations, and adjusted EBITDA as a percentage of
consolidated revenue are the best level of quarterly results on
record. Earnings from continuing operations increased to $24.9
million ($0.50 per share), an increase of 85 percent over the third
quarter of 2022, and adjusted EBITDA from continuing operations
increased to $43.5 million ($0.88 per share), which represented 26
percent of consolidated revenue(1). Included in the 2023-quarter’s
adjusted EBITDA is $5 million in cash-settled share-based
compensation expense. Excluding cash-settled share-based
compensation expense, adjusted EBITDA from continuing operations(1)
in the third quarter of 2023 was $48.5 million, 29 percent of
consolidated revenue(1).
- PHX Energy’s US
division revenue in the third quarter of 2023 was $123.8 million,
12 percent higher than the third quarter of 2022 and represented 73
percent of consolidated revenue. This level of revenue is only 1
percent less than the record achieved by the US segment in the
fourth quarter of 2022.
- PHX Energy’s
Canadian division reported $44.4 million of quarterly revenue which
is the highest level since the fourth quarter of 2014.
- In light of the
continued strong demand for the Corporation’s premium technologies,
the Board approved to increase the 2023 capital expenditure budget
to $80 million from the previous $61.5 million. The Board also
approved a preliminary 2024 capital expenditure budget of $70
million.
- As at September
30, 2023, the Corporation had working capital(2) of $101.3 million
and net debt(2) of $3.5 million.
- In November
2023, the Corporation increased the borrowing amounts in the
syndicated facility from CAD $50 million to CAD $80 million and in
the US operating facility from USD $15 million to USD $20 million.
The Corporation also extended the maturity date of the syndicated
loan agreement to December 12, 2026. With the increased borrowing
amounts, the Corporation has approximately CAD $76.5 million and
USD $20 million available to be drawn from its credit facilities.
Currently, debt levels are low and this increase is intended to
provide PHX Energy flexibility to take advantage of lucrative
opportunities when presented in the future.
- In the 2023
three-month period, the Corporation generated excess cash flow(2)
of $25.7 million, after deducting capital expenditures of $18.8
million offset by proceeds on disposition of drilling and other
equipment of $11.7 million.
- During the
2023-quarter, PHX Energy continued to deliver additional returns to
shareholders through its previous and current NCIB, purchasing and
cancelling 2,442,700 common shares for $17.5 million. In the 2023
nine-month period, the Corporation purchased and cancelled
2,710,500 common shares for $19.1 million.
- For the
three-month period ended September 30, 2023, PHX Energy paid $7.6
million in dividends which is double the dividend amount paid in
the same 2022-period. On September 15, 2023, the Corporation
declared a dividend of $0.15 per share(3) or $7.3 million, paid on
October 16, 2023 to shareholders of record on September 30,
2023.
- With three
consecutive quarters of strong financial performance, the Board has
approved an increase to the quarterly dividend to $0.20 per share
effective for the dividend payable to shareholders of record at the
close of business on December 31, 2023. This is 33 percent higher
than the dividend declared on September 15, 2023 and the fifth
dividend increase since the dividend program was reinstated in
December 2020.
Financial Highlights
(Stated in thousands of dollars except per share
amounts, percentages and shares outstanding)
|
Three-month periods ended September 30, |
Nine-month periods ended September 30, |
|
2023 |
|
2022 |
|
% Change |
2023 |
|
2022 |
|
% Change |
Operating Results – Continuing Operations |
(unaudited) |
(unaudited) |
|
(unaudited) |
(unaudited) |
|
Revenue |
169,368 |
|
142,418 |
|
19 |
491,008 |
|
377,987 |
|
30 |
|
Earnings |
24,921 |
|
13,475 |
|
85 |
65,447 |
|
23,978 |
|
173 |
|
Earnings per share – diluted |
0.50 |
|
0.27 |
|
85 |
1.28 |
|
0.48 |
|
167 |
|
Adjusted EBITDA (1) |
43,524 |
|
27,315 |
|
59 |
115,330 |
|
58,845 |
|
96 |
|
Adjusted EBITDA per share – diluted (1) |
0.88 |
|
0.53 |
|
66 |
2.17 |
|
1.16 |
|
87 |
|
Adjusted EBITDA as a percentage of revenue (1) |
26 |
% |
19 |
% |
|
23 |
% |
16 |
% |
|
Cash Flow – Continuing Operations |
|
|
|
|
|
|
Cash flows from (used in) operating activities |
33,628 |
|
21,627 |
|
55 |
59,969 |
|
29,367 |
|
104 |
|
Funds from operations (2) |
34,166 |
|
22,711 |
|
50 |
91,150 |
|
47,413 |
|
92 |
|
Funds from operations per share – diluted (3) |
0.69 |
|
0.44 |
|
57 |
1.71 |
|
0.94 |
|
82 |
|
Dividends paid per share (3) |
0.15 |
|
0.075 |
|
100 |
0.45 |
|
0.200 |
|
125 |
|
Dividends paid |
7,621 |
|
3,797 |
|
101 |
22,913 |
|
10,069 |
|
128 |
|
Capital expenditures |
18,804 |
|
18,631 |
|
1 |
49,458 |
|
52,051 |
|
(5 |
) |
Excess cash flow (2) |
25,724 |
|
9,121 |
|
182 |
70,465 |
|
6,843 |
|
n.m. |
|
Financial Position |
|
|
|
Sep 30 ‘23 |
|
Dec 31 ‘22 |
|
|
Working capital (2) |
|
|
|
101,271 |
|
94,339 |
|
7 |
|
Net debt (2) |
|
|
|
3,457 |
|
4,484 |
|
(23 |
) |
Shareholders’ equity |
|
|
|
201,043 |
|
176,878 |
|
14 |
|
Common shares outstanding |
|
|
|
48,508,438 |
|
50,896,175 |
|
(5 |
) |
n.m. – not meaningful
Outlook
In the third quarter we continued to build off
the strong momentum we have achieved thus far in 2023, setting
all-time records for quarterly revenue, earnings, adjusted EBITDA,
and adjusted EBITDA as a percentage of consolidated revenue.
- Despite the
lower US rig count impacting our directional drilling activity
levels, we have continued to produce strong results, maintain
market share and work for 12 of the top 15 US operators. The
primary drivers of these successes were our technology offering,
particularly our rotary steerable (“RSS”) capabilities, and
expansion of our Atlas rental and sales divisions. We foresee
further growth in both areas for the remainder of 2023 and into
2024 and are directing the new capital expenditures announced
towards these objectives.
- We recently
added a second brand of RSS technology to our US fleet. The iCruise
technology developed by Halliburton will compliment our fleet of
Schlumberger PowerDrive Orbit RSS technology and we are uniquely
positioned as the only provider in North America that can offer two
superior RSS options for owned systems. Additionally, our
Engineering group has commercialized supplementary technologies
that work in conjunction with our RSS and Velocity fleets that are
already in high demand. Both of these technology developments will
continue to differentiate us and further solidify our reputation as
a technology leader.
- In Canada, our
marketing team has successfully expanded our client base and our
results show improved activity and revenue in a slightly slower to
flat industry. We expect current activity levels to continue for
the remainder of the year and into the first quarter of 2024. We
may see some incremental increases in revenue per day as a result
of the commercialization of new value added technologies that
supplement the premium fleet and the planned fleet expansion.
- We will continue
to execute on the strategic objective aimed at expanding our Atlas
sales and rental businesses, which allows us to penetrate the
portion of the US market that is not accessible through our full
service offering. The rental division has shown promising growth
thus far in 2023 and we anticipate that it will continue to
generate a similar level of activity and revenue in the near-term.
Additionally, the revenue from the sale of Atlas motors aided the
US division in achieving strong revenue and profitability in the
quarter. Over the next few quarters, we will look to expand our
infrastructure to drive further growth and we plan to dedicate a
portion of the Atlas motors acquired through the 2024 capital
expenditures program to the rental business.
- During the
quarter, the Corporation continued to deliver on its commitment to
our Return of Capital Strategy (“ROCS”) and leveraged our renewed
NCIB to further reduce the shares outstanding. We have bought back
21 percent of our shares since 2017, including the purchase and
cancellation of 2.7 million shares through the NCIBs thus far in
2023. Through our dividend we have paid $44 million to shareholders
since reinstating the program in December 2020 and due to our
strong performance and outlook the Board has approved the fifth
increase to our dividend since its re-instatement. Effective for
the dividend payable to shareholders of record at the close of
business on December 31, 2023 a quarterly dividend to $0.20 per
share will be payable, a 33 percent increase over the current
dividend.
Global concerns around the possibility of a
recession in North America, issues surrounding the economy in China
plus regional conflicts in Europe and the Middle East provide a
backdrop of uncertainty for the near to mid-term. Despite this, we
are optimistic that our operating and financial performance will
remain strong through the deployment of our premium fleet of
technology, particularly RSS. We will remain diligent with
protecting our balance sheet and deliver on our commitment to
continue to reward our shareholders.
Michael Buker,
President November
7, 2023
Financial ResultsIn the third
quarter of 2023, PHX Energy generated an all-time record level of
revenue, earnings from continuing operations, adjusted EBITDA from
continuing operations, and adjusted EBITDA as a percentage of
consolidated revenue.
For the three-month period ended September 30,
2023, PHX Energy’s consolidated revenue was $169.4 million as
compared to $142.4 million in the same 2022-period, an increase of
19 percent. Despite the declining North American rig count, the
Corporation achieved higher revenue by leveraging the increased
capacity in its premium technology fleets and its strong reputation
and operations expertise. In addition, the Corporation’s strong
activity in Canada and growth in its US motor rental and sales
divisions contributed to the record revenue achieved in the
quarter.
In the 2023-quarter, the US rig count continued
to soften. PHX Energy’s US operating days decreased by 13 percent
from 4,653 in the third quarter of 2022 to 4,050 in the third
quarter of 2023. Despite the decline in activity, the Corporation’s
US division’s revenue grew by 12 percent to $123.8 million as
compared to $110.2 million in the same 2022-period. In the 2023
three-month period, RSS services accounted for a larger percentage
of the division’s activity and this growth was a primary driver of
the 17 percent improvement in the average revenue per day(3) for
directional drilling services quarter-over-quarter. Additionally,
the Corporation’s US motor rental and sales divisions generated
$11.6 million and $6.2 million of revenue, respectively in the
third quarter of 2023 (2022-quarter - $7.4 million and nil,
respectively). Revenue from PHX Energy’s US segment represented 73
percent of consolidated revenue in the 2023 three-month period
(2022-quarter – 77 percent).
In the 2023 three-month period, the
Corporation’s Canadian division generated revenue of $44.4 million,
which is the highest level since the fourth quarter of 2014 and is
43 percent greater than the $31 million generated in the same
2022-period. During the 2023-quarter, despite a
quarter-over-quarter decline in Canadian industry activity, PHX
Energy’s Canadian operating days grew by 16 percent to 3,301 days
from the 2,835 operating days in the comparable 2022-quarter.
Average revenue per day realized by the Canadian segment also
improved by 22 percent over the third quarter of 2022.
For the three-month period ended September 30,
2023, earnings from continuing operations was $24.9 million (2022 -
$13.5 million) and adjusted EBITDA from continuing operations(1)
was $43.5 million (2022 - $27.3 million), 26 percent of
consolidated revenue. These levels of earnings from continuing
operations, adjusted EBITDA from continuing operations, and
adjusted EBITDA as a percentage of consolidated revenue, are the
best quarterly results in the Corporation’s history. Higher margins
generated from PHX Energy’s premium technologies, Atlas motor
rentals, and the sale of Atlas motors and parts primarily drove
these record results. Included in the 2023 three-month period
adjusted EBITDA from continuing operations is cash-settled
share-based compensation expense of $5 million (2022 - $5.2
million). For the three-month period ended September 30, 2023,
excluding cash-settled share-based compensation expense, adjusted
EBITDA from continuing operations(1) is $48.5 million, 29 percent
of consolidated revenue (2022 - $32.5 million).
PHX Energy maintained its strong financial
position and had working capital(2) of $101.3 million and net
debt(2) of $3.5 million with available credit facilities in excess
of $61.5 million as at September 30, 2023.
In November 2023, the Corporation increased the
borrowing amounts in the syndicated facility from CAD $50 million
to CAD $80 million and in the US operating facility from USD $15
million to USD $20 million. The Corporation also extended the
maturity date of the syndicated loan agreement to December 12,
2026. With the increased borrowing amounts, the Corporation has
approximately CAD $76.5 million and USD $20 million available to be
drawn from its credit facilities.
Dividends and ROCSOn September
15, 2023, the Corporation declared a dividend of $0.15 per share
payable to shareholders of record at the close of business on
September 30, 2023. An aggregate of $7.3 million was paid on
October 16, 2023. This is 50 percent higher than the dividend of
$0.10 per share declared in the 2022-quarter.
In November 2023, the Board approved an increase
to the quarterly dividend to $0.20 per share effective for the
dividend payable to shareholders of record at the close of business
on December 31, 2023. This is 33 percent higher than the dividend
declared on September 15, 2023 and the fifth dividend increase
since the dividend program was reinstated in December 2020.
The Corporation remains committed to enhancing
shareholder returns through its Return of Capital Strategy (“ROCS”)
that includes multiple options including the dividend program and
the Normal Course Issuer Bid (“NCIB”).
(Stated in thousands of dollars)
|
|
Nine-month period ended September 30, 2023 |
Excess cash flow |
|
70,465 |
|
70% of excess cash flow |
|
49,326 |
|
|
|
|
Deduct: |
|
|
Repurchase of shares under the NCIB |
|
(19,102 |
) |
Dividends paid to shareholders |
|
(22,913 |
) |
Remaining distributable balance under ROCS(2) |
|
7,311 |
|
Normal Course Issuer Bid During
the third quarter of 2023, the TSX approved the renewal of PHX
Energy’s NCIB to purchase for cancellation, from time-to-time, up
to a maximum of 3,552,810 common shares, representing 10 percent of
the Corporation’s public float of Common Shares as at August 2,
2023. The NCIB commenced on August 16, 2023 and will terminate on
August 15, 2024. Purchases of common shares are to be made on the
open market through the facilities of the TSX and through
alternative trading systems. The price which PHX Energy is to pay
for any common shares purchased is to be at the prevailing market
price on the TSX or alternate trading systems at the time of such
purchase.
Pursuant to the previous and current NCIB,
2,442,700 common shares were purchased by the Corporation for $17.5
million and cancelled in the third quarter of 2023. In the 2023
nine-month period, PHX Energy purchased and cancelled 2,710,500
common shares for $19.1 million.
Capital SpendingIn the third
quarter of 2023, the Corporation spent $18.8 million in capital
expenditures, of which $12.5 million was spent on growing the
Corporation’s fleet of drilling equipment, $2.8 million was spent
to replace retired assets, and $3.5 million was spent to replace
equipment lost downhole during drilling operations. With proceeds
on disposition of drilling and other equipment of $11.7 million,
the Corporation’s net capital expenditures(2) for the 2023-quarter
were $7.1 million. Capital expenditures in the 2023-quarter were
primarily directed towards Atlas High Performance motors (“Atlas”),
Velocity Real-Time systems (“Velocity”), and RSS. PHX Energy funded
capital spending primarily using proceeds on disposition of
drilling equipment, cash flows from operating activities, and its
credit facilities when required.
(Stated in thousands of dollars)
|
Three-month period ended September 30, 2023 |
Nine-month period ended September 30, 2023 |
Growth capital expenditures |
12,471 |
|
27,356 |
|
Maintenance capital
expenditures from asset retirements |
2,825 |
|
11,543 |
|
Maintenance capital expenditures from downhole equipment
losses |
3,508 |
|
10,559 |
|
|
18,804 |
|
49,458 |
|
Deduct: |
|
|
Proceeds on disposition of drilling equipment |
(11,682 |
) |
(32,689 |
) |
Net capital expenditures(2) |
7,122 |
|
16,769 |
|
In light of the continued strong demand for the
Corporation’s premium technologies, the approved capital
expenditure budget for the 2023-year, excluding proceeds on
disposition of drilling equipment, was increased to $80 million
from the previous $61.5 million. The increase of $18.5 million in
the 2023 capital expenditure budget will be directed mainly towards
growing and maintaining PHX Energy’s RSS and Atlas motor fleets. Of
the total expenditures, $45 million is expected to be allocated to
growth capital and the remaining $35 million is expected to be
allocated towards maintenance of the existing fleet of drilling and
other equipment and replacement of equipment lost downhole during
drilling operations. The maintenance capital amount could
increase throughout the year should there be more downhole
equipment losses than forecasted. These increases would likely be
funded by proceeds on disposition of drilling equipment.
As at September 30, 2023, the Corporation has
capital commitments to purchase drilling and other equipment for
$33.8 million, $20.3 million of which is growth capital and
includes $19.4 million for performance drilling motors and $0.9
million for other equipment. Equipment on order as at September 30,
2023 is expected to be delivered within 2023 and the first quarter
of 2024.
With the outlook that the Corporation’s
2023-momenteum will continue into the upcoming year and that the
declining rig counts in North America will level off, the Board has
approved a preliminary 2024 capital expenditure program of $70
million, of which $42 million is anticipated to be spent on growth.
The growth capital expenditures are expected to be allocated
towards: building larger fleets of recently commercialized
supplementary technologies that create value added capabilities
within the premium fleet and are already in high demand; additional
motor capacity to grow the Atlas rental division; and add required
Velocity systems, RSS and Atlas motors to continue to meet demand
for full service operations. The remaining $28 million is
anticipated to be spent on maintenance of the fleet of drilling and
other equipment and replacement of equipment lost downhole during
drilling operations.
The Corporation currently possesses
approximately 734 Atlas motors, comprised of various configurations
including its 5.13", 5.25", 5.76", 6.63", 7.12", 7.25", 8" and 9"
Atlas motors, and 118 Velocity systems. The Corporation also
possesses the largest independent RSS fleet in North America with
54 RSS tools and the only fleet currently comprised of both the
PowerDrive Orbit and iCruise systems.
Sale and Licensed Use of Atlas
Motors On May 3, 2023, PHX Energy entered into a sales
agreement for the sale and licensed use of its Atlas High
Performance Drilling Motors. PHX Energy will be providing a fleet
of Atlas motors to a purchaser in the US market. Subsequently on
July 27, 2023, PHX Energy agreed upon the sale and licensed use of
its Atlas motors to an existing international client. Under these
agreements, the purchasers must exclusively use components
manufactured by the Corporation for the maintenance of their fleets
of Atlas motors. As of September 30, 2023, $10.1 million of motors
and parts were sold. PHX Energy anticipates ongoing orders for
parts and the purchasers could potentially place subsequent orders
for additional Atlas motors late in 2023 and through the upcoming
year.
Non-GAAP and Other Financial
Measures
Throughout this document, PHX Energy uses
certain measures to analyze financial performance, financial
position, and cash flow. These Non-GAAP and other specified
financial measures do not have standardized meanings prescribed
under Canadian generally accepted accounting principles (“GAAP”)
and include Non-GAAP Financial Measures and Ratios, Capital
Management Measures and Supplementary Financial Measures
(collectively referred to as “Non-GAAP and Other Financial
Measures”). These non-GAAP and other specified financial measures
include, but are not limited to, adjusted EBITDA, adjusted EBITDA
per share, adjusted EBITDA excluding cash-settled share-based
compensation expense, adjusted EBITDA as a percentage of revenue,
gross profit as a percentage of revenue excluding depreciation and
amortization, selling, general and administrative (“SG&A”)
costs excluding share-based compensation as a percentage of
revenue, funds from operations, funds from operations per share,
excess cash flow, net capital expenditures, net debt, working
capital, and remaining distributable balance under ROCS. 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, such
measures may not be comparable. Please refer to the “Non-GAAP and
Other Financial Measures” section of this MD&A for applicable
definitions, rationale for use, method of calculation and
reconciliations where applicable.
Footnotes throughout this document
reference:
(1) Non-GAAP
financial measure or ratio that does not have any standardized
meaning under IFRS and therefore may not be comparable to similar
measures presented by other entities. Refer to Non-GAAP and Other
Financial Measures section of this document.(2) Capital management
measure that does not have any standardized meaning under IFRS and
therefore may not be comparable to similar measures presented by
other entities. Refer to Non-GAAP and Other Financial Measures
section of this document.(3) Supplementary financial measure that
does not have any standardized meaning under IFRS and therefore may
not be comparable to similar measures presented by other entities.
Refer to Non-GAAP and Other Financial Measures section of this
document
Revenue The Corporation
generates revenue primarily through the provision of directional
drilling services which includes providing equipment, personnel,
and operational support for drilling a well. Additionally, the
Corporation generates revenue through the rental and sale of
drilling motors and associated parts, particularly Atlas.
(Stated in thousands of dollars)
|
Three-month periods ended September 30, |
Nine-month periods ended September 30, |
|
2023 |
2022 |
% Change |
2023 |
2022 |
% Change |
Directional drilling services |
151,241 |
134,725 |
12 |
448,302 |
358,244 |
25 |
Motor rental |
11,919 |
7,693 |
55 |
32,588 |
19,743 |
65 |
Sale of motor equipment and parts |
6,208 |
- |
n.m. |
10,118 |
- |
n.m. |
Total revenue |
169,368 |
142,418 |
19 |
491,008 |
377,987 |
30 |
n.m. – not meaningful
In the third quarter of 2023, PHX Energy
generated its highest level of quarterly revenue on record,
surpassing the previous records set in the first quarter of 2023.
For the three-month period ended September 30, 2023, the
Corporation’s consolidated revenue was $169.4 million, a 19 percent
increase compared to the $142.4 million in the third quarter of
2022. For the nine-month period ended September 30, 2023, the
Corporation generated consolidated revenue of $491 million, an
increase of 30 percent as compared to the $378 million generated in
the same 2022-period.
Average consolidated revenue per day(3)
increased 13 percent to $20,343 in the 2023 three-month period from
$18,008 in the same 2022-period and in the 2023 nine-month period
increased 17 percent to $20,457 from $17,421 in the same
2022-period. In both 2023-periods, PHX Energy increased capacity
and utilization in its fleet of premium technologies, particularly
additional RSS systems that were acquired in the fourth quarter of
2022, and this, along with the cumulative impact of previous
pricing increases to mitigate the effects of inflationary costs,
greatly contributed to the stronger average consolidated revenue
per day(3) realized in both periods. The favorable impact of the
strong US dollar also supported the increases in average
consolidated revenue per day.
The US industry rig count continued to soften in
the third quarter of 2023, averaging 632 horizontal and directional
rigs operating per day, which is a 14 percent decrease from the
average of 733 rigs in the third quarter of 2022 and 10 percent
lower compared to the average of 700 rigs in the second quarter of
2023. In Canada, the average rig count for the 2023 three-month
period decreased 6 percent to 188 rigs from 199 rigs in the third
quarter of 2022 (Source: Baker Hughes, North American Rotary Rig
Count, Jan 2000 – Current,
https://rigcount.bakerhughes.com/na-rig-count). In comparison, the
Corporation’s consolidated operating days slightly decreased by 2
percent to 7,435 days in the third quarter of 2023 compared to
7,578 days in the same 2022-quarter. For the nine-month period
ended September 30, 2023, consolidated operating days increased by
5 percent to 21,915 from 20,859 days in the corresponding
2022-period.
Throughout 2023, the Corporation continued to
increase capacity in its Atlas motor fleet and as a result, in the
2023 three and nine-month periods, revenue generated from PHX
Energy’s motor rental division grew by 55 percent and 65 percent,
respectively. Motor rental revenue increased to $11.9 million in
the 2023 three-month period from $7.7 million in the same
2022-period and increased to $32.6 million in the 2023 nine-month
period from $19.7 million in the same 2022-period. PHX Energy
remains focused on marketing Atlas technology as a stand-alone
product line. With additional Atlas motors on order, the
Corporation expects this business line to continue to grow in
future periods.
For the three and nine-month periods ended
September 30, 2023, revenue of $6.2 million and $10.1 million,
respectively, were generated from the sale of Atlas motors and
parts under PHX Energy’s two existing sales agreements. As the
Corporation continues to support its customers’ owned fleet of
Atlas motors, a steady stream of revenue is expected to continue
for this business line.
Operating Costs and
Expenses
(Stated in thousands of dollars except
percentages)
|
Three-month periods ended September 30, |
Nine-month periods ended September 30, |
|
2023 |
|
2022 |
|
% Change |
2023 |
|
2022 |
|
% Change |
Direct costs |
125,138 |
|
111,734 |
|
12 |
376,996 |
|
304,200 |
|
24 |
|
Depreciation & amortization drilling and other equipment
(included in direct costs) |
9,867 |
|
8,143 |
|
21 |
28,805 |
|
23,243 |
|
24 |
|
Depreciation & amortization right-of-use asset (included in
direct costs) |
822 |
|
745 |
|
10 |
2,057 |
|
2,430 |
|
(15 |
) |
Gross profit as a percentage of revenue excluding depreciation
& amortization(1) |
32 |
% |
28 |
% |
|
30 |
% |
26 |
% |
|
Direct costs are comprised of field and shop
expenses, costs of motors and parts sold, and include depreciation
and amortization of the Corporation’s equipment and right-of-use
assets. For the three-month period ended September 30, 2023, direct
costs increased by 12 percent to $125.1 million from $111.7 million
in the 2022-period. For the 2023 nine-month period, direct costs
increased by 24 percent to $377 million from $304.2 million in the
same 2022-period.
In both 2023-periods, higher direct costs are
partly attributable to greater servicing costs and equipment rental
expenses associated with increased RSS activity. Growth in Atlas
motor rental activity also resulted in higher motor repairs. In
addition, there were greater depreciation and amortization expenses
on drilling and other equipment in both 2023-periods due to the
volume of fixed assets acquired as part of PHX Energy’s 2023
capital expenditure program. The Corporation’s depreciation and
amortization on drilling and other equipment increased by 21
percent and 24 percent, respectively, in the 2023 three and
nine-month periods. Additionally, overall costs related to
personnel, repair parts, and equipment rentals increased partly as
a result of inflation.
In the 2023 three and nine-month periods, gross
profit as a percentage of revenue excluding depreciation and
amortization improved to 32 percent and 30 percent, respectively,
compared to 28 percent and 26 percent in the corresponding
2022-periods. Greater profitability in both periods was largely
driven by the higher margins from the Corporation’s premium
technologies as well as increased profits from PHX Energy’s growing
Atlas motor rental and sales divisions. In addition, the
Corporation remained diligent in executing various strategies to
gain cost efficiencies and mitigate the impact of higher costs
caused by inflation and this continued to have a positive impact on
the Corporation’s margins.
(Stated in thousands of dollars except
percentages)
|
Three-month periods ended September 30, |
Nine-month periods ended September 30, |
|
2023 |
|
2022 |
|
% Change |
2023 |
|
2022 |
|
% Change |
Selling, general and administrative (“SG&A”) costs |
19,833 |
|
15,589 |
|
27 |
|
50,911 |
|
49,536 |
|
3 |
|
Cash-settled share-based compensation (included in SG&A
costs) |
4,969 |
|
5,178 |
|
(4 |
) |
8,899 |
|
17,630 |
|
(50 |
) |
Equity-settled share-based compensation (included in SG&A
costs) |
144 |
|
133 |
|
8 |
|
431 |
|
393 |
|
10 |
|
SG&A costs excluding share-based compensation as a percentage
of revenue(1) |
9 |
% |
7 |
% |
|
8 |
% |
8 |
% |
|
For the three-month period ended September 30,
2023, SG&A costs were $19.8 million, an increase of 27 percent
as compared to $15.6 million in the corresponding 2022-period. In
the 2023 nine-month period, SG&A costs were $50.9 million, an
increase of 3 percent as compared to $49.5 million in the
corresponding 2022-period. Higher SG&A costs in both 2023
periods were primarily due to greater costs associated with
increasing revenue and activity and rising personnel-related
costs.
Cash-settled share-based compensation relates to
the Corporation’s retention awards and are measured at fair value.
For the three and nine-month periods ended September 30, 2023, the
related compensation expense recognized by PHX Energy was $5
million (2022 - $5.2 million) and $8.9 million (2022 - $17.6
million), respectively. Changes in cash-settled share-based
compensation expense in the 2023-periods were mainly driven by
fluctuations in the Corporation’s share price, the number of awards
granted in the period, and changes in the estimated payout
multiplier for performance awards. There were 2,135,283 retention
awards outstanding as at September 30, 2023 (2022 – 3,293,538).
Excluding share-based compensation, SG&A costs as a percentage
of revenue in the 2023 three and nine-month periods were 9 percent
and 8 percent, respectively, as compared to 7 percent and 8 percent
in the corresponding 2022 periods.
(Stated in thousands of dollars)
|
Three-month periods ended September 30, |
Nine-month periods ended September 30, |
|
2023 |
2022 |
% Change |
2023 |
2022 |
% Change |
Research and development expense |
1,246 |
909 |
37 |
3,817 |
2,539 |
50 |
PHX Energy’s research and development
(“R&D”) expenditures for the three and nine-month periods ended
September 30, 2023, were $1.2 million (2022 - $0.9 million) and
$3.8 million (2022 - $2.5 million), respectively. Higher R&D
expenditures in both 2023 periods were mainly due to increased
prototype expenses and greater personnel-related costs. The
Corporation remained focused on supporting new and ongoing
initiatives to continuously improve the reliability of equipment
and reduce costs of operations. In addition, new technologies are
continually being developed, particularly projects that are
critical in sustaining operational growth and create value added
capabilities within the premium fleet to further profitability.
(Stated in thousands of dollars)
|
Three-month periods ended September 30, |
Nine-month periods ended September 30, |
|
2023 |
2022 |
% Change |
2023 |
2022 |
% Change |
Finance
expense |
598 |
499 |
20 |
1,974 |
873 |
126 |
Finance
expense lease liabilities |
554 |
498 |
11 |
1,695 |
1,507 |
12 |
Finance expenses mainly relate to interest
charges on the Corporation’s credit facilities. For the three and
nine-month periods ended September 30, 2023, finance expenses
increased to $0.6 million (2022 - $0.5 million) and $2 million
(2022 - $0.9 million), respectively, mainly due to increased
drawings on the credit facilities to fund PHX Energy’s capital
spending. In both 2023 periods, higher finance expenses also
resulted from rising variable interest rates on the Corporation’s
operating and syndicated facilities.
Finance expense lease liabilities relate to
interest expense incurred on lease liabilities. For the three and
nine-month periods ended September 30, 2023, finance expense lease
liabilities increased by 11 percent and 12 percent respectively,
primarily due to new premise leases entered in the fourth quarter
of 2022 and first quarter of 2023 for a new facility in Midland,
Texas and additional head office space in Calgary, Alberta.
(Stated in thousands of dollars)
|
Three-month periods ended September 30, |
Nine-month periods ended September 30, |
|
2023 |
|
2022 |
|
2023 |
|
2022 |
|
Net gain on disposition of drilling equipment |
8,354 |
|
4,157 |
|
23,903 |
|
10,799 |
|
Foreign exchange gains (losses) |
(347 |
) |
(205 |
) |
574 |
|
(281 |
) |
Recovery of (provision for) bad debts |
1,106 |
|
2 |
|
(117 |
) |
2 |
|
Other |
- |
|
- |
|
- |
|
512 |
|
Other income |
9,113 |
|
3,954 |
|
24,360 |
|
11,032 |
|
For the three and nine-month periods ended
September 30, 2023, the Corporation recognized other income of $9.1
million and $24.4 million, respectively (2022 - $4 million and $11
million, respectively). In both periods, other income was mainly
comprised of net gain on disposition of drilling equipment.
Net gain on disposition of drilling equipment is
comprised of gains on disposition of drilling equipment and
proceeds from insurance programs. The recognized gain is net of
losses, which typically result from asset retirements that were
made before the end of the equipment’s useful life. In both 2023
periods, a larger percentage of PHX Energy’s activity involved
utilizing premium technologies, particularly RSS. As a result, more
instances of high dollar valued downhole equipment losses occurred
as compared to the corresponding 2022 periods which resulted in
higher proceeds and gains. The Corporation will use capital
expenditure funds, including the proceeds from disposition of
drilling equipment, to replace this equipment and these amounts
will be added to the capital expenditures for the remainder of 2023
and for 2024.
For the three-month period ended September 30,
2023, the Corporation recognized foreign exchange losses of $0.3
million (2022 - $0.2 million) which primarily resulted from the
revaluation of CAD-denominated intercompany receivables in the US.
In the 2023 nine-month period, foreign exchange gains of $0.6
million (2022 - $0.3 million foreign exchange losses) was primarily
due to the settlement of a USD-denominated receivable as a result
of a reorganization in Luxembourg.
In the third quarter of 2023, PHX Energy
reversed the amounts previously provisioned for bad debt in the
amount of $1.1 million (2022 – $2 thousand recovery) which relates
mainly to one client.
(Stated in thousands of dollars except
percentages)
|
Three-month periods ended September 30, |
Nine-month periods ended September 30, |
|
2023 |
|
2022 |
|
2023 |
|
2022 |
|
Provision
for income taxes |
6,191 |
|
3,667 |
|
14,529 |
|
6,384 |
|
Effective tax rates(3) |
20 |
% |
21 |
% |
18 |
% |
21 |
% |
For the three-month period ended September 30,
2023, the Corporation reported income tax provision of $6.2 million
(2022 - $3.7 million), of which, $5.6 million was current and $0.6
million was deferred. For the nine-month period ended September 30,
2023, PHX Energy recognized provision for income taxes of $14.5
million (2022 - $6.4 million), of which, $13.6 million was current
and $0.9 million was deferred. Increased current taxes in both 2023
periods mainly resulted from higher taxable income in the US. PHX
Energy’s effective tax rate was 20 percent in the 2023-quarter and
18 percent in the 2023 nine-month period which is lower than the
combined US federal and state corporate income tax rate of 21
percent and the combined Canadian federal and provincial corporate
income tax rate of 23 percent, due to the recognition of previously
unrecognized deferred tax assets that were applied to income for
tax purposes in Canada.
Segmented Information
The Corporation reports three operating segments
on a geographical basis throughout the Gulf Coast, Northeast and
Rocky Mountain regions of the US; throughout the Western Canadian
Sedimentary Basin, and internationally in Albania
United States
(Stated in thousands of dollars)
|
Three-month periods ended September 30, |
Nine-month periods ended September 30, |
|
2023 |
2022 |
% Change |
2023 |
2022 |
% Change |
Directional drilling services |
105,980 |
102,806 |
3 |
333,123 |
278,440 |
20 |
Motor rental |
11,636 |
7,422 |
57 |
31,204 |
18,950 |
65 |
Sale of
motor equipment and parts |
6,208 |
- |
n.m. |
10,118 |
- |
n.m. |
Total US revenue |
123,824 |
110,228 |
12 |
374,445 |
297,390 |
26 |
Reportable segment profit before tax (i) |
25,494 |
17,056 |
49 |
65,453 |
40,387 |
62 |
(i) Includes adjustments to intercompany
transactions.n.m. – not meaningful
For the three-month period ended September 30,
2023, total US revenue increased by 12 percent to $123.8 million as
compared to $110.2 million in the 2022-quarter. The increase in
revenue was primarily driven by increased RSS activity, motor
rental growth, and Atlas motor and parts sales, and was achieved
despite the slowdown in US industry activity. With three
consecutive strong quarters in 2023, US revenue for the nine-month
period ended September 30, 2023 increased 26 percent to $374.4
million from $297.4 million in the 2022-period.
Throughout the year, the demand for PHX Energy’s
premium technologies was robust and with the additional RSS systems
added in the fourth quarter of 2022 and third quarter of 2023, RSS
services accounted for a larger percentage of the US segment’s
activity. This greater volume of RSS activity, along with increased
capacity and utilization in the Corporation’s premium technologies,
primarily drove improvements in the US division’s average revenue
per day(3). For the three-month period ended September 30, 2023,
average revenue per day for directional drilling services rose to
$26,168 from $22,425 in the third quarter of 2022, a 17 percent
increase. In the 2023 nine-month period, average revenue per day
for directional drilling services increased 18 percent to $25,173
from $21,324 in the same 2022-period. The strong US dollar in both
2023 periods also supported the increase in the average revenue per
day. Omitting the impact of foreign exchange, the average revenue
per day for directional drilling services increased by 9 percent
and 13 percent, respectively, in the 2023 three and nine-month
periods.
In the third quarter of 2023, the Corporation’s
US directional drilling activity decreased by 13 percent to 4,050
operating days compared to 4,653 days in the third quarter of 2022
and has decreased by 7 percent as compared to the 4,364 days in the
second quarter of 2023. In comparison, the US industry horizontal
and directional rig count in the third quarter of 2023 decreased 14
percent with 632 active rigs per day as compared to 733 rigs per
day in the third quarter of 2022 and decreased by 10 percent when
compared to an average of 700 active horizontal and directional
rigs per day in the second quarter of 2023. (Source: Baker Hughes,
North American Rotary Rig Count, Jan 2000 – Current,
https://rigcount.bakerhughes.com/na-rig-count). For the nine-month
period ended September 30, 2023, PHX Energy’s US drilling activity
was relatively flat at 13,234 operating days as compared to 13,405
days in the same 2022-period which is in line with the industry
trend over the same period.
Horizontal and directional drilling continued to
represent the majority of rigs running on a daily basis in both
2023 periods. Phoenix USA was active in the Permian, Scoop/Stack,
Marcellus, Utica, Bakken, and Niobrara basins in the nine-month
period ended September 30, 2023.
In the 2023 three-month period, PHX Energy
increased the capacity of its motor rental fleet which allowed the
business to grow its revenue 57 percent to $11.6 million from $7.4
million in the same 2022-period. In the nine-month period ended
September 30, 2023, US motor rental revenue was $31.2 million, a 65
percent increase compared to $19 million in the same 2022-period.
During the 2023-quarter, PHX Energy also sold Atlas motor equipment
and parts to certain customers and generated $6.2 million of
revenue from this line of business. In the 2023 nine-month period,
$10.1 million of Atlas motors and parts have been sold.
For the three and nine-month periods ended
September 30, 2023, the US segment realized reportable segment
income before tax of $25.5 million and $65.5 million, respectively,
which are 49 percent and 62 percent higher than the corresponding
2022-periods. Greater margins from premium technologies and growth
in the rental and sale of Atlas motors largely contributed to
increased profitability in both 2023 periods.
Canada
(Stated in thousands of dollars)
|
Three-month periods ended September 30, |
Nine-month periods ended September 30, |
|
2023 |
2022 |
% Change |
2023 |
2022 |
% Change |
Directional drilling services |
44,145 |
30,725 |
44 |
111,716 |
77,046 |
45 |
Motor
rental |
283 |
271 |
4 |
1,384 |
793 |
75 |
Total Canadian revenue |
44,428 |
30,996 |
43 |
113,100 |
77,839 |
45 |
Reportable segment profit before tax (i) |
8,263 |
4,479 |
84 |
17,828 |
7,930 |
125 |
(i) Includes adjustments to intercompany
transactions.
In the third quarter of 2023, PHX Energy’s
Canadian operations generated revenue of $44.4 million, its highest
level of quarterly revenue since the fourth quarter of 2014 and 43
percent higher compared to $31 million generated in the
2022-quarter. In the 2023 nine-month period, Canadian division
revenue was $113.1 million, an increase of 45 percent as compared
to $77.8 million in the same 2022-period. Strong quarterly revenue
generated throughout 2023 was largely driven by higher average
revenue per day(3) for directional drilling services which
increased by 22 percent to $13,375 in the 2023-quarter from $10,926
in the corresponding 2022-quarter and increased by 24 percent to
$13,257 in the 2023 nine-month period compared to $10,733 in the
same 2022-period. Targeted marketing efforts, strong operational
expertise, and increased deployment of premium technologies
primarily contributed to the improved average revenue per day
realized in both 2023-periods.
For the three and nine-month periods ended
September 30, 2023, operating days improved by 16 percent in both
periods to 3,301 and 8,427, respectively, compared to 2,835 days
and 7,252 days in the corresponding 2022-periods. In comparison,
industry horizontal and directional drilling activity (as measured
by drilling days) declined by 4 percent to 16,261 days in the third
quarter of 2023, and slightly increased by 1 percent to 44,093 days
in the first three quarters of 2023 (Source: Daily Oil Bulletin,
hz-dir days 230331). PHX Energy’s activity far exceeding that of
the industry is a testament to the Corporation’s strong reputation
and presence in the Canadian market. During the 2023-quarter, the
Corporation was active in the Duvernay, Montney, Glauconite,
Frobisher, Cardium, Viking, Bakken, Torquay, Colony, Clearwater,
Deadwood, Ellerslie, and Scallion basins.
For the three and nine-month periods ended
September 30, 2023, the Corporation’s Canadian division recognized
reportable segment profit before tax of $8.3 million (2022 – $4.5
million) and $17.8 million (2022 - $7.9 million), respectively. The
greater volume of activity and higher average revenue per day drove
the improvements in profitability in both 2023 periods.
International – Continuing
Operations
(Stated in thousands of dollars)
|
Three-month periods ended September 30, |
Nine-month periods ended September 30, |
|
2023 |
2022 |
% Change |
2023 |
2022 |
% Change |
Revenue |
1,116 |
1,194 |
(7 |
) |
3,463 |
2,758 |
26 |
Reportable segment profit before tax |
351 |
420 |
(16 |
) |
1,248 |
781 |
60 |
The Corporation’s international segment revenue
is comprised of revenue from Albania. For the three and nine-month
periods ended September 30, 2023, the international segment’s
revenue was $1.1 million (2022 - $1.2 million) and $3.5 million
(2022 - $2.8 million), respectively. Albania operations remain
consistent with one rig which resumed operations in the first
quarter of 2022.
The international segment generated reportable
segment profit before tax of $0.4 million in the 2023 three-month
period, same level as the corresponding 2022-period, and $1.2
million in the 2023 nine-month period, almost double compared to
the same 2022-period.
Investing Activities
Net cash used in investing activities for the
three-month period ended September 30, 2023 was $3.9 million as
compared to $12.8 million in the 2022-period. During the third
quarter of 2023, the Corporation spent $12.5 million (2022 - $10.2
million) to grow the Corporation’s fleet of drilling equipment and
$6.3 million (2022 - $8.4 million) was used to maintain capacity in
the Corporation’s fleet of drilling and other equipment and replace
equipment lost downhole during drilling operations. With proceeds
on disposition of drilling and other equipment of $11.7 million
(2022 - $6.3 million), the Corporation’s net capital
expenditures(2) for the 2023-quarter were $7.1 million (2022 -
$12.4 million).
(Stated in thousands of dollars)
|
Three-month periods ended September 30, |
Nine-month periods ended September 30, |
|
2023 |
2022 |
2023 |
2022 |
Growth capital expenditures |
12,471 |
10,191 |
27,356 |
33,205 |
Maintenance capital expenditures |
6,333 |
8,440 |
22,102 |
18,846 |
Total capital expenditures |
18,804 |
18,631 |
49,458 |
52,051 |
Deduct: |
|
|
|
|
Proceeds on disposition of drilling equipment |
11,682 |
6,274 |
32,689 |
15,454 |
Net capital expenditures(2) |
7,122 |
12,357 |
16,769 |
36,597 |
The 2023-period capital expenditures comprised
of:
- $6.8 million in
downhole performance drilling motors;
- $11.5 million in
MWD systems and spare components and RSS; and
- $0.5 million in machinery and
equipment and other assets.
The change in non-cash working capital balances
of $3.2 million (source of cash) for the three-month period ended
September 30, 2023, relates to the net change in the Corporation’s
trade payables that are associated with the acquisition of capital
assets. This compares to $0.4 million (use of cash) for the
three-month period ended September 30, 2022.
Financing Activities
For the three-month period ended September 30,
2023, net cash used in financing activities was $35.3 million as
compared to $0.3 million in the 2022-period. In the
2023-period:
- dividends of
$7.6 million were paid to shareholders;
- $9.4 million net
repayments were made towards the Corporation’s syndicated credit
facility;
- 2,442,700 common
shares were purchased by the Corporation for $17.5 million and
cancelled under the NCIB;
- payments of $0.8
million were made towards lease liabilities; and
- 150,000 common
shares were issued from treasury for proceeds of $0.4 million upon
the exercise of share options.
Capital Resources
As of September 30, 2023, the Corporation had
CAD $18.3 million drawn on its Canadian credit facilities, nothing
drawn on its US operating facility, and a cash balance of $14.8
million. As at September 30, 2023, the Corporation had CAD $46.5
million and USD $15 million available from its credit facilities.
The credit facilities are secured by substantially all of the
Corporation’s assets and mature in December 2025.
As at September 30, 2023, the Corporation was in
compliance with all its financial covenants.
In November 2023, the Corporation increased the
borrowing amounts in the syndicated facility from CAD $50 million
to CAD $80 million and in the US operating facility from USD $15
million to USD $20 million. The Corporation also extended the
maturity date of the syndicated loan agreement to December 12,
2026. With the increased borrowing amounts, the Corporation has
approximately CAD $76.5 million and USD $20 million available to be
drawn from its credit facilities.
Cash Requirements for Capital
Expenditures
Historically, the Corporation has financed its
capital expenditures and acquisitions through cash flows from
operating activities, proceeds on disposition of drilling
equipment, debt and equity. The Board approved an increase of the
2023 capital expenditure program to $80 million. Of the 2023
capital expenditures, $35 million is expected to be allocated to
maintain capacity in the existing fleet of drilling and other
equipment and replace equipment lost downhole during drilling
operations, and $45 million is expected to be allocated to growth
capital. The amount expected to be allocated towards replacing
equipment lost downhole could increase should more downhole
equipment losses occur throughout the year.
As demand for the Corporation’s premium
technologies continues to grow, and the outlook that the declining
rig counts in North America will level off, the Board has approved
a preliminary 2024 capital expenditure program of $70 million, of
which $42 million is anticipated to be spent on growth. The growth
capital expenditures are expected to be allocated towards: building
larger fleets of recently commercialized supplementary technologies
that create value added capabilities within the premium fleet and
are already in high demand; additional motor capacity to grow the
Atlas rental and sales division; and add required Velocity systems,
RSS and Atlas motos to continue to meet demand for full service
operations. The remaining $28 million is anticipated to be spent on
maintenance of the fleet of drilling and other
equipment.
These planned expenditures are expected to be
financed from cash flow from operating activities, proceeds on
disposition of drilling equipment, cash and cash equivalents, and
the Corporation’s credit facilities, if necessary. However, if a
sustained period of market uncertainty and financial market
volatility persists in 2023, the Corporation's activity levels,
cash flows and access to credit may be negatively impacted, and the
expenditure level would be reduced accordingly where possible.
Conversely, if future growth opportunities present themselves, the
Corporation would look at expanding this planned capital
expenditure amount.
As at September 30, 2023, the Corporation has
commitments to purchase drilling and other equipment for $33.8
million. Deliveries are expected to occur throughout the rest of
the 2023-year and into the first quarter of 2024.
About PHX Energy Services
Corp.
PHX Energy is a growth-oriented, public oil and
natural gas services company. The Corporation, through its
directional drilling subsidiary entities provides horizontal and
directional drilling services and technologies to oil and natural
gas exploration and development companies principally in Canada and
the US. In connection with the services it provides, PHX Energy
engineers, develops and manufactures leading-edge technologies. In
recent years, PHX Energy has developed various new technologies
that have positioned the Corporation as a technology leader in the
horizontal and directional drilling services sector.
PHX Energy’s Canadian directional drilling
operations are conducted through Phoenix Technology Services LP.
The Corporation maintains its corporate head office, research and
development, Canadian sales, service and operational centers in
Calgary, Alberta. In addition, PHX Energy has a facility in
Estevan, Saskatchewan. PHX Energy’s US operations, conducted
through the Corporation’s wholly-owned subsidiary, Phoenix
Technology Services USA Inc. (“Phoenix USA”), is headquartered in
Houston, Texas. Phoenix USA has sales and service facilities in
Houston, Texas; Midland, Texas; Casper, Wyoming; and Oklahoma City,
Oklahoma. Internationally, PHX Energy has sales offices and service
facilities in Albania, and an administrative office in Nicosia,
Cyprus. The Corporation also supplies technology to the Middle East
regions.
The common shares of PHX Energy trade on the
Toronto Stock Exchange under the symbol PHX.
For further information please contact:John
Hooks, CEO; Michael Buker, President; or Cameron Ritchie, Senior
Vice President Finance and CFO
PHX Energy Services Corp.Suite 1600, 215 9th
Avenue SW, Calgary Alberta T2P 1K3Tel: 403-543-4466 Fax:
403-543-4485 www.phxtech.com
Condensed Consolidated Interim
Statements of Financial Position(unaudited)
|
|
September 30, 2023 |
December 31, 2022 |
ASSETS |
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
14,845,393 |
|
|
$ |
18,247,376 |
|
|
Trade and other receivables |
|
|
128,588,190 |
|
|
|
125,836,273 |
|
|
Inventories |
|
|
63,569,528 |
|
|
|
63,119,489 |
|
|
Prepaid expenses |
|
|
2,989,717 |
|
|
|
3,024,166 |
|
|
Total current assets |
|
|
209,992,828 |
|
|
|
210,227,304 |
|
Non-current assets: |
|
|
|
|
|
|
|
Drilling and other long-term assets |
|
|
127,753,169 |
|
|
|
115,945,060 |
|
|
Right-of-use assets |
|
|
27,978,171 |
|
|
|
29,336,163 |
|
|
Intangible assets |
|
|
14,111,652 |
|
|
|
15,668,180 |
|
|
Investments |
|
|
3,000,500 |
|
|
|
3,000,500 |
|
|
Other long-term assets |
|
|
1,645,473 |
|
|
|
993,112 |
|
|
Deferred tax assets |
|
|
53,869 |
|
|
|
53,869 |
|
|
Total non-current assets |
|
|
174,542,834 |
|
|
|
164,996,884 |
|
Total assets |
|
$ |
384,535,662 |
|
|
$ |
375,224,188 |
|
LIABILITIES AND SHAREHOLDERS' EQUITY |
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
Trade and other payables |
|
$ |
92,021,042 |
|
|
$ |
104,688,901 |
|
|
Dividends payable |
|
|
7,276,760 |
|
|
|
7,636,085 |
|
|
Lease liability |
|
|
3,229,737 |
|
|
|
2,906,708 |
|
|
Current tax liabilities |
|
|
6,194,933 |
|
|
|
656,499 |
|
|
Total current liabilities |
|
|
108,722,472 |
|
|
|
115,888,193 |
|
Non-current liabilities: |
|
|
|
|
|
|
|
Lease liability |
|
|
34,909,196 |
|
|
|
36,768,003 |
|
|
Loans and borrowings |
|
|
18,302,454 |
|
|
|
22,731,389 |
|
|
Deferred tax liability |
|
|
18,719,720 |
|
|
|
18,496,619 |
|
|
Other |
|
|
2,838,630 |
|
|
|
4,461,531 |
|
|
Total non-current liabilities |
|
|
74,770,000 |
|
|
|
82,457,542 |
|
Equity: |
|
|
|
|
|
|
|
Share capital |
|
|
233,646,892 |
|
|
|
251,344,809 |
|
|
Contributed surplus |
|
|
7,178,466 |
|
|
|
7,044,317 |
|
|
Deficit |
|
|
(69,376,356 |
) |
|
|
(112,120,484 |
) |
|
Accumulated other comprehensive income |
|
|
29,594,188 |
|
|
|
30,609,811 |
|
|
Total equity |
|
|
201,043,190 |
|
|
|
176,878,453 |
|
Total liabilities and equity |
|
$ |
384,535,662 |
|
|
$ |
375,224,188 |
|
Condensed Consolidated Interim
Statements of Comprehensive Earnings
(unaudited)
|
Three-month periods ended September 30, |
Nine-month periods ended September 30, |
|
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
Revenue |
|
$ |
169,367,911 |
|
$ |
142,418,326 |
|
$ |
491,008,431 |
|
$ |
377,986,582 |
|
Direct costs |
|
|
125,137,605 |
|
|
111,734,015 |
|
|
376,995,672 |
|
|
304,200,177 |
|
Gross profit |
|
|
44,230,306 |
|
|
30,684,311 |
|
|
114,012,759 |
|
|
73,786,405 |
|
Expenses: |
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses |
|
|
19,832,791 |
|
|
15,589,015 |
|
|
50,911,033 |
|
|
49,536,435 |
|
Research and developmentexpenses |
|
|
1,245,826 |
|
|
909,169 |
|
|
3,816,601 |
|
|
2,538,935 |
|
Finance expense |
|
|
597,898 |
|
|
499,461 |
|
|
1,974,058 |
|
|
873,445 |
|
Finance expense lease liability |
|
|
554,405 |
|
|
498,239 |
|
|
1,694,550 |
|
|
1,506,640 |
|
Other income |
|
|
(9,113,282 |
) |
|
(3,953,620 |
) |
|
(24,359,774 |
) |
|
(11,031,501 |
) |
|
|
|
|
13,117,638 |
|
|
13,542,264 |
|
|
34,036,468 |
|
|
43,423,954 |
|
Earnings from continuing operations before income taxes |
|
|
31,112,668 |
|
|
17,142,047 |
|
|
79,976,291 |
|
|
30,362,451 |
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes |
|
|
|
|
|
|
|
|
|
Current |
|
|
5,616,371 |
|
|
625,922 |
|
|
13,591,604 |
|
|
396,650 |
|
Deferred |
|
|
575,118 |
|
|
3,041,401 |
|
|
937,818 |
|
|
5,987,492 |
|
|
|
|
|
6,191,489 |
|
|
3,667,323 |
|
|
14,529,422 |
|
|
6,384,142 |
|
Earnings from continuing operations |
|
|
24,921,179 |
|
|
13,474,724 |
|
|
65,446,869 |
|
|
23,978,309 |
|
|
|
|
|
|
|
|
|
|
|
Discontinued operations |
|
|
|
|
|
|
|
|
|
Net loss from discontinued operations, net of taxes |
|
- |
|
|
- |
|
|
- |
|
|
(14,558,032 |
) |
Net earnings |
|
|
24,921,179 |
|
|
13,474,724 |
|
|
65,446,869 |
|
|
9,420,277 |
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income |
|
|
|
|
|
|
|
|
|
|
Foreign currency translation |
|
|
3,613,465 |
|
|
8,739,048 |
|
|
(1,015,623 |
) |
|
10,563,631 |
|
|
Reclassification of foreign currency translation loss on
disposition |
|
|
- |
|
|
- |
|
|
- |
|
|
10,560,954 |
|
Total comprehensive earnings for the period |
|
$ |
28,534,644 |
|
$ |
22,213,772 |
|
$ |
64,431,246 |
|
$ |
30,544,862 |
|
Earnings (loss) per share – basic |
|
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
0.50 |
|
$ |
0.27 |
|
$ |
1.29 |
|
$ |
0.48 |
|
Discontinued operations |
|
$ |
- |
|
$ |
- |
|
$ |
- |
|
$ |
(0.29 |
) |
Net earnings |
|
$ |
0.50 |
|
$ |
0.27 |
|
$ |
1.29 |
|
$ |
0.19 |
|
Earnings (loss) per share – diluted |
|
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
0.50 |
|
$ |
0.27 |
|
$ |
1.28 |
|
$ |
0.48 |
|
Discontinued operations |
|
$ |
- |
|
$ |
- |
|
$ |
- |
|
$ |
(0.29 |
) |
Net earnings |
|
$ |
0.50 |
|
$ |
0.27 |
|
$ |
1.28 |
|
$ |
0.19 |
|
Condensed Consolidated Interim
Statements of Cash Flows(unaudited)
|
Three-month periods ended September 30, |
Nine-month periods ended September 30, |
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
Cash flows from operating
activities: |
|
|
|
|
|
|
|
|
Earnings from continuing
operations |
$ |
24,921,179 |
|
$ |
13,474,724 |
|
$ |
65,446,869 |
|
$ |
23,978,309 |
|
Adjustments for: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
9,866,881 |
|
|
8,143,257 |
|
|
28,804,904 |
|
|
23,242,730 |
|
Depreciation and amortization right-of-use asset |
|
822,190 |
|
|
744,876 |
|
|
2,057,025 |
|
|
2,429,603 |
|
Provision for income taxes |
|
6,191,489 |
|
|
3,667,323 |
|
|
14,529,422 |
|
|
6,384,142 |
|
Unrealized foreign exchange gain |
|
427,482 |
|
|
155,128 |
|
|
391,554 |
|
|
36,602 |
|
Net gain on disposition of drilling equipment |
|
(8,353,639 |
) |
|
(4,157,247 |
) |
|
(23,903,064 |
) |
|
(10,798,870 |
) |
Equity-settled share-based payments |
|
144,193 |
|
|
133,034 |
|
|
431,109 |
|
|
393,042 |
|
Finance expense |
|
597,898 |
|
|
499,461 |
|
|
1,974,058 |
|
|
873,445 |
|
Finance expense lease liability |
|
554,405 |
|
|
498,239 |
|
|
1,694,550 |
|
|
1,506,640 |
|
Provision for (recovery of) bad debts |
|
(1,106,245 |
) |
|
(1,501 |
) |
|
116,519 |
|
|
(1,501 |
) |
Provision for inventory obsolescence |
|
653,716 |
|
|
51,868 |
|
|
1,301,822 |
|
|
876,524 |
|
Interest paid on lease liability |
|
(554,405 |
) |
|
(498,239 |
) |
|
(1,694,550 |
) |
|
(1,506,640 |
) |
Interest paid |
|
(472,654 |
) |
|
(413,530 |
) |
|
(1,506,251 |
) |
|
(591,701 |
) |
Income taxes received (paid) |
|
(7,075,749 |
) |
|
9,461 |
|
|
(8,533,759 |
) |
|
228,591 |
|
Change in non-cash working capital |
|
7,011,213 |
|
|
(679,450 |
) |
|
(21,140,830 |
) |
|
(17,683,437 |
) |
Continuing operations |
|
33,627,954 |
|
|
21,627,404 |
|
|
59,969,378 |
|
|
29,367,479 |
|
Discontinued operations |
|
- |
|
|
- |
|
|
- |
|
|
(1,254,859 |
) |
Net cash from operating activities |
|
33,627,954 |
|
|
21,627,404 |
|
|
59,969,378 |
|
|
28,112,620 |
|
Cash flows from investing
activities: |
|
|
|
|
|
|
|
|
Proceeds on disposition of drilling equipment |
|
11,682,392 |
|
|
6,274,079 |
|
|
32,689,018 |
|
|
15,453,628 |
|
Acquisition of drilling and other equipment |
|
(18,803,529 |
) |
|
(18,631,230 |
) |
|
(49,457,974 |
) |
|
(52,051,148 |
) |
Acquisition of intangible assets |
|
- |
|
|
(74,189 |
) |
|
- |
|
|
(692,394 |
) |
Change in non-cash working capital |
|
3,203,370 |
|
|
(370,923 |
) |
|
2,150,701 |
|
|
339,967 |
|
Continuing operations |
|
(3,917,767 |
) |
|
(12,802,263 |
) |
|
(14,618,255 |
) |
|
(36,949,947 |
) |
Discontinued operations |
|
- |
|
|
- |
|
|
- |
|
|
(68,068 |
) |
Net cash used in investing activities |
|
(3,917,767 |
) |
|
(12,802,263 |
) |
|
(14,618,255 |
) |
|
(37,018,015 |
) |
Cash flows from financing
activities: |
|
|
|
|
|
|
|
|
Dividends paid to shareholders |
|
(7,620,665 |
) |
|
(3,796,793 |
) |
|
(22,912,561 |
) |
|
(10,069,396 |
) |
Repurchase of shares under the NCIB |
|
(17,523,151 |
) |
|
- |
|
|
(19,101,893 |
) |
|
- |
|
Proceeds from (repayment of) loans and borrowings |
|
(9,399,518 |
) |
|
3,892,008 |
|
|
(4,231,389 |
) |
|
24,000,000 |
|
Payments of Lease Liability |
|
(765,891 |
) |
|
(734,273 |
) |
|
(2,221,166 |
) |
|
(2,466,184 |
) |
Purchase of shares held in trust |
|
- |
|
|
- |
|
|
(612,000 |
) |
|
(3,500,000 |
) |
Proceeds from exercise of options |
|
414,500 |
|
|
359,032 |
|
|
763,950 |
|
|
2,170,885 |
|
Change in non-cash working capital |
|
(414,500 |
) |
|
- |
|
|
(414,500 |
) |
|
- |
|
Continuing operations |
|
(35,309,225 |
) |
|
(280,026 |
) |
|
(48,729,559 |
) |
|
10,135,305 |
|
Net cash from (used in) financing activities |
|
(35,309,225 |
) |
|
(280,026 |
) |
|
(48,729,559 |
) |
|
10,135,305 |
|
Net increase (decrease) in
cash and cash equivalents |
|
(5,599,038 |
) |
|
8,545,115 |
|
|
(3,378,436 |
) |
|
1,229,910 |
|
Cash and cash equivalents,
beginning of period |
|
20,079,623 |
|
|
17,971,334 |
|
|
18,247,376 |
|
|
24,828,830 |
|
Effect
of movements in exchange rates on cash held |
|
364,808 |
|
|
507,210 |
|
|
(23,547 |
) |
|
964,919 |
|
Cash
and cash equivalents, end of period |
$ |
14,845,393 |
|
$ |
27,023,659 |
|
$ |
14,845,393 |
|
$ |
27,023,659 |
|
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 expectation the Corporation’s credit facilities will provide
flexibility to take advantage of potential future opportunities,
the anticipated industry activity and demand for the Corporation’s
services and technologies in North America, the Corporation’s
intent to preserve balance sheet strength and continue to reward
shareholders, including through its dividend program, the ROCS
program and NCIB, PHX Energy's intentions with respect to the NCIB
and purchases thereunder and the effects of repurchases under the
NCIB; the projected capital expenditures budget 2023 and 2024 ,and
how the budget will be allocated and funded, the timeline for
delivery of equipment on order, the anticipated continuation of the
revenue and profitability generated by both the Atlas sales and
rental divisions and the related profitability, and the anticipated
continuation of PHX Energy’s quarterly dividend program and the
amounts of dividends.
The above are stated under the headings:
Financial Results”, “Dividends and ROCS”, “Capital Spending”, Sales
and Licensed Use of Atlas Motors”, “Revenue”, and “Cash
Requirements for Capital Expenditures”. In addition, all
information contained under the heading “Outlook” of this document
may contain 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, without limitation, that: the Corporation will continue
to conduct its operations in a manner consistent with past
operations; the general continuance of current industry conditions
and the accuracy of the Corporation’s market outlook expectations
for 2023 and in the future; that future business, regulatory and
industry conditions will be within the parameters expected by the
Corporation, anticipated financial performance, business prospects,
impact of competition, strategies, the general stability of the
economic and political environment in which the Corporation
operates; the impact of pandemics, conflicts and wars on the global
economy, specifically trade, manufacturing, supply chain, inflation
and energy consumption, among other things and the resulting impact
on the Corporation’s operations and future results which remain
uncertain, exchange and interest rates including the potential for
further interest rate hikes by global central banks and the impact
on financing charges and foreign exchange and the anticipated
global economic response to concerted interest rate hikes; 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.
Non-GAAP and Other Financial
Measures
Non-GAAP Financial Measures and
Ratios
a) Adjusted EBITDA from Continuing
Operations
Adjusted EBITDA from continuing operations,
defined as earnings before finance expense, finance expense lease
liability, income taxes, depreciation and amortization, impairment
losses on drilling and other equipment and goodwill and other
write-offs, equity-settled share-based payments, severance payouts
relating to the Corporation’s restructuring cost, and unrealized
foreign exchange gains or losses, does not have a standardized
meaning and is not a financial measure that is recognized under
GAAP. However, Management believes that adjusted EBITDA from
continuing operations provides supplemental information to earnings
from continuing operations that is useful in evaluating the results
of the Corporation’s principal business activities before
considering certain charges, how it was financed and how it was
taxed in various countries. Investors should be cautioned, however,
that adjusted EBITDA from continuing operations should not be
construed as an alternative measure to earnings from continuing
operations determined in accordance with GAAP. PHX Energy’s method
of calculating adjusted EBITDA from continuing operations may
differ from that of other organizations and, accordingly, its
adjusted EBITDA from continuing operations may not be comparable to
that of other companies.
The following is a reconciliation of earnings from
continuing operations to adjusted EBITDA:
(Stated in thousands of
dollars)
|
Three-month periods ended September 30, |
Nine-month periods ended September 30, |
|
2023 |
2022 |
2023 |
2022 |
Earnings from continuing operations: |
24,921 |
13,475 |
65,447 |
23,978 |
Add: |
|
|
|
|
Depreciation and amortization drilling and other equipment |
9,867 |
8,143 |
28,805 |
23,243 |
Depreciation and amortization right-of-use asset |
822 |
745 |
2,057 |
2,430 |
Provision for income taxes |
6,191 |
3,667 |
14,529 |
6,384 |
Finance expense |
598 |
499 |
1,974 |
873 |
Finance expense lease liability |
554 |
498 |
1,695 |
1,507 |
Equity-settled share-based payments |
144 |
133 |
431 |
393 |
Unrealized foreign exchange loss |
427 |
155 |
392 |
37 |
Adjusted EBITDA from continuing operations |
43,524 |
27,315 |
115,330 |
58,845 |
b) Adjusted EBITDA from Continuing
Operations Per Share - Diluted
Adjusted EBITDA from continuing operations per
share - diluted is calculated using the treasury stock method
whereby deemed proceeds on the exercise of the share options are
used to reacquire common shares at an average share price. The
calculation of adjusted EBITDA from continuing operations per share
- dilutive is based on the adjusted EBITDA from continuing
operations as reported in the table above divided by the diluted
number of shares outstanding at the period end.
c) Adjusted EBITDA from Continuing
Operations as a Percentage of Revenue
Adjusted EBITDA as a percentage of revenue is
calculated by dividing the adjusted EBITDA from continuing
operations as reported in the table above by revenue as stated on
the Condensed Consolidated Statements of Comprehensive
Earnings.
d) Adjusted EBITDA from Continuing
Operations Excluding Cash-settled Share-based Compensation
Expense
Adjusted EBITDA from continuing operations
excluding cash-settled share-based compensation expense is
calculated by adding cash-settled share-based compensation expense
to adjusted EBITDA from continuing operations as described above.
Management believes that this measure provides supplemental
information to earnings from continuing operations that is useful
in evaluating the results of the Corporation’s principal business
activities before considering certain charges, how it was financed,
how it was taxed in various countries, and without the impact of
cash-settled share-based compensation expense that is affected by
fluctuations in the Corporation’s share price.
The following is a reconciliation of earnings
from continuing operations to adjusted EBITDA from continuing
operations excluding cash-settled share-based compensation
expense:
(Stated in thousands of
dollars)
|
Three-month periods ended September 30, |
Nine-month periods ended September 30, |
|
2023 |
2022 |
2023 |
2022 |
Earnings (loss) from continuing operations: |
24,921 |
13,475 |
65,447 |
23,978 |
Add: |
|
|
|
|
Depreciation and amortization drilling and other equipment |
9,867 |
8,143 |
28,805 |
23,243 |
Depreciation and amortization right-of-use asset |
822 |
745 |
2,057 |
2,430 |
Provision for (Recovery of) income taxes |
6,191 |
3,667 |
14,529 |
6,384 |
Finance expense |
598 |
499 |
1,974 |
873 |
Finance expense lease liability |
554 |
498 |
1,695 |
1,507 |
Equity-settled share-based payments |
144 |
133 |
431 |
393 |
Unrealized foreign exchange loss |
427 |
155 |
392 |
37 |
Cash-settled share-based compensation expense |
4,969 |
5,178 |
8,899 |
17,630 |
Adjusted EBITDA from continuing operations excluding cash-settled
share-based compensation expense |
48,493 |
32,493 |
124,229 |
76,475 |
e) Adjusted EBITDA from Continuing
Operations Excluding Cash-settled Share-based Compensation Expense
as a Percentage of Revenue
Adjusted EBITDA from continuing operations
excluding cash-settled share-based compensation expense as a
percentage of revenue is calculated by dividing adjusted EBITDA
from continuing operations excluding cash-settled share-based
compensation expense as reported above by revenue as stated on the
Condensed Consolidated Statements of Comprehensive Earnings.
f) Gross Profit as a Percentage of
Revenue Excluding Depreciation & Amortization
Gross profit as a percentage of revenue
excluding depreciation & amortization is defined as the
Corporation’s gross profit excluding depreciation and amortization
divided by revenue and is used to assess operational profitability.
This Non-GAAP ratio does not have a standardized meaning and is not
a financial measure recognized under GAAP. PHX Energy’s method of
calculating gross profit as a percentage of revenue may differ from
that of other organizations and, accordingly, it may not be
comparable to that of other companies.
The following is a reconciliation of revenue,
direct costs, depreciation and amortization, and gross profit to
gross profit as a percentage of revenue excluding depreciation and
amortization:
(Stated in thousands of dollars)
|
Three-month periods ended September 30, |
Nine-month periods ended September 30, |
|
|
2023 |
|
2022 |
|
2023 |
|
2022 |
|
Revenue |
|
169,368 |
|
142,418 |
|
491,008 |
|
377,987 |
|
Direct costs |
|
125,138 |
|
111,734 |
|
376,996 |
|
304,200 |
|
Gross profit |
|
44,230 |
|
30,684 |
|
114,012 |
|
73,787 |
|
Depreciation &
amortization drilling and other equipment (included in direct
costs) |
|
9,867 |
|
8,143 |
|
28,805 |
|
23,243 |
|
Depreciation &
amortization right-of-use asset (included in direct costs) |
|
822 |
|
745 |
|
2,057 |
|
2,430 |
|
|
|
54,919 |
|
39,572 |
|
144,874 |
|
99,460 |
|
Gross profit as a percentage of revenue excluding depreciation
& amortization |
|
32 |
% |
28 |
% |
30 |
% |
26 |
% |
g) SG&A Costs Excluding
Share-Based Compensation as a Percentage of Revenue
SG&A costs excluding share-based
compensation as a percentage of revenue is defined as the
Corporation’s SG&A costs excluding share-based compensation
divided by revenue and is used to assess the impact of
administrative costs excluding the effect of share price
volatility. This Non-GAAP ratio does not have a standardized
meaning and is not a financial measure recognized under GAAP. PHX
Energy’s method of calculating SG&A costs excluding share-based
compensation as a percentage of revenue may differ from that of
other organizations and, accordingly, it may not be comparable to
that of other companies.
The following is a reconciliation of SG&A
costs, share-based compensation, and revenue to SG&A costs
excluding share-based compensation as a percentage of revenue:
(Stated in thousands of dollars)
|
Three-month periods ended September 30, |
Nine-month periods ended September 30, |
|
|
2023 |
|
2022 |
|
2023 |
|
2022 |
|
SG&A Costs |
|
19,833 |
|
15,589 |
|
50,911 |
|
49,536 |
|
Deduct: |
|
|
|
|
|
Share-based compensation (included in SG&A) |
|
5,113 |
|
5,311 |
|
9,330 |
|
18,023 |
|
|
|
14,720 |
|
10,278 |
|
41,581 |
|
31,513 |
|
Revenue |
|
169,368 |
|
142,418 |
|
491,008 |
|
377,987 |
|
SG&A costs excluding share-based compensation as a percentage
of revenue |
|
9 |
% |
7 |
% |
8 |
% |
8 |
% |
Capital Management Measures
a) Funds from
Operations
Funds from operations is defined as cash flows
generated from operating activities before changes in non-cash
working capital, interest paid, and income taxes paid. This
financial measure does not have a standardized meaning and is not a
financial measure recognized under GAAP. Management uses funds from
operations as an indication of the Corporation’s ability to
generate funds from its operations before considering changes in
working capital balances and interest and taxes paid. Investors
should be cautioned, however, that this financial measure should
not be construed as an alternative measure to cash flows from
operating activities determined in accordance with GAAP. PHX
Energy’s method of calculating funds from operations may differ
from that of other organizations and, accordingly, it may not be
comparable to that of other companies.
The following is a reconciliation of cash flows
from operating activities to funds from operations:
(Stated in thousands of dollars)
|
Three-month periods ended September 30, |
Nine-month periods ended September 30, |
|
2023 |
|
2022 |
|
2023 |
2022 |
|
Cash flows from operating activities |
33,628 |
|
21,627 |
|
59,969 |
29,367 |
|
Add (deduct): |
|
|
|
|
Changes in non-cash working capital |
(7,011 |
) |
679 |
|
21,141 |
17,683 |
|
Interest paid |
473 |
|
414 |
|
1,506 |
592 |
|
Income taxes paid (received) |
7,076 |
|
(9 |
) |
8,534 |
(229 |
) |
Funds from operations |
34,166 |
|
22,711 |
|
91,150 |
47,413 |
|
b) Excess Cash Flow
Excess cash flow is defined as funds from
operations (as defined above) less cash payment on leases, growth
capital expenditures, and maintenance capital expenditures from
downhole equipment losses and asset retirements and increased by
proceeds on disposition of drilling equipment. This financial
measure does not have a standardized meaning and is not a financial
measure recognized under GAAP. Management uses excess cash flow as
an indication of the Corporation’s ability to generate funds from
its operations to support operations and grow and maintain the
Corporation’s drilling and other equipment. This performance
measure is useful to investors for assessing the Corporation’s
operating and financial performance, leverage and liquidity.
Investors should be cautioned, however, that this financial measure
should not be construed as an alternative measure to cash flows
from operating activities determined in accordance with GAAP. PHX
Energy’s method of calculating excess cash flow may differ from
that of other organizations and, accordingly, it may not be
comparable to that of other companies.
The following is a reconciliation of cash flows
from operating activities to excess cash flow:
(Stated in thousands of dollars)
|
Three-month periods ended September 30, |
Nine-month periods ended September 30, |
|
2023 |
|
2022 |
|
2023 |
|
2022 |
|
Cash flows from operating activities |
33,628 |
|
21,627 |
|
59,969 |
|
29,367 |
|
Add (deduct): |
|
|
|
|
Changes in non-cash working capital |
(7,011 |
) |
679 |
|
21,141 |
|
17,683 |
|
Interest paid |
473 |
|
414 |
|
1,506 |
|
592 |
|
Income taxes paid (received) |
7,076 |
|
(9 |
) |
8,534 |
|
(229 |
) |
Cash payment on leases |
(1,320 |
) |
(1,233 |
) |
(3,916 |
) |
(3,973 |
) |
|
32,846 |
|
21,478 |
|
87,234 |
|
43,440 |
|
|
|
|
|
|
Proceeds on disposition of drilling equipment |
11,682 |
|
6,274 |
|
32,689 |
|
15,454 |
|
Maintenance capital expenditures |
(6,333 |
) |
(8,440 |
) |
(22,102 |
) |
(18,846 |
) |
Net proceeds |
5,349 |
|
(2,166 |
) |
10,587 |
|
(3,392 |
) |
|
|
|
|
|
Growth capital expenditures |
(12,471 |
) |
(10,191 |
) |
(27,356 |
) |
(33,205 |
) |
Excess cash flow |
25,724 |
|
9,121 |
|
70,465 |
|
6,843 |
|
c) Working Capital
Working capital is defined as the Corporation’s
current assets less its current liabilities and is used to assess
the Corporation’s short-term liquidity. This financial measure does
not have a standardized meaning and is not a financial measure
recognized under GAAP. Management uses working capital to provide
insight as to the Corporation’s ability to meet obligations as at
the reporting date. PHX Energy’s method of calculating working
capital may differ from that of other organizations and,
accordingly, it may not be comparable to that of other
companies.
The following is a reconciliation of current
assets and current liabilities to working capital:
(Stated in thousands of dollars)
|
|
|
|
September 30, 2023 |
December 31, 2022 |
Current assets |
|
|
|
209,993 |
|
210,227 |
|
Deduct: |
|
|
|
|
|
Current liabilities |
|
|
|
(108,722 |
) |
(115,888 |
) |
Working capital |
|
|
|
101,271 |
|
94,339 |
|
d) Net Debt
Net debt is defined as the Corporation’s
operating facility and loans and borrowings less cash and cash
equivalents. This financial measure does not have a standardized
meaning and is not a financial measure recognized under GAAP.
Management uses net debt to provide insight as to the Corporation’s
ability to meet obligations as at the reporting date. PHX Energy’s
method of calculating net debt may differ from that of other
organizations and, accordingly, it may not be comparable to that of
other companies.
The following is a reconciliation of operating
facility, loans and borrowings, and cash and cash equivalents to
net debt:
(Stated in thousands of dollars)
|
|
|
September 30, 2023 |
December 31, 2022 |
Loans and borrowings |
|
|
18,302 |
|
22,731 |
|
Deduct: |
|
|
|
|
Cash and cash equivalents |
|
|
(14,845 |
) |
(18,247 |
) |
Net debt |
|
|
3,457 |
|
4,484 |
|
e) Net Capital
Expenditures
Net capital expenditures is comprised of total
additions to drilling and other long-term assets, as determined in
accordance with IFRS, less total proceeds from disposition of
drilling equipment, as determined in accordance with IFRS. This
financial measure does not have a standardized meaning and is not a
financial measure recognized under GAAP. Management uses net
capital expenditures to provide insight as to the Corporation’s
ability to meet obligations as at the reporting date. PHX Energy’s
method of calculating net debt may differ from that of other
organizations and, accordingly, it may not be comparable to that of
other companies.
The following is a reconciliation of additions to
drilling and other equipment and proceeds from disposition of
drilling equipment to net capital expenditures:
(Stated in thousands of dollars)
|
Three-month periods ended September 30, |
Nine-month periods ended September 30, |
|
2023 |
2022 |
2023 |
2022 |
Growth capital expenditures |
12,471 |
10,191 |
27,356 |
33,205 |
Maintenance capital expenditures |
6,333 |
8,440 |
22,102 |
18,846 |
Total capital expenditures |
18,804 |
18,631 |
49,458 |
52,051 |
Deduct: |
|
|
|
|
Proceeds on disposition of drilling equipment |
11,682 |
6,274 |
32,689 |
15,454 |
Net capital expenditures |
7,122 |
12,357 |
16,769 |
36,597 |
f) Remaining Distributable Balance
under ROCS
Remaining distributable balance under ROCS is
comprised of 70% of excess cash flow as defined above less
repurchases of shares under the Normal Course Issuer Bids in effect
during the period and less the dividends paid to shareholders
during the period. This financial measure does not have a
standardized meaning and is not a financial measure recognized
under GAAP. Management uses the remaining distributable balance
under ROCS to provide insight as to the Corporation’s ROCS strategy
as at the reporting date. PHX Energy’s method of calculating
remaining distributable balance under ROCS may differ from that of
other organizations and, accordingly, it may not be comparable to
that of other companies.
The following is a reconciliation of excess cash
flow as defined above to remaining distributable balance under
ROCS:
Stated in thousands of dollars)
|
|
Nine-month period ended September 30, 2023 |
Excess cash flow |
|
70,465 |
|
70% of excess cash flow |
|
49,326 |
|
|
|
|
Deduct: |
|
|
Repurchase of shares under the NCIB |
|
(19,102 |
) |
Dividends paid to shareholders |
|
(22,913 |
) |
Remaining Distributable Balance under ROCS |
|
7,311 |
|
Supplementary Financial
Measures“Average consolidated revenue per
day” is comprised of consolidated revenue, as determined
in accordance with IFRS, divided by the Corporation’s consolidated
number of operating days. Operating days is defined under the
“Definitions” section below.“Average revenue per operating
day” is comprised of revenue, as determined in accordance
with IFRS, divided by the number of operating days.
“Dividends paid per share” is
comprised of dividends paid, as determined in accordance with IFRS,
divided by the number of shares outstanding at the dividend record
date.“Effective tax rate” is
comprised of provision for or recovery of income tax, as determined
in accordance with IFRS, divided by earnings from continuing
operations before income taxes, as determined in accordance with
IFRS.“Funds from operations per share – diluted”
is calculated using the treasury stock method whereby deemed
proceeds on the exercise of the share options are used to reacquire
common shares at an average share price. The calculation of funds
from operations per share - diluted is based on the funds from
operations as reported in the table above divided by the diluted
number of shares outstanding at period end.
Definitions
“Operating days” throughout
this document, it is referring to the billable days on which PHX
Energy is providing services to the client at the rig site.
“Capital expenditures” equate to the Corporation’s
total acquisition of drilling and other equipment as stated on the
Condensed Consolidated Statements of Cash Flows and Note 6(a) in
the Notes to the Condensed Consolidated Financial
Statements.“Growth capital expenditures” are
capital expenditures that were used to expand capacity in the
Corporation’s fleet of drilling equipment.“Maintenance
capital expenditures” are capital expenditures that were
used to maintain capacity in the Corporation’s fleet of drilling
equipment and replace equipment that were lost downhole during
drilling operations.
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