Third Quarter
Highlights
- Despite the continued softening in
the US rig count in the third quarter of 2024, PHX Energy generated
consolidated revenue of $160.6 million, only 5 percent lower than
the record third quarter consolidated revenue of $169.4 million
generated in 2023. Consolidated revenue in the 2024-quarter
included $10.2 million of motor rental revenue and $2 million of
revenue generated from the sale of motor equipment and parts (2023
- $13.2 million and $6.2 million, respectively).
- For the three-month period ended
September 30, 2024, PHX Energy’s US division generated revenue of
$117 million, 6 percent lower than the $123.8 million in the
2023-quarter and marginally higher than the $116 million in the
second quarter of 2024. The decline in US quarterly revenue is
largely attributable to lower motor rental revenue and motor
equipment and parts sales while the US division’s directional
drilling revenue was flat quarter-over-quarter. In comparison, the
US rig count was down 10 percent compared to the third quarter of
2023 and 3 percent compared to the second quarter of 2024. US
division revenue in the 2024-quarter represented 73 percent of
consolidated revenue (2023 – 73 percent of consolidated
revenue).
- PHX Energy’s Canadian division
reported $43.7 million of quarterly revenue, 4 percent lower
compared to $45.5 million in the 2023-quarter. In comparison, the
Canadian rig count increased by 10 percent quarter-over-quarter.
During the 2024 three-month period, PHX Energy’s Canadian activity
was negatively affected by the weak natural gas prices that
persisted and the resulting reduction in its natural gas clients’
activity.
- For the three-month period
ended September 30, 2024, adjusted EBITDA(1) was $29 million, 18
percent of consolidated revenue(1), as compared to $43.5 million,
26 percent of consolidated revenue, in the same 2023-quarter.
Earnings in the 2024 three-month period were $10.2 million, $0.22
per share, as compared to $24.9 million, $0.50 per share, in the
same 2023-period. Included in the 2024-quarter’s adjusted EBITDA
and earnings is $4.3 million (pre-tax) of net gain on disposition
of drilling equipment, a decrease compared to $8.4 million
(pre-tax) in the 2023-quarter. Additionally, included in the 2024
three-month period adjusted EBITDA is cash-settled share-based
compensation expense of $2.5 million (2023 - $5 million). For the
three-month period ended September 30, 2024, adjusted EBITDA
excluding cash-settled share-based compensation expense(1) is $31.5
million, 20 percent of consolidated revenue (2023 - $48.5 million,
29 percent of consolidated revenue). Apart from lower revenue and
net gain on disposition of drilling equipment, the decline in
profitability in the 2024-quarter was generally due to decreased
activity in the Corporation’s high margin revenue streams,
including Rotary Steerable System (“RSS”) activity, motor rentals,
and motor equipment and parts sales.
- In the third quarter of 2024, the
Corporation generated excess cash flow(2) of $19.3 million, after
deducting net capital expenditures(2) of $4.2 million ($11.1
million of capital expenditures offset by proceeds on disposition
of drilling and other equipment of $6.9 million).
- In the 2024 three-month period, PHX
Energy paid $9.4 million in dividends which is 24 percent higher
than the dividend amount paid in the same 2023-period. On September
13, 2024, the Corporation declared a dividend of $0.20 per share or
$9.2 million payable on October 15, 2024.
- During the third quarter of 2024,
the TSX approved the renewal of PHX Energy’s Normal Course Issuer
Bid (“NCIB”) to purchase for cancellation, from time-to-time, up to
a maximum of 3,363,845 common shares, representing 10 percent of
the Corporation’s public float of Common Shares as at August 7,
2024. The NCIB commenced on August 16, 2024 and will terminate on
August 15, 2025.
- There were 1,289,932 common shares
purchased for $12.6 million and subsequently cancelled under the
previous and current NCIB in the three-month period ended September
30, 2024 (2023 – 2,442,700 shares, $17.5 million). Subsequent to
September 30, 2024, the Corporation purchased and cancelled 420,100
common shares for $4.1 million including incremental transaction
costs.
- Since the second quarter of 2017 to
September 30, 2024, a total of 15.7 million common shares have been
purchased and cancelled under PHX Energy’s various NCIB’s. This
represents 27 percent of common shares outstanding as of June 30,
2017. It is the Corporation’s intention to continue the current
strategy of leveraging the NCIB to its fullest as a tool to further
reward shareholders under ROCS.
- As at September 30, 2024, the
Corporation had working capital(2) of $75.7 million and net debt(2)
of $5 million.
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, |
|
|
|
2024 |
|
2023 |
|
% Change |
|
2024 |
|
2023 |
|
% Change |
|
|
Operating Results |
(unaudited) |
|
(unaudited) |
|
|
|
(unaudited) |
|
(unaudited) |
|
|
|
|
Revenue |
160,634 |
|
169,368 |
|
(5 |
) |
480,987 |
|
491,008 |
|
(2 |
) |
|
Earnings |
10,160 |
|
24,921 |
|
(59 |
) |
40,527 |
|
65,447 |
|
(38 |
) |
|
Earnings per share – diluted |
0.22 |
|
0.50 |
|
(56 |
) |
0.86 |
|
1.28 |
|
(33 |
) |
|
Adjusted EBITDA(1) |
29,018 |
|
43,524 |
|
(33 |
) |
94,100 |
|
115,330 |
|
(18 |
) |
|
Adjusted EBITDA per share – diluted(1) |
0.60 |
|
0.88 |
|
(32 |
) |
1.93 |
|
2.17 |
|
(11 |
) |
|
Adjusted EBITDA as a percentage of revenue(1) |
18 |
% |
26 |
% |
|
|
20 |
% |
23 |
% |
|
|
|
Cash Flow |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from operating activities |
28,740 |
|
33,628 |
|
(15 |
) |
79,225 |
|
59,969 |
|
32 |
|
|
Funds from operations(2) |
24,941 |
|
34,166 |
|
(27 |
) |
75,395 |
|
91,150 |
|
(17 |
) |
|
Funds from operations per share – diluted(3) |
0.52 |
|
0.69 |
|
(25 |
) |
1.55 |
|
1.71 |
|
(9 |
) |
|
Dividends paid per share(3) |
0.20 |
|
0.15 |
|
33 |
|
0.60 |
|
0.45 |
|
33 |
|
|
Dividends paid |
9,437 |
|
7,621 |
|
24 |
|
28,388 |
|
22,913 |
|
24 |
|
|
Capital expenditures |
11,143 |
|
18,804 |
|
(41 |
) |
67,563 |
|
49,458 |
|
37 |
|
|
Excess cash flow(2) |
19,334 |
|
25,724 |
|
(25 |
) |
30,311 |
|
70,465 |
|
(57 |
) |
|
Financial Position |
|
|
|
|
|
|
Sept 30 ‘24 |
|
Dec 31 ‘23 |
|
|
|
|
Working capital(2) |
|
|
|
|
|
|
75,677 |
|
93,915 |
|
(19 |
) |
|
Net debt (Net cash)(2) |
|
|
|
|
|
|
4,968 |
|
(8,869 |
) |
n.m. |
|
|
Shareholders’ equity |
|
|
|
|
|
|
210,213 |
|
209,969 |
|
- |
|
|
Common shares outstanding |
|
|
|
|
|
|
45,909,773 |
|
47,260,472 |
|
(3 |
) |
n.m. – not meaningful
Outlook
- With the forecast that the US rig
count has stabilized, and will likely remain near current levels,
we believe our US operations will maintain the activity levels
achieved in the third quarter. We will continue to focus on RSS
applications, as the margins from this business line can have a
meaningful impact on improved profitability. With current R&D
efforts, we will further differentiate our RSS fleet with our
proprietary Real Time RSS Communications, an ancillary technology
we have developed, and market our unique advantages to US Operators
who are hyper focused on drilling efficiencies. We believe through
2025 we could see RSS representing an even greater portion of our
operations.
- Although our Atlas motor rental
division was more directly impacted by the softening of the US rig
count, we believe this high margin business line has the potential
for growth. PHX is focused on adding resources to this division in
an effort to attract new business.
- The 2024-year has been strong for
our Canadian operations, although weak natural gas prices and
client mix did impact the third quarter. We foresee the overall
strength in the operations continuing through the remainder of the
year and into 2025. The recent purchase of PowerDrive Orbit RSS
technology for this market will generate improved margins in the
upcoming year. RSS represents less than 5 percent of our Canadian
activity, and we believe RSS growth will provide a notable upside
in 2025.
- In 2025 we anticipate an initial
capital expenditure budget of $50 million, split evenly between
growth and maintenance. Our large capital expenditures over the
past two years have allowed us to build a fleet of MWD tools and
high performance drilling motors that will support our forecasted
growth in 2025, and enable us to focus growth expenditures
primarily on the RSS fleet.
- With our forecasted lower 2025
capital expenditure budget, we anticipate maintaining our strong
commitment to shareholder returns through ROCS. We foresee
exhausting our current NCIB as we believe our stock remains under
valued at the current levels.
Michael Buker,
President November
5, 2024
Financial Results
During the third quarter of 2024, the
Corporation’s US activity continued to be impacted by the softening
US rig counts while PHX Energy’s Canadian activity was impacted by
weaker natural gas drilling activity. Despite these unfavorable
market conditions, the Corporation generated consolidated revenue
of $160.6 million in the 2024-quarter, only 5 percent lower as
compared to the record $169.4 million generated in the same
2023-quarter.
For the three-month period ended September 30,
2024, the Corporation’s US division’s revenue decreased by 6
percent to $117 million as compared to $123.8 million in the same
2023-period. The US industry’s rig count declined 10 percent as
compared to the third quarter of 2023 while PHX Energy’s US
operating days only declined by 3 percent from 4,050 in the third
quarter of 2023 to 3,916 in the 2024-quarter. Average revenue per
day(3) for directional drilling services increased by 3 percent
quarter-over-quarter which offset the decline in activity and
resulted in flat revenue for directional drilling services. The
weaker industry rig count had a more direct impact on the
Corporation’s US motor rental division whose revenue decreased to
$9.8 million from $12.9 million in the 2023-quarter. The US motor
sales division revenue also declined from $6.2 million to $2
million in the 2024-quarter as revenue was primarily generated from
parts sales to existing clients rather than new motor purchases as
was the case in the third quarter of 2023. Revenue from PHX
Energy’s US segment represented 73 percent of consolidated revenue
in the 2024 three-month period (2023 - 73 percent).
In the 2024 three-month period, the
Corporation’s Canadian division generated revenue of $43.7 million,
which is 4 percent less than the $45.5 million generated in the
same 2023-period. During the 2024-quarter, Canadian industry
activity increased by 9 percent while PHX Energy’s Canadian
operating days decreased by 2 percent to 3,302 days from the 3,385
operating days in the comparable 2023-quarter. As a result of
decreasing natural gas prices, a number of PHX Energy’s Canadian
natural gas clients had fewer rigs running in the period. Average
revenue per day(3) for directional drilling services decreased by 2
percent quarter-over-quarter and the Corporation’s Canadian motor
rental division generated $0.4 million of revenue, in the third
quarter of 2024 (2023 - $0.3 million).
For the three-month period ended September 30,
2024, earnings were $10.2 million (2023 - $24.9 million), adjusted
EBITDA(1) was $29 million (2023 - $43.5 million), and adjusted
EBITDA represented 18 percent of consolidated revenue(1) (2023 – 26
percent). Lower activity in the Corporation’s high-margin business
lines, particularly RSS activity, motor rentals, and motor
equipment and parts sales, partly contributed to the decline in
profitability. In addition, fewer occurrences of downhole equipment
losses in the 2024-quarter resulted in lower net gain recognized on
disposition of drilling equipment which was $4.3 million (pre-tax)
in the third quarter of 2024 compared to $8.4 million (pre-tax) in
the 2023-quarter, a $4 million decrease. Included in the 2024
three-month period adjusted EBITDA is cash-settled share-based
compensation expense of $2.5 million (2023 - $5 million). For the
three-month period ended September 30, 2024, adjusted EBITDA
excluding cash-settled share-based compensation expense(1) is $31.5
million, 20 percent of consolidated revenue (2023 - $48.5 million,
29 percent of consolidated revenue).
As at September 30, 2024, the Corporation had
working capital(2) of $75.7 million and net debt(2) of $5 million.
The Corporation also has CAD $75.5 million and USD $20 million
available to be drawn from its credit facilities.
Dividends and ROCS On September
13, 2024, the Corporation declared a dividend of $0.20 per share
payable to shareholders of record at the close of business on
September 30, 2024. This is 33 percent higher than the dividend of
$0.15 per share declared in the 2023-quarter. An aggregate of $9.2
million was paid on October 15, 2024.
The Corporation remains committed to enhancing
shareholder returns through its Return of Capital Strategy (“ROCS”)
which will potentially allow up to 70 percent of 2024 excess cash
flow to be used for shareholder returns and includes multiple
options including the dividend program and the NCIB. In the third
quarter of 2024, $9.4 million (2023 - $7.6 million) was paid in
dividends to shareholders and $12.6 million (2023 - $17.5 million)
was used to repurchase and cancel shares under the previous and
current NCIB. In the 2024-quarter, 70 percent of PHX Energy’s
excess cash flow(2) was $13.5 million (2023 – $18 million). The
remaining distributable balance under ROCS(2) was negative $8.5
million in the 2024 three-month period (2023 - negative $7.1
million) due to a decrease in excess cash flow, mainly resulting
from lower cash flows generated from operations, higher capital
expenditures and decrease in proceeds on disposition of drilling
equipment. Despite the decrease in excess cash flow, the
Corporation maintained its current level of dividends and continued
NCIB purchases as it believed the stock price was opportunistic,
leading to over 70 percent of excess cash flow being distributed
for shareholder returns under ROCS. The Corporation foresees the
level of excess cash flow to be used for shareholder returns to
stay within the 70 percent threshold in 2025.
(Stated in thousands of dollars)
|
|
Three-month periods ended September 30, |
|
Nine-month periods ended September 30, |
|
|
|
2024 |
|
2023 |
|
2024 |
|
2023 |
|
|
Excess cash flow |
19,334 |
|
25,724 |
|
30,311 |
|
70,465 |
|
|
70% of excess cash flow |
13,534 |
|
18,007 |
|
21,218 |
|
49,326 |
|
|
|
|
|
|
|
|
Deduct: |
|
|
|
|
|
Dividends paid to shareholders |
(9,437 |
) |
(7,621 |
) |
(28,388 |
) |
(22,913 |
) |
|
Repurchase of shares under the NCIB |
(12,612 |
) |
(17,523 |
) |
(15,756 |
) |
(19,102 |
) |
|
Remaining Distributable Balance under ROCS |
(8,515 |
) |
(7,137 |
) |
(22,926 |
) |
7,311 |
|
| |
|
|
|
|
|
|
|
|
Normal Course Issuer Bid During
the third quarter of 2024, the TSX approved the renewal of PHX
Energy’s NCIB to purchase for cancellation, from time-to-time, up
to a maximum of 3,363,845 common shares, representing 10 percent of
the Corporation’s public float of Common Shares as at August 7,
2024. The NCIB commenced on August 16, 2024 and will terminate on
August 15, 2025. 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,
1,648,232 common shares were purchased by the Corporation for $15.8
million including incremental transaction costs, and cancelled in
the nine-month period ended September 30, 2024 (2023 – 2,710,500
shares, $19.1 million). Of the 1,648,232 common shares purchased
and cancelled, 1,069,121 common shares were purchased under the
previous NCIB and 579,111 common shares were purchased under the
current NCIB. Subsequent to September 30, 2024, the Corporation
purchased and cancelled 420,100 common shares for $4.1 million
including incremental transaction costs.
It is the Corporation’s intention to continue
the current strategy of leveraging the NCIB to its fullest as a
tool to further reward shareholders under ROCS especially during
times of market industry weaknesses.
Capital Spending In the third
quarter of 2024, the Corporation spent $11.1 million in capital
expenditures, of which $11 million was spent on growing the
Corporation’s fleet of drilling equipment, $0.1 million was spent
to replace retired assets, and nothing was spent to replace
equipment lost downhole during drilling operations (2023 - $12.5
million, $2.8 million, and $3.5 million, respectively). With
proceeds on disposition of drilling and other equipment of $7
million (2023 - $11.7 million), the Corporation’s net capital
expenditures(2) for the 2024-quarter were $4.2 million (2023 - $7.1
million). Capital expenditures in the 2024-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 periods ended September 30, |
|
Nine-month periods ended September 30, |
|
|
|
2024 |
|
2023 |
|
2024 |
|
2023 |
|
|
Growth capital expenditures |
11,061 |
|
12,471 |
|
59,798 |
|
27,356 |
|
|
Maintenance capital expenditures from asset retirements |
82 |
|
2,825 |
|
6,252 |
|
11,543 |
|
|
Maintenance capital expenditures from downhole equipment
losses |
- |
|
3,508 |
|
1,513 |
|
10,559 |
|
|
|
11,143 |
|
18,804 |
|
67,563 |
|
49,458 |
|
|
Deduct: |
|
|
|
|
|
Proceeds on disposition of drilling equipment |
(6,973 |
) |
(11,682 |
) |
(26,683 |
) |
(32,689 |
) |
|
Net capital expenditures(2) |
4,170 |
|
7,122 |
|
40,880 |
|
16,769 |
|
| |
|
|
|
|
|
|
|
|
As at September 30, 2024, the Corporation had
capital commitments to purchase drilling and other equipment for
$12 million, $10.7 million of which is growth capital allocated as
follows: $1 million for performance drilling motors, $3.8 million
for Velocity systems, $2.6 million for RSS, and $3.3 million for
other equipment. The majority of the equipment on order as at
September 30, 2024 is expected to be delivered in the last quarter
of 2024 and in early 2025.
The approved capital expenditure budget for the
2024-year has been increased to $80 million from the previously
announced $75 million, excluding proceeds on disposition of
drilling equipment. The additional $5 million in capital
expenditures is expected to be directed towards RSS systems for
both the Canadian and US markets to further grow this high margin
business line in both regions. Additionally, included in the $80
million is $5 million of carryover from the 2023 budget. Of the
total expenditures, $71 million is expected to be allocated to
growth capital and the remaining $9 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 Board has approved a preliminary 2025
capital expenditure program of $50 million, of which approximately
half is anticipated to be spent on growth. The Corporation believes
that with the higher levels of capital expenditures in the past two
years, its current fleet of MWD systems and motors will support its
forecasted 2025-activity and the 2025 growth capital expenditures
are expected to be mainly focused on further expanding the RSS
fleets including its related ancillary technologies, such as the
Real Time RSS Communications. The remaining half 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 835 Atlas motors, comprised of various configurations
including its 5.25", 5.76", 6.63", 7.12", 7.25", 8.12", 9.00”, and
9.62" Atlas motors, and 129 Velocity systems. The Corporation also
possesses the largest independent RSS fleet in North America with
76 RSS tools and the only fleet currently comprised of both the
PowerDrive Orbit and iCruise systems.
Non-GAAP and Other Financial
Measures
Throughout this press release, 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 (net cash),
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 press release 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. |
|
|
|
|
Industry data cited throughout this press
release is sourced from Baker Hughes North American rig counts
(https://rigcount.bakerhughes.com/na-rig-count) and custom reports
from Geologic Systems for Canadian industry operating days.
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, |
|
|
|
2024 |
|
2023 |
|
% Change |
|
|
2024 |
|
2023 |
|
% Change |
|
|
Directional drilling services |
148,460 |
|
149,986 |
|
(1 |
) |
|
446,602 |
|
444,214 |
|
1 |
|
|
Motor rental |
10,212 |
|
13,174 |
|
(22 |
) |
|
28,470 |
|
36,676 |
|
(22 |
) |
|
Sale of motor equipment and parts |
1,962 |
|
6,208 |
|
(68 |
) |
|
5,915 |
|
10,118 |
|
(42 |
) |
|
Total revenue |
160,634 |
|
169,368 |
|
(5 |
) |
|
480,987 |
|
491,008 |
|
(2 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three-month period ended September 30,
2024, the Corporation’s consolidated revenue was $160.6 million, 5
percent lower than the third quarter record of $169.4 million
achieved in 2023. For the nine-month period ended September 30,
2024, the Corporation generated consolidated revenue of $481
million, a decrease of 2 percent as compared to the $491 million
generated in the equivalent 2023-period.
In the third quarter of 2024, the US industry
rig count continued to soften with an average of 571 horizontal and
directional rigs operating per day as compared to 632 horizontal
and directional rigs in the third quarter of 2023, a 10 percent
decline. In Canada, industry horizontal and directional drilling
activity (as measured by drilling days) was 17,508 days in the
2024-quarter, a 9 percent increase from 16,057 days in the same
2023-quarter. For the three-month period ended September 30, 2024,
PHX Energy’s consolidated activity levels decreased by 3 percent to
7,218 days compared to 7,435 days in the same 2023-period. While
the US division’s activity outperformed industry trends only
contracting 3 percent, the Canadian division’s activity was
relatively flat quarter-over-quarter. For the nine-month period
ended September 30, 2024, consolidated operating days increased by
1 percent to 22,070 from 21,915 days in the corresponding
2023-period. Through both the 2023-year and 2024-year-to date, the
Corporation’s RSS activity represented 20 to 25 percent of its US
activity and 2 to 4 percent of its Canadian activity.
In the 2024 three-month period, average
consolidated revenue per day(3) for directional drilling services
increased by 2 percent to $20,572 from $20,174 in the same
2023-period while over the first three quarters of the 2024-year,
average consolidated revenue per day was flat at $20,237 as
compared to $20,253 in same 2023-period.
As a result of the continued softening in US
industry rig count, in both the three and nine-month periods of
2024, revenue generated by the Corporation’s Atlas motor rental
division declined by 22 percent to $10.2 million in the
2024-quarter (2023 - $13.2 million) and $28.5 million in the 2024
nine-month period (2023 - $36.7 million).
For the three and nine-month periods ended
September 30, 2024, revenue of $2 million and $5.9 million,
respectively, were generated from the sale of Atlas motors and
parts (2023 – $6.2 million and $10.1 million, respectively). In the
2023-periods, there were large customer orders as they were
building their fleets whereas in the 2024-periods, revenue was
mainly generated through the sale of parts to maintain these
fleets. Due to the sporadic and cyclical nature of the customers’
ordering frequency, it is expected that revenue from this line of
business will fluctuate between periods.
Operating Costs and Expenses
(Stated in thousands of dollars except
percentages)
|
|
Three-month periods ended September 30, |
|
|
Nine-month periods ended September 30, |
|
|
|
2024 |
|
2023 |
|
% Change |
|
|
2024 |
|
2023 |
|
% Change |
|
|
Direct costs |
131,666 |
|
125,138 |
|
5 |
|
|
387,166 |
|
376,996 |
|
3 |
|
|
Depreciation & amortization drilling and other
equipment (included in direct costs) |
11,516 |
|
9,867 |
|
17 |
|
|
32,977 |
|
28,805 |
|
14 |
|
|
Depreciation & amortization right-of-use asset
(included in direct costs) |
1,214 |
|
822 |
|
48 |
|
|
2,920 |
|
2,057 |
|
42 |
|
|
Gross profit as a percentage of revenue excluding depreciation
& amortization(2) |
26 |
% |
32 |
% |
|
|
|
27 |
% |
30 |
% |
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
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. In the 2024 three and nine-month periods, direct costs
increased by 5 percent and 3 percent, respectively, to $131.7
million in the 2024-quarter (2023 - $125.1 million) and $387.2
million in the 2024 nine-month period (2023 - $377 million).
As a result of the Corporation’s growth-oriented
capital expenditure programs over the past three years,
depreciation and amortization expenses on drilling and other
equipment for the three and nine-month periods ended September 30,
2024, increased by 17 percent and 14 percent, respectively. Apart
from higher depreciation and amortization expenses on drilling and
other equipment, greater direct costs in both 2024-periods were
largely due to rising equipment repair and equipment rental costs,
which partly resulted from the diversification and enhancement of
RSS fleet and its related ancillary technologies.
In the three and nine-month periods of 2024,
gross profit as a percentage of revenue excluding depreciation and
amortization(1) declined to 26 percent and 27 percent,
respectively, from 32 percent and 30 percent in the corresponding
2023-periods. Apart from rising equipment repair and equipment
rental costs, lower profitability in both 2024-periods was also
attributable to decreased activity in the Corporation’s high-margin
revenue streams particularly RSS activity, motor rentals, and motor
equipment and parts sales.
(Stated in thousands of dollars except
percentages)
|
|
Three-month periods ended September 30, |
|
|
Nine-month periods ended September 30, |
|
|
|
2024 |
|
2023 |
|
% Change |
|
|
2024 |
|
2023 |
|
% Change |
|
|
Selling, general and administrative (“SG&A”) costs |
15,885 |
|
19,833 |
|
(20 |
) |
|
50,726 |
|
50,911 |
|
- |
|
|
Cash-settled share-based compensation (included in SG&A
costs) |
2,471 |
|
4,969 |
|
(50 |
) |
|
9,584 |
|
8,899 |
|
8 |
|
|
Equity-settled share-based compensation (included in SG&A
costs) |
140 |
|
144 |
|
(3 |
) |
|
422 |
|
431 |
|
(2 |
) |
|
SG&A costs excluding share-based compensation as a percentage
of revenue(1) |
8 |
% |
9 |
% |
|
|
|
8 |
% |
8 |
% |
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three-month period ended September 30,
2024, SG&A costs were $15.9 million, a decrease of 20 percent
as compared to $19.8 million in the corresponding 2023-period.
Lower SG&A costs in the 2024 three-month period are mainly
attributable to the 50 percent decrease in cash-settled share-based
compensation expense when compared to the 2023-quarter. For the
nine-month period ended September 30, 2024, SG&A costs were
$50.7 million, on par with the $50.9 million in the corresponding
2023-period.
Cash-settled share-based compensation relates to
the Corporation’s retention awards and is measured at fair value.
For the three and nine-month periods ended September 30, 2024, the
related compensation expense recognized by the Corporation was $2.5
million (2023 - $5 million) and $9.6 million (2023 - $8.9 million),
respectively. Changes in cash-settled share-based compensation
expense in the 2024-periods were mainly driven by fluctuations in
the Corporation’s share price and the number of awards granted in
the period. There were 1,587,459 retention awards outstanding as at
September 30, 2024 (2023 – 2,135,283). Excluding share-based
compensation, SG&A costs as a percentage of revenue(1) in both
the 2024 three and nine-month periods was 8 percent, as compared to
9 percent and 8 percent in the corresponding 2023-periods.
(Stated in thousands of dollars)
|
|
Three-month periods ended September 30, |
|
|
Nine-month periods ended September 30, |
|
|
|
2024 |
|
2023 |
|
% Change |
|
|
2024 |
|
2023 |
|
% Change |
|
|
Research and development expense |
1,392 |
|
1,246 |
|
12 |
|
|
4,004 |
|
3,817 |
|
5 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three and nine-month periods ended
September 30, 2024, PHX Energy’s research and development
(“R&D”) expenditures were $1.4 million (2023 - $1.2 million)
and $4 million (2023 - $3.8 million), respectively. Increased
R&D expenditures in the 2024 three and nine-month periods were
largely due to greater personnel-related resources that are
essential in supporting the increasing number of R&D projects
focused on improving the design of existing technologies to further
enhance reliability, reduce costs to operate, and displace certain
equipment rentals.
(Stated in thousands of dollars)
|
|
Three-month periods ended September 30, |
|
|
Nine-month periods ended September 30, |
|
|
|
2024 |
|
2023 |
|
% Change |
|
|
2024 |
|
2023 |
|
% Change |
|
|
Finance expense |
620 |
|
598 |
|
4 |
|
|
1,421 |
|
1,974 |
|
(28 |
) |
|
Finance expense lease liabilities |
628 |
|
554 |
|
13 |
|
|
1,700 |
|
1,695 |
|
- |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance expenses mainly relate to interest
charges on the Corporation’s credit facilities. For the three and
nine-month periods ended September 30, 2024, finance expenses were
$0.6 million (2023 - $0.6 million) and $1.4 million (2023 - $2
million), respectively. In the 2024 three-month period, the slight
increase in finance expenses was mainly due to the drawings made
from the credit facilities during the 2024-quarter. In the 2024
nine-month period, the 28 percent decline in finance expenses was
largely due to the lower amounts of loans and borrowings
outstanding in the 2024 nine-month period.
Finance expense lease liabilities relate to
interest expense incurred on lease liabilities. For the three-month
period ended September 30, 2024, finance expense lease liabilities
increased by 13 percent primarily due to new vehicle leases. For
the nine-month period ended September 30, 2024, finance expense
lease liabilities were flat due to leases that expired in the first
nine months of the 2024-year, offset by new vehicle leases in the
third quarter of 2024.
(Stated in thousands of dollars)
|
|
Three-month periods ended September 30, |
|
Nine-month periods ended September 30, |
|
|
|
2024 |
|
2023 |
|
2024 |
|
2023 |
|
|
Net gain on disposition of drilling equipment |
4,340 |
|
8,354 |
|
18,627 |
|
23,903 |
|
|
Foreign exchange gains (losses) |
164 |
|
(347 |
) |
(124 |
) |
574 |
|
|
Recovery of (provision for) bad debts |
- |
|
1,106 |
|
- |
|
(117 |
) |
|
Other income |
4,504 |
|
9,113 |
|
18,503 |
|
24,360 |
|
| |
|
|
|
|
|
|
|
|
For the three and nine-month periods ended
September 30, 2024, the Corporation recognized other income of $3.7
million and $17.7 million, respectively (2023 - $9.1 million and
$24.4 million, respectively). In both periods, other income was
mainly comprised of net gain on disposition of drilling equipment.
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 2024-periods, there were significantly fewer
instances of high dollar valued downhole equipment losses occurred
as compared to the corresponding 2023-periods which resulted in
lower levels of net gains on disposition of drilling and other
equipment recognized.
Foreign exchange gains of $0.2 million and
losses of $0.1 million in the three and nine-month periods of 2024,
respectively (2023 – losses of $0.3 million and gains of $0.6
million, respectively), were primarily due to the revaluation of
USD-denominated trade and other payables.
(Stated in thousands of dollars except
percentages)
|
|
Three-month periods ended September 30, |
|
Nine-month periods ended September 30, |
|
|
|
2024 |
|
2023 |
|
2024 |
|
2023 |
|
|
Provision for income taxes |
4,787 |
|
6,191 |
|
13,946 |
|
14,528 |
|
|
Effective tax rates(3) |
32 |
% |
20 |
% |
26 |
% |
18 |
% |
| |
|
|
|
|
|
|
|
|
For the three-month period ended September 30,
2024, the Corporation reported income tax provision of $4.8 million
(2023 - $6.2 million), of which, $2.7 million was current and $2.1
million was deferred. For the nine-month period ended September 30,
2024, PHX Energy recognized provision for income taxes of $13.9
million (2023 - $14.5 million), of which, $12.7 million was current
and $1.2 million was deferred. In the 2024 three and nine-month
periods, PHX Energy’s effective tax rate(3) was 32 and 26 percent,
respectively, which is higher than the combined US federal and
state corporate income tax rate of 24.5 percent and combined
Canadian federal and provincial income tax rate of 23 percent. In
the 2024-periods, due to legislative changes that were enacted in
the Corporation’s Canadian jurisdiction, certain foreign expenses
had to be included as income for Canadian tax purposes causing the
increase in effective tax rate. In the 2023 three and nine-month
periods, PHX Energy’s effective tax rate of 20 percent and 18
percent, respectively, are lower than the combined US federal and
state corporate income tax rate 24.5 percent and combined Canadian
federal and provincial 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 two operating segments
on a geographical basis throughout the Gulf Coast, Northeast and
Rocky Mountain regions of the US and throughout the Western
Canadian Sedimentary Basin (refer to the “Changes in Material
Accounting Policies” section of the third quarter MD&A filed on
SEDAR+(www.sedarplus.ca) for the change in operating segments).
Revenue generated through the Corporation’s technology partnership
and sales and lease agreement for the Middle East and North Africa
(“MENA”) regions are included in the US division’s results.
United States
(Stated in thousands of dollars)
|
|
Three-month periods ended September 30, |
|
|
Nine-month periods ended September 30, |
|
|
|
2024 |
|
2023 |
|
% Change |
|
|
2024 |
|
2023 |
|
% Change |
|
|
Directional drilling services |
105,232 |
|
104,725 |
|
- |
|
|
313,864 |
|
329,035 |
|
(5 |
) |
|
Motor rental |
9,789 |
|
12,891 |
|
(24 |
) |
|
27,344 |
|
35,292 |
|
(23 |
) |
|
Sale of motor equipment and parts |
1,962 |
|
6,208 |
|
(68 |
) |
|
5,915 |
|
10,118 |
|
(42 |
) |
|
Total revenue |
116,983 |
|
123,824 |
|
(6 |
) |
|
347,123 |
|
374,445 |
|
(7 |
) |
|
Direct costs |
94,906 |
|
90,717 |
|
5 |
|
|
276,723 |
|
286,780 |
|
(4 |
) |
|
Gross profit |
22,077 |
|
33,107 |
|
(33 |
) |
|
70,400 |
|
87,665 |
|
(20 |
) |
|
Expenses: |
|
|
|
|
|
|
|
Selling, general and administrative expenses |
7,126 |
|
6,525 |
|
9 |
|
|
22,463 |
|
20,716 |
|
8 |
|
|
Research and development expenses |
- |
|
- |
|
- |
|
|
- |
|
- |
|
- |
|
|
Finance expense |
- |
|
- |
|
- |
|
|
- |
|
- |
|
- |
|
|
Finance expense lease liability |
312 |
|
227 |
|
37 |
|
|
743 |
|
706 |
|
5 |
|
|
Other income |
(2,666 |
) |
(7,948 |
) |
(66 |
) |
|
(13,738 |
) |
(21,700 |
) |
(37 |
) |
|
Reportable segment profit (loss) before income taxes |
17,305 |
|
34,303 |
|
(50 |
) |
|
60,932 |
|
87,943 |
|
(31 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three and nine-month periods ended
September 30, 2024, the US segment’s revenue was $117 million and
$347.1 million, respectively, a decline of 6 and 7 percent as
compared to $123.8 million and $374.4 million in the corresponding
2023-periods.
Throughout the first three quarters of 2024, the
US industry rig count was soft and trended lower than its five-year
average. While the US division’s motor rental activities were more
directly impacted, its directional drilling activity was more
resilient, only down 3 percent at 3,916 operating days when
compared to 4,050 days in the same 2023-quarter. The US division
RSS activity represented 24 percent of its operating days, which is
slightly less than the 25 percent represented in the 2023-quarter.
In comparison, the US industry average number of active horizontal
and directional rigs per day in the 2024 three-month period
decreased by 10 percent at 571 rigs per day compared to 632 rigs
per day in the corresponding 2023-period. For the nine-month period
ended September 30, 2024, PHX Energy’s US drilling activity
decreased 8 percent to 12,229 operating days as compared to 13,234
days in the same 2023-period whereas US industry horizontal and
directional rig count decreased by 15 percent. The US division’s
RSS activity level remained flat during the nine-month periods,
representing 21 percent of activity in both the 2023 and
2024-periods. Despite the challenging industry conditions, the US
division held its strong position, leveraging the solid demand and
reputation of its premium technologies and the strength of its
operational performance. In the first three quarters of 2024, the
US division was active in the Permian, Scoop/Stack, Marcellus,
Utica, Eagleford, and Bakken basins.
For the three-month period ended September 30,
2024, the US division’s average revenue per day(3) for directional
drilling services increased by 4 percent to $26,876 compared to
$25,858 in the corresponding 2023-period and in the 2024 nine-month
period, average revenue per day(3) for directional drilling
services increased 3 percent to $25,667 from $24,836 in the same
2023-period. The strong US dollar in both 2024-periods favorably
affected the average revenue per day(3). Omitting the impact of
foreign exchange, the average revenue per day(3) for directional
drilling services increased by 3 percent in both the 2024 three and
nine-month periods.
As a result of weaker US industry rig count, the
Corporation’ motor rental revenue declined to $9.8 million and
$27.3 million, respectively in the three and nine-month periods of
2024. This represents a negative change of 24 percent and 23
percent, respectively, from the $12.9 million and $35.3 million
generated in the corresponding 2023-periods.
In the 2024 three and nine-month periods, PHX
Energy generated revenue of $2 million and $5.9 million from the
sale of Atlas motors and parts, down from $6.2 million and $10.1
million in the respective 2023-periods. In the 2024-quarter, the US
motor sales division revenue was primarily generated from parts
sales to existing clients rather than new motor purchases as was
the case in the third quarter of 2023. In addition, revenue from
this line of business fluctuates between periods due to the
sporadic and cyclical nature of the customers’ ordering
frequency.
For the three and nine-month periods ended
September 30, 2024, the US segment’s reportable segment income
before tax were $17.3 million and $60.9 million, a decrease of 50
percent and 31 percent as compared to $34.3 million and $87.9
million in the corresponding 2023-periods. Apart from lower
activity, the decline in profitability mainly resulted from
increasing equipment repairs and rentals, greater depreciation
expenses, and fewer instances of high dollar valued downhole
equipment losses which resulted in lower levels of net gains on
disposition of drilling and other equipment recognized in the US
segment. In the third quarter of 2024, the increase in equipment
repairs and rentals partly resulted from the diversification and
enhancement of RSS fleet and its related ancillary
technologies.
Canada
(Stated in thousands of dollars)
|
|
Three-month periods ended September 30, |
|
|
Nine-month periods ended September 30, |
|
|
|
2024 |
|
2023 |
|
% Change |
|
|
2024 |
|
2023 |
|
% Change |
|
|
Directional drilling services |
43,228 |
|
45,261 |
|
(4 |
) |
|
132,738 |
|
115,179 |
|
15 |
|
|
Motor rental |
423 |
|
283 |
|
49 |
|
|
1,126 |
|
1,384 |
|
(19 |
) |
|
Total revenue |
43,651 |
|
45,544 |
|
(4 |
) |
|
133,864 |
|
116,563 |
|
15 |
|
|
Direct costs |
36,760 |
|
34,421 |
|
7 |
|
|
110,443 |
|
90,216 |
|
22 |
|
|
Gross profit |
6,891 |
|
11,123 |
|
(38 |
) |
|
23,421 |
|
26,347 |
|
(11 |
) |
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses |
3,823 |
|
3,598 |
|
6 |
|
|
11,299 |
|
8,768 |
|
29 |
|
|
Research and development expenses |
- |
|
- |
|
- |
|
|
- |
|
- |
|
- |
|
|
Finance expense |
- |
|
- |
|
- |
|
|
- |
|
- |
|
- |
|
|
Finance expense lease liability |
297 |
|
309 |
|
(4 |
) |
|
899 |
|
935 |
|
(4 |
) |
|
Other income |
(1,838 |
) |
(1,165 |
) |
58 |
|
|
(4,765 |
) |
(2,660 |
) |
79 |
|
|
Reportable segment profit (loss) before income
taxes |
4,609 |
|
8,381 |
|
(45 |
) |
|
15,988 |
|
19,304 |
|
(17 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
In the 2024-quarter, the Corporation’s Canadian
operations generated revenue of $43.7 million, a 4 percent decrease
compared to $45.5 million generated in the 2023-quarter. In the
2024 nine-month period, Canadian division revenue was $133.9
million, a 15 percent increase as compared to $116.6 million in the
2023-period.
For the three-month period ended September 30,
2024, the Canadian segment’s operating days decreased by 2 percent
to 3,302 days, as compared to 3,385 days in the corresponding
2023-period and its RSS operating days accounted for 3 percent of
its activity in the 2023 and 2024-quarters. In comparison, industry
horizontal and directional drilling activity (as measured by
drilling days) increased by 9 percent to 17,508 days in the 2024
three-month period. During the 2024-quarter, the weak natural gas
prices persisted, which led to the Corporation’s natural gas
clients reducing the number of rigs they had operating.
For the nine-month period ended September 30,
2024, the Canadian segment’s activity growth outperformed that of
the industry with operating days increasing by 13 percent to 9,842
days, as compared to 8,681 days in the corresponding 2023-period.
Additionally, the Canadian division increased its RSS presence
during 2024 and RSS operating days increased to 4 percent from 2
percent of the segment’s activity in the 2023 nine-month period. In
comparison, industry horizontal and directional drilling activity
(as measured by drilling days) increased by 6 percent to 46,360
days in the 2024 nine-month period. Growth in RSS activity and
client base expansion mainly drove the increase in the Canadian
segment’s directional drilling activity. In the first three
quarters of 2024, the Corporation was active in the Duvernay,
Montney, Glauconite, Frobisher, Cardium, Viking, Bakken, Torquay,
Colony, Ellerslie, Charlie Lake, Cummings, Sparky, and Scallion
basins.
In both the three and nine-month periods of
2024, the Canadian division’s average revenue per day(3) for
directional drilling services was relatively flat. In the
2024-quarter, the Canadian division’s average revenue per day(3)
for directional drilling services decreased by 2 percent to $13,091
from $13,373 in the corresponding 2023-period while in the 2024
nine-month period, the Canadian division’s average revenue per
day(3) for directional drilling services increased by 2 percent to
$13,488 from $13,268 in the corresponding 2023-period.
For the three and nine-month periods ended
September 30, 2024, the Corporation’s Canadian division recognized
reportable segment profit before tax of $4.6 million (2023 – $8.4
million) and $16 million (2023 – $19.3 million), respectively. The
decline in profitability in both 2024-periods was mainly due to
higher depreciation expenses and greater equipment repair and
equipment rental costs. With the Canadian division receiving three
of its own PowerDrive Orbit RSS systems in the latter part of the
2024-quarter, the Corporation expects to displace and reduce RSS
related equipment rentals in the future to improve profitability in
this line of business.
Investing Activities
Net cash used in investing activities for the
three-month period ended September 30, 2024 was $14.9 million as
compared to $3.9 million in the 2023-period. During the third
quarter of 2024, the Corporation spent $11.1 million (2023 - $12.5
million) to grow the Corporation’s fleet of drilling equipment,
$0.1 million (2023 - $2.8 million) was used to maintain capacity in
the Corporation’s fleet of drilling and other equipment, and
nothing was spent to replace equipment lost downhole during
drilling operations (2023 - $3.5 million). With proceeds on
disposition of drilling and other equipment of $7 million (2023 -
$11.7 million), the Corporation’s net capital expenditures(2) for
the 2024-quarter were $4.2 million (2023 - $7.1 million).
(Stated in thousands of dollars)
|
|
Three-month periods ended September 30, |
|
Nine-month periods ended September 30, |
|
|
|
2024 |
|
2023 |
|
2024 |
|
2023 |
|
|
Growth capital expenditures |
11,061 |
|
12,471 |
|
59,798 |
|
27,356 |
|
|
Maintenance capital expenditures from asset retirements |
82 |
|
2,825 |
|
6,252 |
|
11,543 |
|
|
Maintenance capital expenditures from downhole equipment
losses |
- |
|
3,508 |
|
1,513 |
|
10,559 |
|
|
|
11,143 |
|
18,804 |
|
67,563 |
|
49,458 |
|
|
Deduct: |
|
|
|
|
|
|
|
|
|
Proceeds on disposition of drilling equipment |
(6,973 |
) |
(11,682 |
) |
(26,683 |
) |
(32,689 |
) |
|
Net capital expenditures(2) |
4,170 |
|
7,122 |
|
40,880 |
|
16,769 |
|
| |
|
|
|
|
|
|
|
|
The 2024 three-month period capital expenditures
comprised of:
- $3.7 million in downhole
performance drilling motors;
- $4.5 million in RSS;
- $2.1 million in MWD systems and
spare components; and
- $0.8 million in machinery and
equipment and other assets.
The change in non-cash working capital balances
of $9.4 million (use of cash) for the three-month period ended
September 30, 2024, relates to the net change in the Corporation’s
trade payables that are associated with the acquisition of capital
assets. This compares to $3.2 million (source of cash) for the
three-month period ended September 30, 2023.
Financing Activities
For the three-month period ended September 30,
2024, net cash used in financing activities was $13.3 million as
compared to $35.3 million in the 2023-period. In the
2024-period:
- dividends of $9.4 million were paid
to shareholders;
- 1,289,932 shares were repurchased
and cancelled under the NCIB for $12.6 million;
- payments of $0.8 million were made
towards lease liabilities;
- $9.5 million net drawings were made
from the Corporation’s syndicated credit facility; and
- 20,000 common shares were issued
from treasury for proceeds of $0.1 million upon the exercise of
share options.
Capital Resources
As of September 30, 2024, the Corporation had
CAD $19.2 million drawn on its Canadian credit facilities, nothing
drawn on its US operating facility, and a cash balance of $14.2
million. As at September 30, 2024, the Corporation had CAD $75.5
million and USD $20 million available from its credit facilities.
The credit facilities are secured by substantially all of the
Corporation’s assets and mature in December 2026.
As at September 30, 2024, the Corporation was in
compliance with all its financial covenants. Under the syndicated
credit agreement, in any given period, the Corporation’s
distributions (as defined therein) cannot exceed its maximum
aggregate amount of distributions limit as defined in the
Corporation’s syndicated credit agreement. Distributions include,
without limitation, dividends declared and paid, cash used for
common shares purchased by the independent trustee in the open
market and held in trust for potential settlement of outstanding
retention awards, as well as cash used for common shares
repurchased and cancelled under the NCIB.
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. With $5 million carried over from the
2023 capital expenditure budget and the $5 million increase in
preliminary 2024 capital expenditure program announced, PHX Energy
anticipates spending $80 million of capital expenditures in 2024.
Of the total expenditures, $71 million is targeted to be spent on
growth and $9 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. The
amount expected to be allocated towards replacing equipment lost
downhole could increase should more downhole equipment losses occur
throughout the year.
The Board has approved a preliminary 2025
capital expenditure program of $50 million, of which approximately
half is anticipated to be spent on growth. The growth capital
expenditures are expected to be mainly focused on continually
building our RSS fleets including its related ancillary
technologies. The remaining half is anticipated to be spent on
maintenance of the fleet of drilling and other equipment and
replacement of equipment lost downhole during drilling
operations.
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 2024 and 2025, 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 these planned
capital expenditure amount.
As at September 30, 2024, the Corporation has
commitments to purchase drilling and other equipment for $12
million. The majority of deliveries are expected to occur in the
last quarter of 2024 and in early 2025.
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. 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 an administrative office in
Nicosia, Cyprus and also supplies technology to the Middle East
regions. In the 2024-quarter, the Corporation started the wind up
of its operations in Albania and expects the wind up to be
completed by the end of 2024.
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 1K3 Tel: 403-543-4466 Fax:
403-543-4485 www.phxtech.com
Condensed Consolidated Interim Statements
of Financial Position
(Stated in thousands of dollars, unaudited)
|
|
September 30, 2024 |
|
|
December 31, 2023 |
|
|
ASSETS |
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
Cash |
$ |
14,203 |
|
|
$ |
16,433 |
|
|
Trade and other receivables |
|
107,655 |
|
|
|
121,334 |
|
|
Inventories |
|
64,095 |
|
|
|
63,173 |
|
|
Prepaid expenses |
|
2,609 |
|
|
|
2,409 |
|
|
Current tax assets |
|
- |
|
|
|
3,691 |
|
|
Total current assets |
|
188,562 |
|
|
|
207,040 |
|
|
Non-current assets: |
|
|
|
|
|
|
|
|
Drilling and other long-term assets |
|
158,201 |
|
|
|
128,263 |
|
|
Right-of-use assets |
|
25,226 |
|
|
|
27,056 |
|
|
Intangible assets |
|
14,088 |
|
|
|
14,200 |
|
|
Investments |
|
2,171 |
|
|
|
3,001 |
|
|
Other long-term assets |
|
2,222 |
|
|
|
1,284 |
|
|
Deferred tax assets |
|
4,944 |
|
|
|
4,650 |
|
|
Total non-current assets |
|
206,852 |
|
|
|
178,454 |
|
|
Total assets |
$ |
395,414 |
|
|
$ |
385,494 |
|
|
LIABILITIES AND SHAREHOLDERS' EQUITY |
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Trade and other payables |
$ |
93,900 |
|
|
$ |
100,438 |
|
|
Dividends payable |
|
9,183 |
|
|
|
9,453 |
|
|
Current lease liability |
|
3,510 |
|
|
|
3,234 |
|
|
Current tax liability |
|
6,292 |
|
|
|
- |
|
|
Total current liabilities |
|
112,885 |
|
|
|
113,125 |
|
|
Non-current liabilities: |
|
|
|
|
|
|
|
|
Lease liability |
|
31,948 |
|
|
|
33,972 |
|
|
Loans and borrowings |
|
19,171 |
|
|
|
7,564 |
|
|
Deferred tax liability |
|
18,677 |
|
|
|
16,822 |
|
|
Other |
|
2,520 |
|
|
|
4,042 |
|
|
Total non-current liabilities |
|
72,316 |
|
|
|
62,400 |
|
|
Equity: |
|
|
|
|
|
|
|
|
Share capital |
|
208,093 |
|
|
|
222,653 |
|
|
Contributed surplus |
|
7,268 |
|
|
|
7,168 |
|
|
Deficit |
|
(33,286 |
) |
|
|
(45,695 |
) |
|
Accumulated other comprehensive income (AOCI) |
|
28,138 |
|
|
|
25,843 |
|
|
Total equity |
|
210,213 |
|
|
|
209,969 |
|
|
Total liabilities and equity |
$ |
395,414 |
|
|
$ |
385,494 |
|
| |
|
|
|
|
|
|
|
Condensed Consolidated Interim Statements
of Comprehensive Earnings
(Stated in thousands of dollars except earnings
per share, unaudited)
|
|
Three-month periods ended September 30, |
|
Nine-month periods ended September 30, |
|
|
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
|
Revenue |
$ |
160,634 |
|
$ |
169,368 |
|
$ |
480,987 |
|
$ |
491,008 |
|
|
Direct costs |
|
131,666 |
|
|
125,138 |
|
|
387,166 |
|
|
376,996 |
|
|
Gross profit |
|
28,968 |
|
|
44,230 |
|
|
93,821 |
|
|
114,012 |
|
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses |
|
15,885 |
|
|
19,833 |
|
|
50,726 |
|
|
50,911 |
|
|
Research and development expenses |
|
1,392 |
|
|
1,246 |
|
|
4,004 |
|
|
3,817 |
|
|
Finance expense |
|
620 |
|
|
598 |
|
|
1,421 |
|
|
1,974 |
|
|
Finance expense lease liability |
|
628 |
|
|
554 |
|
|
1,700 |
|
|
1,695 |
|
|
Other income |
|
(4,504 |
) |
|
(9,113 |
) |
|
(18,503 |
) |
|
(24,360 |
) |
|
|
|
14,021 |
|
|
13,118 |
|
|
39,348 |
|
|
34,037 |
|
|
Earnings before income taxes |
|
14,947 |
|
|
31,112 |
|
|
54,473 |
|
|
79,975 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
Current |
|
2,672 |
|
|
5,616 |
|
|
12,724 |
|
|
13,592 |
|
|
Deferred |
|
2,115 |
|
|
575 |
|
|
1,222 |
|
|
936 |
|
|
|
|
4,787 |
|
|
6,191 |
|
|
13,946 |
|
|
14,528 |
|
|
Net earnings |
|
10,160 |
|
|
24,921 |
|
|
40,527 |
|
|
65,447 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation, net of tax |
|
(2,217 |
) |
|
3,613 |
|
|
3,125 |
|
|
(1,016 |
) |
|
Equity investment revaluation through AOCI |
|
- |
|
|
- |
|
|
(830 |
) |
|
- |
|
|
Total comprehensive earnings |
$ |
7,943 |
|
$ |
28,534 |
|
$ |
42,822 |
|
$ |
64,431 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share – basic |
$ |
0.22 |
|
$ |
0.50 |
|
$ |
0.86 |
|
$ |
1.29 |
|
|
Earnings per share – diluted |
$ |
0.22 |
|
$ |
0.50 |
|
$ |
0.86 |
|
$ |
1.28 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidated Interim Statements
of Cash Flows (Stated in thousands of dollars,
unaudited)
|
|
Three-month periods ended September 30, |
|
Nine-month periods ended September 30, |
|
|
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings |
$ |
10,160 |
|
$ |
24,921 |
|
$ |
40,527 |
|
$ |
65,447 |
|
|
Adjustments for: |
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
11,516 |
|
|
9,867 |
|
|
32,977 |
|
|
28,805 |
|
|
Depreciation and amortization right-of-use asset |
|
1,214 |
|
|
822 |
|
|
2,920 |
|
|
2,057 |
|
|
Provision for income taxes |
|
4,787 |
|
|
6,191 |
|
|
13,946 |
|
|
14,529 |
|
|
Unrealized foreign exchange (gain) loss |
|
(47 |
) |
|
427 |
|
|
187 |
|
|
392 |
|
|
Net gain on disposition of drilling equipment |
|
(4,340 |
) |
|
(8,354 |
) |
|
(18,627 |
) |
|
(23,903 |
) |
|
Equity-settled share-based payments |
|
140 |
|
|
144 |
|
|
422 |
|
|
431 |
|
|
Finance expense |
|
620 |
|
|
598 |
|
|
1,421 |
|
|
1,974 |
|
|
Finance expense lease liability |
|
628 |
|
|
554 |
|
|
1,700 |
|
|
1,695 |
|
|
Provision for (recovery of) bad debts |
|
- |
|
|
(1,106 |
) |
|
- |
|
|
117 |
|
|
Provision for inventory obsolescence |
|
891 |
|
|
654 |
|
|
1,622 |
|
|
1,302 |
|
|
Interest paid on lease liability |
|
(628 |
) |
|
(554 |
) |
|
(1,700 |
) |
|
(1,695 |
) |
|
Interest paid |
|
(398 |
) |
|
(473 |
) |
|
(886 |
) |
|
(1,506 |
) |
|
Income taxes paid |
|
(1,843 |
) |
|
(7,076 |
) |
|
(2,572 |
) |
|
(8,534 |
) |
|
Change in non-cash working capital |
|
6,040 |
|
|
7,013 |
|
|
7,288 |
|
|
(21,141 |
) |
|
Net cash from operating activities |
|
28,740 |
|
|
33,628 |
|
|
79,225 |
|
|
59,970 |
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
Proceeds on disposition of drilling equipment |
|
6,973 |
|
|
11,682 |
|
|
26,683 |
|
|
32,689 |
|
|
Acquisition of drilling and other equipment |
|
(11,143 |
) |
|
(18,804 |
) |
|
(67,563 |
) |
|
(49,458 |
) |
|
Acquisition of intangible assets |
|
(1,365 |
) |
|
- |
|
|
(1,365 |
) |
|
- |
|
|
Change in non-cash working capital |
|
(9,361 |
) |
|
3,204 |
|
|
(5,178 |
) |
|
2,151 |
|
|
Net cash used in investing activities |
|
(14,896 |
) |
|
(3,918 |
) |
|
(47,423 |
) |
|
(14,618 |
) |
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
Repurchase of shares under the NCIB |
|
(12,612 |
) |
|
(17,523 |
) |
|
(15,756 |
) |
|
(19,102 |
) |
|
Dividends paid to shareholders |
|
(9,437 |
) |
|
(7,621 |
) |
|
(28,388 |
) |
|
(22,913 |
) |
|
Payments of lease liability |
|
(809 |
) |
|
(766 |
) |
|
(2,504 |
) |
|
(2,221 |
) |
|
Net proceeds from (net repayment of) loans and borrowings |
|
9,500 |
|
|
(9,400 |
) |
|
11,500 |
|
|
(4,231 |
) |
|
Proceeds from exercise of options |
|
53 |
|
|
415 |
|
|
874 |
|
|
764 |
|
|
Purchase of shares held in trust |
|
- |
|
|
- |
|
|
- |
|
|
(612 |
) |
|
Change in non-cash working capital |
|
- |
|
|
(415 |
) |
|
- |
|
|
(415 |
) |
|
Net cash used in financing activities |
|
(13,305 |
) |
|
(35,310 |
) |
|
(34,274 |
) |
|
(48,730 |
) |
|
Net increase (decrease) in cash |
|
539 |
|
|
(5,600 |
) |
|
(2,472 |
) |
|
(3,378 |
) |
|
Cash, beginning of period |
|
13,798 |
|
|
20,080 |
|
|
16,433 |
|
|
18,247 |
|
|
Effect of movements in exchange rates on cash held |
|
(134 |
) |
|
365 |
|
|
242 |
|
|
(24 |
) |
|
Cash, end of period |
$ |
14,203 |
|
$ |
14,845 |
|
$ |
14,203 |
|
$ |
14,845 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
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 expectations related to future cash flows and the impact on the
remaining distributable balance under ROCS, the Corporation’s
intent to preserve balance sheet strength and continue to reward
shareholders, including through its dividend program, the ROCS
program and NCIB, the anticipated industry activity and demand for
the Corporation’s services and technologies in North America, the
impact of adding owned RSS tools to the Canadian fleet on
profitability, the ability to reduce certain equipment rental costs
and the related impact on profitability, the projected capital
expenditures budget for 2024 and 2025, and how the budget will be
allocated and funded, the timeline for delivery of equipment on
order, the anticipated continuation of PHX Energy’s quarterly
dividend program and the amounts of dividends, and the expected
timeframe for the windup of Albanian operations.
The above are stated under the headings:
“Financial Results”, “Dividends and ROCS”, “Capital Spending”,
“Segmented Information” and “Capital Resources”. 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 2024 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 potential impact of pandemics, the Russian-Ukrainian
war, Middle-East conflict and other world events 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, and inflationary pressures
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.sedarplus.ca) 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
Adjusted EBITDA, 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 provides supplemental
information to earnings 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 should not be construed as an alternative measure
to earnings determined in accordance with GAAP. PHX Energy’s method
of calculating adjusted EBITDA may differ from that of other
organizations and, accordingly, its adjusted EBITDA may not be
comparable to that of other companies.
The following is a reconciliation of earnings to
adjusted EBITDA:
(Stated in thousands of
dollars)
|
|
Three-month periods ended September 30, |
|
Nine-month periods ended September 30, |
|
|
|
2024 |
|
2023 |
|
2024 |
|
2023 |
|
|
Earnings: |
10,160 |
|
24,921 |
|
40,527 |
|
65,447 |
|
|
Add: |
|
|
|
|
|
|
|
|
Depreciation and amortization drilling and other equipment |
11,516 |
|
9,867 |
|
32,977 |
|
28,805 |
|
|
Depreciation and amortization right-of-use asset |
1,214 |
|
822 |
|
2,920 |
|
2,057 |
|
|
Provision for income taxes |
4,787 |
|
6,191 |
|
13,946 |
|
14,529 |
|
|
Finance expense |
620 |
|
598 |
|
1,421 |
|
1,974 |
|
|
Finance expense lease liability |
628 |
|
554 |
|
1,700 |
|
1,695 |
|
|
Equity-settled share-based payments |
140 |
|
144 |
|
422 |
|
431 |
|
|
Unrealized foreign exchange loss (gain) |
(47 |
) |
427 |
|
187 |
|
392 |
|
|
Adjusted EBITDA |
29,018 |
|
43,524 |
|
94,100 |
|
115,330 |
|
| |
|
|
|
|
|
|
|
|
b) Adjusted EBITDA
Per Share - Diluted
Adjusted EBITDA 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 per share - dilutive is based on the adjusted EBITDA as
reported in the table above divided by the diluted number of shares
outstanding at the period end.
c) Adjusted EBITDA as a Percentage of
Revenue
Adjusted EBITDA as a percentage of revenue is
calculated by dividing the adjusted EBITDA as reported in the table
above by revenue as stated on the Condensed Consolidated Interim
Statements of Comprehensive Earnings.
d) Adjusted EBITDA
Excluding Cash-settled Share-based Compensation
Expense
Adjusted EBITDA excluding cash-settled
share-based compensation expense is calculated by adding
cash-settled share-based compensation expense to adjusted EBITDA as
described above. Management believes that this measure provides
supplemental information to earnings 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 to
adjusted EBITDA excluding cash-settled share-based compensation
expense:
(Stated in thousands of
dollars)
|
|
Three-month periods ended September 30, |
|
Nine-month periods ended September 30, |
|
|
|
2024 |
|
2023 |
|
2024 |
|
2023 |
|
|
Earnings: |
10,160 |
|
24,921 |
|
40,527 |
|
65,447 |
|
|
Add: |
|
|
|
|
|
|
|
|
|
Depreciation and amortization drilling and
other equipment |
11,516 |
|
9,867 |
|
32,977 |
|
28,805 |
|
|
Depreciation and amortization right-of-use asset |
1,214 |
|
822 |
|
2,920 |
|
2,057 |
|
|
Provision for income taxes |
4,787 |
|
6,191 |
|
13,946 |
|
14,529 |
|
|
Finance expense |
620 |
|
598 |
|
1,421 |
|
1,974 |
|
|
Finance expense lease liability |
628 |
|
554 |
|
1,700 |
|
1,695 |
|
|
Equity-settled share-based payments |
140 |
|
144 |
|
422 |
|
431 |
|
|
Unrealized foreign exchange loss (gain) |
(47 |
) |
427 |
|
187 |
|
392 |
|
|
Cash-settled share-based compensation expense |
2,471 |
|
4,969 |
|
9,584 |
|
8,899 |
|
|
Adjusted EBITDA excluding cash-settled share-based compensation
expense |
31,489 |
|
48,493 |
|
103,684 |
|
124,229 |
|
| |
|
|
|
|
|
|
|
|
e) Adjusted EBITDA Excluding
Cash-settled Share-based Compensation Expense as a Percentage of
Revenue
Adjusted EBITDA excluding cash-settled
share-based compensation expense as a percentage of revenue is
calculated by dividing adjusted EBITDA excluding cash-settled
share-based compensation expense as reported above by revenue as
stated on the Condensed Consolidated Interim 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, |
|
|
|
2024 |
|
2023 |
|
2024 |
|
2023 |
|
|
Revenue |
160,634 |
|
169,368 |
|
480,987 |
|
491,008 |
|
|
Direct costs |
131,666 |
|
125,138 |
|
387,166 |
|
376,996 |
|
|
Gross profit |
28,968 |
|
44,230 |
|
93,821 |
|
114,012 |
|
|
Depreciation & amortization drilling and other
equipment (included in direct costs) |
11,516 |
|
9,867 |
|
32,977 |
|
28,805 |
|
|
Depreciation & amortization right-of-use asset
(included in direct costs) |
1,214 |
|
822 |
|
2,920 |
|
2,057 |
|
|
|
41,698 |
|
54,919 |
|
129,718 |
|
144,874 |
|
|
Gross profit as a percentage of revenue excluding depreciation
& amortization |
26 |
% |
32 |
% |
27 |
% |
30 |
% |
| |
|
|
|
|
|
|
|
|
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, |
|
|
|
2024 |
|
2023 |
|
2024 |
|
2023 |
|
|
SG&A Costs |
15,885 |
|
19,833 |
|
50,726 |
|
50,911 |
|
|
Deduct: |
|
|
|
|
|
Share-based compensation (included in SG&A) |
2,611 |
|
5,113 |
|
10,006 |
|
9,330 |
|
|
|
13,274 |
|
14,720 |
|
40,720 |
|
41,581 |
|
|
Revenue |
160,634 |
|
169,368 |
|
480,987 |
|
491,008 |
|
|
SG&A costs excluding share-based compensation as a percentage
of revenue |
8 |
% |
9 |
% |
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, |
|
|
|
2024 |
|
2023 |
|
2024 |
|
2023 |
|
|
Cash flows from operating activities |
28,740 |
|
33,628 |
|
79,225 |
|
59,969 |
|
|
Add (deduct): |
|
|
|
|
|
|
Changes in non-cash working capital |
(6,040 |
) |
(7,011 |
) |
(7,288 |
) |
21,141 |
|
|
Interest paid |
398 |
|
473 |
|
886 |
|
1,506 |
|
|
Income taxes paid |
1,843 |
|
7,076 |
|
2,572 |
|
8,534 |
|
|
Funds from operations |
24,941 |
|
34,166 |
|
75,395 |
|
91,150 |
|
| |
|
|
|
|
|
|
|
|
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, |
|
|
|
2024 |
|
2023 |
|
2024 |
|
2023 |
|
|
Cash flows from operating activities |
28,740 |
|
33,628 |
|
79,225 |
|
59,969 |
|
|
Add (deduct): |
|
|
|
|
|
Changes in non-cash working capital |
(6,040 |
) |
(7,011 |
) |
(7,288 |
) |
21,141 |
|
|
Interest paid |
398 |
|
473 |
|
886 |
|
1,506 |
|
|
Income taxes paid |
1,843 |
|
7,076 |
|
2,572 |
|
8,534 |
|
|
Cash payment on leases |
(1,437 |
) |
(1,320 |
) |
(4,204 |
) |
(3,916 |
) |
|
|
23,504 |
|
32,846 |
|
71,191 |
|
87,234 |
|
|
|
|
|
|
|
|
Proceeds on disposition of drilling equipment |
6,973 |
|
11,682 |
|
26,683 |
|
32,689 |
|
|
Maintenance capital expenditures to replace downhole equipment
losses and asset retirements |
(82 |
) |
(6,333 |
) |
(7,765 |
) |
(22,102 |
) |
|
Net proceeds |
6,891 |
|
5,349 |
|
18,918 |
|
10,587 |
|
|
|
|
|
|
|
|
Growth capital expenditures |
(11,061 |
) |
(12,471 |
) |
(59,798 |
) |
(27,356 |
) |
|
Excess cash flow |
19,334 |
|
25,724 |
|
30,311 |
|
70,465 |
|
| |
|
|
|
|
|
|
|
|
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, 2024 |
|
December 31, 2023 |
|
|
Current assets |
188,562 |
|
207,040 |
|
|
Deduct: |
|
|
|
|
|
Current liabilities |
(112,885 |
) |
(113,125 |
) |
|
Working capital |
75,677 |
|
93,915 |
|
| |
|
|
|
|
d) Net Debt (Net Cash)
Net debt is defined as the Corporation’s 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 loans and
borrowings and cash and cash equivalents to net debt:
(Stated in thousands of dollars)
|
|
September 30, 2024 |
|
December 31, 2023 |
|
|
Loans and borrowings |
19,171 |
|
7,564 |
|
|
Deduct: |
|
|
|
Cash and cash equivalents |
(14,203 |
) |
(16,433 |
) |
|
Net debt (Net cash) |
4,968 |
|
(8,869 |
) |
| |
|
|
|
|
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, |
|
|
|
2024 |
|
2023 |
|
2024 |
|
2023 |
|
|
Growth capital expenditures |
11,061 |
|
12,471 |
|
59,798 |
|
27,356 |
|
|
Maintenance capital expenditures from asset retirements |
82 |
|
2,825 |
|
6,252 |
|
11,543 |
|
|
Maintenance capital expenditures from downhole equipment
losses |
- |
|
3,508 |
|
1,513 |
|
10,559 |
|
|
|
11,143 |
|
18,804 |
|
67,563 |
|
49,458 |
|
|
Deduct: |
|
|
|
|
|
Proceeds on disposition of drilling equipment |
(6,973 |
) |
(11,682 |
) |
(26,683 |
) |
(32,689 |
) |
|
Net capital expenditures |
4,170 |
|
7,122 |
|
40,880 |
|
16,769 |
|
| |
|
|
|
|
|
|
|
|
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)
| |
Three-month periods
ended September 30, |
|
Nine-month periods
ended September 30, |
|
|
|
2024 |
|
2023 |
|
2024 |
|
2023 |
|
|
Excess cash flow |
19,334 |
|
25,724 |
|
30,311 |
|
70,465 |
|
| 70% of
excess cash flow |
13,534 |
|
18,007 |
|
21,218 |
|
49,326 |
|
| |
|
|
|
|
|
|
|
|
| Deduct: |
|
|
|
|
|
|
|
|
| Dividends
paid to shareholders |
(9,437 |
) |
(7,621 |
) |
(28,388 |
) |
(22,913 |
) |
| Repurchase
of shares under the NCIB |
(12,612 |
) |
(17,523 |
) |
(15,756 |
) |
(19,102 |
) |
|
Remaining Distributable Balance under ROCS |
(8,515 |
) |
(7,137 |
) |
(22,926 |
) |
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. “Dividends declared per share” is comprised
of dividends declared, 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 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.
PHX Energy Services (TSX:PHX)
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