Total Energy Services Inc. Announces Q1 2022 Results

CALGARY, Alberta, May 11, 2022 (GLOBE NEWSWIRE) — Total Energy Services Inc. (“Total Energy” or the “Company”) (TSX:TOT) announces its consolidated financial results for the three months ended March 31, 2022.

Financial Highlights
($000’s except per share data)

    Three months ended March 31
      2022   2021 Change
Revenue   $ 161,452 $ 93,190 73%
Operating income (loss)     3,690   (5,419) nm
EBITDA (1)     24,314   16,717 45%
Cashflow     22,551   15,332 47%
Net income (loss)     2,467   (3,607) nm
Attributable to shareholders     2,472   (3,579) nm
             
Per Share Data (Diluted)            
EBITDA (1)   $ 0.56 $ 0.37 51%
Cashflow   $ 0.52 $ 0.34 53%
             
Attributable to shareholders:            
Net income (loss)   $ 0.06 $ (0.08) nm
             
Common shares (000’s)(4)            
Basic     42,713   45,072 (5%)
Diluted     43,423   45,231 (4%)
             
      March 31   December 31  
Financial Position at     2022   2021 Change
Total Assets   $ 847,022 $ 813,522 4%
Long-Term Debt and Lease Liabilities (excluding current portion) 174,970   196,007 (11%)
Working Capital (2)     126,489   137,304 (8%)
Net Debt (3)     48,481   58,703 (17%)
Shareholders’ Equity     492,693   493,437
             

Notes 1 through 4 please refer to the Notes to the Financial Highlights set forth at the end of this release.

“nm” – calculation not meaningful

Total Energy’s results for the three months ended March 31, 2022 reflect improved industry conditions in North America and Australia as compared to the first quarter of 2021. The Company did not receive any COVID-19 relief funds during the quarter as compared to $5.9 million received in the first quarter of 2021.

Contract Drilling Services (“CDS”)

    Three months ended March 31
    2022   2021 Change
Revenue $ 60,062 $ 28,571 110%
EBITDA (1) $ 11,441 $ 6,268 83%
EBITDA (1) as a % of revenue   19%   22% (14%)
Operating days(2)   2,683   1,538 74%
Canada   1,625   1,084 50%
United States   701   301 133%
Australia   357   153 133%
Revenue per operating day(2), dollars $ 22,386 $ 18,577 21%
Canada   20,343   16,461 24%
United States   21,839   18,588 17%
Australia   32,759   33,542 (2%)
Utilization   31%   17% 82%
Canada   23%   15% 53%
United States   60%   26% 131%
Australia   79%   34% 132%
Rigs, average for period   95   98 (3%)
Canada   77   80 (4%)
United States   13   13
Australia   5   5

(1)   See Note 1 of the Notes to the Financial Highlights set forth at the end of this release.
(2)   Operating days includes drilling and paid stand-by days.

First quarter 2022 drilling activity in North America and Australia continued to increase with rising oil and natural gas prices. Continued recovery of Canadian industry activity levels from the historic lows of 2020 and market share gains in the United States drove a significant year over year increase in North American operating days and increased revenue per operating day.   In Australia, activity and results improved in the first quarter of 2022 compared to the first quarter of 2021 as two drilling rigs returned to service following the completion of recertifications and upgrades. The first quarter EBITDA margin was slightly lower on a year over year basis due to pricing gains not fully offsetting the absence of COVID-19 relief funds and operating cost inflation.

Rentals and Transportation Services (“RTS”)

    Three months ended March 31
    2022   2021 Change
Revenue $ 15,400 $ 7,735 99%
EBITDA (1) $ 5,593 $ 1,966 184%
EBITDA (1) as a % of revenue   36%   25% 44%
Revenue per utilized piece of equipment, dollars $ 9,627 $ 8,070 19%
Pieces of rental equipment   9,400   10,650 (12%)
Canada   8,520   9,690 (12%)
United States   880   960 (8%)
Rental equipment utilization   17%   9% 89%
Canada   12%   8% 50%
United States   30%   13% 131%
Heavy trucks   71   87 (18%)
Canada   48   62 (23%)
United States   23   25 (8%)

(1)See Note 1 of the Notes to the Financial Highlights set forth at the end of this release.

First quarter revenue in the RTS segment increased as compared to the same period in 2021 due to higher equipment utilization and improved pricing in Canada and the United States. Increased equipment utilization as well as higher revenue per utilized piece of equipment contributed to the year over year increase in first quarter EBITDA and EBITDA margin. The RTS segment has significant leverage to equipment utilization due to its relatively fixed cost structure. Such leverage was demonstrated in the first quarter of 2022 with a disproportionate increase in EBITDA relative to revenue, which was sufficient to offset the absence of COVID-19 relief assistance and significant operating cost inflation.

Compression and Process Services (“CPS”)

    Three months ended March 31
    2022   2021 Change
Revenue $ 58,565 $ 34,156 71%
EBITDA (1) $ 3,258 $ 3,575 (9%)
EBITDA (1) as a % of revenue   6%   10% (40%)
Horsepower of equipment on rent at period end   29,670   22,900 30%
Canada   12,825   9,900 30%
United States   16,845   13,000 30%
Rental equipment utilization during the period (HP)(2)   52%   43% 21%
Canada   37%   31% 19%
United States   74%   62% 19%
Sales backlog at period end, $ million $ 180.7 $ 47.7 279%

(1)See Note 1 of the Notes to the Financial Highlights set forth at the end of this release.
(2)Rental equipment utilization is measured on a horsepower basis.

The year over year increase in the CPS segment’s first quarter revenue was due primarily to higher fabrication sales and increased equipment overhaul activity. Compression rental fleet utilization also continued to recover during the first quarter of 2022. The absence of COVID-19 relief assistance, costs incurred to prepare for substantially higher fabrication activity levels and general operating cost inflation contributed to lower first quarter EBITDA and EBITDA margin in 2022 as compared to 2021. Exacerbating the pressure on margins was the completion of fixed price fabrication orders during the first quarter of 2022 that were received in mid-2021. The fabrication sales backlog continued to grow during the first quarter of 2022, increasing by another $33.2 million, or 23%, compared to the $147.5 million backlog at December 31, 2021.   

Well Servicing (“WS”)

    Three months ended March 31
    2022   2021 Change
Revenue $ 27,425 $ 22,728 21%
EBITDA (1) $ 6,548 $ 5,152 27%
EBITDA (1) as a % of revenue   24%   23% 4%
Service hours(2)   30,839   28,934 7%
Canada   16,449   17,123 (4%)
United States   4,155   2,611 59%
Australia   10,235   9,200 11%
Revenue per service hour(2), dollars $ 889 $ 786 13%
Canada   828   646 28%
United States   818   689 19%
Australia   1,017   1,072 (5%)
Utilization(3)   34%   31% 10%
Canada   32%   33% (3%)
United States   42%   21% 100%
Australia   39%   35% 11%
Rigs, average for period   80   83 (4%)
Canada   57   57
United States   11   14 (21%)
Australia   12   12

(1)See Note 1 of the Notes to the Financial Highlights set forth at the end of this release.
(2) Service hours is defined as well servicing hours of service provided to customers and includes paid rig move and standby.
(3)The Company reports its service rig utilization for its operational service rigs in North America based on service hours of 3,650 per rig per year to reflect standard 10 hour operations per day. Utilization for the Company’s service rigs in Australia is calculated based on service hours of 8,760 per rig per year to reflect standard 24 hour operations.

First quarter WS segment revenue and EBITDA increased in 2022 as compared to 2021 due primarily to higher activity levels in the United States and Australia and increased North American pricing. Canadian well servicing activity was slightly lower than prior year due to the earlier arrival of spring break up. Increased oil production activity and significant well abandonment activity in Canada continued to underpin North American well service activity.   Despite the absence of COVID-19 relief funds and operating cost inflation, the WS segment’s EBITDA margin improved modestly for the first quarter of 2022 compared to 2021 as a result of higher pricing and utilization.

Corporate

During the first quarter of 2022, Total Energy remained focused on the safe and efficient operation of its business, improving the financial performance of all business segments and the prudent deployment of capital. $11.6 million of capital expenditures were made during the first quarter, which included $2.0 million of carry-over from 2021. Partially funding these capital expenditures was $3.0 million of proceeds from the sale of property, plant and equipment that realized a $1.5 million gain on sale.

During the first three months of 2022 bank debt was further reduced by $20.7 million, or 11%, and 530,000 common shares were repurchased under the Company’s normal course issuer bid at an average price of $6.66 (including commissions).   The Company exited the first quarter of 2022 with $126.5 million of positive working capital, including $44.2 million of cash, and $115 million of available credit under its $225 million of revolving bank credit facilities.   The weighted average interest rate on the Company’s outstanding debt at March 31, 2022 was 2.79%.

Outlook

Total Energy’s diversified business platform, efficient cost structure and disciplined deployment of capital allowed the Company to generate significant free cash flow since the outbreak of the global COVID-19 pandemic in the first quarter of 2020. To date, such free cash flow has been primarily directed towards enhancing shareholder returns through debt repayment and share buybacks. From the beginning of 2020 to March 31, 2022, Total Energy has repaid $108.0 million of bank debt and made $14.0 million of share repurchases under its normal course issuer bid. In April of 2022 an additional $10.0 million of bank debt was voluntarily repaid.

Total Energy’s diversification provides the Company with significant leverage to recovering global energy industry activity levels, as evidenced by the realization of its third consecutive profitable quarter during the first quarter of 2022.   With continued strength in commodity prices, current indications are that industry conditions will continue to improve for the remainder of 2022.

In direct response to increased customer demand, the Company’s Board of Directors has approved a $16.0 million increase to Total Energy’s 2022 capital expenditure budget to $42.1 million. $13.0 million of this increase is being directed towards equipment recertifications and upgrades and the purchase of new drill pipe, with the remaining $3.0 million earmarked for additions to the compression rental fleet. Total Energy plans to fund the remaining $30.5 million of its 2022 capital expenditure budget with cash on hand and cashflow.

Dividend Reinstatement

Total Energy’s Board of Directors has determined to reinstate a quarterly dividend to shareholders and has declared a dividend of $0.06 per common share for the quarter ended June 30, 2022 on Total Energy’s outstanding common shares. The dividend is payable on July 15, 2022 to shareholders of record at the close of business on June 30, 2022. The ex-dividend date is June 29, 2022. Unless otherwise indicated, all dividends declared by the Company are “eligible dividends” within the meaning of subsection 89(1) of the Income Tax Act (Canada).

Annual Meeting of Shareholders

Shareholders are reminded that Total Energy’s annual meeting of Shareholders will take place on Tuesday, May 17, 2022 at 10:00 am (Mountain Time) at the Calgary Petroleum Club. In the event that any changes to the meeting are required due to COVID-19 public health orders or otherwise, the Company will provide updated meeting information by way of news release, which will also be made available on SEDAR at www.sedar.com and on Total Energy’s website at www.totalenergy.ca.

Mr. Bruce Pachkowski, a founding director and current Chair of the Board, will be retiring from Total Energy’s Board of Directors effective at the end of his current term, following the Company’s upcoming annual meeting of Shareholders. Mr. Pachkowski has served as a director for 25 years and has contributed significantly to Total Energy’s growth and success since its incorporation in November of 1996. On behalf of all shareholders of Total Energy, the Board of Directors extends its gratitude to Mr. Pachkowski and wishes him and his family the very best in retirement.

Conference Call

At 9:00 a.m. (Mountain Time) on May 12, 2022 Total Energy will conduct a conference call and webcast to discuss its first quarter financial results. Daniel Halyk, President & Chief Executive Officer, will host the conference call. A live webcast of the conference call will be accessible on Total Energy’s website at www.totalenergy.ca by selecting “Webcasts”. Persons wishing to participate in the conference call may do so by calling (800) 319-4610 or (416) 915-3239. Those who are unable to listen to the call live may listen to a recording of it on Total Energy’s website. A recording of the conference call will also be available until June 12, 2022 by dialing (855) 669-9658 (passcode 8790).

Selected Financial Information

Selected financial information relating to the three months ended March 31, 2022 and 2021 is included in this news release. This information should be read in conjunction with the condensed interim consolidated financial statements of Total Energy and the notes thereto as well as management’s discussion and analysis to be issued in due course and in the Company’s 2021 Annual report.

Consolidated Statements of Financial Position
(in thousands of Canadian dollars)

      March 31   December 31
        2022       2021  
      (unaudited)   (audited)
Assets          
Current assets:          
Cash and cash equivalents     $ 44,161     $ 33,365  
Accounts receivable       116,000       90,543  
Inventory       96,447       89,921  
Prepaid expenses and deposits       9,241       9,208  
Income taxes receivable       2,897       2,208  
Current portion of lease asset       489       487  
        269,235       225,732  
           
Property, plant and equipment       566,433       575,913  
Income taxes receivable       7,070       7,070  
Deferred income tax asset             393  
Lease asset       231       361  
Goodwill       4,053       4,053  
      $ 847,022     $ 813,522  
           
Liabilities & Shareholders’ Equity          
Current liabilities:          
Accounts payable and accrued liabilities     $ 82,944     $ 65,513  
Deferred revenue       53,326       16,274  
Current portion of lease liabilities       3,851       4,030  
Current portion of long-term debt       2,625       2,611  
        142,746       88,428  
           
Long-term debt       167,239       187,906  
           
Lease liabilities       7,731       8,101  
           
Deferred tax liability       36,613       35,650  
           
Shareholders’ equity:          
Share capital       267,566       270,905  
Contributed surplus       5,977       5,757  
Accumulated other comprehensive loss       (26,607 )     (26,704 )
Non-controlling interest       556       561  
Retained earnings       245,201       242,918  
        492,693       493,437  
           
      $ 847,022     $ 813,522  

Consolidated Statements of Comprehensive Income (Loss)
(in thousands of Canadian dollars except per share amounts)
(unaudited)

    Three months ended
March 31
      2022     2021  
       
Revenue   $ 161,452   $ 93,190  
       
Cost of services     129,798     71,088  
Selling, general and administration     8,786     6,539  
Other income     (190 )   (1,066 )
Share-based compensation     220     201  
Depreciation     19,148     21,847  
Operating income (loss)     3,690     (5,419 )
       
Gain on sale of property, plant and equipment     1,476     289  
Finance costs, net     (1,806 )   (1,807 )
Net income (loss) before income taxes     3,360     (6,937 )
       
Current income tax recovery     (463 )   (471 )
Deferred income tax expense (recovery)     1,356     (2,859 )
Total income tax expense (recovery)     893     (3,330 )
       
Net income (loss)   $ 2,467   $ (3,607 )
       
Net income (loss) attributable to:      
Shareholders of the Company   $ 2,472   $ (3,579 )
Non-controlling interest     (5 )   (28 )
       
Income (loss) per share      
Basic and diluted   $ 0.06   $ (0.08 )

Consolidated Statements of Comprehensive Income (Loss)

    Three months ended
March 31
      2022     2021  
       
Net income (loss) for the period   $ 2,467   $ (3,607 )
       
Foreign currency translation     97     (5,302 )
       
Total other comprehensive income (loss) for the period     97     (5,302 )
       
Total comprehensive income (loss)   $ 2,564   $ (8,909 )
       
Total comprehensive income (loss) attributable to:      
       
Shareholders of the Company   $ 2,569   $ (8,881 )
Non-controlling interest     (5 )   (28 )

Consolidated Statements of Cash Flows
(in thousands of Canadian dollars)
(unaudited)

    Three months ended
March 31
      2022     2021  
       
Cash provided by (used in):      
       
Operations:      
Net income (loss) for the period   $ 2,467   $ (3,607 )
Add (deduct) items not affecting cash:      
Depreciation     19,148     21,847  
Share-based compensation     220     201  
Gain on sale of property, plant and equipment   (1,476 )   (289 )
Finance costs, net     1,806     1,807  
Unrealized gain on foreign currencies translation   (190 )   (1,066 )
Current income tax recovery     (463 )   (471 )
Deferred income tax expense (recovery)     1,356     (2,859 )
Income taxes paid     (317 )   (231 )
Cashflow     22,551     15,332  
Changes in non-cash working capital items:      
Accounts receivable     (24,848 )   (3,897 )
Inventory     (6,527 )   1,157  
Prepaid expenses and deposits     58     973  
Accounts payable and accrued liabilities     16,669     868  
Deferred revenue     37,052     2,433  
Cash provided by operating activities     44,955     16,866  
Investing:      
Purchase of property, plant and equipment     (11,553 )   (5,074 )
Proceeds on disposal of property, plant and equipment   3,039     440  
Changes in non-cash working capital items     1,343     972  
Cash used in investing activities     (7,171 )   (3,662 )
Financing:      
Repayment of long-term debt     (20,653 )   (10,638 )
Repayment of lease liabilities     (1,062 )   (1,820 )
Repurchase of common shares     (3,528 )   (329 )
Interest paid     (1,745 )   (2,708 )
       
Cash used in financing activities     (26,988 )   (15,495 )
       
Change in cash and cash equivalents     10,796     (2,291 )
       
Cash and cash equivalents, beginning of period     33,365     22,996  
       
Cash and cash equivalents, end of period   $ 44,161   $ 20,705  

Segmented Information

The Company provides a variety of products and services to the energy and other resource industries through five reporting segments, which operate substantially in three geographic regions. These reporting segments are Contract Drilling Services, which includes the contracting of drilling equipment and the provision of labour required to operate the equipment, Rentals and Transportation Services, which includes the rental and transportation of equipment used in energy and other industrial operations, Compression and Process Services, which includes the fabrication, sale, rental and servicing of gas compression and process equipment and Well Servicing, which includes the contracting of service rigs and the provision of labour required to operate the equipment. Corporate includes activities related to the Company’s corporate and public issuer affairs.

As at and for the three months ended March 31, 2022 (unaudited, in thousands of Canadian dollars)

  Contract Rentals and Compression Well Corporate (1) Total
  Drilling Transportation and Process Servicing    
  Services Services Services      
             
Revenue $ 60,062   $ 15,400   $ 58,565   $ 27,425   $   $ 161,452  
             
Cost of services   46,994     8,847     54,333     19,624         129,798  
Selling, general and administration   1,602     1,626     1,794     1,268     2,496     8,786  
Other income                   (190 )   (190 )
Share-based compensation                   220     220  
Depreciation   8,877     4,909     1,913     3,202     247     19,148  
Operating income (loss)   2,589     18     525     3,331     (2,773 )   3,690  
             
Gain (loss) on sale of property, plant and equipment   (25 )   666     820     15         1,476  
Finance costs, net   (2 )   (16 )   (72 )   (5 )   (1,711 )   (1,806 )
             
Net income (loss) before income taxes   2,562     668     1,273     3,341     (4,484 )   3,360  
             
Goodwill       2,514     1,539             4,053  
Total assets   338,397     180,381     227,657     94,335     6,252     847,022  
Total liabilities   64,475     12,874     90,416     5,282     181,282     354,329  
Capital expenditures   10,182     234     1,070     56     11     11,553  
Three months ended March 31, 2022 Canada United States Australia Other Total
           
Revenue $ 88,193   $ 43,644   $ 29,615   $   $ 161,452  
Non-current assets (2)   375,077     137,036     58,604         570,717  


As at and for the three months ended March 31, 2021
(unaudited, in thousands of Canadian dollars)

  Contract Rentals and Compression Well Corporate Total
  Drilling Transportation and Process Servicing   (1)    
  Services Services Services      
             
Revenue $ 28,571   $ 7,735   $ 34,156   $ 22,728   $   $ 93,190  
             
Cost of services   20,915     4,672     29,224     16,277         71,088  
Selling, general and administration   1,396     1,252     1,444     1,268     1,179     6,539  
Other income                   (1,066 )   (1,066 )
Share-based compensation                   201     201  
Depreciation   9,865     5,518     2,407     3,852     205     21,847  
Operating income (loss)   (3,605 )   (3,707 )   1,081     1,331     (519 )   (5,419 )
             
Gain (loss) on sale of property, plant and equipment   8     155     87     (31 )   70     289  
Finance costs, net   (1 )   (16 )   (78 )   (6 )   (1,706 )   (1,807 )
             
Net income (loss) before income taxes   (3,598 )   (3,568 )   1,090     1,294     (2,155 )   (6,937 )
             
Goodwill       2,514     1,539             4,053  
Total assets   313,993     194,189     214,582     99,897     9,302     831,963  
Total liabilities   55,347     8,947     32,301     5,407     228,011     330,013  
Capital expenditures   4,257     219     168     430         5,074  
Three months ended March 31, 2021 Canada United States Australia Other Total
           
Revenue $ 59,747   $ 18,309   $ 15,132   $ 2   $ 93,190  
Non-current assets (2)   410,127     147,742     66,286         624,155  

   (1)   Corporate includes the Company’s corporate activities and obligations pursuant to long-term credit facilities.
   (2)   Includes property, plant and equipment, lease asset (excluding current portion) and goodwill.

Total Energy provides contract drilling services, equipment rentals and transportation services, well servicing and compression and process equipment and service to the energy and other resource industries from operation centers in North America and Australia. The common shares of Total Energy are listed and trade on the TSX under the symbol TOT.

For further information, please contact Daniel Halyk, President & Chief Executive Officer at (403) 216-3921 or Yuliya Gorbach, Vice-President Finance and Chief Financial Officer at (403) 216-3920 or by e-mail at: [email protected] or visit our website at www.totalenergy.ca

Notes to the Financial Highlights

(1)   EBITDA means earnings before interest, taxes, depreciation and amortization and is equal to net income (loss) before income taxes plus finance costs plus depreciation. EBITDA is not a recognized measure under IFRS. Management believes that in addition to net income (loss), EBITDA is a useful supplemental measure as it provides an indication of the results generated by the Company’s primary business activities prior to consideration of how those activities are financed, amortized or how the results are taxed in various jurisdictions as well as the cash generated by the Company’s primary business activities without consideration of the timing of the monetization of non-cash working capital items. Readers should be cautioned, however, that EBITDA should not be construed as an alternative to net income determined in accordance with IFRS as an indicator of Total Energy’s performance. Total Energy’s method of calculating EBITDA may differ from other organizations and, accordingly, EBITDA may not be comparable to measures used by other organizations.

(2)   Working capital equals current assets minus current liabilities.

(3)   Net Debt equals long-term debt plus lease liabilities plus current liabilities minus current assets. Management believes this measure provides a useful indication of the Company’s liquidity.

(4)   Basic and diluted shares outstanding reflect the weighted average number of common shares outstanding for the periods. See note 5 to the Company’s Condensed Interim Consolidated Financial Statements.

Certain statements contained in this press release, including statements which may contain words such as “could”, “should”, “expect”, “believe”, “will” and similar expressions and statements relating to matters that are not historical facts are forward-looking statements. Forward-looking statements are based upon the opinions and expectations of management of Total Energy as at the effective date of such statements and, in some cases, information supplied by third parties. Although Total Energy believes the expectations reflected in such forward-looking statements are based upon reasonable assumptions and that information received from third parties is reliable, it can give no assurance that those expectations will prove to have been correct.

In particular, this press release contains forward-looking statements concerning industry activity levels, including expectations regarding Total Energy’s future activity levels, market share and compression and process production activity. Such forward-looking statements are based on a number of assumptions and factors including fluctuations in the market for oil and natural gas and related products and services, political and economic conditions, central bank interest rate policy, the demand for products and services provided by Total Energy, Total Energy’s ability to attract and retain key personnel and other factors. Such forward-looking statements involve known and unknown risks and uncertainties which may cause the actual results, performance or achievements of Total Energy to be materially different from any future results, performances or achievements expressed or implied by such forward-looking statements. Reference should be made to Total Energy’s most recently filed Annual Information Form and other public disclosures (available at www.sedar.com) for a discussion of such risks and uncertainties.

The TSX has neither approved nor disapproved of the information contained herein.


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