Newalta Reports Second Quarter 2015 Results
(firmenpresse) - CALGARY, ALBERTA -- (Marketwired) -- 08/06/15 -- Newalta Corporation ("Newalta") (TSX: NAL) today reported results for the three and six months ended June 30, 2015 and maintained its previous guidance for performance improvements in the second half of 2015 and in 2016.
FINANCIAL HIGHLIGHTS(1)
MANAGEMENT COMMENTARY
"Second quarter results were in line with our expectations and validate the actions we''ve taken to date to rationalize costs, work with customers to find mutually sustaining solutions and accelerate our four key strategies outlined in Vision 2020," said John Barkhouse, President and CEO. "While Revenue and Adjusted EBITDA were 30% and 49% below last year, respectively, on a 35% decline in crude oil prices and 50% reduction in drilling activity, current market conditions provide us with unique opportunities to leverage our capabilities to engineer effective customer solutions that are highly relevant in today''s cost-driven environment. As a responsive and resilient business, we are weathering this downturn and will use it to secure additional competitive advantages and market share."
During Q2 2015, stable contract revenue and the completion of the planned second phase of a company-wide rationalization provided offsets to the industry downturn, including lower oil prices and decreased drilling activity. The rationalization program achieved cost savings of $7.5 million in the quarter and is expected to provide $30 million in annualized savings going forward.
"Three months ago, we forecast an improvement in results in the back half of 2015 and into 2016 which was not predicated on any price or activity recovery and we remain comfortable with that guidance today," said Mr. Barkhouse. "More specifically, we expect a significant increase in Adjusted EBITDA in the second half of 2015 over the first half driven by growth capital investments and contracts, and the benefit of our cost reductions. Extending our expected second half run-rate improvements into 2016 with oil remaining at US$50-60 WTI and with associated activity levels, Adjusted EBITDA in 2016 would range between $120 million to $140 million. We have confidence in our outlook based on current market conditions and we will continue to move aggressively forward with Vision 2020''s growth strategies."
Vision 2020, launched in May, 2015, directs Newalta to enhance the recovery of value from oil and gas waste streams for our customers at each stage of drilling, completions, production and reclamation using a business approach called Sustainability Simplified™ and to enhance performance for our shareholders with emphasis on improving corporate scale and operating footprint geographically, growing our onsite business and contracts and leveraging our core capabilities to add differentiated services. These actions will make Newalta the North American leader in environmental energy services and drive accelerated progress.
SECOND QUARTER RESULTS
Continuing Operations reflect the ongoing pure play environmental energy services business of Newalta and exclude the Industrial Division which was sold in the first quarter. Newalta''s Continuing Operations include two divisions - Heavy Oil and Oilfield - a structure adopted in Q1 2015 to more closely align operations with customer activities, facilitate a seamless service package to customers, optimize our resource allocations, and aid in the execution of our growth strategies.
Continuing Operations
Q2 revenue and Adjusted EBITDA decreased 30% and 49%, respectively, to $81.8 million and $15.5 million compared to prior year. Performance in the second quarter of 2015 continued to be significantly impacted by the challenging environment, in line with previous guidance. The year-over-year decline of $15.0 million in Adjusted EBITDA reflects both lower crude oil prices and drilling activity ($3.5 million and $8.5 million, respectively) in Canada and the U.S.. Crude oil prices decreased by over $30/bbl or 35%, while drilling activity in the areas we serve declined approximately 50% over prior year. Reduced production related activity further decreased Adjusted EBITDA by approximately $8.0 million. Stable contract revenue combined with savings from the two-phase cost rationalization program initiated in Q1 partially mitigated the impacts of the depressed environment. Net loss from Continuing Operations for the quarter was $13.4 million compared to $13.8 million in the prior year. Lower EBITDA was offset by lower finance charges and embedded derivative losses.
Year-to-date Adjusted EBITDA was $28.4 million, down 49% over prior year. Year-to-date results reflect the same factors as the quarter with the decline in crude oil prices having a more significant impact. Year-to-date, Net loss from Continuing Operations was $36.6 million compared to $5.1 million in the prior year, reflecting the same factors as the quarter and higher restructuring and other related costs.
To date, our contract model has performed well during this downturn, continuing to provide steady, predictable cash flow. These contracts generally are not tied directly to commodity price changes or drilling activity and provide a solid foundation for our business, particularly in depressed markets. On a trailing-twelve month basis, contracts represented 27% of our revenue.
In April 2015, we completed the second phase of the two-phase program initiated in Q1 to maximize business efficiencies and drive improved margins. Actions over the two-phases include the elimination of positions, office space consolidation and general reductions in all expense categories including discretionary items. In addition to the overhead reductions, we suspended the company-matching payments to employee savings plans and implemented hiring and salary freezes. We have realized $7.5 million and $10.5 million in the quarter and year-to-date, respectively, in cost savings from these actions.
During the quarter, we incurred $7.1 million in restructuring and other related costs, including $3.0 million in non-cash onerous lease charges for corporate office consolidation, and additional charges for severance and related costs.
Divisional Results
Heavy Oil revenue and Divisional EBITDA in the quarter decreased by 27% and 38%, respectively, to $36.7 million and $14.4 million compared to prior year. Contributions from both Heavy Oil Facilities and Onsite were weighed down by reduced activity in the heavy oil sector and lower crude oil prices. Year-to-date, revenue and Divisional EBITDA decreased by 17% and 34%, respectively to $75.1 million and $26.0 million compared to prior year. The decrease was driven by lower contributions from Heavy Oil Facilities. Onsite contributions were relatively flat, supported by our mature fine tailings (MFT) contracts.
Heavy Oil made progress with several growth initiatives:
Oilfield revenue and Divisional EBITDA in the quarter decreased 32% and 48%, respectively, to $45.1 million and $12.0 million. Performance was driven by lower contributions from both Oilfield Facilities and Drilling Services due primarily to reduced drilling activity and lower crude oil prices. Year-to-date Oilfield revenue and Divisional EBITDA decreased 24% and 43%, respectively, to $104.3 million and $27.2 million compared to prior year. Results were impacted by the same factors as the quarter with reduced crude oil prices having a more significant impact on year-to-date results.
Oilfield made progress with several growth initiatives:
Capital expenditures from Continuing Operations for the three and six months ended June 30, 2015 were $19.7 million and $54.4 million, focused primarily on the completion of modular processing facilities, the Fort McMurray facility, and an additional drill cuttings treatment unit.
At June 30, 2015, Total Debt was $321.5 million, reduced by $150.7 million from December 31, 2014. Total Debt to EBITDA as at June 30, 2015 is 3.23.
Discontinued Operations
Q2 2015 Discontinued Operations net earnings before loss on sale was $0.3 million compared to $7.6 million in prior year. Q2 2015 results reflect customary purchase price adjustments. Year-to-date, net loss before loss on sale was $9.8 million compared to net earnings of $4.7 million in prior year. The decrease in performance was driven by the timing of the sale in February, weaker performance across all business lines, and restructuring and other related charges.
Dividends
In determining the dividend to be paid to our shareholders, the Board of Directors considers a number of factors, including: the forecasts for operating and financial results, maintenance and growth capital requirements, as well as market activity and conditions. After review of all factors, the Board declared $7.0 million in dividends or $0.125 per share, paid July 15, 2015, to shareholders on record as at June 30, 2015.
The Board reviews dividends on a quarterly basis. In light of the current market environment and outlook, we will provide an update in the quarters ahead regarding any changes in dividends as visibility of our market environment improves.
The following section contains forward-looking information as it outlines our Outlook for 2015. Our Outlook is based on several key assumptions including growth capital contributions, commodity prices and activity levels of the industries we serve. Changes to these assumptions could cause our actual results to differ materially.
OUTLOOK
Our performance in 2015 has been significantly impacted by the sharp drop in oil prices and activity levels in the oil and gas industry. The magnitude of this downturn is expected to continue to impact our results for the balance of 2015. To date, results are in line with our expectations and previous guidance provided to the market. Our Q1 guidance for 2015 and 2016 remains unchanged.
Adjusted EBITDA in the second half of 2015 is expected to increase significantly over the first half. The improvement in the second half of the year will be driven primarily by contributions from our growth capital investments and contracts, and benefits from our cost rationalization. In Heavy Oil, contributions will improve from our mature fine tailings (MFT) contracts, the full-service facility in Fort McMurray and the Silver Lake modular processing facility (MPF). In Oilfield, growth will be driven by two new MPFs, Fox Creek and Gold Creek, anticipated to contribute in Q3. In addition, in the second half of 2015, we expect to realize approximately $15 million of year-over-year EBITDA impact from our cost rationalization actions taken in the first half of the year.
The following table outlines the factors we expect to impact performance in the third quarter and for the remainder of the year.
The expected impact of crude oil prices on Adjusted EBITDA is derived from the change in crude oil price and annual recovered crude oil volumes. At current activity levels, we expect to recover fewer barrels of crude oil in 2015 compared to 2014. This decrease reduces our sensitivity on an annual basis. For every $10 change in our Canadian benchmarks we expect a $6 million change in Adjusted EBITDA in 2015, as compared to an $8 million change in 2014. The impact of the reduced volumes has increased the expected impact on performance from Step Change in 2015.
Crude oil prices
Drilling Activity
Step Change (Production waste volumes, shifts in waste mix, customer pricing reductions, offset by returns from growth capital and operational efficiencies)
Savings from Cost Rationalization
Net Debt and Leverage
We have a resilient business model and a strong balance sheet to weather the volatile market. Management of our debt leverage and optimal use of our cash and capital are of the highest priority. We will remain within our debt covenants throughout 2015. Given our assumptions for reduced oil prices and drilling activity for the remainder of the year, we anticipate our Net Debt leverage to increase beyond 3.50 before the end of the year.
Restructuring and Other Related Costs
We expect to incur approximately $2 million in the second half of 2015 in additional restructuring and other related costs.
Outlook beyond 2015
Performance in the second half of 2015, and resulting run rate improvements to Adjusted EBITDA are not predicated on any recovery in oil pricing or drilling activity over our first half performance baseline, underscoring the strength of our business model. Extending the second half run rate improvements into 2016 with oil remaining between US$50 - $60 WTI and with associated activity levels, Adjusted EBITDA in 2016 is anticipated to range from $120 to $140 million. As a result, we anticipate our Net Debt leverage to decrease steadily throughout 2016, ending at or below 3.00. For additional context, in a normalized US$70 to $75 WTI oil price environment with improved activity levels, we would expect Adjusted EBITDA in excess of $170 million.
Quarterly Conference Call
Management will hold a conference call on Friday, August 7, 2015 at 11:00 a.m. (ET) to discuss Newalta''s performance for the quarter ended June 30, 2015. To participate in the teleconference, please call 647-788-4922 or 877-291-4570. To access the simultaneous webcast, please visit . For those unable to listen to the live call, a taped broadcast will be available at and, until midnight on Friday, August 14, 2015 by dialing 800-585-8367 and entering passcode 79352661 followed by the pound sign.
About Newalta
Newalta is a leading provider of innovative engineered environmental solutions that enable customers to reduce disposal, enhance recycling and recover valuable resources from oil and gas exploration and production waste streams. We simplify the critical challenges of sustainable environmental practices through the use of advanced processing capabilities deployed through a differentiated business model. We serve customers onsite directly at their operations and through a network of locations throughout North America. Our proven processes and excellent record of safety make us the first-choice provider of sustainability-enhancing services for oil and gas customers. With a highly skilled team of people, a two-decade track record of innovation and a commitment to commercializing new solutions, Newalta is positioned for sustained future growth and improvement. We are Sustainability Simplified™. Newalta trades on the TSX as NAL. For more information, visit .
The press release contains certain statements that constitute forward-looking information. Please refer to the section below "Forward-Looking Information", for further discussion of assumptions and risks relating to this forward looking information.
The unaudited interim Condensed Consolidated Financial Statements and MD&A, which contain additional notes and disclosures, are available on SEDAR at or our website at under Investor Relations/Financial Reports.
SELECTED FINANCIAL INFORMATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited - Expressed in thousands of Canadian Dollars)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited - Expressed in thousands of Canadian Dollars)
(Except per share data)
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(Unaudited - Expressed in thousands of Canadian Dollars)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited - Expressed in thousands of Canadian Dollars)
FORWARD-LOOKING STATEMENTS
Certain statements contained in this document constitute "forward-looking information" as defined under applicable securities laws. When used in this document, the words "may", "would", "could", "will", "intend", "plan", "anticipate", "believe", "estimate", "expect", "potential", "strategy", "target", and similar expressions, as they relate to Newalta Corporation and the subsidiaries of Newalta Corporation, or their management, are intended to identify forward-looking information. In particular, forward-looking information included or incorporated by reference in this document includes statements with respect to:
Expected future financial and operating performance and related assumptions are set out under "Outlook".
Such information reflects our current views with respect to future events and is subject to certain risks, uncertainties and assumptions, including, without limitation:
By its nature, forward-looking information involves numerous assumptions, known and unknown risks and uncertainties, both general and specific, that contribute to the possibility that the predictions, forecasts, projections and other forward-looking information will not occur. Many other factors could also cause actual results, performance or achievements to be materially different from any future results, performance or achievements that may be expressed or implied by such forward-looking information and readers are cautioned that the foregoing list of factors is not exhaustive. Should one or more of these risks or uncertainties materialize, or should assumptions underlying the forward-looking information prove incorrect, actual results may vary materially from those described herein as intended, planned, anticipated, believed, estimated or expected. Furthermore, the forward-looking information contained in this document is made as of the date of this document and, in each case, is expressly qualified by this cautionary statement. Unless otherwise required by law, we do not intend, or assume any obligation, to update any such forward-looking information.
RECONCILIATION OF NON-GAAP MEASURES
This Press Release contains references to certain financial measures, including some that do not have any standardized meaning prescribed by International Financial Reporting Standards (IFRS or GAAP) and may not be comparable to similar measures presented by other corporations or entities. These financial measures are identified and defined below.
"EBITDA", "EBITDA per share", "Adjusted EBITDA", and "Adjusted EBITDA per share" are measures of our operating profitability. EBITDA provides an indication of the results generated by our principal business activities prior to how these activities are financed, assets are amortized or impaired, or how the results are taxed in various jurisdictions. In addition, Adjusted EBITDA provides an indication of the results generated by our principal business activities prior to recognizing stock-based compensation and restructuring and other related costs. Adjusted EBITDA provides improved continuity with respect to the comparison of our operating results over a period of time. Stock-based compensation, a component of employee remuneration, can vary significantly with changes in the price of our common shares (Shares), while restructuring and other related costs are outside of our normal course of business. Restructuring and other related costs are charges primarily attributable to cost rationalization initiatives. EBITDA and Adjusted EBITDA are derived from the condensed consolidated statements of operations and comprehensive income. EBITDA per share and Adjusted EBITDA per share are derived by dividing EBITDA and Adjusted EBITDA by the basic weighted average number of Shares.
EBITDA and Adjusted EBITDA from Continuing Operations are calculated as follows:
"Divisional EBITDA" provides an indication of the results generated by the division''s principal business activities prior to how activities are financed, the assets are amortized or impaired and before allocation of General and Administrative costs (G&A), restructuring and other related costs or stock-based compensation. Divisional EBITDA is derived from Net (loss) earnings before income tax from Continuing Operations as follows:
"Adjusted net earnings" and "Adjusted net earnings per share" are measures of our profitability from Continuing Operations. Adjusted net earnings from Continuing Operations (Adjusted net earnings) provides an indication of the results generated by our principal business activities prior to recognizing stock-based compensation recovery or expense, the gain or loss on embedded derivatives, impairment and restructuring and other related charges. Stock-based compensation, a component of employee remuneration, can vary significantly with changes in the price of our Shares. The (gain) loss on the embedded derivative is a result of the change in the trading price of the debentures and the volatility of the applicable bond market. Impairment and restructuring and other related costs are related to initiatives outside of our normal course of business. As such, Adjusted net earnings provides improved continuity with respect to the comparison of our results over a period of time. Adjusted net earnings per share is derived by dividing Adjusted net earnings by the basic weighted average number of Shares.
"Tangible book value per share" is used to assist management and investors in evaluating the book value compared to the market value.
"Return on Capital Employed" (ROCE) is used to assist management and investors in measuring the returns realized at the consolidated level from capital employed. ROCE is derived from Net earnings plus tax-adjusted interest divided by the average of the beginning and ending balances of our total assets less current liabilities for the period (Net Assets).
"Cash Basis Return on Capital" (ROC - Cash) is also used to assist management and investors in measuring the returns realized at the consolidated level from capital employed. ROC - Cash is derived from Adjusted EBITDA less cash stock-based compensation, cash taxes and maintenance capital divided by Net Assets.
"Net Debt" is defined as sum of amount drawn on the Credit Facility, Letters of Credit and Senior Unsecured Debentures less Cash on hand.
"Funds from operations" is used to assist management and investors in analyzing cash flow and leverage from Continuing Operations. Funds from operations as presented is not intended to represent operating funds from operations or operating profits for the period, nor should it be viewed as an alternative to cash flow from operating activities, net earnings or other measures of financial performance calculated in accordance with IFRS. Funds from operations is derived from the condensed consolidated statements of cash flows and is calculated as follows:
References to EBITDA, EBITDA per share, Adjusted EBITDA, Adjusted EBITDA per share, Divisional EBITDA, Adjusted net earnings, Adjusted net earnings per share, ROC - Cash, Net Debt, Funds from operations and Funds from operations per share throughout this document have the meanings set out above.
REPORTING STRUCTURE
In Q1 2015, we reorganized our reporting structure into two divisions - Heavy Oil and Oilfield. The new structure more closely aligns operations with customer activities, facilitates a seamless service package to customers, optimizes our resource allocations, and aids in the execution of our refreshed growth strategy.
The revised structure consists of:
Heavy Oil
Oilfield
HEAVY OIL RESTATED INFORMATION BY QUARTER
HEAVY OIL RESTATED INFORMATION BY YEAR
OILFIELD RESTATED INFORMATION BY QUARTER
OILFIELD RESTATED INFORMATION BY YEAR
G&A RESTATED INFORMATION
SENSITIVITIES
Results from Continuing Operations are sensitive to changes in commodity prices for crude oil. The direct impact of these commodity prices is reflected in the revenue received from the sale of products such as crude oil. Approximately 20% of our revenue is sensitive to the direct impact of commodity prices. Our results are also impacted by drilling activity. Drilling sensitivities are impacted by the area in which drilling occurs, compared to areas where we operate and the drilling techniques employed. Where possible, we actively manage these impacts by strategically geographically balancing mobile assets to meet demand and shifts in activity levels where necessary.
We have revised our sensitivities for crude oil prices to better reflect the lower recovered crude oil volumes recovered at our facilities. Year-to-date, volumes have declined approximately 40%. As a result, the assumptions and relationships used to derive the previously disclosed sensitivities have been revised. The following table provides our estimates of fluctuations in key inputs and prices, and the direct impact on revenue and Adjusted EBITDA from product sales:
Stock-based compensation expense is sensitive to changes in our share price. At June 30, 2015, a $1 change in our share price between $12 per share and $18 per share has approximately a $1.0 million direct impact on annual stock-based compensation reflected in G&A from Continuing Operations. Stock-based compensation is also impacted by dividend rate changes and the effects of vesting.
Contacts:
Newalta Corporation
Anne M. Plasterer
Executive Director, Investor Relations
(403) 806-7019
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