First Quarter Highlights
- For the
three-month period ended March 31, 2024, PHX Energy generated
consolidated revenue of $166.1 million which is slightly higher
than the consolidated revenue generated in the first quarter of
2023 and is the second highest level in the Corporation’s history.
This achievement resulted from strong Canadian results that
outpaced the industry trend and despite the 18 percent decline in
the US rig count impacting the Corporation’s US results.
Consolidated revenue in the 2024-quarter included $8.2 million of
motor rental revenue and $2.8 million of motor equipment and parts
sold (2023 - $10.9 million and $0.7 million, respectively).
- In the first
quarter of 2024, adjusted EBITDA(1) was $35 million, 21 percent of
consolidated revenue(1), as compared to $37 million, 22 percent of
consolidated revenue, in the same 2023-quarter. Included in the
2024-quarter’s adjusted EBITDA is $5.7 million of cash-settled
share-based compensation expense (2023 - $1.4 million). Adjusted
EBITDA excluding cash-settled share-based compensation expense(1)
in the first quarter of 2024 was $40.7 million, 25 percent of
consolidated revenue(1) (2023 - $38.4 million, 23 percent of
consolidated revenue).
- Earnings in the
2024 three-month period were $17.5 million, $0.37 per share, as
compared to $22.4 million, $0.42 per share, in the same
2023-period.
- PHX Energy’s US
division’s revenue in the first quarter of 2024 was $114.2 million,
9 percent lower compared to the $125.7 million in the 2023-quarter
and represented 69 percent of consolidated revenue (2023 – 76
percent of consolidated revenue). During the quarter, the US
industry activity declined which affected the Corporation’s US
division’s results.
- PHX Energy’s
Canadian division reported $52 million of quarterly revenue, 29
percent higher compared to $40.4 million in the 2023-quarter and
the highest level in the last ten years.
- In the 2024
three-month period, the Corporation generated excess cash flow(2)
of $7.4 million, after deducting capital expenditures of $29.6
million offset by proceeds on disposition of drilling and other
equipment of $12.3 million.
- For the
three-month period ended March 31, 2024, PHX Energy paid $9.5
million in dividends which is 24 percent higher than the dividend
amount paid in the same 2023-period. On March 15, 2024, the
Corporation declared a dividend of $0.20 per share or $9.5 million
payable on April 15, 2024. There were no common shares purchased
under the current NCIB in the three-month period ended March 31,
2024 (2023 - nil).
- As at March 31,
2024, the Corporation had working capital(2) of $88.7 million and
net cash(2) of $5.8 million.
Financial Highlights
(Stated in thousands of dollars except per share
amounts, percentages and shares outstanding)
|
Three-month periods ended March 31, |
|
|
2024 |
|
2023 |
|
% Change |
|
Operating Results |
(unaudited) |
|
(unaudited) |
|
|
|
Revenue |
166,123 |
|
166,022 |
|
- |
|
Earnings |
17,454 |
|
22,417 |
|
(22 |
) |
Earnings per share – diluted |
0.37 |
|
0.42 |
|
(12 |
) |
Adjusted EBITDA(1) |
35,033 |
|
37,000 |
|
(5 |
) |
Adjusted EBITDA per share – diluted(1) |
0.74 |
|
0.69 |
|
7 |
|
Adjusted EBITDA as a percentage of revenue(1) |
21% |
|
22% |
|
|
|
Cash Flow |
|
|
|
|
|
|
Cash flows from operating activities |
11,167 |
|
3,905 |
|
186 |
|
Funds from operations(2) |
26,141 |
|
26,737 |
|
(2 |
) |
Funds from operations per share – diluted(3) |
0.55 |
|
0.50 |
|
10 |
|
Dividends paid per share(3) |
0.20 |
|
0.15 |
|
33 |
|
Dividends paid |
9,453 |
|
7,636 |
|
24 |
|
Capital expenditures |
29,640 |
|
18,583 |
|
60 |
|
Excess cash flow(2) |
7,431 |
|
19,232 |
|
(61 |
) |
Financial Position |
Mar 31 ‘24 |
|
Dec 31 ‘23 |
|
|
|
Working capital(2) |
88,679 |
|
93,915 |
|
(6 |
) |
Net debt (Net cash)(2) |
(5,833 |
) |
(8,869 |
) |
(34 |
) |
Shareholders’ equity |
222,310 |
|
209,969 |
|
6 |
|
Common shares outstanding |
47,488,005 |
|
47,260,472 |
|
- |
|
Outlook
In the first quarter of 2024, the Corporation
continued to generate strong operating and financial results on the
back of two consecutive record years.
- We believe the
declining US rig count has stabilized and this new level of
activity will be sustained in the upcoming quarters. In the second
quarter our US RSS activity has rebounded from the slower start at
the beginning of the year. We believe that our US operations will
continue to produce strong results and any future increases in the
rig count will create an additional upside.
- During the first
quarter, we made strides in our marketing strategy for our motor
sales and rental division. We have established a separate brand,
Atlas Downhole Technology, with experienced marketing and
operations personnel now in place and dedicated to its growth. We
believe that the steps taken in the first quarter and the large
portion of our 2024 capital expenditures budget dedicated to Atlas
will aid us in expanding this division’s market presence.
- Our Canadian
operations continue to benefit from the addition of new
technologies and the increase in our RSS related activity. Our team
has successfully grown our market share in key Canadian basins and
this is softening the impact of the typical spring break-up, as we
have multiple clients whose operations are more resilient to the
seasonal slowdown. We foresee the second quarter building off the
success of the last two record quarters in Canada and being strong
on a historical basis. We are cautiously optimistic for the third
and fourth quarters in Canada.
- In the first
quarter of 2024, we ordered a large portion of the planned capital
expenditures to ensure we received delivery of items in a timely
manner, which impacted the level of excess cash flow achieved. We
believe in the future quarters the excess cash flow achieved will
increase. We are committed to continue rewarding shareholders
through our dividend and NCIB program as we remain dedicated to
delivering value to our shareholders.
We are proud of our first quarter achievements
and believe they are once again a testament to the strength of
operations and technology.
Michael Buker, PresidentMay 7, 2024
Financial Results
In the 2024 three-month period, PHX Energy
generated consolidated revenue of $166.1 million which is
marginally higher than the $166 million generated in the same
2023-period and is the second highest quarterly level in the
Corporation’s history. This was achieved primarily due to strong
Canadian results and despite the lower US rig count.
For the three-month period ended March 31, 2024,
the Corporation’s US division’s revenue decreased by 9 percent to
$114.2 million as compared to $125.7 million in the same
2023-period. The US industry activity declined 18 percent as
compared to the first quarter of 2023, although the steady decline
that occurred through 2023 did level off with the US rig count
being flat when compared to the fourth quarter of last year. In
line with lower US industry drilling activity, PHX Energy’s US
operating days declined by 14 percent from 4,820 in the first
quarter of 2023 to 4,168 in the 2024-quarter while average revenue
per day(3) for directional drilling services improved by 4 percent
quarter-over-quarter. The Corporation’s US motor rental and sales
divisions generated $7.9 million and $2.8 million of revenue,
respectively in the first quarter of 2024 (2023 - $10.2 million and
$0.7 million, respectively). Revenue from PHX Energy’s US segment
represented 69 percent of consolidated revenue in the 2024
three-month period (2023 - 76 percent).
In the 2024 three-month period, the
Corporation’s Canadian division generated revenue of $52 million,
which is the highest level since the fourth quarter of 2014 and is
29 percent greater than the $40.4 million generated in the same
2023-period. During the 2024-quarter, despite the flat Canadian
industry activity, PHX Energy’s Canadian operating days grew by 23
percent to 3,858 days from the 3,135 operating days in the
comparable 2023-quarter. Average revenue per day realized by the
Canadian segment also improved by 6 percent over the first quarter
of 2023. These results were largely driven by the Canadian
segment’s growing Rotary Steerable System (“RSS”) activity and
further expansion of its client base.
For the three-month period ended March 31, 2024,
earnings were $17.5 million (2023 - $22.4 million), adjusted
EBITDA(1) was $35 million (2023 - $37 million), and adjusted EBITDA
represented 21 percent of consolidated revenue(1) (2023 – 22
percent). Included in the 2024-quarter earnings is a $5.3 million
provision for income taxes (2023 - $3.5 million). Included in the
2024 three-month period adjusted EBITDA is cash-settled share-based
compensation expense of $5.7 million (2023 - $1.4 million). For the
three-month period ended March 31, 2024, adjusted EBITDA excluding
cash-settled share-based compensation expense(1) is $40.7 million,
25 percent of consolidated revenue (2023 - $38.4 million, 23
percent of consolidated revenue).
As at March 31, 2024, the Corporation had
working capital(2) of $88.7 million and net cash(2) of $5.8
million. The Corporation also has CAD $87 million and USD $20
million available to be drawn from its credit facilities.
Dividends and ROCS
On March 15, 2024, the Corporation declared a
dividend of $0.20 per share payable to shareholders of record at
the close of business on March 28, 2024. This is 33 percent higher
than the dividend of $0.15 per share declared in the 2023-quarter.
An aggregate of $9.5 million was paid on April 15, 2024.
The Corporation remains committed to enhancing
shareholder returns through its Return of Capital Strategy (“ROCS”)
that includes multiple options including the dividend program and
the Normal Course Issuer Bid (“NCIB”). In the 2024-quarter, 70
percent of PHX Energy’s excess cash flow(2) was $5.2 million (2023
- $13.5 million) and $9.5 million (2023 - $7.6 million) was paid in
dividends to shareholders. The decrease in excess cash flow was
mainly due to higher capital expenditures spent in the 2024
three-month period. In the 2024-quarter, the remaining
distributable balance under ROCS(2) was negative $4.3 million (2023
- positive $5.8 million). We expect that future cash flow will
compensate for the negative balance in the quarter and anticipate
the remaining distributable balance under ROCS to be positive in
the latter half of the year.
(Stated in thousands of dollars)
|
Three-month periods ended March 31, |
|
|
2024 |
|
2023 |
|
Excess cash flow(2) |
7,431 |
|
19,232 |
|
70% of excess cash flow |
5,202 |
|
13,462 |
|
|
|
|
|
|
Deduct: |
|
|
|
|
Dividends paid to shareholders |
(9,453 |
) |
(7,636 |
) |
Repurchase of shares under the NCIB |
- |
|
- |
|
Remaining Distributable Balance under ROCS(2) |
(4,251 |
) |
5,826 |
|
Normal Course Issuer Bid
During the third quarter of 2023, the TSX
approved the renewal of PHX Energy’s NCIB to purchase for
cancellation, from time-to-time, up to a maximum of 3,552,810
common shares, representing 10 percent of the Corporation’s public
float of Common Shares as at August 2, 2023. The NCIB commenced on
August 16, 2023 and will terminate on August 15, 2024. Purchases of
common shares are to be made on the open market through the
facilities of the TSX and through alternative trading systems. The
price which PHX Energy is to pay for any common shares purchased is
to be at the prevailing market price on the TSX or alternate
trading systems at the time of such purchase.
Pursuant to the current NCIB, no common shares
were purchased by the Corporation and cancelled in the three-month
period ended March 31, 2024 (2023 - nil).
Capital Spending
In the first quarter of 2024, the Corporation
spent $29.6 million in capital expenditures, of which $24.2 million
was spent on growing the Corporation’s fleet of drilling equipment,
$4.1 million was spent to replace retired assets, and $1.3 million
was spent to replace equipment lost downhole during drilling
operations. With proceeds on disposition of drilling and other
equipment of $12.3 million, the Corporation’s net capital
expenditures(2) for the 2024-quarter were $17.3 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 March 31, |
|
|
2024 |
|
2023 |
|
Growth capital expenditures(3) |
24,224 |
|
9,955 |
|
Maintenance capital expenditures(3) from asset retirements |
4,141 |
|
4,857 |
|
Maintenance capital expenditures(3) from downhole equipment
losses |
1,275 |
|
3,771 |
|
|
29,640 |
|
18,583 |
|
Deduct: |
|
|
|
|
Proceeds on disposition of drilling equipment |
(12,301 |
) |
(12,417 |
) |
Net capital expenditures(2) |
17,339 |
|
6,166 |
|
As at March 31, 2024, the Corporation had
capital commitments to purchase drilling and other equipment for
$21.8 million, $18.6 million of which is growth capital and
includes $11.3 million for performance drilling motors, $2.4
million for Velocity systems, and $4.9 million for other equipment.
Equipment on order as at March 31, 2024 is expected to be delivered
within the year.
The approved capital expenditure budget for the
2024-year, excluding proceeds on disposition of drilling equipment,
is $75 million, which includes $5 million of carryover from the
2023 budget. Of the total expenditures, $47 million is expected to
be allocated to growth capital and the remaining $28 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 Corporation currently possesses
approximately 768 Atlas motors, comprised of various configurations
including its 5.13", 5.25", 5.76", 6.63", 7.12", 7.25", 8.12",
9.00”, 9.62", and 12.00” Atlas motors, and 118 Velocity systems.
The Corporation also possesses the largest independent RSS fleet in
North America with 64 RSS tools and the only fleet currently
comprised of both the PowerDrive Orbit and iCruise systems.
Non-GAAP and Other Financial
Measures
Throughout this document, PHX Energy uses
certain measures to analyze financial performance, financial
position, and cash flow. These Non-GAAP and Other Specified
Financial Measures do not have standardized meanings prescribed
under Canadian generally accepted accounting principles (“GAAP”)
and include Non-GAAP Financial Measures and Ratios, Capital
Management Measures and Supplementary Financial Measures
(collectively referred to as “Non-GAAP and Other Financial
Measures”). These Non-GAAP and Other Specified Financial Measures
include, but are not limited to, adjusted EBITDA, adjusted EBITDA
per share, adjusted EBITDA excluding cash-settled share-based
compensation expense, adjusted EBITDA as a percentage of revenue,
gross profit as a percentage of revenue excluding depreciation and
amortization, selling, general and administrative (“SG&A”)
costs excluding share-based compensation as a percentage of
revenue, funds from operations, funds from operations per share,
excess cash flow, net capital expenditures, net debt, working
capital, and remaining distributable balance under ROCS. Management
believes that these measures provide supplemental financial
information that is useful in the evaluation of the Corporation’s
operations and are commonly used by other oil and natural gas
service companies. Investors should be cautioned, however, that
these measures should not be construed as alternatives to measures
determined in accordance with GAAP as an indicator of PHX Energy’s
performance. The Corporation’s method of calculating these measures
may differ from that of other organizations, and accordingly, such
measures may not be comparable. Please refer to the “Non-GAAP and
Other Financial Measures” section of this document for applicable
definitions, rationale for use, method of calculation and
reconciliations where applicable.
Footnotes throughout
this document reference: |
|
(1) |
Non-GAAP financial measure or ratio that does not have any
standardized meaning under IFRS and therefore may not be comparable
to similar measures presented by other entities. Refer to Non-GAAP
and Other Financial Measures section of this document. |
|
(2) |
Capital management measure that does not have any standardized
meaning under IFRS and therefore may not be comparable to similar
measures presented by other entities. Refer to Non-GAAP and Other
Financial Measures section of this document. |
|
(3) |
Supplementary financial measure that does not have any standardized
meaning under IFRS and therefore may not be comparable to similar
measures presented by other entities. Refer to Non-GAAP and Other
Financial Measures section of this document. |
Revenue
The Corporation generates revenue primarily
through the provision of directional drilling services which
includes providing equipment, personnel, and operational support
for drilling a well. Additionally, the Corporation generates
revenue through the rental and sale of drilling motors and
associated parts, particularly Atlas.
(Stated in thousands of dollars)
|
Three-month periods ended March 31, |
|
|
2024 |
2023 |
% Change |
|
Directional drilling services |
155,058 |
154,473 |
- |
|
Motor rental |
8,246 |
10,860 |
(24 |
) |
Sale of motor equipment and parts |
2,819 |
689 |
309 |
|
Total revenue |
166,123 |
166,022 |
- |
|
For the three-month period ended March 31, 2024,
the Corporation’s consolidated revenue was $166.1 million,
relatively flat as compared to the $166 million in the first
quarter of 2023 and the second highest level of quarterly revenue
on record.
In the first quarter of 2024, the US industry
rig count stabilized, with the average of 610 horizontal and
directional rigs operating per day being virtually identical to the
daily average of 608 horizontal and directional rigs in the fourth
quarter of 2023; however, quarter-over-quarter the daily average
decreased 18 percent from 742 rigs in the first quarter of 2023.
(Source: Baker Hughes, North American Rotary Rig Count, Jan 2000 –
Current, https://rigcount.bakerhughes.com/na-rig-count). In Canada,
industry horizontal and directional drilling activity (as measured
by drilling days) was 17,714 days in the 2024-quarter, only a 1
percent decline from 17,829 days in the same 2023-quarter (Source:
Daily Oil Bulletin, hz-dir days 240331). Despite the US rig count
driving an overall weakening in North American industry activity,
PHX Energy’s activity levels held steady with consolidated
operating days slightly increasing by 1 percent to 8,025 days in
the first quarter of 2024 compared to 7,955 days in the same
2023-quarter. The Corporation’s US activity declined in line with
the industry, whereas PHX Energy’s Canadian drilling activity
outpaced the industry trend as additional market share was captured
in the 2024-period.
Average consolidated revenue per day(3) for
directional drilling services was relatively unchanged from the
first quarter of 2023 at $19,322 in the 2024 three-month period
compared to $19,420. During the 2024-quarter, both the US and
Canadian segments realized improvements in average revenue per
day(3) for directional drilling services. However, as PHX Energy’s
Canadian activity increased as a portion of its consolidated
activity in the 2024-period, a greater percentage of consolidated
activity was at the lower average revenue per day for directional
drilling services in Canada.
In the 2024-quarter, revenue generated by the
Atlas motor rental division declined by 24 percent to $8.2 million
from $10.9 million in the same 2023-period. The decrease was
largely due to the lower US industry rig count. For the three-month
period ended March 31, 2024, revenue of $2.8 million was generated
from the sale of Atlas motors and parts (2023 – 0.7 million).
Operating Costs and
Expenses
(Stated in thousands of dollars except
percentages)
|
Three-month periods ended March 31, |
|
|
2024 |
|
2023 |
|
% Change |
|
Direct costs |
129,044 |
|
131,988 |
|
(2 |
) |
Depreciation & amortization drilling and other equipment
(included in direct costs) |
10,319 |
|
9,317 |
|
11 |
|
Depreciation & amortization right-of-use asset (included in
direct costs) |
849 |
|
407 |
|
109 |
|
Gross profit as a percentage of revenue excluding depreciation
& amortization(1) |
29% |
|
26% |
|
|
|
Direct costs are comprised of field and shop
expenses, costs of motors and parts sold, and include depreciation
and amortization of the Corporation’s equipment and right-of-use
assets.
In line with the consistent level of
consolidated revenue and activity, direct costs in the 2024
three-month period were relatively the same level as the
corresponding 2023-period, decreasing by only 2 percent to $129
million from $132 million in the 2023-period. In the 2024-quarter,
depreciation and amortization expenses on drilling and other
equipment increased by 11 percent mainly due to the volume of fixed
assets acquired as part of PHX Energy’s 2023 and 2024 capital
expenditure program. This increase was offset by lower motor repair
expenses that largely resulted from the decline in Atlas motor
rental activity in the US.
In the 2024 three-month period, gross profit as
a percentage of revenue excluding depreciation and amortization(1)
improved to 29 percent from 26 percent in the corresponding
2023-period. Greater profitability in the period was largely driven
by the increased utilization of the Corporation’s premium
technologies, particularly increased deployment of Velocity as a
result of enhancements developed by PHX Energy’s Research and
Development (“R&D”) department that better integrate Velocity
and newly acquired RSS. Increased profits from the Corporation’s
Atlas sales division also contributed to the improved margins.
(Stated in thousands of dollars except
percentages)
|
Three-month periods ended March 31, |
|
|
2024 |
|
2023 |
|
% Change |
|
Selling, general and administrative (“SG&A”) costs |
21,017 |
|
15,556 |
|
35 |
|
Cash-settled share-based compensation (included in SG&A
costs) |
5,710 |
|
1,374 |
|
316 |
|
Equity-settled share-based compensation (included in SG&A
costs) |
100 |
|
101 |
|
(1 |
) |
SG&A costs excluding share-based compensation as a percentage
of revenue(1) |
9% |
|
8% |
|
|
|
For the three-month period ended March 31, 2024,
SG&A costs were $21 million, an increase of 35 percent as
compared to $15.6 million in the corresponding 2023-period. Higher
SG&A costs in the 2024-period were primarily due to greater
cash-settled share-based compensation and rising personnel-related
costs.
Cash-settled share-based compensation relates to
the Corporation’s retention awards and is measured at fair value.
For the three-month period ended March 31, 2024, the related
compensation expense recognized by PHX Energy was $5.7 million
(2023 - $1.4 million). Changes in cash-settled share-based
compensation expense in the 2024-period were mainly driven by
fluctuations in the Corporation’s share price which increased, and
the number of awards granted in the period. There were 1,527,685
retention awards outstanding as at March 31, 2024 (2023 –
2,083,553). SG&A costs excluding share-based compensation as a
percentage of revenue(1) in the 2024 three-month period was 9
percent as compared to 8 percent in the corresponding
2023-period.
(Stated in thousands of dollars)
|
Three-month periods ended March 31, |
|
|
2024 |
2023 |
% Change |
|
Research and development expense |
1,202 |
1,256 |
(4 |
) |
For the three-month period ended March 31, 2024,
PHX Energy’s R&D expenditures declined slightly by 4 percent to
$1.2 million from $1.3 million in the corresponding 2023-period.
During the 2024-quarter, the Corporation’s R&D department
remained focused on key projects, particularly on developing
supplementary technologies that would create value added
capabilities within PHX Energy’s suite of premium fleet. The
Corporation also remained committed in supporting new and ongoing
initiatives to continuously improve the reliability of equipment
and reduce costs to operations.
(Stated in thousands of dollars)
|
Three-month periods ended March 31, |
|
|
2024 |
2023 |
% Change |
|
Finance expense |
334 |
667 |
(50 |
) |
Finance expense lease liabilities |
541 |
576 |
(6 |
) |
Finance expenses mainly relate to interest
charges on the Corporation’s credit facilities. For the three-month
period ended March 31, 2024, finance expenses decreased to $0.3
million (2023 - $0.7 million) mainly due to decreased drawings on
the credit facilities in the period.
Finance expense lease liabilities relate to
interest expense incurred on lease liabilities. For the three-month
period ended March 31, 2024, finance expense lease liabilities
decreased by 6 percent primarily due to expired leases.
(Stated in thousands of dollars)
|
Three-month periods ended March 31, |
|
2024 |
|
2023 |
Net gain on disposition of drilling equipment |
8,886 |
|
9,956 |
Foreign exchange gains (losses) |
(129 |
) |
23 |
Other income |
8,757 |
|
9,979 |
For the three-month periods ended March 31, 2024
and 2023, the Corporation recognized other income of $8.8 million
and $10 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 the 2024-period, fewer instances of high dollar
valued downhole equipment losses occurred as compared to the
corresponding 2023-period which resulted in lower proceeds and
gains. The Corporation will use capital expenditure funds,
including the proceeds from disposition of drilling equipment, to
replace this equipment and these amounts will be added to the
capital expenditures for the remainder of 2024.
(Stated in thousands of dollars except
percentages)
|
Three-month periods ended March 31, |
|
|
2024 |
|
2023 |
|
Provision for income taxes |
5,288 |
|
3,541 |
|
Effective tax rates(3) |
23% |
|
14% |
|
For the three-month period ended March 31, 2024,
the Corporation reported income tax provision of $5.3 million (2023
- $3.5 million). In the 2024-quarter, PHX Energy’s effective tax
rate is 23 percent which is in line with the combined US federal
and state corporate income tax rate of 21 percent and combined
Canadian federal and provincial income tax rate of 23 percent.
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 Corporation’s First Quarter
2024 MD&A filed on Sedar+ for the change in operating
segments).
United States
(Stated in thousands of dollars)
|
Three-month periods ended March 31, |
|
|
2024 |
2023 |
% Change |
|
Directional drilling services |
103,406 |
114,746 |
(10 |
) |
Motor rental |
7,925 |
10,231 |
(23 |
) |
Sale of motor equipment and parts |
2,819 |
689 |
309 |
|
Total US revenue |
114,150 |
125,666 |
(9 |
) |
Reportable segment profit before tax |
16,594 |
15,923 |
4 |
|
For the three-month period ended March 31, 2024,
PHX Energy’s US operations generated revenue of $114.2 million, a 9
percent decrease compared to $125.7 million in the 2023-quarter.
The decrease in revenue was largely due to the lower US industry
activity in the 2024-quarter relative to the first quarter of
2023.
In the 2024 three-month period, the US industry
horizontal and directional rig count decreased by 18 percent with
610 active rigs per day as compared to 742 rigs per day in the
first quarter of 2023, but remained flat when compared to the
fourth quarter of 2023. (Source: Baker Hughes, North American
Rotary Rig Count, Jan 2000 – Current,
https://rigcount.bakerhughes.com/na-rig-count). The continued
demand for PHX Energy’s premium technologies remained strong and
created some resilience to the industry’s trajectory. The
Corporation’s US directional drilling activity decreased by only 14
percent to 4,168 operating days in the first quarter of 2024
compared to 4,820 days in the same 2023-quarter and has increased
by 1 percent as compared to the 4,114 days in the fourth quarter of
2023. The US division’s average revenue per day(3) for directional
drilling services marginally improved by 4 percent to $24,812 in
the first quarter of 2024 from $23,806 in the corresponding
2023-quarter.
In the 2024 three-month period, the US segment’s
Atlas motor rental activity was weaker due to the softer market
conditions. In the 2024-quarter, the Corporation generated motor
rental revenue of $7.9 million, a 23 percent decrease from $10.2
million in the same 2023-quarter.
For the three-month period ended March 31, 2024,
the US segment realized reportable segment income before tax of
$16.6 million which is 4 percent higher than $15.9 million in the
corresponding 2023-period. During the 2024-quarter, the technology
enhancements developed to better integrate Velocity with RSS
increased fleet utilization which contributed to reduced costs and
improved profitability. Margins from the sale of Atlas motors and
parts also contributed to the increased profitability in the
2024-period. For the three-month period ended March 31, 2024, PHX
Energy generated $2.8 million of revenue from this line of business
(2023 - $0.7 million).
Canada
(Stated in thousands of dollars)
|
Three-month periods ended March 31, |
|
|
2024 |
2023 |
% Change |
|
Directional drilling services |
51,652 |
39,727 |
30 |
|
Motor rental |
321 |
629 |
(49 |
) |
Total Canadian revenue |
51,973 |
40,356 |
29 |
|
Reportable segment profit before tax |
8,674 |
8,293 |
5 |
|
In the first quarter of 2024, PHX Energy’s
Canadian operations generated revenue of $52 million, its highest
level of quarterly revenue since the fourth quarter of 2014 and a
29 percent increase compared to $40.4 million generated in the 2023
first quarter. Strong quarterly revenue generated in the
2024-period was largely driven by growth in both the Canadian
segment’s client base and its market presence as an RSS
provider.
For the three-month period ended March 31, 2024,
the Canadian division’s average revenue per day(3) for directional
drilling services increased by 6 percent to $13,390 from $12,674 in
the corresponding 2023-period. The Canadian segment’s operating
days in the 2024-quarter grew by 23 percent to 3,858 days as
compared to 3,135 days in the corresponding 2023-quarter. In
comparison, industry horizontal and directional drilling activity
(as measured by drilling days) declined by 1 percent to 17,714 days
in the 2024 three-month period (Source: Daily Oil Bulletin, hz-dir
days 240331). During the 2024-quarter, the Corporation was active
in the Duvernay, Montney, Glauconite, Frobisher, Cardium, Viking,
Bakken, Torquay, Colony, Clearwater, Deadwood, Ellerslie, Charlie
Lake, and Scallion basins.
For the three-month period ended March 31, 2024,
the Corporation’s Canadian division recognized reportable segment
profit before tax of $8.7 million (2023 – $8.3 million). Despite
increased revenue and activity, profitability marginally increased
primarily due to higher equipment rentals associated with greater
RSS activity and an overall increase in equipment repair costs.
Investing Activities
Net cash used in investing activities for the
three-month period ended March 31, 2024 was $4.9 million as
compared to $5 million in the 2023-period. During the first quarter
of 2024, the Corporation spent $24.2 million (2023 - $10 million)
to grow the Corporation’s fleet of drilling equipment, $4.1 million
(2023 - $4.9 million) was used to maintain capacity in the
Corporation’s fleet of drilling and other equipment, and $1.3
million was used to replace equipment lost downhole during drilling
operations (2023 - $3.8 million). With proceeds on disposition of
drilling and other equipment of $12.3 million (2023 - $12.4
million), the Corporation’s net capital expenditures(2) for the
2024-quarter were $17.3 million (2023 - $6.2 million).
(Stated in thousands of dollars)
|
Three-month periods ended March 31, |
|
|
2024 |
|
2023 |
|
Growth capital expenditures(3) |
24,224 |
|
9,955 |
|
Maintenance capital
expenditures(3) from asset retirements |
4,141 |
|
4,857 |
|
Maintenance capital expenditures(3) from downhole equipment
losses |
1,275 |
|
3,771 |
|
|
29,640 |
|
18,583 |
|
Deduct: |
|
|
Proceeds on disposition of drilling equipment |
(12,301 |
) |
(12,417 |
) |
Net capital expenditures(2) |
17,339 |
|
6,166 |
|
The 2024-period capital expenditures comprised
of:
- $11 million in
downhole performance drilling motors;
- $11.7 million in
RSS;
- $6.5 million in
MWD systems and spare components; and
- $0.4 million in machinery and
equipment and other assets.
The change in non-cash working capital balances
of $12.5 million (source of cash) for the three-month period ended
March 31, 2024, relates to the net change in the Corporation’s
trade payables that are associated with the acquisition of capital
assets. This compares to $1.1 million (source of cash) for the
three-month period ended March 31, 2023.
Financing Activities
For the three-month period ended March 31, 2024,
net cash used in financing activities was $9.6 million as compared
to $1.6 million in the 2023-period. In the 2024-period:
- dividends of
$9.5 million were paid to shareholders;
- $0.1 million net
repayments were made towards the Corporation’s syndicated credit
facility;
- payments of $0.8
million were made towards lease liabilities; and
- 227,533 common
shares were issued from treasury for proceeds of $0.7 million upon
the exercise of share options.
Capital Resources
As of March 31, 2024, the Corporation had CAD
$7.5 million drawn on its Canadian credit facilities, nothing drawn
on its US operating facility, and a cash balance of $13.4 million.
As at March 31, 2024, the Corporation had CAD $87 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 March 31, 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 previously announced
preliminary 2024 capital expenditure program of $70 million, PHX
Energy anticipates spending $75 million of capital expenditures in
2024. Of the total expenditures, $47 million is targeted to be
spent on growth and $28 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.
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, the Corporation's activity levels,
cash flows and access to credit may be negatively impacted, and the
expenditure level would be reduced accordingly where possible.
Conversely, if future growth opportunities present themselves, the
Corporation would look at expanding this planned capital
expenditure amount.
As at March 31, 2024, the Corporation has
commitments to purchase drilling and other equipment for $21.8
million. Deliveries are expected to occur throughout the rest of
the 2024-year.
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 sales offices and service
facilities in Albania, and an administrative office in Nicosia,
Cyprus. The Corporation also supplies technology to the Middle East
regions.
The common shares of PHX Energy trade on the
Toronto Stock Exchange under the symbol PHX.
For further information please contact:John
Hooks, CEO; Michael Buker, President; or Cameron Ritchie, Senior
Vice President Finance and CFO
PHX Energy Services Corp.Suite 1600, 215 9th
Avenue SW, Calgary Alberta T2P 1K3Tel: 403-543-4466 Fax:
403-543-4485 www.phxtech.com
Condensed Consolidated Interim
Statements of Financial Position
(Stated in thousands of dollars, unaudited)
|
|
|
March 31, 2024 |
|
|
December 31, 2023 |
|
ASSETS |
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
Cash and cash equivalents |
$ |
13,380 |
|
$ |
16,433 |
|
|
Trade and other receivables |
|
125,711 |
|
|
121,334 |
|
|
Inventories |
|
63,003 |
|
|
63,173 |
|
|
Prepaid expenses |
|
4,598 |
|
|
2,409 |
|
|
Current tax assets |
|
1,961 |
|
|
3,691 |
|
|
Total current assets |
|
208,653 |
|
|
207,040 |
|
Non-current assets: |
|
|
|
|
|
|
|
Drilling and other long-term assets |
|
146,789 |
|
|
128,263 |
|
|
Right-of-use assets |
|
26,764 |
|
|
27,056 |
|
|
Intangible assets |
|
13,771 |
|
|
14,200 |
|
|
Investments |
|
3,001 |
|
|
3,001 |
|
|
Other long-term assets |
|
1,429 |
|
|
1,284 |
|
|
Deferred tax assets |
|
2,993 |
|
|
4,650 |
|
|
Total non-current assets |
|
194,747 |
|
|
178,454 |
|
Total assets |
$ |
403,400 |
|
$ |
385,494 |
|
LIABILITIES AND SHAREHOLDERS' EQUITY |
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
Trade and other payables |
$ |
107,100 |
|
$ |
100,438 |
|
|
Dividends payable |
|
9,498 |
|
|
9,453 |
|
|
Lease liability |
|
3,376 |
|
|
3,234 |
|
|
Total current liabilities |
|
119,974 |
|
|
113,125 |
|
Non-current liabilities: |
|
|
|
|
|
|
|
Lease liability |
|
33,622 |
|
|
33,972 |
|
|
Loans and borrowings |
|
7,547 |
|
|
7,564 |
|
|
Deferred tax liability |
|
18,831 |
|
|
16,822 |
|
|
Other |
|
1,116 |
|
|
4,042 |
|
|
Total non-current liabilities |
|
61,116 |
|
|
62,400 |
|
Equity: |
|
|
|
|
|
|
|
Share capital |
|
223,628 |
|
|
222,653 |
|
|
Contributed surplus |
|
7,005 |
|
|
7,168 |
|
|
Deficit |
|
(37,739 |
) |
|
(45,695 |
) |
|
Accumulated other comprehensive income |
|
29,416 |
|
|
25,843 |
|
|
Total equity |
|
222,310 |
|
|
209,969 |
|
Total liabilities and equity |
$ |
403,400 |
|
$ |
385,494 |
|
Condensed Consolidated Interim
Statements of Comprehensive Earnings
(Stated in thousands of dollars except earnings
per share, unaudited)
|
|
Three-month periods ended March 31, |
|
|
|
2024 |
|
|
2023 |
|
Revenue |
$ |
166,123 |
|
$ |
166,022 |
|
Direct
costs |
|
129,044 |
|
|
131,988 |
|
Gross profit |
|
37,079 |
|
|
34,034 |
|
Expenses: |
|
|
|
|
|
|
Selling, general and administrative expenses |
|
21,017 |
|
|
15,556 |
|
Research and development expenses |
|
1,202 |
|
|
1,256 |
|
Finance expense |
|
334 |
|
|
667 |
|
Finance expense lease liability |
|
541 |
|
|
576 |
|
Other income |
|
(8,757 |
) |
|
(9,979 |
) |
|
|
14,337 |
|
|
8,076 |
|
Earnings before income taxes |
|
22,742 |
|
|
25,958 |
|
|
|
|
|
|
|
|
Provision for income
taxes |
|
|
|
|
|
|
Current |
|
1,986 |
|
|
2,724 |
|
Deferred |
|
3,302 |
|
|
817 |
|
|
|
5,288 |
|
|
3,541 |
|
Net earnings |
|
17,454 |
|
|
22,417 |
|
|
|
|
|
|
|
|
Other comprehensive
income |
|
|
|
|
|
|
Foreign currency translation, net of tax |
|
3,573 |
|
|
(107 |
) |
Total comprehensive earnings |
$ |
21,027 |
|
$ |
22,310 |
|
|
|
|
|
|
|
|
Earnings per share –
basic |
$ |
0.37 |
|
$ |
0.44 |
|
Earnings per share – diluted |
$ |
0.37 |
|
$ |
0.42 |
|
Condensed Consolidated Interim
Statements of Cash Flows
(Stated in thousands of dollars, unaudited)
|
|
Three-month periods ended March 31, |
|
|
|
2024 |
|
|
2023 |
|
Cash flows from operating
activities: |
|
|
|
|
|
|
Earnings |
$ |
17,454 |
|
$ |
22,417 |
|
Adjustments for: |
|
|
|
|
|
|
Depreciation and amortization |
|
10,319 |
|
|
9,317 |
|
Depreciation and amortization right-of-use asset |
|
849 |
|
|
407 |
|
Provision for income taxes |
|
5,288 |
|
|
3,541 |
|
Unrealized foreign exchange (gain) loss |
|
148 |
|
|
(26 |
) |
Net gain on disposition of drilling equipment |
|
(8,886 |
) |
|
(9,956 |
) |
Equity-settled share-based payments |
|
100 |
|
|
101 |
|
Finance expense |
|
334 |
|
|
667 |
|
Finance expense lease liability |
|
541 |
|
|
576 |
|
Provision for inventory obsolescence |
|
535 |
|
|
269 |
|
Interest paid on lease liability |
|
(541 |
) |
|
(576 |
) |
Interest paid |
|
(204 |
) |
|
(513 |
) |
Income taxes paid |
|
(185 |
) |
|
(134 |
) |
Change in non-cash working capital |
|
(14,585 |
) |
|
(22,185 |
) |
Net cash from operating activities |
|
11,167 |
|
|
3,905 |
|
Cash flows from investing
activities: |
|
|
|
|
|
|
Proceeds on disposition of drilling equipment |
|
12,301 |
|
|
12,417 |
|
Acquisition of drilling and other equipment |
|
(29,640 |
) |
|
(18,583 |
) |
Change in non-cash working capital |
|
12,469 |
|
|
1,142 |
|
Net cash used in investing activities |
|
(4,870 |
) |
|
(5,024 |
) |
Cash flows from financing
activities: |
|
|
|
|
|
|
Dividends paid to shareholders |
|
(9,453 |
) |
|
(7,636 |
) |
Payments of lease liability |
|
(830 |
) |
|
(762 |
) |
Net proceeds from (net repayment of) loans and borrowings |
|
(60 |
) |
|
7,326 |
|
Proceeds from exercise of options |
|
712 |
|
|
266 |
|
Purchase of shares held in trust |
|
- |
|
|
(808 |
) |
Net cash used in financing activities |
|
(9,631 |
) |
|
(1,614 |
) |
Net decrease in cash and cash
equivalents |
|
(3,334 |
) |
|
(2,733 |
) |
Cash and cash equivalents,
beginning of period |
|
16,433 |
|
|
18,247 |
|
Effect
of movements in exchange rates on cash held |
|
281 |
|
|
(12 |
) |
Cash
and cash equivalents, end of period |
$ |
13,380 |
|
$ |
15,502 |
|
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, PHX Energy's intentions with respect to the NCIB
and purchases thereunder and the effects of repurchases under the
NCIB, the anticipated industry activity and demand for the
Corporation’s services and technologies in North America, the
projected capital expenditures budget for 2024 ,and how the budget
will be allocated and funded, the timeline for delivery of
equipment on order, and the anticipated continuation of PHX
Energy’s quarterly dividend program and the amounts of
dividends.
The above are stated under the headings:
“Financial Results”, “Dividends and ROCS”, “Capital Spending”, 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 March 31, |
|
|
2024 |
2023 |
|
Earnings: |
17,454 |
22,417 |
|
Add: |
|
|
|
Depreciation and amortization drilling and other equipment |
10,319 |
9,317 |
|
Depreciation and amortization right-of-use asset |
849 |
407 |
|
Provision for income taxes |
5,288 |
3,541 |
|
Finance expense |
334 |
667 |
|
Finance expense lease liability |
541 |
576 |
|
Equity-settled share-based payments |
100 |
101 |
|
Unrealized foreign exchange loss (gain) |
148 |
(26 |
) |
Adjusted EBITDA |
35,033 |
37,000 |
|
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 March 31, |
|
|
2024 |
2023 |
|
Earnings: |
17,454 |
22,417 |
|
Add: |
|
|
|
Depreciation and amortization drilling and other equipment |
10,319 |
9,317 |
|
Depreciation and amortization right-of-use asset |
849 |
407 |
|
Provision for income taxes |
5,288 |
3,541 |
|
Finance expense |
334 |
667 |
|
Finance expense lease liability |
541 |
576 |
|
Equity-settled share-based payments |
100 |
101 |
|
Unrealized foreign exchange loss (gain) |
148 |
(26 |
) |
Cash-settled share-based compensation expense |
5,710 |
1,374 |
|
Adjusted EBITDA excluding cash-settled share-based compensation
expense |
40,743 |
38,374 |
|
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 March 31, |
|
|
2024 |
|
2023 |
|
Revenue |
166,123 |
|
166,022 |
|
Direct costs |
129,044 |
|
131,988 |
|
Gross profit |
37,079 |
|
34,034 |
|
Depreciation &
amortization drilling and other equipment (included in direct
costs) |
10,319 |
|
9,317 |
|
Depreciation &
amortization right-of-use asset (included in direct costs) |
849 |
|
407 |
|
|
48,247 |
|
43,758 |
|
Gross profit as a percentage of revenue excluding depreciation
& amortization |
29% |
|
26% |
|
g) SG&A Costs
Excluding Share-Based Compensation as a Percentage of
Revenue
SG&A costs excluding share-based
compensation as a percentage of revenue is defined as the
Corporation’s SG&A costs excluding share-based compensation
divided by revenue and is used to assess the impact of
administrative costs excluding the effect of share price
volatility. This Non-GAAP ratio does not have a standardized
meaning and is not a financial measure recognized under GAAP. PHX
Energy’s method of calculating SG&A costs excluding share-based
compensation as a percentage of revenue may differ from that of
other organizations and, accordingly, it may not be comparable to
that of other companies.
The following is a reconciliation of SG&A
costs, share-based compensation, and revenue to SG&A costs
excluding share-based compensation as a percentage of revenue:
(Stated in thousands of dollars)
|
Three-month periods ended March 31, |
|
|
2024 |
|
2023 |
|
SG&A Costs |
21,017 |
|
15,556 |
|
Deduct: |
|
|
|
|
Share-based compensation (included in SG&A) |
5,810 |
|
1,475 |
|
|
15,207 |
|
14,081 |
|
Revenue |
166,123 |
|
166,022 |
|
SG&A costs excluding share-based compensation as a percentage
of revenue |
9% |
|
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 March 31, |
|
2024 |
2023 |
Cash flows from operating activities |
11,167 |
3,905 |
Add (deduct): |
|
|
Changes in non-cash working capital |
14,585 |
22,185 |
Interest paid |
204 |
513 |
Income taxes paid |
185 |
134 |
Funds from operations |
26,141 |
26,737 |
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 March 31, |
|
|
2024 |
|
2023 |
|
Cash flows from operating activities |
11,167 |
|
3,905 |
|
Add (deduct): |
|
|
|
|
Changes in non-cash working capital |
14,585 |
|
22,185 |
|
Interest paid |
204 |
|
513 |
|
Income taxes paid |
185 |
|
134 |
|
Cash payment on leases |
(1,371 |
) |
(1,339 |
) |
|
24,770 |
|
25,398 |
|
|
|
|
|
|
Proceeds on disposition of drilling equipment |
12,301 |
|
12,417 |
|
Maintenance capital expenditures to replace downhole equipment
losses and asset retirements |
(5,416 |
) |
(8,628 |
) |
Net proceeds |
6,885 |
|
3,789 |
|
|
|
|
|
|
Growth capital expenditures |
(24,224 |
) |
(9,955 |
) |
Excess cash flow |
7,431 |
|
19,232 |
|
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)
|
March 31, 2024 |
|
December 31, 2023 |
|
Current assets |
208,653 |
|
207,040 |
|
Deduct: |
|
|
Current liabilities |
(119,974 |
) |
(113,125 |
) |
Working capital |
88,679 |
|
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)
|
March 31, 2024 |
|
December 31, 2023 |
|
Loans and borrowings |
7,547 |
|
7,564 |
|
Deduct: |
|
|
Cash and cash equivalents |
(13,380 |
) |
(16,433 |
) |
Net debt (Net cash) |
(5,833 |
) |
(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 March 31, |
|
|
2024 |
|
2023 |
|
Growth capital expenditures |
24,224 |
|
9,955 |
|
Maintenance capital
expenditures from asset retirements |
4,141 |
|
4,857 |
|
Maintenance capital expenditures from downhole equipment
losses |
1,275 |
|
3,771 |
|
|
29,640 |
|
18,583 |
|
Deduct: |
|
|
Proceeds on disposition of drilling equipment |
(12,301 |
) |
(12,417 |
) |
Net capital expenditures |
17,339 |
|
6,166 |
|
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 March 31, |
|
|
2024 |
|
2023 |
|
Excess cash flow |
7,431 |
|
19,232 |
|
70% of excess cash flow |
5,202 |
|
13,462 |
|
|
|
|
Deduct: |
|
|
Dividends paid to shareholders |
(9,453 |
) |
(7,636 |
) |
Repurchase of shares under the NCIB |
- |
|
- |
|
Remaining Distributable Balance under ROCS |
(4,251 |
) |
5,826 |
|
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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