ACX ACT Energy Technologies Ltd

/NOT FOR DISSEMINATION IN THE UNITED STATES OF AMERICA/

CALGARY, AB, Aug. 12, 2024 /CNW/ -

ACT Energy Technologies Ltd, formerly Cathedral Energy Services Ltd., (the "Company" or "ACT") news release contains "forward-looking statements" within the meaning of applicable Canadian securities laws. For a full disclosure of forward-looking statements and the risks to which they are subject, see the "Forward-Looking Statements" section in this news release. This news release contains references to Adjusted gross margin, Adjusted gross margin %, Adjusted EBITDAS, Adjusted EBITDAS margin %, Free cash flow, Working capital and Net capital expenditures. These terms do not have standardized meanings prescribed under International Financial Reporting Standards as issued by the International Accounting Standards Board ("IFRS Accounting Standards") and may not be comparable to similar measures used by other companies. See the "Non-GAAP Measures" section in this news release for definitions and tabular calculations.

2024 Q2 KEY HIGHLIGHTS

The Company achieved the following 2024 Q2 results and highlights:

• Revenues of $130.3 million in 2024 Q2, were the highest for any second quarter in the Company's history and increased 7%, compared to $121.3 million in 2023 Q2.
• Adjusted EBITDAS ⁽¹⁾ of $17.3 million in 2024 Q2 decreased 5%, compared to $18.2 million in 2023 Q2. Lost-in-hole equipment net reimbursements were significantly lower in 2024 Q2, compared to 2023 Q2 and 2024 Q1 levels.
• Canadian operating days increased 28% in 2024 Q2, compared to 2023 Q2, which compares favourably to an 8% increase in the Western Canadian rig count ⁽²⁾. ACT remains extremely active in oil plays where wells have a high multilateral count.
• U.S. operating days decreased 5% in 2024 Q2, compared to 2023 Q2, mainly due to a 17% decline of the U.S. land rig count ⁽²⁾.
• An increase in the Canadian average revenue per operating day of 7% in 2024 Q2, compared to 2023 Q2.
• An increase in the U.S. average revenue per operating day of 6% in 2024 Q2, compared to 2023 Q2, despite a decrease in operating days.
• Net income of $5.3 million in 2024 Q2, compared to $2.4 million in 2023 Q2.
• Cash flow - operating activities of $34.1 million in 2024 Q2, compared to $16.4 million in 2023 Q2, mainly attributable to the change in non-cash working capital.
• Free cash flow deficit ⁽¹⁾ of $3.0 million in 2024 Q2, compared to Free cash flow ⁽¹⁾ of $5.0 million in 2023 Q2.
• On May 9, 2024, the shareholders of the Company approved the consolidation of the issued and outstanding common shares of the Company. As a result, on July 3, 2024, 243,383,392 common shares issued and outstanding prior to the Consolidation (the "Consolidation") were reduced to 34,769,056 common shares (one post-consolidation common share for seven pre-consolidation common shares).
• Loans and borrowings less cash was $55.7 million as at June 30, 2024, compared to $67.9 million as at December 31, 2023. The Company will remain focused on reducing its loans and borrowings and generating Free cash flow ⁽¹⁾ for the remainder of 2024.
• The Company continues to see a significant opportunity for margin expansion in its U.S. directional business by using Rime Downhole Technologies ("Rime") supplied Measurement-While-Drilling ("MWD") systems to reduce its third-party rental costs. To date, ten Rime MWD systems have been deployed with an additional forty MWD systems expected to be deployed by the first half of the 2025.
• The Company purchased two additional Rotary Steerable Systems ("RSS") Orbit tools, expanding its U.S. fleet to twenty-one RSS tools.

PRESIDENT'S MESSAGE

Comments from President & CEO Tom Connors:

"We recently completed a corporate name change and re-brand to ACT Energy Technologies, which recognizes the significant growth and transformation of the Company that has occurred through the culmination of eight acquisitions over a two-year period. The name ACT honours the legacy and accomplishments of both Altitude and Cathedral, while conveying a proactive energy and the spirit of innovation we bring into the future, as we focus on delivering high-performance solutions for our customers.  Additionally, to better reflect a more consistent brand to our customers, our full-service directional business now operates under one brand as "Altitude Energy Partners" which is a change in the Canadian market, where we have previously operated as "Cathedral Energy Services".

"Altitude's full-service directional operations in Canada and the United States comprise the Company's largest business segment. The motor rental business in the United States will continue to operate as "Discovery Downhole Services" and the engineering and MWD technology manufacturing and sales division will continue to operate as "Rime Downhole Technologies". Concurrent with the Company's name change, we also completed a one-for-seven share consolidation. The Company's common shares now trade under the ticker "ACX" on the TSX, which formerly traded under "CET".

"ACT achieved its highest ever corporate revenues for a second quarter while Adjusted EBITDAS was slightly lower year-over-year ("yr/yr") due to a combination of higher selling, general and administration expenses and lower contribution from lost-in-hole activity. Driving the record topline was a 37% yr/yr increase in Canadian revenues and a 28% yr/yr increase in Canadian operating days. For context, this strong Canadian performance compares to an 8% increase in the average Western Canadian rig count in the same period (source: Rig Locator).

"The Company's technology suite is particularly well-suited to drill wells that have a high multi-lateral count and the proliferation of this type of drilling in Canadian oil-related markets has helped support stronger and more consistent levels of activity. More capital discipline from Canadian exploration and production companies has also resulted in more consistent spending levels, resulting in more robust activity levels in the second quarter, compared to historical norms as operators smooth out or "level-load" activity levels to drive efficiencies.

"Our U.S. division of Altitude Energy Partners continues to perform well, relative to the overall market, with operating days remaining relatively flat versus 2024 Q1 levels, which compares to a 3% drop in the underlying active land rig count (Source: Baker Hughes). We believe that a focus on the high-performance RSS market has helped support consistent job counts versus a lower rig count environment for U.S. land. We also believe that there is opportunity for growth in the portion of the market that demands RSS technology and have further invested in our U.S. RSS fleet, expanding to twenty-one systems from the sixteen systems held at the end of 2023.

"With a significant portion of our daily revenue dedicated to third-party rental expense, our single biggest opportunity for growth leading into 2025 is the deployment of our own Rime-supplied MWD systems for the U.S. directional drilling market. ACT remains on track to manufacture fifty MWD systems by the end of this year with deployment and utilization of the fleet hitting full capacity in the first half of 2025. With ten systems already deployed and operating in the market, we should begin to see a modest improvement in financial results against a weaker macro environment as we replace third-party rentals and progress on our MWD build-out through the back half of 2024.

"With a relatively modest capital investment, successful deployment of a sizable MWD fleet is our highest priority as it provides the highest potential returns on capital versus any other investment opportunity before us. Finally, our U.S.-based Discovery Downhole Services mud motor rental business saw weaker utilization levels in 2024 Q2, which was roughly in-line with the declining trajectory of the U.S. land rig count.

"We continued to strengthen our balance sheet in the second quarter with reduced debt levels and increased cash balances related to the cyclical working capital harvest that occurs with seasonal activity lows, following a relatively busy first quarter in Canada. We remain confident that the business will produce results that will allow us to further reduce our Loans and borrowings to very comfortable levels within the next twelve months, providing the Company with optionality to initiate a shareholder return strategy in the near future, if market conditions allow. Lower levels of debt combined with a meaningful reduction in third-party rental expense in 2025 will support higher levels of cash flow and profitability, providing further strategic flexibility into the future.   

"Finally, I want to thank all those at ACT in the U.S. and Canada, who continue to put significant efforts into growing one of the largest directional drilling technology companies in North America. Your contribution to our success is apparent and always appreciated," stated Tom Connors, ACT President and Chief Executive Officer.

FINANCIAL HIGHLIGHTS
(unaudited)

Canadian dollars in 000's (except for otherwise noted)

OUTLOOK

The outlook for global energy demand remains constructive driven by general economic growth, the increasing energy requirements of emerging technology, and the continued growth and development of third world nations. Oil prices continue to trade in relatively healthy ranges despite concerns of a potential recession in North America and increased geopolitical risk that threatens supply. The multi-year shift by producers to lower leverage levels, capital discipline, and dedicated shareholder return strategies has translated to more consistent spending, directly correlating to more consistent levels of activity for oilfield service providers.

In North America, natural gas pricing currently remains very weak due to robust supply levels and lack of storage capacity. Optimism related to the growing number of U.S. and Canadian liquified natural gas ("LNG") export facilities, coming online in the next several years, provides a more positive backdrop for the longer term with the potential for increased demand and more buoyant pricing in the future. 

ACT moves into the third quarter of 2024 with the strongest Q3 Canadian job count in its history. Recent increases in oil and natural gas takeaway capacity are driving year-over-year growth in underlying Western Canadian activity levels and ACT continues to outperform this baseline.

In the U.S., there are early signs of the rig count bottoming with activity constrained by weak natural gas prices and recent activity related to customer consolidation. While these headwinds are considered relatively short-term in nature, they are likely to negatively impact the pace of a potential rebound in rig counts on U.S. land in the back half of the year and potentially into 2025. 

With a continued increase in well complexity and a focus on increasing production per well, ACT is well positioned to use its leading technology to help its customers maximize efficiency, which will support more consistent job counts and revenue levels, relative to the market in the quarters to come. With an internal opportunity set to support growth, we believe that the Company has some compelling drivers to further expand its business versus a flat market environment for the majority of the industry over the next twelve to eighteen months.

2023 ACQUISITION

On July 11, 2023, ACT, through a wholly-owned subsidiary, acquired Rime, a privately-held, Texas-based, engineering business that specializes in building products for the downhole MWD industry (the "Rime acquisition") in exchange for approximately USD $41.0 million (approximately CAD $54.1 million) comprised of: i) the payment of USD $21.0 million in cash (approximately CAD $28.0 million); and ii) the issuance of principal amount of USD $20.0 million (approximately CAD $26.4 million) of subordinated exchangeable promissory notes ("EP Notes") that are exchangeable into a maximum of 3,510,000 common shares of ACT ("EP Shares") at an issue price of CAD $7.70 per common share. In accordance with International Accounting Standards ("IAS") 32 and IFRS 13, the EP Notes were determined to be a compound instrument and, accordingly, recognized at the fair value of their respective debt component of $23.4 million and equity component of $1.2 million totaling $24.6 million.

RECLASSIFICATIONS

The Company has changed the presentation of certain figures in 2023 Q2 related to equipment lost-in-hole reimbursements collected from customers and the corresponding derecognition of the property, plant and equipment ("PP&E").

More specifically, the Company reclassified its gain on disposal of PP&E as follows: a) reclassified the proceeds on disposal of PP&E, related to lost-in-hole equipment, to revenues and b) recognized a write-off of PP&E for the net book value of the lost-in-hole equipment on the condensed consolidated statement of comprehensive income. In addition, the lost-in-hole proceeds were reclassified from the Company's cash flows - investing activities to the cash flows - operating activities on the condensed consolidated statement of cash flows.

The Company has changed its judgement regarding equipment lost-in-hole events that are contracted with its customers in that these events are now considered to be part of its ordinary business activities. The changes are reflected in the current and prior periods, as described above.

These reclassifications recognized in 2023 Q2 are summarized below:

Condensed Consolidated Statement of Comprehensive Income (Excerpt)

Condensed Consolidated Statement of Cash Flows (Excerpt)

RESULTS OF OPERATIONS

SEGMENTED INFORMATION

United States

Revenues

U.S. revenues were $99.1 million in 2024 Q2, an increase of $0.6 million or 1%, compared to $98.5 million in 2023 Q2. The Company realized a 5% decrease in operating days to 3,746 days in 2024 Q2, compared to 3,963 days in 2023 Q2. The decrease in operating days was due to a declining market in 2024 Q2. The average revenue per operating day increased 6% to $26,447 per day in 2024 Q2, compared to $24,857 per day in 2023 Q2, mainly due to job mix.    

U.S. revenues were $205.6 million in the six months ended June 30, 2024, an increase of $22.1 million or 12%, compared to $183.5 million for the same period in 2023. The Company realized a 2% increase in operating days to 7,416 days in the six months ended June 30, 2024, compared to 7,280 days for the same period in 2023. The increase is mainly related to the Company realizing higher activity, despite a declining market in the six months ended June 30, 2024. The average revenue per operating day increased 10% to $27,728 per day in the six months ended June 30, 2024, compared to $25,201 per day for the same period in 2023, mainly due to a change in job mix.

Direct costs

U.S. direct costs included in cost of sales were $75.1 million in 2024 Q2, an increase of $1.5 million, compared to $73.6 million in 2023 Q2. The increase is mainly due to higher repair and labour costs, offset by lower third-party rental costs. A portion of the increased labour costs is attributable to the Rime acquisition (acquired in July 2023). As a percentage of revenues, direct costs increased to 76% in 2024 Q2, compared to 75% in 2023 Q2.

U.S. direct costs included in cost of sales were $156.4 million in the six months ended June 30, 2024, an increase of $14.8 million or 10%, compared to $141.6 million for the same period in 2023. The increase is mainly due to higher repairs and labour costs, offset by lower third-party rental costs. A portion of the increased labour costs is attributable to the Rime acquisition (acquired in July 2023). As a percentage of revenues, direct costs decreased to 76% in the six months ended June 30, 2024, compared to 77% for the same period in 2023.  

Canadian

Revenues

Canadian revenues were $31.2 million in 2024 Q2, an increase of $8.4 million or 37%, compared to $22.8 million in 2023 Q2. The Company realized a 28% increase in operating days to 2,130 days in 2024 Q2, compared to 1,662 days in 2023 Q2. The increase in operating days is mainly attributable to higher market demand in 2024 Q2. The average revenue per operating day increased 7% to $14,661 per day in 2024 Q2, compared to $13,737 per day in 2023 Q2. The increase in the average revenue per operating day is mainly attributed to higher proceeds from lost-in-hole reimbursements from customers and a change in job mix, including higher charges for premium tools.

Canadian revenues were $89.6 million in the six months ended June 30, 2024, an increase of $18.8 million or 27%, compared to $70.8 million for the same period in 2023. The Company realized a 22% increase in operating days to 6,504 days in the six months ended June 30, 2024, compared to 5,321 days for the same period in 2023. The increase in operating days is mainly attributable to higher market demand in the six months ended June 30, 2024. The average revenue per operating day increased 4% to $13,780 per day in the six months ended June 30, 2024, compared to $13,311 per day for the same period in 2023. The increase in the average revenue per operating day is mainly attributed to higher proceeds from lost-in-hole reimbursements from customers and a change in job mix, including higher charges for premium tools.

Direct costs

Canadian direct costs included in cost of sales were $21.7 million in 2024 Q2, an increase of $5.7 million or 36%, compared to $16.0 million in 2023 Q2. The increase is mainly due to higher labour and repair costs in 2024 Q2. As a percentage of revenues, direct costs were 70% in 2024 Q2 and 2023 Q2.

Canadian direct costs included in cost of sales were $58.0 million in the six months ended June 30, 2024, an increase of $7.4 million or 15%, compared to $50.6 million for the same period in 2023. The increase is mainly due to higher labour and repair costs, offset by lower third-party rental costs in the six months ended June 30, 2024. As a percentage of revenues, direct costs were 65% in the six months ended June 30, 2024, compared to 71% for the same period in 2023.

CONSOLIDATED

Revenues

The Company recognized $130.3 million of revenues in 2024 Q2, an increase of $9.0 million or 7%, compared to $121.3 million in 2023 Q2. The increase is due to a 4% increase in operating days (2024 - 5,876 days; 2023 - 5,625 days) and an increase of 3% in the average revenue per operating day (2024 - $22,174; 2023 - $21,571).

The Company recognized $295.3 million of revenues in the six months ended June 30, 2024, an increase of $41.0 million or 16%, compared to $254.3 million for the same period in 2023. The increase is due to a 10% increase in operating days (2024 - 13,920 days; 2023 - 12,601 days) and an increase of 5% in the average revenue per operating day (2024 - $21,211; 2023 - $20,180).

Direct costs

The Company recognized $96.8 million of direct costs in 2024 Q2, an increase of $7.2 million or 8%, compared to $89.6 million in 2023 Q2. The increase is mainly due to higher repair and labour costs related to an increase in operating days and the inclusion of manufacturing costs related to Rime (acquired in July), offset by lower third-party rental costs.

The Company recognized $214.4 million of direct costs in the six months ended June 30, 2024, an increase of $22.2 million or 12%, compared to $192.2 million for the same period in 2023. The increase is mainly due to higher repairs and labour costs related to the increase in operating days and the inclusion of manufacturing costs related to Rime (acquired in July 2023), offset by lower third-party rental costs.

Direct costs as a percentage of revenues was 74% in 2024 Q2 and 2023 Q2. Direct costs as a percentage of revenue decreased to 73% in the six months ended June 30, 2024 from 76% for the same period in 2023.

Gross margin and adjusted gross margin 

The Gross margin % increased to 21% in 2024 Q2, compared to 18% in 2023 Q2. The Gross margin % increased to 21% in the six months ended June 30, 2024, compared to 17% for the same period in 2023. 

The Adjusted gross margin % was 26% in 2024 Q2 and 2023 Q2. The Adjusted gross margin % increased to 27% in the six months ended June 30, 2024, compared to 25% for the same period in 2023. The increase in Adjusted gross margin for the six months ended June 30, 2024, was mainly related to decreased labour and third-party rental costs as a percentage of revenues.

Depreciation and amortization expense

Depreciation and amortization expense included in cost of sales decreased to $6.2 million and $17.8 million in 2024 Q2 and the six months ended June 30, 2024, compared to $10.1 million and $19.3 million for the same periods in 2023, respectively. The decrease is mainly due to a change in depreciation methodology, as described below.

In 2024 Q1, the Company assessed its depreciation methodology related to its property, plant and equipment. As a result, the Company determined that using a straight-line method of depreciation, rather than the declining balance method, more accurately reflects the future economic benefits of the related assets. The depreciation expense included in cost of sales decreased due to the change in methodology.

Depreciation and amortization expense included in cost of sales as a percentage of revenues was 5% and 6% in 2024 Q2 and the six months ended June 30, 2024, compared to 8% for the same periods in 2023, respectively.

Selling, general and administrative ("SG&A") expenses

The Company recognized direct costs included in SG&A expenses of $14.8 million and $30.8 million in 2024 Q2 and the six months ended June 30, 2024, an increase of $2.8 million and $4.7 million, compared to $12.0 million and $26.1 million for the same periods in 2023, respectively. The increase is mainly related to a higher discretionary incentive expense in 2024. In addition, a portion of the increased direct costs included in SG&A is attributable to the Rime acquisition (acquired in July 2023).

Direct costs included in SG&A expenses as a percentage of revenues were 11% and 10% in 2024 Q2 and the six months ended June 30, 2024, compared to 10% for the same periods in 2023, respectively.

Depreciation and amortization included in SG&A expenses were $2.5 million and $4.8 million in 2024 Q2 and the six months ended June 30, 2024, compared to $1.5 million and $3.0 million for the same periods in 2023, respectively, mainly due to amortization expense related to the intangible assets acquired in the Rime transaction.

Stock-based compensation included in SG&A expenses were $0.7 million and $1.6 million in 2024 Q2 and the six months ended June 30, 2024, compared to $0.7 million and $1.4 million for the same periods in 2023, respectively.

Research and development ("R&D") costs

The Company recognized R&D costs of $1.0 million and $1.6 million in 2024 Q2 and the six months ended June 30, 2024, compared to $0.5 million and $1.0 million for the same periods in 2023, respectively. R&D costs are salaries, benefits, purchased materials and shop supply costs related to new product development and technology.

Write-off of property, plant and equipment

The Company recognized a write-off of property, plant and equipment of $0.6 million and $2.2 million in 2024 Q2 and the six months ended June 30, 2024, compared to $0.7 million and $1.7 million for the same periods in 2023, respectively. The write-offs related to equipment lost-in-hole and damaged beyond repair. Reimbursements on lost-in-hole equipment and damage beyond repair are based on service agreements held with clients and are recognized as revenues. Refer to the "Reclassifications" section of this news release.

Finance costs

Finance costs - loans and borrowings and EP Notes were $2.4 million, an increase of $0.9 million, compared to $1.5 million in 2023 Q2. Finance costs - loans and borrowings and EP Notes were $4.9 million in the six months ended June 30, 2024, an increase of $1.7 million, compared to $3.2 million for the same period in 2023. The increase is mainly due to a higher outstanding balance of loans and borrowings in 2024 Q2 compared to 2023 Q2 and higher interest rates in 2024. In addition, the increase related to higher finance costs related to the Company's EP Notes issued in 2023 Q3 in relation to the Rime acquisition.

In addition, the Company had finance costs of $0.2 million and $0.4 million in 2024 Q2 and the six months ended June 30, 2024 related to lease liabilities, which is consistent for the same periods in 2023, respectively.

Foreign exchange

The Company recognized a foreign exchange gain of $1.1 million in 2024 Q2, compared to a foreign exchange gain of $1.0 million in 2023 Q2. The Company recognized a foreign exchange gain of $3.0 million in the six months ended June 30, 2024, compared to a foreign exchange gain of $0.9 million for the same period in 2023. The impact of foreign exchange is due to fluctuations of the Canadian dollar relative to the USD related to foreign currency transactions recognized in net income.

The Company recognized a foreign currency translation gain on foreign operations of $0.7 million in 2024 Q2, compared to a loss of $3.8 million in 2023 Q2. The Company recognized a foreign currency translation gain on foreign operations of $2.2 million in the six months ended June 30, 2024, compared to a loss of $4.3 million for the same period in 2023. The Company's foreign operations are denominated in USD and differences due to fluctuations in the foreign currency exchange rates are recorded in other comprehensive income. 

Income tax

The Company recognized an income tax expense of $1.1 million and $2.8 million in 2024 Q2 and the six months ended June 30, 2024, compared to an income tax expense of $2.2 million and $2.6 million for the same periods in 2023, respectively.

Income tax expense is booked based upon expected annualized rates using the statutory rates of 23% for both Canada and the U.S. The Company's effective tax rate in 2024 Q2 and the six months ended June 30, 2024 were 18% and 14%, respectively, which are lower than the statutory rate of 23%, mainly due to the Canadian segment income tax expense being offset by its tax pools in the period.

LIQUIDITY AND CAPITAL RESOURCES

Annually, the Company's principal source of liquidity is cash generated from its operations.  In addition, the Company has the ability to fund liquidity requirements through its Credit Facility and the issuance of additional debt and/or equity, if available.

In order to facilitate the management of its liquidity, the Company prepares an annual budget, which is updated, as necessary, depending on varying factors, including changes in capital structure, execution of the Company's business plan and general industry conditions. The annual budget is approved by the Board of Directors and updated forecasts are prepared as the fiscal year progresses with changes reviewed by the Board of Directors.

Cash flow - operating activities was $34.1 million and $49.9 million in 2024 Q2 and the six months ended June 30, 2024, compared to $16.4 million and $44.3 million for the same periods in 2023, respectively. ACT remains focused on reducing its loans and borrowings and generating Free cash flow, as defined in the 'Non-GAAP measures' section of this news release. In addition, the Company will remain opportunistic in executing its NCIB and making strategic and accretive acquisitions.

At June 30, 2024, the Company had working capital, excluding current portion of loans and borrowings of $74.9 million (December 31, 2023 - $74.9 million).

Normal course issuer bid

In the six months ended June 30, 2024, 353,100 common shares were purchased under the NCIB for a total purchase amount of $2.1 million at an average price of $5.89 per common share. A portion of the purchase amount reduced share capital by $2.0 million and the residual purchase amount of $0.1 million was recorded to the deficit.

On July 25, 2024, Company received approval from the TSX to purchase up to 1,902,008 common shares of the Company, or 10%, of the 34,769,058 issued and outstanding common shares of the Company under the NCIB. The ability to purchase common shares under the NCIB commenced on July 29, 2024, and will terminate no later than July 28, 2025. The actual number of common shares under the NCIB, the timing of purchases and the price at which the common shares are purchased will be subject to management's discretion.

Syndicated and revolving credit facilities

On May 30, 2024, LTD and Holdco entered into a Fourth Amended and Restated Credit Agreement with its lenders ("Credit Agreement") which provided for various administrative changes and the addition of a U.S. domiciled USD Revolving Operating Facility in the amount of $10.0 million. The terms of the Credit Agreement, including payment terms, interest rate and financial covenants remained unchanged. At June 30, 2024, the USD Revolving Operating Facility was undrawn.

During the six months ended June 30, 2024, the Company withdrew $10.0 million of its Syndicated Operating Facility and repaid $5.0 million, resulting in an outstanding balance of $5.0 million as at June 30, 2024. As at June 30, 2024, $30.0 million of the $35.0 million Syndicated Operating Facility remained undrawn.

During the six months ended June 30, 2024, the Company repaid $1.6 million of its CAD Revolving Operating Facility. As at June 30, 2024, the $15.0 million CAD Revolving Operating Facility remained undrawn.

In addition, the Company held its Highly Affected Sectors Credit Availability Program ("HASCAP") loan with a balance of $0.8 million.

At June 30, 2024, the Company was in compliance with all covenants, including its financial covenants, which were as follows:

• Consolidated Funded Debt to Consolidated Credit Agreement EBITDA ratio shall not exceed 2.5:1; and
• Consolidated Fixed Charge Coverage ratio shall not be less than 1.25:1.

Contractual obligations and contingencies

As at June 30, 2024, the Company's commitment to purchase property, plant and equipment is approximately $5.9 million, which is expected to be incurred in the remainder of 2024.

The Company also holds six letters of credit totaling $1.7 million related to rent payments, corporate credit cards and a utilities deposit.

The Company is involved in various other legal claims associated with the normal course of operations. The Company believes that any liabilities that may arise pertaining to such matters would not have a material impact on its financial position.

The following table outlines the anticipated payments related to contractual commitments subsequent to June 30, 2024:

Capital structure

As at August 12, 2024, the Company has 34,922,514 common shares, 2,511,985 stock options and EP Notes that are exchangeable into a maximum of 3,510,000 common shares outstanding.

Share Consolidation

On May 9, 2024, the shareholders of the Company approved the consolidation of the issued and outstanding common shares of the Company, on the basis of one post-consolidation common share for a range of five to ten pre-consolidation common shares. On June 10, 2024, the Board of Directors approved a consolidation ratio of one post-consolidation share for seven pre-consolidation common shares (the "Consolidation"). As a result, on July 3, 2024, 243,383,392 common shares issued and outstanding prior to the Consolidation have been reduced to 34,769,056 common shares. No fractional common shares were issued in connection with the Consolidation, and all fractional common shares that otherwise would have been issued was rounded to the nearest whole common share. The share units and per share amounts in this news release were restated to reflect the Consolidation.

NET CAPITAL EXPENDITURES 

The following table details the Company's Net capital expenditures:

In 2024 Q2 and the six months ended June 30, 2024, the Company had capitalized costs recognized as intangible assets related to RSS licenses of $1.2 million and $6.1 million (2023 - $nil), respectively.

The Company's 2024 Net capital expenditure budget, including capital costs related to RSS licenses, is expected to be approximately $30 million to $35 million (2023 - $27 million to $32 million), excluding any potential acquisitions.  The Net capital expenditure budget is targeted at growing ACT's high-performance mud motors, MWD in both Canada and the U.S., and RSS in the U.S. ACT intends to fund its 2024 capital plan from cash flow - operating activities.

NON-GAAP MEASURES

ACT uses certain performance measures throughout this news release that are not defined under IFRS Accounting Standards or Generally Accepted Accounting Principles ("GAAP"). These non-GAAP measures do not have a standardized meaning and may differ from that of other organizations, and accordingly, may not be comparable. Investors should be cautioned that these measures should not be construed as alternatives to IFRS Accounting Standards measures as an indicator of ACT's performance.

These measures include the Adjusted gross margin, Adjusted gross margin %, Adjusted EBITDAS, Adjusted EBITDAS margin %, Adjusted EBITDAS per diluted share, Free cash flow, Working capital and Net capital expenditures. Management believes these measures provide supplemental financial information that is useful in the evaluation of ACT's operations.

These non-GAAP measures are defined as follows:

The following tables provide reconciliations from the IFRS Accounting Standards to non-GAAP measures.

Adjusted gross margin

Adjusted EBITDAS

Free cash flow

FORWARD LOOKING STATEMENTS

This news release contains certain forward-looking statements and forward-looking information (collectively referred to herein as "forward-looking statements") within the meaning of applicable Canadian securities laws.  All statements other than statements of present or historical fact are forward-looking statements.  Forward-looking statements are often, but not always, identified by the use of words such as "anticipate", "achieve", "believe", "plan", "intend", "objective", "continuous", "ongoing", "estimate", "outlook", "expect", "may", "will", "project", "should" or similar words suggesting future outcomes.  In particular, this news release contains forward-looking statements relating to, among other things:

• Future commitments;
• The 2024 Net capital expenditure budget and financing thereof;
• The outlook for global energy demand remains constructive driven by general economic growth, the increasing energy requirements of emerging technology, and the continued growth and development of third world nations.
• Oil prices continue to trade in relatively healthy ranges despite concerns of a potential recession in North America and increased geopolitical risk that threatens supply.
• The multi-year shift by producers to lower leverage levels, capital discipline, and dedicated shareholder return strategies has translated to more consistent spending, directly correlating to more consistent levels of activity for oilfield service providers.
• Optimism related to the growing number of U.S. and Canadian LNG export facilities, coming online in the next several years, provides a more positive backdrop for the longer term with the potential for increased demand and more buoyant pricing in the future.
• ACT moves into the third quarter of 2024 with the strongest Q3 Canadian job count in its history.
• Recent increases in oil and natural gas takeaway capacity are driving year-over-year growth in underlying Western Canadian activity levels and ACT continues to outperform this baseline.
• In the U.S., there are early signs of the rig count bottoming with activity constrained by weak natural gas prices and recent activity related to customer consolidation.
• While these headwinds are considered relatively short-term in nature, they are likely to negatively impact the pace of a potential rebound in rig counts on U.S. land in the back half of the year and potentially into 2025.
• With a continued increase in well complexity and a focus on increasing production per well, ACT is well positioned to use its leading technology to help its customers maximize efficiency, which will support more consistent job counts and revenue levels, relative to the market in the quarters to come.
• With an internal opportunity set to support growth, we believe that the Company has some compelling drivers to further expand its business versus a flat market environment for the majority of the industry over the next twelve to eighteen months.
• The name ACT honours the legacy and accomplishments of both Altitude and Cathedral, while conveying a proactive energy and the spirit of innovation we bring into the future, as we focus on delivering high-performance solutions for our customers.
• The Company's technology suite is particularly well-suited to drill wells that have a high multi-lateral count and the proliferation of this type of drilling in Canadian oil-related markets has helped support stronger and more consistent levels of activity.
• We believe that a focus on the high-performance RSS market has helped support consistent job counts versus a lower rig count environment for U.S. land. We also believe that there is opportunity for growth in the portion of the market that demands RSS technology and have further invested in our U.S. RSS fleet, expanding to twenty-one systems from the sixteen systems held at the end of 2023.
• With a significant portion of our daily revenue dedicated to third-party rental expense, our single biggest opportunity for growth leading into 2025 is the deployment of our own Rime-supplied MWD systems for the U.S. directional drilling market.
• ACT remains on track to manufacture fifty MWD systems by the end of this year with deployment and utilization of the fleet hitting full capacity in the first half of 2025. With ten systems already deployed and operating in the market, we should begin to see a modest improvement in financial results against a weaker macro environment as we replace third-party rentals and progress on our MWD build-out through the back half of 2024.
• With a relatively modest capital investment, successful deployment of a sizable MWD fleet is our highest priority as it provides the highest potential returns on capital versus any other investment opportunity before us.
• Finally, our U.S.-based Discovery Downhole Services mud motor rental business saw weaker utilization levels in 2024 Q2, which was roughly in-line with the declining trajectory of the U.S. land rig count.
• We remain confident that the business will produce results that will allow us to further reduce our Loans and borrowings to very comfortable levels within the next twelve months, providing the Company with optionality to initiate a shareholder return strategy in the near future, if market conditions allow.
• Lower levels of debt combined with a meaningful reduction in third-party rental expense in 2025 will support higher levels of cash flow and profitability, providing further strategic flexibility into the future.

The Company believes the expectations reflected in such forward-looking statements are reasonable as of the date hereof but no assurance can be given that these expectations will prove to be correct and such forward-looking statements should not be unduly relied upon.

Various material factors and assumptions are typically applied in drawing conclusions or making the forecasts or projections set out in forward-looking statements.  Those material factors and assumptions are based on information currently available to the Company, including information obtained from third-party industry analysts and other third-party sources.  In some instances, material assumptions and material factors are presented elsewhere in this news release in connection with the forward-looking statements.  You are cautioned that the following list of material factors and assumptions is not exhaustive.  Specific material factors and assumptions include, but are not limited to:

• the performance of ACT's business;
• impact of economic and social trends;
• oil and natural gas commodity prices and production levels;
• capital expenditure programs and other expenditures by ACT and its customers;
• the ability of ACT to attract and retain key management personnel;
• the ability of ACT to retain and hire qualified personnel;
• the ability of ACT to obtain parts, consumables, equipment, technology, and supplies in a timely manner to carry out its activities;
• the ability of ACT to maintain good working relationships with key suppliers;
• the ability of ACT to retain customers, market its services successfully to existing and new customers and reliance on major customers;
• risks associated with technology development and intellectual property rights;
• obsolescence of ACT's equipment and/or technology;
• the ability of ACT to maintain safety performance;
• the ability of ACT to obtain adequate and timely financing on acceptable terms;
• the ability of ACT to comply with the terms and conditions of its credit facility;
• the ability to obtain sufficient insurance coverage to mitigate operational risks;
• currency exchange and interest rates;
• risks associated with future foreign operations;
• the ability of ACT to integrate its transactions and the benefits of any acquisitions, dispositions and business development efforts;
• environmental risks;
• business risks resulting from weather, disasters and related to information technology;
• changes under governmental regulatory regimes and tax, environmental, climate and other laws in Canada and the U.S.; and
• competitive risks.

Forward-looking statements are not a guarantee of future performance and involve a number of risks and uncertainties some of which are described herein.  Such forward-looking statements necessarily involve known and unknown risks and uncertainties, which may cause the Company's actual performance and financial results in future periods to differ materially from any projections of future performance or results expressed or implied by such forward-looking statements.  These risks and uncertainties include, but are not limited to, the risks identified in this news release and in the Company's Annual Information Form under the heading "Risk Factors".  Any forward-looking statements are made as of the date hereof and, except as required by law, the Company assumes no obligation to publicly update or revise such statements to reflect new information, subsequent or otherwise.

All forward-looking statements contained in this news release are expressly qualified by this cautionary statement. Further information about the factors affecting forward-looking statements is available in the Company's current Annual Information Form that has been filed with Canadian provincial securities commissions and is available on www.sedarplus.ca and the Company's website (www.actenergy.com).

CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at June 30, 2024 and December 31, 2023

Canadian dollars in '000s
(unaudited)

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (LOSS)
Three and six months ended June 30, 2024 and 2023

Canadian dollars in '000s except per share amounts
(unaudited)

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
Six months ended June 30, 2024 and 2023

Canadian dollars in '000s
(unaudited)

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
Six months ended June 30, 2024 and 2023

Canadian dollars in '000s
(unaudited)

ACT Energy Technologies Ltd., based in Calgary, Alberta, Canada, is incorporated under the Business Corporations Act (Alberta) and operates in the U.S. and Canada under Altitude Energy Partners, Discovery Downhole Services in the U.S., and Rime Downhole Technologies, LLC in the U.S.. ACT's common shares are publicly-traded on the Toronto Stock Exchange under the symbol "ACX".

ACT is a trusted partner to North American energy companies requiring high performance directional drilling services and related downhole technologies. We work in partnership with our customers to tailor our equipment and expertise to meet their specific geographical and technical needs. Our experience, technologies and responsive personnel enable our customers to achieve higher efficiencies and lower project costs. For more information, visit www.actenergy.com. 

SOURCE ACT Energy Technologies Ltd.