CALGARY,
AB, March 9, 2023 /CNW/ - CES Energy
Solutions Corp. ("CES" or the "Company") (TSX: CEU)
(OTC: CESDF) announced today the Company's results for the three
and twelve months ended December 31,
2022. Further, CES announced today that it will pay a cash
dividend of $0.020 per common share
on April 14, 2023 to the shareholders
of record at the close of business on March
31, 2023.
Fourth Quarter Highlights
- Record quarterly revenue of $562.7
million, increased 7% sequentially and 53% year over year,
completing record annual revenue of $1.9
billion in 2022
- Record Adjusted EBITDAC of $80.2
million in Q4 2022, increased 9% sequentially and 68% year
over year, representing a 14.3% margin, completing record Adjusted
EBITDAC of $257.0 million in
2022
- Record Funds Flow from Operations of $66.9 million in Q4 2022 and $195.0 million in 2022
- Leverage reduced to 2.17x Total Debt/Adjusted EBITDAC from
2.52x at September 30, 2022 and 2.81x
at December 31, 2021
- Working Capital Surplus exceeded Total Debt at December 31, 2022 by $133.6 million
- Declared quarterly dividend of $0.068 per share on an annualized basis,
representing an 11% payout ratio
CES is pleased to announce strong Q4 2022 financial results,
demonstrating record quarterly revenue and Adjusted EBITDAC, strong
margins and Funds Flow from Operations as the Company continues to
demonstrate increased pricing and activity levels across its
business lines. These solid financial results reflect CES' ability
to leverage its established infrastructure, strong industry
positioning and dedicated people to capitalize on the constructive
environment in the broader industry.
Revenue for the quarter reached another consecutive record high
at $562.7 million, representing a
sequential increase of $38.0 million
or 7% relative to CES' previous record of $524.7 million in Q3 2022. Adjusted EBITDAC for
the quarter was a record $80.2
million and a 14.3% margin, compared to $73.3 million and 14.0% in Q3 2022. CES continues
to realize significant revenue growth driven by increased pricing,
scale and industry positioning throughout the business. Industry
conditions provided a supportive backdrop for the Company
underpinned by year over year improvements in supply demand
balance, service intensity, activity levels, rig counts and
production levels.
CES exited the quarter with a net draw on its syndicated senior
facility (the "Senior Facility") of $208.5
million compared to $220.8
million at September 30, 2022.
Total Debt at December 31, 2022 was
$557.5 million compared to
$565.9 million at September 30, 2022 of which $288.0 million relates to Senior Notes which
mature on October 21, 2024. During
the twelve months ended December 31,
2022, the Company amended its Senior Facility to increase
the available capacity to approximately C$ equivalent $425.0 million from C$ equivalent $232.5 million, while all other terms and
conditions remain substantively unchanged. Working Capital Surplus
exceeded Total Debt at December 31,
2022 by $133.6 million
(September 30, 2022 - $100.2
million).
As at the date of this MD&A, the Company had a net draw on
its Senior Facility of approximately $158.0
million representing a reduction of approximately
$50.5 million since December 31, 2022. These reduced draw levels
reflect the onset of strong free cash flow generation from record
revenue levels supported by CES' capex-light business model and
stabilizing end market activity levels.
Fourth Quarter and Annual Results
In the fourth quarter CES generated revenue of $562.7 million, representing a sequential
increase of $38.0 million or 7%
compared to Q3 2022, as the Company experienced revenue growth
throughout the business. Q4 2022 revenue also represented an
increase of 53% compared to Q4 2021 as activity levels have seen a
significant increase year over year. For the twelve months ended
December 31, 2022, CES generated
revenue of $1.9 billion, an increase
of $725.9 million or 61% relative to
the twelve months ended December 31,
2021. As producers' capital spending increased and
production levels have improved year over year, pricing, activity
and industry rig counts have seen a significant uptick since the
comparative periods.
Revenue generated in the US during Q4 2022 was $378.5 million, representing a sequential
increase of $29.0 million or 8%
compared to Q3 2022 and an increase of 62% compared to Q4 2021. For
the twelve months ended December 31,
2022, revenue generated in the US was up 65% to $1.3 billion relative to the twelve months ended
December 31, 2021. US revenues for
both the three and twelve month periods were positively impacted by
increased industry activity, higher production levels and improved
pricing year over year. US land drilling activity in Q4 2022
improved by 2% on a sequential quarterly basis and by 39% from Q4
2021. CES also saw a sequential and year over year improvement in
its strong industry positioning, with a US Drilling Fluids Market
Share of 19% for Q4 2022 and an average of 18% for the year.
Revenue generated in Canada
during Q4 2022 was $184.2 million,
representing a sequential increase of $9.0
million or 5% compared to Q3 2022 and an increase of 38%
from Q4 2021. For the twelve months ended December 31, 2022, revenue generated in
Canada was up 53% to $645.4 million relative to the twelve months
ended December 31, 2021. Canadian
revenues benefited from a 20% increase in rig counts relative to Q4
2021 and a 32% increase year over year, with drilling and
production levels up year over year in both the three and twelve
month periods. Canadian Drilling Fluids Market Share for Q4 2022
was up on a sequential and year over year basis as well, at 38% for
Q4 2022 and an average of 36% for the year.
CES achieved record Adjusted EBITDAC of $80.2 million in Q4 2022, representing a
sequential increase of 9% compared to Q3 2022 and an increase of
68% compared to Q4 2021. Adjusted EBITDAC as a percentage of
revenue of 14.3% achieved in Q4 2022 was up from the 14.0% recorded
in Q3 2022 and up from the 13.0% recorded in Q4 2021. The Company
has been effective in implementing pricing increases and
maintaining prudent G&A levels, which combined with increased
scale to deliver record Adjusted EBITDAC and continued strong
margins for Q4 2022. For the year ended December 31, 2022, Adjusted EBITDAC was up 65%
from $156.2 million in 2021 to
$257.0 million. For both the three
and twelve month periods, Adjusted EBITDAC improved on
significantly higher industry activity levels and improved pricing
year over year.
Net income for the three months ended December 31, 2022 was $40.4 million compared to $24.7 million in Q4 2021. Net income for the
twelve months ended December 31, 2022
was $95.2 million compared to
$49.9 million for the twelve months
ended December 31, 2021. Net income
nearly doubled for both periods, primarily as a result of
significantly higher industry activity levels year over year. CES
no longer recognized a benefit from the Canada Emergency Wage Subsidy ("CEWS") program
in 2022, compared to $0.12 million
and $5.4 million for the three and
twelve months ended December 31,
2021, respectively.
CES generated a record $66.9
million in Funds Flow from Operations in Q4 2022, up 37%
from $48.9 million generated in Q3
2022 and 100% from $33.5 million
generated in Q4 2021. For the twelve months ended December 31, 2022 CES generated Funds Flow from
Operations of $195.0 million,
compared to $117.3 million in the
twelve months ended December 31,
2021. Funds Flow from Operations excludes the impact of
working capital investment, and is reflective of strong surplus
free cash flow generation amid significant improvements in market
conditions in the quarter and year relative to the comparative
periods.
As at December 31, 2022, CES had a Working Capital Surplus
of $691.1 million, which has
increased from $666.1 million at
September 30, 2022 and from
$459.8 million at December 31, 2021. The build during the year is
commensurate with the increased financial scale of the Company and
associated revenue growth, with accounts receivable increasing by
55% and inventory increasing by 57% from December 31, 2021, to support the 61% year over
year growth in revenue and corresponding collection cycles. Working
Capital Surplus was also impacted by the significant appreciation
in the USD during the year, which contributed $28.0 million to the build upon revaluation of
working capital balances held in the US. The Company continues to
focus on working capital optimization and to benefit from the high
quality of its customers and diligent internal credit monitoring
processes.
CES exited the quarter with a net draw on its syndicated senior
facility (the "Senior Facility") of $208.5
million compared to $220.8
million at September 30, 2022
and $110.1 million at
December 31, 2021. Total Debt of $557.5
million at December 31, 2022
compared to $565.9 million at
September 30, 2022 and $439.4 million at December 31, 2021, of
which $288.0 million relates to
Senior Notes which mature on October 21,
2024. The increases realized during the year were primarily
driven by required working capital build as described above,
combined with dividends paid out year to date totaling $16.3 million. During the twelve months ended
December 31, 2022, the Company
amended its Senior Facility to increase the available capacity to
approximately C$ equivalent $425.0
million from C$ equivalent $232.5
million at December 31, 2021,
while all other terms and conditions remain substantively
unchanged. Working Capital Surplus exceeded Total Debt at
December 31, 2022 by $133.6 million (December 31, 2021 -
$20.4 million). As at the date of
this MD&A, the Company had a net draw on its Senior Facility of
approximately $158.0 million.
CES remains confident in its ability to continue generating
strong surplus free cash flow and on November 10, 2022, the Company's Board of
Directors approved a 25% increase to the quarterly dividend from
$0.016 per share to $0.020 per share, resulting in an annualized
dividend of $0.080 per share. The
increased dividend returns additional value to shareholders while
preserving the strength of the Company's balance sheet and
maintaining ample liquidity to fund capital allocation
alternatives.
During Q4 2022, under its NCIB program the Company purchased
1,438,500 common shares at an average price of $2.60 per share for a total of $3.7 million. During the twelve months ended
December 31, 2022, the Company
purchased 2,131,500 common shares at an average price of
$2.46 per share for a total of
$5.2 million. Since inception of the
Company's NCIB programs on July 17,
2018, and up to December 31, 2022, the Company has
repurchased 32,258,357 common shares at an average price of
$2.03 per share for a total amount of
$65.3 million.
Outlook
The recovery in global energy demand combined with several years
of lower investment in the upstream oil and gas sector have
resulted in a balanced market for oil and natural gas, higher
commodity prices, and a supportive outlook for the sector in CES'
North American target market. Increased activity and demand have
led to improved production levels, drilling activity and commodity
prices. We expect current strong activity levels to continue
through 2023, moderated by potential challenges with availability
of labour and supply chain constraints. Further, broad economic
concerns exist with respect to recession risk, rising interest
rates and geopolitical instability, which may impact customer
spending plans. CES is optimistic in its outlook for 2023 as it
expects to benefit from elevated upstream activity and continued
strength in commodity pricing across North America by capitalizing on its
established infrastructure, industry leading positioning,
vertically integrated business model, and strategic procurement
practices.
Commensurate with current record revenue levels, CES expects
2023 capital expenditures to be approximately $55.0 million split evenly between maintenance
and expansion capital. CES plans to continue its disciplined and
prudent approach to capital expenditures and will adjust its plans
as required to support growth throughout divisions.
CES has proactively managed both the duration and the
flexibility of its debt. In September
2021, CES successfully amended and extended its Senior
Facility to September 2024. In light
of the growth in activity and revenue levels seen in 2022, during
the year the Company proactively increased the available capacity
on its Senior Facility to approximately C$ equivalent $425.0 million from C$ equivalent $232.5 million to support its growth trajectory.
In October 2017, CES successfully
re-financed and reduced its coupon on its previously outstanding
$300.0 million Senior Notes by
issuing new 6.375% Senior Notes, which mature in October 2024. To support growth in the business
and related working capital needs CES routinely considers its
capital structure, including further increasing the capacity of its
Senior Facility, refinancing of the Company's Senior Notes, and
other potential financing options.
CES prioritizes cash flow and as significant surplus free cash
flow is generated from current record revenue levels, CES intends
to continue to reduce leverage and assess increases to its dividend
and share buyback activity.
CES' underlying business model is capex light and asset light,
enabling generation of significant surplus free cash flow. As our
customers endeavor to maintain or grow production in the current
environment, CES will leverage its established infrastructure,
business model, and nimble customer-oriented culture to deliver
superior products and services to the industry. CES sees the
consumable chemical market increasing its share of the oilfield
spend as operators continue to: drill longer reach laterals and
drill them faster; expand and optimize the utilization of pad
drilling; increase the intensity and size of their fracs; and
require increasingly technical and specialized chemical treatments
to effectively maintain existing cash flow generating wells and
treat growing production volumes and water cuts from new wells.
Conference Call Details
With respect to the fourth quarter results, CES will host a
conference call / webcast at 9:00 am
MT (11:00 am ET) on
Friday, March 10, 2023. A recording
of the live audio webcast of the conference call will also be
available on our website at www.cesenergysolutions.com. The webcast
will be archived for approximately 90 days.
North American toll-free:
1-(800)-319-4610
International / Toronto callers: (416)-915-3239
Link
to Webcast: http://www.cesenergysolutions.com/
Financial Highlights
|
Three Months Ended
December 31,
|
Twelve Months Ended
December 31,
|
|
($000s, except per
share amounts)
|
2022
|
2021
|
%Change
|
2022
|
2021
|
%Change
|
|
Revenue
|
|
|
|
|
|
|
|
United
States(1)
|
378,478
|
233,842
|
62 %
|
1,276,944
|
774,112
|
65 %
|
|
Canada(1)
|
184,193
|
133,952
|
38 %
|
645,375
|
422,308
|
53 %
|
|
Total
Revenue
|
562,671
|
367,794
|
53 %
|
1,922,319
|
1,196,420
|
61 %
|
|
Net income
|
40,408
|
24,723
|
63 %
|
95,218
|
49,884
|
91 %
|
|
per share –
basic
|
0.16
|
0.10
|
60 %
|
0.37
|
0.20
|
85 %
|
|
per share -
diluted
|
0.15
|
0.09
|
67 %
|
0.36
|
0.19
|
89 %
|
|
Adjusted
EBITDAC(2)
|
80,249
|
47,758
|
68 %
|
257,022
|
156,156
|
65 %
|
|
Adjusted
EBITDAC(2) % of Revenue
|
14.3 %
|
13.0 %
|
1.3 %
|
13.4 %
|
13.1 %
|
0.3 %
|
|
Cash provided by (used
in) operating activities
|
38,784
|
(39,506)
|
nmf
|
(2,738)
|
(74,405)
|
(96) %
|
|
Funds Flow From
Operations(3)
|
66,892
|
33,534
|
99 %
|
195,020
|
117,254
|
66 %
|
|
Capital
expenditures
|
|
|
|
|
|
|
|
Expansion
Capital(1)
|
7,448
|
8,648
|
(14) %
|
28,714
|
17,900
|
60 %
|
|
Maintenance
Capital(1)
|
7,568
|
3,470
|
118 %
|
21,112
|
11,465
|
84 %
|
|
Total capital
expenditures
|
15,016
|
12,118
|
24 %
|
49,826
|
29,365
|
70 %
|
|
Dividends
declared
|
5,090
|
4,061
|
25 %
|
17,359
|
8,139
|
113 %
|
|
per
share
|
0.020
|
0.016
|
25 %
|
0.068
|
0.032
|
113 %
|
|
Common Shares
Outstanding
|
|
|
|
|
|
|
|
End of
period
|
254,515,682
|
253,830,896
|
|
254,515,682
|
253,830,896
|
|
|
End of year - fully
diluted(4)
|
260,438,045
|
260,434,918
|
|
260,438,045
|
260,434,918
|
|
|
Weighted average -
basic
|
255,031,387
|
255,742,883
|
|
255,223,348
|
255,269,304
|
|
|
Weighted average -
diluted
|
261,003,345
|
262,693,594
|
|
261,567,966
|
263,378,254
|
|
|
|
|
Financial
Position ($000s)
|
December 31,
2022
|
September 30,
2022
|
%Change
|
December 31,
2021
|
%Change
|
|
Total assets
|
1,411,003
|
1,392,967
|
1 %
|
1,087,598
|
30 %
|
|
Long-term financial
liabilities(5)
|
532,771
|
543,787
|
(2) %
|
423,077
|
26 %
|
|
Total
Debt(6)
|
557,531
|
565,918
|
(1) %
|
439,392
|
27 %
|
|
Working Capital
Surplus(6)
|
691,096
|
666,109
|
4 %
|
459,754
|
50 %
|
|
Net
Debt(6)
|
(133,565)
|
(100,191)
|
33 %
|
(20,362)
|
556 %
|
|
Shareholders'
equity
|
609,049
|
584,205
|
4 %
|
486,675
|
25 %
|
|
1Supplementary Financial Measure.
Supplementary Financial Measures are provided in this MD&A
because Management believes they assist the reader in understanding
CES' results. Refer to "Non-GAAP Measures and Other Financial
Measures" for further detail.
|
|
2Non-GAAP
measure that does not have any standardized meaning under IFRS and
therefore may not be comparable to similar measures presented by
other entities. The most directly comparable GAAP measure for
Adjusted EBITDAC is Net income. Refer to the section entitled
"Non-GAAP Measures and Other Financial Measures" contained
herein.
|
|
3Non-GAAP
measure that does not have any standardized meaning under IFRS and
therefore may not be comparable to similar measures presented by
other entities. The most directly comparable GAAP measure for Funds
Flow from Operations is Cash provided by (used in) operating
activities. Refer to the section entitled "Non-GAAP Measures and
Other Financial Measures" contained herein.
|
|
4Non-GAAP
measure that does not have any standardized meaning under IFRS and
therefore may not be comparable to similar measures presented by
other entities. The most directly comparable GAAP measure for
Shares Outstanding, End of period - fully diluted is Common Shares
outstanding. Refer to the section entitled "Non-GAAP Measures and
Other Financial Measures" contained herein.
|
|
5Includes
long-term portion of the Senior Facility, the Senior Notes, lease
obligations, deferred acquisition consideration, and cash settled
incentive obligations.
|
|
6Non-GAAP
measures that do not have any standardized meaning under IFRS and
therefore may not be comparable to similar measures presented by
other entities. The most directly comparable GAAP measure for Total
Debt, Net Debt, and Working Capital Surplus is Long-term financial
liabilities. Refer to the section entitled "Non-GAAP Measures and
Other Financial Measures" contained herein.
|
Business of CES
CES is a leading provider of technically advanced consumable
chemical solutions throughout the life-cycle of the oilfield. This
includes total solutions at the drill-bit, at the point of
completion and stimulation, at the wellhead and pump-jack, and
finally through to the pipeline and midstream market. Key solutions
include corrosion inhibitors, demulsifiers, H2S
scavengers, paraffin control products, surfactants, scale
inhibitors, biocides and other specialty products. Further,
specialty chemicals are used throughout the pipeline and midstream
industry to aid in hydrocarbon movement and manage transportation
and processing challenges including corrosion, wax build-up and
H2S.
CES operates in all major basins throughout the United States ("US"), including the
Permian, Eagleford, Bakken, Marcellus and Scoop/Stack, as well as
in the Western Canadian Sedimentary Basin ("WCSB") with an emphasis
on servicing the ongoing major resource plays: Montney, Duvernay, Deep Basin and SAGD. In the US, CES
operates under the trade names AES Drilling Fluids ("AES"), Jacam
Catalyst LLC ("Jacam Catalyst"), Proflow Solutions ("Proflow"), and
Superior Weighting Products ("Superior Weighting"). In Canada, CES operates under the trade names
Canadian Energy Services, PureChem Services ("PureChem"), StimWrx
Energy Services Ltd. ("StimWrx"), Sialco Materials Ltd. ("Sialco"),
and Clear Environmental Solutions ("Clear").
Non-GAAP Measures and Other Financial Measures
CES uses certain supplementary information and measures not
recognized under IFRS where management believes they assist the
reader in understanding CES' results. These measures are calculated
by CES on a consistent basis unless otherwise specifically
explained. These measures do not have a standardized meaning under
IFRS and may therefore not be comparable to similar measures used
by other issuers.
Non-GAAP financial measures and non-GAAP ratios have the
definition set out in National Instrument 52-112 "Non-GAAP and
Other Financial Measures Disclosure". The non-GAAP measures,
non-GAAP ratios and supplementary financial measures used in this
MD&A, with IFRS measures, are the most appropriate measures for
reviewing and understanding the Company's financial results. The
non-GAAP measures and non-GAAP ratios are further defined as
follows:
EBITDAC - is a non-GAAP measure that has been
reconciled to net income for the financial periods, being the most
directly comparable measure calculated in accordance with IFRS.
EBITDAC is defined as net income before interest, taxes,
depreciation and amortization, finance costs, other income (loss),
stock-based compensation, and impairment of goodwill, which are not
reflective of underlying operations. EBITDAC includes government
relief subsidies received to help mitigate the impact of the
COVID-19 pandemic. EBITDAC is a metric used to assess the financial
performance of an entity's operations. Management believes that
this metric provides an indication of the results generated by the
Company's business activities prior to how these activities are
financed, how the Company is taxed in various jurisdictions, and
how the results are impacted by foreign exchange and non-cash
charges. This non-GAAP financial measure is also used by Management
as a key performance metric supporting decision making and
assessing divisional results.
Adjusted EBITDAC - is a non-GAAP measure that is
defined as EBITDAC noted above, adjusted for specific items that
are considered to be non-recurring in nature. Management believes
that this metric is relevant when assessing normalized operating
performance.
Adjusted EBITDAC % of Revenue - is a non-GAAP ratio
calculated as Adjusted EBITDAC divided by revenue. Management
believes that this metric is a useful measure of the Company's
normalized operating performance relative to its top line revenue
generation and a key industry performance measure.
Readers are cautioned that EBITDAC and Adjusted EBITDAC should
not be considered to be more meaningful than net income determined
in accordance with IFRS.
EBITDAC, Adjusted EBITDAC, and Adjusted EBITDAC % of Revenue are
calculated as follows:
|
Three Months Ended
December 31,
|
Twelve Months Ended
December 31,
|
|
$000s
|
2022
|
2021
|
2022
|
2021
|
|
Net income
|
40,408
|
24,723
|
95,218
|
49,884
|
|
Add back
(deduct):
|
|
|
|
|
|
Depreciation on
property and equipment in cost of sales
|
13,427
|
11,499
|
50,702
|
45,924
|
|
Depreciation on
property and equipment in G&A
|
2,058
|
1,581
|
7,480
|
6,899
|
|
Amortization on
intangible assets in G&A
|
4,185
|
3,791
|
16,302
|
15,155
|
|
Current income tax
expense
|
1,924
|
1,705
|
6,937
|
4,282
|
|
Deferred income tax
expense (recovery)
|
7,775
|
(9,210)
|
24,599
|
(1,835)
|
|
Stock-based
compensation
|
4,687
|
3,867
|
15,552
|
13,637
|
|
Finance
costs
|
5,661
|
5,300
|
39,568
|
22,389
|
|
Other loss
(income)
|
124
|
(327)
|
664
|
(564)
|
|
EBITDAC
|
80,249
|
42,929
|
257,022
|
155,771
|
|
Add back
(deduct):
|
|
|
|
|
|
Management transition
costs
|
—
|
4,829
|
—
|
4,829
|
|
Gain on sale of
building
|
—
|
—
|
—
|
(4,444)
|
|
Adjusted
EBITDAC
|
80,249
|
47,758
|
257,022
|
156,156
|
|
|
|
|
|
Distributable Earnings - is a non-GAAP measure that
is defined as cash provided by operating activities, adjusted for
change in non-cash operating working capital less Maintenance
Capital and repayment of lease obligations. Distributable Earnings
is a measure used by Management and investors to analyze the amount
of funds available to distribute to shareholders as dividends or
through the NCIB program before consideration of funds required for
growth purposes.
Dividend Payout Ratio - is a non-GAAP ratio that is
defined as dividends declared as a percentage of Distributable
Earnings. Management believes it is a useful measure of the
proportion of available funds committed to being returned to
shareholders in the form of a dividend relative to the Company's
total Distributable Earnings.
Readers are cautioned that Distributable Earnings should not be
considered to be more meaningful than cash provided by operating
activities determined in accordance with IFRS. Distributable
Earnings and Dividend Payout Ratio are calculated as follows:
|
Three Months Ended
December 31,
|
Twelve Months Ended
December 31,
|
|
$000's
|
2022
|
2021
|
2022
|
2021
|
|
Cash provided by (used
in) operating activities
|
38,784
|
(39,506)
|
(2,738)
|
(74,405)
|
|
Adjust for:
|
|
|
|
|
|
Change in non-cash
operating working capital
|
28,108
|
73,040
|
197,758
|
191,659
|
|
Less: Maintenance
Capital (1)
|
(7,568)
|
(3,470)
|
(21,112)
|
(11,464)
|
|
Less: Repayment of
lease obligations
|
(4,915)
|
(4,966)
|
(20,381)
|
(19,361)
|
|
Distributable
Earnings
|
54,409
|
25,098
|
153,527
|
86,429
|
|
Dividends
declared
|
5,090
|
4,061
|
17,359
|
8,139
|
|
Dividend Payout
Ratio
|
9 %
|
16 %
|
11 %
|
9 %
|
|
1Supplementary Financial Measure.
Supplementary Financial Measures are provided herein because
Management believes they assist the reader in understanding CES'
results.
|
Funds Flow From Operations - is a non-GAAP measure
that has been reconciled to Cash provided by (used in) operating
activities for the financial periods, being the most directly
comparable measure calculated in accordance with IFRS. Funds Flow
from Operations is defined as cash flow from operations before
changes in non-cash operating working capital and represents the
Company's after tax operating cash flows. This measure is not
intended to be considered more meaningful than cash provided by
operating activities, comprehensive income (loss), or other
measures of financial performance calculated in accordance with
IFRS. Funds Flow from Operations is used by Management to assess
operating performance and leverage, and is calculated as
follows:
|
Three Months Ended
December 31,
|
Twelve Months Ended
December 31,
|
|
$000's
|
2022
|
2021
|
2022
|
2021
|
|
Cash provided by (used
in) operating activities
|
38,784
|
(39,506)
|
(2,738)
|
(74,405)
|
|
Adjust for:
|
|
|
|
|
|
Change in non-cash
operating working capital
|
28,108
|
73,040
|
197,758
|
191,659
|
|
Funds Flow From
Operations
|
66,892
|
33,534
|
195,020
|
117,254
|
|
|
|
|
|
Working Capital Surplus - Working Capital
Surplus is a non-GAAP measure that is calculated as current assets
less current liabilities, excluding the current portion of finance
lease obligations. Management believes that this metric is a key
measure to assess operating performance and leverage of the Company
and uses it to monitor its capital structure.
Net Debt and Total Debt - Net Debt and
Total Debt are non-GAAP measures that Management believes are key
metrics to assess liquidity of the Company and uses them to monitor
its capital structure. Net debt represents Total Debt, which
includes the Senior Facility, the Senior Notes, both current and
non-current portions of lease obligations, non-current portion of
cash settled incentive obligations, offset by the Company's cash
position, less Working Capital Surplus.
Readers are cautioned that Total Debt, Working Capital Surplus,
and Net Debt should not be construed as alternative measures to
Long-term financial liabilities determined in accordance with IFRS.
Total Debt, Working Capital Surplus, and Net Debt are calculated as
follows:
|
As at
|
|
$000's
|
December 31,
2022
|
December 31,
2021
|
|
Long-term financial
liabilities(1)
|
532,771
|
423,077
|
|
Current portion of
finance lease obligations
|
23,231
|
16,315
|
|
Current portion of
deferred acquisition consideration
|
1,529
|
-
|
|
Total Debt
|
557,531
|
439,392
|
|
Deduct Working Capital
Surplus:
|
|
|
|
Current
assets
|
933,680
|
619,201
|
|
Current
liabilities(2)
|
(242,584)
|
(159,447)
|
|
Working Capital
Surplus
|
691,096
|
459,754
|
|
Net Debt
|
(133,565)
|
(20,362)
|
|
1Includes
long-term portion of the Senior Facility, the Senior Notes, lease
obligations, deferred acquisition consideration, and cash settled
incentive obligations.
|
|
2Excludes
current portion of lease liabilities and deferred acquisition
consideration.
|
Shares outstanding, End of period - fully diluted
- Shares outstanding, End of period - fully diluted is a
non-GAAP measure that has been reconciled to Common Shares
outstanding for the financial periods, being the most directly
comparable measure calculated in accordance with IFRS. This measure
is not intended to be considered more meaningful than Common shares
outstanding. Management believes that this metric is a key measure
to assess the total potential shares outstanding for the financial
periods and is calculated as follows:
|
Three Months Ended
December 31,
|
Year Ended December
31,
|
|
2022
|
2021
|
2022
|
2021
|
|
Common shares
outstanding
|
254,515,682
|
253,830,896
|
254,515,682
|
253,830,896
|
|
Restricted share
units
|
5,922,363
|
6,604,022
|
5,922,363
|
6,604,022
|
|
Shares outstanding, end
of period - fully diluted
|
260,438,045
|
260,434,918
|
260,438,045
|
260,434,918
|
|
|
|
|
|
Total Debt/Adjusted EBITDAC – is a non-GAAP ratio that
Management believes to be a useful measure of the Company's
liquidity and leverage levels, and is calculated as Total Debt
divided by Adjusted EBITDAC for the most recently ended four
quarters. Total Debt and Adjusted EBITDAC are non-GAAP measures
that do not have any standardized meaning under IFRS and therefore
may not be comparable to similar measures presented by other
entities. Total Debt and Adjusted EBITDAC are calculated as
outlined above.
Supplementary Financial Measures
A Supplementary Financial Measure: (a) is, or is intended to be,
disclosed on a periodic basis to depict the historical or expected
future financial performance, financial position or cash flow of
the Company; (b) is not presented in the financial statements of
the Company; (c) is not a non-GAAP financial measure; and (d) is
not a non-GAAP ratio. Supplementary financial measures found within
this press release are as follows:
Revenue - United States - comprises a component of
total revenue, as determined in accordance with IFRS, and is
calculated as revenue recorded from the Company's US divisions.
Revenue - Canada -
comprises a component of total revenue, as determined in accordance
with IFRS, and is calculated as revenue recorded from the Company's
Canadian divisions.
Expansion Capital - comprises a component of total
investment in property and equipment as determined in accordance
with IFRS, and represents the amount of capital expenditure that
has been or will be incurred to grow or expand the business or
would otherwise improve the productive capacity of the operations
of the business.
Maintenance Capital - comprises a component of total
investment in property and equipment as determined in accordance
with IFRS, and represents the amount of capital expenditure that
has been or will be incurred to sustain the current level of
operations.
Cautionary Statement
Except for the historical and present factual information
contained herein, the matters set forth in this press release, may
constitute forward-looking information or forward-looking
statements (collectively referred to as "forward-looking
information") which involves known and unknown risks, uncertainties
and other factors which may cause the actual results, performance
or achievements of CES, or industry results, to be materially
different from any future results, performance or achievements
expressed or implied by such forward-looking information.
When used in this press release, such information uses such words
as "may", "would", "could", "will", "intend", "expect", "believe",
"plan", "anticipate", "estimate", and other similar
terminology. This information reflects CES' current
expectations regarding future events and operating performance and
speaks only as of the date of the press release.
Forward-looking information involves significant risks and
uncertainties, should not be read as a guarantee of future
performance or results, and will not necessarily be an accurate
indication of whether or not such results will be achieved. A
number of factors could cause actual results to differ materially
from the results discussed in the forward-looking information,
including, but not limited to, the factors discussed below.
The management of CES believes the material factors, expectations
and assumptions reflected in the forward-looking information are
reasonable but no assurance can be given that these factors,
expectations and assumptions will prove to be correct. The
forward-looking information contained in this document speaks only
as of the date of the document, and CES assumes no obligation to
publicly update or revise such information to reflect new events or
circumstances, except as may be required pursuant to applicable
securities laws or regulations. The material assumptions in making
forward-looking statements include, but are not limited to,
assumptions relating to demand levels and pricing for the oilfield
consumable chemical offerings of the Company; fluctuations in the
price and demand for oil and natural gas; anticipated activity
levels of the Company's significant customers; commodity pricing;
general economic and financial market conditions; the successful
integration of recent acquisitions; the Company's ability to
finance its operations; levels of drilling and other activity in
the WCSB, the Permian and other US basins, the effects of seasonal
and weather conditions on operations and facilities; changes in
laws or regulations; currency exchange fluctuations; the ability of
the Company to attract and retain skilled labour and qualified
management; and other unforeseen conditions which could impact the
Company's business of supplying oilfield consumable chemistry to
the Canadian and US markets and the Company's ability to respond to
such conditions.
In particular, this press release contains forward-looking
information pertaining to the following: the certainty and
predictability of future cash flows and earnings; expectations that
EBITDAC will exceed the sum of expenditures on interest, taxes and
capital expenditures; expectations of capital expenditures in 2023;
expectations that Adjusted EBITDAC will provide sufficient free
cash flow to pay down the Company's Senior Facility and add cash to
the balance sheet; expectations regarding CES' revenue and free
cash flow generation and the potential use of such free cash flow
including to increase its dividend or repurchase the common shares
of the Company; expectations regarding the stabilization of end
market activity levels; the strength of the Company's balance
sheet, the achievement of the Company's strategic objectives, and
the generation of shareholder value; expectations regarding
improving industry conditions and the Company's ability to generate
free cash flow to sustain and increase the quarterly dividend; CES'
ability to execute on financial goals relating to its balance
sheet, liquidity, working capital and cost
structure; expectations regarding the performance of
CES' business model and counter cyclical balance sheet during
downturns; the sufficiency of liquidity and capital resources to
meet long-term payment obligations; CES' ability to increase or
maintain its market share; optimism with respect to future
prospects for CES; impact of CES' vertically integrated business
model on future financial performance; CES' ability to leverage
third party partner relationships to drive innovation in the
consumable fluids and chemicals business; supply and demand for
CES' products and services, including expectations for growth in
CES' production and specialty chemical sales, expected growth in
the consumable chemicals market; industry activity levels;
commodity prices; development of new technologies; expectations
regarding CES' growth opportunities in Canada the US and overseas; expectations
regarding the performance or expansion of CES' operations and
working capital optimization; expectations regarding the
impact of conflict (including the conflict in Ukraine) and global unrest on commodity prices
as well as CES' business and operations; expectations regarding end
markets for production chemicals and drilling fluids in
Canada and the US; expectations
regarding demand for CES' services and technology; investments in
research and development and technology advancements; access to
debt and capital markets and cost of capital;
expectations regarding capital allocation including the use of
surplus free cash flow, the purchase of CES' common shares by CES
pursuant to the NCIB, debt reduction through the repayment of the
Company's Senior Facility or repurchases of the Company's Senior
Notes, investments in current operations, issuing dividends, or
market acquisitions; CES' ability to continue to comply with
covenants in debt facilities; and competitive conditions.
CES' actual results could differ materially from those
anticipated in the forward-looking information as a result of the
following factors: general economic conditions in the US,
Canada, and internationally;
geopolitical risk; fluctuations in demand for consumable fluids and
chemical oilfield services, downturn in oilfield activity; oilfield
activity in the Permian, the WCSB, and other basins in which the
Company operates; a decline in frac related chemical sales; a
decline in operator usage of chemicals on wells; an increase in the
number of customer well shut-ins; a shift in types of wells
drilled; volatility in market prices for oil, natural gas, and
natural gas liquids and the effect of this volatility on the demand
for oilfield services generally; declines in prices for natural
gas, natural gas liquids, and oil, and pricing differentials
between world pricing, pricing in North
America, and pricing in Canada; competition, and pricing pressures
from customers in the current commodity environment; conflict, war
and political and societal unrest that may impact CES' operations,
supply chains as well as impact the market for oil and natural gas
generally; currency risk as a result of fluctuations in value of
the US dollar; liabilities and risks, including environmental
liabilities and risks inherent in oil and natural gas operations;
sourcing, pricing and availability of raw materials, consumables,
component parts, equipment, suppliers, facilities, shipping
containers, and skilled management, technical and field personnel;
the collectability of accounts receivable; ability to integrate
technological advances and match advances of competitors; ability
to protect the Company's proprietary technologies; availability of
capital; uncertainties in weather and temperature affecting the
duration of the oilfield service periods and the activities that
can be completed; the ability to successfully integrate and achieve
synergies from the Company's acquisitions; changes in legislation
and the regulatory environment, including uncertainties with
respect to oil and gas royalty regimes, programs to reduce
greenhouse gas and other emissions and regulations restricting the
use of hydraulic fracturing; pipeline capacity and other
transportation infrastructure constraints; changes to government
mandated production curtailments; reassessment and audit risk and
other tax filing matters; changes and proposed changes to US
policies including tax policies or policies relating to the oil and
gas industry; international and domestic trade disputes, including
restrictions on the transportation of oil and natural gas and
regulations governing the sale and export of oil, natural gas and
refined petroleum products; the impact of climate change policies
in the regions which CES operates; the impact and speed of adoption
of low carbon technologies; potential changes to the crude by rail
industry; changes to the fiscal regimes applicable to entities
operating in the US and WCSB; access to capital and the liquidity
of debt markets; fluctuations in foreign exchange and interest
rates; CES' ability to maintain adequate insurance at rates it
considers reasonable and commercially justifiable; and the
other factors considered under "Risk Factors" in CES' Annual
Information Form for the year ended December
31, 2022 dated March 9, 2023,
and "Risks and Uncertainties" in CES' MD&A for the three and
twelve months ended December 31,
2022, dated March 9,
2023.
THE TORONTO
STOCK EXCHANGE HAS NOT REVIEWED
AND DOES NOT ACCEPT RESPONSIBILITY FOR THE ADEQUACY OR ACCURACY OF
THIS RELEASE.
SOURCE CES Energy Solutions Corp.
