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. OnMarch 15, 2024 , the Corporation declared a dividend of$0.20 per share or$9.5 million payable onApril 15, 2024 . There were no common shares purchased under the current NCIB in the three-month period endedMarch 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 | ||||||
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 | ||||||
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 inCanada . - 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.
Financial Results
In the 2024 three-month period, PHX Energy generated consolidated revenue of
For the three-month period ended
In the 2024 three-month period, the Corporation’s Canadian division generated revenue of
For the three-month period ended
As at
Dividends and ROCS
On
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
(Stated in thousands of dollars)
Three-month periods ended | ||||
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
Pursuant to the current NCIB, no common shares were purchased by the Corporation and cancelled in the three-month period ended
Capital Spending
In the first quarter of 2024, the Corporation spent
(Stated in thousands of dollars)
Three-month periods ended | ||||
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
The approved capital expenditure budget for the 2024-year, excluding proceeds on disposition of drilling equipment, is
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
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 | ||||
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
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:
Average consolidated revenue per day(3) for directional drilling services was relatively unchanged from the first quarter of 2023 at
In the 2024-quarter, revenue generated by the Atlas motor rental division declined by 24 percent to
Operating Costs and Expenses
(Stated in thousands of dollars except percentages)
Three-month periods ended | ||||||
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
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 | ||||||
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
Cash-settled share-based compensation relates to the Corporation’s retention awards and is measured at fair value. For the three-month period ended
(Stated in thousands of dollars)
Three-month periods ended | ||||
2024 | 2023 | % Change | ||
Research and development expense | 1,202 | 1,256 | (4 | ) |
For the three-month period ended
(Stated in thousands of dollars)
Three-month periods ended | ||||
2024 | 2023 | % Change | ||
Finance expense | 334 | 667 | ( | ) |
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
Finance expense lease liabilities relate to interest expense incurred on lease liabilities. For the three-month period ended
(Stated in thousands of dollars)
Three-month periods ended | |||
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
(Stated in thousands of dollars except percentages)
Three-month periods ended | ||||
2024 | 2023 | |||
Provision for income taxes | 5,288 | 3,541 | ||
Effective tax rates(3) | 23% | 14% |
For the three-month period ended
Segmented Information
The Corporation reports two operating segments on a geographical basis throughout the
(Stated in thousands of dollars)
Three-month periods ended | ||||
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
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:
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
For the three-month period ended
(Stated in thousands of dollars)
Three-month periods ended | ||||
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
For the three-month period ended
For the three-month period ended
Investing Activities
Net cash used in investing activities for the three-month period ended
(Stated in thousands of dollars)
Three-month periods ended | ||||
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
Financing Activities
For the three-month period ended
- 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
As at
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
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
About
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
PHX Energy’s Canadian directional drilling operations are conducted through
The common shares of PHX Energy trade on the
For further information please contact:
Suite 1600,
Tel: 403-543-4466 Fax: 403-543-4485 www.phxtech.com
Condensed Consolidated Interim Statements of Financial Position
(Stated in thousands of dollars, unaudited)
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 | ||||||
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 | ||||||
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
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,
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 | |||
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 | |||
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 | ||||
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 | ||||
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 | ||
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 | ||||
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)
Current assets | 208,653 | 207,040 | ||
Deduct: | ||||
Current liabilities | (119,974 | ) | (113,125 | ) |
Working capital | 88,679 | 93,915 |
d) Net Debt (
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)
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 | ||||
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 | ||||
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.
Source:
2024 GlobeNewswire, Inc., source