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Ceiba Energy Services Announces Continued Growth in Revenue and Adjusted EBITDA in its Third Quarter 2016 Financial Results
CALGARY, ALBERTA--(Marketwired - Nov. 16, 2016) - Ceiba Energy Services Inc. ("Ceiba" or the "Company") (TSX VENTURE:CEB) is pleased to announce its financial results ended September, 2016, are highlighted by continued growth in revenue, gross margins and adjusted EBITDA relative to the same periods in 2015. Ceiba has filed its Financial Statements and related Management's Discussion and Analysis for the quarter ended September 30, 2016 on the Company's profile at www.sedar.com.
2016 Q3 Operational Highlights:
Ceiba received 113,000m3 of total fluids in Q3 2016, which was 10% higher than Q3 2015. Excluding the Kinsella terminalling facility, volumes received were 40% higher than Q3 2015;
The increase of received volumes at Ceiba's treatment and disposal sites was a result of the contribution from the new Athabasca and Obed facilities added in the last 12 months;
Revenue in Q3 2016 of $2.3 million was 21% higher than Q3 2015. Relative to Q3 2015, Ceiba has increased the product mix percentage of higher revenue 1B waste fluid disposal volumes;
The Company's gross margin in Q3 2016 was $1.0 million (44% of revenue) compared to $974 thousand (51% of revenue) in Q3 2015. This 5% increase was a result of higher volumes of 1B fluids received at Gordondale and Athabasca, offset by higher start up operating costs of new sites and product mix;
Adjusted EBITDA in Q3 2016 increased 9% over Q3 2015 to $546 thousand; and
Ceiba recorded a loss before income tax of $321 thousand in Q3 2016 compared to a loss before income tax of $294 in Q3 2015.
Balance sheet highlights
On July 31, 2016, Ceiba repaid $7.3 million face value of 12% convertible debentures upon their maturity with cash on hand and a draw of $5 million of term loans from the ATB credit facility;
On August 10, 2016, Ceiba issued $2.4 million of 9% unsecured convertible debentures maturing June 30, 2020, effectively reducing the cost of the Company's total debt;
Ceiba ended Q3 2016 with $2.0 million in cash and cash equivalents and $0.9 million of positive net working capital;
At September 30, 2016, Ceiba has drawn $5 million of its $10 million Alberta Treasury Branches ("ATB") credit facility and has $5 million still available to draw;
At September 30, 2016, Ceiba has $1.5 million of face value convertible debentures due January 31, 2017 and $2.4 million of face value of convertible debentures due June 30, 2020. Ceiba plans to utilize a combination of cash on hand and drawings from the ATB credit facility for the January 31, 2017 maturity repayment.
All tabular amounts are in CDN$ thousands except for per share amounts and where otherwise noted.
OPERATIONAL AND FINANCIAL HIGHLIGHTS - Q3 2016
For the three months ended | For the nine months ended | |||||||||||
($000's unless noted) | Sept. 30, | Sept. 30, | % | Sept. 30, | Sept. 30, | % | ||||||
Total received volume (000's m3) | 113 | 103 | 10 | % | 294 | 320 | (8 | %) | ||||
Revenue | 2,304 | 1,911 | 21 | % | 6,344 | 5,581 | 14 | % | ||||
Gross margin(1) | 1,020 | 974 | 5 | % | 2,941 | 2,583 | 14 | % | ||||
Gross margin %(1) | 44 | % | 51 | % | (7 | %) | 46 | % | 46 | % | - | |
Adjusted EBITDA(1) | 546 | 499 | 9 | % | 1,452 | 1,046 | 39 | % | ||||
Adjusted EBITDA(1) as % of revenue | 24 | % | 26 | % | (2 | %) | 23 | % | 19 | % | 4 | % |
Total assets | 35,976 | 35,550 | N/A | |||||||||
Net working capital(1) | 903 | 3,405 | N/A | |||||||||
Convertible debentures | 3,303 | 8,512 | N/A | |||||||||
(1) | Refer to "NON-GAAP MEASURES AND OPERATIONAL DEFINITIONS" for additional information |
Discussion of Fundamentals
Ceiba continues to position itself as a growing energy services company with a well-managed balance sheet. In a year of low commodity prices and slower overall industry activity, Ceiba has successfully managed costs and utilized growth capital to position itself as a Company ready to benefit from a return to a more stabilized industry environment. In Q1 2016, the Company deployed capital to expand services in areas where demand is still strong, opening the Obed Class II disposal facility in February and the Athabasca Class 1B waste water facility in March. In Q3 2016, Ceiba commenced construction of the Kaybob Class 1B fluid disposal facility, which is on pace to open in December of this year. In light of the current down turn in the energy services sector management expects to see continued pressure throughout 2016 on received volumes in certain areas, coupled with wet weather hampering truck transportation of fluids. Despite challenging industry conditions, Ceiba expects to see overall revenue growth in 2017 from full year contributions from the Athabasca and Obed facilities and the opening of the Kaybob facility in December 2016.
In Q3 2016, Ceiba received 113,000 m3 of fluid, an increase of 10% compared to Q3 2015 with volumes from newly opened facilities at Obed and Athabasca offsetting volume declines at Chamberlain, Central Alberta and Kinsella.
In January 2016, Ceiba temporarily stopped blending operations at its Kinsella facility due to a lack of suitable heavy oil feedstock. The Kinsella facility was restarted on August 31, 2016 for terminalling and blending operations. Ceiba continues to consider alternatives for this non-core asset. While Kinsella contributed approximately 25% of the Company's 2015 received volumes, it had a minimal impact on the Company's gross margins due to the nature of its blending operations and our profit sharing arrangement with our marketing partner at the facility.
For the nine-months ended September 30, 2016, total received volumes declined 8%. However, total revenue increased 14% to $6.3 million. Volume declines, primarily at Kinsella, have been offset by volumes from new facilities added in the last 12 months. This has led to gross margins of $2.9 million and adjusted EBITDA of $1.5 million, an increase of 14% and 39% from 2015, respectively.
OUTLOOK
Ceiba is actively pursuing operational and investment activities to further the Company's long term strategic goals while remaining acutely focused on managing the business through the extended downturn. Ceiba's growth strategies include working closely with current and potential customers to reduce their overall fluid disposal costs, continued operational excellence at its facilities to protect gross margins, and investment in new facilities to meet demand.
Ceiba opened the Obed disposal facility in late February 2016 to receive Class II fluids from third parties. The Obed facility has met management's volume expectations and is operating near the current capacity of the surface equipment. Management has filed an application with the Alberta Energy Regulators to amend Obed into a Class 1B facility with expanded services to better meet our customer's needs in the area.
The Company opened its Athabasca waste fluid facility in March 2016 and received a regulatory amendment to its operating parameters in April 2016, which allows the facility to better meet the needs of its customers. The Athabasca facility continues to attract new customers and product types which the Company had previously been unable to handle at its other facilities. The Athabasca facility's volume growth continues to meet management's expectations despite the offsetting pricing pressures related to the current industry down turn.
In Q3 2016, Ceiba commenced construction of a Class 1B new waste water facility in the Kaybob region. This facility is expected to be operational in December 2016 to service this active market area near Fox Creek, Alberta which will set the Company up for continued volume, revenue and cash flow growth in 2017.
Ceiba intends to maintain a conservative balance sheet. The Company has completed the development of its Athabasca waste fluid disposal facility and Obed produced water disposal facility and had cash and cash equivalents of $2.0 million at September 30, 2016, with $5.0 million of ATB credit facility still available for draw. On July 31, 2016, Ceiba repaid its 12% convertible debentures with a portion of its cash on hand plus a draw of $5 million of term loans on its ATB credit facility, replacing high interest debt with lower interest bank financing. On August 10, 2016, Ceiba issued $2.4 million of 9% unsecured convertible debentures maturing June 30, 2020. With the net proceeds from the August debenture financing, the Company's positive cash flow from operating activities and available credit on its ATB credit facilities, Ceiba remains well positioned to complete the development of its Kaybob facility and repay its $1.5 million of 10% convertible debentures due January 31, 2017.
On September 12, 2016, Ceiba announced the initiation of a strategic review process to consider a range of strategic financing alternatives available to the Company with a view to enhancing shareholder value. The Company has identified a number of growth opportunities, both organic and by way of acquisition, which would require significant capital over the next few years. In the current public market conditions, pursuing these opportunities may require alternative sources of capital. Therefore, the strategic review may include, among other alternatives, assessing different methods of expanding Ceiba's asset base, by way of financing, acquisition, merger, joint venture or other initiatives, or any combination of the preceding. In each case, the objective is to establish a well-capitalized entity that can best develop the future opportunities available to the Company, with a view to enhancing value for its shareholders.
The Company has not set a definitive schedule to complete its identification, examination and consideration of strategic alternatives, and no decision on any particular alternative has been reached at this time. The Company does not intend to disclose developments with respect to this process unless and until the Board has approved a definitive transaction or another course of action or otherwise deems that disclosure of developments is appropriate or otherwise required by law. There can be no assurance that this review will result in a transaction or agreement, or if a transaction is undertaken, as to its terms or timing.
The Company continues to pursue the acquisition of suitable locations for new facilities in under-serviced or constrained markets, which includes assessing and evaluating acquisition opportunities that are both complimentary to the existing asset base and accretive to the long-term business plan.
NON-GAAP MEASURES AND OPERATIONAL DEFINITIONS
Certain supplementary measures in this MD&A do not have any standardized meaning as prescribed under GAAP and, therefore, are considered non-GAAP measures. These measures are described and presented in order to provide information regarding the Company's financial results, liquidity and its ability to generate funds to finance its operations. These measures are identified and presented, where appropriate, together with reconciliations to the equivalent GAAP measure. However, they should not be used as an alternative to GAAP measures because they may not be consistent with calculations of other companies. These non-GAAP measures, and certain operational definitions used by the Company, are further explained below.
Gross Margin and Gross Margin %
Gross margin is calculated as revenue less operating expenses which includes direct product costs for services but excludes depreciation, depletion and amortization and general and administrative expenses. Management analyzes gross margin as a key indicator of cost control and operating efficiency. Gross margin % is calculated as gross margin as a percentage of revenue.
EBITDA and Adjusted EBITDA
EBITDA refers to net income before finance costs, taxes, depreciation and amortization. Adjusted EBITDA is calculated as EBITDA before costs associated with non-recurring business acquisition costs and share based-compensation. These measures do not have a standardized definition prescribed by IFRS and therefore may not be comparable to similarly captioned terms presented by other users.
Management believes that EBITDA and Adjusted EBITDA are key indicators for the results generated by the Company's core business activities as they eliminate non-recurring items, certain non-cash items and the impact of finance and tax structure variables that exist between entities.
($000's) | Three months ended | Nine months ended | ||||||
2016 | 2015 | 2016 | 2015 | |||||
Total loss and comprehensive loss for the period | (321 | ) | (294 | ) | (1,623 | ) | (1,741 | ) |
Add back: | ||||||||
Finance costs | 189 | 238 | 697 | 726 | ||||
Depreciation | 475 | 190 | 1,282 | 904 | ||||
Income tax (recovery) | - | - | ||||||
EBITDA | 343 | 134 | 356 | (111 | ) | |||
Add back: | ||||||||
Share-based compensation | 115 | 250 | 474 | 789 | ||||
Loss on disposal of asset | - | - | - | 43 | ||||
Inventory write down | - | - | 106 | - | ||||
Loss on impairment of assets | - | - | 200 | - | ||||
Accretion | 58 | 43 | 144 | 112 | ||||
Transaction costs | 30 | 72 | 172 | 213 | ||||
Adjusted EBITDA | 546 | 499 | 1,452 | 1,046 | ||||
Adjusted EBITDA as percent of revenue | 24 | % | 26 | % | 23 | % | 19 | % |
Net Working Capital
Net Working Capital is calculated as total current assets less total current liabilities. Management analyzes net working capital as a measure of our ability to settle short term liabilities with currently available assets.
About Ceiba Energy Services Inc.
Ceiba provides specialized services to the energy sector, specifically to companies involved in the exploration, extraction and production of oil and natural gas in Western Canada. Ceiba develops and constructs facilities in proximity to its customers to provide treatment of crude oil emulsion, terminalling, storage and marketing of oil and disposal of production water.
Reader Advisory
Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or the accuracy of this release.
Forward-looking statements
Certain information regarding Ceiba in this news release, including management's assessment of its future development plans and access to various external sources of capital, may constitute forward looking statements under applicable securities laws and necessarily involve risks including, without limitation, risks associated with facility construction and oilfield services operations, general risks associated with oil and gas exploration, development, production, marketing and disposal of waste, loss of markets, environmental risks, competition from other service providers, delays resulting from or inability to obtain required regulatory approvals and ability to access sufficient capital from internal and external sources. As a consequence, actual results may differ materially from those anticipated in the forward‐looking statements. Readers are cautioned that the foregoing list of factors is not exhaustive. Additional information on these and other factors that could affect Ceiba's operations and financial results are included in reports on file with Canadian securities regulatory authorities and may be accessed through the SEDAR website (www.sedar.com). The forward‐looking statements or information contained in this news release are made as of the date hereof and Ceiba does not undertake any obligation to update publicly or revise any forward‐looking statements or information, whether as a result of new information, future events or otherwise, unless so required by applicable securities laws.
