BAD-T nice numbers, Q2 earnings rise to $9.37-million
Aug 13, 2013 - News Release
Revenues increased by approximately 36 per cent to $73.7-million from $54.0-million for the comparable quarter of 2012 due to a 33-per-cent increase in Canadian revenues and a 40-per-cent increase in United States revenues. As a result of the increase in revenues, the company's quarterly earnings before interest, taxes, depreciation and amortization, and funds generated from operations also increased from the same period in 2012.EBITDA increased by approximately 48 per cent to $20.3-million from $13.7-million in the same quarter of 2012.Funds generated from operations increased by approximately 49 per cent period over period to $17.1-million from $11.5-million in the comparable quarter of 2012.EBITDA margins in Canada decreased to 24 per cent from 28 per cent for the comparable period of last year substantially due to an additional accrual of $1.6-million of executive, director and employee incentive compensation to account for the increase in the obligation for payments under the company's deferred unit plan, due to the increase in Badger's share price. EBITDA margins in the United States increased to 31 per cent from 23 per cent for the comparable period of last year due to improvements in operational efficiencies.Badger had 707 daylighting units at the end of the second quarter of 2013, reflecting the addition of 84 daylighting units to the fleet to date in 2013 (41 units in the first quarter and 43 in the second quarter) and the retirement of seven units. Of the total, 330 units were operating in Canada and 377 in the United States at quarter-end. Badger had 277 units in Canada and 293 in the United States for a total of 570 units at June 30, 2012. The new units were financed from cash generated from operations and existing credit facilities. Outlook
There are no changes in Badger's outlook from the outlook provided following the first quarter of 2013. Badger is pleased with its business growth, financial results, improvements in operational efficiencies and efforts made to grow the customer. Provided the North American economy, and activity in the oil and natural gas industry remain roughly the same, Badger expects to continue to achieve profitable growth for the foreseeable future.
Major initiatives for the remainder of 2013 are as follows:
- Improve the company's business development group in order to achieve further expansion Badger's customer base throughout the United States and Canada;
- Build the organization by adding people and skills to meet the requirements associated with the company's planned growth. This remains the most important task for Badger;
- Improve underperforming areas. A lot of progress has been made in this area to date but there is more to be done;
- Streamline Badger's administration system through the use of electronic forms and other measures that transfer data electronically from the field to offices and from offices to Badger's customers;
- Continue to build Badger units at the same pace as the first six months of the year. The build rate is a minimum of three trucks per week. Badger expects to retire 15 to 25 trucks in 2013. Seven were retired in the first six months of this year.
Regional comments:
- The United States continued to provide good revenue growth and improved operational efficiencies in the second quarter. It should be noted that there are fewer underperforming areas in the United States as the organization has started to mature. Badger's focus for the United States remains to attract more people to the organization and to develop their skills, in order to support the company's growth plans. The United States added six locations in the first six months of 2013.
- Eastern Canada continued its stable performance and modest growth in the quarter.
- In Western Canada springtime is always a challenge with spring breakup affecting some areas. Revenue growth was impressive for the period, but margins were reduced in two areas with one experiencing a lack of major projects during breakup and the other experiencing some short-term local issues. Western Canada is expecting a strong finish to the year.
The second quarter of 2013 went according to plan and generated good results. The company's focus remains to grow its customer base, build the organization and improve operational efficiencies where possible. Badger believes it will be able to continue its growth for the foreseeable future given a reasonable economy, and stable oil and natural gas industry.
Results of operations
Revenues
Revenues of $73.7-million for the three months ended June 30, 2013, were 36 per cent greater than the $54.0-million generated during the comparable period in 2012. The increase is attributable to the following:
- Canadian revenues increased by 33 per cent from $27.7-million in the second quarter of 2012 to $37.0-million in the second quarter of 2013. Western Canada revenue increased due to a favourable market for Badger. Eastern Canada revenue increased due to a growing market and reasonable weather conditions.
- United States revenue went from $26.3-million for the three months ended June 30, 2012, to $36.7-million for the three months ended June 30, 2013. Removing the effect of the change in the foreign exchange rate, revenues increased by 36 per cent quarter over quarter. The increase is due to the addition of new areas last year and early this year, enhanced business development efforts that have succeeded in enlarging the customer base and organizational improvements.
Badger's average revenue per truck per month during the three months ended June 30, 2013, was $31,800 versus $30,000 for the three months ended June 30, 2012. Badger's average revenue per truck per month during the six months ended June 30, 2013, was $32,500 versus $31,400 for the six months ended June 30, 2012.
Direct costs
Direct costs for the quarter ended June 30, 2013, were $48.1-million compared with $37.1-million for the quarter ended June 30, 2012. The increase of 30 per cent is less than the 36-per-cent increase in revenues and is due to achieving increased gross profit margins in the United States, discussed below.
Gross profit
The gross profit percentage was 34.7 per cent for the quarter ended June 30, 2013, up from the 31.3 per cent for the quarter ended June 30, 2012. The Canadian gross profit percentage decreased from 37.0 per cent for the second quarter of 2012 to 35.9 per cent for the most recent quarter due to lower margins in two areas of Western Canada, which were due to the absence of major projects in one area during the spring breakup period and some short-term local issues in the second area. United States gross profit percentage increased from 25.2 per cent for the second quarter of 2012 to 33.6 per cent for the most recent quarter due to improvements in operational efficiencies, organizational improvements and the maturing of the business.
Depreciation of property, plant and equipment
Depreciation of property, plant and equipment was $5.8-million for the three months ended June 30, 2013, $1.3-million higher than the $4.5-million incurred for the three months ended June 30, 2012, due to the increased number of hydrovac units in the fleet.
Finance cost
Finance cost was essentially unchanged comparing the second quarter of 2013 with the second quarter of 2012.
Selling, general and administrative expenses
Selling, general and administrative expenses increased by 66 per cent to $5.2-million for the quarter ended June 30, 2013, from $3.2-million for the quarter ended June 30, 2012. The main reason for the increase was an additional accrual of $1.6-million of costs for executive, director and employee incentive compensation to account for the increase in the obligation for payments under the company's deferred unit plan, due to the increase in Badger's share price. Other reasons were the increase in personnel salary costs resulting from the growth in Badger's business and an increase in employee bonuses due to the company's good financial results. As a percentage of revenues, selling, general and administrative expenses increased to 7.1 per cent for the second quarter of 2013 from 5.8 per cent for the second quarter of 2012.
Income taxes
The effective tax rate for the six months ended June 30, 2013, was 34 per cent versus 31 per cent for the six months ended June 30, 2012. Profit before tax in the United States increased relative to Canadian profit before tax, resulting in the increase in the effective tax rate given that corporate income tax rates are higher in the United States.
Exchange differences on translation of foreign operations
The exchange differences result from converting the balance sheet and profit statement related to the United States operations into Canadian currency.
Liquidity and dividends
Funds generated from operations increased to $17.1-million for the quarter ended June 30, 2013, from $11.5-million for the comparable period in 2012 due primarily to increased revenues and EBITDA. The company uses its cash to pay dividends to shareholders, build additional hydrovac units, invest in maintenance capital expenditures and repay long-term debt.
The company had working capital of $48.4-million at June 30, 2013, compared with $43.9-million at Dec. 31, 2012, due to the increase in trade and other receivables.
In determining cash available for dividends, the company excludes non-cash working capital changes for the period as well as growth capital expenditures. Changes in non-cash working capital items are excluded so as to remove the effects of timing differences in cash receipts and disbursements, which generally reverse themselves and can vary significantly between fiscal periods. Growth capital expenditures are excluded so as to include only the maintenance capital expenditures required to sustain the existing asset base.
The company pays cash dividends monthly to its shareholders. They may be reduced, increased or suspended by the board of directors depending on the operations of Badger and the performance of its assets. The actual cash flow available for dividends to shareholders of Badger is a function of numerous factors, including: the company's financial performance; debt covenants and obligations; working capital requirements; maintenance and growth capital expenditure requirements for the purchase of property, plant and equipment; and the number of shares outstanding.
The company maintains a strong balance sheet. Its debt management strategy includes retaining sufficient funds from available distributable cash to finance maintenance capital expenditures as well as working capital needs. Growth capital expenditures will generally be financed through existing debt facilities, proceeds received from equity financings or cash retained from operating activities. The majority of the cash provided by operating activities in the six months ended June 30, 2013, was used to finance growth capital expenditures and to pay dividends to shareholders.
If maintenance capital expenditures increase in future periods, the company's cash available for growth capital expenditures and dividends will be negatively affected. Due to Badger's growth rate in recent years, the majority of the hydrovac units are relatively new, with an average age of approximately four years. As a result, Badger is incurring relatively low maintenance capital expenditures. Over time, Badger would expect to incur annual maintenance capital expenditures approximately equalling the year's depreciation expense. Badger estimates it will remove approximately 15 to 25 hydrovac units from the fleet in 2013. Badger expects that cash provided by operations and cash available for growth capital expenditures and dividends will be sufficient to finance its future maintenance capital expenditures.
Badger is restricted from declaring dividends if it is in breach of the covenants under its credit facilities. As at the date of this management's discussion and analysis, the company is in compliance with all debt covenants and is able to fully utilize its credit facilities as well as declare dividends. Badger does not have a credit rating.
Capital resources
Investing
The company spent $19.4-million on property, plant and equipment for the three months ended June 30, 2013, compared with $12.7-million for the three months ended June 30, 2012. The costs to build a hydrovac unit remained consistent with the average for 2012.
Maintenance capital expenditures are incurred during a period to keep the hydrovac fleet at the same number of units plus any other capital expenditures required to maintain the business. This amount will fluctuate period to period depending on the number of units retired from the fleet. During the first six months of 2013 only seven hydrovac units were removed from the fleet and, therefore, maintenance capital expenditures were minimal.
Financing
In May, 2013, the company's extendable revolving credit facility was renewed. The principal amount was increased from $55-million to $70-million. The facility was used and will continue to be used to help finance Badger's capital expenditure program and support corporate activities. There was $44.0-million drawn at June 30, 2013. The facility has no required principal repayments. It expires on June 22, 2014, and is renewable by mutual agreement of the company and the lender for an additional 364-day period. If not renewed, interest is payable on the facility for 364 days, after which the entire amount must be repaid. The facility bears interest at the bank's prime rate or bankers' acceptance rate plus 1.25 per cent per annum plus 0 per cent to 0.75 per cent per annum depending on Badger's ratio of funded-debt-to-EBITDA.
The company's net debt increased by 50 per cent during the first six months of 2013. As at June 30, 2013, Badger's cash and cash equivalents were $3.1-million, resulting in net debt of $40.9-million versus cash and cash equivalents of $2.5-million, and net debt of $27.3-million at Dec. 31, 2012. The main reason for the increase was the capital expenditures incurred during the first six months of 2013 and the increase in working capital due to the increase in trade and other receivables.
Management believes that the company's healthy balance sheet, combined with funds generated from operations, will provide sufficient capital to finance continuing operations, pay dividends to shareholders, finance future capital expenditures and execute its strategic plan for the foreseeable future. The company's practice is to utilize an appropriate mix of debt and equity to finance its maintenance capital expenditures and growth initiatives.
The company has committed to certain capital expenditures totalling approximately $20.2-million. They will be financed with existing credit facilities and funds generated from operations. There are no set terms for remitting payment for these financial commitments.
Share capital
Shareholders' capital increased from $80.6-million at Dec. 31, 2012, to $80.8-million at June 30, 2013, due to certain employees exercising their options. Shares outstanding at June 30, 2013, were 12,332,631. There was no change to the balance as of Aug. 12, 2013. |
