World News: 06:13 GMT Wednesday 15th May 2019. [ClearStream Energy Services Inc. via Globe Newswire via SPi World News]
CALGARY, Alberta, May 15, 2019 (GLOBE NEWSWIRE) -- ClearStream Energy Services Inc. (“ClearStream” or the “Company”, TSX: CSM and CSM.DB.A) today announced its results for the three months ended March 31, 2019.
“EBITDAS” and “Adjusted EBITDAS” are not standard measures under IFRS. Please refer to the “Non-IFRS measures” section of this release for a description of these items and limitations of their use.
Revenues for the three months ended March 31, 2019 were $84 compared to $84.8 for the same period in 2018, a decrease of 1%. This is driven by reduced demand and lower revenue in the Fort McMurray region and the fabrication businesses, partially offset by an increase in Wear Technology as well as non-union maintenance and turnaround service activities.
Excluding IFRS 16 implementation, gross margins remained flat despite the slight drop in revenue. Lower volumes than anticipated led to losses in our union maintenance, turnaround and fabrication businesses, which were offset by higher activity in our non-union maintenance, turnaround and wear businesses, resulting in a more favorable sales mix.
Selling, general and administrative (“SG&A”) costs for the three months ended March 31, 2019 were $5.1, in comparison to $4.7 in 2018. SG&A costs were up by $0.5 in 2019 relative to 2018 due largely to increased transition costs including but not limited to professional fees incurred in the Company growth initiatives. SG&A costs include one-time expenses related to transition expenses incurred on the two strategic acquisitions to be closed in second quarter of 2019, as well as other expenses to support business process improvements designed to increase operational effectiveness and lower operating costs going forward.
Adjusted EBITDAS for the three months ended March 31, 2019 was $3.8, an increase of $1.6 compared to 2018, largely due to IFRS 16 implementation, as well as an increase in Wear and non-union maintenance businesses margins partially offset by above mentioned increased SG&A costs.
Restructuring costs of $0.061 were recorded during the three month ended March 31, 2019, in comparison to $0.060 in 2018. These non-recurring restructuring costs are comprised of severance and location closure costs.
The loss from continuing operations was $4.2 for the three months ended March 31, 2019, in comparison to $3.5 in 2018.
Revenues for the Maintenance and Construction Services segment were $66.9 for the three months ended March 31, 2019 compared to $69.3 in the prior year, which reflects a decrease of 3%. This decrease is largely due to reduced maintenance demand in the Fort McMurray union business.
Gross profit was $4.2 for the three months ended March 31, 2019, compared to $3.7 in 2018. Gross profit margins increased by 1.0% despite the drop in revenue, largely due to improved sales mix in open shop maintenance business as well as IFRS 16 implementation.
SG&A expenses for the Maintenance and Construction segment were $0.2 for the three months ended March 31 2019 compared to $0.3 in 2018. SG&A expenses decreased on a year over year basis mainly due to reductions in headcount and discretionary spending which started late in 2018.
Revenues for Wear and Fabrication business continues to show robust results in the three months ended March 31, 2019 compared to same period of last year. Revenues for the three months ended March 31, 2019 were $17, compared to $15.5 in 2018. The increase in revenue was largely due to overall increase in Wear Technology demand. In addition, AFX acquisition completed in third quarter of 2018 added additional 30% capacity, which significantly contributed to such increase in revenue. This is offset by decrease in fabrication division due to lower demand in 2019.
Gross profit was $4.5 for the three months ended March 31, 2019, compared to $3.1 in 2018. The increase in margin was largely due to an overall increase in Wear Technology demand leading to higher utilization and improved manufacturing efficiencies. Gross profit margins of 26.5% for the three months ended March 31, 2019, compared to 20% in 2018. This increase is largely due to operational efficiencies compared to 2018 as well as IFRS 16 implementation
SG&A expenses for the Fabrication and Wear Technology segment for the three months ended March 31, 2019 increased compared to the prior period due to additional costs to support increased revenue and the implementation of operational efficiencies initiated in late of 2018 and early of 2019.
SG&A expenses were $4.6 for the three months ended March 31, 2019 compared to $4.3 in 2018. SG&A costs increased due to higher legal, consulting and people costs, incurred to support the Company growth initiatives, business process improvement initiatives designed to increase operational effectiveness and lower operating costs. Included in SG&A costs are $0.2 in one-time expenses, which include costs related to the two strategic acquisitions expected to be closed in the second quarter of 2019 and other growth initiatives. As a percentage of consolidated revenue, Corporate SG&A costs is 5.4% for the three months ended March 31, 2019 compared to 5.1% in 2018.
Effective January 1, 2019, the company has adopted IFRS 16 in its financial statements. IFRS 16 introduces a single lessee accounting model and requires a lessee to recognize assets and liabilities for all leases with a term of more than 12 months, unless the underlying asset is of low value. A lessee is required to recognize a right-of-use asset representing its right to use the underlying asset and a lease liability representing its obligation to make lease payments. This standard substantially carries forward the lessor accounting requirements of IAS 17, while requiring enhanced disclosures to be provided by lessors.
The Company has applied IFRS 16 using the modified retrospective method and therefore the comparative information has not been restated and continues to be reported under IAS 17. Under IFRS 16, lease costs are reflected on the statement of loss and comprehensive loss for the three months ended March 31, 2019 through depreciation and interest expense, resulting in an increase to EBITDAS.
The modified retrospective method resulted in a one-time adjustment of a $41.2 million addition of right-of-use assets and lease liabilities with no changes in retained earnings on January 1, 2019. During Q1 2019, the Company made payments of $2.58 million related to its lease obligations and recorded right of use asset depreciation and lease interest charges of 0.93 million and $1.9 million, respectively. As a result of the new lease standard, EBITDAS was positively impacted by $2.3 million.
The company expects cash flow from operations and equity issuance will be sufficient to meet the foreseeable business operating and recurring cash needs (including for debt service and capital expenditures).
Cash provided by continuing operations represents the net loss incurred during the three months ended March 31, 2019 adjusted for interest and non-cash items, including depreciation, amortization and asset impairments.
Cash inflows related to investment activities consist of proceeds of $0.085 from the disposal of certain assets. These proceeds were offset partially by purchase of assets during the three month ended March 31, 2019 for $0.036.
Due to challenging market conditions, capital spending was kept to a minimum and non-essential operating assets were sold during the three months ended March 31, 2019.
a- 2019 potential Acquisitions
On April 30, 2019, the Company announced that Holdings had entered into the AECOM Transaction, pursuant to which it will acquire certain assets of the production services division currently operated by AECOM Production Services Ltd. and certain of its affiliates for a purchase price of $18.2 million for the assets and approximately $20 million for the working capital, subject to certain closing adjustments. Concurrent with the AECOM Transaction, Holdings also entered into the UWO Transaction, pursuant to which it will acquire all of the issued and outstanding shares of Universal Weld Overlays Inc. for a purchase price of approximately $12 million to be paid on closing, subject to deferred consideration and earn-out adjustments for an aggregate purchase price of up to $15.3 million. The Transactions are expected to close in the second quarter of 2019, subject to the receipt of certain regulatory approvals, applicable approvals under the Company’s existing debt arrangements and the satisfaction of other customary closing conditions in respect of each Transaction. Subject to obtaining certain approvals under the Company’s existing debt arrangements, the Company expects to finance the Transactions through a combination of equity financings of series 2 preferred shares issued on a prospectus exempt basis to Canso Investment Counsel Ltd., in its capacity as portfolio manager for and on behalf of certain accounts that it manages, and with respect to the AECOM Transaction, a new debt facility from the Business Development Bank of Canada. The Transactions, while entered into concurrently, are not cross-conditional.
b- ABL facility renewal
On May 14, 2019, the second amended and restated credit agreement dated November 2, 2019 between Holdings, as borrower, and (among others) Bank of Montreal, as administrative agent, was further amended to (among other things) extend the maturity date to March 23, 2020 and provide for certain borrowing base and financial covenant amendments.
Overall market conditions have started to show some recovery with the rise in commodity prices. However, in light of commodity pricing volatility, upstream, mid-stream and downstream companies are likely to maintain spending discipline for capital projects and focus instead on operational efficiencies and asset integrity. As a result, an increase in demand for our maintenance, turnaround, wear and environmental service lines services is expected to continue in 2019 and 2020.
Improving market conditions for maintenance and turnaround demand, combined with the successful integration of the two recently announced acquisitions, are expected to result in an increase in 2019 profitability compared to 2018.
About ClearStream Energy Services Inc.
ClearStream is a fully integrated provider of upstream, midstream and refinery production services, which includes facility maintenance and turnarounds, pipeline wear technology, facilities construction, welding and fabrication, and transportation to the energy and other industries in Western Canada. For more information about ClearStream, please visit .
Randy WattChief Financial OfficerClearStream Energy Services Inc.
Yves PalettaChief Executive OfficerClearStream Energy Services Inc.
Investors are cautioned that the Non-GAAP Measures are not alternatives to measures under IFRS and should not, on their own, be construed as an indicator of performance or cash flows, a measure of liquidity or as a measure of actual return on the shares. These Non-GAAP measures should only be used with reference to ClearStream’s Interim Financial Statements and Annual Financial Statements available on SEDAR at or
Globe Newswire: 06:13 GMT Wednesday 15th May 2019
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