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Enter Symbol
or Name
USA
CA



Clearstream Energy Services Inc
Symbol CSM
Shares Issued 109,941,241
Close 2017-03-07 C$ 0.215
Market Cap C$ 23,637,367
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Clearstream Energy loses $45.73-million in 2016

2017-03-07 09:49 ET - News Release

Mr. John Cooper reports

CLEARSTREAM ANNOUNCES FOURTH QUARTER AND ANNUAL 2016 FINANCIAL RESULTS

Clearstream Energy Services Inc. has provided its results for the three and 12 months ended Dec. 31, 2016.

On Oct. 13, 2016, Tuckamore Capital Management Inc. announced that it had filed articles of amendment changing its name to Clearstream Energy Services Inc. The shareholder approval required to authorize the change in the company's name was obtained at the company's annual and special meeting held on June 17, 2016. The company's listed securities, consisting of the company's common shares and its outstanding 10.0 per cent second lien secured convertible debentures due 2026, began trading under the new name on Oct. 18, 2016, under the trading symbols of CSM and CSM.DB.A respectively.

EBITDA (earnings before interest, taxes, depreciation and amortization) and adjusted EBITDA are not standard measures under IFRS (international financial reporting standards).

Fourth quarter 2016 highlights

  • Adjusted EBITDA in the fourth quarter of 2016 remained relatively consistent with the fourth quarter of 2015 despite the 18-per-cent decrease in revenue, as cost-cutting measures that were realized throughout 2016 has a positive impact on fourth quarter financial results; fourth quarter selling, general and administrative costs declined by 22 per cent compared with the same period in 2015;
  • Clearstream's revenue continued to be impacted by low commodity prices, which have led to maintenance and project delays and deferrals;
  • Significant progress was made on business development initiatives during the fourth quarter of 2016, including:
    • Expansion into the Southern Saskatchewan market through a contract award with Yara Bell Plaine Inc., a Saskatchewan-based nitrogen fertilizer company, that is expected to generate $105-million of revenue over three years;
    • A maintenance contract renewal with a major oil sands producer in late 2016 that is expected to generate $390-million over the five-year term of the contract;
    • Through a joint venture with SNC-Lavalin, the award of a five-year contract with a large integrated oil company to provide engineering and procurement services for maintenance and sustainment projects in the Fort McMurray region.
  • Commodity price improvements in the fourth quarter, combined with an increase in demand in the Fort McMurray region subsequent to the wildfires, led to improved demand for the company's services late in the fourth quarter of 2016;
  • The increase in demand late in the quarter supports the company's view that maintenance and turnaround spending will increase in 2017, relative to 2016, given the significant amount of deferrals that occurred in 2016.

                                             OVERVIEW OF RESULTS
                                  ($ millions, except per share amounts)                   

                                                                         Q4 2015                    2015
                                                          Q4 2016    Restated (1)     2016   Restated (1)

Revenue                                                     $72.9          $89.0    $270.7        $416.1
Gross profit                                                  7.3            8.6      24.9          53.7
Selling, general and administrative expenses                 (5.1)          (6.5)    (17.4)        (22.4)
(Loss) income from continuing operations                     (6.8)         (68.0)    (32.9)        (64.4)
EBITDA                                                        1.1          (56.9)     (1.7)        (30.0)
Adjusted EBITDA                                               2.3            2.4       7.3          32.2
(Loss) income per share from continuing operations, basic   (0.06)         (0.62)    (0.30)        (0.59)

(1) Adjusted for discontinued operations and reclassification of certain selling, general and 
    administrative expenses to cost of revenues.

Fourth quarter results commentary

Revenues for the three months ended Dec. 31, 2016, were $72.9-million compared with $89.0-million for the same period in 2015, a decrease of 18.0 per cent. The decline in revenues over the same period in the prior year is due to the impact of reduced commodity prices on Clearstream's business. Lower commodity prices have caused the company's customers to delay and/or cancel the maintenance and project spending that drives demand for its business.

Gross profit for the three months ended Dec. 31, 2016, was $7.3-million compared with $8.6-million for the same period in 2015, a decrease of 15.3 per cent. Gross margins were 10.0 per cent for the three months ended Dec. 31, 2016, compared with 9.7 per cent in the fourth quarter of 2015. The improvement in the gross profit margin is primarily related to the positive impact of the cost-cutting initiatives that management commenced in mid-2015 and continued to pursue throughout 2016. The $1.4-million decrease in selling, general and administrative expenses is also due to the implementation of cost-cutting measures throughout 2016.

The loss from continuing operations for the fourth quarter of 2015 included $47.3-million in asset impairment losses and $6.4-million in losses on the disposal of assets held for sale. The fourth quarter of 2016 did not include such losses.

2016 annual results commentary

Revenues for the year ended Dec. 31, 2016, were $270.7-million compared with $416.1-million in 2015, a decrease of 35.0 per cent. Reduced revenues in 2016, in comparison with 2015, are directly related to the impact of lower oil and gas prices that negatively impacted market conditions in 2016 for the oil and gas industry. Furthermore, the Fort McMurray forest fires in May, 2016, resulted in significantly reduced oil sands activity during the second and third quarter of 2016 and negatively impacted revenue in 2016 on a comparative basis.

Gross profit for the year ended Dec. 31, 2016, was $24.9-million compared with $53.7-million in 2015. Gross profit margins were 9.2 per cent compared with 12.9 per cent in 2015. The decline in gross profit margin in 2016, in comparison with 2015, was largely due to reduced pricing that was necessary for customer retention in light of the decrease in customer demand during 2016. In addition, the temporary impact of the 2016 Fort McMurray forest fires resulted in lower operating leverage on Clearstream's fixed cost structure. Absent the temporary impact of the Fort McMurray forest fires, management believes that fixed costs, which include indirect and selling, general and administrative expenses, would have decreased at the same rate as revenue.

Selling, general and administrative expenses for the year ended Dec. 31, 2016, were $17.4-million compared with $22.4-million in 2015. Clearstream continued to execute its cost reduction strategy in 2016, with the closure of three additional operating locations and further staffing reductions. In addition, the transition of the company's head office function from Toronto to Calgary was largely completed by Dec. 31, 2016, and, as such, the company expects additional cost savings going forward. The official change in the registered and head office will occur at the end of March, 2017, upon expiration of the Toronto lease.

Despite the difficult operating environment throughout 2016 that led to a $32.9-million loss from continuing operations, Clearstream was able effectively manage cash flow and liquidity during the year through the following initiatives:

  • Business dispositions and debt refinancing that were completed in the first quarter of 2016;
  • Cost-cutting initiatives implemented in mid-2015 and throughout 2016;
  • Effective working capital management;
  • Disposition of non-essential assets;
  • Amendments to existing debt agreements that provided Clearstream with the flexibility to manage liquidity during 2016.

Segment review

Given the significant change in Clearstream's organizational structure in the first quarter of 2016, the company considered and concluded that there was a change in reportable segments. The reportable segments discussed below, represent the reportable segments that the chief operating decision makers consider when reviewing the performance of Clearstream and deciding where to allocate resources.

                        ($ millions, except per share amounts)

                                                              Q4 2015                  2015
                                                Q4 2016   Restated (1)   2016   Restated (1)
Adjusted EBITDA                        

Maintenance and construction services              $4.5          $0.6    $16.4        $26.7
Wear, fabrication and transportation services       1.9           6.3      6.7         22.8
Adjusted EBITDA from operating segments             6.4           6.9     23.1         49.5
Corporate                                          (4.1)         (4.6)   (15.8)       (17.3)
Consolidated adjusted EBITDA                        2.3           2.4      7.3         32.2

(1) Adjusted for discontinued operations and reclassification of certain selling, general 
    and administrative expenses to cost of revenues.

Maintenance and construction services

Adjusted EBITDA for the maintenance and construction services segment improved in the fourth quarter of 2016 compared with the same period in 2015. The year-over-year increase was partially due to cost reduction initiatives that had a positive year-over-year impact on adjusted EBITDA during the fourth quarter of 2016. In addition, a fire at one of our major customers' facilities caused a disruption in activity for most of the fourth quarter of 2015, which has a negative impact on prior period results.

For the year ended 2016, adjusted EBITDA decreased significantly for the maintenance and construction services segment as weak oil and gas prices led to reduced customer spending on maintenance and construction initiatives. Furthermore, the Fort McMurray fires in 2016 had a significant negative impact on the maintenance and construction services segment throughout the second and third quarters of 2016. The impact of lower demand was offset partially by the positive impact of cost-cutting measures that were implemented in 2015 and throughout 2016.

Wear, fabrication and transportation services

Revenues for the wear, fabrication and transportation services segment are driven by project demand within the oil and gas sector. Given the weak oil and gas prices throughout most of 2016, new project development activity related to pipelines and infrastructure was minimal. As such, business volumes and pricing pressure had a more drastic impact on this segment in 2016 compared with Clearstream's maintenance and construction services segment. These factors led to declines in year-over-year adjusted EBITDA for the quarterly and annual results ended Dec. 31, 2016.

In addition, the Fort McMurray fires had a negative effect on this segment's revenues and adjusted EBITDA during the second and third quarters of 2016, which impacted the 2016 annual results. Cost-cutting measures that were implemented starting mid-2015 and throughout 2016 helped to offset the impact of the fires and weak market conditions for both the quarterly and annual results.

Corporate

Corporate costs decreased significantly on a year-over-year basis, both annually and quarterly, as Clearstream realized the benefits of cost-cutting initiatives that commenced in mid-2015 and continued throughout 2016. The primary initiatives included location closures and staffing reductions.

Outlook

Oil and gas prices increased during the fourth quarter of 2016 and have stabilized in early 2017. This improved oil and gas price environment has led to increased customer demand for maintenance related services in early 2017 and the company expects this trend to hold throughout 2017. The company also expects to see a meaningful rise in facility turnaround demand during spring and fall turnaround seasons in 2017. The company's customers deferred maintenance and turnaround spending in 2016 due to challenging market conditions and, with improved and stable market conditions in 2017, it expects to see a significant portion of these deferred programs executed in 2017.

The commodity price recovery has also led to moderate growth in facility and pipeline based project demand in early 2017. However, the bidding process for projects remains very competitive and the company does not expect prices to increase in the first half of 2017.

For the first quarter of 2017, the company expects revenue and EBITDA to be higher on both a year-over-year and sequential basis. The company recently announced a major new contract win in Saskatchewan, the renewal of a large maintenance contract in Fort McMurray and a new five-year contract award through a joint venture with SNC-Lavalin. These accomplishments, combined with an improving and stable market environment, have set the stage for improved financial results in 2017 compared with 2016. However, demand for the company's services continues to be driven by oil and gas prices that are volatile and unpredictable. Given this uncertainty, Clearstream management will continue to focus on cost management, customer retention, process and efficiency improvements, and diversification of the company's revenue stream into new geographies and markets outside of oil and gas.

About Clearstream Energy Services Inc.

Clearstream is a fully integrated provider of upstream, mid-stream and refinery production services, which include facility maintenance and turnarounds, pipeline wear technology, facilities construction, welding and fabrication, and transportation to the energy and other industries in Western Canada.

         CONSOLIDATED STATEMENTS OF LOSS AND COMPREHENSIVE LOSS
      (In thousands of Canadian dollars, except per share amounts)               
                                                                           
                                                                     Year ended
                                                                        Dec. 31,
                                                                           2015
                                                             2016      Restated

Revenue                                                   $270,661     $416,122
Cost of revenue                                           (245,750)    (362,429)
Direct                                                    (222,043)         623
Indirect                                                   (23,707)        (728)
Gross profit                                                24,911       53,693
Selling, general and administrative expenses               (17,382)     (22,362)
Amortization of intangible assets                           (3,376)      (5,651)
Depreciation                                                (6,625)      (8,681)
Income from equity investment                                 (169)        (508)
Interest expense                                           (21,259)     (24,948)
Gain (loss) on sale of assets held for sale                  1,260       (6,379)
Restructuring costs                                         (1,471)      (7,454)
Impairment of property, plant and equipment                      -       (5,574)
Impairment of goodwill and intangible assets                (8,700)     (41,727)
Other income                                                   623            -
(Loss) gain on sale of property, plant and equipment          (728)         340
(Loss) before taxes                                        (32,916)     (69,252)
Income tax recovery (expense) -- current                       (21)       2,050
Income tax recovery -- deferred                                  -        2,766
(Loss) from continuing operations                          (32,937)     (64,436)
(Loss) from discontinued operations (net of income taxes)  (12,793)     (60,451)
Net (loss) and comprehensive (loss)                       $(45,730)   $(124,887)
(Loss) per share                                                             
Basic and diluted
Continuing operations                                       $(0.30)      $(0.59)
Discontinued operations                                     $(0.12)      $(0.55)
Net (loss)                                                  $(0.42)      $(1.14)
                                                                           

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