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Enter Symbol
or Name
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Clearstream Energy Services Inc
Symbol CSM
Shares Issued 109,941,241
Close 2018-02-28 C$ 0.085
Market Cap C$ 9,345,005
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Clearstream Energy loses $35.9-million in 2017

2018-02-28 19:35 ET - News Release

Mr. Gary Summach reports

CLEARSTREAM ANNOUNCES FOURTH QUARTER AND ANNUAL 2017 FINANCIAL RESULTS

Clearstream Energy Services Inc. has released its results for the three and 12 months ended Dec. 31, 2017.

"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.

2017 HIGHLIGHTS

New Contracts/Renewals

  • ClearStream expanded its geographic footprint by winning contracts in Saskatchewan and Newfoundland during 2017;
  • A two-year pipeline logistics and inspection contract and a three year operational workforce management contract were won in late 2017;
  • New contracts are expected to generate $40 million of additional revenue for ClearStream in 2018;
  • ClearStream was successful in renewing a five year operational workforce management contract with a major oilsands producer in the Fort McMurray region; this contract is expected to generate approximately $240 million of revenue over five years;

Market Conditions

  • Maintenance and turnaround demand increased in 2017 relative to 2016, and contributed to a 32% increase in revenue; adjusted EBITDAS for 2017 increased by 90% compared to 2016;
  • Revenue also increased in the Fort McMurray region due to a recovery in activity in 2017 compared to reduced activity in 2016 caused by the Fort McMurray forest fires;
  • Despite the demand growth, our industry remained oversupplied during 2017, which placed downward pressure on pricing for our core services; as a result, gross profit margins declined to 8.5% from 9.2%;
  • Service Lines ClearStream launched an environmental services division in 2017, which provides project lifecycle consulting services for the land, environmental, regulatory, reclamation and remediation needs of our customers;
  • In late 2017, management made a strategic decision to exit the transportation business. The sale of all transportation assets is expected to be completed in the first quarter of 2018. This sale will allow us to focus on our core strengths of Maintenance, Turnarounds, Workforce Management, Wear Technology, Fabrication and Environmental Services;

Refinancing

  • On January 16, 2018, ClearStream announced the completion of a refinancing transaction that will significantly improve balance sheet stability. As part of this transaction, $108.6 million of long-term debt was exchanged for a newly created series of Preferred Shares. In addition, the Company issued $19 million of Preferred Shares in exchange for proceeds used to fund existing and future interest obligations.

 OVERVIEW OF FINANCIAL RESULTS                                                                     
                                                                                                  
($ millions, except per share amounts)                      Q4  2017 Q4  2016 YTD  2017 YTD  2016 
Revenue                                                     82.0     72.9     357.1     270.7     
Gross profit                                                6.2      7.3      30.4      24.9      
Selling, general & administrative expenses                  (5.0    )(5.1    )(18.9    )(17.4    )
Adjusted EBITDAS                                            1.2      2.3      13.9      7.3       
Loss from continuing operations                             (21.2   )(6.8    )(32.5    )(32.9    )
Loss per share from continuing operations, basic and diluted(0.19   )(0.06   )(0.30    )(0.30    )
    

2007 RESULTS COMMENTARY

Revenues for the year ended December 31, 2017 were $357.1 million compared to $270.7 million in 2016, an increase of 32.0% from 2016. Increased revenues in 2017, in comparison to 2016 revenues, relate to improved maintenance and turnaround demand and higher revenue in the Fort McMurray region. The Fort McMurray forest fires in 2016 resulted in reduced oil sands activity during the second and third quarters of 2016 and negatively impacted revenue in 2016 on a comparative basis.

Gross profit for the year ended December 31, 2017 was $30.4 million compared to $24.9 million in 2016 and gross profit margins were 8.5% compared to 9.2% in 2016. The decline in gross profit margin in 2017 was largely due to reduced pricing, which was necessary for customer retention in light of the competitive environment during 2017. Furthermore, gross profit losses on two lump sum projects within the maintenance and construction division negatively impacted overall gross profit margins in 2017.

Selling, general and administrative ("SG&A") expenses for the year ended December 31, 2017 were $18.9 million, in comparison to $17.4 million in 2016. SG&A costs were up by $1.5 million in 2017 relative to 2016 due largely to increased professional fees. As a percentage of revenue, SG&A costs decreased to 5.3% in 2017 compared to 6.4% in 2016.

Adjusted EBITDAS for 2017 increased by 90% compared to 2016.

The loss from continuing operations for the year ended December 31, 2017, includes interest costs of $20.5 million compared with $18.7 million in 2016. The increase in interest expense relates to the drawdown on the Asset Based Lending facility in the second half of 2017. The loss from continuing operations also includes a loss of $5.8 million that was recognized at December 31, 2017 to provide for an onerous contract relating to the sale of the transportation division. In addition, ClearStream performed impairment tests as at December 31, 2017 as a result of the adverse economic impact that low commodity prices have had on ClearStream and the industries that it operates in. As a result of the testing performed, an impairment loss of $7.7 million was recorded at December 31, 2017. All of the impairment losses, as well as the loss on the onerous contract, have been removed from adjusted EBITDAS.

FOURTH QUARTER RESULTS COMMENTARY

Revenues for the three months ended December 31, 2017 were $82.0 million compared to $72.9 million in 2016, an increase of 12.4%. Demand growth across both operating segments led to the increase in revenue, as our customers continued to spend more on maintenance programs during the fourth quarter of 2017 compared to the fourth quarter of 2016.

Gross profit for the three months ended December 31, 2017 was $6.2 million compared to $7.3 million in 2016 and gross profit margins were 7.5% compared to 10.0%. The decline in gross profit margins was due to pricing declines across all service lines combined with losses in the Transportation division. Given ClearStream's decision to sell all transportation assets, one-time expenses of approximately $0.3 million were incurred in the fourth quarter to shut down the transportation business line. SG&A costs were relatively consistent on a year-over-year basis.

Included in the loss from continuing operations in the fourth quarter of 2017 is a $5.8 million loss on an onerous contract relating to the transportation division and impairment losses on intangible assets of $7.7 million.

Adjusted EBITDAS decreased by 45% in the fourth quarter of 2017 compared to the same period in 2016.

Segment Review MAINTENANCE AND CONSTRUCTION SERVICES

Revenues for the Maintenance and Construction Services segment were $67.0 million and $286.4 million for the three and twelve months ended December 31, 2017 compared to $61.5 and $223.0 for the same periods in the prior year, an increase of 8.9% and 28.4%, respectively. Year-over-year demand growth for maintenance, workforce management and turnaround services drove a large portion of the revenue increase. Maintenance and turnaround programs were deferred in 2016 due to a weak commodity price environment that led to lower cash flows for our customers. Demand for these services recovered in 2017 due to slight improvements in commodity prices combined with maintenance requirements that could no longer be deferred.

A portion of the year-over-year revenue increase can also be attributed to a recovery of activity in the Fort McMurray region as the 2016 wildfires had a significant and negative impact on the maintenance and construction division in 2016. Lost revenue in 2016 due to the wildfires was approximately $25 million for the Maintenance and Construction Services segment.

Gross profit for the Maintenance and Construction Services segment was $18.7 million for the year ended December 31, 2017 compared to $17.7 million in 2016. Gross profit margin was 6.5% compared to 7.9% in 2016. For the fourth quarter of 2017, gross profit was $4.6 million compared to $5.4 million in 2016 and gross profit margin was 6.9% compared to 8.8%. The year-over-year margin decreases are due largely to a decline in pricing. In addition, annual margins in 2017 were negatively impacted by losses on certain lump sum contracts completed during 2017.

SG&A expenses remained relatively consistent on a quarterly and year-over-year basis and decreased slightly as a percentage of revenue.

WEAR, FABRICATION, AND TRANSPORTATION SERVICES

Revenues for the Fabrication, Wear Technology and Transportation segment were $15.5 million and $72.8 million for the three and twelve months ended December 31, 2017 compared to $12.2 million and $49.3 million in the prior year, an increase of 27% and 48%, respectively. For the three months ended December 31, 2017, revenue increased due to a rise in demand for wear technology services. For the year ended December 31, 2107, revenue increased within all three divisions of this segment with the largest year-over-year increase in the Wear division. The Wear division benefitted from a rise in year-over-year demand caused by improvements in commodity prices. In addition, demand for Wear's services recovered in 2017 after a drop in 2016 due to the impact of the 2016 Fort McMurray wildfires. Lost Wear revenue in 2016 due to the wildfires was estimated at $5.0 million.

Gross profit was $1.6 million and $11.7 million for the three and twelve months ended December 31, 2017 compared with $1.9 million and $7.2 million during the same periods of the prior year. Gross profit margins were 10.1% and 16.1% compared to 15.8% and 14.6% a year ago. For the fourth quarter of 2017, gross profit margins were negatively impacted by losses for the transportation division. Given ClearStream's decision to sell all transportation assets, one-time expenses of approximately $0.3 million were incurred in the fourth quarter to shut down the transportation business line. In addition, gross profit margins for the fabrication service line were down due to a decline in pricing. The lack of new capital project growth has led to increased competition for this service line.

On an annual basis, gross profit margins for this segment improved due to increased leverage on fixed costs from higher revenue. Cost reductions implemented in 2016 also favorably impacted this segment in 2017 through reduced indirect costs.

CORPORATE

Corporate SG&A expenses were $3.7 million and $16.1 million for the three and twelve months ended December 31, 2017 compared to $4.1 million and $14.8 million for the same periods in the prior year.

For the fourth quarter of 2017, SG&A costs were down slightly due to a decline in people costs. SG&A costs increased on a year-over-year basis due to higher legal and consulting expenses.

Outlook Overall market conditions have started to recover with the rise in oil prices. Our customers are expected to increase maintenance and capital spending in 2018 relative to 2017 as a result of healthier commodity prices. As a result, stronger demand for our services is expected in 2018, particularly for the maintenance and wear service lines. Market conditions are expected to remain difficult for our service lines that rely on new capital projects, including fabrication and construction.

Improving market conditions and increasing maintenance demand, combined with several meaningful contract wins, are expected to result in an increase in 2018 revenue compared to 2017. Recent new contract awards are expected to generate $40 million of new revenue for ClearStream in 2018. However, our industry remains very competitive and we do not expect pricing to improve in 2018 relative to 2017. Gross profit margin improvement will only be achieved if we are able to keep fixed costs flat during 2018; cost control will continue to be an area of focus for ClearStream in 2018.

Financial results for the first quarter of 2018 are expected to be similar to the first quarter of 2017. Pricing levels are relatively consistent on a year-over-year basis and meaningful revenue increases from higher demand and new contract awards are not expected to occur until the second quarter of 2018.

ClearStream will continue to focus on the core aspects of our business including safety, cost control, and operational execution in 2018. We remain confident that improving market conditions and new contracts, combined with a focus on strong execution, will lead to stronger financial results in 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 www.ClearStreamEnergy.ca.

  Consolidated Statements of Loss and Comprehensive Loss
      (In thousands of Canadian dollars, except per share amounts)
                                                     
                                               For year ended December 31,
                                               2017                            2016

Revenue (note 13)                              357,147                         270,661
Cost of revenue                                (326,728          )             (245,750          )
Gross profit                                   30,419                          24,911

Selling, general and
administrative expenses (note 14)              (18,866           )             (17,382           )
Share based compensation (note 19)             (710              )             -
Amortization of intangible assets (note 6)     (3,445            )             (3,376            )
Depreciation (note 5)                          (5,264            )             (6,625            )
Income (loss) from equity investment           246                             (169              )
Interest expense (note 15)                     (21,474           )             (21,259           )
Gain (loss) on sale of assets held for sale    (570              )             1,260
Restructuring costs (note 18)                   (1,414           )             (1,471            )
Impairment of intangible assets (note 6)       (7,685            )             (8,700            )
Other (loss) income (note 11)                  (5,778            )             623
(Loss) gain on sale of property,
plant and equipment (note 5)                    2,083                           (728              )

Loss before taxes                              (32,458           )             (32,916           )

Income tax expense - current (note 16)         (2                )             (21               )

Loss from continuing operations                (32,460           )             (32,937           )

Loss from discontinued operations
(net of income taxes) (note 11)                (3,445            )             (12,793           )

Net loss and comprehensive loss                (35,905           )             (45,730           )

Loss per share (note 17)
Basic & Diluted:
Continuing operations                          (0.30             )             (0.30             )
Discontinued operations                        (0.03             )             (0.12             )
Net loss                                       (0.33             )             (0.42             )

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