Mr. Jason Theiss reports
BRI-CHEM ANNOUNCES 2019 THIRD QUARTER FINANCIAL RESULTS
Bri-Chem Corp. has released its 2019 third quarter financial results.
(in thousands of dollars, except per-share amounts)
Three months ended Nine months ended
Sept. 30 Sept. 30,
2019 2018 2019 2018
Sales $ 21,800 $31,159 $70,419 $93,731
Adjusted EBITDA 954 1,377 2,982 1,870
Adjusted EBITDA as a
per cent of revenue 4% 4% 4% 2%
Adjusted operating income (loss) (1) 535 980 1,475 1,311
Adjusted (loss) net earnings (1) (170) 353 (528) (920)
Net (loss) income $ (170) $ 61 $ (552) $(3,785)
Diluted per share
Adjusted EBITDA $ 0.04 $ 0.06 $ 0.12 $ 0.08
Adjusted (loss) net earnings $ 0.02 $ 0.04 $ (0.02) $ (0.04)
Net (loss) $ (0.01) $ 0.00 $ (0.02) $ (0.16)
Total assets $51,987 $80,469
Working capital 16,535 20,589
Long-term debt 8,719 8,425
Shareholders equity $19,318 $25,305
EBITDA means earnings before interest, taxes, depreciation and amortization.
Key Q3 2019 and YTD (year-to-date) highlights include:
Bri-Chem generated consolidated sales of $21.8-million, a decrease of 30 per cent from the third quarter of 2018. The reduced revenue resulted from a 32-per=cent decline in drilling activity in Canada due to unseasonably wet weather conditions extending throughout the summer months, lower drilling activity levels in Canada as a result of the government of Alberta's mandated production curtailments and overall weaker drilling activity in the United States during the quarter.
Adjusted EBITDA for the third quarter was $954,000 versus $1.4-million in the comparable period in 2018, however, adjusted EBITDA is up 59 per cent year to date as a result of management's ability to significantly reduce overhead expenses throughout 2019 and increase the overall gross margin percentage on product sales.
- Adjusted operating income was $535,000 for the three months ended Sept. 30, 2019, compared with an income of $980,000 in the prior-year comparable quarter, representing a 45-per-cent decrease. Nine-month-year-to-date adjusted operating income is up 13 per cent.
- Bri-Chem reported a net loss of $170,000 or one cent per share compared with a net income of $61,000 or nil per share in Q3 2018.
As at Sept. 30, 2019, working capital was $16.5-million compared with $20.6-million at Sept. 30, 2018, a decrease of 20 per cent. This was due to management's efforts to reduce inventory levels and realize cash flow. In addition, the adoption of IFRS 16 (international financial reporting standards) generated a current liability for the obligations under finance lease for the right-of-use assets. Bri-Chem's current ratio, defined as current assets divided by current liabilities, was 1.69 as at Sept. 30, 2019.
Summary for the three and nine months ended Sept. 30, 2019
Wet weather conditions in Canada and the United States during the summer months, coupled with the government of Alberta's mandated production curtailments, negatively impacted drilling activities in North America, which resulted in lower sales for the third quarter of 2019. Bri-Chem's Q3 2019 consolidated sales were $21.8-million for the three months ended Sept. 30, 2019, $9.3-million lower than the same prior-year period. The revenue decline was partially offset by an increase in well abandonment and new cementing work in the company's division located in the state of California.
Bri-Chem's Canadian drilling fluids distribution division generated sales of $4.3-million and $13.3-million for the three and nine months ended Sept. 30, 2019, compared with $8.6-million and $24.2-million in the comparable periods in 2018. The Q3 and year-to-date sales were lower due to the overall decline in Canadian drilling activity and the wet summer drilling program, particularly in Alberta, for the months of July and August. The number of wells drilled in Western Canada for the third quarter of 2019 was 1,364 compared with 2,004 in the same period last year, representing a decrease of 32 per cent (source: Petroleum Services Association of Canada (PSAC)). Bri-Chem's U.S. drilling fluids distribution division generated sales of $12.3-million and $41.6-million compared with sales of $16.8-million and $53.4-million for the same comparable period of 2018, representing decreases of 27 per cent and 22 per cent, respectively. The decreases were the result of slower drilling activity levels in the United States, wet weather in certain regions of Oklahoma and Texas, and due to the loss of comparable revenue from the closure of two underperforming west Texas warehouses in Q2 2018.
Bri-Chem's Canadian blending and packaging division generated sales of $2.1-million and $7.0-million for three and nine months ended Sept. 30, 2019, compared with sales of $4.2-million and $11.2-million for three and nine months ended Sept. 30, 2018, representing decreases of 50 per cent and 37 per cent, respectively. The decreases relate to the overall decline in Canadian drilling activity, which affected demand for toll blending and bulk packaging of products throughout 2019. Bri-Chem's U.S. fluids blending and packaging division experienced increases of 97 per cent quarter over prior-year quarter and 71 per cent year over year, as the division recorded sales of $3.1-million and $8.5-million for the three and nine months ended Sept. 30, 2019. These increases are due to the increase in well abandonment work and new oil field cementing work in the state of California, as well as the division providing cement to customers working offshore.
Adjusted EBITDA was $954,000 and $3.0-million for the three and nine months ended Sept. 30, 2019, compared with $1.3-million and $1.9-million for the same comparable periods in 2018, representing a decrease of 27 per cent quarter over comparable quarter and an increase of 59 per cent year over year. Adjusted EBITDA as percentage of sales was 4 per cent for Q3 2019, which was consistent compared with the same quarter in 2018. This decrease in EBITDA for Q3 was due to weaker sales despite reduced infrastructure costs. The increase year over year is due to increased sales in the U.S. blending division, higher margins in both fluids distribution divisions, a reduction of infrastructure costs as part of the company's rightsizing initiatives implemented over the past nine months and the adoption of IFRS 16 causing a reduction in rental expense for the right-of-use assets.
North America oil field activity continues to face challenges. In Canada, limited pipeline availability and mandated production curtailments have resulted in 2019 capital budgets for Western Canadian customers decreasing significantly year over year, which impacts drilling activity. PSAC has forecasted 1,225 oil and gas wells will be drilled in Canada for the fourth quarter of 2019, a decrease of 21 per cent compared with Q4 2018, when 1,595 wells were drilled. Furthermore, PSAC is forecasting a further 10-per-cent reduction in the number of wells drilled for 2020, estimated at 4,500 for the year. During the third quarter of 2019, U.S. drilling activity has declined and drilling rigs have fallen in most major resource plays. The company anticipates these declines will continue for the remainder of the year and is cautious of activity levels heading into 2020. It will continue to monitor drilling activity levels in Canada and the U.S., and will adjust inventory levels and infrastructure based on demand for its products, and find efficiencies in operations and prudently manage working capital until a better business environment emerges.
About Bri-Chem Corp.
Bri-Chem has established itself, through a combination of strategic acquisitions and organic growth, as the North American industry leader for wholesale distribution and blending of oil field drilling, completion, stimulation and production chemical fluids. The company sells, blends, packages and distributes a full range of drilling fluid products from 24 strategically located warehouses throughout Canada and the U.S.
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