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As at October 18, 2019

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MATRRIX announces 2018 fourth quarter and year-end results

CALGARYApril 3, 2019 /CNW/ – MATRRIX Energy Technologies Inc. (“MATRRIX” or the “Corporation”) (TSX-V: MXX) announces today its financial and operational results for the three and twelve month periods ended December 31, 2018. The Corporation also announces it will be discontinuing directional drilling operations starting in Q2 2019 and focusing on driving growth and profitability in its drilling rig division.

The following should be read in conjunction with the Corporation’s audited consolidated financial statements and the notes thereto for the three and twelve month periods ended December 31, 2018 and related management’s discussion and analysis, which are available on SEDAR at www.sedar.com.

All amounts or dollar figures are denominated in thousands of Canadian dollars except for per share amounts, number of drilling rigs, directional drilling systems, and operating days, or unless otherwise noted.

Estimates and forward-looking information are based on assumptions of future events and actual results may vary from these estimates. See “Forward-Looking Information” in this press release for additional details.

2018 OVERVIEW AND OUTLOOK

In Canada, the 2018 drilling activity tracked 2017 levels for much of the year. Continued volatile commodity prices for crude oil and natural gas as a result of record high oil price differentials due to ongoing pipeline constraints, continued to negatively impact the drilling industry, by decreasing producer confidence and corresponding capital budgets.

While the Corporation is cautiously optimistic for 2019, it does not anticipate a significant recovery in Canadian activity from 2018. The Corporation expects Canadian oil and gas producers will continue to be faced with the challenge of exporting their products due to a lack of pipeline infrastructure and continued customer spending constraints relative to historical levels.

Drilling Rig Division

2018 marked the Corporation’s first full calendar year of operations for its drilling rig division. The drilling rig division continued its Q4 2017 positive momentum with an annual Adjusted 2018 EBITDA of $3,060 and Q4 2018 Adjusted EBITDA of $1,423. Rig utilization continued to improve from Q2 2018, as Rig #5 and Rig #6 were moved from Saskatchewan to Alberta, upgraded and redeployed in September (Rig #6) and December (Rig #5) of 2018.  The Corporation continues to maintain a strong balance sheet. At December 31, 2018, the Corporation’s total debt to EBITDA, as defined in the Corporation’s lending agreement, was 0.80 to 1. Management believes this provides the Corporation flexibility to execute on strategic acquisitions and opportunities that align with the Corporation’s growth plan.

During 2018, the Corporation continued its growth plan with the following highlights:

On January 19, 2018, the Corporation acquired all of the issued and outstanding shares of D2 Drilling Inc., a private corporation which owned one heavy telescopic double drilling rig and additional drilling equipment in the Weyburn/Estevanarea of southeast Saskatchewan. The Corporation issued 6,667 common shares of the Corporation at a deemed price of $0.45 per common share and a cash payment of $530 equal to D2’s working capital at the time of closing, for total consideration of approximately $3,000.

On May 24, 2018, the Corporation completed the acquisition of substantially all of the assets of Red Dog Drilling Inc. (“Red Dog”) used in connection with Red Dog’s drilling rig operations consisting of two heavy telescopic double drilling rigs, one cantilever triple drilling rig and one cantilever double drilling rig. Pursuant to an asset purchase agreement dated May 10, 2018 between Red Dog and the Corporation, the Corporation acquired the Red Dog assets for a purchase price of $5,511, which was paid as follows: (i) the issuance of 1,573 common shares at a deemed price of $0.33 per common share, valued at $519; and (ii) $4,992 cash for vendor debt repayment.

On July 25, 2018, the Corporation announced it’s U.S. subsidiary had entered into a management consulting contract with Randy Hawkings with the objective of Mr. Hawkings advising the Corporation regarding existing operations and growth strategies in the U.S. and internationally. Mr. Hawkings is a seasoned corporate executive with considerable experience as CEO/President. Most recently, he was consulting for Trinidad Drilling Ltd. (“Trinidad”) in the USA, and prior thereto he held the position of Executive Vice President, US Operations for Trinidad. Before the acquisition of CanElson Drilling Inc. (“CanElson”) by Trinidad in 2015, Mr. Hawkings was a founder, President and CEO of CanElson.

The Corporation also made significant capital investments in 2018 to upgrade and relocate two rigs from Saskatchewan to Alberta. Both Alberta rigs have been highly utilized since relocation and are expected to have similar utilization in 2019.  The Corporation intends to continue its strategic plan of geographical diversification of its business and purchasing high quality assets that have the capability to service a large portion of the anticipated drilling in the WCSB while providing and economics required by our customers and the equipment and resources required by our employees to operate safely and efficiently, and at the same time providing an appropriate rate of return. Management believes the Corporation is well positioned to capture new customer demand while growing with its current customer base and continues to improve the Corporation’s strong safety culture.

The Corporation now has 11 drilling rigs consisting of nine complementary heavy telescopic double drilling rigs, one cantilever triple drilling rig and one cantilever double drilling rig. The Corporation currently only markets its nine heavy telescopic double drilling rigs.

Directional Drilling Division

Early in 2018, with the appointment of Mr. Lyle Whitmarsh as President and Chief Executive Officer, management began a thorough analysis of the directional drilling division in an effort to improve its performance and profitability. As a result, the Corporation resized the directional drilling division in January 2018 by reducing its headcount and related expenses to align with forecasted activity in Western Canada for its directional drilling services. With further reduced capital budgets within its directional drilling customer base in 2018, the directional drilling division recorded an annual Adjusted EBITDA loss of $1,284 and a Q4 2018 Adjusted EBITDA loss of $337. The directional drilling division also recorded an impairment write-down of $1,955 in Q4 2018 (2017: $3,833).

Due to continued directional drilling losses since Q1 2015, and management’s thorough review of the directional drilling division including the consideration of potential implications of all available options, management and the Board of Directors determined that both significant capital investment, which could not be projected to meet the Corporation’s investment criteria, and major macroeconomic changes, which the Corporation cannot project happening in the near future  in Western Canada, would be required in order to see a path to profitability for the division. Therefore, the Board of Directors has approved discontinuing directional drilling operations starting in Q2 2019. In connection with the cessation of the directional drilling division, the Corporation announces the departure of Mr. Charlie Lloyd, Vice President, Sales.  The Board of Directors thanks Mr. Lloyd for his valuable contribution to the Corporation and wishes him well in his future endeavors.   In addition, Mr. Rob Van Bostelen, Vice President, Operations, has resigned from his position as an officer of the Corporation but is continuing as an employee assisting the Corporation in closing the directional division.

“This was a very difficult decision, but it is the right decision for Matrrix. With the full support of the Corporation’s Board of Directors, we have determined that it is in the best interest of the Corporation to discontinue the directional drilling division and focus on driving growth and profitability in our drilling rig division. We would like to thank all the staff for their dedication and hard work,” said Lyle Whitmarsh, Matrrix President and Chief Executive Officer.

FINANCIAL HIGHLIGHTS

FOURTH QUARTER 2018 SUMMARY (Compared with the fourth quarter 2017)

TWELVE MONTHS ENDED DECEMBER 31, 2018 SUMMARY (Compared with the twelve months ended December 31, 2017)

Three Months Ended

Years Ended

December 31,

December 31,

(000’s CAD $)

2018

2017

%
Change

2018

2017

%
Change

2016

Revenue

6,566

4,984

32%

20,873

9,528

119%

2,334

Net loss

(1,999)

(4,464)

(55%)

(4,124)

(6,875)

(40%)

(4,423)

Net loss per share

Basic

(0.02)

(0.06)

67%

(0.03)

(0.16)

81%

(0.14)

Diluted

(0.02)

(0.06)

67%

(0.03)

(0.16)

81%

(0.14)

Adjusted EBITDA (1)

1,085

354

206%

1,776

(189)

(1,040%)

(1,618)

Adjusted EBITDA per share

Basic

0.01

nm

0.01

nm

(0.05)

Diluted

0.01

nm

0.01

nm

(0.05)

Income (loss) from operations

1,376

564

144%

2,965

209

1,319%

(1,976)

Gross Margin (1)

2,471

1,364

81%

6,430

2,822

128%

603

Capital expenditures related to acquisitions

10,372

(100%)

8,807

10,372

(15%)

Capital expenditures

6,754

7,246

(7%)

16,599

7,323

127%

144

Weighted average common shares outstanding

131,600

73,847

78%

130,541

43,099

203%

32,185

Weighted average diluted common shares outstanding

131,600

73,847

78%

130,541

43,099

203%

32,185

nm – calculation is not meaningful

(1) – please refer to “Non-GAAP measures” for further information

As at December 31,

2018

2017

%
Change

2016

Current assets

5,636

21,334

(74%)

6,317

Total assets

46,435

42,431

9%

18,461

Total current liabilities

7,692

3,511

119%

469

Total non-current liabilities

2,422

2,297

5%

Shareholders’ Equity

36,321

36,623

(1%)

17,992

2018 RESULTS OF OPERATIONS

Consolidated Operations

Years Ended

December 31,

(000’s CAD $ except per day amounts)

2018

2017

% Change

Drilling rig revenue

16,028

1,453

1,003%

Directional drilling revenue

4,845

8,075

(40%)

Consolidated revenue

20,873

9,528

119%

Direct operating expenses

14,443

6,706

115%

Gross margin (1)

6,430

2,822

128%

Gross margin %

31%

30%

3%

Consolidated net loss

(4,124)

(6,875)

(40%)

General & administrative expenses

6,860

7,092

(3%)

G&A expenses as a % of revenue

33%

74%

(55%)

Adjusted EBITDA (1)

1,776

(189)

(1,040%)

Adjusted EBITDA %

9%

(2%)

550%

Drilling rigs operating days

859

80

974%

Drilling rigs revenue per day

18.7

18.2

3%

Directional drilling operating days(2)

572

946

(40%)

Directional drilling revenue per day

8.4

8.3

1%

(1) – please refer to “Non-GAAP measures” for further information

(2) MATRRIX calculates a stand-by day as 0.5 day of an operating day.

Directional Drilling Operations

Years Ended

December 31,

(000’s CAD $ except per day amounts)

2018

2017

% Change

Directional drilling revenue

4,845

8,075

(40%)

Direct operating expenses

4,062

5,735

(29%)

Gross margin (1)

783

2,340

(67%)

Gross margin %

16%

29%

(45%)

Directional drilling net loss

(4,036)

(6,503)

(38%)

G&A expenses

4,197

6,879

(39%)

G&A expenses as a % of revenue

87%

85%

2%

Adjusted EBITDA (1)

(1,283)

(458)

180%

Adjusted EBITDA %

(26%)

(6%)

(333%)

Directional drilling operating days(2)

572

946

(40%)

Directional drilling revenue per day

8.4

8.3

1%

nm – not meaningful

(1) – please refer to “Non-GAAP measures” for further information

(2) MATRRIX calculates a stand-by day as 0.5 day of an operating day.

Drilling Rig Operations 

Years Ended

December 31,

(000’s CAD $ except per day amounts)

2018

2017

% Change

Drilling rig revenue

16,028

1,453

1,003%

Direct operating expenses

10,381

971

969%

Gross margin (1)

5,647

482

1,072%

Gross margin %

35%

33%

6%

Drilling rig net loss

(88)

(372)

(76%)

G&A expenses

2,663

213

1,150%

G&A expenses as a % of revenue

17%

15%

13%

Adjusted EBITDA (1)

3,059

269

1,037%

Adjusted EBITDA %

19%

19%

0%

Drilling rig operating days

859

80

974%

Drilling rig revenue per day

18.7

18.2

3%

(1) – please refer to “Non-GAAP measures” for further information

Years Ended

December 31,

2018

2017

% Change

Drilling rigs (activated rigs)

Opening balance

6

na

Acquired

3

6

(50%)

Ending balance

9

6

50%

Operating days (spud to rig release)

859

80

974%

Utilization

29%

25%

14%

na – not applicable

Impairment of Property and Equipment

Years Ended

December 31,

(000’s CAD $)

2018

2017

% Change

Impairment of assets

1,955

3,833

(49%)

The Corporation reviews the carrying value of its assets at each reporting period for indicators of impairment. The Corporation currently has two CGUs, the service of directional drilling that includes interchangeable performance motor drilling assets, and drilling rigs.

For the year ended December 31, 2018, the Corporation completed its assessment and the recoverable value of the property and equipment of both of the Corporation’s CGUs. The Corporation identified that the directional drilling CGU carrying amount exceeded the fair value amount using the market approach. As a result, an impairment of $1,852 was recorded as a reduction in directional drilling property and equipment for the year ended December 31, 2018 (2017 – $3,630).

Other Items

Years Ended

December 31,

(000’s CAD $)

2018

2017

% Change

Gain from disposition of property and equipment

301

140

115%

Gain from equipment lost in hole

635

310

105%

Interest and other income

45

21

114%

Interest on operating loan

(19)

nm

Interest on convertible debenture

(261)

(53)

392%

Accretion on debentures

(125)

nm

Foreign exchange gain (loss)

(88)

44

(300%)

Non-recurring restructuring charges

(330)

nm

Transaction costs

(683)

(454)

50%

Other items

(525)

8

(6,663%)

nm – not meaningful

For the year ended December 31, 2018, the Corporation recorded a gain of $301 related to the sale of certain directional drilling and drilling rig equipment compared to $140 in 2017. In addition, for the year ended December 31, 2018, the Corporation recorded a gain of $635 related to equipment lost downhole compared to $310 in 2017. The timing of lost-in-hole recoveries is not within the control of the Corporation and therefore can fluctuate significantly from period to period. Interest and other income primarily related to interest earned from term deposits and sales of scrap materials.

The Corporation also incurred non-recurring restructuring charges related to a severance payment and associated legal expenses of $330 during the year (2017 – $nil).

Non-capitalizable transaction costs related to acquisitions of $683 were incurred in 2018, an increase of $229 (50%) from $454 in 2017. Transaction costs represent non-capitalizable amounts directly related to drilling rig acquisitions which consist of due diligence and external legal fees.

FOURTH QUARTER RESULTS OF OPERATIONS

Consolidated Operations

Three Months Ended

December 31,

(000’s CAD $ except per day amounts)

2018

2017

% Change

Drilling rig revenue

6,025

1,453

315%

Directional drilling revenue

541

3,531

(85%)

Consolidated revenue

6,566

4,984

32%

Direct operating expenses

4,095

3,620

13%

Gross margin (1)

2,471

1,364

81%

Gross margin %

38%

27%

41%

Consolidated net loss

(1,999)

(4,464)

(55%)

G&A expenses

3,390

4,943

(31%)

G&A expenses as a % of revenue

52%

99%

(47%)

Adjusted EBITDA (1)

1,085

354

206%

Adjusted EBITDA %

17%

7%

143%

Drilling rigs operating days

292

80

265%

Drilling rigs revenue per day

20.6

18.2

14%


Directional drilling operating days(2)

62

391

(84%)

Directional drilling revenue per day

8.7

8.9

(2%)

(1) – please refer to “Non-GAAP measures” for further information

(2) MATRRIX calculates a stand-by day as 0.5 day of an operating day.

Directional Drilling Operations

Three Months Ended

December 31,

(000’s CAD $ except per day amounts)

2018

2017

% Change

Directional drilling revenue

541

3,531

(85%)

Direct operating expenses

524

2,649

(80%)

Gross margin (1)

17

882

(98%)

Gross margin %

3%

25%

(88%)

Directional drilling net loss

(2,518)

(4,092)

(38%)

G&A expenses

2,321

4,730

(51%)

G&A expenses as a % of revenue

429%

134%

220%

Adjusted EBITDA (1)

(337)

85

(496%)

Adjusted EBITDA %

(62%)

2%

(3,200%)

Directional drilling operating days(2)

62

391

(84%)

Directional drilling revenue per day

8.7

8.9

(2%)

(1) – please refer to “Non-GAAP measures” for further information

(2) MATRRIX calculates a stand-by day as 0.5 day of an operating day.

Drilling Rig Operations 

Three Months Ended

December 31,

(000’s CAD $ except per day amounts)

2018

2017

% Change

Drilling rig revenue

6,025

1,453

315%

Direct operating expenses

3,571

971

268%

Gross margin (1)

2,454

482

409%

Gross margin %

41%

33%

24%

Drilling rig net income (loss)

519

(372)

(240%)

G&A expenses

1,069

213

402%

G&A expenses as a % of revenue

18%

15%

20%

Adjusted EBITDA (1)

1,422

269

429%

Adjusted EBITDA %

24%

19%

26%

Drilling rig operating days

292

80

265%

Drilling rig revenue per day

20.6

18.2

13%

(1) – please refer to “Non-GAAP measures” for further information

NON-GAAP MEASURES

This MD&A contains references to (i) Adjusted EBITDA and (ii) gross margin. These financial measures are not measures that have any standardized meaning prescribed by IFRS and are therefore referred to as non-GAAP measures. The non-GAAP measures used by the Corporation may not be comparable to similar measures used by other companies.

(i)    

Adjusted EBITDA is defined as “income (loss) before interest income, interest expense, taxes, business acquisition transaction costs, depreciation and amortization, share-based compensation expense, gains on disposal of property and equipment, impairment expenses, interest and other income, foreign exchange, non-recurring restructuring charges, accretion of debentures and other income/expenses, and any other items that the Corporation considers appropriate to adjust given the irregular nature and relevance to comparable operations.” Management believes that in addition to net and total comprehensive income (loss), Adjusted EBITDA is a useful supplemental measure as it provides an indication of the results generated by the Corporation’s principal business activities prior to consideration of how these activities are financed, how assets are depreciated, amortized and impaired, the impact of foreign exchange, or how the results are affected by the accounting standards associated with the Corporation’s stock-based compensation plan. Investors should be cautioned, however, that Adjusted EBITDA should not be construed as an alternative to net income (loss) and comprehensive income (loss) determined in accordance with IFRS as an indicator of the Corporation’s performance. The Corporation’s method of calculating Adjusted EBITDA may differ from that of other organizations and, accordingly, it’s Adjusted EBITDA may not be comparable to that of other companies.

Three Months Ended

Years Ended

December 31,

December 31,

(000’s CAD $)

2018

2017

%
Change

2018

2017

%
Change

Net loss

(1,999)

(4,464)

(55%)

(4,124)

(6,875)

(40%)

Depreciation

1,097

801

37%

3,470

2,638

32%

Interest on operating loan

19

nm

19

nm

Interest on Convertible Debenture

66

53

25%

261

53

392%

(Gain)/loss from disposition of property
and equipment

12

(140)

(109%)

(301)

(140)

115%

Gain from equipment lost in hole

(268)

(100%)

(635)

(310)

105%

Interest and other income

(16)

(2)

700%

(45)

(21)

114%

Share-based payments

47

99

(53%)

246

223

10%

Transaction costs

144

454

(68%)

683

454

50%

Foreign exchange (gain) loss

29

(12)

(342%)

88

(44)

(300%)

Accretion of debentures

27

nm

125

nm

Impairment of assets

1,955

3,833

(49%)

1,955

3,833

(49%)

Non recurring restructuring charges

nm

330

nm

Deferred tax recovery

(296)

nm

(296)

nm

Adjusted EBITDA

1,085

354

206%

1,776

(189)

(1,040%)

nm – not meaningful

(ii)

Gross margin is defined as “gross profit from services revenue before stock-based compensation and depreciation”. Gross margin is a measure that provides shareholders and potential investors additional information regarding the Corporation’s cash generating and operating performance. Management utilizes this measure to assess the Corporation’s operating performance.

Three Months Ended

Years Ended

December 31,

December 31,

(000’s CAD $)

2018

2017

%
Change

2018

2017

%
Change

Income (loss) from operations

1,376

564

144%

2,965

209

1,319%

Depreciation

1,095

800

37%

3,465

2,613

33%

Gross margin

2,471

1,364

81%

6,430

2,822

128%

Gross margin %

38%

27%

41%

31%

30%

3%

FORWARD-LOOKING INFORMATION

Certain statements contained in this press release constitute forward-looking statements or forward-looking information (collectively, “forward-looking information”). Forward-looking information relates to future events or the Corporation’s future performance. All information other than statements of historical fact is forward-looking information. The use of any of the words “anticipate”, “plan”, “contemplate”, “continue”, “estimate”, “expect”, “intend”, “propose”, “might”, “may”, “will”, “could”, “believe”, “predict”, and “forecast” are intended to identify forward-looking information.

This press release contains forward-looking information pertaining to, among other things: the expectation that the Corporation’s drilling rig utilization in 2019 will be similar to 2018 ; the Corporation’s expectation that industry activity will remain challenged ; the Corporation’s strategic plan, including with respect to asset purchases and geographic diversification; the expectation that the Corporation’s strategic plans of acquiring assets at prices that are expected to provide a high rate of return for shareholders; the Corporation’s expectation regarding its positioning to capture new customer demand while maintaining its current customer base and the expectation of driving growth and building momentum with the drilling rig division

This forward-looking information involves material assumptions and known and unknown risks and uncertainties and other factors, certain of which are beyond the Corporation’s control, that may cause actual results or events to differ materially from those anticipated in such forward-looking information. This press release, the Corporation’s management’s discussion and analysis for the three and twelve month periods ended December 31, 2018, the Corporation’s annual information form for the year ended December 31, 2018 and other documents filed with securities regulatory authorities (accessible through the SEDAR website www.sedar.com) describe the risks, the material assumptions and other factors that could influence actual results, which include, among other things, anticipated financial performance; the implementation of the Corporation’s growth strategy; the ability to execute the Corporation’s 2018 capital program; business prospects; conditions in general economic and financial markets; industry conditions; current commodity prices and royalty regimes; regulatory developments; the impact of increasing competition; future exchange rates; the availability and cost of labour and services; the sufficiency of budgeted capital expenditures in carrying out planned activities; timing and amount of capital expenditures; the ability of the Corporation to renew existing contracts and enter into new contracts; utilization and pricing of the Corporation’s rigs,; supply and demand for oil and natural gas services relating to drilling and ancillary services; effects of regulation by governmental agencies; tax laws; future operating costs; and the ability to obtain financing on acceptable terms, which are subject to change based on, amongst other factors, commodity prices, market conditions and potential timing delays. Although management of the Corporation considers these assumptions to be reasonable based on information currently available to it, such assumptions may prove to be incorrect.  Actual results, performance or achievements could differ material from those expressed in, or implied by, forward-looking information and, accordingly, no assurance can be given that any of the events anticipated by the forward-looking information will transpire or occur, or if any of them do so, what benefits the Corporation will derive therefrom.

Statements, including forward-looking information, are made as of the date of this press release and the Corporation does not undertake any obligation to update or revise any forward-looking information, whether as a result of new information, future events or otherwise, except as may be required by applicable securities laws. The forward-looking information contained in this press release is expressly qualified by this cautionary statement.

Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.

SOURCE MATRRIX Energy Technologies Inc.

Lyle Whitmarsh, President & Chief Executive Officer, MATRRIX Energy Technologies Inc., Tel: (403) 984-5042Copyright CNW Group 2019

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