Newalta Corp (OTCPK:NWLTF) Q4 2017 Earnings Conference Call March 7, 2018 11:00 AM ET
Linda Dietsche - EVP and CFO
John Barkhouse - President and CEO
Raveel Afzaal - Canaccord Genuity
Good morning. My name is Aimee, and I will be your conference operator today. At this time, I would like to welcome everyone to the Newalta Corporation's Fourth Quarter and Year-End Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions]
I would now like to turn the call over to Linda Dietsche, Executive Vice President and Chief Financial Officer. Please go ahead.
Thank you, Aimee. Welcome to Newalta's conference call for the fourth quarter and year-end 2017. Joining me on the call, we have John Barkhouse, President and CEO.
During the call today, Newalta may make forward-looking statements related to expected future performance. Such statements are based on current views and assumptions and are subject to uncertainties, which are difficult to predict, including expected operating results, industry conditions, and the availability of financing alternatives, debt service and future capital needs.
Certain financial measures that do not have any standardized meaning prescribed by GAAP will be referred to during this presentation. These measures are identified and defined in Newalta's continuous disclosure documents. Please refer to our continuous disclosure documents as they identify factors which may cause actual results to differ materially from any forward-looking statements.
For the fourth quarter, results were within our guidance ranges, with Q4 revenue of $61.7 million and adjusted EBITDA of $11.6 million. Revenue for the quarter decreased by 3% compared to the prior year as gains in our Drill Site business were more than offset by a decline in production related waste volumes received at our Heavy Oil field facilities and contributions from Heavy Oil Onsite.
During the fourth quarter, we continued to see meaningful recovery in drilling and completion activity in the segments and basins we serve, translating into year-over-year improvement in US drill site utilization which was the primary driver of the 48% EBITDA improvement in the Oilfield division. Decreased waste volumes received at our heavy oilfield facilities and recovered crude oil volumes drove most of the 38% year-over-year EBITDA decline in heavy oil.
For the full year 2017, revenue improved 20% to $246.4 million and adjusted EBITDA more than doubled from $21.9 million to $44.6 million. The year-over-year improvements were largely driven by increased utilization in our drill site business and the 41% increase in drilling and production related waste volumes received at our oil field facilities. We continue to realize year-over-year improvements in G&A with the fourth quarter and full year savings of 10%. These savings demonstrate our continued focus and commitment to maintaining our cost structure even as we see activity levels improve.
Q1 full year 2018 outlook, as we’re looking towards first quarter of 2018, our guidance ranges are revenues of $50 million to $60 million and adjusted EBITDA of $10 million to $12 million. For the full year of 2018, we expect revenue to range between $235 million and $260 million and annual adjusted EBITDA between $50 million and $60 million.
Our guidance ranges remained unchanged in spite of an increased WTI forecast of $55 to $65 per barrel as widening differential are using WCF upside in heavy oil. At the midpoint of our 2018, full year adjusted EBITDA guidance range; this represents a 23% year-over-year improvement. Further, we expect to maintain G&A in line with 2017 levels.
Over the last few years, we have made significant progress towards our goal of improving balance sheet strength and financial flexibility through a proactive management of operating cash flows and cost rationalization initiative. In 2017, we made progress towards our near-term financial objective of being cash flow neutral by ending the year with a $14.1 million cash draw.
Moving into 2018, we will continue to maintain our focus on cash flow and exercise prudent judgment in managing our capital expenditures in alignment with our longer term target of positive cash flow.
I'll now hand it over to John to provide more color on the business environment and the near-term outlook.
Thanks, Linda. Overall, the fourth quarter of 2017 unfolded in line with expectations demonstrating a return to the normal seasonality observed during times of stable oil prices. On an annual basis, rig releases in the Western Canadian Sedimentary Basin were up 78% year-over-year. However during the fourth quarter, we observed a reduction of 16% versus Q3 of 2017. In spite of the decline in the quarter, we continue to sustain high utilization levels with a continuation of shift towards full service packages.
Oilfield facility Q4 waste volumes were flat with the first quarter of 2017, which aligns with our normal seasonality. With full year 2017 completions up 86% over the prior year, we observed the highest water disposal volume of the year in the fourth quarter.
Heavy Oil continued to see sporadic upset volumes with limited drilling of new well pairs or commissioned projects to increase base line volumes. WCS remained below $60 per barrel in the quarter, with widening differentials negating much of the recent strengthening of WTI. During the quarter we did observe an increasing customer seeking budgetary quotes for longer term projects.
As we look forward to 2018, we expect the continuance of normal seasonality with weather, completion of E&P capital budgets and normal holiday shutdowns to be factored. Oilfield facilities are anticipated to continue with sustain to increasing volumes in the areas of robust activity, improved WTI is being more than offset by the widening differentials impacting WCS primarily driven by constraint takeaway capacity.
In Heavy Oil continued SAGD volume softness is expected to persist as visibility to event based upset volumes and incremental well pair drilling is unclear. Overall, we continue to see the trends and normal seasonality aligned with our full year 2018 adjusted EBITDA guidance range of $50 million to $60 million.
On March 1, 2018, we announced that we've entered into an arrangement agreement with Tervita Corporation, which provides for the combination of Newalta and Tervita, enhancing our businesses and creating a leading publicly traded energy focused environmental solutions provider in Canada. We are pleased to announce this milestone transaction, which offers our shareholders a meaningful ownership position and a significantly large entity that is the premier Canadian energy environmental solutions provider.
Newalta shareholders will have the opportunity to participate and benefit in the success and growth of the combined business. Additionally, this transaction significantly improves our balance sheet and the synergies and growth opportunities provide significant potential value creation for Newalta shareholders.
We strongly believe this combination is the most attractive path forward for Newalta, and we have committed to making the merger and ensuing integration a success. Overall, I am very pleased with the execution of our core operating strategy, customer service and progress of our integrated solution selling model, leveraging the unique attributes of our assets. I would like to thank you.
And at this point, Linda and I would now be pleased to take your questions you might have.
[Operator Instructions] Your first question today comes from line of Raveel Afzaal. Your line is open.
Good morning, guys. Thank you so much for taking my questions. First of all on U.S. drilling, it seems like that businesses doing pretty well and I'm wondering with Tervita, do they have any complementary assets that you can deploy over they do continue to grow the drilling services business, because it seems like your assets are close to the optimum utilization rate already.
Yes, the answer is we -- and this is a complementary attribute of our business and their business. Our business is the one that contains all of the drill side assets. So, we have a full fleet of links 40s, which are fully deployed, we've supplemented that with much of our links 20 fleet. So, yes, we will be looking at other incremental assets that are idle, that are available. We are approaching pretty much a theoretical capacity of assets that we would have had for drill site.
It's been a great turn around year-over-year from 2016 to 2017. That business has really been a bright light in terms of our performance.
Right. And just so that I got this right, so that you will probably have to buy new assets and Tervita doesn't have these assets. So you'll probably have to buy new assets if you want to grow your drilling businesses significantly more compared to where it is right now?
That would be correct.
Okay, perfect. Thank you. And then when you guys start consolidating your facilities together, what's the process associated with that, are there some reclamation cost that you guys have to bear, what are the integration costs associated with such consolidation activity?
At this stage we're very early into that integration, Raveel. And so we're not fully prepared to discuss that today. However, the asset bases that we have are very complementary, which is one the main drivers behind putting the two companies together, that would be the first point.
And second, as we look at our asset base and we look at their asset base, these facilities have been really expertly maintained. And in fact Tervita’s history has been predominantly driven by greenfield development, which again just gives you even a stronger position in terms of whether there is any reclamation or remediation associated with facilities versus ours of course we've put together components of ours overtime from acquisitions.
So more to come in future months as we get further down the path, we're in the very early stages of integration planning.
Okay. One more question and then I'll hop back in the line. With respect to the MSP contract, can you just provide us with some more color on this contract that seems to have expired?
So, I believe you’re referring to -- in our results in 2016, we would have this improved contract in our results for 2017 we do not have this improved contract. We have been continuing to work at redeployment of those assets. And in fact we have many of those assets back to work, but not in what we would call a contracted structure that we would announce as a contract.
Generally speaking contracts under a year we don't talk to or we don't put in our kind of contracted section. But I am pleased to say that we are working on a project basis and those assets many of them have gone back to work.
Perfect, I’ll hop back in the queue.
[Operator instructions]. And at this time, there are no further questions in queue. I turn the call back over to Ms. Dietsche for any closing remarks.
Thank you, Aimee and thank you for being on the conference call today. A taped broadcast of the call will be available on Newalta's website. We look forward to providing you with an update on Newalta's performance after completion of the first quarter of 2018.
And this concludes today's conference call. You may now disconnect.