ACT Energy Technologies Reports Fourth Quarter, Record Annual 2024 Results, and CFO Transition
/NOT FOR DISSEMINATION IN THE UNITED STATES OF AMERICA/
CALGARY, AB, March 25, 2025 /CNW/ -
(TSX:ACX) ACT Energy Technologies Ltd, formerly Cathedral Energy Services Ltd., (the "Company" or "ACT") news release contains "forward-looking statements" within the meaning of applicable Canadian securities laws. For a full disclosure of forward-looking statements and the risks to which they are subject, see the "Forward-Looking Statements" section in this news release. This news release contains references to Adjusted gross margin, Adjusted gross margin %, Adjusted EBITDAS, Adjusted EBITDAS margin %, Free cash flow, Working capital and Net capital expenditures. These terms do not have standardized meanings prescribed under International Financial Reporting Standards as issued by the International Accounting Standards Board ("IFRS Accounting Standards") and may not be comparable to similar measures used by other companies. See the "Non-GAAP Measures" section in this news release for definitions and tabular calculations.
2024 KEY HIGHLIGHTS
The Company achieved the following 2024 results and highlights:
Revenues of $571.8 million in 2024, were the highest annual revenues in the Company's history and increased 5%, compared to $545.3 million in 2023.
Adjusted EBITDAS (1) of $93.8 million in 2024, also established a new corporate record, increasing 3%, compared to $90.9 million in 2023.
Record levels of revenues and Adjusted EBITDAS (1) achieved in 2024 despite a 9% decline in average levels of North American land drilling versus 2023 (i.e., Western Canada and United States ("U.S.") land rig counts (2)).
Canadian operating days increased 20% in 2024, compared to 2023, which was favourable in comparison to a 6% increase in the Western Canadian rig count (2). ACT remains highly active in oil plays where wells have a high multilateral count.
U.S. operating days decreased 10% in 2024, compared to 2023, which was slightly better than the 13% decline in the U.S. land rig count (2).
An increase in the Canadian average revenue per operating day of 3% in 2024, compared to 2023.
An increase in the U.S. average revenue per operating day of 8% in 2024, compared to 2023, owing to an increasing focus on the higher-value parts of the market such as the use of rotary steerable tools.
Net income of $57.9 million in 2024, compared to $10.6 million in 2023. The increase is mainly due to increased revenue and the recognition of previously unrecorded Canadian tax pools, resulting in a deferred income tax recovery of $10.2 million. Refer to the 'Income tax' section of this news release.
Cash flow - operating activities of $90.2 million in 2024, compared to $70.0 million in 2023.
Free cash flow (1) of $17.2 million in 2024, compared to Free cash flow (1) of $28.7 million in 2023.
The Company purchased 1,144,250 common shares of ACT under its Normal Course Issuer Bid ("NCIB") for a total amount of $7.0 million, at an average price of $6.08 per common share. Subsequent to December 31, 2024, the Company purchased 706,099 common shares for a total purchase amount of $4.3 million, at an average purchase price of $6.13 per common share.
Loans and borrowings less cash was $50.7 million as at December 31, 2024, compared to $67.9 million as at December 31, 2023. The Company will remain focused on reducing its loans and borrowings and generating Free cash flow (1) in 2025.
Subsequent to December 31, 2024, the Company amended and expanded its Credit Agreement with its syndicate co-lead by ATB Financial and Royal Bank of Canada. The amendment provided for an increased credit facility to approximately $124.3 million lending capacity, a lower interest rate, more flexible financial covenants, and an extended maturity date. In addition, the Company's term loans were converted to a revolving credit facility eliminating contracted debt repayments and providing the Company with additional flexibility. Refer to the 'Liquidity and capital resources' section of this news release for more details.
The Company continues to see a significant opportunity for margin expansion in its U.S. directional business by using Rime Downhole Technologies ("Rime") supplied Measurement-While-Drilling ("MWD") systems to reduce its third-party rental costs. To date, seventeen Rime MWD systems have been deployed with an additional thirty-three MWD systems expected to be deployed by the end of 2025 Q2. A substantial majority of the capital required to complete the build-out of these systems was spent as part of the 2024 capital plan, with minimal amounts required in 2025.
The Company purchased ten additional Rotary Steerable Systems ("RSS") Orbit tools, expanding its owned U.S. fleet to twenty-six RSS tools.
(1) As defined in the "Non-GAAP measures" section of this news release.(2) Per Baker Hughes and Rig Locator.
The Company achieved the following 2024 Q4 results and highlights:
Revenues of $128.1 million in 2024 Q4, compared to $145.4 million in 2023 Q4.
Adjusted EBITDAS (1) of $17.6 million in 2024 Q4, compared to $27.4 million in 2023 Q4.
U.S. operating days decreased 22% in 2024 Q4, compared to 2023 Q4.
Canadian operating days increased 2% in 2024 Q4, compared to 2023 Q4.
An increase in the U.S. average revenue per operating day of 1% in 2024 Q4, compared to 2023 Q4.
An increase in the Canadian average revenue per operating day of 5% in 2024 Q4, compared to 2023 Q4.
Net income of $14.9 million in 2024 Q4, compared to $1.8 million in 2023 Q4.
Cash flow - operating activities of $20.9 million in 2024 Q4, compared to $16.6 million in 2023 Q4.
Free cash flow (1) of $8.1 million in 2024 Q4, compared to Free cash flow (1) of $14.2 million in 2023 Q4 mainly due to changes in working capital.
Overall, the fourth quarter was impacted by the effects of customer consolidation in the U.S. and general effects of budget exhaustion on both sides of the border. Industry rig activity in the U.S. market continued to decline in the quarter and appears to have stabilized at levels which will continue at least into the first half of 2025. The dynamic around budget exhaustion in the fourth quarter is driven by exploration and production ("E&P") capital discipline and is a trend that is expected again in 2025, while being somewhat offset by increased activity in the second quarter as budgets are "level-loaded" in Canada. The decline in activity in the fourth quarter in Canada was also accompanied by the typical increase in repairs and maintenance late in the quarter as the Company prepared for the busy winter season.
(1) As defined in the "Non-GAAP measures" section of this news release.
PRESIDENT'S MESSAGE
To my fellow Shareholders:
"The year 2024 was a very active one for ACT, featuring both a name change and a share consolidation to better position the Company for an even brighter future in the North American directional drilling technology space. Fourth quarter results were weaker year-over-year and showed the impact of E&P client budget exhaustion on both sides of the border. Daily job counts started to decrease relatively early compared to historical trends in mid-November and did not begin ramping again until just before the new year. This temporary activity reduction is a product of capital discipline in the E&P sector and is likely a trend that will continue in the future. In addition, the Company's U.S. client mix started to see an impact of customer consolidation resulting in reduced field spending levels for certain of these impacted customers. The full year 2024 demonstrated excellent progress in many important areas including the achievement of record revenues and Adjusted EBITDAS (1). These records were attained against a market backdrop of volatile oil prices, low natural gas prices for most of the year and further declines in the U.S. land rig count.
"Beginning with Canada, the Company generated 24% growth in revenues for the full year 2024 versus 2023. Canadian revenues reached just under $200 million in 2024 as compared to $161.4 million in 2023. ACT's operating days grew approximately 20% over the course of the year against a backdrop of a much more modest 6% growth in the underlying Western Canadian active rig count (1). Driving these results is ACT's extensive experience combined with a leading technology offering suited for the growing number and depth of wells drilled in multi-lateral oil plays.
"In the U.S., the Company also outperformed the underlying market in 2024, achieving just under $372 million in U.S. revenues, a modest decline of 3% versus $383.9 million in 2023 amidst a backdrop of a decline in the U.S. land rig count of 13% in 2024 versus 2023 (1). A year-over-year decline in operating days of 10% was partially offset by an 8% increase in revenue per operating day as ACT continue to pursue the higher-value RSS market.
"As we move into 2025, we also have an opportunity for margin expansion as we commence the deployment of the Company's own MWD units developed by Rime (acquired in 2023). ACT is currently on target to complete the construction of fifty MWD systems by the end of the second quarter of 2025. The provision of an in-house MWD solution for ACT's clients is very important to strengthen the durability of the Company's cash flow, replacing rented third-party systems. The deployment of tools into an operating environment for ACT's customers will happen incrementally throughout 2025 and into 2026. We remain intently focused on ACT's customer execution and service delivery, supporting ACT's market positioning as a strong technology performer.
"ACT's business focus remains consistent, we are committed to delivering ultra-high-performance directional drilling and related down-hole services, leveraging ACT's proprietary technologies and experienced team. This focus will allow us to deliver value to our shareholders through the cycles. To maximize returns, we expect to allocate capital as follows:
Expand margins: utilize selective capital investment, primarily related to RSS and MWD, replacing rental equipment with optimized solutions.
Return of capital: repurchase of shares through the Company's NCIB.
Further strengthen the Company's financial position: Although the Company's debt remains low, further modest reduction of debt will allow for business resiliency through the cycles allowing the Company to counter-cyclical with respect to long-term investment decisions.
"By having each of this diverse approach to capital allocation, we believe we will create a durable business model, focused on ensuring an effective use of capital.
"Lastly, I believe that our people remain our strongest asset, we continue to thank them for their contribution, support, and dedication as we deliver value for our Shareholders," stated Tom Connors, ACT President and Chief Executive Officer.
(1) As defined in the "Non-GAAP measures" section of this news release.
CHIEF FINANCIAL OFFICER APPOINTMENT AND TRANSITION
The Company announced that, effective April 1, 2025, Mr. Robert Skilnick will be appointed as Chief Financial Officer ("CFO") of ACT, replacing Scott MacFarlane who has been serving as Interim CFO.
Mr. Skilnick brings extensive experience as a CFO in the TSX-listed energy services sector, with a strong background in drilling and completions businesses. He holds a Bachelor of Commerce degree from the University of Saskatchewan and is a member of the Chartered Professional Accountants of Alberta and Canada.
Mr. Tom Connors said "On behalf of the entire Company, I would like to sincerely thank Scott MacFarlane for his service, professionalism, and dedication. Scott has been a stalwart leader who has helped guide the organization with a steady hand through significant change. Scott's contribution to ACT simply cannot be overstated, and we deeply appreciate his effort, commitment, and significant impact on the organization. We are pleased that Scott will continue to support the business on a part-time consulting basis, ensuring a smooth transition."
On the appointment of Mr. Skilnick, Mr. Connors added, "I've known Rob for many years and we're certainly excited to have someone with his experience, credibility, and track record join our team. His extensive and successful track record as a public-company CFO in the Canadian energy services sector, combined with his strong leadership skills, will complement and strengthen our team. I look forward to working with him in this next phase of our business."
FINANCIAL HIGHLIGHTS
Canadian dollars in 000's except for per share amounts
Three months ended December 31,
Year ended December 31,
2024
2023
2024
2023
Revenues
$ 128,083
$ 145,419
$ 571,785
$ 545,297
Gross margin %
17 %
20 %
21 %
19 %
Adjusted gross margin % (1)
22 %
29 %
27 %
27 %
Adjusted EBITDAS (1)
$ 17,582
$ 27,369
$ 93,805
$ 90,884
Per share - basic (2)
$ 0.50
$ 0.79
$ 2.70
$ 2.68
Per share - diluted (2)
$ 0.45
$ 0.72
$ 2.44
$ 2.52
Adjusted EBITDAS margin % (1)
14 %
19 %
16 %
17 %
Net income
$ 14,892
$ 1,767
$ 57,907
$ 10,628
Per share - basic (2)
$ 0.43
$ 0.05
$ 1.67
$ 0.31
Per share - diluted (2)
$ 0.38
$ 0.05
$ 1.51
$ 0.29
Cash flow - operating activities
$ 20,934
$ 16,589
$ 90,177
$ 69,984
Free cash flow (1)
$ 8,065
$ 14,205
$ 17,172
$ 28,710
Weighted average common shares
outstanding:
Basic (000s) (2)
35,027
34,610
34,705
33,938
Diluted (000s) (2)
38,800
38,263
38,468
36,086
Balance,
December 31,2024
December 31,2023
Working capital, excluding current portion of loans and borrowings (1)
$ 84,417
$ 74,865
Total assets
$ 472,881
$ 403,733
Loans and borrowings
$ 63,527
$ 78,598
Shareholders' equity
$ 241,580
$ 179,468
(1) Refer to the 'Non-GAAP Measures' section in this news release.
(2) Restated to reflect the 7:1 share consolidation on July 3, 2024. Refer to the 'Share Consolidation' section in this news release.
OUTLOOK
Despite the recent uncertainty introduced into global markets related to proposed U.S. trade policy revisions, the longer-term outlook for North American energy-related activity is positive and global demand continues to rise while geopolitical events continue to increase uncertainty around supply. In Canada, the commissioning of the Trans Mountain pipeline expansion in May 2024, followed by Liquified Natural Gas ("LNG") Canada anticipated in 2025, will provide significant tidewater and global market access for both Canadian crude and natural gas. Both projects should translate to more consistent and slightly improved activity levels for oilfield service providers over time. LNG also represents a significant area of growth for the U.S. market as upwards of 11 billion cubic feet per day of export capacity will be added from 2025 to 2028 supporting incremental growth in drilling activity and less volatility in activity related to the cyclicality of domestic gas prices. The potential growth in energy demand related to the evolving market for artificial intelligence data centers is also a developing trend that could further support natural gas related drilling activity.
With a strong start and peak job count in Canada near 65 jobs in the first quarter, activity for the year is currently expected to be similar to 2024. If uncertainty or increased costs due to trade policy persist, some potential for downside risk exists but is expected to be somewhat offset by a weaker Canadian dollar benefiting ACT's customers. With ACT's industry leading position in multi-lateral drilling, the compelling economics of multi-lateral wells is expected to support continued activity through the summer despite potential headwinds related to weaker commodity prices or market uncertainties. In recent years, the Company also has experienced improving activity levels in the traditionally slow second quarter as ACT's customers level-load their drilling programs and utilize more pad-style drilling. The Company expects to see this trend continue with modestly improved activity levels again this year over last year through the second quarter. Similar to the fourth quarter of 2024, the Company also anticipates that operator discipline will remain a factor and likely result in some degree of budget exhaustion and a potential decline in activity in the fourth quarter of this year.
In the U.S. the Company was operating in a range of 50 to 60 jobs in the first half of 2024 reducing to a range between 40 and 50 in the back half of the year. Job counts in 2025 are anticipated to continue at the same levels as those in the second half of as drilling activity remains somewhat constrained because of customer consolidation and concern over commodity price volatility. Current market conditions are likely to be short-term in nature as some optimism exists in the longer term with improving gas prices and the commencement of new Gulf Coast LNG in 2025, which may support some increase in incremental rig activity later this year or into 2026.
While unpredictable on a quarterly basis, reimbursements positively affecting Adjusted EBITDAS (1) for equipment lost-in-hole and damaged beyond repair (commonly referred to as net lost-in-hole equipment reimbursements) have historically been achieved at relatively consistent levels as a percentage of revenue over the past decade. However, during the first quarter of 2025, the Company has been experiencing an unusually low rate of net lost-in-hole equipment reimbursements, by comparison 2024 Q1 experienced an unusually high level of net lost-in-hole equipment reimbursements (2024 Q1 - $10.6 million).
While the Company feels reasonably positioned to navigate a relatively flat macroeconomic environment in North America and feels positive about the potential upside related to the deployment of ACT's own technology in the U.S. market, the Company remains cautious on the impact of tariffs and are evaluating the potential impact on ACT's business. Given ACT's supply chains are generally resident in each nation and 65% to 70% of ACT's revenues are U.S. based, the Company expects the impact will be somewhat limited but there may be certain elements of ACT's supply chain that will increase in cost. While tariffs and their potential impact may persist or prove to be short-term in nature, the underlying risk is the negative impact on the investment climate and overall consumer sentiment.
(1) Refer to the 'Non-GAAP Measures' section in this news release.
RESULTS OF OPERATIONS
Three months ended December 31,
Year ended December 31,
2024
2023
2024
2023
Revenues
United States
$ 79,300
$ 100,106
$ 371,879
$ 383,904
Canada
48,783
45,313
199,906
161,393
Total revenues
128,083
145,419
571,785
545,297
Cost of sales
Direct costs
(99,676)
(104,216)
(418,399)
(398,031)
Depreciation and amortization
(6,677)
(11,171)
(30,924)
(41,019)
Share-based compensation
(145)
(249)
(610)
(918)
Cost of sales
(106,498)
(115,636)
(449,933)
(439,968)
Gross margin
$ 21,585
$ 29,783
$ 121,852
$ 105,329
Gross margin %
17 %
20 %
21 %
19 %
Adjusted gross margin % (1)
22 %
29 %
27 %
27 %
SEGMENTED INFORMATION
United States
Revenues
U.S. revenues were $79.3 million in the three months ended December 31, 2024, a decrease of $20.8 million or 21%, compared to $100.1 million for the same period in 2023. The Company realized a 22% decrease in operating days in the three months ended December 31, 2024 (2024 - 2,841 days; 2023 - 3,625 days). The decrease in operating days was due to a declining U.S. market in the three months ended December 31, 2024. The average revenue per operating day increased 1% in the three months ended December 31, 2024 (2024 - $27,913 per day; 2023 - $27,615 per day).
U.S. revenues were $371.9 million in 2024, a decrease of $12.0 million or 3%, compared to $383.9 million in 2023. The Company realized a 10% decrease in operating days (2024 - 13,337 days; 2023 - 14,858 days). The decrease is mainly related to a declining U.S. market in 2024. The average revenue per operating day increased 8% in 2024 (2024 - $27,883 per day; 2023 - $25,838 per day), mainly due to a change in job mix.
Direct costs
U.S. direct costs included in cost of sales were $62.7 million in the three months ended December 31, 2024, a decrease of $11.5 million or 15%, compared to $74.2 million for the same period in 2023. The decrease is mainly due to lower MWD third-party rental costs, mainly as a result of the Rime MWD build-out, in addition to lower labour and repair costs related to lower activity in 2024. As a percentage of revenues, direct costs increased to 79% in the three months ended December 31, 2024, compared to 74% for the same period in 2023, mainly due to higher labour and repair costs as a percentage of revenues, offset by lower third-party MWD rental costs as a percentage of revenues.
U.S. direct costs included in cost of sales were $284.0 million in 2024, a decrease of $6.4 million or 2%, compared to $290.4 million in 2023. The decrease is mainly due to lower labour due to lower activity and third-party rental costs mainly as a result of the Rime MWD build-out. The decrease was offset by higher repair and manufacturing costs. The manufacturing costs are attributable to the Rime acquisition (acquired in July 2023). As a percentage of revenues, direct costs were 76% in 2024 and 2023, mainly as a result of higher repair costs as a percentage of revenues, offset by lower third-party MWD rental costs as a percentage of revenues.
(1) Refer to the 'Non-GAAP Measures' section in this news release.
Canadian
Revenues
Canadian revenues were $48.8 million in the three months ended December 31, 2024, an increase of $3.5 million or 8%, compared to $45.3 million for the same period in 2023. The Company realized a 2% increase in operating days in the three months ended December 31, 2024 (2024 - 3,471 days; 2023 - 3,389 days). The increase in operating days is mainly attributable to higher market demand in the three months ended December 31, 2024. The average revenue per operating day increased 5% in the three months ended December 31, 2024 (2024 - $14,054 per day; 2023 - $13,371 per day). The increase in the average revenue per operating day is mainly attributed to higher proceeds from lost-in-hole reimbursements from customers and a change in job mix.
Canadian revenues were $199.9 million in 2024, an increase of $38.5 million or 24%, compared to $161.4 million in 2023. The Company realized a 20% increase in operating days in 2024 (2024 - 14,502 days; 2023 - 12,098 days). The increase in operating days is mainly attributable to higher market demand in 2024. The average revenue per operating day increased 3% (2024 - $13,785 per day; 2023 - $13,341 per day). The increase in the average revenue per operating day is mainly attributed to higher proceeds from lost-in-hole reimbursements from customers and a change in job mix.
Direct costs
Canadian direct costs included in cost of sales were $37.0 million in the three months ended December 31, 2024, an increase of $6.9 million or 23%, compared to $30.1 million for the same period in 2023. The increase is mainly due to higher labour and repair costs in the three months ended December 31, 2024. As a percentage of revenues, direct costs were 76% in the three months ended December 31, 2024, compared to 66% for the same period in 2023 mainly due to higher repair and third-party rental costs as a percentage of revenues.
Canadian direct costs included in cost of sales were $134.4 million in 2024, an increase of $26.8 million or 25%, compared to $107.6 million in 2023. The increase is mainly due to higher labour and repair costs in 2024. As a percentage of revenues, direct costs were 67% in 2024 and 2023.
CONSOLIDATED
Revenues
The Company recognized $128.1 million of revenues in the three months ended December 31, 2024, a decrease of $17.3 million or 12%, compared to $145.4 million for the same period in 2023. The decrease is due to a 10% decrease in operating days (2024 - 6,312 days; 2023 - 7,014 days), and a decrease of 2% in the average revenue per operating day (2024 - $20,292 per day; 2023 - $20,733 per day).
The Company recognized $571.8 million of revenues in 2024, an increase of $26.5 million or 5%, compared to $545.3 million in 2023. The increase is due to a 3% increase in operating days (2024 - 27,839 days; 2023 - 26,956 days) and an increase of 2% in the average revenue per operating day (2024 - $20,539 per day; 2023 - $20,229 per day).
Direct costs
The Company recognized $99.7 million of direct costs in the three months ended December 31, 2024, a decrease of $4.5 million or 4%, compared to $104.2 million for the same period in 2023. The decrease is mainly due to lower labour costs related to the decrease in operating days, and lower third-party MWD rental costs mainly related to the Rime MWD build-out.
The Company recognized $418.4 million of direct costs in 2024, an increase of $20.4 million or 5%, compared to $398.0 million in 2023. The increase is mainly due to higher repair and labour costs related to the increase in operating days, and the inclusion of manufacturing costs related to Rime (acquired in July 2023), offset by lower third-party MWD rental costs.
Direct costs as a percentage of revenues increased to 78% in the three months ended December 31, 2024, compared to 72% for the same period in 2023, mainly due to higher labour and repair costs as a percentage of revenues. Direct costs as a percentage of revenue were 73% in 2024 and 2023, as a result of higher repair costs as a percentage of revenues, offset by lower third-party MWD rental costs as a percentage of revenues.
Gross margin and adjusted gross margin
The Gross margin % decreased to 17% in the three months ended December 31, 2024, compared to 20% for the same period in 2023. The Gross margin % increased to 21% in 2024, compared to 19% in 2023.
The Adjusted gross margin % decreased to 22% in the three months ended December 31, 2024, compared to 29% for the same period in 2023. The Adjusted gross margin % was 27% in 2024 and 2023. The Company remains focused on reducing third-party MWD and motor rental costs by investing capital to build out its MWD and motor fleet.
Depreciation and amortization expense
Depreciation and amortization expense included in cost of sales decreased to $6.7 million ...
