News Releases

TSX Trading Symbol: NAL

CALGARY, Nov. 9, 2016 /CNW/ - Newalta Corporation ("Newalta") (TSX:NAL) today reported results for the three and nine months ended September 30, 2016.

FINANCIAL HIGHLIGHTS⁽¹⁾

MANAGEMENT COMMENTARY

"Third quarter results continued the 2016 trend of sequential quarter over quarter improvement in Adjusted EBITDA, reflecting the alignment of our cost basis to the activity levels in the areas we serve," said John Barkhouse, President and Chief Executive Officer. "We are seeing our efforts to reduce costs flow through to the bottom line. Further, improving stability in oil pricing is translating into gradual improvements in activity."

"Heavier than normal rainfall in the quarter, and a lagging recovery that continued to impact drilling and production volumes  contributed to results coming in at the lower end of our previous guidance. As such, we have applied our Interest Coverage covenant waiver for the third quarter, as allowed for in our credit facility. In addition, through discussions with and support from our syndicate of lenders, we determined it was best to be proactive and obtain a Q4 2016 Interest Coverage covenant waiver as a precautionary measure. The waiver removes uncertainty from the fourth quarter for our various stakeholders, including our customers, employees, bondholders and shareholders, and sets the stage for execution of our business plan in 2017.

"As previously indicated, we continue to see the second half of 2016 demonstrating substantially stronger performance than in the first half, supported by a number of factors. Stabilizing commodity prices and a slow but steady increase in production waste volumes flowing into our facilities, combined with targeted improvements in our drill site business and the impact of our ongoing focus on cost management, continue to underpin our outlook for Q4 2016 as well as for 2017.

"Looking forward to 2017, we anticipate annual Adjusted EBITDA of between $40 million and $55 million, based on a WTI forecast of $45 to $60 per barrel. Our guidance is underpinned by the assumption that relative oil price stability will result in improved activity levels. In 2017, given the actions we have taken to manage our operating cash flows, we expect to be within a range of cash flow neutrality for the year.

"We remain well positioned to unlock operating leverage as the markets we serve gradually recover."

THIRD QUARTER AND YEAR-TO-DATE RESULTS HIGHLIGHTS

• Q3 revenue decreased 39% to $51.3 million compared to prior year. Approximately half of the decline was attributable to Heavy Oil Onsite services, with the remaining balance due to Oilfield. Heavier than normal rainfall in the quarter led to road bans and weight restrictions in areas we serve in the Western Canadian Sedimentary Basin ("WCSB"), which were contributing factors in the decline in Oilfield revenue.
• Year-to-date revenue decreased 46% to $141.7 million from $262.9 million in the prior year. The decline was driven by reduced waste production volumes and drilling activity in Oilfield, and a decline in mining contributions in Heavy Oil Onsite.
• Net loss in the quarter was $20.3 million compared to prior year of $12.7 million. The increase in net loss was primarily driven by the net impact of the decline in revenue year-over-year and the corresponding reduction in operating expense. Reduced impairment, gain on embedded derivative, savings in G&A from our rationalization initiatives and lower restructuring charges were partially offset by increased stock-based compensation expense and finance charges recognized in the quarter.
• Year-to-date net loss was $83.1 million compared to $49.3 million in the prior year, driven by the same factors as the quarter.
• Adjusted EBITDA for the quarter was $8.1 million compared to $20.1 million in the prior year. The decline was driven by a decline in Divisional EBITDA of $15.2 million, partially offset by G&A savings of $3.2 million.
• Year-to-date Adjusted EBITDA was $10.4 million, down $38.1 million over prior year, driven by a decline in Divisional EBITDA of $49.5 million partially offset by G&A savings of $11.4 million.
• Performance throughout the first three quarters of 2016 continued to be impacted by significantly reduced drilling and completions activity and declining production waste volumes in the areas we operate. Factors at play throughout the latter half of 2015 continued into 2016, with producers shutting in wells, minimizing maintenance activities, and deferring projects and capital spending.
• In the quarter, $9.2 million of the $12.0 million year-over-year decline in Adjusted EBITDA was driven by reduced contributions from mining and MFT projects, partially offset by contributions from growth capital. The balance of the decline was primarily a result of a $5.7 million or 24% decline in production waste volumes received at our facilities over prior year, which was largely offset by cost savings realized in the quarter.
• Year-to-date, production-driven waste volumes declined by 21% or $26.1 million at our Heavy Oil and Oilfield facilities compared to prior year. The remainder of the $38.1 million decline in Adjusted EBITDA was primarily driven by reduced contributions from MFT projects and the decline in drilling activity, partially offset by cost savings realized.
• Our contract model continued to provide steady, predictable cash flow. These contracts generally are not tied directly to commodity price changes or drilling activity and provide a solid foundation for our business, particularly in depressed markets. On a trailing-twelve month ("TTM") basis, contracts represented 24% of our revenue.
• We have taken the following recent actions to protect profitability and our balance sheet:
  • During the first three quarters of 2016, we completed cost rationalization actions which will drive $21 million in annualized Adjusted EBITDA savings ($15 million in 2016) by eliminating approximately 90 positions across G&A and operations and further consolidating office space. These actions, combined with our 2015 initiatives, have driven approximately $60 million in annualized savings over 2014 levels.
  • We exercised an option pursuant to our Credit Facility to waive the minimum Interest Coverage covenant threshold for the third quarter of 2016.
  • Effective October 31, 2016 we amended our Credit Facility to include a waiver on our Interest Coverage covenant for the fourth quarter of 2016 and reduce the principal borrowing amount by $10 million to $150 million. Management sought the one-time waiver as a precautionary measure given the lack of good visibility to oil prices and activity levels in the near term. The waiver was granted as a result of our strong working relationship with our lenders.
• Heavy Oil third quarter revenue and net earnings before taxes decreased by 48% and 94% respectively, to $21.1 million and $0.6 million compared to prior year. Divisional EBITDA declined 56% over prior year to $8.0 million. These decreases were primarily driven by the Syncrude MFT contract, which remained inactive in the third quarter and is now actively being demobilized.
• Oilfield third quarter revenue and net loss before taxes decreased by 30% and 67%, respectively, to $30.2 million and a loss of $0.6 million compared to prior year. Divisional EBITDA decreased by 41% over prior year, to $6.8 million. Performance was driven by lower contributions from both the Oilfield Facilities and Drilling Services business units, primarily due to reduced production waste volumes and drilling activity. Activity in the areas we serve within the WCSB was impacted by road bans and weight restrictions due to higher-than-normal levels of rainfall during the quarter.
• For the three and nine months ended September 30, 2016, G&A decreased 32% and 33% to $6.8 million and $23.4 million, respectively. The year-over-year improvement reflects the impact of our cost rationalization initiatives.
• Restructuring and other related costs were $0.2 million in the third quarter, comprised of $0.4 million employee termination and other costs partially offset by non-cash onerous contracts recovery. Year-to-date, $24.4 million in restructuring and other related costs were comprised of non-cash onerous contracts ($16.6 million) and employee termination and other costs ($7.8 million).
• Capital expenditures for the three and nine months ended September 30, 2016 were $3.8 million and $7.8 million.

The following section contains forward-looking information as it outlines our Outlook for 2016 and 2017. Our Outlook is based on several key assumptions including growth capital contributions, commodity prices and activity levels of the industries we serve. Changes to these assumptions could cause our actual results to differ materially. Please refer to our Forward-Looking Information later in this document.

OUTLOOK

Our performance in 2016 has been significantly impacted by the drop in oil prices and activity levels in the oil and gas industry. Our view is that recovery, in the form of increased activity (whether drilling, completions or production), will be driven by stability in oil and gas prices, which will enable our customers to make capital decisions to invest in the drilling and completions of new wells and bring back shut-in wells.

Given results in Q3 coming in on the lower end of our previous guidance range, and with limited visibility to this lagging recovery, we've tightened our outlook for the year.

We expect performance in the fourth quarter to be stronger than Q3 2016 predicated on:

• slow but steady improvement in production waste volumes flowing into our Heavy Oil and Oilfield facilities;
• targeted improvement in performance within our drill site business; and
• the impact of management's ongoing focus on cost management.

Our 2016 guidance ranges are:

• Revenue of $40 million to $55 million for the fourth quarter of 2016 and $180 million to $195 million for the full year; and
• Adjusted EBITDA of $8.5 million to $11.5 million for the fourth quarter of 2016 and $19 million to $22 million for the full year.

The following table outlines the factors we expect to impact Adjusted EBITDA performance in the fourth quarter.

We will continue to manage cash flows to ensure our financing obligations are met and spending is minimized wherever possible. Tied to our Adjusted EBITDA guidance and its underlying assumptions, we anticipate being cash flow negative for the fourth quarter of 2016 after the impact of working capital changes and cash costs for severance, onerous lease payments, financing costs, tax and capital expenditures.

2017 Outlook
Looking forward to 2017, we anticipate our annual revenue to range between $200 million to $275 million and annual Adjusted EBITDA between $40 million to $55 million, based on a WTI forecast of $45 to $60 US$/bbl. Further, we expect our G&A to approximate an average of $7.5 million per quarter. Our guidance is underpinned by the assumption that relative oil price stability will result in improved activity levels.

Over the last two years, management has focused on moving towards a positive cash flow model. We have made significant progress in moving towards this target through proactive management of operating cash flows and cost rationalization initiatives. In 2017, we will maintain our focus on this target and expect to be within a range of cash flow neutrality for the year, subject to opportunities that may arise. Management will exercise prudent judgment in managing our capital expenditures for the year, aligned with our longer-term cash flow target.

Management's Discussion and Analysis and Financial Statements
The unaudited condensed consolidated financial statements and MD&A, which contain additional notes and disclosures, are available on SEDAR at www.sedar.com or our website at www.newalta.com under Investor Relations/Financial Reports.

Quarterly Conference Call

Management will hold a conference call on November 10, 2016 at 11:00 a.m. (ET) to discuss Newalta's performance for the quarter. To participate in the teleconference, please call 647-427-7450 or toll free 1-888-231-8191. To access the simultaneous webcast, please visit www.newalta.com. For those unable to listen to the live call, a taped broadcast will be available at www.newalta.com and, until midnight on Thursday, November 17, 2016 by dialing 855-859-2056 and using the pass code 2019876.

About Newalta

Newalta is a leading provider of innovative engineered environmental solutions that enable customers to reduce disposal, enhance recycling and recover valuable resources from oil and gas exploration and production waste streams. We simplify the critical challenges of sustainable environmental practices through the use of advanced processing capabilities deployed through a differentiated business model. We serve customers onsite directly at their operations and through a network of locations throughout North America. Our proven processes and excellent record of safety make us the first-choice provider of sustainability-enhancing services for oil and gas customers. With a highly skilled team of people, a two-decade track record of innovation and a commitment to commercializing new solutions, Newalta is positioned for sustained future growth and improvement. We are Sustainability Simplified^TM. Newalta trades on the TSX as NAL. For more information, visit www.newalta.com.

The press release contains certain statements that constitute forward-looking information.  Please refer to the section below, "Forward-Looking Information", for further discussion of assumptions and risks relating to this forward looking information.

This press release contains references to certain financial measures, including some that do not have any standardized meaning prescribed by GAAP and are therefore unlikely to be comparable to similar measures presented by other issuers. Non-GAAP financial measures are identified and defined in our MD&A.

FORWARD-LOOKING INFORMATION

Certain statements contained in this document constitute "forward-looking information" as defined under applicable securities laws.  When used in this document, the words "may", "would", "could", "will", "intend", "plan", "anticipate", "believe", "estimate", "expect", "potential", "strategy", "target" and similar expressions, as they relate to Newalta Corporation and the subsidiaries of Newalta Corporation, or their management, are intended to identify forward-looking information.  In particular, forward-looking information included or incorporated by reference in this document includes information with respect to:

• future operating and financial results;
• business prospects and strategy including related timelines;
• capital expenditure programs and other expenditures;
• realization of anticipated benefits from the sale of the Industrial Division including the ability to reinvest the net proceeds of disposition in a timely and efficient manner;
• realization of anticipated benefits of growth capital investments, acquisitions, divestitures and our innovation and process development initiatives;
• realization of anticipated benefits from the implementation of cost rationalization initiatives including the anticipated value and sustainability of the cash savings from such initiatives;
• anticipated industry activity levels;
• anticipated commodity prices;
• expected demand for our services;
• expected expansion opportunities for our business;
• the amount of dividends declared or payable in the future;
• our projected cost structure; and
• expectations and implications of changes in legislation.

Expected future financial and operating performance and related assumptions are set out under "Outlook". 

Such information reflects our current views with respect to future events and are subject to certain risks, uncertainties and assumptions, including, without limitation:

• strength of the oil and gas industry, including drilling activity;
• general market conditions;
• fluctuations in commodity prices for oil and the price we receive for our recovered oil;
• fluctuations in interest rates and exchange rates;
• financial covenants in our debt agreements that may restrict our ability to engage in transactions or to obtain additional financing;
• success of our growth, acquisition and innovation and process development strategies including integration of businesses and processes into our operations and potential liabilities from acquisitions;
• our ability to secure future capital to support and develop our business, including the issuance of additional common shares;
• the highly regulated nature of the environmental services and waste management business in which we operate;
• dependence on our senior management team and other operations management personnel with waste industry experience;
• the competitive environment of our industry in Canada and the U.S.;
• possible volatility of the price of, and the market for, our common shares, and potential dilution for shareholders in the event of a sale of additional shares;
• potential operational and safety risks and hazards, obtaining insurance for such risks and hazards on reasonable financial terms and potential failure of meeting customer safety standards;
• the seasonal nature of our operations;
• risk of pending and future legal proceedings;
• risk to our reputation;
• our ability to attract, retain and integrate skilled employees;
• open access for new industry entrants and the general unprotected nature of technology used in the waste industry;
• costs associated with operating our landfills; and
• such other risks or factors described from time to time in reports we file with securities regulatory authorities.

By its nature, forward-looking information involves numerous assumptions, known and unknown risks and uncertainties, both general and specific, that contribute to the possibility that the predictions, forecasts, projections and other forward-looking information will not occur.  Many other factors could also cause actual results, performance or achievements to be materially different from any future results, performance or achievements that may be expressed or implied by such forward-looking information and readers are cautioned that the foregoing list of factors is not exhaustive.  Should one or more of these risks or uncertainties materialize, or should assumptions underlying the forward-looking information prove incorrect, actual results may vary materially from those described herein as intended, planned, anticipated, believed, estimated or expected.  Furthermore, the forward-looking information contained in this document is made as of the date of this document and, in each case, is expressly qualified by this cautionary statement.  Unless otherwise required by law, we do not intend, or assume any obligation, to update any such forward-looking information.

SOURCE Newalta Corporation