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Whole Power Companies Inc. ( ?????? : TOT) This autumn 2021 earnings name dated Mar. 11, 2022
Company Contributors:
Daniel Halyk — President & Chief Govt Officer
Yuliya Gorbach — Vice President, Finance and Chief Monetary Officer
Analysts:
Ernest Wong — Baskin Wealth — Analyst
Patrick Tang — ATB Capital Markets — Analyst
Presentation:
Operator
Thanks for standing by. That is the convention operator. Welcome to the Whole Power’s Fourth Quarter and Yr-end Outcomes Convention Name.
[Operator Instructions] The convention is being recorded [Operator Instructions] I’d now like to show the convention over to Daniel Halyk, President and CEO of Whole Power Companies, Inc. Please go forward.
Daniel Halyk — President & Chief Govt Officer
Thanks. Good morning, and welcome to Whole Power Companies Fourth Quarter 2021 Convention Name. Current with me is Yuliya Gorbach, Whole’s VP, Finance and CFO. We’ll assessment with you Whole’s monetary and working highlights for the three months ended December 31, 2021, after which present an outlook for our enterprise. We’ll then open up the cellphone strains for any questions. Yuliya, please proceed.
Yuliya Gorbach — Vice President, Finance and Chief Monetary Officer
Thanks, Dan. In the course of the course of this convention name, data could also be offered containing forward-looking data regarding Whole’s projected working outcomes, anticipated capital expenditure traits and projected exercise within the oil and fuel business. Precise occasions or outcomes could differ materially from these mirrored in Whole’s forward-looking statements resulting from quite a lot of dangers, uncertainties and different elements affecting Whole’s companies and the oil and fuel business basically. These dangers, uncertainties and different elements are described below the heading Danger Elements and elsewhere in Whole’s most not too long ago filed annual data kind and different paperwork filed with Canadian provincial securities authorities which might be obtainable to the general public at www.sedar.com.
Our discussions throughout this convention name are certified as regards to notes to the monetary highlights contained within the information launch issued yesterday. Until in any other case indicated, all monetary data on this convention name is introduced in Canadian {dollars}.
Whole Power’s monetary outcomes for the three months ended December 31, 2021, replicate enhancing business situations, primarily in North America as in comparison with the fourth quarter of 2020. Increased North American exercise and the reactivation of two drilling rigs in Australia contributed to a major year-over-year enchancment in Whole’s fourth quarter monetary outcomes and the return to profitability with fourth quarter web revenue of CAD1 million as in comparison with a web lack of CAD1.7 million in 2020.
Fourth quarter consolidated EBITDA elevated 15% from CAD19.5 million in This autumn 2020 to CAD22.6 million within the fourth quarter of 2021. Excluding COVID-19 aid funds, fourth quarter EBITDA elevated 103% on a year-over-year foundation.
Whole geographical diversification continued to be a stabilizing issue for our monetary efficiency. Geographically, a major improve in North American business exercise from the historic lows skilled through the second quarter of 2020 resulted in North America contributing 81% of consolidated income in 2021 as in comparison with 72% in 2020.
By enterprise phase, Compression and Course of Companies generated 37% of 2021 fourth quarter consolidated income, adopted by contract drilling providers at 36%, nicely servicing at 19% and rental and transportation providers contributing 8%. This compares to This autumn of 2020 when the CPS phase contributed 39% of consolidated income; Contract Drilling Companies, 28%; nicely servicing, 24%; and the RTS phase, 8%.
Whereas fourth quarter 2021 consolidated income elevated 61% as in comparison with This autumn 2020, EBITDA elevated by 91% after adjusting to exclude COVID-19 aid funds and unrealized international change losses on translation of intercompany working capital balances, leading to an adjusted quarterly EBITDA margin of 16% as in comparison with 14% within the fourth quarter of 2020.
The CAD1.4 million of COVID-19 aid funds recorded within the fourth quarter of 2021, decreased price of providers by CAD1.3 million and SG&A by CAD0.1 million. This compares to CAD9.1 million of COVID-19 aid funds in This autumn of 2020, which decreased price of providers by CAD8 million and SG&A by CAD1.1 million.
Consolidated fourth quarter gross margin, excluding COVID-19 funds was 2 share factors increased as in comparison with 2020. This was primarily to modest worth will increase in North America, essential to offset rising labor and materials prices. Excluding COVID-19 aid fund, gross margin as a share of income improved to 22% for the fourth quarter of 2021 as in comparison with 20% in This autumn of 2020.
Promoting, basic and administration bills for the fourth quarter of 2021 elevated by CAD3.1 million or 59% in comparison with This autumn of 2020 as worker compensation was reinstated to pre-Covid ranges and the contribution of COVID-19 funds decreased by CAD1 million or 91% as in comparison with prior yr comparable quarter.
The development in North American drilling exercise and the reactivation of two drilling rigs contributed to a 93% improve in Whole working drilling days in Whole’s CDS phase, which resulted in a 108% improve in consolidated drilling utilization through the fourth quarter of 2021 as in comparison with the prior yr, an 8% improve in income per working day.
Adjustments in geographic income combine and excessive actions resulted in a 109% year-over-year improve within the fourth quarter CDS phase income. Fourth quarter CDS phase EBITDA elevated 102% in comparison with 2020 because of excessive actions and adjustments within the combine of apparatus working in North America.
A rise in Canadian drilling exercise resulted in an 80% improve within the fourth quarter working days in Canada in comparison with 2020 and 116% improve in CDS’ Canadian income. Enhancing business situations and market share good points contributed to 132% year-over-year improve in fourth quarter United States working days, which in flip drove a 173% year-over-year improve within the fourth quarter U.S. drilling income.
Fourth quarter working days in Australia elevated by 89% in comparison with 2020 as two rigs returned to service following the completion over certifications and upgrades. One Australian rig was faraway from operations through the third quarter of 2021 for certification and improve and returned to service within the first quarter of 2022.
Enhancing North American business situations contributed to a 100% improve within the fourth quarter gear utilization throughout the RTS phase as in comparison with 2020. Fourth quarter RTS income elevated by 56% on a year-over-year foundation, which in flip drove a 23% improve in phase EBITDA. EBITDA elevated at a decrease tempo than income as a result of combine of apparatus working, price inflation not being absolutely offset by worth will increase and decrease year-over-year COVID aid funds being acquired.
Fourth quarter income in whole CPS phase elevated by 50% in comparison with 2020. This phase noticed a fifth consecutive quarterly improve to its fabrication gross sales backlog, which was 236% increased on a year-over-year foundation. Increased pure fuel costs additionally offered assist for CPS segments’ components and repair enterprise and utilization of the compression and rental gear fleet growing 11% from December 31, 2020.
Working revenue for the fourth quarter of 2021 decreased 50% on a year-over-year foundation as further bills had been incurred to arrange for a considerably elevated manufacturing exercise in 2022 in addition to basic price inflation and decreased COVID-19 aid funds acquired through the quarter.
Working revenue margin are anticipated to enhance over the course of 2022 with increased manufacturing ranges and improved pricing. Fourth quarter income elevated 26% in our nicely servicing phase in comparison with 2020. Whereas service hours elevated 25% through the fourth quarter, income per service stay akin to prior yr related quarter as a rise in income per service hour in Canada and United States was offset by lower in Australia.
Continued power of oil costs and elevated nicely abandonment exercise in Canada contributed to a rise in exercise in all geographical areas. This phase’s EBITDA margin decreased 9 share factors within the fourth quarter of 2021 as in comparison with the identical quarter final yr due primarily to price inflation in North America that was not absolutely recovered via worth will increase and decrease COVID-19 aid funds receipt.
Whole Power’s monetary and liquidity place stays very sturdy. At December 31, 2021, the weighted common rate of interest on excellent financial institution debt was 2.68% as in comparison with 2.72% at December 31, 2020. This decrease rate of interest, mixed with decrease excellent debt balances contributed to a 31% year-over-year lower in fourth quarter finance prices.
Whole web debt place at December 31, 2021, is the bottom since we accomplished the acquisition of Savanna in June of 2017 as we stay centered on a continued reimbursement of debt. In January of 2022, Whole prolonged the maturity of our major financial institution credit facility to November 10, 2024. As a part of this extension, we requested a CAD30 million discount in obtainable credit score, such that we now have CAD225 million of revolver financial institution credit score facility capability.
Following a CAD20 million of voluntary principal repayments up to now in 2022, CAD115 million of credit score is at the moment obtainable to Whole. Whole vitality financial institution covenants include most senior debt to trailing 12 months financial institution outlined EBITDA of three instances and a minimal bank-defined EBITDA to curiosity expense of three instances. At December 31, 2021, the corporate’s senior financial institution debt to financial institution EBITDA ratio was 1.40, and the financial institution curiosity protection ratio was 17.35 instances.
Daniel Halyk — President & Chief Govt Officer
Thanks, Yuliya. What a distinction a yr makes? Getting into 2021, the vitality service business continued to face extraordinarily difficult enterprise situations following the historic collapse in vitality business funding because of the outbreak of COVID-19 in March of 2020. On the similar time, the seeds of restoration have been planted.
Whereas 2021 business exercise ranges stay under pre-COVID ranges in all geographic areas the place Whole operates, enhancing business situations within the second half of the yr and our continued efforts to function in a secure and environment friendly method had been efficient in restoring company profitability. We’re additionally very proud that regardless of the extra challenges related to COVID-19 and ramping up subject exercise after a protracted downturn, Whole achieved the bottom annual consolidated whole recordable damage frequency charge final yr since we started monitoring this measure in 2008.
Whole’s diversified enterprise mannequin has as soon as once more demonstrated our capability to generate vital free money circulate even throughout essentially the most troublesome of instances. From January 1, 2020 to December 31, 2021, we now have decreased financial institution debt web of money by CAD100.8 million or 39%. And as Yuliya talked about, our financial institution debt has been additional decreased by CAD20 million up to now in 2022. On the similar time, we proceed to keep up a robust money place that has funded share buybacks below our regular course issuer bid and expenditures below our 2022 capital expenditure plan. However continued power in commodity costs, many oil and fuel producers have been hesitant to considerably improve capital budgets. At present commodity costs, whole vitality expects that oil and pure fuel drilling, completion and manufacturing exercise will proceed to enhance. Demand for gear and providers offered by our CPS phase has additionally continued to strengthen in 2022 as funding in international vitality infrastructure recovers from the pandemic collapse.
Whole Power’s monitor report of disciplined capital spending and prudent operational administration has enabled our firm to get via some very difficult instances. As we have fun Whole’s twenty fifth anniversary in enterprise this yr, our house owners might be assured that we stay dedicated to our core values of focus, self-discipline and development which have served us nicely over the previous quarter century.
As we stay up for higher instances for our enterprise, I want to thank all of our staff for his or her perseverance and dedication over the previous 2 years. Collectively, we work to get via a extreme business downturn and a world well being pandemic and got here out a stronger and extra progressive group.
I’d now wish to open up the cellphone strains for any questions.
Questions and Solutions:
Operator
[Operator Instructions] Our first query comes from Ernest Wong of Baskin Wealth. Please go forward.
Ernest Wong — Baskin Wealth — Analyst
Hey, guys. How are you all doing?
Daniel Halyk — President & Chief Govt Officer
Nicely, thanks, Ernest. How are you?
Ernest Wong — Baskin Wealth — Analyst
Doing nicely. I simply wished to — initially, perhaps you may discuss a bit bit about how you consider capital allocation, given that you just’ve been repaying debt and with modest buybacks at present costs. So how are you guys fascinated with perhaps a dividend?
Daniel Halyk — President & Chief Govt Officer
We’ve been pretty aggressive on the buybacks. The truth is we’re restricted with a each day restrict. That’s based mostly on our liquidity, which is sort of low. In order that makes it a bit difficult. However we’ve been fairly lively up to now.
By way of capital allocation usually, we yearly calculate our WACC. We now have it calculated by a third-party group. And that drives our funding choices and funding can imply new gear acquisitions, share buybacks. And in the end, if there’s no alternatives to reinvest our capital, together with via share buybacks, that is sensible, you come it to dividend or to shareholders via a dividend.
Proper now, we see some fairly compelling alternatives on the share buyback entrance. We now have a capital price range that we introduced earlier this yr that we’re going to fund via money and money circulate, if obligatory. I count on reinstatement of our dividend will seemingly be on the Board agenda this yr, and I defer to our Board on that. However in the end, returning capital to our shareholders that we are able to’t reinvest and have returns that generate financial revenue is — that’s simply the best way we’ve run this enterprise over time. So we count on that may proceed and primarily via share buybacks and in the end, restoration of the dividend.
Ernest Wong — Baskin Wealth — Analyst
Bought it. And perhaps simply on a bigger image, like your administration crew has now gone via, I assume, two fairly extreme downturns over the past even six, seven years. So how does that change the way you guys take into consideration the way you handle the enterprise going ahead?
Daniel Halyk — President & Chief Govt Officer
I feel it reinforces our core rules, Ernest, that focus, self-discipline and development. And so we try to come out of each downturn stronger than we went into it, and that’s profiting from alternatives that come up when everyone seems to be fleeing the sector. And this final downturn, we labored fairly onerous on totally different acquisition alternatives. That mentioned, we stay centered and disciplined. So we didn’t pursue ones that didn’t make sense for our present shareholders, however we additionally purchased again a good portion of our shares within the open market. And we introduced our share rely from, I feel, it was north of CAD46 million once we accomplished to Savannah all the way down to CAD42 million and alter. So we’ve shrunk our share rely. We paid again a number of debt. To me, that’s straight to the shareholders. And we proceed to work to try to benefit from alternatives that may come.
So actually, this final downturn was most likely essentially the most extreme simply given the distinctive nature of the lockdowns. However we’ve been via fairly a number of over the past 25 years. And actually what it does is simply reinforce our core rules of being prudent, not getting too excited when instances are good and placing some cash away and never leaping off a bridge when instances are a bit bit tough.
Ernest Wong — Baskin Wealth — Analyst
Thanks rather a lot. Good luck.
Daniel Halyk — President & Chief Govt Officer
Thanks.
Operator
[Operator Instructions] Our subsequent query comes from Patrick Tang of ATB Capital Markets. Please go forward.
Patrick Tang — ATB Capital Markets — Analyst
Questioning in the event you may present some commentary relating to modern pricing throughout Whole enterprise segments. Particularly, are you seeing any web pricing good points after contemplating price inflation? And are these will increase, if any, more likely to drive margins increased within the coming quarters?
Daniel Halyk — President & Chief Govt Officer
So I’d say sure and sure. You noticed in This autumn, I’d name it a little bit of a transition interval. Each enterprise is a bit bit totally different. Our drilling rig, service rigs are usually within the center. Leases tends to be essentially the most uncovered to identify, though most likely service rigs and drilling rigs fairly near that. Compression course of, clearly, work that we secured earlier in 2021 hit the ground in This autumn, so you have got a little bit of a lag. Usually, throughout the board, we’re growing costs, and that’s completely important. You possibly can see the price creep. And my easy perspective and message to all of our companies if we are able to broaden margins in a CAD100 oil surroundings, there’s one thing flawed.
Patrick Tang — ATB Capital Markets — Analyst
Okay. Thanks. So simply taking a look at margins within the CPS enterprise, you alluded to this a bit bit. I imply they had been down a bit quarter-over-quarter. So 2-parter right here. Are you able to present some purpose why this margin compression befell in This autumn? Was it simply largely on the combo of initiatives that was booked earlier within the yr? Or was Whole working via another decrease margin orders within the quarter?
Then is the margin implied within the present backlog at these decrease ranges? Or ought to we start to see gross margins normalize fairly shortly right here.
So undoubtedly, the work that hit the ground in This autumn was work that was secured earlier within the yr in a extra aggressive market. The opposite factor, as we famous within the press launch, is we had been increasing our productive capability in This autumn. As you may see by the backlog, we’ve had an incredible improve in buyer orders. And so clearly, final yr, issues had been fairly quiet, however we now have to gear up for a lot increased manufacturing exercise in 2022, and there’s a value to doing that, together with we’ve simply accomplished a transfer from a one lease store to a different right here, a bit extra environment friendly store. So these are some prices baked in.
Price inflation for positive, hit. However I’d count on to achieve, as Yuliya talked about in her feedback that you just’ll see margins in that enterprise enhance over the course of 2022, each via improved pricing in addition to when you have got extra manufacturing exercise, you are likely to have extra efficiencies and value overhead absorption. So we’d count on margins to development increased this yr. Superior. That’s all I had. I’ll flip it again. Thanks.
Daniel Halyk — President & Chief Govt Officer
Thanks.
Operator
This concludes the question-and-answer session. I want to flip the convention again over to Mr. Halyk for any closing remarks.
Daniel Halyk — President & Chief Govt Officer
Thanks all for collaborating in our convention name, and we stay up for talking with you after our first quarter outcomes. Have a pleasing weekend.
Operator
[Operator Closing Remarks]
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