TSX Trading Symbol: NAL

CALGARY, March 6, 2018 /PRNewswire/ - Newalta Corporation ("Newalta") (TSX:NAL) today reported results for the three months and year ended December 31, 2017.

FINANCIAL HIGHLIGHTS⁽¹⁾

MANAGEMENT COMMENTARY

"Fourth quarter results continued the momentum of quarterly year-over-year improvements in the business," said John Barkhouse, President and Chief Executive Officer. "Adjusted EBITDA of $11.6 million came in at the mid-range of our guidance for the quarter, and was primarily driven by continued improvement in our U.S. Drill Site business and cost savings in G&A, offset by decreased contributions from the Heavy Oil division. For the year, our Adjusted EBITDA was $44.6 million, a 104% increase over prior year primarily driven by improvements in our U.S. Drill Site business and the realization of our cost saving efforts in G&A. Our performance is indicative of a stabilization in the market and we are seeing the impact of our actions to increase market share of our Drill Site business."

"Looking forward to 2018, our Q1 Adjusted EBITDA guidance range is $10 million to $12 million, and our full year guidance remains unchanged at $50 million to $60 million. We anticipate steady improvements to our business in 2018 predicated on the continuation of the recent stabilization in commodity prices and associated activity levels. Our Adjusted EBITDA guidance for full year 2018 is based on a WTI forecast of $55 to $65 per barrel.

"On March 1, 2018, we announced we 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. The combined business will provide water processing, treating, recycling and disposal services to customers in the oil and gas, mining and industrial sectors.  We are pleased to announce this milestone transaction, which offers our shareholders the opportunity to participate in the success of the combined businesses, improves our balance sheet and provides significant potential for value creation through realization of synergies and growth opportunities. We strongly believe that this combination is the most attractive path forward for Newalta, and we are committed to making the merger and ensuing integration a success."

FINANCIAL RESULTS

• Q4 2017 revenue of $61.7 million decreased by 3% compared to prior year, driven by a decline in production related waste volumes at our Heavy Oil facilities partially offset by increased utilization in Drilling Services.
• Revenue for the year increased 20% to $246.4 million from $205.4 million in prior year, primarily driven by an increase in Drilling Services utilization and drilling and production related waste volumes received at our Canadian Oilfield Facilities.
• Net loss for the quarter was $12.3 million compared to $75.3 million in prior year. The year-over-year improvement primarily related to the $56 million of impairment recognized in Q4 2016.
• Net loss for the year improved from $158.5 million in the prior year to $48.2 million, due to impairment recognized in 2016 as well as increased contributions from the Oilfield division and reduced restructuring and other expense in 2017.
• Adjusted EBITDA for the quarter remained flat at $11.6 million compared to prior year, as increased contributions realized by Drilling Services and cost savings in G&A were offset by decreased contributions from the Heavy Oil division.
• Adjusted EBITDA for 2017 was $44.6 million, an increase of $22.7 million over prior year. The 104% increase was driven by Divisional EBITDA improvements of $19.6 million and G&A savings of $3.1 million.
• Effective March 31, 2017, we amended and extended the terms of our Credit Facility to extend the waiver of our Total Debt to Covenant EBITDA covenant to Q2 2019 and to revise the Senior Debt to Covenant EBITDA and Interest Coverage covenant thresholds.
• Our contract model continued to provide predictable cash flow. These contracts are of varying lengths, generally are not tied directly to commodity price changes or drilling activity and provide a solid foundation for our business, particularly in depressed markets. In 2017, contracts represented 18% of our revenue.

Heavy Oil

• In the fourth quarter, Heavy Oil revenue decreased by 26% to $19.6 million primarily driven by decreased SAGD volumes received at our facilities. Net earnings before taxes in the quarter were $0.9 million, a $43.1 million improvement over prior year primarily due to impairment recognized in 2016. Divisional EBITDA decreased by 38% to $7.2 million in the quarter due to decreased contributions from our Facilities business unit.
• In 2017, Heavy Oil revenue remained flat at $88.2 million compared to prior year as increased demand for project work in Onsite and higher commodity prices were offset by a decrease in SAGD volumes received at our facilities. Net earnings before taxes for the year were $7.3 million, an improvement of $44.2 million over prior year primarily driven by the same factor as the quarter. Divisional EBITDA remained flat at $32.6 million compared to prior year due to the same factor as the quarter, partially offset by increased contributions from Onsite.

Oilfield

• In the fourth quarter, Oilfield revenue increased 13% over prior year to $42.1 million primarily driven by improvements in Drilling Services. Net earnings before taxes in the quarter were $3.3 million, a $12.8 million improvement over prior year. The increase was primarily driven by impairment recognized in 2016 as well as increased contributions from Drilling Services, partially offset by increased depreciation and amortization expense. Divisional EBITDA increased by 48% over prior year to $11.3 million primarily as a result of improved drilling activity.
• In 2017, Oilfield revenue increased by 37% over prior year to $158.2 million due to improvements in both Drilling Services and Facilities. Net earnings before taxes for the year were $10.1 million, a $30.5 million improvement over prior year driven by the same factors as the quarter and reduced restructuring and other expense. Divisional EBITDA increased 108% over prior year to $40.0 million due to the same factors as the quarter.

Corporate and Other

• Capital expenditures for the three months and year ended December 31, 2017 were $5.0 million and $14.2 million, respectively, a decrease of 30% and 4% over prior year. Expenditures for the quarter and year have been primarily focused on maintenance projects.
• G&A decreased 10% to $6.9 million and $27.9 million, respectively, for the three months and year ended December 31, 2017. The year-over-year improvement was driven by our disciplined approach to maintaining the benefit of the cost rationalization initiatives taken throughout the downturn.
• Restructuring and other recovery for the three months and year ended December 31, 2017, were $1.3 million and $3.6 million compared to a recovery of $9.6 million and expense of $22.3 million in the prior year. The current year recovery is primarily comprised of a decrease to the non-cash decommissioning liabilities related to inactive sites, partially offset by a fair value loss on held-for-trading investment.

Recent Developments

On February 28, 2018, we entered into an arrangement agreement (the "Arrangement Agreement") with Tervita Corporation ("Tervita"), pursuant to which Tervita has agreed, through a series of transactions, to acquire all of our issued and outstanding common shares on the basis of: (i) 0.1467 of a Class A Common share ("Amalco Share") of Amalco (as defined herein); and (ii) 0.0307 of one warrant to purchase one Amalco Share, for each outstanding common share of Newalta, and Newalta and Tervita will amalgamate to form "Tervita Corporation" ("Amalco"). Each Amalco Warrant will be exercisable for a period of two years from the closing of the Arrangement (as defined herein) at a price of $2.75 per equivalent common share of Newalta. The transaction is to be completed by way of a plan of arrangement (the "Arrangement") under the Business Corporations Act (Alberta). The Arrangement is subject to customary conditions for a transaction of this nature, which include, without limitation, court and regulatory approvals including the Toronto Stock Exchange and approval under the Competition Act (Canada), the approval of 66 2/3% of the votes cast by our securityholders represented in person or by proxy at an annual and special meeting of our securityholders to be called to consider the Arrangement (the "Newalta Meeting") and the approval of 66 2/3% of the votes cast by the shareholders of Tervita represented in person or by proxy at an annual and special meeting of the shareholders of Tervita to be called to consider the Arrangement (the "Tervita Meeting"). A joint information circular regarding the Arrangement is expected to be mailed to our securityholders and the shareholders of Tervita in early April 2018 for the Newalta Meeting and the Tervita Meeting, each scheduled to take place in late April 2018. Closing of the Arrangement is expected to occur upon receipt of all required regulatory approvals, including the approval under the Competition Act (Canada).

The following section contains forward-looking information as it outlines our Outlook for 2018. Our Outlook is based on several key assumptions including growth capital contributions, commodity prices and activity levels in the oil and gas industry. Changes to these assumptions could cause our actual results to differ materially. Please refer to our Forward-Looking Information later in this document. We are subject to a number of risks and uncertainties in carrying out our activities including market conditions, ability to expand the business, competition, regulation, and the ability to attract and retain personnel. A complete list of our risk factors is disclosed in our most recently filed Annual Information Form. 

OUTLOOK & BUSINESS DRIVERS

Our business performance is tied to drilling and production related activities in western Canada and the United States. Sustained, stable oil and gas prices enable our customers to make capital decisions to invest in the drilling and completion of new wells and reactivation of shut-in wells. Activity levels, which correlate to the generation of production waste volumes, will vary among plays based on their cost profile. We provide enhanced value solutions to our customers, enabling them to extract greater value from their operations irrespective of cost profile.

The key drivers of our business performance are as follows:

Crude Oil Prices

• Crude oil prices (primarily Canadian benchmarks WCS and CLS) directly impact the value of the products we recover from waste.
• Relative strength and stability of crude oil benchmarks impact confidence amongst producers and play a key role in determining their capital budgets, which in turn drives activity levels.

Drilling Activity

• Drilling Services performance is driven by active rigs and is the first business line to respond to changes in activity.
• Wells drilled and completed in the areas we serve drive waste volumes into our facilities.
• Drilling activity in the areas we serve is dependent on the cost profile of the play, with low cost profile shale play activity being initiated at lower oil prices than the more expensive profile plays such as in heavy oil areas.
• At higher asset utilization levels, we generally see improved pricing for our services.

Production Impact & Other

• Primarily comprised of the net impact of production waste volumes and shifts in waste mix, net impact of contributions from Onsite contracts and, to a lesser extent, customer pricing and operational efficiencies.
• We typically see a time lag between the deployment of producers' capital budgets, including turnarounds and workovers, and the subsequent production waste volume increases to our business.
• The composition of waste volumes impacts the degree of processing complexity and the amount of recoverable oil.
• CHOPS waste volumes are also dependent on the drilling of new wells to replace production volumes lost through their naturally steep decline curves.
• SAGD waste volumes are dependent on the number, timing and length of event-based upsets occurring in the normal course of SAGD facility operations.
• The timing and amount of mining contributions will be dependent on the approval of producers' mitigation plans to meet the Tailings Management Framework. We continue to work with producers to develop solutions to meet these requirements.
• We continue to prudently manage our operational and corporate cost structure.

Outlook

Our outlook for 2018 is based on our expectation of year-over-year trends including:

• Increased commodity prices
• Strengthening WTI and CLS prices
• Minor improvement to WCS with the WTI-WCS differential remaining wide due to the impact of limitations on takeaway capacity
• Marginal increases in drilling and completions activity in the areas we serve
• Production related activity down slightly on a net basis, driven by:
• Reduction in midstream services, primarily related to the Pembina Phase III pipeline which came into service mid-2017
• Lower event-based SAGD volumes
• Increased waste volumes at our Oilfield Facilities
• Incremental improvements in CHOPS waste volumes
• Disciplined focus on maintaining our streamlined cost structure and business processes

Our Q1 and full-year 2018 guidance ranges are:

• Revenue of $50 million to $60 million for the first quarter and $235 million to $260 million for the full year; and
• Adjusted EBITDA of $10 million to $12 million for the first quarter and $50 million to $60 million for the full year.

The following table outlines the factors we expect to impact Adjusted EBITDA performance in the first quarter and full year of 2018:

Total Debt, Capital & Cash Flow Management

Management continues to focus on moving towards a positive cash flow model and to date we have made significant progress through proactive management of operating cash flows and cost rationalization initiatives. In 2017, we made progress towards our near-term financial objective of cash flow neutral, 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.

Effective March 31, 2017, we amended and extended the terms of our Credit Facility to extend the waiver of our Total Debt to Covenant EBITDA covenant to Q2 2019 and to revise the Senior Debt to Covenant EBITDA and Interest Coverage covenant thresholds. These amendments provide us with the flexibility to continue to manage our balance sheet as our performance improves. Managing debt leverage and use of cash and capital are our highest priorities. We expect to remain within our debt covenants throughout 2018.

Management's Discussion and Analysis and Financial Statements

The 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 March 7, 2018 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 Wednesday, March 14, 2018, by dialing 855-859-2056 and using the pass code 9796689.

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, more than 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 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;
• the availability to us of financing alternatives, including those that may permit the refinancing of our November 2019 debentures prior to their maturity and the timing of such refinancing, if any;
• our capital structure objectives;
• 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 cash flow management activities;
• expectation and implications of changes in legislation; and
• the Arrangement (as defined herein), including the timing and business of the annual and special meeting of the Newalta securityholders to be called to consider the Arrangement (the "Newalta Meeting") and the timing and business of the annual and special meeting of the Tervita shareholders to be called to consider the Arrangement (the "Tervita Meeting"), the timing of mailing of the joint information circular in respect of the Newalta Meeting and the Tervita Meeting, the consideration to be paid under the Arrangement, the ability to obtain all necessary approvals for completion of the Arrangement and the expected closing date of the Arrangement.

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

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;
• effectiveness of our cash flow management activities and cost rationalization initiatives;
• 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;
• our ability to secure alternative financing, if needed, and including financing that may permit the refinancing of our November 2019 debentures prior to their maturity, at all or on terms acceptable to us and consistent with our capital structure objectives;
• the highly regulated nature of the environmental services and waste management business in which we operate;
• the competitive environment of our industry in Canada and the United States;
• 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;
• dependence on our senior management team and other operations management personnel with waste industry experience;
• 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;
• timing and term of contracts for our services;
• 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;
• the receipt, in a timely manner, of regulatory, shareholder, court and third party approvals in respect of the Arrangement;
• the satisfaction or waiver of all conditions to closing of the Arrangement;
• that the Arrangement Agreement (as defined herein) will not be terminated prior to closing of the Arrangement; 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

Related Links

http://www.newalta.com