AKITA announces second quarter results and net income of $6.2 million for the quarter

Aug 3, 2023

CALGARY, AB, Aug. 3, 2023 /CNW/ - AKITA Drilling Ltd. (TSX: AKT.A)

AKITA Drilling Ltd. ("AKITA" or the "Company") announces results for the six months ended June 30, 2023.

The Company's net income increased to $6,177,000 in the second quarter of 2023 from a loss of $4,252,000 during the same period of 2022. This is the second most profitable second quarter in the Company's history (2006 - $7,548,000). Higher day rates drove the improved earnings as activity levels remained constant between the two quarters (1,561 operating days in the second quarter of 2023 versus 1,562 in the same period of 2022). Adjusted funds flow from operations increased 168% to $12,620,000 in the second quarter of 2023, the highest second quarter funds flow in the Company's history, from $4,715,000 in the same period od 2022, also driven by improved rates. Net cash from operations increased to $16,150,000 for the three months ended June 30, 2023, compared to $6,189,000 in the same period of 2022, due to stronger results in the quarter and a working capital inflow. Debt decreased to $79,670,000 at the end of the second quarter of 2023 from $94,601,000 at the same time in 2022. In Canada, the Company operated 9 rigs in the second quarter of 2023 (Q2 2022 – 10 rigs) and 14 rigs in the US (Q2 2022 – 13 rigs). The Company spent $4,700,000 on routine capital items in the second quarter of 2023, up from $3,633,000 over the same period in 2022.

Colin Dease, AKITA's Chief Executive Officer stated: "The strength of AKITA's US operations is clear to see in our record second quarter results, which have accelerated our debt repayment schedule, putting us well on track to achieving our $20 million repayment target for 2023 having already paid back $14 million in the first half of the year."

CONSOLIDATED FINANCIAL HIGHLIGHTS

$Thousands except per share amounts	For the three months ended June 30,				For the six months ended June 30,
$Thousands except per share amounts	2023	2022	Change	% Change	2023	2022	Change	% Change
Revenue	58,349	42,960	15,389	36 %	123,349	87,946	35,403	40 %
Operating and maintenance expenses	41,988	34,208	7,780	23 %	87,414	70,463	16,951	24 %
Operating margin	16,361	8,752	7,609	87 %	35,935	17,483	18,452	106 %
Margin %	28 %	20 %	8 %	40 %	29 %	20 %	9 %	45 %

Net cash from operating activities	16,150	6,189	9,961	161 %	15,736	6,436	9,300	144 %


Adjusted funds flow from operations⁽¹⁾	12,620	4,715	7,905	168 %	27,779	9,713	18,066	186 %
Per share	0.32	0.12	0.20	167 %	0.70	0.25	0.45	180 %

Net income (loss)	6,177	(4,252)	10,429	245 %	15,669	(7,185)	22,854	318 %
Per share	0.16	(0.11)	0.27	245 %	0.40	(0.18)	0.58	322 %

Capital expenditures	4,700	3,633	1,067	29 %	7,204	10,045	(2,841)	(28 %)

Weighted average shares outstanding	39,650	39,608	42	0 %	39,650	39,608	42	0 %

Total assets	266,330	253,266	13,064	5 %	266,330	253,266	13,064	5 %
Total debt	79,670	94,601	(14,931)	(16 %)	79,670	94,601	(14,931)	(16 %)
⁽¹⁾See "Non-GAAP and Supplementary Financial Measures" near the end of this release for further detail.

Canadian Drilling Division

$Thousands except per day amounts
	For the three months ended June 30,				For the six months ended June 30,
	2023	2022	Change	% Change	2023	2022	Change	% Change
Revenue Canada	9,706	11,364	(1,658)	(15 %)	29,133	27,606	1,527	6 %
Revenue from joint venture drilling rigs	9,161	5,051	4,110	81 %	16,943	10,954	5,989	55 %
Flow through charges⁽¹⁾	(1,180)	(560)	(620)	(111 %)	(2,009)	(1,642)	(367)	(22 %)
Adjusted revenue Canada⁽¹⁾	17,687	15,855	1,832	12 %	44,067	36,918	7,149	19 %

Operating and maintenance expenses Canada	8,323	8,506	(183)	(2 %)	22,395	20,928	1,467	7 %

Operating and maintenance expenses from joint venture drilling rigs	6,880	4,002	2,878	72 %	12,374	8,519	3,855	45 %
Flow through charges⁽¹⁾	(1,180)	(560)	(620)	(111 %)	(2,009)	(1,642)	(367)	(22 %)
Adjusted operating and maintenance expenses Canada⁽¹⁾	14,023	11,948	2,075	17 %	32,760	27,805	4,955	18 %

Adjusted operating margin Canada⁽¹⁾	3,664	3,907	(243)	(6 %)	11,307	9,113	2,194	24 %

Margin %⁽¹⁾	21 %	25 %	(4 %)	(16 %)	26 %	25 %	1 %	4 %

Operating days	471	569	(98)	(17 %)	1,191	1,291	(100)	(8 %)

Adjusted revenue per operating day⁽¹⁾	37,552	27,865	9,687	35 %	37,000	28,596	8,404	29 %
Adjusted operating and maintenance expenses per operating day⁽¹⁾	29,773	20,998	8,775	42 %	27,506	21,538	5,968	28 %
Adjusted operating margin per operating day⁽¹⁾	7,779	6,867	912	13 %	9,494	7,058	2,436	35 %

Utilization⁽¹⁾	26 %	31 %	(5 %)	(16 %)	33 %	36 %	(3 %)	(8 %)

Rig count	20	20	-	0 %	20	20	-	0 %
⁽¹⁾ See "Non-GAAP and Supplementary Financial Measures" near the end of this release for further detail.

During the second quarter of 2023, AKITA's adjusted operating margin fell slightly to $3,664,000 compared to $3,907,000 in the same quarter of 2022. Activity was the key driver for this decrease as the wild fires in Alberta forced two rigs to shut down, which reduced the number of operating days in the quarter to 471 compared to 569 in the second quarter of 2022. AKITA's utilization over the second quarter of 2023 was 26% compared to the industry average utilization of 25% over the same period. The high percentage of pad drilling rigs in AKITA's Canadian fleet is advantageous in keeping rigs working over break-up, however, in the second quarter of 2023, wild fires and other environmental factors delayed rigs that were expected to work over break-up, mitigating this advantage.

Adjusted revenue in Canada increased to $17,687,000 in the second quarter of 2023 from $15,855,000 in the second quarter of 2022 despite fewer operating days. The day rate increases that were achieved in the second half of 2022 increased adjusted revenue per operating day to $37,552 in the second quarter of 2023, from $27,865 in the same period of 2022. These rate increases were reflected in all of the Company's rig categories.

Higher revenue in the quarter was offset by higher adjusted operating and maintenance expenses which increased to $14,023,000 in the second quarter of 2023 from $11,948,000 in the same period of 2022. This increase is attributable to an increase in both labour costs, which is the largest operating cost on a rig, and maintenance costs which increased due to general price increases as well as costs incurred for work starting in the third quarter.

United States Drilling Division

$Thousands except per day amounts
	For the three months ended June 30,				For the six months ended June 30,
	2023	2022	Change	% Change	2023	2022	Change	% Change
Revenue US	48,643	31,596	17,047	54 %	94,216	60,340	33,876	56 %
Flow through charges⁽¹⁾	(4,499)	(3,109)	(1,390)	(45 %)	(9,073)	(5,321)	(3,752)	(71 %)
Adjusted revenue US⁽¹⁾	44,144	28,487	15,657	55 %	85,143	55,019	30,124	55 %

Operating and maintenance expenses US	33,664	25,703	7,961	31 %	65,019	49,534	15,485	31 %
Flow through charges⁽¹⁾	(4,499)	(3,109)	(1,390)	(45 %)	(9,073)	(5,321)	(3,752)	(71 %)
Adjusted operating and maintenance expenses US⁽¹⁾	29,165	22,594	6,571	29 %	55,946	44,213	11,733	27 %

Adjusted operating margin US⁽¹⁾	14,979	5,893	9,086	154 %	29,197	10,806	18,391	170 %
Margin %⁽¹⁾	34 %	21 %	13 %	62 %	34 %	20 %	14 %	70 %

Operating days	1,090	993	97	10 %	2,133	2,010	123	6 %

Adjusted revenue per operating day⁽¹⁾	40,499	28,688	11,811	41 %	39,917	27,373	12,544	46 %

Adjusted operating and maintenance expenses per operating day⁽¹⁾	26,757	22,753	4,004	18 %	26,229	21,997	4,232	19 %
Adjusted operating margin per operating day⁽¹⁾	13,742	5,935	7,807	132 %	13,688	5,376	8,312	155 %

Utilization⁽¹⁾	80 %	68 %	12 %	18 %	79 %	69 %	10 %	14 %

Rig count	15	16	(1)	(6 %)	15	16	(1)	(6 %)
⁽¹⁾ See "Non-GAAP and Supplementary Financial Measures" near the end of this release for further detail.

The impact of the US day rate increases which began to take effect in the second half of 2022, is clear to see when comparing adjusted revenue of $44,144,000 in the second quarter of 2023 with adjusted revenue of $28,487,000 over the same period of 2022; a 55% increase, despite activity levels increasing just 10% over the same period. Quarter-over-quarter revenue per day has increased 41% from the second quarter of 2022 to the second quarter of 2023, with the significant increases occurring in the third and fourth quarters of 2022, and to a lesser extent, in the first quarter of 2023.

Activity increased 97 days in the second quarter of 2023 (1,090) from the second quarter of 2022 (933), as all 14 of the Company's currently marketed rigs worked in the quarter, compared to 13 working during the same period of 2022.

Adjusted operating and maintenance costs increased 29% between the second quarter of 2023 and 2022, driven by increased costs per day which increased to $26,757 in the second quarter of 2023 from $22,753 in the second quarter of 2022. The primary driver of the cost per day increase is increased labour costs. Operating and maintenance costs were offset in the second quarter of 2023 by the Company's final $2,000,000 in Employee Retention Credits received from the IRS in the quarter.

FURTHER INFORMATION

This news release shall be used as preparation for reading the full disclosure documents. AKITA's unaudited interim condensed consolidated financial statements and management's discussion and analysis for the quarter ended June 30 2023 will be available on the AKITA website (www.akita-drilling.com) or via SEDAR (www.sedar.com) or can be requested in print from the Company.

Non-GAAP and Supplementary Financial Measures

Non-GAAP Financial Measures

Adjusted Revenue and Adjusted Operating and Maintenance Expenses

Revenue and operating and maintenance expenses in AKITA's Canadian operating segment include revenue and expenses from AKITA's wholly-owned drilling rigs as well as its share of joint venture revenue and expenses.

Excluded from the revenue and expenses in AKITA's Canadian and US operating segment are flow through charges that are billed to operators and repaid to the Company. The volume and timing of the flow through charges can artificially impact the operational per day analysis and as a result management and certain investors may find the comparability between periods is improved when these flow through charges are excluded from revenue per day and operating and maintenance expense per day. The flow through charges do not have any impact on the Company's net earnings as the amounts offset each other.

Adjusted Funds Flow from Operations

Adjusted funds flow from operations is not a recognized GAAP measure under IFRS and readers should note that AKITA's method of determining adjusted funds flow from operations may differ from methods used by other companies, and includes cash flow from operating activities before working capital changes, equity income from joint ventures, and income tax amounts paid or recovered during the period. Nonetheless, management and certain investors may find adjusted funds flow from operations to be a useful measurement to evaluate the Company's operating results at year-end and within each year, since the seasonal nature of the business affects the comparability of non-cash working capital changes both between and within periods.

$Thousands	For the three months ended June 30,		For the six months ended June 30,
	2023	2022	2023	2022
Net cash from operating activities	16,150	6,189	15,736	6,436
Interest paid	1,531	1,408	3,709	2,438
Interest expense	(1,584)	(1,510)	(3,815)	(2,578)
Post-employment benefits paid	79	67	165	136
Equity income from joint ventures	2,150	970	4,334	2,266
Change in non-cash working capital	(5,706)	(2,409)	7,650	1,015
Adjusted funds flow from operations	12,620	4,715	27,779	9,713

Non-GAAP Ratios
"Adjusted funds flow from operations per share" is calculated on the same basis as net loss per class A and class B share basic and diluted, utilizing the basic and diluted weighted average number of class A and class B shares outstanding during the periods presented.

"Adjusted revenue per operating day" may be useful to analysts, investors, other interested parties and management as a measure of pricing strength and is calculated by dividing adjusted revenue by the number of operating days for the period.

"Adjusted operating and maintenance expenses per operating day" may be useful to analysts, investors, other interested parties and management as it demonstrates a degree of cost control and provides a proxy for specific inflation rates incurred by the Company

FORWARD-LOOKING INFORMATION:

Certain statements contained in this news release may constitute forward-looking information. Forward-looking information is often, but not always, identified by the use of words such as "anticipate", "plan", "estimate", "expect", "may", "will", "intend", "should", and similar expressions. In particular, forward-looking information in this news release includes, but is not limited to, references to the outlook for the drilling industry (including activity levels and day rates), the Company's relationships and customers and vendors, advantages associated with the percentage of pad drilling rigs in the Company's Canadian drilling fleet, the renewal of drilling contracts, and debt repayment.

Forward-looking information involves known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking information.

Although the Company believes that the expectations reflected in the forward-looking information are reasonable based on the information available on the date such statements are made and processes used to prepare the information, such statements are not guarantees of future performance and no assurance can be given that these expectations will prove to be correct. By their nature, these forward-looking statements involve numerous assumptions, inherent risks and uncertainties, both general and specific, and therefore carry the risk that the predictions and other forward-looking statements will not be realized. Readers of this news release are cautioned not to place undue reliance on these statements as a number of important factors could cause actual future results to differ materially from the plans, objectives, estimates and intentions expressed in such forward-looking statements.

The Company's actual results could differ materially from those anticipated in these forward-looking statements as a result of, among other things, prevailing economic conditions; the level of exploration and development activity carried on by AKITA's customers, world crude oil prices and North American natural gas prices; global liquefied natural gas (LNG) demand, weather, access to capital markets; and government policies. We caution that the foregoing list of factors is not exhaustive and that while relying on forward-looking statements to make decisions with respect to AKITA, investors and others should carefully consider the foregoing factors, as well as other uncertainties and events, prior to making a decision to invest in AKITA. Except where required by law, the Company does not undertake to update any forward-looking statement, whether written or oral, that may be made from time to time by it or on its behalf.

SOURCE AKITA Drilling Ltd.

For further information: INVESTOR INQUIRIES: Darcy Reynolds, CPA, CA, Vice President, Finance and Chief Financial Officer, (403) 292-7530