/NOT FOR DISSEMINATION IN THE UNITED STATES OF AMERICA/ CALGARY, AB, Aug. 12, 2024 /CNW/ - 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 Q2 KEY HIGHLIGHTS The Company achieved the following 2024 Q2 results and highlights: Revenues of $130.3 million in 2024 Q2, were the highest for any second quarter in the Company's history and increased 7%, compared to $121.3 million in 2023 Q2. Adjusted EBITDAS (1) of $17.3 million in 2024 Q2 decreased 5%, compared to $18.2 million in 2023 Q2. Lost-in-hole equipment net reimbursements were significantly lower in 2024 Q2, compared to 2023 Q2 and 2024 Q1 levels. Canadian operating days increased 28% in 2024 Q2, compared to 2023 Q2, which compares favourably to an 8% increase in the Western Canadian rig count (2). ACT remains extremely active in oil plays where wells have a high multilateral count. U.S. operating days decreased 5% in 2024 Q2, compared to 2023 Q2, mainly due to a 17% decline of the U.S. land rig count (2). An increase in the Canadian average revenue per operating day of 7% in 2024 Q2, compared to 2023 Q2. An increase in the U.S. average revenue per operating day of 6% in 2024 Q2, compared to 2023 Q2, despite a decrease in operating days. Net income of $5.3 million in 2024 Q2, compared to $2.4 million in 2023 Q2. Cash flow - operating activities of $34.1 million in 2024 Q2, compared to $16.4 million in 2023 Q2, mainly attributable to the change in non-cash working capital. Free cash flow deficit (1) of $3.0 million in 2024 Q2, compared to Free cash flow (1) of $5.0 million in 2023 Q2. On May 9, 2024, the shareholders of the Company approved the consolidation of the issued and outstanding common shares of the Company. As a result, on July 3, 2024, 243,383,392 common shares issued and outstanding prior to the Consolidation (the "Consolidation") were reduced to 34,769,056 common shares (one post-consolidation common share for seven pre-consolidation common shares). Loans and borrowings less cash was $55.7 million as at June 30, 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) for the remainder of 2024. 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, ten Rime MWD systems have been deployed with an additional forty MWD systems expected to be deployed by the first half of the 2025. The Company purchased two additional Rotary Steerable Systems ("RSS") Orbit tools, expanding its U.S. fleet to twenty-one RSS tools. (1) As defined in the "Non-GAAP measures" section of this news release. (2) Per Baker Hughes and Rig Locator. PRESIDENT'S MESSAGE Comments from President & CEO Tom Connors: "We recently completed a corporate name change and re-brand to ACT Energy Technologies, which recognizes the significant growth and transformation of the Company that has occurred through the culmination of eight acquisitions over a two-year period. The name ACT honours the legacy and accomplishments of both Altitude and Cathedral, while conveying a proactive energy and the spirit of innovation we bring into the future, as we focus on delivering high-performance solutions for our customers.  Additionally, to better reflect a more consistent brand to our customers, our full-service directional business now operates under one brand as "Altitude Energy Partners" which is a change in the Canadian market, where we have previously operated as "Cathedral Energy Services". "Altitude's full-service directional operations in Canada and the United States comprise the Company's largest business segment. The motor rental business in the United States will continue to operate as "Discovery Downhole Services" and the engineering and MWD technology manufacturing and sales division will continue to operate as "Rime Downhole Technologies". Concurrent with the Company's name change, we also completed a one-for-seven share consolidation. The Company's common shares now trade under the ticker "ACX" on the TSX, which formerly traded under "CET". "ACT achieved its highest ever corporate revenues for a second quarter while Adjusted EBITDAS was slightly lower year-over-year ("yr/yr") due to a combination of higher selling, general and administration expenses and lower contribution from lost-in-hole activity. Driving the record topline was a 37% yr/yr increase in Canadian revenues and a 28% yr/yr increase in Canadian operating days. For context, this strong Canadian performance compares to an 8% increase in the average Western Canadian rig count in the same period (source: Rig Locator). "The Company's technology suite is particularly well-suited to drill wells that have a high multi-lateral count and the proliferation of this type of drilling in Canadian oil-related markets has helped support stronger and more consistent levels of activity. More capital discipline from Canadian exploration and production companies has also resulted in more consistent spending levels, resulting in more robust activity levels in the second quarter, compared to historical norms as operators smooth out or "level-load" activity levels to drive efficiencies. "Our U.S. division of Altitude Energy Partners continues to perform well, relative to the overall market, with operating days remaining relatively flat versus 2024 Q1 levels, which compares to a 3% drop in the underlying active land rig count (Source: Baker Hughes). We believe that a focus on the high-performance RSS market has helped support consistent job counts versus a lower rig count environment for U.S. land. We also believe that there is opportunity for growth in the portion of the market that demands RSS technology and have further invested in our U.S. RSS fleet, expanding to twenty-one systems from the sixteen systems held at the end of 2023. "With a significant portion of our daily revenue dedicated to third-party rental expense, our single biggest opportunity for growth leading into 2025 is the deployment of our own Rime-supplied MWD systems for the U.S. directional drilling market. ACT remains on track to manufacture fifty MWD systems by the end of this year with deployment and utilization of the fleet hitting full capacity in the first half of 2025. With ten systems already deployed and operating in the market, we should begin to see a modest improvement in financial results against a weaker macro environment as we replace third-party rentals and progress on our MWD build-out through the back half of 2024. "With a relatively modest capital investment, successful deployment of a sizable MWD fleet is our highest priority as it provides the highest potential returns on capital versus any other investment opportunity before us. Finally, our U.S.-based Discovery Downhole Services mud motor rental business saw weaker utilization levels in 2024 Q2, which was roughly in-line with the declining trajectory of the U.S. land rig count. "We continued to strengthen our balance sheet in the second quarter with reduced debt levels and increased cash balances related to the cyclical working capital harvest that occurs with seasonal activity lows, following a relatively busy first quarter in Canada. We remain confident that the business will produce results that will allow us to further reduce our Loans and borrowings to very comfortable levels within the next twelve months, providing the Company with optionality to initiate a shareholder return strategy in the near future, if market conditions allow. Lower levels of debt combined with a meaningful reduction in third-party rental expense in 2025 will support higher levels of cash flow and profitability, providing further strategic flexibility into the future.    "Finally, I want to thank all those at ACT in the U.S. and Canada, who continue to put significant efforts into growing one of the largest directional drilling technology companies in North America. Your contribution to our success is apparent and always appreciated," stated Tom Connors, ACT President and Chief Executive Officer. FINANCIAL HIGHLIGHTS(unaudited) Canadian dollars in 000's (except for otherwise noted) Three months ended June 30, Six months ended June 30, 2024 2023 2024 2023 Revenues (2) $       130,297 $       121,339 $       295,253 $       254,287 Gross margin % (2) 21 % 18 % 21 % 17 % Adjusted gross margin % (1)(2) 26 % 26 % 27 % 25 % Adjusted EBITDAS (1) $         17,305 $         18,222 $         46,054 $         33,409 Per share - basic (3) $             0.50 $             0.54 $             1.33 $             1.01 Per share - diluted (3) $             0.45 $             0.53 $             1.20 $             0.98 Adjusted EBITDAS margin % (1) 13 % 15 % 16 % 13 % Cash flow - operating activities (2) $         34,123 $         16,407 $         49,866 $         44,267 Free cash flow (deficit) (1)(2) $          (2,997) $           4,969 $              453 $           4,143 Net income $           5,259 $           2,416 $         16,840 $           3,210 Per share - basic (3) $             0.15 $             0.07 $             0.49 $             0.10 Per share - diluted (3) $             0.14 $             0.07 $             0.44 $             0.09 Weighted average shares outstanding: Basic (000s) (3) 34,439 34,057 34,574 33,074 Diluted (000s) (3) 38,402 34,380 38,490 34,081   Balance, June 30,2024 December 31,2023 Working capital, excluding current portion of loans and borrowings (1) $           74,876 $           74,865 Total assets $         420,371 $         403,733 Loans and borrowings $           72,683 $           78,598 Shareholders' equity $         200,695 $         179,468 (1) Refer to the "Non-GAAP Measures" section in this news release. (2) Refer to the "Reclassifications" section in this news release. (3) Restated to reflect the 7:1 share consolidation on July 3, 2024. Refer to the "Share Consolidation" section in this news release. OUTLOOK The outlook for global energy demand remains constructive driven by general economic growth, the increasing energy requirements of emerging technology, and the continued growth and development of third world nations. Oil prices continue to trade in relatively healthy ranges despite concerns of a potential recession in North America and increased geopolitical risk that threatens supply. The multi-year shift by producers to lower leverage levels, capital discipline, and dedicated shareholder return strategies has translated to more consistent spending, directly correlating to more consistent levels of activity for oilfield service providers. In North America, natural gas pricing currently remains very weak due to robust supply levels and lack of storage capacity. Optimism related to the growing number of U.S. and Canadian liquified natural gas ("LNG") export facilities, coming online in the next several years, provides a more positive backdrop for the longer term with the potential for increased demand and more buoyant pricing in the future.  ACT moves into the third quarter of 2024 with the strongest Q3 Canadian job count in its history. Recent increases in oil and natural gas takeaway capacity are driving year-over-year growth in underlying Western Canadian activity levels and ACT continues to outperform this baseline. In the U.S., there are early signs of the rig count bottoming with activity constrained by weak natural gas prices and recent activity related to customer consolidation. While these headwinds are considered relatively short-term in nature, they are likely to negatively impact the pace of a potential rebound in rig counts on U.S. land in the back half of the year and potentially into 2025.  With a continued increase in well complexity and a focus on increasing production per well, ACT is well positioned to use its leading technology to help its customers maximize efficiency, which will support more consistent job counts and revenue levels, relative to the market in the quarters to come. With an internal opportunity set to support growth, we believe that the Company has some compelling drivers to further expand its business versus a flat market environment for the majority of the industry over the next twelve to eighteen months. 2023 ACQUISITION On July 11, 2023, ACT, through a wholly-owned subsidiary, acquired Rime, a privately-held, Texas-based, engineering business that specializes in building products for the downhole MWD industry (the "Rime acquisition") in exchange for approximately USD $41.0 million (approximately CAD $54.1 million) comprised of: i) the payment of USD $21.0 million in cash (approximately CAD $28.0 million); and ii) the issuance of principal amount of USD $20.0 million (approximately CAD $26.4 million) of subordinated exchangeable promissory notes ("EP Notes") that are exchangeable into a maximum of 3,510,000 common shares of ACT ("EP Shares") at an issue price of CAD $7.70 per common share. In accordance with International Accounting Standards ("IAS") 32 and IFRS 13, the EP Notes were determined to be a compound instrument and, accordingly, recognized at the fair value of their respective debt component of $23.4 million and equity component of $1.2 million totaling $24.6 million. RECLASSIFICATIONS The Company has changed the presentation of certain figures in 2023 Q2 related to equipment lost-in-hole reimbursements collected from customers and the corresponding derecognition of the property, plant and equipment ("PP&E"). More specifically, the Company reclassified its gain on disposal of PP&E as follows: a) reclassified the proceeds on disposal of PP&E, related to lost-in-hole equipment, to revenues and b) recognized a write-off of PP&E for the net book value of the lost-in-hole equipment on the condensed consolidated statement of comprehensive income. In addition, the lost-in-hole proceeds were reclassified from the Company's cash flows - investing activities to the cash flows - operating activities on the condensed consolidated statement of cash flows. The Company has changed its judgement regarding equipment lost-in-hole events that are contracted with its customers in that these events are now considered to be part of its ordinary business activities. The changes are reflected in the current and prior periods, as described above. These reclassifications recognized in 2023 Q2 are summarized below: Condensed Consolidated Statement of Comprehensive Income (Excerpt) Three months ended June 30, 2023 Six months ended June 30, 2023 Reported Adjustment Adjusted Reported Adjustment Adjusted Revenues: United States $       93,543 $         4,965 $       98,508 $     175,865 $        7,595 $     183,460 Canada 21,515 1,316 22,831 66,858 3,969 70,827 Total revenues 115,058 6,281 121,339 242,723 11,564 254,287 Cost of sales (98,720) (1,106) (99,826) (209,321) (2,445) (211,766) Gross margin 16,338 5,175 21,513 33,402 9,119 42,521 Write-off of PP&E — (745) (745) — (1,721) (1,721) (Gain) loss on disposal of PP&E $         4,091 $       (4,430) $          (339) $        7,135 $       (7,398) $          (263) Condensed Consolidated Statement of Cash Flows (Excerpt) Three months ended June 30, 2023 Six months ended June 30, 2023 Reported Adjustment Adjusted Reported Adjustment Adjusted Cash flow provided by (used in): Operating activities Write-off of PP&E $            — $           745 $          745 $             — $         1,721 $       1,721 (Gain) loss on disposal of PP&E (4,091) 4,430 339 (7,135) 7,398 263 Cash flow - operating activities 11,232 5,175 16,407 35,148 9,119 44,267 Investing activities PP&E additions $      (8,714) $       (1,329) $    (10,043) $    (22,465) $              — $    (22,465) Proceeds on disposal of PP&E 4,208 (3,839) 369 9,780 (9,117) 663 Cash flow - investing activities (4,354) (5,168) (9,522) (14,584) (9,117) (23,701) Effect of exchange rate on changes on cash $        (990) $              (7) $        (997) $      (1,044) $              (2) $     (1,046) RESULTS OF OPERATIONS Three months ended June 30, Six months ended June 30, 2024 2023 2024 2023 Revenues United States (2) $            99,069 $           98,508 $     205,631 $      183,460 Canada (2) 31,228 22,831 89,622 70,827 Total revenues (2) 130,297 121,339 295,253 254,287 Cost of sales Direct costs (2) (96,764) (89,615) (214,364) (192,186) Depreciation and amortization (6,180) (10,115) (17,815) (19,340) Share-based compensation (169) (96) (392) (240) Cost of sales (103,113) (99,826) $    (232,571) $     (211,766) Gross margin (2) $            27,184 $           21,513 $       62,682 $        42,521 Gross margin % (2) 21 % 18 % 21 % 17 % Adjusted gross margin % (1)(2) 26 % 26 % 27 % 25 % (1) Refer to the "Non-GAAP Measures" section in this news release. (2) Refer to the "Reclassifications" section in this news release. SEGMENTED INFORMATION United States Revenues U.S. revenues were $99.1 million in 2024 Q2, an increase of $0.6 million or 1%, compared to $98.5 million in 2023 Q2. The Company realized a 5% decrease in operating days to 3,746 days in 2024 Q2, compared to 3,963 days in 2023 Q2. The decrease in operating days was due to a declining market in 2024 Q2. The average revenue per operating day increased 6% to $26,447 per day in 2024 Q2, compared to $24,857 per day in 2023 Q2, mainly due to job mix.     U.S. revenues were $205.6 million in the six months ended June 30, 2024, an increase of $22.1 million or 12%, compared to $183.5 million for the same period in 2023. The Company realized a 2% increase in operating days to 7,416 days in the six months ended June 30, 2024, compared to 7,280 days for the same period in 2023. The increase is mainly related to the Company realizing higher activity, despite a declining market in the six months ended June 30, 2024. The average revenue per operating day increased 10% to $27,728 per day in the six months ended June 30, 2024, compared to $25,201 per day for the same period in 2023, mainly due to a change in job mix. Direct costs U.S. direct costs included in cost of sales were $75.1 million in 2024 Q2, an increase of $1.5 million, compared to $73.6 million in 2023 Q2. The increase is mainly due to higher repair and labour costs, offset by lower third-party rental costs. A portion of the increased labour costs is attributable to the Rime acquisition (acquired in July 2023). As a percentage of revenues, direct costs increased to 76% in 2024 Q2, compared to 75% in 2023 Q2. U.S. direct costs included in cost of sales were $156.4 million in the six months ended June 30, 2024, an increase of $14.8 million or 10%, compared to $141.6 million for the same period in 2023. The increase is mainly due to higher repairs and labour costs, offset by lower third-party rental costs. A portion of the increased labour costs is attributable to the Rime acquisition (acquired in July 2023). As a percentage of revenues, direct costs decreased to 76% in the six months ended June 30, 2024, compared to 77% for the same period in 2023.   Canadian Revenues Canadian revenues were $31.2 million in 2024 Q2, an increase of $8.4 million or 37%, compared to $22.8 million in 2023 Q2. The Company realized a 28% increase in operating days to 2,130 days in 2024 Q2, compared to 1,662 days in 2023 Q2. The increase in operating days is mainly attributable to higher market demand in 2024 Q2. ...