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ACT Energy Technologies Ltd. — Management Reports 2025
Mar 26, 2025
42523_rns_2025-03-25_dae1d27b-0199-4223-a19e-3e89b876a943.pdf
Management Reports
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MANAGEMENT'S DISCUSSION & ANALYSIS
ACT Energy Technologies Ltd. (the "Company" or "ACT", formerly Cathedral Energy Services Ltd.), is a publicly traded company listed on the Toronto Stock Exchange ("TSX") under the symbol "ACX", formerly "CET". The Company is primarily involved and engaged in the business of providing directional drilling services and related downhole technologies to oil and natural gas companies in Western Canada and the U.S. The Company operates under three brands, Altitude Energy Partners, Discovery Downhole Services and Rime Downhole Technologies.
This Management's Discussion & Analysis ("MD&A") for the year ended December 31, 2024 is dated March 25, 2025 and should be read in conjunction with the Company's audited consolidated financial statements for the year ended December 31, 2024, the Company's MD&A and audited consolidated financial statements for the year ended December 31, 2023, and Annual Information Form ("AIF") for the year ended December 31, 2024. This MD&A is intended to assist the reader in the understanding and assessment of significant changes and trends, as well as the risks and uncertainties, related to the results of the operations and financial position of the Company. These documents are filed on SEDAR+ (www.sedarplus.ca) and appear on the Company's website (www.actenergy.com). Tabular amounts are in '000's of Canadian dollars, unless otherwise noted.
ACT uses certain performance measures throughout this MD&A that are not defined under International Financial Reporting Standards as issued by the International Accounting Standards Board ("IFRS Accounting Standards"). See the 'Non-GAAP Measures' section in this MD&A.
2024 KEY HIGHLIGHTS
The Company achieved the following 2024 results and highlights:
- Revenues of $571.8 million in 2024 were the highest annual revenues in the Company's history and increased 5%, compared to $545.3 million in 2023.
- Adjusted EBITDAS (1) of $93.8 million in 2024, also established a new corporate record, increasing 3% compared to $90.9 million in 2023.
- Record levels of revenues and Adjusted EBITDAS (1) achieved in 2024 despite a 9% decline in average levels of North American land drilling versus 2023 (i.e., Western Canada and U.S. land rig counts (2)).
- Canadian operating days increased 20% in 2024, compared to 2023, which was favourable in comparison to a 6% increase in the Western Canadian rig count (2). ACT remains highly active in oil plays where wells have a high multilateral count.
- U.S. operating days decreased 10% in 2024, compared to 2023, which was slightly better than the 13% decline in the U.S. land rig count (2).
- An increase in the Canadian average revenue per operating day of 3% in 2024, compared to 2023.
- An increase in the U.S. average revenue per operating day of 8% in 2024, compared to 2023, owing to an increasing focus on the higher-value parts of the market such as the use of rotary steerable tools.
- Net income of $57.9 million in 2024, compared to $10.6 million in 2023. The increase is mainly due to increased revenue and the recognition of previously unrecorded Canadian tax pools, resulting in a deferred income tax recovery of $10.2 million. Refer to the 'Income tax' section of this MD&A.
- Cash flow - operating activities of $90.2 million in 2024, compared to $70.0 million in 2023.
- Free cash flow (1) of $17.2 million in 2024, compared to Free cash flow (1) of $28.7 million in 2023.
- The Company purchased 1,144,250 common shares of ACT under its NCIB for a total amount of $7.0 million, at an average price of $6.08 per common share. Subsequent to December 31, 2024, the Company purchased 706,099 common shares for a total purchase amount of $4.3 million, at an average purchase price of $6.13 per common share.
- Loans and borrowings less cash was $50.7 million as at December 31, 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) in 2025.
- Subsequent to December 31, 2024, the Company amended and expanded its Credit Agreement with its syndicate co-lead by ATB Financial and Royal Bank of Canada. The amendment provided for an increased credit facility to approximately $124.3 million lending capacity, a lower interest rate, more flexible financial covenants, and an extended maturity date. In addition, the Company's term loans were converted to a revolving credit facility eliminating contracted debt repayments and providing the Company with additional flexibility. Refer to the 'Liquidity and capital resources' section of this MD&A for more details.
- The Company continues to see a significant opportunity for margin expansion in its U.S. directional business by using Rime supplied MWD systems to reduce its third-party rental costs. To date, seventeen Rime MWD systems have been deployed with an additional thirty-three MWD systems expected to be deployed by the end of Q2 2025. A substantial majority of the capital required to complete the build-out of these systems was spent as part of the 2024 capital plan, with minimal amounts required in 2025.
- The Company purchased ten additional RSS Orbit tools, expanding its owned U.S. fleet to twenty-six RSS tools.
(1) As defined in the 'Non-GAAP measures' section of this MD&A.
(2) Per Baker Hughes and Rig Locator.
FINANCIAL HIGHLIGHTS
Canadian dollars in 000's except for per share amounts
| Three months ended December 31, | Year ended December 31, | |||
|---|---|---|---|---|
| 2024 | 2023 | 2024 | 2023 | |
| Revenues | $ 128,083 | $ 145,419 | $ 571,785 | $ 545,297 |
| Gross margin % | 17% | 20% | 21% | 19% |
| Adjusted gross margin % (1) | 22% | 29% | 27% | 27% |
| Adjusted EBITDAS (1) | $ 17,582 | $ 27,369 | $ 93,805 | $ 90,884 |
| Per share - basic (2) | $ 0.50 | $ 0.79 | $ 2.70 | $ 2.68 |
| Per share - diluted (2) | $ 0.45 | $ 0.72 | $ 2.44 | $ 2.52 |
| Adjusted EBITDAS margin % (1) | 14% | 19% | 16% | 17% |
| Net income | $ 14,892 | $ 1,767 | $ 57,907 | $ 10,628 |
| Per share - basic (2) | $ 0.43 | $ 0.05 | $ 1.67 | $ 0.31 |
| Per share - diluted (2) | $ 0.38 | $ 0.05 | $ 1.51 | $ 0.29 |
| Cash flow - operating activities | $ 20,934 | $ 16,589 | $ 90,177 | $ 69,984 |
| Free cash flow (1) | $ 8,065 | $ 14,205 | $ 17,172 | $ 28,710 |
| Weighted average common shares outstanding: | ||||
| Basic (000s) (2) | 35,027 | 34,610 | 34,705 | 33,938 |
| Diluted (000s) (2) | 38,800 | 38,263 | 38,468 | 36,086 |
| Balance, | December 31, 2024 | December 31, 2023 | ||
| Working capital, excluding current portion of loans and borrowings (1) | $ 84,417 | $ 74,865 | ||
| Total assets | $ 472,881 | $ 403,733 | ||
| Loans and borrowings | $ 63,527 | $ 78,598 | ||
| Shareholders' equity | $ 241,580 | $ 179,468 |
(1) Refer to the 'Non-GAAP Measures' section in this MD&A.
(2) Restated to reflect the 7:1 share consolidation on July 3, 2024. Refer to the 'Share Consolidation' section in this MD&A.
NON-GAAP MEASURES
ACT uses certain performance measures throughout this MD&A that are not defined under IFRS Accounting Standards or Generally Accepted Accounting Principles ("GAAP"). These non-GAAP measures do not have a standardized meaning and may differ from that of other organizations, and accordingly, may not be comparable. Investors should be cautioned that these measures should not be construed as alternatives to IFRS Accounting Standards measures as an indicator of ACT's performance.
These measures include the Adjusted gross margin, Adjusted gross margin %, Adjusted EBITDAS, Adjusted EBITDAS margin %, Adjusted EBITDAS per diluted share, Free cash flow, Working capital and Net capital expenditures. Management believes these measures provide supplemental financial information that is useful in the evaluation of ACT's operations.
These non-GAAP measures are defined as follows:
i) "Adjusted gross margin" - calculated as gross margin before non-cash costs (write-down of inventory included in cost of sales, depreciation and amortization and share-based compensation); is considered a primary indicator of operating performance (see tabular calculation);
ii) "Adjusted gross margin %" - calculated as Adjusted gross margin divided by revenues; is considered a primary indicator of operating performance (see tabular calculation);
iii) "Adjusted EBITDAS" - calculated as net income before finance costs, unrealized foreign exchange gain (loss), foreign exchange gain (loss) on intercompany balances, income tax expense, depreciation and amortization, gain on settlement of lease liabilities, non-recurring costs, write-down of inventory included in cost of sales and share-based compensation; provides supplemental information to net income that is useful in evaluating the results and financing of the Company's business activities before considering certain charges (see tabular calculation);
iv) "Adjusted EBITDAS margin %" - calculated as Adjusted EBITDAS divided by revenues; provides supplemental information to net income that is useful in evaluating the results and financing of the Company's business activities before considering certain charges as a percentage of revenues (see tabular calculation);
v) “Adjusted EBITDAS per basic and diluted share” - calculated as Adjusted EBITDAS divided by the basic and diluted weighted average common shares outstanding; provides supplemental information to net income that is useful in evaluating the results and financing of the Company's business activities before considering certain charges on a per basic and diluted common share basis;
vi) “Free cash flow” - calculated as cash flow - operating activities prior to: i) changes in non-cash working capital, ii) income tax paid (refund) and iii) non-recurring costs less: i) property, plant and equipment ("PP&E") and intangible asset additions, excluding assets acquired in business combinations, ii) required repayments on loans and borrowings, in accordance with the Company's credit facility agreement, and iii) repayments of lease liabilities, net of finance costs, offset by proceeds on disposal of PP&E. Management uses this measure as an indication of the Company's ability to generate funds from its operations to support future capital expenditures, additional repayments of loans and borrowings or other initiatives (see tabular calculation).
The Company has deducted intangible asset additions from its Free cash flow calculation in 2024 Q1, compared to being excluded in prior periods. The change of the calculation is mainly due to increasingly more significant additions as the Company expanded its RSS tool fleet and the related licenses, as well as expected cash outflows in the future related to intangible assets as the Company expands its technology offerings.
vii) "Working capital" - calculated as current assets less current liabilities, excluding the current portion of loans and borrowings. Management uses this measure as an indication of the Company's financial and cash liquidity position.
viii) "Net capital expenditures" - calculated as the gross capital expenditures less reimbursements from customers and insurance proceeds related to equipment lost-in-hole and damaged beyond repair, net of payments to vendors for insurance coverage and third-party rental equipment lost-in-hole or damaged beyond repair - refer to the "Capital expenditures" section of this MD&A.
The following tables provide reconciliations from the IFRS Accounting Standards to non-GAAP measures included in this MD&A.
Adjusted gross margin
| Three months ended December 31, | Year ended December 31, | |||
|---|---|---|---|---|
| 2024 | 2023 | 2024 | 2023 | |
| Gross margin | $ 21,585 | $ 29,783 | $ 121,852 | $ 105,329 |
| Add non-cash items included in cost of sales: | ||||
| Write-down of inventory included in cost of sales | 355 | 524 | 782 | 1,501 |
| Depreciation and amortization | 6,677 | 11,171 | 30,924 | 41,019 |
| Share-based compensation | 145 | 249 | 610 | 918 |
| Adjusted gross margin | $ 28,762 | $ 41,727 | $ 154,168 | $ 148,767 |
| Adjusted gross margin % | 22% | 29% | 27% | 27% |
Adjusted EBITDAS
| Three months ended December 31, | Year ended December 31, | |||
|---|---|---|---|---|
| 2024 | 2023 | 2024 | 2023 | |
| Net income | $ 14,892 | $ 1,767 | $ 57,907 | $ 10,628 |
| Add (deduct): | ||||
| Income tax (recovery) expense | (3,458) | 5,617 | (10,103) | 9,559 |
| Depreciation and amortization - cost of sales | 6,677 | 11,171 | 30,924 | 41,019 |
| Depreciation and amortization - selling, general and administrative expenses | 2,670 | 2,289 | 10,109 | 7,596 |
| Share-based compensation - cost of sales | 145 | 249 | 610 | 918 |
| Share-based compensation - selling, general and administrative expenses | 605 | 1,004 | 2,565 | 4,183 |
| Finance costs - loans and borrowings and exchangeable promissory notes | 1,963 | 2,446 | 8,771 | 7,948 |
| Finance costs - lease liabilities | 308 | 214 | 899 | 848 |
| Unrealized foreign exchange (gain) loss | (6,575) | 69 | (8,692) | (930) |
| Gain on settlement of lease liabilities | — | — | (391) | — |
| Non-recurring expenses, including inventory write-off | 355 | 2,543 | 1,206 | 9,115 |
| Adjusted EBITDAS | $ 17,582 | $ 27,369 | $ 93,805 | $ 90,884 |
| Adjusted EBITDAS margin % | 14% | 19% | 16% | 17% |
Free cash flow
| Three months ended December 31, | Year ended December 31, | |||
|---|---|---|---|---|
| 2024 | 2023 | 2024 | 2023 | |
| Cash flow - operating activities | $ 20,934 | $ 16,589 | $ 90,177 | $ 69,984 |
| Add (deduct): | ||||
| Income tax paid | 398 | 4,633 | 4,363 | 5,479 |
| Changes in non-cash operating working capital | (3,235) | 4,928 | 2,191 | 12,141 |
| Non-recurring expenses | — | 2,019 | 424 | 7,614 |
| Proceeds on disposal of property, plant and equipment | 235 | 454 | 1,768 | 1,187 |
| Less: | ||||
| Property, plant and equipment and intangible asset additions (1) | (3,959) | (8,425) | (57,450) | (46,433) |
| Required repayments on loans and borrowings (2) | (5,239) | (5,118) | (20,700) | (17,727) |
| Repayments of lease liabilities, net of finance costs | (1,069) | (875) | (3,601) | (3,535) |
| Free cash flow | $ 8,065 | $ 14,205 | $ 17,172 | $ 28,710 |
(1) Property, plant and equipment additions exclude any non-cash additions.
(2) Required repayments on loans and borrowings in accordance with the credit facility agreement, which excludes discretionary debt repayments.
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 at an issue price of CAD $7.70 per common share.
The EP Notes have a three-year term and accrue interest quarterly at a rate of 5% per annum. 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. As at December 31, 2024, the carrying value of the EP Notes was $27.0 million.
In connection with the Rime acquisition, the Company entered into a three-year term credit facility (the "Credit Facility"), replacing its existing credit facility with its syndicate of lenders led by ATB Financial ("ATB") - refer to the 'Liquidity and capital resources' section in this MD&A.
RESULTS OF OPERATIONS
| Three months ended December 31, | Year ended December 31, | |||
|---|---|---|---|---|
| 2024 | 2023 | 2024 | 2023 | |
| Revenues | ||||
| United States | $ 79,300 | $ 100,106 | $ 371,879 | $ 383,904 |
| Canada | 48,783 | 45,313 | 199,906 | 161,393 |
| Total revenues | 128,083 | 145,419 | 571,785 | 545,297 |
| Cost of sales | ||||
| Direct costs | (99,676) | (104,216) | (418,399) | (398,031) |
| Depreciation and amortization | (6,677) | (11,171) | (30,924) | (41,019) |
| Share-based compensation | (145) | (249) | (610) | (918) |
| Cost of sales | (106,498) | (115,636) | (449,933) | (439,968) |
| Gross margin | $ 21,585 | $ 29,783 | $ 121,852 | $ 105,329 |
| Gross margin % | 17% | 20% | 21% | 19% |
| Adjusted gross margin % (1) | 22% | 29% | 27% | 27% |
(1) Refer to the 'Non-GAAP Measures' section in this MD&A.
5
SEGMENTED INFORMATION
United States
Revenues
U.S. revenues were $79.3 million in the three months ended December 31, 2024, a decrease of $20.8 million or 21%, compared to $100.1 million for the same period in 2023. The Company realized a 22% decrease in operating days in the three months ended December 31, 2024 (2024 - 2,841 days; 2023 - 3,625 days). The decrease in operating days was due to a declining U.S. market in the three months ended December 31, 2024. The average revenue per operating day increased 1% in the three months ended December 31, 2024 (2024 - $27,913 per day; 2023 - $27,615 per day).
U.S. revenues were $371.9 million in 2024, a decrease of $12.0 million or 3%, compared to $383.9 million in 2023. The Company realized a 10% decrease in operating days (2024 - 13,337 days; 2023 - 14,858 days). The decrease is mainly related to a declining U.S. market in 2024. The average revenue per operating day increased 8% in 2024 (2024 - $27,883 per day; 2023 - $25,838 per day), mainly due to a change in job mix.
Direct costs
U.S. direct costs included in cost of sales were $62.7 million in the three months ended December 31, 2024, a decrease of $11.5 million or 15%, compared to $74.2 million for the same period in 2023. The decrease is mainly due to lower MWD third-party rental costs, mainly as a result of the Rime MWD build-out, in addition to lower labour and repair costs related to lower activity in 2024. As a percentage of revenues, direct costs increased to 79% in the three months ended December 31, 2024, compared to 74% for the same period in 2023, mainly due to higher labour and repair costs as a percentage of revenues, offset by lower third-party MWD rental costs as a percentage of revenues.
U.S. direct costs included in cost of sales were $284.0 million in 2024, a decrease of $6.4 million or 2%, compared to $290.4 million in 2023. The decrease is mainly due to lower labour due to lower activity and third-party rental costs mainly as a result of the Rime MWD build-out. The decrease was offset by higher repair and manufacturing costs. The manufacturing costs are attributable to the Rime acquisition (acquired in July 2023). As a percentage of revenues, direct costs were 76% in 2024 and 2023, mainly as a result of higher repair costs as a percentage of revenues, offset by lower third-party MWD rental costs as a percentage of revenues.
Canadian
Revenues
Canadian revenues were $48.8 million in the three months ended December 31, 2024, an increase of $3.5 million or 8%, compared to $45.3 million for the same period in 2023. The Company realized a 2% increase in operating days in the three months ended December 31, 2024 (2024 - 3,471 days; 2023 - 3,389 days). The increase in operating days is mainly attributable to higher market demand in the three months ended December 31, 2024. The average revenue per operating day increased 5% in the three months ended December 31, 2024 (2024 - $14,054 per day; 2023 - $13,371 per day). The increase in the average revenue per operating day is mainly attributed to higher proceeds from lost-in-hole reimbursements from customers and a change in job mix.
Canadian revenues were $199.9 million in 2024, an increase of $38.5 million or 24%, compared to $161.4 million in 2023. The Company realized a 20% increase in operating days in 2024 (2024 - 14,502 days; 2023 - 12,098 days). The increase in operating days is mainly attributable to higher market demand in 2024. The average revenue per operating day increased 3% (2024 - $13,785 per day; 2023 - $13,341 per day). The increase in the average revenue per operating day is mainly attributed to higher proceeds from lost-in-hole reimbursements from customers and a change in job mix.
Direct costs
Canadian direct costs included in cost of sales were $37.0 million in the three months ended December 31, 2024, an increase of $6.9 million or 23%, compared to $30.1 million for the same period in 2023. The increase is mainly due to higher labour and repair costs in the three months ended December 31, 2024. As a percentage of revenues, direct costs were 76% in the three months ended December 31, 2024, compared to 66% for the same period in 2023 mainly due to higher repair and third-party rental costs as a percentage of revenues.
Canadian direct costs included in cost of sales were $134.4 million in 2024, an increase of $26.8 million or 25%, compared to $107.6 million in 2023. The increase is mainly due to higher labour and repair costs in 2024. As a percentage of revenues, direct costs were 67% in 2024 and 2023.
CONSOLIDATED
Revenues
The Company recognized $128.1 million of revenues in the three months ended December 31, 2024, a decrease of $17.3 million or 12%, compared to $145.4 million for the same period in 2023. The decrease is due to a 10% decrease in operating days (2024 - 6,312 days; 2023 - 7,014 days), and a decrease of 2% in the average revenue per operating day (2024 - $20,292 per day; 2023 - $20,733 per day).
The Company recognized $571.8 million of revenues in 2024, an increase of $26.5 million or 5%, compared to $545.3 million in 2023. The increase is due to a 3% increase in operating days (2024 - 27,839 days; 2023 - 26,956 days) and an increase of 2% in the average revenue per operating day (2024 - $20,539 per day; 2023 - $20,229 per day).
Direct costs
The Company recognized $99.7 million of direct costs in the three months ended December 31, 2024, a decrease of $4.5 million or 4%, compared to $104.2 million for the same period in 2023. The decrease is mainly due to lower labour costs related to the decrease in operating days, and lower third-party MWD rental costs mainly related to the Rime MWD build-out.
The Company recognized $418.4 million of direct costs in 2024, an increase of $20.4 million or 5%, compared to $398.0 million in 2023. The increase is mainly due to higher repair and labour costs related to the increase in operating days, and the inclusion of manufacturing costs related to Rime (acquired in July 2023), offset by lower third-party MWD rental costs.
Direct costs as a percentage of revenues increased to 78% in the three months ended December 31, 2024, compared to 72% for the same period in 2023, mainly due to higher labour and repair costs as a percentage of revenues. Direct costs as a percentage of revenue were 73% in 2024 and 2023, as a result of higher repair costs as a percentage of revenues, offset by lower third-party MWD rental costs as a percentage of revenues.
Gross margin and adjusted gross margin
The Gross margin % decreased to 17% in the three months ended December 31, 2024, compared to 20% for the same period in 2023. The Gross margin % increased to 21% in 2024, compared to 19% in 2023.
The Adjusted gross margin % decreased to 22% in the three months ended December 31, 2024, compared to 29% for the same period in 2023. The Adjusted gross margin % was 27% in 2024 and 2023. The Company remains focused on reducing third-party MWD and motor rental costs by investing capital to build out its MWD and motor fleet.
Depreciation and amortization expense
Depreciation and amortization expense included in cost of sales decreased to $6.7 million and $30.9 million in the three months and year ended December 31, 2024, compared to $11.2 million and $41.0 million for the same periods in 2023, respectively. The decrease is mainly due to a change in depreciation methodology, as described below.
In 2024 Q1, the Company assessed its depreciation methodology related to its property, plant and equipment. As a result, the Company determined that using a straight-line method of depreciation, rather than the declining balance method, more accurately reflects the future economic benefits of the related assets. The depreciation expense included in cost of sales decreased due to the change in methodology.
Depreciation and amortization expense included in cost of sales as a percentage of revenues was 5% in the three months and year ended December 31, 2024, compared to 8% for the same periods in 2023, respectively.
Selling, general and administrative ("SG&A") expenses
| Three months ended December 31, | Year ended December 31, | |||
|---|---|---|---|---|
| 2024 | 2023 | 2024 | 2023 | |
| Selling, general and administrative expenses: | ||||
| Direct costs | $ 10,559 | $ 14,801 | $ 54,540 | $ 52,502 |
| Depreciation and amortization | 2,670 | 2,289 | 10,109 | 7,596 |
| Share-based compensation | 605 | 1,004 | 2,565 | 4,183 |
| Selling, general and administrative expenses | $ 13,834 | $ 18,094 | $ 67,214 | $ 64,281 |
The Company recognized direct costs included in SG&A expenses of $10.6 million and $54.5 million in the three months and year ended December 31, 2024, a decrease of $4.2 million and an increase of $2.0 million, compared to $14.8 million and $52.5 million for the same periods in 2023, respectively. The decrease for the three months ended December 31, 2024 is related to a lower discretionary incentive expense. The increase for 2024 is mainly related to higher promotional and information technology costs, and the inclusion of SG&A expenses related to Rime (acquired in July 2023).
Direct costs included in SG&A expenses as a percentage of revenues were 8% and 10% in the three months and year ended December 31, 2024, compared to 10% for the same periods in 2023, respectively.
Depreciation and amortization included in SG&A expenses were $2.7 million and $10.1 million in the three months and year ended December 31, 2024, compared to $2.3 million and $7.6 million for the same periods in 2023, respectively. The increases are mainly due to amortization expense related to the intangible assets acquired in the Rime transaction.
Stock-based compensation included in SG&A expenses were $0.6 million and $2.6 million in the three months and year ended December 31, 2024, compared to $1.0 million and $4.2 million for the same periods in 2023, respectively. The decrease is mainly due to certain stock options being fully vested in 2024.
Provision
| Three months ended December 31, | Year ended December 31, | |||
|---|---|---|---|---|
| 2024 | 2023 | 2024 | 2023 | |
| Provision | $ — | $ 1,126 | $ — | $ 5,417 |
The Company recognized a provision of $7.6 million, included in trade and other payables, related to a U.S. tax audit matter during the year ended December 31, 2023. A portion of the provision was recognized as an expense of $5.4 million and a portion was recognized as property, plant and equipment and inventory of $2.2 million during the year ended December 31, 2023. The carrying value of the provision included in trade and other payables increased by $0.7 million to $8.3 million due to the effects of movements in exchange rates during the year ended December 31, 2024.
In relation to a pre-closing sales tax issue related to the July 14, 2022 acquisition of Altitude, as a result of a preliminary assessment, the Company has recognized a provision of $15.5 million in Trade and other payables. Pursuant to the Equity Purchase Agreement related to the Altitude acquisition, the sellers provided the Company with an indemnity related to pre-closing tax issues, including the sales tax issue noted. Accordingly, the Company has recognized an offsetting indemnity receivable of $15.5 million in Other receivable.
The Company is also involved in various other legal claims associated with the normal course of operations. The Company believes that any liabilities that may arise pertaining to such matters would not have a material impact on its financial position.
Research and development ("R&D") costs
| Three months ended December 31, | Year ended December 31, | |||
|---|---|---|---|---|
| 2024 | 2023 | 2024 | 2023 | |
| Research and development costs | $ 388 | $ 417 | $ 2,833 | $ 1,754 |
The Company recognized R&D costs of $0.4 million and $2.8 million in the three months and year ended December 31, 2024, compared to $0.4 million and $1.8 million for the same periods in 2023, respectively. R&D costs are salaries, benefits, purchased materials and shop supply costs related to new product development and technology.
Write-off of property, plant and equipment
| Three months ended December 31, | Year ended December 31, | |||
|---|---|---|---|---|
| 2024 | 2023 | 2024 | 2023 | |
| Write-off of property, plant and equipment | $ 642 | $ 1,128 | $ 3,508 | $ 4,952 |
The Company recognized a write-off of property, plant and equipment of $0.6 million and $3.5 million in the three months and year ended December 31, 2024, compared to $1.1 million and $5.0 million for the same periods in 2023, respectively. The write-offs related to equipment lost-in-hole and damaged beyond repair. Reimbursements on lost-in-hole equipment and damaged beyond repair are based on service agreements held with clients and are recognized as revenues.
Finance costs
| Three months ended December 31, | Year ended December 31, | |||
|---|---|---|---|---|
| 2024 | 2023 | 2024 | 2023 | |
| Finance costs - loans and borrowings and EP Notes | $ 1,963 | $ 2,446 | $ 8,771 | $ 7,948 |
| Finance costs - lease liabilities | $ 308 | $ 214 | $ 899 | $ 848 |
Finance costs - loans and borrowings and EP Notes were $2.0 million in the three months ended December 31, 2024, a decrease of $0.4 million, compared to $2.4 million for the same period in 2023. The decrease is mainly due to a lower outstanding balance of loans and borrowings in the three months ended December 31, 2024 compared to the same period in 2023.
Finance costs - loans and borrowings and EP Notes were $8.8 million in 2024, an increase of $0.9 million, compared to $7.9 million in 2023. The increase is mainly due to higher interest rates in 2024 and finance costs related to the Company's EP Notes issued as part of the Rime transaction in July 2023.
In addition, the Company had finance costs - lease liabilities of $0.3 million and $0.9 million in the three months and year ended December 31, 2024, related to lease liabilities, compared to $0.2 million and $0.8 million for the same periods in 2023, respectively.
Foreign exchange
| Three months ended December 31, | Year ended December 31, | |||
|---|---|---|---|---|
| 2024 | 2023 | 2024 | 2023 | |
| Foreign exchange gain | $ (6,757) | $ (722) | $ (8,628) | $ (768) |
| Foreign currency translation (gain) loss on foreign operations | $ (4,759) | $ 4,892 | $ (6,063) | $ 4,301 |
The Company recognized a foreign exchange gain of $6.8 million in the three months ended December 31, 2024, compared to a foreign exchange gain of $0.7 million for the same period in 2023. The Company recognized a foreign exchange gain of $8.6 million in 2024, compared to a foreign exchange gain of $0.8 million in 2023. The impact of foreign exchange is due to fluctuations of the Canadian dollar relative to the USD related to foreign currency transactions and balances recognized in net income.
The Company recognized a foreign currency translation gain on foreign operations of $4.8 million in the three months ended December 31, 2024, compared to a loss of $4.9 million for the same period in 2023. The Company recognized a foreign currency
translation gain on foreign operations of $6.1 million in 2024, compared to a loss of $4.3 million in 2023. The Company's foreign operations are denominated in USD and differences due to fluctuations in the foreign currency exchange rates are recorded in other comprehensive income.
Income tax recovery (expense)
| Three months ended December 31, | Year ended December 31, | |||
|---|---|---|---|---|
| 2024 | 2023 | 2024 | 2023 | |
| Current | (2,318) | 4,163 | 141 | 8,411 |
| Deferred | (1,140) | 1,454 | (10,244) | 1,148 |
| Income tax (recovery) expense | $ (3,458) | $ 5,617 | $ (10,103) | $ 9,559 |
The Company recognized an income tax recovery of $3.5 million and $10.1 million in the three months and year ended December 31, 2024, compared to an income tax expense of $5.6 million and $9.6 million for the same periods in 2023, respectively. Income tax expense is booked based upon expected annualized rates using the statutory rates of 23% for both Canada and the U.S.
The Company recognized a portion of its Canadian tax pools in 2024 due to management's assessment and estimates that they will likely be utilized within the next twelve to eighteen months. The tax effected amount recognized was $15.3 million. The remaining tax pools remain unrecognized as at December 31, 2024.
LIQUIDITY AND CAPITAL RESOURCES
Annually, the Company's principal source of liquidity is cash generated from its operations. In addition, the Company has the ability to fund liquidity requirements through its credit facility and the issuance of additional debt and/or equity, if available.
In order to facilitate the management of its liquidity, the Company prepares an annual budget, which is updated, as necessary, depending on varying factors, including changes in capital structure, execution of the Company's business plan and general industry conditions. The annual budget is approved by the Board of Directors and updated forecasts are prepared as the fiscal year progresses with changes reviewed by the Board of Directors.
Cash flow - operating activities was $20.9 million and $90.2 million in the three months and year ended December 31, 2024, compared to $16.6 million and $70.0 million for the same periods in 2023, respectively. ACT remains focused on reducing its loans and borrowings and generating Free cash flow, as defined in the 'Non-GAAP measures' section of this MD&A. In addition, the Company will remain opportunistic in executing its NCIB and making strategic and accretive acquisitions.
At December 31, 2024, the Company had working capital, excluding current portion of loans and borrowings of $84.4 million (December 31, 2023 - $74.9 million).
Share Consolidation
On May 9, 2024, the shareholders of the Company approved the consolidation of the issued and outstanding common shares of the Company, on the basis of one post-consolidation common share for a range of five to ten pre-consolidation common shares. On June 10, 2024, the Board of Directors approved a consolidation ratio of one post-consolidation share for seven pre-consolidation common shares (the "Consolidation"). As a result, on July 3, 2024, 243,383,392 common shares issued and outstanding prior to the Consolidation were reduced to 34,769,056 common shares. No fractional common shares were issued in connection with the Consolidation, and all fractional common shares that otherwise would have been issued was rounded to the nearest whole common share. The number of shares and per share amounts in this MD&A were restated to reflect the Consolidation.
Warrants
During the year ended December 31, 2023, 2,533,127 of the April 2022 bought deal offering warrants, 82,143 of the February 2021 private placement warrants and 285,714 of the warrants related to the July 2021 Precision Drilling acquisition were exercised at $5.95 per warrant, $1.68 per warrant and $4.20 per warrant totaling $15.1 million, $0.1 million, and $1.2 million in gross cash proceeds, respectively. On April 26, 2023, the remaining 7,923 unexercised warrants from the April 2022 bought deal offering warrants expired.
Normal course issuer bid
On July 3, 2023, the Company received approval from the TSX to purchase up to 1,737,144, or 5%, of the 34,742,882 issued and outstanding common shares of the Company under the NCIB. The ability to purchase common shares under the NCIB commenced on July 17, 2023, and terminated on July 16, 2024. The actual number of common shares purchased under the NCIB, the timing of purchases and the price at which the common shares purchased were subject to management's discretion.
On July 25, 2024, the Company received approval from the TSX to purchase up to 1,902,008 common shares, or 10%, of the 19,020,083 common shares of the Company's public float under the NCIB. The ability to purchase common shares under the NCIB commenced on July 29, 2024, and will terminate no later than July 28, 2025. The actual number of common shares purchased under the NCIB, the timing of purchases and the price at which the common shares are purchased will be subject to management's discretion.
Under the TSX rules, the Company is entitled to purchase up to the greater of: 25% of the average daily trading volume of the respective class of shares; or 1,000 shares on any trading day; or a larger amount of shares per calendar week, subject to the
maximum number that may be acquired under the NCIB, if the transaction meets the block purchase exception rule under TSX rules. Accordingly, unless a block purchase meets the block purchase exception under TSX rules, the Company is entitled to purchase up to 11,137 common shares on any trading day (2023 - 14,232).
During the year ended December 31, 2024, 1,144,250 (2023 - 613,557) common shares were purchased under the NCIB for a total purchase amount of $7.0 million (2023 - $3.8 million) at an average price of $6.08 (2023 - $5.74) per common share. A portion of the purchase amount reduced share capital by $6.5 million (2023 - $3.5 million), and the residual purchase amount of $0.4 million (2023 - $0.3 million) was recorded to the surplus (deficit).
In connection with the NCIB, the Company established an automatic securities purchase plan ("the Plan"). Accordingly, the Company may repurchase its common shares under the Plan on any trading day during the NCIB, including during regulatory restrictions or self-imposed trading blackout periods. The Plan commenced on July 29, 2024 and will terminate on July 28, 2025. As at December 31, 2024, the Company recognized $2.1 million as an accrued liability ($1.9 million reduced share capital, and $0.2 million was recorded to the surplus) for the maximum common shares to be purchased under the Plan.
Subsequent to December 31, 2024, the Company purchased 706,099 common shares for a total purchase amount of $4.3 million, at an average purchase price of $6.13 per common share.
Syndicated and revolving credit facilities
On July 11, 2023, in connection with the Rime acquisition, the Company entered into a three-year term credit facility, replacing its existing syndicated facility with its syndicate of lenders led by ATB. The syndicate of lenders remained unchanged with the exception of Business Development Bank of Canada joining the syndicate. The Credit Facility provided an approximate $137.0 million principal amount comprised of: i) a $59.0 million Syndicated Term Facility (replacing the existing syndicated term facility) ("CAD Syndicated Term Facility"), ii) a new USD $21.0 million term loan (CAD $27.1 million) ("USD Syndicated Term Facility"), repayable in equal quarterly installments over a five-year amortization period, iii) a $35.0 million Syndicated Operating Facility (previously $15.0 million), and iv) a $15.0 million Revolving Operating Facility (previously $10.0 million). The Credit Facility was utilized to replace and repay ACT's existing credit facility. The Credit Facility bears interest at the financial institution's prime rate plus 1.5% to 2.25% or Canadian Overnight Repo Rate Average rate / Secured Overnight Financing Rate plus 2.5% to 3.25% with interest payable monthly. The interest rate and financial covenants remained unchanged from the existing Syndicated Facility. The maturity date of the Credit Facility was extended to July 11, 2026.
On May 30, 2024, LTD and Holdco entered into a Fourth Amended and Restated Credit Agreement with its lenders ("Credit Agreement") which provided for various administrative changes and the addition of a U.S. domiciled USD Revolving Operating Facility in the amount of $10.0 million. The terms of the Credit Agreement, including payment terms, interest rate and financial covenants remained unchanged.
During the year ended December 31, 2024, the Company withdrew $10.0 million of its Syndicated Operating Facility and repaid $5.0 million, resulting in an outstanding balance of $5.0 million as at December 31, 2024. As at December 31, 2024, $30.0 million of the $35.0 million Syndicated Operating Facility remained undrawn.
During the year ended December 31, 2024, the Company repaid $1.6 million of its CAD Revolving Operating Facility. As at December 31, 2024, the $15.0 million CAD Revolving Operating Facility remained undrawn.
At December 31, 2024, the USD Revolving Operating Facility of $10.0 million was undrawn.
In addition, at December 31, 2024, the Company held its Highly Affected Sectors Credit Availability Program ("HASCAP") loan with a balance of $0.7 million.
At December 31, 2024, the Company was in compliance with all covenants, including its financial covenants, which were as follows:
- Consolidated Funded Debt to Consolidated Credit Agreement EBITDA ratio shall not exceed 2.5:1; and
- Consolidated Fixed Charge Coverage ratio shall not be less than 1.25:1.
On March 21, 2025, the Company entered into a Fifth Amended and Restated Credit Agreement with its existing syndicate of lenders co-lead by ATB and Royal Bank of Canada ("Amended Credit Agreement"). The Amended Credit Agreement provided for the following:
i. A revolving facility with an approximate principal amount of $124.3 million comprised of: i) $100.0 million Syndicated Revolving Facility ("CAD Syndicated Revolving Facility") and ii) $10.0 million revolving facility provided by ATB Financial ("ATB Revolving Facility"), and iii) USD $10.0 million (approximately CAD $14.3 million equivalent) provided by HSBC Bank USA, N.A. ("HSBC Revolving Facility"). The revolving facility replaced the Company's existing facilities (CAD Syndicated Term Facility of $59.0 million, USD Syndicated Term Facility of USD $21.0 million, Syndicated Operating Facility of $35.0 million, Revolving Operating Facility of $15.0 million and USD Revolving Operating Facility of $10.0 million). As such, the contractual repayments of the CAD Syndicated Term Facility and USD Syndicated Term Facility are no longer required;
ii. A lower amended interest rate updated to the financial institution's prime rate plus 1.0% to 1.75% or Canadian Overnight Repo Rate Average rate / Secured Overnight Financing Rate plus 2.0% to 2.75% (previously prime rate plus 1.5% to 2.25% or Canadian Overnight Repo Rate Average rate / Secured Overnight Financing Rate plus 2.5% to 3.25%);
iii. The maturity date extended from July 11, 2026 to March 21, 2028;
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iv. Replaced the financial covenant of Consolidated Fixed Charge Coverage ratio (previously required to be no less than 1.25:1) with a Consolidated Interest Coverage Ratio, which is required to be no less than 3.00:1. The Consolidated Funded Debt to Consolidated Credit Agreement EBITDA ratio remained unchanged and shall not exceed 2.50:1; and
v. The syndicate of lenders remained unchanged with the exception of Royal Bank of Canada joining ATB as the syndicate co-lead.
Contractual obligations and contingencies
As at December 31, 2024, the Company's commitment to purchase property, plant and equipment is approximately $11.9 million (2023 - $8.1 million), which is expected to be incurred over the next six months.
The Company also holds six letters of credit totaling $1.8 million (2023 - $1.7 million) related to rent payments, corporate credit cards and a utilities deposit.
The Company is involved in various other legal claims associated with the normal course of operations. The Company believes that any liabilities that may arise pertaining to such matters would not have a material impact on its financial position.
The following table outlines the anticipated payments related to contractual commitments subsequent to December 31, 2024:
| Carrying amount | One year | 1-2 years | 3-5 years | Thereafter | |
|---|---|---|---|---|---|
| Loans and borrowings - principal | $ 63,864 | $ 21,556 | $ 42,308 | $ — | $ — |
| EP Notes - principal | 28,778 | — | 28,778 | — | — |
| Interest payments on loans and borrowings and EP Notes | 6,931 | 4,910 | 2,021 | — | — |
| Lease liabilities - undiscounted | 20,161 | 4,124 | 3,740 | 9,064 | 3,233 |
| Trade and other payables | 106,242 | 106,242 | — | — | — |
| Total | $ 225,976 | $ 136,832 | $ 76,847 | $ 9,064 | $ 3,233 |
Capital structure
As at March 25, 2025, the Company has 33,929,461 common shares, 2,831,516 stock options and EP Notes that are exchangeable into a maximum of 3,510,000 common shares outstanding.
NET CAPITAL EXPENDITURES
The following table details the Company's Net capital expenditures:
| Three months ended December 31, | Year ended December 31, | |||
|---|---|---|---|---|
| 2024 | 2023 | 2024 | 2023 | |
| MWD and related equipment | $ 35 | $ 4,364 | $ 19,413 | $ 14,218 |
| Motors and related equipment | 1,738 | 2,818 | 18,147 | 25,604 |
| Shop and automotive equipment | 223 | 151 | 703 | 2,235 |
| Other | 840 | 988 | 3,664 | 4,097 |
| Gross capital expenditures | 2,836 | 8,321 | 41,927 | 46,154 |
| Less: net lost-in-hole equipment reimbursements | (5,062) | (5,078) | (25,277) | (20,338) |
| Net capital expenditures (1) | $ (2,226) | $ 3,243 | $ 16,650 | $ 25,816 |
(1) Refer to the 'Non-GAAP Measures' section in this MD&A.
During the year ended December 31, 2024, the Company had additional capitalized costs recognized as intangible assets related to RSS licenses of $13.5 million (2023 - $nil), which are not included in the Net capital expenditures in the above table.
As at December 31, 2024, property, plant and equipment included $12.3 million (2023 - $4.6 million) of directional drilling equipment not yet being depreciated as they are currently being manufactured and tested. Depreciation of the assets will commence upon the assets being fully operational.
The Company's 2025 Net capital expenditure budget, including capital costs related to RSS licenses, is expected to be approximately $30 million to $35 million (2024 - $30 million to $35 million), excluding any potential acquisitions. The Net capital expenditure budget is targeted at growing ACT's high-performance mud motors, MWD in both Canada and the U.S., and RSS in the U.S. ACT intends to fund its 2025 capital plan from cash flow - operating activities.
OUTLOOK
Despite the recent uncertainty introduced into global markets related to proposed U.S. trade policy revisions, the longer-term outlook for North American energy-related activity is positive and global demand continues to rise while geopolitical events continue to increase uncertainty around supply. In Canada, the commissioning of the Trans Mountain pipeline expansion in May 2024, followed by Liquified Natural Gas ("LNG") Canada anticipated in 2025, will provide significant tidewater and global market access for both Canadian crude and natural gas. Both projects should translate to more consistent and slightly improved activity levels for oilfield service providers over time. LNG also represents a significant area of growth for the U.S. market as upwards of 11 billion
cubic feet per day of export capacity will be added from 2025 to 2028 supporting incremental growth in drilling activity and less volatility in activity related to the cyclicality of domestic gas prices. The potential growth in energy demand related to the evolving market for artificial intelligence data centers is also a developing trend that could further support natural gas related drilling activity.
With a strong start and peak job count in Canada near 65 jobs in the first quarter, activity for the year is currently expected to be similar to 2024. If uncertainty or increased costs due to trade policy persist, some potential for downside risk exists but is expected to be somewhat offset by a weaker Canadian dollar benefiting ACT's customers. With ACT's industry leading position in multi-lateral drilling, the compelling economics of multi-lateral wells is expected to support continued activity through the summer despite potential headwinds related to weaker commodity prices or market uncertainties. In recent years, the Company also has experienced improving activity levels in the traditionally slow second quarter as ACT's customers level-load their drilling programs and utilize more pad-style drilling. The Company expects to see this trend continue with modestly improved activity levels again this year over last year through the second quarter. Similar to the fourth quarter of 2024, the Company also anticipates that operator discipline will remain a factor and likely result in some degree of budget exhaustion and a potential decline in activity in the fourth quarter of this year.
In the U.S. the Company was operating in a range of 50 to 60 jobs in the first half of 2024 reducing to a range between 40 and 50 in the back half of the year. Job counts in 2025 are anticipated to continue at the same levels as those in the second half of as drilling activity remains somewhat constrained because of customer consolidation and concern over commodity price volatility. Current market conditions are likely to be short-term in nature as some optimism exists in the longer term with improving gas prices and the commencement of new Gulf Coast LNG in 2025, which may support some increase in incremental rig activity later this year or into 2026.
While unpredictable on a quarterly basis, reimbursements positively affecting Adjusted EBITDAS (1) for lost-in-hole and equipment damaged-beyond-repair (commonly referred to as net lost-in-hole equipment reimbursements) have historically been achieved at relatively consistent levels as a percentage of revenue over the past decade. However, during the first quarter of 2025, the Company has been experiencing an unusually low rate of net lost-in-hole equipment reimbursements, by comparison 2024 Q1 experienced an unusually high level of net lost-in-hole equipment reimbursements (2024 Q1 - $10.6 million).
While the Company feels reasonably positioned to navigate a relatively flat macroeconomic environment in North America and feels positive about the potential upside related to the deployment of ACT's own technology in the U.S. market, the Company remains cautious on the impact of tariffs and are evaluating the potential impact on ACT's business. Given ACT's supply chains are generally resident in each nation and 65% to 70% of ACT's revenues are U.S. based, the Company expects the impact will be somewhat limited but there may be certain elements of ACT's supply chain that will increase in cost. While tariffs and their potential impact may persist or prove to be short-term in nature, the underlying risk is the negative impact on the investment climate and overall consumer sentiment.
CONTROLS AND PROCEDURES
In order to ensure that information with regard to reports filed or submitted under securities legislation present fairly in all material respect the financial information of the Company, management including the Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO") are responsible for establishing and maintaining disclosure controls and procedures, as well as internal controls over financial reporting based upon The Committee of Sponsoring Organizations of the Treadway Commission ("2013 framework").
Disclosure controls and procedures
The Company's disclosure controls and procedures ("DC&P") are designed to provide reasonable assurance that information required to be disclosed by the Company is reported within the time periods specified under securities laws, and include controls and procedures that are designed to ensure that information is communicated to management of the Company, including the CEO and CFO, to allow timely decisions regarding required disclosure. An evaluation of the effectiveness of the Company's DC&P (as defined in Multilateral Instrument 52-109, Certification of Disclosure in Issuers' Annual Financial and Interim Filings) was conducted as at December 31, 2024. Based on this evaluation, the CEO and CFO of ACT have concluded that the design and operation of the Company's DC&P were effective as at December 31, 2024.
Internal controls over financial reporting
Management is responsible for establishing and maintaining adequate internal controls over financial reporting ("ICFR") to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with IFRS Accounting Standards. The CEO and CFO have designed or have caused such ICFR (as defined in Multilateral Instrument 52-109, Certification of Disclosure in Issuers' Annual Financial and Interim Filings) to be designed under their supervision to provide reasonable assurance regarding the reliability of financial reporting and preparation of the Company's financial statements for external purposes in accordance with IFRS Accounting Standards. In addition, the CEO and CFO directed the assessment of the design and operating effectiveness of the Company's internal controls over financial reporting as at December 31, 2024 and based upon that assessment determined that the Company's internal controls over financial reporting were, in all material respects, appropriately designed and operating effectively.
Management of the Company believes that "cost effective" DC&P and internal controls over financial reporting, no matter how well conceived or implemented, can only provide reasonable assurance, and not absolute assurance, that the objective controls and procedures are met. Because of inherent limitations, DC&P and ICFR may not prevent errors or fraud.
(1) Refer to the 'Non-GAAP Measures' section in this MD&A.
RISK FACTORS
The operations of ACT face a number of risks and uncertainties in the normal course of business that may be beyond its control, but which could have a material adverse effect on ACT's financial condition, results of operations and cash flows. Many of these risk factors and uncertainties are outlined in the annual information form ("AIF") of ACT for the year ended December 31, 2024, which is available on SEDAR+ at www.sedarplus.ca. Additional risks and uncertainties, including those that the Company does not know about now or that it currently deems immaterial, may also adversely affect its business, financial condition, results of operations or cash flows.
GOVERNANCE
The Audit Committee of the Board of Directors has reviewed this MD&A and the related consolidated financial statements and recommended they be approved to the Board of Directors. Following a review by the Board of Directors, the MD&A and the consolidated financial statements for the year ended December 31, 2024 were approved on March 25, 2025.
SUPPLEMENTARY INFORMATION
Additional information regarding the Company, including the AIF, is available on SEDAR+ at www.sedarplus.ca.
NEW AND FUTURE ACCOUNTING STANDARDS
Changes in accounting policy
Effective January 1, 2024, IAS 1 - Presentation of Financial Statements, has been amended, resulting in changes to the classification of loans and borrowings as current or non-current. The amendment will help determine whether an entity has the right to defer settlement of a liability, that is subject to covenants, within twelve months following the reporting period. There was no material impact on the Company's financial statements for the adoption of this amended standard.
Other amended standards in the period include IFRS 7 Financial instruments: Disclosures, IFRS 16 Leases, and IAS 7 Statement of Cash Flows, none of which are expected to have a significant impact on the Company's financial statements.
Accounting standards and amendments not yet effective
Other accounting pronouncements issued, but not yet effective, included those effective in January 2026 (IAS 21 The Effects of Changes in Foreign Exchange Rates and IFRS 7 Financial Instruments: Disclosures) and those effective in January 2027 (IFRS 18 Presentation and Disclosure in Financial Statements and IFRS 19 Subsidiaries without Public Accountability: Disclosures). The Company is currently in the process of assessing the impact of these standards on the financial statements..
SUMMARY OF ANNUAL RESULTS
| Year ended December 31, | 2024 | 2023 | 2022 |
|---|---|---|---|
| Revenues (3) | $ 571,785 | $ 545,297 | $ 319,013 |
| Gross margin % | 21% | 19% | 22% |
| Adjusted gross margin % (1) | 27% | 27% | 31% |
| Adjusted EBITDAS (1) | $ 93,805 | $ 90,884 | $ 68,187 |
| Adjusted EBITDAS margin % (1) | 16% | 17% | 21% |
| Cash flow - operating activities | $ 90,177 | $ 69,984 | $ 39,881 |
| Free cash flow (1) | $ 17,172 | $ 28,710 | $ 25,612 |
| Net income | $ 57,907 | $ 10,628 | $ 18,347 |
| Basic per share (2) | $ 1.67 | $ 0.31 | $ 0.79 |
| Diluted per share (2) | $ 1.51 | $ 0.29 | $ 0.77 |
| Weighted average shares outstanding | |||
| Basic (000s) (2) | 34,705 | 33,938 | 23,222 |
| Diluted (000s) (2) | 38,468 | 36,086 | 23,733 |
| Working capital, excluding current portion of loans and borrowings (1) | $ 84,417 | $ 74,865 | $ 60,447 |
| Total assets | $ 472,881 | $ 403,733 | $ 353,990 |
| Loans and borrowings | $ 63,527 | $ 78,598 | $ 80,535 |
| Shareholders' equity | $ 241,580 | $ 179,468 | $ 153,897 |
(1) Refer to the 'Non-GAAP Measures' section in this MD&A.
(2) Restated to reflect the 7:1 share consolidation on July 3, 2024. Refer to the 'Share Consolidation' section in this MD&A.
(3) Revenues for the year ended December 31, 2022 were restated. Refer to the Company's audited consolidated financial statements for the year ended December 31, 2023 for further detail.
SUMMARY OF QUARTERLY RESULTS
| Three months ended | Dec 2024 | Sep 2024 | Jun 2024 | Mar 2024 | Dec 2023 | Sep 2023 | Jun 2023 | Mar 2023 |
|---|---|---|---|---|---|---|---|---|
| Revenues | ||||||||
| Revenues - reported | $ 128,083 | $ 148,449 | $ 130,297 | $ 164,956 | $ 145,419 | $ 145,591 | $ 115,058 | $ 127,665 |
| Adjustment (3) | $ — | $ — | $ — | $ — | $ — | $ — | $ 6,281 | $ 5,283 |
| Revenues - adjusted | $ 128,083 | $ 148,449 | $ 130,297 | $ 164,956 | $ 145,419 | $ 145,591 | $ 121,339 | $ 132,948 |
| Adjusted EBITDAS (1) | $ 17,582 | $ 30,169 | $ 17,305 | $ 28,752 | $ 27,369 | $ 30,106 | $ 18,222 | $ 15,187 |
| Adjusted EBITDAS per share - diluted (1) (2) | $ 0.45 | $ 0.78 | $ 0.45 | $ 0.75 | $ 0.72 | $ 0.79 | $ 0.53 | $ 0.45 |
| Net income | $ 14,892 | $ 26,175 | $ 5,259 | $ 11,584 | $ 1,767 | $ 5,650 | $ 2,416 | $ 794 |
| Net income per share - diluted (2) | $ 0.38 | $ 0.68 | $ 0.14 | $ 0.30 | $ 0.05 | $ 0.15 | $ 0.07 | $ 0.02 |
(1) Refer to the 'Non-GAAP Measures' section in this MD&A.
(2) Restated to reflect the 7:1 share consolidation on July 3, 2024. Refer to the 'Share Consolidation' section in this MD&A.
(3) Revenues for the year ended December 31, 2022 were restated. Refer to the Company's audited consolidated financial statements for the year ended December 31, 2023 for further detail.
A portion of the Company's operations are carried on in Western Canada where activity levels in the oilfield services industry are subject to a degree of seasonality. Operating activities in Western Canada are generally lower during "spring breakup" which normally commences in mid to late-March and continues through to May. Operating activities generally peak in the winter months from December until mid to late-March. Additionally, volatility in the weather and temperatures not only during this period, but year-round, can create additional unpredictability in operational results. Activity levels in the oil and natural gas basins in the U.S. are not subject to the same level of seasonality that occurs in the Western Canada region.
FORWARD LOOKING STATEMENTS
This MD&A contains certain forward-looking statements and forward-looking information (collectively referred to herein as "forward-looking statements") within the meaning of applicable Canadian securities laws. All statements other than statements of present or historical fact are forward-looking statements. Forward-looking statements are often, but not always, identified by the use of words such as "anticipate", "achieve", "believe", "plan", "intend", "objective", "continuous", "ongoing", "estimate", "outlook", "expect", "may", "will", "project", "should" or similar words suggesting future outcomes. In particular, this MD&A contains forward-looking statements relating to, among other things:
- The 2025 Net capital expenditure budget and financing thereof;
- We also have an opportunity for margin expansion as we commence the deployment of the Company's own MWD units developed by Rime (acquired in 2023).
- The Company continues to see a significant opportunity for margin expansion in its U.S. directional business by using Rime supplied MWD systems to reduce its third-party rental costs. To date, seventeen Rime MWD systems have been deployed with an additional thirty-three MWD systems expected to be deployed by the end of Q2 2025. A substantial majority of the capital required to complete the build-out of these systems was spent as part of the 2024 capital plan, with minimal amounts required in 2025.
- The provision of an in-house MWD solution for ACT's clients is very important to strengthen the durability of the Company's cash flow, replacing rented third-party systems.
- The deployment of tools into an operating environment for ACT's customers will happen incrementally throughout 2025 and into 2026.
- We remain intently focused on ACT's customer execution and service delivery, supporting ACT's market positioning as a strong technology performer.
-
ACT's business focus remains consistent, we are committed to delivering ultra-high-performance directional drilling and related down-hole services, leveraging ACT's proprietary technologies and experienced team. This focus will allow us to deliver value to our shareholders through the cycles. To maximize returns, we expect to allocate capital as follows:
-
Expand margins: utilize selective capital investment, primarily RSS and MWD, replacing rental equipment with optimized solutions.
- Return of capital: repurchase of shares through the Company's NCIB.
-
Further strengthen the Company's financial position: Although debt remains low, further modest reduction of debt will allow for business resiliency through the cycles allowing the Company to counter-cyclical with respect to long-term investment decisions.
-
By having each of this diverse approach to capital allocation, the Company believes it will create a durable business model, focused on ensuring an effective use of capital.
- The longer-term outlook for North American energy-related activity is positive and global demand continues to rise while geopolitical events continue to increase uncertainty around supply.
- In Canada, the commissioning of the Trans Mountain pipeline expansion in May 2024, followed by LNG Canada anticipated in 2025, will provide significant tidewater and global market access for both Canadian crude and natural gas.
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Both projects should translate to more consistent and slightly improved activity levels for oilfield service providers over time.
- LNG also represents a significant area of growth for the U.S. market as upwards of 15 billion cubic feet per day of export capacity will be added from 2025 to 2028 supporting incremental growth in drilling activity and less volatility in activity related to the cyclicality of domestic gas prices.
- The potential growth in energy demand related to the evolving market for artificial intelligence data centers is also a developing trend that could further support natural gas related drilling activity.
- In Canada, activity for the year is currently expected to be similar to 2024, with a strong start and peak job count in Canada near 65 jobs in the first quarter.
- If uncertainty or increased costs due to trade policy persist, some potential for downside risk exists but is expected to be somewhat offset by a weaker Canadian dollar benefiting ACT's customers.
- Compelling economics of multi-lateral wells is expected to support continued activity through the summer despite potential headwinds related to weaker commodity prices or market uncertainties.
- The Company expects to experience a traditionally slow second quarter as ACT's customers level-load their drilling programs and utilize more pad-style drilling which helps them avoid road restrictions related to moving heavy equipment, with modestly improved activity levels over last year through the second quarter.
- The Company anticipates that operator discipline will remain a factor and likely result in some degree of budget exhaustion and a potential decline in activity in the fourth quarter of 2025.
- Job counts in 2025 are anticipated to continue at the same levels as those in the second half of as drilling activity remains somewhat constrained because of customer consolidation and concern over commodity price volatility.
- Current market conditions are likely to be short-term in nature as some optimism exists in the longer term with improving gas prices and the commencement of new Gulf Coast LNG in 2025, which may support some increase in incremental rig activity later this year or into 2026.
- While the Company feels reasonably positioned to navigate a relatively flat macroeconomic environment in North America and feels positive about the potential upside related to the deployment of ACT's own technology in the U.S. market, the Company remains cautious on the impact of tariffs and are evaluating the potential impact on ACT's business.
- Given ACT's supply chains are generally resident in each nation and 65% to 70% of ACT's revenues is U.S. based, the Company expects the impact will be somewhat limited but there may be certain elements of ACT's supply chain that will increase in cost.
- While tariffs and their potential impact may persist or prove to be short-term in nature, the underlying risk is the negative impact on the investment climate and overall consumer sentiment.
The Company believes the expectations reflected in such forward-looking statements are reasonable as of the date hereof but no assurance can be given that these expectations will prove to be correct and such forward-looking statements should not be unduly relied upon.
Various material factors and assumptions are typically applied in drawing conclusions or making the forecasts or projections set out in forward-looking statements. Those material factors and assumptions are based on information currently available to the Company, including information obtained from third-party industry analysts and other third-party sources. In some instances, material assumptions and material factors are presented elsewhere in this MD&A in connection with the forward-looking statements. You are cautioned that the following list of material factors and assumptions is not exhaustive. Specific material factors and assumptions include, but are not limited to:
- the performance of ACT's business;
- impact of economic and social trends;
- oil and natural gas commodity prices and production levels;
- capital expenditure programs and other expenditures by ACT and its customers;
- the ability of ACT to attract and retain key management personnel;
- the ability of ACT to retain and hire qualified personnel;
- the ability of ACT to obtain parts, consumables, equipment, technology, and supplies in a timely manner to carry out its activities;
- the ability of ACT to maintain good working relationships with key suppliers;
- the ability of ACT to retain customers, market its services successfully to existing and new customers and reliance on major customers;
- risks associated with technology development and intellectual property rights;
- obsolescence of ACT's equipment and/or technology;
- the ability of ACT to maintain safety performance;
- the ability of ACT to obtain adequate and timely financing on acceptable terms;
- the ability of ACT to comply with the terms and conditions of its credit facility;
- the ability to obtain sufficient insurance coverage to mitigate operational risks;
- currency exchange and interest rates;
- risks associated with future foreign operations;
- the ability of ACT to integrate its transactions and the benefits of any acquisitions, dispositions and business development efforts;
- environmental risks;
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- business risks resulting from weather, disasters and related to information technology;
- changes under governmental regulatory regimes including tariffs and tax, environmental, climate and other laws in Canada and the U.S.; and
- competitive risks.
Forward-looking statements are not a guarantee of future performance and involve a number of risks and uncertainties some of which are described herein. Such forward-looking statements necessarily involve known and unknown risks and uncertainties, which may cause the Company's actual performance and financial results in future periods to differ materially from any projections of future performance or results expressed or implied by such forward-looking statements. These risks and uncertainties include, but are not limited to, the risks identified in this MD&A and in the Company's Annual Information Form under the heading "Risk Factors". Any forward-looking statements are made as of the date hereof and, except as required by law, the Company assumes no obligation to publicly update or revise such statements to reflect new information, subsequent or otherwise.
All forward-looking statements contained in this MD&A are expressly qualified by this cautionary statement. Further information about the factors affecting forward-looking statements is available in the Company's current Annual Information Form that has been filed with Canadian provincial securities commissions and is available on www.sedarplus.ca and the Company's website (www.actenergy.com).
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