CALGARY, Alberta, May 06, 2025 (GLOBE NEWSWIRE) —
First Quarter Highlights
- For the three-month period ended March 31, 2025, PHX Energy’s consolidated revenue increased to an all-time quarterly record of $193.7 million, which is 17 percent higher than the $166.1 million generated in the first quarter of 2024 and 8 percent greater than the previous quarterly record of $178.7 million generated in the fourth quarter of 2024. Consolidated revenue in the 2025-quarter included $11.7 million of motor rental revenue and $2.6 million of revenue generated from the sale of motor equipment and parts (2024 – $8.2 million and $2.8 million, respectively).
- In the first quarter of 2025, adjusted EBITDA(1) was $40.7 million, 21 percent of consolidated revenue(1), which represents a 16 percent increase from the $35 million, 21 percent of consolidated revenue, in the same 2024-quarter. Included in the 2025-quarter’s adjusted EBITDA is $2.7 million in cash-settled share-based compensation expense (2024 – $5.7 million). Adjusted EBITDA excluding cash-settled share-based compensation expense(1) in the first quarter of 2025 was $43.3 million, 22 percent of consolidated revenue(1) (2024 – $40.7 million, 25 percent of consolidated revenue). The strong profitability in the 2025-quarter mainly resulted from growth in the Corporation’s high margin Rotary Steerable Systems (“RSS”) and motor rental revenue streams in the US and in Canada, and the reduction of equipment rentals particularly associated with RSS.
- Earnings in the 2025 three-month period were $20.2 million, $0.44 per share, as compared to $17.5 million, $0.37 per share, in the same 2024-period. Earnings in the 2025-period included depreciation and amortization expenses on drilling and other equipment of $12.6 million (pre-tax) which increased by 22 percent compared to $10.3 million (pre-tax) in the corresponding 2024-quarter as a result of fixed asset additions throughout 2024 and in the first quarter of 2025.
- In the 2025-quarter, PHX Energy’s US division achieved record quarterly revenue of $136.1 million, 19 percent higher than the $114.2 million generated in the first quarter of 2024 and 3 percent greater than the previous quarterly record of $132.3 million generated in the fourth quarter of 2024. US division revenue in the 2025-quarter represented 70 percent of consolidated revenue (2024 – 69 percent).
- PHX Energy’s Canadian division reported $57.6 million of quarterly revenue, 11 percent higher compared to $52 million in the 2024-quarter and the highest level of quarterly revenue for the Canadian division since 2014.
- In the 2025 three-month period, the Corporation generated excess cash flow(2) of $18.2 million, after deducting net capital expenditures(2) of $13.8 million (2024 – $7.4 million and $17.3 million, respectively).
- On March 14, 2025, the Corporation declared a dividend of $0.20 per share or $9.1 million, paid on April 15, 2025 to shareholders of record on March 31, 2025. In the first quarter of 2025, dividends paid were 4 percent less than in the same 2024-quarter, as a result of common shares being repurchased and canceled under the Corporation’s NCIB during the 2024-year. There were no common shares purchased under the current NCIB in the 2025 three-month period.
- The Board has approved a $10 million increase to the previously approved 2025 capital expenditure budget of $55 million, which was approved in February 2025. The additional capital expenditures are largely expected to be directed towards growing the Corporation’s RSS fleet and Real Time RSS Communications technology. PHX Energy now anticipates spending $65 million in capital expenditures during 2025.
- As at March 31, 2025, the Corporation had working capital(2) of $90.6 million and net debt(2) of $12.2 million.
Financial Highlights
(Stated in thousands of dollars except per share amounts, percentages and shares outstanding)
| Three-month periods ended March 31, | |||||||||||
| 2025 | 2024 | % Change | |||||||||
| Operating Results | |||||||||||
| Revenue | 193,704 | 166,123 | 17 | ||||||||
| Earnings | 20,159 | 17,454 | 15 | ||||||||
| Earnings per share – diluted | 0.44 | 0.37 | 19 | ||||||||
| Adjusted EBITDA(1) | 40,687 | 35,033 | 16 | ||||||||
| Adjusted EBITDA per share – diluted(1) | 0.89 | 0.74 | 20 | ||||||||
| Adjusted EBITDA as a percentage of revenue(1) | 21 | % | 21 | % | |||||||
| Cash Flow | |||||||||||
| Cash flows from operating activities | 10,919 | 11,167 | (2 | ) | |||||||
| Funds from operations(2) | 33,362 | 26,141 | 28 | ||||||||
| Funds from operations per share – diluted(3) | 0.73 | 0.55 | 33 | ||||||||
| Dividends paid per share(3) | 0.20 | 0.20 | – | ||||||||
| Dividends paid | 9,102 | 9,453 | (4 | ) | |||||||
| Capital expenditures(3) | 24,692 | 29,640 | (17 | ) | |||||||
| Excess cash flow(2) | 18,163 | 7,431 | 144 | ||||||||
| Financial Position | Mar 31 ‘25 | Dec 31 ‘24 | |||||||||
| Working capital(2) | 90,629 | 84,545 | 7 | ||||||||
| Net debt(2) | 12,174 | 2,664 | n.m. | ||||||||
| Shareholders’ equity | 233,583 | 222,205 | 5 | ||||||||
| Common shares outstanding | 45,556,773 | 45,506,773 | – | ||||||||
n.m. – not meaningful
Outlook
Our strong first-quarter momentum has continued into the spring, with robust activity levels in both Canada and the US. Although we are experiencing strong activity, there are some uncertainties that have the potential to disrupt industry activity levels, such as a global recession driven by various nations’ trade policies and OPEC+ production strategies. Oil prices have declined and if these low oil prices persist, they may lead operators to scale back their drilling programs, which could impact our activity levels and create pricing pressures. Additionally, if significant tariffs are implemented for a prolonged period, they could have an adverse impact on our cost structure and future profitability. Looking forward, we believe we have the potential to outperform industry trends.
Our strategic focus in both Canada and the US will remain on the advancement and deployment of cutting-edge technology, specifically RSS. Even with fluctuating industry conditions, we anticipate continued strong demand for RSS and we are advantageously positioned in this higher margin business. Since acquiring our initial 6 RSS tools in 2018, we have grown to be one of the top 3 RSS providers in North America. When we receive the additional RSS tools on order, we anticipate our fleet will be comprised of approximately 100 PowerDrive Orbit and iCruise tools as well as our proprietary Real Time RSS Communication technologies. We believe the powerful combination of our premium technologies, Velocity, Atlas, RSS and Real-Time RSS Communications, and ability to deliver operational efficiencies, will drive growth in a steady 2025 market and shelter us if a slower industry environment materializes.
Our capital allocation strategy remains focused on creating shareholder returns and preserving our balance sheet strength. This is primarily achieved through the high margin areas of our business, and we have increased our 2025 capital expenditure budget to fund RSS activity. Due to our strong financial results over the last number of years, we are in the enviable position of being able to proactively place orders for the majority of our revised $65 million budget without jeopardizing our financial stability in a time of uncertainty.
Our focus on premium technologies, high margins and balance sheet strength allows us to execute our Return of Capital Strategy (“ROCS”), in which we leverage dividends and NCIB purchases to reward our shareholders. We will prioritize the current dividend program while taking advantage of opportunistic market conditions for NCIB purchases where possible. Our strategic focus on technology, client needs, and efficient capital allocation will enable us to sustain our high level of performance and shareholder returns. We will remain diligent in monitoring the evolving economic and industry conditions and will respond in the best interest of our shareholders.
Michael Buker, President & CEO
May 6, 2025
Overall Performance
In the first quarter of 2025, PHX Energy achieved an all-time record level of quarterly consolidated revenue for the second consecutive quarter and strong profitability results with 15 percent growth in earnings and 16 percent increase in adjusted EBITDA(1).
During the 2025-period, the Corporation maintained its focus on growing its high-margin RSS and motor rental revenue streams and making strategic capital acquisitions targeted at displacing equipment rentals where possible. These allowed PHX Energy to grow its activity and improve profitability amidst the relatively static and competitive market conditions in both Canada and US. For the three-month period ended March 31, 2025, the Corporation generated consolidated revenue of $193.7 million, the highest level of quarterly revenue in its history and a 17 percent gain over the $166.1 million of consolidated revenue in the same 2024-quarter. In the 2025 three-month period, earnings increased by 15 percent to $20.2 million (2024 – $17.5 million), adjusted EBITDA(1) increased by 16 percent to $40.7 million (2024 – $35 million), and adjusted EBITDA as a percentage of consolidated revenue(1) was 21 percent (2024 – 21 percent). Earnings in the 2025-period included depreciation and amortization expenses on drilling and other equipment of $12.6 million (pre-tax) which increased by 22 percent compared to $10.3 million (pre-tax) in the corresponding 2024-quarter as a result of fixed asset additions throughout 2024 and in the first quarter of 2025. Included in the 2025 three-month period adjusted EBITDA is cash-settled share-based compensation expense of $2.7 million (2024 – $5.7 million). For the three-month period ended March 31, 2025, adjusted EBITDA excluding cash-settled share-based compensation expense was $43.3 million (2024 – $40.7 million).
For the three-month period ended March 31, 2025, the Corporation’s US division’s revenue grew by 19 percent to a record $136.1 million compared to $114.2 million in the same 2024-quarter and increased by 3 percent compared to the previous record of $132.3 million in the fourth quarter of 2024. The US industry’s rig count declined by 6 percent compared to the first quarter of 2024. In comparison, PHX Energy’s US operating days(3) saw an increase of 9 percent to 4,549 days from 4,168 in the 2024-quarter. The US division’s average revenue per day(3) for directional drilling services increased by 9 percent quarter-over-quarter. Without the impact of foreign exchange, the average revenue per day for directional drilling services was up 5 percent. In the 2025-quarter, the Corporation’s US motor rental division successfully expanded its market share and grew its motor rental revenue by 39 percent to $11 million from $7.9 million in the 2024-quarter. In the 2025 three-month period, the US division generated $2.6 million of revenue from motor equipment and parts sold (2024-quarter – $2.8 million). Revenue from the Corporation’s US division in the 2025-quarter represented 70 percent of consolidated revenue (2024 – 69 percent).
The Corporation’s Canadian division generated its highest level of quarterly revenue since 2014 in the 2025 three-month period. The $57.6 million achieved is an 11 percent increase from $52 million in the same 2024-period and is only 3 percent lower than the all-time quarterly record reported in the fourth quarter of 2014. The Canadian segment recorded 4,052 operating days in the 2025-quarter, a 5 percent increase from the 3,858 operating days realized in the comparable 2024-quarter which is slightly above the Canadian industry drilling activity’s 3 percent gain (measured by horizontal and directional drilling days) quarter-over-quarter. Average revenue per day(3) realized by the Canadian division improved by 5 percent to $14,037 in the 2025-quarter, as compared to $13,390 in the corresponding 2024-quarter and the Corporation’s Canadian motor rental division generated $0.7 million of revenue in the 2025-period (2024 – $0.3 million).
As at March 31, 2025, the Corporation had working capital(2) of $90.6 million and net debt(2) of $12.2 million. The Corporation also has CAD $71.5 million and USD $18 million available to be drawn from its credit facilities.
Dividends and ROCS
On March 14, 2025, the Corporation declared a dividend of $0.20 per share payable to shareholders of record on March 31, 2025. An aggregate of $9.1 million was paid on April 15, 2025.
The Corporation remains committed to enhancing shareholder returns through its Return of Capital Strategy (“ROCS”) which targets up to 70 percent of annual excess cash flow to be used for shareholder returns and includes multiple options including the dividend program and the NCIB. For the three-month period ended March 31, 2025, excess cash flow increased primarily due to higher funds from operations(2) and lower capital expenditures. Management continued to prioritize shareholder returns while protecting its financial position and less than 70 percent of excess cash flow was distributed for shareholder returns under ROCS. The Corporation maintained its current level of dividends, paying $9.1 million in dividends to shareholders, and no NCIB purchases were made. As a result, the remaining distributable balance under ROCS(2) in the 2025-period was $3.6 million. The Corporation will target the level of excess cash flow to be used for shareholder returns to stay within the 70 percent threshold for the rest of the 2025-year, particularly given the uncertainty related to economic and industry conditions in light of weak commodity prices and global trade polices.
(Stated in thousands of dollars)
| Three-month periods ended March 31, | |||||||
| 2025 | 2024 | ||||||
| Excess cash flow | 18,163 | 7,431 | |||||
| 70% of excess cash flow | 12,714 | 5,202 | |||||
| Deduct: | |||||||
| Dividends paid to shareholders | (9,102 | ) | (9,453 | ) | |||
| Repurchase of shares under the NCIB | – | – | |||||
| Remaining distributable balance under ROCS | 3,612 | (4,251 | ) | ||||
Normal Course Issuer Bid
During the third quarter of 2024, the TSX approved the renewal of PHX Energy’s NCIB to purchase for cancellation, from time-to-time, up to a maximum of 3,363,845 common shares, representing 10 percent of the Corporation’s public float of Common Shares as at August 7, 2024. The NCIB commenced on August 16, 2024 and will terminate on August 15, 2025. Purchases of common shares are to be made on the open market through the facilities of the TSX and through other alternative Canadian trading platforms. The price which PHX Energy is to pay for any common shares purchased is to be at the prevailing market price at the time of such purchase.
Pursuant to the current NCIB, no common shares were purchased by the Corporation and cancelled in the three-month period ended March 31, 2025.
It is the Corporation’s intention to continue the current strategy of leveraging the NCIB as a tool to further reward shareholders under ROCS especially during times of market weaknesses.
Capital Spending
For the three-month period ended March 31, 2025, the Corporation spent $24.7 million in capital expenditures, of which $15.6 million was spent on growing the Corporation’s fleet of drilling equipment, $7.8 million was spent to replace retired assets, and $1.3 million was spent to replace equipment lost downhole during drilling operations. With proceeds on disposition of drilling and other equipment of $10.9 million, the Corporation’s net capital expenditures(2) for the 2025-period were $13.8 million. Capital expenditures in the 2025-quarter were primarily directed towards Atlas High Performance motors (“Atlas”), Velocity Real-Time systems (“Velocity”), and RSS, both PowerDrive Orbit and iCruise. PHX Energy funded capital spending primarily using proceeds on disposition of drilling equipment, cash flows from operating activities, and its credit facilities when required.
(Stated in thousands of dollars)
| Three-month periods ended March 31, | |||||||
| 2025 | 2024 | ||||||
| Growth capital expenditures | 15,605 | 24,224 | |||||
| Maintenance capital expenditures from asset retirements | 7,837 | 4,141 | |||||
| Maintenance capital expenditures to replace downhole equipment losses | 1,250 | 1,275 | |||||
| Total capital expenditures | 24,692 | 29,640 | |||||
| Deduct: | |||||||
| Proceeds on disposition of drilling equipment | (10,919 | ) | (12,301 | ) | |||
| Net capital expenditures | 13,773 | 17,339 | |||||
As at March 31, 2025, the Corporation had capital commitments to purchase drilling and other equipment for $33.2 million, $24.4 million of which is growth capital allocated as follows: $10.2 million for Velocity systems, $6.5 million for performance drilling motors, $5.8 million for RSS systems, and $1.9 million for other equipment. Equipment on order is expected to be delivered within the second quarter of 2025.
In February 2025, the Board approved an increase to the 2025 capital expenditure budget from $50 million to $55 million and in May 2025 approved an additional $10 million in capital expenditures which largely relate to growing the Corporation’s RSS fleet and Real Time RSS Communications technology. PHX Energy now anticipates spending $65 million in capital expenditures during 2025. Of the total expenditures, $40 million is anticipated to be spent on growth and the remainder is anticipated to be spent to maintain capacity in the fleet of drilling and other equipment and replace equipment lost downhole during drilling operations.
The Corporation currently possesses approximately 909 Atlas motors, comprised of various configurations including its 5.25″, 5.76″, 6.63″, 7.12″, 7.25″, 8.12″, 9.00″, 9.62″, and 12.00” Atlas motors, and 133 Velocity systems. The Corporation also possesses the largest independent RSS fleet in North America with 93 RSS tools and the only fleet currently comprised of both the PowerDrive Orbit and iCruise systems.
Global Trade and Supply Chain Risks Update
Since coming into office in January this year, the US Administration has announced and implemented various tariffs against Canada and other nations, including China. The effective dates of some of these new tariffs have been postponed and some of the new tariffs have come into effect briefly, before being subsequently paused. In response to the new US tariffs, the Canadian government as well as the governments of other nations have announced and/or implemented retaliatory tariffs. These new tariffs and any changes to these tariffs or imposition of any additional tariffs, taxes or import or export restrictions or prohibitions, could have material impacts on global economies, the Canadian and US oil and natural gas industries, interest and inflation rates, and the Corporation’s supply chains. The resulting higher levels of volatility and uncertainty could result in actual results being different from management’s current estimates and those differences could be material.
The Corporation leverages certain market advantages and internal capabilities in its Canadian and US operations as part of its servicing, manufacturing and procurement processes that could be specifically impacted in an adverse manner. As a result, current and future tariffs, as well as the risk that tariffs imposed by the US on other countries including China has the potential to trigger an even broader global trade war, could have a material adverse impact on oil and gas industry activity levels in general, as well as a direct impact on the Corporation’s own cost structure and supply chain.
The Corporation’s supply chain and procurement team has been actively monitoring tariffs and working on strategies to help mitigate their impact which include, but are not limited to, negotiating with current suppliers, diversifying local and international supply chains, and increasing shipments of equipment and inventory required for its US operations cross-border prior to the effective date of such tariffs. Although the Corporation believes such strategies will somewhat mitigate the impact of tariffs, if significant tariffs affecting the Corporation are implemented for a prolonged period their impact on the Corporation’s operations and results may be material to the Corporation.
Non-GAAP and Other Financial Measures
Throughout this press release, PHX Energy uses certain measures to analyze financial performance, financial position, and cash flow. These Non-GAAP and Other Specified Financial Measures do not have standardized meanings prescribed under Canadian generally accepted accounting principles (“GAAP”) and include Non-GAAP Financial Measures and Ratios, Capital Management Measures and Supplementary Financial Measures (collectively referred to as “Non-GAAP and Other Financial Measures”). These Non-GAAP and Other Specified Financial Measures include, but are not limited to, adjusted EBITDA, adjusted EBITDA per share, adjusted EBITDA excluding cash-settled share-based compensation expense, adjusted EBITDA as a percentage of revenue, gross profit as a percentage of revenue excluding depreciation and amortization, selling, general and administrative (“SG&A”) costs excluding share-based compensation as a percentage of revenue, funds from operations, funds from operations per share, excess cash flow, net capital expenditures, net debt (net cash), working capital, and remaining distributable balance under ROCS. Management believes that these measures provide supplemental financial information that is useful in the evaluation of the Corporation’s operations and may be used by other oil and natural gas service companies. Investors should be cautioned, however, that these measures should not be construed as alternatives to measures determined in accordance with GAAP as an indicator of PHX Energy’s performance. The Corporation’s method of calculating these measures may differ from that of other organizations, and accordingly, such measures may not be comparable. Please refer to the “Non-GAAP and Other Financial Measures” section of this press release for applicable definitions, rationale for use, method of calculation and reconciliations where applicable.
Footnotes throughout this document reference:
| (1 | ) | Non-GAAP financial measure or ratio that does not have any standardized meaning under IFRS and therefore may not be comparable to similar measures presented by other entities. Refer to Non-GAAP and Other Financial Measures section of this document. |
| (2 | ) | Capital management measure that does not have any standardized meaning under IFRS and therefore may not be comparable to similar measures presented by other entities. Refer to Non-GAAP and Other Financial Measures section of this document. |
| (3 | ) | Supplementary financial measure that does not have any standardized meaning under IFRS and therefore may not be comparable to similar measures presented by other entities. Refer to Non-GAAP and Other Financial Measures section of this document. |
Revenue
The Corporation generates revenue primarily through the provision of directional drilling services which includes providing equipment, personnel, and operational support for drilling a well. Additionally, the Corporation generates revenue through the rental and sale of drilling motors and associated parts, particularly Atlas.
(Stated in thousands of dollars)
| Three-month periods ended March 31, | |||||||
| 2025 | 2024 | % Change | |||||
| Directional drilling services | 179,360 | 155,058 | 16 | ||||
| Motor rental | 11,706 | 8,246 | 42 | ||||
| Sale of motor equipment and parts | 2,638 | 2,819 | (6 | ) | |||
| Total revenue | 193,704 | 166,123 | 17 | ||||
For the three-month period and year ended March 31, 2025, PHX Energy’s consolidated revenue increased to an all-time quarterly record of $193.7 million, which is 17 percent higher than the $166.1 million in the corresponding 2024-period and 8 percent greater than the previous record achieved in the fourth quarter of 2014.
As seen in 2024, both PHX Energy’s US and Canadian divisions’ activity continued to outperform industry activity trends. In the first quarter of 2025, there were an average of 575 horizontal and directional rigs operating per day in the US which is virtually the same level as the daily average of 571 in the fourth quarter of 2024. Quarter-over-quarter, the average number of horizontal and directional rigs operating per day in the US declined by 6 percent. In Canada, industry horizontal and directional drilling activity (as measured by drilling days) was 17,867 days in the 2025-quarter, a 3 percent increase from 17,380 days in the same 2024-quarter. In comparison, the Corporation’s US and Canadian operating days(3) grew by 9 percent and 5 percent respectively quarter-over-quarter and consolidated operating days increased by 7 percent to 8,600 days in the 2025-quarter from 8,025 days in the 2024-quarter.
Average consolidated revenue per day(3) for directional drilling services period-over-period improved by 8 percent to $20,856 in the 2025-quarter (2024 – $19,322). The increase was mainly driven by higher RSS activity in both Canada and the US and increased deployment of the Corporation’s proprietary Real Time RSS Communications technologies. The stronger US dollar also favorably affected the average consolidated revenue per day in the 2025-period.
Revenue generated by the PHX Energy’s Atlas motor rental division increased by 42 percent to $11.7 million in the 2025-quarter (2024 – $8.2 million). In the 2025-quarter, the Corporation’s US motor rental division successfully expanded its market share through improved marketing efforts, additional resources dedicated to support the division and more fleet availability with quicker turnarounds times for servicing. Sale of motor equipment and parts decreased by 6 percent to $2.6 million in the 2025-period (2024 – $2.8 million). Due to the sporadic and cyclical nature of the customers’ ordering frequency, it is expected that revenue from this line of business will fluctuate between periods.
Operating Costs and Expenses
(Stated in thousands of dollars except percentages)
| Three-month periods ended March 31, | ||||||
| 2025 | 2024 | % Change | ||||
| Direct costs | 153,415 | 129,044 | 19 | |||
| Depreciation & amortization drilling and other equipment (included in direct costs) | 12,569 | 10,319 | 22 | |||
| Depreciation & amortization right-of-use asset (included in direct costs) | 888 | 849 | 5 | |||
| Gross profit as a percentage of revenue excluding depreciation & amortization(1) | 28 | % | 29 | % | ||
Direct costs are comprised of field and shop expenses, costs of motors and parts sold, and include depreciation and amortization of the Corporation’s equipment and right-of-use assets. For the three-month period ended March 31, 2025, direct costs increased by 19 percent to $153.4 million from $129 million in the same 2024-period.
In the first quarter of 2025, the Corporation’s depreciation and amortization on drilling and other equipment increased by 22 percent, mainly as a result of the additions to fixed assets throughout 2024 and in the first quarter of 2025. Apart from depreciation and amortization expenses on drilling and other equipment, higher direct costs in the period primarily resulted from greater equipment repair expenses from increased overall activity, particularly related to RSS and motor rentals, rising costs of materials and services, and customers’ increased servicing requirements.
For the three-month period ended March 31, 2025, gross profit as a percentage of revenue excluding depreciation and amortization(1) was 28 percent, compared to 29 percent in the corresponding 2024-period. The slight decrease in profitability in the 2025-period is primarily attributable to rising equipment servicing costs. The negative impact of rising equipment servicing costs was partially offset by lower RSS-related equipment rentals that were displaced through increased capacity in PHX Energy’s RSS fleet.
(Stated in thousands of dollars except percentages)
| Three-month periods ended March 31, | ||||||||||
| 2025 | 2024 | % Change | ||||||||
| Selling, general and administrative (“SG&A”) costs | 19,130 | 21,017 | (9 | ) | ||||||
| Cash-settled share-based compensation (included in SG&A costs) | 2,660 | 5,710 | (53 | ) | ||||||
| Equity-settled share-based compensation (included in SG&A costs) | 89 | 100 | (11 | ) | ||||||
| SG&A costs excluding share-based compensation as a percentage of revenue(1)) | 8 | % | 9 | % | ||||||
For the three-month period ended March 31, 2025, SG&A costs were $19.1 million, a 9 percent decrease as compared to $21 million in the corresponding 2024-period. In the 2025-quarter, the decrease in SG&A costs was mainly due to lower cash-settled share-based compensation expense during the period that was partially offset by increases in personnel-related costs.
Cash-settled share-based compensation relates to the Corporation’s retention awards and is measured at fair value. For the three-month period ended March 31, 2025, the related compensation expense recognized by PHX Energy was $2.7 million (2024 – $5.7 million). Changes in cash-settled share-based compensation expense in the 2025-period was mainly driven by fluctuations in the Corporation’s share price and the number of awards granted in the period. There were 1,326,596 retention awards outstanding as at March 31, 2025 (2024 – 1,527,685). SG&A costs excluding share-based compensation as a percentage of revenue(1) improved slightly at 8 percent in the 2025 three-month period (2024 – 9 percent).
(Stated in thousands of dollars)
| Three-month periods ended March 31, | |||||||
| 2025 | 2024 | % Change | |||||
| Research and development expense | 1,780 | 1,202 | 48 | ||||
For the three-month period ended March 31, 2025, PHX Energy spent $1.8 million on R&D expenditures, an increase of 48 percent as compared to $1.2 million spent in the corresponding 2024-period. In the 2025-quarter, higher R&D expenditures are mainly attributable to key projects having a larger scope which required increased personnel related costs and greater prototype and equipment parts expenses. The Corporation’s R&D department remains focused on improving the design of existing technologies to further enhance reliability, reduce costs to operate, and continue displacing certain equipment rentals.
(Stated in thousands of dollars)
| Three-month periods ended March 31, | ||||||||
| 2025 | 2024 | % Change | ||||||
| Finance expense | 606 | 334 | 81 | |||||
| Finance expense lease liabilities | 506 | 541 | (6 | ) | ||||
Finance expenses mainly relate to interest charges on the Corporation’s credit facilities. For the three-month period ended March 31, 2025, finance expense increased to $0.6 million (2024 – $0.3 million). The increase in finance expenses in the 2025-quarter was primarily due to higher drawings on the credit facilities in the period.
Finance expense lease liabilities relate to interest expense incurred on lease liabilities. For the three-month period ended March 31, 2025, finance expense lease liabilities remained consistent at $0.5 million (2024 – $0.5 million) as no new significant leases were entered into in the period.
(Stated in thousands of dollars)
| Three-month periods ended March 31, | ||||||||
| 2025 | 2024 | |||||||
| Net gain on disposition of drilling equipment | 7,861 | 8,886 | ||||||
| Foreign exchange losses | (216 | ) | (129 | ) | ||||
| Other income | 7,645 | 8,757 | ||||||
For the three-month period ended March 31, 2025, the Corporation recognized other income of $7.6 million (2024 – $8.8 million). In both periods, other income was mainly comprised of net gain on disposition of drilling equipment. The recognized gain is net of losses, which typically result from asset retirements that were made before the end of the equipment’s useful life. In the 2025-quarter, fewer instances of high dollar valued downhole equipment losses occurred as compared to the corresponding 2024-period, resulting in lower levels of net gain on disposition of drilling equipment recognized. Fewer instances of high dollar valued downhole equipment losses can be attributed to operators generally improving their drilling practices and continuous improvements in the Corporation’s technology design to avoid such instances.
Foreign exchange losses of $0.2 million in the three-month period of 2025 (2024 – $0.1 million), were primarily due to the revaluation and settlement of USD-denominated payables in Canada.
(Stated in thousands of dollars except percentages)
| Three-month periods ended March 31, | |||||||
| 2025 | 2024 | ||||||
| Provision for income taxes | 5,753 | 5,288 | |||||
| Effective tax rates(3) | 22 | % | 23 | % | |||
For the three-month period ended March 31, 2025, the Corporation reported a provision for income tax of $5.8 million (2024 – $5.3 million). In the 2025-quarter, PHX Energy’s effective tax rate(3) of 22 percent is relatively in line with the combined US federal and state corporate income tax rate of 24.5 percent and the combined Canadian federal and provincial corporate income tax rate of 23 percent.
Segmented Information
The Corporation reports two operating segments on a geographical basis throughout the Gulf Coast, Northeast and Rocky Mountain regions of the US and throughout the Western Canadian Sedimentary Basin. Revenue generated through the Corporation’s technology partnership and sales and lease agreement for the Middle East and North Africa (“MENA”) regions are included in the US division’s results.
United States
(Stated in thousands of dollars)
| Three-month periods ended March 31, | |||||||||
| 2025 | 2024 | % Change | |||||||
| Directional drilling services | 122,488 | 103,406 | 18 | ||||||
| Motor rental | 11,014 | 7,925 | 39 | ||||||
| Sale of motor equipment and parts | 2,638 | 2,819 | (6 | ) | |||||
| Total revenue | 136,140 | 114,150 | 19 | ||||||
| Direct costs | 109,296 | 88,804 | 23 | ||||||
| Gross profit | 26,844 | 25,346 | 6 | ||||||
| Expenses: | |||||||||
| Selling, general and administrative expenses | 7,837 | 7,675 | 2 | ||||||
| Research and development expenses | – | – | – | ||||||
| Finance expense | – | – | – | ||||||
| Finance expense lease liability | 195 | 218 | (11 | ) | |||||
| Other income | (4,644 | ) | (6,632 | ) | (30 | ) | |||
| Reportable segment profit before income taxes | 23,456 | 24,085 | (3 | ) | |||||
Continuing its momentum from the fourth quarter of 2024, in the first quarter of 2025, PHX Energy’s US division generated an all-time record level of quarterly revenue, $136.1 million, 19 percent higher than the $114.2 million generated in the first quarter of 2024, and 3 percent greater than the previous record set in the fourth quarter of 2024.
In the 2025 three-month period, the Corporation’s US operations continued to be resilient to the weak industry activity. For the three-month period ended March 31, 2025, US operating days(3) were 4,549, a 9 percent increase compared to 4,168 days in the 2024-quarter. In comparison, in the first quarter of 2025, the average number of active horizontal and directional rigs per day in the US industry declined by 6 percent to 575 compared to an average of 610 rigs per day in the 2024-quarter. The US division’s RSS activity represented 22 percent of its operating days which is higher compared to 20 percent represented in the 2024-quarter.
Horizontal and directional drilling continued to represent the majority of rigs running on a daily basis during the first quarter of 2025. During the 2025-quarter, Phoenix USA was active in the Permian, Eagleford, Scoop/Stack, and Marcellus basins. Additionally, Phoenix USA was involved with carbon capture and gas storage projects in Indiana, Michigan, Louisiana and Texas.
For the three-month period ended March 31, 2025, the US division’s average revenue per day(3) for directional drilling services increased by 9 percent to $26,929 from $24,812 in the 2024-quarter. The improvement in the US division’s average revenue per day for directional drilling services was mainly driven by the increase in RSS activity as a percentage of its operating days as well as greater deployment of PHX Energy’s proprietary Real Time RSS Communications technologies. Strong US dollar also favorably affected the average revenue per day in the 2025-period. Omitting the impact of foreign exchange, the average revenue per day for directional drilling services increased by 5 percent in the 2025-quarter.
For the three-month period ended March 31, 2025, US motor rental revenue increased by 39 percent to $11 million (2024 – $7.9 million). In the first quarter of 2025, the Corporation’s US motor rental division successfully expanded its market share through improved marketing efforts and additional resources dedicated to support the operations of the division. In addition, with constraints on the servicing facility’s capacity being alleviated, turnaround times for the US division’s motor rental activities have improved.
In the 2025 three-month period, PHX Energy’s US operations generated $2.6 million of revenue from the sale of motors and parts compared to $2.8 million in the corresponding 2024-period. Due to the sporadic and cyclical nature of the customers’ ordering frequency, it is expected that revenue from this line of business will fluctuate between periods.
For the three-month period ended March 31, 2025, the US segment’s reportable segment income before tax decreased by 3 percent to $23.5 million from $24.1 million in the same 2024-period. The decrease in the US segment’s reportable segment income before tax in the 2025-period is largely attributable to fewer instances of downhole equipment losses; US segment’s gross profit increased by 6 percent in the 2025-period.
Canada
(Stated in thousands of dollars)
| Three-month periods ended March 31, | |||||||||
| 2025 | 2024 | % Change | |||||||
| Directional drilling services | 56,872 | 51,652 | 10 | ||||||
| Motor rental | 692 | 321 | 116 | ||||||
| Total revenue | 57,564 | 51,973 | 11 | ||||||
| Direct costs | 44,119 | 40,240 | 10 | ||||||
| Gross profit | 13,445 | 11,733 | 15 | ||||||
| Expenses: | |||||||||
| Selling, general and administrative expenses | 4,197 | 4,136 | 1 | ||||||
| Research and development expenses | – | – | – | ||||||
| Finance expense | – | – | – | ||||||
| Finance expense lease liability | 290 | 303 | (4 | ) | |||||
| Other income | (3,001 | ) | (2,125 | ) | 41 | ||||
| Reportable segment profit before income taxes | 11,959 | 9,419 | 27 | ||||||
For the three-month period ended March 31, 2025, PHX Energy’s Canadian operations generated revenue of $57.6 million, an 11 percent increase from $52 million in the same 2024-period and only 3 percent lower than the all-time quarterly record reported in the fourth quarter of 2014.
In the 2025 three-month period, PHX Energy’s Canadian segment’s operating days(3) grew by 5 percent to 4,052 days from 3,858 days in the same 2024-quarter and its RSS operating days accounted for 6 percent of its activity in the 2025-period (2024 – 4 percent). In comparison, industry horizontal and directional drilling activity, as measured by drilling days, increased by 3 percent to 17,867 in the first quarter of 2025 from 17,380 in the 2024-quarter. In the 2025-period, the Canadian segment’s growth in activity primarily resulted from its increasing market presence as an RSS provider. During the 2025-quarter, the Corporation was active in the Duvernay, Montney, Glauconite, Frobisher, Cardium, Viking, Bakken, Torquay, Colony, Ellerslie, Charlie Lake, Cummings, Sparky, Clearwater, and Scallion basins.
The Canadian division’s average revenue per day(3) for directional drilling services increased 5 percent to $14,037 in the 2025-quarter, as compared to $13,390 in the corresponding 2024-quarter. The increase was mainly driven by higher RSS days as a percentage of total activity.
PHX Energy’s Canadian reportable segment profit increased by 27 percent to $12 million in the 2025-quarter from $9.4 million in the 2024-quarter. The increase in profitability in the 2025-period was mainly due to increased activity in the Canadian segment’s high-margin RSS revenue stream and more instances of downhole equipment losses while maintaining the same level of SG&A costs.
Investing Activities
Net cash used in investing activities for the three-month period ended March 31, 2025 was $10.5 million as compared to $4.9 million in the corresponding 2024-period. During the first quarter of 2025, the Corporation spent $15.6 million (2024 – $24.2 million) to grow the Corporation’s fleet of drilling equipment, $7.8 million (2024 – $4.1 million) was used to maintain capacity in the Corporation’s fleet of drilling and other equipment, and $1.3 million (2024 – $1.3 million) was spent to replace equipment lost downhole during drilling operations. With proceeds on disposition of drilling and other equipment of $10.9 million (2024 – $12.3 million), the Corporation’s net capital expenditures for the 2025-period were $13.8 million (2024 – $17.3 million).
(Stated in thousands of dollars)
| Three-month periods ended March 31, | |||||||
| 2025 | 2024 | ||||||
| Growth capital expenditures | 15,605 | 24,224 | |||||
| Maintenance capital expenditures from asset retirements | 7,837 | 4,141 | |||||
| Maintenance capital expenditures to replace downhole equipment losses | 1,250 | 1,275 | |||||
| Total capital expenditures | 24,692 | 29,640 | |||||
| Deduct: | |||||||
| Proceeds on disposition of drilling equipment | (10,919 | ) | (12,301 | ) | |||
| Net capital expenditures | 13,773 | 17,339 | |||||
The 2025-quarter capital expenditures comprised of:
- $8.4 million in downhole performance drilling motors;
- $7.9 million in RSS;
- $7.5 million in MWD systems and spare components; and
- $0.9 million in machinery and equipment and other assets.
The capital expenditure program undertaken in the year was primarily financed from proceeds on disposition of drilling equipment, cash flows from operating activities, and the Corporation’s credit facilities when required.
The change in non-cash working capital balances of $6.9 million (source of cash) for the three-month period ended March 31, 2025, relates to the net change in the Corporation’s trade payables that are associated with the acquisition of capital assets (2024 – $12.5 million).
Financing Activities
For the three-month period ended March 31, 2025, net cash used in financing activities was $0.6 million as compared to $9.6 million in the same 2024-period. In the 2025-quarter:
- dividends of $9.1 million were paid to shareholders;
- payments of $0.9 million were made towards lease liabilities;
- $9.3 million net drawings were made from the Corporation’s syndicated credit facility; and
- 50,000 common shares were issued from treasury for proceeds of $0.2 million upon the exercise of share options.
Capital Resources
As of March 31, 2025, the Corporation had CAD $23.3 million drawn on its Canadian credit facilities, USD $2 million drawn on its US operating facility, and a cash balance of $14 million. As at March 31, 2025, the Corporation had CAD $71.5 million and USD $18 million available from its credit facilities. The credit facilities are secured by substantially all of the Corporation’s assets and mature in December 2026.
As at March 31, 2025, the Corporation was in compliance with all its financial covenants. Under the syndicated credit agreement, in any given period, the Corporation’s distributions (as defined therein) cannot exceed its maximum aggregate amount of distributions limit as defined in the Corporation’s syndicated credit agreement. Distributions include, without limitation, dividends declared and paid, cash used for common shares purchased by the independent trustee in the open market and held in trust for potential settlement of outstanding retention awards, as well as cash used for common shares repurchased and cancelled under the NCIB.
Cash Requirements for Capital Expenditures
Historically, the Corporation has financed its capital expenditures and acquisitions through cash flows from operating activities, proceeds on disposition of drilling equipment, debt and equity. In February 2025, the Board approved an increase to the preliminary 2025 capital expenditure budget from $50 million to $55 million. With $10 million in expected additional capital expenditures largely related to growing the Corporation’s RSS fleet and Real Time RSS Communications technology, PHX Energy now anticipates spending $65 million in capital expenditures during 2025. Of the total expenditures, $40 million is anticipated to be spent on growth and the remainder is anticipated to be spent to maintain capacity in the fleet of drilling and other equipment and replace equipment lost downhole during drilling operations. The amount expected to be allocated towards replacing equipment lost downhole could increase, should more downhole equipment losses occur throughout the year.
These planned expenditures are expected to be financed from cash flow from operating activities, proceeds on disposition of drilling equipment, cash and cash equivalents, and the Corporation’s credit facilities, if necessary. However, if a sustained period of market uncertainty, threat of trade wars, and financial market volatility persists in 2025, the Corporation’s activity levels, cash flows and access to credit may be negatively impacted, and the expenditure level would be reduced accordingly where possible. Conversely, if future growth opportunities present themselves, the Corporation would look at expanding this planned capital expenditure amount.
As at March 31, 2025, the Corporation has commitments to purchase drilling and other equipment for $33.2 million. Delivery is expected to occur within the second quarter of 2025.
About PHX Energy Services Corp.
PHX Energy is a growth-oriented, public oil and natural gas services company. The Corporation, through its directional drilling subsidiary entities provides horizontal and directional drilling services and technologies to oil and natural gas exploration and development companies principally in Canada and the US. In connection with the services it provides, PHX Energy engineers, develops and manufactures leading-edge technologies. In recent years, PHX Energy has developed various new technologies that have positioned the Corporation as a technology leader in the horizontal and directional drilling services sector.
PHX Energy’s Canadian directional drilling operations are conducted through Phoenix Technology Services LP. The Corporation maintains its corporate head office, research and development, Canadian sales, service and operational centers in Calgary, Alberta. In addition, PHX Energy has a facility in Estevan, Saskatchewan. PHX Energy’s US operations, conducted through the Corporation’s wholly-owned subsidiary, Phoenix Technology Services USA Inc., is headquartered in Houston, Texas. Phoenix USA has sales and service facilities in Houston, Texas; Midland, Texas; Casper, Wyoming; and Oklahoma City, Oklahoma. Internationally, PHX Energy has an administrative office in Nicosia, Cyprus and also supplies technology to the Middle East regions.
The common shares of PHX Energy trade on the Toronto Stock Exchange under the symbol PHX
The common shares of PHX Energy trade on the Toronto Stock Exchange under the symbol PHX.
PHX Energy Services Corp.
Suite 1600, 215 9th Avenue SW, Calgary Alberta T2P 1K3
Tel: 403-543-4466 Fax: 403-543-4485 www.phxtech.com
Consolidated Statements of Financial Position
| (Stated in thousands of dollars, unaudited) | March 31, 2025 |
December 31, 2024 | |||||||
| ASSETS | |||||||||
| Current assets: | |||||||||
| Cash | $ | 13,971 | $ | 14,163 | |||||
| Trade and other receivables | 148,814 | 133,589 | |||||||
| Inventories | 63,287 | 63,135 | |||||||
| Prepaid expenses | 1,597 | 2,628 | |||||||
| Current tax assets | 1,072 | 502 | |||||||
| Total current assets | 228,741 | 214,017 | |||||||
| Non-current assets: | |||||||||
| Drilling and other long-term assets | 175,683 | 166,081 | |||||||
| Right-of-use assets | 24,125 | 24,943 | |||||||
| Intangible assets | 17,627 | 14,611 | |||||||
| Investments | 2,171 | 2,171 | |||||||
| Other long-term assets | 1,697 | 1,463 | |||||||
| Total non-current assets | 221,303 | 209,269 | |||||||
| Total assets | $ | 450,044 | $ | 423,286 | |||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | |||||||||
| Current liabilities: | |||||||||
| Trade and other payables | $ | 125,180 | $ | 116,668 | |||||
| Dividends payable | 9,112 | 9,102 | |||||||
| Current lease liabilities | 3,820 | 3,702 | |||||||
| Total current liabilities | 138,112 | 129,472 | |||||||
| Non-current liabilities: | |||||||||
| Lease liabilities | 30,683 | 31,650 | |||||||
| Loans and borrowings | 26,145 | 16,827 | |||||||
| Deferred tax liabilities | 20,609 | 19,792 | |||||||
| Other | 912 | 3,340 | |||||||
| Total non-current liabilities | 78,349 | 71,609 | |||||||
| Equity: | |||||||||
| Share capital | 204,060 | 203,841 | |||||||
| Contributed surplus | 7,239 | 7,189 | |||||||
| Deficit | (17,244 | ) | (28,291 | ) | |||||
| Accumulated other comprehensive income (AOCI) | 39,528 | 39,466 | |||||||
| Total equity | 233,583 | 222,205 | |||||||
| Total liabilities and equity | $ | 450,044 | $ | 423,286 | |||||
Condensed Consolidated Interim Statements of Comprehensive Earnings
(Stated in thousands of dollars except earnings per share, unaudited)
| Three-month periods ended March 31, | |||||||||
| 2025 | 2024 | ||||||||
| Revenue | $ | 193,704 | $ | 166,123 | |||||
| Direct costs | 153,415 | 129,044 | |||||||
| Gross profit | 40,289 | 37,079 | |||||||
| Expenses: | |||||||||
| Selling, general and administrative expenses | 19,130 | 21,017 | |||||||
| Research and development expenses | 1,780 | 1,202 | |||||||
| Finance expense | 606 | 334 | |||||||
| Finance expense lease liability | 506 | 541 | |||||||
| Other income | (7,645 | ) | (8,757 | ) | |||||
| 14,377 | 14,337 | ||||||||
| Earnings before income taxes | 25,912 | 22,742 | |||||||
| Provision for income taxes | |||||||||
| Current | 4,907 | 1,986 | |||||||
| Deferred | 846 | 3,302 | |||||||
| 5,753 | 5,288 | ||||||||
| Net earnings | 20,159 | 17,454 | |||||||
| Other comprehensive income | |||||||||
| Foreign currency translation, net of tax | 62 | 3,573 | |||||||
| Total comprehensive earnings | $ | 20,221 | $ | 21,027 | |||||
| Earnings per share – basic | $ | 0.44 | $ | 0.37 | |||||
| Earnings per share – diluted | $ | 0.44 | $ | 0.37 | |||||
Condensed Consolidated Interim Statements of Cash Flows
(Stated in thousands of dollars, unaudited)
| Three-month periods ended March 31, | ||||||
| 2025 | 2024 | |||||
| Cash flows from operating activities: | ||||||
| Earnings | $ | 20,159 | $ | 17,454 | ||
| Adjustments for: | ||||||
| Depreciation and amortization | 12,569 | 10,319 | ||||
| Depreciation and amortization right-of-use asset | 888 | 849 | ||||
| Provision for income taxes | 5,753 | 5,288 | ||||
| Unrealized foreign exchange loss | 117 | 148 | ||||
| Net gain on disposition of drilling equipment | (7,861 | ) | (8,886 | ) | ||
| Equity-settled share-based payments | 89 | 100 | ||||
| Finance expense | 606 | 334 | ||||
| Finance expense lease liability | 506 | 541 | ||||
| Provision for inventory obsolescence | 1,042 | 535 | ||||
| Interest paid on lease liability | (506 | ) | (541 | ) | ||
| Interest paid | (384 | ) | (204 | ) | ||
| Income taxes paid | (5,485 | ) | (185 | ) | ||
| Change in non-cash working capital | (16,574 | ) | (14,585 | ) | ||
| Net cash from operating activities | 10,919 | 11,167 | ||||
| Cash flows from investing activities: | ||||||
| Proceeds on disposition of drilling equipment | 10,919 | 12,301 | ||||
| Acquisition of drilling and other equipment | (24,692 | ) | (29,640 | ) | ||
| Acquisition of intangible assets | (3,640 | ) | – | |||
| Change in non-cash working capital | 6,872 | 12,469 | ||||
| Net cash used in investing activities | (10,541 | ) | (4,870 | ) | ||
| Cash flows from financing activities: | ||||||
| Net proceeds from (Net repayment of) loans and borrowings | 9,269 | (60 | ) | |||
| Proceeds from exercise of options | 180 | 712 | ||||
| Dividends paid to shareholders | (9,102 | ) | (9,453 | ) | ||
| Payments of lease liability | (920 | ) | (830 | ) | ||
| Net cash used in financing activities | (573 | ) | (9,631 | ) | ||
| Net decrease in cash | (195 | ) | (3,334 | ) | ||
| Cash, beginning of period | 14,163 | 16,433 | ||||
| Effect of movements in exchange rates on cash held | 3 | 281 | ||||
| Cash, end of period | $ | 13,971 | $ | 13,380 | ||
Cautionary Statement Regarding Forward-Looking Information and Statements
This document contains certain forward-looking information and statements within the meaning of applicable securities laws. The use of “expect”, “anticipate”, “continue”, “estimate”, “objective”, “ongoing”, “may”, “will”, “project”, “could”, “should”, “can”, “believe”, “plans”, “intends”, “strategy”, “targets” and similar expressions are intended to identify forward-looking information or statements.
The forward-looking information and statements included in this document are not guarantees of future performance and should not be unduly relied upon. These statements and information involve 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 statements and information. The Corporation believes the expectations reflected in such forward-looking statements and information are reasonable, but no assurance can be given that these expectations will prove to be correct. Such forward-looking statements and information included in this document should not be unduly relied upon. These forward-looking statements and information speak only as of the date of this document.
In particular, forward-looking information and statements contained in this document include without limitation, the Corporation’s intent to preserve balance sheet strength and continue to reward shareholders, including through its ROCS program, intentions for the distributable cash under ROCS to be stay within the targeted at 70 percent of excess cash flow in 2025, PHX Energy’s intentions with respect to the NCIB and purchases thereunder and the effects of repurchases under the NCIB, the anticipated industry activity and demand for the Corporation’s services and technologies in North America, the projected capital expenditures budget for 2025, and how the budget will be allocated and funded, the timeline for delivery of equipment on order, in the anticipated continuation of PHX Energy’s quarterly dividend program and the amounts of dividends, the potential material adverse effect on the Canadian and US economy, the Canadian and US oil and natural gas industry and the Corporation and its results that existing or new tariffs, and any changes to these tariffs, taxes or import or export restrictions or prohibitions, could have, the Corporation ability to reduce the impact of potential and existing tariffs in its supply chain, and the impact of OPEC+ production strategies on commodity prices and industry activity.
The above are stated under the headings: “Financial Results”, “Overall Performance”, “Dividends and ROCS”, “Capital Spending”, and “Capital Resources”. In addition, all information contained under the heading “Outlook” of this document may contain forward-looking statements.
In addition to other material factors, expectations and assumptions which may be identified in this document and other continuous disclosure documents of the Corporation referenced herein, assumptions have been made in respect of such forward-looking statements and information regarding, without limitation, that: the Corporation will continue to conduct its operations in a manner consistent with past operations; the general continuance of current industry conditions and the accuracy of the Corporation’s market outlook expectations for 2025 and in the future; that future business, regulatory and industry conditions will be within the parameters expected by the Corporation; that there will be no adverse tariff events including intentional tariff wars that could have a significant impact on the markets in which the Corporation operates; anticipated financial performance, business prospects, impact of competition, strategies, the general stability of the economic and political environment in which the Corporation operates; the potential impact of trade wars, pandemics, the Russian-Ukrainian war, Middle-East conflict and other world events on the global economy, specifically trade, manufacturing, supply chain, inflation and energy consumption, among other things and the resulting impact on the Corporation’s operations and future results which remain uncertain; exchange and interest rates, and inflationary pressures including the potential for further interest rate hikes by global central banks and the impact on financing charges and foreign exchange and the anticipated global economic response to concerted interest rate hikes; the continuance of existing (and in certain circumstances, the implementation of proposed) tax, royalty and regulatory regimes; the sufficiency of budgeted capital expenditures in carrying out planned activities; the availability and cost of labour and services and the adequacy of cash flow; debt and ability to obtain financing on acceptable terms to fund its planned expenditures, which are subject to change based on commodity prices; market conditions and future oil and natural gas prices; and potential timing delays. Although management considers these material factors, expectations, and assumptions to be reasonable based on information currently available to it, no assurance can be given that they will prove to be correct.
Readers are cautioned that the foregoing lists of factors are not exhaustive. Additional information on these and other factors that could affect the Corporation’s operations and financial results are included in reports on file with the Canadian Securities Regulatory Authorities and may be accessed through the SEDAR+ website (www.sedarplus.ca) or at the Corporation’s website. The forward-looking statements and information contained in this document are expressly qualified by this cautionary statement. The Corporation does not undertake any obligation to publicly update or revise any forward-looking statements or information, whether as a result of new information, future events or otherwise, except as may be required by applicable securities laws.
Non-GAAP and Other Financial Measures
Non-GAAP Financial Measures and Ratios
a) Adjusted EBITDA
Adjusted EBITDA, defined as earnings before finance expense, finance expense lease liability, income taxes, depreciation and amortization, impairment losses on drilling and other equipment and goodwill and other write-offs, equity-settled share-based payments, severance payouts relating to the Corporation’s restructuring cost, and unrealized foreign exchange gains or losses, does not have a standardized meaning and is not a financial measure that is recognized under GAAP. However, Management believes that adjusted EBITDA provides supplemental information to earnings that is useful in evaluating the results of the Corporation’s principal business activities before considering certain charges, how it was financed and how it was taxed in various countries. Investors should be cautioned, however, that adjusted EBITDA should not be construed as an alternative measure to earnings determined in accordance with GAAP. PHX Energy’s method of calculating adjusted EBITDA may differ from that of other organizations and, accordingly, its adjusted EBITDA may not be comparable to that of other companies.
The following is a reconciliation of earnings to adjusted EBITDA:
(Stated in thousands of dollars)
| Three-month periods ended March 31, | |||||
| 2025 | 2024 | ||||
| Earnings: | 20,159 | 17,454 | |||
| Add: | |||||
| Depreciation and amortization drilling and other equipment | 12,569 | 10,319 | |||
| Depreciation and amortization right-of-use asset | 888 | 849 | |||
| Provision for (Recovery of) income taxes | 5,753 | 5,288 | |||
| Finance expense | 606 | 334 | |||
| Finance expense lease liability | 506 | 541 | |||
| Equity-settled share-based payments | 89 | 100 | |||
| Unrealized foreign exchange loss (gain) | 117 | 148 | |||
| Adjusted EBITDA | 40,687 | 35,033 | |||
b) Adjusted EBITDA Per Share – Diluted
Adjusted EBITDA per share – diluted is calculated using the treasury stock method whereby deemed proceeds on the exercise of the share options are used to reacquire common shares at an average share price. The calculation of adjusted EBITDA per share – dilutive is based on the adjusted EBITDA as reported in the table above divided by the diluted number of shares outstanding.
c) Adjusted EBITDA as a Percentage of Revenue
Adjusted EBITDA as a percentage of revenue is calculated by dividing the adjusted EBITDA as reported in the table above by revenue as stated on the Condensed Consolidated Interim Statements of Comprehensive Earnings.
d) Adjusted EBITDA Excluding Cash-settled Share-based Compensation Expense
Adjusted EBITDA excluding cash-settled share-based compensation expense is calculated by adding cash-settled share-based compensation expense to adjusted EBITDA as described above. Management believes that this measure provides supplemental information to earnings that is useful in evaluating the results of the Corporation’s principal business activities before considering certain charges, how it was financed, how it was taxed in various countries, and without the impact of cash-settled share-based compensation expense that is affected by fluctuations in the Corporation’s share price.
The following is a reconciliation of earnings to adjusted EBITDA excluding cash-settled share-based compensation expense:
(Stated in thousands of dollars)
| Three-month periods ended March 31, | |||||
| 2025 | 2024 | ||||
| Earnings: | 20,159 | 17,454 | |||
| Add: | |||||
| Depreciation and amortization drilling and other equipment | 12,569 | 10,319 | |||
| Depreciation and amortization right-of-use asset | 888 | 849 | |||
| Provision for (recovery of) income taxes | 5,753 | 5,288 | |||
| Finance expense | 606 | 334 | |||
| Finance expense lease liability | 506 | 541 | |||
| Equity-settled share-based payments | 89 | 100 | |||
| Unrealized foreign exchange loss | 117 | 148 | |||
| Cash-settled share-based compensation expense | 2,660 | 5,710 | |||
| Adjusted EBITDA excluding cash-settled share-based compensation expense | 43,347 | 40,743 | |||
e) Adjusted EBITDA Excluding Cash-settled Share-based Compensation Expense as a Percentage of Revenue
Adjusted EBITDA excluding cash-settled share-based compensation expense as a percentage of revenue is calculated by dividing adjusted EBITDA excluding cash-settled share-based compensation expense as reported above by revenue as stated on the Condensed Consolidated Interim Statements of Comprehensive Earnings.
f) Gross Profit as a Percentage of Revenue Excluding Depreciation & Amortization
Gross profit as a percentage of revenue excluding depreciation & amortization is defined as the Corporation’s gross profit excluding depreciation and amortization divided by revenue and is used to assess operational profitability. This Non-GAAP ratio does not have a standardized meaning and is not a financial measure recognized under GAAP. PHX Energy’s method of calculating gross profit as a percentage of revenue may differ from that of other organizations and, accordingly, it may not be comparable to that of other companies.
The following is a reconciliation of revenue, direct costs, depreciation and amortization and gross profit to gross profit as a percentage of revenue excluding depreciation and amortization:
(Stated in thousands of dollars)
| Three-month periods ended March 31, | |||||||||
| 2025 | 2024 | ||||||||
| Revenue | 193,704 | 166,123 | |||||||
| Direct costs | 153,415 | 129,044 | |||||||
| Gross profit | 40,289 | 37,079 | |||||||
| Depreciation & amortization drilling and other equipment (included in direct costs) | 12,569 | 10,319 | |||||||
| Depreciation & amortization right-of-use asset (included in direct costs) | 888 | 849 | |||||||
| 53,746 | 48,247 | ||||||||
| Gross profit as a percentage of revenue excluding depreciation & amortization | 28 | % | 29 | % | |||||
g) SG&A Costs Excluding Share-Based Compensation as a Percentage of Revenue
SG&A costs excluding share-based compensation as a percentage of revenue is defined as the Corporation’s SG&A costs excluding share-based compensation divided by revenue and is used to assess the impact of administrative costs excluding the effect of share price volatility. This Non-GAAP ratio does not have a standardized meaning and is not a financial measure recognized under GAAP. PHX Energy’s method of calculating SG&A costs excluding share-based compensation as a percentage of revenue may differ from that of other organizations and, accordingly, it may not be comparable to that of other companies.
The following is a reconciliation of SG&A costs, share-based compensation, and revenue to SG&A costs excluding share-based compensation as a percentage of revenue:
(Stated in thousands of dollars)
| Three-month periods ended March 31, | ||||||||||
| 2025 | 2024 | |||||||||
| SG&A Costs | 19,130 | 21,017 | ||||||||
| Deduct: | ||||||||||
| Share-based compensation (included in SG&A) | 2,749 | 5,810 | ||||||||
| 16,381 | 15,207 | |||||||||
| Revenue | 193,704 | 166,123 | ||||||||
| SG&A costs excluding share-based compensation as a percentage of revenue | 8 | % | 9 | % | ||||||
Capital Management Measures
a) Funds from Operations
Funds from operations is defined as cash flows generated from operating activities before changes in non-cash working capital, interest paid, and income taxes paid. This financial measure does not have a standardized meaning and is not a financial measure recognized under GAAP. Management uses funds from operations as an indication of the Corporation’s ability to generate funds from its operations before considering changes in working capital balances and interest and taxes paid. Investors should be cautioned, however, that this financial measure should not be construed as an alternative measure to cash flows from operating activities determined in accordance with GAAP. PHX Energy’s method of calculating funds from operations may differ from that of other organizations and, accordingly, it may not be comparable to that of other companies.
The following is a reconciliation of cash flows from operating activities to funds from operations:
(Stated in thousands of dollars)
| Three-month periods ended March 31, | |||||
| 2025 | 2024 | ||||
| Cash flows from operating activities | 10,919 | 11,167 | |||
| Add (deduct): | |||||
| Changes in non-cash working capital | 16,574 | 14,585 | |||
| Interest paid | 384 | 204 | |||
| Income taxes paid | 5,485 | 185 | |||
| Funds from operations | 33,362 | 26,141 | |||
b) Excess Cash Flow
Excess cash flow is defined as funds from operations (as defined above) less cash payment on leases, growth capital expenditures, and maintenance capital expenditures from downhole equipment losses and asset retirements, and increased by proceeds on disposition of drilling equipment. This financial measure does not have a standardized meaning and is not a financial measure recognized under GAAP. Management uses excess cash flow as an indication of the Corporation’s ability to generate funds from its operations to support operations and grow and maintain the Corporation’s drilling and other equipment. This performance measure is useful to investors for assessing the Corporation’s operating and financial performance, leverage and liquidity. Investors should be cautioned, however, that this financial measure should not be construed as an alternative measure to cash flows from operating activities determined in accordance with GAAP. PHX Energy’s method of calculating excess cash flow may differ from that of other organizations and, accordingly, it may not be comparable to that of other companies.
The following is a reconciliation of cash flows from operating activities to excess cash flow:
(Stated in thousands of dollars)
| Three-month periods ended March 31, | |||||||
| 2025 | 2024 | ||||||
| Cash flows from operating activities | 10,919 | 11,167 | |||||
| Add (deduct): | |||||||
| Changes in non-cash working capital | 16,574 | 14,585 | |||||
| Interest paid | 384 | 204 | |||||
| Income taxes paid (received) | 5,485 | 185 | |||||
| Cash payment on leases | (1,426 | ) | (1,371 | ) | |||
| 31,936 | 24,770 | ||||||
| Proceeds on disposition of drilling equipment | 10,919 | 12,301 | |||||
| Maintenance capital expenditures to replace downhole equipment losses and asset retirements | (9,087 | ) | (5,416 | ) | |||
| Net proceeds | 1,832 | 6,885 | |||||
| Growth capital expenditures | (15,605 | ) | (24,224 | ) | |||
| Excess cash flow | 18,163 | 7,431 | |||||
c) Working Capital
Working capital is defined as the Corporation’s current assets less its current liabilities and is used to assess the Corporation’s short-term liquidity. This financial measure does not have a standardized meaning and is not a financial measure recognized under GAAP. Management uses working capital to provide insight as to the Corporation’s ability to meet obligations as at the reporting date. PHX Energy’s method of calculating working capital may differ from that of other organizations and, accordingly, it may not be comparable to that of other companies.
The following is a reconciliation of current assets and current liabilities to working capital:
(Stated in thousands of dollars)
| March 31, 2025 | December 31, 2024 | ||||||
| Current assets | 228,741 | 214,017 | |||||
| Deduct: | |||||||
| Current liabilities | (138,112 | ) | (129,472 | ) | |||
| Working capital | 90,629 | 84,545 | |||||
d) Net Debt (Net Cash)
Net debt is defined as the Corporation’s loans and borrowings less cash. This financial measure does not have a standardized meaning and is not a financial measure recognized under GAAP. Management uses net debt to provide insight as to the Corporation’s ability to meet obligations as at the reporting date. PHX Energy’s method of calculating net debt may differ from that of other organizations and, accordingly, it may not be comparable to that of other companies.
The following is a reconciliation of loans and borrowings and cash to net debt:
(Stated in thousands of dollars)
| March 31, 2025 | December 31, 2024 | |||||
| Loans and borrowings | 26,145 | 16,827 | ||||
| Deduct: | ||||||
| Cash | (13,971 | ) | (14,163 | ) | ||
| Net debt (Net cash) | 12,174 | 2,664 | ||||
e) Net Capital Expenditures
Net capital expenditures is comprised of total additions to drilling and other long-term assets, as determined in accordance with IFRS, less total proceeds from disposition of drilling equipment, as determined in accordance with IFRS. This financial measure does not have a standardized meaning and is not a financial measure recognized under GAAP. Management uses net capital expenditures to provide insight as to the Corporation’s ability to meet obligations as at the reporting date. PHX Energy’s method of calculating net capital expenditures may differ from that of other organizations and, accordingly, it may not be comparable to that of other companies.
The following is a reconciliation of additions to drilling and other equipment and proceeds from disposition of drilling equipment to net capital expenditures:
(Stated in thousands of dollars)
| Three-month periods ended March 31, | |||||||
| 2025 | 2024 | ||||||
| Growth capital expenditures | 15,605 | 24,224 | |||||
| Maintenance capital expenditures from asset retirements | 7,837 | 4,141 | |||||
| Maintenance capital expenditures to replace downhole equipment losses | 1,250 | 1,275 | |||||
| Total capital expenditures | 24,692 | 29,640 | |||||
| Deduct: | |||||||
| Proceeds on disposition of drilling equipment | (10,919 | ) | (12,301 | ) | |||
| Net capital expenditures | 13,773 | 17,339 | |||||
f) Remaining Distributable Balance under ROCS
Remaining distributable balance under ROCS is comprised of 70% of excess cash flow as defined above less repurchases of shares under the Normal Course Issuer Bids in effect during the period and less the dividends paid to shareholders during the period. This financial measure does not have a standardized meaning and is not a financial measure recognized under GAAP. Management uses the remaining distributable balance under ROCS to provide insight as to the Corporation’s ROCS strategy as at the reporting date. PHX Energy’s method of calculating remaining distributable balance under ROCS may differ from that of other organizations and, accordingly, it may not be comparable to that of other companies.
The following is a reconciliation of excess cash flow as defined above to remaining distributable balance under ROCS:
(Stated in thousands of dollars)
| Three-month periods ended March 31, | |||||||
| 2025 | 2024 | ||||||
| Excess cash flow | 18,163 | 7,431 | |||||
| 70% of excess cash flow | 12,714 | 5,202 | |||||
| Deduct: | |||||||
| Dividends paid to shareholders | (9,102 | ) | (9,453 | ) | |||
| Repurchase of shares under the NCIB | – | – | |||||
| Remaining Distributable Balance under ROCS | 3,612 | (4,251 | ) | ||||
Supplementary Financial Measures
“Average consolidated revenue per day” is comprised of consolidated revenue, as determined in accordance with IFRS, divided by the Corporation’s consolidated number of operating days. Operating days is defined under the “Definitions” section below.
“Average revenue per operating day” is comprised of revenue, as determined in accordance with IFRS, divided by the number of operating days.
“Dividends paid per share” is comprised of dividends paid, as determined in accordance with IFRS, divided by the number of shares outstanding at the dividend record date.
“Dividends declared per share” is comprised of dividends declared, as determined in accordance with IFRS, divided by the number of shares outstanding at the dividend record date.
“Effective tax rate” is comprised of provision for or recovery of income tax, as determined in accordance with IFRS, divided by earnings before income taxes, as determined in accordance with IFRS.
“Funds from operations per share – diluted” is calculated using the treasury stock method whereby deemed proceeds on the exercise of the share options are used to reacquire common shares at an average share price. The calculation of funds from operations per share – diluted is based on the funds from operations as reported in the table above divided by the diluted number of shares outstanding.
Definitions
“Operating days” throughout this document, it is referring to the billable days on which PHX Energy is providing services to the client at the rig site.
“Capital expenditures” equate to the Corporation’s total acquisition of drilling and other equipment as stated on the Condensed Consolidated Interim Statements of Cash Flows and Note 6(a) in the Notes to the Financial Statements.
“Growth capital expenditures” are capital expenditures that were used to expand capacity in the Corporation’s fleet of drilling equipment.
“Maintenance capital expenditures” are capital expenditures that were used to maintain capacity in the Corporation’s fleet of drilling equipment and replace equipment that were lost downhole during drilling operations.
