PHX Energy Announces a Special Dividend and Record Fourth Quarter and Annual Revenue Supported by Strong RSS Activity

Article content

(Stated in thousands of dollars)

Article content

Article content

For the three-month period and year ended December 31, 2025, PHX Energy spent $1.7 million and $6.8 million on research and development (“R&D”) expenditures, an increase of 26 and 28 percent as compared to $1.3 million and $5.3 million spent in the corresponding 2024-periods. Greater R&D expenditures in the 2025-periods were largely driven by rising personnel related costs and increased prototype and equipment repair parts incurred to support key R&D initiatives.

Article content

(Stated in thousands of dollars)

Article content

Article content

Finance expenses mainly relate to interest charges on the Corporation’s credit facilities. For the three-month period and year ended December 31, 2025, finance expense increased to $0.7 million and $2.9 million, respectively (2024 – $0.5 million and $1.9 million). The increase in finance expenses in both 2025-periods was primarily due to higher drawings on the credit facilities in the periods.

Article content

Article content

Finance expense lease liabilities relate to interest expense incurred on lease liabilities. For the three and twelve-month periods ended December 31, 2025, finance expense lease liabilities decreased to $0.5 million and $1.9 million, respectively (2024 – $0.5 million and $2.2 million), due to leases that expired in 2025.

Article content

(Stated in thousands of dollars)

Article content

Article content

For the three-month period and year ended December 31, 2025, the Corporation recognized other income of $7.8 million and $30.7 million, respectively (2024 – $5.1 million and $23.6 million, respectively). 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 and year, more instances of high dollar valued downhole equipment losses occurred as compared to the corresponding 2024-periods resulting in higher levels of net gain on disposition of drilling equipment recognized.

Article content

Foreign exchange losses of $0.3 million and $0.2 million in the three and twelve-month periods of 2025 (2024 – $0.9 million and $1.1 million), were primarily due to the revaluation and settlement of CAD-denominated intercompany payables in the US.

Article content

In the final quarter of 2025, PHX Energy provisioned $0.2 million for bad debts which relates to one client in the US and one client in Canada.

Article content

In the 2025 three and twelve-month periods, the miscellaneous other income of $0.1 million and $0.7 million, respectively, pertain to sundry and occasional transactions such as proceeds from the sale of scrapped metal and machining services for a third party.

Article content

(Stated in thousands of dollars except percentages)

Article content

Article content

For the three-month period and year ended December 31, 2025, the Corporation reported a provision for income tax of $0.2 million (2024 – $1.7 million), and $10.8 million (2024 – $15.7 million), respectively. PHX Energy’s effective tax rate⁽³⁾ of 1 percent in the 2025-quarter and 17 percent in the 2025-year are lower than the combined US federal and state corporate income tax rate of 22.5 percent and the combined Canadian federal and provincial corporate income tax rate of 23 percent. In the 2025-periods, lower provision for income taxes are primarily attributable to the recognition and utilization of previously unrecognized deferred tax assets in the Luxembourg jurisdiction and recovery of income taxes relating to prior periods.

Article content

(Stated in thousands of dollars except per share amounts and percentages)

Article content

Article content

For the three-month period ended December 31, 2025, the Corporation’s earnings increased by 25 percent to $17.6 million from $14.1 million in the 2024-period and adjusted EBITDA increased by 24 percent to $36.9 million, 20 percent of revenue, from $29.6 million, 17 percent of revenue, in the corresponding 2024-quarter. Contributing to the 2025-quarter’s improved earnings and adjusted EBITDA are lower cash-settled share-based compensation expenses and higher net gain on disposition of drilling equipment.

Article content

Earnings for the year ended December 31, 2025 of $54.7 million were flat against earnings of $54.6 million in 2024. Flat earnings despite higher revenues in the 2025 twelve-month period were largely due to higher depreciation and amortization expenses on drilling and other equipment. In the 2025-year, $6 million in additional depreciation was recognized relating to a change in the estimated useful life of certain primary components of motors. For the year-ended December 31, 2025, adjusted EBITDA⁽¹⁾ increased by 7 percent to $132.8 million, 19 percent of revenue, from $123.7 million, 19 percent of revenue, in 2024. The adjusted EBITDA achieved in the 2025-year was the second highest in the Corporation’s history, with the record being achieved in 2023. Included in the 2025 twelve-month period’s adjusted EBITDA is $30.4 million of net gain on disposition of drilling equipment (2024 – $24.6 million) and cash-settled share-based compensation expense of $4.7 million (2024 – $11.8 million).

Article content

Segmented Information

Article content

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.

Article content

United States

Article content

(Stated in thousands of dollars)

Article content

Article content

For the three-month period ended December 31, 2025, PHX Energy’s US division generated revenue of $131.8 million, flat against the $132.3 million generated in the fourth quarter of 2024. For the year ended December 31, 2025, the Corporation’s US division achieved its highest annual revenue, $516.2 million, which is 8 percent higher than $479.5 million in 2024.

Article content

In 2025, PHX Energy’s US operations thrived by leveraging the strong reputation of its premium technologies and operational expertise, and through increasing fleet capacity to gain market share despite continued weak industry activity. In the fourth quarter of 2025, the average number of active horizontal and directional rigs per day in the US industry declined by 7 percent to 516 compared to an average of 555 rigs per day in the 2024-quarter. In comparison, the Corporation’s US operating days increased by 2 percent to 4,525 days from 4,438 days in the 2024-quarter. The US division’s RSS activity represented 22 percent of its operating days in both 2025 and 2024-quarters. For the year ended December 31, 2025, the average number of horizontal and directional rigs running on a daily basis in the US industry decreased by 6 percent to 533 rigs from 566 rigs in 2024. In comparison, the US segment’s operating days were 17,845 in the 2025-year compared to 16,667 in 2024; an increase of 7 percent. The US division’s annual RSS activity was the highest it has ever achieved and represented 22 percent of its annual operating days ( 2024 – 21 percent).

Article content

With directional and horizontal drilling being the norm for over a decade, operators are now focused on increased efficiency of their drilling program, which includes drilling longer lateral sections and in some basins more complex horizonal well designs known as U-turn and J wells. The Corporation’s fleet and expertise are well suited for these longer and more complex well designs and the US division has been actively drilling these well types in 2025. During the 2025-year, the US division was active in the Permian, Eagleford, Scoop/Stack, Uinta, Haynesville, DJ, Fayetteville, and Marcellus basins. Additionally, the Corporation was involved with carbon capture and gas storage projects in Indiana, Michigan, New York, Louisiana and Texas.

Article content

For the three-month period ended December 31, 2025, the US division’s average revenue per day⁽³⁾ for directional drilling services was flat at $26,524 compared to $26,546 in the 2024-quarter. For the year ended December 31, 2025, average revenue per day for directional drilling services of $26,125 was virtually the same level as the $25,901 reported in 2024. Omitting the impact of foreign exchange, the average revenue per day for directional drilling services was also mostly flat in both 2025-periods.

Article content

Despite the slow industry environment, the Corporation’s US division grew its motor rental activities and revenue in both 2025-periods. With added resources dedicated to this line of business, the Corporation’s US motor rental division successfully grew its client base. For the three-month period and year ended December 31, 2025, US motor rental revenue increased by 23 percent and 25 percent, respectively, to $11.4 million in the 2025-quarter and $45.7 million in the 2025-year (2024 – $9.2 million and $36.6 million, respectively).

Article content

In the three and twelve-month periods of 2025, PHX Energy’s US operations generated $0.4 million and $4.3 million of revenue from the sale of motors and parts compared to $5.3 million and $11.2 million in the corresponding 2024-periods. Due to the intermittent and cyclical nature of the customers’ ordering frequency, it is expected that revenue from this line of business will fluctuate between periods.

Article content

For the three-month period ended December 31, 2025, the US segment’s reportable segment income before tax increased by 6 percent to $19.4 million from $18.3 million in the same 2024-period. In the 2025-quarter, the increase in direct cost that largely resulted from higher depreciation and amortization on drilling equipment, was offset by the increase in other income which was mainly from net gains on disposition of drilling and other equipment. In the 2025-year, the US segment’s reportable segment income before tax declined by 7 percent to $73.8 million from $79.2 million in 2024. Lower profitability in the twelve-month period of 2025 primarily resulted from higher depreciation expenses, lower revenue from the sale of motor equipment and parts, and generally higher equipment repair expenses which primarily resulted from inflation, tariffs implemented late in the first quarter of 2025, and increased servicing costs from PHX Energy owning a more diverse RSS fleet.

Article content

Canada

Article content

(Stated in thousands of dollars)

Article content

Article content

For the three-month period ended December 31, 2025, PHX Energy’s Canadian operations generated revenue of $52.1 million, a 12 percent increase compared to $46.3 million in the 2024-period. In the 2025-year, the Canadian segment’s revenue of $193.4 million is its highest annual revenue on record and a 7 percent increase compared to the $180.2 million generated in 2024. In both 2025-periods, revenue growth was largely driven by increased RSS activity.

Article content

In the 2025 three-month period, PHX Energy’s Canadian segment’s operating days declined by 2 percent to 3,302 days from 3,369 days in the same 2024-quarter and its RSS operating days accounted for 12 percent of its activity in the 2025-period, an increase compared to 5 percent in the corresponding 2024-period. In comparison, industry horizontal and directional drilling activity, as measured by drilling days, decreased by 10 percent to 14,881 in the fourth quarter of 2025 from 16,498 in the 2024-quarter. For the year ended December 31, 2025, there were 58,297 horizontal and directional drilling days realized in the Canadian industry, compared to the 62,759 days realized in 2024, a 7 percent decrease. In comparison, the Canadian segment’s activity decreased by only 3 percent from 13,210 operating days in 2024 to 12,842 days in 2025. Additionally, the Canadian division’s RSS operating days in the 2025-year increased to 8 percent of the segment’s activity from 4 percent in 2024. During the 2025-year, the Canadian division was active in the Duvernay, Montney, Glauconite, Frobisher, Cardium, Viking, Bakken, Torquay, Colony, Ellerslie, Charlie Lake, Cummings, Sparky, and Scallion basins.

Article content

The Canadian division’s average revenue per day⁽³⁾ for directional drilling services increased by 16 percent to $15,640 in the 2025-quarter, as compared to $13,538 in the corresponding 2024-quarter and increased by 10 percent to $14,860 in the 2025-year from $13,500 in 2024. The increases were primarily driven by the expanded use of RSS technologies.

Article content

PHX Energy’s Canadian reportable segment profits increased by 40 percent to $6.2 million in the 2025-quarter (2024 – $4.5 million) and 6 percent to $21.7 million in the 2025-year (2024 – $20.5 million). The improved profitability in both 2025-periods was mainly due to higher RSS activity and lower personnel-related costs.   

Article content

Investing Activities

Article content

Net cash used in investing activities for the year ended December 31, 2025 was $34.2 million as compared to $49.2 million in 2024. During 2025, the Corporation spent $49 million (2024 – $73.4 million) to grow the Corporation’s fleet of drilling equipment, $16.6 million (2024 – $5.3 million) was used to maintain capacity in the Corporation’s fleet of drilling and other equipment, and $6.7 million (2024 – $4.6 million) was spent to replace equipment lost downhole during drilling operations. With proceeds on disposition of drilling and other equipment of $42.3 million (2024 – $36.7 million), the Corporation’s net capital expenditures⁽²⁾ for 2025 were $30 million (2024 – $46.5 million).

Article content

(Stated in thousands of dollars)

Article content

Article content

The 2025-year capital expenditures comprised of:

Article content

Article content

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.

Article content

The change in non-cash working capital balances of $0.5 million (source of cash) relates to the net change in the Corporation’s trade payables that are associated with the acquisition of capital assets. This compares to $0.4 million use of cash in 2024.

Article content

Financing Activities

Article content

For the year ended December 31, 2025, net cash used in financing activities was $23.4 million as compared to $51.1 million in 2024. In the 2025-year:

Article content

Article content

Capital Resources

Article content

As of December 31, 2025, the Corporation had CAD $35.5 million drawn on its Canadian credit facilities, nothing drawn on its US operating facility, and a cash balance of $29.1 million. As at December 31, 2025, the Corporation had approximately CAD $74 million and USD $25 million available to be drawn from its credit facilities. The credit facilities are secured by substantially all of the Corporation’s assets and mature in December 2028.

Article content

As at December 31, 2025, the Corporation was in compliance with all its financial covenants under its credit facilities as follows:

Article content

Article content

⁽ⁱ⁾ Definitions for these terms are included in the credit agreement filed on SEDAR+ under the heading “Material Contracts – Credit Agreements”.

Article content

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.

Article content

Cash Requirements for Capital Expenditures

Article content

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. The Corporation currently anticipates spending approximately $60 million in capital expenditures during 2026, which was recently approved by the Board. Of the total expenditures, approximately 40 percent is targeted to be spent on growth and the rest is expected to be allocated to maintain capacity in the existing 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 2026, 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 potentially expanding this planned capital expenditure amount.

Article content

As at December 31, 2025, the Corporation has commitments to purchase drilling and other equipment for $41.4 million. Delivery is expected to occur within the first half of 2026.

Article content

About PHX Energy Services Corp.

Article content

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 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.

Article content

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. The Corporation has sales and service facilities in Houston, Texas; Midland, Texas; Casper, Wyoming; and Oklahoma City, Oklahoma. Internationally, PHX Energy has administrative offices in Luxembourg, Switzerland, and the Cayman Islands and also supplies technology to the Middle East regions.

Article content

As at December 31, 2025, PHX Energy had 971 full-time employees (2024 – 924) and the Corporation utilized over 148 additional field consultants in 2025 (2024 – over 139).

Article content

The common shares of PHX Energy trade on the Toronto Stock Exchange under the symbol PHX.

Article content

For further information please contact:
Michael Buker, President and CEO; or Cameron Ritchie, Senior Vice President Finance and CFO

Article content

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

Article content

Consolidated Statements of Financial Position

Article content

Article content

Article content

Consolidated Statements of Comprehensive Earnings 
 (Stated in thousands of dollars except earnings per share)

Article content

Article content

Article content

Consolidated Statements of Cash Flows
(Stated in thousands of dollars)

Article content

Article content

Article content

Cautionary Statement Regarding Forward-Looking Information and Statements 

Article content

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.

Article content

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.

Article content

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 under which the Corporation 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, PHX Energy’s intentions with respect to the current NCIB, the anticipated industry activity and demand for the Corporation’s services and technologies in North America, the projected capital expenditures budget for 2026, and how the budgets will be allocated and funded, the timeline for delivery of equipment on order, and the anticipated continuation of PHX Energy’s quarterly dividend program and the amounts of dividends.

Article content

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.

Article content

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 2026 and beyond; that future business, regulatory and industry conditions will be within the parameters expected by the Corporation; the duration and impact of tariffs that are currently in effect on goods exported from or imported into Canada, and that other than the tariffs that are currently in effect, neither the US nor Canada (i) increases the rate or scope of such tariffs, reenacts tariffs that are currently suspended, or imposes new tariffs, on the import of goods from one country to the other, or (ii) imposes any other form of tax, restriction, or prohibition on the import or export of products from one country to the other; 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, US-Venezuela 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, dividends, and ROCS, which are subject to change; and market conditions and future oil and natural gas prices and resulting demand for related services. 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.

Article content

The forward-looking information and statements included in this document are not guarantees of future performance and should not be unduly relied upon. Such information and statements 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 information or statements including, without limitation: volatility of commodity prices; adverse economic conditions; political uncertainty; the risk that (i) the tariffs that are currently in effect on goods exported from or imported into Canada continue in effect for an extended period of time, the tariffs that have been threatened are implemented, that tariffs that are currently suspended are reactivated, the rate or scope of tariffs are increased, or new tariffs are imposed, (ii) the US and/or Canada imposes any other form of tax, restriction, or prohibition on the import or export of products from one country to the other, and (iii) the tariffs imposed or threatened to be imposed by the US on other countries and retaliatory tariffs imposed or threatened to be imposed by other countries on the US, will trigger a broader global trade war which could have a material adverse effect on the Canadian, US, and global economies, and by extension the Canadian crude oil and natural gas industry and the Corporation, including by decreasing demand for (and the price of) crude oil and natural gas, disrupting supply chains, increasing costs, causing volatility in global financial markets, and limiting access to financing; the impacts of the ongoing Middle-East conflicts, Russia-Ukraine war and geopolitical developments in Venezuela (and any associated sanctions) on the global economy and commodity prices; compliance with environmental regulations; risks relating to climate change, including transition and physical risks; PHX Energy’s ability to recruit and retain a skilled workforce and key personnel; risks relating to a changing investor sentiment; asset and customer concentration; risks relating to information technology systems and cyber security; liquidity; inflation, cost management, and interest rates; third-party credit risks; variations in foreign exchange rates; the impact of competitors; risks related to potential or ongoing litigation; lack of adequate insurance coverage; limited, unfavorable or a lack of access to capital markets; unanticipated operating results; increased debt levels or debt service requirements; increased costs; and certain other risks detailed in PHX Energy’s public disclosure documents. Readers should also carefully consider the risks discussed in the section entitled “Business Risk Factors” contained within the Corporation’s MD&A for the period ended December 31, 2025 filed on the SEDAR+ website (www.sedarplus.ca).

Article content

PHX Energy’s future shareholder distributions, including but not limited to the payment of dividends and NCIB purchases, if any, and the level thereof is uncertain. Any decision to pay dividends on PHX Energy’s shares (including the actual amount, the declaration date, the record date, and the payment date in connection therewith) will be subject to the discretion of the Board and may depend on a variety of factors, including, without limitation, PHX Energy’s business performance, financial condition, financial requirements, growth plans, expected capital requirements and other conditions existing at such future time including, without limitation, contractual restrictions and satisfaction of the solvency tests imposed on PHX Energy under applicable corporate law. Further, the actual amount, the declaration date, the record date, and the payment date of any dividend are subject to the discretion of the Board. There can be no assurance that PHX Energy will pay dividends or make additional purchases under its NCIB in the future.

Article content

The forward-looking information in this document also includes financial outlooks and other related forward-looking information relating to PHX Energy, including, but not limited to the expectations of PHX Energy regarding capital expenditures. The internal projections, expectations, or beliefs are based on the 2026 capital budget, which is subject to change in light of ongoing results, prevailing economic conditions and industry conditions and regulations. These financial outlook and other related forward-looking statements are also subject to the same assumptions, risk factors, limitations, and qualifications as set forth above. Accordingly, readers are cautioned that events or circumstances could cause results to differ materially from those predicted, and as such, undue reliance should not be placed on financial outlook and/or forward-looking statements.

Article content

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 MD&A 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.

Article content

Non-GAAP and Other Financial Measures

Article content

Non-GAAP Financial Measures and Non-GAAP Ratios

Article content

a)   Adjusted EBITDA

Article content

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.

Article content

The following is a reconciliation of earnings to adjusted EBITDA:

Article content

(Stated in thousands of dollars)        

Article content

Article content

Article content

b)   Adjusted EBITDA Per Share – Diluted

Article content

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 as quantified in Note 10(b) in the Notes to the Consolidated Financial Statements.

Article content

c)   Adjusted EBITDA as a Percentage of Revenue

Article content

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 Consolidated Statements of Comprehensive Earnings.

Article content

d)   Gross Profit as a Percentage of Revenue Excluding Depreciation & Amortization

Article content

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.

Article content

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:

Article content

(Stated in thousands of dollars)

Article content

Article content

Article content

e)   SG&A Costs Excluding Share-Based Compensation as a Percentage of Revenue

Article content

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.

Article content

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:

Article content

(Stated in thousands of dollars)

Article content

Article content

Article content

Capital Management Measures

Article content

a)   Funds from Operations

Article content

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.

Article content

The following is a reconciliation of cash flows from operating activities to funds from operations:

Article content

(Stated in thousands of dollars)

Article content

Article content

Article content

b)   Excess Cash Flow

Article content

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.

Article content

The following is a reconciliation of cash flows from operating activities to excess cash flow:

Article content

(Stated in thousands of dollars)

Article content

Article content

Article content

c)   Working Capital

Article content

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.

Article content

The following is a reconciliation of current assets and current liabilities to working capital:

Article content

(Stated in thousands of dollars)

Article content

Article content

Article content

d)   Net Debt (Net Cash)

Article content

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.

Article content

The following is a reconciliation of loans and borrowings and cash to net debt:

Article content

(Stated in thousands of dollars)

Article content

Article content

Article content

e)   Net Capital Expenditures

Article content

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.

Article content

The following is a reconciliation of additions to drilling and other equipment and proceeds from disposition of drilling equipment to net capital expenditures:

Article content

(Stated in thousands of dollars)

Article content

Article content

Article content

f)   Remaining Balance under ROCS Target

Article content

Remaining balance under ROCS target 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 balance under ROCS target to provide insight as to the Corporation’s ROCS strategy as at the reporting date. PHX Energy’s method of calculating remaining balance under ROCS target may differ from that of other organizations and, accordingly, it may not be comparable to that of other companies.

Article content

The following is a reconciliation of excess cash flow as defined above to remaining balance under ROCS target:

Article content

(Stated in thousands of dollars)

Article content

Article content

Article content

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 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.
“Dividends paid as a percentage of excess cash flows” is comprised of dividends paid, as determined in accordance with IFRS, divided by the excess cash flow as reported in the table above.
“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 as quantified in Note 10(b) in the Notes to the Consolidated Financial Statements.

Article content

Definitions

Article content

“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 Consolidated Statements of Cash Flows and Note 5(b) 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.

Article content

Article content

Article content

Article content

Article content

Article content