aveda energy investor presentation january 2014
TRANSCRIPT
Corporate Presentation | January 2014
DISCLAIMER
The information contained in this corporate presentation (the "Presentation") is based on public information and Aveda Transportation and Energy Services Inc.'s ("Aveda" or the"Company") information. This Presentation does not constitute, or form a part of, and should not be construed as any offer or invitation to sell, allot or issue, or any solicitation of any offerto purchase or subscribe for, any securities, nor shall it (or any part of it or anything contained or referred to in it) or the fact of its distribution form the basis of, or be relied upon inconnection with, or act as any inducement in relation to a decision to purchase or subscribe for or to enter into, any contract or commitment whatsoever for securities in any jurisdiction.
The securities of Aveda have not been, and will not be, registered under the United States Securities Act of 1933, as amended (the "1933 Act"), or the securities laws of any state.Additionally, this Presentation is not for release, publication or distribution in, into or from the United States of America.
This Presentation contains certain forward-looking statements and forward-looking information (collectively referred to herein as "forward-looking statements") within the meaning ofapplicable Canadian securities laws. All statements other than statements of historical fact are forward-looking statements. Forward-looking statements are often, but not always,identified by the use of words such as "anticipate", "achieve", "could", "believe", "plan", "intend", "objective", "continuous", "ongoing", "estimate", "outlook", "expect", "may", "will","project", "should" or similar words, including negatives thereof, suggesting future outcomes. In particular, this Presentation contains forward-looking statements relating to: future growth;results of operations; operational and financial performance; projected capital expenditures and commitments and the financing thereof; benefits derived from capital expenditures;expansion opportunities; increases in revenue; equipment delivery and deployment dates; effect of and ability to complete rebranding; geographic allocation of equipment; customercommitments; ability to establish and maintain a working relationship with third party suppliers; expectations regarding the ability of Aveda to raise capital and to increase its equipmentfleet; benefits associated with financial results; activity levels; business strategy; successful integration of structural changes; restructuring plans; organic growth potential; acquisitionopportunities and benefits and availability of insurance coverage. Aveda has relied on financial information provided to it by M&K Hotshot & Trucking, Inc. and M&K Rig Service, Inc.(collectively, “M&K”). This information has not yet been formally audited or reviewed. Aveda believes the expectations reflected in the forward-looking statements contained in thisPresentation are reasonable as of the date hereof but no assurance can be given that these expectations will prove to be correct and such forward-looking statements should not be undulyrelied upon.
Various material factors and assumptions are typically applied in drawing conclusions or making the forecasts or projections set out in forward-looking statements. Those material factorsand assumptions are based on information currently available to Aveda, including information obtained from third party industry analysts and other third party sources. In some instances,material assumptions and material factors are presented elsewhere in this Presentation in connection with the forward-looking statements. Readers are cautioned that the following list ofmaterial factors and assumptions is not exhaustive. Specific material factors and assumptions include, but are not limited to: the performance of Aveda’s businesses and the performance ofthe business upon integration of M&K, including current business and economic trends; oil and natural gas commodity prices and production levels; capital expenditure programs and otherexpenditures by Aveda and its customers; the ability of Aveda to retain and hire qualified personnel in Canada and the United States; the ability of Aveda to obtain parts, consumables,equipment, technology, and supplies in a timely manner to carry out its activities; the ability of Aveda to maintain good working relationships with key suppliers; the ability of Aveda tomarket its services successfully to existing and new customers; the ability of Aveda to retain customers post-acquisition; the ability of Aveda to obtain timely financing on acceptable terms;currency exchange and interest rates; risks associated with foreign operations; changes under governmental regulatory regimes and tax, environmental and other laws in Canada and theUnited States; and a stable competitive environment.
Forward-looking statements are not a guarantee of future performance and involve a number of risks and uncertainties, some of which are described herein. Such forward-lookingstatements necessarily involve known and unknown risks and uncertainties, which may cause Aveda’s actual performance and financial results in future periods to differ materially from anyprojections of future performance or results expressed or implied by such forward-looking statements. These risks and uncertainties include, but are not limited to, the risks identified byAveda’s annual information form and management discussion and analysis for the year ended December 31, 2012 (the "MD&A") and contained herein under the heading "Risk Factors".Any forward-looking statements are made as of the date hereof and, except as required by law, Aveda assumes no obligation to publicly update or revise such statements to reflect newinformation, subsequent or otherwise.
2
DISCLAIMER (CONT’D)
Future-Oriented Financial Information
This Presentation also contains future-oriented financial information and financial outlook information (collectively, "FOFI") about prospective results of operations, future net revenue,share capital, cash flows, and components thereof, all of which are subject to the same assumptions, risk factors, limitations, and qualifications as set forth in the above paragraphs includingthe risks set out in the Company's MD&A and annual information form for the year ended December 31, 2012. FOFI contained in this Presentation was made as of the date of thisPresentation and was provided for the purpose of providing information about management's current expectations and plans relating to the future. The Company disclaims any intention orobligation to update or revise any forward looking statements or FOFI contained in this Presentation, whether as a result of new information, future events or otherwise, unless requiredpursuant to applicable securities law. Readers are cautioned that the forward looking statements and FOFI contained in this Presentation should not be used for purposes other than forwhich it is disclosed herein. The forward looking statements and FOFI contained in this Presentation are expressly qualified by this cautionary statement.
The forward-looking statements contained in this Presentation are made as of the date on the front page and the Company assumes no obligation to update publicly or to revise any of theincluded forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required by applicable securities laws. Certain informationcontained herein is based on, or derived from, information provided by independent third-party sources. The Company believes that such information is accurate and that the sources fromwhich it has been obtained are reliable. The Company cannot guarantee the accuracy of such information, however, and has not independently verified the assumptions on which suchinformation is based. The Company does not assume any responsibility for the accuracy or completeness of such information.
Non-International Financial Reporting Standards Measures
This Presentation contains the terms EBITDA (earnings before interest, taxes, depreciation and amortization) and working capital which are defined in the MD&A. These measures arecommonly utilized in the oilfield services industry and are considered informative for management and stakeholders. Neither working capital nor EBITDA have a standardized meaningprescribed by international financial reporting standards ("IFRS") and therefore Aveda's calculations may not be comparable with the calculation of similar measures for other entities.Management uses EBITDA to analyze the operating performance of businesses. EBITDA as presented is not intended to represent cash provided by operating activities, net earnings or othermeasures of financial performance calculated in accordance with IFRS.
This Presentation does not constitute a recommendation regarding the securities of Aveda. No reliance may be placed for any purpose whatsoever on the completeness, accuracy or fairnessof the information or opinions contained in this Presentation nor is any responsibility or liability accepted for any errors or misstatements in, or omissions from, this Presentation or anydirect or consequential loss (howsoever arising) from any use of, or reliance on, this Presentation or otherwise in connection with it. No undertaking, representation, warranty or otherassurance, express or implied, is made or given by or on behalf of Aveda, or any of its respective directors, officers, partners, employees, agents, affiliates or advisers or any other person asto the accuracy, completeness or fairness of the information or opinions contained in this Presentation and no responsibility or liability is accepted by any of them for any such informationor opinions.
3
Oilfield Hauling Oilfield Rentals Matting Tanks Light towers
Rig moving Heavy hauling Hot shot services
Aveda Transportation and Energy Services (“Aveda” or the “Company”) is a growing provider of specialized oilfieldhauling and rentals to the US and Western Canadian oil and gas industry
Aveda was founded in 1994, went public in 2006 and was recapitalized in 2011
The Company is well positioned to take advantage of attractive organic and acquisition growth opportunitiesthroughout North America
Multiple cross-over business opportunities achieved through oilfield hauling and rental business units
COMPANY OVERVIEW
4
ManagementDavid Werklund – Executive Chairman Has been the Chairman of Aveda since 2006 and served as Interim
President and CEO of Aveda from September 2011 to November2012. Appointed as Executive Chairman in November 2012
Began career in 1965 at Shell Canada as a Production Operator Founder and Chairman of the Board of Directors of CCS
Corporation (now Tervita Corporation) Co-Founder of Concord Well Servicing Founder & Executive Chairman of Werklund Capital Corporation The 2005 Ernst & Young's Canadian Entrepreneur of the Year The 2013 Calgary Business Hall of Fame Laureate
Kevin Roycraft - President and CEO Joined Aveda in November 2012 More than 20 year of Transportation Industry Experience Former Vice-President of Operations for Liquid Transport Corp.
(one of North America’s largest bulk chemical and oiltransportation company)
Bharat Mahajan – Vice-President, Finance & CFO Joined Aveda in October 2011 Held several positions with Magna International overseeing
various international growth initiatives Former CFO of several oilfield service companies, including
Wellpoint Systems Inc. and Norex Exploration Services Inc.
Board MembersStefan Erasmus President of Werklund Capital Corporation Director of several private companies and charitable organizations Former Managing Director of Resources Global Professionals
Doug McCartney Partner of Burstall Winger LLP Practices in the areas of securities and corporate finance and
corporate and commercial law Director or officer of several private companies
Paul Shelley President of Convinco Financial Ltd. Former Senior Vice President, Corporate Development at Kos Corp.
Investments Ltd.
MANAGEMENT AND BOARD OF DIRECTORS
5
Historical Shareholder Returns CCS Selected Historical Acquisitions
6
David Werklund founded CCS Corporation (now Tervita Corporation) in 1984 and built it largely through theconsolidation of several oilfield services companies and organic growth
CCS privatized in 2007 for approximately C$3.5 billion (the largest Trust privatization in Canadian history)
MANAGEMENT TRACK RECORD
Source: FactSet
CAGR Total Return
CCS 24% 2490%CAGR Total Return
CCS 24% 2490%
Capitalization Balance Sheet Summary(1)(4)
Share price (January 2, 2014) $5.50 Operating Line Available ($mm)(4) $26.3
Shares Outstanding Basic (mm)(2) 12.0 Property and Equipment ($mm)(4) $48.6
Outstanding Stock Options (mm)(2) 1.0 Working Capital ($mm) (1) $10.1
Shares Outstanding Fully Diluted (mm)(2) 13.0 Total Assets/Tangible Assets ($mm)(4) $71.5/$67.4
FD Market Capitalization ($mm) $71.5
Net Debt ($mm)
Loans and Borrowings(4) $22.8 Shareholder Summary(2)
Cash(1)(3) ($3.4) Werklund Capital Corp 54.9%
Total Net Debt ($mm) $19.4 Other Insiders 2.0%
Enterprise Value ($mm) $90.9 Total Insiders 56.9%
CAPITALIZATION SNAPSHOT
(1) At September 30, 2013(2) At December 31, 2013(3) Includes potential cash from exercise of all options of $2.7 million(4) Balance sheet value as at September 30, 2013 adjusted for effect of oilfield rental acquisition as per slide 15 (“Belair Acquisition”)
7
Capitalization Balance Sheet SummaryShare price (January 2, 2014) $5.50 Operating Line Available ($mm)(6) $37.1
Shares Outstanding Basic (mm)(4) 19.9 Property and Equipment ($mm)(7) $71.4
Outstanding Stock Options (mm)(2) 1.0 Working Capital ($mm) (1) $10.1
Shares Outstanding Fully Diluted (mm)(4) 20.9 Total Assets/Tangible Assets ($mm)(8) $113.9/$96.6
FD Market Capitalization ($mm)(4) $115.0
Loans and Borrowings(5) $37.9 Shareholder Summary(4)(9)
Cash(1)(3) ($3.4) Werklund Capital Corp. 33.4%
Total Net Debt ($mm) $34.5 Other Insiders 1.2%
Enterprise Value ($mm) $149.5 Total Insiders 34.6%
CAPITALIZATION SNAPSHOT WITH PLANNEDM&K ACQUISITION
(1) At September 30, 2013.(2) At December 31, 2013.(3) Includes potential cash from exercise of all options of $2.7 million.(4) Amount includes 12.0 million common shares outstanding at December 31, 2013, 6.4 million subscription receipts convertible to common shares of the Company upon completion of the planned acquisitiondescribed in detail on slide 14 (“M&K Acquisition”), and 1.5 million common shares planned to be issued to the sellers in connection with the planned M&K Acquisition.(5) Total Loans and Borrowings as at September 30, 2013 of $24.0 million reduced by conversion of $4.7 million debenture into equity on December 31, 2013, additional loan for planned M&K Acquisition of $15.1million assuming final purchase price of US$40.0 million and oilfield rental acquisition as per slide 15 (“Belair Acquisition”) of $3.5 million. Changes in Loans and Borrowings balance not adjusted for impact ofregular operations.(6) Credit facility conditionally increased to $75 million in connection with planned closing of the M&K Acquisition, less adjusted loans and borrowings of $37.9 million.(7) Total Property and Equipment as at September 30, 2013 of $45.5 million, adjusted for fair market value of property and equipment to be acquired in connection with the planned M&K Acquisition of $22.8 million(US$ 21.5 million using USD:CAD FX rate of 1.06), and property and equipment acquired in Belair Acquisition $3.1 million.(8) Total Assets as at September 30, 2013 of $67.5 million, adjusted for increase in assets of Belair Acquisition of $4.0 million and planned M&K Acquisition of $42.4 million (assumed final purchase price of US$40million using USD:CAD FX rate of 1.06). Total Tangible Assets as at September 30, 2013 of $64.3 million, adjusted for tangible assets acquired in Belair Acquisition of $3.1 million (Property and Equipment - $3.1million) and planned M&K Acquisition of $29.2 million (Property and Equipment – US$22.0 million and Working Capital of US$5.5 million using USD:CAD FX rate of 1.06).(9) Assumes conversion of subscription receipts into common shares of the Company upon completion of planned M&K Acquisition.
8
523
185
Permian 228
34Barnett
85
Williston/Bakken
WCSB
(1) ) Active rigs on or about January 3 in relevant year; as per Baker Hughes & CAODC
Marcellus
Active Region Prior to 20122012 Organic Expansion2013 Organic ExpansionPlanned M&K AcquisitionExpansion Opportunity
Oil Focused
NGL Focused
Aveda has a targeted growth plan thatis focused on targeting oil/liquid richweighted basins across North America
Based on a recent market analysis,Aveda estimates each rig movesapproximately 1.4 times per month or17 times per year (approx. 37,230moves per year based on early January2014 rig count)
Aveda’s reputation, customerrelationships and quality service resultsin high utilization of its transportationequipment
Approximately 2,190 Active Rigs in North America(1)
7
OILFIELD HAULING MARKET
Eagle Ford
North American ActiveLand Rig Count(1)
2013 1,948
2012 2,308
468
Northern Texas/Oklahoma
23238
Utica
NORTH AMERICAN OPERATIONS
10
Recently announced planned acquisition ofoilfield hauling and equipment rentalsoperations in Williston, ND (“M&KAcquisition”)
Newly acquired oilfield rentals operation inEdson, AB (“Belair Acquisition”)
Thirteen offices located in the heartof the key North American resource plays
Significant expansion opportunities especiallyin U.S. markets
Flexible workforce can be transferred crossborder to high activity areas
Experienced team of more than 280employees, with approximately additional 90employees to be added in connection withthe planned M&K Acquisition
LEDUC
CALGARY
MIDLAND
PLEASANTON
SLAVE LAKE
MINERAL WELLS
WILLIAMSPORT
Geographic Locations
Fixed Asset Allocation
(1) Based on total equipment Net Book Value at September 30, 2013(2) Based on total equipment Net Book Value at September 30, 2013 and
adjusted for the effect of Belair Acquisition and planned M&KAcquisition
SYLVAN LAKE
BUCKHANNON
EDSON
51%
49%
(1)
WILLISTON
64%
36%
US Canada
(2)
CurrentAveda
M&KAcquisition
OILFIELD HAULING OVERVIEW
Modern, well maintained current fleet of 569 pieces ofequipment (169 power units)
Planned M&K Acquisition to add 170 pieces of equipment(85 power units)
Current employees of 282 employees (163 operators) Planned M&K Acquisition expected add approximately 90
employees (56 operators) Fragmented industry makes for attractive consolidation
opportunities Primary competitors include TransForce, Mullen, Flint and
regional specialty haulers
11
Equipment Composition in Hauling Fleet Blue Chip Customer Base
0 50 100 150 200 250 300 350 400
Cranes
Bed Truck
Picker/Loader
Tractor
Miscellaneous
Trailer
Current Aveda Planned M&K Acquisition
12
Competitor Aveda
40 mile rig move – Marcellus Shale (1)
The Result: 11% price premium for Aveda 64% reduction in rig downtime for customer
(1) 1,250 hp, jackknife triple rig, ~ 70 loads
4 days
Aveda has outperformed its competitors as a result of: Newer, more specialized equipment Experienced personnel Planning and communications Ability to meet industry demands for heavier equipment and larger loads
11 days
OILFIELD HAULING CASE STUDY
OILFIELD RENTALS OVERVIEW
13
Planned M&K Acquisition anticipates to enable theexpansion of oilfield rentals operations in the US(Williston, ND)
Modern, well maintained equipment with 1,263 piecesin the rental fleet after Belair Acquisition and plannedM&K Acquisition
Plan to build critical mass through the acquisition ofcompetitors with similar or complementary equipment
Recent Belair acquisition of complementary equipmentin Edson, AB
Typical acquisition multiples identified at 3.0x to 3.5xEBITDA
Equipment Composition in Rental FleetBlue Chip Customer Base
0 50 100 150 200 250 300 350 400 450
Well-site Shacks/Trailers
Shale Bins
Light Towers
Racks
Miscellaneous
Rig Mats
Tanks
Aveda Pre-acquisition Belair Acquisition Planned M&K Acquisition
PLANNED OILFIELD HAULING SERVICES ANDEQUIPMENT RENTALS ACQUISITION IN NORTHDAKOTAPlanned acquisition of the assets of M&K Hotshot & Trucking, Inc. and M&K RigService, Inc. (collectively “M&K”) in Williston, North Dakota Initial purchase price expected to be between US$38.0 million and US$42.0 million or 3.18 times 2013
EBITDA (expected to fall in the range of US$12.0 million and US$13.0 million). Initial purchase priceincludes US$5.0 million equity at $3.60/share and remainder in cash
Estimated US$9.0 million in additional consideration on an earnout basis over three years if certain EBITDAlevels achieved
Strong track record of revenue and EBITDA growth. Between 2010 and 2012 revenue increased fromUS$10.6 million to US$33.5 million and grew EBITDA from US$3.1 million to US$12.4 million (historicfinancial data unaudited)
Anticipated to potentially double the size of the Company on an EBITDA basis. Attractive acquisitionmultiple, with excellent revenue growth potential and strong profitability including significant recurringcustomer base
170 pieces of high quality oilfield hauling equipment including 79 trailers, 15 conventional tractors, 14winch tractors, and 3 cranes and 395 pieces of rental equipment with total fair market value of US$22.0million
Immediate exposure to the Williston/Bakken Formation, one of the largest oilfields in the US
Create synergy by improving utilization of existing oilfield hauling equipment
Regional expertise, sellers intend to remain with the Company14
OILFIELD RENTALS ACQUISITION
Lon Dan Enterprises Ltd. DBA Belair Rentals in Edson, Alberta
$4.0 million initial purchase price ($0.5 million equity at $3.63/share and $3.5 million cash)
Additional $0.5 to $1.5 million cash consideration contingent on achieving certain EBITDA target
3.06 – 3.21 times target EBITDA multiple based on achieving earnout
Expected annual EBITDA of $1.4 – 1.8 million
Added more than 140 pieces of higher margin contributing equipment that are complementary to existingequipment base (well-site shacks, light towers, matting)
Expanded geographical footprint to better serve our customers
Create synergy by improving utilization of existing rental equipment
15
GROWTH STRATEGY
16
Capital Expenditure Program Completed capital expenditure of $25 million in 2012 and $6 million in 2013 including
addition of 2 cranes and implementation of transportation management systemsOrganic Growth Initiatives Existing Customers
Rig moving and ancillary equipment (e.g. tanks, trailers, cranes, etc.) Implement transportation management systems (e.g. GPS, satellite communications)
Expansion into New Areas – new satellite branch in Buckhannon, WV Target high activity resource plays focused on oil and NGL exploration
Growth Through Acquisitions Acquire complementary fleets in both new and existing geographies Typical acquisition multiples of 3.0x to 3.5x EBITDA Evaluating potential acquisitions of various sizes in high activity regions
46% 54%
Canada United States
FINANCIAL PERFORMANCE: REVENUE
• Reported 14 consecutive quarters of record revenue growth as compared to the same period of the prior year:
– 11% overall revenue growth in the first nine months of 2013 vs. 2012 despite year-over-year average rigcount decline of approximately 7% in the areas the Company operates (1)
– 40% revenue growth in the U.S. in the first nine months of 2013 vs. 2012
Annual Revenue ($MM) Revenue by Geography
First Nine Months Revenue ($MM)
2013
2012
Growingexposure tothe resilientU.S. market
$33.9 $39.8
$72.2$83.3
$0.0
$25.0
$50.0
$75.0
$100.0
2009 2010 2011 2012
$60.3
$66.9
$40.0
$50.0
$60.0
$70.0
First Nine Months 2012 First Nine Months 2013
32%
68%
Canada United States
(1) As per Baker Hughes & CAODC
FINANCIAL PERFORMANCE: EBITDA
• First nine months of 2013 EBITDA of $12.0million, an increase of $4.8 million compared to2012, reflecting:
– Higher utilization across North America
– Premium pricing in key resource plays
– Operational efficiencies resulting inincreased margins
Annual EBITDA ($MM)
First Nine Months EBITDA ($MM)
$7.2
$12.0
$0.0
$5.0
$10.0
$15.0
First Nine Months 2012 First Nine Months 2013
$2.1
$4.2
$11.3
$9.8
$0.0
$4.0
$8.0
$12.0
2009 2010 2011 2012
RECENT ACHIEVEMENTS SUMMARY
Signed asset purchase agreement to acquire oilfield hauling and equipment rentalsassets in Williston, ND (see slide 12 for more details)
Completed $23.0(1) million subscription receipt bought deal private placement (the“Offering”)
Increased senior credit facility from $50.0 million to $75.0 million (subject toplanned closing of M&K Acquisition), in the process reduced interest rate by 50bps
Converted $4.7 million convertible debenture into equity
Acquired complimentary oilfield rentals assets in Edson, AB
Opened new satellite branch in Buckhannon, WV to serve the Utica Basin
19
1) The net proceeds from the Offering will be deposited in escrow pending satisfaction of certain conditions, including the condition that all conditionsprecedent to the completion of the planned M&K Acquisition have been satisfied. If the escrow release conditions are not satisfied on or prior to March 7,2014 or certain other termination events occur, the proceeds will be returned to the subscribers. Upon completion of the Offering, the Company intends touse the net proceeds of the Offering to fund a portion of the purchase price of the planned M&K Acquisition and for general corporate purposes.
INVESTMENT HIGHLIGHTS
Proven management team with a history of value creation
Solid industry fundamentals supported by continued strong oil prices
Strong balance sheet and cash flow generation
Significant growth opportunities across emerging oil-weighted resource plays
Organic growth
Acquisitions
20
CONTACT
Bharat MahajanChief Financial Officer
Aveda Transportation and Energy ServicesSuite 300, 435 – 4th Avenue SW
Calgary, ABT2P 3A8
(403) [email protected]
21