Month: November 2024

• FY2024 revenue of US$1.89 billion increased 5% year-over-year (flat in BRL terms), driven by market share gains and sales volume growth mitigating deflationary input price headwinds.

• FY2024 gross profit decreased -19% to $268.4 million (-23% in BRL), with gross margins compressing by -430 basis points to 14.2%, primarily due to the input price deflation and a less favorable product category sales mix.

• The Crop Care² segment was a standout performer for the year, with revenue rising 24% to $150.7 million for FY2024 (+18% BRL), and gross profit of $56.1 million increasing +4% y/y (decreasing -1% in BRL), despite the challenging market environment for specialty products.

• Net loss for FY2024 increased to $154.6 million, compared to a net loss of $43.7 million in the previous year, with the change reflecting a decline in gross profit, higher finance costs and income tax headwinds. Adjusted Net Loss was $144.9 million, compared to Adjusted Net Profit of $30.9 million last year, with the variation reflecting lower gross profit, increased finance costs and income tax headwinds.

• Adjusted EBITDA³ for FY2024 was $53.4 million, compared to $150.1 million in the previous year, with the decline resulting from lower gross profit, and higher operating expenses.

• Net cash flows provided by operations⁴ were $33.1 million (R$165.8 million), compared to $20.9 million (R$108.1 million) in the prior year.

• Lavoro provides an outlook for FY2025 detailed later in the release.

SÃO PAULO, Oct. 31, 2024 (GLOBE NEWSWIRE) — Lavoro Limited LVRO LVROW)), the first U.S. listed pure-play agricultural inputs retailer in Latin America, today announced its financial results for the fiscal fourth quarter of 2024, which ended on June 30, 2024. Detailed financial statements provided on Form 6-K as filed with the SEC can be accessed on the Company’s investor relations website at https://ir.lavoroagro.com/disclosure-and-documents/sec-filings/.

Ruy Cunha, CEO of Lavoro, commented, “This past year was one of the most challenging periods for Brazilian agribusiness in the last decade, with the ag inputs retail market estimated to have declined by over 20%. Lavoro navigated these turbulent conditions, gaining market share by focusing on controllable factors and leveraging our scale and verticalized business model. Our Crop Care segment performed well considering the notably challenging conditions for specialty inputs in the Brazilian market.”

“The current market environment reflects a mix of contrasting factors. On the one hand, projections for farmer profitability for the crop year 2024/2025 indicate improvement over the previous year, incentivizing farmers to grow planted acres and to invest in inputs to maximize yields. Additionally, input prices are continuing to show signs of stabilization. On the other hand, reduced bank and government lending to farmers, due in part to the impact from last year’s drought on crop yields, is currently constraining short-term liquidity for farmers, and creating challenges for the broader ag inputs value chain, including Lavoro. Against this backdrop, enhancing gross margin improvement is a key priority for this year.”

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¹ Financials presented in US dollars in throughout this release are converted using the following average period USD/BRL exchange rate: 5.217 for 4Q24, 4.951 for 3Q24; 4.955 for 2Q24; 4.883 for 1Q24; 4.952 for 4Q23; 5.193 for 3Q23; 5.265 for 2Q23; 5.241 for 1Q23.
² Crop Care financial results shown here, and elsewhere in this release, include intercompany sales to Lavoro, which are eliminated in the consolidated results.
³ Adjusted EBITDA and Adjusted Profit/Loss are non-IFRS measures. Please see reconciliation tables elsewhere in this release.
⁴ Converted to USD using the average USD/BRL for the fiscal year: 5.00 for FY24 and 5.16 for FY23.

FY4Q24 Financial Highlights⁵

• Consolidated revenue for Lavoro in 4Q24 increased by 2% year-over-year (y/y) to $271.1 million (+8% in BRL), compared to the prior year period, with positive contributions from Grains revenue associated with our barter operations, which grew +41% to $68.3 million (+48% in BRL). This was partially offset by a decline in Inputs revenue of -6% (-1% in BRL), which reached $202.8 million, reflecting Input revenue declines in Brazil Ag Retail and the effect of converting our results from Brazilian reais to U.S. dollars for ease of reference.

• Consolidated gross profit decreased by -4% to $45.2 million in 4Q24 (+2% in BRL). Gross margins contracted by -100 bps y/y to 16.7%, driven by an increased mix of Grains revenue, and the unfavorable impact of product mix in Crop Care, partially offset by an improvement in gross margins for Brazil Ag Retail and Latam Ag Retail.

• Gross profit as % of Inputs revenue improved 70 bps y/y to 22.3% in 4Q24, with improvements led primarily by Brazil Ag Retail, partially offset by product mix headwinds in our Crop Care segment.

• Net loss for 4Q24 was $77.3 million, compared to a net loss of $19.5 million in the prior year period. The $57.8 million year-over-year increase in net loss was primarily driven by income taxes headwinds ($35 million), and higher finance costs ($22 million). Adjusted Net Loss was $76.2 million, compared to Adjusted Net Loss of $15.2 million in the prior year quarter, with similar key drivers for the year-over-year change.

• Adjusted EBITDA was -$2.1 million in 4Q24 compared to $2.4 million in the prior year period, with the change reflecting a decline in gross profit and net other operating income.

__________________________

⁵ Adjusted EBITDA and Adjusted Profit/Loss are non-IFRS measures. Please see reconciliation tables elsewhere in this release.

Consolidated Results (USD)		4Q23	4Q24	Chg. %		FY23	FY24	Chg. %
(in millions of US dollars)
Revenue by Segment		265.5	271.1	2%		1,799.7	1,888.6	5%
Brazil Ag Retail		197.2	192.5	(2%)		1,506.2	1,584.4	5%
Latam Ag Retail		61.8	65.2	5%		233.8	237.8	2%
Crop Care		10.7	19.9	87%		121.2	150.7	24%
Intercompany eliminations		(4.1)	(6.4)			(61.4)	(84.3)
Revenue by Category		265.5	271.1	2%		1,799.7	1,888.6	5%
Inputs revenue		217.0	202.9	(6%)		1,669.4	1,678.7	1%
Grains revenue		48.6	68.3	41%		130.4	209.9	61%
Gross Profit		46.9	45.2	(4%)		332.9	268.4	(19%)
Brazil Ag Retail		26.3	29.8	13%		246.8	182.7	(26%)
Latam Ag Retail		9.4	10.4	10%		38.1	36.8	(3%)
Crop Care		8.1	5.8	(29%)		54.0	56.1	4%
Intercompany elim.		3.1	(0.7)			(6.0)	(7.1)
Gross Margin		17.6%	16.7%	-100 bps		18.5%	14.2%	-430 bps
Brazil Ag Retail		13.3%	15.5%	210 bps		16.4%	11.5%	-490 bps
Latam Ag Retail		15.2%	15.9%	70 bps		16.3%	15.5%	-80 bps
Crop Care		75.9%	28.9%	-4700 bps		44.6%	37.2%	-730 bps
Gross Margin (% of Inputs revenue)		21.6%	22.3%	70 bps		19.9%	16.0%	-400 bps
Brazil Ag Retail		17.7%	23.8%	610 bps		17.9%	13.2%	-460 bps
Latam Ag Retail		15.3%	16.1%	80 bps		16.7%	16.0%	-70 bps
Crop Care		75.9%	28.9%	-4700 bps		44.6%	37.2%	-730 bps
SG&A (excl. D&A)		(55.5)	(51.5)	(7%)		(205.9)	(237.2)	15%
Other operating income (expense)		5.0	2.6			(52.9)	7.4
EBITDA		(3.6)	(3.7)	n.m.		74.1	38.7	(48%)
(+) Adjustment items		6.0	1.5			76.0	14.7
Adjusted EBITDA		2.4	(2.1)	(191%)		150.1	53.4	(64%)
Brazil Ag Retail		3.4	3.0	(13%)		141.6	50.1	(65%)
Latam Ag Retail		3.3	3.6	8%		17.6	12.3	(30%)
Crop Care		1.2	(2.0)	(273%)		28.4	22.5	(21%)
Corporate & Intercompany elim.		(5.6)	(6.7)			(37.3)	(31.6)
Adjusted EBITDA Margin %		0.9%	(0.8%)	-170 bps		8.3%	2.8%	-550 bps
Adjusted EBITDA Margin (% of Inputs)		1.1%	(1.1%)	-210 bps		9.0%	3.2%	-580 bps
Share of profit of an associate		–	0.1			–	0.3
D&A (incl. PPA amortization)		(8.3)	(8.9)	7%		(32.3)	(36.0)	11%
Finance income (costs)		(28.2)	(50.3)	79%		(119.5)	(163.8)	37%
Income taxes, current and deferred		20.6	(14.3)			34.1	6.2
Net profit (loss)		(19.5)	(77.3)	n.m.		(43.7)	(154.6)	n.m.
(+) Adjustment items		6.6	1.6			81.2	14.6
(+) Income tax impact of adjustments		(2.2)	(0.5)			(6.7)	(5.0)
Adjusted net profit (loss)		(15.2)	(76.2)	403%		30.9	(144.9)	n.m.

Consolidated Results (BRL)		4Q23	4Q24	Chg. %		FY23	FY24	Chg. %
(in millions of Brazilian reais)
Revenue by Segment		1,315.1	1,414.6	8%		9,347.4	9,392.3	0%
Brazil Ag Retail		976.4	1,004.2	3%		7,829.3	7,869.8	1%
Latam Ag Retail		306.2	339.9	11%		1,206.3	1,190.5	(1%)
Crop Care		52.7	103.9	97%		632.8	749.2	18%
Intercompany eliminations		(20.2)	(33.5)			(321.1)	(417.3)
Revenue by Category		1,315.1	1,414.6	8%		9,347.4	9,392.3	0%
Inputs revenue		1,074.5	1,058.5	(1%)		8,680.5	8,337.9	(4%)
Grains revenue		240.5	356.1	48%		666.9	1,054.4	58%
Gross Profit		232.1	235.7	2%		1,730.8	1,337.5	(23%)
Brazil Ag Retail		130.3	155.2	19%		1,286.0	910.2	(29%)
Latam Ag Retail		46.6	54.2	16%		196.6	184.2	(6%)
Crop Care		40.0	30.0	(25%)		280.9	278.4	(1%)
Intercompany elim.		15.1	(3.7)			(32.7)	(35.3)
Gross Margin		17.6%	16.7%	-100 bps		18.5%	14.2%	-430 bps
Brazil Ag Retail		13.3%	15.5%	210 bps		16.4%	11.6%	-490 bps
Latam Ag Retail		15.2%	15.9%	70 bps		16.3%	15.5%	-80 bps
Crop Care		75.9%	28.9%	-4700 bps		44.4%	37.2%	-720 bps
Gross Margin (% of Inputs revenue)		21.6%	22.3%	70 bps		19.9%	16.0%	-390 bps
Brazil Ag Retail		17.7%	23.8%	610 bps		17.9%	13.3%	-460 bps
Latam Ag Retail		15.3%	16.1%	80 bps		16.8%	16.0%	-70 bps
Crop Care		75.9%	28.9%	-4700 bps		44.4%	37.2%	-720 bps
SG&A (excl. D&A)		(274.6)	(268.5)	(2%)		(1,060.6)	(1,184.6)	12%
Other operating income (expense)		24.7	13.7			(275.8)	37.6
EBITDA		(17.8)	(19.1)	n.m.		394.4	190.4	(52%)
(+) Adjustment items		29.5	7.9			393.5	72.8
Adjusted EBITDA		11.7	(11.2)	(195%)		787.9	263.2	(67%)
Brazil Ag Retail		16.9	15.4	(9%)		741.3	248.5	(66%)
Latam Ag Retail		16.5	18.8	14%		91.6	61.8	(32%)
Crop Care		5.8	(10.6)	(282%)		149.0	110.7	(26%)
Corporate & Intercompany elim.		(27.5)	(34.8)			(193.9)	(157.8)
Adjusted EBITDA Margin %		0.9%	(0.8%)	-170 bps		8.4%	2.8%	-560 bps
Adjusted EBITDA Margin (% of Inputs)		1.1%	(1.1%)	-210 bps		9.1%	3.2%	-590 bps
Share of profit of an associate		–	(0.3)			–	1.5
D&A (incl. PPA amortization)		(41.3)	(46.6)	13%		(167.5)	(180.0)	7%
Finance income (costs)		(139.5)	(262.7)	88%		(617.8)	(822.5)	33%
Income taxes, current and deferred		102.0	(74.6)			172.3	25.6
Net profit (loss)		(96.6)	(403.3)	n.m.		(218.7)	(785.0)	n.m.
(+) Adjustment items		32.6	8.5			420.5	72.3
(+) Income tax impact of adjustments		(11.1)	(2.9)			(34.3)	(24.6)
Adjusted net profit (loss)		(75.0)	(397.7)	430%		167.5	(737.3)	n.m.

FY4Q24 Segment Results

Please note for the FY2024 and FY4Q24 results, Lavoro management updated its methods of allocation of certain holding company expenses between operating segments and “Corporate”. These corporate expenses incurred by the holding company and not directly related to any operating segment were previously attributed to Brazil Ag Retail and Crop Care operating segments. They have now been reclassified under “Corporate” to better align with management’s assessment framework and reflect each business unit’s underlying performance. Supplementary financial information reflecting past results with this updated methodology is available on our investors relations website https://ir.lavoroagro.com.

Brazil Ag Retail

• Brazil Ag Retail segment revenue decreased by -2% (+3% in BRL) to $192.5 million in 4Q24, with growth in Grains revenue resulting from a higher mix of barter operations being offset by a decline in Inputs revenue and the impact of converting our results from BRL to USD.

• Inputs revenue declined -16% to $124.8 million (-12% in BRL), reflecting in part Lavoro’s decision to delay shipments to certain farmer clients with outstanding overdue receivables until repayment, as was discussed in the prior quarter earnings call.

• Gross profit grew +13% to $29.8 million (+19% in BRL), as gross margin expanded by 210 bps y/y to 15.5% in 4Q24, and Gross Margin (Inputs) increased by 610 bps to 23.8%. The margin improved was driven mainly by the increase in supplier rebates compared to prior year.

• Adjusted EBITDA was $3.0 million, compared to $3.4 million in the prior year quarter, with higher operating expenses off.

Brazil Ag Retail (USD)		4Q23	4Q24	Chg. %		FY23	FY24	Chg. %
(in millions of US dollars)
Inputs revenue		148.7	124.8	(16%)		1,382.2	1,382.9	0%
Grains revenue		48.5	67.7	40%		124.0	201.6	63%
Revenue		197.2	192.5	(2%)		1,506.2	1,584.4	5%
Gross Profit		26.3	29.8	13%		246.8	182.7	(26%)
Gross Margin		13.3%	15.5%	210 bps		16.4%	11.5%	-490 bps
Gross Margin (% of Inputs)		17.7%	23.8%	610 bps		17.9%	13.2%	-460 bps
Adjusted EBITDA		3.4	3.0	(13%)		141.6	50.1	(65%)
Adjusted EBITDA margin		1.7%	1.5%	-20 bps		9.4%	3.2%	-620 bps
Adjusted EBITDA margin (% of Inputs)		2.3%	2.4%	10 bps		10.2%	3.6%	-660 bps

Brazil Ag Retail (BRL)		4Q23	4Q24	Chg. %		FY23	FY24	Chg. %
(in millions of Brazilian reais)
Inputs revenue		736.4	651.0	(12%)		7,195.7	6,856.5	(5%)
Grains revenue		240.1	353.2	47%		633.6	1,013.3	60%
Revenue		976.4	1,004.2	3%		7,829.3	7,869.8	1%
Gross Profit		130.3	155.2	19%		1,286.0	910.2	(29%)
Gross Margin		13.3%	15.5%	210 bps		16.4%	11.6%	-490 bps
Gross Margin (% of Inputs)		17.7%	23.8%	610 bps		17.9%	13.3%	-460 bps
Adjusted EBITDA		16.9	15.4	(9%)		741.3	248.5	(66%)
Adjusted EBITDA margin		1.7%	1.5%	-20 bps		9.5%	3.2%	-630 bps
Adjusted EBITDA margin (% of Inputs)		2.3%	2.4%	10 bps		10.3%	3.6%	-670 bps

Brazil Ag Retail KPIs		4Q23	4Q24
Retail stores		181	187
Number of RTVs		827	832

Latam Ag Retail

• Latam Ag Retail segment saw a 5% increase in revenue to $65.2 million (+11% in BRL), with the positive effect of the appreciation of the Colombian peso compared to USD and BRL in the prior year quarter more than offsetting headwinds from El Nino related droughts on planting intentions of Colombian farmers.

• Segment gross profit was $10.4 million in 4Q24, an increase of +10% over the prior year period. Gross margins expanded by +70 bps to 15.9%, driven mainly by a favorable shift in product mix.

• Adjusted EBITDA was $3.6 million, compared to $3.3 million in the prior year quarter, with the increase in gross profit partially offset by an increase in allowance for expected credit losses.

Latam Ag Retail (USD)		4Q23	4Q24	Chg. %		FY23	FY24	Chg. %
(in millions of US dollars)
Inputs & services revenue		61.7	64.6	5%		227.4	229.5	1%
Grains revenue		0.1	0.5	483%		6.4	8.3	31%
Revenue		61.8	65.2	5%		233.8	237.8	2%
Gross Profit		9.4	10.4	10%		38.1	36.8	(3%)
Gross Margin		15.2%	15.9%	70 bps		16.3%	15.5%	-80 bps
Gross Margin (% of Inputs)		15.3%	16.1%	80 bps		16.7%	16.0%	-70 bps
Adjusted EBITDA		3.3	3.6	8%		17.6	12.3	(30%)
Adjusted EBITDA margin		5.4%	5.5%	20 bps		7.5%	5.2%	-230 bps

Latam Ag Retail (BRL)		4Q23	4Q24	Chg. %		FY23	FY24	Chg. %
(in millions of Brazilian reais)
Inputs & services revenue		305.7	337.1	10%		1,173.0	1,149.5	(2%)
Grains revenue		0.5	2.9	514%		33.4	41.0	23%
Revenue		306.2	339.9	11%		1,206.3	1,190.5	(1%)
Gross Profit		46.6	54.2	16%		196.6	184.2	(6%)
Gross Margin		15.2%	15.9%	70 bps		16.3%	15.5%	-80 bps
Gross Margin (% of Inputs)		15.3%	16.1%	80 bps		16.8%	16.0%	-70 bps
Adjusted EBITDA		16.5	18.8	14%		91.6	61.8	(32%)
Adjusted EBITDA margin		5.4%	5.5%	20 bps		7.6%	5.2%	-240 bps

Latam Ag Retail KPIs		4Q23	4Q24
Retail stores		39	36
Number of RTVs		262	263

Crop Care

• Crop Care revenue increased by 87% to $19.9 million in 4Q24 (+97% in BRL), led by the strong performance of Union Agro, our specialty fertilizer business, which grew revenue by 46% in the quarter, and of Perterra, our private label off-patent crop protection business, partially offset by lower sales of biopesticides.

• Segment gross profit declined -29% y/y to $5.8 million (-25% in BRL), while gross margins decreased to 28.9%, from 75.9% in the prior year quarter. The decline in gross margins reflects the adverse product category mix, as Perterra grew considerably as compared to prior year, while 4Q23 benefited from an unusually strong mix of biological sales due to the timing of shipments.

• Adjusted EBITDA was -$2.0 million in 4Q24, compared to Adjusted EBITDA of $1.2 million in the prior year period, with the decrease driven by the decline in gross profit.

Crop Care (USD)		4Q23	4Q24	Chg. %		FY23	FY24	Chg. %
(in millions of US dollars)
Revenue		10.7	19.9	87%		121.2	150.7	24%
Gross Profit		8.1	5.8	(29%)		54.0	56.1	4%
Gross Margin		75.9%	28.9%	-4700 bps		44.6%	37.2%	-730 bps
Adjusted EBITDA		1.2	(2.0)	(273%)		28.4	22.5	(21%)
Adjusted EBITDA margin		11.1%	(10.2%)	-2130 bps		23.4%	15.0%	-850 bps

Crop Care (BRL)		4Q23	4Q24	Chg. %		FY23	FY24	Chg. %
(in millions of Brazilian reais)
Revenue		52.7	103.9	97%		632.8	749.2	18%
Gross Profit		40.0	30.0	(25%)		280.9	278.4	(1%)
Gross Margin		75.9%	28.9%	-4700 bps		44.4%	37.2%	-720 bps
Adjusted EBITDA		5.8	(10.6)	(282%)		149.0	110.7	(26%)
Adjusted EBITDA margin		11.1%	(10.2%)	-2130 bps		23.5%	14.8%	-880 bps

Full Fiscal Year 2025 Consolidated Outlook⁶

We expect Brazil’s Ag inputs retail market to decline by roughly -10% in FY2025, with low-single digits volume growth offset by price declines stemming from base effects.

Lavoro’ FY2025 outlook is for consolidated revenue between R$8.60 billion and R$9.20 billion, and Inputs revenue between R$7.70 billion and R$8.30 billion. Adjusted EBITDA is expected to grow relative to FY2024.

On a USD basis, consolidated revenue is projected to range between $1.50 billion and $1.60 billion, consolidated Inputs revenue is expected to range from $1.35 billion to $1.45 billion, and Adjusted EBITDA is expected to grow relative to FY2024.

		BRL		USD
Revenue		R$8.60 billion to R$9.20 billion		US$1.50 billion to US$1.60 billion
Inputs revenue		R$7.70 billion to R$8.30 billion		US$1.35 billion to US$1.45 billion
Adjusted EBITDA		Growth compared to FY2024		Growth compared to FY2024

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⁶ USD/BRL average period exchange rate embedded in our financial outlook of 5.71, representing the period-weighted average FX rate fiscal year-to-date and the latest spot rate of 5.78 as of October 30, 2024.

Conference Call Details

Lavoro management will host a conference call and audio webcast on November 1, 2024 at 8:30 a.m. ET (9:30 a.m. BRT) to discuss the financial results.

Participant numbers: 1-877-407-9716 (U.S.), 1-201-493-6779 (International)

The live audio webcast will be accessible in the Events section on the Company’s Investor Relations website at https://ir.lavoroagro.com/disclosure-and-documents/events/.

Non-IFRS Financial Measures

This press release contains certain non-IFRS financial measures, including Adjusted EBITDA, Adjusted EBITDA Margin, Adjusted Net Profit/Loss and Adjusted Net Profit/Loss Margin. A non-IFRS financial measure is generally defined as a numerical measure of historical or future financial performance, financial position, or cash flow that purports to measure financial performance but excludes or includes amounts that would not be so adjusted in the most comparable IFRS measure. The Company believes these non-IFRS financial measures provide meaningful supplemental information as they are used by the Company’s management to evaluate the Company’s performance, and provide additional information about trends in our operating performance prior to considering the impact of capital structure, depreciation, amortization and taxation on our results, as well as the effects of certain items or events that vary widely among similar companies, and therefore may hamper comparability across periods, although these measures are not explicitly defined under IFRS. Management believes that these measures enhance a reader’s understanding of the operating and financial performance of the Company and facilitate a better comparison between fiscal periods.

Adjusted EBITDA is defined as profit (loss), adjusted for net finance income (costs), income taxes, depreciation and amortization. We also adjust this measure for certain revenues or expenses that are excluded when management evaluates the performance of our day-to-day operations, namely: (i) share of profit of an associate; (ii) fair value on inventories sold from acquired companies, a non-cash expense resulting from purchase price allocation of past acquisitions; (iii) M&A expenses that in management’s judgment do not necessarily occur on a regular basis; (iv) gains on bargain purchases, which are also related to purchase price allocation of past acquisitions; (v) listing and other expenses recognized in connection with the Business Combination; (vi) share-based compensation expenses; (vii) one-off bonuses paid out to our employees as a result of the closing of the Business Combination; and (viii) related-party expenses paid to Patria in connection to management support services. Adjusted EBITDA Margin is calculated as Adjusted EBITDA as a percentage of revenue for the period/year.

Adjusted Net Profit/Loss is defined as profit (loss) adjusted for certain revenues or expenses that are excluded when management evaluates the performance of our day-to-day operations, namely: (i) share of profit of an associate; (ii) fair value on inventories sold from acquired companies, a non-cash expense resulting from purchase price allocation of past acquisitions; (iii) M&A expenses that in management’s judgment do not necessarily occur on a regular basis; (iv) gains on bargain purchases, which are also related to purchase price allocation of past acquisitions; (v) listing and other expenses recognized in connection with the Business Combination; (vi) share-based compensation expenses; (vii) one-off bonuses paid out to our employees as a result of the closing of the Business Combination; and (viii) related-party expenses paid to Patria in connection to management support services. Adjusted Net Profit/Loss Margin is calculated as Adjusted Net Profit/Loss as a percentage of revenue for the period/year.

The Company does not intend for the non-IFRS financial measures contained in this release to be a substitute for any IFRS financial information. Readers of this press release should use these non-IFRS financial measures only in conjunction with comparable IFRS financial measures. Reconciliations of the non-IFRS financial measures Adjusted EBITDA, Adjusted EBITDA Margin, Adjusted Net Profit/Loss and Adjusted Net Profit/Loss Margin, to their most comparable IFRS measures, are provided in the table below.

Reconciliation of Adjusted EBITDA

		Results in USD
		(in millions of US dollars)
Consolidated Results		4Q23	4Q24		FY23	FY24
(in millions of US dollars)
Net profit (loss)		(19.5)	(77.1)		(43.7)	(154.6)
(+) Income taxes		(20.6)	14.3		(34.1)	(6.2)
(+) Finance income (costs)		28.2	50.3		119.5	163.8
(+) Depreciation and amortization		8.3	8.9		32.3	36.0
(+) Share of profit of an associate		–	(0.1)		–	(0.3)
(+) M&A expenses		0.8	0.2		2.2	4.4
(+) Stock-based compensation		0.5	0.4		2.8	3.2
(+) DeSPAC related bonus		0.9	0.1		5.8	3.6
(+) Related party consultancy services		3.8	0.8		3.8	3.5
(+) Nasdaq listing expenses		–			61.5
Adjusted EBITDA		2.4	(2.1)		150.1	53.4

Brazil Ag Retail		4Q23	4Q24		FY23	FY24
(in millions of US dollars)
Net profit (loss)		1.1	(62.7)		52.5	(118.1)
(+) Income taxes		(21.0)	13.2		(41.0)	(8.8)
(+) Finance income (costs)		16.5	46.5		101.2	151.3
(+) Depreciation and amortization		6.1	6.4		23.6	25.0
(+) Share of profit of an associate		–	(0.4)		–	(0.5)
(+) DeSPAC related bonus		0.8	–		5.3	1.3
Adjusted EBITDA		3.4	3.0		141.6	50.1

Latam Ag Retail		4Q23	4Q24		FY23	FY24
(in millions of US dollars)
Net profit (loss)		0.8	0.8		7.0	2.2
(+) Income taxes		0.7	0.1		4.3	1.7
(+) Finance income (costs)		0.8	1.8		3.0	5.3
(+) Depreciation and amortization		0.7	0.6		2.2	2.3
(+) M&A expenses		0.2	0.3		0.6	0.3
(+) DeSPAC related bonus		0.1	–		0.5	0.6
Adjusted EBITDA		3.3	3.6		17.6	12.3

Crop Care		4Q23	4Q24		FY23	FY24
(in millions of US dollars)
Net profit (loss)		(4.4)	(7.3)		10.8	3.2
(+) Income taxes		(1.3)	1.0		4.7	3.1
(+) Finance income (costs)		5.6	2.9		9.6	11.4
(+) Depreciation and amortization		0.9	0.9		2.6	4.1
(+) Share of profit of an associate		–	0.4		–	0.1
(+) M&A expenses		0.1	0.0		0.1	0.1
(+) Stock-based compensation		0.1	0.1		0.4	0.3
(+) DeSPAC related bonus		–	–		–	–
(+) Related party consultancy services		0.2	–		0.2	0.3
Adjusted EBITDA		1.2	(2.0)		28.4	22.5

Corporate & Intercompany Elim.		4Q23	4Q24		FY23	FY24
(in millions of US dollars)
Net profit (loss)		(17.1)	(8.0)		(113.9)	(41.9)
(+) Income taxes		1.0	–		(2.0)	(2.2)
(+) Finance income (costs)		5.3	(0.9)		5.8	(4.2)
(+) Depreciation and amortization		0.6	1.1		3.9	4.7
(+) Share of profit of an associate		–	0.1		–	0.1
(+) M&A expenses		0.5	(0.2)		1.4	4.0
(+) Stock-based compensation		0.4	0.3		2.4	2.9
(+) DeSPAC related bonus		–	0.1		–	1.8
(+) Related party consultancy services		3.6	0.8		3.6	3.2
(+) Nasdaq listing expenses		–	–		61.5	–
Adjusted EBITDA		(5.6)	(6.7)		(37.3)	(31.6)

		Results in BRL
		(in millions of Brazilian reais)
Consolidated Results		4Q23	4Q24		FY23	FY24
(in millions of Brazilian reais)
Net profit (loss)		(96.6)	(403.3)		(218.7)	(785.0)
(+) Income taxes		(102.0)	74.6		(172.3)	(25.6)
(+) Finance income (costs)		139.5	262.7		617.8	822.5
(+) Depreciation and amortization		41.3	46.6		167.5	180.0
(+) Share of profit of an associate		–	0.3		–	(1.5)
(+) M&A expenses		3.9	1.0		11.0	21.7
(+) Stock-based compensation		2.6	2.2		14.5	15.6
(+) DeSPAC related bonus		4.3	0.4		29.7	18.0
(+) Related party consultancy services		18.7	4.3		18.7	17.5
(+) Nasdaq listing expenses		–			319.6	–
Adjusted EBITDA		11.7	(11.2)		787.9	263.2

Brazil Ag Retail		4Q23	4Q24		FY23	FY24
(in millions of Brazilian reais)
Net profit (loss)		5.6	(327.3)		275.5	(600.9)
(+) Income taxes		(104.2)	68.8		(208.3)	(39.1)
(+) Finance income (costs)		81.5	242.7		525.1	760.0
(+) Depreciation and amortization		30.1	33.3		122.0	124.9
(+) Share of profit of an associate		–	(2.0)		–	(2.8)
(+) DeSPAC related bonus		3.8	–		27.1	6.3
Adjusted EBITDA		16.9	15.4		741.3	248.5

Latam Ag Retail		4Q23	4Q24		FY23	FY24
(in millions of Brazilian reais)
Net profit (loss)		4.0	3.9		36.4	10.9
(+) Income taxes		3.5	0.7		22.3	8.3
(+) Finance income (costs)		4.1	9.4		15.4	26.5
(+) Depreciation and amortization		3.5	3.0		11.8	11.3
(+) M&A expenses		0.9	1.7		3.1	1.7
(+) DeSPAC related bonus		0.5	–		2.6	3.0
Adjusted EBITDA		16.5	18.8		91.6	61.8

Crop Care		4Q23	4Q24		FY23	FY24
(in millions of Brazilian reais)
Net profit (loss)		(21.7)	(38.2)		58.3	13.6
(+) Income taxes		(6.5)	5.1		24.9	15.8
(+) Finance income (costs)		27.6	15.4		48.4	57.1
(+) Depreciation and amortization		4.5	4.4		13.6	20.4
(+) Share of profit of an associate		–	1.9		–	0.6
(+) M&A expenses		0.3	0.2		0.7	0.4
(+) Stock-based compensation		0.5	0.4		2.0	1.3
(+) DeSPAC related bonus		–	–		–	–
(+) Related party consultancy services		1.1	0.2		1.1	1.5
Adjusted EBITDA		5.8	(10.6)		149.0	110.7

Corporate & Intercompany Elim.		4Q23	4Q24		FY23	FY24
(in millions of Brazilian reais)
Net profit (loss)		(84.6)	(41.7)		(588.8)	(208.6)
(+) Income taxes		5.1	0.0		(11.1)	(10.7)
(+) Finance income (costs)		26.3	(4.8)		29.0	(21.1)
(+) Depreciation and amortization		3.2	5.8		20.2	23.3
(+) Share of profit of an associate		–	0.5		–	0.7
(+) M&A expenses		2.7	(0.9)		7.3	19.5
(+) Stock-based compensation		2.1	1.8		12.5	14.4
(+) DeSPAC related bonus		–	0.4		–	8.7
(+) Related party consultancy services		17.6	4.2		17.6	16.0
(+) Nasdaq listing expenses		–	–		319.6	–
Adjusted EBITDA		(27.5)	(34.8)		(193.9)	(157.8)

Reconciliation of Adjusted Net Profit (Loss)

		USD (in millions of US dollars)
Consolidated Results		4Q23	4Q24		FY23	FY24
Net profit (loss)		(19.5)	(77.3)		(43.7)	(154.6)
(+) FV of inventories from acquired companies		0.6	–		5.2	0.2
(+) Share of profit of an associate		–	0.1		–	(0.3)
(+) M&A expenses		0.8	0.2		2.2	4.4
(+) Stock-based compensation		0.5	0.4		2.8	3.2
(+) DeSPAC related bonus		0.9	0.1		5.8	3.6
(+) Related party consultancy services		3.8	0.8		3.8	3.5
(+) Nasdaq listing expenses		–	–		61.5	–
(+) Tax impact of adjustments		(2.2)	(0.6)		(6.7)	(5.0)
Adjusted net profit (loss)		(15.2)	(76.2)		30.9	(144.9)

		BRL (in millions of Brazilian reais)
Consolidated Results		4Q23	4Q24		FY23	FY24
Net profit (loss)		(96.6)	(403.3)		(218.7)	(785.0)
(+) FV of inventories from acquired companies		3.1	0.3		26.9	1.0
(+) Share of profit of an associate		–	0.3		–	(1.5)
(+) M&A expenses		3.9	1.0		11.0	21.7
(+) Stock-based compensation		2.6	2.2		14.5	15.6
(+) DeSPAC related bonus		4.3	0.4		29.7	18.0
(+) Related party consultancy services		18.7	4.3		18.7	17.5
(+) Nasdaq listing expenses		–	–		319.6	–
(+) Tax impact of adjustments		(11.1)	(2.5)		(34.3)	(24.6)
Adjusted net profit (loss)		(75.0)	(397.3)		167.5	(737.3)

About Lavoro

Lavoro is Brazil’s largest agricultural inputs retailer and a leading producer of agricultural biological products. Lavoro’s shares and warrants are listed on the Nasdaq stock exchange under the tickers “LVRO” and “LVROW.” Through its comprehensive portfolio of products and services, the company empowers small and medium-size farmers to adopt the latest emerging agricultural technologies and enhance their productivity. Since its founding in 2017, Lavoro has broadened its reach across Latin America, serving 72,000 customers in Brazil, Colombia, and Uruguay, via its team of over 1,000 technical sales representatives (RTVs), its network of over 210 retail locations, and its digital marketplace and solutions. Lavoro’s RTVs are local trusted advisors to farmers, regularly meeting them to provide agronomic recommendations throughout the crop cycle to drive optimized outcomes. Learn more about Lavoro at ir.lavoroagro.com.

Reportable Segments

Lavoro’s reportable segments are the following:

Brazil Ag Retail: comprises companies dedicated to the distribution of agricultural inputs such as crop protection, seeds, fertilizers, and specialty products, in Brazil.

Latam Ag Retail: includes companies dedicated to the distribution of agricultural inputs outside Brazil (currently primarily in Colombia).

Crop Care: includes companies that manufacture and distribute our own portfolio of private label specialty products (i.e., biologicals, adjuvants, specialty fertilizers, and other specialty products), and import and distribute off-patent crop protection products.

Lavoro’s Fiscal Year

Lavoro follows the crop year, which means that its fiscal year comprises July 1^st of each year, until June 30 of the following year. Given this, Lavoro’s quarters have the following format:

1Q – quarter starting on July 1 and ending on September 30.
2Q – quarter starting on October 1 and ending on December 31.
3Q – quarter starting on January 1 and ending on March 31.
4Q – quarter starting on April 1 and ending on June 30.

Definitions

RTVs: refer to Lavoro’s technical sales representatives (Representante Técnico de Vendas), who are linked to its retail stores, and who develop commercial relationships with farmers.

Forward-Looking Statements

The contents of any website mentioned or hyperlinked in this press release are for informational purposes and the contents thereof are not part of or incorporated into this press release.
Certain statements made in this press release are “forward-looking statements” within the meaning of the “safe harbor” provisions of the United States Private Securities Litigation Reform Act of 1995. Forward-looking statements may be identified by the use of words such as “aims,” “estimate,” “plan,” “project,” “forecast,” “intend,” “will,” “expect,” “anticipate,” “believe,” “seek,” “target” or other similar expressions that predict or indicate future events or trends or that are not statements of historical matters. These forward-looking statements include, but are not limited to, statements regarding the expectations regarding the growth of Lavoro’s business and its ability to realize expected results, grow revenue from existing customers, and consummate acquisitions; opportunities, trends, and developments in the agricultural input industry, including with respect to future financial performance in the industry. These forward-looking statements are provided for illustrative purposes only and are not intended to serve as and must not be relied on by any investor as, a guarantee, an assurance, a prediction, or a definitive statement of fact or probability. Actual events and circumstances are difficult or impossible to predict and will differ from assumptions. Many actual events and circumstances are beyond the control of Lavoro.

These forward-looking statements are subject to a number of risks and uncertainties, including but not limited to, the outcome of any legal proceedings that may be instituted against Lavoro related to the business combination agreement or the transaction; the ability to maintain the listing of Lavoro’s securities on Nasdaq; the price of Lavoro’s securities may be volatile due to a variety of factors, including changes in the competitive and regulated industries in which Lavoro operates, variations in operating performance across competitors, changes in laws and regulations affecting Lavoro’s business; Lavoro’s inability to meet or exceed its financial projections and changes in the consolidated capital structure; changes in general economic conditions; the ability to implement business plans, forecasts, and other expectations, changes in domestic and foreign business, market, financial, political and legal conditions; the outcome of any potential litigation, government and regulatory proceedings, investigations and inquiries; costs related to being a public company and other risks and uncertainties indicated from time to time in the Annual Report on Form 20-F filed by Lavoro or in the future, including those under “Risk Factors” therein, or Lavoro’s other filings with the SEC. If any of these risks materialize or our assumptions prove incorrect, actual results could differ materially from the results implied by these forward-looking statements. There may be additional risks that Lavoro currently believes are immaterial that could also cause actual results to differ from those contained in the forward-looking statements.

In addition, forward-looking statements reflect Lavoro’s expectations, plans, or forecasts of future events and views as of the date of this press release. Lavoro anticipates that subsequent events and developments will cause Lavoro’s assessments to change. However, while Lavoro may elect to update these forward-looking statements at some point in the future, Lavoro specifically disclaims any obligation to do so. These forward-looking statements should not be relied upon as representing Lavoro’s assessments as of any date subsequent to the date of this press release. Accordingly, undue reliance should not be placed upon the forward-looking statements.

Financial Statements

Detailed financial statements provided on Form 6-K as filed with the SEC can be accessed on the Company’s investor relations website at https://ir.lavoroagro.com/disclosure-and-documents/sec-filings/.

Contact

Julian Garrido
julian.garrido@lavoroagro.com

Tigran Karapetian
tigran.karapetian@lavoroagro.com

Fernanda Rosa
fernanda.rosa@lavoroagro.com

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© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.

CALGARY, AB, Nov. 1, 2024 /CNW/ – 

FINANCIAL HIGHLIGHTS

(Unaudited, in thousands of Canadian dollars, except per common share data)

 

• Revenue for the third quarter of 2024 was $434.6 million, a two percent decrease from the third quarter of 2023 revenue of $444.4 million.
• Revenue by geographic area:
  • Canada – $131.0 million, 30 percent of total;
  • United States – $216.2 million, 50 percent of total; and
  • International – $87.4 million, 20 percent of total.
• Adjusted EBITDA for the third quarter of 2024 was $119.0 million, a one percent increase from Adjusted EBITDA of $117.3 million for the third quarter of 2023.
• Funds flow from operations for the third quarter of 2024 decreased two percent to $116.9 million from $119.6 million in the third quarter of the prior year.
• Net income attributable to common shareholders for the third quarter of 2024 was $5.3 million, up from net loss attributed to common shareholders of $5.2 million for the third quarter of 2023.
• During the third quarter of 2024, $44.7 million of debt was repaid and a total of $135.0 million was repaid during the first nine months of 2024. The Company is on track to achieve its’ stated debt targets as from January 1, 2023 to September 30, 2024, a total of $352.6 million of debt has been repaid leaving $247.4 million of the $600.0 million debt reduction target expected to be achieved by the end of 2025.
• Interest expense decreased by 24 percent to $23.8 million from $31.3 million. The decrease is the result of lower debt levels and reduced effective interest rates.

OPERATING HIGHLIGHTS
(Unaudited)

 

• Canadian drilling recorded 3,861 operating days in the third quarter of 2024, an 18 percent increase from 3,262 operating days in the third quarter of 2023. Canadian well servicing recorded 12,161 operating hours in the third quarter of 2024, a 14 percent increase from 10,624 operating hours in the third quarter of 2023.
• United States drilling recorded 3,065 operating days in the third quarter of 2024, a 14 percent decrease from 3,581 operating days in the third quarter of 2023. United States well servicing recorded 35,518 operating hours in the third quarter of 2024, a 10 percent increase from 32,397 operating hours in the third quarter of 2023.
• International drilling recorded 1,269 operating days in the third quarter of 2024, generally consistent with 1,265 operating days recorded in the third quarter of 2023.

FINANCIAL POSITION HIGHLIGHTS

 

• Total debt, net of cash, was reduced by $123.5 million since December 31, 2023.
• Our debt reduction for 2024 is targeted to be approximately $200.0 million. Our target debt reduction for the period beginning 2023 to the end of 2025 is approximately $600.0 million. If industry conditions change, this target could be increased or decreased.

CAPITAL EXPENDITURE HIGHLIGHTS

 

• Net purchases of property and equipment for the third quarter of 2024 totaled $33.5 million, consisting of $5.0 million in upgrade capital and $32.3 million in maintenance capital, offset by disposition proceeds of $3.8 million. Gross capital expenditures for 2024 are targeted to be approximately $167.0 million, primarily related to maintenance expenditures, opportunistic tubular purchases, and selective growth projects that have been funded by customers. In addition, the Company may consider other upgrade or growth projects in response to customer demand and appropriate contract terms.

This news release contains “forward-looking information and statements” within the meaning of applicable securities legislation. For a full disclosure of the forward-looking information and statements and the risks to which they are subject, see the “Advisory Regarding Forward-Looking Statements” later in this news release. This news release contains references to Adjusted EBITDA, Adjusted EBITDA per common share and working capital. These measures do not have any standardized meaning prescribed by IFRS Accounting Standards (“IFRS”) and accordingly, may not be comparable to similar measures used by other companies. The non-GAAP measures included in this news release should not be considered as an alternative to, or more meaningful than, the IFRS measures from which they are derived or to which they are compared. See “Non-GAAP Measures” later in this news release.

OVERVIEW

Revenue for the third quarter of 2024 was $434.6 million, a two percent decrease from $444.4 million in revenue for the third quarter of 2023. Revenue for the nine months ended September 30, 2024, was $1,257.7 million, a decrease of eight percent from revenue for the nine months ended September 30, 2023, of $1,361.2 million.

Adjusted EBITDA totaled $119.0 million ($0.65 per common share) in the third quarter of 2024, one percent higher than Adjusted EBITDA of $117.3 million ($0.63 per common share) in the third quarter of 2023. For the nine months ended September 30, 2024, Adjusted EBITDA totaled $336.7 million ($1.83 per common share), seven percent lower than Adjusted EBITDA of $361.2 million ($1.96 per common share) in the nine months ended September 30, 2023.

Net income attributable to common shareholders for the third quarter of 2024 was $5.3 million ($0.03 per common share) compared to a net loss attributable to common shareholders of $5.2 million ($0.03 per common share) for the third quarter of 2023. Net loss attributable to common shareholders for the nine months ended September 30, 2024, was $0.5 million ($0.00 per common share), compared to a net income attributable to common shareholders of $9.3 million ($0.05 per common share) for the nine months ended September 30, 2023.

Funds flow from operations decreased two percent to $116.9 million ($0.64 per common share) in the third quarter of 2024 compared to $119.6 million ($0.65 per common share) in the third quarter of the prior year. Funds flow from operations decreased nine percent to $323.6 million ($1.76 per common share) for the nine months ended September 30, 2024, compared to $354.7 million ($1.93 per common share) for the nine months ended September 30, 2023.

The outlook for oilfield services continues to be generally constructive despite the year-over-year decline in oilfield services activity in certain operating regions. The recent completion of the Trans Mountain Pipeline expansion has resulted in increased Canadian industry activity, while the US rig count continues to be depressed in part because of relatively low natural gas commodity prices. Furthermore, there have been several recent oil and natural gas customer mergers and acquisitions (“M&A“) in both the Canadian and the US markets that have impacted drilling programs over the short-term, with customers exercising discipline with their capital programs. However, despite these short-term headwinds, demand for crude oil continues to increase year-over-year. Moreover, OPEC+ nations continue to exercise production and supply discipline in response to market conditions.

Over the near term, geopolitical tensions, hostilities in areas of the Middle East, and the ongoing Russia–Ukraine conflict continue to impact global commodity prices and add uncertainty to the outlook for crude oil supply and commodity prices over the short-term.

The Company’s operating days were consistent for the three months ended September 30, 2024 and declined for the nine months ended September 30, 2024, when compared with the same periods in 2023. Operating activity was negatively impacted in the first nine months of 2024 due to customer capital discipline, the above-mentioned customer M&A activity between oil and natural gas producers in the United States markets and depressed natural gas commodity prices. Offsetting the activity decrease in the United States is an activity increase in Canada, largely as a result of the completion of the Trans Mountain Pipeline expansion.

The average United States dollar exchange rate was $1.36 for the first nine months of 2024 (2023 – $1.35), slightly higher than the prior period.

The Company’s working capital as at September 30, 2024, was a deficit of $8.1 million, compared to a surplus of $15.8 million as at December 31, 2023. The decrease in working capital is the result of lower net income, despite higher operating activity when compared to the fourth quarter of 2023.

The Company’s available liquidity, consisting of cash and available borrowings under its $850.0 million Credit Facility, was $66.3 million as at September 30, 2024.

REVENUE AND OILFIELD SERVICES EXPENSE

Revenue for the three months ended September 30, 2024, totaled $434.6 million, a decrease of two percent from the third quarter 2023 of $444.4 million. Revenue for the nine months ended September 30, 2024, totaled $1,257.7 million, an eight percent decrease from the nine months ended September 30, 2023 of $1,361.2 million.

The decrease in total revenue during the first nine months of 2024 was primarily due to recent M&A activity in the oil and natural gas sector in the United States market, impacting drilling activity, along with reinforced customer discipline with regards to their capital programs. Moreover, depressed natural gas commodity prices also contributed to reduced drilling activity. Offsetting the decrease in the United States was improved activity in the Company’s Canada and international markets.

CANADIAN OILFIELD SERVICES

Revenue increased 21 percent to $131.0 million for the three months ended September 30, 2024, from $108.3 million for the three months ended September 30, 2023. The Company recorded revenue of $362.9 million in Canada for the nine months ended September 30, 2024, an increase of 10 percent from $329.0 million recorded for the nine months ended September 30, 2023.

Canadian revenue accounted for 30 percent of the Company’s total revenue in the third quarter of 2024 (2023 – 24 percent) and 29 percent (2023 – 24 percent) for the first nine months of 2024.

The Company’s Canadian drilling operations recorded 3,861 operating days in the third quarter of 2024, compared to 3,262 operating days for the third quarter of 2023, an increase of 18 percent. For the nine months ended September 30, 2024, the Company recorded 10,064 operating days compared to 9,193 days for the nine months ended September 30, 2023, an increase of nine percent. Canadian well servicing hours increased by 14 percent to 12,161 operating hours in the third quarter of 2024 compared to 10,624 operating hours in the corresponding period of 2023. For the nine months ended September 30, 2024, Canadian well servicing hours remained consistent year over year.

The financial results for the Company’s Canadian operations for the third quarter of 2024 improved along with operating activity, largely as a result of the recent completion of the Trans Mountain Pipeline expansion.

During the first nine months of 2024, the Company transferred 23 under-utilized Canadian drilling rigs into its operations reserve fleet.

UNITED STATES OILFIELD SERVICES

The Company’s United States operations recorded revenue of $216.2 million in the third quarter of 2024, a decrease of 16 percent from the $257.7 million recorded in the corresponding period of the prior year. During the nine months ended September 30, 2024, revenue of $633.2 million was recorded, a decrease of 22 percent from the $809.1 million recorded in the corresponding period of the prior year.

The Company’s United States operations accounted for 50 percent of the Company’s revenue in the third quarter of 2024 (2023 – 58 percent) and 50 percent of the Company’s revenue in the first nine months of 2024 (2023 – 60 percent).

Drilling rig operating days decreased by 14 percent to 3,065 operating days in the third quarter of 2024 from 3,581 operating days in the third quarter of 2023 and decreased by 27 percent to 9,111 operating days in the first nine months of 2024 from 12,500 operating days in the first nine months of 2023. United States well servicing recorded 35,518 operating hours in the third quarter of 2024 which was a 10 percent increase from 32,397 operating hours recorded in the third quarter of 2023. For the first nine months of 2024, well servicing activity increased by seven percent to 97,081 operating hours from 90,961 operating hours in the first nine months of 2023.

Operating and financial results for the Company’s United States operations in the first nine months of 2024 were adversely impacted by the recent customer M&A activity, customer capital discipline and depressed natural gas commodity prices.

During the first nine months of 2024, the Company transferred six under-utilized United States drilling rigs into its reserve fleet.

INTERNATIONAL OILFIELD SERVICES

The Company’s international operations recorded revenue of $87.4 million in the third quarter of 2024, a 12 percent increase from the $78.4 million recorded in the corresponding period of the prior year. International revenues for the nine months ended September 30, 2024, increased 17 percent to $261.7 million from $223.2 million recorded for the nine months ended September 30, 2023.

The Company’s international operations contributed 20 percent of the total revenue in the third quarter of 2024 (2023 – 18 percent) and 21 percent of the Company’s revenue in the first nine months of 2024 (2023 – 16 percent).

International operating days for the three months ended September 30, 2024, totaled 1,269 operating days, fairly consistent with 1,265 operating days in the same period of 2023. For the nine months ended September 30, 2024, international operating days totaled 3,843 operating days compared to 3,616 operating days for the nine months ended September 30, 2023, an increase of six percent.

Operating and financial results from international operations reflect positive industry conditions that supported increased drilling activity and rig revenue rates.

During the first nine months of 2024, the Company transferred one under-utilized international drilling rig into its reserve fleet.

DEPRECIATION

Depreciation expense totaled $91.0 million for the third quarter of 2024 compared with $77.0 million for the third quarter of 2023, an increase of 18 percent. Depreciation expense for the first nine months of 2024 increased by 14 percent, to $261.8 million compared with $229.6 million for the same period of 2023. The increase in depreciation primarily is the result of drilling rigs moving into the reserve fleet since the beginning of the year, which are depreciated on an accelerated basis.

GENERAL AND ADMINISTRATIVE

General and administrative expense decreased one percent to $13.8 million (3.2 percent of revenue) for the third quarter of 2024 compared to $13.9 million (3.1 percent of revenue) for the third quarter of 2023. For the nine months ended September 30, 2024, general and administrative expense totaled $44.4 million (3.5 percent of revenue) compared to $43.1 million (3.2 percent of revenue) for the nine months ended September 30, 2023. General and administrative expense increased primarily due to annual wage increases.

FOREIGN EXCHANGE AND OTHER (GAIN) LOSS

Included in this amount is the impact of foreign currency fluctuations in the Company’s subsidiaries that have functional currencies other than the Canadian dollar.

INTEREST EXPENSE

Interest expense was incurred on the Company’s Credit and Term Facilities, capital lease and other obligations.

Interest expense decreased by 22 percent for the first nine months of 2024 compared to the same period of 2023, as a result of lower debt levels and reduced effective interest rates. The Company remains committed to disciplined capital allocation and debt repayment.

INCOME TAXES (RECOVERY)

 

FUNDS FLOW FROM OPERATIONS AND WORKING CAPITAL

 

During the three months ended September 30, 2024, the Company generated funds flow from operations of $116.9 million ($0.64 per common share) compared to funds flow from operations of $119.6 million ($0.65 per common share) for the three months ended September 30, 2023, a decrease of two percent. For the nine months ended September 30, 2024, the Company generated funds flow from operations of $323.6 million ($1.76 per common share), a decrease of nine percent from $354.7 million ($1.93 per common share) for the nine months ended September 30, 2023. The decrease in funds flow from operations for the nine months ended September 30, 2024, compared to the same period of 2023, is largely due to the decrease in net income and operating activity year over year.

At September 30, 2024, the Company’s working capital deficit was $8.1 million, compared to a working capital surplus of $15.8 million at December 31, 2023. The decrease in working capital is the result of lower net income, despite higher operating activity compared to the fourth quarter of 2023.

The Company’s existing bank facility provides for total borrowings of $850.0 million, of which $41.8 million was undrawn and available as at September 30, 2024.

INVESTING ACTIVITIES

Net purchases of property and equipment for the third quarter of 2024 totaled $33.5 million (2023 – $29.1 million). Net purchases of property and equipment during the first nine months of 2024 totaled $125.3 million (2023 – $131.9 million). The purchase of property and equipment for the first nine months of 2024 consists of $9.2 million in upgrade and growth capital and $131.4 million in maintenance capital.

FINANCING ACTIVITIES

On October 13, 2023, the Company amended and restated its existing credit agreement with its syndicate of lenders, which provides a revolving Credit Facility and a three-year $369.0 million Term Facility. The amendments include an extension to the maturity date of the now $850.0 million Credit Facility to the earlier of (i) the date that is six months prior to the earliest maturity of any future Senior Notes, and (ii) October 13, 2026. The Credit Facility includes a reduction of the facility by $75.0 million at the end of the fourth quarter of 2024 and a further reduction of $75.0 million by the end of the second quarter of 2025. The final size of the Credit Facility will then be $700.0 million.

The Term Facility requires repayments of at least $27.7 million each quarter beginning in the first quarter of 2024 to the fourth quarter 2025; and then repayments of at least $36.9 million each quarter from the first quarter 2026 to the fourth quarter 2026.

The amended and restated Credit Facility provides the Company with continued access to revolver capacity in a dynamic industry environment.

On June 26, 2024, the Company amended and restated its existing credit agreement with its syndicate of lenders to include a US $50.0 million secured Letter of Credit Facility and various updates regarding the replacement of the Canadian Dollar Offered Rate (“CDOR”) with the Canadian Overnight Repo Rate Average (“CORRA”). Furthermore, the Company finalized a US $25.0 million unsecured Letter of Credit Facility in the third quarter of 2024.

As at September 30, 2024, the amount of available borrowings under the Credit Facility was $41.8 million  As at September 30, 2024, the amount available was US $28.5 million on the Letter of Credit Facility.

The current capital structure of the Company consisting of the Credit Facility and the Term Facility, allows the Company to utilize funds flow generated to reduce debt in the near term with greater flexibility than a more non-callable weighted capital structure.

Covenants

The following is a list of the Company’s currently applicable covenants pursuant to the Credit Facility and the associated calculations as at September 30, 2024:

As at September 30, 2024, the Company was in compliance with all covenants related to the Credit Facility.

The Credit Facility

The amended and restated credit agreement, a copy of which is available on SEDAR+, provides the Company with its Credit Facility and includes requirements that the Company comply with certain covenants including a Consolidated Net Debt to Consolidated EBITDA ratio, a Consolidated EBITDA to Consolidated Interest Expense ratio and a Consolidated Net Senior Debt to Consolidated EBITDA ratio.

OUTLOOK

Industry Overview

The global outlook for oilfield services continues to be constructive and supports steady demand for services. Crude oil supply and demand fundamentals remain tight but balanced, with moderated supply from OPEC+ nations. However, economic conditions, geopolitical tensions, renewed hostilities in areas of the Middle East, and the ongoing Russia–Ukraine conflict continue to impact global commodity prices and add uncertainty to the global crude demand outlook over the short-term. As a result, global crude prices declined in the third quarter of 2024 and have since been volatile into the fourth quarter with the benchmark price of West Texas Intermediate (“WTI“) averaging US $82/bbl in July, $77/bbl in August, $70/bbl in September and $72/bbl in October.

Over the short-term, depressed natural gas prices and recent customer M&A activity in the Company’s United States operating region have adversely impacted drilling programs. Over the long-term, the Company expects customer consolidation will be positive for oilfield services activity and facilitate relatively consistent drilling programs. Moreover, the results of the upcoming Presidential and Congressional elections in the United States may impact future oilfield activity in the region. Offsetting the prevailing short-term softness in the United States market, Canadian activity has improved year-over-year as result of the completion of the Trans Mountain Pipeline expansion project. Furthermore, the pending activation of the Coastal GasLink Pipeline and several liquefied natural gas (“LNG“) projects, including LNG Canada, are expected to support increased activity in Canada over the medium-to-long term.

The Company remains committed to disciplined capital allocation and debt repayment. The Company has targeted approximately $200.0 million in debt reduction for the 2024 year. In addition, from the period beginning 2023 to the end of 2025, the Company reaffirms its previously announced targeted debt reduction of approximately $600.0 million. If industry conditions change, these targets may be increased or decreased.

Canadian Activity   

Canadian activity, representing 30 percent of total revenue in the first nine months of 2024, increased in the third quarter as operations exited seasonal spring break-up. Activity in Canada is expected to remain steady in the fourth quarter of 2024 and increase in the first quarter of 2025 as operations enter the winter drilling season. In the Canadian market, additional pipeline and transportation capacity and positive market conditions are expected to support strong and steady activity in 2025.

As of October 31, 2024, of our 94 marketed Canadian drilling rigs, approximately 57 percent were engaged under term contracts of various durations. Approximately 43 percent of our contracted rigs have a remaining term of six months or longer, although they may be subject to early termination.

United States Activity

United States activity, representing 50 percent of total revenue in the first nine months of 2024, improved in the third quarter of 2024 in comparison to the second quarter of 2024. The quarter-over-quarter increase was primarily due to rig activations in the Company’s California and Rockies operating regions. Activity in the United States is expected to remain steady in the fourth quarter of 2024 and into 2025.

As of October 31, 2024, of our 77 marketed United States drilling rigs, approximately 55 percent were engaged under term contracts of various durations. Approximately 10 percent of our contracted rigs have a remaining term of six months or longer, although they may be subject to early termination.

International Activity

International activity, representing 20 percent of total revenue in the first nine months of 2024, was steady in the third quarter as one rig in Oman went on standby and Australia activity decreased by one rig. Offsetting the declines was a one rig addition in Argentina in the third quarter of 2024. International activity is expected to modestly decline in the fourth quarter of 2024 as an additional rig in Oman is expected to go on standby, offset by an anticipated one rig addition in Venezuela.

Activity in the Company’s Middle East segment declined by one rig going on standby in Oman in the third quarter. Activity is expected to decline by a second rig going on standby in Oman in the fourth quarter of 2024. Currently, the Company has one active and two standby rigs in Oman, two rigs active in Bahrain, and two rigs active in Kuwait. Activity is expected to increase in 2025, inasmuch as the two rigs on standby in Oman are expected to commence active operations.

Activity in Australia declined by one rig in the third quarter of 2024 and is expected to remain steady at seven rigs in the fourth quarter.

Operations in Argentina improved by one rig in the third quarter of 2024 and are expected to remain steady at two rigs active in the fourth quarter. Operations in Venezuela, which were dormant for several years, remained steady at one rig active in the third quarter and are expected to improve by one rig to a total of two rigs active in the fourth quarter of 2024. 

As of October 31, 2024, of our 31 marketed international drilling rigs, approximately 58 percent were engaged under term contracts of various durations. Approximately 61 percent of our contracted rigs have a remaining term of six months or longer, although they may be subject to early termination. 

RISK AND UNCERTAINTIES

The Company is subject to numerous risks and uncertainties. A summary discussion of certain risks faced by the Company may be found hereinbelow and a fulsome discussion is included under the “Risk Factors” section of the Company’s Annual Information Form (“AIF“) and the “Risks and Uncertainties” section of the Company’s Management’s Discussion &  Analysis (“MD&A“) for the year ended December 31, 2023, which are available under the Company’s SEDAR+ profile at www.sedarplus.com.

Other than as described within this document, the Company’s risk factors and management of those risks have not changed substantially from those as disclosed in the AIF. Additional risks and uncertainties not presently known by the Company, or that the Company does not currently anticipate or deem material, may also impair the Company’s future business operations or financial condition. If any such potential events, whether described in the risk factors in this document or the Company’s AIF or otherwise actually occur, or described events intensify, overall business, operating results and the financial condition of the Company could be materially adversely affected.

CONFERENCE CALL

A conference call will be held to discuss the Company’s third quarter 2024 results at 10:00 a.m. MDT (12:00 p.m. EDT) on Friday, November 1, 2024. The conference call number is 1-888-510-2154 and the conference call ID is: 11652. A taped recording of the conference call will be available until November 8, 2024, by dialing 1-888-660-6345 and entering the reservation number 11652#. A live broadcast may be accessed through the Company’s website at www.ensignenergy.com/presentations.

Ensign Energy Services Inc. is an international oilfield services contractor and is listed on the Toronto Stock Exchange under the trading symbol ESI.

Ensign Energy Services Inc.
Consolidated Statements of Financial Position

 

Ensign Energy Services Inc.
Consolidated Statements of (Loss) Income

 

Ensign Energy Services Inc.
Consolidated Statements of Cash Flows

 

Ensign Energy Services Inc.

Non-GAAP Measures

Adjusted EBITDA, Adjusted EBITDA per common share, working capital and Consolidated EBITDA. These non-GAAP measures do not have any standardized meaning prescribed by IFRS and accordingly, may not be comparable to similar measures used by other companies. The non-GAAP measures included in this news release should not be considered as an alternative to, or more meaningful than, the IFRS measure from which they are derived or to which they are compared.

Adjusted EBITDA is used by management and investors to analyze the Company’s profitability based on the Company’s principal business activities prior to how these activities are financed, how assets are depreciated, amortized and how the results are taxed in various jurisdictions. Additionally, in order to focus on the core business alone, amounts are removed related to foreign exchange, share-based compensation expense, the sale of assets and fair value adjustments on financial assets and liabilities, as the Company does not deem these to relate to its core drilling and well services business. Adjusted EBITDA is not intended to represent income (loss) as calculated in accordance with IFRS.

Consolidated EBITDA 

Consolidated EBITDA, as defined in the Company’s Credit Facility agreement, is used in determining the Company’s compliance with its covenants. The Consolidated EBITDA is substantially similar to Adjusted EBITDA. Consolidated EBITDA is calculated on a rolling twelve-month basis.

Working Capital

Working capital is defined as current assets less current liabilities as reported on the consolidated statements of financial position.

ADVISORY REGARDING FORWARD-LOOKING STATEMENTS

Certain statements herein constitute forward-looking statements or information (collectively referred to herein as “forward-looking statements”) within the meaning of applicable securities legislation. Forward-looking statements generally can be identified by the words “believe”, “anticipate”, “expect”, “plan”, “estimate”, “target”, “continue”, “could”, “intend”, “may”, “potential”, “predict”, “should”, “will”, “objective”, “project”, “forecast”, “goal”, “guidance”, “outlook”, “effort”, “seeks”, “schedule”, “contemplates” or other expressions of a similar nature suggesting future outcome or statements regarding an outlook.

Disclosure related to expected future commodity pricing or trends, revenue rates, equipment utilization or operating activity levels, operating costs, capital expenditures and other prospective guidance provided herein including, but not limited to, information provided in the “Funds Flow from Operations and Working Capital” section regarding the Company’s expectation that funds generated by operations combined with current and future credit facilities will support current operating and capital requirements, information provided in the “Financial Instruments” section regarding Venezuela and information provided in the “Outlook” section regarding the general outlook for 2024 and beyond, are examples of forward-looking statements.

Forward-looking statements are not representations or guarantees of future performance and are subject to certain risks and unforeseen results. The reader should not place undue reliance on forward-looking statements as there can be no assurance that the plans, initiatives, projections, anticipations or expectations upon which they are based will occur. The forward-looking statements are based on current assumptions, expectations, estimates and projections about the Company and the industries and environments in which the Company operates, which speak only as of the date such statements were made or as of the date of the report or document in which they are contained. These assumptions include, among other things: the fluctuation in commodity prices which may influence customers to modify their capital programs; the status of current negotiations with the Company’s customers and vendors; customer focus on safety performance; royalty regimes and effects of regulation by government agencies; existing term contracts that may not be renewed or are terminated prematurely; the Company’s ability to provide services on a timely basis and successfully bid on new contracts; successful integration of acquisitions; future operating costs; the general stability of the economic and political environments in the jurisdictions where we operate; inflation, interest rate and exchange rate expectations; pandemics; and impacts of geopolitical events such as the hostilities in the Middle East and between Ukraine and the Russian Federation, and the global community responses thereto; that the Company will have sufficient cash flow, debt or equity sources or other financial resources required to fund its ‎capital and operating expenditures and requirements as needed; that the Company’s conduct and results of ‎operations will be consistent with its expectations; and other matters.

The forward-looking statements are subject to known and unknown risks, uncertainties and other factors that could cause the actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such risk factors include, among others: general economic and business conditions which will, among other things, impact demand for and market prices of the Company’s services and the ability of the Company’s customers to pay accounts receivable balances; volatility of and assumptions regarding commodity prices; foreign exchange exposure; fluctuations in currency and interest rates; inflation; economic conditions in the countries and regions in which the Company conducts business; political uncertainty and civil unrest; the Company’s ability to implement its business strategy; impact of competition and industry conditions; risks associated with long-term contracts; force majeure events; artificial intelligence development and implementation; cyber-attacks; determinations by the Organization of Petroleum Exporting Countries (“OPEC“) and other countries (OPEC and various other countries are referred to as “OPEC+”) regarding production levels; loss of key customers; litigation risks, including the Company’s defence of lawsuits; risks associated with contingent liabilities and potential unknown liabilities; availability and cost of labour and other equipment, supplies and services; business interruption and casualty losses; the Company’s ability to complete its capital programs; operating hazards and other difficulties inherent in the operation of the Company’s oilfield services equipment; availability and cost of financing and insurance; access to credit facilities and debt capital markets; availability of sufficient cash flow to service and repay its debts; impairment of capital assets; the Company’s ability to amend or comply with covenants under the credit facility and other debt instruments; actions by governmental authorities; impact of and changes to laws and regulations impacting the Company and the Company’s customers, and the expenditures required to comply with them (including safety and environmental laws and regulations and the impact of climate change initiatives on capital and operating costs); safety performance; environmental contamination; shifting interest to alternative energy sources; environmental activism; the adequacy of the Company’s provision for taxes; tax challenges; the impact of, and the Company’s response to future pandemics; workforce and reliance on key management; technology; cybersecurity risks; seasonality and weather risks; risks associated with acquisitions and ability to successfully integrate acquisitions; risks associated with internal controls over financial reporting; the impact of the ongoing hostilities in the Middle East and between Ukraine and the Russian Federation and the global community responses thereto; the results of the upcoming United States Presidential and Congressional elections and other risks and uncertainties that may affect the Company’s business, assets, personnel, operations, revenues or expenses.

In addition, the Company’s operations and levels of demand for its services have been, and at times in the future may be, affected by political risks and developments, such as expropriation, nationalization, or regime change, and by national, regional and local laws and regulations such as changes in taxes, royalties and other amounts payable to governments or governmental agencies, environmental protection regulations, pandemics, pandemic mitigation strategies and the impact thereof upon the Company, its customers and its business, ongoing hostilities in the Middle East and between Ukraine and the Russian Federation, related potential future impact on the supply of oil and natural gas to Europe by Russia and the impact of global community responses to the ongoing conflicts, including the impact of shipping through the Red Sea and governmental energy policies, laws, rules or regulations that limit, restrict or impede exploration, development, production, transportation or consumption of hydrocarbons and/or incentivize development, production, transportation or consumption of alternative fuel or energy sources.

Should one or more of these risks or uncertainties materialize, or should any of the Company’s assumptions prove incorrect, actual results from operations may vary in material respects from those expressed or implied by the forward-looking statements. The impact of any one factor on a particular forward-looking statement is not determinable with certainty as such factors are interdependent upon other factors, and the Company’s course of action would depend upon its assessment of the future considering all information then available. Unpredictable or unknown factors not discussed herein could also have material adverse effects on forward-looking statements.

Readers are cautioned that the lists of important factors contained herein are not exhaustive. For additional information on these and other factors that could affect the Company’s business, operations or financial condition, refer to the “Risk Factors” section of the Company’s Annual Information Form for the year ended December 31, 2023 available on SEDAR+ at www.sedarplus.ca.

The forward-looking statements contained herein are expressly qualified in their entirety by this cautionary statement. The forward-looking statements contained herein are made as of the date hereof and the Company undertakes no obligation to update publicly or revise any forward-looking statements or information, whether as a result of new information, future events or otherwise, except as required by law.

SOURCE Ensign Energy Services Inc.

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