MANAGEMENT S DISCUSSION AND ANALYSIS

Transcription

1 MANAGEMENT S DISCUSSION AND ANALYSIS For the three months ended March 31, 2016

2 Section 1: Description of the Business... 3 Section 2: Key Performance Indicators... 4 Section 3: Overall Performance... 4 Section 4: Selected Financial Information for the Quarter Ended March 31, Section 5: Results of Operations for the Three Months Ended March 31, Section 6: Non-IFRS measures Section 7: Summary of Quarterly Results Section 8: Liquidity and Capital Resources Section 9: Seasonality of Business Section 10: Adoption of New Accounting Pronouncements Section 11: Critical Accounting Estimates Section 12: Risks and Uncertainties Section 13: Outlook Section 14: Forward Looking Statements

3 This ( MD&A ) for Aveda Transportation and Energy Services Inc. ( Aveda or the Company ) for the three month period ended March 31, 2016 should be read in conjunction with the Company s (i) audited consolidated financial statements and accompanying notes for the year ended December 31, 2015 ( Annual Financial Statements ), together with the MD&A thereon ( 2015 MD&A ), and (ii) the unaudited condensed interim financial statements ( Interim Financial Statements ) for the period ended March 31, 2016, which are available at and on the Company s website at All dollar amounts are in Canadian dollars unless otherwise indicated. The Board of Directors carries out its responsibility for review of the disclosure in this MD&A principally through its Audit Committee, comprised of three directors, two of whom are independent. The Audit Committee reviews this disclosure and recommends its approval to the Board of Directors. This MD&A has been approved by the Board of Directors. The Company reports on certain non-ifrs measures that are used by management to evaluate the performance of the business. Since non-ifrs measures do not have a standardized meaning, securities regulators require that non-ifrs measures be clearly defined and qualified, reconciled to the nearest IFRS measure, and be given no more prominence than the closest IFRS measures. The definition, calculation, and reconciliation of the non-ifrs measures are provided in the section Non-IFRS Measures in this MD&A. Aveda is publicly traded on the TSX Venture Exchange under the symbol AVE. This MD&A contains statements that are not historical facts and are forward looking statements (see "Forward Looking Statements" below). This MD&A is dated as at May 16, Section 1: Description of the Business Aveda earns revenue predominantly by providing specialized transportation services required for the drilling exploration, development and production of petroleum resources in the United States of America ( US ) principally in and around the states of Texas, North Dakota and Oklahoma and in the Western Canadian Sedimentary Basin ( WCSB ). Transportation services are provided using assets which are owned by the Company, or through sub-contractors who own their equipment and are contracted by the Company during times of peak demand. Transportation services include both the equipment necessary to move the load as well as a trained, professional driver capable of securing, moving and manipulating the load to its destination. Aveda s rental operations include the rental of tanks, mats, pickers, light towers, well-site shacks and other equipment necessary for oilfield operations. Aveda was incorporated in 1994 as a private company to serve the oil and gas industry. In the spring of 2006 the Company went public on the TSX Venture Exchange. Aveda has major operations in Calgary, AB, Leduc, AB, Edson, AB, Sylvan Lake, AB, Pleasanton, TX, Midland, TX, Marshall, TX, Williston, ND and Oklahoma City, OK. For more information on Aveda please visit 3

4 Section 2: Key Performance Indicators Aveda monitors a number of key performance indicators including those set out below: Revenue provides an overall indication of success and progress toward achieving growing market share; Earnings Per Share measures the return to shareholders and also allows management to assess whether acquisitions are accretive to earnings; EBITDA is earnings before interest, taxes, depreciation and amortization; Adjusted EBITDA 1 is EBITDA, excluding foreign exchange gains or losses which are primarily related to the US dollar activities of the Company and can vary significantly depending on exchange rate fluctuations, which are beyond the control of the Company, and write downs of intangible assets, goodwill impairment, financing costs, gains or losses on disposal of assets, stock based compensation, fees and expenses on settlement of debt and losses on extinguishment of debt, acquisition earn out adjustments, and gain or loss on business combination; and Adjusted EBITDA per Share 1 is Adjusted EBITDA 1 divided by the weighted average number of shares outstanding for the period. Section 3: Overall Performance 2016 FIRST QUARTER BUSINESS HIGHLIGHTS Due to the continued contraction of oil and gas drilling activities, revenue declined by 67% to $12.0 million in the first quarter of 2016 compared to $36.6 million in 2015; Generated net loss for the three months ended March 31, 2016 of $10.3 million, compared to a net loss of $1.1 million for the same period in Loss per share was $0.54 compared to $0.06 per share in the comparative period; Generated Adjusted EBITDA 1 loss for the quarter ended March 31, 2016 of $3.9 million, compared with Adjusted EBITDA 1 of $4.4 million for the same period in 2015; and The Company ended the quarter with a net asset value per share 2 of $2.27, $4.2 million in working capital with a working capital ratio of 1.66, and undrawn cash availability of $52.0 million on its senior debt facility. Note: (1) See Section 6: Non-IFRS Measures. (2) Net asset value per share is used in this MD&A by management to determine the company s value on a per share basis. This ratio is calculated by dividing total equity of $43.3 million at March 31, 2016 divided by common shares outstanding of 19.1 million. 4

5 Section 4: Selected Financial Information for the Quarter Ended March 31, 2016 (in thousands, except per share and ratio amounts) $ Change % Change Revenue 12,011 36,636 (24,625) -67.2% Gross profit 1 (loss) (4,787) 4,088 (8,875) % Gross margin % 11.2% N/A N/A Gross profit excluding depreciation and amortization 1 (132) 8,560 (8,692) % Gross margin excluding depreciation and amortization 5-1.1% 23.4% N/A N/A Adjusted EBITDA 1 (loss) (3,865) 4,386 (8,251) % Adjusted EBITDA 1 (loss) as a percentage of revenue -32.2% 12.0% N/A N/A Net loss (10,293) (1,139) (9,154) % Net loss as a percentage of revenue -85.7% -3.1% N/A N/A Loss per share - basic and diluted (0.54) (0.06) (0.48) % Current ratio % Debt to equity ratio % Total assets 121, ,279 (19,299) -13.7% Total debt 72,417 42,932 29, % Notes: (1) See Section 6: Non-IFRS Measures. (2) Current ratio calculated as current assets divided by current liabilities. (3) Debt includes loans and borrowings and note payable as per their carrying amounts on the balance sheet. (4) Gross margin is calculated as gross profit divided by revenue. (5) Gross margin excluding depreciation and amortization is calculated by dividing gross profit excluding depreciation and revenue. Due to the significant reduction in oil and gas drilling activities in the first quarter of 2016 as compared to 2015, Aveda s revenue, gross profit and Adjusted EBITDA 1 substantially declined as compared to The Company s net loss and loss per share also increased significantly as compared to the first quarter of Note: (1) See Section 6: Non-IFRS Measures. 5

6 Section 5: Results of Operations for the Three Months Ended March 31, 2016 REVENUE The following table provides a breakdown of the Company s revenue by geography for the three months ended March 31, 2016 and 2015: (in thousands) $ Change % Change Canada 2,187 4,626 (2,439) -52.7% United States 9,824 32,010 (22,186) -69.3% 12,011 36,636 (24,625) -67.2% Canada United States Canada United States 18% 13% 82% 87% Average rig count Rig count as of: Q1, 2016 Q1, 2015 Change March 31, 2016 December 31, 2015 Change Alberta (102) (22) Williamsport, PA* 8 22 (14) 6 12 (6) Pleasanton, TX* (112) (29) Midland, TX* (188) (59) Bridgeport, WV* (32) (7) Williston, ND* (92) (23) Oklahoma City, OK* (32) (22) Marshall, TX* (23) (11) * Rig count within 100 mile radius of the operating terminal As can be seen from the table above, average rig counts in areas in which Aveda operates in declined by approximately 57% the first quarter of 2016 as compared to Aveda s revenue declined by approximately 67% in the same time period as compared to The first quarter of 2015 saw a material number of rigs being racked for storage which had a positive impact on revenues in that quarter. In the corresponding period for 2016 there were far fewer rigs being moved for storage. Due to intense competitive pressure, customers have been demanding lower bid prices in order to award jobs. The past few weeks have seen several competitors cease operations as the rig moving market continues to contract and rates are still under pressure. The Company has taken aggressive action to manage overtime in the field and rationalise headcounts across the organization to better align the Company s cost structure with market prices for its services. In April the decision was made to temporarily 6

7 shut down the Pennsylvania and West Virginia branches; their status will be re-evaluated in the fall based on the economic outlook at that time. In addition, Aveda revamped bidding processes and other operational processes in the first quarter of 2016 to increase the likelihood that the jobs that we are awarded will be done profitably. Due to the significant decrease in oil and gas drilling activities, US revenue decreased by $22.2 million or approximately 69% to $9.8 million from $32.0 million in the same period in the prior year; and revenue in Canada declined by approximately 53% to $2.2 million compared to $4.6 million in the same period in During the three months ended March 31, 2016, outsourced revenue was $2.3 million compared to $9.3 million in Aveda continued to decrease the use of third party providers from 25.4% of total revenue in the first quarter in 2015 to 19.5% of total revenue in the first three months of The average utilization rate for the three months ended March 31, 2016 was approximately 13.2% (48.0% in 2015) for power units and 8.7% (16.6% in 2015) for rental units. These utilization figures do not include assets from the acquisition of Hodges Trucking Company, LLC ( Hodges Acquisition ) in 2015 that are designated for future expansion or sale. EXPENSES The following table sets forth total expenses by function and as a percentage of revenue for the three months ended March 31, 2016 and 2015: (in thousands) $ Change % Change Direct operating 16,798 32,548 (15,750) -48.4% Selling and administrative 3,957 4,467 (510) -11.4% 20,755 37,015 (16,260) -43.9% % of total revenue Direct operating 139.9% 88.8% Selling and administrative 32.9% 12.2% Direct Operating Expenses 172.8% 101.0% During the first and second quarters of 2016, the Company implemented an additional phase of restructuring and right-sizing branches for their market and reducing overhead headcount proportionately. Direct operating expenses for the three months ended March 31, 2016 decreased by $15.8 million from $32.5 million in 2015 to $16.8 million. Gross margin excluding depreciation and amortization 1 decreased from 23.4% in 2015 to -1.1% for the same period in The decrease in margin is due to the current pricing environment as previously discussed. During the first quarter of 2016, the Company took various measures to reduce operating expenses including: 7

8 1. Reduction of headcount in every US branch to right-size the branch to its market; 2. Further reduction in corporate and non-revenue generating headcount; and 3. Implemented more flexible working practices allowing operational staff to move between branches more cost effectively. These measures saw an immediate positive impact on costs across the organization with an associated implementation cost of $0.1 million. During the second quarter of 2016, the Company took additional steps to reduce operating expenses including: 1. The restructuring of the Sylvan Lake, AB branch; 2. Further reduction in corporate and non-revenue generating headcount; and 3. The temporary closure of the Pennsylvania and West Virginia branches; their status will be reevaluated in the fall. Selling and Administrative Expenses Selling and administrative expenses for the three months ended March 31, 2016 were lower by $0.5 million compared to the same period of the prior year as the Company continued to right-size its operations throughout selling and administrative costs include $0.2 million of restructuring expenses related to the changes mentioned above. FINANCE COSTS The following table sets forth the Company s finance costs and foreign exchange gains and losses for the three months ended March 31, 2016 and 2015: (in thousands) $ Change % Change Finance costs and interest expense net of interest revenue 1, % Foreign exchange loss (gain) 84 (34) % 1, % Finance costs and interest expense for the three months ended March 31, 2016 increased by $0.7 million to $1.4 million compared to $0.7 million in Included in the 2016 amount is $0.8 million of additional interest expense that was incurred for the financing related to the Hodges Acquisition. INCOME TAXES The following table sets forth the Company s income tax expense for the three months ended March 31, 2016 and 2015: 8

9 (in thousands) $ Change % Change Current tax expense (94) -72.3% Deferred tax expense (recovery) - (41) % (53) -59.6% Income tax expense relates entirely to income or loss generated in the United States. Due to tax losses generated in prior years, the Company expects to pay cash income tax of $0.2 to $0.3 million in NET LOSS The following table sets forth the Company s net loss for the three months ended March 31, 2016 and 2015: (in thousands) $ Change % Change Net loss (10,293) (1,139) (9,154) % Percentage of revenue -85.7% -3.1% The Company generated a net loss of $10.3 million for the first three months of 2016 compared to a net loss of $1.1 million in Accordingly, Aveda s loss per share for the three months ended March 31, 2016 was $0.54 compared to a loss per share of $0.06 in for the same period in ADJUSTED EBITDA 1 The following table sets forth the Company s adjusted EBITDA 1 for the three months ended March 31, 2016 and 2015: (in thousands) $ Change % Change Adjusted EBITDA 1 (loss) (3,865) 4,386 (8,251) % Percentage of revenue -32.2% 12.0% Adjusted EBITDA 1 for the period ended March 31, 2016 decreased by $8.3 million to an Adjusted EBITDA 1 loss of $3.9 million compared to positive Adjusted EBITDA 1 of $4.3 million in 2015 due to the factors discussed above. Note: (1) See Section 6: Non-IFRS Measures. 9

10 Section 6: Non-IFRS measures This MD&A contains the terms "EBITDA", "Adjusted EBITDA", gross profit gross profit margin, gross profit excluding depreciation and amortization, gross margin excluding depreciation and amortization, and Net asset value per share which do not have any standardized meanings prescribed by IFRS and therefore may not be comparable with the calculation of similar measures for other entities. Management uses EBITDA, Adjusted EBITDA, gross profit, gross profit margin, gross profit excluding depreciation and amortization, and gross margin excluding depreciation and amortization to analyze the operating performance of the business. These non-ifrs measures presented are not intended to represent cash provided by operating activities, net earnings or other measures of financial performance calculated in accordance with IFRS. This MD&A contains the terms "cash flow", "working capital" and "working capital ratio", which do not have any standardized meanings prescribed by IFRS and therefore may not be comparable with the calculation of similar measures for other entities. As an indicator of the Company's performance, cash flow should not be considered as an alternative to, or more meaningful than, net cash from operating activities as determined in accordance with IFRS. The Company considers cash flow to be a key measure as it demonstrates the Company's underlying ability to generate the cash necessary to fund operations and support activities related to its major assets. Cash flow is determined by adding back changes in noncash operating working capital to cash from operating activities. Management calculates working capital as current assets less current liabilities and uses this measure to analyze operating performance and leverage. The following table provides a reconciliation of net income to Adjusted EBITDA for the three months ended March 31, 2016 and 2015: (in thousands) Three months ended March 31, 2016 Three months ended March 31, 2015 Net income (loss) (10,293) (1,139) Add (deduct): Finance costs and interest expense net of interest revenue 1, Income tax expense Depreciation and amortization 4,816 4,580 EBITDA (loss) (3,999) 4,251 Foreign exchange gain (loss) 84 (34) Gain on disposal of assets (13) (16) Stock based compensation Adjusted EBITDA (loss) (3,865) 4,386 10

11 Gross profit is used in this MD&A by management to facilitate the readers understanding of the Company s efficiency at using input costs to generate revenue. Gross profit excluding depreciation and amortization is used to facilitate the readers understanding of the Company s gross profit without the impact of prior capital allocation decisions and accounting estimates associated with rates used for depreciation and amortization. The following table provides a reconciliation of gross profit and gross profit excluding depreciation and amortization for the three months ended March 31, 2016 and 2015: (in thousands) Three months Three months ended March ended March 31, , 2015 Revenue 12,011 36,636 Less direct operating expenses 16,798 32,548 Gross profit (loss) (4,787) 4,088 Addback depreciation and amortization inluded in direct operating expenses 4,655 4,472 Gross profit (loss) excluding depreciation and amortization (132) 8,560 Section 7: Summary of Quarterly Results The following table provides a summary of certain key financial information for Aveda for the last eight quarters: (in thousands, except per share amounts) Q1 Q4 Q3 Q2 Q1 Q4 Q3 Q2 Revenue 12,011 17,545 24,113 23,021 36,636 45,893 42,497 32,055 Adjusted EBITDA (loss) (3,865) (6,271) (6,648) (2,177) 4,386 8,335 5,213 4,413 Adjusted EBITDA as a % of revenue -32.2% -35.7% -27.6% -9.5% 12.0% 18.2% 12.3% 13.8% EBITDA per share - basic (0.20) (0.33) (0.35) (0.11) Income (loss) (10,293) (11,171) (20,121) 5,890 (1,139) 656 (398) (334) Income (loss) as a % of revenue -85.7% -63.7% -83.4% 25.6% -3.1% 1.4% -0.9% -1.0% Earnings (loss) per share - basic and diluted (0.54) (0.59) (1.05) 0.31 (0.06) 0.03 (0.02) (0.02) Weighted average shares - basic 19,079 19,079 19,079 19,079 19,619 19,921 19,915 19,901 Weighted average shares - diluted 19,079 19,079 19,079 19,140 19,619 20,199 19,915 19,901 Section 8: Liquidity and Capital Resources The oil and gas service industry is cyclical in nature, the Company s results are dependent on the amount of its customers drilling and exploration budgets, which are in turn greatly influenced by the price of oil and gas. To manage the current industry downturn, Aveda s focus is on maintaining a strong balance sheet. Aveda has the financial wherewithal to manage its liquidity and capital needs throughout the 11

12 business cycle. The Company maintains a variable cost structure in field wages and fuel costs, so it can respond to industry changes in a timely manner. Aveda s expansion capital expenditure plans are flexible based on industry conditions and demand. The Company s maintenance capital expenditure is mostly variable and, largely, depends on the amount of usage hours on the equipment. NET WORKING CAPITAL The following table presents summarized working capital information as at March 31, 2016 and 2015: (in thousands) $ Change % Change Current assets 10,489 25,082 (14,593) -58.2% Current liabilities 6,301 15,154 (8,853) -58.4% Working capital 4,188 9,928 (5,740) -57.8% Working capital ratio During the three months ended March 31, 2016, the Company used cash in operating activities of $3.0 million and invested $0.7 million for the purchase of equipment. As a result, the Company borrowed $3.7 million on its senior revolving credit facility. LIQUIDITY At March 31, 2016, the Company had approximately $52.0 million in undrawn availability on its senior credit facility. As such, the Company expects to have sufficient liquidity to meet its financial obligations in COVENANTS AND DEBT The Company s senior debt facility s financial covenant tests are waived as long as Undrawn Availability (as defined in the Facility Agreement) is greater than $25.0 million. As at March 31, 2016, the Undrawn Availability was approximately $52.0 million, therefore financial covenant tests were waived. As per the Facility Agreement, two equipment appraisals are done each year commissioned by the agent of the senior debt facility. The most recent appraisal report dated April 5, 2016, showed the Company s equipment fair market value was $128.7 million, gross orderly liquidation value was $109.0 million, and the forced liquidation value was $91.5 million. The appraisal report does not include the Company s land, building, leaseholds and computer equipment. The Company s net book value of all fixed assets including land, building, leaseholds and computer equipment on the balance sheet at March 31, 2016 was $110.7 million. The covenant tests the Company will be expected to comply with, should the undrawn balance of senior credit facility fall below $25.0 million are: 1. The Company is required to maintain Fixed Charge Coverage Ratio (the ratio of Fixed Charge as defined in the Facility Agreement divided by previous twelve months Adjusted EBITDA 1 ) of not less than 1.25:1 at the end of each fiscal quarter for the four consecutive fiscal quarters; 12

13 2. The Company is required to maintain a Total Leverage Ratio (the ratio of Total Leverage as defined in the Facility Agreement divided by previous twelve months Adjusted EBITDA 1 ) of not greater than 3.00:1; 3. The Company cannot make annual expenditure or commitments for Capital Expenditure (as defined in the Facility Agreement) in excess of $25.0 million; and 4. In addition to the financial covenants listed above, the Company is restricted from seeking additional financing, selling assets, making acquisitions or making distributions to shareholders without the consent of the agent. Should covenants have not been waived, the Company would not have complied with its Fixed Charge Coverage Ratio or Total Leverage Ratio at March 31, The Company also has a US$27.0 million note payable related to the Hodges Acquisition ( Hodges Note ). Both the Hodges Note and senior secured credit facility require the Company to issue its annual financial statements without a going concern note. Should the Company include a going concern note in its financial statements, both the senior secured credit facility and Hodges Note could be due on demand. OPERATING ACTIVITIES Due to the factors previously discussed, the Company used cash in operating activities of $3.0 million. INVESTING ACTIVITIES In the quarter the Company invested $0.7 million in its equipment. Capital expenditures are expected to be in the range of $2.0 to $3.0 million for FINANCING ACTIVITIES During the three months ended March 31, 2016, the Company increased loans and borrowings by $3.7 million. OUTSTANDING SHARE DATA The following data is as of the date of this MD&A, unless otherwise noted. The Company is authorized to issue an unlimited number of voting common shares and preferred shares. There are 19.1 million common shares outstanding. The Company has a stock option plan for employees, directors and consultants. A total of 1.9 million shares are reserved under this plan. Options granted generally vest over a three-year period. As of March 31, 2016, 0.8 million options were outstanding with a weighted average exercise price of $3.29 per share. The Company also announced on August 27, 2015 that subject to approval by the TSX Venture Exchange ("TSXV") and ratification by the Company's shareholders at the 2016 Annual General Meeting of shareholders (the "AGM") the board has approved a restricted share unit plan for employees (the "RSU Plan"), a deferred share unit plan for directors (the "DSU Plan") and a performance share unit plan for officers (the "PSU Plan"). Subject to the above approvals, 233,700 restricted share units ("RSUs") were granted to employees, 25,500 deferred share units were granted to directors ("DSUs") and 79,300 Note: (1) See Section 6: Non-IFRS Measures. 13

14 performance share units ("PSUs") were granted to officers. As of March 31, 2016, 159,800 RSUs, 25,500 DSUs, and 54,100 PSUs are remaining. On a fully diluted basis, if all DSUs, RSUs, and PSUs were converted, and options exercised for common shares, the total number of common shares issued and outstanding would be approximately 20.1 million. Section 9: Seasonality of Business There are factors causing quarterly variances that may not be reflective of the Company s future performance. The Company's earnings generally follow the seasonal activity pattern of western Canada and North Dakota s oil and gas industry because of the significance of its operations in these regions. The oil and gas industry in western Canada and North Dakota is typically more active during the winter months as the movement of heavy equipment over frozen ground is generally easier. Rain through the spring, summer and fall reduces activity levels because of the weather s effect on ground conditions and consequently its load bearing capacity. In addition to the impact of rain, thawing ground in the spring tends to make the ground unstable. During this thawing period governments frequently implement restrictions on moving heavy loads on public roadways. This period is often referred to as spring breakup. The Company s operations in the United States (excluding North Dakota) are generally less affected by weather and are less seasonal by nature. As a result of these seasonal variations, quarterly operating results should not be relied upon as any indication of results for any future period. Section 10: Adoption of New Accounting Pronouncements A description of new Canadian GAAP pronouncements can be found on page 22 of the 2015 MD&A. Section 11: Critical Accounting Estimates This MD&A summarized the Company s financial condition and results of operations and is based upon its Interim Financial Statements, which have been prepared in accordance with Canadian GAAP and comply with IAS 34 Interim Financial Reporting. The Interim Financial Statements require management to select significant accounting policies and make certain critical accounting estimates that affect the reported assets, liabilities, revenue and expenses. A description of the Company s critical accounting estimates can be found beginning on page 23 of the 2015 MD&A. As at March 31, 2016, the Company s critical accounting estimates have not changed significantly from such description. Section 12: Risks and Uncertainties A description of principal risks and uncertainties can be found beginning on page 25 of the 2015 MD&A. As at March 31, 2016, these business risks and uncertainties have not changed significantly from those descriptions. 14

15 Section 13: Outlook Aveda earns revenue primarily by providing specialized transportation services to companies engaged in the exploration, development and production of petroleum resources. As a result, demand for Aveda s transportation services is generally linked to the economic conditions of the energy industry and the level of drilling activity in the WCSB and US. The first quarter of 2016 has seen rig counts continue to decline across the geographical areas in which the Company operates with the largest declines seen in Williamsport and Williston. Additionally the mild winter and early spring breakup seen in the WCSB and ND regions negatively impacted activity in the last part of the quarter. However; the oil price has started to recover slightly this quarter, reaching a high of over $41 per barrel in the quarter and an average price in March of $37.96; April s average price was $40. Prices are still volatile and analysts differ as to whether the market has truly turned. Overall, Aveda expects 2016 to be operationally challenging. The Company expects to generate an Adjusted EBITDA 1 loss during the first half of The Company does not have much visibility into the second half of the year. At March 31, 2016, Aveda had a net asset value 2 of $2.27 per share and $52.0 million of undrawn cash availability on its senior debt facility. Based on current cash availability on Aveda s senior debt facility, Aveda has the financial capacity to meet its obligations and manage through Section 14: Forward Looking Statements Certain information and statements contained in this MD&A, including, but not limited to, (i) statements that contain words such as "anticipate", "could", "expect", "seek", "may", "intend", "will", "believe", "should", "project", "forecast", "plan" and similar expressions, including the negatives thereof, (ii) statements that are based on current expectations and estimates about the markets in which the Company operates, and (iii) statements of belief, intentions and expectations about developments, results and events that will or may occur in the future, may constitute forward-looking information and "forward-looking statements" (collectively, forward-looking statements ) as such terms are defined under applicable security laws and are based on certain assumptions and analysis made by the Company s management. Forward-looking statements contained in this MD&A specifically include, but are not limited to, statements with respect to future capital expenditures, including the amount, nature and timing thereof; oil and natural gas prices and demand; other development trends within the oil and natural gas industry; business strategy; expansion and growth of the Company's business and operations including the Company's market share and position in the oilfield service market; expectations regarding the Company s revenue, EBITDA and equipment utilization; and other such matters. The forward-looking statements contained in this MD&A reflect material factors, expectations and assumptions including, without limitation: (i) Aveda s expectation that 2016 will be a year of depressed energy prices; (ii) oil and natural gas production levels throughout Canada and the United States; (iii) Note: (1) See Section 6: Non-IFRS Measures. (2) Net asset value per share is used in this MD&A by management to determine the company s value on a per share basis. This ratio is calculated by dividing total equity of $43.3 million at March 31, 2016 divided by common shares outstanding of 19.1 million. 15

16 commodity prices and interest rates; (iv) the cyclical nature of energy prices; (v) capital expenditure programs and other expenditures; (vi) supply and demand for oil and natural gas and associated oilfield services; (vii) expectations regarding the Company's ability to raise capital and to increase its equipment fleets through acquisitions and manufacture; (viii) schedules and timing of certain projects and the Company s strategy for growth; (ix) the Company s future operating and financial results; (x) the Company s ability to retain and hire qualified personnel; (xi) treatment under governmental regulatory regimes and tax, environmental and other laws; and (xii) the exchange rate in effect between Canadian and US currency; and (xiii) the success of the cost saving strategies of the Company. Financial outlook information contained in this MD&A about prospective results of operations, financial position or cash flows may constitute future oriented financial information, is based on assumptions about future events, is given as at the date hereof and including economic conditions and proposed courses of action, based on management s assessment of the relevant information currently available. Readers are cautioned that such financial outlook information contained in this MD&A should not be used for purposes other than for which it is disclosed herein. The forward-looking statements regarding Aveda's potential revenue and Adjusted EBITDA 1 are included herein to provide readers with an understanding of Aveda's anticipated cash flow and Aveda's ability to fund its expenditures based on the assumptions described herein. Readers are cautioned that this information may not be appropriate for other purposes. Such forward-looking statements and financial outlook information are subject to important risks and uncertainties, which are difficult to predict and that may affect the Company's operations, including but not limited to the impact of general economic conditions in Canada and the United States; industry conditions, including the adoption of new environmental, safety and other laws and regulations and changes in how they are interpreted and enforced; volatility of oil and natural gas prices; oil and natural gas product supply and demand; risks inherent in the Company's ability to generate sufficient cash flow from operations to meet its current and future obligations; increased competition; the lack of availability of qualified personnel or labour unrest; fluctuation in foreign exchange or interest rates; stock market volatility; opportunities available to or pursued by the Company and other factors, many of which are beyond the control of the Company. The Company's actual results, performance or achievements could differ materially from those expressed in, or implied by, these forward-looking statements and financial outlook information, accordingly, no assurance can be given that any of the events anticipated by the forward-looking statements and financial outlook information will transpire or occur, or if any of them do transpire or occur, what benefits the Company will derive therefrom. Accordingly, readers should not place undue reliance upon any of the forward-looking information and financial outlook information set out in this MD&A. All of the forward-looking statements in this MD&A are expressly qualified in their entirety by this cautionary statement and made only as of the date hereof. Except as required under applicable securities laws, the Company disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Note: (1) See Section 6: Non-IFRS Measures. 16