Net debt is total debt minus cash, cash equivalents, and short-term marketable securities. The net debt-to-EBITDA (earnings before interest, tax, depreciation, and amortization) multiple shows how many years it would take a company to repay its debt if its net debt and EBITDA were to remain unchanged. We’ll use this metric to analyze the indebtedness of our group of OFS (oilfield equipment and services) companies in 1Q16.
RES has the lowest net debt-to-EBITDA in the group
In 1Q16, RPC, Inc.’s (RES) net-debt-to-EBITDA multiple stood at -3.3x, which was down significantly from 0.24x one year previously. In 1Q16, its long-term debt came to zero, while its cash and marketable securities increased 6x over 1Q15, leading to negative net debt. In F1Q16, RES’s trailing twelve months (or TTM) EBITDA decreased 94% as compared to one year previously. This negative net debt led to negative net debt-to-EBITDA multiple in 1Q16.
In 1Q16, RES’s TTM (trailing-twelve-month) EBITDA decreased by 94% YoY (year-over-year). The negative net debt led to its negative net debt-to-EBITDA multiple in 1Q16.
In 1Q16, Dril-Quip’s (DRQ) net debt-to-EBITDA multiple stood at -1.6x, which shows a decline from its multiple of -1.16x in 1Q15. DRQ’s 1Q16 long-term borrowing was zero, while its cash and marketable securities increased by 13% YoY.
In effect, DRQ’s net debt continued to remain negative in 1Q16. DRQ’s TTM EBITDA deteriorated by 20% for one year until 1Q16, and so DRQ’s net debt to EBITDA multiple decreased even further YoY in 1Q16.
Core Laboratories is highly indebted
In 1Q16, Core Laboratories’ (CLB) net debt-to-EBITDA multiple stood at ~2.3x. The multiple more than doubled in one year. CLB’s long-term borrowing shot up by 9% from 1Q15 to 1Q16, while its cash and marketable securities decreased by 13% during the period.
CLB’s TTM EBITDA nearly halved in one year until 1Q16, so in effect, CLB’s indebtedness increased. Notably, Core Laboratories makes up 3.1% of the iShares US Oil Equipment & Services (IEZ).
In 1Q16, Weatherford International’s (WFT) net debt decreased marginally over 2014, but its TTM EBITDA was negative, meaning its net debt-to-EBITDA was not meaningful.
In the next part, we’ll look at internal fund generation as compared to external fund requirements.