TSE:ENT $
ENTREC ANNOUNCES 2014 THIRD QUARTER FINANCIAL RESULTS

November 13, 2014

  • Third quarter revenue stable at $58.9 million compared to $59.1 million last year 
  • Adjusted EBITDA of $13.1 million and adjusted net income of $2.8 million
  • 8.6 million shares acquired pursuant to Normal Course Issuer Bid

Acheson, Alberta, Canada – ENTREC Corporation (“ENTREC” or the “Company”), a premier crane service and specialized transportation solutions provider, today announced financial results for the three and nine months ended September 30, 2014.

 

 Three Months Ended

Nine Months Ended

$ thousands, except per share amounts and margin percent September 30 2014  September 30 2013  September 30 2014 September 30 2013
Revenue 58,869  59,080  173,788 160,090
Gross profit 18,300  20,948  51,185 56,445
Gross margin 31.1%  35.5%  29.5% 35.3%
Adjusted EBITDA(1) 13,140  16,080  35,015 42,246
Margin(1)  22.3% 27.2%  20.1% 26.4%
Per share(1) 0.12  0.14  0.31 0.40
Adjusted net income(1) 2,797  6,220  5,486 16,166
Per share(1) 0.03  0.05  0.05 0.15
Net income 3,281  5,644  5,699 15,471
Per share – basic 0.03  0.05  0.05 0.14
Per share – diluted 0.02  0.05  0.04 0.13

ENTREC reported revenue of $58.9 million in the third quarter ended September 30, 2014, which was comparable to the $59.1 million reported last year. The Company’s growing focus on new markets helped to offset the lag in new construction activity in the Alberta oil sands region, which has contributed to lower levels of demand and utilization for certain of the Company’s crane and heavy haul transportation equipment.

ENTREC experienced higher demand for its services in northeast B.C. and northwest Alberta where it is supporting LNG-driven natural gas projects as well as in the Bakken area of North Dakota where it is supporting oil and natural gas exploration and production. In northwest B.C., where the Company is supporting a multi-billion dollar aluminum smelter revitalization project in Kitimat, activity levels also remained high. Additionally, ENTREC’s oil sands maintenance, repair and operation (MRO) work continued to provide a steady and growing revenue stream.

ENTREC reported adjusted EBITDA of $13.1 million for the three months ended September 30, 2014, compared to $16.1 million during the same period in 2013. While revenue remained stable year-over-year, adjusted EBITDA margin was lower at 22.3% for the quarter, compared to 27.2% last year. The reduced EBITDA reflects lower equipment utilization levels, changes in revenue mix and more competitive pricing pressure in the heavy haul transportation sector due to the current lag in oil sands construction projects.

Adjusted net income was $2.8 million for the three months ended September 30, 2014 compared to $6.2 million in the same period last year. The year-over-year change reflects the lower adjusted EBITDA margin, together with increased finance costs and depreciation expense. Quarterly net income, reported in accordance with IFRS, declined to $3.3 million or $0.03 per share from $5.6 million or $0.05 per share last year.

“We expect utilization levels for our crawler and rough terrain cranes will increase over the next six months as our oil sands construction project work begins to ramp up,” said John M. Stevens, ENTREC’s President and CEO. “Our growing crane fleet has also helped us establish a stronger presence in the market for MRO work in the Alberta oil sands region. Higher utilization levels for our cranes should continue throughout 2015 and into 2016 due to the long-term nature of many oil sands projects and the continuous need for work under our MRO contracts.”

Expanding its MRO footprint in the Alberta oil sands remains a strategic focus for ENTREC. Over the next five to seven years, the Company anticipates that industry demand for MRO work in the oil sands could increase by more than 50% due to growth in facilities and production over this time period.

Demand for ENTREC’s services in the Bakken region of North Dakota continues to grow. The Company is expanding its crane fleet in the area and has recently moved under-utilized transportation equipment from Canada to support this growing demand.

Entering 2015, ENTREC expects activity levels to remain high in northwest B.C. as it continues to support the smelter revitalization project in Kitimat. The project is expected to remain active until mid-2015. The Company is also well positioned to support the regions’ growing industrial activity, including the future construction of LNG facilities.

Demand for ENTREC’s services in northeast B.C. and northwest Alberta continues to be steady, but demand could be impacted by final investment decisions on the construction of proposed LNG facilities in northwest B.C. Positive final investment decisions could accelerate the demand for its services in the region. Conversely, negative or delayed decisions could adversely impact natural gas-related industry activity in the region.

As ENTREC moves into 2015, it expects utilization levels for its platform trailers will remain similar to the levels achieved in 2014, but below the levels achieved in 2012 and 2013. While the Company continues to anticipate stronger demand as 2015 proceeds, increased industry capacity from new and existing competitors will likely continue to place pricing pressure on these services. As a result, margins on heavy haul transportation services will likely remain below the levels achieved in prior years.

“Our overall competitive position and long-term outlook is positive,” added Mr. Stevens. “We are geographically positioned where we want to be, with the right equipment fleet, and a complete range of crane and specialized transportation services in the markets that we believe will drive significant growth in our business going forward.”

Due to lower than anticipated activity levels from heavy haul transportation and delays in the ramp up of awarded oil sands construction projects, ENTREC estimates that its revenue for the year ending December 31, 2014 will be at or slightly below the low end of its previous guidance of between $230 million and $250 million. Commensurate with the reduced revenue outlook, the Company estimates overall adjusted EBITDA margin for the full 2014 fiscal year will finish near the low end of its previous guidance range of 20% to 22%.

Based on preliminary expectations for future business activity, and assuming no business acquisitions are completed, ENTREC estimates revenue for the year ending December 31, 2015 could range between $240 million and $260 million with an adjusted EBITDA margin in the range of 22% to 24%.

Normal Course Issuer Bid (NCIB)

In October 2014, ENTREC completed its NCIB program for the 12 months ending November 19, 2014, having acquired and cancelled a total of 8,561,671 common shares. ENTREC is currently in the process of renewing its NCIB for another year.

2014 Capital Expenditure Program

ENTREC’s 2014 growth capital expenditures are focused on growing its crane fleet. The Company believes continued investment in this area will provide the scale to further increase its access to the recurring MRO support work in the Alberta oil sands region, conventional and unconventional oil and natural gas exploration and production in western Canada and North Dakota, and expected industrial construction work occurring in the oil sands and in northwest B.C.

In November 2014, ENTREC increased its 2014 capital expenditure program to $57 million from a previously announced program of $52 million. The $5 million increase reflects the addition of multiple cranes for upcoming project work, as well as deposits on cranes for delivery in 2015.

ENTREC’s 2014 capital expenditure program now consists of the following components:

 $ thousands  
Growth capital expenditures – cranes

37,000

Growth capital expenditures – specialized transportation

6,000

Other growth capital expenditures

2,000

Maintenance capital expenditures

12,000

TOTAL

 57,000


During the nine months ended September 30, 2014, ENTREC made capital expenditures of $46.9 million, consisting of $35.7 million in growth capital expenditures and $11.2 million in maintenance capital expenditures. Proceeds on the disposal of property, plant and equipment was $2.0 million.

2015 Capital Expenditure Program

While the development of ENTREC’s 2015 capital expenditure program remains in progress, the Company currently anticipates the program could be as high as $35 million to $40 million, net of disposal proceeds. This size of capital program will be monitored by management and is dependent on the timing of the ramp up of the oil sands construction projects currently underway.

ENTREC’s 2015 growth capital expenditures will be focused on continuing to grow its mobile crane fleet of all-terrain and truck cranes. These cranes are utilized in serving all industries, including MRO work in the Alberta oil sands, industrial construction, and conventional and unconventional oil and gas.

ENTREC’s 2015 growth capital expenditures will also include the addition of an LR 1750 crawler crane. With a 750-ton lifting capacity, this crane will become the largest in the Company’s fleet and will be utilized on an awarded oil sands construction project for the majority of 2015 and into 2016. The Company’s 2015 maintenance capital expenditures will be focused on renewing its rough terrain crane fleet in the anticipation of certain oil sands construction projects ramping up in 2015. In addition, and as in prior years, the maintenance capital expenditures will continue to turn over the automotive tractor and truck fleets to ensure they remain modern and efficient.

ENTREC intends to fund its 2015 capital expenditure program from its asset-based credit facility, finance leases and cash from operating activities. 

Acquisition of Ranger Distributors Ltd. (“Ranger”)

Effective July 3, 2014, ENTREC acquired the business and assets of Ranger Distributors Ltd. (“Ranger”). Based in Acheson, Alberta, Ranger provided industrial camp hauling and heavy haul transport services to the oil and natural gas and construction industries throughout western Canada. Ranger’s fleet consisted of eight winch tractors, one bed truck and 35 conventional trailers units. The aggregate consideration paid for Ranger was $3.5 million in cash. This acquisition provided ENTREC with a strong recurring customer base and additional scale to continue to grow its industrial camp hauling capabilities. The Ranger business was integrated into ENTREC’s existing operations in Acheson, Alberta.

A complete set of ENTREC’s most recent financial statements and Management’s Discussion and Analysis will be filed on SEDAR (www.sedar.com) and posted on the Company’s website (www.entrec.com).

Third Quarter Conference Call

ENTREC will host a conference call and webcast to discuss its 2014 third quarter financial results tomorrow, November 14, 2014 at 9:00 am Mountain Time (11:00 am Eastern). The call can be accessed by dialing toll-free: 1-866-852-2121 or 416-340-9531 (GTA and International).

The conference call will also be available via webcast within the Investors section of ENTREC’s website at: www.entrec.com.

About ENTREC

ENTREC is a premier crane service and specialized transportation solutions provider to the oil and natural gas, construction, petrochemical, mining and power generation industries. ENTREC is listed on the Toronto Stock Exchange under the symbol ENT.

Non-IFRS Financial Measures

Adjusted EBITDA is defined as earnings before interest, income taxes, depreciation, amortization, loss (gain) on disposal of property, plant and equipment, change in fair value of embedded derivative, share-based compensation, and non-recurring business acquisition and integration costs. In addition to net income, Adjusted EBITDA is a useful measure as it provides an indication of the financial results generated by ENTREC’s principal business activities prior to consideration of how these activities are financed or how the results are taxed in various jurisdictions and before certain non-cash expenses. Adjusted EBITDA also illustrates what ENTREC’s EBITDA is, excluding the effect of non-recurring business acquisition, integration, and other specifically noted non-recurring costs. During the nine months ended September 30, 2014, the Company included its initial Toronto Stock Exchange listing fee of $0.2 million within business acquisition and integration costs. Adjusted EBITDA margin is calculated as adjusted EBITDA divided by revenue. Per share amounts are calculated as adjusted EBITDA divided by the basic weighted average number of shares outstanding during the period.

Adjusted net income is calculated excluding the after-tax amortization of acquisition-related intangible assets, notional interest accretion expense arising from convertible debentures, and the change in fair value of the embedded derivative related to the convertible debentures. These exclusions represent non-cash charges the Company does not consider indicative of ongoing business performance. ENTREC also believes the elimination of amortization of acquisition-related intangible assets provides management and investors an improved view of its business results by providing a degree of comparability to internally developed intangible assets for which the related costs are expensed as incurred. Adjusted earnings per share are calculated as adjusted net income divided by the basic weighted average number of shares outstanding during the applicable period.

Please see ENTREC’s Management Discussion & Analysis for the three and nine months ended September 30, 2014 for reconciliations of adjusted EBITDA and adjusted net income to net income, the most directly comparable financial measure calculated and presented in accordance with IFRS.

Consolidated Statements of Financial Position
As at
(thousands of Canadian dollars)

September 30
2014
$

December 31
2013
$

     

ASSETS

   

Current assets

   

Cash

759

651

Trade and other receivables

49,467

45,146

Leasehold inducements receivable

9,025

Income taxes receivable

2,353

Inventory

2,709

2,552

Prepaid expenses and deposits

3,101

2,487

 

67,414

50,836

Non-current assets

   

Long-term deposits and other assets

219

4,910

Property, plant and equipment

254,241

207,205

Intangible assets

24,863

27,560

Goodwill

70,203

69,276

     

Total assets

416,940

359,787

     

LIABILITIES AND SHAREHOLDERS’ EQUITY

   

Current liabilities

   

Trade and other payables

24,507

18,335

Income taxes payable

1,876

Acquisition consideration payable

587

Current portion of deferred leasehold inducements

609

Current portion of long-term debt

415

20,619

Current portion of obligations under finance lease

1,975

1,788

 

27,506

43,205

Non-current liabilities

   

Deferred leasehold inducements

10,545

Long-term debt

140,290

76,321

Obligations under finance lease

3,192

2,422

Notes payable

7,294

7,294

Convertible debentures

20,490

23,557

Deferred income taxes

29,968

27,220

Total liabilities

239,285

180,019

     

Shareholders’ equity

   

Share capital

133,669

141,711

Contributed surplus

8,993

9,155

Retained earnings

34,231

28,532

Accumulated other comprehensive income 

762

370

Total shareholders’ equity

177,655

179,768

     

Total liabilities and shareholders’ equity

416,940

359,787

 

 

Consolidated Statements of Income

 Three Months Ended

Nine Months Ended

(thousands of Canadian dollars, except per share amounts)

September 30,
2014
$

September 30,
2013
$

September 30,
2014
$

September 30,
2013
$

Revenue

58,869

59,080

173,788

160,090

Direct costs

 40,569

 38,132

122,603

103,645

       

Gross profit

 18,300

 20,948

51,185

56,445

         

Operating expenses

       

General and administrative expense

 5,467

 5,188

17,278

15,515

Depreciation of property, plant and equipment

 6,486

 5,267

18,146

13,219

Amortization of intangible assets

 1,003

 970

2,960

2,513

Share-based compensation

 431

 353

1,320

1,236

Loss (gain) on disposal of property, plant and equipment

47

 (198)

146

(48)

 

 13,434

 11,580

39,850

32,435

         

Income before finance items and income taxes

 4,866

 9,368

11,335

24,010

         

Finance items

       

Finance costs

 2,311

 2,214

7,283

5,668

Finance income

 (40)

 –

(40)

Gain on change in fair value of embedded derivative

 (1,928)

 (448)

(4,038)

(2,316)

 

 343

 1,766

3,205

3,352

         

Income before income taxes

 4,523

 7,602

8,130

20,658

         

Income taxes

       

Current

 191

 38

(307)

1,835

Deferred

 1,051

 1,920

2,738

3,352

 

 1,242

 1,958

2,431

5,187

         

Net income

 3,281

 5,644

5,699

15,471

         

Earnings per share – basic

0.03

 0.05

0.05

0.14

Earnings per share – diluted

 0.02

 0.05

0.04

0.13

 

Forward-looking Statements 

This press release contains forward-looking statements which reflect ENTREC’s current beliefs and are based on information currently available to ENTREC. These statements require ENTREC to make assumptions it believes are reasonable and are subject to inherent risks and uncertainties. Actual results and developments may differ materially from the results and developments discussed in the forward-looking statements as certain of these risks and uncertainties are beyond ENTREC’s control.

Examples of such forward-looking statements in this press release relate to, but are not limited to: plans to execute a revised 2014 capital expenditure program of $57 million and anticipation ENTREC’s 2015 capital expenditure program could range between $35 million and $40 million, net of disposal proceeds; belief utilization levels for ENTREC’s crawler cranes and rough terrain cranes will increase over the next six months as oil sands construction project work begins to ramp up; expectation higher utilization levels for ENTREC’s cranes could continue throughout 2015 and into 2016 due to the long-term nature of many oil sands projects and the continuous need for work under its MRO contracts; estimate that over the next five to seven years, industry demand for MRO work in the oil sands could increase by more than 50% due to growth in facilities and production over this time period; anticipation of continued growth in the Bakken region of North Dakota in the future; expectation the aluminum smelter revitalization project will remain active until mid-2015; expectation that ENTREC will continue to achieve strong activity levels from its operations in northeast B.C. and northwest Alberta as it enters 2015; however, demand for its services could be impacted by final investment decisions on the construction of proposed LNG facilities in northwest B.C.; expectation that utilization levels and margins on platform trailers will remain similar to the levels achieved in 2014, but below the levels achieved in 2012 and 2013; estimate that revenue for the year ending December 31, 2014 will be at or slightly below the low end of the Company’s previous guidance of between $230 million and $250 million; estimate that overall adjusted EBITDA margin for fiscal 2014 will finish near the low end of the Company’s previous guidance range of 20% to 22%; preliminary expectation that revenue for the year ending December 31, 2015 could range between $240 million and $260 million with an adjusted EBITDA margin in the range of 22% to 24%; belief that ENTREC’s 2014 capital expenditure program will provide additional scale to increase its access to the recurring MRO support work in the Alberta oil sands region, conventional and unconventional oil and natural gas exploration in western Canada and North Dakota, and expected industrial construction work occurring in the oil sands and in northwest B.C.; plan to fund ENTREC’s 2015 capital expenditure program from its asset-based-lending facility, finance leases and cash from operating activities; and plans to renew the Company’s NCIB for another year.

ENTREC’s forward-looking statements involve a number of significant assumptions. Key assumptions utilized in developing forward-looking statements related to ENTREC’s growth and revenue expectations include achieving its internal revenue, net income and cash flow forecasts for 2014 and 2015. Key assumptions involved in preparing ENTREC’s internal forecasts include, but are not limited to, its expectations and estimates that: demand for crane and specialized transportation services in western Canada increase from current levels in 2015; construction projects and production activity in the Alberta oil sands region and in northern British Columbia continue at or above current levels and expected project work begins to ramp up and utilization levels increase; certain of the planned development of LNG facilities proceed and certain customers choose to use ENTREC’s services; ENTREC will be able to retain key personnel and attract additional high-quality personnel to support its planned revenue growth; there are no significant unplanned increases in ENTREC’s cost structure, including those costs related to fuel and wages; market interest rates remain similar to current rates and that additional debt financing remains available to ENTREC on similar terms to its existing debt financing; there is no prolonged period of inclement weather that impedes or delays the need for crane and specialized transportation services; the competitive landscape in western Canada for crane and specialized transportation services does not materially change in 2015; and there is no material adverse change in overall economic conditions.

Achieving these forecasts largely depends on a number of factors beyond ENTREC’s control including several of the risks discussed further under “Business Risks” in ENTREC’s Management Discussion & Analysis for the three and nine months ended September 30, 2014. The business risks that are most likely to affect ENTREC’s ability to achieve its internal revenue, net income and cash flow forecasts for 2014 and 2015 are the volatility of the oil and gas industry, its exposure to the Alberta oil sands, workforce availability, weather and seasonality, availability of debt and equity financing, and competition. These risk factors are interdependent and the impact of any one risk or uncertainty on a particular forward-looking statement is not determinable.

The Company’s ability to renew its NCIB for another year, and to make purchases of its common shares, is subject to receipt of regulatory approval, potential fluctuations in the market for its common shares and the potential the Company may find another, more desirable use of its available funds.

Consequently, all of the forward-looking statements made in this press release are qualified by these cautionary statements and other cautionary statements or factors contained herein, and there can be no assurance that the actual results or developments will be realized or, even if substantially realized, that they will have the expected consequences to, or effects on, ENTREC. These forward-looking statements are made as of the date of this press release. Except as required by applicable securities legislation, ENTREC assumes no obligation to update publicly or revise any forward-looking statements to reflect subsequent information, events, or circumstances.


For further information, please contact:

John M. Stevens – President & CEO

Telephone: (780) 960-5625

Jason Vandenberg – CFO

Telephone: (780) 960-5630

www.entrec.com
 

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