TSE:ENT $
ENTREC CORPORATION ANNOUNCES 2014 FIRST QUARTER FINANCIAL RESULTS

May 12, 2014

Spruce Grove, Alberta, Canada – ENTREC Corporation (“ENTREC” or the “Company”), a leading provider of heavy lift and heavy haul services, today announced financial results for the first quarter ended March 31, 2014.

  • 2014 revenue increased by 20% to $62.0 million from $51.7 million in 2013
  • Adjusted EBITDA of $10.7 million and adjusted net income of $1.2 million
  • 3.2 million common shares acquired year-to-date pursuant to NCIB

 

   

Three Months Ended

$ thousands, except per share amounts and margin percent     March 31 2014 March 31 2013
Revenue     61,995 51,703
Gross profit     16,413 17,952
Gross margin     26.5% 34.7%
Adjusted EBITDA(1)     10,698 13,428
Margin(1)     17.3% 26.0%
Per share(1)     0.09 0.14
Adjusted net income(1)     1,189 5,485
Per share(1)     0.01 0.06
Net income     1,435 5,400
Per share – basic     0.01 0.06
Per share – diluted     0.01 0.05

In the first quarter of 2014, revenue increased by 20% to $62.0 million from $51.7 million in the comparative three months ended March 31, 2013. This growth reflects the positive impact of business acquisitions completed over the past year, partially offset by a $5.4 million year-over-year decline from the pro forma revenue ENTREC and each of its acquired businesses achieved on a combined basis in the three months ended March 31, 2013.

ENTREC experienced lower levels of equipment utilization in the first quarter of 2014, compared to Q1 last year. This was primarily due to a lag in construction projects in the Alberta oil sands region and in other industries the Company serves. This impact was partially mitigated by strong demand in Northeast B.C. and Northwest Alberta where the Company is supporting LNG-driven natural gas projects.

First quarter adjusted EBITDA was $10.7 million, compared to $13.4 million in 2013. The higher revenue in the first quarter this year was offset by a lower adjusted EBITDA margin of 17.3%, compared to 26.0% in Q1 last year. The year-over-year change in EBITDA margin reflects reduced equipment utilization levels, which result in lower absorption of the fixed components of the Company’s operating costs. Revenue mix also had an impact with lower utilization of the Company’s more specialized equipment, which typically generates higher margins. Additional factors included more competitive pricing pressure in the heavy haul transportation sector due to the current lag in oil sands construction projects, and higher fuel costs.

Adjusted net income of $1.2 million for the three months ended March 31, 2014 compared to $5.5 million in the same period last year. The year-over-year change reflects the lower adjusted EBITDA margin, and increased finance costs and depreciation expense. Quarterly net income, reported in accordance with IFRS, declined to $1.4 million or $0.01 per share from $5.4 million or $0.06 per share last year.

“In the short term, we expect the reduced activity levels to continue into the second quarter of 2014 and that our equipment utilization levels will remain lower than last year,” said John M. Stevens, ENTREC’s President and CEO. “We are also entering our seasonal spring break-up period where the spring snow melt and wet conditions make the ground unstable and less capable of supporting vehicles with heavy loads.”

“Over the longer term, we continue to expect revenue will trend upward in the second half of 2014 and into 2015 as project work begins to ramp up and utilization levels increase. Higher utilization levels could also continue into 2016 and 2017 due to the long-term nature of many oil sands projects. In Northeast B.C. and Northwest Alberta, we anticipate continued robust activity levels through the remainder of 2014 from our operations which are supporting numerous LNG-related natural gas projects in those regions.”

“ENTREC’s competitive position and long-term outlook remain positive. We are geographically positioned where we want to be, with the right equipment fleet, and a complete range of crane and heavy haul transportation services in the markets that we believe will drive significant growth in our business going forward.”

Based on current expectations for future business activity, ENTREC reiterates its guidance that revenue for the year ending December 31, 2014 could range between $230 and $250 million. Any business acquisitions completed in fiscal 2014 could increase the revenue achieved and/or trigger revised revenue guidance.

ENTREC is working diligently to streamline its cost structure in order to support improved profitability. The Company reduced its salaried workforce by 15% and consolidated two branches in late March of this year. It is also working with customers to recover a portion of the higher fuel costs through rate increases and fuel surcharges. The Company estimates that overall adjusted EBITDA margin for the full fiscal 2014 year could range between 20% and 22%. Consistent with the anticipated trend in revenue, adjusted EBITDA margin is expected to be lower in the first half of 2014 and then increase as the year progresses and utilization improves.

2014 Capital Expenditure Program

ENTREC’s 2014 growth capital expenditure program is 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, as well as to the significant industrial construction work occurring in the oil sands and in Northwest B.C.

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

Growth capital expenditures – cranes

$29 million

Growth capital expenditures – heavy haul transport

$4 million

Other growth capital expenditures

$2 million

Maintenance capital expenditures

$11 million

TOTAL

 $46 million


During the three months ended March 31, 2014, ENTREC made capital expenditures of $17.9 million, consisting of $15.3 million in growth capital expenditures and $2.6 million in maintenance capital expenditures. Included in ENTREC’s growth capital expenditures during the quarter ended March 31, 2014 was the purchase of $7.2 million in crane and trailer rental units. The majority of these units carried favourable purchase options, which allowed the Company to apply much of the previous rental expense against the purchase price. These purchases represent the last of the rental units that carried the favourable purchase options.

ENTREC intends to fund the remainder of its 2014 capital expenditure program from its asset-based lending facility, finance leases and cash from operating activities. Should customer demand warrant, the Company expects to have the flexibility to increase its capital expenditure program later in the year without raising additional equity.

Acquisition of Superior Oilfield Hauling (2005) Ltd. (Superior)

On April 15, 2014, ENTREC acquired the business and assets of Superior, an oilfield transportation service supplier in the Cold Lake, Alberta oil sands region. Acquired for $5.1 million in cash, the transaction included Superior’s fleet of nine winch tractors, two bed trucks, one picker truck and 24 conventional trailer units. The acquisition expands ENTREC’s customer relationships and increases its service capabilities in this important region. The Superior business was immediately integrated into ENTREC’s existing operations in Bonnyville, Alberta.

Normal Course Issuer Bid (NCIB)

During the three months ended March 31, 2014, ENTREC repurchased for cancellation 922,600 common shares for a total cost of $1.4 million under its NCIB. On a year-to-date basis to May 12, 2014, ENTREC repurchased for cancellation a total of 3,172,700 common shares for a total cost of $4.4 million. With ENTREC’s positive outlook for the future, the Company believes one of the best investments it can make is in itself. The Company plans to continue making purchases under the NCIB.

Share Purchase Warrants

The Company currently has 15,150,000 share purchase warrants (the “Warrants”) that entitle the holder to acquire one common share of ENTREC at an exercise price of $1.50 per common share at any time from June 1, 2013 to May 31, 2014 (the “Expiry Date”). The holder shall not, at any time, be entitled to exercise any portion of the Warrants that would result in the holder owning 20% or more of ENTREC’s issued and outstanding common shares. If upon the Expiry Date any portion of the Warrants is not exercisable because such exercise would result in the holder owning 20% or more of ENTREC’s issued and outstanding common shares, then the Expiry Date of such portion shall be extended by one year, provided that the Expiry Date may not be extended beyond June 1, 2017.

At current market prices, ENTREC expects that the holder of the Warrants may proceed to acquire additional common shares of ENTREC on the market prior to the Expiry Date.

Asset-Based Lending (ABL) Facility

On March 6, 2014, ENTREC closed a new $240 million senior secured ABL facility with a syndicate of lenders led by Wells Fargo Capital Finance Corporation Canada. The ABL facility replaced the Company’s previous senior debt facilities and is being used to fund future capital expenditures and business acquisitions and for general corporate purposes.

The ABL facility has a five-year term and requires payments of interest only. Amounts borrowed bear interest, at ENTREC’s option, at bank prime or bankers’ acceptance rates, plus a credit spread based on a sliding scale. ENTREC may prepay all or any part of the ABL Facility at any time.

“This facility is covenant light with a borrowing base that increases as our business grows making it a perfect fit with our business, said Jason Vandenberg, ENTREC’s Chief Financial Officer. “The customized financing provided by Wells Fargo demonstrates the strong value in our equipment fleet and will provide us with significant financial flexibility to continue to execute our growth strategies.”

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).

About ENTREC

ENTREC is a leading provider of heavy lift and heavy haul services with offerings encompassing crane services, heavy haul transportation, engineering, logistics and support. ENTREC provides these services to the oil and natural gas, construction, petrochemical, mining and power generation industries. ENTREC’s common shares trade on the TSX Venture Exchange under the trading symbol “ENT”.

 

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

March 31
2014
$

December 31
2013
$

     

ASSETS

   

Current assets

   

Cash

327

651

Trade and other receivables

52,316

45,146

Income taxes receivable

1,059

Inventory

2,637

2,552

Prepaid expenses and deposits

1,848

2,487

 

58,187

50,836

Non-current assets

   

Long-term deposits and other assets

6,405

4,910

Deposits on business acquisitions

300

Property, plant and equipment

219,019

207,205

Intangible assets

26,663

27,560

Goodwill

69,401

69,276

     

Total assets

379,975

359,787

     

LIABILITIES AND SHAREHOLDERS’ EQUITY

   

Current liabilities

   

Trade and other payables

21,698

18,335

Income taxes payable

1,876

Acquisition consideration payable

584

587

Current portion of long-term debt

412

20,619

Current portion of obligations under finance lease

1,935

1,788

 

24,629

43,205

Non-current liabilities

   

Long-term debt

113,766

76,321

Obligations under finance lease

2,969

2,422

Notes payable

7,294

7,294

Convertible debentures

22,317

23,557

Deferred income taxes

28,413

27,220

Total liabilities

199,388

180,019

     

Shareholders’ equity

   

Share capital

140,652

141,711

Contributed surplus

9,334

9,155

Retained earnings

29,967

28,532

Accumulated other comprehensive income 

634

370

Total shareholders’ equity

180,587

179,768

     

Total liabilities and shareholders’ equity

379,975

359,787

 

 

Consolidated Statements of Income

 

Three Months Ended

(thousands of Canadian dollars, except per share amounts)

 

 

March 31
2014
$

March 31
2013
$

Revenue

 

 

61,995

51,703

Direct costs

 

 

45,582

33,751

       

Gross profit

 

 

16,413

17,952

         

Operating expenses

       

General and administrative expense

 

 

6,128

4,690

Depreciation of property, plant and equipment

 

 

5,666

3,869

Amortization of intangible assets

 

 

970

765

Share-based compensation

 

 

459

456

(Gain) loss on disposal of property, plant and equipment and other assets

 

 

(91)

14

 

 

 

13,132

9,794

         

Income before finance items and income taxes

 

 

3,281

8,158

         

Finance items

       

Finance costs

 

 

2,739

1,711

Gain on change in fair value of embedded derivative

 

 

(1,548)

(886)

 

 

 

1,191

825

         

Income before income taxes

 

 

2,090

7,333

         

Income taxes

       

Current

 

 

(537)

1,273

Deferred

 

 

1,192

660

 

 

 

655

1,933

         

Net income

 

 

1,435

5,400

         

Earnings per share – basic

 

 

0.01

0.06

Earnings per share – diluted

 

 

0.01

0.05

 

First Quarter Financial Results Conference Call

ENTREC will host a conference call and webcast to discuss its 2014 first quarter results tomorrow, May 13, 2014 at 9:00 am (MDT) (11:00 am Eastern). The call can be accessed by dialing toll-free: 1-866-225- 0198 or 416-340-2216 (GTA and International).

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

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 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 such 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 months ended March 31, 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.

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 include, but are not limited to: plans to execute a 2014 capital expenditure program of $46 million; expectation equipment utilization will remain lower in the second quarter of 2014 as activity levels will remain modest and then trend upward in the second half of 2014 and in 2015 as project work begins to ramp up and utilization levels increase; belief higher utilization in later 2014 and 2015 could also continue into 2016 and 2017; expectation that ENTREC will continue to achieve robust activity levels from its operations in Northeast B.C. and Northwest Alberta throughout the remainder of 2014; estimate that revenue for the year ending December 31, 2014 could range between $230 million and $250 million; estimate overall adjusted EBITDA margin for fiscal 2014 could range between 20% and 22%; 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 as well as the significant construction work occurring in both the oil sands and in northwest B.C.; plan to fund the remainder of ENTREC’s 2014 capital expenditure program from the ABL facility, finance leases and cash from operating activities as well as the expectation that ENTREC will have the flexibility to increase its capital expenditure program later in the year should customer demand warrant without raising additional equity.

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 beyond. Key assumptions involved in preparing ENTREC’s internal forecasts include, but are not limited to, its expectations and estimates that: demand for crane and heavy haul transportation services in western Canada increase from current levels throughout the latter part of 2014 and in 2015; ENTREC will be able to retain key personnel and attract additional high-quality personnel to support its planned revenue growth; 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; 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 heavy haul transportation services; the competitive landscape in western Canada for crane and heavy haul transportation services does not materially change during the remainder of 2014 and 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 Management’s Discussion & Analysis for the three months ended March 31, 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 beyond are the volatility of the oil and gas industry, its exposure to the Alberta oil sands, workforce availability, competition, 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.

ENTREC’s intention to acquire shares pursuant to its NCIB is subject to potential fluctuations in the market price of its shares and the potential management may find another, more desirable use for 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

Neither the TSX Venture Exchange nor its regulation services provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.

 

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