ENTREC 2015 Second Quarter Investor Conference Call and Webcast July 14, 2015 Acheson, Alberta, Canada – ENTREC Corporation (“ENTREC”) intends […]
November 6, 2019
Acheson, Alberta, Canada – ENTREC Corporation (“ENTREC” or the “Company”), a heavy haul transportation and crane solutions provider, today announced financial results for the third quarter ended September 30, 2019.
Three Months Ended
Nine Months Ended
|$ thousands, except per share amounts and margin percent||September 30 2019||September 30 2018||September 30 2019||September 30 2018|
|Adjusted EBITDA margin(1)||15.0%||11.9%||14.4%||8.0%|
|Adjusted net loss(1)||(3,807)||(1,291)||(10,515)||(9,194)|
|Per share – basic||(0.05)||(0.00)||(0.08)||(0.09)|
|Per share – diluted||(0.05)||(0.00)||(0.08)||(0.09)|
|Cash provided by operating activities||1,402||1,265||4,893||227|
|Funds from operations(1)||2,799||2,317||6,934||2,382|
|Basic weighted average shares outstanding||109,905||109,786||109,890||109,701|
|September 30 2019||December 31 2018|
|Adjusted working capital(1)||31,723||28,720|
|Net tangible asset value(1)||41,788||61,656|
Note 1: See “Non-IFRS Financial Measures” section of the Company’s Management Discussion & Analysis for the three and nine months ended September 30, 2019.
Note 2: Attributable to the shareholders of the Corporation.
Note 3: The current period results include the impact from the adoption of IFRS 16 – Leases. As permitted with this new standard, comparative information has not been restated and, therefore, may not be comparable.
Revenue for the three months ended September 30, 2019 increased by 9% to $47.4 million from $43.4 million in 2018. In Canada, revenue increased to $27.5 million in Q3 2019 from $21.6 million last year. This increase was caused by higher revenue from two large cross-border heavy haul transportation projects as well as from the acquisition of Capstan Hauling Ltd. (“Capstan”) in October 2018. Partially offsetting these increases were lower overall activity levels for ENTREC’s business in western Canada as its customers reduced their capital spending in a challenging economic environment for the oil and gas industry.
ENTREC’s US revenue decreased to $20.0 million in the third quarter of 2019 from $21.8 million last year. This decline was fully attributable to the Company’s strategy to discontinue lump sum rig moving services in the Permian Basin in Q1 2019. Offsetting a portion of the decline were higher activity levels in Colorado and Wyoming as ENTREC continued to expand its services in these regions. ENTREC’s revenue in North Dakota was flat with the prior year as the Company experienced very wet weather conditions throughout the quarter that hampered customer activity levels.
On a year-to-date basis, revenue increased by 8% to $137.4 million from $127.4 million in 2018, due to higher activity levels in both the United States and Canada. ENTREC’s US revenue increased by 6% to $60.8 million in the first nine months of 2019 from $57.2 million in 2018. Higher activity levels in North Dakota, Colorado and Wyoming, along with improved customer pricing, were the largest drivers of this growth. Offsetting a large portion of the growth was a revenue decline in Texas as the Company stopped providing lump sum rig moving services in the Permian Basin in Q1 2019. Revenue in Canada increased to $76.6 million in 2019 from $70.2 million last year due to the acquisition of Capstan and higher revenue from cross-border heavy haul transportation projects.
Adjusted EBITDA increased to $7.1 million for the three months ended September 30, 2019 from $5.2 million in 2018. Likewise, on a year-to-date basis, adjusted EBITDA increased to $19.9 million from $10.2 million last year. Contributing to the increases was the impact of the adoption of IFRS 16 – Leases (“IFRS 16”), which increased adjusted EBITDA by $4.2 million in Q3 2019 from what adjusted EBITDA would have been without the adoption of IFRS 16. On a year-to-date basis, adjusted EBITDA was $12.1 million higher in 2019 than what it would have been without the adoption of IFRS 16. Offsetting the increases was a lower gross margin (before factoring in the impact of IFRS 16) and higher general and administrative (“G&A”) expenses. G&A expenses in Q3 2019 included a $1.7 million non-recurring bad debt provision primarily related to one delinquent customer account receivable. Excluding this provision, adjusted EBITDA would have been $8.8 million in Q3 2019.
ENTREC incurred an adjusted net loss of $3.8 million attributable to the shareholders of the Corporation for the quarter ended September 30, 2019 compared to an adjusted net loss of $1.3 million in 2018. On a year-to-date basis, adjusted net loss was $10.5 million compared to an adjusted net loss of $9.2 million last year. Contributing to the higher adjusted net losses were higher depreciation and interest costs due to the adoption of IFRS 16, higher G&A costs, and a loss on disposal of property, plant and equipment. IFRS net loss was $5.1 million in Q3 2019 and $8.8 million for the nine months ended September 30, 2019, which compared to $0.2 million and $9.7 million, respectively, in 2018. Contributing to the higher net loss in Q3 2019 was an unrealized foreign exchange loss on long-term debt of $1.1 million, compared to a $1.8 million foreign exchange gain in Q3 2018.
“The outlook for our US business continues to be positive as demand for our services continues to grow in the markets we serve,” said John M. Stevens, ENTREC’s President and CEO. “We plan to continue to invest in growing our US business through both capital investment in new equipment and through geographic expansion. In 2019, we expanded our operations into the State of Wyoming. This followed our previous expansion into the State of Colorado in the fall of 2017. Our expansion efforts will also continue to diversify our business outside of oil and gas into other industries, including wind power, refinery and petro-chemical, and construction.”
As previously reported, the profitability of ENTREC’s Texas operations was severely hampered in fiscal 2018 and in the first quarter of 2019 due to the poor performance of its lump sum rig moving services in the region. In 2019, the Company executed a strategy to significantly improve profitability in this region. In Q1 2019, ENTREC made the strategic decision to stop providing lump sum rig moving services and instead re-focus this division on providing hourly crane and heavy haul transportation services. This focus made the service offering of the Texas division consistent with that of all of ENTREC’s other locations in the United States. The Company is pleased to report significant improvement in the profitability of its Texas operations in the second and third quarters of 2019. Under its new strategy, ENTREC anticipates these improved results will continue going forward.
Due to macro-economic factors, ENTREC’s outlook for the oil and natural gas industry in western Canada continues to be very cautious. These macro-economic factors include pipeline constraints, which have contributed to significant discounts in the market price for the oil produced in western Canada compared with other jurisdictions, as well as rising carbon taxes and increasing regulatory requirements to achieve government approvals for large industrial projects. In addition, in Q4 2018, the Government of Alberta announced curtailments of oil production to help combat the significant discount in Western Canadian Select (WCS) oil prices. The downward pricing momentum experienced at the end of 2018, along with activity being restricted by limited takeaway capacity and production curtailments, has resulted in oil and gas companies reducing their capital expenditures and drilling programs for 2019.
Looking ahead to 2020, ENTREC remains very cautious on western Canada and believes it will take time for the oil and gas producers to begin increasing their capital spending levels. On the positive side, the Company continues to be optimistic about the impact that LNG Canada’s $40 billion liquefied natural gas (LNG) project in Kitimat, B.C. will have on its industry as well as the natural gas sector in north-west Alberta and north-east B.C., which will be required to support LNG Canada’s natural gas needs. The Company also looks forward to construction of the Trans Mountain pipeline finally proceeding as approved, which will provide additional takeaway capacity for western Canadian crude oil.
The Company also continues to maintain a strong presence in maintenance, repair, and operation (MRO) work in the Alberta oil sands region as well as with other industrial facilities in western Canada. This work represents a growing market and is typically less susceptible to changes in near-term commodity prices.
ENTREC will be working to improve its balance sheet in 2019 as well as buyout or refinance equipment leases expiring over the coming year. As previously reported, the Company is currently not in compliance with its financial covenant to maintain a minimum excess borrowing capacity of $15.0 million at all times under its asset-based credit facility (“ABL Facility”). While the lenders have reserved all of their rights under the ABL Facility to accelerate repayment due to the event of default incurred, the lenders have agreed to continue to fund the Company’s cash needs for the foreseeable future. ENTREC is currently pursuing additional sources of financing and strategies to improve excess borrowing capacity that could include additional debt and/or equity financing, and/or the sale of assets. Through these initiatives, the Company expects that it can become compliant with the excess borrowing capacity requirement and eliminate the existing event of default. However, there can be no assurance that these efforts will be successful.
ENTREC is a heavy haul transportation and crane 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, foreign exchange loss (gain) on long-term debt, share-based compensation, impairment of long-lived assets, and non-recurring business acquisition and integration costs. ENTREC believes that, in addition to net income, adjusted EBITDA is a useful measure as it provides an indication of the financial results generated by its 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 such as depreciation, amortization, loss (gain) on disposal of property, plant and equipment, share-based compensation, and impairment of long-lived assets. Adjusted EBITDA also illustrates what adjusted EBITDA is, excluding the effect of non-recurring business acquisition and integration costs. Adjusted EBITDA margin is calculated as adjusted EBITDA divided by revenue.
Adjusted net loss is calculated excluding the after-tax amortization of acquisition-related intangible assets, impairment of long-lived assets, notional interest accretion expense arising from convertible debentures, and foreign exchange loss (gain) on long-term debt. These exclusions represent non-cash charges that the Company does not consider indicative of ongoing business performance. The Company 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 loss per share is calculated as adjusted net loss divided by the basic weighted average number of shares outstanding during the applicable period.
Funds from operations is derived from the consolidated statement of cash flows and is calculated as cash provided by operating activities before changes in non-cash operating working capital. Per share amounts refer to funds from operations divided by the basic weighted average number of shares outstanding during the period. ENTREC believes funds from operations is a useful supplement measure as it provides an indication of the Company’s ability to generate cash flow and is a useful measure in analyzing its operating performance.
Adjusted working capital is calculated as current assets less current liabilities, net of the current portion of lease liabilities and long-term debt. The Company believes adjusted working capital is a useful supplemental measure as it provides an indication of its ability to settle debts as they come due.
Net tangible asset value is derived from the consolidated statement of financial position and is calculated as shareholders’ equity, excluding intangible assets, and adjusted for the difference between the estimates of fair market value and carrying value of ENTREC’s property, plant and equipment. The Company believes net tangible asset value is a useful measure as it provides an indication of the net asset value of ENTREC. The Company’s estimate of the fair market value of its property, plant and equipment is based on recent appraisals of its equipment fleet as well as other market and industry data. In addition, non-fleet assets are estimated to have a fair market value that approximates their carrying value. Fair market value is a significant estimate, which is subject to adjustment based on market factors that can affect both the supply and demand for similar assets. The actual realizable value on a sale of property, plant and equipment could differ materially from these estimates.
Please see ENTREC’s Management Discussion & Analysis for the three and nine months ended September 30, 2019 for reconciliations of each of adjusted EBITDA and adjusted net loss to net loss, the most directly comparable financial measure calculated and presented in accordance with IFRS.
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 forward-looking statements in this MD&A and the key assumptions and risk factors involved in such statements include, but are not limited to the following: (i) ENTREC’s expectation that demand for its services will continue to grow in the markets it serves in the United States and that the improved profitability of its Texas operations will continue in the future. These expectations are subject to the assumption that ENTREC’s US business will continue to grow in fiscal 2020. This expectation is also subject to the assumption that oil prices will be high enough in 2020 to encourage additional spending by oil and gas companies. ENTREC’s ability to achieve higher revenues in the future is subject to a number of risks. The risks most likely to affect this growth include volatility of the oil and natural gas sector, economy and cyclicality, and competition; (ii) ENTREC’s plans to continue to invest in growing its US business through both capital investment in new equipment and through geographic expansion. The Company’s ability to achieve this growth is dependent on a number of factors, including its ability to source financing at a reasonable cost. These growth plans are also subject to a number of risks. The risks most likely to affect this growth include availability of future debt and equity financing, ABL Facility Debt Financing, volatility of the oil and natural gas sector, economy and cyclicality, and competition; (iii) ENTREC’s expectation that it will maintain a strong presence in MRO work in the Alberta oil sands region as well as with other industrial facilities in western Canada. This expectation is based on the assumption that oil and natural gas prices will be high enough in 2020 to maintain current levels of MRO spending by oil and gas companies in the Alberta oil sands region. This expectation is also subject to a number of risks. The risks most likely to affect this expectation include volatility of the oil and natural gas sector, Alberta oil sands exposure, economy and cyclicality, competition, and regulatory and statutory developments; (iv) ENTREC’s expectation that the $40 billion LNG Canada project will be beneficial for the natural gas industry in Canada and for ENTREC is based on the assumption that the project will encourage additional investment in the natural gas industry in western Canada and that the Company can obtain additional work in the natural gas sector and in supporting construction activity related to the LNG project. This expectation is also completely subject to the construction of the LNG facility proceeding as approved. There is no certainty of this. This expectation is subject to a number of risks. The risks most likely to affect these assumptions include volatility of the oil and natural gas sector, economy and cyclicality, competition, and regulatory and statutory developments; (v) ENTREC’s intention to become compliant with the minimum excess borrowing capacity requirement under its ABL Facility. The Company’s ability to become compliant in the future is subject to its ability to successfully pursue additional sources of financing and strategies to improve excess borrowing capacity that could include additional debt and/or equity financing and/or the sale of assets. There can be no assurance that these efforts will be successful. There is also no assurance that circumstances will not change and the lenders will not accelerate repayment of the ABL Facility. If repayment of the ABL Facility were to be accelerated, there can be no assurance that ENTREC’s assets would be sufficient to repay in full that indebtedness; and (vi) ENTREC’s intention to buyout or refinance additional equipment lease obligations that are expiring over the coming year. The Company’s ability to buyout or refinance these lease obligations is subject to its ability to successfully source new financing at reasonable interest rates. There can be no assurance that these efforts will be successful.
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 effects on ENTREC. These forward-looking statements are made as of the date of this press release. Except as required by applicable securities legislation, the Company 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
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