(
TSX:ENT) ENTREC Corporation
(“
ENTREC” or the “
Company”), a
heavy haul transportation and crane solutions provider, today
announced financial results for the fourth quarter and year ended
December 31, 2018.
|
Three Months Ended |
|
Year Ended |
|
$ thousands,
except per share amounts and margin percent |
Dec
312018 |
|
Dec 312017 |
|
Dec
312018 |
|
Dec 312017 |
|
|
|
|
|
|
Revenue |
45,755 |
|
38,798 |
|
173,143 |
|
148,686 |
|
|
|
|
|
|
Gross profit |
8,437 |
|
7,041 |
|
29,209 |
|
25,068 |
|
Gross margin |
18.4 |
% |
18.1 |
% |
16.9 |
% |
16.9 |
% |
|
|
|
|
|
Adjusted EBITDA(1) |
4,260 |
|
3,811 |
|
14,477 |
|
11,578 |
|
Adjusted EBITDA margin(1) |
9.3 |
% |
9.8 |
% |
8.4 |
% |
7.8 |
% |
|
|
|
|
|
Adjusted net loss(1,2) |
(3,032 |
) |
(2,660 |
) |
(12,225 |
) |
(13,656 |
) |
Per share(1) |
(0.03 |
) |
(0.02 |
) |
(0.11 |
) |
(0.12 |
) |
|
|
|
|
|
Net loss(2) |
(8,089 |
) |
(2,929 |
) |
(17,795 |
) |
(14,316 |
) |
Per share – basic |
(0.08 |
) |
(0.03 |
) |
(0.16 |
) |
(0.13 |
) |
Per share –
diluted |
(0.08 |
) |
(0.03 |
) |
(0.16 |
) |
(0.13 |
) |
|
|
|
|
|
Basic weighted average shares outstanding |
109,821 |
|
109,581 |
|
109,731 |
|
109,538 |
|
|
|
|
|
|
As at$ thousands |
|
|
December 312018 |
|
December
312017 |
|
Working capital(1) |
|
|
28,378 |
|
27,052 |
|
Total assets |
|
|
224,836 |
|
227,496 |
|
Total liabilities |
|
|
191,871 |
|
182,705 |
|
Shareholders’ equity |
|
|
32,965 |
|
44,791 |
|
Net tangible asset
value(1) |
|
|
61,656 |
|
66,798 |
|
|
|
|
|
|
|
|
Note 1: See “Non-IFRS Financial
Measures” section of the Company’s Management Discussion &
Analysis for the year ended December 31, 2018. Note 2:
Attributable to the shareholders of the Company.
Revenue for the year ended December 31, 2018
increased by 16% to $173.1 million from $148.7 million in 2017 due
to significant growth from ENTREC’s operations in the United
States. ENTREC’s US revenue increased by 46% to $78.1 million in
2018 from $53.4 million last year. Higher activity levels related
to oil and natural gas in North Dakota, along with improved
customer pricing, were the largest drivers of this growth. In
addition, revenue from the Company’s recent expansion into Colorado
also grew significantly in 2018. Revenue in Canada was relatively
flat, declining to $95.1 million in 2018 from $95.3 million last
year.
Revenue for the three months ended December 31,
2018 increased by 18% to $45.8 million from $38.8 million in 2017
due to growth from ENTREC’s operations in the United States as well
as the acquisition of Capstan Hauling Ltd. on October 1, 2018. The
Company’s US revenue increased by 28% to $20.9 million in Q4 2018
from $16.3 million last year. Revenue in Canada increased to $24.9
million in the fourth quarter of 2018 from $22.5 million in 2017,
primarily due to the Capstan acquisition.
With the higher revenue in 2018, adjusted EBITDA
increased to $14.5 million for the year ended December 31, 2018
from $11.6 million in 2017. Likewise, adjusted EBITDA increased to
$4.3 million in Q4 2018 from $3.8 million last year.
During the year ended December 31, 2018, the
Company incurred a net loss of $17.8 million compared to a net loss
of $14.3 million in 2017. Contributing to the higher net loss was
an unrealized foreign exchange loss on long-term debt, which was
$5.2 million in fiscal 2018 compared to a gain of $0.9 million in
2017. Excluding the foreign exchange loss, the Company’s net loss
would have improved from 2017 due to higher revenue and lower
depreciation expense. Adjusted net loss (which excludes the
after-tax impact of the foreign exchange loss on long-term debt,
among other items) improved to a loss of $12.2 million for the year
ended December 31, 2018 from an adjusted loss of $13.7 million in
2017.
Strategy and Outlook
ENTREC’s strategy to grow its business through
geographic and industry diversification will be focused on the
following initiatives in 2019:
- Significantly expanding its
business in the United States;
- Obtaining additional MRO work with
existing and new clients;
- Pursuing construction project work
related to LNG, pipelines, infrastructure, power generation, and
other industries;
- Cross-selling crane services and
specialized transportation services to existing clients; and
- Acquiring new customers through a
continued focus on safety and customer service.
United States
“The outlook for our US business continues to be
very positive as we move into 2019,” said John M. Stevens, ENTREC’s
President and CEO. “Growing demand for our services in a recovering
oil and gas sector has led to both increased activity levels as
well as higher customer pricing. Assuming oil prices can be
maintained at current levels or increase further in 2019, we should
continue to see higher industry activity levels in the United
States that should result in further improvements in
profitability.”
In the fall of 2017, ENTREC expanded its
operations into Colorado. The Company’s operations in Colorado are
focused on supporting several industries, including the oil and gas
sector, and other general construction. The Company is currently
experiencing strong growth in this region. In 2019, ENTREC also
plans to further expand its US operations into the State of Wyoming
where the Company is currently experiencing strong demand from its
customers in the oil and gas sector to support their crane and
transportation needs.
Despite strong demand for ENTREC’s services, the
profitability of the Company’s Texas operations was severely
hampered in 2018 by high operating costs and labour shortages. The
Company is executing a strategy to improve its profitability in
this region in 2019. In October 2018, ENTREC established its own
employee accommodation facilities to house current and future
staff. The Company is also supporting its Texas operations with
additional employees from other regions.
Canada
“Due to macro-economic factors and lower oil and
natural gas prices, our outlook for the oil and natural gas
industry in western Canada has been very cautious,” said Mr.
Stevens. “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 for Western Canadian Select (WCS) oil prices.
This has resulted in several oil producers reducing their capital
expenditure programs going into 2019. This curtailment has
negatively affected ENTREC’s activity levels to start 2019 in
certain regions of Alberta. Looking ahead to the remainder of 2019
and 2020, ENTREC’s outlook for western Canada has begun to improve.
Higher oil and gas prices, including lower price differentials on
WCS, appear to be improving overall industry fundamentals, which
could lead to higher activity levels in western Canada as the year
progresses.
LNG Canada’s positive final investment decision
on its $40 billion liquefied natural gas (LNG) project in Kitimat,
B.C. is very positive for the natural gas industry in Canada and
for ENTREC. The Company expects to benefit from this project in a
number of ways, including:
- Construction. The Company expects
to benefit from both direct and indirect construction activity in
the Kitimat region to support construction of the LNG facility and
supporting infrastructure. Having been based in Terrace and Kitimat
for the past 30 years, ENTREC has a very strong local presence in
the region;
- Pipelines. The Company expects to
benefit from both direct and indirect activity related to the
construction of pipelines and supporting infrastructure, which will
feed natural gas to LNG Canada’s terminal; and
- Exploration and Production. The
Company expects to benefit from an anticipated increase in natural
gas exploration and production activity in north-west Alberta and
north-east B.C., which will be required to support LNG Canada’s
natural gas needs.
Over the past 6 months, additional large
industrial projects in western Canada have also received final
investment decisions, which could drive additional demand for
ENTREC’s services in the future.
The Company also continues to grow its presence
in MRO work in the Alberta oil sands region and 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. MRO work could contribute over 35% of
ENTREC’s Canadian revenue in fiscal 2019.
Capstan Hauling Inc.
(“Capstan”)
ENTREC is pleased to have completed its
acquisition of Capstan on October 1, 2018. Based in Grande Prairie,
Alberta, Capstan is a leading provider of heavy haul transportation
services to the oil and natural gas industry in north-west Alberta
and north-east B.C. Capstan has approximately 45 employees and
lease operators and operates an extensive equipment fleet valued in
excess of $9.0 million. Capstan’s fleet consists of mobile cranes,
picker trucks, winch trucks and a wide variety of multi-wheeled
trailers.
With LNG Canada’s recent final investment
decision to construct a LNG facility in Kitimat, this acquisition
is very timely for ENTREC. Capstan also has a very strong
reputation for customer service and by combining with ENTREC’s
existing operations in the region, the Company will be well
positioned to benefit from improving market fundamentals.
The aggregate consideration paid at closing
consisted of: (i) the issuance of common shares in a subsidiary of
ENTREC at a value of $4.0 million; (ii) notes payable with a
principal balance of $3.0 million bearing interest at an annual
rate of 5.00% and due September 30, 2023; and (iii) cash of $10.0
million less outstanding debt and finance lease obligations at
closing and less certain holdback amounts.
Also included in the acquisition of Capstan was
real estate assets. In January 2019, ENTREC completed a sale
lease-back of the real estate assets for gross proceeds of $5.8
million.
The common shares of a subsidiary of ENTREC that
were issued to the vendors is presented as a non-controlling
interest in ENTREC’s consolidated statement of financial position.
In addition, subject to the approval of the TSX at the time of
conversion, and based on the fair market value at the time of
conversion, the majority of these common shares are convertible
into common shares of ENTREC at the greater of: (i) the 10 day
weighted average trading price of ENTREC common shares on the TSX
at the time of conversion and (ii) $0.40 per share.
Overall outlook
“We have positive working capital of $28.4
million and shareholders’ equity of $33.0 million at December 31,
2018,” added Mr. Stevens. “In addition, once taking into account
the fair market value of our property, plant and equipment, our net
tangible asset value at December 31, 2018 remains strong at $61.7
million compared with $66.8 million at December 31, 2017,
reflecting stable year-over-year valuations across our equipment
fleet.”
“Over the longer-term, our competitive position
continues to be positive. We are well-positioned geographically,
with a complete range of crane and specialized transportation
services in each of our key markets in western Canada, North
Dakota, Colorado, and Texas. We also continue to be the industry
leader in customer service, employee engagement and safety, which
will be key contributors to our success in the long-term.”
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 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.
Working capital is calculated as current assets
less current liabilities. The Company believes 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 estimate of fair market value and book
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 year ended December 31, 2018 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.
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 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 assuming oil prices can be maintained at
current levels or increase further in 2019, it should continue to
see higher industry activity levels in the United States that
should result in further improvements in profitability. This
expectation is subject to the assumption that oil prices will be
high enough in 2019 to encourage additional spending by oil and gas
companies. 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 strategy to expand its
operations into Wyoming in fiscal 2019. The success of this
strategy will be dependent on the Company’s ability to achieve
revenue and operating cash flows in the region sufficient to meet
its objectives. The risks most likely to affect the success of the
Company’s expansion include volatility of the oil and gas sector,
workforce availability and competition. There can also be no
assurance that the Company will complete an expansion into Wyoming
as currently contemplated; (iii) ENTREC’s expectation that the
Company’s strategy to improve its profitability in Texas in fiscal
2019 will be successful. This expectation is subject to the
Company’s ability to successfully add and retain qualified field
employees, including the provision of adequate accommodations, as
well as efficiently executing its services to customers. The risks
most likely to affect the Company’s profitability improvements in
Texas include workforce availability and competition; (iv) ENTREC’s
improving outlook on the oil and natural gas industry in western
Canada. This improving outlook is based on a number of assumptions
including: (a) recent improvements in oil prices and reductions in
price differentials for oil produced in western Canada will
continue; (b) the Company’s expectation that the recent positive
final investment decision on the $40 billion LNG Canada project in
Kitimat, B.C. will be very positive for the natural gas industry in
Canada and for ENTREC; (c) the Company’s expectation that
additional recent final investment decisions on other large
industrial projects in western Canada will be positive for ENTREC;
and (d) the Company’s belief that revenue from its MRO work in the
Alberta oil sands region will continue to be steady throughout the
remainder of 2019. The Company’s belief that revenue from its MRO
work in the Alberta oil sands region will be steady in fiscal 2019
is based on the assumption that oil and natural gas prices will be
high enough in 2019 to maintain current levels of spending by oil
and gas companies in the Alberta oil sands region. The Company’s
expectation that the recent positive final investment decision on
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 positive decision will encourage additional
investment in the natural gas industry in western Canada and the
Company can obtain additional work in the natural gas sector and in
supporting construction activity related to the approved LNG
project. This expectation is also completely subject to the
construction of the LNG facility proceeding as approved. There is
no certainty of this.
The Company’s expectation that other recent
positive final investment decisions for large industrial projects
in western Canada will be beneficial for ENTREC is based on the
assumption that it can obtain additional work in supporting
construction of these projects. The risks most likely to affect
these assumptions include volatility of the oil and natural gas
sector, Alberta oil sands exposure, economy and cyclicality, and
regulatory and statutory developments; and (v) ENTREC’s
anticipation that the acquisition of Capstan positions the Company
to benefit from improving market fundamentals. This expectation is
based on the assumption that the Company is able to successfully
integrate its operations with Capstan in the Grande Prairie region
and that general market conditions in the oil and gas industry in
western Canada improve in the future. The risks most likely to
affect these assumptions include volatility of the oil and natural
gas sector, failure to realize anticipated benefits of business
acquisitions, and regulatory and statutory developments.
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 & CEOTelephone:
(780) 960-5625
Jason Vandenberg – CFO Telephone: (780)
960-5630
www.entrec.com