SHERWOOD PARK, AB, Aug. 10, 2020 /CNW/ - (TSXV: VTX) - Vertex
Resource Group Ltd. ("Vertex" or the "Company") reports its
financial and operational results for the three and six months
ending June 30, 2020. The
following should be read in conjunction with the Management
Discussion and Analysis ("MD&A") and the condensed consolidated
interim financials statements of Vertex for three and six months
ended June 30, 2020, which are
available on SEDAR at www.sedar.com.
To date in 2020, notwithstanding the COVID-19 environment, the
Company has been able to maintain a healthy level of adjusted
EBITDA through strict control of costs, restructuring of
under-performing operations, providing value to clients, and
accessing available direct and indirect government
funding. Vertex has also focused on ensuring liquidity
through additional working capital funding, favorable amendments to
its primary banking agreement, restricted capital expenditures, and
positive adjusted EBITDA. Highlighted results of these
efforts are included below.
Uncertainty is expected for the remainder of 2020 as companies
and governments work towards re-opening economies and society in
variable COVID-19 environments. Vertex's focus will continue
to be on efficiently managing its assets, liquidity, and business
costs; while seeking opportunities for further diversification of
services, product offerings and customer base, both in geography
and industry.
Key financial results for the three and six months ended
June 30, 2020 and 2019 are as
follows:
|
HIGHLIGHTS
|
|
Three months
ended
|
Six months
ended
|
|
June
30,
|
June
30,
|
(in thousands of
Canadian Dollars)
|
2020
|
2019
|
% Change
|
2020
|
2019
|
% Change
|
Revenue
|
28,301
|
41,123
|
-31%
|
66,727
|
83,751
|
-20%
|
Gross
profit
|
9,156
|
9,436
|
-3%
|
18,240
|
20,063
|
-9%
|
Adjusted EBITDA
(1)
|
6,702
|
5,333
|
26%
|
12,025
|
11,359
|
6%
|
Adjusted EBITDA
per share, basic and diluted
|
0.07
|
0.06
|
26%
|
0.13
|
0.12
|
6%
|
(1) See "Non-IFRS
Financial Measures"
|
HIGHLIGHTS FOR THE SIX MONTHS ENDING June 30, 2020
Adjusted EBITDA of $12.0
million compared to $11.4
million for the first half of 2019.
Reduction of net debt by $5
million since December 31,
2019 ($15 million since
June 30, 2019).
Banking agreements providing additional working capital
capacity of $8.3 million.
Extension of the Company's syndicated borrowing facility
to November 2021 and favorable
amendments to bank covenants.
Free Cash flow of $7.7
million compared to $8.4
million for the first half of 2019 (free cash flow is
defined as cash flow from operations less maintenance capital
expenditures).
Revenue of $66.7 million
compared to $83.8 million for the
same period in 2019. The reduction was attributable primarily to
the material negative impact of COVID-19 on local and world
economies.
Initial success under the federal government $1.7 billion abandonment and reclamations funding
program with expectations for significant future wins.
Net capital expenditures were minimal at
$0.4 million.
OUTLOOK
Vertex's business approach during the COVID-19 pandemic has been
to monitor and adapt its operations as necessary to maintain EBITDA
at a healthy level, minimize cash outflow from capital
expenditures, obtain favorable amendments to its bank agreement,
and pursue available government programs to ensure liquidity.
The timing, pace of the economic activity and the fulsome effect of
COVID-19 on the economy remains somewhat uncertain; Vertex will
continue to actively manage its cost structure accordingly.
Management continues to monitor business activities, evaluate
under-performing operations, and make prudent business decisions
regarding locations, business lines, and personnel numbers.
Based on its reputation, resiliency, demonstrated adaptability,
and market position within its industry sectors, Vertex has been
successful in obtaining favorable amendments to bank
covenants. The Company has also been successful in obtaining
federal and provincial funding aimed at supporting companies and
their employees. In doing so, the Company has been able to create
significant borrowing capacity on its revolving loan facility while
continuing to reduce its net debt.
During H2 2020, Vertex's liquidity position should continue to
be bolstered by positive EBITDA, working capital loans obtained
during Q2, significant revolving loan capacity, minimal capex
requirements, and favorable bank covenants.
Governments have provided support to their economies and to the
well-being of residents through various financial stimulus
programs. The soundness, levels and methodologies of such
support are likely to be considered very carefully going forward
considering desired goals and future fiscal stability. The
Federal Government of Canada has
announced the extension of the Canada Emergency Wage Subsidy Program (CEWS)
program until December 2020 and
management anticipates continued eligibility.
During the second quarter of 2020, the Federal Government of
Canada announced a $1.7 billion federal stimulus package to help
fund the closure and reclamation of the orphan and inactive wells
in Western Canada. The Alberta Government received
$1 billion and has created the
Alberta Site Rehabilitation Program for the abandonment,
reclamation and decommissioning of wells, pipelines and facilities,
to be funded through to the end of 2022. Similar programs
have also been funded in Saskatchewan ($400
million) and British
Columbia ($125 million).
The Alberta Orphan Well Association also received a further
$200 million of funding from the
Federal Government of Canada in
addition to the $100 million
committed from the Alberta Government in the first quarter of
2020.
Vertex is optimistic about the outlook for its Environmental
Engineering and Consulting business during H2 2020 and
forward due to the ongoing need for environmental monitoring,
studies, well abandonments and reclamations (A&R) based on
substantial government funding support. Certain
projections indicate that the A&R market could double in volume
by 2022. Vertex is a prime contractor for Alberta Orphan Well
Association, Saskatchewan Orphan Well Association and the British
Columbia Oil & Gas Commission and is well positioned to work
closely with our customers across Western
Canada addressing their environmental liabilities through
our suite of abandonment engineering, reclamation and remediation
expertise.
Revenue levels for Vertex's other sectors will continue to be
challenged during 2020. Uncertainty persists due to the
potential for a second/larger wave of COVID-19 and Opec+
consideration of oil supply increases. Customers are likely
to maintain disciplined spending in their operations and take a
cautious approach to capital allocations because of the continuing
measures to try to limit the spread of the virus. However,
Vertex plans to work towards maintaining a robust financial
position to facilitate resumption of its growth strategy at the
appropriate time. As economies adjust and recover into 2021
and 2022, a solid financial position, anticipated availability of
capital resources, and re-structured operating processes should
foster success in various private and public sectors.
Timeline projections for a rebound to pre-pandemic GDP levels vary
from country to country, with China projected to rebound this year,
Canada in Q4 2021, U.S. in Q3
2021, and the EU in mid-2022.
With a transition to more extensive online communications
resulting from the COVID-19 experience, Vertex's
environmental and construction related business lines should
benefit from advancement of expansion of the telecommunications
infrastructure in Canada and our
sphere of operations in the U.S. In addition, electrification
of the power grid system should also bode well for the Company's
environmental and power switchgear business lines in the
future.
Vertex continues to offer a diversified complement of services
including environmental engineering and consulting, fluid
logistics, maintenance services, hydrovac, metal buildings, and
power switchgear. Services are also scalable downwards, if
necessary, through reduction of project personnel and idling of
mobile assets. These factors place the Company in a
reasonable position to weather the pandemic downturn.
ABOUT VERTEX
Since 1962, Vertex has been a leading North American provider of
environmental services. Headquartered in Sherwood Park, Alberta, Vertex employs a staff
of approximately 550 employees and lease operators that provide
services to help clients achieve their developmental and
operational goals. From initial site selection, consultation and
regulatory approval, through construction, operation and
maintenance, to conclusion and environmental cleanup, Vertex
provides a wide array of services to customers operating in
industries such as energy, mining, utilities, private development,
public infrastructure, construction, telecommunications, forestry,
agriculture and government.
Vertex principally operates in western Canada, select locations in the United States, and with current expansion
into Ontario.
NON-IFRS FINANCIAL MEASURES
This news release includes
certain terms or performance measures that are not defined under
International Financial Reporting Standards ("IFRS"), including
"Adjusted EBITDA". The data presented is intended to provide
additional information that should not be considered in isolation
or as a substitute measure of performance prepared in accordance
with IFRS. The non-IFRS measures should be read in conjunction with
the Company's financial statements and accompanying notes.
"Adjusted EBITDA" is a non-financial measure which is calculated
by adjusting net (loss) income for the sum of income taxes, finance
costs including interest accretion on lease liabilities, gain on
bargain purchase, depreciation of property and equipment and right
of use assets, amortization of intangible assets, share-based
compensation, restructuring costs and impairment. The Company
uses Adjusted EBITDA as an indicator of its principal business
activities operational performance prior to consideration of how
its activities are financed and the impact of taxation, non-cash
depreciation and amortization, restructuring costs and other
non-cash expenses such as impairments required under IFRS. Adjusted
EBITDA does not have a standardized meaning prescribed by IFRS and
is not necessarily comparable to similar measures provided by other
companies. Adjusted EBITDA is used by many analysts as an important
analytical tool and management of Vertex believes it is useful for
providing readers with additional clarity on Vertex's operational
performance. This measure is also considered important by the
Company's lenders in determining compliance by the Company with the
financial covenants under its lending arrangements. Reconciliations
of Adjusted EBITDA to net income are provided in the MD&A under
the heading "Operational and Financial Highlights – Adjusted
EBITDA".
FORWARD-LOOKING INFORMATION
Any "financial outlook"
or "future oriented financial information" in this press release,
as defined by applicable securities laws, has been approved by
management of Vertex. Such financial outlook or future oriented
financial information is provided for the purpose of providing
information about management's current expectations and plans
relating to the future. Readers are cautioned that reliance on such
information may not be appropriate for other circumstances.
Certain statements contained in this news release constitute
"forward-looking information". When used in this document or by any
of the Company's management, the words "may", "would", "will",
"intend", "plan", "propose", "anticipate" and "believe" are
intended to identify forward-looking information. In particular,
but without limiting the foregoing, this document contains
forward-looking information and statements pertaining to the
following: the Company's key strategies, objectives and competitive
strengths; anticipated expenses; growth opportunities in the
Company's reportable and operating segments in 2020; supply and
demand for the Company's services; activity levels in the oil and
gas industry and other industries in which the Company operates;
future development activities; and the Company's ability to retain
existing clients and attract new business, particularly business
outside of the oil and gas industry. Such statements reflect the
Company's forecasts, estimates and expectations, as they relate to
the Company's current views based on its experience and expertise
with respect to future events, and are subject to certain risks,
uncertainties, and assumptions.
The forward-looking information and statements contained in
this document reflect several material factors and expectations and
assumptions of the Company, including, without limitation: that the
Company will continue to conduct its operations in a manner
consistent with past operations; positive future trends in revenue,
gross profit margin, Adjusted EBITDA, Bank EBITDA and net income;
the general continuance of current or, where applicable, assumed
industry conditions; the mix of revenue from non-oil and gas
customers in 2020; pricing of the Company's services; the Company's
ability to market successfully to current and new clients; the
Company's ability to obtain qualified personnel and equipment in a
timely and cost-effective manner; the Company's future debt levels;
the impact of competition on the Company; the Company's ability to
obtain financing on acceptable terms; the general continuance of
current or, where applicable, assumed industry conditions; the
continuance of existing tax, royalty and regulatory regimes; the
impact of seasonal weather conditions; client activity levels;
anticipated market recovery; the Company's anticipated business
strategies and expected success; the Company's ability to utilize
its equipment; levels of deployable equipment; and future sources
of funding for the Company's capital program.
Factors that could cause the forward-looking information in
this news release to change or to be inaccurate include, but are
not limited to: volatility of the oil and natural gas
industry and other industries; dependence on customer contracts and
market acceptance; the Company's growth strategy may not achieve
anticipated results; potential litigation claims; difficulty in
attracting and retaining skilled personnel; adverse litigation
judgments, settlements and exposure to liability resulting from
legal proceedings could reduce profits of limit Vertex's ability to
operate; the market for Vertex's products and services is subject
to extensive government and regulatory approvals; health, safety
and environment laws and regulations may require the Company to
make substantial expenditures or cause it to incur substantial
liabilities; the Company may fail to realize anticipated benefits
of future acquisitions; Vertex's indebtedness may adversely affects
its financial flexibility and competitive position; competition in
the industries in which Vertex operates; downturns in general
economic and market conditions; operational hazards and unforeseen
interruptions for which Vertex may not be adequately insured;
positive covenants in Vertex's material contracts could limit its
ability to operate; third part credit risk; conservation measures
and technological advances may reduce demand for hydrocarbons; loss
of the Company's information and computer systems or cyber-attacks;
director and officer conflicts of interest; a reassessment by tax
authorities of Vertex's income calculations; volatility in the
price of the Company's common shares; and
the risk factors set forth under the heading "Risk Factors" in
the Company's Annual Information Form filed under the Company's
SEDAR profile at www.sedar.com. The Company undertakes no
obligation to update these forward-looking statements, other than
as required by applicable law.
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 press release.
SOURCE Vertex Resource Group Ltd.