ENTREC ANNOUNCES 2016 THIRD QUARTER FINANCIAL RESULTS
November 10, 2016
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, 2016.
Three Months Ended
Nine Months Ended
|$ thousands, except per share amounts and margin percent||Sept 30 2016||Sept 30 2015||Sept 30 2016||Sept 30
|Adjusted EBITDA margin(1)||9.0%||18.0%||5.6%||14.9%|
|Adjusted net loss(1)||(3,539)||(1,848)||(15,577)||(8,831)|
|Per share – basic||(0.05)||(0.02)||(0.12)||(0.09)|
|Per share – diluted||(0.05)||(0.02)||(0.12)||(0.09)|
|Cash (used in) provided by operating activities||(1,993)||10,847||2,247||30,127|
|Funds from operations(1)||883||5,331||(1,104)||11,710|
|Basic weighted average shares outstanding||109,469||107,699||108,648||107,591|
|Total shares outstanding||109,473||107,708||109,473||107,708|
|Sept 30 2016||Dec 31 2015|
Note 1: See “Non-IFRS Financial Measures” section of the Company’s Management Discussion & Analysis for the three and nine months ended September 30, 2016.
Business Highlights for the Three and Nine Months Ended September 30, 2016
- Revenue for the quarter ended September 30, 2016 declined to $28.4 million from $41.2 million in 2015, reflecting lower activity levels and pricing in the oil and gas industry;
- Adjusted EBITDA declined to $2.6 million during the three months ended September 30, 2016 from $7.4 million in 2015, while adjusted net loss increased to $3.5 million from $1.8 million a year earlier;
- During the nine months ended September 30, 2016, ENTREC reduced its long-term debt, notes payable and finance lease obligations by $10.6 million;
- In March 2016, ENTREC expanded its operations into the Permian Basis with a new location in Midland Texas;
- In May 2016, ENTREC acquired the business and assets of HighMark Crane Ltd., expanding its operations into Manitoba and Newfoundland & Labrador;
- In June 2016, ENTREC amended the terms of its convertible debentures to extend the maturity date from October 31, 2017 to June 30, 2021; and
- In October 2016, ENTREC expanded its operations into the Province of Saskatchewan with new locations in Estevan and Swift Current.
Revenue for the quarter ended September 30, 2016 decreased by 31% to $28.4 million from $41.2 million in 2015. On a year-to-date basis, revenue declined by 36% to $84.0 million from $130.5 million in 2015. With the depressed commodity price environment for oil and natural gas, activity levels and pricing for crane and specialized transportation services throughout western Canada and in North Dakota continued to be weak.
With the lower revenue, adjusted EBITDA also declined to $2.6 million for the quarter ended September 30, 2016 from $7.4 million in 2015. On a year-to-date basis adjusted EBITDA declined to $4.7 million from $19.4 million a year earlier. The lower adjusted EBITDA reflected reduced equipment utilization levels as well as lower pricing. Partially offsetting the lower adjusted EBITDA were decreases in direct costs and general and administrative expenses through cost saving initiatives.
“As we look ahead into 2017, the outlook for our business is beginning to improve,” commented John M. Stevens, ENTREC’s President and Chief Executive officer. “Our ongoing strategy to grow through geographic and industry diversification should begin to pay dividends in the year ahead. Despite industry headwinds, we are cautiously optimistic that we will achieve growth in many of our end markets over the next year and that revenue in fiscal 2017 could be higher than 2016. Unfortunately, even with higher activity levels in 2017, we believe that low pricing for our services will continue until at least a sustained recovery in activity levels is achieved. This will require us to continue to focus on cost containment and efficiencies in our business.”
ENTREC expects that revenue from its recent expansion in the Permian Basis will accelerate as the Company goes into 2017. As oil prices recover, ENTREC believes this area will be one of the first regions in North America to experience higher oilfield activity levels due to lower production costs for producers. With oil prices recently ranging between $45 and $50 USD/barrel, ENTREC is already starting to see signs of more activity.
ENTREC is continuing to grow its presence in the market for MRO work in the Alberta oil sands region – which is typically less susceptible to changes in near-term commodity prices. This work could contribute to 20-25% or more of the Company’s consolidated revenue in fiscal 2017. However, offsetting this growth, the Company expects construction-related activity in the Alberta oil sands region could be quite weak over the next few years.
Revenue from power projects could also increase in 2017. The Company’s recent expansion into Manitoba and Newfoundland & Labrador, through its acquisition of HighMark, strongly positions ENTREC to capture more power-related opportunities. In addition, ENTREC is targeting a number of infrastructure projects, which along with increased power work, will further diversify ENTREC’s revenue outside oil & gas. Lastly, with the recent improvement in oil prices, ENTREC could experience higher activity levels in the conventional oil and gas industry as it moves into 2017.
Despite the various growth areas identified above, ENTREC’s overall outlook continues to be very cautious as there remains significant uncertainty as to the magnitude and timing of any future recovery in activity levels in the oil and gas industry.
“Over the longer-term, our competitive position continues to be positive,” said Mr. Stevens. “Despite short-term uncertainties and challenges, we are well-positioned geographically, with a complete range of crane and specialized transportation services in each of our key markets in Canada, North Dakota, 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.”
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, loss (gain) on change in fair value of embedded derivatives and convertible debentures, share-based compensation, bargain purchase gains, impairment of long-lived assets, 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 (loss) income 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, loss (gain) on change in fair value of embedded derivatives and convertible debentures, foreign exchange loss (gain) on long-term debt, and bargain purchase gains. 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 (loss) per share are calculated as adjusted net (loss) income 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 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 its ability to generate cash flow and is a useful measure in analyzing its operating performance.
Working capital is calculated as current assets less current liabilities. Working capital ratio is calculated as current assets divided by current liabilities. ENTREC believes working capital is a useful supplemental measure as it provides an indication of its ability to settle its debts as they come due.
Please see ENTREC's Management Discussion & Analysis for the three and nine months ended September 30, 2016 for reconciliations of each of adjusted EBITDA and adjusted net loss to net loss, and reconciliations of funds from operations to cash (used in) provided by operating activities, the most directly comparable financial measures 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 press release and the key assumptions and risk factors involved in such statements include, but are not limited to the following: (i) ENTREC’s belief that the outlook for its business is beginning to improve and that revenue in fiscal 2017 could be higher than 2016. This belief is based on the assumption the Company is able to achieve revenue growth from many of its end markets in 2017. The risks most likely to affect this assumption include volatility of the oil and natural gas sector, Alberta oil sands exposure, economy and cyclicality, and competition; (ii) ENTREC’s anticipation that low pricing for its services will continue until at least a sustained recovery in activity levels is achieved; (iii) ENTREC’s anticipation that its revenue growth from the Midland Texas region will accelerate as the Company goes into 2017. This expectation is subject to the assumption that oil prices will be sustained at a level that will allow oil producers in the region to achieve sufficient economic returns in order to increase their activity levels. The risks most likely to affect ENTREC’s revenue growth form this region include volatility of the oil and natural gas sector, economy and cyclicality, and competition; (iv) ENTREC’s anticipation that MRO work in the Alberta oil sands region will be less susceptible to changes in near-term commodity prices and could contribute to 20-25% or more of its consolidated revenue in 2017. This anticipation is based on the assumption that MRO customers will continue to utilize its services for their ongoing operational activities in the Alberta oil sands and that these activity levels will increase from 2016. The risks most likely to affect this assumption include volatility of the oil and natural gas sector, Alberta oil sands exposure, economy and cyclicality, and competition; (v) ENTREC’s expectation that construction-related activity in the Alberta oil sands could be quite weak over the next few years. This expectation is based on the assumption that low oil prices will deter oil and gas companies from making large construction investments in the Alberta oil sands region;(vi) ENTREC’s belief that revenue from power and infrastructure projects could also increase in 2017 and that the acquisition of HighMark strongly positions the Company to capture more power-related opportunities. This belief is subject to a number of risks and uncertainties including economy and cyclicality and competition; and (vii) ENTREC’s belief that with the recent improvement in oil prices, it could experience higher activity levels in the conventional oil and gas industry as the Company moves into 2017. This belief is subject to the assumption that oil prices could be high enough in 2017 to encourage additional spending by oil and gas companies. The risks most likely to affect revenue growth form this industry include volatility of the oil and natural gas sector, economy and cyclicality, and competition.
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