ENTREC 2015 Second Quarter Investor Conference Call and Webcast July 14, 2015 Acheson, Alberta, Canada – ENTREC Corporation (“ENTREC”) intends […]
March 6, 2019
Acheson, Alberta, Canada – (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
|$ thousands, except per share amounts and margin percent||Dec 31 2018||Dec 31 2017||Dec 31 2018||Dec 31 2017|
|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 – 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|
|December 31 2018||December 31 2017|
|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:
“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.
“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:
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.
“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.”
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.
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 & CEO
Telephone: (780) 960-5625
Jason Vandenberg – CFO
Telephone: (780) 960-5630
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