SHERWOOD PARK, AB, June 29, 2020 /CNW/ - (TSXV: VTX) - Vertex
Resource Group Ltd. ("Vertex" or the "Company") reports its
financial and operational results for the three months ending
March 31, 2020. The following
should be read in conjunction with the Management Discussion and
Analysis ("MD&A") and the condensed consolidated interim
financial statements of Vertex for three months ended March 31 2020, which are available on SEDAR at
www.sedar.com.
During the first quarter of 2020, which saw the beginnings of
unprecedented times for the global economy, Vertex focused on cost
control, forecasting, and aggressive pursuit of available business
opportunities. Revenue decreased on a quarter over quarter
basis due to various factors including extreme weather, a
competitive environment carrying forward from 2019, and reversal of
positive client plans and expectations for 2020 due to the advent
of COVID-19. The upcoming year will be characterized by
uncertainty as companies, governments and economies work towards
re-opening society and the economy in a COVID-19 environment.
Vertex's focus will be on efficiently managing its assets and the
costs of the business, and diversifying its services, product
offerings and customer base both in geography and industry, to
maintain successful operations.
Key financial results for the three months ended March 31, 2020 and 2019 are as follows:
HIGHLIGHTS
|
|
|
|
|
Three Months
ended
|
|
March
31,
|
(in thousands of
Canadian Dollars)
|
2020
|
2019
|
% Change
|
Revenue
|
38,426
|
42,628
|
-10%
|
Gross
profit
|
9,084
|
10,627
|
-15%
|
Adjusted EBITDA
(1)
|
5,323
|
6,026
|
-12%
|
Adjusted EBITDA
per share, basic and diluted
|
0.06
|
0.07
|
-12%
|
(1) See "Non-IFRS
Financial Measures"
|
|
|
|
HIGHLIGHTS FOR THE THREE MONTHS ENDING MARCH 31, 2020
Cash flow from operating activities amounted to
$3.8 million compared to $3.2 million in Q1 2019.
Revenue for the first quarter of 2020 decreased to
$38.4 million from $42.6 million the same quarter in 2019. This
revenue decrease was attributable to extreme cold weather early in
the quarter, an ongoing competitive environment, and the
beginnings of the negative impact of COVID-19 on global oil
demand.
Gross profit for the first quarter of 2020
decreased to $9.1 million from
$10.6 million the same quarter in
2019 due to price competition. Gross margin declined to 23.6%
from 24.9% due to reduced personnel and equipment utilization
stemming from reduced revenue.
General and administrative expenses were reduced to
$3.8 million compared to $4.6 million for the first quarter of 2019
primarily due to reduced salaries and benefits resulting from
continuous efficiency improvements and active management of
costs.
Adjusted EBITDA amounted to $5.3 million notwithstanding a challenging
environment and downward pressure on revenue and gross
margin. This was aided by the Company's focus on operating
efficiencies and reduction of G&A costs.
Net capital expenditures were minimal at
$0.8 million.
OUTLOOK
Earlier in 2020 optimism existed for improvement in the Western
Canadian economy from the low levels experienced in 2019 based on
expectations for increased spending on a number of major
projects. However, the advent of the COVID-19 virus has
resulted in significant uncertainties and reduced revenue and
earnings outlooks for 2020 across all sectors. In the energy
industry, oil companies have announced reductions in capital
expenditure budgets and both upstream and downstream production
activities.
In an attempt to limit and contain the spread of COVID-19,
countries and governments around the world have implemented heavy
restrictions on social interaction, public gatherings, travel, and
business activities. This has resulted in concerns over
supply chain disruptions, reduced demand for many products and
services and, overall, a severe contraction of economic activity.
Various jurisdictions are currently in the process of relaxing
restrictions and re-opening business activities in a controlled and
measured manner. This may improve the global demand for
products and services from recent levels. However, a return
to normalcy in business activities is not expected for an extended
period of time. Expectations and business activity may be tempered
by the possibility of additional waves of COVID-19.
Vertex's services are considered essential and the Company has
been able to continue providing its services to clients during the
pandemic. To facilitate this, Vertex has implemented
appropriate safety measures pertaining to physical distancing,
travel, sanitization, personal protective equipment and supplies,
and work from home arrangements.
While it is not possible to quantify the full effect of the
economic uncertainties and financial impacts of COVID-19,
Vertex has experienced pressure on its revenues and gross margins,
especially in the upstream sector of the energy industry. Vertex
has seen some increased demand for its rental products related to
storage and accommodations, stable fluid hauling demand, and
increased opportunities for environmental remediation
services. It is not known whether these positive
circumstances will continue.
Vertex generates significant revenues from sectors outside
of oil and gas including midstream, utilities, industrial
construction, mining, public sector, agriculture, and
forestry. These sectors accounted for 43% of the company's
revenues in 2019. Within the oil and gas sector, 77% of revenues
were derived from operations and maintenance (O&M) and
reclamation related services, with the remaining 23% coming from
development and drilling related services. From all sectors,
approximately 69% of the Company's revenues were derived from
operations and maintenance (O&M) related services, 10% from
environmental reclamation, 13% from development, and 8% from
upstream drilling services.
Vertex maintains a diversified business consisting of various
revenue streams including: environmental consulting, testing, and
remediation; fluid hauling for upstream, midstream, mining, and
agricultural sectors; hydrovac for construction; industrial
cleaning and waste disposal; equipment rental for storage and
containment of products and waste; manufacturing of acoustic
products and metal buildings.
The Company has acted expeditiously to curtail discretionary
expenditures, carefully manage operating costs, reduce labour
costs, and re-assess planned capital expenditures.
To date the federal government of Canada has provided major funding to support
businesses in the form of liquidity loans to mid-market companies,
bridge financing for large companies to support continuing
operations, wage cost subsidies, and major funding for
environmental remediation activities specifically for Alberta, Saskatchewan, and British Columbia. The Company has extensive
expertise in environmental remediation and expects to benefit
significantly from the available funding. Vertex has
aggressively and successfully pursued available subsidies, loans,
and funding opportunities and intends to continue doing so.
There is significant optimism for future growth in Western Canada based on: progress on the Trans
Mountain, Line 3 Replacement, Coastal Gas Link, and Keystone
pipelines; LNG plant developments; and proposed petrochemical
plants.
During 2020, Vertex intends to closely monitor developments and
employ ongoing forecasting to ensure efficient adaptation to
changing economics. Vertex will also continue to focus on
controlled capital expenditures, efficient use of assets, and
strategic repairs and maintenance programs to obtain maximum
economic value from its existing complement of assets.
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-IFRS 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 affect
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.