ENTREC Corporation (“
ENTREC” or the
“
Company”), a heavy haul transportation and crane
solutions provider, today announced financial results for the
second quarter ended June 30, 2018.
|
Three Months Ended |
|
Six Months Ended |
|
$ thousands, except per
share amounts and |
June 30 |
|
June
30 |
|
June 30 |
|
June
30 |
|
margin percent |
2018 |
|
2017 |
|
2018 |
|
2017 |
|
|
|
|
|
|
|
|
|
|
Revenue |
43,921 |
|
35,925 |
|
83,988 |
|
73,223 |
|
|
|
|
|
|
|
|
Gross profit |
7,541 |
|
6,095 |
|
12,063 |
|
11,654 |
|
Gross margin |
17.2 |
% |
17.0 |
% |
14.4 |
% |
15.9 |
% |
|
|
|
|
|
|
|
|
|
Adjusted EBITDA(1) |
4,132 |
|
2,691 |
|
5,053 |
|
4,972 |
|
Adjusted EBITDA
margin(1) |
9.4 |
% |
7.5 |
% |
6.0 |
% |
6.8 |
% |
Per
share(1) |
0.04 |
|
0.02 |
|
0.05 |
|
0.05 |
|
|
|
|
|
|
|
|
|
|
Adjusted net
loss(1) |
(2,685 |
) |
(3,878 |
) |
(7,903 |
) |
(7,564 |
) |
Per
share(1) |
(0.02 |
) |
(0.04 |
) |
(0.07 |
) |
(0.07 |
) |
|
|
|
|
|
|
|
|
|
Net loss |
(4,436 |
) |
(4,215 |
) |
(9,514 |
) |
(7,619 |
) |
Per share
– basic |
(0.04 |
) |
(0.04 |
) |
(0.09 |
) |
(0.07 |
) |
Per share – diluted |
(0.04 |
) |
(0.04 |
) |
(0.09 |
) |
(0.07 |
) |
|
|
|
|
|
|
|
|
|
Cash provided by
operating activities |
(309 |
) |
718 |
|
(1,038 |
) |
(882 |
) |
Funds from
operations(1) |
1,547 |
|
919 |
|
65 |
|
1,636 |
|
Per
share(1) |
0.01 |
|
0.01 |
|
0.00 |
|
0.01 |
|
|
|
|
|
|
|
|
|
|
Basic weighted average
shares outstanding |
109,689 |
|
109,517 |
|
109,658 |
|
109,504 |
|
|
|
|
|
|
|
|
|
|
As
at |
|
|
|
|
June 30 |
|
December 31 |
|
$ thousands |
|
|
|
|
2018 |
|
2017 |
|
|
|
|
|
|
|
|
|
|
Working capital(1) |
|
|
|
|
24,066 |
|
27,052 |
|
Total assets |
|
|
|
|
223,641 |
|
227,496 |
|
Total liabilities |
|
|
|
|
187,374 |
|
182,705 |
|
Shareholders’ equity |
|
|
|
|
36,267 |
|
44,791 |
|
|
Note 1: See
“Non-IFRS Financial Measures” section of the Company’s Management
Discussion & Analysis for the three and six months ended June
30, 2018. |
|
Revenue for the three months ended June 30, 2018 increased by
22% to $43.9 million from $35.9 million in 2017 due to significant
growth from ENTREC’s operations in the United States. The Company’s
US revenue increased by 44% to $19.1 million in 2018 from $13.2
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, ENTREC’s
recent expansion into Colorado generated additional revenue of $1.7
million in the quarter.
ENTREC’s revenue in Canada also increased by 9%
to $24.8 million in the second quarter of 2018 from $22.7 million
last year due to higher activity levels related to maintenance,
repair and operations (MRO) work in the Alberta oil sands
region.
On a year-to-date basis, revenue increased by
15% to $84.0 million from $73.2 million in 2017 due to higher
activity levels within ENTREC’s US operations. US revenue increased
by 55% to $35.4 million in the first six months of 2018 from $22.9
million in 2017. Revenue in Canada declined slightly to $48.6
million during the six months ended June 30, 2018 from $50.3
million in 2017. This decline was caused from a slower start to the
year in conventional oil and gas.
Adjusted EBITDA increased to $4.1 million in the
second quarter of 2018 from $2.7 million last year due to the
higher revenue. The higher revenue also caused adjusted net loss to
improve to $2.7 million from $3.9 million last year.
Outlook and Strategy
Overall, ENTREC’s strategy to grow its business
through geographic and industry diversification in fiscal 2018
continues to be focused on the following initiatives:
- Significantly expanding its
business in the United States;
- Obtaining additional MRO work with
existing and new clients;
- Pursuing construction project work
related to 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 ENTREC’s US business continues
to be very positive going into the second half of 2018. Growing
demand for the Company’s services in a recovering oil and gas
sector is leading to both increased activity levels as well as
higher customer pricing. Assuming oil prices can be maintained at
current levels or increase further as 2018 progresses, the Company
should continue to see higher industry activity levels in the
United States that should result in further customer pricing
improvements and improved profitability.
In the fall of 2017, ENTREC expanded its
operations into Colorado. The Company’s new operations in Colorado
are focused on supporting several industries, including the oil and
gas sector, and other general construction. ENTREC is currently
experiencing strong growth in this region and anticipates its
revenue will continue to grow in the Colorado market over the
balance of 2018.
Despite strong demand for its services, the
profitability of ENTREC’s Texas operations was severely hampered in
Q2 2018 by high operating costs and labour shortages. The Company
is executing a strategy to improve its profitability in this region
in the second half of 2018. This includes establishing the
Company’s own employee accommodation facilities to house current
and future staff. The Company will also be supporting its Texas
operations with additional employees from other regions including
Canada.
Canada
Due to macro-economic factors and low natural
gas prices, ENTREC’s outlook for the oil and natural gas industry
in western Canada has been very cautious. These macro-economic
factors included 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.
However, as the Company enters the second half
of 2018, its outlook for western Canada is beginning to improve.
First, ENTREC expects revenue from its MRO work in the Alberta oil
sands region will continue to be steady throughout the remainder of
2018 and into fiscal 2019.
Second, the Company now anticipates that a
positive final investment decision on the $40 Billion LNG Canada
project in Kitimat, B.C. is likely in the second half of 2018. If
approved, this project would be very positive for the natural gas
industry in Canada and for ENTREC. ENTREC could benefit from this
project in a number of ways, including direct and indirect
construction activity in the Kitimat region as well as from an
anticipated increase in natural gas exploration and production
activity in north-west Alberta and north-east B.C.
Lastly, with the purchase of the Trans Mountain
pipeline by the Federal Government, ENTREC is optimistic that the
pipeline expansion project will proceed, providing much needed
capacity growth for western Canadian oil production.
Capstan Hauling Inc.
(“Capstan”)
ENTREC is pleased to announce that it has
entered into a letter of intent to acquire Capstan. 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 million. Capstan’s
fleet consists of mobile cranes, picker trucks, winch trucks and a
wide variety of multi-wheeled trailers.
“With our outlook improving for the oil and
natural gas industry in western Canada, this acquisition is very
timely for ENTREC,” said John M. Stevens, ENTREC’s President and
CEO. “Capstan has a very strong reputation for customer service and
when combined with our existing operations in the region, we will
be well positioned to benefit from improving market fundamentals.
This includes the potential for increased demand for our services
related to natural gas exploration and production should LNG Canada
proceed with the construction of a Liquefied Natural Gas
(“LNG”) facility in Kitimat.”
“Following completion of the acquisition, we
plan to merge ENTREC’s Grande Prairie oilfield transportation
division with Capstan and operate the combined business under the
Capstan brand,” added Mr. Stevens. “The shareholders of Capstan
will also retain a large ownership interest in the combined
business post-acquisition and the existing Capstan management will
lead and manage the combined business going forward.”
Additional details regarding the Capstan
acquisition will be provided once the acquisition is completed. The
proposed acquisition of Capstan remains subject to a number of
conditions, including the execution of a definitive share purchase
agreement. If all conditions to the acquisition are met, ENTREC
anticipates the acquisition of Capstan will close in September
2018.
“Over the longer-term, our competitive position
continues to be positive,” said Mr. Stevens. “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 EBITDA per share is calculated
as adjusted EBITDA divided by the basic weighted average number of
shares outstanding during the period.
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.
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 basic 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 the Company’s 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. 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.
Please see ENTREC's Management Discussion &
Analysis for the three and six months ended June 30, 2018 for
reconciliations of each of adjusted EBITDA and adjusted net loss to
net loss and of funds from operations to cash provided by operating
activities, the most directly comparable financial measures
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
press release 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 as 2018 progresses, it should
continue to see higher industry activity levels in the United
States that should result in further customer pricing improvements
and improved profitability. This expectation is subject to the
assumption that oil prices will be high enough in 2018 to encourage
additional spending by oil and gas companies. ENTREC’s ability to
achieve this growth is subject to a number of risks. 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 anticipation that revenue from its operations in Colorado
will continue to grow over the balance of 2018.
This expectation is subject to the Company’s
ability to successfully expand its operations in Colorado. The
Company’s ability to achieve this growth is subject to a number of
risks. The risks most likely to affect revenue growth in Colorado
include volatility of the oil and natural gas sector, economy and
cyclicality, and competition; (iii) ENTREC’s expectation that it
will execute on its strategy to improve profitability in Texas in
the second half of fiscal 2018. 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. ENTREC’s
ability to achieve this recovery is subject to a number of risks.
The risks most likely to affect the 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) ENTREC’s belief that revenue from its MRO work in
the Alberta oil sands region will continue to be steady throughout
the remainder of 2018 and into fiscal 2019; (b) ENTREC’s
expectation that a positive final investment decision on the $40
Billion LNG Canada project in Kitimat, B.C. is likely to be
achieved in the second half of 2018; and (c) ENTREC’s belief that
the expansion of the Trans Mountain pipeline will proceed. ENTREC’s
belief that revenue from its MRO work in the Alberta oil sands
region will be steady throughout the remainder of 2018 and into
fiscal 2019 is based on the assumption that oil and natural gas
prices will be high enough in 2018 to maintain current levels of
spending by oil and gas companies in the Alberta oil sands region.
ENTREC’s expectation that a positive final investment decision on
the $40 Billion LNG Canada project would be beneficial for the
natural gas industry in Canada and for ENTREC is based on the
assumption that a positive decision will encourage additional
investment in the natural gas industry in western Canada and that
the Company will obtain additional work in the natural gas sector
and in supporting construction activity related to the proposed LNG
project. This expectation is also completely subject to a positive
final investment decision by LNG Canada. There is no certainty of
this. ENTREC’s expectation that the Trans Mountain pipeline
expansion will proceed is completely subject to the ability of the
Federal Government to execute on its plans to complete the
construction of the pipeline. These expectations and assumptions
are subject to a number of risks. 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) expectations
regarding the potential acquisition of Capstan. The acquisition of
Capstan remains subject to the successful completion of a
definitive share purchase agreement and other closing conditions.
There can be no assurance that the acquisition will be
completed.
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)
960-5630www.entrec.com