ENTREC Corporation Announces 2014 First Quarter Financial Results
- 2014 revenue increased by 20% to $62.0 million from $51.7
million in 2013
- Adjusted EBITDA of $10.7 million and adjusted net income of
$1.2 million
- 3.2 million common shares acquired year-to-date pursuant to
NCIB
SPRUCE GROVE, ALBERTA--(Marketwired - May 12, 2014) - ENTREC
Corporation (TSX-VENTURE:ENT) ("ENTREC" or the "Company"), a
leading provider of heavy lift and heavy haul services, today
announced financial results for the first quarter ended March 31,
2014.
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|
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|
|
Three Months Ended |
$ thousands, except per share amounts and margin
percent |
|
March 31 2014 |
|
March 31 2013 |
|
|
|
|
|
Revenue |
|
61,995 |
|
51,703 |
|
|
|
|
|
Gross profit |
|
16,413 |
|
17,952 |
Gross margin |
|
26.5% |
|
34.7% |
|
|
|
|
|
Adjusted EBITDA(1) |
|
10,698 |
|
13,428 |
|
Margin(1) |
|
17.3% |
|
26.0% |
|
Per
share(1) |
|
0.09 |
|
0.14 |
|
|
|
|
|
Adjusted net income(1) |
|
1,189 |
|
5,485 |
|
Per
share(1) |
|
0.01 |
|
0.06 |
|
|
|
|
|
Net income |
|
1,435 |
|
5,400 |
|
Per
share - basic |
|
0.01 |
|
0.06 |
|
Per share - diluted |
|
0.01 |
|
0.05 |
Note 1: See "Non-IFRS Financial Measures" section of the
Company's Management Discussion & Analysis for the three months
ended March 31, 2014.
In the first quarter of 2014, revenue increased by 20% to $62.0
million from $51.7 million in the comparative three months ended
March 31, 2013. This growth reflects the positive impact of
business acquisitions completed over the past year, partially
offset by a $5.4 million year-over-year decline from the pro forma
revenue ENTREC and each of its acquired businesses achieved on a
combined basis in the three months ended March 31, 2013.
ENTREC experienced lower levels of equipment utilization in the
first quarter of 2014, compared to Q1 last year. This was primarily
due to a lag in construction projects in the Alberta oil sands
region and in other industries the Company serves. This impact was
partially mitigated by strong demand in Northeast B.C. and
Northwest Alberta where the Company is supporting LNG-driven
natural gas projects.
First quarter adjusted EBITDA was $10.7 million, compared to
$13.4 million in 2013. The higher revenue in the first quarter this
year was offset by a lower adjusted EBITDA margin of 17.3%,
compared to 26.0% in Q1 last year. The year-over-year change in
EBITDA margin reflects reduced equipment utilization levels, which
result in lower absorption of the fixed components of the Company's
operating costs. Revenue mix also had an impact with lower
utilization of the Company's more specialized equipment, which
typically generates higher margins. Additional factors included
more competitive pricing pressure in the heavy haul transportation
sector due to the current lag in oil sands construction projects,
and higher fuel costs.
Adjusted net income of $1.2 million for the three months ended
March 31, 2014 compared to $5.5 million in the same period last
year. The year-over-year change reflects the lower adjusted EBITDA
margin, and increased finance costs and depreciation expense.
Quarterly net income, reported in accordance with IFRS, declined to
$1.4 million or $0.01 per share from $5.4 million or $0.06 per
share last year.
"In the short term, we expect the reduced activity levels to
continue into the second quarter of 2014 and that our equipment
utilization levels will remain lower than last year," said John M.
Stevens, ENTREC's President and CEO. "We are also entering our
seasonal spring break-up period where the spring snow melt and wet
conditions make the ground unstable and less capable of supporting
vehicles with heavy loads."
"Over the longer term, we continue to expect revenue will trend
upward in the second half of 2014 and into 2015 as project work
begins to ramp up and utilization levels increase. Higher
utilization levels could also continue into 2016 and 2017 due to
the long-term nature of many oil sands projects. In Northeast B.C.
and Northwest Alberta, we anticipate continued robust activity
levels through the remainder of 2014 from our operations which are
supporting numerous LNG-related natural gas projects in those
regions."
"ENTREC's competitive position and long-term outlook remain
positive. We are geographically positioned where we want to be,
with the right equipment fleet, and a complete range of crane and
heavy haul transportation services in the markets that we believe
will drive significant growth in our business going forward."
Based on current expectations for future business activity,
ENTREC reiterates its guidance that revenue for the year ending
December 31, 2014 could range between $230 and $250 million. Any
business acquisitions completed in fiscal 2014 could increase the
revenue achieved and/or trigger revised revenue guidance.
ENTREC is working diligently to streamline its cost structure in
order to support improved profitability. The Company reduced its
salaried workforce by 15% and consolidated two branches in late
March of this year. It is also working with customers to recover a
portion of the higher fuel costs through rate increases and fuel
surcharges. The Company estimates that overall adjusted EBITDA
margin for the full fiscal 2014 year could range between 20% and
22%. Consistent with the anticipated trend in revenue, adjusted
EBITDA margin is expected to be lower in the first half of 2014 and
then increase as the year progresses and utilization improves.
2014 Capital Expenditure Program
ENTREC's 2014 growth capital expenditure program is focused on
growing its crane fleet. The Company believes continued investment
in this area will provide the scale to further increase its access
to the recurring MRO support work in the Alberta oil sands region,
as well as to the significant industrial construction work
occurring in the oil sands and in Northwest B.C.
ENTREC's 2014 capital expenditure program now consists of the
following components:
Growth capital expenditures - cranes |
|
$29 million |
Growth capital expenditures - heavy haul transportation |
|
4
million |
Other
growth capital expenditures |
|
2
million |
Maintenance capital expenditures |
|
11 million |
|
|
|
Total |
|
$46 million |
During the three months ended March 31, 2014, ENTREC made
capital expenditures of $17.9 million, consisting of $15.3 million
in growth capital expenditures and $2.6 million in maintenance
capital expenditures. Included in ENTREC's growth capital
expenditures during the quarter ended March 31, 2014 was the
purchase of $7.2 million in crane and trailer rental units. The
majority of these units carried favourable purchase options, which
allowed the Company to apply much of the previous rental expense
against the purchase price. These purchases represent the last of
the rental units that carried the favourable purchase options.
ENTREC intends to fund the remainder of its 2014 capital
expenditure program from its asset-based lending facility, finance
leases and cash from operating activities. Should customer demand
warrant, the Company expects to have the flexibility to increase
its capital expenditure program later in the year without raising
additional equity.
Acquisition of Superior Oilfield Hauling (2005) Ltd.
(Superior)
On April 15, 2014, ENTREC acquired the business and assets of
Superior, an oilfield transportation service supplier in the Cold
Lake, Alberta oil sands region. Acquired for $5.1 million in cash,
the transaction included Superior's fleet of nine winch tractors,
two bed trucks, one picker truck and 24 conventional trailer units.
The acquisition expands ENTREC's customer relationships and
increases its service capabilities in this important region. The
Superior business was immediately integrated into ENTREC's existing
operations in Bonnyville, Alberta.
Normal Course Issuer Bid (NCIB)
During the three months ended March 31, 2014, ENTREC repurchased
for cancellation 922,600 common shares for a total cost of $1.4
million under its NCIB. On a year-to-date basis to May 12, 2014,
ENTREC repurchased for cancellation a total of 3,172,700 common
shares for a total cost of $4.4 million. With ENTREC's positive
outlook for the future, the Company believes one of the best
investments it can make is in itself. The Company plans to continue
making purchases under the NCIB.
Share Purchase Warrants
The Company currently has 15,150,000 share purchase warrants
(the "Warrants") that entitle the holder to acquire one common
share of ENTREC at an exercise price of $1.50 per common share at
any time from June 1, 2013 to May 31, 2014 (the "Expiry Date"). The
holder shall not, at any time, be entitled to exercise any portion
of the Warrants that would result in the holder owning 20% or more
of ENTREC's issued and outstanding common shares. If upon the
Expiry Date any portion of the Warrants is not exercisable because
such exercise would result in the holder owning 20% or more of
ENTREC's issued and outstanding common shares, then the Expiry Date
of such portion shall be extended by one year, provided that the
Expiry Date may not be extended beyond June 1, 2017.
At current market prices, ENTREC expects that the holder of the
Warrants may proceed to acquire additional common shares of ENTREC
on the market prior to the Expiry Date.
Asset-Based Lending (ABL) Facility
On March 6, 2014, ENTREC closed a new $240 million senior
secured ABL facility with a syndicate of lenders led by Wells Fargo
Capital Finance Corporation Canada. The ABL facility replaced the
Company's previous senior debt facilities and is being used to fund
future capital expenditures and business acquisitions and for
general corporate purposes.
The ABL facility has a five-year term and requires payments of
interest only. Amounts borrowed bear interest, at ENTREC's option,
at bank prime or bankers' acceptance rates, plus a credit spread
based on a sliding scale. ENTREC may prepay all or any part of the
ABL Facility at any time.
"This facility is covenant light with a borrowing base that
increases as our business grows making it a perfect fit with our
business, said Jason Vandenberg, ENTREC's Chief Financial Officer.
"The customized financing provided by Wells Fargo demonstrates the
strong value in our equipment fleet and will provide us with
significant financial flexibility to continue to execute our growth
strategies."
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 leading provider of heavy lift and heavy haul
services with offerings encompassing crane services, heavy haul
transportation, engineering, logistics and support. ENTREC provides
these services to the oil and natural gas, construction,
petrochemical, mining and power generation industries. ENTREC's
common shares trade on the TSX Venture Exchange under the trading
symbol "ENT".
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|
|
Consolidated Statements of Financial Position As at
(thousands of Canadian dollars) |
|
March 31 2014 $ |
|
December 31 2013 $ |
|
|
|
|
|
ASSETS |
|
|
|
|
Current assets |
|
|
|
|
|
Cash |
|
327 |
|
651 |
|
Trade
and other receivables |
|
52,316 |
|
45,146 |
|
Income taxes receivable |
|
1,059 |
|
- |
|
Inventory |
|
2,637 |
|
2,552 |
|
Prepaid expenses and deposits |
|
1,848 |
|
2,487 |
|
|
58,187 |
|
50,836 |
Non-current assets |
|
|
|
|
|
Long-term deposits and other assets |
|
6,405 |
|
4,910 |
|
Deposits on business acquisitions |
|
300 |
|
- |
|
Property, plant and equipment |
|
219,019 |
|
207,205 |
|
Intangible assets |
|
26,663 |
|
27,560 |
|
Goodwill |
|
69,401 |
|
69,276 |
|
|
|
|
|
Total assets |
|
379,975 |
|
359,787 |
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS' EQUITY |
|
|
|
|
Current liabilities |
|
|
|
|
|
Trade
and other payables |
|
21,698 |
|
18,335 |
|
Income taxes payable |
|
- |
|
1,876 |
|
Acquisition consideration payable |
|
584 |
|
587 |
|
Current portion of long-term debt |
|
412 |
|
20,619 |
|
Current portion of obligations under finance lease |
|
1,935 |
|
1,788 |
|
|
24,629 |
|
43,205 |
Non-current liabilities |
|
|
|
|
|
Long-term debt |
|
113,766 |
|
76,321 |
|
Obligations under finance lease |
|
2,969 |
|
2,422 |
|
Notes
payable |
|
7,294 |
|
7,294 |
|
Convertible debentures |
|
22,317 |
|
23,557 |
|
Deferred income taxes |
|
28,413 |
|
27,220 |
Total liabilities |
|
199,388 |
|
180,019 |
|
|
|
|
|
Shareholders' equity |
|
|
|
|
|
Share
capital |
|
140,652 |
|
141,711 |
|
Contributed surplus |
|
9,334 |
|
9,155 |
|
Retained earnings |
|
29,967 |
|
28,532 |
|
Accumulated other comprehensive income |
|
634 |
|
370 |
Total shareholders' equity |
|
180,587 |
|
179,768 |
|
|
|
|
|
Total liabilities and shareholders' equity |
|
379,975 |
|
359,787 |
|
|
|
Consolidated Statements of Income |
|
Three Months Ended |
(thousands of Canadian dollars, except per share
amounts) |
|
March 31 2014 $ |
|
March 31 2013 $ |
|
|
|
|
|
Revenue |
|
61,995 |
|
51,703 |
Direct costs |
|
45,582 |
|
33,751 |
|
|
|
|
|
Gross profit |
|
16,413 |
|
17,952 |
|
|
|
|
|
Operating expenses |
|
|
|
|
General and administrative expense |
|
6,128 |
|
4,690 |
Depreciation of property, plant and equipment |
|
5,666 |
|
3,869 |
Amortization of intangible assets |
|
970 |
|
765 |
Share-based compensation |
|
459 |
|
456 |
(Gain) loss on disposal of property, plant and
equipment |
|
(91) |
|
14 |
|
|
13,132 |
|
9,794 |
|
|
|
|
|
Income before finance items and income taxes |
|
3,281 |
|
8,158 |
|
|
|
|
|
Finance items |
|
|
|
|
|
Finance costs |
|
2,739 |
|
1,711 |
|
Gain on change in fair value of embedded derivative |
|
(1,548) |
|
(886) |
|
|
1,191 |
|
825 |
|
|
|
|
|
Income before income taxes |
|
2,090 |
|
7,333 |
|
|
|
|
|
Income taxes |
|
|
|
|
|
Current |
|
(537) |
|
1,273 |
|
Deferred |
|
1,192 |
|
660 |
|
|
655 |
|
1,933 |
|
|
|
|
|
Net income |
|
1,435 |
|
5,400 |
|
|
|
|
|
Earnings per share - basic |
|
0.01 |
|
0.06 |
Earnings per share - diluted |
|
0.01 |
|
0.05 |
|
|
|
|
|
First Quarter Financial Results Conference Call
ENTREC will host a conference call and webcast to discuss
its 2014 first quarter results tomorrow, May 13, 2014 at 9:00 am
(MDT) (11:00 am Eastern). The call can be accessed by dialing
toll-free: 1-866-225-0198 or 416-340-2216 (GTA and
International).
The conference call will also be available via webcast
within the Investors section of ENTREC's website at:
www.entrec.com.
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, change in fair value of embedded
derivative, share-based compensation, 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 income is calculated excluding the after-tax
amortization of acquisition-related intangible assets, notional
interest accretion expense arising from convertible debentures, and
the change in fair value of the embedded derivative related to such
convertible debentures. 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 per share are calculated as adjusted net income divided by
the basic weighted average number of shares outstanding during the
applicable period.
Please see ENTREC's Management Discussion & Analysis for
the three months ended March 31, 2014 for reconciliations of
adjusted EBITDA and adjusted net income to net income, the most
directly comparable financial measure 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 such forward-looking statements in this press
release include, but are not limited to: plans to execute a 2014
capital expenditure program of $46 million; expectation equipment
utilization will remain lower in the second quarter of 2014 as
activity levels will remain modest and then trend upward in the
second half of 2014 and in 2015 as project work begins to ramp up
and utilization levels increase; belief higher utilization in later
2014 and 2015 could also continue into 2016 and 2017; expectation
that ENTREC will continue to achieve robust activity levels from
its operations in Northeast B.C. and Northwest Alberta throughout
the remainder of 2014; estimate that revenue for the year ending
December 31, 2014 could range between $230 million and $250
million; estimate overall adjusted EBITDA margin for fiscal 2014
could range between 20% and 22%; belief that ENTREC's 2014 capital
expenditure program will provide additional scale to increase its
access to the recurring MRO support work in the Alberta oil sands
region as well as the significant construction work occurring in
both the oil sands and in northwest B.C.; plan to fund the
remainder of ENTREC's 2014 capital expenditure program from the ABL
facility, finance leases and cash from operating activities as well
as the expectation that ENTREC will have the flexibility to
increase its capital expenditure program later in the year should
customer demand warrant without raising additional equity.
ENTREC's forward-looking statements involve a number of
significant assumptions. Key assumptions utilized in developing
forward-looking statements related to ENTREC's growth and revenue
expectations include achieving its internal revenue, net income and
cash flow forecasts for 2014 and beyond. Key assumptions involved
in preparing ENTREC's internal forecasts include, but are not
limited to, its expectations and estimates that: demand for crane
and heavy haul transportation services in western Canada increase
from current levels throughout the latter part of 2014 and in 2015;
ENTREC will be able to retain key personnel and attract additional
high-quality personnel to support its planned revenue growth;
construction projects and production activity in the Alberta oil
sands region and in northern British Columbia continue at or above
current levels and expected project work begins to ramp up and
utilization levels increase; certain of the planned development of
LNG facilities proceed and certain customers choose to use ENTREC's
services; there are no significant unplanned increases in ENTREC's
cost structure, including those costs related to fuel and wages;
market interest rates remain similar to current rates and that
additional debt financing remains available to ENTREC on similar
terms to its existing debt financing; there is no prolonged period
of inclement weather that impedes or delays the need for crane and
heavy haul transportation services; the competitive landscape in
western Canada for crane and heavy haul transportation services
does not materially change during the remainder of 2014 and in
2015; and there is no material adverse change in overall economic
conditions.
Achieving these forecasts largely depends on a number of
factors beyond ENTREC's control including several of the risks
discussed further under "Business Risks" in ENTREC Management's
Discussion & Analysis for the three months ended March 31,
2014. The business risks that are most likely to affect ENTREC's
ability to achieve its internal revenue, net income and cash flow
forecasts for 2014 and beyond are the volatility of the oil and gas
industry, its exposure to the Alberta oil sands, workforce
availability, competition, weather and seasonality, availability of
debt and equity financing, and competition. These risk factors are
interdependent and the impact of any one risk or uncertainty on a
particular forward-looking statement is not determinable.
ENTREC's intention to acquire shares pursuant to its NCIB is
subject to potential fluctuations in the market price of its shares
and the potential management may find another, more desirable use
for its available funds.
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.
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 release.
ENTREC CorporationJohn M. StevensPresident & CEO(780)
960-5625ENTREC CorporationJason VandenbergCFO(780)
960-5630www.entrec.com
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