VERTEX RESOURCE GROUP LTD. REPORTS RECORD SECOND QUARTER 2023 RESULTS

VERTEX RESOURCE GROUP LTD. REPORTS RECORD SECOND QUARTER 2023 RESULTS

Canada NewsWire

Achieved record second quarter net revenue and adjusted EBITDA- $62.3 million and $11.0 million respectively.

SHERWOOD PARK, AB, Aug. 9, 2023 /CNW/ - (TSXV: VTX) - Vertex Resource Group Ltd. ("Vertex" or the "Company") reports its financial and operational results for the second quarter ended June 30, 2023.  The following should be read in conjunction with the Management Discussion and Analysis ("MD&A") and the unaudited condensed consolidated interim financial statements of Vertex for the period ended June 30, 2023, which are available on SEDAR+ at www.sedarplus.ca.

The second quarter delivered record results in multiple categories in both the three and six month periods.  Initiatives around competitive pricing, acquisition growth and exploring opportunities in new markets that began in 2022 gained further traction in the first half of the year.

Key financial results for the three and six months ended June 30, 2023, and 2022 are as follows:








HIGHLIGHTS








Three Months ended

Six Months ended


 June 30, 

 June 30, 

(in thousands of Canadian Dollars)

2023

2022

% Change

2023

2022

% Change



Restated (1)



Restated (1)


Gross revenue

63,147

62,855

0 %

121,804

117,650

4 %

Less flow through subcontractor costs

844

8,886

-91 %

2,693

18,252

-85 %

Net revenue

62,303

53,969

15 %

119,111

99,398

20 %

Profit margin

17,401

13,223

32 %

32,007

23,680

35 %

Adjusted EBITDA (2)

10,956

8,557

28 %

19,571

14,217

38 %

Free cash flow (2)

8,219

7,030

17 %

15,212

11,143

37 %

Adjusted EBITDA per share, basic and
diluted (2)

0.09

0.08

13 %

0.17

0.14

21 %

(1) See "Restatement of Comparative Period"







(2) See "Non-IFRS Financial Measures"








HIGHLIGHTS FOR THE THREE MONTHS ENDED JUNE 30, 2023

  • Highest net revenue in company history for any quarter at $62.3 million.
  • Record adjusted EBITDA(2) for any quarter at $11.0 million compared to $8.6 million in Q2 2022.
  • Profit margin as a % of net revenue increased to 27.9% from 24.5% in Q2 2022.
  • Free cash flow(2) amounted to $8.2 million compared to $7.0 million in Q2 2022.

HIGHLIGHTS FOR THE SIX MONTHS ENDED JUNE 30, 2023

  • Net revenue increased to $119.1 million from $99.4 million for the same period in 2022; this is the highest in any previous first half of a year.
  • Record adjusted EBITDA amounted to $19.6 million for the six months of 2023 compared to $14.2 million in 2022.
  • Profit margin as a % of net revenue increased to 26.9% from 23.8% in H1 2022.
  • Historically high net income for the six months ended June 30, 2023 was $2.6 million compared to $0.9 million in the same period of the prior year.
  • Loans and borrowings, lease liabilities and other liabilities have decreased by $15.4 million since December 31, 2022.
  • Syndicated bank indebtedness to trailing bank EBITDA improved to a ratio of 2.63:1.00 compared to 2.90:1.00 at December 31, 2022.
  • Free cash flow amounted to $15.2 million compared to $11.1 million in H1 2022.
OUTLOOK

The second quarter of 2023 met expectations, despite pervasive wildfires followed by wet weather in the western provinces.  Demand for services and equipment utilization remained high during the second quarter for the Environmental Services segment.  The completion of government site rehabilitation projects in February led to an expected slowdown in activity in the Environmental Consulting division while the industry took a pause to re-evaluate priorities for the busier second half of 2023.

The intense wildfire season that hit Western Canada this spring led to the postponement of drilling and new infrastructure activities which are now just starting to resume.  The fires also impacted many maintenance and reclamation projects resulting in them being suspended or postponed.  The impact of this wildfire season is estimated to be a loss of $1.5M in revenue in the quarter. Vertex expects that most of the revenue shortfall in the second quarter related to wildfires will be made up within the last half of the year.

Despite the challenges encountered in the first half of the year, Vertex is well positioned for earnings growth for the remainder of 2023 through 2024.  Secured backlog has increased, and the current trend towards less carbon intensive energy sources along with the enhanced service offerings from our 2022 acquisitions have provided us with new and unique opportunities.  Vertex will also continue to pursue prospects in new geographical regions where economically feasible.

Our outlook remains positive as we continue to demonstrate the strength and resilience of our business model.  We continue to work closely with our Indigenous Partners and clients to facilitate further growth through the cross-selling of our services throughout the life cycle of our clients' projects in various industries.

RESTATEMENT OF COMPARATIVE PERIOD

During the finalization of the 2022 audited consolidated financial statements, management identified that revenue from certain contracts with customers was recorded net of the costs incurred to reflect an agency relationship and to match the economic nature of the cash flows of the contracts.  Under the terms of the contracts the Company was the principal in the arrangement. As a result, revenue and direct costs had been previously understated.  In the Interim Financial Statements, the comparative period, being the three and six months ended June 30, 2022 has been restated to correct the error.  There is no impact to the Company's statement of financial position as at June 30 2022, no impact on profit margin, net income, basic or diluted earnings per share, and no impact on operating, investing, or financing cash flows for the periods ended June 30, 2022.

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 1,100 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 Canada with select locations in the United States.

Neither TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.

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.

A)

"Adjusted EBITDA" is a non-financial measure which is calculated by adjusting net (loss) income for the sum of income taxes, finance costs including interest accretion on lease liabilities, 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.

B)

"Free cash flow" is a non-financial measure which is calculated by reducing adjusted EBITDA by maintenance capital expenditures net of disposal proceeds.

C)

"Adjusted Working Capital" is a non-financial measure which is calculated by reducing current liabilities by the current portion loans and borrowings, lease liabilities and other liabilities.


Reconciliations of adjusted EBITDA, free cash flow and adjusted working capital are provided in the table below.







ADJUSTED EBITDA




 Three months ended  

Six months ended






June 30,


June 30,






2023

2022


2023

2022

Net income for the period



1,604

1,600


2,615

860

Add:










  Depreciation and amortization



5,727

4,338


11,307

9,271

  Finance costs




3,099

2,078


5,596

3,722

  Share-based compensation



100

50


100

100

  Income tax expense (recovery)



426

491


(47)

264

ADJUSTED EBITDA




10,956

8,557


19,571

14,217

Environmental Consulting



1,122

2,392


3,004

4,861

Environmental Services



12,121

7,599


20,954

12,558

Corporate





(2,287)

(1,434)


(4,387)

(3,202)






10,956

8,557


19,571

14,217





















FREE CASH FLOW




 Three months ended  

Six months ended






June 30,


June 30,






2023

2022


2023

2022

Adjusted EBITDA




10,956

8,557


19,571

14,217

Maintenance capex




(5,088)

(2,822)


(7,845)

(4,796)

Proceeds from disposal of property and
equipment

2,351

1,295


3,486

1,722

Free cash flow




8,219

7,030


15,212

11,143

 









ADJUSTED WORKING CAPITAL






 June 30, 

December 31,







2023

2022

Current assets





55,571

82,073









Current liabilities, less




53,211

74,176

     Current portion of loans and borrowings 


(15,609)

(18,508)

     Current portion of lease liabilities



(9,937)

(9,711)

     Current portion of other liabilities



(2,142)

(2,636)

Current liabilities (excluding current portion of loans and borrowings,
lease liabilities, and other liabilities)


25,523

43,321

Adjusted working capital 




30,048

38,752



D)

"Adjusted EBITDA per share, basic and diluted" is a non-financial measure which is calculated by dividing adjusted EBITDA by the weighted average shares outstanding – basic and diluted.

FORWARD-LOOKING INFORMATION

Any "financial outlook" or "future oriented financial information" in this MD&A, 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 document 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; the Company's ability to integrate and capitalize on underutilized equipment through cross-selling opportunities across service lines and reducing redundant costs in 2023; growth opportunities in 2023; supply and demand for the Company's services; anticipated savings in 2023; activity levels in the oil and gas industry and other industries in which the Company operates; annual gross maintenance capital expenditures for 2023; 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 2023; 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.

The forward-looking information and statements included in this document are not guarantees of future performance and should not be unduly relied upon. Such information and statements involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking information or statements, including, without limitation: volatility of the oil and natural gas industry; 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 Common Shares; and the risk factors set forth under the heading "Risk Factors" in the AIF.

Vertex's business is subject to a number of risks and uncertainties. Readers are encouraged to review and carefully consider the risk factors described in the AIF, which risk factors are specifically incorporated by reference herein.

The forward-looking statements contained in this MD&A are expressly qualified in their entirety by this cautionary statement. The forward-looking statements included in this MD&A are made as of the date of this MD&A. The Company does not intend and does not assume any obligation to update any such factors or to publicly announce the result of any revisions to any of the forward-looking statements contained herein to reflect future results, events or developments, unless required by law.

SOURCE Vertex Resource Group Ltd.

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