Vertex Resource Group Ltd.'s Diversification Pays Off Entering 2019 With Record Backlog

Vertex Resource Group Ltd.'s Diversification Pays Off Entering 2019 With Record Backlog

Canada NewsWire

REPORTS FOURTH QUARTER AND FISCAL 2018 FINANCIAL RESULTS

Revenue of $46.2 million, EBITDA of $5.9 million and improved net income of $0.4 million for fourth quarter 2018 when compared with the fourth quarter of 2017.

Revenue of $150.4 million, EBITDA of $20.6 million and net income of $2.3 million for the year ending December 31, 2018.

SHERWOOD PARK, AB, March 25, 2019 /CNW/ - (TSXV:VTX) - Vertex Resource Group Ltd. ("Vertex" or the "Company") reports its financial and operational results for the fourth quarter and year ending December 31, 2018. The following should be read in conjunction with the Management Discussion and Analysis ("MD&A") and the audited consolidated financials statements and notes of Vertex for year ended December 31, 2018, which are available on SEDAR at www.sedar.com.

Vertex Resource Group Ltd.'s Diversification Pays Off, Entering 2019 with Record Breaking Backlog. Vertex Reports Fourth Quarter And Fiscal 2018 Financial Results (CNW Group/Vertex Resource Group Ltd.)

FINANCIAL AND OPERATIONAL HIGHLIGHTS
Key financial and operational highlights for the three months and year ending December 31, 2018 and 2017 are as follows:










 Three months ended  


 Years ended 

(in thousands of Canadian Dollars, except per share
amounts or unless otherwise stated)

 December 31, 


 December 31, 

2018


2017


2018


2017

Revenue

46,582


35,772


150,385


118,419

Gross profit

12,030


8,528


40,493


32,303

Income (loss) before income taxes

(313)


(1,941)


1,214


(3,685)

Net income (loss) and comprehensive income
(loss) for the period

430


(1,703)


2,291


(2,948)









Net loss and comprehensive loss for the period
per share - basic and diluted 

0.00


(0.02)


0.03


(0.04)

Weighted average number of shares outstanding
for the purpose of calculating earnings per share -
basic and diluted

91,253,115


84,304,283


89,837,995


76,501,608

EBITDA by segment








Environmental Services

6,727


3,015


22,052


14,749

Industrial Services

1,241


1,929


4,957


5,410

Corporate Services

(2,030)


(1,011)


(6,400)


(4,627)

EBITDA (1)

5,938


3,933


20,609


15,532

EBITDA per share, basic and diluted 

0.07


0.05


0.23


0.20









Gross profit (% of revenue)

26%


24%


27%


27%

EBITDA (% of revenue)

13%


11%


14%


13%









(1)

See "Non-IFRS Financial Measures"

 

HIGHLIGHTS FOR THE THREE MONTHS AND YEAR ENDING DECEMBER 31, 2018
The results for the three months and year ending December 31, 2018 were highlighted by improvements in revenue, gross profit, EBITDA and net income as compared to the corresponding periods of 2017. Net income increased as a result of improved EBITDA and the bargain purchase gain from the three acquisitions completed in 2018 (which are discussed in more details in the MD&A and the Company's Annual Information Form filed on SEDAR at www.sedar.com), offset by increases in amortization and finance costs.

For two consecutive years, Vertex finished the year on a positive note, with the results for 2018 surpassing both 2017 and 2016.  Positive trends in revenue, gross profit, EBITDA and net income were achieved even though the Company faced headwinds in the fourth quarter of 2018 from a drop-in commodity prices, increased differential in WCS-WTI and the curtailment of production that led to decreased activity levels from oil and gas customers in the fourth quarter of 2018. Vertex successfully completed three complimentary and opportunistic acquisitions during 2018 and refinanced its debt at a lower cost of borrowing which contributed to the positive results. Vertex continued to integrate and improve equipment utilization from its acquisitions in 2018 through cross-selling opportunities across service lines, continued geographical and industry expansion, as well as through reducing redundant costs where possible. Vertex's efforts to expand its service offerings and geographic footprint yielded positive increases in utilization rates in both people and equipment. Vertex continues to focus on efficiently managing the costs of the business and diversifying its services, product offerings and customer base both in geography and industry. These efforts should continue to improve performance and the financial position of the Company in order to capitalize on strategic growth initiatives. As commodity prices stabilized in first nine months of 2018, Vertex invested in the Company, diversified the business and generated positive operational results.

Highlights for the fourth quarter of 2018 compared to the fourth quarter of 2017 and the year ending December 31, 2018 as compared to the year ending December 31, 2017 were:

  • Revenue increased by $10.8 million to $46.6 million, up 30.2% in the fourth quarter of 2018 from $35.8 million for the same quarter in 2017. Revenue increased by $32.0 million to $150.4 million, up 27.0% in year ending December 31, 2018 as compared to $118.4 million for 2017. This growth is attributable to gains related to the successful cross-selling of services with existing customers and acquisitions completed within the Company's Environmental Services segment. Increases to revenue can also be attributed to the continued focus of Vertex on cross-selling strategies across customers and industries that resulted in additional utilization of people and equipment within the Environmental Services segment. These gains were offset by expected revenue reductions within Vertex's Industrial Services Segment.

  • Gross profit for the fourth quarter of 2018 was $12.0 million, up 41.1% or $3.5 million from $8.5 million in the same quarter of 2017. Gross profit for 2018 increased to $40.5 million, up 25.4% or $8.2 million from 2017. Gross profit as a percentage of revenue ("gross profit margin") improved to 25.8% in the fourth quarter of 2018 versus 23.8% in the fourth quarter of 2017. The increased gross profit is due to improved utilization of people and equipment, steady focus on cost management and positive contributions from acquisitions. Despite improvements in gross profit margin in the fourth quarters, gross profit margin was slightly down in 2018 to 26.9% as compared to 27.3% in 2017. The slight reduction in gross profit margins year over year, is largely the effect the revenue mix. Vertex is dedicated to improving margins of acquired companies during the year with increased equipment utilization, cost cutting initiatives and streamlining operations. The Industrial Services segment experienced a slight increase in gross profit margins due to the Company focusing on higher margin work.

  • General and administrative costs ("G&A") increased by 32.6% or $1.5 million to $6.1 million in the fourth quarter of 2018, from $4.6 million in the fourth quarter of 2017. As a percentage of revenue, G&A was up slightly to 13.1% in the fourth quarter of 2018 from 12.8% in the fourth quarter of 2017. G&A increased by 18.6% or $3.1 million to $19.9 million for the year ending December 31 2018, from $16.8 million in 2017. Vertex added staff, new locations and service offerings in Manitoba, Saskatchewan and Alberta due to five acquisitions completed over the past fifteen months. As a percentage of revenue, G&A was down to 13.2% in 2018 versus 14.2% in 2017. Vertex continues to integrate acquisitions and continues to manage G&A costs closely.

  • EBITDA for the fourth quarter increased by $2.1 million or 51.0% to $5.9 million compared to the same quarter in 2017. EBITDA was $20.6 million in 2018, up 32.7% or $5.1 million from 2017. This increase was due to positive contributions from acquisitions and improved utilization of people and equipment.

  • Net loss for the fourth quarter of 2018 decreased by $2.1 million or 125.2%, to income of $0.4 million, from a loss of $1.7 million in the fourth quarter of 2017. The loss improved given increased EBITDA and a further gain on bargain purchase offset by the impact of additional amortization expense from recently acquired businesses. Vertex's 2018 net income and comprehensive income improved significantly compared to 2017. Net income for 2018 was $1.4 million or $0.02 per share compared to a net loss of $2.9 million in 2017 or a loss of $0.04 per share.

  • Cash provided by operating activities increased by $10.4 million to $9.4 million for 2018, from cash used in operating activities of $1.0 million in 2017. A majority of this increase in cash provided from operating activities was due to higher revenue and EBITDA.

  • The Company restructured its Credit Facilities in the second quarter of 2018 to provide greater financial flexibility to facilitate Vertex in continuing to pursue acquisitions and organic growth opportunities and lower cost of borrowing.

OUTLOOK
Headed into the first half of 2019, Vertex is well positioned to withstand short term economic pains related to volatile commodity prices and negative investment sentiment in western Canada. This view is based on Vertex's current financial position, strong backlog of $121 million from diverse industries, longstanding customer relationships, and contributions of past, prudently purchased acquisitions which are performing well.  Almost 50% of Vertex's backlog is from outside the oil and gas industry.

The nine complementary acquisitions completed throughout the last eighteen months are now positively adding to the Company's financial position. These acquisitions allow Vertex to cross utilize people and equipment to service its existing customer base, expand geographically and continue to develop new customers outside the oil and gas industry by offering integrated environmental solutions.

Vertex continues to be impacted negatively by commodity price volatility, take away capacity, geopolitical factors and investment uncertainty within the oil and gas industry. Vertex expects to be negatively impacted, in certain segments, for at least the first half of 2019 given some uncertainly around Canadian oil price differentials, related production curtailments, reduced capital budgets of its customers, and associated reductions in drilling and completions activities within western Canada. Also, Vertex expects to continue to face pricing and margin pressure in 2019 because of the negative effects on customer's budgets and cash flows. Vertex is however, seeing additional opportunities in 2019 with increased customer spending on planned maintenance programs, increased activity levels for abandonments and active environmental liability management. In addition, new regulations for emissions testing and reporting will continue to grow Vertex's revenue for this service line.

Vertex continues to grow our customer base, with 47% of revenues for 2019 expected to come from outside of the oil and gas industry. Specifically, Vertex customers continue to grow and provide stable opportunities in the utilities, agriculture, municipalities and telecommunications industries. Vertex continues to focus on addressing the demands of its diversified customer base and addressing opportunities to capitalize directly within their operating and maintenance budgets.

Vertex will continue to focus on growing its business organically, achieving efficiencies, improving margins where possible and cost reductions throughout its business segments. Vertex continues to focus on cross-selling complementary services between segments in order to lower customers' costs and provide integrated solutions for their environmental liabilities.

Expectations for the longer term, into 2020, Vertex anticipates modest improvements in future activity levels with major projects including LNG Canada, Coastal Gas Link, Trans Mountain Expansion, and new oil sand developments as the Company will be able to capitalize and benefit from existing contracts and relationships.

Vertex remains committed to further improving its operational and financial performance while ensuring it is creating shareholder value for the longer term. To achieve these commitments, Vertex continues to focus on reducing debt, reducing its cost of borrowing, actively managing working capital and evaluating its capital expenditure plans to match core and strategic opportunities. Accretive, complementary and opportunistic acquisitions remain an essential component of Vertex's long-term growth plans as it continues to integrate acquisitions and evaluate future opportunities when beneficial.

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 650 employees and lease operators that provide services to help clients achieve their development 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 upstream and midstream oil and gas, utilities, telecommunication, forestry, agriculture and government.

Vertex principally operates in western Canada and in select locations in the United States.

NON-IFRS FINANCIAL MEASURES
This news release includes certain terms or performance measures that are not defined under International Financial Reporting Standards ("IFRS"), including "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.

"EBITDA" is defined as net loss before interest, income taxes, depreciation and amortization. EBITDA is a non-IFRS measure, calculated by adding back to net income (loss) the sum of income taxes, finance costs, gain on bargain purchase, amortization of property and equipment and intangible assets. The Company uses EBITDA as an indicator of its principal business activities prior to consideration of how its activities are financed and the impact of taxation and non-cash depreciation and amortization. EBITDA does not have a standardized meaning prescribed by IFRS and is not necessarily comparable to similar measures provided by other companies. EBITDA is used by many analysts as one of several important analytical tools and management of Vertex believes it is useful for providing readers with additional clarity on Vertex's operational performance prior to consideration of how its activities are financed, taxed, amortized or depreciated. This measure is also considered important by the Company's lenders and is adjusted in determining compliance by the Company with the financial covenants under its lending arrangements. Please refer to the MD&A under the heading "Operational and Financial Highlights – EBITDA" for a reconciliation of EBITDA to net income for the three month and the year ending December 31, 2018 and 2017.

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 Environmental Services segment in 2019; 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, 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 2019; 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; 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 affects 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.

View original content to download multimedia: http://www.newswire.ca/en/releases/archive/March2019/25/c6253.html

Copyright CNW Group 2019