- Second quarter revenue increased by 22% to $43.9 million from $35.9 million in 2017
- Adjusted EBITDA increased by 54% to $4.1 million from $2.7 million last year
- Enters letter of intent to acquire Grande Prairie based Capstan Hauling Inc.
ACHESON, Alberta, Aug. 08, 2018 (GLOBE NEWSWIRE) -- 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 & CEO
Telephone: (780) 960-5625
Jason Vandenberg – CFO
Telephone: (780) 960-5630
www.entrec.com