- Third quarter revenue increased by 18% to $43.4 million from $36.7 million in 2017
- Adjusted EBITDA increased by 85% to $5.2 million from $2.8 million last year
- Completed acquisition of Grande Prairie based Capstan Hauling Ltd.
ACHESON, Alberta, Nov. 07, 2018 (GLOBE NEWSWIRE) -- (TSX:ENT) ENTREC Corporation (“ENTREC” or the “Company”) , a heavy haul transportation and crane solutions provider, today announced financial results for the third quarter ended September 30, 2018.
| Three Months Ended | Nine Months Ended | |||||||
| $ thousands, except per share amounts and margin percent | Sept 30 2018 | Sept 30 2017 | Sept 30 2018 | Sept 30 2017 | ||||
| Revenue | 43,400 | 36,665 | 127,388 | 109,888 | ||||
| Gross profit | 8,709 | 6,373 | 20,772 | 18,027 | ||||
| Gross margin | 20.1 | % | 17.4 | % | 16.3 | % | 16.4 | % |
| Adjusted EBITDA(1) | 5,164 | 2,795 | 10,217 | 7,767 | ||||
| Adjusted EBITDA margin(1) | 11.9 | % | 7.6 | % | 8.0 | % | 7.1 | % |
| Per share(1) | 0.05 | 0.03 | 0.09 | 0.07 | ||||
| Adjusted net loss(1) | (1,291 | ) | (3,432 | ) | (9,194 | ) | (10,996 | ) |
| Per share(1) | (0.01 | ) | (0.03 | ) | (0.08 | ) | (0.10 | ) |
| Net loss | (192 | ) | (3,768 | ) | (9,706 | ) | (11,387 | ) |
| Per share – basic | (0.00 | ) | (0.03 | ) | (0.09 | ) | (0.10 | ) |
| Per share – diluted | (0.00 | ) | (0.03 | ) | (0.09 | ) | (0.10 | ) |
| Cash provided by operating activities | 1,265 | (3,368 | ) | 227 | (4,250 | ) | ||
| Funds from operations(1) | 2,317 | 672 | 2,382 | 2,308 | ||||
| Per share(1) | 0.02 | 0.01 | 0.02 | 0.02 | ||||
| Basic weighted average shares outstanding | 109,786 | 109,540 | 109,701 | 109,516 | ||||
| As at $ thousands | September 30 2018 | December 31 2017 | ||||||
| Working capital(1) | 29,193 | 27,052 | ||||||
| Total assets | 217,484 | 227,496 | ||||||
| Total liabilities | 181,653 | 182,705 | ||||||
| Shareholders’ equity | 35,831 | 44,791 | ||||||
| Net tangible asset value(1) | 60,993 | 66,798 | ||||||
Note 1: See “Non-IFRS Financial Measures” section of the Company’s Management Discussion & Analysis for the three and nine months ended September 30, 2018.
Revenue for the three months ended September 30, 2018 increased by 18% to $43.4 million from $36.7 million in 2017 due to significant growth from ENTREC’s operations in the United States. The Company’s US revenue increased by 54% to $21.8 million in 2018 from $14.2 million last year and now represents 50% of ENTREC’s consolidated revenue. 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 $2.6 million in the quarter. The company’s revenue in Canada was relatively flat in the quarter, declining to $21.6 million in Q3 2018 from $22.5 million last year.
On a year-to-date basis, revenue increased by 16% to $127.4 million from $109.9 million in 2017 due to higher activity levels within ENTREC’s US operations. The Company’s US revenue increased by 54% to $57.2 million in the first nine months of 2018 from $37.1 million in 2017. Revenue in Canada declined slightly to $70.2 million during the nine months ended September 30, 2018 from $72.8 million last year. This decline was caused from slower activity levels related to conventional oil and gas, which was due to both less construction project activity as well as lower spending on upstream activities by ENTREC’s customers. Offsetting a portion of the revenue decline in Canada for the nine month period was higher revenue related to oil sands MRO work.
Adjusted EBITDA increased to $5.2 million in the third quarter of 2018 from $2.8 million last year due to the higher revenue and an improved gross margin. The higher revenue and margins also caused ENTREC’s adjusted net loss to improve to $1.3 million from $3.4 million last year. On a year-to-date basis, adjusted EBITDA increased to $10.2 million from $7.8 million last year.
Strategy and Outlook
Overall, ENTREC’s strategy to grow its business through geographic and industry diversification will be focused on the following initiatives as the Company moves into 2019:
- Significantly expanding ENTREC’s business in the United States;
- Obtaining additional MRO work with existing and new clients;
- Pursuing construction project work related to LNG, pipelines, 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 as the Company moves into 2019. Growing demand for ENTREC’s services in a recovering oil and gas sector has led to both increased activity levels as well as higher customer pricing. Assuming oil prices can be maintained at current levels or increase further in 2019, the Company should continue to see higher industry activity levels in the United States that should result in further improvements in 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.
Despite strong demand for ENTREC’s services, the profitability of its Texas operations has been severely hampered in 2018 by high operating costs and labour shortages. The Company is executing a strategy to improve its profitability in this region in the fourth quarter of 2018. In October 2018, the Company established its own employee accommodation facilities to house current and future staff. The Company is also supporting its Texas operations with additional employees from other regions.
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 include 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, ENTREC’s outlook for western Canada is beginning to improve. First, the Company 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, LNG Canada’s positive final investment decision on its $40 Billion liquefied natural gas (LNG) project in Kitimat, B.C. is very positive for the natural gas industry in Canada and for ENTREC. The Company expects to benefit from this project in a number of ways, including:
- Construction. ENTREC expects to benefit from both direct and indirect construction activity in the Kitimat region to support construction of the LNG facility and supporting infrastructure. Having been based in Terrace and Kitimat for the past 30 years, ENTREC has a very strong local presence in the region;
- Pipelines. ENTREC expects to benefit from both direct and indirect activity related to the construction of pipelines and supporting infrastructure, which will feed natural gas to LNG Canada’s terminal; and
- Exploration and Production. ENTREC expects to benefit from an anticipated increase in natural gas exploration and production activity in north-west Alberta and north-east B.C., which will be required to support LNG Canada’s natural gas needs.
Capstan Hauling Inc. (“Capstan”)
The Company is also pleased to have completed its acquisition of Capstan on October 1, 2018. 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 $9.0 million. Capstan’s fleet consists of mobile cranes, picker trucks, winch trucks and a wide variety of multi-wheeled trailers.
“With LNG Canada’s recent final investment decision to construct a LNG facility in Kitimat, this acquisition is very timely for ENTREC,” said John M. Stevens, ENTREC’s President and CEO. “Capstan also 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.”
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.
Net tangible asset value is derived from the consolidated statement of financial position and is calculated as shareholders’ equity, excluding intangible assets, and adjusted for the difference between the estimate of fair market value and book value of ENTREC’s property, plant and equipment. The Company believes net tangible asset value is a useful measure as it provides an indication of the net asset value of ENTREC. The Company’s estimate of the fair market value of its property, plant and equipment is based on recent appraisals of its equipment fleet as well as other market and industry data. In addition, non-fleet assets are estimated to have a fair market value that approximates their carrying value. Fair market value is a significant estimate, which is subject to adjustment based on market factors that can affect both the supply and demand for similar assets. The actual realizable value on a sale of property, plant and equipment could differ materially from these estimates.
Please see ENTREC's Management Discussion & Analysis for the three and nine months ended September 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) The Company’s expectation that assuming oil prices can be maintained at current levels or increase further in 2019, it should continue to see higher industry activity levels in the United States that should result in further improvements in profitability. This expectation is subject to the assumption that oil prices will be high enough in 2019 to encourage additional spending by oil and gas companies. ENTREC’s ability to achieve this growth is subject to a number of risks, including volatility of the oil and natural gas sector, economy and cyclicality, and competition; (ii) the Company’s expectation that its strategy to improve profitability in Texas in the fourth quarter of 2018 will be successful. This expectation is subject to ENTREC’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. The Company’s ability to achieve this recovery is subject to a number of risks, including workforce availability and competition; (iii) the Company’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; and (b) ENTREC’s expectation that the recent positive final investment decision on the $40 Billion LNG Canada project in Kitimat, B.C. will be very positive for the natural gas industry in Canada and for ENTREC. ENTREC’s belief that revenue from its MRO work in the Alberta oil sands region will be steady into fiscal 2019 is based on the assumption that oil and natural gas prices will be high enough in 2019 to maintain current levels of spending by oil and gas companies in the Alberta oil sands region. ENTREC’s expectation that the recent positive final investment decision on the $40 Billion LNG Canada project will be beneficial for the natural gas industry in Canada and for ENTREC is based on the assumption that the positive decision will encourage additional investment in the natural gas industry in western Canada and that the Company can obtain additional work in the natural gas sector and in supporting construction activity related to the approved LNG project. This expectation is also completely subject to the construction of the LNG facility proceeding as approved. There is no certainty of this. These expectations and assumptions are subject to a number of risks, including volatility of the oil and natural gas sector, Alberta oil sands exposure, economy and cyclicality, and regulatory and statutory developments; and (iv) the Company’s anticipation that the acquisition of Capstan positions it to benefit from improving market fundamentals. This expectation is based on the assumption that ENTREC is able to successfully integrate its operations with Capstan in the Grande Prairie region and that general market conditions in the oil and gas industry in western Canada improve in the future. These expectations and assumptions are subject to a number of risks, including volatility of the oil and natural gas sector, failure to realize anticipated benefits of business acquisitions, and regulatory and statutory developments.
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