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Vertex Resource Group Ltd. Second Quarter Financial Results Highlighted by Strong Increase in EBITDA

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Vertex Resource Group Ltd. Second Quarter Financial Results Highlighted by Strong Increase in EBITDA

Canada NewsWire

Revenue of $27.7 million and EBITDA of $4.3 million for second quarter 2018.
Revenue of $62.4 million and EBITDA of $8.6 million for six months ending June 30, 2018.

SHERWOOD PARK, AB, Aug. 13, 2018 /CNW/ - (TSXV:VTX) - Vertex Resource Group Ltd. ("Vertex" or the "Company") is pleased to report its financial and operational results for the three and six months ending June 30, 2018. The following should be read in conjunction with the Management Discussion and Analysis ("MD&A") and the consolidated financials and notes of Vertex for the three and six months ended June 30, 2018, which are available on SEDAR at www.sedar.com.

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FINANCIAL AND OPERATIONAL HIGHLIGHTS
Key financial and operational highlights for the three and six months ending June 30, 2018 and 2017 are as follows:






 Three months ended  


 Six months ended 

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

June 30, 

 June 30, 

2018


2017


2018


2017

Revenue

27,692


26,020


62,378


47,658

Gross profit

8,727


7,212


17,528


14,482

Loss before income taxes

(4,138)


(575)


(4,605)


(1,481)

Net loss and comprehensive loss for the period (1)

(4,178)


(367)


(4,645)


(1,047)

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

(0.05)


(0.01)


(0.05)


(0.02)

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

88,653,115


70,973,522


88,546,799


68,946,129

EBITDA by segment









Environmental Services

4,605


4,190


8,537


8,088


Industrial Services

1,244


971


2,796


1,486


Corporate Services

(1,591)


(2,012)


(2,738)


(3,023)

EBITDA (2)

4,258


3,149


8,595


6,551

EBITDA per share, basic and diluted 

0.05


0.04


0.10


0.10









Gross profit (% of revenue)

32%


28%


28%


30%

EBITDA (% of revenue)

15%


12%


14%


14%

(1)

Net loss increased due to one-time financing costs of $3.6 million.

(2)

See "Non-IFRS Financial Measures"


 

STRONG PERFORMANCE FOR THE SECOND QUARTER AND IMPROVED SIX MONTHS
The results for the second quarter of 2018 and the six months ended June 30, 2018 were strong as compared to the corresponding periods of 2017 with revenue, gross profit and EBITDA all improving. Net loss increased as a result of a one-time finance cost related to the refinancing of Vertex's debt facilities with expectations of realizing $2 million in annual cash interest savings in 2019 and thereafter.  

Vertex's efforts have produced another strong quarter and are trending towards record revenues in the last half of 2018. Increased activity levels in certain services lines have supported both organic and acquisition growth leading to improved utilization. Vertex has finalized integration efforts on 2017 acquisitions and is now focused on integrating 2018 acquisitions, as noted below, while pursuing cross selling initiatives between business segments to promote organic growth. Vertex continues to provide and has expanded upon versatile solutions for its customers to address their environmental needs. 

Main highlights for the second quarter of 2018 compared to the second quarter of 2017 and the six months ending June 30, 2018 as compared to the six months ending June 30, 2017 were:

  • Revenue increased to $27.7 million or by 6.4% in the second quarter of 2018 from $26.0 million for the same quarter of 2017. Revenue increased to $62.4 million or by 30.9% in the six months ending June 30, 2018 from $47.7 million for the same six months of 2017. Growth in revenue is attributable to rebounds in customer spending in Vertex's targeted segments, acquisition impacts, cross-selling strategies between segments and industry diversification that resulted in greater demand for the Company's services.

  • Gross profit for the second quarter of 2018 was $8.8 million, up 21.0% from $7.2 million in the same quarter of 2017. Gross profit as a percentage of revenue ("gross profit margin") improved to 31.5% in the second quarter of 2018 from 27.7% in the same quarter of 2017, due to revenue increases from higher margin Environmental Service lines. Gross profit for the six months ending June 30, 2018 was $17.5 million, up 21.0% or $3.0 million from $14.5 million in the same six months of 2017. Gross profit margin decreased slightly to 28.1% in the six months ending June 30, 2018 versus 30.4% in the same six months of 2017, due to revenue increases from lower margin service lines in the first quarter of 2018.

  • General and administrative costs ("G&A") increased by 10% or $0.4 million in the second quarter of 2018 as Vertex now incurs costs associated with being a public company and has integrated several past acquisitions. As a percentage of revenue, G&A was down to 14.3% in the six months ending June 30, 2018 versus 16.6% in the same six months of 2017.

  • EBITDA for the second quarter of 2018 was $4.3 million, an increase of 35.2% compared to the second quarter of 2017. This increase was driven by the strong performance of Vertex's environmental services segment as compared to the second quarter of 2017. EBITDA for the six months ending June 30, 2018 was $8.5 million, an increase of 31.2% compared to the same six months of 2017. The Environmental Services segment increased Vertex's EBITDA through additional projects related to maintenance, turnarounds, industrial cleaning and water management.

    Net loss for the second quarter of 2018 increased by $3.8 million, over the second quarter of 2017. Net loss for the six months ending June 30, 2018 increased by $3.6 million, to a loss of $4.6 million, from the same six months of 2017. The increase in net loss was due to a one-time finance cost of $3.6 million related to the refinancing of Vertex's debt facilities in May 2018. This was done in order to realize $2 million in annual interest savings and to bring in a syndicated lending group that supports Vertex's planned growth strategy.

  • Cash generated from operating activities increased by $3.2 million to $5.8 million for the six months ending June 30 2018, from $2.6 million in the six months ending June 30, 2017.

  • Vertex completed two complementary acquisitions in the second quarter of 2018 within Vertex's Environmental Services segment - TSL Industries ("TSL") and a private hydrovac company ("Hydrovac") for aggregate fair value consideration of $7.6 million. These acquisitions closed May 31 and June 27, 2018, respectively, so impacts to the second quarter results were minimal. In addition, Vertex closed the acquisition of Three Star Trucking Ltd. ("Three Star") on July 12, 2018 for fair value consideration of $7.8 million and an estimated bargain purchase gain of $6.1 million. These acquisitions have added to the Company's service lines and geographical footprint.

OUTLOOK
Vertex anticipates further improvements in utilization and profitability in certain operating segments. The Company expects it should surpass results from 2017.  The recent acquisitions of TSL, Hydrovac and Three Star are expected to bolster revenue over the second half of 2018.

Vertex further expects continued progression in increasing its overall utilization as a result of improved activity levels of Vertex's customers, acquisitions and new awarded projects heading into the last half of the fiscal year. With the current cost structure and controls in place, increases in revenue should improve gross margins, EBITDA and net income.

Vertex continues to be encouraged by growth opportunities through abandonments, water management solutions, fluid hauling and environmental liability management for its customers both in western Canada and the United States heading into the last half of 2018. The Company continues to cultivate and pursue opportunities outside of the oil and gas industry in an effort to diversify its customer base while increasing its exposure directly to operating and maintenance budgets of its customers. Vertex anticipates the pricing of its services to improve slightly in the last half of 2018 as demand for these services is expected to increase, however these gains may be somewhat offset by increased costs. Vertex will continue to focus on achieving efficiencies and cost reductions throughout its operations, including a continued focus on the integration of recent acquisitions, the promotion of cross-selling opportunities between segments in order to lower customers' costs and providing integrated environmental solutions for its customers.

Vertex expects a decline in its Industrial Services segment's revenue given the highly competitively landscape, and the Company's unwillingness to accept the increased risks associated with contractual terms and customer credit worthiness in a segment whose margins have historically been low.

Vertex continues to focus on strengthening its balance sheet with acquisitions, debt repayments, managing working capital and adhering to prudent capital expenditure plans. Accretive, complementary and opportunistic acquisitions remain an essential component of Vertex's long-term growth plans as the Company continues to integrate acquisitions from the past twelve months and evaluate future opportunities when beneficial. Vertex is committed to further improving its operational and financial performance while ensuring that it is creating shareholder value for the longer term.

ABOUT VERTEX
Established in 1976, Vertex has grown to become a leading provider of environmental services. Headquartered in Sherwood Park, Alberta, Vertex employs a staff of approximately 700 employees 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, 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 "Financial Highlights – EBITDA" for a reconciliation of EBITDA to net income for the three and six-month periods ended June 30, 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, such as the Company's expectations regarding its results and the impact of its cost controls, and diversification efforts for the remainder of the year, constitute "forward-looking information" as such term is used in applicable Canadian securities laws. Forward-looking information is based on plans, expectations and estimates of management at the date the information is provided and is subject to certain factors and assumptions, including, that the Company's financial condition and development plans do not change as a result of unforeseen events, that the Company's expectation regarding the impact of its cost controls and diversification efforts are accurate and assumptions regarding future commodity prices, exchange rates and demand for the Company's services. Forward-looking information is subject to a variety of risks and uncertainties and other factors that could cause plans, estimates and actual results to vary materially from those projected in such forward-looking information. Factors that could cause the forward-looking information in this news release to change or to be inaccurate include, but are not limited to, the risk that any of the assumptions referred to prove not to be valid or reliable, that occurrences such as those referred to above are realized and result in delays, or cessation in planned work, that the Company's financial condition and development plans change, as well as the other risks and uncertainties applicable to the provision of environmental and industrial services and to the Company as set forth 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.

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