Press release from Marketwire
ENTREC Announces 2013 Second Quarter Financial Results
Monday, August 12, 2013
ENTREC Announces 2013 Second Quarter Financial Results18:00 EDT Monday, August 12, 2013
SPRUCE GROVE, ALBERTA--(Marketwired - Aug. 12, 2013) - ENTREC Corporation (TSX VENTURE:ENT) -
- Second quarter revenue increased by 72% to $49.3 million
- Adjusted EBITDA margin of 25.8%, compared to 28.1% in 2012
- Subsequent to the quarter, ENTREC completed the acquisition of GT's Crane and Transportation Services ("GT's")
- 2013 revenue guidance increased to reflect the GT's acquisition
ENTREC Corporation ("ENTREC" or the "Company"), a leading provider of heavy lift and heavy haul services, today announced financial results for the three and six months ended June 30, 2013.
|Three Months Ended||Six Months Ended|
|$ thousands, except per share amounts and margin percent||
|Adjusted EBITDA before acquisition costs(1)||12,738||8,060||26,166||13,707|
|Adjusted net income(1)||4,461||3,249||9,946||5,918|
|Per share - basic||0.04||0.04||0.10||0.10|
|Per share - diluted||0.04||0.04||0.08||0.10|
Note 1: See "Non-IFRS Financial Measures" section of the Company's Management Discussion & Analysis for the three and six months ended June 30, 2013.
"We continued to grow revenues and respond to customer demand during the second quarter, even while contending with poor weather conditions in some of our key operating areas," said John M. Stevens, ENTREC's President and COO. "We also further expanded our business with an agreement to acquire GT's Crane and Transportation Services. The transaction, which closed on July 2, 2013, brings us an additional 45 cranes, 130 trailers and 50 tractors, and positions ENTREC as a leading heavy lift and heavy haul company in Northeast BC and Northwest Alberta."
For the three months ended June 30, 2013, revenue increased by 72% to $49.3 million from $28.7 million during the same period in 2012. This increase included $15.6 million of acquisition-related growth, reflecting the positive impact of business combinations completed over the past year. Organic growth of $5.0 million or 11% contributed the balance of the revenue increase.
"While second quarter revenue came in slightly below our original expectations, we view our results as positive in light of the unusually poor weather conditions," added Mr. Stevens.
ENTREC's second quarter typically gets off to a slower start due to the spring snow melt and wet conditions that make the ground less capable of supporting vehicles with heavy loads. Affected activity levels then normally increase in May and June as ground conditions improve. However, during the second quarter of this year, we experienced heavy rains and flooding in several operating regions in the months of May and June. Heavy rains and flooding in Northern Alberta in late May and early June hampered our ability to access customer sites and resulted in temporary road closures limiting our ability to reach customer destinations. Activity in Southern Alberta was also negatively affected by heavy rain fall and severe flooding in the second half of June. The floods in Southern Alberta created an additional operational impact for ENTREC as utility companies diverted resources to the flood response. This caused further delays for transportation projects in Northern Alberta that depend on utility services for necessary wire lifting and other transportation logistics.
"Since the beginning of the third quarter, operating conditions and activity levels are now largely back to normal," added Mr. Stevens.
Aside from the weather conditions factors noted above, ENTREC continued to experience steady demand in the second quarter for both its crane and heavy haul transportation services in the Alberta oil sands region and Northwest B.C. Offsetting this performance was continued lower demand for its services in the conventional oil and natural gas sector compared to the prior year.
Second quarter adjusted EBITDA, before acquisition and integration costs, increased to $12.7 million, from $8.1 million in the comparative quarter in 2012. As a percentage of revenue, second quarter adjusted EBITDA margin declined to 25.8%, from 28.1% during the same period last year. The year-over-year change reflects lower utilization of equipment during the current period.
Adjusted net income increased to $4.5 million in the second quarter, from $3.2 million last year, reflecting the higher revenue. Adjusted net income for the Q2 2013 period included $0.8 million in non-recurring acquisition and integration costs, primarily related to the acquisition of GT's, compared to $0.4 million during the same period last year.
Adjusted earnings per share were $0.04, compared to $0.05 per share during the same period last year. Excluding the after-tax effect of non-recurring acquisition and integration costs of $0.6 million, adjusted earnings per share would have been $0.05 in the second quarter of 2013, on par with the $0.05 per share reported last year.
When comparing year-over-year adjusted net income per share results, it is also important to note the impact of an increased number of common shares outstanding as at June 30, 2013. In February 2013, ENTREC successfully completed an offering of 18,672,000 common shares at a price of $1.75 per share, for gross proceeds of $32.7 million. Net proceeds of the offering were temporarily utilized to reduce outstanding debt and strengthen ENTREC's balance sheet. Subsequent to the quarter, ENTREC utilized its additional financial capacity to complete the acquisition of GT's. ENTREC expects this transaction will be immediately accretive to its earnings per share during the remainder of 2013 and through 2014.
Second quarter net income, reported in accordance with IFRS, grew to $4.4 million or $0.04 per share, from $3.0 million or $0.04 per share in the second quarter last year. Net income includes the after-tax effect of acquisition-related intangible asset amortization, interest accretion on convertible debentures, and gains (loss) on the revaluation of the embedded derivative component of convertible debentures, all of which are components excluded from the calculation of adjusted net income.
Impact of Rental Equipment on Adjusted EBITDA
To help meet the demand for its services, ENTREC continues to complement its owned crane and trailer fleet with shorter-term rentals. While these rentals provide greater financial flexibility, they generate lower cash flow returns due to the rental costs involved. If equipment rental costs were excluded from ENTREC's second quarter results, adjusted EBITDA before acquisition costs would have increased by a further $1.4 million to $14.1 million (an increase of $0.6 million to $8.7 million during the same period in 2012). On a year-to-date basis, adjusted EBITDA before acquisition costs would have increased by a further $2.6 million to $28.8 million during the six months ended June 30, 2013 (an increase of $1.0 million to $14.7 million during the same six-month period in 2012).
Most of the equipment ENTREC rents come with purchase options, including a provision that allows the Company to apply much of its previous rental payments against the purchase price. During the first half of 2013, ENTREC bought-out $4.3 million of rental equipment. The Company plans to acquire an additional $4.1 million of rental crane and specialized trailer units in the second half of 2013 as part of its revised capital expenditure program. The buy-out of this additional equipment is expected to reduce annual rental expense by approximately $1.9 million.
"Our outlook for the remainder of 2013 and 2014 is positive," said Mr. Stevens. "Our tremendous growth over the past year has positioned us to capture a larger share of the growing industrial development occurring throughout Western Canada, most notably in Alberta's oil sands region and throughout Northern B.C."
Quoting activity in ENTREC's key markets continues to be strong as customers become more aware of the Company's expanded scale and operating capabilities. During the first half of 2013, ENTREC was granted a number of heavy haul transportation contracts extending into 2014 and 2015 that it would not have had the scale of operations to execute a year ago. The Company is also successfully cross selling its crane and heavy haul transportation services to existing and new customers. Several key customers have now also expanded their master service agreements with ENTREC to include crane services.
The Company is also benefiting from the growing industrial development occurring in Northern B.C., which includes ongoing mining, hydro-electric, pipeline, and oil and natural gas projects, as well as the anticipated development of liquefied natural gas (LNG) facilities in Northwest B.C. ENTREC is also currently providing crane and transportation services to support a multi-billion-dollar revitalization of an aluminum smelter in Kitimat, B.C.
Based on expected schedules for future projects, ENTREC believes demand for its crane and heavy haul transportation services could grow further in 2014 and 2015 and exceed the demand experienced in the first half of 2013. With the acquisition of GT's, ENTREC now has a leading market position in the provision of crane and transportation services to the conventional oil and gas industry. While demand from this sector was lower during the first half of 2013 than in prior years, activity levels are expected to increase in the second half in conjunction with expected investments in LNG-driven natural gas infrastructure in Northeast BC and Northwest Alberta.
2013 Revenue Guidance Increased
ENTREC today increased its revenue guidance for 2013 to reflect the addition of the GT's business. Based on current expectations for future business activity, and assuming no further acquisitions are completed this year, ENTREC estimates its revenue for the year ending December 31, 2013 could range between $235 million and $245 million. The Company expects the weighting of revenue during the remainder of the year will be skewed to the fourth quarter as additional large projects commence this fall. Future business acquisitions completed in fiscal 2013 could further increase this revenue estimate.
2013 Capital Expenditure Program
ENTREC also updated its 2013 capital expenditure program as a result of the acquisition of GT's. Equipment acquired as part of the transaction has negated the need for planned capital expenditures on certain tractor and trailer equipment. As a result, ENTREC reallocated approximately $6.0 million of these expenditures to add additional capacity to its crane fleet, as well as to acquire self-propelled modular trailers ("SPMTs"). SPMTs are specialized trailers used extensively in the on-going maintenance of large industrial facilities. ENTREC recently took delivery of its first SPMT units under lease rental and expects to add additional SPMTs to the fleet this fall under its capital expenditure program.
In August 2013, ENTREC entered into an agreement with an arm's length vendor to dispose of its deposit on the purchase of a 15-acre property in Fort McMurray, Alberta for gross proceeds of approximately $11.0 million. In conjunction with this agreement the Company entered into a new long term lease for that same property. The transaction is scheduled to close in August 2013. This transaction eliminated the need for $6.5 million of capital expenditures originally included in the 2013 capital expenditure program. ENTREC has now reallocated these planned expenditures to add additional capacity to its crane fleet and to buyout additional rental crane units.
ENTREC's revised 2013 capital expenditure program of $53 million now consists of the following components:
|Cranes (all-terrain, rough terrain, crawlers, truck cranes, picker trucks)||$33 million|
|Heavy haul transportation equipment (including SPMTs)||$14 million|
The revised program consists of $46 million in growth capital expenditures to expand ENTREC's equipment fleet and $7 million in maintenance capital expenditures. A large portion of the growth capital is focused on cranes, as the Company continues to build capability and market share in this field. Crane services are highly complementary to heavy haul transportation as they allow customers to meet their heavy haul and lifting needs from one vendor. Crane services also increase access to recurring onsite MRO support work in the Alberta oil sands region, as well as to the significant industrial construction work occurring in the oil sands and in Northwest B.C.
During the six months ended June 30, 2013, ENTREC made capital expenditures of $29.7 million, consisting of $26.4 million in growth capital expenditures and $3.3 million in maintenance capital expenditures. Approximately $19 million of these capital expenditures were invested in crane equipment, with the remainder directed to tractors and heavy haul trailers, as well as other support equipment.
A complete set of ENTREC's most recent financial statements and Management's Discussion and Analysis will be filed on SEDAR (www.sedar.com) and posted on the Company's website (www.entrec.com).
Second Quarter Conference Call
ENTREC will host a conference call and webcast to discuss its 2013 second quarter financial results tomorrow, August 13, 2013 at 9:00 am (MDT) (11:00 am Eastern). The call can be accessed by dialing toll-free: 1-877-440-9795 or 416-340-8530 (GTA and International).
A replay will be available approximately two hours after the completion of the call until August 20, 2013 by dialing 905-694-9451 / 1-800-408-3053, passcode: 1863954.
The conference call will also be available via webcast within the Investors section of ENTREC's website at: www.entrec.com.
ENTREC is a leading provider of heavy lift and heavy haul services with offerings encompassing crane services, heavy haul transportation, engineering, logistics and support. ENTREC provides these services to the oil and natural gas, construction, petrochemical, mining and power generation industries. ENTREC's common shares trade on the TSX Venture Exchange under the trading symbol "ENT".
|Consolidated Statements of Financial Position|
|As at||June 30||December 31|
|(thousands of Canadian dollars)||$||$|
|Trade and other receivables||43,005||41,789|
|Prepaid expenses and deposits||2,718||1,936|
|Non-cur rent assets|
|Deposits on business acquisitions||-||4,273|
|Property, plant and equipment||153,707||134,761|
|Deferred income taxes||165||165|
|Tot al assets||292,661||265,369|
|LIABILITIES AND SHAREHOLDERS' EQUITY|
|Trade and other payables||15,733||16,781|
|Income taxes payable||2,639||2,703|
|Acquisition consideration payable||716||2,320|
|Current portion of long-term debt||13,866||14,226|
|Current portion of obligations under finance lease||1,350||1,298|
|Obligations under finance lease||3,167||4,914|
|Deferred income taxes||20,379||19,428|
|Accumulated other comprehensive income (loss)||290||(36)|
|Total shareholders' equity||160,640||115,992|
|Total liabilities and shareholders' equity||292,661||265,369|
|Consolidated Statements of Income||Three Months Ended||Six Months Ended|
|(thousands of Canadian dollars, except per share amounts)||
|General and administrative expense||5,637||2,917||10,327||5,448|
|Depreciation of property, plant and equipment||4,083||1,865||7,952||3,133|
|Amortization of intangible assets||778||338||1,543||544|
|Loss on disposal of property, plant and equipment||136||119||150||128|
|Gain on change in fair value of embedded derivative||(982)||-||(1,868)||-|
|Income before finance items and income taxes||7,466||4,923||16,510||8,843|
|Income before income taxes||5,723||4,275||13,056||7,731|
|Earnings per share - basic||0.04||0.04||0.10||0.10|
|Earnings per share - diluted||0.04||0.04||0.08||0.10|
Non-IFRS Financial Measures
Adjusted EBITDA before acquisition costs is defined as earnings before interest, income taxes, depreciation, amortization, loss (gain) on disposal of property, plant and equipment, change in fair value of embedded derivative, share-based compensation, and non-recurring business acquisition and integration costs. In addition to net income, Adjusted EBITDA before acquisition costs is a useful measure as it provides an indication of the financial results generated by ENTREC's 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. Adjusted EBITDA before acquisition costs also illustrates what ENTREC's EBITDA is, excluding the effect of non-recurring business acquisition and integration costs. Adjusted EBITDA before acquisition costs margin is calculated as adjusted EBITDA before acquisition costs divided by revenue. Per share amounts are calculated as adjusted EBITDA before acquisition costs divided by the basic weighted average number of shares outstanding during the period.
Adjusted net income is calculated excluding the after-tax amortization of acquisition-related intangible assets, notional interest accretion expense arising from convertible debentures, and the gain (loss) on change in fair value of the embedded derivative related to such convertible debentures. These exclusions represent non-cash charges the Company does not consider indicative of ongoing business performance. ENTREC 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 earnings per share is calculated as adjusted net income divided by the basic weighted average number of shares outstanding during the applicable period.
Please see ENTREC's Management Discussion & Analysis for the three months ended June 30, 2013 for reconciliations of adjusted EBITDA, adjusted EBITDA before acquisition costs, and adjusted net income to net income, the most directly comparable financial measure calculated and presented in accordance with IFRS.
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 such forward-looking statements in this press release relate to, but are not limited to: ENTREC's expectation the acquisition of GT's will be immediately accretive to its earnings per share during the remainder of 2013 and in 2014; ENTREC's belief that it is well positioned to capture a large share of the growing industrial development occurring throughout western Canada and most notably in Alberta's oil sands region and throughout northern B.C.; belief that based on expected schedules for future projects, demand for crane and heavy haul transportation services could grow further in 2014 and 2015 and exceed the demand ENTREC experienced in the first half of 2013; anticipation of future development of LNG facilities in Northwest B.C. in the coming years, as well as ongoing mining, hydro-electric, pipeline, and oil and natural gas projects throughout these areas; estimate ENTREC's revenue could range between $235 million and $245 million for the year ending December 31, 2013; and ENTREC's plans to complete its revised 2013 capital expenditure program of $53 million, which will include the buy-out of an additional $4.1 million of rental crane and specialized trailer units.
These forward-looking statements involve a number of significant assumptions. Key assumptions utilized in developing forward-looking statements related to ENTREC's future growth expectations include achieving its internal revenue, net income and cash flow forecasts for 2013 and beyond. Achieving these forecasts is largely dependent on a number of factors beyond ENTREC's control including all of the risks discussed further under the "Business Risks" section in ENTREC's Management Discussion and Analysis for the three months ended June 30, 2013 and year ended December 31, 2012. These risk factors are interdependent and the impact of any one risk or uncertainty on a particular forward-looking statement is not determinable.
ENTREC's ability to finance its capital expenditure programs is dependent on its ability to achieve debt financing terms acceptable to the lenders and ENTREC, as well as meeting ENTREC's internal cash flow forecasts.
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 consequences to, or effects on, ENTREC. These forward-looking statements are made as of the date of this press release. Except as required by applicable securities legislation, ENTREC assumes no obligation to update publicly or revise any forward-looking statements to reflect subsequent information, events, or circumstances.
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 release.
FOR FURTHER INFORMATION PLEASE CONTACT:
Chairman & CEO
John M. Stevens
President & COO