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.
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Three Months Ended Six Months Ended
$ thousands, except per share amounts June 30 June 30 June 30 June 30
and margin percent 2013 2012 2013 2012
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Revenue 49,307 28,730 101,010 52,167
Gross profit 17,545 10,609 35,497 18,714
Gross margin 35.6% 36.9% 35.1% 35.9%
Adjusted EBITDA before acquisition
costs(1) 12,738 8,060 26,166 13,707
Margin(1) 25.8% 28.1% 25.9% 26.3%
Per share(1) 0.12 0.12 0.26 0.24
Adjusted net income(1) 4,461 3,249 9,946 5,918
Per share(1) 0.04 0.05 0.10 0.10
Net income 4,427 3,011 9,827 5,541
Per share - basic 0.04 0.04 0.10 0.10
Per share - diluted 0.04 0.04 0.08 0.10
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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."
Financial Results
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.
Outlook
"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
Other $6 million
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Total $53 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.
About ENTREC
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".
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Consolidated Statements of Financial Position
As at December
June 30 31
2013 2012
(thousands of Canadian dollars) $ $
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ASSETS
Current assets
Cash 381 2,511
Trade and other receivables 43,005 41,789
Inventory 1,836 1,968
Prepaid expenses and deposits 2,718 1,936
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47,940 48,204
Non-current assets
Long-term deposits 10,523 523
Deposits on business acquisitions - 4,273
Property, plant and equipment 153,707 134,761
Intangible assets 23,602 23,868
Goodwill 56,724 53,575
Deferred income taxes 165 165
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Total assets 292,661 265,369
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
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
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34,304 37,328
Non-current liabilities
Long-term debt 52,073 64,281
Obligations under finance lease 3,167 4,914
Convertible debentures 22,098 23,426
Deferred income taxes 20,379 19,428
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Total liabilities 132,021 149,377
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Shareholders' equity
Share capital 129,305 94,880
Contributed surplus 8,499 8,429
Retained earnings 22,546 12,719
Accumulated other comprehensive income (loss) 290 (36)
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Total shareholders' equity 160,640 115,992
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Total liabilities and shareholders' equity 292,661 265,369
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Consolidated Statements of Income Three Months Ended Six Months Ended
June 30 June 30 June 30 June 30
(thousands of Canadian dollars, except 2013 2012 2013 2012
per share amounts) $ $ $ $
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Revenue 49,307 28,730 101,010 52,167
Direct costs 31,762 18,121 65,513 33,453
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Gross profit 17,545 10,609 35,497 18,714
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Operating expenses
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
Share-based compensation 427 447 883 618
Loss on disposal of property, plant and
equipment 136 119 150 128
Gain on change in fair value of
embedded derivative (982) - (1,868) -
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10,079 5,686 18,987 9,871
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Income before finance items and income
taxes 7,466 4,923 16,510 8,843
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Finance items
Finance costs 1,743 655 3,454 1,129
Finance income - (7) - (17)
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1,743 648 3,454 1,112
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Income before income taxes 5,723 4,275 13,056 7,731
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Income taxes
Current 524 441 1,797 441
Deferred 772 823 1,432 1,749
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1,296 1,264 3,229 2,190
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Net income 4,427 3,011 9,827 5,541
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Earnings per share - basic 0.04 0.04 0.10 0.10
Earnings per share - diluted 0.04 0.04 0.08 0.10
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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.
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 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:
ENTREC Corporation
Rod Marlin
Chairman & CEO
(780) 960-5647
ENTREC Corporation
John M. Stevens
President & COO
(780) 960-5625
ENTREC Corporation
Jason Vandenberg
CFO
(780) 960-5630
www.entrec.com
Entrec Corporation (TSXV:ENT)
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