Vertex Resource Group Ltd. Announces First Quarter 2019 Results

Revenue of $42.6 million and EBITDA of $6.3 million for first quarter 2019.

SHERWOOD PARK, AB, May 10, 2019 /CNW/ – (TSXV:VTX) – Vertex Resource Group Ltd. (“Vertex” or the “Company”) reports its financial and operational results for the three months ending March 31, 2019, with comparisons to the same period in 2018. The following operational and financial highlights should be read in conjunction with the Management Discussion and Analysis (“MD&A”) and the interim consolidated financial statements and notes thereon of Vertex for the three months ending March 31, 2019, which are available on SEDAR at www.sedar.com.

FINANCIAL AND OPERATIONAL HIGHLIGHTS

Key financial and operational highlights for the three months ending March 31, 2019 and 2018 are as follows:

HIGHLIGHTS FOR THE THREE MONTHS ENDING MARCH 31, 2019

• Revenue for the first quarter of 2019 increased to $42.6 million, an increase of $7.9 million or by 22.9% from $34.7 million for the same quarter of 2018. In the Environmental Services segment, revenue in the first quarter of 2019 increased to $40.7 million, up $17.5 million or 75.3%, from $23.2 million in first quarter of 2018, due to growth from completed acquisitions, improved customer spending associated with customers addressing their environmental liabilities and expansion into new markets and industries. Vertex continues to focus on cross-selling services to customers within this segment to add value for customers throughout different industries in an effort to drive revenues and improve the utilization of Vertex’s people and equipment. The Industrial Services segment’s revenue decreased to $1.9 million in the first quarter of 2019 down 83.4% or $9.5 million, from $11.4 million in the first quarter of 2018. This decrease is attributable to the completion of a large project that began in the third quarter of 2017 and was completed in the second quarter of 2018. Vertex continues to see limited, near-term prospects for profitable projects within this segment and therefore continues to monitor and reduce the Company’s involvement in projects within this segment that have limited profit potential and a high-risk level.
• Gross profit for the first quarter of 2019 was $10.6 million, up 20.7% or $1.8 million from $8.8 million in the same quarter of 2018. Gross profit as a percentage of revenue (“gross profit margin”) decreased slightly to 24.9% in the first quarter of 2019 versus 25.4% in the same quarter of 2018, due to changes in revenue mix and abnormally cold weather in February that resulted in increased repairs, maintenance and fuel costs related to the Company’s equipment.
• General and administrative costs (“G&A”) decreased by 3.3% or $0.2 million to $4.3 million in the first quarter of 2019, from $4.5 million in the first quarter of 2018. As a percentage of revenue, G&A was down to 10.1% in the first quarter of 2019 versus 12.9% in the first quarter of 2018. The adoption of IFRS 16 – Leases (“IFRS 16”) resulted in a decrease of $1.3 million of costs previously classified as rent that are now being expensed as amortization of right of use assets (“ROU”) and interest accretion. Vertex continues to integrate acquisitions and manage G&A costs closely.
• EBITDA (see “EBITDA” definition in Non-IFRS Financial measures”) for the first quarter of 2019 increased to $6.3 million, up $2.0 million or 45.4%, from $4.3 million in the first quarter of 2018.  This increase occurred because of improved utilization of people and equipment in most service lines in Vertex’s Environmental Services segment during the quarter. EBITDA for the first quarter, as a percentage of revenue, improved to 14.8% in the first quarter of 2019 compared to 12.5% in the first quarter of 2018, given improved EBITDA in Vertex’s Environmental Services segment. EBITDA for the Environmental Services segment in the first quarter increased to $7.6 million in first quarter of 2019, up by 94.5% or $3.7 million, from $3.9 million in the first quarter of 2018, due to positive contributions from acquisitions and improved utilization of people offset by reduced activity levels for Vertex’s equipment in February, as a result of abnormally cold weather. EBITDA for the Industrial Services segment in the first quarter of 2019 decreased by 73.4% or $1.1 million from the first quarter of 2018 due to decreased revenue within this segment. The Industrial Services segment’s decrease in revenue in the quarter translated into lower EBITDA in the first quarter of 2019 albeit for higher gross profit margins as management remained focused on pricing and costs for services in this segment. The Corporate Services segment had negative EBITDA that increased because of overhead costs associated with acquisitions.
• Amortization expense increased by 44.5% or $1.5 million from $3.2 million in the first quarter of 2018 to $4.7 million in the first quarter of 2019. The increase in amortization is a result of acquistions completed in 2018. The Company also recognized $1.0 million in amortization of ROU assets during the quarter. Finance costs decreased by $0.1 million, despite increases in loans and borrowings to pay for acquistions in 2018, from $1.5 million in 2018 to $1.4 million for the first quarter of 2019. This decrease is due to an interest rate differential on Vertex’s term debt that was refinanced at lower rates in the second quarter of 2018, offset by recognizing $0.3 million in interest accretion on ROU liabilities.
• Net loss for the first quarter of 2019 increased to a loss of $0.6 million, from a loss of $0.4 million in the first quarter of 2018. The increase was due to increased amortization offset by improved EBITDA.

OUTLOOK
As expected, during the first half of 2019, Vertex continues to execute on its strong backlog and continues to withstand short term economic pains that appear to be subsiding. The Company’s current financial position is the result of the efficient execution of work on a strong backlog from diverse industries, long standing customer relationships, and financial contributions of past, prudently purchased acquisitions which are performing well.  Almost 50% of Vertex’s backlog is from outside the oil and gas industry. Vertex continues to grow its customer base, with 47% of revenues for the remainder of 2019 expected to come from outside of the oil and gas industry. Specifically, Vertex’s customers continue to grow and provide stable and attractive opportunities in the utilities, agriculture, municipalities and telecommunications industries.

The acquisitions completed during the last two years are positively adding to the Company’s financial position. The acquisitions have improved Vertex’s financial position and will continue to increase the utilization of Vertex’s two main assets, its people and its equipment. Through the cross-utilization of people and equipment, Vertex expects to drive additional value to better serve its existing customer base, while expanding geographically and attracting new customers outside the oil and gas industry through offering integrated environmental solutions. 

Vertex views the recent election of the United Conservative Party in Alberta, which campaigned on a platform of “Open for Business”, as positive for Vertex, its customers and business in general. In addition to the positive election results, the narrowing of price differentials experienced in the first quarter of 2019 and improved plans for regulatory and economic reform beyond a government’s term will likely bring investment confidence back to the oil and gas industry within western Canada, but this may not occur until the late 2019 or later in 2020, if at all. Regardless of the evolving geopolitical and investment backdrop, Vertex is continuing to face short-term pricing and margin pressure in 2019 due to the uncertainty on customers’ budgets and cash flows. All of these factors could negatively impact Vertex, in certain service lines, during the first half of 2019. Despite this, the Company believes that a more positive outlook is ahead in the second half of 2019. Vertex is seeing additional opportunities with increased customer spending on planned maintenance programs, increased activity levels for abandonments and active environmental liability management coming to fruition.

Vertex continues to focus on factors within its control including growing organically, achieving efficiency through streamlining processes to reduce costs and improving margins where possible throughout its business segments. Vertex continues to focus on cross-selling complementary services between segments in order to lower customers’ costs, expand into new markets and industries, and provide integrated solutions for the environmental liabilities of its customers. To this point, Vertex offers a unique set of service offerings from the start of a project to the end that is unmatched by its competitors.

Vertex remains committed to creating shareholder value for the longer term. To achieve these commitments, Vertex continues to focus on operational and financial results, reducing debt, reducing its cost of borrowing, actively managing working capital and evaluating its capital expenditure plans to match core and strategic opportunities. Accretive, complementary and opportunistic acquisitions remain an essential component of Vertex’s long-term growth plans as it continues to integrate acquisitions and evaluate future opportunities when beneficial.

Vertex continues to expect positive momentum heading into 2020, as it anticipates modest improvements in future activity levels with major projects including LNG Canada, Coastal Gas Link, Trans Mountain Expansion, 5G network and new oil sand developments as the Company will be able to capitalize and benefit from existing contracts and relationships.

ABOUT VERTEX
Since 1962, Vertex has been a leading North American provider of environmental services. Headquartered in Sherwood Park, Alberta, Vertex employs a staff of approximately 650 employees and lease operators 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 perfo
mance 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, intangible assets and right of use 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 months ended March 31, 2019 and 2018.

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 constitute “forward-looking information”. When used in this document or by any of the Company’s management, the words “may”, “would”, “will”, “intend”, “plan”, “propose”, “anticipate” and “believe” are intended to identify forward-looking information. In particular, but without limiting the foregoing, this document contains forward-looking information and statements pertaining to the following: the Company’s key strategies, objectives and competitive strengths; anticipated expenses; growth opportunities in the Company’s Environmental Services segment in 2019; supply and demand for the Company’s services; activity levels in the oil and gas industry and other industries in which the Company operates; future development activities; and the Company’s ability to retain existing clients and attract new business, particularly business outside of the oil and gas industry. Such statements reflect the Company’s forecasts, estimates and expectations, as they relate to the Company’s current views based on its experience and expertise with respect to future events, and are subject to certain risks, uncertainties and assumptions.

The forward-looking information and statements contained in this document reflect several material factors and expectations and assumptions of the Company, including, without limitation: that the Company will continue to conduct its operations in a manner consistent with past operations; positive future trends in revenue, gross profit margin, EBITDA and net income; the general continuance of current or, where applicable, assumed industry conditions; the mix of revenue from non-oil and gas customers in 2019; pricing of the Company’s services; the Company’s ability to market successfully to current and new clients; the Company’s ability to obtain qualified personnel and equipment in a timely and cost-effective manner; the Company’s future debt levels; the impact of competition on the Company; the Company’s ability to obtain financing on acceptable terms; the general continuance of current or, where applicable, assumed industry conditions; the continuance of existing tax, royalty and regulatory regimes; the impact of seasonal weather conditions; client activity levels; anticipated market recovery; improved confidence in the oil and gas industry within western Canada as a result of the Alberta election results; the Company’s anticipated business strategies and expected success; the Company’s ability to utilize its equipment; levels of deployable equipment; and future sources of funding for the Company’s capital program.

Factors that could cause the forward-looking information in this news release to change or to be inaccurate include, but are not limited to: volatility of the oil and natural gas industry; dependence on customer contracts and market acceptance; the Company’s growth strategy may not achieve anticipated results; potential litigation claims; difficulty in attracting and retaining skilled personnel; adverse litigation judgments, settlements and exposure to liability resulting from legal proceedings could reduce profits or limit Vertex’s ability to operate; the market for Vertex’s products and services is subject to extensive government and regulatory approvals; health, safety and environment laws and regulations may require the Company to make substantial expenditures or cause it to incur substantial liabilities; the Company may fail to realize anticipated benefits of future acquisitions; Vertex’s indebtedness may adversely affect its financial flexibility and competitive position; competition in the industries in which Vertex operates; downturns in general economic and market conditions; operational hazards and unforeseen interruptions for which Vertex may not be adequately insured; positive covenants in Vertex’s material contracts could limit its ability to operate; third party credit risk; conservation measures and technological advances may reduce demand for hydrocarbons; loss of the Company’s information and computer systems or cyber-attacks; director and officer conflicts of interest; a reassessment by tax authorities of Vertex’s income calculations; volatility in the price of the Company’s common shares; and the risk factors set forth under the heading “Risk Factors” 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.