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Vertex Resource Group Ltd. Reports First Quarter 2020 Results

 

Sherwood Park, Alberta, June 29, 2020 (TSXV:VTX) – Vertex Resource Group Ltd. (“Vertex” or the “Company”) reports its financial and operational results for the three months ending March 31, 2020.  The following should be read in conjunction with the Management Discussion and Analysis (“MD&A”) and the condensed consolidated interim financial statements of Vertex for three months ended March 31 2020, which are available on SEDAR at www.sedar.com.

During the first quarter of 2020, which saw the beginnings of unprecedented times for the global economy, Vertex focused on cost control, forecasting, and aggressive pursuit of available business opportunities.  Revenue decreased on a quarter over quarter basis due to various factors including extreme weather, a competitive environment carrying forward from 2019, and reversal of positive client plans and expectations for 2020 due to the advent of COVID-19.  The upcoming year will be characterized by uncertainty as companies, governments and economies work towards re-opening society and the economy in a COVID-19 environment.  Vertex’s focus will be on efficiently managing its assets and the costs of the business, and diversifying its services, product offerings and customer base both in geography and industry, to maintain successful operations.

Key financial results for the three months ended March 31, 2020 and 2019 are as follows:

HIGHLIGHTS
 Three months ended March 31
(in thousands of Canadian Dollars)
2020 2019 % Change
Revenue 38,426 42,628 -10%
Gross profit 9,084 10,627 -15%
Adjusted EBITDA (1) 5,323 6,026 -12%
Adjusted EBITDA per share, basic and diluted 0.06 0.07 -12%

(1) See “Non-IFRS Financial Measures”

HIGHLIGHTS FOR THE THREE MONTHS ENDING MARCH 31, 2020

Cash flow from operating activities amounted to $3.8 million compared to $3.2 million in Q1 2019.

Revenue for the first quarter of 2020 decreased to $38.4 million from $42.6 million the same quarter in 2019. This revenue decrease was attributable to extreme cold weather early in the quarter, an ongoing competitive environment,  and the beginnings of the negative impact of COVID-19 on global oil demand.

Gross profit  for the first quarter of 2020 decreased to $9.1 million  from $10.6 million the same quarter in 2019 due to price competition.  Gross margin declined to 23.6% from 24.9% due to reduced personnel and equipment utilization stemming from reduced revenue.

General and administrative expenses were reduced to $3.8 million compared to $4.6 million for the first quarter of 2019 primarily due to reduced salaries and benefits resulting from continuous efficiency improvements and active management of costs.

Adjusted EBITDA amounted to $5.3 million notwithstanding a challenging environment and downward pressure on revenue and gross margin.  This was aided by the Company’s focus on operating efficiencies and reduction of G&A costs.

Net capital expenditures were minimal at $0.8 million.

OUTLOOK

Earlier in 2020 optimism existed for improvement in the Western Canadian economy from the low levels experienced in 2019 based on expectations for increased spending on a number of major projects.  However, the advent of  the COVID-19 virus has resulted in significant uncertainties and reduced revenue and earnings outlooks for 2020 across all sectors.  In the energy industry, oil companies have announced reductions in capital expenditure budgets and both upstream and downstream production activities.

In an attempt to limit and contain the spread of COVID-19, countries and governments around the world have implemented heavy restrictions on social interaction, public gatherings, travel, and business activities.  This has resulted in concerns over supply chain disruptions, reduced demand for many products and services and, overall, a severe contraction of economic activity. Various jurisdictions are currently in the process of relaxing restrictions and re-opening business activities in a controlled and measured manner.  This may improve the global demand for products and services from recent levels.  However, a return to normalcy in business activities is not expected for an extended period of time. Expectations and business activity may be tempered by the possibility of additional waves of COVID-19.

Vertex’s services are considered essential and the Company has been able to continue providing its services to clients during the pandemic.  To facilitate this, Vertex has implemented appropriate safety measures pertaining to physical distancing, travel, sanitization, personal protective equipment and supplies, and work from home arrangements.

While it is not possible to quantify the full affect of the economic uncertainties and financial impacts of COVID-19,  Vertex has experienced pressure on its revenues and gross margins, especially in the upstream sector of the energy industry. Vertex has seen some increased demand for its rental products related to storage and accommodations, stable fluid hauling demand, and increased opportunities for environmental remediation services.  It is not known whether these positive circumstances will continue.

Vertex generates significant revenues from  sectors outside of oil and gas including midstream, utilities, industrial construction, mining, public sector, agriculture, and forestry.  These sectors accounted for 43% of the company’s revenues in 2019. Within the oil and gas sector, 77% of revenues were derived from operations and maintenance (O&M) and reclamation related services, with the remaining 23% coming from development and drilling related services.  From all sectors, approximately 69% of the Company’s revenues were derived from operations and maintenance (O&M) related services, 10% from environmental reclamation, 13% from development, and 8% from upstream drilling services.

Vertex maintains a diversified business consisting of various revenue streams including: environmental consulting, testing, and remediation; fluid hauling for upstream, midstream, mining, and agricultural sectors; hydrovac for construction; industrial cleaning and waste disposal; equipment rental for storage and containment of products and waste; manufacturing of acoustic products and metal buildings.

The Company has acted expeditiously to curtail discretionary expenditures, carefully manage operating costs, reduce labour costs, and re-assess planned capital expenditures.

To date the federal government of Canada has provided major funding to support businesses in the form of liquidity loans to mid-market companies, bridge financing for large companies to support continuing operations, wage cost subsidies, and major funding for environmental remediation activities specifically for Alberta, Saskatchewan, and British Columbia. The Company has extensive expertise in environmental remediation and expects to benefit significantly from the available funding.  Vertex has aggressively and successfully pursued available subsidies, loans, and funding opportunities and intends to continue doing so.

There is significant optimism for future growth in Western Canada based on: progress on the Trans Mountain, Line 3 Replacement, Coastal Gas Link, and Keystone pipelines; LNG plant developments; and proposed petrochemical plants.

During 2020, Vertex intends to closely monitor developments and employ ongoing forecasting to ensure efficient adaptation to changing economics.  Vertex will also continue to focus on controlled capital expenditures, efficient use of assets, and strategic repairs and maintenance programs to obtain maximum economic value from its existing complement of assets.

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 550 employees and lease operators that provide services to help clients achieve their developmental and operational 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 energy, mining, utilities, private development, public infrastructure, construction, telecommunications, forestry, agriculture and government.

Vertex principally operates in western Canada, select locations in the United States, and with current expansion into Ontario.

For further information please contact:

Terry Stephenson, CEO, or Imran Ally, CFO at 780-464-3295

NON-IFRS FINANCIAL MEASURES

This news release includes certain terms or performance measures that are not defined under International Financial Reporting Standards (“IFRS”), including “Adjusted 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.

“Adjusted EBITDA” is a non-IFRS financial measure which is calculated by adjusting net (loss) income for the sum of income taxes, finance costs including interest accretion on lease liabilities, gain on bargain purchase, depreciation of property and equipment and right of use assets, amortization of intangible assets, share-based compensation, restructuring costs and impairment.  The Company uses Adjusted EBITDA as an indicator of its principal business activities operational performance prior to consideration of how its activities are financed and the impact of taxation, non-cash depreciation and amortization,  restructuring costs and other non-cash expenses such as impairments required under IFRS. Adjusted EBITDA does not have a standardized meaning prescribed by IFRS and is not necessarily comparable to similar measures provided by other companies. Adjusted EBITDA is used by many analysts as an important analytical tool and management of Vertex believes it is useful for providing readers with additional clarity on Vertex’s operational performance. This measure is also considered important by the Company’s lenders in determining compliance by the Company with the financial covenants under its lending arrangements. Reconciliations of Adjusted EBITDA to net income are provided in the MD&A under the heading “Operational and Financial Highlights – Adjusted EBITDA”.

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 reportable and operating segments in 2020; 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, Adjusted EBITDA, Bank 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 2020; 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; 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 and other industries; 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 of 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 affects 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 part 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.

 

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