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Vertex Resource Group Ltd. Reports Fourth Quarter and Fiscal 2020 Results

FOR IMMEDIATE RELEASE

Revenue of $37.3 million and Adjusted EBITDA of $5.6 million for the fourth quarter of 2020.  

Revenue of $136.1 million and Adjusted EBITDA of $24.5 million for the year ending December 31, 2020.

Sherwood Park, Alberta, March 22, 2021 (TSXV:VTX) – Vertex Resource Group Ltd. (“Vertex” or the “Company”) reports its financial and operational results for the fourth quarter and year ending December 31, 2020.  The following should be read in conjunction with the Management Discussion and Analysis (“MD&A”) and the audited consolidated financials statements of Vertex for the year ended December 31, 2020, which are available on SEDAR at www.sedar.com.

In the fourth quarter of 2020, despite ongoing challenges presented by the COVID-19 pandemic, Vertex delivered strong results relative to the previous quarters of 2020.  Despite reduced activity, profitability was improved as a result of Management’s efforts to control and reduce costs. The Company’s balance sheet continues to strengthen because of these efforts with excess funds from operations being used to accelerate debt repayment.

Vertex’s diversification efforts with continued expansion in the utilities and telecommunications sectors and growth in our US operations have also helped to mitigate the revenue declines. The Company is maintaining its focus on cost containment, operating efficiencies, geographic diversification, and sector diversification.

From an environmental consulting perspective, the expected increase in abandonment and reclamation (A&R) projects in 2020 from major government funding was delayed as contracting and funding mechanisms were being developed and refined during 2020 delayed project awards. Vertex expects significant revenue opportunities in this area through 2022, having already won various projects which are expected to kick off in the near to medium term, and very significant remaining unallocated funding.

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

 Three months ended  Years ended 
(in thousands of Canadian Dollars)  December 31,   December 31,
2020 2019 % Change 2020 2019 % Change
Revenue 37,331 40,664 -8% 136,125 168,070 -19%
Gross profit 9,044 9,057 0% 38,535 39,292 -2%
Adjusted EBITDA (1) 5,617 4,472 26% 24,464 22,306 10%
Free Cash Flow (1) 4,435 3,622 22% 22,841 20,054 14%
Adjusted EBITDA per share, basic and diluted 0.06 0.05 26% 0.27 0.24 10%

(1) See “Non-IFRS Financial Measures”

HIGHLIGHTS FOR THE THREE MONTHS ENDING DECEMBER 31, 2020

The Company generated $37.3 million in revenues compared to $40.7 million in Q4 2019.

Reported gross margin increased to 24.2% from 22.3%.

Adjusted EBITDA during the fourth quarter amounted to $5.6 million compared to $4.5 million in Q4 2019, with adjusted EBITDA as a percentage of revenue increasing to 15.0% up from 11.0% in Q4 2019.

Net loss for the period was $0.9 million compared to a loss of $8.9 million in Q4 2019.

Free cash flow amounted to $4.4 million compared to $3.6 million in Q4 2019.

Senior credit facility was amended to extend the maturity date to May 31, 2022.

HIGHLIGHTS FOR THE TWELVE MONTHS ENDING DECEMBER 31, 2020

Revenue decreased from $168.1 million in 2019 to $136.1 million for the same period in 2020.

Reported gross margin improved to 28.3% from 23.4%.

Adjusted EBITDA amounted to $24.5 million for the full year 2020 compared to $22.3 million in the same period of 2019.

Reported net loss and comprehensive loss was $5.7 million in 2020 compared to a loss of $11.3 million the prior year.

Success in the $1.7 billion abandonment and site rehabilitation funding programs, with expectations of continued success in 2021 and 2022.

Free cash flow amounted to $22.8 million compared to $20.1 million in the year ended December 31, 2019.

Strong Cash Flow provided by operating activities of $20.8 million allowed Vertex to reduce total reported borrowings by $18.2 million during 2020.

OUTLOOK

The economic uncertainty and contraction which commenced with the advent of COVID-19 in late Q1 has continued throughout 2020, evidenced by delays in construction projects, government-imposed restrictions limiting access to work sites, significantly reduced demand and volume for energy products, ongoing price competition, and reductions in capital spending.  Vertex’s growing reputation, strong presence in various geographic areas, relationships with clients, and diversified complement of services have allowed it to withstand the economic pressures better than other service providers offering a single service or those that have operations in only one geographic region.  Strong client relationships, effective safety programs, strong quality control, a reputation for meeting commitments, and various government support and stimulus programs mitigated the potential for material reductions in gross margins.  Vertex demonstrated the strength and resiliency of our business model in 2020 and we are in an enviable position to facilitate growth as the economy continues to recover.

Demand for Vertex’s services are expected to improve in 2021 above the levels experienced in 2020 due to various government programs for reclamation and abandonment of environmental liabilities, improved capital spending across multiple industries, unfettered access to work sites, recovery of energy production, elimination of Alberta government production curtailments, increased natural gas developments and prices, reinstatement of major customer maintenance programs, and continued diversification.  Federal, provincial, and state governments across North America have identified investment in infrastructure as a key component of their economic recovery plans.  Additionally, new opportunities in the telecommunications, utilities and renewable energy sectors are expected to grow based on increased capital investment plans by several of our key customers.

A strong resurgence in commodity prices, an increase in energy demand, coupled with OPEC’s short-term production cuts should result in customers in the energy industry continuing to increase activity levels throughout the year.  Consolidation of customers in the oil and gas sector is expected to continue.  Conservative capital deployment and continued focus on debt reductions will likely delay the return to pre-COVID activity until 2022, but activity in 2021 is expected to rebound from 2020.  Additionally, we are anticipating competitor consolidations and business failures will provide further opportunities for Vertex to grow our market share.  The new administration in the United States has pledged to enhance environmental and air quality regulations which should create further opportunities for our services.

These expectations may change from period to period if economic activity is further dampened, new government safety measures are enacted, existing government mandated restrictions are prolonged, or supply/demand conditions remain unsettled.  However, global economic recovery from this Pandemic will continue to strengthen throughout 2021 and into 2022.  The CEWS program has been extended until June 2021 and Vertex will continue to participate in all periods for which we meet the eligibility requirements.

Vertex resumed its acquisition activity in early 2021, acquiring an environmental services business providing industrial cleaning, waste management and hydro-excavating.  This business is very complementary, strengthens Vertex’s industrial cleaning asset base and has strong backlog of contracted maintenance work for the next three to five years.  The structure of this acquisition allows Vertex to grow its revenues and earnings while also strengthening our balance sheet.   Vertex will continue to pursue other acquisitions throughout 2021 should they meet its strict financial and strategic requirements.

Vertex intends to be nimble and agile as an organization, with continued focus on operational efficiencies, process efficiencies, enhanced technology developments and implementation; combined with bundling of its services and solutions for its customers.  While strong competition for projects and contracts, along with competitive pricing, is expected to persist for the near to medium term; Vertex expects to continually generate strong, free cashflows from operations, further strengthen its healthy financial position, and ready itself for the increased demand that is expected to occur when Western Canada’s energy market recovers with the completion of major pipelines over the next three years.  Vertex also expects to continue benefitting from the ongoing demand for NGL’s, such as butane and propane, and the increasing demand for cleanup of environmental liabilities.  In addition, the Company expects to realize the full year of benefits in 2021 from the cost savings and organizational changes made in 2020.

Vertex is very well positioned to work closely with our Indigenous partners, customers and the provincial governments of Alberta, Saskatchewan, and British Columbia and the Canadian federal government to participate in the various environmental liability clean up programs in 2021 and 2022.  In addition, Vertex is a prime contractor for the Alberta Orphan Well Association, the Saskatchewan Orphan Well Association and the BC Oil & Gas Commission.  Vertex anticipates an increased level of activity from all these programs in 2021 as the various government agencies and departments have now been able to develop and refine the funding mechanisms, the absence of which greatly impeded activity in 2020.  The Company also plans to continue expanding its services to municipalities, utilities, renewables and the telecommunications sector and will continue its geographic diversification efforts in British Columbia, Ontario, and the U.S.  In addition, the natural gas industry in Alberta and British Columbia is expected to grow significantly with the development of LNG Canada’s Kitimat, BC plant, the Coastal Gas Link Pipeline, and the Nova Gas Transmission Pipeline over the next two to three years.

Vertex’s vision of being a world leading environmental services company has not changed.  As an Environmental Service business, we believe we are uniquely positioned for ESG performance.  We understand that we have a responsibility to maximize our Internal ESG performance and have made a corporate commitment to do so. More substantially, we understand that our Supply Chain opportunity to support the ESG initiatives of our customers has a significantly broader global impact.   As such our ESG system design includes both an internal and supply chain focus.  As our ESG journey evolves so too will our measurement and reporting, holding ourselves accountable to internal and supply chain metrics.  Ultimately, our intent is to create business resiliency by becoming a primary source of executable ESG supply chain solutions for our customers.

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 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 Canada with select locations in the United States.

For further information please contact:

Terry Stephenson, CEO, or Sherry Bielopotocky, 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-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”.

“Free cash flow” is a non-financial measure which is calculated by reducing adjusted EBITDA by maintenance capital expenditures net of disposal proceeds.

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 energy 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 energy 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-energy 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 energy 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 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 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 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.

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