ENTREC Corporation
TSX VENTURE : ENT

ENTREC Corporation

November 13, 2013 18:00 ET

ENTREC Announces 2013 Third Quarter Financial Results

- Third quarter revenue increased by 63% to $59.1 million

- Adjusted EBITDA margin increased to 27.2% from 24.6% in 2012

- Adjusted net income increased to $6.2 million from $3.5 million last year

SPRUCE GROVE, ALBERTA--(Marketwired - Nov. 13, 2013) - ENTREC Corporation ("ENTREC" or the "Company") (TSX VENTURE:ENT), a leading provider of heavy lift and heavy haul services, today announced financial results for the three and nine months ended September 30, 2013.

Three Months Ended Nine Months Ended
$ thousands, except per share amounts and margin percent Sept 30
2013
Sept 30
2012
Sept 30
2013
Sept 30
2012
Revenue 59,080 36,298 160,090 88,465
Gross profit 20,948 12,222 56,445 30,936
Gross margin 35.5 % 33.7 % 35.3 % 35.0 %
Adjusted EBITDA(1) 16,080 8,935 42,246 22,642
Margin(1) 27.2 % 24.6 % 26.4 % 25.6 %
Per share(1) 0.14 0.11 0.40 0.36
Adjusted net income(1) 6,220 3,541 16,166 9,459
Per share(1) 0.05 0.05 0.15 0.15
Net income 5,644 3,143 15,471 8,684
Per share - basic 0.05 0.04 0.14 0.14
Per share - diluted 0.05 0.04 0.13 0.13

Note 1: See "Non-IFRS Financial Measures" section of the Company's Management Discussion & Analysis for the three and nine months ended September 30, 2013.

"We continued to make great strides toward our long-term growth objectives in the third quarter," said John M. Stevens, ENTREC's President and COO. "Effective July 1st, we acquired GT's Crane and Transportation Services Inc. ("GT's"). This acquisition made us the leading heavy lift and heavy haul company in northeast B.C. and northwest Alberta and strongly positions us to benefit from future investments in LNG-driven natural gas production and infrastructure in these regions. In addition, through our growth and cost-saving initiatives, we are continuing to increase EBITDA margins."

"Our significantly expanded scale and operating capabilities are also enabling us to pursue large crane and heavy haul contracts with customers in the Alberta oil sands region and throughout northern B.C. We are currently working on a number of customer opportunities that have the potential to bring our business to the next level and drive higher levels of equipment utilization and profitability in the future."

Normal Course Issuer Bid ("NCIB") and Shareholder Rights Plan

With ENTREC's positive outlook for the future, the Company believes one of the best investments it can make is in itself. Subject to the approval of the TSX Venture Exchange, ENTREC plans to implement a NCIB program in the fourth quarter of 2013, which will enable it to purchase issued and outstanding common shares of the Company on the open market.

"Our business generates a significant amount of cash from operating activities," added Mr. Stevens. "In addition to completing another robust capital expenditure program, we plan to utilize some of our projected free cash flow in 2013 and 2014 to execute an NCIB program. Our debt levels also remain conservative (senior debt to EBITDA ratio at September 30, 2013 was 1.58) allowing for additional flexibility in our capital allocation."

ENTREC is also in the process of implementing a shareholder rights plan in the fourth quarter of 2013.

2013 Q3 Financial Results

For the three months ended September 30, 2013, revenue increased by 63% to $59.1 million from $36.3 million during the same period in 2012. This growth reflected the positive impact of business acquisitions over the past year, partially offset by lower rates of equipment utilization. As mentioned in previous quarters, demand from the conventional oil and natural gas industry has been weaker in 2013. The Company also experienced a temporary slowdown in demand from the oil sands market during the third quarter.

Adjusted EBITDA increased to $16.1 million during the three months ended September 30, 2013 from $8.9 million in the comparative quarter in 2012. As a percentage of revenue, third quarter adjusted EBITDA margin increased to 27.2%, from 24.6% during the same period last year. The year-over-year improvement reflects continued expansion into higher margin crane services. The increase also reflects more cross-utilization of equipment resources across geographic areas, which has enhanced margins by reducing ENTREC's reliance on third party contractors.

Adjusted net income increased to $6.2 million in the third quarter, from $3.5 million last year, reflecting the higher revenue and improved adjusted EBITDA margin. Third quarter adjusted net income included $0.3 million in non-recurring acquisition and integration costs, primarily related to the acquisition of GT's, compared to $0.4 million in the three months ended September 30, 2012. Adjusted earnings per share were $0.05 per share, compared to $0.05 per share during the same period last year.

For the three months ended September 30, 2013, net income, reported in accordance with IFRS, grew to $5.6 million or $0.05 per share from $3.1 million or $0.04 per share in the third quarter last year.

Outlook for 2014

"Our outlook for 2014 remains very positive," said Mr. Stevens. "Despite the lower demand levels we have seen in some markets in recent months, quoting activity in our key markets continues to be very strong for work commencing in 2014."

Oil sands demand is expected to ramp up beginning in the first quarter of 2014 and continue to gain momentum as the year progresses. Large heavy haul transportation contracts awarded to ENTREC in the first half of 2013 will commence in the first quarter of 2014 and continue through 2017. In addition, ENTREC is working with oil sands customers on several large crane and heavy haul transportation projects that will commence at different times throughout the 2014 year. Certain of these projects will extend through to 2017.

Consistent with its strategy, ENTREC is also successfully expanding the amount of long-term maintenance, repair and operation (MRO) contract work it performs in the Alberta oil sands region. ENTREC was recently awarded a 5-year MRO contract with an oil sands customer, which will commence shortly and generate up to $15 million in incremental annual revenue. The Company is also making good progress on cross-selling its crane and heavy haul transportation services to existing and new oil sands customers.

Northwest B.C. continues to be a busy area for ENTREC. The Company is currently working on various mining, hydro-electric, pipeline, and oil and natural gas projects in the region and is providing crane and transportation services to support a multi-billion-dollar revitalization of an aluminum smelter in Kitimat, B.C. ENTREC will continue to expand its service capabilities in this important region throughout 2014 in preparation for the planned development of LNG facilities. These projects, along with ancillary infrastructure developments, are expected to require extensive crane and heavy haul transportation services.

With its recently completed acquisition of GT's, ENTREC now has a leading market position in northeast B.C. and northwest Alberta. ENTREC believes this will be a busy area for the Company in 2014 as it supports oil and natural gas projects in the region. The Company is also in the process of expanding its operations into Fort St. John, B.C. to better serve customers in this region.

Outlook for remainder of 2013

In the short-term, ENTREC expects activity levels in the fourth quarter will be modest. Certain crane and heavy haul transportation projects will be ramping down and the Company will also experience its typical Christmas season slow-down in customer activity. Offsetting these reductions will be expected increased revenue from ENTREC's operations in northeast B.C. and northwest Alberta during the winter months.

In light of the anticipated near-term, temporary reduction in utilization levels, ENTREC is decreasing its revenue guidance for fiscal 2013. ENTREC currently estimates revenue for the year ending December 31, 2013 could range between $210 million and $220 million. This represents a reduction from its previous revenue estimate of between $235 million and $245 million.

2013 capital expenditure program

With ENTREC's strong outlook for demand for its services, the Company increased its 2013 capital expenditure program to $57 million from a previously announced program of $53 million. The additional $4 million of capital expenditures primarily relates to the acquisition of equipment for a specific customer project, the acquisition of employee-owned equipment previously utilized in the GT's business, and specific equipment required to expand ENTREC's operations into the Fort St. John, B.C. market this winter.

ENTREC's revised 2013 capital expenditure program of $57 million now consists of the following components:

Cranes (all-terrain, rough terrain, crawlers, truck cranes, picker trucks) $ 35 million
Heavy haul transportation equipment (including SPMTs) $ 16 million
Other $ 6 million
Total $
57 million

The revised program comprises $51 million of growth capital expenditures to grow the equipment fleet, and particularly the crane fleet, together with $6 million in maintenance capital expenditures.

During the nine months ended September 30, 2013, ENTREC made capital expenditures of $48.8 million, consisting of $44.8 million in growth capital expenditures and $4.0 million in maintenance capital expenditures. Crane equipment purchases accounted for approximately $31 million of the capital expenditures, with the remainder directed to tractors and heavy haul trailers, as well as to other support equipment.

2014 capital expenditure program

ENTREC is currently in the process of determining its 2014 capital expenditure program in conjunction with its 2014 budgeting process. Although plans are not yet finalized, the Company anticipates the program will initially range between $35 million and $40 million and will consist of $10 million in maintenance capital expenditures and $25 to $30 million in growth capital expenditures. Growth capital expenditures will be focused on building the mobile crane fleet as ENTREC works to expand its service capabilities in this market.

ENTREC intends to fund its 2013 and 2014 capital expenditures programs from its credit facilities, finance leases and cash from operating activities. The Company also expects to have the flexibility to increase its capital expenditure program throughout 2014 should customer demand warrant. The Company does not believe it will need to raise any additional equity to fund its 2014 capital expenditure program.

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).

Third Quarter Conference Call

ENTREC will host a conference call and webcast to discuss its 2013 third quarter financial results tomorrow, November 14, 2013 at 9:00 am (MST) (11:00 am Eastern). The call can be accessed by dialing toll-free: 1-866-225-0198 or 416-340-2219 (GTA and International).

A replay will be available approximately two hours after the completion of the call until November 21, 2013 by dialing 905-694-9451 / 1-800-408-3053, passcode: 6985778.

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".

Consolidated Statements of Financial Position
As at
(thousands of Canadian dollars)
September 30
2013
$
December 31
2012
$
ASSETS
Current assets
Cash 897 2,511
Trade and other receivables 52,091 41,789
Inventory 2,307 1,968
Prepaid expenses and deposits 3,327 1,936
58,622 48,204
Non-current assets
Long-term deposits and other assets 2,411 523
Deposits on business acquisitions - 4,273
Property, plant and equipment 203,233 134,761
Intangible assets 28,388 23,868
Goodwill 69,176 53,575
Deferred income taxes 220 165
Total assets 362,050 265,369
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Trade and other payables 23,825 16,781
Income taxes payable 1,660 2,703
Acquisition consideration payable 2,643 2,320
Current portion of long-term debt 19,044 14,226
Current portion of obligations under finance lease 1,642 1,298
48,814 37,328
Non-current liabilities
Long-term debt 75,121 64,281
Obligations under finance lease 2,285 4,914
Notes payable 7,294 -
Convertible debentures 21,941 23,426
Deferred income taxes 27,717 19,428
Total liabilities 183,172 149,377
Shareholders' equity
Share capital 141,684 94,880
Contributed surplus 8,851 8,429
Retained earnings 28,190 12,719
Accumulated other comprehensive income (loss) 153 (36 )
Total shareholders' equity 178,878 115,992
Total liabilities and shareholders' equity 362,050 265,369
Consolidated Statements of Income Three Months Ended Nine Months Ended
(thousands of Canadian dollars, except per share amounts) Sept 30
2013
$
Sept 30
2012
$
Sept 30
2013
$
Sept 30
2012
$
Revenue 59,080 36,298 160,090 88,465
Direct costs 38,132 24,076 103,645 57,529
Gross profit 20,948 12,222 56,445 30,936
Operating expenses
General and administrative expense 5,188 3,702 15,515 9,150
Depreciation of property, plant and equipment 5,267 2,504 13,219 5,637
Amortization of intangible assets 970 556 2,513 1,100
Share-based compensation 353 193 1,236 811
(Gain) loss on disposal of property, plant and equipment and other assets (198 ) 43 (48 ) 171
Gain on change in fair value of embedded derivative (448 ) - (2,316 ) -
11,132 6,998 30,119 16,869
Income before finance items and income taxes 9,816 5,224 26,326 14,067
Finance items
Finance costs 2,214 880 5,668 2,009
Finance income - (2 ) - (19 )
2,214 878 5,668 1,990
Income before income taxes 7,602 4,346 20,658 12,077
Income taxes
Current 38 735 1,835 1,176
Deferred 1,920 468 3,352 2,217
1,958 1,203 5,187 3,393
Net income 5,644 3,143 15,471 8,684
Earnings per share - basic 0.05 0.04 0.14 0.14
Earnings per share - diluted 0.05 0.04 0.13 0.13

Non-IFRS Financial Measures

Adjusted EBITDA 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 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 also illustrates what ENTREC's EBITDA is, excluding the effect of non-recurring business acquisition and integration costs. Adjusted EBITDA margin is calculated as adjusted EBITDA divided by revenue. Per share amounts are calculated as adjusted EBITDA 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 and nine months ended September 30, 2013 for reconciliations of adjusted EBITDA 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: expectation of increased revenue from ENTREC's operations in northeast B.C. and northwest Alberta this winter; estimate revenue could range between $210 million and $220 million for the year ending December 31, 2013; belief oil sands demand will begin ramping up in the first quarter of 2014 and continue to gain momentum as the year progresses; estimate a recently awarded MRO contract will commence shortly and generate up to $15 million in incremental annual revenue; belief ENTREC will continue to expand its service capabilities in northwest B.C. in 2014 as it anticipates the planned development of LNG facilities; expectation northwest Alberta and northeast B.C. will be a busy area for ENTREC in 2014 as it supports oil and natural gas projects in the region; belief that with ENTREC's significantly expanded scale and operating capabilities, it is working on several more customer opportunities that will bring its business to the next level and drive higher levels of equipment utilization and profitability in the future; plan to implement a normal course issuer bid in the fourth quarter of 2013; plan to implement a shareholder rights plan in the fourth quarter of 2013, plan to complete a revised 2013 capital expenditure program of $57 million; estimate ENTREC's 2014 capital expenditure program could initially range between $35 and $40 million; belief ENTREC's 2013 and 2014 capital expenditure programs will help support the growing demand for its services and will be funded from its credit facilities, finance leases and cash from operating activities and that it will have the flexibility to increase its 2014 capital expenditure program throughout 2014 should customer demand warrant; and expectation the Company will not need to raise any additional equity to fund its 2014 capital expenditure program;

ENTREC's forward-looking statements involve a number of significant assumptions. Key assumptions utilized in developing forward-looking statements related to ENTREC's growth and revenue expectations include achieving its internal revenue, net income and cash flow forecasts for 2013 and 2014. Key assumptions involved in preparing ENTREC's internal forecasts include, but are not limited to, its expectations and estimates that: demand for crane and heavy haul transportation services in western Canada continues as expected through the remainder of 2013 and increases from current levels in 2014; ENTREC will be able to retain key personnel and attract additional high-quality personnel to support its planned revenue growth; construction projects and production activity in the Alberta oil sands region and in northern British Columbia continue at or above current levels; ENTREC is able to achieve anticipated revenues on current and future MRO contracts; the planned development of LNG facilities proceeds and certain customers choose to utilize ENTREC's services; there are no significant unplanned increases in ENTREC's cost structure, including those costs related to fuel and wages; market interest rates remain similar to current rates and that additional debt financing remains available to ENTREC on similar terms to its existing debt financing; there is no prolonged period of inclement weather that impedes or delays the need for crane and heavy haul transportation services; the competitive landscape in western Canada for crane and heavy haul transportation services does not materially change during the remainder of 2013 and in 2014; and there is no material adverse change in overall economic conditions.

Achieving these forecasts largely depends on a number of factors beyond ENTREC's control including several of the risks discussed further under "Business Risks" in ENTREC Management's Discussion & Analysis for the three and none months ended September 30, 2013. The business risks that are most likely to affect ENTREC's ability to achieve its internal revenue, net income and cash flow forecasts for 2013 and 2014 are the volatility of the oil and gas industry, its exposure to the Alberta oil sands, workforce availability, weather and seasonality, availability of debt and equity financing, competition, and business integration risks. 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 implement a normal course issuer bid in the fourth quarter of 2013 is subject to receipt of regulatory approval, potential fluctuations in the market price of its shares and the potential management may find another, more desirable use for its available funds.

ENTREC's ability to finance its capital expenditure program through its debt facilities depends on its ability to achieve debt financing terms acceptable to the lenders and ENTREC as well as meeting its 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.

Contact Information

  • 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