ENTREC Corporation
TSX : ENT

ENTREC Corporation

March 09, 2015 17:00 ET

ENTREC Announces 2014 Fourth Quarter and Year-End Financial Results

ACHESON, ALBERTA--(Marketwired - March 9, 2015) - ENTREC Corporation ("ENTREC" or the "Company") (TSX:ENT), an employee-owned integrated crane solutions provider, today announced financial results for the fourth quarter and year ended December 31, 2014.

Three Months Ended Year Ended
$ thousands, except per share amounts and margin percent Dec 31
2014
Dec 31
2013
Dec 31
2014
Dec 31
2013
Revenue 58,447 52,821 232,235 212,911
Gross profit 16,253 16,068 67,438 72,513
Gross margin 27.8 % 30.4 % 29.0 % 34.1 %
Adjusted EBITDA(1) 11,114 11,364 46,129 53,610
Margin(1) 19.0 % 21.5 % 19.9 % 25.2 %
Per share(1) 0.10 0.10 0.41 0.49
Adjusted net income(1) 1,774 2,254 7,260 18,420
Per share(1) 0.02 0.02 0.07 0.17
Net (loss) income(2) (82,108 ) 342 (76,409 ) 15,813
Per share - basic (0.76 ) 0.00 (0.68 ) 0.15
Per share - diluted (0.76 ) 0.00 (0.68 ) 0.14
Note 1: See "Non-IFRS Financial Measures" section of the Company's Management Discussion & Analysis for the year ended December 31, 2014.
Note 2: Includes a non-recurring and non-cash impairment charge of $92.5 million, primarily related to intangible assets and goodwill.

Revenue for the year ended December 31, 2014 increased by 9% to $232.2 million from $212.9 million in 2013, reflecting the positive impact of business acquisitions over the past year. In Q4 2014, revenue increased by $5.6 million or 10.7% to $58.5 million from $52.8 million in Q4 2013. This increase was primarily due to growth in maintenance, repair and operation ("MRO") work in the Alberta oil sands region, higher demand for crane and transportation services in the Bakken region of North Dakota, and business acquisitions.

Adjusted EBITDA declined to $46.1 million for the year ended December 31, 2014 from $53.6 million in 2013. While revenue remained stable year-over-year, adjusted EBITDA margin declined to 19.9% from 25.2% last year. The lower adjusted EBITDA margin reflected reduced equipment utilization levels, changes in revenue mix and more competitive pricing pressure in the heavy haul transportation sector due to a lag in oil sands construction projects as well as increased capacity from new and existing competitors. For the fourth quarter ended December 31, 2014, adjusted EBITDA of $16.3 million was consistent with the adjusted EBITDA of $16.1 million reported in Q4 2013.

Adjusted net income was $7.3 million for the year ended December 31, 2014 compared to $18.4 million reported in 2013. The year-over-year change reflected the lower adjusted EBITDA margin, together with increased finance costs and depreciation expense. Adjusted net income for the fourth quarter ended December 31, 2014 declined to $1.8 million from $2.3 million in 2013.

The Company's net loss of $76.4 million reported for the year ended December 31, 2014 ($82.1 million net loss for Q4 2014) included the impact of a previously announced $92.5 million impairment charge on long-lived assets, primarily related to intangible assets and goodwill. This charge was non-cash, non-recurring, and will have no impact on ENTREC's future cash flows or debt covenant calculations. The calculation of adjusted net income above excluded the impairment charge.

Industry Outlook and ENTREC's Response

With the recent decline in crude oil prices and depressed natural gas price environment, there is significant uncertainty as to how these prices will impact future activity levels in the oil and gas industry and in particular, the Alberta oil sands region. ENTREC's 2015 business plans and capital expenditure program reflect this new reality. After fulfilling previous commitments and taking delivery of this equipment in the first quarter of 2015, ENTREC is curtailing future growth capital expenditures until the industry outlook improves.

In addition, ENTREC is also intensely focused on controlling costs, minimizing discretionary expenditures, and rationalizing operations where practical. As part of this initiative, ENTREC consolidated its Calgary operations branch location into its Acheson headquarters location in January 2015. The Calgary branch only offered transportation services (no crane services) and serviced largely the same customer base as Acheson. The majority of the customers served from the Calgary branch are now being served from ENTREC's headquarters. By consolidating its Calgary and Acheson operations, Management expects that it will maintain utilization of its equipment fleet, while also reducing operating costs and continuing to maintain a high level of service to its customers.

In conjunction with the Calgary branch closure ENTREC also reduced its salaried (non-billable) workforce by about 15%. The reduction included the salaried employees affected by the Calgary branch closure. These measures will allow the Company to significantly reduce its overhead costs, while also improving operating efficiency. Once fully implemented, ENTREC estimates these cost reduction initiatives to reduce on-going indirect and general and administrative expenditures by approximately $4.0 to $5.0 million on an annual basis.

Further, the Company has recently instituted temporary wage reductions for all salaried staff, effective April 1, 2015. The wage reductions will range from 5% for non-management staff to 15% for senior management and will be reassessed on a quarterly basis. Many salaried employees have also been offered the opportunity to work reduced work weeks on a temporary basis, which could result in savings of up to 20% for these employees.

Balance Sheet Remains Well-Positioned

Despite the current commodity environment, ENTREC's business remains well-capitalized and well-positioned to weather the downturn. Specific current highlights of the Company's financial position include a strong working capital position, which was about $40 million as at December 31, 2014 and a very flexible $240 million asset-based credit facility ("ABL Facility"). At December 31, 2014, based on ENTREC's fleet and accounts receivable as at that date, the borrowing base under the ABL Facility was $207 million. ENTREC was borrowing $148 million of this availability giving the Company excess borrowing capacity of about $59 million.

The ABL Facility has no principal repayments required prior to its maturity in March 2019 and has no leverage covenant as at December 31, 2014. The facility is supported by a very modern crane and transportation fleet that has a current fair value of approximately $260 million. History has also shown that modern crane fleets hold their value well throughout market cycles. In addition, the facility is supported by over $50 million in accounts receivable as at December 31, 2014. There will be no leverage covenant in place if ENTREC maintains an excess borrowing capacity higher than 12.5% of the borrowing base.

With a reduced capital expenditure program, the Company will also be utilizing its free cash flow to pay down debt in 2015, further maximizing its flexibility in managing through this industry cycle.

2015 Operational Outlook

Given the uncertainties discussed above, ENTREC's outlook is mixed for 2015. On the positive side, Management expects that utilization levels for its crawler and rough terrain cranes could increase throughout 2015 as certain oil sands construction projects continue to ramp up. In addition, ENTREC's growing crane fleet has helped it establish a stronger presence in the market for MRO work in the Alberta oil sands region - which is typically less susceptible to changes in near-term commodity prices, and should continue to provide a steady demand for ENTREC's services this year and beyond.

Offsetting these improvements is ongoing uncertainty related to the Company's operations supporting oil and natural gas exploration and production activities. In the first quarter, ENTREC is experiencing a slowdown in activity levels in many of its locations that are dependent on oil and natural gas development. In addition, the Company is experiencing significant downward pricing pressure from its customers due to the recent drop in crude prices.

ENTREC expects activity levels to remain steady in northwest British Columbia during the first half of 2015 as it continues to support the smelter revitalization project in Kitimat. The project is expected to remain active until mid-2015. The Company is also well positioned there to support the region's growing industrial activity, including the potential future construction of LNG facilities. Note that demand for ENTREC's services in northeast British Columbia could also be impacted by the commodity price environment overall and final investment decisions on the construction of proposed LNG facilities in northwest British Columbia. Positive final investment decisions should accelerate the demand for its services, while negative or delayed decisions could adversely impact relevant natural gas-related activity.

ENTREC expects utilization levels for its platform trailers will remain similar to the levels achieved in 2014, but below the levels achieved in 2012 and 2013. Increased industry capacity from new and existing competitors will likely continue to provide challenges in this market.

Overall, ENTREC expects 2015 to be a challenging year for the oil and gas industry. At this time, the Company must note that it is very difficult to accurately predict the impact that the recent crude price collapse will have on the crane and specialized transportation industry as 2015 proceeds. ENTREC's current guidance for 2015 is cautioned by this significant risk and uncertainty factor.

Subject to the above-noted, based on current expectations and customer conversations, Management estimates revenue for the year ending December 31, 2015 could approximate $200 million. The Company also estimates its overall adjusted EBITDA margin for fiscal 2015 will decline from the 19.9% adjusted EBITDA achieved in 2014. The lower anticipated adjusted EBITDA margin in 2015 results from, in part, the expectation for lower pricing and equipment utilization in 2015 due to the current weak commodity price environment and higher competition. The lower margin also reflects the use of additional rental cranes to support certain oil sands construction projects in 2015.

"Over the longer-term, our overall competitive position and outlook continues to be very positive," said John M. Stevens, ENTREC's President and CEO. "Despite short-term uncertainties and challenges, we are well-positioned geographically, with the right equipment fleet, and a complete range of crane and specialized transportation services in the markets that we believe will drive significant growth in our business. While we expect 2015 to be a challenging year from an operating perspective, we are aggressively managing our costs through this period and remain well-positioned to capture future growth opportunities once industry fundamentals improve. We will accomplish this by continuing to focus on our core values and delivering safe, exceptional, innovative solutions to our customers through a team of highly engaged employees."

Capital Expenditure Programs

During the year ended December 31, 2014, ENTREC made capital expenditures of $56.5 million, consisting of $44.5 million in growth capital expenditures and $12.0 million in maintenance capital expenditures. The majority of ENTREC's 2014 growth capital expenditures were focused on growing its crane fleet.

ENTREC's 2015 capital expenditure program consists of the following components:

$ thousands
Growth capital expenditures - LR 1750 crawler crane 7,000
Growth capital expenditures - All-terrain mobile cranes 4,000
Maintenance capital expenditures, net of disposal proceeds 10,000
Total 21,000

ENTREC's 2015 growth capital expenditures will include the notable addition of an LR 1750 crawler crane. With a 750-ton lifting capacity, this crane will become the largest in ENTREC's fleet and is expected to be fully-utilized on an awarded oil sands and power construction project for the majority of 2015 and 2016. Growth capital expenditures also include the addition of all-terrain mobile cranes, which are highly flexible units utilized in serving all industries, including MRO work in the Alberta oil sands, industrial construction, and conventional and unconventional oil and natural gas.

The 2015 maintenance capital expenditures will be focused on ensuring ENTREC's crane, tractor and truck fleets remain modern and efficient. The Company intends to fund its 2015 capital expenditure program from its ABL Facility, finance leases and cash from operating activities.

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).

Fourth Quarter and Year-end Conference Call

ENTREC will host a conference call and webcast to discuss its 2014 fourth quarter and year-end financial results tomorrow, March 10, 2015 at 9:00 am Mountain Time (11:00 am Eastern). The call can be accessed by dialing toll-free: 1-866-852-2121 or 416-340-9531 (GTA and International). 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 an employee-owned integrated crane solutions provider to the oil and natural gas, construction, petrochemical, mining and power generation industries. ENTREC is listed on the Toronto Stock Exchange under the symbol ENT.

Consolidated Statements of Financial Position
As at December 31
(thousands of Canadian dollars) 2014
$
2013
$
ASSETS
Current assets
Cash 471 651
Trade and other receivables 53,850 45,146
Income taxes receivable 2,216 -
Inventory 2,656 2,552
Prepaid expenses and deposits 2,971 2,487
62,164 50,836
Non-current assets
Long-term deposits and other assets 105 4,910
Property, plant and equipment 257,721 207,205
Intangible assets 3,329 27,560
Goodwill - 69,276
Total assets 323,319 359,787
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Trade and other payables 19,246 18,335
Income taxes payable - 1,876
Acquisition consideration payable - 587
Current portion of deferred leasehold inducements 609 -
Current portion of long-term debt 421 20,619
Current portion of obligations under finance lease 1,979 1,788
22,255 43,205
Non-current liabilities
Deferred leasehold inducements 10,393 -
Long-term debt 150,563 76,321
Obligations under finance lease 2,721 2,422
Notes payable 2,294 7,294
Convertible debentures 20,384 23,557
Deferred income taxes 20,421 27,220
Total liabilities 229,031 180,019
Shareholders' equity
Share capital 131,870 141,711
Contributed surplus 9,223 9,155
(Deficit) retained earnings (47,877 ) 28,532
Accumulated other comprehensive income 1,072 370
Total shareholders' equity 94,288 179,768
Total liabilities and shareholders' equity 323,319 359,787
Consolidated Statements of (Loss) Income Three Months Ended Year Ended
(thousands of Canadian dollars, except per share amounts) Dec 31
2014
$
Dec 31
2013
$
Dec 31
2014
$
Dec 31
2013
$
Revenue 58,447 52,821 232,235 212,911
Direct costs 42,194 36,753 164,797 140,398
Gross profit 16,253 16,068 67,438 72,513
Operating expenses
General and administrative expenses 5,139 4,816 22,417 20,331
Depreciation of property, plant and equipment 6,607 5,486 24,753 18,705
Amortization of intangible assets 1,044 966 4,004 3,479
Share-based compensation 160 331 1,480 1,567
Loss on disposal of property, plant and equipment 445 49 591 1
13,395 11,648 53,245 44,083
Income before finance items, impairment and income taxes 2,858 4,420 14,193 28,430
Finance items and impairment
Finance costs 2,468 2,208 9,751 7,876
Finance income - - (40 ) -
(Gain) loss on change in fair value of embedded derivative (460 ) 1,314 (4,498 ) (1,002 )
Impairment of long-lived assets 92,466 - 92,466 -
94,474 3,522 97,679 6,874
(Loss) income before income taxes (91,616 ) 898 (83,486 ) 21,556
Income taxes
Current (265 ) 831 (572 ) 2,666
Deferred (9,243 ) (275 ) (6,505 ) 3,077
(9,508 ) 556 (7,077 ) 5,743
Net (loss) income (82,108 ) 342 (76,409 ) 15,813
(Loss) earnings per share - basic (0.76 ) 0.00 (0.68 ) 0.15
(Loss) earnings per share - diluted (0.76 ) 0.00 (0.68 ) 0.14

Non-IFRS Financial Measures

Adjusted EBITDA is defined as earnings before interest, income taxes, depreciation, amortization, loss on disposal of property, plant and equipment, change in fair value of embedded derivative, share-based compensation, impairment of long-lived assets, 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, integration, and other specifically noted non-recurring costs. During the year ended December 31, 2014, the Company included its initial Toronto Stock Exchange listing fee of $0.2 million within 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, impairment of long-lived assets, notional interest accretion expense arising from convertible debentures, and the change in fair value of the embedded derivative related to the 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 are 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 year ended December 31, 2014 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: plans to execute a 2015 capital expenditure program of $21 million, net of disposal proceeds; belief that by consolidating its Calgary and Acheson operations into one location, the Company will maintain utilization of its equipment fleet while also reducing operating costs and continuing to maintain a high level of service to its customers; estimate that recent cost reduction initiatives will reduce on-going indirect and general and administrative expenditures by approximately $4.0 to $5.0 million on an annual basis; belief utilization levels for the Company's crawler cranes and rough terrain cranes will increase throughout 2015 as certain oil sands construction projects continue to ramp up; anticipation that the Company's MRO work in the Alberta oil sands region will be less susceptible to changes in near-term commodity prices and continue to provide a steady demand for its services this year and beyond; expectation the aluminum smelter revitalization project will remain active until mid-2015; belief that the future demand for ENTREC's services in northeast B.C. and northwest B.C. could be impacted by final investment decisions on the construction of proposed LNG facilities in northwest B.C.; expectation that utilization levels for the Company's platform trailers will remain similar to the levels achieved in 2014, but below the levels achieved in 2012 and 2013; expectation that 2015 will be a challenging year for the oil and gas industry; estimate that revenue for the year ending December 31, 2015 could approximate $200 million; estimate overall adjusted EBITDA margin for fiscal 2015 will decline from the 19.9% adjusted EBITDA margin achieved in fiscal 2014; expectation the new LR 1750 crawler crane will be fully-utilized on an awarded oil sands and power construction project for the majority of 2015 and 2016; and plan to fund the 2015 capital expenditure program from the Company's ABL Facility, finance leases and cash from operating activities.

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 2015 and beyond. Key assumptions involved in preparing the Company's internal forecasts include, but are not limited to, its expectations and estimates that: demand for crane services on certain awarded oil sands construction projects increases in 2015; there are reduced activity levels in 2015 due to lower crude prices; should the planned development of LNG facilities proceed, certain customers will choose to use ENTREC's services; ENTREC will be able to retain key personnel and attract additional high-quality personnel to support its planned revenue growth; 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; there is no prolonged period of inclement weather that impedes or delays the need for crane and specialized transportation services; the competitive landscape in western Canada for crane and specialized transportation services does not materially change in 2015; and there is no material adverse change in overall economic conditions.

Achieving these forecasts largely depends on a number of factors beyond the Company's control including several of the risks discussed further under "Business Risks" in The Company's Management Discussion & Analysis for the year ended December 31, 2014. The business risks that are most likely to affect ENTREC's ability to achieve its internal revenue, net income and cash flow forecasts for 2015 and beyond 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, and competition. These risk factors are interdependent and the impact of any one risk or uncertainty on a particular forward-looking statement is not determinable.

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.

Contact Information

  • ENTREC Corporation
    John M. Stevens
    President & CEO
    (780) 960-5625

    ENTREC Corporation
    Jason Vandenberg
    CFO
    (780) 960-5630
    www.entrec.com