ENTREC Corporation
TSX : ENT

ENTREC Corporation

May 13, 2015 18:00 ET

ENTREC Corporation Announces 2015 First Quarter Financial Results

ACHESON, ALBERTA--(Marketwired - May 13, 2015) - ENTREC Corporation (TSX:ENT) ("ENTREC" or the "Company"), an employee-owned integrated crane solutions provider, today announced financial results for the first quarter ended March 31, 2015.

Three Months Ended
$ thousands, except per share amounts and margin percent March 31
2015
March 31
2014
Revenue 51,085 61,995
Gross profit 12,465 16,413
Gross margin 24.4 % 26.5 %
Adjusted EBITDA(1) 7,402 10,698
Margin(1) 14.5 % 17.3 %
Per share(1) 0.07 0.09
Adjusted net (loss) income(1) (1,356 ) 1,189
Per share(1) (0.01 ) 0.01
Net (loss) income (1,777 ) 1,435
Per share - basic (0.02 ) 0.01
Per share - diluted (0.02 ) 0.01

Note 1: See "Non-IFRS Financial Measures" section of the Company's Management Discussion & Analysis for the three months ended March 31, 2015.

Revenue for the three months ended March 31, 2015 decreased by 18% to $51.1 million from $62.0 million in 2014. With the recent decline in crude oil prices and depressed natural gas environment, ENTREC experienced a reduction in demand for its crane and conventional heavy haul transportation services provided to the oil and gas industry. In addition, the Company also experienced downward pricing pressure from its customers as they worked to reduce their operating and capital expenditures in the current commodity environment.

Adjusted EBITDA declined to $7.4 million for the quarter ended March 31, 2015 from $10.7 million in 2014. The lower adjusted EBITDA margin reflected reduced equipment utilization levels as well as lower pricing. ENTREC's adjusted net loss of $1.4 million for the three months ended March 31, 2015 compared to adjusted net income of $1.2 million in 2014.

Industry Outlook and ENTREC's Response

With the recent decline in crude oil prices, activity levels in the oil and gas industry for both cranes and specialized transportation services have been negatively affected. There also remains significant uncertainty as to the magnitude and timing of any future recovery in oil and natural gas prices and in how future changes in these prices will impact activity levels in the oil and gas industry and, in particular, the Alberta oil sands region.

"Our 2015 business plans and capital expenditure program reflect this new reality," commented John M. Stevens, ENTREC's President and CEO. "After fulfilling previous capital expenditure commitments and taking delivery of this equipment in the first quarter of 2015, we have significantly curtailed future capital expenditures until the industry outlook improves. In addition, we remain focused on controlling costs, minimizing discretionary expenditures, and rationalizing operations where practical."

Once the benefit of ENTREC's current cost reduction initiatives are fully realized, the Company estimates it will have reduced on-going indirect and general and administrative expenditures by an estimated $6 to $7 million on an annual basis. These initiatives included the recent consolidation of ENTREC's Calgary facility into its Acheson headquarters, a salaried (non-billable) workforce reduction of 15% and temporary wage reductions for all salaried staff. The Company will also continue to closely assess its operating costs on an ongoing basis and make further cost reductions as necessary.

Balance Sheet Remains Well-Positioned

Despite the current challenging 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 $35 million at March 31, 2015 and a very flexible $240 million asset-based credit facility (the "ABL Facility"). As at March 31, 2015, based on ENTREC's fleet and accounts receivable as at that date, the borrowing base under the ABL Facility was $205 million. ENTREC was borrowing $155 million of this availability giving it excess borrowing capacity of about $50 million.

Note that the ABL Facility has no principal repayments required until its maturity in March 2019 and no leverage covenant as at March 31, 2015. The facility is supported by a very modern crane and transportation fleet that, along with real estate and other equipment assets, has an estimated fair market value of approximately $290 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 at March 31, 2015. There will be no leverage covenant in place if the Company maintains an excess borrowing capacity higher than 12.5% of the borrowing base ($26 million at March 31, 2015). At March 31, 2015, the excess borrowing capacity of $50 million exceeded this threshold by $24 million.

After considering the fair market value of ENTREC's property, plant and equipment, ENTREC's net tangible asset value currently approximates $113 million (see "Non-IFRS Financial Measures" section of the Company's Management Discussion & Analysis for the three months ended March 31, 2015).

2015 Operational Outlook

Given the uncertainties discussed above, ENTREC's outlook continues to be weak for 2015. Lower demand for ENTREC's services supporting oil and natural gas exploration and production activities will continue to impact the Company's financial results in the short-term. In addition, while utilization levels for crawler and rough terrain cranes could actually increase in 2015 as certain oil sands construction projects ramp up, the Company is cautious of the potential negative impact of customer decisions to slow-down or postpone work on construction projects in the Alberta oil sands region. In particular, the scope of a large oil sands and power construction project was recently reduced until at least September 2015, which will negatively impact the Company's financial results in the coming months.

With its growing crane fleet, ENTREC is establishing a stronger presence in the market for maintenance, repair and operation ("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 its services this year and beyond. This work contributes 15 to 20% of ENTREC's consolidated revenue and this percentage could increase in the future.

In the first quarter of 2015, the Company saw activity levels in northwest British Columbia decline as the aluminum smelter revitalization project in Kitimat began to wind down. The Company expects to continue supporting this project at reduced activity levels as 2015 progresses. However, ENTREC also remains well positioned in that area to support the region's growing industrial activity, including the potential future construction of LNG facilities. Note too that demand for ENTREC's services in northeast British Columbia could also be impacted by final investment decisions on the construction of proposed LNG facilities in northwest British Columbia. Positive final investment decisions should accelerate the demand for ENTREC's services, while negative or delayed decisions could adversely impact relevant natural gas-related activity.

Overall, ENTREC expects that 2015 will continue 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 potential impact that the recent crude price volatility will have on ENTREC's business as 2015 proceeds. With continued weakness in commodity prices for oil and natural gas, the Company expects lower utilization levels for its fleet, as well as lower pricing, will continue to hamper its financial results. As a result, the Company expects its revenue and adjusted EBITDA margins for fiscal 2015 will be notably lower than in fiscal 2014.

"Over the longer-term, our overall competitive position continues to be positive," added Mr. Stevens. "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 each of our key markets across western Canada and in North Dakota. While we expect 2015 to continue 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 as industry fundamentals improve."

2015 capital expenditure program

ENTREC's current 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

During the three months ended March 31, 2015, ENTREC made capital expenditures of $17.6 million, consisting of $11.3 million in growth capital expenditures and $6.3 million in maintenance capital expenditures. Offsetting these expenditures were proceeds on disposal of $1.8 million, resulting in net capital expenditures of $15.8 million for the quarter.

ENTREC's 2015 growth capital expenditures included the notable addition of an LR 1750 crawler crane. With a 750-ton lifting capacity, this crane is now the largest in its fleet and is currently being utilized on an oil sands and power construction project. Growth capital expenditures also included 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 are focused on ensuring ENTREC's crane, tractor and truck fleets remain modern and efficient.

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).

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.

First Quarter Financial Results Conference Call

ENTREC will host a conference call and webcast to discuss its 2015 first quarter results tomorrow, May 14, 2015 at 9:00 am (MDT) (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.

Consolidated Statements of Financial Position
As at
(thousands of Canadian dollars)
March 31
2015
$
December 31
2014
$
ASSETS
Current assets
Cash 872 471
Trade and other receivables 52,669 53,850
Income taxes receivable 1,027 2,216
Inventory 2,710 2,656
Prepaid expenses and deposits 2,120 2,971
59,398 62,164
Non-current assets
Long-term deposits and other assets 103 105
Property, plant and equipment 267,119 257,721
Intangible assets 3,174 3,329
Total assets 329,794 323,319
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Trade and other payables 21,596 19,246
Current portion of deferred leasehold inducements 609 609
Current portion of long-term debt 469 421
Current portion of obligations under finance lease 2,028 1,979
24,702 22,255
Non-current liabilities
Deferred leasehold inducements 10,241 10,393
Long-term debt 156,473 150,563
Obligations under finance lease 2,304 2,721
Notes payable 2,294 2,294
Convertible debentures 20,737 20,384
Deferred income taxes 19,834 20,421
Total liabilities 236,585 229,031
Shareholders' equity
Share capital 131,969 131,870
Contributed surplus 9,356 9,223
Deficit (49,654 ) (47,877 )
Accumulated other comprehensive income 1,538 1,072
Total shareholders' equity 93,209 94,288
Total liabilities and shareholders' equity 329,794 323,319
Consolidated Statements of (Loss) Income
Three Months Ended
(thousands of Canadian dollars, except per share amounts) March 31
2015
$
March 31
2014
$
Revenue 51,085 61,995
Direct costs 38,620 45,582
Gross profit 12,465 16,413
Operating expenses
General and administrative expenses 5,729 6,128
Depreciation of property, plant and equipment 6,574 5,666
Amortization of intangible assets 283 970
Share-based compensation 232 459
Gain on disposal of property, plant and equipment (198 ) (91 )
12,620 13,132
(Loss) income before finance items and income taxes (155 ) 3,281
Finance items
Finance costs 2,281 2,739
Gain on change in fair value of embedded derivative (8 ) (1,548 )
2,273 1,191
(Loss) income before income taxes (2,428 ) 2,090
Income taxes
Current (62 ) (537 )
Deferred (589 ) 1,192
(651 ) 655
Net (loss) income (1,777 ) 1,435
(Loss) earnings per share - basic (0.02 ) 0.01
(Loss) earnings per share - diluted (0.02 ) 0.01

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, 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 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 (loss) 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 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 (loss) earnings per share are calculated as adjusted net (loss) income divided by the basic weighted average number of shares outstanding during the applicable period.

Net tangible asset value is calculated as shareholders' equity, excluding intangible assets, and adjusted for the difference between the Company's estimate of fair market value and book value for property, plant and equipment.

Please see ENTREC's Management Discussion & Analysis for the three months ended March 31, 2015 for reconciliations of adjusted EBITDA and adjusted net (loss) income to net (loss) income, the most directly comparable financial measure calculated and presented in accordance with IFRS as well as a reconciliation of net tangible asset value to shareholders' equity, as 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 MD&A include, but are not limited to ENTREC's: plan to execute a 2015 capital expenditure program of $21 million, net of disposal proceeds; estimate that recent cost reduction initiatives will reduce ENTREC's on-going indirect and general and administrative expenditures by approximately $6 to $7 million on an annual basis; estimate that modern crane fleets will hold their value well through market cycles; expectation lower demand for ENTREC's services supporting oil and natural gas exploration and production activities will continue to negatively impact the Company's financial results in the short-term; belief utilization levels for the Company's crawler cranes and rough terrain cranes could increase in 2015 as certain oil sands construction projects ramp up, but that the Company is cautious of the potential negative impact of customer decisions to slow-down or postpone work on construction projects in the Alberta oil sands region; 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 the Company's services this year and beyond; expectation the aluminum smelter revitalization project will remain active at reduced levels as 2015 progresses; 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 2015 will be a challenging year for the oil and gas industry; and estimate the Company's overall revenue and adjusted EBITDA margin for fiscal 2015 will be notably lower than in fiscal 2014.

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 continues 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; the Company will be able to retain key personnel and attract additional high-quality personnel to support its planned revenue; 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 three months ended March 31, 2015. 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