Tuckamore Capital Management Inc.
TSX : TX
TSX : TX.DB.B

Tuckamore Capital Management Inc.

May 14, 2015 08:00 ET

Tuckamore Announces First Quarter 2015 Financial Results

TORONTO, ONTARIO--(Marketwired - May 14, 2015) -

NOT FOR DISTRIBUTION TO THE U.S. NEWS WIRE SERVICES OR FOR DISSEMINATION IN THE UNITED STATES

Tuckamore Capital (TSX:TX)(TSX:TX.DB.B) today announced its results for three months ended March 31, 2015.

First Quarter Results

($ millions, except per share amounts) 2015 2014
Restated(1)
Revenue 131.6 169.3
Gross profit 26.8 35.4
Selling, general & administrative expenses (22.3 ) (23.7 )
Net (loss) income from continuing operations (4.6 ) 2.9
EBITDA 4.3 13.2
Adjusted EBITDA 4.5 13.3
Income (loss) per share from continuing operations, basic (0.04 ) 0.03
(1) Adjusted for discontinued operations

Revenue for the three-month period ended March 31, 2015 was $131.6 million, a decrease of 22.3% from $169.3 million in the first quarter of 2014. The decrease was largely driven by lower business volumes across most divisions at ClearStream. Approximately 50% of the decrease is related to ClearStream's fabrication division which has been impacted by new project deferrals in Alberta. Gross profit decreased by 24.3% to $26.8 million for the period ended March 31, 2015 representing a gross profit margin of 20.4%. In the first quarter of 2014, Tuckamore reported gross profit of $35.4 million representing a gross profit margin of 20.9%. Margins at ClearStream in 2015 were slightly above those for the same period in 2014, largely due to lower margins on higher fabrication revenues in 2014.

Adjusted EBITDA decreased to $4.5 million versus $13.3 million for the same quarter in the prior year.

The net loss for the first quarter of 2015 was $4.6 million versus net income of $2.9 million in the first quarter of 2014.

PORTFOLIO REVIEW

INDUSTRIAL SERVICES

Within the Industrial Services division, both ClearStream and Quantum Murray reported lower results than a year ago.

At ClearStream, most divisions reported decreased revenues. While demand for wear products has continued to be strong, the fabrication division has been impacted as new capital projects have been deferred or permanently shelved. Almost 50% of the revenue decrease from a year ago was in the fabrication division. Oil and gas producers are looking to offset their reduced revenues through price concessions from service providers, and pricing discussions are ongoing. While the volume of the work may only be reduced slightly, until new pricing agreements are reached, many producers are delaying or deferring maintenance programs. Price concessions will need to be mitigated as much as possible through corporate overhead initiatives and efficiencies.

At Quantum Murray revenues were higher than a year ago, driven by some larger remediation projects albeit with lower gross margins. The emergency response unit also had a busy quarter dealing with fuel spills. Increased focus has been placed on the group's service delivery platform and cost structure, and management is working diligently to analyse the business, and to implement the necessary changes.

MARKETING

Gemma is diversifying and rebuilding its revenue base. Business development progress has been very good and there is good momentum in the business. However, long sales lead times, followed by detailed implementation and training schedules have resulted in a slower return to profitability. Meanwhile, costs are being carefully managed as new revenues come on stream.

IC Group results have been impacted by revenue reductions in several of the core accounts, where some loyalty programs previously outsourced to IC Group have been taken in-house.

OTHER

Gusgo had a strong performance with revenues increased from the prior year due to increased deliveries for its major clients.

Titan had a difficult quarter. Revenues were impacted by the slowdown in the Alberta economy as well as by challenging conditions for weather related products. Significant cost measures are being taken to match operating and overhead costs with the lower revenue base.

SECOND QUARTER 2015 OUTLOOK

The outlook is management's current view for the second quarter of 2015 as compared to the first quarter of 2015.

The second quarter is typically a busy quarter for ClearStream. While lower oil prices are causing concern in the Alberta oil sector, there is confidence at ClearStream that demand for its maintenance services will improve once pricing negotiations with clients are complete. Demand for wear products remains strong and the outlook is improved for the fabrication division with two significant projects coming on stream. ClearStream will continue to be pro-active with a variety of cost savings measures and streamlining initiatives, which management believes will help to mitigate the financial impact from any revenue reductions.

Quantum Murray has a healthy backlog of business in place, and a good pipeline of opportunities. There will be continuing work on larger lower margin remediation projects, as well as several projects for the emergency response business. Management continues to analyse its organizational infrastructure, and will continue to implement changes to improve margins.

At Gemma, implementation and training for new clients will continue, and management remains active in bidding on new business. At IC Group, the core client base has reduced its project spending. Management is continuing its efforts to stabilize business volumes from its core client base while reducing its overhead costs.

In the Other segment, Titan is experiencing delays and deferrals by clients impacted by a slowdown in the Alberta economy. Overhead reductions are required to align to a lower revenue base.

Gusgo expects stable business volumes from its existing customer base and will continue to operate efficiently in order to maximize margins.

Management continues to look to create value through the improvement of the operations of Tuckamore's assets and, in some cases, may look to realize value through the sale of certain of its assets.

About Tuckamore Capital Management Inc.

Tuckamore has investments in 6 businesses representing a diverse cross-section of the Canadian economy.

Forward-looking information

This press release contains certain forward-looking information. Certain information included in this press release may constitute forward-looking information within the meaning of securities laws. In some cases, forward-looking information can be identified by terminology such as "may", "will", "should", "expect", "plan", "anticipate", "believe", "estimate", "predict", "potential", "continue" or the negative of these terms or other similar expressions concerning matters that are not historical facts. Forward-looking information may relate to management's future outlook and anticipated events or results and may include statements or information regarding the future plans or prospects of Tuckamore or the Operating Partnerships and reflects management's expectations and assumptions regarding the growth, results of operations, performance and business prospects and opportunities of Tuckamore and the Operating Partnerships. Without limitation, information regarding the future operating results and economic performance of Tuckamore and the Operating Partnerships constitute forward-looking information. Such forward-looking information reflects management's current beliefs and is based on information currently available to management of Tuckamore and the Operating Partnerships. Forward-looking information involves significant risks and uncertainties. A number of factors could cause actual events or results to differ materially from the events and results discussed in the forward-looking information including risks related to investments, conditions of capital markets, economic conditions, dependence on key personnel, limited customer bases, interest rates, regulatory change, ability to meet working capital requirements and capital expenditures needs of the Operating Partners, factors relating to the weather and availability of labour.

These factors should not be considered exhaustive. In addition, in evaluating this information, investors should specifically consider various factors, including the risks outlined under "Risk Factors," which may cause actual events or results to differ materially from any forward-looking statement. In formulating forward-looking information herein, management has assumed that business and economic conditions affecting Tuckamore and the Operating Partnerships will continue substantially in the ordinary course, including without limitation with respect to general levels of economic activity, regulations, taxes and interest rates. Although the forward- looking information is based on what management of Tuckamore and the Operating Partnerships consider to be reasonable assumptions based on information currently available to it, there can be no assurance that actual events or results will be consistent with this forward-looking information, and management's assumptions may prove to be incorrect. This forward-looking information is made as of the date of this press release, and Tuckamore does not assume any obligation to update or revise it to reflect new events or circumstances except as required by law. Undue reliance should not be placed on forward-looking information. Tuckamore is providing the forward-looking financial information set out in this press release for the purpose of providing investors with some context for the "Second Quarter Outlook" presented. Readers are cautioned that this information may not be appropriate for any other purpose.

Non-standard measures

The terms "EBITDA" and "adjusted EBITDA" (collectively the "Non-GAAP measures") are financial measures used in this press release that are not standard measures under International Financial Reporting Standards ("IFRS"). Tuckamore's method of calculating Non-GAAP measures may differ from the methods used by other issuers. Therefore, Tuckamore's Non-GAAP measures, as presented may not be comparable to similar measures presented by other issuers.

EBITDA refers to net earnings determined in accordance with IFRS, before depreciation and amortization, interest expense and income tax expense (recovery). EBITDA is used by management and the directors of Tuckamore (the "Directors") as well as many investors to determine the ability of an issuer to generate cash from operations. Management also uses EBITDA to monitor the performance of Tuckamore's reportable segments and believes that in addition to net income or loss and cash provided by operating activities, EBITDA is a useful supplemental measure from which to determine Tuckamore's ability to generate cash available for debt service, working capital, capital expenditures, income taxes and distributions. Tuckamore has provided a reconciliation of income to EBITDA in its Management's Discussion and Analysis.

Adjusted EBITDA refers to EBITDA excluding the interest, taxes, depreciation and amortization of long-term investments. Tuckamore has used Adjusted EBITDA as the basis for the analysis of its past operating financial performance. Adjusted EBITDA is used by Tuckamore and management believes it is a useful supplemental measure from which to determine Tuckamore's ability to generate cash available for debt service, working capital, capital expenditures, and income taxes. Adjusted EBITDA is a measure that management believes facilitates the comparability of the results of historical periods and the analysis of its operating financial performance which may be useful to investors.

Investors are cautioned that the Non-GAAP Measures are not alternatives to measures under IFRS and should not, on their own, be construed as an indicator of performance or cash flows, a measure of liquidity or as a measure of actual return on the shares. These Non-GAAP Measures should only be used in conjunction with the financial statements included in the press release and Tuckamore's annual audited financial statements available on SEDAR at www.sedar.com or www.tuckamore.ca

TUCKAMORE CAPITAL MANAGEMENT INC.
Consolidated Interim Balance Sheets
(In thousands of Canadian dollars)
(unaudited)
As at March 31, 2015 December 31, 2014
Assets
Current Assets:
Cash and cash equivalents $ 31,048 $ 22,714
Cash and short-term investments held in trust 2,950 2,950
Accounts receivable 130,162 155,281
Inventories 24,348 22,215
Prepaid expenses 4,418 4,445
Other current assets 2,340 2,109
Current assets of discontinued operations and assets held for sale - 3,293
Total current assets $ 195,266 $ 213,007
Property, plant and equipment 54,472 56,154
Long-term investments 21,132 21,773
Goodwill 61,128 61,128
Intangible assets 36,935 38,506
Other assets 633 633
Deferred tax asset 2,076 531
Total assets $ 371,642 $ 391,732
Liabilities and shareholders' equity
Current liabilities:
Accounts payable and accrued liabilities 56,578 68,841
Income tax payable 2,050 2,050
Deferred revenue 4,784 5,363
Current portion of obligations under finance leases 6,262 6,457
Senior credit facility 67,357 67,253
Secured debentures 168,681 -
Current liabilities of discontinued operations and assets held for sale - 3,293
Total current liabilities $ 305,712 $ 153,257
Obligations under finance leases 10,515 11,799
Secured debentures - 166,845
Shareholders' equity 55,415 59,831
Total liabilities & shareholders' equity $ 371,642 $ 391,732
TUCKAMORE CAPITAL MANAGEMENT INC.
Consolidated Interim Statements of (Loss) Income and Comprehensive (Loss) Income
(In thousands of Canadian dollars, except per share amounts)
(unaudited)
Three months ended
March 31, 2015
Three months ended
March 31, 2014
Restated(1)
Revenues $ 131,586 $ 169,291
Cost of revenues (104,790 ) (133,912 )
Gross profit 26,796 35,379
Selling, general and administrative expenses (22,258 ) (23,716 )
Amortization of intangible assets (1,571 ) (1,719 )
Depreciation (2,612 ) (2,976 )
Income from long-term investments (261 ) 1,492
Interest expense (6,190 ) (8,363 )
(Loss) income before income taxes $ (6,096 ) $ 97
Income tax expense - current - (7 )
Income tax recovery - deferred 1,545 2,765
(Loss) income from continuing operations $ (4,551 ) $ 2,855
Income (loss) from discontinued operations
(net of income taxes) 135 (711 )
Net (loss) income and comprehensive (loss) income $ (4,416 ) $ 2,144
(Loss) income per share
Basic & Diluted:
Net (loss) income $ (0.04 ) $ 0.03
(1) Please refer to Note 11 - "Comparative Figures" in Tuckamore's March 31, 2015 consolidated financial statements for more information.
TUCKAMORE CAPITAL MANAGEMENT INC.
Consolidated Interim Statements of Cash Flows
(In thousands of Canadian dollars)
(unaudited)

Three months ended
March 31, 2015

Three months ended
March 31, 2014

Restated(1)
Cash provided by (used in):
Operating activities:
Net income (loss) for the period $ (4,416 ) $ 2,144
(Income) loss from discontinued operations (net of income tax) (135 ) 711
Items not affecting cash: - -
Amortization of intangible assets 1,571 1,719
Depreciation 2,612 2,976
Deferred income tax recovery (1,545 ) (2,765 )
Income from long-term investments, net of cash received 641 190
Non-cash accretion expense 1,836 3,490
Amortization of deferred financing costs 104 163
Changes in non-cash working capital 9,732 (9,746 )
Cash provided by (used in) discontinued operations 173 (740 )
Total cash (used in) provided by operating activities $ 10,573 $ (1,858 )
Investing activities:
Purchase of property, plant and equipment (1,004 ) (2,076 )
Proceeds on disposition of business 300 -
Net proceeds on disposal of property, plant and equipment 374 190
Purchase of software - (25 )
Total cash used in investing activities $ (330 ) $ (1,911 )
Financing activities:
Repayment of senior credit facility - (5,481 )
Repayment of obligations under finance leases (1,736 ) (1,388 )
Cash provided by discontinued operations (40 ) (58 )
Total cash used in financing activities $ (1,776 ) $ (6,927 )
Increase (decrease) in cash 8,467 (10,696 )
Cash, beginning of the year - continuing operations 22,714 28,709
Cash, beginning of the year - discontinued operations (133 ) 174
Cash, end of period $ 31,048 $ 18,187
Cash, end of period - continuing operations 31,048 18,811
Cash, end of period - discontinued operations - (624 )
Supplemental cash flow information:
Interest paid 736 4,032
Supplemental disclosure of non-cash financing and investing activities: - -
Acquisition of property, plant and equipment through finance leases 258 177
(1) Please refer to Note 11 - "Comparative Figures" in Tuckamore's March 31, 2015 consolidated financial statements for more information.

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