ENTREC Corporation Announces 2015 Fourth Quarter and Year-End Financial Results
/EINPresswire.com/ -- ACHESON, ALBERTA -- (Marketwired) -- 03/09/16 -- ENTREC Corporation ("ENTREC" or the "Company") (TSX: ENT), an employee-owned heavy haul transportation and crane solutions provider, today announced financial results for the fourth quarter and year ended December 31, 2015.
Three Months Ended Year Ended
$ thousands, except per share Dec 31 Dec 31 Dec 31 Dec 31
amounts and margin percent 2015 2014 2015 2014
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Revenue 35,079 58,447 165,545 232,235
Gross profit 7,284 16,253 40,201 67,438
Gross margin 20.8% 27.8% 24.3% 29.0%
Adjusted EBITDA(1) 3,303 11,114 22,710 46,129
Margin(1) 9.4% 19.0% 13.7% 19.9%
Per share(1) 0.03 0.10 0.21 0.41
Adjusted net (loss) income(1) (4,070) 1,774 (12,901) 7,260
Per share(1) (0.04) 0.02 (0.12) 0.07
Net loss (4,500) (82,108) (14,634) (76,409)
Per share - basic (0.04) (0.76) (0.14) (0.68)
Per share - diluted (0.04) (0.76) (0.14) (0.68)
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Note 1: See "Non-IFRS Financial Measures" section of the Company's
Management Discussion & Analysis for the year ended December 31, 2015.
With the severe decline in crude oil prices over the past 18 months, customer pricing and 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.
As a result of these macro-economic factors, ENTREC's revenue for the year ended December 31, 2015 decreased by 29% to $165.5 million from $232.2 million in 2014. In 2015, the Company experienced downward pricing pressure from its customers as they worked to reduce their expenditures in the current commodity environment. On average, ENTREC estimates these pricing reductions negatively impacted revenue by approximately 15%. In addition, ENTREC also experienced a reduction in customer demand for crane and specialized transportation services in the markets it serves.
On a quarterly basis, commodity prices for oil and natural gas continued to weaken throughout the third and fourth quarters of 2015 as well as into early 2016. This decline has caused further reductions in customer demand for crane and specialized transportation services. In addition, the weak industry setting has created a very competitive pricing environment where some smaller competitors are now offering their services at pricing levels that do not reflect a full cost recovery. As a result, revenue for the three months ended December 31, 2015 decreased by 40% to $35.1 million from $58.4 million in 2014.
Due to the lower revenue, adjusted EBITDA also declined to $22.7 million for the year ended December 31, 2015 from $46.1 million in 2014. ENTREC's adjusted net loss of $12.9 million for the year ended December 31, 2015 compared to adjusted net income of $7.3 million in 2014.
ENTREC's Strategy
ENTREC's strategy to manage its business through the current market downturn consists of four key initiatives:
---------------------------------------------------------- Initiative #1: Maintain ENTREC's Strong Financial Position ----------------------------------------------------------
Managing ENTREC's business through a market downturn like we have today starts with having a strong financial position. This financial position includes a working capital position of $17.0 million and a net tangible asset value of $117.5 million at December 31, 2015.
Secondly, ENTREC has a flexible $240 million asset-based credit facility (the "ABL Facility"). The ABL Facility has no principal repayments required until its maturity in March 2019 and has no leverage covenant at December 31, 2015. The facility is supported by a modern crane and transportation fleet that, along with the Company's real estate and other equipment assets, has an estimated fair market value of $285 million. History has also shown that modern crane fleets hold their value well throughout market cycles. In addition, the facility is supported by about $28 million in accounts receivable at December 31, 2015.
As at December 31, 2015, based on ENTREC's fleet and accounts receivable as at that date, the borrowing base under the ABL Facility was $175.6 million. ENTREC was utilizing $131.1 million of this availability giving it excess borrowing capacity of $44.5 million. There will be no leverage covenant in place if ENTREC maintains an excess borrowing capacity higher than 12.5% of the borrowing base ($21.9 million at December 31, 2015). At December 31, 2015, ENTREC's excess borrowing capacity of $44.5 million exceeded this threshold by $22.6 million.
Eligible equipment utilized in ENTREC's borrowing base calculation is valued by a third party appraiser every six months and is included in the borrowing base at an amount equal to 85% of net orderly liquidation value. Subsequent to December 31, 2015, ENTREC's eligible equipment was re-appraised at higher values, due largely to the appreciation in the US dollar over the past year as well as the high overall quality of its crane fleet. As a result of the revaluation, ENTREC's excess borrowing capacity increased to $62.6 million at January 31, 2016.
------------------------------------ Initiative #2: Asset Rationalization ------------------------------------
ENTREC is very focused on reducing its long-term debt in 2016. This will be accomplished by minimizing capital expenditures and disposing of under-utilized equipment. With a relatively new fleet, ENTREC will incur only minimal capital expenditures for the foreseeable future and currently expects maintenance capital expenditures for the year ending December 31, 2016 will be under $2 million.
In addition, ENTREC is currently targeting to achieve a minimum of $20 million in net proceeds from the disposal of under-utilized equipment in 2016. These disposals will be achieved through a combination of private sales, brokered transactions and auction.
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Initiative #3: Grow Sales Through Diversification and an Aggressive Sales
Effort
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ENTREC is aggressively working on a number of sales initiatives in 2016 to further diversify its customer base and take market share from competitors. These initiatives include:
-- Obtaining additional long-term maintenance, repair and operation (MRO)
work with existing and new clients;
-- Pursuing construction project work related to infrastructure, power
generation, and other industries outside oil and gas;
-- Pursuing new customers from competitors and peers exiting the market;
-- Acquiring new customers through a continued focus on safety and customer
service;
-- Cross-selling crane services to specialized transportation services
clients; and
-- Cross-selling specialized transportation services to crane services
clients.
As part of these initiatives ENTREC is also expanding its business into new geographic markets. These plans include:
Midland Texas Expansion
In the first quarter of 2016, ENTREC expanded its operations to Midland Texas. Midland is located right in the heart of the Permian Basin - the largest oil play in the United States. The Company believes this organic expansion represents a great opportunity to further diversify its business into a new geographic region. ENTREC's initial revenue targets are expected to be achieved from existing customers it already serves in other locations. ENTREC expects the start-up costs of the new branch will be minimal with all equipment being transferred internally from other locations.
Business Acquisitions
ENTREC continues to pursue specific business acquisition opportunities that are accretive to net income and fit the Company's strategy of geographic and industry diversification.
------------------------------ Initiative #4: Cost Reductions ------------------------------
In this business environment, ENTREC remains completely focused on controlling costs, minimizing discretionary expenditures, and rationalizing operations wherever practical.
While the Company was pleased with the success of its cost reduction initiatives in fiscal 2015, they are not enough, given the state of the current industry environment. In the first quarter of 2016, ENTREC implemented a new cost reduction plan with an initial target to reduce its operating costs by a further $7 million on an annual basis. This plan is now well under way.
ENTREC's 2016 cost reduction initiatives include the following:
-- Further 15% reduction in salaried (non-billable) staff - completed
January/February 2016;
-- Revised overtime rules for hourly employees;
-- Hourly wage grid reductions;
-- Elimination and modification of certain employee allowances and
benefits;
-- Reduced travel costs;
-- Facility subleases and rent concessions; and
-- Reduction in fixed equipment costs associated with 2016 equipment
disposals.
ENTREC also continues to closely assess its operating costs and will make further cost reductions as necessary to ensure its expenses continue to align with activity levels.
2016 Operational Outlook
Given the uncertainties discussed above, ENTREC's outlook remains weak for fiscal 2016. Ongoing downward pricing pressure from its customers along with lower demand for its services supporting oil and natural gas exploration and production activities will continue to negatively impact its financial results.
Helping to partially offset the lower demand for ENTREC's services has been ongoing construction project work for its rough terrain cranes. The Company expects many of these assets will remain well-utilized over the next six to nine months. However, as discussed previously, the Company has been cautious of the potential negative impact of customer decisions to slow-down or postpone work on construction projects in the Alberta oil sands region. During the fourth quarter, one of ENTREC's large power and oil sands construction projects was cancelled by the customer. This project also involved the Company's LR 1750 crawler crane, which is the largest crane in ENTREC's fleet. The Company is currently in the process of quoting this crane to other projects.
The Company also continues to establish its 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 over the next year and beyond. This work could contribute to over 20% of consolidated revenue in fiscal 2016 and the Company expects this percentage could increase further in the future.
The Company remains well-positioned in northwest British Columbia to support the region's growing industrial activity, including the potential future construction of LNG facilities. Pacific Northwest LNG has announced its conditional approval of a potential $36 billion terminal in the Prince Rupert region. The approval remains subject to a positive environmental assessment by the federal government. LNG Canada could also issue a final investment decision on its proposed LNG facility in Kitimat, British Columbia by the end of 2016.
Note 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. 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.
Over the longer-term, ENTREC's competitive position continues to be positive. Despite short-term uncertainties and challenges, the Company is well-positioned geographically, with the right equipment fleet, and a complete range of crane and specialized transportation services in each of its key markets across western Canada, North Dakota, and now in west Texas. While ENTREC expects 2016 will be a challenging period from an operating perspective, it continues to aggressively manage its costs and remains well-positioned to capture future growth opportunities as industry fundamentals improve.
A complete set of ENTREC's most recent financial statements and Management's Discussion and Analysis (MD&A) 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 2015 fourth quarter and year-end financial results tomorrow, March 10, 2016 at 9:00 am Mountain Time (11:00 am Eastern). The call can be accessed by dialing toll-free: 1-866-223-7781 or 416-340-2216 (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 heavy haul transportation and 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 December 31 December 31
As at 2015 2014
(thousands of Canadian dollars) $ $
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ASSETS
Current assets
Cash 148 471
Trade and other receivables 28,366 53,850
Income taxes receivable 307 2,216
Inventory 2,374 2,656
Prepaid expenses and deposits 2,559 2,971
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33,754 62,164
Non-current assets
Long-term deposits and other assets 91 105
Property, plant and equipment 246,158 257,721
Intangible assets 2,457 3,329
Deferred income taxes 2,019 1,619
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Total assets 284,479 324,938
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Trade and other payables 10,868 19,246
Notes payable 2,294 -
Current portion of deferred leasehold inducements 609 609
Current portion of long-term debt 1,051 421
Current portion of obligations under finance lease 1,911 1,979
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16,733 22,255
Non-current liabilities
Deferred leasehold inducements 9,784 10,393
Long-term debt 133,763 150,563
Obligations under finance lease 1,653 2,721
Notes payable - 2,294
Convertible debentures 21,927 20,384
Deferred income taxes 19,513 22,040
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Total liabilities 203,373 230,650
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Shareholders' equity
Share capital 132,275 131,870
Contributed surplus 9,589 9,223
Deficit (62,511) (47,877)
Accumulated other comprehensive income 1,753 1,072
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Total shareholders' equity 81,106 94,288
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Total liabilities and shareholders' equity 284,479 324,938
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Consolidated Statements of
Loss Three Months Ended Year Ended
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(thousands of Canadian Dec 31 Dec 31 Dec 31 Dec 31
dollars, except per share 2015 2014 2015 2014
amounts) $ $ $ $
Revenue 35,079 58,447 165,545 232,235
Direct costs 27,795 42,194 125,344 164,797
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Gross profit 7,284 16,253 40,201 67,438
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Operating expenses
General and administrative
expenses 4,415 5,139 19,478 22,417
Depreciation of property,
plant and equipment 6,654 6,607 26,901 24,753
Amortization of intangible
assets 244 1,044 1,082 4,004
Share-based compensation (34) 160 771 1,480
Loss on disposal of
property, plant and
equipment (58) 445 601 591
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11,221 13,395 48,833 53,245
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(Loss) income before finance
items, impairment and
income taxes (3,937) 2,858 (8,632) 14,193
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Finance items and impairment
Finance costs 2,116 2,468 9,196 9,751
Finance income - - - (40)
Gain on change in fair
value of embedded
derivative - (460) (8) (4,498)
Impairment of long-lived
assets - 92,466 - 92,466
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2,116 94,474 9,188 97,679
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Loss before income taxes (6,053) (91,616) (17,820) (83,486)
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Income taxes
Current (254) (265) (259) (572)
Deferred (1,299) (9,243) (2,927) (6,505)
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(1,553) (9,508) (3,186) (7,077)
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Net loss (4,500) (82,108) (14,634) (76,409)
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Loss per share - basic (0.04) (0.76) (0.14) (0.68)
Loss per share - diluted (0.04) (0.76) (0.14) (0.68)
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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 (loss), 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, 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. Adjusted earnings (loss) 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 estimate of fair market value and carrying value of ENTREC's property, plant and equipment. ENTREC believes net tangible asset value is a useful measure as it provides an indication of the net asset value of ENTREC.
Please see ENTREC's MD&A for the year ended December 31, 2015 for reconciliations of adjusted EBITDA and adjusted net (loss) income to net (loss) income and net tangible asset value to shareholders' equity, the most directly comparable financial measures calculated and presented in accordance with IFRS.
Forward-looking Statements
Certain statements in this press release, including statements or information containing terminology such as "anticipate", "believe", "intend", "expect", "estimate", "may", "could", "will", and similar expressions constitute "forward-looking statements" within the meaning of applicable Canadian securities legislation. All statements, other than statements of historical fact, that address activities, events, or developments that the Company or a third party expect or anticipate will or may occur in the future, including its future growth, results of operations, performance, and business prospects and opportunities are forward-looking statements.
These forward-looking statements reflect ENTREC's current beliefs and are based on information currently available to the Company. These statements require the Company to make assumptions it believes are reasonable and are subject to inherent risks and uncertainties. Actual results and developments may differ materially from the anticipated results and developments discussed in the forward-looking statements as certain of these risks and uncertainties are beyond the Company's control. These risks include several of the factors discussed further under "Business Risks" in ENTREC's MD&A for the year ended December 31, 2015. These risk factors are interdependent and the impact of any one risk or uncertainty on a particular forward-looking statement is not determinable.
Examples of forward-looking statements in this press release and the key assumptions and risk factors involved in such statements include, but are not limited to the following: ENTREC's initial expectation that maintenance capital expenditures for the year ending December 31, 2016 will be under $2 million. This expectation is based on the assumption that the Company will not encounter circumstances where additional capital expenditures are required such as the requirement to service new or existing customer contracts; ENTREC's target to achieve a minimum of $20 million in net proceeds from the disposal of under-utilized equipment in 2016. This target is based on the assumption the Company will be able to successfully source buyers for certain units within its equipment fleet at anticipated prices and that the terms of such disposals will be acceptable to ENTREC; ENTREC's plans to further diversify its customer base and take market share from competitors. This plan is subject to a number of risks, as described under "Business Risks" in ENTREC's MD&A for the year ended December 31, 2015. The risks most likely to affect this plan include volatility of the oil and natural gas sector, economy and cyclicality, and competition; ENTREC's ability to achieve its initial revenue targets in Midland, Texas. The Company's ability to achieve these targets is also subject to a number of the same risk factors as described above; ENTREC's pursuit of potential business acquisitions. The Company's ability to complete any identified business acquisition is dependent on certain expectations and assumptions, including, among others:
(i) the results of diligence review of the businesses proposed to be acquired being satisfactory; (ii) the ability of the parties to agree to the terms of a definitive agreement; (iii) ability to obtain the necessary financing to complete any business acquisition; and (v) ability to receive the various approvals required; ENTREC's estimate that its 2016 cost reduction initiatives will reduce its operating costs by a further $7 million on an annual basis. This estimate is contingent on the Company's ability to fully execute its cost reduction plan. This execution is dependent on a number of factors, including future changes in overall economic conditions, workforce availability and the Company's ability to sublease certain facilities and receive concessions from landlords on anticipated terms; ENTREC's expectation that 2016 will be a very challenging year for the oil and gas industry with ongoing downward pricing pressure from customers along with lower demand for its services supporting oil and natural gas exploration and production activities continuing to negatively impact its financial results.
This expectation is based on the assumption that reduced activity and customer pricing will continue in 2016 due to low crude prices; ENTREC's belief that many of its rough terrain cranes will remain well-utilized over the next six to nine months. This belief is contingent on the customer projects to which these cranes are assigned continue as planned; ENTREC's anticipation that its MRO work in the Alberta oil sands region will be less susceptible to changes in near-term commodity prices and could contribute to over 20% of its consolidated revenue in 2016. This anticipation is based on the assumption that its MRO customers will continue to utilize its services for their ongoing operational activities in the Alberta oil sands and that these activity levels remain comparable with 2015. This assumption is subject to a number of risks, as described under "Business Risks" in the MD&A for the year ended December 31, 2015. The risks most likely to affect this assumption include volatility of the oil and natural gas sector, Alberta oil sands exposure, economy and cyclicality, and competition; ENTREC's anticipation of the potential future construction of LNG facilities in northwest British Columbia and its ability to benefit from such projects. These projects remain subject to a number of significant risks and uncertainties. Neither Pacific Northwest LNG nor LNG Canada have yet issued unconditional final investment decisions on these projects. In addition, the Company will experience competition from other crane and heavy haul transportation service providers for these projects; and ENTREC's belief that the future demand for our services in northeast B.C. could also be impacted by final investment decisions on the construction of proposed LNG facilities. This belief is based on the key assumption that positive final investment decisions will accelerate natural gas drilling and completion activity in northeast B.C.
Consequently, all of the forward-looking statements made in this MD&A 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 effects on ENTREC. These forward-looking statements are made as of the date of this MD&A. Except as required by applicable securities legislation, we assume no obligation to update publicly or revise any forward-looking statements to reflect subsequent information, events, or circumstances.
Contacts:
ENTREC Corporation
John M. Stevens
President & CEO
(780) 960-5625
ENTREC Corporation
Jason Vandenberg
CFO
(780) 960-5630
www.entrec.com
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