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Vertex Resource Group Ltd. Reports Fourth Quarter and Fiscal 2020 Results

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Revenue of $37.3 million and Adjusted EBITDA of $5.6 million for the fourth quarter of 2020.

 

Revenue of $136.1 million and Adjusted EBITDA of $24.5 million for the year ending December 31, 2020.

 

Vertex Resource Group Ltd. (TSX-V: VTX) reports its financial and operational results for the fourth quarter and year ending December 31, 2020. The following should be read in conjunction with the Management Discussion and Analysis and the audited consolidated financials statements of Vertex for the year ended December 31, 2020, which are available on SEDAR at www.sedar.com.

 

In the fourth quarter of 2020, despite ongoing challenges presented by the COVID-19 pandemic, Vertex delivered strong results relative to the previous quarters of 2020.  Despite reduced activity, profitability was improved as a result of Management’s efforts to control and reduce costs.  The Company’s balance sheet continues to strengthen because of these efforts with excess funds from operations being used to accelerate debt repayment.

 

Vertex’s diversification efforts with continued expansion in the utilities and telecommunications sectors and growth in our US operations have also helped to mitigate the revenue declines. The Company is maintaining its focus on cost containment, operating efficiencies, geographic diversification, and sector diversification.

 

From an environmental consulting perspective, the expected increase in abandonment and reclamation (A&R) projects in 2020 from major government funding was delayed as contracting and funding mechanisms were being developed and refined during 2020 delayed project awards.  Vertex expects significant revenue opportunities in this area through 2022, having already won various projects which are expected to kick off in the near to medium term, and very significant remaining unallocated funding.

 

Key financial results for the three months and years ended December 31, 2020 and 2019 are as follows:

 

 

HIGHLIGHTS
Three Months ended Years ended
 December 31,  December 31,
(in thousands of Canadian Dollars) 2020 2019 % Change 2020 2019 % Change
Revenue 37,331 40,664 -8% 136,125 168,070 -19%
Gross profit 9,044 9,057 0% 38,535 39,292 -2%
Adjusted EBITDA (1) 5,617 4,472 26% 24,464 22,306 10%
Free cash flow (1) 4,435 3,622 22% 22,841 20,054 14%
Adjusted EBITDA per share,
basic and diluted
0.06 0.05 26% 0.27 0.24 10%
(1) See “Non-IFRS Financial Measures”

 

HIGHLIGHTS FOR THE THREE MONTHS ENDING DECEMBER 31, 2020

 

The Company generated $37.3 million in revenues compared to $40.7 million in Q4 2019.

 

Reported gross margin increased to 24.2% from 22.3%.

 

Adjusted EBITDA during the fourth quarter amounted to $5.6 million compared to $4.5 million in Q4 2019, with adjusted EBITDA as a percentage of revenue increasing to 15.0% up from 11.0% in Q4 2019.

 

Net loss for the period was $0.9 million compared to a loss of $8.9 million in Q4 2019.

 

Free cash flow amounted to $4.4 million compared to $3.6 million in Q4 2019.

 

Senior credit facility was amended to extend the maturity date to May 31, 2022.

 

HIGHLIGHTS FOR THE TWELVE MONTHS ENDING DECEMBER 31, 2020

 

Revenue decreased from $168.1 million in 2019 to $136.1 million for the same period in 2020.

 

Reported gross margin improved to 28.3% from 23.4%.

 

Adjusted EBITDA amounted to $24.5 million for the full year 2020 compared to $22.3 million in the same period of 2019.

 

Reported net loss and comprehensive loss was $5.7 million in 2020 compared to a loss of $11.3 million the prior year.

 

Success in the $1.7 billion abandonment and site rehabilitation funding programs, with expectations of continued success in 2021 and 2022.

 

Free cash flow amounted to $22.8 million compared to $20.1 million in the year ended December 31, 2019.

 

Strong Cash Flow provided by operating activities of $20.8 million allowed Vertex to reduce total reported borrowings by $18.2 million during 2020.

 

OUTLOOK

 

The economic uncertainty and contraction which commenced with the advent of COVID-19 in late Q1 has continued throughout 2020, evidenced by delays in construction projects, government-imposed restrictions limiting access to work sites, significantly reduced demand and volume for energy products, ongoing price competition, and reductions in capital spending. Vertex’s growing reputation, strong presence in various geographic areas, relationships with clients, and diversified complement of services have allowed it to withstand the economic pressures better than other service providers offering a single service or those that have operations in only one geographic region. Strong client relationships, effective safety programs, strong quality control, a reputation for meeting commitments, and various government support and stimulus programs mitigated the potential for material reductions in gross margins. Vertex demonstrated the strength and resiliency of our business model in 2020 and we are in an enviable position to facilitate growth as the economy continues to recover.

 

Demand for Vertex’s services are expected to improve in 2021 above the levels experienced in 2020 due to various government programs for reclamation and abandonment of environmental liabilities, improved capital spending across multiple industries, unfettered access to work sites, recovery of energy production, elimination of Alberta government production curtailments, increased natural gas developments and prices, reinstatement of major customer maintenance programs, and continued diversification.  Federal, provincial, and state governments across North America have identified investment in infrastructure as a key component of their economic recovery plans. Additionally, new opportunities in the telecommunications, utilities and renewable energy sectors are expected to grow based on increased capital investment plans by several of our key customers.

 

A strong resurgence in commodity prices, an increase in energy demand, coupled with OPEC’s short-term production cuts should result in customers in the energy industry continuing to increase activity levels throughout the year. Consolidation of customers in the oil and gas sector is expected to continue. Conservative capital deployment and continued focus on debt reductions will likely delay the return to pre-COVID activity until 2022, but activity in 2021 is expected to rebound from 2020. Additionally, we are anticipating competitor consolidations and business failures will provide further opportunities for Vertex to grow our market share.  The new administration in the United States has pledged to enhance environmental and air quality regulations which should create further opportunities for our services. These expectations may change from period to period if economic activity is further dampened, new government safety measures are enacted, existing government mandated restrictions are prolonged, or supply/demand conditions remain unsettled. However, global economic recovery from this Pandemic will continue to strengthen throughout 2021 and into 2022. The CEWS program has been extended until June 2021 and Vertex will continue to participate in all periods for which we meet the eligibility requirements.

 

Vertex resumed its acquisition activity in early 2021, acquiring an environmental services business providing industrial cleaning, waste management and hydro-excavating. This business is very complementary, strengthens Vertex’s industrial cleaning asset base and has strong backlog of contracted maintenance work for the next three to five years. The structure of this acquisition allows Vertex to grow its revenues and earnings while also strengthening our balance sheet.   Vertex will continue to pursue other acquisitions throughout 2021 should they meet its strict financial and strategic requirements.

 

Vertex intends to be nimble and agile as an organization, with continued focus on operational efficiencies, process efficiencies, enhanced technology developments and implementation; combined with bundling of its services and solutions for its customers. While strong competition for projects and contracts, along with competitive pricing, is expected to persist for the near to medium term; Vertex expects to continually generate strong, free cashflows from operations, further strengthen its healthy financial position, and ready itself for the increased demand that is expected to occur when Western Canada’s energy market recovers with the completion of major pipelines over the next three years. Vertex also expects to continue benefitting from the ongoing demand for NGL’s, such as butane and propane, and the increasing demand for cleanup of environmental liabilities. In addition, the Company expects to realize the full year of benefits in 2021 from the cost savings and organizational changes made in 2020.

 

Vertex is very well positioned to work closely with our Indigenous partners, customers and the provincial governments of Alberta, Saskatchewan, and British Columbia and the Canadian federal government to participate in the various environmental liability clean up programs in 2021 and 2022. In addition, Vertex is a prime contractor for the Alberta Orphan Well Association, the Saskatchewan Orphan Well Association and the BC Oil & Gas Commission. Vertex anticipates an increased level of activity from all these programs in 2021 as the various government agencies and departments have now been able to develop and refine the funding mechanisms, the absence of which greatly impeded activity in 2020. The Company also plans to continue expanding its services to municipalities, utilities, renewables and the telecommunications sector and will continue its geographic diversification efforts in British Columbia, Ontario, and the U.S. In addition, the natural gas industry in Alberta and British Columbia is expected to grow significantly with the development of LNG Canada’s Kitimat, BC plant, the Coastal Gas Link Pipeline, and the Nova Gas Transmission Pipeline over the next two to three years.

 

Vertex’s vision of being a world leading environmental services company has not changed.  As an Environmental Service business, we believe we are uniquely positioned for ESG performance.  We understand that we have a responsibility to maximize our Internal ESG performance and have made a corporate commitment to do so. More substantially, we understand that our Supply Chain opportunity to support the ESG initiatives of our customers has a significantly broader global impact. As such our ESG system design includes both an internal and supply chain focus.  As our ESG journey evolves so too will our measurement and reporting, holding ourselves accountable to internal and supply chain metrics.  Ultimately, our intent is to create business resiliency by becoming a primary source of executable ESG supply chain solutions for our customers.

 

ABOUT VERTEX

 

Since 1962, Vertex has been a leading North American provider of environmental services. Headquartered in Sherwood Park, Alberta, Vertex employs a staff of approximately 650 employees and lease operators that provide services to help clients achieve their developmental and operational goals. From initial site selection, consultation and regulatory approval, through construction, operation and maintenance, to conclusion and environmental cleanup, Vertex provides a wide array of services to customers operating in industries such as energy, mining, utilities, private development, public infrastructure, construction, telecommunications, forestry, agriculture and government.

 

Posted March 23, 2021

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