Vertex Resource Group Ltd. Announces Third Quarter Results

Revenue of $41.4 million, EBITDA of $6.1 million and net income of $6.5 million for third quarter 2018.
Revenue of $103.8 million, EBITDA of $14.7 million and net income of $1.9 million for nine months ending September 30, 2018.

SHERWOOD PARK, AB, Nov. 26, 2018 /CNW/ – (TSXV:VTX) – Vertex Resource Group Ltd. (“Vertex” or the “Company”) reports its financial and operational results for the three and nine months ending September 30, 2018. The following should be read in conjunction with the Management Discussion and Analysis (“MD&A”) and the consolidated financials statements and notes of Vertex for the three and nine months ended September 30, 2018, which are available on SEDAR at www.sedar.com.

FINANCIAL AND OPERATIONAL HIGHLIGHTS
Key financial and operational highlights for the three and nine months ending September 30, 2018 and 2017 are as follows:

HIGHLIGHTS FOR THE THREE AND NINE MONTHS ENDING SEPTEMBER 30, 2018
The results for the three and nine months ended September 30, 2018 highlighted increased revenue, gross profit, EBITDA and net income as compared to the corresponding periods of 2017. Net income increases were largely attributed to bargain purchase gains of $6.8 million on acquisitions completed in the last two quarters.

Vertex experienced positive results for the quarter and expects the trend of improved revenues to continue into the remainder of 2018. The improved results are due to acquisition impacts, and organic growth in certain services lines that led to improved utilization. To date in 2018, Vertex has focused on integrating acquisitions, while pursuing cross selling and utilization initiatives between business segments and industries to promote organic growth. Vertex continues to provide and has expanded upon its diverse service offerings to address the environmental needs of its current and potential customers.

Highlights for the third quarter of 2018 compared to the third quarter of 2017 and the nine months ending September 30, 2018 as compared to the nine months ending September 30, 2017 were:

• Revenue increased by $6.4 million to $41.4 million or by 18.4% in the third quarter 2018 from $35.0 million for the same quarter of 2017.  Revenue increased by $21.2 million to $103.8 million or by 25.6% in the nine months ending September 30, 2018 from $82.6 million for the same nine months of 2017.  Growth in revenue is attributable to recent acquisitions, rebounds in customer spending in Vertex’s targeted segments, cross-selling and utilization strategies between segments and industries that resulted in greater demand for the Company’s services offset by revenue reductions in its Industrial division and certain service lines where activities were reduced by unusually poor weather in September that resulted in project delays.
• Gross profit for the third quarter of 2018 was $10.9 million, up 17.7% or $1.6 million from $9.3 million in the same quarter of 2017. Gross profit as a percentage of revenue (“gross profit margin”) was 26.4% in the third quarter of 2018 compared to 26.6% in the same quarter of 2017.  Gross profit for the nine months ending September 30, 2018 was $28.5 million, up 19.7% or $4.7 million from $23.8 million in the same nine months of 2017. Gross profit margin decreased slightly to 27.4% in the nine months ending September 30, 2018 versus 28.8% in the same nine months of 2017, due to revenue mix.
• General and administrative costs (“G&A”) increased by 14.5% or $0.7 million to $4.9 million in the third quarter of 2018, from $4.2 million in the third quarter of 2017 as Vertex has incurred additional costs with acquiring several businesses and costs of being a public company. G&A as a percentage of revenue was down to 11.7% in the nine months ending September 30, 2018 versus 12.1% in the same nine months of 2017. As a percentage of revenue, G&A was down to 13.3% in the nine months ending September 30, 2018 versus 14.7% in the same nine months of 2017. Vertex continues to aggressively control G&A through integrating acquisitions.
• EBITDA for the third quarter of 2018 was $6.1 million, an increase of 20.4% compared to $5.0 million in the third quarter of 2017.  This increase was driven by Vertex’s Environmental Services segment, and specifically by the impact of acquisitions, as compared to the third quarter of 2017. EBITDA for the nine months ending September 30, 2018was $14.7 million, an increase of 26.5% compared to the same nine months of 2017. The Environmental Services segment increased Vertex’s EBITDA through consistent project execution and acquisition impacts.
• Net income for the third quarter of 2018 increased by $6.7 million, over the third quarter of 2017. Net income for the nine months ending September 30, 2018 increased by $3.1 million, to income of $1.9 million, from a $1.2 million loss in the same nine months of 2017.  The increase in net income is largely attributable to bargain purchase gains on acquisitions that occurred in the second and third quarters of 2018.
• Cash generated from operating activities increased by $8.3 million to $4.5 million for the nine months ending September 30, 2018, as compared to cash used in operating activities of $3.8 million for the nine months ending September 30, 2017.  Increased revenue and acquisitions in the third quarter of 2018 resulted in improved cash generated from operating activities compared to the third quarter of 2017.
• Vertex completed the complementary acquisition of Three Star Trucking Ltd. within Vertex’s Environmental Services segment on July 12, 2018 for aggregate fair value consideration of $7.7 million and a bargain purchase gain of $6.6 million. All acquisitions completed during 2018 have improved the Company’s financial results, service offerings and geographical footprint resulting in Vertex’s increased ability to serve its customers and increasing shareholder value.

OUTLOOK
Headed into the last quarter of 2018 and into 2019, Vertex is well positioned to withstand short term economic pains in Western Canada. This view is based on recent acquisitions that have been purchased prudently and are exceeding expectations, the fact that Vertex was profitable in the third quarter and nine months ending September 30, 2018, and because positive trends in revenue, gross margin, EBITDA and net income are expected to continue in the future.  The nine complementary acquisitions completed throughout the last eighteen months are now positively adding to the Company’s financial position. These acquisitions allow Vertex to cross utilize people and equipment to service its existing customer base within and outside the oil and gas industry.

Vertex continues to be impacted negatively by macro economic trends and investment uncertainty within the oil and gas industry. Customer budgets, cash flow and activity levels are being affected by the crude oil differentials which results in uncertainty beyond the first quarter of 2019.  Vertex is being challenged by margin pressures but is encouraged by ongoing dialogue regarding pricing with its customers. As Vertex obtains further clarity from clients as to their maintenance, operating and capital budgets for the coming year, Vertex will be able to better forecast its own outlook for 2019. Preliminary feedback on activity levels for early 2019 indicates a continuation of recent positive trends specifically a potential improvement in activity levels related to opportunities outside of the oil and gas industry and opportunities related to significant demand for moving oil by trucks.

Vertex anticipates increases in future activity levels with the recent LNG major project approvals and new oil sand developments as it will be able to capture and benefit from existing relationships within the region to offset any negative impacts of the differentials on Canada’s commodity pricing and potential reduction in drilling and completions in western Canada in the fourth quarter of 2018 and the first two quarters of 2019.  Vertex continues to gain momentum in pursuing its customer diversity strategy whereby Vertex customers continue to grow and provide stable opportunities in the utilities, agriculture, municipalities and telecommunications industries.

Despite the overall negative short-term macro economic backdrop, Vertex continues to be encouraged by growth opportunities in its Environmental Services segment through abandonments, new emissions regulations, fluid hauling and environmental liability management for its customers both in western Canada and the United States heading into the last quarter of 2018. Vertex continues to focus on addressing the demands of its diversified customer base and addressing opportunities to capitalize directly on the operating and maintenance budgets of all its customers. The Company continues to serve and expand its customer base by providing its services to customers outside of the oil and gas industry however, given the recent acquisitions in 2018, impacts from the oil and gas industry and larger macro industrial trends will be felt for the foreseeable future. Vertex will continue to focus on growing its business organically, achieving efficiencies and cost reductions throughout its operations. Vertex continues to focus on the integration of recent acquisitions, cross-selling complementary services between segments in order to lower customers’ costs and provide integrated solutions for the environmental liabilities of its customers.

Vertex continues to focus on paying down debt, de-leveraging through acquisitions, reducing its overall cost of borrowing, managing working capital and evaluating its capital expenditure plans to match core and strategic opportunities. Accretive, complementary and opportunistic acquisitions remain an essential component of Vertex’s long-term growth plans and it continues to integrate acquisitions and evaluate future opportunities when beneficial. Vertex is committed to further improving its operational and financial performance while ensuring that it is creating shareholder value for the longer term.

ABOUT VERTEX
Established in 1976, Vertex has grown to become a leading provider of environmental services. Headquartered in Sherwood Park, Alberta, Vertex employs a staff of approximately 700 employees and lease operators that provide services to help clients achieve their development 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 upstream and midstream oil and gas, utilities, telecommunication, forestry, agriculture and government.

Vertex principally operates in western Canada and in select locations in the United States.