Sherwood Park, Alberta, November 12th, 2019 (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, 2019, with comparisons to the same periods in 2018. The following operational and financial highlights should be read in conjunction with the Management Discussion and Analysis (“MD&A”) and the interim consolidated financial statements and notes thereon of Vertex for the three and nine months ending September 30, 2019, which are available on SEDAR at www.sedar.com.
Terry Stephenson, President and CEO, advises “We are pleased with our 3rd quarter results which reflect increased revenue and comparable EBITDA relative to the prior year. Our strategies around acquisitions, expansion into new sectors, integration of services, and focus on quality have allowed us to be successful despite a very low growth economic environment. We have a strong execution team that is focused on cost management, operational efficiencies, and opportunistic growth and diversification.”
During the 3rd quarter, the Company experienced ongoing pricing and competitive pressure as a result of a poor economic environment including continuing low 2019 drilling and completions activity, and reduced oil shipments. These factors have resulted in reduced gross margins during the 3rd quarter and throughout 2019. However, the Company continues to operate successfully both in terms of revenues and EBITDA as it has successfully replaced lost revenues through strategic acquisitions and changes in its revenue mix. In addition, the Company continued its efforts to consolidate G&A costs to realize acquisition synergies. Vertex is achieving diversity both geographically and by industry sector. Geographically, the Company operates across Western Canada and continues to expand its environmental consulting presence into Ontario and the United States. The Company is also developing a greater presence in the telecommunications industry while it continues to source opportunities in mining, utilities, public infrastructure, agriculture, and forestry.
Key financial results for the three and nine-month periods ended September 30, 2019, and 2018 are as follows:
HIGHLIGHTS FOR THE THREE MONTHS ENDING SEPTEMBER 30, 2019
Revenue for the third quarter of 2019 increased 5.4% to $43.7 million from the same quarter in 2018. The increase is due to organic growth including expansion into new markets and industries.
Gross profit for the third quarter of 2019 was $10.7 million compared to $10.9 million for the 3rd quarter of 2018 notwithstanding greater price competition this year. The maintenance of gross profit levels was driven by revenue growth.
G&A decreased by 30.3% to $3.4 million in the third quarter of 2019, from the third quarter of 2018. As a percentage of revenue, G&A was down to 7.8% in the third quarter of 2019 versus 11.7% in the third quarter of 2018. The adoption of IFRS 16 – Leases (“IFRS 16”) positively impacted G&A costs and resulted in a decrease of $1.3 million of costs previously classified as rent that are now being expensed as amortization of right of use assets (“ROU”) and interest accretion. Vertex continues to streamline operations and aggressively manage G&A costs.
EBITDA reported for the third quarter of 2019 was $7.3 million compared to $6.1 million in the third quarter of 2018.
Strong Cash Flow from operating activities of $8.1 million during the third quarter and $20.1 million YTD have allowed the Company to reduce debt by $9.2 million YTD.
For the remainder of the year, indicators point to a continuation of current trends with respect to client activity levels, pricing and margin pressures. In the absence of significant commodity price increases, the Company expects spending on drilling and completions to remain cautious, with activity levels below the fourth quarter of 2018. However, Vertex anticipates that it will be able to continue to deliver positive results by focusing on strategic cross-selling and customer diversity initiatives, growing its customer base, with approximately 45% of revenues for 2019 expected to come from outside the oil and gas industry. For 2020, the Company plans to continue its diversification initiatives to further reduce the proportion of revenues from oil and gas. Specifically, Vertex’s customers continue to grow and provide stable and attractive opportunities in the utilities, agriculture, municipalities and telecommunications industries.
Vertex continues to focus on factors within its control, namely growing market share, cost management and capital prudence. As a result, Management believes the company will continue to produce positive results for 2020 and beyond, despite the lack of positive economic indicators. The Company’s strategies are expected to create opportunities for continued growth in revenue, with the expectation that margins will not deteriorate further in 2020. More normal weather and field conditions may result in a recovery of margin levels.
Recent announcements regarding Canadian LNG, pipeline and oilsands projects are positive in the longer term for both the oil and gas industry and Vertex’s expected future results. Continued spending on planned maintenance programs, increased abandonments and the need for companies to focus on environmental liabilities to remain operational are expected to present Vertex with additional opportunities in the near future.
Since 1962, Vertex has been a leading North American provider of environmental services. Headquartered in Sherwood Park, Alberta, Vertex employs a staff of approximately 600 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 Ontario and the United States.