Revenue of $40.7 million and Adjusted EBITDA of $4.5 million for the fourth quarter of 2019.
Revenue of $168.1 million and Adjusted EBITDA of $22.3 million for the year ending December 31, 2019.
Sherwood Park, Alberta, June 9, 2020 (TSXV:VTX) – Vertex Resource Group Ltd. (“Vertex” or the “Company”) reports its financial and operational results for the fourth quarter and year ending December 31, 2019. The following should be read in conjunction with the Management Discussion and Analysis (“MD&A”) and the audited consolidated financials statements and notes of Vertex for year ended December 31, 2019, which are available on SEDAR at www.sedar.com.
For the third year in a row, the Company has increased revenues and Adjusted EBITDA year over year. Vertex successfully completed three complementary and opportunistic acquisitions during 2018 which has led to growth from acquisition and through cross-selling of services to our customers. The Company was also able to achieve significant organic growth in its Environmental consulting business.
The fourth quarter saw a decline in revenues and Adjusted EBITDA from the prior year due to the oil production curtailments and curtailment of capital spending by clients during that period to maintain budgets.
During 2019, Vertex continued to integrate and improve equipment utilization from its 2018 acquisitions through cross-selling opportunities across service lines, continued geographical and industry expansion, as well as through reducing redundant costs where possible. Vertex’s efforts to date to expand its service offerings and geographic footprint have allowed it to maintain strong revenue and Adjusted EBITDA results during a year of significant challenges. During the upcoming year which will also be very challenging, Vertex will continue to focus on efficiently managing its assets and the costs of the business, and diversifying its services, product offerings and customer base both in geography and industry, to maintain successful operations.
Key financial results for the three months and years ended December 31, 2019 and 2018 are as follows:
Revenue for the fourth quarter of 2019 decreased 12.7% to $40.7 million from the same quarter in 2018. This revenue decrease was attributable to customers delaying spending into the first quarter of 2020.
Gross profit for the fourth quarter of 2019 was $9.0 million a decrease of 24.7% from the same quarter in 2018 due to continued pricing pressure for services caused by the production curtailment.
Adjusted EBITDA for the fourth quarter of 2019 decreased to $4.5 million from the fourth quarter of 2018. This decrease was related to the decreased revenue and gross profit.
Revenue increased to $168.0 million, up 11.8% or $17.6 million from 2018. Increased revenue is attributable to improved market share in certain business lines, the impact of incorporating the results of 2018 acquisitions for a full fiscal year of 2019, and consistent customer spending in certain segments including environmental liability management, transaction assessments, and decommissioning.
Gross profit decreased to $39.3 million, down 3.0% or $1.2 million from 2018 due to reduced pricing from production curtailment, shifting revenue sources and increasing input costs required to generate revenue. Vertex’s gross profit margin in 2019 was 23.4% compared to 26.9% in 2018.
Adjusted EBITDA was $22.3 million in 2019, up 8.2% or $1.7 million from 2018. This increase was driven by higher revenues and cost savings from integrating the past acquisitions.
Strong Cash Flow provided by operating activities and the adoption of IFRS 16, of $22.2 million allowed Vertex to reduce total reported borrowings by $17.5 million during 2019.
Earlier in 2020 optimism existed for improvement in the Western Canadian economy from the low levels experienced in 2019 based on expectations for increased spending on a number of major projects. However, the advent of the COVID-19 virus has resulted in significant uncertainties and reduced revenue and earnings outlooks for 2020 across all sectors. In the energy industry, oil companies have announced reductions in capital expenditure budgets and both upstream and downstream production activities.
In an attempt to limit and contain the spread of COVID-19, countries and governments around the world implemented heavy restrictions on social interaction, public gatherings, travel, and business activities. This resulted in concerns over supply chain disruptions, reduced demand for many products and services, and, overall, a severe contraction of economic activity. Various jurisdictions are currently starting to relax restrictions and re-open business activities in a controlled and measured manner. This may ease concerns over the global demand for products and services. However, a return to normalcy in business activities is not expected for an extended period of time. Expectations and business activity may be tempered by the possibility of additional waves of COVID-19.
While demand in many sectors has been adversely impacted, Vertex’s services are considered essential and the Company has been able to continue providing its services to clients. To facilitate this, Vertex has implemented appropriate safety measures pertaining to physical distancing, travel, sanitization, personal protective equipment and supplies, and work from home arrangements.
While it is not possible to quantify the full effect of the economic uncertainties and financial impacts of COVID-19, Vertex expects that there will be continued pressure on its revenues and gross margins into the second quarter of 2020, perhaps beyond, especially in the upstream sector of the energy industry. As of this date, Vertex has seen some increased demand for its rental products related to storage and accommodations, stable fluid hauling demand, and increased opportunities for environmental remediation services. It is not known whether these positive circumstances will continue.
Vertex generates significant revenues from sectors outside of oil and gas including midstream, utilities, industrial construction, mining, public sector, agriculture, and forestry. These sectors accounted for 43% of the company’s revenues in 2019. Within the oil and gas sector, 77% of revenues were derived from operations and maintenance (O&M) and reclamation related services, with the remaining 23% coming from development and drilling related services. From all sectors, approximately 69% of the Company’s revenues were derived from operations and maintenance (O&M) related services, 10% from environmental reclamation, 13% from development, and 8% from upstream drilling services.
Vertex maintains a diversified business consisting of various revenue streams including: environmental consulting, testing, and remediation; fluid hauling for upstream, midstream, mining, and agricultural sectors; hydrovac for construction; industrial cleaning and waste disposal; equipment rental for storage and containment of products and waste; manufacturing of acoustic products and metal buildings.
The Company has acted expeditiously to curtail discretionary expenditures, carefully manage operating costs, reduce labour costs, and re-assess planned capital expenditures.
To date the federal government of Canada has provided major funding to support businesses in the form of liquidity loans to mid-market companies, bridge financing for large companies to support continuing operations, wage cost subsidies, and major funding for environmental remediation activities specifically for Alberta, Saskatchewan, and British Columbia. The Company has extensive expertise in environmental remediation and expects to benefit significantly from the available funding. Vertex has aggressively and successfully pursued available subsidies, loans, and funding opportunities and intends to continue doing so.
There is significant optimism for future growth in Western Canada based on: progress on the Trans Mountain, Line 3 Replacement, Coastal Gas Link, and Keystone pipelines; LNG plant developments; and proposed petrochemical plants.
During 2020, Vertex intends to closely monitor developments and employ ongoing forecasting to ensure efficient adaptation to changing economics. Vertex will also continue to focus on controlled capital expenditures, efficient use of assets, and strategic repairs and maintenance programs to obtain maximum economic value from its existing complement of assets.
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.
Vertex principally operates in western Canada, select locations in the United States, and with current expansion into Ontario.