Vertex Resource Group Ltd. Reports Second Quarter 2020 Results

SHERWOOD PARK, AB, Aug. 10, 2020 /CNW/ - (TSXV: VTX) - Vertex Resource Group Ltd. ("Vertex" or the "Company") reports its financial and operational results for the three and six months ending June 30, 2020.  The following should be read in conjunction with the Management Discussion and Analysis ("MD&A") and the condensed consolidated interim financials statements of Vertex for three and six months ended June 30, 2020, which are available on SEDAR at www.sedar.com.

To date in 2020, notwithstanding the COVID-19 environment, the Company has been able to maintain a healthy level of adjusted EBITDA through strict control of costs, restructuring of under-performing operations, providing value to clients, and accessing available direct and indirect government funding.   Vertex has also focused on ensuring liquidity through additional working capital funding, favorable amendments to its primary banking agreement, restricted capital expenditures, and positive adjusted EBITDA.  Highlighted results of these efforts are included below.

Uncertainty is expected for the remainder of 2020 as companies and governments work towards re-opening economies and society in variable COVID-19 environments.  Vertex's focus will continue to be on efficiently managing its assets, liquidity, and business costs; while seeking opportunities for further diversification of services, product offerings and customer base, both in geography and industry.

Key financial results for the three and six months ended June 30, 2020 and 2019 are as follows:

HIGHLIGHTS FOR THE SIX MONTHS ENDING June 30, 2020

Adjusted EBITDA  of $12.0 million compared to $11.4 million for the first half of 2019.

Reduction of net debt by $5 million since December 31, 2019 ($15 million since June 30, 2019).

Banking agreements providing additional working capital capacity of $8.3 million.

Extension of the Company's syndicated borrowing facility to November 2021 and favorable amendments to bank covenants.

Free Cash flow of $7.7 million compared to $8.4 million for the first half of 2019 (free cash flow is defined as cash flow from operations less maintenance capital expenditures).

Revenue of $66.7 million compared to $83.8 million for the same period in 2019. The reduction was attributable primarily to the material negative impact of COVID-19 on local and world economies.

Initial success under the federal government $1.7 billion abandonment and reclamations funding program with expectations for significant future wins.

Net capital expenditures were minimal at $0.4 million.

OUTLOOK

Vertex's business approach during the COVID-19 pandemic has been to monitor and adapt its operations as necessary to maintain EBITDA at a healthy level, minimize cash outflow from capital expenditures, obtain favorable amendments to its bank agreement, and pursue available government programs to ensure liquidity.  The timing, pace of the economic activity and the fulsome effect of COVID-19 on the economy remains somewhat uncertain; Vertex will continue to actively manage its cost structure accordingly.  Management continues to monitor business activities, evaluate under-performing operations, and make prudent business decisions regarding locations, business lines, and personnel numbers.

Based on its reputation, resiliency, demonstrated adaptability, and market position within its industry sectors, Vertex has been successful in obtaining favorable amendments to bank covenants.  The Company has also been successful in obtaining federal and provincial funding aimed at supporting companies and their employees. In doing so, the Company has been able to create significant borrowing capacity on its revolving loan facility while continuing to reduce its net debt.

During H2 2020, Vertex's liquidity position should continue to be bolstered by positive EBITDA, working capital loans obtained during Q2, significant revolving loan capacity, minimal capex requirements, and favorable bank covenants.

Governments have provided support to their economies and to the well-being of residents through various financial stimulus programs.  The soundness, levels and methodologies of such support are likely to be considered very carefully going forward considering desired goals and future fiscal stability.  The Federal Government of Canada has announced the extension of the Canada Emergency Wage Subsidy Program (CEWS) program until December 2020 and management anticipates continued eligibility.   

During the second quarter of 2020, the Federal Government of Canada announced a $1.7 billion federal stimulus package to help fund the closure and reclamation of the orphan and inactive wells in Western Canada.  The Alberta Government received $1 billion and has created the Alberta Site Rehabilitation Program for the abandonment, reclamation and decommissioning of wells, pipelines and facilities, to be funded through to the end of 2022.  Similar programs have also been funded in Saskatchewan ($400 million) and British Columbia ($125 million).  The Alberta Orphan Well Association also received a further $200 million of funding from the Federal Government of Canada in addition to the $100 million committed from the Alberta Government in the first quarter of 2020.

Vertex is optimistic about the outlook for its Environmental Engineering and Consulting  business during H2 2020 and forward due to the ongoing need for environmental monitoring, studies, well abandonments and reclamations (A&R) based on substantial government funding support.   Certain projections indicate that the A&R market could double in volume by 2022.  Vertex is a prime contractor for Alberta Orphan Well Association, Saskatchewan Orphan Well Association and the British Columbia Oil & Gas Commission and is well positioned to work closely with our customers across Western Canada addressing their environmental liabilities through our suite of abandonment engineering, reclamation and remediation expertise. 

Revenue levels for Vertex's other sectors will continue to be challenged during 2020.  Uncertainty persists due to the potential for a second/larger wave of COVID-19 and Opec+ consideration of oil supply increases.  Customers are likely to maintain disciplined spending in their operations and take a cautious approach to capital allocations because of the continuing measures to try to limit the spread of the virus.  However, Vertex plans to work towards maintaining a robust financial position to facilitate resumption of its growth strategy at the appropriate time.  As economies adjust and recover into 2021 and 2022, a solid financial position, anticipated availability of capital resources, and re-structured operating processes should foster success in various private and public sectors.  Timeline projections for a rebound to pre-pandemic GDP levels vary from country to country, with China projected to rebound this year, Canada in Q4 2021, U.S. in Q3 2021, and the EU in mid-2022.

With a transition to more extensive online communications resulting from the COVID-19 experience,  Vertex's environmental and construction related business lines should benefit from advancement of expansion of the telecommunications infrastructure in Canada and our sphere of operations in the U.S.  In addition, electrification of the power grid system should also bode well for the Company's environmental and power switchgear business lines in the future.

Vertex continues to offer a diversified complement of services including environmental engineering and consulting, fluid logistics, maintenance services, hydrovac, metal buildings, and power switchgear.  Services are also scalable downwards, if necessary, through reduction of project personnel and idling of mobile assets.  These factors place the Company in a reasonable position to weather the pandemic downturn.

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 550 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.

NON-IFRS FINANCIAL MEASURES
This news release includes certain terms or performance measures that are not defined under International Financial Reporting Standards ("IFRS"), including "Adjusted EBITDA". The data presented is intended to provide additional information that should not be considered in isolation or as a substitute measure of performance prepared in accordance with IFRS. The non-IFRS measures should be read in conjunction with the Company's financial statements and accompanying notes.

"Adjusted EBITDA" is a non-financial measure which is calculated by adjusting net (loss) income for the sum of income taxes, finance costs including interest accretion on lease liabilities, gain on bargain purchase, depreciation of property and equipment and right of use assets, amortization of intangible assets, share-based compensation, restructuring costs and impairment.  The Company uses Adjusted EBITDA as an indicator of its principal business activities operational performance prior to consideration of how its activities are financed and the impact of taxation, non-cash depreciation and amortization,  restructuring costs and other non-cash expenses such as impairments required under IFRS. Adjusted EBITDA does not have a standardized meaning prescribed by IFRS and is not necessarily comparable to similar measures provided by other companies. Adjusted EBITDA is used by many analysts as an important analytical tool and management of Vertex believes it is useful for providing readers with additional clarity on Vertex's operational performance. This measure is also considered important by the Company's lenders in determining compliance by the Company with the financial covenants under its lending arrangements. Reconciliations of Adjusted EBITDA to net income are provided in the MD&A under the heading "Operational and Financial Highlights – Adjusted EBITDA".

FORWARD-LOOKING INFORMATION
Any "financial outlook" or "future oriented financial information" in this press release, as defined by applicable securities laws, has been approved by management of Vertex. Such financial outlook or future oriented financial information is provided for the purpose of providing information about management's current expectations and plans relating to the future. Readers are cautioned that reliance on such information may not be appropriate for other circumstances.

Certain statements contained in this news release constitute "forward-looking information". When used in this document or by any of the Company's management, the words "may", "would", "will", "intend", "plan", "propose", "anticipate" and "believe" are intended to identify forward-looking information. In particular, but without limiting the foregoing, this document contains forward-looking information and statements pertaining to the following: the Company's key strategies, objectives and competitive strengths; anticipated expenses; growth opportunities in the Company's reportable and operating segments in 2020; supply and demand for the Company's services; activity levels in the oil and gas industry and other industries in which the Company operates; future development activities; and the Company's ability to retain existing clients and attract new business, particularly business outside of the oil and gas industry. Such statements reflect the Company's forecasts, estimates and expectations, as they relate to the Company's current views based on its experience and expertise with respect to future events, and are subject to certain risks, uncertainties, and assumptions.

The forward-looking information and statements contained in this document reflect several material factors and expectations and assumptions of the Company, including, without limitation: that the Company will continue to conduct its operations in a manner consistent with past operations; positive future trends in revenue, gross profit margin, Adjusted EBITDA, Bank EBITDA and net income; the general continuance of current or, where applicable, assumed industry conditions; the mix of revenue from non-oil and gas customers in 2020; pricing of the Company's services; the Company's ability to market successfully to current and new clients; the Company's ability to obtain qualified personnel and equipment in a timely and cost-effective manner; the Company's future debt levels; the impact of competition on the Company; the Company's ability to obtain financing on acceptable terms; the general continuance of current or, where applicable, assumed industry conditions; the continuance of existing tax, royalty and regulatory regimes; the impact of seasonal weather conditions; client activity levels; anticipated market recovery; the Company's anticipated business strategies and expected success; the Company's ability to utilize its equipment; levels of deployable equipment; and future sources of funding for the Company's capital program.

Factors that could cause the forward-looking information in this news release to change or to be inaccurate include, but are not limited to: volatility of the oil and natural gas industry and other industries; dependence on customer contracts and market acceptance; the Company's growth strategy may not achieve anticipated results; potential litigation claims; difficulty in attracting and retaining skilled personnel; adverse litigation judgments, settlements and exposure to liability resulting from legal proceedings could reduce profits of limit Vertex's ability to operate; the market for Vertex's products and services is subject to extensive government and regulatory approvals; health, safety and environment laws and regulations may require the Company to make substantial expenditures or cause it to incur substantial liabilities; the Company may fail to realize anticipated benefits of future acquisitions; Vertex's indebtedness may adversely affects its financial flexibility and competitive position; competition in the industries in which Vertex operates; downturns in general economic and market conditions; operational hazards and unforeseen interruptions for which Vertex may not be adequately insured; positive covenants in Vertex's material contracts could limit its ability to operate; third part credit risk; conservation measures and technological advances may reduce demand for hydrocarbons; loss of the Company's information and computer systems or cyber-attacks; director and officer conflicts of interest; a reassessment by tax authorities of Vertex's income calculations; volatility in the price of the Company's common shares; and the risk factors set forth under the heading "Risk Factors" in the Company's Annual Information Form filed under the Company's SEDAR profile at www.sedar.com. The Company undertakes no obligation to update these forward-looking statements, other than as required by applicable law.

Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this press release.

SOURCE Vertex Resource Group Ltd.