ACHESON, Alberta, March 11, 2020 (GLOBE NEWSWIRE) -- (TSX:ENT) ENTREC Corporation (“ENTREC” or the “Company”), a heavy haul transportation and crane solutions provider, today announced financial results for the fourth quarter and year ended December 31, 2019. 

	Three Months Ended				Year Ended
$ thousands, except per share amounts and margin percent	Dec 31 2019		Dec 31 2018		Dec 31 2019		Dec 31 2018
Revenue	42,877		45,755		180,274		173,143
Gross profit	9,433		8,437		42,740		29,209
Gross margin	22.0	%	18.4	%	23.7	%	16.9	%
Adjusted EBITDA(1)	4,468		4,260		24,316		14,477
Adjusted EBITDA margin(1)	10.4	%	9.3	%	13.5	%	8.4	%
Adjusted net loss(1,2)	(6,327	)	(3,032	)	(16,842	)	(12,225	)
Per share(1)	(0.06	)	(0.03	)	(0.15	)	(0.11	)
Net loss(2)	(10,032	)	(8,089	)	(18,852	)	(17,795	)
Per share – basic	(0.09	)	(0.08	)	(0.17	)	(0.16	)
Per share – diluted	(0.09	)	(0.08	)	(0.17	)	(0.16	)
Basic weighted average shares outstanding	109,932		109,821		109,901		109,731
As at $ thousands					December 31 2019		December 31 2018
Working capital(1)					44,717		28,378
Total assets					284,345		224,836
Total liabilities					271,851		191,871
Shareholders’ equity					12,494		32,965

Note 1:	See “Non-IFRS Financial Measures” section of the Company’s Management Discussion & Analysis for the year ended December 31, 2019.
Note 2:	Attributable to the shareholders of the Corporation.
Note 3:	The current period results include the impact from the adoption of IFRS 16 – Leases. As permitted with this new standard, comparative information has not been restated and, therefore, may not be comparable.

Revenue for the year ended December 31, 2019 increased by 4% to $180.3 million from $173.1 million in 2018 due to organic growth in the United States and from the Company’s acquisition of Capstan Hauling Ltd. (“Capstan”) in October 2018.

United States

In the United States, revenue increased slightly to $79.0 million from $78.1 million last year. Higher activity levels in North Dakota, Colorado and Wyoming, along with improved customer pricing, were the largest drivers of this growth. Offsetting the majority of this growth, however, was a revenue decline in Texas as the Company stopped providing lump sum rig moving services in the Permian Basin in Q1 2019.

As previously reported, the profitability of the Company’s Texas operations was severely hampered in fiscal 2018 and in early 2019 due to the poor performance of its lump sum rig moving services in the region. In 2019, ENTREC executed a strategy to significantly improve its profitability in the region and made the strategic decision to stop providing lump sum rig moving services and instead re-focus this division on providing hourly crane and heavy haul transportation services. This focus made the service offering of ENTREC’s Texas division consistent with that of all of its other locations in the United States. The Company is pleased to report significant improvement in the profitability of its Texas operations going into fiscal 2020.

In 2019, ENTREC also expanded its operations into the State of Wyoming. This followed the Company’s previous expansion into the State of Colorado in the fall of 2017. In addition, in Q4 2019, ENTREC opened a new location in Williston, North Dakota to expand its service capabilities in the Bakken oil region.

As ENTREC moved into 2020, the outlook for its US business was very positive. Demand for its services was and continues to be strong and through the Company’s recent expansion efforts as well as the improved performance of its Texas operations, ENTREC expected the profitability of its US operations would improve significantly in 2020. However, the recent sharp decline in crude oil prices precipitated by the Coronavirus and OPEC trade war has caused significant uncertainty for the oil and gas industry. At this stage, it is too early to tell what impact the decline in crude oil prices may have on activity levels in the oil and gas industry in 2020.

Canada

In Canada, revenue increased to $101.3 million from $95.1 million last year, primarily due to the acquisition of Capstan in October 2018. However, excluding the impact of the Capstan acquisition, the Company experienced very poor operating results in Canada in fiscal 2019 due to a number of negative macro-economic factors. These macro-economic factors included pipeline constraints, which have contributed to significant discounts in the market price for the oil produced in western Canada compared with other jurisdictions, as well as rising carbon taxes and increasing regulatory requirements to achieve government approvals for large industrial projects. In addition, in Q4 2018, the Government of Alberta announced curtailments of oil production to help combat the significant discount in Western Canadian Select (WCS) oil prices.

The downward pricing momentum experienced at the end of 2018, along with activity being restricted by limited takeaway capacity and production curtailments, resulted in oil and gas companies reducing their capital expenditures and drilling programs in 2019. In 2019, ENTREC’s revenue was also negatively impacted by extremely cold weather in February as well as very wet weather conditions during the summer and fall months, which further hampered customer activity levels.

As the Company moved into 2020, it was cautiously optimistic on its business in Canada and was seeing signs of increased capital spending by its customers in the oil and gas sector. The Company also continues to maintain a strong presence in maintenance, repair, and operation (MRO) work in the Alberta oil sands region. This work still represents a growing market for ENTREC and is typically less susceptible to changes in near-term commodity prices. However, like in the Company’s US business, the recent sharp decline in crude oil prices precipitated by the Coronavirus and OPEC trade war has caused significant uncertainty for the oil and gas industry.

Over the long-term, ENTREC continues to be optimistic about the impact that LNG Canada’s $40 billion liquefied natural gas (LNG) project in Kitimat, B.C. will have on the natural gas sector in north-west Alberta and north-east B.C., which will be required to support LNG Canada’s natural gas needs. The Company also looks forward to construction of the Trans Mountain pipeline continuing to proceed, which will provide additional takeaway capacity for western Canadian crude oil. 

Adjusted EBITDA and Net Loss

Adjusted EBITDA increased to $24.3 million or 13.5% of revenue for the year ended December 31, 2019 from $14.5 million or 8.4% of revenue in 2018.  Contributing to the increase was the impact of the adoption of IFRS 16, which increased adjusted EBITDA by $16.6 million from what adjusted EBITDA would have been without the adoption of IFRS 16. Offsetting the increase in adjusted EBITDA was a lower gross margin (before factoring in the impact of IFRS 16) and higher G&A expenses. G&A expenses in fiscal 2019 included a $3.2 million non-recurring bad debt provision primarily related to two delinquent customer account receivables. Excluding this provision, adjusted EBITDA would have been $27.5 million in 2019.

Adjusted net loss (which excludes the after tax impact of impairment of long-lived assets and foreign exchange gains and losses, among other items) increased to $16.8 million in fiscal 2019 from $12.2 million in 2018. Contributing to the higher adjusted net loss was higher depreciation and interest costs due to the adoption of IFRS 16, higher G&A costs, and a loss on disposal of property, plant and equipment.

The Company incurred a net loss attributable to the shareholders of the Corporation of $18.9 million for the year ended December 31, 2019, compared to a net loss of $17.8 million last year. The higher net loss in 2019 was caused from an impairment charge of $4.9 million related to long-lived assets, partially offset by a foreign exchange gain on long-term debt of $4.6 million versus a loss on foreign exchange of $5.2 million in 2018.

2019 Fourth Quarter Results

Revenue for the quarter ended December 31, 2019 declined by 6% to $42.9 million from $45.8 million in 2018. In Canada, revenue of $24.7 million in Q4 2019 was consistent with the $24.9 million of revenue reported in the prior year. In 2019, ENTREC generated higher revenue from two large cross-border heavy haul transportation projects, which contributed $5.6 million of revenue in the fourth quarter. However, offsetting this increase was lower overall activity levels for its business in western Canada due to the challenging economic environment for the oil and gas industry.

ENTREC’s US revenue decreased to $18.2 million in the fourth quarter of 2019 from $20.9 million last year. This decline was attributable to the Company’s strategy to discontinue lump sum rig moving services in the Permian Basin in Q1 2019 as well as from lower crane revenue in North Dakota due to a seasonal slowdown of activity levels late in the year. Offsetting a portion of this decline were higher activity levels in Colorado and Wyoming as ENTREC continued to expand its services in these regions.

The Company incurred a net loss attributable to the shareholders of the Corporation of $10.0 million for the quarter ended December 31, 2019, compared to a net loss of $8.1 million last year. The higher net loss in 2019 was caused from an impairment charge of $4.9 million on long-lived assets, partially offset by a foreign exchange gain on long-term debt of $1.7 million versus a loss on foreign exchange of $5.6 million in 2018.

Adjusted net loss increased to $6.3 million in Q4 2019 from $3.0 million in 2018. Contributing to the higher adjusted net loss was higher depreciation and interest costs due to the adoption of IFRS 16.

Balance Sheet Initiatives

ENTREC is working on several initiatives to improve its balance sheet in 2020. As previously reported, the Company is currently not in compliance with its financial covenant to maintain a minimum excess borrowing capacity of $15.0 million under its asset-based credit facility (“ABL Facility”). In addition, the Company was also not in compliance with its fixed charged coverage ratio financial covenant at December 31, 2019. While the lenders have reserved all of their rights under the ABL Facility to accelerate repayment due to the event of defaults incurred, the lenders have not accelerated such repayment to date.

ENTREC is currently pursuing several initiatives to improve its excess borrowing capacity that could include additional debt and/or equity financing as well as the sale of assets. Through these initiatives, the Company expects that it can either refinance its ABL Facility or become compliant with its financial covenants and eliminate the existing events of default. However, there can be no assurance that these efforts will be successful.

To date in 2020, ENTREC has successfully completed the following initiatives as part of its strategy to improve its balance sheet:

Sale of Canadian Crane Business and Assets

In January 2020, ENTREC completed the sale of the majority of its Canadian crane assets and business to Sterling Crane (“Sterling”). The aggregate cash consideration paid at closing was $21.2 million less certain holdback amounts. ENTREC used the net proceeds from the sale to reduce long-term debt.

This sale was a nice strategic move for ENTREC as the Company was able to significantly reduce its long-term debt. In addition, due to the weak economic environment for crane services in western Canada, these assets did not generate a sufficient return on capital for its business.

The Company also intends to partner with Sterling to be a preferred supplier of heavy haul transportation services to Sterling in Canada and utilize Sterling as a preferred supplier of cranes services to ENTREC in the future for its Canadian operations. ENTREC anticipates that its Canadian revenue will be reduced by $15 to $20 million per annum going forward due to the sale of its Canadian crane business and assets.

Revised Fort McMurray Lease

In February 2020, ENTREC reached an agreement with the landlord of its Fort McMurray location to enter into a month to month lease and terminate the existing long-term lease for that location. 

Further to the agreement, ENTREC (i) paid all outstanding rental arrears owing to the Landlord and agreed to pay a further $2.9 million over 5 years; (ii) issued the Landlord 18,000,000 common shares at a deemed price per share equal to the “market price” (as defined in the TSX Company Manual) of ENTREC’s common shares on the closing date ($0.06 per share); and (iii) agreed to appoint one nominee of the landlord to the Company’s Board of Directors.

The termination of the long-term lease significantly reduced ENTREC’s operating costs in the Fort McMurray region. The lease previously required monthly payments of $0.3 million (inclusive of operating costs) and was not due to expire until December 31, 2030. The new month-to-month lease amount is significantly less than the previous monthly payment.

Hydraulic Platform Trailer Services and Asset Rationalization

ENTREC also announced that it will be closing its Acheson branch location and significantly downsizing its hydraulic platform trailer business. NexGen Transportation (“NexGen”) will be supporting the transition of ENTREC’s hydraulic platform trailers services in Acheson. NexGen has an excellent reputation of providing safe quality service and will be providing hydraulic platform trailer services to ENTREC and its customers. ENTREC will continue to provide all heavy haul transportation services, including hydraulic platform trailer services, through all of its other locations in Canada and the United States.

The platform trailer business in western Canada has faced significant profitability challenges since the beginning of the oil and gas downturn in late 2014. Pricing is off up to 50% from levels in 2013/2014. ENTREC will continue to provide a full array of heavy haul transportation services to its customers, while focusing its capital on our other transportation and crane services that can generate a superior return on capital.

The Acheson transportation equipment will be disbursed through a combination of: (i) sale to NexGen; (ii) transfer to other ENTREC locations; and (iii) sold through an asset realignment sale. In addition to selling the surplus transportation equipment in Acheson, ENTREC will also be selling surplus cranes not sold to Sterling earlier this year, as well as miscellaneous tools, parts, rigging and other equipment.  

Going forward, ENTREC’s operations will be focused on the following businesses, which the Company is committed to for the long-term:

• Continuing to provide a full spectrum of crane and heavy haul transportation services in the United States from its locations in North Dakota, Colorado, Texas and Wyoming; and

• Providing heavy haul transportation, picker truck and oilfield transportation services throughout Alberta and North-east British Columbia from its Fort McMurray, Bonnyville, Grande Prairie and Whitecourt locations.

ENTREC continues to pursue a number of additional initiatives to further improve its operating results and financial position in 2020 and will provide further updates on these initiatives as they are completed.

A complete set of ENTREC’s most recent financial statements and Management’s Discussion and Analysis will be filed on SEDAR (www.sedar.com) and posted on the Company’s website (www.entrec.com).

About ENTREC

ENTREC is a heavy haul transportation and crane solutions provider to the oil and natural gas, construction, petrochemical, mining and power generation industries. ENTREC is listed on the Toronto Stock Exchange under the symbol ENT.

Non-IFRS Financial Measures

Adjusted EBITDA is defined as earnings before interest, income taxes, depreciation, amortization, loss (gain) on disposal of property, plant and equipment, foreign exchange loss (gain) on long-term debt, share-based compensation, impairment of long-lived assets, and non-recurring business acquisition and integration costs. ENTREC believes that, in addition to net income, adjusted EBITDA is a useful measure as it provides an indication of the financial results generated by its principal business activities prior to consideration of how these activities are financed or how the results are taxed in various jurisdictions and before certain non-cash items such as depreciation, amortization, loss (gain) on disposal of property, plant and equipment, share-based compensation, and impairment of long-lived assets. Adjusted EBITDA also illustrates what adjusted EBITDA is, excluding the effect of non-recurring business acquisition and integration costs. Adjusted EBITDA margin is calculated as adjusted EBITDA divided by revenue.

Adjusted net (loss) income is calculated excluding the after-tax amortization of acquisition-related intangible assets, impairment of long-lived assets, notional interest accretion expense arising from Debentures, and foreign exchange loss (gain) on long-term debt. These exclusions represent non-cash charges that ENTREC does not consider indicative of ongoing business performance.

Adjusted (loss) earnings per share are calculated as adjusted net (loss) income attributable to the shareholders of the Corporation divided by the basic weighted average number of shares outstanding during the applicable period.

Adjusted working capital is calculated as current assets less current liabilities, excluding the current portion of lease liabilities and the current portion of long-term debt. ENTREC believes adjusted working capital is a useful supplemental measure as it provides an indication of its ability to settle debts as they come due.

Beginning in fiscal 2019, ENTREC excluded the current portion of lease liabilities and long-term debt from the calculations of adjusted working capital and working capital ratio. The current portion of lease liabilities arises from the adoption of IFRS 16. ENTREC excludes these balances because its intention is to refinance or extend the lease liabilities as they come due rather than pay them out. The current portion of long-term debt arises from the IFRS requirement to reclassify its long-term debt as a current liability because the Company did not meet certain financial covenants under its ABL Facility at December 31, 2019. ENTREC excludes this amount, as its intention is to either refinance the ABL Facility or cure the covenant breaches in the future rather than repay the total balance outstanding within the next 12 months. By excluding these balances, the working capital calculations are also more comparable with the calculations in prior periods.

Please see ENTREC's Management Discussion & Analysis for the year ended December 31, 2019 for reconciliations of each of adjusted EBITDA and adjusted net loss to net loss, the most directly comparable financial measure calculated and presented in accordance with IFRS.

Forward-looking Statements

This press release contains forward-looking statements which reflect ENTREC’s current beliefs and are based on information currently available to ENTREC. These statements require ENTREC to make assumptions it believes are reasonable and are subject to inherent risks and uncertainties. Actual results and developments may differ materially from the results and developments discussed in the forward-looking statements as certain of these risks and uncertainties are beyond ENTREC's control. 

Examples of forward-looking statements in this press release and the key assumptions and risk factors involved in such statements include, but are not limited to the following: (i) ENTREC’s expectation that the profitability of its US operations could improve significantly in 2020. This expectation was subject to the assumption that customer demand for its services would continue to be strong in fiscal 2020 and that the profitability of the Company’s Texas operations will continue to improve. This expectation was also based on the assumption that the Company will not incur bad debt provisions to the same degree that were experienced in 2019. ENTREC’s ability to achieve higher profitability in the future is subject to a number of risks. The risks most likely to affect this growth include volatility of the oil and natural gas sector, economy and cyclicality, and competition. In addition the recent uncertainty caused form the sharp decline in oil prices could have a significant negative effect on the oil and industry and ENTREC; (ii) ENTREC’s expectation that it will maintain a strong presence in MRO work in the Alberta oil sands region. This expectation is based on the assumption that oil and natural gas prices will be high enough in 2020 to maintain current levels of MRO spending by oil and gas companies in the Alberta oil sands region. This expectation is also subject to a number of risks. The risks most likely to affect this expectation include volatility of the oil and natural gas sector, Alberta oil sands exposure, economy and cyclicality, competition, and regulatory and statutory developments; (iii) ENTREC’s expectation that the $40 billion LNG Canada project will be beneficial for the natural gas industry in Canada and for ENTREC is based on the assumption that the project will encourage additional investment in the natural gas industry in western Canada and the Company can obtain additional work in the upstream natural gas sector. This expectation is also completely subject to the construction of the LNG facility proceeding as approved. There is no certainty of this. This expectation is subject to a number of risks. The risks most likely to affect these assumptions include volatility of the oil and natural gas sector, economy and cyclicality, competition, and regulatory and statutory developments; (iv) ENTREC’s intention to either refinance its ABL Facility or become compliant with the financial covenants and eliminate the existing events of default.  The Company’s ability to refinance its ABL facility or become compliant in the future is subject to its ability to successfully pursue additional sources of financing and strategies to improve excess borrowing capacity that could include additional debt and/or equity financing and/or the sale of assets. There can be no assurance that these efforts will be successful. There is also no assurance that circumstances will not change and the lenders will not accelerate repayment of the ABL Facility. If repayment of the ABL Facility were to be accelerated, there can be no assurance that ENTREC’s assets would be sufficient to repay in full that indebtedness; (v) ENTREC’s anticipation that its Canadian revenue will be reduced by $15 to $20 million per annum going forward due to the sale of its Canadian crane business and assets. This estimate is based on the assumption that the remainder of the Company’s business in Canada will not be negatively impacted by the discontinuation of its crane services in Canada; and (vi) ENTREC’s plans to close its Acheson branch and dispose of surplus equipment. The execution of these plans remain subject to the Company’s ability to successfully sell the surplus equipment over the next couple months, including through an asset realignment sale.

Consequently, all of the forward-looking statements made in this press release are qualified by these cautionary statements and other cautionary statements or factors contained herein, and there can be no assurance that the actual results or developments will be realized or, even if substantially realized, that they will have the expected effects on ENTREC. These forward-looking statements are made as of the date of this press release. Except as required by applicable securities legislation, the Company assumes no obligation to update publicly or revise any forward-looking statements to reflect subsequent information, events, or circumstances.

For further information, please contact: 

John M. Stevens - President & CEO
Telephone: (780) 960-5625

Jason Vandenberg – CFO
Telephone: (780) 960-5630

www.entrec.com