Tervita Corporation Announces First Quarter 2019 Results
- Q1 2019 Adjusted EBITDA of $56 million up 51% compared to Q1 2018
- 34% growth in Energy Services' Divisional EBITDA compared to Q1 2018 reflects our stable production-based revenue and positive contributions from investments to expand our network and synergies, despite lower drilling and completions activity and heavy oil curtailments
- Strong results in Industrial Services driven by growth in rail services, metals recycling and waste services
- Achieved Newalta transaction synergies of $39 million on an annualized run rate basis as at the end of Q1 2019
- On track to deliver double digit Adjusted EBITDA growth in 2019
- Plan to initiate a normal course issuer bid subject to TSX approval
CALGARY, May 2, 2019 /CNW/ - Tervita Corporation ("Tervita" or the "Company") (TSX: TEV) announced today the results for the three months ended March 31, 2019. All financial figures are in millions of Canadian dollars unless otherwise noted.
"We opened 2019 with solid performance reflecting the stability and resiliency of our production-based energy business and diversified business model, the strength of our expanded network, and a continued focus on efficiencies," said John Cooper, President and CEO. "We continue to be extremely pleased with the integration of Newalta and we are realizing synergies ahead of our plan. In Q1 2019, the impact from declines in drilling and completions activity was more than offset by positive contributions from our expanded network and synergies, together with strong results in Industrial Services.
"We are on track to deliver double digit growth in 2019, supported by expected improvements in market activity and a full year contribution from synergies which will drive higher results in the second half of 2019. We have several exciting growth initiatives underway that are focused on providing solutions to meet growing customer demand in the Montney and Duvernay regions. In addition, we have an identified backlog of $200 - $300 million of high potential organic growth projects over the next two to three years that are expected to support future growth and generate attractive returns and strong free cash flow.
"Given the positive outlook for our business, we believe our shares are undervalued and as such we plan to initiate a normal course issuer bid subject to TSX approval."
Financial Highlights (1)
Three Months Ended March 31 |
||||||
2019 |
2018 |
Increase |
% Change |
|||
Energy Services revenue |
||||||
Facilities and onsite revenue |
120 |
76 |
44 |
58% |
||
Energy marketing revenue |
347 |
274 |
73 |
27% |
||
467 |
350 |
117 |
33% |
|||
Industrial Services revenue |
64 |
41 |
23 |
56% |
||
Intersegment eliminations |
- |
(1) |
1 |
100% |
||
Revenue |
531 |
390 |
141 |
36% |
||
Revenue excluding energy marketing |
184 |
116 |
68 |
59% |
||
Energy Services Divisional EBITDA(1) |
59 |
44 |
15 |
34% |
||
Industrial Services Divisional EBITDA(1) |
11 |
2 |
9 |
450% |
||
Divisional EBITDA(1) |
70 |
46 |
24 |
52% |
||
General and administrative expenses |
(14) |
(10) |
4 |
40% |
||
Adjusted EBITDA(1) |
56 |
37 |
19 |
51% |
||
- per share ($), basic and diluted |
0.48 |
0.35 |
0.13 |
37% |
||
Adjusted EBITDA margin(1) |
30% |
32% |
-2% |
|||
Maintenance capital |
5 |
4 |
1 |
25% |
||
Growth and Expansion capital |
13 |
10 |
3 |
30% |
||
Discretionary free cash flow(1) |
37 |
26 |
11 |
42% |
||
- per share ($), basic and diluted |
0.31 |
0.25 |
0.06 |
24% |
||
Net Debt to Adjusted EBITDA(1)(2) |
3.33 |
2.26 |
1.07 |
|||
Shares as at March 31 (000's of shares)(3) |
||||||
Shares outstanding |
117,557 |
104,626 |
12,931 |
12% |
||
Weighted average shares outstanding |
117,557 |
104,626 |
12,931 |
12% |
||
(1) |
Refer to Tervita's Q1 2019 Management's Discussion and Analysis ("MD&A") and unaudited Interim Condensed Consolidated Financial Statements ("Interim Financial Statements") for further information. |
(2) |
Net Debt to Adjusted EBITDA in Q1 2019 is Pro Forma the Newalta Transaction. See Tervita's Q1 2019 MD&A for further definition and reconciliation. |
(3) |
As at May 2, 2019, the Company had 117,557,112 common shares, 2,702,649 common share purchase warrants, and 2,824,483 options, exercisable for a maximum of one |
Q1 2019 vs Q1 2018 Financial Highlights
- Q1 2019 revenue of $531 million increased by $141 million and 36% over Q1 2018 revenue of $390 million. This increase in revenue reflects our acquisition of Newalta in Q3 2018, resulting in higher revenue through increased waste volumes through our facilities. This acquisition also added onsite services to our existing Energy Services offerings, which contributed $19 million of incremental revenue in Q1 2019. Additionally, Industrial Services saw a $23 million and 56% increase in revenue, primarily driven by an increase in rail services projects.
- Q1 2019 Adjusted EBITDA was $56 million, a $19 million and 51% improvement over Q1 2018. Adjusted EBITDA per share increased 37% compared to Q1 2018. This improvement reflects increased Divisional EBITDA contributions of $24 million, $2 million as a result of implementing IFRS 16, offset by $4 million of higher G&A expense. G&A expenses continue to trend downward as a percentage of revenue excluding energy marketing.
- Q1 2019 Adjusted EBITDA Margin was 30%, in line with our expectations for 2019 after the drop in Q4 2018 Adjusted EBITDA Margin as a result of one-time items. Our consolidated and Energy Services' Divisional EBITDA Margin is slightly lower compared to Q1 2018 due to the acquisition of Newalta and the addition of the lower margin onsite business. A large proportion of the revenue in this business is under longer term contracts.
- Tervita generated $37 million of Discretionary Free Cash Flow in the first three months of 2019, a 42% increase from the $26 million generated in Q1 2018, and a 24% increase on a per share basis. Discretionary Free Cash Flow was more than sufficient to fund the $13 million of growth and expansion capital spend in Q1 2019.
- Energy Services' Q1 2019 Divisional EBITDA of $59 million increased $15 million over Q1 2018 Divisional EBITDA of $44 million due mainly to the acquisition of Newalta, realized synergies from the transaction, offset by lower industry activity in Q1 2019.
- Industrial Services' Q1 2019 Divisional EBITDA of $11 million was $9 million and 450% higher than Q1 2018. This increase was primarily driven by an 18% increase in rail services project activity due to isolated weather incidents and an overall increase in rail traffic. Additional contributions came from a continuing sustained, steady rise in revenue and market share from our waste services business and continued strong results from metals recycling.
- The Q1 2019 net loss of $3 million was a $6 million decrease from the net profit of $3 million in Q1 2018, primarily due to higher depreciation and amortization expense and finance costs related to the acquisition of Newalta.
Q1 2019 vs Q4 2018 Financial and Other Highlights
- Adjusted EBITDA of $56 million was $6 million or 12% higher than Q4 2018 Adjusted EBITDA of $50 million (8% excluding the $2 million change in lease accounting). The increase represented strong results from our Industrial Services division and stable results in Energy Services.
- Our Energy Services business received slightly lower waste volumes in Q1 2019 compared to Q4 2018 due mainly to lower drilling activity as well as the temporary Alberta production curtailments/shut ins which began in Q1 2019, particularly in our heavy oil exposed facilities. These factors were offset by the absence of non-recurring repair and maintenance costs incurred in Q4 2018. Our energy marketing business was positively impacted by the internalization of Newalta's energy marketing operations from a third-party effective January 1, 2019. This was largely offset by narrower oil price differentials during the quarter that limited our opportunities to maximize the value obtained on behalf of our customers for their production.
- During the quarter, Tervita reorganized its environmental services and other field service groups to focus its operations within the geography of our facility footprint and to gain economies of scale from overlapping field offices, general labour and equipment pools, over and above previously identified synergies. $2 million was recorded as restructuring costs related to these changes that are expected to improve project margins and focus field service efforts towards projects that bring waste into our network of disposal facilities.
- We remain on track to spend $30 - $35 million in maintenance capital and $60 - $100 million in planned expansion and growth capital in 2019. Our growth and expansion projects are largely focused in Energy Services to grow our ability to meet customer demands in the Montney and Duvernay regions of Alberta and British Columbia. Q1 2019 cash spend towards these growth and expansion projects was $13 million and included the ongoing drilling of a water disposal well in the Montney, the completion and tie in of two additional water and leachate disposal wells and the addition of new railcars to increase capacity for our metals recycling business.
- Q1 2019 maintenance capital spend was $5 million, $1 million higher than the $4 million spent in the same quarter of 2018 and reflective of the acquisition of additional facilities into our infrastructure.
- On January 1, 2019, Tervita adopted IFRS 16, "Leases", using the modified retrospective transition approach. The adoption of IFRS 16 resulted in a $57 million increase in liabilities and a $2 million increase in Q1 2019 Adjusted EBITDA. Please see the Interim Financial Statements for the three months ended March 31, 2019 for further details.
Outlook
- Tervita's Energy Services business remains resilient. Oilfield activity in the Western Canadian Sedimentary Basin ("WCSB") remained slow in Q1 2019, despite an early recovery of WTI to US$50 - $55 per barrel and narrower Canadian oil price differentials, as the market adjusted to the production curtailments imposed by the Alberta government. While reduced drilling activity in Q1 2019 is expected to result in lower overall drilling and completions related revenues for the year, we anticipate relatively stable oil prices to continue in 2019 and an increase in drilling and completion activity in the second half of 2019. Approximately two-thirds of waste volumes through our Energy Services' facilities are production-related, providing stability to our revenue from these operations in the current environment. We continue to believe that the contribution from a full year of results and synergies from the acquired Newalta operations, additional contributions from growth capital spending, easing of production curtailments, and steady improvements from our Industrial Services businesses, will result in double-digit growth in Tervita's Adjusted EBITDA in 2019 versus 2018.
- As described in the previous section, in April 2019 we combined our field services groups to create efficiencies in our operations and eliminate redundancies; ultimately making it easier for our customers to do business with us. Overall, while revenue from these various service lines is expected to fall, we anticipate lower costs will more than compensate for this decrease in revenue, resulting in higher overall contributions to Industrial Services' Divisional EBITDA in 2019.
- We continue to believe that the integration of Newalta will realize annualized synergies of $40 - $45 million of Adjusted EBITDA, with estimated one-time costs of $21 - $23 million, most of which has already been spent. As at the end of Q1 2019, we have achieved annualized synergies of $39 million. Effective January 1, 2019, we assumed the marketing of oil volumes previously marketed on behalf of Newalta by a third party. In Q1 2019, we converted Newalta's legacy accounting, payroll and operating systems onto Tervita's systems, enacted further headcount reductions, and achieved further operating improvements.
- Given our positive outlook for the business, we believe our shares are undervalued. Accordingly, subject to acceptance and the approval of the TSX, in early May, Tervita intends to implement a normal course issuer bid.
MD&A and Financial Statements
The Q1 2019 MD&A Interim Financial Statements, and Annual Information Form, which contain additional notes and disclosures, are available on SEDAR under Tervita Corporation at www.SEDAR.com or on our website at www.tervita.com on the Investor Relations page.
First Quarter 2019 Conference Call
Tervita will host a conference call on Friday May 3, 2019 at 11:00 a.m. MT to discuss details related to the first quarter. To participate in the conference call, dial 647-427-7450 or toll free 1-888-231-8191. To access the simultaneous webcast, please visit www.tervita.com. For those unable to listen to the live call, a taped broadcast will be available at www.tervita.com and, until midnight on Friday, May 10, 2019 by dialing 855-859-2056 and using the pass code 9529678.
About Tervita
Tervita is a leading waste management and environmental solutions provider offering waste processing, treating, recycling, and disposal services to customers in the oil and gas, mining, and industrial sectors. We serve our customers onsite and through a network of facilities in Canada and the United States.
For 40 years, Tervita has been focused on delivering safe and efficient solutions through all phases of a project while minimizing impact, maximizing returns™. Our dedicated and experienced employees are trusted sustainability partners to our clients. Safety is our top priority: it influences our actions and shapes our culture. Tervita trades on the TSX as TEV. For more information, visit tervita.com.
Advisories
Forward-Looking Information
This news release contains certain statements that may be "forward-looking statements" or "forward-looking information" within the meaning of applicable securities laws. Forward looking statements are statements that are not historical facts and are often, but not always, identified using words or phrases such as "expects", "plans", "anticipates", "believes", "intends", "estimates", "estimated", "projects", "potential" and similar expressions, or stating that certain actions, events or conditions "will", "would", "may", "might", "could" or "should" occur or be achieved or other similar terminology. In particular, but without limiting the foregoing, this news release contains forward-looking statements or information pertaining to, long-term oil and gas environmental services market outlook in Canada will generate sufficient demand for Tervita's services, market outlook with respect to drilling activity, relatively stable oil and gas prices, Western Canadian oil and gas production levels, our expectations that oil and gas producers will continue to outsource waste by-product treatment and disposal and that it is difficult for third parties to replicate the expensive footprint of our facilities, the expected continued benefits of the arrangement involving Tervita and Newalta, our plans and objectives for future operations, anticipated operational and financial performance (including expected synergies and cost reductions) for each operating segment, our growth strategy and our ability to take advantage of future growth opportunities, our cash flow, liquidity and financial position, our expectations regarding our maintenance capital spending, growth and expansion capital projects and sources of funding for our capital program. By their nature, forward-looking statements and information involve known and unknown opportunities, costs, risks and uncertainties that may cause actual results; to differ materially from those anticipated. Risks and uncertainties that may affect actual results include, without limitation, our ability to realize the expected benefits of the arrangement, decreases in exploration, drilling and production activity levels in the markets where we offer our services, customers may decide to no longer outsource their waste management and other environmental service activities, risks related to non-compliance with environmental laws or delays resulting from such non-compliance, legislative and regulatory initiatives that impact our business, competition, fluctuations in commodity prices and exchange rates and volatility in global financial conditions. For a more detailed discussion of risks relating to Tervita see our most recent Annual Information Form. With respect to the forward-looking statements and information contained in this news release, Tervita has made assumptions regarding, among other things: our ability to integrate our business with that of Newalta, the realization of the anticipated benefits and other synergies and cost savings of the arrangement, the stability of the industries in which we operate, the creditworthiness of our customers, commodity prices, no material changes in the legislative and operating framework our business, our ability to access capital, our ability to successfully market our business in the areas in which we operate, conditions of the oil and gas industry in our current and proposed market, general economic, business and market conditions, our future debt levels and the impact of increasing competition. Although Tervita believes the expectations expressed in such forward-looking statements and information are based on reasonable assumptions, such statements are not guarantees of future performance and actual results may differ materially from those in forward looking statements. Forward-looking statements and information are based on the beliefs, estimates and opinions of Tervita's management on the date the statements are made. Except as required by law, Tervita undertakes no obligation to update these forward-looking statements in the event that management's beliefs, estimates or opinions, or other factors, should change.
The forward-looking statements and information included in this news release are expressly qualified in their entirety by this cautionary statement. Tervita cautions that the foregoing list of assumptions, risks and uncertainties is not exhaustive. The forward-looking statements and information contained in this news release are made as of the date hereof, and Tervita does not undertake any obligation to update publicly or to revise any of the included forward-looking statements or information, whether as a result of new information, change in management's estimates or opinions, future circumstances or events or otherwise, except as expressly required by applicable securities law.
Any financial outlook in this document, as defined by applicable securities legislation, including estimates regarding Tervita's expected realization of synergies from the arrangement, are based on assumptions about future events, including economic conditions and proposed courses of action, based on management's assessment of the relevant information currently available and has been approved by management of Tervita. Such financial outlook is provided with the purpose of providing information about management's current expectation and management's plans relating to the future. Readers are cautioned that reliance on such information may not be appropriate for other purposes and actual results may vary from the financial outlook information set forth in this press release and should not be relied on as necessarily indicative of future results.
Non-GAAP Financial Measures
Certain financial measures in this news release are not prescribed by Internal Financial Reporting Standards ("IFRS") and therefore are considered non-GAAP measures. All non-GAAP measures presented herein do not have any standardized meaning and therefore are unlikely to be comparable to similar measures presented by other companies. Therefore, these non-GAAP measures should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS. All non-GAAP measures are included because management uses the information to analyze operating performance and results, and therefore may be considered useful information by investors. Any non-GAAP measure presented herein has been identified and the applicable definition and reconciliation of such non-GAAP measure can be found in Management's Discussion and Analysis for Q1 2019 available at www.sedar.com.
SOURCE Tervita Corporation
Investor Relations, 1-866-233-6690, [email protected]
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