Tervita Corporation Announces Fourth Quarter & Year End 2018 Results
- Q4 2018 Adjusted EBITDA of $50 million up 25% vs Q4 2017, and 2018 Adjusted EBITDA of $191 million up 22%, or 16% per share from 2017.
- Generated $103 million of Discretionary Free Cash Flow (excluding cash transaction costs) which was more than sufficient to fund $56 million of 2018 growth and expansion capital spending.
- Achieved synergies of $13 million since the close of the successful acquisition of Newalta in Q3 2018. We expect to exit 2019 at a $35 - $40 million run rate. Assuming full run rate synergies, Q4 2018 Adjusted EBITDA would have been $52 million.
- 2018 Adjusted EBITDA Margins of 30% underpinned by Tervita's significant 63% Energy Services' exposure to oil and gas production-related revenue and a stable industrial services business demonstrate Tervita's resilience in a challenging environment.
- Anticipate low double-digit Adjusted EBITDA growth in 2019.
CALGARY, March 13, 2019 /CNW/ - Tervita Corporation ("Tervita" or the "Company") (TSX: TEV) announced today the results for the three and twelve months ended December 31, 2018. All financial figures are in millions of Canadian dollars unless otherwise noted.
"2018 was a significant year for Tervita. We generated strong growth in revenue, Adjusted EBITDA and Discretionary Free Cash Flow reflecting our recent successful merger with Newalta, contributions from strategic growth investments in key regions and the continued focus on low overheads," said John Cooper, President and CEO. "We are extremely pleased with the results and progress of the Newalta integration and we are seeing the benefits we expected to achieve by combining the companies.
"In the fourth quarter, Tervita was impacted by the steep decline in industry activity in the Western Canadian Sedimentary Basin and widening price differentials due to continued pipeline takeaway capacity constraints. However, we are already seeing the stabilization of our markets in 2019. We are well positioned with a pipeline of significant growth opportunities that will be self-funded through our expanded facility infrastructure that continues to generate strong Discretionary Free Cash Flow."
Financial Highlights (1)
Three Months Ended December 31 |
Year Ended December 31 |
||||||||||
2018 |
2017 |
Increase |
% Change |
2018 |
2017 |
Increase |
% Change |
||||
Energy Services revenue |
|||||||||||
Facilities revenue |
110 |
77 |
33 |
43% |
370 |
295 |
75 |
25% |
|||
Onsite revenue |
21 |
- |
21 |
100% |
41 |
- |
41 |
100% |
|||
Energy marketing revenue |
208 |
241 |
(33) |
-14% |
1,337 |
985 |
352 |
36% |
|||
339 |
318 |
21 |
7% |
1,748 |
1,280 |
468 |
37% |
||||
Industrial Services revenue |
63 |
59 |
4 |
7% |
231 |
221 |
10 |
5% |
|||
Intersegment eliminations |
- |
(4) |
4 |
-100% |
(5) |
(11) |
6 |
-55% |
|||
Revenue |
402 |
373 |
29 |
8% |
1,974 |
1,490 |
484 |
32% |
|||
Revenue excluding energy marketing |
194 |
132 |
62 |
47% |
637 |
505 |
132 |
26% |
|||
General and administrative expenses |
(15) |
(11) |
4 |
36% |
(50) |
(52) |
(2) |
-4% |
|||
Profit (loss) from continuing operations |
(75) |
(65) |
(10) |
-15% |
(74) |
(82) |
8 |
10% |
|||
- per share ($), basic and diluted |
(0.64) |
(0.62) |
(0.02) |
-3% |
(0.67) |
(0.78) |
0.11 |
14% |
|||
Net profit (loss) |
(75) |
(65) |
(10) |
-15% |
(74) |
(81) |
7 |
9% |
|||
- per share ($), basic and diluted |
(0.64) |
(0.62) |
(0.02) |
-3% |
(0.67) |
(0.77) |
0.10 |
13% |
|||
Adjusted EBITDA(1) |
50 |
40 |
10 |
25% |
191 |
156 |
35 |
22% |
|||
- per share ($), basic and diluted |
0.43 |
0.38 |
0.05 |
13% |
1.73 |
1.49 |
0.24 |
16% |
|||
Adjusted EBITDA margin(1) |
26% |
30% |
-4% |
30% |
31% |
-1% |
|||||
Energy Services Divisional EBITDA(1) |
58 |
45 |
13 |
29% |
212 |
170 |
42 |
25% |
|||
Industrial Services Divisional EBITDA(1) |
7 |
5 |
2 |
40% |
28 |
29 |
(1) |
-3% |
|||
Divisional EBITDA(1) |
65 |
50 |
15 |
30% |
240 |
199 |
41 |
21% |
|||
Capital expenditures |
36 |
39 |
(3) |
-8% |
84 |
75 |
9 |
12% |
|||
Discretionary free cash flow(1) |
(1) |
6 |
(7) |
-117% |
81 |
70 |
11 |
16% |
|||
Adjusted Working Capital(1) |
78 |
49 |
29 |
59% |
78 |
49 |
29 |
59% |
|||
Shares as at December 31 (000's of shares)(2) |
|||||||||||
Shares outstanding |
117,557 |
104,626 |
12,931 |
12% |
117,557 |
104,626 |
12,931 |
12% |
|||
Weighted average shares outstanding |
117,557 |
104,626 |
12,931 |
12% |
110,471 |
104,626 |
5,845 |
6% |
|||
(1) |
Refer to Tervita's Q4 and Year End 2018 Management's Discussion and Analysis and Audited Condensed Consolidated Financial Statements for further information. These financial measures are Non-GAAP measures and are, therefore, unlikely to be comparable to similar measures presented by other issuers. These Non-GAAP financial measures are defined and reconciled in Tervita's Q4 and Year End 2018 MD&A. |
(2) |
As at March 13, 2019, the Company had 117,557,112 common shares, 2,702,649 common share purchase warrants, 2,249,127 options, and 241,824 Integration Incentive Units ("IIUs") issued and outstanding. The IIUs may be settled through issuance of shares. |
Q4 2018 Financial Highlights
- Tervita's Q4 2018 revenue, Adjusted EBITDA and Adjusted EBITDA per share all grew over the same period in 2017, despite the macro environment. We believe these increases reflect the continued focus on our core strategies of consolidating capacity in the markets in which we operate to realize efficiencies, and executing on our pipeline of growth projects to meet our customers' continued needs with a focus on managing overhead costs.
- Q4 2018 revenue of $402 million increased $29 million (8%) over Q4 2017. The increase reflects facilities added through the acquisitions of Newalta in 2018 and 3K Oil Services Ltd. in early Q4 2017 and the contributions from executed growth capital spending over the past year.
- Q4 2018 Adjusted EBITDA was $50 million, a $10 million and 25% improvement over Q4 2017. This improvement reflects increased Divisional EBITDA contributions of $15 million offset by $4 million of higher General and Administrative ("G&A") expense resulting from the integration of Newalta's corporate costs.
- Production-related waste volumes through our Energy Services facilities rose 42% in Q4 2018 over 2017. 63% of Tervita's facilities revenue in Q4 2018 was earned from production-related activities.
- Marketed oil volumes rose 29% to 710 thousand m3 in Q4 2018 (excluding Newalta volumes marketed by a third party), due to continued success in attracting customer volumes to our facilities and the positive impact of growth capital investments to expand capacity at facilities during 2018.
- We have made excellent progress on the integration of Newalta operations and workforce in Q4 2018. Transaction synergies of $9 million were realized in Q4 2018. At December 31, 2018 the annualized run rate of achieved synergies was $32 million, ahead of our previously targeted $20 - $22 million by the end of 2018. To date we have incurred $18 million to achieve these synergies.
- Tervita's Q4 2018 results were impacted by a decrease in Energy Services' Divisional EBITDA Margin, from 58% in Q4 2017 to 44% in Q4 2018, due to the following:
- While volumes at our facilities in the high activity Montney region grew from the prior year, this region remains very competitive. Treatment and disposal prices at several of our facilities were lower in Q4 2018 compared to Q4 2017.
- A decrease in recovered oil volumes (down 8% from the prior year) and prices also reduced margins by $3 million (2% negative impact to Energy Services' Divisional EBITDA Margin) due to volatility in Canadian oil prices and volumes.
- Repairs and maintenance costs were $5 million higher in Q4 2018, (4% negative impact to Energy Services' EBITDA Margin), primarily from work completed at acquired Newalta facilities.
- The newly added onsite facilities business from Newalta offers more stable long term contracted revenue but at a lower margin.
- Despite the impact of the above factors, full year 2018 Energy Services Divisional EBITDA margins were 52%. We anticipate annual divisional margins in the 45-50% range in 2019.
- The Q4 2018 net loss of $75 million was a $10 million increase over the net loss of $65 million in Q4 2017 due to 2018 transaction costs net of lower impairment charges.
2018 Financial Highlights
- Tervita completed a transformative transaction with Newalta on July 19, 2018, strategically positioning the larger merged business for anticipated future growth and increased resilience.
- Achieved synergies of $13 million since the acquisition of Newalta, representing an annualized run rate of $32 million. We have realized 75% of our expected $40 - $45 million in annualized synergies to date.
- Revenue increased by 32% to $1.974 billion compared to 2017 driven by the addition of Newalta operations, higher marketed oil volumes and increased volumes through our Energy Services' facilities.
- Adjusted EBITDA in 2018 grew by 22% to $191 million and 16% on a per share basis compared to 2017, reflecting contributions from the Newalta acquisition and higher Energy Services' Divisional EBITDA related to increased throughput of oil volumes.
- Adjusted EBITDA margin was 30% in 2018 compared to 31% in 2017. We added new business lines within Energy Services, owing to the Newalta investment to expand customer service offerings which are expected to provide steady long-term cash flow at slightly lower margins than our Treatment Recovery & Disposal ("TRD") services. Corporate level EBITDA margins are anticipated to rise as a result of the Newalta transaction as executed synergies more than offset the impact of the onsite business.
- We continued our focus on costs, improving our G&A costs in 2018 to 8% from 10% of revenue (excluding energy marketing) compared to 2017.
- 2018 maintenance capital was $28 million, in line with our 2018 expectations of $25 - $30 million for the year.
- We generated Discretionary Free Cash Flow of $81 million in 2018, increasing 16% over 2017. Excluding Newalta transaction costs, Discretionary Free Cash Flow grew 47% to $103 million.
- We invested $56 million on 2018 growth capital projects that are expected to drive performance in 2019 with virtually all the spending directed towards expansion and customer growth activities focused in the higher activity areas of Energy Services.
- The 2018 net loss of $74 million was an improvement of $7 million over the 2017 net loss of $81 million. Excluding transaction costs of $69 million, net income improved by $76 million over 2017.
Operational Highlights
- Energy Services' 2018 Divisional EBITDA of $212 million was a $42 million and 25% increase over 2017's Divisional EBITDA of $170 million due to contributions from acquired Newalta operations and higher throughput of oil volumes supported by strategic growth investments to expand pipeline connectivity at our TRD facilities in 2018. Q4 2018 Energy Services' Divisional EBITDA of $58 million was 29% higher than Q4 2017 driven by our investment in growth and expansion opportunities in 2018 and 2017, including our acquisition of Newalta.
- Industrial Services 2018 Divisional EBITDA of $28 million was in line with 2017 while Q4 2018 Divisional EBITDA of $7 million increased $2 million over Q4 2017. The Q4 increase was driven by higher ferrous prices and incremental contributions from acquired waste services facilities (Newalta) and two metals recycling yards.
Outlook
- With 63% of Tervita's 2018 Energy Services revenue excluding energy marketing coming from anticipated stable oil and gas production-related activities, we believe that Tervita's Energy Services business remains resilient even during the current challenging environment. While reduced drilling activity is expected to result in partially lower drilling and completions related revenues, particularly in the first half of 2019, we remain focused on what is under our control. We believe that the contribution from a full year of results from the acquired Newalta operations, the continued successful execution of Newalta integration synergies, additional contributions from growth capital spending, and steady improvements from our Industrial Services' businesses, will result in continued sustained growth in Tervita's Adjusted EBITDA in 2019 vs 2018.
- Following the early 2019 recovery of WTI to US$50 - $55 per barrel and the return of Canadian oil price differentials to fundamental ranges, we anticipate relatively stable oil and gas prices in 2019.
- While egress challenges persist, Western Canadian oil and gas production is anticipated to remain at levels matching takeaway capacity in 2019. We anticipate the continued increase in crude by rail capacity will likely be sufficient to support higher industry drilling activity in the second half of the year assuming a stable price environment.
- We continue to expect to find opportunities to attract and optimize crude oil volumes throughout our expansive network of facilities, while continuing to assist our customers to maximize the price they receive for their products in this challenging environment. This includes the internalization of oil marketing activities at the newly added Newalta facilities. These volumes were marketed by a third party until December 31, 2018.
- For Industrial Services, we expect moderate market growth in line with GDP growth across Western Canada. Our metals recycling business is expected to continue to grow with the investment in additional rail-cars to increase our capacity to ship metal to end markets. Business lines with higher exposure to energy activity will fluctuate with those activity levels and capital spending of our customers. Although environmental project opportunities increased in 2018, the average revenue available on those projects decreased compared to prior years, particularly in Alberta, and we do not anticipate this will change into 2019. Since the close of the Newalta acquisition, we have identified several field-based service lines that are common in a variety of geographies. During 2019, we intend to reorganize these field services and rationalize service offerings across a single field organization. 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 expect that the integration of Newalta will realize annualized synergies of $40 - $45 million of Adjusted EBITDA. Due to identified repairs and maintenance required at certain facilities, we have increased the estimated one-time costs from $20 million to $21- $23 million, of which the remaining $3 - $5 million will be spent in 2019.
- In 2019, we expect to realize $35-$40 million of synergies and to have almost fully realized the $40 - $45 million in annualized synergies. Effective January 1, 2019, we have assumed the marketing of all oil volumes previously marketed on behalf of Newalta by a third party. As well, with the conversion of all legacy accounting, payroll and operating systems onto Tervita's systems effective January 1, 2019, the remainder of the corporate based synergies are expected to be completed in the first half of 2019.
- We anticipate maintenance capital in the $30 - $35 million range for 2019, accounting for the full-year impact of the added Newalta facilities. Our 2019 maintenance capital program is focused on delivering stable and significant Discretionary Free Cash Flow to the business appropriate to fully fund our pipeline of growth and expansion projects and continue to reduce balance sheet leverage.
- During 2019 we anticipate spending approximately $60 - $100 million on expansion and growth projects. The capital program will depend on the success of our drilling programs and will be closely monitored against operating results and overall industry activity levels in the current environment. Spending will be largely focused in our Energy Services division to meet ongoing demand from our customers and includes:
- The completion and tie-in of two new disposal wells drilled in 2018. This will expand our capacity to serve customers at two highly utilized existing facilities in the Montney oil and gas region.
- Drilling and completion of new disposal wells at two facilities (one existing and one greenfield), including the expansion of surface facilities to meet increasing customer demand for produced water treatment and disposal infrastructure.
- Expansions at four of our facilities to enhance our energy marketing capabilities.
- The construction of new cells at three of our landfills and the continued washing of new caverns at our Lindbergh facility.
- Growth capital in Industrial Services will include new rail-cars to expand our metals delivery capacity and the purchase of equipment to continue growing our water management customer service lines.
- We remain focused on the evaluation and planning of expansion and growth opportunities. In the current environment, we continue to see customer demand for an attractive pipeline of organic growth capital projects. Assuming stable levels of market activity, and in addition to Newalta transaction synergies, this pipeline (including tuck-in acquisitions which may arise) continues to support low double-digit growth in Adjusted EBITDA over the next two to three years.
- Our expansion and growth capital program is expected to be funded from Discretionary Free Cash Flow generated by the business with any excess cash directed to the balance sheet to reduce net debt.
- We anticipate total 2019 capital spending, including maintenance, growth and expansion, to be in the range of $90 million to $135 million.
Management's Discussion and Analysis and Financial Statements
The 2018 Management's Discussion and Analysis, Annual Audited 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.
Fourth Quarter 2018 Conference Call
Tervita will host a conference call on Thursday March 14, 2019 at 11:00 a.m. MT to discuss details related to the fourth 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 Thursday March 21, 2019 by dialing 855-859-2056 and using the pass code 1197867.
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 and moderate market growth and GDP growth across Western Canada, our expectations regarding pipeline capacity constraints and their effect on our operations, 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. 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 Q4 2018 and the year ended December 31, 2018, available at www.sedar.com.
SOURCE Tervita Corporation
Investor Relations, 1-866-233-6690, [email protected]
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