Tervita Corporation Announces Second Quarter 2020 Results

• Q2 2020 Adjusted EBITDA of $45 million decreased from prior year by 15% as a result of lower production volumes and drilling activity, partially offset by $14 million of Canada Emergency Wage Subsidy ("CEWS"), realized benefits from cost saving initiatives and strong project activity in Industrial Services.
  
  
• Energy Services revenue excluding energy marketing of $59 million and Divisional EBITDA of $29 million both decreased by 49% from prior year as shut-in production volumes and a 76% decline in drilling activity reduced volumes into our waste facilities and oil volumes available to be marketed for energy marketing, partially offset by the realization of cost initiatives and contributions from growth capital. Divisional EBITDA Margin remained stable at 49% due largely to strategic cost optimization.
  
  
• Industrial Services revenue of $46 million decreased only 10% from prior year as the impact of increased project work was more than offset by reduced ferrous metal prices and volumes, which we actively manage to optimize price realization. Divisional EBITDA of $10 million increased over prior year by 67% primarily driven by increased project activity, continued benefit of business optimization and cost saving initiatives.
  
  
• Adapted quickly to the changing external environment to position the Company to weather the decline in benchmark crude, continue operations without interruption, and execute structural cost reductions for anticipated annualized savings of $30 to $34 million.
  
  
• Adjusted EBITDA Margin excluding CEWS remained strong and stable to prior year at 30%, despite a 37% decline in revenue excluding energy marketing.
  
  
• Strong liquidity position retained against a backdrop of more than a million barrels of shut-in production and historic lows in drilling activity. At June 30, 2020 we had $232 million of available liquidity from cash on hand and undrawn credit facility capacity.
  
  
• Generated Discretionary Free Cash Flow despite challenging economic backdrop

CALGARY, AB, July 29, 2020 /CNW/ - Tervita Corporation ("Tervita" or the "Company") (TSX: TEV) announced today the results for the three and six months ended June 30, 2020. All financial figures are in millions of Canadian dollars unless otherwise noted.

"The benefits of the actions we executed early in the COVID-19 pandemic and energy collapse have been realized in our Q2 results and the preservation of our financial position. Our acute focus on cost control and optimization of our locations helped to maintain our strong and stable Adjusted EBITDA Margin excluding CEWS at 30%, consistent with last year, despite a revenue excluding energy marketing decline of 37%," said John Cooper, President and CEO. "The measures we put in place to keep our employees, customers and communities safe have allowed the business to continue without interruption and as a result of acting quickly Tervita has not had any disruptions to our services or capacity to handle our customers' requirements due to the pandemic."

"Continuous improvement to run the business efficiently and effectively has been a focus at Tervita since 2017. In response to the downturn we elevated our focus on streamlining the business and executed initiatives to reduce structural costs which we anticipate will produce annualized savings of $30 to $34 million. The actions we have taken up to this point have materially enhanced our resiliency and positioned us well to manage through this downturn."

"Looking ahead, we continue to leverage our infrastructure and create efficiencies for customers during this time of uncertainty and tight capital discipline, while remaining focused on being the top choice service provider of environmental and waste management solutions. While there is not yet much visibility emerging for the energy sector through the second half of the year, we are confident that we are well positioned to succeed when the economy recovers. I would like to thank our Tervita employees for their hard work and our customers for the opportunity to collaborate as we navigate through these unprecedented times together."

Q2 2020 Financial Highlights⁽¹⁾

		Three Months Ended June 30					Six Months Ended June 30
		2020	2019	Increase (Decrease)	% Change		2020	2019	Increase (Decrease)	% Change
Energy Services revenue
Facilities revenue		59	115	(56)	(49)%		173	231	(58)	(25)%
Energy marketing revenue		110	424	(314)	(74)%		422	771	(349)	(45)%
		169	539	(370)	(69)%		595	1,002	(407)	(41)%
Industrial Services revenue		46	51	(5)	(10)%		108	119	(11)	(9)%
Intersegment eliminations		—	—	—	—%		(2)	—	(2)	(100)%
Revenue		215	590	(375)	(64)%		701	1,121	(420)	(37)%
Revenue excluding energy marketing		105	166	(61)	(37)%		279	350	(71)	(20)%
Energy Services Divisional EBITDA^(1)		29	57	(28)	(49)%		88	115	(27)	(23)%
Industrial Services Divisional EBITDA^(1)		10	6	4	67%		16	18	(2)	(11)%
Divisional EBITDA^(1)		39	63	(24)	(38)%		104	133	(29)	(22)%
G&A expenses		(8)	(10)	(2)	(20)%		(20)	(24)	(4)	(17)%
G&A as a % of revenue (excl. energy marketing)		8%	6%	2%			7%	7%	—%
Canada Emergency Wage Subsidy^(2)		14	—	14	100%		14	—	14	100%
Net profit (loss)		10	—	10	100%		(32)	(3)	(29)	(967)%
- per share ($), basic and diluted		0.09	—	0.09	100%		(0.28)	(0.03)	(0.25)	(833)%
Adjusted EBITDA^(1)		45	53	(8)	(15)%		98	109	(11)	(10)%
- per share ($), basic and diluted		0.40	0.45	(0.05)	(11)%		0.86	0.93	(0.07)	(8)%
Adjusted EBITDA Margin^(1)		43%	32%	11%			35%	31%	4%
Maintenance capital additions		5	9	(4)	(44)%		13	13	—	—%
Growth and expansion capital additions		8	13	(5)	(38)%		20	31	(11)	(35)%
Capital additions		13	22	(9)	(41)%		33	44	(11)	(25)%
Discretionary Free Cash Flow^(1)		1	—	1	100%		26	34	(8)	(24)%
- per share ($), basic and diluted		0.01	—	0.01	100%		0.23	0.29	(0.06)	(21)%
Net Debt to Adjusted EBITDA^(1)(3)		3.44	3.09	0.35			3.44	3.09	0.35
Shares as at June 30 (000's of shares)^(4)
Shares outstanding		113,107	117,039	(3,932)	(3)%		113,107	117,039	(3,932)	(3)%
Weighted average shares - basic		113,390	117,386	(3,996)	(3)%		113,710	117,471	(3,761)	(3)%
Weighted average shares - diluted		113,390	117,386	(3,996)	(3)%		113,782	117,471	(3,689)	(3)%

1.	Refer to Tervita's Q2 2020 Management's Discussion and Analysis ("MD&A") and Interim Financial Statements ("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 Q2 2020 MD&A.
2.	Refer to Tervita's Q2 2020 MD&A for further information on CEWS.
3.	Net Debt to Adjusted EBITDA in Q2 2020 is Last Twelve Months. See Tervita's Q2 2020 MD&A and Q2 2019 MD&A for further definition and reconciliation.
4.	As at July 29, 2020, the Company had 113,107,151 common shares and 2,224,200 stock options outstanding. Each option outstanding is exercisable for one common share. All outstanding common share purchase warrants expired July 19, 2020.

Tervita's results for the three and six months ended June 30 excluding CEWS⁽¹⁾ were as follows:

	Three Months Ended June 30				Six Months Ended June 30
	2020	2019	Increase (Decrease)	% Change	2020	2019	Increase (Decrease)	% Change
Adjusted EBITDA^(1)	31	53	(22)	(42)%	84	109	(25)	(23)%
- per share ($), basic and diluted	0.27	0.45	(0.18)	(40)%	0.74	0.93	(0.19)	(20)%
Adjusted EBITDA Margin^(1)	30%	32%	(2)%		30%	31%	(1)

1.	Refer to Tervita's Q2 2020 MD&A for further information on CEWS.

Outlook

In recent months the negative economic impact of COVID-19 and the ongoing oil price war between Russia and OPEC has had a material effect on the energy sector. In April and May a significant decline in energy prices forced some producers to shut-in volumes exceeding one million barrels per day and substantially reduce their capital programs, driving a sharp decline in drilling activity. Through June and into July the price of WTI climbed and stabilized above US$40/bbl, and more than half of the shut-in volumes have been returned to the market. We anticipate at current price levels, shut-in volumes will continue to recover more so than drilling and completions activity as producers continue to prioritize free cash flow.

Our Energy Services business remains strongly underpinned by production related waste volumes in the Western Canadian Sedimentary Basin ("WCSB"). Our production-based revenue was impacted by the large shut-in volumes in Q2, however it has recovered substantially with the return of production volumes. Assuming the continuation of the current economic conditions we anticipate that production-based volumes received at our facilities and related revenues will continue to improve. Revenue driven from drilling and completion activity has been meaningfully impacted by the steep drop in drilling activity, and we expect the recovery of these activities will remain challenged for the remainder of the year.

Our Industrial Services business has been less impacted by the COVID-19 downturn. As exhibited by strong Q2 results, Industrial Services is realizing the benefits of the organizational restructuring completed through 2019 and early 2020, and is demonstrating resiliency in its underlying business of providing customers integrated solutions through our full suite of service offerings. We expect our Industrial business, specifically our project-based work, to largely recover through the remainder of the year. Additionally, the Federal Government's well abandonment and site rehabilitation program provides the opportunity to materially improve results from these service lines. Our Industrial business continues to be resilient through these difficult times as it serves a wide range of customers across various sectors. Looking forward, we intend to continue growing our Industrial business as we see several business development opportunities ahead.

Safety
The health and safety of our people, our customers and the communities in which we operate remain our top priority. We have implemented our business continuity plan in response to the COVID-19 pandemic to keep employees safe and healthy, assist our customers and ensure safe operations. We also have a dedicated COVID-19 team that has been formed to manage the continuity plan, implement proactive measures and keep our people and customers updated on this evolving situation. Our employees have adapted well to working from home where possible and have implemented best practices to keep our field operations and customers safe. We are proud to announce that Tervita has not suffered any interruptions to services or our capacity to handle our customer requirements due to the pandemic outbreak.

Cost Reductions
We took immediate action following the decline of commodity prices to reduce costs and protect liquidity, and continue to expect to decrease structural costs by $30 to $34 million on an annualized basis with $22 to $26 million expected in 2020. The structural actions include items such as employee headcount reductions and location optimization throughout our network. We also implemented multiple actions to drive in-year savings, including reductions to the Board of Directors' cash retainer and executive leadership team's salary, as well as reducing discretionary spending. We remain on track with the structural cost reductions and continue to identify further in-year savings.

In the first quarter, we reduced our 2020 capital plan to $60 million, a 56% reduction from 2019 expenditures, with the ability to increase or decrease the capital plan in response to commodity prices and the economic environment. We continue to look for and execute opportunities to reduce costs, improve efficiencies and ensure all open and operating facilities are generating positive cash flows.

Through this challenging environment our priorities remain the health and safety of our people as well as providing valuable services to our customers. We continue to monitor our external environment and are well prepared to take any further action required throughout the year.

Government Programs
In response to the economic impacts from COVID-19 and low commodity prices, the Federal Government of Canada announced numerous programs to support companies through the current economic environment. We have actively pursued two of the government programs: CEWS and the $1.7 billion fund for well abandonment and site rehabilitation.

• We were eligible for funding through CEWS for the period of March 15 to July 4, and recognized $14 million of benefit related to the program in Q2 2020. We will continue to monitor our eligibility for funding under the program, which was recently extended to December 2020.
• We expect the well abandonment and site rehabilitation program will provide opportunities for Tervita, including work through the Alberta Orphan Well Association for which Tervita is a prime contractor and the British Columbia ("BC") Oil & Gas Commission for which Tervita is an approved decommissioning contractor. Tervita has the largest portfolio of landfills in Western Canada and, in connection with our environmental services business, we are well positioned to work closely with customers and government across British Columbia, Alberta, and Saskatchewan to access and remediate their oilfield liabilities. Working with producers and government agencies, we have submitted applications for the early phases of these programs in all three provinces.

Liquidity
We remain focused on financial discipline and are positioned with liquidity of $232 million of cash and unutilized capacity on our credit facility. Tervita's senior secured revolving credit facility expires on June 1, 2021 and Tervita's US$590 million senior notes are not due until December 2021. We are actively working with our lenders and continue to assess various refinancing solutions. Assuming the continuation of the current economic environment, we anticipate our net debt levels will remain relatively flat throughout the remainder of the year. We will continue to live within cash flow and we expect to remain within our covenant thresholds for the remainder of the year.

MD&A and Financial Statements

The Q2 2020 MD&A, 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.

Second Quarter 2020 Conference Call

Tervita will host a conference call on Thursday July 30, 2020 at 7:00 a.m. MST to discuss the second quarter results. To participate in the conference call, dial 416-764-8650 or toll free 888-664-6383. 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 MST on Thursday, August 6, 2020 by dialing 888-390-0541 and using the pass code 710606#.

About Tervita

Tervita is one of the largest waste and environmentally-focused service providers in Canada, providing a broad and integrated array of services and environmental management solutions for customers in the energy, industrial, and natural resource sectors, predominantly in Western Canada.

For over 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 www.tervita.com.

Advisories

Forward-Looking Information

This news release contains forward-looking statements and forward-looking information (collectively referred to herein as "forward-looking statements") within the meaning of securities legislation. Such forward-looking statements include, without limitation, forecasts, estimates, expectations and objectives for future operations that are subject to assumptions, risks and uncertainties, many of which are beyond the control of Tervita. Forward-looking statements are statements that are not historical facts and are generally, but not always, identified by the words "expects", "plans", "anticipates", "believes", "intends", "estimates", "projects", "potential" and similar expressions, or are events or conditions that "will", "would", "may", "could" or "should" occur or be achieved. These statements are not guarantees of future performance and are subject to risks, uncertainties and other key factors that could cause actual results or events to be materially different from those anticipated in such forward-looking statements.

Specific forward-looking statements contained in this news release includes, amongst others, statements and management's beliefs, expectations or intentions regarding the following: all statements regarding Tervita's 2020 capital plan and the Company's opportunities to execute on reducing costs, improving efficiencies and generating positive cash flows; Tervita's expectations regarding annualized savings, Tervita's expectations regarding the recovery of price levels and shut-in volumes as compared to drilling and completions; Tervita's expectations regarding the production-based volumes to be received at its facilities and related revenues continuing to improve; Tervita's expectations regarding the continued challenges in respect of drilling activity levels; Tervita's expectations regarding recovery and growth of its Industrial Services segment, the Company's participation in, and benefits from, CEWS and the Federal Government's well abandonment and site rehabilitation program; Tervita's expectations its net debt levels will remain relatively flat throughout the remainder of the year; Tervita's expectations regarding its ability to continue to live within cash flow and within covenant thresholds for the remainder of the year; and Tervita's expectations regarding its ability to continue to exercise financial discipline; and Tervita's business strategies and objectives.

Forward-looking statements relating to our business contain uncertainties and assumptions, including the following: current economic and operating conditions, including commodity prices, interest rates, and environmental and regulatory matters; the ability of its customers to recover from the current economic and operating conditions, the ability of Tervita to access government assistance programs, the ability of Tervita to execute on cost-savings measures, the ability of Tervita to execute on its business continuity plan in connection with the COVID-19 pandemic, Tervita's ability to maintaining sufficient liquidity in the current economic and operating conditions, the ability of Tervita to obtain equipment, services, supplies and personnel to carry out its business activities; the ability of Tervita to successfully market its business in the areas in which it operates; that Tervita's current business environment will remain substantially unchanged; Tervita's ability to secure financing on acceptable terms, if needed; demand for services in Tervita's businesses can be adversely impacted by general economic conditions and Tervita is dependent on exploration, drilling and production activity levels in the markets where Tervita offers its services; risks related to limited pipeline capacity; the ability of management to execute its business plan; the risks of the environmental solutions industry, such as operational risks and market demand; risks inherent in Tervita's marketing operations, including credit risk; the uncertainty of estimates and projections relating to revenues, costs, expenses and capital expenditures; fluctuations in fuel, raw material costs, oil and natural gas prices, foreign currency exchange rates and interest rates; health, safety and environmental risks; uncertainties as to the availability and cost of financing; general economic conditions in Canada, the United States, and globally; industry conditions; the possibility that government policies or laws may change or governmental approvals may be delayed or withheld; governmental regulation of the environmental solutions industry, including environmental regulation; unanticipated operating events; failure to obtain third-party consents and approvals, when required; risks associated with existing and potential future lawsuits and regulatory actions against Tervita; the highly competitive nature of Tervita's markets, and competition that could adversely impact Tervita's financial position, results of operations, cash flows or its ability to make required payments on debt outstanding; global financial conditions are subject to increased volatility; legislative and regulatory initiatives related to hydraulic fracturing that could result in increased costs and additional operating restrictions or delays as well as adversely affect Tervita's support services. For a more detailed discussion of risks relating to Tervita, see our most recent Annual Information Form ("AIF") dated March 8, 2020. These factors should not be construed as exhaustive. The forward-looking statements included in this news release are made only as of the date hereof and Tervita does not undertake to publicly update these forward-looking statements for new information, future events, or otherwise, except as required by applicable laws. Any forward-looking statements contained herein are expressly qualified by this cautionary statement.

For additional information relating to Tervita, including our AIF, please see our profile on SEDAR, available at www.sedar.com.

Non-GAAP Financial Measures

Certain financial measures identified 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 MD&A for Q2 2020 available at www.tervita.com or www.sedar.com.

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.

Readers should refer to Tervita's most recently filed Financial Statements and accompanying MD&A filed on www.sedar.com for the definition and reconciliation of these non-GAAP measures to the most directly comparable GAAP measure in Tervita's financial statements for prior completed periods.

SOURCE Tervita Corporation

Investor Relations, 1-866-233-6690, [email protected]

Related Links

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