Tervita Corporation Announces Third Quarter 2019 Results of $65 million Adjusted EBITDA

• Q3 2019 Adjusted EBITDA of $65 million compared to $71 million in the prior year, underscoring the stability in our production-based business and continued strong performance in our Industrial business segment, in the face of lower drilling activity and unusually wet weather
  
  
• Year-to-date Adjusted EBITDA of $174 million, up 23% and 14% per share compared to the same period in 2018, benefiting from the full integration of the Newalta acquisition including synergies and growth in Industrial Services
  
  
• General & administrative expenses ("G&A") (excluding severance) as a percent of revenue (excluding energy marketing revenue) improved to 6% in Q3 2019 compared to 7% in Q3 2018, despite lower revenue, reflecting our ongoing focus on efficiency and cost discipline
  
  
• Generated $81 million of Discretionary Free Cash Flow year to date in 2019, more than funding our growth and expansion capital program and the normal course issuer bid
  
  
• We expect that the $64 million of growth and expansion capital additions to the end of Q3 2019, the majority of which is customer backed, will begin to contribute to Adjusted EBITDA in 2020

CALGARY, Nov. 7, 2019 /CNW/ - Tervita Corporation ("Tervita" or the "Company") (TSX: TEV) announced today the results for the three and nine months ended September 30, 2019. All financial figures are in millions of Canadian dollars unless otherwise noted.

"We are pleased with our strong performance which demonstrates stability and resiliency in our business model," said John Cooper, President and CEO. "Our broad exposure to every major play in Western Canada and diversified platform with our Industrial business has positioned us to deliver solid results in the current environment.

"The wet weather in Q3 delayed our capital schedule moderately; however, we remain confident that we will come in at the higher end of our 2019 capital budget range of $120 - $135 million. Through the successful execution of growth projects and cost synergies achieved, we continue to expect double-digit Adjusted EBITDA growth in 2019. The energy industry continues to face headwinds; however, we remain excited about the opportunities in front of us to leverage our infrastructure and create efficiencies for customers, including our Montney water disposal infrastructure facility, which is expected to be commissioned in Q1 2020."

		Three Months Ended September 30					Nine Months Ended September 30
		2019	2018	Increase (Decrease)	% Change		2019	2018	Increase (Decrease)	% Change
Energy Services revenue
Facilities and onsite revenue		122	137	(15)	(11)%		358	280	78	28%
Energy marketing revenue		420	439	(19)	(4)%		1,191	1,129	62	5%
		542	576	(34)	(6)%		1,549	1,409	140	10%
Industrial Services revenue		72	69	3	4%		186	168	18	11%
Intersegment eliminations		(3)	(3)	—	—%		(3)	(5)	2	40%
Revenue		611	642	(31)	(5)%		1,732	1,572	160	10%
Revenue excluding energy marketing		191	203	(12)	(6)%		541	443	98	22%
Energy Services Divisional EBITDA^(1)		64	75	(11)	(15)%		180	154	26	17%
Industrial Services Divisional EBITDA^(1)		12	10	2	20%		29	21	8	38%
Divisional EBITDA^(1)		76	85	(9)	(11)%		209	175	34	19%
General and administrative expenses		(11)	(14)	(3)	(21)%		(37)	(35)	2	6%
G&A (excl. severance) as a % of revenue (excl. energy marketing)		6%	7%	(1)%			7%	8%	(1)%
Net profit (loss)		10	(44)	54	123%		7	(41)	48	117%
- per share ($), basic and diluted		0.09	(0.38)	0.47	124%		0.06	(0.38)	0.44	116%
Adjusted EBITDA^(1)		65	71	(6)	(8)%		174	141	33	23%
- per share ($), basic and diluted		0.56	0.62	(0.06)	(10)%		1.48	1.30	0.18	14%
Adjusted EBITDA margin^(1)		34%	35%	(1)%			32%	32%	—%
Capital additions		42	23	19	83%		87	51	36	71%
Discretionary free cash flow^(1)		47	48	(1)	(2)%		81	81	—	—%
- per share ($), basic and diluted		0.40	0.42	(0.02)	(5)%		0.69	0.75	(0.06)	(8)%
Net Debt to Adjusted EBITDA^(1)(2)		3.16	3.30	(0.14)			3.16	3.30	(0.14)
Shares as at September 30 (000's of shares)^(3)
Shares outstanding		114,779	117,557	(2,778)	(2)%		114,779	117,557	(2,778)	(2)%
Weighted average shares - basic		116,356	114,887	1,469	1%		117,101	108,084	9,017	8%
Weighted average shares - diluted		116,640	114,887	1,753	2%		117,365	108,084	9,281	9%

1.	Refer to Tervita's Q3 2019 Management's Discussion and Analysis ("MD&A") and unaudited Interim Condensed Consolidated Financial Statements ("Interim 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 Q3 2019 MD&A.
2.	Net Debt to Adjusted EBITDA in Q3 2019 is Last Twelve Months.  See Tervita's Q3 2019 MD&A for further definition and reconciliation.
3.	As at November 7, 2019, the Company had 115,166,016 common shares, 2,702,649 common share purchase warrants, and 2,586,828 stock options outstanding. Each common share purchase warrant and option outstanding is exercisable for a maximum of one common share.

Q3 and Year to Date ("YTD") 2019 Financial Highlights

Overall

• Q3 2019 revenue of $611 million decreased by $31 million from the prior year. The 5% decline in revenue was primarily driven by an approximate 30% decrease in drilling activity, offset by the resiliency of our production-based business, the full quarter impact of the Newalta acquisition and contributions from our 2018 growth and expansion capital projects. 
  
  
• YTD 2019 revenue of $1,732 million increased by $160 million over the same period in the prior year. In Energy Services, increases from higher waste and oil volumes and the addition of the onsite business in Q3 2018 were partially offset by the decrease in industry activity. Industrial Services revenue increased $18 million or 11%, primarily driven by increased volumes through waste services facilities, increased project activity in environmental services and rail services, and higher ferrous and non-ferrous metal volumes.
  
  
• Q3 2019 Adjusted EBITDA was $65 million, a $6 million decline from the prior year. The contributions from our Industrial business and focus on cost management partially offset the decline in oilfield activity.
  
  
• YTD 2019 Adjusted EBITDA was $174 million, a 23% improvement over the same period in the prior year. This improvement reflects increased Divisional EBITDA contributions as well as the adoption of the new lease accounting standard.
  
  
• Adjusted EBITDA Margin for the quarter and YTD was 34% and 32%, respectively, largely consistent with the same periods in the prior year.   We continue to expect annual 2019 Adjusted EBITDA margin to remain stable in the 30% - 32% range.
  
  
• Q3 2019 net profit was $10 million, a $54 million increase from the prior year, due mainly to lower transaction-related costs partially offset by the decrease in Adjusted EBITDA. YTD 2019 net profit of $7 million was a $48 million increase from the prior year, primarily due to an increase in Adjusted EBITDA and a decrease in transaction-related costs.  
  
  
• Q3 2019 Discretionary Free Cash Flow was $47 million, relatively unchanged from the prior year. Tervita generated $81 million of Discretionary Free Cash Flow for YTD, in line with the same period in the prior year. Discretionary Free Cash Flow was more than sufficient to fund the $38 million of growth and expansion cash capital expenditures and $12 million of share repurchases YTD 2019.

Energy Services

		Three Months Ended September 30					Nine Months Ended September 30
		2019	2018	Increase (Decrease)	% Change		2019	2018	Increase (Decrease)	% Change
Facilities and onsite revenue		122	137	(15)	(11)%		358	280	78	28%
Energy marketing revenue		420	439	(19)	(4)%		1,191	1,129	62	5%
		542	576	(34)	(6)%		1,549	1,409	140	10%
Revenue (excl. energy marketing)		122	137	(15)	(11)%		358	280	78	28%
Divisional EBITDA^(1)		64	75	(11)	(15)%		180	154	26	17%
Divisional EBITDA Margin^(1)		52%	55%	(3)%			50%	55%	(5)%

1.	Refer to Tervita's Q3 2019 MD&A and unaudited Interim 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 Q3 2019 MD&A.

• Energy Services' Divisional EBITDA decreased by 15% in Q3 2019 compared to the prior year:
  
  
  
• Production-related volumes through our Energy Services facilities increased by 5% in Q3 2019 compared to Q3 2018, reflecting incremental volumes associated with our acquired facilities. The impact of a shift to lower value waste streams led to an overall reduction in production-related revenue. Unusually wet weather in the quarter and challenging market conditions contributed to decreased drilling activity, which resulted in a 17% decrease to drilling-related revenue compared to the prior year. Weather also affected the timing of customer remediation activities, contributing to a 23% decrease in soil volumes and a decline in revenue from facilities.
  
  
• Energy marketing revenue decreased by 4% compared to the prior year due to lower prices as the year-over-year average WTI price decreased 19%. This was partially offset by a 35% increase in marketed oil volumes, as we began marketing volumes from acquired Newalta facilities on January 1, 2019.
  
  
• YTD 2019 Divisional EBITDA increased by 17% over the prior year, reflecting contributions from our expanded network and realized transaction synergies. Our acquisition of Newalta in Q3 2018 contributed to a 20% increase in production-related volumes through our facilities while drilling-related volumes decreased 2% as gains from acquired facilities were offset by the decline in drilling activity. The adoption of the new lease accounting standard resulted in a $2 million improvement in Divisional EBITDA. Energy Services' Divisional EBITDA Margin for YTD 2019 was 50% compared to 55% in 2018, driven by the addition of lower-margin Newalta onsite services, as well as the impact of the unusually wet weather in Q3 2019.

Industrial Services

		Three Months Ended September 30					Nine Months Ended September 30
		2019	2018	Increase (Decrease)	% Change		2019	2018	Increase (Decrease)	% Change
Total revenue		72	69	3	4%		186	168	18	11%
Divisional EBITDA^(1)		12	10	2	20%		29	21	8	38%
Divisional EBITDA Margin^(1)		17%	14%	3%			16%	13%	3%

1.	Refer to Tervita's Q3 2019 MD&A and unaudited Interim 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 Q3 2019 MD&A.

• Industrial Services' Q3 2019 Divisional EBITDA increased $2 million or 20% over the prior year. This increase was primarily driven by higher waste volumes at our waste services facilities combined with optimization and effective cost control programs, partially offset by the impact of lower ferrous and non-ferrous metal prices.
  
  
• YTD 2019 Divisional EBITDA of $29 million increased $8 million or 38% over 2018. This increase was primarily driven by increased margins for project work, higher waste volumes at our facilities particularly in the lower mainland of British Columbia and central Alberta, higher ferrous metal volumes, continued focus on optimization and cost control, and the adoption of the new lease accounting standard.

Other Highlights

• For the full year, we expect to come in at the higher end of our 2019 capital budget of $120 - $135 million, comprised of growth and expansion of $90 - $100 million and maintenance of $30 - $35 million. 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. In Q3 2019, our capital additions were $42 million ($32 million growth and expansion and $10 million maintenance) and included the ongoing development of a new water disposal infrastructure project.
  
  
• YTD 2019 capital additions were $87 million ($64 million growth and expansion and $23 million maintenance) and included the drilling of new disposal wells, landfill cell and cavern expansions, and the purchase of new rail cars to increase capacity for our metals recycling business.
  
  
• On January 1, 2019, Tervita adopted IFRS 16, "Leases", using the modified retrospective transition approach. The adoption of IFRS 16 resulted in an increase of $2 million and $6 million Adjusted EBITDA for Q3 and YTD 2019, respectively, and a $57 million increase in liabilities.  Please see the Interim Financial Statements for the three and nine months ended September 30, 2019 for further details.

Outlook

• Tervita demonstrated strength in its operating and financial results through the first nine months of 2019, delivering a 23% increase in Adjusted EBITDA over the prior year despite industry-wide activity declines and challenging weather conditions. Tervita benefited from our stable base of production-related volumes, continued focus on cost control, and delivering on the Newalta acquisition synergies.
  
  
• For the remainder of the year, we anticipate stable WTI prices of approximately US$55/bbl, with some widening of Canadian oil price differentials and expect drilling and completion activity to remain lower than 2018.
  
  
• We continue to expect that the contribution from a full year of Newalta operations and related integration synergies, contributions from growth capital additions, and steady improvements from our Industrial Services businesses will result in double-digit growth in Tervita's Adjusted EBITDA in 2019 compared to 2018. We continue to expect annual 2019 Adjusted EBITDA Margin to remain stable in the 30% - 32% range.
  
  
• Looking forward to 2020, we anticipate Adjusted EBITDA growth driven by contributions from: 
  
  
• our ongoing focus on cost control and incremental business improvements in our Energy Services segment;
  
  
• the continued optimization of our waste and environmental services businesses in the Industrial Services segment; and
  
  
• our predominantly customer-backed 2019 investments in growth projects, which are primarily focused on increasing our water handling capacity in the Montney region and enhancing our clean oil energy marketing capabilities.

In a stable environment reflecting activity levels and commodity prices consistent with 2019, we would expect these initiatives to drive double-digit Adjusted EBITDA growth in 2020. Recent uncertainty in 2020 outlook for industry activity and commodity prices could temper these growth expectations.

MD&A and Financial Statements

The Q3 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.

Third Quarter 2019 Conference Call

Tervita will host a conference call on Friday November 8, 2019 at 7:00 a.m. MT to discuss details related to the third 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, November 15, 2019 by dialing 855-859-2056 and using the pass code 4547208.

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 www.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, this news release contains forward-looking statements or information pertaining to, among other things: our outlook for the remainder of 2019 and 2020, including expectations regarding Adjusted EBITDA growth and the sources thereof, annual Adjusted EBITDA margin and capital spending (including with respect to both maintenance and growth and expansion projects and, with respect to the latter, the commissioning and timing thereof); market and industry outlook with respect to commodity prices and differentials, and drilling and completion activity; and business strategies and objectives.  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: 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 and our Q3 2019 MD&A. 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 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 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 beliefs, estimates or opinions, future circumstances or events or otherwise, except as expressly required by applicable securities law.  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. 

Any financial outlook in this document, as defined by applicable securities legislation, including estimates of Adjusted EBITDA growth and annual Adjusted EBITDA margins, 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 Q3 2019  available at www.sedar.com.

SOURCE Tervita Corporation

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

Related Links

http://www.tervita.com