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Vertex Resource Group First Quarter 2021 Results

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   |    Wednesday,May 12,2021

Vertex Resource Group Ltd. reported its Q1 2021 results.

Highlights:

• The Company generated $32.9 million in revenues compared to $38.4 million in Q1 2020, while gross margin increased to 24.4% from 23.6%.

• Adjusted EBITDA during the first quarter amounted to $4.7 million compared to $5.3 million in Q1 2020, with adjusted EBITDA as a percentage of revenue increasing to 14.1% from 13.9% in Q1 2020.

• Net loss amounted to $0.6 million compared to $5.6 million the prior year due to the decrease in G&A and amortization costs, while the first quarter 2020 contained an impairment charge of $3.7 million.

• Free cash flow amounted to $4.0 million compared to $4.8 million in Q1 2020.

• On February 26, 2021, Vertex completed the acquisition of MAD for fair value consideration of $8.5 million and the assumption of $8.3 million in equipment loans and leases. This acquisition increased Q1 revenue and adjusted EBITDA by $1.1 million and $0.2 million respectively.

Outlook

The economic uncertainty and contraction which commenced with the advent of COVID-19 in late Q1 2020 has continued into Q1 2021, evidenced by delays in construction projects, shifts in scheduled maintenance outages, government-imposed restrictions limiting access to work sites, significantly reduced demand and volume for energy products, ongoing price competition, and reductions in capital spending.  Increased commodity pricing and the rollout of the COVID-19 vaccine strategy generated cautious optimism during Q1 2021 throughout North America. While activity levels remained lower than the prior year, the negative impact on our revenue was substantively mitigated through our focus on business optimization, cost savings initiatives.

Vertex’s growing reputation, strong presence in various geographic areas, relationships with clients, and diversified complement of services have allowed it to withstand the economic pressures better than other service providers offering a single service or those that have operations in only one geographic region.  Strong client relationships, effective safety programs, robust quality control, a reputation for meeting commitments, and various government support and stimulus programs mitigated the potential for material reductions in gross margins.  Vertex demonstrated the strength and resiliency of our business model in 2020 and we are in an enviable position to facilitate growth as the economy continues to recover.

Demand for Vertex’s services is expected to improve throughout 2021 due to various government programs for reclamation and abandonment of environmental liabilities, improved capital spending across multiple industries, unfettered access to work sites, recovery of energy production, increased oil and gas development due to strengthened commodity prices, reinstatement of major customer maintenance programs, and continued diversification.  Federal, provincial, and state governments across North America have identified investment in infrastructure as a key component of their economic recovery plans.  Additionally, new opportunities in the telecommunications, utilities and renewable energy sectors are expected to grow based on increased capital investment plans by several of our key customers.

A strong resurgence in commodity prices coupled with increasing in energy demand should result in customers in the energy industry continuing to increase activity levels throughout the year.  Consolidation of customers in the oil and gas sector started in 2020 and is expected to continue through 2021.  Conservative capital deployment and continued focus on debt reductions will likely delay the return to pre-COVID activity until 2022, but activity in 2021 is expected to rebound from 2020.  Additionally, we are anticipating competitor consolidations and business failures will provide further opportunities for Vertex to grow our market share.  The new administration in the United States has pledged to enhance environmental and air quality regulations which should create further opportunities for our services.

These expectations may change from period to period if economic activity is further dampened, new government safety measures are enacted, existing government mandated restrictions are prolonged, or supply/demand conditions remain unsettled.  However, global economic recovery from this Pandemic will continue to strengthen throughout 2021 and into 2022.  The Canadian Emergency Wage Subsidy (CEWS) program has been extended until September 2021 and Vertex will continue to participate in all periods for which we meet the eligibility requirements.

Vertex resumed its acquisition activity in early 2021, acquiring an environmental services business providing industrial cleaning, waste management and hydro-excavating.  This business is very complementary, strengthens Vertex’s industrial cleaning asset base and has a strong backlog of contracted maintenance work for the next three to five years.  The structure of this acquisition allows Vertex to grow its revenues and earnings while also strengthening our balance sheet.  Vertex will continue to pursue other acquisitions throughout 2021 should they meet our strict financial and strategic requirements.

Vertex is very well positioned to work closely with our Indigenous partners, customers and the provincial governments of Alberta, Saskatchewan, and British Columbia as well as the Canadian federal government to participate in the various environmental liability clean up programs in 2021 and 2022.  In addition, Vertex is a prime contractor for the Alberta Orphan Well Association, the Saskatchewan Orphan Well Association and the BC Oil & Gas Commission.  Vertex anticipates an increased level of activity from all these programs in 2021 and 2022 as the various government agencies and departments have now been able to develop and refine the funding mechanisms, the absence of which greatly impeded activity in 2020.  The Company also plans to continue expanding its services to municipalities, utilities, renewables and the telecommunications sector and will continue its geographic diversification efforts in British Columbia, Ontario, and the U.S.

Vertex’s vision of being a world leading environmental services company has not changed.  As an Environmental Service business, we believe we are uniquely positioned for ESG performance.  We understand that we have a responsibility to maximize our Internal ESG performance and have made a corporate commitment to do so. More substantially, we understand that our Supply Chain opportunity to support the ESG initiatives of our customers has a significantly broader global impact.   As such our ESG system design includes both an internal and supply chain focus.  As our ESG journey evolves so too will our measurement and reporting, holding ourselves accountable to internal and supply chain metrics.  Ultimately, our intent is to create business resiliency by becoming a primary source of executable ESG supply chain solutions for our customers.

Terry Stephenson, President and CEO, said: “On behalf of the management team, I would like to again thank all of our employees for their dedication, hard work and commitment to excellence while continuing to provide solutions to our clients in a safe manner.  The past fourteen months have been an extremely challenging environment to perform in given all the extra safety precautions needed to continue to deliver our services and solutions throughout this COVID-19 pandemic.  Our employees have done a tremendous job protecting themselves, their families, our clients and the public during these extremely uncertain and stressful times.  Thank-you very much!”