- Strong Q3 2020 results demonstrate the resiliency of our business, reflecting our continued focus on profitability and market share growth as well as our proactive actions to reduce costs.
- Q3 2020 Adjusted EBITDA of $56 million decreased from prior year by 14% as management cost saving initiatives and Canada Emergency Wage Subsidy ("CEWS") moderated the impact of reduced activity and oil prices.
- Adjusted EBITDA Margin excluding CEWS remained strong and stable at 34%.
- Net Debt of $722 million, with a Net Debt to Adjusted EBITDA leverage of 3.39x. Net Debt was reduced by $42 million since Q2 2020 as cash balances increased from $31 million to $52 million during the quarter and our Credit Facility was fully undrawn.
- Generated Discretionary Free Cash Flow ("DFCF") of $45 million despite continued challenging economic environment.
- Remain on track to achieve anticipated annualized structural cost savings of approximately $32 million, with $23 million to be realized in 2020.
- Successfully exited our United States ("US") operations due to lower activity in the US and as part of our continued focus on capital efficiencies and internal hurdle rates.
- Expanded our total count of pipeline-connected facilities to 22 with the commissioning of a facility pipeline connection in the Viking play in central east Saskatchewan.
- Anticipate 2020 full year Adjusted EBITDA and DFCF of approximately $210 million and $75 million, respectively. Full year 2020 maintenance and total capital budget remains at approximately $25 million and $60 million, respectively.
- Achieved a milestone with the release of Tervita's inaugural Sustainability Report highlighting our 2019 accomplishments and targets developed towards our commitment to sustainability.
CALGARY, AB, Oct. 29, 2020 /CNW/ - Tervita Corporation ("Tervita" or the "Company") (TSX: TEV) announced today the detailed unaudited results for the three and nine months ended September 30, 2020 following positive preliminary results released on October 19, 2020. All financial figures are in millions of Canadian dollars unless otherwise noted.
"We're pleased with the strong performance across our operations in the third quarter, demonstrating the resiliency of our production-based business and the continued stability in our Industrial Services business. Our continued focus on cost control and optimization of our locations helped to maintain a strong and stable Adjusted EBITDA Margin excluding CEWS of 34%," said John Cooper, President and CEO. "Our Energy Services and Industrial Services business segments drove performance with increased Divisional EBITDA Margin over prior year even as we experienced revenue declines compared to prior year, with both segments also showing a meaningful recovery in revenue from Q2 2020.
"The swift actions we took early on in the downturn have positioned us for increased financial strength. During the third quarter we reduced our Net Debt as free cash flow generated in the quarter allowed us to repay the $15 million credit facility draw and increase our cash balance 68% to $52 million. In the third quarter we also completed the sale of our assets in the US as a result of our continued focus on capital efficiency. While this service line was a small part of our overall business it demonstrates our acute focus on ensuring all of our businesses continue to provide net positive cash flow.
"I remain extremely proud of our people, who continue to deliver top-quality environmental and waste management solutions to our customers under challenging conditions. We are confident that with our resilient business model and strengthened financial platform, we are well positioned to succeed and emerge even stronger when the economy recovers."
Q3 2020 Financial Highlights(1)
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| Three Months Ended September 30 |
| Nine Months Ended September 30 |
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| 2020 | 2019 | Increase (Decrease) | % Change |
| 2020 | 2019 | Increase (Decrease) | % Change |
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Facilities revenue |
| 76 | 119 | (43) | (36) % |
| 249 | 350 | (101) | (29) % |
Energy marketing revenue |
| 203 | 420 | (217) | (52) % |
| 625 | 1,191 | (566) | (48) % |
Energy Services revenue |
| 279 | 539 | (260) | (48) % |
| 874 | 1,541 | (667) | (43) % |
Industrial Services revenue |
| 56 | 75 | (19) | (25) % |
| 164 | 194 | (30) | (15) % |
Intersegment eliminations |
| — | (3) | 3 | 100 % |
| (2) | (3) | 1 | 33 % |
Revenue |
| 335 | 611 | (276) | (45) % |
| 1,036 | 1,732 | (696) | (40) % |
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Revenue excluding energy marketing |
| 132 | 191 | (59) | (31) % |
| 411 | 541 | (130) | (24) % |
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Energy Services Divisional EBITDA(1) |
| 44 | 63 | (19) | (30) % |
| 132 | 178 | (46) | (26) % |
Industrial Services Divisional EBITDA(1) |
| 11 | 13 | (2) | (15) % |
| 27 | 31 | (4) | (13) % |
Divisional EBITDA(1) |
| 55 | 76 | (21) | (28) % |
| 159 | 209 | (50) | (24) % |
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G&A expenses |
| (10) | (11) | (1) | (9) % |
| (30) | (35) | (5) | (14) % |
G&A as a % of revenue (excl. energy marketing) |
| 8 % | 6 % | 2 % |
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| 7 % | 6 % | 1 % |
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Canada Emergency Wage Subsidy(2) |
| 11 | — | 11 | 100 % |
| 25 | — | 25 | 100 % |
Net profit (loss) |
| 11 | 10 | 1 | 10 % |
| (21) | 7 | (28) | (400) % |
- per share ($), basic and diluted |
| 0.10 | 0.09 | 0.01 | 11 % |
| (0.18) | 0.06 | (0.24) | (400) % |
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Adjusted EBITDA(1) |
| 56 | 65 | (9) | (14) % |
| 154 | 174 | (20) | (11) % |
- per share ($), basic |
| 0.49 | 0.56 | (0.07) | (13) % |
| 1.36 | 1.49 | (0.13) | (9) % |
- per share ($), diluted |
| 0.49 | 0.56 | (0.07) | (13) % |
| 1.35 | 1.48 | (0.13) | (9) % |
Adjusted EBITDA Margin(1) |
| 42 % | 34 % | 8 % |
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| 37 % | 32 % | 5 % |
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Maintenance capital additions |
| 5 | 9 | (4) | (44) % |
| 18 | 22 | (4) | (18) % |
Growth and expansion capital additions |
| 6 | 34 | (28) | (82) % |
| 26 | 65 | (39) | (60) % |
Capital additions |
| 11 | 43 | (32) | (74) % |
| 44 | 87 | (43) | (49) % |
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Discretionary Free Cash Flow(1) |
| 45 | 47 | (2) | (4) % |
| 71 | 81 | (10) | (12) % |
- per share ($), basic and diluted |
| 0.40 | 0.40 | — | — % |
| 0.63 | 0.69 | (0.06) | (9) % |
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Net Debt to Adjusted EBITDA (LTM)(1)(3) |
| 3.39 | 3.16 | 0.23 | 7 % |
| 3.39 | 3.16 | 0.23 | 7 % |
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Shares as at September 30 (000's of shares)(4) |
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Shares outstanding |
| 113,107 | 115,787 | (2,680) | (2) % |
| 113,107 | 115,787 | (2,680) | (2) % |
Weighted average shares - basic |
| 113,404 | 116,356 | (2,952) | (3) % |
| 113,529 | 117,101 | (3,572) | (3) % |
Weighted average shares - diluted |
| 113,715 | 116,640 | (2,925) | (3) % |
| 113,762 | 117,365 | (3,603) | (3) % |
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1. | Refer to Tervita's Q3 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 Q3 2020 MD&A. |
2. | Q3 2020 included $5 million related to employees in Energy Services, $4 million in Industrial Services, and $2 million in Corporate. YTD 2020 included $12 million related to employees in Energy Services, $9 million in Industrial Services, and $4 million in Corporate. Refer to Tervita's Q3 2020 MD&A for further information on CEWS. |
3. | Net Debt to Adjusted EBITDA (LTM) is at September 30, 2020 and 2019 and is based on the Last Twelve Months at that date. See Tervita's Q3 2020 MD&A and Q3 2019 MD&A for further definition and reconciliation. |
4. | As at October 29, 2020, the Company had 113,107,151 common shares and 2,713,100 stock options outstanding. Each option outstanding is exercisable for one common share. |
Tervita's results for the three and nine months ended September 30 excluding CEWS(1) were as follows:
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| Three Months Ended September 30 |
| Nine Months Ended September 30 |
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| 2020 | 2019 | Increase (Decrease) | % Change |
| 2020 | 2019 | Increase (Decrease) | % Change |
Adjusted EBITDA(1)(2) |
| 45 | 65 | (20) | (31) % |
| 129 | 174 | (45) | (26) % |
- per share ($), basic |
| 0.40 | 0.56 | (0.16) | (29) % |
| 1.14 | 1.49 | (0.35) | (23) % |
- per share ($), diluted |
| 0.40 | 0.56 | (0.16) | (29) % |
| 1.13 | 1.48 | (0.35) | (24) % |
Adjusted EBITDA Margin(1)(2) |
| 34 % | 34 % | — % |
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| 31 % | 32 % | (1) % |
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1. | Refer to Tervita's Q3 2020 MD&A for further information on CEWS. |
2. | 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 2020 MD&A. |
Outlook
Tervita's performance exhibited a strong recovery in the third quarter. Both the Energy Services and the Industrial Services business segments contributed to the recovery, which we expect to continue into the fourth quarter. We anticipate 2020 full year Adjusted EBITDA of approximately $210 million inclusive of approximately $27 million of CEWS.
Our Energy Services business is strongly underpinned by production related waste volumes in the Western Canadian Sedimentary Basin ("WCSB"). In April and May a significant decline in energy prices forced some producers to shut-in volumes exceeding one million barrels per day. Through June to September the price of WTI climbed and stabilized above US$40/bbl, and we believe the majority of the shut-in volumes have been returned to the market. In October 2020, the Alberta government announced the removal of production curtailments and, assuming current market conditions we anticipate the remaining shut-in production of approximately 300 thousand barrels per day to come back online, increasing production-based volumes and related revenues at our facilities. Revenue from drilling and completion activity has been impacted by the drop in drilling activity, and we expect the recovery of these activities will gradually improve throughout the remainder of the year while remaining at levels lower than a year ago.
Our Industrial Services business has been less impacted by the COVID-19 downturn. As exhibited by strong Q3 profitability, 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 Services business, specifically our project-based work, to continue to perform well 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.
SAFETY
The health and safety of our people, our customers and the communities in which we operate is our top priority. Our business continuity plan in response to the COVID-19 pandemic remains in effect to keep employees safe and healthy, assist our customers and ensure safe operations. We have a dedicated COVID-19 team that manages the continuity plan, implements proactive measures and keeps 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. 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 approximately $32 million on an annualized basis with approximately $23 million expected in 2020. The structural actions include items such as employee headcount reductions and location optimization throughout our network. In addition we 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.
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 are on track with our capital plan of $60 million for 2020 including approximately $25 million of maintenance capital. 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.
We actively monitor all of our assets to ensure they continue to meet our internal rates of return and generate positive cash flow, and that our service lines remain core to Tervita. During Q3 2020 we finalized the sale of our US assets to focus on growth within Canada, specifically in our Industrial Services division. While the exit from the US was not material to Tervita, it highlights our focus on capital efficiency and cost control.
As the environment continues to gradually improve 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 for the remainder of 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 through the quarter and recognized $11 million of benefit related to the program in Q3 2020, for a total of $25 million year-to-date. We will continue to monitor our eligibility for funding under the program, which was recently extended to the summer of 2021.
- We are well positioned to work closely with customers and government across British Columbia ("BC"), Alberta, and Saskatchewan to take advantage of the well abandonment and site rehabilitation program. Tervita is a prime contractor for the Alberta Orphan Well Association and an approved decommissioning contractor for the BC Oil & Gas Commission. With our environmental services business and the largest portfolio of landfills in Western Canada, we are working with producers and government agencies to submit applications for the early phases of these programs in all three provinces and have been awarded contracts in BC and Alberta. We are actively working with customers through the early phases of these programs in all three provinces and anticipate the positive benefit to Tervita of increased activity will be more heavily weighted towards late 2021 and 2022.
LIQUIDITY
We are well positioned with liquidity of $267 million of cash and unutilized capacity on our credit facility. We expect to generate $75 million of Discretionary Free Cash Flow in 2020 to further support our liquidity position through the remainder of the year. Tervita's senior secured revolving credit facility expires in June 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. We have commitments to increase our credit facility to $350 million and extend the maturity to two years from the effective date of the amended and restated credit facility, subject to the completion of the refinancing of our senior notes and satisfaction of other customary closing conditions. 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 continue to live within cash flow and expect to remain within our covenant thresholds.
2021
Looking forward to 2021, Tervita expects the positive momentum realized in Q3 to continue. Assuming the current economic environment, including approximately US$40/bbl WTI, improvement of oil and gas production toward pre-pandemic levels and general economic and industrial activity improvements associated with a steady reopening following the pandemic related shutdowns, the Company anticipates Adjusted EBITDA in 2021 to exceed 2020 Adjusted EBITDA excluding CEWS, driven by contributions from:
- The full year benefit from the approximately $32 million annualized structural cost savings instituted in Q2 2020 (savings expected for 2020 to be approximately $23 million);
- Continued benefit of the commercial, organizational and cost strategies implemented within our Industrial Services business; and
- Full year of operations at our Montney water disposal facility that has been fully operational servicing producers since the end of Q1 2020.
MD&A and Financial Statements
The Q3 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.
Third Quarter 2020 Conference Call
Tervita will host a conference call on Friday, October 30, 2020 at 7:00 a.m. MST to discuss the third 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 Friday, November 6, 2020 by dialing 888-390-0541 and using the pass code 063286#.
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: our anticipated full year 2020 guidance of Adjusted EBITDA, DFCF, and our guidance of 2021 Adjusted EBITDA excluding CEWS; 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 continued recovery of price levels and shut-in volumes; Tervita's expectations regarding the gradual improvement throughout the remainder of the year of drilling and completion activity; 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 its continued recovery; Tervita's expectations regarding the continued positive performance of of its Industrial Services segment, specifically project based work;, the Company's participation in, and benefits from, CEWS and the Federal Government's well abandonment and site rehabilitation program and that benefits derived from increased activity related to such programs will be more heavily weighted towards late 2021 and 2022; 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 successfully refinance our senior secured revolving credit facility and senior secured notes; 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.
Any financial outlook set forth in this news release, including anticipated Adjusted EBITDA, DFCF and Adjusted EBITDA margins for 2020, was approved by management as of the date of this news release to provide investors with an estimation of the outlook for Tervita for 2020 and onwards, where applicable, and readers are cautioned that any such financial outlook contained herein should not be used for purposes other than those for which it is disclosed herein. The prospective financial information set forth in this news release has been prepared by management. Tervita's management believes that the prospective financial information has been prepared on a reasonable basis, reflecting management's best estimates and judgements, and represents, to the best of management's knowledge and opinion, Tervita's expected course of action in developing and executing its business strategy and growth opportunities relating to its business operations. However, actual results may vary from the prospective financial information set forth in this news release. See above for a discussion of the risks that could cause actual results to vary. The prospective financial information set forth in this news release should not be relied on as necessarily indicative of future results.
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 Q3 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
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TERVITA CORPORATION 
