IBI Group Announces Q3 Earnings, Update on the Recovery Program, and Revised Revenue Guidance
TORONTO, Nov. 14, 2013 /CNW/ - IBI Group Inc. (the "Company") (TSX: IBG) today announced financial results for the three and nine months ended September 30, 2013.
Operating Results
The Company reported:
- Revenue for the three months ended September 30, 2013 of $38.8 million and revenue for the nine months ended September 30, 2013 of $210.1 million.
- EBITDA1 for the three months ended September 30, 2013 of $(49.6) million and EBITDA1 for the nine months ended September 30, 2013 of $(35.0) million.
- Net loss for the three months ended September 30, 2013 of $47.2 million and net loss for the nine months ended September 30, 2013 of $122.6 million.
Results for the third quarter of 2013 were impacted by the following Adjustment Items:
- Write down of unbilled work in process (WIP) of $35.0 million. This write down of WIP is reflected in the Company's income statement as a reduction of revenue for the third quarter of 2013.
- Write down of accounts receivable of $12.9 million. This write down of accounts receivable is reflected in the Company's income statement as an increase in other operating expenses for the third quarter of 2013.
During the quarter, the Company undertook a comprehensive review of unbilled WIP and accounts receivable balances. Changes to the factors that management used to assess its project balances included age, client, geographic location, time since last activity, and status of negotiation. Estimates related to the recoverability of the projects were reassessed under new management, and unbilled WIP and accounts receivable were identified as unlikely to be billed and collected. As a result of that review, the Company provided for $35.0 million of unbilled WIP and $12.9 million of accounts receivable to recognize the uncertainty of converting these balances to cash. The Company will continue to pursue these amounts for collection. Management is committed to reviewing estimates on an ongoing basis to assess the carrying value of WIP and accounts receivable.
Excluding the $35.0 million WIP and the $12.9 million accounts receivable Adjustment Items, IBI Group reported:
- Adjusted revenue1 for the three months ended September 30, 2013 of $73.8 million and adjusted revenue1 for the nine months ended September 30, 2013 of $245.1 million.
- Adjusted revenue1 of $73.8 million for the three months was impacted by the expense of approximately $10.5 million of unbilled WIP, recognized in 2013.
- Adjusted EBITDA1 for the three months ended September 30, 2013 of $(1.7) million and adjusted EBITDA1 for the nine months ended September 30, 2013 of $12.9 million.
- Adjusted net loss2 for the three months ended September 30, 2013 of $7.6 million and adjusted net loss1 for the nine months ended September 30, 2013 of $4.6 million.
"We had to make some difficult, but necessary, decisions this quarter," said Scott Stewart, Chief Executive Officer, IBI Group. "We are, however, very pleased with the Company's improvement in cash flow, attributable to improved collections, and the implementation of lasting efficiencies throughout the Company. The management team and our employees remain enthusiastic about our progress and committed to the new direction of the Company."
Management Comments
- The write downs of unbilled WIP and accounts receivable were based on new estimates related to recoverability of the projects. Projects were reassessed based on updated information, recent negotiations and expected collections. Management is committed to reviewing estimates on an ongoing basis to assess the carrying value of WIP and accounts receivable;
- In connection with the write downs of unbilled WIP and accounts receivable, the Company sought and received a waiver and amendment of certain terms under its third amended and restated credit agreement as described more fully in the MD&A
- The current level of the working capital tied up measured in gross billings is 120 days at September 30, 2013. The total decrease of 27 days compared to June 30, 2013 is comprised of a 27 day decrease in accounts receivable and unbilled WIP;
- Management has redoubled efforts to collect outstanding receivables and improve cash flow. Cash collections for the month of September hit a year high of $40.2 million, while cash outflows hit a year low of $32.0 million. Cash collections for the month of October rose more sharply to $48.0 million, while outflows were $36.0 million. This has resulted in a collective improvement in cash/net debt position of approximately $20.2 million for the two month period of September and October 2013;
- October collections were boosted by successful collections of older accounts. Going forward, Management will diligently pursue outstanding receivables and ensure the effective application of the reinforced policies on billings and collections;
- The Company's monthly operating costs on a go-forward basis have been reduced as a result of decreased compensation expenses, consolidation of operations, and cost reduction initiatives.
The results are summarized in the table below.
| (in thousands of dollars except for per share amounts) |
Three months ended September 30, 2013 (unaudited) |
Three months ended September 30, 2012 (unaudited) |
Variance | Nine months ended September 30, 2013 (unaudited) |
Nine months ended September 30, 2012 (unaudited) |
Variance | ||||||||||||
| Number of workings days | 63 | 62 | 1 | 188 | 188 | - | ||||||||||||
| Revenue | $ | 38,792 | $ | 86,809 | $ | (48,017) | $ | 210,136 | $ | 262,263 | $ | (52,127) | ||||||
| Net income (loss) | $ | (47,177) | $ | 2,704 | $ | (49,881) | $ | (122,560) | $ | 12,116 | $ | (134,676) | ||||||
| Basic and diluted earnings per share ("EPS")1 |
$ | (2.1218) | $ | 0.1250 | $ | (2.2468) | $ | (5.5369) | $ | 0.5999 | $ | (6.1368) | ||||||
| Write down of WIP and accounts receivable |
$ | 47,858 | - | $ | 47,858 | $ | 47,858 | - | $ | 47,858 | ||||||||
| Goodwill and intangible asset impairment |
- | - | - | $ | 79,601 | - | $ | 79,601 | ||||||||||
| Adjusted revenue1 | $ | 73,795 | $ | 86,809 | $ | (13,014) | $ | 245,139 | $ | 262,263 | $ | (17,124) | ||||||
| Adjusted net earnings (loss)1 | $ | (7,622) | $ | 2,704 | $ | (10,326) | $ | (4,552) | $ | 12,116 | $ | (16,668) | ||||||
| Basic and diluted adjusted earnings per share ("Adjusted EPS")1 |
$ | (0.3429) | $ | 0.1250 | $ | (0.4679) | $ | (0.2056) | $ | 0.5999 | $ | (0.8055) | ||||||
| Adjusted EBITDA1 | $ | (1,703) | $ | 9,402 | $ | (11,105) | $ | 12,854 | $ | 32,833 | $ | (19,979) | ||||||
| Adjusted EBITDA1 as a percentage of adjusted revenue1 |
(2.3%) | 10.8% | (13.1%) | 5.2% | 12.5% | (7.3%) | ||||||||||||
| Adjusted distributable cash1 | $ | (5,859) | $ | 4,868 | $ | (10,727) | $ | 751 | $ | 17,821 | $ | (17,070) | ||||||
| Adjusted payout ratio1 | 0% | 94.5% | (94.5%) | 307.6% | 89.6% | 218% | ||||||||||||
| Cash from (used in) operations |
$ | 1,213 | $ | 6,000 | $ | (4,787) | $ | (5,572) | $ | (4,940) | $ | (632) | ||||||
| Free cash flow1 | $ | 1,025 | $ | 893 | $ | 132 | $ | (11,123) | $ | (24,185) | $ | (13,062) | ||||||
| 1 See "Definition of Non-IFRS Measures" contained in the MD&A. | ||||||||||||||||||
The Company's consolidated financial statements and management's discussion and analysis are available in the Investors section of the Company's website at www.ibigroup.com and are also available on the website maintained by the Canadian securities regulatory authorities at www.sedar.com.
Key Priorities for the Fourth Quarter
The Company has undertaken a variety of initiatives as part of its previously announced Recovery Program. The key priorities for the fourth quarter are:
- Balance Sheet/Liquidity: The elimination of the Company's dividend, operational efficiencies, and lower compensation costs has improved cash flow. The Company continues to evaluate several options to address refinancing of the Company's 7.0% convertible debentures due December 31, 2014.
The Company's independent financial advisors are working with senior management to develop additional options to strengthen the Company's balance sheet and improve overall liquidity.
- Human Resources and Compensation: As of September 30, 2013, the Company reduced approximately 178 positions since December 2012. Compensation costs in the third quarter of 2013 were $3.0 million less than the second quarter of 2013 in line with management expectations.
- Operational Efficiency: The management team continues to integrate information systems, resulting in cost savings and better quality information. Senior management has worked to improve the level of coordination and integration among the Company's offices, improving productivity, while maintaining overall quality. Senior management has led a wide-ranging program to reduce overhead and administrative expenses throughout the Company.
- Growth: The Company will continue to prioritize organic growth over acquisitions. The Company is leveraging strategic hires to lead the firm into new markets.
Guidance for the Remainder of 2013
The following represents forward looking information and users are cautioned that actual results may vary. In light of the recent write downs, management is forecasting total adjusted revenue3 for the year ended December 31, 2013 of approximately $327 million on an annual basis, based on revenues for the year to date and the backlog of work.
The Company has approximately eight and a half months of backlog. (This is calculated on the basis of the current pace of work that the Company has achieved during the last 12 months ended September 30, 2013.)
This guidance should be read in conjunction with the Caution Regarding Forward Looking Information below and is subject to the risks and uncertainties summarized in that section, which are more fully described in the Company's public disclosure documents.
Caution Regarding Forward-Looking Information
Statements in this news release that describe the Company's or management's expectations, forecasts, guidance or estimates may constitute "forward-looking" statements, and such statements use words such as "may", "will", "expect", "believe", "plan" and other similar terminology. Forward-looking statements also include statements that are not historical facts. Forward-looking statements reflect management's current expectations regarding future events and operating performance and speak only as of the date of this news release. Forward looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company, IBI Group, or the industry in which they operate, to be materially different from any future results, performance or achievements expressed or implied by such forward looking statements. Although the Company believes that the assumptions inherent in the forward-looking statements are reasonable, such statements are not guarantees of future performance and actual results or developments may differ materially from those in forward-looking statements. Forward-looking statements involve a number of risks and uncertainties, including those related to: (i) IBI's ability to maintain profitability and manage its growth; (ii) IBI's reliance on its key professionals; (iii) competition in the industry in which IBI operates; (iv) timely completion by IBI of projects and performance by IBI of its obligations; (v) fixed-price contracts; (vi) the general state of the economy; (vii) acquisitions by IBI; (viii) risk of future legal proceedings against IBI; (ix) the international operations of IBI; * reduction in IBI's backlog; (xi) fluctuations in interest rates; (xii) fluctuations in currency exchange rates; (xiii) potential undisclosed liabilities associated with acquisitions; (xiv) upfront risk for time invested in participating in consortiums bidding on large projects; (xv) limits under IBI's insurance policies; (xvi) the Company's reliance on distributions from IBI Group LP and IBI Group and, as a result, its susceptibility to fluctuations in IBI's performance; (xvii) unpredictability and volatility of the price of the Company's shares; (xviii) the degree to which IBI is leveraged; (xix) the possibility that the Company may issue additional shares diluting existing shareholders' interests; and (xx) income tax matters. See "Risk Factors" discussed in the Company's Annual Information Form filed with the Canadian securities regulatory authorities. New risk factors may arise from time to time and it is not possible for management of the Company to predict all of those risk factors or the extent to which any factor or combination of factors may cause actual results, performance or achievements of the Company to be materially different from those contained in forward-looking statements. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results. Although the forward-looking statements contained in this annual information form are based upon what management believes to be reasonable assumptions, the Company cannot assure investors that actual results will be consistent with these forward-looking statements. These forward-looking statements are made as of the date of this news release, and the Company assumes no obligations to update or revise them to reflect new events or circumstances.
Investor Conference Call
The Company will hold a conference call on Friday November 15, 2013 at 8:30 a.m. Eastern Standard Time (EST). To participate in the conference call, please dial in before 8:30 a.m. EST to 1-800-906-5924 for local and toll-free North American access, or 1-416-641-6684 for international access.
An audio replay of the call will be available for 14 days, by dialing 416-626-4100 for local and international access, or 1-800-558-5253 for toll-free North American access, pass code 21683020 followed by the number sign on your telephone keypad.
1 See "Definition of Non-IFRS Measures" contained in the MD&A.
SOURCE: IBI Group Inc.
Tony Long, CFO
IBI Group Inc.
230 Richmond Street West, 5th Floor
Toronto, ON
M5V 1V6
Tel: 416-596-1930
Media:
Riyaz Lalani
Bayfield Strategy, Inc.
416-907-9365
[email protected]
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