Vertex Resource Group Ltd. Announces Third Quarter Results

Revenue of $41.4 million, EBITDA of $6.1 million and net income of $6.5 million for third quarter 2018.
Revenue of $103.8 million, EBITDA of $14.7 million and net income of $1.9 million for nine months ending September 30, 2018.

SHERWOOD PARK, AB, Nov. 26, 2018 /CNW/ - (TSXV:VTX) - Vertex Resource Group Ltd. ("Vertex" or the "Company") reports its financial and operational results for the three and nine months ending September 30, 2018. The following should be read in conjunction with the Management Discussion and Analysis ("MD&A") and the consolidated financials statements and notes of Vertex for the three and nine months ended September 30, 2018, which are available on SEDAR at www.sedar.com.

FINANCIAL AND OPERATIONAL HIGHLIGHTS
Key financial and operational highlights for the three and nine months ending September 30, 2018 and 2017 are as follows:

	Three months ended			Nine months ended
(in thousands of Canadian Dollars, except per share	September 30,			September 30,
amounts or unless otherwise stated)	2018	2017		2018	2017
Revenue	41,425	34,989		103,803	82,647
Gross profit	10,935	9,293		28,463	23,775
Income (loss) before income taxes	6,132	(263)		1,527	(1,744)
Net income (loss) and comprehensive income (loss) for the period	6,506	(198)		1,861	(1,245)
Net income (loss) and comprehensive income (loss) for the period per share - basic and diluted	0.07	(0.00)		0.02	(0.02)
Weighted average number of shares outstanding for the purpose of calculating earnings per share - basic and diluted	90,942,245	82,713,426		89,361,104	73,585,657
EBITDA by segment
Environmental Services	6,788	4,246		15,325	11,734
Industrial Services	920	1,995		3,716	3,481
Corporate Services	(1,632)	(1,193)		(4,370)	(3,616)
EBITDA ^(1)	6,076	5,048		14,671	11,599
EBITDA per share, basic and diluted	0.07	0.06		0.16	0.16
Gross profit (% of revenue)	26%	27%		27%	29%
EBITDA (% of revenue)	15%	14%		14%	14%

(1)	Net income increased due to bargain purchase gains of $6.8 million.
(2)	See "Non-IFRS Financial Measures"

HIGHLIGHTS FOR THE THREE AND NINE MONTHS ENDING SEPTEMBER 30, 2018
The results for the three and nine months ended September 30, 2018 highlighted increased revenue, gross profit, EBITDA and net income as compared to the corresponding periods of 2017. Net income increases were largely attributed to bargain purchase gains of $6.8 million on acquisitions completed in the last two quarters.

Vertex experienced positive results for the quarter and expects the trend of improved revenues to continue into the remainder of 2018. The improved results are due to acquisition impacts, and organic growth in certain services lines that led to improved utilization. To date in 2018, Vertex has focused on integrating acquisitions, while pursuing cross selling and utilization initiatives between business segments and industries to promote organic growth. Vertex continues to provide and has expanded upon its diverse service offerings to address the environmental needs of its current and potential customers. 

Highlights for the third quarter of 2018 compared to the third quarter of 2017 and the nine months ending September 30, 2018 as compared to the nine months ending September 30, 2017 were:

• Revenue increased by $6.4 million to $41.4 million or by 18.4% in the third quarter 2018 from $35.0 million for the same quarter of 2017.  Revenue increased by $21.2 million to $103.8 million or by 25.6% in the nine months ending September 30, 2018 from $82.6 million for the same nine months of 2017.  Growth in revenue is attributable to recent acquisitions, rebounds in customer spending in Vertex's targeted segments, cross-selling and utilization strategies between segments and industries that resulted in greater demand for the Company's services offset by revenue reductions in its Industrial division and certain service lines where activities were reduced by unusually poor weather in September that resulted in project delays.
  
  
• Gross profit for the third quarter of 2018 was $10.9 million, up 17.7% or $1.6 million from $9.3 million in the same quarter of 2017. Gross profit as a percentage of revenue ("gross profit margin") was 26.4% in the third quarter of 2018 compared to 26.6% in the same quarter of 2017.  Gross profit for the nine months ending September 30, 2018 was $28.5 million, up 19.7% or $4.7 million from $23.8 million in the same nine months of 2017. Gross profit margin decreased slightly to 27.4% in the nine months ending September 30, 2018 versus 28.8% in the same nine months of 2017, due to revenue mix.
  
  
• General and administrative costs ("G&A") increased by 14.5% or $0.7 million to $4.9 million in the third quarter of 2018, from $4.2 million in the third quarter of 2017 as Vertex has incurred additional costs with acquiring several businesses and costs of being a public company. G&A as a percentage of revenue was down to 11.7% in the nine months ending September 30, 2018 versus 12.1% in the same nine months of 2017. As a percentage of revenue, G&A was down to 13.3% in the nine months ending September 30, 2018 versus 14.7% in the same nine months of 2017. Vertex continues to aggressively control G&A through integrating acquisitions.
  
  
• EBITDA for the third quarter of 2018 was $6.1 million, an increase of 20.4% compared to $5.0 million in the third quarter of 2017.  This increase was driven by Vertex's Environmental Services segment, and specifically by the impact of acquisitions, as compared to the third quarter of 2017. EBITDA for the nine months ending September 30, 2018 was $14.7 million, an increase of 26.5% compared to the same nine months of 2017. The Environmental Services segment increased Vertex's EBITDA through consistent project execution and acquisition impacts.
  
  
• Net income for the third quarter of 2018 increased by $6.7 million, over the third quarter of 2017. Net income for the nine months ending September 30, 2018 increased by $3.1 million, to income of $1.9 million, from a $1.2 million loss in the same nine months of 2017.  The increase in net income is largely attributable to bargain purchase gains on acquisitions that occurred in the second and third quarters of 2018.
  
  
• Cash generated from operating activities increased by $8.3 million to $4.5 million for the nine months ending September 30, 2018, as compared to cash used in operating activities of $3.8 million for the nine months ending September 30, 2017.  Increased revenue and acquisitions in the third quarter of 2018 resulted in improved cash generated from operating activities compared to the third quarter of 2017. 
  
  
• Vertex completed the complementary acquisition of Three Star Trucking Ltd. within Vertex's Environmental Services segment on July 12, 2018 for aggregate fair value consideration of $7.7 million and a bargain purchase gain of $6.6 million. All acquisitions completed during 2018 have improved the Company's financial results, service offerings and geographical footprint resulting in Vertex's increased ability to serve its customers and increasing shareholder value.

OUTLOOK
Headed into the last quarter of 2018 and into 2019, Vertex is well positioned to withstand short term economic pains in Western Canada. This view is based on recent acquisitions that have been purchased prudently and are exceeding expectations, the fact that Vertex was profitable in the third quarter and nine months ending September 30, 2018, and because positive trends in revenue, gross margin, EBITDA and net income are expected to continue in the future.  The nine complementary acquisitions completed throughout the last eighteen months are now positively adding to the Company's financial position. These acquisitions allow Vertex to cross utilize people and equipment to service its existing customer base within and outside the oil and gas industry.

Vertex continues to be impacted negatively by macro economic trends and investment uncertainty within the oil and gas industry. Customer budgets, cash flow and activity levels are being affected by the crude oil differentials which results in uncertainty beyond the first quarter of 2019.  Vertex is being challenged by margin pressures but is encouraged by ongoing dialogue regarding pricing with its customers. As Vertex obtains further clarity from clients as to their maintenance, operating and capital budgets for the coming year, Vertex will be able to better forecast its own outlook for 2019. Preliminary feedback on activity levels for early 2019 indicates a continuation of recent positive trends specifically a potential improvement in activity levels related to opportunities outside of the oil and gas industry and opportunities related to significant demand for moving oil by trucks.

Vertex anticipates increases in future activity levels with the recent LNG major project approvals and new oil sand developments as it will be able to capture and benefit from existing relationships within the region to offset any negative impacts of the differentials on Canada's commodity pricing and potential reduction in drilling and completions in western Canada in the fourth quarter of 2018 and the first two quarters of 2019.  Vertex continues to gain momentum in pursuing its customer diversity strategy whereby Vertex customers continue to grow and provide stable opportunities in the utilities, agriculture, municipalities and telecommunications industries.

Despite the overall negative short-term macro economic backdrop, Vertex continues to be encouraged by growth opportunities in its Environmental Services segment through abandonments, new emissions regulations, fluid hauling and environmental liability management for its customers both in western Canada and the United States heading into the last quarter of 2018. Vertex continues to focus on addressing the demands of its diversified customer base and addressing opportunities to capitalize directly on the operating and maintenance budgets of all its customers. The Company continues to serve and expand its customer base by providing its services to customers outside of the oil and gas industry however, given the recent acquisitions in 2018, impacts from the oil and gas industry and larger macro industrial trends will be felt for the foreseeable future. Vertex will continue to focus on growing its business organically, achieving efficiencies and cost reductions throughout its operations. Vertex continues to focus on the integration of recent acquisitions, cross-selling complementary services between segments in order to lower customers' costs and provide integrated solutions for the environmental liabilities of its customers.

Vertex continues to focus on paying down debt, de-leveraging through acquisitions, reducing its overall cost of borrowing, managing working capital and evaluating its capital expenditure plans to match core and strategic opportunities. Accretive, complementary and opportunistic acquisitions remain an essential component of Vertex's long-term growth plans and it continues to integrate acquisitions and evaluate future opportunities when beneficial. Vertex is committed to further improving its operational and financial performance while ensuring that it is creating shareholder value for the longer term.

ABOUT VERTEX
Established in 1976, Vertex has grown to become a leading provider of environmental services. Headquartered in Sherwood Park, Alberta, Vertex employs a staff of approximately 700 employees and lease operators that provide services to help clients achieve their development goals. From initial site selection, consultation and regulatory approval, through construction, operation and maintenance, to conclusion and environmental cleanup, Vertex provides a wide array of services to customers operating in industries such as upstream and midstream oil and gas, utilities, telecommunication, forestry, agriculture and government.

Vertex principally operates in western Canada and in select locations in the United States.

NON-IFRS FINANCIAL MEASURES
This news release includes certain terms or performance measures that are not defined under International Financial Reporting Standards ("IFRS"), including "EBITDA". The data presented is intended to provide additional information that should not be considered in isolation or as a substitute measure of performance prepared in accordance with IFRS. The non-IFRS measures should be read in conjunction with the Company's financial statements and accompanying notes.

"EBITDA" is defined as net loss before interest, income taxes, depreciation and amortization. EBITDA is a non-IFRS measure, calculated by adding back to net income (loss) the sum of income taxes, finance costs, amortization of property and equipment and intangible assets. The Company uses EBITDA as an indicator of its principal business activities prior to consideration of how its activities are financed and the impact of taxation and non-cash depreciation and amortization. EBITDA does not have a standardized meaning prescribed by IFRS and is not necessarily comparable to similar measures provided by other companies. EBITDA is used by many analysts as one of several important analytical tools and management of Vertex believes it is useful for providing readers with additional clarity on Vertex's operational performance prior to consideration of how its activities are financed, taxed, amortized or depreciated. This measure is also considered important by the Company's lenders and is adjusted in determining compliance by the Company with the financial covenants under its lending arrangements. Please refer to the MD&A under the heading "Financial Highlights – EBITDA" for a reconciliation of EBITDA to net income for the three and nine-month periods ended September 30, 2018 and 2017.

FORWARD-LOOKING INFORMATION
Any "financial outlook" or "future oriented financial information" in this press release, as defined by applicable securities laws, has been approved by management of Vertex. Such financial outlook or future oriented financial information is provided for the purpose of providing information about management's current expectations and plans relating to the future. Readers are cautioned that reliance on such information may not be appropriate for other circumstances.

Certain statements contained in this news release, such as the Company's expectations regarding its results and the impact of its cost controls, and diversification efforts for the remainder of the year, constitute "forward-looking information" as such term is used in applicable Canadian securities laws. Forward-looking information is based on plans, expectations and estimates of management at the date the information is provided and is subject to certain factors and assumptions, including, that the Company's financial condition and development plans do not change as a result of unforeseen events, that the Company's expectation regarding the impact of its cost controls and diversification efforts are accurate and assumptions regarding future commodity prices, exchange rates and demand for the Company's services. Forward-looking information is subject to a variety of risks and uncertainties and other factors that could cause plans, estimates and actual results to vary materially from those projected in such forward-looking information. Factors that could cause the forward-looking information in this news release to change or to be inaccurate include, but are not limited to, the risk that any of the assumptions referred to prove not to be valid or reliable, that occurrences such as those referred to above are realized and result in delays, or cessation in planned work, that the Company's financial condition and development plans change, as well as the other risks and uncertainties applicable to the provision of environmental and industrial services and to the Company as set forth in the Company's Annual Information Form filed under the Company's SEDAR profile at www.sedar.com. The Company undertakes no obligation to update these forward-looking statements, other than as required by applicable law.

Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this press release.

SOURCE Vertex Resource Group Ltd.

For further information: Terry Stephenson, CEO, or Michael Zvonkovic, CFO at 780-464-3295

Related Links

www.vertex.ca