Macro Enterprises Inc. Announces 2019 First Quarter Results
Newsfile Corp.
Fort St. John, British Columbia--(Newsfile Corp. - May 27, 2019) - Macro Enterprises Inc. (TSXV: MCR) (the "Company" or "Macro") is pleased to announce its first quarter results for 2019.
Summary of financial results (thousands of dollars except per share amounts)
Three months ended March 31
2019
2018
(unaudited)
(unaudited)
Revenues
$ 121,626
$ 8,799
EBITDA1
13,462
(1,315)
Net (loss) earnings
6,893
(2,254)
Net (loss) earnings per share
$ 0.23
$ (0.07)
Weighted average common shares outstanding (thousands) - basic
30,438
30,253
Note 1 - References to EBITDA are to net income from continuing operations before interest, taxes, amortization and impairment charge. EBITDA is not an earnings measure recognized by International Financial Reporting Standards ("IFRS") and does not have a standardized meaning prescribed by IFRS. Management believes that EBITDA is an appropriate measure in evaluating the Company's performance. Readers are cautioned that EBITDA should not be construed as an alternative to net income (as determined under IFRS) as an indicator of financial performance or to cash flow from operating activities (as determined under IFRS) as a measure of liquidity and cash flow. The Company's method of calculating EBITDA may differ from the methods used by other issuers and, accordingly, the Company's EBITDA may not be comparable to similar measures used by other issuers
Highlights
The Company continues to materially exceed industry standard safety averages. As at March 31, 2019 Macro Enterprises has now exceeded 23 quarters without a single lost time injury.
The Company generated $13.8 million in positive cash flows from operations before taxes paid and changes for non-cash working capital items compared to negative ($1.6) million prior year.
Total working capital as at March 31, 2019 was $46.2 million of which the Company's net cash position of current debt was $29.9 million.
The Company is reporting shareholders' equity of $96.0 million or $3.15 per share based on the weighted average common shares outstanding as at March 31, 2019.
The Company expects revenue to exceed $350.0 million in fiscal 2019.
Subsequent to period end, the Company finalized its new $145 million senior secured credit facilities.
First quarter results
Three months ended March 31, 2019 vs. three months ended March 31, 2018
Macro Enterprises Inc. posted consolidated revenue of $121.6 million compared to $8.8 million reported first quarter last year. The material increase in revenues during the quarter was anticipated as a result of a number of projects continuing from late prior year. Approximately 90% or $110.1 million of the revenue earned related to pipeline and facilities construction with the balance or $11.5 million relating to maintenance and integrity services being performed under existing master service agreements. Revenue recognized for the quarter ended March 31, 2019 included revenue from its joint operations on the Coastal GasLink Pipeline project and the Trans Mountain Expansion project, although revenues were not yet substantial and accounted for less than 10% of total revenue. Prior year revenue relating to maintenance and integrity was approximately 91% or $8.0 million while the balance related to pipeline and facilities construction.
Operating expenses were $105.7 million or 87% of revenue compared to $9.3 million or 106% of revenue in the first quarter last year. As discussed in the prior year's fourth quarter analysis, equipment and maintenance costs increased and impacted margins accordingly. However, going forward, operational efficiencies are anticipated which will lead to performance improvements and an uptick in margins to be achieved. All aspects of operations will continue to be monitored and streamlined to ensure savings are realized while maintaining the highest degree of health, safety and environmental standards possible.
General and administrative expenses were $1.3 million, up $0.2 million from the $1.1 million recorded prior year. The increase was expected and was a result of additional spending maintained to accommodate its larger projects and various other expenditures relating to its joint operations. Included in the Company's general and administrative expenditures are professional fees, corporate wages, burdens and other overheads, including rents, insurance, travel and administrative supplies that are not charged directly to projects.
Depreciation of property, plant and equipment was $3.5 million and significantly higher than in the previous years. The increase in depreciation directly correlated to the $23.3 million in new capital assets acquired in the prior year along with the recognition of $37.2 of the newly accounted for right to use assets under lease during the period. Depreciation is calculated at various declining balance methods across the Company's multiple categories of property, plant and equipment and is used in guiding the annual capital expenditure estimates. Residual values, methods of amortization and useful lives of the assets are reviewed annually and adjusted if appropriate. Based on the substantial value associated with its Right to Use Assets the Company anticipates a sustained increase to its total depreciation charges incurred.
During the first quarter the Company recognized a non-cash loss of $843,000 on the mark-to-market fair value re-measurement of its preferred shares at period end. The loss adjustment is indicative of 20.4% increase to the Company's net book value over the prior reported period.
During the first quarter the Company recognized non-cash stock-based compensation charges of $322,000. The Company anticipates recognizing an additional $1.3 million in stock-based compensation charges amortized over the next 6 quarters. The non-cash stock-based compensation charge relates to options granted in December 2018.
Finance costs of $1,263,000 were substantially higher than prior year due to the Company recognizing under IFRS 16 $37.2 million in right to use asset lease obligations and the associated implicit interest along with the amortization of deferred finance costs on its credit facilities and the issuance of $76 million in letters of credit relating to contract financial assurances. In addition to the non-cash deferred transaction costs, interest charges, standby and admin fees associated with the Company's credit facility, other finance costs included $41,000 of effective interest rate payments made on its preferred shares.
Income tax expense in the quarter of $1.8 million was at an effective rate of 20.7% which approaches the enacted tax rates of 27% after reversing non-cash charges and timing differences.
Net income was $6.8 million ($0.23 per share) compared to a net loss of $2.3 million (($0.07) per share) recognized during the three months ended March 31, 2018. Significant construction activity levels were sustained throughout the quarter, however, as expected the Company's margins were impacted by increased equipment and maintenance costs which in turn pressured bottom line results. Also impacting net income were other non-cash charges including a mark-to-market adjustment on its preferred shares and stock-based compensation.
Outlook
The Company expects significant activity levels to continue in 2019 and beyond as a result of its joint venture activities and the Company's focus on its blue chip pipeline owners and operators with their construction and maintenance programs across Canada.
With respect to the Trans Mountain Expansion Project, the Company and its 50% joint venture partner are in contact with the key stakeholders and continues to await its notice to proceed with Spread 5B, that was awarded in 2017 and consists of approximately 85 kilometers of 36 inch pipeline along the Coquihalla-Hope corridor in British Columbia. Construction is expected to last two years, with field construction to commence once the regulatory requirements for construction of the project have been satisfied. The contract is reimbursable with preliminary scoping, planning and scheduling continuing however the exact timing on the commencement is still not yet determinable.
The Company and its joint venture with Spiecapag Canada Corp. have a contract with Coastal GasLink Pipeline Limited Partnership for pipeline construction services on the Coastal GasLink Pipeline Project that consists of approximately 166 kilometers of a 48 inch pipeline. In general, the civil work will be performed under a reimbursable type contract model while the mechanical scope will be performed under unit rates. Construction has now commenced and the current in-service date of for Coastal GasLink pipeline is scheduled for Q4 2021.
In April 2019, the Company achieved substantial completion of the Aitken Creek Section - Spread 2 of the North Montney Mainline Project that consistrf of approximately 67 km of NPS 42-inch pipeline and related facilities. The contract was a unit rate type contract with upfront milestone payments made to fund initial working capital requirements.
In September 2018, the Company announced that it had been awarded a construction contract for the Groundbirch Compressor Station, a two-unit greenfield compressor station located near Dawson Creek, B.C., that is part of NGTL's North Montney Mainline Project. Work continues on the lump-sum contract which has an initial contract value in excess of CAD$37 million and has a substantial completion date planned in Q3 2019.
In May 2019, the Company announced that it had been awarded a construction contract for the Saturn Compressor Station, a single-unit greenfield compressor station located near Dawson Creek, B.C., that is part of NGTL's North Montney Mainline Project. Work commenced on the lump-sum contract in early May 2019, with a substantial completion and in-service scheduled for the second quarter of 2020.
The Company remains very active bidding and estimating costs on projects for its larger clients and anticipates a sustained increase in both construction and core maintenance work in the near to mid-term. With its increased core construction activity levels, the substantial completion of construction on the North Montney Mainline pipeline project, the Groundbirch and Saturn Compressor Stations, along with construction proceeding on the Coastal GasLink pipeline project, the Company's revenue forecast for 2019 will exceed CAD $350 million. Margins will stabilize and potentially improve with efficiencies being achieved by end of year. The Company will invest up to an additional $35 million in new capital expenditures for the year. The forecast revenue for 2019 does not contain any provisions for the Trans Mountain Expansion project.
Macro's core business is providing pipeline and facilities construction and maintenance services to major companies in the oil and gas industry. The Company is based in Fort St. John, B.C. Its shares are listed on the TSX Venture Exchange under the symbol MCR. Information on the Company's principal operating unit, Macro Industries Inc., can be found at www.macroindustries.ca.
Forward Looking Statements
Certain statements in this news release regarding the expected terms, closing and intended use of the new credit facilities may include forward-looking information that involves various risks and uncertainties. These risks and uncertainties include the risk that by reason of oil prices, global economic conditions, government regulation of energy and resource companies, weather patterns, terrorist activity, the price and availability of alternative fuels, the availability of pipeline capacity, potential instability or armed conflict in oil-producing regions, material changes in the Company's affairs, the results of due diligence investigations or other circumstances leading to a lack of appetite for the provision of the credit facilities on the part of the prospective lenders, the announced credit facilities are reduced in scope or are not advanced. They also include the risk that the Company is not the successful bidder or is otherwise not able to realize on potential growth opportunities identified by it. These risks and uncertainties may cause actual results to differ from information contained herein, and there can be no assurance that such forward-looking statements will prove to be accurate. These statements are based on the commitment letter in place and the expectations of management on the dates they are made and are expressly qualified in their entirety by this notice. Except as required by law, the Company assumes no obligation to update forward-looking statements should circumstances or management's expectations change.
For further information please contact:
Frank Miles President and C.E.O. Phone: (250) 785-0033
Jeff Redmond Chief Financial Officer (250) 785-0033
Neither 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 release.
