Fort St. John, British Columbia--(Newsfile Corp. - May 21, 2020) - Macro Enterprises Inc. (TSXV: MCR) (the "Company" or "Macro") is pleased to announce its first quarter results for 2020.
| Summary of financial results (thousands of dollars except per share amounts) | ||||||||
| Three months ended March 31 | ||||||||
| 2020 | 2019 | |||||||
| (unaudited) | (unaudited) | |||||||
| Revenues | $ | 44,451 | $ | 121,626 | ||||
| EBITDA1 | 5 768 | 13,462 | ||||||
| Net earnings | 1,409 | 6,893 | ||||||
| Net earnings per share | $ | 0.05 | $ | 0.23 | ||||
| Weighted average common shares outstanding (thousands) - basic | 31,103 | 30,438 | ||||||
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
- Total working capital as at March 31, 2020 was $53.0 million of which the Company's net cash position of total long-term debt was $19.9 million.
- The Company is reporting shareholders' equity of $116.4 million or $3.74 per share based on the weighted average common shares outstanding as at March 31, 2020.
- Assuming that the current pandemic is brought under control and business resumes as usual, the Company expects revenue to exceed $200.0 million in fiscal 2020. This estimate does not provide for any amounts for Trans Mountain Pipeline, core maintenance and integrity business beyond 90 days after year end, outstanding bid work for prospective pipelines and facilities projects or any anticipated changes to scope for construction on existing work.
First quarter results
Three months ended March 31, 2020 vs. three months ended March 31, 2019
Macro Enterprises Inc. posted consolidated revenue of $44.5 million compared to $121.6 million reported first quarter last year. The material decrease in revenues during the quarter was anticipated given the conclusion of a number of significant projects in fiscal 2019 and a general decrease in core business due to the global COVID-19 health pandemic and market uncertainty. Approximately 84% or $37.5 million of the revenue earned related to pipeline and facilities construction with the balance or $6.9 million relating to maintenance and integrity services being performed under existing master service agreements. Approximately 53% of revenue recognized for the quarter ended March 31, 2020 was from joint operations on the Coastal GasLink Pipeline project and the Trans Mountain Expansion project. Prior year revenue relating to pipeline and facilities construction was approximately 90% or $110 million while the balance related to maintenance and integrity revenues. The majority of revenue recognized in the first quarter of prior year related to the North Montney Pipeline project that concluded in fiscal 2019.
Operating expenses were $39.6 million or 89% of revenue compared to $105.6 million or 87% of revenue in the first quarter last year. As discussed in the prior year's fourth quarter analysis, the Company continued to incur additional costs and overheads while maintaining its current scale of operations which resulted in compressed margins. Moreover, in the very near term, the Company expects margins to further compress as a result of the global Covid-19 health pandemic, sustained demand destruction and commodity price volatility. The Company will actively monitor and streamline its overheads and processes to the maximum extent possible to ensure savings are realized while maintaining the highest degree of health, safety and environmental standards possible.
General and administrative expenses were $1.9 million, up $0.6 million from the $1.3 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. The Company plans to reduce its spending on administration costs to match the temporary decline in general core business further preserving its balance sheet during this period of uncertainty.
Depreciation of property, plant and equipment was $4.1 million and $0.6 million higher than in the previous year. The increase in depreciation directly correlated to the added property, plant and equipment acquired in prior years along with the recognition of 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. In order to preserve its balance sheet during the current market uncertainty, the Company will limit its near-term capital expenditures.
During the first quarter the Company recognized a non-cash gain of $2.8 million on the mark-to-market fair value re-measurement of its preferred shares at period end. The gain recognized corresponds with the material decrease in the Company's share and its impact on the valuation of the preferred shares outstanding at March 31, 2020.
During the first quarter the Company recognized non-cash stock-based compensation charges of $171,000. The Company anticipates recognizing an additional $0.3 million in stock-based compensation charges amortized over the remaining vesting period of the options outstanding. The non-cash stock-based compensation charge relates to options granted in August 2019 and December 2018.
Finance costs of $0.8 million were lower than due to the adjustments the Company recognized under IFRS 16 right of use asset lease obligations and the associated implicit interest charges, the amortization of deferred finance costs recorded on its credit facilities and the issuance of its 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 recovery in the quarter of $0.5 million was at an effective rate of 27.1% which approaches the enacted tax rates after reversing non-cash charges, namely the mark-to-market gain on the preferred shares, and other timing differences.
Net income was $1.4 million ($0.05 per share) compared to net income of $6.8 million ($0.23 per share) recognized during the three months ended March 31, 2019. EBITDA was $5.8 million compared to $13.5 million recognized during the three months ended March 31, 2019. As a result of decreased activity and compressed margins, significant non-cash adjustments including mark-to-market gains and depreciation, the Company's net income and EBITDA were adversely impacted compared to prior years.
Outlook
Presently, the Company's ability to provide reliable outlook guidance for the 2020 fiscal year is materially impaired due to the prevailing uncertainty about the short and long term economic and geo-political effects of the current COVID-19 pandemic and the coincident collapse of oil and gas prices. Despite this, the Company will continue to work when it can and ensure it will take all necessary steps to maintain and preserve its balance sheet during this potentially prolonged period of uncertainty.
When the pandemic is brought under control to the extent that the businesses on which the Company's operations are dependent are relieved of the current pandemic emergency measures such that they are able to resume customary operations, and if the projects under contract continue as anticipated, then, based on its current committed back log of business which includes pipeline maintenance and integrity work underway, ongoing facilities construction and its proportionate share of the Coastal GasLink Pipeline project, the Company would expect revenue to exceed $200 million in fiscal 2020. This amount does not include any amounts for the commencement of the Trans Mountain pipeline expansion nor does it include any additional large project bid work for prospective pipeline construction and facilities jobs nor anticipated increases to the scope of construction on existing projects. There are no immediate near term needs for the Company to spend any capital on property, plant and equipment.
Joint Venture Update:
The Company and its joint venture with Spiecapag Canada Corp. are currently undertaking construction activities for pipeline construction services on the Coastal GasLink Pipeline Project that consists of approximately 166 kilometers of a 48 inch pipeline. Construction commenced in Q1 2019. On June 18, 2019, the Government of Canada announced its approval of the Trans Mountain pipeline expansion project, a crucial next step for the much-delayed pipeline project designed to carry oil from Alberta to British Columbia. The federal cabinet affirmed the National Energy Board's conclusion that the project is in the national interest of Canada, having the potential to contribute tens of billions of dollars to the economy, and create and sustain thousands of jobs. The Company and its 50% joint venture partner continue working with its client to satisfy permitting and scheduling requirements. Previously, the Company reported that it expected to receive notice to proceed with construction in the first half of 2020. However, to date, the Company has not received any notifications for work to proceed nor have there be any commitments to timelines for construction to commence.
Company Activities:
- 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., which is part of NGTL's North Montney Mainline Project. Substantial completion has now been achieved and in-service scheduled for the second quarter of 2020.
- The Company secured new facility construction projects during the quarter that aggregate in value in excess of $50 million of new work to be performed in fiscal 2020. Some of this work has not yet commenced and may be impacted due to current uncertainty.
- The Company remains actively bidding and estimating costs on projects for its larger clients and anticipates both construction and core maintenance work continuing in the near to mid-term.
The continuation of these activities is subject to successfully resolving any near term and long term economic or market effects of the global pandemic outbreak of COVID-19 and the significant geo-political events impacting current commodity prices.
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 the Company's Press Release for its quarter ended March 31, 2020, other than statements of historical fact, may include statements of forward-looking information. The Company cautions that such forward-looking statements are based on the beliefs, estimates and opinions of the Company's management on the date the statements are made, and they involve a number of risks and uncertainties. Although the Company believes that such statements are reasonable, it can give no assurance that such expectations will prove to be correct; and, consequently, all such statements are expressly qualified by this cautionary statement.
Forward-looking information includes, without limitation, statements regarding the adverse impacts on the Company's business due to the current COVID-19 pandemic and collapse of oil and gas prices, statements regarding expected revenues, anticipated project margins, expected general and administrative expenses, anticipated amounts of property and equipment purchases, the sufficiency of working capital, expectations regarding debt and equity financing and anticipated industry trends.
The associated risks and uncertainties include, but are not restricted to, economic and geopolitical disruptions caused by epidemics and other public health crises (such as the current COVID-19 pandemic), geopolitical instability causing significant volatility in oil and gas prices, government regulation of energy and resource companies and related infrastructure, construction disruptions caused by adverse weather, inability to maintain and increase market share due to competitive pressures, terrorist activity, the price and availability of alternative fuels leading to a reduction in demand for oil and gas, the demand for relative to the availability of pipeline capacity, adverse impacts on the supply and prices of oil and gas product due to potential instability or armed conflict in oil producing regions and the overall economic environment.
More specifically with respect to epidemics and other public health crises, such as the current COVID-19 pandemic, the risks and uncertainties faced by the Company include risks to supply chains, key project partners, and employee health and safety. The Company's business could also experience a slowdown or temporary suspension in operations in geographic locations impacted by an outbreak of a contagious disease such as COVID-19. Any prolonged restrictive measures put in place by governmental authorities in order to contain such an outbreak (e.g. international travel restrictions) or other adverse public health development, in Canada, or in any other jurisdictions upon which the Company is reliant for supplies of construction materials, equipment or professional services, may have a material and adverse effect on the Company's financial and/or operating performance. Any delay in the completion of the Company's construction projects may require the Company to incur non-compensable costs such as standby time and for overtime work necessary to meet contracted project timelines.
All of the above-described risks and uncertainties may cause actual results and future events to differ materially from the information contained herein. Consequently, there can be no assurances that the Company's forward-looking statements will prove to be accurate. Except as required by the laws and stock exchange policies to which the Company is subject, the Company assumes no obligation to update its forward-looking statements should circumstances or management's estimates or opinions change. Readers are urged to refer to the Company's reports, publicly available through the Canadian Securities Administrators' System for Electronic Document Analysis and Retrieval (SEDAR) at www.sedar.com for additional information regarding the risks and uncertainties associated with the Company's business.
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.
To view the source version of this press release, please visit https://www.newsfilecorp.com/release/56331
