Dexterra Group Announces Results for Q2 2022 and Declares Dividend
Revenue of $233.9 million for Q2 2022 increased $60.3 million, or 35%, compared with Q2 2021 and $9.9 million or 4% compared to Q1 2022. The increase of revenue in Q2 2022 is primarily attributed to the execution of growth plans in IFM and WAFES, including the additional revenue of $24.9 million generated through the acquisitions of FCPI Dana Investments Inc. ("Dana") and Tricom Group ("Tricom") as well as an increase in WAFES revenue due to increased activity levels in the energy sector as well as successful rebids on contracts;
Dexterra Group Inc.'s ("Dexterra Group" or the "Corporation") Adjusted EBITDA for Q2 2022 was $13.6 million compared to $17.0 million in Q1 2022 and $22.5 million in Q2 2021, which had $4.2 million of CEWS funding. IFM and WAFES continued to perform well in Q2 2022 and exceeded results from Q2 2021. The Q2 variance is due to the challenges in the Modular Solutions business which recorded an Adjusted EBITDA loss of $3.0 million for Q2 2022 compared to $4.7 million Adjusted EBITDA in Q2 2021 and an increase in costs for inflation. Inflation will have a reduced impact and the Modular business should return to profitability in Q3 2022;
Net earnings were $0.4 million for Q2 2022 compared to consolidated net earnings of $8.2 million in Q2 2021. The consolidated net earnings for the 6 months ended June 30, 2022 were $1.4 million compared to consolidated net earnings of $12.7 million in 2021. The decreases are mainly attributable to the Modular EBITDA reduction and the non-recurring acquisition related expenses for the Tricom earn-out;
Net debt decreased to $128.7 million at Q2 2022 compared to $130.7 million at Q1 2022. Debt will be reduced with Free Cash Flow as we move through the back half of 2022 and execute the improvements for the Modular segment and reduce our working capital investments;
For the three months ended June 30, 2022, Free Cash Flow was $5.2 million compared to $14.9 million for Q2 2021. The Free Cash Flow reduction for Q2 and year to date 2022 versus 2021 is due to the weak Modular results and a higher investment in accounts receivable over the first six months of the year as business activity levels began returning to more normal levels. The Corporation expects its Free Cash Flow conversion to EBITDA to approximate 50% for fiscal 2022; and
Dexterra Group declared a dividend for Q3 2022 of $0.0875 per share for shareholders of record at September 30, 2022, to be paid on October 14, 2022.
This news release contains certain measures and ratios, such as Adjusted EBITDA, Adjusted EBITDA excluding CEWS as a % of revenue, Free Cash Flow and Backlog, that do not have any standardized meaning as prescribed by GAAP and, therefore, are considered non-GAAP measures that do not have a prescribed meaning under IFRS. The method of calculating these measures may differ from other entities and accordingly, may not be comparable to measures used by other entities. See "Non-GAAP measures" and "Reconciliation of Non-GAAP measures" of the Corporation's MD&A for the three and six months ended June 30, 2022 and 2021 for details which is incorporated by reference herein.
Toronto, Ontario--(Newsfile Corp. - August 9, 2022) - Dexterra Group Inc. (TSX: DXT)
Second Quarter Financial Summary
|Three months ended June 30,||Six months ended June 30,|
|(000's except per share amounts)||2022||2021||2022||2021|
|Adjusted EBITDA excluding CEWS as a % of revenue||5.8%||10.5%||6.7%||9.5%|
|Earnings per share|
|Basic and Diluted||$||0.00||$||0.13||$||0.02||$||0.19|
|Total loans and borrowings||$||128,732||$||71,900||$||128,732||$||71,900|
|Free Cash Flow(1)||$||5,240||$||14,949||$||(6,551||)||$||27,341|
(1) Includes nil of Canada Emergency Wage Subsidy for the three and six months ended June 30, 2022 (2021 - $4.2 million and $9.1 million, respectively).
Second Quarter Operations Analysis
|Three months ended June 30,||Six months ended June 30,|
|Corporate and Inter-segment eliminations||(3||)||(919||)||1,360||(1,142||)|
|Corporate costs and Inter-segment eliminations||(3,610||)||(4,193||)||(6,981||)||(7,863||)|
|Total Adjusted EBITDA(1)||$||13,642||$||22,502||$||30,658||$||40,327|
|Adjusted EBITDA excluding CEWS as a % of Revenue|
|IFM||6.1 %||8.6 %||6.2 %||7.7 %|
|WAFES||13.7 %||17.0 %||13.8 %||16.1 %|
|Modular Solutions||(6.1) %||9.2 %||(2.8) %||7.8 %|| |
(1) Includes CEWS of $4.2 million for the three month period ended Q2 2021: IFM- $0.9 million, WAFES - $2.9 million, Modular Solutions -$0.3 million, Corporate - $0.1 million and CEWS of $9.1 million for the six months ended Q2 2021: Facilities Management $1.7 million, WAFES $6.6 million, Modular Solutions $0.6 million, Corporate $0.2 million. There was no CEWS received for the three and six-month periods ended June 30, 2022.
Integrated Facilities Management ("IFM")
For Q2 2022, IFM revenues were $65.2 million and increased by $26.4 million, or 68%, from the $38.8 million in Q2 2021. The increase primarily reflects the acquisitions of Dana and Tricom, which contributed $24.9 million in revenue in Q2 2022. Excluding the acquisitions, revenue increased by $1.5 million compared to Q2 2021. The segment continues to build on the increased scale of operations with the acquisitions and new business won which will commence services in upcoming quarters.
Adjusted EBITDA, excluding CEWS as a percentage of revenue, was 6.1% for Q2 2022, which is lower than the 8.6% recorded in Q2 2021 and is consistent with Q1 2022. The margin in 2022 will improve as the education sector in Dana returns to its new normal in the fall and its operations are fully integrated. Increased product costs and labour shortages has resulted in downward pressure on EBITDA margins in 2022. The majority of our IFM contracts include inflation clauses but there is often a lag before these costs are passed to the client.
For the six months ended June 30, 2022, IFM revenues were $129.4 million and increased primarily due to the acquisitions which contributed $50.1 million year to date in revenue and the Adjusted EBITDA excluding CEWS as a percentage of revenue for this segment was 6.2% which is lower than 7.7% in the same period in 2021 given the business mix of products and inflationary impacts noted above.
For the back half of 2022, the IFM business unit will benefit from increased traffic in airports, the education business entering the back to school peak period in September and inflation escalation clauses in client contracts to produce improved EBITDA margins.
Workforce Accommodations, Forestry and Energy Services ("WAFES")
Revenue from the WAFES segment for Q2 2022 was $119.1 million, an increase of $31.6 million compared to Q2 2021 and a $4.0 million increase compared to Q1 2022. WAFES revenue performance was strong in Q2 2022 with a $23.8 million increase in catering, infrastructure install, and rental activities in Western Canada which resulted in increased occupancy and utilization across all services and a $7.8 million increase in revenue in Energy Services from higher mat sales and increased trucking and install work offset by lower fire support activity. This growth represents a recovery from the abnormally low activity levels in 2021 due to the COVID-19 pandemic and the 2022 resurgence in the energy sector.
Revenue from the WAFES segment for the six months ended June 30, 2022 was $234.2 million with the increase attributable to growth in catering, infrastructure and install activities in the WAFES segment primarily in Western Canada. Energy service revenue more than doubled when compared to the same period in 2021. The stronger year to date 2022 results reflect overall strong activity in the natural resources sector and new client wins.
The Q2 2022 Adjusted EBITDA excluding CEWS as a percentage of revenue was 14%, which is consistent with the Q1 2022 results. The decrease in this percentage in 2022 is primarily due to inflationary impacts resulting from increased costs for food, fuel and utilities which are passed on to customers but there is a lag in our ability to pass on these costs immediately. For the quarter ended June 30, 2022, support services constituted 47% of the total revenue mix as compared to 41% in Q1 2022.
EBITDA margin is expected to increase in the second half of 2022 due to higher occupancy in the Kitimat lodge, strong matting sales and proactive management actions to enable inflation increases in costs to be passed on to clients.
Modular Solutions segment revenues for Q2 2022 were $49.6 million compared to $48.2 million in Q2 2021 and $43.3 million in Q1 2022.
Adjusted EBITDA for Q2 2022 was a loss of $3.0 million, compared to $4.7 million in Q2 2021 and $0.4 million in Q1 2022. The size of the $7.7 million decline in the Q2 results was larger than expected as costs continued to escalate for fixed price contracts given continued significant material costs inflation, supply chain impacts, and labour shortages which required the use of substantially higher cost subcontractors to complete work.
Revenue for the six months ended June 30, 2022 was $92.9 million, an increase of $2.7 million compared to last year and the year to date EBITDA was impacted by the inflationary pressures discussed above plus development and start-up costs for new U.S. duplex housing modules which resulted in $1.8 million of negative Adjusted EBITDA. Management has taken restructuring steps including appointing Dexterra's COO as the interim President of the Modular business and implementing a four point action plan which should help this business return to profitability in Q3 2022.
Liquidity and Capital Resources
For the three and six months ended June 30, 2022, cash generated by operating activities was $11.1 million and $3.4 million, respectively, compared to cash generated of $20.2 million and $38.1 million in the same periods of 2021. The decrease reflects the impact of the weak Modular results and an additional working capital investment of approximately $18.9 million due to the increase in scale of operations post COVID-19. Cash flows from operating activities in the same period of 2021 were also positively impacted by the CEWS funding of $9.1 million. Debt will be reduced with Free Cash Flow generated by operations in the back half of the year as expected due to normal course seasonality in various lines of business, including the collection of Holdbacks negotiated under long term contracts of approximately $15 million, with the conversion of EBITDA to Free Cash Flow for 2022 expected to approximate 50%.
Debt was $128.7 million and decreased slightly when compared to $130.7 million at Q1 2022 which included approximately $50 million for the first quarter acquisitions. The Corporation's financial position and liquidity remain strong with $61.2 million unused capacity on its credit lines at June 30, 2022.
Management also expects to have a much stronger back half of 2022 with improved Modular results and continued growth in the IFM and WAFES business. Net debt level is expected to approximate $100 million at year end and leverage should approximate 1.2x Adjusted EBITDA for 2022.
A copy of Dexterra Group's Condensed Consolidated Interim Financial Statements ("Financial Statements") for the three and six months ended June 30, 2022 and 2021 and related Management's Discussion and Analysis ("MD&A") have been filed with the Canadian securities regulatory authorities and are available on SEDAR at sedar.com and Dexterra Group's website at dexterra.com. The Financial Statements have been prepared in accordance with International Financial Reporting Standards and the reporting currency is in Canadian dollars.
Dexterra Group will host a conference call and webcast to begin promptly at 8:30 Eastern time on August 10, 2022 to discuss Dexterra Group's second quarter results.
To access the conference call by telephone the conference call dial in number is 1-800-319-4610.
A live webcast of the conference call will be accessible on Dexterra Group's website at dexterra.com/investor-presentations-events/ by selecting the webcast link. A PowerPoint presentation will be posted on Dexterra Group's website at dexterra.com on August 9, 2022 to be reviewed on the conference call. An archived recording of the conference call will be available approximately one hour after the completion of the call until September 10, 2022 by dialing 1-855-669-9658, passcode 9090.
About Dexterra Group
Dexterra Group employs more than 8,500 people, delivering a range of support services for the creation, management, and operation of infrastructure across Canada.
Powered by people, Dexterra Group brings best-in-class regional expertise to every challenge and delivers innovative solutions, giving clients confidence in their day-to-day operations. Activities include a comprehensive range of integrated facilities management services, industry leading workforce accommodation solutions, innovative modular building capabilities, and other support services for diverse clients in the public and private sectors.
For further information contact:
Drew Knight, CFO
Head office: Airway Centre, 5915 Airport Rd., 4th Floor Mississauga, Ontario L4V 1T1
Telephone: (416) 767-1148
You can also visit our website at dexterra.com
Reconciliation of non-GAAP measures
The following provides a reconciliation of non-GAAP measures to the nearest measure under GAAP for items presented throughout the News Release.
|(000's)||Three months ended June 30,||Six months ended June 30,|
|Share based compensation||(105||)||467||432||1,061|
|Depreciation & amortization||9,885||9,697||20,230||19,765|
|Equity investment depreciation||299||173||585||328|
|Gain on disposal of property, plant and equipment||(234||)||(706||)||(237||)||(545||)|
|Income tax expense||124||3,307||512||4,377|
|Restructuring and settlement costs(2)||763||-||763||-|
|Contract loss provisions(3)||-||-||2,167||-|
(1) Includes CEWS of nil for the three and six months ended June 30, 2022 (Includes CEWS of $4.2 million for the three month period ended Q2 2021: IFM- $0.9 million, WAFES - $2.9 million, Modular Solutions -$0.3 million, Corporate - $0.1 million and CEWS of $9.1 million for the six months ended Q2 2021: Facilities Management $1.7 million, WAFES $6.6 million, Modular Solutions $0.6 million, Corporate $0.2 million. ).
(2) Includes settlement of a prior period CEWS claim and severance costs.
(3) Contract loss provisions are related to a contractual dispute and remediation work on pre-acquisition contracts and claims from the Acquisition of Horizon North Logistics Inc. in May 2020. There were no corresponding amounts in the other periods.
(4) The Tricom acquisition includes a performance-based incentive payment (the "Earn-out") to a maximum of $5 million which is based upon the actual results over the two years ending January 31, 2024, including the continuing employment of certain key employees. This Earn-out is be recorded in the consolidated statement of comprehensive income as an expense as incurred.
|(000's)||Three months ended June 30,||Six months ended June 30,|
|Net cash flows from operating activities||$||11,142||$||20,197||$||3,394||$||38,063|
|Sustaining capital expenditures, net of proceeds||(702||)||(376||)||(1,699||)||(782||)|
|Purchase of intangible assets||(81||)||(724||)||(85||)||(1,429||)|
|Finance costs paid||(1,946||)||(1,186||)||(3,191||)||(2,384||)|
|Free Cash Flow||$||5,240||$||14,949||$||(6,551||)||$||27,341|
|(000's)||Three months ended June 30,||Six months ended June 30,|
|Total Adjusted EBITDA||$||13,642||$||22,502||$||30,658||$||40,327|
|CEWS by Segment:|
|Corporate costs and Inter-segment eliminations||-||(101||)||-||(203||)|
|Adjusted EBITDA excluding CEWS||$||13,642||$||18,308||$||30,658||$||31,228|| |
|Adjusted EBITDA excluding CEWS as a % of revenue||5.8%||10.5%||6.7%||9.5%|| |
Certain statements contained in this news release may constitute forward-looking information under applicable securities law. Forward-looking information may relate to Dexterra Group's future outlook and anticipated events, business, operations, financial performance, financial condition or results and, in some cases, can be identified by terminology such as "continue"; "forecast"; "may"; "will"; "project"; "could"; "should"; "expect"; "plan"; "anticipate"; "believe"; "outlook"; "target"; "intend"; "estimate"; "predict"; "might"; "potential"; "continue"; "foresee"; "ensure" or other similar expressions concerning matters that are not historical facts. In particular, statements regarding Dexterra Group's future operating results and economic performance, including COVID-19 related impacts and the impacts of the Dana and Tricom acquisitions; management expectations of market sector recoveries, its leverage, Free Cash Flow, NRB Modular Solutions backlog and revenue, and its objectives and strategies are forward-looking statements. These statements are based on certain factors and assumptions, including expected growth, market recovery, results of operations, performance and business prospects and opportunities regarding Dexterra Group, which Dexterra Group believes are reasonable as of the current date. While management considers these assumptions to be reasonable based on information currently available to Dexterra Group, they may prove to be incorrect. Forward-looking information is also subject to certain known and unknown risks, uncertainties and other factors that could cause Dexterra Group's actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward- looking information, including, but not limited to: the ability to retain clients, renew existing contracts and obtain new business; an outbreak of contagious disease that could disrupt its business; the highly competitive nature of the industries in which Dexterra Group operates; reliance on suppliers and subcontractors; cost inflation; volatility of industry conditions could impact demand for its services; a reduction in the availability of credit could reduce demand for Dexterra Group's products and services; Dexterra Group's significant shareholder may substantially influence its direction and operations and its interests may not align with other shareholders; its significant shareholder's 49% ownership interest may impact the liquidity of the common shares; cash flow may not be sufficient to fund its ongoing activities at all times; loss of key personnel; the failure to receive or renew permits or security clearances; significant legal proceedings or regulatory proceedings/changes; environmental damage and liability is an operating risk in the industries in which Dexterra Group operates; climate changes could increase Dexterra Group's operating costs and reduce demand for its services; liabilities for failure to comply with public procurement laws and regulations; any deterioration in safety performance could result in a decline in the demand for its products and services; failure to realize anticipated benefits of acquisitions and dispositions; inability to develop and maintain relationships with Indigenous communities; the seasonality of Dexterra Group's business; inability to restore or replace critical capacity in a timely manner; reputational, competitive and financial risk related to cyber-attacks and breaches; failure to effectively identify and manage disruptive technology; economic downturns can reduce demand for Dexterra Group's services; its insurance program may not fully cover losses. Additional risks and uncertainties are described in Note 21 of the Corporation's Consolidated Financial Statements for the years ended December 31, 2021 and 2020 contained in its most recent Annual Report filed with securities regulatory authorities in Canada and available on SEDAR at sedar.com. The reader should not place undue importance on forward-looking information and should not rely upon this information as of any other date. Dexterra Group is under no obligation and does not undertake to update or alter this information at any time, except as may be required by applicable securities law.
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