Fort St. John, British Columbia--(Newsfile Corp. - November 27, 2020) - Macro Enterprises Inc. (TSXV: MCR) (the "Company" or "Macro") is pleased to announce its third quarter results for 2020.
Summary of financial results
(thousands of dollars except per share amounts)
Three months ended
Nine months ended
Net earnings per share
Weighted average common shares
Note 1: Readers are advised to note that references to EBITDA in the table above are to net income from continuing operations before interest, taxes, amortization and impairment charges. 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.
All dollar amounts in this news release are expressed in Canadian dollars.
The Company recorded $7.5 million in net earnings or $0.24 per common share and EBITDA of $16.8 million.
Total working capital as at September 30, 2020 was $60.9 million after considering $15.4 million in current portions of long-term debt and right of use lease obligations.
The Company is reporting shareholders' equity of $123.3 million or $3.96 per share based on weighted average common shares outstanding as at September 30, 2020.
Subsequent to September 30, 2020, the Company announced the signing of a non-binding MOU detailing the re-organization of its current Joint Venture interests with Spiecapag Canada. Macro will be assuming 100% control and the economic interests of the Trans Mountain Expansion Project in exchange for its 40% interest in the Coastal GasLink Pipeline Project.
The Company expects revenue to exceed $250.0 million in fiscal 2020. The guidance considers the Company's current core business underway and a pro-rata portion of its Joint Venture interests until the closing of the MOU announced subsequent to quarter end.
THIRD QUARTER RESULTS
Macro Enterprises Inc. posted consolidated revenue of $93.6 million compared to $114.5 million reported third quarter last year. Approximately 90% or $70.0 million of the revenue earned related to pipeline and facilities construction with the balance or $13.6 million relating to maintenance and integrity services being performed under existing master service agreements. Revenue recognized for the quarter ended September 30, 2020 included revenue from its joint operations on the Coastal GasLink Pipeline project and to a limited extent the Trans Mountain Expansion project. Prior year revenue relating to pipeline and facilities construction was approximately 98% or $112.6 million while the balance related to maintenance and integrity.
Operating expenses were $74.8 million or 80% of revenue compared to $93.8 million or 82% of revenue in the third quarter last year. As discussed in previous quarters, the Company continued to incur additional costs and overheads while maintaining its current scale of operations which has impacts on margins. With the ongoing global COVID-19 health pandemic and market uncertainty, margins are expected to fluctuate while the Company stabilizes its operations to meet the changing needs of its clients. During the quarter the Company applied for the Canadian Emergency Wage Subsidy ('CEWS') and was able to claim $2.0 million in government assistance which was applied as a reduction in salaries and wage expenses recorded in its operating expenses. Going forward, the Company believes it should qualify for the wage subsidies if the program continues as presently structured. All aspects of operations will be actively 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 $2.4 million, up $0.4 million from the $2.0 million recorded prior year. 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. During the quarter, the Company was able to claim $0.3 million in wage subsidies under the CEWS program and applied the subsidies as a reduction to the salary and wage expenses reported in its general and administrative expenses.
Depreciation of property, plant and equipment was $5.1 million compared to $4.8 million reported 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 higher depreciation costs going forward.
During the third quarter the Company recognized a non-cash gain of $528,000 on the mark-to-market re-measurement of its preferred shares at period end. The gain adjustment is indicative of a 12.5% decrease to the Company's share value over the prior reported period.
During the third quarter the Company recognized non-cash stock-based compensation charges of $143,000.
Finance costs of $1.0 million were lower than prior year 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. Prior year the finance costs included substantial charges for the right of use obligations which at the time exceeded $33 million and along with $76 million of outstanding letters of credit being carried.
Income tax expense in the quarter of $3.3 million was at an effective rate of 30.6% which approaches the enacted tax rates of 27% after reversing non-cash charges and timing differences, namely the collections of prior year holdbacks and mark-to-market adjustments.
Net income was $7.5 million ($0.24 per share) compared to a net income of $8.1 million ($0.27 per share) recognized during the three months ended September 30, 2019. EBITDA was $16.8 million compared to $17.2 million recognized during the three months ended September 30, 2019. As a result of increased activity and improved margins, the CEWS program, minimal non-cash adjustments including mark-to-market gains and stock-based compensation, the Company's net income and EBITDA were positively impacted quarter over quarter and compared positively to prior years.
Presently, the Company's ability to provide reliable outlook guidance for the 2020 fiscal year and beyond is materially impaired due to the prevailing uncertainty about the short and long term economic and geo-political effects of the current COVID-19. Despite the pandemic, the Company has continued 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 however as COVID cases increase, the ability to work may be affected.
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 today which includes pipeline maintenance and integrity work underway, ongoing facilities construction and its proportionate share of the joint venture operations, the Company would expect revenues to exceed $250 million in fiscal 2020.
Joint Venture Update:
As announced subsequent to period end, the Company entered a non-binding memorandum of understanding with Spiecapag Canada Corp. with respect to their ongoing negotiations of the terms of a possible reorganization whereby the Company would exchange its indirect 40% interest in the Coastal GasLink Pipeline Project for Speicapag's 50 % interest in the Trans Mountain Expansion Pipeline Project (the "TMEP Project"). The TMEP Project includes the contract for the construction of approximately 85 kilometers of 36 inch pipeline along the Coquihalla-Hope Corridor in British Columbia referred to as pipeline "Spread 5B. The Company continues working with Trans Mountain to satisfy permitting and scheduling requirements and is expecting to receive its formal notice to proceed in the near term. The preliminary work, which is well underway, includes line sweeps, hydro-vac services, clearing, access pioneering and blasting, and is expected to conclude by the end of March 2021 at which point under the contract it will enter the second phase for the completion of the project which is forecast to complete December of 2022. As a condition of the phased and reimbursable type construction contract, the Company has placed a $35.0 million letter of credit supported by Export Development Canada for preliminary construction work that is currently underway.
The Company is finishing two secured new facility construction projects with an aggregate value in excess of $50 million for work. The work is on schedule for completion by the end of the current year.
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.
Subsequent to period end, the Company entered into a non-binding memorandum of understanding with Spiecapag Canada Corp. ("Spiecapag") with respect to their ongoing negotiations of the terms of a possible reorganization whereby the Company would exchange its indirect 40% interest in the Coastal GasLink Pipeline Project (the "CGL Project") for Spiecapag's 50% interest in the TransMountain Expansion Pipeline Project (the "TMEP Project").
Subject to the preparation of definitive agreements and the satisfaction of closing conditions, the reorganization would result in Spiecapag fully owning and controlling the Macro Spiecapag Coastal GasLink Joint Venture (the "CGL JV") and the Company fully owning and controlling the Macro Spiecapag Trans Mountain Joint Venture ("TMEP JV"). The closing will occur shortly after the closing conditions, including project customer consent, have been obtained.
To effect the reorganization with respect to the CGL Project, Macro would give up all or substantially all of its indirect interest in the CGL JV by either transferring to Spiecapag all of the issued and outstanding shares in the capital of Macro Pipeline Construction Inc., the Macro joint venture entity of the CGL JV, or such other transfers as may be agreed to by the Company and Spiecapag. Meanwhile, to effect the reorganization with respect to the TMEP Project, Spiecapag will give up all or substantially all of its interest in the TMEP JV by transferring its interest to Macro Pipeline Services Inc., the Macro joint venture entity of the TMEP JV, or such other transfers as may be agreed to by the Company and Spiecapag.
The parties have estimated the value of each transferred joint venture interest to be substantially equivalent, however, the final purchase price for each joint venture interest remains to be agreed by the parties. Additionally, the parties will agree on specific payment terms and conditions for the amounts now owing by the CGL JV to Macro and its affiliates for equipment rentals, personnel costs, cash advances and other amounts
On November 4, 2020, the Company issued a standby letter of credit for $35.0 million per the terms of the TMEP Project construction contract in the beneficiary name of Trans Mountain Pipeline LP as security for the contractor's obligations under the contract.
Certain statements in the Company's Press Release for its quarter ended September 30, 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:
President & C.E.O.
Phone: (250) 785-0033
C.F.O. & Corporate Secretary
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