VERTEX RESOURCE GROUP LTD. REPORTS RECORD FIRST QUARTER 2023 RESULTS

Achieved record first quarter net revenue and adjusted EBITDA- $56.8 million and $8.6 million respectively.

SHERWOOD PARK, AB, May 15, 2023 /CNW/ - (TSXV: VTX) - Vertex Resource Group Ltd. ("Vertex" or the "Company") reports its financial and operational results for the first quarter ended March 31, 2023.  The following should be read in conjunction with the Management Discussion and Analysis ("MD&A") and the unaudited condensed consolidated interim financial statements of Vertex for the period ended March 31, 2023, which are available on SEDAR at www.sedar.com.

The first quarter was a continuation of momentum built in 2022 and achieved the highest quarterly net revenue and adjusted EBITDA of any first quarter in the Company's history.  The Company has experienced a steady demand for services from customers across multiple industries.  The Company is continuing to maintain its focus on cost containment, integration and operating efficiencies, geographic diversification, and sector diversification while pursuing growth opportunities.

Key financial results for the three months ended March 31, 2023, and 2022 are as follows:

HIGHLIGHTS
	Three Months ended
	March 31,
(in thousands of Canadian Dollars)	2023	2022	% Change
		Restated (1)
Gross revenue	58,657	54,795	7 %
Less flow through subcontractor costs	1,849	9,366	-80 %
Net revenue	56,808	45,429	25 %
Profit margin	14,606	10,457	40 %
Adjusted EBITDA (2)	8,615	5,660	52 %
Free cash flow (2)	6,993	4,113	70 %
Adjusted EBITDA per share, basic and diluted (2)	0.07	0.06	17 %
(1) See "Restatement of Comparative Period"
(2) See "Non-IFRS Financial Measures"

HIGHLIGHTS FOR THE THREE MONTHS ENDED MARCH 31, 2023

• Highest net revenue for any first quarter in Vertex's history at $56.8 million compared to $45.4 million in Q1 2022.
• Record first quarter adjusted EBITDA⁽²⁾ of $8.6 million compared to $5.7 million in 2022.
• Profit margin improved to $14.6 million compared to $10.5 million in Q1 2022.
• Adjusted working capital⁽²⁾ decreased by $7.7 million from December 31, 2022 and was used to reduce debt.
• Record Q1 free cash flow⁽²⁾ amounted to $7.0 million compared to $4.1 million in Q1 2022.

OUTLOOK

Vertex delivered a solid first quarter which was a continuation of a record setting 2022 for the Company.  Excellent first quarter results were driven by increased demand for services, improved equipment utilization and strong contributions of past acquisitions.  Our outlook for the remainder of 2023 and into 2024 remains positive with strong secured backlog in all service lines.

Economists predict that Saskatchewan and Alberta will continue to lead the country in growth this year due to robust energy transition development projects and strength in the energy, utilities, and agriculture sectors.  2023 will see increased regulatory spends on reclamation projects and environmental liability closures.  Increased environmental regulations throughout Canada and in the United States will continue to drive opportunities for our expertise and services. 

Competitive labour markets will continue to apply pressure, however, Vertex's ability to be agile and implement innovative strategies has proven effective throughout the first quarter.  Focus on our supply chain remains a priority to combat inflation which is not expected to reach government targets until the latter half of 2023.

Vertex is a leader in environmental services and is well positioned to benefit from the trend of enhanced ESG reporting.  The team at Vertex is proud to be evolving our suite of ESG solutions, partnering with our customers to build a more sustainable future.  Our customers need support in sustainably developing, operating, and closing infrastructure projects.  Our business strategy and approach to sustainability intersects in the belief that responding to this need provides a platform for positive growth and a path to participating in building a better tomorrow. 

RESTATEMENT OF COMPARATIVE PERIOD

During the finalization of the 2022 audited consolidated financial statements, management identified that revenue from certain contracts with customers was recorded net of the costs incurred to reflect an agency relationship and to match the economic nature of the cash flows of the contracts.  Under the terms of the contracts the Company was the principal in the arrangement. As a result, revenue and direct costs had been previously understated.  In the Interim Financial Statements, the comparative period, being the three months ended March 31, 2022 has been restated to correct the error.  There is no impact to the Company's statement of financial position as at March 31 2022, no impact on profit margin, net income, basic or diluted earnings per share, and no impact on operating, investing, or financing cash flows for the period ended March 31, 2022.

ABOUT VERTEX

Since 1962, Vertex has been a leading North American provider of environmental services. Headquartered in Sherwood Park, Alberta, Vertex employs a staff of approximately 1,100 employees and lease operators that provide services to help clients achieve their developmental and operational 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 energy, mining, utilities, private development, public infrastructure, construction, telecommunications, forestry, agriculture and government.

Vertex principally operates in Canada with select locations in the United States.

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

NON-IFRS FINANCIAL MEASURES

This news release includes certain terms or performance measures that are not defined under International Financial Reporting Standards ("IFRS"), including "Adjusted 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.

A)  "Adjusted EBITDA" is a non-financial measure which is calculated by adjusting net (loss) income for the sum of income taxes, finance costs including interest accretion on lease liabilities, depreciation of property and equipment and right of use assets, amortization of intangible assets, share-based compensation, restructuring costs and impairment.  The Company uses Adjusted EBITDA as an indicator of its principal business activities operational performance prior to consideration of how its activities are financed and the impact of taxation, non-cash depreciation and amortization, restructuring costs and other non-cash expenses such as impairments required under IFRS. Adjusted EBITDA does not have a standardized meaning prescribed by IFRS and is not necessarily comparable to similar measures provided by other companies. Adjusted EBITDA is used by many analysts as an important analytical tool and management of Vertex believes it is useful for providing readers with additional clarity on Vertex's operational performance. This measure is also considered important by the Company's lenders in determining compliance by the Company with the financial covenants under its lending arrangements.

B)  "Free cash flow" is a non-financial measure which is calculated by reducing adjusted EBITDA by maintenance capital expenditures net of disposal proceeds.

C)  "Adjusted Working Capital" is a non-financial measure which is calculated by reducing current liabilities by the current portion loans and borrowings, lease liabilities and other liabilities.

Reconciliations of adjusted EBITDA, free cash flow and adjusted working capital are provided in the table below.

ADJUSTED EBITDA					Three months ended
					March 31,
					2023	2022
Net income (loss) for the period					1,011	(740)
Add:
Depreciation and amortization					5,580	4,933
Finance costs					2,497	1,644
Share-based compensation					-	50
Income tax recovery					(473)	(227)
Adjusted EBITDA					8,615	5,660
Environmental Consulting					1,882	2,469
Environmental Services					8,833	4,959
Other					(2,100)	(1,768)
					8,615	5,660
FREE CASH FLOW					Three months ended
					March 31,
					2023	2022
Adjusted EBITDA					8,615	5,660
Maintenance capex					(2,757)	(1,974)
Proceeds from disposal of property and equipment					1,135	427
Free cash flow					6,993	4,113

 

ADJUSTED WORKING CAPITAL						March 31,	December 31,
						2023	2022
Current assets						61,215	82,073
Current liabilities, less						59,006	74,176
	Current portion of loans and borrowings					(16,807)	(18,508)
	Current portion of lease liabilities					(9,515)	(9,711)
	Current portion of other liabilities					(2,503)	(2,636)
Current liabilities (excluding current portion of loans and borrowings, lease liabilities, and other liabilities)						30,181	43,321
Adjusted working capital						31,034	38,752

D)  "Adjusted EBITDA per share, basic and diluted" is a non-financial measure which is calculated by dividing adjusted EBITDA by the weighted average shares outstanding – basic and diluted.

FORWARD-LOOKING INFORMATION

Any "financial outlook" or "future oriented financial information" in this MD&A, 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 document constitute "forward-looking information". When used in this document or by any of the Company's management, the words "may", "would", "will", "intend", "plan", "propose", "anticipate" and "believe" are intended to identify forward-looking information. In particular, but without limiting the foregoing, this document contains forward-looking information and statements pertaining to the following: the Company's key strategies, objectives and competitive strengths; anticipated expenses; the Company's ability to integrate and capitalize on underutilized equipment through cross-selling opportunities across service lines and reducing redundant costs in 2023; growth opportunities in 2023; supply and demand for the Company's services; anticipated savings in 2023; activity levels in the oil and gas industry and other industries in which the Company operates; annual gross maintenance capital expenditures for 2023; future development activities; and the Company's ability to retain existing clients and attract new business, particularly business outside of the oil and gas industry. Such statements reflect the Company's forecasts, estimates and expectations, as they relate to the Company's current views based on its experience and expertise with respect to future events, and are subject to certain risks, uncertainties, and assumptions.

The forward-looking information and statements contained in this document reflect several material factors and expectations and assumptions of the Company, including, without limitation: that the Company will continue to conduct its operations in a manner consistent with past operations; positive future trends in revenue, gross profit margin, Adjusted EBITDA, Bank EBITDA and net income; the general continuance of current or, where applicable, assumed industry conditions; the mix of revenue from non-oil and gas customers in 2023; pricing of the Company's services; the Company's ability to market successfully to current and new clients; the Company's ability to obtain qualified personnel and equipment in a timely and cost-effective manner; the Company's future debt levels; the impact of competition on the Company; the Company's ability to obtain financing on acceptable terms; the general continuance of current or, where applicable, assumed industry conditions; the continuance of existing tax, royalty and regulatory regimes; the impact of seasonal weather conditions; client activity levels; anticipated market recovery; the Company's anticipated business strategies and expected success; the Company's ability to utilize its equipment; levels of deployable equipment; and future sources of funding for the Company's capital program.

The forward-looking information and statements included in this document are not guarantees of future performance and should not be unduly relied upon. Such information and statements involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking information or statements, including, without limitation: volatility of the oil and natural gas industry; dependence on customer contracts and market acceptance; the Company's growth strategy may not achieve anticipated results; potential litigation claims; difficulty in attracting and retaining skilled personnel; adverse litigation judgments, settlements and exposure to liability resulting from legal proceedings could reduce profits of limit Vertex's ability to operate; the market for Vertex's products and services is subject to extensive government and regulatory approvals; health, safety and environment laws and regulations may require the Company to make substantial expenditures or cause it to incur substantial liabilities; the Company may fail to realize anticipated benefits of future acquisitions; Vertex's indebtedness may adversely affect its financial flexibility and competitive position; competition in the industries in which Vertex operates; downturns in general economic and market conditions; operational hazards and unforeseen interruptions for which Vertex may not be adequately insured; positive covenants in Vertex's material contracts could limit its ability to operate; third part credit risk; conservation measures and technological advances may reduce demand for hydrocarbons; loss of the Company's information and computer systems or cyber-attacks; director and officer conflicts of interest; a reassessment by tax authorities of Vertex's income calculations; volatility in the price of the Common Shares; and the risk factors set forth under the heading "Risk Factors" in the AIF.

Vertex's business is subject to a number of risks and uncertainties. Readers are encouraged to review and carefully consider the risk factors described in the AIF, which risk factors are specifically incorporated by reference herein.

The forward-looking statements contained in this MD&A are expressly qualified in their entirety by this cautionary statement. The forward-looking statements included in this MD&A are made as of the date of this MD&A. The Company does not intend and does not assume any obligation to update any such factors or to publicly announce the result of any revisions to any of the forward-looking statements contained herein to reflect future results, events or developments, unless required by law.

SOURCE Vertex Resource Group Ltd.

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