Vertex Resource Group Reports Record Second Quarter 2023 Results

Press Release

SHERWOOD PARK, AB, Aug. 9, 2023  – (TSXV: VTX) – Vertex Resource Group Ltd. (“Vertex” or the “Company”) reports its financial and operational results for the second quarter ended June 30, 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 June 30, 2023, which are available on SEDAR+ at www.sedarplus.ca.

The second quarter delivered record results in multiple categories in both the three and six month periods.  Initiatives around competitive pricing, acquisition growth and exploring opportunities in new markets that began in 2022 gained further traction in the first half of the year.

Key financial results for the three and six months ended June 30, 2023, and 2022 are as follows:

HIGHLIGHTS FOR THE THREE MONTHS ENDED JUNE 30, 2023

• Highest net revenue in company history for any quarter at $62.3 million.
• Record adjusted EBITDA⁽²⁾ for any quarter at $11.0 million compared to $8.6 million in Q2 2022.
• Profit margin as a % of net revenue increased to 27.9% from 24.5% in Q2 2022.
• Free cash flow⁽²⁾ amounted to $8.2 million compared to $7.0 million in Q2 2022.

HIGHLIGHTS FOR THE SIX MONTHS ENDED JUNE 30, 2023

• Net revenue increased to $119.1 million from $99.4 million for the same period in 2022; this is the highest in any previous first half of a year.
• Record adjusted EBITDA amounted to $19.6 million for the six months of 2023 compared to $14.2 million in 2022.
• Profit margin as a % of net revenue increased to 26.9% from 23.8% in H1 2022.
• Historically high net income for the six months ended June 30, 2023 was $2.6 million compared to $0.9 million in the same period of the prior year.
• Loans and borrowings, lease liabilities and other liabilities have decreased by $15.4 million since December 31, 2022.
• Syndicated bank indebtedness to trailing bank EBITDA improved to a ratio of 2.63:1.00 compared to 2.90:1.00 at December 31, 2022.
• Free cash flow amounted to $15.2 million compared to $11.1 million in H1 2022.

The second quarter of 2023 met expectations, despite pervasive wildfires followed by wet weather in the western provinces.  Demand for services and equipment utilization remained high during the second quarter for the Environmental Services segment.  The completion of government site rehabilitation projects in February led to an expected slowdown in activity in the Environmental Consulting division while the industry took a pause to re-evaluate priorities for the busier second half of 2023.

The intense wildfire season that hit Western Canada this spring led to the postponement of drilling and new infrastructure activities which are now just starting to resume.  The fires also impacted many maintenance and reclamation projects resulting in them being suspended or postponed.  The impact of this wildfire season is estimated to be a loss of $1.5M in revenue in the quarter. Vertex expects that most of the revenue shortfall in the second quarter related to wildfires will be made up within the last half of the year.

Despite the challenges encountered in the first half of the year, Vertex is well positioned for earnings growth for the remainder of 2023 through 2024.  Secured backlog has increased, and the current trend towards less carbon intensive energy sources along with the enhanced service offerings from our 2022 acquisitions have provided us with new and unique opportunities.  Vertex will also continue to pursue prospects in new geographical regions where economically feasible.

Our outlook remains positive as we continue to demonstrate the strength and resilience of our business model.  We continue to work closely with our Indigenous Partners and clients to facilitate further growth through the cross-selling of our services throughout the life cycle of our clients’ projects in various industries.

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 and six months ended June 30, 2022 has been restated to correct the error.  There is no impact to the Company’s statement of financial position as at June 30 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 periods ended June 30, 2022.

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.

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.

For further information: Terry Stephenson, CEO, or Sherry Bielopotocky, CFO at 780-464-3295

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