Toronto, Ontario--(Newsfile Corp. - March 7, 2024) - Dexterra Group Inc. (TSX: DXT)
Highlights
The Corporation generated strong results for the 2023 year with consolidated revenue of $1.1 billion, an increase of 15.0% or $145.7 million compared to $971.5 million in the prior year. The increase in revenue was due to continued growth in IFM and WAFES including the positive impact of the unprecedented wildfire activity in 2023. The Corporation generated consolidated revenue of $270.5 million for Q4 2023 which increased $16.6 million, or 6.6%, compared to Q4 2022. This was mainly driven by the mobilization of new wins in IFM, and robust workforce accommodations activity in WAFES despite the normal holiday season slowdown period. These increases were partially offset by lower modular revenue related to delays in completing certain social affordable housing projects due to manufacturing quality, subcontractor challenges and remediation work;
Adjusted EBITDA for 2023 was $100.6 million which is a record for the Corporation and an increase in Adjusted EBITDA of $35.9 million or 55% compared to the prior year. This was driven primarily by higher business activity in WAFES as well as significantly improved profitability in IFM due to new sales growth and operational improvements. Adjusted EBITDA for Q4 2023 was $12.6 million and $14.0 million in Q4 2022. Increased profitability in the WAFES and IFM business units for Q4 2023 as compared to Q4 2022 was offset by an EBITDA loss of $10.9 million in the Modular business including a provision of $5.7 million to cover 2024 rework and remediation related to manufacturing quality and third-party design and subcontractor issues;
The Board and Management recently completed a strategic review of the Modular business and are currently in discussions with a potential buyer for the sale of the business unit. We believe our decision to pursue a sale of the Modular business will be a positive for our Modular employees, customers and shareholders and will allow the Corporation to simplify its business and deploy capital in areas of the business with stronger returns;
Consolidated net earnings were $26.8 million for 2023 compared to $3.7 million in 2022 and included non-recurring items of $6.5 million (2022 - $12.1 million). Earnings per diluted share were 41 cents per share in 2023 compared to 5 cents per diluted share in 2022. Consolidated net loss was $0.3 million for Q4 2023 compared to a net loss of $2.9 million in Q4 2022 and included project rework and remediation costs in Modular of approximately $9 million;
Free Cash Flow ("FCF") was $53.1 million for the year ended December 31, 2023, compared to $40.3 million in 2022. The Adjusted EBITDA conversion to FCF for 2023 met expectations at 52.7% as compared to 62.2% in the prior year. FCF is expected to be approximately 50% of Adjusted EBITDA in 2024;
In connection to the ongoing Normal Course Issuer Bid ("NCIB"), Dexterra repurchased 855,100 common shares in 2023 at a weighted average price per share of $5.73 for a total cash cost of $4.9 million;
Dexterra declared a dividend for Q1 2024 of $0.0875 per share for shareholders of record at March 29, 2024, to be paid April 15, 2024; and
On February 29, 2024, the Corporation acquired CMI Management, LLC ("CMI"), an IFM business based in Alexandria, Virginia serving federal government agencies and commercial clients across the United States ("US"). This acquisition expands our IFM platform in the US. The purchase price was USD $23 million. CMI has approximately USD $50 million in annual contracts with a strong backlog of business.
This news release contains certain measures and ratios, such as Adjusted EBITDA, Adjusted EBITDA as a percentage 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. 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 months and year ended December 31, 2023 and 2022 for details which is incorporated by reference herein.
Fourth Quarter and Annual Financial Summary
| Three months ended December 31, | Years ended December 31, | |||||||||||
| (000's except per share amounts) | 2023 | 2022 | 2023 | 2022 | ||||||||
| Total Revenue | $ | 270,527 | $ | 253,858 | $ | 1,117,198 | $ | 971,517 | ||||
| Adjusted EBITDA(1) | $ | 12,645 | $ | 13,986 | $ | 100,630 | $ | 64,725 | ||||
| Adjusted EBITDA as a % of revenue(1) | 4.7% | 5.5% | 9.0% | 5.7% | ||||||||
| Net earnings (loss) | $ | (301 | ) | $ | (2,873 | ) | $ | 26,750 | $ | 3,715 | ||
| Earnings (loss) per share | ||||||||||||
| Basic and Diluted | $ | 0.00 | $ | (0.04 | ) | $ | 0.41 | $ | 0.05 | |||
| Total assets | $ | 607,088 | $ | 611,401 | $ | 607,088 | $ | 611,401 | ||||
| Total loans and borrowings ("Net Debt") | $ | 89,615 | $ | 94,045 | $ | 89,615 | $ | 94,045 | ||||
| Free Cash Flow(1) | $ | 53,416 | $ | 23,117 | $ | 53,062 | $ | 40,252 | ||||
(1) Please refer to the "Non-GAAP measures" section for the definition of Adjusted EBITDA, Adjusted EBITDA as a % of revenue and Free Cash Flow and to the "Reconciliation of non-GAAP measures" section for the related calculations.
Fourth Quarter and Annual Operational Analysis
| Three months ended December 31, | Years ended December 31, | |||||||||||
| (000's) | 2023 | 2022 | 2023 | 2022 | ||||||||
| Revenue: | ||||||||||||
| IFM | $ | 89,332 | $ | 78,543 | $ | 331,877 | $ | 279,354 | ||||
| WAFES | 141,864 | 123,148 | 595,399 | 489,996 | ||||||||
| Modular Solutions | 39,331 | 52,171 | 189,422 | 199,611 | ||||||||
| Corporate, Other and Inter-segment eliminations | — | (4 | ) | 500 | 2,556 | |||||||
| Total Revenue | $ | 270,527 | $ | 253,858 | $ | 1,117,198 | $ | 971,517 | ||||
| Adjusted EBITDA: | ||||||||||||
| IFM | $ | 4,756 | $ | 2,764 | $ | 19,019 | $ | 13,553 | ||||
| WAFES | 23,043 | 21,391 | 106,082 | 74,526 | ||||||||
| Modular Solutions | (10,922 | ) | (6,622 | ) | (6,144 | ) | (8,331 | ) | ||||
| Corporate, Other and Inter-segment eliminations | (4,232 | ) | (3,547 | ) | (18,327 | ) | (15,023 | ) | ||||
| Total Adjusted EBITDA | $ | 12,645 | $ | 13,986 | $ | 100,630 | $ | 64,725 | ||||
| Adjusted EBITDA as a % of Revenue | ||||||||||||
| IFM | 5.3 % | 3.5 % | 5.7 % | 4.9 % | ||||||||
| WAFES | 16.2 % | 17.4 % | 17.8 % | 15.2 % | ||||||||
| Modular Solutions | (27.8) % | (12.7) % | (3.2) % | (4.2) % | ||||||||
Integrated Facilities Management ("IFM")
For the year ended December 31, 2023, IFM revenues were $331.9 million, an increase of $52.5 million or 18.8% compared to $279.4 million in 2022. The increase is primarily attributable to new sales growth in post-secondary education food services as well as the Hotel, Rail and Leisure division continued to show strong growth.
Adjusted EBITDA for the year ended December 31, 2023 was $19.0 million, which increased by $5.4 million or 40.2% compared to $13.6 million in 2022. The increased profitability was driven by new sales, contract pricing adjustments to the existing portfolio and a continued focus on execution and cost management. Adjusted EBITDA as a percentage of revenue was 5.7% for the year ended December 31, 2023 compared to 4.9% in the prior year.
For Q4 2023, IFM revenues were $89.3 million, an increase of $10.8 million, or 13.7%, from Q4 2022 and $9.7 million or 12.2% higher than Q3 2023. The revenue growth reflects the mobilization of new contract wins. IFM Adjusted EBITDA for the quarter was $4.8 million compared to $2.8 million for Q4 2022 and $4.5 million for Q3 2023. Adjusted EBITDA as a percentage of revenue was 5.3% in Q4 2023 compared to 3.5% in Q4 2022 and was impacted by lower margins on the onboarding of contracts. Certain contracts continue to be impacted by higher labour costs as a result of inflation which we expect to recover over time, through pricing adjustments and operational improvements.
Workforce Accommodations, Forestry and Energy Services ("WAFES")
Revenue from WAFES for the year ended December 31, 2023 was $595.4 million which is an increase of $105.4 million or 21.5% compared to 2022. The increase was due to strong activity in workforce accommodations, price adjustments on client contracts to combat inflationary pressures, strong access matting sales and rentals, and high revenue from fire support services as a result of the unprecedented wildfire season nationwide. Adjusted EBITDA was $106.1 million and 42.3% higher compared to the prior year due to the factors noted above. For the year ended December 31, 2023, fire support services generated revenue of $55.6 million (2022 - $9.1 million).
Adjusted EBITDA as percentage of revenue was 17.8%, which is higher compared to the 15.2% in 2022 primarily due to higher occupancy for multiple large camps, successful price negotiations with clients, strong Energy Services margins and higher fire support services.
Revenue from the WAFES business for Q4 2023 was $141.9 million, an increase of $18.7 million or 15.2% compared to Q4 2022. WAFES revenue growth was stronger in Q4 2023 compared to Q4 2022 due to continued high occupancy at turn-key and open lodges and strength in the access matting business.
Adjusted EBITDA for Q4 2023 increased to $23.0 million compared to $21.4 million for the same quarter last year (Q3 2023 - $39.5 million). Adjusted EBITDA as a percentage of revenue of 16.2% is largely consistent with the 17.4% in Q4 2022, excluding one-time retroactive price increases in Q4 2022.
Modular Solutions
Revenue for the year ended December 31, 2023 was $189.4 million, a decrease of $10.2 million or 5.1% compared to 2022 due to reduced backlog including delays in approvals for social affordable housing projects. Adjusted EBITDA for the year ended December 31, 2023 was a loss of $6.1 million, compared to an Adjusted EBITDA loss of $8.3 million in the prior year. Factors impacting 2023 results include rework and remediation on social affordable housing projects of $15.0 million, due to third-party design, manufacturing quality and subcontractor errors as well as a subcontractor insolvency. This includes an additional $1.6 million of additional costs related to certain fixed price BC housing projects impacted by delays (in excess of the provision taken in Q4 2022). The education portables and commercial/industrial modulars business continues to deliver positive growth and solid profitability.
Modular Solutions revenues for Q4 2023 were $39.3 million compared to $52.2 million in Q4 2022. The Adjusted EBITDA loss of $10.9 million was due to the project rework required on the projects mentioned above. A provision of $5.7 million was recorded in Q4 related to the estimated 2024 costs to complete the remediation work. Adjusted EBITDA in Q4 2022 included a provision of $6.0 million, to cover the cost impact and future losses on social affordable housing projects still under construction. Plant staffing reductions were undertaken in Q4 2023 to help mitigate the temporary softness in the social affordable housing backlog.
Other non-recurring items
For the year ended December 31, 2023, non-recurring items recorded in Corporate direct costs include an onerous contract loss provision of $1.6 million as the IFM portfolio was right sized and restructuring costs of $0.9 million. For the year ended December 31, 2022, Corporate had direct costs of $12.2 million which included $6.9 million related to contractual disputes and remediation work related to contracts in place at the time of the Acquisition of Horizon North Logistics Inc. in May 2020 as well as $2.9 million related to an onerous IFM contract to record future losses over the life of the contract, $2.0 million related to the restructuring and systems implementation for a business unit being integrated with VCI and $0.5 million in other items. Non-recurring items included in Corporate direct costs for Q4 2023 include a $0.7 million recovery on the losses for an onerous IFM contract due to a customer settlement.
During the year ended December 31, 2023, the Corporation also entered into an agreement to sell excess camp assets and recorded a related impairment on these assets of $2.2 million in Q3. The sale is expected to close in the first half of 2024.
Liquidity and Capital Resources
Effective August 15, 2023 the Corporation reached an agreement with its lenders to amend its credit facility and extend the maturity date to September 7, 2026. The amended credit facility has an available limit of $260 million plus an uncommitted accordion of $150 million. See Note 11 of the Financial Statements for more details.
Debt was $89.6 million at December 31, 2023, compared to $133.9 million at September 30, 2023. The decrease in debt from Q3 2023 was expected as our accounts receivable were converted into cash as the business moved out of its normal seasonal peak activity period in Q3 2023. Adjusted EBITDA conversion to FCF met expectations at 52.7% for the 2023 year as compared to 62.2% in 2022. Adjusted EBITDA conversion to FCF in 2024 is expected to be approximately 50.0%, with Q3 and Q4 experiencing the highest conversions to FCF as a result of the seasonality of the WAFES and IFM business units.
Additional Information
A copy of Dexterra's Consolidated Financial Statements ("Financial Statements") for the years ended December 31, 2023 and 2022 and related Management's Discussion and Analysis ("MD&A") have been filed with the Canadian Securities Regulatory authorities and are available on SEDAR at sedarplus.ca and Dexterra'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.
Conference Call
Dexterra will host a conference call and webcast to begin promptly at 8:30 am Eastern time on March 8, 2024 to discuss the 2023 year-end and fourth 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's website at dexterra.com/investor-presentations-events/ by selecting the webcast link. An archived recording of the conference call will be available approximately one hour after the completion of the call until April 8, 2024 by dialing 1-855-669-9658, passcode 0122.
About Dexterra
Dexterra 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 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:
Denise Achonu, CFO
Head office: Airway Centre, 5915 Airport Rd., 4th Floor Mississauga, Ontario L4V 1T1
Telephone: (905) 270-1964
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.
Adjusted EBITDA
| Three months ended December 31, | Years ended December 31, | |||||||||||
| (000's) | 2023 | 2022 | 2023 | 2022 | ||||||||
| Net earnings (loss) | $ | (301 | ) | $ | (2,873 | ) | $ | 26,750 | $ | 3,715 | ||
| Add: | ||||||||||||
| Share based compensation (recovery) | (236 | ) | 426 | 1,812 | 1,112 | |||||||
| Depreciation & amortization | 10,017 | 9,096 | 40,244 | 38,605 | ||||||||
| Equity investment depreciation | 439 | 303 | 1,614 | 1,181 | ||||||||
| Finance costs | 3,507 | 2,975 | 14,270 | 8,953 | ||||||||
| Loss (gain) on disposal of property, plant and equipment | 1,042 | (117 | ) | 919 | (417 | ) | ||||||
| Asset impairment(3) | — | — | 2,210 | — | ||||||||
| Income tax expense (recovery) | (1,163 | ) | (2,854 | ) | 8,488 | (495 | ) | |||||
| Contract loss provisions (recovery)(1) | (660 | ) | 3,510 | 1,596 | 6,678 | |||||||
| Restructuring and other costs(2) | — | 3,520 | 2,727 | 5,394 | ||||||||
| Adjusted EBITDA(1) | $ | 12,645 | $ | 13,986 | $ | 100,630 | $ | 64,725 | ||||
(1) Contract loss provisions for the three months and year ended December 31, 2023 were a $0.7 million recovery and $1.6 million expense, respectively (Q4 2022 and 2022 - $2.9 million). The costs in 2022 also included losses from a contractual dispute and remediation work on pre-acquisition contracts from the Acquisition of Horizon North Logistics Inc. in May 2020 of $3.8 million (Q4 2022 - $0.6 million).
(2) Restructuring and other costs for the three months and year ended December 31, 2023 of $nil and $2.7 million, respectively include costs related to the CEO and CFO transitions of $1.9 million and demobilization and restructuring costs of $0.8 million for the year. The three months and year ended December 31, 2022 items included restructuring, system implementation and acquisition costs of $3.5 million and $5.4 million respectively.
(3) For the year ended December 31, 2023, the Corporation recognized an asset impairment of $2.2 million on excess camp assets which it is selling (2022 - $nil).
Free Cash Flow
| Three months ended December 31, | Years ended December 31, | |||||||||||
| (000's) | 2023 | 2022 | 2023 | 2022 | ||||||||
| Net cash flows from operating activities | $ | 59,942 | $ | 30,794 | $ | 80,545 | $ | 63,991 | ||||
| Sustaining capital expenditures, net of proceeds, including intangibles | (636 | ) | (1,764 | ) | (2,792 | ) | (4,556 | ) | ||||
| Finance costs paid | (3,659 | ) | (2,739 | ) | (14,413 | ) | (8,531 | ) | ||||
| Lease payments | (2,231 | ) | (3,174 | ) | (10,278 | ) | (10,652 | ) | ||||
| Free Cash Flow | $ | 53,416 | $ | 23,117 | $ | 53,062 | $ | 40,252 | ||||
Forward-Looking Information
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's future operating results and economic performance, management market and inflationary environment expectations, lodge occupancy levels, its leverage, Free Cash Flow, the strategic review and potential sale of the NRB Modular Solutions business, NRB Modular Solutions backlog and revenue, and wildfire activity expectations 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, a reasonable valuation and other satisfactory terms being obtained for a potential sale of the NRB Modular Business, which Dexterra 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 49.0% 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 22 of the Corporation's Consolidated Financial Statements for the year ended December 31, 2023 and 2022 contained in its most recent Annual Report filed with securities regulatory authorities in Canada and available on SEDAR at sedarplus.ca. 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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