2020MediaCenter

Stuart Olson Reports Second Quarter 2020 Results

CALGARY, AB, Aug. 12, 2020 /CNW/ – Stuart Olson Inc. (TSX: SOX) (“Stuart Olson” or the “Company”) today announced the financial results for the second quarter and first six months of 2020.

“Our second quarter results reflect impacts to our business of the COVID-19 pandemic, including an 8% year-over-year decline in second quarter revenue to $220 million. However, proactive responses by management to the current challenging economic and operating environments, including active cost controls in respect of all spending, contributed to a meaningful reduction in administrative costs in the period. In the second quarter we were also able to maintain our consolidated backlog at $1.6 billion, and subsequent to quarter end added contracts valued at an estimated $225 million. These new contract awards consisted of a large construction management project at a post-secondary institution in Ontario and a four-year maintenance and turnaround contract at a new oil sands site,” said David LeMay, President & CEO of Stuart Olson.

“The announced combination of Bird Construction and Stuart Olson will create a leading Canadian construction company with increased scale and diversification across services, end-markets and geographies, which, combined with a stronger balance sheet and appropriate capital structure, will be better positioned to deliver sustainable value to all stakeholders going forward,” added Mr. LeMay. “In terms of the announced transaction with Bird, we have secured the support of 31% of Stuart Olson’s shareholders, 100% of our secured bank lenders and 100% of the unsecured convertible debenture holders. We expect this transaction to close early in the fourth quarter of 2020.”

FINANCIAL HIGHLIGHTS

Three months ended Six months ended
June 30 June 30
$ millions, except percentages and per share amounts 2020 2019 2020 2019
Contract revenue 220.1 239.5 445.0 460.3
Contract income 18.4 22.7 35.1 44.1
Contract income margin 8.4%  9.5%  7.9%  9.6% 
Administrative costs 17.4 22.6 35.8 44.9
Impairment loss 41.2 nil 43.5 nil
Adjusted EBITDA 8.7 6.9 14.3 15.0
Adjusted EBITDA margin 4.0% 2.9% 3.2% 3.3%
Net loss (40.1) (2.2) (45.5) (4.7)
Loss per share
Basic loss per share (1.42) (0.08) (1.61) (0.17)
Diluted loss per share (1.42) (0.08) (1.61) (0.17)
Adjusted free cash flow 8.6 (0.2) 6.9 (4.3)
Adjusted free cash flow per share 0.30 (0.01) 0.24 (0.15)
$ millions Jun. 30,
2020
Dec. 31,
2019
Backlog (1) 1,624.4 1,489.3
Working capital 63.8 44.8
Long-term debt, excluding current portion 78.2 52.1
Convertible debentures, excluding equity portion 66.1 65.8

These financial results are presented in conformance with International Financial Reporting Standards (“IFRS”). All figures are in Canadian dollars unless otherwise noted. Certain financial and operational measures referred to in this press release, including “contract income margin”, “adjusted EBITDA”, “adjusted EBITDA margin”, “backlog”, “adjusted free cash flow”, “adjusted free cash flow per share” and “net long-term indebtedness to adjusted EBITDA”, are not prescribed measures under IFRS. For a description of these measures, please see the “Non-IFRS Measures” section in Stuart Olson’s June 30, 2020 Management’s Discussion & Analysis (“MD&A”).

SECOND QUARTER (“Q2”) 2020 OVERVIEW

  • As at June 30, 2020, total backlog increased to $1.6 billion, from $1.5 billion as at December 31, 2019. The current backlog includes a mix of public, private and industrial projects from Ontario to British Columbia and is predominantly made up of low-risk contract arrangements. During the quarter, the Industrial Group secured a three-and-a-half-year contract valued at an estimated $120 million to provide turnaround and maintenance services to a new customer operating in the power industry. The Commercial Systems Group also added a combined $50.0 million to backlog in the quarter related to a food processing facility in Ontario and a healthcare centre in Alberta.
    • Subsequent to the end of the quarter, the Buildings and Industrial Groups secured contracts valued at an estimated combined $225 million, consisting of a construction project at a post-secondary institution in Ontario and a four-year maintenance and turnaround contract at a new oil sands site. These new awards will be added to third quarter 2020 backlog.
  • The Company generated consolidated revenue of $220.1 million in the second quarter of 2020, compared to $239.5 million in the same quarter last year. The year-over-year change primarily relates to reduced activity for the Commercial Systems Group as a result of the COVID-19 pandemic.
  • During the second quarter of the year, the Company recognized non-cash asset impairments of $41.2 million, primarily in respect of a write-down of goodwill and intangibles to fair market value.
  • The Company recognized a net loss of $40.1 million (diluted loss per share of $1.42) in the second quarter of 2020, compared to a net loss of $2.2 million (diluted loss per share of $0.08) in the second quarter of 2019. The year-over-year change is due primarily to non-cash impairment loss.
  • Second quarter 2020 adjusted EBITDA was $8.7 million (adjusted EBITDA margin of 4.0%), as compared to the $6.9 million (adjusted EBITDA margin of 2.9%) generated in the period last year. This change reflects the significant impact to Stuart Olson’s businesses from the COVID-19 pandemic, with spring turnaround activity, construction projects and service work that had been planned for the quarter having been delayed or deferred, offset by $10.5 million of anticipated recoveries recognized in certain legal entities related to the Canada Emergency Wage Subsidy (“CEWS”). Buildings Group adjusted EBITDA in the quarter was also impacted by the settlement of several project disputes totaling $3.4 million.
  • Adjusted free cash flow was an inflow of $8.6 million (inflow of $0.30 per share) in Q2 2020, as compared to an adjusted free cash outflow of $0.2 million (outflow of $0.01 per share) in the period last year. The $8.7 million improvement primarily reflects the collection of significant tax refunds in the second quarter of 2020, together with the increase in adjusted EBITDA outlined above.
  • As at June 30, 2020, the Company had cash and cash equivalents, excluding non-operationally restricted cash, of $4.6 million and additional borrowing capacity on its revolving credit facility (“Revolver”) of $37.3 million, for combined available liquidity of $41.9 million. This is slightly lower than a combined balance of $44.2 million ($5.6 million of cash and cash equivalents, excluding non-operationally restricted cash, and $38.6 million additional borrowing capacity) as at December 31, 2019, primarily due to required investments in non-cash working capital in the first half of 2020.

BIRD AND STUART OLSON JOIN FORCES

On July 29, 2020, Bird Construction Inc. (“Bird”) and Stuart Olson announced a definitive arrangement agreement under which Bird will acquire all of the issued and outstanding common shares of the Company, pursuant to an arrangement under the Business Corporations Act (Alberta) (the “Transaction”). The Transaction is expected to close early in the fourth quarter of 2020, subject to obtaining the required approvals of the Court of Queen’s Bench of Alberta, the Competition Bureau, shareholders, the Company’s secured bank lenders and unsecured convertible debenture holders, as well as other approvals and the satisfaction of other customary closing conditions.

Please refer to the press release “Bird and Stuart Olson Join Forces to Create a Leading Canadian Construction Company” dated July 29, 2020, for further details.

ABOUT STUART OLSON INC.

Stuart Olson Inc. provides general contracting and electrical building systems contracting in the public and private construction markets as well as general contracting, electrical, mechanical and specialty trades, such as insulation, cladding and asbestos abatement, in the industrial construction and services market. The Company operates office locations and projects throughout Western Canada, Ontario and the territories. Stuart Olson was recognized as one of Alberta’s Top Employers in 2020 for the fourth consecutive year. Stuart Olson’s common shares are listed on the Toronto Stock Exchange under the symbol “SOX”. www.stuartolson.com

FORWARD-LOOKING INFORMATION

This press release contains certain statements that may constitute forward-looking information within the meaning of applicable securities laws.

Often, but not always, forward-looking information can be identified by the use of such words as “may”, “will”, “expect”, “believe”, “plan”, “intend”, “estimate”, “outlook”, “forecast”, “should”, “anticipate”, “seek”, “continue”, “see”, “project”, “predict”, “propose”, “targeting”, “potential”, “could”, “might”, “grow”, “momentum” and other similar terminology, including statements concerning possible or assumed future results. Forward-looking information is based on management’s reasonable assumptions, analysis and estimates in respect of its experience and perception of trends, current economic conditions, government policies and expected developments, as well as other material factors that it considers to be relevant at the time of making such statements. In particular, this press release contains forward-looking information in the section titled “Bird and Stuart Olson Join Forces”, including in respect of the expectation that the Transaction with Bird will close early in the fourth quarter of 2020 or at all.

The forward looking information in this press release should not be interpreted as providing a full assessment or reflection of the unprecedented impacts of the recent COVID-19 pandemic and the resulting indirect global and regional economic impacts. The forward-looking information in this press release is included solely for the purpose of assisting investors in understanding the Company’s financial position and the results of its operations as at the date hereof. By its nature, forward-looking information involves known and unknown risks and uncertainties, which give rise to the possibility that management’s assumptions, analysis and estimates will be incorrect and that the Company’s anticipated results will not be achieved. Although the Company believes that the statements with respect to forward-looking information are reasonable and current, such statements should not be interpreted as a guarantee of future performance or results, and will not necessarily be an accurate indication of whether or not such results will be achieved. Forward-looking information is necessarily subject to a number of factors that may cause actual results to differ materially from those results implied by the expectations suggested by such information. Those factors include, without limitation, the risks and uncertainties described in the Company’s Annual Information Form filed with the securities regulatory authorities in Canada under the Company’s profile at www.sedar.com. Readers are encouraged to consider the foregoing risks and other factors carefully when evaluating the forward-looking information and are cautioned not to place undue reliance upon such information when making investment decisions.

The forward-looking information in this press release is current to the date hereof, and is subject to change following such date. While the Company may elect to do so, unless required by applicable law, it undertakes no obligation to update this information to reflect new information or circumstances at any particular time.

 

David LeMay, President and Chief Executive Officer, Stuart Olson Inc., (403) 685-7777, Email: inquiries@stuartolson.com; Dean Beacon, Executive Vice President and Chief Financial Officer, Stuart Olson Inc., (403) 685-7777, Email: inquiries@stuartolson.com