Dexterra Group Inc. Announces Results for Q4 and Year Ended December 31, 2022 and Declares Dividend

Toronto, Ontario--(Newsfile Corp. - March 8, 2023) - Dexterra Group Inc. (TSX: DXT)

Highlights

• Consolidated revenue totaled $971.5 million (Q4 2022 - $253.9 million) for 2022 compared to $733.4 million in the prior year (Q4 2021 - $201.6 million), an increase of 32%. The increase in revenue is largely attributed to the continued growth in IFM and WAFES, including additional revenue of $108.3 million (Q4 2022 - $33.0 million) generated by the acquisitions of FCPI Dana Investments Inc. ("Dana") and the Tricom Group ("Tricom") businesses or collectively the "2022 IFM Acquisitions";

• The Corporation's Adjusted EBITDA for 2022 was $64.7 million (2021 - $80.8 million) and $14.0 million in Q4 2022 (Q4 2021 - $18.1 million). This decrease related to inflationary pressures of approximately $20 million during the year ended December 31, 2022 primarily on fixed price contracts on social affordable housing projects in the Modular Solutions business which included a special provision in Q4 2022 of approximately $8 million to cover expected cost escalation and future losses on projects to be completed in 2023. This was partially offset by strong WAFES results;

• The Corporation reported consolidated net earnings of $3.7 million for 2022 (Q4 2022 - net loss of $2.9 million) which included non-recurring items of $12.1 million (Q4 2022 - $7.0 million) which are described below;

• On December 2, 2022, the Corporation signed an agreement to acquire all outstanding shares of VCI Controls Inc. ("VCI"). The acquisition closed on January 31, 2023 and expands the existing IFM service offering to include building automation controls and energy efficiency solutions; and

• Dexterra declared a dividend for the first quarter of 2023 of $0.0875 per share payable to shareholders of record at the close of business on March 31, 2023 which will be paid on April 17, 2023.

Fourth Quarter and Annual Financial Summary

(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.
(2)Adjusted EBITDA for year ended December 31, 2021 includes the Canadian Emergency Wage Subsidy ("CEWS") of $9.1 million, comprised of $1.7 million in IFM, $6.6 million in WAFES, $0.6 million in Modular, and $0.2 million in Corporate ($nil for the three months ended December 31, 2021). There was no CEWS in 2022.
(3)Adjusted EBITDA as a % of revenue for the year ended December 31, 2021 excludes CEWS of $9.1 million.
(4)Non-recurring charges included in pre-tax earnings are described in the reconciliation of Non-GAAP Measures section and included $12.1 million in the year ended December 31, 2022 (2021- $2.0 million) and $7.0 million for the three months ended December 31, 2022 (2021- $2.0 million).

Operational Analysis

(1) Adjusted EBITDA for year ended December 31, 2021 includes CEWS of $9.1 million, comprised of $1.7 million in IFM, $6.6 million in WAFES, $0.6 million in Modular, and $0.2 million in Corporate ($nil for the three months ended December 31, 2022).
(2)Adjusted EBITDA as a % of revenue for the year ended December 31, 2021 excludes CEWS of $9.1 million.

Integrated Facilities Management ("IFM")

For the year ended December 31, 2022, IFM revenues were $279.4 million, an increase of $124.2 million driven by the 2022 IFM Acquisitions which contributed $108.3 million in revenue and new business wins. Adjusted EBITDA of $2.8 million for Q4 2022 and $13.6 million for the year ended December 31, 2022 were up slightly compared to Q3 2022 and fiscal 2021. Adjusted EBITDA as a percentage of revenue excluding the Dana business was 7% for the year ended December 31, 2022. Dana had revenues of $79 million during the year (Q4 2022 revenue - $24.2 million) and a negative Adjusted EBITDA in both periods due to the restart of certain significant contracts as COVID restrictions lessened and food inflation.

For Q4 2022, IFM revenues were $78.5 million, an increase of $39.3 million, or 100%, from Q4 2021 and by $7.1 million or 10% from Q3 2022. The increase primarily reflects the additional revenue generated through the 2022 IFM Acquisitions, which contributed $33.0 million in revenue in Q4 2022. Excluding the acquisitions, revenue increased by $6.3 million or 16% compared to Q4 2021 due to new business wins earlier in the year. The IFM Adjusted EBITDA as a percentage of revenue, excluding the impact of loss contracts and the Dana business, was 6% for Q4 2022 and improved compared to Q3 2022.

Management believes 2023 margins should continue to improve as inflationary pressures reduce, cost adjustment clauses are enacted and the Dana business becomes profitable.

Workforce Accommodations, Forestry and Energy Services ("WAFES")

Revenue from WAFES for the year ended December 31, 2022 was $490.0 million which is an increase of $96.2 million or 24% compared to 2021. The increase is attributable to growth in camp catering, install activities and higher occupancy levels. Revenues from Energy Services were $59.3 million for the year ended December 31, 2022 which is an increase of $23.5 million or 65% compared to 2021. For the year ended December 31, 2022, WAFES support services activity accounted for 56% (44% asset-based services) of total WAFES revenue compared to 55% support services for the same period of 2021. The Adjusted EBITDA as a percentage of revenue is 15% (Q4 2022 - 17%), compared to 17% in 2021. The lower margin as compared to 2021 is primarily due to a change in revenue mix in 2022 and inflationary increases to food and utilities costs in the business which are generally passed on to clients with a timing lag. The higher margins in Q4 2022 included higher margin matting activities and retroactive price increases of $2.8 million (2021- $1.8 million).

Revenue from the WAFES business for Q4 2022 was $123.1 million, an increase of $11.2 million or 10% compared to Q4 2021. WAFES revenue performance was stronger in Q4 2022 compared to Q4 2021 due to high business activity levels, including higher access matting rentals and sales and field service activity.

Modular Solutions

Revenue for the year ended December 31, 2022 was $199.6 million, an increase of $17.9 million (Q4 2022 revenue - $52.2 million) over the comparative periods. Adjusted EBITDA loss for the year ended December 31, 2022 was $8.3 million (2021 - Adjusted EBITDA of $13.3 million) and an Adjusted EBITDA loss of $6.6 million in Q4 2022 (Q4 2021 - $2.9 million).

Inflation, especially higher subcontractor costs, and supply chain constraints significantly impacted the modular business profitability including many fixed price social affordable housing projects signed in 2021. Most of these projects are British Columbia ("BC") based and experienced delays. The cost escalation or inflationary impact in 2022 attributed to social affordable projects is approximately $20 million. Adjusted EBITDA loss in Q4 2022 of $6.6 million included a special provision of $8 million in Q4 2022 to account for expected future losses to complete these contracts in 2023.

Margins for the Modular segment are expected to improve in 2023 as the aforementioned fixed price projects are completed and through ongoing efforts in executing a 4-point business turn-around plan including (i) improving project management practices, processes, and tools, (ii) revising contract pricing and including inflation risk management provisions in all new contracts, (iii) supply chain management initiatives including forward purchasing of lumber and other materials, and (iv) continued diversification of the project pipeline to reduce social affordable housing concentration risk.

Non-recurring items

Costs include non-recurring items recorded in direct costs and SG&A expenses for the year ended December 31, 2022 of $12.1 million (Q4 2022 - $7.0 million) including: contract loss provisions of $3.8 million (Q4 2022 - $0.6 million), net of revenue of $3.1 million (Q4 2022 - $nil) on pre-merger commercial disputes which have been remediated; $2.9 million recorded in Q4 2022 on an onerous IFM contract to record future expected losses over the life of the contract; costs of $2.0 million (Q4 2022 - $2.0 million) related to the restructuring and systems implementation for a business unit being integrated with the VCI Controls Inc. acquisition; restructuring costs of $1.8 million (Q4 2022 - $0.7 million); and other items of $1.6 million (Q4 2022 - $0.8 million) including acquisition costs.

Liquidity and Capital Resources

For the year ended December 31, 2022, cash generated by operating activities was $64.0 million, which was similar to the prior year as stronger working capital management offset the lower earnings in 2022. Debt levels are expected to be reduced in 2023 in the absence of acquisitions.

Debt was $94.0 million at December 31, 2022. The Corporation's financial position and liquidity remain strong with $95.0 million of unused capacity on its credit lines at December 31, 2022.

Additional Information

A copy of Dexterra's Consolidated Financial Statements ("Financial Statements") for the years ended December 31, 2022 and 2021 and related Management's Discussion and Analysis ("MD&A") have been filed with the Canadian securities regulatory authorities and are available on SEDAR at sedar.com 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 4:30 pm Eastern time on March 9, 2023 to discuss the 2022 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 9, 2023 by dialing 1-855-669-9658, passcode 9873.

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:

Drew Knight, CFO

Head office: Airway Centre, 5915 Airport Rd., 4th Floor
Mississauga, Ontario L4V 1T1
Telephone: (416) 767-1148

You can also visit our website at dexterra.com.

Non-GAAP measures

Certain measures and ratios in this news release do not have any standardized meaning as prescribed by GAAP and, therefore, are considered non-GAAP measures. Non-GAAP measures include "Adjusted EBITDA", calculated as earnings before interest, taxes, depreciation, amortization, equity investment depreciation, share based compensation, gain/loss on disposal of property, plant and equipment and non-recurring items; "Adjusted EBITDA excluding CEWS", calculated as Adjusted EBITDA less CEWS; "Adjusted EBITDA as a percentage of revenue", calculated as Adjusted EBITDA excluding CEWS divided by revenue; IFM Adjusted EBITDA as a % of revenue, excluding loss contracts and the Dana business, calculated as Adjusted EBITDA less Adjusted EBITDA related to loss contracts and the Dana business divided by revenue less revenue from loss contracts and the Dana business; and "Free Cash Flow", calculated as net cash flows from (used in) operating activities, less sustaining capital expenditures, purchase of intangible assets, lease payments and finance costs plus proceeds on the sale of property, plant and equipment. These measures and ratios provide investors with supplemental measures of Dexterra's operating performance and highlight trends in its core businesses that may not otherwise be apparent when relying solely on GAAP financial measures. Dexterra also believes that securities analysts, investors and other interested parties frequently use non-GAAP measures in the evaluation of issuers. Dexterra's management also uses non-GAAP measures in order to facilitate operating performance comparisons from period to period, to prepare annual operating budgets, and to determine components of management compensation.

These measures are regularly reviewed by the Chief Operating Decision Makers and provide investors with an alternative method for assessing the Corporation's operating results in a manner that is focused on the performance of the Corporation's ongoing operations and to provide a consistent basis for comparison between periods. These measures should not be construed as alternatives to net earnings and total comprehensive income or operating cash flows as determined in accordance with GAAP as indicators of the Corporation's performance. The method of calculating these measures may differ from other entities and accordingly, may not be comparable to measures used by other entities. For a reconciliation of these non-GAAP measures to their nearest measure under GAAP please refer to "Reconciliation of non-GAAP measures".

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.

(1) Includes CEWS of $9.1 million for the year ended December 31, 2021.
(2) Results include contract loss provisions for the year ended December 31, 2022 of $3.8 million (2021 - $1.7 million; Q4 2022 - $0.6 million; Q4 2021 - $1.7 million) for disputes and the remediation work related to contracts in place at the time of the Acquisition of Horizon North Logistics Inc. in May 2020 (net of revenue of $3.1 million in 2022 (Q4 2022 - $nil)) and $4.0 million in 2021 (Q4 2021- $4.0 million) and $2.9 million related to an onerous IFM contract recorded in Q4 2022. The remediation work on the pre-Acquisition contracts is substantially complete with final payments to be negotiated.
(3) Corporate SG&A for the year ended December 31, 2022 includes costs of $2.9 million including restructuring costs of $1.8 million (Q4 2022 - $0.7 million); and other items of $1.1 million (Q4 2022 - $0.3 million) including acquisition costs. Restructuring and other costs also includes direct costs of $2.5 million (Q4 2022 - $2.5 million), of which $2.0 million (Q4 2022 - $2.0 million) relates to a restructuring and systems implementation for a business unit being integrated with the VCI Controls Inc. acquisition and $0.5 million relates to other items (Q4 2022 - $0.5 million).

IFM Adjusted EBITDA as a % of revenue, excluding loss contracts and the Dana business

Free Cash Flow

Adjusted EBITDA excluding CEWS

No CEWS was recorded in Q4 2021 or in 2022 so the Adjusted EBITDA and Adjusted EBITDA excluding CEWS numbers are the same.

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'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, including COVID-19 related impacts and the impacts of the 2022 IFM Acquisitions; management expectations of market sector recoveries, its leverage, Free Cash Flow, NRB Modular Solutions backlog and revenue, 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, 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, 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'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 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's products and services; Dexterra's significant shareholder may substantially influence its direction and operations and its interests may not align with other shareholders; its significant shareholder's 49% 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 operates; climate changes could increase Dexterra'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'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'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 years ended December 31, 2022 and 2021 contained in its most recent Annual Report filed with securities regulatory authorities in Canada and available on SEDAR at sedar.com. The reader should not place undue importance on forward-looking information and should not rely upon this information as of any other date. Dexterra 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.

To view the source version of this press release, please visit https://www.newsfilecorp.com/release/157747