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Vertex Resource Group Ltd. Management Reports 2025
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Vertex Resource Group Ltd.
Management's Discussion and Analysis
For the three and twelve months ended December 31, 2024, and 2023
VERTEX
The following Management's Discussion and Analysis ("MD&A") is dated March 21, 2025, and is a discussion of the consolidated financial position and results of Vertex Resource Group Ltd. ("Vertex" or the "Company") for the three and twelve months ended December 31, 2024 and 2023, and should be read together with Vertex's annual audited consolidated financial statements and accompanying notes (the "Annual Financial Statements") for the year ended December 31, 2024, and the Annual Information Form ("AIF") for the same year filed on the SEDAR+ profile at www.sedarplus.ca. All dollar amounts in this MD&A are in thousands of Canadian dollars, except share and per share amounts or unless otherwise stated.
This MD&A, the Annual Financial Statements and 2023 comparative information have been prepared in accordance with IFRS Accounting Standards as issued by the International Accounting Standard Board ("IFRS"), which are also Generally Accepted Accounting Principles ("GAAP") for publicly accountable enterprises in Canada. This MD&A contains forward looking information and reference should be made to "Forward-Looking Information".
Highlights
| Three months ended December 31, | Years ended December 31, | |||
|---|---|---|---|---|
| (in thousands of Canadian Dollars) | 2024 | 2023 | 2024 | 2023 |
| Gross revenue | 52,888 | 65,110 | 232,183 | 255,237 |
| Less flow through subcontractor costs | 408 | 3,767 | 2,216 | 7,978 |
| Net revenue | 52,480 | 61,343 | 229,967 | 247,259 |
| Profit margin | 12,860 | 12,356 | 60,293 | 61,684 |
| Profit margin % | 25% | 20% | 26% | 25% |
| Adjusted EBITDA (1) | 7,018 | 7,772 | 35,889 | 37,932 |
| Adjusted EBITDA % (1) | 13% | 13% | 16% | 15% |
| Free cash flow (1) | 12,070 | 4,042 | 21,185 | 17,810 |
| Adjusted EBITDA per share, basic and diluted (1) | 0.06 | 0.07 | 0.32 | 0.33 |
| (Loss) earnings per share, basic and diluted | (0.06) | (0.01) | (0.05) | 0.02 |
Net Revenue (\$ millions)
Adjusted EBITDA(1) (\$ millions)
(1) See "Non-IFRS Financial Measures" page 14
Vertex Resource Group Ltd.
Management's Discussion and Analysis
For the three and twelve months ended December 31, 2024, and 2023
VERTEX
Fourth Quarter Operational and Financial Highlights
Vertex completed the fourth quarter consistent with expectations and prior year. Revenue declines compared to prior year are attributable to the completion of pipeline projects, including the TMX pipeline which was heavily subcontracted. Our ability to scale to customer demands without impacting margins has been a key factor in maintaining stability.
Fourth quarter highlights:
- Profit margin increased 5.7% compared to Q4 2024.
- Free cash flow¹ generated was $12.1 million compared to $4.0 million in Q4 2023.
- Reduced loans and borrowings during the quarter by $13.5 million.
Annual Operational and Financial Highlights
Vertex demonstrated resilience and strategic adaptability in 2024. While Vertex's services returned to regular intervals after exceeding historical levels in 2023 due to the completion of large infrastructure projects, the company successfully navigated the shift. Despite smaller projects replacing major ones from the previous year and the completion of pipeline projects, Vertex remained steadfast. Although these factors led to a reduction in revenue, the company maintained stable profit margins and is optimistic about the new year. Vertex is well-prepared for similar challenges and is ready to uncover new opportunities to provide value to both existing and new customers.
Annual highlights:
- Profit margin as a % of net revenue increased to 26.5% compared to 24.9% in 2023
- Reduced loans and borrowings during the year by $5.7 million, and lease liabilities by $11.0 million.
- Free cash flow¹ generated was $21.2 million compared to $17.8 million in 2023.
- Repurchased common shares using the Normal Course Issuer Bid for consideration of $1.0 million. The total common shares repurchased and cancelled during the NCIB represent 3.2% of the total issued and outstanding common shares of the Company.
- Extended the maturity date of the Syndicate Credit Facilities.
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(1) See "Non-IFRS Financial Measures" page 14
Vertex Resource Group Ltd.
Management's Discussion and Analysis
For the three and twelve months ended December 31, 2024, and 2023
VERTEX
Executive Overview
Vertex is a TSX Venture Exchange publicly traded environmental services company providing industry leading solutions to a diverse range of clients across Canada and within select regions of the United States. Vertex helps its clients achieve their developmental and operational goals through a versatile suite of integrated services. From initial site selection, consultation, and regulatory approval, through the construction, operation and maintenance phases, to conclusion and environmental cleanup, Vertex offers services throughout the life cycle of its clients' projects. The Company services a wide array of high-quality customers operating in numerous industries, and Vertex trades under the symbol "VTX".
The Company has two reportable segments:
Environmental Consulting
Through Vertex's Environmental Consulting segment, the Company provides a variety of services related to assisting its clients to meet internal environmental standards, environmental legislation, and related environmental compliance requirements. These services span multiple industries including energy, mining, utilities, forestry, private development, public infrastructure, telecommunications, and government. More specifically, these services include advisory services related to new capital expenditure and asset development, environmental consulting and monitoring on existing assets, emission management solutions, sub-surface engineering, facility engineering, asset retirement and land reclamation services.
Environmental Services
Through Vertex's Environmental Services segment, the Company provides a variety of services related to transportation, removal, storage, disposal of materials, and maintenance of facilities in an environmentally safe manner. Services include fluid management and logistics, waste and recycling, industrial cleaning and maintenance, hydro-excavating, and site services for various industries including energy, telecommunications, public sector, utilities, mining, and agriculture.
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Vertex Resource Group Ltd.
Management's Discussion and Analysis
For the three and twelve months ended December 31, 2024, and 2023
VERTEX
Result of Operations
| Three months ended December 31, | Years ended December 31, | |||
|---|---|---|---|---|
| 2024 | 2023 | 2024 | 2023 | |
| Gross revenue | 52,888 | 65,110 | 232,183 | 255,237 |
| Less flow through subcontractor costs | 408 | 3,767 | 2,216 | 7,978 |
| Net revenue | 52,480 | 61,343 | 229,967 | 247,259 |
| Direct costs | 39,620 | 48,987 | 169,674 | 185,575 |
| Profit margin | 12,860 | 12,356 | 60,293 | 61,684 |
| General and administrative expenses | 5,842 | 4,584 | 24,404 | 23,752 |
| Depreciation and amortization | 3,863 | 6,461 | 23,153 | 23,619 |
| Finance costs | 3,016 | 2,728 | 11,498 | 11,486 |
| Impairment | 6,000 | - | 6,000 | - |
| Share-based compensation | 68 | 14 | 246 | 164 |
| (Loss) income before taxes | (5,929) | (1,431) | (5,008) | 2,663 |
| Income tax (recovery) expense | 910 | (107) | 1,126 | 205 |
| Net (loss) income for the period | (6,839) | (1,324) | (6,134) | 2,458 |
| Other comprehensive (loss) income | ||||
| Foreign currency translation adjustment, net of tax | (35) | 5 | (39) | 1 |
| Total comprehensive (loss) income for the period, net of tax | (6,874) | (1,319) | (6,173) | 2,459 |
| (Loss) earnings per share | ||||
| Basic and diluted | (0.06) | (0.01) | (0.05) | 0.02 |
| ADJUSTED EBITDA(1) | ||||
| Environmental Consulting | 2,688 | 1,561 | 8,298 | 7,312 |
| Environmental Services | 6,811 | 6,035 | 35,181 | 37,135 |
| Corporate | (2,481) | 176 | (7,590) | (6,515) |
| 7,018 | 7,772 | 35,889 | 37,932 |
(1) See "Non-IFRS Financial Measures" page 14
Vertex Resource Group Ltd.
Management's Discussion and Analysis
For the three and twelve months ended December 31, 2024, and 2023
VERTEX
Outlook
2024 was a transitional year for Vertex. While revenues declined, margins increased due to our steadfast dedication to driving operational efficiencies. We expect our revenue for 2025 to be slightly less than in 2024, with margins remaining similar. There are no major turnaround projects scheduled for 2025, which have historically been executed in the second and third quarters. Our efforts will be concentrated on sustaining steady activity levels and capitalizing on ongoing maintenance and development opportunities across our operating segments.
Vertex will continue to prioritize providing a return on assets for our shareholders. This includes maximizing the effectiveness of our assets and ensuring that our investments generate strong returns. We are targeting a debt covenant ratio of 2.0x by the end of 2026. This goal aligns with our commitment to maintaining a healthy balance sheet by further reducing our debt levels enhancing our capabilities for shareholder returns or future acquisitions.
The projected GDP growth of 1.8% for Canada in 2025, supported by increased household spending, business investment, and export growth, aligns with the Bank of Canada's outlook. Inflations is expected to remain close to the Bank of Canada's 2% target. However, the uncertainty around tariffs between the US and Canada is expected to impact businesses and consumers. Vertex is diligently monitoring the unfolding situation to ensure we remain nimble and can maneuver through any potential impacts effectively.
Overall, Vertex is well-positioned to navigate the challenges and opportunities of 2025 and beyond. Our unwavering focus on operational efficiencies, strategic asset management, and proactive response to market dynamics ensures that we remain resilient in the face of uncertainty. By continuously enhancing our service offerings and leveraging our expertise, we are committed to delivering exceptional value to our shareholders and driving sustainable growth. Vertex's strategic vision and adaptability will enable us to capitalize on emerging opportunities and maintain our leadership in the industry.
Results from Operations
Gross and net revenue
The following tables sets forth gross and net revenue by reportable operating segments for the following years:
| Years ended | Variance | |||
|---|---|---|---|---|
| 2024 | 2023 | $ | % | |
| Environmental Consulting | 61,700 | 69,234 | (7,534) | -10.9% |
| Environmental Services | 170,220 | 185,788 | (15,568) | -8.4% |
| Corporate | 263 | 215 | 48 | - |
| Gross revenue | 232,183 | 255,237 | (23,054) | -9.0% |
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Vertex Resource Group Ltd.
Management's Discussion and Analysis
For the three and twelve months ended December 31, 2024, and 2023
VERTEX
| Years ended | Variance | |||
|---|---|---|---|---|
| 2024 | 2023 | $ | % | |
| Environmental Consulting | 60,122 | 61,556 | (1,434) | -2.3% |
| Environmental Services | 174,393 | 189,915 | (15,522) | -8.2% |
| Corporate | (4,548) | (4,212) | (336) | - |
| Net revenue | 229,967 | 247,259 | (17,292) | -7.0% |
Gross revenue for the year ended December 31, 2024, decreased by $23.1 million or 9%. Both operating segments experienced reductions in gross revenue, impacted by the completion of the Trans Mountain Expansion and other pipeline projects.
Gross revenue for the Environmental Consulting segment decreased by $7.5 million compared to 2023. This decrease was attributable to a reduction of flow through subcontractor costs which was in line with expectations and was due to the completion of projects in 2023 that were backfilled in 2024, but not to the same level as the 2023 projects.
The Environmental Services segment gross revenue decreased by $15.6 million compared to 2023 which was due to reduced customer requirements across all service lines. There were fewer major capital and infrastructure projects in 2024, which impacted demand.
Net revenue for the year ended December 31, 2024, decreased by $17.3 million or 7% due to the above noted factors.
Net revenue for the Environmental Consulting segment was consistent with 2023.
The decrease in Environmental Services segments net revenue of $15.5 million or 8% was due to the above noted factors.
Net revenue in the Corporate segment is comprised of intersegment eliminations which were consistent year over year.
Profit Margin
| Years ended | Variance | |||
|---|---|---|---|---|
| 2024 | 2023 | $ | % | |
| Profit margin | 60,293 | 61,684 | (1,391) | -2.3% |
| Profit margin as a % of net revenue | 26.2% | 24.9% | 1.3% | 5.1% |
Despite a 7% reduction of net revenue, Vertex was able to deliver consistent profit margin and a 5.1% increase of profit margin as a % of net revenue due to disciplined spending and cost containment along with a stronger weighting of higher margin projects relative to all projects performed.
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Vertex Resource Group Ltd.
Management's Discussion and Analysis
For the three and twelve months ended December 31, 2024, and 2023
VERTEX
General and Administrative Expenses (G&A)
| Years ended | Variance | |||
|---|---|---|---|---|
| 2024 | 2023 | $ | % | |
| G&A | 24,404 | 23,752 | 652 | 2.7% |
| G&A as a % of net revenue | 10.6% | 9.6% | 1.0% | 10.5% |
G&A increased by 2.7% due to inflationary pressures from personnel, higher utilities and supplies costs. G&A as a % of net revenue increased slightly year over year due to lower revenues and the fixed nature of G&A expenses. Management is carefully monitoring these costs going into 2025.
Other Items
| Years ended | Variance | |||
|---|---|---|---|---|
| 2024 | 2023 | $ | % | |
| Depreciation and amortization | 23,153 | 23,619 | (466) | -2.0% |
| Finance costs | 11,498 | 11,486 | 12 | 0.1% |
| Impairment | 6,000 | - | 6,000 | - |
| Share-based compensation | 246 | 164 | 82 | 50.0% |
| Total | 40,897 | 35,269 | 5,628 | 16.0% |
Depreciation and amortization were consistent year over year decreasing by $0.5 million to $23.2 million for 2024.
Financing costs were flat from 2023 as the Company's debt level was relatively constant through the year.
The Company recorded impairment of goodwill during the year because of our annual impairment testing. The testing is based on a forecast model with a variety of judgemental inputs. Due to external market factors, the Company reduced its growth targets for the environmental services segment thus causing the impairment.
Net (Loss) Income for the Year
| Years ended | Variance | |||
|---|---|---|---|---|
| 2024 | 2023 | $ | % | |
| Net (loss) income for the year | (6,134) | 2,458 | (8,592) | -349.6% |
Net loss for the year increased by $8.6 million compared to 2023 primarily due to goodwill impairment recorded in the year.
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Vertex Resource Group Ltd.
Management's Discussion and Analysis
For the three and twelve months ended December 31, 2024, and 2023
VERTEX
Summary of Quarterly Results
| 2024 - Quarters Ended
(\$000 except per share amounts) | | | | |
| --- | --- | --- | --- | --- |
| | Q1 | Q2 | Q3 | Q4 |
| Gross revenue | 59,731 | 57,159 | 62,405 | 52,888 |
| Net revenue | 58,509 | 56,699 | 62,279 | 52,480 |
| Net income (loss) | (1,371) | 563 | 1,513 | (6,839) |
| Basic and diluted income (loss) per share | (0.01) | 0.00 | 0.02 | (0.06) |
| Adjusted EBITDA^{(1)} | 6,900 | 10,047 | 11,924 | 7,018 |
| 2023 - Quarters Ended
(\$000 except per share amounts) | | | | |
| --- | --- | --- | --- | --- |
| | Q1 | Q2 | Q3 | Q4 |
| Gross revenue | 58,657 | 63,147 | 68,323 | 65,110 |
| Net revenue | 56,808 | 62,303 | 66,805 | 61,343 |
| Net income (loss) | 1,011 | 1,604 | 1,167 | (1,324) |
| Basic and diluted income (loss) per share | 0.01 | 0.01 | 0.01 | (0.01) |
| Adjusted EBITDA^{(1)} | 8,615 | 10,956 | 10,589 | 7,772 |
Liquidity and Capital Management
The following table sets forth the Company's cash flow by activity for the following years:
| Years ended | ||
|---|---|---|
| 2024 | 2023 | |
| Cash provided by operating activities | 44,342 | 44,950 |
| Cash used in investing activities | (1,357) | (9,165) |
| Cash used in financing activities | (38,762) | (40,387) |
| 4,223 | (4,602) |
The Company expects to generate sufficient cash flows from operations and continues to access its credit facilities to meet contractual obligations, planned expenditures, and growth initiatives as they are required. At December 31, 2024 the Company has \$23.2 million of available committed operating and revolving loan facility (\$16.0 million) and equipment lease lines (\$7.2 million).
Cash Provided by Operating Activities
Cash provided by operating activities was consistent year over year at \$44.3 million during 2024 compared to \$45.0 million in 2023.
(1) See "Non-IFRS Financial Measures" page 14
Vertex Resource Group Ltd.
Management's Discussion and Analysis
For the three and twelve months ended December 31, 2024, and 2023
VERTEX
Cash Used in Investing Activities
Cash used in investing activities was $1.4 million during 2024, a decrease of $7.8 million from the cash used in investing activities of $9.2 million during 2023. While the purchase of property and equipment was consistent with 2023 as replacement capital expenditures were required, the expenditures increase were offset by proceeds from asset disposals increasing by $5.8 million to $13.6 million in 2024.
Cash Used in Financing Activities
Cash used in financing activities was $38.8 million during 2024, a decrease of $1.6 million from cash used by financing activities of $40.4 million during 2023. Vertex used the Normal Course Issuer Bid to buyback outstanding shares in the first half of 2024.
Adjusted Working Capital
| December 31, 2024 | December 31, 2023 | |
|---|---|---|
| Current assets | 64,767 | 70,408 |
| Current liabilities (excluding current portion of loans and borrowings, other liabilities, and lease liabilities) | 39,543 | 42,215 |
| Adjusted Working Capital (1) | 25,224 | 28,193 |
Adjusted working capital at year end 2024 was $25.2 million, a decrease of $3.0 million from December 31, 2023 which is reflective of the decrease in gross revenue and general activity, particularly in the last quarter.
Credit Facilities
| December 31, 2024 | December 31, 2023 | |
|---|---|---|
| Revolving and operating loans: | ||
| Committed revolving and operating facilities | 45,000 | 45,000 |
| Drawn on revolving and operating facilities | 29,000 | 34,500 |
| Available revolving and operating facilities | 16,000 | 10,500 |
Debt as of December 31, 2024, consisted of the items noted in Commitments and Contingencies. In 2024, the total secured credit facilities were $72.1 million (2023 - $72.0 million) and were comprised of three committed facilities: a $40.0 million (2023 - $40.0 million) syndicated facility ("revolving loan"), a $27.1 million (2023 - $27.0 million) term loan facility ("syndicate term loan"), and a $5.0 million (2023 - $5.0 million) operating facility ("operating loan"). This agreement includes an additional $15.0 million accordion facility (2023 - $20.0 million). The syndicate credit facilities are for a committed term and are secured by a General Security Agreement over all assets of the Company.
(1) See "Non-IFRS Financial Measures" page 14
Vertex Resource Group Ltd.
Management's Discussion and Analysis
For the three and twelve months ended December 31, 2024, and 2023
VERTEX
At December 31, 2024, the following terms were in effect:
Syndicated Credit Facilities
The revolving loan and syndicate term loan can be a mix of rates ranging from the lead syndicated lender's CAD prime rate or USD base rate plus 1.0%-2.3%, CAD secured overnight financing rate ("SOFR") loans plus stamping fees of 2.0%-3.3%. The Company pays a standby fee on any unutilized portion of the revolving facility on the last day of each fiscal quarter at rates ranging from 0.4%-0.7%. The interest rate ranges are based on the funded debt to Bank EBITDA ratio for the preceding quarter.
In addition to the scheduled principal payments, the syndicate term loan includes an additional principal payment based on an annual excess cash flow calculation. The excess cash flow calculation is applicable if the funded debt to EBITDA ratio as at December 31, 2024 exceeds 2.75:1.00. As at December 31, 2024 and 2023 this ratio was below resulting in no excess cash flow payment being required.
The syndicate facilities include a secured operating facility authorized to a maximum of $5.0 million to be used for general corporate purposes. The operating loan may be borrowed, repaid and re-borrowed on a revolving basis from the closing date until the maturity date. To the extent funds are drawn on the operating facility, they will bear interest at rates ranging from the lead syndicated lender's CAD prime rate or USD base rate plus 1.0%-2.3%.
The syndicate credit facilities are subject to financial covenants noted below.
Debt Covenants
Trailing twelve-month bank EBITDA (defined below) includes various adjustments as approved by the syndicate of lenders, when calculating covenants. Bank EBITDA was $32.0 million for the trailing twelve months ended December 31, 2024.
All loans are being provided in Canadian dollars and are subject to the following financial covenants, except for the subordinate working capital loan:
- The ratio of consolidated syndicated indebtedness to trailing bank EBITDA, calculated on a trailing 12-month basis,
- The ratio of consolidated senior indebtedness to trailing bank EBITDA, calculated on a trailing twelve-month basis,
- The ratio of net cash flow to fixed charges, the fixed charge coverage ratio, calculated on a rolling 4-quarter basis.
The relevant definitions of key ratio terms set forth in Credit Facility is as follows:
- Consolidated syndicated indebtedness is defined as the outstanding balance of the operating and revolving loans, the outstanding principal balance of the senior term loan, and principal portions of any equipment loans and secured equipment lease liabilities.
- Consolidated senior indebtedness is defined as consolidated syndicated indebtedness plus any outstanding principal balance of the BDC Co-lend loan.
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Vertex Resource Group Ltd.
Management's Discussion and Analysis
For the three and twelve months ended December 31, 2024, and 2023
VERTEX
- EBITDA is defined as net (loss) income before interest, taxes, depreciation and amortization, gains and losses on disposal of assets, amortization of capitalized deferred financing costs, goodwill/intangible impairment, stock-based compensation, and other gains and losses not considered reflective of underlying operations. Trailing 12-month EBITDA attributable to businesses acquired in the period are permitted to be added to EBITDA.
- Net cash flow is defined as EBITDA reduced by net capital expenditures and cash taxes.
- Fixed charges are calculated as interest expense plus scheduled principal payments of indebtedness during the 12-month trailing period.
At December 31, 2024, the Company was in compliance with the terms and covenants of its lending agreements.
Commitments and Contingencies
As part of the Company's normal operations, it often enters into contracts, such as leases and purchase contracts, which obligate the Company to make disbursements in the future. Contractual maturities for financial liabilities on an undiscounted basis, including interest and principal at December 31, 2024 are as follows:
| Due Within | Accounts payable and accrued liabilities (2) | Loans and borrowings | Other liabilities | Convertible debenture | Lease liabilities | Total |
|---|---|---|---|---|---|---|
| One year | 38,601 | 15,193 | 1,017 | 1,200 | 10,955 | 66,966 |
| Two years | - | 59,498 | - | 1,200 | 9,325 | 70,023 |
| Three years | - | 2,658 | - | 15,200 | 6,490 | 24,348 |
| Four years | - | 1,275 | - | - | 4,497 | 5,772 |
| Five years | - | 82 | - | - | 2,778 | 2,860 |
| Thereafter | - | - | - | - | 1,235 | 1,235 |
| 38,601 | 78,706 | 1,017 | 17,600 | 35,280 | 171,204 |
(2) Accounts payable and accrued liabilities includes bank indebtedness
Legal Claims
In the ordinary course of business activities, the Company may be contingently liable for litigation and claims with customers, suppliers and other third parties. Management believes that adequate provisions have been made for potential claims in the Company's accounts. Although it is not possible to estimate the extent of potential costs and losses, if any, management believes, but can provide no assurance, that the ultimate resolution of such contingencies would not have a material adverse effect on the consolidated financial position of the Company.
Off-Balance Sheet Arrangements
As at December 31, 2024 and 2023, the Company did not have any off-balance sheet arrangements.
Capital Expenditures
The Company's net capital expenditures were in line with the Company's approved capital plan for 2024. The Company undertakes to sell property and equipment in the event they are redundant or if the capital can be freed up and redeployed to other areas of the business that will improve the Company's overall profitability.
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Vertex Resource Group Ltd.
Management's Discussion and Analysis
For the three and twelve months ended December 31, 2024, and 2023
VERTEX
Credit Risk
The Company's gross and net revenues are from a diverse customer base that includes the energy, telecommunications, public sector, real estate, utility, and mining industries in Canada and certain markets in the United States. The Company believes that there is no unusual exposure associated with the collection of accounts receivable outside of the normal risk associated with contract audits and normal trade terms common in the industry. The Company performs regular credit assessments of its customers and provides allowances for potentially uncollectible accounts receivable. For the year ended December 31, 2024, the Company had one customer that accounted for 11.7% of the consolidated sales (2023 – nil customers). At December 31, 2024 the outstanding accounts receivable for this customer were $6.5 million. The aging analysis of accounts receivables is as follows:
| December 31, 2024 | December 31, 2023 | |
|---|---|---|
| 0 to 30 days | 20,033 | 34,141 |
| 31 to 60 days | 12,327 | 10,534 |
| 61 to 90 days | 4,429 | 8,424 |
| Over 90 days | 3,279 | 4,386 |
| Holdbacks | 61 | 254 |
| Trade accounts receivable | 40,129 | 57,739 |
| Accrued receivables | 4,602 | 4,190 |
| Allowance for expected credit losses | (779) | (1,364) |
| Trade and accrued receivables, net of allowance | 43,952 | 60,565 |
| Other receivables | 521 | 277 |
| 44,473 | 60,842 |
Commodity Price Risk
The Company is directly affected by fluctuation in the level of exploration, energy development and production carried on by some of its customers, which is in turn dictated by numerous factors, including world energy, prices and government policies. The demand, pricing and terms for services provided by the Company depend, in part, upon the level of industry activity for Canadian and U.S. oil and natural gas exploration and development. Industry conditions are influenced by numerous factors over which the Company has no control including: the level of oil and natural gas prices, imposition of tariffs, expectations about future oil and natural gas prices, the cost of exploring for, producing and delivering oil and natural gas, the discovery rates of new oil and natural gas reserves, available pipeline and other oil and natural gas transportation capacity, worldwide weather conditions, global political, military, regulatory and economic conditions, and the ability of oil and natural gas companies to raise equity capital or debt financing. Geopolitical tensions will have a continuing impact on future commodity prices in energy, mining and agriculture. Input costs for the Company's transportation and logistics services are impacted by fluctuating commodity prices that the Company mitigates with fuel surcharges.
Geopolitical Risk
The Company and the businesses it serves may be directly and indirectly affected by broader geopolitical trends and events which impact both the general economy and the demand for our clients' products. In recent years, there has been a rise in global conflict impacting international trade and the supply and demand for energy and in turn may impact the demand for our services. Risks arising from tariffs, interest rates, inflation, labour
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Vertex Resource Group Ltd.
Management's Discussion and Analysis
For the three and twelve months ended December 31, 2024, and 2023
VERTEX
shortages, tensions in the geopolitical and trade environment and economic uncertainty as a result of a potential for a global recession may have a materially adverse effect on the Company's future performance.
Outstanding Share Data
As of the date of this MD&A, the Company had 112,026,890 common shares outstanding. As of the same date, the Company had outstanding 3,965,000 stock options to purchase up to an aggregate of 3,965,000 common shares.
On August 25, 2023, the Company announced that the TSX Venture Exchange approved a normal course issuer bid ("NCIB") permitting the repurchase for cancellation of up to 5,781,045 common shares. In the year ended December 31, 2024, the Company repurchased and cancelled 2,467,200 shares for a total of $980. These shares had an average carrying value of $0.80 for a total amount of $1,971 (2023 - $0.80/share and $901). The NCIB expired on August 29, 2024, and was not renewed by the company.
Transactions with Related Parties
All related party transactions are in the normal course of business and are on terms that are similar to those that would be adopted if the parties were dealing at arm's length. Related party transactions include transactions with private companies that are controlled by a director or officer.
Lease liabilities include $0.7 million (2023 - $3.4 million) relating to a facility lease (2023 – two facility leases) with an officer of the Company. Principal payments for these unsecured lease liabilities and associated interest accretion for the year ended December 31, 2024, were $1.0 million (2023 - $0.9 million).
Included in general and administrative expenses is remuneration of the key management personnel of the Company, which includes directors and executive management of the Company. For the year ended December 31, 2024, remuneration of $1,465 (2023 - $1,411) included $1,323 of salaries and short-term benefits and $142 of share-based compensation (2023 - $1,315 and $96, respectively), which were paid to key management. Directors and key management own 26% of the Company.
Critical Accounting Judgments, Estimates and Accounting Policy Developments
Critical Judgments and Estimates in Applying the Company's Accounting Policies
The preparation of the consolidated financial statements requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities at the date of the consolidated financial statements, the reported amounts of revenues and expenses during the reporting period, as well as the disclosures of contingent assets and liabilities. Accordingly, actual results could differ from these estimates and judgments.
The Company has:
- continuously refined and documented its management and internal reporting systems to ensure that accurate and timely internal and external information is gathered and disseminated. Management also regularly evaluates these estimates and assumptions, which are based on past experience and other factors that are deemed reasonable under the circumstances; and
- hired employees and consultants who have the skills required to make such estimates and ensures that employees or departments with the most knowledge of the activity are responsible for the estimates. Furthermore, past estimates are reviewed and compared to actual results, and actual results are compared to budgets in order to make more informed decisions on future estimates.
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Vertex Resource Group Ltd.
Management's Discussion and Analysis
For the three and twelve months ended December 31, 2024, and 2023
VERTEX
The Company's summary of material accounting policies, estimates and critical judgements are contained in notes 3 & 4 to the consolidated financial statements.
Material Accounting Policies
- Standards adopted
The Company adopted amendments to various accounting standards effective January 1, 2024, which did not have a material impact on these consolidated financial statements.
- Standards and interpretation not yet adopted
A number of new standards, amendments to standards and interpretations of standards have been issued by the IASB and the IFRIC, respectively, the application of which is effective for periods beginning on or after January 1, 2025. The following changes may have an impact on the Company's future financial statements:
In April 2024, the IASB issued IFRS 18 Presentation and Disclosure in Financial Statements which will replace IAS 1 Presentation of Financial Statements. The new standard will establish a revised structure for the consolidated statements of comprehensive income and improve comparability across entities and reporting periods. IFRS 18 is effective for annual periods beginning on or after January 1, 2027. The standard will be applied retroactively, with certain transition provisions. The Company is currently evaluating the impact of adopting IFRS 18 on the consolidated financial statements.
Financial Instruments
The Company considers managing risk as being an integral part of its development and diversification strategies. The Company uses a proactive and rigorous approach for management of the financial risks to which it is exposed.
The Company does not enter into financial instrument agreements, including derivative financial instruments, for speculative purposes.
The Company's most significant financial risk exposure and its financial risk management policies are discussed in Note 24 to the Annual Financial Statements.
Non-IFRS Financial Measures
This 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.
"Adjusted EBITDA" is a non-IFRS financial measure which is calculated by adjusting net income (loss) 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 the management of Vertex believes it is useful for providing readers
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Vertex Resource Group Ltd.
Management's Discussion and Analysis
For the three and twelve months ended December 31, 2024, and 2023
VERTEX
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.
| Three months ended December 31, | Years ended December 31, | |||
|---|---|---|---|---|
| 2024 | 2023 | 2024 | 2023 | |
| Net (loss) income for the period | (6,839) | (1,324) | (6,134) | 2,458 |
| Add: | ||||
| Depreciation and amortization | 3,863 | 6,461 | 23,153 | 23,619 |
| Finance costs | 3,016 | 2,728 | 11,498 | 11,486 |
| Impairment | 6,000 | - | 6,000 | - |
| Share-based compensation | 68 | 14 | 246 | 164 |
| Income tax (recovery) expense | 910 | (107) | 1,126 | 205 |
| Adjusted EBITDA | 7,018 | 7,772 | 35,889 | 37,932 |
"Free cash flow" is a non-IFRS financial measure. The most directly comparable GAAP measure for free cash flow is cash flow from operating activities. A summary of the reconciliation of cash flow from operating activities to free cash flow is set forth in the table below. Management uses the term "free cash flow" for its own performance measure and to provide shareholders and potential investors with a measurement of the Company's efficiency and its ability to generate the cash necessary to fund its future growth expenditures, to repay debt and provide shareholder returns.
| Three months ended December 31, | Years ended December 31, | |||
|---|---|---|---|---|
| 2024 | 2023 | 2024 | 2023 | |
| Cash provided by operating activities | 14,561 | 6,178 | 44,342 | 44,950 |
| Changes in non-cash operating working capital items | (7,351) | 2,409 | (8,377) | (6,874) |
| Maintenance capex | (3,143) | (3,436) | (15,533) | (15,168) |
| Cash interest | (2,348) | (1,733) | (8,705) | (8,003) |
| Depreciation of right of use assets - real property | (1,200) | (1,332) | (4,160) | (4,860) |
| Cash taxes | 63 | (69) | 63 | 26 |
| Proceeds from disposal of property and equipment | 11,488 | 2,025 | 13,555 | 7,739 |
| Free cash flow | 12,070 | 4,042 | 21,185 | 17,810 |
"Adjusted working capital" is a non-IFRS financial measure which is calculated by reducing current liabilities by the current portion of loans and borrowings, lease liabilities and other liabilities. Adjusted working capital is used by Vertex to monitor its capital structure, liquidity, and its ability to fund current operations.
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Vertex Resource Group Ltd.
Management's Discussion and Analysis
For the three and twelve months ended December 31, 2024, and 2023
VERTEX
| December 31, 2024 | December 31, 2023 | |
|---|---|---|
| Current assets | 64,767 | 70,408 |
| Current liabilities, less | 61,417 | 69,170 |
| Current portion of loans and borrowings | (12,096) | (14,701) |
| Current portion of lease liabilities | (8,778) | (10,722) |
| Current portion of other liabilities | (1,000) | (1,532) |
| Current liabilities (excluding current portion of loans and borrowings, lease liabilities, and other liabilities) | 39,543 | 42,215 |
| Adjusted working capital | 25,224 | 28,193 |
"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
This MD&A contains forward-looking statements and information ("forward-looking statements") within the meaning of applicable Canadian securities laws. The forward-looking statements contained in this MD&A are based on the expectations, estimates and projections of management of Vertex as of the date of this MD&A unless otherwise stated. The use of any of the words "believe", "expect", "anticipate", "contemplate", "target", "plan", "outlook", "potential", "estimated", "intends", "continue", "may", "will", "should" and similar expressions are intended to identify forward-looking statements. More particularly and without limitation, this MD&A contains forward-looking statements concerning anticipated financial performance; the outlook for 2025; the Company's ability to grow profitably; sufficiency of working capital; and with respect to Vertex's ability to meet evolving customer demands.
Since forward-looking statements address future events and conditions, by their very nature they involve inherent risks and uncertainties. Investors are cautioned that forward-looking statements are based on the opinions, assumptions and estimates of management considered reasonable at the date the statements are made, and actual results could differ materially from those currently anticipated due to a number of factors and risks. These include, but are not limited to the risks associated with the industries in which Vertex operates in general, such as:
- Ability to access sufficient capital from internal and external sources
- Ability to market to new customers
- Ability to obtain equipment in a timely and cost-efficient manner
- Ability to secure work
- Adjustments and cancellations of backlog
- Changes in legislation, including but not limited to tax laws and environmental regulations
- Collection of recognized revenue
- Commodity price, interest rate and exchange rate fluctuations
- Competition, ethics, and reputational risks
- Compliance with environmental laws risks
- Cyber-security risks
- Economy and cyclicality
- Geopolitical risks
- Global pandemics
- Health, safety and environmental risks
- Industry and inherent project delivery risks
- Insurance risk
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Vertex Resource Group Ltd.
Management's Discussion and Analysis
For the three and twelve months ended December 31, 2024, and 2023
VERTEX
- Joint venture risk
- Labour matters
- Litigation risk
- Loss of key management; ability to hire and retain qualified and capable personnel
- Maintaining safe worksites
-
Operational risks
-
Potential for non-payment and credit risk and ongoing financing availability
- Third party credit risk
- Unforeseen weather conditions
- Unanticipated shutdowns, work stoppages, and lockouts
- Volatility of market trading
Readers are cautioned that the foregoing list of factors is not exhaustive. Additional information on other factors that could affect the operations or financial results of the parties, and the combined company are included in reports on file with applicable securities regulatory authorities, including but not limited to: Annual Information Form for the year ended December 31, 2024, which may be accessed on Vertex's SEDAR+ profile at www.sedarplus.ca.
The forward-looking statements contained in this MD&A are made as of the date hereof and the Company undertakes no obligation to update publicly or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as, and to the extent required by applicable securities laws.
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