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Stuart Olson Reports Second Quarter Results

Announces a $70.0 million convertible debenture financing with 7.0% coupon
Year-to-date backlog additions of $570.0 million and book-to-bill of 1.24
Curtailment policy continued to impact oil sands spending and quarterly results
Declared its 34th consecutive quarterly dividend

CALGARY, Aug. 7, 2019 /CNW/ - Stuart Olson Inc. (TSX: SOX, SOX.DB.A) ("Stuart Olson" or the "Company") today announced financial results for the second quarter and first six months of 2019, and declared its 34th consecutive quarterly dividend.

"For the first half of 2019, we faced pressures related to increased competitive market conditions and a capital spending slowdown by our integrated oil sands customers as a result of the mandatory Alberta oil production curtailment policy, which impacted our net earnings, adjusted EBITDA and contract revenue year-over-year. However, notwithstanding these pressures, in the first half of the year we added approximately $570.0 million to backlog, reported a strong book-to-bill ratio of 1.24 and delivered adjusted EBITDA of $15.0 million," said David LeMay, President and CEO of Stuart Olson.

"We expect to deliver year-over-year increases in contract revenue, adjusted EBITDA and net earnings in the second half of 2019, as we anticipate increased activity levels resulting from our geographic and sector diversification strategies. Our operating groups also continue to pursue a significant number of project opportunities," commented Mr. LeMay.

"Also, we are pleased with the $70.0 million convertible debenture financing agreement with a reputable and sophisticated investor like Canso Investment Counsel. Canso has an appreciation of our business and sees, like us, the value Stuart Olson can create for all our stakeholders as we execute on our growth strategies," added Mr. LeMay.


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(1) "Contract income margin", "adjusted EBITDA", "adjusted EBITDA margin", "adjusted free cash flow", "adjusted free cash flow per share" and "backlog" are non-IFRS measures. Please refer to "Non-IFRS Measures" for definitions of these terms.

(2) The convertible debentures issued in 2014 are presented as a current liability of $79.4 million as at June 30, 2019 and as a current liability of $78.2 million as at December 31, 2018.

(3) Stuart Olson adopted IFRS 16 using the cumulative catch-up approach on January 1, 2019. Please refer to Note 3 of the June 30, 2019 Condensed Consolidated Interim Financial Statements and the first quarter 2019 MD&A for further information.


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", "additional borrowing capacity", "available liquidity" and "net long-term indebtedness to adjusted EBITDA", are not prescribed measures under IFRS. For a description of these measures, see the "Non-IFRS Measures" section in Stuart Olson's June 30, 2019 Management's Discussion & Analysis ("MD&A").


  • As at June 30, 2019, backlog increased to $1.7 billion, from $1.6 billion as at December 31, 2018. 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.

  • Stuart Olson added nearly $270.0 million to backlog in the second quarter of 2019, reflecting a book-to-bill ratio of 1.12 to 1.00. Second quarter additions to backlog include approximately:

    • $105.0 million in awards to the Industrial Group, including a mine facility construction project for a new client in Saskatchewan, an infrastructure project for a mining customer in Ontario, a maintenance and turnaround master services agreement extension in Alberta and a facility construction project for a food company in Manitoba;
    • $95.0 million in projects awarded to the Buildings Group, including a new fire hall in Ontario and the modernization of a seniors care centre in Alberta; and
    • $70.0 million of Commercial Systems Group awards composed of numerous projects, including a healthcare facility and an events centre in Alberta, as well as two agricultural facilities in Ontario and Alberta.

  • The Company generated second quarter consolidated revenue of $239.5 million, as compared to $249.3 million in Q2 2018. The year-over-year change primarily relates to lower Industrial Group revenue, reflecting last year's completion of two large construction projects.

  • Stuart Olson recorded a second quarter 2019 net loss of $2.2 million (diluted loss per share of $0.08), as compared to net earnings of $1.1 million (diluted earnings per share of $0.04) in the second quarter of 2018. The year-over-year decrease reflects the decline in adjusted EBITDA outlined below, as well as higher revolving credit facility ("Revolver") interest costs associated with increases to the Canadian prime lending rate and an increase in the amount drawn on the Revolver in 2019.

  • Second quarter adjusted EBITDA was $6.9 million (adjusted EBITDA margin of 2.9%), as compared to $9.0 million (adjusted EBITDA margin of 3.6%) in the second quarter of 2018. These results primarily reflect last year's completion of two major Industrial Group projects that contributed significant close-out margins in Q2 2018.

  • Adjusted free cash flow was an outflow of $0.2 million (outflow of $0.01 per share) in the second quarter of 2019, as compared to an adjusted free cash inflow of $3.8 million (inflow of $0.14 per share) in Q2 2018. The year-over-year change primarily reflects the combination of lower net earnings and a project stage of completion-driven change in provisions in the quarter, partially offset by a reduction in share-based payments in the 2019 period.

  • As at June 30, 2019, the Company's net long-term indebtedness to adjusted EBITDA ratio was 3.6x, or 3.3x on a pro forma basis inclusive of Tartan's pre-acquisition last twelve months ("LTM") adjusted EBITDA. This compares to 2.8x, or 2.6x on a pro forma basis inclusive of Tartan's LTM adjusted EBITDA as at December 31, 2018. This change reflects the draw on the Revolver to fund working capital requirements, combined with a reduction in LTM adjusted EBITDA.

  • On August 7, 2019, Stuart Olson announced an investment agreement with Canso Investment Counsel Ltd. ("Canso"), pursuant to which Canso will purchase, subject to customary closing conditions, including approval of the Company's shareholders and the Toronto Stock Exchange, $70.0 million aggregate principal amount of convertible unsecured subordinated debentures, with an interest rate of 7.0% per annum, conversion price of $4.87 per common share and a maturity date that is the fifth anniversary of the issue date.

    • The conversion price per common share was established at 140% of the 30-day volume weighted average trading price calculated after the close of trading on August 1, 2019.
    • The transaction is expected to close in late September, and is subject to certain conditions, including, without limitation, the receipt of all necessary regulatory and shareholder approvals.
    • Stuart Olson intends to use the net proceeds, together with available cash and a draw on the Revolver, to repay the outstanding 2014 $80.5 million convertible debentures that mature on December 31, 2019.
    • Stuart Olson has entered into voting support agreements with three of its major shareholders, which collectively represent approximately 33.0% of the outstanding common shares of the Company.
    • For further information, please see the August 7, 2019 press release labeled "Stuart Olson Announces a $70 Million Convertible Debenture Financing".

  • On August 7, 2019, the Company secured an amendment to its Revolver agreement. This amendment is effective June 30, 2019 and reflects changes to a number of terms, including an amendment of the interest coverage ratio covenant. The amendment was unanimously approved by the lenders and provides that the required interest coverage ratio shall be not less than 2.00:1.00 until December 31, 2020, increasing to not less than 2.25:1.00 until March 31, 2021, and increasing to not less than 2.50:1.00 for each quarter thereafter. This amendment also capped the amount Stuart Olson is able to draw on the Revolver to settle its 2014 $80.5 million convertible debentures at $20.0 million.

  • On August 7, 2019, the Board of Directors ("Board") declared a quarterly common share dividend of $0.06 per share. The dividend is designated as an eligible dividend under the Income Tax Act (Canada) and is payable October 15, 2019 to shareholders of record on September 30, 2019.

  • Since the introduction of the quarterly dividend in June 2011, Stuart Olson has paid a dividend for 34 consecutive quarters, including the dividend declared today. This represents $3.90 per share, or $101.2 million in total, returned to shareholders.


Consolidated Outlook

  • Stuart Olson expects 2019 consolidated contract revenue to be meaningfully higher, adjusted EBITDA to be modestly higher and adjusted EBITDA margin to be stable with 2018 results, based on the outlooks for each of its operating groups below.

  • The Company's consolidated outlook has changed from the first quarter 2019 MD&A, primarily as a result of lower-than-expected award wins for the Industrial Group due to project delays, competitive market conditions and the continued near-term impacts on capital spending by integrated oil sands customers as a result of the mandatory Alberta oil production curtailment policy. Also contributing to the change are lower-than-expected activity levels for the Buildings Group due to project timing delays, partially offset by reduced Corporate Group costs related to share-based compensation.

Industrial Group

  • Revenue from the Industrial Group is expected to be meaningfully higher, while adjusted EBITDA and adjusted EBITDA margin are expected to be modestly and significantly lower, respectively, in the 2019 fiscal year as compared to 2018. The expected decline in adjusted EBITDA margin for the group is due to last year's completion of two major projects that contributed significant close-out margins to 2018 results, partially offset by an increase to adjusted EBITDA from the adoption of IFRS 16. The higher revenue in 2019 reflects a healthy pipeline of construction opportunities for the group, together with the addition of a full year of results contributed by the recently acquired Tartan business.

Buildings Group

  • The Buildings Group anticipates modestly higher revenue and adjusted EBITDA year-over-year on the basis of projects moving into higher-activity construction phases and the impact of IFRS 16, paired with a slight decline in adjusted EBITDA margin. This outlook reflects a greater proportion of projects in higher-activity but lower-margin stages of completion in 2019.

Commercial Systems Group

  • Commercial Systems Group 2019 revenue is expected to be slightly higher than in 2018, while adjusted EBITDA and adjusted EBITDA margin are expected to be significantly higher as productivity challenges experienced in 2018 are not expected to repeat in 2019. The group's adjusted EBITDA results are also expected to benefit from the adoption of IFRS 16.

Corporate Group

  • Corporate Group adjusted EBITDA is expected to decline meaningfully in 2019 as compared to 2018. This impact relates primarily to an expected increase in share-based compensation due to the significant 2018 reduction in share-based compensation expense following a decrease in the Stuart Olson share price last year. This effect will be partially offset by the impact of adopting IFRS 16.


Stuart Olson will hold a conference call and webcast to discuss its 2019 second quarter results on Thursday, August 8, 2019 at 8:30 a.m. Mountain Time (10:30 a.m. Eastern Time). The webcast will be broadcast live and will also be available for replay in the Presentations & Events subsection under Investor Relations on the Company's website at For those unable to listen during the live webcast, a replay will be available on the website shortly after the conclusion of the conference call for a period of 90 days. Financial analysts and institutional investors who wish to ask questions during the conference call are invited to call 1-888-390-0546 (Canada and USA) or 1-587-880-2171 (outside Canada and USA). For those unable to participate on the live call, a replay will be made available until Thursday, August 22, 2019 by dialing 1-888-390-0541 (Canada and USA) or 1-416-764-8677 (outside Canada and USA), pin 278773. The public is invited to listen to the live conference call, webcast or the replay.


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. In 2019 Stuart Olson was recognized as one of Alberta's Top Employers for the third consecutive year. Stuart Olson's common shares and convertible debentures are listed on the Toronto Stock Exchange under the symbols "SOX" and "SOX.DB.A", respectively.


This press release contains certain statements that may constitute forward-looking information within the meaning of applicable securities laws. This forward-looking information includes, without limitation, the statements made under the section titled "2019 Outlook" including, without limitation, those relating to expectations regarding changes in:




Stuart Olson's backlog and the implication that such backlog will be converted into revenues;


expectations regarding changes in 2019 adjusted EBITDA and adjusted EBITDA margin;


economic conditions; and


the outlook for each of Stuart Olson's operating groups


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.

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 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.

SOURCE Stuart Olson Inc.

For further information: David LeMay, President and Chief Executive Officer, Stuart Olson Inc., (403) 685-7777, Email:; Daryl Sands, Executive Vice President and Chief Financial Officer, Stuart Olson Inc., (403) 685-7777, Email: