Horizon North Logistics Inc. Announces Results for the Quarter Ended September 30, 2019
TSX Symbol: HNL
CALGARY, Oct. 31, 2019 /PRNewswire/ - Horizon North Logistics Inc. ("Horizon North" or the "Corporation") reported its financial and operating results for the three and nine months ended September 30, 2019 and 2018.
Third Quarter Highlights
- Horizon North had Q3 2019 revenue of $116.6 million and EBITDAS of $8.9 million, an increase of $16.6 million and decrease of $2.8 million, respectively, when compared to Q3 2018. Total loss increased $3.2 million, to $3.4 million, when compared with the $0.2 million loss in Q3 2018;
- Q3 2019 EBITDAS significantly improved by $12.8 million compared to Q2 2019; and is more in line with the Corporation's expectations.
- The Industrial Services business had Q3 2019 revenue of $68.9 million, an increase of 4% from Q3 2018. EBITDAS for the same period were $10.5 million, a decrease of $0.4 million when compared to Q3 2018;
- The Modular Solutions business had revenue of $47.7 million for Q3 2019, a 37% increase from Q3 2018. EBITDAS for the same period were $0.9 million, a decrease of $3.1 million from Q3 2018. Backlog exiting the quarter was $71.7 million, excluding the Fairfield by Marriott, compared to $88.8 million at December 31, 2018. The funnel of high-quality, high probability sales opportunities increased, exiting the quarter at $295.3 million compared to $290.0 million at December 31, 2018; and
- Effective September 26, 2019, Horizon North reached an agreement with its lenders to amend its credit facility. The maturity date was extended to September 30, 2021 to provide certainty with respect to borrowing capacity as the Corporation evaluates its capitalization and debt structure through 2019 and 2020
Third Quarter Financial Summary
Three months ended September 30, |
Nine months ended September 30, |
||||||||||||||
(000's except per share amounts) |
2019 |
2018 |
% change |
2019 |
2018 |
% change |
|||||||||
Revenue |
$ |
116,641 |
$ |
100,022 |
17 |
$ |
349,936 |
$ |
276,200 |
27 |
|||||
EBITDAS(1) |
8,881 |
11,710 |
(24) |
22,337 |
23,029 |
(3) |
|||||||||
EBITDAS as a % of revenue |
8% |
12% |
6% |
8% |
|||||||||||
Operating income (loss) |
(2,901) |
1,308 |
(322) |
(13,965) |
(9,536) |
46 |
|||||||||
Operating loss as a % of revenue |
(2)% |
1% |
(4)% |
(3)% |
|||||||||||
Total loss |
(3,367) |
(157) |
2,045 |
(10,250) |
(9,609) |
7 |
|||||||||
Total comprehensive loss |
(3,367) |
(112) |
2,906 |
(10,250) |
(9,609) |
7 |
|||||||||
Loss per share |
|||||||||||||||
Basic |
$ |
(0.02) |
(0.00) |
$ |
(0.06) |
$ |
(0.06) |
||||||||
Diluted |
$ |
(0.02) |
(0.00) |
$ |
(0.06) |
$ |
(0.06) |
||||||||
Total assets |
$ |
579,771 |
$ |
466,070 |
24 |
$ |
579,771 |
$ |
466,070 |
24 |
|||||
Total loans and borrowings |
103,413 |
24,960 |
314 |
103,413 |
24,960 |
314 |
|||||||||
Funds flow |
10,377 |
16,733 |
(38) |
24,301 |
24,875 |
(2) |
|||||||||
Net Capital spending (proceeds) |
24,120 |
(3,293) |
(832) |
62,488 |
16,736 |
273 |
|||||||||
Total Debt to EBITDAS(2) |
3.35:1:00 |
0.84:1:00 |
3.35:1:00 |
0.84:1:00 |
|||||||||||
Debt to total capitalization ratio(3) |
0.24:1:00 |
0.07:1:00 |
0.24:1:00 |
0.07:1:00 |
|||||||||||
Dividends declared |
$ |
3,307 |
$ |
3,285 |
$ |
9,900 |
$ |
9,477 |
|||||||
Dividends declared per share |
$ |
0.02 |
$ |
0.02 |
$ |
0.06 |
$ |
0.06 |
|||||||
(1) |
EBITDAS (Earnings before interest, taxes, depreciation, amortization, share based compensation, impairment and gain/loss on disposal of property, plant and equipment) is not a recognized measure under IFRS. Management believes that in addition to total profit and total comprehensive income, EBITDAS is a useful supplemental earnings measure as it provides an indication of the Corporation's operating performance and it is regularly provided to and reviewed by the Chief Operating Decision Maker. Horizon North's method of calculating EBITDAS may differ from other entities and accordingly, EBITDAS may not be comparable to measures used by other entities. |
(2) |
Please refer to Liquidity and Capital Resources section of the Management's Discussion and Analysis for the definitions of Total Debt to EBITDAS. |
(3) |
Please refer to Management's Report on Disclosure Controls and Procedures and Internal Control over Financial Reporting – Non-GAAP measures section of the Management's Discussion and Analysis for the definitions of Non-GAAP and additional GAAP measures and reconciliation of Net Earnings to EBITDAS. |
Quarterly Operational Overview
Revenue for Q3 2019 increased by 17% primarily due to increased throughput in the Modular Solutions segment as well as increased camp rental and catering activity in the Camp & Catering segment, partially offset by decreased Rentals & Logistics segment revenues compared to Q3 2018 due to decreased mat rental revenue and equipment sales.
Industrial Services
Revenues from Industrial Services for Q3 2019 increased by 4% compared to Q3 2018 primarily due to increased catering only activity. Catering only activity increased 47% in Q3 2019 compared to Q3 2018, with revenue per catering only day lower by 9% as a result of different contract mix. Rentals & Logistics revenues decreased by 21% in Q3 2019 compared to Q3 2018 primarily due to a decrease in mat rental revenue and equipment sales.
Modular Solutions
Modular Solutions revenues for Q3 2019 were 37% higher than Q3 2018 primarily as a result of the NRB Inc. ("NRB") acquisition and partially offset by decreased activity in Western Canada. The manufacturing capacity available in Q3 2019 increased significantly from Q3 2018 as a result of the acquisition of the Rocky View County, Alberta facility in November 2018 and the NRB, Ontario facility in April 2019 allowing for further manufacturing expansion into Q3 2019.
Other Financial Measures
Horizon North's Q3 2019 EBITDAS decreased by $2.8 million, or 24%, compared to Q3 2018. As a percentage of revenue, EBITDAS were 8% compared to 12% in Q3 2018. The decrease in EBITDAS compared to Q3 2018 was primarily driven by the decrease in backlog due to a delay and deferral of projects in Western Canada. This was partially offset by stronger results in Industrial Services.
Total Loans and Borrowings, which excludes the lease liabilities from the adoption of IFRS 16, were $103.4 million at September 30, 2019 compared to $30.8 million at December 31, 2018. As a result of the increased debt and lower EBITDAS, the total debt to EBITDAS ratio was 3.35:1:00 at September 30, 2019 compared to 0.86:1:00 at December 31, 2018.
Outlook
In 2019, Horizon North will continue to diversify both its portfolio of offerings and customer base through its two operating divisions: Industrial Services and Modular Solutions.
Industrial Services
Horizon North is a leading provider of turn-key workforce accommodation, hospitality, access and maintenance services with focus on the following four key areas:
- West Coast Hydrocarbon Terminals/Liquefied Natural Gas
- Horizon North continues to drive forward on the first phase of development of its 57-acre parcel of land located in Kitimat, British Columbia. The first 360 beds of its world-class Crossroads Lodge were operational in Q3 2019 with the balance of the 736 bed facility expected to be operational by late 2019/early 2020. In Q3 2019, Horizon North was awarded a contract for significant occupancy of the Crossroads Lodge in support of ongoing LNG development activities in the area as well as a contract for provision of temporary construction modular units and large complexes, for a client supporting LNG development, that will be constructed in the Corporation's modular manufacturing facilities.
- Activity continues on previously announced contracts to provide equipment, catering, hospitality and operations services for camps in support of construction work on the Coastal GasLink Project in northern British Columbia. Horizon North continues to aggressively pursue opportunities related to additional Western Canadian pipeline infrastructure projects.
- Horizon North continues to focus on capturing additional opportunities relative to announced and potential projects related to hydrocarbon shipping terminals and liquefied natural gas projects on the west coast.
- Montney/Duvernay - Oil and natural gas development and related infrastructure activity in this region remains down in Q3 2019 with continued market headwinds expected for the balance of 2019. Horizon North is the largest provider of contracted and open camp services in this area and will continue to leverage existing assets, strategic locations and key customer relationships to build market share and position for expected future growth and infrastructure projects in the region.
- Oil Sands - Horizon North expects to leverage its strong operational footprint and experience to pursue both full turn-key opportunities and long-term catering and hospitality opportunities in existing customer-owned facilities underpinned by prominent relationships with Aboriginal communities north and south of Fort McMurray.
- Northern Canada - Horizon North has a long history and expertise in providing hospitality, management and maintenance services across Canada's northern regions. Early opportunities within the Northwest Ontario mining and power infrastructure sectors have been captured and we continue to pursue expansion opportunities with key clients in terms of their Arctic development plans. Horizon North will continue to focus on developing and expanding its capabilities and footprint across Canada's highly variable and remote northern regions.
Modular Solutions
Q3 2019 results included the effects of several project delays and deferrals which impacted backlog and activity in Western Canada and resulted in decreased activity and margins for the quarter. The project pipeline for the remainder of 2019 is expected to continue to be more balanced between government sponsored housing and industrial projects. Horizon North's focus will remain on growing backlog and on optimizing execution of modular construction projects while developing and expanding its product offerings to serve a variety of customers and end markets. In addition, a portion of manufacturing capacity in the last quarter of 2019 will be utilized for the modular units and large complexes associated with the contract with a client supporting LNG development in British Columbia.
April 1, 2019 marked the successful completion of the acquisition of NRB, a significant step in the Corporation's pan-Canadian growth strategy by providing manufacturing capacity in the southern Ontario region. The integration of NRB into the Horizon North business is now complete and we are pleased with the operational and financial performance of this operation to date. Horizon North is focused on opportunities to expand NRB's historical product and service offering, particularly in the social and affordable housing space.
The Modular Solutions division is well positioned to benefit from the increased Federal support for affordable and social housing following the Federal election on October 21, 2019 through the demonstrated success of the affordable and social housing strategy and execution in Western Canada combined with the addition of southern Ontario manufacturing capacity. Horizon North will continue to explore opportunities across the pan-Canadian geography to grow the affordable and social housing backlog and projects.
Statement of Financial Position
In 2019, Horizon North is taking several capital intensive steps in the development of its unique, pan-Canadian service model. These steps include the mobilization of the first phase of our Kitimat Crossroads Lodge, development of a 120 room Fairfield Inn & Suites by Marriott in Kitimat, British Columbia, the acquisition of NRB Inc. and a robust capital program.
As a result, the Corporation anticipates an elevated leverage position throughout the year but that future capital resources including its recently amended credit facility and cash flows from operating activities will be adequate to execute its future plans. The Corporation will continue to closely monitor its leverage position with an eye towards achieving an appropriate capital allocation strategy through the remainder of 2019 and throughout 2020.
The Corporation expects to allocate future net cash flows in order to appropriately balance the objectives of reducing its overall level of indebtedness, completing previously committed capital projects, minimal maintenance capital requirements and returns to shareholders as determined to be appropriate by the Corporation from time to time.
Dividend Payment
On October 31, 2019, the Corporation's Board of Directors declared a dividend for the fourth quarter of 2019 at $0.02 per share. The dividend is payable to shareholders of record at the close of business on December 31,2019 to be paid on January 15, 2020. The Board of Directors regularly monitors the strength of the Statement of Financial Position, cash from operations and capital requirements to ensure the overall sustainability of Horizon North is not compromised. The dividends will be eligible dividends for Canadian tax purposes.
Additional Information
A copy of the Corporation's Condensed Consolidated Interim Financial Statements for the three and nine months ended September 30, 2019 and 2018 and related Management's Discussion and Analysis have been filed with the Canadian securities regulatory authorities and is available on SEDAR at www.sedar.com and www.horizonnorth.ca. Unless otherwise indicated, the condensed consolidated interim financial statements have been prepared in accordance with International Financial Reporting Standards and the reporting currency is in Canadian dollars.
Non-GAAP measures
Certain measures in this press release do not have any standardized meaning as prescribed by generally accepted accounting principles ("GAAP") and, therefore, are considered non-GAAP measures. These measures are regularly reviewed by the Chief Operating Decision Maker 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 more consistent basis for comparison between periods. These measures should not be construed as alternatives to total profit and total comprehensive income determined in accordance with GAAP as an indicator 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. The following non-GAAP measures are used to monitor the Corporation's performance:
EBITDAS: Earnings before interest, taxes, depreciation, amortization, share based compensation, gain/loss on investments, and gain/loss on disposal of property, plant and equipment ("EBITDAS"). Management believes that in addition to total profit (loss) and total comprehensive income (loss), EBITDAS is a useful supplemental earnings measure as it provides an indication of the Corporation's operating performance and it is regularly provided to and reviewed by the Chief Operating Decision Maker.
Debt to total capitalization: Calculated as the ratio of debt to total capitalization. Debt is defined as the sum of current and long-term portions of loans and borrowings. Total capitalization is calculated as the sum of debt and shareholders' equity.
Caution Regarding Forward-Looking Statements and Information
Certain statements contained in this press release constitute forward-looking statements or information ("forward-looking statements"). These statements relate to future events or future performance of Horizon North. All statements other than statements of historical fact are forward-looking statements. The use of any of the words "anticipate", "plan", "continue", "estimate", "expect", "may", "will", "project", "predict", "potential", "should", "believe" and similar expressions are intended to identify forward-looking statements.
In particular, such forward-looking statements include:
Under the heading "Third Quarter Highlights" the statements that:
- The Modular Solutions business had revenue of $47.7 million for Q3 2019, a 37% increase from Q3 2018. EBITDAS for the same period were $0.9 million, $0.9 million a decrease of $3.1 million from Q3 2018. Backlog exiting the quarter was $71.7 million, excluding the Fairfield by Marriott, $9.4 million compared to $88.8 million at December 31, 2018. The funnel of high-quality, high probability sales opportunities increased, exiting the quarter at $295.3 million compared to $290.0 million at December 31, 2018; and
- Effective September 26, 2019, Horizon North reached an agreement with its lenders to amend its credit facility. The maturity date was extended to September 30, 2021 to provide certainty with respect to borrowing capacity as the Corporation evaluates its capitalization and debt structure through 2019 and 2020"
Under the heading "Outlook" the statements that:
"In 2019, Horizon North will continue to diversify both its portfolio of offerings and customer base through its two operating divisions: Industrial Services and Modular Solutions.
Industrial Services
Horizon North is a leading provider of turn-key workforce accommodation, hospitality, access and maintenance services with focus on the following four key areas:
- West Coast Hydrocarbon Terminals/Liquefied Natural Gas
- Horizon North continues to drive forward on the first phase of development of its 57-acre parcel of land located in Kitimat, British Columbia. The first 360 beds of its world-class Crossroads Lodge were operational in Q3 2019 with the balance of the 736 bed facility expected to be operational by late 2019/early 2020. In Q3 2019, Horizon North was awarded a contract for significant occupancy of the Crossroads Lodge in support of ongoing LNG development activities in the area as well as a contract for provision of temporary construction modular units and large complexes, for a client supporting LNG development, that will be constructed in the Corporation's modular manufacturing facilities.
- Activity continues on previously announced contracts to provide equipment, catering, hospitality and operations services for camps in support of construction work on the Coastal GasLink Project in northern British Columbia. Horizon North continues to aggressively pursue opportunities related to additional Western Canadian pipeline infrastructure projects.
- Horizon North continues to focus on capturing additional opportunities relative to announced and potential projects related to hydrocarbon shipping terminals and liquefied natural gas projects on the west coast.
- Montney/Duvernay - Oil and natural gas development and related infrastructure activity in this region remains down in Q3 2019 with continued market headwinds expected for the balance of 2019. Horizon North is the largest provider of contracted and open camp services in this area and will continue to leverage existing assets, strategic locations and key customer relationships to build market share and position for expected future growth and infrastructure projects in the region.
- Oil Sands - Horizon North expects to leverage its strong operational footprint and experience to pursue both full turn-key opportunities and long-term catering and hospitality opportunities in existing customer-owned facilities underpinned by prominent relationships with Aboriginal communities north and south of Fort McMurray.
- Northern Canada - Horizon North has a long history and expertise in providing hospitality, management and maintenance services across Canada's northern regions. Early opportunities within the Northwest Ontario mining and power infrastructure sectors have been captured and we continue to pursue expansion opportunities with key clients in terms of their Arctic development plans. Horizon North will continue to focus on developing and expanding its capabilities and footprint across Canada's highly variable and remote northern regions.
Modular Solutions
Q3 2019 results included the effects of several project delays and deferrals which impacted backlog and activity in Western Canada and resulted in decreased activity and margins for the quarter. The project pipeline for the remainder of 2019 is expected to continue to be more balanced between government sponsored housing and industrial projects. Horizon North's focus will remain on growing backlog and on optimizing execution of modular construction projects while developing and expanding its product offerings to serve a variety of customers and end markets. In addition, a portion of manufacturing capacity in the last quarter of 2019 will be utilized for the modular units and large complexes associated with the contract with a client supporting LNG development in British Columbia.
April 1, 2019 marked the successful completion of the acquisition of NRB, a significant step in the Corporation's pan-Canadian growth strategy by providing manufacturing capacity in the southern Ontario region. The integration of NRB into the Horizon North business is now complete and we are pleased with the operational and financial performance of this operation to date. Horizon North is focused on opportunities to expand NRB's historical product and service offering, particularly in the social and affordable housing space.
The Modular Solutions division is well positioned to benefit from the increased Federal support for affordable and social housing following the Federal election on October 21, 2019 through the demonstrated success of the affordable and social housing strategy and execution in Western Canada combined with the addition of southern Ontario manufacturing capacity. Horizon North will continue to explore opportunities across the pan-Canadian geography to grow the affordable and social housing backlog and projects.
Statement of Financial Position
In 2019, Horizon North is taking several capital intensive steps in the development of its unique, pan-Canadian service model. These steps include the mobilization of the first phase of our Kitimat Crossroads Lodge, development of a 120 room Fairfield Inn & Suites by Marriott in Kitimat, British Columbia, the acquisition of NRB Inc. and a robust capital program.
As a result, the Corporation anticipates an elevated leverage position throughout the year but that future capital resources including its recently amended credit facility and cash flows from operating activities will be adequate to execute its future plans. The Corporation will continue to closely monitor its leverage position with an eye towards achieving an appropriate capital allocation strategy through the remainder of 2019 and throughout 2020.
The Corporation expects to allocate future net cash flows in order to appropriately balance the objectives of reducing its overall level of indebtedness, completing previously committed capital projects, minimal maintenance capital requirements and returns to shareholders as determined to be appropriate by the Corporation from time to time."
Under the heading "Dividend Payment" regarding the payment of a dividend to shareholders of record at the close of business on December 31,2019 to be paid on January 15, 2020.
The forward-looking statements and information are based on certain assumptions made by Horizon North which include, but are not limited to, assumptions relating to:
- industry activity for oil, natural gas and mineral exploration and development in the western Canadian provinces and northern territories;
- commodity prices;
- the impacts of a positive final investment decision from LNG Canada with respect to the Kitimat LNG project;
- capital investment in the Canadian oil and gas sector;
- dividend payments;
- anticipated activity levels for 2019;
- operational results and capital spending;
- anticipated backlog in the Modular Solutions business;
- trade and other receivables;
- the impacts of the NRB acquisition;
- future operating costs and Corporation's access to capital;
- the effects of regulation by governmental agencies;
- the competitive environment in which the Corporation operates;
- the ability of the Corporation to attract and retain personnel;
- the development of LNG and commodity transportation infrastructure;
- the relationships between the Corporation and its customers; and
- general economic and financial conditions.
Although Horizon North believes that the expectations and assumptions on which the forward-looking statements are based are reasonable, undue reliance should not be placed on the forward-looking statements because Horizon North cannot give any assurance that they will prove to be correct. Since forward-looking statements address future events and conditions, by their very nature they involve inherent risks and uncertainties. Actual results could differ materially from those currently anticipated due to a number of known and unknown risks and uncertainties. Such risks and uncertainties include, but are not limited to, the following:
- volatility in the price and demand for oil, natural gas and minerals;
- fluctuations in the demand for the Corporation's services;
- availability of qualified personnel;
- changes in regulation by governmental agencies, including environmental regulation; and
- other factors listed under "Risks and Uncertainties" in this press release and other risk factors identified in the Corporation's annual information form.
Readers are cautioned that the foregoing list of risks and uncertainties is not exhaustive. Additional information on these and other risk factors that could affect Horizon North's operations and financial results are included in Horizon North's annual information form which may be accessed through the SEDAR website at www.sedar.com. In addition, the reader is cautioned that historical results are not indicative of future performance. The forward-looking statements and information contained in this press release are made as of the date hereof and Horizon North does not undertake any obligation to update publicly or revise any forward-looking statements and information, whether as a result of new information, future events or otherwise, unless so required by applicable securities laws.
Certain information set out herein may be considered as "financial outlook" within the meaning of applicable securities laws. The purpose of this financial outlook is to provide readers with disclosure regarding Horizon North's reasonable expectations as to the anticipated results of its proposed business activities for the periods indicated. Readers are cautioned that the financial outlook may not be appropriate for other purposes.
About Horizon North
Horizon North is a publicly listed corporation (TSX: HNL.TO) providing a full range of industrial, commercial, and residential products and services under its two operating divisions: Industrial Services and Modular Solutions. The Industrial Services business includes workforce accommodations, camp management services, access solutions, maintenance and utilities. The Modular Solutions business integrates modern design concepts and technology with state of the art, off-site manufacturing processes; producing high quality building solutions for commercial, industrial and residential offerings including offices, hotels, and retail buildings, as well as distinctive single detached dwellings and multi-family residential structures. As a result of our diverse product and service offerings, Horizon North is uniquely positioned to meet the needs of our customers in numerous sectors, anywhere in Canada.
Corporate Information
SOURCE Horizon North Logistics Inc.
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