Horizon North Logistics Inc. Announces Results for the Third Quarter ended September 30, 2020
Third Quarter Highlights
- Revenue of $176.9 million and EBITDA of $33.4 million, including legal settlements of $6.6 million;
- Net earnings of $16.1 million and basic EPS of $0.25;
- EBITDA was positively impacted by $9.5 million of Canada Emergency Wage Subsidies;
- Net debt reduced from $138 million to $109 million since the merger, targeting under $100 million at year end;
- Horizon North has achieved cost synergies that will save the Corporation $22 million annually for 2021 and onward. Further cost synergies may be realized as future integration and cross-line-of-business sales opportunities are realized;
- Horizon North declared a dividend of $0.075 per share for shareholders on record December 31, 2020, to be paid January 15, 2021;
- Share consolidation occurred on a 5 for 1 basis in July 2020;
- Proposed name change to "Dexterra Group Inc.", to be approved by Shareholders at Special Meeting on November 13; and
- The Board has approved locating and building a Modular Solutions plant in Ontario to increase capacity and address the surging demand for rapid housing; the Corporation expects to announce a new President of Modular Solutions in the very near future;
TORONTO, Nov. 10, 2020 /PRNewswire/ - (TSX: HNL)
Horizon North Logistics Inc. ("Horizon North" or the "Corporation") reported its financial and operating results for the three and nine months ended September 30, 2020 and 2019. In addition, Horizon North announced a quarterly dividend of $0.075 per common share which will be paid on January 15, 2021 to shareholders of record on December 31, 2020. The dividend is an "eligible dividend" in accordance with the income tax act of Canada.
Third Quarter Financial Summary
Three months ended September 30, |
Nine months ended September 30, |
||||||||
(000's except per share amounts) |
2020 |
2019 |
2020 |
2019 |
|||||
Revenue(1) |
$ |
176,918 |
$ |
76,151 |
$ |
313,397 |
$ |
196,925 |
|
EBITDA(2)(4) |
33,444 |
5,185 |
58,477 |
13,225 |
|||||
Adjusted EBITDA(2)(4) |
27,085 |
5,185 |
53,609 |
13,225 |
|||||
Net earnings(3)(4) |
16,061 |
3,425 |
64,452 |
7,849 |
|||||
Earnings per share |
|||||||||
Basic(5) |
$ |
0.25 |
$ |
0.10 |
$ |
1.37 |
$ |
0.24 |
|
Diluted(5) |
$ |
0.24 |
$ |
0.10 |
$ |
1.37 |
$ |
0.24 |
|
Revenue includes $6.6 million related to amounts awarded on two legal proceedings with former customers. |
|
(1) |
Please refer to "Non-GAAP measures" for the definition of EBITDA and Adjusted EBITDA. |
(2) |
Net earnings for the nine months ended September 30, 2020 includes $34.1 million Bargain purchase gain resulting from the Transaction. |
(3) |
Includes $9.5 million and $27.9 million of pre-tax CEWS for the three and nine months ended September 30, 2020. |
(4) |
All share and per share data presented has been retroactively adjusted to reflect the Consolidation discussed in the "Outstanding Shares" section of the MD&A. |
Operations Analysis
Facilities Management
Facilities Management revenues in Q3 2020 were $35.7 million, which represents a decrease of $8.5 million or 19% from the $44.2 million in Q3 2019. Facilities Management revenue decreased primarily due to the temporary closure or reduction in operations at certain facilities as a result of COVID-19, mainly in the aviation and retail sectors. This was partially offset by new business and the impact of the Powerful Group of Companies ("PGC") acquisition completed in November 2019.
EBITDA as a percentage of revenue increased to 16% in Q3 2020 from 7% in Q3 2019 mainly due to the inclusion of $3.5 million CEWS in Q3 2020. When adjusting for CEWS, EBITDA margin was 6% for Q3 2020 or 1% lower than Q3 2019, due to the increased costs in the healthcare sector and costs associated with operating in a COVID-19 environment.
Year to date, Facilities Management revenues were $108.7 million and decreased by $13.4 million or 11% from the $122.1 million in 2019. Facilities Management revenue decreased primarily due to the temporary closure or reduction in operations at certain facilities as a result of COVID-19, mainly in the aviation and retail sectors. This was partially offset by new business and the impact from the PGC acquisition completed in November 2019.
EBITDA as a percentage of revenue increased to 17% in the first nine months of 2020 from 5% in 2019 due to the inclusion of $12.7 million CEWS in 2020. When adjusting for CEWS, EBITDA margin increased to 6% for the nine months ended September 30, 2020 in comparison to 5% of the same period in the prior year, mainly due to repositioning service offerings and focusing on higher margin projects in more complex operations. The margin impact from this business shift is expected to be fully realized in the post pandemic environment.
Modular Solutions
The Modular Solutions business was part of the Acquisition of Horizon North which closed on May 29, 2020. Modular Solutions segment revenues for Q3 2020 and the nine months ended September 30, 2020 were $39.5 million and $50.6 million, respectively. These revenues are primarily focused on social and affordable housing, industrial projects and portable classrooms.
EBITDA for Q3 2020 and for the year to date post-Acquisition, was $3.9 million and $6.3 million, which included $1.4 million and $2.5 million of CEWS impact, respectively. The results reflect the focus on social and affordable housing projects where performance and execution have been strong as well as the positive impact of cost reductions and improved efficiencies in our western Canada operations combined with continued strong performance from eastern Canada as we improve the utilization of plant capacity.
With the recent announcement by Canada's federal government and CMHC to provide $1 billion of funding to various cities across the country for rapid housing, the Corporation is in a strong position to win a significant portion of that business. As such, the Corporation has commenced the process of locating and building an NRB Modular Solutions plant in Ontario with an estimated capital cost of $7 to $8 million and estimated incremental annual sales capacity exceeding $100 million, though the investment plan assumes less than capacity in the initial start-up periods. The first two projects in progress with the City of Toronto to design, deliver and install 100 modular units of permanent supportive housing are progressing well in the existing NRB Modular Solutions plant and the Company has recognized $6.7 million of revenue related to this project during Q3 2020 and expects to complete these projects in Q4 2020. Continued growth in Modular solutions revenues in Q4 2020 and beyond is expected.
Workforce Accommodations, Forestry and Energy Services ("WAFES")
WAFES has been deemed an essential service and its revenue performance has been strong in a COVID-19 environment. Revenues from the WAFES segment Q3 2020 were $103.2 million, an increase of $71.2 million compared to Q3 2019. The increase in Q3 2020 segment revenues was driven by the Acquisition of Horizon North which added $66.7 million of revenue growth, primarily in catering and infrastructure install and rental activities. Q3 2020 revenue also includes $11.5 million of seasonal forestry revenues.
EBITDA as a percentage of revenue increased to 28% in Q3 2020 from 9% in Q3 2019 mainly due to the inclusion of $4.2 million CEWS and $6.6 million in legal settlements. When adjusting for CEWS and the legal settlements, EBITDA as a percentage of revenue is 17% which is an increase of 8% compared to Q3 2019. This increase in margin is related to strong occupancy at higher margin camps.
Revenues from the WAFES segment for the nine months ended September 30, 2020 were $156.5 million, an increase of $81.6 million compared to same period in 2019. The increase in segment revenues was driven by the Acquisition of Horizon North which added $82.9 million of revenue, partially offset by lower revenues from firefighting projects and a decrease in projects related to the COVID-19 operating environment.
Year to date, EBITDA as a percentage of revenue increased to 27% from 13% in the same period in 2019 mainly due to the inclusion of $11.4 million CEWS and $6.6 million in legal settlements. When adjusting for CEWS and the legal settlements, EBITDA as a percentage of revenue is at 16% which is an increase of 3% compared to 2019. This increase in margin is related to strong occupancy at higher margin camps.
Camp occupancy for Q4 2020 is expected to be lower than Q3 2020 given the continuing overhang and uncertainty surrounding COVID-19, which has resulted in the slower start-up of the LNG Canada facility build in Kitimat and other projects in the pipeline that have been deferred or delayed in the short term. This is expected to result in a shift in revenue to future periods.
Liquidity and Capital Resources
Operating cash flow before net change in non-cash working capital was $29.7 million in the third quarter of 2020 while working capital used $8.3 million of cash. Consequently, net cash provided by operations was $21.4 million in the quarter.
The Corporation's financial position and liquidity are strong. The Corporation has generated Free Cash Flow of $34.6 million in the first nine months of 2020. In future quarters, principal sources of liquidity include generated Free Cash Flow and proceeds from the disposal of idle or underutilized assets across its operating segments.
A copy of the Corporation's condensed consolidated interim financial statements for the three and nine months ended September 30, 2020 and 2019 and related Management's Discussion and Analysis ("MD&A") have been filed with the Canadian securities regulatory authorities and are available on SEDAR at www.sedar.com and www.horizonnorth.ca. 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
In this press release Horizon North uses non-GAAP measures including "EBITDA", calculated as earnings before interest, taxes, depreciation, amortization, share based compensation, bargain purchase gain and gain/loss on disposal of property, plant and equipment, "Adjusted EBITDA", calculated as EBITDA before transaction costs and other revenue, "EBITDA as a % of revenue", calculated as EBITDA divided by revenue, and "Free Cash Flow", calculated as net cash flows from (used in) operating activities, less changes in non-cash working capital for investing activities, capital expenditures, payments for lease liabilities and finance costs, to provide investors with supplemental measures of Horizon North's operating performance and thus highlight trends in its core businesses that may not otherwise be apparent when relying solely on GAAP financial measures. Horizon North also believes that securities analysts, investors and other interested parties frequently use non-GAAP measures in the evaluation of issuers. Horizon North'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.
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 net earnings 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. For a reconciliation of these non-GAAP measures to their nearest measure under GAAP please refer to "Reconciliation of non-GAAP measures".
Forward-Looking Information
Certain statements contained in this press release may constitute forward-looking information within the meaning of securities laws. Forward-looking information may relate to Horizon North'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 Horizon North's future operating results and economic performance and its objectives and strategies are forward-looking statements. These statements are based on certain factors and assumptions, including expected growth, results of operations, performance and business prospects and opportunities regarding Horizon North, which Horizon North believes are reasonable as of the current date. While management considers these assumptions to be reasonable based on information currently available to Horizon North, they may prove to be incorrect. Forward-looking information is also subject to certain factors that could cause actual results to differ materially from what Horizon North currently expects.
The reader should not place undue importance on forward-looking information and should not rely upon this information as of any other date. While management may elect to, Horizon North is under no obligation and does not undertake to update or alter this information at any time, except as may be required by law.
Conference Call
Horizon North will host a conference call and webcast to begin promptly at 9:00 Eastern time on November 11, 2020 to discuss Horizon North's third quarter results.
To access the conference call by telephone the conference call dial in number is 1-888-231-8191.
A live webcast of the conference call will be accessible on Horizon's website at www.horizonnorth.ca by selecting the webcast link on the home page. A PowerPoint presentation will be posted on Horizon's website at www.horizonnorth.ca on November 11, 2020 to be reviewed on the conference call.
An archived recording of the conference call will be available approximately one hour after the completion of the call until November 25, 2020 by dialing 1-855-859-2056 or 416-849-0833, passcode 4058382.
About Horizon North
Horizon North is a publicly listed corporation (TSX: HNL) operating a pan-Canadian support services platform across eleven provinces and territories and diversified end markets.
Our Modular Solutions business integrates modern design concepts with off-site manufacturing processes to produce high-quality building solutions for commercial, residential and industrial clients. Our Facilities Management business delivers operation and maintenance solutions for built assets and infrastructure in the public and private sectors, including aviation, defence and security, retail, healthcare, education and government. Our Workforce Accommodations, Forestry and Energy Services business provides a full range of workforce accommodations solutions, forestry services and access solutions to clients in the energy, mining, forestry and construction sectors among others.
Horizon North has an outstanding record of creating and managing places that play a vital role in the national economy and our local communities. What sets us apart is our expertise in bringing together the right people with the right skills to transform service delivery and improve customers' experiences.
Corporate Information
Additional information related to Horizon North, including the Corporation's annual information form, press releases, financial statements and management's discussion and analysis are available on SEDAR at www.sedar.com.
You can also visit our website at www.horizonnorth.ca.
SOURCE Horizon North Logistics Inc.
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