Horizon North Logistics Inc. Announces Results for the Quarter Ended June 30, 2018

CALGARY, Aug. 2, 2018 /CNW/ - TSX Symbol: HNL

Horizon North Logistics Inc. ("Horizon North" or the "Corporation") reported its financial and operating results for the three and six months ended June 30, 2018 and 2017.

Second Quarter Highlights

• Modular Solutions achieved significant revenue and EBITDAS growth in Q2 2018 compared to Q2 2017 with revenue higher by $25.0 million and positive EBITDAS for Q2 and year to date 2018;
• The Modular Solutions business continued its growth momentum increasing the backlog to $64.5 million compared to $62.5 million at Q1 2018. The funnel of high-quality, high probability opportunities continues to strengthen closing June at $163.7 million; and
• On June 25, 2018 Horizon North closed a bought deal equity financing for net proceeds of $47.6 million. The net proceeds are intended to be allocated equally between the Industrial Services and Modular Solutions divisions. Funds allocated to Industrial Services will be focused on the installation of up to 1,000 camp beds on Horizon North's fully serviced land position in Kitimat, British Columbia following an anticipated positive final investment decision ("FID") related to the Kitimat LNG project. Funds allocated to Modular Solutions will be focused on expanding capacity and capabilities, extending offerings of affordable housing, commercial and residential products beyond western Canada.

Second Quarter Financial Summary

		Three months ended June 30					Six months ended June 30
(000's except per share amounts)			2018		2017	% Change		2018		2017	% Change
Revenue		$	93,603	$	91,647	2	$	176,178	$	162,135	9
EBITDAS^(1)			6,886		8,571	(20)		11,319		16,825	(33)
EBITDAS as a % of revenue			7%		9%			6%		10%
Operating (loss) earnings			(3,800)		(2,500)	52		(10,844)		5,653	(292)
Operating (loss) earnings as a % of revenue			(4%)		(3%)			(6%)		3%
Total (loss) profit			(3,390)		(2,949)	15		(9,452)		2,191	(531)
Total comprehensive (loss) income			(3,435)		(2,950)	16		(9,497)		2,190	(534)
Earnings (loss) per share
	Basic	$	(0.02)	$	(0.02)		$	(0.06)	$	0.02
	Diluted	$	(0.02)	$	(0.02)		$	(0.06)	$	0.02
Total assets		$	473,632	$	487,095	(3)	$	473,632	$	487,095	(3)
Total loans and borrowings			33,536		69,425	(52)		33,536		69,425	(52)
Fund Flow			3,886		22,390	(83)		6,147		30,773	(80)
Net Capital spending			3,690		3,750	(2)		20,029		(5,862)	(442)
Total debt to EBITDAS^(1)			1.37:1.00		2.39:1.00			1.37:1.00		2.39:1.00
Debt to total capitalization ratio^(1)			0.09:1.00		0.18:1.00			0.09:1.00		0.18:1.00
Dividends declared		$	3,285	$	2,893		$	6,192	$	5,785
Dividends declared per share		$	0.02	$	0.02		$	0.04	$	0.04

⁽¹⁾ See Non-GAAP measures definitions within the press release for details.

Quarterly Operational Overview

Q2 2018 results were somewhat mixed, with higher revenues but lower overall EBITDAS as compared to Q2 2017.  The revenue increase was driven mainly by the Modular Solutions division as increased manufacturing capacity facilitated greater throughput and project execution.  These changes resulted in significantly increased revenues and improved profitability with the generation of positive EBITDAS for the quarter.

Industrial Services revenues and EBITDAS decreased over the comparative periods mainly due to reduced equipment sales activities in the period.  In Q2 2017 a Camps & Catering customer exercised their option to buy out the equipment at the end of the contract which generated $20.0 million in revenues and $6.0 million in EBITDAS. 

Industrial Services

Revenues from Industrial Services for Q2 2018 decreased by 25% compared to Q2 2017 mainly due to the Q2 2017 equipment buy out discussed above. Excluding the sale, Camps & Catering revenues increased compared to Q2 2017 with a significant increase in catering only activity more than offsetting a decrease in large camp activity. Rentals and Logistics revenues decreased 34% compared to Q2 2017 with significantly fewer access mat sales combined with a decrease in the associated transport and installation activity. High demand for access mat rentals in the Duvernay and Montney areas south of Grande Prairie, Alberta prompted a decision in 2018 to focus the majority of access mat production on refreshing and expanding the access mat rental fleet and resulted in a limited supply of new access mats available for sale.

Modular Solutions

Modular Solutions revenues for Q2 2018 were significantly higher than Q2 2017 as a result of increased capacity to execute the growing backlog of projects. Compared to Q2 2017, capacity increased significantly as a result of ramping up direct headcount at the Kamloops, British Columbia plant and the acquisition of the Aldergrove, British Columbia facility. The increase in throughput capacity facilitated the execution of higher volumes of backlog and generated much stronger revenues. Projects in Q2 2018 consisted of government sponsored affordable housing projects, a hotel project and a commercial condominium project, as compared to a single government sponsored affordable housing project and a hotel project in Q2 2017.

Other Financial Measures

Horizon North's Q2 2018 EBITDAS increased $4.3 million or 168% compared to Q2 2017 excluding the equipment buy out. As a percentage of revenue, EBITDAS were 7% compared to 4% in Q2 2017. Also of note, included in the Q2 2018 Modular Solutions results was $0.8 million of cost related to final close out on several projects.

Depreciation decreased 7% compared to Q2 2017 as a result of the decrease in fleet assets between the comparative periods. This is related to the equipment buy out discussed above and ongoing fleet management activities including identifying and divesting of under performing assets.

Horizon North continued to maintain a strong focus on managing the Statement of Financial Position through minimizing working capital and a reduced capital program. In addition, Horizon North finalized a bought deal equity financing for net proceeds of $47.6 million which was used to reduce debt in the near term resulting in June 30, 2018 total loans and borrowings of $33.5 million compared to $69.4 million for Q2 2017. As a result of the decreased debt, Total Debt to EBITDAS ratio was 1.37:1.00 at June 30, 2018 compared to 2.39:1.00 at June 30, 2017.

Outlook

Horizon North's focus for the remainder of 2018 will continue to be on:

• Ensuring Horizon North is positioned and prepared to take advantage of LNG opportunities;
• Strengthening and diversifying the Industrial Services business by growing and broadening the customer base through expanding mining sector exposure and pursuing significant catering only opportunities for key customers in the oilsands. Additionally, Horizon North intends to focus on geographies with high potential such as northern Canada and the Montney and Duvernay regions; and
• Expanding Modular Solutions backlog and capacity while honing execution to improve profitability.

Liquefied Natural Gas (LNG)

In the second half of 2018 Horizon North will continue to ensure it is well prepared to take advantage of opportunities related to the potential LNG Canada project in Kitimat, British Columbia. Horizon North has a 57-acre strategic land position ideally located within the district of Kitimat with the majority of the land fully serviced. The serviced portion is currently subdivided, zoned and permitted for up to a 1,000 bed camp facility and for commercial development such as hotels and retail space. The remaining undeveloped parcel is ideally suited for residential development. Plans are currently in place to begin the rapid mobilization and commissioning of camp facilities with FID expected in the second half of 2018.

Industrial Services

Second half performance is expected to continue the moderate strengthening trend seen in Q2 2018.  Project timing continues to be fluid as customers delay project starts causing revenues and EBITDAS to slide later into the second half of 2018. The capital light strategy of providing catering only operations for dedicated facilities located on customer owned sites and projects is expected to gain momentum in the second half of 2018 and contribute steady, predictable, longer term revenue and EBITDAS streams. Although certain areas of high activity have experienced localized strengthening of pricing, Horizon North does not expect any significant general strengthening in pricing and will continue to focus on cost controls and operational discipline to improve EBITDAS levels.

Modular Solutions

The Modular Solutions business is expected to continue its revenue growth trajectory based on the current project backlog and the high-quality opportunity pipeline underpinned largely by social infrastructure and affordable housing projects. The second half of 2018 will continue to focus on adding capacity and improving profitability. Capacity is expected to continue to expand by ramping up the workforce in existing facilities and through the potential acquisition of additional suitable facilities. Horizon North anticipates that Modular Solutions will continue its trend of earnings improvement and contribute positive EBITDAS throughout 2018 as increased volumes drive improved economies of scale.

The strength of the Statement of Financial Position is a key priority and Horizon North will continue to closely manage debt levels and working capital. Cost reduction measures across our operations and the continued centralization of certain general and administrative functions will drive improved cash flow through efficiencies. In addition to a limited and tightly managed capital program, Horizon North will continue to assess its portfolio of assets in 2018 to ensure a focus on core business lines.

Dividend Payment

Horizon North announced today that its Board of Directors has declared a dividend for the third quarter of 2018 at $0.02 per share. The dividend is payable to shareholders of record at the close of business on September 30, 2018 to be paid on October 15, 2018. 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 six months ended June 30, 2018 and 2017 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 consolidated 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 MD&A 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, impairment, gain/loss on disposal of property, plant and equipment and share based compensation ("EBITDAS"). 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.

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 "Highlights" the statements that:

• "Modular Solutions achieved significant revenue and EBITDAS growth in Q2 2018 compared to Q2 2017 with revenue higher by $25.0 million and positive EBITDAS for Q2 and year to date 2018;
• The Modular Solutions business continued its growth momentum increasing the backlog to $64.5 million compared to $62.5 million at Q1 2018. The funnel of high-quality, high probability opportunities continues to strengthen closing June at $163.7 million; and
• On June 25, 2018 Horizon North closed a bought deal equity financing for net proceeds of $47.6 million. The net proceeds are intended to be allocated equally between the Industrial Services and Modular Solutions divisions. Funds allocated to Industrial Services will be focused on the installation of up to 1,000 camp beds on Horizon North's fully serviced land position in Kitimat, British Columbia following an anticipated positive final investment decision ("FID") related to the Kitimat LNG project. Funds allocated to Modular Solutions will be focused on expanding capacity and capabilities, extending offerings of affordable housing, commercial and residential products beyond western Canada."

Under the heading "Outlook" the statement that:

"Horizon North's focus for the remainder of 2018 will continue to be on:

• Ensuring Horizon North is positioned and prepared to take advantage of LNG opportunities;
• Strengthening and diversifying the Industrial Services business by growing and broadening the customer base through expanding mining sector exposure and pursuing significant catering only opportunities for key customers in the oilsands. Additionally, Horizon North intends to focus on geographies with high potential such as northern Canada and the Montney and Duvernay regions; and
• Expanding Modular Solutions backlog and capacity while honing execution to improve profitability.

Liquefied Natural Gas (LNG)

In the second half of 2018 Horizon North will continue to ensure it is well prepared to take advantage of opportunities related to the potential LNG Canada project in Kitimat, British Columbia. Horizon North has a 57-acre strategic land position ideally located within the district of Kitimat with the majority of the land fully serviced.  The serviced portion is currently subdivided, zoned and permitted for up to a 1,000 bed camp facility and for commercial development such as hotels and retail space. The remaining undeveloped parcel is ideally suited for residential development. Plans are currently in place to begin the rapid mobilization and commissioning of camp facilities with FID expected in the second half of 2018.

Industrial Services

Second half performance is expected to continue the moderate strengthening trend seen in Q2 2018.  Project timing continues to be fluid as customers delay project starts causing revenues and EBITDAS to slide later into the second half of 2018. The capital light strategy of providing catering only operations for dedicated facilities located on customer owned sites and projects is expected to gain momentum in the second half of 2018 and contribute steady, predictable, longer term revenue and EBITDAS streams. Although certain areas of high activity have experienced localized strengthening of pricing, Horizon North does not expect any significant general strengthening in pricing and will continue to focus on cost controls and operational discipline to improve EBITDAS levels.

Modular Solutions

The Modular Solutions business is expected to continue its revenue growth trajectory based on the current project backlog and the high-quality opportunity pipeline underpinned largely by social infrastructure and affordable housing projects. The second half of 2018 will continue to focus on adding capacity and improving profitability. Capacity is expected to continue to expand by ramping up the workforce in existing facilities and through the potential acquisition of additional suitable facilities. Horizon North anticipates that Modular Solutions will continue its trend of earnings improvement and contribute positive EBITDAS throughout 2018 as increased volumes drive improved economies of scale.

The strength of the Statement of Financial Position is a key priority and Horizon North will continue to closely manage debt levels and working capital. Cost reduction measures across our operations and the continued centralization of certain general and administrative functions will drive improved cash flow through efficiencies. In addition to a limited and tightly managed capital program, Horizon North will continue to assess its portfolio of assets in 2018 to ensure a focus on core business lines."

Under the heading "Dividend Payment" regarding the payment of a dividend to shareholders of record at the close of business on September 30, 2018 to be paid on October 15, 2018.

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;
• a positive FID 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 2018;
• operational results and capital spending;
• anticipated backlog in the Modular Solutions business;
• trade and other receivables;
• 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 the MD&A 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. Our Industrial Services division supplies workforce accommodations, camp management services, access solutions, maintenance and utilities. Our Modular Solutions division integrates modern design concepts and technology with state of the art, off-site manufacturing processes; producing high quality building solutions for commercial 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.

SOURCE Horizon North Logistics Inc.

Rod Graham, President and Chief Executive Officer or Scott Matson, Senior Vice President Finance and Chief Financial Officer, 900, 240 - 4th Street S.W., Calgary, Alberta T2P 4H4; Telephone (403) 517 - 4654, Fax (403) 517 - 4678, website: www.horizonnorth.ca

Related Links

www.horizonnorth.ca