TSX Symbol: HNL
CALGARY, Oct. 31, 2018 /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, 2018 and 2017.
Third Quarter Highlights
- Q3 2018 financial results showed significant improvement with the strongest Revenue, EBITDAS and Operating earnings since Q1 2017 primarily driven by improved Modular Solutions results;
- The Modular Solutions division exited the quarter with backlog of $99.9 million compared to $64.5 million at Q2 2018. The funnel of high-quality, high probability opportunities also increased, closing the quarter in the range of $250 million compared to $165 million at Q2 2018;
- With the recently announced positive Final Investment Decision ("FID") by LNG Canada of its liquefied natural gas ("LNG") project located in Kitimat, British Columbia, Horizon North has started to execute on its west coast LNG strategy. The strategy will be focused on the installation of an initial 200 beds of a potential 1,000 bed open camp facility and development of commercial and residential modular offerings on Horizon North's fully serviced land position in Kitimat, British Columbia;
- Horizon North is in the initial stage of mobilizing and installing a 150 bed camp facility for a liquified petroleum gas ("LPG") project located in Prince Rupert, British Columbia that has recently been approved by the project proponent;
- Horizon North announced two executive appointments during the quarter: President, Modular Solutions; and President, Industrial Services, in conjunction with the Corporation's continued strategy of bifurcation; and
- Horizon North's balance sheet improved as a result of continued focus on reducing working capital and proceeds received from a bought deal equity financing that closed on June 25, 2018 to support the execution of the Corporation's LNG strategy and anticipated growth in the Modular Solutions division.
Third Quarter Financial Summary
Three months ended September 30 | Nine months ended September 30 | ||||||||||
(000's except per share amounts) | 2018 | 2017 | % | 2018 | 2017 | % | |||||
Revenue | $ | 100,022 | $ | 79,283 | 26 | $ | 276,200 | $ | 241,418 | 14 | |
EBITDAS(1) | 11,710 | 6,434 | 82 | 23,029 | 23,259 | (1) | |||||
EBITDAS as a % of revenue | 12% | 8% | 8% | 10% | |||||||
Operating earnings (loss) | 1,308 | (7,514) | (117) | (9,536) | (1,861) | 412 | |||||
Operating earnings (loss) as a % of revenue | 1% | (9%) | (3%) | (1%) | |||||||
Total loss | (157) | (6,149) | (97) | (9,609) | (3,958) | 143 | |||||
Total comprehensive loss | (112) | (6,144) | (98) | (9,609) | (3,954) | 143 | |||||
Earnings (loss) per share | |||||||||||
Basic | $ | (0.00) | $ | (0.04) | $ | (0.06) | $ | (0.03) | |||
Diluted | $ | (0.00) | $ | (0.04) | $ | (0.06) | $ | (0.03) | |||
Total assets | $ | 466,070 | $ | 464,946 | $ | 466,070 | $ | 464,946 | |||
Total loans and borrowings | 24,960 | 56,174 | (56) | 24,960 | 56,714 | (56) | |||||
Fund Flow | 16,244 | 17,667 | (8) | 22,391 | 48,440 | (54) | |||||
Net Capital spending (proceeds) | (3,293) | (19,613) | (83) | 16,736 | (25,475) | (166) | |||||
Total debt to EBITDAS(1) | 0.84:1.00 | 2.04:1.00 | 0.84:1.00 | 2.04:1.00 | |||||||
Debt to total capitalization ratio(1) | 0.07:1.00 | 0.15:1.00 | 0.07:1.00 | 0.15:1.00 | |||||||
Dividends declared | $ | 3,285 | $ | 2,894 | $ | 9,477 | $ | 8,679 | |||
Dividends declared per share | $ | 0.02 | $ | 0.02 | $ | 0.06 | $ | 0.06 | |||
(1) See Non-GAAP measures definitions within the press release for details. | |||||||||||
Quarterly Operational Overview
Horizon North's Q3 2018 results were stronger compared to Q2 2018 and above Q3 2017 in substantially all financial measures. The revenue increase compared to Q3 2017 was driven by the Modular Solutions and Matting divisions and partially offset by the Camps & Catering division. The Modular Solutions division continued to increase manufacturing capacity which drove greater throughput and facilitated increased project execution resulting in greater revenues compared to Q3 2017. Higher Rentals & Logistics division revenues were primarily related to strong access mat rental and mat sales demand compared to Q3 2017. Partially offsetting these increases, the Camps & Catering division, revenues decreased compared to Q3 2017 due to lower catering only activity and lower used camp equipment sales.
Industrial Services
Revenues from Industrial Services for Q3 2018 decreased by 1% compared to Q3 2017 mainly due to softer catering only activity levels and lower used camp equipment sales partially offset by stronger access mat rentals and mat sales. Large camp activity levels remained relatively consistent compared to Q3 2017 with utilization of 46% and revenue per bed rental day at $94. Catering only activity decreased compared to Q3 2017 with catering only days lower by 28% partially offset by stronger revenue per catering only day, higher by 30% as a result of different contract mix. Rentals and Logistics revenues increased compared to Q3 2017 primarily due to a 14% increase in rental mat utilization and a 29% increase in the revenue per mat rental day. Continued strong demand for access mat rentals in the Duvernay and Montney areas south of Grande Prairie, Alberta drove the majority of higher activity.
Modular Solutions
Modular Solutions revenues for Q3 2018 were significantly higher than Q3 2017 as a result of increased capacity to execute the growing backlog of projects. Compared to Q3 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 Q3 2018 consisted of government sponsored affordable housing projects and commercial projects compared to a single government sponsored affordable housing project and a hotel project in Q3 2017.
Other Financial Measures
Horizon North's Q3 2018 EBITDAS increased $5.3 million or 82% compared to Q3 2017. As a percentage of revenue, EBITDAS were 12% compared to 8% in Q3 2017.
Horizon North's Total Debt to EBITDAS ratio was 0.84:1.00 at September 30, 2018 compared to 2.04:1.00 at September 30, 2017 as a result of finalizing the bought deal equity financing in Q2 2018 with net proceeds of $47.5 million used to reduce debt. Horizon North continued to maintain a strong focus on managing the Statement of Financial Position through minimizing working capital and a reduced capital program.
Outlook
Horizon North's focus for the remainder of 2018 and into 2019 will continue to be on:
- Executing on its west coast LNG strategy with first phase beginning Q4 2018 with the installation of an initial 200 beds of a potential 1,000 bed open camp facility;
- Strengthening and diversifying the Industrial Services business by growing and broadening the customer base through pursuing significant catering only opportunities for key customers in the Alberta oil sands and focusing on geographies with high potential such as northern Canada and the Montney and Duvernay regions; and
- Expanding the Modular Solutions backlog, evaluating additional manufacturing capacity and continuing to improve execution to increase profitability.
Liquefied Natural Gas (LNG)
On October 2, 2018, LNG Canada announced a positive Final Investment Decision for its LNG project located in Kitimat, British Columbia. Horizon North owns a 57-acre parcel of land within the District of Kitimat that is fully serviced, subdivided, permitted and zoned for the following type of development:
- Camp facilities - 16 acres will be used for an open camp facility of up to 1,000 beds, incorporating executive style accommodations and modern amenities. Horizon North has initiated the rapid mobilization and commissioning the initial 200 beds of this facility and anticipates that this initial camp will be operational in early 2019;
- Commercial development - 14 acres will be used for commercial development which would be constructed by Horizon North's Modular Solutions division and will consist of modularly constructed hotels, retail or office space or a combination thereof; and
- Residential development – 27 acres is ideally suited for residential development for which Horizon North may utilize its existing modular residential platform to provide attached or detached single family or executive housing or explore alternative residential development opportunities.
Industrial Services
Industrial Services operations are expected to be moderately stronger as we exit 2018. Workforce accommodation activity is expected to improve as a result of activity in the Montney and Duvernay regions as customers continue to pursue infrastructure and liquids rich gas development projects. Activity levels in the Alberta oil sands region are expected to be stable while Horizon North continues to aggressively pursue projects south of Fort McMurray leveraging our existing high quality, high value catering and hospitality platform which requires limited incremental capital investment.
Rentals & Logistics activity levels will moderate in Q4 2018 consistent with historical trends and are expected to increase through the first half of 2019 based on improving customer project visibility. Pricing is expected to remain relatively stable through the remainder of 2018 with embedded price escalation clauses driving improved pricing as we move into 2019.
Modular Solutions
The Modular Solutions business is expected to continue its revenue and profitability growth as the business works through its expanded backlog of $99.9 million. The funnel of high-quality, high probability opportunities has expanded and sits in the range of $250 million, underpinned by social infrastructure, multifamily residential, commercial development opportunities and affordable housing projects. The remainder of 2018 will be focused on adding manufacturing capacity through workforce increases at existing facilities as well evaluating potentially additional new facilities to support increasing demand.
Statement of Financial Position
The strength of the Statement of Financial Position remains a key priority and Horizon North has significantly reduced its debt and working capital levels. Horizon North will continue to maintain a disciplined approach to capital spending and continue assessing its portfolio of assets in 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 fourth quarter of 2018 at $0.02 per share. The dividend is payable to shareholders of record at the close of business on December 31, 2018 to be paid on January 15, 2019. 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, 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 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, 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:
- "The Modular Solutions division exited the quarter with backlog of $99.9 million compared to $64.5 million at Q2 2018. The funnel of high-quality, high probability opportunities also increased, closing the quarter in the range of $250 million compared to $165 million at Q2 2018;
- With the recently announced positive Final Investment Decision ("FID") by LNG Canada of its liquefied natural gas ("LNG") project located in Kitimat, British Columbia, Horizon North has started to execute on its west coast LNG strategy. The strategy will be focused on the installation of an initial 200 beds of a potential 1,000 bed open camp facility and development of commercial and residential modular offerings on Horizon North's fully serviced land position in Kitimat, British Columbia;
- Horizon North is in the initial stage of mobilizing and installing a 150 bed camp facility for a liquified petroleum gas ("LPG") project located in Prince Rupert, British Columbia that has recently been approved by the project proponent
- Horizon North's balance sheet improved as a result of continued focus on reducing working capital and proceeds received from a bought deal equity financing that closed on June 25, 2018 to support the execution of the Corporation's LNG strategy and anticipated growth in the Modular Solutions division."
Under the heading "Outlook" the statement that:
"Horizon North's focus for the remainder of 2018 and into 2019 will continue to be on:
- Executing on its west coast LNG strategy with first phase beginning Q4 2018 with the installation of an initial 200 beds of a potential 1,000 bed open camp facility;
- Strengthening and diversifying the Industrial Services business by growing and broadening the customer base through pursuing significant catering only opportunities for key customers in the Alberta oil sands and focusing on geographies with high potential such as northern Canada and the Montney and Duvernay regions; and
- Expanding the Modular Solutions backlog, evaluating additional manufacturing capacity and continuing to improve execution to increase profitability.
Liquefied Natural Gas (LNG)
On October 2, 2018, LNG Canada announced a positive Final Investment Decision for its LNG project located in Kitimat, British Columbia. Horizon North owns a 57-acre parcel of land within the District of Kitimat that is fully serviced, subdivided, permitted and zoned for the following type of development:
- Camp facilities - 16 acres will be used for an open camp facility of up to 1,000 beds, incorporating executive style accommodations and modern amenities. Horizon North has initiated the rapid mobilization and commissioning the initial 200 beds of this facility and anticipates that this initial camp will be operational in early 2019;
- Commercial development - 14 acres will be used for commercial development which would be constructed by Horizon North's Modular Solutions division and will consist of modularly constructed hotels, retail or office space or a combination thereof; and
- Residential development – 27 acres is ideally suited for residential development for which Horizon North may utilize its existing modular residential platform to provide attached or detached single family or executive housing or explore alternative residential development opportunities.
Industrial Services
Industrial Services operations are expected to be moderately stronger as we exit 2018. Workforce accommodation activity is expected to improve as a result of activity in the Montney and Duvernay regions as customers continue to pursue infrastructure and liquids rich gas development projects. Activity levels in the Alberta oil sands region are expected to be stable while Horizon North continues to aggressively pursue projects south of Fort McMurray leveraging our existing high quality, high value catering and hospitality platform which requires limited incremental capital investment.
Rentals & Logistics activity levels will moderate in Q4 2018 consistent with historical trends and are expected to increase through the first half of 2019 based on improving customer project visibility. Pricing is expected to remain relatively stable through the remainder of 2018 with embedded price escalation clauses driving improved pricing as we move into 2019.
Modular Solutions
The Modular Solutions business is expected to continue its revenue and profitability growth as the business works through its expanded backlog of $99.9 million. The funnel of high-quality, high probability opportunities has expanded and sits in the range of $250 million, underpinned by social infrastructure, multifamily residential, commercial development opportunities and affordable housing projects. The remainder of 2018 will be focused on adding manufacturing capacity through workforce increases at existing facilities as well evaluating potentially additional new facilities to support increasing demand.
Statement of Financial Position
The strength of the Statement of Financial Position remains a key priority and Horizon North has significantly reduced its debt and working capital levels. Horizon North will continue to maintain a disciplined approach to capital spending and continue assessing its portfolio of assets in 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 December 31, 2018 to be paid on January 15, 2019.
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 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 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. 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.
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