TSX Symbol: HNL
CALGARY, Aug. 1, 2019 /PRNewswire/ - Horizon North Logistics Inc. ("Horizon North" or the "Corporation") reported its financial and operating results for the three and six months ended June 30, 2019 and 2018.
Second Quarter Highlights
- Horizon North results for the three months ended June 30, 2019 reflected a challenging market environment with respect to the oil and gas industry served by our Industrial Services segment, while manufacturing schedule disruptions driven by project delays and deferrals led to cost inefficiencies in the Modular Solutions segment;
- Horizon North had Q2 2019 revenue of $104.6 million and negative EBITDAS of $3.9 million, an increase of $10.9 million and decrease of $10.8 million, respectively, when compared to Q2 2018. Total loss increased $7.2 million, to $10.6 million, when compared with the $3.4 million loss in Q2 2018;
- The Industrial Services business had EBITDAS of $0.5 million, a decrease of $9.4 million when compared to Q2 2018, reflecting the challenging market environment in the Montney, Duvernay and oil sands regions;
- The Modular Solutions business had negative EBITDAS of $0.7 million, a decrease in EBITDAS of $1.0 million from Q2 2018. Backlog exiting the quarter was $95.7 million, excluding the Marriott Fairfield Inn & Suites but including $25.4 million acquired from NRB, compared to $88.8 million at December 31, 2018. The funnel of high-quality, high probability opportunities also increased, exiting the quarter at $314.1 million compared to $290.0 million at December 31, 2018;
- April 1, 2019 marked the successful completion of the acquisition of NRB Inc. ("NRB"), a significant step in the Corporation's pan-Canadian growth strategy. NRB has been fully integrated as of June 30, 2019;
- The Corporation has committed to the design and construction of a 120‐room, five‐story modular Marriott Fairfield Inn & Suites located on the Corporation's Crossroads land parcel in Kitimat, British Columbia, with anticipated completion in early 2020;
- Following the end of the second quarter, Horizon North was awarded a contract for significant occupancy of the Corporation's Crossroads Lodge located in Kitimat, British Columbia. Revenue is expected to be approximately $37 million over the contract term, which begins in July 2019;
- Also following the second quarter, Horizon North was awarded 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. Revenue is expected to be $30 million over the contract term, which begins in the second half of 2019.
Second Quarter Financial Summary
Three months ended June 30 | Six months ended June 30 | |||||||||||
(000's except per share amounts) | 2019 | 2018 | % Change | 2019 | 2018 | % Change | ||||||
Revenue | $ | 104,550 | $ | 93,603 | 12 | $ | 233,295 | $ | 176,178 | 32 | ||
EBITDAS(1) | (3,948) | 6,886 | (157) | 13,457 | 11,319 | 19 | ||||||
EBITDAS as a % of revenue | -4% | 7% | 6% | 6% | ||||||||
Operating loss | (17,388) | (3,800) | 358 | (11,060) | (10,844) | 2 | ||||||
Operating loss as a % of revenue | (17%) | (4%) | (5%) | (6%) | ||||||||
Total loss | (10,618) | (3,390) | 213 | (6,881) | (9,452) | (27) | ||||||
Total comprehensive loss | (10,617) | (3,435) | 209 | (6,880) | (9,497) | (28) | ||||||
Loss per share | ||||||||||||
Basic | $ | (0.06) | $ | (0.02) | $ | (0.04) | $ | (0.06) | ||||
Diluted | $ | (0.06) | $ | (0.02) | $ | (0.04) | $ | (0.06) | ||||
Total assets | $ | 540,592 | $ | 473,632 | 14 | $ | 540,592 | $ | 473,632 | 14 | ||
Total loans and borrowings | 66,558 | 33,536 | 98 | 66,558 | 33,536 | 98 | ||||||
Funds Flow | (3,817) | 3,886 | (198) | 13,925 | 6,147 | 127 | ||||||
Net Capital spending | 23,599 | 3,690 | 540 | 38,368 | 20,029 | 92 | ||||||
Total debt to EBITDAS(2) | 1.71:1.00 | 1.37:1.00 | 1.71:1.00 | 1.37:1.00 | ||||||||
Debt to total capitalization ratio(1) | 0.17:1.00 | 0.09:1.00 | 0.17:1.00 | 0.09:1.00 | ||||||||
Dividends declared | $ | 3,308 | $ | 3,285 | $ | 6,593 | $ | 6,192 | ||||
Dividends declared per share | $ | 0.02 | $ | 0.02 | $ | 0.04 | $ | 0.04 | ||||
(1) | 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 |
(2) | Please refer to Liquidity and Capital Resources section of the Management's Discussion and Analysis for the definitions of Total Debt to EBITDAS |
Quarterly Operational Overview
Results for the three months ended June 30, 2019 reflected a challenging Industrial Services market environment with respect to the oil and gas industry combined with manufacturing schedule disruptions driven by project delays and deferrals that led to cost inefficiencies in Modular Solutions. Revenue for Q2 2019 increased by 12% primarily due to increased manufacturing capacity in the Modular Solutions segment, which was partially offset by decreased camp rental and catering activity in the Camp & Catering segment. Rentals & Logistics segment revenues also increased compared to Q2 2018 due to increased soil stabilization activity and higher mat rental pricing.
Industrial Services
Revenues from Industrial Services for Q2 2019 decreased compared to Q2 2018 primarily due to lower camp rental and catering activity in the Montney, Duvernay and oil sands regions. Catering only activity decreased 1% in Q2 2019 compared to Q2 2018, with revenue per catering only day lower by 1% as a result of different contract mix. Rentals & Logistics revenues increased by 8% in Q2 2019 compared to Q2 2018 primarily due to strong soil stabilization work.
Modular Solutions
Modular Solutions revenues for Q2 2019 were 49% higher than Q2 2018 as a result of the NRB Inc. acquisition and increased capacity to execute the backlog of projects. The manufacturing capacity available in Q2 2019 increased significantly from Q2 2018 as a result of ramping up direct headcount at the Kamloops, British Columbia facility and the full integration of the Aldergrove, British Columbia facility. In addition, the acquisition of the Rocky View County, Alberta facility in November 2018 and the NRB, Ontario facility in April 2019 allowed for a further ramp up of production into Q2 2019. The increase of throughput capacity facilitated the execution of higher volumes and generated much stronger revenues.
Other Financial Measures
Horizon North's Q2 2019 EBITDAS decreased by $10.8 million, or 157%, compared to Q2 2018. As a percentage of revenue, EBITDAS were negative 4% compared to positive 7% in Q2 2018. The decrease in EBITDAS, compared to Q2 2018, was primarily driven by a challenging market environment in the Camp & Catering segment with significant reductions in activity in the Montney, Duvernay and oil sands regions combined with changes in the manufacturing schedule of the Modular Solutions segment resulting in cost inefficiencies that negatively impacted margins. This was partially offset by strong results in the Rentals & Logistics segment.
Horizon North continued to maintain a focus on managing its Statement of Financial Position through monitoring working capital and the capital program. Total Loans and Borrowings, including equipment related finance leases but excluding the lease liabilities upon adoption of IFRS 16, were $66.6 million at June 30, 2019 compared to $30.9 million at December 31, 2018. As a result of the increased debt and weaker EBITDAS, the total debt to EBITDAS ratio was 1.71:1.00 at June 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 260 beds of its world-class Crossroads Lodge opened in Q2 2019 with the balance of the 736 bed facility expected to be available by late 2019. Horizon North was recently awarded a contract for significant occupancy of the Crossroads Lodge in support of ongoing LNG development activities in the area.
- 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 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 was down more sharply than expected in Q2 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 two 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
Q2 2019 results included the effects of several project delays and deferrals which impacted project schedules and resulted in significantly reduced 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 commercial 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, manufacturing capacity in the back half of 2019 will be utilized for construction of the Marriott Fairfield Inn & Suites in Kitimat, British Columbia as well as the modular units and large complexes associated with the new 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 fold 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.
In Q2 2019, Horizon North entered into a strategic alliance with Prefab Logic to build the volumetric modular industry. Prefab Logic is providing opportunities for Horizon North to supply modules for select projects in the United States market with multiple projects in the bid and evaluation stage. Successful project bids would have a significant impact on Modular Solutions operations in 2020 and beyond.
Horizon North continues to work closely with the Rick Hansen Foundation to improve accessibility of our modular projects. We have together developed an Accessibility Design Criteria Manual to optimize consideration of accessibility both in our designs and throughout the modular construction industry. Horizon North believes accessibility will be a key focus and consideration in the development of social and affordable housing, seniors housing and other public works projects.
Dividend Payment
Horizon North announced today that its Board of Directors has declared a dividend for the third quarter of 2019 at $0.02 per share. The dividend is payable to shareholders of record at the close of business on September 30, 2019 to be paid on October 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 months ended June 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 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, share based compensation, earnings from equity 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, excluding lease liabilities recorded upon adoption of IFRS 16. 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:
- "Horizon North results for the three months ended June 30, 2019 reflected a challenging market environment with respect to the oil and gas industry served by our Industrial Services segment, while manufacturing schedule disruptions driven by project delays and deferrals led to cost inefficiencies in the Modular Solutions segment;
- Horizon North had Q2 2019 revenue of $104.6 million and negative EBITDAS of $3.9 million, an increase of $10.9 million and decrease of $10.8 million, respectively, when compared to Q2 2018. Total loss increased $7.2 million, to $10.6 million, when compared with the $3.4 million loss in Q2 2018;
- The Industrial Services business had EBITDAS of $0.5 million, a decrease of $9.4 million, reflecting the challenging market environment in the Montney, Duvernay and oil sands regions;
- The Modular Solutions business had negative EBITDAS of $0.7 million, a decrease in EBITDAS of $1.0 million from Q2 2018. Backlog exiting the quarter was $95.7 million, excluding the Marriott Fairfield Inn & Suites but including $25.4 million acquired from NRB, compared to $88.8 million at December 31, 2018. The funnel of high-quality, high probability opportunities also increased, exiting the quarter at $314.1 million compared to $290.0 million at December 31, 2018;
- April 1, 2019 marked the successful completion of the acquisition of NRB Inc. ("NRB"), a significant step in the Corporation's pan-Canadian growth strategy. NRB has been fully integrated as of June 30, 2019;
- The Corporation has committed to the design and construction of a 120‐room, five‐story modular Marriott Fairfield Inn & Suites located on the Corporation's Crossroads land parcel in Kitimat, British Columbia, with anticipated completion in early 2020;
- Following the end of the second quarter, Horizon North was awarded a contract for significant occupancy of the Corporation's Crossroads Lodge located in Kitimat, British Columbia. Revenue is expected to be approximately $37 million over the contract term, which begins in July 2019;
- Also following the second quarter, Horizon North was awarded 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. Revenue is expected to be $30 million over the contract term, which begins in the second half of 2019."
Under the heading "Outlook" the statement 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 260 beds of its world-class Crossroads Lodge opened in Q2 2019 with the balance of the 736 bed facility expected to be available by late 2019. Horizon North was recently awarded a contract for significant occupancy of the Crossroads Lodge in support of ongoing LNG development activities in the area.
- 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 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 was down more sharply than expected in Q2 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 two 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
Q2 2019 results included the effects of several project delays and deferrals which impacted project schedules and resulted in significantly reduced 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 commercial 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, manufacturing capacity in the back half of 2019 will be utilized for construction of the Marriott Fairfield Inn & Suites in Kitimat, British Columbia as well as the modular units and large complexes associated with the new 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 fold 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.
In Q2 2019, Horizon North entered into a strategic alliance with Prefab Logic to build the volumetric modular industry. Prefab Logic is providing opportunities for Horizon North to supply modules for select projects in the United States market with multiple projects in the bid and evaluation stage. Successful project bids would have a significant impact on Modular Solutions operations in 2020 and beyond.
Horizon North continues to work closely with the Rick Hansen Foundation to improve accessibility of our modular projects. We have together developed an Accessibility Design Criteria Manual to optimize consideration of accessibility both in our designs and throughout the modular construction industry. Horizon North believes accessibility will be a key focus and consideration in the development of social and affordable housing, seniors housing and other public works projects."
Under the heading "Dividend Payment" regarding the payment of a dividend to shareholders of record at the close of business on September 30, 2019 to be paid on October 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 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 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 MD&A 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.
Conference Call
Horizon North will host a conference call and webcast to begin promptly at 9:00 a.m. MT (11:00 a.m. ET) on August 2, 2019 to discuss Horizon North's second 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 North's website at www.horizonnorth.ca by selecting "Investors", then "Webcast".
An archived recording of the conference call will be available approximately two hours after completion of the call until August 9, 2019 by dialing 403-451-9481 or 1-855-859-2056 – Passcode: 4061246
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.
Corporate Information
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