Horizon North Logistics Inc. Announces Results for the Quarter Ended September 30, 2017

TSX Symbol: HNL

CALGARY, Nov. 1, 2017 /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, 2017 and 2016.

Third Quarter Highlights

• Revenues strengthened in Q3 2017 compared to Q3 2016 driven by higher activity levels across all of the operations;
• EBITDAS softened compared to Q3 2016 as a result of a difference in contract mix and reduced pricing primarily in the Industrial Services operations;
• The Modular Solutions business continued to build momentum through Q3 2017, exiting the quarter with $30.2 million of backlog;
• Underpinned by the recent focus by all levels of government to rapidly advance social infrastructure and affordable housing projects, Modular Solutions now has a high probability line of sight to an additional $132.0 million of projects; 
• Capital spending in Q3 2017 was primarily focused on supporting contract awards announced late in Q2 2017 with the associated revenues and EBITDAS anticipated to begin in Q4 2017; and
• Operating earnings decreased compared to Q3 2016 mainly due to an impairment charge on specific fleet equipment held for sale.

Third Quarter Financial Summary

Third Quarter Overview

Revenues for Q3 2017 improved compared to Q3 2016 as a result of higher activity levels across all of Horizon North's operations. EBITDAS for Q3 2017 decreased compared to Q3 2016 primarily due to softer pricing in the Industrial operations. The operating income and earnings per share were lower compared to Q3 2016 driven by the reduced EBITDAS and an impairment loss on specific assets held for sale.

Revenues from Camps & Catering operations for Q3 2017 increased 12% compared to Q3 2016. The increase in revenues was a result of additional catering only contracts added in Q2 2017 and stronger equipment sales compared to Q3 2016. The revenue strength was partially offset by softer large camp activity primarily a result of several significant camp contracts, mainly in the Fort McMurray, Alberta area, which expired or ramped down between the comparative quarters. There were pockets of stronger large camp activity mainly in the Grande Prairie, Alberta area, however these new camps were smaller in scope and at reduced pricing only partially offsetting the expired contracts. Large camp activity levels drove revenue per average available bed ("RevPAAB") and utilization of $34 and 47% respectively compared to $44 and 50% in Q3 2016. Rentable beds at the end of Q3 2017 were 8,333 beds, a decrease of 1,072 beds compared to Q3 2016 as a result of the sale of the 450 person camp in Q2 2017 and removal of 569 beds held for sale in Q3 2017.

Revenues from Rentals and Logistics operations for Q3 2017 increased 40% compared to Q3 2016 as a result of stronger mat sales and rental activity, which also drove higher transport and installation activity. The surge in demand for matting was driven by increased drilling activity and wet ground conditions in the Grande Prairie, Alberta area. Mat fleet utilization was significantly higher in Q3 2017 compared to Q3 2016, with slightly lower revenue per mat rental day partially offsetting the utilization increase. Utilization and pricing of the mat rental fleet in Q3 2017 was 79% and $0.93 per mat rental day respectively, compared to 57% and $0.96 in Q3 2016. Relocatable structures revenues were consistent in the comparative quarters with higher utilization offsetting lower pricing compared to Q3 2017. Utilization of the space rental fleet was 43% compared to 38% in Q3 2016.

Modular Solutions revenues for Q3 2017 were $11.9 million compared $2.2 million in Q3 2016. Revenues in Q3 2017 were comprised mainly of commercial projects, including a condominium complex in Revelstoke, British Columbia and several individual residential projects. The Q3 2016 revenues reflect the first residential projects associated with the acquisition of Karoleena Inc. in Q2 2016.

EBITDAS in Q3 2017 decreased compared to Q3 2016. Although activity levels strengthened across all operations pricing in the Industrial operations decreased compared to Q3 2017. The pricing decrease is mainly reflective of higher margin contracts written prior to the deterioration in economic conditions expiring and being replaced by contracts priced to reflect the current economic environment. The EBITDAS loss in Modular Solutions was expected and as a percentage of revenue significantly improved over Q3 2016 as a result of the higher activity levels.

Depreciation and amortization for Q3 2017 decreased compared to Q3 2016 as a result of certain camp setup costs being fully depreciated and the disposal of assets throughout the year, primarily the sale of the 450 person camp in Q2 2017.

Included in total profit was an impairment loss on certain assets held for sale. The sale of these assets is part of Horizon North's ongoing focus to decrease under-utilized fleet assets and improve return on invested capital.

Horizon North continues to maintain a strong focus on managing the Statement of Financial Position through monitoring working capital and managing a reduced capital program. Total loans and borrowings were $56.7 million for Q3 2017 compared to $73.0 million for Q3 2016. The decrease in debt between the comparative quarters was offset by a decrease in EBITDAS and resulted in a debt covenant ratio at September 30, 2017 of 2.04:1.00 compared to 1.97:1.00 at September 30, 2016.

Outlook

Horizon North's diversification strategy through a bifurcation of operations has now been fully implemented and has created new markets for Horizon North's manufacturing services and assets. Industrial operations continue to be impacted by lower commodity prices in the western Canadian marketplace which have reduced our core customer base's spending profiles.  The remainder of 2017 will continue to focus on cost reduction and efficiency initiatives with Q4 results expected to be similar to Q3 results.  Demand for Modular Solutions products and services continues to strengthen with several projects recently added to the backlog and several high probability projects anticipated in the remainder of 2017.

Industrial customers in certain geographical areas are starting to firm up their 2018 budgetary plans which can largely be broken down into three segments; Oilsands, Conventional W5/W6 and non-energy (mining & forestry). In the Oilsands market surrounding Fort McMurray, Alberta prices for Horizon North's services remain challenged as activity levels have stagnated and excess supply reduces utilization.  Horizon North has been actively firming up partnerships with local First Nations groups in the area which are expected to help grow our market share. The conventional W5/W6 market, which encompasses the Montney formation as well as the Duvernay formation, continues to be the bright spot for industrial demand. Customers in this market have better return profiles for their projects and Horizon North's market leader position provides customers with exceptional value and flexibility to accommodate project timelines. Non-energy demand in Canada's north continues to be strong and Horizon North's breadth and depth of experience operating in Canada's harshest climates is allowing significant projects to proceed on time and on budget.

The Modular Solutions business is expected to continue its growth based on a strengthening backlog and high quality opportunity pipeline underpinned by the recent focus on social infrastructure and affordable housing by all levels of government. Horizon North expects to advance social infrastructure project scope and contracting for projects already announced by the end of 2017. The backlog and opportunity pipeline are providing a higher level of visibility to the business requiring an increase in labour force at our Kamloops, British Columbia based manufacturing facility to achieve a critical mass of scale and manufacturing throughput. Horizon North anticipates that Modular Solutions will continue its trend of earnings improvement in Q4 and contribute positive EBITDAS in 2018.

Dividend payment

Horizon North announced today that its Board of Directors has declared a dividend for the fourth quarter of 2017 at $0.02 per share. The dividend is payable to shareholders of record at the close of business on December 29, 2017 to be paid on January 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 nine months ended September 30, 2017 and 2016 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.

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 November 2^nd, 2017 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 North's website at www.horizonnorth.ca/investors/webcasts/

An archived recording of the conference call will be available approximately two hours after completion of the call until November 9, 2017 by dialing 1-403-451-9481 or 1-855-859-2056 - Passcode: 1446262.

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 measure as it provides an indication of the Corporation's ability to generate cash flow in order to fund working capital, service debt, pay current income taxes and fund capital programs, 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 MD&A 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 "Outlook" the statement that:

"Horizon North's diversification strategy through a bifurcation of operations has now been fully implemented and has created new markets for Horizon North's manufacturing services and assets. Industrial operations continue to be impacted by lower commodity prices in the western Canadian marketplace which have reduced our core customer base's spending profiles.  The remainder of 2017 will continue to focus on cost reduction and efficiency initiatives with Q4 results expected to be similar to Q3 results.  Demand for Modular Solutions products and services continues to strengthen with several projects recently added to the backlog and several high probability projects anticipated in the remainder of 2017.  

Industrial customers in certain geographical areas are starting to firm up their 2018 budgetary plans which can largely be broken down into three segments; Oilsands, Conventional W5/W6 and non-energy (mining & forestry). In the Oilsands market surrounding Fort McMurray, Alberta prices for Horizon North's services remain challenged as activity levels have stagnated and excess supply reduces utilization.  Horizon North has been actively firming up partnerships with local First Nations groups in the area which are expected to help grow our market share.The conventional W5/W6 market, which encompasses the Montney formation as well as the Duvernay formation, continues to be the bright spot for industrial demand. Customers in this market have better return profiles for their projects and Horizon North's market leader position provides customers with exceptional value and flexibility to accommodate project timelines. Non-energy demand in Canada's north continues to be strong and Horizon North's breadth and depth of experience operating in Canada's harshest climates is allowing significant projects to proceed on time and on budget.

The Modular Solutions business is expected to continue its growth based on a strengthening backlog and high quality opportunity pipeline underpinned by the recent focus on social infrastructure and affordable housing by all levels of government. Horizon North expects to advance social infrastructure project scope and contracting for projects already announced by the end of 2017. The backlog and opportunity pipeline are providing a higher level of visibility to the business requiring an increase in labour force at our Kamloops, British Columbia based manufacturing facility to achieve a critical mass of scale and manufacturing throughput. Horizon North anticipates that Modular Solutions will continue its trend of earnings improvement in Q4 and contribute positive EBITDAS in 2018."

• Underpinned by the recent focus by all levels of government to rapidly advance social infrastructure and affordable housing projects, Modular Solutions now has a high probability line of sight to an additional $132.0 million of projects;
• The Corporation continuing to closely manage its balance sheet, monitor working capital, the capital program and the level of leverage;
• The Corporation's focus of its manufacturing infrastructure on permanent modular construction to decrease the dependence on the resource sector to provide a smoother and more reliable business operation;
• The Corporation's backlog of projects;
• With consistent backlog, revenues and plant efficiencies are expected to improve and generate more stable and predictable results;
• The payment of a dividend for the fourth quarter of 2017 at $0.02 per share and payable to shareholders of record at the close of business on December 29, 2017 to be paid January 15, 2018; and
• The evaluation of the Corporation's capital and debt structure through 2017.

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;
• capital investment in the Canadian oil and gas sector;
• dividend payments;
• anticipated activity levels for 2017;
• operational results and capital spending;
• 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 and information are based on are reasonable, undue reliance should not be placed on the forward-looking statements and information because Horizon North cannot give any assurance that they will prove to be correct. Since forward-looking statements and information 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, including certain information under the heading "Outlook", 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 division supplies workforce accommodations, camp management services, access solutions, maintenance and utilities. Our Modular Construction 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.

Related Links

www.horizonnorth.ca