Horizon North Logistics Inc. Announces Results for the Quarter Ended March 31, 2019
Press Release
CALGARY, ALBERTA, May 3, 2019 – TSX Symbol: HNL
Horizon North Logistics Inc. (“Horizon North” or the “Corporation”) reported its financial and operating results for the three months ended March 31, 2019 and 2018.
First Quarter Highlights
- Horizon North achieved Q1 2019 revenue of $128.7 million and EBITDAS of $17.4 million, an increase of $46.2 million and $13.0 million, respectively, when compared to Q1 2018. Total profit also increased $9.8 million, to $3.7 million, when compared with the $6.1 million loss in Q1 2018.
- The Modular Solutions business delivered positive EBITDAS for the fourth consecutive quarter and increased by $4.7 million compared to Q1 2018. Backlog exiting the quarter was $125.3 million, including $32.0 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 $306.0 million compared to $290.0 million at December 31, 2018;
- The Industrial Services business achieved significant improvement in all financial measures with several camp rental and catering projects starting in the quarter, strong matting sales and increased mat rental pricing;
- 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 is a full-service modular manufacturing company based in Grimsby, Ontario, providing Horizon North with manufacturing capacity in the southern Ontario region. Expertise in wood-frame modular structures will expand east, providing solutions for affordable social, student, and senior housing, in addition to Indigenous infrastructure projects, hotels, commercial space and single and multi-family homes. NRB’s expertise in steel-frame, non-combustible modular structures will expand west, including facilities for health care, recreation, and education purposes, as well as retail, hospitality and utilities;
- 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 late 2019;
- Mobilization and installation of the first phase of the Crossroads open lodge facility in Kitimat, British Columbia continues to move forward. The first 260 beds will be ready for occupancy in mid-Q2 2019, with the facility permitted for up to 1,000 beds. The lodge will provide workforce accommodations to support development in the area, including the LNG Canada project; and
- In April 2019, Horizon North entered into a strategic alliance with Prefab Logic to build the volumetric modular industry, with Prefab Logic providing product design and management services for projects to Horizon North. This agreement will provide Horizon North with opportunities to supply modules for select projects in the United States market strengthening plant utilization and providing initial exposure to significant modular construction demand using wood-frame and steel-frame modular manufacturing in concert with the Corporation’s pan-Canadian growth strategy.
First Quarter Financial Summary
Quarterly Operational Overview
Results for the three months ended March 31, 2019 showed increases across all measures compared to Q1 2018. The increase in revenue for Q1 2019 was across all segments and was driven by project execution and increased manufacturing capacity in the Modular Solutions segment, along with increased camp rental and catering activity in the Camp & Catering segment. Rentals & Logistics segment revenues also increased compared to Q1 2018 due to the large volume of matting sales in Q1 2019.
Industrial Services
Revenues from Industrial Services for Q1 2019 increased compared to Q1 2018 due to higher camp rental and catering activity in the northeast region of British Columbia and the significant increase in mat sales. Camp rental and catering activity levels increased, driven by utilization of 64%, up 18%, and revenue per bed rental day at $103, an increase of 5%, due to several new camps opening in the northeastern British Columbia region. Catering only activity increased 22% in Q1 2019 compared to Q1 2018, with softening revenue per catering only day, lower by 4%, as a result of different contract mix. Rentals & Logistics revenues increased in Q1 2019 compared to Q1 2018 primarily due to an increase in matting sales and strong soil stabilization work.
Modular Solutions
Modular Solutions revenues for Q1 2019 were 103% higher than Q1 2018 as a result of increased capacity to execute the large backlog of projects. The manufacturing capacity available in Q1 2019 increased significantly from Q1 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 allowed for a further ramp up of production into Q1 2019. The increase of throughput capacity facilitated the execution of higher volumes and generated much stronger revenues.
Other Financial Measures
Horizon North’s Q1 2019 EBITDAS increased by $13.0 million, or 293%, compared to Q1 2018. As a percentage of revenue, EBITDAS were 14% compared to 5% in Q1 2018. The increase in EBITDAS, compared to Q1 2018, was primarily driven by significantly improved operating results in the Modular Solutions segment, new camp rental and catering projects in the Camp & Catering segment, and significant matting sales in the Rentals & Logistics segment.
Horizon North continued to maintain a strong 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, were $35.1 million at March 31, 2019 compared to $31.7 million at December 31, 2018. As a result of the increased debt and stronger EBITDAS, the total Debt to EBITDAS ratio was 0.71:1.00 at March 31, 2019 compared to 0.86:1.00 at December 31, 2018.
Impact of IFRS 16 – Leases on EBITDAS
Effective January 1, 2019, the Corporation adopted IFRS 16 in its financial statements. IFRS 16 introduces a single lessee accounting model and requires a lessee to recognize assets and liabilities for all leases with a term of more than 12 months, unless the underlying asset is of low value. A lessee is required to recognize a right-of-use asset representing its right to use the underlying asset and a lease liability representing its obligation to make lease payments. This standard substantially carries forward the lessor accounting requirements of IAS 17, while requiring enhanced disclosures to be provided by lessors.
The Corporation has applied IFRS 16 using the modified retrospective method and therefore the comparative information has not been restated and continues to be reported under IAS 17. Under IFRS 16, lease costs are reflected on the statement of comprehensive income (loss) through depreciation and interest expense, resulting in an increase to EBITDAS.
The modified retrospective method resulted in a one-time adjustment of a $26.6 million addition of right-of-use assets, offset by an existing $2.0 million prepaid land lease and $24.6 million in lease liabilities with no changes in retained earnings on January 1, 2019. During Q1 2019, the Corporation made payments of $1.4 million related to its lease obligations and recorded right of use asset depreciation and lease interest charges of $1.2 million and $0.3 million, respectively. As a result of the new lease standard, EBITDAS was positively impacted by $1.4 million.
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 will continue to leverage its reputation as a leading provider of turn-key camp, hospitality, access and maintenance solutions with focus on the following four key areas:
- West Coast/Liquified Natural Gas
- Horizon North continues the setup of the first phase of development on its 57-acre parcel of land located at the entrance to Kitimat, British Columbia. Horizon North expects to open the first 260 beds of its world-class Crossroads open lodge in Q2 2019 with the facility permitted for up to 1,000 beds to service increasing activity in the region.
- Pursuant to a Teaming Agreement with Falcon Camp Services Inc., Horizon North has entered into contracts to provide equipment, catering, hospitality and operations services for camps supporting construction work on the Coastal GasLink Project in northern British Columbia. These contracts provide additional exposure to significant construction activity over a 30-month period beginning in June 2019.
- Montney/Duvernay – Activity in this region continued to be strong in Q1 2019 but is expected to face market headwinds for the balance of 2019. Horizon North is the largest provider of open camp services in this area and is a market leader in providing catering and hospitality services in customer-owned facilities. Horizon North will continue to leverage existing assets, strategic locations and relationships while looking to develop additional opportunities to support activity in this region.
- Oil Sands – Horizon North expects to leverage its operational footprint and experience, along with two prominent relationships with Aboriginal communities north and south of Fort McMurray, to pursue both full turn-key opportunities and catering and hospitality opportunities in customer-owned facilities.
- Northern Canada – Horizon North has a long history and expertise in providing hospitality, management and maintenance services across Canada’s northern regions. 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
Horizon North’s focus is to continue to maximize the growth of its backlog and executing on throughput of modular construction projects to drive economies of scale in our facilities. Horizon North will continue to strengthen its product offerings as the mix of product balances between government and commercial projects throughout 2019.
April 1, 2019 marked the successful completion of the acquisition of NRB, a significant step in the Corporation’s pan-Canadian growth strategy. NRB is a full-service modular manufacturing company based in Grimsby, Ontario, providing Horizon North with manufacturing capacity in the southern Ontario region. Expertise in wood-frame modular structures will expand east, providing solutions for affordable social, student, and senior housing, in addition to Indigenous infrastructure projects, hotels, commercial space and single and multi-family homes. NRB’s expertise in steel-frame, non-combustible modular structures will expand west, including facilities for health care, recreation, and education purposes, as well as retail, hospitality and utilities.
Increased capacity in western Canada from two modular manufacturing facility acquisitions in 2018 and the newly acquired southern Ontario facility, via NRB, have expanded Horizon North’s geographic footprint and product mix. These two factors will allow Horizon North to provide our products and services across the country and serve additional regions that have a strong appetite for our unique modular construction and delivery model.
In April 2019, Horizon North entered into a strategic alliance with Prefab Logic to build the volumetric modular industry, with Prefab Logic providing product design and management services for projects to Horizon North. This agreement will provide Horizon North with opportunities to supply modules for select projects in the United States market strengthening plant utilization and providing initial exposure to significant modular construction demand using wood-frame and steel-frame modular manufacturing in concert with the Corporation’s pan-Canadian growth strategy.
Dividend Payment
Horizon North announced today that its Board of Directors has declared a dividend for the second quarter of 2019 at $0.02 per share. The dividend is payable to shareholders of record at the close of business on June 30, 2019 to be paid on July 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 March 31, 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 consolidated financial statements have been prepared in accordance with International Financial Reporting Standards and the reporting currency is in Canadian dollars.
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