Horizon North Logistics Inc. ("Horizon North" or the "Corporation") reported its financial and operating results for the three months ended March 31, 2017 and 2016.
First Quarter Highlights
To ensure a meaningful discussion and comparison of the Q1 2017 operational results to Q1 2016, the Q1 2017 operational results throughout this document exclude the impact of the insurance settlement unless specifically noted.
First Quarter Overview
Excluding the insurance settlement, the results for Q1 2017 were lower across all financial measures compared to Q1 2016. Lower demand in the Camps & Catering operations drove the majority of lower Q1 2017 revenues compared to Q1 2016. The majority of the decrease in demand was attributable to several significant contracts which expired in the second half of 2016 when the associated projects they were supporting were completed. Softer Camps & Catering revenues were partially offset by strength in the Matting operations and the addition of Modular Solutions revenues.
Revenues from Camps & Catering operations for Q1 2017 decreased compared to Q1 2016 mainly as a result of several significant contracts which expired mid - 2016 as the associated projects they were supporting were completed. As these contracts completed and ramped down throughout 2016, refilling the backlog was particularly challenging given ongoing low levels of project spending and capital investment by our customers which limited the number and scope of bidding opportunities. Decreased pricing and lower large camp activity levels in Q1 2017 drove revenue per average available bed ("RevPAAB") and utilization of $43 and 50% respectively compared to $66 and 64% in Q1 2016.
Revenues from the Rentals and Logistics operations for Q1 2017 increased compared to Q1 2016 as a result of higher mat sales and stronger transport and installation activity related to the sales and higher rental activity. The increase in activity was driven by generally strong drilling activity in the Grande Prairie, Alberta, area combined with very wet ground conditions. Although mat fleet utilization was significantly higher in Q1 2017 compared to Q1 2016, lower revenue per mat rental day offset the utilization increase. Utilization and pricing of the mat rental fleet was 50% and $0.88 per mat rental day respectively, compared to 28% and $1.58 in Q1 2016. Relocatable structures continued to experience decreased demand with utilization of 35% in Q1 2017 compared to 38% in Q1 2016.
There are no comparatives for Modular Solutions operations as this product offering did not materially commence until Q1 2017. Revenues in Q1 2017 consisted primarily of the production and installation of an 85 room hotel in Revelstoke, British Columbia, and several residential housing projects.
Normalized EBITDAS in Q1 2017 decreased compared to Q1 2016 mainly as a result of the significantly lower activity levels and downward pressure on pricing compared to Q1 2016 in Industrial Services. Normalized operating loss and loss per share for Q1 2017 increased compared to Q1 2016 due to the reduced revenues and EBITDAS discussed above. Depreciation and amortization for Q1 2017 decreased compared to Q1 2016 as camp setup costs became fully depreciated throughout the year and due to the disposal of the Blacksand Executive Lodge assets.
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 remained relatively consistent at the end of each comparative quarter at $70.8 million for Q1 2017 compared to $70.1 million for Q1 2016. As a result of the decreased trailing twelve month EBITDAS, Horizon North's relative leverage increased with a Debt to trailing twelve month EBITDAS ratio at March 31, 2017 of 2.84:1.00 compared to 1.51:1.00 at March 31, 2016
Horizon North announced today that its Board of Directors has declared a dividend for the second quarter of 2017 at $0.02 per share. The dividend is payable to shareholders of record at the close of business on June 30, 2017 to be paid on July 14, 2017. 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.
For the three months ended March 31, 2017, capital spending was $5.0 million compared to $7.5 million in the same period of 2016 as a result of a focused and disciplined 2017 capital program. Capital spending in Q1 2017 was mainly focused on fulfilling land improvement commitments related to the Kitimat, British Columbia, property in preparation for future development and matting to supplement the mat rental fleet.
Management evaluates and manages its capital spending plans, taking into account proceeds from the sale of property, plant and equipment, resulting in net proceeds from disposals for the three months ended March 31, 2017 of $9.6 million compared to $3.8 million net capital spending for the same period of 2016. The net proceeds in Q1 2017 related to the insurance claim for the loss of the Blacksand Executive Lodge.
Horizon North does not currently have any material capital commitments associated with contracts to supply equipment or to purchase property, plant and equipment. Capital spending was funded primarily from cash from operations and the credit facility.
Although there is increasing optimism with oil prices being relatively stable in the $45 - $55 range, Horizon North expects pricing of its services to lag any improvement to utilization and anticipates results to remain relatively flat for the remainder of the year. 2017 will continue to be focused on cost reduction and efficiency initiatives across all operations to maintain and improve margins including assessing Horizon North's portfolio of assets to ensure a focus on core business lines.
The outlook for Modular Solutions is encouraging, closing the quarter with a firm project backlog of $32.4 million, establishing a key distribution relationship in the Fort McMurray, Alberta area and being designated an official Holmes Approved Homes builder. For the remainder of the year there is strong line of sight to multiple commercial projects which are expected to convert into firm backlog and achieve the $40 to $60 million 2017 revenue expectation previously discussed. As the backlog continues to build through the second half of 2017, we anticipate production planning and plant efficiencies will drive a more stable revenue stream. As a result of being in the ramp up phase, infrastructure costs related to the design and technical activities have preceded revenue; however, moving into Q4 2017, Modular Solutions is expected to be a positive contributor as the backlog progresses to production and installation.
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. Focus will be on maintaining a manageable leverage position and to balance cash outflow with cash inflow through reducing debt, managing working capital and minimizing capital spending. As well, revised covenants in the recently amended credit facility will provide additional ongoing working capital flexibility and, as part of our cost reduction efforts, management elected to decrease borrowing capacity from $200.0 million to $150.0 million to reduce costs associated with unused borrowing capacity.
A copy of the Corporation's Condensed Consolidated Interim Financial Statements for the three months ended March 31, 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.
Horizon North will host a conference call and webcast to begin promptly at 9:00 a.m. MT (11:00 a.m. ET) on – May 4, 2017 to discuss Horizon North's first 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 the webcast link on the home page.
An archived recording of the conference call will be available approximately two hours after completion of the call until May 11, 2017 by dialing 1-403-451-9481 or 1-855-859-2056 - Passcode: 9986447.
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
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