Horizon North Logistics Inc. Announces Record Results for the Quarter Ended September 30, 2013

CALGARY, Oct. 29, 2013 /CNW/ – TSX Symbol: HNL

Horizon North Logistics Inc. (“Horizon” or the “Corporation”) reported its financial and operating results for the three and nine months ended September 30, 2013 and 2012.

Third Quarter Highlights

   -- Record quarterly revenues and EBITDAS were driven by Horizon's integrated 
      business model; 

   -- Improved balance sheet strength, exiting the quarter with a debt to 
      trailing EBITDAS ratio of 0.46:1; 

   -- Owned access mat fleet grew by 4,965 mats or 34% as compared to the same 
      period of 2012, closing the quarter with 19,630 mats.

Third Quarter Financial Summary

 

                                                  Three months ended September 30                    Nine months ended September 30 
(000's except per share amounts)                        2013                2012  % Change                2013                2012  % Change 
Revenue                                   $          157,361   $         119,910       31%    $        445,746    $        388,058       15% 
EBITDAS(1)                                            41,306              34,080       21%             110,647             108,988        2% 
EBITDAS as a % of revenue                                26%                 28%                           25%                 28% 

Operating earnings(1)                                 27,423              23,232       18%              64,898              79,368     (18%) 
Total comprehensive income                            18,643              16,328       14%              45,013              56,974     (21%) 
Earnings per share - basic                $             0.17   $            0.15       13%    $           0.41    $           0.53     (21%) 
                               - 
                                diluted   $             0.17   $            0.15       13%    $           0.41    $           0.52     (21%) 
Total assets                                         470,049             480,322      (2%)             470,049             480,322      (2%) 

Long-term loans and borrowings                        69,770             117,830     (41%)              69,770             117,830     (41%) 
Funds from operations(1)                              33,478              26,894       24%              87,819              84,739        4% 
Capital spending                                      15,679              46,445     (66%)              55,263             115,968     (52%) 
Debt to total capitalization ratio(1)                   0.19                0.31     (39%)                0.19                0.31     (39%) 
Dividends declared                        $            6,852   $           5,430       26%    $         20,498    $         16,255       26% 
Dividends declared per share              $           0.0625   $            0.05       25%    $         0.0625    $           0.05       25% 

(1)      See financial measures definitions on the last page of the press 
         release for details.

Overview

Horizon’s third quarter of 2013 was a record high for both revenue and EBITDAS. The revenue and EBITDAS strength was driven by camp manufacturing as 81% of manufacturing capacity was focused on meeting external demand for several large camp projects. Strong manufacturing performance was partially offset by the camp rental and catering operations which realized the expected softness in revenue and EBITDAS with a large amount of fleet in transition. The transition of current fleet was driven by Horizon’s ongoing assessment of how best to deploy and utilize fleet assets. The amount of fleet in transition is a result of our current customer’s changing requirements and repositioning fleet for new contracts in anticipation of future demand.

EBITDAS as a percentage of revenue decreased in the three and nine months ended September 30, 2013 compared to the same periods of 2012. The decrease was mainly a result of a change in revenue mix in the comparative periods with a larger proportion of revenue generated from manufacturing sales operations in 2013 which typically contribute lower margins than camp rental and catering operations. 2012 year to date results included a $5.1 million end of contract billing for minimum utilization over the term of a particular contract in excess of actual utilization, removing this effect, 2012 year to date EBITDAS as a percent of revenue was 27%, 2% above the same period of 2013.

Operating earnings and earnings per share increased in the three months ended September 30, 2013 compared to the same period of 2012 mainly as a result of the higher activity levels in camp manufacturing and a gain of $1.1 million on disposal of assets. The gain was primarily a result of the sale of the tug and barge assets acquired on the formation of Horizon. Year to date operating income and earnings per share decreased as compared to the same period of 2012 as a result of higher depreciation attributable to the addition of camp fleet and camp set up costs throughout the year and the loss on disposal of camp set-up costs recognized in the second quarter of 2013.

The quarter’s results show the benefit of Horizon’s integrated business model which allows it to shift production capacity to most effectively meet current and expected demand. Our camp manufacturing operations have benefited greatly from a relatively stable workforce and improved processes over the past few quarters, which has led to greater efficiencies in our manufacturing operations and stronger margins. This business model has culminated in record revenue and EBITDAS in a quarter where our primary operating division experiences some slack in demand.

Outlook

For the remainder of the year, Horizon anticipates that camp rental and catering operations will begin to strengthen compared to the third quarter. Revenue per manday and utilization are anticipated to gain momentum as new camps come on stream and the amount of fleet in transition decreases. As compared to the third quarter of 2013, fourth quarter camp manufacturing revenue is expected to decline as production shifts to focus on completing the 2013 capital plan for additional fleet beds.

Alberta oil sands development activities remain the largest driver of Horizon’s activity levels. Alberta oil sands activity account for 59% of Horizon’s consolidated revenues for 2013 year to date. Increasing activity in north east British Columbia is also beginning to impact Horizon’s results, with activity levels expected to increase as we move into and through 2014.

The $80 million capital program remains in place and Horizon anticipates adding 1,000 beds to the camp and catering fleet.

Dividend payment

Horizon North Logistics Inc. announced today that its Board of Directors has declared a dividend for the third quarter of 2013 at $0.0625 per share. The dividend is payable to shareholders of record at the close of business on December 31, 2013 to be paid on January 10, 2014. The dividends are eligible dividends for Canadian tax purposes.

Third Quarter Financial Results

 

                                                       Three months ended September 30, 2013 
                                            Camps &                            Inter-segment 
(000's)                                    Catering   Matting       Corporate   Eliminations      Total 
Revenue                                   $ 137,908  $ 19,800  $            -  $       (347)  $ 157,361 
Expenses 
 Direct costs                                99,118    12,706               -          (347)    111,477 
 Selling & administrative                     1,291       504           2,783              -      4,578 
EBITDAS                                      37,499     6,590         (2,783)              -     41,306 
EBITDAS as a % of revenue                       27%       33%                                       26% 

Share based payments                            297        39             219              -        555 
Depreciation & amortization                  12,003     2,283             147           (53)     14,380 
(Gain) loss on disposal of property, 
 plant and equipment                        (2,647)         -           1,586              -    (1,061) 

Operating earnings (loss)                 $  27,846  $  4,268  $      (4,735)  $          53  $  27,432 
Finance costs                                                                                       840 
Share of equity accounted investees                                                                   - 
Income tax expense                                                                                8,253 
Other comprehensive income                                                                        (304) 
Total comprehensive income                                                                    $  18,643 
Earnings per share - basic                                                                    $    0.17 
                               - diluted                                                      $    0.17 

                                                       Three months ended September 30, 2012 
                                            Camps &                            Inter-segment 
(000's)                                    Catering   Matting       Corporate   Eliminations      Total 
Revenue                                   $  99,433  $ 23,745  $            -  $     (3,268)  $ 119,910 
Expenses 
 Direct costs                                68,349    16,727               1        (3,107)     81,970 
 Selling & administrative                     1,138       128           2,594              -      3,860 
EBITDAS                                      29,946     6,890         (2,595)          (161)     34,080 
EBITDAS as a % of revenue                       30%       29%                                       28% 

Share based payments                            344        54             285              -        683
Depreciation & amortization                   8,018     2,148             116           (46)     10,236 
(Gain) on disposal of property, plant 
 and equipment                                 (71)         -               -              -       (71) 

Operating earnings (loss)                 $  21,655  $  4,688  $      (2,996)  $       (115)  $  23,232 
Finance costs                                                                                     1,043 
Share of equity accounted investees                                                                  52 
Income tax expense                                                                                5,875 
Other comprehensive income                                                                         (66) 
Total comprehensive income                                                                    $  16,328 
Earnings per share - basic                                                                    $    0.15 
                               - diluted                                                      $    0.15 

                                                      Nine months ended September 30, 2013 
                                            Camps &                          Inter-segment 
(000's)                                    Catering   Matting   Corporate     Eliminations      Total 
Revenue                                   $ 398,767  $ 50,988  $        -   $      (4,009)  $ 445,746 
Expenses 
 Direct costs                               289,444    35,444           -          (3,978)    320,910 
 Selling & administrative                     4,251       820       9,118                -     14,189 
EBITDAS                                     105,072    14,724     (9,118)             (31)    110,647 
EBITDAS as a % of revenue                       26%       29%                                     25% 

Share based payments                            833       128         675                -      1,636 
Depreciation & amortization                  34,356     6,468         420            (156)     41,088 
Loss (gain) on disposal of property, 
 plant and equipment                          1,517      (21)       1,529                -      3,025 

Operating earnings (loss)                 $  68,366  $  8,149  $ (11,742)   $          125  $  64,898 
Finance costs                                                                                   3,036 
Share of equity accounted investees                                                                 - 
Income tax expense                                                                             16,891 
Other comprehensive income                                                                       (42) 
Total comprehensive income                                                                  $  45,013 
Earnings per share - basic                                                                  $    0.41 
                               - diluted                                                    $    0.41 

                                                     Nine months ended September 30, 2012 
                                            Camps &                         Inter-segment 
(000's)                                    Catering    Matting  Corporate    Eliminations     Total 
Revenue                                   $ 329,976   $ 67,315  $       -  $      (9,233)  $388,058 
Expenses 
 Direct costs                               225,752     49,500          1         (8,681)   266,572 
 Selling & administrative                     3,790        392      8,316               -    12,498 
EBITDAS                                     100,434     17,423    (8,317)           (552)   108,988 
EBITDAS as a % of revenue                       30%        26%                                  28% 

Share based payments                            717        117        592               -     1,426 
Depreciation & amortization                  21,846      6,057        360           (107)    28,156 
Loss (gain) on disposal of property, 
 plant and equipment                             66       (28)          -               -        38 

Operating earnings (loss)                 $  77,805  $  11,277  $ (9,269)  $        (445)  $ 79,368 
Finance costs                                                                                 2,586 
Share of equity accounted investees                                                              25 
Income tax expense                                                                           19,865 
Other comprehensive income                                                                     (82) 
Total comprehensive income                                                                 $ 56,974 
Earnings per share - basic                                                                 $   0.53 
                               - diluted                                                   $   0.52

Camps & Catering

Camps & Catering revenue is comprised of camp rental and catering operations revenue, manufacturing sales revenue, space rental

revenue and the associated service revenue within each operation.

 

                 Three months ended September 
                              30                Nine months ended September 30 
(000's except 
bed rental 
days and 
catering  only                               %                                % 
days)                2013      2012     change        2013        2012   change 
Camp rental 
 and catering 
 operations 
 revenue        $  58,229  $ 67,148      (13%)  $  202,682  $  203,679     (1%) 
Manufacturing 
 sales             76,699    28,961       165%     187,708     118,494      58% 
Space rental 
 revenues           2,980     3,324      (10%)       8,377       7,803       7% 
Total revenue   $ 137,908  $ 99,433        39%  $  398,767  $  329,976      21% 

EBITDAS         $  37,499  $ 29,946        25%  $  105,072  $  100,434       5% 
EBITDAS as a % 
 of revenue           27%       30%                    26%         30% 
Operating 
 earnings       $  27,846  $ 21,655        29%  $   68,366  $   77,805    (12%) 
Bed rental 
 days(1)          370,717   333,186        11%   1,305,703   1,007,465      30% 
Catering only 
 days(2)           36,127    61,184      (41%)     137,878     187,400    (26%) 

(1)  One bed rental day represents; the provision of one bed for one day under 
     a combined rental and catering manday rate; or the  provision of one bed 
     for one day under an equipment rental rate for dedicated camp equipment. 
(2)  One catering only day equals the provision of catering and housekeeping 
     services with no related bed rental for one day.

Revenues from the Camps & Catering segment for the three and nine months ended September 30, 2013 were $137.9 million and $398.8 million respectively, an increase of $38.5 million or 39% and $68.8 million or 21% compared to the same periods of 2012. EBITDAS for the three and nine months ended September 30, 2013 were $37.5 million and $105.1 million, an increase of $7.5 million or 25% and $4.7 million or 5% respectively compared to the same periods of 2012. Included in 2012 revenue and EBITDAS for the nine months ended September 30, was a payment of $5.1 million representing an end of contract billing for minimum utilization over the term of a particular contract in excess of the actual utilization. Excluding this 2012 payment, year to date revenues increased by $73.9 million or 23% as compared to the same periods in 2012. Excluding the 2012 $5.1 million payment, year to date EBITDAS increased by $9.7 million or 10% as compared to the same period in 2012.

Horizon’s revenues in the Camps & Catering segment for the comparative periods were primarily driven from being significantly tied to Alberta oil sands activity. Of note is the revenue mix in the comparative periods, in 2013 a higher proportion of revenue was generated from manufacturing as compared to the same periods of 2012. This change in revenue mix had the effect of decreasing EBITDAS as a percent of revenue, replacing higher margin camp rental and catering revenue with lower margin manufacturing revenue.

During the third quarter of 2013 the majority of manufacturing sales and service was focused on the execution of several large projects, one in the oil sands region and the other a mining operation in northern Canada. The camp and catering operations in the comparative quarters operated an average of 531 additional fleet beds.

Camp rental and catering operations revenue

Revenues are derived from the following main business areas: large camp operations, drill camp operations, catering only operations, and the associated service work within each operation. Service work includes the transportation, set-up and de-mobilization of camp and catering projects. Revenues from camp rental and catering operations were $58.2 million for the three months ended September 30, 2013 compared to $67.1 million for the three months ended September 30, 2012, a decrease of $8.9 million or 13%. Year to date, revenues decreased slightly, by $1.0 million or 1.0%.

The table below outlines the key performance metrics used by management to measure performance in the large camp and drill camp operations:

 

                                       Three months ended September 30 
(000's for revenue 
only)                               2013                               2012 
                          Large       Drill                    Large    Drill 
                           camp        camp       Total         camp     camp       Total 
Revenue              $   44,379  $    4,234  $   48,613  $    51,615  $ 2,080  $   53,695 
Bed rental days(1)      346,833      23,884     370,717      320,910   12,276     333,186 
Revenue per bed 
 rental day                $128        $177        $131         $161     $169        $161 
Number of rentable 
 beds at period 
 end                      6,771         782       7,553        6,656      738       7,394 
Average rentable 
 beds available(2)        6,981         788       7,769        6,575      663       7,238 
Utilization(3)              54%         33%         52%          53%      21%         50% 

                                        Nine months ended September 30 
(000's for revenue 
only)                               2013                               2012 
                          Large       Drill                    Large    Drill 
                           camp        camp       Total         camp     camp       Total 
Revenue              $  156,685  $   16,535  $  173,220  $   155,207  $11,043  $  166,250 
Bed rental days(1)    1,211,245      94,458   1,305,703      947,587   59,878   1,007,465 
Revenue per bed 
 rental day                $129        $175        $133      $158(4)     $184     $160(4) 
Number of rentable 
 beds at period 
 end                      6,771         782       7,553        6,656      738       7,394 
Average rentable 
 beds available(2)        7,051         881       7,932        6,023      780       6,803 
Utilization(3)              63%         39%         60%          57%      28%         54% 

(1)  One bed rental day represents; the provision of one bed for one day under 
     a combined rental and catering manday rate; or the provision of  one bed 
     for one day under an equipment rental rate for dedicated camp equipment. 
(2)  Average rentable beds available is equal to total average beds in the 
     fleet over the period less beds required for staff. 
(3)  Utilization equals the total number of bed rental days divided by average 
     rentable beds available times days in the period. 
(4)  Revenue per bed rental day for the nine months ended September 30, 2012 
     excludes the $5.1 million payment.

Revenues from large camp operations for the three months ended September 30, 2013 decreased by $7.2 million or 14% compared to the same period in 2012 with the year to date revenue higher by $1.5 million or 1% in the comparative period. Normalizing for the $5.1 million payment in 2012, revenue increased for the nine months ended September 30, 2013 by $6.6 million or 4% as compared to the adjusted comparative period in 2012. The decreased revenues in the quarter were driven mainly by lower utilization at several of the open style camps.

Bed utilization for the three months and nine months ended September 30, 2013 was 54% and 63% respectively. In comparison to the same periods of 2012, the third quarter remained relatively unchanged with year to date utilization increasing 11%. Utilization for the third quarter of 2013 had two offsetting effects. Utilization increased as a result of additional split rate contracts, the third quarter of 2013 had 2,212 beds, or 32%, of the average rentable beds contracted using split rate contracts compared to 1,357 or 23% for the same period of 2013. These beds are considered 100% utilized in the period and therefore increases the calculated utilization. The second effect on utilization was the decreased utilization at the open style camps.

Revenue per bed rental day declined in the comparative periods by $33 and $29 respectively. As anticipated, the majority of the decrease was the higher proportion of split rate contracts in 2013 compared to the same periods of 2012. Although the metrics above are impacted by this contract structure, there is no fundamental effect on the contract economics.

Revenues from drill camp operations for the three and nine months ended September 30, 2013 increased by $2.2 million or 104% and $5.5 million or 50% compared to the same periods of 2012. The increase was a result of higher utilization of Horizon’s drill camps with six additional camps deployed in the comparative periods.

The table below outlines the key performance metrics used by management to measure performance in the catering only operations.

 

                     Three months ended September      Nine months ended 
                                  30                      September 30 
(000's for revenue 
only)                          2013           2012          2013        2012 
Catering only 
 revenue               $      4,279   $      6,612   $    14,327  $   19,733 
Catering only 
 days(1)                     36,127         61,184       137,878     187,400 
Revenue per 
 catering only day             $118           $108          $104  $      105 

(1)      One catering only day equals the provision of catering and 
         housekeeping services with no related bed rental for one day.

Revenues from the provision of catering and housekeeping only services, with no associated bed rentals, for the three and nine months ended September 30, 2013 decreased $2.3 million or 35% and $5.4 million or 27% as compared to same period of 2012. The decrease in revenue was mainly a result of lower volumes primarily in the catering only for customer owned drill camps. The revenue per catering only day increased in the comparative quarter primarily due to additional services requested by the customer. The year to date rate remained relatively unchanged.

The table below outlines the service revenue generated from the camp and catering operations:

 

                    Three months ended September 30          Nine months ended September 30 
(000's)                    2013                2012                2013                2012 
Camp and 
 catering 
 operations 
 service 
 related 
 revenue            $     5,337         $     6,841         $    15,135         $    17,696

Service revenues in the camp & catering operations are related to the transportation, set-up and de-mobilization of camps for customers. Revenues for the three and nine months ended September 30, 2013 decreased $1.5 million or 22% and $2.6 million or 14% respectively compared to the same periods in 2012. The decrease was mainly due to the nature of the specific service projects undertaken in the comparative periods.

Manufacturing sales

Manufacturing sales revenues include the in plant construction, transportation and installation of camps sold to third parties Revenues for the three and nine months ended September 30, 2013 were $76.7 million and $187.7 million respectively, an increase of $47.7 million or 165% and $69.2 million or 58% as compared to the same periods of 2012. The increased revenue in 2013 was a result of larger manufacturing projects and the timing of those projects. In the third quarter of 2012 several large projects were nearing completion with the manufacturing portion completed and installation crews demobilizing from site. Direct manufacturing hours were 199,313 for the three months ended September 30, 2013 compared to 161,098 in the same period of 2012, an increase of 38,215 hours or 24%. For the nine months ended September 30, 2013 direct manufacturing hours were 618,394 compared to 455,025 in the same period of 2012, an increase of 163,369 hours or 36%. This increase in direct hours was achieved by ramping up staffing levels at the existing production facilities later in 2012 and the first half of 2013. As a percentage of total direct hours, hours allocated to external sales were 81% and 69% respectively, compared to 28% and 60% for the comparative periods in 2012.

Space rental revenues

Space rental revenues for the three and nine months ended September 30, 2013 were relatively consistent in the third quarter and up $0.6 million year to date as compared to the same periods in 2012. The space rental fleet size and utilization was relatively consistent at 910 units and 89% for the comparative periods.

Direct costs

Direct costs for the three and nine months ended September 30, 2013 were $99.1 million or 72% of revenue and $289.5 million or 73% of revenue compared to $68.3 million or 69% of revenue and $225.8 million or 68% of revenue for the same period of 2012. Direct costs are closely related to business volumes and increased direct costs are primarily a result of the higher activity levels in the comparative periods. As a percentage of revenue, direct costs increased primarily as a result of a shift in the revenue mix compared to the same periods of 2012. In 2013 a larger proportion of revenue was derived from manufacturing sales operations which by its nature has higher direct costs than the camps and catering operations.

Matting

Matting revenue is comprised of access mat rental revenue, other mat and rental equipment revenue, mat sales revenue,

installation, transportation, service, and other revenue as follows:

 

                   Three months ended September 30   Nine months ended September 30 
(000's except mat 
rental days and                                   %                                % 
numbers of mats)         2013        2012    change        2013        2012   change 
Access mat rental 
 revenue(1)        $    4,850  $    6,212     (22%)  $   10,797  $   14,607    (26%) 
Other mat and 
 rental equipment 
 revenue(2)        $      476  $    1,701     (72%)  $    2,105  $    2,849    (26%) 
Total mat and 
 rental equipment 
 revenue           $    5,326  $    7,913     (33%)  $   12,902  $   17,456    (26%) 
Mat sales revenue       3,911       5,603     (30%)      10,957      20,612    (47%) 
Installation, 
 transportation, 
 service and 
 other revenue         10,563      10,229        3%      27,129      29,247     (7%) 
Total revenue      $   19,800  $   23,745     (17%)  $   50,988  $   67,315    (24%) 

EBITDAS            $    6,590  $    6,890      (4%)  $   14,724  $   17,423    (15%) 
EBITDAS as a % of 
 revenue                  33%         29%                   29%         26% 
Operating 
 earnings          $    4,268  $    4,688      (9%)  $    8,149  $   11,277    (28%) 
Access mat rental 
 days - owned 
 mats(3)            1,512,190   1,017,863       49%   3,280,646   2,891,546      13% 
Access mat rental 
 days - third 
 party mats(4)        537,193   1,238,779     (57%)   1,292,451   2,273,935    (43%) 
Total access mat 
 rental days        2,049,383   2,256,642      (9%)   4,573,097   5,165,481    (11%) 
Average owned 
 access mats in 
 rental fleet(5)       19,845      14,711       35%      17,126      13,685      25% 
Average sub 
 rental access 
 mats in rental 
 fleet(6)               5,848      13,407     (56%)       4,718       8,260    (43%) 
Owned access mats 
 in rental fleet 
 at quarter 
 end(7)                19,630      14,665       34%      19,630      14,665      34% 

Mats sold: 
 New mats               4,401       6,200     (29%)      12,355      23,742    (48%) 
 Used Mats              1,510       1,651      (9%)       3,354       5,197    (35%) 
Total mats sold         5,911       7,851     (25%)      15,709      28,939    (46%) 

(1)  Access mat rental revenue includes revenues generated from the rental of 
     traditional oak and oak edged mats. 
(2)  Other mat and rental equipment revenue includes the rental of rig mats, 
     quad mats, other ancillary equipment such as well site accommodation 
     units and light towers. 
(3)  One mat rental day equals the rental of one owned access mat for one day. 
(4)  One mat rental day equals the rental of one third party sub rented access 
     mat for one day. 
(5)   Average access mat rental fleet numbers reflect only owned access mats. 
(6)  Average sub rental access mats is the average number of non-owned access 
     mats in the rental fleet. These mats are rented from third parties on a 
     short term basis. 
(7)  Access mats in rental fleet at quarter end represents the number of owned 
     access mats in the Matting fleet on September 30.

Revenues from the Matting segment for the three and nine months ended September 30, 2013 were $19.8 million and $51.0 million, a decrease of $3.9 million or 17% and $16.3 million or 24% respectively compared to the same period of 2012. EBITDAS for the three and nine months ended September 30, 2013 were $6.6 million or 33% of revenue and $14.8 million or 29% of revenue, a decrease of $0.3 million or 4% and $2.7 million or 15% compared the same period of 2012.

The decrease in revenues was a result of both moderated customer demand and very wet site conditions that continued into the third quarter of 2013. Generally, in the first nine months of 2013 customers reduced the scope of projects or postponed projects resulting in lower volumes in rentals, sales and installation work.

Mat and rental equipment revenue

Access mat rental revenues for the three and nine months ended September 30, 2013 were $4.9 million and $10.8 million, down $1.4 million or 22% and $3.8 million or 26% respectively compared to the same periods of 2012. The decrease in revenue was a combination of lower activity and lower revenue per mat rental day rate. Total mat rental days in the three and nine months ended September 30, 2013 were down by 207,259 or 9% and 592,384 or 11% respectively, a result of moderated customer demand and the very wet site conditions that continued into the third quarter of 2013. The lower daily mat rental rate was due to softer customer demand and the mix of contracts in the comparative periods.

Utilization of the owned mat fleet for the three and nine months ended September 30, 2013 was 83% and 70% respectively, compared to 75% and 77% in the same periods of 2012. The increase in utilization in the quarter was mainly a result of decreased reliance on third party mats. The average owned mat fleet increased by 35% and 25% in the comparative periods, with the additional owned mats displacing the third party mats.

Mat sales revenue

Revenues from mat sales for the three and nine months ended September 30, 2013 were $3.9 million and $11.0 million, down $1.7 million or 30% and $9.6 million or 47% respectively compared to the same periods of 2012. The decrease in revenue is reflective of moderating customer requirements and timing of projects. The mix of new and used access mat sales shifted to a higher proportion used mat sales in 2013 resulting in lower revenue per mat as compared to 2012. Used mats typically sell at a lower price than new mats.

Installation, transportation, service, and other revenue

Installation, transportation, service, and other revenues are driven primarily from the level of activity in the mat rental and mat sale businesses and are charged for separately from rentals and sales. Revenues for the three and nine months ended September 30, 2013 were $10.6 million and $27.1 million, an increase of $0.3 million or 3% and a decrease of $2.1 million or 7% respectively compared to the same periods in 2012. The year to date decrease of $2.1 million was a result of lower activity levels in both rentals and sales as compared to same periods of 2012.

Direct costs

Direct costs for the three and nine months ended September 30, 2013 were $12.7 million or 64% of revenue and $35.4 million or 69% of revenue compared to $16.7 million or 70% and $49.5 million or 74% of revenue for the same period of 2012. Direct costs are driven by the level of business activity, with the decrease in mat sales and installation revenue compared to the same periods of 2012, direct costs have decreased accordingly. Direct costs as a percentage of revenue decreased by 9% and 7% respectively for the three and nine months ended September 30, 2013 as compared the same periods of 2012. The decrease is primarily a result of lower costs in the rental operation due to decreased usage of sub rented mats in comparison to the same periods of 2012.

Corporate

Corporate costs are the costs of the head office which include the President and Chief Executive Officer, Chief Financial Officer, Vice President of Health, Safety, and Environment, Vice President of Aboriginal Relations, Corporate Secretary, corporate accounting staff, information technology, and associated costs of supporting a public company. Corporate costs for the three and nine months ended September 30, 2013 were $2.8 million and $9.1 million, an increase of $0.2 million or 8% and $0.8 million or 10% compared to the same periods in 2012. The increased costs in comparative periods reflects the cost to support higher levels of business activity. Corporate costs, as a percentage of total revenue were relatively consistent in the comparative periods at approximately 2%.

Other Items

Selling and administrative

Selling and administrative expense for the three and nine months ended September 30, 2013 was $4.6 million and $14.2 million, an increase of $0.7 million or 18% and $1.7 million or 14% compared to the same periods for 2012. The increase is reflective of the higher levels of business activity in the first nine months of 2013 as compared to the same period of 2012. As a percentage of revenue selling and administrative expense remained consistent at 3.2% of revenue.

Depreciation and amortization

 

                      Three months ended September 30                          Nine months ended September 30 
                                                           %                                                % 
(000's)                    2013                2012   change                2013                2012   change 
Depreciation         $   12,329         $     8,185      47%         $    34,935         $    22,003      57% 
Amortization              2,051               2,051       -%               6,153               6,153       -% 
Total 
 depreciation 
 and 
 amortization        $   14,380         $    10,236      38%         $    41,088         $    28,156      45%

Depreciation and amortization costs for the three and nine months ended September 30,2013 were $14.4 million and $41.1 million, an increase of $4.1 million or 40% and $12.9 million or 46% compared to the same periods of 2012. The increased depreciation was a result of camp asset additions including camp set-up and installation costs which are depreciated over the term of the contract, generally a shorter time frame than the camp assets. Depreciation for the camp set-up and installation was $8.0 million higher in the nine months ended September 30, 2013 as compared to the same period of 2012.

Financing costs

Financing costs include interest on loans and borrowings and accretion on notes payable. For the three and nine months ended September 30, 2013 financing costs were $0.8 million and $3.0 million, a decrease of $0.2 million and an increase of $0.4 million compared to the same periods of 2012. The decrease in the comparative quarter was a result of lower interest expense due to a lower weighted average debt of $75.8 million in the three months ended September 30, 2013 as compared to $99.9 million in the same period in 2012. The 2013 effective interest rate on the loans and borrowing was 3.5% remained relatively consistent with the comparative period at 3.6%.

Income taxes

For the three and nine months ended September 30, 2013 income taxes expense was $8.3 million and $16.9 million, an effective tax rate of 31.0% and 27.3% compared to $5.9 million and $19.9 million, an effective tax rate of 26.5% and 25.9% in the comparative periods of 2012. The increase in the effective tax rate for the three and nine months ended September 30, 2013 was primarily due to the revision of the prior year tax estimate.

Gain/Loss on disposal

For the three and nine months ended September 30, 2013 there was a gain on disposal of $1.1 million and $3.0 million loss respectively compared to a gain of $0.1 million and a year to date gain/loss of zero in the comparative periods of 2012. The gain on disposal in the third quarter of 2013 was primarily from the sale of the tugs and barges. The 2013 year to date loss of $3.0 million was mainly comprised the disposal in the second quarter of 2013 of un-depreciated set-up costs related to a large camp and was partially offset by the gain on the sale of the tugs and barges in the third quarter of 2013.

Condensed consolidated statement of financial position (Unaudited)

 

                                               September 30,    December 31, 
(000's)                                                 2013            2012 
Assets 

Current assets: 
      Trade and other receivables         $          116,805  $      133,195 
      Inventories                                     11,588          13,321 
      Prepayments                                      3,766           2,506 
Income taxes receivable                                  360             146 
                                                     132,519         149,168 

Non-current assets: 
      Property, plant and equipment                  327,116         330,205 
      Intangible assets                                3,875          10,028 
      Goodwill                                         2,136           2,136 
      Deferred tax assets                              1,815           1,772 
      Other assets                                     2,588           2,684 
                                                     337,530         346,825 
                                          $          470,049  $      495,993 

Liabilities and Shareholders' Equity 

Current liabilities: 
      Trade and other payables            $           61,285  $       59,511 
      Deferred revenue                                 1,257             588 
      Income taxes payable                             2,912          12,661 
      Current portion of loans and 
       borrowings                                      1,469           1,416 
                                                      66,923          74,176 

Non-current liabilities: 
      Asset retirement provisions                      1,411           1,364 
      Loans and borrowings                            69,770         116,872 
      Deferred tax liabilities                        29,933          29,318 
                                                     168,037         221,730 

Shareholders' equity: 
      Share capital                                  182,356         179,999 
      Contributed surplus                             11,660          10,783 
      Accumulated other comprehensive 
       income                                            250             208 
      Retained earnings                              107,746          83,273 
                                                     302,012         274,263 
                                          $          470,049  $      495,993

Condensed consolidated statement of comprehensive income (Unaudited)

Three and Nine months ended September 30, 2013 and 2012

 

                                                      Three months ended                                   Nine months ended 
                                                            September 30                                        September 30 
(000's)                                  2013                       2012                         2013                   2012 
Revenue                      $        157,361        $           119,910        $             445,746        $       388,058 

Operating expenses: 
      Direct costs                    111,477                     81,970                      320,910                266,572 
      Depreciation                     12,329                      8,185                       34,935                 22,003 
      Amortization of 
       intangible 
       assets                              11                         44                           33                    132 
      Share based 
       compensation                       336                        398                          961                    834 
   (Gain) loss on 
    disposal of 
    property, plant 
    and equipment                     (1,061)                       (71)                        3,025                     38 
Direct operating 
 expenses                             123,092                     90,526                      359,864                289,579 
Gross profit                           34,269                     29,384                       85,882                 98,479 

Selling & 
administrative 
expenses: 
      Selling & 
       administrative 
       expenses                         4,578                      3,860                       14,189                 12,498 
      Amortization of 
       intangible 
       assets                           2,040                      2,007                        6,120                  6,021 
      Share based 
       compensation                       219                        285                          675                    592 
Selling & 
 administrative 
 expenses                               6,837                      6,152                       20,984                 19,111 
Operating earnings                     27,432                     23,232                       64,898                 79,368 

Finance costs                             840                      1,043                        3,036                  2,586 
Share of loss of 
 equity accounted 
 investees                                  -                         52                            -                     25 
Profit before tax                      26,592                     22,137                       61,862                 76,757 

      Current tax 
       expense                          6,764                      4,475                       16,319                 15,539 
      Deferred tax 
       expense                          1,489                      1,400                          572                  4,326 
Income tax expense                      8,253                      5,875                       16,891                 19,865 
Total profit                           18,339                     16,262                       44,971                 56,892 

Other comprehensive 
income: 
      Translation of 
       foreign 
       operations                         304                         66                           42                     82 
Other comprehensive 
 income, net of 
 income tax                               304                         66                           42                     82 
Total comprehensive 
 income                      $         18,643        $            16,328        $              45,013        $        56,974 

Earnings per share: 
      Basic                  $           0.17        $              0.15        $                0.41        $          0.53 
      Diluted                $           0.17        $              0.15        $                0.41        $          0.52

Condensed consolidated statement of changes in equity (Unaudited)

 

                                                                          Accumulated 
                                                                                Other 
                            Share                       Contributed     Comprehensive              Retained 
(000's)                                Capital              Surplus            Income                          Earnings                 Total 
Balance at 
 December 31, 
 2011                                  173,438               10,421               158                            32,052               216,069 

Total profit                                 -                    -                 -                            56,892                56,892 
Share based 
 compensation                                -                1,426                 -                                 -                 1,426 
Share options 
 exercised                               6,288              (1,704)                 -                                 -                 4,584 
Translation 
 of foreign 
 operations                                  -                    -                82                                 -                    82 
Dividends                                    -                    -                 -                          (16,226)              (16,226) 
Balance at 
 September 
 30, 2012                              179,726               10,143               240                            72,718               262,827
Total profit                                 -                    -                 -                            15,991                15,991 
Share based 
 compensation                                -                  725                 -                                 -                   725 
Share options 
 exercised                                 273                 (85)                 -                                 -                   188 
Translation 
 of foreign 
 operations                                  -                    -              (32)                                 -                  (32) 
Dividends                                    -                    -                 -                           (5,436)               (5,436) 
Balance at 
 December 31, 
 2012                                  179,999               10,783               208                            83,273               274,263 

Total profit                                 -                    -                 -                            44,971                44,971 
Share based 
 compensation                                -                1,636                 -                                 -                 1,636 
Share options 
 exercised                               2,357                (759)                 -                                 -                 1,598 
Translation 
 of foreign 
 operations                                  -                    -                42                                 -                    42 
Dividends                                    -                    -                 -                          (20,498)              (20,498) 
Balance at 
 September 
 30, 2013                            $ 182,356             $ 11,660             $ 250                         $ 107,746             $ 302,012

Condensed consolidated statement of cash flows (Unaudited)

Nine months ended September 30, 2013 and 2012

 

                                    September 30,                September 30, 
(000's)                                      2013                         2012 
Cash provided by (used 
in): 

Operating activities: 
Profit for the period        $             44,971        $              56,892 
Adjustments for: 
      Depreciation                         34,935                       22,003 
      Amortization of 
       intangible assets                    6,153                        6,153 
      Share based 
       compensation                         1,636                        1,426 
      Amortization of 
       other assets                            96                           96 
      Gain on equity 
       investments                              -                           25 
      Loss (gain) on sale 
       of property, plant 
       and equipment                           42                      (1,934) 
      Unrealized foreign 
       exchange (gain) 
       loss                                  (14)                           78 
      Finance costs                         3,036                        2,586 
      Income tax expense                   16,891                       19,865 
                                          107,746                      107,190 

Income taxes paid                        (26,282)                      (8,993) 
Interest paid                             (2,800)                      (2,020) 
Changes in non-cash 
 working capital items                     19,395                     (36,330) 
                                           98,059                       59,847 

Investing activities: 
Purchase of property, 
 plant and equipment                     (55,263)                    (115,968) 
Proceeds on sale of 
 property, plant and 
 equipment                                 23,432                        5,403 
                                         (31,831)                    (110,565) 

Financing activities: 
(Repayment of) proceeds 
 from loans and 
 borrowings                              (47,328)                       62,343 
Share purchase options 
 exercised                                  1,598                        4,584 
Payment of dividends                     (19,082)                     (15,064) 
                                         (64,812)                       51,863 
Changes in non-cash 
 working capital items                    (1,416)                      (1,145) 
                                         (66,228)                       50,718 
Increase in cash position                       -                            - 

Cash, beginning of period                       -                            - 
Cash, end of period          $                  -        $                   -

Financial Measures Definitions

EBITDAS

EBITDAS (Earnings before interest, taxes, depreciation, amortization, gain/loss on equity investments, gain/loss on disposal of property, plant and equipment, share of income/loss from equity accounted investees and share based compensation) is not a recognized measure under IFRS. 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 and operating earnings provides an indication of the results generated by the Corporation’s principal business activities prior to consideration of how those activities are financed or taxed. Horizon’s method of calculating EBITDAS may differ from other entities and accordingly, may not be comparable to measures used by other entities. EBITDAS should not be construed as alternatives to total profit and comprehensive income determined in accordance with IFRS as an indicator of the Corporation’s performance.

Funds from operations

Funds from operations is not a recognized measure under IFRS. Management believes that in addition to cash flow from operations, funds from operations is a useful supplemental measure as it provides an indication of the cash flow generated by the Corporation’s principal business activities prior to consideration of changes in working capital. Investors should be cautioned, however, that funds from operations should not be construed as an alternative to cash flow from operations determined in accordance with IFRS as an indicator of the Corporation’s performance. Horizon’s method of calculating funds from operations may differ from other entities and accordingly, funds from operations may not be comparable to measures used by other entities. Funds from operations is equal to cash flow from operations before changes in non-cash working capital items related to operations, interest and income taxes paid, financing costs, and income tax expense.

Debt to total capitalization

Debt to total capitalization is 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 Information and Statements

Certain statements contained in this Management Discussion and Analysis (“MD&A”) constitute forward-looking statements or information. These statements relate to future events or future performance of Horizon. 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 statements that “For the remainder of the year, Horizon anticipates that camp rental and catering operations will begin to strengthen compared to the third quarter. Revenue per manday and utilization are anticipated to gain momentum as new camps come on stream and the amount of fleet in transition decreases. As compared to the third quarter of 2013, fourth quarter camp manufacturing revenue is expected to decline as production shifts to focus on completing the 2013 capital plan for additional fleet beds.

Alberta oil sands development activities remain the largest driver of Horizon’s activity levels. Alberta oil sands activity account for 59% of Horizon’s consolidated revenues for 2013 year to date. Increasing activity in north east British Columbia is also beginning to impact Horizon’s results, with activity levels expected to increase as we move into and through 2014.” And “The $80 million capital program remains in place and Horizon anticipates adding 1,000 beds to the camp and catering fleet.”

The foregoing statements are based on the assumption that oil sands development in Alberta and other resource development in western Canada will strengthen. Many factors could cause the performance or achievements of Horizon to be materially different from any future results, performance or achievements that may be expressed or implied by such forward-looking statements.

These include, but are not limited to, general economic, market and business conditions. 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’s operations and financial results are included in Horizon’s annual information form which may be accessed through the SEDAR website at www.sedar.com. The forward-looking statements and information contained in this MD&A are made as of the date hereof and Horizon does not undertake any obligation to update publicly or revise and forward-looking statements and information, whether as a result of new information, future events or otherwise, unless so required by applicable securities laws.

Corporate Information