Northern Frontier Corp.
TSX VENTURE : FFF

Northern Frontier Corp.

May 30, 2016 18:52 ET

Northern Frontier Corp. Announces Its First Quarter 2016 Financial Results

CALGARY, ALBERTA--(Marketwired - May 30, 2016) - Northern Frontier Corp. (TSX VENTURE:FFF) ("Northern Frontier" or the "Corporation") announces its first quarter 2016 financial results.

For the three months ended March 31, 2016, Northern Frontier:

  • generated $10.1 million in revenue;
  • realized an EBITDA loss of $1.2 million;
  • recorded a net loss and comprehensive loss of $11.4 million;
  • continued constructive discussions with our lenders on amendments to our credit facilities and obtained an extension to May 31, 2016 for the waiver of certain covenant compliance under the credit facilities;
  • internally restructured our Logistics and Facilities businesses resulting in estimated annual cost savings of $1.2 million;
  • commenced the process to divest of a material portion of its Civil operations which holds $24.3 million of net assets; and
  • subsequent to the end of the quarter, sold $5.0 million of property and equipment related to the Civil operating segment for net proceeds of $5.8 million.

Financial Results

For the three months ended
(in 000's CAD, except as noted) Mar 31,
2016
Mar 31,
2015
% Change
Revenue $ 10,139 $ 10,581 (4 )
Gross profit $ 1,338 $ 3,358 (60 )
as a % of revenue 13.2 31.7
EBITDA (1) $ (1,150 ) $ 1,721 (167 )
per share - basic and diluted (0.04 ) 0.07
as a % of revenue (11.3 ) 16.3
Net loss and comprehensive loss $ (11,364 ) $ (727 ) (1,463 )
per share - basic and diluted (0.40 ) (0.03 )
Cash (used in) generated by operations (before non-cash Working Capital) $ (1,937 ) $ 1,112 (274 )
per share - basic and diluted (0.07 ) 0.05
Capital expenditures $ 201 $ 205 (2 )
Capital management: (2)
Funded Debt to EBITDA Not measureable 3.08
Fixed charge coverage ratio (3) Not measureable 1.90
Weighted average common shares outstanding - diluted 28,725,917 23,250,944
Financial Position
As at (in 000's CAD, except as noted) Mar 31, 2016 Dec 31, 2015
Working Capital (4) $ 4,187 $ 6,552
Total assets $ 50,205 $ 63,527
Senior Funded Debt(5) $ 40,505 $ 40,643
Funded Debt (6) $ 47,857 $ 47,995
Equity $ (4,808 ) $ 6,452
Common shares outstanding 28,758,404 28,698,071
Common share purchase warrants outstanding - 11,933,403

(1) EBITDA (earnings before finance costs, taxes, depreciation and amortization, gain/loss on disposal of property and equipment, share-based compensation and other specified items) and Adjusted EBITDA are not recognized measures under IFRS. Refer to "Non-GAAP Measures".

(2) The definition of these measures are in accordance with the lending agreements and are calculated based on the lenders' interpretation, which may not be equal to individual financial statement amounts.

(3) Fixed coverage ratio is defined as EBITDA less cash taxes, unfunded capital expenditures and distributions to required principal and interest payments on funded debt.

(4) Working Capital (current assets excluding cash and cash equivalents, and assets held for sale less current liabilities excluding assets bank indebtedness, current portion of loans and borrowings and obligations under finance lease) is not a recognized measure under IFRS. Refer to "Non-GAAP Measures".

(5) Senior Funded Debt (senior secured loans and borrowings (before unamortized debt issue costs) and obligations under finance lease less cash and cash equivalents, restricted cash, and bank indebtedness) is not a recognized measure under IFRS. Refer to "Non-GAAP Measures".

(6) Funded Debt (loans and borrowings (before unamortized debt issue costs) and obligations under finance lease less cash and cash equivalents, restricted cash, and bank indebtedness) is not a recognized measure under IFRS. Refer to "Non-GAAP Measures".

Pro forma financial results

Northern Frontier acquired Black Diamond Group Limited's construction services operation on July 30, 2015 for which the Corporation branded as Northern Frontier Facilities ("NFF LP"), and SL Oilfield Construction Ltd ("SL") on September 1, 2015. Actual financial results of the Corporation only reflect the activities of these acquisitions subsequent to their effective dates.

Assuming Northern Frontier had acquired NFF LP and SL on January 1, 2015, the pro forma consolidated financial results would have been as follows:

Three months ended Mar 31
(in 000's CAD, except as noted) 2016 2015 % Change
Revenue $ 10,139 $ 23,837 (57 )
Gross (Loss) Profit 1,338 6,777 (80 )
as a % of revenue 13.2 28.4
EBITDA (1) (1,150 ) 3,626 (132 )
as a % of revenue (11.3 ) 15.2

(1) EBITDA is not a recognized measure under IFRS. Refer to "Non-GAAP Measures".

Outlook

As mentioned in fiscal 2015 reporting, Q1 2016 played-out as management expected with a continuation of revenues and margins eroding below levels required to cover indirect operating and selling, general & administrative expenses which resulted in the Corporation posting weak profit or loss positions across all operating divisions. Increased project costs and declining activity combined to account for the majority of the EBITDA loss in the first quarter. In March 2016, Northern Frontier made the decision to refocus on our Logistics and Facilities businesses. Furthermore, management internally restructured these operations given the current operating environment and expects to achieve annualized cost savings of $1.2 million as a result.

Management has targeted to settle the specific step-process regarding how Northern Frontier will divest of its Civil operations, which was deemed non-core to the Corporation's strategic objectives, in the second quarter. During April, Northern Frontier was successful in selling $5.0 million of tangible asset book value for net proceeds of $5.8 million. Based on current market conditions management expects to monetize the net assets at or above the Q1 2016 carrying value of $18.2 million, which includes working capital of $2.6 million, during the remainder of fiscal 2016. In addition, managements estimates that Civil restructuring costs will be approximately $1.7 million and is working on solutions to mitigate these costs.

As part of discussions with our lenders regarding amendments to our credit facilities, Northern Frontier intends to use a material portion of the net proceeds from the above to reduce debt outstanding on the senior credit facilities. To date, discussions have been constructive and management is working to have a solution in place by June 30, 2016.

Management expresses its sympathies and well wishes in a recovery for all impacted by the Fort McMurray, Alberta wildfire. From an operational perspective, the wildfire has not had an adverse physical impact as our operating location in Conklin, Alberta was not in the path of destruction, however project wise the wildfire has generated both positive and negative impacts. The Facilities operation is working diligently with our clients on potential plans to mobilize and assemble various temporary housing solutions in the Fort McMurray region while the Logistics operation is experiencing short-term deferrals on projects in the Edmonton and Hardisty, Alberta regions as our clients' priorities have been refocused to assessing damage to their facilities and restarting operations.

Currently, visibility post Q2 2016 for the Facilities and Logistics operations is strengthening with opportunities and work programs expected to improve from current conditions. The Corporation has had success in adding new customers and regions in both our water and camps construction businesses and therefore, has an expectation to build off of a good foundation through the remainder of 2016.

Going concern

The Corporation has recorded a net loss and comprehensive loss after tax attributable to equity holders of $11.2 million for the three months ended March 31, 2016. As at March 31, 2016, the Corporation had no cash on hand and $3.0 million available on Senior Facility A subject to borrowing base restrictions (defined herein). In addition, bank indebtedness and loans and borrowings were $44.2 million, of which $6.9 million is due within one year. The Corporation has received a temporary waiver of the funded debt to EBITDA ratio and the minimum fixed charge coverage ratio requirements for the March 31, 2016 reporting period. See Note 10 "Loans and Borrowings", Note 20 "Capital Management", and Note 25"Subsequent Events" of the condensed interim consolidated financial statements for additional details. The Corporation is negotiating an extension to the temporary waiver which expires May 31, 2016 to afford the parties the necessary time to negotiate revised terms of the loans with its lenders. There can be no assurances that the Corporation will be successful in revising the terms of the loans on a basis acceptable to the Corporation.

These conditions create uncertainty that may cast significant doubt about the Corporation's ability to continue as a going concern. Additional equity, obtaining an extension to the temporary waiver, amended debt arrangements, and/or operating developments are needed to meet the Corporation's business objectives. The ability of the Corporation to continue as a going concern and to realize the carrying value of its assets and discharge its liabilities when due, is dependent on the successful completion of the actions taken or planned, some of which are described above. Management is working to negotiate an extension to the temporary waiver and negotiate amended terms for the loans on a basis that is acceptable to the Corporation. If for any reason the Corporation is unable to continue as a going concern, it could impact the Corporation's ability to realize assets at their recognized values and to meet its liabilities in the ordinary course of business at the amounts stated in the unaudited condensed interim consolidated financial statements.

Subsequent events

Property and equipment sale

Subsequent to March 31, 2016, the Corporation disposed of $5.0 million of property and equipment related to the Civil operating segment for proceeds of $5.8 million resulting in a gain of $0.8 million. Net proceeds from the sale are being held by the senior lenders subject to the Corporation entering into an amended and restated credit agreement. As part of the 30-day waiver extension to June 30, 2016 being negotiated, Northern Frontier expects to receive a portion of the net proceeds for ongoing operations. There can be no assurances that the Corporation will receive this waiver extension and associated cash required for ongoing operations. If the Corporation does not receive the waiver extension and associated cash required for ongoing operations the Corporation will not be able to continue as a going concern.

Execution of land lease

On May 12, 2016, the Corporation executed the land lease with Black Diamond Group as contemplated in the Share Purchase Agreement completed in 2015. As a result, the promissory note will be reduced by $1,302 and a consequent deferred land lease liability will be recorded. This liability will be amortized over a 5 year, 2 month term.

Disposition of Civil operating segment

On March 11, 2016, the Board made the formal decision to enter into a process to evaluate and divest a material portion of the Corporation's Civil operations. Subsequent to March 31, 2016, the Board has decided to divest all of the Civil operations. The Corporation has identified potential buyers and the sale is expected to occur in a series of transactions, all which are expected to be completed by the end of the third quarter of 2016 with the exception of the land, with a carrying value of $3,000, for which timing has yet to be determined. Net proceeds from the divestiture are expected to be used to reduce the Senior Credit Facilities and for general corporate purposes.

Additional information

Northern Frontier's unaudited condensed interim consolidated financial statements for the three months ended March 31, 2016 and 2015 and management's discussion and analysis ("MD&A") for the three months ended March 31, 2016 have been filed with the Canadian securities regulatory authorities and may be accessed under the Corporation's profile on SEDAR at www.sedar.com.

Management update

Management is working diligently with its lenders on amendments to Northern Frontier's credit facilities to support ongoing operations. Once management is in a position to disclose the outcome of these negotiations, management will hold a conference call to discuss.

About Northern Frontier Corp.

Northern Frontier's strategic objective is to create a viable business of scale in the industrial and environmental services sectors through a buy and build growth strategy. Currently, the Corporation provides: civil construction, excavation, fabrication and maintenance services to the industrial industry, bulk water transfer logistic services and installs and dismantles remote workforce lodging and modular offices in western Canada.

The Corporation's common shares are listed on the TSX Venture Exchange under the trading symbol "FFF".

Reader Advisory

Forward-Looking Statements

This news release includes certain statements that constitute forward-looking statements under applicable securities legislation. All statements other than statements of historical fact are forward-looking statements. In some cases, forward-looking statements can be identified by terminology such as "may", "will", "should", "expect", "plan", "anticipate", "believe", "estimate", "predict", "potential", "continue", or the negative of these terms or other comparable terminology. These forward-looking statements include, among other things, statements in respect of:

  • expectations of the Corporation's ability to continue as a going concern;
  • expectations of receiving a 30-day waiver extension to the May 31, 2016 lender waiver termination date;
  • receiving a portion of the net proceeds from asset dispositions to support ongoing operations;
  • expectations of future financial performance of the Corporation; and
  • the diversification of the Corporation's operations.

These statements are only predictions and are based upon current expectations, estimates, projections and assumptions, which the Corporation believes are reasonable but which may prove to be incorrect and therefore such forward-looking statements should not be unduly relied upon. In making such forward-looking statements, assumptions have been made regarding, among other things, industry activity, the state of financial markets, business conditions, continued availability of capital and financing, future oil and natural gas prices and the ability of the Corporation to obtain necessary regulatory approvals. Although the Corporation believes the expectations expressed in such forward-looking statements are based on reasonable assumptions, such statements are not guarantees of future performance and actual results or developments may differ materially from those in the forward-looking statements.

By its nature, forward-looking information involves numerous assumptions, known and unknown risks and uncertainties, both general and specific, that contribute to the possibility that the predictions, forecasts, projections and other forward-looking statements will not occur. Investors are cautioned that forward-looking statements are not guarantees of future performance and actual results or developments may differ materially from those projected in the forward-looking statements. The Corporation has no obligation to update any forward-looking statements set out in this news release, except as required by applicable law.

Non-GAAP Measures

Selected financial information for the three month period ended March 31, 2016 and March 31, 2015 are set out above and includes the following measures that are not recognized under International Financial Reporting Standards ("IFRS") and are non-generally accepted accounting principles ("non-GAAP") measures: EBITDA, Adjusted EBITDA, Working Capital and Funded Debt. This information should be read in conjunction with the unaudited condensed interim consolidated financial statements for the periods ended March 31, 2016 and March 31, 2015 and the Corporation's MD&A for the period ended March 31, 2016 available under the Corporation's profile on SEDAR at www.sedar.com. Further information regarding these non-GAAP measures is contained in the Corporation's MD&A.

Neither TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.

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