Northern Frontier Corp. Announces its First Quarter 2014 Financial Results

/THIS NEWS RELEASE IS NOT FOR DISTRIBUTION IN THE UNITED STATES OR FOR DISSEMINATION ON TO UNITED STATES NEWS WIRE SERVICES/

CALGARY, May 29, 2014 /CNW/ - Northern Frontier Corp. (TSXV: FFF) (the "Corporation" or "Northern Frontier") is pleased to announce its first quarter 2014 financial results.

Selected Financial Information

     
(in 000's CAD, except as noted) 3 months ended
Mar 31, 2014
4 months ended
Mar 31, 2013
     
Revenue $  17,859 $           -
     
Gross Profit 4,533 -
  as a % of revenue 25% N/A
     
EBITDA (1) 3,484     (116)
  per share
$        0.31
$     (0.13)
  as a % of revenue 20% N/A
     
Net income (loss) and comprehensive income (loss) 331 (606)
  per share - basic and diluted $        0.03 $     (0.66)
     
Dividends declared 729 -
  per common share $      0.065 N/A
     
Cash generated by (used in) operations (before non-cash working capital) 2,757 (606)
  per common share $        0.25 $     (0.66)
     
Capital expenditures 3,964 -
     
Capital management: (2)    
  Cash flow coverage ratio (3) 1.92 N/A
  Funded debt to EBITDA 2.36 N/A
Weighted average common shares outstanding - basic 11,195,705 918,533
Weighted average common share outstanding - diluted 11,226,078 918,533

Financial Position

     
(in 000's CAD, except as noted) Mar 31, 2014 Dec 31, 2013
     
Working Capital (4) $    5,698 $    5,149
Total assets 75,839 75,463
Funded Debt (5) 33,783 32,723
Equity 31,470 31,592
Common shares outstanding 11,220,409 11,160,609
Common share purchase warrants outstanding 5,115,639 5,115,639

(1)      EBITDA (earnings before qualifying transaction costs, finance costs, taxes, depreciation and amortization, gain/loss on disposal of property and equipment and share-based compensation) is not a recognized measure 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)      Cash flow coverage ratio is defined as EBITDA less unfunded capital expenditures and distributions to required principal and interest payments on funded debt.
(4)     Working Capital (current assets excluding cash and cash equivalents less current liabilities excluding current portion of loans and borrowings and obligations under finance lease) is not a recognized measure under IFRS. Refer to "Non-GAAP Measures".
(5)     Funded Debt (loans and borrowings before unamortized debt issue costs and obligations under finance lease less cash and cash equivalents) is not a recognized measure under IFRS. Refer to "Non-GAAP Measures".

Overview

Northern Frontier provides civil and logistics services within the steam assisted gravity drainage ("SAGD") Oil Sands market of northeastern Alberta. Our strategy is to build a company with a solid foundation, through providing an expanding array of industrial services to the long-term asset base being developed in the resource sectors of western Canada. Northern Frontier has a substantial asset base, solid customer relationships and a physical location proximate to substantial future growth opportunities within the SAGD market.

For the three months ended March 31, 2014 ("Q1 2014"), management continued to focus on developing its civil service and logistics business, evaluating our pipeline of acquisition opportunities and sourcing the capital to execute on our growth strategy. For Q1 2014 Northern Frontier:

  • experienced a revenue increase of 23% to $17.9 million as compared to $14.5 million for the three months ended December 31, 2013 ("Q4 2013");
  • realized EBITDA of $3.5 million (20% of revenue), an increase of 67% over Q4 2013 at $2.1 million;
  • investing $4.0 million ($3.1 million, net) of capital expenditures consisting mainly of construction and excavating equipment;
  • was negotiating and completing due diligence on its proposed acquisition of Central Water and Equipment Services Ltd. ("Central Water") announced on May 21, 2014; and
  • was evaluating financing options for the proposed acquisition of Central Water.

On May 20, 2014, the Corporation agreed to acquire Central Water, a leading provider of water and fluids transfer services in the oil and natural gas and industrial sectors in western Canada. The acquisition is being completed pursuant to the terms and conditions of a share purchase agreement (the "Share Purchase Agreement") between the Corporation and Darcy Tofin, Paris Tofin and certain affiliated entities (collectively, the "Vendors"). The Share Purchase Agreement provides for the acquisition by the Corporation of all of the issued and outstanding shares of Central Water (the "Acquisition") in exchange for aggregate consideration of approximately $31.0 million, subject to an adjustment for current year growth capital expenditures made by Central Water, currently estimated to be $0.3 million, which is subject to change and will be finalized on closing (before giving effect to certain post-closing adjustments). The purchase price represents approximately 3.7x Central Water's calendar 2013 EBITDA. The consideration to be paid at closing of the Acquisition will consist of a cash payment of approximately $27.3 million and the issuance of common shares in the capital of the Corporation, with an aggregate value of approximately $4.0 million. Additional earn-out consideration will be payable on a dollar-for-dollar basis to the extent that Central Water's EBITDA in calendar 2014 exceeds its EBITDA achieved in calendar 2013.

Central Water provides a variety of equipment and services for storage tank and pipeline hydro-testing, site maintenance, dewatering, emergency and remote site water transfer and water and fluid disposal. Management's acquisition rationale included:

  • highly profitable business with low capital intensity;
  • complementary to Northern Frontier's existing operations, adding diversification to services and revenue sources;
  • opportunity to cross-sell and cross-utilize service offerings across the respective customer bases; and
  • meaningful organic growth potential within the bulk water and fluids transfer segment via existing and ancillary services.

Concurrent with the completion of the Acquisition, the Corporation intends to complete a private placement offering (the "Offering") of Notes. The Notes will bear interest at a rate determined by the Corporation, potential buyers and the underwriters. The Corporation intends to use the net proceeds of the Offering to: (i) finance the cash consideration payable in connection with the Acquisition; (ii) repay in full all borrowings under its senior and subordinated credit facilities; (iii) finance future capital expenditures; and (iv) for general corporate purposes, including the payment of fees and expenses associated with the Corporation's completion of the Acquisition and Offering. In conjunction with the Offering, the Corporation intends to set up a new senior credit facility (the "New Credit Facility") of $30.0 million. The Offering and New Credit Facility are expected to close immediately prior to the completion of the Acquisition.

As of May 29, 2014, none of the proposed events have been completed and there is no assurance that they will be completed in the future.

Outlook

Northern Frontier expects demand for our services to accelerate significantly starting in June 2014 and should continue through the end of fiscal 2014, driven by new construction and successful production results from existing facilities within the SAGD market that the Corporation participates in. In addition, the Corporation expects deployment of capital into its logistics strategy in the first half of 2014 to start contributing to earnings growth late in the third quarter.  The driver of activity levels is the timing of customer projects and revenue mix as SAGD operators transition from their winter to summer capital programs.

Subsequent to the end of the first quarter, Northern Frontier announced the proposed acquisition of Central Water and management expects Central Water to contribute significantly to revenue and gross margin immediately following the close of the transaction which is expected to occur in June 2014. Based on current customer project visibility, management expects to have strong activity levels through the remainder of fiscal 2014.

Additional Information

Northern Frontier's unaudited condensed interim financial statements for the three months ended March 31, 2014 and four months ended March 31, 2013 and management discussion and analysis ("MD&A") for the three months ended March 31, 2014 have been filed with the Canadian securities regulatory authorities and may be accessed under the Corporation's profile on SEDAR at www.sedar.com.

Conference call

Management of Northern Frontier will hold a conference call on Friday, May 30, 2014, at 9:30 a.m. Calgary / 11:30 a.m. Toronto time.  The call will feature remarks by Chris Yellowega, President and CEO and Monty Balderston, Executive Vice President and CFO regarding the financial results.

Conference dial-in instructions are as follows:

Toronto: 416.764.8677
North America: 888.390.0549
Conference ID:  92900775

A replay of the call will be available 24 hours after the event until 11:59 p.m. EST on June 6, 2014. To access the archived conference call, please dial 1.888.390.0541 and enter passcode 900775.

About Northern Frontier Corp.

Northern Frontier's strategic objective is to create a large industrial and environmental services business through a buy and build growth strategy. Currently, the Corporation provides civil construction and excavation services to the industrial industry, primarily in the in situ Oilsands region south of Fort McMurray, Alberta.  Through providing these services to large industrial customers in the steam assisted gravity drainage ("SAGD") region of northeastern Alberta, the Corporation focuses on the ongoing demand for services to support operating facilities, sustaining capital expenditures to maintain production levels of those facilities and the development of new production capacity.

The Corporation's common shares and common share purchase warrants are listed on the TSX Venture Exchange under the trading symbol "FFF" and "FFF.WT", respectively.

Reader Advisory

Securities Law Matters

This news release does not constitute an offer to sell or the solicitation of an offer to buy any security and shall not constitute an offer, solicitation or sale of any securities in any jurisdiction in which such offering, solicitation or sale would be unlawful. The Notes have not been and will not be qualified for distribution to the public under applicable Canadian securities laws and, accordingly, any offer and sale of the Notes in Canada will be made on a basis which is exempt from the prospectus and dealer registration requirements of such securities laws. The Notes will be offered and sold in Canada on a private placement basis only to "accredited investors" pursuant to certain prospectus exemptions. The Notes may be offered and sold in the United States only to qualified institutional buyers in accordance with Rule 144A under the United States Securities Act of 1933, as amended (the "U.S. Securities Act") and outside the United States in reliance on Regulation S under the U.S. Securities Act. The Notes have not been and will not be registered under the U.S. Securities Act, any state securities laws or the laws of any other jurisdiction, and may not be offered or sold in the U.S. absent registration or an applicable exemption from such registration requirements.

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:

  • completion of the Acquisition and the Offering;
  • use of net proceeds from the Offering;
  • terms of the Notes; and
  • anticipated benefits of completing the Acquisition and the Offering.

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. These risks and uncertainties include: the possibility that the parties will not proceed with the Acquisition and the Offering, that the ultimate terms of the Acquisition and the Offering will differ from those that are currently contemplated, that the Acquisition and Offering will not be successfully completed for any reason (including the failure to obtain the required approvals from regulatory authorities) and regulatory changes. 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 months ended March 31, 2014 and four months ended March 31, 2013 is 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, Working Capital and Funded Debt. This information should be read in conjunction with the consolidated financial statements for the three months ended March 31, 2014 and four months ended March 31, 2013 and the Corporation's MD&A for the three months ended March 31, 2014 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.

 

 

SOURCE Northern Frontier Corp.

For further information:

Chris Yellowega - President and Chief Executive Officer
Phone: 587.350.7232
Email: cyellowega@nfcorp.ca

- or -

Monty Balderston - Executive Vice President and Chief Financial Officer
Phone: 587.350.7231
Email: mbalderston@nfcorp.ca

- or -

Northern Frontier Corp.
400, 435 - 4th Avenue SW
Calgary, AB  T2P 1H4
www.nfcorp.ca