Dexterra Group Inc.

Rod Graham - President and CEO Scott Matson - VP, Finance and CFO

Greg Coleman - National Bank Dana Benner - AltaCorp Kevin Lo - FirstEnergy

Thank you, Sharon. Good morning.

I'm Rod Graham, President and Chief Executive Officer of Horizon North. With me today is, Scott Matson, Vice President of Finance and Chief Financial Officer.

At this point in time, I’ll turn the call over to Scott to cover some of the formalities of today’s call.

Good morning everyone. We’ll be commenting on the 2014 fourth quarter and our 2014 year-end results assuming you’ve read the Q4 and 2014 earnings release and the MD&A and financial statements which were made public last night and are now both available on our Web site and on CEDAR.

We’ll also be discussing Horizon’s capital budget and our outlook for 2015. During this conference call, certain statements will be made relating to Horizon North that are based on the expectations of its management, as well as assumptions made by, and information currently available to Horizon North, which may constitute forward-looking statements or information application securities laws, as well as certain financial measurements discussed today are not recognized measures under Generally Accepted Accounting Principles.

The cautionary statements contained in yesterday’s news release and in our annual filings that are available both on our Web site and on CEDAR, outline various risk factors, assumptions and cautions regarding any forward-looking statements, or information and financial outlook and other, also contain further information regarding any non-GAAP measures discussed today. So with that, I’ll turn the call back over to Rod.

Thanks Scott. I plan to make a few high level remarks with regards to our longer term strategic direction, as well as try to provide a window into our execution plan to meet those objectives.

Then I will turn things over to Scott to take us through the activities for the fourth quarter of 2014. And then I’ll circle back with some closing thoughts before moving into the Q&A portion of our call.

As many people know, I took on the job of President and CEO in November of 2014. I’ve the pleasure to being involved with Horizon North since 2007 when I became a member of the Board of Directors.

Over the past seven years I’ve taken on increasing responsibilities, serving the capacities of audit share, lead Director and finally Chairman of the Board. As part of our CEO succession planning in early 2014, I resigned from the Board, joined the Executive Team as a Senior Vice President.

In November 2014 upon retirement of Bob German, I accepted the role of President, CEO and Director of Horizon North. I’d like to thank Bob German, the former CEO and President of Horizon North for his hard work and dedication since Horizon North's inception in 2006.

Bob took over the CEO’s chair during a very challenging environment, 2010 and did an admirable job of stewarding Horizon North to its current size and product offerings. On behalf of the Board, Horizon North employees and myself, I wish Bob well in his future endeavors.

A couple of events occurred to make 2014 a less than optimal year for all of Horizon North stakeholders. Customer project delays, internal execution disappointments and a precipitous drop in crude oil pricing in the second half of the year all combined to impact Horizon North’s financial metrics, resulting in a 14% drop in revenue, 26% contraction in EBITDA and net earnings coming down 45% in 2014 as compared to the year prior, 2013.

Given current oil prices and customer capital spending cuts, we will have challenging times ahead in 2015. Historically, we have maintained a very conservative debt load, lower revenues, reduced cash flow in 2014 combined with an aggressive 2014 CapEx program that was partially directed towards support of our long term land banking and infrastructure strategies in Kitimat in Canada's British Columbia as well as Grande Prairie, Alberta resulted in long term loans and borrowings increasing to $146.4 million at year end 2014.

As a result exiting 2014, our balance sheet was far more levered than the past periods. Horizon North is presently at an inflection point.

Commodity prices in early 2015 are under continued and considerable pressure with oil pricing currently floating in the high $40 low $50 per barrel range, six year low. A number of our larger customers have delayed or deferred their capital spending plans and a tone of extreme caution has pervaded our sector which had significant implications for our business.

While we've all seen these swings in the past, there is no clear consensus on how long this trough will last. The challenging macro environment we are undertaking structural changes in our business that will realign the developments and direction of our Company, stabilize our base and prepare us for the next up-cycle.

These structural changes include cost controls, reduced capital spending; accelerating internal integration; and a new business development strategy to defend our existing markets and develop new end markets, both by product, service and geography. Cost controls.

With respect to cost controls we’ve already taken steps in January 2015 to reduce our manufacturing headcount to reflect our current order book. We're accelerating our progress to improve efficiencies in our manufacturing plants and we are focusing on reducing costs across organization.

All of this will be integrating our processes and systems across our organization to better advantage of our scale. Reduce capital spending.

In late 2014 we press released a 2015 capital spending profile program that will be limited to maintenance levels of approximately $25 million. At this time we believe that this program is fiscally prudent, as well as adequate to allow for us to achieve our corporate objective of maintaining one of the newest fleets of equipment in Western Canada with an average age of our gear in the five to seven year range.

For historical reference, Horizon North’s net capital spending was $100 million in 2014 and $63 million in 2013. One company, one brand, one vision.

We’re moving towards an integrated business model which will provide us with the strategic focus on customers and markets, integrated processes and systems which will reduce costs and improve efficiencies. This allow Horizon North to respond effectively to opportunities in our new markets and existing markets.

Developing new business opportunities, we are changing our business development strategy to drive towards full cross selling capabilities for all of our products and services. Our new mission statement at Horizon North is to provide superior, safe, fully integrated turnkey accommodations and related ancillary infrastructure in Canada and Alaska.

We will expand our product and service offerings to balance our exposure between the OpEx and CapEx budgets of our major customers. CapEx is obviously typically more cyclical in nature compared to OpEx spending, which tends to be smoother and more consistent over time.

We will defer discussion of these particulars at this time as we're planning on leveraging off of our internal capabilities to develop a few offerings that we believe will result in new third party OpEx opportunities for Horizon North. We will continue to marry up our core competencies of designing and manufacturing robust equipment, ideally suited for northern climates with the significant recent U.S.

Canadian dollar currency adjustments to accelerate our business opportunities in the State of Alaska. We are continuing to develop new land markets for our manufacturing platform, for example moving into the construction of permanent modular buildings in commercial and institutional marketplaces.

Finally, we believe that we are very well positioned to participate in significant potential electricity and LNG mega projects in British Columbia through the combination of our BC land infrastructure, our local First Nation’s relationships and our significant BC footprint with the main manufacturing operation for Horizon North based in [indiscernible] of British Columbia. Dividend policy.

While subject to review and approval by our Board of Directors each quarter, at this time Horizon North is committed to our policy of paying dividends to our shareholders through the current downturn. By taking the steps listed above we believe we will have the requisite cash flow to continue to accomplish this.

However I assure you this is something myself and our Board of Directors will be taking a hard and disciplined look at each quarter. So on behalf of Horizon North, I do thank you for your continued support and confidence as we work through this challenging business environment in 2015.

At this juncture I am going to turn the call over to Scott to comment on Horizon North’s financial results for Q4 of 2014.

Thanks Rod. As Rod mentioned, I’ll walk through Horizon North’s results for the fourth quarter, touching on our major business lines.

I’ll be talking mainly about Q4 2014 as compared to Q4 2013, but I will also make a couple of comments relative to our expectations for the quarter as reflected in our Q3 2014 public filings and our operations update press release that we put out on December 23, 2014. We’re very pleased to report that our results for Q4 2014 were essentially as expected and consistent with our previous guidance.

Fourth quarter revenues for Horizon North were $135.9 million, an increase of 25% as compared to $108.6 million in Q4 of ’13. EBITDA for the fourth quarter were $27.8 million, an increase of 77%, compared to Q4 2013 and as a percent of revenue EBITDA was 20% for the quarter as compared to 14% in Q4 last year with fully diluted earnings per share at $0.06 as compared to a loss last year of $0.02.

I’ll now walk through couple of more details with respect to our major business lines, but suffice it to say that we’re very happy to be able to put a checkmark in the wind column and after a series of somewhat disappointing quarters. I’ll start with our camp rental and catering operations.

In the large camp business revenues for Q4 of 2014 were $60 million, an increase of $20.4 million or 51% compared to the last year. We experienced strong overall fleet utilization in Q4 of 2014, 69% as compared to last year’s 57% driven by higher activity levels at some of our open camp facilities due to ongoing pipeline and infrastructure projects and on the strength of several new dedicated camps that became operational in the second half of 2014.

Ending the year ’14 we exited with approximately 8,700 rentable beds in this category. So overall our results for the large camps were in line with our expectations for the quarter.

Our drill camp business, revenues for Q4 of ’14 were $4.3 million, an increase of about $700,000 or 21% as compared to last year. Activity levels were reasonably strong with an average of 15 camps working during the quarter compared to an average of 11 camps working in Q4 of ’13, again essentially in line with where we’re expecting.

Catering only revenues for Q4 of 2014 were $4.5 million, an increase of $1.1 million or 33% as compared to Q4 of last year. Revenues were up mainly due to a new 100 bed catering only project for an operator owned camp in the Fort McMurray region but also due to strong demand for catering only services in drill camps owned by operators.

Our service revenue stream, which includes the install, transportation and commissioning of camps for customers was $8.5 million for Q4 of 2014, an increase again of about $700,000 or 9% as compared to Q4 of ’13. This reflects the generally busier conditions across the camp and catering business in the fourth quarter.

So overall camp rental and catering operations revenues for Q4 of ’14 were $77.7 million, an increase of $22.6 million or 41% as compared to last year and with margins for these operations rebounding nicely, coming in in the mid to high 20s for Q4 of 2014 as compared to the mid to low teens in Q4 of ’13. So this reflects increased activity and better utilization across our offerings.

On the manufacturing side, revenues for Q4 of ’14 were $40.1 million, essentially flat with Q4 of last year. Our external hours were focused mainly on executing the 1,250 bed camp sale project that we commenced in late 2014, which we’ll continue to recognize revenue on through the first part of 2015.

Our internal hours were focused on completing a number of smaller internal capital projects that we exited Q4 of ’14. Overall our total direct hours were down 13% in Q4 of ’14, as compared to Q4 ’13 and this reflects lower headcounts in our manufacturing and our field installation operations based on our current order book.

As we indicated in our comments, during our Q3 2014 earnings conference call, manufacturing margins were under pressure in Q4 of 2014 as a result of the challenges we experienced at the start of the major project we’re undertaking. As a result manufacturing margins were quite a bit lower in Q4 of 2014 and both Q3 of 2013 and our historical average.

Turning to our re-locatable structures business, revenues for Q4 of 2014 were $4 million, an increase of $1.3 million or 45% as compared to last year. This increase is reflective of consistent and strong utilization of a slightly larger fleet.

We allocated a significant chunk of capital last year, upwards of $50 million towards this business line early in the year and are focused on getting these units more exposed to the Alberta market and that’s helped both utilization and margins in this business. So overall consolidated camps and catering segment had a much strong quarter as compared to Q4 of ’13.

Segment revenues for Q4 ’14 were $121.8 million, an increase of $24 million of 24% compared to last year while our consolidated segment EBITDA was $28 million or 24% of revenues compared to $15.9 million of 16% of revenues in Q4 of ’13, a pretty substantial increase. On the mating side of our business, I’ll walk through the various pieces.

Our mat rentals business overall revenues were $3.1 million, fairly similar to Q4 of ’13 levels, with increased activity offset by slightly softer pricing. Of note utilization of third party mat rentals was down considerably, continuing the trend through 2014 as we continue to focus on maximizing the utilization of our owned mat rental fleet and displacing as many of the third party rentals as we can, although this does take some time to accomplish.

Mat sales for Q4 of ’14 were $2.5 million, an increase of about $300,000 or 17% compared to the same quarter last year. The overall number of mats sold in the quarter was down compared to Q4 of ’13 but a higher proportion of those mats sold in Q4 of ’14 were new mats versus used mats, which bring higher prices.

So that drives the uptick in revenues. Service revenues, which included transportation, installation, mat management services on behalf of customers that we charge for separately from rentals and sales were $8.1 million in the quarter, an increase of 2.7 million or 50% compared to the same quarter last year.

This increase was quite healthy. Several customers with large mat rental fleets chose to consolidate and stage their mats in preparation for the upcoming 2015 season.

So overall segment revenues for mating for Q4 were $14.5 million, up 27% compared to same quarter last year. Margins held in fairly nicely due to the amount of service related revenues, came in at $4.1 million or 28% of revenue as compared to $3 million or 27% of revenue last year.

Turning to the cost side, from an SG&A perspective, SG&A costs which include our corporate costs were $7.2 million or 5.4% of revenues in Q4 of 2014, compared to $4.9 million or 4.5% of revenues in Q4 of 2013. Our Q4 included a number of one-time items that contributed to the increase quarter-over-quarter.

These included some very specific doubtful accounts, some project specific costs, as well as some severance costs that we undertook in Q4 of 2014. I’ll walk through a couple of key annual figures for ’14 and comment briefly on our balance sheet as well.

In 2014 our annual cash flow after changes in non-cash working capital was $57.6 million. We purchased $114.6 million of assets with proceeds on disposal of $15 million.

So net capital spending of $99.6 million or $100 million. And remember that’s the amount included investing in some key land positions near proposed LNG project sites in BC to position us for some future potential projects.

We paid a dividend of $0.32 per share in 2014, equating to $33.3 million and dividends to our shareholders. So as a result, as Rod mentioned, our borrowings in 2014 increased fairly substantially, bringing our bank borrowings to 146 million at year end on our current credit facilities of $175 million.

Using our 2014 EBITDA of $92. 9 million that translates to a debt to trailing 12 months EBITDA ratio of 1.631 as we existed the year an improvement from our Q3 2014 ratio of 1.79:1 and well within our bank covenants that are currently at 2 times debt to trailing EBITDA.

So for 2015 we’ll be actively managing our balance sheet, focusing on cost controls, undertaking a modest capital spending budget and essentially spending within our means with the goal of improving our overall leverage position as we move through the year. That being said we’ll be looking at a number of options to improve our financial flexibility so stay tuned.

And with that I'll conclude my comments and turn the call back over to Rod.

Thanks Scott, I'll now speak the market outlook for Q1 and 2015. First of all customer activity levels in Q4 2014 for oil sands and conventional drilling were seasonally stronger as customer spending was not immediately impacted by the fall in commodity prices.

Early 2015 rig activity is still fairly solid with the customer base that we deal with. So Q1 2015 is expected to be reasonably strong from drilling camps, matting camp and catering segments.

Our large camp segment should see fairly stable occupancy and utilization at least through the first quarter. Looking beyond Q1 2015, the realities of the lower oil price environment and lower levels of activity forecast for 2015 will create a challenging operating environment, not only for Horizon North but for most oil field services companies.

As a result we will focus on cost reductions, accelerate our internal integration, focus on new markets in Alaska and Canada for permanent margin restructures that we talked about earlier. As per guidance, you won't see us providing much in the way of specific or quarterly guidance for 2015.

For the year analysts suggested a range of $70 million to $80 million in EBITDAs at this point we are reasonably comfortable with our range, given what we know of the market at this time. However, if the current economic conditions persist we will certainly be taking a hard look at these number as we move through the first half of 2015.

That concludes the end of our prepared comments. So I'll turn the call back over to our operator Sharron for the Q&A.

Hi Rod. Just wanted to jump right into it on the dividend.

I understand your commitment to the shareholders, your comments there, but given the strategic review, as you mentioned the balance sheet more levered than it has been in prior years on an absolute level, why wasn't the board, why wasn't the board mention -- using this as an opportunity to bring down that dividend now and harvest some cash to maybe de-lever the balance sheet little bit quicker than is now going to be the case.

Greg we, as a board, once a quarter, we will review it or take a look at kind of where we were in terms of what our operating cash flow projections were for 2015, where our maintenance capital is and believe that we've got an adequate cushion to pay that dividend.

Okay and then just a follow up to address exactly that on your views for operating cash flow in 2015. Is that view on your likely operating cash flow based exclusively on work which you have contracted or are working now or doesn't include additional contract wins, material additional contract wins?

Greg its Scott. no, it really starts -- we really look at it from a base level perspective in terms of what saw -- what can we stand on and what do we know.

So much more focused on contracted and very highly probable renewables, not very much speculative view into that at all.

Can you give us any indication as to what the breakdown would be between the two of contracted versus probable renewals?

I'd probably steer you away from that Greg. I would say that the majority of it is contracted, less renewal but that's probably as fine as a point as I'll put on it.

No problem, and then just one more and then I'll step away for a minute there. Just talking about broadening the end market, are we yet seeing any financial impact from the move into permanent modular buildings?

And if not when would you expect that to start to get going?

We have not seen kind of an impact as of yet. We are looking at the back half of this year and believe that as we progress forward, this would be something that we can talk about it a greater length hopefully in kind of Q3, Q4.

And if we think about where sorry -- one more, if we think about where that's going to show up, is that something which will be targeting higher utilization on the manufacturing side versus say large camp rentals?

That’s correct.

I wanted to start with large camp bed rentals and note that they were up 21% -- the number of days was up 21% sequentially in Q4, and while that is an impressive number I'd love to get a sense -- more color as to why that was and for how long you think we could see and – reasonably trend there acknowledge the commodity price weakness. So is that something that just peders out seasonally after Q1 or is there something else at work there?

Couple of factors there Dana. So certainly from an open camp perspective, a number of our large locations did have some what I call seasonal lift in some of the construction pieces as we moved through Q4.

We'll continue to see some of that in Q1. And then we also had a couple of other camp locations that were set up in 2014 for operators on longer term deals that started to contribute to that utilization, so to help bolster utilization of the existing fleet there as well.

So those two factors really is what drove that sequential increase.

Right, but then how sustaining is that as we look to the New Year? There is a seasonal part.

There is something which is I guess non-seasonal. The relative impact of the two?

Yes, and I think again Dana I think we've got reasonable visibility on Q1 right now. Certainly our -- typically our strongest quarter from a seasonal perspective.

And some of those additional projects that we turned on last year will be working there while we working through '15. But I'll shy away from commenting further on that.

We just don't have as much visibility today as we'd like.

Okay, can you give us a sense, so the build out that you're doing for Fort Hills right now, help us to understand when that starts to wind down from a quarterly perspective?

Sure so we’ll see revenue coming through from that through the first half of this year and much more of that will come through in Q1 than in Q2.

Okay, and then I guess beyond Fort Hills, you note that you are rightsizing the cost structure of your plant for the current I think it was order of business or book of business. What’s the prospectivity beyond finishing the Fort Hills contract?

Are there some other things that still could still come through or is it looking pretty tough out there beyond that?

Again Dana, we’ve got a reasonable set of visibility on the first half of the year. Certainly Fort Hills is a good part of that, along with a few other projects in there.

The back half of the year has certainly got a lot less visibility on it. So that’s something that we’re continuing to work on.

There are projects out there but customers are deferring, delaying and taking a very cautious approach on things. So we’ll keep you posted as we know more but at this time the back half of the year is pretty opaque.

Okay, just one final question. In the [indiscernible] section you talked about an inflection point for Horizon North.

Does that inflection point correlates with the inflection point that we see broadly in this space? I.e.

it’s difficult to know how long these weak prices last or is it a more specific H&L related inflection point? I don’t understand the term of use specifically.

We’ve got like -- what I'd characterize as a change in kind of CEO strategic direction and so that’s where the inflection point comment is going, this kind of one company, one brand, one vision, the cross selling, the integration and processes. This is the inflection point in terms of the way the business is being run going forward.

And we’ll talk at greater lengths in subsequent calls.

Wanted to kind of get a sense of what the pricing environment looks like for various business lines? You’ve kind of talked about its weak but nothing.

Can you give us a sense of what that percentage looks like?

I'll probably shy away from a percentage perspective Kevin. Certainly we’re trying to stand shoulder to shoulder with our customers as we work through the downturn.

As you can imagine all of our customers are coming back to us and asking us for help as they work through this, as we are returning to our vendors and asking for help. So I’ll stay away from the quantum.

But suffice it to say. If I look at projects on a long term basis I want to work with my customers and I'm willing to trade some price return to do that in the short-term.

So that -- it's different for every customers, it’s different for every contract. But that’s the basic approach we’re taking.

And again Kevin, talking about this shying away from guidance but using kind of street estimates, I would select them on current pricing environment as it is current street investment, and street estimates too.

In terms of backlog, what we see is that a lot of your strength in the quarter was driven by manufacturing. How much of backlog do you have there in that business line?

I'd just refer back to my previous comments Kevin. We’ve got reasonable visibility for the first half of the year and then we’ll be working on getting some more clarity for the back half.

So appreciate it’s not a great piece of guidance for you, but I don’t want to talk too much about that.

Just last thing is, as you through your business line, could you give us a rough percentage of how much of it is more call fixed facilities oriented versus more drilling oriented?

Kevin its Rod. Typically I’ve been kind of framing for the investment community is just a rough split in terms of where revenue comes from for 2015.

If you look at the nature of the business, roughly 80% would be I characterize as directly energy related. 20% would be non-energy.

So that would be forestry, mining, diamond mining, electricity, civil. And so going back into the 80%, that is energy roughly half would be oil sands oriented and roughly half would be I’d characterize as conventional but it’s targeted more towards liquids rich gas to give you kind of a rough split.

Thank you, Sharon. And I want to thank all of you for listening to and participating in our call.

If you have any additional questions, please contact myself or Scott. We’ll be happy to speak with you.

We’ll hold our next conference call for our Q1 results in early May 2015 and we look forward to updating you on Horizon North at that time. Thanks again Sharon.