Dexterra Group Inc.

Rod Graham - President & CEO Scott Matson - SVP, Finance & CFO

Greg Colman - National Bank Financial

Thank you, Stephanie. Good morning.

My name is Rod Graham. I'm the President and Chief Executive Officer of Horizon North.

With me today is Scott Matson, our Senior Vice President of Finance and Chief Financial Officer. We're here to discuss our Q1 2016 operating results, our business strategy, and the outlook for the rest of 2016.

I'll provide some comments on the market conditions that predetermined our business development strategy, plans and objectives. Then Scott will walk through our results for Q1 2016.

And finally, I'll provide an update on our outlook for the rest of the year before turning to the Q&A portion of our call. Scott?

Thanks, Rod, and good morning, everyone. As Rod mentioned, we'll be commenting on our 2016 first quarter results.

With the assumption that you've read in Q1 earnings release, and the MD&A, and financial statements that we made public last night, all of which are available both on our website and on SEDAR. During this conference call, certain statements will be made relating to Horizon North that are based on the expectations of management, as well as assumptions made by Horizon North using information currently available that may constitute forward-looking statements or information under applicable securities laws, as well certain financial measures discussed today are not recognized measures under Generally Accepted Accounting Principles.

And more importantly, and more information regarding these measures can be found in our public documents. The cautionary statements contained in yesterday's news release and in our annual filings, again both available on our website and on SEDAR, outline various risk factors, assumptions and cautions regarding forward-looking statements or information, and also contained further information regarding any non-GAAP measures that we may talk about today.

So with that, I'll turn it back to Rod.

Thanks, Scott. As all of you are aware by now, the hardworking people of Fort McMurray, Municipality of Wood Buffalo and surrounding area experiencing a catastrophic event of big proportions.

The wildfire devastation and impacts on the lives of area residents is nothing short of shocking. I'm inspired by the extraordinary efforts of our Horizon North team as we work to provide solutions to displaced persons in their hour of need.

Horizon North is working collaboratively with other workforce accommodation providers in the arena to contribute to the needs of area residence for food, water and shelter. Our hearts going to the many in the great town of Fort McMurray that are suffering right now.

And I assure you that Horizon North will draw on its resources and capabilities to be part of the solution to aide our fellow citizens in need during this crisis. Shifting gears, our traditional energy and market continues to be under extreme stress.

Activity levels, especially Q1 levels have been vastly reduced with rig counts and well licenses and generation of loans. Current commodity pricing for customers is now virtually transparent as the impact of hedging programs have largely expired.

While we have participated alongside a number of our peer service providers working with our customers to improve their cost structures, industry cash flow is continued to be challenged. The beginning of 2015 responds to a changing commodity and market environment for rise in the work commenced on a journey of transformational change.

This change in strategy was about people, assets, and fiscal prudency. We've repeatedly profiled this strategy in our corporate presentations and our most recent annual report which is available on our website.

We worked hard to get the right combination of skills of the foundational, execution, and commercial levels within Horizon North. We're not yet complete with the work done to-date assemble a high performance team will enable us to deliver best-in-class performance in the years to come.

As part of process we continue to focus on a number of key elements including cost control, disciplined capital allocation, integration of our historical business lines, and focus on permanent modular; all undertaken with a view to mitigating current economic risks and uncertainties while continuing to focus on new products, opportunities and end-markets as they emerge. Cost controls; in the first three months of 2016 we took the difficult step but necessary step of reducing our manufacturing headcount by a further 34 people bringing the current workforce to just over 100 workers in total.

We took this adjustment in response to continued low industry demand for in-house manufactured products into low-end staffing levels with our current order book. That being said, our permanent modular business is now progressing forward and through the course of the year we're hoping to rehire manufacturing staff to meet production needs associated with new potential orders.

We also continue to push forward on various cost saving initiatives across all lines of our business, working closely with customers and vendors to find mutually accepted pricing solutions. Disciplined CapEx; in Q1 2016 Horizon North continued to focus on disciplined capital allocation and targeted investments.

Our net capital spending was just over $3.8 million during the quarter significantly lower than a year ago. We allocated that amount mainly to conduct land improvements on a 57-acre property in Kitimat British Columbia in preparation for future development with some of the capital in that $3.8 million also invested to maintain a rental fleet equipment and set up for newly contracted projects.

Integration; I previously mentioned the transformational change process that our organization is going through to become stronger and more efficient in the face of uncertain economic conditions and changing market dynamics. Integration across our entire business is the primary goal of this process.

Our view of one company, one brand, one vision allows us to capitalize on a unique combination of capabilities cross-divisional efficiencies, enhanced customer interaction services, all within one business model. And our chosen business lines of Horizon North owns and controls the entire value chain starting from design and manufacturing through transportation, logistics and field installation, to maintenance and service.

All underpinned with an industry leading safety record and strong first nations relationships. To that end, over the past year we've added several key individuals to weave into our executive team and I'm excited by the energy and fresh business perspectives they have brought with them to the new Horizon North.

Together we are pushing to get forward on multiple fronts and drawing from our senior team's diverse professional expertise and industry knowledge. We are well along the journey and we continue to drive it forward in order to pave the way to our long-term success.

Permanent modular; as you may know this is a growing part of our business that utilizes our integrated capabilities to provide custom-designed high-quality permanent structures constructed in the modular fashion. Features and benefits associated with this offering as compared to traditional stick built on-site approach include better quality as the assets are constructed within a controlled manufacturing environment and in accordance with our best-in-class quality program.

Integrated design and engineering services which help ensure the facilities are seamless and exactly what our customers looking for. Our in-house transportation services which means the Horizon North is in care, custody and control throughout the process.

And on-site -- and the on-site installation commissioning, all of which lead to higher quality and accelerated timeline to occupancy. We've made inroads into this market completing a number of industrial projects to-date and also included the construction of 27,500 square foot office building for own use in Kamloops, British Columbia, which recently won an award from the International Modular Building Institute, MBI for demonstrating architectural excellence, technical innovations, new practices and sustainability.

To accelerate our success from this developing market segment we are pleased to announce that Horizon North has entered into an agreement to acquire Karoleena Inc. Strategic acquisition of Karoleena will help drive Horizon North's primitive modular offering as we move further into residential, retail and commercial prefabricated buildings.

While coming from different markets, both Horizon North and Karoleena have numerous similarities including amongst others, belief in modular construction, focus on customers' full service mentality, and a commitment to first-time quality. We remain excited about the market opportunity posed by permanent modular construction and while corporate to design flair of Karoleena into Horizon North product offering including office, complex, hotels and multi-family residential blowing.

Karoleena team will integrate well into the Horizon North organization and I'm convinced that the three founders will make an immediate impact with their innovative product approach, startup culture, and excellent understanding of the marketplace environmentality. We spend considerable time evaluating software solutions to support the permanent modular business.

We've also announced yesterday our commitment to purchase ICE, interactive software by DIRTT Environmental Solutions, for use in our design process. ICE provides graphical interactive modeling which will allow us to produce real-time three-dimensional designs for our customers.

ICE will be instrumental as we expand into residential, retail and commercial design or prefabricated buildings by allowing our customers to see exactly what that end product will look like before it gets built. In summary, creativity, design capability, cutting-edge software, best-in-class supply chain, lean manufacturing and disciplined quality control; now our permanent modular package is in place.

Before we turn to liquefied natural gas, Horizon North continues to maintain positive working relationship with municipalities of Port Edward, Prince Rupert, Karas [ph] and Kitimat. To-date not one final investment decision has been made by proponents of any of the various projects waiting for regulatory approvals and improvement in economic conditions.

Given this backdrop, we continue to make improvements on our land and infrastructure to stay well positioned for any upcoming positive developments. We would like you to slow down the pace of our capital spending, activities in Kitimat, we will undertake the completion of our civil construction in 2016 and we'll finish planning for commercial, hotel and lodge development for early 2017.

And Prince Rupert, Port Edward, we have more visibility on industrial activity and we'll therefore continue to push forward with the development of our city of Prince Rupert located Sedar Lodge Project, a 168-room Executive lodge. We remained focused on our Q4 2016 date for completion.

Balance sheet; we remain clearly focused on preserving the health of our balance sheet as we move through these challenging times. In times of uncertainty as your balance sheet allows you to see your way through and ours will provide us of flexibility take advantage of opportunities as they arise.

The dividend; as we announced last night, Horizon North's Board of Directors declared a dividend for the second quarter of 2016 at $0.02 per share. This continued commitment to the dividend is based on the solidity of our expected cash flows from operations, the strength of our balance sheet, and the ability to manage your ongoing capital requirements as we move through the year.

That demonstrates our commitment to always take into account the interest of our shareholders, to provide a total return on your investment. With that I'll let Scott comment on the Q1 2016 financial results, and I'll come back with the outlook for the remainder of 2016.

Scott?

Thanks, Rod. So I'll walk through our results for the first quarter in aggregate and briefly comment on each of our major business lines.

I'll talk mainly about comparisons to Q1 of 2015 but we'll provide a few comments about our expectations for the rest of 2016. On a consolidated basis first quarter revenue; $77.9 million, down just over 40% as compared to Q1 of last year.

Almost half of that decrease related to our manufacturing operation which was down almost $25 million in revenue or 84% compared to last year. This portion of our business was particularly impacted by the current low commodity price environment and translated into significantly lower demand for newly manufactured product from our traditional end markets as we move through the back of 2015 and as we make our way through the first part of 2016.

The remaining drop in revenues occurred due to the generally lower activity levels and reduced pricing across our other main business lines. Customers continue to react to the lower for longer or as we like to call it, a medium for longer commodity price environment by downsizing our capital spending programs and scrapping, delaying or scaling back construction-related, and in some cases operating projects.

This has in-turn had a significant negative impact on the demand for some of our other base products and services. That being said, we are aligned with a number of well-funded customers in specific geographical areas that continue to operate and push forward with a longer term view and continue to work closely with all of our customers to weather the energy downturn together.

Consolidation EBITDA for the quarter was $13.2 million, again a significant decline from the prior year. But of note, Q1 of 2015 was one of the busiest years in our history for our camp, rental, and catering operations business, and the impact of the current economic downturn have not yet taken hold as we started last year.

As a percentage of revenue, EBITDA came in at about 17% down from the 22% we saw last year in Q1. So although pricing levels were significantly impacted over the previous year and this pushed down our margins, our focus on cost control, cost reductions and efficiencies really helped to offset some of this effect.

Funds from operations remained relatively strong, generating more than enough to cover both, our current dividend and our planned capital program. So turning to the various segments of our business; large camp revenues for the first quarter, $55.9 million, down just over $19 million or 26% compared to last year.

Again, we experienced generally lower occupancy levels across most locations as customers were much slower to restart their operations after an extended Christmas break and we're very focused on reducing camp usage to help trim their cost structures. Significant seasonal lift that we normally see in the first quarter, we did experience in 2015, was far more muted in 2016.

As I mentioned, pricing levels were down sharply, somewhere in the 15% to 20% range on average as compared to the same period of last year. Negotiations with customers on in place contracts and projects were just starting to take effect as we came out of Q1 last year, and we're now seeing the full impact of those changes combined with general market pressures affecting our revenue stream.

We have seen it stabilize recently but do not expect the pricing environment to improve dramatically in the near-term. Our drill camp operations for the quarter; $2.1 million in revenue is down sharply from the same period of 2015.

Again, reflecting significantly lower drilling activity in general, and a decreased pricing environment. Our catering-only revenues increased slightly by just over 7% as compared to the same period of last year, mainly due to the addition of a new long-term project that we added to our portfolio in late 2015.

On the service side of this business which includes the transport set up than demobilization of facilities for customers, revenues for the first quarter decreased about $1.8 million or about 50% compared to the same period in last year again. The decrease reflects generally lower number of projects moving around and changing in the first three months of the year, and weaker activity levels in our overall camp business.

So overall, camp rental and catering operations revenue was $64.7 million in the quarter, a decreased of about $25 million or 27% compared to last year. Turning to the manufacturing side of our business, our Q1 revenues were down considerably compared to the same period of last year.

And as I mentioned, demand for newly constructed gear deteriorated considerably in conjunction with customers sharply turning down their capital budgets. Revenues for the quarter were just under $5 million, down from just under $30 million last year when we were completing a large oil sands camp insulation project.

In contrast, the first quarter of this year saw fewer projects and those that were in place were on a much smaller scale. Our relocatable structures business for the first quarter generated revenues of $2.7 million, decrease of about $1.3 million or 30% compared to last year.

Again, this decrease is a result of generally lower utilization and pressure on pricing. So overall, segment revenues, $72.2 million for the first quarter, down about $50 million or about 40% compared to this time last year.

EBITDA from the segment, $14.6 million as compared to roughly $30 million last year, again down following lower overall revenues. And a percentage of revenue basis, even though EBITDA came in at 20% as compared to 25% for the segment.

Again, a factor of cost controls in the face of sharp pricing pressure. Matting side of our business, compared to last year revenue and EBITDA in the matting segment were down significantly.

Following generally reduced demand for all of our matting products and services, similar to camp to catering segment, the drop in commodity pricing between the comparable quarters has pushed customers to delay or cancel capital projects and reduce cost through lower utilization of our products. From the equipment and matt rental revenue side of things, the first quarter revenues were down by about 50%, again compared to last year.

Again, lower excess matt rental volumes and reduced pricing on those rentals. Matt sales pretty minimal for the first quarter, directly impacted by the reduction of customer spending on projects, the sales that did occur were more driven towards cost effective used matts rather than slightly higher priced new matts making our revenue per matt sold a little bit lower as well.

Service revenues from this business; the transportation, installation, matt management services we perform on behalf of customers and charge for separately, decreased by about 40% compared to the last year, again driven by lower sales and rental activities and customer efforts to trim their expenditures. So overall, revenue and EBITDA for the matting segment for the quarter was about just under $6 million and $1.1 million respectively, down about 50% on each basis compared to last year.

Corporate costs for the quarter were about $2.5 million, a decrease of about 17% as compared to last year. Of note, a portion that decrease is a result of last year's quarterly results including a chunk of restructuring costs, so normalizing for this our corporate costs for Q1 of 2016 were relatively flat year-over-year.

Cost decreases that we did see from lower activity levels and managing those costs were roughly offset by the addition of some key members to our team, as part of our journey of transformational change during the year. So overall, costs came in at about 3% of revenues as compared to 2.2% for the same period of last year due to the meaningful decrease in revenues.

And the capital from a spending perspective, taking into account the proceeds received from the sale of various assets as we work through our fleet with $3.8 million compared with $12.2 million we spent last year, again, reflecting our next capital program for the year in a disciplined approach to spending across the Board. Our capital program for 2016 remains in the $15 million to $20 million range, consistent with what we outlined on our conference call in February.

Again, our primary focus is on key strategic initiatives and in support of contracted revenue generating projects as they arrive. Balance sheet perspective in the face of a difficult market and financial environment, we continue to be focused on maintaining the health and the strength of our balance sheet.

Our total loans and borrowings at the end of the quarter were $70.1 million slightly elevated from year-end due to the finer requirements of our normal course seasonal working capital requirements. That translated through a total debt to trailing twelve-month EBITDA ratio of 1.51:1.0, well in our existing covenant package and leaving us with sufficient flexibility and capacity to prosecute our plans as we move through the year.

Based on our views on cash inflows for the remainder of the year balanced with our modest capital program and our reduced dividend, we expect our debt levels to remain relatively stable or improve slightly as we exit '16. So with that I'll turn things back over to Rod.

Thanks, Scott. I will now speak to the market outlook and our strategy as we move through 2015.

We all know that we're in uncertain and challenging economic environment due to continued depressed and volatile commodity prices, particularly oil. While there are some signs that the worst might be behind us, 2016 will be a challenging year for the resource business.

We have worked closely with key customers to negotiate pricing, to maintain occupancy in our camps and catering business, but further price concessions cannot be made without sacrificing the high level of quality, care, and most importantly, our commitment to our safety; these three are absolutely sacred to us. We've negotiated similar cost reductions from our suppliers and we have trimmed our operating costs and will continue to monitor and minimize all discretionary cost in 2016.

Our Q1 2016 operating financial results reflect the early momentum from our transformational change to a culture of lean and operational excellence. As mentioned, Horizon North will continue to protect its strong balance sheet, minimizing working capital and reduced capital program will be a strong focus.

Capital spending will be limited to only a key initiatives and required maintenance with growth capital limit to supporting only a few new contracted projects. Throughout 2016 Horizon North will continue to develop key locations close to LNG project sites and ensure we are well positioned to participate should any of these projects be sanctioned.

However, this will be done using approach with the timing of capital spending aligned with projects as they emerge. Our transformational journey is about creating the platform to prosper in this lower for longer environment that our customers face.

So how do we prosper? Diversifying our business based on geography and markets; products and services will enable us to grow.

Our foundational executional six skillsets are now largely in place, and this will allow us to bifurcate our sales and business development effort into two areas; industrial, which is our legacy industrial business that would lodges, camps, catering, relocatable structures matting. And then the other being permanent modular design prefab that would be residential, retail and commercial.

As a final comment, 2016 marks the tenth anniversary of Horizon North, and with a late platform, people and capital structure, we will continue to pursue our mission to provide superior safe, fully integrated, turnkey accommodations and related ancillary infrastructure in Canada and Alaska. There is considerable uncertainty in our business environment right now but we have a plan, a long-term plan.

And this strategic plan will positioned Horizon North very well for the next decade. That is the end of our prepared comments.

So I'll turn the call back over to Stephanie for the question-and-answer section.

Everyone, congrats on a strong quarter core and a change of time. I want to talk about Permian modular at the gate.

A lot of good progress towards a follow-up implementation there from the internal perspective. Can you discuss a little bit more detail any near remedy, Germany, medium-term opportunities for commerciality outside of the hotel currently under construction?

What I would prefer to do Greg is differ that comments tell our conference call. We've got an active quote log but that's not backlog, the whole intent for kind of pushing forward here is being able to start to communicate backlog numbers to the investment community and I think it's premature for us to do that right now.

So you've got a quote log now, not quite a backlog but we'll hear about it first week of August, kind of thing?

Yes, that's absolutely correct.

Okay, I'll take that teaser. The acquisition of Karoleena, the purchase of ICE from DIRTT, the new hires, it sounds like it's in place, sounds like the whole team is there but is there -- are there any other key places that you need to add on there or is it ready-to-rock on the premier modular side?

We believe the platform now is in place and we take a look at the demand side for modular across Western Canada and believe that there is a tremendous opportunity bunch of fronts. And as we talk about this residential, and commercial, and retail piece, we do believe that Dan is going to burst and now we've got the infrastructure in place to manage that.

Okay, so that sounds like you -- do you have that infrastructure in place? There are no other keys things you need to add, and now it's a matter of getting that demand translated into backlog?

Now it's conversion.

Okay. Now just quick, small modeling question.

$2.5 million is what you paid for Karoleena cash in shares, what's the split there; two-thirds, one-third?

That is correct, Greg; two-third shares, one-third cash.

Great, thanks. Switching over to the manufacturing side, given the low level activity but the potential for that change for you guys.

What kind of lag in terms of time or in terms of cost outside working capital would be needed to ramp up to a higher level -- say, I don't know, you feel free to find higher level yourself but I'll throw a stick out of -- $10 million to $20 million in quarterly revenue, up from the current $4.5 million. And is there any timing -- it would take a quarter two or would it take any material investments there or is it basically ready to go on the manufacturing side?

So I'd say there isn't real material investments needed there Greg, it would be more of -- kind of what I call lead-time materials etcetera. Our staffing complement today will allow us to build a certain amount of product going forward.

Certainly would ramp that up as the order book grew. But from that perspective, yet call it -- I don't want to give you a necessary timeline but there would be a slight lag between the first signing and first revenues but it's not a significant piece.

Greg, as we chatted before, the return-on-capital for this segment is extraordinary; the potential for it is extraordinary. There is limited incremental capital necessary for this to go.

And Scott, back to your comment on the timing side. We're not talking about quarters delay here, we're talking about weeks or months?

Yes, exactly. I'd say within a quarter -- I'm getting something in there we'd see some revenue coming through.

Okay. Shifting to sort of core installed base at Fort McMurray, thanks for your opening comments Rod, very challenging time for everybody or people there.

On a risk perspective free operations, are any of your locations in or close to an area which has been evacuated?

We -- right now again, Greg, this is kind of a real-time. You obviously can't predict direction for forest fires, certainly taking look at wins there in communication with their operations people pretty much hourly, and right now none of our installation or operations are in harm's way.

Okay. And if that were to change, are there any nuances about insurance or fire insurance regarding your assets on the ground that would be different for a permanent installation or would it be fully covered in the event if something did happen?

Essentially our -- all the insurance this is not -- I called it unfortunately not an abnormal occurrence, so our program are in place to cover as you would expect from Price, similar to a permanent installation.

Great. I hopefully don't see it but just wanted to get that out in the event that something does escalate.

And then just finally, in your prepared remarks you mentioned right at the end, it's sort of potentially for growth rate in Alaska. Is there anything going on there right now or is that still kind of just something that we're monitoring?

Certainly the dynamics within Alaska is still seem to be favorable for us, Greg. We continue to kind of work through on our couple of programs, our ability to work with native corporations which has got the first nations equivalent within the State of Alaska, it's been a very positive relationship.

So we are moving forward on a couple of -- as we characterized, quote log ideas in '16.

Great. Okay, that's it for me.

Thanks very much.

Thanks, Greg.

I am back, I came up with more stuff. On the -- few other things that we were just listing here, on the LNG side, I mean we continue to be hopeful, you guys I think continue to be hopeful but if things don't materialize there on the downside risk there, the projects to reach a negative FID; are there any costs associated with extracting yourselves from the West Coast region there or does it simply become a zero revenue line item?

So again, LNG to take it singularly. We can talk about Kitimat, we can talk about Prince Rupert.

Within the City of Prince Rupert, there is a whole host of other industrial developments underway and that has given us the confidence to proceed forward. So if -- and I say if LNG did not proceed with him that region, we do believe there are other reasons for us to be positioned there.

And so we would proceed forward Greg, perhaps kind of the quantum would be a bit reduced in terms of what we would do but certainly see an opportunity there. We're thinking to match the beauty of the district Kitimat is you've got a large industrial customer in that region, in real intent to all account.

And so the land profile that we have is now largely developed and serviced and certainly would have application for -- kind of a go forward status quo. And we would look to pursue opportunities to go that route if indeed FID for LNG Canada does not proceed.

Is the Prince Rupert industrial development not based on the fact that you're going to see development there? For LNG aren't they one and the same?

No, there are a myriad of opportunities within the City of Prince Rupert, a lot of it port-oriented or based. And so we feel quite boldened [ph] by our position within the City of Prince Rupert.

Good to know. And then just -- I guess finally, our competitive environment, we can see obviously your public peers, very easy for us to see what's going on there.

And even some sort of insight as to your larger privates but can you give us any views as to what's going on in the competitive spaces? Has there been any consolidations of note, any eliminations of maybe smaller struggling ones or is the competitive environment largely unchanged since we spoke last quarter?

The only comment I can make is we haven't undertaken anything along that line Greg, so what you read in the news is a fact.

All right. Okay, that's it for me.

Thanks very much.

Thanks.

Stephanie, thank you very much. So we look forward to updating all stakeholders with our Q2 results in early August.

So thank you very much and back over to you Stephanie.