Dexterra Group Inc.

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

Greg Colman - National Bank Financial Scott Treadwell - TD Securities Ian Gillies - GMP

Thank you, Sylvie. 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 Q3 2016 operating results, our business strategy, and our outlook for the final quarter of 2016. I'll provide some comments on the market conditions that predetermined our business development strategy, plans and objectives, Scott will walk through our results for Q3, 2016, and finally, I'll provide an update on the balance of this year and 2017 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 third quarter results, with the assumption that you've read the Q2 earnings release, the MD&A and financial statements that were made public last night, all of which are available on SEDAR and on our website.

During this 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 or IFRS.

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 any forward-looking statements or information, and also contain further information regarding any non-GAAP measures that we may talk about today.

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

Thanks Scott. Two major items to address ahead of Scott's operational and financial detail.

First, more color around recent commercial and market wins and two, why was our Q3 below consensus reported EBITDA. Our business pivot, also exactly 2 years ago, the board of Horizon North changed corporate mandate and challenged this management team to build on a company that was diversified by product, by geography and by end market.

The playbook is been is relatively straightforward. First, restructure the management team and to augment or upgrade professional talent, second delever the balance sheet, third, utilize core competencies to enter new markets for existing product and service lines, four, develop new proficiencies to enter new product and service verticals to lever off core competencies.

It is this last step has led us to success with our first non-legacy step-out our commercial and residential offerings. With our upgrade to design engineering, software, manufacturing, quality and site installation, we have the means to provide a well designed product manufactured in a control environment with six sigma quality and cost and time certainty.

This culminated in a series of modular wins in and around our quarter end for First Nations housing, for Vancouver affordable housing, for hotel in Revelstoke, and for a training center for BC Housing Authority. Our quote log supporting these wins and perspective future wins is robust and we are very optimistic about our success in Q4, 2016 and into the year 2017.

I'll also address our Q3 reported EBITDA. Our EBITDA that h we reported for the third quarter was weaker than consensus and below our internal forecast.

Three are major items that contributed to dismiss. First, incremental cost associated with assimilation and integration of our Karoleena acquisition.

As we continue to digest the acquisition of Karoleena Inc., evaluate current projects and look ahead to potential work considerable importance will be placed on profitability. We acquired Karoleena in late Q2, 2016 for its coveted Karoleena design and layout flair.

We believe that these designs and creativity have been a significant addition to our business. However, we knew at the time of acquisition that it would take time, energy and some cost to bring the estimating, manufacturing, transportation and site work set up processes of this group up to the standards that we have set at Horizon North.

These costs were borne through some difficult transition to our best in class quality, best in class cost structure that our manufacturing platform has developed over the past 12 months. We are confident that are Vice President of manufacturing Kapul Gill, will achieve full integration of this business line and will move current and new projects in line with our profit expectations.

We don't anticipate any material adjustments going forward. Second item, oil sands saggy production interruptions associated with the Fort McMurray fires has caused a series of high profile clients to defer their further turnaround and maintenance schedules.

We anticipated revenue in September, based upon business normalcy and given the considerable alterations of the lives of many in Fort McMurray September was anything but normal. Third, we continue to make changes to our middle and senior management complement.

As we drive our business forward there were some individuals that just didn't fit the future of our business. We took those charges in Q3, 2016.

All told, these three buckets of expense and deferred project and margins tally up to $2.5 million, an amount that will adjust our EBTIDA back into line with consensus. With that, I'll let Scott comment on the Q3, 2016 financial results and I'll come back with the Outlook for the remainder of 2016 and 2017.

Scott?

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

I'll be comparing mainly to Q3 of 2015, but we'll provide a few comments relative to last quarter and to our expectations for the rest of this year. On a consolidated basis third quarter revenue was $60.1 million, down about 27% if compared to Q3 of last year, reflecting the continuing tough environment facing our industrial operations, our camps, catering, lodging and our rentals and logistics operations.

While as Rod indicated our modular construction operations are just beginning to take traction. Consolidated EBITDA for the quarter was just over $7.1 million, again, down significantly compared to Q3 of last year coming in at about 12% of revenue compared to the 18% we saw last year.

This reflects the generally lower activity levels and the effects that the pricing pressure we faced across our operations, both on in-place contracts and on new business. Turning to various segments of our business, I'll start with our camp rental and catering operations, large camp revenues for the third quarter of $34.9 million, down just over 30% compared to the same period of last year.

This decrease reflects general trends we've been seeing over the last 12 to 18 months with respect to both activity levels and pricing. Activity levels were generally lower with clients delaying or deferring projects in response to the lower commodity price environment.

And in addition, we are also seeing the effects of that generally reduced activity negatively impacting our pricing. Year-over-year pricing is down somewhere between 15% and 20% and projects that are in the bid stage are extremely competitive.

Our drill camp operations for the quarter generated just under $2 million in revenues relatively unchanged from the same period of last year. Although, our activity level was up 30% year-over-year on the strength of a few specific contracts, on some of our more premium equipment packages.

Stock [ph] pricing effectively offset this activity, again as the bidding environment remains extremely competitive in this area as well. Catering only revenues increased to $4.9 million, a significant increase compared to last year, mainly due to the addition of a contract that we assumed, that started in late Q4 2015 related to potash in Saskatchewan.

On the service side of this business, which includes the transport set-up and demobilization of facilities for customers, revenues for the quarter were actually up 25% to $5.7 million as compared to the same period of last year. The increase was mainly due to contracts added to mobilize and install customer own equipment in and around the Fort McMurray area, as well as work-related to a Northwest Territories mining contract.

So in total, camp rental and catering operations revenues were $47.5 million in the quarter, down about $12.2 million or 20% compared to last year. Turning to manufacturing side of our business, our Q3 revenues were $3.3 million, down from just under $10 million in the same period of last year.

Demand for newly constructed gear, especially camp gear, which is what has historically driven this revenue stream continues to be considerably lower. I would note that Q3 included very little modular construction revenue as we expect the several recent contract awards to generate revenues as we move through Q4 and into the first half of 2017.

Overall, segment revenues were $50.8 million for the quarter, down about 19 million or 27% compared to the same period of last year. EBITDA from the segment was $8.4 million, as compared to $14.8 million last year.

This shows the effects of generally lower overall activity and pricing. However, the quarter was impacted by the majority of the costs items that Rod mentioned at the outset.

We recognized additional costs during the period related to integrating and digesting the Karoleena acquisition, again, costs that we do not expect to see in a go forward basis. We also felt the impact of delays and deferrals of maintenance to turn our work that would normally occur during this period.

The combination of these two factors totaled approximately $2.2 million. Normalizing for these items would bring our EBITDA percentage back into the 18ish percent range, a bit more comparable to last year's margins, but still reflecting the continued pressure on pricing across both in-place contracts and especially on new business.

Turning to our rentals and logistics segment, revenues in Q3 were 9.3 million, compared to the $13.2 million in the same period of last year, a decrease of $3.9 million or 29%. This decrease driven by lower activity levels and generally reduced pricing across most of our operations, most notably affecting our matting and space rental business lines.

Our relocatable structures business for the quarter generated revenues of just over $1.1 million, down significantly compared to the same period of last year, again, activity levels were down in all major geographies that our equipment typically services, resulting in lower utilization, and we continue to experience softness in pricing here as well. Access mat rental revenues for Q3 was $1.3 million, as compared to $2.6 million last year, decrease of $1.2 million or 48%.

This drop was driven by both lower volumes and reduced revenue per mat rental day. Demand was quite a bit lower due to generally tough industry conditions, as customers relied mainly on renting matt as opposed to buying matts and remain extremely price-sensitive.

Service revenues from this business, which includes the transportation, installation, and matt management services we perform on behalf of customers and charge for separately were $5.9 million, compared to the $7.4 million we generated last year, down about 20%, driven by again generally lower sales and rental related activities. EBITDA for the rental and logistics segments for the quarter $2.2 million, down just over 34% compared to the same period last year, but remained at 23% of revenues as compared to 25% of revenues last year, as we were effectively able to scale up and scale down operations to match activity levels and somewhat maintain margins in this business.

Corporate costs for the quarter were $3.4 million, compared to $3.7 million last year, reduction mainly due to our continued focus on cost reductions across every aspect of our business and I would expect this to be a reasonable run rate for these costs going forward. From a capital spending perspective, taking into account the proceeds received from normal course asset disposals, our net capital spending during the quarter was approximately $3.1 million and totaled $11 million for the nine months ended September 30.

This reflects our continued disciplined approach with respect to CapEx as remain focused on allocating funding only to key strategic initiatives or to support contracted revenue generating projects. Our capital program expectations for the full year of 2016 remain in the $15mil to $20 million range that we previously discussed.

Our total loans and borrowings at the end of quarter increased to $73 million, as compared to the $46.8 million that we exited Q2, 2016 at this was largely attributable to the successful closing of the acquisition of Empire Camps during the quarter, which included a $28.5 million in cash consideration. That translates into a total debt to trailing 12 month EBITDA ratio 1.97 to 1 after incorporating the trailing 12 month EBITDA results from both Empire and Karoleena.

I would expect our total loans and borrowings to trend lower as we exit 2016 based on our disciplined capital spending process, continued focus on managing our working capital and our ongoing insurance process. Regarding our ongoing insurance process, we have submitted our claims with respect to the losses we incurred as a result of the Fort McMurray wildfires, including the loss of Blacksand Executive Lodge.

We continue to work very closely with our insurers to facilitate the claims process, and I expect that we will see things finalized and processed by the end of this year. We will be issuing a formal communication at such time as we have a definitive resolution, but I will not be providing any further comments with respect to the quantum or the specifics of the claim until then.

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

Thanks, Scott. Our management team is focused on building out a significant infrastructure platform through the end of the decade.

Our traditional legacy business, our industrial offering is under pressure from continued range bound commodity price, unknown impacts of changes in provincial and federal fiscal policy surrounding the implementation of perspective carbon taxes, a lack of new takeaway pipeline capacity and access to growth capital. Over the past six months, we refined the sales and marketing strategy for our industrial offering and this improvement has allowed us to maintain or grow our market share in our targeted geographies.

We continue to implement our operational excellence program in an effort to drive down our operating costs, while maintaining high standards for safety and for quality. We are firm in our belief that consolidation makes sense for this product, service vertical, but with the absence of like mindedness we will continue our drive towards our axiom of best quality, best cost structure, best pricing model flexibility.

Our commercial vertical has extraordinary cross-activity. Our recent wins support Horizon North venture into a market that is being well supported by infrastructure money from all three levels of government.

In addition, our First Nations partnership platform and our corporate values commitment to communities has allowed for unique commercial opportunities, well supported by a federal government with a mandate to improve living conditions for all Canadians across our country. Our residential vertical now has the right alchemy of creative flair and process discipline.

The level of interest in our high-end Karoleena product offering and its more value oriented derivative line cadence has allowed for us to enter into discussions on a prospect for completely designer prefab communities in both the provinces of British Columbia, and Alberta. While we have stayed away from providing formal guidance to capital markets, we do agree with the range being carried by many of analyst thus follow us, with EBITDA in the $30 million to $35 million range for 2016 and in the $40 million to $50 million range in 2017.

We would caveat the 2017 estimates by suggesting that many analysts are remaining cautiously optimistic on the future of our commercial and residential offerings. Our transformational change process has been a challenge, but I am convinced that we are on the right track to see us through to the end of the decade.

We continue to hold firm to our vision of building a proxy for investors interested in exposure to multiple resource end markets, coupled with a lower data exposure to commercial and residential end markets across Western and Northern Canada. The strength of the statement of financial position is a key priority for Horizon North and we will continue to closely manage debt levels and working capital.

Our focus will be to maintain a manageable leverage position and balance cash outflow with cash inflow through reducing debt, minimizing working capital and minimal capital spending. We also remain committed to a total return strategy that pays our investors to wait, as we build out operational excellence in our various verticals.

That is the end of our prepared comments, I'll turn the call back over to Sylvie for the question and answer portion of this call.

HI, guys. Just a couple of quick ones here.

First, with review of the quarter, you talked about $2.5 million in total sort of cost there associated with Karoleena, the impact for the turnaround in maintenance schedule from four matt and then personnel changes. I was to put those in two buckets, Karoleena acquisition costs and personnel changes does sound like a bit of a one-off, but those are also basically gone.

But the Fort McMurray fire turnaround in maintenance schedule that sounds more like a deferred thing then something that’s lost. Would you agree with that characterization, and if so, can you split that $2.5 million into something that's gone because it was a one-time cost and its cost or deferred in a sense of we're going to see shop in Q4?

Yes, Greg, it’s Scott. I like the way you've characterize that, kind of those two buckets make sense to me and the way I actually go out, that is probably split that 2.5 right down the middle in terms of the stuff that would be non-recurring from the Karoleena piece and from the restructuring piece, half of that would be deferred, whether that comes in through Q4, its probably more of a 2017 view in my mind, as turnaround schedules stuff move out.

But I think that's a good way to characterize it in terms of splitting it that down the middle into those two buckets that you defined.

Great. Okay, that was it on the kind of historic stuff.

If we look at some of the recent contract wins embedded [ph] there, Rod or Scott would you have any interest in quantifying the size of the Ramada or the VAHA built?

I think that was shown in call for what that would look like, and I said it was a sub 10 at that point in time. I characterized kind of these wins is sub 20.

Does that help?

In aggregate?

From revenue perspective…

2000, yes…

That’s good. And then also you mentioned the word backlog a couple of times in the press release and you talked about a robust quote log, would you have any interest in quantifying that?

Not at this point in time.

Will there be something in the future that you would look to do once it gets to…

Yes…

Okay…

Yeah, with the momentum here, Greg, absolutely. Its - if the number backlog is over this – credibly important to me and as we continue to gain momentum and its happening real time, look forward to being able to deliver those types of the numbers to the market.

And Scott, you mentioned that very little of the $3.3 million in manufacturing was from permanent modular, if we take that we combined it with Rod your comments about sub 24 Ramada and Vancouver. What's the time horizon for that 20, is that over one quarter, two quarter's, 12 months?

Yeah, I would take a look at that over probably call it the next three quarters, Greg and probably split one third, two thirds in terms of '16, '17.

Great. And then – also a last one for me, have there been any other win subsequent to the quarter end on the permanent modular side?

Again, we talked in and around the quarter with a couple of things that we communicated here. We will start to buck these up and communicate them as they come in.

Great. Thanks.

That’s it from me.

Morning, guys. Just wanted to maybe follow up Greg's question, you referenced the two bigger projects and then also the training center in the First Nation, is that included in that sort of sub $20 million number?

Yes.

Perfect. Okay, moving on to costs, Scott you referenced pricing continues to kind of be under pressure.

I know one of the big cost is labor, can you just remind us how much of your labor cost is covered by collective bargaining agreements, whether that's union or just in a specific facility?

Yeah, I'll make a general comment Scott, we have some union exposure through our camps catering operations, but I'll stay away from quantifying the magnitude that piece, but it's not a significant piece.

Okay. And so then the follow up question would h have been, is there any stickiness on the labor side where as pricing comes down and you look for efficiencies.

Obviously labor is part of that, is there anything in the labor side that looks sticky and that’s the answer I'm assuming is no, you’ve got relatively direct drive there?

I'd say relatively, certainly as we take a look through what's happening in kind of Western Canada wise, the pool of labor has certainly expanded and we continue to look at getting the right skill sets on board and driving that forward. So, yeah, I think we've got some flexibility there.

I don't think it's overly sticky, probably no more than any of the other businesses that you'd be looking at.

Things that we're looking through, Scott, just mentioned, you know, other places that we've looked at is just the transportation to and from, our location and facilities making sure we don’t have the empty backhaul, just trying to be smart through our whole process and that’s part of the '16 or '17 initiatives that we have underway right now as part of that operational excellence program we've got in camps and catering.

Okay. And just to follow up on cost, are there any other up-cost that have yet to normalized to the new pricing environment or are you pretty comfortable that that's been reset to the extent that you're comfortable resetting it?

I think we've got a – we think we've got to maybe split the two different pieces of our business, Scott, so from manufacture perspective certainly I think we've got a good handle there, the process of updating and changing the processes around our manufacturing operations have been ongoing for a while now and I think were largely there. We have dragged change through our camps and catering operation and our rentals and logistics operations, I think we've made some good headway there, well probably not all the way to the end, but I think we've made some good progress along the way.

Okay, perfect. I had a question on insurance, but you pretty much answered that for me.

Last one for me, I know obviously when the wildfires happened there was a huge amount of sort of information or disinformation flow that was kind of going around, can you just refresh for us where the reoccupation rebuild or potentially redevelopment sits in Fort McMurray from a high level. And then to the extent you have any insight at the company level what that might be for Horizon North here in the next few quarters?

Sure. So part of it has been delayed Scott, a lot of the foundational work know is s complete in terms of the fact that we had demolition process and the hallway process, there has been a couple of new builds, you are getting into the winter season where it becomes more of a challenge to proceed forward on that basis.

And so if I was evaluating where the opportunity lies, I believe Horizon North is well-positioned, especially with our cadence line of housing and then hotels and apartments. I would look at 2017 as process - a better place for that - to the land, as opposed to in the next two months as we were getting into winter season.

Okay. So it fair to say that there is at least advance discussions and potentially some quotes that are directly related to Fort McMurray or is that still…

Absolutely Scott, it’s slower than I think a number of people had originally perceived once the fires grow.

Okay. Perfect.

I appreciate that clarity guys. That’s all from me.

I'll turn it back.

Thanks.

Morning, guys.

Morning, Ian.

Scott, you noted on the - in the remarks that pricing is down roughly 20% for large camps and in the release you guys have noted aggressive pricing and then you got and bid on additional work as you move into '17, are you expecting pricing to continue to move lower given some of the excess lack in the system right now or I mean, how is Horizon North thinking about pricing dynamic at this point in time in large camps?

Yes, pricing year-over-year 15% to 20% Ian, I think we've seen the majority of the impact in terms of what I call the competitive pricing pressure, a negative price that we've been able to attack that is through cost structure, right, so be able to be still very competitive at the current pricing even though its down year-over-year, on a testament to dry chaining through our operations and being more cost efficient. So trying to maintain that margin in the middle.

So I don't expect to see a tremendous amount or more of pricing pressure, as we go through the next call it few periods.

Okay. And with respect to the - that's acquired from Empire, has there been any noticeable change in utilization and or pricing, since the time of acquisition or have things kind of - just kind of gone as expected?

We've see - I would say those beds that we've relatively absorbed into our fleet, the same market effects that were affecting – that we're seeing in the rest of our fleet. So certainly there's pockets that are more challenged and others in terms of utilization of pricing.

But in general it’s following the same trend as the rest of our business.

Okay. That's really all I had in my hands.

Thanks very much for the color.

Thanks.