Mosaic Capital Corporation Reports Q1 2018 Financial Results

CALGARY, May 14, 2018 /CNW/ - Mosaic Capital Corporation ("Mosaic" or the "Company") (TSX–V Symbols: M and M.DB) has released its unaudited consolidated financial results for the three months ended March 31, 2018. The Company's financial statements and management's discussion and analysis ("MD&A") for the period ended March 31, 2018 can be accessed under Mosaic's profile on SEDAR at www.sedar.com and on the Company's website at www.mosaiccapitalcorp.com.

Selected Financial Highlights

For the three months ended March 31, (in $000s, except as noted)			2018		2017	$ Change
Revenue		$	68,000	$	58,109	17%
Adjusted EBITDA (1)		$	1,783	$	5,262	-66%
	per share	$	0.17	$	0.52	-70%
	as a % of revenue		2.6%		9.1%	-71%
Net income		$	5,891	$	1,010	483%
Net income (loss) attributable to equity holders		$	6,712	$	(2,425)	377%
	per share	$	0.63	$	(0.26)	341%
Free Cash Flow (2)		$	(891)	$	2,572	-135%
	per share	$	(0.08)	$	0.25	-130%
Preferred securities distributions declared		$	1,479	$	2,216	-33%
Common share dividends declared		$	1,113	$	1,093	2%
	per share	$	0.11	$	0.11	-
TTM Preferred Distribution Payout Ratio (3)			73%		108%
TTM Combined Payout Ratio (4)			127%		141%
Weighted avg. common shares outstanding			10,573,667		9,205,410

Notes:
(1)	Adjusted EBITDA is defined as earnings before finance costs, taxes, depreciation and amortization, and other non-cash items. Adjusted EBITDA is not a recognized measure under IFRS. Refer to "Non-GAAP Measures".
(2)	Free Cash Flow is defined as Adjusted EBITDA less (i) non-controlling interests' share of Adjusted EBITDA, (ii) Mosiac's share of: net cash interest; current income taxes; and sustaining capital expenditures. Free Cash Flow is not a recognized measure under IFRS. Refer to "Non-GAAP Measures".
(3)	Preferred Distribution Payout Ratio is defined as preferred distributions divided by Free Cash Flow. Preferred Distribution Payout Ratio is not a recognized measure under IFRS. Refer to "Non-GAAP Measures".
(4)	Combined Payout Ratio is defined as preferred distributions and common share dividends divided by Free Cash Flow. Combined Payout Ratio is not a recognized measure under IFRS. Refer to "Non-GAAP Measures".

 

For the three-month period ended and as at March 31, 2018, Mosaic:

• increased revenue by 17% over the same period in 2017, largely driven by the acquisition of new portfolio companies during 2017;
  
  
• generated Adjusted EBITDA of $1.8 million which was a decrease of 66% over the prior year period, as certain of Mosaic's portfolio companies experienced project delays and an unfavourable product mix;
  
  
• experienced trailing 12-month ("TTM") Free Cash Flow of $8.2 million;
  
  
• had a TTM Combined Payout Ratio of 127%, which was an improvement from the TTM Q1 2017 ratio of 141%;
  
  
• maintained a healthy balance sheet with $15.9 million in cash, $60.9 million in working capital and Total Debt to EBITDA leverage of 1.74; and
  
  
• settled a put option with a non-controlling interest partner of Industrial Scaffold increasing Mosaic's ownership from 67.5% to 90.0%, finalizing the founder's succession plan while leaving a 10.0% interest with the operating management team.

Segmented Financial Performance

For the three months ended March 31, (in $000s, except as noted)			2018		2017	% Change
Revenue:
	Infrastructure	$	42,706	$	39,947	7%
	Diversified		22,570		15,486	46%
	Energy		2,655		2,510	6%
	Real Estate		69		166	-58%
	Corporate		-		-	-
Total revenue		$	68,000	$	58,109	17%
Adjusted EBITDA (1):
	Infrastructure	$	714	$	3,508	-80%
	Diversified		2,781		3,158	-12%
	Energy		11		569	-98%
	Real Estate		(114)		(38)	-200%
	Corporate		(1,609)		(1,935)	17%
Total adjusted EBITDA		$	1,783	$	5,262	-66%
	as a % of revenue		2.6%		9.1%

Note:
(1)	Adjusted EBITDA is defined as earnings before finance costs, taxes, depreciation and amortization, and other non-cash items. Adjusted EBITDA is not a recognized measure under IFRS. Refer to "Non-GAAP Measures".

 

Outlook

Notwithstanding an overall bias to measure portfolio results and create value on a long-term basis, Management is disappointed with the Company's first quarter 2018 financial and operating results.  The shortfall from expectations was largely a result of lingering winter weather which delayed the normal spring ramp-up in project related activity levels.  This negative impact was largely centered within the Company's Infrastructure segment which has a greater exposure to construction and industrial development activity levels.  Compounding this, the Company's Energy segment experienced certain challenges related to a reduction in customer expenditure levels due to wide commodity price differentials in Canada.  While we are pleased with the improved performance of certain companies in our Diversified segment, the sequential gains were not sufficient to offset the negative impacts in our other business segments.  

As we progress into the second quarter of 2018, we are pleased to see more supportive operating conditions and the commencement of a large number of the delayed projects.  Reflecting on this, we expect to see sequential and year-over-year EBITDA growth in the second and third quarters of 2018 as our portfolio companies capitalize on a large suite of delayed projects. 

Mark Gardhouse, CEO commented "Mosaic's first quarter results do not illustrate the cash flow capabilities of our underlying portfolio.  In reaction to an unusual number of delayed projects in the first quarter, we believe we made the appropriate decisions to preserve the long-term value of our portfolio companies despite the negative impact on near term financial results.  By maintaining operating capacity in this environment, we prioritized the preservation of strong business relationships and an ability to capitalize on a large backlog of project work.  We are pleased to see that much of this work is now underway and we look forward to demonstrating the full cash flow capability of our portfolio as we progress into the second and third quarters of 2018 which are generally the strongest of the year."

Mosaic's growth strategy is centered on the acquisition of controlling equity interests in new portfolio companies with a specific focus on growing Free Cash Flow per share while maintaining a strong balance sheet.  Supplementing this, Mosaic's management team adds value with strong operational and strategic focus by actively engaging with its portfolio companies to improve results and capture growth opportunities.   

Mosaic's pipeline of high quality acquisition opportunities remains robust and the Company will continue to pursue its strategy to grow through acquisitions with a focus on building an increasingly diversified portfolio of private, mid-market companies that offer strong free cash flow while maintaining a healthy balance sheet.

Conference Call

Management will hold a conference call to discuss the Q1 2018 results on Tuesday May 15, 2018 at 10:00 AM ET. All interested parties are invited to join the conference call by dialing 1-855-353-9183 from within Canada or the U.S. or 403-532-5601 from Calgary or internationally, then entering the participant Code 63121#. A recording of the conference call will be made available on Mosaic's website at www.mosaiccapitalcorp.com.

ABOUT MOSAIC CAPITAL CORPORATION

Mosaic is a Canadian investment company that owns a portfolio of established businesses which span a diverse range of industries and geographies. Mosaic's strategy is to create long-term value for its shareholders through accretive acquisitions, long-term portfolio ownership, sustained cash flows and organic portfolio growth.  Mosaic achieves its objectives by maintaining financial discipline, acquiring businesses at attractive valuations, performing extensive acquisition due diligence, utilizing optimal transaction structuring and working closely with subsidiary businesses after acquisition.

Reader Advisory

Non-GAAP Measures

Selected financial information for the three month period ended March 31, 2018 are set out above and includes the following measures that are not recognized under International Financial Reporting Standards ("IFRS") and are non-generally accepted accounting principles ("Non-GAAP") measures: Adjusted EBITDA, Free Cash Flow, Preferred Distribution Payout Ratio and Combined Payout Ratio. This information should be read in conjunction with the unaudited condensed interim consolidated financial statements for the periods ended March 31, 2018 and 2017 and Mosaic's MD&A for the period ended March 31, 2018 available under Mosaic's profile on SEDAR at www.sedar.com. Further information regarding these Non-GAAP measures is contained in Mosaic's MD&A. 

Forward-Looking Statements

This news release contains forward-looking information and statements within the meaning of applicable Canadian securities laws (herein referred to as "forward-looking statements") that involve known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. All information and statements in this press release which are not statements of historical fact may be forward-looking statements. The words "believe", "expect", "intend", "estimate", "anticipate", "project", "scheduled", and similar expressions, as well as future or conditional verbs such as "will", "should", "would", and "could" often identify forward-looking statements. Forward-looking statements included in this news release include, but are not limited to:

• the overall business strategy and objectives of Mosaic;
• the Company's expectation to grow and diversify cash flow;
• the normal spring ramp-up in project related activity levels;
• the Company's expectation of sequential and year-over-year EBITDA growth;
• the Company's ability to capitalize on a large backlog of project work;
• the Company demonstrating its full cash flow capability; and
• management's expectation that is recent acquisitions will result in future benefits to the Company.

Such statements or information, if any, are only predictions and reflect the current beliefs of management with respect to future events and are based on information currently available to management. Actual results and events may differ materially from those contemplated by these forward-looking statements due to these statements being subject to a number of risks and uncertainties. Undue reliance should not be placed on these forward-looking statements as there can be no assurance that the plans, intentions or expectations upon which they are based will occur.

By their nature forward-looking statements involve assumptions and known and unknown risks and uncertainties, both general and specific, that contribute to the possibility that the predictions, forecasts, projections and other things contemplated by the forward-looking statements will not occur. A number of factors could cause actual results to differ materially from the results stated in the forward-looking statements, including, but not limited to, risks related to: general economic and business conditions; the failure to realize the anticipated benefits of Mosaic's recent and future acquisitions; adverse fluctuations in commodity prices; competition for, among other things, capital, equipment and skilled personnel; the inability to generate sufficient cash flow from operations to meet current and future obligations; the inability to obtain required debt and/or equity capital on suitable terms; competition for acquisition targets; adverse weather conditions; seasonality and fluctuations in results; and limited diversification of Mosaic's subsidiaries. Should any of the risks or uncertainties facing Mosaic and its subsidiaries materialize, or should assumptions underlying the forward-looking statements prove incorrect, actual results, performance, activities or achievements could vary materially from those expressed or implied by any forward-looking statements contained in this news release.

Although Mosaic believes that the expectations represented by any forward-looking-statements contained herein are reasonable based on the information available to them on the date of this news release, management cannot assure investors that actual results, performance or achievements will be consistent with these forward-looking statements. Any forward-looking statements herein contained are made as of the date of this press release and Mosaic does not assume any obligation to update or revise them to reflect new information, events or circumstances, except as required by law.

Neither the 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 Mosaic Capital Corporation

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