Mosaic Capital Corporation Reports its Fourth Quarter 2017 Financial Results

CALGARY, March 28, 2018 /CNW/ - Mosaic Capital Corporation ("Mosaic" or the "Company") (TSX–V Symbols: M and M.DB) has released its financial results for the three and twelve months ended December 31, 2017. The Company's financial statements and management's discussion and analysis ("MD&A") for the year ended December 31, 2017 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

		Three months ended Dec 31,					Twelve months ended Dec 31,
(in $000s, except as noted)		2017		2016		%  Change	2017		2016		% Change
Revenue		$	88,650	$	50,859	74%	$	312,141	$	197,184	58%
Adjusted EBITDA (1)		$	5,196	$	3,299	57%	$	28,028	$	20,477	37%
	per share	$	0.49	$	0.40	24%	$	2.74	$	2.45	12%
	as a % of revenue	5.9%		6.5%			9.0%		10.4%
Net income (loss)		$	(9,509)	$	(2,063)	411%	$	7,117	$	7,547	-6%
Net income (loss) attributable to equity holders		$	(11,787)	$	(489)	2532%	$	(5,208)	$	(7,552)	45%
	per share	$	(1.12)	$	(0.44)	177%	$	(0.51)	$	(0.90)	43%
Free Cash Flow (2)		$	1,232	$	1,069	15%	$	11,381	$	11,726	-3%
	per share	$	0.12	$	0.13	-9%	$	1.11	$	1.40	-21%
Preferred distributions declared		$	1,512	$	3,255	-54%	$	7,006	$	13,050	-48%
Common share dividends declared		$	1,114	$	864	29%	$	4,432	$	3,455	28%
	per share	$	0.105	$	0.100	5%	$	0.420	$	0.400	5%
Preferred Distribution Payout Ratio (3)		123%		305%			62%		111%
Combined Payout Ratio (4)		213%		386%			101%		141%
Weighted avg. common shares outstanding		10,570,313		8,345,657			10,224,621		8,345,657

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, and (ii) Mosaic'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 securities 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 securities 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 and twelve months ended and as at December 31, 2017 as compared to the respective prior year periods, Mosaic:

• increased revenue supported by the acquisition of new portfolio companies coupled with improved business conditions and successful growth initiatives for certain western Canadian portfolio companies;
  
  
• increased Adjusted EBITDA with strong contributions from recent acquisitions and improved profitability levels within certain western Canadian based businesses;
  
  
• improved the Company's overall cost of capital by replacing an aggregate $132.2 million equity securities having annual cash distribution cost of approximately 10.0% with a $150.0 million strategic investment by Fairfax Financial Holdings Limited having an annual cash distribution of approximately 5.7%;
  
  
• increased the size of its credit facility to $50.0 million;
  
  
• raised $15.2 million in common shares through a subscription privilege offering;
  
  
• increased its common share dividend policy by 5% from $0.40 per annum to $0.42 per annum;
  
  
• provided relatively consistent Free Cash Flow levels notwithstanding the balance sheet restructuring noted above which resulted in a greater proportion of interest expense versus preferred equity securities distributions in 2017 as compared to 2016; 
  
  
• delivered a reduced Combined Payout Ratio of 101%, which was materially improved from fiscal 2016;
  
  
• invested a combined $55.7 million with the acquisitions of Cedar Infrastructure Products Inc. ($18.2 million) and Circle 5 Tool & Mold Inc. ($27.0 million) along with growth capital expenditures ($10.7 million);
  
  
• maintained a healthy balance sheet with $9.4 million in cash, $66.4 million in working capital and Total Debt to EBITDA leverage of 1.50; and
  
  
• subsequent to the end of the year, Mosaic settled a put option with a non-controlling interest partner of Industrial Scaffold increasing Mosaic's ownership from 67.5% to 90.0% and finalizing the founder's succession plan while leaving a 10.0% interest with the operating management team.

Segmented Financial Performance

	Three months ended Dec 31,					Twelve months ended Dec 31,
(in $000s, except as noted)	2017		2016		%  Change	2017		2016		% Change
Revenue:
Infrastructure	$	58,013	$	33,893	71%	$	205,255	$	137,949	49%
Diversified	26,475		14,072		88%	92,434		50,780		82%
Energy	4,103		2,616		57%	13,979		7,362		90%
Real Estate	59		278		-79%	473		1,093		-57%
Corporate	-		-			-		-
Total revenue	$	88,650	$	50,859	74%	$	312,141	$	197,184	58%
Adjusted EBITDA: (1)
Infrastructure	$	4,043	$	1,971	105%	$	18,296	$	14,017	31%
Diversified	2,137		2,133		-%	14,229		9,571		49%
Energy	120		102		18%	2,164		970		123%
Real Estate	(55)		245		-122%	(299)		617		-148%
Corporate	(1,049)		(1,152)		9%	(6,362)		(4,698)		-35%
Total Adjusted EBITDA	$	5,196	$	3,299	57%	$	28,028	$	20,477	37%
As a % of revenue	5.9%		6.5%			9.0%		10.4%

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

Management is pleased with the year-over-year improvements illustrated in the Company's annual 2017 financial and operating results. The Company's recent acquisition activity, which was largely focused on eastern Canada, has proven to successfully add diversification and scale to its portfolio and cash flow profile. Additionally, the slow recovery in western Canadian economic activity positively impacted our portfolio companies in this market. Finally, our Energy segment posted strong gains in 2017 over last year which were benefited by improving industry conditions and further supported by certain expansion initiatives. These positive influences delivered solid EBITDA growth and, coupled to the enhancements we made to our balance sheet and the resultant reduction in our cost of capital, delivered a material improvement in our payout ratios.

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.  

As we advance into 2018, we expect to see continued year-over-year EBITDA growth in each of our business segments supported by our acquisition activity over the past year, as well as positive contributions from the vast majority of our legacy portfolio companies.

Mark Gardhouse, CEO commented "Mosaic's Q4 results were in line with our expectations, capping a successful and transitional year for the Company. We made significant strides in 2017 to position the Company for success with an overall goal to grow free cash flow per share and drive shareholder value creation. Our most recent eastern Canadian acquisitions have added cash flow growth and diversification while, at the same time, our western Canadian portfolio companies are re-emerging to growth after two difficult years. We look forward to demonstrating the full cash flow capability of our portfolio as we progress through 2018."

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 Q4 2017 results on Thursday, March 29th, 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 and twelve-month periods ended December 31, 2017 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 audited consolidated financial statements for the years ended December 31, 2017 and 2016 and Mosaic's MD&A for the year ended December 31, 2017 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 recovery of economic activity in western Canada;
• improvement in western Canadian portfolio and legacy portfolio profit contribution; 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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