Mosaic Capital Corporation Reports First Quarter 2013 Financial Results, Net Income of $4.6 million and Other Matters
Calgary, Alberta CANADA, May 17, 2013 /FSC/ - Mosaic Capital Corporation (M - TSX Venture, M.PR.A - TSX Venture), ("Mosaic") has released its unaudited condensed interim consolidated financial statements for the three months ended March 31, 2013.
"I am very pleased with our first quarter results showing the continued growth of our subsidiaries," commented John Mackay, Executive Chairman and CEO. Mr. Mackay added, "We worked closely with our partners and operators of our subsidiaries in 2012, focusing on growth initiatives and cost savings. As these initiatives are put to work we believe that we will see long term benefits for Mosaic and our shareholders. Looking ahead we are reviewing many acquisition opportunities that may fit within our investment criteria and with a current cash position as of March 31, 2013 of approximately $34 million, Mosaic is well positioned for future acquisitions."
First Quarter 2013 Financial and Operational Highlights
* 2013 Q1 Revenue increased 29% from Q1 2012 to $21.1 million;
* 2013 Q1 Income from Operations and Adjusted EBITDA1 increased 91% from Q1 2012 to $6.5 million;
* 2013 Q1 Free Cash Flow2 increased 117% from Q1 2012 to $4.9 million;
* 2013 Q1 Net Income and Comprehensive Income increased 92% from Q1 2012 to $4.6 million;
* 2013 Q1 Preferred Security Payout Ratio3 was 38%;
* 2013 Q1 Organic growth for the Industrial Segment gave rise to growth in revenue of 11.9% and growth in income from operations of 12.2%, each as compared with Q1 2012. This organic growth, does not take into account the acquisition of Kendall's Supply; and
* Gain on sale of real estate of $2.2 million which contributed to a large portion of the percentage change in Income from Operations, Adjusted EBITDA and Free Cash Flow.
Selected First Quarter 2013 Highlights
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All amounts are in thousands except 2013 2012 % Change
% and share data
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Revenue $21,102 $16,307 +29%
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Income from Operations & Adjusted EBITDA 1 $6,510 $3,406 +91%
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Cash Flow prior to non-cash working capital $3,665 $3,339 +9.7%
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Free Cash Flow 2 $4,893 $2,250 +117%
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Free Cash Flow per common share (diluted) $0.58 $0.27 +114%
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Adjusted Return on Common Equity(4) 64% - -
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Reconciliations for Non-IFRS Financial Measures
Adjusted EBITDA, Free Cash Flow, Adjusted Return on Common Equity and Preferred Security Payout Ratio are not recognized measures under International Financial Reporting Standards (IFRS) and have no standardized meaning prescribed by IFRS and therefore are unlikely to be comparable to similar measures presented by other issuers. The following table reconciles Adjusted EBITDA and Free Cash Flow to income from continuing operations before tax, which is the most directly comparable measure under IFRS:
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Adjusted EBITDA Three months ended
March 31
2013 2012
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Income from continuing operations before tax $5,439 $2,791
Amortization 640 537
Accretion 38 -
Securities based
compensation 328 54
Non-operating items
(Gain) loss on
sale of equipment 20 (43)
Finance income (50) (6)
Finance expense 95 73
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Adjusted EBITDA $6,510 $3,406
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FREE CASH FLOW Three months ended
March 31
2013 2012
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Adjusted EBITDA $6,510 $3,406
Non-controlling interest
of Adjusted EBITDA (955) (795)
Mosaic's share of
current income tax expense (438) (312)
Mosaic's share of
Sustaining Capital
Expenditures (224) (49)
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FREE CASH FLOW(1) $4,893 $2,250
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Notes:
(1) Free Cash Flow has been calculated to include a deduction for Mosaic's share of current income tax expense (whereas prior to June 30, 2012 it was calculated before any deduction for Mosaic's share of current income tax expense). This change in calculation from that previously reported for the period ended March 31, 2012 is to reflect a calculation which is consistent with that being utilized for calculation of the Preferred Security Payout Ratio for all periods ending September 30, 2012 and going forward.
Adjusted Return on Common Equity: There is no IFRS measure comparable to Adjusted Return on Common Equity. However, this ratio utilizes Free Cash Flow in its calculation and the most directly comparable measure under IFRS to Free Cash Flow is income from continuing operations before tax. Accordingly, dividing (i) income from continuing operations before tax less distributions declared to holders of preferred securities and series "A" shares, in each case during the twelve month period ending March 31, 2013, by (ii) weighted average common shareholders' equity for the same period, yields a ratio of 50% for such twelve month period.
Preferred Security Payout Ratio: There is no IFRS measure comparable to Preferred Security Payout Ratio. However, this ratio utilizes Free Cash Flow in its calculation and the most directly comparable measure under IFRS to Free Cash Flow is income from continuing operations before tax. Accordingly, dividing the total amount declared to holders of Mosaic preferred securities and series A shares during the period by income from continuing operations before tax for the period, for each of the three month period ended March 31, 2013 and 2012, yields payout ratios of 34% and 46%, respectively.
Combined Payout Ratio: There is no IFRS measure comparable to Combined Payout Ratio. However, this ratio utilizes Free Cash Flow in its calculation and the most directly comparable measure under IFRS to Free Cash Flow is income from continuing operations before tax. Accordingly, dividing the total amount declared to holders of Mosaic preferred securities, series A shares and common shares during the period by income from continuing operations before tax for the period, for each of the three month period ended March 31, 2013 and 2012, yields payout ratios of 39% and 51%, respectively.
Results for the three months ended March 31, 2013
On a consolidated basis for the three months ended March 31, 2013 the positive change in the financial performance of Mosaic was primarily attributable to three factors: first, the inclusion of Kendall's Supply Ltd. ("Kendall's Supply") which was not part of Mosaic in the 2012 comparative period; second, organic growth during the quarter in our existing businesses (exclusive of Kendall's Supply) in both revenue (an increase of 11.9% over the period ended March 31, 2012) and income from operations (an increase of 12.2% over the period ended March 31, 2012); and third, a $2,249 gain on sale of real estate within our Real Estate Segment. The $2,249 gain on sale of real estate had a significant positive impact on a number of key performance indicators including, Free Cash Flow and Adjusted EBITDA and metrics derived therefrom. Such gains have been a periodic occurrence within our Real Estate Segment, but not on a predictable basis due to the nature of the real estate business. The actual increase in EBITDA was $3,104 (or 91%) to $6,510 (as at March 31, 2013) from $3,406 (as at March 31, 2012) and this primarily resulted in the increase in Free Cash Flow of $2,643 (or 117%) to $4,893 (as at March 31, 2013) from $2,250 (as at March 31, 2012).
The strong financial condition of Mosaic as at March 31, 2013 is attributable to the solid financial performance during the first quarter of 2013 as well as the strong financial condition of Mosaic entering the year, which was significantly aided by completion of a short form prospectus offering of Mosaic preferred securities in October 2012 which raised gross proceeds of $25,054. To date, the proceeds of this offering have been and are still anticipated to be, utilized consistent with the disclosure of the use thereof as set for the in Mosaic's final short form prospectus dated October 23, 2012 and filed on SEDAR at www.sedar.com under Mosaic's profile.
As of March 31, 2013 Mosaic had a cash position of $34,805 (Dec 31, 2012 - $30,818) and net working capital of $53,219 (December 31, 2012 - 53,052) which gives rise to a current ratio of 3.9 to 1 (December 31, 2012 of 3.2 to 1). The increase in the current ratio was largely due to: (i) Mosaic's positive cash flow from operations in the period of $3,665 which was driven primarily by the strong financial performance of Remote Waste L.P. ("Remote Waste"), Ambassador Mechanical Ltd. ("Ambassador Mechanical") and Kendall's Supply within our Industrial Segment, and (ii) the positive results of the disposition during the quarter of two buildings held for sale resulting in net cash of $8,527 after costs of disposition and repayment of the operating loan of $5,828 necessitated by the disposition.
During the three months ended March 31, 2013, total assets decreased from $122,405 (December 31, 2012) to $116,717 (March 31, 2013). Total liabilities also decreased from $28,232 (December 31, 2012) to $22,434 (March 31, 2013). A primary factor in both these reductions was the previously mentioned sale of two buildings in our Real Estate Segment which collectively had a book value of $12,087 and which gave rise to the required repayment of the operating loan of $5,828. The asset reduction caused by the sale was mitigated somewhat by an increase during the period in Mosaic's net cash position by $3,987, as well as an increase in accounts receivable of $2,477, in both cases as compared to the net cash and accounts receivable position as at December 31, 2012.
For the three months ended March 31, 2013, revenue increased by $4,795 to $21,102 (March 31, 2012 - $16,307) which was primarily related to an increase in activity from Remote Waste and Ambassador Mechanical as well as the addition of Kendall's Supply within our Industrial Segment. The increase in activity not only drove an increase in revenue but also drove an increase in income from operations to $4,261 (March 31, 2012 - $3,406). The increase in operating expenses for the three month period to $16,841 (March 31, 2012 - $12,901) was primarily related to additional costs associated with the increased activity in our Industrial Segment.
Non-IFRS Financial Measures
Below are definitions of key performance indicators used by management of Mosaic that are not recognized under IFRS and have no standardized meaning prescribed by IFRS and therefore are unlikely to be comparable to similar measures presented by other issuers.
1 Adjusted EBITDA: is defined as Income from continuing operations before tax and before (i) gain (loss) on sale of equipment; (ii) non-cash expenses such as amortization; (iii) finance income and expenses; (iv) securities compensation expense; and (v) any unusual non-operating one-time items such as acquisition and reorganization costs. Adjusted EBITDA is used by management to assess Mosaic's normalized cash generated on a consolidated basis and in its operating segments. Adjusted EBITDA is also a performance measure which may be utilized by investors to analyze the cash generated by Mosaic and its operating segments.
2 Free Cash Flow: is defined as Adjusted EBITDA less (i) non-controlling interest of Adjusted EBITDA; (ii) Mosaic's share of current income tax expense; and (iii) Mosaic's share of the Sustaining Capital Expenditures. Free Cash Flow is a performance measure used by management to summarize the funds available for (i) the payment of distributions to holders of preferred securities, series "A" shares and common shares; (ii) investment in capital expenditures made to grow the enterprise; (iii) new acquisitions and working capital.
Sustaining Capital Expenditures: is defined as capital expenditures required to sustain the operations of Mosaic at its current level of operations and is calculated by subtracting those capital expenditures which are, as determined in the discretion of management, made to grow the enterprise and expected to generate additional Adjusted EBITDA from total capital expenditures for the period. An example of Sustaining Capital Expenditures would be the replacement of vehicles that have completed their useful life.
3 Preferred Security Payout Ratio: means that number, expressed as a percentage, which is the total amount paid (including dividends, cash paid and satisfied by the issuance of preferred securities pursuant to Mosaic's distribution reinvestment plan) to holders of preferred securities and series "A" shares during the period divided by Free Cash Flow for the period. For purposes of the calculation of the preferred security payout ratio contained in Mosaic's MD&A for periods up to and including the period ended June 30, 2012, the amount of the distributions paid on preferred securities was calculated without including the value of the preferred securities distributed to participants in the DRIP, whereas in the September 30, 2012 MD&A and going forward the amount of the distributions paid on the preferred securities is calculated inclusive of the value of the preferred securities distributed to participants in the DRIP. Management believes that this measure may be useful to investors in assessing the likelihood that Mosaic is able to continue to make distributions on preferred securities and series "A" shares.
4 Adjusted Return on Common Equity: means that number, expressed as a percentage, that is obtained by dividing (i) Free Cash Flow less distributions declared to holders of preferred securities and series "A" shares during the period indicated by (ii) weighted average Common Shareholders' equity for the period. Management believes Adjusted Return on Common Equity is a key performance measure as it indicates the return generated by Mosaic on its common equity. Management believes that this measure is most useful and relevant when measured over a twelve month period, as opposed to quarterly periods. As a result, management is reporting on this financial metric over the trailing twelve month period ended as of the last day of the most recently completed financial period, being the three months ended March 31, 2013. Management only commenced reporting on this metric for the twelve month period ending December 31, 2012 and, accordingly, there is no comparative measure for the period ending March 31, 2012.
Restricted Securities Units
In 2012 Mosaic previously conditionally issued, as part of its variable compensation incentive program (the "Plan"), restricted securities units ("RSUs") to its executive officers and certain employees. The RSUs conditionally issued were both RSUs to be settled for common shares as well as RSUs to be settled for preferred securities. The terms of the Plan provide that the RSUs conditionally issued to each Plan participant are subject to cancellation in whole or in part based upon (i) Mosaic's subsequent determination of the actual amount of variable compensation earned by a participant for a fiscal year (which is based upon the attainment of personal performance and corporate performance over the fiscal year), and (ii) certain elections and allocations made by the participant, both of which then determine the number of RSUs which shall remain issued and outstanding to the benefit of the participant. All remaining RSUs conditionally issued to the participant in that fiscal year will then be terminated and cancelled. The RSUs are to be settled on a one-for-one basis for the underlying security.
Mosaic today reports that based upon Mosaic's determination of actual variable compensation entitlements earned by participants under the Plan for the fiscal year 2012, and following certain elections made by the participants, the number of RSUs which remain issued and outstanding in respect of the 2012 issuances are (i) 325,475 RSUs to be settled for 325,475 common shares, each at a settlement price of $3.30 per share, and (ii) 19,791 RSUs to be settled for 19,791 preferred securities, each at a settlement price of $8.59 per security. The RSUs will vest yearly in three equal tranches with the first tranche vesting immediately.
An arm's length and independent party to Mosaic has been appointed as trustee in connection with the Plan for the purpose of performing various duties and functions, including utilizing funds provided by Mosaic for the purchase of securities in the market to be held in trust by the trustee for the benefit of Plan participants for subsequent allocations and settlements of RSUs. To date, the trustee has acquired 250,000 common shares of Mosaic for the purpose of RSU settlements.
ABOUT MOSAIC CAPITAL CORPORATION
Mosaic is an investment company based in western Canada that owns a portfolio of established businesses with competitive advantages that have a history of generating cash flow from their operations. Mosaic's objective is to create long term value for our shareholders and business partners and to have that reflected in our share price. We believe that this is achieved by growing free cash flow per share and retained earnings. We do this by acquiring businesses that we understand at attractive prices and we manage our risk through extensive due diligence, creative transaction structuring and working closely with our businesses after acquisition.
FOR FURTHER INFORMATION PLEASE CONTACT:
Tim Taylor
Vice President
Mosaic Capital Corporation
400, 2424 - 4th Street SW
Calgary, AB T2S 2T4
Tel: (403) 270-4658
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.
Forward-Looking Information
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. In particular this news release may contain forward-looking statements regarding anticipated financial and operating performance for Mosaic. 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, projections and other 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 of Mosaic to identify acquisition targets or complete announced acquisitions; third parties honouring their contractual obligations with Mosaic and its subsidiaries; results of management's ongoing efforts to sell, re-lease, lease, develop and improve real estate owned and being acquired indirectly by Mosaic through its subsidiaries; 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; supply disruptions; 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 the forward-looking statements contained in this news release.
Readers are cautioned that the foregoing list of risks is not exhaustive. Additional information on these and other factors that could affect the operations or financial results of Mosaic and its subsidiaries are included in Mosaic's annual information form for the year ended December 31, 2012 which has been filed under Mosaic's profile on SEDAR (www.sedar.com).
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.
To view the press release as a PDF file, please click on the following link:
http://www.usetdas.com/pr/mosaic05172013.pdf
Source: Mosaic Capital Corporation (TSXV: M - TSXV: M.PR.A)
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