Mosaic Capital Corporation Reports Q3 2015 Financial Results

Calgary, Alberta (FSCwire) - Mosaic Capital Corporation ("Mosaic") (TSX–V Symbols: M, M.PR.A and M.WT) has released its unaudited consolidated financial statements for the three months and nine months ended September 30, 2015.

Highlights

($ millions)

Mosaic’s results for Q3 2015 reflect impacts of the energy downturn on western Canada, particularly when compared to Q3 2014 which was a record quarter for Mosaic.  While Mosaic reported year over year increased revenue primarily due to the contribution from 2014 acquisitions SECON and Place-Crete, profitability was impacted by declines in some subsidiaries’ operating margins and $0.8 million of provisions for bad debts during the quarter.  Subsidiaries operating in the energy industry were directly impacted while certain other subsidiaries were impacted by general overcapacity associated with the slowing of the overall western Canadian economy.         

Noteworthy exceptions to the slowdown were SECON in the potash industry, Place-Crete in construction and Industrial Scaffold, which all recorded relatively strong revenue and income from operations in the quarter and year-to-date.     

Subsequent to Q3 2015, Mosaic sold the only two unprofitable companies in the portfolio, Streamline Mechanical and Polar Geomatics which were both in the Energy segment, thereby further reducing Mosaic’s exposure to the upstream energy industry.  Proceeds from these sales increased deployable internal capital resources by $13.8 million to a total of approximately $50 million, enhancing Mosaic’s capability to consummate acquisitions that will increase its cash flows and further diversify its portfolio.  

Financial Performance By Segment

For the Three Months Ended September 30, 2015

 ($ millions)

RECONCILIATION OF NON-IFRS FINANCIAL MEASURES

($ thousands)

Adjusted EBITDA and Free Cash Flow:

The following tables reconcile both Adjusted EBITDA and Free Cash Flow to income from continuing operations before income taxes, which is the most directly comparable measure under International Financial Reporting Standards (IFRS) to each of those non-IFRS financial measures:

Notes:

1. Contingent consideration of $3,500 related to the Streamline acquisition was recognized at fair value as of the date of acquisition (June 1, 2014) and is associated with certain future results being attained by Streamline for each of three consecutive 12-month periods after the date of acquisition. Contingent consideration is classified as a liability and is re-measured to fair value at each reporting date until the contingency is resolved. Changes in fair value are recognized in income.  The fair value of the contingent consideration was determined by using the targets from the purchase agreement and applying probability adjusted key scenarios.  As of September 30, 2015, the Company re-measured the fair value of the contingent consideration based on actual results to date and as a result, $1,167 was recognized in income for the reduction of the liability as no amounts were payable for year one of the three consecutive 12-month periods after the date of acquisition.
2. The Company recorded an impairment loss of $1,346 on Polar’s intangible assets, an entity within the Energy Segment.  The majority of the impairment loss relates to Polar’s intellectual property and customer relationships. Management has concluded that the value of such intangible assets is $nil as of September 30, 2015 based on the long-term prospects for Polar and the fact that it is not currently profitable. Refer to Note 7 in the Q3 2015 condensed interim consolidated financial statements of Mosaic.

Adjusted Return on Common Equity compared to IFRS measure:

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 income taxes. Accordingly, dividing (i) income from continuing operations before income taxes less distributions/dividends declared to holders of Mosaic preferred securities, private yield securities and series "A" shares, in each case during the twelve-month rolling period ending September 30, 2015, by (ii) weighted average common shareholders' equity for the same period, yields a ratio of (36%) (2014 - 44%).

Preferred Distribution Payout Ratio compared to IFRS measure:

There is no IFRS measure comparable to Preferred Distribution 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 income taxes. Accordingly, dividing (i) the total amount of distributions/dividends declared to holders of Mosaic preferred securities, private yield securities and series "A" shares during the period by (ii) income from continuing operations before income taxes for the period, for each of the three-months and nine-months periods ended September 30, 2015, yields payout ratios of 238% (2014 - 36%) and 302% (2014 - 51%) respectively.

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.

i Adjusted EBITDA: is defined as income from continuing operations before income taxes and before (i) gain (loss) on sale of equipment, (ii) non-cash income and expenses, (iii) finance income and expenses, (iv) securities-based 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.

ii Free Cash Flow: is defined as Adjusted EBITDA less (i) non-controlling interests' share 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 and private yield securities, and dividends to holders of series "A" shares and common shares, (ii) investment in capital expenditures made to grow the enterprise and (iii) new acquisitions and working capital. Free Cash Flow is also a performance measure which may be utilized by investors to analyze the free cash available for preferred security distributions, private yield security distributions, common share dividends, series "A" share dividends, acquisitions and additional investment into existing businesses.

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.

iii 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 private yield securities, and dividends declared to holders of 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 September 30, 2015 (September 30, 2014 for the comparative period).

iv Preferred Distribution Payout Ratio: means that number, expressed as a percentage, which is the total  amount declared (which includes cash paid as well as preferred securities distributed pursuant to the Mosaic distribution reinvestment plan ("DRIP")) to holders of preferred securities, private yield securities and series "A" shares during the period divided by Free Cash Flow for the period. Management believes that this measure may be useful to investors in assessing the likelihood that Mosaic will be able to continue to pay distributions on its preferred securities and private yield securities, and pay dividends on its series "A" shares.

Investors are cautioned that the above non-IFRS measures should not be viewed as an alternative   to measures that are recognized under IFRS such as net income or cash from operating activities. Mosaic's method of calculating the above non-IFRS measures may differ from that of other entities and therefore may not be comparable to measures utilized by them.

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. Mosaic believes that this is achieved by growing free cash flow per share and retained earnings. Mosaic does this by acquiring businesses that it understands at attractive prices, managing risk through extensive due diligence, creative transaction structuring and working closely with subsidiary businesses after acquisition.

FOR FURTHER INFORMATION PLEASE CONTACT:

Allan Fowler
Chief Financial Officer
Mosaic Capital Corporation
400, 2424 – 4^th 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, forecasts, projections and other things contemplated by the forward-looking statements will not occur. Some of the assumptions made by Mosaic upon which forward-looking statements are typically based include:  the business operations of the operating businesses of Mosaic continuing on a basis consistent with prior years; the ability of Mosaic and its subsidiaries to access financing from time to time on favorable terms; the ability of Mosaic to realize anticipated benefits of acquisitions; the continuation of executive and operating management or the non-disruptive replacement of them on competitive terms; the ability of Mosaic to maintain reasonably stable operating and general administrative expenses; the current economic environment in western Canada (including commodity prices, such as oil prices) stabilizing and showing signs of strengthening over the coming year; and the economic environment in Canada not deteriorating due to the influence of international economic developments in the United States, Europe, Asia and elsewhere.

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 any 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, 2014 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 this press release as a PDF file, click onto the following link:
public://news_release_pdf/mosaic11252015.pdf

Source: Mosaic Capital Corporation (TSX Venture:M) http://www.mosaiccapitalcorp.com/

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