Dexterra Group Inc

TSX:DXT

Earnings Call Transcript 2020-Q2

[Operator]

Ladies and gentlemen, thank you for standing by and welcome to the Horizon North Logistics Inc. Second Quarter Results Conference call. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] I would now like to hand the conference over to your speaker today, Drew Knight, Chief Financial Officer. Thank you. Please go ahead.

[R. Drew Knight, Chief Financial Officer]

Thank you, and good morning. My name is Drew Knight, and I am the Chief Financial Officer of Horizon North. With me today on the call are John MacCuish, Co-CEO and President, Facilities Management; along with Rod Graham, Co-CEO and President of Modular Solutions. Also joining us today is our Board Chair, Bill McFarland, to provide some brief introductory comments. The format of this conference call will be the same as in the past. After a brief presentation, we will take questions. The call will end no later than 10:40. The slide presentation was posted on our website last night, and we encourage participants to assess -- to access the slides to follow the presentation. We will refer to the page numbers shown on the bottom corner of each slide. Before we begin, I would like to make some comments about forward-looking information. In yesterday's news release and on Slide 2 of the presentation that we have posted to our website, you'll find cautionary notes in that regard. While I won't repeat the content of the cautionary notes, we do claim their protection for any forward-looking information that we might disclose in this conference call today. First, I'd like to introduce our Board Chair, Bill McFarland, who will speak to Slide 4 of the presentation. Over to you, Bill.

[R. William McFarland, Independent Chair of the Board]

Thank you, Drew. As you know from our AGM held 1 month ago, we are nearing the conclusion of a 90-day integration plan to bring together the legacy Horizon North and Dextera operations and create a pan-Canadian support services champion. Despite a challenging business environment in Q2, we continue to believe the upside and growth potential for our combined business is significant, and we are making great progress on the integration and our medium-term objective remains $1 billion in revenues and $100 million in EBITDA. Our approach is focused on a laser focus on driving profitable revenue growth by being customer-centric spending your money wisely, executing on our plans with reliability and excellence by delivering quality products and services in a safe environment, thereby, delivering strong shareholder returns and excellent career opportunities for our people. After reviewing our progress to date and the outlook for 2020 and beyond, I am pleased to announce the Board yesterday approved a $0.075 dividend payable on October 15 to shareholders of record on September 30. This is consistent with Fairfax and your Board's commitment to delivering strong shareholder returns in the form of dividends and capital appreciation. We believe we have a strong foundation to support a quarterly dividend reinstatement, and the team will speak to this. With good operating results, significant synergies realized from the merger, a significant reduction in debt with a sight line of further reductions, so it is the right time to reinstate quarterly dividends. We also expect our quarterly dividends to grow over time as we deliver on our commitment of sustainable, profitable growth. With that, I'll pass it back to Drew to discuss the financial highlights of the quarter.

[R. Drew Knight, Chief Financial Officer]

Thank you, Bill. As mentioned earlier, we will be commenting on our Q2 2020 results with the assumption that you have read the Q2 earnings release, the MD&A and financial statements that were made public last night, all of which are available on our website and on SEDAR. I will start by speaking to Slide 6 of the presentation and make some critical notes regarding our overall combination of the businesses and the impacts to our accounting and financial reporting. As you know, on May 29, 2020, the merger between Horizon North and Dextera closed. Horizon North acquired all of the outstanding common shares of Dextera and issued an amount of shares to Dextera's sole shareholder such that Fairfax Financial acquired 49% interest in the new combined corporation. The accounting guidelines under IFRS 3 business combinations determined the acquirer based on de facto control rather than legal control. Based on that, the determination is that Dextera was the accounting acquirer as Fairfax Financial now controls Horizon North. This is due to the remaining 51% of shares being widely held by the public, among other factors, but primarily the fact that Fairfax has voting control of the Board. The Alberta Securities Commission reviewed the accounting treatment as a reverse takeover. As a result, the 2019 comparative information included in the corporation's financial results for Q2 is solely Dextera. Horizon North financial results are included subsequent to the close of the transaction closing date, so from May 29, 2020, onwards. This means the income statement for Q2 includes 3 months of Dextera and 1 month of Horizon North. The income statement for the full year 2020 will include 12 months of Dextera and 7 months of Horizon North. Also, the balance sheet of HNL was revalued such that ongoing annual depreciation expense has decreased significantly from $46 million in 2019 to $27 million in 2021. The lower asset base for legacy Horizon North reflects the HNL share price and timing of the closing during the pandemic. Small caps were substantially hurt and legacy HNL was tied to oil and gas economics, which the business has diversified away from, with roughly 25% of its business in that sector going forward. A bargain purchase gain of $34.1 million was recorded based on the fair value of the consideration received by Fairfax Financial, which was equal to the share price at the close date in the amount of $100.9 million as a comparison to the net asset value acquired of $135 million. Reviewing some of our results on Slide 7. On a consolidated basis, our revenues for the second quarter were $76.1 million, which represents an increase of $9.6 million or 14% from Q2 2019. This increase was driven by the addition of $26.3 million of revenue from the acquisition of Horizon North and partially offset by COVID-19-related revenue loss impact of $16.7 million. Because this quarter is nontraditional, to be efficient, I will reduce my commentary on Slide 7 as the information is disclosed in the MD&A. Looking now at EBITDA on Slide 8. On a consolidated basis, EBITDA was $22.9 million for Q2 2020, representing an increase of $16.7 million from the second quarter last year. This was driven by positive impact from the Canadian emergency wage subsidy, CEWS, which was $18 million in Q2 compared to our estimate of $10 million discussed during the AGM. We assessed our business units, excluding CEWS as preparation for a post-subsidy world. We don't want to get addicted to that drug. As ex-subsidy, the EBITDA for Q2 is $4.5 million. And the results were uncharacteristic for our business units for the quarter as a whole. However, April and May results were negative and June stand-alone EBITDA was $5.1 million, excluding the subsidy. This wage subsidy enabled us to maintain staffing levels over customer service levels and prepare for growth post-pandemic. The positive impact of CEWS on EBITDA was partially offset by increased operating costs due to the COVID-19 environment. Our FM business experienced the greatest impact of the pandemic as revenues declined 30% versus Q1, and we made a conscious decision to invest in supporting our clients, so staff reductions did not align with the revenue decline. As a result, the FM EBITDA was negative in Q2 when excluding the subsidy. FM started to rebounded in June as EBITDA was positive 6% or $0.6 million. At this point, I will reduce my commentary on Slide 8 historical results to focus on the path forward. As an assessment of our leverage and liquidity on Slide 9, we're able to increase the capacity available under our credit facility based on the amendment and extension announced June 30. With a syndicate of lenders led by Scotiabank, the credit facility now has increased available limit of $175 million, which provides increased capacity for future operations and growth in addition to improved financial flexibility. Net debt has been reduced from $138 million to $124 million since the merger, and we expect it to sit at roughly $100 million at year-end. The company's operations will continue to generate healthy free cash flow and cash receipts of $18 million subsequent to the end of Q2, with further reduce debt. These receipts include awarded damages payable by 2 former customers through legal proceedings in the amount of $7.6 million plus interest and legal costs. Our July 4 CEWS claim of $10.5 million was also received in July. We expect this strengthening of the balance sheet will continue unabated in future quarters. At June 30, we have a significant cushion over our bank facility covenants. Debt-to-EBITDA is 2.23x compared to a covenant of 3.5x, and we are targeting less than 2.2x, 6 months from now, actually targeting significantly less than 2x 6 months from now. Based on this rapidly improving balance sheet, the dividend payment of $4.8 million in October is very sustainable, affordable and poised for increase once the pandemic has stabilized. On Slide 10, we provide some directional info in our path forward. We know that the wage subsidies are being reduced, and we estimate that HNL will be eligible for approximately $2 million per month for July and August. Cost reduction reviews are continuing, though we have executed on over $18 million of annualized cost synergies, we have visibility to further material cost reductions to be executed in the coming months. Corporate office overall gross annual costs have decreased from $35 million in 2019 to $27 million annualized and the unallocated corporate cost for June was $1.5 million. Depreciation has reduced significantly from $46 million in 2019 to roughly $27 million in 2021, and annual CapEx spending has been reduced and focused on strategic initiatives. Though EBITDA for Q2 was reported as 30% of revenue compared to 9% in 2019, it appears to be only 5.8%, if subsidies are removed. The subsidy enables us to carry some extra overhead to grow postpandemic, and this overhead would be rationalized if the June business volumes were the permanent state. Q2 was a messy quarter, and results have rebounded from the trough in April and May, such at post-acquisition June should be the focal point as the recurring month on which we plan to improve. Excluding subsidies, June EBITDA was $5.1 million or 11% of revenue. This result is somewhat low since June includes premium costs of operating in the pandemic and reduced overhead absorption due to the lower scale of the business. We expect the monthly revenue to exceed $50 million going forward. And as such, the June results should be recurring and improving, notwithstanding some seasonality swings. Also, I know there are questions around our FM business. In July, the FM business had revenues increased by 20% over the Q2 result, and we expect the back half of the year to trend towards past results with 7% to 9% EBITDA margins. Our tax rate for Q2 was only 9% due to the bargain purchase gain being nontaxable. But going forward, we expect normal tax rates since the majority of the tax loss carryforwards are already recorded as deferred tax assets. The leverage position will continue to improve based on generated free cash flows of approximately $20 million in the second half, plus the onetime cash receipts of $18 million noted earlier. With that, I will now turn it over to John for a look at our Facilities Management and WAFES segments, starting on Slide 12.

[John Mac Cuish]

Thank you, Drew, and good morning. I'll start with comments on our Facility Management business, then address Workforce Accommodation, Forestry and Energy Services businesses. We saw some impact from the COVID-19 pandemic in certain market segments over the last quarter has decreased utilization of nonessential facilities, resulted in temporary decrease in our service levels, which is reflected in a reduction in revenues when compared to Q2 2019. The aviation and retail sector clients we serve have seen a great deal of impact to their business. Our fixed cost at unit level are spread over a lower sales volume, which has put downward pressure on margins, as Drew has spoken to. You will see margin improvement in June results and we expect further improvements as we move through the year. We're very encouraged by the service levels retained by defense and other government clients. It's important to note that this is a client-driven business, and we have not lost any clients or contracts during this period. Our position has always been to be a trusted partner to our clients. And we were careful not to abandon them in their time of need. Appropriate reductions have been made to variable costs to align with the lower volume but care has been taken to retain critical capability to both support clients as they reopen their facilities and continue to pursue targeted growth opportunities. The wage subsidy received in Q2 is allowed for the retention of that critical people capability, the reduction in margin compared to the same quarter last year when the wage subsidy is excluded, in part reflects this retention of capacity and resources. As businesses reopen in Q3, we are ready to meet heightened client requirements. We are well-positioned to service our clients' changing needs and facility improvements to meet new public health enhancements in their facilities. Despite delays in RFPs issued, our team continues to make significant effort in the pursuit of new business. Over the course of Q2, we were able to secure $20 million in long-term contracts in government and post-secondary education market. We have our eyes on additional significant opportunities in the government and institutional markets as we move forward, targeting a pipeline of bids over the next 3 years with potential annual revenue of approximately $700 million. Overall, the prospects for Facility Management business remains attractive. The size of the FM market in Canada is circa $30 billion a year. Over the coming quarters, we will continue to target more integrated service solutions, creating a strong value proposition for clients with significant and complex facility requirements. At the same time, we'll be looking to leverage client relationships from our Modular Solutions and Workforce Accommodation businesses to sell a broader support service offering that runs the full life cycle of a project from service-led design, to manufacturing, to maintenance and operation as the buildings mature. In our Workforce Accommodation, Forestry, Energy Services business, what we call WAFES, we have seen the resource markets we serve impacted by COVID-19 pandemic through isolated outbreaks, government-mandated shutdowns, of course, and the reduced demand for underlying commodities also impacted that business. That being said, the longer-term impact to our revenues has been limited. And we are encouraged by new contracts coming in and a good mix of short-, medium- and long-term work to drive us forward. At our low point in Q2, we had 2,900 beds in service, and today, we've grown back to 4,500 beds in service. So things are moving in the right direction. In the second quarter, we were able to secure $20 million in new workforce accommodation contracts in the LNG and mining markets as well as remote infrastructure development. These 3 markets, West Coast LNG LPG, mining in Eastern to Northern and support for remote infrastructure development across the country are critical areas of opportunities for the coming quarters. We're ramping up a series of new camps supporting power line development in Northwestern Ontario. Substantial amount of activity is anticipated in this area over the medium term. We are the #1 provider for coastal gas link as an example. Weak drilling activity has meant that our matting business continues to experience utilizations well below historic averages. We move quickly to reduce cost in that business, including temporary closure of our manufacturing facility, reduction in staffing associated with the matting business. Additionally, we have reduced our transportation fleet by 60% to better match the needs of the business going forward. In quarter 2 of 2019 include significant activity supporting wildfire response, and we haven't seen that level of activity this year. Perhaps good for the country that we don't have wildfires, but an impact on our year-over-year revenues. We expect strong performance from our Forestry business. As we wrap up the tree planting season, we have exceeded our expectations by planting 40 million trees. The Space Rental business continues to perform well, with fleet utilization of about 85%. As mentioned during the management presentation at our July AGM, we continue to assess the workforce accommodation equipment fleet, and divest surplus equipment into diverse geographies and end markets when and where it makes sense to do so. Overall, our WAFES business has a strong national presence, underpinned by quality indigenous relationships and its activity in all the major resource development regions of the country. We are well-positioned to be the industry leader in workforce accommodation solutions and a national champion in remote support services. With that, I will now turn it over to Rod for a look at the Modular Solutions business.

[Roderick W. Graham, Non Independent Director]

Thank you, John. On Slide 15, as I mentioned at our AGM last month, the COVID-19 pandemic has highlighted the need for safe, quality and affordable housing for vulnerable populations. I'm encouraged by the significant media coverage regarding the benefits of modular to meet Canada's housing needs, and the growing interest from governments and organizations across the country to replicate the success of our customer PC housing, which has had in delivering quality, affordable housing using modular construction techniques, as well as there have been a series of recent announcements profiling the demand in requisite funds appropriated for a series of modular built long-term care facilities in the province of Ontario. We believe this type of project fits our capabilities and our unique build capacity. Over the past quarter, government lockdowns and other restrictions have slowed the pace of construction and COVID-19-related on certain delayed the award of several anticipated projects. However, there is little doubt that governments out of necessity will need to own a larger portion of GDP in order to restimulate the overall Canadian economy. Constructive stimulus through the infrastructure development will play a significant role as the Canadian economy reboots. Over the medium and long-term, we expect to see each of social supportive housing, seniors care, remote infrastructure for indigenous communities and education facilities be a critical part of this type of development. These are all areas where our Modular Solutions business excels. In the short-term, we have taken immediate steps to lower our fixed cost structure and streamline overheads, including shutting down our underperforming Aldergrove, British Columbia manufacturing plant and tapping down our Calgary manufacturing facility. Coupled with a narrowing of our end-market focus to housing infrastructure and other key market segments like education, these improvements will drive improved financial performance over the coming quarters. The modular backlog at the end of July was approximately $90 million heavily skewed towards social, affordable housing of which the majority of which will take place over the balance of 2020. The market demand and inbound interest for housing infrastructure in Ontario is significant. At this time, it looks to be in orders of magnitude higher than our experience in British Columbia, where we've already had a great deal of success with the 37 buildings and 1,800 units that we have built to date. Affordable housing is a continual topic of discussion in the city Of Toronto and other areas of the province of Ontario, London, Ottawa, Berry, Durham region are just some of the many examples. At the end of Q2, we are targeting more than $260 million of high probability line of sight projects. Let's turn to Slide 16. On Slide 16, I'd like to discuss some of some recent successes and how we're building a foundation for financial success and shareholder returns for your company as a whole. Annual savings, while never easy, we've reduced our workforce by just over 170 positions where roles and duties were duplicated. These reductions will generate $18 million a year in annual savings. Credit facility. Our new credit facility provides us with the flexibility we need to navigate the current COVID environment and invest in high-quality growth opportunities. We continue to reduce our leverage and harvest cash from operations as Drew suggested earlier on, our net debt at June 30 was $124 million. We continue to target a year-end debt level comfortably below $100 million. Share consolidation. A 5:1 share consolidation was executed in July, we believe increasing the pool of potential investors for your company. Dividend reinstatement. As our Chair mentioned at the start of the presentation, we are pleased to be able to reinstate a quarterly dividend in 2020, a key component of our focus on total shareholder returns. Business improvements. As we continue our integration, we are making several business improvements that will ensure we are meeting our commitments to clients, shareholders and our employees. As we bring teams together, we are reengineering our head office functions and administrative processes for continued efficiency and cost effectiveness. Tax planning. With over $73 million in loss carryforwards, there are significant cash benefits to be reaped for future tax planning. Advantage of government programs. We are being proactive in our assessment of future wage subsidies and believe there's an opportunity for roughly $2 million a month through the third quarter. Continued asset portfolio refinement. In addition to our ongoing integration program, we are undertaking strategic views of our equipment fleets, our property and business lines to identify value creation opportunities. And finally, committed foundational support. Our success will be driven by an experienced Board and a senior management team with strong, diverse backgrounds that can support our long-term strategy. It would also be driven by long-term high-quality supportive shareholders like Fairfax Financial and Polar Asset Management, both with a track record of creating substantial value from the public markets. So in conclusion, we look forward to sharing more information with you as the combined company carries on and look forward to delivering on our commitment of profitable revenue growth. Wise in strategic spending and high-quality customer-centric products and service. We are confident that this approach will produce strong shareholder returns and quality opportunities for our best-in-class people across Canada. In final note, we believe that our dividend announcement today underscores that our combined entity has unique, strong, broad-end market-based growth opportunities as our economy reemerges from COVID. On a final note, we will be undertaking a name change to reflect the new era of our company. This will take place in concert with our Q3 release. So please stay tuned for more information. So at this point in time, I would like to turn it back to the operator. Lindsay, I'd like to now open the line for questions.

[Operator]

[Operator Instructions] Our first question comes from the line of Greg Colman with National Bank Financial.

[Greg R. Colman]

Congrats on a solid inaugural quarter as the new combo team. I wanted to start, Rod, not with your section, but actually with facilities management, which I'm far less familiar with. Just trying to understand a little bit more on what's going on there. I know, Drew, you mentioned a few comments about how there's some confusion or questions there. We think about you guys in terms of your peer GDI who conveniently reports the week before. And we saw much weaker results from your Facilities Management versus theirs. Can you help us understand the difference between the 2 companies a little bit. They were down about 10% year-over-year, and you were down a little bit more than double that. Is this because of the end market mix? Is this something that's expected to continue? Or is this something that will -- in light of your forward-looking statements, should be rightsizing for the balance of the year?

[John Mac Cuish]

So I'll take that. It's John MacCuish. I think the difference really is we have a significant amount of business in airports. We're in most of the major airports across the country. And the impact of the -- the impact of COVID on our airport clients has been significant. So we're $20 million down in revenue. And the bulk of that is hit in quarter 2. In talking with clients in the aviation sector, while no one can totally predict when air travel continues. But they're seeing signs that with a successful vaccine and there's pent-up demand for travel that the sector may begin to come back. Now we've taken some efforts to reduce the cost. This is $60 million worth of business in our portfolio that's dropped down to $40 million due to the situation. And we believe that we're prepared to come back when the client comes back. We haven't taken the capability out because we want to be there for the clients.

[Greg R. Colman]

John, those are great insights. I really appreciate it, including some numbers that we can do some fun math around. Can you help us understand a little bit what your expectations are when volumes do return in your discussions with airports? Is this the sort of thing where on a same volume basis, when the volumes come back, you would expect it actually to be more intensive for your business because of higher demands for your type of service? Or is it just going to be sort of a similar thing to what we saw prior to the downturn?

[John Mac Cuish]

Yes. I think their clients are telling us that will take quite some time to get back to the previous levels of air travel. So I'm only going -- taking the leads from our clients. I suspect that it will take some time to get back to those levels. Now there are different requirements in integrated facility management now. And there's more need for public health-related features in these airports, new sanitizing and cleaning requirements, more focus around reducing any high-touch areas in buildings. So those kinds of things. So we're -- I'd say I'm optimistic that as the travel comes back, our involvement in -- with these clients will increase.

[Greg R. Colman]

Got it. And then my next question, it might be one for Bill, although I'll just put it to the overall group. Can you talk to us a little bit more about the dividend decision? You guys are a small-cap company with very ambitious growth targets, but you're putting in place a dividend that's, by my math, about 4x larger than your annual CapEx budget. So just wondering why capital discipline is one thing and just the dividend isn't a bad idea. That's a pretty sizable dividend for the size of the company with your growth expectations. I'm just wondering if you can give us a little bit more logic about why $0.03 a year, why $20 million a year? Why now?

[R. Drew Knight, Chief Financial Officer]

Well, I think the why now was, certainly, we believe it's the right time because we obviously have visibility on forecast for the rest of 2020 and beyond. And we're bullish on our operations and what we believe we can deliver even in a post-wage subsidy world. And we have a lot of good things happening. I think you've heard about the growth in modular from Rod, you've heard about the stability that we have in our workforce accommodation group and the fact that we believe and Drew talked to that, how the facilities management is going to rebound kind of over time. So that would be kind of point number one. Point number 2 is we got a capital-light strategy here, which we focus the market on and so we don't see significant CapEx required from a business perspective. And we've looked at the dividend really in relation to our EBITDA, and we think we've taken a pretty conservative payout ratio based on where we look at our forecast go forward. So I think yes, it looks like on, I don't know, yesterday's share price, I'll say with a smile on my face as a very high percentage, but we think we're significantly undervalued compared to where our EBITDA and where we're going to be on over the longer-term. So we really took the approach of start slow and come out of the pandemic world and then build this over time. And that's really our philosophy. And we think based on what we've been able to do in reducing debt levels and the future site line on that, it's all about finding the right balance of returns and debt levels, et cetera as we work forward. So we're quite confident this is a quarterly dividend that we can grow over time.

[Greg R. Colman]

No. That's great. And I like your comments about how it looks outsized versus the share price today because that could be promising for the future. But I think where I'm driving at is did the Board look at this and determine that the best use of that $20 million of capital was not debt reduction, it was not reinvesting for growth, but rather to give it back to shareholders?

[R. William McFarland, Independent Chair of the Board]

Yes. We have shareholders that supported us over a period of time, and we believe they deserved a return on their investment. And we've got a new debt facility. Debt is going down. The cost of debt is not that high. So we thought it was the right balance.

[Greg R. Colman]

Got it. And then my last one, and then I'll pass it back. I don't want to hog the time. Can you just please give us some color on the $7.6 million in litigation proceeds. First, I've heard of it, but I think that's probably from the Dextera side. Is this normal course for this style of business to have sort of litigation with customers in litigation proceeds? Or is this more of a one-off and we shouldn't be expecting that kind of stuff? And then any other color you can give us around that, just to try to understand the risks and opportunities surrounding it.

[Roderick W. Graham, Non Independent Director]

Sure, Greg, actually, I'll take that one. That was actually an historical Horizon North legacy settlement, and that had been going back a number of years. And so I don't want to get into the details for a variety of reasons, but it was largely 1 settlement. And so feel confident that from a -- certainly from a contractual and customer situation that it's in the past. We're certainly pleased to have come to terms. And moving forward here obviously we have a very disciplined approach in terms of kind of contract and customer relationships.

[Greg R. Colman]

Yes. Well, that's embarrassing. I should have known about it then. I'll pass it back.

[Operator]

[Operator Instructions] Our next question comes from the line of Aaron MacNeil with TD Securities.

[Aaron MacNeil, Equity Research Analyst]

John, you kind of hinted out in the outlook, in your prepared remarks and your answer to Greg. But I guess in the near term, maybe if you strip out the airport component of the facilities management piece. You talk about economies reopening and the requirement for more cleaning and disinfecting services. But for those of us kind of new to this piece of the business, can you maybe help us put some goalpost together for what the near-term revenue profile might look like?

[John Mac Cuish]

Sure, sure. Well, first of all, let me just go back and say that our business is not predominantly a cleaning business. We're an integrated Facility Management business. So I just want to be clear about that. So in our portfolio, we do have cleaning as part of our service offering. I think you'll find that in -- as buildings reopen, there's opportunities with new standards for public health, in public buildings and in private buildings that create opportunities for the resources that we have. So yes, it is about high-touch areas and sanitizing, but it's also about retrofitting your buildings with more automatic doors, more non-touch features, putting more technology in a building. So for an integrated Facility Management company, coming out of this pandemic, I think there's more value placed on facility management, how your building operates right down to the level of filter changes in your HVAC and your air quality, all the way down to your sanitation and disinfecting regimes. So I think we're optimistic that there's opportunity for us here.

[Roderick W. Graham, Non Independent Director]

And the only thing I'll add to that, that might be helpful is I think we see our revenue in the back half for the year more approximating where we were at for 2019. I mean, just to give you maybe some high-level gold goal folks around that. So we were at about $10 million a month in Q2. As Drew stated, back to $12 million in July, and we're kind of thinking that as we go forward and as there's this ramp-up, which won't happen overnight, we'll be more into the $12 million, $13-plus million range on a go-forward basis. We also have a lot of deals in the pipeline. And some of which are in -- we've already submitted. And so we think big opportunity there over the next while, probably not with a big impact in 2020, but a much more significant impact for revenue growth in 2021.

[Aaron MacNeil, Equity Research Analyst]

Perfect. That's exactly what I was looking for. Rod, this one's probably for you. You've narrowed the scope of the Modular segment this quarter. And I've got a couple of questions on that. First, is there something structural about hotels or is it more a function of the lack of new hotel demand due to COVID, for why you're kind of exiting that end market? Second, I'm hoping you can remind me if the Aldergrove facility is leased or owned, and what you plan on doing with it? And then finally, when you take hotel projects out of the potential opportunity set, how much do you think that decreases your addressable market size?

[Roderick W. Graham, Non Independent Director]

Sure. I'll address your second question first. Aldergrove, our British Columbia facility was a leased facility. We no longer have any obligations there, and it was running roughly $100,000 a month. So we have exited that facility. So we will not be looking to return there. Your question on kind of addressable market for hotels. I'd actually like to kind of frame it slightly different. We see the demand profile for social affordable housing, for senior care, for education, and indigenous market as one that has tremendous demand profile. And we are quite obviously confident and capable on that side. It's a law of cumulative advantage. So a number of projects that we have entertained and undertaken and have been quite consistent in terms of kind of our ability to deliver on time with a cost certainty. We are -- I characterize as quite good at those. And so if we take a look at a wave of demand coming from those markets. And so that's why we've chosen to spend our time and focus and attention on that. You've rightly identified from a COVID perspective that whole hotel market has slowed dramatically. We have experienced some challenges when the more bespoke it gets, the more challenging it is from a site and construction site. While the manufacturing has been very disciplined. Unfortunately, you get into a series of kind of site challenges. And so I characterize it as a pause, Aaron, and a focus on where we see significant demand profile. Coming for certainly social, affordable housing and more recently in the province of Ontario long-term care facilities.

[Aaron MacNeil, Equity Research Analyst]

Perfect. And finally, Drew, congrats on the new gig. I'm wondering if you can just give a bit of clarification on the wage subsidy. I guess with the $10 million in July, against the $2 million per month in July and August, but not totally sure like what's actually going to hit the financials in Q3. So maybe you could just give a bit of an update there.

[R. Drew Knight, Chief Financial Officer]

Sure, sure, sure. Yes, let me clarify that. So the periods claim through the CRA are in 4-week tranches and the most recent claim the 4-week period ended July 4, and that claim was for roughly $10 million, and that money has been received, but it was also accrued -- the vast majority was accrued into June. So going forward, the next claim is August 1, the 4-week period ends August 1, and we've assembled our claim, and I have to review it this afternoon. And it's a little over $2 million. So -- and that's based on the new program that the government announced where there's a proportionate, you don't have to prove that your revenues are down 30% anymore because that was the hurdle rate in the past. Now there's a proportionate subsidy available for -- regardless of how your revenue or relative to how your revenue has declined.

[John Mac Cuish]

I think the key thing there that might be helpful is it's based on revenue decline, it's not linear as you go down from [ 30% ] down to 0 or what the lower wage subsidy probably tells you is that we see our revenue rebounding in Q3. That's the linkage.

[Aaron MacNeil, Equity Research Analyst]

Yes. Perfect. And do you see $2 million per month as a good run rate for the balance of the year?

[R. Drew Knight, Chief Financial Officer]

Well, it does, Aaron, I guess the tables I've been provided. In July and August, the rates, I think before it was -- the cap was $847 per person per week. And once you dip below 30% revenue decline, that flat fell to like $320 or something like that. I don't have it in front of me. It falls off a cliff. Once your revenue is not down as much, and it continues to fall off a cliff. And also, the government just in total, has reduced the amount of funding as we go out through the year. So in my mind, the $2 million is safe for this month and August. It's going to decline over time, and there's probably another couple of million bucks for the balance of the year. But it's diminishing for sure.

[Operator]

Our next question comes from the line of Jeff Fetterly with Peters & Co.

[Jeffrey Eric Fetterly, Principal and Oilfield Services Analyst]

Just a couple of follow-up questions. First off, on the maintenance capital side. What do you expect your go-forward cadence will be?

[R. Drew Knight, Chief Financial Officer]

Well, I think we've looked at the back half of the year and $4 million was the number that we've talked about for the back half of the year. But those are not -- that's not [indiscernible] spending. We've got a strategic process to review all the CapEx spending. So that may not happen in its entirety. And I think go forward, we've disclosed that $5 million a year is kind of our run rate per year going forward.

[Jeffrey Eric Fetterly, Principal and Oilfield Services Analyst]

And on that $4 million number for the second half, there's a downward bias? Am I interpreting that correctly?

[R. Drew Knight, Chief Financial Officer]

Well, I guess, I came from a CapEx-intensive world, and I know from experience that if the project hasn't been submitted, which these have not, spending likely not going to happen in a year.

[Jeffrey Eric Fetterly, Principal and Oilfield Services Analyst]

And so for 2021, when we look at the entity as a whole, do you expect that maintenance capital next year will be about $5 million?

[R. Drew Knight, Chief Financial Officer]

Yes. That's correct.

[Jeffrey Eric Fetterly, Principal and Oilfield Services Analyst]

Okay. I know you had the commentary in the release and the MD&A around the hotel project in Kitimat. What are your expectations for asset sales in coming months or for the rest of this year and into next year?

[Roderick W. Graham, Non Independent Director]

Really, it will be kind of end market dependent, Jeff. And so we'll continue to kind of be opportunistic where we can kind of exit that the district Kitimat will talk just quickly about that. It's an extreme privilege to operate in the district. I think got a tremendous relationship with folks there. The deferral of the hotel project really tied to COVID, not to economics. As we've talked about in the past, we are partially kind of complete on that hotel project, but we are on pause from a delivery perspective based upon those assets might find kind of an alternative end use, just based upon some of the inbound demand that we've had for the actual units that we've built to date, Jeff.

[Jeffrey Eric Fetterly, Principal and Oilfield Services Analyst]

And what about the broader asset sales? John, in your comments, you mentioned the divestiture obviously of surplus workforce accommodation equipment. What have you seen on that side so far? What do you expect both there and potentially other areas?

[John Mac Cuish]

So I would say that we're taking a look at this over an 18- to 24 month period. It would be silly for us to sell assets in and create another competitor in the markets where we serve. So we're being very cautious and very selective about that. And I anticipate, as we move through over the next 18 months, we're keeping our eye open for the right opportunity to move things along, but not in competing environments.

[Roderick W. Graham, Non Independent Director]

Again, Jeff, I'd just actually like to kind of talk into -- kind of one of the comments that you had -- or questions you had asked about CapEx. You talked in terms of sustaining capital. The one item that I would kind of leave outside that is as we move forward in the demand profile for Modular continues to expand and grow in the province of Ontario. Certainly, the Board is interested in terms of us being open-minded about what a potential kind of expansion or second site might look like to fulfill the demand profile that we see for Modular over the course of the next 12 to 18 months.

[Jeffrey Eric Fetterly, Principal and Oilfield Services Analyst]

The last question just around EBITDA and leverage. So I guess, first off, Drew, you mentioned, excluding wage subsidies, about $4 million to $4.5 million of EBITDA for Q2. If you brought in the 2 months of HNL prior to the acquisition, what was the EBITDA number for the quarter?

[R. Drew Knight, Chief Financial Officer]

Yes. HNL in April and May, we're loss position. So it's a little less than that. I don't have the numbers in front of me to be honest with you, Jeff.

[Jeffrey Eric Fetterly, Principal and Oilfield Services Analyst]

Okay. And so on a go-forward basis...

[R. William McFarland, Independent Chair of the Board]

Yes, the other thing that happened, let me -- maybe I'll expand a little bit on for people. The loss for April and May for HNL, and there's a pro forma number that's in the financial statements. It's in Note 4, it's not an EBITDA number but included an impairment that was taken in -- yes, it was pulled out like for the 5 months. Now I'm talking for the 5 months, but pull out the impairment. The other major thing is that we did some kind of, I'll call it, pre- and post-acquisition planning, if that's the way to put it. So there was a bunch of severance and other restructuring that happened before May 29, which had an impact on -- and would have had an impact on EBITDA in that period. So again, it's not really indicative of the go-forward. That's the beauty of -- and why we're trying to make your life a little bit easier around giving the June results because it really became pretty clean because the restructuring was done and is effective. And so you can see more of a foundation/go-forward run rate that makes some sense.

[R. Drew Knight, Chief Financial Officer]

Right. I would say focus on June.

[Jeffrey Eric Fetterly, Principal and Oilfield Services Analyst]

If you strip out the wage subsidies and look at the going concern EBITDA performance of the business, what do you target from a leverage ratio standpoint? I know you mentioned that you're targeting to have debt under $100 million by year-end. But in terms of a leverage ratio, where do you want to get this business to?

[R. Drew Knight, Chief Financial Officer]

Well, we think the leverage ratio will be well below 2x at year-end, and it's probably closer to 1.6x. I think we haven't really talked about broader targets, but we'll get it down to 1x in the coming years.

[R. William McFarland, Independent Chair of the Board]

I think it is a work in progress at this stage. And I'm going -- I type back to some of Rod's comments is I think what you'd expect us to be doing is looking at investments that we might make and what return we would get on those, i.e., in Modular, if that's a high growth area. And what's the return that we can get in segments that we are -- have historically been profitable at, and we can manage in an effective manner versus dividends versus debt. And with that, we'll continue to evolve as we pull together a more medium-term strategic plan, which management team will be coming back to the Board on later this year.

[Jeffrey Eric Fetterly, Principal and Oilfield Services Analyst]

I guess what I'm trying to confirm or clarify here is if you take out the $25 million to $30 million of government subsidies, and I know it will drive your leverage ratio well below 2x. But when you think about going into next year and you take out the $25 million to $30 million of government subsidies, do you expect that your leverage ratio will hold around that 2x when you look at the dividend payments that you've now incorporated, as you said, some of the growth investments that you're looking at. Like do you want to manage this business to a 2x ex-government subsidy leverage ratio? Or is the intention to continue to drive down both debt and the leverage ratio?

[R. Drew Knight, Chief Financial Officer]

Jeff, I would say focus on the comments we made about June, and that would -- if you extrapolate that out for annualized, June was even a conservative month. We're looking for improvement. The leverage ratio will be well below 2x with the dividend.

[Operator]

The next question comes from the line of Frederic Bastien with Raymond James.

[Frederic Bastien, MD & Equity Research Analyst]

I hopped on the call late, so I'll keep my one question at a high level. What's the biggest single lesson you're taking away from the pandemic?

[R. William McFarland, Independent Chair of the Board]

I'll take that one from a big picture, and other people can kind of add into that. I would say it impacts each one of our business units differently. And to me, so therefore, there's not one size fits all. It's going to create great opportunity, we believe, in Modular. We've got essential services sitting in a big part of our workforce accommodation and loss business. So that's a big positive. It hit our Facilities Management business because of our concentration within airports harder. So we need to have it. We have a different strategy in each one of those business units in order to deal with it. So to me, that's really the biggest takeaway.

[Roderick W. Graham, Non Independent Director]

Also making sure that we are expedient with kind of cost reductions. Certainly, fixed cost reductions were necessary. And also being mindful of end-market diversity and geographical diversity to capture series of different end markets across the country as well as being exposed to government, which we all know is going to have a larger part of GDP as we reboot the economy, Frederic. So making sure we're well-positioned with those. And then the final comment would be term of contracts. Certainly, as you take a look at aspects of our business, nice long-term contracts that perhaps maybe right now, there are some challenges in terms of where the activity levels are. But certainly have kind of length of contract to satisfy where we're are.

[Operator]

Our last question comes from the line of Greg Colman with National Bank Financial.

[Greg R. Colman]

My question is mundane, I don't want to end on the mundane one. I just want to know about your doubtful accounts. We'll take that off-line with Drew. Instead, I'll ask about the hotel. Can you talk us through a little bit about what the completion status is right now? Trying to sell a half-completed hotel doesn't sound like a great way to sell it. Is it the thing where we're just talking about wrapping up some landscaping and it's relatively done? Or is this a thing where like beams are exposed and it's pretty challenged right now?

[Roderick W. Graham, Non Independent Director]

Well, the beauty of our business is that we don't expand -- we don't expose beams because we build and plant. So what we have is a completion rate of 42% of the units, Greg, and the nature of the units that we have certainly are applicable to someone looking to purchase and build out a hotel or potentially other applications, micro suite and so on. And so actually, the asset itself, and I don't want to disadvantage myself from kind of a conversation perspective but is actually coveted by a series of individuals looking for what I characterize as rapid response and having got an ability to put shelter in place immediately. And so as we go forward in time, that's all I'd like to talk about today and look forward to updating you kind of in Q3. So if you don't mind, in terms of ending the remark there, I wouldn't mind disclosing that off and we'll -- stay tuned. Thanks. So operator, this concludes our second quarter conference call today. We look forward to providing an update on our growth activities at our Q3 conference call. And so I turn it back to you. Thank you.

[Operator]

This concludes today's conference call. Thank you for your participation. You may now disconnect.