North American Construction Group Ltd. Announces Record Results for the Third Quarter Ended September 30, 2023

Press Release

ACHESON, Alberta, Nov. 01, 2023 — North American Construction Group Ltd. (“NACG”) today announced results for the third quarter ended September 30, 2023. Unless otherwise indicated, financial figures are expressed in Canadian dollars, and comparisons are to the prior period ended September 30, 2022.

Third Quarter 2023 Highlights:

• Reported revenue of $194.7 million, compared to $191.4 million in the same period last year, was generated primarily by the heavy equipment fleet in the oil sands region. Equipment utilization of 56%, compared to 62% in Q3 2022, was impacted by changes in work scope and the time required to move heavy equipment into the Fort Hills mine ahead of the winter season. When comparing to Q3 2022, revenue included full quarter impacts of updated equipment rates and the acquisition of ML Northern Services Ltd.
• Our net share of revenue from equity consolidated joint ventures of $168.7 million compared favourably to $161.8 million in the same period last year. The Fargo-Moorhead project posted its strongest quarter to date but was offset by Nuna which experienced permitting delays and the impacts of wildfires in northern Canada.
• Combined revenue of $272.6 million compared consistently to $269.6 million in the same period last year reflecting both consistent demand for our heavy equipment fleet and a strong quarter from the Fargo-Moorhead project offset by Nuna’s top-line performance.
• Adjusted EBITDA of $59.4 million and margin of 21.8% compared consistently to the prior period metrics of $60.1 million and 22.3%, respectively, on similar revenue levels as cost effective operation of the heavy equipment was more than fully offset by costs impacts incurred by Nuna.
• Cash flows generated from operating activities of $37.5 million, compared to $31.4 million in the same period last year due to lower distributions received from joint ventures in Q3 2022.
• Free cash flow generated in the quarter was $10.0 million, compared to $3.4 million in the same period last year, as adjusted EBITDA was primarily used for sustaining capital maintenance and cash interest.
• Net debt was $395.3 million at September 30, 2023, an increase of $1.0 million from June 30, 2023, as free cash flow generation funded growth spending, dividends and trust activity during the quarter.
• Effective October 1, 2023, we closed our acquisition of MacKellar Group (“MacKellar”), a privately-owned heavy earthworks company based in Australia. As disclosed on July 26, 2023, total expected consideration remains $395 million and the transaction was fully funded by bank secured and vendor provided financing. MacKellar adds approximately 450 mobile heavy equipment assets; 1,000 employees, including over 375 maintenance personnel; and 15 operating projects across a variety of service offerings including contract mining, civil earthworks, dry and maintained equipment rentals and component rebuilds.

Joseph Lambert, President and CEO commented: “The third quarter generally came in line with overall expectation as our traditional heavy equipment fleet and the Fargo-Moorhead project exceeded targets while Nuna posted low operating margins due to the impacts of permitting delays and wildfires in northern Canada.”

“Closing the MacKellar transaction was a major milestone for our Company and we are pleased to report that their current operating run-rate exceeds our acquisition model and allowed us to increase expectations for 2024. Onboarding sessions went very well and we couldn’t be more excited about the opportunities in Australia.”

Consolidated Financial Highlights

		Three months ended								Nine months ended
		September 30,								September 30,
(dollars in thousands, except per share amounts)			2023				2022				2023				2022
Revenue		$	194,744			$	191,383			$	630,922			$	536,122
Total combined revenue(i)			272,620				269,617				870,190				734,157
Gross profit			26,312				24,567				88,762				58,958
Gross profit margin(i)			13.5	%			12.8	%			14.1	%			11.0	%
Combined gross profit(i)			37,798				39,651				129,730				93,998
Combined gross profit margin(i)(ii)			13.9	%			14.7	%			14.9	%			12.8	%
Operating income			14,138				17,649				49,935				39,592
Adjusted EBITDA(i)(iii)			59,371				60,110				195,827				159,499
Adjusted EBITDA margin(i)(iii)			21.8	%			22.3	%			22.5	%			21.7	%
Net income			11,387				20,220				45,495				41,291
Adjusted net earnings(i)			14,295				17,558				52,060				36,875
Cash provided by operating activities			37,512				31,432				109,521				91,102
Cash provided by operating activities prior to change in working capital(i)			41,666				39,810				134,646				118,037
Free cash flow(i)			10,040				3,390				(20,355	)			2,462
Purchase of PPE			39,295				31,205				114,210				83,591
Sustaining capital additions(i)			42,290				30,578				127,792				87,158
Growth capital additions(i)			1,727				—				4,475				—
Basic net income per share		$	0.43			$	0.75			$	1.72			$	1.49
Adjusted EPS(i)		$	0.54			$	0.65			$	1.96			$	1.33

⁽ⁱ⁾See “Non-GAAP Financial Measures”.
⁽ⁱⁱ⁾Combined gross profit margin is calculated using combined gross profit over total combined revenue.
⁽ⁱⁱⁱ⁾Adjusted EBITDA margin is calculated using adjusted EBITDA over total combined revenue.

		Three months ended								Nine months ended
		September 30,								September 30,
(dollars in thousands)			2023				2022				2023				2022
Cash provided by operating activities		$	37,512			$	31,432			$	109,521			$	91,102
Cash used in investing activities			(26,970	)			(28,042	)			(107,123	)			(79,945	)
Capital additions financed by leases			(2,229	)			—				(27,228	)			(8,695	)
Add back:
Growth capital additions(i)			1,727				—				4,475				—
Free cash flow(i)		$	10,040			$	3,390			$	(20,355	)		$	2,462

⁽ⁱ⁾See “Non-GAAP Financial Measures”.

Declaration of Quarterly Dividend

On October 31, 2023, the NACG Board of Directors declared a regular quarterly dividend (the “Dividend”) of ten Canadian cents ($0.10) per common share, payable to common shareholders of record at the close of business on November 30, 2023. The Dividend will be paid on January 5, 2024, and is an eligible dividend for Canadian income tax purposes.

Financial Results for the Three Months Ended September 30, 2023

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