North American Construction Group Ltd. Announces Results for the Third Quarter Ended September 30, 2024
ACHESON, Alberta, Oct. 30, 2024 (GLOBE NEWSWIRE) -- North American Construction Group Ltd. ("NACG") (TSX:NOA, NYSE:NOA) today announced results for the third quarter ended September 30, 2024. Unless otherwise indicated, financial figures are expressed in Canadian dollars and compared to the prior period ended September 30, 2023.
Third Quarter 2024 Highlights:
Combined revenue of $367.2 million compared favorably to $274.8 million in the same period last year, is a third quarter record, and reflected the best operational quarter to date from the Australian fleet of the MacKellar Group which was acquired on October 1, 2023.
Reported revenue of $286.9 million, compared to $196.9 million in the same period last year, was primarily driven by strong equipment utilization of 84% in Australia but was also supported by the Canadian heavy equipment fleet which posted an increase from 2024 Q2.
Our net share of revenue from equity consolidated joint ventures was $80.3 million in 2024 Q3 and compared to $77.9 million in the same period last year as the increases at the Fargo project in the current quarter were offset by gold mine project scopes in Northern Ontario completed in the prior quarter.
Adjusted EBITDA of $106.4 million and margin of 29.0% compared favorably to the prior period operating metrics of $59.4 million and 21.6%, respectively, as revenue increases resulted in higher gross EBITDA with margin improvements driven by effective operations in Australia and Canada.
Combined gross profit of $80.4 million and margin of 21.9% compares favorably to the 13.8% posted in the same period last year as both diversification efforts and effective operations during steady and consistent months contributed to improved margins in the quarter.
Cash flows generated from operating activities of $48.2 million was higher than the $37.5 million generated in the prior period as higher cash generation from the strong EBITDA was offset by the temporary impact of changes to working capital in the quarter.
Free cash flow generated in the quarter was $10.8 million. Free cash flow prior to working capital changes and increases in capital work in progress was over $55 million resulting from strong revenues and margins offset by our routine capital maintenance programs.
Net debt was $882.5 million at September 30, 2024, an increase of $159.1 million from December 31, 2023, as year-to-date free cash flow usage and growth asset purchases required debt financing. The cash-related interest rate was 6.5% driven by Bank of Canada posted rates and corresponding equipment financing rates.
On October 29, 2024, the Board of Directors declared a regular quarterly dividend of twelve cents which represents a 20% increase from the previous rate of ten cents per quarter.
Additional highlights include: i) in August, signed a $375 million five-year contract for fully maintained equipment fleet in Queensland; ii) in September, surpassed the 50% completion mark at the Fargo-Moorhead flood diversion project, iii) in October, completed delivery to site of twenty-five haul trucks from Canada to Australia; iv) commenced go-live activities for the Company's ERP system in Australia phased integration ongoing through early November and iv) extended the credit facility agreement through to October 2027.
Joe Lambert, President and CEO, stated, "I would like to thank our operations team for their safe and efficient performance this quarter. The quarterly records set in Australia demonstrate both growth and operational excellence. The recent five-year contract award and the 25 trucks delivered from Fort McMurray have pushed this region to higher than 50% of our overall business and are further indicators of what will be an exciting 2025. In the oil sands region, we are in discussions with producers and expect to secure meaningful contracts in the near term, reaffirming strong client relationships and supporting our targets for next year."
Consolidated Financial Highlights
Three months ended
Nine months ended
September 30,
September 30,
(dollars in thousands, except per share amounts)
2024
2023(iv)
2024
2023(iv)
Revenue
$
286,857
$
196,881
$
860,197
$
636,398
Total combined revenue(i)
367,155
274,757
1,042,591
875,666
Gross profit
65,098
26,518
168,057
89,213
Gross profit margin(i)
22.7
%
13.5
%
19.5
%
14.0
%
Combined gross profit(i)
80,415
38,004
205,229
130,181
Combined gross profit margin(i)(ii)
21.9
%
13.8
%
19.7
%
14.9
%
Operating income
53,805
14,344
130,786
50,386
Adjusted EBITDA(i)(iii)
106,384
59,371
286,516
195,827
Adjusted EBITDA margin(i)(iii)
29.0
%
21.6
%
27.5
%
22.4
%
Net income
13,901
11,387
39,277
45,495
Adjusted net earnings(i)
31,253
14,295
72,961
52,060
Cash provided by operating activities
48,184
37,512
119,063
109,521
Cash provided by operating activities prior to change in working capital(i)
79,838
41,666
222,641
134,646
Free cash flow(i)
10,785
8,940
(32,518
)
(21,817
)
Purchase of PPE
61,812
39,295
203,772
114,210
Sustaining capital additions(i)
21,127
42,290
118,317
127,792
Growth capital additions(i)
21,437
1,727
60,987
4,475
Basic net income per share
$
0.52
$
0.43
$
1.47
$
1.72
Adjusted EPS(i)
$
1.17
$
0.54
$
2.73
$
1.96
(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.(iv)The prior year amounts are adjusted to reflect a change in accounting policy. See "Change in significant accounting policy - Basis of presentation".
Three months ended
Nine months ended
September 30,
September 30,
(dollars in thousands)
2024
2023
2024
2023
Consolidated Statements of Cash Flows
Cash provided by operating activities
$
48,184
$
37,512
$
119,063
$
109,521
Cash used in investing activities
(60,221
)
(26,970
)
(198,919
)
(107,123
)
Effect of exchange rate on changes in cash
1,385
(1,100
)
508
(1,462
)
Add back of growth and non-cash items included in the above figures:
Growth capital additions(i)(ii)
21,437
1,727
60,987
4,475
Capital additions financed by leases(i)
—
(2,229
)
(14,157
)
(27,228
)
Free cash flow(i)
$
10,785
$
8,940
$
(32,518
)
$
(21,817
)
(i)See "Non-GAAP Financial Measures".(ii)Included above in Cash used in investing activities.Declaration of Quarterly Dividend
On October 29, 2024, the NACG Board of Directors declared a regular quarterly dividend (the "Dividend") of twelve Canadian cents ($0.12) per common share, payable to common shareholders of record at the close of business on November 27, 2024. The Dividend will be paid on January 3, 2025, and is an eligible dividend for Canadian income tax purposes.
Financial Results for the Three Months Ended September 30, 2024
Revenue for 2024 Q3 of $286.9 million represented an increase of approximately $90.0 million (or 46%) from 2023 Q3. The increase is primarily due to the inclusion of results from the MacKellar Group ("MacKellar") following our acquisition on October 1, 2023.
The Heavy Equipment - Australia segment showed strong performance, driven by MacKellar's Q3 results generated from stable operating conditions during the quarter. Equipment utilization of the MacKellar fleet for the quarter of 84% was similar to 2024 Q2 but generated higher revenue as growth assets commissioned late in the second quarter in Western Australia and Queensland provided full quarter contributions. The month of July was particularly strong with utilization being above the target of 85% while August and September averaged 82%. DGI Trading Pty Ltd. ("DGI") posted lower revenue in the quarter due to timing of large component sales but continues to benefit from international demand for low-cost used components and major parts required by heavy equipment fleets in the mining industry.
The Heavy Equipment - Canada segment posted a decline in revenue compared to the prior year as equipment utilization was 51% for the quarter in comparison to 56% in 2023 Q3. Quarter over quarter, the decrease in revenue represented a 23% decrease and was primarily driven by changes in work scopes at the Fort Hills and Syncrude mines offset by increases in operating hours at the Millennium mine. Additionally, the prior year's quarter benefited from higher utilization rates from NACG assets being operated at the gold mine in northern Ontario, a project that concluded in 2023 Q3. When comparing to 2024 Q2, top-line revenue achieved in the quarter was 8% higher on consistent operating conditions from July to September as well as increased work scopes at the Millennium mine.
Combined revenue of $367.2 million represented a $92.4 million (or 34%) increase from 2023 Q3. Our share of revenue generated in 2024 Q3 by joint ventures and affiliates was $80.3 million, compared to $77.9 million in 2023 Q3. The Fargo-Moorhead flood diversion project, which completed another strong operational quarter, posted a 32% increase from scopes completed in the prior quarter and surpassed the 50% completion mark during the quarter. Mostly offsetting this variance was the completion of the gold mine project in northern Ontario which occurred in 2023 Q3.
Combined gross profit and margin of $80.4 million and 21.9% compares favorably to the $38.0 million and 13.8% posted in the prior quarter and was the compilation of strong operations across all business lines. In particular, consistent weather conditions in Australia resulted in productive operations and a 24.6% gross margin over the three months. In Canada, heavy equipment operations posted a 19.4% margin as operations stabilized from the first half of the year. The joint ventures posted a 19.1% margin, up from 14.7% in the prior quarter, as Nuna returned to profitable operations. The increases in margin were offset slightly within the Fargo joint ventures as additional costs were recognized in the quarter primarily related to project cost escalation.
Adjusted EBITDA and the associated margin of $106.4 million and 29.0% exceeded our 2023 Q3 results of $59.4 million and 21.6%, respectively. As mentioned above and despite lower revenue in the oil sands region, effective and efficient operation of the heavy equipment fleets in Australia and Canada generated a strong EBITDA margin. EBITDA margin for this quarter was more consistent with the first quarter and is reflective of the underlying consistent business of our heavy equipment fleets.
Depreciation of our Canadian and Australian heavy equipment fleets was 13.4% of revenue in the quarter. Depreciation as a percentage of revenue was 16.4% for the Heavy Equipment - Canada fleet which is higher than our historical average as increased customer demand for heavy equipment rentals has changed the revenue profile. The Heavy Equipment - Australia fleet, which averaged approximately 11.7% of revenue reflected both productive operations in the quarter as well as the depreciation of fair market values allocated upon purchase. On a combined basis, depreciation averaged 12.1% of combined revenue in the quarter as the lower capital intensity in Fargo and Nuna joint ventures modestly reduced the ratio.
General and administrative expenses (excluding stock-based compensation) were $9.6 million, or 3.4% of revenue, compared to $6.9 million, or 3.5% of revenue in 2023 Q3. The increase in expenses reflects the acquisition of the MacKellar Group. Cash related interest expense for the quarter was $14.2 million at an average cost of debt of 6.5%, compared to $7.8 million at an average cost of debt of 7.1% in 2023 Q3, as rates posted by the Bank of Canada directly impact our Credit Facility and have a delayed impact on the rates for secured equipment-backed financing. Total interest expense was $15.0 million in the quarter, compared to $8.1 million in 2023 Q3 based on the debt financing incurred upon acquisition of the MacKellar Group on October 1, 2023.
Adjusted earnings per share ("EPS") of $1.17 on adjusted net earnings of $31.3 million was up 117% from the prior year figure of $0.54, consistent with the adjusted EBIT performance which was up 144% quarter over quarter. As mentioned above, the step-changes in interest from the MacKellar acquisition offset EBIT performance with the effective income tax rates being comparable for both quarters. Weighted-average common shares for the third quarters of 2024 and 2023 were relatively stable at 26,823,124 and 26,700,303, respectively, net of shares classified as treasury shares.
For the quarter, free cash flow generation was $10.8 million, driven primarily by adjusted EBITDA of $106.4 million. After accounting for sustaining capital additions of $21.1 million, cash interest expense of $14.2 million, and cash taxes paid of $9.3 million, the positive cash flow generation reached $61.8 million. However, changes in working capital and increases in capital work in progress deferred approximately $45 million of cash flow to future quarters, and the accumulation of distributable profits in our joint ventures negatively impacted cash flow by $10 million. Sustaining capital expenditures were focused on routine maintenance of heavy equipment fleets in Australia and Canada, with Canadian expenditures being lower than previous periods due to reduced operating hours and a disciplined approach in preparation for winter work scopes.
2024 Strategic Focus Areas
Safety - now on an international basis, maintain our uncompromising commitment to health and safety while elevating the standard of excellence in the field;
Execution - enhance equipment availability in Canada and Australia through in-house fleet maintenance, reliability programs, technical improvements, and management systems;
Operational excellence - with a specific focus on Nuna Group of Companies, put into action practical and experienced-based protocols to ensure predictable high-quality project execution;
Integration - implement ERP and best practices at MacKellar, including identification of opportunities to better utilize our capital and equipment in Australia;
Diversification - pursue diversification of customers and resources through strategic partnerships, industry expertise and investment in Indigenous joint ventures; and
Sustainability - further develop and deliver into our environmental, social, and governance targets as disclosed and committed to in our annual reporting.
Liquidity
Our current liquidity positions us well moving forward to fund organic growth and the required correlated working capital investments. Including equipment financing availability and factoring in the amended Credit Facility agreement, total available capital liquidity of $173.1 million includes total liquidity of $135.7 million and $20.0 million of unused finance lease borrowing availability as at September 30, 2024. Liquidity is primarily provided by the terms of our $485.7 million credit facility which allows for funds availability based on a trailing twelve-month EBITDA as defined in the agreement.
September 30,2024
December 31,2023
Cash
$
77,670
$
88,614
Credit Facility borrowing limit
485,700
478,022
Credit Facility drawn
(395,700
)
(317,488
)
Letters of credit outstanding
(32,011
)
(31,272
)
Cash liquidity(i)
$
135,659
$
217,876
Finance lease borrowing limit
350,000
