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iCrowdNewswire Oct 29, 2020 1:41 PM ET

North American Construction Group Ltd. Announces Results for the Third Quarter Ended September 30, 2020

North American Construction Group Ltd. Announces Results for the Third Quarter Ended September 30, 2020

iCrowd Newswire - Oct 29, 2020

North American Construction Group Ltd. announced results for the third quarter ended September 30, 2020. Unless otherwise indicated, financial figures are expressed in Canadian dollars, and comparisons are to the prior period ended September 30, 2019.

Third Quarter 2020 Highlights:

NACG Chairman and CEO, Martin Ferron, commented: “A second successive year of well above average summer rainfall in the Fort McMurray area, combined with continued, but easing, pandemic related site access restrictions, severely curtailed our revenues, compared with the same quarter last year. However, a steadfast control of costs primarily enabled us to put up similar EBITDA and EPS numbers to those achieved in the year before quarter.

Mr. Ferron added, “Looking forward, we anticipate that the COVID-19 associated site access limitations will continue to ease, such that activity levels could be back to near normal by year end. Q4 is also the period when we generate most of our annual free cash flow and we expect the same pattern this year.

We also introduce financial ranges for 2021 in the slide deck, used to illustrate the earnings call. At the midpoint of those ranges we foresee 15% and 45% increases in EBITDA and FCF respectively, compared with the full year numbers we expect for 2020. Our confidence in these projections was boosted last week with the diversifying and substantial award of a construction project, related to a gold mine in Northern Ontario.”

Consolidated Financial Highlights

  Three months ended   Nine months ended
  September 30,   September 30,
(dollars in thousands, except per share amounts) 2020   2019   2020   2019
Revenue $ 94,015     $ 166,269     $ 363,603       $ 529,612  
Project costs 27,585     67,126     100,033       211,555  
Equipment costs 32,190     58,982     129,723       173,467  
Depreciation 18,876     21,875     62,735       73,255  
Gross profit(i) $ 15,364     $ 18,286     $ 71,112       $ 71,335  
Gross profit margin(i) 16.3 %   11.0 %   19.6   %   13.5 %
General and administrative expenses (excluding stock-based compensation) 3,624     5,040     15,762       19,852  
Stock-based compensation expense (benefit) 1,756     2,583     (2,895 )     7,689  
Interest expense, net 4,438     5,541     14,240       16,125  
Net income and comprehensive income available to shareholders 6,830     7,561     39,164       28,636  
Adjusted EBITDA(i)(ii) 37,135     37,248     129,207       126,440  
Adjusted EBITDA margin(i)(ii) 39.5 %   22.4 %   35.5   %   23.9 %
Per share information              
Basic net income per share $ 0.23     $ 0.29     $ 1.41       $ 1.13  
Diluted net income per share $ 0.22     $ 0.26     $ 1.28       $ 0.96  
Adjusted EPS(i) $ 0.26     $ 0.41     $ 1.38       $ 1.34  

(i)See “Non-GAAP Financial Measures”.
(ii)In the three months ended December 31, 2019 we changed the calculation of adjusted EBITDA. This change has not been reflected in results prior to the three months ended December 31, 2019. Applying this change to previously reported periods would result in no change for the three months ended September 30, 2019 and an increase of $0.2 million in adjusted EBITDA for the nine months ended September 30, 2019.

  Three months ended   Nine months ended
  September 30,   September 30,
(dollars in thousands) 2020   2019   2020   2019
Cash provided by operating activities prior to change in working capital(i) $ 26,302     $ 29,830     $ 105,318     $ 104,426  
Net changes in non-cash working capital (24,619 )   (35,032 )   (20,785 )   (28,955 )
Cash provided by (used in) operating activities $ 1,683     $ (5,202 )   $ 84,533     $ 75,471  
Cash used in investing activities (22,081 )   (34,751 )   (88,113 )   (112,524 )
Capital additions financed by leases (886 )       (27,882 )   (28,107 )
Add back:              
Growth capital additions 4,236     14,634     34,487     36,281  
Free cash flow(i) $ (17,048 )   $ (25,319 )   $ 3,025      $ (28,879 )

(i)See “Non-GAAP Financial Measures”.

Declaration of Quarterly Dividend

On October 27th, 2020, the NACG Board of Directors declared a regular quarterly dividend (the “Dividend”) of four Canadian cents ($0.04) per common share, payable to common shareholders of record at the close of business on November 30, 2020. The Dividend will be paid on January 8, 2021 and is an eligible dividend for Canadian income tax purposes.

Financial Results for the Three Months Ended September 30, 2020

Revenue was $94.0 million, down from $166.3 million in the same period last year. Various operational measures implemented as a response to COVID-19 remain in place to limit the spread of the virus which temporarily impact our ability to meet the full demands of our customers. In addition, several large projects remain delayed as deemed non-essential at this time during the recovery phase. The decrease in revenue is also partially attributable to reduced activity at mine sites in the Fort McMurray region due to unfavorable wet weather conditions during the summer months which, in particular, limited our ability to achieve expected overburden removal volumes at the Millennium mine. Furthermore, Q3 2019 included $12.6 million of revenue from Nuna which is now fully accounted for using the equity method. The completion of the Highland Valley Copper mine contract and the assumed Fort Hills legacy heavy civil construction work also contributed to the year over year decrease. These decreases were partially offset by the ramp-up of new civil construction work commenced at the Aurora mine in late Q2 2020 and revenue from the operations support contract at the coal mine in San Miguel which began in late Q2 2020.

Gross profit margin of 16.3% benefited from disciplined cost constraints in place during these customer-imposed reductions and was bolstered by Canada Emergency Wage Subsidy. These increases were partially offset by the extremely difficult operating conditions in the summer months due to the consistent rainfall.

Direct general and administrative expenses (excluding stock-based compensation benefit) were $3.6 million, equivalent to 3.9% of revenue, lower than Q3 2019 spending of $5.0 million but higher than the 3.0% of revenue based on mandated reduced work hours and the complete halt of all discretionary and non-essential spending.

Cash related interest expense for the quarter of $4.0 million represents an average interest rate of 3.6% as we continue to benefit from both reductions in posted rates as well as the competitive rates in equipment financing.

Free cash flow in the quarter was a use of cash of $17.0 million and was greatly impacted by timing of cash collection and spending. Working capital balances consumed $24.6 million and were equally distributed between receivable and payable balances. Cash flow was also used for both capital inventory and capital work in process purposes as we advance our component rebuilding program. Prior to these temporary timing impacts, positive cash flow of $12.8 million was generated by the adjusted EBITDA of $37.1 million offset by sustaining capital of $19.7 million and cash interest paid of $4.6 million. Sustaining maintenance capital remains consistent with the revised capital plan and reflected necessary sustaining maintenance required in advance of our busy winter season.

Business Updates

Project Execution and Cost Management

In support of our customers, we continue to manage our mostly variable but also fixed operating costs during this crisis. Several cost reduction measures remain in effect including but not limited to: minimized use of vendor provided maintenance; a complete halt of all discretionary spending; and termination of services deemed non-essential in light of the pandemic.


Liquidity is critical during times of uncertainty and cash conservation is a key priority for management in weathering this crisis. Including equipment financing availability and factoring in the amended credit facility agreement, total available capital liquidity of $142.3 million includes total liquidity of $124.4 million as at September 30, 2020. Liquidity is primarily provided by the terms of our $325.0 million credit facility which allows for funds availability based on a trailing twelve-month EBITDA and is now scheduled to expire in October 2023.

Normal Course Issuer Bid (“NCIB”)

On March 9, 2020, we announced our intention to commence a NCIB to purchase up to 2,300,000 common shares for cancellation. We believe that the current market price of our common shares does not fully reflect their underlying value. While remaining mindful of cash liquidity during the COVID-19 crisis, modest repurchases increase share liquidity for holders seeking to sell and provides a proportionate increase of shareholders wishing to maintain their positions.

Canada Emergency Wage Subsidy (“CEWS”)

Our Q3 2020 results include $11.0 million of salary and wage subsidies presented as reductions in project costs, equipment costs and general and administrative expenses of $6.7 million, $3.3 million and $0.9 million, respectively. These amounts were received under the CEWS program which reimbursed us for a portion of wages paid to employees and greatly helped us protect jobs through retention and rehiring. Should we continue to qualify, we plan to seek assistance from this program for the remainder of 2020 and onward.

NACG’s outlook for the remainder of 2020 and full year 2021

Given our visibility into 2021 and the assumption of continued easing of site access restrictions, management has decided to provide stakeholders with guidance through 2021. This guidance is predicated on contracts currently in place and the heavy equipment fleet that we own and operate.

Key measures   2020   2021
Adjusted EBITDA   $155 – $170M   $165 – $205M
Sustaining capital   $80 – $90M   $90 – $105M
Adjusted EPS   $1.60 – $1.70   $1.60 – $1.90
Free cash flow   $40 – $55M   $60 – $80M
Capital allocation measures        
Deleverage   $10 – $15M   $35 – $45M
Share purchases   $20 – $30M   $10 – $25M
Growth capital   $35 – $40M   $5 – $10M
Leverage ratios        
Senior debt   2.1x – 2.3x   1.6x – 2.0x
Net debt   2.3x – 2.5x   1.8x – 2.2x

We have responded with a reduced capital plan for the remainder of the year. Based on our outlook, our updated capital spending projection now calls for full-year sustaining capital in 2020 of $80 million to $90 million of which approximately $40 million was spent in the first quarter prior to the start of the pandemic.

We expect total liquidity to remain above $100 million in Q4 2020. Projected free cash flow for 2020 in the range of $40 million to $55 million will improve our liquidity position over the next quarter.

Conference Call and Webcast

Management will hold a conference call and webcast to discuss our financial results for the quarter ended September 30, 2020 tomorrow, Thursday, October 29, 2020 at 7:00 am Mountain Time (9:00 am Eastern Time).

The call can be accessed by dialing:
Toll free: 1-800-838-7301
International: 1-206-596-9924

Conference ID: 9899128

A replay will be available through November 29, 2020, by dialing:
Toll Free: 1-855-859-2056
International: 1-404-537-3406
Conference ID: 9899128

For further information contact:

Jason Veenstra, CPA, CA
Chief Financial Officer
North American Construction Group Ltd.
(780) 948-2009

Contact Information:

Jason Veenstra, CPA, CA
Chief Financial Officer
North American Construction Group Ltd.
(780) 948-2009

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