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North American Construction Group Ltd. Announces Results for the Second Quarter Ended June 30, 2021

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ACHESON, Alberta, July 28, 2021 (GLOBE NEWSWIRE) -- North American Construction Group Ltd. (“NACG”) (TSX:NOA/NYSE:NOA) today announced results for the second quarter ended June 30, 2021. Unless otherwise indicated, financial figures are expressed in Canadian dollars, and comparisons are to the prior period ended June 30, 2020.

Second Quarter 2021 Highlights:

  • Adjusted EBITDA of $42.4 million was 33% higher than prior year adjusted EBITDA of $31.9 million reflecting improved operating conditions from the prior year, consistently increasing demand for our heavy equipment fleet and a step change in scope being completed by the Nuna Group of Companies ("Nuna").

  • Gross profit margin of 10.9% primarily reflected the impacts of COVID-19 in the Fort McMurray region in early Q2 and equipment maintenance backlog completed in the quarter following a particularly busy winter season.

  • Free cash flow ("FCF") in the quarter of $6.1 million was generated from strong adjusted EBITDA but was temporarily impacted by the timing related to a variety of non-cash and joint venture balances.

  • Senior debt was $264.4 million as at June 30, 2021, a decrease of $88.9 million from the December 31, 2020 balance as proceeds from newly issued debentures were used to reduce senior debt.

  • On June 1, 2021 we closed an offering of 5.50% convertible debentures for aggregate gross proceeds of $74.8 million. The issuance offers stability as it provides additional liquidity for our strong bid pipeline.

  • On June 9, 2021 we announced the acquisition of DGI Trading Pty Ltd., an Australian component supplier for an estimated purchase price of $23.5 million and the transaction closed on July 1, 2021. The acquisition acts as a low risk, accretive purchase and provides vertical integration to our capital maintenance program.

  • On June 21, 2021, along with our partners Acciona and Shikun & Binui, we announced the award of Fargo-Moorhead flood diversion project in the United States. NACG's share of the project revenue will be approximately $650 million over the life of contract. This award marks the largest infrastructure project in our history and underlines the significant earth works and construction expertise that we brought to the bid process.

  • During the quarter, we established a project team and hired external engineering and technical experts to commence feasibility studies for the blending of hydrogen and diesel fuels in high horsepower combustion engines. Among other objectives, the team will work to establish support through hydrogen producers, equipment suppliers and Alberta industry groups for evaluating hydrogen supply and distribution.

NACG President and CEO, Joseph Lambert, commented: “Q2 2021 was an eventful quarter and I'm extremely proud of our operating team's performance particularly in light of a difficult third wave of COVID-19 in the Fort McMurray region. Being the successful proponent of the Fargo-Moorhead project was a major highlight of the quarter and I congratulate the entire team that was involved. The successful ramp-up at the Ontario gold mine as well as the acquisition of DGI Trading are significant advances in our strategy to diversify our business. That said, the resumption of work at Fort Hills and the contract amendment recently secured with oil sands producers illustrates the strength of this region and we remain totally committed to serving these customers.

These recent achievements over the past few months will primarily impact 2022 and therefore our outlook for the remainder of 2021 remains generally consistent with what was disclosed in April. We have tightened the ranges while still allowing for inherent risks of schedule changes and weather.”

Consolidated Financial Highlights

Three months ended

Six months ended

June 30,

June 30,

(dollars in thousands, except per share amounts)

2021

2020

2021

2020

Revenue

$

140,155

$

70,771

$

308,563

$

269,588

Project costs

41,460

12,331

91,622

72,448

Equipment costs

57,044

25,792

112,029

97,533

Depreciation

26,425

11,551

57,623

43,859

Gross profit(i)

$

15,226

$

21,097

$

47,289

$

55,748

Gross profit margin(i)

10.9

%

29.8

%

15.3

%

20.7

%

General and administrative expenses (excluding stock-based compensation)

6,024

3,617

13,046

12,667

Stock-based compensation expense (benefit)

7,651

2,213

10,025

(4,650

)

Interest expense, net

4,398

4,274

8,940

9,802

Net income and comprehensive income

2,742

13,299

22,128

32,334

Adjusted EBITDA(i)

42,375

31,941

103,513

92,073

Adjusted EBITDA margin(i)

30.2

%

45.1

%

33.5

%

34.2

%

Per share information

Basic net income per share

$

0.10

$

0.46

$

0.78

$

1.19

Diluted net income per share

$

0.09

$

0.42

$

0.72

$

1.07

Adjusted EPS(i)

$

0.32

$

0.45

$

0.98

$

1.14

(i)See "Non-GAAP Financial Measures".

Three months ended

Six months ended

June 30,

June 30,

(dollars in thousands)

2021

2020

2021

2020

Cash provided by operating activities prior to change in working capital(i)

$

28,601

$

24,553

$

89,014

$

79,016

Net changes in non-cash working capital

(2,865

)

9,362

(21,340

)

3,834

Cash provided by operating activities

$

25,736

$

33,915

$

67,674

$

82,850

Cash used in investing activities

(21,972

)

(24,399

)

(43,403

)

(66,032

)

Capital additions financed by leases

(70

)

(378

)

(15,093

)

(26,996

)

Add back:

Growth capital additions

2,387

1,508

2,387

30,251

Free cash flow(i)

$

6,081

$

10,646

$

11,565

$

20,073

(i)See "Non-GAAP Financial Measures".

Declaration of Quarterly Dividend

On July 27th, 2021, 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 August 31, 2021. The Dividend will be paid on October 8, 2021 and is an eligible dividend for Canadian income tax purposes.

Financial Results for the Three Months Ended June 30, 2021

Revenue was $140.2 million, up from $70.8 million in the same period last year. The increase in the current year is due to the ongoing recovery from the COVID-19 pandemic. As our customers continue to recuperate, demand for our services continues to increase. As such, we continued to experience strong demand for equipment rental support and overburden removal activities at the Millennium mine. Mine support work, overburden and ditch construction work at the Kearl mine positively impacted revenue growth year-over-year. Offsetting these positives was the continued suspension of work at the Fort Hills mine which impacted the majority of Q2 as equipment was mobilized back to that site only late in the quarter. Heavy equipment operating hours on the NACG fleet were down 15% from Q1 2021 slightly more than the expected decrease primarily as a result of workforce availability in April and May. While not consolidated in our revenue, the Nuna Group of Companies ("Nuna") experienced a step change in operating hours due to the ramp up of the gold mine project in Northern Ontario, which is reflected in revenue. Our share of Nuna's revenue, which is consolidated in equity earnings, was $37.9 million in Q2 2021.

Gross profit margin of 10.9% was down from the prior year driven by increased equipment maintenance as the fleet was more available for repairs following a particularly busy winter season. Further contributing to the decrease in margin was the typical spring wet weather conditions seen in Q2 as well as an atypical workforce shortage experienced in Fort McMurray due to the third wave of COVID-19.

Direct general and administrative expenses (excluding stock-based compensation benefit) were $6.0 million, equivalent to 4.3% of revenue, higher than Q2 2020 spending of $3.6 million but lower than the 5.1% of revenue based on a combination of continued cost control initiatives and lower discretionary and non-essential spending.

Cash related interest expense for the quarter of $4.2 million represents an average interest rate of 4.0% 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 $6.1 million and was impacted by timing of cash collection. Working capital balances consumed $2.9 million and cash flow was used for both capital inventory and capital work in process purposes as we steadily advance our component rebuilding program. In addition, cash accumulating in joint ventures was not collected during the quarter. Prior to these temporary timing impacts, positive cash flow of $20.4 million was generated by the adjusted EBITDA of $42.4 million offset by sustaining capital of $19.2 million and cash interest paid of $2.8 million. Sustaining capital spending remains consistent with the capital plan and reflects the necessary sustaining maintenance required to efficiently operate our fleet.

BUSINESS UPDATES

Focus & Priorities for the Remainder of 2021

  • Safety - focus on people and relationships as we emerge from the pandemic, maintain an uncompromising commitment to health and safety while elevating the standard of excellence in the field.

  • Sustainability - commitment to the continued development of sustainability targets and consistent measurement of progress to those targets.

  • Diversification - continue to pursue further diversification of customer, resource and geography through strategic partnerships, industry expertise and/or investment in Indigenous joint ventures.

  • Execution - enhance our record of operational excellence with respect to fleet maintenance, availability and utilization through leverage of our reliability programs, technical improvements and management systems.

Increase in Committed Scope from Contract Amendment

On July 21, 2021, the Company announced a contract amendment to a multiple use agreement between the Mikisew North American Limited Partnership and a major oil sands producer. The agreement has an expiration date of December 2023 and the Company anticipates its share to be approximately $175 million in additional revenue over the remainder of the agreement.

Issuance of $75 million of Convertible Debentures

On June 1, 2021 we closed an offering of 5.50% convertible unsecured debentures for gross proceeds of $65 million. On June 4, 2021, underwriters exercised their over-allotment option, in full, to purchase an additional $9.8 million for aggregate gross proceeds of $74.8 million. The majority of proceeds have been deployed to decrease senior debt through reducing the balance on our credit facility.

Total liquidity of $210.9 million as at June 30, 2021 represents an increase of $62.9 million over the December 31, 2020 balance. 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 scheduled to expire in October 2023.

Normal Course Issuer Bid ("NCIB")

On April 6, 2021, we announced our intention to commence a NCIB to purchase up to 2,000,000 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.

NACG’s Outlook for 2021

Given our visibility into 2021 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

2021

Adjusted EBITDA

$190 - $210M

Sustaining capital

$95 - $105M

Adjusted EPS

$1.70 - $1.95

Free cash flow

$65 - $85M

Capital allocation measures

Deleverage

$15 - $35M

Share purchases

$17 - $35M

Growth capital and acquisitions

$25 - $35M

Leverage ratios

Senior debt

1.1x - 1.5x

Net debt

1.7x - 2.1x

Conference Call and Webcast

Management will hold a conference call and webcast to discuss our financial results for the quarter ended June 30, 2021 tomorrow, Thursday, July 29, 2021 at 7:00 am Mountain Time (9:00 am Eastern Time).

The call can be accessed by dialing:
Toll free: 1-844-248-9143
International: 1-216-539-8612
Conference ID: 4046629

A replay will be available through August 26, 2021, by dialing:
Toll Free: 1-855-859-2056
International: 1-404-537-3406
Conference ID: 4046629

The Q2 2021 earnings presentation for the webcast will be available for download on the company’s website at www.nacg.ca/presentations/

The live presentation and webcast can be accessed at:

https://onlinexperiences.com/Launch/QReg/ShowUUID=CFB8837D-D47E-43AB-819D-DEE3F4D2B471

A replay will be available until August 26, 2021 using the link provided.

Basis of Presentation

We have prepared our consolidated financial statements in conformity with accounting principles generally accepted in the United States ("US GAAP"). Unless otherwise specified, all dollar amounts discussed are in Canadian dollars. Please see the Management’s Discussion and Analysis (“MD&A”) for the quarter ended June 30, 2021 for further detail on the matters discussed in this release. In addition to the MD&A, please reference the dedicated Q2 2021 Results Presentation for more information on our results and projections which can be found on our website under Investors - Presentations.

Forward-Looking Information

The information provided in this release contains forward-looking statements. Forward-looking statements include statements preceded by, followed by or that include the words “anticipate”, “believe”, “expect”, “should” or similar expressions.

The material factors or assumptions used to develop the above forward-looking statements and the risks and uncertainties to which such forward-looking statements are subject, are highlighted in the MD&A for the three and six months ended June 30, 2021. Actual results could differ materially from those contemplated by such forward-looking statements because of any number of factors and uncertainties, many of which are beyond NACG’s control. Undue reliance should not be placed upon forward-looking statements and NACG undertakes no obligation, other than those required by applicable law, to update or revise those statements. For more complete information about NACG, please read our disclosure documents filed with the SEC and the CSA. These free documents can be obtained by visiting EDGAR on the SEC website at www.sec.gov or on the CSA website at www.sedar.com.

Non-GAAP Financial Measures

This press release presents certain non-GAAP financial measures because management believes that they may be useful to investors in analyzing our business performance, leverage and liquidity. The non-GAAP financial measures we present include "gross profit", "adjusted net earnings", "adjusted EBIT", "equity investment EBIT", "adjusted EBITDA", "equity investment depreciation and amortization", "adjusted EPS", "margin", "liquidity", "net debt", "senior debt", "sustaining capital", "growth capital", "cash provided by operating activities prior to change in working capital" and "free cash flow". A non-GAAP financial measure is defined by relevant regulatory authorities as a numerical measure of an issuer's historical or future financial performance, financial position or cash flow that is not specified, defined or determined under the issuer’s GAAP and that is not presented in an issuer’s financial statements. These non-GAAP measures do not have any standardized meaning and therefore are unlikely to be comparable to similar measures presented by other companies. They should not be considered in isolation or as a substitute for measures of performance prepared in accordance with GAAP. Each non-GAAP financial measure used in this press release is defined and reconciled to its most directly comparable GAAP measure in the “Non-GAAP Financial Measures” section of our Management’s Discussion and Analysis filed concurrently with this press release.

A reconciliation of net income and comprehensive income available to shareholders to adjusted net earnings, adjusted EBIT and adjusted EBITDA is as follows:

Three months ended

Six months ended

June 30,

June 30,

(dollars in thousands)

2021

2020

2021

2020

Net income and comprehensive income available to shareholders

$

2,742

$

13,299

$

22,128

$

32,334

Adjustments:

(Gain) loss on disposal of property, plant and equipment

(63

)

672

(321

)

829

Stock-based compensation expense (benefit)

7,651

2,213

10,025

(4,650

)

Net realized and unrealized gain on derivative financial instrument

(253

)

(2,496

)

(2,737

)

(286

)

Write-down on assets held for sale

700

700

1,800

Tax effect of the above items

(1,747

)

(721

)

(2,232

)

956

Adjusted net earnings(i)

9,030

12,967

27,563

30,983

Adjustments:

Tax effect of the above items

1,747

721

2,232

(956

)

Interest expense, net

4,398

4,274

8,940

9,802

Income tax (benefit) expense

(540

)

992

4,410

6,986

Equity earnings in affiliates and joint ventures(i)

(4,733

)

(1,474

)

(8,202

)

(1,934

)

Equity investment EBIT(i)

4,950

1,990

8,518

2,550

Adjusted EBIT(i)

14,852

19,470

43,461

47,431

Adjustments:

Depreciation and amortization

26,505

11,639

57,583

44,588

Write-down on assets held for sale

(700

)

(700

)

(1,800

)

Equity investment depreciation and amortization(i)

1,718

832

3,169

1,854

Adjusted EBITDA(i)

$

42,375

$

31,941

$

103,513

$

92,073

(i)See "Non-GAAP Financial Measures".

A reconciliation of equity earnings in affiliates and joint ventures to equity investment EBIT is as follows:

Three months ended

Six months ended

June 30,

June 30,

(dollars in thousands)

2021

2020

2021

2020

Equity earnings in affiliates and joint ventures

$

4,733

$

1,474

$

8,202

$

1,934

Adjustments:

Interest expense, net

82

127

160

179

Income tax expense

239

9

313

57

(Gain) loss on disposal of property, plant and equipment

(104

)

380

(157

)

380

Equity investment EBIT(i)

$

4,950

$

1,990

$

8,518

$

2,550

(i)See "Non-GAAP Financial Measures".

About the Company

North American Construction Group Ltd. (www.nacg.ca) is one of Canada’s largest providers of heavy construction and mining services. For more than 65 years, NACG has provided services to the mining, resource, and infrastructure construction markets.

For further information contact:

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

Interim Consolidated Balance Sheets

(Expressed in thousands of Canadian Dollars)
(Unaudited)

Note

June 30,
2021

December 31,
2020

Assets

Current assets

Cash

$

16,791

$

43,915

Accounts receivable

4

48,823

36,373

Contract assets

5(b)

5,454

7,034

Inventories

27,999

19,174

Prepaid expenses and deposits

4,445

4,999

Assets held for sale

4,119

4,129

Derivative financial instruments

4,334

107,631

119,958

Property, plant and equipment, net of accumulated depreciation of $327,973 (December 31, 2020 – $302,682)

641,410

633,704

Operating lease right-of-use assets

16,057

18,192

Other assets

8,973

6,617

Investments in affiliates and joint ventures

7

43,087

44,050

Deferred tax assets

16,407

Total assets

$

817,158

$

838,928

Liabilities and shareholders’ equity

Current liabilities

Accounts payable

$

46,523

$

41,369

Accrued liabilities

12,399

19,111

Contract liabilities

5(b)

1,266

1,512

Current portion of long-term debt

6

18,275

16,307

Current portion of finance lease obligations

27,283

26,895

Current portion of operating lease liabilities

3,364

4,004

109,110

109,198

Long-term debt

6

323,233

341,547

Finance lease obligations

40,831

42,577

Operating lease liabilities

12,660

14,118

Other long-term obligations

24,806

18,850

Deferred tax liabilities

52,198

64,195

562,838

590,485

Shareholders' equity

Common shares (authorized – unlimited number of voting common shares; issued and outstanding – June 30, 2021 - 30,002,028 (December 31, 2020 – 31,011,831))

9(a)

246,815

255,064

Treasury shares (June 30, 2021 - 1,855,841 (December 31, 2020 - 1,845,201))

9(a)

(18,158

)

(18,002

)

Additional paid-in capital

40,806

46,536

Deficit

(15,143

)

(35,155

)

Shareholders' equity

254,320

248,443

Total liabilities and shareholders’ equity

$

817,158

$

838,928

Subsequent events

12

See accompanying notes to interim consolidated financial statements.

Interim Consolidated Statements of Operations and
Comprehensive Income

(Expressed in thousands of Canadian Dollars, except per share amounts)
(Unaudited)

Three months ended

Six months ended

June 30,

June 30,

Note

2021

2020

2021

2020

Revenue

5

$

140,155

$

70,771

$

308,563

$

269,588

Project costs

8(b)

41,460

12,331

91,622

72,448

Equipment costs

8(b)

57,044

25,792

112,029

97,533

Depreciation

26,425

11,551

57,623

43,859

Gross profit

15,226

21,097

47,289

55,748

General and administrative expenses

8(b)

13,675

5,830

23,071

8,017

(Gain) loss on disposal of property, plant and equipment

(63

)

672

(321

)

829

Operating income

1,614

14,595

24,539

46,902

Interest expense, net

10

4,398

4,274

8,940

9,802

Equity earnings in affiliates and joint ventures

7

(4,733

)

(1,474

)

(8,202

)

(1,934

)

Net realized and unrealized gain on derivative financial instrument

6(b)

(253

)

(2,496

)

(2,737

)

(286

)

Income before income taxes

2,202

14,291

26,538

39,320

Current income tax expense

17

Deferred income tax (benefit) expense

(540

)

992

4,410

6,969

Net income and comprehensive income

2,742

13,299

22,128

32,334

Net income attributable to noncontrolling interest

Net income and comprehensive income

$

2,742

$

13,299

$

22,128

$

32,334

Per share information

Basic net income per share

9(b)

$

0.10

$

0.46

$

0.78

$

1.19

Diluted net income per share

9(b)

$

0.09

$

0.42

$

0.72

$

1.07

See accompanying notes to interim consolidated financial statements.