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North American Construction Group Ltd. Announces Results for the Fourth Quarter and Year Ended December 31, 2021

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North American Construction Group Ltd.
North American Construction Group Ltd.

ACHESON, Alberta, Feb. 16, 2022 (GLOBE NEWSWIRE) -- North American Construction Group Ltd. (“NACG”) (TSX:NOA/NYSE:NOA) today announced results for the fourth quarter and year ended December 31, 2021. Unless otherwise indicated, figures are expressed in Canadian dollars with comparisons to prior periods ended December 31, 2020.

Fourth Quarter and Year Ended 2021 Highlights:

  • Revenue of $181.0 million in Q4 2021 compared to $136.1 million in the same period last year was primarily a result of the increased demand at the Fort Hills mine and increased mine support work at the Kearl mine. Additionally, the acquisition of DGI Trading Pty Ltd. ("DGI") positively impacted our revenue from a seamless transition on July 1, 2021 and the strong demand for heavy equipment parts and components.

  • Our share of revenue from equity consolidated joint ventures was $53.9 million in Q4 2021 compared to $33.9 million in the same period last year, representing a 59% step-change in activity primarily from our Indigenous joint ventures with the Nuna Group of Companies and the Mikisew Group of Companies.

  • Net income of $15.3 million in Q4 2021 compared to $10.0 million in the same period last year was a result of higher revenue and equity earnings in affiliates and joint ventures.

  • Adjusted EBITDA of $56.3 million in Q4 2021 resulted in full year adjusted EBITDA of $207.3 million. Both are increases from the prior year ($45.2 million and $174.3 million, respectively), reflecting improved operating conditions and a continued recovery to pre-pandemic levels.

  • Gross profit margin of 12.7% in Q4 2021 compared to 16.6% in the same period last year reflected increased equipment maintenance activities to support the large demand of work for the remainder of the winter season.

  • The Fargo-Moorhead project achieved secured financing and formal financial close milestone in the quarter which provided the ability to recognize certain cost reimbursements as well as early progress of the project.

  • Cash flows generated from operating activities of $65.9 million in Q4 2021 compared to $62.5 million in the same period last year as higher net earnings were partially offset by changes in joint venture balances.

  • Free cash flow ("FCF") of $48.3 million in Q4 2021 resulted in full year FCF of $67.2 million through strong adjusted EBITDA in the quarter and minimal working capital balances for the year, offset by timing impacts of capital work in process and capital inventory which required initial cash investments to build and maintain our component rebuild capabilities.

  • Net debt was $369.0 million at December 31, 2021, a reduction of $16.9 million from the prior year balance as free cash flow generation and subsequent capital allocation in Q4 resulted in deleverage.

  • On February 15, 2022, the Board of Directors approved an increase to the dividend rate from $0.16 per annum to $0.32 per annum.

NACG President and CEO, Joseph Lambert, added: “2021 was a year filled with accomplishments and records for our Company. We achieved our objectives and were able to work collaboratively with our long-standing existing customers as well as diversifying our business and starting relationships with new ones. And as evidenced by the results in our annual report and a fact that I'm particularly proud of, the scopes in our Indigenous joint ventures continues to trend upward."

Lambert added: "But with all that said, we are in no mood to celebrate. On January 6, 2022, we had a tragic incident which we do all in our power to avoid. The fatality has left us shaken and we grieve with the family and friends of our coworker. This was an exemplary employee and we are resolved in ensuring an accident like this never happens again. While the incident remains under investigation, we are recommitting ourselves here in 2022 to take any and all applicable actions identified to prevent reoccurrence."

Consolidated Financial Highlights

Three months ended

Year ended

December 31,

December 31,

(dollars in thousands, except per share amounts)

2021

2020

2021

2020

Revenue

$

181,001

$

136,076

$

654,143

$

498,468

Project costs

68,077

39,552

223,537

140,341

Equipment costs

60,810

47,708

232,173

177,127

Depreciation

29,050

26,248

108,016

88,782

Gross profit

$

23,064

$

22,568

$

90,417

$

92,218

Gross profit margin

12.7

%

16.6

%

13.8

%

18.5

%

General and administrative expenses (excluding stock-based compensation)

3,694

6,268

23,768

22,493

Stock-based compensation expense

1,643

4,839

11,606

1,944

Operating income

17,464

11,439

55,128

67,122

Interest expense, net

5,250

4,435

19,032

18,656

Net income

15,308

10,044

51,408

49,208

Adjusted EBITDA(i)

$

56,285

$

45,192

$

207,333

$

174,336

Adjusted EBITDA margin(ii)

24.0

%

26.6

%

25.5

%

29.9

%

Per share information

Basic net income per share

$

0.54

$

0.34

$

1.81

$

1.75

Diluted net income per share

$

0.48

$

0.32

$

1.64

$

1.60

Adjusted EPS(i)

$

0.59

$

0.36

$

2.06

$

1.73

(i) See "Non-GAAP Financial Measures".
(ii)Adjusted EBITDA margin is calculated using adjusted EBITDA over total combined revenue.
(i)See "Non-GAAP Financial Measures".

Three months

Year ended

December 31

December 31,

(dollars in thousands)

2021

2020(ii)

2021

2020(ii)

Cash provided by operating activities

$

65,895

$

62,493

$

165,180

$

146,550

Cash used in investing activities

(24,301

)

(25,158

)

(99,269

)

(112,827

)

Capital additions financed by leases

(19,198

)

(27,882

)

Add back:

Growth capital additions

6,735

3,178

6,795

37,665

Acquisition of DGI (Aust) Trading Pty Ltd.

13,724

Free cash flow(i)

$

48,329

$

40,513

$

67,232

$

43,506

Declaration of Quarterly Dividend

On February 15, 2022, the NACG Board of Directors declared a regular quarterly dividend (the “Dividend”) of eight Canadian cents ($0.08) per common share, payable to common shareholders of record at the close of business on March 4, 2022. The Dividend will be paid on April 8, 2022 and is an eligible dividend for Canadian income tax purposes.

2022 Sustainability Report

In addition to the 2021 financial results, we have released our 2022 Sustainability Report. This second annual report provides the structured framework for environmental, social, and governance initiatives moving forward. We plan to issue future reports around this time each year which will allow stakeholders to measure progress in a variety of business areas with increasing rigor and metrics. The 2022 Sustainability Report is available for download on the company’s website at www.nacg.ca/social-responsibility.

Results for the Three Months Ended December 31, 2021

Revenue was $181.0 million, up from $136.1 million in the same period last year. The increase was primarily generated by the equipment fleet at the Fort Hills mine which was remobilized in the third quarter of 2021. Additionally, there was a stronger demand for mine support work and equipment rental support at the Kearl mine than the comparable quarter. Lastly, the completion of three haul truck rebuilds by our external maintenance program and the acquisition of the Australian component supplier DGI bolstered revenue in Q4 2021.

Gross profit margin of 12.7% was down from 16.6% in the prior year. Lower gross profit margin was impacted by increased equipment maintenance activities, primarily at the Millennium mine, as we performed the required maintenance services to ensure the fleet is operating at full capacity for the large demand of work for the remainder of the winter season. Furthermore, Canada Emergency Wage Subsidy ("CEWS") impacted the variance as it was a significant program in place in the comparable quarter. These decreases were offset by the strong operational execution of the scopes of work at the Aurora & Fort Hills mine and the diversified margin profile from component and parts sales by DGI.

Direct general and administrative expenses (excluding stock based compensation expense) were $3.7 million, or 2.0% of revenue, lower than Q4 2020 spending of $6.3 million or 4.6% of revenue primarily due to recognition of reimbursable bid costs received in excess of amounts capitalized, offset by no CEWS amounts received in Q4 2021 compared to $0.5 million received in Q4 2020.

Cash related interest expense of $4.9 million represents an average cost of debt of 4.7% (compared to 4.2% for the three months ended December 31, 2020). The increase in the current year period was a result of the addition of new 5.5% convertible debentures, partially offset by the decrease in interest related to our Credit Agreement.

Net income of $15.3 million in Q4 2021 compared to $10.0 million in the same period last year was a result of higher revenue and equity earnings in affiliates and joint ventures, and lower general and administrative expenses.

Free cash flow in the quarter was $48.3 million and was driven by strong operating results with higher cash distribution from non-cash working capital, offset by investment in capital work in progress and joint ventures. Primary routine drivers of free cash flow were adjusted EBITDA of $56.3 million less sustaining capital spending of $20.2 million and cash interest paid of $4.9 million. The remaining drivers for free cash flow generation were i) the timing impacts of capital work in process and capital inventory which require initial cash investment as we build our maintenance and component rebuild capabilities and ii) the timing of joint venture distributions which had a slight negative impact for the whole of 2021 but was not a significant driver this year given the large distributions that were received as planned in Q4 2021.

Business Updates

Strategic Focus Areas

  • 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.

  • 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.

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

Liquidity

Managing our liquidity has been a critical function during the uncertainty of the pandemic. Our current liquidity positions us well moving forward to continually 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 $226.3 million includes total liquidity of $197.7 million and $28.6 million of unused finance lease borrowing availability as at December 31, 2021. 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 2024.

Achievement against 2021 targets and our outlook for 2022

Given our visibility into 2022 and the assumption of continued easing of site access restrictions, management has provided stakeholders with guidance through 2022. This guidance is predicated on contracts currently in place and the heavy equipment fleet that we own and operate.

Key measures

2021 Actual

2021 Stated Targets

2022 Outlook

Adjusted EBITDA

$207M

$205 - $215M

$215 - $245M

Adjusted EPS

$2.06

$1.95 - $2.15

$2.15 - $2.55

Sustaining capital

$102M

$95 - $105M

$110 - $245M

Free cash flow

$67M

$65 - $85M

$95 - $115M

Capital allocation measures

Growth capital and acquisitions

$25M

$25 - $35M

$nil - $35M

Deleverage

$17M

$15 - $35M

$50 - $80M

Shareholder activity(i)

$31M

n/a

$15 - $35M

Leverage ratios

Senior debt

1.5x

1.1x - 1.5x

0.9x - 1.4x

Net debt

1.8x

1.7x - 2.1x

1.2x - 1.7x

(i)Shareholder activity includes common shares purchased under a normal course issuer bid, dividends paid and the purchase of treasury shares.

Conference Call and Webcast

Management will hold a conference call and webcast to discuss our financial results for the three months and year ended December 31, 2021 tomorrow, Thursday, February 17, 2022 at 9:00 am Eastern Time (7:00 am Mountain Time).

The call can be accessed by dialing:

Toll free: 1-844-248-9143
International: 1-216-539-8612
Conference ID: 2060308

A replay will be available through March 17, 2022, by dialing:

Toll Free: 1-855-859-2056
International: 1-404-537-3406
Conference ID: 2060308

A slide deck for the webcast will be available for download the evening prior to the call and will be found 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=344C72F0-E7DB-4D57-9603-73EF180089CA

A replay will be available until March 17, 2022 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 three months and year ended December 31, 2021 for further detail on the matters discussed in this release. In addition to the MD&A, please reference the dedicated Q4 2021 Results Presentation for more information on our results and projections which can be found on our website under Investors - Presentations.

Change in significant accounting policy - Basis of presentation

Prior to July 1, 2021, we elected to apply the provision available to entities operating within the construction industry to apply proportionate consolidation to unincorporated entities that would otherwise be accounted for using the equity method. In Q3 2021, we elected to change this policy to account for these unincorporated entities using the equity method, resulting in a change to the consolidation method for Dene North Site Services and Mikisew North American Limited Partnership. This change allows for consistency in the presentation of our investments in affiliates and joint ventures. We have accounted for the change retrospectively according to the requirements of US GAAP Accounting Standards Codification ("ASC") 250 by restating the comparative periods. For full disclosure, refer to note 22 in our Financial Statements for December 31, 2021 available on EDGAR on the SEC website at www.sec.gov or on the CSA website at www.sedar.com.

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 and include guidance with respect to financial metrics provided in our outlook for 2022.

The material factors or assumptions used to develop the above forward-looking statements include, and the risks and uncertainties to which such forward-looking statements are subject, are highlighted in the MD&A for the three months and year ended December 31, 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 and on our company website at www.nacg.ca.

Non-GAAP Financial Measures

This press release presents certain non-GAAP financial measures, non-GAAP ratios, and supplementary financial measures that may be useful to investors in analyzing our business performance, leverage and liquidity. 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. A "non-GAAP ratio" is a ratio, fraction, percentage or similar expression that has a non-GAAP financial measure as on or more of its components. Non-GAAP financial measures and ratios do not have standardized meanings under GAAP and therefore may not be comparable to similar measures presented by other issuers. They should not be considered in isolation or as a substitute for measures of performance prepared in accordance with GAAP. A "supplementary financial measure" is a financial measure disclosed, or intended to be disclosed, on a periodic basis to depict historical or future financial performance, financial position or cash flows that does not fall within the definition of a non-GAAP financial measure or non-GAAP ratio. The non-GAAP financial measures and ratios we present include, "adjusted net earnings", "total combined revenue", "adjusted EBIT", "equity investment EBIT", "adjusted EBITDA", "adjusted EPS", "margin", "senior debt", "net debt" "cash provided by operating activities prior to change in working capital", "sustaining capital", "growth capital" and "free cash flow". We also use supplementary financial measures such as "gross profit margin" in our MD&A. Each non-GAAP financial measure used in this press release is defined under "Financial Measures" in our Management's Discussion and Analysis filed on EDGAR on the SEC website at www.sec.gov or on the CSA website at www.sedar.com and on our company website at www.nacg.ca.

A reconciliation of total reported revenue to total combined revenue is as follows:

Three months ended

Year ended

December 31,

December 31,

(dollars in thousands)

2021

2020(ii)

2021

2020(ii)

Revenue from wholly-owned entities per financial statements

181,001

136,076

654,143

498,468

Share of revenue from investments in affiliates and joint ventures

108,291

48,194

332,440

159,054

Adjustment for joint ventures

(54,394

)

(14,293

)

(174,357

)

(74,059

)

Total combined revenue(i)

$

234,898

$

169,977

$

812,226

$

583,463

(i) See "Non-GAAP Financial Measures"
(ii)The prior year amounts are adjusted to reflect a change in accounting policy. See "Change in significant accounting policy - Basis of presentation".

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

Year ended

December 31,

December 31,

(dollars in thousands)

2021

2020(iii)

2021

2020(iii)

Net income

$

15,308

$

10,044

$

51,408

$

49,208

Adjustments:

Loss (gain) on disposal of property, plant and equipment

263

22

(85

)

659

Stock-based compensation expense

1,643

4,839

11,606

1,944

Net realized and unrealized gain on derivative financial instruments

(3,429

)

(2,737

)

(4,266

)

Write-down on asset held for sale

700

1,800

Tax effect of the above items

(438

)

(1,118

)

(2,649

)

(599

)

Adjusted net earnings(i)

$

16,776

$

10,358

$

58,243

$

48,746

Adjustments:

Tax effect of the above items

438

1,118

2,649

599

Interest expense, net

5,250

4,435

19,032

18,656

Income tax expense

2,487

319

9,285

11,264

Equity loss (earnings) in affiliates and joint ventures(i)

(5,581

)

70

(21,860

)

(7,740

)

Equity investment EBIT(i)

5,768

1,284

25,312

9,893

Adjusted EBIT(i)

$

25,138

$

17,584

$

92,661

$

81,418

Adjustments:

Depreciation and amortization

29,242

26,292

108,333

89,309

Write-down on asset held for sale

(700

)

(1,800

)

Equity investment depreciation and amortization(i)

1,905

1,316

7,039

5,409

Adjusted EBITDA(i)

$

56,285

$

45,192

$

207,333

$

174,336

Adjusted EBITDA margin(ii)

24.0

%

26.6

%

25.5

%

29.9

%

(i) See "Non-GAAP Financial Measures".
(ii)Adjusted EBITDA margin is calculated using adjusted EBITDA over total combined revenue.
(iii)The prior year amounts are adjusted to reflect a change in accounting policy. See "Change in Accounting Policy - Basis of presentation".

Below is a reconciliation of the amount included in adjusted EBITDA for the three months and year ended December 31, 2021.

Three months ended

Year ended

December 31,

December 31,

(dollars in thousands)

2021

2020(ii)

2021

2020(ii)

Equity (earnings) loss in affiliates and joint ventures

$

5,581

$

(70

)

$

21,860

$

7,740

Adjustments:

Interest expense, net

(73

)

149

168

376

Income tax expense

294

1,125

3,204

1,374

Gain on disposal of property, plant and equipment

(34

)

80

80

403

Equity investment EBIT(i)

$

5,768

$

1,284

$

25,312

$

9,893

(i) See "Non-GAAP Financial Measures"
(ii)The prior year amounts are adjusted to reflect a change in accounting policy. See "Change in significant accounting policy - Basis of presentation".

About the Company

North American Construction Group Ltd. (www.nacg.ca) is one of Canada’s largest providers of heavy civil construction and mining contractors. For more than 65 years, NACG has provided services to large oil, natural gas and resource companies.

For further information contact:

Jason Veenstra, CPA, CA
Chief Financial Officer
North American Construction Group Ltd.
(780) 960.7171
ir@nacg.ca
www.nacg.ca



Consolidated Balance Sheets

As at December 31
(Expressed in thousands of Canadian Dollars)

2021

2020(i)

Assets

Current assets

Cash

$

16,601

$

43,447

Accounts receivable

68,787

36,231

Contract assets

9,759

7,008

Inventories

44,544

19,151

Prepaid expenses and deposits

6,828

4,977

Assets held for sale

660

4,129

Derivative financial instruments

4,334

147,179

119,277

Property, plant and equipment, net of accumulated depreciation $339,505 (2020 – $302,161)

640,950

632,210

Operating lease right-of-use assets

14,768

18,192

Investments in affiliates and joint ventures

55,974

46,263

Other assets

6,000

6,336

Goodwill and intangible assets

4,407

378

Deferred tax assets

16,407

Total assets

$

869,278

$

839,063

Liabilities and shareholders' equity

Current liabilities

Accounts payable

$

76,251

$

41,428

Accrued liabilities

33,389

19,382

Contract liabilities

3,349

1,512

Current portion of long-term debt

19,693

16,263

Current portion of finance lease obligations

25,035

26,895

Current portion of operating lease liabilities

3,317

4,004

161,034

109,484

Long-term debt

306,034

341,396

Finance lease obligations

29,686

42,577

Operating lease liabilities

11,461

14,118

Other long-term obligations

26,400

18,850

Deferred tax liabilities

56,200

64,195

590,815

590,620

Shareholders' equity

Common shares (authorized – unlimited number of voting common shares; issued and outstanding – December 31, 2021 - 30,022,928 (December 31, 2020 – 31,011,831))

246,944

255,064

Treasury shares (December 31, 2021 - 1,564,813 (December 31, 2020 - 1,845,201))

(17,802

)

(18,002

)

Additional paid-in capital

37,456

46,536

Retained earnings (deficit)

11,863

(35,155

)

Accumulated other comprehensive income

2

Shareholders' equity

278,463

248,443

Total liabilities and shareholders' equity

$

869,278

$

839,063

(i)The prior year amounts are adjusted to reflect a change in accounting policy. See "Change in significant accounting policy - Basis of presentation".



Consolidated Statements of Operations and Comprehensive Income

For the years ended December 31
(Expressed in thousands of Canadian Dollars, except per share amounts)

2021

2020(i)

Revenue

$

654,143

$

498,468

Project costs

223,537

140,341

Equipment costs

232,173

177,127

Depreciation

108,016

88,782

Gross profit

90,417

92,218

General and administrative expenses

35,374

24,437

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

(85

)

659

Operating income

55,128

67,122

Interest expense, net

19,032

18,656

Equity earnings in affiliates and joint ventures

(21,860

)

(7,740

)

Net realized and unrealized gain on derivative financial instruments

(2,737

)

(4,266

)

Income before income taxes

60,693

60,472

Current income tax expense

1,000

Deferred income tax expense

8,285

11,264

Net income

51,408

49,208

Other comprehensive income

Unrealized foreign currency translation gain

(2

)

Comprehensive income

$

51,410

$

49,208

Per share information

Basic net income per share

$

1.81

$

1.75

Diluted net income per share

$

1.64

$

1.60

(i)The prior year amounts are adjusted to reflect a change in accounting policy. See "Change in significant accounting policy - Basis of presentation".