North American Construction Group Ltd. (“NACG”) (TSX:NOA/NYSE:NOA)
today announced results for the first quarter ended March 31,
2021. Unless otherwise indicated, financial figures are expressed
in Canadian dollars, and comparisons are to the prior period ended
March 31, 2020.
First Quarter 2021
Highlights:
-
Adjusted EBITDA of $61.1 million represents a $1.2 million increase
over the prior year, reflecting a strong operational quarter and
the continued recovery of operating hours towards pre-pandemic
levels.
-
Gross profit margin of 19.0% compared to 17.4% in prior year
reflecting relatively standard winter season operating conditions
allowing for efficient and effective execution of volume
commitments.
-
COVID-19 related safety protocols and mine site access restrictions
continue impacting all aspects of operations but are becoming more
routine and less disruptive in nature.
-
Nuna Group of Companies ("Nuna") achieved a record first quarter,
which has historically been the slowest quarter of the year. Our
share of Nuna revenue was $25.2 million in the quarter compared to
$10.4 million in Q1 2020. This quarter over quarter increase of
142% was achieved due to the strong ramp-up of work being completed
by the joint venture owned by Nuna and North American at a gold
mine project in Northern Ontario.
-
Free cash flow ("FCF") in the quarter was $5.5 million was
generated by strong adjusted EBITDA offset by our front-weighted
capital maintenance program. Furthermore, the timing of working
capital balances resulted in use of cash of $18.5 million which is
expected to reverse during the remainder of the year.
-
Net debt was $397.2 million at March 31, 2021. The increase of
$11.5 million from the December 31, 2020 balance of $385.6
million was primarily driven by the share purchase program, through
which we purchased and cancelled 1.1 million shares during the
quarter.
-
On February 2, 2021, we issued our inaugural sustainability report.
The annual report provides structured framework for environmental,
social and governance initiatives moving forward and will allow for
measurement of progress towards our goals in various business
areas.
-
In mid-February 2021 and effective January 1, 2021, Barry Palmer
was appointed Chief Operating Officer.
-
On April 6, 2021, we announced our intention to commence a normal
course issuer bid ("NCIB") to purchase for cancellation up to
2,000,000 common shares. This represented approximately 6.7% of the
issued and outstanding common shares as of April 6, 2021. The NCIB
commenced on April 9, 2021 and will terminate no later than April
8, 2022.
NACG President and CEO, Joe Lambert, commented: "It
is always very pleasing to start a new year beating expectations.
My thanks to the NACG team for their continued dedication to
operational excellence during the start of 2021 which continued our
positive trend of recovery from the Q2 2020 pandemic influenced
lows."
Mr. Lambert added: "The next few months will
provide opportunity to showcase our excellence in execution and
potentially win some tenders that could accelerate our strategic
plans for 2021 and several years to come. We are proud of our Q1
results and the team continues to work hard in delivering safe,
low-cost, diversified and sustainable growth going forward."
Consolidated Financial
Highlights
|
Three months ended |
|
|
|
March 31, |
|
|
(dollars in thousands, except per share amounts) |
2021 |
|
2020 |
|
Change |
Revenue |
$ |
168,408 |
|
|
$ |
198,817 |
|
|
$ |
(30,409 |
) |
Project costs |
50,162 |
|
|
60,117 |
|
|
(9,955 |
) |
Equipment costs |
54,985 |
|
|
71,741 |
|
|
(16,756 |
) |
Depreciation |
31,198 |
|
|
32,308 |
|
|
(1,110 |
) |
Gross profit(i) |
$ |
32,063 |
|
|
$ |
34,651 |
|
|
$ |
(2,588 |
) |
Gross profit margin(i) |
19.0 |
% |
|
17.4 |
% |
|
1.6 |
% |
General and administrative expenses (excluding stock-based
compensation) |
7,022 |
|
|
9,050 |
|
|
(2,028 |
) |
Stock-based compensation expense (benefit) |
2,374 |
|
|
(6,863 |
) |
|
9,237 |
|
Operating income |
22,925 |
|
|
32,307 |
|
|
(9,382 |
) |
Interest expense, net |
4,542 |
|
|
5,528 |
|
|
(986 |
) |
Net income and comprehensive income |
19,386 |
|
|
19,035 |
|
|
351 |
|
|
|
|
|
|
|
Adjusted EBITDA(i) |
61,138 |
|
|
59,933 |
|
|
1,205 |
|
Adjusted EBITDA margin(i) |
36.3 |
% |
|
30.1 |
% |
|
6.2 |
% |
|
|
|
|
|
|
Per share information |
|
|
|
|
|
Basic net income per share |
$ |
0.68 |
|
|
$ |
0.74 |
|
|
$ |
(0.06 |
) |
Diluted net income per share |
$ |
0.62 |
|
|
$ |
0.67 |
|
|
$ |
(0.05 |
) |
Adjusted EPS(i) |
$ |
0.65 |
|
|
$ |
0.70 |
|
|
$ |
(0.05 |
) |
(i)See "Non-GAAP Financial Measures".
|
|
Three months ended |
|
|
March 31, |
(dollars in thousands) |
|
2021 |
|
2020 |
Cash provided by operating activities |
|
$ |
41,938 |
|
|
|
$ |
48,935 |
|
|
Cash used in investing activities |
|
(21,431 |
) |
|
|
(41,633 |
) |
|
Capital additions financed by leases |
|
(15,023 |
) |
|
|
(26,618 |
) |
|
Add back: |
|
|
|
|
Growth capital additions |
|
— |
|
|
|
28,743 |
|
|
Free cash flow(i) |
|
$ |
5,484 |
|
|
|
$ |
9,427 |
|
|
(i)See "Non-GAAP Financial Measures".
Declaration of Quarterly
Dividend
On April 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 May 28, 2021.
The Dividend will be paid on July 9, 2021 and is an eligible
dividend for Canadian income tax purposes.
Financial Results for the Three Months
Ended March 31, 2021
Revenue was $168.4 million, down from $198.8
million in the same period last year. The decrease in revenue is
driven by the continued delay of several large projects due to the
uncertainty and variability of the COVID-19 pandemic. Our overall
performance continues to be affected by the impacts of the COVID-19
pandemic and the various risk mitigation measures that both we and
our customers have implemented in response. We have seen an upward
trend in demand for our services over the past several quarters,
however. This is reflected in revenue of $168.4 million in Q1 2021,
which was a 23% increase from Q4 2020 and continues a trend of
quarterly increases of 45% and 33%, in Q4 2020 and Q3 2020,
respectively, from the low experienced in Q2 2020. This was further
reflected in productive operating hours from our heavy equipment
fleet which were up 14% in Q1 2021 when comparing to Q4 2020. While
not consolidated in our revenue, the Nuna Group of Companies
("Nuna"), in which we have a 49% ownership interest, achieved a
record first quarter. Our share of Nuna's revenue, which is
consolidated in equity earnings, was $25.2 million in Q1 2021 and
was achieved during a typically slow quarter for Nuna due to the
strong ramp-up of work being completed by the joint venture owned
by Nuna and North American at a gold mine project in Northern
Ontario.
Gross profit margin of 19.0% benefited from
continued discipline in cost management as customer-imposed volume
reductions are still in place. The gross margin achieved was the
result of strong operational execution across all sites and was
aided by the Canada Emergency Wage Subsidy. Operations support
contracts at the coal mines in Texas and Wyoming also added to the
higher gross profit margin.
Direct general and administrative expenses
(excluding stock-based compensation) were $7.0 million, equivalent
to 4.2% of revenue, lower than Q1 2020 spending of $9.1 million and
4.6% of revenue based on a combination of cost control initiatives
and lower discretionary and non-essential spending.
Cash related interest expense for the quarter of
$4.3 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 $5.5 million
generated by the adjusted EBITDA of $61.1 million offset by
sustaining capital of $42.5 million and cash interest paid of $4.6
million. Sustaining maintenance capital is in alignment with the
2021 capital maintenance plan reflecting both the typical heavy
first quarter we experience during our busy winter season and the
purchase of smaller support equipment in advance of the year ahead.
FCF was impacted by timing of cash collection and spending as
working capital balances consumed $18.5 million.
Business Updates
2021 Focus & Priorities
-
Safety - focus on people and relationships, 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 constant measurement of progress to
those targets.
-
Diversification - continue to pursue diversification of customer,
resource and geography through strategic partnerships, industry
expertise and our investment in Nuna.
-
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.
Liquidity
Total liquidity of $150.8 million as at
March 31, 2021 represents a $2.8 million increase 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.
Canada Emergency Wage Subsidy
(“CEWS”)
Our Q1 2021 results include $5.8 million of salary
and wage subsidies presented as reductions in project costs,
equipment costs and general and administrative expenses of $3.8
million, $1.7 million and $0.3 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
2021.
NACG’s outlook for 2021
Given our visibility into the remainder of 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 |
|
$180 - $210M |
Sustaining capital |
|
$95 - $105M |
Adjusted EPS |
|
$1.60 - $1.90 |
Free cash flow |
|
$65 - $85M |
|
|
|
Capital allocation measures |
|
|
Deleverage |
|
$30 - $40M |
Share purchases |
|
$20 - $35M |
Growth capital |
|
$5 - $10M |
|
|
|
Leverage ratios |
|
|
Senior debt |
|
1.5x - 1.9x |
Net debt |
|
1.8x - 2.2x |
Conference Call and Webcast
Management will hold a conference call and
webcast to discuss our financial results for the quarter ended
March 31, 2021 tomorrow, Thursday, April 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:
6266913
A replay will be available through May 27, 2021, by
dialing:
Toll Free:
1-855-859-2056 International: 1-404-537-3406 Conference ID:
6266913
The Q1 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=EC3523EA-6634-422F-8469-6D7E6CE7744B
A replay will be available until May 27, 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 March 31, 2021 for further detail on the
matters discussed in this release. In addition to the MD&A,
please reference the dedicated Q1 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 include, and the risks and
uncertainties to which such forward-looking statements are subject,
are highlighted in the MD&A for the three months ended March
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.
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 to adjusted net earnings, adjusted EBIT and adjusted EBITDA
is as follows:
|
Three months ended |
|
March 31, |
(dollars in thousands) |
2021 |
|
2020 |
Net income and comprehensive income |
$ |
19,386 |
|
|
$ |
19,035 |
|
Adjustments: |
|
|
|
(Gain) loss on disposal of property, plant and equipment |
(258 |
) |
|
157 |
|
Stock-based compensation expense (benefit) |
2,374 |
|
|
(6,863 |
) |
Net realized and unrealized (gain) loss on derivative financial
instruments |
(2,484 |
) |
|
2,210 |
|
Write-down on assets held for sale |
— |
|
|
1,800 |
|
Tax effect of the above items |
(487 |
) |
|
1,677 |
|
Adjusted net earnings(i) |
18,531 |
|
|
18,016 |
|
Adjustments: |
|
|
|
Tax effect of the above items |
487 |
|
|
(1,677 |
) |
Interest expense, net |
4,542 |
|
|
5,528 |
|
Income tax expense |
4,950 |
|
|
5,994 |
|
Equity earnings in affiliates and joint ventures(i) |
(3,469 |
) |
|
(460 |
) |
Equity investment EBIT(i) |
3,568 |
|
|
560 |
|
Adjusted EBIT(i) |
28,609 |
|
|
27,961 |
|
Adjustments: |
|
|
|
Depreciation and amortization |
31,078 |
|
|
32,750 |
|
Write-down on assets held for sale |
— |
|
|
(1,800 |
) |
Equity investment depreciation and amortization(i) |
1,451 |
|
|
1,022 |
|
Adjusted EBITDA(i) |
$ |
61,138 |
|
|
$ |
59,933 |
|
(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 |
|
March 31, |
(dollars in thousands) |
2021 |
|
2020 |
Equity earnings in affiliates and joint ventures |
$ |
3,469 |
|
|
$ |
460 |
|
Adjustments: |
|
|
|
Interest expense, net |
78 |
|
|
52 |
|
Income tax expense |
74 |
|
|
48 |
|
Gain on disposal of property, plant and equipment |
(53 |
) |
|
— |
|
Equity investment EBIT(i) |
$ |
3,568 |
|
|
$ |
560 |
|
(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 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, CAChief Financial OfficerNorth
American Construction Group Ltd.(780)
948-2009 jveenstra@nacg.cawww.nacg.ca
Interim Consolidated Balance
Sheets
(Expressed in thousands of Canadian
Dollars)(Unaudited)
|
Note |
|
March 31,2021 |
|
December 31,2020 |
Assets |
|
|
|
|
|
Current assets |
|
|
|
|
|
Cash |
|
|
$ |
31,733 |
|
|
$ |
43,915 |
|
Accounts receivable |
4 |
|
65,266 |
|
|
36,373 |
|
Contract assets |
5(b) |
|
5,609 |
|
|
7,034 |
|
Inventories |
|
|
21,735 |
|
|
19,174 |
|
Prepaid expenses and deposits |
|
|
3,942 |
|
|
4,999 |
|
Assets held for sale |
|
|
5,006 |
|
|
4,129 |
|
Derivative financial instruments |
|
|
607 |
|
|
4,334 |
|
|
|
|
133,898 |
|
|
119,958 |
|
Property, plant and equipment, net of accumulated depreciation of
$320,043 (December 31, 2020 – $302,682) |
|
|
644,220 |
|
|
633,704 |
|
Operating lease right-of-use assets |
|
|
17,055 |
|
|
18,192 |
|
Investments in affiliates and joint ventures |
7 |
|
38,859 |
|
|
44,050 |
|
Other assets |
|
|
7,515 |
|
|
6,617 |
|
Deferred tax assets |
|
|
— |
|
|
16,407 |
|
Total assets |
|
|
$ |
841,547 |
|
|
$ |
838,928 |
|
Liabilities and shareholders’ equity |
|
|
|
|
|
Current liabilities |
|
|
|
|
|
Accounts payable |
|
|
$ |
49,379 |
|
|
$ |
41,369 |
|
Accrued liabilities |
12 |
|
18,410 |
|
|
19,111 |
|
Contract liabilities |
5(b) |
|
5,571 |
|
|
1,512 |
|
Current portion of long-term debt |
6 |
|
18,338 |
|
|
16,307 |
|
Current portion of finance lease obligations |
|
|
28,905 |
|
|
26,895 |
|
Current portion of operating lease liabilities |
|
|
3,701 |
|
|
4,004 |
|
|
|
|
124,304 |
|
|
109,198 |
|
Long-term debt |
6 |
|
332,095 |
|
|
341,547 |
|
Finance lease obligations |
|
|
47,436 |
|
|
42,577 |
|
Operating lease liabilities |
|
|
13,302 |
|
|
14,118 |
|
Other long-term obligations |
|
|
19,784 |
|
|
18,850 |
|
Deferred tax liabilities |
|
|
52,738 |
|
|
64,195 |
|
|
|
|
589,659 |
|
|
590,485 |
|
Shareholders' equity |
|
|
|
|
|
Common shares (authorized – unlimited number of voting common
shares; issued and outstanding – March 31, 2021 - 29,949,528
(December 31, 2020 – 31,011,831)) |
9(a) |
|
246,545 |
|
|
255,064 |
|
Treasury shares (March 31, 2021 - 1,850,826 (December 31, 2020 -
1,845,201)) |
9(a) |
|
(18,080 |
) |
|
(18,002 |
) |
Additional paid-in capital |
|
|
40,188 |
|
|
46,536 |
|
Deficit |
|
|
(16,765 |
) |
|
(35,155 |
) |
Shareholders' equity |
|
|
251,888 |
|
|
248,443 |
|
Total liabilities and shareholders’ equity |
|
|
$ |
841,547 |
|
|
$ |
838,928 |
|
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 |
|
|
|
March 31, |
|
Note |
|
2021 |
|
2020 |
Revenue |
5 |
|
$ |
168,408 |
|
|
$ |
198,817 |
|
Project costs |
|
|
50,162 |
|
|
60,117 |
|
Equipment costs |
|
|
54,985 |
|
|
71,741 |
|
Depreciation |
|
|
31,198 |
|
|
32,308 |
|
Gross profit |
|
|
32,063 |
|
|
34,651 |
|
General and administrative expenses |
|
|
9,396 |
|
|
2,187 |
|
(Gain) loss on disposal of property, plant and equipment |
|
|
(258 |
) |
|
157 |
|
Operating income |
|
|
22,925 |
|
|
32,307 |
|
Interest expense, net |
10 |
|
4,542 |
|
|
5,528 |
|
Equity earnings in affiliates and joint ventures |
7 |
|
(3,469 |
) |
|
(460 |
) |
Net realized and unrealized (gain) loss on derivative financial
instruments |
6(b) |
|
(2,484 |
) |
|
2,210 |
|
Income before income taxes |
|
|
24,336 |
|
|
25,029 |
|
Current income tax expense |
|
|
— |
|
|
17 |
|
Deferred income tax expense |
|
|
4,950 |
|
|
5,977 |
|
Net income and comprehensive income |
|
|
$ |
19,386 |
|
|
$ |
19,035 |
|
Per share information |
|
|
|
|
|
Basic net income per share |
9(b) |
|
$ |
0.68 |
|
|
$ |
0.74 |
|
Diluted net income per share |
9(b) |
|
$ |
0.62 |
|
|
$ |
0.67 |
|
See accompanying notes to interim consolidated
financial statements.
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