North American Energy Partners Inc. ("NAEP" or "the Company") (TSX:
NOA) (NYSE: NOA) today announced results for the three months ended
June 30, 2010.
Conversion to US GAAP
The Company has prepared its consolidated financial statements
in conformity with accounting principles generally accepted in the
United States (US GAAP). All comparative financial information
contained herein has been revised to reflect the Company's results
as if they had been historically reported in accordance with US
GAAP. Unless otherwise specified, all dollar amounts discussed are
in Canadian dollars.
Consolidated Financial Highlights
Three Months Ended June 30,
(dollars in thousands) 2010 2009
----------------------------------------------------------------------------
Revenue $ 183,594 $ 146,519
Gross profit $ 15,620 $ 25,140
Gross profit margin 8.5% 17.2%
Operating income $ 1,064 $ 10,138
Operating margin 0.6% 6.9%
Net (loss) income $ (10,309) $ 9,927
Consolidated EBITDA $ 12,179 $ 19,394
Capital expenditures $ 6,589 $ 19,710
Cash and cash equivalents $ 78,868 $ 79,989
"We achieved 25% growth in consolidated revenue during the three
months ended June 30, 2010," said President and CEO, Rod Ruston.
"Volumes in our recurring services business were particularly
strong with significantly higher activity at Canadian Natural's
Horizon project and steady work volumes with our other key oil
sands customers despite a reduction of activity at Shell's oil
sands operations as this client shutdown to both commission the
Jackpine project and undertake a major maintenance program. Piling
volumes were also up 30% over last year in spite of severe weather
conditions that hampered much of our work throughout the
quarter."
Gross profit was negatively impacted by a heavy workload of
planned equipment repair and maintenance activity during the spring
break-up period, primarily on leased equipment units where major
maintenance costs are expensed rather than capitalized. This,
together with a negative foreign exchange impact on our long-term
overburden removal contract and an abnormally high volume of
unsigned change orders in the Piling segment at the end of the
quarter, resulted in a reduction in gross margins.
"Our first quarter margin performance largely reflects one-time
items compounded by our standard first-quarter equipment
maintenance program," said Ruston. "We expect margins to return to
normal levels as we move into the second quarter and we'll also
benefit as the outstanding change orders are processed."
"Our outlook going forward remains positive and it's reflected
in our growing backlog," Mr. Ruston added. "We are seeing a strong
level of activity throughout the oil sands and increasing momentum
as the project development side of this business begins to recover.
Commercial and industrial construction demand is also starting to
recover and we are beginning to benefit from our move into the
Ontario market. Overall, we are encouraged by the momentum we see
returning to our business and anticipate improving operating
performance as the year progresses," said Mr. Ruston.
Consolidated Results for the Three Months Ended June 30, 2010
Three Months Ended June 30,
(dollars in thousands) 2010 2009 Change
----------------------------------------------------------------------------
Revenue $ 183,594 $ 146,519 $ 37,075
For the three months ended June 30, 2010, consolidated revenues
increased to $183.6 million, from $146.5 million during the same
period last year. The $37.1 million improvement reflects an
increase in recurring services and in Piling segment activity.
Recurring services accounted for 88% of the Company's oil sands'
revenue in the period, compared to 87% in the same period last
year.
Three Months Ended June 30,
(dollars in thousands) 2010 2009 Change
----------------------------------------------------------------------------
Gross profit $ 15,620 $ 25,140 $ (9,520)
Gross profit margin 8.5% 17.2%
Gross profit for the three months ended June 30, 2010 was $15.6
million (8.5% of revenue), compared to $25.1 million ($17.2% of
revenue) during the same period last year. The reduction in gross
profit margin is partly related to a $2.3 million reduced profit on
the long-term overburden removal contract in the Heavy Construction
and Mining segment resulting from the negative impact of a stronger
Canadian dollar on the value of the contract. Gross profit was also
negatively affected by reduced margin in the Piling segment due to
delays in executing change orders, as well as by higher equipment
costs due to increased repair maintenance activity during the
spring break-up period.
Three Months Ended June 30,
(dollars in thousands) 2010 2009 Change
----------------------------------------------------------------------------
Operating income $ 1,064 $ 10,138 $ (9,074)
Operating margin 0.6% 6.9%
For the three months ended June 30, 2010, operating income was
$1.1 million (0.6% of revenue), compared to an operating income of
$10.1 million (6.9% of revenue) during the same period last year
largely due to lower gross margins as discussed above. In addition,
general and administrative expense decreased by $1.2 million
year-over-year. Prior-year general and administrative costs were
impacted by higher stock-based compensation costs related to
deferred performance share units and director share units due to
increases in our share price in the prior-year period.
(dollars in thousands, except Three Months Ended June 30,
per share amounts) 2010 2009 Change
----------------------------------------------------------------------------
Net (loss) income $ (10,309) $ 9,927 $ (20,236)
Per share information
Net (loss) income - basic $ (0.29) $ 0.28 $ (0.57)
Net (loss) income - diluted $ (0.29) $ 0.27 $ (0.56)
The Company recorded a net loss of $10.3 million (basic and
diluted loss per share of $0.29) for the three months ended June
30, 2010, compared to a net income of $9.9 million (basic income
per share of $0.28 and diluted income per share of $0.27) during
the same period last year. The non-cash items affecting results in
the most recent period included a loss related to the write-off of
deferred financing costs related to the extinguishment of the 8
3/4% senior notes, a loss on the cross-currency and interest rate
swaps and a loss relating to embedded derivatives in long-term
supplier contracts. These items were partially offset by the
positive foreign exchange impact of the strengthening Canadian
dollar on the extinguishment of the 8 3/4% senior notes and a gain
relating to embedded derivatives in a long-term customer contract.
Net income for the same period last year was positively affected by
the foreign exchange impact of the strengthening Canadian dollar on
the 8 3/4% senior notes, a gain related to embedded derivatives in
an early redemption option on the 8 3/4% senior notes and a gain
relating to embedded derivatives in long-term supplier contracts,
partially offset by a loss on the cross-currency and interest rate
swaps and a loss relating to embedded derivatives in a long-term
customer contract. Excluding the above items, net loss for the
three months ended June 30, 2010 would have been $4.1 million
(basic and diluted loss per share of $0.11), compared to net income
of $0.1 million (basic and diluted income per share of $nil) during
the same period last year.
Segment Results
Heavy Construction and Mining
Three Months Ended June 30,
(dollars in thousands) 2010 2009 Change
----------------------------------------------------------------------------
Segment revenue $ 163,609 $ 131,826 $ 31,783
Segment profit 22,247 23,514 $ (1,267)
Segment profit percentage 13.6% 17.8%
For the three months ended June 30, 2010, revenue from the Heavy
Construction and Mining segment increased $31.8 million to $163.6
million, primarily as a result of higher recurring services
revenue. The growth in recurring services revenue was driven by a
return to planned operational levels on the long-term overburden
removal contract at Canadian Natural and increased activity at
Suncor's site under the Company's truck rental agreement. The
recurring services gains were partially offset by lower activity
levels with Shell Albian as a result of the shutdown at this
customer's operation in preparation for the transition to
production at the Jackpine mine. Project development revenues also
increased in the current period as a result of a construction
project executed for Imperial Oil's Kearl project.
Segment margins for the three months ended June 30, 2010 were
13.6%, compared to 17.8% during the same period last year. The
change in profit margin primarily reflects a $2.3 million profit
reduction in the forecast for the long-term overburden removal
contract as a result of a reduction in the US exchange rate of the
Canadian dollar. In the prior-year period, results included a $4.0
million profit increase in the forecast for this same project as a
result of an increase in the US exchange rate of the Canadian
dollar. Lower project efficiency during the spring break-up period
also contributed to the reduced segment profit.
Piling
Three Months Ended June 30,
(dollars in thousands) 2010 2009 Change
----------------------------------------------------------------------------
Segment revenue $ 19,146 $ 14,618 $ 4,528
Segment profit 1,394 $ 2,684 $ (1,290)
Segment profit percentage 7.3% 18.4%
For the three months ended June 30, 2010, Piling segment
revenues were $19.1 million compared to $14.6 million in the same
period last year. The improvement in Piling revenues reflects a
partial recovery in activity levels in the commercial and
industrial construction markets. These gains were made despite
abnormally high precipitation levels in Western Canada during the
spring break-up period, which delayed some piling work to future
periods.
Segment margins decreased to 7.3%, from 18.4%, reflecting the
delay in the execution of change orders in the current period.
Pipeline
Three Months Ended June 30,
(dollars in thousands) 2010 2009 Change
----------------------------------------------------------------------------
Segment revenue $ 839 $ 75 $ 764
Segment (loss) profit (723) $ 367 $ (1,090)
Segment (loss) profit
percentage -86.2% 489.3%
For the three months ended June 30, 2010, Pipeline revenues
increased to $0.8 million, from $0.1 million in the same period
last year, reflecting the partial resumption of work on a contract
in British Columbia. The segment losses were a result of fixed
project costs incurred during a temporary shutdown of work on a
contract in British Columbia.
Outlook
While spring break-up weather conditions have extended into the
second quarter, the Company still anticipates a gradual
strengthening of demand for services through the balance of the
year.
In the oil sands, demand for recurring services is expected to
remain strong and the Company is currently active with all four of
the operational oil sands producers. NAEP is also continuing to
develop its new environmental and tailings pond reclamation
services offering, which over time, is expected to provide
opportunities to further expand the recurring services business.
Currently, discussions are underway with several customers to
develop pilot projects related to their tailings pond management
strategies.
The outlook for project development in the oil sands also
remains positive. NAEP continues to win piling and heavy
construction-related projects at Exxon's Kearl site and sees
opportunities to further expand its business with this customer.
Other new developments such as Husky Energy Inc.'s Sunrise,
ConocoPhillips' Surmont and Suncor's Firebag in situ projects are
moving forward and could eventually provide additional project
development opportunities as they reach the construction phase.
In the Piling division, activity levels are beginning to ramp up
as weather conditions in Western Canada improve and projects
delayed by the earlier rainy conditions, get underway. The Piling
division built up a significant backlog of projects over the past
three months and anticipates it will be able to work through these
projects by the end of the fiscal year. The division has also been
successful in attracting a growing volume of business in the
Ontario market, including its first significant commercial
development piling project.
The Pipeline division anticipates a stronger second and third
quarter with work on two new projects getting underway in August
2010. These include TransCanada Pipelines' NPS Groundbirch Mainline
project, which involves construction of a 77 km, 36-inch pipeline
in British Columbia. The Pipeline division will also commence work
on the second phase of Spectra Energy's Maxhamish Loop project,
which involves construction of a 30 km, 24-inch pipeline also in
British Columbia. Both projects are scheduled for completion in
November 2010.
Overall the Company is encouraged by the improving market
conditions and by its steadily increasing backlog of work.
Conference Call and Webcast
Management will hold a conference call and webcast to discuss
its financial results for the three months ended June 30, 2010
tomorrow, Thursday, August 5, 2010 at 9:00 am Eastern time.
The call can be accessed by dialing:
Toll free: 1-877-407-9205 or International: 1-201-689-8054
A replay will be available through September 7, 2010 by
dialing:
Toll Free: 1-877-660-6853 or International: 1-201-612-7415
(Account: 286 Conference ID: 354813)
Interim Consolidated Balance Sheets
(Expressed in thousands of Canadian dollars)
June 30, 2010 March 31, 2010
------------------------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 78,868 $ 103,005
Accounts receivable, net (allowance for
doubtful accounts of $773, March 2010 -
$1,691) 89,925 111,884
Unbilled revenue 90,284 84,702
Inventories 10,385 5,659
Prepaid expenses and deposits 10,744 6,881
Deferred tax assets 2,843 3,481
------------------------------
283,049 315,612
Prepaid expenses and deposits 3,573 4,005
Assets held for sale 838 838
Property, plant and equipment 326,550 328,743
Intangible assets, net (accumulated
amortization of $5,179, March 2010 - $4,591) 7,652 7,669
Deferred financing costs 8,539 6,725
Investment in and advances to unconsolidated
joint venture 3,215 2,917
Goodwill 25,111 25,111
Deferred tax assets 24,112 10,997
------------------------------
$ 682,639 $ 702,617
------------------------------
------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 71,847 $ 66,876
Accrued liabilities 32,818 47,191
Billings in excess of costs incurred and
estimated earnings on uncompleted contracts 3,067 1,614
Current portion of capital lease obligations 4,699 5,053
Current portion of derivative financial
instruments 2,550 22,054
Current portion of term facilities 10,000 6,072
Deferred tax liabilities 21,527 16,781
------------------------------
146,508 165,641
Deferred lease inducements 734 761
Long term accrued liabilities 15,317 14,943
Capital lease obligations 7,314 8,340
Term facilities 65,946 22,374
8 3/4% senior notes - 203,120
Series 1 debentures 225,000 -
Director deferred stock unit liability 2,674 2,548
Restricted share unit liability 1,333 1,030
Derivative financial instruments 14,291 75,001
Asset retirement obligation 368 360
Deferred tax liabilities 31,931 27,441
------------------------------
511,416 521,559
Shareholders' equity:
Common shares (authorized - unlimited number
of voting and non-voting common shares;
issued and outstanding - June 30, 2010 -
36,062,036 voting common shares (March 31,
2010 - 36,049,276 voting common shares) 303,593 303,505
Additional paid-in capital 7,825 7,439
Deficit (140,195) (129,886)
------------------------------
171,223 181,058
------------------------------
$ 682,639 $ 702,617
------------------------------
------------------------------
Interim Consolidated Statements of Operations and Comprehensive Income
(Loss)
(Expressed in thousands of Canadian dollars, except per share amounts)
Three months ended June 30,
------------------------------
2010 2009
------------------------------
Revenue $ 183,594 $ 146,519
Project costs 77,277 54,262
Equipment costs 65,003 46,044
Equipment operating lease expense 17,491 12,349
Depreciation 8,203 8,724
------------------------------
Gross profit 15,620 25,140
General and administrative costs 13,729 14,976
(Gain) loss on disposal of property, plant and
equipment (4) 41
Gain on disposal of assets held for sale - (317)
Amortization of intangible assets 588 493
Equity in loss (earnings) of unconsolidated
joint venture 243 (191)
------------------------------
Operating income before the undernoted 1,064 10,138
Interest expense, net 7,729 6,552
Foreign exchange gain (1,697) (19,436)
Realized and unrealized loss on derivative
financial instruments 3,008 10,021
Loss on debt extinguishment 4,346 -
Other expense - 533
------------------------------
(Loss) income before income taxes (12,322) 12,468
Income taxes (benefit)
Current 1,228 -
Deferred (3,241) 2,541
------------------------------
Net (loss) income and comprehensive (loss)
income for the period (10,309) 9,927
------------------------------
------------------------------
Net (loss) income per share - basic $ (0.29) $ 0.28
------------------------------
------------------------------
Net (loss) income per share - diluted $ (0.29) $ 0.27
------------------------------
------------------------------
Intrim Consolidated Statements of Cash Flows
(Expressed in thousands of Canadian dollars)
Three months ended June 30,
------------------------------
2010 2009
------------------------------
Cash provided by (used in):
Operating activities:
Net (loss) income for the period $ (10,309) $ 9,927
Items not affecting cash:
Depreciation 8,203 8,724
Equity in loss (earnings) of unconsolidated
joint venture 243 (191)
Amortization of intangible assets 588 493
Amortization of deferred lease inducements (27) (26)
Amortization of deferred financing costs 526 805
(Gain) loss on disposal of property, plant
and equipment (4) 41
Gain on disposal of assets held for sale - (317)
Unrealized foreign exchange gain on 8 3/4%
senior notes (732) (19,540)
Unrealized loss on derivative financial
instruments measured at fair value 3,008 6,685
Loss on debt extinguishment 4,346 -
Stock-based compensation expense 839 1,817
Accretion of asset retirement obligation 8 9
Deferred income taxes (benefit) (3,241) 2,541
Net changes in non-cash working capital 12,356 (18,690)
------------------------------
15,804 (7,722)
Investing activities:
Purchase of property, plant and equipment (6,018) (19,221)
Addition to intangible assets (571) (489)
Investment in and advances to unconsolidated
joint venture (541) (500)
Proceeds on disposal of property, plant and
equipment 60 138
Proceeds on disposal of assets held for sale - 960
Net changes in non-cash working capital (2,768) (1,272)
------------------------------
(9,838) (20,384)
Financing activities:
Repayment of term facilities (2,500) -
Increase in term facilities 50,000 11,800
Financing costs (7,704) (1,115)
Redemption of 8 3/4% senior notes (202,410) -
Issuance of series 1 debentures 225,000 -
Settlement of swap liabilities (91,125) -
Proceeds from stock options exercised 64 -
Repayment of capital lease obligations (1,428) (1,470)
------------------------------
(30,103) 9,215
------------------------------
Decrease in cash and cash equivalents (24,137) (18,891)
Cash and cash equivalents, beginning of
period 103,005 98,880
------------------------------
Cash and cash equivalents, end of period $ 78,868 $ 79,989
------------------------------
------------------------------
Consolidated EBITDA
Consolidated EBITDA is a measure defined by the Company's credit
agreement. This measure is defined as EBITDA (which is calculated
as net income before interest, income taxes, depreciation and
amortization) excluding the effects of unrealized foreign exchange
gain or loss, realized and unrealized gain or loss on derivative
financial instruments, non-cash stock-based compensation expense,
gain or loss on disposal of property, plant and equipment and
certain other non--cash items included in the calculation of net
income. The credit agreement requires the Company to maintain a
minimum interest coverage ratio and a maximum senior leverage
ratio, which are calculated using Consolidated EBITDA.
Non-compliance with these financial covenants could result in the
Company being required to immediately repay all amounts outstanding
under its credit facility. Consolidated EBITDA should not be
considered as an alternative to operating income or net income as a
measure of operating performance or cash flows as a measure of
liquidity. Consolidated EBITDA has important limitations as an
analytical tool and should not be considered in isolation or as a
substitute for analysis of the Company's results as reported under
Canadian GAAP or US GAAP. For example, Consolidated EBITDA:
-- does not reflect cash expenditures or requirements for capital
expenditures or capital commitments;
-- does not reflect changes in cash requirements for working capital needs;
-- does not reflect the interest expense or the cash requirements necessary
to service interest or principal payments on debt;
-- excludes tax payments that represent a reduction in cash available to
the Company; and
-- does not reflect any cash requirements for assets being depreciated and
amortized that may have to be replaced in the future.
Consolidated EBITDA also excludes unrealized foreign exchange
gains and losses and realized and unrealized gains and losses on
derivative financial instruments, which, in the case of unrealized
losses, may ultimately result in a liability that will need to be
paid and in the case of realized losses, represents an actual use
of cash during the period.
A reconciliation of net (loss) income to Consolidated EBITDA is
as follows:
Forward-Looking Information
This release contains forward-looking information that is based
on expectations and estimates as of the date of this release.
Forward-looking information is information that is subject to known
and unknown risks and other factors that may cause future actions,
conditions or events to differ materially from the anticipated
actions, conditions or events expressed or implied by such
forward-looking information. Forward-looking information is
information that does not relate strictly to historical or current
facts and can be identified by the use of the future tense or other
forward-looking words such as "believe", "expect", "anticipate",
"intend", "plan", "estimate", "should", "may", "could", "would",
"target", "objective", "projection", "forecast", "continue",
"strategy", "position" or the negative of those terms or other
variations of them or comparable terminology.
Examples of such forward-looking information in this release
include but are not limited to, the following, each of which is
subject to significant risks and uncertainties and is based on a
number of assumptions which may prove to be incorrect:
(A) information related to the level of activity in the
Company's key markets and demand for the Company's services,
including (1) a gradual strengthening of demand for services
through the balance of the year, (2) demand for recurring services
remains strong, (3) the Company's new environmental and tailings
pond reclamation services offering provides opportunities to expand
the recurring services business, (4) the Company's ability to
further expand its business with Exxon, (5) new in situ
developments eventually providing project development
opportunities, (6) the Piling division executing its backlog by
year-end and (7) stronger second and third quarter results in
Pipeline as projects get underway in August; is subject to the
risks and uncertainties that: continued reduced demand for oil and
other commodities as a result of slowing market conditions in the
global economy may result in reduced oil production and a decline
in oil prices; anticipated new major capital projects in the oil
sands may not materialize; demand for the Company's services may be
adversely impacted by regulations affecting the energy industry;
failure by the Company's customers to obtain required permits and
licenses may affect the demand for the Company's services; changes
in the Company's customers' perception of oil prices over the
long-term could cause its customers to defer, reduce or stop their
capital investment in oil sands projects, which would, in turn,
reduce the Company's revenue from those customers; reduced
financing as a result of the tightening credit markets may affect
the Company's customers' decisions to invest in infrastructure
projects; insufficient pipeline, upgrading and refining capacity or
lack of sufficient governmental infrastructure to support growth in
the oil sands region could cause the Company's customers to delay,
reduce or cancel plans to construct new oil sands projects or
expand existing projects, which would, in turn, reduce the
Company's revenue from those customers; a change in strategy by the
Company's customers to reduce outsourcing could adversely affect
the Company's results; cost overruns by the Company's customers on
their projects may cause its customers to terminate future projects
or expansions which could adversely affect the amount of work the
Company receives from those customers; because most of the
Company's customers are Canadian energy companies, a further
downturn in the Canadian energy industry could result in a decrease
in the demand for its services; and unanticipated short term
shutdowns of the Company's customers' operating facilities may
result in temporary cessation or cancellation of projects in which
the Company is participating; and
(B) information related to the future performance of the
Company, including (1) margins returning to normal levels in the
second quarter, (2) the Company's ability to realize the benefits
of outstanding change orders as they are processed and (3)improving
operating performance as the year progresses; is subject to the
risks and uncertainties that: shortages of qualified personnel or
significant labour disputes could adversely affect the Company's
business; if the Company is unable to obtain surety bonds or
letters of credit required by some of its customers, the Company's
business could be impaired; the Company is dependent on its ability
to lease equipment and a tightening of this form of credit could
adversely affect the Company's ability to bid for new work and/or
supply some of its existing contracts; a deterioration of credit
market conditions may restrict the Company's ability to secure new
debt financing and/or increase the cost; the Company's business is
highly competitive and competitors may outbid the Company on major
projects that are awarded based on bid proposals; the Company's
customer base is concentrated and the loss of or a significant
reduction in business from a major customer could adversely impact
the Company's financial condition; lump-sum and unit-price
contracts expose the Company to losses when its estimates of
project costs are lower than actual costs; the Company's operations
are subject to weather-related factors that may cause delays in its
project work; and environmental laws and regulations may expose the
Company to liability arising out of its operations or the
operations of its customers.
While management anticipates that subsequent events and
developments may cause its views to change, the Company does not
intend to update this forward-looking information, except as
required by applicable securities laws. This forward-looking
information represents management's views as of the date of this
document and such information should not be relied upon as
representing their views as of any date subsequent to the date of
this document. The Company has attempted to identify important
factors that could cause actual results, performance or
achievements to vary from those current expectations or estimates
expressed or implied by the forward-looking information. However,
there may be other factors that cause results, performance or
achievements not to be as expected or estimated and that could
cause actual results, performance or achievements to differ
materially from current expectations. There can be no assurance
that forward-looking information will prove to be accurate, as
actual results and future events could differ materially from those
expected or estimated in such statements. Accordingly, readers
should not place undue reliance on forward-looking information.
These factors are not intended to represent a complete list of the
factors that could affect the Company. See the risk factors
highlighted in materials filed with the securities regulatory
authorities in the United States and Canada from time to time,
including but not limited to the most recent Management's
Discussion and Analysis filed respectively in the United States and
Canada.
For more complete information about NAEP, you should read the
disclosure documents filed with the SEC and the CSA. You may obtain
these documents for free by visiting the SEC website at www.sec.gov
or SEDAR on the CSA website at www.sedar.com.
About the Company
North American Energy Partners Inc. (www.nacg.ca) is one of the
largest providers of heavy construction, mining, piling and
pipeline services in Western Canada. For more than 50 years, NAEP
has provided services to large oil, natural gas and resource
companies, with a principal focus on the Canadian oil sands. NAEP
maintains one of the largest independently owned equipment fleets
in the region.
Contacts: North American Energy Partners Inc. Kevin Rowand
Investor Relations (780) 969-5528 (780) 969-5599 (FAX)
krowand@nacg.ca www.nacg.ca
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