North American Energy Partners Inc. ("NAEP" or "the Company") (TSX:
NOA) (NYSE: NOA) today announced results for the three and nine
months ended December 31, 2010. The three-month period represents
the third quarter of NAEP's 2011 fiscal year.
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.
Highlights of the Three Months Ended December 31, 2010
- Consolidated revenue increased 19.9% compared to the same
period last year, with all three business segments posting
year-over-year gains.
- Project development revenues continued to increase as a result
of improving economic conditions and renewed investment in the oil
sands, although margins are yet to respond to these
improvements.
- NAEP was awarded two new, long-term recurring services
contracts with major oil sands customers for work expected to
commence in the fourth quarter.
- The Piling segment achieved significant volume and margin
increases on improving commercial and industrial construction
market demand.
- On November 1, 2010, NAEP acquired the assets of Cyntech
Corporation, a Calgary-based designer and manufacturer of screw
piles and pipeline anchoring systems, as well as a provider of
recurring tank maintenance services to the petro-chemical
industry.
Consolidated Financial Highlights
Three Months Ended Nine Months Ended
(dollars in thousands, December 31, December 31,
except per share amounts) 2010 2009 2010 2009
----------------------------------------------------------------------------
Revenue $ 265,086 $ 221,175 $ 683,538 $ 538,396
Gross profit $ 30,807 $ 47,626 $ 75,524 $ 106,562
Gross profit margin 11.6% 21.5% 11.0% 19.8%
General and administrative
costs $ 16,482 $ 14,532 $ 45,497 $ 43,426
Operating income $ 11,254 $ 31,272 $ 24,623 $ 60,347
Operating margin 4.2% 14.1% 3.6% 11.2%
Net income (loss) $ 3,742 $ 14,936 $ (4,198) $ 29,162
Per share information
Net income (loss) - basic $ 0.10 $ 0.41 $ (0.12) $ 0.81
Net income (loss) - diluted $ 0.10 $ 0.41 $ (0.12) $ 0.79
Consolidated EBITDA (1) $ 25,309 $ 43,844 $ 60,097 $ 95,216
Capital spending $ 11,307 $ 4,774 $ 30,108 $ 48,039
Cash and cash equivalents $ 748 $ 94,877 $ 748 $ 94,877
(1) For a definition of Consolidated EBITDA and reconciliation to net
income, see "Non-GAAP Financial Measures" and "Consolidated EBITDA" at
the end of this release.
"Improving economic conditions and renewed investment in the oil
sands contributed to stronger top-line results for the three and
nine months ended December 31, 2010," said Rod Ruston, NAEP's
President and CEO. "All three of our business segments posted
year-over-year revenue gains. Given that margin movement tends to
trail revenue changes by six to nine months, this increase in
revenue signals higher demand and bodes well for our margins on our
shorter-term contracts and master services agreements in the latter
part of calendar 2011."
For the three months ended December 31, 2010, consolidated
revenue increased by 19.9% compared to the same period last year on
increased project development revenues. In the oil sands, the
completion of tailings-related construction projects and mine site
development projects were key factors. Outside of the oil sands,
improving commercial and industrial construction market conditions
and more stable weather conditions led to an increase in the volume
of piling projects. Pipeline revenues were also higher
year-over-year as a result of activity on two projects in northern
British Columbia (BC).
Recurring services revenues declined in the three-month period,
reflecting reduced demand for services at Shell Canada Energy's
(Shell) Jackpine mine during the mine's commissioning. Now that
this mine has commenced operation, NAEP expects new service
opportunities to arise as the mine expands. The decline at Jackpine
was partially offset by increased demand for recurring services
from Canadian Natural Resources Limited's (Canadian Natural)
Horizon mine while demand from other oil sands customers remained
stable.
Gross profit margins were below expectations for the three-month
period due to rental costs for equipment that was sourced with an
expectation of being used for winter reclamation and overburden
work starting in late November and continuing through December.
However, this equipment was not put to work until January due to
client-related start-up delays. In addition, the Company incurred
losses on two pipeline contracts due to increases in project scope
and adverse weather conditions. Gross profit, Net Income and
Consolidated EBITDA for both the three-month and nine-month periods
declined year-over-year as a result of these impacts.
"The two pipeline contracts concerned have been substantially
completed and we are developing change order requests for the
additional costs we incurred," said Mr. Ruston. "In Heavy
Construction and Mining, while the delayed start-up resulted in a
margin impact in the third quarter, the additional rental equipment
capacity coupled with our owned equipment gives us the capability
to undertake a significant volume of work through the remaining
winter months."
The Company's cash balance as at December 31, 2010 was $0.7
million, down from $94.9 million as at December 31, 2009.
Approximately half of the reduced cash balance is due to the
completion of two strategic initiatives executed by the Company
earlier in the year. The first initiative was the refinancing of
the Company's senior notes in April, during which NAEP successfully
reduced its cost of debt and total debt outstanding. The second
initiative was NAEP's successful entry into the screw piling market
with the acquisition of Cyntech in November. The remainder of
reduced cash balance is primarily due to near-term higher working
capital requirements.
Looking forward, NAEP anticipates some continued margin pressure
in the Heavy Construction and Mining segment, with revenue growth
continuing to outpace margin growth in the near term. The Company's
longer term outlook remains positive with an improving economy and
new oil sands contracts positioning NAEP for continued growth and
eventual margin recovery.
New Contracts
The Company has confirmed the award of two new multi-year
contracts with key oil sands producers. The new awards include a
three-year muskeg removal contract with Shell Canada Energy (Shell)
and a four-year master services agreement covering a range of
activities including muskeg removal, reclamation and site
construction projects with another major oil sands customer. Under
the new four-year contract, NAEP has received authorization for
approximately $45 million of work to be executed during the winter
period. The new muskeg removal contract with Shell is a time and
materials contract and is in addition to NAEP's existing three-year
master services agreement with Shell.
Segment Results
Heavy Construction and Mining
Three Months Ended Nine Months Ended
December 31, December 31,
(dollars in thousands) 2010 2009 2010 2009
----------------------------------------------------------------------------
Segment revenue $ 185,325 $ 183,631 $ 520,562 $ 469,512
Segment profit 20,293 36,237 64,774 81,730
Segment profit percentage 10.9% 19.7% 12.4% 17.4%
For the three months ended December 31, 2010, revenue from the
Heavy Construction and Mining segment increased $1.7 million to
$185.3 million. This gain reflects higher project development
activity in the oil sands, including the completion of
tailings-related construction projects for Shell and mine
development projects for Exxon and Canadian Natural. Recurring
services revenues decreased year-over-year during the commissioning
of Shell's Jackpine mine. The decline in activity at Shell was
partially offset by increased activity under the Company's
long-term overburden contract with Canadian Natural and increased
reclamation and overburden activity at both Syncrude and Suncor.
For the nine months ended December 31, 2010, segment revenue
increased by $51.1 million on higher project development activity.
Recurring services revenues for the nine-month period were lower
primarily as a result of reduced demand from Shell related to the
commissioning of the Jackpine mine.
For the three months ended December 31, 2010, Heavy Construction
and Mining segment profit margin was 10.9% of revenue, compared to
19.7% last year. The change in segment profit margin reflects
continuing competitive pressure on margins, an increased volume of
lower-margin overburden removal work in the mix and the cost of
equipment rentals secured for November/December work that did not
eventuate due to client start-up delays on winter work programs.
Also included in the current period was a loss of margin at Shell
due to a contractual pain/gain sharing mechanism whereby NAEP
missed its safety performance targets. Although the financial
impact was negative in the third quarter, NAEP typically exceeds
these targets. Similarly, for the nine months ended December 31,
2010, Heavy Construction and Mining profit margin decreased to
12.4% of revenue, from 17.4% last year. The change in margin
reflects the aforementioned impacts plus lower project efficiency
resulting from adverse weather conditions earlier in the year. NAEP
is currently developing change order requests to recover costs
related to start-up and weather delays in contracts where these are
shared risks.
Piling
Three Months Ended Nine Months Ended
December 31, December 31,
(dollars in thousands) 2010 2009 2010 2009
----------------------------------------------------------------------------
Segment revenue $ 37,594 $ 20,592 $ 83,303 $ 50,268
Segment profit 10,324 4,505 16,500 9,139
Segment profit percentage 27.5% 21.9% 19.8% 18.2%
For the three and nine months ended December 31, 2010, Piling
segment revenues climbed to $37.6 million and $83.3 million,
reflecting increases of $17.0 million and $33.0 respectively from
same periods last year. Revenue increases in both the three-month
and nine-month periods were driven by a higher level of activity in
the commercial and industrial construction markets, including an
increase in large oil sands projects. The stronger revenues in the
three-month period also reflect the completion of jobs originally
delayed by both weather and the late contract awards during the
previous quarters. In addition, current results include a full nine
months of contribution from the new piling company in Ontario,
compared to five months contribution in the prior-year period, as
well as two months of revenue contribution from Cyntech, which was
acquired on November 1, 2010.
For the three months ended December 31, 2010, Piling profit
margin increased to 27.5% of revenue, from 21.9% last year. This
increase reflects the processing of change-orders outstanding from
prior periods and improving market conditions. For the nine months
ended December 31, 2010, segment margins increased to 19.8% from
18.2%, as a result of improving market conditions, partially offset
by lower productivity earlier in the first half of the fiscal year
due to adverse weather conditions.
Pipeline
Three Months Ended Nine Months Ended
December 31, December 31,
(dollars in thousands) 2010 2009 2010 2009
----------------------------------------------------------------------------
Segment revenue $ 42,167 $ 16,952 $ 79,673 $ 18,616
Segment (loss) profit (1,641) 1,072 (1,485) 1,301
Segment profit percentage -3.9% 6.3% -1.9% 7.0%
For the three months ended December 31, 2010, the Pipeline
segment increased revenues to $42.2 million, an improvement of
$25.2 million compared to a year ago. For the nine months ended
December 31, 2010, Pipeline revenues increased to $79.7 million, a
year-over-year increase of $61.1 million. The increased segment
revenues primarily reflect activity on two projects in northern BC,
both of which were substantially completed in the three-month
period ended December 31, 2010.
For the three months ended December 31, 2010, the Pipeline
segment incurred a loss of $1.6 million compared to segment profit
of $1.1 million last year. The change in segment profit reflects
reduced productivity related to adverse weather conditions on one
contract and changes in project scope on a second contract in
northern BC. For the nine months ended December 31, 2010, the
Pipeline segment incurred a loss of $1.5 million compared to
segment profit of $1.3 million last year. This change reflects
lower productivity related to start-up delays and adverse weather
conditions on one contract and project scope impacts on a second
contract in northern BC as well as completion delays on a project
in southern BC. All three projects are unit-price contracts and the
Company is currently developing change-order requests for start-up
delays, weather impacts and changes to project scope in accordance
with the terms of the contracts.
Outlook
While improving economic conditions and increased opportunities
are starting to provide some relief from the competitive margin
pressure experienced over the past 12 to 18 months, NAEP expects
that revenue growth will continue to outpace margin growth in the
near term. Longer term, the Company's outlook continues to improve
as a result of growing demand and recent contract wins described
above under "New Contracts."
Work on the Company's existing long-term overburden removal
contract with Canadian Natural could be temporarily affected by a
fire that damaged the Horizon Mine's upgrader, however, the
customer's initial assessment appears to suggests that the impact
on NAEP is expected to be minimal. To date, there has been no
request for a slowdown in production. However, should a production
adjustment be required, NAEP believes that some equipment can be
profitably redeployed to other customers' sites to lessen the
impact. Overall, the Company expects its recurring services work to
increase through the fourth quarter and into fiscal 2012.
High oil prices and a renewed commitment among oil sands
producers continue to support a positive outlook for new oil sands
project developments. Syncrude recently announced capital spending
plans that include an investment of $480 million in tailings
management, four mine train relocations to be completed by 2014 and
further development of the Aurora South mine. Suncor also recently
announced 2011 capital plans that include an investment of $670
million in tailings management, as well as development of the Fort
Hills mine, Voyageur upgrader and Joslyn mine in partnership with
Total. These and other developments are expected to translate into
increased project tendering opportunities during the next fiscal
year.
In the Piling segment, activity levels are expected to be
moderate in the fourth quarter, however, the longer-term outlook
remains positive. Improving conditions in the commercial and
industrial construction markets, growing opportunities in the oil
sands and the recent acquisition of Cyntech are expected to
generate new opportunities. In particular, the innovative screw
pile technology acquired through Cyntech enhances NAEP's ability to
access SAGD oil sands projects.
In the Pipeline division, fourth quarter activity is expected to
be minimal and the Company expects to be focused on negotiating the
settlement of change orders and evaluating and bidding some
significant pipeline work which has recently been put out to
tender. While some improvement in market demand is anticipated
during fiscal 2012, conditions in this market remain
challenging.
Conference Call and Webcast
Management will hold a conference call and webcast to discuss
its financial results for the three and nine months ended December
31, 2010 tomorrow, Wednesday, February 2, 2011 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 March 2, 2011 by dialing:
Toll Free: 1-877-660-6853 or International: 1-201-612-7415
(Account: 286 Conference ID: 366296).
Non-GAAP Financial Measures
This release contains non-GAAP financial measures. These
measures do not have standardized meanings under Canadian GAAP or
US GAAP and are therefore unlikely to be comparable to similar
measures used by other companies. The non-GAAP financial measure
disclosed by the Company in this release is Consolidated EBITDA (as
defined within the credit agreement). The Company provides a
reconciliation of Consolidated EBITDA to net income reported in
accordance with US GAAP below. Investors and readers are encouraged
to review the reconciliation of this non-GAAP financial measure to
reported net income.
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 income to Consolidated EBITDA is as follows:
Three Months Ended Nine Months Ended
December 31, December 31,
(dollars in thousands) 2010 2009 2010 2009
----------------------------------------------------------------------------
Net income (loss) $ 3,742 $ 14,936 $ (4,198) $ 29,162
Adjustments:
Interest expense 7,193 6,764 22,630 19,725
Income taxes 2,374 6,540 3,857 10,401
Depreciation 10,501 10,543 26,758 30,693
Amortization of intangible
assets 992 528 2,252 1,438
Unrealized foreign exchange
gain on senior notes - (5,120) - (42,720)
Realized and unrealized (gain)
loss on derivative financial
instruments (2,040) 8,010 (340) 43,185
Loss on disposal of property,
plant and equipment and
assets held for sale 1,720 1,392 2,276 1,417
Stock-based compensation
expense 468 349 1,662 1,981
Equity in loss (earnings) of
unconsolidated joint venture 359 (98) 876 (66)
Loss on debt extinguishment - - 4,324 -
---------------------------------------------
Consolidated EBITDA $ 25,309 $ 43,844 $ 60,097 $ 95,216
---------------------------------------------
---------------------------------------------
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: that work will
commence in the fourth quarter under the Company's two new
long-term recurring services contracts; that the Company will
undertake a significant volume of work through the remaining winter
months; that revenue growth will continue to outpace margin growth
in the near term; that if a production adjustment is made with
respect to the long-term overburden removal contract with Canadian
natural, that some equipment can be profitably redeployed to other
customers' sites to lessen the impact of the adjustment; that oil
sands project developments will translate into more project
tendering opportunities for the Company during the next fiscal
year; that activities in the Piling segment will be moderate in the
fourth quarter and positive in the longer-term; that improving
conditions in the commercial and industrial construction markets,
growing opportunities in the oil sands and the recent acquisition
of Cyntech will generate new opportunities; that activities in the
Pipeline division will be minimal in the fourth quarter; and that
demand will improve in the Pipeline market.
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. Each of the forward-looking statements
in this news release is subject to significant risks and
uncertainties and is based on a number of assumptions which may
prove to be incorrect. The material factors or assumptions used to
develop the above forward-looking statements and the risks and
uncertainties that could cause actual results to differ materially
from the information presented in the above are discussed in NAEP's
Management Discussion & Analysis for the three and nine months
ended December 31, 2010. 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.
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.naepi.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.naepi.ca
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