North American Energy Partners Inc. ("NAEP" or "the Company") (TSX:
NOA) (NYSE: NOA) today announced results for the three months ended
June 30, 2011.
The Company has prepared its 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.
Highlights of the Three Months Ended June 30, 2011
- Consolidated revenues increased 5.7% compared to the same
period last year.
- Piling revenues increased 64.7% on improving commercial and
industrial construction market demand.
- The Company secured two new pipeline contracts in British
Columbia (BC) and Alberta with a combined value of $92.5
million.
- Subsequent to the quarter end, NAEP signed a previously
disclosed five-year master services contract to supply reclamation,
overburden removal and light and heavy civil construction services
to Suncor Energy Inc.'s ("Suncor") oil sands mine operations near
Fort McMurray, Alberta.
Consolidated Financial Highlights
(dollars in thousands, Three Months Ended June 30,
except per share amounts) 2011 2010
----------------------------------------------------------------------------
Revenue $ 194,023 $ 183,594
Gross profit $ 6,611 $ 15,620
Gross profit margin 3.4% 8.5%
General and administrative expenses $ 10,601 $ 13,729
Operating (loss) income $ (5,669) $ 1,064
Operating margin -2.9% 0.6%
Net (loss) income $ (9,014) $ (10,309)
Per share information
Net (loss) income - basic $ (0.25) $ (0.29)
Net (loss) income - diluted $ (0.25) $ (0.29)
Consolidated EBITDA(1) $ 6,176 $ 12,179
Capital spending $ 7,508 $ 6,589
(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.
In the three-month period ended June 30, 2011, consolidated
revenues increased by 5.7% compared to the same period last year,
despite adverse operating conditions across most of the Company's
business areas.
"Extensive wildfires in the Fort McMurray region shut down a
major part of our oil sands business for more than two weeks while
abnormally high precipitation levels across southern Canada
hampered project start-ups for our Piling division," said Rod
Ruston, NAEP's President and CEO. "These events not only reduced
the available operating time but also significantly impacted
productivity due to the intermittent nature of the delays."
"Revenue performance also reflects a more considered approach
being taken by customers towards the awarding of work," said
Ruston. "We are seeing awards being delayed because our clients are
very focused on controlling the cost of their projects.
Accordingly, their emphasis is now on completing more detailed
engineering and design before the project starts rather than
adhering strictly to planned construction dates."
The increase in consolidated revenues despite these challenges
primarily reflects higher Piling revenues as a result of the
Cyntech acquisition and significantly improved demand in the
industrial and commercial construction markets. These gains were
partially offset by a year-over-year decline in Pipeline
revenue.
Heavy Construction and Mining division results were in line with
last year's results. This was achieved despite mine site
evacuations and shutdowns related to wildfires and the suspension
of overburden removal operations at Canadian Natural Resources
Limited's ("Canadian Natural") Horizon Project midway through the
quarter. Increased civil construction, muskeg removal and
tailings-related construction activity at Shell Canada Energy's
("Shell") sites, increased reclamation and heavy civil work at
Suncor sites and significant light civil work at Harvest Operations
Corp.'s (Harvest) BlackGold steam assisted gravity drainage
("SAGD") project were key factors in maintaining year-over-year
revenue performance.
Gross profit margins were below expectations for the three-month
period primarily due to the negative impact of weather and
wildfires on volumes and productivity, coupled with high equipment
costs as a result of first-quarter equipment maintenance
activities. Gross margins were also negatively impacted by the
increased use of rental equipment as a result of the high demand
for smaller equipment supporting increased project development and
summer muskeg work in the current period.
"As we move into the second quarter, we are starting to see the
positive impact of our recent contract wins and we are continuing
to build on this base with a number of new contracts," said Mr.
Ruston. "We are mobilizing additional fleet over to Suncor to
accommodate increasing volumes under our newly signed five-year
contract and we have commenced the preliminary work on the
foundation for a major mine train relocation at Syncrude. In
Piling, we are starting to work through a significant backlog of
projects and in Pipeline we have begun work on two new contracts
with a combined value of $92.5 million. Our volumes are recovering
and provided the weather cooperates, we should see stronger
performance from all three of our divisions over the remainder of
the fiscal year."
Segment Results
Heavy Construction and Mining
Three Months Ended June 30,
(dollars in thousands) 2011 2010
----------------------------------------------------------------------------
Segment revenue $ 163,391 $ 163,609
Segment profit 21,781 22,247
Segment margin 13.3% 13.6%
For the three months ended June 30, 2011, revenue from the Heavy
Construction and Mining segment was $163.4 million, similar to
$163.6 million during the same period last year.
Activity in the current period benefitted from increases in
heavy civil construction and a high volume of summer muskeg
removal, related to tailings remediation, at Shell's Jackpine site.
The division also increased tailings-related activity at Shell's
MRM site. Increased activity at Suncor's Base Mine resulted from
reclamation and heavy civil construction work under the recently
signed five-year master services agreement.
What would otherwise have been a strong three-month period of
activity for the segment was interrupted by wildfires in the Fort
McMurray area. Encroaching fires and thick smoke caused the
evacuation of all personnel from the Shell and Canadian Natural
sites for up to three weeks. These evacuations negatively affected
segment revenues by approximately $12 million for the period and
reduced margins due to increased costs resulting from lower
productivity. Subsequent to the wildfire evacuation at the Horizon
site, Canadian Natural suspended activity under the long-term
overburden removal contract until January 2, 2012 while they repair
and restart the plant damaged by a fire earlier in the year.
For the three months ended June 30, 2011, Heavy Construction and
Mining segment profit margin was 13.3% of revenue, compared to
13.6% last year. The current year segment margin includes the
negative impact of recognizing zero-margin on revenues from the
Canadian Natural overburden removal contract. NAEP has formed a
joint working group with Canadian Natural that will be responsible
for identifying indices that will more closely reflect the
inflationary conditions that have occurred in the market place. The
working group has been meeting to discuss the relevant facts and
this group is expected to deliver recommendations by the target
date of August 31, 2011. Any resulting changes to the indices will
apply both prospectively and retrospectively. Excluding revenues
and profits from the Canadian Natural overburden contract from both
periods, segment margin for the current three-month period would
have been 16.7% of revenue, comparable with the results from same
period last year.
Piling
Three Months Ended June 30,
(dollars in thousands) 2011 2010
----------------------------------------------------------------------------
Segment revenue $ 31,534 $ 19,146
Segment profit 2,589 1,394
Segment margin 8.2% 7.3%
For the three months ended June 30, 2011, Piling segment
revenues climbed to $31.5 million, an increase of $12.4 million
from same period last year. This increase reflects the resurgence
of activity in the commercial and industrial construction markets,
including increased shoring activity in Ontario and driven pile
activity in Vancouver. It also reflects $6.8 million of tank
services and screw piling manufacturing activity from the Cyntech
assets acquired by NAEP in November 2010.
These gains were partially offset by a reduction in drilled pile
activity in Calgary and Regina. Higher-than-normal precipitation
levels across Canada also constrained revenues by delaying the
start-up of some projects and slowing production on projects
already underway.
While Piling segment margins improved on a year-over-year basis,
they were lower than the margins typically achieved by this segment
as a result of the weather impacts. The adverse weather conditions
resulted in lower productivity due to the discontinuous activity
and increased overhead costs in the anticipation of supporting
higher activity that was subsequently deferred to future
periods.
Pipeline
Three Months Ended June 30,
(dollars in thousands) 2011 2010
----------------------------------------------------------------------------
Segment revenue $ (902) $ 839
Segment loss (1,948) (723)
For the three months ended June 30, 2011, Pipeline reported
negative revenue of $0.9 million, compared to $0.8 million positive
revenue last year. The negative revenue was the result of a change
in the estimated future costs to close out two fixed-price
projects. This, in turn, reduced the percent complete calculation
for each project and resulted in a reduction in the amount of
revenue reported. This revenue will be recognized in future periods
as the work is completed.
For the three months ended June 30, 2011, the Pipeline segment
incurred a loss of $1.9 million compared to a loss of $0.7 million
last year. This reflects an increase in the estimated cost to
complete spring clean-up and warranty work on a project in Northern
BC as a result of adverse weather conditions. It also reflects an
estimated loss for the completion of a large-diameter pipeline
project in Southern BC.
Outlook
The Company anticipates that work volumes and margins will begin
to strengthen in the latter part of the second quarter and remain
strong through the balance of the year.
In Heavy Construction and Mining, the suspension of activity at
Canadian Natural is expected to be partially offset by the ramp up
of higher-margin activity under the Company's new multi-year
contracts for mining services and heavy civil construction with
Syncrude, Suncor and Shell. At Syncrude, NAEP was recently awarded
the preliminary work on the foundation for a major mine train
relocation at this customer's Base Plant site. At Suncor, in
addition to civil works already underway, mining services activity
is expected to begin ramping up with the recent signing of a new
five-year contract. At Shell, NAEP expects to continue executing on
several large tailings-related civil construction projects.
Although the Company anticipates that activity levels under the new
contracts will grow during the year, the timing of this work is
dependent on NAEP's clients as they work through the completion of
engineering and design for their mine plans prior to issuing the
awards.
The Company also continues to build on its Tailing and
Environmental Construction business with new projects on multiple
oil sands sites that will utilize NAEP's highly specialized
tailings equipment fleet, which includes dredging equipment,
tailings dozers, bitumen skimmers, hoverbarges and an amphirol
(Mudmaster), used to dewater mature fine tailings. NAEP intends to
continue pursuing unique equipment and services to build and
differentiate its full service Tailings and Environmental
Construction offering. In the past year, this new division has
performed work on every operating site in the oil sands. Although
much of the industry is still in the experimental stages, the
Company believes it has been recognized as a primary supplier in
this space and that this will be a key advantage to further
expanding the business as the industry moves from testing to full
scale operation.
Demand for the Company's piling services has been strong this
year due to increased project development activity in the oil sands
and an upsurge in commercial construction opportunities in Toronto
and Calgary. Second and third quarter activity levels are expected
to be strong as this division works through a large backlog of
weather-delayed projects.
Pipeline activity is also expected to ramp up in the second and
third quarters, with work commencing on two new pipeline contracts
in BC and Alberta. The two projects have a combined anticipated
value of $92.5 million and the majority of work is expected to be
completed by March 2012. The prospects for improved performance
from NAEP's Pipeline division have strengthened as a result of both
internal and external factors. Internally, the division has
restructured its management team and enhanced project controls,
while externally, customers have adopted a longer-term view with an
emphasis on value and quality driven by the increasing need for
environmental and safety excellence. NAEP believes these changes
have improved this segment to the point where it can become a
steady contributor to the business. As a result, the Company's
outlook for the balance of the year and beyond is positive with a
wide array of new pipeline projects coming to market and the
Company's intention to expand into the pipeline maintenance
business.
Overall, assuming normal weather conditions, the Company
anticipates improving financial performance over the remainder of
the year as work under new contracts commences and volumes
recover.
Conference Call and Webcast
Management will hold a conference call and webcast to discuss
its financial results for the three months ended June 30, 2011
tomorrow, Thursday, August 4, 2011 at 9:00 am Eastern time.
The call can be accessed by dialing:
Toll free: 1-877-407-9210 or International: 1-201-689-8049
A replay will be available through September 2, 2011 by
dialing:
Toll Free: 1-877-660-6853 or International: 1-201-612-7415
(Account: 286 Conference ID: 376545).
Non-GAAP Financial Measures
This release contains non-GAAP financial measures. These
measures do not have standardized meanings under 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 the
impairment of goodwill, the amendment related to the $42.5 million
revenue writedown on the Canadian Natural overburden removal
contract, for the three months and fiscal year ended March 31, 2011
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
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 June 30,
(dollars in thousands) 2011 2010
----------------------------------------------------------------------------
Net loss $ (9,014) $ (10,309)
Adjustments:
Interest expense 7,377 7,729
Income taxes benefit (3,610) (2,013)
Depreciation 9,596 8,203
Amortization of intangible assets 1,878 588
Realized and unrealized (gain) loss on derivative
financial instruments (337) 3,008
Loss on disposal of property, plant and equipment 398 (4)
Stock-based compensation expense 485 410
Equity in (earnings) loss of unconsolidated joint
venture (597) 243
Loss on debt extinguishment - 4,324
---------------------------
Consolidated EBITDA $ 6,176 $ 12,179
---------------------------
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 the Company
will see stronger performance from all three of our divisions over
the remainder of the fiscal year; that the joint working committee
is expected to deliver recommendations by the target date of August
31, 2011; that the recommended new indices will apply both
prospectively and retrospectively; that work volumes and margins
will begin to strengthen in the latter part of the second quarter
and remain strong through the balance of the year; that the
suspension of activity at Canadian Natural is expected to be
partially offset by the ramp up of higher-margin activity under the
Company's new multi-year contracts for mining services and heavy
civil construction with Syncrude, Suncor and Shell; that at Suncor,
mining services activity is expected to begin ramping up with the
signing of a new five-year contract; that at Shell, NAEP expects to
continue executing on several large tailings-related civil
construction projects; that NAEP intends to continue pursuing
unique equipment and services to build and differentiate its full
service Tailings and Environmental Construction offering; that the
Company believes it has been recognized as a primary supplier in
this space and that this will be a key advantage to further
expanding the business as the industry moves from testing to full
scale operation; that second and third quarter activity levels are
expected to be strong as this division works through a large
backlog of weather-delayed projects; that activity in the Pipeline
division is expected to ramp up in the second and third quarters;
that the majority of work on the Company's two new pipeline
contracts is expected to be completed by March 2012; that the
Pipeline division can become a steady contributor to the business;
that the Company anticipates improving financial performance over
the remainder of the year as new contracts commence and work
volumes recover.
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 months ended
June 30, 2011. 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
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