North American Energy Partners Inc. ("NAEP" or "the Company")
(TSX:NOA) (NYSE:NOA) today announced results for the three and six
months ended September 30, 2012.
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 September 30, 2012
-- The Company achieved $24.3 million in Consolidated EBITDA(1), despite
significantly lower demand for its Heavy Construction and Mining assets,
both compared to the corresponding quarter last year and the previous
quarter this year.
-- On October 1, 2012, the Company announced that it had entered into an
amended and restated credit agreement with its syndicate of lenders. The
amendment extends the maturity date of the existing credit agreement by
one year to October 31, 2014, while also easing covenant requirements
within the agreement.
-- On September 30, 2012, NAEP negotiated the refinancing of $29.9 million
in heavy equipment operating leases, now classified as capital leases.
The expected annual impact of the refinancing is a $13.2 million benefit
to Consolidated EBITDA and a $4.2 million cash benefit from a net
reduction in annual lease payments.
Consolidated Financial Highlights
(dollars in thousands, Three Months Ended Six Months Ended
except per share amounts) September 30, September 30,
2012 2011 2012 2011
---------------------------- -------- -------- -------- --------
Revenue $204,191 $245,386 $440,113 $439,409
Gross profit $ 25,914 $ 33,381 $ 44,102 $ 39,992
Gross profit margin 12.7% 13.6% 10.0% 9.1%
General and administrative
expenses $ 10,580 $ 14,001 $ 28,298 $ 24,602
Operating income $ 13,253 $ 18,283 $ 13,478 $ 12,614
Operating margin 6.5% 7.5% 3.1% 2.9%
Net income (loss) $ 3,710 $ 6,619 $ (1,416) $ (2,395)
Per share information
Net income (loss) - basic $ 0.10 $ 0.18 $ (0.04) $ (0.07)
Net income (loss) - diluted $ 0.10 $ 0.18 $ (0.04) $ (0.07)
Consolidated EBITDA(1) $ 24,327 $ 27,764 $ 34,953 $ 33,940
Capital spending $ 5,760 $ 9,823 $ 20,716 $ 17,331
(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.
For the three months ended September 30, 2012, the Company
reported consolidated revenue of $204.2 million, compared to $245.4
million during the same period last year. The change in revenue
reflects lower Heavy Construction and Mining revenue during the
period due to a reduction in demand for mine support services and
project delays or deferrals as the Company's oil sands customers
continue to re-assess their mine plans and revisit the timing of
expansion projects. This reduction was partially offset by
continued growth in Commercial and Industrial Construction, as the
segment benefitted from the continuation of strong piling activity
and above-ground construction work performed at the Mt. Milligan
Copper/Gold project in Northern British Columbia.
Gross profit for the three months ended September 30, 2012 was
$25.9 million, compared to $33.4 million during the same period
last year. Lower volumes in the Heavy Construction and Mining
segment reduced the recovery of equipment costs from projects and
negatively impacted profitability during the current quarter. The
under recovery of equipment costs in the current quarter was
partially mitigated by lower fixed equipment overhead costs and
reduced outsourcing of equipment maintenance as part of the
business restructuring initiatives implemented earlier in the
fiscal year.
The business restructuring initiatives also contributed to a
$3.4 million year-over-year reduction in general and administrative
expense in the current quarter. As a result, Consolidated EBITDA as
a percentage of revenue of 11.9% for the three months ended
September 30, 2012 exceeded 11.3% in the same period last year.
"Although we continue to experience near-term demand headwinds,
we are encouraged by the positive impact of our business
restructuring initiatives on profitability," said NAEP's President
and CEO, Martin Ferron. "While we expect to see even further
reduced demand in the oil sands for much of the remainder of the
fiscal year, we believe we are taking the appropriate steps to help
us remain profitable at lower volumes. These steps include
organizational restructuring, cost reduction, debt repayment and
the divestiture of certain non-core assets. Having recently amended
our credit agreement, we now have the flexibility to complete these
initiatives that support our goals of enhancing financial
performance, reducing debt and improving cash flow."
Segment Results
Heavy Construction and Mining
Three Months Ended Six Months Ended
September 30, September 30,
(dollars in thousands) 2012 2011 2012 2011
---------------------------- -------- -------- -------- --------
Segment revenue $116,582 $159,305 $282,032 $322,696
Segment profit $ 10,370 $ 18,350 $ 19,018 $ 26,873
Segment margin 8.9% 11.5% 6.7% 8.3%
For the three months ended September 30, 2012, revenue from the
Heavy Construction and Mining segment was $116.6 million, compared
to $159.3 million during the same period last year. The change
reflects a reduction in heavy civil construction, mine services,
and tailings management activities performed at the Jackpine and
Muskeg River mines. In addition, reclamation, heavy civil
construction and overburden removal activity at the Millennium mine
was deferred as this mine plan design continues to be
re-assessed.
NAEP was able to offset some of the impact with increased heavy
civil work at the Mildred Lake mine relocation project, along with
new site development activity at the Joslyn mine and Dover SAGD
facility. Additionally, overburden removal at the Horizon mine
returned to normal operating levels where activity was suspended in
the prior year due to a production facility fire.
For the three months ended September 30, 2012, Heavy
Construction and Mining segment margin decreased to 8.9% of
revenue, from 11.5% of revenue during the same period last year.
The reduction reflects a $5.8 million equipment cost under recovery
compared to $3.6 million in the prior year as a result of lower
demand for the Company's larger-sized heavy construction fleet. The
severity of the current year under recovery was mitigated by the
reduction of fixed equipment overhead and outsourced equipment
maintenance expenditures, benefits gained from NAEP's business
restructuring initiatives. Positive margin recorded on overburden
removal activity at the Horizon mine, where work in the prior year
was recorded at zero profit, also helped offset these negative
impacts.
Six-month results followed a similar trend, with the decline in
revenue resulting from reduced activity at the Jackpine, Muskeg
River, and Millennium mines, partially offset by increased heavy
civil construction at the Mildred Lake mine relocation project and
site development at the Joslyn mine and Dover SAGD facility.
Overburden removal also returned to normal operating conditions at
the Horizon mine where activity was suspended in the prior year due
to a production facility fire. Margins for the six-month period
decreased to 6.7% from 8.3% last year, largely due to the same
factors that impacted three-month results.
Commercial and Industrial Construction
Three Months Ended Six Months Ended
September 30, September 30,
(dollars in thousands) 2012 2011 2012 2011
---------------------------- -------- -------- -------- --------
Segment revenue $ 87,609 $ 86,081 $158,081 $116,713
Segment profit $ 16,958 $ 15,902 $ 27,434 $ 16,094
Segment margin 19.4% 18.5% 17.4% 13.8%
For the three months ended September 30, 2012, Commercial and
Industrial segment revenues rose slightly to $87.6 million. Piling
activity was particularly strong during the current period, with a
high level of activity in Northern Alberta from oil sands
customers. Gains were also achieved as the Company increased
structural steel construction activity at the Mt. Milligan
Copper/Gold project in Northern British Columbia, achieved
significant international sales of manufactured screw piles, and
performed work under a multi-year pipeline integrity and
maintenance contract with a major Canadian pipeline operator. These
revenue gains were largely offset by a reduction in pipeline
construction revenue as the Company continues to shift its focus to
more profitable pipeline integrity and maintenance work.
Commercial and Industrial Construction segment margin improved
to 19.4%, from 18.5% last year, reflecting strong contributions
from drilled and driven pile volumes in Northern Alberta, which
replaced prior-year contributions from two large projects in
Saskatchewan. In addition, profitable pipeline integrity activity
in the current period helped to offset the higher volume of profit
contribution from pipeline construction activity in the prior
year.
For the six months ended September 30, 2012, revenue improved to
$158.1 million from $116.7 million in the same period last year.
The sharp year-over-year improvement reflects a return to normal
operating conditions in the current period, compared to the extreme
weather conditions that caused schedule and project disruptions in
the prior year. The return to normal operating conditions also
increased margins to 17.4% from 13.8% in the six-month period last
year, supported by the same factors that impacted three-month
results.
Outlook
NAEP anticipates the continuation of strong activity in the
Commercial and Industrial Construction segment to partially offset
the continuation of lower work volumes in the Heavy Construction
and Mining segment.
In the Heavy Construction and Mining segment, NAEP expects to
continue with the construction of the shear key foundation at the
Mildred Lake mine relocation project through the remainder of the
fiscal year while construction of the MSE wall on this project will
be completed in the third quarter of fiscal 2013. At the Millennium
mine, tailings- related work, including mature fine tailings work,
ditching and limestone projects, are expected to ramp up in the
third quarter, with reclamation projects providing added volumes in
the fourth quarter of fiscal 2013. Site development activity at the
Joslyn mine may build up late in the third quarter and provide
steady activity through to the end of the fiscal year.
Recent announcements made by oil sands producers have indicated
that demand for external mine support services may continue to be
weaker than normal due to project delays, deferrals and insourcing.
As a result, the Company's visibility for these services remains
low. Demand for reclamation, together with activity on mine
expansion projects and the continuation of overburden removal
activity at the Horizon mine, is expected to partially offset these
impacts.
In the Commercial and Industrial Construction segment, Piling
demand remains strong with sound industry fundamentals and a large
project backlog supporting the expectation of continued high
activity levels in fiscal 2013, subject to suitable winter weather
conditions. The Company expects its work at the Mt. Milligan
project in Northern British Columbia will remain steady through to
the end of the calendar year. Tank services activity is expected to
provide steady volumes in the third quarter before entering its
normal slowdown during the winter months.
Overall, NAEP expects that the impact of lower activity levels
will be mostly offset by the cost reduction benefits realized from
its initiatives and the increased focused on improving performance
and profitability, efficiency and risk management.
Conference Call and Webcast
Management will hold a conference call and webcast to discuss
its financial results for the three months ended September 30, 2012
tomorrow, Thursday, November 1st at 9:00 am Eastern time.
The call can be accessed by dialing:
Toll free: 1-877-407-8031
International: 1-201-689-8031
A replay will be available through December 1, 2012 by
dialing:
Toll Free: 1-877-660-6853
International: 1-201-612-7415
Conference ID: 402989
The live and archived webcast can be accessed at:
http://www.investorcalendar.com/IC/CEPage.asp?ID=170077
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 fiscal 2011
$42.5 million revenue write-down on the Canadian Natural overburden
removal contract 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 Six Months Ended
September 30, September 30,
(dollars in thousands) 2012 2011 2012 2011
--------------------------------------------------------------------------
Net income (loss) $ 3,710 $ 6,619 $ (1,416) $ (2,395)
Adjustments:
Interest expense 8,221 7,548 15,967 14,925
Income tax expense
(benefit) 3,210 2,326 729 (1,284)
Depreciation 8,702 8,024 18,668 17,620
Amortization of
intangible assets 1,481 1,411 2,625 3,289
Unrealized (gain) loss on
derivative financial
instruments (1,896) 1,769 (1,918) 1,432
Loss on disposal of
property plant and
equipment 592 30 367 428
Loss (gain) on disposal
of assets held for sale 8 (496) (70) (496)
Stock-based compensation
expense 299 381 597 866
Equity in loss of
unconsolidated joint
venture - 152 (596) (445)
------------------------------------------------
Consolidated EBITDA $ 24,327 $ 27,764 $ 34,953 $ 33,940
------------------------------------------------
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 NAEP expects
even further reduced demand in the oil sands for much of the
remainder of the fiscal year; that the amended credit agreement
will provide the flexibility to complete the initiatives that
support their goals; that NAEP anticipates the continuation of
strong activity in the Commercial and Industrial Construction
segment to partially offset the continuation of lower work volumes
in the Heavy Construction and Mining segment; that demand for mine
construction services remains low and demand could be negatively
impacted if these projects are delayed; that demand for support
services on existing mine sites is expected to partially offset
these impacts in the future; that NAEP expects to continue with the
construction of the shear key foundation at Mildred Lake mine
relocation project through the remainder of the fiscal year; that
NAEP will complete construction of the mechanically stabilized
earth wall at the Mildred Lake mine relocation project in the third
quarter; that at the Millennium mine, tailings-related work,
ditching and limestone hauling projects, are expected to ramp up in
the third quarter, with reclamation projects providing added
volumes in the fourth quarter; that site development activity at
the Joslyn mine may ramp up early in the third quarter and provide
steady activity through to the end of the fiscal year; that Piling
will have continued high activity levels in fiscal 2013, subject to
suitable winter weather conditions; that work at the Mt. Milligan
project in Northern British Columbia will remain steady through to
the end of the calendar year; that tank services will provide
steady volumes in the third quarter before entering its normal
slowdown during the winter months; that NAEP expects that the
impact of lower activity levels will be offset by the cost
reduction benefits realized from its initiatives and the increased
focused on improving performance and profitability, efficiency and
risk management.
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
September 30, 2012. 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.
The Company's Fiscal 2012 annual SEC filing has been made and
can be found at http://www.nacg.ca/financial-reports. All
shareholders have the ability, upon request, to receive a hard copy
of the complete audited financial statements free of charge by
providing a mailing address to ir@nacg.ca.
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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