North American Construction Group Ltd. (“NACG” or “the Company”)
(TSX:NOA) (NYSE:NOA) today announced results for the first quarter
ended March 31, 2018.
Martin Ferron, Chairman and Chief Executive
Officer of the Company, stated, “We are delighted to have turned
the bright outlook we presented at the start of the quarter into
outstanding financial results at the end of it. Our operations team
continues to excel and after this strong beginning to the year, we
are firmly on track to at least achieve our revenue and EBITDA
growth targets for 2018.”
Additionally Mr. Ferron commented, “The second
quarter will, as usual, be seasonally much slower due to spring
break-up, but we have sufficient work to handily outperform the
results of 2017. Beyond that our outlook remains much better than
last year for both earthworks and construction projects. We can
also confirm that the build of our new, purpose designed
maintenance facility, is on schedule to be open by the end of the
year and we are pleased with external customer reaction to this
growth initiative.”
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.
Please see the Company’s Management’s Discussion and Analysis
(“MD&A”) for the quarter ended March 31, 2018 for further
detail on the matters discussed in this release.
Highlights of the First Quarter Ended
March 31, 2018
- Revenue for the quarter was $114.7 million, compared to $92.8
million for the prior year, an increase of 23.6%.
- Adjusted EBITDA for the quarter was $39.1 million compared to
$31.6 million for the prior year, an improvement of 23.7%.
- Net income for the quarter was $11.1 million, compared to $9.6
million for the prior year, an improvement of 15.6%.
- Basic and diluted earnings per share for the quarter was $0.44
and $0.36, respectively, compared to basic and diluted earnings per
share of $0.34 and $0.31, respectively for the prior year. The
current year earnings per share was negatively affected by a $1.7
million non-cash provision for an anticipated loss on a sub-lease
the Company entered into for its under-utilized Edmonton office
facility ($0.07 and $0.06 impact on basic and diluted earnings per
share, respectively).
- $12.1 million of cash on hand at the end of the quarter.
Highlights of Events Post First
Quarter
- At the Annual General Meeting held on April 11, 2018, the
Company’s shareholders approved an amendment to the articles of the
Company to change the name to “North American Construction Group
Ltd.” The name change was effective on April 11, 2018, however
trading on the TSX and NYSE did not commence under the name until
April 16, 2018. The Company’s trading symbol (TSX: NOA.TO / NYSE:
NOA) remained the same. In a related move, the Company changed the
name of one of its subsidiaries to "North American Construction
Management Ltd." from "North American Construction Group Inc."
Declaration of Quarterly
Dividend
On May 1, 2018 the NACG Board of Directors
declared a regular quarterly dividend (the “Dividend”) of two
Canadian cents ($0.02) per common share, payable to common
shareholders of record at the close of business on May 31, 2018.
The Dividend will be paid on July 6, 2018 and is an eligible
dividend for Canadian income tax purposes.
|
|
Consolidated
Financial Highlights |
|
|
Three months ended March 31, |
(dollars
in thousands, except per share amounts) |
2018 |
|
2017 |
|
Change |
Revenue |
$ |
114,703 |
|
|
$ |
92,842 |
|
|
$ |
21,861 |
|
Project costs |
41,463 |
|
|
29,207 |
|
|
12,256 |
|
Equipment costs |
28,257 |
|
|
26,055 |
|
|
2,202 |
|
Depreciation |
18,192 |
|
|
14,558 |
|
|
3,634 |
|
Gross
profit(1) |
$ |
26,791 |
|
|
$ |
23,022 |
|
|
$ |
3,769 |
|
Gross profit
margin(1) |
23.4 |
% |
|
24.8 |
% |
|
(1.4 |
)% |
Select
financial information: |
|
|
|
|
|
General
and administrative expenses (excluding stock-based
compensation) |
5,903 |
|
|
6,017 |
|
|
(114 |
) |
Stock-based compensation expense |
1,898 |
|
|
2,058 |
|
|
(160 |
) |
Loss on
sublease |
1,732 |
|
|
— |
|
|
1,732 |
|
Operating
income |
17,067 |
|
|
14,449 |
|
|
2,618 |
|
Interest
expense |
1,819 |
|
|
1,366 |
|
|
453 |
|
Net
income |
11,131 |
|
|
9,599 |
|
|
1,532 |
|
Net income
margin(1) |
9.7 |
% |
|
10.3 |
% |
|
(0.6 |
)% |
EBIT(1) |
17,077 |
|
|
14,452 |
|
|
2,625 |
|
EBIT margin(1) |
14.9 |
% |
|
15.6 |
% |
|
(0.7 |
)% |
EBITDA(1) |
35,422 |
|
|
29,362 |
|
|
6,060 |
|
Consolidated
EBITDA(1) |
37,912 |
|
|
30,282 |
|
|
7,630 |
|
Consolidated EBITDA
margin(1) |
33.1 |
% |
|
32.6 |
% |
|
0.5 |
% |
Adjusted
EBITDA(1) |
39,090 |
|
|
31,566 |
|
|
7,524 |
|
Adjusted EBITDA
margin(1) |
34.1 |
% |
|
34.0 |
% |
|
0.1 |
% |
|
|
|
|
|
|
Per share
information |
|
|
|
|
|
Net
income - Basic |
$ |
0.44 |
|
|
$ |
0.34 |
|
|
$ |
0.10 |
|
Net
income - Diluted |
$ |
0.36 |
|
|
$ |
0.31 |
|
|
$ |
0.05 |
|
|
|
|
|
|
|
Cash dividend declared
per share |
$ |
0.02 |
|
|
$ |
0.02 |
|
|
— |
|
(1) See “Non-GAAP Financial Measures.” A reconciliation of net
income to EBIT, EBITDA, Consolidated EBITDA, and Adjusted EBITDA in
the section titled “Non-GAAP Financial Measures.”
Results for the First Quarter Ended
March 31, 2018
For the three months ended March 31, 2018,
revenue was $114.7 million, up from $92.8 million in the same
period last year. Revenue grew in the current period compared to
last year as a result of growth in heavy civil construction work at
both the Kearl oil sands mine and the Highland Valley copper mine
located in central British Columbia; the latter as part of the
contribution from a recently awarded 3-year civil construction and
mine support contract. The Company also realized current quarter
growth in mine support activities as a result of ongoing work at
the Fording River coal mine in southeast British Columbia, which
offset a slight decline in mine support activities at the Kearl
mine. The Company’s current period winter works program included
volumes similar to last year's strong program with reclamation work
at the Mildred Lake mine site and both overburden removal and
tailings pond support activity at the Millennium mine site. The
Company achieved these equivalent winter works volumes while also
dedicating a portion of its equipment fleet capacity to the
incremental heavy civil construction and mine support activities.
This was made possible due to the Company’s 2017 investment in
growth capital, which expanded its large sized equipment fleet
capacity, and the benefit realized from the effective execution of
the earthworks program through the ever changing weather conditions
of the winter season.
For the three months ended March 31, 2018, gross
profit was $26.8 million, or 23.4% gross profit margin, up from
$23.0 million, or 24.8% gross profit margin, in the same period
last year. The higher gross profit in the current period was a
result of the higher revenue. The slight decline in current period
gross profit margin was driven by certain heavy civil construction
and mine support contracts that included lower margin
activities.
For the three months ended March 31, 2018,
depreciation was $18.2 million (or 15.9% of revenue), up from $14.6
million (or 15.7% of revenue) in the same period last year. The
increase in current period depreciation was primarily driven by
increased equipment use as a result of the higher revenue activity.
Depreciation as a percent of revenue was similar between the two
periods.
For the three months ended March 31, 2018, the
Company recorded operating income of $17.1 million, up from $14.4
million for the same period last year. General and administrative
expense, excluding stock-based compensation, was $5.9 million for
the quarter, down from $6.0 million for the same period last year.
Stock-based compensation expense decreased $0.2 million compared to
the prior year. The Company entered into a sub-lease for all of its
committed space over the entire remaining term of its underutilized
Edmonton office facility. While this effectively eliminated all but
$1.7 million of the future commitment for this facility over the
next 5 years, it nonetheless negatively affected current year
earnings as the Company recorded the anticipated loss as an expense
against operating income in the period.
For the three months ended March 31, 2018, the
Company recorded $11.1 million net income (basic income per share
of $0.44 and diluted income per share of $0.36), compared to $9.6
million net income (basic income per share of $0.34 and diluted
income per share of $0.31) recorded for the same period last year.
The net income improvement was achieved despite a $0.5 million
increase in interest expense in the current period, driven
primarily by the issuance of Convertible Debentures at the end of
the comparable prior period; and a $0.6 million increase in
deferred income tax expense recorded in the current period, driven
by higher income in the period. The current year earnings per share
was negatively affected by a $1.7 million non-cash provision for an
anticipated loss on a sub-lease the Company entered into for its
under-utilized Edmonton office facility ($0.07 and $0.06 impact on
basic and diluted earnings per share, respectively).
The variance between the basic income per share
in the current period and the basic income per share in the prior
period is partially affected by the reduction in the weighted
average number of issued and outstanding common shares to
25,284,661 as at March 31, 2018 compared to 28,004,778 as at
March 31, 2017. The variance between the diluted income per
share in the current period and the diluted income per share in the
prior period is also affected by the weighted average effect of the
Company’s newly issued convertible debentures. The complete
calculation of basic and diluted income per share is detailed in
the following table:
|
|
|
Three months ended |
|
March 31, |
|
2018 |
|
2017 |
Net income available to
common shareholders |
$ |
11,131 |
|
|
$ |
9,599 |
|
Interest
from Convertible Debentures (after tax) |
441 |
|
|
75 |
|
Diluted
net income available to common shareholders |
$ |
11,572 |
|
|
$ |
9,674 |
|
|
|
|
|
Weighted average number
of common shares |
25,284,661 |
|
|
28,004,778 |
|
Weighted average of
dilutive securities |
|
|
|
Dilutive
effect of treasury shares |
2,651,684 |
|
|
2,552,668 |
|
Dilutive
effect of stock options |
268,901 |
|
|
326,821 |
|
Dilutive effect of Convertible Debentures |
3,686,636 |
|
|
696,365 |
|
Weighted
average number of diluted common shares |
31,891,882 |
|
|
31,580,632 |
|
|
|
|
|
Basic net income per
share |
$ |
0.44 |
|
|
$ |
0.34 |
|
Diluted
net income per share |
$ |
0.36 |
|
|
$ |
0.31 |
|
|
|
|
|
|
|
|
|
Total interest expense was $1.8 million during
the three months ended March 31, 2018, up from $1.4 million in the
prior year.
The Company recorded $0.5 million in interest on
its Convertible Debentures during the three months ended March 31,
2018 as a result of the issuance of $40.0 million in Convertible
Debentures in March 2017.
Interest on the Credit Facility of $0.4 million
in the three months ended March 31, 2018, was comparable to the
interest expense in the prior year.
Interest on capital lease obligations of $0.8
million in the three months ended March 31, 2018 was comparable to
interest expense in the prior year, despite a $9.1 million increase
in the Company’s capital lease obligations.
Amortization of deferred financing costs of $0.1
million in the three months ended March 31, 2018 was comparable to
the prior year. The current period deferred financing costs include
the amortization of deferred financing costs related to the
Convertible Debentures.
For the three months ended March 31, 2018, the
Company recorded no current income tax expense and a deferred
income tax expense of $4.1 million, providing a combined income tax
expense of $4.1 million. This compares to a combined income tax
expense of $3.5 million recorded for the same period last year.
Income tax as a percentage of taxable income for
the three months ended March 31, 2018 and three months ended March
31, 2017 differs from the statutory rate of 27.00% primarily due to
permanent tax differences resulting from stock-based compensation
and income tax adjustments and reassessments.
Outlook
The Company has just completed the first quarter
of the second year of a three year organic growth plan that is
targeting a minimum 15% compound growth in revenue and EBITDA over
that period. The Company’s strategy to achieve the growth is
to:
- Build production related recurring services volumes in the
Company’s core oil sands market, together with the addition of
value creating services.
- Expansion of the Company’s market coverage to include other
resource mines (e.g. coal, copper, gold, diamonds etc.) and
infrastructure related projects that involve major earthworks.
Following on from 37% and 24% growth in revenue
and EBITDA respectively in 2017, the Company is also on track to
achieve its growth objectives for 2018 and 2019, with this very
positive outlook supported by:
- The successful renewal of all of the Company’s oil sands
long-term services agreements such that the Company is not faced
with a contract expiration until late 2020;
- The Company’s customers continue to use economies of scale in
production to dramatically lower oil sands operating costs per
barrel. On this theme the Company executed two large earthworks
jobs for the winter season with volumes similar to last year's
strong program. Also during the first quarter the Company
negotiated a contract for overburden handling, with a value of
around $35 million, which will commence in April and last most of
the year;
- The new Fort Hills oil sands mine is anticipated to provide a
direct benefit in terms of incremental demand for the Company’s
services and an indirect benefit from the overall tightening of
heavy equipment supply;
- A good line of sight to meaningful heavy construction activity
for the summer season of 2018, after a four year hiatus, due to the
deep cyclical downturn in the oil industry;
- The award of a three year site support contract at the Highland
Valley copper mine. Revenue, which started in the fourth quarter of
2017, was modest at first, but it is expected to increase over the
work duration;
- The availability of several bidding opportunities for further
natural resource related contracts, both in Canada and the USA. The
Company plans to build on its bidding success of 2017, with
additional awards in 2018 and 2019;
- Further success at pre-qualifying to bid for major
infrastructure projects. In late 2017 the Company was chosen (three
from seven), as part of a strong international consortium, to bid
for a significant gravel road construction job in the Northwest
Territories; and
- Good progress with leveraging the Company’s core equipment
maintenance competence into work for third parties. The Company
already has jobs for three customers in its Edmonton maintenance
facility and the Company believes that this initiative could have a
discernible impact on its 2018 results. Beyond that the Company
hopes to be up and running in a new, purpose designed and built,
state of the art maintenance facility, which will be capable of
handling the largest of its customers’ equipment assets.
Eventually, this external maintenance business could potentially
provide more than $30 million in annual revenue stream for the
Company.
Overall the Company is very encouraged by this
bright outlook and are even more confident about meeting its growth
targets, while maintaining a strong balance sheet.
Conference Call and Webcast
Management will hold a conference call and
webcast to discuss the Company’s financial results for the quarter
ended March 31, 2018 tomorrow, Wednesday, May 2, 2018 at 9:00am
Eastern time.
The call can be accessed by dialing:
Toll free: 1-866-521-4909International: 1-647-427-2311
A replay will be available through June 2, 2018, by dialing:
Toll Free: 1-800-585-8367International: 1-416-621-4642Conference
ID: 8158018
The live and archived webcast can be accessed at:
http://event.on24.com/r.htm?e=1655512&s=1&k=6B4740BDBA1E52D0BDE33ABABC044764
Non-GAAP Financial Measures
This release contains non-GAAP financial
measures. A non-GAAP financial measure is generally defined by the
Canadian regulatory authorities as one that purports to measure
historical or future financial performance, financial position or
cash flows, but excludes or includes amounts that would not be
adjusted in the most comparable GAAP measures. In this release,
non-GAAP financial measures are used, such as “gross profit,”
“margin,” “EBIT,” “EBITDA,” “Consolidated EBITDA,” and “Adjusted
EBITDA.”
“Gross profit” is defined as revenue less:
project costs, equipment costs, and depreciation.
The Company believes that gross profit is a
meaningful measure of the business as it portrays results before
general and administrative overheads costs, amortization of
intangible assets and the gain or loss on disposal of property,
plant and equipment and assets held for sale. Management reviews
gross profit to determine the profitability of operating
activities, including equipment ownership charges and to determine
whether resources, plant and equipment are being allocated
effectively.
The Company will often identify a relevant
financial metric as a percentage of revenue and refer to this as a
margin for that financial metric. “Margin” is defined as the
financial number as a percent of total reported revenue. Examples
where NACG uses this reference and related calculation are in
relation to “gross profit margin,” “net income margin,” “EBIT
margin,” “Consolidated EBITDA margin” or “Adjusted EBITDA
margin.”
NACG believes that presenting relevant financial
metrics as a percentage of revenue is a meaningful measure of its
business as it provides the performance of the financial metric in
the context of the performance of revenue. Management reviews
margins as part of its financial metrics to assess the relative
performance of its results.
"EBIT" is defined as net income (loss) before
interest expense and income taxes.
"EBITDA" is defined as net income (loss) before
interest expense, income taxes, depreciation and amortization.
"Consolidated EBITDA" is defined as EBITDA,
excluding the effects of unrealized foreign exchange gain or loss,
realized and unrealized gain or loss on derivative financial
instruments, non-cash (equity classified) stock-based compensation
expense, gain or loss on disposal of property, plant and equipment,
gain or loss on disposal of assets held for sale and certain other
non-cash items included in the calculation of net income
(loss).
"Adjusted EBITDA," which is defined as EBITDA
excluding the effects of unrealized foreign exchange gain or loss,
realized and unrealized gain or loss on derivative financial
instruments, cash and non-cash (liability and equity classified)
stock-based compensation expense, gain or loss on disposal of
property, plant and equipment, gain or loss on disposal of assets
held for sale and certain other non-cash items included in the
calculation of net income (loss). Adjusted EBITDA is used in the
calculation of the financial covenants in the Company’s new Credit
Facility.
The Company believes that Consolidated and
Adjusted EBITDA are a meaningful measure of business performance
because it excludes interest, income taxes, depreciation,
amortization, the effect of certain gains and losses and certain
non-cash items that are not directly related to the operating
performance of its business. Management reviews Consolidated and
Adjusted EBITDA to determine whether property, plant and equipment
are being allocated efficiently. In addition, the Company believes
that Adjusted EBITDA is a meaningful measure as it excludes the
financial statement impact of changes in the carrying value of the
liability classified award plans as a result of movement of the
Company’s share price.
As EBIT, EBITDA, Consolidated EBITDA, and
Adjusted EBITDA are non-GAAP financial measures, the Company’s
computations of EBIT, EBITDA, Consolidated EBITDA, and Adjusted
EBITDA may vary from others in the industry. EBIT, EBITDA,
Consolidated EBITDA, and Adjusted EBITDA should not be considered
as alternatives to operating income or net income as measures of
operating performance or cash flows and have important limitations
as analytical tools and should not be considered in isolation or as
substitutes for analysis of the Company’s results as reported under
US GAAP. A reconciliation of Net income to EBIT, EBITDA,
Consolidated EBITDA and Adjusted EBITDA is as follows:
|
|
|
Three months ended |
|
March 31, |
(dollars
in thousands) |
2018 |
|
2017 |
Net income |
$ |
11,131 |
|
|
$ |
9,599 |
|
Adjustments: |
|
|
|
Interest
expense |
1,819 |
|
|
1,366 |
|
Income
tax expense |
4,127 |
|
|
3,487 |
|
EBIT |
17,077 |
|
|
14,452 |
|
Adjustments: |
|
|
|
Depreciation |
18,192 |
|
|
14,558 |
|
Amortization of intangible assets |
153 |
|
|
352 |
|
EBITDA |
35,422 |
|
|
29,362 |
|
Adjustments: |
|
|
|
Loss on
disposal of property, plant and equipment |
80 |
|
|
214 |
|
Gain on
disposal of assets held for sale |
(42 |
) |
|
(68 |
) |
Equity
classified stock-based compensation expense |
720 |
|
|
774 |
|
Loss on sublease |
1,732 |
|
|
— |
|
Consolidated
EBITDA |
37,912 |
|
|
30,282 |
|
Adjustments: |
|
|
|
Liability classified stock-based compensation expense |
1,178 |
|
|
1,284 |
|
Adjusted EBITDA |
39,090 |
|
|
31,566 |
|
|
|
|
|
|
|
Forward-Looking Information
The information provided in this release
contains forward-looking statements. Forward-looking statements
include statements preceded by, followed by or that include the
words “expect,” “may,” “could,” “believe,” “anticipate,”
“continue,” “should,” “estimate,” “potential,” “likely,” “target,”
“on track” or similar expressions. Forward looking statements
include the statements that the Company believes it is on track to
at least achieve its revenue and EBITDA growth targets for 2018,
expects that the second quarter will be seasonally much slower due
to spring break-up, believes that it has sufficient work to handily
outperform the results of 2017, believes its outlook is much better
than last year for both earthworks and construction projects,
expects that its new, purpose designed maintenance facility is on
schedule to be open by the end of the year, believes that it will
be able to achieve a minimum 15% compound growth in revenue and
EBITDA over the period of its three year organic growth plan,
believes that it will be able to achieve growth through building
production related recurring services volumes in its core oil sands
market together with the addition of value creating services and
through expanding its market coverage to include other resource
mines and infrastructure projects that involve major earthworks,
believes that it will be able to achieve its growth objectives for
2018 and 2019, expects that its customers will continue to use
economies of scale in production to dramatically lower oil sands
operating costs per barrel, expects that the contract for
overburden handling it negotiated in the first quarter, with a
value of around $35 million, will commence in April and last most
of the year, anticipates that the new Fort Hills oil sands mine
will provide a direct benefit in terms of incremental demand for
its services and an indirect benefit from the overall tightening of
heavy equipment supply, believes that there will be meaningful
heavy construction activity for the summer season of 2018, expects
that revenue from the three year site support contract at the
Highland Valley copper mine will increase over the work duration,
expects that it will build on its bidding success of 2017 on
natural resource related contracts, with additional awards in 2018
and 2019, expects that it will have further success at
pre-qualifying to bid for major infrastructure projects, believes
that its third party maintenance work could have a discernible
impact on its 2018 results, expects that it will be up and running
in a new, purpose designed and built, state of the art maintenance
facility, which will be capable of handling the largest of its
customers’ equipment assets and which could ultimately provide more
than $30.0 million in annual revenue stream for it.
The material factors or assumptions used to develop the above
forward-looking statements include, and the risks and uncertainties
to which such forward-looking statements are subject, are
highlighted in the Company’s Management’s Discussion and Analysis
(“MD&A”) for the quarter ended June 30, 2017. Actual results
could differ materially from those contemplated by such
forward-looking statements as a result of any number of factors and
uncertainties, many of which are beyond NACG’s control. Undue
reliance should not be placed upon forward-looking statements and
NACG undertakes no obligation, other than those required by
applicable law, to update or revise those statements. For more
complete information about NACG, you should read the Company’s
disclosure documents filed with the SEC and the CSA. You may obtain
these documents for free by visiting EDGAR on the SEC website at
www.sec.gov or on the CSA website at www.sedar.com.
About the Company
North American Construction Group Ltd.
(www.nacg.ca) is the premier provider of heavy construction and
mining services in Canada. For more than 50 years, NACG has
provided services to large oil, natural gas and resource companies.
The Company maintains one of the largest independently owned
equipment fleets in the region.
For further information contact:
David Brunetta, CPA, CMADirector; Finance, Investor Relations,
Information Technology and TreasuryNorth American Construction
Group Ltd.(780) 969-5574dbrunetta@nacg.cawww.nacg.ca
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