North American Construction Group Ltd. (“NACG” or “the Company”)
(TSX:NOA/NYSE:NOA) today announced results for the first quarter
ending March 31, 2019.
Martin Ferron, Chairman and Chief Executive
Officer of the Company stated; “Spring break up arrived early and
abruptly this year, particularly in comparison to 2017 and 2018,
causing a premature end to some of our winter work revenue
opportunities. Despite this, we were pleased to exceed our EBITDA
objective for the quarter, which augers very well for the rest of
the year, particularly as we only achieved break even gross profit
on two assumed legacy contracts that will soon run their
course.”
“In a welcome period of stock price
appreciation, we achieved another objective of layering in some
junior debt into our capital structure, on favorable terms.
However, the non-cash, mark to market accounting for our stock
based compensation, together with one time acquisition related
restructuring costs, reduced our basic EPS by 23 cents.”
Mr. Ferron concluded; “Q2 has started with the
award of another long-term contract which will provide work for
many of our recently acquired heavy equipment assets. Therefore,
going forward, we believe that we have the contracted work to
provide sufficient free cash flow to both de-lever our balance
sheet significantly and pursue many opportunities to continue our
impressive growth profile.”
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 ending March 31, 2019 for further
detail on the matters discussed in this release.
Highlights of the First
Quarter
- Revenue for the quarter was $186.4 million, compared to $114.7
million for the prior year, an increase of 62.5%.
- Adjusted EBITDA for the quarter was $52.1 million compared to
$39.1 million for the prior year, an increase of 33.2%.
- On March 20, 2019, the Company closed an offering of a 5.00%
convertible unsecured subordinated debenture for aggregate gross
proceeds of $55.0 million.
- On April 1, 2019, the Company announced a long-term Multiple
Use Contract and an associated term contract with a major oil sands
customer. The agreement runs through December 2023 and the backlog
included in the March 31, 2019 balance is approximately $400
million.
Declaration of Quarterly
DividendOn April 30, 2019, 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,
2019. The Dividend will be paid on July 5, 2019 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) |
2019 |
|
2018 |
|
Change |
Revenue |
$ |
186,408 |
|
|
$ |
114,703 |
|
|
$ |
71,705 |
|
Project costs |
70,491 |
|
|
41,463 |
|
|
29,028 |
|
Equipment costs |
57,053 |
|
|
28,257 |
|
|
28,796 |
|
Depreciation |
29,281 |
|
|
18,192 |
|
|
11,089 |
|
Gross
profit(i) |
$ |
29,583 |
|
|
$ |
26,791 |
|
|
$ |
2,792 |
|
Gross profit
margin(i) |
15.9 |
% |
|
23.4 |
% |
|
(7.5 |
)% |
Select
financial information: |
|
|
|
|
|
General
and administrative expenses (excluding stock-based
compensation) |
8,820 |
|
|
5,903 |
|
|
2,917 |
|
Stock-based compensation expense |
5,978 |
|
|
1,898 |
|
|
4,080 |
|
Loss on
sublease |
— |
|
|
1,732 |
|
|
(1,732 |
) |
Operating income |
14,533 |
|
|
17,067 |
|
|
(2,534 |
) |
Interest
expense |
5,461 |
|
|
1,819 |
|
|
3,642 |
|
Net income and comprehensive income available to
shareholders |
7,181 |
|
|
11,131 |
|
|
(3,950 |
) |
EBIT(i) |
15,117 |
|
|
17,077 |
|
|
(1,960 |
) |
EBIT
margin(i) |
8.1 |
% |
|
14.9 |
% |
|
(6.8 |
)% |
Adjusted EBITDA(i) |
52,070 |
|
|
39,090 |
|
|
12,980 |
|
Adjusted
EBITDA margin(i) |
27.9 |
% |
|
34.1 |
% |
|
(6.2 |
)% |
|
|
|
|
|
|
Per share
information |
|
|
|
|
|
Basic net
income per share |
$ |
0.29 |
|
|
$ |
0.44 |
|
|
$ |
(0.15 |
) |
Diluted
net income per share |
$ |
0.25 |
|
|
$ |
0.36 |
|
|
$ |
(0.11 |
) |
Adjusted
EPS(i) |
$ |
0.52 |
|
|
$ |
0.55 |
|
|
$ |
(0.03 |
) |
- See “Non-GAAP Financial Measures”. A reconciliation of net
income and comprehensive income available to shareholders to EBIT,
EBITDA, and Adjusted EBITDA in the section titled “Non-GAAP
Financial Measures”.
Results for the First
QuarterFor the quarter revenue was $186.4 million, up from
$114.7 million compared to last year. The current year revenue
growth is largely attributable to the fleet acquired in Q4 2018
which provided new work at the Fort Hills and Aurora mines and
provided significant incremental work at the Millennium Mine.
Revenue from Nuna was not material for the quarter but did
contribute to the year over year increase given the acquisition
occurred in Q4 2018. Revenue from the Kearl Mine also increased
year over year as the Company is expanding its scope at this mine
site. Increases in the Company’s external maintenance service
offering and the Dene North JV were offset by the year over year
decreases from both the Highland Valley Copper and Fording River
mines.
Gross profit for the quarter was $29.6 million
with a 15.9% gross profit margin, up from gross profit of $26.8
million but down from the 23.4% margin, compared to last year. The
higher gross profit this quarter was a result of higher revenue.
Gross profit margin was affected by an early spring breakup
occurring during the quarter when compared to the 2018 spring
breakup happening in April. In addition to this, the Company’s
results were negatively impacted by two assumed legacy contracts at
the Fort Hills Mine which expire in the second and third quarters
of 2019. Excluding this transition impact, gross profit margin for
the quarter would have been approximately 20% which is a more
accurate reflection of the timing effect of a traditional spring
breakup.
During the quarter depreciation was $29.3
million (or 15.7% of revenue), up from $18.2 million (or 15.9% of
revenue) compared to last year. The increase in current quarter
depreciation was primarily driven by increased equipment use due to
the higher revenue activity. Depreciation as a percent of revenue
was similar between the two periods but is higher than the
Company’s current trend of less than 14%. The higher
depreciation percentage when comparing to Q4 2018 reflects the
impact of initial component depreciation of the new fleet as well
as the operational challenges experienced with the 2019 spring
break-up.
The Company recorded operating income of $14.5
million in Q1 2019, down from $17.1 million last year. General and
administrative expense, excluding stock-based compensation, was
$8.8 million (or 4.7% of revenue) for the quarter, up from $5.9
million (or 5.1% of revenue) last year. Stock-based compensation
expense increased $4.1 million compared to last year due to an
increase in the Company’s share price this quarter.
For the quarter, the Company recorded $7.2
million net income (basic earnings per share of $0.29 and Adjusted
EPS of $0.52), compared to $11.1 million net income (basic earnings
per share of $0.44 and Adjusted EPS of $0.55) recorded last year.
The net income in the current quarter was affected by a $3.6
million increase in interest expense which includes $0.8 million of
non-cash interest. Average cash cost of debt for the quarter
was 4.8% and reflects the new 5.0% convertible debt issued in March
as well as low-cost equipment financing rates. For clarity,
the adoption of the new US GAAP standard for leases had no impact
on EBITDA or net income.
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, 2019 tomorrow, Wednesday, May 1, 2019 at 9:00 am
Eastern Time (7:00 am Mountain Time).
The call can be accessed by dialing:
Toll free: 1-877-291-4570International: 1-647-788-4919
A replay will be available through June 1, 2019, by dialing:
Toll Free: 1-800-585-8367International: 1-416-621-4642
Conference ID: 1072404
The live and archived webcast can be accessed at:
http://event.on24.com/r.htm?e=1990864&s=1&k=7596D8A395C78CA1C45B494C4FD762BA
Non-GAAP Financial MeasuresThis 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
US GAAP measures. In this release, non-GAAP financial measures are
used, such as “gross profit”, “margin”, “total debt”, “free cash
flow”, “backlog”, “EBIT”, “EBITDA”, “Adjusted EBITDA”, and
“Adjusted EPS”.
“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 (loss) margin”,
“EBIT margin”, or “Adjusted EBITDA margin”.
The Company 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.
"Total debt" is defined as the sum of the
outstanding principal balance (current and long term portions) of:
(i) finance leases; (ii) borrowings under the Credit Facility
(excluding outstanding Letters of Credit); (iii) convertible
unsecured subordinated debentures (the "Convertible Debentures");
(iv) liabilities from hedge and swap arrangements; (v) mortgage;
(vi) vendor promissory notes; and (vii) equipment promissory notes.
The Company’s definition of total debt excludes deferred financing
costs related to total debt. The Company believes total debt is a
meaningful measure in understanding its complete debt
obligations.
"Free cash flow" is defined as cash from
operations less cash used in investing activities (excluding cash
used for growth capital expenditures, cash provided by for certain
equipment financing arrangements, cash used for acquisitions, cash
used for the investment in affiliates and joint ventures and cash
provided by business dispositions) less sustaining capital
expenditures financed through capital leases. The Company feels
free cash flow is a relevant measure of cash available to service
its total debt repayment commitments, pay dividends, fund share
purchases and fund both growth capital expenditures and strategic
initiatives. A reconciliation of free cash flow can be found in the
Company’s MD&A for the quarter ended March 31, 2019.
"Backlog" is a measure of the amount of secured
work the Company has outstanding and, as such, is an indicator of a
base level of future revenue potential. Backlog, while not a US
GAAP term, is similar in nature to the "transaction price allocated
to the remaining performance obligations", defined under US GAAP. A
reconciliation of backlog can be found in the Company’s MD&A
for the quarter ended March 31, 2019.
"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.
"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 (liability classified) and 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 EPS" is defined as net income and
comprehensive income available to shareholders 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), divided by the weighted average number of common
shares.
The Company believes that EBIT and Adjusted
EBITDA are a meaningful measure of business performance because
they exclude 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 EBIT 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, and Adjusted EBITDA are
non-GAAP financial measures, the Company’s computations of EBIT,
EBITDA, and Adjusted EBITDA may vary from others in the industry.
EBIT, 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, and
Adjusted EBITDA is as follows:
|
|
Three months ended |
|
|
March 31, |
|
(dollars in thousands) |
2019 |
|
2018 |
|
Net income
and comprehensive income available to shareholders |
$ |
7,181 |
|
$ |
11,131 |
|
Adjustments: |
|
|
|
|
Interest expense |
5,461 |
|
1,819 |
|
Income tax expense |
2,475 |
|
4,127 |
|
EBIT |
15,117 |
|
17,077 |
|
Adjustments: |
|
|
|
|
Depreciation |
29,281 |
|
18,192 |
|
Amortization of intangible assets |
208 |
|
153 |
|
EBITDA |
44,606 |
|
35,422 |
|
Adjustments: |
|
|
|
|
Loss on disposal of property, plant and equipment |
21 |
|
80 |
|
Loss (gain) on disposal of assets held for sale |
23 |
|
(42) |
|
Stock-based compensation expense |
5,978 |
|
1,898 |
|
Loss on sublease |
— |
|
1,732 |
|
Restructuring costs |
1,442 |
|
— |
|
Adjusted EBITDA |
$ |
52,070 |
|
$ |
39,090 |
|
|
Three months ended |
|
|
|
March 31, 2019 |
|
(dollars in thousands, except per share data) |
|
Income before income taxes |
|
Income tax |
|
Net income |
|
Basic net incomeper share |
|
Net income
and comprehensive income |
|
$ |
9,735 |
|
$ |
2,475 |
|
$ |
7,260 |
|
|
|
Net income
attributable to non-controlling interest |
|
|
|
|
|
(79) |
|
|
|
Net income available to shareholders |
|
|
|
|
|
$ |
7,181 |
|
$ |
0.29 |
|
Add
back: |
|
|
|
|
|
|
|
|
|
Loss on disposal of property, plant and equipment |
|
$ |
21 |
|
$ |
4 |
|
$ |
17 |
|
|
|
Loss on disposal of assets held for sale |
|
23 |
|
5 |
|
18 |
|
|
|
Stock-based compensation expense |
|
5,978 |
|
1,271 |
|
4,707 |
|
|
|
Loss on sublease |
|
— |
|
— |
|
— |
|
|
|
Restructuring costs |
|
1,442 |
|
307 |
|
1,135 |
|
|
|
Adjusted EPS(i) |
|
|
|
|
|
$ |
|
|
$ |
0.52 |
|
- See “Non-GAAP Financial Measures”.
Forward-Looking InformationThe information
provided in this release contains forward-looking statements.
Forward-looking statements include statements preceded by, followed
by or that include the words “believe”, “should” or similar
expressions. Forward looking statements include the
statements that the Company expects that it’s most recently awarded
contract should provide work for many of the Company’s recently
acquired heavy equipment assets and the Company’s belief that it
has sufficient contracted work to provide the free cash flow
necessary to de-lever the Company’s balance sheet significantly and
pursue many opportunities to pursue the Company’s impressive growth
profile.
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 March 31, 2019 and
for the year ended December 31, 2018. Actual results could differ
materially from those contemplated by such forward-looking
statements because 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 CompanyNorth American Construction
Group Ltd. (www.nacg.ca) is one of Canada’s largest providers of
heavy civil construction and mining contractors. For more than 60
years, NACG has provided services to large oil, natural gas and
resource companies.
For further information contact:
David Brunetta, CPA, CMADirector; Investor RelationsNorth
American Construction Group Ltd.(780)
969-5574dbrunetta@nacg.cawww.nacg.ca
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