North American Construction Group Ltd. (“NACG” or “the Company”)
(TSX:NOA/NYSE:NOA) today announced results for the second quarter
ending June 30, 2019.
Martin Ferron, Chairman and Chief Executive
Officer of the Company stated; “We are very pleased with our second
quarter (Q2) performance as it not only validates the financial
projections we provided in relation to two recent important
acquisitions but also clearly demonstrates the substantial progress
we have made to mitigate the impact of seasonality on our business.
Just like night follows day, it used to be culturally accepted that
we would make a steep loss in Q2, after a strong Q1, due to spring
break-up and catch up repair and maintenance costs. Well after a
break even Q2 last year, we have now posted a very solid Q2 profit
this year, aided by the significant level of continuous work we now
have in backlog.”
Additionally, Mr. Ferron commented; “Looking
ahead, we now expect EBITDA to be in the range of $175 million -
$190 million for the full year of 2019 and anticipate another
strong year of growth in 2020 on the back of several compelling
organic expansion projects we are pursuing.”
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 June 30, 2019 for further
detail on the matters discussed in this release. In addition to the
MD&A, please reference the dedicated Q2 2019 Results
Presentation for more information on the Company’s results and
projections which can be found on the Company's website
under Investors – Presentations.
Highlights of the Second
Quarter
- Revenue for the quarter was $176.9 million, compared to $79.5
million for the prior year, an increase of $97 million (or 123%).
Adjusted EBITDA for the quarter was $37.1 million compared to
$15.2 million for the prior year, an increase of $21.9 million (or
144%) consistent with revenue growth.
- Adjusted net earnings of $10.8 million in the quarter was $9.0
million higher than the prior year and in addition to higher EBIT,
earnings benefitted $3.5 million from the staged Alberta corporate
income tax rate cut of one per cent each year from 2019 to
2022
- Construction begun of component rebuild facility in
Acheson
- Management contract signed in late Q2 for coal operation in
Wyoming, USA
Declaration of Quarterly
Dividend
On July 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 August 31,
2019. The Dividend will be paid on October 4, 2019 and is an
eligible dividend for Canadian income tax purposes.
Consolidated Financial
Highlights
|
Three months ended June 30, |
|
Six months ended June 30, |
(dollars in thousands, except per share amounts) |
2019 |
|
|
2018 |
|
|
2019 |
|
|
2018 |
|
Revenue |
$ |
176,935 |
|
|
$ |
79,471 |
|
|
$ |
363,343 |
|
|
$ |
194,174 |
|
Project costs |
73,938 |
|
|
31,793 |
|
|
144,429 |
|
|
73,256 |
|
Equipment costs |
57,432 |
|
|
26,990 |
|
|
114,485 |
|
|
55,247 |
|
Depreciation |
22,099 |
|
|
11,037 |
|
|
51,380 |
|
|
29,229 |
|
Gross
profit(i) |
$ |
23,466 |
|
|
$ |
9,651 |
|
|
$ |
53,049 |
|
|
$ |
36,442 |
|
Gross profit
margin(i) |
13.3 |
% |
|
12.1 |
% |
|
14.6 |
% |
|
18.8 |
% |
Select financial
information: |
|
|
|
|
|
|
|
General and administrative expenses (excluding stock-based
compensation) |
5,992 |
|
|
5,450 |
|
|
14,812 |
|
|
11,353 |
|
Stock-based compensation (benefit) expense |
(872 |
) |
|
2,757 |
|
|
5,106 |
|
|
4,655 |
|
Loss on sublease |
— |
|
|
— |
|
|
— |
|
|
1,732 |
|
Operating income |
18,572 |
|
|
1,696 |
|
|
33,105 |
|
|
18,763 |
|
Interest expense |
5,123 |
|
|
1,622 |
|
|
10,584 |
|
|
3,441 |
|
Net income and comprehensive income available to
shareholders |
13,894 |
|
|
33 |
|
|
21,075 |
|
|
11,164 |
|
|
|
|
|
|
|
|
|
EBIT(i) |
18,896 |
|
|
1,663 |
|
|
34,013 |
|
|
18,740 |
|
EBIT margin(i) |
10.7 |
% |
|
2.1 |
% |
|
9.4 |
% |
|
9.7 |
% |
Adjusted EBITDA(i) |
37,122 |
|
|
15,205 |
|
|
89,192 |
|
|
54,295 |
|
Adjusted EBITDA margin(i) |
21.0 |
% |
|
19.1 |
% |
|
24.5 |
% |
|
28.0 |
% |
|
|
|
|
|
|
|
|
Free Cash
Flow(i) |
1,746 |
|
|
12,952 |
|
|
(3,560 |
) |
|
29,520 |
|
|
|
|
|
|
|
|
|
Per share
information |
|
|
|
|
|
|
|
Basic net income per share |
$ |
0.55 |
|
|
$ |
0.00 |
|
|
$ |
0.84 |
|
|
$ |
0.45 |
|
Diluted net income per share |
$ |
0.45 |
|
|
$ |
0.00 |
|
|
$ |
0.70 |
|
|
$ |
0.38 |
|
Adjusted EPS(i) |
$ |
0.43 |
|
|
$ |
0.07 |
|
|
$ |
0.93 |
|
|
$ |
0.62 |
|
(i) 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 Second
Quarter
For the three months ended June 30, 2019,
revenue was $176.9 million, up from $79.5 million in the same
period last year. More than half of this increase of $97.5 million
(or 122.6%) is attributable to the fleet acquired in Q4 2018 at the
three oil sands mine sites, new work at the Fort Hills and Aurora
mines and significant incremental work at the Millennium Mine.
Consistent with momentum from Q1, scope at the Kearl Mine also
increased significantly year-over-year, which is organic growth as
it was not impacted by the 2018 acquisitions. These substantial
increases in the oil sands have been made possible through the
strategic focused growth capital invested in 2017, 2018 and the
first half of 2019. Revenue from Nuna of $11.5 million reflected
only the initial start of their 2019 busy summer season which
kicked off in mid-June.
For the three months ended June 30, 2019, gross
profit was $23.5 million, and a 13.3% gross profit margin, up from
a $9.7 million gross profit and a 12.1% gross profit margin in the
same period last year. The gross profit increase of 143.1% was a
direct result of the higher revenue. The slight increase in margin
is the result of improved operating efficiency at most sites, in
particular at the Kearl Mine and the higher gross margins achieved
by Nuna. In addition, Q2 gross profit margin was positively
impacted by a $2.8 million out of period adjustment for spare parts
inventory which was previously expensed pre-2019. Partially
offsetting these increases were continued operating challenges and
inefficiencies at the Fort Hills Mine stemming from legacy
contracts which will run their course in Q3.
For the three months ended June 30, 2019,
depreciation was $22.1 million, or 12.5% of revenue, up from $11.0
million, or 13.9% of revenue, in the same period last year.
Depreciation as a percent of revenue was lower in the quarter as
improved operating performance on site and component performance on
the machines both led to higher revenue generation and achievement
of target useful lives. The lower depreciation rate also reflects
the 2019 benefits realized from the purchase of used equipment at
low pricing and the benefits from the Company’s maintenance
initiatives designed to extend the useful life of its equipment
fleet.
For the three months ended June 30, 2019, the
Company recorded operating income of $18.6 million, an increase of
$16.9 million from the $1.7 million for the same period last year.
General and administrative expense, excluding stock-based
compensation expense, was $6.0 million (or 3.4% of revenue) for the
quarter, higher than the $5.5 million (or 6.9% of revenue).
Stock-based compensation expense decreased $3.6 million compared to
the prior year, primarily from the effect of a fluctuating share
price on the carrying value of the Company’s liability classified
award plans.
For the three months ended June 30, 2019, the
Company recorded $13.9 million net income (basic income per share
of $0.55 and diluted income per share of $0.45), compared to $0.03
million net income (basic income per share and diluted income per
share of $0.00) recorded for the same period last year. The net
income in the current year was affected by a $3.5 million increase
in interest expense in the current period.
Conference Call and Webcast
Management will hold a conference call and
webcast to discuss the Company’s financial results for the quarter
ended June 30, 2019 tomorrow, Wednesday, July 31, 2019 at 9:00 am
Eastern Time (7:00 am Mountain Time).
For the first time, management will use a
purpose prepared slide deck to address: business highlights; Q2
financial performance; and full year 2019, together with 2020
outlook. This illustrative material can be found at
www.nacg.ca/presentations
The call can be accessed by dialing:
Toll free:
1-877-291-4570International: 1-647-788-4919
A replay will be available through August 31, 2019, by
dialing:
Toll Free:
1-800-585-8367International: 1-416-621-4642 Conference ID:
2438609
The live and archived webcast can be accessed
at: http://event.on24.com/r.htm?e=2051848&s=1&k=2F7468B0FB5BA90A6236E1735824BB2B
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 US GAAP measures. In this release,
non-GAAP financial measures are used, such as “gross profit”,
“margin”, “Free Cash Flow”, “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.
"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 June 30, 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 |
|
Six months ended |
|
|
June 30, |
|
June 30, |
|
(dollars in thousands) |
2019 |
|
2018 |
|
2019 |
|
2018 |
|
Net income and comprehensive income available to shareholders |
$ |
13,894 |
|
|
$ |
33 |
|
|
$ |
21,075 |
|
|
$ |
11,164 |
|
|
Adjustments: |
|
|
|
|
|
|
|
|
Interest expense |
5,123 |
|
|
1,622 |
|
|
10,584 |
|
|
3,441 |
|
|
Income tax (benefit) expense |
(121 |
) |
|
8 |
|
|
2,354 |
|
|
4,135 |
|
|
EBIT |
18,896 |
|
|
1,663 |
|
|
34,013 |
|
|
18,740 |
|
|
Adjustments: |
|
|
|
|
|
|
|
|
Depreciation |
22,099 |
|
|
11,037 |
|
|
51,380 |
|
|
29,229 |
|
|
Amortization of intangible assets |
293 |
|
|
88 |
|
|
501 |
|
|
241 |
|
|
EBITDA |
41,288 |
|
|
12,788 |
|
|
85,894 |
|
|
48,210 |
|
|
Adjustments: |
|
|
|
|
|
|
|
|
Gain on disposal of property, plant and equipment |
(124 |
) |
|
(185 |
) |
|
(103 |
) |
|
(105 |
) |
|
Gain on disposal of assets held for sale |
(395 |
) |
|
(155 |
) |
|
(372 |
) |
|
(197 |
) |
|
Stock-based compensation (benefit) expense |
(872 |
) |
|
2,757 |
|
|
5,106 |
|
|
4,655 |
|
|
Loss on sublease |
— |
|
|
— |
|
|
— |
|
|
1,732 |
|
|
Restructuring costs |
— |
|
|
— |
|
|
1,442 |
|
|
— |
|
|
Inventory change |
(2,775 |
) |
|
— |
|
|
(2,775 |
) |
|
— |
|
|
Adjusted EBITDA |
$ |
37,122 |
|
|
$ |
15,205 |
|
|
$ |
89,192 |
|
|
$ |
54,295 |
|
|
Three months ended |
|
Six months ended |
|
June 30, |
|
June 30, |
(dollars in thousands) |
2019 |
|
2018 |
|
2019 |
|
2018 |
Net income and comprehensive income |
$ |
14,008 |
|
|
$ |
33 |
|
|
$ |
21,268 |
|
|
$ |
11,164 |
|
Net income attributable to
non-controlling interest |
(114 |
) |
|
— |
|
|
(193 |
) |
|
— |
|
Net income and comprehensive income available to shareholders |
13,894 |
|
|
33 |
|
|
21,075 |
|
|
11,164 |
|
Add back: |
|
|
|
|
|
|
|
Gain on disposal of property, plant and equipment |
(124 |
) |
|
(185 |
) |
|
(103 |
) |
|
(105 |
|
Gain on disposal of assets held for sale |
(395 |
) |
|
(155 |
) |
|
(372 |
) |
|
(197 |
|
Stock-based compensation (benefit) expense |
(872 |
) |
|
2,757 |
|
|
5,106 |
|
|
4,655 |
|
Loss on sublease |
— |
|
|
— |
|
|
— |
|
|
1,732 |
|
Restructuring costs |
— |
|
|
— |
|
|
1,442 |
|
|
— |
|
Inventory change |
(2,775 |
) |
|
— |
|
|
(2,775 |
) |
|
— |
|
Tax effect of the above items |
1,104 |
|
|
(652 |
) |
|
(874 |
) |
|
(1,644 |
|
Adjusted net earnings(i) |
$ |
10,832 |
|
|
$ |
1,798 |
|
|
$ |
23,499 |
|
|
$ |
15,605 |
|
Adjusted EPS(i) |
$ |
0.43 |
|
|
$ |
0.07 |
|
|
$ |
0.93 |
|
|
$ |
0.62 |
|
Basic
net income per share |
$ |
0.55 |
|
|
$ |
0.00 |
|
|
$ |
0.84 |
|
|
$ |
0.45 |
|
|
|
|
|
|
|
|
|
Weighted-average number of
common shares |
25,253,970 |
|
|
24,718,484 |
|
|
25,170,150 |
|
|
25,000,063 |
|
(i) See “Non-GAAP Financial Measures”.
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 “believe”, “expect”, “should” or similar expressions.
Forward looking statements include the statements that the Company
expects EBITDA to be in the range of $175 million to $190 million
for the full year of 2019 and that the Company anticipates another
strong year of growth in 2020.
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, 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 Company
North 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
PDF
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