North American Construction Group Ltd. (“NACG” or “the Company”)
(TSX:NOA/NYSE:NOA) today announced results for the third quarter
ending September 30, 2019.
Martin Ferron, Chairman and Chief Executive
Officer of the Company, stated, “Well above average rainfall in
late July and August, both in terms of quantity and frequency,
severely curtailed our activity in that period, such that only
around $4 million of Adjusted EBITDA was generated in August.
Despite this we posted another nicely profitable quarter, with the
record performance from the Nuna Group of Companies being
especially pleasing. Looking ahead, we now anticipate Adjusted
EBITDA and EPS to be in the ranges of $170 million to $180 million
and $1.65 to $1.85 per share, respectively, with the latter being
well ahead of our year starting expectations. For 2020, we are even
more confident in another strong year of growth based on the
organic expansion projects we are nearing completion on.”
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 September 30, 2019 for
further detail on the matters discussed in this release. In
addition to the MD&A, please reference the dedicated Q3 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 Third
Quarter
- Revenue for the quarter was $166.3
million, compared to $84.9 million for the prior year, an increase
of $81.4 million (or 96%). Adjusted EBITDA for the quarter was
$37.2 million compared to $19.1 million for the prior year, an
increase of $18.2 million (or 95%) meaning the profit trend was
consistent with the revenue trend despite the non-routine
operational challenges faced in July & August of this year
- Adjusted net earnings of $10.5
million in the quarter was $5.9 million higher than the prior year
as the increase in Adjusted EBIT and the deferred income tax
benefit were partially offset by an increase in interest
expense
- On August 7, 2019, the Company
announced a change to its dividend policy whereby the regular
dividend will be increased to $0.16 per common share per year,
payable on a quarterly basis, up from the current $0.08 per
year
- On August 8, 2019, the Company
announced the appointments of Maryse Saint-Laurent and Kristina
Williams to its Board of Directors
- Construction of the new component
rebuild facility occurred throughout the quarter and is nearing the
completion date scheduled for mid to late Q4
Declaration of Quarterly
Dividend
On October 29, 2019, the NACG Board of
Directors declared a regular quarterly dividend (the “Dividend”) of
four Canadian cents ($0.04) per common share, payable to common
shareholders of record at the close of business on November 30,
2019. The Dividend will be paid on January 3, 2020 and is an
eligible dividend for Canadian income tax purposes.
Consolidated Financial
Highlights
|
Three months ended |
|
|
Nine months ended |
|
|
September 30, |
|
|
September 30, |
|
(dollars in thousands, except per share amounts) |
2019 |
|
|
2018 |
|
|
2019 |
|
|
2018 |
|
Revenue |
$ |
166,269 |
|
|
$ |
84,886 |
|
|
$ |
529,612 |
|
|
$ |
279,060 |
|
Project costs |
67,126 |
|
|
31,593 |
|
|
211,555 |
|
|
104,849 |
|
Equipment costs |
58,982 |
|
|
28,021 |
|
|
173,467 |
|
|
83,268 |
|
Depreciation |
21,875 |
|
|
10,942 |
|
|
73,255 |
|
|
40,171 |
|
Gross
profit(i) |
$ |
18,286 |
|
|
$ |
14,330 |
|
|
$ |
71,335 |
|
|
$ |
50,772 |
|
Gross profit margin(i) |
11.0 |
% |
|
16.9 |
% |
|
13.5 |
% |
|
18.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative
expenses (excluding stock-based compensation) |
5,040 |
|
|
6,191 |
|
|
19,852 |
|
|
17,544 |
|
Stock-based compensation
expense |
2,583 |
|
|
4,368 |
|
|
7,689 |
|
|
9,023 |
|
Interest expense, net |
5,541 |
|
|
1,699 |
|
|
16,125 |
|
|
5,140 |
|
Net income and
comprehensive income available to shareholders |
7,561 |
|
|
1,466 |
|
|
28,636 |
|
|
12,630 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted
EBITDA(i) |
37,248 |
|
|
19,097 |
|
|
126,440 |
|
|
73,392 |
|
Adjusted EBITDA margin(i) |
22.4 |
% |
|
22.5 |
% |
|
23.9 |
% |
|
26.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash provided by
operating activities prior to change in working
capital(i) |
29,830 |
|
|
17,526 |
|
|
104,426 |
|
|
68,618 |
|
Free Cash
Flow(i) |
(25,319 |
) |
|
21 |
|
|
(28,879 |
) |
|
29,541 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per share
information |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income per share |
$ |
0.29 |
|
|
$ |
0.06 |
|
|
$ |
1.13 |
|
|
$ |
0.51 |
|
Diluted net income per share |
$ |
0.26 |
|
|
$ |
0.05 |
|
|
$ |
0.96 |
|
|
$ |
0.44 |
|
Adjusted EPS(ii) |
$ |
0.41 |
|
|
$ |
0.19 |
|
|
$ |
1.34 |
|
|
$ |
0.81 |
|
(i) See “Non-GAAP Financial Measures”. A
reconciliation of net income and comprehensive income available to
shareholders to EBIT, Adjusted EBIT and Adjusted EBITDA in the
section titled “Non-GAAP Financial Measures”.
Results for the Third
Quarter
For the three months ended September 30, 2019,
revenue was $166.3 million, up from $84.9 million in the same
period last year. The revenue growth in the current year is largely
attributable to the fleet acquired in Q4 2018, which provided new
work at the Fort Hills and Aurora mine sites and significant
incremental work at the Millennium mines. Current year revenue at
the Suncor site was primarily due to an increase in mine support
services revenue and overburden removal activity, despite the
abnormally wet weather experienced at the mine during the summer
months. These increases were partially offset by reduced scope
during the quarter at the Kearl mine. Revenue from Nuna of $12.8
million reflected peak activity volumes in their busy summer season
with major project execution work on Baffin Island and in northern
Saskatchewan. Of note, factoring in the Company's share of equity
accounted revenue from Nuna of $12.6 million, the Company's share
of combined revenue of $25.4 million is a record quarter for the
Nuna Group of Companies as momentum continues to build and revenue
synergies are realized.
For the three months ended September 30, 2019,
gross profit was $18.3 million, and a 11.0% gross profit margin, up
from a $14.3 million gross profit and down from a 16.9% gross
profit margin in the same period last year. The gross profit
increase of 27.6% was a direct result of the higher revenue in the
quarter, but the decrease in margin was primarily due to the
difficult operating conditions in July and August as a result of
consistent rainfall. Increases in site clean-up activities which
are not billable to the client and a larger proportion of low
margin sub-contract activities were the primary specific drivers of
margin reduction. Additionally, margins were impacted by increased
equipment maintenance activities as the Company's equipment fleet
was more readily available for required repairs and maintenance
during these months. Partially offsetting these decreases were
improved operating efficiency at the Kearl mine and strong gross
margins achieved by Nuna.
For the three months ended September 30, 2019,
depreciation was $21.9 million, or 13.2% of revenue, up from $10.9
million in the same period last year but comparable to the 12.9% of
revenue in Q3 2018.
For the three months ended September 30, 2019,
the Company recorded operating income of $10.3 million, an increase
of $6.7 million from the $3.7 million for the same period last
year. General and administrative expense, excluding stock-based
compensation expense, was $5.0 million (or 3.0% of revenue) for the
quarter, lower than the $6.2 million (or 7.3% of revenue) in the
prior year. Stock-based compensation expense decreased $1.8 million
compared to the prior year from the fluctuating share price on the
carrying value of the Company's liability classified award
plans.
For the three months ended September 30, 2019,
the Company recorded $7.6 million net income and comprehensive
income available to shareholders (basic income per share of $0.29
and diluted income per share of $0.26), compared to $1.5 million
net income and comprehensive income available to shareholders
(basic income per share of $0.06 and diluted income per share of
$0.05) recorded for the same period last year.
For the three months ended September 30, 2019,
the Company generated cash from operating activities prior to
changes in working capital of $29.8 million compared to $17.5
million for the same period last year. The year over year cash flow
improvement of $12.3 million is due to the $18.1 million increase
in Adjusted EBITDA offset primarily by an increase in interest
expense of $3.8 million. Free Cash Flow for the three months ended
September 30, 2019 was a use of cash of $25.3 million primarily due
to temporary changes in working capital balances which had a $35.0
million impact in the quarter.
Conference Call and Webcast
Management will hold a conference call and
webcast to discuss the Company’s financial results for the quarter
ended September 30, 2019 tomorrow, Wednesday, October 30,
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 November 30, 2019, by
dialing:
Toll Free: 1-800-585-8367International: 1-416-621-4642Conference
ID: 6587134
A slide deck for the webcast will be available for download on
the company’s website at www.nacg.ca/presentations/
The live presentation and webcast can be accessed at:
http://event.on24.com/r.htm?e=2107656&s=1&k=C89993BC3F84D2721E8B5FB76A8AF903
For those unable to listen live, a replay will be available
using the link provided above until November 30, 2019.
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”, “Adjusted EBIT”, “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 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 (including
capital lease additions but excluding cash used for growth capital
expenditures, cash used for / provided by acquisitions and proceeds
from equipment sale leaseback). 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 September 30, 2019.
"EBIT" is defined as net income before interest
expense and income taxes.
"Adjusted EBIT" is defined as EBIT 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 defined as Adjusted EBIT
before depreciation and amortization. The Company believes that
Adjusted EBIT and Adjusted EBITDA are meaningful measures of
business performance because they exclude items that are not
directly related to the operating performance of the business.
Management reviews these measures to determine whether property,
plant and equipment are being allocated efficiently.
"Adjusted net earnings" 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).
"Cash provided by operating activities prior to
change in working capital" is defined as cash used in or provided
by operating activities excluding net changes in non-cash working
capital.
"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, Adjusted EBIT, Adjusted EBITDA, Adjusted net earnings
and Adjusted EPS are non-GAAP financial measures, the Company’s
computations may vary from others in the industry. These measures
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, Adjusted EBIT and
Adjusted EBITDA is as follows:
|
Three months ended |
|
|
Nine months ended |
|
|
September 30, |
|
|
September 30, |
|
(dollars in thousands) |
2019 |
|
|
2018 |
|
|
2019 |
|
|
2018 |
|
Net income and comprehensive
income available to shareholders |
$ |
7,561 |
|
|
$ |
1,466 |
|
|
$ |
28,636 |
|
|
$ |
12,630 |
|
Adjustments: |
|
|
|
|
|
|
|
Interest expense, net |
5,541 |
|
|
1,699 |
|
|
16,125 |
|
|
5,140 |
|
Income tax (benefit) expense |
(1,866 |
) |
|
537 |
|
|
488 |
|
|
4,672 |
|
EBIT(i) |
11,236 |
|
|
3,702 |
|
|
45,249 |
|
|
22,442 |
|
Adjustments: |
|
|
|
|
|
|
|
Gain on disposal of property, plant and equipment |
— |
|
|
— |
|
|
(103 |
) |
|
(105 |
) |
Loss (gain) on disposal of assets held for sale |
185 |
|
|
(34 |
) |
|
(187 |
) |
|
(231 |
) |
Stock-based compensation expense |
2,583 |
|
|
4,368 |
|
|
7,689 |
|
|
9,023 |
|
Restructuring costs |
— |
|
|
— |
|
|
1,442 |
|
|
— |
|
Pre-2019 inventory correction |
— |
|
|
— |
|
|
(2,775 |
) |
|
— |
|
Loss on sublease |
— |
|
|
— |
|
|
— |
|
|
1,732 |
|
Loss on legacy claim settlement |
1,235 |
|
|
— |
|
|
1,235 |
|
|
— |
|
Adjusted EBIT(i) |
15,239 |
|
|
8,036 |
|
|
52,550 |
|
|
32,861 |
|
Adjustments: |
|
|
|
|
|
|
|
Depreciation |
21,875 |
|
|
10,942 |
|
|
73,255 |
|
|
40,171 |
|
Amortization of intangible assets |
134 |
|
|
119 |
|
|
635 |
|
|
360 |
|
Adjusted EBITDA(i) |
$ |
37,248 |
|
|
$ |
19,097 |
|
|
$ |
126,440 |
|
|
$ |
73,392 |
|
(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 “anticipate”, “believe”, “expect”, “should” or similar
expressions. Forward looking statement include the statements that
the Company anticipates adjusted EBITDA and EPS for 2019 to be in
the ranges of $170 million to $180 million and $1.65 to $1.85
respectively and that the Company is confident in a strong year of
growth based on the organic expansion projects we are nearing
completion on.
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 September 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:
Jason Veenstra, CPA, CAChief Financial OfficerNorth American
Construction Group Ltd.(780)
948-2009jveenstra@nacg.cawww.nacg.ca
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