North American Construction Group Ltd. (“NACG”) (TSX:NOA/NYSE:NOA)
today announced results for the third quarter ended
September 30, 2020. Unless otherwise indicated, financial
figures are expressed in Canadian dollars, and comparisons are to
the prior period ended September 30, 2019.
Third Quarter 2020
Highlights:
- Adjusted EBITDA of $37.1 million is consistent with Q3 2019
reflecting both the wide reaching operational impacts of the
COVID-19 pandemic and above average rainfall in the quarter offset
by cost discipline to limit indirect project costs and general and
administrative spending.
- Gross profit margin of 16.3% reflected a difficult operational
quarter with July & August rainy conditions compounding already
complex mine site environments.
- COVID-19 related safety protocols and mine site access
restrictions imposed in late Q1 continued to have pervasive
temporary impacts on all aspects of operations.
- Diversification efforts led to over half of adjusted EBIT being
generated outside of the Fort McMurray region. Nuna Group of
Companies achieved a strong three months during their busiest
quarter contributing approximately 45% of adjusted EBIT for the
quarter.
- Free cash flow ("FCF") in the quarter was a use of cash of
$17.0 million and was impacted by timing of cash collection and
spending. In addition, cash flow was used for capital inventory and
work in process related to our component rebuilding program.
- Subsequent to period end, on October 8, 2020, we extended our
credit facility agreement to October 8, 2023 and increased the
available borrowings permitted under our revolving facility by
$25.0 million to $325.0 million.
- On October 22, 2020, we announced the award of a major
earthworks contract. The contract was awarded to a newly formed
joint venture owned and operated equally by us and Nuna. This is a
two-year project in Northern Ontario valued at over $250 million
and is expected to commence immediately, ramp up through Q1 2021,
achieve peak volumes in Q3 2021 and be completed in the fall of
2022.
NACG Chairman and CEO, Martin Ferron, commented: “A second
successive year of well above average summer rainfall in the Fort
McMurray area, combined with continued, but easing, pandemic
related site access restrictions, severely curtailed our revenues,
compared with the same quarter last year. However, a steadfast
control of costs primarily enabled us to put up similar EBITDA and
EPS numbers to those achieved in the year before quarter.
Mr. Ferron added, “Looking forward, we anticipate that the
COVID-19 associated site access limitations will continue to ease,
such that activity levels could be back to near normal by year end.
Q4 is also the period when we generate most of our annual free cash
flow and we expect the same pattern this year.
We also introduce financial ranges for 2021 in the slide deck,
used to illustrate the earnings call. At the midpoint of those
ranges we foresee 15% and 45% increases in EBITDA and FCF
respectively, compared with the full year numbers we expect for
2020. Our confidence in these projections was boosted last week
with the diversifying and substantial award of a construction
project, related to a gold mine in Northern Ontario.”
Consolidated Financial Highlights
| |
Three months ended |
|
Nine months ended |
|
|
September 30, |
|
September 30, |
|
(dollars in thousands, except per share amounts) |
2020 |
|
2019 |
|
2020 |
|
2019 |
|
Revenue |
$ |
94,015 |
|
|
$ |
166,269 |
|
|
$ |
363,603 |
|
|
|
$ |
529,612 |
|
| Project costs |
27,585 |
|
|
67,126 |
|
|
100,033 |
|
|
|
211,555 |
|
| Equipment costs |
32,190 |
|
|
58,982 |
|
|
129,723 |
|
|
|
173,467 |
|
|
Depreciation |
18,876 |
|
|
21,875 |
|
|
62,735 |
|
|
|
73,255 |
|
| Gross profit(i) |
$ |
15,364 |
|
|
$ |
18,286 |
|
|
$ |
71,112 |
|
|
|
$ |
71,335 |
|
| Gross profit margin(i) |
16.3 |
% |
|
11.0 |
% |
|
19.6 |
|
% |
|
13.5 |
% |
| General and administrative
expenses (excluding stock-based compensation) |
3,624 |
|
|
5,040 |
|
|
15,762 |
|
|
|
19,852 |
|
| Stock-based compensation
expense (benefit) |
1,756 |
|
|
2,583 |
|
|
(2,895 |
) |
|
|
7,689 |
|
| Interest expense, net |
4,438 |
|
|
5,541 |
|
|
14,240 |
|
|
|
16,125 |
|
| Net income and comprehensive
income available to shareholders |
6,830 |
|
|
7,561 |
|
|
39,164 |
|
|
|
28,636 |
|
| |
|
|
|
|
|
|
|
| Adjusted EBITDA(i)(ii) |
37,135 |
|
|
37,248 |
|
|
129,207 |
|
|
|
126,440 |
|
| Adjusted EBITDA
margin(i)(ii) |
39.5 |
% |
|
22.4 |
% |
|
35.5 |
|
% |
|
23.9 |
% |
| |
|
|
|
|
|
|
|
| Per share information |
|
|
|
|
|
|
|
| Basic net income per
share |
$ |
0.23 |
|
|
$ |
0.29 |
|
|
$ |
1.41 |
|
|
|
$ |
1.13 |
|
| Diluted net income per
share |
$ |
0.22 |
|
|
$ |
0.26 |
|
|
$ |
1.28 |
|
|
|
$ |
0.96 |
|
|
Adjusted EPS(i) |
$ |
0.26 |
|
|
$ |
0.41 |
|
|
$ |
1.38 |
|
|
|
$ |
1.34 |
|
(i)See "Non-GAAP Financial Measures".(ii)In the three months
ended December 31, 2019 we changed the calculation of adjusted
EBITDA. This change has not been reflected in results prior to the
three months ended December 31, 2019. Applying this change to
previously reported periods would result in no change for the three
months ended September 30, 2019 and an increase of $0.2 million in
adjusted EBITDA for the nine months ended September 30, 2019.
| |
Three months ended |
|
Nine months ended |
|
|
September 30, |
|
September 30, |
|
(dollars in thousands) |
2020 |
|
2019 |
|
2020 |
|
2019 |
|
Cash provided by operating activities prior to change in working
capital(i) |
$ |
26,302 |
|
|
$ |
29,830 |
|
|
$ |
105,318 |
|
|
$ |
104,426 |
|
| Net
changes in non-cash working capital |
(24,619 |
) |
|
(35,032 |
) |
|
(20,785 |
) |
|
(28,955 |
) |
| Cash provided by (used in)
operating activities |
$ |
1,683 |
|
|
$ |
(5,202 |
) |
|
$ |
84,533 |
|
|
$ |
75,471 |
|
| Cash used in investing
activities |
(22,081 |
) |
|
(34,751 |
) |
|
(88,113 |
) |
|
(112,524 |
) |
| Capital additions financed by
leases |
(886 |
) |
|
— |
|
|
(27,882 |
) |
|
(28,107 |
) |
| Add back: |
|
|
|
|
|
|
|
|
Growth capital additions |
4,236 |
|
|
14,634 |
|
|
34,487 |
|
|
36,281 |
|
|
Free cash flow(i) |
$ |
(17,048 |
) |
|
$ |
(25,319 |
) |
|
$ |
3,025 |
|
|
$ |
(28,879 |
) |
(i)See "Non-GAAP Financial Measures".
Declaration of Quarterly
Dividend
On October 27th, 2020, 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,
2020. The Dividend will be paid on January 8, 2021 and is an
eligible dividend for Canadian income tax purposes.
Financial Results for the Three Months Ended
September 30, 2020
Revenue was $94.0 million, down from $166.3 million in the same
period last year. Various operational measures implemented as a
response to COVID-19 remain in place to limit the spread of the
virus which temporarily impact our ability to meet the full demands
of our customers. In addition, several large projects remain
delayed as deemed non-essential at this time during the recovery
phase. The decrease in revenue is also partially attributable to
reduced activity at mine sites in the Fort McMurray region due to
unfavorable wet weather conditions during the summer months which,
in particular, limited our ability to achieve expected overburden
removal volumes at the Millennium mine. Furthermore, Q3 2019
included $12.6 million of revenue from Nuna which is now fully
accounted for using the equity method. The completion of the
Highland Valley Copper mine contract and the assumed Fort Hills
legacy heavy civil construction work also contributed to the year
over year decrease. These decreases were partially offset by the
ramp-up of new civil construction work commenced at the Aurora mine
in late Q2 2020 and revenue from the operations support contract at
the coal mine in San Miguel which began in late Q2 2020.
Gross profit margin of 16.3% benefited from disciplined cost
constraints in place during these customer-imposed reductions and
was bolstered by Canada Emergency Wage Subsidy. These increases
were partially offset by the extremely difficult operating
conditions in the summer months due to the consistent rainfall.
Direct general and administrative expenses (excluding
stock-based compensation benefit) were $3.6 million, equivalent to
3.9% of revenue, lower than Q3 2019 spending of $5.0 million but
higher than the 3.0% of revenue based on mandated reduced work
hours and the complete halt of all discretionary and non-essential
spending.
Cash related interest expense for the quarter of $4.0 million
represents an average interest rate of 3.6% as we continue to
benefit from both reductions in posted rates as well as the
competitive rates in equipment financing.
Free cash flow in the quarter was a use of cash of $17.0 million
and was greatly impacted by timing of cash collection and spending.
Working capital balances consumed $24.6 million and were equally
distributed between receivable and payable balances. Cash flow was
also used for both capital inventory and capital work in process
purposes as we advance our component rebuilding program. Prior to
these temporary timing impacts, positive cash flow of $12.8 million
was generated by the adjusted EBITDA of $37.1 million offset by
sustaining capital of $19.7 million and cash interest paid of $4.6
million. Sustaining maintenance capital remains consistent with the
revised capital plan and reflected necessary sustaining maintenance
required in advance of our busy winter season.
Business Updates
Project Execution and Cost Management
In support of our customers, we continue to
manage our mostly variable but also fixed operating costs during
this crisis. Several cost reduction measures remain in effect
including but not limited to: minimized use of vendor provided
maintenance; a complete halt of all discretionary spending; and
termination of services deemed non-essential in light of the
pandemic.
Liquidity
Liquidity is critical during times of
uncertainty and cash conservation is a key priority for management
in weathering this crisis. Including equipment financing
availability and factoring in the amended credit facility
agreement, total available capital liquidity of $142.3 million
includes total liquidity of $124.4 million as at September 30,
2020. Liquidity is primarily provided by the terms of our $325.0
million credit facility which allows for funds availability based
on a trailing twelve-month EBITDA and is now scheduled to expire in
October 2023.
Normal Course Issuer Bid ("NCIB")
On March 9, 2020, we announced our intention to
commence a NCIB to purchase up to 2,300,000 common shares for
cancellation. We believe that the current market price of our
common shares does not fully reflect their underlying value. While
remaining mindful of cash liquidity during the COVID-19 crisis,
modest repurchases increase share liquidity for holders seeking to
sell and provides a proportionate increase of shareholders wishing
to maintain their positions.
Canada Emergency Wage Subsidy (“CEWS”)
Our Q3 2020 results include $11.0 million of salary and wage
subsidies presented as reductions in project costs, equipment costs
and general and administrative expenses of $6.7 million, $3.3
million and $0.9 million, respectively. These amounts were received
under the CEWS program which reimbursed us for a portion of wages
paid to employees and greatly helped us protect jobs through
retention and rehiring. Should we continue to qualify, we plan to
seek assistance from this program for the remainder of 2020 and
onward.
NACG’s outlook for the remainder of 2020 and full year
2021
Given our visibility into 2021 and the
assumption of continued easing of site access restrictions,
management has decided to provide stakeholders with guidance
through 2021. This guidance is predicated on contracts currently in
place and the heavy equipment fleet that we own and operate.
|
Key measures |
|
2020 |
|
2021 |
| Adjusted EBITDA |
|
$155 - $170M |
|
$165 - $205M |
| Sustaining capital |
|
$80 - $90M |
|
$90 - $105M |
| Adjusted EPS |
|
$1.60 - $1.70 |
|
$1.60 - $1.90 |
| Free cash flow |
|
$40 - $55M |
|
$60 - $80M |
| |
|
|
|
|
|
Capital allocation measures |
|
|
|
|
| Deleverage |
|
$10 - $15M |
|
$35 - $45M |
| Share purchases |
|
$20 - $30M |
|
$10 - $25M |
| Growth capital |
|
$35 - $40M |
|
$5 - $10M |
| |
|
|
|
|
|
Leverage ratios |
|
|
|
|
| Senior debt |
|
2.1x - 2.3x |
|
1.6x - 2.0x |
| Net
debt |
|
2.3x - 2.5x |
|
1.8x - 2.2x |
We have responded with a reduced capital plan
for the remainder of the year. Based on our outlook, our updated
capital spending projection now calls for full-year sustaining
capital in 2020 of $80 million to $90 million of which
approximately $40 million was spent in the first quarter prior to
the start of the pandemic.
We expect total liquidity to remain above $100 million in Q4
2020. Projected free cash flow for 2020 in the range of $40 million
to $55 million will improve our liquidity position over the next
quarter.
Conference Call and Webcast
Management will hold a conference call and
webcast to discuss our financial results for the quarter ended
September 30, 2020 tomorrow, Thursday, October 29, 2020 at
7:00 am Mountain Time (9:00 am Eastern Time).
The call can be accessed by dialing: Toll free: 1-800-838-7301
International: 1-206-596-9924 Conference ID: 9899128
A replay will be available through November 29, 2020, by
dialing: Toll Free: 1-855-859-2056 International: 1-404-537-3406
Conference ID: 9899128
The Q3 2020 earnings presentation 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:
https://onlinexperiences.com/Launch/QReg/ShowUUID=0FEB357E-A7FA-49C5-9E63-29B3C0DB9F6B
A replay will be available until November 29, 2020 using the
link provided.
Basis of Presentation
We have prepared our 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 Management’s Discussion and Analysis (“MD&A”)
for the quarter ended September 30, 2020 for further detail on
the matters discussed in this release. In addition to the MD&A,
please reference the dedicated Q3 2020 Results Presentation for
more information on our results and projections which can be found
on our website under Investors - Presentations.
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.
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 MD&A for the three and nine months ended
September 30, 2020. 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, please read
our disclosure documents filed with the SEC and the CSA. These free
documents can be obtained by visiting EDGAR on the SEC website at
www.sec.gov or on the CSA website at www.sedar.com.
Non-GAAP Financial Measures
This press release presents certain non-GAAP financial measures
because management believes that they may be useful to investors in
analyzing our business performance, leverage and liquidity. The
non-GAAP financial measures we present include "gross profit",
"adjusted net earnings", "adjusted EBIT", "equity investment EBIT",
"adjusted EBITDA", "equity investment depreciation and
amortization", "adjusted EPS", "margin", "senior debt", "cash
provided by operating activities prior to change in working
capital" and "free cash flow". A non-GAAP financial measure is
defined by relevant regulatory authorities as a numerical measure
of an issuer's historical or future financial performance,
financial position or cash flow that is not specified, defined or
determined under the issuer’s GAAP and that is not presented in an
issuer’s financial statements. These non-GAAP measures do not have
any standardized meaning and therefore are unlikely to be
comparable to similar measures presented by other companies. They
should not be considered in isolation or as a substitute for
measures of performance prepared in accordance with GAAP. Each
non-GAAP financial measure used in this press release is defined
and reconciled to its most directly comparable GAAP measure in the
“Non-GAAP Financial Measures” section of our Management’s
Discussion and Analysis filed concurrently with this press
release.
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 65 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
Interim Consolidated Balance Sheets
(Expressed in thousands of Canadian
Dollars)(Unaudited)
|
|
Note |
|
September 30, 2020 |
|
December 31, 2019 |
| Assets |
|
|
|
|
|
| Current assets |
|
|
|
|
|
|
Cash |
|
|
$ |
40,331 |
|
|
$ |
5,544 |
|
|
Accounts receivable |
5 |
|
43,279 |
|
|
66,746 |
|
|
Contract assets |
10(c) |
|
5,365 |
|
|
19,193 |
|
|
Inventories |
|
|
20,068 |
|
|
21,649 |
|
|
Prepaid expenses and deposits |
|
|
5,274 |
|
|
4,245 |
|
|
Assets held for sale |
|
|
4,583 |
|
|
424 |
|
| |
|
|
118,900 |
|
|
117,801 |
|
| Property, plant and equipment,
net of accumulated depreciation of $285,745 (December 31, 2019 –
$276,185) |
|
|
633,942 |
|
|
587,729 |
|
| Operating lease right-of-use
assets |
|
|
19,207 |
|
|
21,841 |
|
| Other assets |
|
|
7,737 |
|
|
6,718 |
|
| Investments in affiliates and
joint ventures |
6 |
|
50,687 |
|
|
42,908 |
|
|
Deferred tax assets |
|
|
13,605 |
|
|
15,655 |
|
|
Total assets |
|
|
$ |
844,078 |
|
|
$ |
792,652 |
|
| Liabilities and
shareholders’ equity |
|
|
|
|
|
| Current liabilities |
|
|
|
|
|
|
Accounts payable |
|
|
$ |
34,787 |
|
|
$ |
88,201 |
|
|
Accrued liabilities |
|
|
13,480 |
|
|
17,560 |
|
|
Contract liabilities |
10(c) |
|
122 |
|
|
23 |
|
|
Current portion of long-term debt |
7 |
|
16,178 |
|
|
18,514 |
|
|
Current portion of finance lease obligations |
|
|
28,958 |
|
|
29,206 |
|
|
Current portion of operating lease liabilities |
|
|
4,007 |
|
|
3,799 |
|
| |
|
|
97,532 |
|
|
157,303 |
|
| Long-term debt |
7 |
|
365,588 |
|
|
313,443 |
|
| Finance lease obligations |
|
|
49,098 |
|
|
47,072 |
|
| Operating lease
liabilities |
|
|
15,110 |
|
|
17,710 |
|
| Other long-term
obligations |
|
|
17,159 |
|
|
24,504 |
|
|
Deferred tax liabilities |
|
|
61,250 |
|
|
52,501 |
|
|
|
|
|
605,737 |
|
|
612,533 |
|
| Shareholders'
equity |
|
|
|
|
|
| Common shares (authorized –
unlimited number of voting common shares; issued and outstanding –
September 30, 2020 - 30,984,331 (December 31, 2019 –
27,502,912)) |
9(a) |
|
254,689 |
|
|
225,966 |
|
| Treasury shares (September 30,
2020 - 1,836,690 (December 31, 2019 - 1,725,467)) |
9(a) |
|
(17,926 |
) |
|
(15,911 |
) |
| Additional paid-in
capital |
|
|
45,620 |
|
|
49,919 |
|
|
Deficit |
|
|
(44,042 |
) |
|
(79,855 |
) |
|
Shareholders' equity |
|
|
238,341 |
|
|
180,119 |
|
|
Total liabilities and shareholders’ equity |
|
|
$ |
844,078 |
|
|
$ |
792,652 |
|
| Subsequent events |
7(a), 13 |
|
|
|
|
See accompanying notes to interim consolidated financial
statements.
Interim Consolidated Statements of Operations andComprehensive
Income
(Expressed in thousands of Canadian Dollars, except per share
amounts)(Unaudited)
| |
|
|
Three months ended |
|
Nine months ended |
|
|
|
|
September 30, |
|
September 30, |
|
|
Note |
|
2020 |
|
2019 |
|
2020 |
|
2019 |
|
Revenue |
10 |
|
$ |
94,015 |
|
|
$ |
166,269 |
|
|
$ |
363,603 |
|
|
$ |
529,612 |
|
| Project costs |
|
|
27,585 |
|
|
67,126 |
|
|
100,033 |
|
|
211,555 |
|
| Equipment costs |
|
|
32,190 |
|
|
58,982 |
|
|
129,723 |
|
|
173,467 |
|
|
Depreciation |
|
|
18,876 |
|
|
21,875 |
|
|
62,735 |
|
|
73,255 |
|
| Gross
profit |
|
|
15,364 |
|
|
18,286 |
|
|
71,112 |
|
|
71,335 |
|
| General and administrative
expenses |
|
|
5,380 |
|
|
7,623 |
|
|
12,867 |
|
|
27,541 |
|
| (Gain) loss on disposal of
property, plant and equipment |
|
|
(194 |
) |
|
185 |
|
|
635 |
|
|
(290 |
) |
|
Amortization of intangible assets |
|
|
234 |
|
|
134 |
|
|
520 |
|
|
635 |
|
| Operating
income |
|
|
9,944 |
|
|
10,344 |
|
|
57,090 |
|
|
43,449 |
|
| Interest expense, net |
11 |
|
4,438 |
|
|
5,541 |
|
|
14,240 |
|
|
16,125 |
|
| Equity earnings in affiliates
and joint ventures |
6 |
|
(4,620 |
) |
|
(865 |
) |
|
(6,554 |
) |
|
(1,985 |
) |
| Foreign exchange (gain)
loss |
|
|
(112 |
) |
|
(72 |
) |
|
132 |
|
|
(53 |
) |
| Net
realized and unrealized gain on derivative financial
instrument |
7(b) |
|
(551 |
) |
|
— |
|
|
(837 |
) |
|
— |
|
| Income before income
taxes |
|
|
10,789 |
|
|
5,740 |
|
|
50,109 |
|
|
29,362 |
|
| Current income tax
expense |
|
|
470 |
|
|
13 |
|
|
487 |
|
|
13 |
|
|
Deferred income tax expense (benefit) |
|
|
3,489 |
|
|
(1,879 |
) |
|
10,458 |
|
|
475 |
|
| Net income and
comprehensive income |
|
|
6,830 |
|
|
7,606 |
|
|
39,164 |
|
|
28,874 |
|
| Net
income attributable to noncontrolling interest |
|
|
— |
|
|
(45 |
) |
|
— |
|
|
(238 |
) |
|
Net income and comprehensive income available to
shareholders |
|
|
$ |
6,830 |
|
|
$ |
7,561 |
|
|
$ |
39,164 |
|
|
$ |
28,636 |
|
| Per share
information |
|
|
|
|
|
|
|
|
|
|
Basic net income per share |
9(b) |
|
$ |
0.23 |
|
|
$ |
0.29 |
|
|
$ |
1.41 |
|
|
$ |
1.13 |
|
|
Diluted net income per share |
9(b) |
|
$ |
0.22 |
|
|
$ |
0.26 |
|
|
$ |
1.28 |
|
|
$ |
0.96 |
|
See accompanying notes to interim consolidated financial
statements.
North American Construct... (NYSE:NOA)
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From Apr 2023 to Apr 2024
